Tunisia - Second Agricultural Sector Investment Loan Project

Document of The World Bank Report No. 17208-TUN PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN AN AMOUNT EQUAL TO FRF 246.6 MILLION TO THE REPUBLIC OF TUNISIA FOR A SECOND AGRICULTURAL SECTOR INVESTMENT LOAN December 30, 1997 Rural Development, Water, and Environment Department Middle East and North Africa Region  REPUBLIC OF TUNISIA CURRENCY EQUIVALENTS Currency Unit = Tunisian Dinar (TND) Official Exchange Rate (TND per US$) TND 1.1 165= US$ 1.00 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AIC Association d'Interet Collective ANPE National Environment Protection Agency APIA Agence de la Promotion de l'Investissement Agricole ASIL Agricultural Sector Investment Loan AVFA Agricultural Extension and Training Agency CAIC Cellule d'Association d'lnteret Collective CAS Country Assistance Strategy CFD Caisse Francaise de Developpement CRDA Regional Commissariats for Agricultural Development DGFE Directorate General of Finance and Encouragements DGGR Directorate General of Rural Works DGPA Directorate General of Agricultural Production DGPDIA Directorate General of Planning for Agricultural Development and Investment DGRE Directorate General of Water Resources ERR Economic Rate of Return GOT Government of Tunisia ICB International Competitive Bidding IRESA Institute of Agricultural Research and Education KfW Kreditanstalt fur Wiederaufbau MOA Ministry of Agriculture NCB National Competitive Bidding NS National Shopping OECF Overseas Economic Cooperation Fund, Japan PHRD Policy and Human Resource Development Fund STEG National Electricity Company TOR Terms of Reference Vice President Kemal Dervi~ Director Salah Darghouth (Acting) Sector Leader Mark D. Wilson Task Manager Stephen Mink  Project Appraisal Document Republic of Tunisia Second Agricultural Sector Investment Loan Table of Contents Project Financing Data ................................................................l1 Block 1: Project Description .................................................................2 1. Project development objectives .................................................................2 2. Project components .................................................................2 3. Benefits and target population .................................................................3 4. Institutional and implementation arrangements: ..............................................................4 Block 2: Project Rationale .................................................................4 5. CAS objective(s) supported by the project ................................................................. 4 6. Main sector issues and Government strategy .................................................................4 7. Sector issues to be addressed by the project and strategic choices ..................................4 8. Project alternatives considered and reasons for rejection .................................................5 9. Major related projects financed by the Bank and/or other development agencies ...........6 10. Lessons learned and reflected in proposed project design .............................................7 11. Indications of borrower commitment and ownership ....................................................7 12. Value added of Bank support .................................................................7 Block 3: Summary Project Assessments ............................8 13. Economic Assessment ..............................8 14. Financial Assessment ..............................9 15. Technical Assessment ..............................9 16. Institutional Assessment ............................. 10 17. Social Assessment ............................. 10 18. Environmental Assessment ............................. 11 19. Participatory Approach ............................. I 1 20. Sustainability ............................. 11 21. Critical Risks ............................. 12 22. Possible Controversial Aspects ............................. 12 Block 4: Main Loan Conditions .............................. 13 23. Board Presentation Conditions ............................. 13 24. Other ............................. 13 Block 5: Compliance with Bank Policies ............................. 14 List of Annexes Annex 1: Project Design Summary Annex 2A: Detailed Project Description Annex 2B: Plan of Accompanying Measures Annex 2C: Environmental Management Plan Annex 3: Estimated Project Cost Annex 4: Cost Benefit Analysis Summary Annex 5: Financial Summary Annex 6: Procurement and Disbursement Arrangements Annex 7: Project Processing Budget and Schedule Annex 8: Documents in Project File Annex 9: Statement of Loans and Credits Annex 10: Tunisia at a Glance Map   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Middle East and North Africa Regional Office Rural Development, Water, and Environment Department Project Appraisal Document Republic of Tunisia Second Agricultural Sector Investment Loan Date: December 30, 1997 Draft [x] Final Task Manager: Mr. Stephen Mink Country Manager: Mr. Christian Delvoie ProjectID: TN-PA-50418 Sector: Agriculture POC: Natural Resources Lending Instrument: Sector Investment Loan PTI: [ Yes [x] No Project Financing Data [X] Loan For Loans/Credits/Others: Amount: 246.6 million French Francs ( US$42 millions equivalent) Proposed Terms: [] Multicurrency [x] Single currency Grace period (years): 5 [] Standard Variable [] Fixed [x] PIBOR-based Years to maturity: 17 Commitment fee: 0.75% Financing plan (US$m): Source Local Foreign Total Government 24.9 0.0 24.9 IBRD 6.5 35.5 42.0 Beneficiaries 1.0 0.0 1.0 Total 32.4 35.5 67.9 Borrower: Government of Tunisia Guarantor: N/A Responsible agency: Ministry of Agriculture Estimated disbursements (Bank FY/US$M): 1998 1999 2000 2001 2002 Annual 4.0 15.0 14.0 6.0 3.0 Cumulative 4.0 19.0 33.0 39.0 42.0 Expected effectiveness date: April 1, 1998 Closing date: June 30, 2002  Project Appraisal Document Page 2 Country. Republic of Tunisia Project Title: Second Agncultural Sector Investment Loan Block 1: Project Description 1. Project development objectives (see Annex I for key performance indicators): This loan has two main objectives: (i) to increase rural incomes derived from sustainable use of water resources and the effective development, delivery and adoption of improved farming practices; and (ii) to enhance institutional responsiveness to user demand for agricultural research, extension and training. 2. Project components (see Annexes 2A and 2B): The project will consist of investment components that constitute line-items in the Ministry of Agriculture's (MOA) investment budget. These undergo an extensive internal preparation and review process. The investments components are linked to accompanying measures designed to enhance the effectiveress of the public investment. The measures are grouped by investment component and are targeted for completion by two deadlines - by December 1, 1997 [completed] and before October 1998. Adequate completion of the measures would be necessary for inclusion of the related investment component in Loan financing in the subsequent budget year. Full definition of the accompanying measures is found in Annex 2B. The components of the project were selected because they support strategic priorities of the Government to strengthen water management and agricultural support services, and because of a financing gap for these activities as the Government begins implementing its 9th Plan (1997-2001). The project builds on the successes of implemented projects, continuing the basic design of the ongoing Agricultural Sector Investment Loan (ASIL), and adding components from the recently completed (June, 1997) Research and Extension Project (Ln. 3217). Costs Including % of Component Category Contingencies Total (US$M! Small-scale irrigation. Expansion in area (3000 ha through 30 tubewell Physical; 22.5 32 schemes), modernization (968 ha of the Utique perimeter in Bizerte) and Policy Reform installation of drainage systems (282 ha of the El Azima and Brahmi and Institution perimeters in Jendouba). Accompanied by: water tariff increases; Building functionality of a second mobile team to support water user associations; progressive implementation of a preparation approach for sub-projects that strengthens participation of beneficiaries; and irrigation farm revenue monitoring. Groundwater prospecting and monitoring. Drilling of 212 exploratory Physical; 36.3 55 tubewells, 115 piezometers, and acquisition of one geophysical resistivity unit, Policy Reform one video device to diagnose conditions in existing exploitation wells, and and Institution automatical recording equipment for piezometers. Accompanied by: Building facilitation of professional organization of the private sector (tubewell and piezometer drilling and prospecting companies); and strengthened technical selection of sites for exploration wells. Research. Finance for specific priority research projects and programme Physical; 4.0 6 research, support for research priorities established by a new programming Policy Reform commission in animal health, and consolidation of research regionalisation by and Institution the reinforcement of research poles and experimental stations. Accompanied Building by: implementation of the research regionalisation strategy; strengthening of research committees through implementation of a monitoring approach and improved representation of research users; and clarification of the attributes of  Project Appraisal Document Page 3 Country: Republic of Tunisia Project Title Second Agricultural Sector Investment Loan regional Poles. Extension and Training. Rehabilitation of seven existing training centers and Physical; 5.1 7 the upgrading of the central training unit at Sidi Thabet. Investment in Policy Reform vehicles to provide mobility to extension agents in eight of the country's 23 and Institution governorates which were not covered in the previous Research and Extension Building Project. Accompanied by: improved work programming and mobility of extension agents; identification of complementary providers of extension; reinforcement of the links among extension, research and training; preparation and submission for approval of draft application decrees for the existing orientation law for training; and improved programming of the training of trainers. Total 67.9 100 3. Benefits and target population: Direct beneficiaries would be farmers through small-scale irrigation. The total irrigation area expansion will be 3000 ha of new tubewell irrigation in over 14 governorates, benefiting mostly small farmers who would average 2 ha in the project areas. About 1500 farm households (10,500 persons) would directly benefit from the estimated net increase in total value of agricultural production of TD 8.4 million annually and from the stabilization of their incomes from drought impacts. The modernization of the Utique perimeter will benefit 175 households (1350 persons) on 968 ha total. The incremental employment impact of the modernization is estimated at about 75,100 additional person-days p.a.. Household agricultural income gains would range from TD 5,800 to TD15,700 p.a., or from 26% to 540% (average of 180%). Groundwater prospecting and monitoring is a key component of groundwater management as it is presently practiced, and as it needs to improve in the future. It is the foundation for water resource inventories (quality and quantity) which define sustainable extraction rates for economic uses. It also provides the data needed for groundwater modeling, which Tunisia needs to expand in the near future as part of establishing groundwater management plans for its at-risk aquifers. The national research, extension and training components would benefit farmers at large in the agricultural sector by assisting them to adopt improved farming techniques that increase productivity and quality of output, and to manage their natural resource inputs more sustainably. 4. Institutional and implementation arrangements: Implementation period. Four and one-half years. The loan would support component activities (see Section 2) included in two Government budget exercises, 1998 and 1999, with completion of these investment expected by end-June 2002. Project coordination. Overall project coordination among the executing units would be assured by the DGFE (Direction Generale du Financement et des Encouragements) and a Coordinating Committee chaired by the Minister of Agriculture. The DGFE is responsible for overall preparation of the Ministry of Agriculture investment budget proposals. Project Implementation. The Ministry of Agriculture (MOA) will be the overall executing agency for implementation of the project, with investment preparation guidelines and sub-sector policy pursued at the central Ministry level by the: (i) Directorate General of Rural Works (DGGR) for the irrigation component and institutional capacity building for water user association support; (ii) Directorate General of Water Resources (DGRE) for the groundwater monitoring and prospecting component; (iii) the Institute of Agricultural Research and Education (IRESA) for the research component; and (iv) the Agricultural Extension and Training Agency (AVFA) for the extension and training component. At the regional level, the Regional Commissariats for Agricultural Development (CRDA), in which there are units representing the central directorates, are responsible for overseeing technical preparation of specific investment proposals and for assuring coordination among technical units.  Project Appraisal Document Page 4 Country Republic of Tunisia Project Title Second Agricultural Sector Investment Loan Accounting, financial reporting and auditing arrangements. Accounting and financial reporting will be assured centrally by the DGFE. Formats and procedures for accounts and financial reporting are agreed and will continue the approaches developed, implemented and improved under the ongoing ASIL. Audits of project accounts, the Special Account and Statements of Expenditure will be done by the General Controler of Finances (CGF) of the Ministry of Finance according to acceptable auditing standards and will be made available to the Bank within six months of the close of each fiscal year. The MOA is current with audits due and in compliance with audit covenants under the ongoing ASIL. The financial management capability of the Borrower is adequate. Monitoring and Evaluation Arrangements. The DGFE will be responsible, with inputs from all implementing units, for monitoring of financial and physical progress on investment implementation, for progress reporting on execution of the accompanying measures, for coordinating disbursement, and for semi-annual project implementation reports. Impact monitoring will include farmers' incomes for the irrigation component. The data necessary data for this monitoring are already collected, but different parameters are the responsibility of different administrative units and are not currently compiled so as to permit this analysis. The Directorate General of Rural Engineering (DGGR), will coordinate a pilot monitoring system that will follow farm incomes for Project investments. Block 2: Project Rationale 5. CAS objective(s) supported by the project: Document no. and date of latest * Environmental management (sustainable use of scarce natural resources) CAS discussion: 1 5799-TUN, * Modernization of services (including private provision of agricultural services) June 25, 1996 6. Main sector issues and Government strategy: The agricultural sector has undergone considerable structural adjustment in the past 10 years but structural problems persist. Key production sub-sectors benefit from protection, including cereals, fruits, milk and meat products. Policy decisions to promote trade liberalization lag behind the pace established for other sectors of the economy, mainly due to concerns over social consequences in rural areas. The Government reopens negotiations with the European Union on trade liberalization of agricultural products in 2000, but expectations are not high that these negotiations will lead to rapid openning of markets. Meanwhile, the Government is concentrating on strengthening the capacity of the sector to respond flexibly and positively to an eventual reduction of border protection. The main sector challenges in this regard are:  Project Appraisal Document Page 5 Country: Republic of Tunisia Project Title Second Agricultural Sector Investment Loan Main sector issues Government strategy Implementing sustainable resource management. The The GOT is strengthening administrative capacity to country's fragile resources need better management to promote user groups for natural resource management. prevent them from becoming a constraint to both Pricing is being improved to reduce distortions that macoreconomic and rural income growth. The impact of encourage overuse of resources. Innovative, community- the considerable past public investment in natural resources based approaches to management is being piloted. For has been eroded by inadequate maintenance by water, the GOT is undertaking a major review of policy to beneficiaries. develop a demand management strategy (PHRD activity). Ensuring efficient support services to agriculture. Tunisia The GOT has mostly withdrawn from many services (seed is in a transitional phase between state provision of production, fertilizer marketing, cold storage, soil testing). agricultural services and greater private sector provision. For others such as extension, research and animal The time is right for the MOA to develop its strategies for preventive health services, the GOT remains the main moving in the medium-term towards a broader spectrum of provider, but is beginning to consider a narrower and more public and private delivery mechanisms for agricultural focused role in partnership with a more active private services. sector. To assist with strategy formulation the GOT requested PHRD resources. Achieving poverty reduction. Tunisia has made progress in The GOT continues to pursue an integrated approach to alleviating poverty, which is largely rural, but combating it rural poverty reduction through development that focuses remains a priority. Many rural farm households cannot on provision of basic rural infrastructure, including survive on farming alone, droughts make income highly irrigation, broad availability of basic health and education, variable. Consistent Government attention has resulted in and diversification of local economies. The GOT also good coverage of basic rural infrastructure. provides subsidies for basic foods through the Caisse General de Compensation. Increasing competitiveness offarm enterprises. GOT trade The GOT strategy is to promote private investment through commitments under the Uruguay Round and upcoming the Investment Code provisions, to assist the revitalization negotiations for freer agricultural trade with Europe will of professional organizations, and reorganizing research to pressure Tunisian farmers with competitive imports. better target productivity constraints. It is also addressing Productivity gains are key, and involve addressing credit, land ownership and marketing constraints to greater constraints in credit availability, marketing, and more farm profitability. efficient research and extension. 7. Sector issues to be addressed by the project and strategic choices: The project will address three of the four issues. Sustainable resources management will be addressed, with a focus on water resources, through groundwater prospecting and monitoring of quantity and quality, by prudent, small-scale irrigation expansion only where resources and opportunity costs permit and by support of resource management components of national research, extension and training programs. Support for irrigation users' associations will improve management of water resources and mobilization infrastructure, and tariff policy measures will continue the Government's consistent reduction in irrigation water subsidies. Efficient support services to agriculture will be addressed by moving research, extension and training strategies in the direction of demand-driven services and public- private provision compared with the current state-only provision strategy, and by focusing on overall delivery cost efficiency of these services. Poverty reduction will be addressed directly by production-related investments in small- scale irrigation and indirectly through the research, extension and training components.  Project Appraisal Document Page 6 Country: Republic of Tunisia Project Title. Second Agncultural Sector Investment Loan 8. Project alternatives considered and reasons for rejection: Three project alternatives were considered and rejected for various reasons. (a) Traditional investment operation with pre-identified investments. Rejected because the MOA project preparation process is not able to generate the needed analysis and documentation in time to mobilize the proposed Project for the 1998 budget year. The sector investment approach provides the needed flexibility to provide financing for projects that pass agreed selection criteria (see Annex 2A). (b) Delay Bank support until the results of the two PHRD studies in support of two water and agricultural services projects are available. Rejected because this would result in a sharp decline in investment programs and loss of momentum in the hiatus for strategies that the Bank is currently supporting, and likely to support in the future. (c) Substantially larger project to include expanded activities in the research, extension and training components. Rejected because of evaluated limited capacity of IRESA for implementing its regionalisation strategy and new research project start-ups supports a more prudent scaling-up of activities, and because for AVFA the overall strategic orientation needs strengthening before significant increases in investment. Also, a follow-up Bank-financed project is planned for FY00 and would include additional components (marketing, strengthening farmers organizations, support services to agriculture) to reflect the increasing diversity and complexity of Tunisian agriculture. 9. Major related projects financed by the Bank and/or other development agencies (completed-C, ongoing-O and planned-P). Latest Form 590 Ratings Proiect Sector issue (Bank-financed projects only) IP DO Bank-financed Irrigation Management Improvement Project Sustainable resource use - institutional S S (Ln. 2573, $22m, completed) aspects of irrigation management Second Agricultural Sector Adjustment Loan Sustainable resource use - hybrid loan that S S (Ln. 3078, $84m, completed) financed groundwater prospecting and irrigation Agricultural Sector Investment Loan Sustainable resource use; poverty reduction S S (Ln._3661, $120m, ongoing) Research and Extension Project Efficient support services to agriculture S S (Ln. 3217, $17m, completed) Natural Resource Management Project Sustainable resource use; poverty not yet not yet (Ln. 4162, $26.5m, ongoing) reduction. effective effective Second Training and Employment Project Efficient support services to agriculture - S HS (Ln. 4037, $60m, ongoing) promotes national framework for training but with focus on sectors other than agriculture Other development agencies Small- and Medium-Scale Irrigation (KfW) Sustainable resource use - irrigation N/A N/A rehabilitation, institutional strengthening of the participatory approach to small-scale irrigation development and management Rural Potable Water (KfW) Sustainable resource use - institutional N/A N/A strengthening of the participatory approach  Project Appraisal Document Page 7 Country: Republic of Tunisia Project Title. Second Agricultural Sector Investment Loan to small-scale irrigation development and management Shallow Aquifer Monitoring (CFD) Sustainable resource use - strategic N/A N/A approach to cost-effective monitoring of groundwater Water Management in Southern Oases (OECF) Sustainable resource use - strategic N/A N/A approach to use group management of groundwater resources 10. Lessons learned and reflected in proposed project design: The project design will replicate much of the ongoing ASIL and the recently completed Research and Extension Project. Improvement will be sought in the following areas: (a) Assuring sustainability of irrigation projects needs institutional strengthening of water users associations and of the MOAs units that support to these associations. The Project will ensure that the MOA mobilizes an interdisciplinary team to provide training and programming support to the regional support units and by implicating beneficiaries from the initial design stage of irrigation projects. (b) Agricultural research needs to be decentralized to be effective, and be based on clear institutional attributes to strengthen coordination and links among researchers, users and extension agents. The Project will support implementation of the MOA's strategy to decentralize research by strengthening selected regional research Poles and experimental stations, by formnally establishing mandates of the research poles, and by improving representation of beneficiaries within research programming and monitoring committees. (c) The country needs a national strategy for extension that goes beyond the initial exercise done to date. The Project will facilitate a dialogue to reformulate the existing strategy based on the participation of farmers and the opening up of extension to potential providers from the private sector, agro-industry, academia, etc. (d) Monitoring and evaluation mechanisms need clear definition from the outset of project implementation. The Project will be launched with clear mechanisms and responsibilities based on detailed discussions of monitoring and indicators enumerated in Annex 1. (e) Linking investment components to accompanying measures that are defined as strategic studies to be followed by agreement on details of strategy implementation will be avoided. Accompanying measures defined in this way have taken longer than expected in moving from strategy formulation to action plan under the ongoing ASIL, and the process of consensus building is not amenable to a faster pace. The Accompanying Measures of the Project limit use of this design. 11. Indications of borrower commitment and ownership: The Ministries of International Cooperation and Agriculture have requested this project. It is also supported by the Ministry of Economic Development which considers it consistent and supportive of the 9th Plan (1997-200 1). The project will support investments that will have been identified and approved within the Government's internal process of budget arbitration. The policy and institutional reform measures are designed to make progress on strategic visions of the Government that are broadly defined in the 9th Plan. 12. Value added of Bank support: The project consolidates achievements made in two projects and builds on their success, the ongoing ASIL (to be completed in June 1998) and the Research and Extension Project (completed June 1997). It provides a bridge to further strategic reforms that are being formulated on the basis of preparation of two pipeline projects in water management and agricultural services. For both water sector management (FY00) and agricultural services (FY00), Bank staff are providing critical international experience as input to dynamic Government efforts to move to detailed definition of new strategic approaches. The breadth of activities of the Bank gives it a perspective which contributes greatly to its contribute to Government's formulation and implementation of strategic approach in the sector. In addtion, Bank  Project Appraisal Document Page 8 Country: Republic of Tunisia Project Title Second Agricultural Sector Investment Loan involvement in the project facilitates the participation of other donors in financing the Ministry of Agriculture's investment program by providing criteria, process and framework strengthening which the Ministry then applies program-wide. Block 3: Summary Project Assessments (Detailed assessments are in the project file. See Annex 8) 13. Economic Assessment [x] Cost-Benefit Analysis: NPV - see below; ERR - see below (see Annex 4): Given the sector investment approach of this Project, sub-projects are not fully known at this stage. Hence, economic assessment of the Project relies on analysis completed for similar sub-projects implemented in recent years in Tunisia, and this shows satisfactory indicative economic rates of return. Moreover, sub-projects for irrigation to be financed by the Loan will be subjected to economic selection criteria whose application has already been tested under the ongoing ASIL. Direct beneficiaries would be farmers in small-scale irrigation systems, who would gain in terms of increased and less variable production and income. Irrigation. For small-scale, tubewell-based irrigation investments, recent sub-projects have estimated rates of return of 15-21%. For the modernization of Utique, the project was evaluated to have a 15% ERR. A cost benefit analysis for the proposed set of tubewell investments yielded an ERR of 20%. Groundwater exploration. For the exploratory tubewells investments, ex post analysis was conducted for the DGRE 1990-95 exploration activities, which resulted in the estimated annual sustainable aquifer yield in Tunisia increasing by 40 million m3, of which was 80% was utilized in irrigated agriculture and 20% for urban and rural potable water supply. Based on this increased availability of water, returns to representative cropping patterns for a "with-project" (irrigated agriculture) were analyzed, assuming conservatively a relatively low-value added use of irrigation water. Comparison to a typical "without-project" cropping pattern (rainfed agriculture) using detailed farm budgets results in an ERR of 18% for the overall exploration program. The benefits of the investments in agricultural research and extension component do not lend themselves to ready quantification. Qualitatively, they would benefit farmers at large in the agricultural sector by assisting them to adopt improved farming techniques that increase productivity and quality of output, and to manage their natural resource inputs more sustainably. Economic selection criteria that will be applied for irrigation sub-projects consist of: (a) a minimum 10% ERR for irrigation modernization projects; and (b) for the construction of new irrigation schemes, sub-projects with a cost exceeding TD5,000/ha but less than TD 500,000 in aggregate, a simplified procedure for cost-benefit analysis and would need to demonstrate a benefit cost ratio greater than 1.05. Sub-projects with an estimated total cost of more than TD 500,000 would be subject to a feasibility study with a complete cost-benefit analysis and would need to have an ERR of 10% minimum to receive Loan finance. Sub-projects costing less than TD5,000/ha would not be subject to an economic analysis to be eligible for financing. Other selection criteria are detailed in Annex 2A. Fiscal impact: The investment costs will be borne by the public budget and the Loan. Budget resources are carefully managed and since the Project consists of sub-projects that are fully integrated into the Government's budget process and are consistent with Ministry of Finance planning envelopes for investment and debt servicing, the fiscal impact of the Project is considered supportable. Increased agricultural production is envisaged under the project. However, in Tunisia, agricultural income is not subject to income tax, and 65-75% of agricultural production is home consumed or marketed through the informal sector. Hence incremental tax revenues accruing to the government are expected to be very small. Regarding recurrent cost, irrigation associated with tubewells will, in principle, have limited impacts on the government budget since routine operations and maintenance are the responsibility of water user groups. The institution building  Project Appraisal Document Page 9 Country Republic of Tunisia Project Title Second Agricultural Sector Investment Loan component of the project will foster greater responsibility of the water user associations in the operations and maintenance of the schemes. Recurrent costs of exploration tubewells are also minimal; where successful, tubewells pass over to exploitation programs with recurrent costs borne by users associations or other entities. Running costs of groundwater monitoring infrastructure will increase marginally because of addition of the piezometers, but installation of electronic recording data is expected to reduce overall personnel input for data collection and database management compared with the manual collection and inputting that currently predominates. For the research, extension and training components, no significant increases in personnel are planned under the project, although there will be increased recurrent costs for operating vehicles for the extension component. Government public expenditures -- both recurrent and investment -- in the agricultural sector were reviewed as background to appraisal of this sector investment loan. The Project represents about 8% of total public investment planned in the sector during its two years of budget support. Public investments included in the Ninth Plan take place within sound sub-sector strategies, are subject to adequate selection criteria, and are not likely to face significant financing constraints, despite being programmed to grow substantially in real terms over the Plan period. Investments in the MOA budget have social and environmental objectives in addition to the purely economic criteria that are routinely applied, and while acknowledging this, attention still needs to be paid to social returns of the MOA portfolio compared with alternative uses of the resources in other sectors, for which simple aggregate investment-output ratios appear to be more favorable. Regarding recurrent expenditure, fiscal restraint has resulted in a modest decline in expenditure in real terms over the past decade. This raises general concerns about the adequacy of operations and maintenance, although for the specific investments supported by this Project public funding of operations and maintenance is acceptable. Economies in the MOA recurrent budget have indeed been achieved through disengagement from numerous activities since the beginning of the decade, in conjunction with deconcentration of the management of its investment budget to the regional level and shifting of some operations and maintenance needs to water user associations and private service providers. But the lack of adequate cost information systems makes it difficult to determine at a detailed level whether the recurrent budget is in balance with investment plans. The recent integration of recurrent and investment budget preparation within the Ministry of Finance, and piloting within the MOA of analytical accounting systems, are expected to begin addressing this shortcoming. A planning study of CRDA is underway to assess the future resource needs -- human, physical and budgetary -- to enable the CRDA to carry out their responsibilities. The mid-term review scheduled for October 1998 will review MOF progress on integrating recurrent and investment budgeting, on the accounting systems pilot, and on the CRDA study. 14. Financial Assessment (see Annex 5): NPV=N/A; FRR=N/A No single financial assessment is possible for the proposed project since this is a sector investment loan with some detail for the 1998 program but only the broad envelope of activities for the 1999 program. Further, none of the investments are directly in revenue-earning entities. The agricultural research, extension, and training components do not lend themselves to traditional FRR calculations. The irrigation development sub-projects will be selected based on minimum criteria (described in Annex 4), and at this stage, it will not be possible to calculate financial rates of return. Partial cost recovery is envisaged since the water users' associations will meet the cost of routine O&M in the newly-developed small-scale irrigation perimeters. 15. Technical Assessment: Irrigation - The small-scale irrigation technology consists generally of pressured, buried pipe networks to metered outlets at the individual parcel level, with the meters' costs justified by their advantages for water user association management. Experience in Tunisia has demonstrated the desirability of pouring concrete structures in situ rather than pre-cast, because the initial additional cost is compensated by greater durability. The networks' layout serves the existing configuration of parcel ownership because this avoids social obstacles. System pressure is adequate for sprinkler or other water-saving irrigation techniques. Groundwater Exploration - Prospecting to determine siting of exploration tubewells is generally adequate and will be  Project Appraisal Document Page 10 Country: Republic of Tunisia Project Title Second Agricultural Sector Investment Loan further improved during the project (see Accompanying Measures, Annex 2B). The proportion of negative wells (25% of the 384 exploratory wells completed since 1991 due to unproductivity or salinity) in the public investment program is acceptable, particularly taking into account that the public program focuses on less well understood hydrogeological formations where the uncertainties are greater. Prospecting in more favorable and better-understood zones is typically left to the private sector to undertake. Groundwater Monitoring - the existing piezometer network is inadequate to provide monitoring data of the reliability that will be critical as Tunisia makes progress towards implementing a strategy of groundwater management by stakeholders. Siting of piezometers can be improved based on approaches that will be introduced under the project, including a sharper focus on strategic objectives (e.g. monitoring overdrafted aquifers, saline intrusion, artificial recharge, etc.). Measurement equipment as part of the longer term effort to equip 20% of the piezometer network is justified in order to: (a) increase from current manual measurement frequences, cost effectively, as will be essential for effective management; (b) improve measurement reliability in remote areas; (c) replace limnographs with less costly and more efficient electronic data recorders; and (d) introduce multiparameter units capable of monitoring water quality. Technical preparation of the Project established the appropriate balance between new piezometers and automatic recording equipment. The Project will also finance a tubewell remote diagnostic unit and a resistivity unit for groundwater prospecting. The former is cost effective for well rehabilitation, and the national market for this service is too limited to support a competitive private sector. The latter is important to maintaining the technical capacity of the DGRE, although for CRDAs routine site selection for exploration tubewells, the objective is to make a transition to contract this out commensorate with development of private sector capacity. 16. Institutional Assessment: a. Executing agencies: The foundation for Project execution and coordination (see paragraph 4) has been tested and proven adequate during the recently completed Research and Extension Project and ongoing ASIL. Sub-projects are adequately prepared by CRDAs and/or central technical departments, preparation and selection criteria are satisfactorily applied as part of preparation of the annual investment budget, the budget is soundly executed, and implementation of investments is technically competent. Further institutional improvement and innovation are an explicit focus of the Project through the Accompanying Measures (Annex 2A). Each implementing unit will pursue an agenda of institutional strengthening that has been identified as needed and opportune. Implementing these changes will require close monitoring, flexibility and adjustment, and supervision missions will be staffed to provide needed input to this process. Areas of particular focus will be: (a) beneficiary participation in validating irrigation projects' feasibility studies; (b) research system decentralization and research program committee strengthening; (c) extension agent work programming; and (d) DGRE service provision to stakeholders in water resource management. b. Project management: The Project rests squarely on the MOAs existing investment budget process and the Project management design aims to be synonymous with management of the overall investment budget. Project accounts and financial management will be an extract sub-set of the MOAs detailed accounts for its investment budget. This management information system is computerized and provides up-to-date data on sub-project costs, commitments, expenditures and sources of funds, on both a contract basis and for analytical aggregates. All procurement decisions are approved and documented by formally empowered review commissions and overseen by a financial controller representing the Ministry of Finance. The DGFE will also maintain its computerized project accounts and paper documentation files so as to permit a comprehensive itemized trace of all transactions that are forwarded to the Central Bank of Tunisia which manages payments out of the Special Account. These accounts and procurement documentation processes are already in place for several years as part of the ongoin ASIL and have proven fully satisfactory. In addition, the DGFE provides, with effective and efficient staff input, the essentials of a traditional project management unit.  Project Appraisal Document Page 11 Country Republic of Tunisia Project Title Second Agricultural Sector Investment Loan c. National consulting companies: National consulting companies will be called upon to conduct more complex and multidisciplinary preparatory studies for sub-projects. To promote adequate capacity to carry these out, study terms of reference will pay close attention to definition of needed consultant profiles and expertise. The Project launching workshop will also have information sessions for consulting companies to permit introduction and discussion of the new methodologies. 17. Social Assessment: The irrigation component will be located primarily in semi-arid rural areas where there is great demand for irrigation water by local communities. However, even where private dug wells exist, these communities are often not used to cooperating to operate small-scale irrigation infrastructure. They can at times be impatient with Government preparation and budget procedures and skeptical of information gathering by consulting companies. However, the MOA is improving its procedures for early collaboration with local communities in project identification, and for prioritization of investment to focus on those with the most favorable prospects for social cohesion and collaboration during projects' preparation, implementation and operation phases. Groundwater prospecting and monitoring under the project will remain largely technical activities with limited immediate interaction with local communities. Based on ongoing strategic studies, it is anticipated that the information generated by these investments will begin to be better integrated into a communication strategy that underpins management of groundwater by local stakeholders. 18. Environmental Assessment: Environmental [] A [X] B [] C Category The project is a Category B. An environmental management plan was prepared and confirmed during negotiations. The possible adverse environmental impacts of irrigation development relate to overdrafting of the aquifer, and impact on soil and water quality through tubewell-based small perimeter development. The impact on groundwater aquifer management is expected to be minimal since the administration (DGRE) is capably monitoring aquifers, and only permits additional tubewell irrigation capacity to be installed where renewable groundwater resources are not overexploited. In order to qualify for financing under the Project, for each tubewell irrigation sub-project, the Bank will require documentation (from DGRE) that demonstrates the water requirement of the project in relation to the current exploitation and renewable resource status of the aquifer involved. For individual tubewells and related irrigation infrastructure costing more than TD 500,000, the feasibility study would include an analysis of the potential environmental impacts including the set of mitigation measures to be taken where necessary, in accordance with the environmental plan. These measures will be integrated in the design of the sub-project. The environmental management plan developed will be closely monitored during supervision missions, and will be presented as part of the annual report to be submitted by the government. In addition, any required environmental assessment and/or planned mitigation measures will be submitted to the Bank for review and approval along with the proposed sub-project. 19. Participatory Approach: Identification/Preparation Implementation Operation Beneficiaries/community groups COL COL COL Academic institutions IS IS IS Local government COL COL COL National Environmental Protection Agency CON CON CON Ministry of Economic Development CON IS IS Ministry of Finance CON IS IS Private companies CON CON IS Other donors (KfW, EU) CON IS IS NGOs NA NA NA Note: IS = information sharing; CON = consultation; COL collaboration. 20. Sustainability: The project directly addresses water use and management sustainability issues through the groundwater and irrigation components. The groundwater prospecting and monitoring component addresses the need for Government to develop a  Project Appraisal Document Page 12 Country: Republic of Tunisia Project Title: Second Agncultural Sector Investment Loan more precise understanding of renewable groundwater resources (quantity and quality), which represent 45% of exploitable national water resources. The irrigation component is explicitly promoting beneficiary involvement from the earliest stages of irrigation sub- projects by assisting the DGGR to transition by the second year of the project to involvement of the beneficiaries in the conception and validation of working hypotheses of the socio-economic study. In addition the project will support the creation of a second mobile team that trains regional trainers of AIC members, with a reinforced focus on irrigation user groups, and largely following the approach of the existing team that has succeeded in improving the organizational and financial autonomy of AICs in the regions of its operation. The objective is autonomous user associations for operation of irrigation infrastructure such that the irrigation activity is sustainable with minimal additional public intervention and cost. 21. Critical Risks (see fourth column of Annex 1): Risk Risk Rating Risk Minimization Measure Project outputs to development objectives: - Crop failure risk (hail, etc.). Moderate - Difficult to address within this project. - Producer price and non-price incentive deterioration. Low - Research ineffectiveness in raising farm productivity. Moderate - Improve research users' participation in research prioritization and evaluation. - Inadequate progress in defining general strategy in the Moderate - Leverage interim reports of the two PHRD two areas of agricultural services and water resource studies; focus on policy dialogue during management. supervision missions. - Government wavering on policy commitment regarding Moderate - Define policy benchmarks that would general strategy in the two areas of agricultural services condition, by project component, second and water resource management. year (1999) investment support. Project components to outputs: - Delayed completion of preparatory studies. Moderate - Selection of sector investment project design; completion of studies used as requirement for formal Loan commitment to sub-project financing. - Slow procurement. Low - Adequate preparation of procurement approach during preparation and appraisal. - Difficulty mobilizing irrigation associations. Low - Ensure TA for irrigation associations' support. - Cost inflation. Low - Build price contingencies into planning. - Counterpart fund availability. Low - Application of sub-project selection criteria enhances Ministry of Finance and Ministry of Economic Development acceptance for financing of Ministry of Agriculture Budget. - Implementation lags. Moderate - Establish project coordination in DGFE; specify a realistic Plan of Accompanying Measures. Overall Risk Rating Moderate 22. Possible Controversial Aspects: Institution Building Component for Water Users' Associations. There is general support among Government stakeholders for establishing a second mobile team of interdisciplinary experts to train regional support units for water  Project Appraisal Document Page 13 Country: Republic of Tunisia Project Title Second Agricultural Sector Investment Loan users associations. But there is a preference to finance such a team using grant rather than loan resources. Two of the more likely donor sources of grant financing have already indicated that they will not be able to provide support at least during 1998. The Bank position is that the mobile team is an Accompanying Measure and that the team needs to be operational by the first trimester of 1999, regardless of the source of financing. If no alternative financing becomes available by September 1998, the team would have to be mobilized using resources from the existing Agricultural Sector Investment Loan (Ln. 3661 -TUN). Block 4: Main Loan Conditions 23. Board Presentation Conditions: The following Board conditions were fulfilled: (a) Detailed 1998 investment budget proposal for the MOA to be presented to the Bank for evaluation and comment; (b) Borrower agreement to a Plan of Accompanying Measures comprising institutional and policy reforms linked to the investment components of the project; and (c) Borrower agreement that water users' associations will be initiated and involved from the beginning of irrigation perimeter projects, that beneficiaries will pay a subscription fee during the construction phase, and that the associations and CRDAs will sign a management contract by definitive reception of such installations. Effectiveness Conditions - No special conditions. 24. Other [classified according to covenant types used in the Legal Agreements database.] Accounts and Audits * The Government will assure that the annual audit reports, with an opinion on the statements of expenditure used for certain disbursements and on the special account, are sent to the Bank within six months of the end of the fiscal year of the Borrower. * The Government will open and manage a Special Account in French francs. Management Aspects * The Borrower will take all necessary measures to assure that a Coordinating Committee for overall management of the project will be established within the Ministry of Agriculture no later than April 1, 1998. Monitoring, Review and Reporting * The Borrower will prepare and furnish for the Bank's review and comments not later than March 31 and September 30 in each Fiscal Year a report, in form and substance satisfactory to thie Bank, on the progress achieved during the preceding six months in the financial and physical implementation of Project investments, onl performance indicators, and in the carrying out of the Accompanying Measures. Sectoral Budgetary Allocation and Investmeint Approval . For the 1999 budget exercise, the Borrower will before 30 September 1998 prepare and send to the Bank for evaluation and comment the agricultural investment program proposed by the Borrower, along with the projected financing for said program, and before October 31 l. 1998. for the Bank's review and approval, a detailed description of the investment activities proposed to finance under the Project, along with any required environmental assessment report and/or planned mitigation measures approved by the ANPE.  Project Appraisal Document Page 14 Country: Republic of Tunisia Project Title: Second Agricultural Sector Investment Loan Sectoral regulatory/institutional action * The Borrower will implement the Accompanying Measures (see Annex 2A) with due diligence and efficiency. Block 5: Compliance with Bank Policies [x] This project complies with all applicable Bank policies. [ ] [The following exceptions to Bank policies are recommended for approval: N/A] [signature] [signature] Task Manag Stephen D. Mink Country Manager: C sti ivoie  Project Appraisal Document Page 15 Country: Republic of Tunisia Project Title, Second Agricultural Sector Investment Loan Annex I Project Design Summary Narrative Summary Key Performance Indicators Monitoring and Supervision Critical Assumptions and Risks CAS Objective (CAS Objective to Bank Mission) 1. Environmental management - I a. Water consumption by sector; 1 a and I b. Statistics 1. Government's commitment to policy reforms to sustainable use of scarce resources. I b. Groundwater abstractions as a maintained by DGRE and/or promote sustainable natural resource management percentage of recharge; DGPDIA. is reinforced. I c. Share of total irrigated land equipped Ic. Statistics on water 1. Techniques judged favorable to sustainable with water savings technology; investment subsidies natural resource management are adopted and maintained by DGFE and actually contribute to sustained economic growth. APIA; statistics on irrigation la. Surface aquifer extraction (approx. 1/3 of subsidy and water savings total) are estimates only -estimates of agricultural technology maintained by use of water are thus not exact. DGGR. I c. Irrigation subsidy data currently based on administrative, not analytical accounts will be 2. Modernization of services - private 2. Share of farmers served by private and 2a. Statistics on veterinary generated according to the latter. provision of agricultural services public providers, for farm inputs, services by DGSA; veterinary services, and extension; 2b. Statistics on farm inputs 2a. Elaboration of strategy for provision of by DGPA and DGPDIA; agricultural services; regulatory framework of 2c. Extension - AVFA. private provision of research and extension; public 3. Enhanced ru, al growth through gains 3. Yields per hectare for strategic 3. DGPA, DGGR, DGPDIA institution realignment and articulation with in agricultural productivity. products. (From fiches de cultures for private providers. strategic products).  Project Appraisal Document Page 16 Country Republic of Tunisia Project Title. Second Agncultural Sector Investment Loan Project Development Objectives (Development Objectives to CAS Objective) 1. Rural incomes derived from 1. Rural income from agricultural 1. DGGR, DGPA, DGPDIA, Elaboration and implementation of strategy for sustainable use of water resources and sources; and CRDA monitoring of water demand management. effective development, delivery and additional irrigation area, crop adoption of improved farming practices choices and yields; monitoring increased; of irrigation perimeters fiches for updated farm budgets; 2. Institutional responsiveness to user 2a. The ratio of the annual number of 2a. IRESA annual inventory The extension service is effective, and demand for agricultural research, new technologies to the number of of research results. incorporates the results of research into their extension and training enhanced. researchers. Supervision fiches of the programs. researchers. 2b. The percentage of research results 2b. AVFA and IRESA reports that are applied in practice in a significant or surveys (of farmers, Incentives to attract and retain extension agents of manner. suppliers of inputs, other a high standard are in place. relevant organizations...) on the application of research The links between reserach and extension are results. reinforced.  Project Appraisal Document Page 17 Country Republic of Tunisia Projedc Title: Second Agncultural Sector Investment Loan Project Outputs (Outputs to Development Objectives) la. Improved quantitative inventory of Ia. Additional renewable groundwater 1a. Statistics maintained by Moderate physical and climatic crop risks; groundwater resources resources identified. DGRE. Stable producer price and non-price production lb. Improved capacity to monitor lb. Evolution of the piezometric lb. Statistics maintained by incentives. groundwater resources network. DGRE. I c. Mobilized ground and surface water I c. Additional area irrigated, I c. Statistics maintained by resources for agricultural activity rehabilitated or modernized. DGETH, DGGR, CRDAs. Id. Improved irrigation efficiency. Id. Improved irrigation system efficiency Id. Statistics maintained by I e. Sustainablity of small irrigation in the areas rehabilitated/modernized. DGGR. systems investments. le. O&M cost recovery. I e. Statistics maintained by the CRDAs, AICs, and DGGR. 2a. Research responsive to farmers 2a. Percentage of user representation in 2a. IRESA Government will stay committed to the strategy problems and constraints; the research commissions for the choice Choice: Proces verbaux of the for the needed implementation period for the (planning -programming) and the national commissions. strategy, which is longer than the proposed evaluation of the technologies proposed Evaluation: Number of project. by research. participants at the workshops Measures enabling greater participation of users in presenting research results the choice of research projects, and evaluation of research results are put in place. 2b. Improved quality of extension; 2b. 2b. AVFA Extension agents will have sufficient mobility; - Number of trainers trained in the Increase in time devoted by agents to extension; previous year; Investments and recurrent expenditures are - Number of field demonstrations, financed in a timely manner; information events; Participation of farmers in the determination of - Number of farmers benefitted from themes and content of modules ( through CIV and field interventions; during preparation of Annual Program of - number and share of women extension Extension) is adequate; Research results and agents. agricultural inputs are readily available to farmers. - rate of adoption of 2 or 3 priority themes developed in the context of strategic products; 2c. Increase in efficiency of extension. 2c. Increase in mobility (number of 2c. AVFA visits/week) by extension agents. - Number of extension agents trained during the preceding year;  Project Appraisal Document Page 18 Country Republic of Tunisia Project Title: Second Agricultural Sector Investment Loan 3a. Increase in efficiency of training. 3a. Number of trainers trained during the 3a. and b. AVFA; Centres previous year; Techniques - number of farmers trained during the previous year; - number of students registered at the technical centres, number of students who stay for at least I year, and number of students who pass the exam; 3b. Training more adapted to users' 3b. - Technical training requested by the needs. farmers; - Technical training requested by the students in different specializations;  Project Appraisal Document Page 19 Country Republic of Tunisia Project Title Second Agricultural Sector Investment Loan Project Components Small scale irrigation construction and irrigation system modernization (Components to Outputs) - Investment US$22.5m - rate of physical and financial Umbrella coordination by -Timely completion of preparatory studies implementation; number of PI; area DGFE, with inputs from: -Timely procurement added; cropping intensity; irrigatiion - DGGR and CRDAs - Modest price (incl. exchange rate) and physical efficiency; area modernized/rehabilitated contingencies (for civil works) - 1998 and 1999 budget confirrnation and - Policy/institutional reforms - Timebound and quantitative indicators - DGGR and Consultant twice- counterpart resource availability to developed in the form of yearly progress work-shops - Implementation occurs as scheduled Accompanying Measures (AM) based on - Creation of irrigation associations Annex 2b. - DGFE will monitor overall takes place in a timely manner progress; individual implementation units will be responsible for carrying out and monitoring their reform components of the AM. - DGGR; CRDAs Groundwater prospecting tubewell construction - Investment US$3 1 .9m - rate of physical and - DGRE, based on fiche de - Absence of major environmental constraints. financial implementation; number of reception du forage prospecting tubewells; linear depth of exploration; volumes and quality of groundwater identified; ratio of negative wells to total number of (positive and negative) wells; - Policy/institutional reforms - See AM, above Groundwater monitoring wells and equipment - Investment US$4.4m - rate of physical and financial - DGRE monitoring data; implementation; number of monitoring annual reports wells created and equipped; strategic objectives; -_Policy/institutional reforms - See AM, above.  Project Appraisal Document Page 20 Country: Republic of Tunisia Project Title: Second Agricultural Sector Investment Loan Priority research programs, regionalisation/restructuring of research facilities (stations and poles), valorization of research results - Investment US$4.Om - Procurement; rate of physical and financial implementation (civil works and acquisition of equipment); - Policy/institutional reforms - See AM, above. - IRESA Extension: Vehicles - Investment - US$0.5m - Procurement of vehicles and deployment to the CRDAs - Policy/institutional reforms - See AM, above. - AVFA Training centers: building rehabilitation, equipment. vehicles; pedagogic materials - Investment - US$4.6m - Procurement; rate of physical and financial implementation (civil works, equipment and vehicles); - AVFA - Policy/institutional reforms - See AM, above.  Project Appraisal Document Page 21 Country: Republic of Tunisia Project Title: Second Agricultural Sector Investment Loan Performance and Monitoring Indicators Indicator - O t=l t--2 t=3 t=4 t=5 GI. Groundwater abstractions and recharge (2/) z2. Water consumption by sector (Mm3) *3. Additional renewable groundwater resources mobilized (volume MO3 and quality mg/l) *4. Evolution of the piezometric network *5. Area equipped with water-savings technology (ha.) 6. Water tariff/Cost of O& M in public 76% perimeters (%) 7 Rural incomes (gross, TD) x x+3% x+5% 8. Additional irrigated area (ha) +25-30% +40% +50% +60% 9. Cropping intensity by season (