Thailand - Northeast Thailand Irrigation Improvement Project

CIRCULIATINGCtopy FILE CO PyO BE RETURUED TO REPORTS DES: DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1370-TH REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF THAILAND FOR THE NORTHEAST THAILAND IRRIGATION IMPROVEMENT PROJECT January 23, 1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCY EQUIVALENTS USED IN THIS REPORT Currency Unit = Baht (Bt) US$ 1 - Bt 20.0 Bt 1 US$ 0.05 Bt 1 million - US$ 50,000 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF THAILAND FOR THE NORTHEAST THAILAND IRRIGATION IMPROVEMENT PROJECT I submit the following report and recommendation on a proposed development credit to the Kingdom of Thailand for the equivalent of US$7.0 million on standard IDA terms to help finance the Northeast Thailand Irrigation Improvement Project, the Rainfed Rice Pioneer Project and the provision of technical assistance in the preparation of a rural infrastruc- ture project in Northeast Thailand. PART I - THE ECONOMY 1. An economic mission visited Thailand in September 1972. Its report, entitled "Current Economic Position and Prospects of Thailand," was distributed to the Executive Directors on March 9, 1973 (R73-40 and R73-41). The report updated the basic economic report which was distributed to the Executive Directors on January 18, 1972 (R72-12). Another economic mission departed for Thailand in January 1974. Country Data sheets are attached as Annex I. 2. In October 1973, after several days of violent confrontation in Bangkok between units of the army and police and crowds, composed largely of students, the Government of Field Marshal Thanom Kittikachorn surrendered power and a university rector, Dr. Sanya Dhammasakdi, was called upon by the King to form a new Government. The Government thus formed has pledged to enact a new constitution and then hold a General Election in the second half of1974. The drafting of a constitution based on the principles of parliamentary democracy is proceeding and the Election is expected to be held at the time indicated. 3. The main preoccupations of the new Government since taking office, apart from the introduction of a new constitution, have been to restrain inflation, a phenomenon from which the country had long been free until very recently, and maintain the delicate political balance which has existed since the downfall of its predecessor. Growth of the Economy in Recent Years 4. From 1960 to 1968 Thailand's gross domestic product grew at an average rate of 8 percent per year, exports increased by an average of 10 percent per year, the balance of payments was in surplus, and substan- tial foreign exchange reserves were accumulated. However from 1968 to 1970 Thailand's export markets were unfavorable and exports increased very little, resulting in balance of payments deficits and reserve losses. The slow growth of exports restrained the growth of private demand, private investment -2- stagnated from 1970 to early 1972, and the growth rate slowed to 6-1/2 per- cent in 1970-71. 5. Exports began to grow again in 1971, and since that time have increased by 48 percent, largely because external demand for four of Thailand's major exports--rice, sugar, kenaf, and rubber--strengthened while the markets for maize and tapioca products remained unfavorable. Although private invest- ment demand also picked up in the latter part of 1972, total real output, as opposed to exports, increased by only 3 percent in 1972 because of a drought in the summer that limited the production of rice, kenaf, and especially maize. However, in 1973 real GDP is estimated to have grown by about 8 per- cent because of continued strong export and investment demand and revived growth in agricultural production. Prices and Demand 6. After some years of virtual price stability, the GDP deflator rose by 5 percent in 1972 and is estimated to have increased by a further 8 percent in 1973. These price increases were caused by two factors: (a) strongly rising external prices for Thailand's exports, combined with reduced agricultural production because of the drought; and (b) rising import prices and the devaluation of the Baht in February 1973 to maintain parity with the US dollar. The increases, particularly the higher price of rice, may have contributed to the overthrow of the Government in October 1973, and to the numerous strikes which have occurred since then. Reducing the pressure on domestic prices is now a major concern of the government. In July the government revalued the Baht by 4 percent and imposed a temporary ban on exports of most grades of rice, and in November it adjusted indirect tax rates, raising those on luxury items and lowering those on widely consumed necessities. 7. As a result of the strong export and private investment demand of the past two years, a situation of buoyancy had been created, prior to the recent oil price increases, which would have required the government to reverse the decline in the current budget surplus if it was to generate enough resources to finance its program of capital penditures, without creating new inflationary pressures. With a ratio of taxes to GDP of 12%, there was some room for a greater tax effort. The implications of the oil price increases for fiscal policy will form part of a study of the country's public finances on which the Bank is now engaged, jointly with Thai officials, at the request of the Government. The Third Plan: Development Objectives and Policies 8. Planning in Thailand sets the overall strategy for the plan period and indicative targets for government expenditure, but is interpreted flexibly and specific decisions on policies, programs and projects are made annually at the time of budget preparation and review. The Third Five-Year Plan (1972-76) was prepared in 1968-71 when economic indicators were discouraging. The plan established the following objectives: (a) the revival of economic growth at a rate of 7 percent per year with the maintenance of external stability and reasonably stable prices; (b) the expansion of agricultural and industrial production for export, supported by effective export promotion -3- programs; (c) a larger share of public expenditure for agriculture, education, and other social sectors; (d) a better regional distribution of development gains, with particular emphasis on the Northeast; (e) further development of institutions to channel official external capital into private sector investment; and (f) improvements in the formulation of projects and sectoral and regional programs. The Plan's objectives are supported by the interim government established in October 1973, and the return to constitutional government is not expected to lead to change in these objectives. 9. A reorganization of government ministries was effected in October 1972 for the purpose of improving the administration and coordina- tion of economic and social services. Of particular importance was the regrouping of all agricultural services in one Ministry, which should make it easier to formulate and implement agricultural policies and programs; these are discussed in Section III, Agriculture in Thailand. 10. During the 1960s, manufacturing output in Thailand grew by 12 per- cent per annum on average, but the sector is still small and oriented toward the domestic market, partly because of an industrial policy that has favored import substitution. The growth target for the sector in the Third Plan is 8 percent per year. Several measures have been adopted to encourage manufac- turing, particularly for export. In 1972, additional incentives were pro- vided for investment in export industries and in industries located in ten designated development zones and an Industrial Estates Authority was estab- lished. In addition fiscal incentives to manufacturers of exports have been increased and made easier to obtain. However, production costs in several import substituting industries are still much higher than the price of competing imports; and costs in much of Thailand's industry are too high to permit it to compete in external markets. Measures to encourage pro- tected industries to become more efficient are needed, and policies to promote specific efficient export industries need to be formulated in detail and applied consistently. Long-Term Problems 11. Thailand's population is growing by 3 percent per year. The goal of the Government's population policy is to reduce this rate to 2.5 percent by 1976. Although dissemination of modern birth control techniques has made rapid progress, the age structure of the population will make it difficult to reduce the population growth rate as fast as the Government intends, and there is no evidence yet that the rate has started to decline. Even if the Government target is achieved, Thailand will have to contend with a rapid increase in the working age population until well into the 1980s. 12. Seasonal unemployment and low productivity are major problems in Thailand. At present, there is little open unemployment because of the availability of unoccupied land that can be brought under cultivation by those who would otherwise be unemployed. Most new entrants to the labor force now become farmers because job opportunities in other sectors are limited, and agriculture will be required to generate nearly 60 percent of the 2-1/2 million jobs that need to be created during the Third Plan period. Since the supply of cultivable land is likely to be exhausted in the 1980's, policies and projects to increase employment and output per unit of land need to be implemented now to prepare for this eventuality. Such policies include measures to raise crop yields, increase cropping intensity, and promote other farm activities (livestock, fishing silk, etc.). 13. Disparity between rural and urban incomes is a serious long-term problem. Household expenditure surveys in 1969-70 found that the mean annual income of urban families was roughly 2-1/2 times that of rural families. Differences in the level of development of different regions also constitute a problem. In 1971, per capita GDP in the various regions measured as a percentage of per capita GDP in the Central region was 24 percent in North- east Thailand, 37 percent in the North and 54 percent in the South. Since the Central region contains Bangkok, where most manufacturing industries and most of Thailand's urban population are located, this difference between regional incomes in part reflects the difference between rural areas and Bangkok. The government is carrying out regional planning studies with bilateral and UNDP assistance to identify programs and projects to aid the less developed regions. A planning study for the Northeast was completed in 1970, and studies are now in progress for the North and the South. How- ever, the Government has not yet been able to institute an effective program for the Northeast, and continual effort to identify and prepare projects outside the Central plains and to strengthen the capabilities of local institutions in these areas is necessary. Balance of Payments and External Borrowing Program 14. Before the prices of crude oil were increased in December 1973, Thailand had been expected to have adequate foreign exchange to cover its needs during the Third Plan period. The recent growth of exports had increased external reserves by $200 million in 1972 and an estimated $150 million in 1973, and the short-term outlook for export markets was favorable. In 1972 petroleum imports totalled $150 million accounting for 9.2 percent of imports. If Thailand in 1974 holds oil imports to the same volume level as 1972 and pays four times the price, oil expenditures will total $600 million compared to gross foreign exchange reserves estimated to be $1,000 million at the end of 1973. 15. It is of course far from clear what the full effect of the recent oil price increases will be on the Thai economy, but the urgency of taking measures to stimulate production for export has certainly grown, providing markets can be found. Since Thailand's exports consist largely of foodstuffs, tin and rubber and are sold in a wide variety of markets this may give them a defensive strength in the event of a recession in Western Europe and Japan. 16. In May 1973 the Consultative Group for Thailand met to review the country's development prospects and requirements for external assistance for the remainder of the Third Plan. Because of two devaluations of the dollar, considerable increases in the cost of Thailand's imports, and addi- tions to the list of projects for external financing, the Government has revised its projected requirements of commitments of external public capital during the Plan period from $800 to $1200 million. In May 1973, this amount appeared likely to be available and the situation will be reassessed at the next meeting of the Consultative Group tentatively scheduled for June 1974. -5- 17. In April 1972, the Government of Japan signed a Y 64 billion credit agreement with the Government of Thailand, and a year later announced the untying of almost the entire amount. 18. Considerable progress has been made in project preparation since the start of the plan. However, external lenders to Thailand are giving increasing emphasis to projects in agriculture, education and other social sectors, and this may make it more difficult for the Government to achieve its target for external borrowing which has traditionally supported projects in the power, transportation and communications sectors. 19. Present Government policy is to maintain the private sector's freedom of access to private credit sources abroad; in consequence, private capital inflows are expected to continue to finance a significant part of equipment imports. Since reserves are high and domestic sources of finance for private investment are not entirely adequate, this policy has been appropriate so far. If the balance of payments is badly effected by oil price increases, this policy may need modification. 20. At the end of 1972, Thailand's total external debt stood at $849 million and the debt service ratio for the year was 14.4%. Before the oil price increases, this ratio had been expected to rise to 19% by 1976; if Thailand borrows to finance oil imports the debt service ratio is likely to rise more steeply. 21. Whatever the magnitude of the ultimate reduction in the foreign ex- change reserves caused by the increased oil prices, it is clear that Thailand, which was already receiving finance on concessional terms under bilateral and multilateral aid programs, will now have a greater need for aid on such terms. PART II - BANK GROUP OPERATIONS IN THAILAND 22. Since 1950 Thailand has received 27 Bank loans amounting to $474.4 million, net of cancellations. Most of these have been for trans- portation ($192 million), irrigation ($69.2 million) and power ($91 million) with, in addition, one for a dual-purpose power and irrigation project ($65.9 million). The remaining loans have been for education ($21.4 million), industry ($1.0 million) and telecommunications ($37 million). In addition, Thailand has received IDA credits of $19.5 million for education and $5.5 mil- lion for irrigation improvement. In general, Bank-financed projects have been carried out in accordance with expectations. Construction of the Third Bangkok Port project, financed under Loan 702-TH, began 18 months behind schedule. The delay was mainly caused by the time taken by the Port Author- ity of Thailand and its consultants to pre-qualify bidders, amend tender documents and evalute bids which were complicated by currency realignments. In July 1973 the Executive Directors approved a loan of $55 million to the Metropolitan Water Works Authority (MWWA) for a Bangkok water supply project. Signature of this loan has been delayed pending the filling of the post of - 6 - General Manager of MWWA, which became vacant in August, and the negotiation of an engineering consultancy contract. A new General Manager has now been appointed and negotiations for the consultancy contract are proceeding satis- factorily. Annex II contains a summary statement of Bank loans and IDA credits as of December 31, 1973 and IFC investments as of December 31, 1973, and notes on the execution of on-going projects. 23. The Bank Group's lending program in Thailand is being diversified. In the next few years a smaller proportion of it is expected to be devoted to transportation and power, while projects in irrigation, rural infrastructure, livestock, education, family planning, industry and forestry will account for about two-thirds of the program. Both Bank and IDA projects are in- creasingly selected to achieve a wider geographical spread for development benefits and one of the main functions of the Regional Mission in Bangkok is to assist the Government in developing projects which will contribute to this. The Bank Group's readiness to finance some local costs in appro- priate cases will enable it to participate more fully in projects in agri- culture and the social sectors. 24. Two further loans should be ready for consideration in FY 74: one to the Electricity Generating Authority of Thailand for a Quae Yai hydro- electric project and the other to the Industrial Finance Corporation of Thailand. In FY 75 about three-quarters of the program (by dollar amount) is expected to be devoted to projects in the countryside, where incomes are lowest. It will include a rural infrastructure project and lending for irrigation, livestock improvement, seed multiplication and possibly rubber replanting. In addition outlying areas can expect to benefit from projects now under preparation for educational radio and television and infrastructure for four regional centers and their environs. Projects of more direct benefit to towns are expected to include industrial estates and the regional centers already mentioned. 25. On December 31, 1972 Bank loans disbursed and outstanding to Thailand amounted to $205 million, representing 24 percent of the country's estimated total external debt. The level of Bank/IDA commitments is expected to increase substantially over the next five years, but loans and credits disbursed and outstanding are not expected to exceed 30 percent of external debt by 1978. Prior to the oil price increases, servicing of the Bank Group debt was expected to account for 58.4% of Thailand's public debt service in 1978, but the public debt service was expected to amount to only 4.7% of exports in that year. No new forecasts can yet be made but the Bank Group's share of the country's external debt service is unlikely to become excessive. 26. Prospects for IFC operations in Thailand are reasonably good; IFC began appraisal of a pulp and paper project based on bamboo and bagasse in the latter part of January 1974. -7- PART III - THE AGRIqULTURAL SECIOR AND THE NORTHEAST REGION A. Agriculture in Thailand 27. Agricultural production grew by an average of about 5-1/2 percent per year in the 1960's, as compared with an 8 percent average annual growth in GDP. Since the rural population grew by 3 percent per year, rural incomes probably increased slowly. Much of the increase in output in the decade resulted from a 43 percent increase in the area under cultivation. 28. Rice is Thailand's most important crop, being both the nation's staple food and its largest foreign exchange earner. However, in recent years Thai farmers have proved resourceful in diversifying crop production in response to price incentives. As a result of this diversification of production, rice exports, for which the market was unfavorable from 1968 until 1972, declined from 34 percent of total merchandise exports in 1965 to 21 percent in 1972. 29. The Third Plan sets a target of 5 percent annual growth in agri- cultural production and, implicitly, farm incomes. The Plan calls for continued diversification into the production of crops with favorable export prospects, particularly maize and cassava; and the value of agricultural exports is expected to increase 32 percent during the five-year period. The Plan also seeks to encourage limited import subsitution for those agricul- tural products that Thailand can produce with reasonable efficiency. Rice production, however, will have to grow by about 3-1/2 percent per year to meet the increased domestic demand resulting from population and income growth and to provide a surplus of 1 to 2 million tons per year for export. 30. Attainment of the Third Plan production goals will, however, require an increase in the yields of major crops, because the supply of cultivable land is limited and new lands brought under cultivation will be less and less productive. There is considerable scope for change in this direction. The adoption of improved seed/fertilizer technology has been slow, and fertilizer consumption is now among the lowest in Asia. In the past, the spread of this technology was retarded by three factors. First, Thailand has been slow both in developing high-yield seeds suitable for the country, and in establishing the institutional arrangements required for their production, certification and marketing. Secondly, rice farmers have been discouraged from adopting such new technology as was available because the domestic price of nitrogenous fertilizer had been kept high by the Government-controlled company which had a monopoly on it while the domestic price of rice had been simultaneously depressed by an export tax. Thirdly, the shortcomings of many of the country's irrigation systems discouraged farmers from adopting the new rice technology, which requires efficient water control. -8- 31. The Government has been considering ways of dealing with these problems. FAO has assisted by conducting studies on the response to fertilizer of major crops, and the Bank has financed a national fertilizer study. In December 1973, the new Government decided to lift the monopoly on nitrogenous fertilizer and to allow duty-free importation of all fertilizers. It-is too early for the benefits of this new policy to have made themselves felt. A working group in the Ministry of Agriculture and Cooperatives is considering what else can be done to make fertilizer available to farmers at prices which will encourage them to use more of it. The Government is receiving assistance from Japan and the U.S. to enable it to increase production of new varieties of seeds, and the IBRD/FAO Cooperative Program has helped the Government prepare a seed multiplication project for the Bank Group's consideration. 32. Government supporting services for agriculture have not been very effective in the past, partly because of inadequate coordination and cooperation between the many agencies dealing with agriculture. The Government's decision last year to return the Royal Irrigation Depart- ment and the Land Development Department to the Ministry of Agriculture and Cooperatives should help to improve coordination. However, continued effort is necessary to increase the effectiveness of research and extension programs, to improve agricultural credit and marketing facilities, to control the use of the nation's forest lands, and to provide farmers with secure title to their land. The Development of Irrigated Agriculture 33. The first large-scale irrigation scheme in Thailand for which a Bank loan was made was the Greater Chao Phya Project, undertaken in the 1950's. A diversion dam on the Chao Phya river and a system of main canals afforded a measure of control over natural flooding in the area, but the distribution system was not designed to assure delivery of water to every farm - or to make dry-season cropping possible. 34. A low-cost system of tertiary canals and drains was therefore constructed in the 1960's, with the.assistance of Loan 328-TH, which permitted an increase in wet-season yields and some degree of dry-season cropping. Since 1960 the Bank has helped finance two major dams, Bhumiphol and Sirikit, which have further increased control over flooding and permit- ted the storage of more water for dry season irrigation. Concurrently, dams, canals and "tanks" were also constructed with U.S. assistance on rivers in Northeast Thailand, to provide water for both wet and dry-season irrigation. But the growth of dry-season cultivation and the increase of wet-season yields have been slow. Studies financed in part by Loan 514-TH (Sirikit Dam) identified deficiencies in design and operation of the canal systems as well as inadequate on-farm development works and supporting services as being responsible for the slow realization of the full benefits from these investments. -9- 35. The existence of under-utilized irrigation infrastructure and the Third Plan's emphasis on agricultural diversification have led the Govern- ment to adopt a two-pronged approach to irrigation development. First, existing irrigation facilities are to be completed, improved, and modified as necessary to obtain more benefit from ealier investments. The Chao Phya Irrigation Improvement Project (partly financed by Credit 379-TH) and the proposed project are examples of this approach. Secondly, new facilities are to be developed in areas that offer more potential for growing upland crops. B. The Economy of Northeast Thailand 36. The Northeast is the poorest region of Thailand; its per capita GDP being only 24% of that of the Central Plain. It covers an area of about 170,000 square kilometers comprising 15 Changwads (provinces) drained by the Mekong River and its tributaries. Historically the region has been isolated from markets in Thailand and abroad by poor transportation facilities. The region is inhabited by about 13 million people (about 35% of Thailand's population) most of whom are farmers. Although the population is growing by 3% per year, the region is not yet over-populated, and farm holdings, which average abbout 3.5 ha., are larger than elsewhere in Southeast Asia. Most farmers own the land they cultivate although the legal status of their title deeds varies. The natural conditions in Auch of the region are less favorable to agriculture than in other regions of the country; soils are generally poor and rainfed crop production is only possible from May to October. 37. In the 1960's the Northeast's gross regional product grew by about 7 percent per year, as compared to an 8 percent annual increase in GDP for Thailand as a whole. During the decade, more than half of public investment in infrastructure in the region was devoted to road construction. As a result the transportation system improved markedly, and the integration of the region's economy with national and world markets began. As the transportation system improved, the cultivation of cash crops spread. The most significant of these crops is kenaf, a fiber crop similar to jute, which is grown on about 10 percent of the cultivated area; maize and cassava are grown in the western part of the region. However, most farmers still operate at the subsistence level, with rainfed rice as their main crop. 38. The manufacturing sector accounts for less than 10 percent of gross regional product, and primarily serves the local market. However, in the cities close to U.S. bases, expenditures by the U.S. military stimulated the expansion of the construction, transportation, and services sectors and caused fairly rapid growth of population and employment. 39. The future development of the Northeast depends ultimately on agriculture. For the foreseeable future the majority of the labor force will be engaged in agriculture; and agro-industries, relying on local - 10 - raw materials, have greatest potential as export industries for the region. According to the Third Plan the Northeast should receive 27% of total national development expenditures. Since the region contributes only a small proportion of government revenue, the net transfer of resources through the central budget would be considerable. The Government is now preparing livestock improvement and regional development projects for the Northeast for possible Bank Group financing. 40. Although there is considerable potential for the development of areas served by existing irrigation facilities, most rice farmers will continue to depend upon rainfall. Since soil and water conditions in some areas are only suited for rice cultivation, raising the production and incomes of farmers in these areas will require improvements in rainfed rice production. PART IV - THE PROJECT 41. A report entitled "Appraisal of the Northeast Thailand Irrigation Improvement Project, Thailand" (No. 226-TH dated January 15, 1974) is being circulated separately to the Executive Directors. A loan and project sum- mary is provided in Annex III. 42. The project, which would be the first Bank Group project for agricultural development in Northeast Thailand, has three components: (i) the Irrigation Improvement Project to expand irrigated agriculture through the completion and improvement of irrigation schemes covering 42,000 ha; (ii) the Rainfed Rice Pioneer Project, designed to develop and promote techniques for attaining higher rice yields under rainfed conditions; and (iii) provision of technical assistance in the preparation of a rural infrastructure project in Northeast Thailand. History of the Project 43. Sector and regional program reviews completed by Bank staff in 1972 recommended that more effective use be made of existing irrigation facilities in Northeast Thailand. The Irrigation Improvement Project was then prepared by the Royal Irrigation Department (RID), in the Ministry of Agriculture and Cooperatives (MOAC), with the assistance of IDA, and constitutes the Government's first major step to implement this recom- mendation. The Rainfed Rice Pioneer Project was prepared by the Rice Division of the Department of Agriculture in MOAC with the assistance of IDA staff and consultants under UNDP Regional Project 253, a "Program for Detailed Preparation of Pioneer Projects in the Lower Mekong Basin", for which IBRD acts as the Executing Agency in association with ADB and FAO. 44. The proposed credit was negotiated in Washington from December 17 to December 19, 1973. The Government delegation was led by H.E. Anand Panyarathun, Ambassador of Thailand to the United States, who was assisted by Dr. Bhakdi Lusanant, Director-General of the Department of Agriculture in the Ministry of Agriculture and Cooperatives. - 11 - A. Irrigation Improvement Project 45. The aim of this project is to enable farmers in three areas of Northeast Thailand to increase the yield of their wet-season rice crop and to introduce dry-season cropping of rice on more than half the paddy land in these areas. A reservoir and canal system already exist in each area but few of the farmers served by the existing works receive a depend- able supply of water. Indeed, many of them receive no water at all because of delays in the completion of some main canals. Many of the project works would be designed to complete or improve these physical systems, in accordance with the Government's policy of seeking to obtain more benefit from earlier irrigation investments. The Project irrigation systems would directly serve 16,000 farm families on 42,000 ha of irrigable land. 46. There is recent evidence from part of the project area where farmers have been receiving a reliable supply of irrigation water, well- coordinated support from Government officials and the stimulus of the prevailing high world market price of rice, that the Thai farmer is prepared to make the changes in cultural practices and carry out on-farm improvements required for irrigated agriculture. On that evidence, the aims of this project should be realized provided that, in addition to the maintenance of financial incentives, (a) the supply of irrigation water is assured, (b) extension work is well organized and properly staffed, (c) credit is available on reasonable terms, and (d) farm inputs (fertilizer, chemical controls, seeds, etc.) are available at reasonable prices. The proposed project aims at fulfillment of the first three conditions by completing and improving physical irrigation works and canal service roads, improving management of the irrigation systems, intensifying agricultural extension and ensuring access to institutional credit. Assuming that recent Government measures (described in Part III) designed to make fertilizer available to the farmer at more attractive prices are not cancelled out by the effect of oil price increases and assuming an improved supply of seed as a result of the Rainfed Rice Pioneer project and a national seeds project now under preparation, the fourth condition is also likely to be fulfilled. Construction 47. The project works would be carried out in the following areas: 1/ (a) Lam Pao: to irrigate 18,200 ha.; (b) Lam Phra Plerng: to irrigate 9,100 ha; and (c) Nam Pong: to irrigate 14,700 ha. 1/ See maps IBRD 10305, 10302 and 10303 annexed to this report. - 12 - 48. The proposed credit would help finance: (a) provision of efficient water control structures to maintain operating levels in the main canals; (b) enlargement of the main canals and laterals at Lam Phra Perng; (c) construction of all-weather canal service roads; and (d) rehabilitation and expansion of tertiary systems. 49. Transplanted rice has been cultivated for many years in the project areas and individual paddies are sufficiently level to permit increased yields from the wet-season rice crop on most of them and the introduction of a dry-season rice crop on about half. Given this and the limited implementation capacity of the Government agencies which undertake land consolidation and leveling, it was decided that the Government objective of accelerating the utilization of existing irrigation infrastructure would best be served if more intensive develop- ment, such as boundary realignment and land levelling, were not under- taken by Government agencies at this stage. Such development will there- fore not be financed by the proposed credit. The works to be financed by the proposed credit will not preclude such development being undertaken by farmers on their own initiative now or by official agencies in the future. Extension Services 50. In each of the three sub-project areas an agricultural extension unit would select and train local farmers to act as paid extension agents, in the ratio of one agent to 200 farmers. These farmers would be trained on demonstration areas of 100 ha., one of which would be established in each sub-project area. After a fairly intensive initial program of instruction in the fundamentals of irrigated agriculture, they would attend training sessions lasting a few days which are to be held periodi- cally throughout a complete crop cycle. A detailed extension plan for each sub-project would be prepared by the Department of Agricultural Extension in MOAC and reviewed with IDA. Credit 51. At full development, annual demand for short- and medium-term credit is expected to increase six times from the present level. Only about one-fourth of the farmers currently hold title deeds acceptable to credit institutions, and few farmers obtain institutional credit. 52. Aerial photography and field surveys will be used to map the project area which will provide a better basis for the issue of land titles than now exists. The accelerated issue of land titles together with the continued promotion of credit arrangements based on guarantees - 13 - by groups of farmers would facilitate the expansion of institutional credit. The Government-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) would be the main source of such credit. BAAC is already active in the project areas, and there is every indication that it will make available sufficient staff and funds to meet the credit needs of farmers in the project areas. Technical Assistance 53. Consultants would be retained to assist government agencies with the implementation of physical works, strengthening of agricultural extension and preparation of related future projects. They would be encouraged to make use of skills available in Thailand. Their services would include assistance to RID in the preparation of design and contract documents, the improvement of 0 & M procedures, the organiza- tion of extension services, and the preparation of both the second stage of the Lam Pao and Nam Pong projects and irrigation of an area served by an (existing) reservoir at Lam Takhong. Much of the credit for encourag- ing results obtained in a small part of the project area where delivery of irrigation water is dependable is due to good comunication among government officials in the area and between them and the farmers. To ensure that this asset is not lost as the number of people involved in the project grows, the communications expertise and audiovisual production capacity of the UN Development Support Communications Service (DSCS) in Bangkok would be mobilized. The DSCS would be especially useful in obtaining farmers' understanding and acceptance of the project and assisting the extension agents in their work. Since 1970, socio-economic surveys of farm operations have been made periodically in the project areas under the leadership of a Thai-speaking expatriate demographer. These would be continued and would contribute to the data base for planning and implementing this project and future ones. Management and Coordination 54. Execution of irrigation improvements will have to be closely coordinated with systems operation to avoid the interruption of water deliveries. Therefore, the Government has assigned responsibility for planning and implementation to the Operation and Maintenance (0 & M) Division of the Royal Irrigation Department in the Ministry of Agriculture and Cooperatives (MOAC). The provision of extension services will be the responsibility of the Department of Agricultural Extension, also in MOAC. 55. Operation and Maintenance of the tertiary systems would be the responsibility of the farmers. RID and the extension services would encourage the farmers to form water user associations and provide them with technical assistance. There is encouraging evidence that farmers in the project area would be willing to cooperate in the proposed field- to-field irrigation. - 14 - 56. The activities of RID and the Department of Agricultural Extension would be coordinated by a Project Coordinator to be appointed by and reporting to the Under-Secretary of State for Agriculture and Cooperatives. The Central Policy Committee for Irrigated Agriculture, chaired by the Under-Secretary of State for Agriculture and Cooperatives, would review progress of the project from time to time and coordinate, as necessary, the work of the different government agencies involved in the project. The Deputy Director-General, Operation and Maintenance of RID, would serve as Project Director (Irrigation) and have overall responsibility for all three sub-projects. He would supervise the formulation and im- plementation of annual work programs for each sub-project. A Project Engineer would be appointed to supervise construction and the implementa- tion of improvements in system operation and maintenance in each sub- project. The work of Project Extension officers in each sub-project will be supervised by a Project Director (Extension) in the Office of the Director, Department of Agricultural Extension. 57. At each sub-project level, field coordination would be provided by committees chaired by the respective province or district officer and comprising the Project Engineer, the Project Extension Officer, and local representatives of BAAC, the Department of Agriculture of MOAC and other concerned Government agencies. Such project coordination committees are functioning informally (and successfully) in the Lam Pao and Lam Phra Plerng areas. Cost Estimates and Financing 58. The estimated total cost of the irrigation improvement component is US$10.7 million. Of the total proposed IDA credit of US$7.0 million, US$5.4 million would be applied to this irrigation component, thus covering about 50 percent of its cost. The foreign exchange cost of this component is estimated to be 42 percent, i.e., $4.5 million, and thus the IDA credit would finance US$0.9 million in local costs. The balance of this project would be financed by the Government's annual budget allocation to MOAC. Cost Recovery 59. The Government has decided that, for all new irrigation projects where farmers are ensured a reliable supply of water, it will recover all operation and maintenance costs and as much as possible of the investment cost directly from the beneficiaries. Recovery of operation and maintenance costs would require payments equivalent to 12 percent of the incremental net value of production attributable to irrigation. In order to establish the appropriate levels of such charges and the procedures for ccllecting them, the Government has undertaken to carry out a cost recovery study. On the basis of this study the Government would prepare appropriate levels of charges, review them with IDA, and would impose and commence collecting such charges in the project area within two years of completion of the project. - 15 - Procurement 60. Work on main canals, laterals and service roads ($3.9 million) would be suitable for contract work. Work on service roads ($2.6 million) can be combined in contracts large enough for international competitive bidding. Contracts for the main canals and laterals ($1.24 million) would involve relative small and scattered works and would be suitable only for local bidding. Rehabilitation and extension of the tertiary systems ($841,000) also involve small., scattered work which, in addition, are seasonal and must be scheduled to minimize interference with farming and to suit irrigation schedules; these works would best be carried out by RID as force account operations. For these force account operations, the proposed credit would finance only the procurement of earthmoving equipment. 61. Contracts for construction of extension centers, office buildings and housing ($150,000) would be tendered locally since these structures have to be completed prior to the start of other project activities and the small expenditures distributed over a number of sites would not be suitable for international competition. Procedures for local bidding are satisfactory and there is sufficient competition for works of this kind and size. 62. Procurement of .vehicles and equipment would be subject to international competitive bidding in accordance with Bank Group Guidelines. A 15 percent preference margin, or the prevailing customs duty if lower, would be extended to local manufacturers of vehicles and equipment in the evaluation of bids. Single off-the-shelf items costing less than US$5,000 each, which are not suitable for international tendering, would be purchased through normal Government .procurement procedures. Such purchases would be limited to a total of US$50,000. There are sufficient suppliers of such goods to ensure adequate competition. Disbursements 63. Details of the disbursement arrangements and a disbursement forecast are given in Annex III. There are no unusual features to the arrangements. Disbursements would be made over four and a half years from 1974-1978. Economic Justification and Benefits 64. Part III above sets out the rationale for investing in irrigated agriculture in Thailand, particularly where the investment would help realize the benefits of investments already made. This project accords with that strategy. - 16 - 65. Implementation of the project would lead to the efficient utilization of existing works serving 42,000 ha. and the detailed preparation of irrigation schemes for a further 80,000 ha., again utilizing existing works. Incremental paddy production from the project would reach about 129,000 tons by 1982; since this amount would represent only 3 percent of Thailand's expected incremental demand by then no special problem is anticipated for marketing it. It is expected that a ready market will also exist for the additional quantities of other crops which would result from the project. 66. The proposed project would raise the incomes of small farmers in areas situated in the poorest region of Thailand. In these areas the soils and water regimes are mainly suitable for rice production and there are few non-agricultural employment opportunities. The 16,000 farm families in the project areas hold an average of about 3.0 ha. of cultivable land of which on average 2.5 ha. is irrigable and 0.5 ha suitable for upland crops such as cassava and kenaf. About 95 percent of the farms are reported to be owner-operated. The annual per capita income of farm families benefited by the project is projected to rise from US$30 to between US$50 and US$90, depending on farm size and cropping intensity. This compares with a national per capita income of US$210 in 1971. At present, virtually all farming takes place in the wet season and there is considerable under-employment in the dry season. Employment opportuni- ties will increase almost three times at full development when (i) cultiva- tion methods for wet season rice have improved, and.(ii) 50 percent of the project area is cropped in the dry season. The project would also serve as a focal point for the deployment of improved agricultural supporting services. 67. The economic rate of return for the project as a whole is 22 per- cent. For the sub-projects, the economic rates of return are: Lam Phra Plerng: 17 percent; Lam Pao: 25 percent; and Nam Pong: 22 percent. These high returns reflect the fact that the dams and main canals have already been built and the investments in them have been treated as sunk costs. The analysis takes into account that some development of irrigated agricul- ture would take place even without the project. B. Rainfed Rice Pioneer Project 68. Despite the efforts which the Government is making to expand irrigated agriculture, most rice farming in Northeast Thailand will be carried out under rainfed conditions for the foreseeable future. The aim of this Rainfed Rice Pioneer project is to strengthen current efforts to identify, test and, in two provinces, promote techniques for obtaining higher yields under rainfed conditions in the region. A more systematic effort is needed to identify combinations of inputs and cultivation practices which would be financially attractive to farmers in terms of costs and yield response. This effort would initially be concentrated on those improved native varieties which have gained acceptance by farmers over the past decade, but breeding programs for other varieties suitable - 17 - for the region would also be strengthened. Other aims of the project would be to increase the supply of good seed of improved varieties and to strengthen the links between Government rice stations and the extension services. The Government intends that the project should lead into the formulation of a regional rice improvement program. 69. The government rice stations, at Phi Mai and Ubon, would be equipped to function as regional Rice Development Centers; this would entail improvement in their work of rice seed multiplication and the establishment of two supervised outgrower schemes. The extension services in the provinces where Phi Mai and Ubon are located would receive vehicles to enable them to reach more farmers. 70. The rice station at Khon Kaen would be equipped to enable it to mount a rice breeding program in support of Rice Development Centers at Phi Mai and Ubon. Three government rice stations at Sakhon Nakhon, Surin and Chumphae would receive equipment to improve their own programs and to enable them to coordinate their work with the work at Khon Kaen, Phi Mai and Ubon. 71. Pocurement of research and farm equipment and vehicles would be financed under the credit for all centers. In addition Phi Mai and Ubon would be provided with seed processing and training facilities and Khon Kaen with rice breeding facilities. Land development and an out- grower fund would also be financed for Phi Mai and Ubon. Technical Assistance 72. Technical assistance in project implementation would be provided by: (a) a program adviser to assist the Project Coordinator (see below); (b) a training adviser to assist in establishing on- station training programs; and (c) experts on short-term contracts to deal with specific matters as and when needed. Organization and Management 73. The Rice Division of MOAC's Department of Agriculture, which is the agency responsible for the development and promotion of new technology for rice cultivation, would implement the project, in cooperation with the Department of Agricultural Extension. The Director-General of the Department of Agriculture would carry overall responsibility for the project as Project Director; he would appoint a senior officer of his Department as the Project Coordinator, to take charge of procurement, coordination of the Rice Divi- sion's project related activities and the preparation and monitoring of the - 18 - Annual Work Programs which would guide the superintendents of rice stations in the management of their stations. The Bank for Agriculture and Agricul- tural Cooperatives would also participate in the project. Overall coordina- tion would be effected through the office of the Under-Secretary of State for Agriculture and Cooperatives. Cost Estimates and Financing 74. The total estimated cost of the Rainfed Pioneer Project is US$1.5 million, with a foreign exchange component of US$1.3 million or 86 percent of the project. The proposed IDA credit would cover the whole of the foreign exchange cost. The remainder of the project would be financed by the Government through the annual budget allocations to the Ministry of Agriculture and Cooperatives. Procurement and Disbursement 75. Procurement of vehicles and equipment ($550,000) would be subject to international competitive bidding. The permitted total for off-the-shelf purchases would be $100,000, to take account of the nature of the equipment required for this project. Civil Works ($170,000) would be tendered locally, because they are small and scattered. Dis- bursement arrangements are given in Annex III. Economic Justification and Benefits 76. The accelerated development of improved rainfed rice technology suitable for wide adoption in Northeast Thailand would lead to higher production and an increase in the incomes of many farmers who are engaged in rainfed rice production and are living at subsistence level. But the nature of the project is such that a formal analysis of the economic return to the investment would not be meaningful. C. Preparation of a Rural Infrastructure Project 77. A rural infrastructure project now under preparation in Thailand will include, as main components, rural roads and village water supply in the Northeast. These components form part of the Government's priority program for rural development in Northeast Thailand, and the Government needs help in the final stages of project preparation, the detailed engineering and other technical studies. To cover the foreign exchange cost of consultants' services to provide such help an amount of $300,000 has been included in the proposed credit. - 19 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 78. The draft Development Credit Agreement between the Kingdom of Thailand and the Association, the Recommendation of the Coimittee provided for in Article V, Section 1 (d) of the Articles of Agreement and the text of a draft resolution approving the proposed credit are being distributed to the Executive Directors separately. The draft agreement conforms to the normal pattern for credits for irrigation and agricultural research projects. 79. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 80. I recomend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments January 23, 1974  ANNEX I Page 1 of 3 pages COUNTRY DATA - THAILAND DENSITY POPULATION 73 per km2 AREA 38.6 milli7n7(mid 1972) .. per km2 of arable land 77000 K" SOCIAL INDICATORS Reference Comparisons Thailand Phillipines Iurkey France 10 1970 1970 1970 1970 GNP per Capita US$ (Atlas basis) 200 210 310 3,100 Demographic Crude birth rate (per thousand) 3 63 52 ho 17 Crude death rate (per thousand) 13 10 1] 15 12 Infant mortality rate (per thousand live births) .. 80-90 59 153 15 Life expectancy at birth (years) 56 59 So /a 55 72 Gross reproduction rate /1 .. 3.2 2.9 2.9 1.2 Population growth rate I2 3.0 3.1 3.0 2.5 0.9 /s Population growth rate - urban . /t 5 b 2. 7, Age structure (percent) 0-15 43 .. 53 L2 /c 25 15-b 54 .. 53 51 7c 63 65 and over 3 .. 4 5Te 13 Dependency ratio /3 0.9 .. 1.3/d 0.9 0.9 Population density per sq. km. 50 73 128 45 93 Urban population as percent of total 12 It .. 35 b 37 70 /n Family planning: No. of acceptors cumulative (thous.) 1 590 509 282 No. of users (% of married women) .. 10 8 5 Employment Total labor force (thousands) 12,590 /f 16,900 / 13,220 /d 15,950 20,Wd0 In Percentage employed in agriculture 82 77 56 7d 66 35 7 Percentage unemployed .. 1 7 Td 6 2 5 Income Distribution Percent of national income received by lowest 20% .. .. 4 /d h 7 i Percent of national income received by highest 5% .. .. 2 h b . Health and Nutrition Population per physician 8, 6,600 2,820 2,220 7A0 Population per nursing person 4,200 /c 2,670 2,050 1,630 25G Population per hospital bed 1,5CI 930 h90 1)0 Per capita calorie supply as % of requirements /4 100 87 1 110 A 120 Per capita protein supply, total (grams pei dayFIS 74' 78 7 0 Of which, animal and pulse 17 7k 22 22 66 Death rate 1-L years /6 .7 r_ 0.9 Education Adjusted /7 primary school enrollment ratio 79 90 119 /1 77 120 /3I Adjusted 77 secondary school enrollment ratio 12 13 49 24 70 7' Years of chooling provided, first and second level Vocational enrollment as % of sec. school enrollment 19 13 10 Is 14 23 Adult literacy rate % 72 66/c Housing Average No. of persons per room (urban) 2.L Percent of occupied units without piped water 31 / . 77 /n 7 7r Access to electricity (as % of total population) 17 Ir 20 37 99 T Percent of rural population connected to electricity 10 Io 98 To Consumption Rai receivers per 1000 population 6 78 45 n 87 31h 5 Passenger cars per 1000 population 2 5 8 - 253 Electric power consumption (kwh p.c.) 23 106 229 487 2,781 Newsprint consumption p.c. kg per year 0.7 1.2 1.8/D 2.0 12 Notes: Figures refer either to the latest periods or to and distribution by age and sex of national populations the latest years. Latest periods refer in principle to 5 Protein standards (requirements) for all countries as estab- the years 1956-60 or 1966-70; the latest years in prin- lished by USDA Economic Research Service provide for a minimum ciple to 1960 and 1970. Only significantly different allowance of 60 rams of total protein per day, and 20 grams of periods or years are footnoted separately. animal and pulse protein, of which 10 grams should be animal /1 Average number of daughters per woman of reproductive protein. These standards are somewhat lower than those of 75 age. rams of total protein and 23 grams of animal protein as an /2 Population growth rates are for the decades ending in average for the world, proposed by FAO in the Third World Food 1960 and 1970. Survey. /3 Ratio of under 15 and 65 and over age brackets to /6 Some studies have suggested that crude death rates of children those in labor force bracket of ages 15 through 64. ages 1 through S may be used as a first approximation index of / FAO reference standards represent physiological re- malnutrition. quirements for normal activity and health, taking /7 Percentage enrolled of corresponding population of school age account of environmental temperature, body weights, as defined for each country. /a 2965/70; [a Fur the definition of urban see. UN Demographic Yearbook 1971,p.156; /c 1965; /d 1971; Ic TZatio of population under 15 and S niover to total. labor force; If Employed labor force; /4 Lowest quintile, rural population only; /b household; /i Istanbul only; /i 1969; /k 1964/o; /2 Includes overage students; Is 907; In over 2,000 population To 1968; lp 17o3, imports only; Lt Urban oV y; /r Does-not include Bangkok metropolitan area whereT63% of the population has access to electricity; A 196390. It Over 0O,M0 population. R2 January 22, 19u ANNEX I Page 2 of 3 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1972 ANNUAL RATE OF GROWTH (%, constant prices) e/ US$Mln. % 1960-65 1965-70 1970-72 GNP at Market Prices 7,560 100.0 7.2 8.5 4.8 Gross Domestic Investment 1,564 20.7 14.4 15.4 -6.4 Gross National Saving 1,466 19.4 14.6 11.5 9.4 Current Account Balance -98 -1.3 Exports of Goods, NFS 1,536 20.3 10.8 7.1 14.4 Imports of Goods, NFS 1,630 21.6 11.1 12.3 -1.3 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971 Value Added Labor Force V.A. per Worker US$MIn Mln %~ us$ %_ Agriculture 1,985 28.6 13.076 76.9 152 37.2 Industry 1,776 25.5 0.958 5.6 1,854 453.3 Services 3,190 45.9 2.868 16.9 1,112 271.8 Unallocated . . 0.100- 0.6 . . Total/Average 6,951 100.0 17.002 100.0 409 100.0 GOVERNMENT FINANCE 3 General Government Central Government US$Mln. % of GDP US$Mln. % of GDP 1972 1972 1970-72 1972 1972 1970-72 Current Receipts 1,116 14.9 15.1 1,059 14.2 14.3 Current Expenditure 1,083 14.5 14.0 1,031 13.8 13.3 Current Surplus 33 0.4 1.1 28 0.4 1.0 Capital Expenditures 453 6.1 6.3 432 5.8 5.9 External Assistance (net) 37 0.5 0.7 37 0.5 0.7 MONEY, CREDIT AND PRICES 1969 1970 1971 1972 (Billions of Baht outstanding end period) Money and Quasi Money 40.9 46.2 53.7 66.4 Bank Credit to Central Government (net) 7.1 11.5 18.1 25.2 Bank Credit to Private Sector 22.9 27.9 30.8 34.6 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 31.7 33.9 37.3 42.7 GDP Deflator (1962 = 100) 114.6 113.7 114.5 120.0 Annual percentage changes in: GDP Deflator -0.8 0.7 4.8 Bank Credit to Central Government (net) 62.2 57.7 38.9 Bank Credit to Private Sector 21.5 10.7 12.2 Note: All conversions to Dollars in this table are at an exchange rate of $ 20.8 1 US$. 1/ Value added at current market prices. 2/ Tentative estimate of unemployed; their normal occupations are not known. 3/ Thai Fiscal Years ending September 30 of calendar years shown. Not applicable. e/ Staff estimate. Annex I Page 3 of 3 pages TRADE. PAYMENTS, AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1970-72) 1970 1971 1972 (Millions US$) US$Mln. % Exports of Goods, NFS 1,092 1,204 1,536 Rice 162 19.2 Imports of Goods, NFS 1,409 1,430 1,630 Corn (maize) 97 11.5 Resource Gap (deficit -) -317 -226 -94 Rubber 98 11.6 Tin (metal) 77 9.2 Interest payments (net) 44 28 7 Tapioca products 64 7.5 Workers' Remittances . . . Kenaf and jute 45 5.3 Other Factor Payments (net) -25 -26 -21 All other commodities 302 35.7 Net Transfers 3 6 10 Total 845 100.0 Balance on Current Account -295 -218 -98 EXTERNAL DEBT, DECEMBER 31, 1972 Direct Foreign Investment(Net) 31 33 54 Net MLT Borrowing US$Mln. Disbursements 273 261 323 Amortization 206 218 220 Public Debt, incl. guaranteed 369 Subtotal 67 43 103 Non-Guaranteed Private Debt 480 Capital Grants 46 37 29 Total outstanding & disbursed 849 Other Capital (net) 20 8 29 1/ Other Items n.e.i. 2/ 4 97 63 DEBT SERVICE RATIO FOR 1972 Increase in Reserves (+) -128 0 203 Gross Reserves (end year) 906 866 1,052 Net Reserves (end year) 766 766 969 Public Debt, incl.guaranteed 2.7 Non-Guaranteed Private Debt 11.7 Total outstanding & disbursed 14.4 RATE OF EXCHANGE IBRD/IDA LENDING, Dec.31,1973 (Million US$) Through July 1973 IBRD IDA US$ 1.00 = % 20.8 E 1.00 = US$ 0.048 Outstanding & Disbursed 254.7 0.2 Undisbursed 121.7 2L Since July 1973 Outstanding incl. Undisbursed 376.1 25.0 US$ 1.00 = S 20.0 $ 1.00 = US$ 0.050 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. 2/ Includes SDR allocations, profits from exchange realignments, and errors and omissions. 3/ Excluding loans and credits not yet effective. Not applicable.  ANNEX II Page 1 STATEMENT OF BANK GROUP OPERATIONS IN THAILAND A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at December 31, 1973) US$ million Amount Loan or (less cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed Seventeen loans fully disbursed 240.5 - - 471-TH 1966 Kingdom of Vocational Thailand Education 6.0 - 0.1 514-TH 1967 Kingdom of Sirikit Dam Thailand Irrigation 26.0 - 0.5 626-TH 1969 Kingdom of National Thailand Highways 20.0 - 3.7 655-Tl 1970 EGAT Power 46.5 - 4.4 702-TH 1970 Port Authority Ports of Thailand 12.5 - 6.7 790-TH 1971 EGAT Power 27.0 - 19.9 822-TH 1972 Kingdom of Education Thailand 15.4 - 14.8 864-TH 1972 Telephone Telecom- Organization munications of Thailand 37.0 - 35.4 870-TH 1972 Kingdom of National Thailand Highways 28.6 - 21.2 369-TH 1973 Kingdom of Education Thailand 19.5 19.5 379-TH 1973 Kingdom of Irrigation Thailand 5.5 5.3 898-TN 1973 State Rail- Railways way 15.0 - 15.0 Total 474.4 25.0 of which has been repaid 98.0 - Total now outstanding 376.4 25.0 Amount sold/a 65.1 of which has been repaid 19.2 45.9 /b Total now held by Bank and IDA-- 330.5 25.0 Total undisbursed 121.7 24.8 /a Of which $41 million sold to the Bank of Thailand. /b Prior to exchange adjustments. ANNEX II Page 2 B. STATEMENT OF IFC INVESTMENTS (as at December 31, 1973) Amount in US$ million Year Company Type of Business Loan Equity Total 1959 Concrete Products and Concrete Products 0.30 0.30 Aggregate Ltd. 1964 Industrial Finance Industrial Finance 0.19 0.19 Corporation of Thailand (IFCT) 1969 Siam Cement Group Cement and Construc- 18.33 3.75 22.08 tion Materials 1971 Industrial Finance 0.19 0.19 Corporation of Thailand (IFCT) Total gross committments 18.63 4.13 22.76 less cancellations, terminations, repayments and sales 14.84 1.70 16.54 Total committments, fully disbursed, now held by IFC 3.79 2.43 6.22 C. PROJECTS IN EXECUTION Loan 471-T1, First Education Project (Vocational Education); US$6 Million Loan of October 19, 1966; Closing date: original, June 30, 1970; subsequent, February 28, 1972, August 31, 1973 and December 31, 1973; current, February 14, 1974. 1. This project has been virtually completed and a completion mission was conducted in July. The mission reported that execution had been very satisfactory. Difficulties have arisen in procuring some final items of equipment. 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 understand- ing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 3 Loan 514-7H, Sirikit Dam Project; US$26 Million Loan of September 19, 1967; Closing date: original, June 30, 1973; current, June 30, 1974. 2. The work on the project has been practically completed. The closure of the dam was carried out on schedule in June 1971. The total cost of the project is estimated at US$78 million, as against US$76 million at appraisal (+2.5%). Substantial increases in the principal civil works contract (+41%), which resulted from unforseen adverse foundation conditions, have been largely compensated by savings on other items. The closing date has been postponed by a year so that two claims by the contractor may be settled by negotiation or arbitration. Loan 626-TH, 4th Highways Project- US$23 Million Loan of June 27, 1969; Closing date: original, December 31, 1973; current, December 31, 1974. 3. Construction of the project has been completed within the cost estimates and on schedule except for the fencing of some sections of highway. The closing date has been postponed to allow completion of the fencing. At the request of the Government $3.0 million has been cancelled from the unallocated category of this loan. Loan 655-TH, First EGAT Power Project; US$46.5 Million Loan of February 10,1970; Closing date: July 31, 1974. 4. Foreign exchange expenditures are likely to exceed committed funds by about US$3 million, due mainly to the revaluation of the Yen, and the additional costs will be covered by the Borrower. Loan 702-TH, Third Bangkok Port Project; US$12.5 Million Loan of August 6, 1970; Closing date: July 31, 1974. 5. Construction of this project began 18 months behind schedule. The delay was mainly caused by the time taken by the Port Authority of Thailand (PAT) and its consultants to pre-qualify bidders, amend tender documents and evaluate bids which were complicated by currency realignments. Subsequently, technical problems arose and the relationship between PAT and the engineer (NEDECO) became somewhat strained. The technical problems were solved satisfactorily and the relationship has improved greatly. The technical problems probably caused an additional delay of 3 months. Loan 790-TH, South Bangkok Thermal Unit No. 4 Project; US$27 Million Loan of November 11, 1971; Closing date: November 30, 1976. 6. Project is on schedule. ANNEX II Page 4 Loan 822-TII, Second Education Project (Katsetsart University); US$15.4 Million Loan of May 24, 1972; Closing date: June 30, 1978. 7. The preparatory stage of project implementation is about a year behind schedule due to delay in appointing the campus planning consultants but progress now is generally satisfactory and the master plan for the development of the university's two campuses was presented to the University in November 1973. Construction costs have risen much more rapidly than was foreseen at appraisal and as a result total project costs are expected to exceed appraisal estimates including contingencies by about $0.5 million; this will be covered by the Government. Loan 864-TH, Telecommuncations Project; US$37 Million Loan of December 5, 1972; Closing date: December 31, 1977. 8. After initial delays due to difficulties with land acquisition, the project is now moving forward satisfactorily with procurement action having been taken on a number of major items. Loan 870-TH, Fifth Highways Project; Us$28.6 Million Loan of December 26, 1972; Closing date: December 31, 1977. 9. Negotiations with consultants to assist in a highway maintenance study have been protracted, delaying its start by about one year. There has also been about a year's delay in agreeing terms of reference for con- sultants' services to assist the transport planning unit of the Ministry of Communications. Construction work is proceeding without any major problem. Credit 369-TH, Third Education Project; US$19.5 Million Credit of April 11,1973; Closing date: June 30, 1978. 10. Project implementation generally is about four months behind schedule with the fellowship program about eight months behind, but otherwise progress is satisfactory. Construction costs are likely to exceed appraisal estimates (including contingencies) by $1.2 million (30%) by the time build- ing works are contracted; this will be covered by the Government. Credit 379-TH, Chao Phya Irrigation Improvement Project; US$5.5 Million Credit of May 9, 1973; Closing date: June 30, 1978. 11. Project is on schedule but delay in enactment of Land Consolidation Law may give rise to problems. Project 898-TH, Fourth Railway Project; US$15 Million Loan of June 1, 1973; Closing date: June 30, 1977. 12. Declared effective on September 28, 1973. ANNEX III Page 1 THAILAND - NORTHEAST IRRIGATION IMPROVEMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Kingdom of Thailand Beneficiary: Ministry of Agriculture and Cooperatives and Ministry of Interior Amount: US$7,000,000 Terms: Standard Project Description: The project has three components. The Irrigation Improvement Project consists of the improvement and completion of irrigation systems covering 42,000 ha. served by existing reservoirs and main canals, the strengthening of agricultural extension services, and the preparation of related future irrigation projects. The Rainfed Rice Pioneer Project is designed to identify, test and promote techniques for attaining higher rice yields under rainfed conditions in the Northeast region. The project would reorient the work of six gov- ernment rice stations to respond more directly to the needs of the region and link the stations more closely to the extension service and to farmers in the surrounding areas. The third component consists of consultants' services for assistance in the preparation of the rural roads and village water supply components of a rural infrastructure project. ANNEX III Page 2 Estimated Cost: Local Foreign Total -------US$ '000------ Irrigation Improvement Project 6,156 4,544 10,700 Rainfed Rice Pioneer Project 210 1,290 1,500 Preparation of rural infra- structure project 100 300 400 6,466 6,134 12,600 Financing Plan: IDA Credit of USS7,000,000, and the balance from the Royal Thai Government's annual budget allocations to Ministry of Agriculture and Cooperatives and Ministry of Interior. Estimated Disbursements: Annual Cumulative IDA Fiscal Year Disbursement Disbursement ---(US$ '000)--------------- 1975 2,700 2,700 1976 2,100 4,800 1977 1,200 6,000 1978 500 6,500 1979 500 7,000 Disbursements would be made against: 50% of total expenditures on civil works; 100% of foreign expenditures on technical assistance and consulting services; 100% of foreign expenditures on vehicles and equipment directly imported; 100% of local expenditures (ex-factory) on vehicles and equipment manufactured locally and 65% of total expendi- tures of vehicles and equipment imported but procured locally. ANNEX III Page 3 Procurement Arrangements: Contracts for service roads would be awarded after international competitive bidding. Contracts for canals, laterals, houses and office buildings would be awarded after local competitive bidding. Procurement of vehicles and equipment would be subject to interna- tional competitive bidding. Eligible domestic manufacturers would be accorded preferential margin of 15% of the c.i.f. price of competing imports or the rate of applicable customs duties, whichever is lower. Consultants: a. Services to assist the Government in project implementation and in the training of operating personnel and extension workers for the Irrigation Improvement Project. b. Services for detailed preparation of related future irrigation projects in the service area of existing reservoirs. c. Services to assist the Government in the implementation of the Rainfed Rice Pioneer Project. d. Services to assist the Government in the preparation of the rural roads and village water supply components of a rural infrastructure project. Economic Rate of Return: Irrigation Improvement Project: 22% Rainfed Rice Pioneer Project: Due to the research nature of the Project, analysis of the economic return to the investment would not be meaningful. Appraisal Report: No. 226-TH of January 15, 1974.  JBRD 10305 B U RMA *r-c' 04° JANUARY 1973 l AOS kNORTHEAST THAILAND IRRIGATION PROJECTS AREA CVEREJ* lT H A l I A N D E xisting reservoirs Main roads - Potential reservoirs ------- Roads under construction BANG (OK --- BANGKOK Existing canal system s Railways i HMER ~ZhI \ REPUBLIC Proposed extensions Rivers 59 Project Areas • . - - . . • Regional boundaries 'T nd - International boundaries L A O S NONGKHAI LOE5 Huai, Nom Lucing UDONTHANI Oon AKORN PHANOM . ON NAKORN Nom Pung L A O S HUM PHAE Pao KALASIN KHONKAEN o - Yong MAHASARAKAM ROI-ET 16 - oUpper Chi CHAI PHUM UAYA1Ion u UBONR ATC TIlANI NA RN SISAKE T o Ni RATC ASIMA BURIRUM lam Takhong- (KOR AT SURtN UOM LOmPhr0 R NG -' TO BANGKOK Plerng Nom P Mun Sae -14 °.* *KHMER REPUBLIC n 0 5,0 100 TO BANGKOK ..*.. ... Ma .ssono 050100 150 200 )02* 104. (Approimre. sto1e On1y)  -' c -~ ~ -~ 0 0 (01 U (0 ~. "~ 0 0 N J> '( ~1* ~A ~ 1 - ~ 0 ~ 0. ~ 5- z 1u :~ -1 1 k'.J fl fl -~ 1 K~ >1 ~ ~ ~ '-, 0 ~ 0 0 0' 00 0 0 爪 TO LJDORN THAN. v re: A02 -0.0 BAN KHOK KLANG akt 10 ........... . .. ... NORTHEAGT THAILAND B N KUT ONK NAM PONG PROJECT SERVICE AREA OF SUB-PROJECT BAN BUA YA1 CANALS FOR SECOND STAGF DEVFLOPMEN1- CANALS TO RE COMPLETED IN 1973 EXtSTING CANALS LAKES AND PONDS RIVERS MAIN ROADS OTHER ROADS REGIONAL BOUNDARIFS INTERNATIONAL BOUNDARIES BAN NONG TUM1 BAN NON H r.,.j 10.0 0 C KHON KA 0 BAN BAN DON BOM BAN NAHG BUA DI M I KOSUM PHISAI 0 3 3 KitC-ETERS