Greece - East Vermion Irrigation Project

CIRCULATING COPY L.ED " tOPY TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1684-GR REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE HELLENIC STATE FOR THE EAST VERMION (THIRD) IRRIGATION PROJECT August 7, 1975 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 It may not be published, quoted or cited without Bank Group authorization.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 = Drachma 1953 - March 7, 1975: Dr. 1 = US$0.033 US$1 = Dr. 29.9 Dr. 1,000 = US$33.33 Dr. 1,000,000 = US$33,333.33 Since March 8, 1975: The Greek Drachrna has been redefined in terms of a basket of currencies including the U.S. dollar and those of its other major trading partners, and is floating. Fiscal Year - January 1 to December 31  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE HELLENIC STATE FOR THE EAST VERMION (THIRD) IRRIGATION PROJECT 1. *I submit the following report and recommendation on a proposed loan to the Hellenic State for the equivalent of US$40 million, to help finance the foreign exchange cost of an irrigation project. The loan would have a term of 15 years including 5-1/2 years of grace, with interest at 8-1/2 percent per annum. PART I - THE ECONOMY 2. An economic report entitled "Current Economic Position and Prospects of Greece" (EMA-49a), dated March 22, 1972, was distributed to the Executive Directors on March 31, 1972. An economic updating mission visited Greece in January 1975 and its findings are reflected in the following paragraphs. Country data sheets are attached as Annex I. Recent Developments 3. Following the Cyprus crisis in July 1974, the seven-year old mili- tary regime was replaced by an interim civilian Government. In November 1974, an elected Government, backed by a large parliamentary majority, was estab- lished. In December 1974, the Greeks voted to establish a republic. A new constitution, establishing a parliamentary system with a strong presidency, was approved in June 1975 and the first President elected shortly thereafter by the required 2/3 majority of Parliament. The Government, besides its con- cern with the reestablishment of democracy, has focused efforts on foreign policy issues, especially relations with Turkey and Europe, and on economic issues, particularly the need to restore and broaden international economic relations - especially with the EEC to which Greece has applied for full membership - as well as inflation, a growing balance of payments deficit and stagnating economic activity. 4. Throughout the 1960's and up to 1972, the Greek economy enjoyed rapid GDP growth averaging 7.5 percent per year in real terms. The main stimulus came from rapidly rising domestic demand, stemming from large in- creases in private fixed investment - especially in housing - and public in- frastructure investment. Private consumption rose at a rate of 8 percent per annum and gross fixed capital formation at 11 percent over this period. This growth was associated with relatively stable prices. however, by the end of 1972, as the economy reached full employment, supply constraints began to develop and domestic prices came under increasing pressure. The inflation- ary trend was reinforced by the termination of price controls in 1973 and by increases in import prices, particularly of petroleum (after October 1973), higher agriculture support prices and increased Government expenditures.  -2- Consumer prices, which had increased by less than. 3 nercent per annum (on an annual average basis) in the previous five years, rose 16 percent in 1973 and 27 percent in 1974. Government measures, including reduced budgetary out- lays and restrictive monetary policies, reduced the increase in the second half of 1974 to only 5 percent. However, the developments in the first half of 1975, indicate that inflation is again accelerating. The restrictive pol- icies, together with the impact of the Cyprus crisis and resulting domestic political uncertainties, severely affected economic growth. GDP increased by about 9 percent in 1973, but declined by about 2 percent in 1974. GNP per capita in 1974 is estimated at about $1,780 (Atlas basis). 5. Agriculture and industry are the key economic sectors. Agriculture still accounts for about 20 percent of GDP, 40 percent of employment and 35 percent of all exports, besides providing raw materials for the food process- ing and textile industries. Agricultural production has increased by about 3 percent per annum since 1965, well below overall GDP growth, and reflecting lower output both in 1968 and 1973, mainly due to unfavorable weather con- ditions and poor performance in the livestock subsector. However, following an increase in support prices in October 1973, and with favorable weather, output increased by a record 13 percent in 1974. Growth in agriculture has been hampered by insufficient development of irrigation, the small size and fragmented nature of farm holdings, and inadequate extension services. The sector is more fully discussed in Part III below. 6. Industry, including construction, has been the most dynamic sector, with an average annual growth of nearly 10 percent since 1960. Industrial value added increased by 13 percent in 1973, but dropped by almost 6 percent in 1974 due to the general recession in the country. Industry's share of GDP increased from nearly 26 percent in 1960 to 32 percent in 1973. The share of manufactured goods in total exports also increased sharply, from 25 percent in 1968 to an estimated 45 percent in 1974, largely as a result of increased capacity in the chemical and basic metal industries. Despite rising produc- tivity, however, Greek industrial growth is still restricted by a small domes- tic market, limited export orientation, inappropriate plant size and heavy dependence on capital goods imports. The Government's emphasis on industrial development as a key to rapid growth is well justified. However, there is a clear need for Government guidance in determining priorities for future in- dustrial growth, which can take advantage of a reLatively inexpensive and moderately skilled labor force, through an emphasis on highly productive ex- port oriented industries and consumer goods establishments. Balance of Payments 7. Recent economic difficulties have been compounded by a deterioration of the balance of payments in the last two years. The trade deficit stood at $1.6 billion in 1972. It increased sharply to $2.8 billion in 1973, as im- ports grewq rapidly - reflecting domestic supply constraints caused by limited capacity of production. In 1974, the import bill increased only moderate- ly, as non-oil imports reflected the decline in GDP. The increase in the oil import bill was $444 million, although re-exports of oil products also rose; the increase in net petroleum imports was nevertheless $360 million, equivalent  - 3- to 11 percent of 1973 exports of goods and non-factor services and workers' remittances. Rapidly rising exports and retarded demand for imported goods, caused by the general recession, prevented further rise in the trade deficit. While exports, particularly of manufactured products, have grown by about 25 percent per annum between 1968 and 1974, they still finance only about one- third of commodity imports. Invisible earnings, mainly from shipping, workers' remittances and tourism, have usually been equivalent to nearly half of com- modity imports. In 1974, however, this proportion declined to 35 percent, reflecting lower tourism receipts - largely because of the Cyprus crisis - and a decline in workers' remittances due to reduced demand for foreign workers in Europe. 8. As a result of these developments, the current account deficit increased threefold from about $0.4 billion in 1972, to some $1.2 billion in both 1973 and 1974. Greece has enjoyed a very limited access to long-term foreign capital, and inflows of concessional funds have been minimal. As a result, the Government had no recourse but to meet financing needs by medium and short-term borrowing and suppliers' credits. The terms of borrowing therefore deteriorated noticeably in 1973 and 1974, reflecting both higher interest rates and declining grace periods. Foreign exchange reserves were about $1 billion in 1972 (4-1/2 month of import); however, because of the increased current account deficit and rising amortization on external debt. they declined to about $900 million (less than 2-1/2 months of imports) at the end of 1974. Prospects 9. In view of the economic crunch, the Government has postponed the formulation of a new medium-term development plan for at least one year until investment priorities can be established and economic policies and strategies can be reviewed and if necessary, revised. The crucial elements in such a strategy and plan are, however, already apparent: control over infLation consonant with policies to stimulate growth, reduction of dependence on agri- cultural and petroleum imports, promotion of industrial and agricultural exports, and less housing investment than over the last decade. Tourism and transport infrastructure, including highways, may be accorded lower priority than in the past. 10. The Greek economy is faced with significant problems. In the short- term, the Government may experience difficulties in striking the right balance between measures to restore aggregate purchasing power and regenerate growth on the one hand, and those to ensure relative price stability and external balance on the other. Given the immediate priority of stabilization, GDP growth is at best unlikely to exceed 2 percent in 1975, with the main contri- butions coming from agricultural output and exports of manufactured goods. It may not recover to the long-term trend of about 6 to 7 percent even in 1977. The Government initially aimed at keeping price increases below 10 percent in 1975, but developments in the first half indicate the price rise may end up between 15-25 percent for the year as a whole. Heavy dependence on imports,  -4- especially for capital goods, and the vulnerability of earnings from shipping, tourism and workers' remittances also pose serious short-term problems. Even after taking into consideration available undisbursed loan funds, access to the IMF oil facility, uncommitted funds from EIB, a new EIB financial protocol being prepared with the EEC, and the recent recourse to the IMF, Greece will have to borrow a significant amount on world capital markets and will need to obtain as great a proportion in long-term funding as possible. In 1975 and 1976, the financing gap to be filled by other borrowing is forecast at $700 million and $950 million respectively, assuming reserves are to be kept at the equivalent of at least 2 months of imports., 11. For the longer term, although Greece's economy is approaching a more advanced stage of development, like many developing countries it suffers from significant regional and sectoral disparities. Furthermore, the economy has to prepare itself to face increasing competition from imports from the EEC, particularly in the industrial sector, where tariffs and other protective barriers are being gradually reduced under the Association Agreement. Given the level of economic development already achieved, a GDP growth rate of about 6 to 7 percent per annum over the longer term seems feasible, provided there is reasonable weather for agriculture, relative price stability, recovery from recession in the economies of Greece's major trading partners and availability of capital from foreign markets of the magnitude needed on a sufficiently long- term basis. Continuing expansion of manufacturing industry at about 10 percent per annum in real terms and an increase in agricultural production of 4 to 5 percent per annum will be necessary to achieve the said growth rate. Partici- pation in the EEC should foster improved management and technological modern- ization. Greece has important assets in its flexible, market-oriented entre- preneurial capacity and a comparatively cheap labor force by European stand- ards. However, full utilization of these resources will require increased investment in agriculture, in export-oriented industries, and the introduction of effective vocational, technical and managerial training. 12. Public external debt outstanding and disbursed at the end of 1974 amounted to $2.0 billion. Debt service payments in 1974 reached $280 million (of which $8.6 million was on Bank loans), and reoresented 7 percent of re- ceipts from exports of goods and non-factor services and workers' remittances. Based on reasonable expectations regarding export growth and future borrowing, the debt service ratio would increase to about 13-14 percent by 1980. About 3,percent of total service payments would be due to the Bank. In view of the good prospects for future economic growth, even if at a lower rate, Greece continues to be creditworthy for Bank lending. PART II - BANK GROUT OPERATIONIS IN GREECE 13. Bank lending to Greece started in 1968, after disputes in connec- tion with the country's pre-war external debt had been substantially settled. Greece has received ten loans totalling $233.9 million (net of cancella- tions), of which $216.6 million was held by the Bank as of June 30, 1975.  5 These include five loans totalling $96.6 to the National Investment Bank for Industrial Development (NIBID), three loans for education ($82.3 million), and two loans for irrigation ($55 million). The execution of Bank financed projects has generally been satisfactory. Annex II contains a summary state- ment of Bank loans and IFC investments as of June 30, 1975, and notes on the execution of ongoing projects. 14. Bank assistance to Greece aims at providing essential infrastructure in key sectors, including irrigation, transportation and sewerage/wastewater disposal, reducing regional disparities and incomes through establishment of new industrial units in less developed areas of Greece and support for selected regional development programs, and supporting the modernization of institutions in the sectors financed by the Bank. The Bank is acting as executive agency for UNDP financed highway reconnaissance and feasibility studies, which are expected to lead to a highway project, including support for highway mainten- ance and reorganization later in 1976. A sewerage/wastewater disposal project, emphasizing institution building and which will also improve living conditions in towns outside the highly developed Athens area, is under preparation and is likely to be appraised by the end of the calendar year. Several projects, including one for the regional development of one of the backward regions of Greece, are being considered for preparation for lending in subsequent fiscal years. 15. Greece is a developing country with a relatively high average per capita income; but in view of two important considerations, some further Bank lending is justified. First, the country's external capital requirements still significantly exceed what it can raise on its own from alternative market sources on reasonable terms, particularly in face of the medium term economic difficulties noted above. Second, Greece still faces large pockets of poverty, regional inbalances and uneven development in several key sectors. The Government wishes the Bank to play a role in helping reduce those regional and income disparities and in strengthening sectors, which are critical for the country's further economic development and for which the Bank is probably the only present source of external funds. It is, however, anticipated that within a few years,-Greece will be able to finance its development program without resort to Bank resources. 16. IFC has made investments totalling $16.2 million in six Greek com- panies. An equity and loan investment of $600,000 was made in a fertilizer factory in 1962 (sold in 1970); and equity investment of $720,000 in NIBID in 1965 (reduced to $102,000 in 1974); loan and equity investments totalling $8.7 million in an aluminum company in 1970 and 1972. In early 1975, IFC invested $1.15million in an agro-industry project in Larisa for processing of tomatoes, and at later stages, asparagus and peaches from the area of the Groundwater Development Project assisted by the Bank (Loan 754-GR).  -6 - PART III - AGRICULTURE IN GREECE General Background 17. As mentioned in Part I, agriculture is still a dominant force in Greece's economic life. Over the years, however its share in GNP has declined to about 20 percent, reflecting a slower growth rate than the other sectors. Per capita income in this sector is about a thirdl the per capita GNP, and in certain regions, significantly lower than this. This probably also accounts for a continuing exodus from the rural areas. 18. Greece is a mountainous country with about 3.4 million ha of culti- vated land, of which 1.6 million ha is potential:Ly irrigable. As much as 45 percent of the crop land is found in upland areas, where steep slopes and over grazing by livestock has led to severe erosion. The soils on the plains are generally well structured and fertile, but water supply is a limiting factor. There are 3.0 and 5.3 million ha of forest and range lands respectively, where livestock graze. The typical Mediterranean long, hot dry summers and short, cool wet winters are highly favorable for a wide variety of crops, provided water is made available. Agriculture is relatively well served in terms of basic infrastructure otherc than irrigation. Over 90 percent of the population now has electricity supply and on adequate network of feeder roads, some of which need improving and proper maintenance, connect villages to the main arteries of communication. Constraints on Growth 19. Four main constraints hinder agricultural growth and productivity: (i) water is scarce and irrigation underdeveloped; the total area under irri- gation is 0.9 million ha, about half of the potentially irrigable land; (ii) farm holdings are small and fragmented; (iii) research and extension services, although efficient, are inadequate; and (iv) unslcilled and underemployed man- power. 20. Irrigation is one of the key means for stimulating agricultural growth, since it enables diversification, helps improve yields, and promotes the consolidation of fragmented farm holdings. The Greek authorities have therefore increased the allocation of investment expenditures for irrigation projects. However, progress has been slow, due largely to inadequate project preparation and implementation problems. The proposed project is the third Bank-financed irrigation project in Greece. The first irrigation loan was made in June 1971 for the Groundwater Development Project in Thessaly (Loan No. 754-GR). Implementation was originally delayed cdue to lack of experience in certain aspects of ground water exploitation, but: progress is now satisfactory although cost increases may force a reduction in project scope. A second loan was made in June 1974 for the Nestos and Yannitsa Project (Loan No. 911-GR). The effectiveness of this loan was delayed because of changes in the Greek political, legal and administrative structure, but the loan was declared ef- fective in July, 1975.  -7- 21. Since the rural population is numerous and available land is limited, the farms are small, ranging from an average in the Ionian Islands of 1.9 ha to 5.3 ha in Thessaly. The economically active population in agriculture was 1.3 miillion in the 1971 census, of these, the number farming on their own farms was 712,000. The situation is aggravated by inheritance laws, which provide for an equal inheritance by all children in the estate of the parents. As a result, the farms, besides being small, have become highly fragmented. At present, it is estimated that the average number of plots of land per farm is nine and these tend to become dispersed. A long-established program for consolidating holdings has been intensified in recent years, but so far, only about one-third of the most badly fragmented land have been consolidated. 22. Agricultural research, education and extension - of paramount im- portance if the sector is to modernize - are limited by a shortage of funds and inadequate number and quality of extension staff. The Bank has assisted Greece, through the education projects, in updating and expanding the agri- cultural education system. There are two university schools of agriculture, 12 vocational schools and three new post secondary schools. The extension service, which comes under the Ministry of Agriculture, is under strength and has a high turnover. Research institutes and stations exist throughout the country, operated by the Ministry of Agriculture Research Directorate, but need additional equipment and staff. 23. The Agricultural Bank of Greece (ABG), an autonomous public corpora- tion, is the major source of agricultural finance. It provides the sector with credit, both in cash and inkind (fertilizers and other supplies). The inter- est on short-term production loans to farmers, varies from 6-1/4 to 7 percent. Medium and long-term loans for farm development and purchase of machinery and livestock, are available at 5-1/2 to 6 percent, while loans for agro-industry are currently at 9.2 percent. ABG contributed about one-fourth of total credit made available to the sector in recent years. The outstanding amount reached Dr. 49.6 billions at the end of 1974, compared with Dr. 18.6 billions at the end of 1967. Of this, medium and long-term loans outstanding amounted to Dr. 20.9 billions at the end of 1974, and achieved a growth of more than 20 percent per annum since 1967. 24. Farm population has also been declining. It now accounts for only about 40 percent of the economically active population, compared to about 47 percent in 1966 and 54 percent in 1961. A considerable portion of the decline has been experienced in the poorer and more remote areas of Greece, and move- ment away from these areas will probably continue. The 1971 census shows that about 25 percent of the agricultural working population is illiterate, and over half of this population has not completed primary school education. These educational deficiencies could impede technical and commercial improve- ment in farming. 25. Under the general pattern of production on Greek farms, the demand for labor is highly seasonal. It peaks for the harvesting of those crops, such  -8- as cotton, tobacco and fruit, where intensive manual effort is required, and at such times it is necessary on many farms to hire casual labor. At other times of the year there is underemployment. PermrLanent hired labor accounts for about 10 percent of the work force in farming. Agricultural Policy 26. Agricultural policy in Greece is directed towards influencing the composition of output and improving production through a complex and extensive system of minimum support prices and direct income grants, the level of which are subject to adjustments; in response to market conditions. Incentives were increased at the end of 1973 to bring them into line with market needs. The Government has substantially increased its budget: for agricultural investments in recent years. In 1974, it amounted to Dr. 4.5 billion, compared with Dr. 1.6 billion in 1967. In 1975, it is expected that public investment expendi- tures in the agricultural sector should reach Dr. 5.6 billion, about half of which will go to large-scale irrigation projects. P'ART IV - THE PROJECT Project History 27. The proposed project was identified by the Government and prepared by the Land Reclamation Service (LRS) of the Ministry of Agriculture, assisted by consultants and the FAO/IBRD Cooperative Program. It was originally pro- posed as part of the Nestos and Yannitsa Irrigation Project (Loan No. 991-GR), but was not included since it was insufficiently prepared. The project was appraised in February 1975. Negotiations were held in July 1975 in W4ashington, with a Greek delegation led by Mr. Petros Papadakis, Director General of the Ministry of Coordination atnd Planning. The Project 28. The proposed project will upgrade and expand irrigation facilities in the fruit producing area of East Vermion in Central Macedonia, about 70 km west of Thessaloniki. It will ensure an adequate and stabilized supply of irrigation water by gravity to about 18.,000 ha of poorly irrigated land devoted mainly to peach production, and to about 6,000 ha of unirrigated but potential- ly highly productive land. The water would come from the Aliakrmon and Edessa Rivers, as well as from springs and deep wells. Briefly, the proposed project includes: (a) 15 new main canals with a total length of 140 km- (b) rehabili- tation and lining of 42 kms of existing main and about 1,500 kms of secondary and tertiary canals; (c) .r irrigation and 3 drainage pumping stations; (d) 9 small regulating reservoirs and diversion structures; (e) about 14 new wells; (f) about 1,100 kms of farm roads; (g) abouit 1,100 kms of secondary and terti- ary drains; (h) about 36 kms of 15 to 20 kv of power transmission lines (i) minor levelling on 4,800 ha, of land; (j) provision of equipment, extension  -9- and research services; (k) training; and (1) consultants services for the project and identification and preparation of an identified project in the Xanthi-Komotini area. The details are provided in a Loan and Project Summary attached as Annex III. A report entitled "Appraisal of The East.Vermion Irrigation Project, Greece" (No. 836-GR, dated August 7, 1975) is being dis- tributed separately. 29. Water currently available from the Edessa River (averaging 5.0 m3/ sec) will be reduced to about 2.5 m3/sec in the future, by additional diver- sions for power generation.. The Project would offset this loss and provide additional water for the area by developing new Rump wells and diversions from the Aliakmon River providing 5.5 Mm3 and 54.5 MmJ respectively. The remainder of the gross requirement (103 Mm3) would be supplied from existing project sources. Reliability of the Aliakmon supply is assured by the existing 1,300 Mm3 Polyphytos storage reservoir on the river, just above the project diver- sion. All sources of water are of high quality, and an assurance has been obtained that the Borrower would maintain a satisfactory quality of the irri- gation water supplying the Project Area through regular monitoring and analysis and by requiring corrective action by industries if their effluents reduce water quality to unsatisfactory levels. Although, there are no known plans for further. power or industrial development which could interfere with the project supply, agreement has also been reached on a guaranteed 15.5 Mm3 per second minimum flow rate during the peak demand period for the project. In the event of a planned reallocation of water extracted from the Aliakmon and Edessa Rivers affecting the Project supply of irrigation water, the Government would inform the Bank before such reallocation is made and provide for an alternative supply. In deciding whether to replace or modify Project facili- ties for this purpose, the Government will determine the solution with the lowest economic cost and cover any cost increases. Project Costs and Cost Recovery 30. The total project cost is estimated at approximately $90 million, including about $7 million for interest and other charges during construction. The proposed Bank loan of $40 million would finance all foreign exchange costs of the project, including $6.0 million of interest and other charges during construction. The balance of project costs, about $50 million, will be fi- nanced by the Government through budget allocations to LRS and the Public Power Corporation (PPC). 31. Under the project, the full operation and maintenance costs of the irrigation and drainage works, including the cost of power, and a reasonable portion of the initial investment costs would be recovered from project beneficiaries. Commencing with the second year of supply of water from the project, farmers will pay an annual depreciation charge which will be adjusted annually in proportion to changes in the operation and maintenance charges. It is expected that the depreciation charge will be about $40/ha in current prices by the time of its introduction, when the operating and maintenance  - 10 - costs are expected to be about $64/ha. About 32 percent of investment costs will be recovered over 40 years discounted at 10 percent. The total charge (O&M plus depreciation) of $104/ha is about 10 percent of incremental farm income, but is considered reasonable because the project farmers are relative- ly poor with an average income about a third the GNP per capita of $1,780. Organization and Management 32. Project implementation would be the responsibility of LRS, an agency of the Ministry of Agriculture established in 1958 to undertake groundwater exploitation as well as rehabilitation and construction of irrigation and drainage systems, on-farm development and farm roads throughout Greece. PPC would construct and maintain the electrical facilities for supplying power to the irrigation and drainage pumps. A senior officer of the LRS in Athens, would be appointed as project manager, although most of the operations would be carried out through LRS's regional office in Thessoloniki and its field offices within the project area. The project manager would be responsible for coordinating operations with other agencies and for the procurement of goods and services for the project. His appointment would be a condition of effectiveness. Consultants, currently employed on the project, would be retained to complete detailed designs and tender documents and assist in bid evaluation. Additional consultants would be employed for the Xanthi-Komotini regional studies and designs. In all, about 375 man-months of consultants' services would be required. 33. Overall coordination would be provided by a Steering Committee, either that formed for the Nestos and Yannitsa Project, or a similar one, which would be chaired by a Director-General of the Ministry of Coordination and Planning. The committee would include representatives of that Ministry, of Public Works and Agriculture, LRS, the PPC and the ABG. The Steering Committee would ensure consistency in project works, coordinate act-ivities among the different agencies, review project programs and provide policy guidance. The establishment of a new committee for the project or the extension of authority of the Nestos and Yanitsa Committee to the project, would be a condition of effectiveness. The project manager would act as a secretary to the Committee. The Committee would meet at least twice a year and keep the Bank informedl of its deliberations. 34. The project works would be maintained and administered by three successfully functioning local farmers associations (TOEVs) in the Project Area, with technical assistance from LRS. Pumping plant maintenance would be the responsibility of the regional association of water users (GOE's), which would also coordinate water supplies and relations between the TOEVs and operate and maintain the main supply canal. The PPC will operate and miaintain project electrical networks. 35. The proposed loan does not include any agricultural credit, since adequate credit is being provided by the three branches of the Agricultural  - 11 - Bank of Greece (ABG) which serve the project area and the incremental credit requirements are small. Under the terms of the Loan Agreement, the Government will ensure that ABG will continue to provide such credit to the project area; that extension services would continue to be provided in the project area by the Inspectorate of Agriculture in Thessaloniki, whose staff would be increased and equipped to ensure efficient service; and that research programs of exist- ing stations in the area, would be expanded and geared to meet project needs. Procurement and Disbursement 36. Three prime contracts, including civil works and project equipment, totalling about US$50.3 million, and supply contracts totalling about US$0.5 million for O&M and extension equipment exceeding US$25,000 in value, would be awarded through international competitive bidding in accordance with the Bank's Procurement Guidelines. Local manufacturers would be allowed a 15% preference margin or the applicable customs duty, whichever is less. Con- tracts for items of material and equipment, costing less than US$25,000 but limited to an aggregate of US$300,000, would be procured locally, following regular government procedures. Land levelling would be performed by LRS, through force account and contracts. The electrical network would be con- structed by PPC, also through local contracts and force account as part of its overall development program. Both these organizations are adequately staffed and equipped to undertake or supervise the work. 37. The Bank loan would finance: (i) 46 percent of the cost of civil works contracts; (ii) 100 percent of the foreign exchange cost of imported equipment and materials and 90 percent of the ex-factory costs of locally supplied equipment, (iii) all foreign exchange costs of consultant services and training, and (iv) interest and other charges on the loan accrued on or before July 31, 1980. Project Benefits and Economic Return 38. The project will increase and stabilize yields of present crops and substantially improve the quality of fruit production, mainly peaches. With the project, it is estimated that peach production would increase by about 68,000 tons or about 46 percent. Other deciduous fruit production, mainly apples, pears and cherries, would increase by 30,000 tons. Vegetable production is expected to increase by 14,000 tons, alfalfa by 17,000 tons, and cotton and legumes by small amounts. Peaches are already well established, and about a quarter of the incremental production would come from young trees now beginning to bear. Peaches have been exported in increasing quantity since 1962 and there are elaborate sorting, packing, storage, transportation and market intelligence systems supporting their export to Western Europe. In 1974, about 100,000 tons were exported. Although the marketing outlook for mid-season table varieties is uncertain, there is considerable room for exports of the more profitable early and late varieties, which the project will permit to be more widely grown. Moreover, there is considerable demand for industrial varieties suitable for canning. The other fruits and crops have a ready domestic market.  - 12 - 39. The quantifiable benefits of the project would include increased output, foreign exchange earnings and employment. At full development in 1987, the projected net value of incremental production, at 1975 prices, would be about $17 million. The average annual net income for a typical farm family (averaging 4.5 persons) operating a farm of 2 ha, with orchards, is estimated to be about $4,900, as compared to the present income of $2,800. A similar average farm family with a smaller irrigated farm (1 ha) cultivating mainly annual crops would have an annual income of about $1,900, compared to the present income of about $1,200. These represent increases of 72 percent and 58 percent, respectively, for nearly 14,000 families whose current per capita incomes are less than one third the national average. The project would also provide increased employment opportunities for these families, which are presently underemployed, besides increasing the need for hired labor by 64 percent or 3,200 man-years, each year. The economic rate of return, costing labor at market wages, is estimat:ed at 18.5 percent. PART V - LEGAL INSTRUI4ENTS AND AUMORITY 40. The draft Loan Agreement between the Hellenic Republic and the Bank, 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 approving the proposed loan are being distributed to the Execut:ive Directors separately. The draft agreement conforms generally to the normal pattern for loans for irrigation projects. 41. Special conditions of loan effectiveness are: (a) that the project manager referred to in paragraph 32 above has been appointed and has taken up his post (Loan Agreement Section 5.01(a)); and (b) that the Steering Committee referred to in paragraph 33 above has assumed its functions (Loan Agreement Section 5.01(b)). 42. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMNDATION 43. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments August 7, 1975  ANNEX I Page 1 of 3 pages COUNTRT DIATA - ORClE ARKA POPIULTION DMNSITY 1 lastok. 9.02 mlin(i-Pi 370 /4 Per k,stf arabia land SOCIAL INDICATORSS Reference Countries Gmeece ~ j Bel ium France* ORP PER CAPITA US) (ATLAS BASIS) /I .. i,6o 1,210 a. 3,210 A 3,620 . DEMOGRAPHIC Crude death rate (par thmouand) 19 96s l9/4. 12 31 16.: 4b Infant mortality rate (par thousad live births) 10 / 28 a .1 # 17.0 b 12.9 Life expectancy at birth (years) 69 / 70 7071 71.2 Gross reprductian rate /41.1 1.0 ilh 1.3 1.3 Population groth rate /41.0 o0t.105 . Population growth rate - urban 2h 5 I 0. . Age structur (percet) 0-11271 25 a28 23.1/41 23 /8 1-1 65 16 63 63.1/ 65 ad 00cr 8 91. Ag-.depeooency ratio /1 0.5 0.16 a 0.6 o.6 /4 0.6 n Econ..nic depeod-uy ratio /4 0.9 1 .o0g 1.1 2.007 Urban poroolatian as percent of total 13 /h 53 /A.n 19 ld.i 87.1 /b 70 L&k.. FanilyplannIng: Non of accptors ca,ulative (th.us.) ..... No. of ues(% of carried nones) ... E.MPWYMENT 36c i 330Z~j 27 ID 22 C Total abor force (thoosando) 3,0 ,0 12,70 /4 100/ 200/ Percentage esployed in agricmlture 51 /4 0 428 /4m 3.7 /4 11.6 / Percsn.tage ooemploysd 6 j /~ 4 36 /4 2.0b/ INCOME DISTRIBUTION Pernst of.nati.nou innoo remeiced by highest 23 / Percent of ntional iccoss re..eiced by highest 20% 50 Percent of national moons. re-iv-d by lowest 20% 9 4. Percent of national Income received by lowest 40% 21 / aISTRISUTION OF LAND OWNERSHIP Sf owned by t-op 10 nf owners ..25.7L/ % own,ed by smallest 10% of owners * 2.6/. NEALTH AND NUTRITION Population pe -physica 790 ' 6.o I 720 8,t 6311, 7~ PPoplation per nursing person 1,26o ,p. l530 950 Lso 180 P.opulation per hospital bed 17204~ 160 __ 190) 1420 i02oT Pee capita calorie supply as of reqoirenents /5 120 /1 1-16 107 128 127 Per caita Protein supply, total (gerno per dayY 6 99 / 99 21 91 l0b Of ahich, animal andl pulse 39 f 52 o Z 06 66c Deat rate 1-1 years /7 9 909 0. EDUCATION Ajusted /8 primnary school enrollment rutic 109 119 /8 23 ill 118 Adjusted 79 secondary school enru11sot ratio 39 62 /yv 19 81 73 learn of schooling provided, first and second level 12 12 13 lb ii Voca-tional enrollment aso % of e0c. school enrollment 17 /8 20 /y 20 61 /n 23 /v. Adult literay rote 5 80 7/b 02 Tv,/4 91 /o.ob ..99 MOUSING Average No. of persons per room (urban) 0. .9 /4j5ac/4 .. .6 0.9 Pe.oent of occupied units aitbout piped water 71IBe, 351 /Nm .d 13 /85 9 Arns i letict (as 5 of total population) 3 4 j 9 ..9/4 99 Pe-rcenttof do.ral population connctsd to electricity / 1. /.o 73 /x 98 5 9Z4s CONSUMPTON L-Tr7Ere"icer per 1000 populatio 85A/ ~ 12 210 /4 67 / 329/ Pass..nger care per 1000 population 5 31 / 95a 231 at 26 Electric poers .nonunption (khs P...) 271 1,c / ,916 L81078 a ,1 Newoprir,t consumption p.c. kg Per year 2. . / . /4 9.5 /,~r./ Noten, Fig-e refer either to the latest periods or to ancount of environmental tnperators, body weighta, and the latest yearu. LAtest parioda refer in principle to distribution by age eon aex Of natis-a POPaistiona. the yearn 1956-60 or 1966-70; ths latest years in prin- 64~Protein standarda (requtrements) for all noan.tries as eatab- ciple to 1960 cad 1970. Iiahad by USDA E.nnooin RSeasarh Derrias provide for a ebinmu /4 The Pe r Copit. G02P estimate in at narict price. for a1iowance of 60 graen of total Protein per day, and 20 grams, of ycr -010cr than 1950,-calculted by the name conversion animal and pulee protein, of which 18 grams should be animal technique no the 1972 World Ban! Atle- protein. These standards are somewhat iowa than. those of 25 /2 Avoruge number of daughters per woman of reproductive grams of total protein andi 23 grams of animal protein a am age. average for the world, propound by FAO In the Third World Food /4 P.pulation growth raten are for the de..adno ending in Naucy. 1960 and 1970. /7 Son sotudies have soggeated that crude death rates of children /4 Ratio of population under 15 and 65 and over to populo- ages i through 4 may be used asafirst approximation index of tion of ageo 15-61 for age dependmeny ratio end in lab.r malnutrition. force of ageo :15-61 for economic dependency ratio. /8 Perne:tags scrolled of soreepunding population of aahaol age /4 FAO reference tandards represent phyaiological re- as define,d f anhsa aemetry. quirmnnts for normal activity and health, taking La 1972; /4 1973; /a Excluding Centa and Melille; /d Estimate; /4 Data excludes live-born niniant dying before regiatratioc of birth; If 1960-62; /4 1960-72; Th Municipalities and comm,unes in which the largest population cecter has 10,000 or more inhabitants and population of 12 otte r urban agglomeratione irrespective of their population; /4 Localitien of 10,000 or more inhabitants; C4itian, urban agglomerations and urban cmucoums; /k Over 2,000 Population; /I 1961; /4 1971; /n4 19 8/0 Excluding porsons in compulsory nilitary service; /p Excluding per.noo seeking work for the fir~st tine; /q Excloding unenployed seame; /4 1957; /a 1962; /t Number on the reginter, oct all -okbng in the country; /4 Includlg midwives, nurace ait!, midwifery qualifi-atione; /v 1969; /w Iocludiog maternity hospitals; /x Peroane in governnnt servines; /4 1967; /z 1969-70; La Teacher tralu'ing nut Included in -e-cdary scbool enrollment; lab 15 years and over; Ian Total, urban and rurl; L cd Data refer to ho..seboldn in conventional dwellings; lee Ionside; 1.4 Inaide or outalde; lag Refer to duellings; ab elgIa and L-xebcurg; /ot axcludIng vebicles exempt f-a taxation. The aiinllaity of the cooltFrench and Greek.... o cic stL..oturc maben Franc.ean appropriate bolv frte ouvd-olop-et prouocctn of Grec.- US JulY 23,1975  ANNEX I Page 2 of 3 pages COUNTRY DATA - GREECE GNP PER CAPITA in 1974 rAtlas Hethlc) Us$:L780 (estimate) GROSS NATIONAL PRODUCT IN 1974 (current prices c ANNUAL RATE OF GROWTH (, constant 1958 prices) US$ Mln. % 1960-65 1965-70 1968-72 1975 1974 GNP at Market Prices 20,047 100.0 8.0 7.6 8.9 8.6 - 2.9 Gross Domestic Investment 4.550 22.7 15.4 7.5 12.3 19.4 -30.4 Gross National Saving 3.267 16.3 10.2 11.1 15.1 5.1 -35.1 Current Account Balance 1.219 6.1 25.6 2.2 6.6 192.1 -18.4 Export of Goods, NFS 3.407 17.0 .. .. 6.5 13.2 - 5.4 Tmport of Goods, NFS 5.201 25.9 ., .. 8.1 38.5 0.0 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971 Value Added Labor Force Value Added er Worker US$ Mln. .%A. ('000) % 'is$ Agriculture 1,707 18.6 1330.3 40.5 1,283 46.0 Industry I/ 2,840 31.0 840.8 25.6 3,378 121.1 Services 4.616 50.4 1112.8 33.9 4,148 148.7 Total 9,163 100.0 3283.9 100.0 2,790 100.0 GOVERNMENT FINANCE (National Accounts Basis): Genere-l Government Central Govermment Drachmae Billior.. of GDP Drachmse Billion S olf GD? 1970 1971 1972 1T73 1966-72 197? 1973 1970 1971 1972 1973 1965-72 1572 1973 Current Revenues 78.6 37.1 97.7 117.8 31.5 29.5 27.6 47-5 5e.7 59.5 77.s 19. 2 161 1 6.1 Current Expenditures 68.5 76.7 814.9 98.3 27.6 25.9 23.0 43.8 4L9.3 53.7 65.o 17.8 16.t1 15. Current Surplus 10.1 10.4 12.8 19.5 3.9 3.9 L.6 3.7 3.4 5.8 12.2 1 .L 1.7 2.9 Capital Expenditures 20.4 26.8 32.4 39.1 9.0 9.9 9.1 I1.L 12.L 16.o 19.3 L.5 La; L MONEY CREDIT AND PRICES Drashmae Billion (End of Period) 1965 1969 1970 1971 1972 1973 1974 Money and Quasi Money 71.7 131.2 155.8 190.0 234.0 271.0 327.8 Bank Credit to Public Sector 16.9 31.0 35.2 42.4 46.0 60.4 58.9 Bank Credit to Private Sector 49.3 96.9 118.0 144.1 177.5 212.6 242.8 Money and Quasi Money as % of GDP 41.3 50.8 54.2 59.7 63.7 57.0 56.2 Wholesale price index (1969 = 100) 92.7 100.0 103.9 107.5 114.3 141.1 192.9 Consumer price index (1969 = 100) 91.0 100.0 103.0 106.1 110.7 127.9 162.1 (Annual percentage changes in) Wholesale price index 4.4 3.9 3.9 3.5 6.3 23.4 36.7 Consumer price index 3.0 2.4 3.0 3.0 4.3 15.5 26.8 Bank credit to Public Sector 9.3 26.3 13.5 20.5 8.5 31-3 3.0 Bank credit to Private Sector 10.2 17.4 21.8 22.1 23.4 19.6 17.0 Note: All conversions to dollars in this table are at the average exchange rate preva-:ling during the period. 1973 and 1974 data are provisional. 1/ Mining, manufacturing, energy and construction. Source: Ministry of Coordination and Planning July 23, 1975  ANNEX I Page 3 of 3 pages COUNTRY DATA - GREECE TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1971-1974) 1972 197 1974 US $ Mln (Millions US $) Tobacco 111J.5 10.3 Currants, raisins and fruits 118.6 10.6 Exports of Goods, NFS 1839.6 2638.1 3406.1 Textiles 121.6 10.9 Imports of Goods, NFS 2726.4 4496.8 5174. Minerals 69.4 6.2 Resource Gap (deficit - -) -886.8 -1858.7 -1768.7 Cotton 50.7 4,5 All other commodities 641.4 57.5 Interest Payments (net) - 56.3 - 51.9 - -95.1 Total 1116.2 1oo.O Workers' Remittances 575.3 735.4 645.3 Other Factor Payments (net) - - - Net Transfers - - - EXTERNAL DEBT. DECEMBER 31, 1974 Balance on Current Account -367.8 -1175.2 -1218.5 US $ Mln Direct Foreign Investment (net) 280.4 415.7 432.5 Net MLT Borrowing 356.1 407.2 435.8 Public Debt, incl. guaranteed 2000.0 Disbursements 2/ 513.4 579.4 612.0 Non-Guaranteed Private Debt -- Amortization -157.3 - 172.2 -176.2 Total outstanding and Disbursed Subtotal 636.5 822.9 868.3 Capital Grants - - - DEBT SERVICE RATIO for l9743-' Other Capital (net) 210.1 211.6 177.3 Other items n.e.i. 22.3 153.1 60.3 Increase in Reserves 501.1 12.4 -112.6 Public Debt, incl. guaranteed 6.9 Non-Guaranteed Private Debt -- Gross Reserves (end year) 1003.9 1016.3 903.7 Total outstanding and Disbursed Fuel and Related Materials Imports of which: petroleum prod. 212.5 416.4 86o.0 Exports of which: petroleum prod. 16.7 46.4 123.5 RATE OF EXCHANGE IBRD/IDA LENDING, June 30, 1975 (Million US $) 1953 - March 7, 1975 IBRD IDA US $ 1.00 = DR 30.00 DR 1.00 = US $ 0.0333 Outstanding and Disbursed 64;.6 Since March 8. 1975: Undisbursed 152.0 Floating exchange rate Outstanding icl. Undisbursed 21 ,/ Excluding ships registered under L.D.2687/53. 2 Including net disbursements of suppliers' credit. J Ratio of debt service to exports of goods and non-factor services, plus workers' remittances. not available not applicable July 23, 1975  ANNEX II Page 1 of 4 THE STATUS OF BANK GROUP OPERATIONS IN GREECE A. STATEMENT OF BANK LOANS (as of June 30, 1975) US$ Million Amount Loan Number Year Borrower Purpose (Less cancellation) Undisbursed Two loans fully disbursed 31.6 - 711 1970 Hellenic State Education 13.8 11.2 754 1971 Hellenic State Irrigation 25.0 14.1 791 1971 NIBID Industrial finance 25.0 .1 859 1972 Hellenic State Education 23.5 23.4 945 1973 NIBID Industrial finance 15.0 3.2 991 1974 Hellenic State Irrigation 30.0 30.0 11?4 - 1975 Hellenic State 2nd Education 45.0 45.0 1125 - 1975 NIBID __ 25.0 25.0 TOTAL 233.9 of which has been repaid 12.1 Total now outstanding 221.8 Amount sold 5.2 of which has been repaid - 5.2 Total now held by Bank 216.6 Total undisbursed 152.0 152.0 1/ Not yet effective 2/ Prior to exchange adjustments  ANNEX II Page 2 of 4 B. STATEMENT OF IFC INVESTMIENTS (as of June 30, 1975) Amount in US$ Million Year Obligor Type of Business Loan E}quty Total 1962 Aevol Industrial Company Organic Fertilizers, S.A. Fertilizers o.60 - o.60 1965 "Titan" Cement Company, S.A. I Cement 1.00 0.50 1.50 1966 National Investment Bank for Industrial Industrial Development, S.A. finance - 0.72 0.72 1966 General Cement Company, S.A. Cement 3.50 - 3.50 1966 "Titan" Cement Company, S.A. II Cement - 0.03 0.03 1970 Aluminium de Grece, S.A. Industrielle et Conmmerciale I Aluminum 3.50 5.10 8.60 1970 Aluminium de Grece, S.A. Industrielle et Commerciale II Aluminum - 0.05 0.05 1975 Hellenic Food Industries, S.A. Food processing 1.00 0.15 1.15 Total Gross Commitments 9.60 6.55 16.15 less cancellations, terminations, repayments and sales 6.27 4.30 10.57 Total conmmitments now held by IFC 3.33 2.25 5.58 Total undisbursed 1.00 0.15 1.15  ANNEX II Page 3 of 4 C. PROJECTS IN EXECUTION - Loan No. 711 - First Education Project; $13.8 million Loan of November 5, 1970; Closing Date: December 31, 1975. Civil works for construction of the project schools are proceeding satisfactorily and most of the schools should be completed by March 1976. Bids for furniture and equipment have been called twice, as the first tenders involved complex procedures which discouraged bi'dders. The second set of bids has been evaluated and contracts are being awarded. Despite these delays, the project is expected to be completed within about nine months of the ori- ginal schedule. Loan No. 859 - Second Education Project: $23.5 million Loan of October 2, 1972; Closing Date: July 31, 1977. Consultant architects for all thirty-three schools to be built under the project, have been appointed and space standards set; preliminary designs are underway. Bids on the first group of equipment and furniture contracts for project schools are being evaluated. The Education Project Unit is per- forming satisfactorily. The Government requested the deletion from the proj- ect, of the extensions to the University of Patras (representing 43 percent of total costs) and the reallocation of the savings to other project compo- nents which have experienced considerable cost increases. The request was approved by the Executive Directors on July 25, 1975. Loan No. 754 - Groundwater Development Project (Irrigation): US$25 million Loan of June 21, 1971. Closing Date: December 31, 1976. Implementation of this project began slowly due to delays in con- tract awards, changes in designation of project areas prompted by the ongoing consultants' study, and a protracted search for a satisfactory solution (found in December 1973) to the question of farmers' contributions to the capital cost of the project. Studies are now being made to find the most efficient design of tertiary systems. Drilling operations are now proceed- ing at a satisfactory rate, and the project is expected to be completed by June 1978, about two years behind schedule. Loan No. 991 - Nestos and Yannitsa Irrigation Project: $30.0 million loan of June 3, 1974; Closing Date: December 31, 1979. Because of recent political changes in Greece, there were delays in completing the conditions of effectiveness. The Loan was made effective on July 29, 1975. The review of the tertiary canal design standards has been com- pleted, and project implementation is now beginning. 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 which 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 project execution.  ANTEX II - Page 4 of 4 Loan No. 791 - Third NIBID Project: $25.0 iillion loan of December 6, 1971: Closing Date: December 31, 1975. The third DFC loan has been fully committed, and almost fully dis- bursed as of June 30, 1975. Project implementation has been satisfactory. Loan No. 945 - Fourth NIBID Project: $15.0 million loan of November 29, 1973; Closing Date: December 31, 1977. The fourth loan has been almost fully committed, and only $3.2 mil- lion remained to be disbursed as of June 30, 1975. Project implementation has been satisfactory. Loan No. 1134 - Third Education Project: $45 million loan of June 27, 1975; Closing Date: December 31, 1980. The Agreements were signed June 27, 1975. Loan No. 1135 - Fifth NIBID Project: $25 million loan of June 27, 1975; Closing Date: December 31, 1978. The Agreements were signed June 27, 1975.  ANNEX III Page 1 of 3 GREECE EAST VERMION IRRIGATION PROJECT LOAN AND PROJECT SUMMARY Borrower The Hellenic State Amount: US$40 million equivalent in various currencies Terms: 15 years including 5-1/2 years; of grace with interest at 8-1/2 percent per annum. Project The Project would benefit about 14,000 farm families by Description: upgrading the irrigation facilities serving 18,000 ha. of largely orchard lands and extending irrigation to a further 6,000 ha. of potentially highly productive agri- cultural land. The Project consists of: 1. Construction of 15 new concrete lined primary irriga- t:Lon canals, with a combined length of about 140 km. 2. Rehabilitation and concrete lining of about 42 km of existing main irrigation canals and about 1,490 km of secondary and tertiary irrigation canals. 3. Rehabilitation or renovation of about 1,065 km of secondary and tertiary drainage channels. 4. Establishment of about 9 small regulating reservoirs and a small diversion structure with flood bypass. 5. Minor land leveling on about 4,800 ha. 6. Installation of 5 irrigation pumping stations and 3 drainage pumping stations. 7. Construction of about 14 new deep wells equipped with electric pump units. 8. Installation of about 36 km of 15-20 kV power transmis- sion lines to serve said pumping stations and pump units. 9. Construction of about 1,110 km of farm access roads.  ANNEX III Page 2 of 3 10. Supply of equipment as initially required for the operation and maintenance of the facilities provided under this Project, for the provision of extension services to the farmers served by such facilities, and for the carrying out of research related to such facilities. 11. Training abroad of the research personnel of LRS, serving project facilities. 12. Consultancy services for the preparation of tender documents for the proposed project as well as of feasibility study and preparation of an irrigation project to be located In the Xanthi-Komotini and neighboring areas. Estimated Cost: