Mexico - Irrigation Projects

Document of The World Bank FOR OFCIAL USE ONLY Report No. 13090 PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) MAY 27, 1994 Agriculture Operations Division Country Department II Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used bY recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT COMPLETION REPORT MENXC RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) CURRENCY EOUIVALENTS Currncy Unit Mexican Peso (Mex$) Currency Exchange Rates during Implementation: (yearly averages) Year Mex$/ US$ 1979 (SAR) 22.50 1980 23.01 1981 24.48 1982 48.01 1983 120.06 1984 167.64 1985 228.11 1986 575.40 1987 1353.70 1988 2281.00 1989 2464.00 1990 2821.00 1991 2950.00 Source: World Bank N=: All US$ values in this report should be understood as US$ equivalent.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) ABBREVIATIONS AND ACRONYMS AGSAL I - Agricultural Sector Adjustment Loan I (Loan 2918-ME) AGSAL 11 - Agricultural Sector Adjustment Loan II (Loan 3357-ME CFE - Comisi6n Federal de Electricidad (Federal Electricity Commission) CIANO - Centro de Investigaciones Agropecuarias del Noroeste (The Northwestern Center for Agricultural Research); previously named CIAPAN CIAPAN - Centro de Investigaciones Agropecuarias del Pacffico Norte (Agricultural Research Center for the North-West); now named CIANO CIMMYT - Centro Internacional para el Mejoramiento del Mafz y el Trigo (International Center for Improvement of Maize and Wheat) CNA Comisi6n Nacional del Agua (National Water Commission) CRF - Comisi6n del Rio Fuerte (Rio Fuerte Commission) DES - Delegaci6n del Estado de Sinaloa (Sinaloa State Delegation) DH - Departamento de Hidrologfa (Hydraulics Department) EO - Executive Office ERR - Economic Rate of Return IDB - Inter-American Development Bank IDSP - Irrigation and Drainage Sector Project (Loan 3419-ME) INIA - Instituto Nacional de Investigaciones Agropecuarias (National Institute for Agricultural Research) -- mereged into INIFAP INIFAP - Instituto Nacional de Investigaciones Forestales, Agrfcolas y Pecuarias (National Institute for Research on Forestry, Agriculture and Livestock) OIH - Oficina de Infraestructura Hidraulica (Hydraulic Engineering Office) PCR - Project Completion Report SAR - Staff Appraisal Report SARH - Secretarfa de Agricultura y Recursos Hidraulicos (Ministry of Agriculture and Hydraulic Resources) 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.   FOR OMCIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General May 27, 1994 Operations Evaluation MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Mexico Rio Fuerte/Rio Sinaloa Irrigation Project (Loan 1706-ME) Attached is the Project Completion Report on Mexico-Rio Fuerte/Rio Sinaloa krigation Project (Loan 1706-ME). Parts I and III were prepared by the Latin America and Caribbean Regional Office, with agronomic and economic inputs from FAO/CP, and Part II by the Borrower. The predecessor project, Rio Sinaloa I (Ln. 970-ME), encountered major problems and was redefined, dropping 72% of the command area. When the dam was completed, it impounded water for which there was no canal network. Nearby, large areas of the Rio Fuerte scheme were going out of production due to salting and canal-infrastructure deterioration caused by lack of maintenance. The project aimed to build 76,000 ha. of irrigation infrastructure that should have been developed under Loan 970. While waiting for these canals to be finished, the project aimed to use the surplus water to flush and reclaim 60,000 ha. of salty lands in the Rio Fuerte command. Moreover, financing of deferred maintenance on another 60,000 ha was to restore this deteriorating area. Counterpart funding crises and some contracting problems seriously delayed implementation. The Rio Sinaloa component was implemented successfully. Due to lags in building the Rio Fuerte component, the water needed to flush salt was needed to irrigate the Rio Sinaloa command. A hydropower plant, not included at appraisal and not financed by the Bank, was added. In 1990-91, a 200-year flood in the Fuerte Valley caused an estimated US$ 10 million of damage to irrigation infrastructure and $30 million to crops, homes and other facilities. US$2.5 million of the loan was re-allocated to emergency restoration. Benefits from the Rio Sinaloa component have been largely as expected. Those from the Rio Fuerte component have been modest and would have been so even without the flood. The PCR calculates the economic IRR to Rio Sinaloa II at 14%, that to Rio Fuerte at 3%-11 % for both. Returns to Sinaloa I were estimated at 8% and to the power plant, dependent on Sinaloa I, at 17%. The amalgamated return for all of these is estimated at 10%. The project helped remedy environmental damage from earlier irrigation projects. In economic terms, both the project and the two projects together are marginally satisfactory, although returns would clearly have been much higher had implementation and O&M of Sinaloa I and of Rio Fuerte been carried out as scheduled. Since 1989, there has been major institutional reform in Mexico, including turnover of irrigation systems to users. This has improved O&M and reduced government O&M losses. While not part of the project (there were no institution-buildingobjectives), the reform appears to assure sustainability. The PCR provides a balanced assessment of project achievements and shortcomings. Part II is the Borrower's summary of its own thorough ex-post evaluation. All parts of the PCR substantially agree. No audit is planned. Attachment This document hae a restricted distribution and may be used by recipients only in the performance of their official dutihs. It contenta may not otherwiso be diaclosed without World Bank authorization.   PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) TABLE OF CONTENTS Page No. PREFACE ....................................................................... i EVALUATION SUMMARY ............................................................. i- viii PART 1: PROJECT REVIEW FROM BANK PERSPECTIVE .......................................... 1 1. Project Identity ......................................................... 1 2. Background . ........................................................... 1 3. Project Objectives and Description ............................................. 2 4. Project Design and Organization .............................................. 3 5. Implenentation Experience ...... ........................................... 5 6. Project Results .......................................................... 9 7. Project Susainability ...................................................... 15 8. Bank Performance ....................................................... 15 9. Borrower Performance ..................................................... 16 10. Project Relationship ...................................................... 16 1 1. Consulting Services ...................................................... 16 12. Project Documertation and Data .............................................. 17 13. Lessons Learned ........................................................ 17 PART L1: PROJECT REVIEW FROM THE BORROWER'S STANDPO T ................................ 21 1. Introduction ........................................................... 21 2. Bank Perfon,nce ........................................................ 22 3. Government Performance ................................................... 22 4. Project Result .......................................................... 23 S. Recommendations for Project Consolidation ........................................ 24 PART III: SUMMARY OF STATISTICAL DATA ............................................... 26 Table 1. Related Bank Loas .27 Table 2. Project Timetable. 2 A. Planned, Revired and Actual Datea of Project Timetable .28 B. Project Schedule ............................................... 29 Table 3. Loan Disbursements: .30 A. Annual and Cumulative Disbursements .30 B. Cumulative Finance Expenditures by Investment Category .30 Table 4. Project Implementation: .31 A. General Objectives .31 B. LAnd Reclamntion Progrm .32 Table 5. Project Cost and Financing .33 A. Project Cost .33 B. Project Financing .34 Table 6. Project Results .35 A. Direct Benefits .35 B. Cash Flow in Economic Prices .36 Table 7. Status of Covenants .37 Table 8. Ue of Bank Resoures: .39 A. Staff Inpu .39 B. Miesions .40 Table 9. Studies .41  TABLE OF CONTENTS (Coat.) Page No. Annex I Financial and Economic Analyais .......................................... 42 Table 1. Cultivated Ame and Production Scenario with Project ................................................. 43 Table 2. Cultivated Are and Production Scenario without Project ................................................ 44 Table 3.1. Cultivated Area and Production Scenario with Project Rio Fuerte Sub-Project ................................................. 45 Table 3.2. Cultivated Aea and Production Scenario without Project Rio Fuerte Sub-Project ................................................. 46 Table 4.1. Cultivated Area and Production Scenario with Project Rio Sinaloa Sub-Project ................................................ 47 Table 4.2. Cultivated Area and Production Scenario without Project Rio Sinaloa Sub-Project ................................................ 48 Table 5. Project Resulta - Incremental Benefits Inveatments and Project Coats With Project vs. Without Project Rio Fuerte Project .49 Table 6. Project Resulta - Incremental Benefits Inveaments and Project Cost Wth Project va. Without Project Rio Sinaloa Sub-Project. 50 Table 7. Project Completion Report Cash Flow in Economnic Prices (MAexSMillion) .51 Table 8. Project Cornpletion Report Cash Flow in Economic Pricea (MexSMillion) .52 Annex 2 Technical Data .53 Table 1: Main Meteorological Characteriatiques .54 Table 2: Water Balace Fuene Diatrict .55 Table 3: Rio Sinaloa Reservoir Balance .56 Table 4: Overall Irrigation Efficiency .57 Graph 1. Rio Fuerte/Rio Sinaloa - Crop Aea .58 Graph 2. Rio Fuerte - Crop Area .59 Graph 3. Rio Sinaloa - Crop Ama.59  - i - PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) PREFACE This is the Project Completion Report (PCR) for the Rfo Fuerte/Rfo Sinaloa Irrigation Project in Mexico, for which Loan 1706-ME in the amount of US$92 million was approved on May 24, 1979. The loan was closed on June 30, 1991, five years behind schedule. Only US$81.8 million of the loan was disbursed and the last disbursement was on June 1991 to the Special Account; US$10.2 million was canceled by the Borrower. The PCR was prepared jointly by the FAO/IBRD Cooperative Program on behalf of the Bank's Agriculture Operations Division, Country Department II, of the Latin America and the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and II), and the Borrower (Part II). Preparation of this PCR was started during a Bank mission in November, 1991, and is based, inter alia, on the Staff Appraisal Report; the Loan, Guarantee, and Project Agreements; supervision reports; progress reports; correspondence between the Bank and the Borrower; Borrower's Reports; and internal Bank memoranda.   - iii - PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) EVALUATION SUMMARY Objectives (paras. 3.01-3.03) 1. The Rio Fuerte/Rio Sinaloa Irrigation Project (Loan 1706-ME) consisted of two complementary but distinct subprojects: (a) Rio Sinaloa II --whose main objective was to complete the unfinished 105,000 hectare (ha) irrigation scheme of the Sinaloa I Project (Loan 970-ME), comprising a total area of 76,000 ha of land situated in the lower Sinaloa valley; and (b) Rio Fuerte--whose objectives included the reclamation of 60,000 ha of saline soils and the rehabilitation of deteriorated infrastructure in another 60,000 ha irrigation scheme in the existing Fuerte scheme (units I, IV and V), situated in the lower Fuerte valley. The connection between the two subprojects was through the possibility of temporary diversion of excess water accumulated in the Bacurato reservoir, whose construction was being finished in parallel under the Sinaloa I project. The water was to be used for leaching salinized soils in part of the Rio Fuerte district during the construction of the irrigation infrastructure of Rio Sinaloa II. 2. The project was planned to be implemented over a period of 6 years. It included rehabilitating and constructing irrigation and drainage canals; establishing access roads, telecommunication and other works; reclaiming soil and clearing land; providing extension and research; and carrying out drainage and other studies. The project was expected to increase the cropped area in the project area from 125,000 to 228,000 ha, raise the net value of production by 245%, and benefit 20,000 farm families, 71 % of them small farmers. Implementation Experience (paras. 5.01-5.14) 3. Start-up of the project was delayed and implementation was longer than planned because of continuing counterpart funding constraints. These resulted mainly from the adverse macroeconomic environment brought on chiefly by the 1982 oil price slump that induced an economic crisis in Mexico. The project became effective in October 5, 1979 and was closed in June 30, 1991, after five extensions. Total cost was US$225 million (90% of SAR estimates), loan disbursement was US$81.8 million (88% of estimates), and US$10.2 million were canceled. The Government's participation was US$143 million (63.6% of total costs, virtually identical to SAR estimates). Project costs were revised twice and loan allocations once, to allow for increased loan participation in the financing of agricultural extension. 4. The two subprojects differed markedly from one other in performance from the beginning. Although subject to the same institutional and funding constraints, the Rio  - iv - Sinaloa II subproject showed an implementation dynamism that contrasted sharply with the very slow execution rate of the Rio Fuerte subproject. The main implementation shortcomings of the Rio Fuerte subproject were: (a) its failure to achieve the planned soil reclamation target, and (b) poor maintenance of the irrigation infrastructure. The low soil reclamation rate (51 % of the SAR target) was partly caused by the slow progress of the civil works program of the subproject, which prevented the Rio Fuerte scheme from using the temporary water surplus accumulated in the Bacurato reservoir for the planned soil leaching operation. In fact, the development program on Sinaloa II, contrary to the original plan, advanced faster and eventually absorbed the available water for its irrigation program. This, compounded by overall water shortages resulting from droughts and legal dispositions compelling Irrigation Districts to allocate water to production purposes, prevented the Rio Fuerte subproject from having access to the volume of water necessary to carry out the scheduled soil leaching program. Design deficiencies also contributed to the poor performance of the soil reclamation program, particularly the inclusion in the program of economically irrecuperable soils that were subsequently abandoned. 5. Deficient maintenance, although common to both subprojects, had aggravating consequences in the Rio Fuerte district where existing infrastructure was already deteriorating because of deferred maintenance before the project began. Its adverse impact on the Rio Sinaloa HI scheme was reduced by the fact that most infrastructure was newly constructed by the project. Poor maintenance arose essentially from funding constraints caused by the low water charges collected by the irrigation districts, which the project failed to raise to realistic levels. An inadequate drainage network and long droughts combined with the unsuccessful soil reclamation program meant that agricultural production in the Rio Fuerte district stagnated instead of expanding as expected. This led to a lower than expected agricultural growth of the project, in spite of the positive production performance of the Rio Sinaloa II subproject. 6. Although the construction pace was slow and most infrastructure targets were not entirely achieved in both subprojects, the quality of the civil works was generally considered satisfactory by Bank supervision missions. Design deficiencies arising from inadequate basic data necessitated some redesigning of the original distribution and infrastructure networks, which affected about 11 % of the Rio Sinaloa II scheme. At the closing date, although the irrigation and drainage network had not been completed, Rio Sinaloa's 76,000 ha development target had been almost achieved, while the Rio Fuerte subproject attained only about 66% of its 120,000 ha rehabilitation and reclamation target. Access roads were well designed and constructed, and the telecommunication system was modified, with Bank agreement, from wire telephone to a modem radio communications system. 7. Catastrophic floods in late 1990-early 1991, in the Fuerte subproject area, destroyed bridges, severely damaged the irrigation infrastructure and caused overall losses, estimated at about US$40 million. Crop losses alone, from a flooded area of about 19,500 ha, amounted to about US$14.3 million. The total flood plain reached about 49,000 ha and about 68,000 ha were immobilized to further production due to serious damage of main canals and laterals. With Bank approval, about US$2.5 milion of the loan were used to rehabilitate the affected canals, under an emergency schedule. Additional restoration works, estimated at US$7 million, were to be financed under the IDSP loan then in its final  v - negotiation stage with the Bank. The 1990-91 floods contributed to reduce, although not in a determining way, the performance indicators of the Rio Fuerte subproject. 8. Project organization and management followed SAR arrangements in the initial phase. General responsibility was given to the Ministry of Agriculture and Hydraulic Resources (SARH), local coordination to the Rio Fuerte Commission (CRF). The Rio Fuerte and the Rio Sinaloa II Irrigation Districts were responsible for operation and maintenance and extension, and the Hydraulics Department (DH) of SARH for the civil works execution. Agricultural research was under the National Institute for Agricultural Research/Centro de Investigaciones Agropecuarias del Pacifico Norte (INIA/CIAPAN). In 1985, a major institutional reorganization abolished the CRF, and project implementation responsibility was given to SARH's Sinaloa State Delegation (DES). The local structure was also reorganized. The most important change in terms of impact on project performance was the transfer of operation and maintenance and extension responsibilities from the Irrigation Districts to the Rural Development Districts, whose jurisdiction included the surrounding rainfed areas. A second institutional reorganization in 1989 created the National Water commission (CNA), within SARH, at the central level, and CNA took over general coordination of the project in 1989. At the state level its structure incorporated the newly created Irrigation District State Offices. At local level, operation and maintenance tasks were retransferred to the Irrigation Districts from the Rural Development Districts which, however, remained under the DES and retained their extension responsibilities for the irrigated and rainfed areas. 9. Agricultural research was carried out, as planned, by INIA's two experimental stations in the project area. The research program was effective and concerned rightly with the solution of technological and economic problems related to the area's major crops, contributing to increased yields and farmers' revenues. Agricultural extension was less effective. Although results were satisfactory up to 1985, technical assistance to farmers was set back by the transfer of responsibility from the Irrigation District to the Rural Development District. With extended jurisdictions and curtailed budgets, extension services deteriorated, project accounting and monitoring records were lost, and the new accounting system was not in line with provisions of the Loan covenants. Contrary to stipulations, research and extension failed to keep separate accounts for project-financed activities, while unallocated loan funds were inadvertently used to finance extension costs, indicating poor central coordination. Coordination improved after 1989, when responsibility for project coordination was given to the newly created CNA. Project Results (paras. 6.01-6.15) 10. Rio Sinaloa H came very close to attaining its overall objectives, but the Rio Fuerte subproject performed considerably less well, and overall results were below expectations. All of the land clearing and land levelling targets of the Rio Sinaloa subproject were achieved, as well as about 90% of its infrastructure targets. The Rio Fuerte subproject reached only 51% of its soil reclamation target and 76% of the canal rehabilitation target. The completion rates for new infrastructure were 82% for land levelling, 52% for unlined lateral canals, 104% for lined lateral canals, and 92% for drains. Most of the infrastructure constructed or rehabilitated under both subprojects has deteriorated for lack of adequate maintenance. Maintenance issues are now being addressed by the Irrigation and Drainage Sector Project (IDSP-Loan 3419-ME), which became effective in June 1992.  - vi - 11. Water allocation and delivery were well organized and operated, but overall irrigation efficiency was below 40% (76% of SAR provisions for Rio Sinaloa II and 80% for Rio Fuerte) because of poor maintenance compounded by a low canal density and inadequate land levelling. The expansion of the total area cropped over the 1979/80 level showed a very irregular pattern, mainly because of water shortages resulting from lower than normal rainfalls in many years. Expansion was 128,000 ha (130% of SAR estimates) over the total project period. 12. Cropping patterns did not follow the SAR forecasts. Contrary to predictions, production of some crops such as cotton, rice, safflower, and sugar cane, was either almost phased out or cut back considerably. This was due primarily to increasingly unfavorable market conditions in a competitive environment. Production increases were above SAR estimates for vegetables, maize and sorghum, soy beans, potatoes, and wheat. Forage and fruit crops were not developed as anticipated. Productivity gains were obtained with maize (54% increase), beans (40%), soybeans (15%), potatoes (13%), vegetables (6%), and wheat (5%), while cotton and rice yields decreased about 25% and 13%, respectively. 13. The project benefitted 7,205 rural families in Rio Sinaloa (101% of SAR estimates) and 6,939 families in Rio Fuerte (54%). Overall, the project benefits were 72% of the SAR estimates. The project promoted efficiency by encouraging the development of crops for which there was strong market demand. This favored the growth of the most dynamic segment of entrepreneurial producers and the development of effective private technical assistance services. The project failed, however, to create mechanisms for improving the competitiveness of the less competitive ejidol' farmers. Such farmers ended up renting out part of their land to large farmers. 14. A non-agricultural side-benefit of the project was the generation of electricity by a Government-financed power plant added to the Rio Sinaloa II project. This had not been included in the original plan, probably because the power study had not been completed at the time of appraisal. The plant was constructed in order to maximize the use of the water stored by the Bacurato dam. The dam had to be redesigned accordingly. 15. The economic rate of return (ERR) for the two combined subprojects (Rio Fuerte and Rio Sinaloa II) over a period of 25 years was estimated was at 10.6%--significantly below the SAR estimate of 17.9%. The shortfall was due to the poor performance of the Rio Fuerte subproject, whose ERR was 3.1%; the ERR for Rio Sinaloa II, estimated at 14.4% (without the power plant), was closer to the SAR expectations. (The ERR for the power plant was 16.9%). The overall ERR for Rio Fuerte and Rio Sinaloa II together with Sinaloa I (whose ERR was only 7.9%) and the power plant was estimated at 10.1%. Sustainability (para. 7.01) 16. Project sustainability was affected by the lack of funds for operation and maintenance. This derived essentially from the Govemment's inability to keep water charges 1' E:jido: settlement of small farmers on public lands expropriated under the Agrarian Reform, where the land user (ejidatario) has rights to use the land, but not property rights.  - vii - ahead of the inflation rate to cover incurred costs, especially during 1982-89 when the macroeconomic environment deteriorated. By 1988, with cost recovery for operation and maintenance below 30%, maintenance was poor, reducing productivity and increasing production costs. This affected sustainability in the long run. Poor maintenance requires periodic infrastructure rehabilitation, which tends to be almost as expensive as the original construction investment. The ongoing Irrigation and Drainage Sector Project is addressing this problem. By late-1992 both projects achieved 100% self-sufficiency in operation and maintenance assuring sustainability conditions for both subprojects. Lessons Learned (paras. 13.01-13.10) 17. The following lessons can be drawn from the Rio Fuerte/Rio Sinaloa II experience for similar projects in the future: (a) Like many projects in Latin America implemented in the 1980s, the project was seriously affected by an unfavorable macroeconomic environment, institutional instability, and severe funding constraints. This confirms the importance of a sound macroeconomic and institutional context as an important condition for successful project implementation. (b) The lack of an integrated project coordinating unit for the two projects, together with changes in the institutional structure responsible for project execution, contributed to a relaxing of the implementation discipline established by the Loan Agreement. As a result, participating agencies, such as those for extension and research, and the Irrigation Districts, lost sight of their commitment to project objectives. Project and non-project activities were muddled together, maintenance activities were neglected, reflecting overall funding problems, and project performance was consequently jeopardized. It appears that the establishment of a strong project coordinating unit is vital to ensuring smooth implementation when many agencies are involved, particularly in unstable institutional conditions. (c) Poor maintenance hurts current productivity and production and undercuts sustainability in the long run. The poor maintenance is directly related to the Irrigation Districts' difficulty in collecting realistic water rates to cover operation and maintenance costs. The problem can be solved only by transferring operation and maintenance responsibility to water users. (d) Reclamation of saline soils has to be analyzed case by case before appraisal, to avoid including economically irrecuperable soils. Such soils had been included originally in development schemes on the basis of non-technical criteria (usually, under political pressure to expand irrigated areas). (e) The Government's market-oriented policy during the final project years (1989-91) favored the development of competitive commercial crop  viii - production along with the positive expansion of private technical assistance. This had positive effects on the performance of large-scale irrigation in Mexico. However, this policy benefitted principally large farmers. Special attention must be given to assist ejidos to successfully compete in the future; (f) Rio Sinaloa II is a typical example of multipurpose water resource projects that include irrigation as a major objective but derive significant benefits from power generation, flood control, and municipal water supply. These side-benefits should be taken into account in future projects. (g) The significant growth of the secondary sector in the project area during implementation, largely related to agricultural production, indicates that despite the project's shortfalls, it was able to bring about substantial economic development in the region. In particular, it confirms the great development potential of the area and shows that further investment aimed at improving the efficiency of water use (the limiting factor for expansion) would be worth considering. (h) The restriction of flexibility on water delivery schedules that constrains opportune (frequent) and light irrigations and thus limit crop potential yields and diversification is an issue in Rio Fuerte and Rio Sinaloa, as well as in most of Mexican gravity Irrigation Districts. Future rehabilitation and modernization programs should address this restriction in order to achieve better economic results. The new projects should also include modernization concepts to tackle this problem. (i) Lessons Learned from the 1990-91 Flood Episode Include: (i) Dam safety and hydraulic infrastructure safety concerns should be included in major gravity irrigation schemes, to ensure the maintenance of the concerned structures and thus avoid or minimize such catastrophic downstream damages as occurred during the Fuerte floods. (ii) An effective storm monitoring system, which in the event ensured the broadcast of early warning alarms and allowed the timely evacuation of the concerned population from the risk area, is an important instrument of public good concerns to be supported, particularly under the risky meteorological and geological conditions of Mexico constantly hit by thunderstorms, hurricanes, tornadoes and earthquakes. (iii) The construction of bridges in major rivers with excessive earth embankments that obstruct the free flow of water must be avoided.  PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IREGATION PROJECT (LOAN 1706-ME) PART I - PROJECT REVIEW FROM BANK PERSPECTIVE 1. Project Identity Project Name: Rio Fuerte/Rio Sinaloa Irrigation Project Loan No.: 1706-ME RVP Unit: Latin America and the Caribbean Country: Mexico Sector: Agriculture Subsector: Irrigation 2. Background 2.01 Mexico's agricultural sector contributed about 7.3% to GDP in 1992. Agriculture currently employs about 25% of the labor force, and provides some 26% of non-oil exports. Only about 18% of the total land is cultivable. An estimated 21 million hectares (ha) are cropped, about 6 million ha under irrigation. During 1950-65, agricultural GDP growth averaged 4.3% a year, well ahead of population growth, but it started to decline in the late 1960s. This decline was in response to the higher cost of bringing marginal land into production, a slow-down in the expansion of irrigated areas, excessive water use and inadequate drainage on many irrigated lands. These factors resulted in salinization and reduction of cropped areas and yields. Agricultural GDP growth fell to an average of 2.4% during 1965-80, below the rate of population growth. From being food self-sufficient and an agricultural exporter before 1970, Mexico became a major importer of basic foodstuffs by the end of the decade. 2.02 To restore agriculture's performance and ensure food security, the Govemment introduced some important policy measures and took decisive steps to revive the irrigation subsector. A federal water law was enacted in 1972 and a nationwide institutional structure established under the Ministry of Agriculture and Hydraulic Resources (SARH) to control, manage, and coordinate the use of the country's water resources. A number of irrigation projects, some of which were supported by the World Bank, were launched during the 1970s to rehabilitate and expand the subsector. During the final years of project implementation  (late 1980s and early 1990s) the agricultural policies shifted toward the elimination of subsidies, in line with agreements made under Bank-financed Agricultural Adjustment Loans (AGSAL) I and II. This has resulted over the past three years, in a more competitive agricultural sector. 2.03 One of these irrigation projects was the US$146 million Rio Sinaloa Project (Loan 970-ME) started in 1974. The project included the construction of storage (Bacurato) and diversion (Sinaloa de Levya) dams and the development of 105,000 ha of irrigable land. Cost overruns (caused by underestimates deriving from design deficiencies), compounded by rising inflation and the bankruptcy of the dam contractor led to a reduction in the scope of the irrigation infrastructure of the project (redefined in 1978 as Rio Sinaloa I project) to 29,000 ha so that the dam's construction could be completed by 1981. The remaining 76,000 ha of irrigable lands was to be developed under a second phase (Rio Sinaloa II) project. Because of a time lag between the completion of Rio Sinaloa I and the establishment of the extended irrigation infrastructure under the second-phase project, the Bacurato reservoir was expected to have excess water. The Rio Sinaloa II project was merged with the adjacent Rio Fuerte Irrigation Rehabilitation Project, then in preparation, and the excess water stored in the reservoir was to be used for the leaching of salinized soils in the Rio Fuerte district, while the Rio Sinaloa II infrastructure was being constructed. The Rio Fuerte district comprised a total irrigable area of 210,000 ha, of which about 120,000 ha, covering three of the scheme's five geographical sections (units I, IV and V) had either seriously deteriorated infrastructure or salinized soils (60,000 ha). 3. Project Objectives and Description 3.01 The Rio Fuerte/Rio Sinaloa II Irrigation Project (Loan 1706-ME) was a follow-up to the Rio Sinaloa I Project. But it also contained the Rio Fuerte Rehabilitation. The project was approved by the Board in May 1979 for a total of US$249.7 million, of which the Bank would finance US$92 million and the Government US$157.7 million. The project was to cover a total area of 196,000 ha and comprised two subprojects: (a) Rio Sinaloa II, designed to complete the originally planned 105,000 ha of the Rio Sinaloa scheme, involving the construction of irrigation and drainage systems for 76,000 ha (43,000 ha on the left bank and 33,000 ha on the right bank) in the Rio Sinaloa District, and (b) Rio Fuerte, designed to reclaim 60,000 ha of saline soils and rehabilitate deteriorated infrastructure on another 60,000 ha in the Rio Fuerte district. Interconnecting canals would be constructed to divert part of the water from the Rio Sinaloa scheme for the leaching of salinized soils in the Rio Fuerte district. Project activities included: (a) rehabilitation of about 1.7 km of lined main canal, 130 km of unlined main irrigation canals, about 600 km of unlined irrigation laterals, and 154 km of open drains in the Rio Fuerte district; (b) construction of about 375 km of lined irrigation laterals and 171 km of open drains in the Rio Fuerte district;  (c) construction of about 16 km of lined main canal, 313 km of lined and 280 km of unlined irrigation laterals, 510 km of open drains, and 170 km of feeder roads in the Rio Sinaloa district; (d) reclamation of about 60,000 ha of saline and saline-sodic soils in the Rio Fuerte district; (e) land clearing of 43,000 ha and levelling of 60,000 ha in the Rio Fuerte district and 40,000 ha in the Rio Sinaloa district; (f) telecommunication and other works, including 295 kilometers (km) of telephone lines and 50 ditch-rider houses; (g) expansion of the district agricultural extension and research programs; and (h) execution of drainage and other studies within the Rio Sinaloa and Rio Fuerte river basins. 3.02 The project was to be implemented over a period of 6 years and was expected to increase the total cropped area from 125,000 ha to 228,000 ha, raise the net value of production by 245%, and benefit about 20,000 farm families of which 71 % would be small farmers with 8 ha or less. The economic rate of return had been calculated at 17.9%. 3.03 The project was to be executed by SARH through its existing structure in Sinaloa state. In each district (Rio Fuerte and Rio Sinaloa), civil works were to be implemented by the existing Hydraulic Engineering Office, while maintenance, water distribution, and extension to farmers were to be under the responsibility of the Irrigation District. Agricultural research was to be carried out by two local experimental stations of the Agricultural Research Center for the Northwest of the Pacific (CIAPAN) of the National Institute for Agricultural Research (INIA). Monitoring and evaluation were to be carried out through the existing structure. 4. Project Design and Organization 4.01 The project's overall concept was consistent with the Government's sectoral development policy which aimed at raising agricultural production, recovering national food self-sufficiency, and improving farmers' revenues. It was equally in accord with the strategy of developing and improving the irrigation subsector. Furthermore, it met the local needs and realized the potential of the Rio Fuerte and Rio Sinaloa districts. In the case of Rio Fuerte, it supported the rehabilitation of deteriorated irrigation infrastructure and the reclamation of saline soils, and in the Sinaloa district, it completed the expansion of the irrigated area started under the Rio Sinaloa I project. 4.02 The project's technical strategy was conceptually correct and innovative. The leaching of saline soils in the Rio Fuerte district with excess water diverted from the Bacurato dam during construction of the Rio Sinaloa infrastructure was to result in  - 4- considerable economies: the soil washing operations, otherwise feasible only at the expense of a significant reduction of the irrigated area, would be accomplished with almost costless water. The condition for its success was the completion of the Rio Fuerte works before those in Sinaloa. However, for want of adequate coordination and in spite of a generally slow implementation pace, the Rio Sinaloa subproject advanced considerably faster than the Rio Fuerte subproject, and the proposed strategy could not be implemented as anticipated (see para. 5.04). The soil leaching program was further frustrated by design inaccuracies: irrigation efficiency was over-estimated by the SAR, while the volume of supplementary water derived from pumped wells turned out to be significantly less than expected. This was compounded by overall water deficiencies caused by droughts and contributed to reducing the overall irrigation target and preventing the completion of the desalinization program after completion of the Rio Sinaloa scheme. 4.03 From the civil-engineering point of view, the irrigation and drainage infrastructure-- including main conveyance systems, major water control structures and distribution networks- -suffered from some design shortfalls. They included particularly lower number of control structures than required (principally cross-regulators to permit full command of reduced flows); overestimated areas supplied by outlet (over 50 ha on average); improper alignment of some canals; incorrectly positioned outlets; insufficient density of minor distributional canals; and insufficient secondary and tertiary drains. These design shortfalls derived mainly from the lack of adequate data concerning agro-engineering aspects, such as crop-water requirements; water conveyance and distribution losses; losses below farmers' outlets; requirements of minor canals and drains; and on-farm development, particularly land levelling and water management techniques, which led to frequent water shortages and the under-utilization of the existing irrigable area. In fact, the utilization rate (irrigated area as a percentage of the irrigable area) averaged only 85% in Rio Fuerte and 75 % in Rio Sinaloa. 4.04 Furthermore, because of soil restrictions that emerged during implementation, the design of the Rio Sinaloa scheme had to be modified. The development program of the right bank had to be reduced by about 8,000 ha, and the expansion of the left-bank area was, therefore, increased by an equivalent area to keep the total expansion target at the original 76,000 ha level. The irrigation and drainage infrastructure of the Rio Sinaloa scheme had to be redesigned accordingly. Irrigation and drainage canals were generally well designed and constructed, but the density of the drainage network was underestimated because of deficient basic hydrology data. This was particularly the case in the Rio Fuerte District where insufficient drainage together with poor operation and maintenance (see para. 5.07) and the inclusion of low lands below the 5 meters (m) above sea level elevation (para. 5.06), increased the soil salinity problem. A significant area of saline soils in the Rio Fuerte District was included on non-technical criteria, mainly political pressure. These soils should not have been included in the reclamation program because they turned out to be economically unviable. Their low altitudes meant their drainage system required mechanical pumping. As a result, the total area of soils with salinity problems at project completion was about the same as estimated at appraisal. 4.05 Access roads were well designed and constructed. For reasons of efficacy and economy the telecommunication system was modified from the planned wire telephone to a modem radio communications system. Since this altemative had not been examined by the appraisal mission, the modification required the agreement of the Bank.  4.06 Actual cropping pattern diverged from SAR projections, owing mainly to overall economic and policy changes, as well as to market development that could not have been predicted at appraisal, especially in the case of sugarcane and cotton. Production shortfalls resulted from water constraints caused by reduced rainfalls and, principally, by technical and management problems as discussed in paras. 4.03 and 4.08. (For more details see paras. 6.07 to 6.11). 4.07 Unit costs realistically reflected the actual prices prevailing at appraisal, and the project phasing assumed a normal economic and institutional environment. However, an economic crisis brought about severe financing constraints and currency distortions, and the proposed phasing turned out to be overoptimistic and the forecasted price contingencies, overestimated. In fact, the project was extended by four years, but project costs, in spite of the expanded implementation time, only slightly overran the SAR estimates. 4.08 The project organization and management scheme was an extension of the Rio Sinaloa I experience. The roles and responsibilities of the executing agencies were adequately defined and understood. Two major institutional reorganizations within SARH (in 1985 and 1989; see paras. 5.01, 5.02 and 5.12) transferred the project extension and operation and maintenance responsibilities from the Irrigation Districts (SAR scheme) to the Rural Development Districts, whose jurisdictions overlapped but did not coincide since the Rural Development Districts included large rainfed areas. These changes were based on national level concerns and were intended to adjust SARH's overall internal structure, not to improve the project's organization and management for which the SAR scheme appeared to be clearly more efficient. In fact, these structural changes had a negative impact on the performance of the extension service (see paras. 5.11 and 5.12). The intervention of an active project coordinating unit--while of minor importance in the original scheme--could have helped to minimize the negative effects of institutional instability. 4.09 Policy and institutional changes were designed mainly to improve the operation and maintenance of the irrigation and drainage systems through realistic water pricing and cost recovery targets. For political reasons, however, these changes were not implemented, with serious consequences for the maintenance of the infrastructure and for agricultural production (see para. 5.09). This shortcoming is expected to be corrected under the current National Development Plan (1989-1994), by transferring operation and maintenance responsibilities to water users. Initially, this transfer would be limited to laterals and drains. It would be extended progressively to the irrigation scheme as a whole. The Bank, with parallel financing from the Inter-American Development Bank (IDB), is supporting this initiative under the Irrigation and Drainage Sector Project (IDSP), which also targets cost recovery from operation and maintenance in the irrigation districts. 5. Implementation Experience 5.01 Institutional Framework. Project organization and management followed SAR arrangements in the initial phase. General responsibility was given to SARH and local coordination to the Rio Fuerte Commission (CRF), under which Irrigation District 63 (Rio Puerte) and Irrigation District 75 (Rio Sinaloa) were responsible for water management,  - 6 - maintenance, and extension services and the Hydraulics Department was responsible for the execution of civil works. Agricultural research was the responsibility of INIA/CIAPAN. In 1985, a reorganization abolished CRF, and project implementation responsibility was given to SARH's Sinaloa State Delegation in Culiacan, the state capital. The Hydraulic Department's tasks were inherited by the local Delegation for Infrastructure and Hydraulics. There was one Executive Office in each district to coincide with the Hydraulic Engineering Offices, and separate Rural Development Districts for Rio Fuerte and Rio Sinaloa, whose expanded jurisdiction encompassed the former Irrigation Districts and surrounding rainfed areas. These Rural Development Districts were entrusted with the responsibilities formerly carried out by the Irrigation Districts, but their extension activities extended to the rainfed subsector. 5.02 A second institutional reorganization in 1989 created the National Water Commission (CNA) within SARH at the central level. The CNA took over general coordination of the project in 1989. Its structure comprised the newly created Irrigation District State Office at the state level, and the Works Offices for construction activities and the reinstalled Irrigation Districts with operation and maintenance tasks (retransferred from the Rural Development Districts at the local level). The Rural Development Districts, however, remained under the Sinaloa State Delegation, and retained their agricultural extension responsibilities for the irrigation and rainfed subsectors. 5.03 Project Implementation. The start-up of the project was delayed, and implementation was slow and prolonged because of severe counterpart funding constraints. The project started in late 1980, about one year after effectiveness, and was closed June 30, 1991, after five extensions, four one-year extensions and one half-year extension. Total disbursements were about US$225 million (about 90% of SAR estimates), loan disbursement was about US$81 million (88% of SAR estimates), and about US$10,2 million was canceled. The Government's participation was US$143 million (at 63.6%, slightly above the SAR estimate of 63%). Project costs were revised twice (February 1984 and September 1984), and loan allocations once (September 1984), to allow for increased loan participation in the financing of agricultural extension activities. 5.04 The initial delays were due mainly to management problems (for example, a reliance on numerous small contracts rather than large contractual packages) and to delayed compliance with procurement procedures. By Project Year 3 only 30% of the expected disbursements had been realized. Slow implementation thereafter was directly associated with Mexico's overall economic difficulties brought about mainly by the 1982 oil price slump. Budget cutbacks and untimely release of funds impeded the smooth achievement of annual targets. The targets had to be constantly revised. These problems seemed to have been more acute in the Rio Fuerte subproject. Contrary to expectations and despite successive Bank warnings, the civil works in the Rio Fuerte district were from the beginning considerably behind those in Sinaloa. Consequently, the soil reclamation program suffered, as explained in paragraph 5.05. The better performance of the Sinaloa team derived probably from its previous experience with Bank projects, acquired with the implementation of Rio Sinaloa I--a project whose final phase, completed in 1983, coincided with the initial stage of Rio Sinaloa II.  5.05 Civil Works. Although funding constraints slowed construction, the quality of the civil works was generally considered satisfactory by Bank supervision missions. Following detailed surveys, some land development targets were adjusted during implementation. For example, the Rio Sinaloa right bank development target was reduced by 8,000 ha, to 25,000 ha, because of soil restrictions, and the left bank target was raised by 8,000 ha to 51,000 ha, keeping the Rio Sinaloa original total target of 76,000 ha (see paragraph 4.04). This led to changes in infrastructure targets too. The result was a substantially increased canal and road network (see Part HI, Table 4A). The overall objective of developing a total of 196,000 ha was, however, maintained. While the Rio Sinaloa subproject came close to its targets and almost achieved its overall objectives, the Rio Fuerte subproject showed considerably poorer performance, achieving only half of its soil-reclamation objective (see paras. 6.01 and 6.02). The critical failure was the uneven execution progress between the two subprojects. The soil-reclamation strategy required that the levelling and drain construction works in Rio Fuerte be concluded before the Rio Sinaloa infrastructure to enable the temporary surplus water stored in the Bacurato dam to be used to leach the salinized soils in the Rio Fuerte district. Though a Bank supervision mission emphasized the need for adequate coordination of the two subprojects by SARH, the Rio Sinaloa program advanced considerably faster, and the opportunity to use the water surpluses available until 1985 was lost. Soil leaching subsequently became extremely difficult because the water--often reduced by droughts--was used for irrigation, which has legal priority over reclamation. As a result, only 51% of the SAR estimated soil-reclamation target was reached. 5.06 This deficiency was compounded by inadequate density of the drainage network density (see para. 4.03), attempts to bring marginal low lands (below 5 m above sea level) into production, and poor maintenance of infrastructure (see paras. 4.03 and 5.05). The result was increased waterlogging and salinization in the Rfo Fuerte District. Consequently, the total area of saline and sodic soils has not declined as foreseen, and the production benefits are lower than expected. Efficient drainage was not achieved, primarily because of poor monitoring of the water table in areas affected by salinity. This monitoring activity had been properly carried out up to 1985, but increased budgetary constraints meant it was abandoned thereafter. Another civil works issue contributing to the delay of production growth was the exclusion of an 8,000 ha plain on the right side of the Sinaloa river which turned out to be lithosolic. This was excluded for lack of adequate stone-breaking and removing equipment although the project had allocated funds for such machines. An equivalent area was later developed on the left margin. 5.07 Operation and Maintenance. The operation and maintenance of irrigation and drainage infrastructure was deficient for both subprojects. This constituted a major problem because it reduced the efficiency of water distribution, contributed to soil waterlogging, and reduced the expected benefits. The main causes of those shortcomings was insufficient operation and maintenance funding, arising from unrealistic water use rates and curtailed budgetary allocations which forced the Irrigation Districts to defer maintenance. Overall poor maintenance raised the question of whether the project could be sustained. In fact, at closing date a significant part of the irrigation infrastructure constructed or rehabilitated by the project required rehabilitation. 5.08 Drainage problems were aggravated after groundwater pumping was abandoned. During the past two decades, part of the Rio Sinaloa Project had been irrigated by  - 8 - groundwater from wells. After the construction and implementation of the Bacurato dam, pumping was discontinued, contributing to increased drainage problems in the area. Not until 1990-1991 were wells rehabilitated for drainage, and groundwater used with surface water, in line with the good practices demonstrated in the Yaqui District in Sonora. Twenty- two wells were rehabilitated during 1991. 5.09 Water Charges. Progressive adjustments in water charges (collected directly by the Irrigation Districts from the beneficiaries), aimed at total operation and maintenance cost recovery, was one of the covenants of the Loan Agreement (see Part III, Table 7). However, although there were nominal and frequent increases, high inflation kept these charges below the 50% threshold--and often as low as 20% of the direct costs of maintenance in real terms. Frequent payment defaults further reduced the funds available for maintenance. The low charges encouraged the inefficient use of water, further increasing water losses and reducing the effective irrigated area. Political reasons lay behind the Government's failure to raise the user charges. Increases had to be negotiated annually with the water users, and SARH usually acquiesced in their reluctance to pay higher fees. The real costs of operation and maintenance are, however, modest (about US$50 a hectare a year at present), if compared, for instance, with land rental costs, which are four to five times higher but accepted without protest by farmers. The farmers' difficulty in accepting higher water rates stemmed from their reluctance to consider the effects of inflation and, particularly, from a long tradition of mistrust of Government-run services. This difficulty is expected to be addressed by the World Bank-assisted IDSP project. This new project will rehabilitate the deteriorated infrastructure in both districts and will transfer irrigation management and maintenance to water users. Water charges will be collected directly by users associations and are expected to fully cover direct operation and maintenance costs. 5.10 Research. Agricultural research was carried out, as planned, by CIAPAN's two experimental stations in Valle del Fuerte and Guasave. The research program was effective and concerned rightly with the solution of technological and economic problems related to the area's major crops, contributing to increasing farmers' revenues. The main achievements, aimed at creating economic alternatives for the ejido sector, included the introduction of improved, disease-resistant varieties with significantly higher potential yields for all major crops; improved cropping systems, particularly the use of minimum-tillage techniques and optimal watering patterns that result in significant cost reductions at equivalent yields; the introduction of some 40 crop species (for which the farmers associations are now doing marketing research); and experiments with cattle feedlots. 5.11 Extension. Technology transfer was less effective. Although about 90 additional extension agents were hired and trained at the beginning of the project and technical assistance to farmers was found satisfactory by supervision missions up to 1985, the wide variability in average yields of the main products indicate that the extension service had little impact on production and productivity in the long run. Inadequate funding, low salaries, and weak research-extension links, together with the overlapping objectives of irrigated and rainfed farming and poor coordination, were the main causes of the extension program's modest performance. 5.12 From 1979 to 1985, the project extension service was under the Irrigation Districts. Its activities were coordinated with engineering and operation and maintenance activities, and  - 9 - results were satisfactory, despite constant funding difficulties. In 1985, as part of major institutional restructuring (para. 5.01), extension was taken from the Irrigation Districts and organized under the Rural Development Districts, with an extended geographical and technical jurisdiction that combined irrigated and rainfed areas. Expanded responsibility, smaller budgets, and lack of adequate coordination to ensure a smooth transition from the previous program led to deterioration of the extension service during the new phase. Accounting and monitoring records were lost, the new production-monitoring activities were deficient, and the new accounting system did not correspond to the Loan covenants. In fact, contrary to Loan Agreement stipulations, research and extension failed to keep separate accounts for project-financed activities, and an internal audit had to be requested by the Bank for evaluation purposes to determine the actual project costs for extension activities. In addition, unallocated loan funds were inadvertently used to finance extension costs, indicating poor central coordination and control by the Bank. 5.13 In contrast to the weak performance of official extension services, private technical assistance to farmers, not financed by the project, was effective. Private technical assistance almost unheard of in 1980 when the project started, grew to 67 agents in 1989, 102 in 1990, and 122 in 1991 in the Rio Sinaloa district alone, where most export crops are grown. Most technical assistance agents are independent professionals, although some are linked to consulting firms or input dealers. Their services are generally contracted by individual farmers. Technology transfer by private technical assistance agents, who strive to keep up with local and foreign research, has been generally efficient and innovative. 5.14 Power Generation. The benefits of power generation were not considered in the SAR because the studies and designs for water power development were not ready. These studies were completed later, during dam construction and it was decided to add electric generation to the project. Adaptations were made accordingly, and the corresponding costs were agreed with the Bank and were to be financed by the Rio Sinaloa I Loan. After completion of the Bacurato dam, the SARH conceded to the National Electricity Commission (CFE) the right to implement a power generation facility with two turbine-generators totalling 97 MVA. The additional costs for power plant and switch yard of about US$48.5 million, were totally financed by the Government. Power generation began in 1987 and is now about 485,000 megawatts a year (1992). It represents a substantial additional source of benefits (see para. 6.13). 6. Project Results 6.01 Civil Works. The project did not achieve its main targets in the Rfo Fuerte district, and overall results were below expectations. The total developed and rehabilitated area was 172,000 ha--14% below the SAR estimate of 196,000 ha. This shortfall was due mainly to the poor performance of the Rio Fuerte subproject; the Rio Sinaloa subproject came close to its targets and almost attained its overall objectives. The Sinaloa land-clearing and levelling components (revised targets of 40,000 ha and 50,000 ha, respectively), as well as the drainage network (443 km) were fully accomplished. The 388 km of constructed roads surpassed the SAR estimates by 128% (although they were 11 % below the revised targets). Lateral distribution canals reached more than 90% of revised estimates (lined canals 95%,  - 10- unlined canals 91%). The main difference between planned and executed civil works in the Rio Sinaloa subproject was in the construction of lined main canals--only 9 km of the estimated 16 km were completed--owing mainly to severe budget constraints. The completion of these canals is foreseen in the IDSP project (Loan 3419-ME). 6.02 The Rio Fuerte subproject achieved less soil reclamation than anticipated. It had been an important objective (4% of total project cost) but was accomplished on only 51% of the 60,000 ha anticipated by SAR, although other rehabilitation and construction targets taken individually attained better scores (see Part Im, Table 4). The rehabilitation of canals and drains reached only 76% of the revised targets (although they represented 99% of the SAR target estimates): main canals 141.3 km (lined 1.7 km or 100%; unlined 139.6 km or 94%); laterals 409.6 km (66%); and drains 329.1 km (87%). New lined laterals (99.1 km) corresponded to 26% of the SAR estimate of 375 km and 104% of the revised target of 95.1 km; new unlined laterals (not foreseen in the SAR) totaled 102.1 km (52% of the revised target); new drains 203.9 km (119% of the SAR and 92% of the revised objectives); and land levelling 49,000 ha (82% of both SAR and revised estimates). This rehabilitation program was in fact no more than deferred maintenance, and most restored infrastructure is now due for new rehabilitation. The road building, 317.1 km constructed by the project, surpassed both the SAR by 561% and the revised targets (by 19%). This was a major achievement because it contributed to improve the marketing of produce in the project area. 6.03 Operation and Maintenance. Water allocation and delivery were well organized. They were based on a demand arrangement deriving from annual cropping patterns established by the Irrigation Districts in agreement with farmers organizations. To get water use authorization, individual farmers had to: (a) obtain from the Irrigation District and the Vegetable Sanitary Commission a yearly permit to plant the selected cropping pattern;V (b) pay water charges; and (c) confirm that irrigation ditches were well maintained. The irrigation program was then established on a weekly basis for each zone, based on individual demand, and subsequently consolidated at the district level. 6.04 The average conveyance-and-distribution efficiency for the past 11 years has been estimated at 60% and 58% respectively (see Annex 2, Table 1), about 15% below the expected 70% foreseen at appraisal. It is based on the volume of water diverted from the Sinaloa de Levya and the two Rio Fuerte diversion dams, which is delivered to the farmers of the Rio Sinaloa and Rio Fuerte districts respectively. With an estimated 65% average field-efficiency rate, the overall irrigation efficiency was 40% for the Rio Fuerte district (80% of the SAR estimate) and 38% for the Rio Sinaloa district (76% of the SAR estimate). This lower-than-expected performance was due mainly to poor maintenance of the irrigation network. 6.05 Except for some breaks in the concrete lining of the lateral and sub-lateral canals, the irrigation and drainage infrastructure was generally well constructed, but deficiencies in maintenance meant that it gradually deteriorated. This caused increasing operational difficulties. The maintenance problems were caused mainly by the low water charges This requirement is expected to be lifted under AGSAL II.  - 11 - collected by the Irrigation Districts. The project was expected to progressively raise these until full cost recovery was achieved (see para. 5.09). In fact, in 1990, water charges covered only about 30% of direct operation and maintenance costs. The water losses caused by poor operation and maintenance and four consecutive years of drought (1986 to 1989) resulted in substantial reduction of the annually irrigated areas. 6.06 Floods. In December 1990-January 1991, the Fuerte valley was stricken by catastrophic floods (estimated to be the largest in 200 years), which caused serious damages to the Miguel Hidalgo dam spillway and considerably affected the irrigation infrastructure of units IV and V of the Rio Fuerte irrigation scheme. The floods partially destroyed two main canals (Sicae and Cahuinahua) and laterals feeding the above irrigation units, provoked the sedimentation of the drainage system, destroyed two bridges, ruined feeder roads, seriously affected one third of the on-farm network, flooded about 49,000 ha of croplands, caused production losses in about 19,500 ha estimated at about US$14.3 million and immobilized a total irrigable area of about 68,000 ha to further production. The damage in the spillway, involving widespread undermining and dislocation of concrete slabs, derived in part from the poor maintenance of the dam. The downstream effects were enhanced by ill-designed bridges which dammed up the water and were eventually destroyed by the flood. The total losses, including those derived from the above mentioned crop losses, damaged irrigation infrastructure (about US$10 million) and destroyed off-scheme investments (houses, warehouses, machinery, animals, etc.-- totalling about US$16 million) were estimated at the time at about US$40 million. Although they were not a determining factor of the poor performance of the Fuerte subproject, the 1990-91 floods contributed, however, to diminish its overall accomplishment indicators. About US$2.5 million of the loan, upon Bank approval, were used to rehabilitate under an emergency schedule the two above main canals and laterals, while the other restoration works, estimated at about US$7 million, were decided to be financed under the IDSP loan then in its final negotiation stage. 6.07 Agricultural Production. (See Part Im, Table 6 A). According to available statistics, the cropping intensity averaged 156% in the Rio Fuerte district (maximum 186%) and reached 157% in the Rio Sinaloa scheme, while SAR estimates had been 110% and 124% respectively. These figures appear to disagree somewhat with supervision reports and mission observations, and must therefore be treated with some caution. The benefits revealed in the production analysis in this document are intended primarily for drawing qualitative conclusions and determine trends rather than for measuring quantitative impacts. 6.08 The expansion curve presented a peak in 1989: 148,000 ha (151% of SAR estimates). The bottom, in 1988, was 44,500 ha (45% of SAR forecasts). The average expansion over the project period was 83,000 ha (85% of SAR estimates for project maturity) and the average over the three last implementation years was 127,000 (129% of the forecasts). The crop area expansion of the two project differed. In Sinaloa II (Annex 2, Graph 2), the average was 62,500 (116% of the SAR target), the maximum was 107,000 ha (198% of the target) in 1989, while in 1988 the expansion had been only 42,000 ha (78% of the target); the average area expansion of the three last implementation years was 96,500 ha (178% of the SAR predictions). In Rio Fuerte, (Annex 2, Graph 3), the average expansion was 8,800 ha (20% of the foreseen 44,000 ha target), the maximum was 28,000 ha (64% of the target), and for two years the total area cropped was below the pre-project situation  - 12 - (-15,000 ha in 1983 and -9,500 ha in 1988). The average expansion over the last three years was 20,000 ha (only 45% of the SAR target). This low performance resulted mainly from suboptimal water-use efficiency compounded by water shortages from droughts (1986 to 1989) and salinity problems that the project failed to neutralize. 6.09 The development of the cropping pattern did not follow SAR forecasts. Contrary to predictions, crops such as cotton, rice, safflower, and sugarcane--which were among the most important crops before the project--were almost phased out or had their areas considerably reduced. This was mainly because of increasingly unfavorable market conditions in a competitive environment. The gradual suppression of guaranteed prices (except for maize and beans) beginning in 1990 and the liberalization of imports reduced farmers' net margins for most crops and forced them to seek more rewarding altematives. Ejido farmers were the most affected by these changes. A great number of them were limited to the production of maize and beans, the only crops still subject to guaranteed prices, because ejido farmers lacked sufficient investment capital. Many small producers chose to rent out their lands to large private farmers while entrepreneurial farmers shifted to more intensive crops such as vegetables, potatoes, and short-cycle fruit crops (melon, strawberries, and so on.) 6.10 Taking the average of the last three implementation years as the reference year for project maturity, production increases were above SAR estimates for vegetables (280% of expectations), maize and sorghum (168%), and soy (112%). The production of wheat, expected to decrease with the project, increased by 268,000 tons, and the production of potatoes (not foreseen by the SAR as a major crop) increased by 34,000 tons. This performance was due to a steady positive net margin shown by the hectare-budgets of these crops over the period. On the other hand, owing to repeated negative net margins, the production of cotton decreased by 23,000 tons instead of increasing, as projected, by 47,000 tons; rice production, expected to decrease by 23,000 tons, plunged by 40,000 tons and, along with safflower (expected to reach 110,000 tons at completion), was almost reduced to zero by 1989/90. Perennials, such as fruit, sugarcane, and pastures (including alfalfa), were not developed by the project, contrary to expectations. The sugarcane area, traditionally covering over 20,000 ha, was significantly reduced in the last few years because of managerial and technical constraints at the processing level. In fact, the only sugar mill in the area, a state-owned mill, had been operating with chronic losses and was recently privatized. The whole sugar production chain (agricultural and industrial) is now being replanned, the planted area will be concentrated within an economic radius from the mill. Sugarcane farmers will receive technical assistance directly from the industry. 6.11 Crop Yields fluctuated widely, and increases were generally modest, denoting a failure in overall technology transfer. Significant productivity gains were obtained with maize: from 2.27 tons per hectare (1979-80) to 4.3 tons per hectare (1990-91), an 89% increase; the average over the last three implementation years was 3.5 t/ha (54% increase). The average yields of beans increased from 1.0 ton/ha to 1.4 tons/ha (40% increase). Modest increases were obtained with soybeans (15%), potatoes (13%), vegetables (6%) and wheat (5%), while cotton and rice decreased about 25% and 13% respectively. Although not confirmed by monitoring, information gathered by the mission from project extension agents and farmers indicates that commercial farmers obtained significantly higher yields than ejido farmers, owing to their higher technological level. This would explain the impressive yield  - 13 - increase for maize. A growing number of private farmers, stimulated by attractive guaranteed prices, have been expanding their maize areas using new technology. The reduced productivity increase of vegetable crops--although mainly cultivated by large producers--is attributable to the lower yields of table tomatoes, whose area increase was considerably more important than that of the higher-yielding tomatoes for local industry. Rio Fuerte and Rio Sinaloa like most Mexican irrigation districts have been designed and constructed in line with the Agrarian Reform and the policy of prioritizing staples grains production. Thus, they were primarily designed to serve a single crop at a time on a rigid delivery schedule, for application of large supplies of water, with long irrigation intervals (e.g. 15-40 days), and with minimal flexibility for changes in delivery schedules. These rigid schemes are not compatible with cropping patterns for high value crops (fruits and vegetables) or for the optimization of grain yields. 6.12 Research. Although crop productivity was below expectations, research results obtained during implementation show that better performance was possible. Technologies developed by research stations for traditional crops enabled farmers to increase their revenues some 30 to 40% (about half from increased yields and half from reduced costs). The main achievements leading to these results include (see para. 5.10): (a) higher potential yields in on-farm tests for maize (8 tons per hectare against 5 tons per hectare for the average technology), wheat (6 tons per hectare against 4.5 tons per hectare), beans (2.4 tons per hectare against 1.3 tons per hectare), and potatoes (50 tons per hectare against 30 tons per hectare); (b) improved cropping systems, in particular involving minimum-tillage techniques, mainly for planting soy after wheat; and (c) optimal watering patterns, with significant cost reductions at equivalent yields. However, because of deficient technology transfer, the adoption of improved technologies was rather limited, although it appears to be improving as a result of the influence of private extension. Research stations introduced some 40 different crop species/varieties to create economic alternatives for the ejido sector. Experiments with cattle feedlots using crop residues were also carried out successfully. 6.13 Economic Analysis. (See Annex 1). The economic rate of return (ERR) for the two combined subprojects (Rio Fuerte and Rio Sinaloa), assuming project benefits over a period of 25 years, was estimated at 10.6%, significantly lower than the SAR estimate of 17.9% (see Part III, Table 6.b). This discrepancy was due mainly to the project's slow implementation rate, the cropping of smaller areas in some years because of drought, lower than expected gains in yields, reduced prices caused by declining international prices, and lower production subsidies in Mexico. The ERR of 10.6% resulted mainly from the area increase of the Rio Sinaloa II subproject and from the significant growth of the vegetable subsector, but the performance of Rio Fuerte was far below expectations. A separate analysis put the ERR for Rio Sinaloa II alone at 14.4%. It was 3.1% for Rio Fuerte. When added to benefits from Rio Sinaloa I and the Bacurato power plant, the project ERR over a 25 year period remains at the 10.1 % level. The ERR for the power plant alone (benefits of electricity extended to year 2006) was estimated at 16.9%. The ERRs estimated for the various subprojects involved, considered separately and in various combinations (benefits over 25 years), are:  - 14 - (a) Sinaloa I Project 7.9% (b) Rio Fuerte/Sinaloa II Rio Fuerte 3.1% Rio Sinaloa II 14.4% Fuerte/Sinaloa II combined 10.6% (c) Power Plant 16.9% (d) Global analysis (a+b+c) With Rio Fuerte 10.1% Without Rio Fuerte 11.2% 6.14 Social Benefits. The project was to enhance the land-reform development and equity objectives of Mexico's nationwide irrigation program by directly benefitting 19,700 families comprising 17,250 ejido farmers and 2,450 private farmers. It was to decrease on-farm unemployment by providing an extra 3.3 million person-days of labor each year when it was fuly developed. The total number of families assisted by the project was 14,144 (72% of SAR estimates), of which 6,939 were in Rio Fuerte (54% of estimates) and 7,205 in Sinaloa (101 %) (see Part IH, Table 4A). While the targets of the Rio Sinaloa II subproject were met, reflecting a satisfactory performance of the civil works and area development program, the lower than expected achievements of the Rfo Fuerte subproject were directly related to the poor performance of its soil reclamation program and the failure to reach all the civil works targets. Declining revenues, the difficulty experienced by smaUholders in improving efficiency, penetrating markets monopolized by small groups of large producers, and increased emphasis on efficiency expressed by liberalizing policy measures introduced by the Government in recent years, stimulated the expansion of entrepreneurial farming and discouraged an increasing number of ejido farmers from direct farming. This led to the incorporation of ejido lands by large farmers through informal (then illegal) rental arrangements. This expansion of entrepreneurial farming to some extent reduced some of the project's social objectives. The new Agrarian Law of 1991 and new regulations have legalized these rentals. 6.15 Secondary Benefits. The secondary sector expanded remarkably in the project area though this was not directly attributable to the project activities and was difficult to measure for lack of readily available data. This sector included an increasing number of agro- industries, packing houses, entrepots, input dealers, and agricultural services firms that flourished in the project region over the past decade. Its expansion showed the positive impact made by the RIo Fuerte and Rfo Sinaloa irrigation schemes on the local economy. The urban development of the two main cities Los Mochis and Guasave is impressive.  - 15 - 7. Project Sustainability 7.01 Project sustainability for both Rio Fuerte and Rio Sinaloa districts has been affected by poor maintenance resulting from a lack of funds for operation and maintenance during 1983-1990. This weakness seriously affected the operation profile, reducing water efficiency, creating drainage problems, complicating water deliveries, and reducing harvested area and productivity. It led to deterioration of the infrastructure and created a serious sustainability problem by reducing investment effectiveness to unduly short, uneconomic inter-rehabilitation periods. The lack of sufficient funds for operation and maintenance resulted mostly from the Government's failure to raise water charges enough to cover operation and maintenance costs. This problem is now solved through the direct involvement of the water users organizations (WUOs) in the operation and maintenance functions of both districts. Through a nationwide program supported by the Bank-financed IDSP (Loan 3419- ME)started in 1991, the Government transferred (in 1992) the operation and maintenance (O&M) functions to the Water Users Associations of the Rio Fuerte and Rio Sinaloa districts. As a result, cost recovery from the collection of water fees jumped from about 30% in 1991 to 100% in 1993 in both districts. Since then O&M improved substantially, confirming the appropriateness of the strategy to assure sustainability conditions for the project, which were jeopardizes by the previous shortage of O&M funds. 8. Bank Performance 8.01 Project Concept and Design. The SAR project concept was basically correct, although it failed to take into account local funding constraints and management problems or to anticipate possible power benefits (power studies have not been completed at the time of appraisal). Some design shortfalls, due to defective basic data, 3' reduced the efficiency of the irrigation schemes. This was particularly relevant to the poor performance of the Fuerte scheme, where very marginal saline soils were included in the reclamation program. 8.02 Supervision. The Bank detected the main problems early on such as the differing execution pace of Fuerte and Sinaloa, operation and maintenance deficiencies, the low water charges, and inadequate counterpart funding--but was not very successful in enforcing corrective measures during the economic crisis of the mid-1980s. The Bank's assumption by the mid-1980s seems to have been that Mexico's economic difficulties would soon be overcome and that the implementation deficiencies would be resolved as a consequence. 8.03 The Bank failed to detect the unfeasibility of part of the soil reclamation program and to correct the relevant targets accordingly. Until 1989-1990 the Bank also failed to appreciate the project management's failure to keep separate accounts for the agricultural rainfed and irrigation (cost financed by the Bank) of the extension and research components and its use of loan funds for the recurrent costs of extension. In 1990 the latter problem was c Deficient soil data in the Sinaloa district and the inclusion in the Reclamation component of marginal areas (below the 5 m altitude level) in Units IV and V of the Fuerte district.  - 16 - resolved with the Borrower. This indicates, on the one hand, an inadequate assessment of the project's agricultural aspects during implementation and, on the other, the lack of an efficient project coordinating unit. Bank supervision missions also failed to identify the lack of such a unit. The reorganization of SARH at the field level--merging the extension services of the irrigation districts with the rainfed area extension--was the main root of this problem. 9. Borrower Performance 9.01 The Borrower's performance was affected negatively by serious overall economic difficulties. The resulting counterpart funding constraints were responsible for the project's slow and deficient execution progress. Some implementation deficiencies, however, could have been minimized by more effective administrative intervention and are, therefore, attributable to management weaknesses and to the lack of a strong coordinating unit for both subprojects.1 They include, particularly (a) the imbalanced execution rate of the two subprojects, which contributed to the poor performance of the Rio Fuerte soil reclamation component; (b) the setting of insufficient water charges, resulting in poor operation and maintenance, deterioration of infrastructure, increased soil drainage problems, and reduced yields; (c) the muddling of project and non-project funds, especially for extension and research components; and (d) poor agricultural monitoring, rendering project evaluation difficult. The Borrower to some extent also failed to transfer technology to small ejido farmers and thus failed to deal with the equity problems arising from the Government's liberalization policy. 10. Project Relationship 10.01 The relationship between the Borrower and the Bank was good. Fund reallocations and extensions of completion dates, as well as the cancellation of unused loan funds, were decided by agreement between the Bank and the Borrower. 10.02 The relationship of the Bank and Borrower with other Government agencies such as the Secretariat of Finance and Public Credit and the Secretariat of Planning and Programming were normal and functioned along well established lines. 11. Consulting Services 11.01 No major consulting services were required after project preparation. E Each subproject had an independent implementation organization.  - 17 - 12. Project Documentation and Data 12.01 The project design and description in the SAR were based on not entirely sound baseline data, particularly regarding hydrology, soils, salinity and agro-engineering aspects in Rio Fuerte. Design problems thus resulted in a lower drainage network density than required, an underestimated irrigation infrastructure, and the need to readjust the Sinaloa development program. Nevertheless, the SAR provided an adequate yardstick for the implementation and monitoring of all key activities. Project covenants were clearly stipulated for effective implementation. However, mainly because of counterpart funding constraints, amendments were introduced to adjust fund allocations, extend the closing date, reduce total costs, and cancel unused loan funds. Monitoring and data collection were deficient, hampering accurate economic analysis. 13. Lessons Learned 13.01 Like many other projects implemented in Latin America in the 1980s, the project was seriously affected by an unfavorable macroeconomic environment, institutional instability, and severe funding constraints. This confirms the importance of a sound macroeconomic and institutional context as a condition for successful project implementation. 13.02 The lack of an integrated project coordinating unit for the two projects, together with changes in the institutional structure responsible for project execution, contributed to relaxing the implementation discipline established by the Loan Agreement. As a result, participating agencies, such as that for extension and research, and the Irrigation Districts lost sight of their commitment to project objectives. Project and non-project activities were muddled together, maintenance activities were neglected because of funding problems, and project performance was jeopardized. It appears that the establishment of a strong project coordinating unit is vital to ensuring smooth implementation when many participating agencies are involved, particularly under unstable institutional conditions. 13.03 The experience of this project shows that deficient maintenance of irrigation infrastructure can neutralize the impact of irrigation investments, because it reduces water efficiency, contributes to drainage problems and in some cases soil salinization, and thus reduces the irrigable area and jeopardizes sustainability. The lack of sufficient funds, owing to the Government's failure to raise water charges to cover operation and maintenance costs, is at the root of the problem. The only solution for this problem seems to be the direct involvement of water users in the operation and maintenance of irrigation schemes. The Government has already started a nationwide program to transfer substantial operation and maintenance responsibilities, now under the Irrigation Districts, to the beneficiaries. 13.04 The implementation experience demonstrated also that reclamation programs for saline soils have to be analyzed carefully case by case, to avoid the inclusion of economically irrecuperable soils--most of which were included originally in this project for non-technical reasons.  - 18 - 13.05 While the traditional, paternalistic approach to development inhibited dynamic growth and limited the economic viability of irrigation projects, the recent introduction of competitiveness and an appropriate policy environment has motivated spontaneous development on a rapidly increasing scale. In fact, the Government's present market- oriented policy is encouraging farmers to take risks: they are investing in improved technology, alternative crops, and new agro-industry activities and developing new markets. Private technical assistance is flourishing. It is assisting farmers who are prepared to adopt more sophisticated technologies, and its impact on yields and output quality, although still limited, appears to be positive. 13.06 However, the trend to increased efficiency was counterbalanced by equity problems because the most dynamic entrepreneurial farmers, stimulated by profit opportunities, substantially enlarged their cropped areas at the expense of less competitive small producers, by renting lands from ejido farmers. This shows that special attention has to be paid in future to assisting ejidos to compete successfully or to giving them other alternatives. 13.07 The Rio Sinaloa Project (I & II) is a typical multipurpose water resource project that includes irrigation as a major objective but also has significant benefits from power generation, flood control, and municipal water supply. These benefits were not taken into account at appraisal apparently because the designs and study for hydropower development were not complete at that time. The inclusion of a power plant late in the implementation stage to maximize benefits from the use of water in the Bacurato reservoir, almost doubled the ERR of Sinaloa I, where agricultural activities were marginal. This shows that agricultural and non-agricultural activities can be complementary and should be considered together at the planning phase, particularly when heavy investments such as dams are involved. 13.08 The significant growth of the secondary sector in the project area during implementation, due largely to agricultural production, indicates that the project was able to bring substantial economic development to the region in spite of the shortfalls. Most particularly, the growth of this sector reflects the great potential of the area and shows that further investment aimed at improving the efficiency of the use of water (the limiting factor for expansion) would be worth considering. 13.09 The restriction of flexibility on water delivery schedules that constrains opportune (frequent) and light irrigations and thus limit crop potential yields and diversification is an issue in Rio Fuerte and Rio Sinaloa, as well as in most of Mexican gravity Irrigation Districts. Future rehabilitation and modernization programs should address this restriction in order to achieve better economic results. The new projects should also include modernization concepts to tackle this problem. 13.10 Lessons learned from the 1990-91 flood episode include: (a) Dam safety and hydraulic infrastructure safety concems should be included in major gravity irrigation schemes, to ensure the maintenance of the concerned structures and thus avoid or minimize such catastrophic downstream damages as occurred during the Fuerte floods.  - 19 - (b) An effective storm monitoring system, which in the event ensured the broadcast of early warning alarms and allowed the timely evacuation of the concerned population from the risk area, is an important instrument of public good concerns to be supported, particularly under the risky meteorological and geological conditions of Mexico constantly hit by thunderstorms, hurricanes, tornadoes and earthquakes. (c) The construction of bridges in major rivers with excessive earth embankments that obstruct the free flow of water must be avoided.   - 21 - PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) PART H - PROJECT REVIEW FROM THE BORROWER'S STANDPOINT 1. Introduction 1.1 On behalf of the Borrower (NAFIN), the Comisi6n Nacional del Agua (CNA), through its Subdirecci6n General de Planeaci6n y Finanzas, prepared an ex-post evaluation of the above project and delivered an English version to the Bank on February 16, 1993 and an updated Spanish version on May 28, 1993 (available in LAC Files). The full report is in Spanish and will be delivered soon to project files. It contains a detailed description of the project implementation and of the Government's view of various aspects of the Rio Fuerte/Rio Sinaloa Project. It presents data on background, objectives, description, design, organization, results, consultation, Bank and government performance, project relationships, consulting services and documentation. Also a set of tables is presented in support to the main text. This section contains a summary of the main report, translated into English by CNA, focusing in the Government's view and the conclusions reached regarding its own and Bank's performance, and the recommendation to the Rio Fuerte/Rio Sinaloa Project. 1.2 The Rio Fuerte/Rio Sinaloa Project, in the north of the state of Sinaloa, was conceived by the Government of Mexico, with Nacional Financiera (NAFIN) as the borrower and SARH as the implementing agency. The World Bank (WB) granted the Loan 1706-ME for the rehabilitation, construction and expansion of the drainage and distribution networks and the desalinization of soils in the Irrigation Districts No. 75, Rio Fuerte; and No. 63, Guasave. 1.3 The project was part of the Government's strategy of the seventies aimed at recuperating the high levels of agricultural growth obtained during the former decades and assuring food self-sufficiency. 1.4 The Irrigation District No. 75, Rio Fuerte, was created in 1951 by a Federal Executive Decree and, initially, from 1952 to 1984, was operated by the Rio Fuerte Commission. This District covers an area of approximately 250,000 ha, and is divided into five Irrigation Units supplied with water from the Miguel Hidalgo Dam. The destruction of part of the distribution and drainage systems towards the end of the fifties, due to meteorological catastrophes, obliged the authorities to carry out the rehabilitation of the Irrigation Units 2 and 3 at the beginning of the sixties. Some years later, planning was begun to rehabilitate Units 1, 4 and 5, corresponding to the Project area described in this Report. 1.5 The Irrigation District No. 63 (Guasave), was legally constituted in 1967 by means of a Federal Executive Decree, although a minor part of its irrigated area had already  - 22 - been operating since 1944 primarily through groundwater supply. Its actual configuration dates back to 1974 with the development of a vast investment program that included the construction of the Bacurato (storage) and Sinaloa de Leyva (diversions) Dams, as well as the incorporation into irrigation of an area of 105,000 ha with an investment of US$146 million. However, funding constraints due to economic instability during these years caused a considerable delay in the construction of the works: only about 29,000 ha were developed under the project. The government therefore decided to seek financing for the completion of the original scheme, through a second-phase project. 2. Bank Performance 2.1 WB's assistance to the Rio Fuerte/Rio Sinaloa Project was a vital contribution to the growth of the irrigated areas and agricultural production of the zone. Overall, Bank's participation during the preparation, appraisal, and project implementation was adequate. Bank experts established cordial relations with their Mexican counterparts, who received valuable training as the result of this team work. 2.2 In spite of the adverse circumstances, derived from the severe financial constraints that the project had to face, the Bank showed considerable flexibility and was always open to Government proposals aimed to facilitate project implementation. This helped to assure the timely funding support that was so urgently needed because of the above-mentioned adverse implementation environment. 2.3 The Bank also contributed to promote technological changes by providing opportune advice for the purchase of maintenance equipment and for the preparation of salinity studies in the Fuerte area. The implementation experience contributed to train technical staff in the use of modern irrigation technology in the area and support the adoption of more adequate techniques for the development of the national irrigation sector at large. 2.4 The Bank's participation in the funding of the project was adequate. On various occasions, disbursement allocations were modified in order to assist in giving solutions to the problems brought about by the financial crisis, and in adjusting the project's cost structure to the changes caused by the abrupt variations of the currency exchange rates. The procedures and implementation of the disbursements were carried out efficiently and without difficulties. The Bank also accepted to continue collaborating in the funding of the project through the loan that will support the Irrigation and Drainage Sector Program. 2.5 Bank supervision during implementation was useful and propitiated valuable technical interchange and collaboration during the implementation of the Project. 3. Government Performance 3.1 The Government of Mexico gave adequate attention to project preparation. Studies were carried out to provide the necessary basis for adequate project formulation. Project implementation covenants were generally complied with, and only partially in two cases (operation and maintenance funds and separate project accounts for extension expenditures). Insufficient commitment to the operation and maintenance of the irrigation infrastructure was a major deficiency. This derived mainly from the Government's difficulty  - 23 - in updating water charges. The Government's commitment to keep separate accounts for project expenditures was only partially complied with, while the carrying out of a socioeconomic study, aimed to determine the paying capacity of water users, as well as the organization of periodic meetings as contractually agreed upon were, except for the delays, entirely accomplished. 3.2 Implementation delays derived mainly from Mexico's deteriorating economy in the eighties. Project scope adjustments were introduced during implementation, in agreement with the Bank, with the aim to minimize these problems and continue giving the irrigation districts the minimum development impulses allowed by the severe funding constraints imposed by the adverse macroeconomic environment. Under the circumstances, the Government demonstrated flexibility and pragmatism in its decisions on priorities during implementation. 3.3 Project start-up and implementation activities were carried out following the normal procedures of the Government. However, due mainly to the lack of adequate inter- institutional coordination, it appears that the Government failed to optimally focus investment priorities, such as the purchase of maintenance equipment and the carrying out of salinity studies, especially in the Fuerte valley, thus failing to address the soil salinity problem more effectively. It appears, however, that in the late project implementation phase the maintenance services have improved, and it is expected that with the transfer of operation and maintenance responsibilities to the users, promoted by the Government under the IDSP program, satisfactory levels of infrastructure maintenance will be achieved. While the maintenance services were deficient, the construction and rehabilitation activities were, conversely, satisfactorily executed according to the technical criteria approved by the Bank. 4. Project Results 4.1 Project Objectives. The excessively delayed project implementation pace had a major impact on the tardy generation of the expected benefits. However, in spite of the afore-mentioned deficiencies and although total project achievements were below expectations, it can still be considered that the Sinaloa subproject satisfactorily achieved its main objectives. The irrigation development initiated under the Sinaloa I Project were completed as foreseen, thus creating the conditions that led to increased farm production, improved farmers' revenues, better distribution of benefits and increased national income. Conversely, the implementation performance of the Rio Fuerte subproject was less effective. Although the anticipated rehabilitation and soil reclamation targets were only partially achieved, they contributed to detain further deterioration and to sustain and improve production levels. 4.2 Physical Results. While the targets of the Sinaloa subproject were essentially met, those of the Rio Fuerte scheme remained critically behind forecasts. In Rio Sinaloa, overall achievements came close to 100% of predictions. Some civil works targets actually surpassed the SAR projections. Area incorporation objectives have been satisfactorily attained and the SAR cropping intensity estimates have been widely surpassed, leading to considerably higher than expected production. In the Rio Fuerte subproject, conversely, project target achievements were lower than expected. Prolonged adverse climatic conditions contributed to reduce the project's overall production targets, which were also affected by  - 24 - deviations of the projected cropping patterns caused mainly by the drastic changes in the nation's economic environment. 4.3 Fmancial Performance. During the first six years of project implementation (1980-86), only about 65% of the assigned funds were disbursed. After the introduction of a reallocation scheme and the cancellation of US$10.2 million in 1988, the implementation pace improved. The economic rate of return (ERR) of the project was estimated at 14.08%, somewhat lower than the 17.9% estimated at appraisal (Table 5.03.1). The ERRs for Rio Sinaloa and Rio Fuerte analyzed individually were, respectively, 20.11 % and 4.45 %. This difference between the performance of the two subprojects is attributable mainly to the lower than expected achievements of the rehabilitation and reclamation targets in the Rio Fuerte scheme. 4.4 ERR calculations prepared by CNA were based on the following data and assumptions: (a) costs and benefits were calculated using the CNA estimated Conversion Factors; (b) crop production over the implementation period (1980-1991), concerned the areas effectively benefitted by the project, including the newly incorporated ones, as well as those areas that were improved, rehabilitated or reclaimed under the project, in both the Rio Sinaloa and Rio Fuerte Districts; and (c) the cropping pattern evolution adopted for the without-project scenario was assumed to be the same as the one effectively occurred in the with-project situation (it was assumed that the cropping patterns changes were determined essentially by the market); (d) without-project yields were assumed to be unchanged for the traditional crops and 80% of the with-project yields for the non-traditional crops and 80% of the with-project yields for the non-traditional crops introduced under the project. Overall, average yields of the cropping patterns came out to be significantly higher than predicted, and total production was consequently 50% above forecasts in volume. Moreover, cropping intensity significantly exceeded the SAR estimates, while highly profitable crops (vegetables) were extended beyond expectations, particularly in the Rio Fuerte area. 4.5 Project Impact. The project had a positive impact on employment and income improvement of the small scale producers, although these benefits have been temporarily diminished because of present market conditions. A recent SARH study on the project area shows that, over the last 10 years, crop production costs had a much higher increase than the price of crop outputs. 5. Recommendations for Project Consolidation 5.1 The project produced significant benefits in the following aspects: (a) expansion of cropping areas under irrigation, which permitted the increase in production volume; and (b) increased area cropped benefitting a large numbe, of families. However, water charges have not increased above the inflation rate during the implementation of the project (1980-1990), and this has severely affected the availability of funds for the operation and maintenance of the infrastructure. 5.2 The strengthening of the Project in the immediate future will depend on: firstly, that the projected works, for which the necessary funds have already been foreseen be totally finished; and secondly, the increase of resources for the maintenance of the installations affected by deferred conservation. The transfer of the districts to the users of   - 26 - MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) PART III SUMMARY OF STATISTICAL DATA   - 27 - PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) Table 1. Related Bank Loans Loan/Title Purpose Year Status Comments l________________________ A pprov Ln. 969-ME Panuco Develop 137,000 ha of 1974 Completed in Slow implementation, Irr.Project. Loan: irrigation land in the 1982 design deficiencies, US$77M Suppl. loan: Panuco basin, including budget constraints and US$25M. construction of dams, lack of technical irrigation infrastructure, assistance. and provision of Reevaluated in 1978. agricultural services Objectives partially attained. Main issues: low water charges and poor O&M; poor accounting; poor counterpart funding; cost overruns. Ln. 970-ME Sinaloa Develop 105,000 ha of 1974 Completed in Slow implementation Irrig. Project. irrigation land in the 1982 for same reasons as Loan: US$47M Sinaloa basin, including above. Revised in construction of dams and 1978: irrigation targets irrigation infrastructure, reduced and corm- and provision of pleted under Sinaloa II. agricultural services. Revised objectives achieved. Main issues: low water charges and poor O&M. Ln. 1858-ME Rehabilitation and 1980 Completed PCR under preparation. Apatzingan Irrig. expansion of Apatzingan Project. irrigation scheme, Loan:US$160M covering 88,000 he. Ln. 1908-ME Ocoroni Development of 10,000 1981 Completed PCR completed April Irrig. Project. ha of irrigated land and 1989. Report Loan: US$23M provision of technical No. 7782. assistance. Ln. 2100-ME Bajo Rio Rehabilitation of 105,000 1982 Completed PRC completed Bravo /Rio San Juan ha and provision of December, 1988. Irrig. Rehebil. Project. agricultural services Report No. 7578. covering 208,000 ha. Loan:US$ 1 80M Ln. 3419-ME Irrigation Modernization of the 1991 Effective by The project is expected and Drainage Sector Mexican irrigation June 1992 to complete the Project. subsector, through the rehabilitation program Loan:USS400M rehabilitation and transfer and correct O&M to users of 21 irrigation deficiencies of the districts at national level. country's main irrigation schemes (including Rio Fuerte/Sinaloa).  - 28 - PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) Table 2. Proiect Timetable A. Planned, Revised and Actual Dates of Proiect Timetable Item | Planned Date Revised Data | Actual Date -Preparation 03/77 06/78 02/79 -Appraisal Mission 09/78 02/79 02/79 -Loan Negotiations 05/79 _ 05/02/79 Board Approval 05/79 05/24/79 -Signature Date 07/79 _ 07/30/79 Date of Effectiveness 09/01/79 10/79 10/05/79 Closing Date 07/31/86 1/ 06/30/91 Coapletion Date 12/31/85 1/ 06/30/91 Source: Divisional Black Books and Project Timetables. Comments No major issues were raised at appraisal, and the only risks that were considered were that the project execution might be slightly delayed in view of the volume of activities, or that costs might be higher than estimated because of increased inflation. The main issue raised during implementation, and still present at closing date, was poor O&M--the main factor for low irrigation efficiency and increased soil salinization. It resulted from another issue-the establishment of unrealistically low water charges--which impeded cost recovery and led to steadily deferred maintenance of the irrigation and drainage canals. I/ Closing Date was extended five times from the original closing date 07/31/1986 (08/01/87; 07/31/88; 07/31/89; 12/31/90 and 06/30/91).  PROJECT COMPLETION REPORT MEX ICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) Table 2. Proiect Timetable (Cont.) B. Project Schedule QUARTER~ ~~ .~j _ _ _ .}~ _fY IEP'Y 1 IIIK'LK 1 PnEPAnATION APPRAISAL MISSION LOAN NJEGOTIATIOIIIS nOAnn APrnoVAL SIGNIATtinE DATE_ nAT! OF fFFFGTJVF?1fSS COULlIOLT N DATE U r-2 r s .my YEAn ,? i *l 7 s islssaseI* *a62 *e a *.a4 g, a| gw aei , sgf,g QUAnTEJI' 1F 11 I T 11 F m T t I i __ ACT UAL  PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) Table 3: 14n Disbursmannts A: Annal and Cwnulative Disbursemnbts (US$ ifion) ________ - - ~~Fiscal ~Years- ___ ________ 1980 1981 1982 1983 1984 1985 1986 1987 1988 1999 1990 19 Appraisal Estimate - Annual 2 12 28 28 14 4 4 - Cumulative 2 14 42 70 84 38 92 Actual Disbursement - 4.5 13.2 22.7 34.6 43.8 46.3 51.7 53.4 55.9 66.0 81.8 Actual as % of Estinate 32 31 32 41 50 50 56 58 61 72 39 Date of Final Disbursement: 31/12/1990. Amount Cancelled: USS10.2 million. B: Cumulative Financed Exvendiur by Investment Cateory (US$'000s) Irnvestment Category C a l e n d a r Y e a r s 19S0 1981 1982 1983 1964 1965 1986 1987 19| 1969 1990 1991 Civil Works (Earthmoving & Building) - 4,479 13,155 20,431 31,808 40,639 43,053 45,432 46,941 49,265 59,325 74,587 Equipment - - 1,299 1,299 1,473 1,473 1,473 1,473 1,473 1,473 1,473 Incremental Operation Costs of Agricultural Extension Services 970 1,475 1,697 1,722 4,875 5,009 5,154 5,229 5,752 and Studies Total Categories 4,479 13,155 22,700 34,582 3U,809 4,2481 51,780 |53,43 55,892 66,027 81,812 Source: World Bank Disbursement Department.  PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) Table 4: Project IMPlementation A: General objectives Project Cqpletion Targets Project Component ULnit a J b c d e f SARI' Detait4' Progress Progress (d) as (d) as Design asof21 as of X X 12'iYO 0 of (a) of (b) Part A: Fuerte District 1. Rehabilitation M Main Canal km 1.7 1.7 1.7 1.7 100 100 . Unlined Main Canals km 130.0 148.6 139.6 139.6 107 94 . Unlined Laterals km 600.0 622.4 409.6 409.6 68 66 . Drains km 154.0 379.4 326.1 329.1 214 87 2. Construction . New Lined Laterals km 375.0 95.1 95.4 99.1 26 104 N ew Unlined Laterals km 0.0 194.8 98.0 102.1 - 52 N New Drains km 171.0 221.9 201.9 203.9 119 92 . Service Roads km 48.0 267.0 309.3 317.1 661 119 Land Leveling ha 60,000.0 60,000.0 49,039.0 49,039.0 82 82 Soil Reclamation 3/ ha 60,000.0 60,000.0 30,740.0 30,740.0 51 51 3. Other Indicators Rehabilitated Area ha 119,630.0 119,630.0 79,779 79,779 66 66 Number of Benefitting Families Ns 12,751.0 12,751.0 6,814.0 6,939.0 54 54 Part B: Sinaloa District 1. Construction Lined Main CanaLs km 16.0 16.0 9.0 9.0 56 56 LateraL Canals (unLined) km 280.0 425.0 356.1 385.6 138 91 Laterals Canals (Lined) km 313.0 172.0 153.5 163.5 52 95 Drainaged Network km 510.0 443.0 407.5 441.9 87 100 Roads km 170.0 434.0 373.0 387.7 228 89 Land Clearing ha 40,000.0 40,000.0 40,000.0 40,000.0 100 100 Land Levelling ha 40,000.0 50,000.0 49,500.0 49,500.0 124 99 2. Other Indicators Area Under Production ha 76,000.0 76,000.0 57,000.0 61,300.0 80 80 Number of Benefitting Farmers no. 7,119.0 7,119.0 : 7,205.0 101 101 j As per Guarantee Agreement. ?/ Reviewed during last supervision mission on June 1989. 3f Soil reclamation: 20,889 ha of saline soils and 4,630 ha of sodic saline soils. J Original figures as of SAR have been revised and updated by CNA due to comrpletion of detail design and some specific physical field requirements. Source: CNA Rio Fuerte and Sinaloa Districts.  PROJECT COMPLETION REPORT MEXICO RIO FUERTE/RIO SINALOA IRRIGATION PROJECT (LOAN 1706-ME) Table 4t Project implementation Bt Land Reclamation Program (Rio Puerte District) (I) Salt-Affected Lands at Apraisal Time ga. TrclasIlas Ara *ltin. Land satine-SOla l.ad Tol.L Salt Atftclad *t,600 1i,000 34.3 2,000 4.6 17.000 38.9 48,01e 18,300 36.s 5,soo 11.5 24 ,000 S0.0 5 21,922 14,500 Sl.9 4,500 1 .1 19,000 68.0 Toat 30 | ,000 40.1 12, , 110J 60,0606 50.2 (It) Implemented Program YTar llnIL I | tiL 4 .i_L _ TatA _ 1980 966 130 I 1,211 t001 3,320 3,130 1.2530 1,20 102 2,441 2,220 1,160 * 5S627 |Bill 1 622 1,400 1.631 4,663 1964 1,16 1,225 425 2,826 oS I *1,049 400 340 1, 19 t106 405 0 o 6s5 lOll 42 363 443 846 to If 6C 0 0 *6 1050 94 65 5) 21b 1900 1,70l 2,542 6J4 5,063 | Totalw lZ,12,04 . 11,51t.l 6,255 36*740 ftrantaes at $AR 76 46 33 51 IaXts La  PROJECT COMPLETION REPORT MEXICO RIO FUEE/RIO SINALOA IIGATI PROJCT (LOAN 1706-ME) Tatble 5St Project Cogt and FinotncinQ At cfoject Cost (US$ million) srA ACVWL cons9 CAIEI3O---- ------f---------- - ---- - -m Gm- -------S CMR. VOFrf4 I L l08 161 1082 ION 1054 1065 103 107 low ION lwi toot1 TWOMS . C LW0AS 2as 14.4 352 3.4 66 6S 17 6. 4.3 t0 1.6 a5 6.6 4.3 416 121 L tlI am"s 1IL4 , 11.4 27.6 t.l 04 4.5 2.5 4.6 2 4.4 0.L 04 6.3 2.3 24 101 Drou i3 2.1 Cs 2.2 2.0 t71 05 2.1 0.0 0