DoCUMM of

The World Bank

fOR OMJCI4L USE ONLY

Rpep Ne. 7310

PROJECT COMPLETION REPORT

YUGOSLAVIA

BOSANSKA KRAJINA AGRICULTURE AND AINQ"DUOT PROJECT(LOAN 1621-YU)

June 22, 1988

Europe, Middle East and North Africa Regional Office

Trhb 'm b a rn nIdb dIiu41m &i mpy be ed by mideub ady in de puf _um dI Ibmir oUtliE da. Ra hmtb - am -uw_ be Idml wiShed Wed na hw.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

YUGOSLAVIA

Bosanska Krajina Agriculture and Agroindustries Projeet(Loan 1621-YU)

Project Completion Report

Abbreviations and Acronyms

AIPK - Agroindustrijeski i Prometni Kombinat

BK - Bosanska Krajina

BOAL - Basic Organization of Associated Labor

EEC - European Economic Community

ICB - International Competitive Bidding

LCB - Local Competitive Bidding

PCR - Project Completion Report

PBS - Privredna Banka Sarajevo

SRBH - Socialist Republic of Bosnia Herzegovina

FOR OFFICIL USE OnYTME WORLD SANK

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

Ofi*ce of onW4W.CflOpteratKM baWtion

June 22, 1988

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECTt Project Completion Report - Yugoslavia Bosanska KrajinaAgriculture and Aproindustries Project (Loan 1621-YU)

Attached, for information, is a copy of a report entitled'Project Completion Report: Yugoslavia Bosanska Krajina Agricultureand Agroindustries Project (Loan 1621-YU)" prepared by the EMENARegional Office. Under the modified system for project performanceauditing further evaluation of this project by the OperationsEvaluation Department has not been made.

Yves Rovani

by Ram K. Chopra

Attachment

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

FOR OFFnICAL US ONLY

YUGOSLAVIA

Bosanska Krajina Agriculture and Agroindustries Project(Loan 1621-YU)

Project Completion Report

Table of Contents

Page No.

Preface.. ................... (i)Basic Data Sheet. (ii)Evaluation Summary .(iv)

I. INTRODUCTION .I

The Yugoslav Economy .1Agricultural Sector in Bosnia-Herzegovina. 1

Bank's Involvement in Yugoslavia. 1

II. PROJECT PROCESSING ........................................... 1

Project Setting ......................................... 1

Project Origin .......................................... 2

Identification and Preparation .......................... 2

Appraisal ............................................... 2

Negotiations ............................................ 2

Board Presentation and Effectiveness .................... 2

Project Objectives ...................................... 3

Project Description ..................................... 3

iII. PROJECT IMPLEMENTATION ....................................... 4

Start-up ........... . ....: ......................... 4Revisions of Project Scope ..... ........................ 4

Physical Implementation ................................. 5

* General ............................................. 5Individual Farm Production ............................ 5

Support Services ...................................... 6

Land Reclamation, Irrigation and Drainage ............. 6

Agroindustries .............. . . ., 6

Milk Processing Plant Expansion - Banja Luka. 6

Meat Processing Plant (IMPRO) - Prijedor. 6

PROTEINKA - Bosanska Gradiska. 7

Poultry Slaughterhouse - Srbac. 7

Plum Products and Dried Fruit - Prijedorcanka. 7

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

Page No.

Potato Processing and Storage Plait - Glomoc ....... ... 7Fruit Jv4 cr. Factory. ... * ............................. 8Vitamnaka Expansion - Banja Luka . . 8Qual1Lty of Project Work.. 8Prc'ureme-t .. .... . .. 8Project Costost...... . ........ ...... 8Financing .... 9Disbursements . ..... 9Compliance with Loan Covenants ..... 10

IV. AGRICULTURAL IMPACT ....................... ................ .. 10

Individual Farm Production .... 10Incremental Crops and Livestock Production .... 10Dairy Farms .......................... .............. .. 10Calf and Pig Fattening .. .......... .. . 10Poultry Farms . .. .......................... 11Sheep Farms . .... . ................ ...... 11Fruit Farms . .. ...... ......... .... 11Vegetable Farms ............................ .... 11Storage and Drying Facilities ......................*. 11Farm Ma::hinery. ..... * .... . . . ....... 11

Support Services . . ..... ...... 11Land Reclamation, Irrigation and Drainage ............... 11Agroindustries ....... .............. . .................. . 12r".ilk Processing .... .......................... .......... 12Meat Processing ......... 12Potato Processing ......... .... 12Plum Products and Dried Fruit . . 12Fruit and Vegetable Processing ........................ 13

B. FINANCIAL RESULTS ....... .. .... . .. 13

Individual Farm Production ........................ ...... 13Financial Rate of Return . ...... .. . .... . . .13Agroindustries .... . ................ . 14General .......... .......... ..................... I..... 14Input Prices ............ ................................... 14Financial Performance ................ ................. 14Financial Rates of Return .......................... 15Privredna Banka Sarajevo (PBS) .................... .15

VI. ECONOMIC IMPACT ........ ...... ...... ........................... 15

Individual Farm Production ..................... ......... 15Beneficiaries/Employment .. ................ 15Foreign Exchange Effects . ..... ......... .......... 15Economic Analysis .............. .................. ............... 16

Page No.

VII. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT ...................... .. 16

Institutional Design and Performance ...................... . 16The Borrower (PBS) ...... * .. .............................. loThe Project Unit (PU) ..... 17

Performance of the Bank . . .................................. 18

VIII. CONCLUSIONS AND RECOMMENDATIONS .... ............................. 18

Overview ... ................................................ 18Lessons Learned . ............................................ 19

TABLES

1. Actual and Appraisal Project Costs .. 202. Actual Investment Costs by Year . .213. Financial Plan - Appraisal Estimate . . .22

4. Planned Allocation and Actual utilization of Bank Loan Proceeds. 235. A^tual and Appraisal Cumulative Disbursements ... 246. Incremental Agricultural Production . .257. Silos and Dryers - Capacity and Utilization . .268. Utilization of Processing Capacities of Agroindustries -

SAR Estimates without and with Project and Actual Utilization.. 279. Financial Rates of Return of Agroindustries. 2810. Economic and Financial Prices ....... .29

11. Income and Expense Statements 1985-86 of Agroinduses t ... 3012. Balance Sheets 1985-86 of Subborrowers - Agroindustries 3113. Actual Financing Play. and Lending Terms for the Agroindustries 32

ANNEX 1 - Comments from the BorrowerANNEX 2 - Reply from the Investor

MAP - IBRD 13593R - Location of Project Components

(i)

YUGOSLAVIA

Bosanska Krajina Agriculture and Agro4 ndustries Project(Loan 1621-YTI)

Project Completio- Report

Preface

This is the Project Completion Repoit (PCR) of the Bosanska KrajinaAgriculture and Agroindustries Project, for which Loan 1621-YU in the amountof US$55.0 M was approved on May 10, 1978. The original closing date of June30, 1983 was extended to December 31, 1985 with final disbursement on July 16,1986 and the unused balance of US$0.32 M was cancelled.

The PCR was prepared by the Europe, Middle East avd North Africa.Regional Office with assistance of the FAO/CP following a mission toYugoslavia in April 1987 and is based in part on a draft PCR prepared by theBorrower. a review of the Staff Appraisal Report (No. 2065a-YU) datedSeptember 20, 1978, the President's Report (No. R78-220) dated September 21,1978, the Loan Agreement of November 6, 1978, correspondence with theBorrower, internal Bank memoranda on project issues as contained in relevantBank files, as well as interviews with officials both in the Bank and inYugoslavia who have been associated with the project.

A copy of the draft report was sent to the Borrower on February 25,1988 for comments. Comments received from the Borrower have been incorporatedand are attached as Annex 1. AIPK, the project investor, responded with atelex (Annex 2) indicating no comments to the draft report.

This project has not been subjected to an audit by the OperationsEvaluation Department.

0018X

(ii)

YUGOSLAYIA

Bosanska Kralina Aariculture and Aqrojndustries Project(Loan 1621-YU)

Proiect Completion Report

BASIC DATA SHEET

KEY PROJECT IATA

Appraisal Actual or Actual as S ofItm Estimate Estimatgd Actual Appraisal Estimate

Total Project Costs (USS million) 203.8 163.6 80.0Loan Amount (USS million) SS.0 55.0 100.0

- Oisbursed (USS million) SS0 S4.7 99.4 A/- Cancelled (US$ million) - 0.3 a/ 0.6

Date Board Approval - 10/OS/78 -Loan Agreement Date 11/06/78 -Date Effectiveness 02/28/79 03/28/79 130 I/Date Physical Compoients Completed 12/82 12/8S 175 h/

Proportion Then Completed (X) 100 lOO 100 I/Closing Date 06/30/83 06/30/86 160 b/V.kinomic Rate of Return

- Base Run (X) -22 9 41- Primary Production (1) l9 16 84- Support Services (%) 10 n.a. n.a.- Agroindustries (%) 33 7 21

Financial Rates of Return (X) 1l-50 0-49X 50Institutional Performance - MixedTechnical Performance - Mixed -Number of Direct Beneficiaries 12,000 11.000 92

STAFF -INPUT

FY76 FY77 F7 FY79 EFY8 fEY1 EY8 [ YB3 [Y84 E[85 [Y86 TOTAL

Identification/Prep. 0.2 12.8 58.1 .7 2.6 74.3Appraisal 95.8 1.4 97.3Negotiations 15.1Supervision 8.2 25.9 28.0 21.8 40.1 29.0 12.6 2.3 167-9Other 0.7 1.7 2.5

TOTAL L.Z 1.A 151J 25i LA 2 L a LZ 3LJ 12_f L.3

CUMULATIVE DISBURSEMENTSFY79 [EII EF [Y82 FY83 FY84 [Y85 FY6 f

Appraisal Estimate(USS million) 1.0 20.5 40.0 52.0 55.0 - - -

Actual (US$ million) - 1.5 2.3 14.3 28.1 43.5 48.2 53.5 54.7Actual as X of Appraisal

Estimate - 7.3 5.8 27.5 51.1 79.1 87.6 97.3 99.4

Date of Final Disbursement July 16. 1986

A/ An unused balance of US$320,947 or 0.6X of the loan amount, was cancelled on July 31. 1986k/ Calculated in terms of months from date of Board approval

Olt

K;2SSION DATADate No. of Mandays Specializations Performance Types of

Mission /mgLyr) Persons in Fieli Represented g/ Rating d/ Trend C/ Problems fJ

identtfication 2/ 02/77 1 7 KPreparation I g/ 06-08/77 8 105 2B.D.E.G,H,I,JPreparation II g/ 09/77 4 70 2e.D,JAppraisal 12/77 5 _0 A.B.C.E.H

Subtotal 272

Supervision 1 5/79 2 18 8,E 2 1 MSupervision 2 10/79 2 42 A,E 2 2 F.MSupervision 3 12/79 1 18 E 2 2 F.HSupervision 4 02/80 2 24 A.B 2 1 FSupervision S 09/80 3 33 B.C,L 2 2 F,M,TSupervision 6 03/81 2 20 6,6 3 2 F,MSupervision 7 06/31 1 3 ? 3 2 F.MSupervision 8 09/81 2 16 B.C 3 1 F,TSupervision 9 03/82 2 16 B.C.E 2 1 F.TSupervision 10 10/82 3 18 A.B.E 2 1 F.MSupervision 11 04/83 3 36 A,8,E 2 1 F.MSupervision 12 09/83 3 27 A.B,E 2 1 F,MSupervision 13 03/84 2 18 28 2 2 F,MSupervision 14 06/84 3 1S B,B,F 2 2 F.MSupervision 15 10/84 8 _B.E,F.H,L 2 2 F,M

Subtotal 359

OTHER PROJECT DATA

Borrower Privredna Banka. SarajevoGuarantor Socialist Federal Republic of YugoslaviaExecuting Agency Agroindustrijiski Prometni Kombinat "Bosanska-Krajinam (AIPK)

Fiscal Year of Borrower January 1 to December 31

Name of Currencv (Abbreviation) Dinar (Din)

Currency Exchange Rate:Appraisal Year Average: US$1.00 = Din 18.0Intervening Years Average: US$1.00 = Din 108.0Completion Year Average: US$1.00 = Din 270.0

Follow-on ProjectName Bosnia-Herzegovina Agricultural DevelopmentLoan Number 2136-YULoan Amount (USS million) 34.5Date of Board Approval 05/04/82

r/ A = Agriculturist; B = Economist; C = Agricultural Credit Specialist; D = Irrigation Engineer;E = Agroindustry Specialist; F = Financial Analyst; G = Dairy Processing Specialist;H = Meat Processing Specialist; I = Accountant; J = Statistician; andK = Livestock Development Specialist; L = ProcurLment Specialist

_4/ 1 = Problem-free or minor problems; 2 = Moderate problems; and 3 = Major problems/ 1 = Improving; 2 = Stationary; and 3 = Deteriorating

fI T = Technical; F = Financial; M = Managerialg/ FAO/World Bank Cooperative Program

(iv)

YUGOSLAVIA

Bosanska Kraiina Agriculture and Agroindustries Project(Loan 1621-YU)

Project Completion Report

EVALUATION SUMMARY

Introduction

The project was the first integrated rural development project inYugoslavia which evolved from a number of studies of the project area carriedout by the UNDP from 1972 throdgh 1974.

Objectives

The main objectives of the project, appraised in December 1977 andeffective in January 1979, were to: (i) assist in the development of the BKRegion by financing investments in agriculture and agroindustries; (ii)increase the productivity and income of the rural population; and (iii)increase production of meat, milk, foodgrains, and processed food productsprimarily for the domestic market.

Proiect Description

The main components of the project included: (i) provision of creditto about 12,000 farmers for expansion of agricultural production; (ii),rovision of credit to the social sector for the establishment and/orexpansion of complementary support services to farmers; (iii) provision ofcredit for land reclamation, irrigation and drainage for about 10,000 ha; and(iv) establishment and/or expansion of agroindustries to process variousagricultural raw materials.

Implementation Experience

Inadequate capacity of PBS to appraise subprojects submitted by AIPK,resulted initially in implementation delays of about two years by 1981 and theproject was scaled down. While design changes, Cost overruns and procurementproblems in agroindustries delayed implementation by a total of about threeyears, project works were successfully completed by December 1985.

The final cost of the project exceeded the appraisal estimate ofDinars 3,668 M by 388% in Dinar terms but was about 202 lower in US$ termsmainly because of the initial two-year delay, substantially higher domesticand lower-than-expected foreign inflation. About 40% of the loan proceedswere invested in the individual sector and support services compared to 60%anticipated at appraisal. The savings were used to cover financing of localcosts in agroindustries.

(v)

Results

Most of the individual farm production investments were successfuland most support services for private farmers were well utilized. However,the capacity utilization ari profitability of agroindustries has beenseriously threatened by technical delays in construction, cost overruns, sharpinput price increases, uncertainty of raw material supplieF, increasedprocessing and packaging costs and marketing problems.

Sustainability

Preliminary results indicate that increases in primary production dueto the project would be sustainable with the exception of fruit andvegetables. The demand for some support services hy the farmers may notdevelop to the extent anticipated at appraisal casting doubts on theirsustainability. Results from land improvement investments indicate that whileland reclamation and drainage exceeded appraisal targets, irrigation has beendisappointing. Results from agroindustries indicate that while mostfacilities were well designed, equipped and with good potential to beefficiently run from a technical point of v'!w, revenues do not in generalcover full costs of production and management faces difficult financial andmarketing problems.

Findings and Lessons Learned

Although the objectives of the project were to produce primarily forthe domestic market, reorientation toward exports is now needed due to acontraction of domestic consumer demand. However, a number of issues such asavailability of raw materials, better management and more effective marketingwould have to be first resolved to expand exports. While conceptually andtechnically sound, the project appeared oversized and too complex for AIPK andPBS. This was reflected in the long period required prior to constructionstarts ̂f agroindustries and in the need to encourage individual farmers toundertake on-farm investments.

While many of the lessons from this project may be valid only in thecontext of Yugoslavia, the following comments should be taken into account inthe formulation of future projects:

(a) More careful assessment of the executing agency to implement theproject within the agreed time should have been undertaken.

(b) More time should have been allowed to complete the technicaldocumentation and financial appraisal prior to procurementincluding demand assessment for new products.

(c) More vigorous follow-up by the borrower prior to approval ofrequests for financing by subborrowers should have been requiredto ensure: (i) adequate supply of raw materials; (ii) realisticprojections of market demand and prices; (iii) realisticestimates of future financial viability.

(d) More PBS attention and e rlier involvement nf the agriculturalextension service could have accelerated th,. growth of primaryproduction.

YUGOSLAVIA

Bosanska Kraj:na Agriculture and Agroindustries Project(Loan 1621-YU)

Project Completicn Report

I. INTRODUCTION

1.01 The Yugoslav EconomY. Despite an impressive record of economic andsocial development since World War II, Yugoslavia has been facing a difficulteconomic situation since the 1979 oil price shock. Inflation has increasedfrom 20% in 1979 to 90% in 1986, agricultural and industrial production hasdeclined, merchandise exports have dropped and foreign debt has grownsteeply. The value of the Dinar, which remained stable since 1971 at aboutUS$1 = 18 Dinars through 1979, fell rapidly to US$1 = 500 Dinars in April1987. To face the situation, the Government introduced in 1982 restrictivemonetary and fiscal policies, and various other measures to promote exports,curb imports, and strengthen the social sector.

1.02 Agricultural Sector in Bosnia-Herzegovina. The Socialist Republic ofBosnia-Herzegovina (SRBH) is one of the less developed republics. Its percapita income amounts to about two thirds of the Yugoslav average. Whileemployment in agriculture declined from 48% (1975) to less than 20% (1985),production grew at about 1.4% annually. However, SRBH agriculturalproductivity remains low compared to Yugoslav averages.

1.03 Two main reasons account for SRBH's low agricultural productivity:(i) difficult, predominantly mountainous terrain with the exception of thePannonian plains on the south bank of the Sava River; and (ii) low efficiencyof the individual sector which holds 95% of cuiltivated land and 90% of thelivestock population, but in terms of yields per hectare or per animal formajor products is about 25-30% below Yugoslav averages and about 50% below theyields of the SRBH's social sector.

1.04 Bank's Involvement in Yugoslavia. By September 1978 the Bank hadmade 53 loans to Yugoslavia totalling about US$2,063 M comprising US$ 867 M in17 loans for infrastruc.ure projects, US$ 288 M in six loans for agricultureand agroindustries projects, and US$ 908 M in 17 loans for industry, pollutioncontrol and tourism.

1). PROJECT PROCESSING

2.01 Project Setting. The Bosanska Krajina (BK) Region with a totalpopulation of 850,000 (1980) is located in the western part of SRBH, with theSava River flowing at its northern boundary (Map No. IBRD 13592R and 13593R).The project area consists of 18 communes covering a total of about 1.2 M ha or24% of SRBH. The main town in the project area is Banja Luka with poptulationof 200,000.

2.02 The climate is moderate with highest temperatures (21°C) in Julyand total rainfall 900 mm/year in the North to 1,300 mm/year in the South

-2-

enabling most crops to perform well without irrigation. However, because ofrainfall deficits of up to 400mm in the summer months, double cropping ispossible only with irrigation. In the North, poor drainage conditions limitcrop production on about 50,000 ha. Most soils are moderately heavy intexture and mainly acidic with reasonable waterholding capacity.

2.03 Project Origin. The project evolved from a number of studies c-rriedout under the UNDP/Yugoslav financed regional plannin6 project, 1972-74 (UNDPproject)."' The UNDP project prepared a development strategy for theproject area focussed on promoting increases in farm production, mainly in theindividual sector, in parallel with increases in processing capacities and anexpansion of marketing opportunities. To implement this development strategy,an agroindustrial kombinat AIPK was established 2', in 1974, to beresponsible for integrated rural development of the BK Region. In itsFive-Year Development Plan (1976-80), AIPK adopted the development strategyand many of the targets proposed in the UNDP project; the project was anintegral part of tiis Plan.

2.04 Identification and Preparation. AIPK prepared the project with theassistance of FAO/IBRD Corporative Program staff, which included experts inmilk and meat processing, land development, fruit, vegetable and potatoprocessing. The project preparation report, issued in October 1977, formedthe basis for appraisal if the project, which was carried out in December 1977.

2.05 Appraisal. Main issues during project appraisal related to projectsize and scope, the loan amount, retroactive financing and procurement. Themission recommended to include a land reclamation component but to delete fiveagroindustry components which were not adequately prepared or did not appearfinancially viable. As the Bank's funds available for the project were notsufficient to cover the foreign exchange cost, the missi-n recommendedcofinancing or raising additional local funds (para 3.25). The mission alsorecommended retroactive financing for some of the project preparationactivities and equipment. Finally, the mission could not endorse PBS requestto waive ICB procurement in favor of local procedures. All recommendations bythe appraisal mission were endorsed by the Bank's management.

2.06 Newotiations. Negotiations started on July 10, 1978 and werecompleted on July 20, 1978. Th- main issues were the on-lending interest rateand the work program for agricultural extension. Concerning the interestrate, the Yugoslav delegation objected to the policy of the Bank to determineinterest on funds on-lent by the Borrower from proceeds of the Bank loan aswell as for local funds on-lent under the project. However, the Yugoslavdelegation accepted the Bank's proposals that: (i) interest rate foron-lending of the Bank loan be 112; (ii) interest rate on domestic resourcesloaned under the project to the social sector subborrowers at 6Z and to

11 UNDP Project "Development of an Agroindustrial Food Complex in the BKRegion" (UNDP/FAO/YUG 71/514): Consolidated Plan.

2/ Agroindustrijeski i Prometni Kombinat (AIPK) was formed as anumbrella organization for some 78 previously independent BasicOrganizations of Associated Labor (BOAL).

individual farmers through Zadrugas'' be at least 5%. This rate structurewas to provide PBS with a spread of about 3.1X on the proceeds of the Bankloan and 1.2% on the local funds portion of the subloans and was to coveradministrative costs of Privredna Banka Sarajevo (PBS), the borrower.

2.07 Board Presentation and Effectiveness. The Board approved a loan ofUS$55 million on October 5, 1978 subject to three conditions of effectivenessand the loan documents were signed on November 6, 1978. The conditions ofeffectiveness included: (i) establishment of a Project Unit (PU) within AIPK;(ii) preparation of a detailed work program for the establishment of adequateextension service for individual farmers in the project area by AIPK; and(iii) ratification of the Project Agreement by AIPK. These conditions werefulfilled and the Loan was declared effective on March 28, 1979.

2.08 Proiect Objectives. The main objectives of the project were to: (i)assist in the development of the BK Region by financing investments inagriculture and agroindustries; (ii) increase the productivity and income ofthe rural population; and (iii) increase production of meat, milk, foodgrains,and processed food products primarily for the domestic market. The projectwas also to help AIPK and the Privredna Banka Sarajevo (PBS) through provisionof technical assistance and training of staff. The project objectives topromote development of the least developed areas, and in particular, toincrease productivity of private farmers were consistent with the developmentstrategy of the Government and Bank in Yugoslavia.

2.09 Project Description. The project was to include the followingcomponents:

(a) Individual Farm Production. Provision of credit through 23Zadrugas to about 12,000 individual farmers for the constructionof buildings, machinery, equipment, animal breeding stock,planting material, packing and storage sheds, sprinklers andother supplies to increase crop and livestock production.

(b) Support Services. Provision of credit to the social sector forthe establishment and/or expansion of complementary supportservices to farmers such as Heifer Rearing Farm, Pig BreedingFarm, Cattle Breeding and Progeny Testing, Sheep Research Farm,Seed Processing Plants, Technical Support Unit for specialisedtechnical assistance to Zadruga extension workers, Fruit TreeNursery and Farm Machinery Workshop.

1/ The Zadruga is a Working Organization of Associated Labor (WO) andpart of a kombinat. It may comprise of two or more Basic CooperativeOrganizations established among individual farmers. Zadrugas are setup under provisions of Law on Associated Labor. In this report theterm Zadruga also refers to basic organization of contract farmers(BOC) which is another form of association of individual farmers.The main difference between a Zadruga and a social sectororganization is that the resources of the Zadruga are pooled by itsmembers (individual farmers) who retain the right of ownership overpooled resources, whereas the resources of a social sectororganization are property of society and its workers are vested witha right to use and dispose of the product, and to manage means ofproduction.

-4-

(c) Land Reclamation, Irrigation and Drainage. Provision of creditfor land development, reclamation and drainage of about 8,300 haand 1,500 ha in the social and individual sectors respectively.Also included was a sprinkler irrigation systerm for 1,20' ha inthe social sector and farm machinery and equipment to cultivatereclaimed land.

(d) Agroindustries. Establishment and/or expansion ofagroindustries to process increased crop and livestockproduction including Milk and Meat Processing Plants; PoultryProcessing Plant; Meat Rendering Plant; Maltery; Fruit,Vegetable and Potato Processing Plants; and Plum ProcessingPlant.

From the total project cost of about US$ 204 M the individual farm productionaccounted for about 401, support services for about 107, land reclamation for10X, and agroindustries for 40%.

III. PROJECT IMPLEMENTATION

3.01 Start-up. Prior to loan effectiveness in January 1979 the ProjectUnit (PU) was established and its Director appointed. This was followed bythe recruitment of marketing and procurement specialists and internationalconsultants for the preparation of designs and tender documents of theagroindustry subprojects. Delays occurred in recruiting a consultant to setup a project monitoring and evaluation system.

3.02 Project lending policies and procedures (Annex 3, SAR) required PBSto appraise each of the social sector subprojects submitted from the Zadrugasand BOALs through the PU of AIPK and to prepare an appraisal report prior toeach subloan approval. However, PBS had difficulty in processing the largenumber of preparation reports submitted by PU, and the physical implementationof most subprojects started one or two years behind the appraisalimplementation schedule. Staffing in numbers as well as quality fell short ofappraisal requirements during the first year of implementation. Preparationof feasibility studies, detailed designs and tender documents for theprocurement of equipment experienced delays compared to appraisalimplementation schedule already by early 1980 and of the 75 subprojectssubmitted to PBS, only 45 had been approved and eleven submitted to the Bank.In addition, attempts by PU to work simultaneously on almost all subprojectsresulted in delays of up to five months before their submission to PBS.

3.03 Revisions of Project Scope. With implementation delayed by about twoyears in early 1981 and with further delays expected because of inadequatelocal cost financing and cost overruns, the Bank requested PBS to prepare arevised project implementation schedule and financing plan and to scale down,defer or delete some investments. The amended May 1982 Project Agreementdeleted the Heifer Rearing Farm, the Sheep Research Farm, and the Maltery fromthe project. The Bank agreed to modify the original plan to expand andmodernize the existing IMPRO slaughterhouse in favor of a new plant asrecommended by AIPK and the Commune of Prijedor. In addition, the Bank agreedto conceptual changes and expansion of storage and processing capacities ofthe milk processing plant in Banja Luka.

3.04 The Loan Agreement was also amended on several other occasions toenable the Bank to: (i) increase the disbursement percentages for localexpenditures due to Dinar devaluations; (ii) reallocate loan proceeds from

I - 5 --

primary production components to agroindustries; and (iii) to enable AIPK toexpand its dairy and heifer breeding farms in Nova Topola with the purchase of400 units of breeding stock.

I

Physical Implbmentation

3.05 General. Design changes, cost overruns and procurement problemsparticularly in agroindustries, delayed implementation considerably. However,the overall project works were successfully completed by December 1985, threeyears later than originally planned.

3.06 Individual Farm Production. The process of identification, technicaland financial reporting and approval of subloans by PBS and Basic Banks tookmuch longer than anticipated at appraisal. Less than 10% of the individualfarms subprojects were under construction and not a single subloan forvegetable farms had been approved by April 1981.

3.07 One major unforeseen bottleneck was the time required by Communeadministrations to clear land titles before loans could be approved.Following a request by AIPK, the individual farm production program wasreduced on the ground that farmers' demand for credit was less than expecteddue to the inflow of savings from BK workers employed abroad.

3.08 The number of approved subprojects increased considerably later onthrough the efforts of the project coordinating teams and by the end of 1985the number of subloans for livestock production had almost reached theappraisal target. However, less than two-thirds of planned vegetable farmsreceived financing and the average loan size was much smaller (in constantterms) than the appraisal target. The results for the individual farmproduction component are surmarized below.

Individual Sector Subloans

Appraisal Revised ActualAverage AverageLoan LoanDin. Din.

Type of Subloan Number '000 Number Number '000

Livestock ProductionDairy Farms 1,270 284 1,410 1,321 1,617Cattle Fati.eniugFarms 600 131 400 486 865Pig Breeding/Fattening Farms 600 562 399 431 1,462Broiler and EggFarms 130 520 72 52 5,111Sheep Farms 200 135 247 247 1,275Subtotal 2,800 2,528 2,537

Fruit and Vegetable ProductionFruit Farms 500 370 413 313 878Vegetable Farms 500 247 305 305 355Subtotal 1,000 718 618TOTAL I-=80 3.246 3.155

-6-

3.09 As part of the individual farm production component four out of fiveplanned grain drying and storage sites, and eighteen general purpose storageunits (13,550m2 ) were constructed. Farm machinery such as tractors, co)mbineharvestors and farm implements were distributed to farmers on credit throughZadrugas.'

3.10 Support Services. Except for the Heifer Rearing and Sheep Researchfarms, which were deleted from the project (para 3.03) all support servicescontemplated under the project were implemented. The Pig Breeding Farm, SeedProcessing Plant and Fruit Tree Nursery became operational by 1982. The Bankalso approved the importation of 55 units of breeding stock for the CattleBreeding Farm in 1984 afLer initial delays due to cost overruns and managementchanges. The strengthening of the Regional Extension Service started in 1980was completed in 1983.

3.11 Land Reclamation, Irrigation and Drainage. PBS approved the firsttwo subprojects, the Bosanska Dubica land improvement project (4,500 ha) andthe Nova Topola irrigation project (1,200 ha), in July 1979. Subsequently,the Nova Topola drainage project (2,750 ha) was approved followed by two otherdrainage projects: Srbac (1,237 ha) and Prnjavor (1,260 ha). Difficultieswere reported in finding suitable local consulting firms to preparefeasibility studies. Irrigation works were initially delayed due to changesin final designs needed to reduce subproject costs but works were largelycompleted by 1982 except for about 1,500 ha in Bosanska Dubica and a smallarea in Srbac. Thus while construction was delayed by one to two years,implementation generally conformed to schedule or went faster thancontemplated once started. Of the 9,700 ha to be reclaimed or drained 8,870ha or 90% had been completed.

Agroindustries

3.12 Milk Processing Plant Expansion - Bania Luka. Technical documentswere submitted by AIPK to PBS for appraisal in October 1979. At the time oftender preparation in September 1980, cost estimates had reached Dinars 440 Mcompared to appraisal estimate of Dinars 180 M due to Dinar inflation anddevaluation, and inzreased processing and storage capacities. While the Bankapproved this subproject in September 1980, the first of over 40 contracts forthe delivery of milk processing equipment was signed only in June 1982. Dueto delays in bidding evaluation and difficulties in completing the financingplan, construction started soon after the civil works con. sct was signed onlyin March 1983. However, important equipment remained in customs as duties hadnot been paid for months. As a result of these and other constraints, the newdairy plant has lost several years of operation.

l

3.13 Meat Processinig Plant (IMPRO) - Prijedor. The PBS appraisal plan toreconstruct the IMPRO slaughterhouse was changed late in 1979 in favor of anew plant and as a result in March 1981, cost estimates increased to Dinars300 M compared to Dinars 56 M planned for old plant rehabilitation. While theBank supervision mission strongly urged to delete the subproject, it agreed inresponse to continued AIPK requests to proceed with a detailed feasibilitystudy, an appraisal report and preparation of tender documents. During bidevaluation in September 1982, revised costs reached Dinars 670 M. While theBank again expressed strong reservations to the planned design capacity (4.5times of the old plant) and the uncertainty of raw material supply it finallyapproved the subproject in October 1982 based on additional information andstudies. Contracts for civil works and imported equipment were signed in

May 1983 and the plant was completed in early 1985, followed by trialoperations and regular production assisted by consultants in 1986.

3.14 PRO1jEINKA - Bosanska Gradiska. The PBS appraisal includedslaughterhouse modernization and expansion, meat processing and ready-foodpreparation line of 10,000 meals per day capacity. Designs and tenderdocuments were prepared by foreign consultants appointed in 1979. A majordelay occurred when AIPK found final designs in conflict with Yugoslavregulations. The revised designs and the preparation of 27 constructioncontracts also required more time than anticipated. Civil works started inlate 1982 but delays reoccurred due to late downpayments and problems ofcoordinating the large number of suppliers. Most of the equipment from aDutch supplier had arrived on site prior to completion of civil works by theend of 1983 and its installation started only in the fall of 1984. Althoughlimited scale production continued during plant rehabilitation andmodernization (1983-85), trial production of new facilities started only inJune 1985. At the time of the PCR mission, federal inspectors were at theplant to decide on awarding meat export license, which is essential for theplant's profitability. However, export to EEC countries will only be allowedafter further inspection by EEC officials, which was expected by May 1987.The complete ready-food line has also been installed but to become operationalrequires four to five months of foreign expert assistance to run trialoperations and train local staff.

3.15 Poultry Slaughterhouse - Srbac. The PBS appraisal for a turnkeypoultry slaughterhouse was approved by the Bank in November 1979. Tenderingtook place in the summer of 1980 and the contract with a Swiss company wasfinalized for Dinar 480 M on September 1981. The Bank had requested PBS toreassess the financial viability of the investment to ensure that sufficientfinancing was available to cover the contract price, permanent working capitaland interest during construction. Based on additional information and studiessite preparation started in September 1981 and construction was completed bySeptember 1982 followed by pilot production in April 1984.

3.16 Plum Products and Dried Fruit - Prijedorcanka. The PBS appraisalincluded the expansion of distilling operations of plum brandy and newfacilities for industrial processing of 1,200 tons of dried fruit, mainlyplums. The Bank approved the subproject in November 1979 and tender documentsin February 1980. During the bid evaluation in the summer of 1980, the Bankrequested PBS to reassess the financial viability of the subproject in view ofthe substantially increased investment costs. Based on additional informationand studies construction of a new factory building started at the end of 1980and was completed by 1985. Five complete fruit drying units installed in 1982started production in 1984 but other equipment for drying of apples, pears andapricots was not installed due to foreign exchange shortage.

3.17 Potato Processing and Storage Plant - Glomoc. The PBS appraisal fora new potato processing plant near Glomoc included storage of 12,000 tons(2,000 tons of seed potatoes) and equipment to produce washed, graded andpacked fresh potatoes, french fries, potato salad and croquettes. Thesubproject was approved by PBS in early 1979 and thereafter by the Bank andimplemented in two contracts; first with a Swiss engineering and contractingcompany approved in November 1980 and second with a local civil constructionfirm approved in September 1980. The scope of works had changed from theoriginal appraisal with more complex civil works, processing lines of higher

i - 8 -

capacities, an additional flow freezer and by switching from oil heated tocoal operated steam boiler, all of which led to higher cost. Most of theinstallation work was completed by March 1983 and pilot operations started oneyear and a half behind schedule in January 1984.

l

3.18 Fruit Juice Factory. The PBS appraisal included a new fruit juicefactory as a joinit venture of two older plants in Banja Luka (Bosanska andVitaminka), at a site adjacent to the Vitaminka. Existing equipment from bothprocessing plants was to be installed in the new factory to produce thickjuices, clear juices, concentrates and frozen fruit pulp. A new morediversified project concept was prepared in September 1980 including packingand a line of carbonated fruit juices. As some essential equipment had notbeen included during project preparation, revised cost estimates rose toDinars 597 M compared to the appraisal estimate of Dinars 244 M. The Banksuggested to PBS to: (i) reassess the adequacy of raw material supply andmarket prospects tor the expanded investment; (ii) review the availability offunds; (iii) and reassess the financial viability of the joint venture. Therevised appraisal report and draft tender documents submitted to PBS raisedconcern about mnarketing 2,000 tons of frozen pulp and 700 tons of juiceconcentrate annually and recommended that AIPK engage an international exportspecialist to review the marketing aspects of the project. After additionalreview of ptiduct marketing, ten contracts were signed for supply of equipmentand civil works in July 1982 and by September 1983 all imported equipment hadbeen delivered and pulp freezing and fruit juice concentrate lines had beeninstalled and test operated.

3.19 Vitaminka Expansion - Banja Luka. The PBS appraisal includedproduction of baby foods, jams, mushrooms, compotes and purees. The designscompleted in September 1980 resulted in cost estimates 64% higher than at Bankappraisal. Of the ten contracts (eight with foreign suppliers), only six hadbeen negotiated by September 1981, mainly because foreign exchange loans werehard to obtain in view of the small number of suppliers, and amountsinvolved. Most of the equipment was delivered in May/June 1982 and bySeptember 1983 various processing lines were in operation but at limitedcapacity.

3.20 Quality of Project Works. The quality of physical project works hasbeen generally satisfactory. The civil works are of good quality and aboveaverage design, and the processing equipment is sophisticated and of highquality.

3.21 Procutement. The proeurement procedures stipulated in the LoanAgreement comprised ICB for agroindustries equipment, planting material andharvesting machinery for crop production. The civil works and otheragricultural machinery were to be procured in accordance with LCB proceduresacceptable to the Bank. Apart from delays, the procurement of equipment andworks was undertaken in accordance with the Loan Agreement. AIPK retained theservices of foreign consultants to prepare designs and bidding documents foragroindustries. The Srbac poultry slaughterhouse and the rendering plant werebuilt under ICB turnkey contracts.

3.22 Project Cost. The total project cost was 388S higher in Dinar termsthan estimated at appraisal, but 20% lower in US$ terms (Table 1-2). The mainreason for the Dinar cost overrun was that many components were carried outtwo to three years later than anticipated and that inflation during projectimplementation was far higher than projected at appraisal. The Dinar wasdevalued by about 1,500Z between 1979 and 1985.

- 9 -

3.23 Actual costs expressed in US$ terms for crop and livestockproduction, land reclamation and support services were 40-55% below appraisalestimates. The total investment in agroindustries exceeded the appraisalestimate by only 4% because the Livno maltery was not constructed andappraisal cost estimates for;agroindustries expressed in Dinars and convertedinto US$ included price contingencies for foreign costs exceeding considerablyactual international inflation during implementation. However, the largestcost overruns occurred in the agroindustries.

3.24 The total investment in the individual sector amounted to 36% of thecost compared to the anpraisal target of 40%. In terms of the Bank loan onlyabout 40% of the loan -roceeds were invested in the individual sector,compared to 60% at appraisal (Tables 3-4). The Bank loan savings in primaryagricultural production and support services were used to finance local costsand were partly diverted from individual sector activities to theagroindustries (para 3.04). Only about 30% of actual expenditure was incurredbetween 1979 and mid-1983 compared with the appraisal estimate that bymid-1983 the project would be essentially completed as indicated below:

1979 1980 1981 1982 1983 1984 1985 mid 1986

Appraisal 3% 39% 72 98% 100% - - -Actual - 1% 4% 22% 36% 54% 67% 100%

3.25 Financing. The financing plan excluding interest during constructionshowed that AIPK would contribute 20% of the project costs, IBRD 85% offoreign exchange costs or 27% of total project costs, and the remaining 53%would be provided by PBS from its own sources, including cofinancing and fundsfrom the Republic and Federal services (Tables 3-4). The Loan Agreementstipulated a minimum of 20% contribution to project costs from individual andsocial sector subborrowers, the maintenance of at least 75% to 25% debt/equityratio by social sector subborrowers and sufficient cashflow to meet allfinancial obligations. However, the Loan Agreement also permitted exceptionsto the stipulated requirements provided the subborrower entered into anagreement with the Borrower or another Yugoslav bank to increase its equityover a suitable period of time, to a level, determined in the course ofappraisal, to be not less than 25% of its capitalization. The cost overrunsexperienced in agroindustry subprojects (Table 1) were finan-ed by resortingto borrowing from Federal and Republic Funds, local banks and from the WorldBank. This lack of financial discipline and inadequate monitoring offinancial performance at the time of rapid inflation and Dinar devaluationleft many subborrowers in a precarious financial condition.

3.26 While the IBRD loan covered only 85% of the foreign exchange costs ofthe project, PBS arranged a US$20 million cofinancing with foreign commercialbanks. However, due to long delays in disbursements and rapid inflation,foreign exchange requirements were delayed and the cofinancing funds were usedby PBS in the SRBH energy sector. Suppliers' credit for agroindustriesamounted to only 2% of total'project costs (Table 4). Own funds in the"narrow" sense amounted to only 12% of total financing. However, AIPK's PCRestimate for agroindustries (Table 3) shows this 27%, which is due toinclusion of Federal and Republic funds as equivalent to equity for financingpurposes.

3.27 Disbursements. Throughout the project, disbursement lagged behindappraisal estimates and at the original loan closing date only 51% wasdisbursed. However, it should be noted that appraisal forecasts were

- 10 -

optimistic. Disbursements under the project surpassed by one and a half yearthe disbursement profile of about six years for the Yugoslav agriculturalsector. Disbursements for agroindustries were slower than for othercomponents and had not reached even 10% three years after projecteffectiveness, mainly because the appraisal forecast did not allow for thedesign, contract and procurement phases. The loan closing date was extendedtwice from June 30, 1983 to December 31, 1984 and then again to December 31,1985 with final disbursement by July 31, 1986 at which undisbursed amount ofUS$0.32 M was cancelled. Details are given in Table 5.

3.28 Compliance with Loan Covenants. PBS and AIPK generally complied withall covenants and the provisions of six side letters. The principal covenantsincluded: (i-) assigning additional staff to the PU in AIPK; (ii) engagingconsultants for various agroindustries; and (iii) engaging consultants fordesigning a monitoring and evaluation system for the project by May 1, 1979.Covenants requiring Quarterly Progress Reports and Audit Reports have beencomplied with satisfactorily. Difficulties were only encountered inmaintaining separate Project Accounts in agroindustries with preprojectoperations (Project Agreement 9.02).

IV. AGRICULTURAL IMPACT

Individual Farm Production

4.01 Incremental Crop and Livestock Production. Information onincremental production and yields remains incomplete due to the wide range ofsubprojects financed and the limitations of the monitoring and evaluationsystem. A revised estimate of the project's annual incremental production inthe individual sector is tased on AIPK's PCR, M&E reports and farm surveys(Table 6). Systematic M&E farm surveys were abandoned after 1985.

4.02 Dairy Farms. Investments in buildings was generally on target butthe number of heads per farm through acquisitions of in-calf heifers rose onlyto seven in 1985 against the appraisal target of eight. The total milkproduction per farm according to AIPK farm survey was about 22,000 literswhich was close to the appraisal target. However, of the total incrementalmilk production from over 1,300 farms that received project funds only a smallshare is being delivered to the Banja Luka Dairy Plant. High sales of calveswere reported and a number of dairy farmers are engaged in cattle fattening.Such a mix of activities enables farmers to diversify their risks,particularly in view of price uncertainties. Cattle prices (liveweight)increased by about 450% compared to an increase of 222% for milk prices duringthe 1980-83 period.

4.03 No comprehensive data were collected by AIPK on incremental milk andmeat production of participating farms. However, the difficulties encounteredby the Banja Luka dairy in increasing its milk collection from farmcooperatives indicates that either the incremental milk production has beenlower than planned or a major part is consumed on the farm or sold directly toconsumers.

4.04 Calf and Pig Fattening. About 500 farmers invested in facilities forcalf fattening each with a herd of 48 heads and average calf weight of 320 kg,achieving appraisal targets. Pig fattening attracted about 30X less farmersthan anticipated at appraisal and the average number of sows was seven withannual piglet production of 22 or 10% of the appraisal tLrget.

- 11 -

4.05 Poultry Farms. About 50 farmers compared to appraisal target of 130invested in broiler and egg farms with farm sizes considerably larger thananticipated. Performance indicators, such as average weight and feedconversion ratio reached appraisal target.

4.06 Sheep Farms. More farmers invested in sheep with flocks almost twicethe size anticipated and annual meat and cheese production higher thanprojected at appraisal.

4.07 Fruit Farms. About 310 farmers invested in fruit farming and plantedon average 7.5 ha of fruit trees (appraisal target 7.7 ha) consisting ofapples (542), pears (262) and plums (10%). The remaining area (10%) wasplanted with a variety of other fruit species. Total fruit production onproject farms was about 4,250 tons in 1985, which was substantially less thanprojected at appraisal mainly due to a severe 1984/85 winter frost thataffected the entire BK Region.

4.08 Vegetable Farms. About 300 farmers planted on average 2.0 ha withvegetables in 1984 and 2.9 ha in 1985 compared to the appraisal target of 3.5ha (mainly potatoes, cabbages and peppers). Yields recorded in 1985 werebelow appraisal estimates except for potatoes. Total incremental productionof the vegetable farms estiwated at 14,400 tons has been substantially lessthan anticipated at appraisal.

4.09 Storage and Drying Facilities. The utilization of grain silos anddrying facilities by farmers has been poor (Table 7). Only 13% in 1985 and3L2 in 1986 of the total capacity of 20,000 tons has been used over rathershort periods. Although the quantity of grain dried surged from 2,400 tons in1985 to 9,700 tons in 1986, two of the four drying facilities remainedvirtually unused during the same period. Use of the 13,500 m generalpurpose flat storage was far better and averaged 21,000 tons during the1984-86 period (an estimated 80% of capacity).

4.10 Farm Machinery. The rate of utilization of major farm equipmentprocured for cooperatives has been satisfactory and in accordance with projectappraisal estimates.

Support Services

4.11 Although the support services had been implemented as envisaged atappraisal, farmers utilization of some of them did not reach appraisalestimates. The Seed Processing Plant has reached only 50% capacityutilization by 1986 and Fruit Tree Nursery produced only 96,000 seedlings in1986 or 19% of capacity. The Cattle Breeding Farm was more successfulutilizing 95% of capacity and producing 378,000 AI doses annually. The PigBreeding Farm also operated near its capacity due to strong farmer demand. Incontrast, the utilization of machine workshops was below expectations and hasresulted in poor financial results.

Land Reclamation, Irrigation and Drainage

4.12 While the incremental crop production from the 8,870 ha (appraisaltarget of 9,700 ha) reclaimed land generally exceeded appraisal targets, theincremental crop production on the 1,200 ha irrigation scheme has beendisappointing and casts doubt on the sustainability and the justification forfurther BK irrigation development.

- 12 -

Agroindustries

4.13 About 55Z of all project investments was undertaken in milk, meat,fruit, and vegetable processing, all of which face common problems in recentyears including: (i) increased competition for scarce raw materials resultingfroim increases in raw material prices; (ii) increased disparity between outputand input prices evident in an extreme form in certain agroindustries; (iii)steady decrease in purchasing power of the retail consumer market whichcontributed to a decline in capacity utilization and sales (Table 8); (iv)higher costs of produiction; (v) low export prices relative to domestic prices;and (vi) lack of financial management. Therefore, while most facilities werewell designed, with good layout, equipment, and potential to be efficientlyrun from a technical point of view, revenues do not in general cover the fullcosts of production and management faces difficult financial and marketingproblems.

4.14 Milk Processing. The PBS appraisal report estimated sufficient dailyraw milk supplies to be available to produce 48 M liters of milk, yoghurt andcream and 1,600 tons of cheese in the BK Region by 1985. It was expected thatpart of the incremental milk supply would come from the expansion ofproduction under the project. However, despite the participation of over1,300 farmers in the .dairy development program, the industry has been facing avery serious shortage of raw milk deliveries. The completed plant lacks milkdeliveries from the private sector to utilize its increased capacity becauseprivate farmers are not interested in producing and delivering milk to theindustry at official farmgate prices. Therefore, increases in capacityutilization will depend on higher producer prices.

4.15 Meat Processing. Capacity utilization of the slaughterhouse duringthe first year of operation (1985) reached about 57X. Fresh and processedmeat production increased substantially between its first year of operation(1985) but reached about 50Z capacity in 1986. The ready-to-eat meal lineplanned to produce 10,000 meals daily is not yet in operation. The renderingplant is entirely dependent on its raw material supply from fourslaughterhouses and has not been able to reach full capacity. Utilizationrose parallel with meat production from 37% in 1985 to 60% in 1986. Thepoultry slaughterhouse in operation since 1984 obtained export permits andgradually increased its throughput to 3,800 tons or 66% capacity in 1986.

4.16 Potato Processing. Production of processed potatoes started in early1984 and reached about 500 tons or 332 of capacity. No rate of utilization isavailable for the bagging and storage facility. The plant has had greatdifficulties in marketing and exporting its products and AIPK has been incuntact with a fast-food chain to examine the possibility of a long-termmarketing arrangement.

4.17 Plum Products and Dried Fruit. Production performance of this plant,which started to operate initially on target by September 1982, has beendeclining. Production of dried prunes dropped from 378 tons (322 of capacity)in 1985 to 182 tons (15Z of capacity) in 1986. Likewise, the distillation ofplum brandy dropped from 395 tons in 1985 to 253 tons in 1986, 25Z utilizationof capacity. Sales for plum products have been declining on the domestic andexport markets and the plant has been in heavy competition with nine otherbrandy producers. Project investments in the new plant at Prijedor werescheduled at appraisal for the production of one million liters of plum brandyand 1,200 tons of dried fruits.

- 13 -

4.18 Fruit and Vesetable Processing. Production records do not clearlydistinguish between quantities processed in the new fruit juice factory andthe expansion of Vitaminka. About 7,600 tons of juices were produced in 1986utili.ing 312 of capacity. Exports of fruit juices and other fruit productsamounted to 5,000 tons in 1982 but declined to 3,500 tons in 1983. During theJuly 1984 supervision, it was observed that in order to fully utilize the newfruit juice plant, exports would have to reach about 5,000 tons. However,vegetable exports reached modest 330 tons in 1982, and then declined to 200tons in 1983. In addition to preblems faced in export markets, Vitaminka alsofaces raw material supply problems at home.

V. FINANCIAL RESULTS

Individual Farm Production

5.01 The financial rates of return (FRRs) have been reestimated for ma0ortypes of investments in primary agricultural production and land reclamationcomponents financed under the project. Omission of minor project componentswould not result in deviations from the estimated benefits of the project.The FRRs based on actual investment and operating costs and benefits have beenrecalculated by AIPK's M&E unit. All costs and benefits have been expressedin January 1987 constant prices. The appraisal and PCR FRRs (beforefinancing) are compared below.

Financial Rate of Return

Appraisal PCREstimate Estimate

(%) (X)Livestock Production

Dairy Farms 22 25Cattle Fattening Farms 55 26Pig Breeding Farms 22 13Broiler and Eggs Farms 15 27Sheep Farms 28 49Livestock Production Component n.a. 25

Crop ProductionFruit Farms 24 n.a. 1/Vegetable Farms 26 n.a. 1/Farm Machinery Service 12 negativeGrain Storage/Drying Service - n.a. negative

Land Reclamation, Irrigation and DrainageBosanska Dubica 18 11Nova Topola -22 15

1/ Low on-farm investments.n.a. - not available

- 14 -

While the PCR FRRs of the dairy farms are close to the appraisal estimate, theFRRs for the cattle fattening and pig breeding farms are considerably lowerdue to the high cost of feed concentrate. The acute shortage of soyabean mealand fishmeal caused by foreign exchange constraints led to shortages andsignificant increases in the costs of high protein feed required in the caseof cattle fattening and pig breeding production. The larger than anticipatedbroiler and egg farms are run efficiently and have a higher FRR. The sheepfarms, not so dependent on high protein feed, have also higher thananticipated FRR.

Agroindustries

5.02 General. Agroindustries' profitability has been seriously threatenedby sharp input price increases, technical delays in construction, costoverruns, increased processing and packaging costs, uncertainty in rawmaterial supplies, marketing problems, limited domestic demand and low exportprices, all of which affect the financial situation of AIPK (Table 9).

5.03 Input Prices. From the time of appraisal input prices have increased15-30 fold together with a 26 fold increase of the consumer price index(Table 10). For example, the farmgate price for milk of 4.5 Dinars/liter in1978 increased to 140 Dinars/liter in early 1987. Beef for 26 Dinars/kgliveweight in 1978 increased to 950 Dinars/kg in early 1987. Fruit andvegetables also increased dramatically in price. However, most output priceshave increased less compared to input prices which may well be due to thelarge growth in food processing capacity and upward pressure on demand forfresh produce, downward pressure on prices of finished products from increasedsupply and stagnant consumer demand. In addition, the costs of collecting andprocessing of raw materials and the costs of energy and packaging alsoincreased.

5.04 Financial Performance. Apart from their heavy debt burden, mostagroindustries operate in a much worse financial environment then foreseen atappraisal. Most agroindustries make losses except the milk processing plantand the fruit juice plant which broke even in 1986. The combined lossamounted to Dinars 2,787 M (US$10.3 M) in 1985 and Dinars 2,403 K (US$6.3 M)in 1986. These financial results would have been worse if provisions foraccrued interest, amortization and foreign exchange losses were made inaccordance with international accounting standards.- The balance sheetsand in'ome statements for 1985/86 and actual lending terms of the nineagroindustries financed under the project are given in Tables 11-13.

5.05 The Bank made comprehensive recommendations to improve theperformance of the two meat processing plants, the fruit juice plant and theplum processing plant in 1984. The Bank also advised that the potatoprocessing plant in Glomoc be closed due to insurmountable technical and rawmaterial supply problems. However, PBS did not show any active interest inimplementing the recommendations and in a subsequent visit to AIPK the Banklearned that little has been done iti implementing its recommendations. Themanagerial, marketing and technical shortcomings still continue.

1/ Yugoslav accounting practices differ from international accountingstandards. For example, interest on loans are accounted only when paid,amortization is reduced to minimum levels disregarding economic rates andforeign exchange losses are capitalized.

- 15 -

5.06 Financial Rates of Return. The FRRs calculated in constant 1987prices for all plants are based on actual operations in 1985 and 1986. At atime of very high inflation and devaluation. when margins change frequently,the rates calculated on such projections are of limited reliability. Theresults are shown in Table 9. The longer than expected construction period,cost overruns, price declines and lower than estimated growth of capacityutilization are the main reasons for FRRs in some cases below 102 or evennegative. As indicated at appraisal, sensitivity analysis shows that resultshave beeu highly sensitive to changes in operating costs.

5.07 Privredna Banka Sarajevo (PBS). Due to delays in projectimplementation and adverse financial conditions of the agroindustrysubborrowers, PBS was forced to reschedule agroindustry subloans. PBS hadaccumulated a cashflow deficit of over US$20 M on account of interest andprincipal payments to the World Bank by 1986. Also, about 172 of thelong-term portfolio was affected by arrears by 1985, and the arrears ratio for1985 was about 14X. Although an improvement over the previous year, thequality of the loan portfolio remains a major problem.

VI. ECONOMIC IMPACT

6.01 Individual Farm Production. Information on incremental productionremains incomplete due to the wide range of financed subprojects andlimitations of the monitoring and evaluation system. Moreover, many of thesubprojects have not reached full development stage. However, partialinformation available from monitoring and evaluation reports indicates amodest increase in average real incomes of individual farmers.

6.02 Beneficiaries/Employment. AIPK records show that about 2,540subloans were made in the individual sector. This co.ipared to 2,800 estimatedat appraisal. In addition, farm families who were able to hire tractor andcombine harvester services to plant larger areas also benefitted indirectlyfrom the increased availability of equipment services. Increased employmentopportunities for permanent and hired seasonal laborers on social sector farmswhich expanded their area through land reclamation and drainage works alsoincreased the number of beneficiaries.

6.03 Foreign Exchange Effects. As anticipated at appraisal, most of theincremental production of commodities under the project is marketed in the BKRegion. While no estimate was made on the foreign exchange earnings likely tobe generated by the project at appraisal, export sales of the eightagroindustries financed by the project amounted to Dinars 393 M (US$1.5 M) in1985 and Dinars 193 M (US$0.5 M) in 1986, corresponding to 3.51 .nd 0.8% oftotal sales respectively. The major exporter was Vitaminka (fruit juices) andto a lesser extent Prijedorcanka (plum products). Exports of other industrieswere negligible. That the project has not been successful in generatingforeign exchange is of particular concern since the foreign exchange risk ofthe Bank loan is carried by the subborrowers. However, various products(processed meat, plum products, juices) could become significant foreignexchange earners.

- 16 -

6.04 Econo tc Analysis. The project benefits include: (i) incrementalfarm production; (ii) incremental value added from the land improvement,drainage and irrigation subprojects; and (iii) incremental value added fromthe nine agroindustries. The project costs include all investments andoperating costs excluding transfer payments such as taxes and subsidies. Theoutput of fruit and vegetables, milk and meat and the inputs of fertilizer,insecticide, concentrate feed and energy have been priced as tradeables basedon their border equivalent values or actual export prices excludingsubsidies. All prices in the analysis were expressed in constant 1987 terms(Table 10). The PCR overall Economic Rate of Return (ERR), based on theaggregated costs and benefits of 91, compares to the appraisal estimate of221. The ERRs for the main components of the project are compared below.

Economic Rate of ReturnAppraisal PCREstimate Estimate

(2) (M)

Primary Production

Livestock subsector n.a. 20Fruit and vegetable farms n.a. n.a.Land reclamation, irrigationand drainage n.a. 12

19 16

Support Services 10 n.a.

Agroindustries 33 7

Whole Project

n.a. : not available

VII. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT

Institutional Design and Performance

7.01 The Borrower (PBS). The World Bank loan was channelled through PBSwhich on-lent to AIPK and other social and individual sector subborrowers andwas responsible for appraisal and supervision of subprojects. Although PBShad expertise in agriculture, livestock, drainage and agroindustries,additional appointments were made in marketing and procurement under theproject. Also international consultants were recruited to assist with theappraisal of the potato processing plant and establishment of a supervisionand monitoring system as required under the Loan Agreement. PBS haddifficulty in appraising and processing the number of preparation reportssubmitted by PU of AIPK. Training organized in 1979 to enable more staff inBasic Banks to appraise minor subprojects directly had been useful. However,PBS staff strength and experience to assess the viability of various projectinvestments remained limited and PBS encountered difficulties in: (i) reviewof technical and financial justification for conceptual changes inagroindustry investments; (ii) review of cost estimates; (iii) financialviability review of substantially increased investments; (iv) supervision of

- 17 -

approved subprojects; and (v) review of adequate financing for subprojectimplementation. This was partially due to the absence of clear lines ofresponsibility and the absence of a single entity in PBS fully engaged withthe project. Supervision and monitoring of financial data during the earlyphase of the project was inadequate as was review of procurement documents.The procurement specialist worked only part-time on the project and themarketing specialist left PBS in the early stages of the project.

7.02 PBS became more actively involved in the implementation of theproject and recruited more staff for supervision in 1981. Further, during thecourse of the project, a number of changes occurred in the financial situationand in the physical implemeptation of the subprojects that PBS should havesignalled to the Bank for discussion.

7.03 The Project Unit (PU). The PU consisted initially of a Director, threecoordinators (livestock, cereals and legal affairs), two interpreters andsupport staff working full-time. Subsequently it was expanded by an economist(M&E), a fruit and vegetable expert and a civil works engineer. A ProjectImplementation Committee was established to accelerate project implementationthrough weekly progress meetings in February 1981. Execution Groups were setup in each of the agroindustries to activate construction and worked closelywith PU staff since 1983.

7.03 Technical documents, feasibility studies and tender documents wereprepared by different units within AIPK. The PU decided to implement most ofthe subprojects immediately creating a bottleneck for appraisal at PBS. TheAIPK Internal Bank reviewed the documents from BOALs before submitting them toPBS. Consultants were engaged to assist with the detailed engineering designand bid document preparation for the potato processing plant, all four meatprocessing plants and the dairy plant. The PU was generally effective incarrying out its responsibilities of physical project implementation,particularly as staff gained experience and confidence in dealing withcontractors. They were hard working and dedicated. The PU carried outregular supervision of subprojects which enhanced implementation and oftenmediated in conflicts arising between BOALs and contractors.

7.04 AIPK improved and strengthened the agricultural extension serviceoffered through Zadrugas and BOALs to farmers of the project area inaccordance with the Loan Agreement. Each Zadruga established 52 basicextension services each covering a number of villages. The extension agentswere instrumental in assisting farmers interested in associating with theproject activities particularly during the second half of the project.However, the extension agents were sometimes diverted from their basicassignments of technical and planning support, to coordinating delivery offarm inputs and outputs to the social sector.

7.05 The Monitoring and Evaluation (M&E) System was prepared by a Yugoslavfirm but initially the M&E tasks were performed on a part-time basis by PUstaff and data collection and M&E activities started by spring of 1982. Afirst annual M&E report covered subprojects completed by January 1, 1982, andoperating during the fall of 1982 (the sample consisted of 17 farms). During1983, 70 farms (5% of the total) were surveyed. The unit prepared annualreports covering project activities from 1983 to 1984.

- 18 -

Performance of the Bank

7.06 The project design to integrate production and processing and toimprove cooperation between the social and individual sectors was too complex,and a greater impact could have been achieved by designing a less complexproject to increase primary production required to provide adequate suppliesof raw materials for new and expanded agroindustries.

7.07 While the investments in agroindustries used modern importedtechnology in their design, less attention has been paid to the availabilityof raw materials and marketing of finished products. Some subprojects wereover-designed. This was particularly the case for the Glamocanka potatoprocessing factory which had processing equipment installed in an operationthat was not based either o.. sufficiency of raw material, nor proven marketdemand. The market potential for plum products in view of the vastcompetition on the internal market was also insufficiently considered.

7.08 During project execution, emphasis was placed on the development ofnine agroindustries. Bank supervision missions were concerned with issuesrelated to the preparation of technical and financial documents required forappraisal by PBS and the Bank, for tendering, and procurement. Supervisionmissions generally advised caution when several subborrowers proposedexpansions to their plants. Throughout the project, supervision missions madecomments and contributed to technical and procurement issues, physicalimplementation and disbursement aspects of the project. However, Bankmissions did not always closely monitor the PBS's application of criteriaoutlined for subproject appraisals, particularly criteria related to financialviability and adequate financial structure of the subborrowers. In spite offinancial problems and poor financial management of agroindustries, nofinancial analyst took part in supervision until mid-1984.

7.09 With hindsight, it appears that an important opportunity was missedduring the project revision requested by the Bank in 1981. The changerequested PBS to reduce the scope of investments in the agroindustries to alevel consistent with expectations of consumer demand and availability oflocal funds. However, the revision led only to a relatively modest downsizing of the project which included the elimination of two support servicesto the individual livestock farmers and the elimination of one agroindustry(para 3.03).

7.10 The Bank concluded its involvement in project implementation by areview of all project agroindustries with the exception of dairy and poultryprocessing in October 1984. It developed a three-phase restructuring plan tostrengthen the industries and to make them more competitive and financiallyviable in the difficult financial environment. However, as described earlier(para 5.05), the Bank's recommendations were not implemented due to lack ofsupport by PBS.

VIII. CONCLUSIONS AND RECOMMENDATIONS

Overview

8.01 While the physical goals of the project were met, considerabledifficulties remain in promoting growth of agricultural production and foodprocessing mainly due to the adverse macroeconomic conditions prevailing inthe country, the lack of financial planning and controls, management

- 19 -

deficiencies and overstaffing, raw material supply problems and inadequatemarketing arrangements. Also, the completion of the physical implementationof many components, particularly the agroindustries component, has beendelayed by two to three years. The delays in investments in primaryproduction and support services and the resulting delays in productioncontributed to raw material shortages for some of the agroindustries.

8.02 Although the objectives of the project were to produce primarily forthe domestic market, due to a contraction of domestic consumer demand areorientation toward exports is now needed. This was already emphasizedduring the agroindustry review carried out by the Bank in October 1984. Whileconceptually and technically sound, the project appeared to be oversized andtoo complex for AIPK and PBS. This had been reflected in the long periodrequired prior to construction starts of agroindustries and in the need toencourage individual farmers to undertake on-farm investments.

Lessons Learned

8.03 While many of the lessons from this project may be valid only in thecontext of Yugoslavia, it seems that the following comments are fairly evidentand should be taken into account in the formulation of other future projects:

(a) Large and complex projects such as this one require carefulpreparation. Implementation delays may occur and the projectjustification may suffer as a result of unrealistic estimates oftime required to complete technical documentation and financialappraisal prior to procurement, inadequate demand assessment fornew products, unclear links between private and social sectorobjectives and requirements.

(b) Appraisal missions should carefully assess the ability of theexecuting agency to implement the project within the agreed time.

(c) Future involvement of the IBRD or of PBS should more vigorouslyfollow up on requests to subborrowers (agroindustries) toensure: (i) adequate supply of raw materials, technicalperformance, management, planning; (ii) realistic projections ofmarket demand and prices for the processed products; (iii)realistic estimates of likely future financial viability; (iv)estimates of financing requirements; and (v) appropriate capitalrestructuring of plants.

(d) An intensive review of the project by the IBRD supervisionmission by the end of the project could have a greater impact ifscheduled earlier. Also, Bank supervision missions should paymore attention to monitoring of financial performance ofsubborrowers.

(e) While the individual sector farmers responded well to creditavailability and financial opportunity, with more attention fromPBS and with earlier involvement of the agricultural extensionservice, the growth of primary production could have beenaccelerated.

- 20 -

Table I

Bosanska KCraiina Acricultur. and Aerpindustries Proiect(Loan 1621-YU)

Prolect Comnletion Report

Actual and ARpraisal Proiect Costs

Appraisal 17 ActualsActualas t of

Foreign AppraisalForeian Cocel Tcta Exchance S Tot4l Est1"ate

US$ 0inars US$

1. Primary Aaricult ral Production -------- ------ 0inar M ---------------- M ZJ , M Dinars I/ USt A/I. Primarv Agricultural Productio __ Dnrs 15

A. Livestock ProductionPurchase of Heifers 1/ - - - - - 1.185.7 - J

Dairy Farms 117.1 237.7 354.8 33 19.7 2,135.8 602Cattle Fattening Farms 11.7 66.6 79.3 iS 4.4 420.2 537Pig Breeding/Fattening Farms 40.5 184.6 225.1 18 12.5 630.3 280Broiler and Egg Farms 11.7 53.2 64.9 18 3.6 229.7 354Sheep Farms _._ 8.,l 27. 11 1-5 315.1 - 1.167Subtotal A 189.9 560.2 750.1 25 41.7 4.916.8 39.3 655 94

B. Crop and Horticultural ProductionFruit Farms 24.4 138.5 162.9 1S 9.0 274.7 169Vegetable Farms 32.1 91.4 123.5 26 6.9 108.3 88Farm Machinery Service 72.4 128.7 201.1 36 11.1 591.0 294Grain Storage/Drying Service 59.3 145.1 204.4 29 11.4 358.3 152Extension Service 6. 25.1 IL3 2.1 -L8 26Cu7 _ _Subtotal B 194.9 528.8 723.7 27 40.2 1.S93.0 18.6 220 46

C. Land ReclamationBosanska Oubica 26.2 148.6 174.8 1S 9.7 341.9 196Nova Topola 16.2 98.7 114.9 14 6.4 255.7 223Srbac 8.2 44.2 52.4 16 2.9 50.7 97Prnjavor 7.7 41.4 49.1 16 2.7 38.5 78Irrigation 11.6 46.6 58.2 z2 -LZ ".5 - 128 _Subtotal C 69.9 379.5 449.4 16 24.9 760.3 14.1 169 57

4

Total I 454.7 1.468.5 1.923.2 24 106.8 7.270.1 72.0 378 67

II. Suonort ServicesHeifer Rearing 6.2 24.9 31.1 20 1.7 - -Pig Breeding 22.1 78.3 100.4 22 5.6 152.8 152Cattle Breeding 16.2 36.0 52.2 31 2.9 89.1 171Sheep Research 6.6 23.4 30.0 22 1.7 - -Seed Processing Plant 6.1 21.5 27.6 22 1.5 28.5 103Technical Support Unit 1.8 6.9 8.7 20 0.5 11.3 130Fruit Nursery 3.6 17.7 21.3 17 1.2 33.4 158Machinery Workshop 118. 51.3 69.3 _8 3. .8 I% -55

Total II 80.6 260.0 340.6 24 19.0 713.9 10.3 210 54

III. Auroindustries DevelomentMilk Processing 95.8 85.0 180.8 53 10.1 965.2 534Heat Processing-Impro-Prijedor 24.6 31.3 SS.9 44 3.1 1300.0 2326Heat Processing-Proteinka 43.5 41.8 85.3 S 4.7 2483.9 2912Heat Rendering-Proteinka 39.4 39.4 78.8 SO 4.4 345.5 439Poultry Processing 24.7 37.1 61.8 40 3.4 601.0 972Fruit Juice Processing (Vitaminka) 109.0 134.7 243.7 45 13.5 601.0 246Potato Processing 136.6 196.6 333.2 41 18.5 3130.0 939Plum Processing 34.0 53.7 87.7 39 4.9 406.4 463Haltery 84.5 122.8 207.3 41 11.S - -

Vitaminka Expansion 0. 0 39.7 , 69.7 43 3.9 -- j 6 in -

622.1 782.1 1.404.2 45 78.0 9.919.6 81.3 706 104Total IIITotal Project Cost 1,157.4 25l10u6 3.668.0 12 203L8 17.902L6 163_6 981 80

1/ Including physical and price contingencies

2/ March 1978 1US$ 18 Dinars

1/ Exchange Rate 19 I8 12 n ti9 t 1 82 1983 lii 1281 1986US$l = Dinar: 18.5 19.1 23.2 33.2 47.4 93.0 153.0 270.0 320.0Projected domestic inflation - civil works 10.0 10.0 10.0 10.0 10.0 10.0 O

- equipment 7.5 7.5 7.0 7.0 7.0 7.0 ) on both domestic and foreign costsActual domestic inflation 13 20 40 37 2S 55 53 81 90

I / Actual Dinar Expendit.ir.Total Dinar Appraisal Estimates

5) ActuaIl USt ExenditureTotal US5 Appr isal Estimates

J/ Purchase of breeding heifers for social sector farms in Nova Topola.

n.a.: not available

- 21 -

YUGDLAA Table 2

Bosanaka Kraiina Aariculture and A rindusties Proimct(Loan 162l-YU}

Praiect Craletion Report

Actual Investment Costs by Year

I2L 211u i198 15 un ua& uu 1L Totalrl- ----------Onars I---------------------------------------------I. Primary Agricultural Productiorn

A. PtHeifers for State Farm (Nova Topola) - - - 1,185.7 1.185.7Cairy Farms - -F 47.4 313.8 496.7 482.7 318.0 477.2 2,135.8Cattle Fattening FarmS - - 11.0 80.4 129.3 94.0 52.7 52.8 420.2Pig Breeding/Fattening Farms - - 44.0 63.5 183.5 170.8 101.0 67.4 630.3Broiler and Egg Farms - 8.9 36.3 38.4 28.7 45.7 72.1 - 229.7Sheep Farms - 1.6 25.9 117.0 34.2 54. 9 3.1Subtotal A - 8.9 140.3 522.0 955.2 827.0 598.4 1,865.0 4,916.8B. Crop and Horticulture Productionfruit FarmS - - 2.4 126.5 33.4 81.1 31.3 - 274.7Vegetable Farms - SS.9 14.2 8.8 29.4 - 108.3Farm Machinery Service - - 9.0 208.7 95.6 33.8 97.5 146.4 591.0Grain Storage/Drying Service - . 31.7 162.3 41.6 30.0 88.8 - 358.3Extensions Service

.........- -.7 6.02 .1I f1Ad .. 2kL.ZExtet Se 3.9 43.1 SS3.4 1R4.8 220.7 324.5 262.6 12593.0

C. Land ReclamtionBosanska Dubica - 18.7 6.9 141.9 171.2 3.2 - - 341.9Nova Tooola - - 49.6 68.0 100.9 37.3 - - 255.7Srbac - -12.7 38.0 - - -- 50.7Prnjavor - - - 38.S - - - - 38.SIrrigation 28.- -7Subtotal C

-- A -3.41.6 78.4 314.7 279.7 45.9 - - 760.3lotal Primary ProductAio 54.4 261.8 1,390.1 1,419.7 1,093.6 922.9 2,127.6 7,270.1S of total - t 4 19 20 1S 12 29 100II. Suoport ServicesHeifer Rearing - - -Pig Breeding - 38.2 27.2 65.6 - - - 21.8 152.8Cattle Breeding - - - 27.9 17.6 34.7 8.9 - 89.1Sheep Research - -Seed Processing Plant - 17.6 3.8 1.4 5.7 - - - 28.5Technical Support Unit - - - 10.2 1.1 - - - 11.3Fruit Nursery - 3.2 14.5 9.0 3.3 3.4 - - 33.4Machine Workshop - - 68.8 "Li0. 2. " 123L 398.Total Support Services - 59.0 45.5 182.9 130.5 59.6 91.2 145.2 713.9II. Aroindustries OeveloomentMilk Processing - Banja Luka - - - - - 552.1 165.2 247.9 965.2Meat Processing - ImPro-Prejidor - - - - 180.6 423.6 313.0 382.8 1,300.0Meat Processing - Proteinka - 4.6 2.3 258.3 287.7 480.2 580.2 870.6 2,483.9Meat Rendering - Proteinka - 0.5 0.8 161.9 61.1 39.3 81.9 - 345.5Poultry Processing - 0.8 20.4 168.0 105.7 135.2 136.8 34.1 601.0Fruit Juice Processing (Vitaminka) - - - 306.8 32.8 85.8 175.6 - 601.0Potato Processing - 2.7 78.4 552.6 113.3 289.1 - 2,093.9 3,130.0PIlu Processing - - 5S.6 199.2 111.0 40.6 - - 406.41i a Itery ---Vitaminka Expansion 7-, ,Total Aaroindustie Devel-zent Total AerptndusSrte Develt oonent - 8.6 157.S 1,724.8 900.8 2,045.9 1,452.7 3,629.3 9,919.6total Praiect Costs (Dinars) -o *AA J LJ J LfLa. L-LIUL &Afe LSLJ7nLJ' ..5CU$SSI 5.3 14.0 69.6 26.3 20.9 9.1 18.4 163.6Percentage of Total Realized each year - 1 3 18 14 i8 13 33 1O0nTotal Appraisal

- 22 -

Table 2Y!QSLAVh1

BEsanska Kra1ina Aorieulture and Auroindustrie5 PjgjgCt(Loan 1621-YU)

Proaect Completion Reonrt

Financina Plan

Appraisal Estimate

Local LocalRanks Banksand and

Co,aoogna.tslFundina Sources Sub- Federal Sub FederalFunds 2 ToLal 1/ Borrowers EInds. lBR Toini

Din. M. S Din.H. S Din. M. S 2-------------- -ln-1. PELmariAgrcultural Production

Livestock Production 150.0 20 300.1 40 300.0 40 750.1 100 8.3 16.7 16.7 41.7Crop Production 144.7 20 323.0 45 256.0 35 723.7 100 8.1 17.9 14.2 40.2Land Development 89.9 20 295.5 66 64.0 14 449.4 100 5.0 16.4 3.6 25.0tioes.tock 0evelopient

384.6 20 918.6 48 620.0 32 1,923.2 100 21.4 51.0 34.5 106.9

11. Supogrt Servsce 68.1 20 170.5 50 102.0 30 340.6 100 3.8 9.S 5.6 18.9

t11. agroindustries Develo2Mnt 280 8 Z 8S.S4 6i 268Z.0 1n 1.404.2 100 15.6 47.5 iS. 78.0

Total Project Cost Including Contingencies 23.14 20 L..U.A 53 Sa9LS 27 LMLA 100 in "n 2A"3a

Actuals

LocalBanks

andcosonents/Fundina sources Sub- Local

Borrowers FundI Total 1/otn. M. S Dtn. M. S D1n. M. S S

t. Primerv Acricultural ProductionLivestock Productior - -Crop Production 1.289 31 850 21 1.975 48 4,114 100Land Development 152 20 427 56 101 24 760 100Livestock Development 237 2Q 8a _ 132 11 1.186 10I

1.678 28 2.094 35 2.288 37 6.060 100

il. Suport Services 385 20 693 36 846 44 1.924 100

ill. lArindustrtes Develooment 26S 22 4 47s 4s 2.787 2t 9.920 innTotal Project Cost 21 26 262 41 -5W 33 1" 100

1/ Excluding interests during construction.2/ Exchange rate: US$1 = 18 Dinars.3/ Exchange rates used to convert dx.. amo*ints to dollar equivalent depending on time of ewpenditureldisbursement. The average exchange rate for the

pioject Is Uo:I - 100 Olilli..

-. 23 -

Table 4

YUGQSLAVIA

dosanska Kratina Aar1culture and Autoindustries Prolect(Loan 1621-YU)

Proiect Comoletio_ Renort

Planned Allocation and Actual(Ut lization of Bank L,oanPreeds(USSM)

UtilizedTotal -- - - - -- Actual Utilization ----------------------------- - as Percentage

Planned 198 198 1fi2 198 1984 198 198 ToS of Planned

1. PrimaIy Agricultural ProductionA. _ves1ty cg_qk uijctioHeifers for State farms -- - - 0.39 0.34 0.73Dairy Farms 0.44 2.15 3.87 I.IS 0.11 - 7.72Cattle Fattening - 0.10 0.35 1.05 0.31 0.04 - 1.85Pig Fattening 0.40 0.47 0.95 0.54 0.01 2.37Broiler eggs Farms 0.14 0.34 0.54 0.35 0.05 - 1.42Sheep Farms - 0.01 0.05 0.72 0.14 - - 0.92Other .0 - 0.29 1.29 I Subtotal 0.14 1.29 3.57 6.94 2.19 0.84 1.63 16.605 Oisbursement LivestoCk Production 1% 8% 21% 42% 13% 5% 10% 100S

8. CM and Hortic. Productlionfruit Farms - 0.03 0.28 0.64 0.10 0.01 - 1.06Vegetable Farms - 0.38 0.05 0.03 - 0.46Farm Machinery Service - 0.63 0.82 0.74 0.04 - - 2.23Grain Storage/Drying Service 0.06 0.31 1.02 0.30 0.03 0.06 - 1.78E'tension Service DM 2it 0.08 O .01 _ 0.20Subtotal 0.06 1.07 2.58 1.74 0.21 0.07 - 5.73t Disbursement Crop and Hortic. Production 1% 18% 45% 30% 4% 1% - 100%

Subtotal A and 8 32.60 22.33 69

Land ImProvementBosanska Oubica dr. 0.28 0.05 0.19 0.55 0.11 - - 1.18Nova Topola dr. - 0.59 0.34 0.19 0.13 - - 1.25Srbac dr. - - 0.04 - 0.04Prnjavor dr. - - 0.13 0.02 - - - O.ISNova Topola irrigation _ 0.20 0.08 0.06 C.1 _ - 0.44Subtotal 3.50 0.48 0.72 0.72 0.90 0.24 - - 3.06 873 Disbursement Land Improvement 16% 23% 23% 29% 9X 100%

II. Suogort ServicesHeifer Rearing - - - - -Pig Breeding 0.71 0.29 0.43 - - - - 1.43Cattle Breeding - - 0.09 0.12 0.05 0.01 - 0.27Sheep Research - - - - - -Seed Processing 0.41 _ 0.41Technical Support - -Fruit Nursery 0.05 0.17 0.04 0.07 - - - 0.33Mach ne Workshop - 0.60 0.18 0.07 0.01 - 0.86Othe --- 0.0 01 IIASubtotal 3.90 1.17 0.46 1.16 0.37 0.12 0.72 0.64 4.64 119X Disbursement Support Services 25% 10% 25% 8% 3% 16% 13X 100%

M11k Processing - - 0.31 0.98 0.79 0.26 0.67 3.01Meat Processing Impro - - - - 0.93 0.94 0.54 2.41Meat Processing Proteinka 0.08 0.02 0.37 2.35 1.24 0.37 0.36 4.79Meat Rendering PrOteinka 0.01 0.01 0.61 1.00 - 0.05 0.12 1.80Poultry Processing 0.02 0.18 0.51 0.67 0.58 0.20 0.06 2.22Fruit Juice Processing - - 0.28 2.08 0.08 0.15 0.37 2.96Potato Processing 0.04 0.69 1.90 1.28 0.47 - - 4.38Plum Processing - 0.48 0.54 0.99 0.30 - - 2.31Hal tery - - - -Vitaminka expansion - - 0..Subtotal 15.00 0.15 1.38 5.21 9.41 4.39 1.97 2.12 24.63 164% Disbursement Agroindustries 1% 5% 21% 38% 18% 8% 9% 100%

Total Disbursements 55I2lM L." 1J 13.m J3 ZlOS IL39 A"

% of Total DisbursementtS 4% 9% 24% 35% 13% 7% 8% 100%

- 24 - Table SYUGOSLAVIA

Rpsanska Kraiina Agricglture and Agroindustrigs Projek.t(Loan 1621-YU)

Protect Cem, letin Renort

Actual and Asoraisal Cumulative Disbursements(US$ H)

IBRD Fiscal Year Actualand Ouarter Disbursements Apnraisal Estimate

FY1979June 30. 1979 1.0

F119aOSeptember 30. 1979 4.0December 31. 1979 1.1 9.0March 31, 1980 .... 14.SJune 30, 1980 1.S 20.5

FY1I9September 30. 1980 1.5 26.0December 31, 1980 2.0 30.0March 31. 1981 2.3 35.0June 30. 1981 2.3 40.0

FY1982September 30Q 1981 5.6 43.0December 31. 1981 6.9 47.0March 31. 1982 11.6 50.0June 30, 1982 14.3 52.0

FY1983September 30, 1982 16.4 53.0December 31. 1982 20.1 54.0March 31, 1983 23.8 54.5June 30. 1983 28.1 5s.0

FV1984September 30. 1983December 31. 1983 40.3 -March 31. 1984 41.3 -June 30. 1984 43.5 -

FY198SSeptember 30. 1984 45.6 -December 31, 1984 46.7 -March 31. 1985 46.7 -June 30. 1985 48.2 -

FY1986September 30, 1985 -December 31. 1985 -March 31. 1986 -June 30. 1986 53.5 -

EY1987September 30. 1986 54.7 -

Cancelled on July 31, 1986 : US$0.32 million.Total disbursed and cancelled : US$55.0 million.

j Table 6-25 -_

YUGOSLAVIA

Bosanska Kraiina Agriculture and Agroindustries Proiect(Loan 1621-YU)

Project Completion Report

Incremental Agricultural Production

At Full DevelopmentWithout With Project IncrementalProiect SAR PCR PCR

(1985)

A. Livestock Production

Dairy Farms - milk (000 lt) 8,000 26,000 28,900 1/ 20,900- meat (tons LWT) 1,188 2,125 3,770 1,982- heifers (head) - 2,500 n.a. n.a.

Cattle Fattening - meat (tons) - 11,603 6,160 2/ 6,160Pig Fattening - meat (tons LWT) - 11,5!.0 7,500 3/ 7,500Broilers - meat (tons LWT) - 4,625 4,860 4,860Sheep - milk (000 lt) 456 1,956 n.a. n.a.

- cheese (tons) n.a. n.a. 247 n.a.- meat (tons) 190 549 692 502- wool (tons) 16 38 n.a. n.a.

B. Crop Production

Fruit Farms - fruits (tons) - 20,680 4,252 4,252Vegetable Farms - potatoes (tons) 12,550 32,350 n.a. n.a.

- other (tons)! 1,550 40,300 14,400 12,850

1/ Based on 7 head per farm.

2/ Based on 8.1 tons yield per shift of 5 months duration.

3/ Based on 17.5 tons liveweight per farm.

4/ Including potatoes produced on 305 vegetable farms.

YUGOSLAVIA

Bosanska Kraiina Aariculture and Aqroindustries Proiect(Loan 1621-YU)

Prolect Completion Report

Silos and Dryers - Capacity and Utilization

---------Silos-------------- ------------------------Dryers---------------------------- -------------Financial Results-------------(Million Dinars)

OperationCaoacitZ (t) 1/ Utilization (lt Caacitv / Ttal Wheat aiz Qther Total Gross Income CostS Net Income

1985 1986 tt/hr) 1985 ----------------1986--------------- 1985 1986 1985 1986 1985 1986

Prnjavor 5,000 n.a. - 8 n.a. 2,500 3,500 500 6,500 n.a. 32.5 n.a. 32.3 n.a. 0.2Sauski Most 5,000 n.a. 4,500 12 n.a. -----------not utilized------------ n.a. 20.5 n.a. 25.4 n.a. -4.9Prijedor 5,000 n.a. 1,600 8 n.a. 1,500 1,500 200 3,200 n.a. n.a. n.a. n.a. n.a. n.a.Quaice 5.000 n.a. 5.00 n.a. n.a. .- 700 n,a. 1Q4.Z n.a. 19.5 n.a. -5.20,000 4,512 11,100 2,359 4,000 5,000 700 9,700 16.4 67.2 27.9 77.2 -11.5 -10.0Capacity Utilization 13% 31%

General Puroose Flat Storaae (12)

Planned - appraisal .........- revised project 12,000 m2

Constructed 13,500 m2

Year Tons Produced InputsGoods Stored 1984 18,900 19,600(Mainly bagged wheat anl 1985 18,600 22.450maize and fertilizers) 1986 14,900 20,788

1987(Planned) 19,900 23,050

1/ 5,000 tons capacity, storing 180% of its capacity occupied for 10 months (appraisal estimate).Z/ 10 tons/hrs on average for 24 hours a day during 30 days for maize and 10 for other cereals.

Source: 1985 data from PCR.1986 data from AIPK.

YUGOSLAVl

Bosanska Kraiina Acriculture and Aaroindustries Protect(Loan 1621-YU)

Proiect Completion Report

Utilization of Processing Capacities of Aaroindustries - SAR Estimates Without and With Protect and Actual Utilization

-------------------Actuals----- ----------With Project ---------1985------- --------1986--------

Projection (Full o of 2 ofWithout Project Production) tSAR) Full Full

Industrv Product ± Production ISAR) VoluJme Yar Volume Caupaity Vo1um CaacitIMilk Processina

Mljekaral Milk, Yoghurt, Creams 000 1 20,550 47,900 1985 23,800 50 25,300 53Cheeses tons 300 1,600 1985 183 11 221 14

Meat ProcessinaImpro Fresh and Processed Meat tons 3,420 3/ 7.184 _/ 1984 2,643 37 4.115 57Proteinka 1/ Fresh and Processed Meat tons 4,718 3/ 13,781 1984 5,161 37 6,557 48Rendering Bone Meals tons - 3,000 1985 1,106 37 1,787 60Poultry-Srbac Processed Poultry tons - 5.,760 1982 2.975 Al 3.782

8,138 29,725 11,885 40 16j,241 55

eotato Processing"Glamol Processed tons - 7,500 1985 1,268 17 2,382 32 1

Bagged and Seed Potatoes tons - 5,500 1985 n.a. n.a. n.a. n.a.

fruit and VeaetableProcessing"Vitaminka* Fruit Juices tons 11,362 J/ 24,700 _/ 1984 6,624 27 7,579 31

Expansion (Vegetables andMarmalade) tons - 4.000 1985 .9J872 Z/ n.a. 11.132 2/ n.a.

28,700 16,496 18,711

PluL ProductsCapacit Production

"Prijedorcanka* Dried Products tons Small Quantities 1,200 _/ 1984 378 32 182 15Plum Brandy (402) m3 500 113 1,000 _/ 1984 395 40 253 25Frozen Fruits Z/ tons - - 2,400 J/ - 1,850 - 644 -

Carbonated beverages 000 bottles 6.7 2,500 n.a. f_I - 445 (t) - 676 (t) -(200 cc)

Syrups 000 1 63 n.a. A/ - 959 (t) - 676 (t) -

1/ Ready-to-eat meals line has not yet started trial production.V/ Frozen fruits products line not envisaged at preparation was deleted at appraisal.3/ Old factory.4t New factory.I/ Production of old "Vitaminka" and "Bosanska" production lines.§/ New factory (Joint Venture).Z/ Includes also frozen and sterilized vegetables and tomato Juices.I/ Financed outside the project.

- 28 - I

YUGOSLAVIA

Bosanska Kraiina Agriculture and Aaroindustries Proiect(Loan 1621-YU)

Project Comnletion Regort

Financial Rates of Return of Agroindustries

OperatingBenefits Costs PCR

Base Cas -10% +1OX Estimate

Milk Industry " 36 18 22 22Meat Industry - IMPRO meat processi n 37 13 18 iS

- PROTEINKA meat procu ssing 25 6 2 6

- PROTEINKA rendering lant 22 19 21 negative- Srbac. poultry processing 24 (Negative) I 13

Fruit Juice Processing" 24 17 20 11

Potato Processing (Glamoc) 20 15 17 negativePlum Processing (Prijedorcanka) 16 7 9 2Maltery 14 7 9 canc-lledVitaminka expansion 20 8 10 2/

Weighted average 6

1/ No data was available from separate FRR's of the new juice factory snd the VITAMINKA

expansion.

1/ No positive net revenue stream expected from this project.

'4'

- 29 - Table 10

YUGOSLAVIABosanska KraJina Agriculture and Agro-industries Project

(Loan 1621-YU)

Project Completion Report

Economic and Financial Prices(Dinars '000 per ton)

Primary Products Appraisal ActualEconomic Financial Economic FinancialPrice Price Price Price(1978) (1978) (1987) (1986) (1987)

A. Crops

Wheat 4.5 3.0 125.0 75.3 100.0Maize 2.1 2.5 70.0 56.7 80.0Barley 2.8 2.8 120.0 70.0 100.0Vegetables (beans) 6.0 6.0 114.0 60.0 114.0Pears (Williams) 5.0 5.0 125.0 96.0 125.0Plums (for drying) n.a. n.a. 128.0 95.0 128.0Strawberries 10.0 10.0 320.0 246.0 320.0Oil rape n.a. n.a. 250.0 167.0 250.3Soya n.a. n.a. 260.0 177.3 260.3

B. Li-satock

Cow milk 3.1 4.5 125.0 n.a. 140.0Sheep milk 8.0 8.0 n.a. n.a. n.a.Beef (Lwt) 13.5 26.0 950.0 500.0 950.0Pig 22.5 22.5 712.0 650.0 890.0Sheep 16.1 26.0 n.a. n.a. n.a.Poultry 18.0 18.0 700.0 540.0 838.0Wool 22.0 22.0 n.a. n.a. n.a.Lucerne 1.5 1.5 9.0 6.6 10.8

- 30 -

UGOSLAVIA Table

Aosanska Irai1na Agriculture and Araroindustriex Praiect(Loan 1621-YU)

Prolect Comuxletin Report

Income and Expense Statements 198S-86 of Acraindustries(Dinars N)

Ro NiJekarska Ind. Ro Impro Ra Proteinka Ro Levita Ro Srbac(Milk Processing) (Neat Processing) (reat Processing) (Rendering Plant) (Poultry)1985 1986 1211 12186 1 121 12L1 1986 1211 11 1211

A. IncDomestic Sales 2.532 S,216 2.016 5,3(7 1.731 4,700 109 234 1.065 2.513Exports - -f 61-..Total Sales 2.532 5.216 2,016 5.317 1.742 4,709 109 234 1,126 2.513

S. C"WsMaterial Costs 1.665 3,437 (,030 3,382 1.2sa 3,579 55 136 1,104 1.926Anmrtization 89 164 104 65 27 93 - 29 35 66Interest on Working Capital IS 223 7 89 136 342 S 43 190 (81Other expenditure 317 12 61 13 217 21 __Z 2 4 1 3Total Costs 2,226 4,386 1,757 4,914 1.635 4.496 62 212 1,345 2.207

Gross Income/I(Loss) 306 830 259 403 107 213 47 22 (219) 306Stock Valuation J LZ2

305 810 259 403 (07 213 47 22 (2'4) 306

Interests (8 90 83 152 1 11 29 2 156 214Taxes and contributions 38 114 21 57 60 160 1 4 5 12Sales and wages 5Z fiQ ISS 344 1 345 1 47 63 Di

313 810 259 553 189 516 47 53 224 369

Net Profit/(LosS) (8) 0 0 (150) (82) (303) 0 (31) (443) (63)

Interests as percentage oftotal sales 7 6 4 S 8 8 31 19 31 16

Ro Vitaiinka RA Prijedorcanka Ro Glamocanka Total(Fruit Juice) (Plum Processing) (Potato Processing) All Agroindustries

111 1218 1985 1281 1211 '986 1985 1986A. Inc mnDomestic Sales 2.381 4.615 639 982 173 311 10.646 23.888Exports 62 119 2 __U _ 393 193Total Sales 2.643 4.734 698 1,014 173 344 11,039 24,081

B. CoUlsMaterial Costs 1,724 2.373 408 SIS 209 227 7,453 15.575Amortization IS9 224 76 19S 179 90 669 926Interest on Working Capital 827 885 407 464 129 243 1,856 2.470Other expenditure 12 _1_ 1.n 171 31 _1 L.40 2.850Total Costs 2.820 3,668 991 1,345 551 593 11,387 21,821

Gross Income/(Loss) (177) 1.066 (293) (331) (378) (249) (348) 2,260Stock Valuation (il 12221 -4 - - - 11 .4421

Ie88) 744 (293) (331) (378) (249) (369) 1.918

Interests 265 165 293 171 430 785 1,275 1,590Taxes and contributions 33 128 IS 29 12 26 185 521Sales and wages D1 1 . 192 22 11 __7 2.21

S1S 744 366 300 514 976 2,42J 4,321Net Protit/(Loss) (703) 0 (659) (631) (892) (1.225) (2,787) (2,403)

Interests as percentageof total sale 41 22 10o 63 323 299 28 17

- 31 - Yable 12

SIJGgSLAVIA

0ia,,skai 9rO,,1A, AqrIcul tMr5t aU' AalnduStrel Prolent(Loan 1621 -U)

Prolect Coimoletion Reoort

slanic. Slheets 1985-85 0f SubbOrr9M AarR5nduWsfel(in million Oinars)

Ro M.4 eka6.i'a l9d Ro Impro Ro Proteinka RO Levita Ro Srbac(h,Ik Proce's,ngl (Me3t Processinq) (Meat Processinq) (Rendering Plant) Rendertng Plant1945 1984 1294 i94h 1985 1986 16 1 16 126

A AssetsEfIsed Assets 2,190 4.1q' 1,902 3.91b 2,716 a.004 317 1.664 754 1.359

CurreL AssetLiquid assets - Cash 19 4' 54 121 14 114 1 II 20 32Receivables 226 553 107 424 1.185 565 363 26 813 500In,entories 10l 50S '54 334 179 520 6 25 103 1soOther S T Assets 70 '4 .53 89 .24 _131 25 7 19f 322Current Assets 716 1 217 360 959 1.452 1,333 375 69 1,132 1.011

LCls Currentj_11t5.1eShort-term loans 441 367 145 290 1 - 21B 167Tfade credits 314 429 321 734 472 800 S 13 913 125Other short-terms '9Q 31 I0! !2s 185 - 251 67 62 _Ib9 1jCurrent Liabilities 945 352 422 859 802 1,35I 73 80 1.299 448

Working Capital (279) 2b3 (54) 100 650 (22) 302 (11) (167) 563

Re.erve and Solidarity -LO _207 ze 64 27 31 _ .J 13

Total Assets 2,066 4,6g7 1,964 4(08Q 3.}93 89Q1 622 L61 921 LI1

S. f£nancina of AssetBusiness and Reserve 1.090 2.567 905 2,498 1,080 3.930 1 627 402 810Less Uncovered LOss It a - 24 2' 23Q 236 -1 454 1iEquity 1,064 2.6d7 070 2,471 850 3,694 1 614 (52) 440Long-term loans 220 777 346 45S 1.230 2,118 218 364 521 1,311F0oreign loans 675 1.005 644 1,097 1.285 2.169 400 674 122 177Reserve fund I I iS Is 2 ) ) ISolidarity and others 1097 L1LA - AZ 2 3 _ J3i _ L9 26 32..1L

r* Total 2,06t 4.667 1.964 4,080 3,393 8,013 622 1,656 591 1.935

Ro Vlta,vi,ka uo P-ijedortanka Ro Glamocanka Total(FruIt J.uCel (P um Pro esitng) (potato Processing) All Agroindustries

.19h5 1986 t905 !9h6 1058 1989i 1M!L 126A. ASSetFied Assets 2,710 5.364 2395 5,997 2.798 4,091 15,782 34,592

Current AssetsLiquid assets - cash 24 21 8 9 5 2 145 352Receivables 516 1.014 IS8 144 94 1,093 3.462 4.319Inventories 1.300 3.255 293 737 345 627 2.781 6.156Other S-I Assets. -Di 41 .15 46 AI - -i .-2sd .1.26Current ASsets 2,154 4,707 494 936 461 1,803 7,152 12.035

Less Current LiabilitiesShort-term loans 620 55 569 856 392 287 2.3s6 2.522Trade credits 1.464 1,513 233 268 924 1,419 4.646 5,301Other Short-terms 627 _137 so0 _ 388 5 ISO 11251 4 L4Current Liabilities 2,11 2.205 1,310 1,512 1.351 1.856 8.283 9.269

Working Capital 3 2.502 (8161 (576) (890) (53) (1,131) 2,766

Reserve and Solidarity ?4 144 .__ZA 46 A s aIl S)i7

Total ASSets 2.807 d.0)4 !.go8 5.467 ).9) 4.046 194.20 37187S

B. Fina5ln, of AssetsBusiness and Reserve 2.021 4,422 948 4,131 19 169 6.467 19,161Less UnCOvered LOSs 91 - 29 80h 897 893 LIM 3L32 3.217Equity 1,108 3.493 140 3.234 1874) (1.069) 3.115 15,444Long-term loans 940 3.369 b91 1.272 1,513 3.125 5.679 12,791Foreign loans 667 1,004 748 913 1.269 1,982 5.860 9.101Reserve fund 4 34 Z9 - - 310 1Solidarity and others do -- i ?9 47 1 - 1 539Total 2,807 8.014 1.608 5,467 1.913 4.043 14.964 37.875

YUGOhLAVZh

fasanska Kra-iina Acriculture and Acroindustries Praoect(Loan 162i-YU)

Proiect Comulettion Report

Actual ;Inancina Plan and Lendina Term for the Aaroindustries

IMPRO Proteinka Kafilerija Srbac Glamocanka VitaainkaBanja-Luka meat Heat Heat Poultry Potato Fruit

Dairy P ocessina Processina Processins Processinn Processina ProcessinLDin. M. O Din. H. X Din. H. z Din. M. S Din. H. z Din. H. o Din. H. S

(I) 1910 526 55 477 37 621 25 171 50 245 41 267 9 S56 59(ii) PS-US Associated Funds 24 3 6 - 8 - 8 2 10 2 12 - 11 2

(iii) Federal Funds 56 5 31 2 312 13 40 12 106 18 - - 55 9(iv) Associated Federal Funds 50 5 118 9 388 16 - - 9 1 94 3 - -(v) Republican Funds - - - - - - - - 32 S - - - -(vi) PMS-OS (Basic Banks) 110 11 67 5 400 16 50 14 50 8 1.155 37 73 12

(vii) Own Funds 190 20 387 30 154 6 68 20 10 2 200 7 65 11(viii) Local Commercial Funds 12 1 62 5 108 5 4 1 37 6 105 3 32 5

(ix) SuPpliers Credit - * - - 9 - 5 1 29 5 95 3 9 2(x) Other Banks - - 11 1 330 13 - - 5 1 - - -(xi) Associated AIPK Funds - - - - 154 6 - - - - 17 - - -(xii) Other Associated Funds - _ 141 1- WU -.1.I -.-

s65 100 1,300 100 2,484 100 346 100 601 100 3.130 100 601 100

Prijedorcanka -------------Lending Terms-----------Plum Vitaminka Total Payment Grace Interest

Processing Expansion Aroinidustries Period Period RateDin. M. X Din. H. D Din. H. X

(i) lBID 104 26 20 23 2,787 28 13 2 7.9(ii) PBS-VB Associated Funds 58 14 3 3 140 1 10 1 8.5(iii) Federal Funds 34 8 20 23 651 7 12 2 6.S(lv) Associated Federal Funds 11 3 - - 670 7 10 2 1/(v) Republican Funds - - - - 32 - 12 3 5.5(vi) PBS-08 (Basic Banks) - - 17 20 1,922 19 10 1 25.0(vii) Own Funds 50 12 10 11 1.134 12 - - -

(viii) Local Commercial Funds 29 7 - - 389 4 S 1 40(ix) Suppliers Credit 73 18 17 20 237 2 5-7 0-1 9-11(x) Otter Banks 47 12 - - 393 4 10 1 40(xi) Associated AIPK Funds - - - - 171 2 10 2 1/

(xii) Other Associated Funds _ _ 1.39 14 10 2 1/

406 100 87 100 9,920 100

I1 Interest payments based on results of subborrowers.Source: AIPK Internal Bank.

-33 - ANNEX 1Page 1

_l~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ . " 4. ' '* I I" *0SI8^

_ . Secretariat of Managing Board

No. 2400-3810/88

April 5 th, 88

Mr. Graham Donaldson,

Chief, Agriculture,Infrastructure

and Human Resources Division

The World Bank

Washington D.C. 20433

H Street

Re: Project Completion Report for Bosanska Krajina Agriculture and

Agroindustries Project - Loan 1621 YU

Dear Sir,

Project Completion Report prepared by Agriculture Operation Division,

Country Operations Department IV EMENA Region, on February 25th, 1988.has

strived to give the most realistic outlook of the project implementation

and the problems and the difficulties with which Privredna banka Sarajevo-

Udruzena banka, as the debtor, and AIPK bosanska Krajina, as the investor

and in charge of the project, have been facing, being the most important

factors in the entire project. It should be emphasized that the Report

contains respective observations on physical implementation of the individual

purposes and that the largest difficulties and delays have been experienced

in the construction of the agroindustrial facilities.

We are of the opinion that the successful cooperation between

PBS and PU with the Bank representatives in resolving the running problems

ci implementation of some projects, has been insufficiently underlined

that was particularly

- 34 - ANNEX 1Page 2

significant during initial years, having taken into the account

the inadequate experience, both of PBS and AIPK, in implementation

of such a complex projects with large number of investors and complying

with the methodology applied by the Bank. This especially relates

to the application of ICB, particularly when the principle of "Turn-key"

biddings are followed.

It has been recognized that the application of ICB procedure,

applied by the Bank, is ineffective, as the Bank's approval is required

at all stages of work, starting from the notificatio., of the bidding

to the contract with the suppliers, and it is time consuming work.

This increases the problems to the investors as well as to the

creditors in periods of high inflation, as it is very difficult to

forseen the realistic inflation rate, especially when the economic

policy of the country has put,as one of its main goals, stabilization

of economy, which is very slowly implemented. The investors are constantly

finding themselves in difficulties with respect to the provision

of necessary funds, particularly when new facilities are in question,

as additional funds has to be looked for, mainly on the basis of

new loans. It requires from the investor to prepare corresponding

documentation for submission of applications for new loans and normally

it all has to come through the respective procedures of loan approval

in the commercial banks. It should be noted that all these above

mentioned steps has to be followed in the circumstances of restricted

credit policy and within the limits of bank lendings, as well as

of shortage of uncommitted funds in some basic banks. That practically

meant having each subproject appraised in the banks for several times,

having normally the impact both on the quality and the realistic

features of the appraisal, primarily as those were the facilities

under construction and it was impossible to stop them. The appraisal

of the overruns is the specific and complex work which is not dealt

by the Bank, as entire responsibility for the cover of overruns

is transferred to the debtor by means of loan agreements, particularly

when Bank is the debtor. We highlight this issue as the PCR might

lead to the conclusion of inadequate personnel qualification, as

well as the insufficient activity and interest shown by PBS as one of the main

causes for delay in project implementation, which in practice is

not accurate.

ANNEX 1- 35 Page 3

PCR also insufficiently emphasizes the impact of difficulties

in the economy and the changes in the economic status of certain

productions on the implementation of the parts of the projects,and

it mainly relates to the individual sector.Namely,during the period

of full activities on the project implementation since 1981.,large

disturbances on the livestock market and the disparity in prices

of fodder and the livestock have occured, having great impact on

decline of interest for investment in production of beef and pork

in the individual sector. It happened few times that in already

constructed farms for cattle and pig breeding the production has

stvpped due to losses.

Still, it has to be noted that the project has been

successfully implemented, although with significantly lesser results

than the expected ones, especially in agroindustrial facilities,

provided that it should be taken into the account that the erected

facilities were in the first yearof production with all the

difficulties relating to provision of raw materials,running -in of

the technological process, unexpected difficulties in placements,

financing problems, organizational problems, provision of skilled

personnel and similar.

On this occasion, we would like to lay down some

concrete remarks:

1. Item 2.03. AIPK is not established by the Government but it is

founded on the basis of corresponding self-managing procedures.

2. Item 2.06. the last line, it is probably misprint, it should

read"Privredna" and not"Private".

3. Item 3.07. the last sentence should be deleted, as the limits

in lending were of short life, as the Bank's loans have been

excluded from these restrictions.

- 36 - ANNEX 1Page 4

4. Item 3.26 - it is accurately stated that PBS has managed to

provide coinancing of the project with foreign commercial banks

and in cooperation with the Bank. The funds have been directed

to energy facilities, provided that PBS has undertaken to provide

these funds to the investors according to the requirements within

the implementation of the project out of other favourable sources.

PBS has been providing these assets from the developing funds

during consideration and approval of the loan applications,particularly

when the overruns were in question.

5. Item 5.07. indicates that PBS had a cash flow deficit of over

20 million US Dollars on the account of interest and principal

payments under the Bank loans. The source of thewe data is unknown

to us, but should it relates to the information from the Audit

Report of the Social Accounting Services for 1986. on the conse-

quences of applying the currency pooling system,then the technical

error is in question, as all consequences of this system are

borne by the beneficiary of the loan and PBS has no risk in that

respect.Normally, there are some delays in payment of due interests

and principal by the investor, but it has not such a wide extent.

However, the far greater and far more serious problem with this

issue is the Bank policy with respect to the conditions for repayment

of the loan. Namely, Bank with its policy determines the duration

of grace period according to the level of development of the debtor

country, and not according to the actual possibiiities of the

project itself for the repayment of the loan. That was the case

with this project. Repayment of the principal was stipulated

by the loan agreement in equal amounts, provided that the first

installment due on June lst,1982., and the deadline for withdrawal

of funds under this loan, as per the loan agreement, was June 30th,

1983.This fact itself shows that this project ,even without the

extension of the implementation term, objectively could not have

been able to fulfill the obligations on repayment of the Bank's

loan based on the achieved financial results. The similar examples

could be found with some other larger projects(Semberija drainage

- 37 ANNEX 1

Page 5

project, HE Vigegrad,etc.).Normally, this creates major problems to

the investor, particularly in the first years of operation. All incentives

and suggestions made by PBS and AIPK to amend the repayment schedule

and adjust it with the actual possibilities of the project,have not

been accepted by the Bank. We are of the opinion that the Bank should

not have such approach to the issues of repayment of the loan, but

to adjust it to the actual possibilities of the project in accordance

with its realistic cash flow.

For the purposes of overcoming this problem, PBS has

replaced the Bank's funds by approving the loans out of other domestic

sources, particularly with food industry facilities and adjusted it

with the possibilities of the individual project. Thereby , in some

facilities the rescheduling of portion of the Bank's loan by 1990.

has been stipulated. That should, in fact; create more favourable financial

conditions in the first years of production. This was one of the most

important measures suggested by the Bank in October 1984.,which PBS

has, in our opinion, very successfully implemented.Unfortunatelly, in

Item 5.05. it was indicated that PBS did not show any active interest

in these suggestions.It was only after resolving the financial difficuties

in the Potato processing Plant in Glamoc that the status of production

especially with respect to the placement,has improved significantly,

although the Bank's recommendation was to close the same.

6. Item 7.01. emphasizes again the difficulties facing PBS in its

appraisal of the large number of projects as a result of the limited

possibilities of PBS or even non-existence of a special unit completely

committed on the implementation of this project. We would like to

point out that it was just in this part of the operations in imple-

mentation of the project that there were the least problems and

the least delays. We have indicated above some other reasons having

far greater influence on the delay in implementation of the project,

still there is a question of whether the appraisal of the completion

term of such a extensive and complex project has been a realistic

one.

- 38 - ANNEX 1Page 6

7. In Item 7.02. it is objected to PBS that it has failed in notifying

the Bank on the problems and the changes in the financial situation

and in physical implementation of the subproject. The Bank has

regularly receiving the project implementation reports, and it has

also sent its supervision missions that have very seriously appraising

the project status and, within their limited competences,resolving

the problems with AIPK , PBS and the investors for the purposes

of more successful implementation of the project.Unfortunatelly,

the series of problems have been the consequance of the objective

economic and financial situation, both with the investor and with

PBS and its basic banks.

8. It is stated in Item 7.08. that the supervision missions have not

monitored sufficiently the application of criteria by PBS in appraisal

of the subprojects. With this respect, we would like to point out

that PBS, when relating the appraisals for the approval of the first

loans,has consistently applied the strict criteria necessary

for determination of the financial-economical justification of the

investments.However, that was not always the case when the appli-

cations for overruns have been considered. It is normal that very

often the financial position of the subdebtor has changed and

mainly worsened and PBS has strived to find out the best solutions

within the framework of its actual possibilities. We are of the

opinion that the Bank should, in these cases,participate also in

resolving the incurred difficulties by certain financial supports

through reschedulings and similar.It is not enough to have only

the assistance of the Bank's experts on the basis of contractual

obligations towards other participants, although the same is

the precious one.

Finally, we would like to put an emphasis on the successfull cooperation

with the Bank experts notwithstanding all the difficulties during the

project implementation. Very valuable experiences for such a complex

projects have been gained and it will be ensured to make much significant

- 39 - ANNEX 1Page 7

preparations in dealing with similar projects, both in organizational

and personnel aspect as well as the financial one, so that the project

Implementation might be much more successful.

It has to be stressed again that the project as a whole has been

successfully completed and in relatively short period, having in mind

its complexity and the conditions under which it has been operated.

Yours faithfully,

Dr. Avdo Spa

-41- ANNEX 2

VORLDBANK NSS

ZCZC DERPOII? JUS0338OEDD1REF : TCP FCA

* OEDD1 *

JUS033B ZJV013 IN 04/07:18 OUT 04/07:2145187 AIPK YUBANJALUKA., 4 MAY 1988 NO.113ATTN.hR.6.DWNALDSON.CHIEF OEDDIRE DRAFT PCR LOAN 1621 YUJAIPK HAS NO CONMENTS ON THE DRAFT PCR FOR ABOVE PROJECT. IT ISOUR UNDERSTANDING THAT THERE VILL BE NO FINAL PROJECT REVIEV1 SOPLS FORVARD 2-3 COPIES OF THE FINAL PCR AFTER IT IS REVIEVED BYTIE BOARD OF DIRECTORS.lE UISH TO THANK THE IBRD AND ALL MISSION MEMBERS FOR THESUCCESSFUL COOPERATION IN IMPLEMENTING THIS PROJECT.KIND REGARDS,

SOUR AIPK "BOSANSKA KRAJINA "ANJALUKAFUAD TURALIC/ HAJRUDIN ZYIRKIC

45187 AIPK YU

=05040920

NNNN

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I~~~~~~~~~~~~~~~~

MAP SECTION.

IBRD 13593R

YUGOSLAVIA ..440(0 e a. aBOSANSlA KRAINA \'s...A

AGRICULTURE AND AGROINDUSTRIES PROJECT 'LOCATION OF PROJET COMPONENTS -? LMACEOONIA$

To

(DORAINAGE PROJECTS

OIRRIGATION PROJECT -*T

®SEED PROCESSING BOSANKA NO

®EXTENSIO N CENT ERFS

(3VETERINARY CENTER:CATTLE BREEDING /

AND PROGENY TESTING s

®GRAIN SILOS

OHEIFER FARM .,

®PIG FARM

®NURSERY

MACHINERY SERVICE

(JAGROINDUSTRIES

- MILK PROCESSING PLANT N- MEAT PROCESSING PLANTS

- FRIUITS.VEGETABLESAND IBARLEY PROCESSING PLANTS

Q3 SHEEP RESEARCH FARM

MAIN ROADS

-SECONDARY ROADS

I PROJECT AREA BOUNDARY

---- REPULIC BOUNDARY

HILLY REGION SUITABLE FOR

- - - ; - I518ENIK SINJ M LOMETERS A e

SEPTMER 1987