Senegal - Fourth Irrigation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4633-SE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 26.2 MILLION TO SENEGAL FOR THE IRRIGATION IV PROJECT October 21, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not ohwise be discosed wihout World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = CPA Franc (CFAF) US$1.0 = CFAF 314 CPAF 1 million - US$3,185 SYSTEMS OF WEIGHTS AND MEASURES Metric British/US Equivalents 1 meter (m) - - 3.28 feet (ft.) 1 square meter (m2) = 10.76 square feet (sq.ft.) 1 cubic meter (m) 35.30 cubic feet (cu.ft.) 1 kilometer (km) , 0.62 mile (mi.) 1 square kilometer(km') - 0.39 square mile (sq.mi.) 1 hectare'(ha) 2.47 acres 1 metric ton (m. ton.) = 2,205 pounds (lbs.) ABBREVIATIONS CNCAS Caisse Nationale de Credit Agricole du Senegal (National Agricultural Development Bank of Senegal) SAED Societe d'Amn4agement et d'Exploitation des Terres du Delta du Fleuve S4n4gal et des Vallees du Fleuve Senegal et de la Falm6 (Organization for the Development of the Senegal River Delta and Senegal and Faldm6 River Valleys) FISCAL YEAR July 1 - June 30 l  FOR OMCIUL U'SE ONLY - ii - SENEGAL IRRIGATION IV PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Senegal Beneficiaries: Soci4t4 d'Amenagement et d'Exploitation des Terres du Delta du Fleuve Senegal et des Vall6es du Pleuve SenEgal et de la Fal&me (SAED) and Caisse Nationale de CrEdit Agricole du Senegal (CNCAS) Credit Amounts SDR 26.2 million (US$ 33.6 million equivalent) Terms: Standard IDA terms, with 40 years' maturity. Onlending Terms: The credit would be passed by Government of Senegai on to SAED (US$23.6 million) as a grant and to CNCAS (US$10.0 million) as a subsidiary loan, including an interest rate of 2? per annum and a 30-year repayment period. USS million Financing Plan Govern=ent of Senegal 5.40 IDA 33.60 KfW 10.00 BADEA 4.70 French Kinistry of Cooperation 1.30 CCCE 10.60 Total 65.60 Economic Rate of Return: 102 Staff AppraisAl Report: Report No. 6484-SE k1p: IBRD 19099 R This document has a restricted distibution and may be used by recipients only in the pe:formni v of their official duties. Its contents may not otherwise be disclosed without World Bank o  4A U',O  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SENEGAL FOR THE IRRIGATION IV PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Republic of Senegal for SDR 26.2 million (US$33.6 million) is submitted for approval. The proposed credit would be on standard IDA terms with a 40 years maturity, and help finance the modernization of irrigated perimeters anu the strengthening of agricultural support services in the Senegal river Delta. The Project would be cofinanced by KfW for SDR 7.8 million (US$10 million equivalent), BADEA for SDR 3.7 million (US$4.7 million equivalent), CCCE for SDR 8.3 million (US$10.6 million equivalent), and the Ministry of Cooperation of France for SDR 1.0 million (US$1.3 million equivalent). 2. Background. Senegal's irrigation potential is being dramatically increased by the construction of the Diama and Manantali dams on the Senegal River. These two dams will permit double-cropping irrigation on 375,000 ha, of which over 240,000 ha in Senegalese territory. The currently-irrigated area, by contrast, is only 33,000 ha, of which 20,000 ha in large perimeters, farmed by smallholders and one enclave sugar estate in the Delta where the proposed project would be located, and 13,000 ha in small, village perimeters upstream. Until now, Goverrment's principal instrument for the development of irrigation in the Senegal Valley has been SAED, which was established in 1965 to plan, execute and manage irrigated farming. Performance has been mixed; the pace of development of new perimeters has been slow, and maintenance of existing perimeters has been inadequate, yet crop yields have been good, measured against irrigation world standards. Throughout the 1970s, the main reason for this poor performance was government's intervention in cereals pricing and irrigation financing. The producer price of paddy was set below the import price and, in order to keep farm incomes at a satisfactory level, the charges levied on farmers for inputs and services provided by SAED were set below cost. So long as Government was able to provide an offsetting subsidy to SAED, this system worked - although it provided no incentive for SAED to improve efficiency, nor did it create a competitive environment in which other, private suppliers of services could participate. This system broke down when Government budgetary constraints became more severe; SAED's finances were disrupted and operations deteriorated. 3. Starting in 1981, the Government decided, with the help of the donor community, to undertake a lcng-term program to improve the performance of the existing irrigated perimeters and pave the way for more diversified, and hopefully more rapid irrigation development .in the Senegal river region. Steps already taken have included raising official producer prices up to and then above import prices, and increasing consumer prices well above import prices, decentralizing management of SAED's perimeters, rice mills and civil works to regional offices along the valley, and providing  -2- management training and literacy programs for newly-promoted farmers' organizations. 4. Rationale for IDA Involvement. The proposed project is in line with the agricultural sector r?forms set out by the Government in its 1984 New Agricultural Policy (NIE, and reflected in SAED's present agreement (Lettre de Mission) with the Government and in the Structural Adjustment program (Cr. 1802-SE). The Project also provides continuity to the Irrigation Technical Assistance Project (Cr. 1632-SE) by implementing the recommendations of its studies. Financing by IDA is justified by: (i) its participation in the efficient and sustainable irrigation development of the huge potential created by the availability of water from the Manantali and Diama dams; and (ii) its role as lead agency for the institutional and policy reforms in the irrigation sector, in cooperation with the Government. Furthermore, without IDA's involvement, the necessary co-financing of the Project could not have been mobilized. 5. Proiect Objectives. The broad objective of the Project is to pave the way for sustainable irrigation development in the Senegal valley. The specific objectives are: (i) to improve the performance and maintenance of existirg perimeters designed for smallholder farming; (ii) to reduce the scope of SAED's activities, partly to reduce SAED's costs, but even more importantly to enable ?otential private suppliers of such activities to enter the market; (iii) to explore the scope for diversifying cropping patterns and forms of irrigated farming; and (iv) to strengthen SAED's planning and managerial capacities. 6. Prolect Description. Within the policy framework set by the ongoing structural adjustment program, the proposed project would attain its objectives through institutional and agricultural components. The institutional component would include: (i) disengagement by SAED from its production-related activities - and corresponding staff reductions - in favor of increased concentration on its public service functions, which will entail some staff strengthening; and (ii) development within the National Agricultural Credit Bank (CNCAS) of a credit structure to serve farmers and private contractors in the Senegal river Delta. The agricultural component would include modernization and expansion of three perimeters (7,000 ha), improved perimeter maintenance, improved extension and training, applied research, reforestation, and water-borne disease control. 7. The total cost of the Project is estimated at US$65.6 million with a foreign exchange component of US$29.7 million (45Z). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key processing events and the status of Bank group operations in Senegal are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report No. 6484-SE, dated September 3, 1987 is also attached. 8. Agreed Actions. The main condition of effectiveness of the proposed project is that the third *Lettre de mission' setting out the respective obligations of the Government and SAED has been signed by the two  -3- parties. The principal actions on which agreement has been reached with the Government are that: (i) the Government would publish an investment guide, consistent with the principles of the Government's Letter of Development Policy dated April 16, 1987, and would ensure that SAED only undertakes irrigation projects which are technically, economically and financially justified, and would review periodically its investment program with IDA; (ii) SAED would implement the disengagement program contained in the third 'Lettre de mission'; (iii) SAED would implement the staff reduction plan contained in the third 'Lettre de mission"; and (iv) SAED would charge farmers the operation and maintenance costs of water as soon as double-cropping is feasible. 9. Justification. The Project would result in the improved operation and maintenance of some 7,000 ha of irrigation schemes in the Senegal river Delta thereby making possible sustained and increased production primarily of rice, but also of tomatoes, maize, and sorghum The economic rate of return is IOZ. In addition, the project's institutional reform program would have major non-quantifiable benefits. SAED's disengagement from its production-related activities would result in attracting new farmers, agro-businesses, and support services into the area. In addition, the strengthening of SAED's service activities would lead to more effective training of farmers in agricultural methods, water use. mechanical repairs and management and better-formulated projects. The creation of an agricultural credit network in the area would allow farmers and their associations to buy inputs from private distributors, have their land prepared by private contractors and their equipment repaired by private mechanics. As SAED disengages, and goods and services tegin to be traded on a commercial basis, the business climate for the development of the valley would be greatly improved. 10. Risks. Possible risks woulc be: (a) a slower-than-expected transition to double-cropping; (b) inadequate maintenance; (c) failure of the credit network, since the history of credit in Senegal shows that a habit of delinquency exists which, if not overcome, could hamper its operations, thus retarding SAED's disengagement; (d) failure of Government to maintain a price policy adequate to sustair- agricultural production; and (e) slowness of the private sector to take over production-related activities relinquished by SAED. Protection against those risks has been provided for in the proposed project: (a) the reinforcement of SAED's training and extension services would provide farmers with adequate technical skills for double-cropping; (b) it would be the responsibility of SAED's Water Management Department to set up maintenance programs and to see to it that they are executed; (c) SAED's training expertise, technical advice and experience with farmers would provide strong support to CNCAS's credit network; (d) IDA will maintain a constant policy dialogue with the Government through the preparation and supervision of structural adjustment programs and 'lettres de mission"; and (e) a diversification and marketing study would be undertaken, expressly to promote private investment in the Senegal valley.  -4- 10. Recommendation. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed Credit. B. Conable President Attachments  -5- SCHEDUL" SENEGAL IRRIGATION IV PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Costs a/ Local Foreign Total ------ US$ million - Civil works 8.47 16.78 25.25 Training 0.97 1.31 2.28 Agricultural credit 9.56 - 9.56 Financial support to SAED 4.55 - 4.55 Maintenance equipment - 1.05 1.05 and spare parts Studies - 1.91 1.91 Restructuring of SAED 0.69 0.44 1.13 Applied and adaptive research 1.52 2.47 3.99 Reforestation 0.24 0.03 0.27 Health 0.09 0.06 0.15 Total Base Costs 26.09 24.05 50.14 Physical Contingencies 2.24 2.47 4.71 Price Contingencies 7.59 3.17 10.76 Total Project Costs bJ 35.92 29.69 65.61 CZ= 2 2 Local Foreign Total -US$ million-------- Financing Plan Government of Senegal 5.40 - 5.40 IDA 22 48 11.12 33.60 KfW (F.R. of Germany) 3.35 6.65 10.00 BADEA - 4.70 4.70 Ministbre de la Cooperation (France) 0.21 1.09 1.30 CCCE (France) 4.48 6.13 10.61 Total Financing 35.92 29.69 65.61 aJ Net of taxes and duties, which would be waived. bJ Includes US$1 million PPF advance.  -6- SCHEDULE B STAFF APPRAISAL REPORT SM" IRRIGATION IV AMWNTS AND EM S OF PROCUREMENT Procurement Method Items to be precured ICB LCB Other NA Tots I Earth works, pumping 20.7 84.7 stations, structurs (15.0) 5.0 k - (15.)- uildings and forestry - 0.2 - - 9.2 plattai|tons oehic-es 0.7 - 9.7 AgrTcultural equi_pmt - - 1.1 - 1 Local stoff, training, Operating costs, misc. - S.1 - 1.1 18.2 Elqupt (8.1) (2.7) (6.8, Expetrias s*aff, vonsultant, audits - 4.1 - 4.1 and studies - - (29) - (2.8) Limn of credit 11.8 11.0 (10.0) (10.0) 29.7 8.3 10.9 21.7 65.6 (15.e3 (8.1) (2.8) '12.7) (338.) g/ The fIgure betweem brackats show the respective amounts to be financed by IDA. i Parallol financing by CCCE and French Ministry of Cooperation and procurim nt through procedures ac ptable to them.  -7- SCHEDULE C SENEGAL IRRIGATION IV PROJECT TIMETABLE OF KEY PROCESSING EVENTS (a) Time taken to prepare i.e project: five years (b) Prepared by: SAED with assistance from FAO/CP consultants and IDA (c) First IDA mission: January 1982 (d) Appraisal mission departure: June 1986 (e) Negotiations: April 1987 (f) Planned date oi effectiveness: Febru&ry 29, 1988 (g) List of relevant PCRs and PPARS: Senegal - River Polders Project (PPAR No. 2777) Debi-Lampsar Project (PCR)  - 8' ~Schedule ' Pag-eT -n:1'2 STATUS OF WORLD BANK OPERATIONS IN SENEGAL A. Statement of Bank Loans and IDA Credits (as of March 31. 1987) * Amount (less cancellations) (US$ Million Loan/Credit Number Year Borrower Purpose Bank IDA 2/ Undisbursed 2/ Sixteen Loens I/ and twenty-five Credits fully disbursed 109.92 247.36 1412-T-SE 1977 Senegal Petite C8te Tourism 8.0 0.72 1413-SE 1V77 Senegal Pet2te COte Tourism 5.6 0.66 908-SE 1979 Senegal Education III 22.0 3.26 991-SE 1980 Senegal Small Rural Operations 11.0 1.55 1061-SE 1980 Senegal T.A. for Planning 5.3 0.65 1973-SE 1981 SOFlSEDIT Investment Promotion 6.5 2.46 1136-SE 1981 Senegal Investment Promotion 2.5 0.85 1103-SE 1981 Senegal Forestry 9.3 6.25 1176-SE 1982 Senegal Agricultural Research 19.5 9.50 1310-SE 1983 Senegal Rural Health 15,0 8.31 1323-SE 1983 Senegal Petroleum Exploration 9.5 3.77 1360-SE 1983 Senegal Phos. Ind. Des. Rng. 7.7 2.49 1398-SE 1983 Senegal Second T.A.-Parapublic 11.0 8.09 1406-SE 1983 Senegal E.S. Rural Dev. 16.1 12.64 1448-SE 1984 Senegal Fifth Highway 10.75 3.11 F-15-SE 1984 Senegal Fifth Highway 10.75 1.40 1458-SE 1984 Senegal T.A. for Urban Mgut. & Rehab. 3.05 0.69 F-13-SE 1984 Senegal T.A. for Urban Mgat & Rehab. 2.95 2.91 1459-SE 1984 Senegal Dakar Container Port 2.65 1.42 F-14-SE 1984 Senegal Dakar Container Port 4.85 5.17 1554-SE 1985 Senegal Eleven Centers Water Supply 24.00 18.13 1632-SE 1986 Senegal Irrigation T.A. 4.9 5.51 1638-SE 1986 Senegal Regional Mgmt.School (CESAG) 5.5 5.64 1710-SE 4/ 1986 Senegal Energy Sector Rehabilitation 20.00 23.53 1714-SE 1/ 1986 Senegal Seeond Telecoamunications 22.00 24.94 1735-SE / 1986 Senegal Primary Education 12.00 13.10 Total 130.02 499.66 166. of whieh repaid 31.62 8.38 Total now outstanding 98.40 491.28 IBRD IDA Amount sold T:!- 270 of which has been repaid 3.26 2.40 0.00 0.03 Total now held by Bank and IDA 3/ 98.40 491.25 Total undisbursed 3.84 162.91 166.75 -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1/ A loan of US$3.5 million for agricultural credit (584-SE) made in 1969 was cancelled on March 25, 1971. 2/ Beginning with Credit 1061-SE, credits have been denominated in Special Drawing Rights (SDR). The dollar amounts in these columns represent the dollar equivalents at the time of credit negotiations for the IDA amounts and the US$ equivalents as of March 31, 1987, for the undisbursed amounts (1 SDR - US$1.286). 3/ Prior to exchange adJustments. 71 Not yet effective.