Philippines - Chico River Irrigation Project

Report No. 1009a-PH FILE COPY Philippines Chico River Irrigation Project: Stage I Appraisal Report March 9, 1976 East Asia and Pacific Projects FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted dfstrtbution and may be used by recipients only mn the perTformance of their official duties. Its contents may not otherwrse be dsclosed without World Bank authfiozatton.  CURRENCY EQUIVALENTS US$1.00 = Pesos (R) 7.50 P 1.00 US$0.133 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) = 2.47 acres 1 kilometer (km) - 0.62 miles 1 square kilometer (km2) = 0.3886 miles 1 meter (m) = 39.37 inches 1 square meter (m2) = 10.76 square feet 1 cubic meter (m3) = 35.31 cubic feet 1 million cubic meters (Mm3) = 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 ABBREVIATIONS ADB Asian Development Bank ADCC Agricultural Development Coordinating Council DAR Department of Agrarian Reform DPH Department of Public Highways MRMP Magat River Multipurpose Project NIA National Irrigation Administration NISIS National Irrigation Systems Improvement Study NPC National Power Corporation UPRP Upper Pampanga River Project USBR United States Bureau of Reclamation WMT Water Management Technologist  FOR OFFICIAL USE ONLY PHILIPPINES APPRAISAL OF THE CHICO RIVER IRRIGATION PROJECT: STAGE I TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSION ............................... i-iii I. INTRODUCTION ......................................... 1 II. BACKGROUND ............................................. 1 General. The Agricultural Sector .......................... 2 The Critical Role of Water Development .... ....... 2 Project Formulation .............................. 3 III. THE PROJECT AREA ...................................... 4 General ........................................... 4 Climate .......................................... 5 Topography, Drainage, and Soils ................... Land Tenure and Farm Size ........................ 5 Existing Irrigation Facilities ................... 6 Agricultural Production .......................... 6 Transportation ................................... 7 IV. THE PROJECT ........................................... 7 Project Irrigation Works ......................... 7 Water Supply, Demand and Quality ................. 9 Status of Engineering ............................ 10 Provincial Road Program .......................... 11 Erosion Control Study ............................ 12 Input-Output Mfonitoring .......................... 12 Feasibility Study Stage II Irrigation .... ........ 12 Cost Estimates ................................... 12 Financing ........................................ 13 Procurement ...................................... 14 Disbursements .................................... 15 Accounts and Audit ............................... 15 Environmental Effects ............................ 15 This report is based on the findings of an appraisal mission composed of Messrs. E.G. Giglioli, K.E. Ireland, K.V.S.K. Nathan, M.G. Saddington and J.T. Caparas (Bank). This docunment has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Page No. V. ORGANIZATION AND MANAGEMENT ....... .................... 15 Project Management ......... ...................... 15 Supporting Agricultural Services ..... ............ 17 Cost and Benefit Recovery ...... .................. 17 VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOMES 19 Production . ....................................... 9 Market Prospects ......... ........................ 19 Prices ............................................ 20 Farm Incomes ............ ......................... 20 VII. BENEFITS AND JUSTIFICATION ....... ..................... 22 VIII. AGREEMENTS REACHED AND RECOMENDATION ..... ............ 23 ANNEXES 1. Cagayan Basin Development 2. Climatological Data 3. Land Tenure and Reform 4. Project Irrigation Works 5. Water Supply, Demand and Quality 6. Provincial Road Program 7. Erosion Control Study 8. Input-Output Monitoring Program 9. Cost Estimates 10. Equipment List 11. Estimated Schedule of Expenditures and Disbursements 12. Organization and Management 13. Supporting Agricultural Services 14. Present and Projected Cropping Pattern and Production 15. Market Prospects and Prices 16. Crop and Farm Budgets 17. Farm Labor Analysis 18. Cost and Benefit Recovery 19. Economic Analysis 20. Schedule of Early Events  3 Page No. CHARTS Implementation Schedule No. 15355 NIA Organization for Special Projects No. 9533 (2R) Proposied Organization for Implementation No. 15356 Proposed Organization for Operation and Maintenance No. 9535 (R) Propos(ed Cropping Calendar No. 9536 (R) Opportunity Cost for Labor No. 15379 MAP Chico River Irrigation Project: Stage I No. 11944R  I I I
I  PHILIPPINES APPRAISAL OF THE CHICO RIVER IRRIGATION PROJECT: STAGE I SUMMARY AND CONCLUSIONS i. The Government of the Philippines has requested Bank assistance to carry out Stage I of the Chico River Irrigation Project located in the Cagayan Valley of Northern Luzon. Stage I of the project would develop the unregulated water supply of the Chico river for irrigation and improve provincial roads under the adjacent Magat River Multipurpose Project: Stage I (Loan 1154-PH). The irrigation component comprises rehabilitation and upgrading some 7,800 ha of small and scattered gravity and pump irriga- tion systems and extension of irrigation to 11,900 ha of rainfed rice lands. Stage I also provides technical assistance to the National Irrigation Ad- ministration (NIA) for preparation of an erosion control study of the Magat and Pampanga river catchments and setting up an input-output monitoring system for all Bank-assisted irrigation projects in Central and Northern Luzon. A total of about 95 man-months of consultants services would be rquired. Additionally, a feasibility study for Stage II irrigation would be prepared by NIA under the project. The road component comprises improvement of three provincial roads, with a total length of 65 km. ii. Major Government objectives in the agricultural sector are to achieve self-sufficiency in basic foods and to correct regional economic and social imbalances. The project would assist in meeting both objectives by expanding double crop rice irrigation into an area where regional per capita income is the lowest in the nation. It would be the first step in the Government's long term plan to develop the land and water resources of the Chico river basin. iii. The next phase in the basin's development would be construction of the Chico 4 storage dam for hydroelectric power. The dam would also provide a regulated water supply which would permit the expansion of the irrigation system to 49,000 ha under Stage II of the project. The Chico 4 dam, the first in a series of four multi-purpose dams in the basin, was selected as a first priority over the other three dams because it would involve resettle- ment of only about 75 tribal families whereas a much larger resettlement program would be involved at the other sites and the Government has been experiencing some opposition from the tribesmen to large scale resettlement. Feasibility studies for the Chico 4 project are underway with the help of consultants financed under a bilateral German aid program. The studies are expected to be completed in about two years and construction of the dam is tentatively scheduled to start in 1979. Stage I of the project would derive its water supply from the unregulated flow of the Chico river. It is an economically viable unit on its own and is not dependent on either a storage dam or a second stage irrigation development. The feasibility study for Stage II irrigation would be coordinated with the Chico 4 storage dam study.  - ii - iv. 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. With improved water control being a prerequisite to obtaining optimum results from the new high yielding rice varieties, an annual total of about 50,000 ha of rice lands would have to be rehabilitated or provided with a new irrigation system over the remainder of the decade to allow the country to achieve rice self-suffi- ciency. The proposed project would be the sixth Bank-assisted project aimed at helping the Government to achieve this goal. The first was the Upper Pampanga River.Project (Loan 637-PH), the second ,the Aurora-Penaranda Irrigation Project (Loan/Credit 984/472-PH), the third the Tarlac Irrigation Systems Improvement Project (Loan 1080-PH), the fourth the Mindoro Rural Development (Loan 1102-PH), and the fifth the Magat River Multipurpose Project: Stage I (Loan 1154-PH). Except for the Magat project, which is in the Cagayan Valley of Northern Luzon, and the Rural Development Project on the island of Mindoro, the other projects are located in Central Luzon. v. Total cost of the project is estimated at P 630.0 million (US$84.0 million) of which US$33.0 million, or approximately 39%, would be in foreign exchange. The Bank would finance the foreign exchange component as well as US$17.0 million of local currency requirements. Civil works costing US$23.9 million and equipment costing US$3.3 million would be put to international competitive bidding in accordance with Bank Group Guidelines. 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$10.8 million) or by force account (US$7.1 million). vi. NIA would be the executing agency for the project, except for the provincial roads component which would be carried out by the Department of Public Highways (DPH). NIA's responsibilities would be carried out by the Special Projects Organization, which is in charge of all Bank-assisted irrigation projects. Both NIA and DPH are well staffed with competent person- nel and would be able to implement the project successfully. Due to its size and proximity, the project would be executed as a division of the Magat project. vii. At full development of Stage I of the project, nine years after commencement of work, annual paddy production from the project area is expected to reach 147,000 tons compared with a current level of production of 50,000 tons. The increased production would make a contribution to the national campaign for self-sufficiency by providing enough rice to feed nearly 600,000 persons per year. viii. 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, tentativ- ely by the end of 1977, about 85% of the land in the project would be  - iii - farmed by owner operators and the rest by leasehold tenants of small landlords. Some 8,000 farm families cultivate the project area, working an average unit of 2.5 ha. The project would increase the annual per capita income on a 2 ha farm from $55 at present to $290 at full agricultural development in 1986. For a 4 ha farm at full development in 1986 the per capita income would be US$530. By comparison about 84% of the project's farm families accounting for 75% of the land are presently at or below the Bank's estimated absolute per capita poverty level of US$140. These comparisons indicate that the project would narrow.the income gap between the project area and other parts of the country for the small farmers (2 ha or less) while for the larger farmers (4 ha or more) per capita farm income would be slightly above the projected national average per capita GNP. ix. The project would require a controlled cropping timetable to allow for a cropping intensity of 186% which in turn would create an increase in farm labor employment opportunities equivalent to about 4,700 full time jobs. The economic rate of return of the project is expected to be about 15%. The rate of return is only moderately sensitive to increases in costs and delays in benefits. If one-half the cost of the diversion dam is charged to power (which it would ultimately serve for reregulation), the remaining diversion dam costs proportioned between Stages I and II on an area basis and the excess canal capacity is charged to Stage II irrigation for which it would be needed, the economic rate of return increases to 21%. x. The proposed project is suitable for a Bank Loan of US$50.0 million for a period of 25 years, including a six-year grace period. The borrower would be the Republic of the Philippines.  S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ :~~~~~~~~~~~~~~~~~~~~~~~~~ J~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  PHILIPPINES APPRAISAL OF THE CHICO RIVER IRRIGATION PROJECT: STAGE I I. INTRODUCTION 1.01 The Government of the Philippines has requested Bank assistance in financing the first stage of the Chico River Irrigation Project in the Cagayan Valley of Northern Luzon, one of the few areas of Luzon where such development potential exists. Stage I would irrigate 19,700 ha by gravity diversion from the Chico river with an assured water supply during the wet season and a dry season supply adequate for 17,000 ha. The diversion dam and main diversion canals would be constructed with capacity for a second stage irrigation devel- opment that would expand the irrigated area to 49,000 ha. Stage II irrigation would be dependent on flow regulation provided by a multipurpose storage dam to be constructed on the Chico river about 20 km upstream of the diversion dam. The diversion would also serve as an afterbay for daily reregulation of releases from the storage dam for hydroelectric power generation. 1.02 The principal components of the proposed project are (i) irriga- tion development and (ii) a provincial roads program. The National Irriga- tion Administration (NIA) prepared the feasibility report for the irrigation component and the Department of-Public Highways (DPH) prepared the feasibi- lity report for the provincial roads program. Mr. F. E. Rippon (consultant) assisted NIA with establishing the design standards in April, 1975. This report is based on the findings of an appraisal mission which visited the Philippines in October, 1975 composed of Messrs. E. G. Giglioli, K. R. Ireland, K.V.S.K. Nathan, M. G. Saddington and J. T. Caparas (Bank). II. BACKGROUND 2.01 The Philippines covers some 297,000 km2scattered 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 43 million (1975), growing at a rate of 2.8% annually. Real GNP, which had a trend growth rate of 5% to 6% in the 1960's, grew by 10% in 1973 due to high prices for export commodities, but has grown at only about 6% in 1974 and 1975 as some industries have been adversely affected by the recession in the Philip- pines' trading partners. Inflation related to high export prices and in- creased oil and food prices was a major problem in 1974, but abated markedly in 1975. Unequal income distribution and underemployment remain major eco- nomic problems. 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 be difficult to reclaim. Bringing this additional land under cultivation would be insufficient by itself to meet increasing food needs  -2- or to improve rural income significantly. These goals call for increasing production from currently cultivated areas through yield improvements and increasd cropping intensity where water is available. The Agricultural Sector 2.03 Agriculture accounts for about one-third of net domestic product, over one-half of total employment and 70% of 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. During the next five years, the spread of new varieties slowed; typhoons in 1972 and high fertilizer prices in 1974 further affected agricultural output, which grew by only 3.2% a year on average from 1970-74. The growth rate of rice production from 1970 to 1974 was only 1.4% a year. The failure of food supply to keep pace with demand caused the ratio of food prices to prices in general to increase by 37% over the period. This, combined with high world prices for sugar and coconut products, led to a substantial shift in the internal terms of trade in favor of agriculture, which encouraged rural people to stay on the farm. In the face of sluggish growth of manufacturing employment, much of the growth of the labor force in recent years has therefore taken place in agriculture. Although value added per worker in agriculture has increased in current prices, it has declined in real terms, implying growing rural underemployment. 2.04 There is considerable pressure of people on land in the Philippines, where the population density is 131 people/km2 compared with the Asian average 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 north-eastern Luzon and Mindanao in the south. 2.05 Agricultural sector performance will be crucial in determining whether the drive towards a more rapid but more equitable income expan- sion succeeds. The major goals are self-sufficiency in cereals, particularly rice and corn; development of the livestock and fisheries sector; expansion of agricultural exports; intensification of agrarian reform; better conservation of natural resources; and strengthening of institutional support. Self-suf- ficiency in cereals is important not only to strengthen the balance of pay- ments, but also to raise incomes for much of the rural population. The Critical Role of Water Development 2.06 After allowance for increases in rainfed rice production, the Philippines cannot reach self-sufficiency in rice without substantial invest- ment in irrigation expansion and improvement. Performance of irrigation sys- tems in the country falls far short of their potential. 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. 1/ IBRD Agricultural Sector Survey, Philippines, May 2, 1973 (Report No. 39a-PH).  - 3 - The NIA's gravity systems are the main component. In addition, NIA has constructed and rehabilitated a substantial part of the small privately operated communal systems, averaging 250-300 ha. The Irrigation Services Unit, now under NIA's administrative supervision, is responsible 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. 2.07 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 Project (UPRP) (Loan 637-PH) and the Magat River Multipurpose Project (MRMP); Stage I (Loan 1154-PH) and the Asia Development Bank (ADB) - assisted Angat-Magat Integrated Agricultural Development Project (AMIADP), typify the new approach. The pat- tern of rehabilitation, new construction and operation exemplified by these projects is essential for large-scale rice production. Indeed, to meet domes- tic rice demand in the 1970s, a program of rehabilitation 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 2.08 The 1975 Chico River Irrigation Project feasibility report prepared by NIA, proposed development of the irrigation potential in two stages, the first utilizing the unregulated flows of the Chico river and the second utilizing the dependable water supply provided by upstream multipurpose storage, the subject of a feasibility study by the National Power Corporation (NPC). Preliminary studies by NPC, with consultant assistance, indicated that four storage dams and hydroelectric generating plants could be constructed with a combined generating capacity of 1,000 MW. Development of the Chico river hydroelectric power potential is a priority item in NPC's planning to meet the rapidly growing national energy requirements and is scheduled for early implementation. 2.09 The Chico River Irrigation Project, adjacent to and practically an extension of the irrigated lands under the Magat project 1/, is scheduled for implementation over a nine-year period in the following stages: 1/ Magat River Multipurpose Project: Stage I (Loan 1154-PH).  -4- (a) Stage I would consist of rehabilitation of several existing irrigation systems and construction of new facilities. The entire command are of 19,700 ha would be served by run-of- the-river diversion. Construction would be completed over a five-year period (1976-1980). (b) Stage II, which would be constructed over a five-year period (1980-1984), is dependent on construction of a storage dam on the Chico river to augment the dry season flow of the river. It would consist of expanding the irrigation facilities to command an area of 49,000 ha. (c) A Storage Dam and hydroelectric power generating facilities are scheduled to be constructed over a six-year period (1979- 1984) following three years of feasibility study and preparatory work. Because of local opposition, focus of the study has been shifted from the Chico 2 to the Chico 4 site where only about 75 families live in the reservoir area. It is the Government's intention to carry out resettlement of the families before starting construction of the dam. Details on the development of irrigation in the Cagayan Valley, the role of the project and its phasing are at Annex 1. Stage I is an economically viable unit on its own (para. 7.03) and is not dependent on construction of Stage II irrigation facilities or on provision of storage on the Chico river. III. THE PROJECT AREA General 3.01 The project is located in Cagayan, Isabela and Kalinga - Apayao provinces in the Cagayan Valley of Northern Luzon, just north of the Siffu River Irrigation System being rehabilitated with Bank assistance under Stage I of the Magat project (Map No. 11944R). Aside from a small amount of irrigation, the project area is presently devoted to rainfed cultiva- tion of rice during the wet season. Consequently, rice yields are low and adoption of high yielding varieties has been slow. On those lands now irrigated, systems are not completely developed, water distribution is poor and dry season water supply is limited. 3.02 There are a number of small towns with populations of less than 10,000 people scattered throughout the area. The larger towns, including Tuguegarao, the capital of Cagayan Province which lies just outside the pro- ject area, provide banking, storage, and processing facilities as well as supplies of inputs to the agricultural area. The Cagayan Valley is connected by national highway to Central Luzon and Manila to the south and the port of Aparri on the Babuyan Channel to the north.  -5- 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 1,800 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 25-year period between 1948 and 1972 the regions were hit by an average of 3 typhoons per year, with the highest frequency between July and November. The statistics are for the whole of Northern Luzon. This does not mean that all storms hit the project area and the statistics tell nothing of the extent or severity of the typhoons. These storms may cause flooding and damage to crops and the potential effects on project crop production is explained at Annex 14. 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 from rainfall deficiencies and irri- gation is essential for an assured crop. Further climatic details are pre- sented at Annex 2. Topography, Drainage and Soils 3.04 The project area is located on flood plains and gently sloping tri- butary valleys of the Cagayan and Chico rivers. It is bounded on the south by the Mallig river, on the east by the Cagayan river and on the north and west by the Chico river and foothills of the Cordillera Range. The several areas comprising the project are separated by low and high hills. Large and small creeks traverse the areas serving as natural drainage ways. Because of high rainfall intensities and flat relief, drainage problems exist in some portions of the project area. Low areas are subject to short periods of flooding from overflowing streams. Water velocities are low and cause little damage to land, but there is some crop damage, depending on the stage of growth at time of flooding. 3.05 Soils in the project area are mostly of alluvial origin, are pre- dominantly light brown or grey loams or silty loams, with granular struc- tures, medium textures, slightly acidic reactions and fairly good internal drainage. They are generally high in organic matter. The soils are 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 re- form 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  -6- 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 and there are no plans at present for the transfer of lands in this category. The Department of Agrarian Reform (DAR) completed the issue of land transfer certificates to tenants of all land in holdings over 24 ha in 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 8,000 farm families, averaging 5.5 mem- bers for a total of about 44,000 people, live in the project area. The aver- age farm unit is 2.5 ha with about 84% of the farms, covering 83% of the area, falling between 1 and 5 ha. The farm size distribution is as follows: Farm Size Farm Holdings Cultivated Area (ha) -------- - %