Afghanistan - Agricultural and Rural Development Project

Document of The World Bank FOR OFFICIAL USE ( 6 Report No. 2297-AF STAFF APPRAISAL REPORT AGRICULTURAL AND RURAL DEVELOPMENT PROJECI DEMOCRATIC REPUBLIC OF AFGHANISTAN May 8, 1979 Projects Department Europe, Middle East and North Africa Region 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.  CURRENCY EQUIVALENTS Afghanis (AF) 40 = US$1 AF1 = US$0.025 WEIGHTS AND MEASURES 1 hectare (ha) = 10,000 m2= 2.47 acres = 5 jeribs 1 jerib = 2,000 m2 = 0.2 ha = 0.49 acres I kilometer (km) = 0.624 miles 1 sq. kilometer (km2) = 0.386 sq. miles = 100 ha 1 kilogram (kg) = :2.2046 pounds I metric ton (ton) = 1,000 kg = 2,204.6 pounds 1 liter = 1.057 US quarts 1 million cubic meters 1 Mm3  FOR OFFICIAL USE ONLY ABBREVIATIONS ACCSI Afghan Cartographic and Cadastral Survey Institute ADT Average Daily Traffic AFC Afghan Fertilizer Company AgBank Agricultural Development Bank of Afghanistan DCD Department of Cooperative Development DRA Democratic Republic of Afghanistan EC Executive Council of PRDC EHD Environment Health Department ERIC Experimental Range Improvement Center FAO Food and Agricultural Organization of the United Nations HLDC Herat Livestock Development Corporation IDA International Development Association IFAD International Fund for Agricultural Development MA Ministry of Agriculture MET Monitoring and Evaluation Unit PACU- Program for Agricultural Cooperatives and Credit in Afghanistan PRDC Provincial Rural Development Council RDD Rural Development Department PCCRD President's Council for Coordination of Rural Development RPIU Regional Planning and Implementation Unit SIDA Swedish International Development Agency UNDP United Nations Development Program UNICEF United Nations Children's Fund USAID United States Agency for International Development WAPM Ministry of Water and Power WFP World Food Program WHO World Health Organization | This document has a restricted distribution and may be used by recipients only in the performanceI of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   APPRAISAL OF AGRICULTURAL AND RURAL DEVELOPMENT PROJECT AFGHANISTAN TABLE OF CONTENTS Page No. I. THE SECTOR ............................................. 1 A. Introduction ....................................... 1 B. Agricultural and Rural Sector ...................... I C. Issues in Agriculture .............................. 3 D. Previous Bank Group Assistance ..................... 5 II. THE PROJECT AREA ....................................... 6 A. Physical Environment ................................ 6 B. Population ......................................... 8 C. Economy ............................................ 9 III. DEVELOPMENT INSTITUTIONS ..... ................ 11 A. Provincial Administration ......................... 11 B. Ministry of Agriculture (MA) ....................... 12 C. Rural Development Department (RDD) .... ............. 12 D. Agricultural Development Bank of Afghanistan (AgBank) ........................................... 13 E. Afghan Fertilizer Company (AFC) .................... 15 F. Ministry of Water and Power (WAPM) .... ............. 15 G. Environmental Health Department (EHD) ............... 15 H. Afghan Cartographic and Cadastral Survey Institute (ACCSI) .................................. 16 I. Department of Cooperative Development (DCD) ........ 16 IV. THE PROJECT ............................................ 17 A. Introduction ....................................... 17 B. Project Objectives ................................. 18 C. Brief Description .................................. 18 D. Project Detailed Features .......................... 20 E. Cost Estimates ..................................... 30 F. Financing .......................................... 31 G. Procurement ........................................ 33 H. Disbursements ...................................... 33 I. Accounts and Audit ................................. 34 This report is based on the findings of an IDA Appraisal Mission to Afghanistan in June/July 1978 comprising Messrs. V.A. Ashworth, P. Aklilu, H. von Pogrell (IDA), and M. Rahman, and P. Ryan (consultants) and a follow- up mission in January/February 1979, comprising Messrs. V.A. Ashworth and P. Aklilu.  Table of Contents (Continued) Page No. V. ORGANIZATION AND MANAGEMENT ............................ 35 A. Introduction ....................................... 35 B. Rural Development Department - Regional Planning and Implementation Unit (R])D-RPIU) .... ............. 36 C. Provincial Rural Developmenlt Councils .... .......... 38 D. Project Implementation ............................. 38 E. Training ........................................... 40 F. Monitoring and Evaluation .......................... 41 VI. BENEFITS AND JUSTIFICATION ............................. 42 A. Targeted Beneficiaries and Financial Analysis ....... 42 B. Production .......................................... 44 C. Marketing ........................................... 46 D. Prices .............................................. 48 E. Economic Analysis .......... ......................... 48 F. Cost Recovery and Fiscal Irmpact .................... 50 G. Risk ....... ......................................... 52 H. Environmental Impact ....... ......................... 53 VII. RECOMMENDATIONS ................ ......................... 53 ANNEX 1: Supporting Tables and Charts TABLES 1. Investment and Operating Costs by Component and Year ....... 61 Appendix 1, Project Cost by Year and Category .... .......... 62 Appendix 2, Project Cost by Component and Category - Base Cost, Prices Contingency and Total .................. 63 2. Project Financing Table by Component ........................ 64 3. Project Financing Table by Category . ........................ 65 4. Technical Assistance - Consultant Services ................. 66 5. Financial and Economic Prices .............................. 67 6. Summary of Selected Financial Models for Project Investments ................................................ 68 7. Incremental Staff Housing, Buildings, and Vehicles to be Project Financed ..................................... 69 8. Estimated Schedule of Disbursements ........................ 70 9. Economic Benefit and Cost Streams .......................... 71-74 CHARTS 1. Selected Indicators for Monitoring and Evaluating Agricultural Development Projects .......................... 75-77 2. Present Government Organization ............................ 78 3. Rural Development Department Regional Planning and Implementation Unit. Proposed Organization Chart .......... 79 4. Rural Development Department - Organization Chart .......... 80 5. Project Implementation Schedule ............................ 81  Table of Contents (Continued) Page No. ANNEX 2: Statements of Expenditure .............................. 82-83 ANNEX 3: Selected Documents and Data Available in the Project File ..... 84-85. MAPS IBRD 14011R IBRD 13204R1   I. THE SECTOR 1/ A. Introduction 1.01 Project appraisal was undertaken shortly after the recent Government change. The two-year old Seven-year Development Plan has been suspended and The Democratic Republic of Afghanistan (DRA) is currently re-examining sectoral policies and investment priorities, including the preparation of a new Five- year Development Plan which is expected to be finalized during 1979 and which is expected to give the agricultural sector high priority. The Government has demonstrated the importance it attaches to agriculture and the alleviation of rural poverty by passing important Decrees on the alleviation of peasant indebtedness and fundamental land reform and by acting in a forthright manner to implement them. B. Agricultural and Rural Sector 1.02 Role in the Economy. Afghanistan has an estimated population of about 14-15 2/ million of which about 85% including about 1.5 million nomads is rural, and 15% urban. Agriculture accounts for about 60% of export earn- ings and employs about 53% of the total labor force estimated at 4.7 million. From 1968/69 to 1975/76 agricultural production grew at an annual compound rate of about 1.9%, less than the annual population increase of about 2.2%. Agriculture's contribution to total GNP in 1975/76 constant prices has dropped from 65% in 1968/69 to 57% of GNP (1975/76). Whilst this trend of gradual structural change is consistent with growth patterns in other developing economies, in Afghanistan it is due largely to sluggish agricultural develop- ment rather than dynamic growth of other sectors. Consequently, over 6 mil- lion rural people (about 40% of total population) continue to live in absolute poverty with a per capita income of about $85 or less. 1.03 Crop Production and Cropping Pattern. Agriculture is largely subsistence, with wheat the predominant crop occupying about 70% of total cereal crop land and some 60% of total cultivated area (4 million ha). Other crops include maize, barley, and rice, and a wide variety of fruits and vegetables and industrial crops, including cotton and sugar beet. Average yields for selected agricultural products compared with "better farmer" performance are roughly as follows: 1/ For detailed discussion on the Agricultural Sector see IBRD reports listed as Nos. 1, 2, 3, and 4, Annex 3, Section A. 2/ Source: 'Journey to Economic Development', IBRD No. 1777a-AF, March 1978.  - 2 - Average Yield for Selected Crops (tons per hectare-irrigated) 1968/69 1975/76 Better Farmer Wheat 1.3 1.7 3.0 Maize 1.5 1.6 4.0 Rice 2.0 2.1 5.0 Seed Cotton 1.3 1.4 4.0 Potato 10.0 11.4 16.0 Grape 5.5 6.0 14.0 Livestock Milk (1 per/cow/yr) 540 540 1,500 Afghanistan is presently pursuing a policy of wheat self-sufficiency as opposed to 'food security'. 1/ It is virtually wheat self-sufficient in years of 'normal' precipitation at current per capita consumption levels (155 kg) and with present population. From 1972/73 to 1976/77 recorded wheat imports averaged 43,000 tons annually, ranging from 2,500 to 138,000 tons. Crop and livestock yields have increased very slowly due largely to traditional farming systems and cultural practices including animal husbandry which, although well adapted to local conditions have not given way to modern techniques. Although growth in fertilizer use has been impressive, no more than 15% of the total cropped area receives fertilizer, with total usage in 1977/78 amounting to 100,000 tons, representing about 26 kg per ha cropped which is very low compared to neighboring developing countries. 1.04 Until 1978 Government policies had not substantially altered the skewed income distribution which is strongly influenced by land ownership, access to credit, support services, and irrigation water availability. The rural population dispersed among 20,000 viLlages includes an estimated 1.2 million farm families with holdings varying from 0.5 to 6 ha of cultivable land and averaging about 3.5 ha. Available data suggest that about 80% of land-owners owned less than 3.9 ha while some 2% held about 40% of total cultivable land. Perhaps 30 to 40% of land cultivated was farmed by land- less sharecroppers who probably constitute a high proportion of rural poor. Equally important is the water rights issue. By tradition, those at the head of irrigation canals are entitled a water share usually much in excess of their needs, thus depriving farmers on the lower reaches. 1/ Wheat 'self-sufficiency' implies satisfying national demand, even in poor years, from local production. 'Food security' would envisage meeting demand from local production plus storage accumulated in surplus years and from strategic imports. A Wheat Production Project presently being appraised would assist Afghanistan to achieve food self-sufficiency.  - 3 - C. Issues in Agriculture 1.05 Land and Water Utilization. Afghanistan is a land locked country with about 85% of the total land area of 65 million hectares unsuitable for cultivation. Arable land accounts for about 8 million hectares, but due to water shortage only about 4 million hectares are annually cultivated and of this only some 2.8 million hectares (70%) are irrigated. The arid, conti- nental climate poses a major obstacle to agricultural development. Agricul- tural production relies heavily on irrigation from river flows, snow melts, springs, karezes 1/ and groundwater. Although rainfed land accounts for about 37% of total area cultivated, its contribution to total agricultural crop production is less than 20%. While the potential for increased agricul- tural production is high, the present inefficient use of water remains a severe constraint. The issue of water distribution, which has massive social and economic dimensions, must be faced if Afghanistan is to fully exploit the latent potential of its land and people. DRA recognizes this and Decree No. 8 provides a legislative basis for more equitable water distribution by requiring that in future, water be distributed in accordance with land owned and crops grown. Implementation however is presently impractical and will require detailed research and analysis before forward movement can be made. Furthermore while crop yield per hectare is an important efficiency indicator, the critical coefficient is yield per water unit used. High priority should be accorded farm systems research in this field. 1.06 Land Distribution and Tenure. Rural income and poverty are closely related to irrigated land ownership. In Ghazni per capita irrigated land is thought to be about 1.07 jerib 2/ with at least 60% of rural population in absolute poverty. By comparison, per capita irrigated land in Kunduz is 2.54 jerib with about 20% of rural population living in poverty. The land tenure system has, in the past, been fundamentally feudal, with distribution skewed in favor of some 20% of landowners owning about 70% of total irrigated land, and 60% less than one hectare. Landlord/tenant relationships are tradition- ally defined in the former's favor. In 1978 DRA introduced Decree No. 8 which will abolish the skewed land distribution. The Decree places a ceiling of 30 jeribs (6 ha) of first grade irrigated land (orchard and vineyard) with appropriate adjustments for lower grades, which can be owned by each person. All land in excess of the prescribed area is confiscated without compensation and is to be distributed free to landless farmers and 'petty landowners 3/' on the basis of a maximum of 5 jeribs (1 ha) of 1st grade land each. DRA expects in excess of 3 million jeribs (600,000 ha) 4/ 1st grade land equivalent to be 1/ An ancient system of tunnels which tap groundwater in mountain fans. 2/ 1 Jerib = 0.2 ha. 3/ A 'petty landowner' is a farmer who owns less than 5 jeribs (1 ha) of 1st grade land. 4/ Landless farmers are to receive not less than 5 jeribs of 1st grade land; 'petty farmers' may receive something less so as to make the area owned 5 jeribs of 1st grade land equivalent.  - 4 - distributed to about 680,000 'agricultural households', and has proceeded to speedily implement the law, expecting to complete land distribution by mid 1980. DRA is aware of the need to provide support services (credit, exten- sion, production inputs) to new settlers, and has taken steps to coordinate departmental and agency activities and mobilize personnel resources to an extent never before seen in Afghanistan. However administrative weaknesses and the operational capacity of many departments may prove a severe bottle- neck. Without prompt adequate support to settlers, the bold land reform program could result initially in lower agricultural production and much personal hardship. The land issue also includes the rangelands which involves the nomads and transhumants in a delicately balanced complex of social, eco- logical, and economic factors; and embraces the fundamental issue which has so far defied solution, of community ownership and use of land and individual ownership of livestock. 1.07 Agricultural Extension. The present ratio of extension agent to farmers is inadequate, varying between about 1:400 to over 2,000. Total extension staff number about 3,300 and while the basic extension service structure exists, its performance has been unsatisfactory. Contributing factors include cumbersome, highly centralized administrative procedures, inadequate operating program and training, weak research backup, and poor staff facilities (housing, transport, equipment) in rural areas. Furthermore, whilst the extension service contains a number of well trained, qualified and capable people, these are underutilized to an extent which the country can ill-afford. Extension and research are separated into different departments and development and dissemination of new technologies is weak. Coordination with other agricultural agencies (Agricultural Development Bank of Afghanistan (AgBank), Afghan Fertilizer Company (AFC)) could be greatly improved. The absence of a dynamic extension service is probably reducing the effectiveness and hence the economic returns of other major investment programs in credit and irrigation. DRA recently requested IDA assistance for establishing a more effective service. 1.08 Credit. 1/ Informal credit markets are still predominant, but recent growth of institutional credit facilities and use through AgBank and commercial banks has been encouraging. AgBank has 13 branches and 4 sub- branches and with UNDP/IDA/DRA assistance has evolved as one of the strongest and best managed institutions in Afghanistan. The number of loans disbursed has grown from 44 in 1969/70 to 81,000 in 1976/77. Recently loans to coopera- tives has been a major growth area but AgBank is still probably assisting no more than about 8% of total farmers. Security requirements are still weighted in favor of registered land owners although some progress towards relaxation has been made recently. A recently issued Decree (Number 6) has the effect of reducing private land mortgages held on 2 ha or less, and in the case of 1/ For a detailed discussion on AgBank see IBRD report 1490-AF 'Appraisal of Third Agricultural Credit Project', and Project Performance Report 'First Agricultural Credit Project' (Credlt 202-AF) - Report No. 2111, June 24, 1978.  -5- tenants and sharecroppers waiving all debts to landowners. 1/ It is too early to judge the effects of this measure, but an attempt by AgBank or commercial banks to fill any gap resulting from a downturn in traditional money lending activities would require resources beyond those presently available to the former. In an endeavor to meet the situation DRA is establishing village 'farmers unions' which will mobilize savings and lend to individuals for personal use. The major issue is access to credit. Cooperative lending will improve this but AgBank needs to appreciate that the best security is sound appraisal, good loan supervision, and satisfied customers, while liberaliza- tion advocates need to understand that institutional credit discipline among farmers is essential if AgBank is to survive as a viable financial institution and provide the credit services the nation needs. 1.09 Commitment to Rural Development. The key to alleviating poverty lies with devising and successfully implementing integrated rural development programs which attack the problem of providing adequate basic human needs. In the past too much emphasis has been placed by Government on 'visible' projects. The technology is available with some local adaptation, which could substan- tially increase most agricultural crop production thereby raising family incomes and providing basic food security. But the technology and essential support services must be extended to the farmers through decentralized agri- cultural and rural development programs. Rural Afghanistan desperately needs a deep Government commitment to attacking the basic elements of poverty, devising programs relevant to village life and needs, and a will to build mutual trust and respect with the people. The new Government has indicated a better understanding of these needs and the proposed project would be a first step towards application. 1.10 Institutional Issues. Agricultural and rural development is con- strained by a number of complex interrelating factors, but the overriding issue in the past has been Government's inability to establish a satisfactory policy framework and to provide effective supporting services. The operating framework including administration, financial and staff management has been inadequate to meet the needs of dynamic agricultural development programs. Staff morale and motivation has been low and underutilization common. A general staff reluctance to take field assignments is understandable as there are few material rewards where facilities and transport are poor, good housing difficult to obtain, and where support and interest from the center is less than desirable. D. Previous Bank Group Assistance 1.11 IDA's assistance to agriculture with credits totalling US$109 mil- lion, has hithertho concentrated on provision of credit for farm inputs, promotion of livestock and fruit and vegetable production and constructing new irrigation systems. Since 1969 IBRD has been the executing agency for a 1/ Government has indicated that the Decree has no similar effect on insti- tutional credit.  -6- UNDP financed technical assistance project to AgBank. The First Agricultural Credit Project (202-AF, US$5 million 1970) was successfully completed in 1976 with the exception of the minor irrigation rehabilitation component. Under the Second Project (1975, 539-AF, US$13 million), AgBank has successfully expanded its short term lending program, improved staff quality, and further strengthened institutional aspects. A Third Project (721-AF US$12 million 1/) commenced in 1977, will expand on existing operations. Performance under these projects has generally been satisfactory. In livestock, IDA has fi- nanced Livestock I (1973) and II (1976) Projects (375-AF, US$9 million and 649-AF, US$15 million) designed to capitalize on Afghanistan's quality sheep and develop an export meat industry with supporting production and rural infrastructural components. The projects which include assistance to nomadic groups were seen as offering the opportunity to initiate 'self-sustaining' rural development. Due to unsatisfactory administrative procedures, inexperi- enced management, and absence of a commercial approach performance has been behind schedule. A joint IDA/DRA review recently confirmed the Project's viability but recent developments have slowed project implementation. In irrigation IDA is financing Khanabad I (1971) including a supplementary credit (1976), and II (1978) Projects (Credit 248--AF, US$5 million plus US$10 million supplementary and 778-AF, US$22 million) and designed to modernize irrigation of 30,000 hectares. Khanabad I is nearing completion, while Khanabad II is just starting. A fruit and vegetable export project (Credit 779-AF, US$18 million) has just become effective and a wheat production project is currently under appraisal. The Second Education Project (Credit 674-AF, US$6 million) provides assistance for expanding agricultural high school education; a Third Project (Credit 893-AF, US$21 million) incLudes a preinvestment design for extension training and resource development facilities; and a Fourth Project about to be appraised would expand extension and farmer training facilities. II. THE PROJECCT AREA 2/ A. Physical Environment 3/ 2.01 Ghazni and Wardak were selected from a group of provinces including Samangan, Bamyan, Zabul, Uruzgan and Ghor with a total population of about 3.3 million and cultivated area of roughly 780,000 ha. Selection criteria 1/ Plus C$5 million from the Canadian International Development Agency. 2/ During negotiations the Afghan Delegation advised that the provincial organization had recently changed; Wardak province has been absorbed into Kabul; a new province Paktika, has absorbed part of Southern Ghazni; the project area remains unchanged. 3/ See page 10, Table 1: 'Socio-Economic Data and Indicators', for project area.  - 7 - included: (a) access from Kabul which permits utilization of existing infra- structure, (b) financial constraints in meeting the entire regional require- ments, (c) organization and management limitations, (d) potential for agri- cultural and livestock production, and (f) a high percentage of population living in absolute poverty. The provinces include about 10% of national popu- lation, 6% of total land area, 6% of total land cultivated, 5% of national irrigable land, 5% of the nation's sheep and goat population, 1% of total available grazing land and only 2% of national registered motor vehicles. Three agro-ecological zones are represented in the two provinces. A north- west zone (48%) includes mountains up to more than 4,500 meters with narrow, intensively irrigated, heavily populated valleys among vast grazing lands. The central zone (27%) includes largely flat semi-arid areas with less severe winters, moderate elevation of 1,900 to 2,300 meters, less precipita- tion (220 to 350 mm) and insufficient water resources for irrigating the larger areas of comparatively good soils. The southern zone (25%) is more arid with low population density and is used extensively by migrating nomadic pastoralists and transhumants 1/ for livestock grazing. Climate is semi-arid continental with long cold winters, dry summers, and precipitation which varies considerably from year to year and is strongly influenced by altitude. About 92% of precipitation occurs from December to June and a high proportion falls as snow. At Ghazni town (elevation 2,200 meters) precigitation is 290 mm and some 145 days annually experience temperatures below 0 C. The severe climatic conditions limit crop rotations and production. However, where water supply is adequate climatic conditions favor seed potato production and temperate fruits and vegetables. The total land area of Ghazni and Wardak provinces is estimated at 4.3 million hectares of which 227,000 ha (5%) is cultivated, 464,000 ha (11%) is designated pasture, 29,000 ha (0.7%) forest, and the balance of 3.5 million ha (83%) mountains and desert. Soils are mainly of alluvial origin, light textured with generally good external and internal drainage. The main differences occur according to the local intensity of irrigation and inspite of soil and topography limitations, about 350,000 hectares have been classified as Class 2 and 3 lands. 2.02 No reliable statistics are available on farm size distribution and average holding size, but the number of large holdings appears to be less concentrated than in some other provinces. The average-sized holding is about 1.6 hectares; but is probably a little higher in Ghazni. Land ownership pattern and landlord-tenant relationships are traditional. About 53% of cultivated land in Ghazni is owner-operated, 37% share cropped, and about 10% farmed by large landlords. Most holdings are highly fragmented. Share cropping comprises two forms, "Buzgar" and "Keshtegar". Under the latter the sharecropper provides all inputs except land and water, and receives 50% of the crop, while the 'Buzgar' provides only labor and receives 20%. Irrigation water is the most scarce resource. Traditionally agriculture depends on numerous small irrigation systems comprising mainly river diversions and 1/ Nomads are defined as people who live permanently in tents with no fixed abode. Transhumants include those who have a permanent residence but who spend some months in tents migrating with their flocks.  - 8 - karezes. Total irrigable land area is estimated at about 143,000 hectares; 63% by river diversion, 18% from karezes, 16% from springs, and about 3% from groundwater exploitation including wells. Irrigation system characteristics include considerable water and labor wastage due to frequent damage to the farmer-constructed diversion structures and upstream canal sections close to river banks; canals not having gated controls at their intakes and thus being subject to frequent high siltation during floods; and wild flooding irrigation with low efficiency (less than 40%). Also the high cost of kareze maintenance together with their year-long uncontrolled discharge results in high water wastage. 2.03 One asphalt road, about 230 km long and linking Kabul to Maidan and Ghazni and continuing south to Kandahar, exists in the project area. Unpaved roads link the two provincial capitals with about 31 district centers and the most important villages. About 366 km of Secondary and tertiary roads in Wardak and 2,550 km in Ghazni exist, some :in reasonbly good condition, but others, mostly in mountainous sections, are little more than tracks. Many roads cross canals without culverts. Including Ghazni town, reticulated water supplies do not exist; as a result, the same surface water sources are used for drinking, stock watering and irrigation, and are usually heavily polluted. There is no electricity supply to the two provinces except for Ghazni town, which is served from the power grid. Kerosene is widely used for lighting and operating pumpsets. Wheat mills are either water powered, or operate by diesel engines. The most common cooking and heating fuels are dried animal manure and brushwood; a critical shortage of domestic fuel wood exists. B. Population 2.04 The population of Ghazni and Wardak provinces is estimated respec- tively at about I million and 370,000, of which the rural population is about 1.2 million (86%), and consists of 142,000 families inhabiting about 3,000 villages. Population density is closely related to water availability but averages about 33/km2, which is 50% higher than the national average of about 22/km2. Although largely illiterate, farmers are capable, hard working, and respond to innovations provided risks are minimized and the technology is proven. Nomadic pastoralists whose number is not known are important to the area's economy. The mountains to the north and west are important summer grazing areas while large numbers of transhumants also spend the summer in Katawaz. Many nomads and transhumants migrate outside of the project area for the winter. National annual population growth rate is estimated at 2.2% and is probably about the same in the project area. With increasing population, fragmentation of holdings is continuing and forced migration to urban areas or into limited non-farm employment opportunities is also increasing. Except for the narrow valleys of mountainous regions the problem is shortage or scarcity of water but not land. With available water supplies and traditional wasteful water use practices, production in the irrigated areas has already reached levels that are nearly maximum within the limits of technology known or avail- able to these farmers. Increasing population, therefore, results in either urban migration or greater poverty. More recently, many unemployed have  - 9 - migrated seasonally to oil rich neighboring countries but this cannot be relied on as a permanent source of employment. Thus, an improvement in pro- ductivity and utilization of irrigation water is a vital necessity if even meager rural living standards are to be maintained. 2.05 The population is almost entirely Muslim and the two dominant languages Pashtu and Dari are spoken by most. The basic unit of Afghan life is the village, which may range in size from as few as 10 families to as many as 500. Perhaps the largest number of villages falls into the range of 40 to 80 families. Villagers are linked by ties of marriage and kinship. In the past larger landowners have been very influential. Village life centers around agriculture, which is at the mercy of precipitation. In dry years the wheat crop is only one-half of that in the average year, and in good years it doubles. Health of most inhabitants is poor as at least 80% of households drink polluted water. Common ailments include anaemia, major digestive problems, respiratory problems, and a high incidence, particularly among children, of conjunctivitis. While the project area includes about 10% of the national population, basic health centers and related facilities including pharmacies and hospitals are proportionately less; there are only 4 hospitals and 9 basic health clinics. Few villagers are literate; only about 6% of the total national primary school enrollments (654,000) are recorded in the proj- ect area. Similarly, middle school enrollments amount to about 6% of the national total. Of the 7 to 12-year age group, only about 40% attend primary school in Wardak, and 10% in Ghazni. No education facilities are available for nomads. Motor vehicle registration including cars, trucks, buses, and official vehicles total only 1,028 or 2% of the national total. C. Economy 2.06 Population of the two provinces represents about 10% of the national total and land about 6%. Similarly, the total land area cultivated (227,000 hectares) represents about 6% of the total land cultivated in Afghanistan (4 million hectares). Total irrigable land (143,000 hectares) constitutes about 5% of the land area which again is comparable to the national figure of about 4%. Of this irrigable land, about 80% is actually irrigated, of which no more than 75% would be irrigated in any one year. Wheat is the predominant crop with a total area of about 134,000 hectares representing about 6% of the total annual national area. At 1.3 tons per hectare, yields are low in Ghazni but at 1.6 tons are better in Wardak, where water supply is more reliable. Potatoes are an important crop constituting about 15,000 hectares or 75% of the total annual area sown to potatoes in Afghanistan. Potato yields of 10-12 tons per hectare are low and reflect poor seed quality and low fertilizer use. Other cereals including maize and barley are relatively unimportant, constituting only 1% of the national total at about 7,400 hectares. Fruits (apricots, almonds, apples, grapes) are important. Total area under fruits, vegetables, and forage is said to be about 20,000 hectares or about 5% of the national total of 373,000 hectares. Wheat production does not meet consumption plus seed demand in the Project Area. Probably about 30-40% of the annual wheat production of around 180-190,000 tons is traded annually. Potato production  - 10 - Table 1: Socio-Economic Data and Indicators/l Ghazni Wardak Ghazni-Wardak National Actual % of National Actual 2 of National Actual % of National A. DEMOGRAPHIC 1. Total Population ('000) 14,000 1,010 7 372 3 1,382 10 2. Population Density (pop/km2) 22 31 - 38 - 33 - 3. Rural Population 11,500 848 7 316 3 1,162 10 4. Rural Population as % of total 82 84 - 85 - 84 - 5. Number of Villages 20,000 2,040 10 972 5 3,012 15 6. Total Labor Force 4,710 n.a. n.a. n.a. - 7. % in Agriculture 53 n.a. n.a. n.a. - B. ECONOMIC 1. Per Capita Income US$180 n.a. n.a. n.a. - 2. Per Capita Rural Income US$120 n.a n.a. n.a. - 3. Rural Poverty income level US$ 85 n.a. n.a. n.a. - 4. Total land area (ha '000) 65,000 3,280 5 970 1.5 4,250 6 5. Total land cultivated 4,010 191 5 36 1 227 6 (ha '000) % of total 30 - 40 - 32 - 6. Total irrigable land 3,300 118 4 26 1 144 5 (ha '000) 7. Total land irrigated 2,50C 97 18 115 (ha '000) % of total irrigable 76 82 69 80 8. Average farm size (ha) 3.5 - - 1.b 9. Total Sheep and goats ('000 head) 22,400 940 4 230 1 1,170 5 10. TItal Cattle ('000 head) 3,400 300 9 60 2 360 11 11. Total Poultry ('000 head) 6,000 400 7 300 5 700 12 12. Total Other Live- stock ('000 head) 2,000 82 4 41 2 123 6 13. Total Grazing Land (ha '000) 54,700 411 1 53 - 464 1 14. Total Forest area (ha '000) 1,900 29 2 - - 29 2 15 Total Number Extension Agents 3,000 71 2.4 41 1.4 112 4 16. Total Roads - km 29,000 1,550 5 366 1 1,916 7 17. Road meters per km2 44 50 113 38 86 45 100 C. PRODUCTION ('000 ha) 1. Wheat 2,350 115 5 19 1 134 6 2. Potatoes 20 9.2 46 5.8 29 15 75 3. Other Cerals 1,008 6.2 1 1.2 - 7.4 1 4. Fruits, vegetables forage 373 14.2 4 5.8 1 20 5 5. Yields-tons/ha Wheat 1.21 1.3 107 1.6 132 1.45 119 Potatoes 11.5 10.0 12.0 D. SOCIAL 1. Basic Health Clinics 107 7 7 2 2 9 8 2. Maternal and Child Health and Afghan Family Guidance Association Clinics 37 1 3 1 3 2 5 3. Pharmacies 595 37 6 2 - 39 7 4. Hospitals 58 2 3 2 3 4 7 5. Primary School Enrollments ('000) 654 29 4 13 2 42 6 % of National Total 100 4 - 2 - 6 - 6. Middle School Enrollment ('000) 112 3 3 3 3 6 5 % of National Total 100 3 3 3 3 6 6 7, Motor Vehicle Registration Car 33,632 369 1 5 - 373 1 Truck 11,018 386 4 31 - 417 4 Bus 6,214 206 3 31 1 237 4 Total 50,864 961 2 67 - 1,028 2 /1 These data collected from various official Afghan sources ar.d IBRD reports should be regarded as rough indicators only.  - 11 - probably totals around 178,000 tons annually with perhaps 40-50,000 tons being traded. As with potatoes and fruit, Kabul is the most important market for project area livestock products particularly sheep and goats, wool, hides and skins. Livestock production is important with few village households owning no animals. Sheep and goats constitute 5% of the national flock, cattle 11%, poultry 12% and other livestock (camels, donkeys, horses) 6%. Productivity is low but the potential for improvement is substantial. Poplar tree production is marketed in both Kabul and Kandahar. Average per capita income in Ghazni is probably lower than the national 1976/77 rural figure of US$120. National rural absolute poverty income level is US$85 (1976/77). In Ghazni and Wardak it would be about the same. About 800,000 persons (60% of population) prob- ably live in or near a state of absolute poverty. Greatest concentration of these poor would be in the mountain regions and areas where irrigation water is insufficient. Women do not usually work outside of the family homes. Occasionally they help in the fields, but social custom confines them to family and home. In some areas they are engaged in handicraft production, particularly rugs and carpets. In the project area, however, except for the mountainous parts of Ghazni and Wardak, village handicraft production is not widespread. III. DEVELOPMENT INSTITUTIONS A. Provincial Administration I/ 3.01 The provincial administrations of Ghazni and Wardak are each headed by an appointed Governor responsible to the Ministry of Interior, and holding a rank equivalent to a Deputy Minister. The Governor is responsible for administration including law and order, defence, education, health, agricul- ture and rural development. He is assisted by a number of sub-governors (Woleswalis). Each sub-governorate is further divided into districts (Alaqadaris). In Ghazni there are 24 districts and in Wardak 9. The Governor is also chairman of the Provincial Rural Development Committee which includes subgovernors, representatives of various ministries and departments and Government appointed people's representatives. Representatives of various departments are responsible administratively to the Governor and technically to their ministries in Kabul. Annual budget is prepared by the central ministries in Kabul, approved by the Planning and Finance ministries and the Cabinet, and channeled through respective ministries. Provincial adminis- tration is highly centralized with the Governor exercising considerable influence and authority. 1/ Outline of present Government Organization is given in Annex 1, Chart 2; following recent administrative changes, the Project area will now involve the 'Governorates' of Kabul, Ghazni and Paktika.  - 12 - B. Ministry of Agriculture (MA) 1/ 3.02 The Director General of Extension and Agriculture Development in Ghazni is responsible for the administration and coordination of all MA provincial activities. Senior staff include a Veterinary Services Director with 9 supporting professionals; Extension Director with 73 extension agents; Forestry Director including 20 supporting professionals; Cooperative Director with 9 cooperative agents; and a Plant Protection Director. Each Director has access to one 4-wheel drive vehicle and many supporting staff have motor- cycles, which due to maintenance problems and administrative procedures are not always mobile. Housing is not generally provided but recently ten houses have been constructed in Ghazni and a further ten are under construction. Provincial staff motivation is reasonable but could be improved by better operating programs, more support with adequate vehicles, equipment and housing, and intensified inservice training. No agricultural research station operates in Ghazni or Wardak. For transportation the majority of professional staff have to rely on public buses which are slow, and often unreliable. In Wardak MA has a similar structure. The Director General of Extension and Agricultural Development is supported by Directors of veterinary services, extension, plant protection, forestry and range management and cooperatives. The number of staff operating in Wardak is correspondingly less. The vehicle situation is probably worse than in Ghazni and no houses are provided. C. Rural Development D)epartment (RDD) 2/ 3.03 The present RDD was established in 1972 as a part of the Prime Minister's office. It was provided with a charter to undertake rural social and economic development including responsibilities for minor irrigation schemes, most secondary and tertiary roads, and integrated rural development including health, agricultural and social activities in specially designated areas. RDD was previously responsible to a group of ministers, the 'High Council of Rural Development', which was recently abolished. RDD remains within the Prime Minister's office and for Project implementation purposes, coordination, planning and policy guidance will now be given by the Presidents' Council for Coordination of Rural Development (PCCRD) chaired by the RDD President and comprising the Presidents of concerned departments and agencies including Agricultural Extension, Veterinary, Cooperatives, Planning and AgBank. 1/ Outline of present Government Organization is given in Annex 1, Chart 2; following recent administrative changes, the Project area will now involve the Governorates of Kabul, Ghazni and Paktika. 2/ Annex 1, Chart 4 presents existing R)D Organization.  - 13 - 3.04 RDD has two forms of provincial organization. A typical provincial Directorate comprises a Director and up to about 15 lesser rank staff, which usually does not include an engineer. The office assists RDD teams from Kabul, makes prefeasibility studies, and implements certain small schemes on its own. The provincial Director is also secretary of the Provincial Rural Development Committee. The other organization involves a project committee for those areas where Integrated Rural Development (IRD) projects have been proposed. These regions may well be within a province as in Ghazni, where Katawaz Loi Woleswali is a designated IRD region with a Director General as head and a large number of supporting staff including health, agricultural extension, research, animal husbandry, and education. The Central Kabul office performs three basic functions; coordination through the President's committee, planning of projects and programs, and execution. Ghazni and Wardak each have an RDD Directorate with a Director and supporting staff. Project construction is the responsibility of RDD Central office through 10 construction teams each composed of one civil engineer, one administration officer, 4 technicians, a technical supervisor, and support staff. During construction beneficiaries usually provide labor which is paid for by WFP food rations while RDD provides technical guidance, equipment and materials. Field offices identify the needs of rural people, prepare project requests for presentation to the provincial committee, and their transmission to head office, mobilize local resources to assist construction teams, and procure locally available materials. 3.05 By the end of March 1978 Ghazni RDD had completed construction of six bridges and designed a further 12. In Wardak eleven had been completed and a further two designed. Fifteen irrigation projects had been completed in Ghazni and a further five designed. In Wardak only one wash-crossing had been completed, another is under construction, and an additional one in the design stage. Throughout the whole of Afghanistan the RDD 1978 summer program included 59 irrigation structures, five roads, 29 bridges, 3 foot bridges, and 8 other construction programs. In addition, it is expected that about 40 culverts would be constructed in each province plus a number of minor projects. Total 1977-78 budget amounted to AF 101.2 mil. (US$2.5 mil.) of which an esti- mated AF 92.7 mil. or 92% was spent. Budget for 1978-79 is AF 110 mil. (US$2.8 mil.). Permanent RDD staff include about 230 'professionals', 380 general service, and 415 non-permanent contractors. Professionals include about 30 engineers, 17 agronomists, 5 economists, 5 education specialists and 4 doctors; the remaining are sub-professionals. RDD currently receives technical assis- tance from an 8 man UN team and two Indian Government community development experts. WFP assists through food incentives to villagers to participate in self-help schemes and as a supplement to cash wages under Government schemes. Since 1974 USAID has been providing financial and technical assistance with a second phase project (1976) including construction on a fixed cost reimburse- ment basis of rural works projects which directly benefit the rural poor. Two USAID technicians presently work part-time with RDD. D. Agricultural Development Bank of Afghanistan (AgBank) 3.06 AgBank was reorganized in 1969 and a revised charter adopted in 1970. Since then it has undergone a remarkable transformation from a poorly  - 14 - organized channel for disbursement of state budget funds to an operationally autonomous, efficiently managed revenue generating institution. It has become the premier financial institution for agriculture with an effective and functional organization. It is now 100% Government owned and is generally under Central Bank supervision. AgBank's Board of Directors establishes policies and makes major decisions, while an executive board directs day to day operations. AgBank makes short-, medium and long-term loans for an expanding range of agricultural investments including farm mechanization, on-farm development, production inputs, livestock, agrobusiness and marketing. Its loan portfolio has nearly tripled in four years to over AF 1.7 billion (US$42.5 million) as of March 1978. Following the advent of the new Govern- ment, AgBank Senior staffing was largely changed. Despite this the institu- tion has shown stability and the new leadership is proving satisfactory. Implementation of Land Reform is currently affecting activities and causing security and repayment problems. Future demands on AgBank's resources are likely to be very strong and will test the institution's strength. 3.07 Given farmers' unfamiliarity with institutional credit discipline, AgBank has been conservative in securing loans, and requires mortgage of land or in some cases Promissory Notes guaranteed by landowners, as security for medium and long-term loans. These land-related security requirements have restricted the availability of credit since mortgaging land is complicated and costly. AgBank's short-term lending for fertilizer and other inputs is an effective operation with loans secured by joint and several guarantees of groups of five to ten farmers. Presently these loans are not individually appraised or supervised and first year collection rates are low. AgBank has plans to introduce a pass book system to facilitate individual borrowing and selective individual appraisal. Interest rates (8% for medium and long- term, 10% for short term) are positive in real terms 1/ and cover present capital and operating costs and generate profit margins, although AgBank still relies on a Government guarantee of the short term lending program and does not write off bad debts. The Supply Depart:ment of AgBank imports tractors and water pumps and related farm machinery for sale on credit to farmers. It also provides a backup after sales service which is presently undergoing reorganiza- tion and strengthening with a UNDP/FAO technical assistance project in support. 3.08 AgBank has a branch in Ghazni with 4 field inspectors (appraisers) under a branch Director responsible for loan evaluation and supervision. A deputy branch Director is in charge of 10 fertilizer agents who are respon- sible for administering the short-term lending and loan collection program. In 1976/77 medium-term loans granted included tractors (6), water pumps (8), flour mills (1), establishment of vineyards (7), and purchase of livestock (10). Total volume of financing was AF 3.8 million in 1976/77. Short-term loans for fertilizer, plant protection and improved seed totalled to 384 with a total loan amount of AF 1.5 million. Wardak is presently served from AgBank's Kabul office but credit activities could be expanded by opening local offices. 1/ Inflation in 1976-78 averaged about 6-8%. For the period 1979 through 1981, the inflation rate is unlikely to average more than 8% (World Bank projections).  - 15 - E. Afghan Fertilizer Company (AFC) 3.09 AFC established in 1973 as a wholly independent subsidiary of AgBank, is responsible for fertilizer procurement, storage and distribution. More recently its activities have included the purchase and distribu-t-ion--af imiproved seeds produced by Afghan Seed Company (ASC) and monopoly purchase and sale of agro-chemicals, including veterinary medicines. It has expanded its activities rapidly, distributing 100,000 tons of fertilizer during 1977-78, and has built up a satisfactory organization including a wide distribution system, with about 600 retailers who sell on a commission basis. All urea is supplied from a local plant while diammonium phosphate and other fertilizers are imported. Government-determined fertilizer prices presently are AF 10,000/ton (US$250) for urea and for diammonium phosphate AF 11,400 (US$285). Compared to current world prices, urea is not subsidized but diammonium phosphate and other fertil- izers presently are. AFC maintains a supply depot in Ghazni with three ware- houses (capacity 2,400 tons) constructed with IDA assistance under the Second Agricultural Credit Project (549-AF). Wardak province is served from AFC's Kabul head office, while Ghazni has a regional office with a staff of five. Private retail outlets total 26 in Ghazni and 15 in Wardak, with three AFC agro-chemical shops. There is close cooperation between AgBank and AFC. About 70% of fertilizer sales are financed by AgBank credit and about 30% are cash sales; the percentage of cash sales is increasing. F. Ministry of Water and Power (WAPM) 3.10 Since 1974 responsibility for water, irrigation (excluding minor schemes) and power development has been under the control of WAPM. It is responsible for the implementation of all major irrigation projects including Sardeh Dam (assisted by Soviet aid) in Ghazni province. Sardeh was completed in 1967 and, when the command area is fully developed, will irrigate 15,000 hectares. Government is planning to establish large state farms, which will be irrigated from this Dam. These would include the ASC seed farm, a sheep and poultry production complex, and an applied agricultural research station. The Ministry is also officially responsible for the management of Bande Seraj dam above Ghazni town, but its operation is directed by the Governor using unqualified personnel. WAPM does not maintain a regular office in Ghazni town. G. Environmental Health Department (EHD) I/ 3.11 The Ministry of Public Health has a Department of Environmental Health, whose responsibilities include the improvement of rural and urban 1/ Para. 3.11 describes the position at appraisal time; during negotiations the Afghan delegation advised that EHD's water supply responsibilities had been transferred to a new Department in the Public Works Ministry.  - 16 - water supplies, urban sewage and waste disposal and, with UNICEF and WHO assistance, the implementation of a recently introduced village health worker scheme. Its prime activities include the implementation of a UNICEF/ WHO supported rural water supply scheme. Only about 5% of rural population is presently provided with reasonably safe drinking water. EHD has estab- lished five Zonal Centers (ZC) to strengthen its administrative and implemen- tation capacity including Kabul and Kandahar which service Ghazni and Wardak. ZC's are headed by engineers and staffed with other skilled personnel required for carrying out the program. Presently, a planning engineer, hydrogeologist, and drilling engineer are included in the UNICEF technical assistance team and a WHO sanitary engineer also assists. UNICEF also supplies equipment and operating materials including pipes. EHD has 8 light drilling rigs with a heavy drilling rig operated on its behalf by WAPM Groundwater Department and a further 2 heavy rigs expected soon. Present EHD capacity is installation of about 25 rural water schemes annually. EHD's program in the two provinces has so far identified about 120 village water supply schemes largely oriented towards schools, health centers and hospitals. Operations have not yet started and probably only 5 or 6 would be completed annually. This is in addition to about 50 UNICEF/RDD schemes to be completed during the next five years. A backup maintenance unit has not operated at maximum efficiency. Within the rural water supply scheme EHD endeavors to implement a village health worker training scheme under which literate villagers are trained to undertake basic health first aid, sell certain approved medicines and educate people in the advantages of using pollution free water. ZC's are responsible for preparation and implementation of the annual work programs, surveys, construction, maintenance, data compilation, disinfection of water sources and health education. Close cooperation exists between RDD, EHD, and UNICEF/WHO in the planning and implementation of rural water supply schemes. H. Afghan Cartographic and Cadastral Survey Institute (ACCSI) 3.12 ACCSI was formed in 1973 with the merger of the cadastral survey and the cartographic institutes. The Institute with headquarters in Kabul is divided into 5 departments including administration, geodetic, photogrammetric, cartographic and reproduction, and engineering surveys. Technical and equip- ment assistance is presently given by a 5-man UNDP team. ACCSI maintains a Ghazni office with 56 staff including 50 technicians, responsible for 4 provinces including Ghazni and Wardak. Presently, about 24% of cultivated land in Wardak has been surveyed and about 13% in Ghazni. Until recently the cadastral survey methods used were slow and not entirely accurate. More recently aerial survey and orthophoto plan production has been introduced. Orthophoto plans can be produced in less time and with greater accuracy than that needed for normal ground survey. I. Department of Cooperative Development (DCD) 3.13 DCD was established within the 14inistry of Agriculture in 1973. The cooperative law enacted in 1974 was recently amended to exclude farmers  - 17 - owning more than 30 jeribs (6 ha) from membership. Furthermore, memberhsip fees are now related to size of holding and in emergency cases the coopera- tive may extend loans to individuals at 4% for a period of one year up to 80% of the applicants membership fee deposited. DCD grew out of the success- ful experience of the Project on Agricultural Credit and Cooperatives in Afghanistan (PACCA) which commenced in 1968 and was financed by the Swedish International Development Authority (SIDA) and executed by FAO. In 1973, Government decided upon cooperative development in several provinces with essential support services being provided by other relevant departments and agencies. DCD has responsibility to promote the establishment and registra- tion of cooperatives, audit accounts, draft regulations, and provide assis- tance and advice on organization and management. It currently has a total staff of about 430 of whom 293 (67%) are stationed in 12 provincial field offices including Ghazni. The national total of primary societies has grown from 11 in 1974 (2 registered) to 135 including 2 unions and about 13,000 members in June 1978. No cooperatives are registered in Wardak, and only 4 with about 300 members in Ghazni. In the past cooperative field staff have too often been arbitrarily assigned with inadequate preparation or orientation towards small farmer needs and unclear definition of their work responsibili- ties. In addition, most cooperatives which are largely service and marketing oriented, have tended to be seen rather as Government agencies and few have been self-reliant. Moreover, the cooperative law has been interpreted by Government officials as excluding tenants and sharecroppers as potential members. DRA considers the development of sound multipurpose agricultural cooperatives as an important means of accelerating agricultural development and to be an integral part of the land reform program. The new Five-Year Plan is expected to include provision for a rapid increase in cooperative numbers and a major reorganization of DCD including training is presently being planned. Organized at local, regional and national level they are seen as a means of providing farmers with greater access to production inputs, institutional credit, the marketing system and improved technology. Currently an intensified system of supervision of cooperative agents and cooperative activities is being implemented by DCD. Cooperative annual accounts audit is, with one or two minor exceptions up to schedule. Following the completion of the SIDA financed FAO executed technical assistance project in December 1978, UNDP has undertaken to finance a phase 3 project with 4 experts and 5 asso- ciate experts. DRA has recently requested IDA assistance to implement its cooperative development program. IV. THE PROJECT A. Introduction 4.01 The proposed project was prepared in October 1976 by an FAO/IBRD Cooperative Program Mission and a report submitted to GOA and IDA in January 1977. IDA missions in 1977 assisted with final project preparation. The project would represent the first IDA assisted effort aimed specifically at the Afghan rural poor. It is Government's intention to replicate similar projects in neighboring provinces based upon lessons learnt from the proposed project.  - 18 - B. Project Objecztives 4.02 The Project would aim at directly increasing the income and standard of living of about 40% of the Ghazni-Wardak rural population, including more equitable income distribution, improved distribution of Government services, and satisfying poorest farmers' basic needs. The proposed strategy includes improving small farm production and income through improvement in irrigation water supply; increasing use of fertilizer and improved seed; improving access to credit; increasing the efficiency of and farmer access to veterinary, extension and cooperative services; improving rural roads; and providing pollution free water supplies in a limited number of villages. The Project would strengthen Government Provincial services including capability in sub- project design and implementation procedures and systematic evaluation of Project impact. It would represent the first step in the Government's policy of concentrating resources for agricultural and rural development into a few selected areas. C. Brief Description 4.03 The proposed Project would constitute a first stage in a long-term development program designed to improve the social and economic well being of the Ghazni-Wardak rural population. It would focus on arresting the dete- rioration of, and emphasizing the proper use of the region's natural resource base, including soils, vegetative cover and water. It would mobilize vil- lagers to participate in the planning and implementation of the infrastructure and the services to be established; and would concentrate on strengthening the concerned Government institutions thereby helping to ensure effective project implementation and enhancing the capacity of these institutions to undertake subsequent development schemes. 4.04 The Project would consist of the following activities in various sectors; the proportionate costs of these activities as compared to total project costs including contingencies are indicated below, whereas the cost estimate is on page 32. (a) Agricultural Investments (56%). Minor irrigation rehabili- tation (17%), including improving the reliability of water supply in traditional main canals, increasing efficiency of water use, and reduction of crop yield losses; agricultural extension (7%), including increasing and upgrading the quality and number of extension agents and rapidly extending existing and new technology to as large a number of farmers as possible; applied agricultural research (2%), including the development of improved technology adapted to the project area and the target group and designed to yield the maximum economic returns from each unit of land and water on both irrigated and rainfed land; agricultural cooperatives (3%), including the establishment of viable, self-sufficient, multi-purpose service cooperatives and the efficient supervi- sion and training of cooperative office bearers and members;  - 19 - range management and survey (1%), including assistance to nomads and survey work designed to increase knowledge of the ecology, sociology, and economy of the project area range- lands and leading ultimately to the preparation of a pilot range management project; agricultural credit (17%), includ- ing improved access to and use of credit for short-term seasonal inputs and medium- and long-term productive invest- ments both to individuals and cooperatives and for private village workshop owners; veterinary and livestock (8%), including the establishment of a village veterinary service, improving the efficiency and operation of a mobile veterinary service and improving animal production extension to farmers; and cadastral survey (1%), including accelerating progress of reliable cadastral survey and the registration of most irri- gated land in the two provinces. (b) Rural Infrastructure (24%). Minor road improvement (20%), including the establishment of a unit capable of upgrading and maintaining to reasonable all-weather status about 400 km of feeder and tertiary roads; and village water supplies (4%), including the installation of pollution free reliable domestic water supply in about one hundred villages with a supporting education program. (c) Project Planning, Coordination and Evaluation, and Technical Assistance (20%), including the establishment of a regional planning and implementation unit (8%) responsible for planning, administration and coordination, building construction, procure- ment, operation of workshops, public relations and monitoring and evaluation; technical assistance (9%), including providing guidance and advice on the establishment and effective opera- tion of all aspects of the regional planning and implementation unit and preparing specific training programs for concerned Government agencies; and feasibility studies (3%) for dam storage expansion and a new moderate sized irrigation dam; and the preparation of a second rural development project. 4.05 The Ministry of Agriculture and RDD would play the major roles in project implementation. The Provincial Government departments and agencies would be responsible for implementing the Project, over a five year period, within their respective jurisdictions. These departments would at the provin- cial level, come under the direction of the Provincial Rural Development Council (PRDC) to which the RDD's Regional Planning and Implementation Unit (RPIU) would act as secretariat. RDD RPIU would act as the planning and coordinating body through PRDCs. The project activities would not commence in Wardak until project year three, following the establishment of effective implementation programs in Ghazni, and would ultimately cover most districts in the two provinces. In order to strengthen Government's ability to provide services in more remote villages the Project would improve the implementation capacity of participating Government services at district level through train- ing and institution building. Furthermore, technical staff would be upgraded and provided with the transport, equipment, program and supervision necessary to allow them to perform their tasks effectively.  - 20 - D. Project Detailed Features (i) Agricultural Investments 4.06 Minor Irrigation Rehabilitation (US$6.7 mil.). 1/ The Project would finance the equipment, transport facilities and staff required for the con- struction of about 100 medium and 50 small permanent diversion weirs and in- takes, and about 40 medium and 30 small wash crossings. The objective would be to improve the reliability of irrigation water supply in traditional main canals, and reduce water and crop yield losses due to inadequate intakes and wash crossings being destroyed during spring floods. Canal maintenance time and costs would be reduced, thus allowing farmers time to improve irrigation efficiency, crop weeding and general farm husbandry. Rehabilitation costs would be met by the Project but DRA would initiate a study to be completed by March 31, 1981, which would examine inter alia the sociological, economic and financial implications of introducing a recommended cost recovery system for minor irrigation rehabilitation to be implemented not later than March 31, 1982. The traditional system consists of a river diversion weir formed by dumping stones and covering with brush, wood and clay. Canals have uncon- trolled open heads, and cross minor valleys by throwing mud walls across the floor on the downstream side. These structures are extensively damaged during spring floods with consequent adverse affects on crop growth. Farmers spend ten to fifteen days each season repairing damage, involving up to 3,000 man days for an average canal commanding about 150 hectares. 4.07 Four construction units, including a pile driving unit with adequate equipment, and a small precast concrete-making unit, would be established within RDD-RPIU to carry out the works (Arnex 1, Chart 3). At full develop- ment, in project year six, the proposed rehabilitation works would improve spring and early summer irrigation reliability, with consequential reduction of canal maintenance costs, on an estimated 17,000 hectares. Special atten- tion would be paid to management of Bande Seraj Dam situated about 40 km upstream of Ghazni town with a storage capacity of about 25 Mm. Existing capacity, coupled with the average annual riverflow, is capable of adequately irrigating about 3,000 hectares, but the actual area irrigated is estimated at no more than 2,000 hectares. Under the Project, the dam operation would remain under WAPM technical control, but would be managed on the basis of a policy agreed upon by PRDC, WAPM and RDD-RPIU, including supervision by qualified engineers. Even with moderate efficiency, an additional 1,000 hectares could be effectively brought under irrigation through improved water storage management. 4.08 As specific intakes and canals for rehabilitation have not been identified, each improvement program would be subject to appraisal including a satisfactory cost benefit analysis carried out by the RPIU minor irrigation rehabilitation unit. The first three appraisals including details of pro- posed structural designs, would be sent to IDA for review and comment before 1/ Figures in parentheses are total costs including physical and price con- tingencies.  - 21 - actual work commenced and others would be reviewed by IDA supervision missions. Beneficiaries would continue to be responsible for normal canal maintenance using existing satisfactory organizations and systems. Heavy engineering support would be provided by RDD-RPIU which would continue operations after completion of project implementation. Criterion for selection of canals for rehabilitation would include a minimum financial rate of return over a ten- year time horizon of 15%; at least 50% of beneficiaries would own no more than 4 hectares (20 jeribs); canal intake size would not be increased to the detri- ment of downstream users on the river; command area farmers would agree to meet all maintenance costs and where practicable, provide unskilled labor required for work construction on a basis agreed upon among themselves; and they would agree to come within the improved extension and veterinary services influence zone. More detailed appraisal criteria are shown in the Project File Working Paper C9. Assurances were obtained during negotiations that these detailed selection criteria would be followed during project implementation. 4.09 Agricultural Extension (US$2.7 mil.). The agricultural extension service in the project area would be reorganized, intensified and strengthened, using a system successfully proven in India and other developing countries. The Project would provide farmers, on a regular systematic basis, with up-to- date advice on the demonstration of farming practices best suited to their conditions and capable of having an immediate impact on production and income. This would be achieved by strictly programmed visits from regularly trained field staff, supported by professional advice from within the extension service, from research, and from foreign technical experts. Extension staff would not be involved with other regulatory and administrative Ministry of Agriculture functions and there would be close cooperation with AgBank and AFC. 4.10 Based on an effective ratio of one Village Extension Worker (VEW) to about every 270 adopting farm families, VEW's would cover in year 7, about 48,000 farm families in the project area or about one-third of total popula- tion. 1/ Actual number of farms covered by each VEW would be varied from about 200 to 400, depending on population density and communication net work. Each extension unit would be divided into eight smaller groups of 25 to 50 farmers, each to be visited regularly on a given day of the week. VEW's would work primarily through about 8 to 10 contact farmers selected by the villagers. The message communicated would be simple, concentrating on the most important crops and initially on improved cultural practices of immediate relevance and in most cases not involving increased expenditure. VEW's could receive the extension message at training sessions held one to two days every two weeks by supervisors (ES) supported by Subject Matter Specialists (SMS). Of the remaining twelve days in the two-week period two would be devoted to demon- strations, field trials, making up missed visits and administrative work, two days to holidays, and eight days to visiting farmers. Fortnightly training of 1/ Ratio of extension agents to total farm families of both provinces would be 1:800; it is assumed that about 1/3 of these would be effectively covered by this project; many communities are so isolated that providing an effective service is impractical; see details in Project File working paper C-6.  - 22 - VEW's would be a major feature. Supervisors and SMS's would be trained for two days each month at district level by district staff, backed up by research station staff, head headquarters, and technical assistance experts. Adequate equipment and extension aids would be provided for staff training. In addi- tion to existing project area extension staff, 8 SMS, 7 ES, and 65 VEW would be required to implement the Project over 5 years. This would give a total in the two provinces of 8 SMS, 23 ES, and 177 VEW. SMS in agronomy, plant protection, irrigation and water management, and training would be provided to strengthen technical backup. Foreign technical expertise would include farm management-extension, training, range management, and livestock produc- tion. Project File working paper C-6 provides further details, including the technical packages involved. 4.11 As the proposed extension methodology is based on regular and frequent farm visits by VEW's, field staff and supervisors should live near their work and be sufficiently mobile to function effectively. Housing available in rural areas is limited, and the Project would provide moderate housing, designed and constructed by RDD-RPIU, for all extension service staff including VEW, SMS, ES, and district staff. The Project would also provide additional equipment, vehicles, including motorcycles for supervisors and bicycles for VEW. Motorcycles and bicycles would be sold to staff on credit, similar to that outlined for the veterinary component (para. 4.18). The Project provides for fellowships for district directors and supervisors to make short intensive studies of similar extension services in neighboring developing countries. The extension service would, in conjunction with other Government service agencies (AgBank, AFC, Cooperatives) establish a number of Farm Service Centers, which would serve as a focal point for farmer information and training and improvement of farmer access to Government agricultural services. 4.12 Agricultural Research (US$747,000). The Project would establish a 20 hectare applied agricultural station. 1/ Prime objectives would include developing improved technology, adapted to the project area climate, soils, and water availability, and to the target group, and designed to yield maximum economic returns by both unit of land and water. The research unit would pro- vide backup training and specialist advice for the extension service subject matter specialists and supervisors. It would ensure rapid analysis and early publication of trial data, and initiate research designed to develop effective economic soil conservation techniques, on both rainfed and irrigated land, and cooperate with other relevant agencies to develop improved water utilization within traditional irrigation systems. Sufficient technical packages are presently available for key crops but work would have to be accelerated to ensure a continuing flow of new technology within 2 or 3 years for use by the expanded extension service. In order to cover as broad a range of soil types and environments as possible, some research would be conducted on farmers' fields under practical conditions and the supervision of extension agents supported by research specialists, and on small outstations. Research would l/ This could be part of a proposed 100 hectare research station which may be established on the Sardeh irrigation command area in Ghazni.  - 23 - also cooperate closely with the Forestry Department and the Range Management ERIC. Visits to the research station by farmers and extension agents would be a regular activity. 4.13 Cooperatives (US$1.2 mil). Through the Ministry of Agriculture Department of Cooperative Development (DCD) the Project would promote the establishment of at least 150 viable, self-sufficient multi-purpose service cooperatives, including cooperatives among nomads, in the project area where presently 4 cooperatives are registered with 40 applications under processing. The cooperative movement is a corner stone of the Government's new agricul- tural and rural development policy. In addition to providing credit through AgBank for construction of offices, storage facilities and meeting rooms for groups of 3-4 cooperatives the Project would provide, as part of Farm Service Centers, offices for DCD staff as well as housing, vehicles and equipment. The 2 provincial center staffs would include in each case 1 Director and Directors of Audit, services and training with appropriate support staff. In each district 3 cooperative officers would be responsible for organizing, training, auditing and providing general support to about 8-12 Coops. Center Directors would be equipped with 4x4 vehicles and district staff motorcycles. The Project would train cooperative office bearers and members to efficiently discharge their duties and responsibilities, and in the objectives and opera- tion of cooperatives. A cooperative specialist would be appointed as part of the foreign technical team with the main objective of training DCD agents. Supervision of cooperatives and cooperative agents would be on a training and visit system similar to that outlined for agricultural extension with which close cooperation would be developed. 4.14 Rangeland Management and Survey - Experimental Range Improvement Center (ERIC) (US$521,000). ERIC would be part of the Forestry and Range Management Department. Objectives would include increasing knowledge of the ecology, sociology, and economy of the project area rangelands; finding pro- ductive species which could be established under prevailing conditions, and devising appropriate management systems which would lead to increased range productivity, reduced soil erosion, and improvement in the standard of living of rangeland users; training staff on the role of the rangeland pastoral system including its place in the total economy and relationship with and effects on sedentary farming; and the preparation of a pilot range management - rural development project suitable for donor financing and involving project area rangeland users. A major objective would be, after appropriate survey work, to establish one or more pilot nomad service centers which would provide a focal point for nomad cooperative development and the provision of basic services including veterinary, credit, marketing, extension, water, education and health. The detailed plan of establishment would be reviewed by IDA before implementation began. Specific rangeland areas would be selected for detailed survey including identification of the numbers and types of livestock and people using the area, collecting data on livestock productivity and monitoring changes overtime. Other activities would include random sample measurement of annual dry matter production by total and months of main species; establishing a monthly profile of main species consumed by types of livestock; and measuring the effects of fire brush collection on rangeland productivity and desertification. Buildings would include housing for senior  - 24 - technicians, and a suitable office store and laboratory established on about 20 hectares where special adaption trials and production measurements could be made. Staff would include two agronomists, a range management and live- stock production expert and sociologist together with technicians and other supporting staff. A foreign range management expert's main task would be to establish an ERIC work program, train local specialists, advise on the continu- ing program and assist with survey and trial data analysis and publication. Local staff would undertake an initial one month training period with the IDA assisted livestock development project based in Herat where the experimental range improvement center has successfully illustrated the value of competent range management staff. 4.15 Agricultural Credit (US$6.7 mil.). Through the Agricutural Develop- ment Bank (AgBank), the Project would improve access to and the use of credit among farmers and cooperatives and non-farm rural enterprises, for short-term productive inputs, and medium and long-tern for on-farm development, farm machinery, water pumps, and livestock. Ag'Bank would also introduce loans to cooperatives, on terms and conditions satisfactory to DRA and IDA, for financing purchase of members produce and for construction of offices and storage facilities. AgBank would open a branch office in Maidan, the center of Wardak province, and, progressively, about five sub-branches in project area main centers. Each sub-branch would be staffed with a qualified field inspector together with necessary support staff. AgBank would upgrade its Ghazni branch to a Type One which would initially give the branch Director authority to approve loans of up to AF 50,000 (US$1,250) without prior head office approval, and the loan approval authority of its Ghazni and Maidan branch directors would be progressively increased. For short-term loans (fertilizer and improved seed) a "pass book" system which allows firstly, for individual short-term loans as opposed to groups of 5-10 with joint and several liability and secondly, automatic eligibility for repeater loans provided the pass book shows that the previous loan has been repaid, would be introduced. Loan payment flexibility would be increased; farmers who could show genuine reasons for non-payment would still be eligible for new loans. Such loan recycling would be based upon AgBank staff appraisals. 4.16 AgBank, through its Supply Department, would expand and upgrade its workshop and spare parts depot in Ghazni so as to offer satisfactory repair and spare parts services to tractor and water pump owners. Spare parts for water pumps presently owned by farmers, but which were not purchased through AgBank Supply Department would also be stocked. AgBank would improve its after-sales farm machinery service through the stationing in Ghazni of at least 3 mobile workshops. Furthermore, as an innovative development, AgBank would provide, during winter months, training courses for private village repair workshop owners, to whom it would also provide on a wholesale basis, a spare parts supply service. Credit would also be provided for private village workshops for tools and spare parts inventory on terms and conditions satis- factory to DRA and IDA. Total loans over five years, would include about 100 shallow wells and pumpsets, 13,000 on-farm development, 80 non-farm rural activities, and about 100 to cooperatives for working capital, offices and storage facilities. Interest rates, loan repayments and security requirements would be the same as for existing AgBank loans under the Third Agricultural  - 25 - Credit Project (Credit 721-AF), except that cooperatives would qualify for a 1% per annum interest rebate for prompt loan payment. 1/ Investment costs would include staff housing, a substantial workshop in Ghazni, and small sub-branch offices which would be built by RDD-RPIU and transferred without charge to AgBank. 4.17 Veterinary Services (US$2.9 mil.). The veterinary component would aim to extend services to village farmers and nomadic and transhumant pasto- ralists through the establishment of a village veterinary service and the strengthening of mobile vaccination teams. Control of major animal diseases and parasites among participating flocks and herds including poultry, would be expected to improve animal production, decrease mortality and increase annual offtake. 2/ The Agricultural Extension Service supported by an animal produc- tion specialist would give supporting advice on nutrition and husbandry, and in order to provide reliable market outlets, the Herat Livestock Development Corporation (HLDC) now engaged in mutton exporting, would establish a number of buying points in the Project area. A fully equipped veterinary clinic now being built in Ghazni town would be supported by about 5 sub-clinics estab- lished in larger district farm service centers. 4.18 In order to reach out to the villages, a 'barefoot veterinarian' approach would be adopted. The scheme would utilize the skills, knowledge, and experience of villagers who would be trained as Village Veterinary Workers (VVW), and as such would effectively extend the influence of the limited number of trained personnel available. Three fully qualified veterinarians 3/ would be appointed to supervise the service; two would be responsible for supervis- ing about 16 Animal Health Assistants (AHA) stationed in sub-clinics; each AHA would supervise about 8 VVW's; one VVW would cover six-eight villages or roughly 3-400 families. 4/ One veterinarian would supervise the Ghazni clinic and the mobile vaccinating teams. Regular in-service training would be a feature. VVW's would undergo an initial one-month training in simple veter- inary first aid including vaccination; be regularly supervised in the field at least one day in each two weeks by the AHA; and would spend a minimum of one day each month at an in-service training seminar conducted by the AHA and his supervising veterinarian. At full development, about 30,000 families would benefit, with annual livestock numbers treated of about 180,000 sheep, 60,000 goats, 60,000 cattle and 150,000 poultry. 4/ An important VVW task would be educating farmer families in the advantages of preventive animal health control, and relating the advantages of improved animal health, nutrition, 1/ Under existing AgBank loan conditions cooperatives pay 1% per annum less than individual borrowers for all types of loans. 2/ Diseases involved include anthrax, clostridial group, pasteurellosis, rinderpest, foot and mouth disease, fowl pox, new castle disease, sheep pox, caprine pleuropneumonia, lice, ticks, liver fluke, and a range of stomach worms. 3/ In addition to the specialist (provided under bilateral aid) presently stationed in Ghazni. 4/ Project File, working paper C-3; Table 4 provides details.  - 26 - and hygiene to the human situation. Thus the service could slowly become an instrument for affecting change in attitudes towards these areas, particularly among women and young children. Each sub-clinic would be equipped with a set of simple veterinary equipment including a kerosene refrigerator. Each AHA would have a motorcycle and each VVW a bicycle; DRA would examine the feasi- bility of selling these vehicles to employees on a credit basis, with operat- ing costs met by payment of a kilometer allowance sufficient to cover both operating and maintenance costs and replacement. Veterinarians would be provided with a 4-wheel drive vehicle. All senior staff down to the AHA level would be provided with housing built by the project unit using local materials and artisans, and designs which could be readily adapted to village use. 4.19 The costs of drugs and vaccines is estimated to cost about US$1.5 mil. or 75% of operating costs, thus illustrating the high cost of maintaining an effective animal health program. Under the Project the full cost of drugs and medicines , about $640,000, 1/ would be recovered. Presently vaccines are provided free and if an effective national animal health control service is eventually to be established, then the vaccine cost should be borne by the users and not be a heavy drain on Government finances. DRA recognizes this but feels that charging for vaccinations is presently impractical. By March 31, 1980 DRA would complete a study undertaken by the Ministry of Agriculture, assisted where applicable by project staff, which would incluide recommendations for the introduction of vaccination and clinical service cost recovery to be implemented not later than March 31, 1981. 4.20 Cadastral Survey (US$218,000). The Project would assist the Carto- graphic and Cadastral Survey Institute by supplying modern photogrammetric equipment and operating materials, which would accelerate the progress of reliable cadastral survey and registration of titles on irrigated land in the project area. With the provision of one further orthophoto processing instru- ment together with necessary operating materials the balance of the inten- sively irrigated areas would be largely completed within five years. The Institute has adequate trained staff to carry out the necessary orthophoto survey and to operate the equipment, and will complete the survey of main irrigated areas in the Project area by June 30, 1983. (ii) Rural Infrastructure 4.21 Minor Road Improvement (US$7.6 million). The Project would establish within RDD-RPIU two road construction teams equipped with equipment necessary to upgrade minor roads (Annex 1, Chart 3). Over five years about 400 km of minor roads would be upgraded to reasonable all-weather standard. Apart from the main highway and a few more important secondary roads, many project area roads are closed for up to five months each year due to effects of floods, snow, and inadequate maintenance. Traffic counts indicate average daily traffic (ADT) of between 10 to 50 although much uncertainty is attached to 1/ Includes price contingency.  - 27 - these conservative figures. Traffic composition includes 40% trucks, 30% buses, and the balance taxis and private cars. Trucks are generally 6-ton capacity and buses have seating capacity of between 20 and 30. Trade is mainly directed to Ghazni or Kabul, the business, marketing and administrative centers. 4.22 Present road horizontal and vertical alignment is generally poor. Earth works are provided only in very difficult topographic conditions and roads usually run at the same level of surrounding terrain, thus being sub- ject to water logging during rains or melting snow. Culverts and permanent crossings of dry washes are lacking and bridges are provided only on permanent rivers. In cultivated areas, roads frequently cross irrigation canals without culverts or bridges. Project works would raise embankments in poorly drained areas excavate drainage ditches and construct culverts; vertical and horizontal alignment would be improved; and bridges for river crossings would be provided only where major floods are expected to occur. Where floods occur only a few days each year Irish bridges would be constructed. The design standards to be followed correspond to those established by Ministry of Public Works for Category C (secondary road) and Category D (tertiary roads). Where ADT is less than 50, design speed would be 45 km/hr, carriage way 7.5 meters, and gravel surface 5.5 meters. For ADT less than 25, design speed would be 30 km/hr, carriage way 5 meters, and gravel surface 3.5 meters. Present average traffic speed on most unimproved roads would be 10-20 km/hr. 4.23 Roads have not yet been identified and would be subject to detailed survey and design before being selected for upgrading. The first three appraisals by RDD-RPIU would be sent to IDA for comment and review prior to work commencing. Selection criteria would include ADT, land area and popula- tion served for each kilometer, estimated changes in traffic volume as a consequence of upgrading, and the socio-economic impact of road improvement in the influence zone. Detailed appraisal and selection methodology are shown in Project File working paper C-10. Road selection would also take into account the main Government administrative centers (Woleswalis) and reinforce- ment of those roads which would give the shortest connections between popula- tion and administrative centers, the main Kabul-Kandahar road and Provincial capitals. Full account would be taken of Project phasing including the need for access to cultivated areas in order to extend services such as veterinary, extension, credit and cooperatives. Every endeavour would be made to ensure that the work brought benefits to the maximum number of people particularly those in more remote poorer areas. Linking of villages to better quality existing roads would be a particular concern. In many cases villages are isolated from more important roads for much of the year. Improvement costs to tertiary road standard have been roughly estimated to about Af 400,000 (US$10,000) per kilometer. This cost includes a substantial labor input. Construction is expected to commence in project year two with year one being used mainly for equipment procurement, training of construction units and survey and design leading to identification of road priority. Road main- tenance would be the continuing responsibility of RDD-RPIU or the Ministry of Public Works Road Construction and Maintenance Department (secondary roads) both during and following project implementation. An innovative maintenance measure to be introduced by RDD-RPIU would be the employment of local 'road- men', each equipped with a wheelbarrow, shovel and bicycle and who would be responsible for continuing minor maintenance of between 4 and 6 km each.  - 28 - 4.24 Village Water Supplies (US$1.5 million). About 100 villages would benefit from the installation of pollution free reliable domestic water supply. Some 5-8,000 families including 50--60,000 persons would come within the resulting influence zone. Domestic water use by the majority of villages is polluted to varying degrees, either at the source or during distribution. The Project water supply program would be in addition to a UNICEF supported Environmental Health Department (EHD) 1/ program in the two provinces which has identified about 120 village water supply schemes largely oriented towards schools, health centers, and hospitals. A UNICEF/RDD program includes a further 50 schemes to be implemented in Katawaz Loi Woleswali of Ghazni prov- ince. During the next five years the RDD program is expected to be completed and about twenty of the UNICEF/EHD projects. About 100 potential additional schemes have already been identified but these would be subject to individual appraisal, survey and design by RDD-RPIU before final selection. Actual siting of the distribution system, including community taps, would be done by the RDD-RPIU design team in conjunction with the appropriate village authori- ties. The first three appraisals including design details, would be sent to IDA for review and comment prior to work commencing. 4.25 The systems to be installed would include hand dug wells, shallow tube wells, and springs. Factors to be considered in system selection would include replicability in terms of construction methods and the availability of materials, pollution prevention, amount of supervision required, ease of maintenance and resistance to damage, and convenience of use. Criteria for village selection would include the degree of pollution and access to existing water supply sources; the potential number and economic and health status of beneficiaries; the agreement of the Village Development Council to be responsible for operation and maintenance cost and where practicable, to provide the unskilled labor required for installation; and agreement of the village to nominate at least two persons with adequate qualifications to undergo EHD Village Health Worker training. An outline of appraisal informa- tion required for selection is shown in Project File working paper C-11. This appraisal procedure would be followed and the first three such appraisals would first be submitted to IDA for reviewt and comment before work commenced. In most cases, the pollution free water supply would be less convenient to families than existing supplies and without a supporting eduction program, benefits would not be maximized. As a condition of sub-project approval the village would agree to establish an instit:ution, with a person such as a water bailiff in charge, for supervising operation and maintenance. 2/ Technical advice and maintenance training would be provided through RPIU. The Project would establish within RPIU a Village water supply unit with adequate equip- ment including a drilling rig and transport, to enable it to adequately survey, 1/ Responsibility for village water supply installations, other than those undertaken by RDD and under the Project, is now to be undertaken by a new Department in the Ministry of Public Works. 2/ Presently all villages have such 'institutions' to handle irrigation net- works; the system could be easily adapted for domestic water supply.  - 29 - design, and install satisfactory water supply systems (Annex 1, Chart 3). Technical advice and cooperation would be available from EHD and UNICEF with which organizations RDD already has a close and functional relationship. Each system is expected to cost in the vicinity of Af 6,000 (US$1,500). (iii) Project Planning, Coordination and Evaluation and Technical Assistance 4.26 Regional Planning and Implemention Unit (RPIU) (US$3.2 million). A Rural Development Department (RDD) RPIU would be established with head- quarters in Ghazni. RPIU would advise the Provincial Rural Development Councils (PRDCs) 1/ on agricultural and rural development programs and proj- ects, including preparation of annual cost estimates; act as a secretariat to PRDC; monitor program and project implementation and advise PRDC on its current status; strengthen and improve local administrative and management procedures; and so as to ensure the people's participation in and understand- ing of the development programs, assist with the formation of village devel- opment councils. RPIU would implement the Rural Development Departments existing functions namely road construction, minor irrigation rehabilitation, and village water supply improvement. It would be equipped with adequate workshops, equipment, offices, and staff, to undertake all project building construction including staff housing, repair and maintenance of all project vehicles and equipment, and buildings. An important function would be to test new design and construction techniques particularly for housing, adapted to local conditions and functions, and suitable for use by local artisans using local materials. RPIU would also be responsible for procurement both local and international, of all vehicles, equipment, spares, buildings and operat- ing stores and materials. It would maintain adequate stores under inventory control systems adapted to local procedures which provided for prompt and timely delivery to operational units. A public relations unit would stimu- late public interest and participation in the development process in general and the Project in particular. RPIU would establish systems for evaluating project impact on crop yields, animal production, area cultivated, cropping pattern, irrigation, water utilization, farmer income and standard of living, human health, and social changes; and on staff quality, operational efficiency, and institutional development. 2/ 4.27 Technical Assistance and Overseas Training (US$4.9- million). The Project would employ 12 foreign experts for 324 manmonths, including 32 man- months of unspecified short-term consultants. Except for the project leader, 1/ Due to very recent changes PRDC's would be formed for Ghazni and the Project areas of Kabul and Paktika provinces. 2/ Includes Technical Assistance and Fellowship Training (US$3.6 million) (Annex 1, Table 4), and Feasibility Study costs (US$1.3 million).  - 30 - accountant administrator, and senior engineer, who would each serve for three to five years, experts would be employed for an initial 12 to 24 month term following which additional responsibilities would be entrusted to their Afghan counterparts who would have been suitably trained in this period; thereafter the experts would pay only short term visits as required. In view of the number of experts required and the need to ensure their prompt availability and continuity, their recruitment would be made through an international con- sulting firm. Their prime tasks would include training, the preparation of work programs, advising on technology, and preparing job specification and responsibilities. The technical assistance team would include a training officer who would coordinate training for all project components including farmer training. In addition to suitable ecluipment provided under each component, training would be assisted by the establishment under the Fourth IDA assisted Education Project of a regional extension training center in Ghazni and about 25 village farmer training centers throughout the two prov- inces. The Project would also provide 205 rnanmonths of overseas fellowship training. Emphasis would be on short-term three to four month fellowships including both professional and technical training. Wherever possible fellow- ships would be in developing countries where the technology and conditions are more appropriate. Consulting service costs include salaries, travel, family benefits, firm overhead, management fee, and the backup support. The cost of feasibility studies for irrigation dams on the Ghazni river is estimated at US$932,000; 1/ and consulting services to assist with preparation of a second rural development project US$409,000. 1/ Consultant service costs, including salary, travel, allowances, firm overhead and management have been estimated to average about US$8,000 per man month (base cost). E. Cost Estimates 4.28 Project cost estimates are based on prices prevailing during appraisal (June/July 1978) updated in January 1979 and are net of duties and taxes, since no taxes are levied on IDA-assisted projects. The total project cost, including physical and price contingencies is estimated at Af 1,561 million (US$39 million) of which 45% would be the foreign exchange. Physical contingency of 20% on civil works and 10% on buildings and average price contingencies of 20% 2/ on base cost plus physical contingencies have been included in the total cost estimate. Actual works for minor irrigation 1/ Consultants (local and international) would be recruited separately from those hired to provide technical assistance. 2/ The following annual inflation rates (%) were applied for price contin- gencies: 1979 1980-1983 Local cost 10 10 Foreign exchange Civil works 9.0 7.0 Vehicles, Equipment and services 10.0 6.0  - 31 - rehabilitation, road improvement and village water supplies would be identi- fied and appraised as project implementation proceeds. Costs have been based on estimates of typical civil works, many of which are being undertaken by RDD or other Departments on an on-going basis, and what might be reasonably implemented within the five years, given much expanded resources in staff, equipment and vehicles, and finance. Summary of cost estimates is given in Table 2 page 32. Detailed costs for individual components are presented in the Project File. F. Financing 4.29 Financing of total project costs of Af 1,561 million (US$39.0 million) would be provided in the following proportions: US$ Mil. % IDA 16.5 42 IFAD 13.0 33 UNDP 1.0 3 DRA 5.8 15 AgBank 1.1 3 Beneficiaries /1 1.6 4 Total 39.0 100 /1 Includes AgBank sub-borrowers $0.9 mil. and veterinary beneficiaries (drug costs) $0.7. Further details are shown in Annex 1, Tables 2-3. The proposed IDA credit of US$16.5 million would be made to DRA on standard terms. The IFAD loan of US$13 million would be on standard terms except that US$0.5 million would be a grant for technical assistance in project implementation. UNDP would cover part of the cost of technical assistance and overseas fellowships under a UNDP/DRA/IDA project for which IBRD would be the executing agency for UNDP. Completion of a satisfactory project document would be a condition of project effectiveness. AgBank's contribution of US$1.1 million would cover 16% of the estimated credit component cost. Farmers and cooperatives receving medium and long-term loans would contribute cash representing 20% of the investment costs. The balance of the project cost would be financed by DRA. The Govern- ment would be the Borrower, and bear the foreign exchange risk. It would on-lend to AgBank about US$4.5 million, representing about 66% of the total credit component cost 1/ (total US$6.7 million) at 4.5% interest repayable 1/ Of total component cost of US$6.7 million (including price contingencies) AgBank would contribute US$1.1 million, sub-borrowers US$0.9 million, IDA and IFAD US$4.7 million.  APPRAISAL OF AGRICULTRUAL AND RURAL DEVELOPMPNT PROJECT AFGIIANISTAN Project Cost Percent of Local Foreign Total Local Foreign Total Percernt of Baseline Total Foreign Exchange ---- OO-- A 00 - _us$000 -- Minor irrigation rehabilitation 80,832 121,247 202,079 2,020.8 3,031.2 5,052.0 17 13.0 58 Village water supply 11,627 37,353 48,980 290.7 933.7 1,224.4 4 3.0 76 Minior road improvement 109,646 I17,838 227,484 2,741.2 2,946.o 5,687.2 19 15.0 49 Agricultural credit 161,919 48,366 210,285 4,o48.o 1,209.1 5,257.1 17 13.0 23 Extension service 69,432 11,523 80,955 1,735.8 288.1 2,023.9 7 5.0 14 Research 14,835 9,093 23,928 370.9 227.3 598.2 2 1.5 38 Cooperative 26,706 9,318 36,024 667.6 233.0 900.6 3 2.0 25 Veterinary service 57,678 31,380 89,058 1,442.0 784.5 2,226.5 7 6.0 35 garige managecment 13,536 2,729 16,265 338.3 68.2 4o6.5 1 1.0 16 Cadastral survey 416 7,904) 8,320 10.4 197.6 208.0 1 0.5 95 Project unit 61,320 44,838 106,158 1,533.0 1,121.0 2,654.o 9 7.0 43 Technical assistance 27,360 91,920 119,280 684.0 2,298.0 2,982.0 l0 7.5 77 Feasibility study (Khwajagen Dam) 2,700 24,300 27,000 67.5 607.5 675.0 2 2.0 90 Feasibility study (Rural Development IT) 1,200 10,800 12,000 30.0 270.0 300.0 1 0.5 90 Total base cost 639,207 568,609 1,201,816 15,980.2 14,215.2 30,195.4 100 48 Physical Contingency 36,292 10,741 47,033 907.3 268.5 1,175.8 3.0 24 Price Contingency 186,916 118,837 305,753 4,672.9 2,970.9 7,643.8 20.0 39 Total Project Cost 862,415 698,187 1,560,602 21,560.4 17,1154.6 39,015.0 45 /1 Detailed cost estimTiates including where appropriate lists if' equipment adti cinachinery arc shown in respective component workTing papers C-1 through C-l1, Annex 3. May 1979  - 33 - over 15 years including five years grace. These terms and conditions would be reflected in a subsidiary agreement between DRA and AgBank, and are the same as those used in the Third Agricultural Credit Project (721-AF). Completion of a subsidiary agreement satisfactory to IDA would be a condition of project effectiveness. G. Procurement 4.30 Contracts of US$100,000 or more for purchase of vehicles and equip- ment (US$6.1 1/ million) would be awarded on the basis of International Com- petitive Bidding (ICB), in accordance with the Bank's Guidelines. Domestic manufacturers would be granted a preferential margin in bid evaluation equal to the prevailing tariff, or 15% of the c.i.f. cost of imports, whichever is the lower. All other purchases would be made in accordance with local procurement procedures which would result in reasonable prices. The RDD- RPIU President would be authorized to approve contracts of up to Af 500,000 (US$12,500) without first having to obtain further approval and to make purchases of up to Af 20,000 ($500) without the use of a purchasing committee; local purchases made by bidding would be sealed and in writing only and once bids have been satisfactorily evaluated they would not be readvertised. With these modifications local procurement procedures would be satisfactory to IDA and appropriate assurances that authorization for such procedures would be included in the RPIU empowering charter were obtained during negotiations. Contracts for building construction and civil works (total US$9.3 mil) would be generally for small works, of varied design and geographically scattered. Thus they would not be appropriate for procurement under ICB. Such construc- tion would be carried out by contractors selected through local competitive bidding or by construction units of RDD-RPIU. All investment procurement involving project funds would be undertaken by the RDD RPIU. Appropriate staffing and storage facilities would be provided so as to allow adequate storage of spare parts, building materials and operating stores. H. Disbursements 4.31 The IDA/IFAD credits would be disbursed, net of taxes as follows: (a) 100% of total expenditures for civil works and buildings (US$9.3 million); (b) 100% of c.i.f. value of directly imported vehicles and equipment (US$5.8 million); (c) 85% of cost of locally purchased imported vehicles, equipment and materials and 100% of ex-factory cost of locally manufactured vehicles, equipment and materials (US$0.3 million); 1/ Staff housing, buildings, vehicles, and equipment to be Project financed are shown in Table 7, Annex 1.  - 34 - (d) 100% of expenditure for dam feasibility study ((US$0.9 million) IDA only); (e) 100% of expenditure for feasibility study for Rural Development II ((US$0.4 million) IDA only); (f) 80% of sub-loans for wells and pumlps, cooperative storage, village workshops and on-farm development disbursed by AgBank (US$2.7 million); (g) 70% of sub-loans for fertilizer and seeds disbursed by AgBank during the first year of the project and thereafter 70% of the annual incremental disbursemenits (US$1.8 million); (h) 72% 1/ of total expenditure of technical assistance and training (US$2.6 million); and (i) 60% of (i) local staff salaries incremental to those committed on March 21, 1979 (US$4.1 million); (ii) vehicle operation and maintenance (US$3.3 million); and (iii) RPIU operating and maintenance costs (US$2.7 million). The estimated schedule of disbursements (Annex 1, Table 8) indicates comple- tion over six years. For categories (f), (g) and (i) disbursements would be made against statements of expenditures, and supporting documents would be retained by AgBank for inspection by IDA Project Review Missions. Assurances have been obtained that AgBank would keep separate accounts fo the credit component for various types of loans made under the project. I. Accounts andl Audit 4.32 Funds for project investments, all project vehicle operating costs, RDD-RPIU operating costs and for that proportion of local staff salaries to be financed by IDA/IFAD (para 4.31(i)) would be channelled from the Ministry of Finance to an account already established with the Da Afghanistan Bank. RDD- RPIU President would operate the account. Except for the credit component, RDD-RPIU would maintain accounts of project funds handled by it in accordance with appropriate accounting practices. Funds for operating costs, excepting vehicle and equipment and RPIU operation and maintenance, but including that proportion of local staff salaries funded by DRA would be channelled through the Ministry of Finance to the respective ministry in the normal manner. Each concerned Government ministry and agency receive annual budgets and maintain 1/ The remaining 28% would be financed by UNDP; US$2.6 million includes an IFAD grant (US$0.5 million) to be disbursed for the foreign exchange costs of specialists in monitoring arnd evaluation, cooperatives, and extension, and training fellowships for extension workers.  - 35 - proper accounts which are then audited. However the auditing program is usually well behind schedule, a factor contributing to administrative bottle- necks. Furthermore, in order to improve project implementation capacity relating to local financial procedures the RDD-RPIU annual budgets would be prepared on both a program basis (i.e. by cost of project) and the present line item system. RPIU would be responsible for operation and maintenance of all vehicles, equipment and buildings including issuing of fuel, and would maintain separate appropriate cost accounts. The Bank account has initially been funded more than three months in advance of RPIU's requirements and the RDD-RPIU President would have authority to operate on this account without further reference to higher authority and within the limits only of the already approved budget. The Bank account would then be reimbursed on a three monthly basis by the Ministry of Finance. Assurances to this effect were obtained during negotiations. RDD-RPIU would have financial records pertain- ing to project funds for which they would keep separate accounts, audited annually by qualified independent auditors acceptable to IDA and submit such audited records to IDA and IFAD for review and comment within five months of the close of each Afghan fiscal year. The auditors report would include an opinion on whether or not the funds have been used for the purpose for which they are provided. AgBank would be responsible for the disbursement and implementation of the credit component. AgBank would maintain separate accounts for subloans under the project and (a) have such records for each fiscal year audited in accordance with appropriate auditing principles by independent auditors acceptable to IDA; (b) furnish to IDA within five months of the end of each fiscal year: (i) certified copies of audited financial statements and (ii) the auditors report; and (c) furnish to IDA such other information concerning the accounts, financial statements and the audit as IDA may request. Accounting procedures to enable satisfactory use of Statement of Expenditure procedures are either now operational or would be established. Further details are shown in Annex 2. V. ORGANIZATION AND MANAGEMENT 1/ A. Introduction 5.01 The proposals for organization and management have been made on the basis that DRA wishes to decentralize and ultimately regionalize, agricultural and rural development, concentrate resources for this development in a few selected regions, avoid duplication by agencies and departments, improve imple- mentation capacity at the regional/provincial level, and give RDD a major role in regional development planning, coordination and implementation. The project would largely maintain existing organizational structures of various 1/ Chart I page 37, illustrates the proposed organization and management outline; Chart 2, Annex 1, sets out the existing Government Organization.  - 36 - departments (mainly Agriculture and RDD) in the concerned provincial adminis- trations, and would strengthen the concerned departments to enable them to implement the project and, in future, other agricultural and rural develop- ment programs. The project would utilize existing staff and endow them with active and meaningful roles and sufficient resources and additional staff, thus rendering productive an important but presently underutilized resource. As an innovative measure designed to strengthen planning, implementation and coordination at the provincial level, the project would establish within RDD a regional planning and implementation unit in Ghazni which would also provide the critical liaison and coordination between the provincial administrations. By focusing on the institutional limitations and opportunities of provincial administrations, the project would help to improve the Government's capacity to implement development programs both present and future in the provinces concerned. Furthermore the organization and management proposed would be seen as a pilot operation with the objective of deriving lessons which could be used in future regional and rural development programs in other provinces of Afghanistan. B. Rural Development Department - Regional Planning and Implementation Unit (RDD-RPIU) 5.02 In Ghazni a RDD-RPIU with a President, two Vice-Presidents, three General Directorates (Engineering Survey and Design, Construction, Administra- tion) and relevant technical staff would be established (Annex 1, Chart 3). RPIU would have both a staff and line function. The President would also act as Chairman of the Provincial Rural Development Councils (PRDC) of Ghazni, Kabul and Paktika. In planning, administration and management, RPIU would advise PRDCs on regional agricultural and rural development programs and projects, including preparation of annual cost estimates and work plans. Additional objectives would include strengthening and improving local adminis- trative and management procedures and assisting PRDC with the formation of appropriate village organizations so as to ensure the people's fullest participation in the Project. 5.03 Line functions would include completion of the proposed project building program including staff houses for all project components and all other project civil works. As Government procedures for building and civil works construction are time consuming and in the long run probably very costly, RPIU would have full authority to employ contractors to undertake such work. In order to improve operational procedures, implementing capacity, and provide ultimately for improved monitoring of project cost, RDD-RPIU would be empowered to introduce a number of innovative administrative procedures including recruitment of local personnel, fixing local wage rates, introducing improved warehouse inventory control systems, and administering amended local procurement regulations. Assurances to this effect were obtained during negotiations. Through a public relations directorate, RPIU would stimulate public interest in the project. A key function would be monitoring project implementation and establishing systems for evaluating project impact on  - 37 - APPRAISAL OF AGRICULTURAL AND RURAL DEVELOPMENT PROJECT AFGHANISTAN Organization Proposals for Implementation | CABINET Policy ~Policy Secreyta Recommendation Ministry of AgriculturePoiyMnsrof iity - n - O--her- Approved Programs- Planning * _Finance Central Ministries projects __ Implementation and AgenciesPReommnaiony Cordination of Rurall Recommendations Development Prjc _ D unds 1 _ ~~~~~~~~~Rurai Dev, FundsI *0 BANK rE iB @ ;, ' Account _ z X . ~~~~~Program Projectj Recommendations PROVINCIAL ProposalsI_ _ ~~~RURAL DEVELOPMENT . 0 2 ~ ~ I c ~ ~ ~ ~ ~ ~ ~~~~0- R DEVE LOPMENT COUNIS ' # - ~~~~~(Executive Authority) Aprvdl< c Q , =t . S 0 C U _ A ~~~~~~~~~Programs & <rcu< Provincial ops Monitoring Public Workect Road Minor StoreeProjects > LLi E DRRequests SoE C ' o LU ui C~~~~~~~~~Ea uto Implementation ecnialAst Taiin DISTRICT-VILo 1 ' - r Dvinc al DerDEV LOMENiTCOUiNCI PuLSc||Wr io ||Soe ilg 2n n eain hp osr ri.{{W os ae Agnce Evlato Imleenato 2~~~~~~~~~~~~~~~~~~~~WrdBn-97  - 38 - agricultural and livestock production, social changes, staff quality, and institutional development. Monitoring and evaluation would be used as a management tool and as a basis for development planning. RPIU President would not have direct authority over other Government Department officers, but would advise PRDC on project implementation status and where appropriate recommend steps necessary to bring about changes or performance improvement. C. Provincial Rural Development Councils 5.04 The existing Provincial Rural Development Committees would be formally constituted Provincial Rural Development Councils (PRDC). 1/ PRDC responsibilities, satisfactory to IDA, would be established. Overall agricul- tural and rural development policy would be rmade by the Presidents Council for Coordination of Rural Development (PCCRD) in Kabul within the framework of overall DRA agricultural sector policy. PCCRD would also approve annual work programs before final recommendation to Cabinet through the Ministries of Planning and Finance. Kabul, Paktika and Ghazni PRDCs would each be Chaired by the President of RDD-RPIU. Other members, each with equal voting power would include the respective Governors, representatives of Government depart- ments and agencies 2/, including the Planning Ministry, and the people. The provincial Director General of Agriculture would be Vice-Chairman. Each PRDC would have a small Executive Council responsible for day-to-day decision making. PRDC would be linked to districts through District Development Committees (DDC) chaired by the sub-Governor concerned. DDCs would have direct linkage with Village Development Councils, the chairmen of whom would be members of each concerned DDC. Cooperative chairmen would also be members. PRDCs would be responsible for approving annual development projects, programs and budgets (prepared by RDD-RPIU) to be sent to RDD and PCCRD and ultimately the Planning and Finance Ministries; providing the body through which the people's development wishes can be reflected in these approved programs; and providing the executive authority, at the provincial level, for ensuring project implementation by the participating agencies and departments. Estab- lishment of the Ghazni PRDC would be a condition of credit effectiveness. D. Project Implementation 5.05 The Project would be implemented largely by the Ministry of Agricul- ture, RDD, and AgBank, through existing Provincial organizations and agencies which would be strengthened with additional resources and funding as required. Apart from the range management, research and the proposed RPIU planning, 1/ Chart I page 37. Chart 2, Annex 1 illustrates present Government organization. 2/ These would include the 2 RDD-RPIU vice-presidents, Director General of AgBank, Agriculture, AgBank Director and others as required.  - 39 - monitoring, public relations, and workshop activities, all project components would be an expansion of ongoing programs. Chart 5, Annex 1 indicates an Estimated Schedule of Project Implementation. As the project has important implications for future Rural Development Programs and a number of innovative organization and management features, DRA and IDA/IFAD would jointly undertake a mid-term review of the progress made by the project and the lessons learnt by not later than 3 years after the proposed credit signature date. Assur- ances to this effect were obtained during negotiations. 5.06 Organizational arrangements to implement each component would be as follows: Minor Irrigation Rehabilitation, Minor Road Improvement and Village Water Supply would be implemented by RDD through units established within RDD-RPIU (Chart 3, Annex 1). These activities would be a major expansion of ongoing RDD programs in the project area. EHD or RDD would implement the appropriate village education programs in both health (EHD) and pump operation and maintenance (RDD). In addition to finalizing appraisals, RDD-RPIU would carry out construction works including light drilling, and provide backup technical support to villages where improved supplies are installed. WAPM would provide technical guidance, undertake drilling and well testing and development in cases where deep drilling is considered the most appropriate. The village water supply component would be a major expansion of RDD ongoing or proposed activities in the project area. AgBank would implement the credit activities, provide after sales service for farm machinery and water pumps, establish training programs for farmers and village workshop artisans. 5.07 The Ministry of Agriculture Departments of Veterinary Services and Animal Production, Agricultural Extension and Development, Forestry and Range Management, Research, and Cooperative Development would implement the veteri- nary, extension, range management, research, and cooperative components, respectively. The provincial staff would be administratively responsible to their respective PRDC and technically responsible, as at present, to their respective head offices in Kabul. Provincial staff would be required to report on project implementation progress to RDD-RPIU which would be respon- sible for project monitoring. They would also submit annual provincial development proposals in their respective fields, to RDD-RPIU for inclusion in the annual Provincial Development Budget and work program submitted to PRDC for approval. Cadastral survey implementation would represent an expansion of ACCSI's ongoing activities in the two provinces. WAPM would recruit and supervise in consultation with RDD-RPIU, under terms of reference agreed upon by DRA and IDA, consultants to undertake feasibility studies for storage increase of Bande Seraj Dam and the construction of a new dam upstream of Bande Seraj. WAPM would continue to be responsible for the management of Bande Seraj water storage management which under the Project, would be done in accordance with a policy agreement between WAPM, PRDC, and RDD-RPIU. RDD-RPIU would recruit and supervise, under terms of reference agreed upon by DRA and IDA, consultants for preparing a second Rural Development Project in an area yet to be selected. 5.08 Government Department and Agency head offices in Kabul would continue to play an important role in project implementation through the  - 40 - Presidents Council for Coordination of Rural Development (PCCRD) 1/ (Annex I, Chart 2) and through the technical supervision of their provincial subor- dinates. PCCRD would be required to meet on a regular quarterly basis, such meetings coinciding with the production of RDD-RPIU's quarterly progress reports, which would form the basis of discussion. The powers and respon- sibilities of PCCRD would be satisfactory to IDA and IFAD. The establishment of the PCCRD would be a condition of credit effectiveness. 5.09 Staffing Equipment, Vehicles and Housing. Total incremental staff 2/ to be appointed under the project would include 8 senior staff above the Rank of III, 77 professionals in the Rank III - V, and 192 including 65 extension agents in the Rank VI - IX. Clerks, drivers and laboratory assistants would total 97, minor operating staff 150, and village veterinary workers 130. The project would provide housing for most of the existing and incremental staff free of charge. Table 7, Annex I summarizes the staff housing, vehicles and equipment to be financed under the project. E. Training 5.10 A key project function would include professional, technical and farmer training. A prime responsibility of foreign experts would be train- ing of Afghan staff in their respective technical fields as well as prepara- tion of appropriate programs, job descriptions and responsibilities. A minimum of 24 mandays of annual in-service training would be provided to each extension agent and his supervisor. Similar training would be provided for veterinary staff including animal health assistants and village veterinary workers and vaccinators, and Cooperative agents and supervisors. The RDD-RPIU would be assisted by a project leader, who would be a suitably qualified agriculturalist and would be experienced in organization and management of similar multi-sectoral development projects, an accountant-administrator, and a senior engineer for a total of 11.3 manyears. RPIU would also be supported for 20 manmonths by an automotive engineer the responsibility of whom would include organizing intensive in-service training and job specifications for Afghan staff. In order to coordinate training activities and to ensure proper training of Afghan trainers a specialist training officer would be appointed for a period of 12 months. Annex 1, Table 4 shows details of Technical Assis- tance cost estimates, and Annex 1 Chart 5 the Project Implementation Schedule. 1/ PCCRD would be Chaired by RDD President; membership would include the Presidents of Extension, Veterinary, Cooperatives, Planning (Ministry Planning) RDD-RPIU (Ghazni-Wardak) and others as required. 2/ For appraisal purposes, including the preparation of all component costs only incremental staff considered necessary to implement the Project have been included; staff on station at March 21, 1979 in all concerned departments and agencies operating in the Project area would be absorbed into the Project; IDA/IFAD would disburse for 60% of incremental staff costs (para 4.31(i)).  - 41 - 5.11 In technical fields related to irrigation including operation and maintenance of equipment, irrigation works and concrete production, 20 man- months of overseas training would be provided. Similarly 58 manmonths of overseas training including 1 postgraduate study period is included for veterinary services. Each village veterinary worker would undergo a four- week introductory program before being admitted to the village veterinary service. Animal health assistants would also undergo similar introductory training. Initially such training would be conducted at the RDD-RPIU head- quarters, but later at the Ghazni Regional Training Center to be constructed under the forthcoming Fourth IDA-assisted Education Project. Range management and survey Experimental Range Improvement Center (ERIC) staff would receive 28 manmonths of overseas training including one 18-month postgraduate fellow- ship. Technicians and professionals attached to ERIC would undergo a 4-week introductory training period with the IDA assisted HLDC Experimental Range Improvement Center where a small cadre of competent range management staff has been built up. Ten manmonths of technical type overseas training would be provided for technicians in the village water supply component. Agricultural extension would include 40 manmonths of overseas training for Directors, Supervisors and Subject Matter Specialists. Overseas training totaling 205 manmonths (US$0.4 mil.) would focus upon visits to appropriate and relevant institutions and projects largely in developing countries. 5.12 Training would be assisted by the construction in Ghazni of a regional extension training center under the proposed IDA assisted Fourth Education Project. The Education Project would establish 25 farmer village training centers in the two provinces. These training centers would be used extensively for both project staff and farmer training, which would include not only relevant agricultural technology but education in health, pump, and farm machinery maintenance. Due to climatic conditions activities in most of the Project area must be curtailed during winter. During these four months project management would ensure that a maximum amount of training and retrain- ing was undertaken at all levels. F. Monitoring and Evaluation 5.13 Monitoring project implementation progress and evaluating its impact on institutions and rural society would be an important function of the RDD- RPIU. A Monitoring and Evaluation Unit (MEU) adequately staffed and equipped would be set up under the Vice-President of Planning and Coordination. 1/ An internationally recruited expert would initially assist MEU to establish a 1/ Annex 1, Chart 3.  - 42 - program for data gathering including base line survey work, and subsequently with data evaluation. The MEU objective would be firstly to evaluate the project's progress towards achieving its objectives, secondly to assist with solving implementation problems, and thirdly to ensure against high risks by establishing a unit with capability to analyze problems and help management find solutions on an ongoing basis. Having established a satisfactory data gathering system which would be as simple as possible, the MEU would evaluate the project impact not only on agricultural productivity, but on the standard of living and well being of rural society in affected zones. An attempt would be made to use monitoring and evaluation as a management tool. The informa- tion would be used not only by RPIU but by PRDC and ultimately by DRA and IDA/ IFAD. Early establishment and successful operation of the proposed unit would be essential in providing sufficient data so as to ensure a proper evaluation of project progress and impact at the time of the project's mid-term review. RPIU would be required to report to DRA through the RDD President and to IDA/ IFAD on a quarterly basis on the progress of project implementation and the resulting impact. A set of project key objectives and indicators which would form the basis of quarterly reports is set out in Chart 1, Annex 1. The proj- ect provides for the staff, office facilit-ies, equipment and back-up consult- ing services for MEU as part of RDD-RPIU. MEU would be responsible for completion, not later than six months from the project completion date, of a Project Completion report which would include an overall evaluation of project impact on the rural economy, farmers incomtes and living standards, social changes, and institution building. Excluding separate AgBank monitoring and evaluation, the cost of MEU over 5 years is estimated at AF 6.0 million (US$150,000) excluding technical assistance costs. VI. BENEFITS AND JUSTIFICATION A. Targeted Beneficiaries and Financial Analysis 6.01 The proposed project would benefit one of the least developed regions of Afghanistan. An estimated 60% of the project area population lives in absolute poverty with income levels of AF 3,400 (US$85) or less. With the project the average income of the beneficiaries would increase by about 70%, but 52% of the project participants owning an average farm size of 0.8 ha would still remain below the absolute poverty income level, thus highlighting the rural poverty problem and the need for land consolidation and reform and generation of non-farm rural employment opportunities. I/ The project would improve family income and standards of living, by increasing crop and live- stock production throughout most of the two provinces basically through (a) improvement and rehabilitation of minor irrigation schemes serving about 1/ Land Reform is planned for completion by mid 1980; many holders of 0.8 ha of 1st grade land would be increased to 1.0 ha particularly in Ghazni; in Wardak the shortage of irrigable land will result in many farms remain- ing below 1.0 ha in area.  - 43 - 17,000 ha; (b) provision of agricultural extension services over most of the irrigated (90,000 ha) areas, which would be backed up by adaptative research in the fields of land and water use for crops grown in the project area; and (c) provision of veterinary services and extension of animal production tech- nology. All other project components contribute towards this goal either in a minor way or indirectly. 6.02 Quantifiable benefits from the proposed project would accrue to about 62,000 farm families; about 40% of the Project area population. Families participating in the village veterinary program would total about 30,000 of whom perhaps 10,000 would be incremental to those served by agri- cultural credit and extension programs (48,000) under the Project. In addi- tion, about 3,000 to 4,000 nomad and transhumant families would benefit from the veterinary program. At least an additional 100,000 people would indirectly benefit from the village water supply and road components and the general economic activity generated by the Project. About 13,000 farm families, of whom about 63% are estimated to be below the poverty income level would be the direct primary beneficiaries from the total agricultural package including rehabilitation of irrigation systems, development of shallow wells, agricultural credit, and extension. About 54% of the incremental net bene- fits would accrue to the target group. To demonstrate the projected finan- cial benefits, the following farm models have been selected as typically representative; these are based on expected cropping patterns and adoption of a technical input package 1/ (Annex 1 Table 6). 6.03 Model: Fertilizer and Seed (0.8 ha). In the river valley upper reaches and side valleys, farms are highly fragmented and average size is about 0.8 ha. The impact of using fertilizer and improved seed combined with a secured water supply for wheat, would result in average net operating per capita income increasing from the present AF 1,120 (US$28) to AF 1720 (US$43) including on-farm wheat consumption, which would increase from about 72 kg to 118 kg per capita over four years. About 6,750 farm families (average family size of 9) would be represented by this farm model. Additional labor require- ments would be met by family labor which is currently under employed due to family size relative to land farmed. The financial rate of return (FRR) of this model is over 100% after allowing for a 1-1/2% per annum increase in wheat and potatoes for four years 'without' the Project. 6.04 Model: Oxen and Farm Implements (2 ha.). The model illustrates the impact of fertilizers, improved seed and investment in oxen and implements on a 2 ha farm. Net per capita income, including on-farm consumption, would increase over four years from AF 4,560 (US$114) to AF 5,600 (US$140). Due to shortage of family labor during peak periods on this larger farm, about 52 man days would be hired for weeding, harvesting and threshing. The FRR, after allowing for 'without' project increases in wheat and potato production over four years, is estimated at 45%. 1/ Details of the technical package are shown in Project File Working Paper C-6. 1  - 44 - 6.05 Model: Orchard and Farm Improvements (3 ha). In the lower reaches of Ghazni river water scarcity becomes more acute and about 25% of farm lands are annually left fallow. Project beneficiaries under this category would receive credit for orchard, oxen and farm implement investments, and through proper regulation of Bande Seraj Dam and construction of permanent diversion weirs and intakes, 0.9 hectare presently fallowed annually, would become fully productive. Consequently, net per capita income including on-farm consumption, would increase from AF 2,100 (US$53) to AF 5,000 (US$125) in year five and AF 9,700 (US$243) in the year ten when the apple trees reach full production. The estimated FRR, after allowing for four years 'without' project increases is over 100%. 6.06 Model: Shallow Well (4.0 ha). This model represents a joint venture of four farm families each owning 4 ha. Cost of shallow well and pumpset (AF 48,000 (US$1,200)) is financed 80% by AgBank and 20% by the beneficiaries. Present 4 hectare farm income is estimated at about AF 18,000 (AF 2,000 or US$50 per capita) including on-farm consumption. With the project, net family income would increase by 85% over 5 years to AF 33,400 (Af 3,700 or US$93 per capita) inclusive of wheat and by-products consumed on-farm. The FRR, after allowing for 'without' project wheat production increases for five years, is estimated at 20%. Summary of financial results of the four representative models is shown in Annex 1, Table 6. Details on technical assumptions, yield increases, cropping pattern are given Working Paper C-6 of the Project File. 6.07 For livestock, benefits have been estimated on the likely changes in key productive coefficients resulting from adoption of a prescribed program involving control of the most serious diseases and parasites. One hundred head of sheep, cattle and poultry have been taken in each case to illustrate income changes. The estimated annual income improvement per head at full development, three years from first adoption, is estimated at AF 308 (US$7.7) for sheep; AF 246 (US$6.16) for goats; AF 1,003 (US$25) for cattle; and poultry AF 45 (US$1.13) per head after 2 years. To allow for uncertainties surrounding projections of this nature, technical contingencies of 40% for sheep and goats and 50% for cattle and poultry, have reduced these per capita benefits to AF 180 for sheep, AF 144 for goats, AF 500 for cattle, and AF 22 for poultry for sedentary livestock owning families. Benefits for nomad live- stock have been assumed at 50% of these. Each sedentary family is assumed to own 6 sheep, 2 goats, 2 cows, and 5 poultry and would, on adopting the full veterinary program increase annual income in year 4 by AF 2,478 (US$62) or about US$7 per capita. In year 7, about 30,000 farm families and some 3,000- 4,000 nomad groups would be fully participating. Details of these estimates may be seen in Project File Working Paper C-3. B. Production 6.08 At full development, in year 9 resulting annual production levels from project participating farms are estimated as follows:  - 45 - Without With Incremental Project Project Output Cereals Wheat (tons) 149,000 166,400 17,400 Rice (tons) 2,600 4,000 1,400 Vegetables Potato (tons) 241,600 282,800 41,200 Mung Beans (tons) - 240 240 Onions (tons) 400 400 Fruits Apples (tons) - 3,200 3,200 Livestock Meat (carcass dressed wt) /1 (tons) 1,750 2,520 770 Milk /2 ('000 liters) 18,230 24,450 6,220 Wool (tons) 520 650 130 Eggs (kg) 180 930 750 Other Fodder Crops /3 (tons) 2,700 7,700 5,000 Straw 1 (tons) 224,300 250,000 25,700 /1 Includes beef, mutton, goat meat and poultry products. X7 Composed of cow and sheep milk. /3 Alfalfa and clover. /4 Wheat and mung bean. Incremental output for all crops has been arrived at after allowing for 'without project' increases of 1-1/2% per annum during the first 4 project years. This increase is roughly in line with trends in national production during the past decade. For livestock no similar trend can be shown and no 'without project' production increases have been assumed. Except for 1,000 ha which presently are fallowed each year, but which as a consequence of improved management of Bande Seraj Dam would be irrigated with the project, total area under crops remains unaltered. Project area wheat yields currently range from 1.3 to 1.8 tons per hectare. With the project, it is assumed that project beneficiaries (13,000 families full impact) would adopt the proposed cropping pattern and technical input package in full including credit financed invest- ments and consequently increase wheat yields, over 4 years, to 2.1 tons per hectare. The extension service component would assist a further 35,000 farmers who would increase wheat yields from 1.3 to 1.6 tons per hectare over four years. Project area potato production presently accounts for about 77% of national production. With the project full technical and credit package (13,000 families) potato yields would increase from 11 tons to 17 tons per  - 46 - hectare at full development in year 4. Corresponding yield increase attri- buted to extension service (35,000 families) would be from 11 tons to 12 tons per hectare over 6 years. The cropping pattern also includes rice, beans, onions and fruits (apple). Incremental output of fruits, beans and onions would be marginal. 6.09 In the livestock sub-sector, the project would initiate a major animal health control program at both the village level and among nomadic flocks and herds. Improved animal health combined with animal nutrition and husbandry extension would, at full production in about year 11 increase annual offtake for sheep and goats from about 21% to 41%, and for cattle from about 9% to 20%. Annual incremental meat production would amount to about 770 tons, milk about 6,200 tons and wool about 126 tons. These estimates are based on annual treatment of 540,000 sheep and goats, 80,000 cattle, and 190,000 poultry among about 34,000 families. C. Marketing 6.10 Cereals. Projected wheat production at full development would represent less than 1% of national wheat output. 1/ Owing to recurrent deficits in staple grain (wheat, but also rice, barley, and maize) supplies in Afghanistan, the incremental wheat production would serve largely as import substitute. Due to the predominance of subsistence farm families, the addi- tional output would be mostly consumed on the farms and any marketable surplus would be easily absorbed by the principal population centers, of Ghazni and Maidan towns, and nearby Kabul. Although the present food balance is not known exactly, wheat 2/ is transferred from other regions particularly to Ghazni where yields are lower. Although t:he proposed project would not make the two provinces self-sufficient, it would nevertheless ease the food problem and improve the diet of the rural poor. 6.11 Marketed wheat production is estimated at 30-40% of national pro- duction. The primary outlet channels for food crops are the local markets although project area farmers rely heavily on traders for marketing since the Government owned Food Procurement Department (FPD) provides only limited services. Although available transportation is adequate for marketing all surplus produce, lack of current market information often benefits traders at producers expense. Moreover, poor on-farn storage facilities force producers to sell during periods of heavy supply and often at lower than Government 1/ Assuming wheat production continues to grow at the current optimistic annual growth rate of 2.9% from 1982/83 (end of the Seven-Year Plan), total output would reach 4.0 million tons by 1987/88. 2/ The project area population is estimated at 10% of national population. However, wheat output of the project area is only 6% of total national production.  - 47 - minimum prices. To remedy this, the proposed project would stimulate forma- tion of producers' cooperatives which would establish marketing channels directly with wholesalers, or FPD which currently has plans to expand activi- ties in the project area. Furthermore, cooperatives would have access to AgBank credit for financing small storage facilities and working capital, thus enabling them to assist members by purchasing during peak supply periods and selling under more favorable market conditions. 6.12 Fruits and Vegetables. With the Project, the project area would maintain its share of national potato production (77%). In addition to the domestic market, Afghanistan's proximity to Iran and the Soviet Union offers potentially wide markets for potatoes and other temperate vegetables. Iran's 1975/76 potato consumption estimated at 400,000 tons (10% imported), is projected to grow at an annual rate of 9% up to 1985. Similarly, the Soviet Union's potato and vegetable projected imports for the same period, is about 150,000 tons annually. Provided strict quality control measures are intro- duced, Afghanistan should if necessary, have little difficulty in expanding its fruit and vegetable exports in these markets, due to competitive trans- port costs and existing cultural and trade relationships. The primary objec- tives of the on-going IDA-assisted Fruit and Vegetables Export Project (Credit 779-AF) include strengthening and establishing appropriate institu- tions to monitor the standard and quality of exportable fruits and vegetables (potatoes and onions initially) and stimulating exports of these commodities. Afghanistan has succeeded in capturing a considerable share of grape and raisin markets in Pakistan, India and the Soviet Union. In recent years exports of these fruits have accounted for 25% of Afghanistan's foreign exchange earnings. The ongoing fruit and vegetable project will make a special effort to increase vegetable exports, particularly to Iran. 6.13 Under the proposed project, incremental annual apple production would reach 3,200 tons. At present fruits from the Project are transported to Kabul or consumed on the farms. Since the incremental apple production represents less than 1% of total Afghan output, marketing problems are not anticipated. 6.14 Livestock. Per capita meat consumption in the project area remains very low (10-11 kg) and the annual incremental production of 770 tons by year 10 would be easily absorbed by meeting part of increasing local demand. Furthermore, HLDC is expected to sign a long-term export mutton contract soon. The potential export demand for mutton in the Middle East, including the Gulf States, and the Soviet Union, is such that with domestic consumption growth, the incremental project output would have outlets at current prices in almost unlimited markets. Finally, the incremental milk output at full development estimated at 6.2 million liters (equivalent to 1% of total projected Afghan production) would be consumed on the farms as fresh milk or as traditional milk products such as ghee, cheese, butter and curds.  - 48 - D. Prices 6.15 Two sets of prices, financial and economic have been used in valuing costs and benefits for project beneficiaries and the economy (Table 5 Annex 1). Despite Government's intervention in the marketing system, producer prices particularly for wheat continually fluctuate in response to supply and demand. Annually, the Government decrees floor prices for selected agricul- tural products (wheat, cotton, sugar beet). Cotton and beet prices are effec- tively controlled but, due to organizational and financial weaknesses, FPD has not been effective in stabilizing wheat prices for both consumers and producers; this is likely to happen in the near future when the Wheat Produc- tion Project currently under IDA's active consideration is approved for implementation. Farmgate prices used in farm budget analysis are lower than the official Government wheat prices by a margin of 10-15%. It is assumed that the project area incremental output would largely be consumed on-farm and would not induce farmgate price reductions. For the economic analysis, all tradeable commodities are valued at international prices adjusted for transport costs and using shadow foreign exchange rates (Af 46 to US$). International price projections issued by the Bank's Commodities Division (June 1978) have been used for wheat, rice, beef and fertilizers. For mutton the price recently negotiated for export from Afghanistan has been used. For wheat, the economic farmgate prices are higher than the financial farmgate prices by about 20%. The current Afghan average financial price has been used in both financial and economic calculations for both cow and sheep milk. Border equivalent prices of fertilizers however are 15% lower than the corres- ponding actual domestic prices. E. Economic Analysis 6.16 The proposed project is consistent with DRA rural sector objectives to increase food production and improve the quality of life of the rural poor. Project generated production would save foreign exchange through import substitution (wheat) and increase export earnings (fruits, vegetables and mutton), but it would have much wider economic, financial and social benefits. Although quantifiable benefits vary, the Project as proposed, represents an integrated package in which each componen,t is an equally important part. 6.17 Economic Rate of Return. Economic rates of return have been computed for those components for which benefits can be reasonably quantified including crop production, veterinary services, and the total project. Benefits have not been quantified for village water supplies. The following assumptions have been made in the economic analysis: (a) The shadow exchange rate is assumed to be AF 46 instead of AF 34 which is the current exchange rate. 1/ Hence all tradeable items have been converted at t'he shadow exchange rate. 1/ At July 1978; the exchange rate in May 1978 was reportedly Af 45 = US$1.0.  - 49 - (b) Due to mobility of labor in Afghanistan and occasional shortages, the going market wage rate of AF 80 per day for unskilled and family labor has been adopted. (c) Taxes and import subsidies have been excluded. (d) The project life is assumed to be 20 years. (e) Provision has been made for vehicles replacement cost, and where applicable other equipment; no residual values have been incorporated into the analysis. The resulting rates of return and sensitivity analyses, which are based on the estimated benefits to be derived from the proposed investments and capitalized operations costs (5 years) are given below: Summary of Economic Rates of Return (%) Project Wheat & Wheat & Benefits Potato Potato Delayed % of Base Cost Benefits Prices Yields By 2 Project Run (+10%) (-10%) -10% -10% Years Cost Crop Produc- tion /1 17 15 15 14 13 12 85 Livestock /2 24 22 22 - - 16 8 Total Project /3 18 16 16 15 14 12 93 /1 Minor Irrigation Rehabilitation, Agriculture Credit, Agriculture Exten- sion, Research, Cooperatives, Technical Assistance and Training, Project Implementation Unit and Minor Road Improvement and cadastral survey. /2 Veterinary Services, and Range Management. /3 Includes all project components and cost (Table 1, page 32) except the cost of Irrigation Dam and Project Preparation Feasibility Studies (US$1.1 million). Calculation of benefits from the Minor Road Improvement Component was based on road users savings in operating costs. An average daily traffic (ADT) of about 30 vehicles (15 trucks, 10 buses and 5 cars) is assumed; no increase over the life of the project has been included. The road component estimated benefits are considered conservative and do not include long run, unquantifi- able but important real benefits, including increased marketing activity, easier access to administrative centers, improved opportunities for increasing badly needed Government services both production orientated and social, prob- able higher tax collection, and improved wider educational activities for rural people. The condition of most rural roads in Afghanistan and in the project area, is such that no rural development project as proposed, could be successfully implemented without the inclusion of a road upgrading component.  - 50 - The long run economic, financial and social benefits far exceed those which can be reasonably estimated. Economic rates of return for the remaining project components have not been separately computed because of interdependency (irrigation, extension, research, cooperatives, credit) or difficulties in quantifying benefits (cadastral survey, range management, and village water supply). The overall project generates an economic rate of return of 22% which is satisfactory. Project benefit and cost streams are presented in Annex 1, Table 9. 6.18 Employment. A primary source of employment in the project area is agriculture, whilst an unknown proportion of the labor force is presently employed in neighboring oil rich countries. With a gradual slowdown in labor absorptive economic activities in neighboring countries many migrant workers are likely to return to the agricultural sector. With the project, on-farm labor requirements would increase by about 500,000 man days annually which would be mostly balanced by utilization of presently underemployed labor. Moreover, during project implementation a total of 700 permanent jobs and 200 man years of employment would be generated. Additional unquantifiable employ- ment opportunities would be created through the expected increases in market- ing, commercial and transport activities. F. Cost Recovery and Fiscal Impact 6.19 Cost recovery of public agricultural investments is an unresolved issue in Afghanistan. Beneficiaries tend to view Government sponsored proj- ects as 'public goods' and in the past have not been receptive to project related payments, particularly for irrigation water. Water is regarded by traditional right as a free resource despite it being the nation's most valuable and scarce resource. Under IDA-financed Khanabad II Irrigation Project (Credit 778-AF), DRA has agreed to review the overall socio-economic implications and applicability of levying water charges on direct beneficia- ries of Government financed investments and to implement an agreed system. In the proposed rural development project, cost recovery could be grouped into 4 categories. First, all agricultural credit financed investments would pursue normal credit practices thus recovering full costs. Second, veterinary service beneficiaries would pay the actual cost of veterinary medicines (AF 4-52 per head). On this basis and assuming the number of animals treated as described in para. 6.09 about AF 12.2 million (US$306,000 1/) could be recovered from year seven onwards. Total recovery from year 1 through 5 could amount to AF 18 million (US$450,000 1/) or about 51 percent of total component cost. Collection would be the responsibility of the village veterinary workers (VVW) and at full development could amount to some 66% of vaccine and drug costs. An effective veterinary service could make a significant contribution to improving livestock production and improving the standard of living of rural families, but the cost of providing such a service is presently beyond Govern- ments financial capability. Livestock owners have demonstrated their willing- ness to pay for drugs and medicines under the IDA-assisted second livestock 1/ Based on 1978 constant prices.  - 51 - project (Credit 649-AF), under which Credit agreement charges for veterinary services sufficient to cover full costs, are to be introduced in 1982. With a view to introducing some charges in the project area not later than March 31, 1981, DRA would study the issue of recovering the cost of vaccines and clinical services by March 31, 1980. Third, for minor irrigation rehabilita- tion, social custom presently prevents direct cost recovery through water charges and as experienced under the First Agricultural Credit Project (Credit 202 AF), credit financing of works, due to both social and land ownership problems, is not practical at present. Decree No. 8 makes provision for credit financing of minor irrigation works but DRA agrees that implementation procedures require more careful study. Under terms of reference satisfactory to DRA and IDA, RDD-RPIU in conjunction with Ministry of Agriculture, Ministry of Water and Power and AgBank would, by March 31, 1981 assess the feasibility of recovering investment costs of minor irrigation works to be implemented under the Project. The ensuing report would be made available to IDA/IFAD for review and comment and, if cost recovery is found feasible, would include specific recommendations for the introduction of cost recovery on minor irri- gation rehabilitation works commencing not later than March 31, 1982. Assur- ances to this effect were obtained during negotiations. In the farm budget analyses (Annex 3, C-6), farmers' ability to pay existing land tax at the rate of AF200 per hectare (which provides some small indirect cost recovery) and social tax at AF 400 has been demonstrated. However, beneficiaries with less than 1 hectare should not be required to pay project fees due to their income being below the absolute poverty income level. For both irrigation works and village water supplies, the beneficiaries would be expected to meet, except for technical advice, full operation and maintenance costs; which have not been included in the project cost. Where road improvement applied directly to specific villages, beneficiaries would be required to contribute unskilled labor to original investment costs. Fourth, for the remaining project com- ponents, no specific formula would be designed to collect project charges. Cadastral survey, range management, research and extension costs would be borne totally by Government. However, DRA is vigorously pursuing the collec- tion of land taxes, which, as a result of project activities in cadastral survey and roads, should increase in the project area in future. 6.20 The proposed project is not expected to create a major fiscal bur- den on the DRA. Incremental operating and maintenance costs would average AF 76.8 1/ million (US$1.5 million) annually during the five year project implementation period, increasing from Af 24 million in year 1 to Af 108 million in year 5 (Annex 1, Table 1) in current Afghanis. This amount would constitute 0.3% of the 1977/78 total expenditure for Afghanistan or 0.6% of the estimated 1977/78 domestic revenue. After project completion, DRA would finance the recurrent and replacement costs which relate to continuing project activities for the remaining period of the project life averaging about AF 107 mil (US$ 2.7 mil) annually, before veterinary service cost recovery of about Af 12 million. 1/ Of which IDA/IFAD would finance an average of Af 37.8 million (49%) annually.  - 52 - G. Risk 6.21 Afghan farmers have repeatedly dlemonstrated their willingness to adopt new and improved technology provided it is thoroughly proven and minimizes risks. By concentrating initiaLly on improving crop husbandry and water utilization and management techniques which do not involve undue expense or radical crop pattern change it is expected that with the exten- sion, veterinary and cooperative services, farmers are likely to adopt the proposed technology and achieve the estimated increases in productivity and income. The greatest risk lies in Govermnent's implementation of the pro- posals for project organization and management and for coordination amongst all concerned departments. The project would require close cooperation between participating Government departments, ministries and agencies, the lack of which has been prominent in the past in the Afghan development scene. In addition to the major expansion of the provincial RDD, organization and management proposals would build, expand and strengthen existing departments and their agencies. At the provincial level good cooperation is likely to develop under the new Government but this represents a major risk area. A heavy responsibility would be placed upon senior Afghan staff to accept the challenge of making the maximum use of the comparatively short periods during which international consultants would be available to assist them in their implementation efforts. In the past, too much expatriate input has resulted in insufficient acceptance of responsibility by Afghan counterparts. 6.22 A further risk is involved in the minor irrigation rehabilitation component where the sociological dimensions involved are not entirely under- stood. Getting farmers to agree to undertake to assist and accept the pro- posed works program and to maintain it adequately is always a risk. A problem could arise with those farmers near the canal head whose water supply is usually more adequate and who are usually the wealthiest and most influential. Having derived the maximum benefit from the proposed works first, they may not be particularly interested in assisting their poorer counterparts on the lower reaches. Decree 8 however provides a legislative basis for minimizing this risk. 6.23 Additional risks surround Government policy on land reform and cooperatives which appear as the cornerstone of its agricultural policy. DRA is acting decisively in implementing the land reform and cooperative programs but the physical, social and administrative complexity in the hands of com- paratively weak Departments and Agencies may prove an overriding constraint to Government's intentions. Without good coordination of support services, production and rural income may suffer a severe, although hopefully temporary, setback. 6.24 The new Afghan Government has so far displayed decisiveness and sincerity in endeavoring to bring about rapid fundamental changes in the structure of society in general and the alleviation of rural poverty in particular. Given this and the potential importance of the proposed project, the judgment is that the risks described, although serious, are worth taking.  53 - H. Environmental Impact 6.25 The proposed project would not have any detrimental impact on the natural environment of the Project area. On the other hand, project activities in the fields of irrigation, agricultural production, forestry, veterinary and range management should contribute to general ecological stability in the area, protect water sheds and check soil erosion. The water supply component would improve not only the accessibility but also the quality of domestic water for participating villages and lead to an improvement in human health in the appropriate influence zones. The veterinary component would improve the health of livestock and poultry in the project area, but in order to ensure the livestock numbers do not increase without a parallel increase in the feed base which could result in further range degradation, it will be essential for offtake to be increased. VII. RECOMMENDATIONS 7.01 During negotiations assurances were obtained that DRA would: (i) Make part of the Credit and Fund Loan proceeds available to AgBank under a subsidiary loan agreement to be entered into between DRA and AgBank under terms and conditions satisfactory to DRA and IDA including, inter alia, that DRA would relend to AgBank amounts in various currencies equivalent to $4.5 million for a term of fifteen years, including five years of grace calculated from the date of signing of the Subsidiary Loan Agreement, and at an interest rate of 4-1/2% per annum on amounts withdrawn and outstanding from time to time. (ii) Transfer to AgBank, title in, and ownership of, the buil- dings to be constructed for AgBank by RDD-RPIU under the Project and the value of such buildings would constitute an equity contribution by DRA to AgBank. (iii) Cause its Ministry of Water and Power, to employ in con- sultation with RDD-RPIU, not later than June 30, 1980, under terms of reference satisfactory to DRA and IDA, qualified and experienced agricultural and engineering consultants to assist with the feasibility studies for rehabilitation and enlargement of Bande Seraj Dam and the construction of a new dam up-river from Bande Seraj. (iv) Cause RDD-RPIU to employ, not later than November 30, 1980, under terms of reference satisfactory to DRA and IDA, qualified and experienced consultants to assist in the preparation of a Second Rural Development Project.  - 54 - (v) Not later than six months after the Project Closing Date cause RPIU to prepare and furnish to IDA and IFAD a report, based on the work of the Monitoring and Evaluation Unit, to be established within RDD-RPIU on the Project execu- tion and initial operation, its cost and benefits and the accomplishment of the purposes of the Credit and the Fund Loan. (vi) Take all such action as would be necessary to acquire as and when needed all such land as would be required for carrying out the Project. (vii) Cause the Monitoring and Evaluation Unit in RDD-RPIU to prepare in accordance with criteria satisfactory to DRA, IDA and IFAD and furnish, within 45 days of the end of each quarter, to IDA and IFAD, a quarterlv report relating to its program and the progress of project implementation. (viii) Establish and thereafter maintain in existence a Presidents' Council for Coordination of Rural Development with powers, functions, organization, policies and procedures satisfactory to DRA and IDA to, inter alia, coordinate the activities of the Borrower's ministries and agencies in respect of the Project. (ix) (a) ensure that owners of livestock pay the full costs of drugs and veterinary medicines provided to them as part of veterinary service; (b) not later than March 31, 1980, carry out a study to examine inter alia, the feasibility of recovering from livestock owners the full cost of vaccines, except in times of national epidemic; and (c) not later than March 31, 1981, commence the implementation, on a continuing basis, of all such recommendations included in the feasibility report as may be satisfactory to DRA and IDA. (x) Cause RDD-RPIU to: (a) carry out and complete a study under terms of reference satisfactory to DRA and IDA, with the assistance of MA and WAPM, not later than March 31, 1981, to assess the feasibility of recovering the costs of investments on minor irrigation works from the beneficiaries; (b) if such cost recovery shall be found feasible, to recommend an imple- mentation scheme for the cost recovery; and (c) to commence, not later than March 31, 1982, the implementation, on a con- tinuing basis, of such cost recovery recommendations as shall be satisfactory to DRA and IDA. (xi) Recover the full cost of operation and maintenance of Minor Irrigation and Village Water Supply works and facilities from the beneficiaries and, not later than six months from the Effective Date (a) carry out and complete a study of the  - 55 - appropriate mechanism for the recovery of such costs; and (b) furnish its proposals to IDA for review and comment. (xii) Not later than October 31, 1981, prepare a program of implementation for the establishment of service centers for nomads and furnish to IDA such program for review and comment. (xiii) Cause RDD-RPIU to (a) establish and maintain, in accordance with consistently maintained appropriate accounting prac- tices, a separate account to record all amounts disbursed or received for, or in connection with, the Project (except the Agricultural Credit component); (b) have the RDD-RPIU accounts and financial statements (balance sheets, statements of income and expenses and related statements) and all records supporting certificates of expenditure for each fiscal year audited, in accordance with appropriate auditing principles, by independent auditors acceptable to IDA: (c) furnish to IDA not later than five months after the end of each such year, certified copies of its financial statements for such year as so audited and the auditors' report, including a separate opinion showing whether the proceeds of the Credit and the Fund Loan withdrawn on the basis of certificates of expenditure have been used for the purpose for which they were provided. 7.02 Procurement (i) Except for contracts for vehicles, equipment and materials estimated to cost less than $100,000, goods would be pro- cured under contracts awarded in accordance with procedures consistent with the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 on the basis of international competitive bidding. (ii) Contracts for vehicles, equipment and materials estimated to cost less than $100,000 equivalent per contract would be procured after inviting quotations from at least three sup- pliers; such procurement would not in the aggregate exceed $2,000,000 equivalent; and civil works would be procured in accordance with DRA's competitive bidding procedures or carried out by RDD-RPIU on force account. 7.03 Project operating procedures and policies would include: (i) Minor Irrigation Rehabilitation Four units including two construction units, a pile driving unit and a small concrete-making facility would be estab- lished within RDD-RPIU to carry out the construction. During  - 56 - implementation, three fully qualified engineers would be appointed. Special attention would be given to improving the management of Bande Seraj Dam which would be operated in accordance with policies and procedures satisfactory to PRDC, WAPM, RDD-RPIU and IDA. RDD-RPIU would prepare and furnish to DRA and IDA, not later than January 31, 1980, the proposed policies and procedures for review and comment. RDD-RPIU would prepare and furnish to IDA for its review and comment the first three appraisals, to be made in accordance with criteria satisfactory to the DRA, IDA and IFAD, for medium and small permarnent diversion weirs and intakes prior to the commencement of work in each case. (ii) Agricultural Extension The agricultural extension service in the Project Area would be strengthened in accordance with a program satisfactory to DRA and IDA. All housing would be designed and constructed by RDD-RPIU. During project implementation about 8 fully qualified subject matter specialists, 7 supervisors, and 65 village extension workers would be added to the existing extension staff. (iii) Applied Agricultural Research An agricultural research station would be established with about 20 hectares of suitable land in Ghazni to develop farm technology suited to the area and the farmers therein. (iv) Cooperatives Special efforts would be made to establish through DCD, at least 150 multi-purpose service cooperatives in the Project Area, including pilot cooperatives for nomads. During project implementation, three fully qualified Directors (Rank 4) and 19 District Directors (Rank 5) would be added to the existing DCD staff. (v) Range Management The Forestry and Range Management Department would establish an experimental range improvement center (ERIC) not later than March 31, 1980, to undertake a work program, satisfactory to DRA, IDA and IFAD. (vi) Credit AgBank would: (a) make short-t:erm loans for fertilizers and improved seeds, and medium- ancd long-term loans for on-farm development, farm machinery, water pumps, livestock, co- operative storage facilities and offices, and for non-farm  - 57 - rural enterprises; such loans being made through cooperatives or directly to individuals; (b) make loans to cooperatives for financing the purchase of members' produce and for construc- tion of offices and storage facilities in accordance with a policy satisfactory to the DRA, IDA, and IFAD and AgBank; and not later than October 31, 1979 furnish proposals for ade- quately securing loans to cooperatives to IDA for its review and comment; (c) make short-term loans in accordance with a passbook system enabling such initial loans to be made to individuals without joint and several liability and sub- sequent loans to be made on the basis of loan repayment record; (d) establish a branch office in Maidan and progressively, about five sub-branches in main centers in the Project area; (e) authorize the Director of its Ghazni branch to approve loans to individuals of up to Af 50,000 and to cooperatives of up to Af 200,000 without prior approval of the head office; (f) progressively increase loan approval authority of the Directors of Ghazni and Maidan branches; (g) expand and upgrade its repair workshop and spare parts depot in Ghazni; increase its stock of water pumps and their spare parts presently used by farmers, and improve its after-sales service for farm machinery by maintaining qualified staff in adequate numbers at the workshop and by stationing 3 mobile workshops in Ghazni; (h) give training courses to village repair workshop owners and supply spare parts to them on a wholesale basis; (i) make medium- and long-term loans to village repair workshop owners for tools and spare parts inventory on terms and conditions satisfactory to DRA and IDA, and furnish its proposals for such loans to IDA for its review and comment, not later than October 31, 1979. (vii) Veterinary Services A village veterinary service would be established and the existing mobile vaccination teams strengthened; HLDC would, in consultation with MA and RDD-RPIU, establish a number of buying points in the Project Area. Five fully equipped veterinary sub-clinics would be established in larger dis- trict farm service centers; selected villagers would be trained as village veterinary workers and would work under the supervision of 4 qualified veterinarians and 16 qualified animal health assistants; and DRA would ensure that adequate supplies of vaccines, veterinary medicines and drugs are available at all times. (viii) Cadastral Survey DRA would cause ACCSI to complete, in consultation with RDD- RPIU, by June 30, 1983 the cadastral survey in the main irri- gated areas in the Project Area.  - 58 - (ix) Roads (a) Two fully equipped and staffed (including 2 fully quali- fied road engineers) road construction teams would be estab- lished within RDD-RPIU to upgrade about 400 km of minor roads; (b) the design standards to be followed would be satisfactory to DRA and IDA; (c) appraisals, detailed survey and design of roads, prior to upgrading, would be carried out in accordance with criteria satisfactory to DRAi and IDA. The first three appraisals of roads to be upgraded would be prepared and fur- nished by RDD-RPIU to IDA for its review and comment prior to the commencement of upgrading in each case; and (d) DRA would cause RDD-RPIU or MPW to maintain roads to be upgraded under the Project in accordance with appropriate road maintenance practices. (x) Village Water Supply Potable water supply systems would be established in about 100 villages in accordance with a plan prepared jointly by the RDD-RPIU and the appropriate department of the MPW; and (a) each water supply system shall be individually surveyed and designed by RDD-RPIU; (b) the selection of the water supply system and of the site of installation would be made in accordance with criteria satisfactory to IDA and IFAD; and (c) the first three appraisals of water supply systems would be prepared and furnished by RDD-RPIU to IDA for its review and comment prior to the commencement of work in each case. (xi) RDD-RPIU There would be established, and thereafter maintained, a Regional Planning and Implementation Unit within RDD at Ghazni, with funds, facilities, organizations, powers and policies and procedures satisfactory to DRA and IDA; and (a) the President of RDD-RPIU would, inter alia, be given full authority, for purposes of the Project to: (i) authorize purchases of up to Af 500,000 without any further approval or authorization; (ii) make purchases of up to Af 20,000 without the use of a purchasing committee; and (iii) enter into contracts with firms or contractors for carrying out civil works; (b) all local personnel would be employed by RDD-RPIU which would also fix the wages; (c) with the exception o` vehicles of AgBank and AFC, fuel for all vehicles to be provided under the Project would be provided by RDD-RPIU in accordance with procedures to be established by RDD-RPIU; (d) RDD-RPIU would set up within its organization and fill the positions of the President, two Vice Presidents, three Director-Generals and about nine Directors with duly qualified and experienced persons; and (e) annual and recurrent budgets of RDD-RPIU  - 59 - would be prepared on a program and line item basis ("program basis" means the system of budgeting based on the costs of the project or projects on which monies are to be expanded). (xii) A team of consultants would be employed and maintained pursuant to the UNDP Project Document which would provide for IBRD to be the executing agency. (xiii) Provision of Motorcycles and Bicycles With reference to the obligation of DRA to provide motor- cycles and bicycles for project staff, DRA would examine the feasibility of enabling the staff to purchase motorcycles and bicycles through credit under the Project. Such examination would be completed by March 21, 1980. Upon its completion, DRA would submit its recommendations to IDA for its review and comment. Such recommendations would include, inter alia, details of (a) the mechanism by which each purchaser would pay for the motorcycle or bicycle to be purchased (through credit to be obtained from AgBank or salary deduction); and (b) details of the method and amounts by which staff would be reimbursed for operation, maintenance and depreciation costs. 70.4 AgBank would (a) maintain records and procedures adequate to record and monitor the progress of the Project Credit component and not later than six months after the Project Closing Date prepare and furnish to DRA, IDA and IFAD a report, on the execution and initial operation of the Credit Component, including its cost and the benefits derived from it, and the accomplishment of the purposes of the Credit and the Fund Loan; (b) (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) and its records supporting certificates of expenditure for each fiscal year audited, in accordance with appropriate auditing principles by independent auditors acceptable to IDA; (ii) furnish to IDA and the Fund as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of scope and in such detail as IDA shall have reasonably requested including a separate opinion by said auditors in respect of such certificates of expenditure show- ing whether the proceeds of the Credit and Fund Loan withdrawn by AgBank on the basis of certificates of expenditure have been used for the purpose for which they were provided. 7.05 Effectiveness. The following events are specified as conditions to the effectiveness of the Development Credit; (a) the execution and delivery on behalf of DRA of the Fund Loan Agreement have been duly authorized or ratified by all necessary governmental action; and the Fund has appointed IDA as coop- erating institution to administer the Fund Loan and the Fund Grant on terms and conditions satisfactory to IDA; (b) the Subsidiary Loan Agreement has been executed on behalf of DRA and AgBank; (c) a Regional Planning and Implementa- tion Unit has been duly established within RDD (with adequate land for its  - 60 - offices and depot free of any cost to such Unit), (d) the President, two Vice Presidents and three Director Generals for RDD-RPIU have been appointed; (e) the PRDC at Ghazni with membership, powers, responsibilities and functions satisfactory to DRA and IDA has been duly established; (f) the UNDP Technical Assistance Project Document has been signed by all parties thereto; (g) PCCRD has been duly established; (h) and the appropriate legislative instrument or instruments establishing RDD-RPIU, PCCRD, PRDC at Ghazni, and making provision for the establishment of other required PRDCs has entered into full force and effect. 7.06 With these assurances the Project would be suitable for an IDA credit of US$16.5 million and an IFAD Loan of US$13.0 million.  _6i ANE I APPRAISAL OF AGRICULTURAL AND RURAL DEVELOPMENT PROJECT AFGHANISTAN Investment and Operating Costs by Component and Year Af 000 -- - - - - - - -- - - - - - -Year