Document of

The World Bank FIECP'FOR OFFICIAL USE ON]LY

Report No. 3301b-MA

STAFF APPRAISAL REPORT

MALAYSIA

FELCRA I PROJECT

May 1, 1981

Projects DepartmentEast Asia and Pacific Regional Office

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

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CURRENCY EQUIVALENT

Currency Unit - Ringgit (M$)

US$1.00 = M$2.15M$1.00 = US$0.465

M$ million = US$465,000

WEIGHTS AND MEASURES

1 hectare (ha) = 2.47 acres1 kilometer (km) = 0.62 mile

1 meter (m) = 3.28 feet

1 square meter (sq m) = 10.76 square feet1 cubic meter (cu m) = 35.31 cubic feet

= 1.308 cubic yards

1 kilogram (kg) = 2.2 pounds

ABBREVIATIONS

BOD = Biological Oxygen DemandBPM = Bank Pertanian MalaysiaCCL = Critical Consumption LevelDOE = Division of EnvironmentERR = Economic Rate of ReturnFA = Field Assistant

FELCRA = Federal Land Consolidation and Rehabilitation AuthorityFELDA = Federal Land Development Authorityffb = fresh fruit bunch

FMP = Fourth Mlalaysia PlanGSA = Group Settlement ActIADP = Integrated Agricultural Development ProjectICU = Implementation Coordination UnitMARDEC = Malaysian Rubber Development CorporationMARDI = Malaysian Agricultural Research and Development InstituteMLRD = Ministry of Land and Regional DevelopmentMOA = Ministry of AgricultureNDPC = National Development Planning CommitteeNEB = National Electricity BoardNLC = National Land CouncilNPV = Net Present Value

O&M = Operation and MaintenancePWD = Public Works DepartmentRISDA = Rubber Industry Smallholders Development AuthorityRRIM = Rubber Research Institute of MalaysiaTSDU = Training and Staff Development Unit

MALAYSIAN FISCAL YEARJanuary 1 - December 31

FOR OFFICIAL USE ONLY

MALAYSIA

APPRAISAL'OF THE FELCRA I PItOJECT

Table-df Contents

Page No.

1. BACKGROUND. . . . . . . . . . . . . . . . . .,. . . . . . . . . 1

A. Project Background .. . . . .. . . . . . . 1B. Agricultural Sector . .. . . . . . . . .1

C. Government Policy . . . . 2Problems . . .. . . . . . . . . . . .. .. . . .... . 2Objectives. . . . . . . . . . . . . . 3Strategies.... . . . . .. . . . . . . . . . . . . . .. 3Bank Lending Strategy ....... . . . .. . . 4

2. LAND DEVELOPMENT AND THE ROLE OF FELCRA ... . . . . . . . . 4

A. Background . . . . . . . . . . .. . . . . . . . . . . . 4B. FELCRA . . . .. . . . . . . . . . . . . . . . . . . . . . 7

Authority .. .. . . . . . . . . . . . . . . . . . . . 7Development Models . . . . . . . . . . . . . . . . . . 7Funding . . . .. . 8.Program . . . ....................... ............................ 8Organization, Management and

Operations . . . . . . . . . . . . . . . . . . . . . 9

3. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 12

A. Project Objectives. . . . . . . .. . . . . . . . . . . 12B. Brief Description . . . .... . . . . 13C. Detailed Features ............... . 14

Project Areas . . . . . . . . .. . . . . . . . . . . 14Land Development . . . . . . . . . . . . . . . . . . . 15Scheme Infrastructure . ..... ..... 16Processing Facilities . . .. .. . .. . . . .. . 17Institution Building . . . . . . . . . .. . . . . . . 17

D. Implementation Schedule ...... .... 20E. Project Cost ......... ........ ... 20F. Financing . . . . . . . . . . . . . . . .. . . . . 20G. Procurement .. .. .. ... 23H. Disbursement . . . . . . . .... . . . 23

This report is based on the findings of an appraisal mission that visitedMalaysia in September 1980, consisting of Messrs. J. English, C. Maguire,N. Pijl (Bank), R. Hoover and J. Lawrence (consultants).

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

Page No.

4. ORGANIZATION AND MANAGEMENT . . . . . . . . . . . . . . 24

A. Project Organization ...... . . ......... . 24Scheme Operation ...... . .. ........... 24

B. FELCRA Organization . . . . . . . . . . . . . . . . . . . 25C. Scheme Development . . ...... . . . . ........ 28

Scheme Selection . . . . . . . . . . .. . . 28Participant Selection . . . . . . . . . . . . . . . . 30

D. Monitoring and Evaluation . . . . . . . . . . . . . . . . 31E. Other Studies . . . . . . . . . . . . . . . . . . . . . . 32F. Operation and Maintenance .... ............ 34G. Accounts and Audit . ....... . . . ........ 34

5. PRODUCTION, MARKETING PRICES AND INCOMES. . . . . . . . . . . . 34

A. Production Technology ...... . .. .. . . . . . . . 34B. Incremental Production. . . . . . . . . . . . . . . . . . 34C. Marketing ................. . . ..... 35D. Product Prices ........ ... .......... 36E. Scheme Models ......... ... . ......... 36

6. PROJECT BENEFITS AND JUSTIFICATION. . . . . . . . . . . . . . . 40

A. General ... ... 40B. Project Benefits . . .... 40C. Beneficiaries .... . . . . . . . . . . . ...... . 41D. Cost Recovery .... . . . . . . . . ...... . . . . 44E. Economic Analysis .... . . . . . . ...... . . . . 45F. Project Risks . . . . . . . . . . . . . . . . . . . . . . 47G. Environmental Impact . . . . . . . . . . . . . . . . . . 48

7. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . . 48

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Page No.

LIST OF TABLES IN THE MAIN TEXT

3.1 Distribution of Land Development Program by Typeof Scheme, Proposed Crop and State .................. ... 14

3.2 Phasing of Land Development Program . . . 153.3 Project Cost ............................................. 213.4 Financing Plan ...................... 225.1 Summary of Incremental Production Under the Project ....... 355.2 Summary Cash Flow Analysis of a 1,000 Acre Rubber Scheme.. 385.3 Summary Cash Flow Analysis of a 1,000 Acre Oil

Palm Scheme ................. ............................. 396.1 Distribution of Benefits by Beneficiary Group at

Full Development ........... . ............................ 426.2 Participant Dividend and Wage Incomes on Rubber

and Oil Palm Fringe Schemes . . . 436.3 Cost Recovery ............................................. 45

ANNEXE S

1. Development Schedule. Cost Estimates. Equipment and Staffing Lists.Schedule of Expenditure. Disbursement and Allocation of LoanProceeds.

2. Technology and Production Specifications3. Financial Results4. Economic and Financial Analysis5. Related Documents and Data Available in Project File

'LIST OF FIGURES

EBRD 22021 FELCRA Organization Chart'IBRD 22423 FELCRA Proposed Organization StructureEBRD 22223 FELCRA Planned Regional Structure

1MAP

[BRD 15400 Distribution of FELCRA Land Development Programby State

1. BACKGROUND

A. Project Background

1.01 The Government of Malaysia has requested a Bank loan to helpfinance a project to implement the core program of the Federal LandConsolidation and Rehabilitation Authority (FELCRA) over the FourthMalaysia Plan Period (1981-1985). This would rehabilitate or develop about84,000 acres of land in about 90 small schemes scattered throughoutPeninsular Malaysia, and would benefit directly about 12,000 households.About 75% of the schemes would be located in the low-income and relativelyunderdeveloped states of Kedah, Kelantan, Trengganu and Pahang, and theprogram as a whole is in line with the overall country strategy of emphasison poverty redressal. The major objective of thes project is to strengthenFELCRA's capability to plan and implement smallholder improvement projects.As a consequence of the project, FELCRA would sharpen the focus of itsprogram and elaborate alternative approaches to the rehabilitation andstructural improvement of smallholder agriculture. The total project costis estimated at $139 million of which $37 million would be provided as aBank Loan. The proposed project was prepared by FELCRA, assisted by a Bankpreparation mission.

B. Agricultural Sector

1.02 Of Malaysia's total land area of 128,370 sq mi, 50,800 sq mi is inPeninsular or West Malaysia. Less than 25% of Peninsular Malaysia is culti-vated. Tropical rain forest covers most of the remainder. Temperatures areuniformly warm to hot, and rainfall is abundant. The population in 1978 wasestimated at 12.9 million, with a growth rate of about 2.7% per annum. About85% of the population lives in Peninsular Malaysia, where the highestdensities are on the west coast and the south, and about 53% of thepopulation is Malay, 36% Chinese, and 11% Indian.

1.03 Malaysia is one of the most prosperous countries in Southeast Asia.It is the world's leading exporter of tin, rubber and palm oil; it is also aprincipal exporter of tropical hardwoods and has significant reserves of oiland natural gas. By exploiting its rich natural resources, the countryachieved a GNP of about $1,090 per capita in 1978. Moreover, the manufactur-ing sector, although still small in relation to the rest of the economy, hasregistered substantial growth in recent years. The rapid growth of thissector, and the increased investment by the public sector, have been the mainforces behind the acceleration of the growth rate of GDP from 6% a year duringthe 1960s to about 8% in the mid-1970s.

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1.04 Notwithstanding this impressive overall performance, some 37% of thepopulation in 1978 had annual per capita incomes of less than $270, which isthe estimated income necessary to provide accepted minimum levels of food,shelter, clothing and other basic needs. Two thirds of those in poverty wereto be found in the agricultural sector, which has developed in a highlydualistic way, and where the incidence of absolute poverty is almost 50%.Despite very productive estate agriculture, most households in the sector arestill engaged in low-income, traditional activities on rice and rubbersmallholdings. Another factor which has contributed to this poverty was thehigh population growth rate of 3% in the 1960s, which is now reflected in thecurrent high growth rate of the labor force.

1.05 Malaysian agriculture has a strong comparative advantage in thecultivation of tropical tree crops which explains the dominance of rubber,coconut and oil palm. Altogether, 8 million acres have been brought undercultivation in Peninsular Malaysia, of which almost 6 million are devoted torubber and oil palm. Nearly two thirds of this acreage is in smallholdings.The only other major crop is padi with one million acres. Other crops (eachoccupies below 100,000 acres) are pineapple, cocoa, cassava, sugarcane,tobacco, coffee and groundnuts. Over the past decade and a half, output hasgrown strongly - rubber output has expanded by 100% and oil palm by 300%.Output of rice has expanded by 90% due to improved irrigation and doublecropping, and on average rice imports are now about 10% of domesticrequirements.

1.06 Despite the strong output growth in volume terms, the shift in theterms of trade has held down the growth in real value added to about 5.5%p.a., compared with total GDP growth of 7.5%. The agricultural sector hasperformed very well by international standards, but it will naturally declinein relative importance as industrialization proceeds. For the present itremains extremely important in the overall economy, providing about 29% ofGDP, 44% of employment, and 40% of export earnings in 1978.

C. Government Policy

Problems

1.07 Even though agriculture remains extremely important in the overallMalaysian economy (and over the past decade its average annual growth rateof 5.5% in real terms has been among the highest in the world), its dualisticdevelopment has resulted in almost 40% of Malaysia's rural households (25% ofthe national population) living in absolute poverty (para. 1.04). As aconsequence, two principal challenges face the Government in the agriculturalsector:

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(a) maintaining high growth rates in the sector so that agriculturalincomes can increase in line with those of other sectors ofthe economy and thus minimize the number of rural families that willslip into poverty; and

(b) improving the welfare of the rural poor.

Objectives

1.08 The main objectives of the Government's agricultural policy are:

(a) to alleviate rural poverty and to redress interregional andintergroup income disparities;

(b) to increase incomes in agriculture as rapidly as possible;

(c) to maintain a reasonable relationship between agricultural incomesand incomes earned in other sectors; and

(d) to generate employment opportunities for new entrants tothe rural labor force.

Strategies

1.09 The Government's efforts to pursue these objectives involve thefollowing five major strategies:

(a) the absorption of surplus and low productivity labor from agri-culture into more productive jobs in the industrial and servicesectors. To this end, the Government is pursuing a policy ofrapid economic growth and investment in human resources particu-larly within rural areas;

(b) new land development in order to generate additional employmentwithin agriculture at adequate income levels;

(c) increased emphasis on raising productivity and incomes in existingtraditional smallholder agriculture;

(d) increasing transfer payments to rural people if moving themout of agriculture, or increasing their incomes from agriculture,is not feasible; and

(e) increasing export earnings, especially from tree crops, tofinance the industrial and other investments needed toachieve rapid economic growth.

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Bank Lending Strategy

1.10 Prior to 1975, Bank lending for agriculture was heavily concentrated

in expansion of irrigation and land development as means of expanding output,

raising incomes and creating employment opportunities. To reach more rural

households, greater emphasis has been given since then to programs designed to

raise productivity in existing smallholder areas, such as those for improve-ment of irrigation and drainage systems, rehabilitation of tree crops,

extension, research and credit. The Bank is directing its current effortsparticularly towards strengthening relevant institutions, such as FELCRA and

Bank Pertanian Malaysia (BPM), and assisting the Government to prepare andimplement projects that focus on specific areas with a high incidence of

poverty.

2. LAND DEVELOPMENT AND THE ROLE OF FELCRA

A. Background

2.01 Following independence, major emphasis in land policy was placedon achieving a rapid rate of land development, primarily to create employ-ment and generate economic growth, and secondarily to settle and developmajor areas unutilized but suitable for agriculture. The Federal LandDevelopment Authority (FELDA) was established in 1958, taking over a numberof existing State land development schemes. It has concentrated on large-scale land development and settlement and has been the beneficiary of six

Bank loans. It has, to date, developed about 1.35 million acres of land,

almost entirely to rubber and oil palm. In the early 1970s land developmentwas the basis of a broader program of regional development focussed on theeastern States of the Peninsula, and four Regional Development Authorities,covering a total of 7.5 million acres /1 were established. These statutoryauthorities are empowered to plan, coordinate and, in part, executedevelopment projects in their areas of responsibility, and are under thegeneral oversight of the Ministry of Land and Regional Development (MLRD).

2.02 Parallel with the establishment of FELDA, in the early 1960s, more

than 500,000 acres of land was alienated by States to groups of individualsunder the Group Land Settlement Act. These schemes usually provided about3-8 acres of land to local people whose existing land holding was too smallto yield an adequate income. That is, land was provided to supplementexisting income sources. Little assistance was provided to participants andmany schemes were not successful, particularly among Malays who had limitedability to raise capital. At this time Government was also becomingincreasingly aware of the problems arising from limited holding size andfragmentation of holdings. Accordingly a Working Committee was establishedin 1964 to: "prepare the necessary legislation for the establishment of an

/1 Much of this total is however not suitable for agricultural development.

autonomous agency to carry out the following functions: (a) torehabilitate and develop areas embracing fragmented land holdings, fringealienation areas, controlled alienation areas and new block planting areasand/or areas contiguous to or near such areas where uneconomic sized landholdings predominate; (b) to develop such holdings into efficient producingunits taking into account the need to diversify agriculture, and at the sametime, to give effect thereby to the provision of an adequate income forfarmers; (c) to ensure that the excess population in an area developed bythe Authority is provided with suitable developable or developed land eitherthrough its own efforts in developing adjacent areas or through liaison andcooperation with FELDA; and (d) to supervise, ad[vise and assist the landholders after rehabilitation with a view to ensuring that efficientagricultural practices are followed."

2.03 In this formulation, the proposed new authority would have had landconsolidation as one of its foremost functions. However, the AttorneyGeneral subsequently ruled that such powers, necessary to carry out consoli-dation might contravene the spirit of the Constitution, and no provision wasmade for them in the legislation which established the Federal LandConsolidation and Rehabilitation Authority (FELCRA). MLRD and theAttorney General½s office are currently working on revisions to the FELCRAAct to provide such powers.

2.04 With the expansion of the new land development program in theearly 1970s, emphasis on problems of holding size in existing smallholderareas was reduced. The employment generated outside agriculture, and by newland development, has meant a marked slowdown in the growth of numbers ofhouseholds primarily dependent upon agriculture in existing smallholderareas. Definitive data are not available, but in some traditional small-holder areas these numbers are almost certainly falling. This should beallowing others to work a larger land holding and thereby increase theirincomes.

2.05 There is, however, increasing evidence that this adjustment processis not working well. Land abandonment or dereliction is increasingly widelyreported. Data on its extent is not reliable, and estimates of "idle land"vary from 0.5 to 2 million acres. The problem is not new. Aerial photo-graphs show it to have started 20 years ago in some areas, but comparisonswith more recent photographs and field surveys show an accelerating trend.The reasons for this asset rundown appear to be many and varied. Theyinclude, in addition to inadequate economic incentives, traditionalattitudes to land ownership (a desire to hold land even when not utilizingit), Islamic inheritance customs leading to multiple ownership ofholdings, an overly complex, state-managed land administration system andadministrative and manpower bottlenecks within it, lack of capital bysmallholders with which to improve landed assets or to purchase additionalland, lack of interest because of age, and restrictions on transfer of somelands. These conditions could encompass about 400,000 households and1-1.5 million acres of land, i.e., 55-60% of the farm families and 30-40% of

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the smallholder land in Peninsular Malaysia. As a result many padi, rubberand coconut smallholders continue to operate holdings so small that, evenwith the assistance of modern inputs or intensified cultivation, they maynot be able to obtain an income above the poverty line from their holding.At the same time, as a result of the large land development program whichhas been undertaken, significant blocks of land suitable for agriculturaldevelopment are becoming scarce and States are increasingly reluctant to

alienate them. There is increasing concern at both Federal and State levelsthat development of remaining land, particularly that close to existingsettlements, contributes to improvements in the structure of land holdings.

2.06 Government has become increasingly aware of these problems, althoughto date, no clear strategy has been evolved for tackling them. This resultsboth from their complexity and the multiplicity of ministries and agencieswith potentially overlapping responsibilities in the area. The departmentsand agencies of the Ministry of Agriculture are undertaking a range of

programs to expand and strengthen extension services and research support,improve irrigation facilities, upgrade stands of perennial crops and promotediversification, e.g., with dairying and cocoa. The Rubber IndustrySmallholders Development Authority (RISDA) /1 is undertaking similarprograms in rubber. An attempt is being made to target these efforts inrelatively underdeveloped areas through a series of Integrated AgriculturalDevelopment Projects (IADP). A program of small-scale infrastructuraldevelopment, coordinated by the Implementation Coordination Unit (ICU), isattempting to improve conditions in the nearly 5,000 villages classified byICU as having inadequate social and/or physical infrastructure.

2.07 The effectiveness of most of these programs, however, isconstrained by the problems of farm holding size and the poor functioning ofthe adjustment mechanism. Tackling land problems in Malaysia is difficultbecause land in Malaysia is entirely a State matter, but the Federation hasthe right to ensure uniform land legislation and to coordinate landdevelopment. The Constitution provides for the establishment of a NationalLand Council (NLC) comprising representatives of the States and of theFederal Government which can formulate a national policy for the promotionand control of land use throughout the Federation. However, policiesformulated by NLC cannot be legally enforced, and the Council has not beenactive in the past decade.

2.08 Under the Fourth Malaysia Plan (1981-85) Government proposes toincrease the relative emphasis of its land development programs on existingsmallholder agriculture. These programs have three principal objectives;(a) to create assets (largely in land) for direct benefit of disadvantagedrural groups; (b) raise the quality and income potential of agriculturalresources; and (c) promote efficient agricultural units. As the onlyfederal agency which, in principle, has a mandate to engage in landrehabilitation and development activities in alienated areas, Governmentintends to expand FELCRA to enable it to undertake a leading role in thiseffort.

/1 A statutory Authority under oversight of the MLRD.

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B. FELCRA

Authority

2.09 FELCRA was established under the National Land Rehabilitation andConsolidation Authority (Incorporation) Act of 1966. It is a statutoryauthority under the Ministry of Land and Regional Development. FELCRA'sfunctions are described in its mandate (FELCRA act 1966 as amended) as:

(a) to rehabilitate or develop state land schemes on its own initiativeand with the approval of the appropriate state authority, or at therequest of the latter; and

(b) to rehabilitate or develop alienated lands, at the request ofthe owner(s) and on agreed terms.

Development Models

2.10 Its principal programs to date have been:

(a) Rehabilitation Schemes (40,000 acres). In most instances theseinvolve rehabilitation of low cost land schemes where StateGovernment made blocks of land available to groups of individuals.Typically, each participant obtained a 6-8 acre plot for rubber,but little or no financial or technical assistance was provided.When FELCRA is belatedly called in to rehabilitate these schemes,in most cases it has to clear the secondary jungle or scrub andreplant the area. Each plotholder is charged for the expenditureincurred. FELCRA now normally operates the rehabilitated schemeas a group operation. Participants have priority in obtainingemployment on the scheme, in addition to receiving dividends basedon their share of ownership.

(b) Fringe Schemes (72,700 acres). These are aimed at increasing thebasic land resource from which a village derives income and tosupplement the incomes of the participants. A block of land,normally of 500-1,000 acres and located within 3 miles of lowincome villages, is opened up. Participants are selected by theState Government on the basis of insufficiency of their existingland resources, family status, age of householder, etc. Thescheme is generally farmed as a group operation under FELCRAmanagement as above./l

/1 During the Fourth Plan period FELCRA is planning to open up four schemesof this type for Orang Asli (indigenous tribal groups, generally livingin reserved areas and in a semi-subsistence fashion).

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(c) Youth Schemes (49,000 acres). These are settlement schemes whichcater exclusively to single young male persons selected by StateGovernments. It is not planned to initiate any further youthschemes.

2.11 Based on a group of fringe/rehabilitation schemes in Perak, FELCRAis now undertaking land development of a large contiguous area, includingdevelopment of settlements. Regional development is the principal elementof the Trans-Perak project, to be funded separately by the Bank.

2.12 Because of the limitations of its mandate, FELCRA has not under-taken formal consolidation programs. However, it is currently initiating aseries of pilot "In situ" Projects, which do address this problem. It ishoped that these will provide a model which can be applied to a significantproportion of traditional village agriculture. Under these projectsexisting holdings for perennial and mixed crops are pooled and sufficientadditional nearby undeveloped land is cleared and planted with cash crops toprovide a total of at least six acres per household. A new nuclear villagemay also be constructed. In addition to standard perennial crops of oilpalm and rubber, a portion of the area is put under crops yielding a quickerreturn, e.g., tobacco, pepper, cloves, groundnuts, cocoa. Assistance isalso provided to maintain food cropping, in order to enhance nutritionallevels.

Funding

2.13 FELCRA obtains funds in the form of both grants and loans. Expen-ditures directly attributable to its schemes, i.e., for land clearing,planting, crop maintenance to maturity, and settler housing where necessary,are funded by loans from the Treasury. A separate loan is obtained for eachscheme, its amount determined by FELCRA's cash flow projection for the scheme.These loans are repaid by settlers from the income generated by the scheme.FELCRA's administrative costs for staffing, including capital costs for staffhousing, office facilities, vehicles and equipment are met through FederalGovernment grants. It also receives 10% of the net profits of its producingschemes./l Accumulated expenditure on land development to the end of 1979 was$74 million ($15 million in 1979). Administrative costs have risen from$2.2 million in 1974 to $6.8 million in 1979.

Program

2.14 Up to and including its 1980 program, FELCRA will have initiateddevelopment of 163,000 acres, of which 20,000 acres were started in 1979 and30,000 in 1980. Except for small areas of padi and pepper this developmenthas been based on oil palm and rubber and has been distributed as follows:

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Rubber Oil palm Oth,ers Total

------------- (acres) --------------

Rehabilitation 31,000 6,900 2,100 40,000Fringe 52,000 17,500 3,200 72,700Youth 21,500 27,500 - 49,000In-situ 1,500 - - 1,500

Total 106,000 51,900 5,300 163,200

A target of about 124,000 acres for land development by FELCRA during theFourth Malaysia Plan (1981-85) has been provisionally agreed, distributed asfollows:

Rehabilitation - 35,400 acresFringe - 48,800 acresRegional development /1 - 32,200 acresOther - 7,500 acres

Six in situ pilot projects are included in the 7,500 acres of other projects,which also includes completion of two youth schemes. In addition to thisprogram it is anticipated that FELCRA will also undertake a further 17,000acres of development towards the end of the Plan period, principally in"'security" areas and possible larger scale replication of the in situconcept.

Organization, Management and Operations

2.15 Since its inception in 1967, FELCRA has been an effective landdevelopment agency. It has generally achieved established developmenttargets and resulted in significant improvement in the financial position ofits scheme participants. After a period of slow development in the firsthalf of the past decade, its pace of activity has increased markedly since1976. Its rate of land development has averaged nearly 25,000 acres in thelast two years. While it has a good basis for continued growth, an expan-sion program of the magnitude proposed will strain its resources. A staffincrease of almost 100% would be implied, and strengthening is essential inareas such as organization and management, training, scheme planning,technical support and financial and management control.

/1 Principally the Trans-Perak project (para. 2.11).

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2.16 Organization. Supervision of FELCRA operations is in the hands ofa Board of Directors who are appointed by the Minister of Land and RegionalDevelopment. Operations are directed by a Director General, who is alsoappointed by the Minister./l Field operations are in the hands of the Dep-uty Director General, while staff and support functions /2 are the responsi-bility of Directors of Finance and Administration (see Chart 22021). Theexisting structure has resulted in grouping of dissimilar functions, somemaldistribution of workloads, and centralization of decision-making.FELCRA's development program has now reached the stage at which the case forstructural expansion and a decentralization of qualified technical staff isstrong.

2.17 Management. FELCRA's current management is lean and stretchedthin. At the senior levels, the Authority is understaffed, with a totalcomplement of only 9. This provides one senior management person per18,000 + acres, compared for example to 1 per 9,500 acres for FELDA.Because of the relative inexperience of junior field staff and the nature ofits schemes, FELCRA has a high rate of staffing at junior levels and itsratio of senior management/all personnel is extremely unfavorable. Existingsenior management is pressed to carry the expanding and diverse work load,and an increase of 15 or more in senior management will be required. As abasis for undertaking this growth, an organizational structure geared to theexpanded operations and an appropriate personnel development program wouldbe required, supplemented by significant external recruitment of all levels.Since this kind of staff is also sought by the private sector, FELCRA'spublic service salaries have made it difficult to attract and retain highcalibre staff.

2.18 Training. A training officer, under the direction of the head ofPersonnel, is responsible for coordinating FELCRA's training activities. Thetraining officer is handicapped by his lack of experience in training and theimpossibility of one person organizing meaningful training programs for such alarge number of specialized staff located all over the country. Because ofits current expansion and pressure on staff, there is an understandablereluctance on the part of management to release key people for trainingactivities. As a result, structured in-service training has not taken place.External training arrangements for entry level personnel have not beensatisfactory and a large number have not been formally trained. This latterproblem is most acute among scheme level supervisory staff and will beintensified as the program of in situ projects, with its emphasis onagricultural activities other than rubber and oil palm, is expanded. Thiswill also place considerable additional demands on the agricultural staff

/1 The current Director General is a seconded Malaysian civil serviceofficer, but this is not mandatory.

(2 F_mc.e,t kudit and Sectetar"'s DemartNenats wh-icAh reort tectIy to the

Director General.

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which is already understrength, and whose experience is lar ely limited torubber and oil palm. FELCRA's existing operations and staff are adequate tojustify an in-house training and staff development capability, and a compre-hensive program of training activities. The planned expansion in operationsstaff numbers by 1985 makes the case for systematic and quality agencytraining all the more compelling.

2.19 Field Operations. To date reasonably tight supervisory control offield operations has been maintained through routine and regular writtenreporting and staff review meetings. However, the growth and increased rangeof operations is making these standards increasingly difficult to maintain.Further, the existing procedures and staff constraints have not permittedeffective analysis of field experience to be undertakren. A consulting firmwas hired in 1979 to recommend an appropriate managi.,nent information systemfor FELCRA's future needs. A computerized accounti-g and managementinformation system (MIS) was recommended, which sh ild provide greatlyimproved monitoring and budgetary control. FELCRA will require continuedassistance to recruit and train staff, and to install and develop theproposed system.

2.20 Financial Management. FELCRA's existi-ng accounting system wasset up in 1973. While it has served FELCRA's needs adequately to date, itwas not designed to provide current and detailed management information.With the increasing scope and complexity of FELCRA's operations, the needfor such improvement becomes increasingly critical for both financial andphysical information. One area of potential concern is in scheme loanrecovery, where there are reported arrears. These have largely resulted fromunrealistic repayment schedules set up when early schemes were established.More realistic repaymernt sched-les were adopted in 1975, when the problembecame apparent, but were not made retroactive. Computation of scheme loandebt is potentially misleading and together with the obsolete repaymentschedules has hindered any meaningful analysis of the loan recovery position.

2.21 Accounts. The consultant's MIS study did not review the format ofFELCRA's basic accounting statement. This has a number of significant short-comings as a description of FELCRA's activities and condition. FELCRA'sIncome and Expenditure Statement covers only those activities directly fun-ded by Government's administrative grant. Many other income and expenseitems, originating from loan activities, are only included as supporting orexplanatory information in the Balance Sheet, which as a result is somewhatunconventional in format and content. Neither the accounts nor the budgetclassifications are in sufficient detail to permit detailed comparison ofincome and expense with budget anticipations. File data are generallyavailable to permit such analysis, but the time constraints would be substan-tial under the existing mechanical systems. Improvements in the classifica-tion and organization of financial statements are needed to make them moredescriptive of the results of FELCRA's operations and more useful as amanagement tool.

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2.22 Scheme Selection and Planning. Understaffing at the professionallevel currently restricts FELCRA's capacity to carry out adequate schemeplanning. Potential fringe or rehabilitation projects are proposed to FELCRAby State Governments. The Planning Section of the Budget and PlanningDepartment prepares a brief scheme feasibility report which includes data onsoils and crops suitability (supplied by the Department of Agriculture),statement of clearances from relevant departments, and a brief on-siteinspection by FELCRA staff to assess accessibility, slope and any majorconstraints to development. On this basis the choice of crop (rubber or oilpalm) is made, and a cash flow, based largely on standard costs, yields andprices, is prepared. Scheme feasibility reports fulfill minimum requirementsof the Treasury for obtaining loan funds, but require some elaborations inproviding information required for effective implementation. Problems havearisen in a number of schemes which could have been avoided or reduced ifmore detailed initial investigation could have been undertaken. This need isespecially necessary when subsequent field work is being supervised byrelatively inexperienced field staff. The existing feasibility reports alsoprovide little information on the economic and social conditions of the areafrom which the participants are expected to be drawn.

2.23 Formal monitoring and evaluation of scheme development has beenlimited. This problem would be alleviated by the proposed management infor-mation system, although expertise will be needed to analyze this data if thesystem is to be effectively utilized. Several other vital areas of opera-tional and corporate planning are not currently included in the functions ofthe planning section, e.g., long-term planning and projections, specialstudies, post-evaluation, and procedural reviews and related activities.

3. THE PROJECT

A. Project Objectives

3.01 The Bank has assisted the Government in financing, under the aus-pices of FELDA, a series of six land settlement projects based on perennialcrops which, on completion, will have developed a total of about 320,000acres, principally to rubber and oil palm. FELDA itself has developed atotal of 1.3 million acres over the past two decades, and undertaken almostone half of all land development in Peninsular Malaysia over this period.The availability of land for further new large scale settlement in PeninsularMalaysia is limited, but about half of the households in traditional villageagriculture remain in poverty. Government has indicated that it intends tostrengthen and expand FELCRA to enable it to undertake a principal role intackling the problems of limited holding size and underutilization of land insmallholder agriculture, through rehabilitation of crop land (especially inStv>e-s% osore~d lantd schemaes) , contsolidation, and development of fringe landareas to supplement existing holdings.

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3.02 The project would directly increase the incomes of about 12,000rural households through land rehabilitation and dlevelopment schemes. Inorder to carry out this program, the objective of the proposed project is tostrengthen FELCRA's capability to plan and implement smallholder improvementprojects. As a consequence it would assist in the elaboration of alterna-tive approaches to development of kampong agriculture and sharpen the focusof FELCRA's program in this area.

B. Brief Description

:3.03 The main features of the project are:

(a) financing of the fringe and rehabilitation scheme elements ofFELCRA's Fourth Plan Program, covering the development of about50 proposed fringe schemes and the rehabilitation of about 40 exist-ing unassisted land development schemes, extending to a total ofabout 84,000 acres and including:

(i) development of about 64,000 acres for rubber and 20,000 acresfor oil palm;

(ii) construction of housing for staff and provision of basicinfrastructure, including about 112 miles of all-weatheraccess roads;

(iii) procurement of vehicles and equipment for scheme developmentand maintenance; and

(iv) construction of two palm oil mills with a combined capacityof about 80 tons ffb/hr; and

(b) strengthening of FELCRA's capability to implement this programthrough:

(i) rationalization of FELCRA's organization, with decentralizationof operational activities and streamlining of head officestructure;

(ii) establishment of a Training and Staff Development Unit anddevelopment and implementation of a training program for alllevels of staff;

(iii) establishment of a Program Development and EvaluationDepartment;

(iv) introduction of a computerized management informationsystem; and

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(v) provision of consultancy services for detailed design ofproject processing facilities, technical assistance to thetraining and evaluation units, implementation of a proposedmanagement information and accounting system, diversificationactivities, evaluation of existing projects, preparation of

future projects, and related studies.

C. Detailed Features

Project Areas

3.04 The rehabilitation and fringe schemes included in the proposedprogram are located in all the States of Peninsular Malaysia, except Selangorand Penang. However, 75% of the area is located in the lower income,relatively underdeveloped States of Kedah, Kelantan, Trengganu and Pahang(see Table 3.1). This represents a significant shift in the focus ofFELCRA's activities towards these states, which have accounted for only 41%of the land developed up to 1980 (see Map 15400). The schemes have beenlargely selected at the initiative of the relevant State Governments. Theindividual schemes beyond 1981 remain provisional, however, pending a reviewof their feasibility by FELCRA (see para. 4.14).

Table 3.1: DISTRIBUTION OF LAND DEVELOPMENT PROGRAMBY TYPE OF SCHEME, PROPOSED CROP AND STATE (ACRES)

Type of scheme Proposed cropState Total Fringe Rehabilitation Rubber Oil palm

Perlis 300 300 _ 300 _Kedah 10,000 9,700 300 10,000 -Perak 11,300 6,800 4,500 6,500 4,800Malacca 2,000 2,000 - - 2,000N. Sembilan 4,900 4,900 - 4,900 -Johore 2,100 - 2,100 - 2,100Pahang 27,900 15,200 12,700 17,000 10,900Trengganu 9,100 4,400 4,700 9,100 -Kelantan 16,700 5,600 11,100 16,700 -

TOTAL 84,300 48,900 35,400 64,500 19,800

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Land Development

3.05 The phasing of the proposed land development program is shownin Table 3.2.

Table 3.2: PHASING OF LAND DEVELOPMENT PROGRAM (ACRES)

Year1981 1982 1983 1984 1985 Total

Type of SchemeFringe 9,500 15,600 12,300 6,000 5,500 48,900Rehabilitation 10,300 4,200 5,000 8,100 7,800 35,400

Subtotal 19,800 19,800 17,300 14,100 13,300 84,300

Type of CropRubber 11,500 16,600 15,300 10,900 10,200 64,500Oil palm 8,300 3,200 2,000 3,200 3,100 19,800

Subtotal 19,800 19,800 17,300 14,100 13,300 84,300

Historically, FELCRA rubber schemes have had a net planted area of 89% of thegross area and oil palm schemes have obtained 95% land utilization. Theserelationships have proved stable over time and it is therefore estimated thatthe net planted area under the project will be about 57,300 acres of rubberand 17,900 acres of oil palm. Because of the condition of most "rehabilita-tion" schemes when FELCRA takes over, land clearance and new planting isassumed to be necessary (see para. 2.10). Initial land clearance, prepara-tion, planting and maintenance, covering a total of two years would becarried out by contractors working under FELCRA's supervision at an averagecost of $424 per acre for rubber and $315 per acre for oil palm. Subsequentmaintenance work during the immature period, costing $402 per acre for rubberand $344 per acre for oil palm, would be carried out by contractors or by useof casual labor, predominantly scheme participants or their dependents,employed directly by FELCRA. Planting materials, fertilizers, chemicals andother supplies to the value of $217 per acre for rubber and $306 per acre foroil palm would be procured directly by FELCRA.

3.06 Agricultural access tracks totalling 1.2 chains per acre for rubberschemes and 1.5 chains per acre for oil palm would be initially marked out bythe major clearance contractor. For oil palm, these agricultural tracks wouldbe upgraded to all weather standard by contractors, with a 4 inch surface oflaterite 8 ft wide. Culverts constructed of concrete and reinforced spun pipe

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would be provided as necessary. Total cost is estimated at $116 per acre. Onrubber schemes agricultural tracks would be upgraded in the third year afterplanting, with construction of culverts, and provision of a laterite surfaceon about 10% of the network which would be most heavily utilized. This workwould be carried out by contractors at an estimated cost of $65 per acre.Minor road maintenance would be carried out directly by FELCRA utilizing theagency's own equipment and labor. Small field drains, averaging 1.33 chainsper acre for rubber and 2.0 per acre for oil palm would also be constructedby contractor at an estimated cost of $14 per chain.

Scheme Infrastructure

3.07 Buildings. Each scheme would be provided with an office, incor-porating a small lock-up store and a garage, and with housing for permanentFELCRA staff. This would comprise a total of 88 scheme offices and 560 staffhouses, which would be of predominantly wooden construction, and built tostandard designs for these types of accommodations in Malaysia. Site pre-paration and construction would be carried out by contractors under FELCRAsupervision.

3.08 Access Roads. A total of about 112 miles of all-weather roads,each averaging 1.25 miles in length, would be provided from the publichighways to the scheme office sites. These would be designed to minimizebridging and would be graded and rolled to a 28 ft formation width. Forrubber schemes a 6 in laterite surface 14 ft wide with 5 ft compactedshoulders would be provided at a total estimated cost of $53,000 per mile.For oil palm schemes, where more frequent truck traffic must be accommodated,an 18 ft laterite surface would be provided at a cost of $61,000 per mile.Access road design and supervision of construction would be carried out byFELCRA in coordination with the Public Works Department (PWD).

3.09 Water Supply. Each scheme would be provided with a treated watersupply. Where the public water supply (operated in rural areas by the PWD)is accessible within about three quarters of a mile, direct connection wouldbe made by PWD, at an average of cost of $14,000 per scheme. An estimated40% of schemes would be supplied in this way. The remainder would besupplied by pumping from a stream or well. Water would be treated andpumped to a small elevated tank for distribution. The estimated cost tosupply a typical scheme of 1,000 acres is $15,500. Design and supervisionof construction of these small systems would be by FELCRA.

3.10 Electricity. All staff quarters and offices in FELCRA schemeswould be supplied with electricity. About 25% of scheme offices would belocated within about one mile of an accessible grid service, and these wouldbe directly connected by the National Electricity Board (NEB). On the bal-ance of schemes FELCRA would install a diesel generator of between 12.5 kVA($12,500) and 25 kVA ($18,000), depending on size of scheme.

3~ .11 qe3L\IIees and Eqvamx?et. Each sc3eaae wOUcv1 'be l?rovi4e4 with a f our-wheel drive vehicle. FELCRA will review the utilization of its existing

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t:ractor fleet with a view to improving its distribution. It is estimated thatapproximately 37 could be released to be available for use on new schemes. Afurther 78 tractors, equipped with 3-ton trailers, would be required to meett:he total needs of the approximately 90 schemes in the project. A total of 10t:ractor-mounted road graders for minor road maintenance would be provided,based on one unit per oil palm scheme of over 1,000 acres and per rubberscheme of over 2,000 acres. These graders would also be utilized for mainte-uiance purposes on other schemes in their vicinity. On a similar basis a totalof ten 8-ton trucks would be provided for the larger schemes.

Processing Facilities

3.12 Two palm oil mills would be constructed as follows:

Capacity Area to be CompletionLocation tons/hr serviced (acres' date

Bukit Kepong, Johore 40 15,000 1983Nasaruddin, Perak 40 13,330 1983 /a

/a First phase.

The Bukit Kepong mill would be located in North Johore and service existingFELCRA schemes, predominantly within a 40 mile radius, which are already com-ing into production. The Nasaruddin mill in Perak would also serve schemesalready under development, including initial production from the Trans-Perakproject, for which a mill is scheduled for completion in 1986. The Nasaruddinmill would be constructed in two phases, the first of 20 ton/hr capacity to becompleted in 1983, and the second in 1985. The mills would be constructed tostandard specifications which are now well established in Malaysia. Theywould be equipped with appropriate effluent treatment, as required by law, andbe located at least 3 km from significant settlements. Mill design and super-vision of construction would be undertaken by local consultants on a lump sumcontract of about $320,000, or about 3% of project cost.

Institution Building

3.13 Under the proposed project FELCRA would be substantially expandedand strengthened. Specifically the project would:

(a) replace the existing single Deputy Director General by twoDeputies for Administration and Operations respectively, andrationalize headquarters structure, and clarify responsibilities,by creating six additional departments, to provide a total ofnine departmental units;

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(b) create five regional offices,/l headed by Director-level officers.These would be responsible for technical and managerial super-vision of field operations and would be provided with qualifiedengineers and agriculturalists;

(c) create a Program Development and Evaluation Department which wouldincorporate an expanded Scheme Feasibility Studies Section, and anew Evaluation and Special Studies Section, supported by aninternationally recruited senior planning adviser and additionalshort-term consultancies;

(d) provide funds to engage consultants to program the proposedmanagement information and accounting system for computer operation(incorporating settler accounts), implement this system for aperiod of two years, and train FELCRA staff in its operation.FELCRA's own staff would be augmented with an individual qualifiedin data processing;

(e) establish a Training and Staff Development Unit at headquarters,supported by an internationally recruited training adviser;

(f) establish a small engineering design unit within the EngineeringDepartment;

(g) upgrade the Agriculture Division to departmental status and provideconsultancy support to cover possible diversification activities.

3.14 Training. A Training and Staff Development Unit (TSDU) would becreated at FELCRA headquarters. The TSDU would be supported by a Training andStaff Development Adviser for a period of 36 months to help design, plan andsupervise a dynamic and practical training program and to create an opportu-nity for the present head of the training unit and his assistant to acquireadvanced training skills. An agency-oriented management training programwould be designed and conducted at the FELDA Institute of Land Development,Trolak, by two management instructors seconded to the Institute from FELCRA.This program would place particular emphasis on the needs of supervisory fieldstaff. Entry level training for Field Assistants (FA) and in-service coursesfor staff from a variety of specializations would be conducted at Lekir--arefurbished youth scheme headquarters in Perak. The training needs of FELCRAsettlers and their dependents would be identified and, in cooperation with theSettler Development Department, training opportunities offered on a carefullyplanned basis.

3.15 In addition to entry level training, the proposed project wouldprovide for in-service training for FELCRA staff at an estimated cost of $23

11 One serving Mast 'Valaaysia.

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per staff member per year. Additional short courses in Malaysia andoverseas would be undertaken. The exact number of trainees is difficult toestimate but the estimated cost of $210,000 is based on the assumption thata total of 20 courses per year would be undertaken. Provision would also bemade for teaching aids (including books) and equipment to a total of$93,000, 25% of which would be to expand or establish small referencelibraries at scheme and regional offices.

3.16 Technical Assistance. The technical assistance component of theproject is designed to overcome gaps in FELCRA's capacity to manage its rapidgrowth. This assistance is expected to require about 155 man-months of pro-fessional expertise at a total cost of about $1.1 million. The overall aver-age man-month cost (including individual fees, travel and local allowances) isexpected to be about $7,200. An internationally recruited Senior PlanningAdviser would provide 48 man-months of assistance to the Program Developmentand Evaluation Department. He would, with the Director, work to expand thecoverage of the scheme feasibility reports, and establish a program ofevaluation and other studies aimed at sharpening the focus and improvingtargetting of FELCRA's future program of activities. The Department wouldalso be supported by a total of 24 manmonths of assistance in specialist areassuch as sociology, research methodology, and land tenure. The latter wouldassist in elaborating alternative models for tackling the problems oftraditional village agriculture and in developing pilot schemes of types whichappeared operationally and legally feasible. A suitably qualified consultantreporting to the head of the TSDU would be appointed to provide 36 man-monthsof expertise in the design and implementation of field and management trainingcourses, and of an overall personnel development program for FELCRA. Theestimated cost of these internationally recruited consultants of $8,000 perman-month is based on individual salary, international travel and allowances.Assurances were obtained that suitably qualified and experienced individualswould be employed as Senior Planning Adviser and Training and StaffDevelopment Adviser by December 31, 1981.

3.17 The project would also fund about 36 man-months of local consultantservices to implement the proposed management information system at anestimated cost of $130,000. Since FELCRA does not have personnel experiencedin computer systems, it is proposed to engage an experienced computer manage-ment consultant for about five man-months, spread over two years, to assesstender proposals for the principal consultancy and to monitor implementation.Similarly a local oil palm processing specialist would be retained for aboutsix man-months to review the work of the consultants undertaking the designand construction of the oil palm mills, and to supervise mill commissioningand initial operation. The project would also provide for 36 man-months ofconsultancy services in finance, management and accounting, and in othershort-term requirements in areas such as diversification activities. Thesewould be recruited at an estimated cost of $5,300 per man-month includingsalary, fees, local travel, and allowances.

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3.18 A series of studies are proposed to analyze current settler selec-tion criteria, evaluate selected schemes in production, and prepare projectsincorporating alternative approaches to holding size enlargement. The projectwould provide $600,000 to finance field surveys and specific consultancyservices for this purpose.

D. Implementation Schedule

3.19 The land development and perennial crop planting program whichwould be implemented over a 5-year period commencing in the third quarter ofCY1980. The total development period for the schemes included in theproject would be 12 years, reflecting the long gestation period for rubber.

E. Project Cost

3.20 Total project costs are estimated at $139.1 million (inclusive oftaxes and duties of $6.1 million) of which $37.0 million or 27% is foreignexchange cost. Project costs are based on unit prices in Malaysia in thirdquarter 1980 and are indexed.to a common level, March 1981. Physical con-tingencies have been included amounting to 10% for agricultural development,vehicles and equipment, oil palm mill construction, management and consul-tancies, and 20% for civil works, including site works and access roads foroil palm mills. Overall, physical contingencies represent 12.8% of basecost. The contingency due to expected price increases over the implementa-tion period amounts to about 20.8% of base cost plus physical contingenciesassuming cost escalation of 9.0% in 1981, 8.5% in 1982, 7.5% in 1983-85.

3.21 Project cost details are presented in Annex 1, Table 10 and aresummarized in Table 3.3.

F. Financing

3.22 The proposed Bank loan of $37.0 million would finance the fullforeign exchange costs of the project, equivalent to 28% of project costs,exclusive of taxes and duties. The Government would provide $58.2 million(42% of project cost) in the form of loans to FELCRA for construction ofprocessing facilities, and for onlending to schemes to finance fielddevelopment, and $43.9 million in the form of budgetary allocations forfunding of infrastructure and project management. A detailed financing planis presented in Annex 1, Table 11 and summarized in Table 3.4.

Table 3.3 PROJECT COST

X of ForeignLocal Foreign Total Local Foreign Total base exchange

Component - (Ivi$ million) ---- million) ----- cost %

A- Agricultural DevelopmentRubber 62.48 18.04 80.52 29.06 8.39 37.45 37 22Oil palm 25.23 7.76 32.99 11.74 3.61 15.35 15 24

Subtotal 87.71 25.80 113.51 40.80 12.00 52.80 52 23

B. Infrastructure 22.01 11.00 33.01 10.23 5.12 15.35 15 33

C. Vehicles and equipment 1.49 5.99 7.48 0.69 2.79 3.48 3 80

D. Processing facilities 10.43 10.44 20.87 4.85 4.86 9.71 10 50

E- Training 2.96 1.32 4.28 1.38 0.61 1.99 2 31

F. Management

Salaries and overheads 34.77 2.06 36.83 16.17 0.96 17.13 17 6Technical assistance and 1.29 1.98 3.27 0.60 0.92 1.52 1 61

consultanci es

Subtotal 36.06 4.04 40.10 16.77 1.88 18.65 18 10

Total Base Cost 160.68 58.59 219.27 74.72 27.26 101.98 100 27

Physical contingencies 18.43 6.80 25.23 8.56 3.17 11.73 12 27Price contingencies 40.40 14.15 54.55 18.80 6.57 25.37 26

Total Project Cost 219.51 79.54 299.05 102.08 37.00 139.08 27

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Table 3.4: FINANCING PLAN

Federal GovernmentGrants Loan Bank

Amount Amount Amount TotalComponent ($ m) % ($ m) % ($ m) % ($ m)

A. Agricultural DevelopmentRubber - - 24.76 67 12.69 33 37.45Oil palm - - 11.41 71 3.94 29 15.35

Subtotal - - 36.17 69 16.63 31 52.80

B. Infrastructure 10.87 71 _ - 4.48 29 15.35

C. Vehicles and equipment 1.39 40 - - 2.09 60 3.48

D. Processing facilities - - 6.31 65 3.40 35 9.71

E. Training 1.58 79 - - 0.41 21 1.99

F. ManagementSalaries and overheads 17.13 100 - - - - 17.13Technical assistance and

consultancies 0.30 20 - - 1.22 80 1.52

Subtotal 17.43 93 - - 1.22 7 18.65

Total base cost 31.27 31 42.48 42 28.23 27 101.98

Physical contingencies 4.17 36 4.69 39 2.87 25 11.73Price contingencies 8.41 32 11.06 44 5.90 24 25.37

Total financing 43.85 31 58.23 42 37.00 27 139.08

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3.23 The Government would bear the foreign exchange risk. The Govern-ment, in the context of its plans for the next 5--year development period, hasestablished a concessionary lending policy for the public agencies involved.Specifically, as of January 1, 1981, the policy is to make available centralgovernment funds to public agencies for poverty eradication efforts withoutinterest charges, but to charge between 2-4% interest per annum when the fundsare to be used for activities to accelerate the development of indigenousMalaysians, and to continue to charge market rates for commercial endeavors.Under the proposed project, funds for scheme development would be provided toFELCRA interest free and be repayable over 10 years, following a grace periodof 10 years for rubber and 8 years for oil palm. This is acceptable since theproject has a strong anti-poverty bias and allows reasonable levels of costrecovery (see Chapter 6 below). The level of interest rate subsidy is not

substantial since the rate of inflation has traditionally been low inMalaysia, averaging below 5% over the past three years, and is expected toremain near that level. Assurances were obtained that the proceeds of theloan would be made available to FELCRA under terms and conditions satisfactoryto the Bank.

G. Procurement

3.24 Vehicles (amounting to about $4 million) would be procured underinternational competitive bidding in accordance with Bank Group guidelines.A 15% preference margin, or the prevailing customs duty if lower, would beextended to local manufacturers of these items. Small items and urgentrequirements, not exceeding $800,000 in aggregate, would be procured bylimited local tendering in accordance with Government procedures. Materialsfor agricultural development would be procured by local competitive bidding.There are numerous suppliers, foreign firms are well represented andcompetition is adequate.

3.25 Oil palm mill construction (costing about $12.5 million) would besubject to international competitive bidding in accordance with Bank Groupguidelines. Land development ($57 million) and other civil works ($19 mil-lion) would be relatively small for most of the subprojects, and widelyscattered. The latter would include offices, staff housing, short accessroads and water supply systems. Steps have been taken in recent years tostrengthen local land development and civil works contractors; there isadequate competition and foreign firms can participate. Therefore, competi-tive bidding in accordance with local procedures is appropriate for the workto be executed under contract.

H. Disbursement

3.26 The disbursement of the loan proceeds would be as follows:

(a) land development works (land clearance, planting, and initialmaintenance): 50% of contractual expenditure.

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(b) construction of palm oil mills, scheme access roads and buildings:35% of contractual expenditure.

(c) vehicles and equipment: 60% of delivered cost or 100% of foreigncosts against normal documents, or 100% of local expenditures.

(d) consultant services: 80% of total cost of Bank approved items orprograms, against normal documents.

3.27 Disbursement of the Bank loan would be against import documenta-tion, and contracts. It is expected that disbursements would be completedby December 31, 1986, approximately 12 months after the end of the projectperiod. The proposed project would provide $3.0 million in retroactivefinancing to cover expenditures incurred after October 1, 1980, onconsultancies and on activities required as part of the 1981 plantingprogram. A semi-annual disbursement schedule is given in Annex 1, Table 12.

4. ORGANIZATION AND MANAGEMENT

A. Project Organization

4.01 Overall responsibility for the implementation of the proposedproject would rest with FELCRA. Since the project represents a major portionof FELCRA's land development program for the 1981-85 period, the DirectorGeneral of FELCRA would be responsible for day-to-day implementation of theproject, and no specific institutional unit would be established for thispurpose. FELCRA would be responsible for all land development activities,construction of scheme access roads and buildings, and construction of thepalm oil mills. Where water is to be obtained from the public supply,additional mains would be constructed by the PWD. Similarly the NEB wouldconstruct supply lines to the grid. Where individual water supply orelectricity generators are to be installed, FELCRA would carry out designand supervise construction.

Scheme Operation

4.02 FELCRA would continue its present method of scheme operation.Land required for schemes is made available to FELCRA for rehabilitation ordevelopment through formal agreements in standard form between FELCRA andState authorities. The land is vested in FELCRA until such time as itwithdraws from operation of the scheme after development costs have beenrecovered from participants, when it is to be revested in the StateAuthority. Participants sign individual declarations of consent allowingFELCRA to "take over" their land and agreeing to abide by all conditions ofthe scheme. Scheme management would be by a scheme waxat Lc- g

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FELCRA (or a supervisor for schemes of less than 500 acres) supported by asupervisor per 1,000 acres and a field assistant for each 400 acres. Landclearance, preparation, planting of the perennial crop and initial mainte-nance for a year after planting would be undertaken by contractors. FELCRA

normally stipulates that the settlers receive preference in hiring, and anattempt would be made to have more than half of employment on a scheme be ofsettlers or their dependents. FELCRA would purchase, or otherwise supply,required inputs for agricultural development, e.g., planting material andfertilizers. Subsequent maintenance, upgrading of field access roads, etc.would also be undertaken by contractor or for smaller tasks, by casual laborhired directly by FELCRA. Construction of scheme infrastructure, accessroads, water supply (unless main supply is utilized), office and staffhousing would be carried out by contractors.

4.03 When the scheme comes into production, harvesting would be carriedout by hired labor under the supervision of scheme management. Preferencewould again be given to settlers or their dependents in hiring for such work,and appropriate training would be provided, e.g., for rubber tapping, oil palmharvesting. Labor hired for work on the scheme, whether or not they weresettlers, would be paid the market wage. Settlers would also receive adividend based upon the surplus generated by the scheme, after provision for

repayment of the loan covering field development costs.

B. FELCRA Organization

4.04 FELCRA's existing organizational structure is not yet adequate toundertake the expanded program of activities proposed for the Fourth MalaysiaPlan period (para. 2.15). Existing senior management has a wide range ofresponsibilities and are pressed to carry the expanding and diverse work load.TJnder the project an expanded organization structure would be established,which would group functions of similar characteristics and spread seniormanagement work loads in an equitable manner. The proposed structure isillustrated in Chart 22423.

4.05 The basis of the organization would be the creation of two divisionseach headed by a Deputy Director General. Firstly, an Operations Divisioncomprising three Departments: Agricultural Services, Engineering, and SettlerDevelopment. Secondly, an Administration Division, made up of five Depart-

ments: Management Services, Finance, Personnel and Training, Program Develop-ment and Evaluation, and Data Processing. In addition, a new Marketing andProcessing Department would report directly to the Director General.

4.06 Operations Division. Under the proposed organization, SettlerDevelopment and Agricultural Services would be elevated to Departmental statusand each headed by a Director. In addition to its inspectorate and servicingfunctions the Agriculture Department would contain a special unit responsiblefor the in situ pilot projects. The Department would also maintain agricul-

tural technical staff in the proposed regional offices. Similarly, the

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Engineering Department would post engineers to the regions, and atheadquarters the Department would create a Design Unit to be responsible forengineering and design of all infrastructural works to be carried out byFELCRA.

4.07 Four regional offices would be established in Peninsular Malaysia,

together with a separate unit to manage the Trans-Perak Project. Eachregional office would be administered by a Regional Controller who wouldreport to the Director General. The Regional Controller would be supported ina staff role by an Agricultural Officer, Settler Development Officer, an AuditExaminer, a Marketing Inspector, an Engineer (supported in turn by Technicaland Survey Assistants). The State FELCRA officer would then report to theRegional Controller (see Chart 22223). This decentralized structure ispredicated upon two needs arising from FELCRA's activities. By the end of theFMP it will have about 300,000 acres and 250 schemes under its control,

scattered throughout Peninsular Malaysia. Given the diverse nature of theareas being developed, and the widening scope of activities being undertakenby FELCRA, there is increased need for adequate, accessible technical back-upto field managers. But, the size of field operations in most States andstaffing limititations do not justify decentralization of technical staff tothe state level. However, maintenance of state level offices is desirablebecause of the need for close liaison with State Governments on scheme andsettler selection.

4.08 Administration Division. Three additional departments would becreated under the Deputy Director General: Data Processing, Program Develop-ment and Evaluation, and Personnel and Training. The existing planning andbudget staff would be split, with the Planning Section forming the nucleus ofthe proposed Program Development and Evaluation Department, and the BudgetSection combined with the accounts staff to form an expanded FinanceDepartment.

4.09 At headquarters a Training and Staff Development Unit (TSDU) wouldbe established. This would initially report directly to the Director ofAdministration, and be separated from the existing Personnel staff. When aPersonnel and Training Department is created, the TSDU would be incorporatedin it. The TSDU, in addition to being responsible for the day-to-dayoperation of the training school, would:

(a) systematically define the training needs of both staff and settlers;

(b) design an overall training and staff development program to meetthose training needs;

(c) identify training resource personnel and institutions withinMalaysia and elsewhere who can assist with the program; and

(d) design and implement a system of training evaluation.

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In particular the TSDU would focus on the needs of FELCRA settlers and wouldassist the Settler Development Department with a wide range of trainingopportunities and instructional and educational support. A network of formallinkages would be established with national and regional training institutes.In particular, two management instructors would be seconded to the Instituteof Land Development managed by FELDA. They would draw on the staff andexpertise of the institute to develop and conduct management training coursesdesigned to meet FELCRA's specific needs.

4.10 Planning. The Program Development and Evaluation Department wouldbe based on the Planning Section of the present Planning and Budget staff. Itwould be made up of two sections: Scheme Feasibility Studies and Evaluationandl Special Studies. The Feasibility Studies Section would continue to beresponsible for scheme planning and obtaining the clearances necessary foractual schemes to proceed. However, the section would be expanded to includean agriculturalist, and the depth and scope of the scheme feasibility reportswould be improved (see paras. 4.14 et seq.). A new Evaluation and SpecialStudies Section would be established. The group would be responsible forevaluation of scheme development, enquiries into special problems such assettler selection criteria, regularization and enlargement of farm holdings,and other appropriate socioeconomic studies, and for procedural reviews toensure that performance is in accordance with established policies andprocedures (see paras. 4.23 et seq.).

4.11 Processing and Marketing. As FELCRA's mills come on stream by mid-1983, and the volume of production to be processed and marketed increases, itis proposed that the marketing section and a new processing section be movedfrom the Finance Department into a new division under a Director of Marketingand Processing who would report directly to the Director General. It is alsoproposed that the Director then take over responsibility for management ofFELCRA's vehicle fleet and transport activities.

4.12 Staffing. It is estimated that staff requirements would increase byalmost 100% over the 5-year project period (see Annex 1, Table 6). How-ever, about 83% of the staff growth would be in the lower grades where re-cruiting potential remains high. Obtaining suitable and available candidatesthrough recruitment or promotion for the technical and senior postings will bemore difficult. These include surveyors, engineers, accountants, technicalagricultural classifications, group managers, scheme managers and technicalassistants. Competition for comparable jobs among government agencies hasbeen largely minimized by efforts of the Public Service Department (PSD) tostandardize salary scales. Although the private sector is generally in aposition to pay higher salaries for senior staff, this differential has beennarrowed by the substantial increase in Government salaries announced in JulyL980. The adequacy of employment conditions for all grades of staff willLrequire periodic review.

4.13 Assurances were obtained that suitably qualified and experiencedindividuals would be appointed as Director of Program Development and Evalua-tion arid as Regional Controllers by December 31, 1982, and as Deputy Director

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General (Administration) by June 30, 1983. The staff build-up shown in Annex1, Table 6 would lead to the creation of the organization structure shown inChart 22423 by the end of the project period. Creation of posts would beapproved on an annual basis, and flexibility in actual timing of the requiredstaff build up is desirable. Assurances were also obtained that FELCRA wouldforward to the Bank for review by March 31, 1982, an implementation plan fororganizational strengthening and expansion, incorporating the above proposals,which would be implemented in consultation with the Government and the Bank.

C. Scheme Development

Scheme Selection

4.14 Fringe Schemes. These are developed on previously unalienated land,usually forest covered. They are designed to supplement the holdings ofvillagers in the vicinity. Areas are identified by local/state governmentofficers, and proposed by the State to FELCRA. FELCRA carries out an inves-tigation of the area and a brief feasibility report is prepared by the Plan-ning Section of the Planning and Budgeting staff (para. 2.22). This coversthe legal status of the land, its accessibility, adequacy of size of area,status of adjacent land, technical suitability for rubber or oil palm, anestimate of the cost of land development, and a projected cash flow for a20-year period. If the results of this analysis are satisfactory, and ifforestry and mining clearances are obtained, a final decision is made by theFELCRA Planning Committee. Feasibility reports have been prepared for the 11fringe schemes on which planting is to begin in the latter half of 1981.

4.15 Under the proposed project these scheme feasibility analyses wouldbe expanded and strengthened. The revised procedure would be as follows:

(a) initial review of identified areas by FELCRA regional office, toconfirm location and extent of area, determine accessibility andprobable suitability for rubber or oil palm (or other cropsif appropriate);

(b) preparation of background report by FELCRA Feasibility StudyDivision on area within about seven miles of the proposed scheme,based on the national village survey, land use and suitability mapsand supplementary sources, indicating:

(i) status of surrounding villages, e.g., population, agestructure, economic activity, incomes, and level of provisionof public infrastructure and services;

(ii) land use and suitability, e.g., existing land use and owner-ship (i.e., smallholders, estates, public schemes), andavailability of other unalienated land suitable for cropping.

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(iii) other development projects being undertaken in the area.

Based on this review an assesssment would be made of the degree of

deprivation in the area, the potential scope for selecting the

desired number of participants within a limited catchment area, and

possible recommendations on more specific targetting of participantselection (e.g., to specific land-poor or disadvantaged villages);

(c) based on the outcome of (b), and utilizing the soil survey reportof the Department of Agriculture, preparation of preliminary

feasibility report, including cost estimates and economic

analysis, on the basis of which the Director of ProgramDevelopment would determine priority schemes and arrange schedulesof field visits by feasibility studies team;

(d) field visits by staff of Feasibility Studies Section, including anagriculturalist, on basis of which FELCRA would produce a final

Feasibility Report, incorporating a preliminary scheme development

plan at a scale of 1:25,000 or larger, indicating access, possibleoffice site and including recommendations on potential source of

settlers;

(e) review and agreement with State Government on nature of scheme andparticipant selection. Submission of Feasibility Report to

Treasury with request for loan funding; and

(f) following land clearance and burning, follow-up field inspection

by planning team and technical staff from regional office to

confirm cost estimates, soil and other site conditions and

location of office, etc., prepare field road layout and

recommendations on planting materials, etc., and prepare revisedbudget.

4.16 Schemes would be selected for inclusion in the project on the basisof their economic viability. Assurances were obtained that the schemes to be

developed under the project would yield an economic rate of return of 10% or

more and that FELCRA would forward to the Bank full feasibility reports forindividual schemes extending to over 1,500 acres (involving investment in

excess of about $2 million). Reports on other schemes would be available for

inspection by the Bank during supervision.

4.17 Rehabilitation Schemes. These schemes have been initiated severalyears ago by state or other local government units. In most cases they were

intended to provide additional land to existing villagers living in the

vicinity who had minimal land holdings. Individual plots were allocated and

the allottees were to be responsible for deve!lopment of their plots. Rehab-

ilitation by FELCRA may be considered when the allottees have been unable to

successfully complete development. Following an approach by the allottees, or

the relevant State Government, FELCRA would ascertain the potential viability

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of the scheme, determining its technical suitability for an appropriate crop(usually rubber or oil palm), accessibility, and size adequacy. If theallottees are willing to assign their land to FELCRA for redevelopment, aformal written consent is signed by them. The State Government then formallyvests the land in FELCRA for it to develop under the Group Settlement Act(GSA).

4.18 The Feasibility Studies Section would carry out a feasibility studyof the proposed scheme along the same lines as for fringe schemes. However, abrief background report on the past history of the scheme, the presentdistribution and circumstances of its members, and the potential for effectivedevelopment of the group, would be carried out in place of the report on thepotential catchment area. Scheme selection and monitoring by the Bank wouldbe on the same basis as for fringe schemes (para. 4.15).

Participant Selection

4.19 The participants in Rehabilitation Schemes are fixed by virtue oftheir having been awarded titles to their land. Their agreement to FELCRAassuming control over this allotment is a precondition to the scheme'srehabilitation.

4.20 Selection of participants for Fringe Schemes is controlled by therelevant State Government. Normally a Selection Committee is establishedcomprising the State Director of Lands and Mines, who acts as chairman, arepresentative from the State Government, the District Officer or Collectorof Land Revenue, and a FELCRA Settler Development Officer, who acts asSecretary. Selection is based on a points system. To be considered anapplicant should be a Malaysian citizen, between 21 and 50 years of age,married, own less than 6 acres of land and not be attached to the governmentservice. Points are awarded on the basis of the following criteria: age(maximum score 10), number of children/dependents (10), area of land owned(5), distance of residence/village from scheme (10), skill and experience inagriculture (5) and physical fitness (10). Applicants with the highest scoresare selected.

4.21 In order to ensure adequate targetting of support to lower incomegroups, these criteria would be reviewed. As a first step, existing data onscheme participants and unsuccessful applicants would be analyzed todetermine the effect of changing the relative weights of the criteria, orthe scores awarded for different attributes within each criterion, on thoseactually chosen to participate in the schemes. This would also assess therole of the relatively subjective criteria, i.e., fitness and agriculturalexperience, on the final selection. Assurances were obtained that FELCRAwould carry out a study of its settler selection criteria by June 30, 1982 andpromptly furnish a report detailing proposals for modifying such criteria toGovernment and the Bank for their agreement.

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D. Monitoring and Evaluation

4.22 Since its establishment in 1967 FELCRA has been an effective landdevelopment agency. It has generally achieved established development targetsand significant improvement in the financial position of its schemeparticipants. However, in order to increase the efficiency of its operationsand to improve the design and sharpen the focus of its operations, asignificant monitoring and evaluation effort is appropriate.

4.23 Monitoring. During the project period FELCRA would introduce anexpanded management information system, which would provide reports tomanagement, on a quarterly or monthly basis, on a wide range of physical andfinancial elements of FELCRA-s operations. This extensive reporTnng systemwould not be practicable without the use of computers. FELCRA would hireconsultancy services to prepare computer programs for the proposed system andprovide appropriate training to FELCRA staff. Experienced data processingspecialists are currently at a premium in Malaysia. In order to ensureadequate supervision of the initial programming of the management informationsystem, FELCRA would engage an expert on a short-term consultancy basis. Dataprocessing would initially be the responsibility of the Finance Department,but would ultimately evolve into a separate departmental unit. Overall super-vision of the operation of the monitoring system would be the responsibilityof the Program Development and Evaluation Department.

4.24 Evaluation. Responsibility for evaluation would rest with theEvaluation and Special Studies Section of the Program Development andEvaluation Department. This section would, in particular, initiate two typesof evaluation studies. A set of time-series studies of selected schemesfinanced under the project would be undertaken in order to improve under-standing of the dynamic changes generated by FELCRA schemes in participanthouseholds and villages. The scheme catchment area would be surveyed beforedevelopment is initiated. This would provide an indication of existing incomelevels, occupations, attitudes to the proposed development, etc. Subse-quently, bi-annual surveys of the same sample of households would beundertaken. Selected households would only be replaced if they left thescheme or refused to cooperate. A fixed sample of this type has limitation inthat it can be argued that an increasing bias in the survey develops. Thebenefits of a historical pattern of income levels, attitudes, etc. more thanoutweigh the drawbacks of such an approach.

4.25 The Section would also undertake in-depth evaluation of a sampleof schemes in production. In addition to reviewing the physical and finan-cial performance of the scheme, i.e., cost, yields, loan repayment andincomes earned by participants, the study would focus in particular on itssocial development, including the functioning and role of the Settlers-Committee, the degree of settler participation in the scheme, and its localimpact. The studies would attempt to assess the future prospects of the

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scheme, and to identify a course of action for FELCRA to ensure the creationof a viable entity when the agency withdraws after loan repayment iscompleted.

E. Other Studies

4.26 The overall problems of "idle land" and holding size are clearlybeyond the scope of FELCRA to tackle, and would be addressed in the context ofthe preparation of the National Strategy for Land Use proposed by t/LRD.Based on its mandate and existing method of operation, FELCRA would howeverplay a key role in two areas: the potential role of land consolidation orforms of land pooling, as means to tackling the rural poverty problem andincreasing the effective utilization of land; and the evolution of groupfarming approaches in the Malaysian context, in particular the transfer ofresponsibility from the implementing agency to group members. FELCRA woulddevelop further pilot operations in these areas, and would attempt to ensure,e.g., through in-depth surveys of selected small subregions, that pilotschemes which were undertaken were replicable.

4.27 In the absence of any formal mandate to undertake consolidation,FELCRA has concentrated on assisting rural households by developing smallnearby parcels of land and making them available to those operatingsubmarginal holdings, or by rehabilitating similar fringe land developmentschemes which were not successful on a self-help basis. These have providedan approach to the problem of inadequately sized holdings, but they haveassisted only selected individuals within disadvantaged areas, and have leftmany other households untouched. One approach to broadening the impact ofthese investments is being tested in the pilot in situ projects, combiningdevelopment of adjacent land and voluntary pooling of village land, which isthen vested in FELCRA. Although definitive data are not available, it islikely that only a minority of villages could satisfy the conditionsnecessary for successful implementation of the in situ approach. Consi-deration will have to be given to alternative approaches to increasingholding size, including consolidation of holdings where no additionaladjacent land exists. Some possible approaches are being investigated inthe context of other programs (e.g., the Integrated Agricultural DevelopmentProjects (IADP) under the general leadership of the Ministry of Agriculture).However, given its background and mandate FELCRA will be expected to take alead in tackling land consolidation.

4.28 The Evaluation and Special Studies Section would carry out a seriesof studies in this area which would elaborate alternative models involvingsome form of consolidation and their implications, e.g.:

(a) voluntary participation of households; no additionalland available; displacement of some households required;surrender cxie tA'x Xa'k i so' excess ¶ami)ries to

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take up land on settlement schemes, e.g., of FELDA; form ofcompensation to be paid to those surrendering holdings;replanning and reallocation of proprietary units; and

(b) a more formalized form of consolidation for which thereis now no proposed model in the Malaysian context.

4.29 Elaboration of these models would include review of: (a) possiblelegislative implications; (b) probable manpower and time requirements forschemes, including a preliminary investigation to determine local support andfeasibility, the ascertainment of existing rights, the preparation of ascheme (including legal steps), and its implementation. Based on theseinitial feasibility studies the unit would move to undertake pilot schemesof types which appeared operationally and legally feasible.

4.30 In Malaysia, a large share of post-independence land developmentundertaken by "smallholders" has been managed in contiguous schemes by publicsector agencies, in particular FELDA and FELCRA. In principle, agency controlis tied to the period of repayment of the loans made to the settlers. Thisapproach is highly intensive in its demands upon the public sector agencies.To date progress in transferring operational responsibility to the settlers,individually or as a group, has been minimal. If such approaches to enhancingagricultural productivity in existing villages are to have a significantimpact, less "agency-intensive" management methods will be necessary. Thisproblem will become more urgent for FELCRA as pressure for expansion of thein situ and related programs increases. The Evaluation and Special StudiesSection would undertake studies and develop pilot projects in this area, whichwould encompass forms of involvement of smallholders in scheme preparation,legal forms of group operation, obligations of participants during principaldevelopment (investment) phase, cost to be borne by group, compensation andbenefit distribution, management decision-making procedures, means ofdeveloping necessary skills among participants, and strategy for reducingFELCRA inputs. These investigations would include existing producing schemes(para. 4.25), as well as new pilot projects.

4.31 The work of the Special Studies Section would be designed to lead toimplementation of operations, in most instances on a pilot basis and wouldattempt to ensure, e.g., thorough in-depth surveys of small sub-regions, thatthe pilot schemes which were undertaken would be replicable. The program ofwork over the project period would have the overall objective of providing afirm basis for FELCRA's development program for the subsequent Fifth Planperiod, which would clarify FELCRA's role in the national land developmentstrategy. While the areas for study, including issues of settler selectionand evaluation of existing schemes, are likely to form the major elements ofthe program, the program will have to evolve during the life of the project.The Program Development and Evaluation Department would prepare an annualprogram of work which would be forwarded to the Bank for review.

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F. Operation and Maintenance

4.32 FELCRA would be responsible for operation and maintenance of thefacilities to be financed under the project. Assurances were obtained fromGovernment that adequate arrangements would be made for the timely provisionof funds and resources required to maintain all civil works constructed underthe project, and to staff, maintain and operate all other project-supportedactivities.

G. Accounts and Audit

4.33 FELCRA would develop separate financial statements for its fundsand a consolidated balance sheet and prepare detailed and comparative state-ments in loan disbursements and repayments which would permit analysis of thefinancial position of individual schemes. Assurances were obtained thatFELCRA would prepare proposals for implementation of a system of financialreporting acceptable to the Bank by June 30, 1982, and prepare a five-yearfinancial projection detailing incomes, expenditures and financial position byDecember 31, 1982. Assurances were also obtained that FELCRA-s accounts wouldbe audited annually by an independent auditor acceptable to the Government andthe Bank.

5. PRODUCTION, MARKETING, PRICES AND INCOMES

A. Production Technology

5.01 Agricultural development would be supervised directly by FELCRA andis expected to be substantially confined to rubber and oil palm. The agencydoes have substantial experience with these crops, now having 150,000 acresunder its supervision. Malaysia is the world½s principal producer of boththese crops and standard practices for their establishment, maintenance, andharvesting are well established. (Technical standards and practices proposedfor this project are outlined in Annex 2.)

B. Incremental Production

5.02 Rubber areas will commence production in 1988. Peak incrementalproduction of 43,000 tons per annum is expected in the year 2000 (see Table5.1). Oil palm production will commence in 1984 and is expected to peak in1992 with an ffb output of 161,000 tons (equivalent to 31,000 tons of palm oiland 6,500 tons of palm kernels). The loss of production as a result of theproject is small. Fringe schemes are developed from land not presently usedfor agriculture. Most rehabilitation schemes were supposed to have beenplanted with rubber, but production of rubber or other crops on these schemesis normally minimal. Individual plotholders on schemes with a reasonable

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existing stand of rubber are unlikely to agree to rehabilitation by FELCRA,since they would qualify for full RISDA replanting grants in a few years.

Table 5.1: SUMMARY OF INCREMENTAL PRODUCTION UNDER THE PROJECT('000 tons) (SELECTED YEARS)

Year Total1981 1985 1990 1995 2000 2010 (30 years)

RubberNew plantings - - 10.1 36.3 43.1 22.3 690.1Production lost onrehabilitatedschemes (0.5) (1.1) - - - - (5.7)

Incremental rubber (0.5) (1.1) 10.1 36.3 43.1 22.3 684.4

Oil Palmffb - 27.6 149.1 153.0 133.7 107.2. 3,241.4Oil - 4.1 27.8 29.1 25.4 20.4 609.1Kernels - 1.1 6.0 6.1 5.3 4.3 129.7

C. Marketing

5.03 Rubber. FELCRANs standard marketing practice is to enter intoa contract with the Malaysian Rubber Development Corporation (MARDEC) whichoperates factories processing smallholder rubber. It purchases bothlatex and scrap. In the few areas where it is difficult to obtain MARDECservices, due to poor road accessibility, group processing for sheet rubberwould be undertaken. This would normally be done using sheeting batteries.The output would then be sold either through RISDA or local private traders.The quantity of sheet rubber is expected to be small and would be sold throughlocal tendering.

5.04 Oil Palm. Where oil palm schemes are within easy transportdistance of FELCRA's own mills, oil palm fruit would be sold by the schemeto FELCRA for processing. Where this is not feasible, FELCRA would continueits present practice of selling fruit to private traders on behalf of thescheme, by open tender. Contracts are normally for one year and based ongazetted prices, assumed oil and kernel extraction percentages, and quotedtransport and other charges. While this procedure of fruit sale by tendercan work well, protracted disputes can arise over the weight and quality offruit being delivered by a scheme. Cancellation of a contract by a buyer,particularly during peak harvest months, can cause major losses, because of

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the consequent need for distress sale of fruit. Such potential losses aredifficult to quantify, but may be assumed to be about 5%, in addition tocreating continuing management problems.

D. Product Prices

5.05 Financial prices /1 for rubber and oil palm are estimated on thebasis of Bank projections for world prices adjusted for internationalfreight, the domestic cost of marketing and the present levels of exporttaxation. Details of the estimates and calculated adjustments are given inAnnex 4, Tables 1 and 2. The average scheme level price for rubber is basedon the assumption that, on a dry rubber basis, 35% would be of RSS I quality,45% RSS III and 20% scrap. For oil palm fruit the ex-scheme price is basedon assumed extraction rates of 19% for palm oil and 4% for palm kernels.

E. Scheme Models

5.06 Because of the nature of the FELCRA schemes, which are operated assingle units, and on which the beneficiaries (shareholders) are not obligedto work, individual farm models have not been constructed. Models have beendeveloped for typical 1,000 acre schemes based on rubber or oil palm. On thebasis of FELCRA's past experience, planted areas of 890 acres and 950 acreshave been assumed for rubber and oil palm, respectively.

5.07 The number of participants in rehabilitation schemes is dictated bythe number of plots originally allocated by the particular State Government.Typically, these were of 4-8 acres and, on that basis, a total of 165participants has been assumed on a 1,000 acre rehabilitation scheme. Onfringe schemes the plot size is agreed with the State Government, but currentpractice is to allocate shares equivalent to six acres planted, except inspecial circumstances. In addition, a share equivalent to 10% of the schemeis held by FELCRA. Therefore, allowing for this reduction in the area to bealloted, the number of participants in a typical 1,000 acre fringe scheme isassumed to be 134, where rubber is planted, and 143 for oil palm. However,the size of allotment and participant incomes would be reviewed in light ofthe circumstances of each scheme.

5.08 Participants are entitled to receive all surplus funds after oper-ating costs, insurance, and loan repayment deductions have been met. Onfringe schemes the FELCRA holding receives 10% of the scheme's net profitbefore the individual dividends payable to participants are calculated. Thereis no fixed dividend policy, each scheme is assessed individually every sixmonths and a recommendation on the dividend made to the participants. Reduc-tions in dividends paid may be made to build up a loan repayment fixed againstfuture debt servicing requirements, or for establishment of scheme coopera-tives. No deduction is made from the potential dividend for income smoothingpurposes. In the event of low yields and/or prices reducing income, funds

)_ In March/April 1981 constant currency terms.

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from the FELCRA holding are used to cover operating expenditures and loanrepayment. The holding may also be used to provide capital for subsidiaryprojects undertaken by the scheme, or to finance special courses on otheractivities for participants. FELCRA also retains the right to draw on thelholding for extraordinary purposes, e.g. to fund possible shortfalls in theAgricultural Insurance Fund. Since the Fund is used for scheme purposes, andwould not be a 10% levy on the scheme used for other purposes (e.g., areplanting fund), it has not been itemized in the cash flow, but is includedin the funds available for dividend payments.

5.09 Rubber. The financial flow for a typical 1,000 acre rubber schemeis summarized in Table 5.2. Field investment costs are covered by aninterest-free loan to FELCRA from Treasury, repayable over 10 years, beginningin the ninth year after planting (year 10 of the scheme). The totalTreasury loan is estimated at $1,193,000. In addition a negative cash flow inyears 9 and 10 would be covered by carrying forward funds from year 8, thefirst year of tapping, in which a small accounting surplus would be attributedto the scheme. Projected dividends on fringe schemes would average $1,366during the loan repayment period (including the 10% FELCRA holding) and $1,550during the final 11 years of the expected life of the trees.

5.10 Oil Palm. The financial flow for a typical oil palm scheme issummarized in Table 5.3. Field investment costs, funded by an interest-freeTreasury loan, are projected at $1,259,000. A positive cash flow is projectedfor the third production year (year 6) and a surplus of $155,000 ($1,080 perparticipant on fringe schemes) is projected for year 7. Currently Treasuryloans to FELCRA for oil palm schemes, which carry interest at 6.5%, arerepayable beginning in year 10. Years 8 and 9 are projected peak productionyears and the cash flow should be adequate to begin loan repayment in year 8.It is therefore recommended that repayment of interest-free Treasury loansfor oil palm schemes should begin in year 8 and extend over a period of10 years. Projected dividends per settler would average about $420 over thedevelopment period, rising to $770 during the repayment period and $1,080thereafter.

5.11 The projected cash flow for one of the two oil palm mills is shownin Annex 3. The mills would serve FELCRA-s existing oil palm schemes.Investment cost, to be financed by a Treasury loan at its commercial rate, isestimated at $5.3 million. Based on existing commercial marketing margins,the mills would generate a surplus, beginning in the third year, after pro-viding for loan repayment, averaging $1.3 million per year. Actual chargeslevied for processing would be adequate to cover the cost of processing, loanrepayment, and development of a small reserve fund.

Table 5.2: SUMMARY CASH FLOW ANALYSIS OF A 1,000 ACRE RUBBER SCHEME /a

($'000)

Years

1 2 3 4 5 6 7 8 9 10-19 20-30

/b

ReceiptsGovernment loan 355 149 122 131 114 91 112 119 - - -

Sales rubber - - - - - 49 266 604 480

Total Receipts 355 149 122 131 114 91 112 168 266 604 480

PaymentsInvestmens expenditure 355 149 122 131 114 91 112 119 - - -

Operating expenditure - - - - - - - - 245 295 265

Consolidated annual charge 3 7 7

Loan repayment - - - - - - - - - 119

Totalj Payments 355 149 122 131 114 91 112 122 252 421 272

Annual surpiu5/(deficit) - - - 46 14 183 208

Fund Available for Dividend

Fringe scheme (134 participants)

($) - - - - - - - 343 107 1,366 1,552

Rehabilitation scheme (165

participants)($) - - - _ 279 87 1,109 1,261

Wage Paymentl 54 66 63 76 57 47 38 72 198 251 228

Total to participants /c 32 40 38 46 34 28 23 43 120 151 136

Payment Per participant

Fringe schene ($) 239 295 285 343 254 209 172 321 896 1,127 1,015

Rehabilitation scheme ($) 194 242 230 279 206 170 139 261 727 915 824

/a 890 acres planted./b Loan repgytent period (annual average).

/c 60% of total.

Table 5.3: SUMIARY CASh FLOW ANALYSIS OF A 1,000 ACRE OIL PALM SCHEMEE /a(S'OUO)

Years

1 2 3 4 5 6 7 8-17 18-30/b

_-Qeiptsgovernment loan 376 128 143 297 217 98 - - -

Sales (fresh fruit) - - - 29 130 250 388 459 347

Total Receipts 376 128 143 326 347 348 388 459 347

PaymentsInvestment expenditure 376 128 143 297 217 98 - - -

Operating expenditure - - - - - 98 208 198 170

Consolidated annual charge - - - 4 7 7 7 7 7

Loan repayment - - - 9 18 18 18 18 18

Replanting fund - - - - - - - 126 -

Total Payments 376 128 143 310 242 221 233 349 195

Allnual surplus (deficit) - - - 16 105 127 155 110 152

Fqnd Available for Dividend

per ParticipantFringe scheme (143 participants)($) - - - 117 734 888 1,084 769 1,077

Rehabilitation scheme (165participant)($) - - - 101 636 770 939 667 933

W~age PaymentsTotal 63 67 92 j34 136 116 127 117 94

Total to participants /c 38 40 55 80 82 70 76 70 56

Payment Per ParticipantFringe schemes ($) 266 280 385 559 573 492 531 492 396

Rehabilitation schemes ($) 230 242 333 485 497 424 461 424 339

/a 950 acres planted./b Loan repayment period (annual average).

7 60% of total.

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6. PROJECT BENEFITS AND JUSTIFICATION

A. General

6.01 FELCRA is the principal federal agency involved in the developmentand rehabilitation of small land development schemes. These programs havethree principal objectives: (a) to create assets (largely in land) for thedirect benefit of disadvantaged rural groups; (b) raise the quality and incomepotential of agricultural resources; and (c) promote efficient agriculturalunits. Government proposes to expand FELCRA rapidly during the coming 5-yearperiod to maximize its role in the alleviation of poverty in traditionalsmallholder agriculture. The principal aim of the proposed project is tostrengthen FELCRA's capability to plan and implement smallholder improvementprojects. As a consequence, the project would assist in the development ofalternative approaches to improvement of smallholder agriculture, and sharpenthe focus of FELCRA's program in this area. The project would finance thefringe and rehabilitation scheme elements of FELCRA's program for the 1981-85period covering a total of about 84,000 acres./l It would include landdevelopment and associated costs over the 5-year period, and contain a seriesof measures to strengthen FELCRA, including development of an agency-widetraining program. The total cost of the project over the 5-year period(excluding contingencies) is estimated at $102 million, of which $71 millionwould be for scheme development and associated infrastructure and equipment,$10 million for processing facilities, $2 million for training and $19 millionfor overall project management, FELCRA staffing and technical assistance.

B. Project Benefits

6.02 The main quantifiable benefits of the proposed project would resultfrom the increased production of rubber, palm oil and palm kernels. Theprincipal beneficiaries would be the approximately 12,000 scheme participantsand their families, who would obtain income from the schemes in the form ofwages for work performed, and dividends. The average development cost ofthese schemes per participant household is $13,000. This compares to theestimated cost per family on larger settlement schemes, e.g., Keratong andJohore of about $24,000 in 1981 prices, and reflects the smaller size ofholding and the lack of provision of housing and supporting infrastructurefor participants. Based on past experience, about 40% of the labor for theschemes would be performed by nonparticipants, and this would amount to over5,000 man-years per year at full development. Production of rubber would riseto a peak of 43,000 mt in the year 2000 (see Table 5.1), valued at $65 millionin 1981 prices, and palm oil and kernels would reach 31,000 tons and 6,500tons in 1992, valued at $18 million and $2 million respectively. The totalestimated value of production over the life of the assisted schemes would be$1,430 million.

/1 The Bank is also financing the Trans-Perak Project, an areadevelopment project covering about 31,000 acres, the land developmentcomponent of which would be the responsibility of FELCRA.

- 41 -

C. Beneficiaries

6.03 Scheme participants would be selected by State Governments. Thebroad criteria used in selection are: Malaysian citizen, 21 to 50 yearsof age, good health, married with children, living within 10 miles of theproposed scheme, landless or with an uneconomic size holding, and havingagricultural experience. While these criteria do not specifically includeincome, in practice prescreening of schemes has resulted in the majority ofselected beneficiaries having very low incomes. Data collected during projectpreparation indicate that the distribution of incomes of participanthouseholds would be of the following order:

Household PreprojectIncome range % of Average income

Group ($/month) households ($/mornth)

A $0-124 68 80B $125-200 25 170C over p200 7 250

Total 100 114

These groups correspond approximately to those with incomes below the PovertyLevel, those between the Poverty Level and the Critical Consumption Level(CCL),/l and those with incomes above the CCL.

6.04 Benefit Distribution. The expected cash flows for typical 1,000-acre rubber and oil palm schemes were outlined in Chapter 5. Dividendincome would be distributed equally among the participants and therefore thedistribution by preproject income group would be as above. As noted, thseschemes are not intended to provide the sole source of household income, andthe area allocated per participant does not require a full labor input fromthe household. When the schemes have been operated on a share basis it hasnot been mandatory for participants to undetake a given amount of work onthe schemes. Participants are given preference in hiring but, based on pastexperience, it is estimated that only 60% of wage income would be earned byparticipants or their immediate families, and the balance provided byworkers not participating in ownership of the scheme.

6.05 Participant households with lowest currenit incomes are consideredmost likely to take up the available work. Those few whose current incomesexceed the CCL may be assumed not to choose to work on the scheme. It isestimated that 80% of the wages earned by the remaining settler householdswould be received -by those with preproject incomes below the poverty level.On this basis, an estimate has been made of the distribution of incomesderived from the schemes (see Table 6.1). This indicates that, including

/1 One thiird of per capita GDLP.

- 42 -

Table 6.1: DISTRIBUTION OF BENEFITS BY BENEFICIARY GROUPAT FULL DEVELOPMENT

Distributionof benefits

Bene- Divi-ficiary dends Wages Total

Crop group/a -(%) -

Rubber A 68 48 60B 25 12 20C 7 - 5Other lb - 40 15

Total 100 100 100

Oil palm A 68 48 56B 25 12 18C 7 - 3Other /b - 40 23

Total 100 100 100

/a See para. 6.03.7T Workers not participating in ownership of the scheme.

both wage earnings and dividends, close to 60% of the direct benefits of theproject would accrue to participant households currently in the povertygroup, with less than 5% going to those with existing incomes above the CCL.About 19% of total benefits would go to nonparticipant workers. Survey dataon the income status of these nonparticipant workers employed on the schemesare not available, but observation suggests that these would predominantly bedrawn from low-income households and that it is probable that at least 75%would be in the poverty group. Thus, in the aggregate close to 75% of thebenefits would accrue to households currently in poverty.

6.06 Participant Incomes. Based on the models of 1,000-acre fringeschemes outlined in Chapter 5, estimates have been made of incomes received byparticipant households from these schemes, assuming that 60% of scheme laboris supplied by participants, or their dependents (see Table 6.2). Averagewage earnings from the scheme per participant household would range from $334p.a. on rubber schemes during the development period to $1,127 on rubberschemes in full production (years 10-19). If the income obtained byparticipants from the schemes is, in the aggregate, supplementary to theirexisting incomes (which average $1,200/year), household casb icm-es wx%\average- 23zwt %3,5 an increase of more than 1507 above vrepvo ject .

- 43 -

Table 6.2: PARTICIPANT DIVIDEND AND WAGE INCOMES ON RUBBERAND OIL PALM FRINGE SCHEMES, BY PHASE OF DEVELOPMENT /a

Rubber Oil Palm(134 participants) (143 participants)

Participant ParticipantsAverage household Average householdpartici- working partici- workingpant /b on scheme /c pant on scheme

…______________________ ($) -…-------------

Development period /dDividend 27 27 403 403Wages 334 1,,640 444 1,800

Total 361 1,667 847 2,203

Loan repayment period /eDividend 1,366 1,366 769 759Wages 1,127 1,920 492 2,200

Total 2,493 3,286 1,261 2,969

Post loan repayment period /fDividend 1,552 1,552 1,077 1,077Wages 1,015 1,850 396 2,160

Total 2,567 3,402 1,473 3,237

/a Based on a typical 1,000-acre scheme./b Assuming settlers or their dependents supply only 60% of wage labor

hired by scheme./c Household members hired for 400 days work per year./d Rubber years 1-9. Oil palm years 1-7./e Rubber years 10-19. Oil palm years 8-17./f Rubber years 20-30. Oil palm years 18-30.

However, the income of these households would still be below the CCL whichwould have increased to the equivalent of $4,300 per household at that period.

6.07 The extent of employment of participants on the schemes would dependon the amount of work offered and other employment opportunities open to them.Preproject, available data indicate that the average participant householdobtains about 300 man-days of employment per year. The wage incomes earned byaverage participants during the scheme production period represent just under

- 44 -

200 man-days work per year. A typical household with minimal othercommitments could supply about 1.5 labor units p.a., or 400 days, to thescheme. Thus, participant households would be forced to relinquish some(about one third) of their preproject activities, and would be fully employed(if they wished) during the productive period. Cash incomes for a householdproviding 400 days labor to the scheme per year have been estimated, and rangebetween $3,000 and $3,400 p.a. during the production period (see Table 6.2),and this may be taken as a minimum cash income level of participants at fulldevelopment. Households would also obtain income in kind from theirseparately owned dwellings and houselots. It cannot be inferred, however,that nonparticipant households would also be fully employed post-project.

6.08 Schemes of the type included in this program are inevitably somewhatrandom in their impact. At existing relative prices of labor and products,almost one half of the cash income generated during the production periodwould be received by participants as dividends. This can mean a significantincome boost to those fortunate enough to be chosen to participate in theschemes. Given financial and institutional capacity constraints, coverage ofsuch schemes is limited, and significant numbers of the rural poor are notassisted directly, especially those not favored by the existing selectioncriteria (para. 4.20), e.g., older smallholders and widows, although theirclose dependents or relatives may be selected. Under the project a number ofinitiatives would be undertaken to explore the potential for broadening thecoverage of small-scale land rehabilitation and development schemes. Thein situ projects, currently in a pilot phase of development, which provideassistance to a whole village as a unit, are an attempt of this type. Otheralternatives would be explored in the research and project preparation work tobe carried out under the project (see paras. 4.26-4.31), and a review of theexisting selection criteria is to be carried out (para. 4.21). Evaluation ofongoing schemes would also focus on the degree of involvement by participantsin the schemes and the impact of work on the schemes on other activities ofthe participants.

D. Cost Recovery

6.09 Government would receive revenue as a result of the rubber and oilpalm schemes from three sources: repayment of the loans for field development,export taxes on the commodities produced, and land taxes. Of these charges,export taxes would amount to 78% and loan repayment 20% (see Table 6.3).Including taxes, the cost recovery index is 91% for oil palm and 75% forrubber. The recoveries by Government amount to 106% of the net cashincomes received by participants for oil palm schemes and 85% for rubber.While these high recovery levels are largely comprised of sector-wide taxes,they should be seen in the context of the relatively low levels of incomeobtained by scheme participants, since beneficiary incomes are expected toremain below the CCL at full development (para. 6.06). At the same time thehigh level of recovery from relatively low-income beneficiaries is justifiedby the fact that the beneficiaries assume little or none of the riask attachA

to t'he project. The scheme would be managed by FELCRA; the beneficiaries donot provide any capital or unpaid labor. The principal objective of thiselement of the Government s land development program is to create viableincome-earning assets for transfer to disadvantaged rural groups.

- 45 -

Table 6.3: COST RECOVERY /a

Type of schemeOil palm Rubber…----($000)

1. Gross value of scheme production at scheme /b 2,415 2,1962. Less production costs 1,043 1,2123. Plus wage payments to participants 601 7784. Net cash income to participants 1,973 1,7625. Land taxes 46 306. Product taxes 1,651 1,1507. Loan repayments 397 3118. Total public recoveries (5+6+7) 2,094 1,4919. Public sector outlays (capital + O&M) 2,306 1,992

10. Cost recovery index (8t9) 91% 75%11. Ratio of public recoveries to cash

income of participants from scheme (8-4) 106% 85%

/a Based on typical 1,000 acre schemes./b Items 1-9 are present values in 1981 prices (discounted at 10%).

E. Economic Analysis

6.10 Economic analysis of the project was carried out separately forthe land development and processing components. The net present value(NPV) and economic rate of return (ERR) for the land development componentwere determined by comparing incremental rubber and oil palm (ffb)production with incremental investment and operational cost at economicprices, discounted over a 30-year period. Benefits from the oil palmprocessing facilities consist of crude palm oil and kernel output valued atborder prices, while the principal cost items at economic prices comprisedthe initial investment outlays for the facilities, the fresh fruit inputsand other direct manufacturing charges, all discounted over the assumed22-year life of the facilities. The discount rate used in the NPVcalculations is the opportunity cost of capital, estimated at 10% forMalaysia. Details of economic price calculations are given in Annex 4.

6.11 Land Development. Viability of each of the agriculturaldevelopment components was tested by means of a detailed economic analysisof four scheme models, representative of each type of scheme undertaken byFELCRA under the project:

(a) a rehabilitation scheme growing rubber;

- 46 -

(b) a rehabilitation scheme growing oil palm;

(c) a rubber fringe scheme; and

(c) an oil palm fringe scheme.

The results of these analyses are summarized in Annex 4, Table 3.

6.12 Processing Facilities. The two proposed palm oil mills under theproject were appraised separately since they have not been designedspecifically to serve the oil palm planted under the project, but wouldcater to existing FELCRA oil palm schemes. The recommended mill locationsare Bukit Kepong and Nasaruddin where FELCKA's oil palm acreage in themills' catchment areas would be large enough to guarantee a sufficient andregular supply of ffb input. The results of the economic analysis for bothmills are summarized in Annex 4, Table 4.

6.13 Net Present Values and Economic Rates of Return. The aggregatedeconomic net present value of the project is estimated at $98.5 million andthe overall economic rate of return is approximately 18%. The rates ofreturn for both the land development component and the processing componentare satisfactory at 17% and 24%, respectively. Rates of return for therepresentative scheme models are also acceptable, ranging from 15% forrehabilitation rubber schemes to 22% for fringe oil palm schemes.

6.14 Sensitivity Analysis. Sensitivity tests were conducted toidentify the variables that are critical to the viability of the project andanalyze the extent of their influence. Sensitivity analysis for the landdevelopment component was carried out by determination of the switchingvalues /1 for crucial variables of the four representative scheme models,summarized below. The results suggest that the land development componentis slightly sensitive to crop yields attained. However, the probability of30% or 40% lower yields must be considered highly unlikely given the factthat the agricultural practices for both rubber and oil palm are well provenin Malaysia.

/1 The switching value indicates the percentage reduction in a benefitstream (or increas,e in cost) necessary to reduce the internal rate ofreturn of the project to the opportunity cost of capital (lO%), ie.to reduce the net present value of thxe proaect to zero.

- 47 -

Land Development ComponentSwitching Values of Critical Variables

% change over base caseYield Field FELCRAper development Labor Infrastruc- manage-

Scheme model acre cost wages ture cost ment

Rehabilitation

Rubber -28 177 157 289 186Oil palm -38 325 359 359 300

FringeRubber -34 212 188 345 223Oil palm -42 362 400 398 334

6.15 In addition an analysis was carried out of the representativescheme models- sensitivity to other, more complex, conditions. It has beenassumed in the design of the schemes that, at i-ull development, mostparticipants would be able to find work outside the schemes, if they werenot employed in the scheme. Therefore the impact of a rise in theopportunity cost of labor to equal the market wage by 1990 was assessed.This would reduce the rate of return by about one percentage point forrubber, and 0.7% for oil palm. Game damage can be a severe problem in someareas, particularly on oil palm, necessitating substantial replanting in thefirst year or so after planting. An increase of 10% in development costsand a one year delay in maturity would reduce the rate of return by about3 percentage points for oil palm and nearly 2 points for rubber, and wouldreduce the net present value by up to 25% for oil palm.

6.16 Switching value analysis for the processing facilities showed thatthe critical variable is the oil extraction rate. A reduction in therate from 19% to 18% reduces the ERR by almost 10 percentage points. Theoil extraction rate is dependent both on the efficiency of the millingoperations and the quality of the ffb input. This stresses the importanceof a well designed mill and good management both at the mill and at thescheme level to avoid oil losses due to inefficient operation of the millsand untimely harvesting of fruit. The world market price for palm oil isnot really crucial to the viability of the processing facilities themselves,since lower output prices are largely passed on to the ffb producers throughlower ffb prices.

F. Project Risks

6.17 The risks associated with the project are limited. Rubber and oilpalm production technology is well known in Malaysia. Market prospects for

- 48 -

both crops are favorable. A reduction of 10% in market prices would reducethe rate of return for the project from 18% to 16%. The additional produc-tion from the project would itself have an insignificant impact on marketprices. The major implementation risk associated with the project is that ofdelayed agricultural development because of staffing constraints and capa-bility within FELCRA, but this would not have a substantial impact on the rateof return. For example, delaying the agricultural development of the projectby one year would reduce the rate of return to 16%. Major emphasis is beingplaced in the project on FELCRA's organization, staffing and training, toavoid such delays.

G. Environmental Impact

6.18 Land development would be carried out within the guidelines of theMalaysian Conservation Act, which provides adequate safeguards against erosionand water course pollution. Commercial grade timber is extracted from forestareas before clearance is given by the Forestry Department. No loss ofhabitat critical to endangered species is expected. Palm oil mills would belocated away from population centers in order to minimize the nuisance ofsmoke and odors. Mill effluent would be treated by means of a ponding systemto meet the standards set by the Division of Environment (DOE), under theMinistry of Science, Technology and Environment, which require the biologicaloxygen demand (BOD) level of the effluent to be reduced below 500 ppm beforedischarge.

7. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During negotiations assurances were obtained from the Governmenton the following points:

(a) lending terms and conditions to FELCRA would be satisfactory to theBank (para. 3.23); and

(b) adequate arrangements would be made for the timely provision offunds and resources required to maintain all civil works construc-ted under the project, and to staff, maintain and operate all otherproject-supported activities (para. 4.32);

7.02 During negotiations assurances were obtained from FELCRA that:

(a) suitably qualified and experienced individuals would be employedas Senior Planning Adviser and Training and Staff DevelopmentAdviser by December 31, 1981 (para. 3.16);

(b) suitably qualified and experienced individuals would be appointedas Director of Program Development and Evaluation and as RegionalControllers by December 31, 1982, and as e-p'at-y DiSector &enetal(Administration) by 3une 30, 1933 (para. 4.13);

- 49 -

(c) it would furnish to the Bank for review by March 31, 1982, animplementation plan for organizational strengthening andexpansion, incorporating the proposals of paras. 4.04 to 4.12,which would be implemented in consultation with the Government andthe Bank (para. 4.13);

(d) the schemes to be developed under the project would yield aneconomic rate of return of 10% or more and FELCRA would forwardto the Bank full feasibility reports for individual schemes extend-ing to over 1,500 acres (para. 4.16);

(e) it would carry out a study of its settler selection criteria byJune 30, 1982 and promptly furnish a report detailing proposalsfor modifying such criteria to Government and the Bank for theiragreement (para. 4.21);

(f) it would prepare proposals for implementation of a system offinancial reporting acceptable to the Bank by June 30, 1982, andprepare a five-year financial projection detailing incomes,expenditures and financial position by December 31, 1982 (para.4.33); and

(g) it would have its accounts audited annually by an independentauditor acceptable to the Government and the Bank (para. 4.33).

7.03 It is recommended that the Bank approve retroactive financing of$3.0 million for expenditure incurred after October 1, 1980, on consultanciesand activities required as part of the 1981 planting program (para. 3.27).

7.04 Subject to the above assurances, the proposed project would besuitable for a Bank Loan of $37.0 million, with a 17-year maturity includinga grace period of four years. The Borrower would be the Government ofMalaysia.

-50 -

ANNEX 1Table 1

MALAYSIA

FELCRA I PROJECT

Phasing of Agricultural Development(acres)

Type of scheme/crop 1981 1982 1983 1984 1985 Total

FringeRubber 7,000 12,800 10,300 4,000 4,800 38,900Oil palm 2,500 2,800 2,000 2,000 700 10,000

Subtotal Fringe 9,500 15,600 12,300 6,000 5,500 48,900

RehabilitationRubber 4,500 3,800 5,000 6,900 5,400 25,600Oil palm 5,800 400 - 1,200 2,400 9,800

Subtotal Rehab. 10,300 4,200 5,000 8,100 7,800 35,400

Total 19,800 19,800 17,300 14,100 13,300 84,300

Subtotal Rubber 11,500 16,600 15,300 10,900 10,200 64,500

Subtotal Oil Palm 8,300 3,200 2,000 3,200 3,100 19,800

- - ANNEX 1Table 2

MALAYSIA

FELCRA I PROJECT

Agricultural Development Costs by Year(M$ 000)

1981 1982 1983 1984 1985 Total

RubberLand clearing/planting 7,765 13,536 13,719 10,465 9,088 54,573Materials 80 575 1.,400 2,207 2,890 7,152Agricultural tracks - 149 330 961 1,270 2,710Casual labor & sundries 103 573 2,735 5,260 7,418 16,089

Subtotal 7,948 14,833 18,184 18,893 20,666 80,524

Oil PalmLand clearing/planting 6,130 3,529 1,920 2,632 2,714 16,925Materials - 459 819 1,249 1,792 4,319Agricultural tracks - 117 137 1,690 795 2,763Casual labor & sundries 83 399 1,762 2,980 3,755 8,979

Subtotal 6,213 4,504 4,638 8,575 9,056 32,986

Total Base Cost 14,161 19,337 22,822 27,468 29,722 113,510

Physical Contingencies 1,416 1,934 2,282 2,747 2,972 11,351

Total 15,577 21,271 25,104 30,215 32,694 124,861

MALAYSIA

FELCRA I PROJECT

Scheme Infrastructure Construction Program and Cost by Year(M$ 000)

1981 1982 1983 1984 1985 TotalUnit Cost Unit Cost Unit Cost Unit Cost Unit Cost Cost

Access roads (miles) 13 1,546 26 3,055 23 2,659 24 2,791 26 3,073 13,124

Buildings (units)Housing 63 1,058 124 2,068 131 2,207 131 2,184 112 1,825 9,342

Offices 12 480 21 806 21 827 18 697 16 625 3,435

Furniture/equipment 148 280 295 284 238 1,245

Site Preparation 52 91 91 78 70 382

Subtotal 14738 3,245 3,420 3,243 2,758 14,404

Water supply (schemes) 12 370 21 644 21 644 18 557 16 487 2,702

Electricity (schemes) 12 374 21 665 21 665 18 557 16 522 2,783

Subtotal 744 1,309 1,309 1,114 1,009 5,485

Total _ase Cost 4,028 7,609 7,388 7,148 6,840 33,013

Physical contingencies 791 1,494 1,448 1,401 1,344 6,478

Total 4,819 9,103 8,836 8,549 8,184 39,491

MALAYSIA

FELCRA I PROJECT

Vehicles and Equipment Numbers and Cost by Year(M$ 000)

I 1981 1982 1983 1984 1985 Total

Number Cost Number Cost Number Cost Number Cost Number Cost Number Cost

4'wheel drive vehicle 23 759 21 693 15 495 14 462 16 528 89 2,937Ttactor 25 825 16 528 14 462 11 363 12 396 78 2,574Trailer 25 100 16 64 14 56 11 44 12 48 78 312Rotovaters 10 44 10 44 12 53 8 35 3 13 43 189HIOughs 10 33 10 33 12 40 8 26 3 16 43 142TTactor-grader - - - 8 400 2 100 - - 10 500Truck - - - - 8 480 2 120 - - 10 600M4 bile training unit - - 2 88 - - - - - - 2 88 W

Bi4s - - 1 100- - - - - - - 1 100

PiCk-up - - - - 3 50 - - - - 1 50

Subtotal 1,761 1,550 2 036 1,150 995 7,492

Physical contingencies (10%) 176 155 204 115 100 750

Total 1,937 1,705 2,240 1,265 1,095 8,242

-54 -

ANNEX 1Table 5

MALAYSIA

FELCRA I PROJECT

Palm Oil Processing Facilities Costs by Year(M$ 000)

1981 1982 1983 1984 1985 Total

Bukit KepongDesign and supervision 175 82 50 - - 307Access road (2 miles) 600 - - - - 600Mill construction & equip. 2,000 4,500 2,055 - - 8,555Staff quarters - 650 260 - - 910

Subtotal 2,775 5,232 2,365 - - 10,372

NasaruddinDesign and supervision 160 75 45 - 40 320Access road (2 miles) 600 - - - - 600Mill construction & equip. 1,400 2,900 1,485 - 2,860 8,645Staff quarters - 500 230 - 205 935

Subtotal 2,160 3,475 1,760 - 3,105 10,500

TotalDesign and supervision 335 157 95 15 25 627Access road (4 miles) 1,200 - - - - 1,200Mill construction & equip. 3,400 7,400 3,540 953 1,907 17,200Staff quarters - 1,150 490 68 137 1,845

Base Cost 4,935 8,707 4,125 1,036 2,069 20,872

Physical contingencies 613 871 413 104 207 2,208

Total 5,548 9,578 4,538 1,140 2,276 23,080

- 55 -ANNEX 1Table 6Page 1

MALAYSIA

FELCRA I PROJECT

Projected FELCRA Staff Positions, 1980-85

1980 1985Autho- 1981 1982 1983 1984 1985 Totalrized -- Incremental positions --- positions

Head OfficeDirector General 1 - - - 1Deputy Director-General (Operations) 1 1Deputy Director-General (Administration) - - 1 - - - 1

Directors - Engineering 1 - - - - - 1Management Services 1 - - - - - 1Finance 1 - - - - - 1Agriculture - I - - - - 1Program Development - - 1 - - - 1Settler Development - - - 1 - - 1Operations - 1 - - - - 1EDP - - - - - 1 1Personnel and Training - - - - 1 - 1Marketing and Processing - - - I - - 1

Subtotal (Director and above) 5 2 2 2 1 1 13

Department HeadsBudget and Planning 1 - -1 - - - -Budget - - - 1 - - 1Planning - - - 1 - - 1Finance 1 - -1 - - - -Financial Controller - - 1 - - - 1Settler Development (commercial) 1 - - - _ _ 1Settler Development (home economics) - - - 1 -I 1Procurement .1 - - - - - 1Personnel 1 - - - - - 1Training - 1 - - - - 1General Administration - 1 - - - - 1Land - 1 - - - - 1Audit I - - - - - 1Marketing I - - - - - 1Processing - 1 - - - - 1Agriculture 1 - - - - - IEDP - 1 - - - -1 -

Subtotal (Department Heads) 8 5 -1 3 - -1 14

56- ANNEX 1

Table 6Page 2

1980 1981 1982 1983 1984 1985 1985Autho- -- Incremental positions --- Totalrized position

Other Senior StaffSenior engineer - - 1 1 - - 2Senior surveyor - - 1 - - - ISenior administrative officer 1 3 2 2 - - 8Senior agricultural officer 1 1 - - - - 2Accountant 2 - - - - - 2Surveyor 2 - - - - - 2Engineer 3 -. - - - - 3Systems analyst - 1 - - - - 1Administrative officer 19 5 6 - 2 3 35Accounting officer 3 4 - 1 - 2 10Agricultural officer 9 -4 - 5Senior accountant 1 1 - - - - 2Transport mananager - - - 1 - - 1

Subtotal (Other senior staff) 41 11 10 5 2 5 74

Grade B 51 24 - 3 7 2 87Grade C 152 53 14 31. 5 18 273Grade D 67 16 2 2 5 8 100

Total Head Office 323 113 26 45 19 34 560

Regional and State OfficesRegional controller 1 3 1 - - - 5State officer 8 -2 5 1 1 1 14Engineer 3 2 - - 3 2 10Agricultural officer 1 - 4 - - - 5Administrative officer I - 4 - - - 5

Subtotal (Regional and State Offices) 14 3 14 1 4 3 39

Grade B .24 16 48 13 3 8 122Grade C 52 32 42 52 21 17 214Grade D 106 20 24 18 23 7 194

Total Regional/State Offices 196 171 122 84 51 35 559

SchemesGrade B 108 26 23 23 22 27 229Grade C 803 110 139 133 126 123 1,434Grade D 337 85 72 60 70 70 694

-1, 249 2271 2214 11EA 2'1- 2-203 1-A

-57- ANNEX 1Table 7

MALAYSIA

FELCRA I PROJECT

Project Staff Requirements

Position/Grade 1981 1982 1983 1984 1985

Head OfficeGrade ADirectors and above 1 2 3 3 4Department heads 3 3 3 3 3Administrative 5 10 12 14 16Professional 2 3 5 5 6

Subtotal 11 18 23 25 29

Grade BAdministrative - - - 1 1Technical/professional 12 12 13 16 17

Grade CClerical/stenographic 23 25 36 38 49Technical 2 2 2 2 2Trainee field assistants 6 12 18 18 18

Grade DClerical/stenographic 5 6 9 9 13Technical 4 4 4 4 4Drivers, office boys, etc. 9 10 15 16 21

Subtotal Main Office 63 79 107 116 137

Regional/State OfficesGrade ARegional controller/State officers 2 6 7 7 8Administrative - 2 2 2 2Professional 1 3 3 5 6

Grade BGroup managers 6 12 18 18 21Administrative - 2 2 2 2Technical/professional 4 23 25 27 29

Group CClerical/stenographic 18 36 63 72 81Technical 2 7 11 15 16

Subtotal 20 43 74 87 97

Grade DClerical/stenographic 8 8 9 20 11Drivers, office boys, etc. 5 15 22 29 32

Subtotal Regional/State Offices 63 79 107 116 137

SchemesGrade B: Managers 21 39 53 65 78Grade C: Supervisors 10 22 37 69 55

Field assistants 57 119 168 208 246Clerks 15 30 48 66 87

Subtotal 82 171 253 323 388

Grade D: Clerical/stenographic 9 16 28 36 39Drivers etc. 53 95 128 158 190

Subtotal Schemes 165 321 462 582 695

Total 274 514 731 885 1,040

- 58 -

ANNEX 1

Table 8

MALAYSIA

FELCRA I PROJECT

Project Management Cost by Year(M$ 000)

Item 1981 1982 1983 1984 1985 Total

Staff SalariesHead Office

Grade A 285 456 592 649 782 2,764

Grade B 136 138 149 206 221 850Grade C 232 281 417 440 546 1,916

Grade D 61 66 89 101 126 443

Subtotal 714 941 1,247 1,396 1,675 5,973

Regional/State OfficesGrade A 75 212 230 273 314 1,104Grade B 170 512 659 699 801 2,841

Grade C 134 304 508 607 689 2,242Grade D 50 86 115 147 164 562

Subtotal 429 1,114 1,512 1,726 1,968 6,749

SchemesGrade B 248 466 643 812 995 3,164Grade C 482 1,024 1,544 2,024 2,483 7,557Grade D 243 440 628 801 955 3,067

Subtotal 973 1,930 2,815 3,637 4,433 13,788

Total Salaries 2,116 3,985 5,574 6,759 8,076 26,510

Overhead /a 752 1,504 2,161 2,697 3,202 10,316

Technical AssistanceAgric. Planning Adviser 138 206 206 206 69 825Land Consolidation 34 86 86 69 34 309

Short-term Consultancies 313 214 109 99 104 839

Consultant Studies 100 300 300 300 300 1,300

Subtotal 585 806 701 674 507 3,273

Total Base Cost 3,453 6,295 8,436 lO l32 1,710 .

Physical Contingencies 345 630 844 1,013 1,178 4,010

Total 3,798 6,925 9,280 11,143 12,963 44,109

/a $38 per acre under FELCRA management.

- 59 -

ANNEX 1Table 9

MALAYSIA

FELCRA I PROJECT

Training Costs by Year(M$O000)

Item 1981 1982 1983 1984 1985 Total

MaterialsTeaching Equipment 10 15 10 10 10 55Books & materials (staff) 10 10 10 10 10 50Books & materials (settlers) 10 15 15 15 15 70Teaching materials 6 7 7 7 7 34

Subtotal 36 47 42 42 42 209

TrainingTrainee subsistence 105 140 140 141 141 667In-servize training 58 135 152 163 174 682Short courses 50 100 100 100 100 450

Subtotal 213 375 392 404 415 1,799

ManagementStaff salaries 192 241 241 241 241 1,156Overhead /a 77 96 96 96 96 461Technical assistance 155 206 206 51 - 618Consultancy - - - - 40 40

Subtotal 424 543 543 388 377 2,275

Total 673 965 977 834 834 4,283

Physical Contingencies 67 97 98 83 83 428

Total 740 1,062 1,075 917 917 4,711

/a 40% of salaries.

- 60 -

ANNEX 1Table 10

MALAYSIA

FELCRA I PROJECT

Total Costs by Year(M$ 000)

Item 1981 1982 1983 1984 1985 Total

Agricultural DevelopmentLand clearance/planting 13,895 17,065 15,639 13,097 11,802 71,498Materials 80 1,034 2,219 3,456 4,682 11,471Agricultural tracks - 266 467 2,675 2,065 5,473Casual labor & sundries 186 972 4,497 8,240 11,173 25,068

Subtotal 14,161 19,337 22,822 27,468 29,722 113,510

InfrastructureRoads 1,546 3,055 2,659 2,791 3,073 13,124Buildings 1,738 3,245 3,420 3,243 2,758 14,404Water 370 644 644 557 487 2,702Electricity 374 665 665 557 522 2,783

Subtotal 4,028 7,609 7,388 7,148 6,840 33,013

Vehicles & Equipment 1,761 1,550 2,036 1,150 995 7,492

Processing Facilities 4,935 8,707 4,125 1,036 2,069 20,872

TrainingMaterials 36 47 42 42 42 209In-service training 163 275 292 304 315 1,349External courses 50 100 100 100 100 450Salaries & overhead 269 337 337 337 337 1,617Technical assistance 155 206 206 51 40 658

Subtotal 673 965 977 834 834 4,283

ManagementSalaries 2,116 3,985 5,574 6,759 8,076 26,510Overhead 752 1,504 2,161 2,697 3,202 10,316Technical assistance 172 292 292 275 103 1,134Short-term consultancies& studies 413 514 409 399 404 2,139

Subtotal 3,453 6,295 8,436 10,130 11,785 40,099

Total Base Cost 29, A 6,4,46 45,1t4 4-7 ,?66 52,245 219,269

Physical Contingencies 3,408 5,181 5,289 5,463 5,884 25,225

Price Contingencies 729 5,555 10,255 15,479 22,531 54,549

Total 33,148 55,199 61,328 68,708 80,660 299,043

- 61, -

ANNEX 1Table 11

MALAYSIA

FELCRA I PROJECT

Project Financing Plan(M$°000)

Federal governmentGrant Loan. IBRD

Amount % Amount % Amount % Total

Agricultural DevelopmentLand clearing/planting - - 35,749 50 35,749 50 71,498Materials - - 11,471 100 - - 11,471Agricultural tracks - - 5,473 100 - - 5,473Casual labor & sundries - - 25,068 100 - - 25,068

Subtotal - - 77,761 69 35,749 31 113,510

InfrastructureRoads 8,531 65 - - 4,593 35 13,124Buildings 9,363 65 - - 5,041 35 14,404Water 2,702 100 - - - - 2,702Electricity 2,783 100 - - - - 2,783

Subtotal 23,379 71 - - 9,634 29 33,013

Vehicles & Equipment 2,977 40 - - 4,495 60 7,492

Processing Facilities - - 13,567 65 7,305 35 20,872

TrainingMaterials 209 100 - - - - 209In-service training 1,349 100 - - - - 1,349External courses 90 20 - - 360 80 450Salaries & overhead 1,617 100 - - - - 1,617Technical assistance 132 20 - - 526 80 658

Subtotal 3,397 79 - - 886 21 4,283

ManagementSalaries 26,510 100 - - - - 26,510Overhead 10,316 100 - - - - 10,316Technical assistance 227 20 - - 907 80 1,134Consultancies & studies 428 20 - - 1,711 80 2,139

Subtotal 37,481 93 - - 2,618 7 40,099

Total Base Cost 67,254 31 91,328 42 60,687 27 219,269

Physical contingencies 8,976 36 10,078 39 6,171 25 25,225Price contingencies 18,035 32 23,829 44 12,685 24 54,549

Total 94,265 31 125,235 42 79,543 27 299,043

-62 - ANNEX 1Table 12

MALAYSIA

FELCRA I PROJECT

Estimated Schedule of Disbursement

IBRD fiscal year Accumulated disbursementsand semester (US$ million equivalent)

FY82 - 2nd 3.0

FY83 - 1st 5.52nd 9.1

FY84 - 1st 13.52nd 18.1

FY85 - 1st 22.6- 2nd 25.8

FY86 - 1st 29.0- 2nd 32.7

FY87 - 1st 37.0

- 63 - ANNEX 2Page 1

MALAYSIA

FELCRA I PROJECT

Technology and Production Specifications

A. Rubber

1. Land Preparation. Standard practices for land preparation wouldbe followed by contractors, who would work under FELCRA supervision. Landclearing and burning would be carried out manually between October andApril/May. Because of the nature of the terrain, terracing would benecessary over about 40% of the plantable area, and would be carried outmechanically, unless slopes are such that machine operation is dangerous, inwhich case manual terracing would be done. For erosion and weed control acover crop of Pueraria phaseoloides (4 lb/acre) or Centrosema Pubescens (2lb/acre), with Calopogonium mucunoides (6 lb/acre) would be planted.

2. Planting. A high planting density of 207 trees per acre would beused to create a closed canopy at an early stage, to shade out weeds andreduce maintenance. The seed-at-stake planting method would be used. Clonalbudwood for scions would be purchased from RISDA, RRIM or private nurseries.FELCRA would establish small polybag nurseries to provide replacementmaterial. Clonal choice for particular schemes would be based upon RRIMrecommendations, which take into account principal conditions and proposedpractices for each scheme, i.e., soil properties, slope, disease incidence,the likelihood of strong winds, and expected tapping regime, and be based onthe characteristics of individual clones. Given the rather difficultconditions in which many schemes are located, i.e., relatively steep terrainand shallow soils, it is anticipated that GTI would be the most extensivelyused clone.

3. Maintenance. The major land development contractor would beresponsible for land preparation, planting and maintenance for a total oftwo years. Following planting, monthly weeding would be carried out for thebalance of this period. Subsequent weeding would be undertaken by localcontractors or by casual labor (principally participants) hired directly byFELCRA. Fertilizer application would be based on soil and foliar analysescarried out by RRIM. Based on past experience, applications are expected topeak in the fifth and sixth year after planting, when about 300 lb/ac ofSulphate of Ammonia (or equivalent), 125 lb of Rock Phosphate, 65 lbs ofMuriate of Potash and 50 lbs of Kieserite per acre would be applied.

4. Tapping. Tapping would be carried out by labor employed directlyby the scheme. Scheme participants would be encouraged to undertake thiswork, and given appropriate training. Normal market wages for the areaswould be paid. This method allows better control of tapping intensityand standards than allocating individual lots, and requiring lot holders toundertake tapping. An alternate daily tapping regime would be followed, /1

/1 In schemes where labor shortages were experienced, a shift to third daytapping together with ethrel stimulation would be expected. This wouldnot increase per acre tapping cost, but has not been assumed herebecause of uncertainties involved.

- 64 -ANNEX 2Page 2

and particular attention would be paid to the angle of the slope of thecut, bark consumption and depth of tapping to prevent wounding.

5. Yield. Because of varied conditions experienced, yields are notexpected to match those on private estates. An overall average peak yieldof 1,700 lb/ac is projected with an average yield of 1,320 lb/ac over thewhole tapping life of 23 years (see Table 2)./l Many schemes being rehabil-itated have small areas of poor quality producing rubber which are usuallycleared and replanted. It has been estimated that this would amount to 15%of the area to be rehabilitated, and that the yield curve for this old rubberwould have had a peak yield of 900 lb/ac and a tapping life of 14 years,in the absence of the project.

B. Oil Palm

6. Land Preparation and Planting- Land preparation for oil palmwould be carried out by contractor, as for rubber. Areas selected for oilpalm would be predominantly flat or gently sloped, and it is assumed thatfull terracing would not be required. Over about 20% of the area, treeplatforms would be constructed to assist in erosion control. A cover cropwould also be planted of similar composition to that used for rubber.Areas selected for oil palm would not be isolated. Satisfactory plantingmaterial is available in Malaysia from conmmercial suppliers (principallyestate companies) and this source would be used by FELCRA. A plantingdensity of 60 palms per acre would be used.

7. Maintenance. The major land development contractor would beresponsible for land preparation, planting and maintenance for a total oftwo years. Following planting, monthly weeding would be carried out for thebalance of this period. Subsequent maintenance would be carried out bylocal contractors or by casual labor (predominantly settlers), hireddirectly by FELCRA. Castration would be carried out monthly during theperiod between the 14th and 24th months after planting. Assistedpollination would also be undertaken starting in the 24th month afterplanting. Fertilizer application would be based on the results of annualsoil and foliar analyses. Based on past experience, application is expectedto increase to about 220 lbs of Sulphate of Ammonia, 150 lb/ac of RockPhosphate, 300 lbs of Muriate of Potash and 90 lbs of Kieserite, in thefourth year after planting.

8. Yield. Harvesting would be carried out by labor hired directlyby the scheme. Settlers would be encouraged to undertake this work andprovided with appropriate training. Because of its limited tolerance ofadverse growing conditions, oil palm would be restricted to areas of bettersoil and terrain, with adequate soil moisture. As a result it is expectedthat only about 25% of the total area to be developed under the projectwouia bie planted to the crop. Yields are expected to peak in the seventhyear of production at just below 9 tons f.f.b. per ac, (see Table 4).

/1 Adoption of third day tapping and ethrel stimulation would not signifi-cantly alter the yield curve, under good management.

- 65 - ANNEX 2Table 1

MALAYSIA

FELCRA I PROJECT

Rubber - Field Development Costs per Acre (M$) /a

----------------------- Year -----------------------Activity 0 1 2 3 4 5 6, 7 8 Total

(3 mths)

Felling & burning 160 149 309Land preparation 233 233Establishment ofcover crop 69 69

Planting seed at stake 34 34Budgrafting 70 70Maintenance of crop area 36 162 167 152 156 103 76 76 928Supplying 19 9 28Manuring - labor 1 5 7 7 7 8 8 8 51

- materials 9 47 62 60 66 67 67 67 445Pest: and disease control- labor 3 3 3 3 3 3 3 21- materials 3 3 3 3 3 3 3 21

Agricultural roadsand bridges 33 15 11 58 11 11 11 11 161

Drains 45 2 2 2 2 2 2 2 59Tools and supplies 72 5 77Tapping (second halfyear 8) 78 78

Latex collection (secondhalf year 8) 5 5

Other 10 3 3 3 3 3 3 3 31

Total Base Cost 160 619 329 267 288 251 200 245 261 2,620

Physical contin-gencies (10%) 16 62 33 27 29 25 20 25 26 263

Total Cost 176 681 362 294 317 276 220 270 287 2,883

/a Cost per acre planted.

- 66 -

ANNEX 2Table2

MALAYSIA

FELCRA I PROJECT

Projected Yield: Rubber

Without project /a With projectS/2.d/1.20dj/30.10m/

12.111% /b S/2.d/2.10m/12.83% /bYears No. of No. offrom Year of tappable Yield tappable Yield

planting tapping trees/ac lb DRCIac trees/ac lb DRC/ac

8 1/c - - 75 1309 2 140 310 160 70010 3 148 510 180 1,00011 4 148 660 180 1,25012 5 144 780 180 1,35013 6 140 850 176 1,40014 7 134 900 172 1,45015 8 128 825 168 1,50016 9 120 750 164 1,55017 10 112 675 160 1,700/d18 11 104 600 156 1,70019 12 94 520 152 1,70020 13 84 440 148 1,60021 14 72 360 144 1,55022 15 60 350/e 140 1,45023 16 - - 136 1,35024 17 - - 132 1,25025 18 - - 128 1,15026 19 - - 124 1,00027 20 - - 120 90028 21 - - 115 80029 22 - - 110 70030 23 - - 105 1,000/e

/a Applies to existing State land development schemes scheduled for reha-bilitation, of which typically only about 15% of the area is developedand under tapping.

/b Tapping system./c First trees reach maturity in the middle of year 8.T7 Starting ethrel stimulation./e Slaughter tapping before felling.

-67 - ANNEX 2Table 3

MALAYSIA

FELCRA I PROJECT

Oil Palm - Field Development Costs per Acre (M$) /a

- --------------- Year ----------------------Activity 0 1 2 3 4 5 6 Total

(3 mths) (6 mths)

Felling & burning 142 140 282Land preparation 92 92Planting material 153 19 6 178PlanLting 42 6 2 50Establishment of cover crop 65 65Maintenance of crop area 38 147 147 157 123 30 642Manuring - labor 9 9 15 12 6 51

- materials 58 82 112 142 71 465Pest: and disease and sanitation

- labor 3 3 9 11 5 31- materials 3 3 3 3 2 14

Castration, pollination 25 56 56 28 165Agr:Lcultural roads and bridges 39 15 12 209 12 6 293Drains 63 3 3 3 3 2 77Harvesting 30 81 53 164Oth,er 10 3 3 10 6 3 35

Total Base Cost 142 642 266 295 604 449 206 2,604

Physical contingencies (10%) 14 64 27 30 60 45 21 261

Total Cost 156 706 293 325 664 494 227 2,865

/a Cost per acre planted.

_68_ ANNEX 2

Table 4

MALAYSIA

FELCRA I PROJECT

Projected Yield: Oil Palm

Years Yield Years Yieldfrom Year of tons from Year of tons

planting harvesting FFB/ac planting harvesting FFB/ac

4 1 1.0 18 15 7.25 2 3.1 19 16 7.06 3 5.0 20 17 6.87 4 7.2 21 18 6.68 5 8.5 22 19 6.59 6 8.5 23 20 6.410 7 8.9 24 21 6.311 8 8.9 25 22 6.112 9 8.4 26 23 6.013 10 8.4 27 24 5.914 11 8.0 28 25 5.815 12 7.7 29 26 5.616 13 7.6 30 27 5.517 14 7.4

- 69 -ANNEX 3

MALAYSIA

FELCRA I PROJECT

Projected Cashflow, Bukit Kepong Oil Mill(M$ '000)

Item 1981 1982 1983 1984 1985 1986 1987 1988/89 1990-94

Receipts(Government loan 3,113 5,755 3,702 - - - - - -'ales - Palm oil - - 7,302 13,916 17,328 18,541 19,927 20,794 20,201

- Palm kernel - - 1,232 2,218 2,952 3,159 3,395 3,542 3,442

Total Receipts 3413 5,755 12,236 16,134 20,80 21,700 23,322 24,336 23,643

PaymentsCapital expenditure 3,113 5,755 3,702 - - - - - -FFB purchases /a - - 6,800 12,240 15,100 16,157 17,365 18,120 18,951Processing cos7ttb - - 728 1,399 1,450 1,485 1,526 1,551 1,551Loan repayment /c - - - - 2,108 2,108 2,108 2,108 2,108

Total Payments 3,113 5,755 11,230 13,639 18,658 19,750 20,999 21,779 21,059

Annual surplus/deficit ( ) - - 1,006 2,495 1,622 1,950 2,323 2,557 2,584

1995 1996 1997 1998 1999 2000 2001 2002

ReceiptsGovernment loan - - - - - - - -Sales - Palm oil 20,201 19,864 19,359 19,022 18,181 17,507 17,002 16,329

- Palm kernel 3,442 3,384 3,298 3,241 3,097 2,983 2,897 2,782

Total Receipts 23,643 23,248 22,657 22,263 21,278 20,490 19,899 19,111

PaymentsCapital expenditure - - - - - - - -FFB purchases /a 17,400 17,110 16,675 16,385 15,660 15,080 14,645 14,065Processing cost /b 1,551 1,541 1,526 1,516 1,490 1,470 1,455 1,435Loan repayment |c - - - - - - - -

Total Payments 18,951 18,651 18,201 17,901 17,150 16,550 16,100 15,500

Annual surplus/deficit ( ) 4,692 4,597 4,456 4,362 4,128 3,940 3,799 3,611

la Using ex-scheme FFB prices as derived in Annex 4, Table 2, adjusted for transport cost scheme-mill (M$20).

/b Direct and indirect manufacturing costs, i.e. labor, factory management, fuel, maintenance, packaging,insurance, interest on working capital, and miscellaneous. Excludes interest on long-term loans anddepreciation of assets.

/c Assumed loan conditions: four-year grace period with interest (6-1/2%) capitalization, and repayment ofprincipal and interest in 10 equal annual installments.

- 70 -ANNEX 4Page 1

MALAYSIA

FELCRA I PROJECT

Economic Analysis

Derivation of Economic Prices

1. Project output prices for rubber and palm oil and kernels arebased on the Bank's commodity price projections for 1985 and 1990 expressedin constant first quarter 1981 dollars, adjusted for international freight,local marketing costs and quality differentials. Details of these calcula-tions are given in Tables 1 and 2. Other prices, with the exception oflabor, are based on present financial levels, inflated through to March/April1981 constant currency values and adjusted by standard conversion factors,which take account of the distortions between Malaysian internal andexternal price levels. These are summarized in Table 5.

2. Labor was divided into two categories in calculating its economiccost. The economic wages of FELCRA staff were taken to be equal to theirfinancial wages since skilled manpower and middle-level staff are inrelatively short supply and it is sometimes difficult to fill positions,particularly in technical fields, or posts in outlying areas. The localeconomic conditions and labor market characteristics for field labor willvary widely among individual schemes which would be used. The majorityare expected to be in relatively remote or inaccessible locations. As aresult, at least at the inception of the project, a considerable degree oflocal underemployment will be the norm, although the circumstances ofindividual households will vary. In carrying out the economic analysis ofthe project an economic wage of 0.70 times the financial wage rate wasassumed. Given the overall rapid growth rate of the Malaysian economy it ispossible that local labor market conditions will tighten. As one variant ofthe sensitivity analysis the economic wage was assumed to increase steadilyas a proportion of the financial wage, equality being reached in 1990.

Cost and Benefit Streams

3. Benefits were considered as the total value of the incrementalagricultural production of the schemes, i.e., the incremental quantitiesmultiplied by the economic prices derived from border prices. For fringeschemes there is no loss in production since the land to be developed isnot currently in agricultural use. On rehabilitation schemes preprojectproduction is usually small. It was assumed that 15% of the arearehabilitated was under low yielding but productive rubber preproject, andthat production would have continued for eight years if redevelopment was notun(lertbm

4. Costs attributed to the land development schemes in addition

to field development and operating costs were the construction andmaintenance of access roads to the scheme, housing for essential scheme

- 71 -

ANNEX 4Page 2

staff, scheme offices and provision of water and electricity to thesebuildings, the provision and operation of vehicles and equipment, salaries ofstaff assigned to the scheme, and FELCRA overhead staff and support costs

attributed to the scheme. Included in the cost streams were physicalcontingencies of 20% on construction of civil works and 10% on other items.

5. The results of the economic analyses of the four types of schemesin the project are summarized in Table 3./1 A sensitivity analysis was notcarried out for the land development component as a whole. The rate ofreturn to the component was estimated by aggregating the net benefit streamsfrom the tentative programs for four types of schemes. This aggregate rateof return was 17%.

6. The two proposed palm oil mills under the project were appraisedseparately since they have not been designed specifically to serve the oilpalm planted under the project, but would cater to FELCRA's existing oilpalm schemes. Results of the analyses are summarized in Table 4.11

7. Benefits were estimated as the value of palm oil and kernels ex-millvalued at border prices. Costs attributable to the mill were constructioncost, delivered cost of oil palm fruit, and mill operating and staffingcosts (including fuel, maintenance, packaging, insurance and miscellaneouscosts).

/1 Detailed calculations are presented in Working Paper C.l4 in theProject File.

-72 ANNEX 4Table 1

MALAYSIA

FELCRA I PROJECT

Economic and Financial Price Calculations - Rubber(March 1981 prices)

1981 1982 1985 - 1990Econ- Finan- Econ- Finan- Econ- Finan- Econ- Finan-omic cial omic cial omic cial omic cial

RSS I Spot NY USc/kg /a 166.0 166.0 167.0 167.0 171.0 171.0 187.0 187.0

Less ocean freight andinsurance 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0

FOB Malaysian port USc/kg 151.0 151.0 152.0 152.0 156.0 156.0 172.0 172.0

FOB Malaysian port M¢/lb 147.4 147.4 148.4 148.4 152.3 152.3 167.9 167.9

Weighted FOB value schemeproduce M¢/lb /b 144.5 144.5 145.5 145.5 149.3 149.3 164.6 164.6

Less weighted export duty /c 37.0 37.5 39.4 47.1

Less research cess 1.0 1.0 1.0 1.0

Less replanting cess 4.5 4.5 4.5 4.5

Less weighted marketing,processing, transportcost Id, /e 8.0 12.0 8.0 12.0 8.0 12.0 8.0 12.0

Weighted ex-scheme price 137 90 138 91 141 92 157 100

/a World Bank commodity price forecast in 1977 constant US$, adjusted to March 1981 prices.

/b Scheme output consists of 35% RSS I, 45% RSS III and 20% scrap. On the basis of DRC, RSS IIIvalue is 97% of RSS I. Scrap is normally processed into SMR 20 before exportation. Forpurpose of export duty calculation, value of SMR 20 was taken equivalent to RSS III.

/c Export duty schedule based on gazetted FOB prices for different grades in M¢/lb: on first 60C- 0%;on next 5c - 20%; on next 5¢ - 25%; on next 5c - 30%; on next 5¢ - 35%; on next 5¢ - 40%; on next5¢ - 45%; on balance - 50%.

/d Based on all inclusive Mardec fee of lOc/lb for RSS I and RSS III, and 20¢/lb for scrap.

Ie Economic cost figure derived by using trade conversion factor of 0.67.

-73- ANNEX 4Table 2

MALAYSIA

FELCRA I PROJECT

Economic and Financial Price Calculations - Oil Palm(March 1981 constant prices per metric ton)

1981 1982 1985 1990Econ- Finan- Econ- Finan- Econ- Finan- Econ- Finan-omic cial omic cial omic cial omic cial

Palti Oil

C.i.f. NW European port /a 634 634 642 642 691 691 667 667Less ocean freight 45 45 45 45 45 45 45 45Less insurance and normal losses 3 3 3 3 3 3 3 3F.o.b. Malaysian port 586 586 594 594 643 643 619 619

K$/MTF.o.b. Malaysian port 1,260 1,260 1,277 1,277 1,382 1,382 1,331 1,331Less port charges /b 2 2 2 2 2 2 2 2Less handling, storage and transport

to port /b 32 48 32 48 32 48 32 48Less export duty /c - 359 - 368 - 420 - 395Ex-mill price 1,226 851 1,243 859 1,348 912 1,297 886

Palm KernelUS$/MTNigerian c.if. NW European port /a 373 373 415 415 528 528 509 509Less ocean freight 45 45 45 45 45 45 45 45Less insurance and normal losses 2 2 2 2 2 2 2 2F.o.b. Malaysian port 326 326 368 368 481 481 462 462

-M$/MTF.o.b. Malaysian port 701 701 791 791 1,034 1,034 993 993Less port charges /b 2 2 2 2 2 2 2 2Less handling, storage and transport

to port /b 32 48 32 48 32 48 32 48Less export duty /c - 80 - 125 - 246 - 226Ex-mill price 667 571 657 616 1,000 738 959 717

Fresh Fruit BunchesM$/MT

Value of oil equivalent (19%)/d 233 162 236 163 256 173 246 168Value of kernel equivalent (4%) 27 23 26 25 40 30 38 29Ex-mill equivalent price 260 185 262 188 296 203 284 197Less processing cost /b 28 32 28 32 28 32 28 32Less overheads /b 18 20 18 20 18 20 18 20Less transport to mill /b 13 20 13 20 13 20 13 20Ex-scheme price 201 113 203 116 237 131 225 125

/s World Bank commodity price forecast in 1977 constant US$ adjusted to March 1981 prices.

/b Economic cost figures derived by using standard conversion factors: port charges - 0.80; hand-ling, storage and transport (combined) - 0.67; processing - 0.89; overheads - 0.89; transport -0.66.

/c Export duty formula palm oil and kernel for P > 689: 0.50 P - 271, where P = f.o.b. price in M$.

/d Oil extraction rate at full development; actual extraction rates in first three to four produc-tion years of oil palm trees somewhat lower due to immaturity of fruits.

MALAYSIA

FELCRA I PROJECT

Economic Analysis of Representative Scheme Models

Rehabilitation- FringeRubber Oil palm Rubber Oil palm

Rate of Rate of Rate of Rate ofCase return NPV return NPV return NPV return NPV

(%) (M$ 000) (%) (M$ 000) (%) (M$'000) (%) (M$ 000)

Base case 14.6 2,074 20.1 3,544 15.9 2,480 22.2 3,949

Crop value 10% down 13.1 1,334 17.8 2,602 14.4 1,739 19.9 3,008

Crop value 10% up 15.8 2,815 22.2 4,486 17.2 3,220 24.4 4,891

All cost 10% uP 13.3 1,542 18.1 2,957 14.6 1,987 20.1 3,403

Physical contingencies excluded 15.8 2,549 22.2 4,089 17.3 2,954 24.7 4,494

FELCRA management input 50% down 16.0 2,631 22.1 4,135 17.5 3,037 24.5 4,540

Crop production delayed 1 year 13.2 1,474 17.3 2,783 14.4 1,880 19.1 3,189

Land development cost 10% up,production cost delayed 1 yearand crop production delayed 1year 12.8 1,357 16.9 2,674 14.0 1,763 18.5 3,080

Shadow wage rate graduallyincreasiqg to reach unity by1990 13.6 1,556 19.4 3,246 14.8 1,951 21.5 3,641

Real wage rates 10% up 14.3 1,942 19.8 3,445 15.6 2,348 21.9 3,851

L o

(D>

- 75 -

ANNEX 4Table 4

MALAYSIA

FELCRA I PROJECT

Economic Analysis Oil Mills

Bukit Kepong Mill Nasaruddin MillRate of Rate of

Case return NPV return NPV(%) (M$ 000) (%) (M$ 000)

Base case 26.1 16,677 21.2 8,992

Output value, 10% down 12.5 2,208 -5.7 -7,400

Output value, 10% up 37.3 314146 37.0 25,383

All cost, 10% up 13.9 3,,876 -1.1 -6,501

Investment cost, 20% up 22.4 14,604 18.4 7,520

Factory labor cost, 20% up 25.5 15,967 20.5 8,339

Physical contingencies excluded 28.5 16,050 23.9 10,519

Mill commissioning date delayed1 year 25.5 14,370 18.3 7,153

Oil extraction rate, 5% down 16.3 5,252 12.7 1,910

Ffb purchase price, 5% up 16.4 5,437 12.9 2,064

- 76 -ANNEX 4Table 5

MALAYSIA

FELCRA I PROJECT

National Parameters

Conversion Factors

General 0.89

Construction 0.77Construction materials 0.88Furniture and household equipment 0.75Transport equipment and parts 0.76Investment goods 0.85Intermediate goods - consumer goods industries 0.84Other intermediate goods and miscellaneous 0.90Petroleum - diesel and oils 0.86Agricultural inputs 0.86Government and other social services 0.80Trade 0.67Public utilities (water, communication) 0.89Transport 0.66

Consumption conversion factor 0.80Opportunity cost capital 0.10Opportunity cost farm labor 0.70

Absolute poverty level income per capita (1981) /a $320 /cCritical consumption level per capita (estimated 1995) /b $860 7T

/a $300 in 1980.

/b One third of per capita GNP.

/c In 1981 prices.

Source: M.D. Veitch, National Parameters for Project Appraisal in Malaysia,Volume III.

- 77 - ANNEX 5

MALAYSIA

FELCRA I PROJECT

Related Documents and Data Available in the Project File

A. General Reports and Studies on the Agriculture Sector

A.1 S. Selvadurai "Agriculture in Peninsular Malaysia" Ministryof Agriculture, April 1978.

A.2 IBRD, "Malaysia - Agriculture and Rural Development",Draft Country Sector Memorandum, June 1980.

A.3 IBRD, "Malaysia - Selected Issues in Rural Poverty," Report No.2685-MA, January 1980.

A.4 K. Young, W.C.F. Bussink and P. Hasan, "Malaysia - Growth andEquity in a Multiracial Society," IBRD, 1980.

B. General Reports and Studies Related to the Project

B.1 FELCRA "FELCRA to the Year 2000" April 1979.B.2 FELCRA "Proposed World Bank Package Loan - Project Information

Brief" undated.B.3 FELCRA - Preappraisal on FELCRA Package I M4alaysia Plan. 1981-85".

3 Volumes. April 1980.B.4 FELCRA "Socio-Economic Survey of Schemes" May 1980.B.5 FELCRA "Report on FELCRA I Program. Fourth Malaysia Plan

1981-85". 2 Volumes. July 1980.B.6 Konsultant Proses Sdn Bhd. "Feasibility Study for a Palm Oil Mill

at Bukit Kepong." July 1980.B.7 Konsultant Proses Sdn Bhd. "Feasibility Study for a Palm Oil Mill

at Nasaruddin." July 1980.B.8 Veitch, MD, "National Parameters for Project Appraisal in

Malaysia," State & Rural Development Project, EPU, 1978.

C. Project Staff Working Papers

C.1 OrganizationC.2 ManagementC.3 Planning CapabilityC.4 StaffingC.5 TrainingC.6 Financial Systems and ReportingC.7 Consultant Management Information System StudyC.8 Agriculture Planning, Field Organization and Training NeedsC.9 Land Development Standards, Costs and Yield AssumptionsC.10 InfrastructureC.11 Loan RecoveryC.12 Technical Assistance Terms of ReferenceC.13 Land IssuesC.14 Economic and Financial Analysis

MALAYSIAFELCRA I PROJECT

PRESENT ORGANIZATION STRUCTURE

DE T ABOARD l

ACS PRSNNL POCREENT A NLND _IN E LA I M T FINANCEACOMMITTE E

SECTIONS SURV~~~~~~~~~~~~~~~~~ ~~~ESING BMECHAENICA COMIVILE

DIRECTOR GENERAL

AU TO DEPUTY

- - DIRIECTOR GENERAL

I DIRECTOR | l ~~~~~~~~DIRECTOR l lDRCO DEPARTMENTS |AMNSTRATION FINANC

BRANCHE[S ADMINISTA |-

SECTIONS IN SIT

REGIONALOPPICES JOHORE JOHORE SEMBILAN PERLIS MALACCA A PERAK

SCHEMES

World BMank - 22021

MlALAYSIAFE LC RA I PROJECT

PROPOSED ORGANIZATION STRUCTURE

oard ||Finance Committee |

i irector

_Generral _Establishment Connmittee

Secretaiat

* |Deputy Director General ||Deputy Director General|Administration Operations Division

Division

Diretor Dietor Director Director Director Director * Drco ietrDrcoMangement Serices Personnel FnceE. D. P. Program Developmentl Settler Develop- Dnineetrin Agrcutura M irectinoan

Departmq ~ an Trainingand Evaluation mentArDepartmvnt <Deparme Departmen Departme DePartment Department Department Department Processing

Generl ELCRA1 Feasibility 1Adt Pertonnel Account Sems Studnies Development SurveY InSectorate Processing

Stcti S Seci Section Secin i Sectio Sci Setin nSaection

T,aiingandSetlerEvaluation I HomeTraining and ~ Programming a c sC Agriculturetaff Development Accounts and Special E nmirs Civ ~~~~~~~~~~~~~ServcesMarketingH i Section~~~~~~~~~~~~~~~~~~~~U - ISeieDvoeASecti on| i Section StudiesSection Section 4 o SeReionn

Latid Staff BudgetingI liAdS Training and Control Operations|mlion Section Sectei FELCRA ectionrsl t FL Afcs |StFC Ofe| |ae CR fen|Section Stion SectionfSection

SettlerTrainingS'ection

Region 1 Region 2 Region 3 Region 4 Region 5

LER Regional Controller Regional Controller Regional Controller Regional Controller Regional ControllerT ra.iKningSchool

State FELCRA Officers State FELCRA Officers State F-ELCRA Officers State FELCRA Officam State FELCRA Officer| Kedah | J| lohore { | Pahang Kelantan East Malaysia Trans-Perak[Ppe-rlis j |Malacca | |llNegeri Sembilan Trengganu Project Manager

World Bank 22423

MALAYSIAFELCRA I PROJECT

PLANNED REGIONAL STRUCTURE

| Regional Controller (5) l

Engineer and Technical and Survey AssistantsAgricultural OfficerSettler Development OfficerAudit ExaminerMarketing Inspector

State FELCRA Officers(1/20,000 Acres)

Ico

Group Managers(1-3/State FELCRA Officer)(W1 /Regional or 1/7,000 Acres)

Sen'ior Manager | Manager ie nCag|(Over 3,000 Acres) ||(500-3,000 Acres) | Up to 500 Acres)|

World Bank -22223

IBRD 15400

100° \ 1020 1040 NOVEMBER 1980MALAYSIA

DISTRIBUTION OF FELCRA LAND DEVELOPMENT PROGRAMBY STATE

T-AILAN D EXISTING SCHEMES, PROPOSED F.M.P. SCHEMES(1981-1985)THAILAN D (1967-1980) ~~~~~~~~~~~~FELCRA / 84,200Acres

\ > -. \\ 1 fAn-Cm S TRANS PERAK 32,200Acres

t \ < (I '.-.. OTHER 24,500 Acres

Total 304,856 Acres

PERLIS: N \ - - STATE BOUNDARIES

L-N~ ( 4-- INTERNATIONAL BOUNDARIES

If'S N 0 40 8~ ~~~~~ ~~~~~~~~~~0 120 160

S 23,056 Acres KILOMILETERS 125 50 75 100

... 1 KEDAH)

P. PI NAN ~~] ,r~ PERAK /16,700 ,6 o

t 9 . A28e82Acress\' l SLANOR PAANKELANTANTRANS PERAK \1\\ ~ - -227ce

~~ 2\ - ;53 C. -

32200 ~~~ ~~ ~ ~~y~? ~~-'-* ,TRENGGANU

F ~~SOUTH

-40 40

72I531 Ac 27E'0 SlA

51,076 Acres

SELANGOR PA HANG

c-v

boundaries 24,n o thsmpd noim/yon ptt oftheWord n5,38 Acres

NEG 2,1000~

30 ~~~~~~~~~~MALAt~C

actepreadcersof tuhbne repor tn anc \t is' atahd Th(ee,aiosue nh

_ 107° T~~~~~~~~~~020 / J7u 040