Romania - Bucsani - Buzau - Siret - Prut Irrigation Project

Document of The World Bank FILE COpy FOR OFFICIAL USE ONLY Repot No. P-2923-RO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE BANK FOR AGRICULTURE AND FOOD INDUSTRY WITH THE GUARANTE OF THE SOCIALIST REPUBLIC OF ROMANIA FOR A BUCSANI-BUZAU-SIRET-PRUT IRRIGATION (BBSP) PROJECT December 3, 1980 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 Currency Unit; Leu (Plural Lei) 1. Official Rate Lei 4.47 = US$1.00 Leu 1.00 - US$0.22 2. Tourist Rate Lei 12.00 = US$1.00 Leu 1.00 = US$0.08 3. Conversion Rate for Traded Goods (as of January 1, 1981) Lei 15.00 US$1.00 Leu 1.00 = US$0.07 The Official Exchange Rate of lei 4.47 per US$1 is used only for accounting purposes. The rate used for tourist transactions is lei 12 per US$1. Beginning on January 1, 1981, a trading rate of lei 15 per US$1 will be used to convert the prices of all traded goods. Fiscal Year January 1 to December 31 GLOSSARY OF ABBREVIATIONS BAFI - Bank for Agriculture and Food Industry (Banca pentru Agricultura si Industrie Alimentara) CAP - Agricultural Production Cooperative (Cooperative Farm) ERR - Economic Rate of Return ICA - Inter-Cooperative Association IAS - State Agricultural Enterprise (State Farm) MAFI - Ministry of Agriculture and Food Industry SMA - Agricultural Mechanization Stations (State Mechanization Units) UAC - Unified Agro-Industrial Councils  FOR 01FFICIAL USE ONLY ROMANIA BUCSANI-BUZAU-SIRET-PRUT IRRIGATION (BBSP) PROJECT Loan and Project Summary Borrower: Bank for Agriculture and Food Industry (BAFI) Guarantor: Socialist Republic of Romania Beneficiary: State enterprises and cooperatives Loan Amount: US$75.0 million Terms: Repayable in 15 years, including 3-year grace period, through semi-annual installments. Interest at 9.25 percent per annum. Relending Terms: The loan from BAFI to Agricultural Production Cooperatives (CAPs) for buried pipelines would be for 25 years including 5 years grace, and for on-farm irrigation equipment 12 years including 3 years grace. The loans from BAFI to the Cereal Central would also be for up to 15 years including 3 years grace. The interest rate would be 3 percent for CAPs with a penalty rate of an additional 3 percent for late payments. The interest rate would be 2 percent during construction and 4 percent thereafter for the Cereal Central with a penalty rate of an additional 3 percent for late payments. The Government would bear the exchange risk. Project Description: The main objectives of the project would be to increase and stabilize crop production and to raise productivity in a gross area of 158,485 ha (154,350 ha net) consisting of four separate subprojects in the areas of Bucsani, Buzau, Siret, and Prut located in the south eastern part of Romania. This would be accomplished through construction of irrigation and drainage systems and related facilities. The project works would include construction of 184 km of open canals and 187 km of pipe conduits, nine repumping, two fixed and 97 pressure pumping stations, surface and tile drainage systems, soil erosion control, valley training and saline soil reclamation works. Equipment for operation and maintenance and farm machinery would be provided under the project. Concrete silos for a total capacity of 0.18 million tons would also be constructed to meet the additional cereal storage requirement. Benefits from crop production in the project areas would increase from a fluctuating annual average of about $106.1 million to a relatively stable annual average of about $242.8 million. Yield increases in various crops would range from 25 percent to over 200 percent and the cropping intensity would increase This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - 11 - by about 16 percent. The project would more than double labor productivity. The economy at large would be the main beneficiary of the project. However, it would also somewhat increase the income of the 96,500 active members of CAPs and the 9,000 employees of the IASs in the project area, and is expected to create about 2,000 new jobs during construction and 1,500 thereafter. The project faces no special risks. Estimated Cost Local Foren Total ----------US Million--------- Bucsani Subproject 49.4 12.3 61.7 Buzau Subprojet 128.7 30.0 158.7 Siret Subproject 31.8 7.8 39.6 Prut Subproject 41.3 11.0 52.3 Grain Storages 12.0 3.3 15.3 Research Stations 3.0 2.5 5.5 Base Cost 266.2 T679 3TT1 Physical Contingencies 18.9 4.5 23.4 Price Contingencies 6.1 12.7 18.8 Total Cost 291.2 84.1 375.31/ Financing Plan Local Foreign Total ----------US$ Million-------- BAFI 55.6 - 55.6 State Budget including cofinanciers 218.9 9.1 228.0 Sub-borrowers 16.6 - 16.6 IBRD 75.0 75.0 Total 291.2 84.1 375.3 Estimated Disbursement Bank FY 1982 1983 1984 1985 1986 1987 Annual 18.0 20.0 15.0 10.0 6.0 6.0 Cumulative 18.0 38.0 53.0 63.0 69.0 75.0 Rate of Return: About 22 percent Appraisal Report: Report No. 3152-RO dated November 26, 1980 EMENA Projects Department 1/ Includes $0.75 million as taxes and duties  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECIJTIVE DIRECTORS ON A PROPOSED LOAN TO THE BANK FOR AGRICULTURE AND FOOD INDUSTRY OF ROMANIA FOR A BUCSANI-BUZAU-SIRET-PRUT IRRIGATION (BBSP) P'ROJECT 1. I submit the following report and recommendation on a proposed loan to the Bank for Agriculture and Food Industry of Romania, with the guarantee of the Socialist Republic of Romania, for the equivalent of US$75 million to help finance a Bucsani-Buzau-Siret-Prut Irrigation (BBSP) Project. The loan would have a term of 15 years, including 3 years of grace, with interest at 9.25 percent per annum. Cofinancing of up to US$100 million is being sought, all from commercial lending institutions. PART I. THE ECONOMY!! 2. The first basic report on Romania (Report No. 1601-RO, "The Industrialization of an Agrarian Economy under Socialist Planning") was circulated to the Executive Directors on April 20, 1978. An updating Country Economic Memorandum (CEM) discussing the New Economic Measures was introduced in January 1979. The CEM was circulated to Executive Directors on August 20, 1980 (Report No. 2757-RO). Country social and economic data are given in Annex 1. A. Long-term Trends and Development Strategy 3. Over the past three decades, Romania has pursued a development strategy designed to industrialize a primarily agrarian economly. The main features of this strategy have been (a) a high rate of investTment; (b) development of a broad industrial base, with priority given to heavy industry; (c) development of local natural resources, including the reorganization and modernization of agriculture; (d) balanced regional distribution of production and incomes; and (e) training of a skilled labor force. This strategy had been carried out through a system of comprehensive central planning and management, guided by central party and government authorities. 4. As a result, Romania's economic development since 1950 has been impressive, characterized by a rapid economic growth and considerable structural change. According to official statistics, national income has grown in real terms at an annual average rate of about 9 percent. Per capita GNP in 1978 is estimated to have been US$1,750, according to the Bank Atlas methodology. Since 1950, investment has grown at an average annual rate of 13 percent, as a result of which the share of gross investment in GNP has risen, averaging about 33 percent in the 1976-80 plan period. 1/ This Part is identical to that contained in the President's Report for a Fourth Power Project and a Fourth Livestosck Project and which have been circulated to the Executive Directors for their consideration on December 23, 1980.  - 2 - Industry, which has grown at more than 13 percent per annum over the past decade, has been the driving force of economic growth, receiving around 50 percent of investment, most of which has been allocated to the capital goods industry. As a result, industry has become the leading sector, accounting in 1978 for about 50 percent of GDP and for 33 percent of the labor force, compared with agriculture's 14 percent share of GDP and 33 percent of the labor force. With the transfer of labor from agriculture to industry, the population has become increasingly urbanized. Standards of living have increased substantially, partly because of the growth of personal incomes and partly because of provision through the state budget of expanded and improved education, medical services, housing and social expenditures of other kinds. Furthermore, Romania's integration into the world economy has increased, as the level of trade has grown and its composition altered. B. Recent Economic Developments 5. During the first four years of the present Plan period (1976-80), the expansion of the Romanian economy has slowed down perceptibly. The average annual rate of national income growth of 8.4 percent was below the planned growth rate of 11 percent, and growth has been decelerating, falling annually from 10.5 percent in 1976 to 6.2 percent in 1979. These changes reflect the emergence of a number of internal and external constraints, notably the pace at which improvements in productivity and efficiency can be attained; the ability of the economy to bring new capacity into operation as planned; a serious deterioration in the terms of trade; and trade restrictions in important export markets. 6. Industry continued to be the leading sector of the economy. However, the growth of industrial production also slowed down from an average of 12 percent per annum during 1976 and 1977, to 9.0 percent in 1978 and 8.1 percent in 1979. As in the past, the growth of capital goods exceeded that of consumer goods and the fastest growing subsectors were metallurgy, machine-building, chemicals and construction materials. Agricultural production grew at a respectable average rate of 6.3 percent between 1976 and 1979, displaying however, large annual variations due to changing weather conditions. 7. As elsewhere, energy has become a critical sector for the Romanian economy. In the aftermath of the 1973 fuel price increase, an emergency decree was issued, fostering domestic energy production and imposing cuts and stringent restrictions on industrial energy consumption. These steps were followed by further measures in 1977 and 1979, designed to conserve domestic oil and gas resources and expand use of domestic coal and hydropower resources. Although small increases in domestic oil production were originally planned in the present plan period, production has in fact fallen while natural gas production has stabilized. Coal production increased only 8 percent in the first three years of the plan, but jumped by 12 percent in 1979 and strenuous efforts are being made to expand it further. In spite of the campaign to restrain the growth of energy consumption, the difficulties in bringing new coal mines into operation on schedule has resulted in a tripling of oil imports between 1975 and 1979.  - 3 - The comprehensive directives for the preparation of the energy development program for the period 1980-2000, published in July 1979, is designed to make Romania self-sufficient in energy by 1990, through further development of coal and hydropower resources, through the rapid introduction of nuclear power and through development of non-conventional renewable energy sources. This may be optimistic, given the rapid pace of coal and nuL-lear power development required to meet the target, but the vigorous adjustment of policies and priorities by Romania to the changed energy situation is expected to result in striking changes in the pattern of energy production by 1990, and further improvements in the efficiency of energy use by consumer. 8. Between 1976 and 1979 investment fell about 6 percent short of planned levels. The shortfalls occurred chiefly in industry where the planned annual growth rate of investments of over 20 percent could not be met, partly because of the diversion of resources in 1977 to the repair of earthquake damage. Industrial investment, in fact, grew by 13 percent a year--in itself a very respectable achievement. The shortfall in investment does not reflect difficulties in mobilizing sufficient financial resources, but a number of supply-related factors, in particular, capacity constraints of design institutes, shortfalls in the production of construction materials, capacity constraints in the construction sector, production shortfalls for some domestic equipment and more restrictive foreign exchange allocations for imported capital goods. 9. Changes in the level and distribution of employment accompanied the growth and structural change of production. The total labor force increased by only 0.5 percent per year between 1976 and 1979, but large intersectoral shifts in the labor force continued. Between 1976 and 1979, the agricultural labor force fell from 38 percent to 33 percent of the total. The outflow from agriculture, which is determined chiefly by the needs of non-agriculture sectors rather than the ability of agriculture to compensate for the loss through mechanization, appears to be leading to some seasonal labor shortages; recourse has been necessary to students and other groups to meet short term labor needs. The Government recogn,izes that the transfer of labor has to slow down to some degree, to avoid adverse effects on agriculture output, and is thus giving even greater emphasis to increases in labor productivity. Between 1976 and 1979, labor productivity in industry rose by 7.9 percent per annum, about one and a half percent more than was achieved between 1971 and 1975. In agriculture, labour productivity rose by 10 percent per annum. C. New Economic Measures 10. The slow-down of growth during the current plan period reflects to some extent the increasing maturity and complexity of the economy and the difficulties of moving from a development strategy emphasizing growth through increases in capacity to growth from using existing capacity more efficiently. As part of its efforts to improve productivity and efficiency, the Government introduced in January 1979 a number of changes in the planning and management system, commonly referred to as the "New Economic Measures". Their main purpose is to increase the responsibi]Lity of  - 4 - enterprises for implementing plan targets by extending the scope of enterprise autonomy and by sharpening the impact of financial rewards for success and financial penalties for failure. 11. The centerpiece of the New Economic Measures is the replacement of gross production by net production as the major performance indicator complemented by physical output targets. The change from gross to net production is to heighten the inducement for reducing inputs. To reinforce concerns about net production at the enterprise level, a new system of enterprise revenue and expenditure budgeting has been introduced which combines evaluation criteria, computation of income bonuses and penalties for over and under-fulfillment of net production targets, and the tax assessment of enterprises. The second major element of the New Measures is the modification of the planning system. The changes introduced have two components; first, the greater involvement of enterprises in the resolution of inconsistencies and constraints in the planning process. Second, the measures increase the use of purchasing and delivery contracts. Whereas, in the past enterprises could make annual contracts only after the finalization of the plan, they are now able to make multi-year contracts which will form the basis for the first draft of the annual plan. Both of these changes are intended to bring greater reality to plans. 12. The New Measures also involve important changes in financial flows between the enterprises and the state budget. In the past, enterprises retained very little of their profits, and transferred most, in the form of taxes and other payments to the state budget. In future, enterprises will retain a greater share of profits. The major payment to the budget will be a "prelevation tax", which is calculated on the value of net production and paid from profits, but the enterprise will retain a greater part of its profits for distribution between funds for investment, working capital, housing, socio-cultural activities and profit-sharing fund. The New Measures, however, are explicitly not intended as a step towards "decentralization". Central planning remains the foundation of the system and will not be relegated merely to determining major macro-economic ratios and setting price or policy parameters, on the basis of which enterprises would autonomously prepare their own output plans. The New Measures are, in fact, a conservative attempt to strike a balance between extended enterprise autonomy dictated by the growing complexity of the economy on the one hand and a firm belief in centralized planning and control as the means of obtaining high growth rates and structural change on the other. D. External Trade and Foreign Borrowing 13. In foreign trade, developments have in the current plan period been substantially different from and decidedly less favorable than those planned. The five-year plan envisaged growth rates of 13 percent per annum for imports and 18 percent for exports in real terms aiming at a trade surplus which would allow the country to repay some of its foreign debt. Between 1976 and 1979, in fact, imports increased at an annual average rate of 16.4 percent and exports of 13.1 percent in current prices. This resulted in a sharply growing trade deficit which in 1979 reached $1.3 billion, virtually all of it in the convertible currency area. On the  - 5 - import side, the deteriorating trade balance reflects rapidly rising international prices, especially for petroleum. Export growth has been unable to keep pace with import requirements, partly because of less favorable price movements in Romania's principal export markets. The insufficient growth of exports is also explained by the vulnerability of Romanian exports to import demand fluctuations and import policies of the receiving countries, and to difficulties in meeting design and quality standards and establishing marketing policies essential to extend the foothold in highly competitive product markets. 14. The large trade gap together with rising interest payment has led to a current account deficit of US$1.7 billion by 1979. The deficit has been financed through increased capital inflows, with total medium and long-term debts rising from US$2.8 billion in 1975 to about US$5.6 billion at the end of 1979. Most of the inflows have been suppliers' credits and eurocurrency borrowings; Romania has borrowed almost US$1.1 billion on the eurocurrency market since 1975, and has been able to lengthen maturities and reduce the spread over LIBOR considerably during the period. The scale of term borrowing available to Romania has not been sufficient, however, to finance the current account deficit fully and the Government had to resort to substantial short-term borrowing between 1977 and 1979. The net inflow on short-term debt was particularly large in 1979, about US$1 billion, and by the end of 1979, outstanding short-term debt had increased to US$1.8 billion. E. Development Prospects 15. In November 1979 the Twelfth Congress of the Romanian Communist Party approved the Directives for the preparation of the new five-year plan 1981-85. Although they suggest the continuation in broad terms of the present development strategy, they project lower growth rates than envisaged in earlier drafts of the Directives and than those achieved during the present plan period. However, one major change is the planned reduction of the share of national income allocated to investment. The share of investment in GNP is projected to decline to around 30 percent, compared with 33 percent during the current plan period, and the growth rate of investment is planned to be only around 6 percent compared with 13 percent achieved in the first four years of the current plan period. These changes indicate government recognition that a major issue underlying the development path of the economy in the 1980s is the allocation of resources between consumption and investment. In our view, this planned slowdown of growth momentum is commendable for three particular reasons. First, there is a need to allow Romanian consumers, who compare their economic position increasingly with that in Western European economies, to share more fully in the fruits of economic growth than the high investment levels of the past have permitted. Second, due to the growing complexity of the economy, its rate of growth is increasingly influenced not only by the rate of investment but also by improvement of productivity and efficiency, and, as is now widely recognized within COMECON countries--this cannot be accomplished without tangible incentives translating into higher consumpt:ion. And third, as the more recent empirical evidence suggests, the Romanian growth path is approaching the margin of absorptive capacity. It remains t:o be seen  - 6 - whether the consumer goods industries have the capacity to increase production and to improve their output mix sufficiently, and whether the investment goods industries can provide for the investment requirements of the consumer goods industries. 16. The directives and back-up documents prepared for the Twelfth Congress make clear, that the economy is becoming more dependent upon imported raw materials and--at least temporarily--energy, and more vulnerable to sudden changes in the terms of trade. The Romanian authorities, recognizing the need to economize on the use of energy and imported raw materials, have been reexamining the composition of investment in a number of sectors prior to finalizing the new five-year plan for 1981-1985. It is clear that to contain the growth of imports to manageable proportions, domestic production must be stimulated in certain areas (i.e. energy, investment goods) and the efficiency of input use improved. To finance the necessary imports, exports must be increased, and export growth will require both improvements in the sophistication and quality of Romania's industrial goods and improvements in export marketing. Improvements in the planning and management systems will be needed to ensure that all these interlinked goals can be attained. F. Creditworthiness 17. With the large increase in the current account deficit and the associated increases in external borrowing described in paragraphs 13 and 14 above, the debt service payments (including interest on short-term credits) rose to $1.24 billion in 1979 or the equivalent of 12.2 percent of gross foreign exchange earnings. In the convertible currency area where most of Romania's debts were incurred, the debt service ratio was 20.6 percent compared with 17.4 percent in 1978 and 18.6 percent in 1977. For 1980, another large current account deficit is expected reflecting in part the sharp increase in oil prices. To contain future deficits and to keep the service burden manageable, the Government has recently adopted a series of measures aimed at increasing exports and restraining imports. Besides the steps taken in the crucial energy sector (see para. 7), these measures include new financial incentives for exports; a directive giving priority to export production over production for the domestic market; renewed emphasis in offsetting trade arrangements; a consolidation of the investment program which will result in lower imports of investment goods; and increased recycling of raw materials. Changes in the foreign exchange system are envisaged in the near future to reflect the changing economic priorities and world market conditions. Given Romania's strenuous development efforts within the context of well articulated plans, these measures and possible future steps aimed at enhancing exports and economizing the use of imported inputs, are likely to succeed in keeping the country's debt burden within manageable limits, thus preserving its creditworthiness for medium and long-term borrowing.  PART II. BANK GROUP OPERATIONS IN ROMANIA 18.!/ The proposed loan would bring total Bank commitments to Romania to $1,782.6 million for 29 loans2/ in agriculture, industry, power and transport. Disbursements under the Bank's initial loans were slow during 1975, but this situation has improved considerably since 1976. Annex II contains a summary statement of Bank loans to Romania and notes on the execution of ongoing projects as of October 31, 1980. 19. Foreign exchange, especially in convertible currencies, continues to be a major constraint. It remains one of the major objectives of Bank lending to help alleviate the country's shortage of foreign exchange by providing long-term external capital and by financing projects which will expand foreign exchange earnings or savings. The Bank has also assisted the Government to mobilize cofinancing for appropriate projects. The Bank helped to attract foreign commercial banks to provide $100 million cofinancing in August 1979 for the Second Livestock Project for which a Bank loan of $75 million was made in April 1979. In addition, syndicated cofinancing loans of $200 million in total have recently been concluded for the Mostistea and Calmatui Irrigation and Drainage Project for which a Bank loan of $70 million was made in April 1979 and the Third Livestock Project for which a Bank loan of $85 million was made in December 1979. Through their contacts and subsequent negotiations with commercial banks, the Romanian authorities now appear convinced of the positive value of cofinancing in the form of financial credits, and have indicated their intention to seek similar arrangements for future projects. Bank lending also aims at supporting the steps being taken by the Government to introduce new industrial technologies, to improve the quality of products and production efficiency, to reduce production costs and to provide for necessary electric power development. Marketing, especially for export goods, is also emphasized. Special attention is given to agriculture where production is still unnecessarily dependent upon weather and where productivity levels are still comparatively low. 20. A number of further loans are under consideration, including loans for irrigation, industry, power, road and rail transport and regional development. The Government has also proposed that the Bank consider lending for a port project and the development of additional petroleum resources. 21. In addition to lending, the Bank (through EDI) has assisted Romania by conducting training courses on economic and financial evaluation and methods of analysis in various sectors, including industry and transportation, for 169 Romanian officials in Belgrade in 1973 and in Bucharest annually since 1975 in collaboration with a Romanian academic institution. Additional 1/ Paras. 19-22 are substantially the same as those in the President's Report for the Orchards Project dated June 2, 1980, and those in the President's Reports for a Fourth Power Project and a Fourth Livestock Project which are being considered by the Executive Directors simultaneously with this project. 2/ Including a $125 million loan for a Fourth Power Project and a $80 million loan for a Fourth Livestock Project.  courses, including one for agricultural project appraisal, are under discussion with the Government. The methodologies taught in these courses are becoming more widely known in Romania and are expected for some projects to begin to supplement the methodology normally used by the Romanian planning authorities. 22. The projects, for which assistance has been committed or is being considered, represent only a small portion of Romania's total need for external financing. However, they will provide a substantial net addition to the inflow of convertible currency, and are helping to set a pattern for obtaining longer-term convertible finance from other sources. The disbursed debt outstanding to the Bank is expected to constitute about 13 percent of Romania's total projected convertible currency debt in 1980; the Bank's share in Romania's debt service payments in 1980 is expected to be about 5.5 percent. PART III. THE AGRICULTURAL SECTOR IN ROMANIAd / 23. Agriculture continues to be a key sector in the Romanian economy, providing almost all of the nation's food, the raw materials required for agricultural processing industries and significant foreign exchange earnings. In 1978 agriculture accounted for 14 percent of GDP, 33 percent of the labor force and 14 percent of export earnings. The proportion of the total labor force employed in agriculture declined from 74 percent in 1950 to 33 percent in 1978, thereby releasing a large number of people for employment elsewhere in the rapidly growing Romanian economy. National income increased at an average rate of about 9 percent from 1951 to 1978. During this period national income in agriculture grew at a rate of 3.5 percent per annum. Agriculture's share of national income declined from 28 percent in 1950 to 15 percent in 1978. 24. About 14.9 million ha, or 63 percent of Romania's land area, are used for agriculture. Of this area, 66 percent is arable, 29 percent is grassland and 5 percent is used for orchards and vineyards. There are three principal agro-climatic zones; the Plains Zone, the Foothills Zone and the Mountain and Tableland Zone. The Plains Zone which is the richest agricultural area, including all of the land in the Danube plains, includes 53 percent of Romania's arable land. About 64 percent of all arable land is devoted to production of grain (mostly wheat and maize). Other crops include sunflower, sugarbeet, soybeans, potatoes, vegetables, fodder crops, grapes and fruit. In 1978 crop production accounted for 56 percent of total agricultural output, while livestock accounted for 44 percent. Sector Organization 25. Romanian agriculture has undergone a major transformation following the collectivization measures introduced since the Second World War. Today agricultural production, especially crop production, is dominated by state 1/ Paras. 23-35 except for para. 32 are substantially the same as those in the President's Report for the Orchards Project dated June 2, 1980, and those in the President's Report for the Fourth Livestock Project which is being considered by the Executive Directors simultaneously with this proposed project.  - 9 - agricultural enterprises (IASs) and agricultural producticn cooperatives (CAPs). For example, in 1978, 87 percent of cereal production was in the socialist sector. Production by individual farmers and from small private plots of cooperative members is important for fruit and livestock but not for field crops. Agricultural mechanization stations (SMAs) play a major role in providing machinery hire services. Recently a number of Inter-Cooperative Associations (ICAs) have been formed through combining the activities of a number of individual cooperatives. These ICAs are engaged in various large scale agricultural operations such as pig and poultry production. 26. In 1978 Romania had 396 IASs with an average size of 5,100 ha and average a labor force of 660. They farmed 2.0 million ha, equivalent to 14 percent of all agricultural land. Other state agricultural units covered to 2.5 million hectares, or 17 percent of agricultural land. In the same year, there were 4,400 CAPs, with an average size of 2,060 ha and 550) members. The total area of land under CAPs was 9.1 million ha, equivalent to 61 percent of all agricultural land. There were 709 SMAs which provide machinery services to producers. Each SMA had an average of 140 tractors plus a wide range of other equipment. Each working member of a CAP is allocated a small plot (normally 0.15 ha) which he can use for production of crops. ]Members are also allowed to keep limited numbers of livestock on CAP land. About 10 percent of the land controlled by CAPs is used for individual members' plots. Individual farmers number almost half a million and own about 9 percent of total agricultural land. Most of their farms are in the more mountainous regions. They use only 5 percent of the nation's arable land, although they have 19 percent of the grasslands and 21 percent of the orchards. They own 61 percent of all cattle, 14 percent of sheep, 12 percent of poultry and 3 percent of pigs. Together with CAP plotholders they produced 54 percent of all milk, 59 percent of eggs, 41 percent of wool, 53 percent of poultry and 57 percent of fruit in 1978. 27. At the national level, the major State institution in the agricultural sector is the Ministry of Agriculture and Food Industry (MAFI). MAFI plays a major role in preparing the Five Year Plan for th,s sector and is the supervisory institution for plan implementation. In each district, the Ministry is represented by a general directorate, which is responsible for all agricultural activity in the district including both IASs and CAPs. Marketing is organized nationally under MAFI, with general economic directorates responsible for processing and marketing specified commodities. Foreign trade companies are responsible for the exports of the general economic directorates. Performance in the Agricultural Sector 28. Although considerable progress has been made in developing agriculture in Romania, the sector remains relatively undeveloped. Between 1951 and 1978 gross agricultural output increased at an averages rate of 4.5 percent. During this period the area of arable land has remained about the same but crop yields have increased markedly. For example, the average yield of wheat increased from 1.1 tons per ha in 1951-1955 to 2.8 tonls per ha in 1976-1978, while maize yields increased from 1.3 tons per ha to 3.2 tons per ha over the same period. Livestock yields have increased while there have also been significant increases in the numbers of all types of livestock.  - 10 - Milk yields for instance, increased from 867 litres per cow in 1950 to 1,968 litres per cow in 1978. Nevertheless, crop and livestock yields in Romania are still appreciably lower than those obtained in a number of other countries. While agricultural production has been increasing, the labor force in agriculture has been falling. Labor productivity has thus increased much faster than agricultural output. In 1978 gross agricultural output per worker was more than six times the level in 1950. Despite this substantial improvement, the absolute level of labor productivity is still relatively low. Labor intensive methods of production, such as hand harvesting of maize and the use of animal-drawn carts, are still common, especially on cooperatives. Sector Issues and Development Strategy 29. The growth of Romanian agriculture has been constrained by several factors, especially rainfall, lack of machinery and farm inputs and problems concerned with organization and incentives. Rainfall in Romania is both low and erratic, especially in the main cropping areas in the Plains Zone. Flooding has also been serious in many low lying areas. Fortunately the soils in the Plains Zone are good while there are excellent sources of water in the Danube and its tributaries. Romania has therefore given high priority to development of irrigation and drainage. The total area under irrigation has increased from 200,000 ha in 1960 to 2.2 million ha in 1979. Government plans to increase this to 3.7 million ha by 1985. By then 38 percent of arable land would be irrigated. 30. Serious shortages of machinery and farm inputs, especially fertilizers, insecticides and herbicides have been experienced. These shortages have been aggravated by Romania's foreign exchange needs, for Government has sometimes exported fertilizers or restricted imports of other inputs needed by the agricultural sector. Hitherto, Government policy has given much greater emphasis to development of IASs rather than CAPs. IASs have been provided with the best managers and have received much higher levels of investment and supplies of tractors, machinery and fertilizers, while CAPs have been neglected. In 1978 the level of investment per ha of IASs was more than five times that of CAPs and they were therefore more productive than CAPs. This neglect of CAPs has been one of the key weaknesses of Romanian agriculture, for CAPs control more than 60 percent of all agricultural land. In 1978 Government decided to accord equal treatment to IASs and CAPs. This new policy is to be implemented through the creation of Unified Agro-industrial Councils (UACs) which are responsible for providing equal levels of service and material inputs to IASs and CAPs. About 700 UACs have been established, and for each one there is an SMA. Each UAC will be responsible for coordinating all agricultural activities undertaken by the IASs and CAPs for which it is responsible. On average each UAC will be responsible for about 20,000 ha of land. Implementation of this new policy is still underway and it is too early to assess the effectiveness of the UACs. These organizational changes are being complemented by changes in the structure of wages and incentive bonuses. These changes, which link payments to workers to achievement of profit targets, were introduced in 1978 under the "New Economic Measures". These changes have already been introduced on IASs and their extension to cooperatives is planned.  - 11 - 31. Agricultural policy is formulated within the framework of a national plan approved by Government and the Romanian Communist Party. For the 1981-85 plan, the guidelines forecast that national income will increase between 6.7 and 7.4 percent p.a., gross industrial production will increase in the range 8.0 to 9.0 percent p.a. and gross agricultural production at 4.5 to 5.0 percent p.a. Investment in agriculture in this period will amount to 155 billion lei (US$8.6 billion), equivalent to 12 percent of total national investment for the plan period. The main thrust of agricultural development strategy will be to increase crop and livestock yields through improved organization, the use of more efficient techniques, especially greater mechanization, increased use of fertilizers and other inputs, and further large investments in irrigation. The Need for Irrigation Infrastructure 32. Instability in agricultural production results from vulnerability to erratic weather conditions and the lack of infrastructure to mitigate their impact. Excessive precipitation and flooding during planting and harvest seasons, and inadequate rainfall during summer growing seasons, have resulted in year to year fluctuations in national output of the order ofi 10 to 20 percent. Fluctuations of production in particular regions can be even greater. Only production of vegetables has increased steadily, reflecting the relatively more controlled conditions under which they are produced. The Government is well aware of this problem and has placed high priority within the agricultural sector on solving it. Forty percent of agricultural investment in the 1971-75 Five-Year Plan was for land reclamation, irrigation and drainage; the comparable figures for the 1976-80 Five-Year Plan and the 1981-85 Five-Year Plan are about 20 percent and 18 percent, respectively, reflecting a relative decline in infrastructure investment and increasing emphasis on investments to make productive use of irrigation facilities already established. Since 1960, total irrigated land has been increased from about 0.2 million hectares to 2.2 million hectares in 1979, and, the relative reduction in the share of the agricultural budget allocated for irrigation notwithstanding, another 700,000 hectares are expected to be brought under irrigation by the end of 1980. The Government plans to irrigate about 3.7 million ha by 1985. Irrigation works to date have concentrated on large schemes using waters pumped from the Danube. Six such projects have already been financed by the Bank since 1975; execution of these projects, which also include drainage, soil erosion control and farm mechanization components, is proceeding satisfactorily (see Annex II), and the proposed project would continue Bank support in this subsector but this time, waters would be diverted from the rivers other than the Danube. In this and in the previous irrigation projects, the Romanians have accepted a number of the Bank's suggestions which improved project design, particularly in canal alignment, location of pumping stations, the design of canals in loess soils, the design of drainage works and methods of soil reclamation. Also close understanding on technical and policy matters in this basic sub-sector has been attained by continuous dialogue with the Romanian authorities through miss:ions and negotiations. This has enabled the Bank to become more involved in recent years in detailed discussions of projects at an early stage in their preparation which has increased the Bank's influence on project formulation.  - 12 - Agricultural Investment Financing 33. The Bank for Agriculture and Food Industry (BAFI) is the Government's specialized agency for financing projects in agriculture, irrigation and food processing. As such, BAFI has been the Borrower for all Bank loans in support of agriculture and would be the Borrower for the proposed loan. BAFI was established in 1968 as a channel for, and administrator of, all investment funds provided under the State plan for the agricultural sector. It lends to both IASs and CAPs and repays the Government as it receives repayments of subloans. BAFI is involved in all phases of project appraisal, execution and supervision, and it has a large technical and economic staff located in Bucharest, in 39 district (judet) branch offices and in 92 sub-branches throughout the country. BAFI has thorough review and approval procedures for all investment projects. In addition to BAFI's review, all agricultural investments for more than lei 10,000,000 ($50,000) are reviewed and approved by MAFI and those greater than lei 70,000,000 ($3.9 million) must be approved by the Council of Ministers. BAFI also provides short-term credit to, and maintains settlement accounts for, all cooperative and State agricultural enterprises; and acts as fiscal agent for the Government for collection of State revenues from these enterprises. As the Government's channel for investment financing in agriculture, BAFI's primary source of funds is the State budget; the Guarantee Agreement therefore includes a provision that the Guarantor shall provide all necessary funds for the implementation and operation of the project. Bank Contributions in the Agricultural Sector 34. The Bank's lending strategy is based on the findings of various reports, including the Agricultural Sector Survey of October 1976 (No. 953a-RO), the Basic Economic Report of March 1978 (No. 1601-RO) and a number of recent appraisal reports. A cattle and sheep survey was also carried out during 1979 and its report is under preparation. Beyond the provision of foreign exchange, the main objectives of Bank lending remain to assist the Government in addressing the problems of production instability and low productivity. In addition, in appropriate cases, foreign exchange earnings or savings are an objective. Attainment of these objectives will help to raise the level and quality of domestic food consumption. 35. With increasing experience in the agricultural sector and a greatly improved relationship with the Romanian authorities, the Bank has been able to make other significant contributions. Technical improvements in project concept and design have been attained in a number of fields including irrigation, poultry and pig production and horticulture. Additionally, BAFI has decided to introduce the Bank methodology in its economic evaluation of subprojects. The Bank has made thirteen loans for agriculture totalling $821.54/ million since 1975. The Giurgiu-Razmiresti Irrigation Project, the first agricultural project financed by the Bank in Romania, has been successfully completed and a completion report on this project is under preparation. No reports of the Bank's Operations Evaluation Department have yet been prepared on agricultural projects in Romania. 1/ Including an $80 million loan for a Fourth Livestock Project.  - 13 - PART IV. THE PROJECT 36. The project, which is included in the Government's Five-Year Development Plan, was originally discussed with an identification mission in February 1979 for possible Bank financing. A preliminary preparation report was provided to the Bank in the middle of October 1979. After the Bank's request for additional data and information in November 1979, a preparation mission visited Romania in February 1980 and had extensive discuLssions with the Government authorities to complete the project preparation. Through these stages of preparation, the Bank has made significant contributions to improving the engineering and agricultural aspects of the projec-t design. The project was appraised in April and May 1980, and negotiations were held in Washington in November 1980. The Romanian delegation was headed by Mr. Ion Rusinaru, President of BAFI and included representatives from BAFI and the Ministry of Agriculture and Food Industry. A report entitled "Staff Appraisal Report - Bucsani-Buzau-Siret-Prut Irrigation Project" No. 3152-RO dated November 26, 1980 is being distributed separately to the Executive Directors. The main features of the project are mentioned in the Loan and Project Summary and in Annex III. Project Objectives 37. The project addresses the two major problems in the Roraanian agriculture sector, namely production instability and low produc:tivity. In particular the project addresses the production instability resulting from erratic weather conditions and the shortage of facilities and management skills to mitigate their impact. The project would aim to increase and stabilize crop production and also to raise labor productivity in a gross area of 158,485 ha (154,350 ha net) consisting of four separate subproject areas located in the south central and south eastern part of Romania (see Map); this would be accomplished through the construction of irrigation and drainage systems and related facilities. The project's cropping patterns for the project areas have been related to domestic needs and foreign markets. These cropping patterns include a range of crops with varying growing seasons which together cover the entire summer period ensuring an almost continuous use of labor and farm implements. The area under major crops would be maize (38 percent), wheat (20 percent), alfalfa (10 percent), sunflower (7 percent), fruit and vegetables (12 percent), sugarbeet (3 percent) and soybeans (3 percent). Project Description 38. The project would consist of four distinct and geographically separate subprojects in the south central and south eastern areas of Bucsani, Buzau, Siret and Prut. Water sources for these gubprojects are the Olt, Buzau, Siret and Prut rivers respectively, which are tributaries of the Danube river. Project works consist of 184 km of open canals, 187 km of pipe conduits, nine repumping stations, two fixed pumping stations on the Siret River, 97 pressure pumping stations to irrigate a net area of about 138,400 ha; surface drainage works to serve a net area of about 122,400 ha, and tile drainage works to serve a net area of about 32,600 ha. In addition, soil  - 14 - erosion control works to protect an area of about 11,000 ha would be carried out in the Bucsani and Prut subprojects, and valley training works for a total length of 321 km in the Bucsani, Buzau and Siret subprojects. Saline soil reclamation for a net area of about 16,200 ha would also be carried out in the Buzau and Siret subproject. The project would also provide equipment for operation and maintenance of irrigation and drainage works and farm machinery to intensify agriculture on the area to be irrigated by the project. The existing capacities for processing vegetables, fruits, sunflowers, soybeans and sug.rbeet are considered sufficient to absorb the incremental production. However, in view of the expected shortage of storage capacities for cereals, concrete silos with a total installed capacity of about 0.18 million tons would be built under the project.This would meet the storage requirement for cereals under the project. The project would also provide for strengthening the agricultural research station at Caracal and establishing new research facilities at Tirgu Bujor to undertake additional research in irrigation methods, fertilizer application, and green house production. The Government would make a suitable arrangement for timely submission of a program for such -:esearch activities (Loan Agreement, Section 3.03). 39. Water intakes for some of the project irrigation systems would depend on the timely completion of the multi-purpose dams now under an advanced stage of construction by the Government outside the project. Assurances have been obtained from the Government that Arcesti and Strejesti dams on the Olt River be completed by December 31, 1981 to permit timely irrigation of Bucsani subproject (Loan Agreement, Section 4.01(d)). Assurances have also been obtained from the Government that the Siriu dam on the Buzau River would be completed by December 31, 1983 to enable irrigation in the Buzau subproject (Loan Agreement, Section 4.01(f)). Since some of the drainage works under the project would be more successfully carried out if the works that the Government is now undertaking are completed on time, assurances have been obtained from the Government that remodeling the lower reach of the Beica stream in Bucsani subproject area be completed by December 31, 1983 and that the training (river embankments) of the Birlad River be completed by December 31, 1982 to enable proper drainage of the Siret subproject (Loan Agreement, Section 4.01(e) and (g)). Project Implementation and Operation 40. The Ministry of Agriculture and Food Industry, through its various departments and trusts, would be responsible for planning, construction and supervision of the project. Planning and design of all project works would be carried out by the Institute of Land Reclamation and Design, and construction by the Construction Trust for Land Reclamation Works. Both organizations are part of the Ministry's General Economic Directorate for Land Reclamation and Agricultural Construction. The irrigation, drainage and soil erosion control works would be operated and maintained by the Ministry's Directorate for Exploitation of Land Reclamation Works. The Ministry of Electrical Energy, through its subordinate enterprises and their units, would be responsible for construction, operation and maintenance of power transmission facilities and for supplying energy to the project area. BAFI would serve as financing agency for all project works under the arrangements noted in para. 33 above. All  - 15 - agencies are competent to carry out the proposed works and have undertaken previous Bank financed works satisfactorily. A panel of independent qualified experts would review the design of the dams involved in the project and the associated structures and construction of these facilities. After completion of the construction of these facilities, they would be periodiically inspected according to procedures to be established between the Bank and the Romanian authorities concerned (Loan Agreement, Section 4.01(h). Cost Estimates 41. The total project cost, including physical and price contingencies, is estimated at lei 5,627.7 million ($375.3 million). The foreign exchange component is estimated at $84.1 million or 22.4 percent of total cost. The cost estimates are based on unit rates of work that are prevailing in Romania under the system of regulated prices of materials and wages. Cost of equipment and spare parts expected to be procured from foreign suppliers, has been calculated at the international prices likely to prevail at the end of 1980 and is estimated at $75 million. Taxes and duties on imported equipment which now average about 10 percent amount to lei 11.3 million ($0.75 million) and are included in the cost estimate. Because detailed engineering has already been carried out, physical contingencies have been provided at 7.5 percent of irrigation, drainage, soil erosion control works and other minor items. Price contingencies on foreign costs are compounded ainually at 9 percent (1981), 8 percent (1982), 7 percent (1983-85) and 6 percent (1986-87). Due to near zero inflation in Romania, price cont:Lngencies on local costs are compounded at 1 percent per annum. Financing 42. The proposed Bank Loan of $75.0 million, representing about 20 percent of total project cost, net of taxes, and about 89 percent of foreign exchange costs would be made to BAFI for fifteen years including three years grace. The Government of Romania would bear the foreign exchange risk. The State budget would contribute about lei 3,420.7 million ($228.0 million) or 61 percent of total project costs through budgetary allocations l:o the General Economic Directorate for Land Reclamation and Agricultural Construction, Central for Exploitation of Land Reclamation Works, and agricultural mechanization stations (SMAs), for which funds would be channelled through BAFI. BAFI credits of lei 833.7 million ($55.6 million) to CAPs and marketing centrals would contribute about 15 percent of total costs, with the remaining 4 percent or lei 248.3 million ($16.6 million) contributed from subborrowers' own resources. The Government has, in principle, agreed to seek cofinancing of up to $100 million for this proposed project. Judging by the response of cofinanciers to other Bank-financed projects in Romania it is expected that offers of cofinancing will be obtained. The amount and timing of cofinancing will depend on market conditions and amounts being raised by Rtomania on other Bank-financed projects. It is likely that for this project cofinancing will be in the range of US$50-100 million equivalent. 43. About 30 percent of the costs for buried pipeline, on-farm sprinkler and furrow equipment and small secondary open drainage canals serving CAP-owned lands would come from CAPs' own funds with the remaiining 70 percent  - 16 - financed through BAFI loans. These loans would be recovered in accordance with BAFI's standard on-lending terms. For on-farm buried pipelines, the loans would be for 25 years including 5 years grace, and for on-farm irrigation equipment, 12 years including 3 years grace. The loans from BAFI to the Central Cereals for construction of silos would be for up to 15 years including 3 years grace. The interest rate would be 3 percent with a penalty rate of an additional 3 percent for late payments. The interest rate would be 2 percent during construction and 4 percent thereafter for the Cereal Central with a penalty rate of an additional 3 percent for late payments. As in earlier projects, these rates result in a positive spread over BAFI's financial and administrative costs in providing the loans. As a result of Government controls on domestic prices, Romania maintains a domestic inflation rate of around 1 percent per annum, and no significant further increase is expected in the future. Thus BAFI loans under the project would be made at positive real interest rates, on the same terms and conditions as are extended to other borrowers in the agricultural sector. Investments in IASs subprojects would now be made directly by the State budget and go through BAFI and the Directorate for Exploration and Land Reclamation Works. Audit 44. BAFI would keep separate accounts for all project expenditures and its transactions are subject to continuous control by internal auditors and an annual. audit by inspectors appointed by the Ministry of Finance and from the Court of Superior Control which reports directly to the Council of Ministers and the President. BAFI's accounting system and the audit of its transactions are satisfactory and BAFI's audited operating and financing results would be sent to the Bank not later than six months after the end of BAFI's fiscal year. Recovery of Costs 45. The project investment and annual operations and maintenance (O&M) costs would be recovered through both direct and indirect mechanisms. The direct mechanism consists of water charges levied on all CAPs and IASs using the irrigation water. The resulting recovery from this direct mechanism would amount to about 8 percent of total project costs discounted at 9 percent or 37 percent of O&M costs. The State also recovers a part of the project costs from IASs and CAPs through the compulsory portions of income paid into various funds and through the recovery of BAFI loans, to ensure future investments. The cost of farm machinery would be recovered by the State through unit rates paid by CAPs and IASs to SMAs for mechanization services and through contributions to the Depreciation Fund for machinery. In addition, profits made by the State from the purchase of tradeable commodities at administered low farmgate prices and subsequent export at higher world prices and general linkage benefits to the economy resulting from incremental project output are also indirect cost recoveries. Since the State is the main beneficiary, the revenues accruing to the State from these various cost recoveries are very high and could result in the combined direct and indirect cost recovery index of 100 percent or more.  - 17 - Markets 46. Market prospects for internal consumption end export of pro tct output indicate that no marketing problems need be expected. ft is expected that Romaria will remain a net exporter of grains (wheat, maize) anL sunflove2 oil, and a net importer of soybean, feed concentrates, and sugar. The incremental production from the implementation of the project for major cr(.ys would be: maize 287.4 thousand tons, wheat 30.7 thousand tons, alfalfa hay 47.1 thousand tons, vegetables 230.0 thousand tons, sugar beet 197.4 thousand tons and soybeans 10.6 thousand tons. With the introduction of the silos under the project, a double crop maize production of 878.8 thousand tons would become possible. An estimated 70 percent of maize, the major commodity under the project, would be used as animal feed, with the remainder used for human consumption, industrial purposes, and export. Maize and sunflower by-products would be purchased by paper and housing material factories, used as combustibles, or turned back into the soil as fertilizer. Anaual exports of maize averaged over 350,000 tons during the 1970's through 1978. Despite increases in incremental domestic feedgrain requirements, the grain balance is expected to remain positive, and prospects for continued exports are favorable. Areas under alfalfa, and double crops (maize silage and vetch hay) would also serve the growing feed demand. Most of the sunflower production would be processed into oil, for which demand is increasing, with cake used for feed. Imports of soybean have averaged 100,000 tons per year, and project output would contribute to the goal of self-sufficiency in this product. The incremental output of sugar and vegetables under the project are intended to contribute to planned increases in domestic per capita consumption, and a portion of vegetable production could also be exported. Incremental project output would be handled by the appropriate marketing Centrals and their enterprises and collection centers in the project areas. Procurement Arrangements 47. Equipment and materials equivalent in cost to the proposed Bank Loan ($75.0 million) would be procured following international competitive bidding in accordance with the "Guidelines for Procurement under World Bank Loans and IDA Credits - March 1977". Romanian manufacturers would be aLlowed a preference of 15 percent or the applicable customs duty, whichever is lower. The application of the preference has not affected so far the outcome of bidding on previous irrigation projects, and is not expected t:o significantly affect the result of bidding on the proposed project. It is expected that foreign suppliers would win contracts estimated to cost about $7.5 million for some of the construction and maintenance equipment (wheeled dozers, drag-lines, motor scrapers, concrete pumps, truck cranes, dumpers and air compressors and their spare parts). Other items to be procured through international competitive bidding (about $67.5 million) are available domestically and, based on experience with previous Bank-financed irrigation projects, it is expected that the Romanian manufacturers would be successful in bidding for most of these items. Cost estimates are based on the conversion rate of US$l-lei 15. The remaining equipment and Tnaterials, all domestically produced, would be procured under Romanian procedures and would not be eligible for disbursement under the proposed Bank loan. The Bank would  - 18 - not be financing construction works under the project which would be carried out by the Romanian Construction Trusts which are familiar with local conditions, methods and regulations. Disbursements 48. The proposed Bank loan of $75.0 million would be disbursed for (i) 100 percent of foreign expenditures for imported equipment, spare parts and materials procured through international competitive bidding, (ii) 100 percent of the ex-factory price of equipment, spare parts and materials manufactured locally and procured through international competitive bidding, and (iii) 25 percent of the amounts disbursed by BAFI for the silos and the agricultural research stations. Disbursements for this component would be made against statements of expenditure and BAFI would retain the supporting documents for inspection by the Bank's supervision missions. International Water Rights 49. About 14,500 ha in the Prut Subproject would receive irrigation supplies from the Prut River, which is an international river forming the boundary between Romania and USSR. All irrigation supplies would be pumped through pumping stations which are already in existence on the Prut River. No new pumping station or any extension of the capacities of the existing pumping stations is envisaged under the project. At present the pumps are being used to (a) fill the Lake Brates (fishery), (b) drain agricultural land, and, (c) irrigate an existing area of 3,400 ha. The pumping stations being reversible can operate either for discharging drainage effluent into the Prut River or lifting irrigation supplies from it. An agreement for the use of Prut River waters already exists between Romania and USSR and the extension of irrigation under the project would not cause any riparian problems. The Government has furnished a letter of representation to the Bank, similar to those provided for other Bank-financed projects, assuring that the withdrawal from the Prut River, and also from the Olt, Buzau and Siret rivers which are tributaries of the Danube river, would not cause any water rights or navigational rights problems with other riparian states in accordance with Romania's treaty obligations on the use of Danube waters. Environment and Health 50. The project area is free of endemic diseases such as malaria and bilharzia. The project would not adversely affect the environment or public health. Construction of irrigation works, with variable water flows in lined canals, a storage lake and a piped distribution network would not promote mosquito breeding and spread of malaria. Drainage of several areas and training of 321 km of stream courses would promote healthier conditions. Benefits and Risks 51. The quantifiable benefits from the proposed project derive mainly from the increase in the value of production with some unquantifiable benefits from valley training (river embankments) which will eliminate sporadic  - 19 - flooding and interruption of communications. Benefits from the crop production in the project areas would increase from a fluctuating annual average of about $106.1 million to a relatively stable annual average of about $242.8 million, based on the same input and output prices as used for the economic rate of return calculations. This would be achieved .nrough increases in the yields of various crops ranging from 25 percent to over 200 percent and through an increase in cropping intensity of about 16 percent made possible by irrigation. The project would more than double labor productivity, and is expected to create about 2,000 new jobs during construction and 1,500 thereafter. About 96,500 cooperative workers and about 9,000 State farm employees would participate in the project. Return from the project is mainly to the economy as a whole but some indirectly goes to beneficiaries through general wage increases, better public services and better availability of goods. In addition, there would be benefits derived from private plots in CAPs and bonuses. Foreign exchange earnings are expected to accrue to the economy mainly from grain exports, while increased self-sufficiency in crops like soybean will help to save foreign exchange. The project would also result in general linkage benefits to the economy by ensuring increased and stable raw material supplies to processing and marketing channels. The overall economic rate of return for the whole project is estimated to be about 22 percent including the silos, the separate rate of return for which is estimated to be 15 percent with a cost of $15.3 million. The economic rates of return for Bucsani, Buzau, Siret and Prut subprojects whose costs are $68.5 million, $21.3 million, $45.6 million and $61.8 million, are 28 percent, 17 percent, 22 percent and 31 percent, respectively. 52. The risk of not attaining project objectives due to construction delays, cost overruns, or inadequate supply of inputs or services is considered low. Experience with other Bank-financed irrigation projects to date confirms this assumption. The design institutes and construction trusts have experience with similar successful schemes. Project costs are based on officially regulated prices which are relatively stable. The supply of adequate agricultural inputs and services is assured (Loan Agreement, Section 4.01(b) and (c)). Projected yields and their development are based on applied research and experience in comparable areas and are considered reasonable. Sensitivity analysis using switching values shows that the project is moderately sensitive to adverse variations in benefits, but is not sensitive to other variables. A decrease of 28 percent for the Buzau subproject and 50 percent for the Prut subproject in benefits will, other things remaining as expected, make the net present value zero at 9 percent discount rate. Since both ecological and soil factors are favorable, and the proposed technologies are relatively simple, aggregate output should not go below its crossover value, even with some bad agricultural years.  - 20 - PART V. LEGAL INSTRUMENTS AND AUTHORITY 53. The draft Loan Agreement between the Bank and the Bank for Agriculture and Food Industry of Romania, the draft Guarantee Agreement between the Socialist Republic of Romania and the Bank, and the report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 54. Features of the project of special interest are listed in Section III of Annex III. 55. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI. RECOMMENDATIONS 56. I recommend that the Executive Directors approve this proposed Loan. Robert S. McNamara President Attachments iDecember 3, 1980 Washington, D.C.  ANN*EX I - 21 - Page 1 of 5 pages ROMANIA - SOCIAL INDICATORS DATA SHEET ROMANIA REFERENCE GROUPS (WEIGHTED AVUGES LAND AREA (THOUSAND SQ. [M.) - MOST RECENT ESTIMATE) TOTAL 237.5 MOST RECENT CENTRALLY PLANNED INDUSTRIALIZED AGRICULTURAL 149.6 1960 /b 1970 /b ESTIMATE /b ECONOMIES COUNTRIES GNP PER CAPIrf (US$) 180.0 510.0 1750.0 1188.8 8104.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 1342.0 3013.0 4042.0 2116.2 7021.1 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 18.4 20.4 21.9 URBAN POPULATION (PERCENT OF TOTAL) .34.1 40.8 46.5 35.5 76.0 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 26.0 STATIONARY POPULATION (MILLIONS) 30.0 YEAR STATIONARY POPULATION IS REACHED 2090 POPULATION DENSITY PER SQ. EM. 77.0 85.0 92.0 83.6 142.8 PER SQ. KM. AGRICULTURAL LAND 126.0 135.0 146.0 228.0 523.3 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 28.2 25.9 25.9 30.8 23.5 15-64 YRS. 65.1 65.5 64.1 62.1 65.1 65 YRS. AND ABOVE 6.7 8.6 10.0 7.1 11.4 POPULATION GROWTH RATE (PERCENT) TOTAL 1.2 1.0 0.9 1.4 0.7 URBAN 3.8 2.8 2.5 2.9 1.3 CRUDE BIRTH RATE (PER THOUSAND) 20.0 20.0 19.0 18.2 13.8 CRUDE DEATH RATE (PER THOUSAND) 9.0 10.0 9.0 7.1 9.1 GROSS REPRODUCTION RATE 1.2 1.3 1.2 1.3 0.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION 'PER CAPITA (1969-71-100) 89.0 89.0 152.0 108.5 110.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 108.0 115.0 130.0 113.7 131.6 PROTEINS (GRAMS PER DAY) 86.0 90.0 103.0 75.1 98.0 OF WHICH ANIMAL AND PULSE 30.0 34.0 43.0 28.6 62.1 CHILD (AGES 1-4) MORTALITY RATE 3.0 2.4 1.0 1.1 0.8 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 66.0 68.0 70.0 70.1 73.5 INFANT MORTALITY RATE (PER THOUSAND) 75.7 49.4 31.0 22.4 13.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. URBAN .. .. RURAL .. .. ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. URBAN .. .. RURAL .. .. POPULATION PER. PHYSICIAN 780.0Lc 840.0/d 734.0 2070.8 624.8 POPULATION PER NURSING PERSON 620.0c .. 638.0 240.1 218.9 POPULATION PER HOSPITAL BED TOTAL 130.0/c 120.0 109.0 96.7 121.2 URBAN 50.0/c 50.0 60.0 RURAL 620.0/c 770.0 730.0 ADMISSIONS PER HOSPITAL BED .. 23.0 .. .. 17.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 3.2/ . URBAN .. 2. 8/e . RURAL 3.4/e . AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. 1.4/ URBAN 1.3/ . RURAL .. 1.4e .. ACCESS TO ELECTRICITY (PERCENT OP DWELLINGS) TOTAL .. 49. URBAN *- 86. O .. RURAL *- 27.0/e ..  - 22 - ANNEX I Page 2 of 5 pages ROKANIA - SOCIAL INDICATORS DATA SHEET ROMANIA REFERENCE GROUPS (WEIGHTED AVERAGES - MDST RECENT ESTIMATE) la MOST RECENT CENTRALLY PLANNED INDUSTRIALIZED 1960 /b 1970 lb ESTIMATE /b ECONOMIES COUNTRIES EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 98.0 113.0 102.0 118.7 100.1 MALE 101.0 112.0 102.0 117.5 102.2 FEMALE 95.0 114.0 101.0 120.0 102.3 SECONDARY: TOTAL 24.0 45.0 77.0 100.2 87.1 MALE 27.0 51.0 81.0 101.9 84.4 FEMALE 22.0 38.0 73.0 97.8 84.3 VOCATIONAL ENROL. (% OF SECONDARY) 54.0 58.0 70.0 47.4 19.0 PUPIL-TEACHER RATIO PRIMARY 25.0 21.0 21.0 16.2 21.3 SECONDARY 16.0 18.0 19.0 13.0 16.4 ADULT LITERACY RATE (PERCENT) .. .. 98.0 .. 98.9 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION .. 2.2 .. .. 339.9 RADIO RECEIVERS PER THOUSAND POPULATION 120.0 152.0 146.0 403.5 932.9 TV RECEIVERS PER THOUSAND POPULATION 3.0 73.0 139.0 200.5 354.8 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 147.0 169.0 129.0 354.3 327.4 CINElfA ANNUAL ATTENDANCE PER CAPITA 9.0 9.8 8.7 14.4 3.3 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 10509.5 11408.2 12015.8 FEMALE (PERCENT) 44.9 44.5 45.0 40.7 36.1 AGRICULTURE (PERCENT) 64.5 47.0 33.0 50.2 7.6 INDUSTRY (PERCENT) 20.5 26.3 33.2 30.8 38.8 PARTICIPATION RATE (PERCENT) TOTAL 57.1 56.0 55.9 47.3 44.6 MALE 64.5 63.3 62.8 57.1 58.1 FEMALE 50.1 49.0 49.1 37.0 31.7 ECONOMIC DEPENDENCY RATIO 0.7 0.7 0.7 0.7 0.8 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY hIGHEST 5 PERCENT OF HOUSEHOLDS .. HIGHEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 40 PERCENT OF HOUSEHOLDS .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. RURAL .. EST IATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 394.0 RURAL .. .. 394.0 EST DMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. RURAL * Not available Not applicable. NOTES /a The group averagea for each indicator are population-veighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Moat Recent Estimate, between 1974 and 1978. /c 1962; /d EHO estimates; /e 1966. April, 1980  - 23-ANNEX I Page 3 of 5 pages ynPFMifiTT IP Of ctAL tnplrAfTMS H---t:eoith..J rdt dente ftcol so -.e1oerli loaned th. meet -h-ettat- and reliable. It should see bs noted that th.y a. oat ha ltete- 10, oS 1'It.,.'..',.,ia tI,v ,.I 'n~llucrdt'-dtt e'*lt,onl InI--'.lTs.co,t hdo.e T ...eta ...o.e The , nrn.ota ec Il-the .t'ta-IIo-....ondlIs tcrtutsreha ietseeo taItthnhtcoroeu soofo-cltoalatttfoes. I tn ea h. ene t-u da.ta the sneeoss see -oplatonei 1te seith-ertl means for teh ttdle-- and sh-nm, onl, oes at lathlofthe ncnlsinta getup hss as- for that f,dictc tnsi. Lha coaetf nounrlTetseuoth ndntesneedso the en-slie1bIlIty of ot ceip, psencet, mrke, odhtoln guodens or to II. fali1t 1977 dste sal end femaegad1 enune r-siti oass.ad sItarese. Poroletlen err Ifonj41p r11d-t 1hr0, ard_ oultenfonl ftP PEt CATIT(Pll) GNiP Per uapita ostimutes an -estu markt prices. cal- _ehn, and tutul dxvidcd by theit ropetio ousher if hospital beta enaedh -nn -onee ioo method as World tank~ Atlas f197t-7t hofaf; uhf0, -oifeble in nblieadpnsetee I and spl,d iil:eeLd h-npital end e- 9),ed Isfdt.hhlttocntt uptl r eahihet omnni nffet ENtitlY CIONSL'OiTlON PitR CAPITA - Anna. IonsumPtion of --eeris enorgyfInl aeseno Pniude.tari- honp.biale.L hraoe.- indludeo,hso al sod Iole. piecc ,etneL1 gsa and hydee-, nuolo..r so teheoa io- neteson ee anooly staffd hr a physician (but ho a -dtinel sisaot, tInio onhI gseo ce isotPee t-pita; 1960, 1970, usd 19hnuse euite. etc.) hiub offer t-ptintu -ivodtioo an ,pnda a data. Iiimtd ecese of meical facilities. Poe ns ,ist"c.I puerese u.. be. boat- ti- inlde tAOi principoI toer-,and npeiielod heteitals, set Inll POPIILATIOS 0011 VUIITALOTAISTICS htioolalo ua erti n eds o aeti etss Tonl.P1 an Mn id-Spr- mili Aa.-h of July 1; 1960, 1970. aed 1.978 Adetoetoom pee Honyftal ted - Tonl. nnehst of emaoitO or dis-bsege dt.- fret hopinlal dinyided by the omber ef bes UnTba- -Pir-a io Ireenn oftotl)-ai ofnbs otota popula.tlo; dlbirnidclvtino f rhnso my affct ioyarbtlityorf data HOUSIfNG ao~nhu~.riet;19h1 1510 and1976 ata.Aenca- Sits uf Oshuld ;I porsn pr household - oaL.-nban. and rma Poonianico Peo I,,(je"Ii9uontt A he....hu1d eunins f ls oea et tojudul wh share linig a'ts irulotten in ne.r 2000 - Crresot population proJckeos ore base.d am 1980 so asenomel. A bhoo.der or lodgee may or nay eon ha iseldad IN tot . iclanion by at sod eon and th1le eeenlin.yL aodhfornilitY eaten the hn...nehldf foe tatistina1 PuePess. PojinL-penentfoe ..etaL.ity estee _eple f tree leel ...... hoertgnurhbe of rer.ots pee oun -to.ta.1 aebe. ard rural - hate- S Ing lIto rupoiancy at bieth inrso ith .u.nney's per to pits bom heo psore pee~ root.. Ia Cl b- nea. ad utlnutsd unmati-mal booT1, and fe...lo liftepnac sniang t77.5 years, The pasDeeioa,rseoiey.telioga - oo dlna teo.-pnea t et_ttit-t eaa T r ter tItl ftr ao... hn t tesh eenevnitdoolinef in.un .e ..pPo pet. itti ir imd io no It-,oIn - nel ad puat casu plann..ing porformame. AeCcr to. ilonteftofereeofdeite)-toa,ure.sd oa at bo-t-.cy tcodi fbe poje_ti_n P.ren.o.. of otot1. onhue. sod .rura delligu rs-pe-tinely. StutonJ_ry ipust inn-tea . s.taieay pupolanton there Is -e geeto si-. the hlenh ran IaIqu-l to the desob reto, and aleo tho agt etruotureIO5 .aIn ou .an Thia Is onbiovd only after fertility teatn doJie . t Ad.totd fEellmeot Rtaits e.oh. unon -lve of odeno cped rtit at, h-t e..b g ...ostlot Poisury sihol - totml. malt ad femel - f..a tenl, male ed feesI. ofonncplact iteteatly. The anetioumy Poplatioo ailo weerollment ofall ages at the poimary lavo as p-romngos of roage.onin r.itiand en the beets ofI the peuy ce nhrctran of theIP pultio pitse sbtl-oge popelutteos; neo-aly ineludes hildmo Sged 6-li In theo roan lOl..ad Ottcone of declino of feretiliny rate ne replace yeats hut ad)nned foe- differont lengoho uf priasep edunt.ti- fur - a.- - - t opttltlc toneahod - Th. ynur ohm sn-t.onury pepaletle eduisaehlno hretoefnu colao nioe in bee cahod. S-oodarvso.hol - eta.tI nab sod feolo -Computed .s abets; eoudary Popilun ion ltttoltr edanae~~~..tooequte t bus..t four yours ofaprovdposy instenotloaf Mty-.-tid-yoa- pupa1anioo Pee qua.. kilumter (107 hoensees) of p_eiden gt.r.. toaieo,or -ah-e tretnin intution Tfor pupi' tact area. utuall~~~~~~~~~.1y ef 12 tn 17 ysurn t sge; eoreenp,,dtone conooau are goalbIy -cic-licea land - Computed ao abro foe sgei-lt-1 1-nd -eIuded. ___________________________ -Children (0014 plru) ciehkiny-et Ill- inl- etbe, ccnil eioo e en no upeae ndepa i.au. ioa oleed it5 peace and enrl to pe-netagt of sid-yoar pepn- d.otly or to"depanto_nt ed eooodoe nsiutu la- ti; 1%;), lilt, and 1978 duta. Pnl ece ai-rne.sdacnon-Ttlsunt v ldi P ,Zani Coc ten tenen) - ;tois - A-ou.I groth rates ef setal ideme o eoosylvl ilddb ubo f eosi h C.u pe I.n.o f or 1950-hO. 196f-Ol. sd 1970-791. e-erepoodioglels _oou i ot h tale (po-uet) - uban - Acous1 growth este of orben POO- Adult litsoe ruts froretn) - Liostatt ado1ts (e,bls no teed ad wine) buena, fee lilt-ho. i9b0-7I, ao 17-7. as eeet.ge of total adult popalstiuo aged I yeses aed -TO. Codo -beh Pan (pee the...a.d)- ho v.ln births par the.ased of mid-year pu 19n60 li, 1970, and 1978det. ..CONiSUMTOrN C.ende-bet tuno (eer th-aoa-d) - Annual dsethe pee thonasod of mid-ynt PoesrCore foer thonseed rpelntiun P-eeSog,t ears comprise non .p~ipouli-; 1960, 1970,sd17. aa uesaigls hoegt etn;snue etlut era e icno ",cdnco tet-Ateg nmbo of daughters a oe ill beer Is silinsey -ehilee. bee n .Iroo . _edaetAno perio ifaeenolnnsprcn teaifl to 5 d iad Rennlnns fete thu....nd pvnitir)- Al t-Peofonnseoeti tlllo cans; ceallyfineyear neriee nding in 1960. 1970, :an 1977. hPutost gnrlphleprteam ofppueffs- .,dg Ao1i Ilantn ilaa. ii-Acipiono Anna.l (theaaande - Annual onhe f ac..sPt.r censa.d orotivoos in J. atts sd Ln 70000 nho eagListranias of radio nfl ofbeh-nnuldni-n -f- au-pictu of eatonl .. feily Plaeing pregra. wa .i effect; date fet ...aat pesos map not be ctpso..blm slos amat nooenhId-haao ego (15-44y prab)ue'e hith-netre1 device tO TV E Xehov..s..e t Mnen opulotion) - 5eTV ein fedu broadnaet to oi oeied wome Io sam_ag g p. geeseo. puhlie pr theutand p.pol.ti..; . seldes aeltoend TV os..oi-em Ff08 47ND ITf'RtITION In tounteiss sod ft ysars thou orgitstr Lioe of Ti sole en 10 effeot. loden of Find F-d-onion Per Cpyita (1969-TI-10l) - fnI o.f Pere.cpita ascl ie f"ul eea neeeoeppe,dfndO etdelpb- Pe-dunc- uf all feud -cmodiltn- 'reductio olut neadfnd and liceeion dennted peimoetly to ernording ..na o-1 e It Is ..omdt...ed inc aedryor bo_Ie.Cf-edonirneo poftury geedo sg aaon tt he "daily" If it ppaoa en four tims each. fotdc titan) which ...edbl so otanntriotno (e.g. -effen so iesAva .tednertC n roe .las-eAse en nba mbor ef tee urt eon lndsdf. iggrefent ~peouee ofech elnoiry Iv haeod t0iokets oddon h no nldngaesto odm-r las anfena. I--rge ptedcLer poine ecights; 1961-b5. AT7O, and 1978dte. ae oi.le un it.St.yT,ied.;t 1-i.m Poe -o-t.c ttilt uf colorioc (neecert ci reeti renos) Computed from regy eqi-lnlet of net feed ouppi fr -ovallah it -tounn pnr espIta LABO FORCE por dy. Aailale oppliencne e oooi pedu_olo iopert less OcT-1 Labor Fero thfoh..ea,de " oeiealy setie Peron., toeludieg eupeen,ZadnaguIn stick, Not -uppliot e-clda ora fntd_..sedo, aend forces and untopled hue inldn onofte tnat Oo qu..aiin - lt sd..int feed peni-asiog:,,cd baton. In disteibucion. Require- Detinitie..na loosiou.ea uttlee ooo out coperab.le; 1961i, 1970 set,d onctuneo on 1nd hr Phi hatdonphyoiboeg-1e .. enda tot .-Iu aeti- 1ops daoa. tin .ad halh -onood-ingeteumta eeeuao body enighte, ego FeaeIec ) - 1Peai labet fernees. pe-cetge ef tfo1 lbhee force. and nndistributio of IPpeputeifo. aed slot i prooson foe easte onttr crro heasoold onri;1961hO, 970. sodl7T daaitlater fone c. fun ,feety hooting -ad I ~ ~~~ ~~~~~~~~~Ittn 0poe-oongo of teno1 lohor fLee; 190 1970 and 1978 den.. Pee ceIta o-2rn f p-tnin igams lee dun) - Protein econeno of per ospi ta Industy lece)- Laber f..r.cL in anig, ceoonno os -at-rieg, eon "uP"' of fed pee fu- len supply of fee.d Is defleod as -huv . te ed e1uotoiity. wter sod gas as pereon.tago of total1 lebue f..o.; 1960, Llenu-te fnr all countIes tb iahed by DOA pefettiosm107 n 97 aa aleur f hI green ob tofal peotefo per day aed20grase anislsd Partctontd n9en dnren tnl ml.ud eae- otcpeima piv ecei,o which 10 gee ahenld St untai rotin These stasd- atit Rateooecactdetnl,ml.adfeaeserfesm sdn e oe han these of 75 goo of Ltota pretoin and 23 gram ofpeeccof f eo,sl n iaepplt f all age osettvalyl, aoinl ponet as n asnag Ifo Ito crld;. propose.d by PFM to the Third ibihI.sd15deo Tkearlceptnisitearfeta held Fud ur 6y b-hL. 1971 ond 1977 data. Pe cptaereio ocyfe Aimal sodrue- Peotet supply of fee d- seeeto reof the populatin sod log tIse trend. A for eefd rie "rnuioule end pulo.a in .ta. per day; li61-b5, 1970 aed 1977 data, manves are fro stolsucs Chid(en01tctlt eele huidl-Aoe otspttaat s fcot Sec..eedono Patio - Ratio of PePuIatlt under 11 sd 65 and -nt Child (... ~ 1-4) R.L. d..th. p.. th.,,-,d 1, no she otutl lsbor deree. ogo trop I-h4rta n ohildern in this age gteup; fee t ma .i.oelp iogees telie date deelved frao life tablue; 1961. 1970 and 1977 dots. IeffIfE DIStTRlIB'lTIO HEALTH rercteaty of Prinate 1ooe- (both It cashso ho4)- tcit.d by ibs li-f-e nect rntoh(er)-Aoet ubro er flf oenintmg .5fpLern. r, ichest 20 percat, Pu tst1peCte. aed poorest 40 pa...est _?e_cL Ay ... 9- .-b.r -f y..r. of lifof boasohlds. an hionth; Ih,1970 sod 1970 dots. Intetf totlit Itono(ro Ihoos.nd). Atonal deaths of ifasts under us, year POVETY7 TAfRCT GOnUfPS of ace pr thuusad ln itho. itoedAaLoePnntfcs nefilrvoio)-uhtodra- Aster scypip Iftilude trnstrd surface ootee ot noireeeed hot econteotoofed oocri.tndllytreqtet..dietypue essential oee-f-ed requfremenes is.ve atcto astha ita neoc-ted berebeLos, spring. atdsco tarp. 00110) - atrtrel__eroeoln_ IiteiY ee ..fa -goba endtar' fe....f 00 sedpoot fIc-ned not -,r then 1001 -erne from ehousoremay ha ....Iit . h ll,U,-I-h:dlidf.t' .. co,,nidrrdCu bte ltbi erseonble acies ,If the to. nalras pee er. of. th.rntr. rbtirtl _:is eie. reeeua resnhlates Adfpp thnseb-ewf n oo of the ho-.ohld feoslI Lihajsoomorkge eto om eehtaes do no hoo to seed disptepoeeic...ns part of the day On fenehin the -alatdPeustc 9dm_ Abufe betrt fncee -.I)e (rro f - porba colo ~ adenri - erorf a poplantn fuhee nd rraf wheare bsolte pmr5 A--_ocIoj it ten fcjcu of hutat ucreta en evsio-ooee by eatr-hoet,t ystett er the . of *April, 1960 pit pefone end s1.ic fle totiltIe_e  - 24 - ANNEX I Page 4 of 5 pages IcoxMogC INDICATOM GROSS NATIONAL PRODUCT IN 19T8 Average Annual Rate of Grovth (S) US$M1. % 1961-65 1966-70 1971-758 GNP at Market Prices 36,040 100.0 9.0J 7.7T 11.3J 9.11" Gross Fixed Domestic Investment 10,905 30.3 11.3 11.2 11.2 11.9 Gross National Saving 10,126 28.1 Current Account Balance -779 2.2 Export of Goods, NFS 8,639 24.0 9.0 -/3 10. 9J/ 23.63 3 11.5 13 Imports of Goods, NFS 9,174 25.5 l0.7o 12.7a/2 22.3JJ 1 5. OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1978 Net Value Added / Labor Force N.V.A. Per Worker us$ Bln. S Mln S US $ S Agriculture 4.46 15.3 3.36 32.7 1,327 46.8 Industry 16.87 57.9 3.41 33.2 4,947 174.6 Const ction 2.97 10.2 0.92 8.9 3,228 113.9 Other2 4.83 16.6 2.59 25.2 1,865 65.8 Total/Average 29.13 100.0 10.28 100.0 2,834 100.0 GOVERNMENT FINANCE IN 1978 Central Government Lei Billions % of GDP Total Receipts 300.8 52.4 Total Expenditures 299.3 52.1 Total Surplus 1.5 0.3 MONEY, CREDIT AND PRICES (in billions of Lei, end of year) 1975 1976 1977 1978 Money Supply 176.4 201.4 207.5 232.5 Short-Term Bank Credit 170.2 194.0 194.5 212.8 Retail Prices (1975 = 100) 103.9 104.4 105.0 107.3 Percentage Changes in Retail Prices 0.2 0.5 0.5 2.2 J Growth rate of national income EMENA CP1D 2/ In current prices May 23 1980 3) Growth rates of exports and imports only. 1 AI National income (SMP methodology) and output of the non-productive sector. 5/ Includes net output of the non-productive sector.  - 25 - ANNEX 1 Page 5 of 5 pages BALANCE OF PAYMENTS (Convertible Currencies) 1977 1978 1979 $m Conv.(%)l/ tm Conv.(%)I/ Sm Conv.(/)l/ MERCHANDISE MXlORTS, 1978 Exports of Goods, NFS 7,357 55 8,728 52 10,094 59 Capital Goods 2,289 28 Imports of Goods, NFS 7,529 55 9,319 55 11,389 63 Consumer Goods 1,405 17 Resource Gap -172 75 -591 102 -1,295 99 Foodstuffs 784 10 Interest Payments (net) -132 108 -168 102 -358 101 Intermediate Goods 667 8 Balance of Current Account -304 90 -759 103 -1,653 101 Raw Materials 2,411 3, Industrial (2,538) 32 MLT Borrowing Agricultural (373) 5 Disbursements 861 98 1,174 99 2,0b5 99 8,056 100 Amortization -562 99 -586 99 -809 99 Net 299 94 588 99 1,256 99 EXTERNAL DEBT, December 31, 1979 MLT Lending tSS MHn Disbursements 485 51 483 62 486 59 Total MLT S,564 Amortization -127 44 -137 71 -177 57 of which convertible Net -358 53 -346 58 -309 60 currencies 5,467 Short-term Credit 256 69 487 94 981 99 DEBT SERVICE RATIO, Dec. 31, 1979 x Net Errors and Ommissions - - -13 7 -68 98 IMF 38 100 -20 100 21 100 All Currencies, gross 2/ 12.3 IBEC 101 - 103 - 96 - All Currencies, net 3/ 6.6 Change of reserves -32 100 -40 100 -324 100 Convertible Currencies, gross 2/ 20.6 1977 1978 1979 IBRD LENDING, December 31, 1979 US$Mln Imports of oil and oil products 875 1,218 2,051 Outstanding and Disbursed 58O.6 Exports of oil and oil products 688 746 1,744 Undisbursed 58n.7 Outstanding arnd Undisbursed 1,170.3 EXChANGE RATES 1. Official Rate Before August 1971 6.0 Lei: UStl August 1971-February 1973 5.53 Lei: US$1 February 1973-March 1978 4.97 Lei: UStl Since March 1978 4.47 Lei: UStl 2. Tourist Rate Before August 1971 18.0 Lei. UStl August 1971-February 1973 16.0 Lei; UStl February 1973-October 1974 14.35 Lei: UStI Since October 1972 12.0 Lei: USSI 3. Conversion Rate for Traded Goods July 1973-March 1978 20.0 Lei: UStl Since March 1978 18.0 Lei: US11 Starting January 1981 15.0 Lei; USS1 1/ Convertible currency as a percentage of total. 2! Debt service payments for credits received only.. 3/ Net of debt service payment receipts for export credits extended. August 20, 1980 EMENA CPID  - 26 - ANNEX II Page 1 of 7 pages STATUS OF BANK GROUP OPERATIONS IN ROMANIA Statement of Bank Loans (As of October 31, 1980) US $ Million Loan Fiscal Amount (less cancellations) Number Year Borrower Purpose Bank TW IDA Undisbursed Five loans fully disbursed 280.0 - 1083-RO 1975 BAFI a/ Agricultural Credit 30.0 1.5 1169-RO 1976 BAFI Flood Recovery 40.0 1.6 1242-RO 1976 Investment Bank Hydropower 50.0 8.6 1247-RO 1976 BAFI Irrigation 60.0 4.2 1368-RO 1977 BAFI Irrigation 60.0 12.5 1436-RO 1977 Investment Bank Bearings 38.0 7.1 1447-RO 1977 Investment Bank Glass Fiber 18.1 0.1 1448-RO 1977 Investment Bank Polyester 50.0 10.2 1479-RO 1978 BAFI Agricultural Credit 71.0 26.7 1509-RO 1978 BAFI Irrigation 40.5 21.1 1536-RO 1978 Investment Bank Tire 85.0 50.8 1581-RO 1978 Investment Bank Post Earthquake 60.0 34.3 1634-RO 1979 Investment Bank Chemicals 40.0 27.0 1651-RO 1979 Investment Bank Pipe 40.0 38.6 1652-RO 1979 Investment Bank Thermal Power 70.0 45.2 1669-RO 1979 BAFI Livestock 75.0 46.5 1670-RO 1979 BAFI Irrigation 70.0 70.0 1764-RO 1980 BAFI Livestock 85.0 76.2 1794-RO 1980 Investment Bank Canal 100.0 90.9 1795-RO 1980 BAFI Irrigation 90.0 90.0 1876-RO 1980 BAFI Orchards 50.0 50.0 Total 1,502.6 c/ 713.1 of which has been paid 24.2 Total now outstanding 1,478.4 Amount sold 19.8 of which repaid 15.1 4.7 Total now paid by Bank_A/ 1,473.7 Total undisbursed 713.1 a/ Bank for Agriculture and Food Industry. b/ Excluding exchange adjustments. c/ In addition, a $125 million loan for the Fourth Power Project and a $80 million loan for the Fourth Livestock Project are being processed ahead of this proposed loan.  - 27 - Annex II Page 2 of 7 pages PROJECTS IN EXECUTIONI/ Ln No. 1020 Bacau Fertilizer Project; US$60 Million Loan of June 28, 1974; Date of Effectiveness: December 31, 1974; Closing Date: September 30, 1980 After initial delays due to changes in site and project scope, and delays in design and construction, most plant units have been commissioned during 1978/79 except for the urea plant. The urea plant is delayed due to slow delivery of local equipment and is now expected to be commissioned in late 1980. The final project cost is expected to be close to the appraisal estimate. Ln No. 1027 Otelinox Special Steel Project; US$70 Million Loan of July 10, 1974; Date of Effectiveness: April 3, 1975; Closing Date: December 31, 1979. Execution of the project was delayed about one year, primarily because of the complexity of two large bid packages, the Romanians' lack of familiarity with international competitive bidding procedures under the Bank's Guidelines, and lack of interest and competition among suppliers. More recent delays have been caused by late delivery of Romanian manufactured equipment. The cold mill was commissioned in July 1979 and construction oln the bar mill is progressing somewhat behind contracted schedules with commissioning expected in June 1980. Total project costs are expected to be essentially equal to appraisal estimates. The project is expected to be fully completed in 1980. The loan is now fully disbursed. Ln. No. 1028 Turceni Thermal Power Project; US$60 Million Loan of July 10, 1974; Date of Effectiveness: November 6, 1974; Closing Date: June 30, 1979. Delays in construction due to late delivery of equipment and skilled labor shortages are likely to result in a 15-month delay in commissioning of generating units. Project execution is otherwise according to plan, but in connection with Turceni II some modifications in the coal handling equipment mills are underway because the coal (lignite) was found to be lharder and of poorer quality than originally expected. Training of future operational staff is in hand. The loan is now fully disbursed. 11 These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 28 - ANNEX II Page 3 of 7 pages Ln. No. 1083 Sadova-Corabia Agricultural Credit Project; US$30 Million Loan of February 6, 1975; Date of Effectiveness: April 29, 1975; Closing Date: December 31, 1980 Progress continues to be satisfactory in implementing subprojects. Construction of the pre-mix feed mill is satisfactory and final project procurement has been carried out under contracts tendered internationally. Ln. No. 1169 Flood Recovery Project (Agricultural Component); US$40 Million Loan of November 12, 1975; Date of Effectiveness: December 2, 1975; Closing Date; December 31, 1980 Project execution is proceeding well except for the installation of the flood warning equipment which has been slow. Equipment procured under international competitive bidding has been delivered and only small quantities of spare parts remain to be procured. Delivery of flood warning equipment is expected to be completed in 1980 and installation will extend into 1981. Ln. No. 1242 Riul Mare Retezat Hydropower Project; US$50 Million of April 28, 1976; Date of Effectiveness: July 26, 1976; Closing Date: December 31, 1981 Due to shortage of manpower, tunneling works have been delayed and mechanized excavation is expected to begin early in 1980. Project execution is currently about one year behind schedule. Civil works for the dam and underground power station are well underway, and 100 percent of the loan amount has been ommitted. Ln. No. 1247 Rasova-Vederoasa Irrigation and Agriculture Development Project; US$60 Million Loan of April 28, 1976; Date of Effectiveness: November 3, 1976; Closing date; June 30, 1981 Construction of pumping stations, canals, and other project works is progressing satisfactorily. Out of 11 dairy farms, six farms are completed and contracts for purchase of 9,130 imported heifers (100 percent of total) valued at over US$8 million have been awarded. Procurement contracts for all equipment have been awarded. The feedmill and silo in Negruvoda is completed while the silo for 44,000 tons in Baneasa is delayed. Work on soil erosion control and the land levelling is behind schedule. Ln. No. 1368 Ialomita-Calmatui Irrigation Project; US$60 Million Loan of March 2, 1977; Date of Effectiveness: June 23, 1977; Closing Date: June 30, 1982 Contracts for all equipment and materials have been awarded. Some construction equipment and about 50 percent of pipe has been delivered. Construction of project works is underway, progress is satisfactory. In 1979 about 18,000 ha have been irrigated. Works on surface and tile drains, land levelling and soil erosion control works are behind schedule.  - 29 - ANNEPX II Page 4 of 7 pages Ln. No. 1436 Brasov Bearings Project; US$38 Million Loan of June 15, 1977; Date of Effectiveness: August 11, 1977; Closing Date: December 31, 1982 Contracts on virtually all major packages except one, have now been signed and implementation of the project is proceeding ahead of the original schedule. Project costs are expected to be close to, or slightly over, appraisal estimates. Overall economic aspects of the project look somewhat more favorable than at appraisal due to the improved market outlook, improved * product mix, and changes in project design to achieve lower product costs. Ln. No. 1447 Bucharest Glass Fiber Project; US$18.1 Million of June 15, 1977; Date of Effectiveness: August 11, 1977; Closing Date: December 31, 1980 Project implementation is progressing satisfactorily. The Bank has reviewed the procurement of roving machines and has decided that procedures undertaken by the Borrower were inconsistent with those required under the Loan Agreement. Therefore the portion of the loan (US$197,080) that would have otherwise been eligible for disbursement has been cancelled. The procurement of equipment for Section II (Spinning) financed by the Bank is nearly completed. Start-up of this section has been delayed about 12 months behind appraisal estimate. This is mainly due to civil construction delays because of severe winter conditions and also delays in imported equipment delivery and erection. Commissioning and three-shift operation is targeted for June 1980. Ln. No. 1448 Cimpulung-Muscel Polyester Project; US$50 Million Loan of June 15, 1977; Date of Effectiveness; October 3, 1977; Closing Date: March 31, 1981 The main supply contract has been signed, and execution of the project is proceeding satisfactorily with production expected to begin in June 1980. Ln. No. 1479 Pig Production and Processing Project; US$71 Million Loan of July 15, 1977; Date of Effectiveness: September 28, 1977; Closing Date; June 30, 1982 The project represents the Bank's first participation in Romania in a development plan on a nationwide basis. It provides for the development of a large multiplier herd, establishment of testing and selection centers, expansion of industrialized swine production, and provision of slaughtering and processing facilities. Project implementation is proceeding satisfactorily, although disbursements are lagging 31 percent behind Plan targets. Construction materials and slaughterhouse equipment procurement under ICB is almost complete.  - 30 - ANNEX II Page 5 of 7 pages Ln. No. 1509 Viisoara Irrigation Project; US$40.5 Million Loan of January 27, 1978; Date of Effectiveness: May 15, 1978; Closing Date: December 31, 1983 Bids for all procurement contracts were received in November and December 1978, and almost all contracts have been awarded. Construction of project works is proceeding satisfactorily, and about 25 percent of irrigation works have been completed. Ln. No. 1536 Tires Project; US$85.0 Million Loan of March 31, 1978; Date of Effectiveness: June 9, 1978; Closing Date: December 31, 1981 Construction of the Zalau plant (truck tires) is slightly behind schedule with expected completion in the second quarter of 1980. The Turnu-Severin plant (off-the-road tires) has been delayed 2 years mainly as a result of difficulties in obtaining adequate responses from prospective suppliers of the main technology and equipment package. The Romanian Government is now at an advanced stage of negotiations with a prospective supplier for the OTR package. Ln. No. 1581 Post Earthquake Construction Assistance Project; US$60.0 Million Loan of June 12, 1978; Date of Effectiveness: September 5, 1978; Closing Date: June 30, 1981 Procurement is proceeding satisfactorily and contracting is around 70 percent complete. The pace of disbursement has also picked up in recent months and is expected to be maintained. The enterprises assisted under the loan generally recorded substantial output growth in 1979. Ln. No. 1634 Craiova Chemical Project; US$40.0 Million Loan of January 15, 1979; Date of Effectiveness: May 2, 1979; Closing Date: December 31, 1982 Initial procurement and execution of the project are proceeding satisfactorily, and the final commissioning is expected by end 1981, as scheduled, although partial commissioning of some units is delayed by a few months. The final project cost is expected to be close to the appraisal estimate. Ln. No. 1651 Roman Seamless Pipe Project; US$40.0 Million Loan of February 26, 1979; Date of Effectiveness: July 30, 1979; Closing Date: December 31, 1982 After an initial delay of nine months procurement is proceeding satisfactorily. The contract for the main technology package was signed in November 1979 and other packages have been prepared for international bidding. Site clearing started in May 1980. The project is expected to start commercial operation in the first quarter of 1983.  - 31 - ANNEX II Page 6 of 7 pages Ln. No. 1652 Second Turceni Thermal Power Project; US$70.13 Million Loan of February 26, 1979; Date of Effectiveness: June 29, 1979; Closing Date; December 31, 1982 The project is expected to be delayed by about one year because of delays in Turceni I and the necessary sequential arrangements for implementation of both projects. Orders for the three Bank financed 330 MW thermo-electric units have been placed. Procurement for about 3 percent of the goods being financed from the loan is in process. Ln. No. 1669 Second Livestock Project; US$75.0 Million Loan of April 16, 1979; Date of Effectiveness: July 6, 1979; Closing Date: June 30, 1984 Progress in project implementation is satisfactory and disbursements are in line with appraisal forecasts. Tender documents for procurement of construction materials and slaughterhouse equipment have been approved. Ln. No. 1670 Mostistea and Calmatui Irrigation and DrainaLge Project; US70 Million Loan of April 16, 1979; Date o)f Effectiveness: July 16, 1979; Closing Date; June 30, 1984 Initial preparatory works are proceeding satisfactorily. Bids for procurement of equipment and material, under ICB, have been opened and are being evaluated by the Borrower. Ln. No. 1764 Third Livestock Project; US$85.0 Million Loan of December 17, 1979; Date of Effectiveness: April 15, 1980; Closing Date: December 31, 1985 Project implementation is beginning. Tender documents for procurement of construction materials have been approved subject to some modifications. Ln. No. 1794 Danube-Black Sea Canal Project; US$100 Million Loan of April 30, 1980; Date of Effectiveness; (Selptember 5, 1980); Closing Date: December 31, 1983 The bidding process for both equipment and materials is proceeding on schedule. Ln. No. 1795 Covurlui Irrigation Project; US$90 Million Loan of April 8, 1980; Date of Effectiveness; July 8, 1980; Closing Date: December 31, 1987 Preparation of tender documents for procurement of equipment and materials and initial execution of the project are proceeding satisfactorily.  - 32 - ANNEX II Page 7 of 7 pages Ln. No. 1876 Orchards Project; US$50 Million Loan of June 19, 1980; Date of Effectiveness: September 16, 1980; Closing Date: December 31, 1985 This loan became effective only recently. No problems are expected with the initial execution of the project.  - 33 - ANNEX III ROMANIA BUCSANI-BAZAU=SIRET-PRUT IRRIGATION (BBSP) PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events a) Time taken by the country to prepare 13 months (February 1979 - the project: February 1980) b) Agency which has prepared the project: Ministry of Agriculture and Food Industry c) Date of first presentation to the Bank, and date of first Bank mission to consider the project: October 1979 and February 1980 d) Date of departure of appraisal mission: April 4, 1980 e) Date of completion of negotiations: November 17, 1980 f) Planned date of effectiveness: March 1981 Section II: Special Bank Implementation Actions None Section III: Special Conditions The Government should complete: a) Arcesti and Strejesti dams on the Olt River by December 31, 1981 (para. 39). b) Siriu dam on the Buzau River by December 31, 1983 (para. 39). c) Remodelling of the lower reach of the Beica stream in Bucs,ani subproject (para. 39), and d) Birlad River training (river embankments) for the Siret subproject by December 31, 1982 (para. 39).   ROMANIA A t BUCSANI -BUZAU-SIRET-PRUT I 0 0 IRRIGATION PROJECT BUCSANI CmlS : u Propexi Areav noundaryr it",i Rxpunpixg Storio- l-t, PressLre Pumping Stations It Exiting Pumpxg Station / | Xj9={l -~ Cc-1i, wth Mixed Operotiox- - - M-i Dxanog C-ci wxtx