Thailand - Me Klong Irrigation Project

RESTR I CTED ILE CO-PY \)Report No. P-404 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF THAILAND FOR THE ME KLONG IRRIGATION PROJECT November 16, 1964  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECO11fENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE NGDOM OF THAILAND FOR THE ME IK1ONG IRRIGATION PROJECT 1. I submit the following report and recominendations on a proposed loan to the Kingdom of Thailand in an amount of various currencies equivalent to $22 million, to assist in financing the development of an irrigation project in the Me Klong River Basin in Western Thailand. PART I - BACKGROUND 2e Since 1950 the Bank has made four loans for projects for the development of irrigation and improvement of flood control in Thailand. These projects were related to development in the Chao Phya Central Plain and the Petchburi area. The first two projects which included the Yanhee multi-purpose scheme have been completed, and construction of the second two for which loans were made in 1962 is on schedule. 3. In December 1962, the Government sent a feasibility report to support a loan application concerning the development of the Me Klong River Plain. The project area lies to the West of the Chao Phya Central Plain and covers an area of about 390,000 hectares. The studies prepared by the Royal Irrigation Department (RID) envisage the development of this area for irrigation by stages. The present project is Stage I of this development. It will provide a regulated water supply for rice production during the rainy season for about 175,000 hectares of which about 8,000 would be suitable for growing other crops during the dry season. The project will also provide partial flood control, improved drainage and some navigation benefits. The project is designed as part of the development of the river basin area to be completed by stages over a period of ten or more years, 4. The project was appraised by the Bank in February 1964. The proposed loan was negotiated by a delegation headed by M.L. Xujati Kambhu, the Assistant Minister of National Development and Director General of the Royal Irrigation Department and MI.R. Chakratong, Under-Secretary of State of the Ministry of Agriculture. Negotiations were completed on November 4, 1964.  - 2 - 5. If approved, this will be the Bankls thirteenth loan to Thailand and will increase the total amount lent by the Bank to V`186 million net of cancel- lations. Loans previously made are: Year Original of Principal Loan Borrower Purpose Amount 1950 Kingdom of Thailand Railway Rehabilitation $ 3,000,000 1950 Kingdom of Thailand Port Improvement 4,400,000 1950 Kingdom of Thailand Irrigation 18,000,000 1955 State Railways Railway Rehabilitation 12,000,000 1956 Port Authority Port Improvement 3,400,000 1957 Yanhee Electricity Authority Multi-purpose 66,ooo,000 1961 State Railways Railway Rehabilitation 22,000,000 1962 Kingdom of Thailand Petchburi Irrigation 3,400,000 1962 Kingdom of Thailand Third Chao Phya Irrigation 5,600,000 1963 Yanhee alectricity Authority Power 6,600,000 1963 Kingdom of Thailand National Highways 35,000,000 1964 Industrial Finance Corpo- ration of Thailand Industry 2,500,000 Original principal amount 181,900,000 of which has been cancelled 17,500,000 Total net of cancellations 164,400,000 of which has been repaid 25,000,000 Total now outstanding 139,400,000 Arount sold $9,900,000 of which has been repaid 4,500,000 5,400,000 Net amount held by Bank R134, 000,000 Undisbursed balance as of October 31, 1964 - ip45,700,000 (of which $8 million has been committed). 6. There has been delay in appointing consultants for the National Highway project, but most consultants have now been appointed. No sub-loan has been made yet under the Industrial Financial Corporation of Thailand loan which became effective in April 1964, but the first application has been received. There has been delay in making disbursements from the 1961 Railway loan but arrangements have been made to commit most of the funds available. Otherwise, disbursements are generally satisfactory. No IDA credits have been made in Thailand.  - 3 - PART TI - DESCRIPTION OF PROPOSED LOAP 7. Borrower: Kingdom of Thailand Amount: $22 million. Purpose: To assist in financing: the construction of a diversion dam at Tha Maung, canal intake structures and irrigation canals, flood protection dikes; a navigation lock; an earth closure dam; the improve- ment of natural drainage channels; about 40 km. feeder roads; the provision of a semi-detailed land classification study and feasibility study; and the establish- ment of an experimental farm and the provision of technical and extension services. Interest: 515 per annum. Commitment Charge: 3/8 of 1% per annum. Term and Twenty years with no amortization during Amortization: the first 6 years. Then semi-annual installments to retire the loan on IPlarch 15, 1985. PART III - APPRAISAL OF THE PROPOSED LOAN 8. A detailed appraisal of the project (TO-446a) is attached (No. 1). Justification of the Project 9. Rice production has increased significantly in Thailand during the last ten years. Output has risen from about 7.2 million tons in the early 1950s to about 9.5 million tons in 1963-64. This increase has enabled Thailand to meet domestic demand in the face of a population growth rate which is now 3.3%, and has provided a surplus for export which accounts for about 30% of Thailand's foreign exchange earnings. With over 80% of Thailand's population living in rural areas and dependent on agricultural products for their livelihood there is a continuing need to increase crop production. 10. About 90% of the land to be irrigated in the project area is already planted to paddy. The Government proposed to intensify its extension services and establish demonstration farms in the area to instruct the farmers in irrigation farming and the use of fertilizers. It is expected that full benefits would be realized in about nine years, by which time paddy production in the project area is forecast to increase from about  - 4 - 200,000 tons to 400;000 tons annually. The net benefit to the economy of the project is estimated at about $11 million equivalent a year, against an investment in the project of $57e9 million. The Government wqill share to a substantial extent in the growth of revenue expected to be generated directly and indirectly by the project. Project Execution 11. The project will be carried out by the RID which is experienced in the construction of similar works, RID would employ consultants to review preliminary designs and help w&ith the preparation of final designs and supervision of construction of the major works. Consultants will also be employed to assist in the investigation and preparation of studies for the further development of the Me Klong River Basin. The RID have recently established land classification and drainage units which with the help of advisors from abroad will carry out a semi-detailed land classification of all lands to be brought under irrigation in the Me Klong River Basin. The units will also be responsible for developing land classification and drainage programs for other RID projects and for training Thai personnel. Costs of the Project 12. The total cost of the Stage I of the development of the Me Klong River Basin is estimated at $57e9 million. The proposed Bank loan would cover the foreign exchange component of Stage I estimated at $22 million. The loan would be used to purchase the imported equipment, spare parts, and supplies. It also includes an amount of $1.6 million for the employment of consultants or qualified experts, and includes provision for work in preparation for the next phase of development of the Me Klong River Basin. The Government has undertaken to provide the balance of the funds needed for completion of the project and for its operation and maintenance and to meet interest during construction. Procurement 13. All equipment and supplies to be financed under the proposed loan will be procured on the basis of international competitive bidding and in conformity with the "Guidelines relating to Procurement under Bank loans and IDA Credits". Economic Situation 14. A report "Current Economic Position and Prospects of Thailand" (FE-40a) is attached (No. 2). 15. As the report indicates, the economy has made impressive progress during the past several years, and prospects are for maintenailce of satis-. factory growth rates of output and incomes in the future. Thailand still has a margin of creditworthiness for borrowings on conventional terms well in excess of the proposed loan.  PART IV - LEGAL INSTRUJI4ENTS AND AUTHORITY 16. Attached is a draft of the Loan Agreement (Me Klong Irrigation Project) between Kingdom of Thailand and the Bank (No. 3). The Loan Agreement conforms substantially to the customary pattern followed in projects of this kind. It provides, in addition to the usual provisions, that the Borrower shall cause all works and facilities not included in the project but necessary to or required for its efficient operation to be properly operated and adequately maintained and repaired (Section 5.02); that the Borrower shall give priority to the project in the program for the development of the Me Klong River Basin (Section 5.05), and that the Borrower shall maintain land classification and drainage units within the Royal Irrigation Department (Section 5.04). 17, Also attached is the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank relating to the project (No. 4). PART V - COMPLIANCE WITH ARTICLES OF AGREEMENT 18. I am satisfied that the proposed loan complies with the require- ments of the Articles of Agreement of the Bank. PART VI - RECCOMIENDATION 19. I recommend that the Bank grant a loan to the Kingdom of Thailand in various currencies equivalent to $22 million for a term of 20 years including a grace period of six years at a rate of interest of 5% per annum and on such other terms and conditions as are specified in the draft Loan Agreement attached, and that the Executive Directors adopt a resolution to that effect in the form attached (No. 5). Washington, D.C. George D. Woods November 16D 1964 President Attachments