Chad - Rural Projects Fund Project

Document of FILE GOPY The World Bank FOR OFFICIAL USE ONLY Report No. P-1939-CD REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF CHAD FOR A RURAL PROJECTS FUND November 12, 1976 This document bas a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. |  CURRENCY EQUIVALENTS Currency Unit - CFA franc (CFAF) US$1.00 - CFAF 225 1/ CFAF 1,000 - US$4.44 FISCAL YEAR Government : January 1 - December 31 Project : October 1 - September 30 ABBREVIATIONS APMU : Agricultural Projects Management Unit (Western Africa Region) BDT : Banque de Developpement du Tchad COTONTCHAD Societe Cotonniere du Tchad CMPA : Centre de Modernisation des Productions Animales CSPC : Caisse de Stabilisation du Prix du Coton FAC : Fonds d'Aide et de Cooperation FDAR : Fonds de Developpement et d'Action Rurale FED : Fonds Europeen de Developpement FMU : Fund Management Unit GR : Direction du Genie Rural MFEP : Ministere des Finances, de l'Economie et du Plan ONDR : Office National du Developpement Rural PIC : Perimetres Irrigues du Chari - (a division of ONDR) PWD Public Works Department RMWA World Bank Group Regional Mission in Western Africa RPF Rural Projects Fund SERARHY Service des Amenagements Ruraux d'Hydraulique i/ Floating Exchange Rate  FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF CHAD FOR A RURAL PROJECTS FUND 1. I submit the following report and recommendation on a proposed development credit to the Republic of Chad for the equivalent of US$12.0 million on standard IDA terms to help finance a Rural Projects Fund. FAC, the French aid agency would participate in the financing of the project with a grant of about US$1.0 million equivalent. PART I - THE ECONOMY Background 2. A report entitled "Chad's Economic Development: Constraints and Potential" (75a-CD) was distributed to the Executive Directors in July 1973. An economic mission visited Chad in April 1976 to review recent developments and to assess medium-term development prospects. Its preliminary conclusions are reflected in the following paragraphs. Annex I contains Country Data. 3. With scarce natural resources, a harsh climate, limited social and economic infrastructure and a pervasive lack of skilled manpower, Chad faces unusually large handicaps in its economic development. High cost of transportation to and from the outside world compounds the problem: the main centers of activity of this vast landlocked country are about 2,000 km from the sea; freight rates from the port of Douala in Cameroon to Southern Chad were about US$130/ton for bulk goods and US$180/ton for general goods in early 1976. 4. With a 1975 per capita GNP of US$120 Chad is one of the poorest countries in Africa and is classified as one of the world's 25 "least developed" countries by the United Nations. Close to 90 percent of the population, es- timated at about 4 million, lives in rural areas deriving their livelihood from agriculture and livestock. About half the rural population lives in the south-west or cotton zone, where average rainfall is about 1,000 mm/year and grows millet and sorghum as food crops and cotton as a cash crop. The other half are mainly pastoralists living in the dry grassland belt, with lower and less reliable rainfall. Recently, efforts have been made to intensify tradi- tional rice growing on the flood plains of the Logone River. 5. During the 1960s, real GDP increased about 2 percent annually. The highest growth rates were achieved in the market economy (mainly import substitution industries and services), while the growth of livestock and subsistence crops probably did not reach that of population, estimated at This document hus a restricted distribution aM may be used by reipients only in the performance of their officiai duties. Its contents may not otherwise be discloed without Wor1d Bank authorization.  - 2 - about 2 percent per year. Income disparities were relatively wide and appear to have widened between the small urban sector and the rural areas and, within the rural population, between producers of cash crops and the rest. Recent Developments 6. Three events have affected economic growth and the financial sit- uation since the late 1960s: the internal security problems, the drought and the deterioration in the terms of trade. The rebellion that broke out in 1968 made large areas insecure and cut traditional cattle routes. Due to lack of security and maintenance funds, wells were neglected and the water supply for livestock dwindled. Animal disease control suffered a setback. The impact of the internal security problems was compounded by severe droughts, which occurred in three of the five years, 1969-1973. Water levels in the rivers reached an all-time low, and Lake Chad shrunk to one- third of its normal size. Livestock losses were substantial, notably in cattle and sheep. Food crops were also hard hit; production of millet and sorghum fell to about 70 percent of pre-drought levels in 1972 and to about 60 percent in 1973. Emergency food shipments from abroad helped the hard hit areas. With the return of normal rainfall, food production recovered to pre-drought levels in 1974/75. 7. Cotton production picked up considerably in 1974 and reached a record volume in 1975 (175,000 tons); this was accompanied by a proportional increase in the number of draft oxen used. The upturn in crop production stimulated industry, transportation and trade. On the other hand, livestock offtake, after surging in the drought years because of emergency slaughtering, has substantially decreased, reflecting the reduction of the herd and the beginning of its reconstitution. Moreover, the economy now feels the full impact of the accelerated import price inflation in 1974-1975 and the concurrent decline in export prices. Chad's terms of trade worsened by about Il percent between 1972 and 1975 and are likely to deteriorate further in the years ahead. 8. Up to 1968, the budget was in balance and, in view of the country's development constraints, fiscal performance could be considered satisfactory. After 1968, however, expenditures began to grow much more rapidly than revenue as military spending increased substantially (security and defense now account for about one-third of the current budget.) The drought also increased de- mand for Government services while it reduced revenue. Further contributing factors were the continuous and recently accelerated inflation of import prices and the rise in Government employment -- a means of containing unem- ployment especially among school leavers. As a result, the overall budget deficit (excluding capital expenditures financed by foreign aid) rose from CFAF 2.0 billion (15.5 percent of revenue) in 1970 to CFAF 4.1 billion (30.5 percent of revenue) in 1974, but dropped to CFAF 2.1 billion (13.5 percent of revenue) in 1975 due to special efforts to collect tax arrears and some reduc- tion in spending. External budget subsidies partly covered these deficits. A considerable gap remained, however, resulting in payments arrears accumulat- ing to CFAF 11.6 billion (US$51 million) by the end of March 1976, of which  - 3 - about 80 percent was due domestic suppliers and 20 percent due foreign creditors. 9. The continuous rise in budgetary expenditures has been exclusively in recurrent expenditures; Government-financed investment -- about CFAF 1 billion until 1972 - has shrunk to virtually zero. The rise in current spending would have been still much larger but for the progressive curtailment of material supplies required for the operation and maintenance of Government services. This has been particularly marked in economic services. In 1974, for example, road maintenance expenditures were less than 1 percent of total expenditures, and of the allocation for the Department of Agriculture and Livestock (less than 5 percent of the budget total) all but 12 percent was for wages and salaries. Because of the lack of essential material implements, from stationery to spare parts, most Government services cannot function effectively. External Aid 10. Since 1973, aid flows have been massive, grants alone about equalling tax revenue in 1973 and 1975, and exceeding it by 24 percent in 1974. Total disbursements of external aid in 1973-1975 were US$222 million, three-quarters of which were grants. Aid from OPEC countries rose from zero in 1972 to 10 percent of the total aid in 1973 and 18 percent in 1975 (US$15 million). Nearly two-thirds of official aid disbursements came from bilateral donors (France, 52 percent; USA, 5 percent; Germany, 4 percent; Canada, 3 percent), the remainder from multilateral sources (FED, 26 percent; UN organizations, 6 percent; IDA, 3 percent.) External aid financed practically all public investments. 11. The massive inflow of foreign aid almost offset the large deficits in the goods and services account of Chad's balance of payments, so that its position in the Operations Account with the Bank of Central African States (BEAC) changed only insignificantly. At the end of March 1976, the foreign exchange position on the Operations Account which reflects the largest part of net foreign reserves was minus CFAF 1.3 billion. 12. Since most foreign aid has so far consisted of grants, public exter- nal debt is still relatively small, totalling US$163 million at the beginning of 1976, of which US$70 million were disbursed. Disbursed IDA credits repre- sented 16 percent of this amount. Debt service was estimated at US$6.3 million or 5 percent of export earnings in 1975. For 1976 projected debt service, on existing debt will be US$9.4 million or 7 percent of export of goods and non factor services; the debt service payments will peak at US$11.1 million or 6.6 percent of export of goods and non factor services in 1978 to decline to its pre-1976 levels after 1980. While this would be manageable in relatior to projected export earnings, the bulk of service payments would have to come from Government revenues. At present Chad has already accumu- lated payments arrears in external debt service of about US$10 million. To cope with this problem Chad earlier this year set up a "Caisse Autonome d'Amortissement," an agency in charge of public debt management whose director reports directly to the Head of State.  -.4- Development Prospects 13. Chad's development potential lies primarily in agriculture. Opportunities for productive employment in the urban areas will remain small. But progress in the rural economy, even assuming political stabil- ity and normal rainfall, will be slow. Recently, the Government announced the discovery of oil in the north-western and southern parts of the coun- try. However, it will take time to assess the size of the deposits and the feasibility of their exploitation. 14. The fiscal situation is a serious obstacle to development, since the Government cannot contribute to the financing of required investments nor finance all recurrent costs of ongoing and new high-priority projects. The military government which took power in April 1975 is aware of the need to re-examine current spending priorities. The narrow tax base and the rising cost of maintaining even the present level of public services make it unlikely, however, that budgetary savings can be generated during the rest of the 1970s. In view of this constraint, Chad's poverty and its modest growth prospects, external funds should be provided on the most concessionary terms possible. Moreover, in the next few years foreign aid agencies should consider financing a high proportion of total project costs, including whenever feasible some recurrent costs. PART II - BANK GROUP OPERATIONS IN CHAD 15. Past and future Bank Group lending to Chad focus on agriculture (including livestock) and transportation, as well as on the development of the country's human resources. To date the Bank Group has extended nine credits to Chad totalling US$37.2 million. 1/ Five of these credits were for agriculture (including livestock), two for highway maintenance and im- provement, and two for education. Five of the eight projects are either completed or near completion; the others are progressing satisfactorily. Delays have occurred in project implementation mainly due to lack of coun- terpart funds but also because of design problems and late signing of con- sultants contracts. Annex II contains a summary statement of IDA credits as of October 31, 1976, and notes on the execution of ongoing projects. 16. In agriculture our main objectives are to help the Government assure a sufficient food supply for a growing urban as well as the predo- minantly rural population and to protect Chad's production base against the vagaries of climate. In rainfed agriculture, past IDA lending has been designed to raise rural productivity mainly through the provision of infrastructure, equipment and storage facilities while in the Sahelian zone 1/ Includes supplementary financing of US$0.9 million approved in August 1973 for the two education projects; and US$8.0 million supplementary credit approved in August 1976 for the Sategui-Deressia irrigation project (not effective).  IDA is contributtng to the expansion of the livestock lndustry through the rehabilitation and construction of pastoral wells. In irrigation IDA is assisting in the financing of the Sategui-Deressia and Lake Chad Polders projects which will produce rice, wheat and seed cotton. The proposed proj- ect would continue our efforts in these areas. 17. In transportation, we give priority to road maintenance and to lmprovement of feeder roads and agricultural export routes. The road com- ponent of the proposed project, like our Second Highway Project of 1974, is desLgned to improve feeder roads; a possible third highway project, to be appraised this fiscal year, would serve to improve and maintain the cotton export routes. We are also considering projects in Chad which will improve its transport links with the sea, although much of the Lmprovement will come from transport lnvestments in the coastal countries. 18. Two education projects financed by IDA in 1968 and 1971 assisted the Government in training teachers, agriculturalists and technicians - the most needed skills in the economy. In cooperation with two U.N. agencies, we are currently preparing a third project to improve mainly primary educa- tion facilities in rural areas. Chad's severe financial and man-power con- straints limit educatLon investment opportunittes and necessitate special arrangements for counterpart funds, technLcal assistance and recurrent costs. PART III - THE RURAL SECTOR 19. The rural sector contributes about 55 percent to GDP and about 90 percent to exports, of which cotton, livestock and animal products, and fish are the main commoditLes. Chad is normally self-sufficient Ln coarse grains but imports of 30,000 tons/year were necessary during the 1972-1974 drought. The only agricultural products imported in any volume Ln "normal" years are wheat and sugar. Production 20. Rainfed crop production, which ls concentrated in the south and which becomes more precarlous towards the north of the country, is based on family farms cultivating 2-3 ha. While subsistence food crops such as millet, sorghum, and legumes are given first priority by farmers at plant- ing time, there is a continuing expansion of cash crop production, predomi- nantly cotton. Cotton production has increased from about 100,000 tons/ year in the mid-1960s through 1973/1974 to the record 175,000 tons in 1975/1976, mainly as a result of the productivity program financed with FAC and FED assistance. The program provides effective extension and Lnput distribution services and, lin 1975, reached over 40 percent of all cotton farms. On these, yields were more than twice those obtained with- out improved inputs. Chad lis now the leading cotton exporter Ln West Africa.  - 6 - 21. Irrigated crop production is relatively insignificant though the potentially irrigable area is great. About 50,000 ha of paddy and wheat are grown on land subject to uncontrolled flooding; only about 1,000 ha have been equipped for controlled irrigation. Current paddy production is about 40,000 tons/year and wheat production is about 7,000 tons/year; in sum, this represents only about 7 percent of rainfed foodgrain produc- tion in a normal year. Pilot irrigation schemes are being promoted by Government, with IDA and other foreign assistance. The Sategui-Deressia Project (Credit 489-CD) and the Lake Chad Polders Project (Credit 592-CD) will increase the area equipped for irrigation by about 6,000 ha, and pro- duction of paddy and wheat would thereby increase by about 15,000 tons/year. 22. Livestock becomes the mainstay of the rural economy towards the central Sahelian zone where milk is a major item of the subsistence diet. Prior to the drought, the national herd consisted of about 4.5 million cattle, 5 million sheep and goats, and over 1 million transport animals. It is estimated that the 1973 drought has caused severe losses of about 30 percent in cattle and 20 percent in sheep. A livestock census under FED auspices has just been completed and will provide a clearer picture of this subsector. Biological limits to herd reconstitution imply that pre-drought production levels of meat and milk will not be reached until at least the mid-1980s. Price Policy 23. Almost all prices in Chad are determined by demand and supply despite Government's attempts to intervene. When livestock prices began to rise very sharply immediately after the drought, Government fixed max- imum producer prices. In practice, however, livestock producer prices con- tinue to be determined by markets in north-eastern Nigeria, which are the main outlets for slaughterstock. Government is aware that its official price policy is unrealistic and is reviewing it. Maximum producer prices for the main crops announced in mid-1975 have been similarly ineffective. The only producer price which Government can and dces control is cotton. The only major subsidy program is for fertilizer and insecticide and asso- ciated distribution costs for cotton. Because of export taxes and the oper- ation of the price stabilization fund, however, the net effect in most years is a transfer from producers to the public sector. The net incentive to producers is nonetheless attractive. Institutions 24. The Ministry of Agricultural and Pastoral Development is responsible for the agricultural sector. Ministries generally lack budgetary resources and trained manpower. In contrast, there are numerous specialized and rela- tively autonomous government agencies which usually have benefitted from foreign technical and financial assistance and are better staffed than the ministries. Their performance has, however, been mixed.  7- Rural Sector Strategy 25. Rainfed crops have the best development prospects in the agricultural sector; most of the present production comes from dryland farming and there [s much unexploited potential. Governnent's objectives for many years have been to promote cotton and, to a much smaller extent, groundnuts. SLnce much of the dryland farming area is drought-prone, however, Government is rightly anxious to protect the country against food shortages in future drought years. The irrigation potential in Chad is probably In excess of 200,000 ha, and Government wishes to make fuller use of it, in order to diversify crop produc- tion, to provide some insurance against drought and partly, too, to start developing a high technology agriculture. While investing in two medlum size schemes, Government is also keen to promote smaller, simpler schemes In which the beneficiaries could more readily participate. In the livestock sector, Governnent's traditional emphasis has been on animal health services and stock watering, and marketing facilities for increased herd build-up and higher offtake rates. This policy is now fully justified; after the drought, the reconstitution of the herd is the immediate task. Large and sustainable Lncreases in output, however, can only be achleved by grazing control and [mproved husbandry. At the same time, Government recognizes the potential of livestock in association with crops in the south, and tntends to promote further the introduction of work oxen into smallholdings. 26. The limited capacity of the planning and executing agencies hin- ders the implementation of Government's generally sound policies for the rural sector. Moreover, plans to provide better public services to the rural sector will continue to be largely frustrated by meager revenues. Some improvement can nonetheless be achieved by increased efforts to ob- tain payment from direct beneficiaries of these limited services, partic- ularly village and pastoral wells. Government recognizes the difficulty of recoverirg costs for services that have been provided free in the past (i.e. village water supply), even if only to a limited number of people, but is now determined to achieve a far greater degree of cost recovery from beneficiarles for specific services rendered. 27. With its numerous worthwhile lnvestment components in rainfed agriculture, in the livestock sector, in small-scale irrigation and rural services the proposed project fits well in the rural sector strategy. The Fund Management Unit and the internationally recruited key staff would strengthen Government's ability to implement the relatively simple and easily-replicated project components and to prepare new small rural proj- ects. Thereby it could become a catalyst for a more effective flow of funds into the rural sector.  PART IV - THE PROJECT Background 28. The Government of Chad has requested IDA assistance to set up a Rural Projects Fund which would finance seven small-scale rural sub- projects. The project was identifLed by RMWA ln late 1974. An IDA mission appraised the project in November/December 1975. A report entitled "Appraisal of a Rural Projects Fund - Chad" No. 1194-CD dated October 27, 1976 ls being distributed separately and a Credit and Project Summary ls attached to this report as Annex III. Negotiations for the proposed credit were held in Washington from August 4 to August 9, 1976 with a Chadian delegation led by Mr. Kerim Togol, Minister of Economy, Planning and Transport. Project Description 29. The Rural Projects Fund (RPF) is intended as the first three-year phase of a longer term program, and would lnclude finance for the preparation of a second-phase project. The RPF would comprise: (a) the development and initial operation of 42 small-scale pump irrigation perimeters (about 970 ha irrigated) and five service centers along the northern Chari River; (b) the construction of 200 warehouses in the Cotton Zone; (c) the rehabilitation of a pastoral wells network (about 300 lined wells) in the Batha prefecture in the Sahelian zone; (d) the establishment and initial operatlon of a tubewell drilling and open well maintenance unit to serve villages in three prefectures in the Cotton Zone, including the rehabilitation of about 146 lined wells and the installa- tion of about 110 tubewells to be operated by foot pumps; (e) minor structural repairs and spot resurfacing spread over about 1,200 km of feeder roads in the Cotton Zone; (f) buildings and equipment for animal feed production and poultry marketing near NDjamena; (g) land improvements and water control works in bottomlands (about 700 ha) in the Cotton Zone. In addition, the project would finance a Fund Management Unit (FMU), technical assistance, training seminars and consultants' services.  - 9- Project Implementation 30. Government would create FMU in the Ministry of Economy, Planning and Transport (Section 3.02(a) of the draft Development Credit Agreement), consist- ing of a Chadian Fund Manager, an internationally recruited Deputy Fund Manager and supporting staff. The Fund Manager would report to an Interministerial Governing Committee consisting of the Director Generals of the five relevant ministries and the Director of Planning as Secretary (Section 3.03 of the draft Development Credit Agreement). FMU would review detailed subproject work programs, budgets and progress reports, bidding procedures and contracts. It would monitor and evaluate all project-financed activities and would identify and prepare a follow-up project. 31. Subproject implementation would be undertaken by the national rural development board (ONDR) for the small-scale irrigation and warehouses subprojects; the rural water supply agency (SERARHY) for the pastoral wells and village water supply subprojects; the Chad cotton company (COTONTCHAD) for the feeder road subproject; the livestock production improvement center (CMPA) for the animal feed/poultry marketing subproject; and the rural engi- neering department (Genie Rural) and ONDR for the bottomland development subproject. COTONTCHAD and these agencies are among the best organized and staffed in the country. The ONDR, SERARHY and Genie Rural divisions which are directly responsible for subproject implementation would nonetheless need to be strengthened by technical assistance and additional local staff financed under the proposed project. Cost Estimates and Financial Arrangements 32. Project costs for the three-year period beginning October 1976 are estimated at US$13.4 million (net of taxes), with a foreign exchange component of 55 percent. Project costs would include a physical contingency of 9 per- cent of base cost (US$1.0 million) and provision for expected price increases of 21 percent of base cost (US$2.2 million). 33. It is proposed that an IDA credit of US$12.0 million be made to the Government covering 90 percent of project costs. FAC would contribute almost US$1.0 million, or 7 percent of project costs. The FAC contribution would be made available pari passu with the proceeds of the proposed credit and would finance 20 percent of the cost of two subprojects: small-scale irrigation and bottomland development, as well as for the FMU. The remaining project costs estimated at US$0.4 million or about 3 percent of project costs would be contributed by final beneficiaries as onfarm inputs and equipment in the case of the small-scale irrigation subproject and in cash corresponding to 10 percent of tubewell installation costs in the case of the village water supply subproject. Farmers in the small-scale irrigation and bottomland development subprojects would also contribute unpaid voluntary labor valued at about US$0.6 million, which is not included in the project cost estimates. The IDA credit would be channelled through an account to be opened in the name of the FMU at the BDT. FMU would allocate these funds as grants to the agencies charged with sub-project implementation. Since Chad is unable to prefinance project expenditures, IDA would provide a revolving fund, through the FMU account at BDT, of US$0.5 million from the credit account. IDA  - 10 - extended a US$0.5 million project preparation advance to Government on October 11, 1976 to help complete project preparation. Recurrent costs of the small scale irrigation and village water supply subprojects would be recovered from beneficiaries; in the case of pastoral wells the Government would prepare detailed proposals for cost-recovery once ongoing studies are completed. Even if the beneficiaries fail to bear the recurrent costs the Government cash flow would be positive from the third project year onwards. Procurement and Disbursements 34. Procurement of vehicles and equipment (estimated cost US$1.8 mil- lion), building construction (estimated cost US$2.2 million), and materials for force account works (estimated cost US$1.6 million), would be through international competitive bidding in accordance with IDA guidelines in the case of contracts over US$50,000; for building construction contracts, local contractors would receive 7 1/2 percent preference. In the case of contracts of less than US$50,000 but more than US$10,000, procurement would be through competitive bidding in accordance with local procedures acceptable to IDA. For contracts under US$10,000, direct purchasing would be employed. The services of expatriate staff and consultants (estimated cost US$1.6 million) would be obtained following procedures acceptable to IDA. 35. The proceeds of the IDA credit would be disbursed to finance 80 percent of the cost of all items in those subprojects with FAC co-financing, except for on-farm investments in the small-scale irrigation subproject, and 100 percent of the cost of all items in the other subprojects except for oper- ating costs of village water supplies where disbursement would be made to finance 40 percent of costs. Disbursements would cover vehicles and equip- ment (US$1.8 million), buildings construction materials and skilled labor (US$4.0 million), expatriate staff and consultants (US$1.4 million), local staff salaries (US$0.9 million), operating costs (US$0.9 million), operating costs of the village water supplies subproject (US$0.1 million), and work- ing capital for the first year of each new small-scale irrigation perimeter (US$0.2 million), all net of identifiable taxes. Up to US$0.5 million would be used for refinancing the project preparation advance granted by IDA and US$2.2 million would be unallocated. Except for the revolving fund, for which certification of expenditures would be made available after withdrawal from the Credit, disbursements would be made against import documentation, con- tracts and certified records of expenditures. Any remaining undisbursed funds would be made available for new subprojects to be identified and pre- pared by FMU and to be approved by IDA. Economic Benefits, Justification and Risks 36. The major economic benefits of the proposed project would include: cotton, wheat and sorghum production from small-scale irrigation; wet season paddy production from bottomlands; increased meat and milk production from pastoral wells; reduced losses of farm inputs arising from warehouses; the re-opening of feeder roads and unit transport cost savings; and increased throughput and unit cost savings in animal feed production and poultry mar- keting. Cotton lint would be exported, wheat and paddy would substitute for imports, and sorghum would help to meet the growing internal foodgrain de- mand; incremental supplies of slaughter cattle would be exported mainly to  - il - Nigeria, and sheep and goats would be consumed locally. Incremental milk production would be used for subsistence. No marketing problems are antici- pated. 37. The project would also provide important social and institutional benefits. For example, village wells would provide an assured and clean water supply to people who would otherwise depend on small creeks that dry up for several months per year and which may contain waterborne diseases; and the local staff of the executing agencies would acquire on-the-job expe- rience in the implementation of simple, easily-replicated rural works. 38. The number of small farming or pastoral families likely to receive increased incomes under the project would be about 47,000. An additional 26,000 families would benefit from improved village water supplies. In sum, 73,000 families or about 400,000 rural people of whom about half would be Sahelian pastoralists, would receive direct tangible benefits from the proj- ect. The per capita income levels of most project beneficiaries fall within the range of US$55 to 65. 39. The economic rate of return is estimated to be 11 percent for small- scale irrigation, the base cost of which is US$2.5 million; 20 percent for warehouses, the base cost of which is US$2.0 million; 19 percent for pastoral wells, the base cost of which is US$1.1 million; 19 percent for feeder road improvement, the base cost of which is US$1.2 million; and 14 percent for bottomland development, the base cost of which is US$0.6 million. The over- all rate of return of these subprojects, including the overhead cost of the Fund Management Unit, which together account for 78 percent of total project base cost, is 17 percent. This aggregate rate of return excludes the village water supplies and the animal feed and poultry marketing subprojects for which no meaningful rate of return could be estimated because of the predominance of non-quantifiable benefits. 40. The success of four of the seven subprojects depends on key expa- triates; particularly intensive efforts are therefore being made through APMU to recruit good staff. Appointment of such staff would be a condition of dis- bursement (Schedule I paragraph 3 of the draft Development Credit Agreement). Further difficulties could arise from the impossibility of undertaking rural works outside the dry season (November/May), but the risk of delay in initial operations is being reduced by recourse to the project preparation facility. Problems of collection of fees from direct beneficiaries can be anticipated for the pastoral wells and village water supplies subprojects and, although to a lesser extent, for the small-scale irrigation subproject, despite the intended efforts of the Government. Assurances in respect of appropriate fee collection arrangements are included in Sections 3.11 (a), 3.13 (b) and 3.15 of the draft Development Credit Agreement. Since the RPF consists of seven independent subprojects, the failure of one component would not have serious repercussions on the others.  - 12 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 41. The draft Development Credit Agreement between the Republic of Chad and the Association, the Report of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement and the text of a draft resolution approving the proposed Credit are being distributed to the Executive Directors separately. 42. Features of the draft Development Credit Agreement of special interest are referred to in paragraphs 30 and 40 of this Report. Additional conditions of effectiveness provided for in Section 6.01 of the draft Devel- opment Credit Agreement include creation of the Fund Man