Philippines - Jalaur Irrigation Project

FILE COPY Report No. 1311a-PH Philippines Appraisal of the Jalaur Irrigation Project January 5, 1977 East Asia and Pacific FOR OFFICIAL USE ONLY Document of the World Bank This document 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.  CURRENCY EQUIVALENTS US$1.00 = Pesos (P) 7.50 P 1.00 = US$0.133 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) 3 2.47 acres 1 kilometer (km) 2 0.62 miles 1 square kilometer (km ) 0.3866 square miles 1 meter (m) 2 39.37 inches I square meter (I2) - 10.76 square feet 1 cubic meter (m ) 35.31 cubic feet 1 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 ABBREVIATIONS ACA - Agricultural Credit Admnistration ADB - Asian Development Bank ADCC - Agricultural Development Coordinating Council AMIADP - Angat-Magat Integrated Agricultural Development Project ARIS - Aganan River Irrigation System BAE - Bureau of Agricultural Extension BPI - Bureau of Plant Industry DAR - Department of Agrarian Reform DLGCD - Department of Local Government and Co=uaity Development ECI - Engineering Consultants, Inc. JRIS - Jalaur River Irrigation System NGA - National Grains Authority NIA - National Irrigation Administration NISIS - National Irrigation Systems Improvement Study RB - Rural Banks SBIS - Santa Barbara Irrigation System SRIS - Suague River Irrigation System UPRP - Upper Pampanga River Project WMT - Water Management Technologist  FOR OFFICIAL USE ONLY PHILIPPINES APPRAISAL OF THE JALAUR IRRIGATION PROJECT Table of Contents Page No. SUMMARY AND CONCLUSION .......................................... i i I. INTRODUCTION ........ ..................... .................. II. BACKGROUND General ...............................................1 The Agricultural Sector . ...................... 2 The Critical Role of Water Development ............ 2 Project Formulation . ..................... ............. 3 III. THE PROJECT AREA General .............................................. ............. 4 Climate ............................................... 5 Topography, Drainage and Soils .... ................... 5 Land Tenure and Farm Size ..... ................... . 5 Existing Irrigation Facilities .... ................... 7 Agricultural Production ..... ..................... 7 Transportation ........................................ 7 IV. THE PROJECT Project Works ......................................... 8 Water Supply, Demand and Quality .................. .... 9 Status of Engineering ...... ........................... 10 Water Management Training ..... ........................ 11 Cost Estimates ........................................ 11 Financing ............................................. 12 Procurement ........................................... 12 Disbursements ....... .................................. 13 Accounts and Audit ...... .............................. 13 Environmental Effects ..... ............................ 13 V. ORGANIZATION AND MANAGEMENT Project Management .................................... 14 Supporting Agricultural Services ...................... 15 Cost and Rent Recovery ................................ 16 This report is based on the findings of an appraisal mission composed of Messrs. K. E. Ireland, A. N. Khan, J. van Holst Pellekaan, R. S. Baskett and M. Goldman. Mr. E. G. Giglioli also assisted in pre- paration of the report. This document hs restricted distribution and may be ud by recipients only in the perfomfance of their official duties. Its contents may not otherwise be disclseed without World Bank authorIution.  -2- Page No. VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOMES Production ........ .. ................................. 17 Market Prospects ..................................... 18 Prices ............................................. 18 Farm Incomes ........................... * ...... . ...... 19 VII. BENEFITS, JUSTIFICATION AND RISKS ............ ............ 20 VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATION .............. 21 ANNEXES 1. Climatological Data 2. Land Tenure and Reform 3. Project Works 4. Water Supply, Demand and Quality 5. Cost Estimates 6. Equipment List 7. Estimated Schedule of Expenditures and Disbursements 8. Organization and Management 9. Supporting Agricultural Services 10. Present and Projected Cropping Patterns and Production 11. Market Prospects and Prices 12. Crop and Farm Budgets 13. Farm Labor Analysis 14. Cost and Rent Recovery 15. Economic Analysis 16. Schedule of Early Events CHARTS Implementation Schedule No. 16409 NIA Organization for Special Projects No. 9533 (3R) Proposed Organization for Project Construction No. 16392 Proposed Organization for Operation and Maintenance No. 16391(R) Proposed Cropping Calendar No. 16408 Marginal Economic Cost of Farm Labor No. 16428 MAP Jalaur Irrigation Project No. 12414  PHILIPPINES APPRAISAL OF THE JALAUR IRRIGATION PROJECT SUMMARY AND CONCLUSIONS i. The Government of the Philippines has requested Bank assistance to carry out the Jalaur Irrigation Project located on Panay island in the Western Visayas. The project consists of the rehabilitation of four existing irrigation systems now serving a total area of 22,000 ha and the construction of new facilities on some 2,700 ha. The project also provides for a training program for water management staff and for technical assistance. 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 help to meet both objectives by improving and expanding irrigation facilities for the rice crop in one of the poorer regions in the nation. iii. The deficit in rice, the main staple crop, has been a persistent problem for the Philippines, and annual rice imports have averaged about 300,000 tons in recent years. With improved water control being a prere- quisite to obtaining optimum results from the new high-yielding rice varie- ties, an annual total of about 50,000 ha of rice lands would have to be rehabilitated or provided with new irrigation facilities for the next decade to allow the country to achieve rice self-sufficiency. The proposed project would be the seventh Bank-assisted project aimed at helping the Government to achieve this goal. The Upper Pampanga (Loan 637-PH), Aurora-Penaranda (Loan/Credit 984/472-PH) and Tarlac projects are in Central Luzon; the Magat (Loan 1154-PH) and Chico (Loan 1227-PH) projects are in the Cagayan Valley of Northern Luzon; and the Rural Development Project (Loan 1102-PH) is on the island of Mindoro. The proposed project would be the first Bank-assisted irrigation project in the Visayas. iv. Total cost of the project is estimated at P 255.0 million (US$34.0 million), of which US$15.0 million, or approximately 44%, would be in foreign exchange. The Bank would finance the foreign exchange component. Equipment costing about US$4.5 million would be procured after international competitive bidding in accordance with Bank Group Guidelines. Civil works would not be suitable for international competi- tive bidding because of their nature and would be carried out by locally advertised contract (US$8.2 million) or by force account (US$5.5 million). v. The National Irrigation Administration (NIA) would be the executing agency for the project. NIA's responsibilities would be carried out by the Special Projects Organization, which is in charge of all Bank-assisted irrigation projects. This body is well staffed with competent personnel and would be able to implement the project successfully.  - ii - vi. At full development of the project, nine years after commence- ment of work, annual paddy production from the project area is expected to reach 147,000 tons compared with a current level of production of 80,000 tons. The increased production would make a contribution to the national campaign for self-sufficiency by providing enough rice to feed nearly 425,000 persons per year. vii. Under the Government's program of agrarian reform, share- cropping 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 54% of the land in the project area will be farmed by owner operators and the rest by leasehold tenants of small landlords. Some 12,000 farm families cultivate the project area, working an average unit of 2.1 ha. The project would increase the annual per capita income on a 1.5 ha farm from a current range of between US$45 and US$80 to between US$110 and US$220 at full agricultural development in 1985, depending on cropping intensity. For a 3 ha farm the per capita income at full development would range between US$200 and US$390. By comparison about 75% of the project's farm families are presently at or below the Bank's estimated absolute per capita poverty level of US$155. These comparisons indicate that the project would narrow the income gap between the project area and other parts of the country. viii. The project would result in about a 19% increase in cropping intensity, which in turn would create an increase in farm labor employment opportunities equivalent to about 3,500 full time jobs. The economic rate of return of the project is expected to be about 20%. The rate of return is only moderately sensitive to a delay or a reduction in benefits. However, even under extremely adverse conditions, the rate of return would not fall below 15%. ix. The proposed project is suitable for a Bank Loan of US$15.0 mil- lion for a period of 20 years, including a 4.5-year grace period. The borrower would be the Republic of the Philippines.  PHILIPPINES APPRAISAL OF THE JALAUR IRRIGATION PROJECT I. INTRODUCTION 1.01 The Government of the Philippines has requested Bank assistance in financing the Jalaur Irrigation Project in Iloilo province of Panay island. The project would provide a dependable water supply to irrigate about 24,700 ha of rice in the wet season and 12,000 ha in the dry season. 1.02 The National Irrigation Administration (NIA) prepared the feasi- bility report for the project with the assistance of Engineering Consultants, Inc. of Denver, Colorado (ECI). This report is based on the findings of a Bank appraisal mission, which visited the Philippines in June-July 1976, composed of Messrs. K.E. Ireland, A.N. Khan, J. van Holst Pellekaan, R.S. Baskett and M. Goldman. Mr. E.G. Giglioli also assisted in the preparation of the report. II. BACKGROUND General 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 43 million (1975), growing at a rate of about 2.8% annually. Real GNP, which had a trend growth rate of 5 to 6% in the 1960s, grew by 10% in 1973 due to high prices for export commodities, but has grown at only about 6% in 1974-75 as some industries have been adversely affected by the recession in the economies of the Philippines' trading partners. Inflation related to high export prices and increased oil and food prices was a major problem in 1974, but abated markedly in 1975 and 1976. Unequal income distribution and underemployment remain major economic problems. 2.02 Out of a total land area of some 30 million ha, more than half is forest 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 grow- ing crops, although some 1.0 million ha of this is cogon grassland which would be difficult to reclaim. Bringing this additional land under culti- vation would be insufficient to meet increasing food needs or to improve rural income significantly. These goals also call for increasing produc- tion from currently cultivated areas through yield improvements and increased cropping intensity where water is available.  -2- The Agricultural Sector 2.03 Agriculture accounts for about one-third of net domestic product, about 55% 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 decreased; typhoons in 1972 and high ferti- lizer prices in 1974 further affected agricultural output, which grew by only 3.2% a year on the average from 1970-75. The growth rate of rice production from 1970 to 1975 was only 1.4% a year. Although the early typhoon of 1976 had the heaviest rainfall in modern history, it occurred between rice growing seasons. The resulting damage to total production was estimated at less than 3%. The failure of food supply to keep pace with demand has caused the ratio of food prices to prices in general to increase over the 1970-75 period. This, combined with a short period of high world prices for sugar and coconut products, led to a substantial shift in the internal terms of trade in favor of agriculture, which has prevented a widening of the disparity between rural and urban incomes. 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. 2.94 In the Philippines the population density is 131 people per km , compared with the Asian2average of 86. The density in Iloilo province is about 250 per km . Migration is heavy from this overcrowded region (the Visayas) and Central Luzon to the Cagayan Valley in Northern Luzon and Mindanao in the south. 2.05 Agricultural sector performance will be crucial in determining whether the drive towards a rapid but more equitable income expansion succeeds. The major goals for the sector 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-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 2.06 After allowance for increases in rainfed rice production, the Philippines cannot reach self-sufficiency in rice without substantial investment in irrigation expansion and improvement. Performance of  existing systems 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 systems, only 630,000 ha are served in the wet season and 254,000 ha in the dry season. Almost all the irrigated area is devoted to rice. 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 Irriga- tion Services Unit, now under NIA's administrative supervision, is res- ponsible 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 pay- ing operation and maintenance charges, which in turn precludes further maintenance. 2.07 This unsatisfactory situation began to change in the late 1960s when the NIA was reorganized, more advanced irrigation designs were introduced and much higher levels of water management became a goal. Simultaneously, the need for intensified agricultural supporting services on irrigation projects was accepted. The Bank-assisted Upper Pampanga River Irrigation Project (UPRP) (Loan 637-PH) and the Asian Development Bank (ADB)-assisted Angat-Magat Integrated Agricultural Development Project (AMIADP) typify the new approach. The pattern of rehabilitation, new construction and operation exemplified by these projects is essential for large-scale rice production. To meet the growing domestic rice demand a program of rehabilitation and new con- struction in rice lands for some 50,000 ha per year will be needed over the next decade. The proposed project would thus be entirely compatible with Government objectives for water resources development. Project Formulation 2.08 Since the late 1960s NIA, with assistance from the Bank and from the ADB, has been engaged in upgrading and extending large irrigation systems, mainly in Luzon and to a lesser extent in Mindanao. In addition to rehabilitation of existing canals and structures, the construction of new ones, the provision of better drainage and access and the introduction of water management and rotational irrigation practices, extra water supplies are being provided in some areas through the construction of storage or by trans-basin diversion. However, NIA has not neglected the need for rehabilitation and upgrading of the badly deteriorated, smaller systems scattered through the Philippines. The National Irrigation Systems Improvement Study (NISIS) was set up with Bank assistance (Loan 1080-PH) /1 IBRD Agricultural Sector Survey, Philippines, May 2, 1974 (Report No. 39a-PH).  to inventory the smaller systems and to select a total of about 150,000 ha with the highest priority for improvement and allowing for a balanced regional distribution. The feasibility study for the first 50,000 ha of rehabilitation prepared under NISIS will be completed in late 1976. 2.09 The proposed Jalaur project, consisting of the rehabilitation and up-rading of 22,000 ha of land in four contiguous irrigation systems and the construction of irrigation facilities for an additional 2,700 ha of rainfed land, falls logically in place in terms of size between the large Luzon projects and the small scattered NISIS projects. The proposed project is located on Panay island in the Western Visayas and would meet the NIA objective of more balanced regional distribution of development. It has fertile soils, is a rice basket for the region and is relatively free of typhoons. III. THE PROJECT AREA General 3.01 The project is located in Iloilo province in the southeastern section of the island of Panay in the Western Visayas. The region con- tains about 12% of the area planted to rice annually in the Philippines and accounts for 12% of total national production. Iloilo province is responsible for 35% of the region's rice production and the project area accounts for about 40% of the provincial rice area and 60% of production. The mean rice yield in Iloilo is about 18% above the national average. This is due to the existence of irrigation systems, fertile soils well suited to rice production, good external drainage, rapid adoption of high yielding varieties and a fairly even rainfall distribution. Panay is a surplus rice producer and about 65% of Iloilo's production is exported to the nearby sugar growing island of Negros. 3.02 The project area includes 22,000 ha of rice land in the exist- ing Jalaur River Irrigation System (JRIS), the Suague River Irrigation System (SRIS), the Aganan River Irrigation System (ARIS) and the Santa Barbara Irrigation System (SBIS). In addition, about 2,700 ha of currently rainfed rice land on the left bank of the Jalaur river would be irrigated and included in the JRIS (Map No. 12414). 3.03 There are a number of small towns with populations between 5,000 and 10,000 scattered throughout the area. The larger towns, includ- ing the provincial capital of Iloilo which lies on the southern edge of 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 to the capital city and port of Iloilo by a national highway and paved provincial roads. Daily air service and frequent interisland boat services connect Iloilo with Manila.  -5- Climate 3.04 The climate in the project area is tropical and monsoonal. Warm temperatures throughout the year allow a twelve-month growing season with irrigation. About 85% of the average annual rainfall of 2,150 mm falls in the seven-month period of May through November with the heaviest rain in July. The rainfall, together with river flows in the wet season, is generally adequate for a single rice crop. Dry season cropping, however, entails a greater risk and irrigation is essential to ensure a crop. Panay island is hit by an average of one typhoon per year, with the highest fre- quency in November. The project area is less affected than the northern part of the island. Further climatic details are presented in Annex 1. Topography, Drainage and Soils 3.05 The project area is located on the alluvial terrace fans of the Aganan, Tigum, Suague and Jalaur rivers. The Suague empties into the Jalaur river about 33 km northeast of Iloilo, while the Tigum and Aganan join 8 km north of Iloilo emptying into the ocean near the city. The slope of the land is from northwest to southeast. In the upper part of the project area, the slope is steeper with paddies sometimes terraced but it flattens out towards the sea with three-fourths of the area fairly level. Surface drainage is generally adequate, although there are drainage problems in a few scattered areas. Some of these are as large as 200 ha in size, but would be provided with the necessary drainage facilities under the project. In order to obviate possible drainage difficulties which could occur as a result of the belt of marine fish ponds lying between the project area and the ocean, additional drainage outlets would be built under the project. 3.06 Soils in the project area are predominantly of the Santa Rita series with Santa Rita clay covering about 65% of the area and Santa Rita clay loam about 30%. Recent alluvial deposits of fine sandy loam along the rivers make up the remainder. These soils are slightly acid with fair cation exchange capacity. Some phosphate is needed particularly if rice is to be double-cropped for a period of years. The soils of the project area are well supplied with potash for rice production, but addi- tional amounts of this element should be added when planting sugarcane. The Santa Rita soils are fair in organic matter content. They have slow internal drainage and are well suited for rice, which has been grown in the project area for many years without difficulty. Sugarcane is planted on the fine sandy loam soils or the lighter textured portions of the Santa Rita soils where surface drainage is good and a high water table is not a problem in the wet season. Land Tenure and Farm Size 3.07 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 share- cropper 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  - 6 - 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 I 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 and there are no plans at present for transfer of lands in this category. The Department of Agrarian Reform (DAR) completed the issue of land transfer certificates to tenants for all land in holdings over 24 ha in 1975. In November 1974 the Govern- ment decided to proceed with the transfer of land in holdings between 24 and 7 ha. 3.08 DAR surveys show that some 12,000 farm families, averaging 5.8 members for a total of about 70,000 people, live in the project area. The average farm unit is about 2.1 ha. Average farm holdings are approxi- mately 1.7 ha on rainfed rice areas, 2.0 ha on irrigated rice areas and about 13 ha on the 1,000 ha of sugarcane farms within the project area. The farm size distribution on the 23,700 ha of rice lands is as follows: Farm Size No. of Farms Area of Farms (ha)