China - Shaanxi Agricultural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 18127 IMPLEMENTATION COMPLETION REPORT 'CHINA SHAANXI AGRICULTURLAL DEVELOPMENT PROJECT CREDIT 1997-CN June 29, 1998 Rural Development and Natural Resources Unit East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Yuan (Y) 1989 $1=Y 3.76 1990 $1=Y 4.78 1991 $1=Y 5.32 1992 $1=Y 5.42 1993 $1=Y 5.73 1994 $1=Y 8.50 1995 $1=Y 8.30 1996 $1=Y 8.30 1997 $1=Y 8.30 FISCAL YEAR January 1-December 31 WEIGHTS AND MEASURES Metric System mu = 666.7 square meters (m2) 15 mu = 1 hectare (ha) ABBREVIATIONS AND ACRONYMS EASRD - Rural Development and Natural Resources Sector Unit of the East Asia and Pacific Regional Office EIRR - Economic internal rate of return FIRR - Financial internal rate of return FY - Fiscal year GPS - Grandparent Stock IBRD - International Bank for Reconstruction and Development ICB - International Competitive Bidding ICR - Implementation Completion Report IDA - International Development Association ITC - International Tendering Company of China National Technology Import & Export Corporation NCB - National Competitive Bidding O&M - Operations and maintenance OD - Operational Directive (of the World Bank) PMO - Project Management Office PPC - Provincial Planning Commission SAR - Staff Appraisal Report SDR - Special Drawing Rights Vice President :Jean-Michel Severino, EAPVP Country Director :Yukon Huang, EACCF Sector Manager :Geoffrey Fox, EASRD Staff Member :Daniel Gunaratnam, Principal Water Resources Specialist, EACCF  FOR OFFICIAL USE ONLY CONTENTS PREFACE ........................................................ EVALUATION SUMMARY .......................................................v PART I: PROJECT IMPLEMENTATION ASSESSMENT ..................................................... 1 A. Project Objectives and Description .....................................................1l B. Achievement of Project Objectives ....................................................1l C. Implementation Record and Major Factors Affecting the Project ..................................2 D. Project Sustainability .....................................................5 E. IDA Performance.6 ....................6 F. Borrower Performance ..................7 G. Assessment of Outcome .........................................,.8 H. Future Operation ........................................ 10 1. Key Lessons Leamed ........................................ 10 PART II: STATISTICAL TABLES ......................................... 12 Table 1: Summary of Assessments ........................................ 12 Table 2: Related Bank Group Loans and Credits ........................................ 13 Table 3: Project Timetable ........................................ 14 Table 4A: Loan/Credit Disbursement,: Cumulative Estimate and Actual ......................... 15 Table 4B: Loan/Credit Disbursement: Cumulative Estimate and Actual, by Semester .................................................. 15 Table 5: Key Indicators for Project Implementation .................................................. 16 Table 6: Key Indicators for Project Operations .................................................. 19 Table 7: Studies included in Projecit .................................................. 21 Table 8a: Project Costs in Yuan ...................... 22 Table 8b: Project Costs in US Dollar's .......................... 22 Table 8c: Project Cost Increase ..................... 23 Table 8d: Project Financing ..................... 23 Table 9: Economic Costs and Benefits .......................................... 24 Table 10: Status of Legal Covenants .......................................... 25 Table 11: Compliance with Operational Manual Statements .......................................... 26 Table 12: Bank Group Resources: Staff Inputs ...................................... 26 Table 13: Bank Group Resources: Missions ...................................... 26 ANNEX A: ICR MISSION'S AIDE MEMOIRE ...................................... 27 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.  - iii - IMPLEMENTATION COMPLETION REPORT CHINA SHAANXI AGRICULTUR&L DEVELOPMENT PROJECT CREDIT 1997-CHA 'REFACE The Implementation Completion Report (ICR) describes the achievements of the Shaanxi Agricultural Development Project in China, for which Credit 1997-CN in the amount of SDR 78.8 million ($106 million in equivalent) was approved on September 19, 1989, and made effective on December 1:3, 1989. The credit was closed on June 30, 1997. It was fully disbursed, and the last disbursement took place on September 5, 1997. The ICR was prepared by Daniel Gunaratnam (Principal Water Resources Engineer), Wang Xiaolan (Financial Analyst), Zhang Chaohua (Socioeconomist), Jiang Ping (Irrigation Institutional Specialisi:) and Hu Shunong (Construction Engineer- Consultant), and was reviewed by Geoffrey Fox, Sector Manager, Rural Development and Natural Resources Sector Unit, East Asia and Pacific Regional Office (EASRD). The Borrower was unable to provide comments on the final ICR, which are therefore not included as an annex to this ICR.. Preparation of this ICR was begun during the Bank Group's final supervision mission in November 6-17, 1997, and an ICR mission visited Shaanxi Province also during the same period. The ICR is based on materials in the project file and materials provided to the ICR mission. The Borrower contributed to preparation of the ICR by contributing views reflected in the mission's aide-memoire (see Annex A), preparing its own evaluation of the project's execution and initial preparation, and commenting on the draft ICR. Since the Borrower's ICR was too long to be included as an annex and a summary was not provided, the Borrower's ICR has been deposited in the project files.   - v - CHINA SHAANXI AGRICULTURE DEVELOPMENT PROJECT CREDIT 1997-CN In accordance with Operational Policy 13.55 this Implementation Completion. Report was prepared 12 months after Credit 1997-CN was closed on June 30, 1997. However, the project's main components, Donglei Irrigation and Dingbian Water Supply, will only be completed by December 1999. This report is therefore an interim completion report. The project will have to be revisited in December 1999 to determine if all the works are completed and all the objectives of the project are met. EVALUATION SUMMARY Project Objectives and Description 1. The main objectives of this project were to boost farm production and incomes of poor households and to provide clean water through a program of investments in irrigation, rural water supply, and agricultural services. The main features of the project were: (a) improving and expanding th[e Donglei Irrigation System in the Guangzhong Plain and supplying water to rural areas; (b) providing potable water and irrigation in Dingbian County where there has been a high incidence of fluorosis because of the high fluoride content in the local water; (c) establishing 2,100 hectares (ha) of fish ponds; (d) establishing eight breeding and five commercial poultry operations; (e) constructing several seed processing and certification plants, and supplying fertilizers; (f) constructing and equipping three agroprocessing pilot plants; and (g) providing local and international training programs to staff involved in implementing the above subcomponents. 2. The project objectives were well designed and were appropriate to the Shaanxi government's strategy of reducing poverty by increasing agricultural production and incomes for the region. They were also consistent with the central government's objective to develop the interior provinces, reduce poverty, and fulfill the basic needs, such as clean water, of some of the poorest people in China. 3. Assessment of the project's ability to achieve the stated objectives must await the expected completion in December 1999 of the Donglei Irrigation and Dingbian Water Supply Components. The project objectives for the other four components (aquaculture, livestock, agroprocessing and seeds) have essentially been achieved. There are, however, solid indications that the objectives of the irrigation and water supply components will be achieved after completion of the unfinished works because most of the major construction issues have been resolved and Shaanxi Government is committed to completing the project.  - vi - Results of Implementation 4. Donglei Irrigation and Dingbian Water Supply Components. Donglei Irrigation Systems are 70 percent complete, though a small subsystem, the Duanjiayuan Irrigation System (3,700 ha) commenced operation in 1996. Following the introduction of irrigation on this system, wheat yields increased by 100 percent. For newly irrigated areas, about 30 to 65 percent of the on-farm works and about 26 percent of the branch canals are scheduled to be completed by December 1999. The farmers have indicated that most of the on-farm works and water cisterns for domestic water supply will be completed by that date, since the land has already been leveled and the canals can be completed very rapidly if water is assured. Initial water testing of the main canal and aqueducts has been carried out. Most of the delays in implementing this component were attributed to disagreements between the Provincial Planning Commission and the Provincial Water Conservancy Bureau over design details of the Luohe Flume. This led to the failure to allocate adequate counterpart funds for this component up until 1995. After a change of management in the Project Management Office (PMO) in 1995, the required counterpart funds were made available, and implementation progressed much more rapidly. On completion of all the works, this component is expected to meet the objectives of providing irrigation and domestic water supply for some 130,000 households. 5. The Dingbian Water Supply Component is about 75 percent complete. The final distribution networks for water supply are expected to be completed during 1999. The main pipeline, pumping, and treatment works have been completed and tested for commissioning. Most of the irrigation works are also expected to be complete by December 1999. Upon completion, this component is expected to meet the objectives of providing safe drinking water for 140,000 people and water for irrigation in Dingbian. 6. Aquaculture Component. The aquaculture ponds, aquatic products, and -marketing and technical training centers were started in 1996. The per-hectare production of fish has far exceeded the amounts indicated in the Staff Appraisal Report (SAR) and has more than satisfied the objectives of the project. During the midterm review, the PMO and the International Development Association (IDA) agreed to reduce the area of ponds planned in the SAR. Land that became available as a result of this decision was given back to farmers who had been resettled in the area from the Sanmenxia Dam. The current per-hectare production of commercial fish is 46 percent higher than the SAR estirnate, while the total production of fish is only 10 percent lower despite a 29 percent reduction in total area. This subproject has provided more than 6,000 jobs, 40 percent of which are held by women. 7. Agroprocessing. The Agroprocessing Component essentially satisfied the project's objectives, which were to create pilot processing facilities. The pilot facilities werc to provide examples and guidance for upgrading processing facilities to meet market demand standards and to provide technical assistance. The apple juice plant and the bee products processing facility were extremely successful in showing that advanced  - vii - processing facilities could be constructed and operated successfully. The model juice plant constructed under the project encouraged the collective and private sector to build similar plants using advanced equipment throughout the province. By 1997, about 25 percent of the products from this plant were sold to Japan and the United States. The beef processing plant, however, was not successful. Operations were halted due to several factors including the lack of working capital. The provincial government, however, has assured IDA that credit lines will be guaranteed by the government to restart the operations by end-1998. 8. Livestock Component. This component introduced large-scale poultry farmning and genetic improvements in swine and rabbit farming. All the livestock farms were implemented, except for one commercial farm and one grandparent stock (GPS) farm. One commercial broiler farm was not implemented because of lack of market viability and the grandparent broiler farm was not implemented because of lack of funds. All the poultry farms are operating well, although some are short of working capital because of the financial restructuring of the farms and because of the separation of their operations from government operations. The provincial government has assured IDA that credit lines available to the farms will be guaranteed during the transition period (1996-99) until the farms' production builds up to full capacity. The poultry operations developed under the project stimulated the collective and private sector to build more advanced parent stock and commercial farms along the lines of the IDA-assisted farms. 9. Seed Production and Processing Component. This component demonstrated seed multiplication techniques and promoted seed production in Shaanxi Province. The province used the experience gained from this component to develop a seed multiplication and supply program and to promote the use of high-yield seeds. It is expected that the area of wheat cultivation under the project to be covered by this program would reach 50 percent in 1998 and 80 percent in 2000. Implementation Experiences 10. With hindsight, the SAR's implementation schedule for the Donglei Irrigation and Dingbian Water Supply Components was far too optimistic and failed to make adequate allowances for the size and complexity of the schemes and the limited capability of Shaanxi Province to rapidly implement this type of project. This resulted in delays in project completion, which is now expected in December 1999. These delays were further exacerbated by the frequent interference of the Provincial Planning Commission (PPC) in design issues. The Livestock, Agroprocessing, Aquaculture and Seed Production and Processing Components, however, were completed well within the SAR schedule. 11. High inflation between 1992 and 1994 increased local counterpart requirements by 160 percent (Y 830 million or $100 million). Local counterpart funds were already short, and the high rate of inflation compounded the problem. The shortage of funds caused serious delays in the Donglei Irrigation and Dingbian Water Supply Components.  - viii - 12. The goods procured and the civil works implemented were generally of good quality. Two of the high-head pumping stations, however, were supplied with pumps with serious defects. After initial operation, the pumps needed extensive repairs, which caused further delays in startup. However, the PMO is repairing or replacing most of the pumps. Sumimary of Findings, Future Operations, and Key Lessons Learned 13. Overall Findings. At this juncture, the project's overall outcome cannot be considered satisfactory, since the major components, Donglei Irrigation and Dingbian Water Supply, remain to be completed. The Aquaculture, Agroprocessing, Livestock, and Seect Production and Processing Components have, however, been successfully implemented, and their results are significant. The most significant accomplishment of these components was the introduction of new technologies, which increased production substantially. In addition, the Agroprocessing and Livestock Components spurred the collective and private sectors to develop 16 additional technologically advanced commercial poultry farms and 30 additional technologically advanced apple juice plants. The Implementation Completion Report's (ICR) revised estimate of the economic rate of return (ERR) is 16.7 percent for the livestock component, 29.1 percent for aquaculture, 24.5 percent for agroprocessing (excluding the beef processing) and 22 percent for seeds. All the ERRs are close to those projected in the SAR except for the seeds component where the SAR original estimate of 54 percent appears unrealistic. Revised ERRs computed for Donglei (23 percent) and Dingbian (14 percent) assume completion of these components by end-1999 and that appropriate arrangements for operations and maintenance (O&M) will be in place. Despite the completion delays and cost increases, the ERR calculated in the ICR for the irrigation component is in line with the SAR's estimates, primarily because of a substantial increase of cash crops in the cropping pattern. The overall ERR for the project is 20 percent compared to the SAR estimate of 23 percent. -14. Project Impacts. The project has already been successful in generating employment opportunities-6,000 people in aquaculture, 500 in agroprocessing, and 900 in poultry-and in improving the living standards of about 15,000 households. The construction of irrigation and water supply systems has provided opportunities to about 10,000 rural laborers to earn additional cash income by participating directly in the project construction or by working with contractors. In addition, during the execution of the project, vast numbers of people were trained, including some 5,800 women who learned advanced agricultural techniques. Another 20,000 women were employed in fruit orchard management, aquaculture, poultry breeding, and agroprocessing. Significant environmental improvements were accomplished when the wastelands and swamplands created by the backup of waters by the Sanmenxia Dam were converted to aquaculture ponds. In 1995, these ponds began to attract many birds back to the area, some of which are rare endangered species of birds, such as cranes and herons. 15. Sustainability. The Shaanxi government is committed to ensuring the sustainability of the project, which is an important element in the effort to increase  - ix- foodgrain, aquaculture and livestock production and to reduce the incidence of poverty in the province. The sustainability of the Donglei Irrigation and Dingbian Water Supply schemes can only be judged when these two components are completed in 1999, the O&M institutions are in place and water charges are agreed with the farmers. However, the sustainability of these two components seems assured since: (a) most of the major construction issues have been resolved and only minor works need to be completed; (b) field interviews revealed that farmers are willing to complete all on-farm works as soon as the main works are completed; and (c) farmers are also willing to pay higher charges for water since they know the benefits of irrigated agriculture. In addition, a detailed O&M plan has been developed and institutionalized to manage the irrigation and water supply schemes. Fish production on the aquaculture farms exceeds the SAR estimates despite lower prices for fish. The aquaculture farms, which have been operating for the past three years, have proved their sustainability in terms of production of fish and loan repayment. Sustainability of the poultry farms is also assured because the farms use up- to-date technology, and production losses are low. Also, because most of the farms are producing parent stock, they do not face the same competition as the commercial farms. Failure to complete the remaining works on the Donglei and Dingbian schemes and to introduce an efficient O&M system and collect adequate water charges to cover all the cost could endanger the sustainability of these schemes. There do not seem to be any major risks for the Aquaculture and SeedL Production and Processing Components. For the Agroprocessing and Livestock Components, the risks are in obtaining credit for working capital and capturing a sufficient share of the market. These are problems being faced by all enterprises in China. 16. Future Operations. To ensure the success of the project, the PMO will have to supervise the completion of works on the Donglei Irrigation and Dingbian Water Supply schemes. Successful O&M of these systems will require the Provincial Water Conservancy Bureau to ensure a smooth transfer of main irrigation systems to operating groups, such as the Weinan Prefecture Water Management Office, and the on-farm facilities to farmers' groups. Guidelines outlining how these transfers are to take place will have to be drawn up by the Water Conservancy Bureau. The PMO will also be required to: (a) organize training courses for the managers and finance staff of the Agroprocessing and Livestock Components to upgrade their operation and financial skills; and (b) take all measures to guarantee the enterprises lines of credit for their cash flow needs. IDA will continue to monitor the progress of the actions to be taken by the PMO during supervision of other projects in the province. 17. Lessons Learned. The key lessons learned from the project include the following: (a) The project structure was too complex and should have been simplified by including only the Dornglei Irrigation, Dingbian Water Supply, and Aquaculture Components. The Agroprocessing, Livestock, and Seed Production and Processing Components should have been financed under  a separate loan. Their addition to the project resulted in complicated coordination arrangements during implementation. (b) In retrospect, the project preparation should have focused more on project organization and implementation arrangements. Also, the independence of the PMO from the provincial government in project supervision should have been stressed more clearly, and assurances to this end should have been obtained from the government; (c) Although procurement procedures followed Bank Group Guidelines, there were some serious deficiencies in the prequalification of pump and motor suppliers. IDA should have insisted on much more stringent prequalification criteria. Also, procurement of major civil works for the Luohe Flume should have been tendered following International Competitive Bidding (ICB) procedures because national contractors were unable to execute this complex structure according to the original designs. To accommodate the local contractors required drastic scaling-down of designs and work standards. (d) More prompt attention should have been paid by IDA to ensure timely allocation of counterpart funding. Aside from obtaining an assurance during negotiations from provincial and local governments about funding local costs, the estimated counterpart funds necessary each year and their sources should have been identified and discussed at appraisal with the Borrower, in order to ensure that proper attention was paid to the financing of the project.  at .6 *. .AMxV 0. N 0 0 0 * *** jA 0 * *r 00 V ; g 5  0 :? *-* ':9. * Ce t' *