Tunisia - Rural Roads Project

Document of The World Bank i O rlLw cop%y FOR OFFICIAL USE ONLY Report No. 1 990b-TUIN TUNISIA STAFF APPRAISAL REPORT OF A RURAL ROADS PROJECT June 2, 1978 Projects Department Europe, Middle East and North Africa Regional Office 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.  CU,RMCY gQUIVA4L S Currency Unit = Dinar (D) D 1 = US$2.3 D 1,000 US$2,300 D 1,000,000 = US$2,300,000 US$1 = D 0.435 WEIGHTS AND MEASURES Metric Systeni British/U.S. System 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 0.62 miles (mi) 1 sq. kilometer (km2) 0.386 sq. miles (mi2) 1 hectare (ha) = 2.47 acres (ac) 1 litre (1) = 0.2200 Imperial gallons (I gal) 0.2642 U.S. gallonLs (gal) 1 metric ton (m ton) = 2,205 pounds (lb) ACRONYMS AND ABBREVIATIONS BNT - Banque Nationalede Tunisie (Tunisian National Bank) CLCM - Caisse Locale de Credit Mutuel (Local Credit Cooperative) CRDA - Commissariat Regional de Developpement Agricole (Regional Agricultural Development Commission) DPA - Direction de la Production Agricole (Agricultural Production Department) DPAEP - Direction du Plan, de l'Analyse Economique et des Projets (Planning, Economic Analysis and Projects Department) DPC - Direction des Ponts et Chaussees (Highway Department) FOSDA - Fond Special pour le Developpement Agricole (Special Fund for Agricultural Development) MA - Ministare de l'Agriculture (Ministry of Agriculture) MP - Ministere du Plan (Ministry of Planning) MPW - Ministere de l'Equipement (Ministry of Public Works) MTC - Ministere des Transports et des Communications (Ministry of Transport and Communications) OC - Office des Cereales (Cereal Board) OMIVAN - Office de Mise en Valeur de Nebhana (Nebhana Development Board) OMVVM-PPI - Office de la Mise en Valeur de la Vallee de la Medjerda et des Perimetres Publics Irrigues (Medjerda Valley and Public Irrigation Districts Development Board) SCM - Societe de Caution Mutuelle (Mutual Guarantee Association) SONAM - Societe Nationale de Motoculture (National Mechanized Farming Company) STIL - Socigte Tunisienne d'Industries Laitiares (Tunisian Dairy Industry Company) REPUBLIC OF TUNISIA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY TUNISIA APPRAISAL OF A RURAL ROADS PROJECT Table of Contents Page No. I. TRANSPORTATION AND AGRICULTURE ..................... 1 A. General ....................................... 1 B. Transportation ................................ 1 C. Agriculture ................................... 3 D. Previous Projects ............................. 5 II. RURAL ROADS AND AGRICULTURAL DEVELOPMENT .... ....... 6 A. Road Network .................................. 6 B. Road Administration ........................... 7 C. Agricultural Institutions ..... ................ 9 D. Agricultural Credit ........................... 11 E. Land Tenure ................................... 12 III. PROJECT AREAS AND APPROACH ......................... 13 A. Project Areas ................................. 13 B. Approach ........ .............................. 15 IV. THE PROJECT ........................................ 18 A. Objectives .................................... 18 B. Description ................................... 18 C. Sub-Project Review ............................ 22 D. Costs and Financing ........................... 23 E. Implementation ................................ 26 F. Disbursements ................................. 31 G. Environmental Impact .......................... 32 The report is based on the findings of an appraisal mission in October! November 1977, composed of Messrs. H.L. Beenhakker (Economist), P. Long (Engineer), K. Vencatachellum (Loan Officer), G. Ludwig (Engineering Consultant), P. Blom (Agricultural Consultant) and H. de Meel (Agricultural Consultant). This document ha a re tricted 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 (Continued) V. ECONOMIC EVALUATION ................................ 33 A. Sector Lending Approach ..... .................. 33 B. Main Benefits and Beneficiaries .... ........... 34 C. Marketing ..................................... 34 D. Economic Analysis ............................. 34 E. Project Risks ........ . ..........I....35 F. Government's Capabilities .... ................. 36 G. Technical Assistance .......................... 36 VI. AGREEMENTS REACHED AND RECOMMENDATIONS .... ......... 37 ANNEXES 1. Projects Previously Financed by the Bank 2. Principal Engineering Criteria 3. Terms and Conditions of Loans to Farmers 4. Key Project Data 5. Example of Application of Methodology 6. Sample Farm Budget 7. Cost of Means of Transport 8. Related Documents and Data Available in the Project File CHARTS World Bank 18504 Organization of the Ministry of Public Works and Highway Department World Bank 18505 Project Implementation Schedule World Bank 18872 Project Implementation Organization MAPS IBRD 13318 Project Areas IBRD 13319 Project Roads and Zones of Influence in Le Kef IBRD 13320 Project Roads and Zones of Influence in Siliana IBRD 13321 Project Roads and Zones of Influence in West Kairouan IBRD 13322 Project Roads and Zones of Influence in East Kairouan IBRD 13323 Project Roads and Zones of Influence in South Kairouan and Sidi-Bouzid IBRD 13324 Project Roads in Nabeul IBRD 13325 Project Roads in Kasserine IBRD 13326 Project Roads in East Sidi Bouzid and Gafsa IBRD 13327 Project Roads in West Sidi Bouzid and Gafsa IBRD 13328 Project Roads in Gabes  I. TRANSPORTATION AND AGRICULTURE A. General 1.01 From an environmental view, Tunisia can be divided into three parts. Northern Tunisia, with an average rainfall of more than 350 mm and favorable soil conditions, produces rainfed crops, in particular wheat and barley; it is the most developed part with a dense road system. In Central Tunisia, the average rainfall is 200-350 mm and the dominant outputs are: rainfed tree crops, mainly olives and almonds; cereal production, but at lower yields than in the north; and sheep grazing. In Southern Tunisia the rainfall drops below 200 mm and agriculture is therefore limited to sheep raising and the produc- tion of some date and vegetable crops in the oases. Agriculture is best served by the road network in the northern part; going south the network becomes less dense and the road standards become lower. 1.02 The population of about 5.9 million (1977) is heavily concentrated in Northern Tunisia and in the coastal plain. There is significant migration into the cities. The average annual population growth rate between 1966 and 1975 was about 2.3%. The rate of natural increase is about 2.6%. 1.03 During 1973-76, the period covered by the Fourth Development Plan, Gross Domestic Product (GDP) grew in real terms at an average annual rate of 7.6%, resulting in a 1976 per capita GDP of about US$840 (Atlas basis). During the same period, the annual growth rate of the basic trend in agricul- tural production is estimated at 5.5%. Road traffic in terms of passenger-km and ton-km is estimated to have grown at an annual rate of 7% and 6%, respec- tively. 1.04 The Fifth Development Plan (1977-81) aims to maintain the growth momentum; its average annual target growth rate of GDP is 7.6% per year. In particular, the new plan aims: (i) to create sufficient additional employment to absorb the incremental labor force; (ii) to achieve self-sufficiency in major food products by 1981; (iii) to raise the standard of living; and (iv) to achieve social stability through wage and price harmonization and income policies. The strategy to achieve these aims is to emphasize the creation of employment through investment in industry and agriculture. The volume of agricultural output is planned to increase at an average annual rate of 4.4%. To achieve this target, the authorities recognize that agricultural infra- structure, including rural roads must be improved and appropriate policies introduced to strengthen the agricultural sector. B. Transportation 1.05 A detailed description of the transportation sector is contained in Bank Reports No. 930-TUN of December 1975 and No. 1539-TUN of May 1977. Since modes other than road transport have insignificant direct impact on rural road development, no reference to them is made in this report.  1.06 The performance of road transport is critical for the agricultural sector, because it is the dominant carrier of its outputs and inputs, as well as other supplies and services for the rural population. With the public investments made in the road transport companies during the Fourth Plan and those planned for the Fifth Plan, together with the expansion of the private sector, the vehicle fleet is not expected to be a constraint on the expected growth of the agricultural sector. 1.07 Although certain sections are below standard for traffic require- ments, the main highway network is generally adequate in coverage and length. The First and Second Highway Projects were designed to improve the most criti- cal sections. The rural roads, which are defined as roads outside urban areas carrying predominantly agriculturally-related traffic irrespective of their classification, are, however, in poor condition and an impediment to agricul- tural development. They are essentially dry weather facilities which become impassable during the rains. A large number of these roads have deteriorated over the past two decades due to lack of proper maintenance. Improvement of the rural road network now has high priority, as explained in more detail in Chapter II. Transport Policy, Planning and Coordination 1.08 The Government exercises considerable control over road transport and the road network, especially through the Ministry of Transport and Communications (MTC) and the Ministry of Public Works (MPW). Public road transport (freight and passengers) is provided by large state companies while private operators are limited to the transport of goods by light truck (pay- load capacity below 3.5 tons), or the transport of persons by passenger car. Upon the Bank's recommendation, regulations restricting owners of light trucks to the transport of only their own goods have recently been abolished. Other- wise, progress with simplification of regulations has been slow. Improvements proposed by the MTC, but still awaiting Cabinet approval, include the aboli- tion of zonal restrictions for transport by truck, and of distance restric- tions for the use of trailers. The Bank plans to continue the dialogue on these matters with the Government. - 1.09 Government-controlled transportation tariffs reflect the condition of specific roads. Therefore, savings in vehicle operating costs due to road improvements are passed on to the farmers, other producers, consumers and passengers in the form of reduced tariffs. 1.10 The detailed planning, administration, construction and maintenance of the classified roads (which constitute about 50% of the rural roads) and, since 1974, also of the unclassified roads (which include the other 50% of rural oads) is the responsibility of the MPW, in particular the Highway Depart- ment 'Lirection des Ponts et Chaussees, DPC) in the MPW. Until 1974, the Ministry of Agriculture (MA) was responsible for the unclassified roads. The MTC is responsible for the planning and overall administration of investments in state transport enterprises. Both MTC and MPW suffer from a shortage of qualified and experienced staff. To help fill this gap, they have contracted she services of consultants, with Bank financing under the Second Highway Project, to update the 1968 Transport Plan and in particular to prepare a `ilot rural roads improvement project which is the subject of this report.  - 3 - 1.11 The Fifth Development Plan envisages investments in the road network and road transport companies of about D 126 million and D 79 million, respec- tively, in current prices. These investments represent 5% of total planned investments and an increase of 59% in average annual investments over the actual investments during the Fourth Plan. The planned investments are adequate to cover high priority needs, including an initial program for improving the rural roads. 1.12 The strategy of Bank lending for highways in previous years was to improve: (i) the existing infrastructure; (ii) project preparation and imple- mentation; and (iii) transport policies and the institutional framework. The results of these efforts are described in Annex 1. The main thrust of future lending would be to: (i) further improve the maintenance of the road network; (ii) consolidate progress in institutional development and the formulation of policies; and (iii) prepare and implement a comprehensive and continuing program for the development and maintenance of the rural road network. C. Agriculture 1.13 A number of Bank reports deal in detail with the Tunisian agri- cultural sector including No. 1133-TUN of October 1976, No. 1215-TUN and No. 1539-TUN both of May 1977. Therefore, the present report covers only those sector features which are relevant to the proposed project. 1.14 The total area suitable for agriculture is about 9.0 million ha, of which 5.3 million ha are classified as cultivable; the remainder comprises range land for extensive sheep grazing, low yielding forests and desert. The cropped area is about 3.1 million ha (about 0.5 ha per capita), including 1.3 million ha under perennial crops. Only 110,000 ha are irrigated and devoted mainly to the production of tomatoes, peppers, potatoes, melons and citrus. 1.15 Agriculture is an important economic sector; in 1976 it absorbed about 45% of the labor force, constituted 21% of GDP, and provided 13% of total value of exports, primarily olive oil, citrus, and other fruits and vegetables. Imports of agricultural products, mainly cereals, edible oils, dairy products, livestock and sugar, represented 12% of the total value of imports in 1976. 1.16 Agricultural production was disrupted during the 1960s, when the authorities attempted to organize the sector into cooperatives. This experi- ment was abandoned in 1969 and, since then, about 4.5 million ha have been returned to private farming. During 1973-76, the value of agricultural pro- duction grew rapidly (para. 1.03) partly as a result of extremely good weather and favorable terms of trade for olive oil, but also due to internal factors such as Government policies supporting the resurgence of the private sector. 1.17 At present, the main constraints on the growth of agricultural pro- duction are: the poor condition of the rural roads; inadequate supply of credit, especially to low-income farmers; inefficiencies in extension services; poor soil conservation; and insufficient development of water resources. The  - 4 - potential benefits from Government efforts to alleviate the above constraints other than roads have often not materialized because farmers were unable to market their products and obtain necessary inputs on time due to the poor road conditions. Agricultural Policy, Planning and Coordination 1.18 The Government controls the ex-farm gate prices and marketing mar- gins of the major agricultural products, partly to protect the cost of living and partly to provide the necessary incentives to farmers. Prices of the main foodstuffs are fixed by the Ministry of Economy, in practice once every year, upon request from and upon consultation with the MA and the National Farmers Association. During the previous plan period, domestic agricultural prices, including those of foodstuffs at the retail level, rose less rapidly than the prices of other items because the favorable weather and other conditions raised production and thereby compensated the farmers at least partly for the decline in prices. However, the authorities are aware that such favorable conditions are unlikely to repeat themselves and overall farm prices are expected to increase by 5% annually during the present plan period. 1.19 The Government also exerts a large influence on agriculture through its credit policies, extension and other services in support of the farmers. Encouraging efforts have been made in recent years to make these policies and measures more responsive and more efficient to meet the need of the farmers, but additional efforts need to be made during the current Development Plan. 1.20 The MA is principally responsible for the detailed planning, admin- istration and implementation of agricultural policies, support measures, and projects such as irrigation works, soil conservation, the provision of farm equipment, extension services and agricultural credit. At the national level, the Planning Department of the MA (Direction du Plan, de l'Analyse Economique et des Projets, DPAEP) is mainly responsible for preparing the agricultural plan and the collection of data and research needed for project preparation. At the provincial level, the MA is represented by Regional Field Divisions (Commissariats Regionaux de Developpement Agricole, CRDAs). 1.21 The Fifth Development Plan aims to intensify previous efforts to remedy the principal deficiencies in agricultural development (para. 1.17). During 1977-81, total agricultural investments are planned to reach D 500 million in current prices, representing 12% of total plan investments and an increase of 103% in the average of annual investments over actual invest- ments during the Fourth Plan. 1.22 Except for more emphasis on water resource projects, the Bank's strategy in Tunisia's agricultural sector remains the same as in the past; namely, to improve the use of fertilizers and seeds, to improve credit poli- cies and institutions, to improve extension services, and to improve irriga- tion programs and water development policies.  -5- D. Previous Projects 1.23 The Bank has lent a total of US$92.0 million equivalent for seven transport projects,-and US$92.2 million equivalent for six agricultural proj- ects, of which US$31.6 million was for agricultural credit. The proposed project would be the third in the road subsector. The Irrigation Rehabilita- tion Project (Loan 1068-TUN, US$12.2 million) and the Sidi Salem Multipurpose Project (Loan 1431-TUN, US$42.0 million) include US$1.0 million and US$4.0 million, respectively, for the partial improvement of rural roads in the Medjerda Valley and Nebhana area (1,700 km) and in Beja and Nabeul (660 km), respectively. The Government's execution of the transport and agricultural projects has been generally satisfactory. Annex 1 gives brief details of previous projects.  - 6 - II. RURAL ROADS AND AGRICULTURAL DEVELOPMENT A. Road Network 2.01 Tunisia's network comprises about 31,000 km of roads, of which 17,000 km are classified and 14,000 km unclassified. The breakdown by class and surface type for the classified network is shown in Table 2.1. Table 2.1: ROAD NETWORK IN 1976 Surface Length Administrative Classification (km) Type (km) Primary Secondary Tertiary Paved 7,679 3,306 3,290 1,083 Gravel 615 34 206 375 Earth 8,401 735 3,074 4,592 TOTAL 16,695 4,075 6,570 6,050 2.02 In 1974, the MPW, after it became responsible for the unclassified network, started preparing an inventory of these roads, which is now almost complete. About 5,000 km of the 14,000 km are forestry roads and the remainder are roads serving agricultural areas. 2.03 During project preparation rural roads were defined as roads outside urban areas carrying predominantly agriculturally-related traffic, irrespec- tive of their classification (para. 1.07); they are mostly unpaved low-volume roads. On this basis, the rural road network is estimated to total 18,000 km comprising approximately 9,000 km of unpaved classified roads and 9,000 km of unpaved unclassified roads. 2.04 Traffic counts were not normally made on rural roads; they are now being carried out on the roads being studied under the proposed project. Furthermore, the rural roads were rarely maintained by the MA (para. 1.10). Since most of them were originally built to low design standards, they are now practically impassable during the rainy season and beyond the capacity of normal maintenance. As a result, farmers are unable to obtain essential inputs and to sell their products on time and at reasonable transport costs. Also, the full benefits of existing extension and other support services cannot be realized, because experts cannot reach farmers without undue diffi- culties, and credit is beyond reach. Many areas are virtually isolated for many months each year and have not been able to realize their full development potential.  2.05 The Government submitted the proposed project for Bank consideration in late 1975 as a pilot scheme of high priority for launching a comprehensive and continuing program for the development and maintenance of the rural road network. The Bank's experience indicates that, to achieve optimal benefits, it is frequently necessary to integrate road improvements and agricultural development; the main reason for not achieving forecast economic returns (ERs) of road improvements in the past is the absence of a complementary agricul- tural development program. 1/ Thus rural road improvements often cannot be expected to raise agricultural production automatically. Vice versa, most agricultural investments by themselves would yield insufficient benefits to justify their costs because the poor condition of the rural roads would weaken their full potential impact. The pilot scheme would, therefore, comprise both improvements of rural roads and complementary agricultural investments. B. Road Administration 2.06 The DPC is responsible for the construction and maintenance of the main and rural road networks (both classified and unclassified). Its head- quarters in Tunis consists of six divisions (programs, maintenance and operations, major construction projects, studies, research and materials laboratory, and equipment maintenance) plus a central administrative and accounting service (Chart No. 18504). 2.07 In the regions, DPC has 11 field divisions (arrondissements), an increase of 5 since 1975. A total of 18 are planned to be in place by 1981, 1 for each province. The corresponding 18 roads subdivisions are already in place, although not all the maintenance crews have yet been established and some are undermanned. The full complement of 133 crews for the whole country is planned to be operational by the end of 1981. The subdivisions are pri- marily concerned with maintenance, but also handle smaller construction projects. 2.08 DPC has almost its full complement of engineering assistants and technicians but its staff of 46 engineers is below strength. Recruitment is difficult as civil service conditions are not attractive. Consultants, including 4 competent Tunisian firms, are providing highway design services. DPC engineers in charge are competent and most have been trained abroad, mainly in France. 2.09 Supervision of road works, including those in the Second Highway Project, is carried out by DPC. The supervision is adequate. Supervision of works of the scope of the proposed rural road improvements would normally be delegated to the field divisions (para 4.05). However, in view of the con- centration of some of the items, and more particularly of the recent estab- lishment of some of the field divisions, some assistance will be given from headquarters divisions in the form of resident engineers and laboratory technicians. This reinforcement of the field divisions is expected to ensure competent administration and supervision of the road improvement works pro- posed under the project. During negotiations assurances were obtained from 1/ Comparative Evaluation of Selected Highway Projects, OED, 1974.  - 8 - the Government that it will make available, on site, sufficient qualified per- sonnel and other resources necessary to ensure satisfactory construction supervision. Financing 2.10 The financing of rural road improvements is still evolving, both because of the lack of priority given to these roads until recently and of the recent change in administrative responsibilities. In principle, rural road improvements may be financed from two capital budgets. The first is the Rural Development Fund, which is administered by the governor of each province at his discretion among the many rural development needs. The funds devoted so far to rural road improvement have been modest and have generally been limited to such spot improvements as paving fords. The second is the recently estab- lished budget for the sole purpose of financing rural road improvements under the proposed project. This budget will be administered by DPC. Planning and Engineering 2.11 Prior to the proposed project, there was virtually no planning and no engineering of rural roads in Tunisia. Criteria have now been developed during project preparation by a joint venture of French and Tunisian consul- tants, financed under the Second Highway Project. Annex 2 shows the principal engineering criteria, which are satisfactory and were discussed and agreed upon with the Government during negotiations. A technical manual for future application by field divisions is being prepared and will be available before project implementation starts. 2.12 During loan negotiations, assurances were obtained from the Government that it will continue the collection of technical, traffic, and other relevant data as a means to monitor project results and as a basis for the proper planning of the entire rural road network. Construction and Maintenance 2.13 Other than spot improvements, little rural road construction has as yet been undertaken in Tunisia. Construction works are normally carried out under unit price contract. There are many large contractors in Tunisia. For the Second Highway Project 31 foreign and 8 Tunisian contractors pre- qualified, and the most recent tender call produced 7 bids, 4 of which were from Tunisian firms. Moreover, smaller regional contractors are likely to be interested in the proposed works; these firms can take on contracts up to a value of about D 1 million (US$2.3 million). 2.14 Maintenance of the classified highway network was studied under the First Highway Project, and the reorganization is now being satisfactorily implemented by DPC (para. 2.07). The new headquarters division in charge of Maintenance and Operations (Chart No. 18504) began tunctioning in 1976. The field subdivisions carry out the maintenance of the roads and routine main- tenance of the main roads is now reasonably well in hand. Although routine maintenance of the rural roads is not effective because of their condition (para. 2.04),the field subdivisions would be able to carry out routine main- tenance of the proposed project roads once they are improved (para. 2.09).  - 9 - However, the subdivisions would need additional road maintenance equipment (para. 4.05). Routine maintenance of the 1,000 km of roads in the project is estimated to require an annual budget of approximately D 250,000. This repre- sents about 6% of the total highway maintenance budget. Assurances were obtained during negotiations that all rural roads improved to an appropriate service level will be adequately maintained in accordance with sound engineer- ing and financial practices, and the funds, facilities, services and other resources required for this will be provided promptly as needed. The DPC is expected to be able to carry out this task. C. Agricultural Institutions 2.15 The MA has overall responsibility for agricultural planning and development. Its DPAEP is responsible for the preparation of the agricultural components of the proposed project, with the assistance of the same joint venture of consultants which assists the DPC (para. 2.11). 2.16 For project implementation, several semi-autonomous public agencies under the authority of the MA will be involved in addition to its Extension Department, Crop Protection Department, Agricultural Production Department and Livestock Production Department. The main semi-autonomous public agencies are: (i) the Office de Mise en Valeur de la Vallee de la Medjerda et des Perimetres PublicsIrrigues (OMVVM-PPI) and the Office de Mise en Valeur de Nebhana (OMIVAN), which are primarily respon- sible for the management and maintenance of the irrigation network and for extension services and credit in kind to farmers engaged in irrigated crop production; (ii) the Office National de l'Elevage et des Paturages (ONEP), which supplies farmers with high-quality farm animals on credit and is encouraging farmers to grow fodder crops under irrigation; (iii) the Societe Tunisienne d'Industries Laitieres (STIL), which is responsible for the transport of milk from collection centers to processing plants and the production and dis- tribution of milk and milk products in the country; (iv) the Office des Cereales (OC), Cooperative Centrale de Ble (COCEBLE) and Cooperative Centrale des Grandes Cultures (CCGC), which market cereals and provide farmers with inputs for cereal production and information about improved wheat varieties; and (v) the Societe Nationale de Motoculture (SONAM), which provides equipment rental and maintealance services and sells equipmeniL and spare parts. To facilitate project implementation, the number of agencies would be kept to a minimum. For instance, OC would be responsible for all r-c7mmended -ictions dealing with cereal production, rather than OC, COCEBLE . C? ZZGC.  - 10 - 2.17 MA's regional field divisions (CRDAs) are responsible for overseeing the coordination of programs of semi-autonomous public agricultural agencies and divisions of the MA, and would be responsible for coordinating the comple- mentary agricultural investments in the field. The staff of the CRDAs and of all of the agencies of para. 2.16 is capable of implementing and monitoring the project. In view of the deficiencies in equipment and maintenance in some of SONAM's regional work centers, the Government intends to strengthen existing service cooperatives and to increase their number; these coopera- tives have functioned satisfactorily. The total staff serving the agricul- tural extension sector consists of about 175 chief engineers, 385 works engineers, 240 assistant engineers, 1,060 technical assistants and 1,820 technical officers. Some of this staff could be made more effective by improving its communications capabilities and procuring new equipment such as mobile extension units and audio-visual equipment (para. 4.09). The coordination among extension organizations also needs to be improved (paras. 3.06-3.07 and 4.06-4.10). 2.18 A Coordinating Committee consisting of one high-ranking Government official from each of the Ministries of Public Works, Agriculture, Planning and Interior, especially created for the preparation of the proposed project, is responsible for the overall planning and administration of the rural road works and the complementary agricultural investments. This Committee, which was established upon the Bank's recommendation, has been functioning satis- factorily for project preparation but should be reinforced for project imple- mentation (para. 4.31). 2.19 The marketing of most agricultural products is in the hands of private traders, some organized into cooperatives. Vegetables and fruits for export are usually graded, packed and exported through cooperatives. Milk is mostly sold to STIL, but sometimes to industrial vendors, while live- stock is sold by farmers in local markets, mostly to independent butchers. Some capacity shortages of collection facilities for products such as wheat and milk exist. Agronomic Research 2.20 Agronomic research is concentrated around 3 main institutions: the Tunisian National Agronomic Research Institute (Institut National de la Recherche Agronomique Tunisienne) with central laboratories in Tunis and 16 experimental farms spread through the country, the Tunis National Agronomic Institute (Institut National Agronomique de Tunis) and the Rural Engineering Research Center (Centre de Recherche de Genie Rural). There are regional research centers in Beja, Bizerte, Jendouba, Sousse and Gabes provinces. According to Government claims, significant results were recently obtained in the field of new varieties of high-yielding wheat, in improvement of cul- tivation systems (crop rotation and weeding), in selection of fodder plants suited to each region and in development of new varieties of vegetables and fruit trees. There is no research in the proposed project since the tech- nology to be applied would, except for the proposed production of medicago in the provinces of Le Kef and Siliana, be known in Tunisia.  - 11 - D. Agricultural Credit 2.21 Report No. 1133-TUN describes in detail lending policies, procedures and related issues. The main issues have been resolved although the Bank and Government continue their dialogue under the Second Agricultural Credit Project. 2.22 The Tunisian National Bank (Banque Nationale de Tunisie, BNT) is the main institution extending investment credit to agriculture. It is one of the largest commercial banks and the largest provider of short-term agricultural credit (about 65%). However, most of BNT's own resources are used for the more profitable non-agricultural operations, and for agricultural credit it relies mainly on outside funds. Investment Credit 2.23 Investment credit from BNT to agriculture encompasses medium-term (1-7 years) and long-term credit (more than 7 years); it is financed 97% from budgetary and foreign resources provided by the Bank, the United States Agency for International Development (USAID), the Swedish International Development Agency (SIDA), and the World Food Program (WFP). All resources made available to BNT are placed in special funds with their own lending rules and appraisal procedures. The most important fund is the Special Fund for Agricultural Development (Fond Special pour le Developpement Agricole, FOSDA), which is financed from yearly budget appropriations. For FOSDA, which also provides investment grants, rules are specified for each type of investment credit, fixing the proportion of loan, grant, and self-financing, the maximum loan amount (per ha, tree or other investment unit), and terms and conditions of the credit. 2.24 In 1977, the conditions for FOSDA credit were changed in the context of the Bank-financed Second Agricultural CreditjProject. The new conditions are described in Annex 3. The eligibility criteria for low-income farmers for concessionary investment credit based on a family net annual income of D 600 are expected to improve their access to credit. To streamline the rate struc- ture, the interest rate of FOSDA loans and loans financed with the Second Agricultural Credit Project was increased in 1977 from 3.5 to 4.5% to a standard rate of 6.0% for low-income farmers, with the Government providing smaller subsidies than under the previous FOSDA regulations. Furthermore, interest rates for commercial farmers were increased to 7% and those for agro- industrial borrowers to 8%. Short-Term Credit 2.25 BNT makes short-term loans from its own resources to large commer- cial farmers and cooperatives. The 1974 creation of Mutual Guarantee Associa- tions (Societes de Caution Mutuelle, SCMs) has in principle made production credit from BNT more easily accessible to low-income farmers since they are jointly liable as members of an SCM. Requirements for SCM membership have recently been lowered from a 20-ha farm to a 10-ha farm for grain producers in northern Tunisia, although loans to this lower category are in kind. Interest rates for short-term loans are 6% for low-income farmers and 7% for commercial farmers (Annex 3).  - 12 - 2.26 Short-term credit in cash is also provided by the local credit cooperatives (Caisses Locales de Credit Mutuel, CLCMs), but about half of these cooperatives have been plagued by poor management, poor repayment and continuing losses. Of the 42 existing CLCMs, 14 are planned to be taken over by BNT as agencies in 1978. Eventually, all will be taken over. If CLCMs are considered to be part of BNT, over 90% of short-term credit would have been made available by BNT. The remainder has been granted primarily by the OC. 2.27 A number of government agencies provide short-term credit in kind to low-income farmers (para. 2.16). In 1977, the OC extended about 10,250 loans, totalling D 461,000 to low-income farmers primarily for seeds, fer- tilizers and herbicides. 2.28 Despite the improvements mentioned in para. 2.25, no more than 5% of all low-incomle farmers in Tunisia received short-term credit in 1977 (para. 4.13). BNT Management 2.29 BNT management practices are satisfactory; further improvements are being discussed under the Second Agricultural Credit Project. Central BNT staff approve short-term loans above D 3,000 and investment loans made from its own and foreign funds. For investment loans from FOSDA and other special funds, local BNT staff perform a credit-worthiness study, and the lending decision is taken by the National Credit Committee on the advice of Regional Credit Committees of which a CRDA representative is chairman. The technical appraisal of investment loans is made by extension agents of the MA or its semi-autonomous agencies. In 1977, local BNT staff were given the authority to approve short-term loans under D 3,000. This procedure is satisfactory. However, greater decentralization of investment credit decisions would be desirable to accelerate the processing of loan applications. This issue and related required training of local BNT staff is under discussion with the Bank. E. Land Tenure 2.30 Private property and collective ownership are the two principal forms of land tenure and account for about 90% of the cultivated land in the zones of influence of the rural roads. The remaining 10% consists of State Farms and Farmer Cooperatives managed by the State Lands Bureau (Office des Terres Domaniales, OTD) of the Ministry of Interior. In most provinces about 85% of the private holdings are less than 20 ha, 13% between 20 and 100 ha and 2% more than 100 ha. 2.31 The OTD program to provide private titles to collective land is making steady progress, though the process may require about 15 years to complete. In the meantime, a simple property certificate ("Certificat de Possession"), which takes about three months to obtain, is acceptable as security by the BNT in cases where cadastral or Islamic titles are lacking. Such security is only required for long-term credit.  - 13 - III. PROJECT AREAS AND APPROACH A. Project Areas 3.01 The project areas would primarily consist of zones of influence of rural roads in the provinces of Le Kef, Siliana, Kairouan, Sidi-Bouzid, Kasserine, Gafsa, Nabeul and Gabes. The total area would be about 385,000 ha and the total number of farm families would amount to approximately 32,000. About 60% of the population in this area, which constitute primarily farm families, belong to the rural poverty target group (para. 5.05). Annex 4 and Maps IBRD 13319-13328 show the identified rural roads. Land Use and Agricultural Potential of the Project Areas Le Kef and Siliana 3.02 These provinces have a hilly terrain with an average rainfall between 500 and 600 mm. The present land use consists mainly of dry farming with a two-year crop rotation of cereals and fallow. The project would facil- itate the accessibility of the region by improving rural roads, increase inputs and credit availability, and improve extension services. The proposed technical package would mainly include the introduction of fodder products (medicago and vetch oats) in the crop rotation. Fallow land is expected to decrease significantly and livestock production (cattle and sheep) to increase. The proposed fodder crops and techniques have already been tested in the area. However, medicago is still at an early stage of experimentation. Based on ongoing FAO and bilateral assistance projects, farmers' acceptability of the new techniques is expected to be good. This is particularly true for farmers not belonging to the low-income category (para. 2.24). The zones where rural roads are to be improved would cover about 100,000 ha and 5,700 farm families. Kairouan, Sidi-Bouzid, Gafsa and Kasserine 3.03 These provinces belong to the Central Tunisian region which is adversely affected by low rainfall (200 to 350 mm) and consequently has a limited agricultural potential. The identified roads' zones of influence would cover about 250,000 ha and a population of 14,300 farm families. The region is a marginal sector for cereals and is mainly oriented towards rainfed arboriculture (olives and almonds), as well as extensive grazing for sheep. The development would be mainly limited to expanding fruit trees and range management. Some small irrigation schemes, primarily the drilling of new wells and deepening of existing ones, would also be considered. The agri- cultural potential of the zones of influence of rural roads in Sidi-Bouzid, Gafsa and Kasserine is particularly poor. Under the highway sector lending approach (para. 3.13), rural roads identified for possible improvement would not be included in the proposed project if they are not economically viable. In such a case, a shift to other regions would be considered (para 5.03). The Government wishes to examine the economic viability of improving rural roads in the aforementioned three provinces since the Fifth Development  - 14 - Plan objective of raising the standard of living (para. 1.04) applies partic- ularly to Central Tunisia. The Bank does not object to this examination pro- vided the cautious approach of paras. 4.20-4.23 is followed. Nabeul 3.04 This is one of the richest of the proposed project areas. Irrigated vegetables, citrus orchards, vineyards and cereals are the main crops of the region. Agricultural production is now limited by poor access to markets and lack of basic agricultural supporting services, mainly for the small vegetable and fruit growers of the Northern Cap Bon area. The proposed rural road works are expected to improve marketing conditions, and although no innovation would be introduced in cropping patterns, technical agricultural packages would sig- nificantly improve present cropping techniques. The expected roads' zones of influence would cover about 23,000 ha and 2,000 farm families. Gabes 3.05 The main potential of the semi-desertic area of this province in the south is date palm and vegetable production in oases covering about 12,000 ha and 10,000 farm families. Since large underground water resources have been identified in the south, the Government is planning to double the oasis areas, mainly for date production, which is of a high quality in Southern Tunisia and has a good potential market in Europe. Growing alfalfa and developing live- stock are also envisaged. With the exception of some large State and private farms, most of the date palm groves belong to low-income farmers living at or below the absolute poverty level. Rural roads would facilitate the creation of new oases as well as marketing of existing and future date and vegetable production. The agricultural package would include improvement of date palm and intercropped vegetable production techniques. New plantations are planned in the framework of the Southern Irrigation Project now under consideration for Bank financing (FY79). Services in Project Areas 3.06 In addition to insufficient lending resources being channelled into agriculture, the following main issues exist: (i) inadequate coordination among extension organizations such as the MA's Extension Department, OMVVM-PPI and OMIVAM; (ii) inadequate coordination between extension services and suppliers of credit; and (iii) lack of detailed, uniform guidelines applicable to all extension organizations. 3.07 As a result of insufficient coordination, farmers often obtain con- flicting advice, and due to the shortage of credit they may not be able to follow up extension agents' advice. The MA is aware of this issue and, under its current five-year plan, aims to reorient its extension services in such a  - 15 - manner that farmers will be in contact with only one extension agent. Small regional extension units are planned to be introduced, which will group together in the field the agents of the various organizations. These measures, which have been discussed and agreed upon during negotiations, should be effective and would be supplemented by extension manuals with specific action programs (paras. 4.06-4.10). B. Approach 3.08 Upon the reques,t of the DPC in 1975, each province sent in proposals for improvements of specific rural roads. Based on the estimated absorptive capacity of the MPW and the MA, especially with regard to supervision, support services and maintenance requirements, the Government and the Bank selected from these proposals about 1,000 km of rural roads for immediate study. A pilot scheme of this size was also felt to give appropriate impetus to a follow up project and to fall within budgetary constraints. The 1,000 km of roads are located in diverse areas, because the proposed project is intended to cover representative terrain, soil and environmental conditions, and agri- cultural potential in Tunisia. These areas are located in the provinces of Le Kef, Siliana, Kairouan, Sidi-Bouzid, Gafsa, Kasserine, Nabeul and Gabes (paras. 3.02-3.05). 3.09 To achieve optimal benefits from a rural road development program (para. 2.05), the main features of the approach in project preparation are: (i) focus on individual rural roads and their specific zones of influence; (ii) the development of an integrated investment package for each road's zone of influence; and (iii) the integration of these investment packages into regional and national development plans. This integration was ensured by the MA during project preparation by taking into consideration the development plans of its semi-autonomous public agencies (para. 2.16). The main objective is to develop integrated investment packages, not only for those roads whose improvement could not be justified without complementary agricultural invest- ments, but also for those roads where road user savings alone would warrant improvement. Moreover, to support the above investment packages, project preparation includes extension manuals with specific recommended actions, production goals to be attained, and procedures for monitoring success in each rural road's zone of influence. To ensure sound development proposals, a dis- tinction between small, medium and large farmers, based on agro-economic con- siderations, is made in setting the goals and recommended actions. In rainfed areas, small, medium and large farmers are defined as holders of farms with sizes below 20 ha, between 20 and 100 ha, and above 100 ha, respectively. The respective ranges are below 1 ha, between 1 and 5 ha and above 5 ha in irri- gated areas. The above distinction does not apply to investment credit, which is granted mainly on the basis of income criteria (para. 2.24). The avail- ability of investment packages for each road makes it possible, from the outset, to identify key crops and actions to be taken for successful project implementation. As a result, available extension and other support services can be focussed from the start on these crops and actions and their effective- ness should therefore be considerably improved. Annex 5 describes an example of an investment package.  - 16 - 3.10 Investment packages may consist of: (i) investments for rural road improvements; (ii) rural road maintenance requirements; (iii) on-farm invest- ments by participating farmers in land clearing, planting of permanent crops, purchase of cattle, equipment and tool procurement, development of on-farm storage, etc.; (iv) incremental working capital (purchased inputs, renting of equipment, labor) required to achieve estimated production increases; (v) incremental costs of improved extension services; and (vi) investments required for collection facilities, equipment maintenance and rental facilities, etc. Recommendations with regard to the inclusion of certain or all components in the investment package are based on an analysis of the potential agricultural development and traffic requirements in each rural road's zone of influence. 3.11 The zones of influence of the rural roads are determined by: (i) the rural road network around the road being analyzed; (ii) the distances between farms and local markets; (iii) the terrain; and (iv) the means of transport used such as pack animals, animal-drawn carts, agricultural tractors, pickups, trucks, passenger cars, and buses. 3.12 A series of models has been developed and a computer program written to carry out the calculations required to quantify the costs and benefits of the proposed investment packages for each rural road and its zone of influence. Given forecasts of agricultural potentials and implementation rates, together with road and traffic data, the program calculates agricultural revenues, future traffic and transport benefits, the ER and optimal year for project implementation. The results can also be tested for their sensitivity to single and joint effects of different design standards, different assumptions on agricultural and transportation policies, development strategies and pro- cedures. One of the advantages of the approach is that all roads, and their related investments are treated according to a consistent methodology. This methodology has been tested in the field and can handle a range of traffic requirements and agro-ecological environments. Of the 19 roads totalling about 400 km which have been tested and evaluated, 18 were found to be eco- nomically viable (para. 5.01). Annex 5 presents an example of the application of the methodology and the resulting investment package (para. 3.10). The project file contains full details of all the 19 packages which have been analyzed (Annex 8). 3.13 Appraisal of the proposed project follows the general lines of the highway sector lending approach. However, it differs from many projects appraised in accordance with this approach, since it includes: (i) an evaluation of the detailed preparation and economic analysis of 19 specific rural roads with a total length of about 400 km (para. 3.12) and complementary agricultural investments in three provinces (Le Kef, Siliana and Kairouan) according to a methodology acceptable to the Bank; (ii) the identification of a further 40 roads totalling about 600 km and related agricultural investments, which will be subjected to similar analyses and evaluation;  - 17 - (iii) an assessment of the Government's capabilities to under- take the analyses and evaluation related to these further 40 road sections; and (iv) an assessment of the Government's capabilities to implement the proposed investments and other measures. Chapter IV describes procedures and criteria for Bank financing of individual road sections of the aforementioned 600 km and their related agricultural investments (paras. 4.20-4.23).  - 18 - IV. THE PROJECT A. Objectives 4.01 The proposed project would establish a pilot scheme for improving rural roads and raising the agricultural production and standard of living of the rural population. Better rural roads would facilitate the provision of social and administrative services, while the increase in economic acti- vity would create additional employment opportunities. Once established, the pilot scheme would serve as a consistent methodology for and approach to the development of the rural road network. B. Description 4.02 The project would be based on specific rural roads and would com- prise both road improvements and complementary agricultural investments. Because most of the proposed road improvements and agricultural investments are highly interdependent, such an integrated approach would achieve an optimal development package (para. 3.09). 4.03 The project would consist of: (i) civil works to improve about 60 rural road sections totalling about 1,000 kIn; (ii) road maintenance equipment, spare parts and workshop machine tools; (iii) equipment and training for agricultural extension services; (iv) agricultural credit; (v) agricultural equipment and the construction of col- lection and equipment rental facilities and workshops; and (vi) technical assistance. The roads to be evaluated are listed in Annex 4 and shown on Maps IBRD 13319- 13328. Rural Road Improvements 4.04 Improvements would consist of rehabilitation, upgrading or new con- struction, all with particular attention to drainage, and would conform to the design standards of Annex 2, which are satisfactory. Rehabilitation would generally be on sections of roads that were previously engineered but have not been maintained. Upgrading would generally follow the existing alignment but would improve the pavement structure and longitudinal profile.  - 19 - Rural Road Maintenance 4.05 As explained in Chapter II, rural road maintenance has been lacking in the past, but the organizational structure necessary has recently been established and MPW's field sub-divisions would be able to carry out the maintenance of the roads of the proposed project (para. 2.14). Most sub- divisions are short of road maintenance equipment. Therefore, the proposed project includes the purchase of road maintenance equipment to maintain about 1,000 km of rural roads. The equipment would be distributed to the subdivisions responsible for maintaining the project roads once they are improved. However, because of practical organization and job scheduling, the equipment purchased under the proposed project would not be earmarked only for maintenance of project roads. In some cases the equipment would be used to carry out additional tasks on other roads, and in other cases, project roads would be maintained with other equipment. Agricultural Extension Services 4.06 The Fifth Plan proposes the introduction of agricultural extension units (para. 3.07) and priority will be given to their introduction in the roads' zones of influence. These units will be staffed by technical officers of existing organizations. Such grouping would improve the coordination among extension organizations. In addition, to improve the effectiveness of exten- sion services, each officer would be made responsible for a given area. The frequency of extension services would be in line with projected needs, which are more frequent for small farmers than for medium farmers, while few addi- tional extension services to large farmers are planned, or needed. 4.07 Extension manuals, with specific action programs geared to the particular provincial problems, have been prepared for each of the provinces of Le Kef, Siliana and Kairouan. Additional manuals are being prepared, one for each province in which rural roads' zones of influence of the proposed project are located. The action programs deal with diverse issues such as crop rotation, coordination with credit suppliers, and indicators of progress. Therefore, the availability of these manuals is an important instrument for improving the efficiency of the extension services. 4.08 The proposed introduction of medicago in the provinces of Le Kef and Siliana is the only technique with which Tunisian farmers have little expe- rience. It is, therefore, proposed to increase works engineers from two to four in Le Kef and from one to two in Siliana during the first year of project implementation. The number of technical officers would be increased from five to twelve in Le Kef and from two to six in Siliana during the first two years of project implementation. The number of technical officers in Kairouan is to be increased from 36 to 41, while an increase in works engineers is not neces- sary. Based on the total number of ha of all the zones of influence of the roads in the pilot project (385,000) and the total number of farmers' families  - 20 - (32,000) and cropping patterns in these zones (paras. 3.02-3.05), it is esti- mated that the total number of works engineers would be increased from about 385 to about 390. The increase in technical officers would be from 1,820 to approximately 1,845 (para. 2.17), during the first two years of project imple- mentation. The projection of graduates from agricultural schools indicates that these additional staffing needs can be easily met. In addition, these needs are not out of line with expectations about the normal growth of exten- sion staff in Tunisia. 4.09 Most engineers and technical officers whose territories would include zones of influence of the proposed project would require additional training in specialized subjects such as communications with farmers. This training, to be provided by about 6 man-months of consulting time, would take place in the form of seminars in Tunisia. In addition, there would be visits to demonstration farms abroad during the first year of project implementation. The engineers and technical officers whose territories would include zones of influence in the provinces of Le Kef and Siliana would receive training and field assistance in medicago cropping from one expatriate expert (12 man- months) during the first year of project implementation. 4.10 Additional extension equipment is needed (para. 2.17). The proposed reinforcement of extension services would therefore consist of the purchase of equipment such as mobile extension units, audio-visual equipment, cars, light motorcycles, furniture and brochures; and 18 man-months of expatriate experts in Tunisia (para. 4.09). The proposed reinforcement of extension services is realistic (para. 4.09) and is expected to remove existing problems (para. 2.17). Bank financing of the foreign costs, for the above training and equip- ment, during the first five years of project implementation, is proposed. Dur- ing loan negotiations assurances were obtained from the Government that funds, manpower, and other resources to reinforce the extension services in the zones of influence of the proposed project roads will be provided promptly as needed. Agricultural Credit 4.11 Chapter II indicated that insufficient lending resources are chan- nelled into agriculture. Until recently other constraints in agricultural investment credit included a multiplicity of credit terms and conditions, low interest rates, ill-defined credit eligibility crtiteria and limited access to credit because of lack of valid titles to land ownership. Policy and insti- tutional measures were introduced under the Second Agricultural Credit Project to remove these constraints. For short-term credit the multiplicity of credit institutions in Tunisia, their inertia and overly prudent attitude towards low-income farmers are the main constraints. 4.12 Long- and medium-term credit to private farmers would be required to purchase agricultural machinery, dairy cows, and sheds for livestock; to plant cactus; to introduce medicago; and to construct wells. The reinforced extension program would result in additional investment credit requirements estimated at US$17.2 million equivalent, including a foreign cost of US$6.8 million. About 50% of the foreign cost or US$3.3 million is expected to be used during 1979-80 and would be financed under the Second Agricultural Credit Project (Closing Date: December 31, 1980).  - 21 - 4.13 Short-term credit would be required to cover the recurrent cost of inputs such as fertilizers, pesticides and feed concentrates. The short-term credit requirements which are based on incremental needs would be included in the proposed project to ensure that it would be available to low-income farmers in view of present difficulties. 4.14 The foreign costs of the above credit requirements would be covered as follows: (i) those of short-term credit requirements by the BNT; (ii) those of the 1979-80 investment credit needs under the Second Agricultural Credit Project; and (iii) those of the investment credit needs beyond 1980 by the Government. During negotiations assurances were obtained from the Govern- ment and the BNT that the necessary foreign and local funds will be made available. 4.15 Annex 3 summarizes the terms and conditions of FOSDA investment credit; although these have been accepted by the Bank (except for medicago, para. 2.24), the terms and conditions set out in the Second Agricultural Credit Project are proposed for this project. Loan conditions related to medicago do not yet exist, since the production of this crop is not common. Annex 3 shows the terms and conditions of credit and a related grant proposed for medicago production; they would be for an initial period of three years, in order to encourage farmers to introduce it. 4.16 BNT's terms and conditions for short-term credit (Annex 3) are recommended. These terms and conditions together with those proposed for medicago were discussed and agreed upon with the Government and the BNT during negotiations. Facilities and Equipment 4.17 Whereas the existing capacity of agro-industries such as canning factories is sufficient to take the increased production resulting from the proposed project, the number and capacity of collection facilities and of workshops for the rental and maintenance services of agricultural equipment are inadequate in some areas (paras. 2.17 and 2.19). For instance, project preparation in the province of Le Kef indicates that increased production of milk would require the construction of a refrigerated milk collection center with a capacity of 9,000 liters along Road 101 (Map IBRD 13319). Another example is the need for additional agricultural equipment for rent and for an additional workshop to maintain such equipment in Tadjerouine (Le Kef) to serve the zones of influence of Roads 106 and 110. Technical Assistance 4.18 The experience gained with the pilot scheme would be applied by the Government to the next phase of the comprehensive program of rural road devel- opment consisting of the preparation and evaluation of 2,500 km of roads which have already been identified. No physical improvements would be undertaken on  - 22 - this second phase until sufficient experience had been gained with the pilot scheme. However, to retain the impetus and expertise in project preparation developed under the pilot scheme, it is proposed to continue with the analyses at an early date. Consultants would assist the MPW and the MA in project preparation in a similar manner as for the pilot project. About 130 man- months would be required which, together with the 18 man-months of technical assistance for extension services (para. 4.10), would result in a total of 148 man-months of technical assistance. C. Sub-Project Review 4.19 The appraisal is based on the detailed preparation and economic analysis of 19 sections of rural roads with a total length of about 400 km and complementary agricultural investments (para. 3.13). Annex 4 shows key data pertaining to traffic and costs of each of these roads. Further details are in the project file (Annex 8). 4.20 The criteria for the evaluation and approval of a further 40 pro- posed rural roads totaling an additional 600 km and complementary agricul- tural investments will be the same as those for the 19 roads (400 km) already appraised. The first step would be the submission by the Government to the Bank of a report showing that, based on an initial screening of the roads and their related agricultural investments, their further preparation and economic and financial analyses should be pursued. 4.21 The second step would be the submission of: (i) a report covering preliminary engineering and cost estimates of construction and periodic and routine maintenance; (ii) a report covering present and future traffic in the zone of influence of each rural road and the related agricultural development package in accordance with the agro-ecological potential (paras. 3.03-3.05); (iii) an extension manual applicable to each zone of influence; and (iv) computer input and output data for each road (para. 3.12). 4.22 With reference to Item (ii), if the introduction of a new product is proposed, the report on an agricultural development package would contain detailed results of research and subsequent field trials under typical farming conditions. As a practical matter, the reports mentioned in (i) through (iii) above would generally cover a group of rural roads and agricultural invest- ments. These reports would be followed by the submission of final engineering and contract documents, provided that the ERs and financial rates of return are acceptable to the Bank (para. 4.23). 4.23 The criteria for Bank approval of sub-projects are that:  - 23 - (i) the quality of the preparation and analysis of sub-projects should be acceptable to the Bank (equivalent to that of the sub-projects in Le Kef, Siliana and Kairouan already appraised); (ii) the ER of the investment package is at least equal to the opportunity cost of capital in Tunisia (1O0); (iii) the financial rates of return based on representative farm models are sufficiently high to provide incentives to farmers to take advantage of the additional credit facilities for agricultural investments; and (iv) the implementation of an investment package will not be started before its optimal year. These criteria will be reviewed from time to time in the light of experiences gained. During loan negotiations assurances were obtained from the Govern- ment and BNT that the procedures and criteria of paras. 4.20 to 4.23 will be followed. 4.24 The review of the sub-projects, based on the further 40 identified roads, would constitute a part of project supervision. In view of the capability of the Government in project preparation, which has been estab- lished during work on the 19 roads already appraised in detail, of which 18 were found to be economically viable (para. 3.12), a detailed review of all potential sub-project roads by the Bank is not necessary. A detailed review would only be made of those proposed sub-projects with a Bank participation of US$350,000 equivalent or more, provided at least one investment package related to each agro-ecological zone in each province is examined. D. Costs and Financing 4.25 The total cost of the proposed project is estimated at D 40.7 mil- lion (US$93.6 million equivalent) including a foreign cost of D 17.8 million (US$40.9 million). Table 4.1 shows the estimated costs of the project compo- nents. These estimates are derived from detailed quantities and rates for the 18 roads and complementary agricultural investments so far appraised and included in the project and, for the remainder, from order of magnitude estimates based on the following assumptions: (i) rural road improvements would consist of the upgrading from earth to gravel of 45 km of 9 meter wide sections, 95 km of 6 meter wide sections, and 460 km of 5 meter wide sections; (ii) rural road maintenance equipment for approximately 9 main- tenance crews would suffice;  - 24 - (iii) improvements in equipment for extension services would be of the same nature as those in the provinces of Le Kef, Siliana and Kairouan (para 4.10) and are based on number of extension engineers and officers in the remaining five provinces (para. 4.08); (iv) investment credit for small irrigation schemes based on data regarding underground water resources would be for the pur- chase of equipment similar to that in Kairouan, credit for sheds would be in line with present and potential livestock production (paras. 3.03-3.05), and credit for the improvement of range management would be similar to that of Kairouan; (v) short-term credit requirements would be for the purchase of fertilizers, pesticides and feed concentrates and are in line with the expected development (paras. 3.03-3.05); and (vi) improvements in agricultural facilities and equipment are based on information obtained from semi-autonomous organizations (para 2.16). All of the above assumptions are based on a preliminary review and reconnais- sance of most of the roads and areas concerned. 4.26 Except for technical assistance, final quantities and costs for the additional 40 roads would depend on the detailed preparation and analyses of each road and its related agricultural investments. Depending on these final costs, the total number and length of the rural roads to be improved may, therefore, differ from the estimated 60 and 1,000 km, respectively. The costs of technical assistance (para. 4.18) are based on consultants' rates pertain- ing in early 1978 (US$7,700 gross per man-month). The cost estimates of Table 4.1 were discussed and confirmed with the Government and the BNT during negotiations.  - 25 - Table 4.1: PROJECT COST Dinars (Million) US$ (Million) Foreign Local Foreign Total Local Foreign Total Exchange Rural Road Improvements 9.8 6.6 16.4 22.6 15.1 37.7 40 Road Main. Equipment 0.4 1.5 1.9 0.9 3.5 4.4 80 Extension Services 0.4 0.6 1.0 1.1 1.3 2.4 55 Investment Credit 3.4 2.3 5.7 7.8 5.3 13.1 40 Short-Term Credit 1.7 0.7 2.4 3.9 1.6 5.5 28 Agricultural Facil. & Equip. 1.4 1.6 3.0 3.2 3.6 6.8 53 Technical Assistance 0.2 0.3 0.5 0.3 0.8 1.1 75 Subtotal 17.3 13.6 30.9 39.8 31.2 71.0 44 Physical Contingencies 1.7 1.4 3.1 4.0 3.1 7.1 44 Price Escalation 3.9 2.8 6.7 8.9 6.6 15.5 43 Total 22.9 17.8 40.7 52.7 40.9 93.6 44 4.27 The costs of Table 4.1, which are expressed in beginning 1978 prices, include a physical contingency of 10%. Price escalation contingencies have been included in the estimate of total project costs based on the proposed implementation timetable (Chart No. 18505). The rates are 8%, 7.5% and 7% for 1978, 1979 and 1980-83, respectively for civil works and consulting ser- vices, and 7%, 6.5% and 6.0% for the same periods for agricultural equipment. Duties and taxes are 20% on civil works, 16% on agricultural equipment and 11% on livestock and sheds. The foreign exchange costs are 40% for civil works, based on the assumption that one-third of the contracts will be awarded to Tunisian firms and two-thirds to foreign firms. Foreign exchange costs for other items are shown in Table 4.1. 4.28 Table 4.2 shows the proposed financing. The Bank would finance all foreign exchange costs except those for investment credit for the period 1981-82, which amount to US$3.5 million and those for short-term credit amounting to US$2.0 million. However, the Bank financing of the foreign exchange costs of investment credit for the period 1979-80, esti- mated to be US$3.3,million would be done under the Second Agricultural Credit Project. Thus the Bank loan for the proposed project would be US$32.0 million. The Government would provide the foreign exchange cost of investment credit for 1981-82, the grant (paras. 2.23 and 4.15) and the local components of all other items from its relevant budgets.  - 26 - Table 4.2: PROJECT FINANCING ------------------US$ (Million)-------------------- Sub- x MPW MA BNT Grant Borrowers Bank Bank Total Rural Road Improvements 30.3 - - - - 20.2 40 50.5 Road Main. Equipment 1.0 - - - - 4.4 80 5.4 Extension Services - 1.2 - - - 1.6 55 2.8 Investment Credit - - 6.7 3.5 3.7 3.3 /1 19 17.2 Short-Term Credit - - 5.8 - 1.4 - - 7.2 Agri. Facil. & Equip. - - 1.6 - 2.7 4.8 53 9.1 Technical Assistance 0.3 0.1 - - - 1.0 75 1.4 Total 31.6 1.3 14.1 3.5 7.8 35.3 38 93.6 /1 Financed under Second Agricultural Credit Project. 4.29 The loan proceeds would be made available to the responsible Govern- ment agencies (MPW and MA for rural road improvements, road maintenance equip- ment, extension services and technical assistance) or on-lent to BNT (for agricultural facilities and equipment) on the same terms and conditions as those of the proposed loan (para. 4.36), which would be for a period of 17 years, including a 4-year grace period, at the current Bank rate. These conditions reflect the average expected life of project components. The Government would carry the foreign exchange risk. Similarly to the arrange- ments made under the Second Agricultural Credit Project, the Government would pay to BNT a compensatory commission equal to 3% of the portion of outstanding loans financed by the Bank. This commission would cover BNT's project related administrative expenses and would enable BNT to set up an adequate provision for bad debts. 4.30 The sub-borrowers' contribution from their own funds in case of investment credit to private farmers would average about 22% of investment costs, but would vary according to the investment item. The sub-borrowers' contribution in case of investment credit to organizations in charge of col- lection facilities, equipment services, and workshops (para 4.17) would be 30%. Sub-borrowers' contribution in case of short-term credit is not stipu- lated in the Government's credit regulations and varies between 10% for low income farmers and 50% for commercial farmers. The share BNT would finance from its own resources for individual short-term sub-loan amounts (US$5.8 million) was discussed and agreed upon with the Government and BNT during negotiations. E. Implementation 4.31 The organization proposed for project implementation is shown on Chart No. 18872. This organization is based upon the organization which has satisfactorily undertaken project preparation. To ensure adequate  - 27 - impetus for the project and to provide direction to the Coordinating Committee, the overall responsibility for the project should be vested in the Ministry of I iblic Works since the MPW is the major executing agency for the project. DuLing loan negotiations assurances were obtained from the Government that it will assign specific overall responsibility for project implementation to the MPW which will, in turn, administer the project through the Coordinating Committee to ensure that all of the project elements are carried out in a timely and coordinated manner. 4.32 The membership of the Coordinating Committee (para. 2.18) during the project implementation stage would be increased by one member from the BNT and an additional member from the MA. Two representatives from the MA are proposed, namely one from DPAEP and one from the Agricultural Production Department (Direction de la Production Agricole, DPA) since these departments cover the planning and operational functions respectively. The MPW represen- tative would be from DPC which covers planning, construction and maintenance functions. In view of the successful experience with the Coordinating Com- mittee and with the semi-autonomous agencies during project preparation, it is considered that the proposed project implementation organization shown on Chart 18872 would be effective. A condition of loan effectiveness is the formal establishment of the Coordinating Committee including its legal standing, powers and terms of reference. 4.33 Responsibility for the execution of the various project investments and actions would remain with the existing agencies, and experience with the project should enhance their capability in coordinating their activities and annual plans. The Coordinating Committee would function through the MA and MPW members, who have line authority over their regional offices. In the case of other agencies the Coordinating Committee should have the authority to enter into written agreements (para. 4.36). In the case of significant problems the Minister of Public Works would raise the matter directly with his responsible colleague. The Coordinating Committee would meet not less than once a quarter, or more often if necessary. It would review quarterly progress reports (para. 4.35) and would determine appropriate action to be taken to resolve any problems. It would also review future works programs and budgets for each of the participating organizations (para. 4.35) to ensure that all necessary activities are coordinated. 4.34 At the central government level, the DPC would be responsible for implementing the: (i) rural road construction works; (ii) procurement of rural road maintenance equipment; and (iii) technical assistance to MPW for the preparation of sub-projects for 2,500km of roads; the DPA would be responsible for: (i) improvements of extension services including training of agents; (ii) construction works related to collection and equipment facilities; (iii) agricultural equipment procurements; and (iv) technical assistance to MA for the preparation of complementary agricultural investments for the aforementioned 2,500 km of roads. 4.35 At the provipcial level, the heads of field divisions of the MPW would be responsible for supplying the Coordinating Committee, through the DPC, with quarterly reports about progress with rural road works and technical  - 28 - data, and coordinating rural road works with agricultural activities. Simi- larly, the heads of CRDAs would be responsible for supplying the Coordinating Committee through the DPA with quarterly progress reports on the implementa- tion of all agricultural components of the proposed project; to inform the Coordinating Committee of unforeseen problems, whenever necessary; and to coordinate the implementation of agricultural investments with rural road works. Since the overall project covers a number of related activities and the timing and scope of some activities will undoubtedly require adjustment as experience is gained, a certain degree of flexibility in project execution will need to be maintained. Each participating agency (para. 4.36) would, therefore, review jointly with the Coordinating Committee an annual plan detailing the activities and expenditures under the project for the following year. The annual plans would provide the critical operational detail needed to implement, and as necessary adjust, the timing of the road and comple- mentary agricultural investments as well as the actions initially defined in the manuals for the extension program. During negotiations assurances were obtained from the Government that these annual plans will be submitted to the Bank for review and comment by September 30 of each year, starting in 1979. Operating Agreements 4.36 Apart from independent contractors for construction works, a number of agencies which are not part of the MA or are largely autonomous would participate in project implementation. The Coordinating Committee would enter into written arrangements acceptable to the Bank, with such agencies specifying their specific responsibilities with respect to project implementation. The Government would enter into a written agreement with BNT for those components of the project which deal with short-term credit to farmers, and investment credit to farmers and organizations in charge of collection facilities and equipment (para. 4.17). During loan negotiations, assurances were obtained from the Government that all arrangements necessary to ensure the active participation of the various executing agencies, including BNT, would be entered into. Furthermore, the signature of the agreement with BNT is a condition of loan effectiveness. Executing Agencies 4.37 All rural road improvement works would be carried out by contract and supervised by the DPC, which is competent for this purpose. The technical assistance to MPW and MA for preparation of an additional 2,500 km would be provided by qualified and experienced consultants according to terms and con- ditions satisfactory to the Bank. 4.38 The strengthening of extension services (para. 4.10) would be achieved by the introduction of extension cells to be staffed with personnel from OMVVM-PPI, ONEP and MA's departments involved in extension work, the additional training of this personnel, and the purchase of equipment (para. 4.10). The additional training would be given by specialists already employed by these agencies and by qualified and experienced experts on terms and conditions satisfactory to the Bank (para. 4.09). The training procurement will be supervised by DPA which is competent for this purpose.  - 29 - 4.39 In the provinces of Le Kef, Siliana and Kairouan, the construction of collection and equipment facilities would be carried out by contract and supervised by OC for grain facilities, STIL for milk facilities, and SONAM or a service cooperative for agricultural equipment workshops. The agricul- tural equipment would be primarily purchased by service cooperatives; SONAM would only procure equipment for a workshop in a certain area if a service cooperative does not exist (para. 2.17). For other provinces similar arrange- ments would be made, as appropriate. 4.40 The BNT would make both investment and short-term credit avail- able. The CRDAs would assist BNT in appraising loan applications. Lending policies, procedures, terms and conditions of project sub-loans for investment credit would be the same as for those under the Second Agricultural Credit Project, while for short-term credit they would be the same as those in use for short-term credit by BNT (Annex 3), both of which are acceptable to the Bank. 4.41 During loan negotiations the Bank, Government and BNT discussed and agreed that the arrangements for the percentages of default risk on sub-loans to be assumed by the Government and BNT would be the same as those applicable to the Second Agricultural Credit Project. Audit of Accounts 4.42 Government agencies maintain budgets and accounts which are under constant supervision by a "controleur financier," appointed to each agency by the Ministry of Finance. The present system is satisfactory. Under the Second Agricultural Credit Project, BNT subjects its accounts to an audit by independent auditors acceptable to the Bank. During loan negotiations assur- ances were obtained that each executing agency would maintain separate accounts for its part of project work and that annual financial statements would be forwarded to the Bank, in a form acceptable to the Bank, within four months after the end of each fiscal year. Land Acquisition for Right-of-Way 4.43 During loan negotiations assurances were obtained from the Govern- ment that it will make available all right-of-way as needed for the timely implementation of the proposed project. Since the roads are located in rural areas, no delays in land acquisition are expected. Procurement 4.44 Road construction contracts based on unit prices would be awarded after international competitive bidding in accordance with the Bank's Guide- lines for Procurement. Contractors would be prequalified to undertake either single or several lots. Lot sizes are small enough to be undertaken by regional contractors. Several lots would also be grouped to be of interest to large contractors or a consortium of smaller contractors. Except where impractical for geographical and/or administrative reasons, the minimum size of a group would correspond to one with a total cost of at least 2.5 million  - 30 - dinars(US$5.8 million). Contractors should be allowed to bid for one or more contracts, or for a group of contracts in combination, up to their prequali- fied capacity. During loan negotiations assurances were obtained from the Government that such bidding procedures would be followed. Maintenance equipment contracts would be awarded by the MPW after international compe- titive bidding, in accordance with Bank guidelines. 4.45 The range of goods to be financed by short-term and investment credit or to be purchased by the MA or its associated semi-autonomous public agencies is varied and not suitable for bulk procurement, and individual contracts would be far too small to warrant full international advertisement. However, foreign suppliers of fertilizers, herbicides, insecticides, farm machinery and equip- ment are well represented in Tunisia; necessary service facilities are avail- able; competition is keen and prices are competitive. Farmers would, therefore, be enabled to purchase agricultural equipment and inputs of their choice on the domestic market. Machinery and equipment to be purchased by the MA or its associated agencies would also be procured through local channels on the basis of the best offer out of no less than three. Well drilling works, the con- struction of collection facilities and simple workshops would be carried out after local competitive bidding had been announced in the local press which allows foreign firms to participate. Experience with Bank agricultural credit projects has shown that the local bidding procedures are satisfactory. Copies of each contract would be sent to the Bank. 4.46 The terms of reference for consulting services related to the preparation of a further 2,500 km (para. 4.18) would be similar to those used for the consulting services on the pilot project; the terms of reference for experts to train extension agents were discussed and confirmed during loan negotiations. Project Implementation Schedule 4.47 The schedule for carrying out the project (Chart No. 18505), which covers about six years, was discussed and confirmed during loan negotiations. Prequalification for road works was started early 1978 and a call for tenders for the first group of lots is planned shortly after the approval of the proposed p-oject by the Board. The remaining two groups of lots would be let later to spread the need for local financing. Monitoring and Evaluation 4.48 The monitoring and evaluation of the proposed project are important in view of: (i) the Government's intention to use experience from this proj- ect in launching a comprehensive program for rural road improvements and raising agricultural production; and (ii) the desirability of being able to identify and to respond quickly to any unexpected side effects of the project. 4.49 DPC and DPA would, therefore, prepare quarterly progress reports on the rural road improvements, purchases of maintenance equipment, the  - 31 - strengthening of extension services, the provision of credit, the construction of collection and equipment facilities and the purchase of agricultural equip- ment. These reports would be based on: (i) the targets outlined in the annual operating plans of participating agencies (para. 4.35) and extension manuals; and (ii) the progress reports by CRDAs and MPW field divisions (para. 4.35). The reports would be consolidated into a single report by the Coordinating Committee. The Government would also be asked to prepare a project completion report. During loan negotiations, assurances were obtained from the Government that it will prepare a quarterly progress report covering the above matters and send it to the Bank (the first one within six months of the Loan Effective- ness Date) and the project completion report (within six months of the Loan Closing Date). F. Disbursements 4.50 The proposed Bank loan of US$32.0 million would be equal to the foreign exchange cost of all project components except short-term and investment credit (para. 4.28) and would be disbursed over about six years as follows: US$ million (i) Rural Road Works 15.1 40% of total expenditures (ii) Rural Road Maintenance 100% of foreign expenditures Equipment 3.5 or 80% of total expenditures in local currency (iii) Equipment for Extension Services 1.3 55% of total expenditures (iv) Construction of agricultural 100% of foreign expenditures facilities and purchase of or 75% of amounts disbursed agricultural equipment 4.8 by BNT (equivalent to 53% of total expenditures) (v) Consulting services and training 0.8 75% of total expenditures (vi) Unallocated 6.5 Total 32.0 4.51 Disbursements against (i), (ii), (iii), (iv) and (v) would be fully documented. In accordance with the Clause III of CPM No. 7.15, the Government should make arrangements satisfactory to the Bank for the audit of expendi- tures covering disbursements und r this procedure. Disbursement applications for (i), (ii) and (v) would be submitted by MPW: r (iii) by MA; and for (iv) by BNT, all in accordance with the Bank Guidelines. -Luring loan negotiations, the Bank, Government and BNT discussed and confirmed details of disbursement arrangements and the schedule of cumulative disbursements of Table 4.3. This schedule is based on the percentages of para. 4.50 and the project implementa- tion schedule (Chart No. 18505).  - 32 - G. Environmental Impact 4.52 The project would improve the rural environment by providing infra- structure in the form of rural roads, storage facilities and workshops and better access to markets and administrative centers. Since the roads are located in rural terrain and most of the improvements would take place on existing alignments, there would be little, if any, need to displace dwellings and their inhabitants. Table 4.3: DISBURSEMENT SCHEDULE Cumulative Disbursement IBRD Fiscal Year at end of Quarter and end of Quarter US$'000 1978/79 March 31, 1979 100 June 30, 1979 300 1979/80 September 30, 1979 800 December 31, 1979 1,800 March 31, 1980 2,800 June 30, 1980 3,800 1980/81 September 30, 1980 4,500 December 31, 1980 8,900 March 31, 1981 13,200 June 30, 1981 14,700 1981/82 September 30, 1981 16,400 December 31, 1981 18,000 March 31, 1982 19,700 June 30, 1982 20,000 1982/83 September 30, 1982 20,400 December 31, 1982 22,200 March 31, 1983 24,000 June 30, 1983 25,900 1983/84 September 30, 1983 27,800 December 31,1983 29,700 March 31,1984 31,700 June 30, 1984 32,000  - 33 - V. ECONOMIC EVALUATION A. Sector Lending Approach 5.01 In accordance with Highway Sector Lending, the ERs of sub-projects may be calculated after loan approval, provided that the methodology and criteria used to appraise the technical and economic feasibility of sub- projects are satisfactory, only economically viable sub-projects are accepted for financing and the capacity of the Borrower to implement the project is adequate. The methodology is set out in detail in the project file (Annex 8, B.16 and C.2) and is satisfactory. It has already been used to appraise 19 road sections (about 400 km) and complementary agricultural investments in the provinces of Le Kef, Siliana and Kairouan. The quality of project preparation is satisfactory, demonstrating the Government's capability to prepare sub- projects (para. 5.16). The ERs of 18 of the 19 investment packages proposed in these three provinces range between 11% and 27% (Annex 4), and meet the ER criterion for Bank approval (para. 4.23). Road 105 (Le Kef) does not meet the criterion (ER=9%) and is rejected. Financial rates of return, based on six typical farm budgets of households deriving their incomes entirely from live- stock and/or crop production, range from 9% to 53% and meet the financial rate of return criterion for sub-projects (para. 4.23). Annex 6 shows a sample farm budget. The optimal years for implementing the investment packages show that the proposed investments in the above three provinces are appropriately timed (Annex 4). The Government and BNT have the capacity to implement the project (paras. 2.09, 2.17 and 4.16). 5.02 Sensitivity analyses testing the aforementioned ERs show that a sig- nificant reduction (75-80%) in complementary agricultural investments, and, consequently, in benefits,resulted in unacceptable ERs (Annex 4) for all proposed roads in the above three provinces except Roads 104 (Le Kef), 202 (Siliana), 402, 405 and 408 (Kairouan). The improvement of these five roads could be justified by savings in transport costs alone; nevertheless, an integrated investment package, including agricultural investments, is recom- mended, because the ER of the integrated investment package is significantly higher than the ER of the rural road improvement only. Sensitivity analyses testing the ERs under assumed 10% cost overruns or 10% reduction in benefits resulted in acceptable ERs. 5.03 It is possible that, as in the case of Road 105, some of the addi- tional 40 road sections under study by the Government and consultants will be ineligible for financing because they do not meet the criteria of para. 4.23, especially since some of them have not yet been screened (para. 4.20) and are located in areas of Central Tunisia with limited development potential (para. 3.03). Therefore, as long as loan funds remain available, such roads will be replaced by roads from the additional 2,500 km to be studied under the pro- posed project (para. 4.18). Any such additional roads will be studied on a province by province basis in the following order of priority: Jendouba, Beja, Mahdia, Monastir, Sousse, and Zaghouan. This priority was discussed and confirmed during negotiations.  - 34 - B. Main Benefits and Beneficiaries 5.04 The proposed project has been designed as a pilot project to assist the authorities in developing a country-wide rural roads program. Thus, a main benefit would be that the Government would have a consistent methodology for and approach to project preparation and analyses and would gain valuable experience in project implementation. 5.05 Successful project implementation would raise farm incomes, includ- ing many farmers now with incomes below the Bank's estimated absolute poverty level of US$191 per capita who represent about 60% of the population in the proposed project areas (para. 3.01). The project would also support the high priority which the Government attaches to rural development as well as its specific objective of achieving self-sufficiency in major food products by 1981. 5.06 The proposed project would also generate important demonstration benefits to area residents outside the project areas in addition to benefit- ting families in the project areas due to increased mobility on the part of children (better school attendance), school inspectors, social workers and health officials. Finally, it might reduce migration of the rural population into the cities and urban centers. 5.07 Savings in transport costs due to road improvements would accrue to farmers and consumers in the case of transport by farmers and service coopera- tives. Savings in costs of transport by truckers and bus services would largely be passed on to farmers, other producers, consumers and passengers since the Government-controlled tariffs reflect the condition of specific roads (para. 1.09). C. Marketing 5.08 In view of the size of the pilot scheme, the impact of the proposed project on marketing would be small. Incremental production of cereals, meat and milk would help to substitute for imports, while the increase in output of fruits and vegetables (fresh or processed) would be absorbed in the domestic market, which is growing rapidly due to urbanization, rising consumer incomes and tourism demand. Processing facilities, particularly for vegetables, are operating at low capacity because of a shortage of input materials and. there- fore, would benefit from higher production. D. Economic Analysis 5.09 All ER calculations are based on a planning horizon of 30 years, since some agricultural investments have a rather long gestation period. The quantifiable benefits of the agricultural components are based on the fore- cast increase in the net value of animal and/or crop production, including better ex-farm prices of inputs and crops. In estimating the benefit stream over time, account is being taken of the phased entrance to project partici- pation of small, medium and large farmers and resulting increases in areas planted and yields obtained, and changes in cropping patterns and animal husbandry.  - 35 - 5.10 The quantifiable benefits of the transport components are based on the reduction in the costs of transport of: (i) passengers and non- agricultural merchandise on the rural road itself; and (ii) passengers and merchandise diverted to the rural road. In general, these reduced costs of transport are only about 15% of total benefits. 5.11 Annex 7 shows the operating costs of transport by various means (four categories of pack animals, four categories of animal-drawn carts, pickups, trucks, tractors, passenger cars and small buses). Savings in operating costs due to rural road improvements are realized because the improved road (i) reduces the operating costs of motorized means of transport, and (ii) makes the use of more economical means of transport (motorized) possi- ble. For instance, for the provinces of Le Kef and Siliana, it has been esti- mated that during the first year after improvement, 10% of the non-motorized transport will be replaced by motorized transport; during the next 19 years a gradual substitution of motorized transport amounting in total to 35%, for non-motorized transport has been assumed. Corresponding percentages for Kairouan are 7.5% (first year after improvement) and 40% (19 years). 5.12 Various aspects of the project would have significant benefits which are not readily quantifiable and have not been included in the ER estimates. Para. 5.06 gives examples of such benefits; other examples are reductions in travel time, accidents and losses associated with immobile vehicles. 5.13 Agricultural inputs, rented land and hired labor have been valued at prevailing prices and rates. The same foreign exchange rate has been applied to tradeable and non-tradeable agricultural products since import and export taxes are not levied on these products. Family labor in the provinces of Le Kef, Siliana and Kairouan has been costed at 50%, because of the limited employment opportunities on farms affected by the proposed project. Costs of privately owned farm land in these provinces have not been included because most of this land cannot be used for other activities (for instance, industry or tourism). Prices of all inputs and commodities have been adjusted for import duties, taxes and subsidies. E. Project Risks 5.14 The project's success will depend on the timely implementation of a variety of investments and activities by a number of agencies. The risk of not achieving adequate coordination and active participation should, however, be lessened by the establishment of a Coordinating Committee and the arrange- ments already made to involve directly high level officials of the principal participating agencies. 5.15 Another type of risk lies in the fact that the experience of some of the participating agencies (e.g., extension services and BNT) in carrying out programs directed more intensively at low-income farmers is relatively recent. Hence, it is possible that, for example, the steps proposed to achieve greater extension services and credit coverage will prove to be inadequate or not fully appropriate. However, it is expected that the review of annual plans with each participating agency (para. 4.35) and the carrying  - 36 - out of project monitoring (para. 4.49) should help resolve problems which might arise in this regard. Overall, the potential of the proposed project, especially its benefits for low-income people, make the project risks well worth taking. F. Government's Capabilities 5.16 The Coordinating Committee, DPC and DPAEP, with the help of consul- tants have demonstrated their capacity to plan, prepare and evaluate rural road improvements and their complementary agricultural investments as evi- denced by the high quality of project preparation and analyses of the 18 roads already completed as well as the good quality of the manuals for extension services (Annex 8). In addition, DPC and DPAEP have prepared or supervised various feasibility studies for highway and road maintenance projects and agricultural projects, respectively. C. Technical Assistance 5.17 The costs of expatriate experts to train extension agents for the proposed project components in the provinces of Le Kef, Siliana and Kairouan have been included in the ER calculation by allocating portions of these costs to the investment packages. The same procedure will be followed for ER calcu- lations of other investment packages. 5.18 The costs of technical assistance to the MPW and the MA to assist in the preparation and evaluation of another 2,500 km of rural roads and comple- mentary agricultural investments have not been included in the aforementioned ER calculations; they would have to be included in the investment costs of a subsequent project.  - 37 - VI. AGREEMENTS REACHED AND RECOMMENDATIONS 6.01 During loan negotiations, agreement was reached on various issues referred to in the report, including the following matters of particular significance: (a) the Government will promptly provide the resources required to reinforce agricultural extension services in the zones of influence of the proposed project roads (para. 4.10); (b) the Government and BNT will follow the procedures and criteria established for the preparation and Bank approval of sub-projects (paras. 4.20-4.23); (c) the Government will cause BNT to finance up to $3.3 mil- lion equivalent for the foreign costs of the 1979-80 investment credit needs from the Second Agricultural Credit Project and ensure availability of all funds necessary for all credit needs in the zones of influence of the project roads (para. 4.14); (d) the Government will assign specific overall responsibility for project implementation to the MPW (para. 4.31); and (e) the Government will cause each executing agency to maintain separate accounts for its part of project work and submit annual financial statements to the Bank (para. 4.42). 6.02 Conditions of effectiveness will be: (i) the formal establishment of the Coordinating Committee including its legal standing, powers and terms of reference (para. 4.32), and (ii) the signature of the agreement between the Government and BNT (para. 4.36). 6.03 The proposed project provides a suitable basis for a Bank loan of US$32.0 million to the Government of Tunisia for a 17-year term, includ- ing a 4-year grace period.  - 38 - ANNEX 1 APPRAISAL OF A RURAL ROADS PROJECT TUNISIA Projects Previously Financed by the Bank Transport Sector 1. Loan 52-TUN, (1969, US$0.8 million) was for engineering studies for highways included in the First Highway Project. It was satisfactorily completed. 2. Loan 746-TUN, (1971, US$24.0 million, First Highway Project) was for partial financing of construction and improvement of 274 km of highways, resurfacing and rehabilitation of 1920 km of roads, reconstruction of 51 bridges and consulting services. The project encountered difficulties with the rise in costs at the time of the oil crisis. In addition, further studies showed that the Tunis-Turki section should be constructed as a four-lane freeway rather than as the three-lane road included in the project. The Board therefore approved exclusion of the Tunis-Turki road form the project; this road was later financed by the Kuwait Fund. The disbursement rate was reduced on the remaining items. All other construction items and consulting services have now been satisfactorily completed. 3. Loan 1188-TUN, (1976, US$28.0 million, Second Highway Project) was for the improvement of about 225 km of primary and secondary roads, and consulting services to assist in the updating of the 1968 Transport Survey and to assist with the preparation of a Rural Roads Program. Construction has started on two lots of highway G.P.8, Tunis-Bizerte, but is delayed on other lots because of budgetary constraints. The rural roads study is proceeding satisfactorily, but the updating of the 1968 Transport Survey is behind schedule due to a late start. 4. Loan 606/Credit 150-TUN, (1969, US$17.0 million SNCFT, Railway Project) was for a project, the major components of which were the renewal of 352 km of track, purchase of rolling stock, improvement of workshops and consulting services. The project was delayed by about two years due to the disastrous floods of 1969 and 1971 and shortages of funds resulting from slow payments by the railway's principal customer (SFAX/GAFSA Phosphate Co.) prior to 1973, when the Government assumed the debts of the phosphate company. The project was satisfactorily completed. 5. Loan 724-TUN, (1971, US$7.5 million, Societe Tunisienne de l'Electri- cite et du Gaz, Gas Pipeline Project) was for a project the major components of  - 39 - ANNEX 1 which were procurement and installation of pipelines, compressors, and auxiliary facilities. The project was satisfactorily completed. 6. Loan 380-TUN, (1964, US$7.0 million, Republic of Tunisia, First Port Project) was for a project the major components of which were dredging and refilling at La Goulette, the construction of berths, transit sheds and other infrastructure and consulting services. The project was satisfactorily com- pleted. 7. Loan 573-TUN, (1969, US$8.5 million, Offices des Ports Nationaux Tunisiens, Second Port Project) was for a project the major components of which were dredging, the provision of dredges and cargo handling equipment, provision of a grain berth, training and consulting services. The project was satisfactorily completed. Agricultural Sector 8. Loan/Credit 484/99 TUN, (1967, US$18.0 million, Cooperative Farm Project) for a total amount of US$18.0 million was subsequently reduced to US$9.8 million. Following major changes in Tunisia's agricultural policy in 1969, the original project was substantially revised and then completed in 1973. The Project Performance Audit Report which was circulated to the Board on January 8, 1976, discussed the difficulties of Tunisian agriculture under the collective system in effect until late 1969. The project was satisfactorily completed. 9. Loan/Credit 779/263 TUN, (1971, US$8.2 million, First Agricultural Credit Project) was to finance part of Banque Nationale de Tunisie's (BNT) lending to commercial farmers for investment in grain farm mechanization, dairy farming, and date palm plantation. Implementation was slow initially but the loan is now fully disbursed and the project satisfactorily completed. 10. Loan 1340-TUN, (1976, US$12.0 million Second Agricultural Credit Project) became effective July 19, 1977 and aims at supporting a two-year lending program for on-farm development of small and commercial farms and for agro-industries and a four-year lending program for small holder date-palm plantation development. 11. Credit 270-TUN, (1971, US$2.0 million, Fisheries Project) was for a project aimed at development of Tunisia's inshore fisheries. Imple- mentation is generally satisfactory although problems have been experienced in gaining acceptance by some of the fishermen of the marine engine of the project boats. 12. Loan 1068-TUN, (1974, US$12.2 million, Irrigation Rehabilitation Project) is for a project to rehabilitate and improve the use of existing water resources as set out in the primary stages of the Water Master Plan.  - 40 - ANNEX 1 This project covers the Lower Medjerda Valley and Nebhana. The Lower Medjerda Valley component includes about 20,000 ha of which 75% is already equipped with irrigation and drainage facilities; the remainder lacks secondary and tertiary distribution networks. The Nebhana component includes the rehabili- tation of existing irrigation, drainage and road networks over about 5,000 ha net in the Nebhana area. The loan became effective in September 1975 and the physical implementation is satisfactory. Although limited access by small farmers to credit has now been resolved, delays in enforcement of certain aspects of land reform legislation are still a problem. 13. Loan 1431-TUN, (1977, US$42.0 million, Sidi Salem Multipurpose Proj- ect) has a terminal date for effectiveness of March 1978, and work on some of the co-financed elements has already begun. This project is the first phase of execution of the Northern Tunisia Water Master Plan. It includes the irrigation of 10,600 ha in Testour/Medjez el Bab and Nabeul areas, prevention of the decline of 6,000 ha of citrus in Nabeul, improvement of agricultural production on 32,800 ha in the Lower Medjerda Valley, helping meet portable and industrial water requirements, reduction of periodic flood damage, generation of electricity and the improvement of rural roads.  - 41 - ANNEX 2 APPRAISAL OF A RURAL ROADS PROJECT TUNISIA Principal Engineering Criteria Geometric Design Standards 1. Geometric design standards have been determined for design speeds of 40, 60, 80 and 100 km per hour. The standards are based on the French ICTAR (Instruction sur les Conditions Techniques d'Amenagement des Routes Nationales). The principal standards are shown in the table below. GEOMETRIC DESIGN STANDARDS Design Speed km/hr 40 60 80 100 Absolute minimum radius m 40 120 240 425 Desirable minimum radius m 120 240 425 665 Absolute maximum grade /1 % 10 9 8 7 Desirable maximum grade % 8 7 6 5 /1 These values are 2 percentage points greater than ICTAR values in view of the low cost character of rural roads. 2. The following table shows recommended design standards based on forecast traffic and topography. RURAL ROAD DESIGN STANDARDS Traffic Class (ADT)/ Item < 50 50-100 100-300 300-1000 Roadway Width m Carriageway 5 6 6.0 6.0 Shoulder 0 0 1.5 2.5 Total 5 6 9.0 11.0 Design Speed, km/hr Flat terrain ) no formal 80 100 Rolling terrain ) design 60 80 Mountainous terrain ) speed 40 60 /1 ADT = Average Daily Traffic.  - 42 - ANNEX 2 Engineering Soil Classification 3. Four classes of subgrade soil were identified. They are described below. Soil Class Description S1 In general, fine materials with poor geotechnical character- istics, including a plasticity index greater than 20, such as: (i) very plastic, fine soils, (clays and very plastic silts); (ii) poorly-drained, fine soils of low plasticity, (clays, silts); (iii) very poorly-drained, plastic, clayey-or silty-sands; and (iv) poorly drained, weathered marls. S2 In general, materials with medium geotechnical characteristics such as: (i) well-drained, fine soils of low plasticity; (ii) clayey- and silty-sands; (iii) well drained, weathered marls; and (iv) "Tuf" (the North African term for a calcarious crust). S3 In general materials with good geotechnical characteristics, including a plasticity index less than 15, such as: (i) fine sands; (ii) well-drained, low plasticity, clayey- or silty-sands; (iii) well drained, low plasticity, "tufs"; (iv) poorly-drained, clayey-gravels; and (v) unweathered marls. S4 In general materials with very good geotechnical charac- teristics such as: (i) gravels; (ii) well-drained clayey gravels; and  - 43 - ANNEX 2 (iii) rocky materials. Roadway Structures 4. The roadway structures for the proposed project were developed considering traffic volumes and the four classes of subgrade soil, described in para 3. The structures are shown in the table below. ROADWAY STRUCTURES /1 Soil Traffic Class (ADT) As sociate / Average < 50 50-100 100-300 300-1000/ /2 CBR- Subbase Base Subbase Base Subbase Base Subbase Base Class % mm mm mm mm mm mm mm mm S1 5 0 250 150 150 250 150 300 150 S2 9 0 200 0 250 200 150 250 150 S3 22 0 150 0 200 150 150 200 150 54 37 0 150 0 150 0 150 150 150 /1 All subbase and base courses are natural gravel except base course for ADT greater than 100 vehicles per day which is crushed gravel. /2 CBR = California Bearing Ratio. 77- Bituminous surface treatment provided. 5. The surface of some sections of the rural roads proposed for improvement consist of fine plastic soils of classes SI and S2. Passage is easy in the dry season, but these sections are impassable to motor traffic during the rainy season from October to February. Such a level of service is inadequate for the agricultural development envisaged in the richer agricultural areas, which involves products which cannot tolerate such long delays. In such cases the level of improvement proposed will assure all weather service. In areas where no products or agricultural inputs need to be transported during the wet season the natural subgrade material could be used as the running surface. Stream and River Crossings 6. Small streams are crossed with culverts, but for rural roads it is too costly to construct bridges across larger flows. The range of possible crossings therefore includes, in ascending order of service: a ford, a paved ford (Irish crossing), a paved ford with culverts, and a submersible bridge. A decision on the type of crossing and the associated level of  - 44 - ANNEX 2 service is based on a comparison of the cost of the crossing and the losses of agricultural production which the higher level of service would avoid. The computer program developed for the analysis of rural road projects contains the required data for this comparison.  ANNEX 3 - 45 - APPRAISAL OF A RURAL ROADS PROJECT TUNISIA Terms and Conditions of Loans to Farmers FOSDA Investment Credit Max. Cost per Unit of % to Be Financed frou-/ Interest Term Investment Own Ratell No. o Credit/Grant Preparation Type of Investment D Loan Grant Contribution % Years_/ Giving Instit. and Follow-up- Long-Term Credit Sheds (milk cows) 300 70 10 20 6 15 (2) BNT CRDA/OEP Sheds (sheep) 30 70 10 20 6 15 (2) BNT CRDA/OEP New wells 2,500 65 25 10 6 20 (2) BNT CRDA/Genie Rurale OMVVM Deepening of wells 800-1,300 60 20 20 6 10 (2) BNT CRDA/Genie Rurale Medium-Term Credit OMVVK Pumps 1,200 70 20 10 6 7 (2) BNT CRDA//Genie Rurale Purchase of milk cows 300 70 10 20 6 5 BNT CRDA/OEP Tractors and appliances variable 70 - 30 - 5-7 BNT CRDA/Prod. Agricole Cactus planting 56/ha 50 30 20 6 7 (4) BNT CRDA/Prod. Agricole Associated range protection where 30/ha/yr - 100 - - 3 CES