Mali - Office du Niger Consolidation Project

'2 Docwumet of The World Bank, FOR OFmFCIAL USE ONLY -Repo1 No. P-4i44-MLI MEfORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE, INTERNATIONAL DEVELOPMENT ASSOCIATION, TO THE EXECUTIVE DIRECTORS ONA A PROPOSED CREDIT,OF SDR 31.0 MILLION AND A PROPOSED AFRICAN FACILITY CREDIT OF SDR7.1 MILLION TOHE T- REPUBLIC OF MALI FOR THE ,3 r OFFICE DU NI(tR CONSOLIDATION PROJECT February 8,=1988 This document has a resticted distributon and may be used by redpients only In the performance of their official dudes. Its contents may not otherwise be disclosed without Wofld Bank authorization.  C1YRRENCY EQUIVALENTS Currency Unit CFA Franc (CFAP) \ US$1.0 - CFAF 314 CFAF 1 million = US$3.185 US$1.0 = SDR 0.7778 1 SDR =US$1.28563 1EIGHTS AND MEASURES 1 liectare (ha).. = 10,000 a2 1 Square Kilometer (kin) = 100 ha 1 Metric Ton (at) =1,000 kg ADBREVIATI0?S AND ACRONYMS BEP - Burewj des Entreprises Publiques (Public Enterprise coordination Office) BCEAO - Eanque Centrale des Etats d'Afrique. de l'Ouest (Centra'l4ank for West African Monetary Uniin) 3DM - Banque de D6veloppement du 4a1i (Development Bank o Mali) ENDA - Danque Rationale de D4veloppement Agricole (Natiial Development Bank for Agriculture) CAA - Caisse Autonome d'Amortissement (Debt Amortization Office) OFA - Centre de Formation Agricole (Agricultural Training Center of Office. dii Niger) C CC - Caisse Centrale de Coo$ration Economique (French Aid Loan Agency) DIGIS - l3irectoraat Generaal Voor Internationale Samenverkung (Dutch Aid Agency in the Ministry of ForeignAffairs) FAC - Fonds d'Aidet de Coop4ration (French Aid Agency) IER - Institut d'Economie Rurale (Agricultural Research Institute) RN - Kreditanstait fur Wiederaufbau (Federal Republic of Germany Loan Agency) ODR - OpErations de D4veloppement Rural (RegionallCominodity Development Agencies) ON - Office dii Niger OPAM - Office de Coumiercialisation des Produits Agricoles du Mali (National Cereals Marketing Board) ORSP - Office de REgulation et de Stabilisation des Prix (Price Stabilization Fund) PRMC - Programme de Restnucturation des MarchEs CErEaliers (Food Aid donors supported program to restructure cereals sub-sector) SUKALA - Sugar Company of Kala (Company Sucrire du Kala Sup4rieur) WAM3 - West African Monetary Union FISCAL flAR May 1-April30  FOR OMCL4L USE ONLY MALI OFFICE DU NIGER CONSOLIDATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government:of Mali Beneficiaries: Office du Niger (ON), National.Agricultural Credit Bank (BNDA), farmers Amount: SDR 38.1 million of which: IDA: SDR 31.0 million (US$39.8 million equivalent) SFA: SDR 7.1 million (US$ 9 million equivalent) Terms: - Standard, with 40 years maturity Flow of Credit Proceeds: Borrower to Office du Niger (US$21.0 million): 3% interest rate, 10 years of grace on principal, 30 year maturity; and US$24.8 as a grant. Borrower to BNDA (US$3.0 million): 32 interest rate, five years of grace on principal, 15 year maturity. BNDA to farmers: Short-term: 10% interest rate, 12 months maturity Medium-term: 5% dovnpayment, 92 interest rate, 1 year grace on principal, 5 year maturity BNDA to Village Associations: Short-term: 9% interest rate, 18 months maturity Medium-term: 5% downpayment, 8% interest rate, 1 year grace on principal, '-year maturity. Economic Rate of Return: 16% Staff Appraisal Report: Report No. 6522-MLI IBRD No. 20622 This document has a restricted distibution and may be used by recipients only in the perforelarce 1 of their officil duties Its contents may not othewvie be discbsed Without World Dank authotration.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON PROPOSED CREDITS TO THE REPUBLIC OF MALI FOR THE OFFICE DU NIGER CONSOLIDATION PROJECT 1. The following report on an IDA credit of SDR 31.0 (US$39.8 million) and on a SFA credit of SDR 7.1 million (US$9 million) to the Republic of Mali is submitted for approval. The proposed credits, which would be repaid on standard IDA/SFA terms, would help finance the consolidation of the Office du Niger (ON), a large irrigated perimeter. 2. Background. Of all the Sahelian countries, Mali has the largest potential for irrigation. The bulk of this potential is in the Inner Delta of the Niger River. The ON was established in 1932 to develop 350,000 ha in the Delta. At the peak of its activity during the 1960s, ON had developed a gravity-irrigation and drainage system servirng 58,000 ha. Since then, however, the irrigation network has been inadequately maintained, and yields, output and farm incomes have fallen; about 10,000 ha of 'irrigated land have been abandoned altogether. T-he main reason for this deterioration was the Government's inappropriate intervention in cereals marketing and pricing, and in ON management. During the 1970s, the=`-' National Cereals Board (OPAM) was the sole official purchaser and distributor of cereals iA Mali, including those produced at ON. Transactions were conducted at official prices, often below production costs, which favored consumers at the expense of producers and ON. Exports were banned and internal trade tightly regulated (and policed). Since the early 1980s, ON, despite its status as an Industrial and Commercial Public Enterprise, was run virtually as a department of the Ministry of Agriculture. This gave rise to a number of problems including gross overstaffing and excessive centralization of decision-making. In addition, poor financial management and losses In revenue from decreases in production and collection of water charges led to a deterioration in ON's financial situation. In spite of periodic improvements, ON's short-term debt to banks and supplitrs reached about 'S$10 million in late 1987, the same level'as in 1983. 3. The Government recently decided, witil the help of the donor community, to undertake a long-term program for rehabilitating ON and improving the performance of the rice/paddy subsector. Steps already taken include lifting the ban on private cereals trading, raising official producer prices, and partially divesting ON of paddy threshing, transport and primary marketing. Within ON, staff has been reduced and technical assistance is in place to improve financial management. 4. Project Objectives. Designed to support Government's rehabilitation effort, the broad objective is to restructure ON in order to increase agricultural productivity and, in the longer term, to establish a sustainable production system. 5. Project Description. To attain this broad objective, the project would include policy, Institutional, and agricultural components. The  -2- policy component would (1) help the Government to complete the liberalization of paddy/rice marketing and pricing - for the subsector generally (de Jure as well as de facto abolition of official prices and the export ban) - and for ON specifically (abolition of fixed pricing, development of sale by tender and custom-milling), and (ii) provide land tenure security and promote financial intermediation. The institutional component would include (i) increased autonomy for ON and the establishment of a contract-plan, clearly defining the relations between ON and Government, (ii) further divestiture of ON's commercial activities, (iii) restructuring of ON's finances, and (iv) strengthening of ON's management and human resources, and (v) improving extension and training. The physical investments would include the rehabilitation, modernization and maintenance of part of the irrigation network, rehabilitation of a 3,100 ha perimeter comuanded by the Gr6ber Canal, applied research and improved resource management. 6. The total cost of the project is estimated at US$83.6 million with a foreign exchange component of UXS$64 6 million (77 percent). The breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursement, as well as a disbursement schedule are shown in Schedule B. A tfietable of key processing events is given in Schedule C. A map showing the irrigated verimeters to be finaneed under the project is also attached; the Staff Appraisal Report no. 6522-MLI is being distributed separately. 7. Rationale for IDA Involvement. Agriculture has, in the past, attracted the highest share of IDA lending to Mali and continues to be an important element of our country assistance program. Prospects for developing this sector depend to an important extent on whether Mali Vill be able to tap its large irrigation potential. ON is the largest irrigation scheme in the country, but its dilapidated facilities are being operated far below potential. The Government is fully aware of the necessity to solve this problem and has already taken some remedial action. The rehabilitation of the ON and the implementation of the reforms that this would imply is, however, a complex and long-term undertaking, which will require IDA's and other donors' continuing support. Moreover, there are many other donors involved and IDA is well-suited to play the necessary coordinating role. In addition to its specific significance for the Bank's strategy in agriculture, the project would support the broader Bank objectives of improving the general business environment, strengthening public finance management, and ensuring the viability of selected public enterprises. 8. Actions Taken and Agreements Reached. A contract-plan between the Government and Office du Niger, an amendment to ON statutes, a new decrea establishing the land tenure and giving it management autonomy, and arrangements between ON and farmers, all acceptable to IDA, were approved by the Government on January 13, 1988. In addition, management consultants to initiate ON's reorganization are being recruited, and the 1985/86 accounts have been audited. The principal actions on which agreement was reached during negotiations are: (i) measures to liberalize  -3- paddy/rice marketing and pricing, as indicated at para 5 for the subsector generally and ON specifically, (ii) an annual review of the contract-plan and of ON's investment plan, and (iii) increases in water charges, starting in the first year after rehabilitation, from US$80/ha to US$175/ha after six years, scheduled in line with expected yield increases. 9. Justification. The main quantifiable d- ect benefit to the economy will be an annual incremental rice production'of about 40,000 tons. In addition, the establishment of a viable irrigation authority and the improvement of farmers' capability for irrigation would enable the vast potential of the Inner Niger Delta to be tapped, beyond the time-frame of the proposed project. Economic rates of return could be calculated only on the Grilber Canal and command area component, the only component which can be separated out from the project's impact on ON at large. For tWIs component, and including a proportion of the costs of other components benefitting ON at large, together representing 33% of project costs, the economic rate of return- is in a range of 13% to 162, depending on the assumptions on the rate of deterioration of the infrastructure in the "without the project" scenario. 10. Risks. The proposed project, might be jeopardized by (i) incomplete imp.ementation of the policy and institutional componqnts, -including the possible failure of the technical assistance and staff training programs, (ii) the possible failure of farmers' efforts to intensify agricultural production rapidly enough to make the rehabilitation program viable, and (iiI) the Government's inability to fulfill its financial obligations - in the first three years in partictjii - given current budgetary constraints. Having been closely associated with project preparation and appraisal, Government and ON officials are fully aware of these risks and convinced of the necessity to minimize them. Towards this end, they have agreed with the Bank (i) to select carefull-y the staff, consultants and advisers who would work in ON, (ii) to monitor closely the implementation of the agricultural support program, including extension services and provision of credit to farmers, and (iii) to use part of the Credits' proceeds to finance part of Government's financial obligation to ON on a declining basis for the first three years of the project, as well as to undertake a study on taxation which would ascertain whether farmers could finance even more than the scheduled increases in water charges will generate. The risk that private traders might be disinclined to take over ON's commercial activities is limited and should be further reduced by the implementation of the measures included in this, and other Bank operations, directed at improving the general business climate in Mali. 11. Recommendation. I am satisfied that the proposed Credits would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed Credits. Attachments Barber B. Conable President Washington, D.C. February, 1988  -5- SCHEDULE A MALI OMCE DU NIGER CONSOLIDATION PROJC ESTIMATED COSTS AND FINANCING PtAN Estimated Costa:, Local ForeiFn Total -(US$ million) Financial Restructuring 3.2 0.5 3.7 Line of Credit to BNDA 1.4. 0.9 2.3 Preparatory tasks -1.7 1.7 Consultant Services and Tecbnical Assistance 0.2 4.1 4.3 Inmestments: Consolidation of maintenance unit 0.7 8.7 9.4- Urgent repairs. .0.6 2.3 2.9 - Markala Dam repair and maintenance 0,3 9.0 9.3 Rehab. of Gruber Nord/Siengo canals 1,8 9.9 11,7 Rehab. of Siengo perimeter 1.3 10.2 11.5 Rural works 3.7 0.4 4.1 Applied Research, improved resource managemeut, training and extension 0,1 2.3 2.4 Studies and Training 0.2 0.3 0.5 Total Base Costs 13.5 50.3 63.8 Physical Contingencies 1.2 - 6.9 84,1 Price Contingencies 4.3 7.4 11.7 Total Project Costs 19.0 64.6 83.6 !/ Net of identifiable taxes and duties / Includes repayment of US$ 1.5 million PPF advance. Local Foreign Total ------- (US$ million) - Financing Plan: IDA 3.7 36.1 39.8 SFA 1.9 7.1 9.0 SJF/FRG 1.3 17M7 19.0 FAC - 2.0 2.0 CCCE - 0.4 0.4 DIGIS - 1.3 1.3 ON/Farmers 8.0 - 8.0 Government 4.1 - 4.1 Total 19.0 64.6 83.6  -6- SCHEDULE.B Pasge 1 of 3 eALI OFFICE DU NIGER CONSOLIDATION PROJECT PROCUR