Ecuador - Milagro Irrigation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4251 PROJECT PERFORMANCE AUDIT REPORT ECUADOR MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) December 30, 1982 FILE COPY Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performiance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1.00 - Sucres 25 Sucres (s/)1 = US$0.04 ACRONYMS APU - Agriculture Production Unit Unidad de Produccion Agricola BNF - National Development Bank Banco Nacional de Fomento FECOMPAM - Federation of Agricultural and Marketing Cooperatives Federacion de Cooperativas Agropecuarias y de Mercado IERAC - Institute for Agrarian Reform and Colonization Instituto Ecuatoriano de Reforma Agraria y Colonizacion INERHI - Ecuadoran Institute for Hydraulic Resources Instituto Ecuatoriano de Recursos Hidraulicos INIAP - National Agricultural Research Institute Instituto Nacional de Investigaciones Agropecuarias MAG - Ministry of Agriculture and Livestock Ministerio de Agricultura y Ganaderia MF - Ministry of Finance Ministerio de Finanzas Fiscal Year January 1 to December 31 Credit Time Table Board Presentation July 5, 1973 Development Credit Agreement Signed August 17, 1973 Effectiveness Date January 17, 1974 Closing Date December 31, 1980 FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ECUADOR MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) TABLE OF CONTENTS Page No. Preface ............................................................ 1 Basic Data Sheet ...................................................... ii Highlights ............................................................ iii PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY .................................................. 1 II. MAIN ISSUES ................................. ....3...... 3 Annex 1: Comments from INERHI ........................ ........... 11 Annex 2: Comments from Ministry of Agriculture and Livestock ...... 17 PROJECT COMPLETION REPORT I. Background .................................................. 21 II. Project Formulation ......................................... 21 III. Implementation .............................................. 23 IV. Financial and Economic Impact ............................... 31 V. Institutional Performance .................................... 32 VI. IDA Performance ............................................. 33 VII. Recommendations and Conclusions ............................. 35 Tables: Table 1 - Key Indicators ............................................. 37 Table 2 - Civil Works Activities ..................................... 38 Table 3 - Land Holdings .............................................. 39 Table 4 - Equipment Purchases ........................................ 40 Table 5 - Estimated Project Cost and Financing ...................... 41 Table 6 - Total Disbursements ........................................ 42 Table 7 - Cropping Patterns ....................................... ....43 Table 8 - Crop Yield Estimates ....................................... 44 Table 9 - Value of Production ...................................... 45 Table 10 - Cost and Benefit Streams ................................ 46 Map IBRD 10278R 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 PERFORMANCE AUDIT REPORT ECUADOR MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) PREFACE This is a performance audit of the Milagro Irrigation Project in Ecuador, for which Credit 425-EC was approved in July 1973 in the sum of US$5.5 million. A final disbursement of this credit was made on July 20, 1978, and the remaining balance of about US$1.1 million was cancelled on March 4, 1981. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department and a Project Completion Report dated May 28, 1982. The PCR was prepared by the Latin America and The Carribean Regional Office on the basis of a country visit in November 1981. The audit memorandum is based on a review of the Appraisal Report (No. 113a-EC) dated June 6, 1973, the President's Report (No. P-1241a-EC) of June 22, 1973, the Credit Agreement dated August 17, 1973 and the PCR; correspondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files have also been consulted, and Bank staff associated with the project have been interviewed. An OED mission visited Ecuador in August/September 1982. The mission held discussions with officials of the Ecuadorian Institute for Hydraulic Resources - Instituto Ecuatoriano de Recursos Hidraulicos (INERHI). A field trip to visit the project area and participating farmers was under- taken. The information obtained during that mission was used to test the validity of the conclusions of the PCR and permitted discussion of the Bank-s handling of the Credit, aspects of farmers' reluctance to make use of irriga- tion facilities, and machinery pool-related issues. The draft report was sent to the Government on October 21, 1982 for comments. Comments received from INERHI and the Ministry of Agriculture and Livestock have been incorporated or appropriately footnoted and are attached as Annexes 1 and 2 to the PPAM. The audit finds the PCR comprehensive and accurate with respect to the project's principal achievements and shortcomings. The points discussed by the audit mission have been selected because of their importance to this as well as other Bank assisted projects. The valuable assistance provided by the Government of Ecuador, INERHI and their staff as well as the farmers met during the preparation of this report is gratefully acknowledged. 4 - 1i - PROJECT PERFORMANCE AUDIT REPORT ECUADOR - MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Actual as % of/a Item Estimate Estimated Actual Appraisal Estimate Total Project Costs (US$ million) 10.2 15.0o 147% Credit Amount (US$ million) 5.5 4.4 - Date Board Approval - 07/05/73 - Date Effectiveness 11/17/74 01/17/74 - Date Physical Components Completed 12/31/78 12/31/83L - Proportion then completed (%) 100% 45% 45% Closing Date 8/31/79 12/31/80 - Economic Rate of Return (%) 16% 2.5% Number of Direct Beneficiaries (1980) 825 families - CUMULATIVE DISBURSEMENTS FY73 FY74 FY75 FY76 FY77 FY78 Appraisal estimate (US$ million) 0.60 2.71 3.55 4.29 4.92 5.50 Actual (US$ million) 0.10 0.30 3.80 4.20 4.40 4.40 Actual as % of estimate 17 11 107 98 89 80 Date of final disbursement June 1978 MISSION DATA Date No. of Mandays Specializations Performance Types of Mission (mo./Yr.) Persons in Field Represented/b Rating Trend/d Problems/e Identification 2/68 1 3 - - - - Preparation 2/72 3 60 - - - - Appraisal 10/72 3 45 - - - - Supervision 1 5/74 2 16 a,b - 3 T Supervision 2 3/75 1 10 b - 2 T Supervision 3 8/76 1 20 b - 2 M,T Supervision 4 1/77 2 28 a,b - 2 M,T Supervision 5 7/77 3 42/c b,c,d - 3 M,T Supervision 6 2/78 1 14L a - 3 M,T Supervision 7 5/78 1 5k a - 2 M,T Supervision 8 6/78 1 5L a -- Supervision 9 12/78 3 24/c a,b,c - 1 M,T Supervision 10 5/79 3 15L b,c - I M,T Supervision 11 10/79 2 6 b - 1 M,T,P Supervision 12 11/80 2 22/1c a,b - - - Total 316 OTHER PROJECT DATA Borrower Republic of Ecuador Executing Agency Instituto Ecuatoriano de Recursos Hidraulicos Fiscal Year January 1 - December 31 Name of Currency (abbreviation) Sucres Currency Exchange Rate: Appraisal Year Average US$ 1.00 = S/.25 Intervening Years Average US$ 1.00 = S/.25 Completion Year Average US$ 1.00 = S/.25 Follow-on Project: Name Milagro II (Banco de Arenal) Loan/Credit Number Loan/Credit Amount (US$ million) - Date Board Approval /a Estimate as of Credit Closing date of December 31, 1980. Physical works are still ongoing. a = agriculturalist; b = engineer; c = economist; d = rural development specialist. /c Mission combined also other activities. /d 1 = improving; 2 = stationary; and 3 = deteriorating. /e F = financial; M = managerial; T - technical; P = political.  - iii - PROJECT PERFORMANCE AUDIT REPORT ECUADOR MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) HIGHLIGHTS The project was designed to provide irrigation and drainage systems, service roads, on-farm development, extension, agricultural credit and market- ing services for about 850 farmers with about 7,000 ha in the Milagro area, a zone of relatively high rainfall interrupted by extended dry periods. It also assisted in the construction of buildings serving the project administration and allocated funds for consulting services and a feasibility study for a follow-on project (Banco de Arena). Project objectives were to initiate development of the land and water resources of the Guayas river basin, an area which has a strong poten- tial for agricultural development. It was expected that production of rice, maize, oilseeds, cotton and tobacco would meet the urgent need to increase food production and crops for import substitution. Irrigation for these crops would permit introduction of higher cropping intensities by offsetting the effects of the area's pronounced dry season. The main project objectives were not achieved. While construction of civil works was started as early as 1974 and primary and secondary canals almost completed by 1977, it was found belatedly that farmers, insecure of their land tenency, resisted to a realignment of boundaries, construction of tertiary canals and on-farm land development. In the end, only 45% of the physical targets have been accomplished and the net incremental irrigated area is only about 1,900 ha. The economic rate of return estimated at appraisal to be 16% has been recalculated at 2.5%. Other points of interest are: - the project concept of replacing high value crops (coffee, cocoa, bananas, etc.) by annual low value crops (rice, groundnuts, cotton, etc.) was unrealistic since it offered no comparative advantages to the farmers (PPAM, paras. 12-16; PCR, para. 3.02(b)); - underestimation of pre-project production led to insufficient allo- cation of funds for compensation, and has contributed to INERHI-s reluctance to introduce the planned compensation scheme. Politi- cal considerations would also preclude any compensatory steps which could not be extended to all project participants (PPAM, paras.17-18; PCR, para. 3.02(c)); - the approval of procuring all agricultural equipment at an early stage irrespective of actual farm development led to the purchase of machinery which could never be used (PPAM, paras. 24-25; PCR, paras. 3.04-3.05).; - iv - - although machinery pools proved once more to be financially not justifiable, the Bank accepted the idea to permit land preparation/ cultivation of non-mechanized farms, but did not actively promote any schemes that would have permitted replacement of the pool (PPAM, paras. 22-23; PCR, para. 3.17); - the abrupt cancellation of the remaining credit balance of US$1 million caused unnecessary ill feelings on the part of the Borrower, who complains that the Bank's high level staff deciding the issue had never visited the project (PPAM, paras. 26-27; PCR, para. 3.17). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM ECUADOR MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) I. SUMMARY.1 1. At appraisal, the Milagro Project was the first Bank Group (IDA) irrigation project in Ecuador and was considered part of a comprehensive development plan for the Guayas river basin in the coastal region. The key objective was to develop an area of about 7,000 ha under irrigation, bene- fitting some 825 farm families, with associated infrastructure and services estimated to cost about US$10.2 million, of which the IDA credit covered US$5.5 million. About 70% of IDA funds (US$3.8 million) were earmarked at appraisal for equipment and materials. The key implementing agency, the Ecuadorian Institute for Hydraulic Resources (INERHI), had at that time no experience in agricultural development projects ut was involved primarily in the construction of canals, drains and roads.2 Consequently, a series of implementation agreements allowing participation of several key Government agencies were included to overcome this deficiency. The IDA credit became effective in January 1974 and was closed on December 31, 1980, after one extension from the original Closing Date of July 31, 1979. 2. By the Closing Date of December 31, 1980, about US$4.4 million of the total IDA credit of US$5.5 million had been disbursed; the remaining amount was cancelled. While the project showed good results until 1977 under the physical infrastructure component, the overall agricultural develop- ment objective was not fully met. Construction of headworks and main canals had reached about 8.8 km (80% of appraisal estimates); primary, secondary and tertiary canals totalled about 114 km (40% of appraisal estimates); drainage construction had reached about 123 km (36% of appraisal estimates); titles had been granted to 627 farms (76% of total); research, extension and agricultural credit services were extremely weak. Furthermore, the cropping pattern had changed little since appraisal and the net incremental irrigated area was only about 1,867 ha (27% of the appraisal estimates). 3. Development in the project area was perceived, during appraisal, to pivot on irrigation as a means to increase productivity and diversify agri- culture. Support services, mainly extension and credit, were planned to be provided by pertinent agencies. With these services, coupled with irrigation development, the project assumed that farmers would participate actively in the development program. Consequently, from the outset, the project design contained a number of high risk elements: (a) the basic assumption that, with irrigation, farmers would readily switch from an established rainfed farming 1/ Adapted from the PCR. 2/ INERHI states in its comments that it had acquired experience prior to this project by executing the IDB financed Montufar project between 1970 to 1976. -2- system, based on mixed tree crops (cocoa, bananas, coffee), to irrigation agriculture, based principally on annual crops (mainly cereals and pulses); (b) farmers, who had just received land from the Agrarian Reform Institute, would be required to accept extensive realignment of boundaries and land levelling to ensure an efficient gravity irrigation network; (c) responsibil- ity for providing key technical support services was covered under implemen- tation agreements with public agencies whose experience and effectiveness were limited; and (d) INERHI, the executing agency, had limited experience and capabilities for implementing the agricultural development program. 4. Although disbursements were slightly ahead of schedule by 1977 (about US$4.0 million or 73% of total) due to good progress in constructing the primary canal system and quick procurement of machinery and equipment, the major project objective to change cropping patterns and raise cropping intensity soon fell victim to several constraints, many of which were inter- related. First, land titling progressed extremely slowly,.'I and appraisal estimates that 80% of the 852 farmers in the area held title to their land proved inaccurate (20% now appears more likely).1 Second, the compensation program was never implemented. Third, prices for perennial crops such as cocoa, bananas and coffee rose dramatically in the mid-1970s compared to cereals and pulses, which made the task of convincing farmers to abandon their traditional practices in favor of a relatively untested system extremely difficult. Fourth, little credit was provided because few titles were avail- able as security. Fifth, the system of implementation agreements failed, and there was a breakdown in domino fashion of land titling, extension ser- vices, credit and on-farm irrigation works. Finally, the combination of insufficient technical assistance and local inexperience with irrigatio technology resulted in farmer resistance to the proposed cropping patterns. This in turn prevented INERHI from carrying out construction of tertiary canals, without which the program of on-farm development works could not be effectively implemented. 5. In 1978, as it became apparent that the project could no longer achieve its goals, IDA requested that a revised Agricultural Development Plan (ADP) be prepared in order to achieve the desired objectives. The ADP, which was prepared by consultants provided under Spanish Bilateral Aid, took almost two years to complete. It was officially sent to IDA in early 1980, and it proposed an incremental investment of US$58.0 million; US$53.0 million of which was to be for agricultural credit based on the assumption that farmers would retain their initial cropping patterns (mainly coffee, cocoa and 1/ The Legal Department refers to memos dated December 11, 1972 and March 20, 1973 in which it expressed its concern and, unsuccessfully, proposed to make delivery of titles a condition of credit effectiveness. 2/ INERHI states that it focused on areas of 10,300 ha with more than 20% of the farmers having titles. Furthermore, all farmers have now titles to their land. 3/ INERHI points to the fact that irrigation trials with FAO assistance had been carried out in the Banco de Arena sector. However, this area was not part of the project. - 3 - bananas) but with irrigation. Since the climatic conditions in the area suggested that coffee and cocoa would not require incremental irrigation, the economic soundness of this proposal was never proven. As a result, after protracted discussions with INERHI, IDA decided not to participate in the program. By this time, the original Closing Date of July 31, 1979 had already been revised to December 31, 1980, and INERHI proposed that the undisbursed funds be used to procure machinery and equipment for its national pool. This latter suggestion was rejected by IDA because there appeared to be no clearcut justification and since IDA felt that it would not lead the project any closer to achieving increased agricultural production. 6. In the context of machinery and equipment procured under the project (US$3.8 million), it is important to note certain major problems. Although the appraisal described an irrigation development scheme which aimed to increase and diversify agricultural production in the Milagro area, INERHI also saw the project as a means of increasing its national machinery pool, as evidenced by the transfer of equipment outside the project area when immediate utilization in Milagro was not forthcoming. Although this relocation consti- tuted proper management of resources from INERHI's point of view, the decision was made unilaterally without IDA consultation. In addition, procurement procedures were less than satisfactory. INERHI purchased almost the entire equipment list outlined at appraisal during the first two years of project implementation, albeit with IDA approval; this was done although it was apparent that farm machinery would not be required for some time in the project area. As a result, the purchase of certain pieces of equipment (e.g. 15 peanut harvesters and 3 large land planes) was totally inappropriate, based on actual needs. 7. In recent years (1977-80), IDA had allowed the credit to remain open primarily to ensure completion of the ADP (which was being financed by bila- teral aid) in the hope that this would lead to a series of measures by which the project could be completed and the US$1.1 million credit balance could be disbursed. This did not materialize, although the credit was extended for one more year, until December 1980. 8. In conclusion, the project failed to achieve its objectives because: (a) the wrong conceptual approach was used wherein irrigation water was seen as the essential and indispensable input rather than credit and extension; (b) measures to rectify the institutional weaknesses of participating agencies were ineffective; and (c) it was incorrect to assume that a well-established, low input, rainfed, farming system could be changed for one that called for high input, irrigated cropping in an area of extremely diverse small farm holdings which did not easily lend themselves to conversion to an extensive gravity irrigation network. II. MAIN ISSUES A. General 9. Judged strictly on the basis of the economic rate of return, the project could be termed a failure. However, there are several aspects which support different views. One is that the project served as a pilot under- taking, highlighting problems and providing experience for the future develop- ment of irrigation in Ecuador. Another is the institution building aspect, which, although of relatively recent date according to the Region, shows tangible results in transforming INERHI from an exclusively engineering organization into a much broader agricultural development agency. Finally, development is still continuing, with more farmers making use of available irrigation facilities and further expanding the production of high value crops.11 10. The audit finds that the Bank has to take a considerable share of the responsibility for the disappointing project outcome to date, because of shortcomings during appraisal and questionable procurement decisions.2 Con- tacts with the Borrower during the project's final phase were handled poorly and have led to creating unwarranted ill feelings vis a vis the Bank. 11. The Region recognizes that the project taught a number of valid lessons and some constraints becoming apparent during project implementation will no longer be repeated. Provisions are now made in other projects for the: (i) direct financing of extension and credit; (ii) more careful studies of farmers- views, choice of farming systems before proposing radical changes; (iii) proper balance between infrastructural and agricultural development to be defined at appraisal; (iv) careful evaluation of participating agencies; and (v) establishment of monitoring and evaluation systems as an integral part of the project. B. Appraisal Omissions 12. The project area is located in a zone with relatively high annual rainfall (1500 mm), albeit with a pronounced dry season from December to May and a relatively high ground water table (3 - 5 m). Due to the rela- tively extended dry season, but helped by the high ground water table, farmers had established a farming system relying heavily on tree crops, especially cocoa, coffee and bananas. 13. These crops were grown on a fairly extensive basis, i.e. without fertilizers and pest control. Annual crops were cultivated almost exclusively for subsistence, since hardly any farms, even farms in the 20 to 50 ha range, had any draft animals or tractors to permit cultivation of larger tracts of 1/ This project should be a natural choice for an Impact Evaluation Study around 1986/87. 2/ The PCR (para. 3.05) specifically draws attention to such weaknesses during appraisal and procurement, and the Region finds that the Bank did try to improve agricultural development by persuading INERHI to hire consultants for the preparation of agricultural development plans. In addition, the Region points out that supervision missions focused on speeding up of titling procedures, getting GOE to make more technical assistance and credit available to farmers, pay compensation for land used for canal construction, etc. However, in the audit's view, the Bank provided insufficient advice in selecting appropriate agricultural machinery and did not provide guidance in the eventually necessary replacement of the agricultural machinery pool. - 5 - land. In other words, a farming system existed which relied on high value perennial crops to generate farm incomes and low value annual crops for subsistence. Yields of the perennial crops, according to available statistics, reached 800 kg/ha for coffee, 600 kg/ha for cocoa, and 12.5 t/ha for bananas. In monetary terms, gross incomes per ha amounted to about US$700 for coffee, US$300 for cocoa and US$500 for bananas in 1972, the year the project was appraised. Taking into consideration that there were no other inputs used than family labor, the net value was almost identical with the gross value.1/ 14. Assuming an average net cash income of US$500/ha to account for the crop mix on small farms, a 3.4 ha farm, the model used in the appraisal report, would have then yielded US$850 from 1.7 ha perennial crops plus its subsistence needs as compared to about US$1200 after the project but including subsistence. This, on first sight, favorable financial return, however, is based on the rather optimistic assumption of yields reaching 30 t/ha of bananas, 4 t/ha rice and 2.5 t/ha groundnuts. Reducing the appraisal yields to a more realistic level of say 24 t/ha bananas, 3 t/ha rice and 2 t/ha groundnuts, the returns for the 3.4 ha project farm model would have been reduced to US$830 or below existing income levels.2/ 15. What was never done at appraisal was a thorough analysis of the existing production system, its shortcomings or possibilities for improving or changing it. No experiments had been carried out or were encouraged to determine the response of cocoa and coffee to irrigation, although this is being successfully done in other parts of the world under similar ecological conditions.3/ 16. There were several critical voices raised in the years preceding appraisal, pointing to unresolved issues due to existing cropping patterns and questioning the success of introducing low value crops. As project experience shows, these reservations were justified, and it is not clear why the Bank disregarded them. It is difficult to understand why more credence was given to an approach recommending substitution of high value by low value crops than to accept the eventually needed replacement of low value crops on small farms. 47 While it is clear that improving production of "simple" annual crops like grains, oil seeds, leguminous crops, etc., is a natural first step in the development process of small farms, it would be shortsighted to think that one could thereby conclude the "development process". Farm incomes on small farms in LDCs relying on traditional cropping systems would have - at full development using modern husbandry techniques and inputs - a secure 1/ The appraisal costed only the additional labor (both family and hired) at current wage rates. 2/ The Region insists that assumed appraisal yields could be easily obtained under prevailing conditions. 3/ See, for instance, Malawi, Shire Valley; Kenya, Group Farm Rehabili- tation. 4/ The Region states that based on appraisal assumptions it was concluded that farm incomes could be significantly improved. subsistence basis but cash incomes substantially below urban wage earners or people in more advanced countries. Specialization in high value crops or livestock would seem to be a solution in the medium-term until the time comes when industrial development can absorb increased numbers of the rural popula- tion. By concentrating on relieving rural poverty and improving the lot of small farmers in the shortest possible time, staff must not lose perspective of what needs to be done for small farmers after the initial development phase. A return from high to low value crops as conceived in this project would be counterproductive. 17. There was another implication from the underestimation of pre- project production. The appraisal correctly established the need to compen- sate farmers for the loss of production resulting from canal/drain construc- tion, land clearing and levelling. However, this estimated requirement was based on a pre-project return of only US$60/ha, an amount, as mentioned above, far below actual incomes and becoming even more insufficient because of booming prices for coffee, cocoa, and bananas during the early years of project implementation. CURRENT PRICE DEVELOPMENT/a US4 per kg US$ per t. Coffee Cocoa Bananas 1972 99 64 161 1973 110 113 165 1974 129 156 184 1975 134 125 247 1976 281 205 257 1977 492 379 275 1978 325 340 287 1979 365 329 326 /a Source: IBRD, Commodity Reports. 18. Confronted with the large discrepancy between actual and estimated incomes aggravated by commodity price increases, a compensation effort was never made, and this also contributed to the farmers- reluctance to partici- pate, allow realignment of boundaries, or construct tertiary canals and drainage facilities on their land.1/ 1/ The Region adds that INERHI did not even make compensation payments for right-of-way to construct the main and secondary canals, which would only have been needed for a small part of the farming population. A require- ment to do so existed under the Ecuadorian Water Law. The audit points out that compensation fund was in fact established but did not work for reasons indicated above and those mentioned in PCR para. 3.02(c). - 7 - 19. In discussing project aspects prior to appraisal, the issue of water legislation was raised in the context of forcing farmers to use irrigation water once it would become available. However, this point was never pursued during appraisal or thereafter. The audit mission was informed that Ecuador was still without water legislation which would compel farmers to participate in an irrigation scheme. Absence of this legislation also had implications in regard to establishing the right of way of tertiary canals and this also resulted in farmers opposing irrigation development blocking water distribu- tion to interested neighbors.1/ C. The Machinery Aspects 20. The appraisal estimated total cost of construction, maintenance and agricultural machinery to reach US$3.82 million and allocated US$3.8 million for the purchase of equipment, vehicles, materials and supplies (financing 100% of foreign expenditures or 80% of local expenditures, Credit Agreement, Schedule I). Due to the project design, it was obvious that farmers would require mechanized land preparation, as well as cultivation and harvesting equipment to cope with the envisaged expansion of annual crops, and US$0.44 million were estimated to be required for the purchase of agricultural machinery. 21. With almost no agricultural machinery available in the project area to perform contract services, the appraisal accepted INERHI's proposal to assist farmers through an agricultural machinery pool. Recognizing the past experience with agricultural machinery pools in other countries, the apprais- al did not anticipate a self-supporting service, but indicated only the need for "Rental rates....at a level which would be economically acceptable to the farmers."2/ 22. A Government/INERHI subsidized machinery pool was accepted under the project; on the other hand, the Bank engaged in protracted negotiations in order to obtain agreement on irrigation charges that would recover project investment costs. At present, INERHI is charging about US$30/ha for plowing 1/ The Region maintains that a water law authorizing INERHI to expropriate land for canal construction exists. In its discussions with the audit mission, however, INERHI officials claimed the Law did not apply to tertiary canals. The Legal Department points to the December 11, 1972 memo expressing its concern at that time: "Much of the execution of the project hinges on INERHI's ability to build and operate an irrigation scheme efficiently. The Bank is assuming that INERHI has enough powers to do so. A good deal of such powers, though, would flow from regula- tions to the Water Act, which are still in draft form. I think that the Bank should make an early decision as to whether the enactment of such regulations should be a condition of the proposed loan." 2/ SAR, page 21, para. 5.12. - g - which, according to its calculations, is sufficient to break even. However, in the audit's view, this calculation is misleading since it is based on tractor prices no longer obtainable, and if tractor and machinery depreciation were based on actual replacement values, incurred deficits would become apparent. 23. While the audit recognizes the need to provide mechanized services due to the project concept, it notes insufficient attention by Bank staff on how to resolve farm mechanization after the project-s initial development period. Inadequate attention was given to explore possibilities of economic on-farm mechanization, setting up contractor services, or establishing machin- ery rings/associations. This points to a deficiency in the Bank's technical assistance function in a crucial aspect of project implementation.l/ 24. The appraisal had anticipated a staggered supply of agricultural machinery, very much in line with the progress of irrigation development. Accordingly, 55% of the agricultural machinery needs were expected to be procured in 1975, about 28% in 1976 and the rest in 1977 (SAR, Annex 5, Table 1). In reality, however, tenders for all agricultural machinery were called in 1973 and delivery taken in 1974/75 (PCR, para. 3.04).2/ When the Bank commented on the bidding documents, it actually inquired why bids for some of the agricultural machinery as listed in Annex 7, Table 1 of the SAR were not called for. As a result of the early delivery, most agricultural machinery could not be used in the project area. INERHI then decided, on sound manage- ment grounds, to use the machinery outside the project but without asking IDA-s approval, thus in breach of the Credit/Project Agreements. 25. In addition to the premature purchase of the agricultural machinery, shortcomings in the procurement process have been found by the audit. There is no indication on files that the Bank ever evaluated the decisions made by the Borrower to award the contracts to the qualified lowest bidders. Staff presently assigned to the Divisions responsible for Ecuador have no recollec- tion who approved the contracts or when this took place. One consequence of this omission was the procurement of agricultural tractors of an unproven type from a relatively small and unknown firm which went bankrupt shortly thereafter, making it impossible for INERHI to obtain spare parts. As a consequence, out of 30 tractors procured, only 2 are still operational. 1/ The Region states that expanding irrigation and developing agricultural production was accorded highest priority, while changing to different mechanization approaches was considered only of secondary importance. Furthermore, a full conversion to annual, low-value crops was already in doubt early during the implementation period. 2/ Actually, bids were called for in 1974 and delivery taken in 1975. - 9 - 26. When on-farm development stalled during the last years of the project, about US$1.1 million remained undisbursed. The Borrower, saddled with a problem of providing agricultural machinery services to participating farmers, requested the Bank to use these funds for the purchase of maintenance and agricultural machinery. While the December 1980 supervision mission took a favorable attitude to this request and supported it, Bank management turned it down. In the audit's view, this decision appears questionable, because lack of maintenance - which is already quite apparent with some drainage facilities - would jeopardize the investments made, and agricultural produc- tion is also suffering from lack of machinery.1/ 27. The timing of the Bank-s decision to cancel the credit - after only one extension of the Closing Date - led to considerable ill feelings on the side of the Borrower since it coincided with a letter INERHI had sent to Mr. McNamara, complaining about a lack of continuity in project staff assigned to supervise the project and the apparent reversals of decisions and recommenda- tions made by supervision missions. This view is still maintained by them today and is partly based on the fact that the senior Bank staff who decided on denying the request had never visited INERHI, and/or the project during the final years. INERHI stresses that it made every possible effort to carry out its commitments and that it proved to the Bank, by undertaking certain studies, that some of the conditions stipulated in the Credit Agreement were impracticable. 1/ The Region states that if INERHI's request had been granted, the Bank would have been paying twice for the same type of machinery. This is, in the audit's view, not quite correct, since 50% of the INERHI requested machinery was never financed by the Bank. It included maintenance equipment and spare parts not foreseen at appraisal. The request for financing tractors (30% of the INERHI request) appears also justified since by approving an unsuitable type which could not be used and for which no spare parts were available, the Bank was partly responsible for the resulting difficulties. & s -11 - Annex 1 Page 1 Comments from INERHI December 7, 1982 E-524/83 Spanish (Ecuador) OED OTS:mk Instituto Ecuatoriano de Recursos Hidraulicos (INERHI) Ministry of Agriculture and Livestock Quito 24 - 824732 Quito, November 23, 1982 Mr. Shiv S. Kapur Director, Operations Evaluation Dept. IBRD, Washington, D.C. Re: Project Completion Report Milagro Irrigation Report Dear Mr. Kapur: I would like to make the following comments regarding the evaluation made by the World Bank's Operations Evaluation Department of the Milagro Irrigation Project (Credit 425-EC): 1. The support furnished to the project by INERHI went beyond INERHI's actual responsibilities, since it took charge of measures to strengthen the (see para. 9) agricultural development of the areas benefited, a responsibility that the Credit Agreement assigned to MAG; the Completion Report acknowledges this point in noting that especially from 1979 onward INERHI showed interest in supporting agricultural development (page 5, paragraph 3.06). 2. From November 1970 to June 1976, INERHI, with IDB cofinancing, implemented an Investment Plan for the construction and agricultural (See footnote para. 1) development of the Montufar Project; the experience acquired by the institute in irrigated agriculture projects is considered adequate so the World Bank's statement that INERHI lacked experience at the time the agreement with IDA was signed is inexplicable. - 12 - Annex 1 Page 2 3. INERHI considers that the aims behind the execution of the Milagro Project and which were for a large part those proposed by the World Bank-FA0 identification mission, went beyond what was realistically possible and that although the members of the mission themselves noted the impracticability of realignment of farm boundaries, a drastic change in cropping pattern, establishment of a special compensation fund for the change in crops, payment of charges for irrigation, etc., these were nevertheless included in the Credit Agreement thus requiring INERHI to meet contractual commitments that were impossible for it, particularly in view of the short time allowed for execution of the project. This explains why the project was not conceived in the context of the agro-socioeconomic constraints of the sector. 4. While it is true that prior to the first disbursement, all the interinstitutional agreements for ensuring appropriate participation by other agriculture sector agencies were signed, it was pointed out to the World Bank that notwithstanding the numerous steps taken for implementation of the agreements (MAG-BNF-INIAP), INERHI had to step in and take over responsibility for preparation of two basic and important documents, the "Diagnosis and Reprogramming of the Project" and the "Analytic Study of the Farms included in the Milagro Irrigation Project and the Civil Works carried out for it and Future Project Development Plan." These documents made it possible to draw up a detailed diagnosis of the project's situation and a six-year development plan based on an exhaustive analysis of the production costs and what INERHI, the World Bank, BNF and the beneficiary farmers could do, which INERHI considered to be feasible although its financing cost was apparently high because all operating costs were included. 5. IERAC's participation, although admittedly not as dynamic as might (See footnote have been desired, was of real value in the land titling process, for which para. 4) - 13 - Annex 1 Page 3 INERHI contributed staff and transportation, thereby demonstrating its concern to ensure compliance with this clause. The statement that only 20% of the farmers had titles is erroneous; the fact is that IERAC focused on an area of 10,300 ha, of which 7,000 ha was the target set by the project to be brought under irrigation and concerning which titling has presently been completed. 6. The statement that "local inexperience with irrigation technology (see footnote 3 para. 4) resulted in farmer resistance to the proposed cropping patterns" is not correct. With FAO participation in the Banco de Arena sector, research on crop growing under irrigation has been in progress for more than ten years. For more than five years, and beginning before the start of the Milagro Project, irrigation trials and demonstrations have been carried out on the fard-ers' land, with United Nations Special Fund cofinancing, to encourage the growing of annual crops, use of fertilizer, plant health products, improved seed, etc. So blaming "local inexperience" for there having been no change in the traditional cropping pattern, which includes a high percentage of permanent crops, shows a lack of understanding of the rural context of the project and of the many reasons the farmers had for not doing so, which, as the Bank itself admits, were basically economic and demand-related and did not allow of the proposed switch, something which the World Bank-FA0 mission which identified the project could have deduced. 7. As to the machinery and equipment procured, the following should be noted: - The construction machinery was used in the project as long as it was (see para. 24) needed; its transfer was in line with the need to make intensive use of the machinery pool; INERHI acknowledged in the project reprogramming report under "Adherence to Covenants" that prior Bank authorization was needed for machinery transfer. - 14 - Annex 1 Page 4 - Regarding the agricultural machinery, we consider this was an unfortunate purchase attributable to the World Bank and the INERHI management of the time. The agricultural machinery for the project exceeded the calculated requirements as shown in the feasibility study and unnecessary machinery was procured. Although the decision to do so was made by the INERHI management of the time, the World Bank's responsibility is no less clear as procurement was effected with IDA's prior approval and the lack of understanding of the real requirements of the Milagro Project on the part of those authorizing it was evident. In the reprogramming of the project, the procurement of further agricultural equipment was based on the detailed study of machinery requirements made by INERHI's present management because that procured in 1977 was obsolete; our proposal that the entire farm machinery park be replaced was carefully thought out and with the partial replacement of this machinery INERHI is presently demonstrating that it was well founded. The Bank recognized that the machinery procurement was not the best suited to the country's needs, and that the lack of parts and accessories plus the bankruptcy of the supplier company meant that operation of the machinery could not be economic and uninterrupted despite INERHI's efforts. When INERHI requested new agricultural equipment in 1980, this was because what was bought initially had become obsolete and based on the experience the institute had gained in the organization and servicing of agricultural mechanization. 8. With a view to using approx. US$1 million not disbursed from the credit, INERHI submitted some plans that were analyzed and discussed with Bank staff members in Quito and Milagro and considered feasible. These included installation of elevated canals using pre-cast flumes produced in a workshop - 15 - Annex 1 Page 5 to be set up on site and the purchase of machinery for operation and maintenance and for agricultural development. After protracted discussions (see paras. 6 and 27) these proposals were rejected by senior Bank executives who were not aware of the improvement and operating capacity of INERHI as of 1979; IDA's proposal to put in a piped tertiary sytem is impracticable because there is no pressure due to the flat topography of the project area. 9. The consultancy services referred to in the Agreement were not used, despite the fact that INERHI carried out the international qualification of consultants, because the Government considered the cost too high. Through (See para. 5 and footnote bilateral technical cooperation INERHI received advisory services from one para. 10) Spanish and two Czech engineers on a full-time basis for three years and two years, respectively, and INERHI considered their services efficient and provided for a longer period than that specified in the Agreement for the consultancy services. 10. During the execution of the project the supervision provided by IDA was never to INERHI's satisfaction. As a rule, the technically competent (See para. 26) officials who observed the substantial improvement in INERHI after 1979 never had the decision-making authority and found when back in Washington that the top echelons of the Bank for all practical purposes had long had their minds made up to cancel the project, causing INERHI and Ecuador unsuspected harm. 11. For INERHI, the unilateral cancellation of the Credit by the World Bank was an action incompatible with the treatment due to a member country; (See para. 27) the more so, if it is borne in mind that meetings had been taking place for some time with people from Washington with a view to solving the current problems. It is impossible to understand the position of the senior IDA officers who during the latter years of the project were not aware of its true - 16 - Annex 1 Page 6 situation and significance in Ecuador, and who refused to accept that while there were some problems in organizing irrigated agriculture at the start these were not entirely INERHI's responsibility, and that it was no less true that these problems were for the most part being overcome, with the assistance of Bank staff and of the beneficiaries who, because of the dynamic nature of the change entailed by any irrigation scheme, could not be left on the fringe of the process; evidence of this is provided by the increase in the area under irrigation, the use of improved seed, fertilizers, pesticides, agricultural machinery, credit, etc., which work is being performed by INERHI. 12. Finally, INERHI wishes to go on record to the effect that during the present administrative process it made every possible effort to carry out the (See para. 27) commitment signed by the Ecuadorian Government, to the extent that the actions agreed on were capable of implementation and drawing attention, by means of careful studies sent to the Bank, to the fact that certain of the clauses in the Agreement, as those studies showed, were impracticable. Sincerely yours, /s/ Jacobo Bucaram 0. Executive Director, INERHI cc: Mr. Pedro Pinto Minister of Finance and Public Credit Mr. Carlos Vallejo L. Minister of Agriculture and Livestock - 17 - FORM NO. 788 (1-74) I IANGAGE RVICES DISION CONTROL No. E-5-39/8-i DATE: December 9. 1982 ORIQINAL LANUAE1s Spanish (Ecuador) DEPT, OLD ITRANSLATOP: JCB: law Annex 2 - Comments from Ministry of Agriculture and Livestock Translation of incoming cable RCA DEC 07 1013 248423 WORLDBANK Mr. Shiv S. Kapur Director, OED IBRD Acknowledge receipt PPAR Milagro Irrigation Project, preliminary version satisfactory. Thank you for very useful information on experience gained from execution of this project. Carlos Vallejo Lopez Ministry of Agriculture and Livestock  - 19 - ECUADOR MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) PROJECT COMPLETION REPORT May 28, 1982 Latin America and The Caribbean Regional Office  - 21 - ECUADOR MILAGRO IRRIGATION PROJECT (CREDIT 425-EC) COMPLETION REPORT I. BACKGROUND 1.01 The project area in the Guayas River basin, which at appraisal covered 7,000 ha, is an area of predominantly small holdings (Table 3), hemmed in by two large private sugarcane plantations--San Carlos and Valdez. Farmers had been cultivating their lands previously as tenants and squatters, but were given ownership rights in a period ranging from five to two years before appraisal by the Institute fro Agrarian Reform and Colonization (IERAC), which expropriated the land from four large haciendas. 1.02 Almost all of the project area was cropped; about 1,250 ha were under irrigation (1,000 ha of bananas and 250 ha of rice), with the remainder (5,750 ha) under rainfed conditions. About 3,200 ha of the latter were in "bush gardens"--mixed tree crops of plantain, cocoa, coffee and root crops; 2,000 ha were under sugarcane; and the remaining 550 ha were under annual crops, mostly maize, groundnuts and rice. Most of the farming practices were at a low agricultural level and yields were low: 0.5 to 0.6 ton per ha for the main cash crops, coffee and cacao; 18 tons per ha of bananas; and 50 tons per ha of cane, which was used mainly to produce "panela"--brown sugar loaves which had a low cash value. The project area therefore had good potential for increasing agricultural production. II. PROJECT FORMULATION Identification and Preparation 2.01 The project was based on a consultant feasibility study prepared by Chas T. Main International, Inc. (U.S.A.) in 1965 and formed part of an integrated development program for the Guayas river basin. Thereafter a series of the FAO/IBRD CP missions visited Ecuador between 1968 and 1970 to prepare an irrigation development scheme for the Milagro area, which, in turn, led to a revised feasibility report produced by the Ecuadoran Institute for Hydraulic Resources (INERHI) in 1971. After IDA comment and subsequent INERHI revision of the latter report, CP again visited Ecuador in February-May 1972 to specifically tackle the key constraints raised by IDA namely: adjustment of farm boundaries, design and layout of irrigation and drainage networks, the appropriateness of tertiary canals, details of on-farm development activities, including existing and proposed cropping patterns, and future market conditions for products. This mission produced a final preparation report dated May 1972. - 22 - Appraisal and Board Approval 2.02 The four-man IDA appraisal mission which visited Ecuador in October 1972 basically concurred with the preparation team's findings, except that existing cropping patterns and future equipment needs were modified. The project was the first Bank Group assisted irrigation development in Ecuador, and was considered an important part of the Guayas river basin scheme. The appraisal report passed relatively easily through IDA clearance procedures, and the Board approved the loan on July 5, 1973 without recorded comment. Objectives and Description 2.03 The project was designed, to promote through the introduction of irrigation a shift in the cropping pattern by reducing the "bush garden" area (see para 1.03) and replacing it with double cropping of annuals, mainly rice, maize, soybeans and groundnuts. Key components of the project included: (a) rehabilitation of the main canal and river intake structure; construction of a network of primary, secondary and tertiary canals; on-farm development, consisting of land clearing, levelling, farm ditches and access roads; and buildings for the project administration; (b) establishment of an agricultural production unit (APU) to provide extension, production inputs, machinery services, marketing assistance, transport and drying facilities; (c) provision of a fund to compensate farmers for: (i) rights of way for roads, and irrigation and drainage works; (ii) losses of land due to realignment of farm boundaries; and (iii) crop losses during the period when perennial crops were being cleared and land levelled for irrigated annual crops. (d) a series of implementation agreements with other Government agencies: the Agricultural Ministry (MAG) to provide extension services; the Research Institute (INIAP) to provide research and demonstration plots to the area; The Cooperative Federation (FECOPAM) to transform APU into a farmers cooperative at the end of the project period; IERAC to provide ownership titles (an indispensable condition to enable farmers to obtain investment credit); and the Agrarian Development Bank (BNF) to provide credit to farmers; and (e) consultant services to provide assistance for on-farm development and to prepare a feasibility study for a second-stage project. - 23 - 2.04 The main executing authority was to be INERHI, which was expected to implement the project over a five-year period. The construction work was to be done by local firms contracted by INERHI, with the latter providing the necessary machinery and equipment. This construction machinery, together with the farm machinery, accounted for about (US$3.8 million out of a total IDA Credit of US$5.5 million). The project also included a package to compensate farmers for loss of land and production during the realignment of farm boundaries necessary for the planned irrigation network. Project Cost and Financing 2.05 The estimated total project cost was US$10.2 million, out of which IDA financed US$5.5 million, with Government contributing the remaining funds, about US$4.7 million. IDA financing represented mainly the foreign exchange on equipment and vehicles (US$3.8 million) as well as consultant services (US$1.0 million) and contingencies (US$0.7 million). All of this financing was to go to INERRI; IDA did not participate directly in the financing of any other services required, such as extension, credit, research and land titling, which were to be covered by Government counterpart funds. III. IMPLEMENTATION A. Period 1974-77 3.01 The credit did not become effective until January 17, 1974 because of delays in signing the implementation agreements between INERHI and the other supporting agencies, which were conditions of loan effectiveness. However, INERHI, without delay, started construction of civil works by early 1974, using its own and the contractors' equipment becuase the newly ordered equipment under the project did not arrive until late 1974. Works progressed quickly, and, by February 1977, works on the intake structure as well as on the primary and secondary canals were almost 100% completed, and disbursements were ahead of schedule, starting at at about US$4.0 million (73% of total). Realignment of Farm Boundaries 3.02 By this time, however, a major issue had become the strong and consistent resistance from farmers to agree to a realignment of boundaries, so that construction of tertiaries could be started. This problem was due to a combination of several factors: (a) the farmers' insecurity of land tenure. In fact, contrary to appraisal estimates, only 20% of all farmers had title to the land at appraisal, while the remainder had been given temporary occupation permits ("certificados de posesion"). Moreover, in order to obtain definite titles, notary fees had to be paid and a start made by farmers to IERAC for the land, which few had done; - 24 - (b) the farmers resistance to changing their cropping patterns, caused by their ignorance of using irrigation water; the failure of extension services to advise farmers (see paras 3.06 and 3.07); and the fact that prices for the farmers- main cash crops--coffee and cacao--which were low at preparation/appraisal time had subsequently increased rapidly. In this respect, it is important to note that the "bush garden" cropping pattern is the typical one for small holdings in a wide area of the eastern Guayas basin. (c) although the compensation fund was established, it never worked because of its extremely slow procedures and the absence of a good promotion and communication channel with farmers; also, the minimum width of embankment and burrow earth for tertiaries was estimated at 10 to 15, meters which for many smallholdings would have meant a significant loss of land. 3.03 At the same time, serious problems had arisen with regard to (a) equipment, (b) extension services, (c) progress with land titling,(d) on-farm development and credit; and (e) water charges. To a large extent, these interrelated problems including those cited above, contributed much to the deterioration of the spirit of cooperation between INERHI and IDA, the more so as the latter's repeated requests to solve the problems and expedite project implementation met with only limited response. Equipment 3.04 The entire equipment list specified in the appraisal report was procured through a succession of bids all issued at the same time, late in 1973, and became available mostly through the second half of 1974. It included both heavy construction machinery, operation and maintenance equipment, and agricultural machinery (mostly for land preparation, harvesting of annual crops, and storage and drying facilities). INERHI explained to the completion mission that this equipment was all bought at once and its purchase was not staggered over time as planned for during appraisal because INERHI wanted to reinforce its national machinery pool. The procurement procedure was approved by IDA at the time. 3.05 Several problems were associated with the operation of machinery. First, as many civil works had already been started by contractors (with their own machinery or with existing INERHI equipment), some of the heavy construction machinery was never used in the project area. Second, the 30 tractors that were supplied came from a firm which was not the lowest bidder and does not appear to have been the best qualified in view of tractor quality problems (the entire hydraulic system turned out to be seriously defective) and its capability to provide after-sales service. As a result, only two tractors were still in operation by end 1980. Third, by 1977, INERHI had moved a large part of the project-procured equipment out of the - 25 - project area without prior approval of IDA as required by the Credit Agreement. Only after repeated requests by IDA for justification and for further information did INERHI supply a list of the equipment that was removed, including the areas in which it were being utilized. INERHI's main justification was that all civil works were stopped in the project area because of the farmers' refusal to have the tertiaries completed or to have on-farm development work done; consequently, there was no need for it in the project area. This became an issue again in 1980 when the latter works were resumed on a small scale and INERHI made a request to purchase additional earth moving, land levelling and farm equipment with funds remaining in the credit (para 3.17). A summary of the equipment removed, in value terms, is given in Table 4. Extension Services 3.06 The fact that extension services have been very weak in the project area is because the APU was never staffed and supported to work as envisaged during appraisal. First, the agreement with MAG to provide extension agents was never implemented. Second, INERHI, until 1979, showed little interest in supporting agricultural development, and its Agricultural Department remained weak. Third, the expectation during appraisal that a consultant would be hired to strengthen APU (and for which financing was provided in the Credit) never materialized. Under the circumstances, although APU was set up in January 1975 in line with assurances given during negotiations, its activities were restricted in practice to providing machinery services to farmers. Even these services, however, proved unsatisfactory, mostly because of recurrent repairs necessary to the tractor park, for which maintenance proved inadequate. 3.07 At the crucial early stage of the project, therefore, extension services to farmers were just not available. As the weak Ministry of Agriculture was unable to provide the needed expertise and as INERHI at this stage was mostly interested in construction of works and could provide only limited help in the extension field, contact with farmers was extremely poor. This exacerbated the already existing problem of the farmers refusal to realign their boundaries and introduce a different cropping pattern. Throughout this period, INERHI and IERAC disputed their respective responsibilities in this field, and several attempts to hire an agricultural production specialist for APU, as stipulated in the Credit Agreements, failed because MAG rejected the proposals for reasons of high cost or their foreign origin. It was finally decided that foreign consultants would be hired only for short-term assignments, but in practice, this was done, not according to predetermined requirements, but only when bilateral aid provided them. Consultant funds, available under the Credit for this purpose, have never been used. - 26 - Land Titling 3.08 The absence of legal titles to the land (only 20% of the farmers had such titles at the start of the project) was seen by project authorities and supervision missions alike as the major obstacle to further progress. It was considered to be the main impediment to farmers changing their attitude toward boundary realignment, without which tertiaries could not be constructed, and BNF found it impossible to provide investment credit for on-farm development. Strong pressure was therefore brought to bear on IERAC to speed up the process. Nevertheless, throughout the execution period, land titling progressed at a very slow pace, mostly because farmers were reluctant to pay the first installment of land repayment, as well as the notary and title fees. In fact, a cadastral survey of farms in the area was not completed before the end of 1978. As of November 1981, when the completion mission visited the project, 53% of the farmers had received title while some 23% had indicated that they did not wish to participate in the titling process; the remaining 24% were in the process of obtaining title or were still being reviewed. On-farm Development and Credit 3.09 In view of the problems described above, investment credit for on-farm development in the area has been negligible. Although BNF had funds available for this purpose, they were never used and the implementation agreement between INERHI and BNF has remained largely ineffective. Water Charges 3.10 Under Section 4.04 of the Project Agreement, INERHI was required to charge farmers the equivalent of full operation and maintenance costs and a substantial proportion of the investments made by INERHI. However, no such agreement has been recorded and INERHI's present water charges (at S/. 0.013 per m3, plus a basic levy of S/. 250 per ha) do not even cover actual operation and maintenance costs. As few farmers irrigate, very little is collected, and INERHI has stated that it would not raise the level of water charges in the area as long as the water system is not completed and farmers are not using water. B. Period 1977-80 3.11 As it was clear by mid-1977 that the project was completely stalled, this period was dominated by various proposals and to revive project execution. These included: (a) revision of the agricultural development program (ADP) for the area; (b) installation of elevated canals instead of dug-in tertiaries to minimize land losses to induce farmers' acceptance; and (c) works, on a small scale, toward installation of the tertiary canal network. - 27 - The Revised Agricultural Development Program (ADP) 3.12 By mid-1977, IDA and INERHI agreed that the experience to date necessitated a redefinition of project objectives. Hence, in 1978, INERHI hired consultants under Spanish bilateral aid to work out a revised ADP for the area. A draft report reached IDA by September 1979, but, as INERHI and the Government failed to approve the draft report and insisted on revisions, IDA could only discuss it with the Ecuadoran authorities in February 1980. 3.13 Apart from the construction of an elevated tertiary canal system, which INERHI had proposed earlier (see para 3.15), the revised ADP represented a conceptual change from the initial project in that it proposed retention of essentially the same crops as already grown in the area, although in different proportions and with a substantial upgrading of cropping practices, and put heavy emphasis on adequate extension services and credit availability to bring about these changes. The change in emphasis away from irrigation and toward extension and credit was seen by IDA as going in the right direction to bring about agricultural development. The program was estimated to cost about US$58 million, including US$5 million for infrastructure, extension and administration, and US$53 million for credit. 3.14 The report, however, contained two major flaws, which were never satisfactorily resolved. First, it was not explained or analyzed why the extensive areas under the project to be retained for coffee and cacao plantations would need irrigation water at all. Second, the report did not propose how the agencies that were to provide the needed extension and credit would be adequately reinforced in the project area, nor did it explain how the necessary additional financing (far in excess of initial project requirements) could be found. By this time, there was only US$1.1 million left in the credit account. Because neither INERHI nor other Government agencies were willing to ensure budgetary commitments and because of the earlier demonstrated reticence of Government to adequately strengthen extension services, IDA decided against participating in the overall program (in April 1980). Installation of Elevated Canals 3.15 In 1978, INERHI presented IDA with a proposal to IDA for installation of elevated canals in an effort to overcome the farmers- reluctance to have the tertiary system completed. Again, the proposal was not made in the form of a program of works to be carried out with appropriate costing, but as a list of equipment to be bought in order to install an on-site workshop to pre-cast flumes. In Ecuador, these have never been installed before. Furthermore, cost estimates, even after several discussions with INERHI and subsequent revisions, remained incomplete, and there was no evidence to support INERHI's claim that such a system would overcome the farmers' objections. Finally, after protracted discussions, in - 28 - February 1980, IDA rejected INERHI-s proposal because (a) the cost was too high and the feasibility unproven; (b) no experience existed in Ecuador with elevated canals; and (c) alternatives such as pipes were not considered. IDA did propose the installation of such pipes with locally made materials on 200 ha as a pilot exercise, but this was rejected by INERHI. 3.16 Meanwhile, a number of events were occurring which enabled the project to resume progress toward expanding irrigated lands, although at a slow pace and on a much reduced scale. First, banana processing and marketing companies had started to give active support (extension and credit) to banana growers in the area, as a result of which the irrigated area under bananas had begun to expand (totalling 1,920 ha as of December 1980, compared to 1,000 ha at appraisal time). All of this area was, however, irrigated directly from secondary canals. Second, the Government had decided that INERHI should put a firm priority, within its budget, on completing irrigation projects under construction rather than expanding into new schemes. For Milagro, the direct result of this intervention was that INERHI contracted out work for the construction of tertiaries to local contractors, this time following the boundaries of existing farms rather than waiting for an agreement on realigned boundaries. As a result, new tertiaries were built covering an additional area of 300 ha in 1980. Third, with the appointment of a new director to INERHI, more attention was being given to agricultural development; INERHI's agricultural department was being reinforced, and the number of Ecuadoran agronomists and extension agents in the APU was increased from three to seven. Acquisition of Equipment 3.17 In October 1980, INERHI again submitted to IDA a proposal to purchase equipment, with a total value equal to the amount remaining in the credit account, US$1.1 million, in order to (a) accelerate the pace of tertiary canal construction; and (b) reinforce the APU equipment pool in view of increasing demand from farmers for machinery services. As the closing date of the project was December 1980, a supervision mission was sent in November 1980 to assess INERHITs request. The supervision mission recommended its acceptance in view of the needs in the project area and INERHI-s agreement to charge the full cost of machinery services to farmers (which had been inadequate in the past). IDA, however, turned down this recommendation since (a) it would have meant financing machinery already previously purchased under the project, but taken out of the area without IDA approval (para 3.05); (b) additional equipment would not enable INERHI to complete the project as originally envisaged (by INERHI's own estimates, the final area to be irrigated would approximate 4,000 to 5,000 ha); and (c) it was not clear to what extent on-farm machinery was needed (this was to be used for annual crops, and farmers- acceptance on growing them was still doubtful) nor whether private contractors could not better provide custom - 29 - work. Consequently, the remainder of the credit (US$1.1 million) was cancelled at the end of 1980. C. Consultant Services 3.18 Funds for consultant services in the IDA credit to carry out the tasks as described in para 2.03(d) were never used. A feasibility study for a second-stage project, to extend the project area to about 22,000 ha around Banco de Arena, was prepared by FAO, but the feasibility study indicated serious issues such as (a) lack of land titles and the difficult landtenure situation; (b) major drainage and flood control investments, which would adversely affect lands outside the project area and would require preparation of a more comprehensive and encompassing master plan; and (c) the weakness of Government agencies that would have to implement the project. The second-stage project was, for these reasons, deleted from the lending program in 1978. 3.19 In 1978, INERHI provided Czechoslovakian assistance (paid for by bilateral aid) to APU to supply training for on-farm irrigation and use of farm machinery. Due to the status of INERHI's machinery pool system as well as lack of local support, the experts were largely frustrated in their efforts and the effort was short-lived. D. Project Costs and Project Financing 3.20 Total actual project expenditures up to the December 1980 closing date, are estimated at US$13.12 million, about 129% of the original estimate (Table 5). However, INERHI plans to continue constructing tertiaries and, by its own estimates, would invest, over the 1981-83 period, an additional US$1.44 million in such works, which would serve some 5,000 ha, or 72% of appraisal estimates. If INERHI-s planned investment program proved accurate in terms of expenditure and area actually irrigated, the cost overrun as compared to appraisal estimates would be 199% (US$2,904 per ha compared to US$1,460 per ha). Most of the overruns occurred in the civil works and general administration categories, due to the much extended period of implementation and the effects of inflation. 3.21 No specific financial problems materialized during project execution. Government counterpart funding has not been a constraint at any point for implementing the project, in spite of the fact that it was substantially higher than appraisal estimates (186%). The loan agreement was amended once, in September 1977, to increase the equipment category (from US$3.8 million to US$4.2 million) but these funds were not utilized and remained undisbursed when the credit was cancelled (Table 6). - 30 - E. Reporting and Auditing 3.22 Project reporting was extremely poor throughout the implementation period, as a result of which much confusion has existed on the size of the project area, the cropping pattern, the area actually irrigated, yields, the status of land titling, availability of agricultural credit, the cost of machinery services, and the availability of equipment. Furthermore, investment planning and actual expenditure reporting was done only sporadically and was often inconsistent with previously supplied data. In particular, agricultural development data were never submitted except through supervision mission estimates. INERHI failed to maintain separate project accounts and, instead, submitted information only on the irrigation district in which Milagro was located. INERHI audit reports were submitted (behind schedule) for the years 1976, 1977 and 1978, but none was provided for 1973, 1974, 1975, 1979 or 1980. INERRI was also unable to provide the completion mission with consistent information on project costs. 3.23 A number of examples should be cited as to the confusion brought about by the lack of consistent information. The cadastral survey completed by IERAC in 1978 covered 10,425 ha and it was never made clear what part of it belonged to the original project area of 7,000 ha; as a result, the information on land titling completed in Milagro is only an approximation. Details on cropped areas were supplied by INERHI for the entire irrigation district; as a result, the area under sugarcane belonging to the project area proper has been reported at various times as being anywhere from 95 ha to 2,300 ha. During the implementation period, INERHI assessed that the existing canal system could "dominate" 11,000 ha instead of 7,000, but the cropping practices and water requirements on which this calculation is based has never been made clear. As the APU never established an adequate reporting system, changes in yields and cropping patterns were only sporadically reported; as a result, the only thing known at the end of the project period was that the area under bananas had almost doubled. F. Adherence to Covenants 3.24 The non-adherence to several important covenants in the Credit and project agreements, and the non-fulfillment of most implementation agreements with Government agencies (para 2.03(c)) were both the cause and the result of unsatisfactory project implementation. As they are closely linked with institutional performance, discussed in Chapter V, they will be merely summarized below. 3.25 Covenants in the credit agreement not adhered to include the due diligency clause (Section 3.01(a)); the obligation of IERAC to proceed with timely land titling and participate in boundary realignment (Section 3.03); and the obligation of INERHI to maintain and adjust water charges (Section 4.01). Covenants not adhered to in the project agreement were the employment of agricultural and engineering consultants (Section 2.03(c)); the use of all - 31 - the credit exclusively for the project (Section 2.06); the maintenance of adequate records and accounts (Section 2.07(b)); the acquisition of right of way (Section 2.09); the establishment of irrigation entitlements for each farm (Section 2.10(ii)); and the furnishing of audit reports not later than four months after the end of each fiscal year (Section 4.02(b)). Implementation agreements not adhered to were those with MAG, INIAP and FECOPAM; the one with IERAC was implemented but with substantial delays; and the one with BNF basically remained inoperative as the need for investment credit for on-farm irrigation and land levelling works proved negligible (Chapter VI). IV. FINANCIAL AND ECONOMIC IMPACT 4.01 At this stage, it is extremely difficult to make a valid estimate of project impact on farm production and income because as reporting on project progress was and still is poor; divergent opinions exist on base line estimates; tertiary construction is incomplete and still continuing; and assumptions on farmers' future cropping patterns and their timely acceptance of irrigated crops are risky. There is little doubt that the appraisal estimate of a rate of return of 16% is too high since (a) the irrigation network, which was supposed to be terminated in 1978, will under the best of conditions be completed in 1984, achieving only 71% of its coverage and at substantially increased cost; (b) the benefits of increased production under irrigation, in the absence of strong extension services and aggressive credit promotion, will take much longer to materialize (full development was estimated at appraisal to be reached by 1983); and (c) the proposed cropping pattern and cropping intensity have fallen short of targets set at the time of appraisal. 4.02 As of December 1980, the irrigated area within the project was 3,087 ha, an increase of about 1,800 ha over the land already irrigated at appraisal time (1972/73). About 1,200 ha of the increment was an expansion of perennials, mainly bananas (900 ha), whereas the remaining increase (600 ha) represents an expansion of annual crops in both the wet and dry seasons, mostly rice (270 ha) and maize (258 ha). Almost all of this has been carried out by farmers able to transfer water directly from secondaries onto their lands (Table 7). 4.03 Assuming that the construction of tertiaries, which resumed in 1979/80, would continue and would achieve a coverage of 4,980 ha as estimated by INERHI, it has been estimated that a cropping pattern would evolve in which the area under perennials would essentially remain the same as in 1980, whereas the area under annuals, especially rice, maize and vegetables, would increase (Table 7). This estimate is essentially based on price and demand considerations, as evolved from discussions with farmers. During the project implementation period, prices for coffee and cocoa rose substantially from US$145 per ton to US$420 per ton and from US$1,130 per ton to US$3,790 per ton, respectively, from 1973 to 1979. This contributed to farmers' reluctance to change their cropping pattern to annual crops, as for - 32 - instance prices for rice and maize rose much less rapidly during the same period: from US$350 to US$417 per ton and from US$119 to US$193 per ton, respectively. However, since 1979, prices for coffee and cocoa have begun to decline, which has heightened the farmers' interest in cultivating annual crops, on which the mission's future cropping pattern is based. With these assumptions, and assuming--in the absence of extension services--the same yield levels will continue at the same level (Table 8), the rate of return of the project has been calculated at 2.5% (Tables 9 and 10). This estimate may be on the conservative side as it has been implicitly assumed that, even at full development, the area under irrigation would not expand beyond 4,980 ha and that double cropping would continue to be negligible. However, the mission feels, that in view of the weakness of the supporting agencies, it would be risky to be more optimistic. V. INSTITUTIONAL PERFORMANCE INERHI 5.01 As recognized at appraisal, INERHI was a relatively strong institution with well qualified staff in the engineering field, but it was weak on the agricultural development side. Because the implementation agreements with other state agencies, passed to rectify this weakness, largely failed to be executed, it was obvious that, once problems occurred, INERHI would be incapable of handling them on its own. Meanwhile, INERHI has known since 1979 that it would have to solve these shortcomings itself and it proceeded to reinforce APU, but it was too little too late to rectify the situation. 5.02 Even more acrimonious debate between INERHI and IDA resulted from the farmers' insistence that they obtain additional machinery and equipment. As can be seen in previous paragraphs, almost every proposal made by INERHI to improve the situation would have resulted in the purchase of additional equipment for that institution. IDA, however, continued to insist that progress should be made first in other fields (i.e., land titling, strengthening of APU, engagement of consultants, and the like). This led to the feeling that the two organizations had in reality different objectives: IDA's primary objective was successful implementation of the project, while INERHI's priority was to use IDA funds for reinforcing its machinery pool. This feeling was strengthened by INERHI's admission to the completion mission that the latter was indeed the agency's main objective. In any case, the objectives would not need to have been incompatible, were it not for the delays in constructing tertiary canals. 5.03 Even apart from the above, however, many other actions were not carried out in a satisfactory manner. INERHI neglected proper maintenance and repair of equipment; an adequate system of tariffs for machinery services was not implemented (INERHI only promised to do so in December 1980, as it was requesting release of IDA funds for additional equipment purchases); the machinery pool was poorly managed and staffed; INERHI's accountability for - 33 - equipment and other project components was unsatisfactory; and, for a long time, it failed to administer, control and promote APU effectively. Other Agencies 5.04 IERAC proved to be a very weak agency: at appraisal it had already supplied incorrect data to the appraisal mission, leading to the assumption that 80% of the farmers had titles to the land; instead of only 20%. In addition, IERAC was extremely slow in its work, taking eight years to bring the number of farmers with clear titles up to 53% of the total. Furthermore, coordination with INERHI was lacking, as a comprehensive plan involving land titling, realignment of boundaries and payment of compensation to farmers was never formulated. 5.05 INIAP was to carry out research in rice, groundnuts, sesame, soybeans, maize and cacao; provide specified minimum quanitities of certified seed; and train project extension personnel. However, the only activity actually implemented by INIAP has been the occasional demonstrations for farmers at the Boliche station and the Banco de Arena research farm. 5.06 MAG was to provide four extension professionals in 1975, eight in 1976 and the full complement of 10 from 1977 onward, with salaries to be shared between INERHI and MAG. MAG never provided any extension agents specifically to the project. 5.07 BNF was to provide assistance to APU in the preparation of invest- ment plans, follow up on credit requests, make available the necessary funds, and carry out credit supervision. With APU inoperative and with few farmers willing to invest in on-farm works and crop development, this agreement was also largely inoperative. In view of the weakness of BNF-s field offices during the implementation period, however, it is doubtful whether the agreement would have worked out successfully even if the aforementioned constraints had not been present. 5.08 Under the agreement with FECOPAM, an action plan was to be presented by the end of 1978 to transform APU into a farmers' service and marketing cooperative. The plan was never prepared. VI. IDA PERFORMANCE 6.01 Looking back at IDA's performance, it can be concluded that, basically, the project was wrongly conceived at preparation and appraisal. The faulty elements at appraisal were mainly (a) the conceptual approach, and (b) the assessment on institutional arrangements. -34 - Conceptual Approach 6.02 The project's main conceptual assumption was that the provision of irrigation water was indispensable and therefore the essential "input" to be provided. In fact, with the existing rainfall pattern, even crops with high water requirements (bananas, sugarcane, rice) needed only supplementary irrigation during the dry season; further at appraisal these crops represented barely 20% of the area under crops. Project success therefore hinged on the assumption that farmers would shift to an entirely different cropping pattern. The only argument in favor of this change was the depressed prices--at the time--for the small-scale farmers' main cash crops, coffee and cocoa, and the high prices for annuals such as rice, maize and groundnuts. Account was not taken of the fact that the "bush-garden" cropping pattern on smallholdings was typical for the area and allowed a good spread of the eonomic risks while allowing the farmer sufficient subsistence production at any time without dependence on state agencies. In fact, it was not conceived at appraisal that the essential inputs needed were extension (to upgrade farming practices) and credit (to invest in higher yielding varieties and to combat insect infestation) and that the project in reality should have been an extension and credit project. Once these "inputs" had achieved the desired yield increases, it would have become economical to invest in supplementary irrigation at the margin (only for the aforementioned crops). However, it appears that, during preparation, that no attention was given to the fact that irrigation water could have been equally well provided through groundwater development; groundwater resources in the area are abundant and were already well proven at appraisal. Institutional Arrangements 6.03 It is clear from the appraisal report that the weaknesses of the state agencies responsible for agricultural development were well understood: INERHI's weakness in this field was clearly spelled out all implementation agreements were to be signed as a condition of effectiveness of the credit, and consultant services were to be provided. Yet, in spite of INERHI's weakness, it was selected as the main project executing authority and it was to coordinate and control the activities of all other agencies in the project area with whom agreements had been signed. Such coordination would have been a difficult job, even for a more experienced entity: land titling combined with boundary realignment would have required very close coordination between INERHI and IERAC; the provision of extension services and the preparation of investment plans for farmers would have required equally close coordination between INERHI (APU) and BNF. As none of these agencies had any experience in these fields, the assessment that it would actually happen, was already optimistic from the outset. 6.04 It is also unclear why IDA participation was to take place mainly in the form of equipment purchases, which far exceeded the requirements of the project area, rather than as a payment for works actually carried out, - 35 - and why no direct IDA participation was made for the provision of extension services. It especially calls into question whether IDA and INERHI did not have different objectives from the outset of the project (para 5.02). Supervision 6.05 Although there was good continuity of supervision up to 1979, there was little that supervision missions could do to rectify the project's course, given INERHI's situation and the fact that the decision had been made that it should be an irrigation project and the main irrigation network had been built. Numerous promises were obtained from the Ecuadoran authorities for the Ministry of Agriculture, which could have provided the necessary push, was too weak itself, and the participating state agencies were acting independently, these promises could not be translated into reality. After 1977, the main reason for continuing with the project was the hope that a revised agricultural development plan would provide a new focus and would rally the participating institutions behind it. The revised ADP actually did provide the correct focus but the realization that substantial additional investments would be needed to attain its goals, the proven weakness of the Ecuadoran institutions that would have to provide most of the requirements, and the refusal of the institutions to obtain outside expertise made IDA decide against proceeding further with it. The closing date of the project was extended only because the results of the revised ADP were not yet known by end 1979 (they became available only in February/March 1980). After it was known, and rejected, an attempt was made to cancel the project (in May 1980) internally, but this was rejected since only seven months remained before the new closing date. VII. RECOMMENDATIONS AND CONCLUSIONS 7.01 The Milagro project was the first irrigation project in Ecuador in which the Bank group participated. This accounts to a large extent for the assessment that the provisions included at appraisal would overcome the inherent weaknesses of the participating institutions. These lessons have been taken into account in subsequent projects: (a) financing has been provided directly for extension and credit and specific provisions as to manpower and consultant services have been included; (b) good care has beentaken that coordination would effectively be provided; and (c) preparatory work has carefully taken into account the wishes of the farming population. 7.02 In addition, the project has highlighted the need to: (a) have a better balance between infrastructure and agricultural development programs; (b) include the beneficiaries from the outset in designing project concepts and in formulating development programs; (c) appraise participating agencies carefully to ensure that they have the institutional capabilities to produce - 36 - the needed support; (d) report and monitor properly project progress; and (e) review procurement proposals carefully, especially in order to avoid large consignments of machinery early in implementation or selection of bidders whose capability to provide after-sales service is doubtful. -37 - Table 1 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Key Indicators Estimates Actual At Credit At Closing At Appraisal In ADP Closing 1973 Jan.1980 1/ Dec.1980 2/ Dec.1980 21 Total Project Cost (US$M) 10.2 17.1 3 15.0 3 Total Investments (US$M) - - - 13.2 Total IDA Credit (US$M) 5.5 5.5 -- Credit Disbursements (US$M) - - 4.4 Agricultural Credit Estimates (US$M) - 52.8 n.a. n.a. Estimated Completion 3 Date 1978 1985 1983 2' Full Development (year) 1983 1985 1985 Actual Proportion of Physical Works Completed (%) - - 44 Proposed Area for Irrigation (ha) 7,000 7,000 5/ 4.981 Area Actually Irrigated (ha) - - - 3,087 Actual Incremented Irrig. Area (ha) - - - 1,837 Area Actually Dominated by Main - - - Irrig. Works (ha) - - 10,275 IRR (estimates) (%) 16 n.a. 2.5 Irrigation Infrastructure Rehabilitation of Main Canal (km) 3 1.5 1.5 Construction of Main Canal (ka) 8 7.8 7.8 Primary Canals (km) 38.9 38.9 Secondary Canals (km) 65 59.2 80.7 73.2 Tertiary Canals (km) ,220 110.9- 5. Drainage Infrastructure, Main Drains (km) 53 44.8, 17.0 Tertiary Drains (km) 285 200.0 105.6 Service Roads (km) 330 271.4 188.0 Service Center (1 Building) 1 1 1 On Farm Works Land clearing (ha) 4,000 n.a. Land leveling (ha) 6,000 n.a. 15 Other Actions Organization of APU optimistic inadequate Purchases of Equipment (US$M) 3.8 4.7 Realignment of Boundaries all none Land Titling (farmers) 825 672 Project Implementation Agreements optimistic failure 1/ Agricultural Development Plan formulated by Spanish Bilateral-Aid Consultants and adjusted by INERHI, January, 1980. 2/ INERHI estimates. 3/ Estimates do not include all appraisal physical targets. 4/ Includes period 1980-1985. T/ Initial draft ADP described an area of 11,406 ha. April 20, 1982 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Civil Works Activities Appraisal Total as of % of Appraisal 1981 Total as Activities Estimate 1975 1976 1977 1978 1979 1980 Project Comp. Total Est. of 12/81 Irrigation Canals (km) - Diversion 3.0 0.50 0.55 - - - - 1.05 35 - 1.05 - Main 8.0 3.00 4.80 - - - - 7.80 98 - - ______ - Primary 10.32 10.28 6.04 - - 12.26 34,90 - - 38.90 - Secondary 65.0 21.11 19.01 8.06 8.15 - 16.89 73.22 172 1/ 7.45 80.67 - Tertiary 220.0 0.22 0.27 2.70 1.50 - 0.96 5.65 3 10.68 16.33 Drainage (km) - Main 53.0 11.50 - 5.52 - - - 17.02 32 - 17.02 w - Tertiary 285.0 14.50 36.13 27.32 27.66 - - 105.60 37 - 105.60 On-Farm Development (ha) - Land Clearing 4,000 - - - - - - - 0 - - - Land Levelling 6,000 - - - - 10 5 15 - 5 20 Roads (km) 330 - - - 101 57 30 188 57 51 239 Center (unit) 1 - - - 1 - - 1 100 - I 1/ Percentage considers primary and secondary canals. Source: INERHI, November 1981 April 20, 1982 - 39 - Table 3 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Land Holdings 1/ 2/ Farm Size Appraisal Estimate- 1980 Actual- Families Area Families Area - - - - - - - - - - -(percent of Total)- - - - - - - - 0 - 5 ha 33.9 8.0 52.4 17.5 5.01 - 10 ha 33.4 22.3 25.3 21.7 10.01 - 20 ha 20.0 28.3 14.4 25.4 20.01 - 50 ha 11.5 32.1 7.0 25.6 >'50.01 ha 1.2 9.3 0.9 9.8 100.0 100.0 100.0 100.0 Total Units: Appraisal Actual (% increase)- Area (ha) 7,000 10,275 (46.8) Families (No.) 825 / 1,2665/ (53.5) - Holding Titles 825- 672- 1/ Reference: para 3.05 of S.A.R. 2/ Reference: page 133 of Draft Completion Report, INERHI. 3/ Increase over appraisal estimates due to delegation of wider area of responsi- bility to project authority during implementation. 4/ Preparation report also indicates all titling complete. 5/ As of November 1981, IERAC reports that a total of 969 families (77% of total revised area) have been revised, of which 672 (53%) have received certifica- tion and are thus eligible for credit; 292 (23%) are in final processing in Quito; and 5 (<1%) are still being reviewed in Milagro. The balance of 297 families (23%) have indicated they do not wish to participate in the land titling process for such reasons as internal family disputes. Ref: Draft Completion Report page 132. - 40 - Table 4 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Equipment Purchases Total Moved to Purchased Other Projects % -------In Million Sucres----- 80.0 55.4 69 Construction Equipment 4.9 2.9 59 Heavy Equipment 17.7 7.7 44 Agricultural Machinery 5.7 2.6 46 Vehicles Engineering and Administration Equipment 7.9 ___ 116.2 68.6 59 - 41 - Table 5 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Estimated Project Cost and Financing (US$ Million) Appraisal Estimate Actual Total Total % US$ US Achievement Component Local Foreign Equivalent Local Foreign Equivalent Civil Works 2.25 2.25 6.47 6.47 288 Equipment 0.02 3.80 3.821/ 0.02 4.63 4.65 2/ 122 Compensation for Crop Loss 0.40 0.40 0.02 0.02 5 Compensation for Land Loss 0.05 0.05 0.01 0.01 20 Administration and General Expenses 0.76 0.76 1.34 1.34 176 Consultants 0.55 0.75 1.30 0.02 0.61 0.63 48 Subtotal Base Costs 4.03 4.55 8.58 Physical Contingencies 0.23 0.88 0.31 Price Contingencies 0.64 0.67 1.31 Total 4.90 5.30 10.20 7.88 5.24 13.12 129 Financing: IDA 0.20 5.30 5.50 0.20 4.18 4.38 80 Borrower 4.70 4.70 0.68 1.06 8.74 186 Total 4.90 5.30 10.20 7.88 5.24 13.12 1/ Appraisal estimates included US$1 million for materials. 2/ Actual expenditures in this category include only equipment. April20, 1982 - 42 - Table 6 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Total Disbursements: By Development Credit Agreement Category (US$ million) As DCA Amended Schedule I Amount Sept. 15, ActuallY CancelledL/ Category Allocated 1977 Disbursements Balance I. Equipment 3.80 4.20 3.77 0.43 II. a) Engineering and Supervision 0.50 0.40 0.11 0.29 b) Feasibility Studies 0.30 0.48 0.47 0.01 c) Field Surveys 0.20 0.14 0.03 0.11 III. Unallocated 0.70 0.28 - 0.28 Total 5.50 5.50 4.38 1.12 1/ Credit Closing Date December 31, 1980 April 20, 1982 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Cropping Patterns Initial Estimates Current Estimates (INERRI) Before Project Full Development 1980 Full Development 10/ Preparation 11 Appraisal 6/ Appaisal Est.(1983)6/ Actual 7/ Revised Estimate (1985) Perennials (ha) (M) (ha) (%) (ha) (Z) (ha) (Irrig.) (%) (Irrig.) (ha) Irrig.)11/ (%) Irrig. Sugarcane 1,119 (16.7) 2,300 (32.8) 1,400 (20.0) 95 8/ ( 95) 1.3 1,000 1,000) 14.3 Bananas 1,519 (21.7) 1,000 (14.3) 1,700 (24.3) 1,920 (1,920) 27.4 . 999 ( 999) 14.3 Cocoa 1,602.2/ (22.8) 3,200 2/ (45.7) 500 ( 7.1) 2,818 ( 179) 40.3 2,818 ( 179) 40.3 Coffee - - - - - - 690 ( 5) 9.9 690 ( 5) 9.9 Subtotal 4,240 (60.5) 6,500 (92.8) 3,600 (51.4) 5,523 (2,199) ( 78.9) (31.4) 5,507 (2,183) (78.7) (31.2) Annual, Wet Season rice 466 ( 6.7) 250 ( 3.6) 1,900 (27.1) 520 ( 520) 7.4 1,192 (1,192) 17.0 Maize 484 3/ ( 6.9) 250 ( 3.6) 1,300 (18.6) 106 ( 106) 1.5 486 ( 486) 6.9 Vegetables - - - - 200 ( 2.9) - - - Cotton 66 ( 0.9) - - - - 298 9/ - ( 4.3) 298 - 4.3 Subtotal 1,016 (14.5) 500 ( 7.2) 3,400 (48.6) 924 ( 626) 13.2 ( 8.9) 1,976 (1,678) 28.2 (24.0) Annual, Dry Season Croundnuts - - - - 1,900 (27.1) - - - - - - Soybehus 200 4/ ( 2.8) - - 1,300 (18.6) - - - - - - Vegetables - - - - 200 ( 2.9) - - - - 374 ( 374) 5.3 12/ Yuca - - - - - - 75 - 1.1 - 75 - (1.1) Maize - - - - 152. ( 152) 2.2 746 ( 746) 10.7 Subtotal 200 ( 2.8) - 3,400 (48.6) 227 ( 152) 3.2 ( 2.2) 1,195 (1,120) 17.1 (16.0) Pasture/Fallow/Uncult. 1,552 5/ (22.2) - - - 624 ( 110) 8.9 1.6) - - - - TOTAL 7,010 ( 100) 7,000 ( 100) 10,400 (148.6) 7,298 (3,087) 104.3 (44.1) 8,678 (4,981) 112.4 (71.2) TIRfFAOffIRD CP Preparation Report No. 85, dated 5/19/1972, Table II-I 2/ Mixture of treecrops - Cocoa, Coffee, Plantain 3/ No diffenrentiation given between wet and dry seasons 4/ Oilseeds These areas were deleted from appraisal estimates - no reason given 6/ Staff Appraisal Report No. 1139-EC para 6.01 (D 7/ Ref. INERHI, Data- supplied to mission indepeudently of Draft Completion Report Values for 1980 given had not changed significantly by 11/16/81. Area under coffee not confirmed. 8/ Value could not be verified. Total sugarcane area under irrigation in the Milagro zone is approximately 5,095 haof which about 5,000 ha belongs to the Valdez Company outside the project 9/ Area under cott.n corresponds to INERRI projections for full development and historical information 10/Ref. "Informe Final- by INERRI, dated 11/6/81. Table on page 176. revised, based on actual 1980 situation. C1/Mission estimates based on INERHI, data supplied in 10/. TZ/ERR assumes that this 374 ha of vegetables will not Fe achieved and proposes that this area will be under rice in 1985. Table 8 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Mission Crop Yield Estimates (t/ha) Before Project Preparation Appraisal Actual Values Full Estimate Estimate 1980 3/ Development 4/ Sugarcane 50.0 50.0 30-100 100 Bananas 13.5-24.0 1/ 18.8 12-50 30 Cocoa n.a n.a 0.6-1.12 1 Coffee n.a n.a 0.5 n.a. Rice (Paddy) 2.0-2.8 1/ 3.0 1.8-5.5 6 Maize - Spring 1.4 1.2 1.12-4.5 3.6 Winter 1.35 n.a Vegetables - 15-18 2/ n.a 15 Cotton (seed) 1.1 - 1.35 - Pastos - - 0.75 - Groundnuts 2.5 2.5 Soybeans 2.0 2.0 1/Yields reflect "with" and "without" irrigation situations. 2/Dry season and wet season yields. 3/Two values correspond to: Traditional vs Irrigation. E/Appraisal report, Annex 8 Table 1. April 20, 1982 ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Value of Production in Newly Irrigated Areas 1980 1985 Economic 1/ Gross Production3/ Net Gross Production Net Area Yield Price Value Costs Value Area Value Costs q Value (ha) (t/ha) (Sucres/t) ('000 Sucres) - ('000 Sucres) - ('000 Sucres) (ha) ('000 Sucres) - ('000 Sucres) * ('000 Sucres) Bananas 920 50 725 33,350 - 31,381 - 1,969 - - - - * - Cacao 179 1.12 51,075 10,240 - 3,039 - 7,201 179 10,240 - 3,039 - 7,201 Sugarcane 95 100 250 2,375 - 1,743 - 632 1,000 25,000 - 18,343 - 6,657 Coffee 5 0.5 37,450 94 - 46 - 48 .5 94 - 46 - 48 Rice 270 5.5 5,971 ' 8.867 - 7,682 = 1,185 1,316 6/ 43,218 - 37,440 - 5,778 Maize 5/ 258 4.5 3,250 3,773 - 3,042 - 731 1,232 18,018 - 14,527 - 3,491 Pasture (Beef) 110 0.75 2/ 31,000 2,558 - 1,945 = 613 - - - - TOTAL 1,837 4/ 61,257 48,878 12,379 3,732 4/ 96,570 73,395 23.175 1/ Constant 1980 economic farmgate prices (Ref: Ptu. Ila Chone and Esmeraldas R.D. SAR's No. 5278 and 3439-EC dated 1981). 2/ Esmeraldas R.D. SAR, Annex 1, Table 22, Model III - tons of liveweight. 3/ Derived from BNF data in "Informe Final" dated 11/6/81 - See Table 7. 4/ INERHI estimate. Assumes 1,250 already under irrigation pre-project (1,000 ha bananas; 250 ha rice) (See Preparation and Appraisal Reports). Therefore, actual gross areas under irrigation are 3,087 ha in 1980 and 4,981 ha in 1985 (1985 error of Iha in total due to rounding of area under cane to 1,000 ha. 5/ Wet plus dry season areas (1980 - 106 + 152; 1985 - 486 + 746). 6/ INERHI estimate of 942 (1,192 - 250 original) raised by proposed 374 ha of vegetables proposed by INERAI. No vegetables are currently grown, therefore the mission considers it unlikely that such an area of 374 ha vegetables will materialize. ECUADOR MILAGRO IRRIGATION PROJECT (Credit 425-EC) Completion Report Cost and Benefit Streams in 1980 Prices 1973 1974 1975 1976 1977 1978 1979 1980 Subtotal 1981 1982 1983 Subtotal 1984 1985-2012 Total Concept --------------------------------------- Million Sucres ---------------- ----- ------- - Civil Works 3.980 15.918 22.118 34.755 29.670 11.502 10.687 24.438 153.068 14.110 15.000 7.000 189.178 189.178 Buildings 5.724 1.748 1.111 8.583 8.583 8.583 Equipment 100,055 9.836 4.919 1.379 116.189 116.189 116.189 Crop Loss Compensation 0.330 0.029 0.021 0.002 0.382 0.382 0.382 Compensation for Land 0.168 0.168 0.168 0.168 (4,000) Administration d Supervision -- 1.521 6.086 6.088 5.138 4.205 3.540 3.000 3.800 33.378 4.500 4.000 4.000 45.878 4.000 111.000 161.878 Consultants 3.817 5.895 2.201 3.741 15.564 15.564 15.564 Total Costz/ 5.501 22.004 138.300 57.401 42.127 20.164 13.687 28.238 327.422 18.610 19.000 11.000 376.032 4.000 112.000 492.032 Total 3- 5.501 22.004 116.767 51.506 39.926 16.423 13.687 28.238 294.052 18.610 19.000 11.000 342.662 4.000 112.000 458.662 Price Index - Base 1980 0.408 0.500 0.572 0.630 0.712 0.805 0.887 1.000 Total in Constant Sucres 1980 13.483 44.008 204.138 81.755 56.076 20.401 15.431 28.238 18.610 19.000 11.000 4.000 4.000 Agricultural Incremental Net Benefit Stream 2.500 4.600 6.800 82.3904-/ 11.100 13.400 15.500 17.800 19.900 22.000 24.200 Net Project,Benefits (13.483) (44.008) (201.638) (77.155) (49.276) 61.989 (4.331) (14.838) (3.110) (1.200) 8.900 18.000 20.200 1/ Includes depreciation of 06M Equipment. 2/ Source: Historic costs from 1973-1978 - Audit Report by Salvador and Asociados C. Lda., June 1979 Estimated ROR: 2.5% Costs from 1979 - 1981 - INERHI. January 1982-projected costs. Mission estimates based on INERHI final report. 3/ Total costs exclusive of farm machinery, whose depreciation is included in on-farm production costs and consultants fee for feasibility study for project extension (Banco de Arena). 4/ Includes 602 of equipment purchased for construction. This residual value has been used elsewhere (98.47 x 0.6 - 59.08/0.805 - 73.39) (73.39 + 9.00 - 82.39). April 20, 1982 H M (D 』多切P J ソず 一：