Philippines - Magat River Multipurpose Project

Report No. 727a-PH Philippines FILE COPY Appraisal of the Magat River Multipurpose Project: Stage I June 5, 1975 East Asia and Pacific Projects Department Irrigation and Area Development Division Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for onfijial 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 It may not be published, quoted or cited without Bank Group authorization.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 tor the accuracy or completeness of the report.  CURRENCY EQUIVALENTS US$1.00 Pesos (P) 6.90 P 1.00 = US$0.145 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) 2.47 acres 1 kilometer (kIn) 2 = 0.62 miles 1 square kilometer (km ) 0.3886 square miles 1 meter (m) 2 39.37 inches i square meter (m ) = 10.76 square feet 1 cubic meter (m3) 3 = 35.31 cubic feet i million cubic meters (Mm ) = 810.7 acre feet 1 millimeter (mm) = 0.039 inches 1 kilogram (kg) = 2.2 pounds 1 cavan (paddy) = 50 kg 20 cavans = 1 metric ton INITIALS AND ACRONYMS ADB - Asian Development Bank AMIADP - Angat-Magat Integrated Agricultural Development Project DAR - Department of Agrarian Reform MARIS - Magat River Irrigation System NIA - National Irrigation Administration SIFRIS - Siffu River Irrigation System UPRP - Upper Pampanga River Project USBR - United States Bureau of Reclamation WMT - Water Management Technologist  PHILIPPINES APPRAISAL OF THE MAGAT RIVER MULTIPURPOSE PROJECT: STAGE I Table of Contents Page No. SUMMARY AND CONCLUSION . . .................. i - I. INTRODUCTION ....................... 1 II. BACKGROUND ............. ......................... * ........* 1 General . 1 The Agricultural Sector ....... ................... 2 The Critcial Role of Water Development ........... 2 Project Formulation .... *.... 3 III. THE PROJECT AREA ................... ................... 4 Gneneral ..................... ... ......... *............. 4 Climate .......*............................... 5 Topography, Drainage and Soils .................. . 5 Land Tenure and Farm Size .6...................... 6 Existing Irrigation Facilities 7..............* 7 Agricultural Production 7....................... 7 Transportation ....... . ... ........................ 8 IV. THE PROJECT ........................ *............... 8 Project Works ....... ................... ..... *.. * 9 Water Supply, Demand and Quality ................. 10 Status of Engineering ........... ..................... 11 Engineering Studies: Stage II ................... 12 Water Management Training ........................ 13 Technical Assistance to NIA ...................... 13 Cost Estimates . ........................ . ....... 14 Financing ................ ...... . ..... ........ *. 15 Procurement ... o.......... .... o*.... o................ 15 Disbursements ......... .......... .-.. .... 16 Accounts and Audit .... ......... ...... . 16 Environmental Effects .......... ... ....... 16 This report is based on the findings of an appraisal mission composed of Messrs. E.G. Giglioli, M.G. Saddington (Bank), S.J. Baker and D.G. Knott (Consultants).  2- Page No. V. ORGANIZATION AND MANAGEMENT *.......... ....... 17 Project Management ....... ......................... 17 Supporting Agricultural Services ................. 18 Recovery of Cost ,...... ....0 ... .... O... 19 VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOMES 21 Production ............................................ 21 Market Prospects ... ...-.. .... .. .... ...... ...... 21 Prices ........................................... 22 Farm Incomes .. .... .. ......... ........ 22 VII. BENEFITS AND JUSTIFICATION ............ ................ 23 VIII. AGREEMENTS REACHED AND RECOMMENDATION ................ 25 ANNr;EXES 1. Cagayan Basin Development 2. Climatological Data 3. Land Tenure and Reform 4. Project Works 5. Water Supply, Demand and Quality 6. Engineering Studies: Stage II 7. Technical Assistance to NIA 8. Cost Estimates 9. Equipment List 10. Estimated Schedule of Expenditures and Disbursements 11. Organization and Management 12. Supporting Agricultural Services 13. Present and Projected Cropping Patterns and Production 14. Market Prospects and Prices 15. Crop and Farm Budgets 16. Farm Labor Analysis 17. Economic Analysis CHARTS Implementation Schedule No. 9531 Critical Work Action Schedule Leading to Award of Contract for Magat Dam No. 9684 NIA Organization for Special Projects No. 9533(R) Proposed Organization for Project Construction No. 9534 Proposed Organization for Operation and Maintenance No. 9535 Proposed Cropping Calendar No. 9536 MAP Magat River Multipurpose Project No. 11463R  PHILIPPINES APPRAISAL OF THE MAGAT RIVER MULTIPURPOSE PROJECT: STAGE I SUMMARY AND CONCLUSION i. The Government of the Philippines has requested Bank assistance to carry out Stage I of the Magat River Multipurpose Project, which is located in the Cagayan Valley of Northern Luzon. Stage I of the project consists of the rehabilitation and upgrading of two existing national and several communal irrigation systems now serving a total of 52,000 ha and the expansion of these systems by construction of new works to serve an additional 23,000 ha and permit a cropping intensity of 140% on the total 75,000 ha. The Asian Development Bank is assisting with the rehabilitation of 40,000 ha of Stage I under the Angat-Magat Integrated Agricultural Develop- ment Project. This is referred to as Stage IA. The part of Stage I proposed for Bank assistance, Stage IB, includes works for the rehabilitation of 12,000 ha and construction of new facilities on 23,000 ha. Stage II of the project envisages the construction on the Magat river of a storage dam and power plant with an installed capacity of 300 MW, the development of irrigation facilities on an additional 29,000 ha and an increase in cropping intensity to 200% on the total project area of 104,000 ha. Provision is also made under the proposed Bank loan for engineering studies which would evaluate the economic feasibility of Stage II of the project and, if justified, prepare the final designs, specifications and bid documents for construction of the dam and appurtenant works. Stage I also includes a training program for water management staff in the project area and technical assistance to the National Irrigation Administration (NIA) in the fields of construction management and irrigation systems operation. A total of about 668 man-months of consultant services and technical assistance would be required under the project. ii. A major Government objective in the agricultural sector is to achieve self-sufficiency in basic foods, especially rice and corn. The deficit in rice, the main staple food crop, has been a persistent problem for the Philippines, and annual rice imports have averaged around 300,000 tons in recent years. According to the Bank's Agriculture Sector Survey, an annual total of 50,000 ha of newly constructed or rehabilitated irri- gation development on rice lands would have to be carried out over the remainder of the decade to allow the country to achieve food grain self- sufficiency. Improved water control is a prerequisite to obtaining optimum results from the new high yielding rice varieties. The proposed project would be the fourth Bank-assisted project aimed at improving irrigation for rice cropping on the island of Luzon. The first was the Upper Pampanga River Project (Loan 637-PH), the second the Aurora-Penaranda Irrigation Project (Loan/Credit 984/472-PH) and the third the Tarlac Irrigation Systems Improvement Project (Loan 1080-PH). All of these are in the Central Luzon basin, while the proposed project would be the first one in the Cagayan  - ii - Valley of Northern Luzon. The Valley has consistently exported rice to other regions of the Philippines, and has large resources of water and suitable land which could be developed to increase rice production. iii. Total cost of Stage IB, Stage II engineering studies, technical assistance to NIA and training program, all of which would be financed under the proposed Bank loan, is estimated at P 579.6 million (US$84.0 million) of which US$29.0 million, or approximately 35%, would be in foreign exchange. The Bank would finance the foreign exchange component as well as US$13.0 million of local currency requirements. Civil works costing US$6.1 million and equipment costing US$4.5 million would be put to international competitive bidding. The remaining civil works would not be suitable for international competitive bidding because of their nature and would be carried out by locally advertised contract (US$22.7 million) or by force account (US$15.1 million). The Government's executing agency, the NIA, would employ consultants to assist with the Stage II studies, the training program and technical assist- ance in construction management and irrigation systems operation. The project would take five years to execute. iv. The Government of the Philippines would be the borrower and NIA would be the executing agency for the project, All elements of the project would be implemented by NIA's newly established Special Projects Organization. This body is well staffed with competent personnel and with the employment of consultants would be able to implement the project successfully. An Agricul- tural Development Coordinating Council (ADCC) would be established in the project area to ensure coordination of the Government agencies providing agricultural supporting services to the farmers. v. At full development of Stage I of the project, nine years after commencement of work, annual paddy production from the project area is ex- pected to reach 422,000 tons compared with a current level of production of 189,000 tons. The increased production would make a contribution to the national campaign for self-sufficiency by providing enough rice to feed about one and a half million people per year. vi. Under the Government's program of agrarian reform, sharecropping has been abolished and title to land in holdings over 7 ha is now being transferred to the cultivators. When the transfer is completed, tentatively by the end of 1977, about 75% of the land in the project area will be farmed by owner operators and the rest by leasehold tenants of small landlords. Some 24,000 farm families cultivate the project area, working an average unit of 3.1 ha. The project would increase the annual per capita income on an average farm size from about US$105 at present to US$220 at full agricul- tural development in 1984. These levels of income would still be low in comparison with the national average which is projected to rise to US$315 by 1984, but would lead to a substantial narrowing of the income gap between the project area and the rest of the country.  - iii - vii. The project would require a tighter cropping timetable to allow for irrigation over a larger area and an increase in dry season cropping, leading to a small rise in farm labor employment opportunities equivalent to about 4,000 additional full time jobs. The economic rate of return of the project is expected to be about 18%. The rate of return is sensitive to increases in costs and delays in benefits, but even if costs should in- crease by 20% and benefits be delayed by two years, the rate of return would still be 12%. viii. The proposed project is suitable for a Bank Loan of US$42.0 million for a period of 25 years, including a seven-year grace period. The borrower would be the Republic of the Philippines.   PHILIPPINES APPRAISAL OF THE MAGAT RIVER MULTIPURPOSE PROJECT: STAGE I I. INTRODUCTION 1.01 The Government of the Philippines has requested assistance from the Asian Development Bank (ADB) and IBRD in financing the first stage of the Magat River Multipurpose Project in Northern Luzon. Stage I of the project would provide a dependable water supply to irrigate a total of 75,000 ha of rice in the wet season and 29,000 ha in the dry season. In mid-1973 the ADB extended a US$6.6 million loan to assist in the rehabilita- tion of 40,000 ha of the existing irrigation system under the provisions of the Angat-Magat Integrated Agricultural Development Project (AMIADP). The part of the project proposed for Bank assistance would supply irrigation to 35,000 ha and set the stage for implementing a second phase, consisting of the development of storage for year-round irrigation and power generation. 1.02 The National Irrigation Administration (NIA) prepared the feasibil- ity study for the project with the assistance of the U.S. Bureau of Reclama- tion (USBR). Mr. G. Post (consultant) reviewed the feasibility findings on the proposed Magat dam in September 1974. This report is based on the findings of an appraisal mission which visited the Philippines in November/ December 1974, composed of Messrs. E.G. Giglioli, M.G. Saddington (Bank), S.J. Baker and D.G. Knott (Consultants). II. BACKGROUND General 2 2.01 The Philippines covers some 297,000 km scattered over more than 7,000 islands between the Pacific Ocean and the China Sea. The 45 largest islands account for 98% of the area. The population is around 40 million (1973), growing at a rate of 3% annually. Real GNP grew at 5% to 6% a year during the last decade and by 10% in 1973 and an estimated 6% in 1974 due to booming export earnings, strong recovery in agricultural and industrial pro- duction for the domestic market and an improved investment climate. Major economic problems are inflation, unequal income distribution and unemployment, particularly in rural areas. Per capita GNP in 1972 was about US$220 1/. 2.02 Out of a total land area of some 30 million ha, more than half is in forests and about one-third under cultivation or in plantations. About 2.0 to 2.5 million ha of fairly level land is still available for growing crops, though some 1.0 million ha of this is cogon grassland which would 1/ World Bank Atlas, 1974.  - 2 - be hard to reclaim. Bringing this additional land under cultivation would be insufficient by itself to meet increasing food needs or to improve rural incomes significantly. These goals call for increasing production from cur- rently cultivated areas through yield improvements and increased cropping intensity where water is available. The Agricultural Sector 2.03 Agriculture accounts for about one-third of net domestic product, one-half of total employment and 70% of commodity export earnings. During the 1960s the rate of growth of agricultural output accelerated gradually and averaged 4.7% per year for the 1965-70 period, stimulated by the spread of improved rice varieties. Employment in agriculture, on the other hand, leveled off toward the end of the decade. Most of the increase in the labor force between 1965 and 1970 was in non-agricultural employment, and the un- employment rate in rural areas has remained high. 2.04 With the growth of agricultural output and little change in employment, productivity per worker in agriculture increased between 1965 and 1970, while non-agricultural labor productivity remained much the same. The result has been to narrow the gap in incomes between workers in agricul- ture and in other sectors, although agricultural incomes are still substan- tially lower. Farmers using improved technology, such as the new rice varieties, have shared in the higher incomes, but those continuing in tra- ditional ways have been largely unaffected. 2.05 There is considerable pressure of people on land in the Philippines, where the population density is 131 people/km2 compared with the Asian aver- age of 86. Lowland areas best suited for rice have been fully occupied for over a decade. Migration is heavy from the overcrowded regions of Central Luzon and the Visayas to the Cagayan Valley in northeastern Luzon and Mindanao in the south. 2.06 Agricultural sector performance will be crucial in determining whether the drive towards a more rapid but more equitable income expansion succeeds. The major goals are self-sufficiency in cereals, particularly rice and corn; expansion of agricultural exports; intensification of agrarian reform; better conservation of natural resources; and strengthening of insti- tutional support. Self-sufficiency in cereals is important not only to strengthen the balance of payments, but also to raise incomes for much of the rural population. The Critical Role of Water Development 2.07 The Philippines cannot reach self-sufficiency in rice without substantial investment in irrigation expansion and improvement. Performance of irrigation systems in the country falls far short of their potential.  - 3 - The Sector Survey 1/ estimates that, out of a total of 960,000 ha which could be served by existing irrigation systems, only 630,000 ha are served in the rainy season and 254,000 ha in the dry season. Almost all of the irrigated area is devoted to rice. The NIA's gravity systems are the main component. In addition, NIA has constructed or rehabilitated a substantial part of the small privately operated communal systems, averaging 250-300 ha. The Irri- gation Services Unit, now under NIA's administrative supervision, is respons- ible for pump irrigation schemes. The 104 NIA gravity systems varying in size from 130 ha to 83,000 ha, are usually run-of-the-river schemes with insufficient control structures in the canals, inadequate drainage and little provision for access. Even when the systems are new, water distribution is uneven during the wet season and limited during the dry season. Maintenance has been minimal due to shortages of staff and funds and the lack of access roads for maintenance machinery. A vicious circle has developed by which lack of maintenance discourages farmers from paying operation and maintenance charges, which in turn precludes further maintenance. 2.08 This unsatisfactory situation began to change in the late 1960s. The NIA was reorganized, more advanced irrigation designs were introduced and much higher levels of water management aimed at. Simultaneously the need for intensified agricultural supporting services on irrigation projects was realized. The Bank-assisted Upper Pampanga River Irrigation Projecc (UPRP) and the Angat-Magat Integrated Agricultural Development Project (AMIADP), assisted by the Asian Development Bank (ADB), typify the new approach. The pattern of rehabilitation, new construction and operation exemplified by these projects is essential for large-scale rice production. Indeed, to meet domestic rice demand in the 1970s, a program of rehabilita- tion and new construction in the rice lands of 50,000 ha per year will be needed for the remainder of the decade. The proposed project would thus be entirely compatible with Government objectives for water resources development. Project Formulation 2.09 The 1973 Magat River Project feasibility report, prepared by NIA with USBR assistance, proposed a storage dam on the river to provide year- round irrigation to 104,000 ha and installation of a hydroelectric plant with a capacity of 300 MW. The irrigation component consisted of expansion and upgrading of the existing Magat (MARIS) and Siffu River Irrigation Systems (SIFRIS) operated by NIA. In 1973 NIA, with ADB assistance, initiated work on the Angat-Magat Project (AMIADP), which included pro- visions for the rehabilitation and expansion of the existing MARIS to a total of 40,000 ha. 1/ IBRD Agricultural Sector Survey, Philippines, May 2, 1973 (Report No. 39a-PH).  - 4 - 2.10 In view of the physical size, large estimated cost and long construction period for the Magat project, NIA proposes a 10-year implement- ation schedule (1976-1985) based on the following two stages: (a) Stage I would consist of the rehabilitation of the present systems and construction of new facilities to a total of 75,000 ha that could be served by run-of-the-river diversion in the wet season. The stage would take five years (1976-1980) and would be subdivided into a Stage IA covering the 40,000 ha of MARIS being rehabilitated and upgraded with ADB assistance, and a Stage IB consisting of 35,000 ha of rehabilitation and expansion proposed for Bank assistance. The subdivision of Stage I is for reasons of administrative convenience, because of the different sources of financial assistance; there are no technical or economic grounds for the subdivision. During the first three years of Stage I further engineering studies of the storage dam would be carried out to determine its feasibility and, if warranted, to prepare final designs, leading to the issue of bid documents. (b) Stage II would take seven years (1979-1985) and would be divided into two substages. Stage IIA would include construction of additional irrigation facil- ities to increase the command area to 104,000 ha and construction of the storage dam, including all civil works associated with the power component. Stage IIB would consist of the provision and installation of generating facilities, power lines and substations. Details on the development of irrigation in Cagayan Valley, the role of the project and its phasing are given in Annex 1. III. THE PROJECT AREA General 3.01 The project is located in Isabela province in the Cagayan Valley of Northern Luzon, which accounts for about 11% of the area planted annually to rice and 13% of total national production (Map No. 11463). About 30% of the province's rice production is exported to Manila and Southern Luzon. The mean rice yield in the region is about 10% above the national average. This is due to the existence of irrigation systems in the area, and the consequent rapid adoption of high yielding rice varieties. Irrigation is  - 5 - concentrated in Isabela province which accounts for about 40% of regional rice area and some 45% of the production. In the province improved rice varieties are grown on about 60% of the area and give approximately 75% of the production. 3.02 Stage I of the proposed project lies entirely in Isabela province. Even with full development of Stage II, Isabela province would remain the principal beneficiary as the irrigated area would barely touch Quirino province, while just under half of the area flooded by the dam would be in Nueva Vizcaya province. There are a number of small towns with populations between 5,000 and 10,000 people scattered throughout the area. The larger towns, including the provincial capital of Ilagan which lies just outside the project area, provide banking, storage and processing facilities as well as supplies of inputs to the surrounding agricultural area. The project area is connected by national highway to Central Luzon and Manila in the south and the port of Aparri on the Babuyan Channel to the north. Climate 3.03 The climate in the project area is tropical and monsoonal. Warm temperatures throughout the year allow a twelve-month growing season with irrigation. About 75% of the average annual rainfall of 1,900 mm falls in the six-month period of July through December, with the heaviest rain in November. The Cagayan Valley and Ilocos regions of Northern Luzon show the highest frequency of passing typhoon centers in the Philippines. Over a 23-year period between 1948 and 1970 the area was hit by an annual average of 3.2 typhoons, with the highest frequency between July and November. These storms may cause flooding and damage to crops and engineering works. The rainfall, together with river flows in the wet season, is generally adequate for a single rice crop. Dry season cropping, however, entails considerably more risk and irrigation is essential for an assured crop. Further cllmatic details are presented in Annex 2. Topography, Drainage and Soils 3.04 The project area is located on alluvial terraces in the flood plains of the Cagayan and Magat rivers and tributary streams. It is bounded on the north by the Mallig river, on the east by the Cagayan river and on the south and west by the foothills of the Caraballo mountains and the Cordillera Central respectively. The slope of the land is from west to northeast. In general the land is level, although some of the older terraces along the western edge of the project area have eroded significantly and show rolling topography. Drainage problems exist in the project area because of high rainfall intensities and flat relief. The problem is more serious In the existing irrigated areas as the surface drainage facilities cannot deal with the additional water provided by irrigation. Natural drainage has also been restricted by constructing highways and roads with inadequate culverts. Low areas along the main rivers are subject to short periods of inundation from backwaters from overflowing streams. Water velocities are low and cause little damage to structures or land, but there is some crop loss, depending on the stage of growth at the time of flooding.  - 6 - 3.05 Soils in the project area are predominantly dark grey or brown clays or clay loams, with angular blocky structures, medium to fine textures, slightly acidic reactions and slow internal drainage. They are generally low in organic matter and deficient in available phosphorus. All soils have good cation holding capacity and can retain appreciable amounts of nutrients for plant growth. The soils are well suited for rice, which has been grown in the project area for many years without problems. Land Tenure and Farm Size 3.06 Since 1972 the Government has pursued a program of agrarian reform aimed at the transfer of land ownership to tenant farmers on rice and corn lands. Presidential Decree No. 27 (PD 27), the basic legislation of the new program, provides for the transfer to the tenant, whether sharecropper or leaseholder, of the land he tills up to 3 ha in an irrigated area and 5 ha in a rainfed area. According to PD 27, the landlord may retain up to 7 ha if he tills the land himself. Since there are some 2 million rice and corn farmers on about 4 million ha, of which less than 1 million ha are irrigated, there is little prospect of achieving the 5 ha rainfed and 3 ha irrigated family farms nationwide. Furthermore, some 85% of the landlords have holdings of less than 7 ha. The Government does not want to antagonize small landowners and is looking for an equitable solution. The Department of Agrarian Reform (DAR) plans to complete the transfer to tenants of all land in holdings over 24 ha by mid-1975. In November 1974 the Government decided to proceed with the transfer of land in holdings between 24 and 7 ha. 3.07 DAR surveys show that some 24,000 farm families, averaging six members for a total of about 144,000 people, live in the project area. The average farm unit is 3.1 ha with about 80% of the farms, covering 66% of the area, falling between 1 and 5 ha. The farm size distribution is as follows: Farm Size Farm Holdings Cultivated Area (ha) --X ____