Iraq - Lower Khalis Irrigation Project

,PCUULA,N,G Cnpy w RETURN TO op REPORTS DESK .J BE REXRINED TO REPORTS DESK REPORTS DEK '- DOCVWF4"RINTER ATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ONE W 97EKINT RNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use PA-141 APPRAISAL OF LOWER KHALIS IRRIGATION PROJECT IRAQ FiLE COPY October 19, 1972 .urope, Middle East and North Africa Region This report was prepared for official use only by the Bank Group. It may not be published, qucted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the repon.  CURRENCY EQUIVALENTS US$1.00 = Iraqi Dinars (ID) 0.329 ID 1.00 US$3.04 ID 1.00 = 1,000 fils WEIGHTS AND MEASURES (METRIC SYSTEM) 1 hectare = 4 donums, or 2.47 acres 1 kilometer (km) = 0.62 miles 1 square2kilometer (km ) - 100 hectares 1 meter (mn) = 3.28 feet 1 cubic metsr (m3) 1.31 cubic yards or 35.31 cu ft 1 million m (Mm3) = 810 acre feet 1 cubic metqr per - second (in/sec) - 35.31 cubic feet per second 1 liter per second (1/sec) 0.035 cubic feet per second ABBREVIATIONS O&M - Operation and Maintenance C&F - Cost and Freight FISCAL YEAR April 1 - March 31  IRAQ APPRAISAL OF LOWER KEALIS IRRIGATION PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS .............. ................ I. INTROIWJCTION ................... ...................... II. BACKGROUND ............................................... . 1 III. THE PROJECT AREA ..................................... 3 IV. THE PROJECT .......................................... 6 A. Simmary Description ...... .................. 6 B. Detailed Features ...... ......................... 7 C. Construction Schedule ..... ..................9 D. Water Demand and Supply ..... .................... 9 E. Cost Estimates ...10 F. Financial Plan. . ... .. . 12 G. Procurement, Disbursement and Audit . . 12 V. ORGANIZATION AND MANAGEMENT .13 A. Project Organization .13 B. Operation and Maintenance ..... ...... ... 15 C. Recovery of Project Costs . ........... 16 VI. PRODUCTION, MARKETING AND FARMERS' INCOME .... 18 A. Agricultural Production ......................... 18 B. Market Prospects and Commodity Prices, and Famers' Income . .20 VII. BENEFITS AND JUSTIFICATION.. 21 A. Economic Justification. 21 B. Ecology and Environment .22 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS . .22 This report was prepared by Messrs. C. M. Bolt, H. Bergendorff and T. H. Yoon (Bank), with contributions by Messrs. W. C. Hulsbos, W. B. Peters and E. Van Heurn (Consultants).  -2- ANNEXES 1. National Agricultural Output 2. Soils and Land Classification 3. Water Demand and Supply 4. Security of Water Supply 5. Description of Project Works 6. Construction Schedule 7. Cost Estimates 8. Estimated Schedule of Disbursements 9. Project Organization and Management 10. Agricultural Production 11. Market Prospects and Prices of Project Outputs 12. Farm Budget and Repayment Capacity 13. Economic Rate of Return 14. Sensitivity Analysis 15. Economic Consideration of Punping MAPS 1. Diyala Basin 2. Project Irrigation and Drainage Layout  IRAQ APPRAISAL OF LOWER KHALIS IRRIGATION PROJECT SUMMARY AND CONCLUSIONS i. Agriculture plays an important role in the economy of Iraq, and irrigation is essential for raising crops throughout the greater part of the country. In its 1970-74 National Development Plan, the Government of Iraq has placed emphasis on the improvement and extension of irrigation systems. ii. The Lower Khalis Irrigation Project would be a component of a major scheme to improve irrigation and drainage in the lower part of the Diyala basin in north eastern Iraq. The project would improve irrigation supplies to about 60,000 ha of land between the Diyala and Tigris rivers immediately north of Baghdad, and would include the construction of a 48-km extension of the Khalis main canal; distribution canals and pumping stations; a drainage system; flood protection works; roads; and levelling and buried field drainage of farm lands. It would also provide buildings, facilities, vehicles and equipment for the Administration in charge of the project area. Consultants would be engaged to design and supervise project works, to assist with studies of project cost recovery and marketing and storage facilities, as well as to advise on technical aspects of managenment. iii. The project would include the construction of on-farm drainage and levelling before increased water supplies could be made available to farmers. These additional investments are designed to accelerate the adoption of im- proved irrigated farming practices, and to control soil salinization caused by inadequate drainage which is prevalent throughout much of Iraq. The project also provides for 180 km of rural roads and intensified agricultural extension and advisory services to give added encouragement to farmers to increase their crop output. Studies would be carried out to determine addi- tional storage and marketing needs and the level and means of recovering the project costs. iv. The estimated total cost of the project would be ID 25.6 million (US$77.8 million), which would be expended over the period ending in 1978. The estimated foreign exchange cost would be $40 million equivalent. The 6 proposed loan of US$40 million would finance about 51% of the project cost and would cover all of the estimated foreign expenditure requirements. v. The design of the project works and supervision of their construc- tion would be assigned to a firm of consultants, who would also administer the bidding procedures and the certification of payments due to contractors. vi. An autonomous Khalis Agricultural Administration (the Administra- tion) would be responsible for the development of irrigated agriculture in the project area. A Director General would be the chairman of the Board of  - ii - Directors. The Ministry of Agrarian Reform would have the general responsibility for the Administration. To achieve a satisfactory rate of increase in farm production, consolidation and reallocation of project farm lands would have to be implemented by the Administration with the minimum of delay. Adequate measures to effect this would be taken by the Government. vii. The planned extension of irrigation development on the Diyala river would eventually utilize all of the available water resources of the basin, depending on the extent of future abstractions in Iran. However, the Government would take all measures necessary to ensure that irrigation water supplies for the project would be adequate at all times. viii. At full agricultural development of the project lands, the annual incremental net value of production would be about ID 5.5 million (US$16.5 million). The economic rate of return of the project would be about 12%. The project would lead to substantially higher farm incomes for about 10,000 farm families and nearly double the labor requirements in the project area. Other important project benefits include institution building, training and demonstration effects in technical and budgetary discipline in manage- ment of a public sector investment program which would contribute toward relieving some of the agricultural development constraints in Iraq. ix. The project would be suitable for a Bank loan of US$40 million. The borrower would be the Government of Iraq and the loan would be repayable over 25 years with a grace period of 7 years.  APPRAISAL OF LOWER KHALIS IRRIGATION PROJECT I. INTRODUCTION 1.01 The Government of Iraq has requested a Bank loan of US$40 million to assist in financing the Lower Khalis Irrigation Project, located between the Diyala and Tigris rivers north of Baghdad. The project includes con- struction of canals and drainage systems, on-farm land preparation, flood protection, roads and buildings for development of about 56,700 ha for irrigated agriculture. 1.02 This would be the second loan in support of the development of Iraq's agricultural sector, after the first one for flood control which was made in 1950. A grain storage project has recently been appraised, and the Bank has agreed to assist the Government in undertaking a comprehensive study of the land and water resources of the Tigris-Euphrates basin in Iraq. 1.03 This report is based on the feasibility study prepared by the Government's consultants, Sir M. MacDonald and Partners and Hunting Technical Services (UK), with the guidance of the FAO/IBRD Cooperative Program. The project was appraised in November/December 1971 by Messrs. C. MA. Bolt, H. Bergendorff, and T. H. Yoon (Bank), and Messrs. W. C. Hulsbos, v,. B. Peters and E. Van Heurn (Consultants). This report was prepared by Messrs. Bolt, Bergendorff and Yoon, with contributions by Messrs. Hulsbos, Peters and Van Heurn. II. BACKGROUND 2.01 General. Iraq covers an area of approximately 435,000 km in the semi-arid zone of the Middle East, and has a population of about 9.7 million, which is growing at an annual rate of 3.3%. The per capita GNP in 1970 was estimated at US$330, and the income disparity between the urban and rural areas is wide. The rapid growth of the urban population, which is currently about 60% of the country's total, continues partly because of the lack of employment opportunity and the low income in the rural areas (about 25% of the urban income). The real annual growth of domestic output during the second half of the sixties was about 3.5%, substantially lower than the 10.6% annual growth rate during the first half of the sixties. The stagnation of the oil sector, modest agricultural output and the impact of nationalization and import restrictions on the industrial sector have been the primary causes of the poor recent growth performance. In 1970, however, real gross domestic output grew by 5.5% with an agricultural growth of 6.4%. Since early 1971, following the Tehran Agreement, oil sector revenues have increased from the 1969/70 level of $510 million to about $880 million in 1971/72. However, due to the nationalization on June 1, 1972 of the assets of the foteign Oil Company, the oil revenues in the short-run are likely to be less.  2.02 Agriculture in Iraq. Rainfall in Iraq is restricted to winter and varies from an annual average of 1,000 mm in the northern mountainous region to less than 100 mm in the south. Despite high rainfall, the mountains in the extreme north east are unsuitable for agriculture because of irregular topography. The piedmont zone to the east of the Tigris river is a rainfed agriculture area which supports a substantial livestock population. The main irrigated area of Iraq is in the plain between the Tigris and Euphrates rivers, south of the rainfed region. The northern and southern desert areas, west of the Euphrates river, support some livestock. Agriculture, after oil, is the second largest industry in Iraq and provides more than 50% of the employment. Even so, it accounts for only about one-fifth of the GDP. The sector is underdevel- oped, and its productivity is among the lowest in the world. Foodstuffs comprised almost half of the consumer goods imported into Iraq during the past five years. Agricultural output in the past two decades has slowly increased and, during the period 1966 through 1970, the agricultural sector achieved an average real annual growth of 3.5%. This moderate growth partly contributed to the slowdown of the general economic expansion during the sixties. Agricultural production has also been affected by land reforms, poor investment planning and project management, and insuffi- cient use of modern inputs, such as extension services and credit. The level of planned and realized agricultural investment has also been low, as agriculture accounted for only about 11% of total capital outlays, repre- senting less than one-third of the planned sectoral investment for this period. 2.03 The Government has given high priority to agricultural develop- ment in the current 1970-74 National Development Plan, with the objective of achieving an annual agricultural growth rate of 7%. This was to be achieved primarily through an increase in the irrigated area and cropping intensity, and by increasing production of major cereals (wheat, barley and rice), cotton and oil seeds, and sugarcane. In view of the sectoral development constraints and in the light of past performance, the Plan targets appear optimistic. The major constraints to agricultural development in Iraq are: (a) shortage of irrigation water, soil salinity and drainage prob- lems, and insufficient water distribution and control facilities; (b) lack of sufficient technical manpower and socio-economic factors impeding aodernization of agriculture; and perhaps most importantly, (c) Iraq's limited capacity to plan and implement overall agricultural development strategy and associated investment projects, particularly in the important area of agricultural water resources development. The Government attaches a special significance to the proposed Lower Khalis Irrigation Project which would also provide valuable demonstration effects in overcoming some of these development constraints. 2.04 The Diyala Basin. At present, rudimentary irrigation systems in Iraq and Iran cover more than 280,000 ha in the basin, of which about 85% lie below the Jebel Hamrin gorge, where the Diyala river enters the alluvial plain of Central Iraq. The Lower Khalis project would be irrigated mainly from the Diyala river whose basin, shown on Map 1, covers a catchment of some 23,000 km , extending from the Iranian massif to the north of the  -3- confluence with the Tigris near Baghdad. This area draws its water from the Diyala, and to a lesser extent from the Tigris. Once the project reaches full development around 1990, withdrawals from the Diyala would be about twice the present level, but pumping of the Tigris water would be reduced by about one-third as a result of the substitution of gravity supplies from the Diyala Weir. .'05 The catchments of the Diyala and Tigris extend into Iran and urkey respectively. Iraq does not have water treaties with either country, nor are there any plans which would lead to agreements being concluded in the near future. Both countries have been informed that the Bank intends to assist in financing the Lower Khalis Project. In reply, Turkey reserved the right to use the Tigris head-waters as it required and offered no 4cmment on the project. Iran notified the Bank that it planned to divert the Diyala waters within its territories for irrigation and other purposes, thereby reducing the flow to Iraq. The effect of this possible reduction in the water supply to irrigation projects in the Diyala basin in Iraq, would depend on many factors like the cropping patterns adopted and the operation of proposed hydro-electric plants. Assurances were obtained during negotia- tions (para 4.15) that Iraq would take any measures necessary to ensure adequate irrigation water for the project area. Calculations show that even if thle entire project water supply were met by an alternative source of pumping from the Tigris, the project would be economically viable with the rate of return at about 10% (para 7.04 and Annex 15). '206 The Lower Diyala region is potentially one of the most promising .rrigated agricultural development areas in Iraq. The Government has already invested in major works, including the Derbendi Khan Dam, for flood control, and to a lesser extent, to improve irrigation and drainage in the basin. The dam was completed in 1962, and provision was made for a hydroelectric plant to be subsequently incorporated. Preparations are now being made to install generators with a capacity of more than 200 mw. The dam has enabled river flows to be increased in summer, but their use has been restricted by the inadequate capacities of the Lower Diyala canal systems. The Government has given priority to the enlargement of canals and construction of drains in the Upper Khalis area, on the right bank of the Diyala adjacent to the proposed project, and this work is due to be completed in 1972. Development plans include similar improvements on the left bank in the Lower Diyala region. III. THE PROJECT AREA 3.01 General. The project area, shown in Map 2, lies between the Diyala and Tigris rivers, from Khalis town to the northern flood protection bund of Baghdad. It covers some 93,000 ha of land extending over four districts of the Baghdad and Diyala muhaphads (governorates), with a population of about 70,000 of which about 50,000 are directly agricultural. Transportation and communication between Baghdad and Khalis are good. The  -4 - distance of 60 km between the two points is spanned by two surfaced main roads, which run parallel on the eastern and western sides of the project area. There are few other roads in the area, but villages are served by cart tracks. 3.02 Climate. The summers are very hot and dry, with temperatures frequently reaching 45