Document of The World Bank OF THE PRESIDENT OF THE TO THF, EXECUTIVE DIRECTORS ON A PROPOSED LOAN MALAYSIA FOR THE DEVELOPMENT PROJECT

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THF, EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO MALAYSIA FOR THE KRIAN-SUNGEI MANIK INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT October 12, 1978 FILE COPY Report No. P-2394-MA This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS* Currency unit = Malaysian Ringgit (M$) US$1.00 = M$2.40 M$1.00 = US$0.42 M$1 million = US$417,000 i The exchange rate is floating; the rate used in this report is the short term average at the time of appraisal. ABBREVIATIONS BPM - Bank Pertanian Malaysia DID - Drainage and Irrigation Department DOA - Department of Agriculture FO - Farmers Organization FOA - Farmers Organization Authority FDC - Farmers Development Center GDP - Gross Domestic Product GNP - Gross National Product GOM - Government of Malaysia ICA - Industrial Coordination Act IRRI - International Rice Research Institute LPN - Lembagi Padi dan Beras Negara (National Padi and Rice Board) MARDI - Malaysia Agricultural Research and Development Institute MOA - Ministry of Agriculture O&M - Operation and MaiLntenance SMP - Second Malaysia Plan TMP - Third Malaysia Plan GOVERNMENT OF MALAYSIA FISCAL YEAR January 1-December 31

3 FOR OFFICIAL USE ONLY MALAYSIA KRIAN-SUNGEI MANIK INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT Loan and Project Summary Borrower: Amount: Terms: Malaysia $26.5 million equivalent The loan would be for a period of 17 years, including 4 years of grace, with interest at 7.35% per annum. Project Description: Major components of the proposed project are: F This document (a) rehabilitation and improvement of existing primary and secondary irrigation and drainage canals and structures; construction of tertiary and quaternary irrigation and drainage systems; construction and improvement of access roads; and improvement to existing perimeter bunds and tidal gates, in two separate subprojects: the Krian Irrigation Scheme with 23,500 ha and the Sungei Manik Irrigation Scheme with 6,560 ha of padi land; (b) construction, furnishing and equipping of offices and workshop facilities for the Drainage and Irrigation Department (DID), multipurpose Farmers Development Centers (FDCs), a seed farm, and staff housing; and procurement of vehicles and equipment for operation and maintenance of irrigation works; (c) provision of local consulting services to assist DID with the implementation of project works and preparation of tender documents, and consulting services for a Muda Dams study; and (d) a limited number of fellowships and overseas training. The project would directly benefit 24,000 smallholder families, creating additional employment for 2,500 people, and would result in an annual foreign exchange saving of about $15 million through reduction in rice imports. The major risk in project implementation would derive from difficulties in organizing and implementing the agricultural supporting services. However, these services are already being successfully provided under previous Bank projects and are expected to be reinforced and fully integrated into the project by the time of planned full project development in has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 Estimated Costs: Local Foreign Total $ million Krian Irrigation Works Sungei Manik Irrigation Works Buildings Equipment Muda Dams Study Consultants and Training Base cost Physical contingencies Price contingency Total project cost Financing Plan: The proposed Bank loan of $26.5 million would finance the foreign exchange requirements of the project. The loan would finance retroactively the foreign exchange component of expenditures incurred after appraisal (November 1977) on irrigation and drainage works in the subproject areas, and the Muda Dams study. The estimated total cost of such works is $2.4 million, of which $1.2 million (50%) would be foreign exchange. Because this is a federal project, all local costs would be borne by the Government of Malaysia (GOM) throughout the implementation period of the project. Activities falling under constitutional state jurisdiction, such as operation and maintenance of the completed works and agricultural extension, would thereafter be financed through normal GOM procedures. Estimated Disbursements: Bank Fiscal Year $ million Annual Cumulative Rate of Return: Krian subproject : 21% Sungei Manik subproject : 16% Combined project : 20% Staff Appraisal Report: No MA dated October 12, 1978

5 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO MALAYSIA FOR THE KRIAN-SUNGEI MANIK INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to Malaysia for the equivalent of $26.5 million to help finance the foreign exchange costs of an integrated agricultural development project. The loan would have a term of 17 years, including 4 years of grace, with interest at 7.35% per year. PART I - THE ECONOMY /i 2. The latest economic report, "Malaysia: New Perspectives on the Third Malaysia Plan" (No MA), is dated October 14, Detailed data on Malaysia's economy are shown in Annex I. 3. By most economic indicators, Malaysiashas done well in the past and, in particular, during the Second Malaysia Plan period (SMP, ). The per capita income of $860 (in 1976) is among the highest in Southeast Asia. Public and private investment activity was stepped up and, as a result, GNP growth, which during the 1960s averaged 6% a year, increased during the SMP period to 7%. Moreover, the declining trend in the terms of trade during the 1960s was reversed during the 1970s, and as a result there was an acceleration in per capita income growth on a trend basis from 2% during the 1960s to about 5% during the SMP period. Progress has also been made in reducing the economy's dependence on rubber, and the manufacturing sector has performed well in terms of output, employment, and exports. With a high export component in GNP, the country is very vulnerable to external fluctuations, which were significant during the SMP period. In spite of the increased investment activity and resulting current account deficits in the balance of payments, Malaysia managed to maintain a strong external position during the SMP period with relatively low debt service payments and growing international reserves. 4. Notwithstanding this good performance, existing racial inequalities in income and employment, and considerable poverty, especially in the countryside, persist. The inferior income position of the Malays is related to the concentration of Malays in traditional smallholder agriculture and their meager ownership of corporate assets; furthermore, Malays are poorly represented in the modern industrial sector, especially in managerial, professional, supervisory, and clerical occupations. The inequalities threatened the stability of the country and, in 1971, prompted the Government to introduce a New Economic Policy, which is designed to achieve national unity through the two-pronged objective of eradicating poverty and restructuring society to eliminate the identification of race with economic function. /1 Parts I and II are essentially the same as those contained in the corresponding sections of the President's Report No MA, dated August 21, 1978, on the Coconut Smallholders' Development Project which was approved on September 5, 1978.

6 More specifically, the policy proposes to reduce in a 20-year period ( ) the sharp income differences between Malays and non-malays by reducing disparities in the ownership and control of wealth in the corporate sector, and by reducing the concentration of Malay employment in traditional low-income rural activities, while increasing Malay presence in the relatively high-income urban sectors. Since poverty is largely concentrated among Malays, a redressal of poverty would contribute significantly to a reduction of the racial inequalities of income. 6. The principal means proposed to achieve these objectives is a rapid growth of the industrial and service sectors. This growth will not only increase average incomes but will also serve the objective of racial restructuring of the labor force. In addition to pursuing a rapid growth strategy, the Government also proposes to achieve its goals through more direct means: on the poverty side, mainly through public investment programs directed towards the poor; and on the racial restructuring side, through controls and quotas. 7. In mid-1976, the Government initiated the Third Malaysia Plan (TMP, ) reconfirming the goals of the New Economic Policy. The major objectives of the TMP are: (a) to reduce the overall incidence of poverty (from 44% in 1975 to 34% by 1980, which would mean reducing poverty in the agricultural sector from 63% to 49%); (b) to increase Malay employment in the modern sectors of the economy (from the 1975 Malay share of 32% towards the 1990 goal of 50%); and (c) to increase the share of Malays in the equity ownership of the corporate sector (from the 1975 Malay share of 8% to 16% in 1980). 8. The TMP goals are set out in a framework of substantial economic growth. The target growth rate for GDP is set at 8.5% per annum. Private investment is targeted to grow about 10% a year and public investment about 6%, resulting in an investment of M$44 billion in current prices over the TMP period. Public development expenditures were set at M$18.6 billion, with a higher level of M$20 billion targeted if additional resources became available. 9. In addition to following a rapid growth strategy, the Government proposes to reduce poverty through direct programs that will raise agricultural productivity. In the TMP, one quarter (M$4.7 billion) of total public development expenditures is allocated to the agricultural sector (compared with M$2.1 billion or 22% in the SMP). Of this, more than one third will be spent on increasing productivity in existing agricultural areas. In addition, one million acres of new land are scheduled for development. As a means of reducing poverty, the TMP also provides for improved housing and other essential services for the poor in both rural and urban areas. The TMP also stresses that greater attention will be given to improving the less developed states. 10. Economic information for 1975 and 1976, however, has significantly altered the macro framework of the TMP. First, there was a larger recovery than expected in traditional exports and in the terms of trade in 1976, as well as higher present and prospective levels of oil production. Second, it now appears that the rate of private investment fell considerably in 1975 and declined further in 1976.

7 During 1976, significant increases in exports, both in prices and volumes, particularly of oil, combined with moderate increases in imports, resulted in a current account surplus equivalent to 6.2% of GDP. Despite a reduction in market borrowing by the Government, reserves increased by US$900 million. At the end of 1976, gross official reserves were the equivalent of about seven months of imports. 12. Current projections of oil exports and of export prices in general are higher than those used as a basis for the TMP. Therefore, the resource outlook for Malaysia is now brighter than was forecast in the TMP. Overall export earnings during the Plan period should be about $5 billion more than was forecast. Largely as a result of this increase, public sector revenues are also expected to be higher by about $3 billion. The likelihood of these additional resources has prompted the Government to choose the higher TMP target for development expenditures of M$20 billion (see para. 8 above). If implementation constraints are overcome, an even higher target could be set. 13. While the availability of resources is thus expected to be considerably improved, there is some uncertainty about achieving the Plan's private investment targets. As a result of the decline in the rate of private investment in 1975 and 1976, private investment would now have to grow substantially faster than the projected 10% rate during the remaining years of the Plan in order to achieve the Plan targets. While there are a number of possible factors involved in this downturn in the rate of private investment, particularly manufacturing investment, it is difficult to determine their relative importance with any certainty. First, the world recession which began in 1974, no doubt, had some negative impact in Malaysia on private investments planned for Second, 1974 was a peak period for private investment in Malaysia so that some cyclical decline in the rate of private investment would have been experienced in 1975 anyway. Third, there was considerable uncertainty in the private sector regarding the impact of the Industrial Coordination Act (ICA), passed by the Parliament in 1975, which enforces racial restructuring targets for equity and employment through a system of licensing existing and new firms above a certain minimum size. The Government acknowledged the uneasiness in the business community and amended the Act in An important change approved was the establishment of an appeals procedure. While the initial reaction of the private sector to these amendments was somewhat mixed, it is still too early to judge their impact on the longer term investment climate. 14. Assuming a moderate long-term recovery in private investment, Malaysia's balance of payments should be in substantial surplus. During the next five years, the cumulative current account surplus could amount to as much as 5% of GDP compared to a negligible current surplus in the previous five years. Since such a current account surplus would be sufficient to provide for an adequate level of reserves, capital inflows may moderate in the future At present, about 16% of public debt outstanding and disbursed is from the World Bank; this percentage may increase somewhat by the early 1980s. Reserves are also expected to continue to increase slowly, while the debt service on public obligations is likely to average about 5% of export earnings, slightly lower than the present level of 7%. The Bank's share of debt service is currently about 11% and may increase to 12-14% by the early 1980s.

8 In general, over the next few years, it is likely that the Government will need less external capital than previously forecast, largely because of strong commodity prices and oil earnings. At the same time, Malaysia has a serious income distribution and poverty problem. The country needs technical assistance and expertise to help develop poverty alleviation programs and to assist in designing and packaging projects that reach out directly to low income families. The Malaysians believe strongly that project borrowing, particularly from development institutions such as the World Bank, is necessary to assist them to mount an effective attack on poverty. Bank lending is therefore focused on strengthening Government efforts to reduce poverty directly. PART II - BANK GROUP OPERATIONS IN MALAYSIA 16. The Bank has made 43 loans to Malaysia for projects in education, population, agriculture, forestry, industrial finance, power, water supply, sewerage, telecommunications, ports, railways, roads, and urban transport. 17. Although in many cases disbursements have been slower than expected, the execution of Bank projects in Malaysia has generally been satisfactory. As of August 31, 1978, the loans to Malaysia held by the Bank amounted to $771.8 million. Seventeen loans have been fully disbursed. Annex II contains a summary statement of Bank loans as well as notes on the status of ongoing projects as of August 31, While currently Malaysia is a resource surplus country, the openness of the economy (exports being 45% of GDP) and the volatility of the prices of Malaysia's main exports (rubber, palm oil, and tin) make the continuance of resource surpluses uncertain. To cushion against fluctuation in exports, large reserves are needed. With regard to Bank lending, however, the primary consideration is not resource transfer; rather, it is institution-building and helping Malaysia to expand its capacity to combat the deep-rooted problems of poverty and unemployment, particularly in the rural areas. 19. Malaysia's commitment to assist its low-income groups has strengthened significantly in the past few years. The Bank can take some measure of credit for its efforts to help Malaysia identify and prepare projects geared toward the rural poor. In view of Malaysia's otherwise weak preparation capability, the number of rural development projects recently financed and currently in the pipeline is impressive. Recently, in order to reach a greater number of low-income households, the Government and the Bank have been emphasizing in situ agriculture projects, such as those for small-scale irrigation, integrated rural area development, and agricultural support services. 20. While these recent projects are by themselves impressive, they are not truly representative of the Government's general capacity to develop projects; this capacity remains very weak, largely because of a shortage of trained staff. With the help of the UNDP-financed and Bank-executed State

9 and Rural Development Project, which provides technical assistance to selected federal agencies (departments) and states, the Bank is helping the Government to develop further its programs and projects for reducing poverty. 21. The country needs further assistance to help develop poverty programs and projects. Bank loans are assisting those in absolute poverty by strengthening research and extension, by providing on-farm development, including irrigation and drainage facilities, and other facilities such as farm-to-market roads. At the same time, the Bank will continue to assist landless laborers by helping in the development of larger areas of new land for agriculture. Bank lending will also help improve support services by expanding extension services, by increasing agricultural and small-scale industrial credit, and by producing higher quality seeds. The Bank plans to mount a concerted effort to help such institutions as RISDA (Rubber Industry Smallholders Development Authority), FELCRA (Federal Land Consolidation and Rehabilitation Authority), and BPM (Agricultural Credit Bank). It also plans to help the Government expand social services, particularly for low-income groups, through assistance for formal and informal skill training and for expansion of family planning services. Assistance toward infrastructure development would be very selective, focusing on extending utility and transportation networks to the rural areas. 22. IFC has been active in Malaysia since 1963 and has made six investments totaling $8.69 million. The total commitments under the investments held by IFC as of August 31, 1978 amounted to $1.34 million (Annex II). PART III - THE AGRICULTURAL SECTOR 23. Malaysia's agricultural sector occupies a predominant position in the country's international trade through the exports of natural rubber, palm oil, hardwoods and pepper. Agricultural commodities generate about 60% of the country's export earnings and about 30% of GNP. Most of the agricultural land in Malaysia is under three crops: rubber (58%), oil palm (18%) and padi (14%). Except for oil palm, areas of all principal crops consist mainly of smallholdings, although private and public estates continue to play a vital role in the production of rubber and coconuts. Reflecting world market conditions, oil palm is gradually replacing rubber in coastal areas, which are more suited to the former. This trend is evident in both smallholder and estate production. 24. Agriculture, which currently employs 49% of the labor force, will continue to be the largest source of employment, providing about 12% of total new employment in the long term according to Government projections. The sector also accounts for the largest number of poor households. According to Government estimates, 63% of the farm households in Peninsular Malaysia were in poverty in 1975, with the incidence of poverty rising as high as 77% among padi farmers. One of the Government's basic policy objectives is to help eradicate poverty through programs aimed at productivity increases on existing smallholdings, and by settling people with little or no land on new land developments. The land development program provides new settlers with the means to earn a better living, while relieving pressure on already occupied land.

10 25. Rice production is largely confined to irrigated areas in the coastal plains. The Government has encouraged and maintained support for irrigation development in order to reduce the country's dependence on rice imports, and to alleviate the poverty of large padi-farming communities. About 80%O of Peninsular Malaysia's 370,000 ha of padi land has now been provided with some forn of irrigation and 57% of the irrigated area is technically capable of double-cropping. As part of the overall program to increase rice production in the country, the Government continues to invest in construction of drainage and irrigation facilities. Under the Third Malaysia Plan, about 97,000 ha of padi will be provided with new or improved facilities. By the end of 1980, the area suitable for double-cropping is expected to increase to 278,000 ha, or 73% of the irrigated area. In recent years, the major thrust in irrigation development has shifted from construction of new schemes to providing on-farm (tertiary and quaternary) canals and drains to existing schemes to upgrade the standard of water control necessary to increase padi yields and cropping intensities. In conjunction with upgrading the standards of water control, strong integrated agricultural services have been provided under recent projects. 26. The Government is committed to self-sufficiency in rice production, which, as a result of favorable weather in recent years, reached nearly 90% of domestic consumption. It has, however, decreased since 1975, mainly due to unusually poor weather conditions affecting the Muda region. A prolonged drought in that major rice producing area resulted in an increase in the import of rice to 18% of domestic consumption in The level of imports is likely to rise to over 20% of domestic requirements in Reversal of this trend by increasing rice production, especially in areas outside Muda, is thus a serious national objective. Institutions 27. Nearly all Government agencies involved in agricultural development are in the Ministry of Agriculture (MOA), including: the Federal and State Drainage and Irrigation Departments (DID); the Federal and State Departments of Agriculture (DOA); the Farmers Organization Authority (FOA); Bank Pertanian Malaysia (BPM); and the Malaysian Agricultural Research and Development Institute (MARDI). The National Padi and Rice Board (LPN), which regulates the marketing, milling, and import of rice, falls under the Ministry of Public Enterprise. 28. DID is responsible for planning and implementation of most public works in the area of water use and conservation throughout Malaysia, including irrigation of rice fields, drainage of tree crop areas, flood and coastal protection and major urban drainage. The Federal DID, with headquarters in Kuala Lumpur, is responsible for overall planning and design, while the State DIDs are responsible for operation and maintenance. The Federal and State DIDs usually cooperate in the supervision of construction of major projects. 29. The Federal DOA provides policy guidance and technical support to the State DOAs. Technical support services to the State DOAs are provided by Federal branches for crop production, crop protection, soils, agricultural education, extension, and farm mechanization. The State DOAs are primarily responsible for field extension services. A recent Bank loan for the National

11 - 7 - Extension Project (Loan 1493-MA) is assisting the Government in improving its extension services throughout the country and in improving seed supplies. 30. MARDI has been responsible for all crop research (except for rubber) since Rice research is problem- and location-oriented, and focuses on the areas of varietal improvement, plant and crop physiology, agronomy and crop protection. Through central and location research, MARDI formulates packages of recommendations for specific padi growing areas and soils. A Bank loan for the Agricultural Research and Extension Project (Loan 1115-MA) is assisting MARDI in expanding its research capability. 31. The Farmers Organization Authority (FOA) is responsible for supervising Farmers Associations and Cooperative Societies with the aim of integrating these organizations into Farmers Organizations (FOs) which are served from Farmers Development Centers (FDCs) covering from 1,000 to 6,000 farm families each, depending on smallholder density. The FOA provides credit, supplies inputs, and markets and processes agricultural products through the FDCs. Marketing of rice is mainly carried out by private enterprises but LPN mills in or near the Krian and Sungei Manik subproject areas have adequate capacity to dry, mill, store and market substantial volumes of additional padi. 32. Malaysia's agricultural credit bank, Bank Pertanian Malaysia (BPM), was established in 1969 to strengthen and coordinate agricultural credit programs, with particular emphasis on loans for small farmers. It presently provides short-term credit to padi farmers, and medium-term credit for purchasing agricultural machinery and for purchase and development of land. Crop production loans are mainly channeled through FOs, but eligible non-fo members may obtain these credits directly from BPM. Expanding crop production credit to the majority of small farmers is one of the objectives of the proposed project. PART IV - THE PROJECT Background 33. The project was prepared between 1975 and 1977 by agencies in the Ministry of Agriculture following an initial consultants study financed by the British Overseas Development Ministry. The project was appraised in November/December A Staff Appraisal Report (No MA) dated October 12, 1978, is being distributed separately. Supplementary project data are provided in Annex III. Negotiations were held in Washington from September 11 to 14, 1978; the Malaysian delegation was led by Mr. Abdul Rahim Haji Din, Deputy Secretary of Finance in the Treasury. Project Areas 34. The Krian and Sungei Manik subproject areas are situated in the State of Perak, on the west coast of Peninsular Malaysia. The Krian subproject area, in the northwest corner of the state, includes about 23,500 ha of padi land, farmed by over 20,500 families on individual smallholdings. Limitations of existing infrastructure restrict the cropping intensity to about 160%, which in turn limits per capita income to about $200 per annum. The

12 - 8 - smaller Sungei Manik subproject area, covering 6,560 ha of padi land in southern Perak, is farmed by over 3,600 families. While the average farm size is slightly larger in Sungei Manik than in Krian, per capita income is similar due to the lower cropping intensity (145%) and larger family size. The two subproject areas are served by the oldest existing sizeable irrigation schemes in Malaysia. The small size of the holdings and the inadequacy of the facilities keep 70% of the people in these areas in absolute poverty, and nearly 100% in relative poverty. Project Description 35. The project would improve the productivity and income of smallholder farmers in the subproject areas through provision of a high standard of water control and access within individual blocks of land, and through establishment of an integrated program of agricultural support services. The average capital costs of all project works and of vehicles and equipment to be provided under the project total about $2,000/family ($1,600/ha). Incremental annual costs of agricultural services at project completion would amount to about $12/family ($10/ha). The main components of the project are summarized below. 36. Krian Irrigation Improvement. The Krian Irrigation Scheme was originally completed in 1906 to provide an assured source of water for a single padi crop. Over the last two decades DID has implemented a series of large-scale improvements aimed at increasing the water supply to the project area. These improvements were designed to guarantee sufficient water to double-crop the areas fully. However, after 70 years of use, the distribution and drainage systems have deteriorated to a point where canals and drains are physically indistinguishable, water levels are the same in the canals, drains, and fields, and little movement or control of water is possible. Given these conditions, farmers have been restricted to hardy but low-yielding padi varieties, and have been able to double-crop their fields only irregularly. Under the project, main and secondary canals and drains would be enlarged, and tertiary and quaternary canals and drains constructed throughout the area to enable rapid distribution and evacuation of water. These improvements would give 80% of the farms direct access to both canals and drains, permitting the optimal degree of water control by each farmer and eliminating the flooding of crops now experienced in large portions of the project area. Existing perimeter bunds would be rebuilt to protect the agricultural area from river and coastal flooding, and large numbers of tidal gates would be constructed to permit faster drainage during low tide periods. 37. In addition to the water control works, DID would construct an improved system of access roads. Upon completion of this system, most of the Krian padi area would be between 0.4 and 0.8 km distant from a motorable road, which would substantially facilitate harvesting and marketing, input supply, agricultural extension work, and operation and maintenance of the irrigation system. The Krian construction program would also include three new Farmers Development Centers and five subcenters, where offices and staff housing for the implementing agencies (DID, FOA, DOA, BPM) would be concentrated. BPM credit operations, FOA input supply and marketing operations, DOA extension services, and DID operation and maintenance would all be organized, integrated, and implemented from these FDCs. Additional workshops, district offices, and seed stores would also be constructed in appropriate locations.

13 Sungei Manik Irrigation Improvement. The Sungei Manik Irrigation Scheme was developed in four phases from 1933 to 1953, with the headworks and most of the main canal system completed by Most of the physical problems constraining agricultural development in Krian are also present in Sungei Manik, but, in Sungei Manik, the steeper topography makes the distribution of water a more pressing problem than drainage. Similar engineering approaches would be followed in Sungei Manik, with an emphasis on expanding the capacities of the old headworks and main canals and provision of new distribution and drainage systems. In addition, the existing Sungei Manik FDC would be enlarged and two new subcenters would be constructed. 39. Equipment and Vehicles. Vehicles, pumps, and excavation and earth-moving equipment would be purchased under the project to improve the capability of Perak State DID to operate and maintain completed project works. The State DID workshop to be constructed under the project would perform routine maintenance and repairs for this equipment, while major repairs of heavy equipment and fabrication of parts would be undertaken by the Federal DID workshop in Ipoh. Agricultural equipment and vehicles would also be purchased to improve the mobility of DOA extension staff, and to enable the FDCs to provide transport and tractor services to farmers on a fee basis. 40. Consulting Services. To augment the number of DID staff available for this project, consultant services including 100 man-months of engineers, 50 man-months of technical assistants, and 120 man-months of technicians and draftsmen would be provided under the project. Consultants would be engaged through a local engineering firm, but would be formed into teams with experienced DID design staff under the direction of the Project Engineer. Total costs of the consultant input, including overhead and expenses, are expected to average $1,230/man-month for engineers, $900/ man-month for technical assistants, and $405/man-month for technicians and draftsmen. Assurances have been obtained that consultants engaged by DID for project implementation would be acceptable to the Bank and would be engaged as required, under terms and conditions satisfactory to the Bank (Section 3.02 of the draft Loan Agreement). 41. Training. The project would include funds for overseas short- and medium-term training and study tours for selected DID, MOA, DOA and FOA staff in the fields of irrigation system management and operation, padi production and extension, and tropical agriculture. Four DOA Subject Matter Specialists would attend crop production and crop protection courses at IRRI in the Philippines. Four extension supervisors, four FDC managers, and six selected personnel involved in executing the project would visit neighboring countries where integrated agricultural extension services are being implemented. 42. Muda Dams Study. Under the Muda Irrigation Project (Loan 434-MA), which was completed in 1970, the Bank financed construction of the Pedu and Muda Dams, which supply irrigation water to the 98,000 ha Muda Irrigation Area in the States of Kedah and Perlis. The Pedu Dam, a rock-filled, asphaltfaced structure, has shown excessive leakage, which has already been partly repaired. Recent investigations indicate that additional technical problems

14 exist. The concrete-buttressed Muda Dam has also shown some technical problems, mainly through corroding of pre-stressed anchor cables. The Government, with Bank approval, has engaged a consortium of experienced consulting engineers, MINCO of Malaysia and ACE of Pakistan, to carry out a detailed investigation of the safety of the dams, a pre-feasibility study for increasing their storage capacity (if safety factors warrant), and a study of additional potential storage sites for the Muda Project area. The study requires 44 man-months of expatriate consultant services (at $4,500/month) and 47 man-months of local consultant engineering services (at $2,400/month). The investigation commenced in May 1978 and would be completed in December Project Cost and Financing 43. The total project cost is estimated at $60.2 million, with a foreign exchange component of $26.5 million (44%). Physical contingencies of 15% were applied for irrigation, drainage and road works, 10% for building construction and 10% for vehicles and equipment. The expected price increases over the implementation period amount to 21% of the base costs and assume the following rates of price inflation: civil works, 7.5% in 1979 and 7% in ; equipment and vehicles, 6.5% in 1979 and 6% in ; and consultants, engineering and training, 7% for the period The proposed Bank loan of $26.5 million would finance the foreign exchange requirements of the project. The Government would finance all_local costs throughout the implementation period. Assurances have been obtained that activities such as operation and maintenance of completed works and agricultural extension would thereafter be financed through normal Government procedures (Section 4.04 of the draft Loan Agreement). The loan would finance retroactively the foreign exchange component of expenditures incurred after appraisal (November 1977) on irrigation and drainage works and on the Muda Dams study. The estimated total cost of such works is $2.4 million, of which $1.2 million (50%) would be in foreign exchange. Procurement 44. Installation of tertiary canal systems in both subproject areas would be grouped into one contract, worth a total of about $6.8 million, which would be subject to international competitive bidding in accordance with the Bank Guidelines. Most of the remaining irrigation, drainage, and road works would be small and dispersed in time and space, and would not be suitable for international tender. These works (totaling $36.5 million) would be implemented through about 15 contracts in Krian and 5 in Sungei Manik (averaging $1.8 million each), which would be awarded after competitive bidding advertised locally in accordance with Government procedures. The local contracting industry is competitive and strong, and local tendering is well-managed and publicized. Bids would be accepted from foreign contractors who wish to participate and no preference margins would be utilized in the evaluation and award of civil works contracts. Buildings and facilities costing a total of $3.2 million would also be tendered locally.

15 Equipment and vehicles ($2.9 million) would be procured under international competitive bidding in accordance with the Bank Guidelines. A 15% preference margin, or the prevailing customs duty, whichever is less, would be extended to local manufacturers of these items. Small off-the-shelf items, costing less than $20,000 each and limited to a total of $500,000, would be procured through normal Government procedures. Force account work would include the fabrication and supply of aluminum roller gates and gears for tidal control structures (which would be executed by the Federal DID Workshop in Ipoh), and improvements to main canals and drains. The total cost of such work is estimated at $1.1 million. Disbursements 46. Disbursements would be made at the rate of 100% against the foreign exchange expenditures on directly imported equipment and vehicles, 100% of the ex-factory cost of equipment and vehicles manufactured locally, and 80% of the total cost of imported but locally procured items. Disbursements for civil works would equal 52% of total costs. Disbursements for works executed through force account would also equal 52% of total costs, and would be made against a certificate of expenditures, the documentation for which would be retained by the borrower and be made available for inspection by the Bank in the course of project supervision. For consulting services, overseas fellowships and study tours, and the Muda Dams study, disbursements would equal 100% of total costs. It is expected that disbursements would be completed by December 31, The disbursement schedule is given in the Loan and Project Summary. Project Coordination and Implementation 47. All the federal agencies which would be directly involved in the implementation of the project - DID, DOA, FOA, and BPM - are under the jurisdiction of the Ministry of Agriculture (MOA). While each agency would be responsible for implementing specific activities within its jurisdiction, responsibility for coordinating all project activities would rest with a Project Coordinator in MOA. The Project Coordinator would be guided on policy matters by a Steering Committee composed of the Secretary General of MOA, the State Secretary of Perak, and other officials they may nominate. Such an organization has proven successful in previous Malaysian projects. Appointment of a suitably qualified and experienced Project Coordinator, and establishment of the Steering Committee (Sections 3.06 and 3.07 of the draft Loan Agreement) would be conditions of effectiveness of the proposed loan (Section 5.01 of the draft Loan Agreement). Assurances have been obtained that the implementing agencies would maintain separate accounts for the project, which would be collated by the Project Coordinator, audited by auditors satisfactory to the Bank, and forwarded to the Bank within nine months of the close of each year (Section 4.02 of the draft Loan Agreement). 48. DID would be responsible for implementing all project civil works. Final design work would be executed by a team of key start-up staff including two senior engineers, three irrigation engineers and four technicians. To ensure that design concepts are effectively transmitted to the Districtlevel staff who will eventually operate and maintain the works, assurances

16 have been obtained that, upon completion of final design, a designer's operation manual would be prepared (Section 3.10(a) of the draft Loan Agreement). 49. DOA would assume primary responsiblity for the organization and operation of the agricultural services elements of the project, with the assistance of the Project Coordinator. The agricultural services program is based largely on agricultural extension, modified to suit Malaysian institutions and the requirements of the smallholders. DOA staff would be expected to take the lead in implementing the first step of the program, namely, organization of the Small Agricultural Units or farmer groups. Groups would comprise an average of 50 farmers, and each DOA extension officer would visit 16 such groups (or 800 farmers) on a regular basis, once every two-week period. Group leaders and subgroup leaders would be selected with the participation of the farmers for water management, credit, and input supply. During his visit, the extension officer would review the condition of demonstration plots with the farmers and advise them on the most important agricultural operations required over the next two weeks, such as choice of varieties to plant, fertilizer and pesticide applications, timing and techniques of nursery establishment, ploughing, water management, harvesting, threshing, and drying. DID, FOA and BPM staff would accompany the DOA agent, as required, to emphasize points of immediate importance related to their responsibilities. Agricultural Assistants stationed at the FDCs would supervise six or seven agents and would conduct regular bi-weekly training sessions for them at the FDCs, supported by Subject Matter Specialists and senior staff of the cooperating agencies. Field staff of FOA, BPM, and DID serving the same farmer groups would also attend these training sessions. Assurances have been obtained that the Perak DOA, in consultation with DID, FOA, and BPM, would prepare an agricultural services operations manual as a guide for field extension staff, by September 1, 1979 (Section 3.10(b) of the draft Loan Agreement). 50. FOA would be responsible for the expanded input supply and marketing operations to be provided from the FDCs, while BPM would assume primary responsibility for increasing the volume and coverage of existing agricultural credit operations. Assurances have been obtained that the Project Coordinator would prepare annual statements of agricultural credit requirements to be submitted to BPM, FOA, and the Bank not later than three months prior to the beginning of each fiscal year, and the Government would thereafter ensure that an adequate amount of credit would be made available to farmers in the project area (Section 3.08 of the draft Loan Agreement). 51. The project would be implemented over a period of five years. The agricultural support programs provide for a build-up of staff and facilities over the implementation period. Construction in Krian commenced in 1977 and is expected to be completed by the end of Construction in Sungei Manik would commence in 1978 and be completed in Assurances have been obtained that all DID, DOA, FOA, and BPM staff required to implement the project would be appointed in a timely manner (Section 3.09 of the draft Loan Agreement).

17 Production and Marketing 52. Average padi yields in the subproject areas would increase substantially due to six major factors: conversion from double-transplanting (floating nursery) techniques to standard wet seedbed techniques; conversion to padi varieties with higher yield potential; better land preparation with improved drainage; increased use of fertilizer and insecticide; better timing of planting and harvesting seasons; and maintenance of more appropriate water levels during various growth stages. With these improvements, average padi yields are expected to increase from 2.5 ton/ha at present to 3.6 ton/ha in Krian and from 2.1 ton/ha to 3.1 ton/ha in Sungei Manik for the main-season crop, with similar percentage increases in the off-season crop. Total padi production would increase by 75% from 117,200 tons at present to 204,800 tons at full development. This would represent an increase of 3% of the total domestic supply, which, in the present deficit situation, would be easily marketable within Malaysia. Farm Incomes 53. At present the total annual family income generated by the model 1 ha farm in Krian is M$2,484 ($1,035), and for the 2 ha farm in Sungei Manik is M$2,749 ($1,145). These family incomes, which include incomes from crops other than padi and off-farm work, are approximately equal to a per capita income of $200 per annum. The range of per capita incomes derived from the various sizes of farms is relatively narrow, from the equivalent of $148 for the 1 ha farm in Sungei Manik to $244 for the 1.5 ha farm in Krian. These figures should be compared with the estimated national relative poverty line (critical consumption level) of about $390, the estimated absolute poverty line of $215, and the national per capita income of about $860. Approximately 70% of project beneficiary families subsist on total incomes below the absolute poverty line, while nearly 100% live in relative poverty, placing the subproject areas among the poorest padi areas on Peninsular Malaysia's west coast. By full project development, family income on the Krian 1 ha farm would rise to M$3,321 ($1,384) and on the Sungei Manik 2 ha farm to M$4,259 ($1,775), equivalent to per capita incomes of $261 and $317 respectively in current prices. Implementation of the project would lift the bulk of the very poor in the subproject areas (14,000 families) out of absolute poverty, leaving but 16% of the beneficiary population in that status. At full project development, no more than 5% of the beneficiaries would earn incomes above the relative poverty line, entirely restricted to farmers operating over 2 ha of padi. Given the typically small landholdings, this represents the most cost-effective means of dealing with the poverty problem in the subproject areas (at an investment cost of $2,067 per family), as well as making the maximum impact attainable through agricultural intensification with the achievement of reasonable economic rates of return. The project would provide reasonably large proportional increases in income (averaging over 36%) to two large communities, while ensuring a sufficient period of time for the planning and initiation of land settlement, industrialization, and other development programs in Perak.

18 Project Charges 54. Given the extremely low incomes of the padi farmers in the subproject areas, Government policy would require no special taxation of project beneficiaries to recover project costs. The farmers already pay a wide variety of land-based taxes and irrigation rates averaging $7/ha, and an Islamic padi production tithe (zakat) to the Perak State Department of Religious Affairs, which uses the receipts to finance the religious school system, teachers' salaries, welfare expenses, and maintenance of mosques. Zakat payments are an integral part of traditional Malay culture, which remains an especially strong force in the padi-farming areas, and they can be expected to continue regardless of general tax policy. Estimated zakat payments average about $80/ha, and are projected to increase by $60/ha with project induced yield increases, far in excess of incremental O&M costs. It should be noted that O&M of irrigation facilities in Malaysia is totally divorced from collections of either land-based irrigation charges or zakat payments, that irrigation O&M is financed out of general revenues supported by a highly efficient and generally progressive tax system, and that the level of O&M is not constrained by a shortage of funds. In view of these factors and the level of farm incomes, the present structure and level of charges are considered acceptable. Assurances have been obtained that the Perak and Penang State Governments would continue to collect irrigation charges whose level would be determined taking into account O&M and capital costs, incentives to farmers, farmers' capacity to pay, and other taxes and charges imposed upon them, and that the Government would exchange views with the Bank from time to time on the level of those charges (Section 4.03 of the draft Loan Agreement). Project Benefits and Risks 55. The expected economic rate of return of the overall project is 20%. This estimate is a composite of the estimated rates of return of the Krian (21%) and Sungei Manik (16%) subprojects. While achieving this favorable economic return, the project would directly benefit some 24,000 smallholder families (130,000 people), create additional employment for 2,500 agricultural laborers, and would result in net annual foreign exchange savings of about US$15 million through reductions in rice imports. 56. Although the rate of return is fairly sensitive to shortfalls in achieving expected yields, shortfalls of over 40% from expected yield increments would be required to reduce the rate of return to 10%, the estimated opportunity cost of capital. Given past experience in Malaysia, shortfalls of this magnitude are highly unlikely. The rate of return is insensitive to increases in construction costs and lags in project implementation. The major risk in project implementation would derive from the difficulties in organizing and implementing the agricultural supporting services. However, these services are already being successfully provided under previous Bank projects in Malaysia and they are currently being intensified and integrated on a pilot basis in Krian itself. There is thus a high likelihood that by the time of planned full project development (1989) the agricultural goals of the project will have been successfully achieved.

19 Environmental Effects 57. Additional developmental work in the existing Krian and Sungei Manik irrigation areas would not have adverse effects on the environment. Drainage improvements in the almost continuously flooded low-lying areas would reduce the amount of stagnant water and thus reduce hazards from water-associated diseases and pests. Chemical fertilizers and pesticides are already widely used in the areas and extension services would continue to advise against the use of chemicals toxic to fish. Project works in Krian would protect rather than disturb the coastal mangrove fringe. PART V - LEGAL INSTRUMENTS AND AUTHORITY 58. The draft Loan Agreement between Malaysia and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank, are being distributed to the Executive Directors separately. The draft Loan Agreement follows the general pattern of loan agreements relating to agricultural projects. Special conditions of the project are listed in Section III of Annex III. 59. It is an additional condition of effectiveness that the Government would: (a) appoint a suitably qualified Project Coordinator; and (b) establish a project Steering Committee I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 61. I recommend that the Executive Directors approve the proposed loan. October 12, 1978 Washington, D.C. Robert S. McNamara President By Ernest Stern

20

21 ANMEX I Page 1 of 6 TABLE 3A MALAYSIA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES MALAYSIA /a LAND AREA (THOUSAND SQ. EM.) - MOST RECENT ESTIMATE) TOTAL SAME SAME NEXT HIGHER AGRICULTURAL 60.4 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e GNP PER CAPITA (US$) ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) URBAN POPULATION (PERCENT OF TOTAL) POPULATION DENSITY PER SQ. EM PER SQ. EM. AGRICULTURAL LAND POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS If.R 44-7 / /R YRS If.R 521 1X 54.4 /R YRS. AND ABOVE 2.8 /f.g 3.2/A POPULATION GROWTH RATE (PERCENT) TOTAL URBAN CRUDE BIRTH RATE (PER THOUSAND) CRUDE DEATH RATE (PER THOUSAND) GROSS REPRODUCTION RATE FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970=100) / 100.0D / /R PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) /R /R /R PROTEINS (GRAMS PER DAY) /R 56.5 / OF WHICH ANIMAL AND PULSE / CHILD (AGES 1-4) MORTALITY RATE HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) INFANT MORTALITY RATE (PER THOUSAND) /g 33.2 /R ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL URBAN RURAL ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL URBAN RURAL POPULATION PER PHYSICIAN / POPULATION PER NURSING PERSON /g * / POPULATION PER HOSPITAL BED TOTAL / URBAN RURAL ADMISSIONS PER HOSPITAL BED HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL * URBAN RURAL * AVERAGE NUMBER OF PERSONS PER ROOM TOTAL /R URBAN /R ** RURAL E ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL URBAN *- * RURAL /g

22 ANNEX I Page 2 of 6 TABLE 3A MALAYSIA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES MALAYSIA - HOST RECENT ESTIMATE) - SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL FEMALE SECONDARY: TOTAL FEMALE VOCATIONAL (PERCENT OF SECONDARY) PUPIL-TEACHER RATIO PRIMARY SECONDARY ADULT LITERACY RATE (PERCENT) /h CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION.... RADIO RECEIVERS PER THOUSAND POPULATION.. TV RECEIVERS PER THOUSAND POPULATION * NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION CINEMA ANNUAL ATTENDANCE PER CAPITA EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) FEMALE (PERCENT) AGRICULTURE (PERCENT) INDUSTRY (PERCENT) PARTICIPATION RATE (PERCENT) TOTAL MALIE FEMALE ECONOMIC DEPENDENCY RATIO INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS HIGHEST 20 PERCENT OF HOUSEHOLDS LOWEST 20 PERCENT OF HOUSEHOLDS LOWEST 40 PERCENT OF HOUSEHOLDS POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN RURAL Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and /c East Asia & Pacific; /d Intermediate Middle Income ($ per capita, 1976); /e Upper Middle Income ($ per capita, 1976); /f 1957; /_ W. Malaysia; /h September 1978

23 ANNEX I KEY TO COUNTRIES BY REGION AND INCOME C-ROUPL Page 3 of 6 ~ ~ ~~~~~~~~Icmec ncn/d I..-.L.i.1FP.rcr Segio/Ononne Group Laov Inct41-/b I-/b L In/. r Middle I.t.-mdiat Middl Upp-r Middle High I-coo,/f Coo rtc, R.Si-/T- C-P Beani Me1a.i Angola Ch.ns Djibouti Cabot Burundi Mali Bottana Ivo-y Coast RAuc_W, Central African Ep. Mos mbique Canernn Ma-rit ul Chad Niger Caps Verde N minia Cntmor R-enda Congo, P.R Seychelles Ethiopia Sierra Leone Equatorial Guins- AFR:CA SOUTH Ganbia, The Smalia Libenia OF SAHARA GR.es T.n.nia M-ccitnia Cuinee-Bi... T Sa Nigeris YenY- LeIth" eugnda Upper Vo1ta Rhod.s.s S:. Ton & prnci..p Madagascer Zaire Seontegal nip Scdan Zlecbia NORTH AFRICA Ynm-n Ngypt A.R. Morocc Algenia Jordan r_n ebhraic brad Seen GocoL I b, AND MIDDLE ymnpdrsyr- Y-ne PT.DNylaRA. I Ira.Qro an EAST Tuis ia Lebanon S.,.. Arahia 1 Afgh-nistan Maldiver SOUTH ASIA Bhagladeh Nnpal B_At India Srti Lanka Ca.nbodi. Ne. Hebridee China, Rep. f Fij' W_eniCa- S-oa Indonesi- papua P.e Guinea CilbherE Slands Hong Kong Rruon RiOT ASIA Lao P D R Philippines Korea, sep. of French Polvonnia Soltpon Ialanda Thailand M aca luan Vi.t NQ Tong Malav_is Nev CaI.donia UastenS Hono Tru-t Tarrit.oy of the Pacific singapoo- HReti Bnlivia Antige Cu=acanaa Argentina Hehmud Orend.hle Mxc Hranil Canal Zon LOTIN AMERICA Coynad CoLo1bia M;icrgop Fr enth C.iana MoCciniLun AND CARIBbEAN gondcra Costa Rice P-rsguay C"deloupe Veonecela St, Vincent Doninic Peru NRtharlanda Occillee Vircin Ictocde (U.S.A Dein.ion Rep St. Kitte-N-vie P-na Ecoad-r St. Locia Pon-I RIco Trinidad r, Fobs.o Srogua V T-rk.y Cypros ChenS Inlood, EUROPE MaLcta ribnit- Rananio Yogo.lavia FrecoloAd Spain AustralIa Finland Italy NReday United Stot.a INDUSTRIALIZED Austria Fr..ce Japan Spoth Africa COUNTRIES BelR,o G.e-ny Fed. R.p, of Lun.abo.r- Svedac Caneda Iceland Netharlanda Snit-erland De.eark -raland Ne. Zealand Unittd Kingdon Albhnia rea-n D- Rep. USSR Nolgarie Hungary CENTRALLY PLANNED Chi.n PAR of Korea ed- Rp. of ECONOMIES CFbs Mongolia Ctech. eloa-kia Poland / laced.ic 1976 GNP pan capita in 1976 US dollars. 7b s2hs or 1ee per capita /c S2I2-550 p-r ca pita. /d par a pita. /' S par capita. F7nF /f over $2500 pr capita

24 ANNEX I Page 4 of 6 DEFINITIONS OF SOCIAL INDICATORS Note:. Althogh the date era drawn from sources generally judged the most authoritative and reliable, it should also be noted that they may not be internationally tomnperable bescase of the lank If standardised definitions and conceptn used by different countries in collecting the dat. The data are nonetheles. oyefol to describe orders of magnitude, indicate treads, and character-ie osrtain eajor differences between coontrie. The adloeted group averassa for each indicator are population-weighted gemeetric means, encloding the -etreme values of the indicator and the most populaed country in each group. Coverage of countries among the indicators depends on availability of date ond in not uniform. Dl. to lack of date, gronp averages for Capital Surplus Oil Emporters and indicators of sccest st water and e.crete disposal, honuing. intone distribution and poverty ear simple populution-weighted Seometric means without the exclusion of extreme oalues LAND AREA (thousand sq. kb) Population per hospital bed - total, urban, and rural - Popslstion (total, Total - Total surface area comprising land area end inland waters, urban, and rural) divided by their respective number of hospital beda Agricultural - Most recent estimate of agricultural ares used temporarily available in public and private general and npecialired hospital and reon pe,-nanetly fur crops, pasetcea, market and kitchbn gardens or to habilitation centers Hcapitale sre esteblishe..ts permanently astffed by lie fallow. t least sne physician. Establishnents providing principally custodial care are not included. Rural hospitals, however, include health and m=di- ISP PER CAPITA (0U$) - GNP per capita estimatel at current market prices, cal centers not permanently staffed by a physician (but by a medical ascalculated by same conversion method as World Bank Atlas (197S-?7 basis); sistont, nurse, eidwife, etc.) which offer in-patient occomnodation and 1960, 1970, and 1977 data. provide a limited range of medical facilities Admissions net hosnital bed - Total nunber of adissions to or discharges ENERGY CONSUMFTION PER CAPITA - Annual co.unsption of cormercial energy from hospitals divided by the number of beds.d (ooal and lignite, petroleum, natural gas and hydro-, nuclear and geothermal olectricity) in kilograms of coal equivalent per capita. HOUSING Average si.e of household (persons per household) - total, urban, and rural- POPULATION AND VITAL STATISTICS A house. hold consists of a group of individuals who share living quarters Total population. mi-yar. (illn.- ) As of July 1 if not available, and their main meals. A boarder or lodger may or ray not be incladed in average of ten end-year estimates; 1960, 1970, and 1977 data the household for statistical purposes. Satit tital definitions of house- Urban population (Percent of total) - Ratio of urban to totel popula- hold vary. tion; different definitions of urban areas kay affect comparability Average number of persons per room - tota q urban, and rural - Average nunof data among countries. her of persona per rten in all, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings esclude non-permanent structures and Per a. km - Mid-year pnpulatinn per square kil-ester (100 hectares) unoccupied parts of total ares. ~~~~~~~~~~~Aoo..a In elentrinity (percent of dawellines) - total, srban. and rural - Per q. kns griculture land - Computed as above for agricultural land Conventional dwellings with electricitn ivin quarter ae rcnage only. of total, urban, and rural dwellings respectively. Population age structure (percent) - Children (0-14 years), working-age (15-64 years), and retired (65 years and over) as percentages of mid- EDUCATION year populstlon. Adjusted enrolment ratios Population growth rate (percent) - total,_and urban - Csmpawnd annual Piaysho- nl.ndfmle - Total and female enrelleent of all ages growth rates of total and urban mid-year pepulatimne ftr , at the primacy le as perca tages of respectively primary school-age , and populationn; normally includes children aged 6-11 years but adjusted for Crude birth rate (per thousand) - Annual live births per thisand of different langtha of primary educetion; for countries with universal edumid-year population; ten-year arithmetic averages ending in 1960 and cation enrcllment may emceed 100 percent since sone pupils are below or 1970 end five-year average ending in 1975 for east recent estimate. above the official school age. Crude death rate (per thouaad) - Annual deaths per thusand of mid- Secondary school - tatal. and f sle - Computed as above; secondary educayear population; tin-year arithmetic averages ending in 1960 and 1970 tion requires at least four years ef approved primary instruction; proand five-year average ending in 1975 for mest recent estimate. vides general vocatienal, or teacher training instructions for pupils Gloss reproduction rate - Average number of daughter a woman will bear usually of 12 to 17 years of age; correspondence counse are geeneally in her normal teproductive period if she emperiencee present age- e-cluded. epecific fertility rates; usually fiv-year averages ending in 1960, Vocational enrollment (Percent of secondary) - V.cational institutions in- 1970, and clude Iehioal, industrial., or other programe which operat independently Family plannina - accnptors. annual (thousands) - Annual number of or as departients of aecondary institutions acceptors nf birth-control devices under ausp of mto.al faily Pupil-teacher ratio - rimary, and cundry - Total students ensolled in planning program, primary and secondary levels divided by numbers of teachers in the cerre- Fmily planning - uai r (percent of married wumen) - Percentage of ponding levels. married women of child-bearing age (10-hi pare) who use birth-control Adult literacy rate (percent) - Literate adults (able to read and write) as devicen o all m1arried women in same age group, a percentage of total adult population eged 15 years and over. POOD AND NUTRITION CONSUzMPTION Ioden of fund production per capita (1970P 100) - Index number of per Passenger cara (per thousand population) - Pssenger cars comprise motor cars capita unnual production of all food comodities seating less than eight persona; esoludes ambulance, hearses and military Pot capita supply of calories (percent of requirements) - Computed from vehicles. snergy equivalent of net food supplies available in country per capita Radio receivera (per thousand population) - All types of receivers fur radio per day Available supplies comprise domestic production, imports less broadcasts to general public per thousand of population; secludes unlicenaed expocts, and changes in stock. list supplies esclude animal feed, seeds, receivers in countries and in years when registration of radio aets was is qus.tilnuased in food processilg, and l.ases is dintribution. Re- effect; data for recent yearn may not be comparable since mst countries quirennnts cere estimated by FAO based on physiological needs for nor- abolished licensing. mal activity and health considering environmental temperature, body TV receivers (per thousand populetien) - TV receivers fur broadcast to general weightn, ago and sen distributions of population, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in councent for caste at household level tries and in years when registration of TV nets was in effect. capit snetply of root (grams per day) - Protein content of per Newspaper c (per thoua nd population) - Shows the average circulacapita "csppl of fond Per day.nrtspply of.fod is defined as tins of "daily general interest newspaper", defined as a Perindical publibove. Requirements for all.ountriss established by USDA provide for cation devoted primarily to recording general mews. It is considered to o msinium alowance of 60 grams of total protein per day and 20 grams be "daily" if it appears at least four times a weak of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per c-pita Per year - Based on the number of tickets These otandards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-is cinonas and mobile 23 grans of animal protein an as average for the world, propnsed by units. FAO is the Third Wbotd Food Survey. Por capit. protein enpolv from animsl and pulse - Protein supply of food EMPLOYDENT derived from animals and pulses in grams per day. Total labor force (thousands) - Etonomically active persons, including steed Child (ages 1-4) mortality rati (per thousend) - Annual deaths per thosa- farces and une aployed bur excluding honnewives, tudents, etc. Defiiand in age group 1-4 yearn, In children in this ag group. tionn in various countries are not comparable Pemale (percent) - Female labor force as percentage of total labor f-rce. HEALTH Agriculture (Percent) - taboo force in farming, forestry, hunting and fishing Life enpeut n.y at birth (yearn) - Averuge number of years of life as percentage of total labor force. remsaining at birth; usually five-year scerages ending in 1960, 1970, Industrv (percent) - Labor force in mining, construction, manufacturing and and 1975 electricity, water and gas as percentage of total labor forcn. Infant mortality rate (per thousand) - Annual deaths of infants under Partlciopaion rate (percent) - total, male, and fessin - Total, male, and one yeer of age per thousand live birht. female labor force as peroentagas of their respective populations. Access to safe water (percent of PPoulation) - total, urban. and rural - Thee are Io'sh adjouted participation rates reflecting age-sen Dumber of people (total, urban, and trura) with reasonable ancess to t ost.rar of the popnlatioc, and long time trend. cafe caner supply (includen treated sarifsc waters or untreated bun Ecosomic dependency ratio - Ratio of populstion under 15 end 65 sod auve to uncontaninrted water such as that from protected boreholes, springs, the labor farce In age group of yeas. and sanitary wells) as percentages of their respective populations. In sn urban area 5 public fountain or standpost located not more INCOMgE DISTRIBG'TION thus 200 meit' s frrn a house may be considered as being within tea- Percentage of private income (both is cash and kind) received by richest S sonable accoss of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percent imply that the housewife or members of the household do not have to of households. spend a disproportionate part of the day in fetching the family's water needs. POVERTY TARGET GROUPS Accus. to ec-reta disposal (Percent nf population) - total, urban. and Eatimated absolute poverty incone level (US$ per capita) - urban and rural - rural - Number of people (total, urban, snd rural) served by ecer.ta Absolute poverty income level is that income level below which a minimal disposal as percentages of their respective populations. Excrets nutritionally adequate dint plus essential non-fond requirements is not disposal may include the collection and dispoal., with or without affordable. treatment, of human e.or.t. and.esne-wuar by water-bor-e nystees Estimated relative povertv Income level (US$ per capita) - urban and rural - or the uss of pit privies and similar installations. Relative poverty income level iy that income level less than one-third Poculation per physician - Population divided by number of practicing per capita personal income of the country. physici-ns qu-lifiod from a medical nchoal at university level. Estimated population below paverty inoom level (percent) - urban and rural - Population per nursing person - Population divided by number of Portent of population (urban and rural) who are either "absolute potor" or practicing rule and female graduate nurses, practical nurses, and "relative poor" whichever is greater. ausistant nursas Economic and Social Data Division Eon.omic Analysis and Penjeoti.ns Department

25 ANNEX 1 Page 5 of 6 COUNTRY DATA - MALAYSIA GROSS NATIONAL PRODUCT IN 1976: ANNUAL RATE OF GROWTH (% in constant prices and M$) US$ Mln % GNP at Market Prices 10, Gross Domestic Investment 2, Gross National Saving 2, Current Account Balance Exports of Goods, NFS 5, Imports of Goods, NFS 4, OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1975 Value Added Labor Force V.A. Per Worker US$ Mln Mln. % US$ % Agriculture 2, , Industry 2, , Services 3, , Unemployed Total/Average 8, , GOVERNMENT FINANCE General Government M$ Mln % of GDP Current Receipts 7, Current Expenditures 6, Public Authorities Surplus Current Surplus Development Expenditures 2, Foreign Borrowing (net) MONEY, CREDIT AND PRICES (Million M$ outstanding end period) Money and Quasi-Money 3,724 4,131 4,666 5,770 7,574 8,729 10,001 12,769 Bank Credit to Public Sector ,045 1,186 1,375 1,746 2,148 3,036 Bank Credit to Private Sector 1,841 2,246 2,572 3,014 4,586 5,278 6,084 7,471 (Percentages or Index Numbers) Money and Quasi-Money as % of GDP Consumer Price Index (1967 = 100) Annual Percentage Changes in: Consumer Price Index Bank Credit to Public Sector Bank Credit to Private Sector not applicable NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered.

26 ANNEX I Page 6 of 6 TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE ) US$ Mln % (US$ million) Exports of Goods, NFS 4,420 4,076 5,555 Imports of Goods, NFS 4,424 3,965 4,409 Rubber 1, Resource Gap (deficit = -) ,146 Tin Interest Payments (net) Timber Other Factor Payments (net) Palm Oil Net Transfers Petroleum Balance on Current Account All Other Commodities 1x Total 4, Direct Foreign Investment Net MLT Borrowing /a EXTERNAL DEBT, DECEMBER 31, 1977 Disbursements Amortization US$ Mln Subtotal Public Debt, incl. Guaranteed 2,053 Other Capital (net) -5 (-502 (-185 Non-Guaranteed Private Debt Other items n.e.i. ( ( Total Outstanding & Disbursed 2,053 Increase in Reserves (-) Net Official Reserves DEBT-SERVICE RATIO FOR 1977 /b (end year) 1,615 1,695 2,504 % Fuel and Related Materials Public Debt, incl. Guaranteed 6.8 Imports Non-Guaranteed Private Debt of which: Petroleum Total Outstanding & Disbursed 6.8 Exports of which: Petroleum IBRD/IDA LENDING (January 31, 1978) (US$ million) RATE OF EXCHANGE IBRD Average rate during period: Outstanding & Disbursed M$ per US$ US$ per M$ Undisbursed Outstanding incl. Undisbursed /a Medium and long-term capital flows are obtained from World Bank debt data and are not comparable with balance of payments estimates. /b Ratio of debt service to exports of goods and nonfactor services. not available

27 ANNEX II Page I of 9 THE STATUS OF BANK GROUP OPERATIONS IN MALAYSIA A. STATEMENT OF BANK LOANS (AS OF AUGUST 31, 1978) Amount in US$ million Loan (Less Cancellations) Number Year Borrower Purpose Bank Undisbursed Seventeen loans fully disbursed Sabah Ports Authority Ports Malaysia Education (II) Malaysia Population Malaysia Land Settlement Malaysia Wat:er Supply (II) Malaysia Highway (II) Malaysia Land Settlement Malaysia Agricultural Development Malaysia Education (III) National Electricity Board Power (VI) Malaysia Land Settlement Malaysia Agricultural Research and Extension National Electricity Board Power (VII) Malaysia Sewerage Malaysia Urban Transport (II) Malaysia Rural Development Malaysia Education (IV) Malaysia Highway (III) National Electricity Board Power (VIII) Malaysia Irrigation Malaysia National Extension Malaysia Rural Development Total /a of which has been repaid 88.9 Total now outstanding Amount sold 40.2 of which has been repaid Total now held by Bank Total undisbursed /a A loan of US$17.0 million for the Second Population and Family Health Project was signed on July 17, 1978, and another loan of US$28.0 million for the FELDA VI Land Settlement Project was signed on August 11, 1978, but they were not effective as of August 31, A loan of US$19.5 million for the Coconut Smallholders Development Project was approved by the Board on September 5, 1978, and a loan of US$13.0 million for the Second Sabah Ports Project was signed on September 20, 1978, but these are not included in the above table either.

28 ANNEX II Page 2 of 9 B. STATEMENT OF IFC INVESTMENTS (AS OF AUGUST 31,1978) Type of Amount in US$ Million Year Business Loan Equity Total 1964 Malaysian Industrial Development Finance Development Ltd. (MIDF) Financing Tasek Cement Ltd. Cement Malayawata Steel Ltd. Steel Malayawata Steel Ltd. Steel India-Malaysia Textiles Ltd. Textiles Malaysian Industrial Development Finance Development Ltd. (MIDF) Financing Total gross commitment Less: repayments, sales, cancellations, terminations and write-offs Total commitments now held by IFC Total undisbursed

29 ANNEX IT Page 3 of 9 ^. PROJECTS IN EXECUTION /1 Loan No. 774 Sabah Ports Project; US$16.1 Million Loan of June 3 02QI97I; Effective Date: August ; ClosinR Date: December 31, 1978 Work has been satisfactorily completed on the new berths at Kota Kinabalu and Sandakan. Slow progress in ccmpleting the access road to Sandakan delayed full use of the latter facilities until mid The new headquarters building has been occupied. Delay in mobilization, procurement of malerials and difficulties in retaining suitable consultant engineers, compounded with the world-wide inflation, resulted in a cost overrun of about 50%. Settlement of an outstanding claim by the contractors will delay the final account and the closing date of the loan has been extended for six months to December 31, Loan No. 931 Second Hi hway Project; US$19.5 Million Loan of August 22, 1973; Effective Date: October 25, 1973; Closing Date: March 31, 1980 Overall, the project is about 85% completed. Two of the three contract sections constituting the new Kuala Lumpur-Seremban Expressway have been completed and the third section which is neariag completion has been Dartially taken over. Except for a two mile section at the northern end, the Expressway was opened for traffic in October The improvement works to the existing Kuala Lumpur-Seremban Road are substaatially completed, while the widening and improvement works of the Kuala Livmpur-;oatang Kali Road, which were started in November 1976, will take still one and a half to two years to complete. ConsultnTg services for various studies and detailed engineering have been completed. Construction costs bave escalated sharply because of rapid inflation, and the total project cost is now estimated to be US$46 million, compared to an. appraisal estimate of US$37 million. Loan No Second Kuala Lumpur Urban Transport Project; US$26.0 Million Lean of March L1, ; Effective Date: November 11, 1976; Closing Date: Junle 30, 1981 The main objective of the project is to increase the efficiency of the transport system in Kuala Lumpur. Public transport services will be improved whil4e the use of private cars will be restrained. Although primarily coracern'ed with urban transport, the project also introduces new approaches to residential development for low-income families. The main components are: /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understaading that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

30 ANNEX II Page 4 of 9 (a) road and intersection improvements, traffic engineering and control schemes and new radial roads; (b) trasnport policy measures including introduction of minibus services, traffic priorities for high-occupancy vehicles and area road pricing; (c) new serviced plots for about 1,400 households and 150 businesses and improvement of infrastructure services for about 2,100 existing households; and (d) technical assistance to support traffic management and transport planning, to prepare an urban development project for Kuantan, and to review national housing policies and programs.. Progress on the transport components has been quite satisfactory although delays have been experienced. Execution of the residential components has beeln less satisfactory due to administrative and policy problems. Loan No Third Highway Proiect; US$35.0 Million Loan of April 4, 1977; Effective Date: May 4, 1977: Closing Date: June 30, 1982 The main objective of the project is to improve the highway network in the East Malaysian State of Sabah through the reconstruction and upgrading of priority links and the development of the Public Work Department's maintenance capacity. A further objective is to protect road investments in Peninsular Malaysia through a pilot road maintenance and pavement strengthening program in three states. The project also includes an urban study of Kota Kinabalu in Sabah and a transport/railway study in Peninsular'Malaysia. Construction work on the East and West Coast Roads in Sabah is under way, but upgrading program in Sabah has not yet been started due to a delay of about one year in appointing consultants to assist PWD. While satisfactory progress has been made in the preparatory work for the construction in Peninsular Malaysia, the reorganization of maintenance sections in the three pilot states is behind schedule due to staff shortages. Loan No Sixth Power Prolect; US$45.0 Million Loan of July 25, 1974; Effective Date: October 22, 1974; Closing Date: June 30, 1980 Loan No Seventh Power Project; US$35.0 Million Loan of December 17, 1975; Effective Date: March 10, 1976; Closing Date: June 30, 1981 Loan No Eighth Power Project; US$22.0 Million Loan of August 3, 1977; Effective Date: January 9, 1978; Closing Date: June 30, 1982 The 275 kv transmission lines from Temengor to Papan and from Port Dickson to Malacca financed under the Sixth Power Project have been completed. The Seventh Power Project (the Prai Power Station extension, 3 x 120 MW) and the Eighth Power Project (the Pasir Cudan Power Station, 2 x 120 MW) are still in the early stages of construction; progress is generally satisfaktory. Based on the Bank's recommendation, the Government has agreed to

31 ANNEX II Page 5 of 9 apply fuel surcharges to commercial and industrial consumers since mid-1975 and to provide NEB with equity of about US$200 million during the period FY77-81 on a year by year basis to bridge NEB's financial gap. Maximum demand and energy sales for FY77 were 975-MW and 5,297 GWH respectively (16% above FY76 levels). Loan No. 908 Second Kuala Lumpur Water Supply Project; US$13.5 Million Loan of June 14, 1973, Effective Date: August 27, 1973; Closing Date: June 30, 1980 The project consists of the expansion of water supply facilities to meet increasing demands in Kuala Lumpur and the Klang Valley area. The first part of the project, comprising ordinary water works, was completed in 1976, practically on schedule and within the cost estimates, and is operational. The construction of the Langat Dam, the last and major work of the project, is progressing satisfactorily and is expected to be completed by the end of Completion will be two years behind schedule. Cost of the dam is likely to be about 25% more than originally estimated, resulting in an increase in the total project cost of about 15%. No difficulties are foreseen in raising the additional funds required. The Selangor State Water Department, which is responsible for the project, performs well in spite of staffing problems. Its financial management still needs some strengthening. The closing date has been extended for two years to June 30, Loar MA Kuala Lumpur Sewerae Project; US$21.5 Million Loan of March 11, 1976; Effective Date: August '5; 1976 Closing Date: December 31, 1981 The project is the first stage ( ) of a 30-year master plan for the sewerage development in the Kuala Lumpur Metropolitan area. It includes the extension of sewers (about 70 miles of trunk and lateral sewers) and treatment facilities to serve an additional population of 200,000 in the Kuala Lumpur Federal Territory; the institution of a separate Sewerage Department within the Kuala Lumpur City Hall, with its own accounting system and finances; engineering and management consultant services; staff training; and the preparation of sewerage and pollution control measures for the Kuala Lumpur metropolitan area. The engineering of the project has been satisfactorily completed. Bidding for two out of the three major contracts (sewers) has also been completed. However, land acquisition and resettlement of present occupants are creating serious problems which are delaying the project. The establishment of a separate accounting system for the Sewerage Department (Kuala Lumpur City Hall) is progressing well. Action to levy the sewerage surcharge on water bills has bcen undertaken after long delays. Comoliance with covenants regarding long-term sewc_rage and urban planning in Sel?rgor State is lagging.

32 ANNEX II Page 6 of 9 Loan No. 885 Third Jengka Triangle Land Settlement Project; US$25.0 Million Loan of March 30, 1973; Effective Date: June 22, 1973; Closing Date: December 31, 1981 Planting operations have been completed but due to the severe droughts in 1976 and 1977 a heavy supplying program especially on the rubber schemes is being carried out, which is due to be completed by the end of About 23,500 acres of oil palm and 16,400 acres of rubber have been planted. Planting and maintenance standards are satisfactory. Only scheme 15 is in production. So far, 1,467 houses have been constructed and 1,347 settlers have moved in. Schools and clinics are under construction but will only be completed about one year after settler entry. Due to delays in settler house construction, settler entry will be delayed by two to two and a half years on various schemes. JKR capacity is a major constraint in speeding up house construction. Coordination between JKR and FELDA has improved considerablv and FELDA expects that the backlog will not increase. Oil palm mill construction on scheme 18 is on schedule and will be completed by April Water to schemes 16 to 18 is temporarily supplied from Jengka II due to delays in intake construction on scheme 19. Due to excessive transfers in middle management field staff, there is lack of leadership which affects continuity of work. Loan No. 967 Johore Land Settlement Prolect; US$40.0 Million Loan of February 27, 1974; Effective Date: May 16, 1974; Closing Date: June 30, 1982 Clearing and planting proper are satisfactorily on schedule, except for phase III of the Ulu Dengar scheme due to late logging. Planting and maintenance standards are satisfactory. Oil palm production started on four schemes in However, due to the severe droughts in 1976 and 1977, early yields are disappointing. Attacks of elephants and wild boar resulted in a loss of 25% of the total oil palm stand. FELDA has embarked on a massive trenching program around the scheme boundaries and indications are that this program may be effective. FELDA is now preparing for a gigantic supplying program. So far, 828 houses have been constructed and 710 settlers have moved in. Due to delays in settler house construction, delays of one to three years in settler entry are to be expected on various schemes. Lack of capacity in JKR and in the Ministries of Education and Health has delayed construction of schools and clinics, but the situation is improving because of the creation of separate units in these Ministries catering for FELDA schemes. Two of the five oil mills to be constructed under the loan were commissioned in Loan No. 973 Western Johore Agricultural Development Project; US$45.0 Million Loan of April 5, 1974; Effective Date: August 14, 1974; Closing Date: June 30, 1980 Project civil works are still substantially behind schedule, and acceleration of work has proven difficult due to unusually severe rainfall and flooding, refinements in design requiring construction of numerous small water control structures, and the persistent problems of land acquisition in a settled smallholder area. However, work is progressing on all drainage basin contracts, at costs considerably below appraisal estimates. The project has recently been expanded to include the construction of

33 ANNEX II Page 7 of 9 drainage works and agricultural installations in the Phase II area of Western Johore and construction of a network of secondary roads in the original Phase I area. Loan No Keratong Land Settlement Project; US$36.0 Million Loan of October 3, 1974;--Effective Date: January 9, 1975; Closing Date: June 30, 1983 Clearing and planting operations on schemes 8 and 9 are delayed by about 9 to 12 months due to late logging. Scheme 2 is in production. Production on scheme 3 has been postponed due to labor shortages. Schemes 4 and 5 are expected to come in production by late 1978, but this may also have to be postponed. Despite the labor shortage, maintenance standards are satisfactory. Attacks by elephants and wild boar resulted in a loss of 12% of the total oil palm stand. FELDA will start a trenching program whereafter a supplying program will be initiated. Following the decision to reduce the holding size from 14 to 10 acres, settlers of schemes 1 through 5 will be housed in Town 22, while separate townships will be constructed for schemes 6 through 9. So far, 411 houses have been completed and 283 settlers moved in. The relationship between DARA and FELDA has improved considerably following the changes in DARA top management, and FELDA expects that the backlog in settler entry will not increase. Efforts will be made to clear this backlog. Loan No Agricultural Research and Extension Project; US$28.5 Million Loan of May 30, 1975; Effective Date: October 21, 1975; Closing Date: June 30, 1982 Project implementation is now about two years behind the appraisal estimates. A new Director General was appointed in mid-1977 and a new Deputy Director for Administration was appointed in January 1978, but the post of Deputy Director for Research is still vacant. Some progress has been made on international recruitment of scientist and research program reviewers. Six scientists are now on board and a total of 15 man-years has been committed representing 15% of the total scheduled under the project. An additional one man-year has been utilized for consultants to conduct nine program reviews. Civil works and fellowships are the only components of the project that have been proceeding at a satisfactory pace. The extension component of the project is also about two years behind schedule and has had similar management constraints with a change in Directors occurring in March The next six months should be adequate to indicate whether the new management will be able to get the project moving. Loan No North Kelantan Rural Development Project; US$21.0 Million Loan of July 21, 1976; Effective Date: October 28, 1976; Closing Date: December 31, 1981 While still behind the original schedule, the project is beginning to show signs of movement. A large road contract, covering about two thirds of the PWD road component, has been tendered, and the remaining PWD roads should be tendered by the end of Work has started on DID main drain and flood protection facilities and installation of GRP flume tertiary irrigation

34 ANNEX II Page 8 of 9 canals. DID has resolved the major design problems involved in implementing the Lemal irrigation component. The agricultural extension component is progressing well in two complete Districts, and preparation is under way for extension to two more, out of eight in Kelantan. The next task, integrating credit and irrigation 0&M operations with extension, is beginning, albeit slowly. The FOA construction program is progressing rapidly, and large-scale procurement of agricultural equipment has begun. The Government has assigned a large number of land officers to break the land acquisition bottleneck to construction implementation. Staff appointments remain the major potential constraint on implementation. Loan No National Small-Scale Irrigation Prolect; US$39.0 Million Loan of Auaust : Effective Date: October 25, 1977; Closins Date: March Of the 195 proposed small irrigation schemes to be implemented under the project, 10 are currently under construction, 19 have been approved by the Bank for inclusion in the project following appraisal by the Preparation and Evaluation Team established under the project, 15 additional schemes are currently being appraised by that team, and topographic, hydrological and soils surveys are under way in 60 other scheme areas, including three each in Sabah and Sarawak. State-level Preparation and Evaluation Teams have been established in the latter two states. The Rompin/Endau Irrigation Development Study, also being financed by the loan, is now under way. Loan No Northwest Selangor Integrated Agricultural Development Project; US$26.0 Million Loan of February 23, 1978: Effective Date: June 21, 1978: Closing Date: December 31, 1983 The project is providing improved drainage and irrigation facilities, access roads, training and intensified agricultural supporting services; it is also improving the regional drainage systems. Loan No. 810 Second Education Project; US$15.5 Million Loan of April 5, 1972; Effective Date: July ; Closing Date: December 31, 1978 The project is financing the establishment of a curriculum development center, science schools for the University of Penang, vocational schools, and an educational television system. With the exception of parts of the University and one vocational school, project institutions are practically completed and operating. Earlier delays incurred in the implementation of these two items necessitated a postponement of the closing date by one year. The delays are reflected in slow disbursements, but the problem is currently being addressed by the Bank and the Government. Project cost overruns (20%) are expected to be financed by the Government.

35 ANNEX II Page 9 of 9 Loan No. 974 Third Education Project; US$19.0 Million Loan of April 5, 1974; Effective Date: June 26, 1974; Closing Date: December 31, 1980 The project assists the Government to develop technical training, pre-service teacher training, and an East Malaysia educational television system. Implementation has improved since a year ago when less than 50% of project civil works had been tendered. Contracts have now been awarded for 11 out of 13 project institutions. Construction began in early 1976 and most of the project institutes are scheduled for completion in late The Project Unit is functioning satisfactorily, despite current problems with bid evaluation. Loan No Fourth Education Project; US$35.0 Million Loan of November 18, 1976; Effective Date: January 14, 1977; Closing Date: June 30, 1982 The project is designed to improve the quality of primary schooling and to redress existing imbalances in the provision of primary education by providing additional classrooms in poverty areas, facilities for teacher training and one teacher training college in Sarawak. The project includes three new Industrial Training Centers and expansion of two existing ones. It includes also a study on community education in preparation of government investment in nonformal education. Project implementation appears to be satisfactory. Problems in the processing of disbursements have been resolved. Shortage of staff in the Project Unit has been remedied by the Government. Disbursements began a half year behind schedule during the second half of FY78. Loan No. 880 Population Project; US$5.0 Million Loan of February 9, 1973; Effective Date: June 21, 1973; Closing Date: December 31, 1981 The National Family Planning Board (NFPB), by activating the national and state level committees and subcommittees, has recently gained greater managerial control over the project implementation; however, it has yet to accelerate the slow progress of civil works. To date, about 270 buildings out of a total of 571 have been completed and a further 115 are under construction. According to the revised schedule, there will still be facilities whose construction will be completed only by mid Disbursements increased from 5% of the loan amount in September 1976, to 30% in July Annual contraceptive acceptors rose from about 75,000 to 1976 to over 80,000 in 1977; more than 35,000 of these acceptors were reported to have been recruited through the integrated rural health facilities supported by the project. The percentage of women in childbearing age currently using contraception increased from 16 in 1970 to over 35 by The birth rate of 31 per thousand in 1973 declined to 30.2 in 1976.

36 ANNEX III MALAYSIA KRIAN-SUNGEI MANIK INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT Supplementary Project Data Sheet Section I - Timetable of Key Events (a) Time taken to prepare the project: 2 years (b) Project preparation: by agencies in the Ministry of Agriculture (DID, DOA, BPM, FOA) following an initial consultant prefeasibility study. (c) First presented to the Bank: May 1976 (d) First Bank mission to consider the project: August 1976 (e) Departure of appraisal mission: November 1977 (f) Completion of negotiations: September 14, 1978 (g) Planned date of effectiveness: February 1979 Section II - Special Bank Implementation Actions None Section III - Special Conditions (a) The Government would appoint a suitably qualified Project Coordinator (Condition of Effectiveness, para. 47). (b) The Government would establish a project Steering Committee (Condition of Effectiveness, para. 47). (c) DID would prepare, on completion of final design, a designer's operation manual covering major project works (para. 48), and Perak DOA would prepare an agricultural services operations manual as a guide for field extension staff by September 1, 1979 (para. 49). (d) The Project Coordinator would prepare annual statements of agricultural credit requirements to be submitted to BPM, FOA, and the Bank not later than three months prior to the beginning of each fiscal year; and the Government would thereafter ensure that an adequate amount of credit would be made available to the project area (para. 50). (e) All DID, DOA, FOA and BPM staff required to implement the project would be appointed in a timely manner (para. 51).

37 1~~~~~~~~~~~ IBRD oot ' Th/poh JANUARY 1978 MALAYSIA KRIAN-SUNGEI MANIK INTEGRATED AGRICULTURAL DEVELOPMENT Sungei Manik Sub-project IRRIGATION PROJECT Stage I El:'> -: Stage 11 i///z Stage IIl Stage IV - Canals ~ Drains and Rivers - Raads 19R1 -i--- Railways * FDC ( Farmers Development Center) * F D C Sub -Tcenters o h h p t M I L k E S J\h ~~Ca nd ra n the co ofs th,enn eds ge /AQ ItI \ I the\ rpho to ohlohts rar bvttached /~~~~~~~~~~~~~~~~~~~~~~~~~~h bondylsnor,otioonhst oce an to />J;4 ilompzjr jit; ro gua/a \ \ v~~~~~~~~~~~~~~~~honldostaits shwn 0 tate p, try UATA t / I 1 00To oral tccertttcett suhofma ' -L -tatrte Bndtls Su'GApaRt

38

39 IBRD ianjon.janjary 1978 PENANG STATE KR IANEd,-. BARRAGE off s is ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Of )',.1.L4' 1 MLYi r / _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~n- I''''' C... Krion Sub-project A X x (( Layout o < v JTypial ~~ Existing ~ FOC ~ ~ ~ ~ ~ ~ U KRIAN - SUNGEI MANIK KX<y)/ \ '</J I,.- =Lt_. a!\> d.. DEVELOPMENT ~> %'</j<t3,\ //y INTEGRATED AGRiCULtURAL Kg P-d.k B.9- S.-. 5 SNOAOR fio Block I I I D 'O n d D-A Block 11Ill >/va>s,fwd Dr~ ainsand ives N t /f a ea vvnngsgu ---- r idoi Protection Bunds Of, s t = ailwy s M ALiAC CA K\ C> vsio' *R Proposed FDC 0\ v, s.!<t G. Proposed FDC Sub-centers, / <&>^^cljh -. - State Boundary MILE e~, =,~~bt ~ ':-~ -- Sa t X sro