India - Godavari Barrage Project

FILE COPY DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1561-IN REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF INDIA FOR THE GODAVARI BARRAGE PROJECT January 23, 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 It may not be published, quoted or cited without Bank Group authorization.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 EQUIVALENTS (as of January 16, 1975) US$1.00 = Rs. 8.06 Rs. 1.00 = US$0.124 Rs. 1 million = US$124,079 (The Rupee is officially valued at a fixed Pound Sterling rate. As the Pound is now floating relative to the US Dollar, the US Dollar/Rupee exchange rate is subject to change. Conversions in the appraisal report were made at US$1 to Rs. 8.00, which was the rate at the time of the report's completion.) FISCAL YEAR April 1 - March 31  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMNENDATION OF TiHE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF INDIA FOR THE GODAVARI BARRAGE PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Government of India (GOI) for the equivalent of US$45 million on standard IDA terms to help finance a project for completing the construction of a barrage across the Godavari river. The proceeds of the credit - except for the preparation of command area development projects in other States of India (US$0.3 million) - would be channeled to the Govern- ment of Andhra Pradesh (GOAP) in accordance with the Government of India's standard terms and arrangements for the financing of State development projects. PART I - THE ECONOMY 2. An economic report, "Economic Situation and Prospects of India" (402-IN dated May 7, 1974) was distributed to the Executive Directors on May 20, 1974. A country data sheet is attached as Annex I. 3. India is exceptional among the Bank Group's member countries for its size, diversity, and the difficulty of its economic conditions. India's economic policies and performance have their shortcomings, many of which are attributable to the open political system, where the reconciliation of con- flicting political views tends to inhibit optimal economic solutions; others are due to the sheer magnitude of the task facing the Government. Governing a country divided into more than 20 States with a population of some 580 million and over 60 languages is an extraordinary responsibility. The country's poverty and poor natural resource endowment, supplemented by a net transfer of external resources averaging in recent years well below US$1 per head per annum, have imposed sharp limitations on the rate of growth. Any judgment of India's economic performance must take these under- lying circumstances into account. So, also, must account be taken of the uncertainties imposed by the erratic availability of water. A bad monsoon, which is inevitable from time to time, has a pervasive influence over the entire economy and wipes out the results of years of effort. 4. In the past 25 years, national income has grown at nearly 4 per- cent per annum, which compares very favorably with the average annual growth rate of less than 1 percent during the preceding 50 years. Population has also grown faster in the past two decades than previously, but per capita income has nevertheless risen from a more or less stagnant level in the first half of this century to achieve an average growth of roughly 1 percent a year since independence.  - 2 - 5. Progress has been impressive on many fronts, but disappointing on others and has all too often fallen short of India's massive needs. The growth of the socio-economic infrastructure (transport, education, health services, etc.) has been spectacular, but has often been achieved at high cost and has yielded results of variable quality. Many industrial and agri- cultural investment schemes have been highly successful, but others have taken excessively long to be completed and have operated well below full capacity. In some regions of the country growth and structural change have been rapid and compare favorably with developments in many other parts of the world, but in other regions there has been stagnation and possibly even decline. Despite these improvements and although the distribution of income in India is relatively even by comparison with many other countries, there has been little impact upon the living standards of the vast masses of the urban and rural population. The Government has become increasingly concerned about the plight of the lower income strata, which - conservatively measured - consist of some 200 million people with incomes of less than US$60 per head per year, and has initiated in recent years a variety of programs specifically designed to alleviate poverty. 6. The structure of the economy has been slow to change. Agriculture remains the dominant sector, accounting for some 43 percent of national pro- duct in the early 1970s compared with around 49 percent twenty years previously. The share of output contributed by the industrial sector has increased only slowly and since the late 1960s has remained approximately constant at a level of 23 percent. There has, however, been a shift in the composition of industrial production, with consumer, intermediate, and capital goods now contributing about one-third each, compared with an overwhelming preponderance of consumer goods production 25 years ago. 7. The economic report of May 1974 contained a review of the immense difficulties confronting the Indian economy as the Fourth Plan period drew to a close. The final year of the Plan, 1973/74, witnessed a severe deterio- ration in India's terms of trade which was led by, but by no means restricted to, the dramatic increase in oil prices. The resulting balance of payments difficulties were compounded by the need for food imports following the drought of 1972/73, in order to sustain the public distribution system on which the poorest section of society is particularly dependent. Given India's pervasively agricultural economy, the drought also had the effect of causing a general slow-down in economic activity which was further aggravated by infrastructure constraints, particularly widespread power shortages and labor problems of Indian Railways. Food shortages and other scarcities touched off an unprecedented inflationary spiral fueled by large budgetary deficits which were at least partly attributable to mounting expenditures for drought relief. The inflation in turn contributed to labor unrest while efforts to cope with it through budgetary cuts affected, among other things, the level of real expenditures for development programs.  -3- 8. Thus, at the commencement of the Fifth Plan period (1974175-1978/79) the most urgent tasks facing policy makers were: to get agricultural pro- duction moving again; to bring inflation under control; to reduce India's dependence on oil imports by compressing energy consumption and by formulating and implementing programs to develop domestic energy sources; to boost export earnings and to tap additional sources of aid in order to sustain imports; and, finally, to maintain a minimum investment program so as to avoid economic standstill in the longer run. Even in the best of times, it would have been extremely difficult to pursue simultaneously such a variety of potentially inconsistent objectives. 9. Events since the preparation of the last economic report provide little encouragement. For the second time in the last three years, the weather has let down India's farmers with the result that the khariff (fall) crop recently harvested is believed to be considerably below last year's (about 60 million tons as compared with 67 million tons). The outlook for the next rabi (spring) crop is uncertain in view of continuing shortages of power for irrigation pumps and possible fertilizer shortages. The reduced avail- ability of foodgrains, the depletion of official food stocks, India's balance of payments difficulties, the inflationary setting and frequent changes in the Government's food procurement policy have led to hoarding for both speculative and insurance purposes. Procurement for public distribution has become extremely difficult. The public kitchens established in some of the worst-affected areas (Bihar, Bengal, Orissa) bear evidence of the serious- ness of the situation as well as of the Government's determination to prevent extreme hardship. 10. The spectre of massive food import requirements hangs over an already very difficult balance of payments situation in the current year. The need for six to seven million tons of foodgrains imports appears evident, and considerably more than half this amount either has been delivered already or has been purchased. There is little evidence of a major break in the prices of other commodities imported in substantial quantities by India (e.g. oil, fertilizers, steel, rock phosphiate). 11. One of the few bright spots in the balance of payments picture has been the growth of export earnings. Export earnings recorded an un- precedented increase of 22% in 1973/74 and are expected to rise again by 29% in 1974/75. While these increases - particularly that in 1973/74 - are primarily attributable to unit value increases caused by worldwide inflation, there is greater willingness to take advantage of export opportunities, as illustrated most dramatically by the recent diversion of sugar from domestic consumption to exports. 12. Nevertheless, despite the increase in export earnings, India is expected to run a massive trade deficit this year - probably of the order of US$1,800 million as compared with US$560 million in 1973/74 and a negli- gible one the previous year. Moreover, despite the magnitude of the current deficit, it is unlikely that India's imports, excluding foodgrains, will be  - 4 - as large in volume as in 1972/73. In addition to financing a trade deficit of this order, India will have to meet debt service payments of about US$730 million. These financing requirements will be partly offset through Consortium assistance and Non-Consortium aid (including assistance from oil producing countries), which are together expected to reach disbursement levels of about US$1,750 million in 1974/75 compared with about US$1,175 million in 1973/74. Nevertheless, these various sources of financing fall short of India's current requirements. India will have to draw on her foreign exchange reserves, which, at about US$1,400 million, are currently equivalent to less than three months of imports. During Fiscal Year 1974/75, India has drawn down her First Credit Tranche in the IMF for $282 million, as well as her Gold Tranche for $91 million. The Government has also taken advantage of the Oil Facility, from which $240 million was drawn in October, out of an entitlement of $773 million. 13. On the domestic front, the Government's present efforts are con- centrated primarily on maximizing production in key sectors through a system of priorities in the allocation of scarce resources and through careful monitoring of developments and performance. In agriculture this entails provision of power on a priority basis for minor irrigation and fertilizer production and allocation of adequate foreign exchange for as much fertilizer as can be imported from the limited world supplies. Similarlv, efforts are made to identify production bottlenecks in such sectors as fertilizer pro- duction, coal mining and power generation; and special arrangements exist for meeting expeditiously the foreign exchange requirements of these sectors for such items as captive power units where appropriate, spares and replace- ment parts. The railways are also tied into this system and accord priority to the movement of goods required by these sectors. In the fertilizer, coal and power sectors, senior officials are provided on a continuing basis with detailed production figures along with explanations for production shortfalls. Attempts are also being made to rationalize the administrative machinery of the Government in these sectors, as evidenced by the October 1974 decision to bring irrigation under the wing of the Food and Agriculture Ministry and to regroup power generation and coal mining under an Energy Ministry. 14. In the short term, however, there are limits to the extent to which India's dependence on oil imports can be reduced and production of domestic sources of energy can be stepped up. Insofar as the compression of demand for oil products is concerned, these limits are determined, on the one hand, by the relatively small proportion of oil products used for private con- sumption (possibly one-sixth) and, on the other hand, by the limited avail- ability of domestic substitutes (i.e. coal and power). The 13 million tons of crude oil plus 3 million tons of product imports planned for the current year probably represent the lower limit beyond which these imports cannot be curbed without serious repercussions on domestic production. Had consumption been allowed to grow in line with recent trends, the present level of crude and product imports taken together would probably be of the order of at least 18 million tons.  15. A major effort is being made to use existing capacity as fully as possible throughout the economy. To this end, despite the serious balance of payments problem described above, the Government is pursuing a relatively liberal policy toward imports of raw materials required by industry. Never- theless, it is hard to get away from the current infrastructure constraints and particularly the shortage and unreliability of power supplies which, though somewhat eased, continue to affect production. Fiscal and monetary policies, including the cutback in budgetary expenditures and limitations on bank credit, are also restraining industrial output; and there is some evidence that, due to rapidly rising food prices and the consequent erosion of real purchasing power, the demand for some consumer items and industrial projects is being affected. Given the various constraints, there is likely to be little or no industrial growth in the current year which, in combination with the current agricultural situation, makes it unlikely that there will be any GNP growth either. In regard to inflation, the Government has made impressive efforts to curb budgetary expenditures and to tap additional sources of revenue. In spite of continuing food shortages and other scarcities, these actions appear now to have achieved some results as the rate of inflation had declined to 23% by the end of November 1974. 16. In present circumstances the Draft Fifth Plan, published in late 1973, has not been finalized. In real terms investment in the current Annual Plan is about 30% below the annual level implicit in the Draft Fifth Plan, and even this is unlikely to be reached. To adjust to reduced resource availability a number of investments are being postponed. Expenditures on some of the social sectors such as education and family planning are un- fortunately also affected. The focus once again is primarily on investments in key sectors such as fertilizer, coal, power, and steel, and quite rightly within these sectors the emphasis is on completing ongoing investments before committing resources to new schemes. 17. In the long run, given her groundwater, coal, hydroelectric, iron ore, non-ferrous metals and human resources, India undoubtedly has the capability to overcome her present difficulties. It is, however, clear that to overcome them and to resume the interrupted process of economic develop- ment, India will require substantially larger capital inflows than foreseen by the authors of the Draft Fifth Plan. It is equally clear that as large as possible a proportion of these requirements should be provided on con- cessional terms. However, even on very optimistic assumptions regarding India's success in narrowing her resource gap and the response of both Consortium and other donors, a gap will remain between external financing requirements and the availability of concessional aid. 18. India's external public debt outstanding on March 31, 1973, stood at US$9.9 billion. As a consequence of world-wide inflation and its effects on India's export earnings, service payments of about US$730 million due on this debt in 1974/75 are expected to be equivalent to about 17% of merchan- dise exports as compared with about 26% in 1972/73. However, substantial additional debt will have to be incurred as a result of increases in the prices of India's imports. In the future, therefore, the debt service ratio is likely to rise, given the magnitude of India's requirements and the un- avoidability of having to finance part of these on non-concessional terms.  - 6 - PART II - BANK GROUP OPERATIONS IN INDIA 19. Since 1949, the Bank Group has made 42 loans and 62 development credits to India totalling US$1,229 million and US$2,880 million (both net of cancellation), respectively. Of these amounts, US$661 million has been re- paid, and US$1,063 million was still undisbursed as of November 30, 1974. Annex II contains a summary statement of disbursements as of November 30, 1974, and notes on the execution of ongoing projects. 20. Since 1957, IFC has made 13 commitments in India totalling US$42.3 million, of which US$7.6 million has been repaid, US$7.6 million sold and US$6.3 million cancelled. Of the balance of US$20.8 million, US$13.7 million represents loans and US$7.1 million equity. A summary statement of IFC opera- tions as of November 30, 1974 is also included in Annex II (page 2). 21. In recent years, the emphasis of Bank Group lending has been on agriculture. The Bank Group has been particularly active in supporting minor irrigation and other on farm investments through agricultural credit operations. Major irrigation, marketing, and seed development are other agricultural activities supported by the Bank Group. In recognition of the importance of adequate fertilizer supplies for agricultural output, the Bank Group has been active in financing the expansion of fertilizer production. Apart from investments in fertilizer plants, the Bank Group has lent support to the in-. dustrial sector through its sizeable assistance to development finance institutions, in a wide range of geographically scattered medium- and small- scale enterprises. IDA financing of industrial raw materials and components for selected priority sectors has been instrumental in facilitating better capacity utilization in these sectors. The Bank Group has also been active in supporting infrastructure development for power, telecommunications, and railways. Family planning, education, water supply development, and related urban investments have also received Bank Group support in recent years. 22. The direction of assistance under the Bank/IDA program has been consistent with India's needs and the Government's priorities. The emphasis of the program on agriculture, industry, power, and transport remains highly relevant. The priority of the agricultural sector has been further enhanced in the present world commodity situation. Thus, projects designed to foster agricultural production through the provision of essential inputs such as credit for on-farm investments, command area development of existing irriga- tion schemes, fertilizer and seeds form an important aspect of the Bank Group's program for the next years. Special emphasis will be given to projects designed to increase the productivity of small farmers and landless laborers. Lending in support of infrastructure and industrial investments will focus on energy-related projects. Repeater credits for power and rail- ways have high priority in this context, and discussions are under way with the Government in an effort to identify and prepare proiects specifically designed to facilitate coal production and coal transport. Lending for fertilizer projects, which has been an important feature in recent years, is expected to continue to occupy prominent place in the future program.  23. The need for a substantial net transfer of external resources in support of India's economy has been a recurrent theme of Bank economic reports and of the discussions within the India Consortium. The need for readily usable foreign exchange assistance is especially pressing at a time when output and investment have to be adjusted to a radically different price situation. Consequently, Bank Group lending for critical industrial raw materials and components continues to be an essential element within the overall program of assistance. As in the past, Bank Group assistance for projects in India should include, as appropriate, the financing of local expenditures. India imports relatively few capital goods because of the capacity of the domestic capital goods industry. The import component of projects tends to be especially low in such high-priority areas as agriculture, education, and family planning. For the Bank Group to be able to make an appropriate contribution to the financing .of projects in these sectors, it is important to cover a proportion of local expenditures. 24. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70 the Bank Group accounted for 34 percent of total commitments, 13 percent of gross disburse- ments, and 12 percent of net disbursements as compared with an estimated 35 percent, 27 percent and 37 percent, respectively, in 1973/74, and the contribution of the Bank Group is expected to continue growing. Whereas on March 31, 1973, the Bank Group share of India's outstanding external public debt was 21 percent, by 1979 it is projected to account for about 25 percent. Because Bank Group assistance to India is predominantly in the form of IDA credits, debt service to the Bank Group will rise slowly. In 1973/74 about 12 percent of India's total debt service payments were to the Bank Group. PART III - AGRICULTURE AND IRRIGATION IN INDIA General 25. Agriculture is the most important sector in India; it engages 70 percent of the labor force, has recently contributed an average of about 45 percent of GNP, and accounts for a major share of exports. Consequently, investments in agriculture have been given priority, especially since the mid-1960s, and deserve continued emphasis over the next five years. 26. Since independence, the overall growth rate of agricultural pro- duction has averaged about 3 percent per annum. This low overall rate of growth in the agriculture sector obscures considerable variations over shorter periods of time, between crops, and between regions. The overall rate has been very much affected by the serious droughts in 1965 and 1966 and again in 1972 and 1974. At the same time, the success of high yielding varieties of wheat produced increases in wheat production of about 20 percent p.a. between 1967 and 1971. Other foodgrain crops, notably rice, have not enjoyed anything like the same success, as the introduction of high yielding  - 8 - varieties has encountered difficulties arising from local climatic and ecological conditions. The effects of the green revolution, which primarily affected wheat, have been concentrated in north western India, very largely on account of the advanced state of agriculture in that area and the avail- ability of irrigation. 27. Despite the progress made in many aspects of food production, India's agriculture remains heavily dependent upon the vagaries of the weather. A major factor in reducing this dependence will be the rehabilitation and expansion of irrigation and the more effective use of existing investment in irrigation facilities. The Government is also placing emphasis on the improved supply of inputs such as seeds and fertilizer, agricultural credit, and exten- sion services. Irrigation 28. Over the first half of the twentieth century, the area under irriga- tion in India increased by only about 1 percent p.a. to reach slightly more than 20 million hectares in 1950/51, or about one fifth of India's cultivated land. Out of these 20 million hectares, about half was served by major and medium irrigation works. 29. Irrigation development has appropriately received increased atten- tion since independence, and substantial resources were devoted to it through- out the four Five Year Plans. Outlays for irrigation development during the first three Plans and during the three Annual Plans 1966-69 totalled Rs 26.8 billion, and the fourth Plan allocated Rs 16 billion to irrigation. While minor irrigation (other than groundwater utilization) increased only slightly from 6.4 million ha to 7.5 million ha, the area covered by major and medium svstems had more than doubled to 21.4 million hectares compared with an estimated ultimate potential for irrigation of 57 million hectares. But of the new additional acreage of about 10 million ha, only 80 percent was being utilized, and much of that inefficiently. 30. The Second Irrigation Commission of 1972 and the National Commission on Agriculture, which reported in 1973, found that the under-utilization of irrigation potential was attributable to the lack of integrated development in the irrigated areas, insufficient farmer training and extension service, and laclc of administrative coordination. It has been unofficially estimated that the major part of recently completed irrigation projects require additional investments of between US$200 and US$500 per ha before they can become fully productive. Accordingly, for the Fifth Plan period (1974-1979) various measures have been designed to improve utilization, and a Command Area Development Department has been set up in the Ministry of Food and Agriculture to coordinate work on a list of high priority projects. 31. In view of the substantial investment that has already been made in major irrigation works, the economic return on investment which facilitates the most effective use of the water provided can be very high. Consequently, command area development has been given high priority under the Fifth Plan  - 9 - proposals, and a relatively large proportion of public sector investment in irrigation has been allocated for this purpose. Further funds, doubling this allocation, will be made available from institutional sources for credit. In addition, major institutional changes have been proposed affecting the coordination of services in command areas and the administration of credit. Agriculture and Irrigation in Andhra Pradesh 32. Andhra Pradesh, with an area of 27.5 million hectares and a popula- tion of about 43 million, is one of the largest States in India. In terms of size and population it compares with Italy. It is a predominantly agri- cultural State, 82 percent of its population being rural. About 40 percent of the total area of the State is cultivated. Rice, millet, pulses, and groundnuts are the major crops. A quarter of the total cultivated area is under irrigation. The rest depends upon rainfall, which ranges from 500 mm annually in the southwest to 1100 mm in the northeast. 33. The main source of irrigation in the State are two major rivers, the Godavari and the Krishna, and their tributaries. Numerous irrigation canals branch from these rivers. The upland areas use rainfed tanks and groundwater for irrigation. 34. During the past 25 years, Andhra Pradesh State has invested heavily in irrigation projects. However, the returns have been rather low, mainly because the available resources have been spread over too many projects, resulting in long construction and gestation periods and delayed benefits. Two major projects, Nagarjunasagar and Pochampad, are presently under construction, the latter with Bank Group assistance. When completed, they will benefit about one million hectares. 35. Progress of the Pochampad Project, for which IDA lent US$39 million in 1971, was satisfactory during the first two years of project implementation, and both, construction work and credit disbursements, were ahead of schedule. However, as a result of acute shortages in building materials and explosives, which occurred in 1973, completion of essential project parts are likely to fall more than one year behind schedule. A Bank mission which visited the project site in October 1974 reported that dam construction is now progress- ing satisfactorily and that some water has been impounded behind the dam for the first time. Land development, however, is increasingly lagging behind water availability in the Pochampad command. The Government, aware of the in- adequacy, has prepared a Command Area Development project for the Pochampad area and requested IDA financing. This project is tentatively scheduled for appraisal in 1975/76. PART IV - THE PROJECT 36. In January 1969, a Bank Group Irrigation Reconnaissance Mission visited India at the request of the Government of India. It identified eight irrigation projects including the Pochampad Project and the proposed  - 10 - Godavari Barrage Project. For the latter, preparatory work in the Bank came soon to a halt due to the issue that arose over the requirement of interna- tional competitive bidding for the civil works included in the project. In April 1974, on the basis of the new Bank Group policy regarding preferences for local contractors, the Government of India asked for IDA assistance in implementing the project. The project was appraised in June 1974 after preparatory work by the FAO/IBRD Cooperative Program. 37. A credit and project summary is given in Annex III. A report entitled "India - Appraisal of the Godavari Barrage Project" dated January 10, 1975, Report No. 525-IN, is being circulated separately to the Executive Directors. Negotiations were held in Washington from December 19 to 31, 1974. The Borrower was represented by Messrs. V.N. Rajagopalan, Director, iMinistry of Finance, and K. C. Goyal, Member, Central Water and Power Com- mission. The Government of Andhra Pradesh was represented by Messrs. M. Gopalakrishnan, Secretary, Public Works Department, and C. D. Murray, Chief Engineer. The ProjeLt 38. The proposed project is the construction of a barrage across the lower Godavari river at Dowlaiswaram, which would secure irrigation water for a command area of about 400,000 ha in the districts of West Godavari and East Godavari. The barrage would replace an existing weir, which is in danger of collapse. The existing weir was completed in 1852 and has deteriorated with the passage of time, in spite of continuous maintenance efforts. In 1965 a high-level committee of GOI reviewed the state of the weir and recommended immediate construction of a new barrage. 39. The new barrage would be located 24 meters upstream from the old weir and would use the existing structure as its downstream protective apron. The barrage would be 3,600 meters long and would consist of four sections, separated by small islands. It would be divided into 175 bays, each of which would be equipped with a spillway gate. The gates would raise the pond level one meter higher than the level of the existing weir. Three main canals serve the command area in the Godavari delta. Some 160,000 holdings, with an average farm size of 2.5 ha, are supplied with water from the weir. About 65 percent of the farms are owner-cultivated. Average annual farm income is about Rs 7500 due to the intensive cultivation under perennial irrigation. 40. The Godavari delta is one of the most productive agricultural areas of eastern India. The most important crop is paddy, which covers more than 90 percent of the area in the wet season (kharif) and about one third of the area in the dry season (rabi). About one half of the klarif crop and 80% of the rabi crop are high-yielding varieties of rice. Average paddy pro- duction in the area during the last five years was about 1.4 million tons. Other crops in the command area are sugarcane (perenniallv) and pulses, edible oilseeds and chillies (in the dry season on residual soil moisture). Cropping intensity is approximately 150%. Total net value of production in the area is estimated at Rs. 900 million. The proposed new barrage would help safeguard this production.  41. Agricultural extension services are well organized and adequatelv staffed. In both districts of the command area, a Deputy Director of Agri- culture, assisted by specialists, is in charge of agricultural extension services at the district level, while Village Development Officers provide extension services in the villages. Two modern seed processing units serve the area. Fertilizer and pesticides are distributed by the Department of Agriculture, the Cooperatives Department and private traders. These various services are well organized and adequately staffed. 42. The project includes also the execution of a technical study in preparation for a second phase project that would concentrate on command area development in the Godavari delta, particularly modernization of irri- gation and drainage, groundwater development and on-farm works. In addition, it would include assistance to GOI for the preparation of command area devel- opment projects in other States of India. Project Implementation 43. Site exploration for the whole barrage, hydraulic model studies and detailed designs for part of the structure are complete and are sufficient for the tendering of the whole structure. Design standards are satisfactory. Responsibility for the preparation of working drawings, construction specifications, negotiation of contracts, and supervision of construction rests with the Public Works Department of the Government of Andhra Pradesh (PWD). The Department, which has been in charge of several major construction works during the last two decades (including the Pochampad Project), is fully competent to carry out this task. 44. Construction of the Ralli section of the barrage, where failure of the old weir is most imminent, started in 1971, but progress has been slow due to lack of funds, and at present the completed portions equal only about 5 percent of the total works. The quality of construction of these portions is satisfactory. Parts of the Ralli section that are already completed or contracted are not included in the proposed project. 45. The project work would be divided into portions of such size that foundation excavation, sheet piling or construction of the curtain walls, placement of concrete and construction of piers to above high water level can be completed in one working season, which lasts from November to June. As soon as a sufficient number of bays have been completed, the vertical gates and hoist arrangements would be installed. A plan for emergency repairs to the existing weir during the construction of the new barrage has been prepared and equipment and materials would be kept ready near the weir to enable repair work to start immediately in case the weir should breach. 1/ 46. Project implementation would take place against the background that the old weir may fail. Not only would such a failure have serious 1/ See Section 3.02 of the draft Development Credit Agreement.  - 12 - repercussions for agriculture in the area, but also from an engineering point of view it would make more difficult and more costly the task of completing the new barrage. The Association has emphasized the need to minimize the construction period. GOI and GOAP have agreed to this, and the construction of the barrage and the installation of 130 gates covering the weaker sections of the weir would be implemented within three and a half years and be completed by June 1978. The remaining 45 gates would be installed, and the project would be completed, by June 1979. Project Costs and Financing 47. The estimated total cost of the project is US$70 million, including US$20 million (29 percent) in foreign exchange if all contracts under the project are won by local bidders, or US$32 million (46 percent) in foreign exchange if foreign bidders win. The principal cost components are: Civil Works (US$26.1 million), mechanical engineering works (US$10.5 million), engineering and supervision (US$5.9 million), preparation of a second phase project (US$0.4 million), technical assistance to GOI for the preparation of command area development projects in other States of India (US$0.9 million) and contingencies (US$26.2 million). 48. The proposed credit of US$45 million would cover 64 percent of the total project cost. It would finance the total foreign exchange component and 34 to 50 percent of local costs depending on bidding results. The proceeds of the credit would be used to finance: Civil Works 1/ (US$28.2 million), mechanical engineering works 1/ (US$13.7 million), engineering and supervision (US$0.6 million) 1/, preparation of a second phase project (US$0.1 million), financial assistance to GOI for project preparation in other States of India (US$0.3 million), and physical contingencies (US$2.1 million). The credit would be made to the Government of India and - except for the preparation of command area development projects in other States of India - would become part of GOI's contribution to the Government of Andhra Pradesh for the financing of State development projects. Project costs not covered by GOI's contribution would be financed by GOAP from its development budget. GOAP would finance operation and maintenance costs for the barrage from its regular budget. Procurement, Disbursement 49. Contracts for civil works amounting to US$24 million and for the manutacture and installation of the gates amounting to US$12 million would be awarded on the basis of international competitive bidding in accordance with Bank Group guidelines. Local contractors participating in the bidding for civil works would be entitled, for bid evaluation, to a preference of 7.5 percent in accordance with the Bank Group policy approved by the Executive Directors on January 22, 1974 (R73-291). For gate manufacture and erection, the usual preference of 15 percent, or the prevailing customs duty if lower, would be extended to local manufacturers for the evaluation of bids. Tender documents would clearly specify preferences and the manner of their application. 1/ Including Price Contingencies.  - 13 - For civil works, PWD would procure buildiI1g materials (cement, structural steel and sneet piling) in accordance with GOAP's general procurement provisions, wiiich are acceptable. Contractors would use these materials, which P4D would make available to them at fixed prices, as would be stated in the tender documents. Octler civil works to be carried out between FeL)ruary and June 1975, before thke contract is awarded, and tne dismantling of tl)e old weir's crest, after completion of the-new barrage, would ue done by force account. S0. Equipment and vehicles, estimTated at US$0.6 million (net of price contingencies) and required by P1WD for project preparation and implementation, would be unsuited for international tendering because of low unit prices and small quantities per item and for reasons of standardization; tihey would he procured directly from local-suppliers. PWD would observe the general pro- curement provisions of the Covernnent of Andhra Pradesh, which are acceptable. GUI would allocate cement required for thie project as part of the annLual allocationi to Andhra Pradesh and, if necessary, earmark tile necessary aniount for the project. GOI would also arrange for tlhe import of steel if steel cannot be obtained locally as needed 11. 1. Tsie proceeds of the credit woultd be dJisbursecd agai st the Cif price of directly imported equipment and materials or against tlhe ex-factory pirice of goods procured locally. ]isbursermeits for civil wnrkl; .nd for gate installation would be on a percentage basis (90% of expenditure for contractcC civil works, 30i. of expenditure for force account work, and 90,Zt of expenditttre for gate installation) . 1eirbursemnents for force account wor'. would boe r1ade a-gTainst a ccrtilcate of expenditure. The credit would De fully disbursed by LDccemOer 31, 1979, about six monthls after project completion. 6enclits a:Ld .coiloIiC Justificatioti ^. iiThe project's main objective is to vnsure conitnueJ water avail- aK )itity in the corna,aal area of tiue barrage. Tile old 'veir i. tii