Romania - Giurgiu - Razmiresti Irrigation Project

Report No. 530a-RO FILE COPY Appraisal of Giurgiu-Razmiresti Irrigation Project- Romania January 8, 1975 EMENA Region Not for Public Use H Document of the International Bank for Reconstruction and Development International Development Association 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 It may not be published, quoted or cited without Bank Group authorization.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 EQUIVALENT WEIGHTS AND MEASURES Except where otherwise indicated all figures All weights and measures are in metric units are quoted in Romanian Lei. For all calcula- tions, the following conversion rate has 1 Metric Ton (t) = 1,000 Kilograms (kg) been used: 1 Metric Ton (t) = 2,204.6 Pounds 1 Kilometer (km) = 0.62 Miles US$ 1 = Lei 20 1 Hectare (ha) = 2.47 Acres Lei 1 = US$ 0.05 1 Cubic Meter (m3) = 35.3 Cubic Feet Lei X,000 = us$5o.oo ABREVIATIONS BAFI Bank for Agriculture and Food Industry DIFCA Department of Land Reclamation and Agricultural Construction DTIC Technical Direction for Investment and Coordination GSI Groups for Coodination and Supervision of Investment ISPIF Institute for Land Reclamation and Designing DCAL Direction for Construction and Local Development TCIF Construction Trusts and Enterprises for Land Reclamation Works SUT Site Construction Units CELIF Central for Exploitation of Land Reclamation IELIF District Units for Operation and Maintenance IAS State Farms CAP Cooperative Farms DAS Department of State Agriculture CVPC Central for the Sale of Cereals and Foodstuffs CPLF Central for Vegetables and Fruits CIZ Central for Sugar CVV Central for Grapes and Wine ROMANIAN FISCAL YEAR January 1 - December 31  ROMANIA GIURGIU-RAZMIRESTI IRRIGATION PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS * ***..... ***................... . i-ii I. INTRODUCTION ...................................*.*.*..*... * .............. 1 II. BACKGROUND 1.................... ........... 1 A. General .......... 1 B. The Agricultural Sector ........ ........ ... 2 C. Irrigation .. ........ * * * * ......*..... ...* .*..* 3 III. THE PROJECT AREA ................ 3 A. Location ............... 0 ....................0.......... 3 B. Climate ........ ...................................... 4 C. Water Resources and Hydrology 4..... 4 D. Topography and Soils .................. ........ 4 E. Transport and Communication . ................... 4 F. Population, Land Tenure and Farm Size ......... 5 G. Land Use, Yields and Production ............... 5 1l. Farma Inputs .......................................... 5 I. Agricultural Research and Extension ........... 6 J. Credit ........ ........... *.*.......................... 7 K. Marketing ............. .................. ... ...... 7 IV. THE PROJECT .............. ............................... 8 A. Objectives ...... ....................................... 8 B. Description ................................................ 8 C. Detailed Features ..... . . . . . . . . . ........... .*.... . 9 D. Water Demand, Supply and Quality .... .......... 11 E. Water Rights .... ........................... 11 F. Status of Engineering ............. ......... 11 G. Flood Control ........ ........... ..................... 12 H. Construction Schedule ..... ..... ,..... 12 I. Cost Estimates ..... ...... ........... 12 J. Financing ... .................... .. ............ 13 K. Procurement ................................... 13 L. Disbursements and Expenditures ...... .. ........ 14 This report is based on the findings of an appraisal rmission in May 1974 con- P tffna of Messrs M. Altaf Hussain, J.W. Robins and T. Hlaile-i4ariam (Bank), R. Stevenin (FAO/IBRD Cooperative Program), V.F. Gioia and J. Marinet (Con- sultants).  Table of Contents (Continued) Page No. V. THE BORROWER AND PROJECT ORGANIZATION ................ 14 A. The Borrower ... .................................. 14 B. Project Organization ................. ............. 15 C. Supporting Agricultural Services .......0......... 16 D. Consultants .......... ....... o... ........................ 16 E. Recovery of Project Costs ...................... 16 F. Accounts and Audit .............................. 17 G. Monitoring and Key Project Indicators .... ....... 1t VI. ECONOMIC EVALUATION ....... ....o... ..... .. .. ...... o....o . 17 A. Production .... ...o..... ..oo.............-........... 17 Bo Market Prospects ...... ...... .. .. . .. ......... .. . 20 C. Prices ...o....o..o.oo... ..........-........o 21 D. Producers' Income .. . .... ...**.o.. 21 E. Economic Benefits and Rates of Return . .......... 21 F. Social Benefits ......... ... . .... .o..o...... 22 VII. AGREEMENTS REACHED AND RECOMMENDATION .2.... 23 ANNEXES 1. Agriculture 2. Finance and Marketing 3. Project Description 4. Water Demand, Supply and Quality 5. Schedule of Construction and Expenditures (Chart IBRD 8908) 6. Cost Estimates 7. List of Equipment and Materials 8. Loan Disbursement Schedule 9. Organization and Consultants (Chart IBRD 8952) 10. Operation and Maintenance 11. Recovery of Project Costs 12. Accounts and Audit 13. Output Prices 14. Project Charges and Farmerst Incomes 15. Economic Rate of Return and Sensitivity Analysis 16. Employment MAP IBRD 11167 - General Project  ROMANIA GIURGIU-RAZMIRESTI IRRIGATION PROJECT SUMMARY AND CONCLUSIONS i. Romania has requested a Bank loan of US$70 million to the Bank for Agriculture and Food Industry to partly finance a 100,800 ha irrigation proj- ect in Giurgiu-Razmiresti located about 60 km southwest of Bucharest. Pre- vious loans, totaling US$190 million, have all been made in 1974. ii. Romania's agricultural sector is an important contributor to the national economy, second only to the industrial sector. It accounted, in 1973, for about 16% of the gross domestic product, 30% of total foreign exchange earnings, and 42% of the labor force. It is also a primary source of raw materials, investment resource, convertible foreign exchange and residual labor to the industrial sector. Agricultural development is constrained, however, by low capital investment, dependence on erratic rainfall and in- stability in output, and underemployment. Accelerated and sustained agri- cultural development is possible through exploitation of available water, labor and land resources. iii. The project is part of government program to expand irrigation to increase and stabilize agricultural production for local consumption and export. Twelve crops are currently grown in the project area under rainfed cultivation. In the absence of the project, the Government has planned to modify the present crop mix and improve yields by means of intensified appli- cation of rain-farm technology. However, yields would stabilize below optimal levels due to irrigation and drainage constraints. The project would reduce these constraints but would follow, with slight changes, the modified crop mix including cereals, pulses, oilseeds, fruits and vegetables, sugar beets, and fodders. iv. About 80% of the project area would be irrigated by sprinklers and the remainder by gravity furrows. The project works would include a floating pumping station of 80.6 m3/sec capacity on a side channel of the Danube River at Giurgiu to raise water for an average of 10 m; a 77 m3/sec capacity pumping station at Ghizdaru to lift the water a further 67 m; two repumping stations; 240 km of open concrete-lined canals; 2,170 km of buried distribution pipe- lines; 65 pressure-pumping stations for sprinkler irrigation; 13 pressure- pumping stations for furrow irrigation; 12 lift pumping stations for drainage; 362 km of drains; and a power transmission network. The project would also provide operation and maintenance equipment and supplemental agricultural machinery. Consultant and suppliers post-sale services would be used for assistance in procurement, installations, initial operations of machinery, and for training of Romanian technicians. Project construction would be completed in 1978.  - ii - v. The total ptoject cost, including physical contingencies and ex- pected price increases, as well as initerest during construction is esti- mated at US$141 million with a foreign exchange component (direct and indirect) of about US$43 million. The proposed IBRD loan of US$70 million would cover US$40.5 million of the estimated foreign exchange cost of the project (exclud- ing US$2.4 million already incurred), US$19.5 million in local cost and US$10 million of interest during Construction and commitment charges. The Government of Romania would contribute the balance of the project cost. vi. The Ministry of Agriculture, Food Industry and Water through its subordinate and sister government agencies, would be responsible for the de- tailed planning, supervision, construction, operation and coordination of project works. The Ministry's Department of Land Reclamation and Agricultural Construction (DIFCA), assisted by its subordinate specialized agencies, would be in charge of all project design and construction except those relating to electricity. Electrical work would be installed and maintained by the Min- istry of Electric Energy through its subordinate enterprises and their sub- units. The operation and maintenance of all other works would be performed by the Ministry of Agriculture's Central for Exploitation of Land Reclamation Works (CELIF) through its field enterprises (IELIF) and their sub-units. The proposed project organization is satisfactory. Each Ministry, department, central and enterprise involved has the ability to perform the proposed func- tions satisfactorily; each has had experience in works of a similar nature and size. vii. Finances for investment and production credit in cooperative and State farms would be mobilized and disbursed, in accordance with existing satisfactory procedures by the Bank for Agriculture and Food Industry (BAFI). viii. At full project development in 1985, the incremental annual produc- tion of principal crops would be as follows: cereals 147,000 tons; oilseeds 29,000 tons; sugar beets 147,000 tons; peaches and grapes 25,000 tons; vege- tables 70,000 tons; and fodders 1.2 million tons. Gross value of production would increase from US$33.0 million without the project to US$90.2 million with the project. The project's economic rate of return is estimated at 13.5%. With the project, additional gross annual foreign exchange earnings (savings) would be about US$43.9 million equivalent. Also, employment would increase from 1.1 million man-days without the prolect to nearly 3 million man-days with the project, and annual income of each active cooperative member would more than triple, assuming no increase in membership. ix. Based on the agreements with the borrower, the project is suitable for a Bank loan of US$70 million to the Bank for Agriculture and Food Industry, with the guarantee of the Government of Romania, for 25 years including 5 years of grace.  I. INTRODUCTION 1.01 The Government of Romania has requested an IBRD loan of US$70 mil- lion to the Romanian Bank for Agriculture and Food Industry. The loan would help finance a US$141 million irrigation project to increase agricultural production for local consumption and export. The project would be located about 60 km southwest of Bucharest in the counties (judets) of Ilfov and Teleorman, and it encompasses the towns of Giurgiu and Razmiresti. The project would be implemented by the Ministry of Agriculture, Food Industry and Water through its subordinate and sister government agencies. 1.02 Romania joined IBRD on December 15, 1972. By July 1974, loan agree- ments for three projects involving total Bank lending of US$190 million had been signed. Those included Tecuci Fertilizer (US$60 million), Otelinox Spe- cial Steel (US$70 million) and Turceni Thermal Power (US$60 million). The Giurgiu-Razmiresti Project is the first irrigation project, and one of two proposed for the agriculture sector. The other is Sadova-Corabia Agricul- tural Credit Project. 1.03 In keeping with Government policy to expand irrigation, this proj- ect was identified by the Romanian Government and proposed to the April 1973 IBRD Economic Mission for Bank financing. The proposal was reviewed by two Bank missions in June and December 1973. A feasibility study based on sev- eral years' work was prepared by specialized Government institutions and submitted to the Bank about September 1973. Supplemaentary data were pro- vided to the December 1973 Bank mission. The project was appraised in May 1974 on the basis of the feasibility study and additional supporting govern- ment studies. The appraisal mission consisted of Messrs. M. Altaf Hussain (Mission Chief), J.W. Robins and T. Haile-Mariam (Bank), R. Stevenin (FAO/ IBRD Cooperative Program), V.F. Gioia and J. Marinet (Consultants). Based partly on contributions from consultants, the report was prepared by Bank staff members of the mission. II. BACKGROUND A. General 2.01 Romania has a land area of 23.7 million ha. Total population in 1974 is estimated at 21 million, about 12 million of whom live in rural areas. It is increasing at about 1% per annum. 2.02 Gross domestic product in constant 1963 prices rose by 7.7% per year during 1966-70 and by 10.8% during 1973. Annual investment in the eco- nomy averaged 58 billion lei (in constant 1963 prices) during 1966-70; it would average 94 billion lei during 1971-75.  -2- B. The Agricultural Sector 2.03 Sector Organization: The Ministry of Agriculture, Food Industry and Water is responsible for elaboration and implementation of the State's socio-economic plan for the agricultural sector. The Ministry is represented by a General Agricultural Directorate in each of the 39 administrative counties of the country; each directorate monitors agricultural activities in both State and cooperative farms as described in the following paragraph. The Ministry also maintains ten marketing centrals with branch offices throughout the country which are responsible for procurement and distribution of products according to the national plan. 2.04 Agricultural production is organized primarily into State and co- operative farms. About 360 State farms employing 300,000 workers and 4,500 cooperative farms with membership of 3.5 million families account for the bulk of the agricultural output. Each State farm is headed by an appointed director and each cooperative farm by an elected president. Private farms account for insignificant portion of total agricultural output, but produce about 19% of milk, 18% of eggs, 14% of meat and 15% of potatoes. 2.05 Sector Resources. Agricultural land resources are estimated at about 15 million ha, of which about 9.6 million ha are arable, 3.0 million ha are under pastures and 0.8 million ha under vineyards and orchards. The bulk of the remaining land area is occupied by forests and meadows. There is agricul- tural labor with a potential for efficient utilization. Romania has large sources of exploitable irrigation water; the Danube River is largest among them. 2.06 State farms use 30% of the agricultural and 21% of the arable lands, while cooperative farms use 60% and 75%, respectively. About 10% of marginal quality agricultural land is used by private farms. Two-thirds of the total arable land is used for grain production (mainly maize and wheat) while in- dustrial crops (mainly sunflower) are next most important crops. Vegetables are also produced, often in large-scale commercial green houses, primarily for export. 2.07 Sector in the National Economy. The agricultural sector measured by United Nations methodology accounts for nearly one fifth of the gross domestic product, 30% of total foreign exchange, 40% of convertible foreign exchange earnings, and employs 42% of the labor force. It is also a primary source of raw materials, investment resources, foreign exchange, and residual labor to the leading industrial sector which employs 35% of the labor force and contributes 48% of the gross domestic product. Livestock subsector accounts for nearly 40% of agricultural production with national livestock population of about 5.8 million cattle, 8.8 million pigs, 14.4 million sheep and 64.5 million poultry. 2.08 Primiarily because of adverse weather, the agricultural sector, in- cluding forestry, grew slowly by an average of 2% annually during 1966-70 compared to its planned growth rate of 12%, and by 9.5% per year during the first three years of the current plan compared to the annual target of 8 to  - 3 - 10%. Agriculture grew rapidly in the first three years of the current Five- Year Plan, due primarily to rapid expansion in the livestock subsector and the area under irrigated crops. 2.09 Productivity per person in the agricultural sector is low; about one third of that in industry. Inadequate capital investment compared to its size and scope for development, dependence on unreliable weather, and underemployment are the primary causes of low productivity. Annual investment in agriculture during 1966-70 averaged 7.4 billion lei or 12.7% of total investment in the economy. According to the current Five Year Plan, allocations for annual in- vestment in agriculture average 13.3 billion lei or 14.2% of annual investment in the economy. However, while investment during 1971-73 reached its planned target for the economy, agriculture's share amounted to only 12.4%, trending a decline of agriculture's relative share of actual investment. C. Irrigation 2.10 Irrigation is important for agricultural growth in Romania because it enables crop diversification, stability in production and yield improvement. The Government recognizes this and has been giving priority to irrigation, land reclamation and drainage in its investment plans. Policy emphasis on ir- rigation is reflected through 45% allocation of the total investment in agri- culture for land reclamation programs. The area under irrigation increased from a small acreage in 1960 to about 250,000 ha in 1965, and to 700,000 ha at the end of the 1966-70 Plan. Continuation of this policy during the cur- rent Plan brought 500,000 ha more under irrigation during 1971-73, so that total irrigated area to date is more than 1.25 million ha. The Government aims to irrigate all the irrigable area of 5 million ha before the turn of the century. Currently about 150,000 ha are being added annually to irrigated areas with satisfactory levels of management. 2.11 The project aims at reducing the main growth constraints through ensuring investment in agriculture, expansion of area under irrigation, thereby reducing dependence on weather and fluctuation in output, diver- sification, and greater use of technology leading to increased productivity and employment. III. TIE PROJECT AREA A. Location 3.01 The project area is located about 60 km southwest of Bucharest and encompasses the towns of Giurgiu and Razmiresti (Map IBRD 11167). It lies in the counties of Ilfov and Teleorman and borders the Danube River. Bucharest-Giurgiu highway runs along its eastern boundary and the Danube River forms its southern boundary. Giurgiu is the main town and port in the area.  -4- B. Climate 3.02 The climate is temperate with hot summers and cold winters. The highest monthly temperature (as recorded in August 1952) was 27