Mexico - Ocoroni Irrigation Project

Documeot of The World Bank FOR OFFICIAL USE ONLY Report No. 7782 PROJECT COMPLETION REPORT MEXICO OCORONI IRRIGATION PROJECT (LOAN 1908-ME) APRIL 20, 1989 Latin America and the Caribbean Regional Office 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.  ACRONYKNS AGR/CPS Bank's Agricultural Department, Central Project Staff EDs Executive Directors ERR Economic Rate of Return FE Foreign Exchange GOM Government of Mexico O&M Operation and Maintenance PCR Project Completion Report SAP Special Action Program SAR Staff Appraisal Report SARl Ministry of Agriculture and Hydraulic Resources SEP SARH, Sub-secretariat for Planning and Studies SIH SARH, Sub-secretariat for Hydraulic Infrastructure  FoR OMCIL USE ONLY THE WORLD BANK Washington. D.C. 20433 U.S.A. Oolk .i DetsoiCum" a May 25, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report - Mexico Ocoroni Irrigation Project (Loan 1908-lE) Attached, for infoimation, is a copy of a report entitled "Project Completion Report - Mexico Ocoroni Irrigation Project (Loan 1908-ME)" prepared by the Latin America and the Caribbean Regional Office. Further evaluation of this project by the Operations Evaluation Department has not been made. Attachment This document has a restricted distribution and may be used by recipients only in the porfonnance of their official duties. Its contents may not otherwise be discosed without World Dank authoriation.  .L. 6 __., IALL .. LUS PROJECT COMPLETION REPORT MEXICO OCORONI IRRIGATION PROJECT - (LOAN 1908-ME) PAGE PREFACE. ... . . ............................... .........* * * * * * * * * * BASIC DATA SHEET . ................ ii EVALUATION SUMMARY . . ............... iv Introduction ........................... iv Implementation .... . ....... .................. . ** iv Impact ......$*. . ............ 0.... ..0 . ... v Lessons Learned ... . .. ........... .... . ....... vi I. INTRODUCTION ...................... . ............... 1 II. PROJECT FORMULATICN ........1........1 Preparation and Appraisal ....a.. ..... . 1 Negotiations and Board Approval............................. 2 III. IMPLEMENTATION ....................... ...... 4 General ....... 4 Project Costs and Expenditures. 4 Table 3.1: Summary of Total and Annual Expenditures ...... 6 Implementation Coumpouents . . . ... .o.... ..* . .. .. .. ........ 7 Table 3.2: Summary of Physical Achievements. 8 El Sabinal Dam ............. ................ ........... 8 Irrigation Canals and Drainage .............................. 10 Demonstration Tubewells. ....... ............ .............. 10 Operation and Maintenance ................ 10 O&M Cost Recovery .. . .. ...................................... 10 Land Clearing and Land Leveling ................... 11 Technical Assistance .............. .. . ..... ...*.*... . 11 Resettlement and Indemnification ............................ 11 Disbursements ...... ....................................... .. 11 Table 3.3: Summary of Disbursements by Category ........... 12 Procurement ................... ................ #o#..#...... 12 Reports and Auditing. .... ................. ... ............. 12 Compliance with Covenants .... ............................... 13 IV. AGRICULTURAL AND ECONOMIC IMPACT ........................... O... 13 Agricultural Impact ................... .......... ##*..... 13 Table 4.1: Crop Production.... ..........*............. 15 Economic Impact ... .. ................................ 16 Table 4.2: Rate of Return Analysis Constant 1979 . .. 17 V. INSTITUTIONAL PERFORMANCE . ....................... . ..... 18 VI. BANK PERFORMANCE. . . . .... .................. ... 18 VII. CONCLUSIONS AND LESSONS LEARNED....... 19 VIII. ANNEX: Comments received from NAFN...... ...... . 21 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.  - i - PROJECT COMPLETION REPORT MEXICO OCO.-.T IRRIGATION .ROJECT - (LOAN 1908-ME) PREFACE This is a Project Completion Report (PCR) for th.e Ocoroni Irrigation Project, Loan 1908-ME. The loan of US$23, million was approved October 14, 1980 and became effective July 1, 1981. The Closing Date was extended once from June 1986 to December 1986 and the loan was fully disbursed February 1987, although the project as appraised has yet to be completed. The PCR was prepared by the Latin America and Caribbean Region based on a report prepared by the Borrower, the President's Report (No. A-2881-ME), the Staff Appraisal Report (No. 3083-ME), supervision reports, periodic progress reports, and general internal as well as communications with the Borrower contained in Bank files, and discussions with Bank staff familiar with the project during its processing and implementation. The Borrower's PCR is based on data the end of 1986; however, a review in 1988 reveals that the situation has not changed sufficiently to justify further evaluation at this time or changes in the assumptions and conclusions contained in the Borrower's PCR. A follow-up evaluation should perhaps be considered as the project reaches maturity. The Project Completion Report was sent to the Borrower in February 1989. Comments were received from the Borroer on April 5, 1989 and are reflected in the report.  pROJECT COMPLETION REPORT MEXICO OCONI IRRIGATION PROJECT LN 1900-ME BASIC DATA SHEET MISSION DATE No. of Mandays Special lastions Performano. Type of Date Persons In tiold repreant.d reting Tred Problem Identification 12179 Preparation Appraisel 4/80 a 12 a.b.c SeDrVlsionI 581 1 6 a 2 1 F u rvivson 2 1 a c 2 F- IF uDr Ive Ion3 6922 c T ervisson 4 3 1 1 i rvrvs*or0 6 1 tc 1 D*fVio -1 s -~ 1014 I- ---~ c n0eto S90 1F 1-~ rvision ?36 1 1 e ___ _ 5uzrv 9 on 8 12/8 T r ca_ uD rviyion 9 685 1 6 c 2 _ - Suirvision 10 68U 1 c 2 - Suc-rvision 11 _ _e 8?z *t e o S90 ~~-F~~~ purvision 12 1 /87 c - - ma rvson 643 2 u rvison 64 5uoervieion 15 Ita (___) S4 _ _ OTHER PROJECT DATA Borroer: NAFINS Executino ncy: SARM Fiscal Year: January 1 - December 31 Now of Currency (abbreviation): Mexican Pesos (Vex$) Currency Exchang Rate: AMraiolI Year Avera (Maw 1981) IUS3 1.1 a 23 ntervns Y ears Avr 198 -1 US2 1.6* alSS Lost Year Averae-1986 USS 1. a * 612 Follow-.. Projct: Name: None LeanlNvuber: Date * Approval: st. _ oa agriculturlisTt; b a economist; c a Irrigation engineer. 1 = problem-froe or *inor problems; 2 a oderate problems; 3 a major problms; 4 major problems objective will not be met. I = improving; 2 = stationary; and 3 = deteriorating. F financial; M z aanajer;al; T 2 *echnical; P a political; and 0 m oth-r overall.  PROJECT COMPLETION REPORT MXCO OCORONI IRRIGATION PROJECT _11 1008-ME KEY PROJECT 0L& BASIC DATA SHEET Appraisal SAP Actual as percent of Actual as percent Estimate Estimtea / ActatI 2/ Aroraisal Estl mate f SAE Estimato Project cost (USS million) 64.8 94.0 77.4 142 8i Loon Amount (USS million) 23.0 23.0 23.0 100 100 Date of board approval 10/14/80 - -- -- -- Date of effectiveness 07/01/81 -- -- -- -- Date of project completion 06/86 12/86 NA __ __ Closing date 12/31/88 0S/86 12/86 -- -- Economic rate of return (X) 16 NA 0 -- -- Project arsa affected by civil works (ha) 10,000 10,260 7,77/ 78 76 Farm family beneficiaries la (No. in 4,000 ha) 2,000 2,000 2,378 119 119 CUMULATIVE DISWMS EMENTS Bapk mi 19S 192 1 14 9 198S 1z Appraisal estimate (US$ million) 64.8 0.7 2.0 9.0 16.0 21.0 23.0 - - Actual (USM million) 1.5 2.5 6.7 8.5 18.9 22.1 23.0 Actual as percent of APR prior to SAP Date of Final Disbursements February 19, 1987 Date of Final Cancellation December 31, 1986 Principal repaid (USS million) as of 10/30/88 USS8.S4 1/ Special Action Program approved Jan. 14, 1984. 2/ Source - Borrower's PCR dated 12/87. A/ Will be 11235 when fully developed and 11ZX of SAR estimate. Note: Although the loan was fully disbursed 2/87, the project has yet to be completed. NA: Not available. Although the loan has been fully disbursed the project has yet to be vompleted. October 31, 1988  - iv - PR.oECT COMPLETION REPORT MEXICO OCORONI IRRIGATION PROJECT - (LOAN 1908-ME) EVALUATION SUMMARY Introduction This was the fourth Bank financed project to improve efficiency of irrigation systems and extend the area under irrigation in the State of Sinaloa. The principal objectives were to increase the income and standard of living of about 2,000 ejido families in the Ocoroni River Valley by providing infrastructure to irrigate 10,000 ha to be distributed among 800 families already living in the area and an additional 1,200 families to be settled. The project was particularly attractive for Bank finance because the beneficiaries were some of the poorest in Mexico. The project also supported the Government's rural development policy by focusing on a particularly poor segment of the population and would enhance the goal of self-sufficiency in production of basic cereals. The project provided for the construction of an earth fill dam on the Ocoroni River. with an effective capacity of 260 million m3, and construction of an irrigation system to benefit 10,000 ha. On-farm works included land clearing, land leveling and stone removal. Production supporting services were also to be strengthened. Implementation Project ezecution got off to an early and rapid start with contracts signed and construction beginning for the dam and associated works before the loan became effective in July 1981. Initial contract costs (1981 Mex$) exceeded estimates by more than 10O, raising concerns about the adequacy of designs available at appraisal. The first supervision mission in May 1981 estimated that with these increases, project cost would nearly double, and suggested that a re-evaluation be undertaken. Execution and disbursements exceeded targets in 1981 and 1982 creating expectations that the project would be completed at least one year ahead of schedule. By the end of 1982 a re-evaluation had not been done and it was concluded that it was now too late in view of the already sunk costs. Construction progress was satisfactory until mid-1982 when cash flow difficulties delayed payment to contractors and slowed progress. The budget allocation was reduced in 21i84 and construction continued at a  - v - slower pace; nevertheless the dam was inaugurated in December 1985 only slightly behind the SAR schedule. Continuing budgetary conetraints delayed completion of the distrib1ution and drainage system, on-farm development, and irrigated crop production. The area cropped in the main season (fall/winter-November/April) increased from 1,000 ha 1985/86 (10X of the project area} to 4,800 ha 1987/88 (48% of the project area). An additional 1,130 ha downstream of El Sabinal Dam, outside of the project area, was developed by private investors working with ejidos, producing horticulture crops for export during the 1987/88 fall/winter season; about X,500 ha is programmed for irrigated horticulture crop production for the 1988/89 season. Investments under the project during the period of Bank finance were US$77.3 million, exceeding SAR estimates by 42%, but substantially las8s than had been predicted in 1981 soon after contracts for construction of the El Sabinal Dam, principal distribution works, and the diversion dam had been awarded then exceeding recent appraisal estimates by more than 100X. Subsequent devaluations of the keso (Mex$) reduced cost overruns in USS terms. It has been estimated that idditional investments required to complete the project as appraised would bring the cost to about US$83 million. This does not include investments required to implement the proposed program for livestock production on 3,500 ha of problem soils, or investments downstream for development of lands outside the original project area (now benefitting from the project) that should be included in future agricultural and economic impact calculations. Impact Delays in completing construction of infrastructure and on-farm development, uncertainty about the use of 3,500 ha unsuitable for an anntsal crop ?roduction, the extended period for reaching full development, and cost overruns, have resulted in an unsatisfactory production and economic impact of the project. The Borrower's PCR dated December 1987, besd on end of 1986 data, estimates an ERR of about zero. A review of tIae most recent data shows that less tnan 50% of the area was irrigated and cropped during the 1987/88 crop seasons, thus leading to the concluz-ion that development had not progressed sufficiently to materially alter the outcome or justify the time required to assemble data and revise assumptions needed to recalculate the ERR at this time. The project obviously has potential for further development that could improve the agricultural and economic impact. A supplementary project has been proposed to use the 3,500 ha with soil and topography limitations for intensive livestock production. The proposal has merit because livestock production was an important activity under the  - vi - traditional rainfed agricultural regime of the area; however, it has yet to be implemented and tried. There are already some fish being harvested from the El Sabinal Reservoir. but data are not available to vqantify the benefits. It has been suggested that problem soil areas might also be used for tree crops, but opinions vary about tne type of fruits, markets, etc. Also. private ,nvestors are developing land downstream from the project area, produciu- horticulture crops for export, using water from the El Sabinal Dam; about 1,500 ha has been programmed for the 1988/89 fall/vinter crop season. At this juncture, the downstream area does not have permanent water rights and producers are authorized by SARH to use excess water only during the fall/winter season. Depending upon the final develorment and water demands upstream, water could be cut off or restricted and production reduced or eliminated downstream; thus benefits from this area would have to be calculated on a year-by-year basis. Considaring that calculation of the benefits of the project at this time would be highly speculative, it is recommended that a follow-up evaluation be carried out in two or three years as the project development nears maturity. Lessons Learned -more time spent on preparation could have identified soil and topographic limitations that reduced the area suitable for annual crop production, and thus the ERR; -more time spent on preparation could have determined that suitable fill materials were not located sufficiently close to the site for the dam permitting adjustments in costs or selection of a different site or both; -a more gradual change in cropping patterns and lower initial yield estimates should have been used at appraisal; -comments of the Bank review system while appropriate, were not adequately taken into consideration during the appraisal process; -dam safety (OHS 3.80) is sufficiently important to be covered by an appropriate covenant in the legal documents; and -consideration should have been given to postponing the PCR until the project itself was nearer completion so that a more accurate assessment of the impact could have been made.  I. INTRODUCTION 1.01 Since the adoption of Government policy in 1946 to promote irrigation, about 5 million of the 22 million ha of cropped land is now irrigated and accounts for about SO of the total agricultural production. In the 1970s the Government shifted priorities for development from irrigated to rainfed areas that make up more than 75: of the cult3vated land and 852 of the farms; while still recognizing the continuing need for irrigation investments in low rainfall areas where soils and hydraulic conditions are favorable. The Government's fundamental agricultural policy has long been and still is directed to increasing basic food crop production and increasing rural incomes and employment. 1.02 This project aimed to support the Government development objectives of increasing basic food production and assisting the rural poor. The project areas id located in the State of Sinaloa on the Ocoroni River where rainfall (550 mm annually) is marginal for rainfed crop production. Adequate good quality water is available form normal river flow to irrigate at least 10,000 ha. Because the rainfall and river flow occurs in a period of three to four months, a reservoir is required to conserve enough water for adequate irrigation under the two season regime. There were about 800 ejidatorio families in project area and the project was to settle an additional 1,200 families. 1.03 The project was designed to irrigate about one-third of the 30,000 ha in the Ocoroni River valley and increase the cultivated area from the original 4,300 ha rainfed (with some supplementary irrigation) to 10,000 ha irrigated with a cropping intensity of 1472 and yield increases of 200Z or more. The project would benefit the 800 ejidatario families already living in the project area and provide for settling an additional 1,200 families. The project, as designed, conformed vith the Banks strategy to support GOM's policy to increase basic food production, increase employment opportunities, and increase the income of the rural poor. II. PROJECT FORMULATION Preparation and Appraisal 2.01 This project was a logical continuation of Bank participation in the finance of improvement and expansion of irrigation in the State of Sinaloa. The first project (Loan 0275-ME) in 1961 provided for the transfer of water from Rio Sinaloa to Rio Fuerte for rehabilitation of about 77,000 ha of saline soils; the second project (Loan 0970-HE) in 1974 provided for irrigation of an additional 29,000 ha: and the third project (Loan 1706-ME) in 1979 again provided for improvement of the irrigation system on about 120,000 ha, including rehabilitation of 60,000 ha of saline soils, and completion of the irrigation system on about 76,000 ha. The  -2- proposed Ocoroni Project to irrigate an additional 10,000 ha, although initially considered too small as a free standing project, was particularly attractive because the beneficiaries would be predominantly ejidatarios with average income well below the poverty level. Also, the project would make it possible to settle an additional 1,200 families in the area relieving social pressures of the landless and unemployed. The project was prepared by the Government of Mexico's Secretiriat for Agriculture and Hydraulic Resources (SARH); Sub-secretariat for Hydraulic Infrastracture (SIH); Sub-directicn tor Programs and Studies (SPS). The Bank was first presented with a draft report mid-1979 and preparation was completed in December 1979. A Bank mission in February 1980 determined that the project was ready for appraisal. 2.02 The project was appraised in April 1980. No major issues were identified by the mission; an issues paper was distributed raquesting comments and none were received. A decision meeting was not convened. A dec4sion memo was issued in June endorsing the proposed loan of US$22 million and stating that the normal covenant on cost recovery 4 Mexico would be proposed and would require water charges sufficient ti r:over 0&M and investments costs on the basis of a socio-economic study t. be carried out under the project. Followind distribution of the Decision Memorandum, comments were received from the office of the OVP expressing concern about compliance with OMS 3.80 regarding dam safety and review of the design by a panel of experts. It was explained that this issue would be reviewed prior to Board presentation. The loan documents package transmittal memo to the RVP, stated detailed infrastructure designs (OMS 2.28) would be ready and reviewed at loan negotiations. 2.03 Considerable discussion took place following distribution of the yellow cover report with (AGR/CPS) objecting strongly to the arrangements proposed for cost recovery. The appraisal mission explained that the wording used was the same as that for the recently approved Apatzingan Irrigation Project. It was determined that the cost recovery statement in the Apatzingan SAR had been changed during green cover, after approval by CPS, and that CPS had never agreed to or been advised of the cakange. It was then agreed to seek a stronger coammitment from the Borrower during negotiations with particular emphasis on the establishment of interim water charges concurrently with the socio-economic study required by law in Mexico and until such time that water charges would be determined by the study. AGR/CPS also indicated that start-up yield estimates were too high; however, mission staff reported that similar yields were already being obtained in nearby areas. No adjustments in yield estimates were made, but AGRICPS went on record as still having reservations. Negotiations and Board Approval 2.04 Negotiations took place in September 1980. The scope of the project was modified, eliminating the rainfed agriculture component, increasing the estimated construction period from 4 to 5 years, and adding pte-investment studies to be *arried out under the project. Project costs  - 3 - were revised from US$49.0 to US$54.5 million resulting from a 40? increase ln price contingencies--base costs essentially were unchanted. The foreign exchange (FE) element increased from about US$22 million to US$24 million and Bank finance was increased from UL$22 million (para. 2.02) to US$23 million to cover FE cost (excluding land leveling that would be financed by GOH). The most contentious issue. once ag&in, was that related to cost recovery and as usual the Bank agreed to accept a clause in the loan agreement stating water charges will be determined on the basis of a socio-economic study." The Mexican Delegation objected to any legal document commitment on interim water charges (para 2.03); however. it was agreed that the cveruiment would send a letter stating it would exert its best efforts to establish and collect interim-water-charges. After lengthy discussion it was agreed that the word 'verifiedm in the audit coverant would be substituted for the word audited*. 2.05 During negotiations the Borrower submitted a letter (in accordance with OMS 3.80) with the curriculum vitae of a panel of experts to review designs, construction and operation of dams (para 2.02); on the basis of this, a covenant regarding dam safety was not included in the legal documents. No evidence was found during the desk review that would indicate that final infrastructure designs were made available or reviewed during negotiations as had previously been indicated (para 2.02). 2.06 The loan package was approved by the SVOP without further comment and presented to the Board. The only question cf substance raised by EDs was regarding water charges and the time-frame completion of the socio- economic study only by the end of 1985. It was explained that the irrigation works had to be completed before the socio-economic study could be undertaken. The Loan of US$23 million was approved by the Board on October 14, 1980; signed on March 2, 1981; and became effective July 1. 1981.  - 4 - III. IMPLEMENTATION General 3.01 The SAR assumed a total of six years for completion of the project and five years for construction of the El Sabinal Dam and associated irrigation distribution works. Contracts were signed and civil works construction began in January 1981 as scheduled--six months before the loan became effective. 3.02 The project actually got off to an early anSA rap start and by the'end of 1982 both the Borrower and the Bank were predicting that the project would be completed ahead of schedule with irrigatic to begin the end of 1984. By mid-1983 Bank supervision missions were L A1l optimistic about completing the works by the end of 1984, but with the caveat 'subject to an increased budget allocation, thus recognizing the deteriorating economic situation and budgetary constraints. By the end of 1983 project cash flow began to delay payments to contractors slowing the pace of construction. 3.03 Although it was still possible to complete construction of the El Sabinal Dam the end of 1985, it is now apparent that completion of on-farms works (water distribution, land leveling and rock removal) included in the project concept and design, as appraised, may not be completed yet for several years; thus a fair measure of full development benefits would require a post-evaluation in perhaps another two to three years. 3.04 The Bank's supervision input was 63.5 man-weeks (including 17 man- weeks in the field) from June 1981 through June 1987 or about 10 man-weeks annually. Although 10 m/wks is close to the Bank norm, however, it was probably too low considering persistent problems related to cost overruns, design, review by panel of experts, budget constraints, etc. Supervision missions after 1982 were made up exclusively of irrigation engineers, economists never participated in supervision even though cost overruns and project viability was already an issue before the loan become effective and supervision missions frequently indicated the need to re-evaluate the ERR. Also an agriculturalist probably could have made a useful contribution as the civil works neared ccmpletion and the transitiorn began from rainfed to irrigated agriculture. Pro1ect Costs and Expenditures 3.05 The appraisal project cost estimate (September 1980) wae US$54.55 million; however, by the time of the first supervision May 1981, contracts had been let for the dam and associated works at a cost of over US$51 million, exceeding appraisal estimates by about 10O for those components. The Borrower's PCR estimates that the total cost end of 1986 to be US$77.3 million. Nevertheless, it is important to note th,t, although the loan had closed and was fully disbursed, February 1987 the 'project' was not yet  - 5 - completed. Thus the total expenditure (Table 3.1) does not represent the fu'l cost of the project as appraised, an investment of an additional US,5-6 million would be required to complete the project. Although the final irrigation distribution canals and drainage works could be completed in 1988/1989 (according to the final supervision report May 1987); some of the on-farm works including land leveling ann stone removal, required to reach full production potential. may not be ccw;pleted for several years (para. 3.03).  Ocoroni 1908 TABILE .1: Sumry of Total and Annual Expenditures (?5SO0O) (Exchange Rate July 1908 US * NoeS2,250) SAR Actual as Coampnent li