Assurances and Documents to be sought prior to negotiations
The implementation of the reformulated tea component
as detailed above relies upon the effective willingness of the private
investor to fulfill his commitment with regards to the Nshili Tea
Factory. Prior to any final decision from IFAD regarding this reformulated
tea component and considering that the project will act as a financial
investor in the Nshili Tea Company, the private investor and the
GoR have to provide IFAD with the following relevant documents:
(a) |
Business Plan of the Factory:
This business plan will clearly indicate a production capacity
for the tea factory sufficient to absorb the production of
both the industrial bloc leased out by the private investor
and the smallholders (leased out lands and home gardens).
It is estimated that this production capacity should be at
least of 3,500 tons per year. The business plan will also
indicate the phasing of this production capacity with regards
to machines and equipments. An initial production capacity
of 2,000 tons could be envisaged but it should be raised to
3,500/4,000 tons 6 to 7 years after the factory has started
its operations; |
(b) |
Total Cost of the Factory:
The cost of the factory will be evaluated taking into account
the targeted production capacity (3,500/4,000 tons); |
(c) |
Marketing Plan: A marketing
plan will be worked out by the private investor indicating
the type of production developed by the factory (CTC, Orthodox,
organic tea) and the necessary measures implemented for quality
control purposes. In addition, the marketing plan will also
indicate the commercialization circuit that will be in force
at the Nshili Tea Company as well as any investment related
to commercialization and marketing (packaging, labeling); |
(d) |
Financing Plan: Based
on the total cost of the factory, a financing plan will be
worked out indicating the different sources of financing used
for this investment. It will indicate the level of share capital
and its final breakdown between different shareholders i.e.
private investors (holding 70% of the shares), MIG and smallholders’
organization (each holding 15% of the shares). It will also
indicate the terms and conditions of any borrowed funds (from
commercial banks, donors) and any contribution in the form
of current account from private investors; |
(e) |
Financial Projection:
Based on the above mentioned business and financing plans,
a 10-year financial projection will be worked out. These financial
projections will include several scenarios regarding the purchase
price for green leaves with the current price of FRW 65/70
per kilo as being the worst case scenario; |
| (f) |
Leasehold Agreement: 50-year
leasehold agreement for the land and the plantations allocated
to smallholders ‘free of charge’ at a symbolic
price will be signed between the MINITERRE and the 12 smallholders’
zonal associations. |
The whole set of documents will be passed on to
IFAD before the end of October 2005. The private investor has already
contracted a local consulting firm to finalize the projections related
to the production capacity and the related total investment cost
as well as to work out the financial projections.
In addition, at that date, both the GoR and the
private investors will give IFAD their irrevocable acceptance on
the prerequisites to PI’s proposal as previously mentioned
(see above). The purpose of these prerequisites is to safeguard
the interests of smallholders with regards to the Nshili Tea Company
and the Nshili Tea Factory. In that respect, it is of utmost importance
that any investment carried out by the private investors is clearly
indicated. In the best case scenario for smallholders, leasing contracts
for the industrial bloc land and tea bushes, as well as the purchase
contract for the woodland and the former OCIR-Thé assets
(buildings) shall be in the name of the private investor and not
in the name of the Nshili Tea Company. In addition, any expense
related to leased out land or purchased assets should be borne by
the private investors not by the Nshili Tea Company. A different
situation will undoubtedly lead to a drastic reduction in the company’s
profit, thus reducing the dividends earned by the smallholders’
organization.
The 20-year leasehold agreement for the land conceded
to the PI as currently discussed with the GoR represents a potential
source of risk for smallholders and for the long-term sustainability
of the factory/company. The Nshili tea concession has been planted
in 1983 and its expected lifetime averages 40 to 50 years. Replanting
tea bushes would normally take place in 2023/2033 while the leasehold
agreement will come to an end in 2025/2026. The risk lies in the
non-continuation of the leasehold agreement which will lead to the
non-regeneration of the plantation by the private investor. Production
supplied to the factory will become of less quality and lower yield,
thus sharply impairing the financial profitability of the company
(processing based exclusively on smallholders’ home gardens
tea plantations). To circumvent this important risk, the project
supports the setting up of a smallholders’ financial holding
that will enable them to (a) purchase/lease out land that any other
shareholder would no longer lease out and, (b) finance the necessary
regeneration and rehabilitation work of those lands.
Once the whole set of above-mentioned documents
have been reviewed by IFAD specialists and the prerequisites have
been irrevocably agreed upon by both the GoR and the private investors,
negotiations between IFAD and the GoR could start on the basis of
an amended Loan Agreement as detailed in Appendix 5 taking into
consideration the reformulated tea component.
In case of insufficient production capacity or
uncertainty in the financing plan for the Nshili Tea Factory, the
reformulated tea sub-component could be cancelled and the funds
reallocated to other sub-components of the tea component (mainly
to the smallholders’ financial holding). Really, there would
be no point in developing tea production in smallholders’
home gardens in Nshili if the new factory is not able to absorb
and process their green leaves in due time and diligence. Such a
situation would lead to the same situation of Nshili smallholders
suffering from heavy losses because of the absence of a processing
plant.
With regards to Mushubi sub-component, discussions
should be held between GoR, private investors, smallholders’
organizations and the project with a view to finalize the construction
of a tea factory that will process green leaves in Mushubi. Failure
to reach an agreement for this factory should be an important signal
for the project and this sub-component should be put on hold. Once
again, there is no point in developing new plantations if no factory
can process their production. Saleable green leaves from Mushubi
plantations will be available for processing in mid-2009. Final
decision related to the Mushubi factory should be made by mid-2007.
Timetable. The next steps are as follows:
-
By the end of October, the GoR will have
sent IFAD the relevant documentation above-mentioned;
-
By November 15th, IFAD experts will have
reviewed the documentation and made their comments and recommendations
to IFAD based on the reformulation tea component main report;
-
In case the documentation provides all necessary
and relevant information satisfactory to IFAD with regards to
the Nshili Tea Company, a Memorandum of Understanding (MoU)
will be discussed and signed between IFAD and the GoR. This
MoU will mention all agreements that have been discussed and
signed between the private investor and the GoR. This MoU will
be signed before the end of November 2005;
-
In case the documentation is not satisfactory,
IFAD will request additional information that will be provided
by the GoR no later than the end of November 2005. This additional
information will be reviewed by IFAD experts and, based on their
recommendations, decision will be taken by IFAD to continue
the Tea component or to drop it. A MoU will also be discussed
and signed if IFAD is to continue the Tea component;
-
An amended Loan Agreement will be proposed
to the signature of IFAD and the GoR either in December 2005
or in January 2006;
-
Disbursement of funds allocated on reformulated
tea component budget lines will only start when the amended
Loan Agreement has been signed by both parties.
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