Mexico - Panuco Irrigation Project; and Rio Sinaloa Irrigation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5191 PROJECT PERFORMANCE AUDIT REPORT MEXICO PANUCO IRRIGATION PROJECT (LOAN 969-ME) AND RIO SINALOA IRRIGATION PROJECT (LOAN 970-ME) June 29, 1984 Operations Evaluation Department 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. GLOSSARY AND ABBREVIATIONS Banrural - Bank for Agricultural Credit/Banco Nacional de Credito Rural DAAG - Agrarian Affair: and Colonization Department/Departamento de Asuntos Agrarias y Colonizacion Ejidatario - Beneficiary of land reform Ejido - Group of ejidatarios ERR - Economic Rate of Return O&M - Operation and Maintenance PCR - Project Completion Report PLAMEPA SRH group providing intensive extension services/Plan de Mejoramiento Parcelario PPAR - Project Performance Audit Report SARH - Secretaria de Agricultura y Recursos Hidraulicos (previously SRI) SRH - Secretariat of Agriculture and Hydraulic Resources/Secretaria de Agricultura y Recursos Iidraulicos WEIGHTS AND MEASURES 1 hectare (ha) 2.47 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (kmD2) = 0.39 square miles 1 kilogram 2.2 pounds 1 metric ton = 2,205 pounds 1 liter = 1.057 U.S. quarts 1 cubic -eLer (m3) .76 cubic yard FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT MEXICO: PANUCO (LOAN 969-ME) AND RIO SINALOA (LOAN 970-ME) IRRIGATION PROJECTS TABLE OF CONTENTS Page No. Preface ........................................................... i Basic Data Sheet (Panuco Project) ................................ 1 Basic Data Sheet (Rio Sinaloa Project)............................. iii Highlights .................................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY ........ . ....... ...... II. MAIN ISSUES ..7.............................7 Annex: Comments from NAFINSA .................................... 17 PROJECT COMPLETION REPORTS PANUCO IRRIGATION PROJECT (LOAN 969-ME) I. Background ............................................. 25 II. Project Formulation ...................................... 25 III. Implementation .......................................... 27 IV. Financial and Economic Impact ............................ 32 V. Institutional Performance ................................. 33 VI. IBRD Performance ......................... ....... 34 VII. Conclusions and Recommendations .......................... 35 Tables: 1-9 RIO SINALOA IRRIGATION PROJECT (LOAN 970-ME) I. Introduction ....................... ........ 49 II. Project Formulation - ................. ... 50 III. Project Execution ............................. 51 IV. Agricultural Impact ................ . . . .... 54 V. Economic Rate of Return ................................. 55 VI. Institutional Performance ....... ................... 56 VII. Bank Performance ....... . ................... ....... 59 VIII. Conclusions and Lessons Learned ......... .... 60 Tables: 1-10 Maps IBRD Nos. 10554 and 10307 ITis docunent 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 MEXICO: PANUCO (LOAN 969-ME) AND RIO SINALOA (LOAN 970-ME) IRRIGATION PROJECTS I. PREFACE This is a performance audit of two irrigation projecs in Mexico, similar in nature and scope, the Panuco and Rio Sinaloa Projects, for which Loans 969-ME and 970-ME were approved on the same day (February 19, 1974), in the sum of US$77.0 million and US$47.0 million respectively. A supplementary loan of US$25.0 million was approved in July 1978 for the Panuco Project while the scope of the Rio Sinaloa Project was considerably reduced. The loans were closed fully disbursed in June 1982. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department (OED) and project completion reports (PCRs) dated May and September 1983. The PCRs were prepared by the Latin America and the Caribbean Regional Office and based upon completion reports prepared by the Ministry of Agriculture and Water Resources (SARB). The audit memorandum is based on a review of the Appraisal Reports (Nos. 281-ME and 300-ME) dated November 13, 1973, and February 4, 1974, the President's Reports, the Credit Agreements, and the PCRs; correspondence with the Bor- rower and internal Bank memoranda on project issues as contained in relevant Bank files have been consulted, and Bank staff associated with the project have been interviewed. An OED mission visited Mexico in February 1984. Discussions were held with officials of SARH and Nacional Financiera (NAFINSA). A field trip to visit the project areas and the participating farmers was undertaken. The information obtained during the mission was used to test the validity of the conclusions of the PCRs. The audit finds that the PCRs cover adequately the projects' salient features, and the Project Performance Audit Memorandum (PPAM) generelly agrees with the conclusions. In addition to summarizing the objectives and results of the projects, the PPAM expands upon some of the projects' most important issues: the irrigation adoption rate, land settlement, water charges and cost recovery, and the time and cost overrun, because of their importance to these as well as to other irrigation projects in the same region. The draft report was sent to the Borrower for comments on April 13, 1984. Comments received from. NAFINSA are in Appendix of the PPAM. Suggested changes have been introduced or different views footnoted. The valuable assistance provided by the Government cf Mexico and the project staff met during the preparation of this report is gratefully acknowledged. - it - PROJECT PERFORMANCE AUDIT REPORT MEXICO: PAMUCO IRRICATION PROJECT (LOAN 969-HE) BASIC DATA SHEET KET PROJECT DATA Appraisal Supplementary Actual or Actual as I of Estimate Loan Estimated Actual Appraisal Estimate Total Project.Cost CUSS million) 197.4 354.6 446.7 226 Loan Amount (USS million) 77.0 25.0 102.0 132 Date Board Approval 02/19/74 7/11/78 - - Date Effectiveness 05/29174 - - - Date Physical Components Completed 06/80 - 1984 186 Proportion completed at time of audit (2) - - 95 - Closing Date 12/31/O - 06/30/82 122 Economic Rate of Return (M) 19-22 12.4 11.4 (eat.) - Number of Direct Beneficiaries (farming families) 8,700 10,690 10.848 125 CUMULATIVE DISBURSENENTS P774 775 r776 PT77 FT78 779 80 F181 FY82 Appraisal Estimate (US$ millions) 3.0 24.0 49.0 64.0 73.0 76.4 76.8 77.0 - Revised Estimate - - - - 66.4 72.9 83.9 95.9 102.0 Actual (USS million) 0.1 4.0 26.3 52.1 62.6 71.4 90.9 97.8 102.0 Actual as X of estimate Date of final disbursement: May 1982 Principal repaid to September 30, 1982. USS6.91 million MISSION DATA Date No. of Specializations Performance Types of Nission (mo./Yr.) Persons Mondays Represented /c Rating d Trend Le Problem If Identification 03/73 2 16 a,d - - - Preparation 06173 4 - a,d,e - - - Preparation jL 12/77 2 6 e,e - - - Appraisal 05/73 4 24 a.d.e - - - Appraisal &f 01/78 Supervision 1 03/74 / 2 11 a.d 1 2 - Supervision 2 10/74 3 2 j,a,e N/A NIA N/A Supervision 3 03/75 k 3 11 d.a 1 2 - Supervision 4 02/76 3 10 a,d.d 3 1 f,m,o Supervision 5 05/76 2 7 j,d 3 1 f,m,o Supervision 6 10/76 3 10 d,ae, 2 3 f,m,o Supervision 7 03/77 h' 5 10 c,d.o.e,e 2 1 N/A Supervision 8 0977 2 5 e,e 2 2 f,p Supervision 9 09/78 2 5 e,e I I f,m Supervision 10 03/79 3 4 a,e 2 2 o,t Supervision 11 12/79 4 1 a,d 2 1 t,o Supervision 12 09/80 4 5 a,b,d,f 2 1 t,o Supervision 13 02/82 2 11 a,d 2 1 to Supervision CHP 01/83 2 b,d N/A $/A N/A Total (SPN) 138 OTHER PROJECT DATA Borrower Nacional Financiers S.A. (NAPINSA) Executing Agency Secretaria de Recursos Hidraulicos (SRH) Fiscal Tear January 1-December 31 Bane of Currency (abbreviation) Mexican Peso (NexS) Currency Exchange Rate: Appraisal Tear Average USS1.00 - 12.50 Intervening Years Average (1973-82) USs1.00 - 28.24 Completion Year Average (1982) s$1.00 - 70.00 Pollo-on Project: Name: Pujal Coy II Loan Number: Loan Amount: Date Board Approval: - /a a - agriculturalist; b - agricultural economist; c - financial analyst: d - irr. engineer; e - economist; f - soils specialist; and j - division chief. /b 1 - probler-free or minor problems; 2 - moderate problems; and 3 - major problems. 77 1 - improving; 2 - stationary; and 3 - deteriorating. 7; F - financial; M - managerial; T - technical; P - political; and 0 - other. 7a Combined with appraisal of 2nd rural development project. 7- Combined with SPN of PA-74/002 and 1418-PA. 7 Supplementary loan. Ab with 3PN of Loans 527, 970, and 1111-ME. 7? With Pre-Appraisal of Loan 970-HE. With SPN of Loans 450, 527, and 970-ME. k With SPN of Loans 527 and 970-I. 7 With Preparation of Rio Sinaloa Supplementary Loan (970-nE) and SPN of Loan 1111-ME and Completion of Loan 527-ME. - 11. - PROJECT PERPORNANCE AUDIT REPORT MEXICO: RIO SINALOA IRRIGATION PROJECT (LOAN 970-NE) BASIC DATA SUEET KEY PROJECT DATA Appraisal Actual or Actual as Z of Estimate Estimated Actual Appraisal Estimate Original 145.6 (05/73) 440.0 302.0 Total Project Cost (USS million) Redefinition 137.31(09/78) 249.7 181.9 Loan Amount (US$ million) 47.0 47.0 100.0 Original - 02/19/74 - Date Board Approval Redefinition - 03/27/79 - Date Effectiveness - 05/29/76 - Original 06!30/80 139.5 Date Physical Components Completed Redefinition 12/31/81 12/31/82/a 136.4 Proportion then completed (Z) 95/b Original 12/31/80 134.2 Closing Date Redefinition 06/30/82 06/30/82 100.0 Original 17 Economic Rate of Return (Z) Redefinition 12 11.0 66.5 Original 14,300 45.6 Number of Direct Beneficiaries Redefinition 6,500 6,550 100.0 (farming families) CUMULATIVE DISBURSEMENTS FT74 FY75 F776 FY77 FrY78 Fr79 FT80 FY81 FY82 FY83 Appraisal Estimate (USS million) (1.0) (7.0) (14.0) (26.0) (40.0) (46.0) (46.81) (47.0) - - Redefinition - 0.47 1.7 2.8 4.6 10.0 24.0 45.5 47.0 - Actual (US$ million) 0.467 1.7 2.8 3.7 8.3 17.2 33.2 43.1 47.0 Actual as Z of redefinition 100 100 100 80.4 83.0 71.7 73.0 91.7 100.0 Date of final disbursement: September 14, 1982 Principal repaid to September 30, 1982; USS4.22 million MISSION DATA Date No. of Specializations Performance Types of Mission (mo./Yr.) Persons Mandaya Represented c -Rating /d Trend /e Problem If Identification early 1972 1 N/A a - - - Preparation 09/72 2 N/A a,b - - - Preappraisal 12/72 4 72 a,a,b,d Appraisal 05/73 4 96 a,a,b,d - - - Supervision 1 02/74 2 22 a,d 1 - - Supervision 2 03/75 3 33 a,d,d 1 2 - Supervision 3 05/76 3 21 a,b,d 2 3 t,o,f Supervision 4 10/76 3 21 a,b,d 2 3 f,t,o Supervision 5 05/77 2 10 d,d 2 1 f,m Supervision 6 04/78 2 22 d,b 2 1 f.n Supervision 7 09/78 2 8 d,a 2 1 f Supervision 8 06/79 1 10 d 1 1 m Supervision 9 10/79 1 8 8 1 1 - Supervision 10 04/80 1 20 d I 1 - Supervision 11 11/80 3 21 a,b,d I 1 - Supervislon 12 10/81 1 9 d 1 1 - Total (SPN) 205 OTHER PROJECT DATA Borrower Nacional Financiere S.A. (NAFINSA) Executing Agency Ministry of Agriculture and Water Resources (SARB) Fiscal Year January 1-December 31 Name of Currency (abbreviation) Mexican Peso (Hex$) Currency Exchange Rate: Appraisal Year Average (1973) US$1.00 - 12.50 Redefinition Year Average (1978) US$1.00 - 22.77 Intervening Years Average (1979-81) US$1.00 - 23.42 Completion Year Average (1982) US$1.00 - 56.69 Follow-on Project: Name: Rio Sinalos II/Rio Puerte Loan Number: 1706-ME Loan Amount: US$92.0 million Date Board Approval: May 24, 1979 /a A few scattered and minor civil works scheduled to be completed by May 1963. Tb Or about 302 of the original estimate. /c a - agriculturalist; b - agricultural economist; c - financial analyst; d - Ir. enginser; e - economist; f - soils specialist; and j - division chief. /d 1 - problem-free or minor problems; 2 - moderate problems; and 3 - major problems. Te- 1 - improving; 2 - stationary; and 3 - deteriorating. F F - financial; M - managerial; T - technical; P - political; and 0 - other. - iv - PROJECT PERFORMANCE AUDIT REPORT MEXICO: PANUCO (LOAN 969-ME) AND RIO SINALOA (LOAN 970-ME) IRRIGATION PROJECTS HIGHLIGHTS These were the Bank Group's fifth and sixth loans to Mexico for irrigation development. The two projects, to be implemented over five years, aimed at developing intensive irrigated agriculture on more than 100,000 hectares each, through the construction of large civil works and the settle- ment of small farmers in the project areas. The Panuco Project, on the Gulf Coast of Mexico, consisted of three irrigation units, totalling 137,000 ha. Its main components were the con- struction of a dam and its storage reservoir, two diversion dams, 3 pumping stations and 3 irrigation, drainage and road systems. The Sinaloa Project was to cover 105,000 ha on the Pacific Coast and included the construction of the Bacurato dam and reservoir, a diversion dam, 60 wells and an irrigation, drainage and road system on the two banks of the Sinaloa River. The two projects also included land clearing and levelling, equipment for operation and maintenance, and provision of agricultural services for small farmers and new settlers to be established in the project areas. Project implementation was considerably delayed by the need to complete final designs of the main civil works, insufficient budgetary allo- cations, and delays in execution. By 1977, the projects were about three years behind schedule and faced a cost overrun of about 135%, resulting in the need for project reappraisal and reformulation. A supplementary loan of US$25 million was approved to allow completion of the Panuco Project, while the Rio Sinaloa Project was reduced in scope and phased in two stages. As a result of an improvement in Mexico's financial situation, construction of civil works progressed markedly and was almost completed at the project closing dates. The projects' impact differs substantially: in the Panuco Project, the irrigation adoption rate has been slower than expected, and yields remain low while, in the Rio Sinaloa Project, cropping intensity and yields have surpassed targets set at appraisal. On the other hand, the land reform pro- gram has been more important in the Panuco Project (where about 10,800 small- holders were settled) than in Rio Sinaloa Project (600 settlers). The main reasons for the mediocre agricultural performance of the Panuco Project are (i) the farmers' lack of experience in irrigation, (ii) the small difference in returns between irrigated and rainfed crops due to high rainfall of the project area, and (iii) the importance and shortcomings of the land settle- ment operation carried out under the project. In contrast, the Rio Sinaloa Project, where irrigation is traditional and progressive farmers predominate, has not been adversely affected by a izndamental change in the land tenure situation. - v - The project illustrates the difficulty of reconciling economic and social objectives in large-scale and high-cost irrigation projects. The adverse effect of cost overrun, 126% for the Panuco Project and 180% for the Rio Sinaloa Project in current terms (11% and 46% respectively in real terms), has been partially offset by product economic prices higher than originally estimated. The project ERR is now estimated at about 11% for the two projects. Considerable uncertainty remains, however, as regards the economic viability of the Panuco Project, which would justify an Impact Evaluation by 1988. The following points may be of particular interest: - in high rainfall areas the risk of over-investment in irrigation is particularly high, and therefore costs and benefits of both irri- gated and rainfed agriculture should be compared before making a decision on the type of development (PPAM, paras. 26-28, and Panuco PCR, paras. 3.10 and 7.01); - the main notable weakness of the projects was the poor preparation, appraisal and supervision of the settlement component (PPAM, paras. 29-37); - difficulty of determining a fair water charge when farmers have little incentive to use irrigation water and producer prices of agricultural products are distorted by government price policy (PPAM, paras. 38-43); and - insufficient preparation of irrigation components was partly re- sponsible for large time and cost overruns (PPAM, paras. 44-46 and Rio Sinaloa PCR, para. 7.02). PROJECT PERFORMANCE AUDIT MEMORANDUM MEXICO: PANUCO (LOAN 969-ME) AND RIO SINALOA (LOAN 970-ME) IRRIGATION PROJECTS I. SUMMARY Background 1. In the early 1970s, Mexican agriculture's direct contribution to GDP had dropped to about 11% from 25% in 1950, but still played a major role in the national economy. Approximately 39% of the labor force obtained its main income from agriculture, and the sector contributed about 50% of export earnings. With an annual rate of increase of 3.3% the population was likely to be 100 million by 1990. Therefore, government policy was to keep pace with growing internal demand for agricultural products and to sustain ex- ports. 2. Since the majority of the population was located in the northern part of the country where rainfall is low, the Government emphasized irriga- tion as a means of increasing production. In 1972, irrigated areas had tripled since 1950 and covered 4.2 million ha, producing 40% of total agri- cultural output and 60% of the total crop output. It was estimated that about 12 million ha was suitable for irrigation, and priority was given to construction of both large- and small-scale irrigation systems. 3. Another government objective was to reduce widespread unemployment among landless peasants and maldistribution of income between rural and urban populations. In 1915, the Agrarian Reform Law had officially established the ejido system, a tenancy form under which land is assigned to rural communi- ties in demarcated areas. Under the ejido system, the beneficiaries (ejidatarios) have lifelong, hereditary, usufruct rights to ejido land. The land is worked by the ejidatarios individually or collectively. 4. In order to improve the lot of poorer and landless farmers and to complement the Agrarian Reform Law, the Government passed two major laws in the early 1970s: the New Federal Agrarian Reform Law (1971) and the Federal Water Law (1972). Under these laws, the Government could set up new irriga- tion districts and expropriate, with compensation, all land and irrigation facilities in the district area. The laws gave power to the Government to redistribute land to small, private landowners and ejidos, and to declare the maximum and minimum size of land ownership to be assigned to beneficiaries. The laws also stipulated the procedure for fixing water charges, requiring that the social and economic situation of individual farmers in each district be taken into consideration. 5. The Secretaria de Recursos Hidraulicos (SRH), established in 1947, was responsible for controlling the country's water resources and expanding irrigated areas. By 1972, SRH had developed 3.0 million ha under irrigation - 2 - (the remaining 1.2 million ha being privately developed) and had become the main agricultural organization in the country. Plans were under preparation for constructing new irrigation districts on about 800,000 ha and rehabilitating existing districts on 450,000 ha by 1976. At headquarters level, SRH had four main subsecretarias concerned with planning, construction, operation and administration. At the regional level, activities were undertaken directly by SRH-managed Irrigation Districts. The Projects 6. The Panuco and Rio Sinaloa Projects were the fifth and sixth Bank loans to Mexico for irrigation development and part of government plans to significantly expand irrigated agriculture during 1972-76. Both projects were prepared by SRH in 1971/72 and appraised by the Bank in May 1973. The two loans were approved by the Board on the same day (February 19, 1974) and became effective in May 1974. The borrower was Nacional Financiera (NAFINSA), the most important authorized channel for foreign loans guaranteed by the Government. The two projects were to be implemented over five years and aimed at developing intensive irrigated agriculture on more than 100,000 ha each, through the construction of large civil works (mostly dams and irrigation conveyance and distribution systems). For both projects the new Federal Water Law was to allow for expropriation of privately held lands for redistribution to small owners and ejidatarios. During negotiation of the two projects, assurances were obtained that Government would provide intensive extension service (parly financed by the Bank) during and after the construction period, and that charges for water services would be sufficient to pay operation and maintenance (O&M) costs plus as much as was practicable of investment costs. Such charges were to be determined following socio- economic surveys made periodically, the first of which was to be undertaken by June 1979. Although similar in nature and scope, the two projects differed in some respects. 7. The Panuco Project was designed as the first stage of a large-scale development of the Panuco river basin on the Gulf Coast of Mexico, a sparsely populated tropical area with a mean annual rainfall of about 850 mm. The project covered 137,000 ha and consisted of three different irrigation units with the following key components: - Las Animas unit: a diversion dam to feed a 600 Mm3 storage reservoir and irrigation, drainage and road system to serve 48,000 ha; - Pujal Coy unit: a diversion dam to supply water to a main pumping plant (El Porvenir) and two other smaller plants, and irrigation, drainage and road system to serve 72,000 ha; - Chicayan unit: a 570 Mm3 storage reservoir, irrigation, drainage and road system to serve 17,000 ha; - land clearing and levelling of all units; - 3 - - equipment for operation and maintenance; and - provision of agricultural services. The project included expropriation of large landholdings, mostly used for extensive cattle raising, and settlement of small landowners and ejida- tarios. The maximum holding allowed to a private farmer was to be 20 ha, and the minimum allotment to an ejidatario, 10 ha. About 5,300 new ejidatarios were expected to be settled while the 3,500 families living in the project area were to receive 20-ha irrigated plots. The total project cost was estimated at US$197.4 million. The executing agency for the irrigation scheme was to be the SRH (which became SARH1/ in 1977) Regional Office in Tampico. The Department of Agrarian Affairs of the Secretariat of Agrarian Reform was to be responsible for expropriation and redistribution of land and the organization of ejidos in the project area. The overall project ERR was estimated at about 20%, varying from 19% for Las Animas to 22% for Chicayan. 8. The Rio Sinaloa Project was to cover 105,000 ha on the Pacific coast of Mexico, in the center of the Sinaloa State on both banks of the Sinaloa River. The climate of the region is tropical semi-arid, with an average annual precipitation of 347 m. Before the project, about 50,000 ha of the project area had been cleared and had some type of irrigation service, either through surface water diversions, extraction of groundwater or a combination of the two. The rest of the project area was mostly under bush and used for livestock. The population density was high (45 persons per km2) and the farming population was about 12,000 families. The main project components were: - the Bacurato dam and reservoir with a capacity of 2,900 Mm3; - the Sinaloa de Leyva diversion dam, about 46 km downstream ;xom the Bacurato dam, to divert water to main canals on each bank of the Sinaloa River; - construction of 60 wells to complement the surface water supply; - irrigation, drainage and road system for 55,000 ha on the left bank and 50,000 ha on the right bank; - land clearing and levelling; - equipment for operation and maintenance; and - provision of agricultural services to farmers. Under the Federal Water Law, all privately held lands not having irrigation rights were to be expropriated and redistributed to smallholders and ejidatarios. However, unlike the Panuco Project, the owners of lands with 1/ SARH resulted from the merger of the former Secretariat of Hydraulic Resources and the Secretariat of Agriculture and Livestock. -4- established water rights could retain their holdings up to 100 ha. The total project cost was estimated at US$145.6 million. The SRH representative in Los Mochis and the Guasave Irrigation District were to be responsible for project execution. The project ERR was estimated at 17%. 9. At Board presentation, the following main issues were discussed: (i) the merit of combining economic and social objectives in the two projects; (ii) the need for well-established settlement and agricultural develop- ment to complement and justify such large and costly frrigation infrastructure. Implementation of the Projects 10. At appraisal, detailed designs had been completed for only a limited number of the major civil works in the Panuco area. Therefore, cost estimates had been based on preliminary designs for the whole Rio Sinaloa Project and part of the Panuco Project. When detailed designs were carried out and construction started on the two projects, a number of changes had to be introduced in the size and location of some of the main infrastructure, mostly due to insufficient accuracy of topographic material and deficiencies of the preliminary designs. The net effect of these changes was delay in execution and substantial upward revision of project cost estimates. For the Rio Sinaloa Project, problems were compounded by the bankruptcy of the con- tractor and the need to retender the contract, causing additional delays. 11. Project implementation was further delayed by insufficient bud- getary allocations due to increasing inflation, devaluation of the peso in 1976 and a government stabilization program. By mid-76 the projects were facing considerable delays in construction, and cost overruns were estimated at about 70%. By 1977, the situation had deteriorated to the point that the projects were about three years behind schedule; their cost overrun was about 135% and their economic viability had become questionable. 12. The Bank had four possible options: (i) continue with the existIrg disbursement percentage until loan funds were exhausted, that is, about two years before completion; (ii) reduce disbursements; (iii) provide additional financing; or (iv) reduce project scope. Different decisions were made for the two projects. 13. The Panuco Project was re-evaluated in 1977/78. The land develop- ment component of the project had been modified by the Government in 1976. First, the cropping pattern initially planned had been changed as part of a Government policy for self-sufficiency in basic grains, with a larger propor- tion of the land to be planted to grains (maize, sorghum, beans) rather than high-value crops (fruits and vegetables for export). Second, many land- owners had opted for land compensation in cash and were not willing to take a 20-ha irrigation plot in the project area, resulting in more land to be distributed to ejidos. Finally, the Government had decided to establish a - 5 - collective type of ejido, consisting of 500-ha farm units of 50 ejidatarios each, instead of individually managed 10-ha units. The re-evaluation mission concluded, however, that the project was still economically viable (12.4% ERR), because (i) the cropped area could be expanded by 7,000 ha through design changes in the Las Animas unit and (ii) economic prices for products were higher than originally estimated. Since 65% of the civil works had already been implemented, the mission recommended that the project be completed and a supplementary loan of US$25 million be made by the Bank to cover 45% of the incremental foreign. exchange cost of the project. The mission proposal was approved by the Board in July 1978. 14. As a result of an improvement in Mexico's financial situation due to increased oil revenues, construction of civil works progressed rapidly and was 90% complete by the end of 1980, when the Bank loan was fully disbursed. The remaining 10%, however, including pumping stations in the Pujal Coy unit, land levelling and the development of 7,000 ha in Las Animas unit, is not expected to be completed before the end of 1984. The land reform program was implemented as planned, and settlement exceeded project targets by about 25%, resulting in the establishment of 8,519 ejidatarios grouped in 130 ejidos and 2,329 small landowners. The total project cost after completion of all remaining works is now estimated at US$446.7 million, a cost overrun of 126% in current terms and 10.9% in real terms using 1973 constant dollars. 15. For the Rio Sinaloa Project, the decision was made to reduce the project scope to works already under construction in 1978, that is, the Bacurato dam, the Sinaloa de Leyva diversion dam, about 110km of main canals, the construction of irrigation and drainage works on about 29,000 ha on the left bank of the Sinaloa River, and land clearing and levelling. The remaining works contemplated in the original project, mostly the irrigation system of the right bank and construction of wells, were to be executed under a second-phase project which was approved by the Board in May 1979 (Rio Sinaloa II/Rio Fuerte Project, Loan 1706-ME). With the completion of the Bacurato dam, and a reduction of irrigated areas until the second project is complete, there would be an excess of water which would be used for a few years in the adjacent Fuerte Irrigation District, mostly for leaching operations in areas affected by salinity. The revised cost of the reduced project was estimated at US$137.3 million. The ERR was re-estimated at 12%. 16. As a result of the improved financial situation of the country, the pace of the construction work picked up markedly, and the project, as rede- fined in 1978, was virtually complete in 1982. Since most of the farmers had established water rights on the left bank, the land reform component of the project was limited to the settlement in the project area of about 600 ejidatario families displaced from the Bacurato reservoir area. Sizable cost overruns (about 180% or 46% in real terms) still occurred after the project was reformulated. The revised Phase I project cost is now about US$250 million, while the total cost of the initially planned project (Phases I and II) can be estimated at about US$440 million. -6- Impact of the Projects 17. The two projects were initially similar in nature, aiming at developing intensive irrigated agriculture, increasing the cropping intensity to about 120%, and settling a number of farmers on small farms capable of providing acceptable levels of income. At project completion, the impact appears uneven: disappointing for the Panuco Project and satisfactory for the Rio Sinaloa Project. 18. In the Panuco Project, it became apparent soon after the irrigation system started operating that incorporation of land into irrigation was extremely slow. By end 1979, irrigation water was only used on 40% of the 55,000 ha then cultivated. In 1983, while approximately 90% of the land was cropped, only about 50,000 ha (35% of the cultivable area) was irrigated, the remaining being rainfed cultivation. Yields have also been significantly lower than anticipated, and the share of high-value crops remains lower than expected. While the PCR states that this poor performance is mostly due to the lack of experience of the project's small farmers and ejidatarios in irrigated agriculture, the audit mission found that the shortcoming can also be attributed to other factors, mainly insufficient levelling and poor effi- ciency of ejidos (paras. 24-31). 19. The socio-economic study to determine water charges has been carried out as planned, but its recommendations are currently not applied or applicable because of the low irrigation adoption rate. With only a small proportion of farmers using irrigation water, the recovery of O&M charges from beneficiaries remains at a low level (about 4% in 1982 and 16% in 1983), and therefore the district is unable to properly maintain the irrigation net- work (paras. 38-42). 20. In estimating the project's ERR, the PCR made assumptions regarding the cost of investments still needed to complete the project, the land incor- poration rate, and crop distribution at full development. Based on Bank projections for international commodity prices and assuming that all the area to be cultivated under annual wet-season crops would be incorporated by 1988/AI and the area under annual dry-season crops would be incorporated by 1985/86, the project ERR would be 15.8%. Should the full development be delayed by four years, the project ERR would drop to 11.4% (1.1% per year). It is the opinion of the audit that the first assumption is definitely un- realistic, and that considerable uncertainty remains as regards the economic viability of the project. It is worth nothing, however, that the project had a number of indirect, yet not quantifiable benefits, like flood control, tourism and recreation. 21. In 1980, the Government requested Bank assistance for financing a second phase project (220,000 ha), called Pujal Coy II, adjacent to the Panuco Project with a cost of US$2.3 billion. However, the Bank declined considering the Pujal Coy II irrigation project until agricultural develop- ment of the Panuco Project has improved. Following the Bank's recommenda- tion, the Government decided to develop Pujal Coy II under rainfed conditions and to defer irrigation to a later stage. 22. The Rio Sinaloa Project has had a significant impact on the left bank's agricultural production, with yields and cropping intensities already - 7 - surpassing targets set at appraisal on the 29,000 ha fully equiped with the new irrigation system. In addition about 16,000 ha of existing irrigated lands on the left bank benefitted from an increase in water availability. This favorable outcome is attributed by the PCR to good climatic conditions, hard-working farmers, and strong support from Government and Irrigation Dis- trict staff. Although the full benefit of the investments-mainly the Bacurato dam--can only be obtained when the second-phase project is complete, the estimated ERR of this first-phase project is 11Z. Based on SARR's pre- liminary calculations, the combined ERR of the Sinaloa I and II projects is likely to exceed 15%. Other benefits, not taken into account in the project ERR are flood control, and tourism at the storage reservoir. 23. As for the Panuco Project, the socio-economic study regarding the farmers' capacity to pay investment costs has been completed. Its conclu- sions, however, have not yet applied in the project area. The water charges have been raised several times, but, although higher than in other irrigation projects in Mexico, they are still insufficient to cover 0&M expenditures (para. 43). II. MAIN ISSUES A. General 24. Large investments in irrigation (US$447 million for the Panuco Project and US$250 million for the Rio Sinaloa Project) can only be economi- cally justified by making the best use of available land and water and by rapidly developing intensive agriculture in terms of high cropping intensity and yields. In this respect, and despite the fact that both project areas are well endowed with good soils and abundant water resources, the projects' results differ substantially for two main reasons: (a) different irrigation adoption rate and (b) different land tenure situation. Interesting lessons can also be learned from two important issues of these projects: water charges and rc-covery of investment cost, and the cost and time overrun. B. Irrigation adoption rate 25. As correctly pointed out in the PCRs, the slow progress in using irrigation water in the Panuco Project has been partly due to the lack of experience in irrigated agriculture, while in the Rio Sinaloa Project the farmers already had a long tradition and a good knowledge of irrigation tech- niques. The PCRs note that the most obvious weaknesses of the Panuco Project were the insufficient extension service up to 1980, and the lack of linkage and regular contact between research and extension staff. On the other hand, in the Rio Sinaloa Project the extension service proved to be well organized and was able to transfer technology adequately from the research stations to the farm level. Finally, insufficient land levelling in the Panuco Project and some drainage problems on about 7,000 ha in the Rio Sinaloa Project are temporarily limiting factors to the best use of soil and water in the two projects. - 8 - 26. It is worthwhile noting that different climatic conditions also have had a clear influence on the irrigation adoption rate of the two proj- ects. In the Panuco region, with high rainfall during one of the two cropping cycles, irrigation water is only one agricultural input among others and is not essential for obtaining good yields in the rainy season. In addi- tion, some crops like safflower and sorghum can be grown in rainfed condi- tions during the dry season. It is also a fact that farmers in higher rainfall regions run the risk of losing more from excess water (and subse- quent water-logging) than from a lack of it, particularly when they are not used to sound irrigation practices. This in itself explains the farmers' reluctance to use irrigation water until they are quite familiar with irriga- tion techniques. In contrast, water is vital in the dry Sinaloa region and by far the most important factor of crop success or failure; therefore, the water adoption rate has been much higher than in the Panuco Project. 27. Similar differences in irrigation adoption rates have also been experienced in other countries, particularly in North Africa, where annual rainfall substantially decreases from the northern parts of the country, traditionally cropped in rainfed conditions, to the arid South where irriga- tion is essential. In these countries, the irrigation adoption rate has been found to be lower in the North than in the South.2/ The main reason for low water utilization in humid areas is that the difference of the net returns between irrigated and rainfed crops is small. 28. The Mexican and North African experiences clearly show that the risk of a low irrigation adoption rate is higher in high rainfall areas than in arid regions, and consequently, the risk of over-investment in irrigation is particularly high in humid areas. In high rainfall areas the estimated benefits are likely to take longer than expected to materialize. In addition there is a danger that system maintenance will be neglected during the ini- tial years of low water use and that the irrigation network will quickly tend to become non-operational (para. 42). The main lesson of the Panuco Project, as noted by the PCR, is that the costs and benefits of both irrigated and rainfed agriculture should be thoroughly evaluated before making a decision on the type of development. Should irrigation development be adopted, the extension and research service components should be carefully designed. In high rainfall areas, and with farmers little experienced in irrigation tech- niques, training of farmers in irrigation techniques and maintenance of the water distribution system at the farm level is a difficult and lengthy process. A strong and efficient extension service should be established in the project area before irrigation starts. Adequate linkage with agricul- tural research and mechanisms to provide researchers with feedback from the farmers are also essential. Finally, as noted by the Borrower, the two projects are examples of the need for coordinated links between the executing and the operational areas, starting with the initial stages of study and programming. 2/ See PPARs of Morocco, Rharb Sebou, Doukkala I, and Souss Irrigation Projects (OED Report Nos. 3942, 4236, and 5116). -9- C. Land Tenure 29. The two projects were the first where the new Federal Water Law was enforced, allowing for complete land expropriation and redistribution to small landowners and ejidatarios in irrigation districts. Therefore, the projects can be classified irrigation cum settlement projects, a difficult undertaking.3/ The project description, however, was limited to the irriga- tion component of the projects, including cost estimates, financing plan and organization; the land expropriation and settlement components were not included in the project as they were to be entirely financed by local funding. In retrospect, the main notable weakness of the projects is that their settlement aspect was not adequately prepared, appraised and super- vised, while this component was essential for the success of the projects and would, if successful, have application elsewhere in Mexico. 30. In fact, land reform turned out to be much more important in the Panuco Project *han in the Rio Sinaloa Project, where existing water rights spared a large-scale land redistribution (para. 16). While more than 8,500 ejidatarios, grouped in 130 ejidos, were settled in the Panuco Project area, only about 600 ejidatarios, displaced from the Bacurato reservoir area, were established in the Rio Sinaloa Project area. New ejidatarios now constitute about 80% of the project beneficiaries in the Panuco Project but only 10% in the Rio Sinaloa Project. In addition, the type and characteristics of ejidos differ notably from one project to the other. 31. In the Panuco Project, with a few brilliant exceptions, the ejido system is hampered by a number of shortcomings: (a) The poor selection of ejido members resulted in a large proportion of ejidatarios inexperien:ed in agriculture; (b) the adopted ejido system, grouping 50 ejidatarios in a 500-ha collective farm, often proved unworkable. Elected ejido presidents generally were unable to manage adequately a 500-ha irrigated farm, or to maintain the cohesion of the ejidos. As a result, ejidos were adversely affected by quarrels among members, resignation and subsequent replacement of ejidatarios, and in many cases, a de facto partition into smaller groups, or individual farms. Ejidatarios tend to split the communal land into individual plots, mostly because of their perception that the latter type of land tenure allows for using family labor while the collective farm system does not. However, the ejido structure remains, in their view, a valuable instrument for obtaining agricultural credit and purchasing farm inputs and machinery. 3/ Illustrated by the Peru-San Lorenzo, Colombia-Atlantico, Sudan-Rahad Projects (OED Report Nos. 3933, 3959, and 5130). - 10 - (c) Since by definition ejidatarios belong to the poorest segment of the population, ejidos have no working capital and depend entirely on agricultural credit for their investments and cropping ex- penses. Most of the ejidos have obtained medium-term credit for purchasing farm equipment, but the amount of short-term credit allocated by Banrural4/ to ejidos does not adequately cover the cropping expenditures. Besides, procedures for obtaining short- term credit are complex and lengthy. The combined effect of the credit shortage and inexperience of ejidatarios is that part of the ejido land is left fallow, the use of agricultural inputs and irrigation water remains low, yields and production are signifi- cantly lower than anticipated, and a number of ejidos incur losses. (d) Two other factors can be mentioned which adversely affect the suc- cess of ejidos: (i) ejidatarios have often been settled in villages far away from their land, and (ii) they lack storage capa- bilities for equipment and agricultural inputs and outputs. 32. In contrast, the Rio Sinaloa Project offers a quite different pic- ture of the ejido system. The 600 families resettled in the project area originated in the same villages, resulting in a much better cohesion among ejido members. All ejidatarios were farmers and disposed of some working capital before their resettlement; therefore, they do not entirely depend on credit, as in the Panuco Project. The collective ejido system was not com- pulsory in the Rio Sinaloa Project and most of the ejidatarios farm their land individually or in small groups. Besides, they were settled in a region where agriculture is one of the most advanced in the country, marketing is well organized, and farmers' associations are powerful. As a result, the ejidatarios have generally been successful in the Rio Sinaloa Project. 33. As stated above, some exceptions exist in the two projects. Some ejidos in the Panuco Project have been quite successful, mostly because of the strong personality and experience in agriculture of some of their mem- bers. These ejidos have been able to increase significantly their cropping intensity and yields, to build working capital so as to free themselves from the agricultural credit constraints, and to expand their cropping area by renting in land from other ejidos. On the other hand, in the Rio Sinaloa Project, a number of ejidos established before the project have signed participation agreements with, or rent out their land to private landowners. 34. In both projects, private farmers were generally more successful than ejidatarios, quickly adapting to irrigated agriculture, particularly in the Rio Sinaloa Project where irrigation is traditional and progressive farmers predominate. In the Panuco Project, a number of private farmers have succeeded in increasing substantially their cropping intensity and yields, and in developing high-value vegetable crops. It is worth noting, however, that some of these farmers had to overcome the difficulty of adapting to irrigated agriculture by requiring the assistance of people coming from the 4/ Banrural: Bank for Agricultural Credit. - 11 - Pacific Coast. The good results obtained by private farmers and some ejidos in the Panuco Project show that the project potential is high and could be fully developed should the ejidos improve their performance. 35. The projects illustrate the difficulty of reconciling economic and social objectives in large-scale and high-cost projects of this nature. While the Panuco Project had a positive social impact by achieving its land redistribution program, its economic viability remains uncertain and dependent on the evolution of ejidos for the coming years. The Rio Sinaloa Project, on the other hand, is economically quite promising though its social impact has been minimal.5/ 36. In retrospect, the possible conflict between the economic and social objectives of the projects was not sufficiently weighted at appraisal._/ At that time, discussions took place within the Bank and between the Bank and the Government as to whether the Panuco area would be developed in irrigation or in rainfed conditions. The decision was made to maintain the irrigation approach, which was then a pre-condition for large landholding expropriation and redistribution and a necessity for intensifying agricultural production in the area.7/ With the benefit of hindsight, it now appears that the type, size and cost of the project should have been com- mensurate with the possible risks due to the large land redistribution to be undertaken under the project. The alternative was to phase the Panuco Proj- ect in three successive stages, each benefiting from the experience of the previous one, rather than to develop the three project units under the same large and costly project. 5/ As noted by the Borrower, the social benefits of Rio Sinaloa will increase considerably as more land is brought under irrigation and more ejidos are established under the second-phase project. 61 The way the settlement aspect of the project was discussed within the Bank can be illustrated by the following extract from the Issues Paper, dated June 1973. -Although only limited irrigation experience is avail- able in this part of the Panuco Basin, there is no reason to expect that the ejidatarios and private farmers will be any less successful in this area than in other irrigated areas of Mexico.- Although considerable discussions took place within the Bank at the appraisal stage on the water charges and cost recovery issues, little was said about the settlement aspect of the project. The only comment on this issue was raised at the Yellow Cover stage by a CPS staff member who enquired whether potential new ejidatarios had previous farming experience and what would be the ejidatarios' selection criteria. The question remained unanswered. 7/ In 1981, the Government enacted a new law (Agricultural Development Law) which provides for the expropriation of livestock farms in areas suit- able for crop production under rainfed conditions. Under the Pujal Coy II Project, expropriation and redistribution of land is being carried out, although the area is developed in rainfed conditions. - 12 - 37. The projects also provide some interesting lessons on the basic conditions for success in the ejido system in large irrigation projects: (a) a thorough selection of ejidatarios (on the basis of past experi- ence in agriculture) appears essential to the success of ejidos; (b) intensive technical and farm management training of ejidatarios are of utmost importance and should be started prior to settlement; (c) large collective ejidos are doomed to fail unless they are managed by competent agriculturalists. In this respect, the starting period is crucial, as new ejidatarios are likely unable to manage large irrigated farms properly unless adequately trained. In most cases, the traditional extension service is probably not the right instrument for a prompt and efficient start-up of ejidos. Extension agents are essentially advisers; they have no authority over ejidatarios, nor have they power to solve disputes among ejido members. Appointment of SARH agriculturalists, able to manage the ejidos fully and train ejidatarios during the starting period, would help solve the ejido take-off problems;8! (d) the experience gained under the projects shows that ejidatarios should have the opportunity to select their own farming system, collective or individual; (e) the terms and conditions of agricultural credit should cover the ejido needs for medium- and short-term credit, and the credit pro- cedure should be simplified; and (f) storage capabilities for ejido inputs and outputs should be included in the project components. It should be noted that there is now clear recognition at the Panuco Irrigation District level that the training of ejidatarios has been neglected in the project and action has been taken for better training of ejidatarios being settled under the Pujal Coy II Project. D. Water Charges and Cost Recovery of Investments 38. At project appraisal, in 1973, the new Mexican Federal Water Law required SRH to carry out socio-economic studies to determine appropriate charges for the services rendered in each irrigation district. Water rates 8/ In contrast with the Panuco Project, the successful land settlement projects in the oil palm and rubber sectors in Malaysia offer an example of close and continued supervision of settlers by FELDA (the project authority). FELDA, one of the largest and most efficient settlement agencies in the world, considers that only strong financial, technical and administrative support to inexperienced settlers allows for opti- mizing yields and production and thus justifying costly investment. It is worth noting that the investment per family is about US$23,000 in oilpalm or rubber schemes in Malaysia, while it reached about US$41,000 in the Panuco Project. - 13 - were to be reviewed periodically and were expected to cover operation and maintenance (O&M) costs and as much of the capital investment as appeared reasonable on the basis of the socio-economic studies. SRH's intention was to establish a dual-type water charge, one component consisting of a per-hectare charge sufficient to cover O&M recurrent expenses, and the second basee both on the volume of water used and the type of crop grown, aiming at recovering part of the investment cost. 39. Taking into account the requirements of the Federal Water Law, the Project Loan Agreements specified that the Government would (i) assess and collect water charges to cover O&M costs of the projects and as much as practicable of the investment, (ii) carry out the initial socio-economic study by June 30, 1979, to determine the ability of water users to pay; and (iii) periodically review such study and revise charges, if appropriate. 40. In 1984, the status of the water charge and cost recovery issue is the following for the country in general and the two projects in particular: the Government had difficulty enforcing the Federal Water Law in its irriga- tion districts. From 1971 to 1982, the Government has not succeeded in increasing water charges to cover the true cost of water, much less to cover even part of investment costs. The question of adequate water charges is now a common problem in all irrigation districts in Mexico. In 1982, districts' recurrent costs and capital investments were still highly subsidized at 73% and 100% respectively. By the end of 1982, however, the Federal User Charges Law stipulated that water charges should be increased in irrigation districts to cover 80% of O&M costs in 1983 and 100% of these costs in 1984 (since postponed to 1985). Recovery of investment is expected to start by 1985/86. It is worthwhile noting that unlike many countries, revenues from water charges remain at the field level (districts) in Mexico and are used to finance O&M. 41. The socio-economic studies have been carried out for the two proj- ects, but their recommendations are clearly not applicable for the time being, until the recovery of investment costs starts being applied in the whole country; 42. In the Panuco Project, a dual-type water charge is applied with a fixed per hectare charge and a variable water charge based on the type of crop grown. Because water use remains low, only the per hectare charge is now recovered by SARR through Banrural direct withdrawal from farmers' Bank accounts. The fixed charge, however, has been much too low in the past and only covers an insignificant part of the O&M costs, resulting in severe prob- lems for adequately maintaining the irrigation network. In addition, low water use means standing water in canals and accelerated weed growth, resulting in increased maintenance problems. Should the current situation continue for a few years, there is a serious risk that the irrigation network will badly deteriorate and soon need costly rehabilitation. The Tampico Irrigation District now intends to increase by 400% the per-hectare charge; however, the problem of maintaining an incentive for the farmers to make the best use of the project land and water is particularly critical in this proj- ect. While a strong increase in water charges would undoubtedly help in maintaining the irrigation system, it could also further deter farmers from using water and entail a slow down in the irrigation adoption rate. - 14 - 43. In the Rio Sinaloa Project, water charges covered all O&M costs up to 1978. From 1979 onwards rising costs of 0&M were not adequately com- pensated by increase in water charges, although significant progress was made in 1983 and 1984. As in other districts, a Steering Committee, composed of Government and farmer representatives, determines annually the rates neces- sary to cover O&M and proposes water levies. Water charges are determined on a per-hectare basis and vary according to the type of crop grown. In 1983, water charges covered about 70% of the O&M costs. During the audit mission, discussions were underway to increase water charges so as to cover at least 80% of O&M costs in 1984. However, although O&M costs (about US$25/ha) are not excessive for this type of project, and current water charges do not exceed about 5% of their production cost, farmers are extremely reluctant to increase their contribution, arguing that the existing guarantee prices for their crops are much too low and actually represent an implicit tax of 20 to 50%. The project illustrates the difficulty, noted in a number of irrigation projects, of determining a fair water charge when the producer price of agri- cultural outputs is distorted by government price policy. E. Time and Cost Overruns 44. Both projects were severely affected by time and cost overruns, partly due to delays in government funding, inflation, and problems with cow- tractors. Another important reason for time and cost overruns was the insufficient project preparation at the time of appraisal, resulting in a number of changes in design and cost increase during project implementation. In 1976, 65% of the projects' cost overruns were attributed to changes in design. In addition to the need for reformulating the two projects, a secondary effect of the time and cost overruns was that a number of project components were incomplete on the project closing date--and have not yet been completed-thus reducing the viability of the projects. Similar problems of change in design and subsequent time and cost overrun have been encountered in other irrigation projects in Mexico. 45. While the time and cost overrun of these two projects was partic- ularly high, the problem is not limited to Mexico and has affected a number of Bank-assisted irrigation projects in other countries. OED has found that time and cost overrun has been constantly higher in irrigation projects than in other types of project. The 37 irrigation projects audited by OED from 1979 to 1983 have experienced on average a 57% time overrun, compared with 46% for livestock projects, 20% for area development and 19% for tree crop projects. As for cost overrun it was 56% on average for irrigation projects, compared with 37% for tree crop projects, 14% for livestock projects, and about 5% for area development projects. The high cost overrun of irrigation projects can be partly explained by the fact that the projects are usually completed as planned while other types of projects can be reduced in scope or terminated when project funds are exhausted. However, larger cost overruns in irrigation projects have been, in many cases, due to underestimation at appraisal of the required input quantity and deficiencies of the preliminary designs. - 15 - 46. Since 1978 the Bank has required completion of final design for civil works to be carried out during the first implementation year before projects with large civil works are appraised. However, the effect on cost and time overrun of this change of policy has not yet been quite apparent on completed projects, which in most cases were appraised before the new re- quirement was effective. Experience with irrigation projects also shows that physical and price contingencies have been continuously underestimated by the Bank. 洶 寧牌 矯 久 變 - 17 - ANNEX 1 Page 1 NAFINSA Department of International Operations Ref.: BEA-520 June 18, 1984 Mr. Shiv S. Kapur Director, Operations Evaluation Department World Bank Washington, D.C. Dear Mr. Kapur: Reference is made to your note of April 13, 1984 requesting our comments on the Audit Report on the P&nuco irrigation project (Loan 969-ME) and the Rio Sinaloa irrigation project (Loan 970-ME), prepared by your department on the basis of the Project Completion Reports and the report of the mission that visited Mexico in February of this year. The Government of Mexico is keenly interested in the findings of project audits, because they faster and strengthen action to avoid future problems such as those identified in the Pfinuco and Rio Sinaloa projects, and thereby help to fulfill the project objectives. The purpose of the comments is to clarify some key aspects of the audit report with a view to preparation of the final report which will be presented to the Bank's Executive Board. These comments have been prepared jointly by the Secretariat of Agriculture and Water Resources in its capacity as executing agency, the Secretariat of Finance and Public Credit as guarantor, and Nacional Financiera as financial agent. The comments are grouped in two categories: general, which are those applicable to both projects; and specific, pertaining to an individual project. This latter classification also includes the most important conclusions. General Comments 1. The report considers the results of two projects with very different features; while this does make it possible to compare their development, it would be advisable to separate the audits into two specific reports and only as a summary, or final conclusion, bring the findings together in order to highlight the different responses to the specific conditions of each project, Footnotes indicate PPAR comments on NAFINSA letter 1/ Specific Project Completion Reports have been prepared for each project. However, the PPAM intends to present a useful comparison of these two projects, which were similar in nature but turned out to have different achievements and impact. -18 - ANNEX I PaRe 2 2. It is inferred from the findings that better preparation of projects should cover all stages of project formulation and implementation, i.e. from the basic studies to the operation and continuing maintenance of the projects. 3. The two projects are examples of the need for coordinated links between the executing and operational areas starting with the initial stages of study and programming. This is evidenced in the case of Pinuco, where the component of training in irrigated farming proved to be basic if the projected yields and rates of return were to be achieved. 4. We note that the report mentions both real and current costs. When such figures are given, the values must be expressed in real terms even when the unit of measurement is dollars. 5. The cost overruns mentioned in the report are acceptable in that the projected benefits have been obtained or are about to be realized. The 10.9% cost overrun in the Panuco project is reasonable for the type of infrastructure and installations and for its scale. The 49% overrun in the Rio Sinaloa project is significant; however, it must be kept in mind that the cost includes construction of a head infrastructure designed to cover more than twice the area cleared in the first stage. 6. In general, the audits fail to consider economic benefits which are indirect or secondary, but nonetheless real, as indicated in the discussion of each specific project. Inclusion of these benefits undoubtedly would increase the rates of return already obtained and those anticipated upon completion of the second stage of Rio Sinaloa and full development of Pinuco. The economic rate of return therefpe seems to be underestimated, particularly in the case of Rio Sinaloa (11%). Furthermore, the audit report does not indicate whether domestic or international prices were used for agricultural products, which it would be well to know since the lack of domestic production to meet demand -- chiefly for staples -- could mean impor at international prices and the consequent outflow of foreign exchange. 7. The improvement in the country's financial situation was reflected in the budgets available for project execution, which permitted their rapid implementation, completion in the periods envisaged (revised earlier), and disbursement of all credits contracted. 8. The resettlement of 600 beneficiaries in Rio Sinaloa, compared to nearly 8,000 in Pinuco, is not a sufficien. indicator to say that the Rio Sinaloa project has had a minimal social impact. As the project matures and more land is arought under irrigation, the social benefits of Rio Sinaloa will increase considerably./ 9. The audit report focuses its analysis chiefly on the economic and financial aspects of project development, giving inadequate consideration to their social benefits. It should be stressed that the aspects of social and regional development, as well as those related to the potential of available natural resources, should have greater weight in the evaluation. Instead, the report repeatedly mentions the problem of water charges, which goes beyond the scope of the projects themselves. On this point, action is being taken along the lines set forth in the Federal User Charges Law (Ley Federal de Derechos). 2/ The PPAR fully recognizes that complementary investments in the Second Phase Project are relatively small an that the combined ERR of both phases is likely to exceed 15%. 3/ See para. 20 of the final report. 4/ This statement is noted in footnote 5, page 11. 5/ MorE emphasis has been given to social benefits in the final version of tnis report. - 19 - ANNEX 1 Page 3 10. We feel it is necessary that, as a useful practice both for the Bank and for the executing agencies, the Operations Evaluation Department mention, in its reports, the specific problems encountered by missions in failing to detect certain errors in the preparatiin of projects and their operational components. 61 Comments on the PAnuco Project 11. The failure of the project to meet its timetable was due in part to the lack of intensive technical assistance programs to provide training for farmers; to overinvestment in irrigation systems; to the insufficient use of irrigation water; and to the lack of organization and the shortage of investment funds. 12. Since the main factors to which the unsatisfactory results of the Pinuco project are attributed relate to the training and settlement of the beneficiaries (chiefly ejidatarios), the procedure for their selection has now been changed, together with that for the awarding of land. In addition, intensive training is being provided in the technical, managerial and organizational areas before the rights of settlement are granted. As the report notes, there is evidence of great potential for improving the organization of the ejidos so that they may become efficient production units. Therefore, to say that the large collective ejidos are doomed to failure is to deny the possibility that they can achieve levels of efficiency.}/ 13. One of the problems of this project was that of lAnd leveling, which was not completed owing to the lack of a budget for machinery and labor. SARH used tractors with the necessary implements in support of the light leveling program (up to category 1 -- maximi, movement of 1,000 M3/ha), in order to prepare the land for use when the infrastructure would be available or farmers would begin work. 14. In our opinion, the report should consider the indirect benefits of the project investments, which were not contemplated. For example, the Las Animas unit increased its original coverage by 7,000 ha, while the dam is used for multiple purposes such as control and regulation, tourism and recreation, hunting and fishing. Likewise, the Chicayan dam provides the benefits of flood control. B/ 15. Over time, the concept of the project has matured from one of irrigation to one of integral rur&l development, taking advantage of the advances and methods of Proderith, among others. The report analyzes almost exclusively the aspects of infrastructure, land tenure and training of farmers. A broader concept of investment for development should include other benefits derived during the construction and operation of projects, such as housing, schools, social assistance centers, new public services (mainly water supply and sewerage), and storage centers for agricultural products and inputs. 6/ The PPAM notes that the main weakness of the project was insufficient preparation of the Settlement component. 7/ The PPAM does not say that large collective ejidos are doomed to fail, but that their success is dependent on a number of basic conditions, listed in Para. 37. 8/ See para. 20 of the final version. - 20 - ANNEX 1 Page 4 16. It is important.to note that construction has continued on some works that had not made much progress at the time of the mission's audit visit. These include the commissioning of the Pujal-Coy I pumping plants and the progress made on the irrigation and drainage infrastructure and in land leveling. Furthermore, the expanded Las Animas area will soon be irrigated upon comletion of the small pumping facility. Comments on the Rio Sinaloa Project 17. The findings of this project audit are generally satisfactory, even though changes in the preparation, design and scale of the project led to cost and time overruns- 18. As in the Pinuco project, the major indirect benefits that the report does not consider are the multiple uses of the Bacurato dam, where an intake for hydroelectric power generation is being built on the right side of the storage reservoir; it will have a useful head of about 50 m and installed capacity of about 250 MW. The operation of this facility will mean much lower power generation costs because the dam did not have to be built to raise the head and will be a renewable, nonpolluting source of electric power replacing the use of nonrenewable resources.1/ 19. Other benefits that have not been taken into account are flood control, tourism at the storage reservoir, and fishing.1C'Also within the area of influence of the project, the investments and agricultural development itself have prompted the establishment and expansion of agroindustries such as oils, tomato processing, packaging and agricultural machinery and implements. Because the irrigation capacity is greater than the area envisaged for the first stage, part of the available water is being used t irrigate and leach areas outside the project, in the Rio Fuerte district.' 20. Present budgetary constraints require that the infrastructure be used to the maximum as a means of covering the areas to be irrigated as soon as possible, and ensuring the full utilization of its components -- roads, canals and leveling structures and drains. This is being done both in the remaining or complementary parts of Sinaloa I and in Sinaloa Fuerte II, so that each section begins to irrigate the area of influence as it is built. 21. We believe that the judgment given in the report, calling ejidos that have been obliged to rent their land in this project failures, is the result of information which is insufficient to generalize the analysis and reach such a conclusion. In point of fact, some ejidos signed participation agreements with private individuals for three or four years in order to obtain capital resources for investment in clearing, land leveling and other improvements, as well as for pumping equipment. This took place as soon as the project went into operation as an economically attractive alternative for their organization, without which there would have been earlier failure with delinquencies and other liabilities signifying bankruptcy.12/ 9( The PPAR limits its analysis to the first phase Sinaloa Project. 10/ See para. 22 of the final version. 11/ Indirect benefits have been fully recognized by the PPAR (See par- ticularly para. 5.03 of the PCR). 12/ See para. 33 of the final version. -21 - ANNEX I Page 5 Please feel free to request any further clarification or additional information in this matter. Sincerely yours, /s/ Lic. Fernando Torres Valencia General Manager cc: Lic. Mario L6pez Espinosa, Manager, International Agencies Ing. Alfonso Olays, Director of Programming, Comisi6n Nacional del Plan Hidrdulico, SARH Lic. Eduardo Ibaiez, Deputy Director for Studies and Evaluations of International Agencies, SHCP Field Office in Washington C.P. Rosa Na. Zalce Novaro, Manager, Liabilities Administration and Control Lic. Jose Garcia Torres, Deputy Manager, Project Promotion and Evaluation - 22 - ANNEX 1 Page 6 Annex to Comments Some errors in the audit report: Page ii. The OED mission visited Mexico in February 1984. Page vii. The cost overruns should be expressed in real terms even when the unit of measurement is dollars. Page 2 Water resources are not expanded, but rather the areas served by the water supply infrastructure. Page 3 Nafinsa is not the only financial agent of the Mexican Government. Page 5 It would have been better to locate the region of the Rio Sinaloa project on the coastal plain in the center of the State, and not that of the Gulf of California. Page 18 Existing water rights did not prevent a redistribution of land; rather, this measure was not necessary. Page 19 At present there are communal ejidos (in Sinaloa) where family labor can be used. The shares of labor, land and capital are taken into consideration. Federal User Charges Law (not decree). There are no taxes on the use of water; there are revenue-producing charges. All comments incorporated in the final version. - 23 - IEXICO PANUCO IRRIGATION PROJECT (LOAN 969-ME) PROJECT COMPLETION REPORT May 2, 1983 Agriculture 4 Latin America and Caribbean Projects Department -Zy一 メf『ノ分GzfんR - 25 - MEXICO PANUCO FIRST STAGE PROJECT (Loan 969-ME) Completion Report I. BACKGROUND 1.01 The Panuco project was planned as the first stage of a large scale development of the Panuco river basin on the Gulf Coast of Mexico in the states of Tamaulipas, Vera Cruz and San Luis Potosi. It is a tropical area of mainly alluvial clay and clay loams that are inherently fertile but require careful management when irrigated. The mean annual rainfall is about 850 mm but is rather erratic, varying from 700 to 1,100 mm annually; in the main wet (summer) season, risks of both flooding and dry spells exist. 1.02 The land area of the Panuco Basin was, and still is, sparsely settled. In the project area of 137,000 ha only 3,500 farm families were residing at the time of appraisal, of which 1,900 were "ejidatarios" with an average holding of about 17 ha, and 1,600 were nostly large private landowners mainly using their lands for extensive cattle grazing. Overall, only about 40,000 ha were cropped with the remainder under pasture or bushland. Of the 40,000 ha, 5,OCO ba were irrigated from tubewells and small river lift schemes, producing sugarcane, fruits and vegetables, and 35,000 ha were grown with annuals under rainfed conditions. Main annual crops were cotton, corn, sorghum and soybeans with safflower grown as a second crop on the basis of residual soil moisture. II. PROJECT FORMULATION Preparation and Appraisal 2.01 The project was prepared by T-he Secretaria de Recursos Hidraulicos (SRH) and its subsidiary organization, the Comision de Estudios de la Cuenca del Rio Panuco (Panuco Study Commission) as part of a large regional development plan. It was appraised by the Bank in May 1973, and the loan was approved by the Board in February 1974 and became effective in May 1974; it was the fifth Bank loan to Mexico for irrigation development. There were no non-standard effectiveness conditions; assurances were obtained on (a) tendering and award procedures satisfactory to the Bank; (b) the provision of an intensive extension service; and (c) the levying of water charges sufficient to pay operation and maintenance costs plus as much as practicable of the investment costs. Objectives and Description 2.02 The project was intended to develop intensive irrigated agriculture on 137,000 ha. Overall production would be increased by providing a more dependable water supply, improved technology, a better supply of farm inputs and improved marketing facilities. A more equitable income distribution would be obtained by expropriating big landholdings and settling a larger - 26 - number of farmers on small farms capable of providing acceptable levels of farm income, in accordance with the Agrarian Reform Law. The project description, including cost estimates, financing plan, and organization and management was however written to cover only the irrigation component; land expropriation and settlement were not included as these were entirely taken care of by local funding. Key components of the project were: (a) for the Las Animas unit: a diversion dam across the Guayalejo river, diverting water to feed a 600 Mm3 storage reservoir; and an irrigation, drainage and road system to serve 48,000 ha; (b) for the Pujal Coy unit: a diversion dam across the Tampaon river diverting water to supply a pumping plant, El Porvenir, which would discharge at two different levels into main- canals; a second pumping plant at Chapacao and a third one at Jopoy to lift water from the main canals to land at a higher elevation; and an irrigation, drainage and road system to serve 72,000 ha; (c) for the Chicayan unit: a storage reservoir with a capacity of 570 Mm3 across the Chicayan river, and an irrigation, drainage and road system to serve 17,000 ha; (d) land clearing and levelling on all project lands; (e) equipment for operation and maintenance; and (f) agricultural extension services. 2.03 The executing authority for the irrigation scheme was to be SRH (which became SARH in 1977) with its Tampico regional office having the direct responsibility for construction. The Department of Agrarian Affairs (DAAC) of the Secretariat of Agrarian Reform (SRA) was to be responsible for expropriation of private lands, the layout of new farm plots and organization of ejidos1/, and compensation of private farmers. Operation and maintenance was to be the responsibility of a newly created Irrigation District based at Tampico. Agricultural extension services, are also now the responsibility of the Irrigation District, while agricultural research was and still is conducted by the Instituto Nacional de Investigaciones Agricolas (INIA), an autonomous public agency. Project Cost and Financing 2.04 The estimated total cost of the irrigation project was US$197.4 million (see para 2.02). The Bank loan of US$77 million was to finance all 1/ Under Mexican land tenure law, an ejidatario is a member of an ejido, a communally-owned farm. Ejidatarios do not have the right of ownership of the land, but may either cultivate individual parcels or share in the communal operation of the farm, according to whatever system is provided in the ejido. - 27 - foreign exchange costs except for US$4 million for items to be purchased locally; it also included US$11 million interest on the Bank loan during construction, plus half the cost of the extension program (US$1.8 million). The loan was made to Nacional Financiera S.A., the Government agency responsible for channelling foreign loans and credits. III. IMPLEMENTATION Period 1974-1978 3.01 By the time of appraisal, detailed designs of Las Animas and Pujal Coy had already been completed, and some construction works such as access roads and construction camps had begun under negotiated contracts not financed under the project. For Chicayan, only preliminary designs had been completed: construction work was expected to start in 1974. The original design of the Pujal Coy unit was modified somewhat: the site of the diversion dam was moved downstream about 2 km. The feeder canal to the pumping plant is only 2.5 km long instead of 4 km at the upper site and the small regulating reservoirs were eliminated. These changes took place only a few days after loan signing (3/1/79) and were reported by the first supervision mission on March 15, 1974. The mission fully concurred with SRH that the changes were desirable because they represented a better plan than that given at appraisal, shortening the feeder canal. However, SRH was reminded that when such major changes in plans were made, it should advise the Bank. It is interesting to note that detailed designs done in Mexico are frecuently revised and changed. The insufficient accuracy of topographic material at appraisal had also negative effects during implementation leading to the necessity to allocate additional funds afterwards (para 3.12). A change of contractors for the Las Animas storage dam led to some delay. 3.02 By the end of 1974, it was already clear that project costs would exceed the appraisal estimate. In particular, the costs for equipment needed for the construction of the Las Animas diversion dam were much higher than estimated and it became necessary to reallocate US$0.469 million from the unailocated category to Category II (Equipment) of the loan (see Table 2). Development of 10,000 ha of land for irrigation had been started, and progress in land resettlement and development was good: about 40% of the land to be expropriated had been valued, with a much greater proportion of the private owners than had been expected deciding to accept cash settlement rather than new lands. Therefore, more new settlers were brought in as ejidatarios than originally predicted (10,700 as against 8,700); they were chosen from landless people (often agricultural workers) who had no experience in managing farms. Also, ejidatarios were given somewhat larger holdings: 15 to 20 ha of irrigated land. 3.03 By early 1976, the project was facing considerable cost overruns, estimated at about 70%, and the project was rated as a problem project. Disbursements were less than 50% of the appraisal estimate. As this was a time of increasing inflation and considerable public budget constraints, there were delays in the provision of counterpart funds which slowed down construction. The inflation exacerbated cost increases caused by delays in construction: the work at all three units was, by this time, running about - 28 - six months behind schedule. Meanwhile, design changes were made which all added to costs, particularly in Chicayan, and a major underestimation in quantities had also contributed to cost overruns. Also substantive changes occurred in land development planning. As mentioned earlier, many private landowners did not want to take up land under the project (para 3.02), so that more land was given to new ejidos. The type of ejido being created in the area was also new, being based on a collective farm managed as a single unit rather than a cooperative farm of several individually-managed units, as was - and still is - the case with the majority of Mexican ejidos. Furthermore, the cropping pattern planned for the project was changed with a larger proportion of the land to be planted to staple food (maize, beans, sorghum) rather than the high-value crops of fruit and vegetables which, it had been assumed, would account for nearly 50% of the benefits. Nevertheless, the colonization part of the project (expropriation, land clearing access roads and settlement of people) was speedily implemented with a minimum of friction and delay. 3.04 The main civil works at Las Animas and Pujal Coy were initially expected to be completed by the end of 1975, and at Chicayan by the end of 1976. By October 1976, most of the civil works at Las Animas were complete with the exception of the left bank canal on which work had been stalled for several months. In Pujal Coy, the main pumping plant, El Porvenir, was 95% complete, but another two years would pass for El Porvenir to become operational. The second and third pumping plants, Chapacao and Jopoy, were not completed. In Chicayan, the storage dam was complete, but only about 10% of the distribution network, including the main canals, was complete. Since total project costs were by then estimated at US$380 million or almost double the appraisal estimate of US$177.4 million, the economic viability of the project had become questionable. Supplementary Loan 3.05 Given this situation, the Bank reevaluated the project in 1977/1978. The reevaluation mission basically concluded that the project should be completed and supplementary financing should be provided, as (a) the headworks were already in place and, overall, 65% of the civil works had been completed; and (b) even with the increased cost (reestimated at US$354.6 million, somewhat less than previously thought as the 1976 peso devaluation reduced the dollar cost) and a three-year extension of the construction period, from end 1977 to end 1980, the overall rate of return would still be 12.4%. This expected favorable return was arrived at because, although estimated yield levels were substantially reduced and production of high value crops was expected to be much lower, the cropped area would increase by 7,000 ha (mostly through design changes in the Las Animas unit) and economic product prices were higher than originally thought. As a result, the incremental net value of production was estimated to reach US$67 million per annum compared to US$53 million annually at appraisal. 3.06 Consequently, a supplementary loan of US$25 million was proposed, to cover 45% of the incremental foreign exchange cost of the project, to be applied to civil works. This proposal was approved by the Board in July 1978. - 29 - Period 1978 - 1982 3.07 Approval of the supplementary loan coincided with a stabilization of the inflation rate and an improvement in Mexico's budget resources due to increased oil revenues. As a result, construction of civil works went ahead rapidly and by the end of 1980 were over 90% complete. The remaining 10%, however, including mainly completion of electrical installations in pumping plants, and the siting of outlets and other structures in the distribution network, delayed by frequent design changes, progressed only slowly taking over two years to complete. Designs in some cases were originally deficient; in other cases the scale or accuracy of the topographic material was inappropriate. 3.08 As more parts of the irrigation system became operational in late 1978 and 1979, however, it was found that farmers were practically not using the irrigation water available to them, i.e. that the rate of incorporation of land into irrigation was exceedingly slow. By end 1979, irrigation water from the canals was only used on 40% of the the 54,700 ha so far dominated, and this definition included the use of water for supplementary irrigation during the wet season. Supervision missions, in discussing this problem with the Mexican authorities, concluded that lack of experience in irrigated agriculture on the part of the farmers was the main reason for the slow pace of incorporation and recommended a strengthening of the agricultural extension and research program. However, not much progress was achieved on this issue by the time the Government submitted, in mid-1980, detailed proposals for a second stage project in the Panuco Basin, called Pujal-Coy II. 3.09 Pujal-Coy II was a much more comprehensive project than Panuco I. Although similar in concept, i.e. settlement and irrigation, it included (a) the construction of two large dams and the development of 220,000 ha; and (b) partial flood protection of downstream areas, particularly around Tampico City. The project was costed at US$2.3 billion, and would according to the planners take 11 years to implement. Its rate of return was estimated at between 12 and 13%. 3.10 During the Bank appraisal mission that visited the proposed area in September 1980, as well as subsequent missions, it became evident that there were different opinions between Government and Bank as to the best conceptual approach for developing the area. The Government maintained that irrigation development was a necessity to rapidly intensify agricultural production, and legally a pre-condition to enable expropriation of large landholdings. The Bank asserted that the economic feasibility of irrigation could perhaps be proven on paper, but that the experience of Panuco I so far had shown that the jump from bushland colonization to intensive agricultural and livestock production with high cropping intensities under irrigation was too much to expect in a relatively short period, and that limiting development in a first stage to settlement and rainfed farming was more realistic. In support of this position, the Bank commented that (a) the rate of construction and of agricultural development assumed in the Pujal-Coy II feasibility study were too optimistic in view of experience with Panuco I; (b) the provision of extension services in numbers and quality were inadequate to reach their goals; (c) a breakdown of the costs and benefits for a settlement/rainfed - 30 - development project and irrigation/flood control project showed that the returns on the latter could easily become sub-marginal whereas for the former, they were quite acceptable (para 4.04); and (d) the substantial investments in irrigation infrastructure proposed for the initial years of implementation of the project would not result in a timely increase in production so as to make the project economically viable. 3.11 Therefore, the Bank notified the Government in April 1981 of its decision to postpone consideration of the Pujal-Coy II project as proposed until a later stage. Instead, it offered two alternatives: (a) to participate in the financing of a rainfed development project, if the Government agreed to defer the building of irrigation infrastructure to a later stage; or (b) in case the Government declined this proposal, to postpone the Bank-s further participation until it had been proven that the incorporation of land into irrigation under Panuco I was proceeding rapidly. 3.12 The Government opted for the latter alternative, and targets were set for the incorporation rate in subsequent years; also, extension services were greatly strengthened to promote irrigated farming, and funds were provided for implementation of the accelerated program (see Table 6). In spite of these efforts, however, progress was slow and SARH has failed to meet the targets set for 1980, 1981 and 1982. Since, the economic crisis and severe budget constraints have motivated the Government not to go ahead with the costly irrigation scheme; instead, it has decided to proceed with rainfed development but has to date not sought Bank assistance for this undertaking. Water Charges and Maintenance 3.13 The Guarantee Agreement required water charges to be levied at a rate that would cover all of the cost of operation and maintenance and recover part of the investment cost. Also it was required by the Guarantee Agreement (and by the Federal Water Law of 1972) to prepare a socioeconomic study of farmers- potential capacity to pay water charges. With only the minority of farmers using irrigation water, it is not surprising that 0&M coverage has not been reached; it is at present less than 4%. Although the required study was started in 1981, to date it has not yet been finalized and submitted to the Bank for comment, due to the lengthy procedures required for final approval of its conclusions (see also para 3.18). 3.14 With the low O&M coverage through water charges, and the little use of irrigation water by farmers, it is not surprising to find that maintenance already shows signs of deterioration. This is particularly the case with cleaning canals from weedgrowth, which in this tropical area is much more accelerated than in Mexico-s traditional irrigation areas. If permitted to continue unchecked, there is a danger that in spite of their recent construction, the networks would become non-operational. The mission believes that the amount prosposed for O&M at completion (S/. 690 million of 1982) would be sufficient. However, in the present economic conditions, the assurance of adequate future budgetary provisions is uncertain, although it is likely that the amount of the beneficiaries- will be increased shortly (see para 3.18). - 31 - Project Costs and Financing 3.15 As of January 1983, the total project cost after completion of all remaining works is estimated to amount to Mex$ 11 billion by 1985 (US$446.7 million, using the annual average value of the peso against the dollar). This amounts to a cost overrun of 126% against the appraisal estimate of US$197.4 million in current terms: in real terms however, using 1973 constant dollars, it amounts to an overrun of only 10.9%. The cost in 1973 dollars per hectare works out at 1,404 in Las Animas, 1,348 in Pujal Coy, and 2,691 in Chicayan, compared wich the appraisal estimate of 1,459, 1,196, and 1,553, respectively (see Table 6). 3.16 During the initial stages of the project, in 1974 and 1975, delays in government funding caused some delay in construction work. During the course of the project, there were a number of reallocations amongst the disbursement categories; these are detailed in Table 2. The closing date of the inital loan was 31 December 1980 and of the supplementary loan, 31 December 1981: these were extended to 31 December 1981 and 30 June 1982, respectively (see Tables 3 and 4). There were no undisbursed balances in either of the loans. Reporting and Auditing 3.17 Throughout the project period, project accounting ani auditing requrirments, and the requirements of the Guarantee Agreement were never fully met. Quarterly progress reports were submitted regularly but contain only information about civil works. Despite several requests from the Bank, agriculture development progress was not included in the reports. The only other report requested by the Bank was that on water charges which was started but not yet completed (para 3.12). Adherence to Covenants 3.18 In general, there were no major problems regarding adherence to covenants that seriously affected the outcome of the project. The question of adequate water charges is a common problem in all irrigated areas in Mexico resulting from the Government-s hesitance for political reasons to apply the 1972 Water Law requiring full coverage of 0&M cost. A recent irrigation sub-sector review has dealt comprehensively with this issue, and the Government has, in December 1982, made a decision to apply the law fully in this respect within a two year period. The other area in which Mexico consistently failed to meet the Guarantee Agreement-s requirements was in regard to maintaining separate project accounts and submitting audited accounts regularly to the Bank. There, too, it was a more general problem, resulting from the fact that Mexico, until recently, did not have a Government auditing office ("Contraloria de la Nacion") but, instead, relied on a slow and complicated internal auditing process under which project specific audit reports were never made. Again this issue was common to all projects in Mexico carried out directly by Government departments and has recently been the subject of a comprehensive Bank-Government review, as a result of which new procedures have been agreed upon that would satisfy the needs of both parties. - 32 - 3.19 Apart from Section 3.11(b) (water charges), there were no dated covenants, and all covenants were observed. IV. FINANCTAL AND ECONOMIC IMPACT Assumptions 4.01 In estimating the projects' economic impact, assumptions had to be made regarding (a) investments still needed to complete the project; (b) the land incorporation rate; and (c) the crop mix at full development. Furthermore, to maintain comparability it was decided to use the "without project" situation as estimated at appraisal (para 4.04). 4.02 Certain investments, especially the expansion of the Las Animas Unit by 7,000 ha as well as the installation of one pumping plant, still need to be completed. At the time of the completion mission (January '83) this was expected to be done in 1983 and 1984 at a total cost of Mex$ 1,075 million (US$10.7 million); see Table 6. With regard to the incoporation rate, assuming that the strengthening of extension services started over the last two years would continue, it is estimated that (a) all the area to be cultivated under annual wet season crops would be incorporated by 1988/89; (b) the area under annual dry season crops would attain this level in 1985/86; and (c) the area under perennial crops (mainly fruits, sugarcane and artificial pastures) would increase threefold to be incorporated also in 1985/86 (see Table 7). Full production would thus be reached in 1990 (see Table 9). The expected crop mix does not represent a strong departure from appraisal estimates except for a substitution of cotton and soybeans (from 25,000 ha to none, and from 30,000 ha to 15,000 ha respectively) for maize (from 4,000 to 28,500 ha). It does represent, however, a considerable change over the present cropping pattern as it assumes an increase in the share of higher value crops: the perennials mentioned above wc..1d occupy close to 33% of the area comp.red to just over 10% at present. 4.03 On the basis of these assumptions, the revised rate of return would be 15.8% (Table 9), lower than the one expected at appraisal (19-22%) but higher than the estimate made at the time of the supple. -ientary loan (12.4%). This favorable outcome is largely due to higher economic crop prices which substantially compensated for higher investment costs (rore than double the appraisal estimate) and crop development delays (four years). However, the basic assumptions for this calculation with regard to incorporation rate and crop mix, may be somewhat on the optimistic side, as in view of past performance, it may well take longer to reach these targets. Consequently, a sensitivity test has been made assuming that it would take four years more to arrive at these full development assumptions; the rate of return would then drop to 11.4%. 4.04 It is important to note, however, that the ROR calculation, both here and in the appraisal report, are based on a "without project" situation as the one existing prior to expropriation and settlement. In order to carry out a cost/benefit analysis of the irrigation investment as such, it would have been more accurate to assume as the "without project" situation an area already settled and cropped under rainfed conditions, and to carry out a - 33 - separate cost/benefit analysis of the settlement cum rainfed development project. For lack of data especially on the cost side, it has not been possible to do this at this stage; however, such calculations were carried out as part of the Pujal-Coy II project proposal and may serve as a proxy. On the latter, it turned out that settlement cum rainfed development would have a rate of return in the order of 18% to 20%, whereas irrigation development with more realistic assumptions on the benefit streams could easily turn out to be submarginal from 8% to 11%. V. INSTITUTIONAL PERFORMANCE 5.01 Since the institutions dealing with irrigation development in Mexico were all well established and experienced, institution-building was not included in the project-s objectives. There were a few organizational changes that occurred during the life of the project, notably the merger of the former Secretaria de Recursos Hidraulicos and the Secretaria de Agricultura y Ganaderia. The 1972 Federal Waters Act created Irrigation Districts which were therefore rather young institutions at the time the project started, but by the time the irrigation district for the project area assumed responsibility for the project, the organization and management principles had been well defined and there were no particular difficulties in regard to the project. The fact that the project was being implemented in three different states might have caused some coordination difficulties, but in fact the opposite occurred: the central government was under pressure from three different governors to implement the project, and consequently, tended to give it certain preferences. Thus in 1975 and 1976, times of financial constraint in Mexico, Panuco was able to get preferential allocation of local funds when other projects were being cut back. 5.02 The most notable weakness was in the extension service, which continued to have difficulty in transferring new technology to farmers. Up to 1980, it seemed that insufficiency of extension personnel was the problem, but this was strengthened in 1980 and 1981 so that there are now 18 "auxiliar tecnicos" and 9 -jefes de area" for less than 11,000 farm families, a quite acceptable staffing density. Weak linkages with agricultural research also handicap the extension service and explain in part the absence of suitable recommendations. While the research institution, INIA, has quite a strong program in the Tampico area, there is not enough regular contact between INIA staff and the extension staff of the irrigation district, and there is virtually no mechanism to provide researchers with feedback from the farmers. Also, it is thought that the set-up of "collective" ejidos of 500 ha each in the project area (para 3.03) may in the final result have been detrimental to rapid innovation, acquisition of knowledge and intensification of on-the-farm activities. 5.03 As almost none of the farmers had had any prior experience in irrigated agriculture, few of them had had experience in crop cultivation (70% of the land was used for grazing) and some of them had had no experience in agriculture at all, SARR could be taken to task for not having provided a stronger extension program from the beginning, or for not having supported the extension work earlier with a farmers- training program. This is now being done in the development of rainfed agriculture in the Pujal Coy - 34 - II area: a training institute at Ciudad Valle run by the Instituto Nacional de Capacitacion del Sector Agropecuaria is now providing one month courses in basic agriculture for new settlers, which is reported to be very effective in helping farmers adapt to new technologies. VI. IBRD PERFORMANCE Conceptual Approach 6.01 Could it have been foreseen from the beginning that support of a settlement cum rainfed development project as a first stage would have been preferable wver immediate irrigation? The question was raised and debated during appraisal, but a number of factors turned the decision the other way. First, Mexican officials strongly maintained - and the Bank mission eventually agreed - that wet season rainfall was too low and/or too erratic to support rainfed agriculture. Second, Mexican officials asserted that without irrigation (i.e. legally speaking: the creation of a new irrigation district), they had no legal basis for expropriation of large landholdings which, it was unanimously agreed, was a necessity for intensifying agricultural production in the area. 6.02 Studies of rainfall volume and variability show, however, that the issue is not that clearcut. Rainfall records over 40 years (1943 to 1982) show that only in 13 years was total rainfall less than 800 mm, and only in nine years was it less than 100 mm/month in the crucial months of June, July and August. The high percentage of clay and clay loam soils in the area, with generally low permeability, on the other hand, leads to a relatively high risk of flooding in low-lying areas in the wet season, and drainage would therefore in any case be a required investment component even in a rainfed development project. However, the high water retention capability of these soils generally permits a second crop to be grown (in practice mostly safflower) on the basis of residual moisture. Another indication is that, although prior to project execution the area was sparsely settled, some spontaneous settlement under rainfed conditions had been going on for years in that and surrounding areas. 6.03 The legal issue was also not as clearcut as originally stated. The Agrarian Reform Law of 1971 and the Federal Water Law of 1972 enabled expropriation in lands designated by the Government as Irrigation Districts and Drainage Districts. It is true that at the time of appraisal (1973) no areas had been designated as Drainage Districts (the first such designation occurred only in 1980) and, although the Mexican Constitution provided for the general possibility of expropriation, no legal framework other than the aforementioned laws existed for it. However, if the Mexican Government would have had the willingness to seriously investigate the rainfe alternative, and would have accepted it, it seems at least possible that the area could have been declared a Drainage District. Later on, in January 1981, the Government enacted the Agricultural Development Law, which specifically provides for the expropriation of lands in stock farms in areas suitable for crop production under rainfed conditions. - 35 - Supervision 6.04 Supervision was carried out with continuity and regularly: the project was supervised twice a year, except in 1978 (when an intermediate re-appraisal took place) and in 1980/81 (when the Pujal-Coy II project appzaisal took place). However, it was only in February 1976 (20 months after project effectiveness), when it first became apparent that the problems of cost overruns could not be handled by additional Government funding: the project was then (for the only time) marked as a problem project and was subsequently reappraised. It was not until late 1979 that the Bank first raised the most serious issue facing the project: the reluctance of the farmer to incorporate their farms in the irrigation system, the slow pace of the agricultural development and delays in realizing the benefits, thus reducing the viability of the project. 6.05 Nevertheless, since then, the Bank supervision influenced a number of important decisions which have contributed to the improvements now achieved under the Project. Among these were: (a) the preparation of an accelerated plan for incorporating land into irrigation and the strengthening of technical assistance and research and development on pilot farms; (b) the position adopted by the Bank to differ its decision to finance the Pujal Coy II project as an irrigation project. The Bank-s position was instrumental in dissuading the Mexican Government from investing a huge amount of money in a very risky project at a time when the constraints of the current economic crisis were not yet apparent; (c) the Government eventually accepted the previously rejected recommendation of the Bank to start the development of the second phase (Pujal-Coy II) under rainfed conditions, and to postpone the development of irrigation in that area until the rainfed development had been carried out; and (d) to strengthen the extension service and develop the methodology necessary to train newly established and relatively inexperienced farmers in the proper use of irrigation water for more intensive farming. 6.06 There were, however, a number of cases in which efforts by the Bank in the course of supervision to affect changes in the project were unsuccessful. Among these were the initiation of studies to determine satisfactory agricultural technologies. VII. CONCLUSIONS AND RECOMMENDATIONS 7.01 The lessons learnt from the Panuco project have important implications, not only because of the Government of Mexico-s long term plans to develop the Panuco Basin, but also because such possibilities are being considered in other areas of the east and southeast of Mexico where similar conditions prevail. - 36 - 7.02 The first lesson is that when the possibility exists of developing rainfed agriculture as well as the provision of irrigaition facilities, the evaluation of the project should compare the costs and benefits of both alternatives. Secondly, the realization of benefits will only slowly materialize in an area where intensive agriculture, either irrigated or rainfed, is a new practice for the farmers of that area even if it is supported by a strong extension service. Even now, it is not proven that the extension service, as it currently functions, will be able to achieve the desired results soon, and if Bank participation in the rainfed development of the Pujal Coy II project ever becomes a reality, this aspect should be thoroughly reviewed. Finally, the results attained up to now in Panuco I lead one to the conclusion that under the present institutional, legal, social and climatic conditions, it would not be advisable to develop irrigation projects in the area until there is concrete evidence that benefits estimated in the feasibility study can be substantiated on the scale of the project. If this is nevertheless done, as is now the case with Panuco I, there is not only the risk that the estimated benefits will take long in forthcoming, but also the very real danger that systems maintenance will be neglected as a result of which, in a tropical area of accelerated weedgrowth, the networks tend to become quickly non-operational. Table 1 - 37 Page 1 of 2 MEXICO PANUCO IRRIGATION PROJECT (969-NE) COMPLETION REPORT Key Indicators - Estimates -- Actual - At Appraisal At Supplementary At Full At Completion 1974 Loan 1978 Development Mission - Total Project Cost (US$M) 197.4 354.6 448.5 439 Loan Amount (US$M) 77 102 102 102 Estimate Completion Date 1980 1981 1984 Full Development Year 1990 1992 - Actual Proportion of Physi- cal Works Completed (Z) 93.68% Proposed Area for Irrig. (ha) 137,000 137,000 144,000 Area Actually Irrigated (ha) 38,000 Area Actually Under Command IRR - 20 12.4 11.4 INFRASTRUCTURE Las Animas Diversion Dam 1 1 1 1 Feeder Canal OCm) 16.8 16.8 16.8 16.8 Storage Dam (Mm3) (1) 600 600 600 600 Pumping Plant # 1 60% Main Canals (km) 179 166 166 Distribution System (km) n/a 542 536 Drainage System (km) n/a 470 465 Roads (km) 755 961 961 Clearing (ha) 22,700 27,000 27,000 Initial Leveling (ha) 48,000 55,000 48,000 Pujal Coy Diversion Works 1 1 1 Feeder Canal # 1 1 1 Pumping Plants #2 2 3 3 100/ 98/22% Reservoirs 8Mm3 8 - - Main Canal (km) 182 221 216 Distribution System (km) 625 678 576 Drainage System (km) 950 685 650 Roads (km) 980 1,006 905 Clearing (ha) 28,250 48,000 48,000 Initial Leveling (ha) 72,000 72,000 72,000 - 38 - Table 1 Page 2 of 2 Estimates - - Actual - At Appraisal At Supplementary At Full At Completion 1974 Loan 1978 Development Mission Chicayan Storage Reservoir Mm3 1(570) 1(570) 1(570) Pumping Plant # - 1 1(90z) Main Canals (km) 102 105 104 Distribution System (km) 148 200 199 Drainage (kn) 127 230 225 Roads (km) 273 309 308 Land Clearing (ha) 7,250 17,000 17,000 Initial Leveling (ha) 17,000 17,000 17,000 Beneficiaries: 8, 10,693 10 5441 Direct Owners 685 831 2,349 f329 Colonos 839 893 ) ) Ejidatarios 7,153 8,969 8,519 8,519 Cropping Intensity Annual Crops Fall-Winter (ha) 87,000 ) 159,000 67,800 37,087 Spring-Summer (ha) 40,000 ) 55,500 29,624 Sch Total (ha) 127,000 159,000 123,300 66,711 Physical Area Under Annual Crops 87,000 107,000 96,800 72,942 Perennials 50,000 30,000 47,200 5,058 Total 137,000 137,000 144,000 78,000 Intensity 146Z 149% 127% 92% 1/ Includes apliacion Las Animas. MEXICO PANUCO IRRIGATION PROJECT COMPLETION REPORT Allocation of Loan Proceeds Loan Agree- As Amended As Amended As -Amended Amendment ment 1974 1975 1976 1977 1978 I. Civil Works 48,500,000 48,500,000 52,148,000 55,821,000 80,821,000 II. Equipment 5,700,000 6,169,240 6,196,240 6,196,240 6,196,240 III. Extension Services 1,800,000 1,800,000 1,800,000 3,982,760 3,982,760 IV. Interest 11,000,000 11,000,000 11,000,000 11,000,000 11,000,000 V. Unallocated 10,000,000 9,530,760 5,855,760 - - 77,000,000 77,000,000 77,000,000 77,000,000 102,000,000 -40 - Table 3 MEXICO PANUCO IRRIGATION PROJECT Completion Report Total Disbursements: By Loan Agreement Category (US$) LA As Schedule I Amount Amende Actual Percentage Category Allocated- 197i Disbursements Achievement I. Civil Works (a) contracts referred to in para. 3 of Schedule 2 to the Guarantee Agreement 7,500,000 - 11,328,071 151 (b) Other 48,321,000 25,000,000 69,515,329 94 II. Equipment 6,196,240 - 6,289,374 101 III. Extension Services 3,982,760 - 3,867,226 97 IV. Interest and Other Charges on the Loan Accrued on/or Before July 14, 1980 11,000,000 - 11,000,000 100. Total 77,000,000 25,000,000 102,000,000 100 1/ Per Loan Agreement of March 1974. 2/ Per Agreement Amending Loan Agreement dated September 27, 1978. -41- Table 4 MEXICO Panuco Irrigation Project (969-ME) Completion Report Estimated Project Cost and Financing Appraisal Estimate Actual Total US$ Total US$ Equi- Equi- Item Components Local Foreign valent Local Foreign valent No. (millions) (millions) 1. Civil Works 81.5 49.0 130.5 215.60 129.62 345.22 2. Equipment 7.8 9.2 17.0 12.46 14.69 27.15 Engineering & 3. Administra:ive 14.2 - 14.2 28.63 28.63 4. Rights of Way 2.9 - 2.9 38.35 38.35 5. Extention Serv. 3.5 - 3.5 7.41 7.41 Subtotal Base Cost 109.9 58.2 168.1 302.45 144.31. 446.76 Physical Cont. 9.6 5.0 14.6 Price Coit. 9.7 5.0 14.7 Total 129.2 68.2 197.4 302.45 144.31 446.76 Interest on Loan during.ConEt. 11.0 11.0 11.00 11.00 Total 129.2 79.2 208.4 302.45 155.31 457.76 Financing: IBRD 1.8 75.2 77.0 1.80 100.20 102.00 Borrower 127.4 4.0 131.4 300.65 55.11 355.76 Total 129.2 79.2 208.4 302.45 155.31 457.76 NzEIC0 FANUCo IATION PROJECr iWan 9JM) Completion Rapor Construction Schedule Calendar Yea 1973 1974 1975 1976 1977 1976 979 90s*M Lee Animes Access Road Construction Camp Diversion Dam M111110h1,1212XXXXXXXXX Feeder Canal 11"MIMMXXXXXXXXXXX Las Animas Reservoir Uii iiit&iUUN1ithiflxxxxxxxx Main Canals xxxxxxxxxxxxxxnxxaznxxxxxiiiuiiirxiur Irrigation System IRmx73 Drainage System Roads x Dttchrider Houses xx xxxxxx x nnz District Offices Land Clearing and Levelling UuilutliltulgllIllilhujuom xx xz xzuxnnn Diversion Dam . . Feeder Canal liuifl'xll2ilxxxxxxxxxxxxxxxxx Pumping Plants Regulating Reservoirs Main Canals 94 Irrigation System xiUlRhfllflIIillIfluIU Iu!nxx isxxxxxxxxxxxxannnmn z 92 Drainage System 98 Roads HIUhIUhUilIIIItUfl!UhUIflxxznnnmzzMm-- -x Offices Ditchrider Houses Land Clearing and. xxxx-xnfllxb vlflh mx x x nXuXXX Levelling x "XXX;XXXXnflXjr.XXXXXXXXXX 9flaaa x 100 Chicayan P so de Piadra Das .nf n Main Canals *N3 s*uiuu yiuiiiii* X8.8 Irrigation System Drainage System kU1flflflflh xmxxzx 99.7 Road System 1xxxxx UUMMxxx Ditchrider Houses District Offices Telephone System Land Clearing and levelling to1 Access Road uXXX Construction Camp mX3=MXmmhnman3 jNumbers express percentage of progress of completion mssiLon.0' min.n As Proposed at appraisal M3. Actual - - - IA A4114 Uie tGUSOGs Sot CGUeiAred At Opprlis&l. i MRIC0 PANUCO IRRICATION PROJECT (Loan 969-ME) Completion Report Investmentsi Actual and proposedi/ (Million mex. Peaos) --------------------- *--* - Current Pesaar*--- *** **** - -*- - * *** Constant 1982 Pesos*- 2one 1973 1974 1973 1976 1977 1978 1979 1980 1981 1982 1983 1986 1985 Total Pujal-Coy 1 140.01 250.52 361.17 627.11 749.69 618.97 555.00 381.00 409.43 137.20 746.00 4,976.66 Chicayan 16.23 184.97 251.19 309.55 337.20 428.34 240.73 108.39 39.15 31.69 35.00 1,982.44 Las Antmas 52.03 138.61 446.12 429.95 685.35 305.71 120.28 57.06 19.70 2,056.81 Las Animas Extension 102.00 221.90 69.74 85.18 122.20 3.50 604.52 Subtotal 52.03 295.01 881.61 1042.31 1 2 1 1207.69 578.83 534.16 2...09 784.50 9-618,43 Additional Vorks 396.17 448.38 366.32 174.26 1,385.10 Subtotal 52.03 295.01 881.61 1,042.31 1,422.01 1,392.60 1,269.59 1,074.69 578.83 930.33 739.67 1,150.62 174.26 11,003.56 14.08 20.32 44.74 85.99 104.03 158.31 408.20 518.10 612.30 690.80 2,656.87 Tntal 52.03 295.01 881.61 1.056.39 1,442.33 1,437.34 1,355.58 1,178.72 734.14 1,338.53 1,257.57 1,763.12 865.06 13,660.63 Average tate of Exchange 12.5 12.5 12.5 14.41 22.70 22.84 22.84 23.20 25.70 70.0 140.0 140.0 140.0 28.24 Total (Us$million) 6 23.60 70.53 73.31 63.54 62.93 59.35 50.81 28.68 19.12 8.98 12.59 . 438.78 Total Exclusive of 080 4.16 23.60 70.53 72.33 62.64 60.97 55.59 46.32 22.52 13.29 5.28 8.22 1.25 646.70 Pinancial Prices 2 (Million Mex, Pesos * Constant 1982)-' Pujal-Coy I 948.23 1,1418.80 1,763.17 2,132.26 2,236.67 1.617.59 1.118.06 706.78 791.66 550.66 1,105.31 432.53 14,820.78 Chicaysn . 117.12 1,069.12 .1,238.21 978.76 1,000.55 1.107.49 490.59 163.43 133.65 145.82 150.57 102.16 6,697.47 Lai Animes 388.91 1,041.97 2,843.73 2,028.78 1,613.81 879.31 483.22 559.33 214.79 376.66 491.30 377.24 329.37 11,628.40 Total 388.91 2,107.32 5,330.93 5,030.16 4,7Z4.83 4,116.53 3,208.30 2,167.98 1,085.00 1,301.95 1,187.56 1,633.12 864.06 33,146.65 Economic Prices 3/ (Million Mex. Pesos - :onstant 1982)- Pujal-Coy 1 1,070.08 1,600.31 1,989.73 2,606.25 2,527.54 1.825.45 1.261.73 797.60 893.39 621.17 1,267.34 488.11 16,728.40 Chicayan 132.17 1,206.50 1,397.32 1,104.53 1,129.12 1,269.80 $53.63 184.43 150.82 164.56 169.92 115.28 7,558.08 Lee AnSmas 438.88 1,175.86 3,209.15 2.289.47 1,821.18 992.25 545.32 608.72 242.39 425.04 554.44 625.72 371.69 13,100.11 Total 438.88 2,378.11 6,015.96 5,676.52 5,331,96 4,648.91 3,620.57 2,424.08 1,224.42 1,469.25 1,340.17 1,842.98 975.08 37,386.89 I/ Investments are in current Mexican pesos from 73 to 82 and constant 82 pseos from 83 to 85. 21 All investments are in 1982 constant Mexican peasos using financial prices; exclusive of indetinitation. 3/ All investments are in 1982 constant Mexican peos using economic prices; exclusive of indeuinitation. m n x i e 0 PANUCO IRRICATION PROJECT (Loan 969 ME) COMPLETION REPORT Agricultural Dovelopent Schoduls 76/77 77178 78/79 79/80 80/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 DMinatId A1r3n 5.0 15.4 35.5 54.7 86.1 101.0 120.8 142.2 144.0 144.0 144.0 144.0 144.0 144.0 Irrigable Arojl 2.2 7.4 21.2 36.2 58.1 78.0 104.0 131.0 131.0 144.0 144.0 144.0 144.0 144.0 Irrigated Area FalllWintar r 0.5 4.3 10.9 15.7 22.7 37.1 36.1' 45.8 56.3 67.8 67.8 67.8 67.8 67.8 Spring/S~m.r Cr~s 1.8 4.7 13.2 21.6 21.5 23.6 50.1 29.3 37.1 47.7 48.2 52.5 55.5 55.5 lrnial Cisy - - - 0.2 0.8 5.1 15.0 34.2 45.2 47.2 47.2 47.2 47.2 47.2 'Ita 2.3 9.0 24.1 37.5 45.0 71.8 101.2 109.0 138.6 162.7 163.2 167.5 170.5 170.5 Physical Arm 2.2 7.4 21.2 36.2 58.1 78.0 104.0 131.0 131.0 144.0 144.0 144.0 144.0 144.0 Cr~pping Intensity 104 121 113 103 77 92 97 77 109 119 120 124 127 127 tinfed Area Fall/Winter Cp 19.9 33.1 19.9 45.7 41.9 25.2 44.0 12.5 5.6 Spring/m~nr Crepe 35.0 48.0 51.1 61.9 36.7 26.9 10.0 19.3 9.9 C~rnnial - - - 24.6 30.5 22.9 15.0 16.8 5.8 L 54.9 81.1 71.0 132.2 109.1 75.0 69.0 48.6 21.3 1/ Actual up to and inciling 1981/92. 2/ Area dinatod by main irrigatin infrastructe (up to farblockj gate). 3/ Arva dominated by main irrigation infratructur and en-farm infrastructue Inolung levmlled lands. ~/ Area n htich Airigatiin watar has b=m ued (pplontary or otharwies). 5/ Purmial crepe are inmlud in Spring/Simr crop for 1976177 to 1978179. ' -45 Table 8 MBXICO PANUCO IRRIGATION PROJCT (LOAN 969-ME) Completion Report Croppinc Pattern and Estimated Yields at Full Development Estimated At Appraisal - Bath SaoeEstimated at Completion (1990) Without Project With Project I ith Project Crops Area Ha Yields t/ha Area Ha Yields t/ha Area Ha Yields t/ha Area Ha Yields t/ha Area .a Fall-Winter Spring-Summer Total 40,000 21 127,000 67L975 55,312 4 123287 Soybeans 1,200R 0.9 30,000 2.5 15,166 2.5 15.166 Beans 2,000R 1.0 4,000 1.5 21,350 2.0 576 2.0 21,926 Rice 6,000 5.0 15,657 5.0 15.657 Corn 11,000K 1.1 4,000 3.0 9,700 3.7 18.835 4.0 28.735 Cotton 2,000R 1.5 25.000 2.5 Safflower 8,000R 0.7 20,000 2.0 9,860 1.7 * 9,860 Sorghum 11,000R 1.8 30,000 5.0 Wheat 16,068 5.0 16.068 Sesame 220 1.5 1,978 1.5 2,198 Horticulture: L M IL 8-000 ULD (10.777 ) (IS-67 Chile 3,995 173/ 1,490 16.0 5.485 Tomato 2,380 20= 698 17.0 3.078 Melon 400 20 444 20.0 844 Green Pepper 300 18 300 Watermelon 1,409 25 1,409 Onion 22,93 20 268 17.D 2,561 Cabbage 200 6.5 200 Perennials: 3-200 M..0 707 Sugar Cane 400 60.0 3,000 100.0 Fruit Trees: 700 M8000 zM (7,207) Mango 12.0 3.500 Citrus 19.5 207 Papaya 40.0 3,500 Pasture-Beef Fattening 37.100R 0.3 39,000 1.5 2.8 40,000 Native Vegetation 58,800R Total 137,000 177,000 170,494 Physical Area 137,000 137,000 144,000 Cropping Intensity 2 57 129 118 Cropping Intensity . Exclusive of Permnials 40 146 127 1/ Seasonal distribution not shown in appraisal estimate. 2/ R - P.ainfed Conditions. 31 Pujal-Coy - 17 t/ha. 4/ Chicayan and Amp. Las Anisas - 1.9 t/ha. 51 Pujal-Coy 20 t/ha. 61 Chicayan 19 t/ha. - 46 -- 46'- Table 9 MEXICO PANUCO IRRICATION PROJECT (Loan 969-E) Completion Report Economic Benefit and Cost Streams (Million US$) Pucal Chicayan Las'Animas Total Prolect 2/ 1 Net 3/ 1/ 2/ Net 31 1/ 21 Net 3/ 1/ 2/ Net 3 Periods Benefit- Cost- Incre" Benefit- Cost- Bevefie Cost Z=re.- 1 0.00 0D00 0.00 0.00 0.00 *.00 0.00 438.8 -438.0 0.00 438.88 -438. 2 0.00 1070.06 -1070.06 0.00 132.17 -132.17 0.00 1175.96 -1175.96 0.00 23.11 -2378.11 3 -65.32 1660.31 -2515.63 2.62 1206.50 -1203.99 324.71 3209.15 -2994.44 -52.99 6075.96 -603.95 4 -56.46 1999.73 -2846.19 8.28 1397.32 -1389.04 16.56 29.47 -2092.91 -651.62 5676.52 -6 .14 5 -917.67 2406.25 -3323.92 -26.95 1104.53 -1131.49 1293.60 19219 -527.59 348.9 1131.96 -49KI.98 6 -630.67 2527.54 -3153.21 -13.70 1129.12 -1142.92 631.23 9.25 -361.02 -13.4 4648.91 -4662.05 7 -673.75 1925.45 -2499.20 -27.72 1249.90 -1277.52 59.18 54.32 53.96 -102.29 3620.57 -3 .9b 8 -399.45 1261.73 -1650.18 -92.52 553.63 -646.15 1096.04 608.72 49.32 615.07 2424.09 -1309.01 9 33.49 797.60 -424.12 24.57 184.43 -159.96 1307.52 242.39 10513 I7558 24-42 481.16 10 1642.40 893.39 749.01 130.55 150.92 -2027 1917.29 425.04 1492.25 30.24 1469.25 22.9 11 1849.14 621.17 1227.97 54.01 164.56 -110.55 2376.02 W4.44 1921.50 4279.17 1340.17 2r.00 12 3194.03 1247.34 1946.69 165.35 169.92 -4.57 4360.19 425.72 3934.4 7719.56 134.? 596.59 13 3690.03 488.11 3201.92 1046.23 115.28 930.95 4409.75 3.69 037.06 ?lIw.o1 975.08 8169.3 14 5200.92 421.61 4779.31 1346.54 99.58 1246.9 520.27 322.03 40.24 11749.7 84322 109"651 15 5W45.50 421.61 5443.89 1650.12 99.58 50.54 56.60 03 5321.57 13159.22 84.22 12311.00 16 6506.74 421.61 685.13 1940.5 99.58 184047 52.52 322.03 5450.4 14219.91 343.22 1376.59 17 6447.29 530.15 5917.14 2050.11 225.22 1924.99 598 404.93 5494.95 1439.2B 10.30 13326.98 18 4861.5 508.95 6352.61 2095.30 120.22 17.09 709,64 389.73 6700.91 1604.50 1017.0 1562-60 19 6861.56 626.92 6234.64 2095.30 148.08 1947.22 7019.64 471.33 6610.91 164.50 1253.3 147.67 20 4861.56 543.44 6319.10 2095.30 128.37 196.93 7089.64 415.10 6674.54 164.50 1066.93 14957 21 6861.5 546.36 6315.20 2095.30 129.06 1966.24 7069.64 417.31 66.33 10650 1M273 149277 22 641.5 472.00 6389.5 2095.30 111.48 19R3.92 7089.64 360.51 6729.3 1606.50 943.9 15102.51 23 6861.56 514.67 6346.89 2095.30 121.56 1973.74 7089.64 393.10 6696.54 1606.0 1029.33 15017.17 24 6861.5 454.65 6406.91 2095.30 107.39 1997.91 7099.64 347.26 A742.38 1606.50 9.30 15137.20 25 6861.56 489.64 6371.92 2095.30 115.65 1979.65 7009.64 374.00 6715.64 16046.50 979.29 M0.21 26 6861.56 507.48 6354.09 2095.30 119.87 197543 70N.6 387.61 67.03 1A4.50 1014.96 1501.54 27 6861.56 714.04 6147.52 2095.30 168.65 1926.65 709.64 54.39 65.26 6.50 1428.07 14618.43 28 6861.56 1027.51 5934.05 2095.30 242.70 105240 7089.64 784.82 63.92 1604650 2D55.03 13751.47 29 6861.56 850.78 6010.78 2095.30 200.95 1394.35 7099.64 649.92 6439.92 16046.50 1701.55 14344.95 30 6861.56 952.34 6009.22 2095.30 201.32 18 7W.64 651.02 6438.62 16046.50 1704.68 1441M 31 6861.5 797.45 6064.11 2095.30 188.36 1906.94 7039.64 609.10 6480.54 160.50 1594.91 14451.59 32 6861.56 940.27 5921.29 2095.30 222.09 1973.21 7089.64 718.19 6371.46 1046.50 18054 141i"& 33 6861.56 749.74 6111.82 2095.30 177.09 1918.22 7099.64 57.65 6516.99 1606.50 1499.47 14547.03 34 6861.56 732.19 6129.37 2095.30 172.94 12.36 70.64 M9.24 6530.40 146.50 1464.37 14!i2.13 35 681.56 - 646.48 6215.08 2095.30 152.70 1942.60 7089.6 493.78 6595.96 16046.50 1229 14,53.54 36 6861.56 548.41 6313.15 2095.30 129.53 1965.77 79.64 419.87 6670.77 16.50 1094.91 140.69 37 6861.56 468.64 6392.92 2095.30 110.69 1984.61 7089.64 357.95 6731.9 16046.50 937.29 15:09.22 .38 6861.56 502.27 6359.29 2095.30 118.64 1976.66 7039.64 393.63 6706.01 16046.50 1004.54 15011.96 39 6861.56 448.00 6413.56 2095.30 5.82 1989.48 7099.64 342.18 4747.46 16046.50 696.00 1SM-5 40 6156 471.68 6339.99 209.30 111.42 1988 7089.64 360.27 6729.37 14046.50 94.3 151U033 IRR 13.914 11. 127 20.405 15.778 I/ Incremental benefits - economic Prices -actual and projected. 2/ Sconomcprices - historic Ind projected. 3/ Net stream. March 300 1983 - 47 - MEXICO RIO SIALOA IRRIGATION PROJECT (LOAN 970-ME) PROJECT COMPLETION REPORT September 1983 Division Agriculture C Latin America and the Caribbean Regional Projects Department ril - 49 - MEXICO RIO SINALOA IRRIGATION PROJECT (Loan 970-ME) PROJECT COMPLETION REPORT INTRODUCTION 1.01 In 1980, Mexico's agricultural sector contributed slightly over 7% of the total GDP, but employed nearly 40% of the labor force. In the 1970s, agricultural output grew only slowly, at an annual rate of about 2.2%, compared to population increases of 3.3% p.a. Agriculture accounted for about 17% of total export earnings in this period, but food imports increased sharply, causing a reversion in the previous favorable net trade balance. Consequently, Government recognized the crucial importance of increasing agricultural output and gave special priority to Improving production and productivity in the irrigation subsector. 1.02 The project area is located in the northern part of the State of Sinaloa, on Mexico's Pacific coast, the agricultural lands being on both banks of the Sinaloa river, below the town of Jaina. The area is under the jurisdiction of Irrigation District 63 (Guasave) and covers 105,000 ha (net irrigation area). 1/ The lands are relatively flat, highly suitable for irrigation, with generally satisfactory natural drainage conditions. Salinity problems are minimal (800 ha) and the climate is tropical, semi-arid, with average annual precipitation of 347 mm. Monthly average temperatures vary between 180C in January and 31*C in July, and about 80% of the precipitation falls between July and October. 1.03 At appraisal, in mid-1973, the farm population totalled about 12,000 families (some 68,000 persons), of which about 10,900 were "ejidatarios" and the balance private farmers. At that time, 61,300 ha of the project area were held by 74 ejidos (averaging 5.6 ha per family) and about 39,600 ha by private farmers (average of 33.8 ha per holding). Agricultural production is fully dependent on irrigation. Before the project, the area was only partially irrigated using unregulated flows of the Sinaloa river and groundwater. Marketing of agricultural products is well organized and the area has good transportation links to markets. 1.04 This PCR is based on a study prepared by the Ministry of Agriculture and Water Resources (SARH) Subsecretariat of Planning, entitled Evaluacion de Resultados del Proyceto Rio Sinaloa, Sin., Segundo Reporte,- dated July 1982. The study provides useful information on project's results. No field visit was made by the reviewers, but further clarifications have been obtained from Mexican officials and documents on file were used as background material. -/ An additional 5,000 ha are irrigated upstream from the river diversion (para 2.08). - --50- II. PROJECT FORMULATION Appraisal 2.01 Appraisal of the integrated project was carried out in May-July 1973 and recommended project works included: (a) a storage reservoir (2,900 million a3) and its impounding Bacurato dam on the Sinaloa river; (b) a diversion dam, about 46 km downstream, at Sinaloa de Leyva; (c) concrete-lined irrigation conveyance and distribution systems for 55,000 ha on the left bank and 50,000 ha on the right bank; (d) 60 new wells to complement the surface water supply; (e) a drainage system (primary and secondary); (f) land clearing and levelling; (g) a farm extension program; and (h) ancillary facilities such as roads, O&M equipment, houses for ditch riders and communications network. Project costs, in 1973 prices, were estimated at US$145.6 million, with a foreign exchange component of US$46.3 million. The ERR was estimated at 17%. The construction period was estimated at five years, with completion by June 30, 1980. 2.02 Nominal responsibility for project execution was given to SRX; however, actual administration was assigned to the Faerte Commission (CRY), a semi-autonomous body, which was to provide designs and supervise project construction, 0&, and agricultural development under the project, including technical assistance to farmers. In late L977, the new SARE, with its state level organizations was formed, as a result of which ad:a,istrative responsibilities were delegated to the Representative for the State of Sinaloa, who, in turn, delegated them to his representative in Los Mochis (Coordinator for Northern Sinaloa). Technical instructions and coordination for both construction and management and for the Irrigation District activities were provided by the specialized directorates at the central level in Mexico City. However, operation and maintenance, agricultural development and administration were to be the responsibility of the Irrigation District. Negotiations 2.03 Negotiations focused on five main topics: (a) provision of counterpart funds; (b) bidding to be based on packaging of contracts; (c) evaluation of bids for the Bacurato Dam to be presented to the Bank before award of contract; (d) water charges; and (e) procedures on awarding contracts for land clearing and land levelling works. As a result of these discussions several modifications were made in the loan agreement: (a) the closing date was extended to December 31, 1980; (b) procurement of minor civil wors was allowed to be done under Government's LC3 or negotiated contract procedures, with a limit set at Mex$ 1.0 million per individual contract and an aggreCate amount of Mex$ 20 million; (c) a commitment was made to promptly provide agricultural credit to farmers; and (d) a commitment to develop criteria for the most desirable cropping pattern and for the rational use of groundwater was deleted from the Guarantee Agreement and was included instead in a side letter. 2.04 The Bank loan of US$47.0 million was approved by the Board on February 19, 1974. The borrower was NAFINSA, a state financial agency and the only authorized channel for foreign loans guaranteed by the Government. The Loan and Guarantee Agreements were signed on March 1, 1974 and the loan became effective on May 29, 1974. This was the fifth Bank-financed irrigation rehabilitation project, with previous projects totalling US$71.5 million. -51 - III. PROJECT EIECUTION Effectiveness and Start-Up 3.01 The loan became effective on May 29, 1974, i.e., about three months after signature. By the time of loan signing, almost 50% of the diversion structure at Sinaloa de Leyva had already been completed as well as about 302 of the first section of the Bamoa main canal. Of the retroactive financing, up to US$1.0 million, provided for this purpose, however, only US$0.52 million was actually used. 3.02 Implementation was slow thereafter, and no additional major works were undertaken until mid-1975. The bidding process, award of contracts and actual start of construction in the field took longer than expected, in part due to delays in preparing the detailed designs and bidding documents. However, delays in construction were also a result of insufficient budget allocations because the budgetary situation was deteriorating and became critical during 1976/77 when Mexico, facing rapid inflation and a severe financial disequilibrium, launched a stringent stabilination program. Need to Revise Project Scove 3.03 At appraisal, cost estimates had been based on preliminary designs which, when detailed designs were elaborated later, often turned out to be inadequate or incompatible with actual field conditions. In addition, changes had to be introduced into detailed designs, often at early stages of project implementation for such reasons as improvements and additions to works, unexpectedly difficult foundation conditions at the dam site, and increases in volumes of various construction items. The latter changes were most noticeable in the sizing of the main (right bank) canal and Bacurato dam. In addition to these changes, locations and lengths of canals and drains frequently required amendments. Problems at the Bacurato dam were compounded by the bankruptcy of the contractor, and the subsequent retendering of the contract caused additional slowdowns. The net effect of these changes was to cause further delays in execution and frequent and substantial upward revisions of project cost estimates in real terms. 3.04 The above problems were conpounded by the fact that due to the devaluation of the peso in 1976 (from 12.5 to 22 to the dollar) and the concurrent stabilization program launched by the Government, budgetary allocations proved to be insufficient which further delayed project implementation. By mid-1977, the situation had deteriorated to the point that (a) the project was far behind schedule and, even if financing were not a constraint, it would take three years more than initially planned (i.e., until end 1983) to implement it; and (b) the cost estimate for the original project had increased to USS341 million, or about 230% of appraisal estimates, including contingencies, even after taking into account revised exchange rates. After examining various options, such as reducing disbursement percentages, it was agreed between Government and Bank to reduce the scope of the project, and to implement the remaining works in a second phase. Reformulation took place in 1978 and a ?resident's Memorandum containing this proposal (R79-31) was approved by the Board on March 27, 1979. - 52 - The Revised Project 3.05 In summary the revised project included only those works already under construction in 1978 and those closely related to them, while the remaining works contemplated under the original project were to be rescheduled and included under a follow-up project (Loan 1706-ME). Main changes resulting from the reformulation exercise were: (a) construction of irrigation and drainage works was reduced from an initial coverage of 105,000 ha to 46,000 ba on the left bank only, of which some 16,000 ha were to benefit only partially from irrigation; (b) construction of several roads was postponed; (c) deep wells as additional water resource were eliminated; and (d) the land clearing and land levelling program was reduced to 20,000 ha. Hoever, the farm extension program, and ancillary items such as 0 and M equipment and houses for ditch riders were retained under the project. 3.06 Project reformulation, also caused changes in project benefits. Since the Bacurato dam-and the main irrigation canals were to be constructed according to their ultimate design capacities, these would be well in excess of the maximum water requirements of the reduced area to be irrigated in Sinaloa at this stage. Excess water would be therefore available in the reservoir and in the main system until completion of the second phase of the project and full development of all the irrigable lands in Sinaloa. However, In the interim period, these excesses could be advantageously used for transfer to the adjacent Fuerte Irrigation District where water was badly needed to: (a) overcome acute water shortages, thus increasing cropping intensities and yields on existing irrigated lands; and (b) expedite soil leaching operations on areas affected by salinity. This transfer could be done by advancing the construction of the right bank main canal and inter-connection with canals and drains of the Fuerte system. 3.07 The revised total cost for the reduced project, including expenditures made before reformulation, was estimated in 1978 prices at US$137.3 million, and under the revised scheme the project was to be completed by end 1982. A breakdown of estimated costs was as follows: Revised Cost Estimate (US$ million) Foreign Item Local Exch. Como. Total Civil Works 57.8 28.9 86.7 Materials and Equipment 5.1 4.7 9.8 Engineering and Supervision 12.8 - 12.8 Technical Assistance 3.6 3.6 Total Base Cost 79.3 33.6 112.9 Physical Contingencies 4.2 2.9 7.1 Price Contingencies 7.4 3.9 11.3 Interest During Construction - 6.0 6.0 Total Cost 90.9 46.4 137.3 - 53 - 3.08 Benefits under the revised project were to consist mainly of: (a) incremental production on 29,250 ha of newly rehabilitated lands, to reach a cropping intensity of 140% at full development; (b) incremental production on additional 16,000 ha of existing areas, but producing only 60% of the benefits expected on the 29,250 ha, because of still deficient facilities for water distribution and drainage; and (c) water transfer from the excessive storage at Bacurato reservoir to the Fuerte Irrigation District to enable raising the cropping intensities from 110% to 120% over an area of 70,000 ha. The economic rate of return was estimated at 12%. Implementation of Revised Project 3.09 The project, as redefined in 1978, has achieved at its closing date (end 1982), almost all its physical targets as shown in Table 1, and dam construction had been completed in addition to complementary works (drains, roads, canals). The extension and research program, after a slow start because of inadequate budget and poor support from SRH engineering personnel, later developed into an effective program with the number of technicians and extension personnel rising fra seven in 1976-78 to a total of 72 in 1981. Research support from the Agricultural Research Center for the Pacific Northwest (CIAPAN) proved successful and coordination between extension and research services was considered good. The total area under farm demonstration plots had averaged about 175 ha (about 45 plots) per year between 1979 and 1981, approximately 80% of which were on ejidos and 20% on private farms. Cropping intensity has risen from about 78% at appraisal to over 160% (Table 2), surpassing appraisal full developnent targets. Relatively high cropping intensities have already been reported during supervision and also in other similar projects. A total of about 20,000 ha has also been levelled under the project, as planned, primarily by farmers' own resources. Actual Project Costs 3.10 Actual cost figures presented in the SARK Evaluation Report are summarized in Tables 3, 4 and 5 and the differences between actual and those estimated at redefinition stage in constant '81 prices, are presented in Table 1. As the table shows, sizable cost overruns in the order of 46%, still occurred after reformulation but as the econ=ay picked up and budget revenue increased rapidly, counterpart funding was available in time, and the reformulated project was completed on schedule. The most important cost overrun occurred in the construction of the Bacurato dam. The original contract amount of fi$ 539.853 million (mid-1977) was increased in October 1979 by Mex$ 590.95 million, i.e., by 109.5%, of which 42% was due to changes in work quantities and 67.5% to inflation. In addition, there were also increases in contracts for ancillary structures, electro-mechanical equipment and excavation of outlet tunnel. To a lesser extent, cost overruns occurred in the construction of the right bank main canal and distribution systems. All cost overruns were financed by Government. Disbursements 3.11 Disbursements from the loan account compared to appraisal targets are shown in Tables 6 and 7. Most of the delays in disbursements are - 54 - attributable to the delays in Implementation, as described earlier. Furthermore, internal SARR and local procurement/payment procedures related to processing and approval of contractors'/suppliers' bills considerably added to the processing time and subsequent protra:ted process of submitting applications for reimbursement under the loan. Loan Covenants 3.12 A list of selected covenants included in the Loan and Guarantee Agreements and comments on compliance are summarized in Table 8. The Government complied with almost all the covenants, except the one on water charges - Section 3.11(a) of the Guarantee Agreement - which is still being dealt with, (paras. 6.06 and 6.07). IV. AGRICULTURAL IMPACT Incremental Output and Productivity 4.01 Although the full effect of project investments willi only accrue after completion of the second stage (Sinaloa II/Fuerte project), the overall impact of the project on agricultural production in the left bank area of the Sinaloa river has already been extremely significant in terms of both yields and cropping intensities. About 30,000 ha have been rehabilitated for irrigation purposes; about 20,200 ha have been levelled for irrigation; and a total of about 47,200 ha on the left bank have benefitted directly or indirectly by project investments or technical assistance. Average yields of prin'ipal crops are estimated to have risen as shown below: Before Appraisal Full Actual Project Development Target 1981/82 (t/ha) Cotton 2.4 2.5 3.0. Rice 3.7 4.0 4.1 Safflower 1.4 1.7 1.3 Beans 1.0 1.6 1.4 Sorghum - 4.5 5.0 Soya 1.8 2.1 1.8 Wheat 4.0 3.5 4.7 Tomato 12.0 20.0 26.0 4.02 On the subject of cropping pattern changes and cropping intensities caused by project actions, it is difficult to make a comparison of the changes in the left bank area since left and right bank areas were not disaggregated at appraisal. However, the SARE Evaluation Report has attempted to separate the two areas, as shown in Table 2 and the latter have been used to determine the project's impact on agricultural productivity. According to these, there was an understandable move away from crops with low water requirements to ones with higher water requirements, and overall cropping intensity has almost doubled, from the "before project" situation of about 78% to over 140% in 1982. The total volume of agricultural production is estimated to have increased by about 480,000 tons (720,000 tons with the project compared to 240,000 tons without the project) at full development. The total net value of production at full development is estimated at US$34.6 million (1981 prices), according to SARK. - 55 - Tenancy 4.03 The project has had no impact on the original distribution of land nor was it intended to affect it. However, it is interesting to note that a large proportion of elidos nowadays rent out their lands to private farmers. From a strictly economic viewpoint, this may be an effective way to ensure private sector stimulus to achieve higher yields and productivity. Technical Assistance 4.04 The technical assistance program had developed very well; it is well organized in that extension agents are adequately trained, have good contacts with research stations and good rapport with farmers. As a result farmers' use of extension support has increased and research findings from CIAPAN are more effectively reaching the farm level. Effective extension has contributed considerably to yield and cropping intensity increases over the past four years. Producer Returns 4.05 An attempt has been made to estimate family incomes on different holdings. Six different farming systems were examined on five different farm sizes ranging from 3.2 ha per family to 46 ha per family. These 30 farm models are considered representative of ejido and private producer holdings In the area. Based on this analysis, the weighted average family income, in 1981 dollars, is expected to rise from about US$5,400 per family before the project to about USS7,900 at full development in 1987. 4.06 Although the weighted average holding per ejidatario is estimated at approximately 8.3 ha and for private farmers at 25.8 ha, for the purposes of comparison with appraisal, 10-ha and 20-ha units have been compared for weighted values of incomes resulting from project actions, assuming a typical farm operation: Farm Income Per Family Before Project Full Development Appraisal Current Appraisal Current Est. (1981 constant US$) Ejidatario 430 1,380 4,615 7,204 (10 ha) Private farmer 4,900 5,570 32,904 19,900 (20 ha) V. ECONOMIC RATE OF RETURN 5.01 It is difficult to estimate an accurate rate of return on this first phase of investments since full benefits will accrue only after the Sinaloa II/Fuerte project is completed. However, an attempt has been made to calculate an interim rate of return, analyzing project impact without - 56 - implementation of a second stage. Under this assumption, benefits have been estimated as follows: (a) incremettal production on 29,250 ha of newly rehabilitated, irrigable left bank lands at a full development cropping intensity of about 160%; (b) incremental production on an additional 17,800 ha of existing lett bank lands which would produce only 60% of the benefits assumed under (a) due to less efficient water distribution and drainage facilities; and (c) water transfer to Fuerte District valued at Mex$ 2.3 per cubic meter, and-which in 1981 to-alled Mex$ 132 million and from 1982 onwards has been assumed to average about Mex$ 451 million. (The 1978 reformulation attempted to evaluAte the impact of water releases on the 70,000 ha of the Fuerte District by increasing the cropping intensity from 110 to 120%. Details of this Iapact are not available, however, and it was decided to value the velume of water transferred). 5.02 The estimated economic rate of return to the first phase project, based on the above assumptions, is 11.0%, compared to the 1978 Bank reformulation value cf 12.0%. This slight decline is due in large part to cost overruns, parcicularly on the Bacurato dam (para. 3.10), which have been almost fully offset by an increase in the value of incremental agricultural production and cropping intensity. It is important to draw attention to the fact that the complementary investments in the second phase project (75,000 ha) are relatively smaller compared to the area benefitted in the first phase. Consequently, based on preliminary calculations of SARH, the combined ERR. of both investments is likely to exceed 15%. 5.03 The following secondary benefits have also accrued to the project, but have not been included in the benefit stream for the economic analysis, namely the establishment and promotion of farmer organizations, and the development of supporting agroindustries. Service groups for seeds, fertilizers, and aerial spraying have been established through farmers' own initiative assisted by the Chief of the Irrigation District. At the end of 1981 a total of 5,392 farmers, or 82% of total, were members of 10 separate farmer organizations, four of which were exclusively for ejidatarios with 4,440 members, and six of which were exclusively for private farmers with 952 members. In addition, there has been strong private investment (e.g., in tomato processing) to take advantage of production in the area. The latter firms have also provided technical assistance in support of producers. VI. INSTITUTIONAL PERFOMAINCE Institutional Design and Growth 6.01 At appraisal it was anticipated that the project would be administered by the CRF which was a special commission responsible for all SREE activities in the area. CRF performed effectively in this role Until the creation of SARH, when in practice its role was discontinued. The SARE regional chief of the Hydraulic Program and the Irrigation District 63 (Guasave) took over these responsibilities with associated budgets coaing through its State Representative. In this role the office of the State Representative and the Irrigation District Chiefs have performed well, especially after reformulation when budget constraints were reduced. In addition, SARH's General Directorate for Large Scale Irrigation has satisfactorily managed the civil works activities under the project. - 57 - Supporting Services 6.02 Technical assistance support in agricultural extension and research in the early years of project implementation was very weak, primarily due to inadequate budget provisions combined with the fact that responsibility for the project was executed by CRF or SRH engineers who had little experience or interest in agricultural activities. Subsequent to the 1978 reformulation and the creation of SARK, the level of physical and financial support to extension and research improved considerably, to the extent that coordination between extension personnel, INIA and CIAPAN is now considered to be very good. Furthermore, awareness of the need for strong technical assistance and the impact of the agricultural extension system has been considerable. However, certain improvements can still be identified, especially in communicating research results on water usage to the farm level. The extension service also needs to strengthen its system of individual farm visits, with programmed follow-up to monitor acceptance of recommendations. In general terms, however, progress on extension and research has been Improving very well in recent years, and the Sinaloa program is thought to be one of the most effective extension programs in Mexico. 6.03 The farming systems research carried out by INIA under the project has been quite effective. It has included a series of studies on water management and consumptive use in the Guasave district which have highlighted the prevalence of over-irrigation of key crops, and the possibility of obtaining water savings of more than 30% without decreasing individual crop yields. These results have implications for all water scarce irrigation areas in Mexico. Farm Credit 6.04 About 90% of farmers in the area are reported to use institutional credit; 70% work through public banks and 20% through the farmer private banking sector (November 1981, Supervision Report Annex 4, page 5). Despite this high per=entage of farmers using credit, coordination between the extension service and banking institutions could still be Improved, especially as it relates to preparation of farm investment plans. Marketing 6.05 A Sinaloa state organization, based in Culiacan (CAADES - Confederacion de Asociaciones AEgricolas del Estado de Sinaloa) provides excellent marketing support to producers in the project area and the state. Computerized information on the fruit and vegetable markets in the US and throughout Mexico provides effective up-to-date information to project area beneficiaries. Storage needs in the project area are well taken care of by public (National Marketing Commission) and private storage facilities. Cost Recovery 6.06 The Government is committed by law to ensure that farmers meet all operation and maintenance costs and, according to ability to pay, as much as possible of the investment costs. Water charges are assessed and collected by the Irrigation District on a per-hectare basis. However, to date these - 58 - have contributed only to O&M costs. Up to 1978, all 0&M costs were covered by water charges; however, since 1979 water charges have not been able to compensate for the rising costs of O&M, and direct Government subsidies to the District for this totalled %ex$ 13.0 million in 1981. Although the District has raised the level of water charges several times to meet its budgetary requirements (in 1975, 1976, 1977, 1979 and 1980), these are at present still inadequate to cover all needs, although they are higher than in other parts of Mexico. Detailed information on OM costs, collection of water charges, and subsidies by Government are presented in Table 9. 6.07 No decision has as yet been taken by the Government on the recovery of investment costs. Although farmers in Sinaloa are more cooperative than in many other parts of Mexico, imposition of such a cost recovery component into water charges would take time to enact. A socio-economic study to establish farmers' capacity to pay such additional charges has been completed under the project. The study has calculated production costs, farmers income, by different categories, and water charges, but has not drawn any conclusions as to the level of water charges that the farmers should pay. However, SARR has not yet acted on the results of this study. Moreover, since the basic socio-economic study was carried out in 1981, the economic situation has adversely affected farmers income and the costs of providing irrigation water have increased significantly. Consequently, the Government may have to revise and update the data and conclusions of the study as soon as prices of agricultural outputs and inputs stablize. Training 6.08 The SARE El Carrizo training center at Benito Juarez has provided training support to the project, and, in addition, CIAPAN has offered very effective training programs in the district per se, including programs for farmers and extension personnel. Such training support has been widely used, and has been very effective. However, training programs could have been further expanded applying a practical approach to specific problems, e.g. water usage (para 6.03). Reporting, Accounting and Auditing 6.09 SARH has regularly submitted quarterly progress reports in an agreed format and Bank supervision missions consider that accounts were being adequately maintained so as to reflect the financial operations, resources and expenditures of the project. Up to 1976 this was carried out by the Central Accounting Office of the Federation and from 1977 by the SARR General Directorate for Accounting. These accounts are subject to a series of internal control procedures and an independent review at SPP (Ministry for Programming and Budgeting). 6.10 Auditing of accounts is done by the General Directorate for Internal Auditing of SARH. Its procedures have been reviewed by the Bank in October 1979 and, although technically reasonable, could still not be considered as an independent audit. At the time, the Bank mission recommended that the additional and independent verification normally carried out by SPP be considered as an independent audit, satisfactory to the Bank. In 1981 the Bank recommended further improvements to these procedures viz-a-viz verification of financial statements. This is now currently being implemented for all projects. - 59 - VII. BANK PERFORMANCE 7.01 The Sinaloa Irrigation Project, can be considered as successful, in spite of the events that occurred during the first half of project implementation. Although the project was later subdivided into two stages as a result of the circumstances that developed during 1975-77, this subdivision was well structured. At appraisal, it was estimated that most project works would be completed over a five-year period. In retrospect, results suggest that this was too ambitious, especially considering the inadequate designs at appraisal and the lack of sufficient bidding packages at project start-up. It is difficult to assess, however, whether a reduction of project scope, already at appraisal, could have avoided the problems encountered later on. 7.62 The lack of detailed designs at appraisal, at least for the major or more complex items of construction, proved to be a serious shortcoming. Furthermore, the associated underestimation of work quantities and use of unrealistic unit prices provided an unrealistic estimate of project costs. Also, the allowances for physical and price contingencies were too low. As a result of similar occurrences in other projects, the Bank now requires that final detailed designs and sound bills of quantities, and preferably bid evaluation, for significant infrastructure to be initiated during the first 12 months of construction should be finalized at the time of appraisal. 7.03 Continuity of supervision was reasonable during the first two to three years of implementation and good in later years. Generilly, there was a reasonable mix of professional skills; Bank staff enjoyed full cooperation from Mexican counterparts and succeeded in establishing a constructive dialogue with SARH. By and large, supervision reports fairly reflect the progress of execution. Bank missions consistently advised SRH, from December 1975 onwards, of the early implementation problems and potential cost overruns. The reformulation process actually began in early 1977 and was finalized in October 1978. Given the prevailing circumstances in Mexico (elections in 1976 and the economic hardships thereafter), it seems unlikely that this process could have been accelerated. All in all, Bank's reaction towards the problems that came up as well as its subsequent actions turned out eventually to be positive. 7.04 Problems related to the updating of water charges were regularly discussed with SRH (and later with SARH) by Bank supervision missions. The Bank maintained that these should be increased to cover at least all O&M costs until the socio-economic study on farmers' capacity to recover investment costs was finalized. In spite of the political sensitivity involved in increasing water charges and the cumbersome procedures with which SARH had to comply, increases were enacted several times during project implementation. Nevertheless, current water charges are still inadequate (Table 9) and SARE will have to continue to increase them in the next few years in order to at least reestablish 100% coverage of 0&M costs. This matter is now being discussed within the Bank's overall dialogue with the Government on agricultural policy issues. - 60 - VIII. CONCLUSIONS AND LESSONS LEARNED 8.01 The project has, by and large, achieved its objectives as set out in the 1978 redefinition of scope in spite of all the technical difficulties during construction, cost overruns, high rpte of inflation and the longer period of implementation. The increased ciopping intensity combined with an increase of crop yields clearly reflects a major impact of the project on agricultural production. This does not infer, however, that productivity has reached its full potential, further improvements are still possible through: (a) a continued strengthening of extension cum research activities; (b) better soil and water management; and (c) more support services to the farmers on agricultural economics and farm management. 8.02 The experience of the revised project and its relatively successful implementation indicates that the reformulation proposed in 1978 by the Bank and Government, combined with Government's improved budgetary allocations, up to project completion in late 1981, produced the desired result. b.03 The major lesson from the experience of this project has already been taken into account in Bank policy. As noted in paragraph 3.03, the original project, as appraised in 1973, was based on preliminary designs and work quantities which proved to be considerably underestimated. A more advanced stage of preparation of designs is now required as a prerequisite for appraisal of projects with Large civil works components. However, the Bank should make this requirement more explicit so that it be always considered as a pre-condition for appraisal/negotiations. Cost estimates for all other items of investments should be based either on those documents or on most recent contracts awarded for similar works. Also, the Bank should insist that the number of "small contracts" be kept at an absolute minimum, giving preference to large package contracts. Under present practices in Mexico, there is a relatively large number of such small contracts, making monitoring difficult and involving a great deal of cumbersome paperwork. 8.04 Execution of such a project in phases is a matter that should be carefully considered at appraisal and the length of the implementation period should be limited to not more than five years. Optimization of investments under each of the implementation phases which would involve a time-slice approach, should be a governing factor in defining a project's scope. 8.05 Appropriate and prompt staffing of agricultural extension personnel is a pre-requisite for achieving reasonable progress in agricultural productivity. The supporting services to the farmers on agro-economics and fam management should be strengthened. Improvements in soil management and especially water usage is another important task that should be emphasized in the Irrigation District's responsibilities. 8.06 The basic principles used to develop the project have already been partially repeated in the states of Sonora, Nayarit and in other parts of Sinaloa. One interesting aspect of the project has been the steadily increasing focus of SARS on agricultural activities. Traditionally, such - 61- projects have been dominated by engineering personnel in SRH or SAIE, whose primary objectives have been civil works construction and their operation and maintenance. However, as the first and second phases of Sinaloa development have evolved, Irrigation District personnel have become more conscious of the agricultural aspects of project development, which has been an important change for the better. rIO SUWA IiIGC'ION iflMU' (mn 970~1> ProlPt ccc lat and Final (In (rAwtant 19u1 Primoe) QuantitO1 Coate in it1. H.x, P. Rquiv. Cao In ill. US$ unit lation Aatual Reform- Acuil Paform Actual tacui,ato "m and Anaillary rtmoturt a pi. T 1256.W 307325 W T 125.398 Siiialtxi do Ioyva Diveroion Dam po. 1 1 103.92 103.92 4.240 4.240 Lft [kuk - niiii Canil . i. 65.9 64.6 403.52 272.01 16.463 11.099 - IrrigationA Zon / 343.90 510.56 14.031 20.831 RiqhL ink - ntiin C.nal, km. 47.0 48.0 572.05 909.80 23.339 37.120 Distric-t Officen' 28.56 10.77 1.165 0.439 Acc2s9 iCMas >a. 45.0 45.0 152.74 165.74 6.232 6.762 Conatnction cxanp 54,45 54.45 2.222 2.222 Sub-'wntal - Civil ark 2,916.05 5,100.50 118.974 208.100 1rn cltirimg & levolling ha 20,000 20,164 145.03 329.47 5.917 13.442 I->pil4IL,IIL & I1£itcrjlIa 0 0 - Eui?tlI by SUi 224.41 535.45 9.156 21.845 - Aclkwnc<l y Irui 149.49 265.42 6.099 10.829 - 0 <i quikint for the District 9.14 78.39 0.373 3.198 Ariiculturl xn.sjon and Appliod Nsoarch 142.20 116.95 5.802 4.772 IH(iiLxir l lnd txOrviaion 479.73 769.70 19.573 31.404 Tik"ni fic,lLions 698.68 913.87 28.506 37.286 It%yicl c vnthypnicn 304.24 24.49 12.413 0.å99 Prim cMnt'inginL»e 476.47 - 19.440 - '1btal 5,545.43 8,134.21 226.253 331.875 1/ oxrco 4.2.1 SIt lk!ortlEvaluacidn de osultado July 1992 ý/ "ircat 4.2.4 au a~mva .3/ Sourco 4.2.2 as ~aove 41/ conv&rttd at the averag rata of exchange in 19811 24.51 Hox. P. per 1US$ l/ Includust irrigation distribution øyistem, drainag ntork, roada, conu~icatione and gauging sttatins - 63 - M I_co Table 2 RIO SINALÅ 1?.7ZC.iC.I.I P?.WEC" (1.an 97r-ME) Projec= Co:mlet4on ReDote Croppins Patterns and- ntensities 1/ Full Develoz=nt efore Without Wi=h Pro ject Proiect Pro let- Cotton 3,779 2,833 14,000 Saf£1u-er 11,780 15,938 - Dean 911 1,378 14,000 Garban:o 2,193 1,037 - ra-t -3 a2,149 2,450 3,500 melon 1,075 1,306 .1,190 Tcato 1,503 909 1,120 wheat 2,989 5,235 10,400 alce 5,258 6,427 6,790 Soya 4,076 4,197 14,100 Sorgh - 1,626 6,630 erennials 99 - - 2/ Other 1.129 . 1,620 5,054- Total 36,941 44,9,5 76,7s4 Crop. Intensity: 78% 95Z 140 - 163% 11_ Source: SAU copletion report, July 1982. 2/ Onicms, chile, chicharo, nango, papaya, pepper, water melon. HIX I CO RIO SINALOA 11IGATION PiO.ECT (Lan 97041) trojecL Cnmplo ion Report Actual Costa by Categories of ExpondLturus and Sources of Financina (in Current Prices) Source of FinancinD Percentage Total Costs Equivalent Government Dank of bank Cal. In mill, Mad in il -S - - (Million US$T Financing 1 Civil Works 3,888.93 159.893 121.951 37.942 23.7 2 Eilpint 638.94 26.630 22.339 4.291 16.1 3 Airic. Extension and Applied Research 80.50 3.544 ' 2.715 0.829 23.4 4 Iitarest during construction and charges n.a. 3.938 - 3.938 100 5 Engineering and Supervision 506.85 22.656 22.656 - 6 Indemnifications 698.20 27.994 27.994 - - 7 Contingencies 3.28 0.064 0.064 - - - *- Total 5816.70 244,719 197.719 47.000 19. 1/ NtI ncluding Huxican V.A.T. and othur taxue. July 20, 1983 m- !L0 SINAI.0A INICIATIMN l'IkttI.MTtg 97n-L.) (In Constani 191 Prices) 19]b 1915. 1221 Ji22 22 19 12 2j11 2k 2u DuLl .................... . ...... Million HN. Pe.om •......... ........ • ........... Civil sArs ,,294.51 123.46 156.75 175.28 607.81 946..8 1,267.16 1,018.31 298.76 111.88 •. Land L&m. . • r3.1# 103.00 123.03 60.00 - •1.7 E.1,11jent an., 26.63 7.9 14.36 13.90 14.11 3U .16 188.92 ION.94 34.91 11.52 • 81).24 n c n As0.un% 3.79 2.51 72.89 114.76 158:83 341.10 134.26 65,72 9.93 9Ij.87 Agaric. t*len2in and Asppled Raårch •.2 "8 969.7 116.q5 Intlineerin and Suparvi%ion 52.96 64.69 50,93 65.59 98.96 123.11 219.28 50.00 12.89 11.1 • 769.70 Ctintin-junel-6 _ . • • d4,1133 -Li 6.11 - Stil.-i jQlIll . 200.7 22.5'É 340.9% 1.05J.95 17i5 2.J89.J3 .l.177. 1 140.61 50.64 • -_ - S ?:....t erv inves t mtI W, C h in the. Prolec êj. ;'ji.jj 1 k i jJfuer Cm Proluc I Clvil Wuris • • • • • 3416.2I 592.07 280.21 116'a.19 • .f20 Len.1 Cleuirnq an%l Liveling • - - - - 30.04 228,2 ' 75.37 102.43 102.63 SP.33 OLM,Iii.eien • - - • • • • 40.00 11.32 22.17 • 7,9 lnk.le,Iill uiun - - - - - - - 107.26 21.65 15.19 • • I1..10 AqrI.. 1.aitenun ånd Appliød NmuArch • • • - • 30.00 26.91 26.91 26.91 26.91 . Engilncrln jnd Supørvlon • • - 26.18 121.50 80.72 56.68 10.24 • 2H.3 Continge,nciles • • • •.ii.61._Iki SubutitalI - .41 .118.l 517.99 7i8.91, Ljj. 291 2.gl9.. (qiliv. Inil ilun US$:(US$ H Mex,$ 214.51 15.676 1.190 9.218 13.912 62.919 71.909 105.735 101.855 39.518 35.479 5.925 1.058 651.414 ta. July 2<i. 19gN 510 NIlAIPA le jAJdie..Lj.Lr (L.Os 970-NI) (in all l loelnsekx,fur. omriceds) • • • •• • • • pmniltures by Ya --- - ------------•• -- 12 .12e d2i -2 j . jimm jk 1. C ivil emr.61 ft.a'..råtr on.am 6.00 26.90 31.7% 165.00 379.59 725.29 86.85 367.56 3,538.93 D1version e 1.69 .00 22.69 M i n C-..I Le Ni Lenk 1.80 13,00 19.19 19.10 10.00 32.04 u1..1r. %....,... •i ss ff 0,90 10.-0 Lk.6a .4,50 39.82 52.28 70.09 95.46 326 i oaIn CoanuI - Alyfet hank tZ.:9 157.75 168.15 108.37 20.00 582.116 (fh ilo ror ifr. Ostrict .00 4.50 5.50 Accs r0.00I 25.10 5.00 1.40 9.10 13.00 54.30 Ci.ntlructlin camp 4.00 6.61 2.60 6.50 19.71 tand claaeIng and levelrin - - . -- - j5. ......2,5 8.10 51.00 - . _S.8. Subwu.I 62.29 33.70 54.90 76.3. 392.99 652.66 1,04.72 1,011.31 433.02 3,863.93 SuppI Bell by 141t1 9.00 2.90 5,60 10.00 30.00 170.07 60.00 29.50 21.00 318.07 11,chas80101 by sAui 9.00 33.59 83.84 75.44 44.00 . 245.7 OJt .ufs-ment ._ - - -___J.2 -.0-n 20.00 - 55.0 subetstal 9.00 2.90 5.60 10.00 4u.00 233.66 163.84 10%.94 65.00 638.94 1. Arle. fwIenionn nd Research . ,.._,._ ...j ,.9 _j ..2..60 7.0000 8.00 ,_ __0,.5 o. ein, hnl supervi • jI.g. %,t jhvjr -BJL!Af -...22 82-00 .-1&2.LhI ..00 ..1.0. -GM% .0 5L..nil,M enfinn .JJ j42 .I.n.s J l _69L3! .--WI2 j.25 2.126 res. ..o 61112 Ch 6. taniinc. .,_ .jj Total Il 29..52 L.2. I.JJI 35I.!i. 56.93 3.t00.01 I.6as.71 1.377.51 201,71 i i.8 1 BaLN $. 0xti#alaga lave.) 12.49 12.49 15.44 22.58 22.77 22.81 22.95 24.31 51.5711 I:queIvalent in mill on Us$ 7.246 4.974 5.447 6.797 24.679 48.22 723.411 56.202 13.599 240.621 Intrkre Ji1in0 nnegructiont gnd I.aregen (ulilna us) 0.212 0.398 0,469 5 0.4 _ 0.942 1.526 2.138 2.128 -_,!å T al, in million US$ . J1 2, . J AL ai LI jLI2A _jU Ut ML?2f1 . '11, 1 nI ieIn.4I lla.I irst durin5 cjoetrucktIo and other charef 3/Avkljä 5/M-101411. / o 1bslacitimig ihäxican V.A.T. ui Othor taus. Ju.y 20. 1983 - I-11 -67 - ~1XCO Table 6 RIO SI%ALOA IRRIGATION PRGJECT (Loan 970-ME) Project Comnletion Revort SCHEDULE I Withdrawal of the Proceeds of the Loan Actual Amount Disbursements Amount of the Actually Amount Loan Allocated Disbursed Allocated - - - - - - (In US4 Equivalent) - - - - - -1/ (1) Civil Works (a) Small contracts and land clearing/levelling (5,600,000) 5,600,000 4,211,702 0.75 Cb) Other (26,900,000) 31,000,000 33,730,196 1.09 (2) Equipment (400,000) 2,953,000 4,290,953 1.45 (3) Extension Services (700,000) 700,000 829,329 1.18 (4) Interest and other charges on the Loan (6,000,000) 6,000,000 3,937,820 0.66 (5) Unallocated (7,400,000) 747,000 - - Total 47,000,000 47,000,000 1.00 1/ Figures in brackets refer to origi-al allocations in 1974; figures underneath are the respective allocations, as approved in Farch 1979, upon redefinition of project scope. July 20, 1983 HEXICO RIO SINALOA IRRIGATION PROJECT (Tuan 970-ME) Project Comaletion Report ExpenditurEas Incurred and Disbursements rrom Loan Account (in Current Terms) Disbursement Schedule as - - - - - - - - Actual Expenditures 1/ - - - - Bank's Disbursements Expected :_JIn mllIon Mex$1 -- Entilv. In million USS In milljon USS Porceritage of At Appraisal Calendar During During During Disbursements Stage -.A ar. tfie year CunIulative the Year Cumulative the Year. CumMlivLa (7*51 X 100 (m111 IISS) 1974 90.50 90.50 7.25 7.25 .07 .07 1 4.0 1975 62.17 152.67 4.98 12.23 1.13 1.2 9.8 10.0 1976 811.10 236.77 51.45 17.68 1.0 2.2 12.4 20.0 1977 153.47 390.24 6.80 24.48 0.9 3.1 12.7 32.0 1978 561.93 952.17 24.68 49.16 1.7 4.8 9.8 43.0 1979 ),100.01 2,052.18 48.22 97.38 8.1 12.9 13.2 46.6 1980 1,685.71 3,737.89 73.45 170.83 16,9 29.8 17.4 47.0 1981 1,317.51 5,115.40 56.20 227.63 11.5 41.3 18.2 * 1982 701.30 5,816.70 13.60 240.63 5.7 47.0 19.5 CD .} Not includini HuxLcan V.A.T. and otler taxam. July 20, 1983 . I4 KNICO 110 IIIIAIA ICAIATION PROJUCT (Loan 910-HE) Prolect Completio Report Mat of Co!Rlianre with Covemnat . SubjeCoapitance A. loan Agreuecnt Sectiun6 ).01 The Norrowetr shall Pake contractual orrangements wish the Compiled with Cuarantor for the transfer of the procs.loe i the Loan to the latter for carrying out the Project. S. Cosarinte Ageement &ection 3.10 The (huarantor thall (1) aintain separate secolnts to (1) Compiled with property reflect the project's financial ileationg (it) Sake (i) Procedures for verificatie (auitlag) of Ivailable to the lank audited accounsel anto (1i1) provide mccounts ia view of Coveriment's internal Information concerning atnh accounts at ank's request. regslations ware redefilned in "4v 192. Neverthelesa certification by OPP that sutc verlfication has actually been dnn", and/or copies of the varifle. accounts have not yet I been received. Section .f0(.) Tie Cuarfntor shall not permit any reductio to the flows of Sall has agreed that water he temporarily (141 -81) di the Sinalas River that could adversely affect the Project's verted to te Rie Puerte olatriet to enale leaching oI beneliciaries. satine antle and tn alleviate a temporary valer short- age proem. (11herwise, covenant is hInA adhered to. SarUt1ion ).14(h) tater use for power generation shall nat adversely affect Not yet applicable. It hydroelectricat plant under Protect's benefielerted. conelderation at prest. eCton 1.19 11e Ctarantor shall maks Its Iet efforts to make agricultural Clilall with sufflolant croit wets available. cre-1t avaiable to ferares. ertion 7.t1(a) The 5asanltor ehall provide agricsltural asensiln and other Complied with. lechi1iC.1t services. Svctton litt i1e Cuarantor shill charge and collect water charges to cover Present water darrg3a refer to OW wetal rl " Uiu .al IIAN cat Anal as mork as practicAble for recvery of haw Lxam gradMlly inczead. Nultatless, in 1981 Invuotment ronts. Cily 675 of 06 co81,4s hate txa rOAIx. Vtl.an 1.11(b) Tie Ctrancor shall carry out a socio-sconoair study by June Stidy vishited In "ay 191. l1). 1919, on water $lsern ability to pay for the cost of irrigation. H 1.11t(c~) theVoi.tiantur &limit Aiva t& Unit a 1 01166o111110 nPPOctullitY to Complied with. Preliminary comments sent on Deceember c04116Ma nuna the rcisione alvi recomeand.ations of 1e 2. 1982. Discussione on fellow-up actions by the abovr-miintioned study ptrumptly after its completion. Aloverasent to be held in CY 14A3 to rononctlan with sectorial Isques raised by the Irrigation Subsectori study now "ader preparation. 70- Table 9 MEZICO RIO SINALOA IRRIGATION PROJECT (Loan 970-ME) Proiect ComDletion Resort OQI Costs and Their Recover.- by Farmers Revenues Subsidies by Water Charge CY O&Y Costs from Farmers Government MezS/ha - - - - - - - '000 Mex. Pesos - - - - - - - 1974 3,200 3,700 - 35-200 1975 5,624 5,624 - 35-200-1/ 1976 6,604 6,604 - 330-350 1977 ,425 9,425 - 330-350 1978 13,073 13,073 - 330-350-1/ 1979 19,612 16,612 3,000 459-560 1/ 1980 22,985 18,485 4,500 551-672 1981 38,814 25,814 13,000 551-672 1982 n.a. - n.a. n.a. 1,100-1,500 L/ Higher water charge applicable only for rice cultivations. All water charge figures for subsequent years are averages, based on one basic water application and three auxiliary applications. July 20, 1983 - 71 - Table 10 ?.-EXICO RIO SINALOA IRP.RICATIOM PROJECT (LOA: 970-XE) Project Cornletic. ?enort Economic Rate of Return A-al.-sis Investment Operation and Maintenance Total Incremental Costs Costs Costs Be=efits (esos million) 1974 403 - 403 - 1975 248 - 248 - 1976 269 - 269 - 1977 311 - 311 - 1978 1,062 - 1,062 - 1979 1,701 - 1,701 - 1980 1,951 - 1,951 - 1981 1,352 - 1,352 132 1982 494 119 613 744 1983 225 119 344 955 1984 - 119 119 1,101 1985 - 119 119 1, 202 1986 - 119 119 1,272 1987 - 119 119 1,321 1988 - 119 119 1,355 1989 - 119 119 1,379 1990 - 119 119 1, 39-6 1991 - 119 119 1,407 1992 - 119 119 1,415 1993-2013 -119 119 1,420 ERR = 11.OZ 8/18/83 MEXICO PROJECT s LAS ANIMAS L.. All EsIeros \. r. -CA ... PROÆCT PUJAL- COY Eb~n - colen., A -;e -- - I PROJECT MEXICO CHICAYAN PANUCO STAGE ONE IRRIGATION PROJECT ---- -I . " 걍 ’汗 MAY 1984 JA] %Al C,as AN-3 S^A.CA ZE Z^ CN Cý CUJF d?- weileo X\ c 0 rL