China - Pishihang - Chaohu Area Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5538-CHA STAFF APPRAISAL REPORT CHI NA PISHIHANG-CHAOHU AREA DEVELOPMENT PROJECT May 15, 1985 Projects Department East Asia and Pacific Regional Office This- documnent has a restricted distribution and may be used by recipients only- in the performance of their offiiXl duties. Its contents way not otheirwrise be disclosed withoeut World Bank authorization.  CURRECY EQUIVALENT Currency Unit - Yuan (Y) US$1.00 = Y 2.80 Y 1.00 = US$0.36 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles 1 hectare (ha) = 2.47 acres 1 ton = 1,000 kg = 2,205 pounds 1 kilogram (kg) = 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED AAAFB - Anhui Agriculture, Animal Husbandry and Fisheries Bureau ABC - Agricultural Bank of China AWRB - Anhui Water Resources Bureau CCL - Critical Consumption Level CNTIC - China National Technical Import Corporation GA - General Administration ITC - International Tendering Company (of CNTIC) ICB - International Competitive Bidding LCB - Local Competitive Bidding kV - kilovolt kW - kilowatt MCA - Main Canal Area MWREP - Ministry of Water Resources and Electric Power M m3 - million cubic meter MW - megawatt m3/sec - cubic meter per second PCB - People's Construction Bank PMO - Project Management Office ppm - parts per million PU - Project Unit SOE - Statement of expenditure SPC - State Planning Council sq.km - square kilometer SC - Steering Committee TAG - Technical Advisory Group WRB - Water Resources Bureau WSO - Work Supervision Office  FOR OMCIAL USE ONLY CHINA PISHIHANG-CHAOHU AREA DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. r. B A C KGROUND .................................................. I Introduction ............................................. I Agriculture and Water Resources in China . .1....... Bank Lending for Agriculture and Water Resource Development ..5 Project Formulation and Rationale . . 6 II. THE PROJECT AREA . . .......................................... 7 Location ................................................. 7 Climate . . 7 Topography and Soils . . 7 Farm Size and Land Use .. 9 Existing Water Conservancy Facilities .................... 9 Irrigation Area Organizations .. 11 Infrastructure and Support Services ............ 11 III. THE PROJECT .... .. ................................ ........ ... 14 Project Description .. 14 Pishihang Irrigation System .. 15 Chaohu Flood Control System .. 16 Rural Development .. 17 Rural Credit ............................................. 19 Training and Technical Assistance . . 19 Water Supply, Demand and Quality . . 21 Status of Design ........* ................................ 21 ImpLementation Schedule .. . 22 Cost Estimates ........... . .......................... .... * . 22 Financing ................................................ 23 Procurement .............................................. 24 Disbursement ........................ 25 Accounts and Audits .. 27 Environmental Effects .................................... 27 This report is based on the findings of a preparation mission to China in May 1984 and an appraisal mission in November 1984. Members of the preparation mission were T.B. Wiens, L.S. Tay (IDA) and C. Liu (Consultant); The appraisal mission comprised Messrs. W.T. Smith, Wiens and Tay (IDA). Ms. P. Harrell (Consultant) also contributed. Thi docmn has a restictd distrtion and may be used by nx4rei onily in the perfonmance of their ofii duies Its cmnts may not otherie be disdkmed whbout World Bank authoizauo  - 11 - IV. PROJECT MANAGEMENT AND COORDINATION ......................... 27 Financial Management . 29 Execution of Project Works . . .30 Monitoring, Evaluation and Reporting . . . 31 Operation and Maintenance . . ............................. 31 Water Charges..: ........... ............... . . . ... 32 V. PRODUCTION, PROCESSING, MARKETING AND PRICES . ............... 33 Production ..33 Processing and Marketing. 35 Prices .......................................,,.,,. 36 VI. BENEFITS, JUSTIFICATION AND RISKS.. 37 Production and Benefits ..37 Employment and Income ..37 Project Charges ..38 Economic Analysis ..39 Project Risks ..39 VII. AGREEMENTS REACHED AND RECOMMENDATIONS ...................... 40 TABLES IN THE TEXT 2.1 Project Area Statistics.......... 8 3.1 Cost S umary ..23 3.2 Financing Pnan ..24 3.3 Procurement Arrangements .................................. 26 6.1 Summary of Rate of Return Analysis ..40 ANNEXES 1. Background Data Climate Soils 2. Cost Data Project Cost Sumnary Project Expenditure Schedule Expected Price Increases Estimated Disbursement Schedule Proposed Allocation of Credit Proceeds Earthwork and On-farm Works Structure Pumps and Equipment .-ural Roads Rural Electrification Construction Materials Vehicles and Equipment Technical Assistance  - iii - 3. Crop Water and Irrigation Requirements 4. Chaohu Flood Control 5. Production, Prices and Unit Costs Crop Areas and Yields Production of Livestock, Aquaculture and Forestry Farmgate Prices for Major Products and Inputs Selected Conversion Factors Crop Budget at Full Development Livestock Budget at Full Development Budget for Forest Development Aquaculture Budget for Intensively-Managed Fishponds Flood Control Benefits at Full Developmnent 6. Financial and Economic Benefits Labor Requirements by Activity Labor Requirements by Month Farm Income at Full Development Farm Models Rent and Cost Recovery Economic Benefits and Costs by Area and Component Met Economic Benefits Sensitivity Analysis 7. Technical Assistance 8. Local Competitive Bidding 9. Documents Available in Project File LIST OF FIGURES 1. Implementation Schedule 2. Organization Structure of MWREP 3. Organization Structure of AWRB 4. Organization for Project Management 5. Organization for Construction of Project Irrigation and Flood Control Works 6. Organization for Operation and Maintenance of Irrigation and Flood Control Works 7. Proposed Crop Calendar MAPS IBRD 18749 and IBRD 18750.  CHINA PISHIHANG-CHAOHU AREA DEVELOPMENT PROJECT Loan/Credit and Project Sum-ary Borrower: People's Republic of China Beneficiary: Amount: Loan: US$17 million equivalent Credit: SDR 75.7 million (US$75 million equivalent) Terms: Loan: 20 years, including 5 years of grace, with standard variable interest rate. Credit: Standard. Project Description: The project would rehabilitate and complete existing irrigation facilities on 320,000 ha in the Pishihang area of Anhui Province. It would provide to an area surrounding Lake Chao flood protection to 170,000 ha, more reliable irrigation to 220,000 ha and improved drainage to 23,000 ha. It would also upgrade other rural infrastructure, strengthen agricultural support services, and provide agricultural credit to encourage diversificatiion into Livestock, fisheries and forestry. This would be the first Bank Group project in China involving surface irrigation and would establish a new relationship with a major government agency, the Ministry of Water Resources and Electric Power. Main features include construction of control structures, bridges, drainage culverts, etc. and excavation to increase canal capacity in the Pishihang area; excavation of flood channels, construction of control gates and pumping stations in the Chaohu area; improvement of rural roads and power facilities; provision of chemical fertilizers; construction of buildings and provision of laboratory equipment and vehicles to extension, research and training facilities. Technical assistance and training would be provided to improve management of the irrigation and flood control schemes. At full development, the project would add over one million tons annually to production of grain and additional amounts to production of oilseeds, fiber crops, livestock and fisheries products. The project faces no significant technical or administrative risks.  Estimated Costs: Local Foreign Total -- (USS million) -- Earthworks, on-farm works, and land acquisition 84.0 0.0 84.0 Structures 19.5 31.8 51.3 Pumps and equipment 0.0 6.9 6.9 Chemical fertilizer 0.0 10.7 10.7 Roads and electrification 5.1 5.1 10.2 Afforestation 5.4 0.1 5.5 Seeds, extension, and research 13.6 5.6 19.2 Rural credit 4.9 2.0 6.9 Training and technical assistance 5.1 1.9 7.0 Base Cost 137.6 64.1 201.7 Physical contingencies 15.5 4.8 20.3 Price contingency 28.6 12.9 41.5 Total Project Cost Ia 181.7 81.8 263.5 Financing Plan: IDA/IBRD 35.6 56.4 92.0 Central government 15.4 3.7 19.1 Local government 51.7 21.7 73.4 Agricultural Bank of China 2.9 0.0 2.9 Participating farms 76.1 0.0 76.1 Total 181.7 81.8 263.5 Estimated Disbursement: Bank/IDA FY 1986 1987 1988 1989 1990 1991 -US$ mallion) Annual 22.3 29.9 19.7 9.8 7.9 2.4 Cumulative 22.3 52.2 71.9 81.7 89.6 92.0 Rate of Return: 36% /a The project is exempt from taxes and duties.  CHINA PISHIHANG-CHAOHU AREA DEVELOPMENT PROJECT I. BACKGROUND Introduction l.Ol The Government of China has requested Bank Group assistance in financing an area development project in the Pishihang-Chaohu area of central Anhui Province. Covering 12 counties and served by the largest irrigation scheme in China, this area suffers from water distribution problems due to incomplete irrigation works, poor drainage, and seasonal flooding. The proposed project would rehabilitate and complete existing irrigation facil- ities serving 320,000 ha in the Pishihang area; construct flood channels, control gates, and pumping stations to provide flood protection to 170,000 ha, more reliable irrigation to 220,000 ha and improved drainage to 23,000 ha in the area surrounding Lake Chao; and improve Anhui's overall capability to plan, design and manage irrigation and flood control schemes. The project would also upgrade other rural infrastructure, strengthen agricultural support services, and provide agricultural credit to encourage diversification into livestock, fisheries and forestry. Project activities in Anhui would help increase the output of crops and other agricultural commodities thus augment- ing rural incomes, and would provide a model of integrated irrigation and rural development that might be introduced elsewhere in China. Agriculture and Water Resources in China 1.02 Agriculture in China, including crops, livestock, forestry and fisheries, provides sustenance to over one billion people, is the source of income for some 190 million farm families, and accounts for about 35Z of the country's GDP. Only about 100 million ha of China's land area of 960 million ha are arable. Farming systems are intensive, with large inputs of labor, chemical and organic fertilizer and water. Nearly half of the arable land is irrigated. Foodgrains occupy about 80% of the cropland and account for about 55Z of total agricultural output. This intensive system of food production allows China to meet the basic food requirements of its population (about 22% of the world's total) from less than 8% of the world's arable land. Agricul- tural production is carried out largely on household-managed farms within a framework of collective or state ownership of land and major fixed assets. 1.03 Since 1978, the gross value of agricultural output has grown at an average annual rate of about 7%, or more than twice the rate achieved over the previous two decades. Output of foodgrains increased by about 3.8% annually over the last decade, reaching a record of over 400 million tons in 1984 despite declines in cropped area and area sown with grains. Net grain imports, which had risen to about 15 million tons p.a., have begun to decline. Between the present and the turn of the century, China's agriculture must face the challenge of feeding at better nutritional levels a population grc-.ng by at least ten million per year and supplying the raw materials to  -2- meet rapid growth in industrial demand. At best, the land area under cultiva- tion will not increase and the sown area is likely to remain at present levels as land reclamation and increased irrigation are approximately offset by lands converted to nonfarm uses. Most of the production gains will have to come from increased yields on presently cultivated land. The general direction of development is to shift more resources into activities where the gap between existing and advanced technology is greatest (agro-industrial production), where improved management and labor skills have a high payoff (modern livestock and poultry production), and which are less constrained by fixed resources (land and water). 1.04 Water Resources Development. China's water resources are limited and unevenly distributed. About 45Z of China's total land area is located in regions with less than 400 m annual rainfall, mostly in the north, west and northwest. Regions with more than 800 mu, primarily in the east and south- east, account for one third of China's arable land and about one half of its population. About two-thirds of China's land area, but only one-sixth of its surface flow volume, occur north of the Changjiang (Yangtze River). In an effort to make more efficient use of scarce water resources and to solve China's perennial problems of drought, flood and famine, the Government since 1949 has supported major investments in irrigation and flood control works. Total irrigated area expanded from about 16 million ha in 1949 to a current figure of about 47 million ha, of which about 90Z is from surface sources and lOZ from groundwater. Of the present total, 26 million ha are served by an estimated 76 million hp of pumping installations, compared to only 252,000 ha and 97,000 hp of pumping capacity in 1949. China's irrigated areas, which have an estimated productivity twice that of rainfed areas, account for about two- thirds of total grain production and three-fourths of total output of commer- cial crops. The expansion of irrigation facilities has been a major factor in the increase in grain production from about 113 million tons in 1949 to over 400 million tons in 1984. 1.05 Despite such successes, the water supply capacity has not kept pace with growing demands for water from the agricultural as well as industrial sectors and from household consumers. One important factor is that in most irrigation projects, the area effectively irrigated proved to be less than originally planned, largely because of a failure to complete the irrigation network down to the farm level. Projects of the 1960's typically involved large, centrally-funded storage or diversion dams and main conveyance systems, some of which were models of skillful engineering design and construction. It was left to local governments to construct networks to distribute water to the farmers' fields. In the absence of adequate local financing, the result was either failure to complete the distribution system or substandard construction from the standpoint of materials, planning and design. Compounding these problems of inadequate investment in system completion has been a lack of funds for system maintenance, repairs and equipment replacement, even where the original structure was satisfactorily constructed. Lack of adequate control structures and the poor condition of watercourse channels at the farm level are major contributing factors to China's generally low irrigation efficiency, which ranges from 30 to 55Z for surface water irrigation systems.  1.06 Water Resources Agencies. The Ministry of Water Resources and Electric Power (MWREP) (Figure 2) oversees all activities in the water resour- ces and electric power sectors, including planning, design, construction and operation of water and power development projects of regional importance. Standard government procedures require funds for major projects to be approved by the State Planning Council (SPC) in accordance with annual and five-year plans and then channeled through the MWREP to the provinces involved. Plann- ing and allocation of resources for smaller projects are to be handled by provincial governments subject to Ministry approval. However, in the past few years, the provinces have assumed greater responsibility for project genera- tion and funding even for large projects. This is especially true for activi- ties in the water sector where, in contrast to power, operations are largely decentralized. Of a total of about one million water resources employees nationwide, an estimated 852 work under provincial and other local administra- tions with 15% under direct MWREP control. The picture is reversed in the case of power employees: about 78% of the totaL of 1.1 million employees are directLy responsible to the Ministry and 22% are classified as local government personnel. 1.07 The MWREP has 14 departments, four of them technical departments specific to the water and power sectors (Water Management, Irrigation and Drainage, Electricity Production and Rural Electrification) and the other ten functional departments, such as Planning, Labor and Wages, and Finance, with separate water and power sections within each. Through its Education Depart- ment the MWREP directly administers seven institutions of higher education specializing in hydraulics and hydropower. In addition to the 14 departments, other major MWREP agencies include: the Water Resources and Hydroelectric Power Construction Corporation with associated capital construction bureaus and investigation and design institutes; the Electric Power Research Institute and the Scientific Research Institute of Water and Hydropower, each with centrally-funded research affiliates; six regional power administrations and six river basin commissions. The river basin commissions are involved primarily in planning and review of designs for large irrigation and flood control projects which require inter-provincial coordination. 1.08 Most provinces have separate water resources and power bureaus which are administratively responsible to the provincial governments and receive technical guidance from the MWREP. In the case of Anhui Province, the Anhui Water Resources Bureau (AWRB) has overall responsibility for the planning, survey, design, construction, operation and maintenance of irrigation, drain- age and flood control works. Funding for development projects is allocated by the Provincial Planning Commission on the basis of AWRB budget submissions. Designs are prepared by the Bureau's Investigation and Design Institute and submitted to the appropriate river basin organization within MWREP - either the Huai River or the Yangtze Valley Commission - for review and approval. Until recently, the AWRB construction company handled construction of all major works, though part cf the job was usually subcontracted to lower level construction units. Within the last year, as a cost reduction measure, MWREP has opened construction of major and minor water projects to competitive bidding by qualified contractors at all administrative levels from all pro- vinces; hence AWRB's construction company is no longer entitled to exclusive award of contracts. AWRB is headed by a director who is appointed by the  - 4 - province and seven deputy directors, chief engineers and assistant chief engineers who are responsible for planning and construction, science and technology, irrig_tion and drainage, project management, administration, finance, and foreign loans (Figure 3). AWRB employees totalled 144 in 1984, of which 28Z were classified as technicians (secondary school or polytechnic level), 47X as engineers (college graduates), and the rest as administrators and field staff. 1.09 A similar structure of water resources agencies exists at the prefecture (or municipaLity) and county levels. Prefectural and county bureaus have primary responsibility for construction and maintenance of canals (except some main canals maintained by the provinces), associated irrigation and flood control structures and medium-sized reservoirs. Responsibility for branch canals and associated structures and small reservoirs is shared with districts, townships and villages acting through specially-appointed water resources management groups. In areas where there are large-scale, ongoing water control projects - e.g., the Pishihang region of central Anhui - provincial governments usually establish a special system of irrigation area management agencies to coordinate activities in the several counties and prefectures that are beneficiaries of the project. 1.10 Current Policies and Programs. The reduction of state investments in water resources as part of sector-wide budget cuts introduced in 1981 has led to a redefinition of water resources development policies and programs. Current policy calls for: (a) reducing investments in new irrigation systems; (b) increasing the efficiency of existing systems through rehabilitation and completion of irrigation and drainage structures and improved water manage- ment; and (c) shifting the burden of financing operation and maintenance costs from the central to local governments while requiring the latter to increase water charges to fully cover these costs. Water charges in the past were kept low relative to costs of supplying water, in partial compensation for low state procurement prices. Reflecting improvements in farm prices, higher fee structures, determined on a province by province basis, have recently been introduced in 14 provinces, municipalities and autonomous regions including Anhui Province. 1.11 MWREP plans to increase the irrigated area by 8-10 million ha by the year 2000. Over half of this planned expansion would take place in the rice region south of the Huai River, about 1.6 m ha in the North China Plain, and the remainder in the Northeast, the arid areas of the Northwest loess region, and in Xinjiang and Gansu. Most of the expansion south of the Huai would be the result of upgrading of existing works, an approach which offers a rela- tively quick return on investment. By contrast, construction of new irriga- tion systems has become increasingly costly, mainly because potentiaL areas for development are in difficult terrain. For example, costs of constructing a new distribution system, not including new reservoirs or drainage works, would be on the order of Y4,500-6,000 per ha; costs can be as high as Y6,000- 15,000 per ha for works on the upper reaches of the Yellow River where it is necessary to lift water 100-300 m. Along with improvements and additions to the irrigation networks, the Government is planning measures to protect presently cultivated land from problems of waterlogging and soil salinity. Adequate drainage facilities have alreadi been constructed on about 10 m ha of  - 5 - an estimated 20 m ha requiring such treatment. Plans call for increasing the area thus protected to nearly 20 m ha by the year 2000, eliminating salinity problems in the North China Plain and making on-farm drainage improvements to an additional 1-2 m ha of Low-Lying fields. Bank Lending for Agriculture and Water Resource Development 1.12 The Bank's strategy for lending in China's agriculture sector has been to support the Government's efforts to expand and diversify agricultural output through more efficient use of human and physical resources. Sector lending to date has focussed primarily on land development and strengthening agricultural support services. Future lending is expected to increasingly concentrate on support for specialized product subsectors and area develop- ment. Projects of the specialized product subsector type include a proposed forestry development project and projects in aquaculture and livestock. The area development approach combines in a single project assistance to land development and support services previously the subject of separate proj- ects. It responds to central and local government emphasis on increasing farm incomes through diversification into higher-valued agricultural activities even in areas where staple crop production can be increased. It is appropriate for most areas of China, where much basic infrastructure is already in place and further productivity growth requires upgrading of or refinements to diverse components of rural infrastructure and support services. It takes advantage of the close integration of governmental functions at the local level in China, which facilitates inter-agency cooperation. The proposed Pishihang-Chaohu Area Development Project is the first of this type. Additional possibilities include assistance in developing the infertile, "red soils" areas of South China and the arid regions of Gansu and Xinjiang Province. The lending program will also continue to support repeater projects in areas--e.g. rural credit--judged to be of key importance in the shift from collective to household-managed farms. 1.13 The Bank's involvement to date with water resources development in China has been in the context of land development projects: the North China Plain Project (Cr. 1261-CHA) focussed on drainage improvement, irrigation from groundwater, and desalinization, and the Heilongjiang Land Reclamation Project (La. 2261-CHA/Cr. 1347-CHA) is developing a drainage system for reclaimed area. Installation of on-farm sprinkler or pumped irrigation facilities have been components of subprojects appraised under Rural Credit I (Cr. 1462-CHA). The proposed Pishihang-Chaohu Area Development Project would involve the Bank Group for the first time with China's surface irrigation and flood control systems; it would also establish a new relationship with a major Government agency, the MWREP. Future lending for water resources development would support the Government's emphasis on improving efficiency of existing systems (para. 1.10) with special emphasis on improvements in system planning and operation and farm-level irrigation and drainage works. This focus would not preclude Bank Group participation in new projects in areas of acute poverty if economic returns were promising, as when substantial areas of new or low- productivity land could be transformed into high-yielding irrigated farmland at reasonable cost. Projects under discussion with the Government for possible Bank Group involvement include rehabilitation of an irrigation scheme in Nei Monggol; trans-basin diversion to irrigate an area in Gansu; and  expansion of existing facilities for water transfer from the Yangtze to the Huai River besin. Project Fornulation and Rationale 1.14 government investment in water resources development has shifted focus in recent years from costly new irrigation projects to completion and upgrading of existing works where returns on investment are expected to be quicker and greater (para. 1.10). More emphasis has been placed, too, on the need to improve on-farm irrigation and drainage and to integrate irrigation service development with other aspects of rural development-support for rural works, agricultural support services, agricultural credit-so as to give the individual fam household a greater stake in project success. Reflecting these new priorities, in February 1984, the MWREP presented a proposal to the World Bank to assist in financing an area development project in central Anhui Province. Visits to project sites and discussions of project scope and design took place in February and June, and the project was appraised in November 164. The proposed project, the first in China to involve the Bank Group in surface irrigation, supports comprehensive rehabilitation and improvement of the largest irrigation and associated flood control scheme in the country. The major rationale for Bank Group participation is to make available to MWREP the Bank Group's experience in establishing irrigation, flood control and rural development schemes in other parts of the world. In particular, Bank Group involvement wouLd provide access to new technologies available within the international coummunity: e.g., new mapping techniques to help in the design and layout of on-fazm ditches and drains, use of numerical modelling in resource planning and management, and advanced equipment for data collection and water monitoring and control. Study tours, technical assistance and the project-financed studies of system operations would help update the technical knowledge of staff of water resource agencies who have been isolated from recent developments abroad, and upgrade their planning and management capabil- ities. The overall objective of Bank Croup involvement in the proposed project would be to assist the Government in developing a model of integrated irrigation and rural development that might in the future be extended to other irrigation areas in China. 1.15 The Pishihang-Chaohu irrigation and flood control area is an appropriate location for such a project because: (a) the existing volume of water storage is suffi:ient for expansion of irrigation water deliveries without further dam and reservoir construction; (b) crop yields are well below potential and the area can enlarge its marketable surplus; (c) Anhui Province in general, and the project area in particular, are traditional poverty areas which, under new local and central government leadership, have recently mude rapid progress. The Pishihang and Chaohu irrigation areas, although ander separate local administrative bodies, constitute a closely interrelated basin for water management, as Pishihang runoff drains into the Cheohu area and irrigation water from Lake Chao services part of the Pishihang scheme.  - 7 - II. THE PROJECT hREA Location 2.01 The proposed project area would be located in the region between the Huaihe and l4e Changjiang (Yangtze River) in west-central Anhui province (IaD Map 18749)._1 The area benefitting from all project activities - improvement of irrigation, drainage and flood control works and development of infrastruc- ture and support services - covers parts of 13 counties and 3 municipalities (25,450 sq km), with a total cultivated area of 918,000 ha and a farm population of 8.2 million (Table 2.1). Activities to improve irrigation facilities would take place in the ?ishihang irrigation area, which straddles the watershed of the Pihe, Shihe and Hangbuhe, and has a designed service area of about 680,000 ha extending over parts of eight counties. The area bene- fitting from project irrigation works would be 320,000 ha. The Chaohu area would be the focal point of activities to strengthen flood control and drainage works. This area Lies adjacent to the Pishihang area to the south and east and overlaps a part of the Pishihang area located within the Kangbuhe basin. Its main feature is Lake Chao, China's fifth largest lake. Chaohu project irrigation and flood control works wuld benefit three counties and one municipality, and a cultivated area of 220,000 ha. Climate 2.02 With its location between 300-56' and 320-401 latitude north, the project area has a subtropical monsoonal climate with moderate temperature and rainfall. The frost-free period ranges from 210 to 230 days. Average daily temperatures in the Pishihang area range from a January low of about 6.60C to 330C in July-August. Rainfall ranges from 870 to 1,250 m with about 50Z occurring between June and September during the monsoons. Total annual su- shine hours amount to 2,100-2,400 hours. Despite occasional spells of drought and heavy rainfall, the project area has favorable climate conditions for production of food and industrial crops (Annes 1). Topography and Soils 2.03 Topography. Most of the Pishihang area is rolling country intersected by various rivers; only about 15X is flat land lying in alluvial flood plains. Existing cultivated land has been extensively terraced along its contours. The upper catchment areas are hilly with moderate elevation. The lower reaches of the three river basins form lakes which are linked with the Huaihe and the Changjiang. The Chaohu area consists mostly of low lying, level land surrounding Lake Chao in the alluvial flood plains of the main channels and the Changjiang. I/ The Chinese endings 'he" and "jiang" both mean "river", i.e. Suaihe means "Huai River". Similarily, "hu" means 'lake".  - 8 - Table 2.1: PRUJECr AREA STATISTICS Plshibang area Chaohu area Total Administrative Irrigation Adminis- adminis- area /s area lb trative nFood Irriga- tratlve Nlne Project Entire Jeneflc project Total control tion project counties area area area area Ic basin /d area /e area le area /f Area (sq in) 24.000 18.500 12.006 5,913 6.950 14.203 2.550 4.400 25.450 Population ('000) 7.980 5.890 - - 2,940 5.310 2,052 2,655 8.830 Agricultural population 7.520 5.569 6.010 2.800 2,660 4.820 1.862 2,410 8.229 Farm labor force 3.000 2.260 2,400 1,100 1.140 2.030 784 1.015 3.400 Parm families 1.740 1.224 1,300 550 615 1.120 433 560 1.839 Cultivated area (ha '000) 855 642 684 319 276 440 170 220 918 Paddy fields 558 420 319 243 N/A 340 145 170 N/A Crop ares 1.393 1.092 1,168 543 465 880 340 371 1.557 Rice-cropped area 720 572 619 284 277 429 183 221 849 Irrigated area: Designed N/A N/A 684 319 N/A N/A N/A N/A N/A UEfective 573 444 533 257 225 347 I/A N/A N/A /a Official statistics for the nine counties and for the districts within those counties which will benefIt from pro]- ect works. Official statistcls on cultivated, crop and Irrigated area have been Inflated by 252 to adjust for under-reporting. /b Estlmates for the entire PLshibang irrigation area and the areas benefiting from Improvement in irrigation with project. /c Offical statistics for four counties and two -niclpalities benefiting from project works. excluding parts of the Pishibang project area which will benefIt from Ciaobu flood control or supplementary irrigatlon. Official statis- tics adjusted an noted Lna a. id Estlmates for the entire drainage basin surrounding Lake Chao; including parts of the Pishihang area and additional area not counted as part of the project area. ie EstImtes for areas subject to flooding and waterlogging which would receive protection from project works (includ- iug parts of Pishihang area, and areas irrigated by the Chaohu sytem which would receive supplementary water with project (excluding parts of the Pishibang irrigation area). lhe two areas overlap. If Defined as the sua of the Pi-hibang and Chaohu administratlve areas receiving benefits from water resources and/or rural developent components under the project (excluding Eefei M1unicipality and adjacent counties, which might receive part of supplementary Irrigation benefits uner the Chaohu project componert).  - 9 - 2.04 Soils. More than 752 of the soils on land under cultivation in the Pishihang-Chaohu area are paddy soils (Annex 1). Because such soils have been continuously cult.vated and leached of mineral nutrients by flood irrigation, their characteristics depend primarily on the extent to which tilth has been maintained and nutrionts restored through proper husbandry. rn recent years, intensive cultivation with insufficient use of mineral or organic fertilizer has caused Local paddy soils to become seriously deficient in phosphorus and potassium. Available P205 typically ranges from 4 to 7 ppm, and available K20 from 60 to 80 ppm, compared to 11-12 ppm for P205 and 100 ppm for K20 which are considered adequate in paddy rice-growing areas of similar cropping inten- sity. Alluvial soil, which accounts for about 7% of the cultivated area and is found along major water channels, and yellowish-brown soils, accounting for 13-15Z, and found mainly in hilly areas where upland cropping is practiced, are not markedly better or worse than the paddy soils. All soils in the project area are suitable for the mix of existing crops, given proper drainage and fertilizer use. Farm Size and Land Use 2.05 There are about 1.8 million farm families, or an agricultural labor force of 3.4 million persons, in the project area. The average farm size is only about 0.5 ha, including 0.4 ha of irrigated land. This low land availa- bility indicates the need for very intensive cultivation and high yields, which in turn requires a reLiable water supply. Average rural income in 1983 was only Y 900 per family, or Y 200 per capita, compared to a national average of Y310 per capita. The limited scope of forestry, animal husbandry, fish- eries and side occupations, which together represent only 20% of farm income in the project area, accounts for the relative poverty of this area. 2.06 About two-thirds of the cultivated area has been developed into paddy fields. In the Pihe and Shihe irrigation areas, which drain into the Huaihe, double cropping is practiced, most commonly with a summer crop of paddy rice followed by a winter crop of wheat or rapeseed. In the southeas- tern portion of the project area, draining into the Changjiang, the growing season is slightly longer and drainage poorer. Consequently on about half of the area, a rice-rice-green manure cropping system is practiced, with double cropping on the remaining area. Upland fields are planted in a miscellany of crops, including corn, tubers, soybeans, cotton, jute, peanuts and sesame. The overall cropping intensity is about 170Z (excluding green manure). Existing Water Conservancy Facilities 2.07 Pishihang Area. The Pishihang irrigation scheme, begun in 1958 and expanded in the 1970s, embraces some 13,000 sq km in Anhui and Henan pro- vinces. The designed irrigation area is about 680,000 ha, but at present the scheme supplies water to about 533,000 ha, about 802 of which is irrigated through a gravicy-fed network. Five main storage reservoirs in -he Dabieshan Mountains supply 13 main canals totaling 985 km, 19 sub-main canals totaling over 400 km, 326 branch canals totalling 3,350 km, and a network of partially completed laterals and sublaterals. Completed irrigation structures include some 30,000 control structures, 24 medium size reservoirs, 1,042 small reser- voirs, and 314 pumping stations with installed capacity of 89,000 kw. Cur-  - 10 - rently another 42 pumping stations with 52,000 kw capacity are under construc- tion. In Anhui, the scheme has turned the Jianghuai Plain, lying between the Changjiang and Huaihe, into a productive rice producing area. The area served by the scheme, with one-seventh of the province's cultivated area, now accounts for nearly one-fourth of grain marketed in Anhui. 2.08 Despite large investments in construction over the past 25 years, the system is incomplete, particularily at lower levels of the distribution network. On the main canals, 90% of the designed earthwork volume and 60% of the control structures have been completed. At the level of branch canals, laterals and sub-laterals, only 70Z of earthworks and 20% of control struc- tures have been completed. In areas presently irrigated, the farmers have built on-farm ditches and drains, but they are in need of improvement to vary- ing degrees. In level areas (15-20% of the irrigation area), on-farm ditches and drains have been constructed to good standards and are well-maintained. In sloping or hilly areas, much of the irrigation is field-to-field over long distances, and the existing works need improvement. These inadequacies, coupled with the undulating terrain, make irrigation water distribution and control difficult, resulting in serious waste of water and low on-farm irrigation efficiency. 2.09 The Pihe and Shihe basins drain northwards into the Huaihe while the Hangbuhe basin drains eastward into the Changjiang via Lake Chao. With the completion of the five storage reservoirs in the headwaters of the three main rivers and the diking of the Huaihe, the Pishihang area is generalLy free from flooding but localized surface drainage needs improvement to take advantage of the gentle slope of the ground. Drainage in some areas is impeded by built-up canal embankments. Numerous ponds and retention basins are built into the canal system as "melons on vines" to hold water for irrigation. 2.10 Chaothu Area. Efforts at flood control over the last three decades involved strengthening of the Changjiang dike, improvement of the main drain (the Yuqi River), and the use of Lake Chao for flood regulation. As a result, some 180,000 ha of flood-prone areas were protected from inundation by the Changjiang and reclaimed for cultivation through enclosure by protective dikes. Irrigation facilities have expanded to the point where 234,000 ha are irrigated with water drawn from Lake Chao and the Changjiang. Ieservoirs and ponds provide additional storage capacity totalling 2 billion m , and installed capacity of drainage-irrigation pumping stations totals 230,000 hp. 2.11 However, flooding and drought still pose problems to the area. Although diking of the Changjiang eliminated flooding from that source, it also retarded drainage flow. When high stage on the Changjiang coincides with excessive runoff into Lake Chao, the Yuqihe is unable to handle all of the outflow. Consequently dikes are selectively breached, allowing diked areas to be used for flood release, which causes extensive damage to crops and pro- perty. Over the last 30 years, ten floods of varying magnitudes lasting 40-160 days each have occured, causing a total damage of about Y2 billion (Annex 4). In addition, water tables in the diked areas are high, and stand- ing surface water must normally be evacuated by pumping during the monsoon season. Prior to the onset of the summer monsoons, water levels in Lake Chao must be lowered to +7.5 m to provide storage for flood regulation. When the  - 11 - monsoons are delayed or rainfall is insufficient, water is diverted to Lake Chao from the Changjiang by gravity flow to maintain this level. In a prolonged dry spelL (6 times in 30 years), the Changjiang water level falls too low for diversion by gravity, rendering pumping stations around the lake inoperative. This subjects 133,000-200,000 ha to drought damage and affects water supply for domestic, livestock and industrial uses. Irrigation Area Organizations 2.12 Pishihang Area. Management of the several phases of the Pishihang irrigation project from its inception in 1958 to 1981 was directed, first, by a semi-autonomous agency called the Pishihang Construction Leadership Commis- sion, then, during the Cultural Revolution (1966-74), by the Liuan Prefectural government, and, beginning in 1975, once again by a separate Pishihang commission. In 1981, as part of a new phase of investment in Pishihang irrigation development, the provincial government further strengthened the area management structure. At the top is the Pishihang Management Commission, an executive body made up of senior officials from provincial, prefectural, and county WRBs and other technical bureaus. The Commission is primarily responsible for overall planning - including drawing up plans for annual water allocation - and budgetary decisions relating to ongoing development of the irrigation scheme in the 12 counties served by the Pi, Shi, and Hangbu river systems. Day-to-day management and coordination with other government agencies on irrigation-related matters - e.g., with forestry bureaus regarding tree planting on watersheds - in the Pishihang area are handled by the Pishihang General Administration (GA) which serves as a kind of secretariat to the Commission. The GA is headed by the AWRE vice-d-irector and has a technical staff of 136, including irrigation engineers, agronomists and economists/statisticians, an administrative staff of 79, and 463 field staff. A similar structure of commissions as policymaking bodies with attached administrative offices has been set up for areas served by the Pihe central conveyance canal, the Shihe central conveyance canal and the Shulu main canal. Plans are to extend the model to the submain canal level as well. Total Pishihang irrigation area staff consists of 2,800 technicians and administratOrs and 2,000 field workers including canal operators, maintenance workers and mechanics. 2.13 Chaohu Area. Management of irrigation and flood control in the Chaohu area is handled primarily by the AWRB and prefectural and county WRBs each of which has established a special office for Chaohu affairs called the Chaohu Flood Control and Drought Prevention Authority. In addition, Chaohu prefecture has set up special management offices for the five major floodgates in the area. Infrastructure and Support Services 2.14 Transport and Power. The eastern part of the project area lies adjacent to the provincial capital, Hefei (population 700,000), thus providing ready access to Anhui's major market. The project area is Linked by rail to North and South China via the Beijing-Shanghai trunk railway line. Within the area, a network of 4,691 km of paved provincial roads links all the major county towns and provides access to 77% of all townships. Villages are  - 12 - accessible on unpaved rural roads of varying standards. The main canals are navigable and important in meeting local transportation needs. Lake Chao itself is also linked by navigable rivers to Hefei and the Changjiang. 2.15 Electric power presently is available to 91% of the townships and 67% of the villages in the project area. Power is supplied from hydroelectric generating stations on the three main storage reservoirs with a total capacity of 127 MW, and from 360 smalL hydro-stations on the canal system with a 4 MW capacity, or is purchased from the East China Power System grid which runs through the eastern part of the project area. Transmission within the project area is over 35 or 10 kV lines, and distribution to the village level at 3-8 kV. Two new thermal plants with a combined installed capacity of 1,800 MW are scheduled for construction in centraL Anhui during 1985-1990; this new capacity would easily cover the project's incremental power demands. 2.16 Education and Research. An estimated 1,700 technicians in agriculture-related fields or about 2.2 per 10,000 population are employed in the project area at present. The majority of these technicians are middle or secondary schooL graduates; only about 150 are classified as college degree holders in agronomy, animal husbandry and engineering. Anhui has three agri- cultural colleges and eight secondary schools specializing in agriculture. Two of the agricultural secondary schools, enrolling a total of 400 students, are located in the project area -- at Liuan and Chaohu. To heLp supply much needed technical personnel for the area there is a need to expand and upgrade curricula, equipment and facilities so as to accommodate increased enrollments. 2.17 Agricultural research is conducted at Anhui's three agricultural colleges, at the Anhui Provincial AgriculturaL Research Academy in Hefei, and at prefectural agricultural research institutes. Two prefectural research institutes -- in Chaohu and Liuan -- are in the project area. Together they employ about 50 technical personnel. A forestry research institute, estab- lished in 1979 at Liuan, has a staff of 25, onLy ten of whom have an educa- tional level of postsecondary or above. 2.18 Agricultural Extension and Training. China's extension institutions have been notably effective in the past in channeling improved technology and research results to farmers. However, the recent shift to a farming system organized around individual households rather than collectives has placed new demands on extension services. Whereas previously the various levels of collective organization centralized distribution of new production inputs and technical assistance, now the support system requires direct links to about 190 million production units which operate much as do small family-managed farms elsewhere. In response to this requiLoment, the Government is in the process of consolidating previously separate local agricultural services, including seed production, fertilizer distribution, and soil analysis units, into a single, county-level agrotechnical extension center. Nationwide about 300 out of a planned 2,300 centers are already in existence. In the project area there are at present seven agrotechnical extension centers with a total of 378 affiliated stations including soil testing stations, crop pest warning stations and district and township extension stations. These various exten- sion units offer short term training to over 200,000 area farmers per year.  - 13 - 2.19 AgriculturaL Inputs. Thirty-seven county or district seed companies handle multiplication, processing, storage, certification and distribution of stock and certified seed for major crops in the project area. Breeder seed is supplied primarily by the Anhui ProvIncial Research Academy and Liuan and Chaohu prefectural research insticutes. Multiplication of stock and certified seed is carried out by seed farms either managed by or under special contract to the local seed companies. The bulk of the seed is processed using tradi- tional hand or simple machine methods. Tree seedlings for new plantations are supplied by forestry nurseries organized by the provincial forestry bureau and other local forestry agencies and by state forest farms which have been set up as largely self-sufficient entities charged with accelerating China's affores- tation programs. There are 120 state forest farms in Anhui, about a third of them in the project area. At present the project area has about 394,000 ha of largely immature forest with a standing timber volume of only 6.4 milLion m3; another 284,000 ha are classed as suitable for afforestation. Over the long term, tree planting offers a solution to the problem of shortages of rural fuel and construction materials and couLd help control erosion on watersheds surrounding reservoirs. 2.20 The soils over virtually all of the project area are deficient in both phosphate and potash. Domestic production of these fertilizers, while increasing, does not meet current demands, and shortfalls are experienced in the project area. Present fertilizer use in the Pishihang-Chaohu area is about 122 kg/ha of nitrogen, 29 kg/ha of phosphates and 5 kg/ha of potassium for a nutrient (N:P:K) ratio of 1:0.24:0.04. This compares to a worLd average of 1:0.52:0.1. About 85% of China's consumption of chemical fertilizer is domesticalLy produced and distributed through the Agricultural Means of Production Corporation and its local network of marketing cooperatives. Fertilizer imports, which are confined largely to compound fertilizers, are arranged by SINOCHEM; small amounts are also brought in directly by provincial trading companies. 2.21 Livestock production in the project area is less intensive than in other areas of China with similar levels of grain production. Ten pig breed- ing farms run by prefectural and county agriculture, animal husbandry and fisheries bureaus (Chaohu) or separate animal husbandry ofices (Pishihang) supply project area farm households with new and improved breeds. Present annual commercial supply of shoats is about 6,000. These efforts are being supplemented by five artificial insemination stations which annually insemi- nate some 2,000 cattle and pigs. The project area currently markets 620,000 pigs and 8 million poultry annuaLLy, and supports 274,000 draft animals. Fish raising in the project area also shows potential for expansion. A total of 170 fish nurseries operated as state-owned enterprises under county fisheries offices produce about 200 million fries p.a., sufficient to stock about 26,500 ha of ponds. This represents only a small portion of the total area of reser- voirs, ponds and canals suitable for fish raising in the project area. Yields in stocked reservoirs are under 50 kg/ha, compared to 1 t/ha in well-managed lakes elsewhere in the same region of China. 2.22 Rural Credit. Credit is available in the project area chrough the Anhui branch of the Agricultural Bank of China (ABC) and its extensive network of prefectural (or municipal) branches, county subbranches, and township  - 14 - credit cooperatives. Total staff of the branches and subbranches is about 11,900 and of the credit cooperatives, 13,700. Reflecting Anhui's low per capita income levels, the level of rural savings and deposits is lower and the need for external sources of finance for rural investment consequently higher in Anhui than elsewhere in China. Demand for credit has risen particularly in recent years in response to the Government's encouragement of household agricultural activities and individual enterprises and its efforts to shift from grant to loan financing of rural development projects. ABC Anhui's sources of financing comprise mainly deposits and equity funds provided by ABC Beijing. Loans outstanding at the end of 1984 amounted to Y 2.2 billion of which Y 1.9 billion or 80Z constituted loans to townships (41Z), specialized households (16%) and suppLy and marketing cooperatives (43%). In line with recent banking system reforms including interest rate adjustments, ABC has raised its lending rates. Over the period 1982-84, rates were increased from 4.32% to 7.2Z for short-term agricuLtural loans and from 2.16% to 6.48% for medium- and longer-term Loans. Interest rates payable by ABC on individual time deposits now range from 5.4% p.a. for a six-month deposit to 9.00Z p.a. for an eight-year deposit. ABC incurs a small loss on some of its fixed term deposits, but this is more than offset by profits from other aspects of its operation. III. THE PROJECT Project Description 3.01 The main objective of the project is to increase the production of crops and other agricultural products in central Anhui by developing water resources, reducing flood damage, developing rural infrastructure and support services, and improving Anhui's overall capability to plan and manage irriga- tion and flood controL schemes. The principal features of the project are: (a) improvement of irrigation facilities serving some 320,000 ha in the existing Pishihang irrigation area, through channeL excavation, embankment construction, addition of control structures and on-farm ditches and drains; (b) improvement of flood control on 170,000 ha, drainage on 23,000 ha and irrigation water supply benefiting 220,000 ha in the Chaohu area through construction of flood channels, control gates, and pumping stations; (c) strengthening of other rural infrastructure and agricultural support services over an area of 918,000 ha; (d) provision of rural credit for livestock raising, aquaculture and agro-processing; (e) a training and technical assistance program designed to improve the planning and design of on-farm works and to raise the operational efficiency of the irrigation and flood control systems.  - 15 - Pishihang Irrigation System 3.02 In order to define a reasonable scope of project works, the Government has decided to focus on the six canal command areas most in need of improvement (see IBRD Map No. 18750). The project would make improvements to 320,000 ha out of a total designed service area of 680,000 ha. Pihe system: Pihe Command Area (60,500 ha) Waxi Command Area (38,200 ha) Wadong Command Area (90,700 ha) Shihe system: Shihe Command Area (10,500 ha) Jidong Command Area (64,900 ha) Hangbuhe system: Shulu Command Area (54,700 ha) The canal system is divided into seven grades, (Figure 6) from the Largest central conveyance canals to the smallest sub-Lateral canals. However, in descriptions of project works below, these have been regrouped into main, branch, lateral and sublateral canals for ease of reference. To facilitate design of on-farm works, the project would introduce mapping techniques developed for other Bank Group-funded projects in the Region. Additional technical assistance would be given to the AWRB in (a) conducting system operation studies for the project; (b) the design and implementation of improvements in procedures and equipment for system operation. 3.03 Main and Branch Canals. In the Pishihang irrigation sys em, some 5.1 million mn of earthworks on the main canals and 10.6 million m on 127 branch canals would be completed. This would be mostly in the form of excava- tion to provide the designed cross-sections for the canals. Sections of canal banks subject to erosion would be provided with stone protection or concrete lining. About 120 bridges would be installed to provide more effective transportation over the main canals. Some 50 major structures, mostly regu- lators, drainage inlets and siphons, would be constructed on the main canal system to provide better water control and drainage outfalls for areas with drainage now cut off by built-up canal embankments. About 4,100 additional irrigation and drainage structures would be constructed on the branch canals. Within the project area, there are some 560 small and medium size reservoirs acnumulating surface runoff in the service areas and providing 350 million m of supplementary water. These would be improved mainly through raising the crests or improving the intake gates and spillways. 3.04 Lateral and Sublateral Canals. Some 2,440 laterals and sublaterals complete with 10,500 ancillary structures and 10,100 bridge crossings would be constructed to provide better water control and distribution to 320,000 ha of the Pishihang irrigation area. Over most of the area the sublaterals would be upgraded by channel excavation, embankment construction, construction of more control structures, and provision of a 3-meter farm road on tht canal bank. Structures would include offtakes, regulators, bed controls, drops, checks, drainage siphons, crossings and lining of canals where steep gradients and permeable soils are encountered. Canal density wouLd be rationalized with the different terrains and types of crops to be irrigated. The sublateral canals would be designed to irrigate about 35-50 ha.  - 16 - 3.05 On-farm Works. On-farm ditches and drains with proper control structures would be constructed, primarily in the sloping or hilly areas (para. 2.08). Emphasis will be placed on providing a higher density of ditches and aligning them properly so as to minimize field-to-field irriga- tion. Designs of on-farm works for three sample areas representing flat, sloping and hilly terrain have been prepared. Two of these areas would be implemented immediately and be ready by the next irrigation season (March 1985) to demonstrate the advantages of a well laid-out on-farm distribution system. The designs would provide individual irrigation turnouts for each 3-7 ha. On-farm access would be by farm roads 3 m wide on the subLaterals and footpaths of 0.5 m on the farm ditches. Planning and design of the on-farm works requires topographical maps of suitable scale, which are not now available. The project would assist the AWRB in using aerial photography to produce maps of proper scale for layout of on-farm works. Chaohu Flood Control System 3.06 Project works are designed to permit the following flood control strategy for the Chaohu basin: (a) Lake Chao would be used for flood water retention up to a maximum level of +12 m, and access volume would be evacuated to the Changjiang through the existing Yuqihe insofar as water levels on the Changjiang permit; (b) at high stage on the Changjiang, the Niudunhe Diversion Channel, to be constructed by the project, would discharge part of the excess volume into the Changjiang at a point 15 km downstream from the Yuqihe outlet, where a lower water level permits gravity flow; (c) the channel of the Xihe, which runs through the diked areas between Lake Chao and the Changjiang, would be enlarged to permit retention and discharge of larger volumes of water; (d) and the Fenghuangjing and Shendanhe pumping stations, to be constructed by the project at points where the Xihe approaches the Chang;iang, would lift flood discharge from the Xihe over the Changjiang dike, in order to agument the outflow to the Changjiang which, at high stages, would be limited by the flat gradient (see IBRD Map No. 18750). In addition to the flood control benefits, the pumping stations would bring irrigation water to parts of the irrigation area (including 40,000 ha included in the Pishihang area) which are periodically short of water, and provide drainage to areas near the pumping stations. The project would also provide technical assistance to the AWRB in system operation studies to determine operating rules for all elements of the flood control system, and provide equipment needed to implement these rules.  - 17 - 3.07 Niudunhe Flood Diversion Channel. A 48 km Long channel would be constructed following the course of an existing natural drain. Bed width would be 60-80 m and depth of fl3w 8-9 m for a discharge capacity of 480 m3/sec at the inlet to 700 m /sec at the outlet into the Changjiang. An 8 x 6 m outlet gate and about 3.3 km of the diversion channel were completed by 1979, when further work was deferred due to lack of funds. Remaining works to be completed by the project include 17 million m3 of channel excavation, as well as construction of an upstream control gate, five control gates on branch rivers and drains, seven bridges, and a lock for ships of 50-100 tons at the Changjiang outlet. 3.08 Pumping Stations. The Fenghuangjing and Shendanhe pumping stations would lift flood water a peak flow of 390 m /sec over the dike into the Changjiang when high stage in the latter prevents gravity flow from the Chaohu area. During the dry season, water from the Changjiang would be pumped into Chaohu Lake via the Xi and Zhao Rivers for irrigation use. The Fenghuangjing and Shendanhe stations would also be used to improve the drainage of some 22,500 ha of low-lying land in the vicinity of the pumping station. The Fenghuangjing station wouLi have six 3 000 kW verticaL-axis flow PIMPS with a total peak discharge capacity of 240 m /sec for drainage and 200 m /sec for irrigation, against an average lift of 7 meters. Two pumps were purchased earlier, and four would be provided by the project. The Shendanhe station would have five 1,600 kW pumps with 150 m /sec drainage discharge capacity and 100 m3/sec for irrigation, against an average lift of 5-6 meters. Power would be brought to the pumping stations by a 110 kV transmission line from the East China Power Grid's existing 220 kV line. This line would also provide a basis for meeting an additional load, including a large number of existing diesel- powered pumping stations throughout the diked area (para. 2.10). 3.09 Xihe Canalization. Sections of this channeL would be enlarged over 100 km where necessary to provide a bed width of 30 m and a peak flow volume of 400-600 m3/sec. A number of cutoffs would be excavated to shorten its length from 108 km to 92 km. Rural Development 3.10 Rural Roads and Electrification. The network of roads linking county seats with townships would be expanded by 15Z with the addition of 587 km of gravel road. Another 98 km of dirt roads would be upgraded. As a result, the proportion of townships accessible by all-weather roads would be increased from 77% to 87%. Individual sections of road would be 20 to 30 km in length and fit into the existing road system. Roads would be designed and constructed to at least the Ministry of Communication's Grade rV standards. This is the appropriate grade for rural roads where traffic is less than 200 vehicles per day. Road embankments, generally 1 to 1.5 m high and 7.0-8.5 m wide at base, would have a top width of 6.5-7 m. Bridges would be double lane with a width of 7 m. The rural electrification system would be expanded through installation of 243 km of 35 kV lines, 428 km of 10 kV lines, ar. 25 km of 3-8 kV lines, along with construction of necessary substations. As a result the number of townships receiving power would increase from 536 (91Z) to 570 (97%) and the number of villages from 3,758 (67%) to 4,386 (79%).  - 18 - 3.11 FertiLizer. To help remedy serious soil deficiencies in both phosphate and potassium (para. 2.04), the project would include procurement of 70,000 tons of diammonium phosphate and potash for application as a soil amendment at a rate averaging 40 kg/ha total nutrient (P205 and K20). Project area requirements of chemical fertilizer at full development are expected to average one-third more than present requirements, or about 210 kg/ha nutrients at full development, in proportions 1:0.33:0.13 (N:P205:K20). An assurance was obtained at negotiations that a plan for provision of phosphate and potassium fertilizers to the project area would be prepared and discussed with the Bank Group prior to November of each year. 3.12 Afforestation. In support of both the commercial and environmental aspects of forestry development, the project would establish 565 ha of nur- series for the production of 61 million seedlings for border and commercial forest pLantings. Some 12,750 ha of commercial forests of pine and other species would be planted on land too steep for cropping and on watersheds surrounding reservoirs, at a density of 3,300 trees/ha with a recommended spacing of 1.5 x 2 m and thinning every five years. Field border plantings and shelter belts at 75 trees/ha would usually be planted in offset pairs of rows with 7 x 3 m spacing, to reduce wind penetration. 3.13 Livestock and Fish Breeding. The project would support increased livestock production by adding three pig breeding farms, expanding others, and increasing the number of breeding sows from 300 to 1,800 head (2,600 head, if specialized households are included). The breeding farms would increase the annual commerciaL supply of shoats to about 30,000, the majority to be hybrid or other lean breeds. A small number of breeding cattle and pigs would be imported from abroad. Aquaculture of carp would be supported by consolidating 170 existing nurseries into 141, and at the same time expanding their capacity to supply 270 miLlion fries a year (not counting specialized household nurse- ries). The area of ponds stocked, at a standard of 6,000 fries/ha, would increase from 26,400 ha at present to 44,550 ha. Both shoats and fish finger- lings would be sold to and raised by individual farm households. 3.14 Seeds, Extension and Research. The project would strenthen the seed, research and extension systems by constructing new or expanded facili- ties and providing equipment and vehicles. Expansion of sled breeding facili- ties would include a cultivation area of 5,200 ha, 8,850 m3 of grain storage, and 27,600 sq m of drying floors. Seed processing would continue to follow present methods, but some additional seed processing equipment would be provided, mostly small-scale drying and processing equipment and bulk storage facilities. Upgraded facilities would support an increase in seed company sales from 5,500 t in 1983 to 30,580 t at full development, when they would account for about 45% of project area seed requirements for rice, wheat and cotton. The extension system would be expanded bv constructing and equipping eight new county agrotechnical centers, 14 soil testing laboratories, four district and 144 township extension stations, and 14 crop pest warning sta- tions, while other facilities would be upgraded and equipped. Construction would include new libraries, offices, classrooms and housing for extension personnel, and laboratories, greenhouses, hothouses and growth chambers for simple experiments and demonstrations. Equipment to be provided ranges from audio-visual aids to be used in training courses to demonstration farm  - 19 - machinery, soil testing instruments, refrigerators and incubators. The project would also supply about 40 vehicles for use by extension personnel in outreach activities. 3.15 To provide a modeL for effective water use management for irrigated agriculture, the project would construct and equip a field irrigation experi- ment station near Liuan City with three experimental plots in nearby counties. The station would have a total staff of 24, including one to two specialists each in agriculture, meteorology, soils and hydrology. The major objective would be to develop a data base on irrigation water requirements for particular crops, cropping patterns, soils and climatic variations, which would become the basis for revising water allocation practices for the Pishihang area. The station also would develop short-course training for technicians employed by the water resources system. The project would include construction of 2,500 sq m of laboratories and offices for the station and plots, and provide equipment and microcomputers. To strengthen agricultural research facilities, the project would expand seed breeding and nursery faciL- ities at the Liuan Forestry Research Institute; construct and equip labora- tories for the Liuan Agricultural Research Institute; and add hothouses for hybrid rice breeding and fish fry overwintering at the Chaohu Agricultural Research Institute. Rural Credit 3.16 In addition to direct support of infrastructure and service sector development, the project would increase provision of agricultural credit in the form of interest-bearing, medium-term loans to enterprises and specialized households for the development of agroprocessing, animal husbandry and fish- eries. Emphasis would be placed on small-scale feed mills, using feedgrzirs from northern Anhui and imported fishmeal and premixes. Applications fox loans would be made to local branches of the Agricultural Bank of China, which would carry out subproject appraisals and administer lending operations. Assurances were obtained that ABC Anhui would appraise all subprojects using the procedures and criteria set out in the Rural Credit Project Appraisal Manual issued by ABC Beijing and approved by IDA in Cr. 1462-CHA; that subloans for the first three subprojects appraised by ABC Anhui would be submitted to IDA for approval; and that individual subloans in excess of $300,000 would require IDA's prior approval. The credit component would include provision of training and some equipment for ABC staff in the project area. Training and Technical Assistance. 3.17 Local Training Resources. To strengthen the ongoing capability of local institutions to provide technical training in hydrology and agriculture, the project would establish a Water Resources Training Center, upgrade two agricultural secondary schools to qualify for polytechnic status, and improve the training facilities at the county agrotechnical centers. The Training Center, designed to upgrade the qualifications of the 2,800 technicai and managerial personnel working in the Pishihang irrigation area and to train new employees, would provide post-secondary and short-term training to about 200 trainees in canal system management, hydrological data collection, telemetry,  - 20 - computer operations and financial management. About 20 teachers would be recruited from hydraulics departments of Anhui, Huadong and Wuhan Universities and the School of Hydraulics at Anhui Huaiyuan College, and from among senior engineers in the Pishihang GA. The project would include construction of about 4,000 sq m of classrooms and a dormitory and wouLd provide teaching equipment, books and materials. 3.18 Higher level agricultural staff for the project area would be drawn from engineering graduates of provincial agricultural colleges, and from graduates of Liuan and Chaohu Prefectural Secondary Agricultural Schools. The latter two schools would be upgraded, with provision of buildings and equip- ment by the project, to three-year polytechnics, with Liuan emphasizing pest control and agricultural economics and Chaohu specializing in livestock and fisheries training. Teaching staff would be given in-service training and new staff would be added. The project would also help upgrade the training facilities of the county agrotechnical extension centers. Training courses offered would be increased three-fold making available to area extension workers an estimated 650,000 training opportunities annually. 3.19 Management Assistance. The project would strengthen irrigation and flood control management by providing equipment, training and technical assis- tance to the Pishihang GA and a Chaohu Water Control Center to be constructed by the project. These organizations would be enabled to rapidly develop water discharge plans in response to varying natural conditions. The project would provide (1) a comminications system linking observation sites, control gates and pumping stations, and the control center; (2) computer equipment and training to monitor and analyze flood elevations, amounts of rainfall and runoff, climatological data and irrigation water requirements as a basis for calculating water discharge and inflow plans. The equipment and training requirements would be assessed with consultant assistance (para. 3.22). 3.20 To initiate the implementation phase of the proposed project, Bank and local staff would conduct a project launch workshop in Anhui for staff of the PMOs, AWRB, Pishihang GA, and Chaohu Water Resources Bureau. The purpose of the workshop would be to review the total process of implementation and to familiarize project staff with their responsibilities. Topics to be covered would include: procurement and contracting procedures, project financial management, use of microcomputers in project implementation, and project moni- toring and evaLuation. The workshop would be followed by a three week course in project appraisal techniques designed for Anhui staff of ABC and Anhui Agriculture, Ani-al Husbandry and Fisheries Bureau (AAAFB) as preparation for implementation of the project's credit component. The project would also provide office space, housing, office equipment and vehicles for the PMOs, and supplementary office equipment to provincial and local offices of Anhui ABC. 3.21 Study Tours. The project would provide 62 man-months of overseas study tours (four weeks per participant) and 41 man-months of overseas train- ing (two to six months per trainee) for staff of local water resource and agricultural agencies and project management offices. Study tours would cover such topics as techniques for design of on-farm works; water resource and flood control management technologies and equipment; alternatives in monitor- ing, control and communications; and rural development project management.  - 21 - Overseas training would focus on such areas as regional water resource plann- ing, floodplain management, operation and maintenance of pumping equipment, and microcomputer applications in water system operations. 3.22 Consulting Services. The project would provide 45 man-months of consulting services to (a) direct a study tour on the use of aerial mapping in planning on-farm works and to design a work plan for on-farm mapping of the project area, (b) to assist the AWRB in conducting studies of irrigation and flood control system operations; and (c) provide local training in modern techniques of water resource management and agricultural production. Terms of reference for the studies (Annex 7) were agreed with the Government at negotiations. An assurance was obtained from the Government that a report presenting the main findings of the studies would be prepared by the Anhui Project Management office (PMO) (para. 4.02) and submitted to the Bank Group for review not later than December 31, 1989. Consultants engaged in the studies would also assist in drawing up equipment lists for the Pishihang water resources experiment station and the Chaohu water control center (paras. 3.15 and 3.19). Costs and phasing of technical assistance are summarized in Annex 2. Water Supply, Demand and Quality 3.23 Water for the three irrigation areas is supplied by five storage reservoirs constructed on the headwaters of Pihe, Shihe and Hangbuhe. The Foziling, Mozican and Xianghongdian reservoirs provide water for 410,700 ha in the Pihe system, the Meishan Reservoir supplies 182,000 ha on the Shihe, and Longhekou Reservoir irrigates 91,300 ha on the Hangbuhe (Annex 3). Except for the Longhekou Reservoir, which only irrigates a small area, these reservoirs provide a high degree of flow regulation and have spilled only infrequently and in small quantities since their construction in the 1950s. As a result, aimost all of the average annual inflow to the five reservoirs of 4.9 billion m is available for irrigation use. Catchment areas belz- the reservoirs but above diversion weirs contribute another 0.7 billion m , so that tot l annual regulated flow availabie for the canal system averages 5.6 billion m (3.4, 1.3, and 0.9 billion m for Pihe, Shihe and Hangbuhe respectively). Assuming 65Z efficiency, the annual irrigation requiremens s for 680,000 ha based on pese.nt cropping patterns wculd be 4.3 billion m (2.3, 1.2, and 0.9 billion m respectivejy). Irrigation demands could thus be satisfied leaving a 1.3 billion m average annual surplus, of which 280 million m would be sufficient for expected downstream requirements. Additional supplies, important in dry years, would be available from surface runoff stored in small reservoirs, retention ponds and lakes in the service areas. Expected shifts in cropping patterns as a result of the project would reduce annual requirements for irrigation water. Status of Design 3.24 The project is at an advanced stage of preparation. For the Pishihang area, designs for works on three of the six main canal systems have been prepared by AWRB and approved by the Huai River Comission and detailed working drawings are being prepared. Designs for the three remaining systems and for works on 125 branch canals are at advanced stages of preparation and  - 22 - review by AWRB. For structures such as bridges, culverts, etc. there is a high degree of standardization in designs, which have been in use for years. Sample designs for typical laterals, sublaterals and on-farm works provide a basis for quantity estimates with a reasonable degree of accuracy. Detailed layout for sublaterals and on-farm ditches and drains would proceed as the I to 4,000 scale maps become available during the second year of implementation. Design studies for the Chaohu flood control works have been under way for years. The design for the Niudunhe Flood Diversion Channel was completed and approved in 1977, and in 1978 the main outlet structure on the Changjiang was constructed. Designs for the pumping stations were completed in 1980, but work was postponed due to lack of funds. The preliminary designs provide detail sufficient to estimate quantities of work. Implementation Schedule 3.25 The project would be constructed over a period of five years beginning in November 1985. Deliveries of materials procured through ICB ari selection of contractors for initial stages of construction would be timed to permit a start on construction in January 1986. Earthworks construction would be carried out during December-March, when canals are dry and idle farm labor is available. Suction dredges would be used to excavate about one-third of total earthworks located below normal levels. Work on the structures would be carried out year round by contractors, as far as possible using standardized sizes and pre-fabricated elements for the minor structures to facilitate rapid construction. A detailed implementation schedule is given in Figure 1. Cost Estimates .3.26 The total project cost in December 1984 prices is US$264 million, with a foreign exchange component of US$82 million, or 31X of the total. No taxes are imposed on major cost items, and imported materials and equipment would be exempt from duties. Construction costs are based on quantity esti- mates derived from designs described in para. 3.24, using prices currently prevailing in the project area. Prices for locally available equipment are based on data provided to AWRB and AAAFB by Local suppliers. Prices for steel, cement, timber, chemical fertilizer, imported equipment and vehicles are based on list prices obtained from manufacturers. Physical contingencies (10.1% of project base costs) equal 15% of base costs of irrigation and flood control civil works. For the calculation of price contingencies, it is assumed that exchange rate adjustments will, on average, be made to maintain the parity of purchasing power during project implementation. Price escala- tion for both foreign and local costs when expressed in US dollars, is based on annual international price escalation rates for all goods and services of 5Z in 1985, 7.5X in 1986, and 8% in 1987-90; and when expressed in yuan, is based on price escalation rates of 3X p.a. in 1985-90. Price contingencies would amount to 16% of the total cost. Estimated costs are sunmmarized in Table 3.1 and details are given in Annex 2.  - 23 - Table 3.1 COST SUMMARY Foreign Local Foreign Total/a Local Foreign Total exchange (Y million) - - (US$ million) - (X) Pishihang Earthworks 57.6 0.0 57.6 20.6 0.0 20.6 0 On-farm works 48.8 0.0 48.8 17.4 0.0 17.4 a Structures 36.6 59.6 96.2 13.0 21.3 34.3 62 Chaohu Earthworks 100.4 0.0 100.4 35.8 0.0 35.8 0 On-farm works 20.3 0.0 20.3 7.3 0.0 7.3 0 Structures 18.1 29.5 47.5 6.5 10.5 17.0 62 Pumps & equipment 0.0 19.4 19.4 0.0 6.9 6.9 100 Land acquisition 8.2 0.0 8.2 2.9 0.0 2.9 0 Rural Development Chemical fertilizer 0.0 30.0 30.0 0.0 10.7 10.7 100 Rural roads 7.8 7.8 15.5 2.8 2.8 5.5 50 Rural eLectrification 6.4 6.7 13.1 2.3 2.4 4.7 51 Seed farms 3.1 1.7 4.8 1.1 0.6 1.7 35 Afforestation 15.2 0.3 15.5 5.4 0.1 5.5 2 Livestock & fish breeding 4.3 3.3 7.6 1.5 1.2 2.7 44 Extension & research 30.7 10.2 40.9 11.0 3.7 14.6 25 Rural credit 13.8 5.6 19.4 4.9 2.0 6.9 29 Training & technical assistance 14.3 5.3 19.6 5.1 1.9 7.0 27 Base costs 385.3 179.4 564.7 137.6 64.1 201.7 Physical contingencies 43.4 13.4 56.8 15.5 4.8 20.3 24 Price contingencies 34.1 15.3 49.4 28.6 12.9 41.5 31 Total project cost 462.8 208.1 670.9 181.7 81.8 263.5 31 /a The project is exempt from taxes and duties. Financing 3.27 Bank Group assistance would be an IDA Credit of SDR 75.7 million (US$75 miLlion equivalent) and a Bank Loan of US$17 million, and would cover 35Z of total project cost. The balance of US$171.5 million equivalent would come from budgetary grants from the central government (about US$ 19.1 mil-  - 24 - lion), provincial and local governments (US$ 73.4 million), lending from the ABC (US$ 2.9 million), and investments of farmers and collectives (US$ 76.1 million). The financing plan is shown in Table 3.2 below. Table 3.2: FINANCING PLAN (US$ million) Estimated Collec- IBRD/IDA Category of Central Local tives/ IBRD/ financing Expenditure Gov't Gov't ABC Farmers IDA Total (Z of total) Earthworks & on-farm 9.7 26.9 65.4 8.7 110.7 8% Structures 9.4 14.6 46.0 70.0 66% Pumps & equipment 8.2 8.2 100% Land Acquisition 4.0 4.0 O0 Chemical fertilizer 12.7 12.7 100% Rural infrastructure and support services 21.6 8.2 11.5 41.4 28% Rural credit 2.9 2.5 2.9 8.2 35% Training and techni- cal assistance 6.3 2.0 8.3 242 Total 19.1 73.4 2.9 76.1 92.0 263.5 35% Procurement 3.28 Goods worth about US$54 million, or 59% of the Loan/Credit, would be procured through international competitive bidding (ICB) in accordance with Bank Group guidelines. It is expected that there would be four main procure- ment packages: (i) steel, cement and timber (US$26.1 million); (ii) pumps and electrical equipment (US$10.9 million); (iii) vehicles, laboratory and office equipment (US$4.4 million); and (iv) chemical fertilizer (US$12.7 million). Qualified domestic manufacturers would be awarded a preference over the competing foreign bidders of 15% or the customs duty, whichever is lower, in bid comparison. Prior Bank Group review of contract awards wouLd exclude small contracts ($50,000 or less) estimated to cover less than 15% of the value of all contracts. Items including breeding animals and small amounts of equipment costing not more than $50,000 per contract and aggregating to not more than $2.0 million would be procured on the oasis of three price quota- tions under procedures satisfactory to the Bank and Association. Civil works, including earthworks (US$110.7 million, of which $8.7 million Bank Group- financed) and construction of structures (US$48.1 million, of which $24 mil- lion Bank Group-financed) scattered over 13 counties and carried out over five years, would be too dispersed to be suitable for ICB. Construction of struc- tures would be carried out through contracts let under local competitive  - 25 - bidding (LCB) procedures, which have been reviewed and found acceptable to the Bank (Annex 8). Labor contributed by farmers or hired under local procedures and directed by AWRB supervisors would be used for earthworks and on-farm development. The remaining components (US$33.8 million, none financed by the Loan/Credit), mainly small equipment items fabricated locally and construction of rural bui'.dings, would be procured locally under procedures which are acceptable to the Bank Group. In the past, LCB has been rarely used in local construction outside the water resources system, but PHO management would encourage its use in rural development project components. Consultants would be selected under terms of reference agreed with the Bank Group and in accor- dance with its Guidelines on the use of consultants. General conditions of contract for materials and equipment to be provided through ICB would follow closely the documents used for the Rubber Project. Bid documents for imported construction materials would be finalized by July 1, 1985, and for the remain- ing procurement items by December, 1985. Disbursement 3.29 Disbursements under the Loan/Credit against expenditures for con- struction materials, pumps and electrical equipment, chemical fertilizers, and equipment and vehicles would be at 100% of the foreign exchange costs of im- ported items or 100% of the ex-factory price of locally manufactured items. Disbursements for overseas training and expert services would be 100% of total costs. Disbursement against contracts for the construction of structures for the water conservancy system would be at 50%. Disbursement for earthworks on the Pishihang main, branch and sublaceral canals (excluding on-farm earth- works) would be 20% of total expenditures, and disbursement against use of mechanical dredges in canal excavation for the Chaohu component would be 50% of total for expenditures. Disbursements for overseas training, for construc- tion contracts of Less than $200,000, for equipment, fertilizer and vehicles costing less than $100,000, and for earthworks would be against statements of expenditure (SOEs). In the case of structures, SOEs would be supported by contract documents, retained by the Anhui PMO for review by Bank Group super- vision missions. rn the case of earthworks, SOEs would be supported by pro- gress reports showing physical quantities and unit prices which would be updated annually by AWRB and reviewed by the Bank. Disbursement for , nstruc- tion contracts amounting to $200,000 or more would be against contracts and supporting documents submitted to the Bank Group. Disbursements against agricultural credit extended by the ABC would be at 35% of subloans extended. Supporting documentation would be retained by the Anhui ABC and be made avail- able to Bank Group supervision missions. In order to provide for efficient disbursement of loan/credit proceeds for the irrigation and flood control components, a special account would be opened in US dollars in the Bank of China with an initial deposit of US dollar equivalent of SDR 4,050,000 which represents the average estimated 4-month expenditures. For the rural credit component, a separate special account with an initial deposit of US dollar equivalent of SDR 510,000 would be opened. Applications for replenishment of these special accounts would be submitted quarterly, or whenever the special account is drawn down to 50% of its initial deposit, whichever comes first.  - 26 - Table 3.3: PROCUREMENT ARRANGEMENTS (US$ million) ICB LCB Other /a Total Earthwork and on-farm works 110.7 110.7 (8.7) (8.7) Construction and installation /b 48.1 48.1 (24.0) (24.0) Construction materials /c 26.1 26.1 (26.1) (26.1) Pumps and electrical equipment /d 10.9 10.9 (10.9) (10.9) Chemical fertilizer 12.7 12.7 (12.7) (12.7) Vehicles, equipment and breeding animals /e 4.4 1.0 5.4 (4.4) (1.0) (5.4) Rural credit If 8.2 8.2 (2.9) (2.9) Training and technical assistance 7.6 7.6 (1.3) (1.3) Other components Lg 33.8 33.8 (0) (0) Total 54.1 48.1 161.3 263.5 (54.1) (24.0) (13.9) (92.0) Note: Figures in parentheses are the respective amounts financed by Loan/Credit. All amounts include contingencies. /a Includes (i) procurement of equipment on the basis of evaluation of bids from at least three suppliers; (ii) local procedures, including force account and investments by collcctives; (iii) procurement of technical assistance and training. /b Of irrigation and flood control structures only. 7T Of which, for use in irrigation and flood control structures, $21.2 million; rural roads, $3.2 million; other rural infrastructure and construction of extension and research facilities, $1.7 million. /d Of which, pumps, transformers and electrical accessories, $8.2 million; transformers for rural electrification, $2.7 million. /e Of which, vehicles, $1.8 million; laboratory and office equipment, $2.6 million; breeding animals, $1.0 million. /f Financed solely from IDA credit. T_ Including costs of land acquisition, tree planting, animal and fish breeding, rural roads and electrification, seeds, extension and research, other than costs of materiaLs and equipment procurement included in other categories (notes c-f).  - 27 - 3.30 It is estimated that the project would be completed by about December 1990 and closing date would be June 30, 1991. Estimated schedules of expenditures and disbursements are given in Annex 2, Tables 2 and 4. In view of the advanced state of design work and the experience of AWRB with civil works, the projected disbursement schedule is shorter than the disbursement profile for Bank Group operations in irrigation and drainage in the region. Accounts and Audits 3.31 Records of civil works expenditures would be maintained by the Anhui branch of the People's Construction Bank (PCB) which would be responsible for disbursements to enterprises engaged under the project. Records of civil works and equipment expenditures under the rural credit component would be maintained by the Anhui branch of ABC. These records would be forwarded annually to the Anhui PMO, which would keep parallel records of expenditures on materials, equipment and civil works and prepare an annual account of these expenditures. Assurances were obtained from both Anhui Province and ABC Anhui that the accounts wouLd be audited annually by the State Audit Agency and that the audited accounts wouLd be submitted to Bank Group within six months of the close of each financial year. Environmental Effects 3.32 Project activities would have no adverse environmental effects. There would be no new exposure to schistosomiasis or other water-borne diseases - which are not considered a major health risk in the project area in any case - since the project focus is on improving water distribution rather than opening up new areas to irrigation. Moreover, project drainage improve- ment would reduce waterlogging and flooding, and thereby cut off a major route for transmission of parasitic disease. A positive effect of project activi- ties would be reduced incidence of soil erosion and spread of chemicals into watercourses as a result of installation of proper turnouts, drops and other structures on sublaterals and construction of orderly on-farm water chan- nels. The afforestation component would enhance timber and fueLwood supplies, add to ground cover and reduce surface runoff, and extend windbreak protection to most of the cultivated area. IV. PROJECT MANAGEMENT AND COORDINATION 4.01 Overall responsibility for carrying out the proposed project would rest with the existing structure of provincial, prefectural (or municipal) and county governments and their various technical agencies. Implementation of irrigation and flood control activities in the project would specifically involve water resources agencies, irrigation area management organizations (Pishihang) and flood control authorities (Chaohu). Rural deveLopment activi- ties would be directed by prefecture and county bureaus of agriculture, animal husbandry and fisheries under supervision of the Anhui Agriculture, Animal Husbandry and Fisheries Bureau (AAAFB). The provincial branch of the Agricultural Bank of China (ABC), which reports to ABC's central office in Beijing rather than to the provincial government, would be responsible for carrying out the project's rural credit component.  - 28 - 4.02 To ensure efficient and timeLy execution of the proposed project and coordination of inputs of concerned government departments and agencies, a special project management organization would be established at the provin- cial, prefecturaL and county Levels (Figure 4). Within the Anhui Provincial Government a Steering Committee would be appointed to act as a policy, plann- ing, and review board for this and similar projects involving use of foreign funds for agriculturaL development. It would be chaired by a Deputy Governor and incLude representatives of the AWRB, the AAAFB, the provincial ABC, the Power Bureau, and other relevant technical agencies. Under the Steering Com- mittee, a Project Management Office (PMO) wouLd be set up to manage the day- to-day aspects of project execution in the three prefectures and 12 counties participating in the project. The PMO would exist as a separate office within the Anhui Foreign Funds Utilization Office which currently handles development activities in Anhui financed under the IDA-financed North China Plain Project (Cr.1462-CHA). PMO staff would consist of a Project Coordinator appointed from the AWRB, two Deputy Coordinators, one each from the AWRB and the AAAFB, and about 10-15 professionals, including planning specialists, accountants, economists, and agronomists drawn principally from the Latter two Bureaus. The PMO wouLd coordinate and supervise project impLementation in the partici- pating prefectures and counties; revipw technical standards for design, construction, operation and maintenance of project works; disburse funds to executing units; administer project technical assiszance and training pro- grams; and ensure prompt delivery of project inputs. In equipment procure- ment, the PMO would review equipment lists, prepare technical specifications and evaluate bids. The International Tendering Company (ITC) of the China National Technical Import Corporation (CNTIC) would handle bid invitation, and award of contracts on behalf of the PMO. The PMO would also maintain project accounts, file disbursement applications, and prepare for submission to IDA twice yearly reports on project progress as well as a project completion re- port. A small project unit would be set up within MWREP's Planning Department to serve as the Ministry's liaison with IDA and AWRB. 4.03 A similar structure of Steering Committees and PMOs would be estab- lished for the prefectures and counties in the project. The principal func- tion of the prefectural management units would be to coordinate and arrsnge compensation for transfers of funds, material and labor among counties. At the county level, the Steering Committee would review work schedules, con- struction contracts, and annual budgets prepared by the PMOs which would be responsible for supervising day-to-day activities of project execution. Each PMO, headed by a deputy county chief and staffed with about 15 people, would consist of an administrative office and five divisions: research and train- ing, water resources engineering, agricultural technology, finance and materi- als suppLy, and monitoring and evaluation. Major functions of the county PMKOs would be contract management and supervision of local units involved in con- struction of project works, including water resources construction companies and other construction and engineering units specializing in civil works, road building and installation of power facilities. During negotiations an assur- ance was cbtained that the provincial, prefectural and county PMOs and the MWREP's project unit would be established by September 1, 1985 and maintained and adequateLy staffed with qualified personnel during the life cf the pro- posed project.  - 29 - 4.04 A Technical Advisory Group (TAG) would be formed to assist the Steering Committee in developing detailed plans for the project's rural devel- opment component. The Group would consist of local experts who would agree to serve on a short-term consultancy basis as needed during the life of the pro- ject. Experts would be drawn principally from the Anhui Agricultural College and the Anhui Academy of Agricultural Sciences as weLl as from educational and research institutions outside'Anhui. The TAG would (a) serve as a general source of technical expertise in formulating plans for project-supported agri- cultural activities to ensure optimal selection and management of project in- puts; (b) develop a p'an for recruiting and training staff for the extension stations to be establtshed by the project (para. 3.14); and (c) provide a plan of action for upgrading the Liuan and Chaohu Secondary Agricultural Schools to the polytechnic level (para. 3.18), including recommendations on curriculum changes and methods of recruiting and training teaching staff. In developing the training plans for extension personnel and teachers, the TAG would be ex- pected to make full use of resources at Anhui AgricuLtural College's Training and Extension Support Center which has been newLy established under the Bank's Second Agricultural Education Project (Ln. 2444-CH/CR. 1500). An understanding was reached at negotiations that a list of consultants who have agreed to par- ticipate in the TAG would be presented to the Bank Group by December 31, 1985. 4.05 The provincial ABC would appoint a staff member to liaise with the provincial PMO regarding the credit component of the project. In addition, a small Project Unit (PU) would be established in the provincial ABC office and in each of the ABC's county offices (subbranches) participating in the project to appraise and supervise project subloans, ensure the proper utilization of project funds and procurement of project investment items, maintain project accounts, and prepare progress reports. It would also be responsible for mon- itoring and evaluating the economic benefits and impact of project lending. An assurance was obtained at negotiations that the provincial and county PUs and the ABC liaison position with the provincial PMO would be maintained and adequately staffed with qualified personnel during the life of the proposed project. Financial Management 4.06 Aside from procurement of materials and equipment under ICB, the proceeds of the proposed Loan/Credit would be used primarily for earthworks and construction of structures for Pishihang-Chaohu area development. Funds for these items as well as for overseas training, study tours and consulting services would be made available to the Government of Anhui Province through the People's Construction Bank (PCB) and its Anhui branch. Under present Government procedures, the province would repay the central government for funds or goods received through the Loan/Credit. 4.07 Local (provincial, prefectural and county) contributions to the project would be channeled through the Anhui PCB and other local branches. At the beginning of each year, the Government of Anhui would obtain guarantees from the planning offices of the prefectures, counties, townships and villages responsible for contributions to the project that the requisite funds for the project would be included in that year's financial plan. Such funds would be deposited on an annual basis into project accounts at the PCB branches for use by the PMOs solely in carrying out the project.  - 30 - 4.08 In the case of the rural credit component, project funds of $2.9 miLlion from the IDA credit would be onlent by Anhui to the ABC under a Subsidiary Loan Agreement to be concluded as a condition of credit effectiveness. The Bank's understanding is that the Subsidiary Loan would be repaid by ABC, which would onlend project funds to subborrowers at the prevailing interest rate for long-term agricultural loans. Subborrowers would be required to contribute a minimum of 30Z of the total project costs. In addition, the repayment periods of the subborrowers would be determined by ABC's cash flow estimates of their subloans but not exceeding 20 years. 4.09 Project Agreements incorporating the above terms and conditions (varas. 4.06 and 4.08) would be signed between IBRD/IDA and the Covernment of Anhui Province and between IDA and ABC. State Council approval of the Loan and Credit Agreements and Anhui Project Agreement, as well as execution of a Subsidiary Loan Agreement between Anhui and ABC, would be conditions of effec- tiveness of the Credit. Execution of Project Works 4.10 Construction of the project's irrigation and water control structures would be handled through contracts based on local competitive bidding (LCB) (Annex 8). This would be the first case of LCB in Bank-financed agricultural projects in China. Units eligible to participate in LCB would include qualified water resource and other civil engineering companies at all administrative levels throughout China. Construction would be managed by provinciaL, prefectural and county work supervision offices (WSOs) which have been estabLished as is the usual practice in China in the case of large construction projects (Figure 5). The WSOs for water resources construction projects are temporary units staffed mostly with engineers and technicians on loan from water resources agencies. The WSOs, acting on behalf of and under the supervision of the PMOs, would invite and negotiate contract bids with construction companies and work units; carry out quality control including materials testing during the construction phase; provide the PMOs with the necessary documents for disbursement of funds; and channel payments for com- pleted work from the PMOs to the work units as specified in the contracts. These offices would also be directly responsible for carrying out earthwork for canals and drains, employing local labor during the off-season and their own full-time skilled labor and supervisors. Following practices traditional in water resource development in China, earthworks construction would be largely financed by direct charges on farm households benefiting from project works. The charges, which are normally commuted to labor at about Y2.00 per man day, would provide the equivalent of two man-weeks per farm annually during the implementation period for earthworks construction. Construction of roads, power lines and civil works for the experiment stations and training and flood control centers would be carried out by for the most part by county level construction companies.  - 31 - Monitoring, Evaluation and Reporting 4.11 The Anhui PM0 in cooperation with the Pishihang Irrigation Area GA and the prefecture and county PMOs would monitor and evaluate the project's impact and economic benefits. Early in project impLementation the Anhui PMO would conduct a study in the project area to determine current levels of inputs and production, crop yields and farm incomes. This would form the base line from which to measure changes resulting from the project, and would be updated annually by the county PMOs which would also collect statistics on the physical and financial progress of the project. Experience to date with Bank Group projects in agriculture shows effective interagency coordination and close monitoring of project execution - including detailed record keeping - by project management organizations. To assist in data processing and anaLysis for on-going evaluation of project outputs, the project would provide compu- ters to each county PMO and training in data management techniques to PMO staff. In addition, monitoring and evaluation would be one of the main topics for discussion at the project launch workshop to be held at the outset of project implementation (para. 3.20). Continual analysis of project outputs, effects and impact would enable project management to make any necessary adjustments in institutional arrangements, procurement schedule and resource flows. The Anhui PMO would be responsible for preparing twice-yearly progress reports to be submitted to IDA within one month of the end of each half year and a project completion report to be submitted not later than six months following completion of credit disbursements. Operation and Maintenance 4.12 Pishihang Canal Network. The Pishihang GA would be responsible for the operation and maintenance of the project's irrigation and drainage works (Figure 6). Canals would be operated in accordance with the water allocation plan prepared by the GA each season on the basis of the county WRBs' estimates of requirements. Water use contracts between county water resource bureaus and the Pishihang CA were introduced in 1983 as a means to encourage more efficient use of the available water supply. These contracts specify cropping patterns, number of ha of fields to be irrigated, total estimated water requirements, water charges and schedules of water delivery to each designated point on the canal system. Based on recommendations em.erging from the project-supported system operations study (para. 3.22), the project would upgrade communications and climatic data collection equipment so that canals might operate on a varying discharge basis reflecting week to week variations in local demand. Water delivery to the submain canals would be the respon- sibility of the irrigation area branch administrations (para. 2.12) in accordance with water use contracts arranged with area districts and town- ships. As part of the proposed project, turnouts at the submain canal level and above would be equipped with facilities for volumetric measurement of water supplied at the various county border points. Water distribution to the branch canals, laterals, and sublaterals would be regulated by local management units organized for each major turnout. In accordance with the present system, contracts between these local units and villages or groups of households would outline the water rights of the latter with respect to quantity and timing of flow and would also stipulate water rates and define the obligation to provide labor for maintenance of project works.  - 32 - 4.13 Chaohu Flood Control Works. Operation and maintenance of the newly constructed Niudunhe Flood Diversion Channel and the Fenghuangjing and Shendanhu pumping stations would be carried out by specially created management units for each faciLity established under the Chaohu Prefectural WRB. Operation and maintenance of smaller structures along the Xihe would be the responsibility of concerned water resources agencies at the county and township levels. 4.14 Operation and maintenance costs for both the Pishihang irrigation and drainage network and the Chaohu flood control facilities would be met by a combination of water use charges and the "social labor obligation" which requires each farmer to contribute one labor day per cultivated mu per year to desilt and repair the primary canal system. The labor obligation may accumu- late on the books of the irrigation agencies and be drawn upon as required. Maintenance of on-farm works would be carried out as needed by the individual farm households which are the beneficiaries of the improved structures. Major repairs to the structures are included in the budget of the water resources system. In exceptional cases such as floods and droughts, irrigation area management groups may apply for government subsidies or low interest loans to help cover operation and maintenance costs. Water Charges 4.15 The Government recognizes the need to increase water charges to provide incentives for more efficient water use and to make available at the local level funds for management, maintenance and repair of irrigation and flood control structures. Steps are being taken not only to adjust rates upward, but to institute new methods of assessment: first, to establish different rates according to category of user (e.g., industrial, municipal, agricultural) and, second, for agriculture, to shift from the fixed per mu assessment in force until now to a formuLa which takes into account irrigated area, volume of water used, and net benefits from irrigation. The Anhui Government in 1982 issued revised water charge regulations establishing a fixed basic fee of Y6 yuan per 3ha plus a volumetric charge, measured at the county border, of YO.004 per m of water used. Areas currently lacking complete distribution facilities would be temporarily assessed at the rate of Y30-45 per ha in addition to the basic fee. Plans are to gradually introduce further adjustments once basic rates are established - e.g., to base charges on the actual area, which is about 25% larger than the area expressed in the "customary mu" in use in the Pishihang area. In addition, incentives in the form of lower water rates are to be provided to water users who practice water conservation and use to the fullest local water resources from small service reservoirs and ponds. With this revised irrigation fee structure in force, revenues will exceed considerably the costs of repairs, replacement, depreciation, and management.  - 33 - V. PRODUCTION, PROCESSING, MARKETING AND PRICES Production 5.01 Cropping Patterns. The total presently cultivated area in the project is about 918,000 ha, of which 320,000 ha would benefit from Pishihang irrigation improvements, 220,000 ha from Chaohu irrigation flood control and drainage improvements, and 379,000 ha from the rural development component above. These areas are not expected to change significantly in the future. Cropped area (excluding green manure) totals about 1.56 million ha, giving a cropping intensity of 170%. Rice, which is the most important food grain, accounts for some 850,000 ha or 53%; wheat, 257,000 ha; maize, 14,000 ha; tubers, 19,000 ha; other grains (primarily barley), 46,000 ha; and soybean, 32,000 ha. Oilseeds are planted on 236,000 ha, the most important being rape, with smaller areas under peanuts and sesame. Other industrial crops include cotton, on 66,000 ha and kenaf on 15,000 ha. Creen manure precedes rice on some 134,000 ha annually. 5.02 Coimnon cropping systems include green manure/rice/rice, concentrated in the southern part of the project area, in which green manure is grown from October to mid-May, followed by early rice harvested in late July, and late rice harvested in early October. Other common rotations include wheat, barley, or rape as winter crops harvested from late May to late June; followed by intermediate or late rice, maize, or soybean. Industrial crops are generally sown in spring from early- to mid-April, but may also follow rape or barley (Figure 7). 5.03 With or without project, changes in cropping patterns would be limited. The area has a strong comparative advantage in rice production which would be reinforced by project improvements. However, better water control and increased water supply with project would lead to intensification of rice production through wider use of the green manure/ricelrice rotation on a reduced total paddy field area. Because of a rapidly expandiro market for livestock products and project support for their production, aemand for feed- grains would increase. This in turn would induce expansion of area in barley, maize and soybean at the expense of wheat and single-cropped r.'ce. Increased area in oilseeds and kenaf is also expected. 5.04 Crop Yields and Production. Significant yield increases have been experienced in the last decade for major crops due to improved irrigation and drainage, a rapid increase in chemical fertilizer supplies beginning in Late 1970's, decentralization of farm management and procurement price increases since 1979. Yields of "minor" grains and industrial crops, grown largely on non-irrigated areas, have been modest and widely fluctuating, reflecting mini- mal management emphasis and effects of varying weather conditions. Further yield increases will require investments in the water distribution system, seed conditioning, extension and research facilities, and efforts to remedy soil deficiencies in phosphorus and potassium. 5.05 With project, yield increases would occur at different rates in areas benefiting from different components of project works. Reflecting  - 34 - improved operating practices throughout the irrigation system, improved seeds, extension services, soil fertility, and other improvements in infrastructure, yields of rice in all project areas would increase from 4.0 t/ha to 4.6 tons (15Z) at full development (1994); wheat from 1.9 to 2.4 tons (262); corn, from 1.8 to 2.6 tons (44Z); and soybean, from 1.3 to 1.6 tons (23%). Increased demand for crops such as barley, corn and soybean would lead to improved management and thus increased yields, whereas yields of oilseeds, which already show the effects of good crop husbandry, would increase only about 8Z. 5.06 In the areas benefiting from increased summer irrigation, greater yield increases would be expected for crops such as rice, maize, soybean and cotton. YieLds of rice would reach 5.4 t/ha (up 35Z) in the Pishihang irriga- tion benefit area, and 4.7 t/ha (18%) in the Chaohu irrigation benefit area, where the increment in water supply is small. Expect-I annual crop yields in the Chaohu irrigaton area would also benefit from flocol control works, con- sidered separately below. Total production of foodgrains (rice and wheat) would increase from 3.9 to 4.9 million tons (26Z); feedgrains (including soybean) from 0.2 to 0.5 mt (124Z); oilseeds from 0.3 to 0.4 mt (24Z); and fibers from 0.05 to 0.1 mt (132Z) (Annex 5). 5.07 Livestock. Pig and poultry raising by households has been the main source of income from livestock in the project area. Cattle and buffalo are used mainly as draft animals; sheep numbers are insignificant. Present pig inventories total 1.7 million head, an average of one per household. The finishing rate to slaughter weight of 100 kg is only about 62% due to reLiance on forage and Low-energy rice processing wastes rather than high-quality feedstuffs. Poultry raising, primarily of chickens and ducks, is likewise inefficient. The present inventory of 12 million birds, averaging under seven per household, has a finishing rate of 38Z for chickens (only spent hens and roosters are marketed) and 94% for ducks. Annual egg production from local breeds of chicken under household conditions is little more than 100 eggs per Layer. Only about 8.5% of farm income in thq project area is presently derived from livestock production, and this situation would not change without the investments in support services and improved supplies of feedgrains with project. 5.08 With project, pig and poultry raising would be increasingly specialized and market-oriented. The development of local feed processing enterprises with support from the Credit Component, increased availability of higher-quality concentrates, introduction of improved breeds, and expanded veterinary services would raise efficiency, improving the finishing rate for pigs to about 100% and for ducks to 192Z. Considering only the effects of improvements financed by the project, numbers of finished pigs would increase by 145% to 2.7 million, chickens by 113% to 4.9 million, ducks by 466% to 35 million, egg production by 172% to 41,000 t, and draft animal stocks would grow by 9Z to 440,000 (Annex 5). 5.09 Due to necessary improvements in feeding standards, the 100% increase in gross output from livestock production would require a 200% increase in feed concentrate supply in the project area (Annex 5), from about 0.4 to 1.3 mt. This is equivalent to about three-fourths of incremental production of food and feed grains. However, it is expected that about 25Z of  - 35 - increased feedgrain requirements would be supplied as soybean and maize produced in northern Anhui, in exchange for rice produced in the project area (see para. 5.14 below). 5.10 Forestry. The tot l project area has a standing volus-e of timber totalling only 6.4 million m yielding a cut of about 223,000 m p.a. as well as fuelwood. Farm income from this source averages Y 27 per family, presumably including state or collective subsidies for afforestation work. With project, upgrading and consoLidation of nurseries and direct investment in tree planting would add 19,370 ha of commerciaL forest and 6,930 ha of border plantings. With good management practices, including thinning every five yea5s and harvest in the 25th year, each hectare would yield an average of 1.9 m p.a. of poles and logs in years 5-24 and about 110 m of logs at maturity (Annex 5). Assuming sustainable cuttins levels for existing stands, annual timber production would rise to 270,600 m p.a. (212) by 1994 and standing volume to 7.2 million o3 (122). 5.11 Fisheries. The project area has a totaL of 747,000 ha of fresh water surface area, incLuding ponds, canals and small and large reservoirs. Of this area, some 110,000 ha of fishponds are currently stocked with finger- lings provided by state or collective nurseries, but often with little additional management or feeding, so that annual yields average only about 0.2 ton/ha. With project, nurseries would be expanded to permit stocking of an additional 18,200 ha of fishpond. The fingerlings would be sold to specialized households practicing intensive fish farming, including pond enrichment with manure and grass or vegetable waste. Under intensive management, yields would exceed 3.75 t/ha (Annex 5) and, even if no improvements in management are made for ponds presently stocked, total project area output of fish would increase from 22,700 t to 90,800 t. Loans would also be made available under the Credit Component to permit upgrading of equipment and the introduction of caged fish culture techniques by fisheries teams managing state or collective-owned reservoirs. 5.12 Flcod Control. In the past three decades, serious flooding in the Chaohu area has occured once every three years and required breaching of dikes and inundation of from 5,000 to 62,000 ha of cultivated area to a depth of about 3 meters. Without project, the expected annual area of inundation would be about 7,400 ha; with flood control works, damage from ordinary floods would be eliminated, but major flood events with a frequency of once in 15-20 years would still lead to an expected annual inundation of 1,700 ha. Flood losses at full development would average about Y 12,000 per cultivated ha inundated, of which Y 9,700 would be losses of annual production or damage to private property and the remainder damage to public property and social costs of flood relief (Annex 5). Processing and Marketing 5.13 Though China in che last few years has built up such ample reserves of rice, wheat, cotton and oilseeds as to create a potential export surplus, domestic consumption of fine grains is on the rise and expected to again overtake supply. Shortages of feedgrains (e.g., corn, barley and soybean) are also expected to occur in response to expansion of the livestock sector; this  - 36 - will force either large net imports of feed from abroad or shifts in domestic cropping patterns such as are expected to occur in the Pishihang-Chaohu area as a result of the project. However, in the case of Pishihang-Chaohu, the projected increase in local feedgrain production will not alter the area's large comparative advantage in rice production (whether measured on the basis of financial or economic prices, current or projected yields). The province as a whole has become a net exporter of grain to other provinces; in 1982 about 1 million tons, the bulk of it from the project area, was shipped out by rail alone. The Government expects other regions to increasingly specialice in feedgrains or industrial crops while depending on central Anhui as a reliable source of foodgrain supplies. As the project area has access by waterway to the Changjiang and by rail to north and south China, it is weLl situated to serve as a commercial suppLy base for deficit regions. 5.14 The Government has ended its monopoLy on procurement of grain as well as other products, and is encouraging the growth of private sector trans- port, marketing and processing operations. In the future the Provincial Government will procure a portion of grain production under contracts with farmers, and a growing proportion will be marketed through efforts of the rural Supply and Marketing Cooperatives or individual farmers. The Provincial Government intends to enlarge the volume of project area foodgrains exchanged for feedgrains produced in northern Anhui from 10,000 t at present to at least 200,000 t at full development, and plans to make required improvements in storage and transport systems. The rural credit component of the project would include subloans to government, cooperative or private enterprises to enlarge storage, processing and transport capacity, including feed processing facilities required for the development of coumercial livestock production. Prices 5.15 As a result of 1984 reform measures, the quota procurement system, is being replaced by arrangements to buy on contract at fixed prices set by the Government at approximately the average sales price received by farmers under the previous system. Production above contractual requirements would be sold on the free market at supplies determined by supply and demand. The average farmgate price of each crop used in the financial analysis is a weighted average of official and free market prices. The weights are the total amounts of each crop sold at each price, except that the weights of market prices include all amounts retained by farmers (including seed and feed). Similar assumptions apply to livestock, fisheries, and forestry produ.ts. 5.16 In view of the ongoing reforms of the marketing system, future price trends are highly uncertain, hence the financial analysis is conducted largely in 1984 prices. Because of the Government's commitment to maintain agricul- tural production incentives while avoiding undue inflationary pressure on urban wage or food subsidy levels, it is assumed that any major changes in price levels to full development will be accompanied by compensating adjust- ments in taxation. However, the prices of pork, beef, timber and fish are projected to increase, due to current unprofitability of production and expected improvements in product quality. For the economic analysis, farm input and output values and project construction costs are based on Bank Group  - 37 - commodity price forecasts for 1990, adjusted for international and domestic transport costs and expressed in end-1984 constant prices. Conversion factors are used to derive economic prices for items which do not enter into international trade (Annex 5). VI. BENEFITS, JUSTIFICATION AND RISKS Production and Benefits 6.01 Improved irrigation and drainage affecting 549,000 ha and improve- ments to support services and infrastructure over 918,000 ha would add 1 mil- lion tons of foodgrains, 0.3 million tons of feedgrains, 67,000 tons of oilseeds, and 62,000 tons of fiber crops to current project area production. Increased production of other products would include pork (133,000 tons), beef (4,300 tons), chicken (3,900 tons), eggs (25,800 tons), ducks (56,600 tons), fish (68,300 tons), sawlogs (47,300 cu m) and standing timber (789,000 cu m). Flood protection affecting 220,000 ha would eliminate social losses of Y 68 million per year, including about 34,000 ton/year of grain, counting both standing crops and relief grain. Employment and Income 6.02 The farm labor force in the project area is currently seasonally underemployed and empLoyment opportunities generated directly by the project would approximately offset a rate of natural increase for the farm population assumed to be 1% p.a. The project would generate about 200,000 additional jobs or 7% more than the situation without project. Seasonal labor requirem- ents presently peak in May, when crop production (harvesting of winter crops and preparation or planting of summer crops) absorbs as much as 86Z of farm labor. With project, the increase 4.n multiple cropping along with a larger volume of crops to be harvested would slightly increase peak crop requirements in May to 88Z of supply and sharpen an additional peak in October to 84%, even though crop production on average would only absorb 56Z of available labor (Annex 6). 6.03 At present, 20% of labor supply is seasonally engaged in activities other than crop production. With project, this would rise to about 23% of available labor, of which no more than 12% would be needed (in livestock and fisheries) during peak cropping periods. Considering also the expansion of labor supply at peak periods through overtime work and inclusion of children and the elderly, peak requirements with project can be met. The financial wage in the project area is about Y 2.00 per workday, close to the average value-added per man-day in crop production and in excess of the value of labor's marginal product. As about one-half of this figure is estimated to represent rental value of farmland, for the purposes of the economic analysis, labor has been priced at 50% of this figure, multiplied by the consumption conversion factor to yield a shadow wage of Y 1.62 per workday. 6.04 Farm sizes differ onLy siightly, ranging from about 0.35 to 0.6 ha per farm, across the project area. Farms are generally centered on paddy rice  - 38 - production but diversified in cropping patterns and side activities, and nor- mal crop yields are similar even in areas of different terrain. Consequently the analysis of farm incomes distinguishes three types of farm receiving different combinations of benefits from the project, viz. Model A which bene- fits from increased irrigation water from the Pishihang scheme, Model B which receives flood protection as well as some increased irrigation water and improved drainage from the Chaohu scheme, and Model C which covers the remain- ing parts of the project area, and would benefit only from improved infra- structure and increased support services under the rural development component of the project. Estimates of outputs, inputs and other parameters are based on Annex 5 and derived from farm surveys, estimates of Government staff and the mission during project preparation and appraisal. Annex 6 presents the farm budgets for the farm models. 6.05 The present annual household incomes generated by the models ranges from Y585 for Model B to Y964 for Model A, the former reflecting the greater population pressure and smaller farm size in the Chaohu flood control area. These translate into a per capita income range of US$49 to US$68. rhe estimated national per capita income in 1984 is about US$350. At full development in 1994, the projected per capita incomes would range between US$77 and US$88, increases from 29% to 57Z respectively, while the national per capita income is expected to rise to about US$560. Thus, while most of the project beneficiaries would have incomes above the absolute poverty line of US$67 per capita, they would still be below the critical consumption level (CCL of US$141), defined as one-fourth of the GNP per capita. Without the project per capita incomes would decline, due to population growth. Project Charges 6.06 Cost recovery for the project would have several elements. A portion of earthworks and structure construction costs amounting to Y 155 mil- lion would be raised through cash or labor levies on benefiting households. This would represent direct and immediate cost recovery. An additional portion of project expenditure (Y 45 million) would be recovered from payments received from beneficiaries for purchase of chemical fertilizer, animal stock, fish fries and fingerlings, and commercial seeds or seedlings. Lending by the ABC for production development of Y 19 million would be repaid with interest by borrowers. Irrigation fees paid for increased surface water deliveries would yield an additional Y 27 million per year, and labor obligations for repair and maintenance of the system down to the on-farm level would be worth an additional Y 21 million p.a. In addition, the Chaohu flood contol works would eliminate an annual public loss of Y 13 miLlion p.a. in destruction of property and disaster relief expenditure. 6.07 As the largest proportion of project charges occur during project implementation, rent recovery at full development averages only 13% of esti- mated project rents. Discounted over the life of the project, the rent recovery index is 22% for the project as a whole, but ranges from 26% to 29% in areas benefiting from irrigation or flood control works. Public sector outlays are defined to include O&M costs but exclude costs of rural develop- ment components which are recovered directly from sales to farmers, fees for service, or loan repayments; and cost recovery includes reduced public  - 39 - expenditures due to flood control works. On this basis, the cost recovery index would be 742. As per capita incomes at full development fall well below the CCL, the low rent recovery indices are considered satisfactory. The rate of cost recovery is also not excessive in view of a low rate of general rural taxation (US$15/ha). Economic Analysis 6.08 A total initial investment cost of US$222 million, which includes physical contingencies but excLudes price contingencies, was used in the economic analysis. All economic values were converted to local currency at the official exchange rate at appraisal of Y 2.8 = US$1.00. Project works were assumed to have a residual value in the 25th year of 25Z of initial investment cost. Prices and conversion rates as well as all components of cost and benefit streams are presented in Annexes 5 and 6. Using these assumptions and discounting costs and benefits over 25 years, the project's economic rate of return (ERR) is 36% (Table 6.1), ranging from 33-34X in the areas benefiting from water conservancy works to 46% in areas benefiting from rural development components alone. At a discount rate of 12%, which is considered to approximate the opportunity cost of capital in China, the net presenc value (NPV) of the project is Y 3.1 billion (US$1.1 billion equiva- lent). The high economic rates of return reflect the low per hectare costs of upgrading and completing existing irrigation and flood control systems as well as high benefit/cosc ratios for rural development components. 6.09 Sensitivity of the ERR was tested to shortfalls from projected yields or prices, cost overruns, benefit delays, variations in the economic value of labor, and combinations of the above (Table 6.1 and Annex 6, Table 8). Switching values (value of the variable tested at which the NPV of the project, with benefits and costs discounted at 12%, is reduced to zero) and NPV elasticities (the percentage change in NPVs due to a one percent change in the key variable) were calculated. No single variant proved crucial to the project' s economic viability. A decline in crop yields of 5% from present levels would be required to reduce the ERR to 12%, indicating the importance of diversification into livestock, fisheries and forestry to project returns. However, elimination of increased net benefits from non-crop production would still leave an ERR of 30%. In general, economic viability would only be threatened by an unlikely combination of major shortfalls and overruns. Project Risks 6.10 The project faces no significant technical or organizational risks. The project management organization builds on a similar interagency structure which has been successful in coordinating the implementation of the Anhui portion of the North China Plain Agriculture Project. Morever, the partici- pating agencies have worked together successfully in project preparation. AWRB, the leading agency involved in construction of project works, is adequately staffed with competent engineers and managers and has had several decades of experience with construction, operation and maintenance of large- scale water control works. Marketing for rice involves some uncertainty, which could lead to the use of rice as feedgrain in place of imports of maize  - 40 - from other areas. This might be an efficient solution of the marketing and feed supply problems if adequate high-protein feed supplements were provided. Table 6.1: SUMMARY OF RATE OF RETURN ANALYSIS Economic net Economic rate present value of return @ 122 Subarea or variation (Z) (Y miLlion) Base Case Subarea Pishihang Irrigation Benefit Area 33 1,053 Chaohu Irrigation Benefit Area 34 962 Other Benefit Areas 46 1,070 Total Project 36 3,085 Variations from Base Case Total project A 20% reduction in crop yields 18 418 A 20X decrease in crop prices 32 2,379 No increase in non-crop production 30 1,932 A 50% increase in cash operation costs 28 1,940 A 20% increase in investment and 0 & H costs 33 2,929 1OOZ increase in shadow wage 31 2,582 100% increase in wage and operation costs 14 288 A 10% reduction in yieLds combined with a 20% increase in operation costs 14 1,233 Lag in production buildup increased from 5 to 11 years 26 1,868 VII. AGREEMENTS REACHED AND RECOMMENDATIONS 7.01 At negotiations agreement was reached with the Central Government that the MWREP's project unit would be established by September 1, 1985 and maintained and adequately staffed with qualified personnel throughout the life of the project (para. 4.03). 7.02 Agreement was reached with the Anhui Provincial Government that: (a) a plan for provision of phosphate and potassium fertilizers to the project area would be prepared and discussed with the Bank Group prior to November 1 of each year (para. 3.11);  - 41 - (b) a report presenting the main findings of the operations studies would be prepared by the PMO and submitted to the Bank Group for review not later than December 31, 1989 (para. 3.22); (c) accounts would be audited annually by the State Audit Agency and the audited accounts woMld be submitted to IDA within six months of the cLose of each financial year (para. 3.31); and (d) the provincial, prefectural and county project management offices would be established by September 1, 1985 and maintained and adequately staffed with qualified personnel during the life of the project (para. 4.03). In addition, an understanding was reached with Anhui that a list of consultants who have agreed to participate in the Technical. Advisory Group wouLd be presented to the Bank Group by December 31, 1985 (para. 4.04). 7.03 Agreement was reached with ABC thac: (a) ABC Anhui would appraise alL subprojects using the procedures and criteria set out in the Rural Credit Project Appraisal Manual issued by ABC Beijing and approved by IDA in Cr. 1462-CHA; subloans for the first three subprojects would be submitted to IDA for approval; and individual subloans in excess of $300,000 would require IDA's prior approval (para. 3.16); (b) the ABC provincial and county project units and the ABC liaison position with the provincial PMO would be maintained and adequately staffed with qualified personnel during the life of the project (para. 4.05). 7.04 Conditiors of effectiveness would be: (a) concLusion of a Subsidiary Loan Agreement between Government and ABC (para. 4.08); (b) conclusion of Project Agreements between IBRD/IDA and the Government if Anhui Province, and between IDA and ABC (pare. 4.09); and (c) State Council approval of the Credit and Loan agreements :ad the ADhui Province Agreement (para. 4.09). 7.05 Subject to the above conditions, the proposed project would consti- tute a suitable basis for an IDA Credit of SDR 75.7 million (US$75 million equivalent) on standard IDA terms and a Bank Loan of US$17 million at the standard variable rate and for 20 years with 5 years of grace. The Borrower would be the People's Republic of China.  CHINA PISHIHANG-CAOHIU AREA DEVELOPMENT PROJECT Climatological Data Irrigation area Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Average Dailv TemDerature tC) Pihe (1956-70) 6.6 8.8 14.1 20.2 25.3 30.0 33.3 32.7 27.0 21.8 15.2 9.2 Shihe (1957-70) 6.3 8.5 14.0 19.9 25.5 30.2 32.8 32.4 26.7 21.8 14.9 8.8 Hangbuhe (1957-70) 6.9 8.8 14.2 19.9 25.1 29.3 32.7 32.9 27.5 22.2 15.7 9.4 Chaohu (1957-80) 2.7 4.5 9.4 15.6 20.8 25.2 28.7 28.3 23.1 17.5 11.2 5.2 Avarase Rainfall (am) 4. Pihe (1951-80) 30 48 71 94 105 129 178 126 83 51 46 29 990 1 Shihe (1951-80) 30 45 70 92 105 132 187 125 86 50 46 29 997 Hangbuhe (1951-80) 34 57 116 114 134 148 175 111 R7 56 51 33 1,116 Chaohu (1957-80) 29 48 78 104 111 122 161 100 85 50 52 27 967 AveraRe Evaporation (mun) Plhe l(9I1-80) 32 40 73 99 131 155 161 157 105 86 53 37 1,129 Shihe (1951-80) 31 39 71 96 126 156 156 149 101 83 51 36 1,095 Hangbuhe (1951-80) 35 42 68 94 124 137 158 158 103 87 56 41 1,103 Chaohu (1957-80) 57 64 106 141 178 204 242 228 154 133 85 63 1,655 Average Sunshine (hr.) Pihe (1956-70) 159 152 156 172 200 230 260 246 170 198 161 155 2,259 Shihe (1957-70) 153 146 158 163 198 227 247 249 164 18R 146 155 2,194 Hangbuhe (1957-70) 165 152 167 172 205 243 286 280 199 206 166 163 2,404 Chaohu (1957-80) 142 131 144 160 182 204 236 245 170 186 155 151 2,106 rflI  CHINA PISHIHANG-CHAOHU AREA DEVELOPMENT PROJECT Distribution of Major Soil Types and Nutrients Avail- Total Avail- Total Avail- Total able phos- able potas- able Organic Soil type Area PH nitrogen t phorous P 0 sium K 0 matter (Z) (Z) (PPM) (Z) (PEM4i (Z) (PPM) (X) Pi Shi Hang Yellowish-brown 15 5.5-6.5 0.07*0.01 60-80 0.04*0.02 5*2 1.70*0.20 60*20 1.0 Paddy soil 78 6.5-7.5 0.10*0.03 50-80 0.03*0.005 7*3 1.50*0.20 80*20 1.5 Alluvial soil 7 6.5-7.5 0.07*0.03 - 0.100.02 20*5 2.50O0.20 40t10 1-2.0 Chaohu Yellowish-brown 13 5.5-6.5 - 50-70 - 4*1 - 50 1.5 Paddy soil 80 6.5-7.5 0.12 70 0.09 4*2 - 60*10 1-3.0 Alluvial soil 7 7.0-7.5 0.08-0.10 80 0.08 4*2 1.5 25t10 2.0 . _ .~~~~~~~H  - 44 - ANNEX 2 Table 1 PTSHTHANG-CHAOII A FlKLPF PRQ.[I Proiect rst iummazr La Pishihang Chaohu Total Pishihang Chaohu Total Category Y millions --------- -- US$ millions - --- Earthworks 57.6 100.4 158.0 20.6 35.9 56.4 On-farm Works 48.8 20.3 69.1 17.4 7.3 24.7 Pumps and Power Equipment 0.0 19.4 19.4 0.0 6.9 6.9 Structures and Installation 96.2 47.5 143.7 34.4 17.0 51.3 Land Aquisitlon and Resettlement 0.0 8.2 8.2 0.0 2.9 2.9 Chemical fertilizer 20.0 10.0 30.0 7.1 3.6 10.7 Rural Roads. Bridges and Culverts 10.5 5.0 15.5 3.8 1.8 5.5 Rural Flectrificati= Transformer substations 2.4 0.5 3.0 0.9 0.2 1.1 High voltage lines 5.8 0.0 5.8 2.1 0.0 2.1 Low voltage lines 1.8 1.7 3.5 0.6 0.6 1.3 Small-scale hydropower 0.8 0.0 0.8 0.3 0.0 0.3 Subtotal 1tO -.a 13.1 . Q,Q 4.7 Seed farms 4.4 0.4 4.8 1.6 0.2 1.7 Afforestation Nurseries 2.7 0.0 2.7 1.0 0.0 1.0 Forests and border plantings 12.8 0.0 12.8 4.6 0.0 4.6 Subtotal TR.S _Q. 1. R...5 Q5.5. LivestgoC