Chad - Sategui - Deressia Irrigation Project

Report No. 145a-CD FILE COPY Chad Appraisal of Sategui1)eressia Irrigation Project March 4, 1974 Western Africa Regional Office 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 It may not be published, quoted or cited without Bank Group authorization.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 respon- sibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENT US$ 1 CFAF 260.0 CFAF 100 US$ 0.38 One ADF Unit of Account - CFAF 256 WEIGHTS AND MEASURES 1 Hectare = 2.47 Acres 1 Kilometer = 0.62 Miles 1 Ton = 2,204 Pounds GLOSSARY OF ABBREVIATIONS ADF - African Development Fund MEAE - Ministere d'Etat Charge de l'Agriculture et de 1'Elevage Ministry of Agriculture and Livestock ONDR - Office National pour le D6velcppement Rural National Office for Rural Development MTPAT - Ministere des Travaux Publics et de l'Amenagement du Territoire Ministry for Public Works and Land Development FDAR - Fond d'Action et de Developpement Rural Fund for Action and Rural Development GR - Direction du Genie Rural et de l'Hydraulique Agricole Rural Engineering Directorate under MTPAT SEMALK - Secteur Experimental de Modernisation Agricole de Lai-Kelo Agricultural Development Agency of Lai-Kelo Area Sms - Secteur Medico-Sanitaire Health Agency BDT - Banque de Developpement du Tchad Development Bank of Chad OMVSD - Office de Mise en Valeur de Sategui-Deressia Sategui-Deressia Project Authority IITA - Institut International d'Agriculture Tropicale International Institute for Tropical Agriculture IRAT - Institut de Recherches Agronomiques Tropicales Research Institute for Tropical Agriculture GOVERNMENT OF CHAD FISCAL rEAR January 1 - December 31  SATEGtTT-DERFSSIA IRRIGATION PROJECT TABLE OF CONTENTS Page No. S1M4ARY kNTD CONCLTJSIONS ..... .................... i-iii I. INTRODUCTION ........ ............................ 1 II. BACKGROUND ......... ............................. 1 General ........ ............................ 1 III. THE PROJECT AREA ................................ 3 General. ........ ............................ 3 Climate ........ ............................ 3 Soils ........,......................... 4 Hydrology ............................... 4 Irrigation Facilities. 4 Population. 4 Farming Systems and Land Tenure ............ 4 Agricultural Innuts and Credit. 5 Research ........ . ....... 5 Education and Health. 5 Transoortation and Marketing. 6 IV. THE PROJECT. 6 Proiect Description. 6 Project Works. 7 Second-stage Studies. 8 Water Sunrly, Demand and Quality. 8 Engineering Desiqn and Construction Schedule. 8 Health and Education ..... .................. 9 V. COST ESTIMATES AND FINANCING ..... ............... 10 Cost Estimates ...... ....................... 10 Financing .................................. 11 Relending Terms .13 Recovery of Costs .13 Procurement ................................ 14 Disbursements .14 Accounts and Audits .14 This report is based on the findings of an appraisal mission, composed of Messrs. A.A. Meimaris, M.T. Burger, J.G. Leblanc (IDA) and W.F. Bright (Consultant).  Table of Contents (Corntinued) Page No. VI. ORGANIZATION AND MANAGEMENT ................... .. 14 Implementation of Project Works ........... 14 Management of Project ................ ..... 15 Land Tenure Provision ..................... 15 Staffing Requirements ..................... 15 Agricultural Research .................... a 16 Agricultural Inputs and Credit ............ 16 Operation and Maintenance ............ ..... 17 VII. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOME 17 Production ..... ........................... 17 Market and Prices ......................... 17 Farmers' Benefits ... ................ . ....... 18 VIII. BENEFITS AND JUSTIFICATION ..................... 19 IX. AGREEMENTS REACIED AND RECOMMENDATIONS ......... 21 ANNEXES 1. Climatological Data 2. Soils 3. Project Works 4. Second-stage Studies 5. Water Supply, Demand and Quality 6. Cost Estimates 7. Schedule of Project Expenditures and Disbursements 8. List of Equipment 9. Terms of Reference for Consultants 10. Management Services Expenditures 11. Agricultural Supporting Services 12. Operation and Maintenance Cost 13. Present and Projected Crop Production 14. Marketing and Prices 15. Financial Analysis of the Project Authority 16. Financial Analysis at Farm Level 17. Economic Analysis CHARTS AND MAPS 1. Construction Schedule - World Bank 7422 2. Location Map - IBRD 10338 3. Project Map - IBRD 10339  CHAD SATEGUI-DERESSIA IRRIGATION PROJECT SUMMARY AND CONCLUSIONS i. A succession of three years of drought coupled with a major rebel- lion in the north of the country have substantially curtailed in recent years returns from cotton and livestock, the mainstays of Chad's rural economy. Thus despite the rise in current prices for these commodities public finances have substantially deteriorated, and.development has stagnated. ii. Presently, the security situation has improved and measures are under study by Government for reforms in economic management and development strategies. Emphasis on the livestock industry is to be increased as sharp rises in demand and prices appear to offer greater economic returns than in the past. Emphasis is also placed on cotton and transportation investments. iii. The large irrigation potential of the southern part of the country, so far unutilized, has been investigated under the stimulus of recent drought- conditions and Government gives high priority to two projects for which IDA assistance has been requested. The first, still under study, aims at the de- velopment of polders in Lake Chad and in particular at an initial phase in- volving the development of 3,000 ha for the production of cotton and wheat. This project has potential for expansion to some 60,000 ha, and may be appraised in 1975. iv. The second project, which is the subject of this report involves the development of about 11,000 ha of land for improved rice cultivation in the Sategui-Deressia plain along the Logone River. It is a labor intensive project which would benefit about 2,400 farm families now living at near sub- sistence level. It fits in well with Government programs to increase rice production to meet rising domestic demand, and to introduce badly needed crop diversification. v. The Sategui-Deressia project would be the first Bank Group operation to promote irrigated agriculture in Chad. Since 1968, the Bank Group has made five IDA credits, one for highway maintenance, two for education, one for livestock, and one for drought relief, totalling US$13.2 million (including US$0.9 million supplementary financing approved in 1973 for the education projects), out of which US$4.6 million have been disbursed so far (as of January 31, 1974). After substantial delays because of lack of counterpart funds, administrative problems and cost overruns, all projects are underway and are expected to be completed satisfactorily. vi. Rice is grown under traditional methods, rainfed or inundated, over 55,000 ha in the Logone Valley where suitable soil and climatic conditions prevail. Because of lack of control works to regulate flood waters, little  - ii - use is made of the large available water resources and yields and productivity remain very low. Small existing projects in the valley have demonstrated that high yields of rice can be achieved, given water control, modern cultivation methods and inputs. vii. The proposed project would include the construction of polders ex- tending to 4,000 ha in which the time and depth of flooding would be control- led, feeder roads, and a rice mill and storage facilities. Another 7,000 ha would benefit from earlier flooding which would permit timely planting and thus better yields. The project would also include agricultural extension, training, research, seed multiplication and credit services and the creation of the Office de Mise en Valeur de Sategui Deressia (OMVSD). In addition, in view of the urgent need to further expand irrigated rice production, the project would finance a feasibility study for a second-stage development of about 5,000 ha. viii. Total project costs, net of import duties and taxes, are estimated at US$12.0 million, including contingencies totalling US$2.8 million, with a foreign exchange component of US$7.4 million, or 62%. Construction would be completed in three years but financing would continue for an additional three years to bring the project to maturity and to the stage where it would be financially self-supporting. All project costs would be recovered through imposition of a levy on polder area farmers, equal to about 10% of gross production, and through benefits generated from OMVSD rice milling operations. ix. The proposed IDA credit of US$7.5 million would finance 63% of pwroject costs and would cover total costs of civil works, for construction of the irrigation and drainage system, roads and rehabilitation of the agricul- tural station to be tendered under international competitive bidding (US$6.5 million), management consultants (US$0.8 million), and 50% of the second stage studies (US$0.2 million). The African Development Fund (ADF) loan of 4 million units of account 1/ or approximately US$3.9 million would finance 32% of project costs and would cover total costs of buildings, equipment, management services and engineering consultants. These items would be pro- cured under ADF regulations. Remaining local costs of US$0.6 million, or 5% of project costs, for credit and working capital requirements, would be pro- vided by Government initially through the Development Bank of Chad (BDT). 1/ As defined in the Articles of Agreement of ADF. One unit of account has a value of 0.81851265 gramme of fine gold (Article 1). To determine the value of any currency in terms of the unit of account, such valuation is made by ADF after consultation with the International Monetary Fund (Article 12 of ADF Articles of Agreement). One unit of accounts equals about CFAF 256.  - iii - x. The IDA Credit and the ADF Loan would be onlent by Government to OMVSD which would repay annually CFAF 90 million (US$0.35 million) over 50 years including 6 years of grace. This is equivalent to full debt repayment at 1.4% interest. These terms are justified as part of the capital invest- ment will benefit subsequent expansion of the project; the annual repayment would absorb 90% of OMVSD annual net revenues, and any increase in farmers' charges or ex-mill rice prices would act as a major disincentive to increase rice production and consumption. BDT funds would be made available to OMVSD at 5-1/2% per annum and would be progressively replaced by OMVSD self-generat- ed funds over a ten-year period. Onlending to farmers for short- and medium- term credit would be at the same interest rate. xi. Responsibility for implementation of project works and management would be entrusted to an autonomous project authority (OMVSD) to be established under the general supervision of the Ministere des Travaux Publics et de l'Amenagement du Territoire (MTPAT). OMVSD would be assisted by engineering and management consultants. xii. The major benefit of the project would be the annual incremental production of 8.000 tons of rice (about half of future estimated incremental requirements). The project would nearly double the agricultural incomes of some 2,400 farm families or about 11,500 persons in the project area. The average per capita net income would rise from US$52 to US$73 outside of the polders and US$108 in the polder area. Consequently, the project would bridge the income gap between this particularly poor segment of the population and Chad's average GNP per capita of US$80 in 1971. If successful, the project is capable of expansion to other areas of the Logone Valley. Other important benefits include training, institution building and the demonstration effects of the project. xiii. The internal economic return from investment in the project is 13%. This return reflects conservative yield forecasts, the high construction costs inevitable in such an isolated country, and the disproportionately high manage- ment costs which are a necessary feature of this first-phase project. Further phases would have higher returns. xiv. The proposed project constitutes a suitable basis for an IDA credit of US$7.5 million. The borrower would be the Government of Chad.   CIAD SATEGUI-DERESSIA IRRIGATION PROJECT I. INTRODUCTION 1.01 The Government of Chad has requested IDA and ADF assistance in financing the Sategui-Deressia Irrigation Project. Up to now the Bank Group has not financed irrigated agriculture in Chad. Previous Bank Group lending since FY 1968, all IDA credits, has been for highway maintenance (one project), education (two projects), livestock (one project), and drought relief (one project). These credits total US$13.2 million of which US$4.6 million 1/ has been disbursed so far. With the exception of the highway project, which is nearing completion and the Drought Relief Project which has just started, project implementation is substantially behind schedule. This is due to a number of reasons, not least Government's inability to finance its contribu- tion to project costs (para 2.03). However, the projects are now underway and it is expected that they will be completed satisfactorily. 1.02 The project is part of Government's program to increase rice pro- duction to meet rising demand in urban domestic markets. Rice production ranks third in agricultural sector priorities, coming after livestock and cotton. Further, justifications for financing this project are the receptive- ness of project area farmers to innovations, which is demonstrated by good farming standards and the very rapid development of ox-drawn cultivation, the suitability of the project area for irrigated rice which is already grown extensively in the area, and the opportunity afforded by the project of im- proving Government institutions in the agricultural sector. 1.03 The project was identified in 1966-67 by an IBRD mission, and fol- lowing an FAO/IBRD Cooperative Program mission, was prepared to feasibility standards by Carlo Lotti Engineers Co. (Italy) under UNDP financing. It was appraised in November 1972 by an IDA mission comprising Messrs. A. Meimaris, M. Burer, J. Leblanc (IDA) and W.F. Bright (consultant) and updated in January 1974. II. BACKGROUND 2.01 General. Chad occupies an area of 1.3 million km2 in Central Africa. The northern 80% of the country, comprising desert and dry grass lands, has a population of about 2 million, mostly semi-nomadic livestock herders. The southern 20% of the country bordering the Logone and Chari rivers is less arid and has a population of some 1.7 million, mostly subsistence and cotton 1/ As of January 31, 1974.  - 2 - farmers. The northern part of the country is less developed than the south and was the scene of a rebellion that broke out in 1968. This rebellion has been controlled, but large areas are still unsafe, and it may take years for Government to pacify and integrate fully these traditionally independent people. 2.02 Between 1968 and 1971, largely as a result of cotton and meat price increases, GDP rose from CFAF 59.7 billion to CFAF 79.8 billion equivalent and the annual growth rate rose to about 10.2% in current prices. However, over the decade of the sixties, Chad's economy grew by only 5% in current prices and 2% in real terms. GNP per capita in 1971 was estimated at US$84. However, since 1971 GDP has probably declined in real terms because severe droughts over three successive years have caused substantial declines in agricultural production. The country's land-locked and isolated location, high transport costs, undeveloped infrastructure, lack of natural resources, and harsh climate are serious obstacles to economic development. 2.03 So far development programs mostly financed with external aid have concentrated on cotton and livestock, but progress has been slow. Government is unable to finance development from its own resources as since independence its annual budgets have been in deficit. By the end of 1972 cumulative budg- etary deficits amounted to CFAF 4 billion. French budgetary subsidies have in the past covered most of capital expenditures and part of recurrent expendi- ture, including debt service payments. Prospects for improving the budgetary position are poor as Government revenues, mostly from cotton and livestock, cannot be increased significantly, especially following the recent drought and therefore Chad must continue to rely on external aid to finance its develop- ment effort. 2.04 Although agriculture is the most important sector of the economy accounting for 55% of GDP in 1971, rural incomes are very low; most are below US$40 per capita. The three main products are millet 1/, cotton, and livestock. After reaching record levels in 1968/69, crop and livestock production has declined sharply because of drought. While millet is essen- tially a subsistence crop, cotton is Chad's most important cash crop. In 1971 cotton accounted for about 14% of monetized GDP, 67% of exports, and 40% of the arable land in the main agricultural area south of the Chari river. Livestock accounts for about 16% of GDP and livestock and meat sales abroad are about 30% of total exports. Export prices for animals and meat have risen sharply since 1969 largely because of increased prices obtained from Nigeria. 2.05 From 1958 until recently, cotton received top development priority. Government, however, now gives top priority to livestock development because of the rapidly rising demand for meat and the resulting price increases, and also to assist the northern population. Government's livestock development 1/ The term millet is used to cover both millet and sorghum.  plans are being supported already by IDA through the livestock project referred to in para 1.01, and for which a second phase has been prepared. FED is conti- nuing to finance a cotton productivity program and the Bank Group has been requested to finance a feeder road project in the cotton growing area which was appraised in November 1973. 2.06 Besides cotton and livestock, Government priorities are much less clear. Irrigation, however, is being given very high priority as it provides the surest permanent means of combating the effects of frequent droughts. Thus, IDA's involvement in the Sategui-Deressia Project, would help to assure the optimum use of one of Chad's most scarce resources. 2.07 Several ministries deal with agricultural development. The Minis- tere d'Etat Charge de l'Agriculture et de l'Elevage (MEAE) is generally respon- sible for rainfed agriculture and livest:ock and acts mainly through the Office National pour le Developpement Rural (ONDR) which provides extension services and supplies farm inputs. The Ministere de Travaux Publics et de l'Amenagement du Territoire (MTPAT) has responsibility for specific agricul- tural projects including those involving irrigation. KrPAT deals also with grain marketing through its Fond d'Action et de Developpement Rural (FDAR). The Direction du Genie Rural (GR), dealing with water supply, is under the direction of MTPAT. As a general characteristic, all agricultural services are hampered by budget constraints and the lack of capable and well-trained management. III. THE PROJECT ARFA 3.01 General. The project is located on the Sategui-Deressia plain, on the east bank of the Logone River and almost in the center of the southern cotton growing area. The plain is usually flooded each year, allowing the cultivation of a single wet-season rice crop. Non-inundated areas are used for cattle grazing, and vegetables are grown around the villages which are located on higher ground. Fishing in the Logone and in the flooded areas provides additional income to farmers. Administratively, the project area is in the Prefecture of Tandjile. 3.02 Climate. There are two distinct seasons: the wet season lasts from late May to early October, and the rest of the year is dry. Annual rainfall is about 1,080 tmn, but distribution is erratic. Average monthly temperatures range from 25