Romania - Rasova - Varderosa Irrigation and Agricultural Development Project

7CiF COPY Report No. 1112-RO FILE COPY Appraisal of Rasova-Vederoasa Irrigation and Agricultural Development Project Romania March 29, 1976 Regional Projects Department Europe, Middle East and North Africa Irrigation Division FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in their performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Lei 1 = US$0.05 Lei 1,000 = US$50.00 Lei 1,000,000 US$50,000 WEIGHTS AND MEASURES 1 millimeter (mm) 5 0.0394 inch (in) 1 centimeter (cm) 0.3937 inch (in) 1 meter (m) = 3.2808 feet (ft) 1 kilometer (km) = 0.6214 mile (mi) 2 1 square kilometer (km2) = 0.3861 square mile (mi ) 1 liter (1) = 0.2642 gallon (gal) 1 liter per second (1/sec) 0.0353 cubic foot per second (ft3/sec) 1 cubic meter per second (m3/sec) = 35.3147 cubic feet per second (ft3/sec) 1 atmosphere (at) 14.2239 pounds per square inch (psi) 1 kilowatt (kw) 1.3410 horsepower (hp) 1 kilogram (kg) 2.2046 pounds (lb) 1 ton (ton) = 2,204.6225 pounds (lb) ABBREVIATIONS BAFI Bank for Agriculture and Food Industry CAP Agricultural Production Cooperative CELIF Central for Exploitation of Land Reclamation Works DIFCA Department of Land Reclamation and Agricultural Construction DGPD Directorate General of Planning and Development GSI Group for Supervising Investments IAS State Agricultural Enterprise IELIF Enterprise for Exploitation of Land Reclamation Works ISPIF Institute for Land Reclamation Studies and Design MAIA Ministry of Agriculture and Food Industry SMA Agricultural Mechanization Enterprise TCIF Construction Trust for Land Reclamation Works ROMANIAN FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY APPRAISAL OF RASOVA-VEDEROASA IRRIGATION AND AGRICULTURAL DEVELOPMENT PROJECT ROMANIA TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS .............. ....*...*.* i-iii I. INTRODUCTION ................ s........ .............. ................. 1 II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR ........... 2 A. Country Background ...... .a...... ... ...... . ................. . . . 2 B. The Agricultural sector . ........................... 2 III. THE PROJECT AREA AND NATIONAL INSTITUTIONS ............... 4 A. The Project Area ............................ 4 B. Natural Resources ...... * * * * * * * *.......... 5 C. Land Tenure ............ ....... ............ 5 D. Agricultural Production ...................... 6 E. Farm Inputs ......................................... 6 F. Agricultural Research and Extension . ................ 7 G. Investment Financing ...... ........ ....... ........... . 8 H. Marketing .............. ............................. 8 IV. THE PROJECT . .............................. 10 A. Objectives .. ......................... ....... . ...... 10 B. Description . ......... .................. 10 C. Detailed Features , ................................ ................. 11 Irrigation Component ........................... 11 Agricultural Component ........................ 13 Livestock Component .......... .... ............ .. 14 Rural Water Supply Component ................ 15 D. Water Requirement and Availability . ................. 15 E. Status of Engineering ..............*. ................. 16 F. Cost Estimates ................................. ...... 17 G. Financing ............................................ . 19 H. Implementation Schedule ............................ 19 I. Procurement ......... * ............................. . .......... 20 J. Disbursements ........... .. .. . .. ............................ . 20 K. Environment and Health .. .............. ...... ... . 21 This report is based on the findings of an appraisal mission composed of Messrs. S. Niaz, T. Haile-Mariam and N. Worker (Bank); and A. Abidi and W. Allan (Consultants). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (Cont'd) Page No. V. PROJECT IMPLEMENTATION .................................... 22 A. Organization and Management .......... .. .............. 22 The Borrower .................................... 22 Implementing Agencies ............. .............. 22 B. Operation and Maintenance ............. ............... 23 C. Supporting Agricultural Services ........ .. ........... 24 D. Recovery of Project Costs .............. .............. 24 E. Accounts and Audit ................. .................. 25 F. M1onitoring . .......................................... 26 VI. BENEFITS AND JUSTIFICATION ........ ........................ 27 A. Production .......................................... 27 B. * iarkets .............................................. 29 C. Prices ............................................... 30 D. Producer Income ...................................... 31 E. Main Benefits and Beneficiaries ......... .. ........... 33 F. Economic Rate of Return .. 34 VII. AGREEMENTS REACHED AND RECOMMENDATION ..... ............... 34  ANNEXES 1. Agriculture and Description of Agricultural Component 2. Agricultural Production Organizations and Investment Financing 3. Marketing, Markets and Prices 4. Description of Irrigation Component 5. Description of Livestock and Rural Water Supply Components 6. Water Requirement and Availability 7. Cost Estimates and Schedule of Expenditures 8. Lists of Equipment and Materials 9. Disbursement Schedule 10. Farm Budgets and Recovery of Project Costs 11. Economic Rate of Return and Sensitivity Analysis CHARTS 15360 Typical Danube River Flow Patterns 15361(R) Implementation Schedule 15362 Project Organization MAP IBRD - 11880   APPRAISAL OF RASOVA-VEDEROASA IRRIGATION AND AGRICULTURAL DEVELOPMENT PROJECT ROMANIA SUMMARY AND CONCLUSIONS i. Romania's agricultural sector is an important contributor to the na- tional economy, second only to the industrial sector. In 1974, it accounted for about 16% of national income, about 27% of convertible foreign exchange, and about 40% of labor force. Agriculture has contributed to Romania's eco- nomic growth in several important ways: in addition to providing food, it has been a source of raw materials for industry; a source of capital and foreign earnings to help finance industrial development; and a source of labor for growth of other sectors. Irrigation is important for stabilizing crop yields in the southern and eastern plains, where rainfall during the cropping season fluctuates widely from year to year and in some years results in crop failures. Only about 24% of the arable area needing irrigation is presently irrigated. Government has been emphasizing expansion of irrigation to achieve growth and greater stability in agricultural production. In furtherance of this policy, Government has requested the Bank's assistance to help finance the Rasova- Vederoasa Irrigation and Agricultural Development Project, which is located in the southeast, about 150 km from Bucharest. ii. Bank lending to Romania, since it became a member in December 1972, has totalled US$350 million (7 loans) of which US$140 million (3 loans) is in the agricultural sector. An eighth loan of US$50 million for a hydropower project is also proposed for consideration by the Executive Directors in April. The proposed loan of US$60 million would be the fourth loan in the agricultural sector. Progress on previous loans is generally satisfactory. iii. The proposed project would: (a) provide irrigation to about 65,400 ha presently rainfed, of which 70% is owned by Agricultural Production Co- operatives (CAPs) and 30% by State Agricultural Enterprises (IASs); (b) establish eleven dairy units consisting of 830 cows each, and two beef fat- tening units to produce about 2,000 tons of meat annually; (c) provide a grain silo (44,000 tons) and a feedmill (140,000 tons); and (d) provide water supply to 17 rural communities with a population of about 15,000. The irriga- tion water (49 m3/sec) would be pumped from the Danube river over an average head of about 150 m, and would be distributed through concrete-lined canals to 39 pressure pumping stations, which would supply water to the pipe distribution networks for sprinkler (31,400 ha) and furrow (34,000 ha) irrigation. The system's pumping stations would have a combined capacity of 173,000 kW. The project's irrigation component would also include supply of on-farm sprinkler and furrow equipment, land leveling, soil erosion control works on 7,000 ha and supply of farm machinery and implements. Establishment of a vineyard in 450 ha, and a fruit orchard in 350 ha are also included. In addition, the project would provide equipment for operation and maintenance of irrigation works.  - ii - iv. Total project cost, including physical and price contingencies but excluding interest during construction, is estimated at US$130.5 million, of which the foreign exchange component would be US$41.7 million. Interest and other charges during construction on the proposed Bank loan are estimated at US$10.8 million. The proposed Bank loan of US$60.0 million would cover the full foreign exchange component (US$41.7 million), interest and other charges during construction (US$10.8 million) and about 8% of local cost (US$7.5 mil- lion). Of the remaining local cost (US$81.3 million), 61% (US$49.8 million) would be contributed by the Government, 2% (US$1.5 million) by the CAPs who would own the agricultural and livestock developments to be made under the project and 37% (US$30.0 million) by sub-loans advanced by the Bank for Agriculture and Food Industry (BAFI) to the project's agricultural entities (CAPs and IASs). v. The Ministry of Agriculture and Food Industry (MAIA), through its various departments and trusts, would be responsible for planning, construc- tion and supervision of all project activities. Planning and design of ir- rigation works would be carried out by the Institute for Land Reclamation Studies and Design (ISPIF), and construction by the Construction Trust for Land Reclamation Works (TCIF); both organizations are a part of the Ministry's Department of Land Reclamation and Agricultural Construction (DIFCA). The irrigation works would be operated and maintained by the Ministry's Central for Operation of Land Reclamation Works (CELIF). Components other than irri- gation would be planned and implemented under the Ministry's Directorate General of Planning and Development (DGPD). All concerned agencies are com- petent to carry out the proposed works satisfactorily. All procurement, fi- nanced under the proposed loan, would be arranged in accordance with the Bank's Guidelines. Project implementation would be completed in five years by 1980; irrigation would commence on one-third of the area in 1979, and the whole area would be under irrigation in 1981. vi. The on-farm irrigation equipment, and subprojects under the project's agricultural, livestock and water supply components would be mainly financed through BAFI loans to various enterprises. The existing procedures for on- lending and interest rates have already been reviewed and accepted by the Bank for previous projects. Arrangements for the supply of other inputs as well as the marketing aspects of the project are satisfactory. vii. At full development in 1984, the incremental crop production of var- ious project commodities would be: cereals 215,000 tons; sugar beet 174,000 tons; vegetables and potatoes 32,400 tons; sunflower and soybean 6,200 tons; fruits and grapes 11,800 tons; alfalfa (hay) 45,700 tons; and silage maize 377,500 tons. Gross value of crop production would increase by 280% from US$8.5 million equivalent to US$32.5 million. The project's beef fattenning units would yield 2,000 tons of meat from 1981; and its dairy units would pro- duce 29 million liters of milk and 800 tons of meat from 1984. The feedmill would produce 140,000 tons of processed feeds for livestock and poultry from 1980. The project's economic rate of return is estimated at 17.4%. Export of  - iii - a part of commodities would annually earn about US$10 million in foreign ex- change. The total income of about 6,000 members of CAPs would increase by about 110% from about US$425 per member to about US$890. The project would also benefit and improve the health of about 15,000 people (50% of project population) living in the rural communities that would be served by the water supply component. viii. Agreement having been reached on the issues set forth in the report, the project is suitable for a Bank loan of US$60 million to the Bank for Agri- culture and Food Industry under the guarantee of the Socialist Republic of Romania for a term of 20 years including 5 years of grace.   APPRAISAL OF RASOVA-VEDEROASA IRRIGATION AND AGRICULTURAL DEVELOPMENT PROJECT ROMANIA I. INTRODUCTION 1.01 The Government of Romania has requested the Bank's assistance in financing the Rasova-Vederoasa Irrigation and Agricultural Development Project. The proposed project would increase: (a) the agricultural production of about 65,400 ha of rainfed land, located about 150 km southeast of Bucharest (Map IBRD 11880), by providing irrigation, and (b) the milk and beef production of this area by establishing dairy and beef fattening units. Construction of a grain silo and a feedmill are also included as necessary adjuncts to the stor- age and marketing of increased agricultural production, and to provide pro- cessed feeds to livestock units. Provision of rural water supply to 17 vil- lages (population 15,000) in the project area is also included. The project would mainly benefit about 6,000 members of the agricultural production co- operatives or, counting their family members, a population of about 13,000. 1.02 Romania joined the Bank on December 15, 1972 and has received seven loans totalling US$350.0 million. An eighth loan of US$50.0 million for a hydropower project is also proposed for consideration by the Executive Direc- tors in April. Of these, the Giurgiu-Razmiresti Irrigation Project (US$70.0 million), the Sadova-Corabia Agricultural Credit Project (US$30.0 million) and the agricultural component of the Flood Recovery Project (US$40.0 million out of two loans totalling US$60.0 million) account for a total lending of US$140.0 million in the agricultural sector. The proposed loan would be the fourth in this sector. 1.03 The proposed project was identified by the Government, and a feas- ibility report was submitted to the Bank in December 1974. The project was appraised in June 1975 by a mission consisting of Messrs. S. Niaz (Chief), T. Haile-Mariam and N. Worker (Bank); A. Abidi and W. Allan (Consultants). This report, which takes into account the contributions of Messrs. Worker, Abidi and Allan, has been prepared by Messrs. Niaz and Haile-Mariam.  - 2 - II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR A. Country Background 2.01 Romania has an area of 237,000 km2 and a population of 21 million (mid-1974 estimate), which is increasing at an annual rate of about 1%. Per capita income, in 1974, was estimated at US$910. The rural population is about 12 million (57%), of which about 20%, with incomes below US$210 level, constitute the poverty target group. 2.02 Romania is endowed with abundant natural resources, including sources of energy and water, minerals and good soils. A number of small rivers origin- ate from the Carpathian Mountains, which dominate the country's central part. After flowing through various parts of the country, these rivers join the Danube River, which follows Romania's southern border for several hundred kilometers, before outfalling into the Black Sea. 2.03 Almost all resources are either owned or controlled by the State. The State manages resource allocation and product distribution to achieve its economic objectives as outlined in the national Social and Economic Develop- ment Plan for each 5-year period. The emphasis in resource allocation has been to achieve industrialization through high rates of investment which aver- aged about 30% of GNP during 1969-74. While the national income grew by an annual average of 10.7% in this period, the growth rate of the industrial sector reached 14.3%. Industry is expected to continue receiving high prior- ity investment and the sector's share of the national income would rise. Presently, the indusrial sector accounts for about 54% of GNP, about 48% of exports and employs 38% of the labor force. B. The Agricultural Sector 2.04 Resources. Of the nearly 15.0 million ha agricultural land (63% of total area), about 9.7 million ha constitute cropland, 4.5 million ha are under permanent pastures and 0.8 million ha in vineyards and orchards. Soils are generally well suited to grow cereals (maize, wheat and barley), oilseeds (sun- flower and soybean), fruits and vegetables, but low and uncertain rainfall in many regions, particularly the southeastern, limits full exploitation of agri- cultural potential without irrigation. Romania has substantial sources of ex- ploitable water for irrigation including the Danube River, which is the major source for areas in the south and the southeast. About 40% of the labor force is engaged in agriculture, a part of which is underemployed. Level of mechan- ization is low by European standards. Investment in agriculture has been re- latively low; consequently, labor productivity is about one-fourth of that in industry.  - 3 - 2.05 In 1975, the livestock population was estimated at about 29.0 mil- lion, of which cattle were about 6.0 million (20%), pigs about 8.6 million (30%) and sheep and goats about 14.4 million (50%). Poultry population was around 67.7 million. Cows numbered about 3.0 million and produced about 4,000 million liters of milk. Meat production amounted to about 1.9 million tons (liveweight). The quality of livestock is being improved by cross- breeding both with imported stock and selected local breeds. 2.06 Sector in the National Economy. The agricultural sector accounts for about 16% of national income and about 27% of convertible foreign exchange earnings. Agriculture, therefore, is of key importance to the national economy as, in addition to producing raw materials, it also provides investment re- sources including the foreign exchange to the rapidly growing industrial sector. Although investment in the agricultural sector grew from Lei 12,800 million (US$640 million) in 1970 to Lei 14,800 million (US$740 million) in 1973, its proportion to total investment dropped from 17% in 1970 to 14% in 1973. The sector's contribution to the national income, however, remained unchanged in this period. 2.07 Growth in this sector has been slow; during 1966-70 the annual rate averaged about 2%. In the first three years of the current 1971-75 plan, the annual rate increased to 9.5%, but during 1974 it was almost negligible due to below normal rainfall. It is also expected to be negligible in 1975 due to near record floods in six river basins in central, southern and eastern Romania. These floods caused extensive uamages; losses to crops and agricul- tural assets are estimated at over US$380 million. These losses were expected to reduce agricultural exports in 1975 by US$225 million (including US$125 million to convertible currency areas). Two recent Bank loans, totalling US$60 million, would assist the Romanian economy to recover from the effects of the 1975 floods; of these, one loan of US$40 million (1169-RO) is for the agricultural sector. 2.08 Future Development. During the 1976-80 plan period, the agricultural sector is expected to grow at an average annual rate of 4.6 to 6%, when the area served by irrigation would increase from 1.2 million ha to 1.8 million ha. In the livestock and poultry subsectors, emphasis would be on improvement of breeds with consequent increases in production of milk, beef, mutton, pork and poultry. By the end of 1980, it is expected that cattle would increase to 7.5 million (of which about one-half would be cows and heifers); sheep and goats to 19 million and pigs to 12 million. Production of milk would increase by about 50% to 6,700 million liters and of meat (liveweight) by 40% to 2.5 million tons. Government plans to continue with the regional development policy, which has been followed successfully during the past decade. The RasovaVederoasa Project, which aims at regional development in the agricultural sector, is in line with this approach.  - 4 - III. THE PROJECT AREA AND NATIONAL INSTITUTIONS A. The Project Area 3.01 Location. The project area is located in Constanta district, about 150 km southeast of Bucharest and about 35 km west of the Black Sea city of Constanta (Map IBRD 11880). It extends from the southern bank of the Danube River near Rasova to the Bulgarian border near Negru Voda, and covers a gross area of 110,000 ha. Main towns within the project area are Negru Voda (population 8,000) and Cobadin (population 3,200). Medgidia with a population of 50,000 lies just outside the project boundary. 3.02 Topography. The project area lies on a plateau, which rises sharply from the terraces of the Danube Valley. The northern half of the area is about 150 m above the Danube Valley and the southern part is up to 30 m higher than the former. In general, the area is undulating with mild slopes and is crossed by five deeply incised (up to 100 m deep) and narrow valleys. The side slopes of these valleys are quite steep, often larger than 10%, and are not suitable for irrigation. These slopes are also subjected to soil erosion. The area to be irrigated has slopes smaller than 10%; of the total 65,400 ha, about 50,000 ha (76%) has less than 5%. 3.03 Population. The population of the project area, which includes 30 villages and two towns, is about 31,000, of which about 13,000 (42%) is within the working age group. The agricultural labor consists of about 7,000 workers or about 54% of total; the remaining are employed in industrial and other sec- tors. On the average, a family consists of 4.4 persons, of which two adults contribute to the project area's labor force. 3.04 Electricity and Water Supply. All towns and villages in the project area are electrified. Water supply in most villages is from shallow open wells, which are unable to furnish the increasing demand. Also, due to absence of any protection zones around the wells, the water supplies are liable to get polluted. 3.05 Communications. The project area is served by a network of asphalt roads; almost all villages are interconnected. One primary road, linking Constanta with Baneasa, passes through the project area, and another which con- nects Constanta with Negru Voda extends through the southeastern tip of the project area into Bulgaria. The existing farm road network is generally satis- factory. In certain parts of the project area, it would be extended as a part of the on-farm development under the project. The Medgidia-Negru Voda railway line serves the project area, and forms its eastern boundary. 3.06 Livestock. The livestock population of the project area is estimated at 26,000 cattle, 150,000 sheep and 30,000 pigs. Most of these animals are kept in livestock farms that are managed as independent economic units; a small percentage is retained on agricultural farms to meet the local needs of milk and meat. Some farmers rear a few animals each on individual plots (para. 3.10).  - 5 - B. Natural Resources 3.07 Climate. The climate is basically continental with hot summers and cold winters, but is temperated by air movements from the Mediterranean and Black Sea. Average monthly maximum temperature varies from 28.90 C in July to 1.70 C in January; the minimum varies from 16.30 C in July to -4.70 C in January. Average annual precipitation is around 433 mm, of which about 235 mm (54%) falls during the cropping season of April to September. The minimum annual rainfall could be as low as 220 mm, with only 45 mm during the cropping season. Frost period extends from December to February. Wind velocity varies from 2.2 to 4.1 m/sec during the day but decreases during the night. Further data is given in Annex 1. 3.08 Soils and Land Classification. Detailed surveys indicate that the soils consist of chernozems 1/, which have developed over deep deposits of loess. They are very fertile, have a medium texture, a uniform profile, moderate to high permeability and a good water retention capacity. The loess deposits vary in depth from 5 m to 40 m; most are sensitive to moisture and may settle from 5 cm to over 40 cm on wetting. About 88% of the area to be irrigated is categorized as Class 1, and the remaining 12% as Class III, mostly on account of its eroded nature and lesser fertility. 3.09 Wlater Resources. Groundwater is available at a depth of 10 m or more in most parts of the project area but in quantities insufficient to irrigate large areas. The only reliable source of irrigation water for the project is the Danube River, which flows close to its northern boundary but, because of difference in levels, its water has to be lifted about 150 m for irrigating the project area. Groundwater, however, is suitable for use in rural and urban water supply schemes. C. Land Tenure 3.10 All project land is either owned or controlled by the State. Of the gross area to be irrigated, 45,900 ha (70%) are owned and farmed by 32 Agricultural Production Cooperatives (CAPs), which have an active membership of about 6,000. About 175 ha of CAP land is distributed among eligible co- operative members in sizes not exceeding 1,500 m2 as individual plots, where these members can farm for their personal benefit. The remaining 19,500 ha (30%), owned by the State, are farmed by 6 State Agricultural Enterprises (IASs). Areas held by the CAPs vary in size from 600 ha to 4,000 ha, and by IASs from 600 ha to 6,000 ha. 1/ Dark colored soils, rich in humus.  - 6 - 3.11 The governing body of a CAP is its General Assembly, whose member- ship consists of all working adults in the CAP. The Assembly elects the CAP's President, and is responsible for preparing its annual plans, ratifying all contracts and allocation of CAP's income; all in accordance with the general guidelines of the Ministry of Agriculture and Food Industry (MAIA). All exe- cutive functions are performed by a Council, whose membership includes the President (and the Vice President, if any), the Chief Economist, the chiefs of the farms in the CAP and the representatives of technicians and of CAP's members. The CAPs meet the labor requirement from their members and normally do not hire labor. Further details are given in Annex 2. 3.12 The chief executive officer of an IAS is its Director, who is ap- pointed by the Ministry. He is assisted by a Chief Economist and chiefs of the farms in the IAS. The governing body of an IAS consists of its top man- agement, representatives of the unions and the Party and the elected repres- entatives of the workers. IASs employ all labor, some of which is temporary. Labor is paid in accordance with national wage rates; a premium is paid to those whose performance results in production exceeding planned targets. Further details are given in Annex 2. D. Agricultural Production 3.13 Land Use. Of 110,000 ha in the project area, only 64,800 ha (59%) are suitable for cultivation of field and permanent crops; the remainder is mostly hilly with slopes exceeding 10%. The cultivable area is currently rainfed. Cereals (wheat, maize, barley) occupy about 70% of the area; crops grown on the remaining area include forage (13%); sunflower (12%); and veg- etables, sugar beet, soybean, grapes and other fruit (5%). The cropping pat- tern is not expected to undergo a major change in future if irrigation is not introduced; some increase in areas under maize, soybean, sugar beet and fodders is foreseen at the expense of wheat and sunflower. 3.14 Production. Since a fair amount of technology is already available to the project area, yields are reasonable for unirrigated crops. These yields are not expected to change in the future without irrigation. Present yields, which widely vary according to the amount of rainfall during the cropping season, average 2.1 tons/ha for wheat and barley, 2.3 tons/ha for maize, 1.0 ton/ha for soybean, 1.2 ton/ha for sunflower and 17.8 tons/ha for sugar beet. Present, and future without project, production from the project area are summarized at Annex 1, Table 2. E. Farm Inputs 3,15 Seeds, Fertilizers and Pesticides. Seed production, processing, test- ing, certification and distribution is well organized. Seeds for breeders are produced on the research stations; seed multiplication is entrusted to IAS farms and selected CAPs. Special organizations (SEMROM, AGROSEM, etc.) within the  - 7 - ttinistry are responsible for seed production, processing, testing, certifica- tion and distribution. In spite of a production of about 3.0 million tons of fertilizers, average application rate is low. Currently, IAS farms receive higher amounts of fertilizers as compared to CAPs, but after irrigation the disparity, if any, would be insignificant because Government allocations for all irrigated areas are the same. Plant protection efforts are usually ade- quate and timely. Most pesticides, fungicides and weed killers are produced within the country; their production has increased by about 300% during the last decade. 3.16 Farm Machinery. Tractors and other farm equipment and implements are manufactured in Romania. Presently there is one tractor to every 80 ha of arable area under CAPs and to every 56 ha in the IAS farms. The CAP farms are served by the Agricultural Mechanization Enterprises (SIA), while the IAS farms own, operate and maintain the equipment required by them. The CAPs in the project area are currently being served by seven substations of the Constanta SMA. Land preparation is completely mechanized, while seeding, fertilizing, spraying of pesticides and harvesting operations are mechanized to a consider- able degree on the IAS farms and to a lesser degree on the CAPs. Maize and wheat production, for example, is mechanized to an extent of 65% and 85% re- spectively on the CAPs; comparable figures on the IASs are 90% and 100%. Some of the equipment at the SMA substations serving the project area needs replacement and has been provided for under the project. F. Agricultural Research and Extension 3.17 Agricultural Research. The Academy of Agriculture and Forestry Sciences coordinates all agricultural research in Romania, which is carried out in 17 institutes and 35 experimental stations. These institutes and sta- tions, which are well distributed throughout the country's ecological zones, are staffed by about 1,600 scientists and cover about 80,000 ha. Emphasis is being laid on applied aspects including varietal improvements and cultural practices. The main regional experimental station is located at Valul Lui Traian, a few kilometers east of the project area, where research is being carried out since 1970 on project area crops under irrigated conditions. Prior to 1970, this station was devoted to the problems of rainfed crops. 3.18 Agricultural Extension. Extension work is organized in Romania through the General Directorate of Agriculture in each district. The General Directorate of Constanta district has a staff of 18 specialists in crop and livestock production, and marketing at its headquarters. In addition, each CAP or IAS has its own specialists, who are furnished by the General Direc- torate in case of CAPs and by the Department of State Agriculture in case of IASs. Thus the extension staff has a direct say in improvement of cultural practices and application of technology instead of an advisory role. In- stuction manuals that are prepared and periodically updated by specialist staff are made available to each farm. Thus, the research findings rapidly pass into practice, and the supervisory staff at each CAP and IAS adequately monitor their application. Further details on agriculture are given in Annex 1.  - 8 - G. Investment Financing 3.19 Investments in projects, which specifically benefit the IASs, are financed generally from the State budget and from compulsory savings of such enterprises. The major sources of financing investments in CAPs are loans from the Bank for Agriculture and Food Industry (BAFI), and savings of the cooperatives. Financing of investments in State enterprises under BAFI loans is relatively small but is expected to increase in future. Investments in large-scale irrigation works, however, which serve both the IAS and CAP lands are financed through the State budget; such funds are channelled through BAFI. Short-term credit for production, and credits for marketing and processing of agricultural products are also extended by BAFI to suitable cooperative or inter-cooperative enterprises. 3.20 Normally, up to 70% of on-farm investments in CAPs are financed through BAFI loans, but in special cases, up to 95% of such investments may be financed by BAFI. Farm entities are required to contribute the balance. BAFI extends long-term loans for no more than 25 years at an interest of 3% per an- num; short-term production loans bear an interest of 4%. These interest rates are considered positive because of the near zero rate of inflation in Romania. 3.21 BAFI obtains funds for its operations from the State budget, deposits by various State enterprises and cooperatives, borrowings from the Romanian National Bank, foreign loans and its own statutory capital of Lei 300 million (US$40 million). For large-scale investments financed by Government, BAFI obtains funds from the State budget at no interest. Deposit funds with BAFI bear an interest of 1-1/2%. For making short-term loans, BAFI borrows from the National Bank at 1% per year. A part of BAFI's net profits are returned to the State budget. 3.22 BAFI was founded in 1968 for channeling funds exclusively for the agricultural sector. It has six specialized departments, three of which ad- minister the financing of production, marketing and processing of agricultural products. The other three are responsible for planning, financial control and general administration. BAFI operates through 39 branches, with one branch in each district, and 100 sub-branches. The project area is served by the dis- trict branch (at Constanta) and four sub-branches. H. Marketing 3.23 All agricultural produce in Romania is marketed at fixed prices by 13 State controlled and operated Centrals, each of which specializes in mar- keting specific commodities like cereals, vegetables and fruit, sugar, meat, milk, etc. In each district, a few markets, run by peasants for sell- ing the produce from small individual plots or private farms, are allowed sor,e price flexibility, but handle only a small volume of produce for local consumption.  - 9 - 3.24 Each marketing Central is represented in the country's 39 districts by a marketing enterprise, which is the Central's executing agency. Each en- terprise has several collecting centers, which are suitably located throughout the district. All collecting centers and enterprises are well equipped to efficiently collect, handle and distribute various commodities in accordance with the State plan without excessive losses. Prices play little or no role in allocating products among various markets. The marketing enterprises, however, do have adequate incentive in terms of profit margins to promote efficient distribution. 3.25 At least six Centrals and their enterprises, and a large number of their collecting centers would market the project commodities. As all produc- tion plans in any region are closely coordinated with expected product use and distribution, adequate measures have already been planned for handling antici- pated incremental output from the project. Further details about marketing are given in Annex 3.  - 10 - IV. TIIE PROJECT A. Objectives 4.01 The main objectives of the project are (a) to increase and stabi- lize crop production in an area of 65,400 ha gross (64, 800 ha net) through provision of irrigation; (b) to develop milk and beef production in the proj- ect area; and (c) to increase the income of project beneficiaries. Other objectives are to improve the drinking water supply of 17 rural communities with about one-half of the project population, and to contribute to the country's long-term goal of improving the national dairy herd through cross- breeding by providing imported foundation stock. B. Description 4.02 The project would consist of (a) an irrigation component, which would include a system of irrigation works including on-farm sprinkler and furrow equipment, land leveling and soil erosion control works, and farm machinery and implements; (b) an agricultural component consisting of the establishment of a vineyard (450 ha) and an orchard (350 ha), and a 44,000 ton grain silo; (c) a livestock component, which would include eleven dairy units, two beef fattening units and one feedmill; and (d) a rural water sup- ply component. 4.03 The irrigation system would utilize a maximum flow of 49.0 m3/sec to irrigate the project area, partly by sprinklers (31,400 ha) and by fur- rows (34,000 ha) at an overall efficiency of 60%. The system would consist of a floating pumping station on the Danube River near Rasova; a concrete-lined main canal, two branch canals and their distributary canals; two pumping stations on the main canal, two on the branch canals and four on the distri- butaries; 39 pumping stations to pressurize the water for distribution; pipe distribution networks for both sprinkler and furrow areas; and portable on-farm irrigation equipment. The irrigation component would also include land leveling of about 13,000 ha, soil erosion control works on 7,000 ha and farm machinery and implements required to cultivate the project area following introduction of irrigation. Detailed features of the irrigation and other project components are described in Section C below. Further details are in Annexes 1, 4 and 5. 4.04 MAIA would be responsible for planning, construction, supervi- sion of construction and operation and maintenance of the project works. The Ministry's Department of Land Reclamation and Agricultural Construction (DIFCA) would supervise the design and construction of irrigation works. Under DIFCA, the Institute for Land Reclamation Studies and Design (ISPIF) would carry out the planning and design functions, the Construction Trust for Land Reclamation Works (TCIF) would construct the irrigation works, and the Central for Operation of the Land Reclamation Works (CELIF) would operate  - 11 - and maintain them. All works relating to components other than irrigation would be implemented by MAIA's Directorate General of Planning and Develop- ment (DGPD) with assistance from relevant institutes and construction trusts. C. Detailed Features Irrigation Component 4.05 Main Pumping Stations. A floating pumping station (average lift 5.5 m), near Rasova (Map IBRD 11880), would lift up to 49.0 m3/sec from the Danube River into the main canal. About 4.5 km downstream, Baciu pumping station would raise the water level in the main canal by another 6.7 m. The next station at Hateg, which is the largest on the system, would lift 19.0 m3/sec over 88.7 m into Rasova branch canal, and up to 30 m3/sec over 71.1 m into Vederoasa branch canal. About 1 km downstream, on the Rasova branch canal, another station would lift its flow over 40.5 m. Similarly, a pump- ing station on the Vederoasa branch would raise its flow over 67.4 m. A schematic diagram showing the lifts at various pumping stations is given on Map IBRD 11880; data on the stations is summarized in Annex 4, Table 1. Four smaller pumping stations, located on distributaries of Vederoasa branch canal would raise their discharges (varying from 0.8 to 3.5 m3/sec) over lifts varying from 11.0 m to 43.0 m in order to irrigate the southern part of the project area, which is at higher levels. All pumps would be driven electri- cally and would have a combined installed capacity of 114,300 kW. About 240 km of 20 kV power transmission lines, and transformer substations with an aggregate capacity of 137 MVA, would be constructed to supply power to the main and pressure pumping stations. 4.06 The Canal System. The main canal, with a capacity of 49.0 m3/sec, would be constructed in three short reaches--the first (1.5 kin) would connect the discharge basin of the floating pumping station with Baciu lake, a natural lake about 2.5 km long; the second (0.5 km) would convey water from the lake to Baciu pumping station; and the third reach (1.5 km long) would carry water to the main pumping station at Hateg. The Rasova branch canal would have a capacity of 19.0 m3/sec and would irrigate about 25,400 ha; the Vederoasa branch would irrigate the remaining 40,000 ha with a maximum flow of 30.0 m3/sec. A number of distributary canals would serve the project area. Total length of the canal network, all of which would be concrete lined, would be about 175 km and would involve an excavation of about 13 million m3 and a fill of 3 million m3. The canal system would cross ten large and small valleys through siphons. Other main structures on the system would consist of 39 gated regulators, 33 bridges, 45 drainage culverts, 30 escape weirs  - 12 - and 12 drops. Thirty-nine pressure pumping stations on the canal system would provide high (9-10 atmospheres) or low (3-4 atmospheres) pressure to ->e water entering the piped distribution networks. 4.07 Over 90% length of the canals would traverse zones that are made up of loess soils with depths varying from 5m to 40 m. Most of these soils are likely to subside, on wetting, by 5 cm to over 40 cm. Canals traversing zones that are particularly sensitive to wetting would be operated without lining for two to three years so as to compact the subgrade prior to con- crete lining. In these sensitive reaches only temporary canal structures would be provided initially, which would be replaced by permanent works after full subsidence of loose soils. All major pumping stations would be located on bedrock foundations, except for the Rasova station which would be supported on I m diameter drilled caissons penetrating the 25 m thick loess layer to limestone bedrock. Further details of loess soils and works thereon are given in Annex 4. 4.08 Pipe Distribution Networks. The project area would be divided into 39 irrigation sectors, each of which would be served by a pressure pumping station and an independent pipe network. There would be 18 such sectors on Rasova branch canal and 21 on Vederoasa branch. The sector size would vary from about 500 ha to 3,000 ha, with an average of 1,660 ha, depending on the terrain. The main supply pipe of each network would feed a number of distribution pipes, which would normally be spaced 612 m apart. The main and the distribution pipes of each network would be mostly of asbestos cement and would be buried. Total length of pipe for the irriga- tion system is estimated at 1,570 km, of which about 1,300 km would be of asbestos cement (100 mm to 600 mm) and the remaining of reinforced concrete and steel (100 mm to 1,000 mm). 4.09 Sprinkler Irrigation. Parts of the project area (totalling about 31,400 ha) having ground slopes exceeding 3% or requiring excessive land leveling would be irrigated by sprinklers, which is the least cost al- ternative for such a terrain. Irrigation sectors would be subdivided into blocks of about 38 ha, each of which would be served by a distribution pipe on which 9 or 10 hydrants, spaced 72 m apart, would be provided. Each hydrant would have connections for four laterals, but a distribution pipe would be able to furnish pressurized supplies to only two laterals per block simulta- neously. Sprinklers would be spaced at 18 m interval along the portable laterals and would irrigate an area of 18 m by 18 m at an intensity of 6.8 mm to 8.8 mm per hour at a minimum pressure of 3 atmospheres. 4J10 Furrow Irrigation. About 34,000 ha, where ground slopes are less tLan 3, and the relief is more uniform, would be irrigated by furrows. This area would also be divided into sectors and subdivided into 38 ha blocks. A low r:essure pumping station would feed the main pipe and its distribu- tion pipes (also spaced at 612 m intervals) in one irrigation sector. Hy- drants would be provided at an interval of 216 m along the distribution pip-,s Each hydrant would feed a set of furrows through a portable butyl  - 13 - pipe provided with outlets at furrow spacings (normally 450 mm). Working pressure at the hydrants would be about 0.35 atmosphere and each outlet in the butyl pipe would be designed to deliver up to 3.5 1/sec. 4.11 On-farm Equipment. On-farm portable equipment would include duralumin pipes, sprinklers and accessories for the sprinkler-irrigated area and butyl pipe and accessories for the furrow-irrigated area. This equipment would be provided to the cooperatives and the State farms on credit by BAFI. 4.12 Land Leveling. Of the 34,000 ha to be irrigated by furrows, land leveling would be provided on about 13,000 ha. Mostly light leveling (100 to 150 m3/ha) would be involved, which would correct minor topographic irregu- larities. 4.13 Soil Erosion Control Works. Soil erosion control works consisting of protective plantation, terracing, leveling, stone and grass chutes and other minor works would be carried out to protect about 7,000 ha of irrig- able land with slopes exceeding 5%. Similar works would also be necessary to protect deep cuts or natural steep slopes, adjacent to important project structures like the pumping plants, canal regulators, etc., from soil erosion. 4.14 Farm Machinery and Implements. About 375 tractors, 170 harvesters for various project crops; other cultivating, fertilizing, crop protection and transport equipment; and implements (Annex 8, Table 2) would be provided under the project. Most of these machinery and implements would be required to cultivate and harvest increased production due to the project and the bal- ance would replace the worn out equipment of SMAs serving the cooperatives in the project area. Agricultural Component 4.15 Vineyard. A vineyard covering 450 ha would be established in the southeastern part of the project area, near Chirnogeni (Map IBRD 11880), for the production of high quality wine grapes. The vineyard would be irri- gated by the irrigation system to be constructed under the project. About 3,500 vines would be planted per hectare and would be supported by reinforced concrete trellises and galvanized iron wire. The vineyard would be estab- lished over 4 years, and at full production would yield about 5,400 tons of grapes. All production would be supplied to an existing wine factory, located adjacent to the proposed vineyard. Most of the wine produced from project grapes would be exported. Further details are in Annex 1. 4.16 Orchard. An orchard covering 350 ha would be established under the project close to the vineyard. The orchard would consist of apricot and peach (150 ha), plum (115 ha), sweet cherry (45 ha) and sour cherry (40 ha) trees. Depending on the fruit, the density of trees would vary  - 14 - from 300 to 500 per hectare. The orchard would be planted over 4 years and would be irrigated by the project irrigation system. At full production, the orchard would yield about 3,600 tons of fruit, a part of which would be supplied to canning factories and the balance would be consumed in the do- mestic market. Further details are given in Annex 1. 4.17 Silo. The project would also provide a grain silo, with a capa- city of 44,000 tons, near Baneasa (Map IBRD 11880). This silo would be used to store a part of the project output of grain (wheat, barley and maize), most of which would be transported from the southwestern part of the proj- ect area. The silo would be equipped with grain drying and processing facili- ties. About 80,000 tons of grain would be handled by the silo per year. Further details are in Annex 1. Livestock Component 4.18 Dairy Units. Eleven dairy units would be established under the project, of which at least seven would be on cooperative farms and the remaining on State farms (Map IBRD 11880). Each unit would follow the standard model designed by the Institute for Studies, Research and Design of Zootechnical Construction of MAIA, which is acceptable and would consist of 830 heifers of superior dairy merit, of which about 600 would be in milk at any one time. The facilities at each dairy unit would consist of 3 barns, each housing 200 cows in milk; a maternity house for 80 cows and a nursery for young calves. Cows would be bred by artificial insemination. All female calves would be reared, inseminated at 15 to 18 months age and either retained as replacements or sold to other dairy units. Male calves would be disposed of at 15 days age for fattening (95%) or for breeding (5%). 4.19 About 9,130 Holstein heifers would be imported in suitable batches over the project implementation period, and up to one-half of these heifers could be used in acceptable dairy units located outside the project area but within the contiguous southeastern region of Romania. During negotiations, assurances were obtained that (a) the dairy units within the project area would receive the imported heifers in preference to other dairy units until high quality first and second generation pure-breed offspring of dairy cows imported earlier were available to replace the heifers imported under the project; (b) the imported heifers used in dairy units outside the project area would be grouped in lots of no less than 200; and (c) prior to the distribution of the imported heifers outside the project area, the Bank would have reviewed and agreed to appraisal reports for those dairy units in which the imported heifers are to be utilized. 4.20 Each dairy unit would yield about 2.6 million liters of milk an- nually and, after full development in 1984, the total milk yield from the eleven dairy units would amount to about 29 million liters. Further details, including the herd projection, are given in Annex 5.  - 15 - 4.21 Beef Fattening Units. The project would include the establish- ment of two beef fattening units, each with a capacity of 3,200 head, to be located at Negresti and Adamclisi cooperative farms (Map IBRD 11880). These units would also follow a standardized model designed by the Insti- tute for Studies, Research and Design of Zootechncial Construction of MAIA, which is acceptable. Each unit would consist of fattening houses, a recon- ditioning house and a summer shelter for the animals; a feed processing unit; a slaughtering room with cold storage and other associated facilities. Male calves would be purchased at 15 days age (average liveweight 45 kg) at the rate of 240 per month and sold after about 350 days (average liveweight 375 kg). At full production, in 1981, both units would produce about 2,000 tons (liveweight) of meat annually. Further details are given in Annex 5. 4.22 Feedmill. The project would include the construction of a feed- mill, with an annual capacity of 140,000 tons, at Negru Voda (Map IBRD 11880). The feedmill would meet the existing gap of 60,000 tons between the present feed requirements of the area and the quantities that can be sup- plied by the two existing feedmills in the area. In addition, it would also meet the demands that would be generated in the project area in the next 5 years both by the livestock component of the project (35,000 tons), and other livestock developments planned (45,000 tons) by the Government. The feedmill would consist of a grain silo (capacity 57,000 tons), a feed pro- cessing mill, and feed pelleting, batching and storage facilities. The mill would process grain and industrial meals (soybean, sunflower grist, wheat bran) and would homogenize them with minerals, fats and micro-ingredients in proportions specified by formulae for feeds for various categories of live- stock and poultry. Further details are in Annex 5. Rural Water Supply Component 4.23 This component would consist of providing potable water supply to 16 villages and Cobadin town (Map IBRD 11880) with a total population of about 15,000 (50% of project population). Some of these schemes would also furnish water to existing livestock enterprises within the project area. Each scheme would consist of a drilled well (up to 250 m depth) of required diameter, an. electric pump, chlorination equipment, water tank, and a supply and distribu- tion network of asbestos cement pipe. The schemes would be designed with a water allowance of 200 liters per head per day for the population served and an allowance of 60 liters per head per day for livestock. Further details are given in Annex 5. D. Water Requirement and Availability 4.24 Water Requirement. After allowing for average effective precipita- tion, net water requirements for crops in the project area, including the  - 16 - vineyard and the orchard, were estimated at 3,650 m3 per hectare. The high- est monthly demand of 1,050 m3/ha would occur in July. Based on the proposed --,ation methods of sprinkler (48%) and furrow (52%), the overall system efficiency has been computed as 60%. Gross water requirement, at the Danube River, would be equivalent to 6,080 m3 per hectare, which would amount to a total demand of 461 Mm3 during the cropping season, of which about 134 Mm3 would occur in July. The July demand would correspond to a maximum flow of about 49.0 m3/sec. Further details are given in Annex 6. 4.25 Water Availability. The source of water for the project irriga- tion system is the Danube River, which during the irrigation season (May to September) carries high flows (Chart 15360). Diversions for the project would be the highest during July, when the Danube flows are seldom less than 6,000 m3/sec. The project, therefore, would have an assured supply of water at its source. The Danube waters, classified as Cl SI, are of excellent quality for irrigation. 4.26 Water Rights. There is no effective international agreement among the Danube river riparian states for the use of its water for irrigation but a convention exists for development of the river for mutual benefits, and for protection of navigation and water quality. The International Water Commis- sion for the Danube River, of which Romania is a member, is mainly concerned orith such schemes which may interfere with navigation and water quality. The niaximum diversion for the project in July would amount to less than 1% of the minimum river flow in that month. The Government has confirmed, by a letter, that diversions for the project would not reduce the Danube flow below 935 m3/ sec, which is the agreed minimum to sustain international navigation, and therefore no agreement of the other riparians would be required. In view of the above, there is no reason to expect that the project would raise issue on the use of the Danube waters. E. Status of Engineering 4.27 After carrying out necessary field surveys and investigations, studying alternative alignments of canals and alternative locations of pumping stations, ISPIF has already completed detailed designs and drawings for all irrigation works. Notwithstanding the technical difficulties which arise due to the presence of loessial soils, the irrigation works are well conceived and their design has been caried out using a high level of pro- fessional competence. The works included in other project components are standardized, and their detailed design and drawings are also available. In 'act -tveral livestock and agroindustrial developments, similar to those included in the project, are already completed and successfully functioning in Roman'a. Works relating to rural water supply component would not pre- sent any design problems.  - 17 - F. Cost Estimates 4.28 The total project cost, including contingencies but excluding inter- est during construction, is estimated at Lei 2,610 million (US$130.5 million). This estimate is net of taxes and is based on March 1976 prices. The foreign exchange component, which includes both direct and indirect foreign costs, is estimated at US$41.7 million or 32% of total cost. Interest during construc- tion and other charges on the proposed loan are estimated at US$10.8 million. The cost estimates are based on unit rates of work that are prevalent in Romania under the system of regulated prices of materials and wages. Cost of equipment, materials and heifers, which are likely to be procured from foreign suppliers, has been estimated at the international prices that are likely to prevail in early 1976. Because detailed engineering has already been carried out for the irrigation component, which constitutes about 75% of the project cost, physical contingencies have been provided at 7-1/2%. Price contingencies on foreign exchange cost are based on annual increases of 8% in 1977 to 1979, and 7% after 1979. Due to near zero inflation in Romania, price contingencies on local costs are provided at 1%. Project's cost estimate is summarized in the table below; details are in Annex 7, Table 1.  - 18- Item Lei Million /1 US$ Million Li % Foreign Local Foreign Total Local Foreign Total Exchange Irrigation Component Irrigation Works 1,048.5 354.2 1,402.7 52.4 17.7 70.1 25 Land Compensation 12.2 - 12.2 0.6 - 0.6 - Equipment 91.5 30.5 122.0 4.6 1.5 6.1 25 Engineering and Administration 125.5 - 125.5 6.3 - 6.3 - Subtotal 1,277.7 384.7 1,662.4 63.9 19.2 83.1 23 Agricultural Component Vineyard 30.7 3.3 34.0 1.6 0.1 1.7 11 Orchard 15.2 1.6 16.8 0.8 0.1 0.9 10 Silo 43.9 4.7 48.6 2.2 0.2 2.4 10 Subtotal 89.8 9.6 99.4 4.6 0.4 5.0 10 Livestock Component Dairy Units 110.0 226.9 336.9 5.5 11.4 16.9 67 Beef Fattening Units 19.9 1.4 21.3 1.0 0.1 1.1 7 Feedmill 96.6 9.8 106.4 4.8 0.5 5.3 9 Subtotal 226.5 238.1 464.6 11.3 12.0 23.3 51 Rural Water Supply Component Civil Works 12.7 2.3 15.0 0.7 0.1 0.8 15 Engineering and Administration 0.6 - 0.6 - - - - Subtotal 13.3 2.3 15.6 0.7 0.1 0.8 15 Total Project Cost Base Cost 1,607.3 634.7 2,242.0 80.4 31.7 112.1 28 Physical Contingencies /2 118.5 33.2 151.7 5.9 1.7 7.6 22 Price Contingencies /3 49.9 165.8 215.7 2.5 8.3 10.8 77 GRAND TOTAL 1,775.7 833.7 2,609.4 88.8 41.7 130.5 32 /1 Discrepancies due to rounding. /2 Physical contingencies at 7-1/2% for all items except heifers for which contingency provided in base cost. /3 Price contingencies compounded at 1% for local costs, and at 8% (1977 to 1979) and 7% (after 1979) for foreign exchange costs.  - 19 - G. Financing 4.29 The proposed Bank loan of US$60.0 milion would finance the full foreign exchange component of US$41.7 million (32% of total project cost); US$7.5 million of local cost, which is equivalent to about 6% of total cost; and US$10.8 million of interest and other charges during construction on the proposed Bank loan. The remaining local cost of US$81.3 million equivalent (62% of total project cost) would be met by the State budget (38%), BAFI loans (23%), and constributions of CAPs (1%). The project's financing plan is summarized below. -----US$ Million------- Total as % Item Local Foreign Total of Project Cost Project Cost Bank Loan 7.5 41.7 49.2 38 State Budget 49.8 - 49.8 38 BAFI Loans 30.0 - 30.0 23 CAP Contribution 1.5 - 1.5 1 Subtotal 88.8 41.7 130.5 100 Interest and Other Charges During Construction Financed Under the Bank Loan - 10.8 10.8 H. Implementation Schedule 4.30 The project would be essentially implemented in five years (1976- 1980) in accordance with the schedule in Chart 15361 (R). Only lining of some of the canals, passing through loess zones, would be carried out in 1981 and 1982 after sufficient prewetting and consequent settlement had taken place in these reaches. Irrigation would, however, commence in 1979 cropping season over about 20,600 ha, and in 1981 the full project area would be under irriga- tion. All other project components would be completed by 1980, except for the maintenance of the vineyard and the orchard, which would be completed in 1982. Annual schedule of expenditures for the project components is given in Annex 7, Table 2.  - 20 - I. Procurement 4.31 Under the Romanian procedures, construction of all civil works is normally carried out by Romanian agencies, which are fully competent and have adequate experience of such construction. Also because of regulated wages and prices of materials, construction costs in Romania are likely to be less than those which might be bid by international contractors. Therefore, instead of civil works only procurement of equipment and materials would be financed under the proposed loan. These items, listed in Annex 8, Table 1, are esti- mated to cost US$36.3 million (excluding contingencies) and would be procured following international competitive bidding in accordance with the "Guidelines for Procurement Under World Bank Loans and IDA Credits - August 1975". These include pumping and power equipment (US$16.0 million), construction equipment (US$6.7 million), asbestos cement pipe (US$5.0 million), portable pipe and sprinkler equipment (US$7.5 million), and equipment for operation and mainte- nance of irrigation works (US$1.1 million). During negotiations, this list was agreed with the Romanian Delegation. Contracts for these equipment and materials would be advertised internationally and the Romanian manufacturers would be allowed a 15% preference margin or the applicable customs duty, which- ever is lower. Romanian laws allow bidding between local and foreign suppliers, and it is expected that contracts valued at about US$14.5 million (40% of goods listed at Annex 8, Table 1) would be won by foreign suppliers. In-calf heifers, costing about US$11.0 million would be procured through solicitation of bids from suppliers from at least three foreign countries. 4.32 During negotiations, assurances were obtained that project procure- ment would be arranged in accordance with the Bank's Guidelines as detailed in para. 4.31. Of the total procurement of US$49.3 million, consisting of equipment and materials listed in Annex 8, Table I (US$36.3 million), heifers (US$11.0 million) and a contingency of US$2.0 million, it is estimated that contracts valued at about US$26.0 million (52%) would be won by the foreign suppliers. J. Disbursements 4.33 The proposed Bank loan of US$60.0 million would be disbursed, net of taxes over five years as follows: (a) Equipmient, Materials and - 100% of foreign expenditures or Spare Parts for Irrigation 100% of local expenditures ex- Works (US$28.7 million) factory. (b) Imported Heifers - 100% of foreign expenditures (US$11.0 million)  - 21 - (c) Disbursements under BAFI - 25% of amounts disbursed by the loans other than for Borrower. Heifers (US$7.5 million) (d) Interest and Other Charges - Amounts due. on the Loan accrued on or before June 14, 1981 (US$10.8 million) The remaining US$2.0 million would be unallocated. Supporting documents for BAFI loans would not be submitted to the Bank for review but should be held available for the Bank's supervision missions. Disbursements for other items under the loan would be made against standard documentation. Savings, if any, could be used to finance additional eligible items needed for the project if this was found justified by the Bank, otherwise they would be cancelled. Bank disbursements are expected to be completed prior to June 30, 1981. An esti- mated schedule of disbursements is at Annex 9. K. Environment and Health 4.34 The project area is free of endemic diseases like malaria and bil- harzia. The project would neither adversely affect the environment nor the public health; in fact the project would improve the health of about one-half of the project area's population by providing piped drinking water supply. Construction of irrigation works, which consist of canals with fluctuating supplies and piped distribution network, would not promote mosquito breeding or spread of malaria.  - 22 - V. PROJECT IMPLEMENTATION A. Organization and Management 5.01 The Borrower. The Bank for Agriculture and Food Industry (BAFI) would be the borrower under the guarantee of the Government of Romania. BAFI was established, in 1968, as a State-owned credit institution to fi- nance agricultural production and investment projects. BAFI, therefore, has the prime responsibility for the development of the agricultural sector. In addition to functioning as the only source of credit for the agricultural sector, it also acts as a fiscal agent to the Government in respect of channel- ing State funds for investments and for collection of revenues due to the State. Its other duties include financial control and supervision over proj- ects that are financed either by the State or BAFI. To discharge its respons- ibilities effectively, BAFI already has adequate legal, financial and admin- istrative powers. 5.02 The chief executive officer of BAFI is its President, who is appointed by a State Decree. He is assisted by a Senior Vice-President and a Vice-President. BAFI's Board of Directors consists of the President, the two Vice-Presidents, and representatives of various departments of this Bank, certain ministries, and of other related organizations. BAFI has six de- partments, of which three are operationai and the other three deal with plan- ning, accounting and administration activities. BAFI has 39 branches--one branch in each district, and 100 sub-branches. 5.03 BAFI has a statutory capital of Lei 800 million (US$40 million) and a reserve fund representing accumulations of net profits of Lei 800 mil- lion (US$40 million). Its other sources of funds are the State budget, short- term borrowings from the National Bank of Romania and deposits from socialist organizations. BAFI pays interest of 1.5% per annum on borrowings from the National Bank and on deposits. BAFI would meet the project expenditures from a special project account, which would receive funds from the annual State budgets and through disbursements from the proposed Bank loan. Implementing Agencies 5.04 The Ministry of Agriculture and Food Industry. The overall respons- ibility for planning, construction, operation and maintenance of all project works, except works relating to power supply, would rest with M4AIA. The Ministry of Electrical Energy would have the responsibility for power supply works. The general organization of MAIA is illustrated in Chart 15362 and its departments responsible for project implementation are described below. 5.05 Department of Land Reclamation and Agricultural Construction. The responsibility for planning, design and construction of irrigation works would rest with DIFCA. The planning and design of the irrigation works would  - 23 - be carried out by ISPIF. The construction of irrigation works would be car- ried out by a regional branch of TCIF, which is responsible for such construc- tion in this area. Both ISPIF and TCIF are separate units of DIFCA. Construc- tion of works would be supervised by the concerned Group for Supervising the Investments (GSI), another organizational unit of DIFCA. All the above units of DIFCA are adequately staffed and have the required experience to implement the irrigation works in an acceptable manner. 5.06 Directorate General of Planning and Development. All works relating to the agricultural, livestock and rural water supply components of the project would be implemented by DGPD under MAIA. Construction of the grain silo and the feedmill would be entrusted to the Construction Trust for Industrial Works, and minor works would be handled by the construction enterprise responsible for carrying out such works in Constanta district. These organizations have the experience of constructing similar works and, therefore, would be abLe to carry out the project works in a satisfactory manner. B. Operation and Maintenance 5.07 Irrigation Works. The irrigation works to be constructed under the project, except for power supply works, on-farm equipment and farm machinery, would be operated and maintained by CELIF, whhich is also under MAIA. CELIF operates through its enterprises (IELIF), which are based in districts. The power supply works would be maintained by the Ministry of Electrical Energy. The on-farm equipment which would belong to the CAPs and IASs, would be operated and maintained by these entities. Farm machinery, which would be passed on to the concerned substations of Constanta SIIA, and IASs, would be operated and maintained by them. The IELIF enterprise, which would be responsible to operate and maintain the Rasova-Vederoasa Irrigation System, would establish three units for this purpose. Each unit would be responsible for about 20,000 to 25,000 ha, and would be equipped with adequate facilities and machinery to maintain the irrigation system in proper working order. 5.08 The annual operation and maintenance cost of the irrigation works (Annex 7, Table 3) is estimated at Lei 110.0 million (US$5.5 million), of which the cost of electrical energy at Lei 0.3 per kwh would be about Lei 68.0 million (US$3.4 million). 5.09 Other Works. All works other than irrigation would be owned by either the cooperatives or the State enterprises and, therefore, would be operated and maintained by them with assistance from the respective technical unit of MAIA.  - 24 - C. Supporting Agricultural Services 5.10 Adequate arrangements exist, within the Ministry and its Depart- ments, to supply seeds, fertilizers and pesticides to the cooperatives and State enterprises in the project area. Their production plans are in accord with the State plan and, therefore, the concerned Departments are fully aware of their input needs following introduction of irrigation. No special mea- sures are required to be taken to assure the proper supply of inputs. 5.11 Arrangements to extend credit to farm entities for production and for transportation and marketing facilities are also satisfactory. BAFI would continue to be the major source of all credit for agriculture, in- cluding short-term production credit. D. Recovery of Project Costs 5.12 Irrigation Component. With assistance from the Bank, under the pro- posed loan, Government would directly finance all investments under the irri- gation component, except for the on-farm investments on CAPs and IASs, and farm machinery. The on-farm investments would be financed under BAFI loans; loans to CAPs would be recovered through repayments (para. 3.20) and those to IASs, including any loan for farm machinery, would be recouped fully through the Depreciation Fund (Annex 2) maintained by BAFI. Farm machinery loans to SMAs would be fully recovered through repayments, as the SMAs recoup the de- preciation costs from the beneficiary CAPs through custom rates. The remain- ing investment cost and the operation and maintenance cost would be apportion- ed between the beneficiary farm entities (CAPs and IASs) in the ratio of their areas served by the irrigation system. 5.13 According to the existing procedures in Romania, the only direct recovery of project cost is through nominal water charges (Annex 10), which average about Lei 220 (US$11.0) per ha. Water charges from project benefi- ciaries would result in a cost recovery index of about 5% 1/ and benefit and rent recovery indices of about 10% and 20% respectively. The low water charge would not result in wasteful use of irrigation water by the beneficiaries be- cause the amount and timing of irrigation water use is controlled by the Gov- ernment. In addition to water charges, the existing indirect mechanisms through which the Government would recover project costs include (a) IASs'contribution to the Depreciation Fund; (b) annual profits made by the IASs on their opera- tions, a part of which is credited to the State Treasury (Annex 2); (c) profits 1/ Apparently low because the formula is based on direct recovery only, which is unimportant mechanism of cost recovery in the Romanian economic system.  - 25 - made by the State through the export of some tradeable commodities produced in the project area; and (d) the incremental income tax on increased personal income of CAP members. The present value of all anticipated direct and in- direct collections from the beneficiaries, in constant prices and discounted at 10%, is estimated at Lei 1,490.0 million (US$74.5 million). This would recover, over the component's assumed life of 40 years, its full operation and maintenance cost and about 55% of the investment cost at 3% interest. Such a collection would imply a direct and indirect cost recovery index of about 75%. It would also imply a net subsidy of about Lei 520.0 million (US$26 million), which would be entirely to the account of the CAPs. Direct and indirect revenues that would accrue to the State from the IASs would exceed the invest- ment and the operation and maintenance costs chargeable to the IASs by Lei 310.0 million (US$15.5 million). This surplus would reduce Government sub- sidy to the CAPs from Lei 830.0 million (US$41.5 million) to Lei 520.0 million (US$26.0 million). The subsidy to CAPs is fully justified (a) as members of the CAPs in the project area are among the poverty target group (para. 2.01); and (b) their incremental income, as a result of the project, would not mate- rially shift their income status relative to the national average. Any addi- tional water charge, therefore, is not justified and not recommended. 5.14 Other Components. Project components other than irrigation would be financed through BAFI loans, which would be recovered from the beneficiary entities in accordance with the agreed terms of the BAFI loans (Annex 2). Any Government investments in the facilities to be owned by the IASs and to be financed from the State budget, would be recovered through the Deprecia- tion Fund maintained by BAFI. E. Accounts and Audit 5.15 BAFI's accounts are subject to two audits--a continuous audit by internal auditors appointed by the Ministry of Finance, and an annual audit by inspectors of the Court of Superior Control. The Court, which reports directly to the President, is responsible for controlling transactions by the main State bodies such as the banks and the ministries. The existing accounting and auditing procedures in Romania are quite strict and are satis- factory. 5.16 BAFI will keep separate accounts for all project expenditures in- cluding those related to goods and services financed out of the proceeds of the proposed Bank loan. These accounts will be audited according to the existing procedures. During negotiations, assurances were obtained that a report on project accounts, submitted to an independent audit conducted by the Ministry of Finance, will be submitted to the Bank annually within five months of the close of the Romanian fiscal year.  - 26 - F. Monitoring 5.17 In order to measure project implementation against the proposed schedule, and project performance, following completion of construction, against project benefits foreseen during appraisal, BAFI would submit neces- sary information through periodic reports to the Bank. This would include data on progress of construction of all physical facilities under various project components; progress in the procurement of equipment, materials and heifers; and data on project expenditures and BAFI loans. Information on area brought under irrigation, cropping pattern, crop yield and output; production and income from the dairy and beef fattening units; and relevant data on operation and maintenance cost of irrigation facilities as well as on recovery (both direct and indirect) of project costs would be submitted annually. During negotiations, it was agreed that the above-stated informa- tion would be furnished to the Bank.  - 27 - VI. BENEFITS AND JUSTIFICATION A. Production Crop 6.01 Without the project, rainfed cultivation would continue in the proj- ect area and there would be practically no change in crop yields as their cur- rent level is as high as can be achieved without irrigation. There would be, however, some shift in the cropping pattern, as illustrated in the table in para. 6.03, in accordance with the State plan to increase the production of maize for livestock production. 6.02 After the project, the cropped area would increase by 11,100 ha as a result of a 17% increase in cropping intensity. The cropping pattern would also alter following introduction of irrigation; the major changes would be a reduction of 19,400 ha (61%) under wheat and barley; and of 3,500 ha (43%) under sunflower; and an increase of 17,600 ha (125%) under maize, of 5,500 ha under soybean and sugar beet, and of 800 ha under vineyards and orchards. Average yields of most crops would increase by 100% to 110% except for maize, sugar beet and alfalfa for which the increase would amount to 240%, 180% and 190% respectively. Most of the yield increases would be due to the optimum and secure water supply and increased input of fertilizers. Based on results of experiments and actual achievements in the field under irrigation, the yield increases are expected to develop over four years, following introduc- tion of irrigation, at the rates of 30%, 70%, 90% and 100%. 6.03 Presvnt, future without and with project cropping patterns, yields and production are compared in Annex 1, Table 2; and summarized beLow. Full development is expected to be achieved by 1984 (Anney 11, Table 2), four years after all area ha; been brought under irrigation.  - 28 - Crop Cropped Area Production Future Future Future Future Without With Without With Incre- Present Project Project Project Project mental