Philippines - Aurora - Penaranda Irrigation Project

Report No. 348a-PH FILE COPY Philippines Appraisal of the Aurora-Penaranda Irrigation Project April 1, 1974 Irrigation and Area Development Division I Asia Projects Department Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS US$1.00 * Pesos (t) 6.729 J 1.00 - US$0.149 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) - 2.47 acres 1 kilometer (km) 2 a 0.62 miles 1 square kilometer (km } - 0.3886 square miles 1 meter (i) 2 39.37 inches 1 square meter (m ) - 10.76 square feet 1 cubic meter (mi3) 3 . 35.31 cubic feet 1 million cubic meter (Mm ) - 810.7 acre feet 1millimeter (am) - 0.039 Inches 1 kilogram (kg) - 2.2 pounds 1 cavan (paddy) - 44 kg 22.7 cavans 1 metric ton INITIALS AND ACRONYMB NIA - National Irrigation Administration UPRP - Upper Pampanga River Project DAR - Department of Agrarian Reform BAES - Bureau of Agricultural Extension Services BPI - Bureau of Plant Industry NGA - National Grains Authority  PHILIPPINES APPRAISAL OF THE AURORA-PENARANDA IRRIGATION PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS ............ ................... I. INTRODUCTION .......................................... II. BACKGROUND ............................................. 1 General ........ .................................. 1 The Agricultural Sector ..... ..................... 1 The Critical Role of Water Development .... ....... 2 Project Formulation .............................. 3 III. THE PROJECT AREA ... 4 General .......................................... 4 Climate .......................................... 4 Topography, Drainage and Soils ................... 5 Land Tenure and Farm Size .................... .... 5 "NExisting Irrigation Facilities .; ................ 6 Agricultural Production ...... ................... 7 Transportation .......... ......................... 7 IV. THE PROJECT ........................................... 7 Project Works ....... ............................ 8 Water Supply, Demand and Quality ................. 9 Status of Engineering ...... ...................... 11 Central Luzon Irrigation Development Study ....... 11 Cost Estimates ....... ............................ 12 Financing ... 13 Procurement ........... 13 Disbursements ........... 14 Accounts and Audit .......................... 14 Environmental Effects ............................ 14 V. ORGANIZATION AND MANAGEMENT ........................... 14 Project Management ............................... 14 Supporting Agricultural Services .............. ... 16 Recovery of Cost ................................. 17 This report is based on the findings of an appraisal mission, composed of Messrs. E. G. Giglioli, M. El Moghazi (Bank) and L. W. Bartsch (Consultant).  -2- Page No. VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOMES 19 Production .................... 19 Market Prospects .................... 19 Prices ..................... 19 Farm Income .................... 20 VII. BENEFITS AND JUSTIFICATION . . .......................... 21 VIII. AGREEMENTS REACHED AND RECOMMENDATION ................. 22 ANEXES 1. Climatological Data 2. Land Tenure and Reform 3. The Upper Pampanga River Project 4. Project Works 5. Water Supply, Demand and Quality 6. Central Luzon Irrigation Development Study 7. Construction Schedule 8. Cost Estimates 9. Equipment List 10. Schedule of Expenditure and Disbursements 11. Organization and Management 12. Supporting Agricultural Services 13. Present and Projected Cropping Patterns and Production 14. Marketing and Prices 15. Crop and Farm Budgets 16. Farm Labor Analysis 17. Economic Analysis CRARTS Construction Schedule No. 8152 Proposed Organization for Project Construction No. 8211 Proposed Organization for Operation and Maintenance No. 8212 Proposed Cropping Calendars No. 8214 MiAP S Central Luzon Basin No. 10769 Upper Pampanga River Project No. 10921 Project Area No. 10770 Aurora Diversion Works No. 10981  PHILIPPINES AURORA-PENARANDA IRRIGATION PROJECT SUMMARY i. The Government of the Philippines has requested Bank Group assistance to carry out the Aurora-Penaranda Irrigation Project located in Central Luzon. The project includes the construction of two diversion dams to lead water from the Aurora basin, through a diversion channel, into the Pantabangan reservoir, the rehabilitation of 16,700 ha of the existing Penaranda irrigation system and the construction of a new system on some 8,600 ha. It also includes provision for carrying out an irrigation devel- opment study to assess the land and water resources of Central Luzon, to propose a plan for effective development of the resources and to identify priority projects within the plan. ii. According to the Bank's Agricultural Sector Survey, an annual total of 50,000 ha of newly constructed or rehabilitated irrigation development on rice lands would have to be carried out for the remainder of the decade to allow the country to achieve foodgrains self-sufficiency. Improvement of water control is a prerequisite to optimum utilization of the modern high yielding rice varieties. The proposed project would be the third in a series of Bank assisted projects aimed at providing greater security of water supply for dry season rice cropping in Central Luzon, the largest rice producing region in the Philippines. The first was the Angat Dam (Loan 297-PH) and the second the Upper Pampanga River Project (Loan 637-PH). The proposed project would be an extension of the latter. iii. Total project cost, including interest during construction and the irrigation study, is estimated to be t 269 million (US$40 million), of which US$19.0 million, or approximately 48%, would be in foreign exchange. The Bank would finance the foreign exchange component. The total cost of civil works and equipment to be put to international competitive bidding would be US$11.2 million and US$2.3 million, respectively. The Government's executing agency, the National Irrigation Administration (NIA), would employ consultants to assist in design and construction supervis!on on the Aurora-Penaranda Irrigation Project and to provide support for review, analysis, plan formulation and training required for the irrigation study. The project would take five years to execute. iv. The Government of the Republic of the Philippines would be the borrower with the NIA the executing agency for the project. Both the Aurora-Penaranda component of the project as well as the irrigation study would be implemented by the Upper Pampanga River Project (UPRP) office. The UPRP organization is well staffed with competent personnel and with the employment of consultants would be able to implement the project success- fully. An Agricultural Development Coordinating Council (ADCC) would be established in the project area to ensure coordination of the Government agencies providing agricultural supporting services to the farmers. A  - ii - Steering Committee composed of all Government agencies with interests in land and water development in Central Luzon would be set up as part of the study, to ensure that all users' points of view are taken into account in designing the irrigation development plan for the area. v. At full development, ten years after project commencement, annual paddy production for the project area is expected to reach 202,000 tons compared with a current level of production of 82,000 tons. The incremental production would make a contribution to the campaign for self-sufficiency in rice by providing enough of the staple food to support just over half a million people per annum. vi. The Government is engaged in a program of land reform aimed at transferring ownership of the land to the cultivators. The most likely immediate effects of the program would be the disappearance of the few large landholdings in the area and the abolition of inequitable share- cropping as a form of tenure. The project area is cultivated by 10,000 farm families operating smallholdings of approximately 2.5 ha. Some 80% of the farmers are tenants of small landowners. The project would result in rises in annual per capita income on an average farm size from about US$75 at present to US$170 at full agricultural development in 1983. These levels of income would still be low in comparison with the national average which is projected to rise to US$330 by 1983, but would lead to a narrowing of the income gap between the project area and the rest of the country. vii. The project is expected to generate an increase in farm labor employment opportunities, with the equivalent in full-time jobs rising from the present 15,000 to 21,000. In addition, it would also generate increased employment in the services sector. The economic rate of return of the project is expected to be about 17%. The rate of return is sensitive to increases in cost and delays in benefits and relatively insensitive to other factors. However, even under extremely adverse conditions, the rate of return would not be less than 11%. viii. The proposed project is suitable for an IDA credit of US$9.5 million on the usual terms and a Bank loan of US$9.5 million for a period of 25 years, including a 7-year grace period. The borrower would be the Republic of the Philippines.  PHILIPPINES APPRAISAL OF THE AURORA-PENARANDA IRRIGATION PROJECT I. INTRODUCTION 1.01 The Government of the Philippines has requested Bank Group assistance in financing the construction of the Aurora-Penaranda Irriga- tion Project in Central Luzon. Upon completion the project would provide a dependable water supply for year round irrigation of about 25,300 ha. The projec;; is an extension of the Upper Pampanga River Project (UPRP) currently being built with Bank assistance (Loan 637-PH). 1.02 A feasibility study for the project was prepared under the pro- visions of Loan 637-PH by the National Irrigation Administration (NIA) with the assistance of Engineering Consultants, Inc. of Denver, Colorado and Engineering and Development Corporation of the Philippines, of Manila. This report is based on that study and the findings of the Bank's appraisal mission which visited the Philippines in September/October 1973. The mission was composed of Messrs. E.G. Giglioli, M. El Moghazi (Bank) and L.W. Bartsch (Consultant). Mr. B. Kanchanalak (Bank) also contributed to preparation of the report. II. BACKGROUND General 2.01 The Philippine archipelago covers about 298,000 km (115,000 sq mi) scattered over more than 7,000 islands between the Pacific Ocean and the China Sea. However, most of the area (98%) is encompassed in the 45 largest islands. According to latest estimates, the population is around 39.0 mil- lion and growing at a rate of 3.0% annually. Per capita GNP, which during the last decade grew at 5 to 6% a year, was r 1,429 (US$212) in 1972, how- ever this growth was not associated with any change in income distribution. 2.02 Out of a total land area of some 30 million ha, more than half is in forests and about one-third is presently under cultivation or in plantations. It is estimated that there might be 2.0-2.5 million ha of fairly level or slightly rolling lands still suitable for cultivation including up to 1.0 million ha of cogon grass lands which are difficult to rehabilitate. Agricultural exploitation of this additional land by itself would be insufficient to meet increasing demands for food for a population which is expected to reach 50 million by 1980 and to significantly improve incomes in the rural areas. These objectives call for increasing the pro- duction of presently cultivated areas through yield improvements and in- creased cropping intensities. The Agricultural Sector 2.03 Agriculture is still the most important sector in the economy, accounting for about one-third of net domestic product, one-half of total employment and 70% of commodity export earnings. In the first half of the 1960s the rate of growth of agricultural output was slow and failed to keep  - 2- up with populazior growth. In the latter half of the decade, largely as a result of the adoption of improved rice varieties, it accelerated and sur- passed the substantial growth recorded in the non-agricultural sector. How- ever, employmenit in agriculture increased during the early period of low growth and levelled off during the later years. Although most of the in- crease in the labor force between 1965 and 1970 was accommodated in non-agricultural employment, the unemployment rate, especially in the rural areas, remairned high. Moreover, since the new rice varieties have not increased :ot-al labor requirements over the traditional varieties, underemployment, reflecting seasonal slack of farm operations, also remained high. 2.04 With a rapid growth rate in agriculture and little change in employment, productivity per worker increased sharply in 1965-70, while productivity in the non-agricultural sector remained much the same. Thus, the gap in incomes between workers in agriculture and those in other sectors has narrowed appreciably although incomes in agriculture are still substan- tially lower. Farmers who used improved technology, such as the new rice varieties, shared in the higher agricultural incomes, but those who continued in the traditional ways of farming were largely unaffected. 2.05 There is considerable pressure of people on land in the Philippines, where the population density is 131 people/sq km compared with an Asian average of 86. Lowland areas best suited for rice have been fully occu- pied for over a decade. Migration is heavy from the overcrowded regions of Central Luzon and the Visayas to the Cagayan Valley in Northeast Luzon and Mindanao in the south. Even though the resource base can still be ex- tended, this alone will not meet increasing denands for food for a population which will approach 50 million by 1980, or significantly improve farm incomes. These goals can only be realized by raising the productivity of the resource base. 2.06 Agricultural sector performance will be crucial in determining whether the drive towards a more rapid but more equitable income expansion succeeds. The major goals for the sector are self-sufficiency in cereals, particularly rice and corn; expansion of agricultural exports; intensification of agrarian reform; better conservation of natural resources; and strengthen- ing of institutional support. Reaching self-sufficiency in cereals is important not only to strengthen the balance of payments, but also to raise incomes for much of the rural population. The Critical Role of Wlater Development 2.07 Mie P?ilippines cannot reach self-sufficiency in rice without substantial investment in irrigation expansion and rehabilitation. Per- formance of irrigation systems in the country falls far short of their potential. Tke Sector Survey 1/ estimates that, out of a total area of 960,000 ha which could be served by existing irrigation systemas, only 1/ IBRD Agricultural Sector Survey, Philippines, May 2, 1973 (Report No. 39a-PH).  - 3 - 630,000 ha are served in the rainy season and 254,000 ha in the dry season. Almost all of the irriga"..ed area is devoted to rice cultivation. The National ::rrigation Administration's (NIA) gravity systems are the main component. In addition, NIA has constructed or rehabilitated a substantial part of the small privately operated communal systems, averaging 250-300 ha. The Irrigation Services Unit (ISU), now under NIA's administrative supervision is responsible for pump irrigation schemes. The 104 NIA gravity systems, varying in size from 130 ha to 30,000 ha, are usually run-of-the-river schemes with insufficient control structures in the canals, inadequate drainage and little provision for access. Even when the system is new, water distribution is uneven during the wet season and limited during the dry season. Main- tenance has been minimal due to staff and fund shortages and the lack of access for maintenance machinery. A vicious circle has developed by which lack of maintenance discouraged farmers from paying operation and maintenance charges and lack of the latter precluded further maintenance. 2.08 This unsatisfactory situation began to change in the late sixties. The NIA was reorganized, more advanced irrigation designs were introduced and much higher levels of water management aimed at. Simultaneously the need for intensified agricultural supporting services on irrigation pro- jects was realized. The Bank-assisted Upper Pampanga River Project (UPRP), and the Angat-Magat Integrated Agricultural Development Project, assisted by the Asian Development Bank, typify the new approach. The pattern of rehabili- tation, new construction and operation exemplified by these projects is essential for large-scale rice production. Indeed, to meet domestic rice demand in the 1970s an annual program of rehabilitation and new construction in the rice lands of 50,000 ha will be needed for the remainder of the decade. The proposed Aurora-Penaranda Irrigation Project would thus be entirely com- patible with Government objectives for water resources development. Project Formulation 2.09 The proposed project is the second phase in the development of the Pampanga river basin. It would provide dry season irrigation to lands in the Penaranda area by utilizing the storage capacity created by the Pantabangan dam, the main feature of the UPRP. Although the proposed Central Luzon Irrigation Development Study (para 4.15) would establish investrent priorities for irrigation development in the region, it is reasonable :o proceed with the Aurora-Penaranda project at this time for the following reasons: (a) in terms of soils, land use, farm size and existing level of irrigation facilities the project area is highly suitable for modernization of rice cultivation, being wholly similar to the various sytems being rehabilitated and expanded under the UPRP;  -4- (b) being an extension of an-ongoing project it would take full advantage of the organization facilities set up to construct and operate the UPRP. In particular it would involve economies of scale in terms of operation and maintenance as well as for development of coordinated agricultural supporting services; (c) the diversion of Aurora water into the Pampanga basin would be a net addition to the water reserves of the major rice growing region of the Philippines. Irrigable lands are far in excess of available water supplies in the Pampanga basin, while the reverse is true of the Aurora basin. III. THE PROJECT AREA General 3.01 The project is located in Central Luzon, the largest rice pro- ducing region in the Philippines, which contains about 20% of the area planted to rice annually and accounts for 27% of total national production. The mean rice yield in this region is about 30% above the national average. This is attributable to the existence of irrigation systems in the area and the rapid adoption of high yielding varieties developed by the International Rice Research Institute (IRRI) and the College of Agriculture of the University of the Philippines (Los Banos). 3.02 The proposed project covers some 25,300 ha located in the Provinces of Nueva Ecija, Bulacan and Pampanga about 100 km north of Manila. The project area includes the 16,700 ha of the existing Penaranda River Irrigation System (PENRIS) and some 8,600 ha of rainfed lands to the southwest. The area is bounded on the north by the Penaranda river, on the east by PENRIS lateral "C" canal and its proposed extension, on the south by the Maasim river and on the west by the Candaba swamp and the Pampanga river (see Map). 3.03 There are a number of small towns scattered throughout the area with populations between 5,000 and 10,000. The larger towns provide banking, storage and processing facilities as well as supplies of inputs to the surrounding agricultural areas. A good highway network and a railroad con- necting the project area with Manila ensure an easy inflow of supplies and outflow of produce. Climate 3.04 The climate in the project area is tropical and monsoonal. Warm temperatures throughout the year allow a twelve-month growing season with irrigation. About 85% of the average annual rainfall of 1,850 mm falls in the wet season from May through November, during which heavy rains occur, and typhoonal storms may pass through the area causing floods and some damage to crops and engineering works. The rainfall, together with river flows in the wet season, is generally adequate for a single rice crop. Dry season cropping,  however, entails considerably more risk and a supplemental irrigation supply is essential for an assured crop. Further climatic details are presented in Annex 1. Topography, Drainage and Soils 3.05 Lands in the east and southeast of the project area are gently sloping or undulating, while in the central and western portion they are relatively flat. The whole area is dissected by many small creeks and rivers, serving as natural drainage-ways running from the north and northwest to the southwest. The recently formed flood plains and terraces along the Penaranda. and Pampanga rivers are subject to flooding; the natural levees along the river banks protect the older alluvial terraces making up most of the project area from flooding due to overflowing of the two rivers. The southwestern part of the area is relatively low and borders the Candaba swamp. The capacity of the creeks and rivers running through the project area is usually exceeded during periods of high and intensive rainfall. Flooding is aggravated by the absence of a drainage network in the existing PENRIS. The low areas in the southwest along the Penaranda and Pampanga rivers are affected by flooding. While subsurface drainage is generally poor due to the fine-textured Soils, the lands bordering the rivers have better internal drainage because of higher sand and gravel contents. 3.06 Soils are fertile, generally dark, medium to fine-textured, with slightly acidic to neutral reactions and slow internal drainage. They are eminently suited to year round paddy cultivation. The flat relief, fine texture, slow internal drainage and existing layout in small paddy fields would all militate against successful cultivation of dry- foot crops unless greatly improved surface and some subsurface drainage were provided. Land Tenure and Farm Size 3.07 Since the beginning of the century various legislative measures have been introduced with the intention of ameliorating the lot of the tenant farmer. With the introduction of the Agricultural Reform Code in 1963, the Government committed itself to the gradual transfer of land ownership from the landlords to the tenant cultivators. The progression was to be from sharecropper to leaseholder, to amortizing owner 1/ and finally to full owner-operator. Within the project area the first stage of the process is clearly apparent; before 1964 sharecroppers accounted for 50% of the farmers compared to 28% at present. While the achievement is modest, it is far higher than the national average and of real significance to the individuals concerned. The leaseholder has security of tenure and pays a fixed annual land rent, while the sharecropper has little security and must pay a major share of the proceeds of his crop in rent. There has been no change in the relative proportion of owner-operators to tenant farmers. 3.08 Following the declaration of martial law in October 1972, the Government has given priority to land reform and has issued-a number 1/ An ex-tenant during the peft.d of purchase of his holding under the Agricultural Reform Code.  -6- of decrees to accelerate the transfer of land to the cultivators. The decrees abolish sharecropping and eliminate the requirement for an intermediate stage as a leaseholder between being a sharecropper and becoming an amortizing owner. They also provide for the landowner to retain up to seven ha of land if he cultivates it himself, while proposing to establish tenant farmers on "family-sized" farms of three or five ha, respectively, depending on whether the land is irrigated or rainfed. More progress in transferring land to the tenants has been achieved in the first year of the new land reform program than in the previous ten. However, the question of how to deal with tenants on holdings of seven ha or less poses a difficult problem, particularly in cases where part of the holding is cultivated by the owner. Many of the small absentee landowners are people whom it would be politically difficult to dispossess. It is hard to estimate the ultimate farm ownership in the project area since the average size of holding there is already only 5.75 ha. A reasonable scenario for the tenurial situation in the project area at full development is likely to have the following features: the disappearance of sharecropping; an underterminable but substantial increase in the number of owner-operators and amortizing owners; and possibly some residual lease-holding to accommodate small- owners unable to engage in farming. There is unlikely to be, however, any major change in the present farm size distribution. 3.09 Surveys carried out by the Department of Agrarian Reform (DAR) show that some 10,000 farm families, averaging six members per family for a total of 60,000 people, live in the project area. The average farm unit is 2.5 ha, with about 621 of the farms, covering 52Z of the area, falling between 1 and 3 ha. The farm size distribution is: Farm Size Farm Holdings Cultivated Area (ha) --