Romania - Ialomita - Calmatui Irrigation Project

Report No. 1228-RO E COpy Romania lalomita-Calmatui Irrigation Project January 10, 1977 Regional Projects Department Europe, Middle East and North Africa Regional Office 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 Lei 1 _ US$0.05 Lei 1,000 = US$50.00 Lei 1,000,000 = US$50,000 WEIGHTS AND MEASURES 1 millimeter (mm) 0.0394 inch (in) 1 centimeter (cm) = 0.3937 inch (in) 1 meter (m) = 3.2808 feet (ft) 1 kilometer (km) = 0.6214 mile (mi) 1 square kilometer (km2) = 0.3861 square mile (mi2) 1 liter (1) = 0.2642 gallon (gal) 3 1 liter per second (1/sec) = 0.0353 cubic foot per second (ft /sec) 1 cubic meter per second (m3/sec) = 35.3147 cubic feet per second (ft3/sec) 1 atmosphere (at) 14.2239 pounds per square inch (psi) 1 kilowatt (kw) = 1.3410 horsepower (hp) 1 kilogram (kg) = 2.2046 pounds (lb) 1 ton (ton) = 2,204.6225 pounds (lb) ABBREVIATIONS AME Agricultural Mechanization Enterprises BAFI Bank for Agriculture and Food Industry CAP Agricultural Production Cooperative CELIF Central for Exploitation of Land Reclamation Works DIFCA Department of Land Reclamation and Agricultural Construction GSI Group for Supervising Investments IAS State Agricultural Enterprise IELIF Enterprise for Exploitation of Land Reclamation Works ISPIF Institute for Land Reclamation Studies and Design MAIA Ministry of Agriculture and Food Industry SAM Station for Agricultural Machinery TCIF Construction Trust for Land Reclamation Works ROMANIAN FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY APPRAISAL OF IALOMITA-CALMATUI IRRIGATION PROJECT ROMANIA TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... 1-ii I. INTRODUCTION .... ................................. . ...... 1 II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR ........ 1 A. Country Background .............. ................. 1 B. The Agricultural Sector ......... .. ................ 2 III. THE PROJECT AREA AND NATIONAL INSTITUTIONS .......... .. 4 A. The Project Area ...... ........................... 4 B. Natural Resources .............. . . . . ..................... . 5 C. Land Tenure and Farm Organizations ............... 6 D. Agricultural Production 6......................... 6 E. Farm Inputs ........ .............................. 7 F. Agricultural Research and Extension ............. 8 G. Investment Financing . .... !..* ............... ..... . 8 H. Marketing ......................................... * 9 IV. THE PROJECT ........................................... 10 A. Obiectives . .......... ............................ 10 B. Description ...................................... 10 C. Detailed Features ........... . . ...................... . 10 Irrigation Works ... ....................... 10 Drainage Works .............................. 12 Miscellaneous Works ..... .................... 13 Equipment ................ ................... 14 D. Water Requirement and Availability .... ........... 14 E. Status of Engineering ............................ 15 F. Cost Estimates ................ .. ................. 15 G. Financing ....................................... . 16 H. Implementation Schedule .......................... 17 I. Procurement ..................................................... 17 J. Disbursements ...... .............................. 18 K. Environment and Health ........................... 18 This report is based on the findings of an appraisal mission composed of Messrs. S. Niaz, T. Haile-Mariam and H. von Pogrell (Bank); and R. Qureshi (consultant). I 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.  TABLE OF CONTENTS (Cont'd) Page No. V. PROJECT IMPLEMENTATION . ............ .#................. 18 A. Organization and Management ... o ............. 18 The Borrower .............. .......... ..... . 18 Implementing Agencies ...................... 19 B. Operation and Maintenance ........... ............ 20 C. Supporting Agricultural Services ................ 20 D. Recovery of Project Costs ... o...o ............. 21 E. Accounts and Audit .............................. 22 F. Monitoring ........ ............................................. 22 VI. BENEFITS AND JUSTIFICATION ........................... 23 A. Production ...................................... 23 B. Markets ........... . .............. ............... 26 C. Prices . ......................................... 27 D. Producer Income . ................. .......... . 27 E. Main Benefits and Beneficiaries ............... .. 28 F. Economic Rate of Return ................... .. ..... 28 VII. AGREEMENTS AND RECOMMENDATION .............. ......... 29 ANNEXES 1. Agriculture 2. Agricultural Production Organizations and Investment Financing 3. Marketing, Markets and Prices 4. Description of Project Works 5. Water Requirement and Availability 6. Cost Estimates 7. Lists of Equipment and Materials 8. Estimated Schedule of Disbursement 9. Farm Budgets and Recovey of Project Costs 10. Accounts and Audit 11. Economic Evaluation Charts 15360(R) Typical Danube River Flow Patterns 16192 Organization of a Typical Operation and Maintenance Unit 16193 Implementation Schedule 16194 Organization of Project Connected Agencies MAP IBRD - 12267  APPRAISAL OF IALOMITA-CALMATUI IRRIGATION PROJECT ROMANIA SUMMARY AND CONCLUSIONS i. Romania's agricultural sector is an important contributor to the national economy, second only to the industrial sector. In 1975, it ac- counted for about 15% of national income, about 23% of convertible foreign exchange earnings, and about 38% of labor force. Agriculture has contributed to Romania's economic growth in several important ways: in addition to pro- viding food, it has been a source of raw materials for industry; a source of capital and foreign earnings to help finance industrial development; and a source of labor for growth of other sectors. Irrigation is important for stabilizing crop yields in the southern and eastern plains, where rainfall during the cropping season fluctuates widely from year to year and in some years results in crop failures. Only about 28% of the economically irriga- ble land is presently irrigated. Government has been emphasizing expansion of irrigation to achieve growth and greater stability in agricultural produc- tion. In furtherance of this policy, Government has requested the Bank's as- sistance to help finance the Ialomita-Calmatui Irrigation Project, which is located in the southeastern region of Romania, about 120 km from Bucharest (Map IBRD 12267). ii. Bank lending to Romania, since it became a member in December 1972, has totalled US$460 million (9 loans) of which US$200 million (4 loans) is in the agricultural sector. The proposed loan of US$60 million would be the fifth loan in the agricultural sector and the third in the irrigation sub- sector. Progress on previous loans is generally satisfactory. iii. The proposed project would provide irrigation and drainage facili- ties for a gross area of 148,500 ha, of which presently only 1% is under small irrigation schemes and 96% is under rainfed cultivation; the remaining 3% is saline and unproductive and would be reclaimed under the project. About 80% of the project area is owned and farmed by 48 Agricultural Production Co- operatives (CAPs) and the remaining 20% by 5 State Agricultural Enterprises (IASs). The irrigation system would utilize a maximum flow of 110 m3/sec, which would be pumped from the Danube river, over a head of about 40 m, into the main canal. Irrigation water would be distributed through concrete-lined canals to 115 pressure pumping stations, which would supply water to the pipe distribution networks for sprinkler and furrow irrigation. The project area would be drained by 17 surface drainage networks and 23 pumping stations (82,350 ha); and a number of localized subsurface drainage networks (14,400 ha). Other project works would include reclamation of saline lands (2,650 ha) and depressions (2,500 ha); land leveling (40,000 ha) and works to control soil erosion (44,700 ha). The project would also furnish farm machinery and equipment for operation and maintenance of the irrigation and drainage works.  - ii - iv. Total project cost, including physical and price contingencies but excluding interest during construction, is estimated at US$195.0 million, of which the foreign exchange component would be US$44.6 million. Interest and other charges during construction on the foreign exchange component are esti- mated at US$15.4 million. The proposed Bank loan of US$60.0 million would finance in full the foreign exchange component (US$44.6 million) and the interest and other charges during construction (US$15.4 million). Of the local cost (US$150.4 million), 73% (US$109.8 million) would be contributed from the State budget, 19% (US$28.6 million) would be advanced by the Bank for Agriculture and Food Industry (BAFI) to the CAPs, and 8% (US$12.0 million) would be provided by the CAPs. v. The Ministry of Agriculture and Food Industry (MAIA), through its various departments and trusts, would be responsible for planning, construc- tion and supervision of all project activities. Planning and design of proj- ect works would be carried out by the Institute for Land Reclamation Studies and Design (ISPIF), and construction by the Construction Trust for Land Reclamation Works (TCIF); both organizations are a part of the Ministry's Department of Land Reclamation and Agricultural Construction (DIFCA). The project works would be operated and maintained by the Ministry's Central for Operation of Land Reclamation Works (CELIF). All concerned agencies are com- petent to carry out the proposed works satisfactorily. Procurement of all goods financed directly under the proposed loan would be arranged following international competitive bidding in accordance with the Bank's Guidelines. Project implementation would start during 1976 and would be completed in five years by 1981; irrigation would commence on 16% of the area in 1979, and the whole area would be under irrigation in 1982. vi. The pipe distribution network and the on-farm irrigation equip- ment serving the CAPs would be financed through BAFI loans. The existing procedures for on-lending and interest rates have already been reviewed and accepted by the Bank for previous projects. Arrangements for the supply of other inputs as well as the marketing aspects of the project are satisfactory. vii. At full development in 1986 the volume of production would in- crease by 210%; the incremental crop production of various project commodi- ties would be: cereals 376,200 tons; sugar beet 267,100 tons, vegetables and potatoes 75,400 tons; soybean 27,900 tons, fruits and grapes 14,600 tons; alfalfa (hay) 84,300 tons; and silage maize and other fodders 491,700 tons. Net value of annual production would increase by 160% or by US$41.5 million. Most of the project output would, directly or indirectly, help to earn or save foreign exchange. The project's economic rate of return is estimated at 16.3%. The project would raise labor productivity by 250%. Because of the socio-economic system in Romania, the project would have little direct effect on the incomes of farm workers, but would help to increase their incomes indireclty through its impact on the growth and development of the economy.  - iii - viii. Agreements having been reached on the issues set forth in the report, the project is suitable for a Bank loan of US$60 million to the Bank for Agriculture and Food Industry (BAFI) under the guarantee of the Socialist Republic of Romania for a term of 15 years including 3 years of grace at 8.5% interest. BAFI is a State-owned fiscal agent responsible for channeling investment funds to the agricultural sector.   ROMANIA IALOMITA-CALMATUI IRRIGATION PROJECT I. INTRODUCTION 1.01 The Government of the Socialist Republic of Romania has requested the Bank's assistance in financing the Ialomita-Calmatui-Irrigation Project. The proposed project would increase and stabilize the agricultural production on a gross area of 148,500 ha, located about 120 km northeast of Bucharest (Map IBRD 12267), by providing irrigation and drainage facilities. Presently, 1,550 ha of this area is irrigated and 143,390 ha is under rainfed cultiva- tion. About 3,560 ha of saline and uncultivated land would be reclaimed under the project. The project area is held by 48 Agricultural Production Cooperatives (CAPs) having an active membership of about 41,200; and 5 State Agricultural Enterprises (IASs) which employ 16,800 workers. 1.02 Romania joined the Bank on December 15, 1972 and has received nine loans totalling US$460.0 million. Of these, the Giurgiu-Razmiresti Irrigation Project (US$70.0 million), the Sadova-Corabia Agricultural Credit Project (US$30.0 million), the agricultural component of the Flood Recovery Project (US$40.0 million out of two loans totalling US$60.0 million) and the Rasova- Vederoasa Irrigation and Agricultural Development Project (US$60.0 million) account for a total lending of US$200.0 million in the agricultural sector. The proposed loan would be the fifth in this sector, and third in the irriga- tion sub-sector. 1.03 The proposed project was identified by the Government, and a feasi- bility report was submitted to the Bank in January 1976. The project was appraised in April 1976 by a mission consisting of Messrs. S. Niaz (Chief), T. Haile-Mariam and H. von Pogrell (Bank), and R. Qureshi (Consultant); this report is based on their findings. II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR A. Country Background 2.01 Romania has an area of 237,500 km2 and a population of 21.3 million (mid 1975 estimate), which is increasing at an annual rate of about 1%. The rural population is estimated at 12 million (57%). GlCP per capita in 1975 is estimated at US$1,300. 2.02 The country is endowed with abundant supply of many natural resources such as sources of energy, good soils and exploitable irrigation water, but it also depends on imports of some key raw materials, particularly iron ore. Al- most all resources are either owned or controlled by the State. The State manages resource allocation and product distribution to achieve its social  and economic development objectives which are outlined for each 5-year period in a national plan and are detailed for each year in annual plans. 2.03 Romania's main long term economic objective is to achieve rapid growth through high rates of investment with emphasis on industrialization, and to raise the standard of living of its population through equitable distribution of a part of the gains from such growth. During the 1971-1975 plan period, national income grew at an average annual rate of 11.3% and industrial produc- tion at 13.1%. During the same period investment averaged about 34% of the national income, and real wages increased by about 20%. The volume of foreign trade increased at an annual rate of 18.4%, and industrial products accounted for 52.2% of exports in 1975. In the current 1976-1980 plan, industry would continue to receive priority in investment. National income and industrial output are projected to grow by about 11% per year through continued high domestic rates of savings and investment. A major constraint to the economy's growth, however, is and would be shortage of convertible foreign exchange, which is essential to obtain better technology for improving the quality of industrial production, and to import raw materials. B. The Agricultural Sector 2.04 The Setting. Agricultural land is estimated at about 14.9 million, ha of which 65% is arable, 30% is under pastures and the remaining 5% is occupied by orchards and vineyards. The soils are generally fertile and the climate suitable to grow a wide variety of crops, and to raise livestock and poultry. However, droughts and excessive rains are common, causing frequent fluctuations in production and constraining optimal utilization of agricultural resources. The country has abundant sources of exploitable irrigation water including the Danube River which is the major source for areas in the south and the southeast. About 5.3 million ha or 36% of the agricultural land is economically irrigable, of which about 1.5 million ha is currently irrigated. 2.05 Major crops are maize (32%), wheat and barley (30%), fodder (16%), potatoes and vegetables (7%), sunflower (6%), sugar beet (2%) and soybean (2%). In 1975, the livestock population amounted to about 29.3 million, of which cattle were about 6.1 million (20%), pigs about 8.8 million (30%), sheep and goats about 14.4 million (50%). Poultry population was around 78.6 million. 2.06 The agricultural labor force is estimated at about 3.8 million, most of which consists of either active members of CAPs or employees of IASs. A large number of the labor force consists of old members, most of whom are unskilled and therefore cannot be readily used outside of the agricultural sector. The young are actively sought by industry in accordance with na- tional priorities and have a tendency to migrate to urban areas to seek em- ployment. Consequently, the agricultural labor force has declined by about 40% since 1960 and is expected to continue to decline in the future. This shift of labor from the agricultural sector has to be compensated by stepping up the rate of mechanization of agriculture.  - 3 - 2.07 Currently, there is one tractor per 80 ha of arable land and one combine harvester per 220 ha. Fertilizer application is low, and crop yields amount to about 60% to 80% of the average yields for other East European countries. 2.08 Agricultural research, training and extension service programs are satisfactory. Farm workers are generally receptive to new crop and animal husbandry practices, and the well organized and coordinated institutions assist them to adapt new technology. 2.09 Agriculture in the Economy. The Agricultural sector accounted for about 15% of the national income, 23% of convertible foreign exchange earnings and employed 38% of the labor force in 1975. It is also a supplier of raw materials, investment resources and labor to other sectors; and it provides a large market for industrial outputs. Thus, the direct and indirect impact of agriculture on the economy is substantial, and the development of the indus- trial sector largely depends on a stable agricultural output growth and increases in productivity. 2.10 Annual investments in agriculture increased from Lei 10.3 billion (US$515 million) during the 1966-1970 plan period to Lei 15.4 billion (US$770 million) during 1971-1975. The sector's share of total investments about equalled its direct contribution to national income. Despite the increase in investments, however, annual growth rate of agricultural production was low, averaging about 3% during 1971-1975, and labor productivity remained at less than one-third that of industry. This was due mainly to unfavorable weather (low rainfall in 1973 and 1974, and floods in 1975), and partly a result of insufficient investments relative to the absorptive capacity of the sector. There is a need to increase investments in agriculture to help attain stable growth and development of the economy, and to raise productivity of farm labor. 2.11 Future Development. During the 1976-1980 plan period, agriculture's share of national income is projected to decline slightly, but compared to the 1971-1975 plan, annual average investment would increase by 42% to about Lei 21.9 billion (US$1.1 billion), about 75% of which would be allocated to CAPs and the remaining 25% to IASs. Investments in irrigation infrastructure and farm machinery would also rise; area under irrigation would increase by 73% from about 1.5 million ha to about 2.6 million ha. There would be one tractor for every 75 ha of arable land; fertilizer application rate would also in- crease substantially and yields of major crops are expected to rise by 30% to 40%. In accordance with the long-term national planning, the quantities of livestock would continue to increase at substantial rates and their quality would continue to be improved by crossbreeding with imported stock and selected local breeds. Total agricultural output is projected to grow by an annual rate of about 5.3%. The proposed project is an important component of Gov- ernment's plan to achieve these objectives.  2.12 Previous Agricultural Projects. The Bank is currently assisting in the development of the agricultural sector by lending US$200 million to help finance four agricultural projects; these will provide irrigation to about 165,000 ha, and will extend credits to a large number of farm entities for development of livestock and other agricultural facilities. Despite initial problems, all of the procurement under a 1975 Bank loan for the Giurgiu- Razmiresti Irrigation Project (Loan 1082-RO) has been contracted. About 60% of project construction has been completed more or less on schedule and with- out serious cost overruns. Progress on two other 1975 loans for the Sadova- Corabia Agricultural Credit Project (Loan 1083-RO) and Flood Recovery Project (Loan 1169-RO) is satisfactory. The fourth loan for the Rasova-Vederoasa Irrigation and Agricultural Development Project (Loan 1247-RO) was approved in April 1976, and it is too early to judge the progress of this project. III. THE PROJECT AREA AND NATIONAL INSTITUTIONS A. The Project Area 3.01 Location. Bounded by the Ialomita river in the south and the Calmatui river in the north, the project area is located in the districts of lalomita (58%) and Braila (41%), and is about 120 km northeast of Bucharest (Map IBRD 12267). The Danube river, which is the project's water source, flows only 5 to 10 km away from its eastern boundary. Braila (population 170,000), the biggest Romanian port on the Danube and an industrial center, is about 50 km north of the project area, and Slobozia (population 25,000) is at the southern project boundary. 3.02 Topography. In general, the project area is relatively flat but mildly undulating and lies above the Danube flood plain at an elevation varying from 20 m to 55 m. About 67% of the area lies between 30 m and 50 m. Ground slopes are generally less than 2%; larger slopes are found only in about 8,000 ha, where soil erosion is prominent. 3.03 Drainage. Three natural drainages serve the project area--Ialomita river in the south; Calmatui river in the north and northeast; and the Lata Sarata Valley in the middle (Map IBRD 12267). In general, the northern zone is well drained by the Calmatui river and the Lata Sarata Valley, and the southern zone by the Ialomita river and several large lakes. The central zone (north of Lata Sarata Valley) is a mosaic of areas sloping in different directions and abounds in closed depressions which have no direct outlet to any of the natural drainages. The drainage of this zone is, therefore, defec- tive and would require a number of works under the Project to effectively drain the area. 3.04 Population. Total population in the project area is estimated at 189,000, of which about 61,000 (30%) constitutes the active labor force.  - 5 - Labor employed in the agricultural sector is estimated at 58,000 (95% of active population), of which 41,200 are engaged on the CAPs and the remaining 16,800 are employed in the State farms. Over 50% of labor in the project farms consists of females. 3.05 Electricity and Water Supply. All villages in the project area are served with electricity, which is supplied from the national grid. Each vil- lage derives its water supply manually from a number of shallow open wells. 3.06 Communications. Two primary roads, linking Slobozia with Braila, and Buzau pass through the project area. Secondary roads connect project vil- lages with these primary roads; almost all villages are accessible by asphalt roads. The existing farm road network, which is mostly ungravelled, serves the agricultural needs of the project area adequately. The Bucharest- Constanta railway line is at the project area's southern boundary, while the Constanta-Braila line passes through the eastern half of the project area. B. Natural Resources 3.07 Climate. The climate is characterized by hot summers and cold winters, but is temperated by air movements from the Black Sea. Over 40 years (1931-1975) of climatic data are available at Grivita. Ten years (1965-1974) data indicates that the average monthly temperature in the growing season (April to October) varies from a maximum of 21.9oC in July to a minimum of 10.90C in October. Annual rainfall averages 550 mm, of which 380 mm (69%) falls during the cropping season. The minimum rainfall, how- ever, can be as low as 150 mm in the cropping season and droughts extending over 60 days were experienced in 7 years out of 41. First frost occurs in late October and the last in April. The wind velocity averages 2.7 m/sec in the season and is normally higher during the day than at night. Further details are in Annex 1. 3.08 Soils. Detailed surveys indicate that the soils consist of dark brown Chernozems which have developed over deposits of loess. They are very fertile, have a medium sandy loam texture, a uniform profile, low to moderate permeability and a good water retention capacity. These soils are rich in humus and contain 2% to 3% calcium carbonate. The loess deposits vary in depth from 3 to 20 m. About 48% of the area to be irrigated is categorized as Class I, 40% as Class II and 12% as Class III, mostly on account of its eroded nature and salt accumulation. 3.09 Water Resources. Both the Ialomita and the Calmatui rivers are small with maximum and minimum flows around 900 m3/sec and 3 m3/sec; and 90 m3/sec and I m3/sec respectively. Most of Ialomita supplies are used in its upper reaches for irrigation. Water in both these rivers is insuf- ficient in quantity for irrigating the project area, and is also polluted because of drainage effluents and industrial wastes discharging into these channels. Groundwater of low quality is mostly available throughout the project area at shallow depths (2 m to 10 m), but in quantities that would  -6- be inadequate to irrigate large areas. The only reliable source of irrigation water for the project area is the Danube river, from which water would have to be lifted for irrigating the project area. C. Land Tenure and Farm Organizations 3.10 The project area is either owned or controlled by the State. Of the gross area of 148,500 ha, about 120,500 ha (81%) is owned by 48 CAPs, and the remaining 28,000 ha (19%) belongs to 5 IASs. About 5,900 ha of CAP land is distributed among the eligible cooperative members as individual plots for their personal benefit in sizes that do not exceed 1,500 m2 per member. The land owned by a CAP, excluding the individual plots, varies from 1,500 ha to 6,000 ha with a median value of 2,400 ha, and the size of a State farm ranges from 3,000 ha to 14,000 ha. 3.11 The governing body of a CAP is its General Assembly whose member- ship consists of all working adults in the CAP. The Assembly elects the CAP's President, and is responsible for preparing its annual plans, ratifying all contracts and allocation of CAP's income, all in accordance with the general guidelines of the Ministry of Agriculture and Food Industry (MAIA). All ex- ecutive functions are performed by a Council. CAPs meet the labor requirement from their members and normally do not hire labor. Members are presently guaranteed a minimum remuneration of Lei 1,000 (US$50.00) per month, if planned production is achieved. A bonus is paid if the realized production exceeds the plan; only 80% of the remuneration due is paid if actual produc- tion falls below the planned target. The minimum salary is in line with the corresponding wage for comparable labor in other sectors of the economy. Based on 1973 and 1974 data, wages in the agricultural sector were about 95% of the national average. 3.12 The chief executive officer of an IAS is its Director, who is ap- pointed by the Ministry. He is assisted by a Chief Economist and the chiefs of the farms in the IAS. The governing body of an IAS consists of its top management, representatives of the unions and the Party and the elected re- presentatives of the workers. IASs employ all labor required, some of which is seasonal. Labor is paid in accordance with the national wage rates; un- skilled workers, for example, receive about Lei 1,200 (US$60.00) per month. Further details are given in Annex 2. D. Agricultural Production 3.13 Land Use. Of the net cultivable area of 142,740 ha, about 1,550 ha is presently irrigated from Ialomita river supplies, and 135,290 ha is under rainfed cultivation; the remaining 5,900 ha, which is the total area of in- dividual plots, is partly under rainfed cultivation and partly irrigated by  - 7 - groundwater. These plots will not be irrigated until agreement is reached between CAP members and Government on appropriate irrigation methods and financing of collective on-farm portable equipment and have not been in- cluded in evaluating project benefits. Without these plots, therefore, the project area under cultivation amounts to 136,840 ha. Presently the cropping intensity is 100%. Cereals (maize and wheat) occupy 61% of the area, while oilseeds (soybean and sunflower) are cultivated on 18%. Sugar beet (4%), potatoes (2%), grapes and fruit (2%), and fodder crops (13%) account for the remaining 21% (Annex 1, Table 2). 3.14 Production. Since a fair amount of technology is already available to the project area, present crop yields are considered reasonable for rain- fed cultivation. Due to wide variations in rainfall, however, the yields are subjected to substantial yearly fluctuations and in some years, due to long drought periods, there may be a complete failure of some crops. Without irrigation, this erratic pattern of crop yields is likely to continue. Based on five representative years, the average yields of major crops are as follows: maize 3.5 tons/ha, sugar beet 28 tons/ha and sunflower 1.6 tons/ha. These yields and the corresponding total production are summarized in Annex 1, Table 2. E. Farm Inputs 3.15 Seeds, Fertilizer and Pesticides. Improved seeds are multiplied on research stations and selected State and cooperative farms. Seed produc- tion, processing, testing, quality control and distribution is entrusted to special organizations (SEMROM, AGROSEM, etc.). Seeds of high quality are produced in large quantities; substantial quantities are also exported. In Romania, fertilizer production of ammonium nitrate and superphosphate is es- timated to exceed 5 million tons per year, but about 350,000 tons of potash is imported. The average fertilizer application rate in the project area is about 85 kg/ha (active substance). Currently, State farms receive higher allocation of fertilizers as compared to CAPs, but this disparity does not exist if lands are irrigated. Government allocates optimum quantities for irrigated farm lands before allocating any quantity to rainfed areas. Plant protection measures are usually adequate and timely. Most plant protection chemicals are produced within the country; the present production amounts to over 250,000 tons. 3.16 Farm Machinery. CAPs in the project area are served by the Braila and lalomita Agricultural Mechanization Enterprises (AMEs), and their six Stations for Agricultural Machinery (SAMs). The State farms own, operate and maintain the equipment required by them. As an average, there is one tractor to every 80 ha in the project area. Land preparation is completely mechan- ized, while seeding, fertilizing, spraying of pesticides and harvesting operations are mechanized to a considerable degree on the State farms and to a lesser degree on the CAPs. Maize, wheat, oilseeds and fodder harvesting,  - 8 - for example, is almost fully mechanized on IASs, while this operation is mechanized to an extent of about 80% on the CAPs. About 10% to 15% tractors need replacement annually and additional tractors will be required to in- tensify cultivation following introduction of irrigation. F. Agricultural Research and Extension 3.17 Agricultural Research. The Academy of Agriculture and Forestry Sciences coordinates all agricultural research in Romania, which is carried out in 13 institutes, 6 central stations and 41 research stations. These facilities, which are well distributed throughout the country's ecological zones, are staffed by about 1,600 scientists and cover about 80,000 ha. Two research stations, Braila and Marculesti, are located close to the project area, and are carrying out research in the applied aspects of irrigated agriculture. Emphasis is being laid on varietal improvements and water use. 3.18 Agricultural Extension. Extension services are provided by the General Directorate of Agriculture in each district. Such services are being provided in the project area by the Directorates of lalomita and Braila, which are staffed by specialists in crop production. In addition, each CAP or IAS has its own specialists, who are furnished by the General Directorate of Agriculture for CAPs and the Department of State Agriculture for IASs. Thus the extension staff has a direct say in improvement of cultural practices and application of technology instead of an advisory role. Instruction manuals that are prepared and periodically updated by specialist staff are made avail- able to each farm. Thus the research findings rapidly pass into practice and the supervisory staff of each CAP and IAS adequately monitor their applica- tion. Training to field staff is provided at the General Directorate through short and medium term courses, mostly during the winter months. Further details are in Annex 1. G. Investment Financing 3.19 Investments in projects, which specifically benefit the IASs, are financed generally from the State budget and from compulsory savings of such entities. The major sources of financing investments in CAPs are loans from the Bank for Agriculture and Food Industry (BAFI), and savings of the coopera- tives. Financing of investments in State enterprises under BAFI loans is relatively small but is expected to increase in future. Investments in those components of large-scale irrigation works, however, which serve both the IAS and CAP lands are financed through the State budget; such funds are channelled through BAFI. Short-term credit for production, and credits for marketing and processing of agricultural products are also extended by BAFI to suitable cooperatives.  - 9 - 3.20 BAFI was founded in 1968 for channelling funds exclusively for the agricultural sector. It has six specialized departments, three of which administer the financing of production, marketing and processing of agri- cultural products. The other three are responsible for planning, financial control and general administration. BAFI operates through 39 branches, with one branch in each district, and 100 sub-branches. The project area is served by two district branches (lalomita and Braila) and three sub-branches (two in Ialomita and one in Braila). 3.21 BAFI obtains funds for its operations from the State budget, depo- sits by various State enterprises and cooperatives, borrowings from the National Bank of Romania, foreign loans and its own statutory capital of Lei 800 million (US$40 million). For large-scale investments financed by Govern- ment, BAFI obtains funds from the State budget at no interest. Deposit funds with BAFI bear an interest of 1-1/2%. BAFI borrows from the National Bank at 1% per year. BAFI extends long-term loans at interest rates of 3% to 4% per annum and short-term production loans at 4%. These interest rates are positive because of near zero rate of inflation in Romania. BAFI loans for permanent irrigation and drainage facilities and erosion control works are repaid within 25 years including 5 years of grace, and loans for portable irrigation equipment are repaid in 8 years including 3 years of grace. The terms and conditions of BAFI loans are flexible to avoid excessive financial burden on the borrowing entities. A part of BAFI's net profits are returned to the State budget. 3.22 Normally, about 70% of the on-farm investments in CAPs are financed through BAEI loans, but in special cases, up to 95% of such investments may be financed by BAFI; CAPs are required to contribute the balance. CAPs and LASs are required to retain a part of their net annual incomes for financing production expenses in the next cropping season. If CAPs need additional funds as a result of the project, BAFI has well coordinated plans and ade- quate resources to provide them with necessary short-term credit for financing production, marketing and processing. H. Marketing 3.23 Agricultural produce in Romania is marketed by 13 State controlled and operated Centrals, each of which deals in specific commodities like cereals, vegetables and fruits, sugar, etc. In each locality, a few private markets are operated by peasants for selling the produce from their individual plots. Such markets handle only a small volume of produce for local consumption. 3.24 Each marketing Central is represented in the country's 39 districts by a marketing enterprise, which is the Central's executing agency. Each enterprise has several collecting centers which are suitably located through- out the district. All enterprises and their collecting centers are well equipped to efficiently collect, handle and distribute various commodities  - 10 - without excessive losses. Prices play little or no role in allocating pro- ducts among various domestic markets. The marketing enterprises, however, do have adequate incentive in terms of profit margins to promote efficient distribution. 3.25 The project output would be marketed by four Centrals through their enterprises and their sub-units. As all production plans are closely coordinated with produce use and its distribution, adequate measures have already been planned for handling anticipated incremental output. Storage, processing and transport facilities would be improved and expanded. Further details are in Annex 3. IV. THE PROJECT A. Objectives 4.01 The main objectives of the project are to increase and stabilize crop production in a gross area of 148,500 ha by providing irrigation and drainage facilities; and to raise labor productivity. B. Description 4.02 The project would consist of (a) irrigation works to serve an area of 148,500 ha; (b) works necessary to provide efficient drainage in the proj- ect area; (c) miscellaneous works like land leveling and soil erosion control, etc.; and (d) farm machinery required to intensify agricultural production and equipment for operation and maintenance of project works. Detailed features of works included in the project are described in Section C below; further details are given in Annex 4. The irrigation and drainage systems are illustrated in Map IBRD 12267. MAIA would be responsible for implementing the project works, which would be completed by December 1981. C. Detailed Features Irrigation Works 4.03 Main Pumping Stations., A floating pumping station (SPA) at about Km 221 of the Danube river would lift 110.0 m3/sec over about 10.7 m into a concrete lined main canal. This station would consist of six barges, each equipped with six pumps of 3.05 m3/sec capacity. A total of seven fixed pumping stations (SRPA I to SRPA VII) on the canal network would lift irriga- tion supplies over required heights at locations indicated on Map IBRD 12267; three of these stations (SRPA I, SRPA III, SRPA IV) would be on the main  - 11 - canal, while the other four would be on distributaries. The total installed power capacity of all main stations would be 96,500 kw. Data of pumping stations is at Annex 4, Table 1. 4.04 The Canal System. The main canal would be about 38 km long and would have three reaches: the first (6.5 km) would have a capacity of 110.0 m3/sec; the capacity in the middle reach (23.0 km) would vary from 109.4 m3/sec at head to 23.7 m3/sec upstream of SRPA III; and the last reach (8.5 km) would have a capacity varying from 23.7 m3/sec to 13.8 m3/sec (canal data in Annex 4, Table 2). At some future date, a navigable canal from the Siret river (about 90 km north) would join the tail end of the main canal, to extend navigation up to the Danube. All works, which would be necessary to make the main canal navigable, would be provided later on as a part of the navigation project, which is in the 1981-1985 plan. 4.05 Six main distributaries would serve the project area; one of these would be fed from the main canal by a pumping station (SRPA II). Other dis- tributaries would serve their areas by gravity except for D3, which would have three pumping stations (SRPA V, SRPA VI and SRPA VII) to lift supplies to command the higher parts of the project area in the south and southwest. All distributaries would be concrete-lined. 4.06 Canal supplies would be regulated at suitable points by gates that are automated either hydraulically or electrically. In addition to the regu- lators, structures on the canal nework consist of highway and railway bridges, drops, siphons and escape weirs. The canal network and the pumping stations are designed to operate 24 hours per day in accordance with the maximum irrigation requirement of 110.0 m3/sec. Some of the canals would traverse zones that are made up of loessial soils liable to settle on wetting. In such areas, canals would be lined only after they had operated for at least one working season with partial supplies to avoid canal breakage. A detailed analysis carried out by a Bank consultant indicates that with this solution no serious problems are expected for the stability of canals in loess soils. 4.07 Pipe Distribution Networks. The project area (146,300 ha net) would be divided into 115 large sectors (140,590 ha) and 18 small sectors (5,710 ha). The large sectors vary in size from 520 ha to 2,075 ha; each - would be served by a pressure pumping station and an independent buried pipe distribution network. The smaller sectors, each below 500 ha, would be sup- plied with water by mobile pressure pumps. The length of large sectors is standardized at 3,672 m to facilitate mechanical movement of laterals, while their width would vary with size. The distribution pipes would be of either precast reinforced concrete (500 mm diameter or over) or asbestos cement. Total length of the distribution pipeline is estimated at about 2,760 km. 4.08 Pressure Pumping Stations. Of 115 stations, 82 would command 103,840 ha for sprinklers, and 33 would pressurize water for 36,750 ha to be irrigated by furrow. Each of these stations would contain three to eight pumping units depending on the area served. The capacity of each unit would vary from 50 1/sec to 500 1/sec. The total installed capacity at the 115 pressure pumping stations would be 121,000 kw (Annex 4, Table 1).  - 12 - 4.09 Sprinkler Irrigation. About 103,650 ha (74%) would be equipped and irrigated by sprinklers (5,710 ha in smaller units and 97,940 ha in large sectors). Sprinkler irrigation would be extended to the remaining 5,900 ha, when necessary arrangements have been completed (para 3.13). MIost of this area has ground slopes smaller than 3%, but has to be irrigated by sprinklers because of poorly draining soils with low permeability. The large sectors would be served by distribution pipes laid 612 m apart, with hydrants pro- vided at a spacing of 72 m. Each hydrant would serve six lateral positions, 24 m apart, but only two could receive water simultaneously. Sprinklers, spaced at 18 m intervals along the 10 cm portable laterals, would serve an area of 18 m x 24 m at a minimum pressure of 3.0 atmospheres. 4.10 Furrow Irrigation. About 36,750 ha (26%) mostly in the southern and southeastern parts of the project area and with soils of good permeabil- ity would be irrigated by furrows. Each of the 33 sectors would be served by a low pressure pumping station and a disribution network, similar to that for the sprinkler system, but with hydrants spaced at 216 m instead of 72 m. Each hydrant would feed a set of furrows through a portable butyl pipe pro- vided with outlets at furrow spacings. Working pressure at the outlets would be about 0.35 atmosphere and each outlet would be designed to deliver up to 3.5 I/sec. 4.11 Power Supply Works. The total installed capacity of all pumping stations, including pressure stations, would amount to about 217,500 kw. About 240 km of 20 kv and 110 kv power lines would be constructed, as a part of the project works, to supply power to all pumping stations. In addition, transformers of required capacities would also be installed at the pumping stations. Drainage WJorks 4.12 Surface Drainage Networks. The surface drainage networks to be con- structed under the project would serve about 82,350 ha, lying to the north of the Lata Sarata Valley (Map IBRD 12267). Area to the south of the Valley is served by drainage works that are either existing or are under construction as parts of different schemes. Of the 82,350 ha, 25,810 ha would be drained into the Calmatui river by the construction of eight surface drainage networks; the remaining 56,540 ha would be served by nine networks that would outfall into the Lata Sarata Valley. These networks would be designed to remove in 5 days the runoff resulting from a 24-hour storm precipitation of 65 mm (prob- ability of 1 in 20 years). The average specific discharge would be 0.48 1/ sec/ha. Drainage networks would consist of main and secondary drains, with a total length of about 311 km. About 180 structures, mostly bridges, siphons and culverts would be constructed on these drains. 4.13 Pumping Stations. Twenty three pumping stations, mostly with capac- ities smaller than 1.0 m3/sec, would be constructed at various locations on the drainage networks to lift effluent from local depressions into drains, and from smaller drains into the larger drains. The largest station (SPE 2) with a capacity of 17.5 m3/sec would pump the drainage water, collected by  - 13 - the Lata Sarata Valley (and regulated in Lake Strachina) into the Ialomita river. Details of the drainage pumping stations are given in Annex 4, Table 4. Total installed capacity at these stations would be about 6,000 kw. 4.14 Tile Drainage Networks. Because of the undulating nature of the project area and closed drainage (that exists around depressions and lakes), groundwater is high in some isolated areas and would have to be lowered by constructing subsurface drainage facilities, as surface drains would be generally ineffective. Such areas (indicated on Map IBRD 12267) total to 14,400 ha, about 2,650 ha of which is highly saline and presently unproduc- tive and would be reclaimed (para. 4.16) under the project. 4.15 The subsurface drainage works would consist of independent tile drainage networks; each would serve an isolated subarea. A network would consist of a set of burnt clay tile drains that would generally outfall into surface drains; some would discharge into collector pipes that would convey the effluent into the surface drains. Drains would be 7 cm to 10 cm in dia- meter and would be spaced 15 m to 25 m apart. Length of a lateral drain would not exceed 200 m. 4.16 Reclamation of Saline Lands. About 2,650 ha, which is presently saline, would be reclaimed by leaching operations and gypsum treatment. The annual leaching requirement is estimated at 10,000 m3/ha, which would be ap- plied in 10 to 12 doses. Gypsum treatment would be at the rate of 2 tons/ha. The affected area would be completely reclaimed in about 8 years. 4.17 Drainage of Shallow Depressions. The project area contains about 400 shallow depressions, with areas varying from 20 ha to 5 ha, and a total area of about 2,500 ha. Most of these depressions get flooded by heavy rain- fall. Some of these have steep side slopes. The project would provide drain- age measures for such depressions, which would consist of permanent (para. 4.13) and temporary pumping arrangements and earthwork excavations necessary to permit efficient drainage of the area. Miscellaneous Works 4.18 Land Levelling and Slope Correction Works. About 40,000 ha, con- sisting mainly of the area to be irrigated by furrows, would be levelled to slopes not exceeding 8 per 1,000. This would involve an average excava- tion of 460 m3/ha. In the area to be irrigated by sprinklers, ground slopes steeper than 3% are found in about 8,000 ha; such slopes would be flattened to reduce possibilities of erosion. This excavation would average about 100 m3/ha. 4.19 Soil Erosion Control Works. Of about 44,700 ha affected, erosion is caused by wind action in about 38,600 ha and by water in 6,100 ha. In the former, which is mostly in the sandy areas in north and east, shelter belts consisting of two rows of poplar and cherry trees would be planted. Area subjected to water erosion would be protected in a variety of ways, which would consist of providing crop and grass cover, tree plantation, construc- tion of catch water drains and excavating flat berms to stabilize steep slopes.  - 14 - 4.20 Other Works. Other works under the category of miscellaneous works would consist of relocation of village roads and adjustment of forest bounda- ries to permit the formation of standard rectangular sectors for irrigation (para. 4.07). About 400 observation wells to monitor groundwater movement, and buildings and facilities for operation and maintenance of the project works would be provided. Equipment 4.21 Farm Machinery. About 1,000 65-hp tractors, 45 45-hp tractors, and some harvesting and transportation equipment (Annex 7, Table 2) would be provided under the project. About one-half of this equipment would be needed to cultivate, harvest and transport the increased production follow- ing introduction of irrigation under the project and the other half would replace the worn out machines over the next three years. 4.22 Operation and Maintenance Equipment. The equipment, listed at Annex 7, Table 2, is considered necessary for the efficient operation and maintenance of the project works, and would be provided as a part of the project. D. Water Requirement and Availability - 4.23 Water Requirement. After allowing for average effective precipita- tion, net water requirements for crops in the project area were estimated at 3,804 m3/ha. The highest monthly net demand of 1,160 m3/ha would occur in July. Based on the proposed irrigation methods of sprinkler (74% of area) and furrow (26%), the overall system efficiency has been computed as 65%. Gross water requirement, at the Danube River, would be 5,852 m3/ha, which would amount to a total demand of 903 Mm3 during the cropping season. About 275 Mm3 (30%) would be the July requirement, which would correspond to a maximum flow of about 103 m3/sec. Further details are in Annex 5. Allowing for flexibility of operation, leaching requirements for the saline land to be reclaimed under the project, and a provision for extension of irrigation to the individual plots (para. 3.13) within the project area, the headworks for the irrigation system are designed for a maximum flow of 110 m3/sec. 4.24 Water Availability and Quality. The source of water for the proj- ect is the Danube river, which carries high flows during the irrigation sea- son. In this period, the minimum river flows vary from 5,000 m3/sec to 3,000 m3/sec (Chart 15360(R)). Diversions for the project would be the highest in July, when the Danube flows are seldom less than 5,000 m3/sec. The project, therefore, would have an assured supply of water. The Danube water, at the site of the floating pumping station, is potable and is classified as belong- ing to C2S1 category, which is a good quality irrigation water.  - 15 - 4.25 Water Rights. There is no international agreement among the Danube river riparian states for the use of its water for irrigation but a conven- tion exists for development of the river for mutual benefits, and for protec- tion of navigation and water quality. The International Water Commission for the Danube river, of which Romania is a member, is mainly concerned with schemes which may interfere with navigation and water quality. The maximum diversion for the project, in July, would amount to about 2% of the minimum river flow in that month. The Government has confirmed that diversions for the project would not reduce the Danube flow below the agreed minimum to sustain international navigation. There is no reason to expect that the project would raise issues on the use of Danube waters, and no agreement of other riparians would be required. E. Status of Engineering 4.26 Various alternatives were studied by the Institute for Land Reclama- tion Studies and Design (ISPIF) for the project's main works; these included alternatives with a fixed pumping station at the Danube, alternative sites for the fixed or the floating pumping station, having two pumping stations at different locations on the Danube instead of one and corresponding main canal alignments. The chosen system is the least cost alternative at any, discount rate. ISPIF has already completed detailed designs and major drawings of all works; construction drawings would be prepared about six months ahead of the construction program. F. Cost Estimates 4.27 The total project cost, including physical and price contingencies but excluding interest during construction, is estimated at Lei 3,900 million (US$195.0 million). This estimate is net of taxes and is based on December 1976 prices. The foreign exchange component, which includes both direct (US$6.5 million) and indirect (US$38.1 million) foreign costs, is estimated at US$44.6 million or 23% of total cost. The cost estimates are based on unit rates of work that are prevalent in Romania under the system of regulated prices of materials and wages. Because detailed engineering has already been carried out, physical contingencies have been provided at 7-1/2% of irrigation and drainage works and at 5% of other minor items. Price contingencies on foreign exchange cost are compounded at annual increases of 8% in 1977 to 1979, and 7% after 1979. Due to near zero inflation in Romania, price contin- gencies on local costs are provided at 1% per annum. Interest and other charges during construction on the foreign exchange component are estimated at US$15.4 million. Project's cost estimate is summarized in the table below; details are in Annex 6, Table 1.  - 16 - Item Estimated Cost Estimated Cost Foreign Local Foreign Total Local Foreign Total as % -----(Lei million) ----- -----(US$ million)--- of Total Irrigation Works 1,794.0 566.0 2,360.0 89.7 28.3 118.0 24 Drainage Works 338.0 56.0 394.0 16.9 2.8 19.7 14 Miscellaneous Works 254.0 36.0 290.0 12.7 1.8 14.5 12 Land Compensation 20.0 - 20.0 1.0 - 1.0 - Equipment 116.0 60.0 176.0 5.8 3.0 8.8 34 Engineering and Administration 240.0 - 240.0 12.0 - 12.0 - Base Cost 2,762.0 718.0 3,480.0 138.1 35.9 174.0 21 Physical Contin- gencies 190.0 50.0 240.0 9.5 2.5 12.0 21 Price Contingencies 56.0 124.0 180.0 2.8 6.2 9.0 69 Total Project Cost 3,008.0 892.0 3,900.0 150.4 44.6 195.0 23 Interest and Other Charges during Construction on Foreign Exchange Component - 308.0 308.0 - 15.4 15.4 100 Total Financing Requirements 3,008.0 1,200.0 4,208.0 150.4 60.0 210.4 29 G. Financing 4.28 The proposed Bank loan of US$60.0 million would finance in full (a) the estimated foreign exchange component of the project cost, amounting to US$44.6 million (23% of total cost); and (b) the estimated interest and other charges during construction on the foreign exchange component, amount- ing to US$15.4 million. The project's local cost, which is equivalent to US$150.4 million would be met by the State budget (73%), BAFI loans to farm entities (19%) and contributions of CAPs (8%). The useful lives of the com- ponents of the project vary widely. Irrigation will start in 1979 and full project benefits would accrue seven years thereafter. Normal practice in Romania is to amortize irrigation projects within 25 years, and in particular, BAFI loans to CAPs for investments in major irrigation and drainage works are for terms of 25 years including 5 years of grace. However, in accordance with current Bank policy, the proposed Bank loan would be made on standard terms for Romania, i.e. 15 years including 3 years grace.  - 17 - H. Implementation Schedule 4.29 The project works would be constructed in six years (1976 to 1981) in accordance with the schedule in Chart 16193. Leaching operations and chemical treatment of saline soils, however, would continue up to 1984. Ir- rigation would commence in 1979 on 16% area (22,700 ha) and would cover 51% area (71,900 ha) in 1980, 76% (106,800 ha) in 1981 and full in 1982. An estimated schedule of expenditure for the construction period is given in Annex 6, Table 2, and is summarized below: Calendar Year 1976 1977 1978 1979 1980 1981 Annual Estimated Expenditure (US$ million) 2.5 39.1 58.4 41.9 36.9 16.2 Cumulative Expenditure (US$ million) 2.5 41.6 100.0 141.9 178.8 195.0 I. Procurement 4.30 Although Romanian laws provide for international competitive bid- ding and for joint ventures involving foreign and domestic enterprises, in practice all irrigation works are constructed by Romanian Construction Trusts, which are experienced and familiar with local conditions, methods and regula- tions. Therefore, only procurement of equipment and materials equivalent in cost to the estimated foreign exchange cost of the project would be financed under the proposed loan. It was agreed during negotiations that items costing US$45 million including contingencies (Annex 7, Table 1) would be procured following international advertising and competitive bidding in accordance with the "Guidelines for Procurement under World Bank Loans and IDA Credits - August 1975". Romanian manufacturers would be allowed a preference of 15% or the applicable custom duty, whichever is lower, but the application of the preference has not affected so far, and is not expected to significantly affect, the outcome of bidding. It is expected that foreign suppliers would win contracts for most of the construction equipment (canal trimming and lining machines, tile laying machines, dewatering equipment and some motor scrapers) estimated to cost about US$6.5 million. Other items to be procured through international competitive bidding (US$38.5 million) are available domestically and, based on experience with previous Bank-financed projects, it is expected that Romanian manufacturers would be successful in bidding for these items. The remaining equipment and materials (Annex 7, Table 2) estimated to cost US$41.3 million would be procured under Romanian procedures and would not be eligible for disbursement under the proposed Bank loan.  - 18 - J. Disbursements 4.31 The proposed Bank loan of US$60.0 million would be disbursed, net of taxes, over five years as follows: (a) Equipment, materials and - 100% of foreign expenditures spare parts (US$44.6 million) and 100% of local expenditures ex-factory. (b) Interest and other charges - Amounts due. accrued on or before December 14, 1981 (US$15.4 million) An estimated schedule of disbursements is at Annex 8. Disbursements under the Bank loan would be made against standard documentation. Savings, if any, could be used to finance additional items for the project provided these were found justified by the Bank and were procured in accordance with the Bank's Guidelines; otherwise the savings would be cancelled. No provision has been made under the Bank loan for an unallocated category. K. Environment and Health 4.32 The project area is free of endemic diseases like malaria and bilharzia. The project would neither adversely affect the environment nor the public health. Construction of irrigation works, which consist of canals with fluctuating supplies and piped distribution network, would not promote mosquito breeding or spread of malaria. Some of the lakes in the southern part of the project area have therapeutical qualities; none of the project's drains would outfall into these lakes. The project would not have adverse effects on the quality of the Danube waters. V. PROJECT IMPLEMENTATION A. Organization and Management The Borrower 5.01 The Bank for Agriculture and Food Industry (BAFI) would be the borrower under the guarantee of the Socialist Republic of Romania. BAFI has the prime responsibility for the development of the agricultural sector. In addition to functioning as the only source of credit for the agricultural  - 19 - sector, it also acts as a fiscal agent to the Government in respect of channeling State funds for investments and for collection of revenues due to the State. Its other duties include financial control and supervision over projects that are financed either by the State or BAFI. To discharge its responsibilities effectively, BAFI already has adequate legal, financial and administrative powers. 5.02 The chief executive officer of BAFI is its President, who is appointed by a State Decree. He is assisted by a Senior Vice-President and a Vice-President. BAFI's Board of Directors consists of the President, the two Vice-Presidents, and representatives of various departments of this bank, certain ministries, and of other related organizations. BAFI has six depart- ments, of which three are operational and the other three deal with planning, accounting and administration activities; it has 39 branches--one branch in each district, and 100 sub-branches. 5.03 BAFI has a statutory capital of Lei 800 million (US$40 million) and a reserve fund representing accumulations of net profits of Lei 800 million (US$40 million). Its other sources of funds are the State budget, short-term borrowings from the National Bank of Romania and deposits from socialist organizations. BAFI would meet the project expenditures from a special project account, which would receive funds from the annual State budgets and through disbursements from the proposed Bank loan., BAFI is in good financial condition. Because of its strict policies and procedures governing recoveries of loans from its borrowers and their deposit accounts, and rigid control and inspection of operations at the project level and disbursements, there are no reported losses due to bad debts. Implementing Agencies 5.04 The Ministry of Agriculture and Food Industry (MAIA). The overall responsibility for planning, construction, operation and maintenance of all project works, except works relating to power supply, would rest with MAIA. The Ministry of Electrical Energy would have the responsibility for power supply works. The general organization of MAIA is illustrated in Chart 16194, and its departments responsible for project implementation are described below. 5.05 Department of Land Reclamation and Agricultural Construction (DIFCA). The responsibility for planning, design and construction of irrigation works would rest with DIFCA, which is headed by a Deputy Minister and is organized in four directorates of (i) Construction and Local Development; (ii) Technical, Investment and Cooperation; (iii) Planning and Finance; and (iv) Supply. The planning and design of the project works are being carried out by ISPIF, which is under the Technical, Investment and Cooperation directorate. Project con- struction would be undertaken by the Braila regional branch of the Construction Trust for Land Reclamation Works (TCIF), which is under the Construction and Local Development directorate. Project construction would be supervised by the Group for Supervising of Investment (GSI), which is also under the Technical, Investment and Cooperation directorate. All the above units of  - 20 - DIFCA are adequately staffed and, after having successfully completed similar irrigation projects serving nearly 1.5 million hectares, have the required experience to carry out the project works satisfactorily. B. Operation and Maintenance 5.06 The irrigation and drainage works, to be constructed under the project, would be operated and maintained under the direction of Central for Exploitation of Land Reclamation Works (CELIF) which is headed by a Deputy Minister of MAIA and has the responsibility for operation and main- tenance of all completed irrigation projects. CELIF has 17 operational units, called enterprises or IELIFs, which are based in districts. Each IELIF has several sub-units, known as Systems; each System maintains about 20,000 ha to 25,000 ha of irrigated land. Typical organization of an IELIF is at Chart 16192. 5.07 The project's irrigation and drainage works would be operated and maintained by two existing enterprises--the Braila IELIF and the lalomita IELIF. The former, which is already maintaining the Braila Terrace (72,000 ha) and the Viziru Terrace (35,000 ha) irrigation schemes, would be respons- ible for the project works north of the Lata Sarata Valley (about 100,400 ha). The latter, which is presently maintaining the Calarasi scheme (84,000 ha), would operate and maintain the project works south of the Valley. Coordina- tion between the two IELIFs is assured by the directorate in Bucharest. The new IELIF Systems responsible for maintaining the project works would be adequately staffed by technicians and supervisors who have either worked in other units before or have been trained for this purpose. 5.08 The power supply works would be maintained by the Ministry of Energy. The on-farm portable equipment would be maintained by the farm entities and the farm machinery would be maintained either by the AMEs or the IASs. 5.09 The annual operation and maintenance costs of the irrigation and drainage works is estimated at Lei 198.0 million (US$9.9 million). Details are given in Annex 7, Table 3. The annual consumption of electric energy is estimated at 240 million kwh which, at Lei 0.33 per kwh, would cost about Lei 79.2 million (US$3.96 million). The country's generating stations and the national grid have the capacity to supply the above requirement of elec- tric energy. C. Supporting Agricultural Services 5.10 MAIA has a General Directorate of Agriculture in each district; agriculture in the project area would therefore be supervised by two Direc- torates at Braila and Slobozia. The General Directorates plan and supervise  - 21 - agricultural programs including input supplies in cooperation with CAPs and IASs. Extension effort is furnished by these directorates through their specialist staff who advise the resident specialists at each farm whenever required. The two General Directorates are each equipped with a soil labora- tory, where soil samples are analyzed and fertilizer requirements are speci- fied. These Directorates are also the main centers to provide training to the technical staff of the farm entities in these districts. Short-term courses are offered during the cropping season, while long-term courses are arranged during the winter months. Adequate arrangements exist for distri- bution of seed and fertilizers. The existing AMEs and SAMs in the project area, as well as the mechanization units of the IASs, are well organized and equipped with maintenance workshops. These would be able to maintain the farm machinery furnished under the project adequately. D. Recovery of Project Costs 5.11 All investments in the project, except for the cost of portable on-farm irrigation equipment and distribution pipelines chargeable to CAPs, would be financed through the State budget. The cost of distribution pipe and portable equipment serving CAP lands is estimated at about Lei 780 mil- lion (US$39.0 million) excluding price contingencies. This would be financed through BAFI loans (70%) and CAPs' savings (30%). The BAFI loans would be recovered according to the terms of these loans, which are satisfactory (paras. 3.21, 3.22). Of the remaining investments, cost of farm machinery would be recovered fully through unit rates charged by AMEs for mechaniza- tion services; the cost of all other items, together with the operation and maintenance costs, would be recovered from the CAPs and IASs through direct and various indirect mechanisms. 5.12 According to the existing procedures, the only direct recovery is through a nominal water charge, which amounts to about Lei 220 (US$11.00) per ha. This would yield a total revenue of about Lei 33.9 million (US$1.7 mil- lion) per year. The present value of these annual revenues, over an assumed project life of 40 years discounted at 10% and in constant 1976 prices, is estimated at about Lei 230.0 million (US$11.5 million). This would recover about 17% of the operation and maintenance costs only, and would result in a Cost Recovery Index of about 6%. The scale of water charges and other details are in Annex 9. 5.13 The Government would mainly recover project costs from the benefi- ciary farms indirectly through (a) IASs' contribution to a Depreciation Fund kept by BAFI (Annex 2); (b) annual profits made by IASs on their operations, a part of which is credited to the State Treasury (Annex 2); (c) profits made by the State by buying tradeable commodities at administered low domestic prices and exporting them at much higher world prices; (d) net returns to the State from investments of CAPs' Development Fund; and (e) general link- age benefits to the economy as a result of the increased and stable output from the project. Although it is difficult to quantify these indirect reve- nues accurately, it is expected that these would enable recovery of all of the project investments financed by the State.  - 22 - 5.14 The nominal water charge would not result in a wasteful use of irrigation water because the volume and timing of irrigation water applica- tion is controlled by a Government agency (IELIF) in accordance with the recommendations of the research institutes and in consultation with other concerned agencies. Because of the socio-economic system in Romania, water charge has little or no direct resource allocative or income distributive effect. Since the project is not likely to increase the remuneration of the CAP members and the wages of employees in the IASs (para. 6.12), and prices of all inputs and outputs are fixed and have not changed in the last decade significantly, any increase in water charge is neither essential nor recom- mended. E. Accounts and Audit 5.15 The existing accounting and auditing procedures in Romania are quite strict and satisfactory. BAFI's accounts are subject to a continuous audit by independent internal inspectors, and an annual audit by inspectors from the Ministry of Finance and the Court of Superior Control. The Court, which re- ports directly to the President of the country, conducts an independent audit of BAFI's accounts and of results of audits by inspectors from the Ministry of Finance. Details are in Annex 10. 5.16 BAFI will keep separate accounts for all project expenditures in- cluding those related to goods and services financed out of the proceeds of the proposed Bank loan. These accounts will be audited according to the existing procedures. During negotiations, assurances were obtained that a report on project accounts, audited by the Ministry of Finance, would be sub- mitted to the Bank annually within five months of the close of the Romanian fiscal year. F. Monitoring 5.17 In order to measure project implementation against the proposed schedule and project performance, following completion of construction, against project benefits foreseen during appraisal, BAFI would submit neces- sary information through periodic reports to the Bank. This would include data on progress of construction of all physical facilities under various project components, progress in the procurement of equipment and materials and data on project expenditures. Information on area brought under irriga- tion, cropping pattern followed, crop yield and output, and relevant data on operation and maintenance cost of irrigation and drainage works would be submitted annually. During negotiations, it was agreed that details of the above-stated information would be furnished to the Bank.  - 23 - VI. BENEFITS AND JUSTIFICATION A. Production 6.01 Although permanent irrigation and drainage facilities to be con- structed under the project would command a net area of 146,300 ha (148,500 ha gross), portable on-farm equipment in the project cost estimate would serve only 140,400 ha net (142,650 ha gross), and on-farm equipment for the remaining 5,900 ha, which is the aggregate area of individual plots, has not been included in the cost estimate (para 3.13). For this reason, as well as the wide variety of cropping patterns used by CAP members, production from the area under individual farming (5,900 ha or 4% of project area) has not been included in the economic evaluation. 6.02 Without the project, cropping pattern, yields and outputs are expected to remain the same as at present because of advanced rainfed tech- nology. With the completion of project works, area available for agricultural operations would increase by 3,560 ha (3%) to 140,400 ha due to reclamation of previously unproductive lands. Following introduction of irrigation, it would also become possible to adopt double cropping on about 14,000 ha. The total cropped area under the project, therefore, would amount to 154,340 ha with a cropping intensity of 110%. In pursuance of Government policy to intensify production of livestock oriented and industrial crops on irrigated lands, the major change in the cropping pattern after the project would con- sist of a 17% reduction of area under wheat and sunflower and an increase of 16% of area under maize, soybean and sugar beet. The entire double cropped area would be occupied by silage maize. 6.03 Average yields of maize and wheat would increase by 125% and 95% respectively. Yield of soybean, sugar beet, sunflower and potatoes would increase respectively by 100%, 80%, 55% and 150%. Yield of alfalfa, silage maize and grasses would respectively increase by 100%, 75% and 300%, while yield of fruits would approximately double. The expected yield increases, which refer to long-run averages over the project area, are based on the results of experiments and actual achievements over large areas in other irrigation projects, and would result from (a) adequate and timely irriga- tion; (b) effective drainage of irrigated project area; and (c) increased inputs of fertilizer, which are made possible by the introduction of irriga- tion. The yield increases are expected to develop over four years, following introduction of irrigation, at the rates of 30%, 70%, 90% and 100%. It is estimated that the project area would be at full production by 1986, 7 years following commencement of irrigation over the first part of the project area in 1979. This development period is reasonable because the time required to adopt the new technology of production is short as the use of irrigation water and other complementary inputs is controlled by the Government through its trained and experienced technicians.  - 24 - 6.04 At full development in 1986, the total volume of agricultural pro- duction would increase by 210%. The gross annual production including by- products, valued at the domestic farmgate prices, would increase from about Lei 560.0 million (US$28.0 million) to about Lei 1,350.0 million (US$67.5 million). Present and future with project cropped area and production are summarized in the table below; details are given in Annex 1, Table 2:  - 25 - Crop Cropped Area/l Production Future Future With With Present/2. Project Present Project Incremental -----('000 ha)----- ---------('000 tons)------------- Maize 51.8 66.8 183.9 534.6 350.7 Wheat 31.6 21.9 73.0 98.5 25.5 Alfalfa (hay) 12.8 14.8 64.0 148.3 84.3 Soybean 6.5 12.6 9.7 37.6 27.9 Sugar beet 6.0 8.7 169.4 436.5 267.1 Sunflower 17.9 5.7 28.6 14.3 (14.3) Pasture (green matter) 2.9 3.0 14.4 59.4 45.0 Grape 2.6 2.6 18.5 31.8 13.3 Vegetables/3 - 2.6 - 65.0 65.0 Potato 2.2 1.3 22.1 32.5 10.4 Fruits/4 0.4 0.4 1.5 2.8 1.3 Maize (silage) 2.1 13.9 41.2 487.9 446.7 Total 136.8 154.3 Gross Value Crops (Lei Million) 527.8 1,268.8 741.0 Gross Value By-products (Lei Million) 31.0 79.0 48.0 Total Gross Value/5 (Lei Million) 558.8 1_347.8 789.0 /1 Excludes 5,900 ha under individual plots. /2 Cropping pattern and output would remain unchanged in the future without project. /3 Mainly tomatoes and green pepper. /4 Primarily apples. /5 At official 1976 domestic prices.  - 26 - B. Markets 6.05 The project would increase the production of cereals by about 376,200 tons, oilseeds by 13,600 tons, sugar beet by 267,100 tons, vegetables (including potatoes) by 75,400 tons, fruits (including grape) by 14,600 tons and fodder by 576,000 tons. These incremental outputs, except wheat, are expected to be utilized by a growing domestic demand. These amounts would have little or no adverse effects on the internal market because these would be only minor proportions of the projected national production of these com- modities by 1985 or thereafter. Market prospects of various crops are given below; further details are in Annex 3. 6.06 Cereals. The incremental output of wheat (25,500 tons) is likely to be used to expand exports. The major markets include UK, France, Federal Republic of Germany, Italy, Austria and USSR. However, most of the project output of maize (350,700 tons) would be utilized as livestock feed in and around the project area. The livestock subsector is expected to grow in accordance with the national development plan in response to the domestic and export demands. 6.07 Oilseeds. The net incremental output of oilseeds would amount to 13,600 tons, which is equivalent to about 2,600 tons of oil, and 11,000 tons of oilcake. The oil would be exported and the oilcake would substitute for about 10% of current imports. The world market outlook for oilseeds and their products is attractive and would continue to be attractive in the foreseeable future. 6.08 Sugar. Project output of sugar beet would yield an annual equiva- lent of about 37,400 tons of sugar, which would satisfy about 30% of projected additional domestic demand (140,000 tons) by 1990. 6.09 Vegetables. The entire incremental output of vegetables (including potatoes) would be consumed mainly in the urban areas of the surrounding dis- tricts. Even if supply exceeds demand in the region, a part of the additional output could be easily consumed in other parts of Romania because domestic demand is expected to grow by 60% by the turn of the century. 6.10 Fruits. The additional output of apples and grapes would be used in the region. Present per capita consumption, estimated at about 50 kg per year, is low. Even if this consumption level remains unchanged, projected population increase would raise the regional demand by about 15,000 tons in 1990. 6.11 Fodder. Project output of maize silage, alfalfa hay and other fodders would be used to feed a growing livestock population in the region. A major part of crop by-products would be used as livestock feed and the rest plowed in.  - 27 - C. Prices 6.12 Because of the nature of economic management in Romania, market forces have little or no influence in determining domestic prices. Domestic prices are fixed by Government and rarely vary in response to changes in demand and supply. The present official domestic prices, which are consider- ably lower than the prices of comparable commodities elsewhere, have not changed significantly since the mid 1960's, and the project outputs are not expected to alter them. For these reasons, two sets of prices have been used to evaluate project benefits--the official domestic prices for both inputs and outputs in the financial analysis of farm budgets; and prices derived from the Bank's forecast of world prices for 1976-1985 for the tradeable commodities and the official domestic prices for the non-tradeable in the economic analysis. These prices are given in Annex 3, Table 1. D. Producer Income 6.13 The project would increase farm incomes substantially (Annex 9), but it would have little direct effect on salaries of employees in the IASs or remunerations to active members of the CAPs. All workers in the IASs are employees of the Government and are paid according to national wage scales. The current normal wage for unskilled farm worker on an IAS amounts to about Lei 1,200 (US$60.00) per month. Similarly, each active member of the CAPs is presently guaranteed a remuneration of Lei 1,000 (US$50.00) per month, which the member supplements with income from individual plots. This re- muneration, which is in line with wages of comparable labor throughout the economy, is paid only if planned production is achieved. The remuneration to employees of the IASs and active members of the CAPs are unlikely to change in future with the project unless the Government revises its national wage scales, because the Romanian socio-political system does not permit income disparity among labor of comparable quality throughout the economy. This would not affect farm workers' incentives to participate in the project, however, because failure to work according to the yardstick established by the Government would, by law, result in (a) forfeiture or reduction of re- muneration; (b) loss of supplementary bonus earned on account of exceeding planned targets; and (c) loss of right to individual plot. The farm workers, who are unwilling to work under these penalties, would have no other employ- ment opportunities as the labor market is under Government control. In the long-run, the project would help to increase the income of the farm workers in the project area only indirectly through the project's impact on the growth and development of the economy. In fact, these indirect project benefits would also flow to other workers within and outside the agricultural sector just as in the past when real wages had increased with the national income.  - 28 - E. Main Benefits and Beneficiaries 6.14 Main Benefits. The major quantifiable benefit from the project would be a significant increase in the area's agricultural production which, in terms of volume, is estimated at 210%. At border prices of inputs and outputs, the net value of annual production would increase by about 160% or by Lei 830 million (US$41.5 million). Most of the project output would, directly or indirectly, help to earn (save) foreign exchange. The unquanti- fiable linkage benefits would include (a) the effects that would result from the stable and increased supply of raw materials to forward-linked enter- prises; and (b) development of new and improvement of existing facilities that would be made possible by additional earnings (and savings) of con- vertible currency and project-induced domestic investment resources. The project would raise the real wages and standard of living of the population through its impact on the growth and development of the economy. it would also reduce underemployment in the project area and would increase labor productivity by 250% from about Lei 12,400 (US$620) to Lei 43,400 (US$2,170). 6.15 Beneficiaries. About 41,200 active members of the CAPs would re- ceive only marginal direct benefits from the project. These farm workers and about 16,800 employees of IASs would mainly benefit indirectly through the general increases in the national wage scales which would result from the project's impact on the national income. F. Economic Rate of Return 6.16 The total cost of the project, excluding farm machinery and price contingencies, is estimated at Lei 3,568 million (US$178.4 million). This is equivalent to Lei 25,410 (US$1,270) per ha or Lei 61,500 (US$3,075) per farm worker including the employees of the State farms. The economic rate of return, based on quantifiable benefits, is estimated at 16.3%. The rate of return is relatively more sensitive to variations in project benefits than changes in investment costs. If project benefits are reduced by 20%, but the cost stream remains unchanged, the rate of return would be 12.0%. Details are in Annex 11. 6.17 The risk of investment in the project is low. Design of the proj- ect has been prepared in detail, and project construction would be completed by the end of 1981, within the estimated total cost, which is considerably lower than costs of similar projects in other member countries. The Govern- ment has satisfactory plans to supply the farms with the necessary complemen- tary inputs and supporting agricultural services. Farm workers are receptive to new technology and would have adequate incentives to participate in the project. Anticipated crop yields are comparable to or lower than the average yields obtained from other irrigated areas in the region. The marketing system is well organized. Therefore, attainment of the project's objectives is reasonably assured.  - 29 - VII. AGREEMENTS AND RECOMEENDATIONS 7.01 During negotiations, assurances were obtained on the following: (a) procurement of equipment and materials, listed in Annex 7, Table 1, and estimated to cost US$45.0 million would be arranged following international competitive bidding in accordance with the Bank's Guidelines (para. 4.30); (b) a report on project accounts, audited by the Ministry of Finance would be submitted to the Bank annually within five months of the close of the Romanian fiscal year (para. 5.16); and (c) necessary data and information would be furnished to the Bank, through periodic reports, to measure project implementation and performance against scheduled targets (para. 5.17). 7.02 With the above agreements, the proposed project is suitable for a Bank loan of US$60 million to the Bank for Agriculture and Food Industry, with the guarantee of the Socialist Republic of Romania for a term of 15 years including 3 years of grace. January 10, 1977   ANNEX 1 Page 1 ROIIANIA IALOMITA-CALIATUI IRRIGATION PROJECT Agriculture 1. General. Romania has a total area of 23.7 million ha, of which about 14.9 million ha (63%) constitutes agricultural land, 6.3 million ha (27%) is under forests and the ramining 2.5 million ha (10%) is non-arable. Of 14.9 million ha agricultural land, about 9.7 million ha (65%) is arable, 4.5 million ha (30%) is under pastures and meadows and 0.8 million ha (5%) is covered by orchards and vineyards. About 5.3 million ha is irrigable, but currently about 1.5 million ha is irrigated. During the 1976-1980 plan period, another 1.1 million ha would be provided with irrigation facilities. By 1981, a total of about 2.6 million ha would be under irrigation; the increase since 1970 would then be over 300%. 2. The country is endowed with good soils, a climate which is general- ly suitable (from April to October) for agriculture and exploitable water resources. Fluctuations in rainfall, lack of drainage and severe soil erosion caused by wind and water limit agricultural production in many parts of the country. Major crops are maize (32%), wheat and barley (30%), fodder (16%), potatoes and vegetables (7%), sunflower (6%), sugar beet (2%) and soybean (2%). At the end of 1975, Romania had 6.1 million cattle, 8.8 million pigs, 14.4 million sheep and goats and 78.6 million poultry. 3. Project Area Topography and Drainage. The project area, located about 120 km northeast of Bucharest, is about 10 km west of the Danube river (21ap IBRD 12267). It lies on a mildly undulating terrace, which is about 20 mr to 55 m above the Danube river water level. The project area includes a gross surface of 161,400 ha between the Ialomita and the Calmatui rivers. A natural drainage, called the Lata Sarata Valley, flows from the west to the southeast to Lake Strachina, and divides the project area into the northern (70%) and the southern (30%) parts. A major part of the northern area drains either into the Calmatui river in the north or the Lata Sarata in the south but several depressions, that have formed due to the wetting and settling action of the loessial soils, have turned into major and minor saline lakes. These depressions now afford drainage to the lands that surround them; water from these lakes cannot find access to the existing natural drainage channels and therefore drainage of a major part of the project area needs to be improved, especially if the area is to be irrigated. H1ost of the southern project area drains into either the Ialomita river or the lakes in this area. Excluding the non-arable areas, the net area presently available for cultivation is 142,740 ha. After project execution, the net area would increase by 3,560 ha (3%) to 146,300 ha due to reclamation of saline (2,650 ha) and other (910 ha) areas.  ANNEX 1 Page 2 4. Climate. The climate in the project region is basically continental with hot summers and cold winters. A weather station is located at Grivita, which is almost in the middle of- the project area. Long term (over 40 years) data recorded at this station is available; average of climatic data for the last ten years (1965-1974) is summarized in Table 1. Average monthly maximum temperatures vary in the cropping season from 260C in April to 34.80C in July, and average minimums vary from --2.20C in October to 10.80C in July. First frost occurs around end October to early November. The ten year average annual precipitation at Grivita is 550 mm, of which about 380 mm (69%) occurs during the cropping season. The long term average at this station is 480 mm, of which about 250 mm falls during the cropping season. Rainfall could be as low as 150 mm during the cropping season with very long (30 to 60 days) dry periods occuring every third or fourth year. Droughts, extending over 60 days, have been experienced in 7 years out of 41. The relative humidity averages 70% during the cropping season with a low of 67% in July and a high of 76% in October. The wind velocity (during the day) averages 2.7 m/sec in the season with a low of 2.2 m/sec in September and a high of 3.7 m/sec in April. The velocity is generally higher during the day as compared to the night. 5. Soils. Detailed soil surveys, including chemical and mechanical analyses, have been carried out by specialized institutes in Romania and a detailed soils map of the project area is available. Most soils consist of chernozems of high agriucltural value, which have developed on loess deposits under steppe conditions. In a small part of the project area, mostly along the Calmatui river in the north and along its eastern boundary, the soils consist of sands and sandy silts. The chernozem soils are sandy loams and consist of silt (55% to 70%), clay (18% to 32%) and sand (5% to 20%). The loessial zones are mostly compacted; only in some parts soils are liable to settle on wetting. The chernozem soils have a dark humic A horizon, some 40 to 80 cm deep, which contains about 2% to 3% calcium carbonate. They have a uniform structure, with permeability varying from low to medium, and a good water retention capacity. The field capacity of the soils varies from about 25% to 12%. 6. Land Classification. About 48% of project area is classified as belonging to Class I; 40% to Class II and the remaining 12% to Class III, mostly on account of its eroded nature and salt accumulation. Under the project, a part of the Class III land would be reclaimed. 7. Present Land Use and Yields. Excluding the area occupied by vil- lages, lakes, forests, roads and railway lines, the area presently available for cultivation is 142,740 ha, of which about 5,900 ha is farmed by eligible members of CAPs as individual plots for their personal benefit. The remaining 136,840 ha is presently cultivated by CAPs and IASs. About 1,550 ha, located near the project area's southern boundary, is irrigated from the waters of the Ialomita river; the remaining area is all rainfed. Grain maize is grown on 38% of the cultivated area, while autumn-sown cereals (principally wheat)  ANNEX 1 Page 3 occupy 23%. Industrial crops cover about 22%; these are sunflower (13%), soy- bean (5%) and sugar beet (4%). Alfalfa, fodder maize and pastures account for another 13% of the cultivated area. The remaining 4% is taken by potatoes (2%), vineyards and orchards (2%). Inspite of an advanced standard of hus- bandry, average yields are low (maize 3.5 tons/ha, wheat 2.3 tons/ha) due to fluctuations in rainfall and a consequential low use of fertilizers. Area under various crops, their present average (over past 5 years) yields and production, are summarized in Table 2. 8. Future Land Use and Yields. In Romania, irrigated areas receive priority over rainfed areas for fertilizer allocation. Since increase of fertilizer use beyond the present levels would not materially increase yields in the absence of timely irrigation, future yields without the project are not expected to be any different from the present yields. The cropping pattern is also not expected to change. Further details are in Annex 11, Table 4. 9. After project implementation, the cultivable area excluding individ- ual plots, would increase by 3,560 ha (3%) to a total of 140,400 ha due to reclamation of saline (2,650 ha) and other (910 ha) lands. The cropping pattern would also change in pursuance of Government's policy to intensify production of livestock oriented and industrial crops. The major changes (Table 2) would consist of a reduction of area under wheat (8%) and sunflower (9%) and an increase of area under maize (10%), soybean (4%), sugar beet (2%x and alfalfa (1%). Another change of major importance would be a 10% increase in the intensity of cultivation; almost all double crop cultivation would be for maize silage. 10. Crop yields would increase significantly following project comple- tion because of: (a) timely and assured water availability; (b) higher levels of fertilizer application and better use in quality of other inputs made possible by irrigation; (c) improved surface and subsurface drainage; and (d) additional availability of land preparation and other farm machinery. Yields of major crops would increase as follows: maize by 125%; wheat by 95%; alfalfa and soybean by 100%; sugar beet by 80% and sunflower by 55%. The adopted yields are expected to be achieved within four years following intro- duction of irrigation by increments of 30%, 40%, 20% and 10%. The adopted crop yields are significantly lower than those actually achieved under project conditions at the research and demonstration farms and are comparable to those achieved in other irrigated areas of the region. Maize yield, for example, at the Braila research station averaged 12.0 tons/ha against a yield of 8.0 tons assumed for the project. Farm Inputs 11. Labor and Mechanization. Land preparation is completely mechanized, while seeding, fertilizing, spraying and harvesting operations are mechanized to a considerable degree on the State farms and to a somewhat lesser degree on the cooperative farms. The degree of mechanization also varies with the crop.  ANNEX I Page 4 For example, harvesting of maize, wheat, oilseeds and fodder is almost fully mechanized on IASs, while this operation is mechanized to an extent of about 80% on the CAPs. Harvesting of sugar beet is mostly by labor. Manual labor is mostly used for weeding and harvesting of vegetables, and occasionally employed for spraying of pesticides. It is also used extensively for various operations in the orchards, vineyards and vegetable farms. 12. Mechanization services are provided to the CAPs by the Central for Agricultural Mechanization, which is under MAIA (Chart 16194). This Central has an Agricultural Mechanization Enterprise (AME) in each of the 39 dis- tricts; each AME has 16 to 19 Stations for Agricultural Machinery (SAMs). A SAM serves 6 to 8 CAPs, and performs all field operations on a contract basis at rates that are fixed by regions. The project area CAPs would be served by 6 SAMs, 3 are under the Braila AME and 3 in Ialomita AME. These AMEs and SAMs are well equipped with repair workshops and qualified mechanics. Farm machinery and implements required by the State farms are owned, operated and maintained by them. Each IAS has a separate section within its organization which manages all of its equipment. These sections are also well equipped with all necessary facilities and staff for the proper upkeep of their equipment. 13. Seeds. Improved seeds for all project crops are available in Romania in the required quantities, and would be used in the project area. Seed development and multiplication is a continuous process, which is en- trusted to the research stations and selected State and cooperative farms under a State organization (SEMROM). Overall guidance is provided through special institutes, whose activities are coordinated by the Academy of Agri- culture and Forestry Sciences. Processing of seeds is also a responsibility of SEMROM. Testing and certification of seeds is done by special organiza- tions under the Ministry. Seed distribution is arranged by another State organization AGROSEM. Romania exports seeds of maize and sunflower. 14. Fertilizers. In spite of a rapid increase in manufacturing capa- city of fertilizers and an output now approaching 5 million tons 1/ per annum, the application of fertilizers remains low, because of emphasis on export. The allocation of fertilizers to State farms and cooperatives, based on a formula which takes into account soils, climatic conditions and cropping patterns, is reviewed each year by the Ministries of Agriculture and Chemical Industries. First priority is given to the irrigated areas and the State farms, and the rainfed areas on the CAPs receive a lower priority. Fertilizer application in the project area is not likely to increase without irrigation. Following introduction of irrigation, due emphasis would be on increasing crop production. Consequently application of fertilizers would be increased to the levels recommended by research, as also its effective utilization. It is estimated that at full development, requirements of ammonium nitrate and 1/ A 600,000 ton capacity ammonium nitrate plant is located at Slobozia, at the project area's southern boundary.  ANNEX 1 Page 5 superphosphate would approximately double from about 40,000 tons to 80,000 tons. Annual requirement of potash would be small (about 1,000 tons), as it is applied to potatoes and sugar beet only. 15. Plant Protection. Romania's production of phytopharmaceutical products has increased from about 8,000 tons to about 25,000 tons during the last decade. It includes a wide range of insecticides, fungicides, herbicides and pre-emergence weed killers. The current use of these chemicals seems satisfactory, although the herbicides are generally in short supply. After the project, the use of these chemicals is expected to increase from the present 2,000 tons to about 4,200 tons. Plant protection efforts are super- vised in each district by an inspectorate under the General Directorate of Agriculture. This unit is staffed with 3 to 4 specialists and 6 technicians, and provides specialized back up to the resident staff at the CAPs and the IASs. January 10, 1977  ANNEX 1 Table 1 ROMANIA IALOMITA-CALMATUI IRRIGATION PROJECT /1 Climatic Data at Grivita- Month Temperature Relative Wind Maximum Minimum Average Rainfall Humidity Velocity (OC) (OC) (OC) (mm) (M) (m/sec) January 8.3 (14.6) (2.9) 31.5 87 4.1 February 13.6 (12.7) (0.2) 37.3 87 4.0 March 21.1 (7.1) 3.9 29.1 80 4.0 April 26.0 (1.7) 11.1 26.6 70 3.7 May 31.5 5.4 16.8 78.6 69 3.4 June 32.4 8.6 19.8 57.3 68 2.7 July 34.8 10.8 21.9 59.9 67 2.6 August 33.8 9.2 21.1 70.6 69 2.3 September 30.4 3.8 16.8 50.7 72 2.2 October 26.2 (2.2) 10.9 36.0 76 2.3 November 20.4 (6.2) 5.5 30.7 83 3.0 December 11.9 (9.5) 0.8 40.9 90 3.4 Total Annual 549.2 Cropping Season/- 379.7 Average Annual 24.2 (1.4) 10.5 77 3.1 Cropping Season 30.7 4.8 16.9 70 2.7 /1 Average of ten years (1965-1974). /2 Cropping season (April-October). December 1976  ROMANIA IALOMITA-CALMATUI IRRIGATION PROJECT Present and Future Crop Production /1 Item Present-/ Future With Project Area Yield/2 Production Area Yield Production (ha) (ton/ha) ('000 tons) (ha) (ton/ha) ('000 tons) Maize 51,840 3.55 183.9 66,820 8.0 534.6 Wheat 31,610 2.31 73.0 21,890 4.5 98.5 Alfalfa (hay) 12,810 5.00 64.0 14,830 10.0 148.3 Soybean 6,470 1.50 9.7 12,550 3.0 37.6 Sugar beet 6,050 28.00 169.4 8,730 50.0 436.5 Sunflower 17,870 1.60 28.6 5,710 2.5 14.3 Pasture (green matter) 2,890 5.00 14.4 2,970 20.0 59.4 Grape 2,650 7.00 18.5 2,650 12.0 31.8 Vegetables/3 - - - 2,600 25.0 65.0 Potato 2,210 10.00 22.1 1,300 25.0 32.5 Fruits/4 380 4.00 1.5 350 8.0 2.8 Silage (Maize and Sorghum) 2,060 20.00 41.2 13,940/5 35.0 487.9 Total 136,840/6 154,340/6 /1 Cropping pattern and output would remain unchanged in the future without the project. /2 Weighted average of yields from irrigated area (1,550 ha) and rainfed area (135,290 ha). /3 Mainly tomato and green pepper. /4 Primarily apples. /5 Double crop. /6 Excludes 5,900 ha under individual plots. M December 1976  ANNEX 2 Page 1 ROMANIA IALOMITA-CALMATUI IRRIGATION PROJECT Agricultural Production Organizations and Investment Financing A. Background 1. In pre-World War II Romania, a large portion of the agricultural land was owned by landlords and the church, but was cultivated by tenants. There were also a number of peasants who owned and cultivated their small farms. In 1921, an attempt was made to limit ownership to a maximum of 300 ha per family, but the pattern of land ownership and production remained virtually unchanged until 1945. 2. The transformation of agricultural land ownership and production from pre-war Romania to the present was achieved in three phases during 1945- 1962. The first phase (1945-1948) of agricultural reform aimed at establish- ing a small-scale peasant-oriented farm structure. About 1.6 million ha belonging to landlords and the church were expropriated; 70% were distributed among about 0.9 million agricultural workers and small farmers and the remain- ing, combined with existing government owned land, was used to establish the initial State Agricultural Enterprises (IASs). At the same time, medium and large farms were discouraged through the selective use of quotas and prices. 3. The second phase (1949-1958) involved a move towards large-scale farming through collectivization of small farms and expansion of state enter- prises. The farmers were strongly encouraged through pricing mechanism to join the collectives, but this was not very successful as the farmers did not want to lose title to land and were not accustomed to organized group production. Consequently, Agricultural Associations were formed in early 1950s, in which participating farmers pooled their lands without losing titles and were paid according to their contribution to production. Despite these efforts, about 30% of the agricultural or 45% of the arable lands were still operated indi- vidually in 1958. 4. The final drive into coLlectivization was completed during 1959-1962 through determined Government efforts. During this phase, private farms and Agricultural Associations were emerged into what are presently known as Agri- cultural Production Cooperatives (CAPs). 5. Since 1962, the structure of agricultural farms has been further consolidated by reducing the number of farming enterprises. Presently there are about 4,400 CAPs in Romania, wihich consist of about 9.0 million ha (60%) of agricultural land. About 3.4 million families constitute the membership of  ANNEX 2 Page 2 these cooperatives. The CAP farms produce about 60% of all cereals, 70% of oilseeds, 40% of potatoes and almost all of the sugar beet. The project area contains 48 CAPs with a total area of 114,200 ha (80% of total) and an active membership of about 41,200. Size of these farms varies from 1,500 ha to 6,000 ha with a median of about 2,400 ha. 6. The present number of IASs in Romania is 390; these and other State units contain about 4.5 million ha (30%) of agricultural land or 2.0 million ha (21%) of cropland. These employ a total of about 300,000 workers, and produce about 30% of all cereals, 30% of oilseeds, and 10% of potatoes. There are five enterprises in the project area, which have an area of 28,540 ha (20% of total) and employ about 16,800 permanent and seasonal workers. Size of IASs varies from 3,000 to 14,000 ha. 7. About 1.5 million ha (10%) of agricultural land is presently culti- vated by about 150,000 individual farming families. Most of this area is located in the mountainous region and is of marginal quality. These farms produce about 19% of the total milk production, 19% of eggs, 14% of meat and 15% potatoes. There are no private farms in the project area. 8. Members of CAPs are allowed to retain small plots of cooperative land, usually not exceeding 1,500 m2 per active member, for their personal use. Production on such plots is intensive with much higher yields than national averages obtained from rainfed areas. In the project area, such plots total to about 5,900 ha, about 5,200 ha of which are located outside of communities. Most of these plots are under rainfed cultivation, and some are irrigated from groundwater. The design of the project works provides for the capacity re- quired to irrigate the plots located outside the communities, after agreement is reached between the farmers and the State on appropriate irrigation methods and financing of on-farm irrigation network, and the economic viability of irrigation of such plots is established. 9. Agricultural production organizations are still evolving. As economic activities in agriculture become more complex, the size and nature of operations change and resource needs increase. Some CAPs have already started forming Intercooperative Associations in an effort to pool resources for in- vestments in processing, dairy and beef fattening and in other resources. Joint ventures among CAPs, Intercooperatives and IASs are also on the increase. Such jointly owned and operated agri-businesses are likely to be increasingly important sources of output with the growth and development of agriculture. B. Agricultural Production Cooperatives Organization 10. The land and assets of a CAP are owned jointly by its members. The management of a CAP is the responsibility of its President, one or two Vice  ANNEX 2 Page 3 Presidents, a Management Council and the General Assembly. The governing body of a CAP is its General Assembly, which consists of all working adults in the CAP. The General Assembly meets quarterly and is responsible for drafting the production, investment and financial plans; for ratifying major contracts with suppliers, buyers, mechanization enterprises, etc.; and for deciding the allo- cation of income. A CAP's President is elected by its General Assembly for a two year term and his appointment is subject to approval of the district's General Director for Agriculture. The General Assembly also elects the repre- sentatives of the technicians and the members of the CAP's Management Council and ratifies the President's choices for chiefs of farms within the CAP and its chief economist. 11. The Management Council is the executive body of the CAP which is responsible for coordinating the CAP's operations and meets once or twice a week. Its membership consists of the President and Vice-Presidents (if any) of the CAP, the chief economist, chiefs of the farms in the CAP and the elected representatives of the technicians and the members. The President and the Vice-Presidents conduct the day-to-day operations and are assisted by the chief economist, who is not only responsible for the preparation of a sound investment plan but also for the accounting and the financial management of CAP's affairs. The chiefs of farms are the heads of production units and are always engineers (agriculturalists). They are assisted by a farm economist in charge of accounting and financial management of the units and by techni- cians in the fields of irrigation and livestock. 12. CAPs do not own farm machinery or equipment but rely on the service of state owned and operated Agricultural Mechanization Enterprises (AMEs). These enterprises are responsible for providing all farm machinery and imple- ments to CAPs, whenever required, in return for fixed charges for various operations, which may be paid either in cash or in kind. Allocation of Production Income 13. The net farm income of a CAP (value of total production minus cost of production excluding labor contributed by members) is allocated between two funds: the Development Fund, which is at least 18% of the net income, and the Consumption Fund, which is at most 82%; allocation between the two is some- what flexible and varies from CAP to CAP. The Development Fund is a compulsory saving mechanism under which funds are set aside for partial financing of future investment on the CAPs and of production expenses in the next cropping season. This Fund is deposited with the Bank for Agriculture and Food Industry (BAFI) and earns 1% to 2% interest. In general, about 85% of the Consumption Fund is distributed among the members; about 8% is allocated to social security and 7% to emergency and entertainment funds. The General Assembly of the co- operative has the power to alter the percentages of Development and Consumption Funds to keep the personal incomes to members in line with personal incomes elsewhere in Romania.  ANNEX 2 Page 4 14. Each active member of the cooperative is presently guaranteed an equivalent minimum salary of about Lei 1,000 (US$50.00) per month 1/, which is in line with the minimum wage for comparable labor employed by IASs. The actual salary of an active member in any given year is increased if actual production is above the planned targets, but this does not exceed the maxi- mum wage to) comparable labor employed in the State sector because the Romanian socio-economlc system does not permit a wide disparity in income to workers of similar skills. C. State Agricultural Enterprises Organization 15. IASs are owned by the State and are operated and managed by employees in the Ministry of Agriculture and Food Industry (MAIA). A single enterprise may consist of several farms; each farm may specialize in producing either field crops, vegetables, industrial crops, fruit, milk or meat. The chief executive officer of an IAS is a Director, who is appointed by the General Director of IASs in the Ministry. He is assisted by the chief engineers of the farms in the IAS and a chief economist/accountant. Other technicians re- quired for the farms are included on the staff. The governing body of an IAS consists of the top management, chiefs of the farms, representatives of the unions and the Party and elected representatives of the workers. Storage, transport and farm equipment is owned by the IAS; these are maintained by a Central Service Unit. 16. Salaries of the staff of IAS are fixed by law but vary according to "norms" 2/ and skills; 80% are paid semi-monthly or monthly and the re- mainder at the end of the season provided the planned targets are met. If production exceeds the target, special premiums are paid. In 1975, salary scales were increased by up to 48%; the revised scales would remain effec- tive during 1976-1980 Plan Period. Past and revised salary scales are given below: 1/ This is the guaranteed salary for members of crop producing farm units. The corresponding salary for members of livestock farms amounts to Lei 1,500 (US$75.00), and of vegetable, grape and fruuit farms Lei 1,200 (US$60.00) each. If the Consumption Fund in any given year is low, BAFI extends loan to the cooperative to ensure payment of the guaranteed salaries to members. Such a loan is usually repayable within one year and carries no interest. 2/ "Norm" refers to the expected volume of work, which should be performed under given conditions, and usually corresponds to a 10-hour day and a 25-day month.  ANNEX 2 Page 5 Category Monthly Wage Increase 1974 1976-1980 over 1974 ---------(Lei)--------- % Director 3,100-4,200 3,100-5.660 0-35 Farm Manager 2,300-3,800 2,540-4,375 10-15 Economist/Accountant 2,000-3,250 2,220-3,735 10-15 Farm Mechanic 1,976-2,964 2,290-3,380 16-14 Technician 1,380-1,800 2,005-2,670 45-48 Clerk 1,130-1,325 1,200-1,450 6- 9 Unskilled Worker 1,020-1,425 1,202-1,570 18-10 Distribution of Profits 17. The prof4t of an IAS is defined as th2 gross '.a!-dc of production less production costs, which include cost of labor and depreciation on all capital investments in the IAS. Payments concerning depreciation are made by the IAS to BAFI, who maintains a Special Depreciation Fund, which is used as a source of financing future investments in the Public sector. 18. Normally, about 10% of the profit is credited to a Consolidation Fund, which is used to finance minor on-farm investments on any enterprise under the Ministry. About 40% of the profit is allocated to Risk Insurance Fund, which is used to meet extraordinary loses. The remaining 50% is credited to the State budget. Profits in excess of the planned, after pay- ment of labor premiums, are allocated between the Consolidation Fund, the Insurance Fund and the State budget in the ratio of 25%, 30% and 45% respec- tively. D. Investment Financing 19. Once a project is included in the annual plan, the CAP or IAS pre- pares a technical and financial proposal with the help of staff from BAFI and the concerned General Directorate of Agriculture. This proposal is normally backed up by detailed studies and designs made by relevant insti- tutes. After the proposal is approved by the competent authority, it is reviewed by BAFI and a decision to finance the project is taken. 20. Investments in CAPs are financed from the Development Fund (para. 13) and from BAFI loans. The Fund may finance up to 30% of the costs and the BAFI Loans up to 95%, depending on the project, the financial status of the cooperative, etc.  AN4NEX 2 Page 6 21. Loan repayment periods vary; periods for typical loans are- vine- yard or orchard 10 years; feedmill 12 years; dairy unit 20 years; and on-farm irrigation equipment 8 years including 3 years of grace. Current interest rates on investment loans to CAPs amount to 3% including interest during construction, with penalty rates of up to 5%. 1/ 22. At present most investments on IASs are financed from the State budget, funds for which are channeled through BAFI; credit financing is of minor importance. In future, however, credit financing of investments on IASs is likely to increase. Such lending would also be handled by BAFI. Interest rates on investment loans to lASs range from 2% during construction to 4% thereafter; penalty on delayed payments ranges up to 6%. 23. In the past, preference in allocation of investment funds was given to IASs because these were considered as the model farm organizations. Due to CAP's larger share of production and employment, however, Government has recognized that the growth of the agricultural sector depends largely on the development of agriculture in the cooperatives and consequently more effort is now being made to increase investments in the cooperatives. CAPs' share of investment in agriculture would increase from about 70% during the 1971-1975 plan period to about 75% during the 1976-1980 plan. 1/ The low interest rate is in line with generally low prices of other inputs and outputs in Romania. Interest rates play little or no re- source allocative role in the country because they are "taxes-on" rather than "prices-of" capital. January 10, 1977  ANNEX 3 Page 1 ROMANIA IALOMITA-CALMATUI IRRIGATION PROJECT Marketing, Markets and Prices A. Marketing Organization and Management 1. Marketing of agricultural produce in Romania is entrusted to State owned and operated marketing Centrals 1/. These Centrals were established in late 1960's to assist MAIA in the procurement, storage, processing and distribution of agricultural products. Unlike other departments of the Min- istry, however, the Centrals are independent economic units with separate but coordinated plans, budgets and accounts. Presently, there are thirteen Centrals which specialize in marketing specific commodities such as cereals, vegetables and fruits, sugar, meat, milk, etc. Each Central has its headquarters in Bucharest and an enterprise in each of the country's 39 judets (districts). The enterprises are the executing agencies of the Centrals and procure and distribute products through their sub-units known as collecting centers 2/. 2. Normally, each Central is headed by a director general who reports directly to the concerned Deputy Minister. He is assisted by directors of commerce/marketing, economics/accounting and technical matters. The composi- tion of each enterprise's administrative personnel is similar to that of the Central, and a chief engineer, a marketing specialist and an economist or an accountant are normally on its staff. 3. The enterprises and their sub-units are well equipped to facilitate smooth flow of products without excessive losses. Storage losses of well dried grains are estimated at about 2% but are higher for perishable commo- dities. The number of the collecting centers in any region and the market facilities which are available to them vary depending on the mix and volume of commodities handled. However, care is taken to allocate collecting centers among different localities and to provide them with adequate supplies in ac- cordance with planned production of commodities. 1/ A number of "peasant free markets", which sell produce from individual plots of CAP members or private farmers, also exist but their importance is insignificant. 2/ The exception is the Central for sugar which does not have an enter- prise in each district and the collecting centers. This Central owns and operates 13 sugar refineries. The refineries procure and transport the raw materials, process them and distribute the final products (sugar, candies, etc.).  ANNEX 3 Page 2 Procurement 4. All procurements and sales by the marketing enterprises (or Centrals) are arranged through standardized and legally binding contracts, which are signed at the beginning of each year. These contracts specify types, volumes, prices and places of delivery. Frequency of deliveries vary depending on the production cycle; livestock products are delivered daily or weekly. The delivery plans of contracting farms (CAP or IAS) are evaluated periodically, based on frequent visits to farms, by experts from the concerned collecting centers for assessing prospective outputs. This helps the marketing Centrals in reviewing planned sales for domestic consumption or export. 5. The CAP and the IAS farms are responsible for the delivery of prod- ucts to the collecting centers but all costs of transportation are paid by the Centrals. Each farm is expected to provide its own packaging materials; the collecting centers reimburse the IAS farms for such materials (about Lei 17 or US$0.8 per ton for grain) but not the CAP farms, who are allowed to take back the packing materials after delivery. Distribution 6. Normally, the collecting centers distribute the products to different outlets in accordance with the State plan. These outlets consist of the export markets, the domestic food processing industry and the retail markets most of which are owned and operated by the marketing Centrals. Distribution of feed to the livestock subsector is also their responsibility. 7. Presently, most marketing Centrals are responsible for the physical handling of commodities for export, and a few export through other specialized agencies of MAIA such as FRUITEXPORT, which specializes in export of fruits and vegetables. However, identification of international market prospects and sale agreements, and planning of international deliveries are responsibil- ities of the Ministry's export organization (AGROEXPORT), which operates in collaboration with the Ministry of Foreign Trade. 8. All production plans in Romania are coordinated with expected prod- uct use and its distribution. Since prices are fixed by law and play little or no role in allocation of outputs, performance of agencies marketing domes- tically is limited to efficient physical handling and distribution of commodi- ties in accordance with the State plan. The Centrals, enterprises and col- lecting centers are well staffed and organized, and are provided with the necessary facilities to allow them to perform their functions properly. They are revenue earning entities and derive their incomes from "profits". Their costs of operation, retained "profit" margins and contributions to the State budget are fixed in accordance with established Government guidelines. The marketing margins of the collecting centers amount to about 10% to 15% of purchase prices but this could vary according to the complexity of pro- cessing involved.  ANNEX 3 Page 3 Marketing of Project Output 9. Adequate measures have already been planned for handling anticipated incremental project output, which would be marketed by four existing Centrals through their enterprises and their sub-units. The Central for Sale of Cereals and Compound Feedstuffs (CVPC) would market wheat, maize, soybean and sun- flower. The marketing of fruits and vegetables would be the responsibility of the Central for Vegetables and Fruits (CPLF). The Centrals for Sugar (CIZ) and grapes (CVV) would market, respectively, sugar beet and its products, and grape and its products. Under separate but related projects, 5 new silos (260,000 tons capacity) would be constructed in and around the project area to store grains; construction of these silos would be completed by 1982. Similar- ly, an existing vegetable cannery at Fetesti; soybean and sunflower factories at Slobozia; and a winery at Insuratei would be expanded to process additional outputs of vegetables, oilseeds and grape. Present output of sugar beet is processed in existing plants located at Buzau and Braila. A new plant (520,000 tons capacity) is under construction at Tandarei and would be able to process the incremental output of sugar beet when completed. Because of the existence of well-organized marketing Centrals, and the planned expansion of processing facilities, there would be no organizational constraints to the disposal of project output. B. Markets 10. Project output could be exported and/or consumed domestically; the outlook for expansion of both markets is good. It is difficult to determine how much of the project output would be allocated between foreign and domestic markets, as the allocation depends on the national production and Government policy. However, Romania is presently a net exporter of most of the project commodities and is expected to remain so in the foreseeable future. The country trades with many nations in Western and Eastern Europe, and in less developed areas. It has established favorable trade relationships with the European Economic Community and the United States has recently granted it the most favored nation status. Domestic demand for most agricultural products is projected to increase by at least 50% by 1990 when real per capita personal income is expected to reach about US$3,000. 11. Cereals. With the project, the additional production of maize and wheat would increase by about 350,700 tons and 25,500 tons, respectively. Romania is a net exporter of both of these cereals. Annual export of wheat increased from about 240,000 tons in 1971 to about 780,000 tons in 1973, while that of maize remained unchanged at about 350,000 tons during the same period. The major traditional importers of Romanian cereals are UK, France, Federal Republic of Germany, Italy and Austria. These countries imported an average of 70% of maize and 50% of wheat exports from mid-1960's to early 1970's. During the same period, USSR imported about 15% of Romania's maize exports,  ANNEX 3 Page 4 and lately about 40% of wheat exports. The potential for expanding export of cereals to Eastern Europe and the USSR is particularly promising because the region's demand for imports is likely to increase. 12. Project output of wheat would be used to expand exports. However, virtually all additional output of maize is likely to be used as livestock feed. The livestock subsector is expected to grow rapidly in accordance with the national plan based on the rising domestic and export demands. At least 50,000 tons of the additional output of maize would be utilized by dairy, beef fattening, pig fattening and poultry farms which would be established within the project area during 1976-1980 plan period. The balance is likely to be used to feed a growing livestock population elsewhere in the region. 13. Oilseeds. With the project, production of soybean would increase by about 27,900 tons but that of sunflower would decrease by about 14,300 tons. This would result in a net additional oilseed output of about 13,600 tons or an equivalent of about 11,000 tons of oilcake and 2,600 tons of oil. The oilcake would substitute about 11% of current imports and the oil is likely to be exported. The world market for oilseeds and their products is attractive and it is expected that it would continue to be favorable in the foreseeable future. 14. Sugar. Romania has traditionally been a net exporter of sugar, but recently imports have tended to exceed exports. Annual exports peaked at about 159,000 tons in 1972 but declined to insignificant levels thereafter while imports stabilized at about 70,000 tons during the same period. The decline in exports could be due partly to reduced production which resulted from unfavorable weather but it was also partly a result of increased domestic demand. The per capita consumption of sugar in Romania is presently estimated at about 30 kg, which is among the lowest in Europe. Domestic demand is ex- pected to increase by about 80,000 tons by 1980 and by a further 60,000 tons by 1990. Projected incremental production of sugar from two previous Bank- financed irrigation projects (Giurgiu-Razmiresti and Rasova-Vederoasa Irriga- tion Projects) would almost substitute for the current level of net imports, and the expected production from Ialomita-Calmatui Project would meet about one-third of the projected additional domestic demand by 1990. 15. Vegetables. At full development, the project would increase annual production of vegetables (including potatoes) by about 75,400 tons. Most of this could be used to supply a growing demand in the four judets 1/ (districts) adjacent to the project area, whose current total population is estimated at about 2.1 million. Presently, the annual per capita consumption of vegetables in the region is estimated at about 200 kg. 2/ Assuming a population growth 1/ Ialomita, Braila, Buzau and Prahova. 2/ This includes potatoes and other vegetables. The information is based on interviews with representatives of the Central for Vegetables and Fruits in Braila judet.  ANNEX 3 Page 5 rate of about 1% per annum and other factors which influence demand remaining unchanged, the demand for vegetables in the four judets could increase by about 60,000 tons in 1990. This potential market would absorb most of the additional output of vegetables from the project area. If supply exceeds the regional demand, the excess quantities could be used by consumers in other parts of Romania. The domestic demand for vegetables is projected to grow by about 60% by 1990. 16. Fruit. The project would increase the annual production of fruit (mainly apples and grapes) by about 14,600 tons, all of which would be used mostly by the urban consumers in the region. Assuming a per capita fruit consumption of about 50 kg per year 1/, the additional population in the four judets mentioned above (para. 15) would increase demand by about 15,000 tons in 1990. 17. Fodder. The anticipated project output of silage maize and alfalfa hay would be used to feed the growing livestock population in the region. A part of crop by-products would also be used as livestock feed, and the rest would be plowed in. C. Prices Domestic Prices 18. Because of the system of economic management in Romania, market forces have little or no influence in determining domestic prices. Prices are fixed by the Government and vary according to quality of products and in some instances according to the delivery dates; the present prices have not changed significantly since 1963. Domestic production prices reflect the cost of production plus a pre-determined "profit" margin. Prices of all commodities, which are low when compared with prices of comparable products in other coun- tries, reflect low prices of inputs including labor. 19. The IASs are required to sell their products to the marketing enter- prises or their sub-units, but the CAPs make their deliveries based on con- tracts signed with the marketing agencies at the beginning of each cropping season. Prices of cereals received by the CAPs for their contract deliveries are about 40% higher than those paid to the IASs. Prices of oilseeds are uniform throughout Romania, except for soybean whose contract price for the CAPs is 25% higher than that received by IASs. 1/ Appraisal report on the Sadova-Corabia Agricultural Credit Project (1083-RO) Annex 7, page 5.  ANNEX 3 Page 6 20. Domestic prices of vegetables, potatoes, fruits, sugar beet and grapes are fixed by grades and dates of delivery. No price differentials exist between CAP and IAS production and in most cases among regions, but prices are higher for early deliveries. The price of any of these crops can vary within the maximum price for early delivery and superior quality crop and the minimum price for late delivery and poor quality crop, but cannot decline below the floor or exceed the ceiling prices. Prices Used for Project Appraisal 21. The averages of official farmgate prices of project commodities which are applicable to all producers throughout Romania, and CAP contract prices are shown in Table 1. For financial analysis of farm budgets, the CAP contract prices are used. For economic analysis, however, prices of tradeables have been derived from the Bank's forecast of world prices for the period 1975-1985 and for the non-tradeables, official domestic prices are used. The former category includes cereals, oilseeds, fruits, vegetables, grapes and sugar beet (sugar); the latter includes mainly fedders and crop residues. Romania is a price-taker in the world market and project output of tradeables would have little or no influence on international or domestic prices. January 10, 1977  ANNEX 3 Table 1 ROMANIA IALOMITA-CALMATUI IRRIGATION PROJECT Prices Used for Financial and Economic Analysis Commodity Price Domestic (Financial) Economic Contract Average (CAPs) (CAPs & IASs)