Tunisia - Irrigation Management Improvement Project

To_ms-- of The World Bank FM OFFICIAL USE ONLY /A*, 2 -)2= _7 C)A Reipt N.- 5396-TUN STAFF APPRAISAL REPORT TUNISIA IRRIGATION MANAGEMENT IMPROVEMENT PROJECT May 10, 1985 Europe, Middle East and North Africa Project Department T1i &scomat h a .eglddi IbUBdis sd NO be m.d by redPlns dmly In the Pefs,mmee d ther .UdI dm&e.l e__mm =a am .huwbe be wbd wI3hsd We di Book aibdIm.  CURRENfCY EQUIVALENTS Currency Unit = Tunisian Dinar (D) D 1_00 = US$1.33 US$1.00 = D 0.75 WEIGHTS AND MEASURES 1 kilometer (km) = 0.6214 mile (mi) I hectare (ha) = 2.4711 acres (ac) I liter (1) = 1.0567 quarts (qt) 1 metric ton (t) = 2,204.6226 pounds (lb) GOVERNIMENT OF TUNSA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY GLOSSARY OF AREVIATtOtS AIC AsSociation of Cmos Interest (Association d' Intert Collectif) ARAPPI Agency for Agrarian Refors In Public Irrigated Perimeters (Agene de la tetorme Agraire dans les Ptrimetres Publitcs Irrigues) mET National Bank of Tunisia (Basque Eationale ae Tunsle) Cut National Computer Center (Centre Nattanal Intormatique) CREGR Research and Experim_ntation Center of the Rural Construction Department (Centre de Recherche et d'Exprimentatlon du Genie Rural) CROA Regianal Agricultural Development Comission (ca 'ssartat Regional de eiveloppement Agricole) CTV Local Extension Unit (Cellule Territoriale de Vulgarisation) OAF Department of Administrative and Financial Affatrs (Direction Administrative et Financierel KcomvPr: Department of Coordination of Irrigation Develoeent Offtces (Direction de la Coordination des Otfices de Mnse en aleur des Peirietres Irrigates) OEGTN : Department of Studies and Large Hydraulic Works (Direction des Etudes et Grands Travaux Mydraul1ques) OCR Department ot Rural Engineering (Direction du Ginie Rural) OPSAE Department of Planning. Statistics and Economic Analysis (Dtrection de la Planification. des Statistiques et des Analyses Economiques) DRE : Department ot Water Resources (Direction de Ressources en Eau) FOSDA : Agricultural Development Fund (Fonds Special de Diveloppement Agricole) GIN : Group ot Hydraulic Interest (Groupent d rnterit Hydraulique) MEM : Hydre/Electrechanical (Hydro/ilectracan ique) INRAT N1attinal Institute of Agricultural Research (Institut National de Recherche Agrononique Tunisten) Luv : Lower Medjerda Valley (Vall*e de la Basse Medjerda) MCA Ministry of Agriculture (Ministere de l Agriculture) HOF : Ministry of Finance (Ministere des Finances) CMV Development Offices (Offtces de Mise en Valeur) OMVVM Development Office of the Medjerda Valley (Cffice de 1ise en Valeur de la Vallee de la Medjerda) PPI : Public Irrigated Perimeters (Perinetres Publics Irriguis) SOMAl : National Farm Mechanization Campany (Societe Nationale de Motoculture) SONEDE : National Society for Water Supply (Societe Hationale dCExploitation et de Distribution des Eaux) STEG Tunisian Electricity and Gas Company (Societe Tunisienne dlElectricite et du Ga2) WUA Water User Associations I This document has a restricld distribution and may be used by recipients only in the perfornance of their offwcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  REPUBLIC OF TUNdiSA IRRIGATION MANAGEMENT 04PROVEMENT PROJECT LOAN AND PROJECT SUIMMARY Borrower Republic of Tunisia Amount : US$22.0 million equivalent Terms : 17 years, including 4 years of grace, at the standard variable interest rate. Project Description: The proposed Project would support nationwide improvements of the operation and maintenance of about 105,000 ha of existing irrigation systems as well as policy and institutional reforms to increase the efficiency and self-financing of the Irrigation Development Offices (OMVs). The Project would (a) reduce the need for major costly investments for the rehabilitation of existing irrigation systems by improving maintenance operations; (b) ensure the sustainability of agricultural development in public irrigation schemes; (c) improve the incomes of about 42,000 farmers and create employment opportunities; (d) aim at eliminating OMVs' operating deficits. The Project would consist of (a) provision of equipment and vehicles for O&M activities and of safety stocks of space parts, rehabilitation of hydro- and electromechanical equipment, and execution of rehabilitation works; (b) setting up an efficient management information system and defining improved planning, financial, and operating procedures in the OMVs, upgrading the coordination between OMVs and their supervisory Ministries, strengthening the Water User Associations, introducing adequate pricing policies for OMVs' services to promote a more rational use of resources, and financial autonomy; (c) technical assistance and training; and (d) on-farm development. The risk of lower than expected rehabilitation cost savings or production response is minimized by the project design focus on technical assistance and training to improve irrigation O&M and overall management of the OMVs.  Estimated Project Costs: Local Foreign Total (US$ million)- Investment Costs - Irrigation Offices O&M equipment 3.0 3.5 6.5 Safety stocks 2.1 2.2 4.3 Rehabilitation of HEff equipment 4.2 3.2 7.4 Technical assistance and training 0.8 0.9 1.7 OMVVM's rehabilitation investments 4.0 4.0 8.0 Water management studies 0.4 0.5 0.9 Subtotal 14.5 14.3 28.8 - Ministry of Agriculture Strengthening of DPSAE 0.1 0.2 0.3 Strengthening of DCPPI 0.2 0.7 0.9 Subtotal 0.3 0.9 1.2 Total Investment Base Costs 14.8 15.2 30.0 Incremental Operating Costs - Irrigation Offices 4.6 3.2 7.8 - Ministry of Agriculture 0.9 0.1 1.0 - Onfarm development 4.2 2.3 6.5 Total Operating Base Costs 9.7 5.6 15.3 Total Base Costs 24.5 20.8 45.3 Physical contingencies 3.2 2.5 5.7 Price contingencies 5.8 4.2 10.0 Total Project Costs 33.5'' 27.5 61.0 ' Financing Plan: Local Foreign Total (Us$ million)- World Bank - 22.0 22.0 Other Donors - 2.4 2.4 Government 13.7 - 13.7 Beneficiaries 4.6 - 4.6 Credit institutions 1.5 3.1 4.6 Net Project Costs 19.8 27.5 47.3 Taxes and Duties 13.7 - 13.7 Total 33.5 27.5 61.0 Estimated Disbursements: Bank FY 1986 1987 1988 1989 1990 1991 1992 - - (US$ million)- Annual 1.5 5.0 7.0 4.0 2.5 1.0 1.0 Cumulative 1.5 6.5 13.5 17.5 20.0 21.0 22.0 Economic Rate of Return: 29Z Staff Appraisal Report: No. 5396-TUN, dated May 10, 1985 Map No. IBRD 18608 /a Includes US$13.7 million of taxes and duties.  STAFF APPRAISAL REPORT TUNWSIA IRRIGA_ tIANAGEMENT IMPROVEMENT PROJECT Table of Contents Page No. I. INTRODUCTION ........................................ 1 II. THE AGRICULTURAL SECTOR ............................... 2 A. Place of Agriculture in the Economy ..... ............. 2 B. Previous Bank Involvement in Agricultural Projects .. 3 III. THEIRRIGATION SUBSECTOR . . 4 A. Background. 4 B. Subsector Issues. 6 Iv. IRRIGATION DEVELOPMENT OFFICES (OMVs). . 7 A. Background. 7 B. OMV-fGovernment Relations. 7 C. OMV-Farmer Relations: Water User Associations (WUAs) 8 D. OMVs' Management. 9 E. OMVs' Financial Situation. 11 F. OMVs' Commercial Activities and the Role of the Private Sector .11 G. Irrigation Cost Recovery .12 V. THE PROJECT . ............................................. 14 A. Project Concept and Objectives ...... ................. 14 B. Sulmaary Description of Project Components .... ........ 15 C. Detailed Features ...................... 16 D. Project Costs .20 E. Financing .22 F. Procurement .23 G. Disbursements ................ 25 This report is based on the findings of an appraisal mission which visited Tunisia in September 1984 composed of Messrs. J.P. Chausse, T. Baudon, B. Dussert and Ms. S. Patel (Bank), and Messrs. B. Boumendil, J. L. Foussz and Manuellan (Consultants).  Table of Contents (Cont'd) Page No. VI. ORGANIZATION AND IMPLEMENTATION ..... .............. 27 A. Project Management ........ .......................... 27 B. Rehabilitation of OMVs' Accounting and Financial System ........ ........................... 28 C. Planning and Monitoring of OMVs' Activities ......... 30 D. Promotion of Water User Associations (WUAs) ......... 31 E. Technical Assistance and Training ..... .............. 32 F. Monitoring and Evaluation ...... ..................... 33 G. Accounts and Audit ........ .......................... 33 VI I. BENEFITS, JUSTIFICATION, AND RISKS . 34 A. Benefits and Beneficiaries .34 B. Financial Impact .39 C. Economic Analysis .43 D. Risks and Sensitivity Analysis .45 VIIi. RECOMMDENDATIONS .47 Supporting Tables Table 1. Project Cost Summary .50 Table 2. Estimated Schedule of Disbursements of Bank Loan .53 Table 3. General Features of Tunisian Irrigation Offices .54 Table 4. Consolidated Statement for all Irrigation Agencies 55 Table 5. Present and Projected Water Requirements in the PPIs 56 Table 6. Summary Water Balance at Full Development of Irrigation Potential .57 Table 7. Impact of the Project on Government Budget (incremental) . 58 Table 8. Policy Reform Matrix .59 Table 9. Proposed Rehabilitation and O&M Equipment for Each OMV ........................................... 62 Table 10. Land Ownership and Agrarian Reform in PPIs .63 Table 11. Selected Documents and Data Available in the Project File .64 Charts 1. Organization Chart .65 2. Implementation Schedule .66 Map IBRD 18608  Table of Contekts (Cont'd) Amaexes (in Implementation Volume) 1. OMVs' Functions, Organization and Management 2. OMVs' Finan-ing and Financial Situation 3. OMVs' Staff and Training Needs 4. OMVs' MIS 5. Relationship OMVsiGovernment 6. Relationship OMVs/Users 7. Maintenance Contracts 8. Proposed Investments, Justification and Costs 9. Studies: TORs and Costs 10. Water Resources and Management 11. Technical Assistance: TORs and Costs 12. Farm Budgets and Incremental Production 13. Water Charges and O&M Cost Recovery 14. Commercial Activities 15. Impact of Project on OMVs Cashflows and Government Budgets 16. Economic Analysis 17. Detailed Project Costs  STAFF APPRAISAL REPORT TUNENA IRRIGATION MAIIAGEMENT IMPROVEMENT PROJECT L INTRODUCTION 1.01 Tunisia experienced an impressive economic growth during the 1970s. Gross Domestic Production (GDP), in constant prices, increased by about 7X p.a. and GDP per capita more than doubled to US$1.420 in 1981. Boosted by high revenues from petroleum exports and a substantial improvement in its terms of trade, the country managed to sustain a massive increase in investments and a rapid growth in public and private consumption without endangering its balance of payments situation. In 1982 and 1983, the economic situation suffered set-backs. Adverse weather conditions depressed agricultural and agroindustrial output and recession in Europe affected Tunisian exports. The fall in petroleum revenues affected the balance of payments and domestic savings. 1.02 The medium term outlook for investment and growth, to a large extent, depends upon future development in the oil and natural gas sector. Although current exploration programs are encouraging, it is expected that domestic production will stabilize at present levels. Therefore, net export earnings from hydrocarbons are likely to decline over the coming years, the country becoming a net importer by the early 1990s. As a consequence, the main factor of growth which allowed Tunisia over the last 10 years to simultaneously expand public expenditures and private consumption, will disappear progressively. Major structural changes are necessary. 1.03 Given this macro-economic environment, the Government is giving more importance to maximizing benefits from existing assets through improved maintenance, better management and increased capacity utilization, and to the reform of public enterprises. The proposed Project aims at contributing to both objectives through the reform of the ten public enterprises responsible for managing public irrigation perimeters in Tunisia. The Project was identified during the Bank Agricultural Sector Survey of 1982-' and prepared under the Bank-financed Technical Assistance Project (Loan 2197-TUN). It was appraised in September 1984 by a mission composed of Messrs. J. P. Chausse, T. Baudon, B. Dussert and Ms. Patel (Bank staff) and Messrs. H. Boumendil, J. L. Fousse and G. Manuellan (consultants). 1/ Report No. 3876-TUN, September 29, 1982.  -2- EL THE AGRICULTURAL SECTOR A. Place of AMriculture in the Economy 2.01 Background. Tunisia nas a total land area of 16.4 million ha of which 8.4 million ha are suitable for agriculture and grazing. The country can be divided into three main ecological zones. The northern zone (252) is the most fertile, receiving adequate rainfall (400-1,000 mm). The central zone (15%) receives between 200 and 400 mm of rainfall and the southern part (60%) is a predesert zone receiving less than 200 mm of rainfall. Of the 5.0 million ha of cultivable land, 34% is planted in cereals, 35% in fruit trees and the remainder in forage crops, vegetables, grain legumes and industrial crops; 20% is normally left fallow. Given the high variability in rainfall, important efforts have been made to develop irrigated agriculture (paras. 3.01 to 3.03). 2.02 Past Performance. Tunisia's agricultural sector performed well during the 1970s. The value of production grew at 4.4% p.a. in real terms between 1970 and 1979, compared to 3% p.a. for middle income countries as a group. However, the pace of growth slowed down considerably near the end of the period and early 1980s (0.5% p.a. for 1977-82), mostly because of drought which has repeatedly affected the country. While the more rapid growth in other sectors, particularly petroleum and tqurism, induced a decline in the relative role of agriculture, it still represents 13% of Tunisia's GDP and employs about one third of the labor force. The continued growth of agricultural production and rural migration has resulted in an increase in average per capita income in agriculture (from US$173 in 1960/62 to US$380 in 1979, measured in 1979 US dollars) and a reduction in the percentage of rural population living below the absolute poverty level (from 17% in 1975 to 13% in 1980). 2.03 National Development Plans and Government Strategy. Under the Fifth Development Plan (1977-81), the Government's main objectives for the sector included a balanced agricultural trade and increased rural employment and incomes. Partly due to the drought, plan targets were in most cases not met. Agricultural value added increased at an annual rate of 1.0X between 1976 and 1981, well below the plan target of 2.5X. Potential exports were diverted to local consumption, and imports, in particular of cereals, increased. As a result, the ratio of food imports to exports increased from 1.2 in 1976 to 1.8 in 1981. The basic objectives for agriculture under the Sixth Development Plan (1982-86) have not changed. The r.eed to resolve key issues such as employment, regional income disparities as well as increased efficiency of investments has become even greater due to the necessity of adjusting the economy to a post-hydrocarbon situation. The Government is aiming to achieve this adjustment in agriculture through inter-alia: (a) a shift toward smaller, less capital intensive investments generating employment opportunities; and (b) the creation of a more favorable economic environment, including the introduction of a more realistic price structure for agricultural products. Investments in agriculture are planned to increase from 13% of total investments during the last Plan to 19%. The Bank-financed Technical Assistance Project (Loan 2197-TUN) is assisting the Government in the preparation of high priority projects and subsectoral strategies, including policy reforms.  -3- B. Previous Bank Involvement in AFZiultural Projects 2.04 Bank Group lending for agriculture in Tunisia started in 1967, and to date 15 projects have been approved for a total of US$358.2 million of Bank/IDA funds, including the recently approved Northwest Agricultural Production Project. Of these, eight are ongoing including three irrigation projects. Performance under these projects has been mixed reflecting institutional constraints. The First Fisheries Project (Credit 270-TUN) was completed at the end of 1979 with considerable delays and low loan recoveries for boats. These problems were addressed under the Second Fisheries Project (Loan 1746-TUN) which is now progressing satisfactorily. The First and Second Agricultural Credit Projects (Loan/Credit 779/263-TUN and Loan 1340-TUN) financed BNT lending for onfarm development. While the projects achieved good rates of return, the continuing problem of higher interest rates on Bank funds than on Government-supplied credit and the lack of decentralization of BNT caused disbursements to be slower than anticipated. The Third Agricultural Credit Project (Loan 1885-TUN) is addressing priority credit problems. Action has been taken to decentralize BNT's operations and raise interest rates. On the basis of financial and agricultural sector discussions to take place during the first half of 1985, the Government is expected to prepare a plan of action to achieve positive interest rates and improve loan recovery ratios. The physical implementation of the poverty-oriented Northwest Rural Development Project (Loan 1997-TUN) is proceeding satisfactorily. The Government is now preparing milk price reforms which should help sustain the favorable impact of the project. The Grain Storage Project (Loan 2052-TUN) is also progressing well after initial delays and the recruitment of new consulting engineers. Under the Technical Assistance Project (Loan 2197-TUN), strategies have been or are being developed for improvements in several subsectors including farm input distribution, farm mechanization, produce marketing, research and extension and improved operation and maintenance of existing irrigation infrastructure. These strategies will contribute to increasing the efficiency of investments under the Sixth and Seventh (1987-91) Development Plans. 2.05 Implementation of the izrigation projects - First Irrigation Rehabilitation Project (Loan 1068-TUN), Sidi Salem Multipurpose Project (Loan 1431-TUN), Southern Irrigation Project (Loan 1796-TUN), Medjerda/Nebhana Irrigation Project (Loan 2157-TUN) and Central Tunisia Irrigation Project (Loan 2234-TUN) -- has been satisfactory. However, these projects have been more concerned with rehabilitating and expanding irrigation infrastructure than with institutional development. OED's audit of the first Irrigation Rehabilitation Project (Loan 1068-TUN), dated November 5, 1984, determined that the economic rate of return of the project was highly satisfactory (32%). A major finding was that the increased reliability of water supply brought about by rehabilitation works carried out under the project had a major impact on farm production and incomes in the project area, by increasing farmers' willingness to take higher risk with higher value crops. The Irrigation Development Authorities (OMVs), the public entities which manage the projects, have demonstrated their ability to carry out construction works efficiently, but their management needs improvement and their performance on operation and maintenance of irrigation infrastructure has been mixed.  -4- II THE IRRIGATION SUBSECTOR A. Bc d 3.01 The mobilization and efficient use of scarce water resources for irrigation has been and remains a major preoccupation of the Government. Since the early 1960s, major shares of public and private investments in agriculture have been allocated for that purpose: 30X between 1962 and 1971, 231 from 1972 to 1976 and 44a from 1977 to 1981. Government invested heavily in irrigation infrastructure (9 major dams, 20 smaller dams, more than 800 deep wells and about 250 pumping stations have been constructed), while the private sector invested mostly in shallow wells (about 23,000) and related equipment. Currently, some 205,000 ha are equipped for irrigation (1983/84) against 120,000 ha in 1972 as follows: EVOLUTION OF IRIGABLE AREAS Total Irrigable Area (ha) Public Perimeters Private Perimeters Total 1972 49,500 70,500 120,000 1976 64,500 80,500 145,000 1984 85,000 /a 120,000 205,000 /b /a Irrigable area in the PPIs is expected to be about 105,000 ha by 1985-86. /b Total irrigation potential is estimated at about 250,000 ha or 5i of total arable land. 3.02 The Public Perimeters (PPIs) are large irrigation schemes built by the Government aed managed by public entities - Irrigation Development Authorities (OMVs) - which are in charge of developing agricultural production in their respective command areas (Chapter IV). Irrigation in private perimeters comes from about 23,000 shallow wells equipped with pumps. In 1984, about 160,000 ha were actually irrigated out of 205,000 ha equipped, giving an overall average irrigation intensity-L' of 781. In the PPIs. the average intensity is about 661 while it is 861 for the private perimeters. The table below presents estimates of total potential water resources, by origin, along with volumes effec ively developped in 1981 and projected to be developed by the end of the Sixth Development Plan (1986). l/ Annual irrigated crop area over area equipped.  -5- DEVELOPMENT OF WATER RESOURCES'& Total Development Developed Developed Potential 1981 1986 Surface water 1,500-1,700 930 1,175 Phreatic aquifers 500-600 400 500 Deep aquifers 650-700 530 630 Total 2,600-3,000 1,860 2,325 /a For a detailed discussion of water balances, see Annex 10. A sunmary situation is presented in Table 6. In 1981, of the about 1.9 billion m3 of water developed and available for beneficial use 0.4 billion m3 were for domestic and industrial use and 1.5 billion m3 for agricultural purposes, but only some 60S of water developed for irrigation was being used. The main reasons for low irrigation intensity in PPIs are: (a) inadequate operation and maintenance of irrigation systems due to a lack of equipment, a shortage of adequately trained staff and inadequate allocation of resources, resulting in low network efficiencies (about two-thirds of planned efficiencies on average); (b) the scarcity of water for PPIs located in the southern and eastern areas; and (c) the underutilization of available resources for PPIs in the northern part of the country, mostly due to farmers' unwillingness to use irrigation fully because of problems of site of land holdings and land tenure as well as preferences for farming systems with low labor requirements (cereals). 3.03 The irrigated sector contributed significantly to the rapid growth of Tunisian agriculture during the 1970s. In 1980, it accounted for about 251 of the country's total agricultural GDP. About 50Z of total irrigated area was used to produce vegetables, 351 was under fruit trees and about 81 under fodder crops. The balance (71) was used for cereals and industrial crops (mostly sugar beet). However, the subsector's contribution could have been higher if more intensive use had been made of the irrigable areas. Government's main objectives during the Sixth Development Plan are: extension of irrigable areas; and intensification of water utilization and crop production on existing irrigable areas. It is envisaged that D 610 million or about 401 of total planned investments in agriculture during the Plan period will be allocated to irrigation. These investments would increase the total equipped area to about 245,000 ha (of which about 125,000 ha in PPIs). The Plan also envisages efforts to improve the intensity of use of existing facilities through: (a) renewed efforts to implement Agrarian Reform in the PPIs; (b) more efficient extension services leading to more effective encouragement of appropriate cropping patterns and promotion of water saving technologies and agricultural practices; and (c) more efficient water management through greater involvement of Water User Associations (WUAs) improved operation and maintenance of public irrigation systems by OMVs, and more efficient provision of commercial agricultural support services through greater involvement of private/cooperative sector. Issues related to (a) and (b) are discussed in the following two paragraphs, while those related to (c), which will be directly addressed under the proposed Project, are analyzed more fully in Chapter IV.  -6- B. Subsectorlssues Land Ownership and Agrarian Reform in PPIs 3-04 In Tunisia, the size of holdings is a major constraint to the intensification of irrigation. Studies carried out by the Ministry of Agriculture have indicated a strong inverse correlation between the size of holdings and irrigation intensities. To rationalize the use of available water resources and ensure fuller exploitation of its investments in irrigation infrastructure, Government has enacted Agrarian Reform Laws1' providing for (a) land ownership limitation; (b) land consolidation; (c) inducement to irrigate; and (d) farmers' contributi-n to investment cost. Details are in Table 10. While some progress has been made, particularly in the area of consolidation in some PPIs, farmer resistance and inadequate penalties have limited implementation of the Agrarian Reform Laws. A study on land issues is being done under the Bank-financed Technical Assistance Project, and an internal Government Commission has been established to review this matter. The lack of a proper National Cadaster has affected the Government's ability to address land issues, and it is therefore preparing a National Cadaster and Cartography project. Farmers' contribution to investments is discussed in more detail in the framework of cost recovery (paras. 4.13 to 4.16). Extension and Applied Research 3.05 Since in 1973/74, OMVs have made considerable efforts to set up effective extension services, supported by Applied Research Stations, to cater to the specific needs of the farmers in their sphere of influence. Although their impact on production is difficult to assess, OMVs' extension and research services seem to have performed reasonably well. They have been instrumental in selecting and introducing new high vielding varieties, in particular for vegetables, and promoting fodder crops with pure-bred milk cows. However, the present system still has drawbacks: (a) applied research by OMVs lacks linkages and coordination with other existing research services and programs; and concentrates mostly on providing advice on specific crops, without taking into consideration the whole farm system or farmers' different needs, motivation and capabilities; (b) little attention has so far been given to improved water management at farm level; and (c) OMVs'extension agents are burdened by additional tasks (input supply, credit, marketing, collection of statistics, etc.) that have diverted them from their principal role. The Government is preparing a National Extension and Research Master Plan under the Bank-financed Technical Assistance Project, which will propose the measures necessary to improve Tunisia's extension and research systems, including irrigated agriculture and is planned to be implemented in 1986 and beyond. Under the present Project, measures would be taken (paras. 4.11-4.12 and 7.12) to divest OMVs of some of their commercially oriented activities, which will facilitate the future reform of the extension system by allowing OMVs' extension agents to devote more time to their primary function. 1/ The Law 58-53 of June 11, l958 as amended by Law 60-6 of July 26, 1960 concerning the Lower Medjerda Valley (LMV) and the Law 63-8 of May 27, 1963 as amended by Law 71-9 of February 16, 1971 for PPIs outside LMV.  -7-- 3.06 Issues dealing with the management and operations of Irrigation Development Offices are discussed in the following chapter. IV. IRRGATION DEVELOPMENT OFEICES (OMVs) A. Bad 4.01 In Tunisia, the promotion of agriculture in irrigated areas (public and private perimeters) is the responsibility of ten-I OMVs created by the Government to (a) operate and maintain public irrigation systems; (b) provide extension services for irrigated crops; (c) promote agricultural production by providing a wide range of support services (including input distribution, tractor services, marketing of produce, credit distribution) when not available from other sources; and (d) promote the creation of farmer groups or cooperatives to assume responsibility for the operation and maintenance (O&M) of irrigation systems and for commercially oriented services. OMVs are State-owned enterprises with a separate legal entity and financial autonomy managed by a Board of Directors consisting of representatives of (a) the Ministries of Agriculture, Planning, Finance and Economy; (b) the Destour Party; (c) the Regional Governor; and (d) the National Farmers' Union. A Director General appointed by the Government is in charge of OMVs' day-to-day operations. They are to be run as commercial enterprises,-a' except that they also provide public services (extension) for which they are fully compensated by the Government. Summary statistics of Tunisia's OMVs are given in Table 3. The paragraphs below analyze the main problems with regard to OMVs' operations and performance, in particular in the areas of their (a) relationships with the Government; (b) relationship with existing Water User Associations (WUAs); (c) internal management; and (d) financial situation. B. OMV-Government Relations 4.02 The OMVs are responsible for executing Government policies for the development of agriculture in the PPIs. The Government provides OMVs with the means, financial and otherwise, to achieve their assigned objectives and monitors that OMVs' activities are carried out as efficiently as possible. In practice, however, this arrangement has not yet worked effectively. 4.03 Lack of Clear Obiectives. To date, no system has been set up to provide the OMVs with clear development objectives beyond the broad guidelines provided by the National Development Plans; most OMVs do not have a precise medium-term development program for their perimeters; their annual programs of operations are discussed only in broad terms with the Ministry of Agriculture (MOA) in the context of budgetary discussions. As a result, OMVs operate largely on the basis of short-term considerations and their potential contribution toward overall sector and national objectives is not fully realized. To remedy this deficiency, the proposed Project would strengthen the planning capabilities of the MOA, in charge of overseeing OMVs' activities, and introduce the systematic preparation and monitoring of medium-term development plans for each of the Offices (para. 5.12). 1/ OMVVM, Jendouba, Lakhmes, Nabeul, Nebhana, Kairouan, ODTC, Sidi Bouzid, Gabes and Cafsa. An eleventh OMV (Souassi), was created in September 1984 out of a small portion of the southern part of OMV Nebhana's command area. * 2/ Etablissements publics a caractere industriel et commercial.  -8- 4.04 Inadequate HMuitoring of OMVs' Activities by Government. OmVs' supervisory body is the Ministry of Agriculture. At present the Ministry cannot provide for an adequate level of Government support and monitoring of OMVs' activities because of inadequacies in current financial managemnt and cost accounting procedures within the OMVs. While preserving or increasing OMVs' operational autonomy, the proposed Project would strengthen OMVs' management procedures and Government planning and monitoring of their activities and performance to ensure that Government's objectives are achieved and that OHVs use their resources with a satisfactory level of productivity. 4.05 Lack of Autonomy. Although OMVs are supposed to be run as autonomous coumercial enterprises, the revenues they derive from water sales, custom machine services and other commercial services are not sufficient to cover the cost of these services. The bulk of the financial resources necessary to cover their operating expenses are provided through annual operating subsidies from the Government (para. 4.10). This has favored the perpetuation of subsidized activities which could better be carried out by the private sector and of overstaffing. The proposed Project would address these issues by (a) improving the level of cost recovery for OMVs' services (para. 7.12); (b) taking actions to eliminate some subsidized services better carried out by the private sector (para. 5.14); and (c) introducing an effective MIS within OMVs (including cost accounting), which would allow to determine the real cost of their activities and of Government policies (para. 6.06). C. ObV-Farmer Reations: Water User Associti ons (WUAs) 4.06 Water User Associations still play a relatively minor role in managing irrigated perimeters but there is considerable scope for expanding their operations. At present, of the four types of WUAs which exist in Tunisia, the "Associations d'Interet Collectif" (AICs) are by far the most important. There are currently about 130 AICs, covering some 38,000 ha of irrigated land. Not all of them, however, are still operating. Most of the AICs which are still active are concentrated in the southern part of the country, in the command areas of the OMVs of Gabes (9,000 ha) and Gafsa (5,500 ha). AICs are ruled by a 1936 decree which provides that they are public entities (collectivit6s publiques), to be managed according to public management procedures and tightly controlled by regional administrative bodies, the "Groupements d'Interet Hydraulique" (GIEs), created in each Governorate by the 1975 "Code des Eaux" (CE). AICs should in principle be responsible for (a) operating and maintaining water distribution systems; and (b) designing and executing new hydraulic works to develop land within their perimeters. In practice, however, most AICs have gradually ceased to play an active role in water management. This is partly due to the higher technology of modern irrigation systems and the resulting increased financial and managerial skills involved. Other constraints include: (a) their complex and bureaucratic operating procedures (their annual budget has to be approved by three different ministries); (b) the tight administrative control exercised by the GIH which has increasingly stripped AICs' members from most of their management role; and (c) the creation of OMVs which have taken over the direct administration of irrigation systems and stripped AICs of most of their responsibilities for water management.  -9- 4.07 The present non-involvement of farmers in the management of irrigation schemes has two major consequences: (a) simple O&M tasks, which could be more effectively handled by farmers themselves, are carried out by OMVs, at a higher cost; and (b) farmers are neither aware of nor concerned with the real cost of irrigation O&M and are t-herefore reluctant to pay the corresponding water charges. To increase the role and responsibilities of WUAs in the management of downstream irrigation systems, measures need to be taken to (a) revitalize existing AICs; and (b) allow for the creation of new, smaller, more flexible WUAs regrouping a sm-11 number of farmers to (i) take reponsibility for the O&M of small irrigated areas; and (ii) be the counterparts of OKVs for the management of public perimeters and resolving disputes. The groundwork necessary to allow for the establishment of this new type of WUAs, smaller and more flexible than AICs, is being carried out under the Bank-financed Central Tunisia Irrigation Project (Loan 2234-TUN). That Project envisages the creation of Irrigation Associations which would gradually take over full responsibility for O&M operations in the small perimeters being rehabilitated under the Central Tunisia Project. The proposed Project would promote the increased role of WUAs in Tunisia by (a) providing for more effective operating procedures for existing AICs; and (b) extending to the whole of Tunisia the dispositions for the creation of small private WUAs being tested under the Central Tunisia Irrigation Project (paras. 6.14-6.17). D. OMYVs' anagement 4.08 OMVs' organizational structure needs only minor improvements to be well suited to their functions and objectives, with (a) headquarters.composed of three Divisions -Administration and Finance, Development (extension, support services) and Irrigation (operation and maintenance, technical studies and works)- ; and (b) Regional Directions with a structure reflecting that of headquarters. Their management, however, is a serious obstacle to efficient operation as analyzed in Annex 1. The main problems are: (i) a lack of strategic and operational planning: investments for the extension or rehabilitation of irrigation infrastructure are not carried out according to a coherent medium-term plan or set on the basis of carefully assessed objectives, but rather determined by the availability of budgetary resources or external financing for particular development projects; (ii) the accounting and financial management system needs to be overhauled because the OMVs lack an efficient cost accounting and budgeting system which would allow them to prepare annual operating plans and budgets, analyze discrepancies between planned and actual levels of activities and expenses, determine the real cost of individual activities and monitor efficiency throughout the enterprise. In addition better audit procedures are needed. Some ONVs have recently started to improve their MIS1' but without any coordination of their efforts and procedures; and (iii) the structure and skills of the staff need to be improved: currently, OMVs' efficiency is impaired by general overstaffing, a relatively low level of technical and managerial skills and the lack of an effective staff incentive system. OMVs' lack of cost controls and Government's policies have induced a rapid increase in OMVs' staffing which reached about 4,500 in 1984, or one employee per 20 ha of equipped land and 1/ Under the Central Tunisia Irrigation Project (Loan 2234-TUN), the OMVs of Kairouan and Kasserine are setting up improved accounting methods.  -10- for about 8 farmers in the PPIs.1' Salaries account for about two-thirds of OMVs' total operating expenses (about 55X for irrigation O&M per se). There is an excess of administrative and support staff with adverse consequences on OMVs' overheads: the ratio of total to administrative staff is about 11 to I on average and as low as 6 to 1 in the best run Offices. 4.09 Irrigation O&M Operating Procedures. Currently, the efficiency of OMVs' operation and maintenance of irrigation infrastructure is negatively affected by a number of factors, which would be addressed under the proposed Project: (a) OMVs often lack the appropriate e4uipment to ensure proper maintenance of irrigation civil works and hydro- and electro- mechanical (HEM) equipment. They also lack the means to act rapidly when there are breakdowns, in particular because of inadequate communications and also because of an inadequate stocking of spare parts. This results in frequent and costly interruptions of operation (paras. 5.03-5.07); (b) OMVs lack certain specialized personnel, for example electromechanical engineers, and their O&M operational staff has a low level of skills and is not adequately supervised (paras. 5.06 and 5.16); (c) OMVs have not defined clear and standardized technical operating procedures and there is no systematic monitoring of vital statistics on existing equipment (specifications, actual performance, repairs etc.) (paras. 5.06 and 5.16); (d) OMVs' annual budgets do not earmark sufficiert funds for maintenance activities: as the Offices operate under relative financial constraints, preventive maintenance is often neglected in favor of more pressing activities (para. 6.08); and Ce) Water User Associations are insufficiently developed in the public irrigation schemes and farmers are only marginally involved in the management of the networks (paras. 4.06, 4.07 and 5.13). The lack of adequate maintenance results in frequent breakdowns and a poor quality of services which, in turn, discourages water use by farmers and their willingness to pay water charges. It also obliges OMVs to undertake costly investments for the rehabilitation of irrigation infrastructure and HEM equipment. The Project would introduce a series of measures to improve the operation and maintenance of public irrigation systems (para. 5.03). 1/ In Morocco, the ratio of equipped area per staff is 38 ha. Although direct comparisons are difficult because of the differences in the scale and methods of irrigation in the two countries, a comparison of staff directly involved in irrigation O&M activities indicates that in 1982, there were on average in Tunisia, for each irrigation O&M staff, 57 equipped hectares, 20 farmers and 170,000 m3 of water distributed. The same ratios for Morocco, where the Irrigation Offices are not considered to be understaffed, stand respectively at 450 ha, 100 farmers and 1 Mm3 of water.  -li- E. OMVs' Fnancial Situation 4.10 OMVs' financial situation is analyzed in detail in Annex 2. Table 4 presents the consolidated annual statements of all OMVs over the 1981-85 period. It is summarized below: OMVs' CONSOLIDATED INCOME STATEM ITS (1981-1985) 1981-84 Actual Proiected Annual 1981 1982 1983 1984 1985 Total Growth (D'OOO) -(D'00O)- (D'OOO) (M) (Z) Total Operating Expenses /a 9,343 11,380 14,092 14,294 17,279 49,109 100 15 Total Income 9,343 11,380 14,092 14,294 17,279 49,10 100 17 OMV generated 4,007 4,135 5,130 4,820 6,227 18,092 37 6 Govt. subsidies 5,336 7,245 8,962 9,474 11,052 31,017 63 24 /a Excluding depreciation. Over the 1981-84 period, OMVs' internally generated income (operating revenues) represented on average less than 40Z of their total income. The balance was provided by Government's annual operating subsidies. As OMVs' operating expenses grew at a faster rate (15Z p.a.) than their operating revenues (6Z p.aJ), annual Government subsidies increased by 24X p.a. over the period and from 49Z of total operating expenses in 1981 to 62X in 1984. Subsidies are currently required for most OMVs' activities. In 1982, internally generated revenues amounted to D 4.1 million or about 45Z of OMVs' operating expenses for activities other than public services (extension and project management), for which they receive direct compensation from the Government. Direct beneficiaries from OMV's services bore less than 40X of irrigation O&M costs, about 70% of the cost of farm mechanization services and 10% of that of other services (input distribution, credit and marketing). Government had to provide the balance. The proposed Project would introduce measures to improve OMVs financial situation and autonomy (para. 7.20). F. OMVs' Commercial Activities and the Role of the Private Sector 4.11 OMVs provide short-term credit in kind, distribute inputs, provide custom tractor services and are involved in marketing activities (Annex 1). These activities are costly for the OMVs to provide and run at a loss. They were originally undertaken because the private or cooperative sectors were unable or unwilling to supply such services, and were meant to be a temporary solution until alternative delivery mechanisms could be promoted. The Offices have therefore played a key development role in supporting farmers. However, they have so far been unable to promote actions which would relieve them from what should be a temporary duty and have steadily developed their activities in these areas. Under the Project, measures would be taken to phase out direct involvement of OMVs in the financing of credit for onfarm  -12- investments. Regarding farm machinery services, most farm machinery in Tunisia is owned by private farmers (about 23,000 out of a total of 25,000 tractors). Because of Government subsidies, OMVs can maintain tariffs below costs for their mechanization services: in 1982, revenues from these services represented about 70% of their real cost, the balance being borne by Government transfers. Meanwhile, due to excessive costs, OMVs tariffs are still 10 to 15% higher than those of the private sector. OMVs machinery services are also relatively inefficient because of poor work scheduling (the machines travelling considerable distances between farms) and the relatively poor maintenance of the equipment due to the lack of qualified mechanics. Measures would be taken under the Project to improve the situation (para. 7.12). 4.12 Input distribution. The development of the private input distribution network has been impaired by the Government policy of fixing input prices and distribution margins at artificially low lc-rels. The OMVs have therefore begun distributing inputs in their conmand areas and their activities in these areas have grown steadily in volume and complexity, placing an increasing burden on financial and human resources which should have been used for more effective operation and maintenance of irrigation systems or for providing extension services. The low distribution margin makes this activity non-profitable, causing the Offices to cut back on the extent and quality of these services. The tendency is to order at the last moment only the amount of inputs which is certain to be sold, which creates transport bottlenecks and frequent depletion of stocks at distribution centers. Under the Project, measures would be taken to achieve: (a) full cost recoveries for OMVs' services from their beneficiaries; and (b) promote a gradual divestiture by OMVs of their commercial activities (para. 7.12). G. lration Cost Recov 4.13 Institutional Framework. Government policy for the recovery of investments in public irrigation perimeters is embodied in the Land Reform Legislation (para. 3.05). Benefitting farmers are charged a betterment levy fixed by decree at the time a perimeter is officially established. The levy is based on investment cost per ha, soil productivity, proposed cropping pattern and projected income and other socio-economic factors. Betterment levies aim at recovering from benefitting farmers part of the increase in land value due to irrigation. Recovery levels have been fixed at 25-70% of estimated land value-added in the Lower Medjerda Valley (LMV) and much less (about 20%) for other PPIs. The procedures for recovering farmers' contribut.ons include payment in kind (transfer of land to the State) for farmers owning more than the ceiling imposed on holdings by the Agrarian Reform Legislation, and cash payments (over a 10-period, at 5% interest with a 2-year grace period). A'though there is no explicit framework for the recovery of irrigation operation and maintenance costs, Government's stated policy is for volumetric water charges paid by farmers to cover at least 100% of irrigation O&M costs. 4.14 Implementation of Cost Recovery Arrangements. It is estimated that the recovery of land betterment levies specified under the Agrarian Reform laws would permit the recovery of only a very small proportion of initial  -13- investment costs (1% to 8Z)."' Actual recovery of farmers' contribution to investment costs has, to date, been limited (Table 10 para. 4) except in cases of land sales where the sale cannot be completed until the Government has been reimbursed any amount due. Since 1981/82, Government has shown a willingness to move toward greater recovery of O&M costs. The table below presents the evolution of water charges over the 1980/81-84/85 period and the current level of cost recovery. Average 1984/95 Water Charaes Annual Increase Estimated Estimated Estimated Recovery Current Constant 08M Recovery Total Total 1980/81 81/82 82/83 83/84 84/85 Terms Terms/j Costs lb of O&H/R Costs /4 Cost - ---------- (millimes/m3) (-millimeA/W3 (zI (millimes/m3) (Z) Gafsa 4 6 6 8 10 26 14 14 71 29 34 Gabes 8 10 10 14 14 15 3 32 43 47 30 Jendouba 8 10 10 14 16 19 7 36 44 66 24 Kairouan 6 10 12 15 18 32 20 65 27 90 20 Lakhmes 8 10 10 15 17 21 9 50 34 80 21 Medjerda 11 13 1S 17 19 15 3 39 49 S1 37 Cap Son 9-12 12-12 15-1S 20-25 20-Z5 20 8 49 47 79 29 Nebhana 10 12 14 16 18 16 4 75 24 105 17 ODTC 6 10 10 12 is 26 14 67 22 92 16 Sidi Bouzid - 6 10 10 1S 36 24 85 17 110 14 /a Discounted for price inflation for 08H costs. estimated at 12% p.a. over the period. lb Including direct and overhead costs. /,i Water charges are paid in advance and recovery of dues is close to 100%. /g Investment and OH costs; see Annex 13 Table 1 for estimation of investment costs per M3. Water charges have been substantially increased since 1980/81. Average annual increases over the period have ranged from 15X to as high as 36% in current terms and from 3 to 24% in constant terms. However, current water charges still cover on average only about 40% of irrigation O&M costs.z- The lowest cost recoveries are registered for OMVs in the central part of the country (ODTC, Sidi Bouzid) and for Nebhana which have high O&M costs per m3 (mainly because of high pumping costs and low quantities of water actually delivered to farmers), and the highest for the OMV of Gafsa-Jerid which has the lowest 06M costs per m'. Irrigation O&M costs are mainly dependent on three factors: (a) the volume of water distributed by the irrigation systems; (b) the pumping costs; and (c) the operating efficiency of OMVs themselves. In several PPIs located in the northern part of the country (OMVVM, Jendouba, 3 Lakhmes), high O&M costs per m are largely due to the underuse of available water resources. Because of the low volume distributed, irrigation schemes operate at low capacity and O&M costs per cubic meter tend to be much higher than they should be. The unit O&M costs could greatly decrease if fuller use of water and system's capacity could be achieved. In other perimeters (ODTC, Sidi Bouzid, Kairouan), the need to pump water at substantial depths has a considerable effect on total 06M costs.3' In other OMVs (Nebhana) high O&M 1/ CNEA's study of Medjerda, Nebhana, Badrouna (Jendouba) and Lakhmes perimeters, carried out in 1979 under Bank Loan 1431-TUN. 2/ Average estimated real maintenance costs vary between D 0.006 and D 0.015/m with recommended irrigation doses. 3/ In the oases of Gafsa and Gabes, pumping costs are limited because of artesianism.  -14- zosts are primarily due to high overhead linked to the scarcity of available water resources. Finally, O&M costs are affected by OMVs' operating efficiency. Current costs do not truly correspond to "efficient" O&M costs insofar as they are inflated by over-staffing and increased overhead costs due to the multiplication of OMVs (para. 4.05). 4.15 Because of the lack of detailed and accurate statistics, it is difficult to assess current level of recovery of total (investment and O&M) irrigation costs. As a proxy, current replacement costs per irrigated hectare have been estimated for the various technologies used in Tunisia's PPIs. Based on standard water consumption per hectare, it is estimated (Annex 13, Table 8) that investment costs vary from D 0.015/m3 in large gravity perimeters (OMVVM) to as high as U 0.030/m3 in perimeters fed by pumping stations and using sprinkler irrigation (Jendouba, Nebhana). On that basis, it can be estimated that current water charges provide for the recovery of 14Z to 37% of total irrigation costs. 4.16 Irrigation projects financed by the Bank in Tunisia (para. 2.05) have adopted a consistent approach to cost recovery based on (a) the recovery of investment costs according to Agrarian Reform Laws; (b) the recovery of 100% of O&M costs; and (c) recovery levels consistent with farmers' ability to pay. The two most recent Bank-financed irrigation projects provide, in particular, for full recovery of the water distribution network O&M cost (an estimated 72% of total O&M costs) before December 31, 1987 in the PPI of the Nebhana (Loan 2157-TUN) and for full O&M cost recovery by December 31, 1989 in those PPIs of the Kairouan and ODTC OMVs included in the Central Tunisia Project (Loan 2234-TUN). The proposed Project would introduce comprehensive reforms, consistent with the measures already taken, to increase the financial autonomy of the Offices and encourage a more rational use of water available. V. TIHE PROJECT A. Project Concept and Objectives Project Rationale 5.01 By aiming at nationwide improvements of the operation and maintenance of irrigation systems and at reforms to increase the efficiency of the institutions concerned and reduce the burden of their operating subsidies, the Project would make an important contribution to the achievement of the objectives of the country's Sixth Development Plan and be fully consistent with Bank strategy for assisting Tunisia's agricultural sector. It would be based on reforms recently introduced and tested under Bank-financed projects. It incorporates actions and measures which, when introduced nationally, would ensure a more efficient use of the existing infrastructure and bring about important improvements in the management and efficiency of the institutions operating in the sector. Other constraints to onfarm development such as applied research, extension services, or agricultural support services (input distribution, marketing of produce or agricultural credit) are being addressed through separate ongoing projects financed by the Bank or through other projects under preparation under the Technical Assistance Project (Loan 2197-TUN).  -15- Proiect Obiectives 5.02 The main objectives of the Project would be to: (a) increase and ensure the sustainability of agricultiral production within some 105,000 ha of irrigation land in the PPIs, thereby contributing to Government's objective of self-sufficiency in food production; (b) improve the incomes of farmers living in PPIs and create employment opportunities directly and through forward and backward linkages; (c) aim at-eliminating OMVs' operating deficit, thereby reducing the burden of annual operating subsidies on Government's budget; and (d) reduce the need to regularly undertake major investments for the rehabilitation of existing irrigation systems by improving regular maintenance operations. These objectives would be achieved through: (a) improving OMVs' capabilities to provide increased water delivery, in a timely and cost-effective manner, and to maintain existing irrigation systems; (b) introducing pricing and cost recovery policies for OMVs' services, in particular irrigation water, aimed at (i) a more rational use of available resources; (ii) increased competition from the private and cooperative sectors; and (iii) greater financial autonomy of OMVs; (c) setting up an institutional framework providing for (i) improved management efficiency and greater accountability for OMVs; and (ii) strengthened planning and control capabilities for Government services in charge of monitoring OMVs' operations; and (d) increasing the role and responsibilities of- Water User Associations in the O&M irrigation systems. B. Suunmary Description of Project Components 5.03 To achieve its overall objectives, the Project would implement, over a five-year period, the following actions: Ca) An Investment Component aimed at strengthening OMVs' O&M capabilities including: - the purchase of heavy equipment and vehicles for O&M activities; - the rehabilitation of the hydro and electromechanical (HEM) equipment; - the establishment of safety stocks of spare parts for HEM equipment and irrigation networks; - the rehabilitation of part of OMVVM's (i) irrigation network (serving an area of about 1,000 ha); and (ii) drainage network (1,100 km of ditches and 960 km of drains); and - support for the improvement and maintenance of OMVVM's feeder road system (600 km). (b) An Institutional/Policy Reform Component aimed at:1' - strengthening the coordination between OMVs and their supervisory Ministries (Agriculture, Plan, Finance) for the planning and monitoring of their activities; 1/ Details in Table 8.  -16- - strengthening the role of Water User Associations (WUAs) in the O&M of irrigation systems; - improving the management of OMVs through the setting-up of an efficient Management Information System (MIS) and the definition of improved financial and operating procedures; and - introducing pricing policies for OMVs' services, in particular for irrigation water, promoting a more rational use of. existing resources and a greater financial autonomy of OMVs. (c) A Technical Assistance, Training and Support Action Component including: - technical assistance to OMVs to define improved accounting, financial and operating procedures, set up a new MIS and carry out the necessary related training programs; - technical assistance to OMVs to prepare detailed terms of reference or engineering design for proposed project works, and to carry out proposed water management studies; - technical assistance to the Directorate of Planning and Statistics (DPSAE) to strengthen capabilities to plan and monitor OMVs' activities; - the establishment of a system to monitor water flows in OMVVM's irrigation network; - the creation of a pilot sector of about 500 ha where OMVVM would test alternative water delivery and management technologies; - the equipment necessary for the OMV of Gafsa-Jerid to carry out experiments on water saving technologies and cropping methods; and Cd) On-farm development. C. Detailed Features Investment Component 5.04 O&M Equipment. The efficiency of OMV's O&M activities is hampered by a lack of specialized heavy equipment (draglines, cranes, excavators, graders), vehicles and basic tools (fixed and mobile workshops) (para. 4.09). The Project would finance the upgrading of these facilities to the minimum necessary for ensuring adequate operation and maintenance of irrigation systems, and rehabilitation works in OMVVM (para. 5.08). A detailed description of proposed equipment is given in Table 9. 5.05 Safety Stocks. Because of the current lack of proper maintenance, public irrigated systems experience frequent breakdowns. As OMVs do not currently maintain safety stocks of pipes and flumes or electromechanical spare parts, and are therefore unable to effect the necessary repairs rapidly, these repeated and sometimes prolonged interruptions in water deliveries can have very negative effects on agricultural production when occurring during peak irrigation periods. They also discourage farmers to intensify irrigation and make them less willing to pay water charges. Under the Project, each OMV would constitute a safety stock of irrigation spare parts sufficient to cover about one year of maintenance requirements, and acquire back-up equipment (mobile transformers, generators, pumps) which would permit to continue water deliveries while effecting the necessary repairs. A detailed list of spare parts and materials to be purchased under the Project is given in Annex 8.  -17- 5.06 Rehabilitation and Maintenance Contract. There are currently about 33 large and 210 smaller pumping stations in Tunisia. A large proportion of existing electromechanical equipment is relatively old and, because of a lack of proper maintenance, experiencing efficiency losses and frequent breakdowns. One of the main reasons for the lack of adequate maintenance is the difficulty for OMVs to recruit the necessary specialized personnel, which is in very short supply in Tunisia and comnands high salaries in the private sector. Under the Project, OMVs or groups of OMVs would enter into a multiannual contract (3 years) with one (or several) enterprise(s) to (a) rehabilitate OMVs' main pumping stations so that they operate with satisfactory efficiency and under adequate security mechanisms; (b) ensure regular preventive maintenance and carry out necessary repairs; and (c) train OMVs' staff. The dispositions under the contracts would vary according to the specific needs of each OMV: for the large pumping stations of the OMVs located in Northern Tunisia, all rehabilitation, maintenance and repair works would be done under contract; OMVs' located in Central and Southern Tunisia may elect to perform some simple maintenance and/or repair work with their own staff and equipment. These contracts would be awarded on the basis of ICB in accordance with Bank guidelines. All contractual arrangements would include a large training component. At the end of the first contract, OMVs would elect either to renew it or to take over all maintenance work if its staff has been sufficiently trained to do so effectively. Detailed Terms of Reference of the prc1posed Rehabilitation & Maintenance Contract are presented in Annex 7 of the Implementation Volume. 5.07 Other Equipment. The geographical dispersion of individual perimeters within the conmand area of a particular OMV, the frequent absence of automatic regulation and the lack of telephone coumunications between the different points of irrigation systems result in water management inefficiencies, water losses and long delays in effecting the necessary repairs. Under the Project, each OMV would establish a radio network between the important components of its irrigation systems (pumping stations, reservoirs, fixed and mobile workshops). Also OMVs would acquire the Electronic Data Processing (EDP) Equipment necessary for their new MIS: each OMV would be equipped with a minicomputer at headquarters and microcomputer in each of its regional Offices. 5.08 Rehabilitation of Irrigation Infrastructure. The Project would include priority investments for the rehabilitation works in OMVVM perimeters. Certain areas of the irrigation system have not been rehabilitated since their construction (1960s) and are now non-operational. Works proposed under the Project would consist of replacing about 30,000 ml of tertiary and quaternary canals and some 250 outlet structures. This would make possible the resumption of irrigation on about 1,000 ha of previously irrigated land and the improvement of the efficiency of conveyance structures in other areas of the perimeter (about 3,000 ha). The Project would also finance the rehabilitation of OMVVM's drainage system. The system consists of about 1,100 km of ditches and 960 km of drains protecting the 3,000 ha most sensitive to water logging. This relatively dense network has not been properly maintained and is not operating satisfactorily. Finally, OMVVM would get project funds to carry out a program of delayed maintenance over about 600 km of feeder roads. Due to the clayey nature of most of the Lower Medjerda Valley soils, access to irrigation infrastructure and transportation of agricultural inputs and produce is 'F, icult and sometimes impossible during  -18- the rainy season. Under the proposed program, the degraded stone base layer of about 300 km of feeder road would be renewed and about 300 km of dirt road would be resurfaced. 5.09 OMVVM's Water Flow Monitoring System. Although flow monitoring is essential to ensure efficient water management, there is currently no system for the covering of the main conveyance structures. Under the Project, a simple system would be set up to monitor (a) capacity utilization at various points cf the system; (b) the efficiency of the conveyance structures; and (c) water losqes and water actually delivered to farmers. The preliminary design of the system has been prepared by OMVVM. OMVVM would prepare, with the cooperation of DEGTH and the proposed technical assistance, the combined tender documents for undertaking both the detailed design and the actual establishment of the monitoring system. 5.10 OMVVM's Pilot Irrigation Perimeter. Following the study of irrigation technologies to be undertaken under the Project (para. 5.03 (c)), alternative water distribution systems (downstream control systems, open, underground and mixed distriLution systems, low pressure, californian, aspersion systems) would be tested to determine the technology best suited to water characteristics and socio-economic factors. This pilot experiment, undertaken on about 500 ha, would provide the basis for future extension or rehabilitation of OMVVM's perimeters. Terms of reference for the proposed study and preliminary designs of the pilot experiment are presented in Annexes 8 and 9. 5.11 Gafsa Water Saving Experiments. The OMV of Gafsa-Jerid would undertake experiments on water saving technologies at its Gafsa Applied Research Station and, in situ, on private farms. The Project would finance the onfarm irrigation equipment necessary to conduct the proposed experiments. The experiments themselves would be designed and monitored in collaboration with the "Centre de Recherche et d'Experimentation du G6nie Rural" (CREGR) and the National Research Institute (INRAT). A preliminary research program has been prepared by the OMV. Institutional/Policy Reform Component 5.12 OMV-Government Interface. Under the Project each Office would prepare a development plan covering the period of the country's Seventh Development Plan (1987-91) and defining medium-term objectives and operating targets negotiated with Government. In addition, program-contracts (contrats de programme) would be introduced, on a pilot basis, between the Government and three OMVs, selected for their representativity based on these OMVs' medium-term development plans, clearly defining Government and OMVs' respective obligations. OMVs' objectives and targets would be set out in such a way that they are monitorable and include, inter alia, increases in activity levels (volume of water delivered), reduction in operating costs and adequacy of maintenance operations. The Project would strengthen the capacity of the Ministry of Agriculture (DPSAE and DCOMVPI) to plan and supervise OMVs' activities and reinforce the coordination between the various Government agencies involved (Ministry of Agriculture, Planning and Finance) - (para. 6.09).  -19- 5.13 OMV-Farmer Relations. Measures would be taken to increase farmers' role and responsibilities in the management of irrigation systems through (a) the streamlining and simplification of the organization and operating procedures of AICs; (b) the definition and adoption of the legal framework necessary to create simpler, private WUAs to operate and _-Lintain small irrigation schemes; (c) the definition of a legal framework for allowing contractual relationships between WUAs and OMVs; and (d) the adoption of adequate incentives for farmers to create such W[JAs (para. 6.14). 5.14 Promotion of Cooperative and Private Sectors. OMVs would be required to provide their co,miercially oriented agricultural services (input distribution, marketing, farm mechanization) at real cost. It would provide for fair competition, encourage the private sector to invest for supplying the required services and thereby promote the development of alternative, more efficient, scurces for these services and lead to a gradual divestiture of OMVs in these areas. 5.15 Improvement of OMVs' Management. A number of organizational and institutional measures would be introduced to improve the effectiveness of OMVs' management: (a) the definition and setting-up of an efficient MIS, including cost accounting, budgeting, financial planning and control, inventory management and internal audit; (b) the definition, for each OMV, of a medium-term staffing development plan aimed at improving overall staff productivity;-and (c) systematic external audit of OMVs' annual accounts. In addition, improvements would be introduced in their technical operating procedures, in particular for irrigation O&M activities. Funds would be specifically earmarked in the Offices' annual operating budgets to ensure a satisfactory level of maintenance (para. 6.08). Technical Assistance, Training and Studies Component 5.16 Technical assistance (para. 6.18) would be provided to OMVs, during the first three years of the Project, for (a) the reform of their accounting and financial system (including data processing); (b) the improvement of their planning capabilities and the preparation of their medium-term development plans; (c) the improvement of their technical operating procedures, including the preparation of an O&M manual; (d) the setting-up of a system to monitor agricultural and productivity development at farm level to assess the evolution of farm incomes and farmers' ability to pay; and (e) the training of their staff in accounting and financial management, strategic and operational planning, irrigation O&MI procedures and irrigation economics. Technical assistance would also be provided to strengthen the DPSAE and the DCPPI of the Ministry of Agriculture respectively in (a) strategic planning, budgeting and monitoring of OMVs activities; and (b) technical and managerial aspects of OMVs' operations. Detailed terms of reference and implementation schedule for the proposed technical assistance to OMVs and DPSAE are presented in Annex 11, and training priorities in Annex 3 of the Implementation Volume. 5.17 In addition, the Project would finance the expertise necessary to carry out the proposed technical studies on water management. OMVVM would do specific studies to (a) design the proposed irrigation pilot sector to test alternative water distribution technologies; (b) design the proposed water flow monitoring system; and (c) monitor the sediment load of irrigation water downstream of the main dams. The OMV of Jendouba would study the adequacy of  -20- existing safety and automatic regulation of its irrigati:n system. The OMV of Nabeul would assess the maximu hydraulic capacity and the operating efficiency of its main distribution and regulation systems, in view of the recent availability of water coming from the Medjerda system through the new Medjerda-Cap Bon canal. Finally, the OMV of Lakhmes would study (a) the flood protection system for its perimeter; and (b) the adequacy of the existing safety and automatic regulation mechanisms of its irrigation system. The TORs for these studies are presented in Annex 9 of the Implementation Volume. The necessary expertise would be recruited on the basis of detailed TORs prepared by the respective OMVs in collaboration with the Department of Hydraulic Works (DEGTH) and Rural Engineering (DGR) of the MOA, which would also supervise the implementation of the studies. D. Projiet Costs 5.18 Total Project costs include (a) the cost of proposed investments. technical assistance, training and studies; (b) OMVs' and Government's incremental operating costs linked to the Project; and Cc) incremental onfarm development costs due to increased agricultural activity induced by the Project. Total Project costs are estimated at US$61.0 million (D 48.3 million) of which US$27.5 million (D 22.0 million) or 45S would be in foreign exchange. Total costs include an estimated US$13.7 million (D 11.1 million) or 22X in taxes and duties. Base costs are estimated in February 1985 prices. Physical contingencies have been included at 10% for technical assistance and OMVs' equipment and vehicles, 15Z for civil works and 202 for studies, maintenance contracts and pilot irrigation schemes (OMVVM and Gafsa). Total physical contingencies amount to US$5.7 million or 132 of Project base costs. Price contingencies have been calculated oa the basis of projected price increases,-' applied to local and foreign costs including contingencies. They amount to US$10.0 million or 16.5Z of total Project costs. Total contingencies amount to US$15.7 million or 26% of total Project costs. Cost estimates are presented in detail in Annex 17 and are summarized in the following table: 1/ Projected price increases are as follows: 1985 1986 1987 1988 1989 1990 Local costs 10.0 10.0 10.0 10.0 9.0 8.0 Foreign costs 8.0 9.0 9.0 9.0 7.5 7.5  -21- PROJECT coSr SUIMIRY la Local Foreign Total Local Foreign Total S Foreign S Total Costs Costs Costs Costs Costs Costs Exchange Base Costs --------(Dmillion)- -(USS million )------- rNVST?EST COSTS rrrigatton Offices OM equtpment 2.4 2.8 5.2 2.0 3.5 6.5 55 14 Safety stocks 1.7 1.8 3.5 2.1 2.2 4.3 51 9 Rehabilitation of HER equipment 3.3 2.6 5.9 4.2 3.2 7.4 44 16 Technical assistance & training 0.S 0.7 1.2 0.8 0.9 1.7 57 5 OnvWi*s rehabilitation investments/b 3.2 3.1 6.3 4.0 4.0 8.0 49 17 Utter .nagement studies and Gafsa pilot schene 0L JLA JLZ 4lA -L4 5 JL1 50 3 Subtotal 11.4 11.4 22.8 14.5 14.3 28.8 50 64 Ministry of Acriculture Strengthening of OPSAE 0.1 0.2 0.3 0.1 0.2 0.3 76 - Strengthening of DCOIvPI 0 TI Q_ Lf_Z QL 77 3 Subtotal 0.2 0.7 0.9 0.3 0.9 1.2 77 3 Total Investent Base Costs 11A 6 2L1 23_7 14S iT 1 22 51 67 INCREMENTAL OPERATING COSTS IrricAtion Offices 3.7 2.6 6.3 4.6 3.2 7.8 41 17 Ministry of Aariculture 0.6 0.7 0.7 0.9 0.1 1.0 7 2 On-farm Oeveloamt 3 4 I Li 52 2 1 A 3S 33 Total Operatlng Base Costs LZ __S 1L2 27fi 15.1 36 33 TOTAL BASE COSTS 19.3 16.6 35.9 24.S 20.8 4S.3 46 100 (Excluding Onfarm Oper. Costs) (1S.9) (14.8) (31.3) (20.3) (18.5) (38.5) 48 Physical contingencies 2.S 2.0 4.S 3.2 2.5 57 44 13 Price contingencies 4.5 3.4 7.9 5.8 4.2 10.0 43 23 TOTAL PROJECT COSTS /I 26.3 22.0 48.3 33.S 27.5 61.0 46 13S (Excluding Onfarm Oper. Costs) (22.0) (19.4) (41.4) (27.2) (24.6) (51.8) 47 TOTAL FIMAJCIIG REQUIRED 26.3 22.0 48.3 33.5 27.5 61.0 47 135 I& Discrepancies due to rounding. /l Including equiprent. /C includes US$13.7 million in duties and taxes.  -22- E. Finanemn 5.19 A Bank loan of US$22.0 million is proposed to finance lOOZ of the Project's foreign exchange cost, excluding onfarm development costs which would be financed from other sources available through the credit system. The Bank loan would thus cover 36X of total Project costs (47% of the total costs net of taxes) and 80% of total foreign exchange costs of the Project. Retroactive financing, not to exceed US$500,000 for disbursements against eligible expenditures incurred before the signing of the Loan Agreement but after February 1st, 1985, is proposed to cover the costs of the technical assistance and computer equipment necessary to set up the proposed OMVs' accounting system and MIS (paras. 6.06 and 6.07). The following table summarizes the proposed financing plan for Project costs: PROJECT FINANCING PLAN Percentage of Proiect Local Foreign Total Net Costs F.Exch. Costs - (USt million)- -(Z) World Bank - 22.0 22.0 47.0 80.0 Other donors - 2.4 2.4 5.0 8.0 Government 13.7 - 13.7 29.0 12.0 Beneficiaries /a 4.6 - 4.6 9.5 - Credit institutions /a 1.5 3.1 4.6 9.5 - Net Project Costs 19.8 27.5 47.3 100.0 100.0 Taxes & Duties 13.7 - 13.7 Total Project Costs 33.5 27.5 61.0 /a US$9.2 million in onfarm development costs assumed to be financed 50% on credit. The Government would earmark about US$21.0 million of the loan proceeds (96%) to OMVs, through their respective annual budgets, to finance proposed Project activities. The balance would be used by MOA to finance the foreign exchange costs of part of the Project's technical assistance, and the training and studies component. Other donors would finance the remainder of the technical assistance component (US$2.4 million). The Government has already started making contacts in this regard and prospects are favorable. It was agreed at negotiations that cofinancing arrangements would be finalized by January 1, 1986. If cofinancing does not materialize, the Government has indicated it would provide the financing from its own resources. Incremental onfarm operating costs would be financed by beneficiaries (US$4.6 million) and credit institutions (US$4.6 million), under standard terms and conditions for seasonal credit (interest rates range from 6.75 - 8.5%). The Government would finance the balance of total net Project costs (US$13.7 million). The Bank loan would be for 17 years including a 4-year grace period.  -23- F. Procurement 5.20 Procurement would be carried out by the MOA for the proposed technical assistance component for which detailed terms of reference and implementation schedule have been prepared and are presented in Annex 11 of the Implementation Volume. The necessary technical assistance for the proposed water management studies would be recruited on the basis of TORs prepared by the concerned OMV; in collaboration with DEGTH and DGR, which would also supervise the implementation of the studies. OMVVM would be responsible for the grouped procurement of Project O&M equipment and safety stocks for all OMVs on the basis of technical specifications prepared by individual OMVs and approved by the central services of MOA (Directorate of Rural Works). The design of OMVs electronic Data Processing (EDP) System would be done by the consultants in charge of designing their new MIS. Tendering would be done by DCOMVPI on the basis of specifications approved by Tunisia "Centre National Informatique" (CNI), a public concern empowered to approve the EDPs for administrative bodies and parastatals. Tendering for maintenance contracts for OMVs' hydro/ electromechanical equipment would be done on the basis of detailed technical specifications prepared with the support of the proposed technical assistance. Terms of reference of the proposed maintenance contract are presented in Annex 7. The table below lists contracts to be awarded and the methods of procurement. PoUROENHENT METhOOS _AVB/A LCB O_Lther_ N. A. Total Costs