Tunisia - Irrigation Rehabilitation Project

Z-AJ< (-7ih FILE COPY,' DOCUMENT OF INTERNATIONAL. BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1542-TUN REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR AN IRRIGATION REHABILITATION PROJECT December 9, 1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Unit Tunisian Dinar (D) The exchange rate of the Tunisian Dinar is floating. The rate used in the appraisal report, which approximates the current rate, is: US$1 = D 0h44 D 1 = 2.30 D 1,000 = 227,000 D 1,000 = $ 2,270,000 Fiscal Year January 1 to December 31 Abbreviations BDET Banque de Developpement Economique de Tunisie BNT National Bank of Tunisia CCN Central Cooperative for Fruits and Vegetables "Nebhana" DAFL Directorate of Land Affairs and Legislation DEGTH Directorate for Hydraulic Studies and Major Works FOSDA Special Fund for Agricultural Development OMVVM Office de la Mise en Valeur de la Vallee de la Medjerda et des Perimetres Publics Irrigues OMIVAN Office de Mise en Valeur de Nebhana SONEDE National Company for the Exploitation and Distribution of Drinking Water STEG Tunisian Company for Electricity and Gas  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR AN IRRIGATION REHABILITATION PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Tunisia for the equivalent of US$12.2 million to help finance an irrigation rehabilitation project. The loan would have a term of 25 years, including 7-1/2 years of grace, with interest at 8 percent per annum. Of the proceeds of the loan, $1.0 million would be relent to the National Bank of Tunisia (BNT), on terms and conditions to be agreed with the Bank following completion of an agricultural credit policy review presently being carried out. PART I - THE ECONOMY 2. A report entitled "Current Economic Position and Prospects of Tunisia" (EEA-51a) was distributed to the Executive Directors on August 14, 1972. A basic economic mission visited Tunisia in February and March 1973; its report will be distributed shortly. An updating economic mission visited Tunisia in November, 1974; its report is now in preparation. The main con- clusions of the report of the basic economic mission are reflected below. Country data shieets are attached (Annex I). 3. Tunisia's development has been hampered by scarcity of natural re- sources. Muchi of the country is arid or semi-arid, and agriculture is highly dependent on rainfall. Minerals are mostly of low quality and, apart from phosphates, limited in quantity. In the mid-1960's, petroleum was discovered and has since become an increasingly valuable source of revenue and export earnings. Industrial development has been handicapped by the small size of the domestic market, as well as a lack of skills and experience. Tourism has developed rapidly and workers' remittances have become a significant item in the balance of payments. Per capita income increased by 4.4 percent annually between 1961 and 1972 to reach a level of $382. Tunisia has enjoyed a large amount of external aid and has used this to expand economic and social infra- structure, broaden the industrial base, increase the rate of growth, and make available a wide range of social and welfare services to a large part of the population. Like most developing countries, however, it has not yet found adequate ways to eliminate unemployment and poverty and to achieve a balanced distribution of consumption araong income groups, between urban and rural areas, and among regions. 4. Government strategy in the 1960's relied heavily on central planning of investment and resource allocation, with the public sector playing a major role in production as well as providing infrastructure and services. Foreign exchange shortages and preoccupation with restraint of inflation led to re- course to a pervasive systenm of official price determination and administra- tive controls. An unusually long series of poor crop years due to shortage of rainfall slowed down growth of output. Many of the investments in public enterprises proved to be uneconomic and private initiative in most sectors  - 2 - except tourism and petroleum was weak. Growth was relatively slow until 1970, but was combined with the development of infrastructure and a high degree of domestic price stability. 5. The Government's present development strategy was introduced after 1969 and forms the basis of the current Fourth Plan, 1973-1976. The principal objectives are (a) accelerating growth based on export-oriented industries, mainly by encouraging private initiative, reducing direct Government involve- ment in production and relaxing administrative regulations; (b) easing the country's unemployment problem by creating new jobs primarily in the expanding industrial sector, but also by encouraging worker emigration, reducing popula- tion growth and improving education and training; and (c) maintaining internal and external financial stability. The target rate of GDP growth is 7.1 percent, providing for a 5.4 percent growth rate in per capita private consumption. In- vestment is projected to increase by 70 percent above Third Plan levels. Na- tional savings are to finance three-quarters of investment. Exports of goods and services are projected to grow at 8.8 percent per year at constant prices and imports at 12.2 percent. An increase in net external capital flows of almost 100 percent over 1969-1972 average levels would be required, with ex- ternal capital providing 23.5 percent of total investment; the debt service ratio would be held to below 20 percent. The Plan targets may be conservative in terms of both growth and savings potential, and are affected significantly by the impact of the changed petroleum and phosphates situations on the Tunisian economy (paragraphs 7 and 8). 6. The annual growth rate of the gross domestic product over the decade 1961-1970 was 4.5 percent. A remarkable upsurge has taken place since 1970, with GDP growing in real terms by 9 percent in 1971, and 18 percent in 1972. The improvement can be attributed in part to exogenous factors such as good weather, leading to record cereal crops and a three-fold increase in olive pro- duction, in part to important growth in several areas (tourism, petroleum and emigrant workers' remittances) which previous policies had fostered, and in part to the general reorientation in Government policy since 1969, generating renewed self-confidence and initiative in the private sector. By 1972, the in- vestment rate was 23.6 percent of GDP compared to 20.8 percent in 1970; domestic savings were 21.1 percent of GDP compared to 16.3 percent in 1970, reducing Tunisia's dependence on external borrowing from 31.6 to 13.6 percent of in- vestment. The balance of payments has improved steadily since 1967, with the current account deficit dropping from about D 60 million up to 1967 to D 23 million in 1972. The traditional negative net payments balance was reversed in 1968, and at the end of 1973 net foreign assets amounted to $256 million, covering 5.5 months of commodity imports. 7. Following the very rapid expansion of t}he economy in 1972, the growth rate slowed in 1973 to an estimated 2.8 percent. Agricultural output fell by 11.6 percent from the very high 1972 level, increases in production of cereals and livestock offsetting only part of the expected drop in olive pro- duction. Growth may be about 9 percent in 1974. The Government is attempting to maintain its past success in controlling inflation, though there are in- creased pressures arising from the higher level of investment, the build-up  -3- of foreign exchange reserves and the increased cost of imports. Assuming no major recession in developed countries, Tunisia's gain from the rise in petro- leum and phosphate prices should more than offset foreseeable adverse external developments on tourism earnings, workers' remittances and other exports due to events abroad. Export earnings from petroleum are projected to increase threefold from $110 million in 1973 to some $310 million in 1974; phosphate prices have also risen sharply. A continued build-up of reserves may be ex- pected over the next several years. A substantial reduction in the net rate of emigration, originally projected at 20,000 per year, could have serious repercussions on unemployment and income, particularly in rural areas, unless energetic measures are taken to increase labor absorption in other sectors. 8. The increased foreign exchange reserves and Government surplus ex- pected from higher export prices and consequent tax revenue do not call for a basic revision in development strategy but suggest that Tunisia could step up its efforts to achieve higher investment and growth rates and increased employment, and to depend less on emigration and foreign aid. The main con- straints are likely to be the speed at which policies and institutions re- spond to the challenge and projects are prepared and executed. The new orientation since 1969 and the improved economic situation provide the Gov- ernment with an opportunity to step up efforts to achieve its declared social objectives, including greater impact on unemployment. 9. Tunisia has made some impressive social gains. By 1971, primary school enrollment had reached 73 percent and secondary enrollment 42 percent of the relevant age-groups. Public health services have been greatly expanded with many provided free, a family planning program introduced and social secur- ity services provided to an increasing proportion of the labor force. Public social expenditure, both current and capital, has increased at the rate of 9.3 percent per year and accounted for 11.4 percent of GDP in 1971. Nonethe- less, major social issues remain. Further progress is needed in land reform. Wide regional and income disparities are persistent and there has been a grow- ing concentration of productive activities in urban areas. Job creation has not kept pace with the growth of the labor force, and in 1972 the unemploy- ment rate was estimated at 18 percent in the non-agricultural sectors. 10. During the 1960's manufacturing production in Tunisia increased by 8 percent annually. There was a remarkable 30 percent further increase in 1972 due in part to a record year for the olive oil processing industry. The early thrust of industrialization was supplied by large import substitu- tion projects in the state sector. These suffered, however, from the limited domestic market and shortages of experienced staff and management. Under the Fourth Plan, private manufacturing investment, particularly in textiles, fertilizers and metals transformation, is expected to average D 25 million per year between 1973 and 1976, compared with D 12 million in 1972, and to account for two-thirds of total investment in manufacturing. Foreign private investors have been offered incentives and are expected by Tunisia to contri- bute, through finance, know-how and overseas marketing, to the creation of com- petitive industries producing a wide range of exports. Tunisia's preferential  -4- trade agreement with the EEC, currently being renegotiated, also gives it some advantages. Preinvestment work, and the preparation of programs for re- equipment and modernization in priority subsectors have been started. Tunisia aims to develop petroleum-based industries and production of phosphoric acid and other phosphate derivatives for export, while possibilities for metal manufacturing for export are being explored. The Government has recently established a special fund to encourage growth of small industries and indus- trial decentralization. 11. The development of tourism is relatively recent. Foreign-visitor arrivals in Tunisia reached 780,000 in 1972, with an annual rate of growth over the period 1961-1972 of 30 percent -- higher than any other Mediterranean country. Earnings from tourism are now a main source of foreign exchange, reaching US$154 million in 1973. While 1973 saw a drop in the number of visit- or nights, and 1974 is also expected to be a poor year for tourism, the long- term outlook is favorable. The Government actively supports expansion through incentives to private hotel promoters and has recently embarked on long-term tourism infrastructure and hotel training programs, with support from the Bank, IDA, and KfW. 12. Since the early 1960's Tunisia has received large amounts of external capital. Official aid amounted to an average of US$19 per capita per annum, almost half from the United States, mostly in the form of program loans and PL 480 commodity aid. Other major lenders were France, the Federal Republic of Germany, Italy, Kuwait and the Bank Group. Project loans, particularly for public enterprises, accounted for 58 percent of total disbursements in 1969- 1972. Most aid has been obtained on concessionary terms: from 1969-1972, the average terms of borrowing from bilateral sources were 2.3 percent interest and 27 years to maturity, including 9 years of grace; from multilateral sources 5.4 percent interest and 28 years to maturity, including 6 years of grace. For private borrowing (about $40 million annually), average terms were 6.0 percent interest and 9 years to maturity. Direct foreign private investment in Tunisia has been limited. However, mainly as a result of increasing out- lays on petroleum exploration and development, it has risen from an average of $19 million per annum in the late 1960's to $40 million in 1972. 13. Tunisia's total external public debt was $1,108 million (of which $693 million were disbursed) at the end of 1972. Disbursed debt is estimated to have been $862 million at the end of 1973. The debt service in 1973 is estimated to have been 12.7 percent of exports of goods, non-factor services and workers' remittances. The ratio is expected to fall significantly by 1976, following recent petroleum and phosphate price increases. Government policy on future external borrowing in the light of its new balance of payments po- sition is still under review. Tunisia is capable of servicing substantial additional debt on less concessionary terms than it has received in the past.  - 5 - PART II - BANK GROUP OPERATIONS IN TUNISIA 14. Starting in 1962, Tunisia has received a total of nineteen Bank loans and ten IDA credits amounting respectively to $218.5 million and $65.7 million, net of cancellations and refundings. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of October 31, 1974, and notes on the execution of ongoing projects. 15. While there have been some problems in project execution, as in the railways, agricultural credit and family planning projects, on the whole project implementation has been satisfactory. Important institutional improve- ments have been achieved. In both the transport and public utilities sectors, independent agencies have been created or strengthened. 16. In accordance with Tunisian priorities, much past Bank Group lending has emphasized support for long-term investments in infrastructure and social development. Lending for transport, power and tourism infrastructure, has ac- counted for 34 percent of Bank/IDA commitments in Tunisia. Lending for urban and social development, including water supply, education and training, family planning and the Tunis urban planning and public transport project, accounts for a further 32 percent. Industrial and hotel financing through Banque de Developpement Economique de Tunisie (BDET, formerly Societe Nationale d'Inves- tissement) comes third with 17 percent. Finally, agriculture and fisheries have received 9 percent of Bank/IDA commitments, and the most recently approved Gafsa phosphate development project accounts for 8 percent of total commitments. 17. Two more projects, for BDET and urban sewerage in the Tunis area, are expected to be presented to the Executive Directors this fiscal year. Future lending is expected to support the Government's policies aiming at rapid growth in a more open, export-oriented economy, measures to create employment and to achieve a more equitable income distribution, and institu- tional reform. Like the project proposed in this report, the proposed lending program will emphasize agriculture, including rural development. This will require substantial inputs of manpower and technical assistance, to increase production and support institutions which reach the rural poor. The project proposed in this report is the first of a number of projects, expected to be presented over the next several years, which address the problems of land reform, organization for agricultural and rural development, and integration of agricultural with other aspects of rural development. Urban and social development will be furthered by a first operation in the sewerage sector involving important organizational changes, while a third education project would also be presented. 18. Lending for industry has so far been largely through the development finance company, BDET, and has mostly benefited medium-size companies. Such lending will continue, but at a declining rate as BDET diversifies its sources of funds. It was recently supplemented by direct industrial lending for the Gafsa phosphate mining project. Later, further industrial projects may be  -6 proposed, for small-scale industries and in other priority subsectors, now being studied with Bank technical assistance, in which Tunisia has a compara- tive advantage. Two additional transport projects, for highways and railways, may also be presented. 19. The Bank Group accounted for almost 20 percent of disbursements of official aid to Tunisia between 1969 and 1972 and is expected to maintain its share, with that of the US declining and that of other, particularly Arab, sources of funds rising. The Bank Group's shares in total debt outstanding at the end of 1972 and in debt service during 1972 were 18 percent and 7 per- cent respectively. Over the rest of the decade, the Bank Group's share in total external debt is not expected to vary much; its share in debt service will probably rise to approach the share of debt outstanding. 20. IFC has invested in a fertilizer plant, in BDET, in COFITOUR (a company to promote and invest in tourism projects), in RYM (a large hotel development) and in a promotional company Sousse Nord which is preparing plans for an integrated tourism resort development in one of the areas in which tourism infrastructure is being financed jointly by the Bank, IDA and Kreditanstalt fur Wiederaufbau (KfW). IFC's most recent investment, in May 1974, was in Industries Chimiques du Fluor, which will produce aluminum fluoride from local fluorspar for export. IFC's net commitments in Tunisia total $14.0 million. PART III - AGRICULTURE IN TUNISIA 21. While less important, relatively, than in other Maghreb countries, agriculture still dominates the Tunisian economy. It provides nearly half of total employment, 35 percent of exports, and 18 percent of GDP. However, exports represent only a small fraction of farm output. In contrast, agricul- tural imports (mainly cereals, edible oils, dairy products, livestock and sugar) have increased sharply over the past decade, representing about 22 percent of the value of total imports. 22. Nine million hectares, or 55 percent of the country's land area, is suitable for agriculture. Of this area, about 4.5 million hectares are cul- tivable; the rest is range land suitable for sheep-grazing, and low-yielding forest. The cropped area covers about 3.1 million hectares, with about 1.8 million hectares under annual crops, and about 1.3 million hectares under perennial crops. The most important agricultural areas are the Lower and Central Medjerda River Valley, the Cap Bon Peninsula, and the coastal zones near Sousse and Sfax. 23. Agriculture is the Achilles heel of the Tunisian economy. Despite major investments in the sector during the 1960's, agricultural production stagnated, and the proportion of agriculture in GDP declined. In the period 1962-1964 agriculture accounted for 21 percent of GDP, while in the period 1970-1972 its share was 18 percent. Production increased rapidly in 1971, and then again in 1972; 1973 saw a small decline from the record crops, especially olives, in 1971 and 1972. The failure of agriculture to keep  pace with the rest of the economy in the 1960's may be attributed to unusually low rainfall, the departure of large numbers of foreigners active in the sector, the stress on investments in infrastructure and reforestation yielding benefits only in the very long term, weaknesses in extension and other supporting ser- vices, the failure to resolve a variety of land tenure issues, and the abortive attempt to extend production cooperatives to the whole sector. In late 1969 the cooperative experiment was abandoned, and three separate, coequal forms of organization were recognized: the state sector, consisting largely cf land formerly owned by foreigners, now destined eventually to be distributed to Tunisian smallholders; the cooperative sector, consisting of the remaining land in cooperatives; and the private sector, consisting in large part of land that had been brought into cooperatives but subsequently returned to former owners. 24. While the Fourth Plan does not define a clear strategy of agricultu- ral development, it endeavors, with some success, to draw lessons from a decade of centralized planning. It emphasizes directly productive investments, in- cluding the rehabilitation of existing irrigation infrastructure, encourages a higher level of private sector investment, and proposes to increase the allocation of investment resources to livestock, fish, fruits and vegetables. The access of small and medium-size farmers to credit is to be facilitated, and the amounts of seasonal as well as investment credit are to be increased. Security of tenure is to be improved, and other measures taken to enforce existing land reform legislation. The Plan aims at an annual increase in agricultural output of 6.2%. The Role of Irrigation 25. While Tunisian agriculture is largely extensive and rainfed, the insufficiency of rainfall causes irrigation to play an important role in diversification. Of the total cultivable area of about 4.5 million hectares, the potentially irrigable area is about 200,000 hectares; the total area pres- ently irrigable (that is, with water available at the farm boundary) is about 110,000 hectares. Of these 110,000, about 45,000 fall in public irrigation areas, including the zones covered by the present project. From 1962-1971, irrigation works absorbed 40 percent of public expenditures in the agricul- tural sector; over this period the value of farm production on irrigated land -- now about 20 percent of the total -- rose only from 20 to 28 million dinars (1966 prices). 26. Existing irrigation facilities are substantially under-utilized. In the public irrigation areas, only about half the irrigable land is effec- tively irrigated, and only about one quarter of the water available from the main dams is used. The failure to make better use of past investments is due to lack of experience by farmers with irrigated crops and the inadequacy of the extension effort to deal with this problem; insufficient access to inputs and credit; the failure to complete terminal works in some irrigation areas; inadequate maintenance of facilities; and, above all, delays in the applica- tion of land reform legislation. Most of the infrastructure in public irriga- tion areas was planned and built for cooperative agriculture, and the change in policies since 1969 has made resolution of land tenure problems central to increasing the returns to these public investments.  - 8 - PART IV - TIE PROJECT Background 27. In 1971 the Government of Tunisia requested Bank assistance in in- creasing the returns to investments in public irrigation infrastructure. Three priority zones for rehabilitation of the irrigation infrastructure and intensive development of small-scale irrigated farming were identified by the FAO/IBRD Cooperative Program. Two of these areas, the Lower Medjerda Valley and Nebhana, are the zones covered by the present project. The third, in Central Tunisia, will be included in the Central Tunisia Integrated Rural Development Project for which a detailed project request prepared by the Tunisian authorities is now being studied. 28. The present project was prepared by the FAO/IBRD Cooperative Program. It was appraised in November-December, 1973. Negotiations were held in November, 1974. The Borrower was represented by Mr. E. Chelbi, Director of Human Resources and Investments, Ministry of Planning. A report entitled "Appraisal of Irrigation Rehabilitation Project -- Tunisia" (No. 505a - TUN.), dated December 10, 1974, is being distributed separately to the Executive Directors. A loan and project summary is attached as Annex III. The Project Areas 29. The Medjerda and Nebhana projects are the two oldest public irriga- tion investments in Tunisia. The French and US Governments financed feasibil- ity studies for both in the 1950's. Construction of major works was completed in the Medjerda in 1960, and in Nebhana in 1970. The water distribution net- work in both areas is still under construction. 30. The Medjerda Valley, in Northern Tunisia, has about 90,000 hectares of potentially cultivable land, of which about 40,000 could be irrigated. It is the best equipped area of the country for modern agricultural development, including dry farming on a large scale. A ten year "Minimum Plan" for the Medjerda, initiated in 1962, foresaw the development of 32,800 hectares for irrigated farming. About 22,000 hectares have been equipped, but only about 10,500 hectares are presently irrigated. The Office for the Development of the Lower Medjerda Valley, OMVVI, was established in 1958 as an autonomous agency of the Ministry of Agriculture. Its functions include the equipment of irrigated and dry land, operation and maintenance of the irrigation and drainage networks in the area, and implementation, in cooperation with the Ministry of Agriculture, of the 1958 Medjerda Valley agrarian reform legisla- tion. 31. The Nebhana project, in East-Central Tunisia, extends over a 130 kilometer-wide area eastward from the Sidi Messaoud Dam on the Nebhana River to the Mediterranean Sea. The irrigation area covers about 5,000 hectares net. Only about 1,800 hectares of this area are actually being irrigated. The Office for the Development of Nebhana, OMIVAN, was established in 1973. (OMVVMI had previously been responsible for Nebhana also.) It has functions comparable to those of OMVVM.  -9- The Project 32. The objectives of the project, which follow closely the goals of the Fourth Plan in agriculture, are to close the gap between potential and actual use of irrigation investments; to raise incomes of small farmers; to increase tenure security; to increase the accessibility and volume of credit available to small farmers; to strengthen agricultural development institutions; and to provide needed public services and improved housing for the low-income settler farmers in Medjerda. 33. The project will provide full development of about 10,300 hectares in the Medjerda and about 2,000 hectares in Nebhana. In both sub-project zones the project will encompass rehabilitation of the existing irrigation, drainage, and road networks, establishment of windbreaks, supply of equipment and machinery for operation and maintenance of the irrigation and road networks, on-farm development, and consultant assistance to strengthen the project authority. In addition, in the Medjerda area, the project will provide for construction of about 370 farmhouses and works to provide 614 and 678 existing farms respectively with electricity and drinking water; rehabilitation and repair of existing rural centers (used to support the extension service) and construction of new centers; housing for extension agents, and technical as- sistance to support the extension service. Project elements specific to Nebhana will be assistance of a consultant in land reform; some new irrigation and drainage works; improvement of marketing services through provision of field boxes, vehicles, and buildings; and feasibility studies for development of irrigated agriculture over the remaining 3,000 hectares of the Nebhana area. The integration of new investment, rehabilitation of existing structures, and technical assistance is an essential element of the project in both zones. 34. The Medjerda sub-project area covers about 20,000 hectares net, of which 15,500 are fully equipped with irrigation and drainage facilities. Be- cause of the need for more time for the application of the land reform legisla- tion applicable to the privately held part of the sub-project zone, intensive support by the extension service will be limited, under the present project, to 7,500 hectares, made available by the OMVVM to 1,200 settlers under legisla- tion governing the distribution of state-owned land to private individuals. The Nebhana sub-project area covers 5,000 hectares; because further feasibility studies are required, intensive development under the present project will be limited to the 2,000 hectares of small farms with an average size of one hec- tare, for which full preparatory work has been completed. Project Execution 35. OMVVM and OMIVAN will have overall responsibility for project execu- tion in the two sub-project zones. Each will have the assistance of consultants to aid in the establishment of final designs for project works, preparation of tender documents and evaluation of bids (Project Agreements, Section 2.02). OMIVAN will also recruit a senior advisor, to assist its Director in coordi- nating all project activities (OMIVAN Project Agreement, Section 3.05). Within  - 10 - four months of effectiveness, OMVVM and OMIVAN will establish project coordi- nation committees, chaired by their respective Directors-General, to meet at least quarterly to review past work, coordinate project implementation and program future work (Project Agreements, Section 2.06). It is expected that OMVVM will utilize the services of the public electricity company, STEG, and the public water company, SONEDE, to execute the power and water supply com- ponents. A major strengthening of the extension staff of OMVVM in the settler area is foreseen; assistance from two extension specialists will be provided under the Bank loan (OMIVAN Project Agreement, Section 3.03). 36. In addition to the senior advisor, OMIVAN will engage a marketing and cooperatives consultant, to support its management at its Sousse head- quarters. An outside group of consultants will undertake the feasibility studies (OMIVAN Project Agreement, Section 3.03). OMIVAN will create a special team for the land reform program, which will be supported by a consultant spe- cialist. It receives some technical assistance in extension work from Belgium, and will coordinate the Belgian assistance with the consultant services provided under the project (Project Agreement, Section 3.04). It will rely on the central services of the Ministry of Agriculture for maintenance of the Sidi Messaoud dam, the main pipeline, and major hydraulic structures outside of the irrigation sections for which it is immediately responsible (Loan Agreement, Section 3.02). Within six months of effectiveness, OMIVAN will complete a plan of action acceptable to the Bank, providing for the strengthening of marketing services within the Nebhana portion of the project area (OMIVAN Project Agreement, Sec- tion 2.07). OMIVAN will also receive operational assistance from consultants to aid in establishing domestic and foreign markets for the fruits and vegetables to be produced under the project. Credit 37. Credit for on-farm development and related purposes is essential to the success of the project. The Government's present agricultural credit policies provide for low interest rates and relatively high downpayments. The Government is undertaking an agricultural credit study (Loan Agreement, Section 3.04). The study will encompass a critical review of the conditions presently governing agricultural credit in Tunisia and the structure of the institutions concerned. It will propose new conditions for agricultural credit. During negotiations it was agreed (Loan Agreement, Section 3.01(c), and Schedule 1, para. 4) to defer disbursements on the $1.0 million allocated under the loan for sub-loans to project farmers until the conclusion of the policy review, when an agreement acceptable to the Bank will be concluded between the Gov- ernment and Tunisia's principal agricultural credit agency, the National Bank of Tunisia (BNT). This agreement will contain the conditions of on- lending of IBRD funds to BNT and the terms of sub-loans to be financed in part from Bank funds. It is expected that the Bank funds will be on-lent to BNT on the same terms as the Bank loan to the Government. Should the agreement not be concluded by February 1, 1976, the Bank would have the right to cancel the credit component of the loan. Pending conclusion of the agreement between the Government and BNT, the Government will finance the credit component of the project entirely from its own resources.  Cost Estimates and Financing 38. The project is estimated to cost a total of $23.8 million, with a foreign exchange component of $12.2 million, or 51 percent. The Medjerda sub-project will cost $17.2 million, the Nebhana sub-project $6.6 million. Overall, contingencies amount to 50.2 percent of base costs, including 9.1 per- cent for physical contingencies and 37.7 percent for price contingencies on base costs plus physical contingencies. 39. The Bank loan of $12.2 million will finance the full foreign exchange cost of the project. It will have a 25-year term, including 7-1/2 years of grace matching the period of project implementation and loan disbursement. The bulk of the proceeds of the Bank loan will be made available by the Govern- ment as grants to OMVVM and OMIVAN (Loan Agreement, Section 3.01(c)(iii)). Counterpart funds remaining in the Central Bank from the sale of equipment financed under the Cooperative Farms Project (Loan 484-TUN, Credit 99-TUN) will be utilized for the local currency requirements of the project. 40. OMVVM and OMIVAN maintain budgets and accounts which are under constant external review by the controleurs financiers responsible to their Boards and the Ministry of Finance. OMVVM and OMIVAN will maintain separate accounts for the subprojects, identifying the water charges, purchase payments by Medjerda settlers, and contributions of farmers to investments in irriga- tion infrastructure (Project Agreements, Section 4.01). The controleurs financiers will certify the agencies' annual financial statements, and prepare reports on their financial condition for submission to the Bank. (Project Agreements, Section 4.02) Since OMVVM and OMIVAN are, basically, service agencies comparable to a government department, rather than financially autonomous revenue-producing public entities, an audit of their accounts by private auditors was not deemed necessary. Procurement and Disbursement 41. The civil works contracts are too small and disparate to attract foreign firms, and will be tendered on the basis of local competitive bidding or, in the event that this is impracticable, carried out by force account. OMVVM will negotiate contracts, up to a maximum of $0.6 million, with Neyrpic, S.A., of France, for specialized hydraulic equipment to replace similar equip- ment manufactured only by this firm (Loan Agreement, Schedule 4, para. A (2)). Contracts for livestock will be awarded after receiving at least three quota- tions from suppliers for each contract. All other equipment for both sub- projects will be procured on the basis of international competitive bidding in accordance with the Bank's procurement guidelines; in the evaluation of bids, domestic suppliers will be given a margin of preference of 15 percent, or the applicable customs duty, whichever is lower. 42. The Bank loan will finance 39 percent of the cost of civil works, representing the estimated foreign exchange component; 100 percent of foreign expenditures for equipment, livestock and vehicles; 100 percent of foreign expenditures for consultant services and studies; and 38 percent, representing the estimated foreign exchange component, of seasonal credit and medium- and long-term credit for fruit tree orchards, housing, stables, stilling and storage basins, sprinkler irrigation equipment, and marketing suppo\t facilities.  - 12 - Retroactive financing is recommended for up to $100,000, for flood damage repairs carried out in 1974. Land Reform and Cost Recovery 43. The settlers' lots in the Medjerda range from 3 to 12 hectares, with over three-quarters of the total holdings in the 5-10 hectare range. In Nebhana, holdings range from 0.2 to 0.8 hectares in the coastal sections and from 1.3 to 3.3 hectares in the inland sections; holdings are frequently dis- persed in several non-contiguous plots. Joint ownership is common. The cooperative system (para. 23 above) would have permitted the imposition of a rectangular irrigation network, but its demise and the subsequent return to a complex holding structure now necessitate land consolidation, realignment of field boundaries and the imposition of maximum and minimum holding sizes, to permit full use of the irrigation infrastructure. Technical assistance provided under the project is expected to help accomplish this task. 44. The legislation covering the two project zones contains detailed provisions for minimum and maximum holding size, penalties for failure to introduce irrigated crops, obligations to contribute to irrigation infrastruc- ture investment, land consolidation, and registration and titling of holdings. Implementation of the land reform legislation has been weak, and a major objective of the project is to increase the security of tenure of the direct beneficiaries of the project. During negotiations, the Government reviewed with the Bank its timetable establishing dates for the initial collection of investment contributions; preparation and delivery to project farmers of certificates which serve as a provisional title and as collateral for invest- ment credit; implementation of limits on the size of land holdings in the project area; and implementation of requirements that project area farmers irrigate their land. Before making changes in the timetable, the Government will submit them to the Bank for approval (Loan Agreement, Section 4.03). 45. The collection of charges -- entirely uncollected in the past from Medjerda settlers and Nebhana farmers -- will be a crucial step towards an economic approach to irrigation development. In the Medjerda area, settlers will pay an average price of D 400 per hectare for their land, including the irrigation infrastructure and other improvements made to it (OMIVVM Project Agreement, Section 2.07). Some 600 Medjerda private farmers benefitting directly from the project and covering some 3,000 hectares only pay invest- ment contributions (the amount of which is fixed under Tunisian law) ranging from the equivalent of 25 to 70 percent of the value of irrigable land and in value from D 25 to D 140 per hectare, but they must finance the subsidiary channels required to bring irrigation water to the farm. In the Nebhana area, the contributions, fixed by decree, average D 650 per hectare but the state constructs the irrigation infrastructure to the farm level. While the farms are smaller in Nebhana than in the Medjerda, the greater cost of the irrigation infrastructure and the considerably greater increase in land values associated with the irrigation investments in Nebhana justify a higher per hectare pay- ment. At a discount rate of 10 percent, the Medjerda settler payments and the Nebhana contributions will provide a recovery index for project investments  - 13 - of 77 percent for Medjerda, 93 percent for Nebhana, and 81 percent for the project as a whole. 46. The project authorities will fully recover the operation and mainte- nance costs of the irrigation and drainage networks included in the project. Operation and maintenance charges at an average rate of D 0.006 and D 0.008 respectively per cubic meter of water will initially be charged in Medjerda and Nebhana. It was agreed that, in order to maintain full recovery of op- eration and maintenance costs, water charges will be reviewed at not more than three year intervals, and that the Bank will be informed of the results of such reviews. (Loan Agreement, Section 4.04). Project Justification 47. The direct economic benefits of the project will be derived from in- creased cropping intensity, increases in crop yields and crop diversification. The aggregate economic return for the combined project is 28 percent, based on a 35 year life. The rates of return for the Medjerda and Nebhana sub-projects are 30 percent and 24 percent, respectively. In this analysis all costs in the development of the two irrigation areas prior to the present project have been treated as sunk costs. Were the sunk costs included in the economic analysis, the rate of return on the project as a whole would be negative. Sensitivity analysis indicates that, under the adverse assumption of a 25 percent increase in both capital costs and operation and maintenance, the incremental return on the Medjerda sub-project would only fall to about 19 percent, on the Nebhana sub-project to about 18 percent. 48. The project will have an important impact on the income of small farmers in the two zones. The direct benefits will accrue almost entirely to farmers with less than 12 hectares in Medjerda and one hectare in Nebhana. Average farm income in the Medjerda settler area will increase by 142 percent, in Nebhana by 153 percent. By accelerating the titling process, the project will increase tenure security, encourage investment, and facilitate access to credit. In addition to increasing self-employment of farm families by about 36 percent in the Medjerda area and about 53 percent in Nebhana, the project is expected to double the demand for hired labor, and provide full-time employment to some 3,000 persons. PART V - LEGAL INSTRUMENTS AND AUTHORITY 49. The draft Loan Agreement between the Republic of Tunisia and the Bank, the draft Project Agreement between the Bank and Office de Mise en Valeur de la Vallee de la Medjerda et des Perimetres Publics Irrigues, the draft Project Agreement between the Bank and Office de Mise en Valeur de Nebhana, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement and the text of a draft resolution ap- proving the proposed loan are being distributed to the Executive Directors separately.  - 14 - 50. A special condition of effectiveness is the appointment of the senior advisor to OMIVAN referred to in para. 35 (Section 6.01(c) of the Loan Agreement). 51. Features of the Loan and Project Agreements of special interest are referred to in paragraphs 37 through 45 of this report. The draft agreements conform to the nornal pattern for loans for irrigation rehabil- itation projects. 52. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 53. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments Deceniber 9 , 1974  ANNEX I Page 1 af 3 Pages ODUNTRY DATA - TUNIS.XA AREA POPULATION DENSITY 16-3,610 heX n:_il1io- (mid-19752 918 Ia Per helof ...abla land SOCIAL INDICATORiS Reference. Cosastetes 19_0 17_ 1970 90 17 Qg EN AETAU5L 8_(An BASInS) / 220 A, 380 Id 360 /d 700 /d 1,160 /d UF_' rate t (par thonead) 46 38 45 Ie 1II16 Grade death rate (par thousand) 19 11 i 7-fl 13 84 Defeat mortality rate (Pa, thacecd line births) ..125 /I 77 .. 27 70 Life s~Paotency at birth (yere ...2.5. 2707 Dross rarontis rt/s* 3.1 3.3 1.9 i.D P.plto rwh as-ubn2.1 Ah 3.1 lb 2.6/A 0.6 Ah Age stroot.r. (percen.t) IA I/ 8 32/ 5-64 53 7U 50 ~~~~~~ 49~ 52 6417 65ad. over 5 __443 1.3 17 Thi 167 .8 / i.e Urban populationas percen t of total 40 /La 4 /1, La 38 /l 58 / 65 I PFaily ploaming, N, of acceptror -Iaultive (th-n.) ..108 _ Ne. ef u..ere (% of carried unsee) .12 Perosniage fnproya (toh agiculure1au7 1,500 /t 1,9CC /u 570 I 3,300 c ftro...g. .pl.y. t. Ari -I.r. p 5670 54170 19 Th oy Percentage uneeployed lD 7uo6 7.. 6Th INGOO DISTRIBUTIOR P&roet of notional i.....ee r.i-ed by highest 5% 1 s PretOf national i- Ioe . roined by high.et 20% 74, 7"- Pecn f -uti-a1 in... received by l-oaset 20% ..37f Per.o6t of national iecen received by l.onet 10% 6/ea. %oaedh ocl%f ninr .53 lab ..57/or % caned by ecaileet 10% of onnen . 0.5 a.b I. HEALTH AND) NUTRITION Pepulatino per phydiian 10,000 /ad 5,950 2,930 1,470 620 PPoplation per neraig person. .. 730 las 8,630 laf 1,250 1,110 Za Populationper hospital ted 360 wabh L30 I.Ei 130- 260 160 Per capita caoinspply ae 5 of raqnir-ntst 80SoA 91/a 7996a 6li Perfcapita protoin eapply , tot.al(gree- per day4)~ 51 S 0? 3 a416 7 9 Th Dfehinh eocsalaod plse 13T 71 74 22 27 Z!j S7iE Death rate 1-la yeare /7 ..1.5 13 lal ..0.9 7r ERSJCATION Ajusted /8 petnary enho-i enra1ia.et retin 74 107 /S 95 Ia 11/m 19l Adjuse 7seodrenolnnletrai 120 Ia41 0 7- 60 Tears of echnollng provided, first and ee_d lan1 13 13- 12 12 12 Vocational sooen ae 5 f sun, school ecnillneot 24 34 lal 29 I/2 n 20 / Adult litaracy rate 5 . 55 7Et,an.a 68 a'. 69 2r 82 HOUSING flhigeNo ofpreo pe r rane (urban) ..2.6 / .. Percen o~z.f ocuidatswithout piped eater .. 5 70 -- 35 I dAe.t...t. ct (s5ofitl euats). 21 7T. .. . 88T7 Pecnto Pura1 pepuletian conoted in I-stricity ......73 ____ CONSUMPTION flT eireper 1000 ppelatoo 41 77 279 2159113 /ag Paa .gecre per 1000 ppyelation 11 13 4 49 05 Elactrio poer coupie(bet p.o.) 72 155 156 44,1 1,059 Reo-print conencpttan p.c. kg per yuor 0.3 0.1 2.7 1.6 1.6 Notes, Figres refer either in the loteet periode cr to ocnn f enniroseasta1 tanperatre, body weights, and the latest yeaare Latest partode -efor in pricoiple to ditrihatin by:ge sacdsea of natbanal populatbacs. the yeore 1956-60 or 1966-70; ihs latest years in p,iaa- A6Protein standards (ra irs"ete) for .11.. catries -a setab- ciple in 1960 nod 1970. liebed by SO,DA E-nnosin heesaob Dareio pr-ids f or a,scina a1 The Per Cnpito GNP estiote is at naaht pricnu for all-aat.u of 60 grac of ictal prcteio per day, ansi 20 grac of year oth-r thua I19$,caloaletsd by the " ....annerino eaianl acd pulse proteic, of ahich La g-anshobuld be antiaaa technique on the 1972 World Back Atlco. protein. Theaa standards are a-neabt 1ear than th.es of 75 12 doe..oge nunhe of doughtere par enma Of rprdu-tie- g,as of total prteis and 23 gr-oan f anieca protein as an oge. ..aerege for the world, prcpcsed by FAD In~ the Third World Pond aI liplcti-o grsib toir are for tIn dronde codIng In Darry. 1960 and 1970. /7 DoS= attdies bone soggestod that. -rde death rates of children A. Ratio of under 15 and 65 and -nr age bru.otri t. ~ ages 1 through i nay be csnd asafirst appranimatton indec of those in, lobor force brokotr of ogoc 15 ithoegh 61. na1-tritto.. F5 AD eeec standards represent physiological re- /8 Perootags enrlld of -orrapuoding pupalation of school age quirati for norml activity and health, tiring en deined for.. hoo conotry. ,L. I85) esti-ate, axalnadiog pastures and forests; /5 1961; La Computed by applying te the 1970 figure the greeth rate af!g lha GN/oap in real teams free 1960 is 1970; La 197; a. 1965-70, UN estimtat; If Negdetared esly; 1969; _N16-2 I /t 1956-66; LI 10 years and ever; Ak 19162-70; - /1 Capiala cf p-eslcee and naetose; 4 MaaaicPalties and onnamee in ablech the largest populatian caster has 10,000 ar_ ears iehabita,te and the pnpulatice, of 12 ethar erban aggloneertiosa irr-speotle- of their population; /5 Natie of populatton wider 15 and 65 And ceer age graPe is pepuletise 1,5-64 age grepe; a ERatio af population aader 15 end 65 and ever to total labsr fc-rse;- /j 1956; aq Dear 10,000 pepalatiss; L Ic 1971/ Definsition nact aviabe t 1972; IsOfficial estimate; Er haidisag perese in sap.lsary silitary sevc W peces..s seeking work far the ?rh.t ties1 1/w 6R6- 7 PAO estimate; 5 Emeladisag aneplayed eas,nes; Is Percentage ef deefliags; Ia_ Rans_aslcay entire pepulatise; 7;hb Cavering 1.5 eiilla ha, af privatte land, azcludlag 578 millise be in pubhie swoorsUp, and 2.1 silliss ha of ceoleetive land; lee Caverieg 1.5 ed-Ilioa, ha of private land; /ad 19,63; I.e Personnel La go-reast services anly; 1,1 /s1de.giss n 19-62; /ah 1ncludIng rura has.pitale; /-" Gnsareest hoepital stablishm..cte oaly; &a 1961-66; /ab 1967; /.I 1968;-/a Includi,g UNRWu schas1e; /ie- 15 yea.rs and ever.; IAo Reed and writs; 1965; /5Trs-tags -rhsasiag with-electrical lightieg. O r.e.e has been seleacted asa bjoctia couantry on the bosie of the size of its pope2atiss, eaditerranea geagrephica1 eittatico and its economey, which presents some Similarity with Taicisi 'a with res pect t. natiacal reaares maht eisa, agrioultrarl and serI..c nte~itte.. R5 D,-oni- 9, 197I  Page 2 of 3 TUNISIA - EC.ONPOMIC DEVRI73PMCNT DATA SHEET ( innt 15 .t lion if U.S.Inre Aersal Projecte~~~~~~~~~~~-d - 955 1 970 1974 1985 1 970 1372 10723 1974 1 7 9 1970 1 973 10 70 1967 1571 1979 NA.TIONAl. ACCO0UNTS 3-Year Averges at 1967-69 Prlie and f-ehonas R Ra- Aver-ro Anneal UreeLh Rate A. Perc of CUT Ciros Iir-tic Prodart 1067 1358 1637 1830B 2000 2941 5.0 10 0.0 99.6 99.2 94.9 Cain- Iro Tern of Trae1- 1.5 11 3 2 08 125 10 CI -555 5.1 0.4 0.11 3.1 Cros Urnontir Inten 1047 1360 t681) 1926 2125 3101 0.5 12.0 7.9 100.0 100.0 100.0 moons. (G and NFS) 295 381t 506 562 t308 941 5.2 15.7 7.8 29.1 27.8 30.4 Enoe (C. and NFS)llcprtrosety 91 329 403 544 603 941 11.6 18.2 9.3 19.2 24.0 30.4 K---ira Cap 104 22 53 38 49 - -13.1 - 10.7 -59.4 9.5 3.8 - CI .n.....ptite Esp-edit. nc896 111 1289 1413 ' 1546 22o)3 4.4 8.3 0.9 87.3 81.3 73.0 lece-n-t Eope-dtare (le1. Steeks) 256 300 453 000 624 837 3.7 21.0 6.1 22.5 22.5 27.0 IsosiebIngs 152 256 4(141 512 579 837 lIE. 26.7 7.7 12.6 18.7 27.0 Naci-sl S-olegs 133 732 391 503 572 830 11.7 29.0 0.0 12.1 16.9 27.1 E0CTiOANDISE TRADt Antt-I Iac- a Cnrr-- Pr-e As Portent f Total Capitol CroSs 77 24. 132 170 260 435 -0.0 32.0 To. 9 19.3 23.2 25.9 Inctricodcaeo Cords jest]. Psol) NI 11.1 138 177 225 550 4.9 16.2 21.8 23.9 35.4 34.5 Occis and Related Mactrials 11~~~~~~~I 13 52 36 110 145 7.4 41.0 5.7 6.6 4.1 8.6 of hiih: Petroleat (105 6) (16) 1705 (70) (. .5 (-1.0) (49.5) .. (2.15 71.9) 7. .) CoaSno to ods83 111 185 223 738 570 2. 3.2 164.9 59. 5 37.3 31.0 lotal M-rchandiso topor- (lf) 252 311 492 60 2)r 33 1680 4.8 23.9 15.1 100.0 100.0 100.1 Prinaro Prodarts (end, fools + Phon) 59 54, 143 118 191 444 -18 30.7 18.5 W 5.51 20,.7 29.7 Rick Pspao22 2a~ 21 22 79 1d8 . -2.8 3.3 13.6 12.8 5.9 eels and Relate.d Materials - 5(1 85 150 31 d 26.0 4.5 - 26.6 25.7 nO oh-th Pecrleun.. - 5SrI (851 10702 (i185 (3862 (26.02 (4.31 - (26.05 125.7) Manotfacttrod Cords 47 61 83 105 155 580 05 21.0 30.0 32.4 31.9 38.7 Total Merhandine REports Ifb) 121 109 332 34 5 731 1500 9.2 22.5 15.5 198.0 100.0 100.0 Co-se 18 69) 140 154 1966 335 27.0 37.5 14.7 4,2 31.9 22.0 MoiinioTrodo Indice A-orgo 1967-69 =100 Onport Prien loden ~~~~~ ~~~~~~ ~ ~~~94.6 104.7 131.4 158.9 304.3 313.5 2.0) 14.9 0.6 In ;. rIe I'd,e, 10 6.8 101.9 113.4 2126.0 194.4 215.5 -1.8 7. 49 Con fTrad lden 81.6 103.1 11. 126.1 190. 5. 3. 7. -5.1 Eoport VAIss Inde- 0.0. 173.0 149.6 14. 161.0 307.5 9.1 5.2 13.9 PUBLIC FINANCE (Contro Gr-r-et) Anal Doca tc Corret Pri-n As Portet of CDP C-rret Recepts 197 315 4501 579 1 9.8 -... 19.0 72.1 Caret ornd coe50 353 351 4277 11.5 .. .. 17.3A 10.1 6sdgetory beIngs 427 57 99 352 .. .. 4.0 . . 1.7 4.0 Ocher PnbIit Sector Sao-eg -9 -2 -7 -2 . . .. -8.3 -0.5 PsOlie Serco 1nse-tn-L 00 87 96 143 . 271A. . 9.5 5.8 CURRENT ECPEUNOT DE TA ICLO- Art-nI DETAII ON As.a Perrnt (S .o otlCtent Fsp-nd.) 1965 19)7.1 1971 1972 1975 PUBLIC SECTOR At C-r-sr.Prir0_____-___ lCcnrral Cacr-sn tI VFPOT23DST 1R1)C6t2 (19,4-71) (1572-79) fIoration ~~~~~ ~~~~~ ~~~~~ ~~~25.7 '37.1 32.7 30.5 10.5I Ohe Saial Se-i-e 14.0 16.8 12. 16.6 16.7 Socil ecor 95 11 27.8 32.6 Ag.i-lsr- 5.8 4.1 4.6 5.3 Sal Agric-ltn- 172 133 55.0 23 .9 Pthrr Csnc7ors-eo 17.7 17.8 19.4 17.3 213.3 led-str and Posr Defence 5.4 3~~ ~ ~~~~ ~~~~ ~~~~~~~~~~.5 7 .9 7.4 6.9 Traultplrt . Catero1nr.- 40 133 14.3 24. Ad-in-t-ra... ad ((thee 30.7 22. 1.3 22.9 72. Ocher-. Irtal Cor..o-t Cepe-dit caes14.n 100.0 100.0 100.0 100. 0 TDcccl bost C1p-d., 342 556 1011.0 100.0 lichen Cop-ta Depts.0. 190 401 57.9 88.0 11165 1970 197, F 1 N.~~~AhlC I SNero Aecsg 38 468 27.4 44.7 SELECTUD INDICATORS 19713 1925 1975_ Ot,her Financing 72 112 13.3 11.2 ICa1rslated Ice 3-yea a-eraod data)__ R,.ig ) 18 Aneroge OCOR 412 4 27t 3.~ ljocntrOcronIlot 23 144 4.3 1. leport Rlostlricy 1.35 1.22 0.96 Fercise hcreaate o (sot) 247 318 75.5 30.3F-g, 1 1-1 11 31 95. 30. M-rf-ca Dr-ssit Santegs Once 0.32 ?.34 024 ra1F ar 540 1047 100.0 IOR.0 M-rge-l Norienol Sa-isgc Rate 0.33 0'' Ct 0.2 lABOR (100CR 4ND VoI1e Added at Faetr Cost Per Worker OUTPUT PER CORKER Ti-1a Cbr- F-rt (1967-69 Pr-r- and r-hasn- Rote-) In Mit ! I sn f Total 196b-727I USD1- Perce of Aoerae 1966-72 106 l66 1072 1 .- 966 1972 ItahOt 1966, 1972 Cr-cth Rote 63(r,colcorr ~~~~~~ ~~~~~~~~~0.844 9.8(10 651.8 52.7 -5.9 2 S015 3.n 33.4 9.3 Indcty 0.208 0255 15.5 18. 3.3 1072 1518 150.1 139.1 6.0 besces -0.292 0.33!2 21.) 23.9 7.2168 2488 263.0 228.0 4.8 Tnsa1 or A-eraR 1.344 L.387 100.0 300.0 0.5 714 1091 100.0 100.0 7.3 I/ Projected Op rho World Bank. 17 -lsedeniso-t-...sln Mining,Ind-stry, Poco ned Tra-P-t shrosh cranfer to Phlio Et-nr-ic entepri-e. ECran.nie Anal - pes d~s Pee) et-s Dep-rt-nte etober 23, 1974  ANSES I Page 3 of 3 TUNISIA - BALANCE OF PAYMENTS, EXIERNAL ASSISTANCE AND DEBT PROJECTIONS (amounts in millions of U.S. dollars at currant prices) Avg. Ansool Growth Rate Ant.al Projected 1 1974- 1969 1970 1971 1972 1973 1974 1979 1979 SUMMARY BALANCE OP PAYMENTS Exports (icl. NFS) 286 317 405 563 604 1021 2020 14.6 Imports (Si.n NFS) 344 382 439 588 727 1000 2023 15.1 REsource Balance (X-H) -58 -65 -34 -25 -123 21 -3 lnterest (not) -21 -21 -23 -25 -20 -20 -24 3.7 Direct Inveeleent lncomre -5 -9 -10 -25 -30 -36 -60 l0.8 Workers' Remittances 22 29 43 62 79 85 140 10.2 Other Net Pactor Service In-ere -42 -38 -32 -35 -42 -48 -61 4.9 Currant Transfers (net) 8 10 16 6 9 to 10 _ Balance on Current Arcoost -96 -94 -40 -42 -127 12 2 Private Direct lnvestment 20 19 24 32 64 65 70 1.5 Official Capital Grants 43 43 35 37 48 44 42 Poblic M+LT Loans Dlhorb-emeets 101 97 123 139 151 200 136 -7.4 -Repayment. -51 -49 -48 -74 -78 -77 -86 2.3 Net Disbursenents 50 48 75 65 73 123 50 -16.5 Capital Transactions n.e.i. 2 3 -4 -14 -13 1 -4 - Incre.oe in Net F(reign Ay.eat -19 2 -19 2/ -90 2/ -78 -45 -245 -160 Net Foreign Assets (end year) -4 1 15 - 105 - 193 - 256-A 501 4 1187 - IS Ac toOa GRANT AND LOAN COMMITMIENTS 1969 1970 1971 1972 1973 Official Grants + Grant-like Loans DENT AND DEBT SERVICE Public Debt Out. + Disborsed 485 522 6,09 693 836 PobliC M+LT Locus INRD 34 10 37 36 25 Interest on Public Debt 15 17 19 22 25 IDA 9 11 10 10 7 Other Multilateral - - - - 1 Repaycents on Public Debt SI 49 if 74 78 Coveronmets 64 98 83 131 74 Total Poblic Debt Service 66 66 67 96 103 Suppliers 23 7 5 1 S Other Debt Service (net) 6 4 4 S 3 Pi.a.cial Institutions 29 22 30 9 22. Total Debt Service (not) 72 70 71 101 106 Bonds - - -- Total Public M+LT Loans 159 138 165 185 134 Borden as E.port Earnisge - (w ) Actual Debt O.tstandisa on Dee. 31, 1972 Public Debt Service 21.4 19.1 15.0 15.4 15.1 ACtUAL EXTERNAL DEBT: DiSb. Only Percent Total P-rceet Turci Dhbt Sereice 23.4 21.2 15.8 16.2 15.5 World Bank 70 8.4 157 12.1 TDS+Direct Invest. Inc. 25.0 22.8 18.1 20.2 19.9 IDA 37 4.4 71 5.5 Other Multilateral 3 0.4 4 0.3 Average Terso of Public Debt Goverseents 550 65.8 824 63.5 Suppilera 67 8.0 89 6.9 let. s 7. Prior Year D044D 3.3 3.5 3.7 3.6 3.5 Fin..lial Institutions 150 12.0 143 11.0 ADrt. s 7. Prior Year DOr+ 9.9 9.1 9.1 11.4 8.5 Bonds 2 0.2 2 0. 2 Public Debts n.e.i. 7 0.8 6 0.5 tRND Debt Out. + Disbursed 18 26 39 52 68 Total Poblic M;1T Debt 836 100.0 1296 100.0 ' . r Public Debt O+D 3.8 5.0 2 6.5 7.5 7.8 ce as %Public Debt Service 2.7 4.2 5.4 6.3 8.6 IDA Debt Out. + Disbursed 13 16 21 28 32 " as . Public Debt O+D 2.7 3.1 3.5 4.1 3.7 as % Public Debt Service 0.2 0.2 0.1 . 2 0.3 1/ Projected by the staff of the World Bank 2/ Calculated at the rate of Diner 1-US $1.905 3/ Calculated at tbe rate of Dtiar 1-US S2.080 4/ Calculated at the rate of Diner 1-US $2.270 5/ Exports of goods and nan-factor nerveies and wrkers' resittan.as not applicable not available not available separately Eoonomic Analysis and Projections Departeenr but included in total and EMENA CP 11 - nil or negligSble October 23, 1974  ANNEX II Page 1 of > THE STATUS OF BANK GROUP OPERATIONS IN TUNISIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at October 31, 1974) Loan or Credit US $ millions Number Year Borrower Purpose Amount (less cancellations) Bank IDA Undis Nine loans and credit fully disbursed 31.6 19.5 - 94 1966 Republic of Tunisia Education 11.9 0.7 573 1969 Office des Ports Nationaux Tonisiens Port Development 8.5 0.1 581 1969 SONEDE Water Supply 15.0 4.3 606 1969 SNCFT Railways 8.5 6.0 643 1969 Soci6t6 Nationale d'Investissement Development Finance Co. 10.0 0.7 209 1970 Republic of Tunisia Water Supply 10.5 5-8 238 1971 Republic of Tunisia Population 4.8 5.6 716 1971 Republic of Tunisia Highways 24.0 13.9 779 1971 Banque Nationale de Tunisie Agricultural Credit 5.0 4.9 270 1971 Republic of Tunisia Fisheries 2.0 1.9 798 1972 Soci6t6 Nationale d'Investissement Development Finance Co. 10.0 3.6 815 1972 STEG Power 12.0 3.2 853 1972 Republic of Tunisia Tourism Infrastructure 14.0 14.0 329 1972 Republic of Tunisia Tourism Infrastructure 10.0 9.5 881 1973 Soci6te Nationale d'Investissement Development Finance Co. 14.0 9.1 937 1973 Republic of Tunisia Urban Planning&PFtlic Transpt 11.0 11.0 532 1973 Republic of Tunisia Urban Planning&Public TransIt 7.0 6.3 989 1974 SONEDE a Water Supply 23.0 23.0 1029 1974 Republic of Tunisia-/ Hotel Training 5.6 5.6 1042 1974 Compagnie des Phosphates et Phosphate Development 23.3 23.3 Chemin de fer de GAFSA5I Total 218.5 65.7 151.5 of which has been repaid 12.3 0.1 Total now outstanding 206T.2 F Amount sold 3.0 of which has been repaid 1.8 1.2 Total now held by Bank and IDA - O$l.0 Total undisbursed 122.7 28.7 151.4 a/ Not yet effective S Prior to exchange adjustment B. STATEMENT OF IFC INVESTMENTS IN TUNISIA (as at October 31, 1974) Amount in US % millions Year Obligor Type of Business Loan Equity Total 1962 NPK Engrais Fertilizer 2.0 1.5 3.5 1966 Societe Nationale d'Investissement Development Finance Co. 0.6 0.6 (SITI)(now BDET) 1969 COFITOUR (Tourism) Development Finance Co. 9.0 2.2 10.2 1970 Societe Nationale d'Investissement Development Finance Co. 0.6 0.6 (SNI)(now BDET) 1973 Soci6t6 Touristique&Hoteliere RYM SA. Tourism 1.6 0.3 1.9 1973 Soci6te d'Etudes & de D6veloppement de Tourism 0.]+ O.]+ Sousse-Nord 1974 Industries Chimiques du Fluor Chemicals o.6 0.6 Total gross commitments 11.6 5.9 17.5 Less cancellations, terminations, repayments and sales 3.1 0.5 3. Total commitments now held by IFC 8.5 5.5 14.0 Total undisbursed -8.5 0.6 9.0 + Actual amount is $38.860  ANNEX II Page 2 of 5 C. PROJECTS IN EXECUTION - Cr. 94: Second Education Project; US$13 million credit of September 16, 1966; Closing Date: (original) December 31, 1970; (current) December 31, 1974. Physical execution of the project is almost complete. All project schools have been accepted by the government from the contractors, virtually all equipment and furniture have been purchased, and most of it has been de- livered and installed. Despite early delays in the appointment of UNESCO ex- perts and their counterparts in the Educational Planning Unit, an interim re- port, including a diagnosis of primary and general secondary education and a preliminary analysis of higher education, has been prepared. However, the report does not cover vocational and technical training, education finance and management, and administration of the education system. To allow for the full utilization of savings and the completion of the technical assistance program, a further extensioni of the present Closing Date is being considered. Ln. 573: Port Development Project; US$8.5 million loan of November 29, 1968; Closing Date: (original) December 31, 1972; (current) December 31, 1974. Construction is virtually completed and is satisfactory. Additional studies on traffic, tariffs, and a master plan for Tunisian port development will soon be finished. The Borrower has financed all project costs from in- ternally generated funds and the Bank loan. All loan and guarantee conditions have been or will be met. Loan disbursements are expected to be completed by the present Closing Date. Ln. 581: First Water Supply Project; US$15 million loan of January 16, 1968; Closing Date: (original) December 31, 1973; (current) December 31, 1974. Cr. 209: Second Water Supply Project; US$10.5 million credit of June 30, 1970; Closing Date: December 31, 1974. Ln. 989: Third Water Supply Project; US$23 million loan of May 29, 1974; Closing Date: June 30, 1979 Because of problems with locally manufactured asbestos-cement pipe, completion of the First Project was delayed and the Closing Date of the Loan was extended. Constraints resulting from lack of capacity in the local con- struction industry will require that the Closing Date be set back by a further six months. Final project costs are expected to be about 6% below appraisal estimates (but 7% higher in dollar terms because of devaluation). The Second Project is 12 to 18 months behind schedule for the same reasons as well as because of initial delays in final design. Final costs may be about 5% higher 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems wlhich are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in protect execution.  ANNEX II Page 3 of 5 than original estimates because of current inflation rates, but they will be 20%-25% higher in dollar terms. Because of delays in execution, the Closing Date will have to be extended. The loan for the Third Project has become effective; procurement has begun and is on schedule. Ln, 606: Railways Project; US$8.5 million loan andU US$8.5 million credit, ?r, 150: both of June 4 1969 Closin Date of loan: (oniinal) December 31 1973; (current) December 31, 1975. The project has been delayed botlh by floods (one year) and by finan- cial difficulties (one vear). It is now e.,c:..tad to be stinistantially completed by December 31, 1974, ThIe financial probLcz.-.- cwtri caused by non-payment of freight charges by the railway's largest custotaer, the state-controlled Gafsa Phosphate Company; operational deficits, due to low rates and fares; and higher than estimated prices of rolling stock. The Government has undertaken to reim- burse railway losses for 1972 and 1973. A new cost-based tariff was introduced on January 1, 1974; traffic and operating results, however, have not improved as expected, and continuing Government contributions to the railways and further tariff increases will be required. A reallocation of the proceeds of the loan and credit permitted the placing of all outstanding orders; cast increases of about $6 million for items in the original list of goods are being financed by utilizing a Spanish line of credit. The credit has been fully disbursed; the Closing Date of the loan was extended to permit completion of project execu- tion. Cr. 238: Population Project; US$4.8 million credit of April 5, 1971; Closing Date: June 30, 1976, After a slow start, resulting in a 24-month delay, there has been some progress in recent months, but several problens remain, A new Director General has recently been appointed to the National Office for Family Planning and Population. Program performance, though showing signs of improving, is still inadequate. An Association sector report incorporating a Four Year Plan of Action has recently been forwarded to the Government. This, together with the appointment of the new Director General, should assist in improving per- fornmance. The total cost of the project is now estimated to be at least three times the $7.7 million estimated at appraisal. The Association is consulting the Government on the measures to be taken to deal with this situation, In- tensified supervision of the project is being maintained. Ln, 746: Highways Project; US$24 million loan of June 9, 1971; Closing Date: June 30, 1976. Project execution, which fell behind schedule initially due to lengthy Government procedures and changes in key personnel, is now proceeding satisfactorily. Progress in reconstruction and rehabilitation of roads and bridges is good. The estimated cost of the project has increased significantly, mainly as a result of dollar devaluation. One major road section may be elim- inated from the project. The Government has been requested to provide supple- mentary funds to permit completion of the other project components.  ANNEX II Page 4 of 5 Ln. 779: Agricultural Credit Project; UUS$5 million loan and US$3 million Cr. 263: credit, both of July 12, 1971; Closing Dates: July 31, 1975. Disbursements are behind schedule, especially for mechanization of grain farms and for dairy farms, since the cost of imported cows has risen and there is competition between Bank/IDA and Government subsidized funds. This competition has resulted in financing of livestock operations by BNT to farmers who should only borrow at the higher interest rates foreseen under the Bank loan and IDA credit. A severe flood in Marclh 1973 also affected project progress. Consultations between the Bank and IDA and the Government and BNT are underway with a view to accelerating the progress of the project, and solving the problem of competition between Bank/IDA and Government subsidized funds. Slhould agreement not be reached on this matter, the Bank and IDA may have to consider cancelling the uncommitted portion of the loan and credit foreseen for livestock development. Cr. 270: Fisheries Project; US$2 million credit of September 24, 1972; Closing Date: December 31, 1976. The project is now being actively implemented after earlier diffi- culties and delays experienced in design of an economic project vessel suit- able for operation by traditional fishermen. Problems were also encountered in selecting the marine engine to equip the project boat. Although costing 100% more than originally estimated, the project boat is still economic be- cause of sharp.increases in fish prices since appraisal. The demand for the project vessel is also strong as it represents a significant improvement over traditional vessels of the same quality and costs about 23% less than these boats. It is expected that about 190 boats will be constructed under the project, instead of the 335 provided for under the project initially. Ln. 858: Tourism Infrastructure Project; US$14 million loan and US$10 million Cr. 329: credit, both of September 28, 1972; Closing Dates: December 31, 1977. The project experienced initial delays because of the time required to adopt legislation establishing the public land corporation which is to ac- quire land in the project zones for resale to investors. The development studies for the six project zones, being executed by consultants, are almost on schedule. Invitations for bids for some project works have been issued. A study of Government incentives for investment in tourism is nearly complete. Ln. 798: Fourth Development Finance Company Project; US$10 million loan of February 9, 1972; Closing Date: March 31, 1976. Ln. 881: Fifth Development Finance Company Project; US$14 million loan of February 20, 1973; Closing Date: March 31, 1978. Disbursements under Ln. 798 are slightly behind schedule, while disbursements under Ln. 881 are ahead of schedule. Business greatly exceeded projections in 1973 and is continuing at an accelerated rate. Persistent problems are the substantial amount of arrears of hiotel borrowers and the lack of valid mortgage security for certain sub)-loans; these are being closely watched. Tlue dependence of BDET (ex-SNI) on the Government and the IBRD is expected to be reduced by EDET's raising considerable funds from local and other foreign sources. A sixth1 loan is currently being processed.  ANNEX II Page 5 of 5 Ln. 937: Tunis District Urban Planning and Public Transport Project; US$11 Cr. 432: million loan and US$7 million credit, both of October 5, 1973; Closing Dates: December 31, 1976. Due to delays in appointment of consultants and preparation of the necessary legal opinions, the loan and credit for this project only became effective in September 1974. Signature of the UNDP Project Document for tech- nical assistance to the Tunis District was completed in October, 1974. As the offer of the Tunisian supplier fell within 15 percent of the international reference price agreed with the Bank/IDA, the public transport company (SNT) has decided to award him the contract for supply of project buses. Ln. 1029: thotel Training Project; US$5.6 million loan of July 17, 1974 Closing Date: October 31, 1978. Due largely to delays in the acquisition of sites for project hotel training centers, effectiveness of the loan for this project has been delayed. Sites for the hotel training centers are in the process of being acquired by the National Tourist Office (ONTT). Consulting architects are being selected from official lists provided by the Ministry of Equipment. Current and pro- jected price increases are not expected to increase project cost beyond con- tingency allowances. The project unit created for the tourism infrastructure project has been enlarged by addition of the staff necessary for supervision of the construction of the hotel training centers. Ln. 1042: Gafsa Phosphate Project; US$23.3 million loan of October 1, 1974; Closing Date: June 30, 1979. This loan has not yet become effective; however, prequalification of equipment suppliers is underway. Terms of reference for a study of develop- ment possibilities in the mining region are under discussion.  ANNEX III Page 1 TUNISIA - IRRIGATION REIABILITATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Tunisia Beneficiaries: Authority for Development of the Lower Medjerda Valley (OMVVM); Authority for Development of Nebhana (OMIVAN); National Bank of Tunisia (BNT) Amount: $12.2 million equivalent Terms: Amortization in 25 years, including 7-1/2 years of grace Interest: standard Re-lending Terms: Of the proceeds of the loan, $1.0 million would be relent to National Bank of Tunisia, on terms and conditions to be agreed with the Bank following completion of an agri- cultural credit policy review presently being undertaken. The terms of borrowing by Project Farmers, of funds pro- vided under the Bank loan, would also be determined in that context. Project Description: Rehabilitation of irrigation infrastructure, on-farm development, and consultant services for technical assist- ance and studies, aimed at integrated development in the Lower Medjerda Valley and Nebhana.  ANNEX III Page 2 Estimated Cost: US$ thousand % Foreign Local Foreign Total Exchange Project Component I. Medjerda A. Rehabilitation, Irrigation, Drainage, Roads 1,590 1,646 3,236 51 B. On-farm Development 2,317 1,887 4,204 45 C. Buildings 1,741 1,000 2,741 36 D. Operation and Maintenance Equipment 96 546 642 85 E. Consultants, Studies, Fellowships 159 551 710 78 Subtotal 5,903 5,630 11,533 49 F. Contingency Allowances 2,903 2,789 5,691 Total Subproject Cost 8,806 8,419 17,225 49 II. Nebhana A. Rehabilitation, Irrigation, Drainage, Roads 400 534 934 57 B. On-farm Development 790 529 1,319 40 C. .Marketing 190 249 439 57 D. Operation and Maintenance Equipment 58 328 386 85 E. Consultants, Studies, Land Reform, Fellowships 404 843 1,247 68 Subtotal 1,842 2,483 4,325 57 F. Contingency Allowances 979 1,298 2,277 Total Subproject Cost 2,821 3,781 6,602 57 Total Project Cost 11,627 12,200 23,827 51  ANNEX III Page 3 Financing Plan: Ministry of /1 OMVVM OMIVAN BNT Agriculture Contingencies Total US$ Us$ Us$ US$ US$ US$ Bank Loan 4.26 1.69 2.12 0.04 4.09 12.20 Government Resources 3.29 0.93 3.52 0.01 3.88 11.63 Total Project Cost 7.55 2.61 5.64 0.05 7.97 23.83 /1 Land reform assistance to DAFL. Estimated Disbursements: 1975 1976 1977 1978 1979 1980 1981 1982 Annual 0.1 2.3 4.1 2.7 1.5 0.6 0.5 0.4 Cumulative 0.1 2.4 6.5 9.2 10.7 11.3 11.8 12.2 Procurement Arrangements: Civil works will be tendered on the basis of local com- petitive bidding or, in the event that contracting proves impracticable, carried out by force account. Except for replacement of hydraulic equipment, to be ordered in an aggregate amount of up to $0.6 million from the sole sup- plier, and for livestock, for which at least three quota- tions will be received before each contract is awarded, all equipment will be tendered on the basis of interna- tional competitive bidding in accordance with the Bank's procurement guidelines. In the evaluation of bids do- mestic suppliers will be given a margin of preference of 15 percent or the applicable customs duty, whichever is lower. Consultants: A. Proposals will be invited from suitable firms or persons acceptable to the Bank, for the following tasks: (1) engineering studies, preparation of final designs and tender documents for rehabilitation of the Medjerda irrigation in- frastructure; (2) engineering studies, preparation of final designs and tender documents for rehabilitation of the Nebhana irrigation in- frastructure, including a feasibility study for the on-farm development of 3,000 hectares not developed under the project;  ANNEX III Page 4 (3) extension services and management assistance to OMVVM; (4) cooperatives, marketing and management assistance to OMIVAN. B. Two individual land reform specialists will be employed by OMIVAN and DAFL to assist OMIVAN in project land reform activities and to strengthen DAFL. Economic Rate of Return: Whole Project: 28 percent Medjerda Sub-project: 30 percent Nebhana Sub-project: 24 percent Appraisal Report: No. 505a-TUN, dated December 10, 1974.