Tunisia - Gabes Irrigation Project

L S s ~~~~- - . D; u n of The World Bank FOR OM-ICI4L USE ONLY 10K.~~~~~~~~~~~ * * ,<t ~a, *;> 6 E) ,-L Report No. Ms-.N STAF? APPRAISAL REPORT TUNISIA GABES IRRIGATION PROJECT May 30, 1985 Europe, Middle East and North Africa Projects Department l-d smmuha a resiuidm diuibe._ md ay be wad by redplet only In the peifezee d ~~~brsfMdd l-.:- ;.mt ma ow odme be Alsd _ibu W dd Bak  CURRENCY E-QUIVALENTS Currency Tuit Tunisian Dinar (D) US$1.00 D 0.75 D 1.00-= US$1.33 WEIGHTS AND MEASURES Metric System GOVERNMENT OF TUNI;IA FISCAL YEAR January 1 - December 31 INITIALS AND ACRONYMS AIC Association of Common Interest (Association d'Interet Collectif) BNDA : National Bank for Agricultural Development (Banque Nationale pour le Developpement Agricole) BNT : National Bank of Tunisia (Banque Nationale de Tunisie) CNEA : National Center of Agricultural Studies (Centre National des Etudes Agricoles) CRGR : Research Center of the Rural Construction Department (Centre de Recherche du Genie Rural) CRDA : Regional Agricultural Development Commission (Commissariat Regional ae Developpement Agricole) CTV : local Extension Unit (Cellule Territoriale de Vulgarisation) DGR : Department of Rural Engineering (Direction du Genie Rural) DGPC : Highway Department of the Ministry of Public Works (Direction CGnerale des Ponts et Chauss6es) DPSAE : Department of Planning, Statistics and Economic Analysis (Direction de la Planification, des Statistiques et des Analyses Economiques)  FOR OMCUL USE ONLY DRE : Department of Water Resources (Direction des Ressources en Eau) DRS : Department of Soil Resources (Direction des Ressources en Sols) FOSDA Agricultural Development Fund (Fonds Spiciaux de D&veloppeuent Agricole) GIN : Group of Hydraulic Interest (Groupement d'Intqr&t Hydraulique) GAF : Association of Fruit and Citrus Growers and Traders (Groupement Interprofessionnel pour les Agrumes et les Fruits) GIL : Association of Vegetable ?roducers and Traders (Groupezent Interprofessionnel pour les LAgumes) MiRAT Tunisian National Institute of Agricultural Research (Institut National de Recherche Agronomique Tunisien) IRA : Arid Zone Institute (Institut des Regions Arides) MOA : Ministry of Agriculture (Ministere de l'Agriculture) MOF Ministry of Finance (Ministere des Finances) OC National Cereal Board (Office des Cereales) OFP National Livestock and 2ange Agency (Office de 1'Elevage et des Piturages) OR Vegetable Oil Agency (Office des Kuiles) OMVGM Gabes and Medenine Irrigation Development Office (Office de Mise en Valeur des Perimetres Irrigu6s de Gabes et MNd6nine) PPI : Public Irrigated Perimeter (Perimetre Public Irrigue) SONEDE National Society for Water Supply (Societe Nationale d'Explaitation et de Distribution des Eaux) STEG Tunisian Electricity and Gas Company (Societe Tunisienne d'Electriciti et du Gaz) STIL Tunisian Milk Processing Company (Societe Tunisienne d'Industrie Laitiere) WUA Water User Associations This document has a restricted distribution and nmy be used by recipients only in the performance of their oficial dutie Its contents may not otherwise be disclsed without World Bank authorization.  REPUBLIC OF TUSIA GABES IRRIGATION PROJECT LOAN AND PROJECT SUMMARY Bor-rower ; Republic of Tunisfa Amount : US$27.7 million equivalent Terms 17 years, including 4 years of grace, at the standard variable interest rate. Project Description: The proposed Project would rehabilitate 42 selected oases of the Gabes Governorate, expand three existing oases and create a new one. To this end, the Project would include of (a) replacement of deep wells and provision of pumping equipment, and construction of piped water distribution systems; (b) orchard and crop reconversion and intensification; (c) provision of equipment and staff to the executing agency, the Gabes and Medenine Irrigation Development Office (OMVGM); (d) provision of technical assistance to OMVGM and to existing farmer associations; and (e) provision of credit to farmers for onfarm development. The Project would directly benefit about 7,700 farm families, amoog the poorest in Tunisia. The principal risk related to slow adoption by farmers of new cropping patterns are minimized by provision of suitable extension services. Estimated Project Costs: Local Foreign Total - --(US$ million)-- Buildings 0.6 0.4 1.0 Irrigation and on-farm works 10.9 14.1 25.0 Equipment 2.0 3.1 5.1 Studies, training, technical assistance 0.1 0.1 0.2 Onfarm development (credit) 1.7 1.4 3.1 Incremental Operating Costs 4.2 2.1 6.3 Total Base Costs 19.5 21.2 40.7 Physical contingencies 2.0 2.5 4.5 Price contingencies 7.2 5.9 13.1 Total Project Costs 28.7'a 29.6 58.3' /a Includes $14.3 million of taxes and duties.  Finwnelum Pkan Local F Total ': (USS million)- World Bank _ 27.7 27.7 BNT 1.0 1.9 2.9 Beneficiaries 5.0 - 5.0 Government 8.4 - 8.4 Net Project Costs 14.4 29.6 44.0 Taxes and Duties 14.3 - 14.3 Total Project Costs 28.7 29.6 58.3 Estimated Disbursements: Bank FY 1986 1987 1988 1989 1990 1991 1992 -(US$ million) Annual 1.0 2.0 3.0 6.7 8.5 4.5 2.0 Cumulative 1.0 3.0 6.0 12.7 21.2 25.7 27.7 Eeononmic Rate of Return 21X Staff Appraisal Report: No.. 5111-TUN, dated May 30, 1985 M>ap No. IBRD 18405 USRD 18490  STAFF APPRAISAL REPORT TEThNISLA GABES IRRIGATION PROJECT Table of Contents Page No. INrTRODUCTION ............................................ 1 II. YTHE AGRICULTURAL SECTOR ............. .. ............. 2 A. Place of Agriculture in the Economy ................. 2 B. Previous Bank Involvement in Agricultural Projects ... 3 C. Sector Issues Relevant to the Project ............... . 4 III. DTHE PROJECT AREA ...7 A. Introduction ...................................... 7 B. Location, Climate, and Soil Resources ................ 7 C. Water Resources .......................................... 8 D. Population Structure and Trends ................ 9 E. Land Tenure and Cropping Systems ........... ......... 10 F. Agricultural Support Services ........ .......... 11 G. Infrastructure .................... .................. 13 IV. 1THE PROJECT' ........ .................................. 14 A. Concept and Objectives .... 14 B. Components .....15 C. Detailed Features ............. . ........... 16 D. Status of Engineering ....18 E. Costs ...... 18 F. Financing .....20 G. Procurement .....21 H. Disbursement . ........ ......................... 22 V. PROJECT B&PILEMENTEATION .... ........................ 24 A. Organization and Management ..24 B. Project Implementation Strategy . .25 C. Execution of Project Works ..26 D. Agricultural Support Services ..27 E. Monitoring and Evaluation ..28 F. Accounts and Audit.. 29 This report is based on the findings of an appraisal mission which visited Tunisia in November 1984 composed of Messrs. C. Gois (Mission Leader), P. van der Veen (Agriculturalist) and Ms. T. Riley (Economist). The appraisal team was assisted by Mr. B. Dussert (Financial Analyst).  Table of Contents (Cont'd) No. VI. BENEFrIS AND JUSTIFICATIONS . ......................... 29 A. Production .......................................... 29 B. Marketing .................*a................... 31 C. Beneficiaries and Distribution of Benefits .......... 31 D. Cost Recovery ....................................... 32 E. Financial Impact on Government ................... ... 36 F. Economic Analysis ....... ............................ 37 G. Risk and Sensitivity Analysis .................... ... 40 VII. AGREEMENTS REACHED AND RECOMMENDATIONS ......... 42 SUPPORTING TABLES Table 1. Project Components by Year ..44 Table 2. Project Costs Summary .......................... 45 Table 3. Estimated Schedule of Disbursements of Bank Loan 47 Table 4. Major Procurement Packages . . .48 Table 5. Vehicles .. 49 Table 6. List of Oases - Characceristics, Works, Costs, Cropping Pattern . .50 Table 7. OMVGM's Income Statement (1981-1985) 51 Table 8. Selected Documents and Data Available in the Praject File ............ 52 Table 9. Rent Recovery (Dinar 1985 constant prices) 53 Table 10. Farm Budgets: (a) Model A - Date Intensification .54 (b) Model B -- Fruit and Vegetable Intensification 55 (c) Model C - Olives Intensification .56 (d) Model D - Olives and Crops Intensification . 57 (e) Model E - New Irrigation .58 (f) Model F - Fruit Development in Vegetable Farms 59 Table 11. Conversion Factors for Project Costs . .60 Table 12. Economic Price of Fertilizer 61 Table 13. Prices Used in Economic and Financial Analysis 62 Table 14. Project Related Cash Flow .......... 63 "able 15. Economic Cost and Benefit Streams . .64 CHARTS 1. Implementation Schedule .65 2. OMVGM - Organization Chart .66 3. Irrigation Development .67 MAPS IBRD 18405 - Gabes Irrigation Project IBRD 18490 - Gabes Irrigation Project: Project Area 691E/p51  STAFF APPRAISAL REPORT TUNIA GABES IRRIGATION PROJECT L INTRODUCTION 1.01 During the 1970s, Tunisia experienced an impressive economic growth. Gross Domestic Production (GDP), in constant prices, increased by about 7X p.a. and GDP per capita more than doubled to US$1,420 in 1981. Boosted by high revenues from petroleum exports and a substantial improvement in its terms of trade, the country managed to sustain a massive increase in investments and a rapid growth in public and private consumption without endangering its balance of payments situation. In 1982 and 1983, the economic situation suffered set-backs. Adverse weather conditions depressed agricultural and agroindustrial output and recession in Europe affected Tunisian exports. The fall in petroleum revenues affected the balance of payments and domestic savings. 1.02 The medium term outlook for investment and growth, to a large extent, depends upon future development in the oil and natural gas sector. Current exploration programs are not encouraging, and it is expected that domestic production will stabilize at present levels. Therefore, net export earnings from hydrocarbons are likely to decline over the coming years, the country becoming a net importer by the early 1990s. As a consequence, the main factor of growth which allowed Tunisia over the last 10 years to simultaneously expand public expenditures and private consumption, will disappear progressively. 1.03 Given this macro-economic environment, the Government is giving more importance to maximizing benefits from existing assets.' The proposed Project would support these efforts by providing for the rehabilitation of some 5,000 ha of irrigated oases in the underdeveloped Gabes region in the southeast of Tunisia where a sharp deterioration of agricultural production is underway caused by soil salinization mainly due to water shortage. The Project would aim at slowing down the population exodus from the area by making possible the re-occupation of abandoned or partly abandoned farm lands. The Project is the second phase of execution of the Tunisian Master Plan for the development and use of water in the south. The first phase was also financed by the Bank (Loan 1796-TUN, see para. 2.06). It was identified by a Bank mission in October 1983 and prepared by CNEA, a Government consulting body. It was appraised in November 1984 by a mission composed of Messrs. C. Gois, P. van der Veen, and Ms. T. Riley. 1/ Investment Strategy. Country Economic Memorandum on a Mid-Term Review of the Sixth Development Plan (1982-1986), Report No. 5328-TUN.  EL THE AGRICULTURAL SECTOR A. Place of Ariculture in the Economy 2.01 Background. Tunisia has a total land area of 16.4 million ha of which 8.4 million ha are suitable for agriculture and grazing. The country can be divided into three main ecological zones. The northern 25% of Tunisia's land area is the most fertile, receiving adequate rainfall (400-1,000 mm). The central zone (15% of total land area) receives between 200 and 400 mm of rainfall. The southern part (60Z of total land area) is a predesert zone receiving less than 200 mm of rainfall with very extensive grazing and some irrigated agriculture. Of the 5.0 million ha of cultivable land, 34% is planted in cereals, 35% in fruit trees and the remainder in forage crops, vegetables, grain legumes and industrial crops; 201 is normally left fallow. Given the high variability in rainfall, important efforts have been made to develop irrigated agriculture. However, water resources are scarce and the total irrigation potential is estimated at about 250,000 ha or some 5% of total arable land. About 205,000 ha are presently equipped for irrigation of which about 160,000 ha are irrigated effectively. This relatively small area currently accounts for some 252 of the Agricultural GDP. 2.02 Past Performance. Tunisia's agricultural sector performed well during the 1970s. The value of production grew at 4.4% p.a. in real terms between 1970 ane 1979, compared to 31 p.a. for middle income countries as a group. However, the pace of growth slowed down considerably near the end of the period and early 1980s (0.5% p.a. for 1977-82), mostly because of drought which has repeatedly affected the country. While the more rapid growth in other sectors, particularly petroleum and tourism, induced a decline in the relative role of agriculture, it still represents 13% of Tunisia's GDP and employs about one-third of the labor force. The continued growth of agricultural production and rural migration has resulted in an increase in average per capita income in agriculture (from US$173 in 1960/62 to US$380 in 1979, measured in 1979 US dollars) and a reduction in the percentage of the rural population living below the absolute poverty level (from 171 in 1975 to 13% in 1980). 2.03 National Development Plans and Government Strategy. Under the Fifth Development Plan (1977-81), the Government's main objectives for the sector included a balanced agricultural trade and increased rural employment and incomes. Partly due to the drought, Plan targets were in most cases not fully met. Agricultural value added increased at an annual rate of 1.0 between 1976 and 1981, well below the plan target of 2.5%. Potential exports were diverted to local consumption, and imports in particular of cereals, increased. As a result, the ratio of food imports to exports increased from 1.2 in 1976 to 1.8 in 1981. The basic objectives for agriculture under the Sixth Development Plan (1982-86) have not changed. The need to resolve key issues such as employment, regional income disparities as well as increased efficiency of investments has become even greater due to the necessity of adjusting the economy to a post-hydrocarbon situation. The Government is attempting to achieve this adjustment through inter alia: (a) a shift toward smaller, less capital intensive investments, including rehabilitation of existing infrastructure, thereby generating employment opportunities; and (b) the creation of an economic environment more favorable to agriculture, including the introduction of a more realistic price structure for  -3- agricultural products. Investments in agriculture are planned to increase from 132 of total investments during the last Plan to 19L. Some 40S of investments would be for irrigation. B. Previous Bank Involvement in Aieultiwa1 Proecs 2.04 Bank Group lending for agriculture in Tunisia started in 1967, and to date 15 projects have been approved for a total of US$358.2 million of Bank/IDA funds. Of these, eight are ongoing including three irrigation projecta and the recently approved Northwest Agricultural Production Project. Performance under these projects has been mixed reflecting the institutional constraints in the sector. The First Fisheries Prolect (Credit 270-TUN) was completed at the end of 1979 with considerable delays and low loan recoveries for boats. These problems were addressed under the Second Fisheries Proiect (Loan 1746-TUN) and this project is now progressing well. The First and Second Agricultural Credit Proiects (Loan/Credit 779/263-TUN and Loan 1340-TUN) financed BNT lending for onfarm development. While the projects achieved good rates of return, the continuing problem of higher interest rates on Bank funds than on Government-supplied credit and the lack of decentralization of RNT caused disbursements to be slower than anticipated. The Third Agricultural Credit Project (Loan 1885-TUN) is addressing priority credit problems. Action has been taken to decentralize BNT's operations and raise interest rates (para. 2.09), and the Government is preparing a plan of action to improve loan recovery ratios. The physical implementation of the poverty-oriented Northwest Rural Development Project (Loan 1997-TUN) is proceeding satisfactorily. The Grain Storage Project (Loan 2052-TUN) is also progressing well after initial delays and the recruitment of new consulting engineers. Under the Technical Assistance Proiect (Loan 2197-TUN), strategies have been or are being developed for several subsectors including farm input distribution, farm mechanization, produce marketing, research and extension and improved operation and maintenance of existing irrigation infrastructure. These strategies will contribute to increasing the efficiency of investments under the Sixth and Seventh (1987-91) Development Plans. 2.05 Experience with Past Irrigation Lending. Implementation of the irrigation projects - First Irrigation Rehabilitation Project (Loan 1068-TUN). Sidi Salem Project (Loan 1431-TUN), Southern rrrigation Proiect (Loan 1796-TUN), Medierda/Nebhana Irrigation Proiect (Loan 2157-TUN) and Central Tunisia Irrigation Project (Loan 2234-TUN) - has generally been satisfactory and on schedule. The Irrigation Development Offices (OMVs), the public enterprises which manage the projects, have demonstrated their ability to carry out construction works efficiently, but their management still needs improvement and their performance on operation and maintenance of irrigation infrastructure has been mixed. OED's audit of the first Irrigation Rehabilitation Project (Loan 1068-1UN), dated November 5, 1984, determined that the economic rate of return of the project was highly satisfactory (32X). A major finding was that the increased reliability of water supply brought about by rehabilitation works carried out under the project had a major impact on farm production and incomes in the project area, by increasing farmers' willingness to take higher risks by planting higher value crops. The recently negotiated Irrigation %anagement Improvement Project (President's Report No. P-4082-TUN of May 13, 1985) is designed to support nationwide improvements of the operation and maintenance of existing irrigation systems as well as policy and institutional reforms to increase the efficiency and self-financing of the OMVs. The Project would inter alia (a) reduce the need for major costly  -4- investments for the rehabilitation of irrigation systems; (b) ensure the sustainability of agricultural development in public irrigation schemes; (c) aim at eliminating OMVs' operating deficits. 2.06 The Southern Irrigation Project covering the implementation of the first phase of the Southern Tunisian Water Master Plan is expected to be completed on schedule, in December 1985. The project provides for the rehabilitation and new construction of desert oases in the south of the country as well as some oases in the Gabes area similar to those proposed under the present Project. Initial results are already encouraging and indicate that benefits will be in line with expectations. On the cost side, however, some cost overruns have been experienced for the desert oases due mainly to the unexpected need to strengthen sand barriers and wind breaks. However, costs in the Gabes area have been in line with estimates and useful experience has been obtained for the design of the proposed Project. C. Sector Issus Relevant to the Projet Land Tenure and Agrarian Reform 2.07 In Tunisia, the size of holdings is a constraint to the intensification of irrigation. Studies carried out by the Ministry of Agriculture have indicated a strong inverse correlation between the size of holdings and irrigation intensities. To rationalize the use of available water resources and ensure fuller exploitation of its investments in irrigation infrastructure, the Government has enacted Agrarian Reform LawsL1 providing for (a) land ownership limitation; (b) land consolidation; (c) inducement to irrigate; and (d) farmers' contribution to investment cost. While some progress has been made, particularly in the area of consolidation in some PPIs, farmer resistance and inadequate penalties have limited implementation of the Agrarian Reform Laws. A study on land issues is being carried out under the Technical Assistance Project (Loan 2197-TUN), and an internal Government Commission has been established to review this matter. The lack of a proper National Cadaster has affected the Government's ability to address land issues, and the Government therefore envisages a National Cadaster and Cartography Project. Project strategy to deal with the land issue is discussed in paragraph 3.10. Extension and Applied Research 2.08 Since 1973/74, OMVs have made considerable efforts to set up effective extension services, supported by Applied Research Stations, to cater to the specific needs of the farmers in their sphere of influence. Although their impact on production is difficult to assess, OMVs' extension and research services seem to have performed reasonably well. They have been instrumental in selecting and introducing new high yielding varieties, in particular tor vegetables, and promoting fodder crops with pure-bred milk cows. However, the present system still has drawbacks: (a) applied research by OMV8 lacks linkages and coordination with other existing research services and programs, and concentrates mostly on providing advice on specific crops, without taking into consideration the whole farm system or farmers' different needs, 1/ The Law 58-53 of June 11, 1958 as amended by Law 60-6 of July 26, 1960 concerning the Lower Nedjerda Valley (LMV) and the Law 63-8 of May 27, 1963 as amended by Law 71-9 of February 16, 1971 for PPIs outside LMV.  motivations and capabilities; (b) little attention has so far been given to improved water management at farm levzl; and (c) OMVs' extension agents are burdened by additional tasks (input supply, credit, marketing, collection of statistics, etc.) that have diverted them from their principal role. The Goverwment is preparing a National Extension and Research Master Plan under the Bank-financed Technical Assistance Project (para. 2.04), which wiLl propose the measures necessary to improve Tunisia's extension and research systems, including irrigated agriculture and is planned to be implemented in 1986 and beyond. In the meantime, measures are underway to facilitate the introduction of an improved system nationally. Under the Bank-financed Northwest Agricultural Production Project, the Training and Visit (T&V) system is being introduced in a large rainfed area on a pilot basis. The proposed Project would introduce the T&V system on 5,000 ha of irrigated areas (para. 4.09). In addition, under the Irrigation Management Improvement Project, measures would be taken to divest OMVs of some of their commercially- oriented activities, which will facilitate the future reform of the extension system by allowing OMVs' extension agents to devote more time to their primary function. Under the proposed Project, the Gabes and Medenine Irrigation Development Office (OMVGM) would particularly transfer to the private sector activities related to production of seedlings (para. 5.13) and marketing services (para. 5.14). OMVGM would also conclude with the regional research agencies agreements to carry out selected research programs essential for the Project (para. 4.15), thereby, contributing to better coordinated and more meaningful research efforts. Agricultural Credit 2.09 The institutional structure of formal agricultural creult in Tunisia is complex. The principal vehicle for medium- and long-term investment credit is the National Bank of Tunisia (BNT). The main sources of short-term credit are BNT (in the case of larger farmers, generally clients of long standing) and the Mutual Guarantee Societies (SCMs). SCMs grant seasonal credit, using BNT funds but with Government guarantee, to small- and medium-size farmers. Supervised credit is also offered by a number of agricultural development projects financed by external donors. Some Government-owned enterprises operating outside the financial sector (e.g., Offices) provide credit in kind. A new agricultural bank (BNDA) was recently created to finance investments by large farmers or agricultural enterprises. While access to credit is not a problem in the Project area, use of credit is constrained by the farmers' lack of appreciation of investment opportunities because of, inter alia, the ineffective extension system. The improvement of extension services provided by OMVGM in the framework of the Project would motivate farmers to better understand and participate in credit activities. The ongoing Third Agricultural Credit Project (Loan 1885-TUN) is addressing priority credit problems, especially interest rates and loan recovery levels. As part of the 1985 general interest rate reforms. the interest rates of commercial banks for short-term credit to agriculture were raised from 5.5-8.75 to 6.75-9.5S. for medium-term credit from 6.25 to 7S, and for long-term credit from 7.5 to 9Z (the latter rates after deduction of a 3-point Government subsidy). Interest rates of development banks increased by 0.5 percentage point more. In addition to these base rates, borrowers must pay a tax to the Government which adds about another point to the cost of borrowing. With an inflation rate of about 8.4S in 1984, many of these rates have now become positive in real terms. Some, however, remain somewhat negative, and the Government has indicated its intention to follow more flexible interest  6 rate policies in the future, with more frequent interest rate adjustments based on, inter alia, inflation. The Government is also preparing a plan of measures to improve loan recovery levels. Prices and Subsidies 2.10 In an effort to provide food at low cost, most consumer prices are fixed by Government. Traditionally, farmgate prices in Tunisia have also been fixed artificially low compared to world prices, discouraging the use of more productive but higher cost techniques and investment. Farm input subsidies, which the Government has seen as a means of compensating farmers for low producer prices, benefit only a minority of farmers-and tend to be provided for the most modern inputs (purebred cows, feed concentrate, irrigation water, fertilizer, pesticide, etc.). While this encourages use of these inputs, it also causes excessive use by farmers fortunate enough to obtain the subsidies. The Government recognizes the negative resource allocation and income distribution effects of its present pricing and subsidy policies and one of its objectives is to move towards a pricing system that more closely reflects the real costs and benefits of inputs and outputs to the economy. Some agricultural producer prices (milk and cereals) have thus been increased more rapidly than average price inflation in the recent past, thus improving agricultural incentives. As a result, current producer prices are now for the most part reasonably in line with world prices (94%, 89X and 92X for durum wheat and l00X, 103Z and 107Z for bread wheat in 1981/82, 1982/83 and 1983/84 respectively). Consumer prices for milk, beef and cereal products have also been increased recently. The Project's main outputs, fruits and vegetables, are not subject to price regulations and therefore would not require any special price policy recommendations. In the sector, the input which so far has received considerable subsidies is irrigation water (para. 2.11). Irrigation Cost Recovery 2.11 Government policy for recovering investments in PPIs is embodied in the land reform legislation (para. 6.07), which calls for betterment levies aimed at recovering part of the increase in land value due to irrigation. Actual recovery of farmers' contribution to investment costs has, to date, been very limited. As regards irrigation O&M costs, Government policy is to achieve lO0Z cost recovery. Water charges have been substantially increased since 1980, with average annual increases in various OMVs ranging from 15-36% in current terms, or from 3-24X in constant terms. Despite this major effort, water charges currently cover on average only about 40% of O&M costs. In the Gabes area, however, farmers do pay the full O&M costs for their irrigation systems through their water user associations (para. 3.14). Bank-financed irrigation projects have followed a consistent approach to cost recovery based on (a) the recovery of investment costs according to land reform legislation, (b) the recovery of 100% of O&M costs within a reasonable time frame, and (c) recovery levels consistent with farmers' ability to pay. The Irrigation anagement Improvement Project will introduce comprehensive measures, consistent with those already taken under ongoing projects, to achieve full repayment of irrigation O&M costs nationally within 5 to 10 years, thus increasing the financial autonomy of the OMVs and encouraging a more rational use of available water. The proposed project, in addition to maintaining the current arrangements for full O&M cost recovery by farmers, would aim at achieving sustainability of the investments by creating from farmers' payments  7- a reserve fund for replacements and by recovering part of the investment cost of new perimeters within the framework of the Land Reform Law (paras. 6.10-6.14). 2.12 Input Supply and Output Marketing. Public marketing and input supply enterprises exist for cereals, grain legumes, olives, wine, meat, fertilizer, seed and farm machinery. Several Government development authorities (Offices) participate in the collection of milk, fruit and vegetables. All these institutions require improvements in their efficiency. They are slow to respond to market signals and to introduce cost-cutting efficiencies. Farm inputs are frequently not available in the quantities and at the time required. However, in the context of the Irrigation Management Improvement Project, the Government has indicated its intention to start divesting the Offices of many commercial activities, and as noted in paragraph 3.18, the private sector is already active in the Gabes area in supplying basic fertilizers and small-scale mechanized equipment. An input supply study financed under the Technical Assistance Project has already led to urgently needed increases in fertilizer distribution margins, and an agricultural marketing study, also funded from the Technical Assistance Project, is expected to lead to a series of output marketing measures for implementation during the Seventh Plan period. IIL THE PROJECT AREA A. Introduction 3.01 Until the seventies the economy of the Gabes Governorate was essentially based on agriculture (oases) and fisheries. Since then, industrial development has been gradually taking place particularly related to maritime commerce and tourism. The traditional date palm plantations started at the beginning of the century have been replaced by other fruit trees and vegetables to meet changing demand patterns which are largely influenced by the growing tourist flow. Agriculture is still the most important sector of the Governorate's economy. Given the dry conditions of the area, irrigation is a necessity. In the past, water was obtained either from natural springs or from artesian wells. However, with increased water development, the springs have dried out and the artesian pressure has been decreasing drasticallv causing shortages of water for irrigation. B. Location. C;:mate. and Soil Resources 3.02 The 5,000 ha of oases to be rehabilitated under the proposed Project are situated on the coastal strip of the Gabes Governo-ate called the Djeffara Region. This area is characterized by a Saharan climate, tempered by the maritime influence which increases average humidity and precipitation, and cuts extreme temperatures. The Project zone of influence is about 5,100 Km2 which represents some 3S of the country's total land area. The population averages about 210,000 or 3% of the Tunisian total. 3.03 The land in the Djeffara slopes gently from the El Hbamma and Matmatas Mountains in the interior across the coastal plain to the sea. The soils are either alluvial with yellow and red sandy clay, or hydromorphic with a crust of a variable depth. The deeper the crust, the better for agricultueal development. Soils generally show good infiltration rates and drainability  -8- characteristics. However, in most cases natural drainage or existing drainage networks need to be improved to avoid salinity problems. Soil capability analysis indicates no major problems for growing fruit, forage, and vegetables on over 802 of the soils provided sufficient water is available for leaching while on some 20Z of the soils forage and vegetables are the best crops (Annex 10). 3.04 The average annual rainfall is about 180 mm in the plains and 230 -m in the inland mountains. However, its distribution is irregular and is concentrated in the fall (40Z). Average monthly temperature in the summer is 271C and in winter 11*C. In June, the temperature is close to 400C. Strong winds and sand storms (from north, northwest, and southwest) which average 30 per year predominant between December and April. Frost may occur between 10-11 days per year. and as late as in April which makes it difficult to grow out-of-season crops without cover. Potential evaporation averages 1,470 mm of which 40% occurs during the three summer months. Hydrometric measures show relatively high figures with an annual average of 67.5S, ranging from 632 in February/March to 71S in May. C. Water Resources&' 3.05 Groundwater resources of Southern Tunisia are in two major aquifers: the Complex Terminal (CT), called Djeffara in the coastal area of Gabes, and the deeper Continental Intercalaire (CI). The Djeffara aquifer is fed from the CI through the geologic fault of El Hamma. The general groundwater flow is towards the sea where it outcrops a few kilometers from the coast. Traditionally surface water in the Djeffara has been available for use from naturally occurring springs with substantial flow rates at the outcrops. With the introduction of deep well drilling techniques, numerous wells were sunk close to these existing springs in order to increase the volume of water available for traditional date palm, fruit and vegetable cultivations; subsequently wells were also sunk outside the traditional perimeters for the development of modern date palm plantations. A consequence of this increased exploitation of the water resources has been a decrease in the flow or drying out of natural springs and a decrease or disappearance of the artesian flow of the deep wells indicating a need for a more carefully planned approach to water development. 3.06 The water resources development potential of the Project area has been assessed in various studies financed by UNDP, starting with a study of the Algerian and Tunisian Northern Sahara region by UNESCO in 1968-1972 which included mathematical simulation models of the aquifer and an electrical analogic model of the coastal Djeffara aquifer. In 1976, a Master Plan for Water and Soil Resources Development in Southern Tunisia was subsequently prepared and updated simulation models defined the limits of exploitation of the aquifers within acceptable salinity levels. Water resource estimates of the 1976 Master Plan have since been systematically updated and refined as more detailed data became available. This has confirmed that the finding of the basic studies are robust. A conservative estimate of the potential available resources that can be developed in the Project area is 4,450 1/s while present use of groundwater in the area is estimated to be some 2,670 1/s. Current agriculture uses are 2,050 l/s and the balance used (620 1/s) is for domestic and industrial purposes (SONEDE). Future planned uses by agriculture and for domestic and industries supplies are within allowable limits. The following table gives details of the present and future water balance: 1/ Detailed analysis of water resources is made in Annex 6.  -9- WATER BALACE ZN TNE POJECT AREA Potential Planned available Resources Present Water Use Reauirents (year 2010) Area (Aquifer) CT CI Total AGR SON Total AGR Son Total El Hama/Chenchou/ Chott El Fedjej 900 1.000 1.900 470 200 670 750 950 1.700 Gabes North 1.600 - 1.600 950 340 1.290 1.100 l 00 1.600 Gabes South 950 - 2M .1 630 Z 710 900 - 90 Total 3.450 1.000 4.450 2.050 620 2.670 2.750 1.450 4.200 floe: CT: Conplex Terminal: CI: Continental Intercalaire; AGR: Agriculture; SON: Urban/Industry. 3.07 Ground water abstractions and its quality are being closely monitored by DRE which publishes yearbooks with the data collected from every deep well under exploitation. Water table levels of shallow aquifers are also monitored. Water from the deep CI aquifers have a salinity ranging between 2.7 and 3.1 g/l and a high temperature (60-70'C). Water from the Djeffara is much cooler (23-37'C) but salinity reaches as high as 4.1 g/l in the northwest part of the Project area.-' The Master Plan (para. 3.06) ensures that water resource use in the area can be carefully planned to avoid depletion and increased salinization of the water table. In 1975, the Government promulgated a new set of laws (Code des Eaux, Loi No. 75-16) regulating water resource exploitation, water use and water conservation. These laws are satisfactory and are being strictly enforced. In order to guarantee the availability of water for the Project and to assure a balanced water use for agriculture and urban/industrial purposes, assurances were obtained at negotiations that adequate monitoring of the use of water resources would be provided and that currently planned limits on water use in the region would not be exceeded. Government would keep the Bank informed of the situation annually. D. PopuLation Structure and Trends 3.08 The total population of the five administrative zones of the Gabes Governorate is about 210,000 people or an average density of 42 inhabitants per kmz. About 91,000 people or 43Z of the total lives in the zone of Gabes 2 which has a density of 292 inhabitants per km . The standard of living in the region is lower than in other parts of the country. Nearly all farmers have outside farm income either from jobs within the region, from temporary out-migration, or from the migration of sons to Tunis or Europe. It is estimated that the majority of farmers in irrigated perimeters receive 3a-50% of their total average income from outside sources. 3.09 The population pyramid is characterized by a large stratum of young people which puts an additional pressure on the present unemployment situation. The development of industry, tourism, and services around the town of Gabes has drained part of the labor force of the surrounding oases, but this has been offset by influx of labor from other nearby oases and from inland. 1/ Salt tolerance of palm trees and alfalfa is over 7 g/l and vegetables generally cultivated in the oases can tolerate up to 4 g/l without a substantial decrease in production.  - 10 - E. Land Tenure and Cropping Systems 3.10 Land Tenure. The Project area consists of about 4,800 ha of agricultural land in 42 existing oases and 200 ha additional land to be brought under cultivation. Of the existing area under irrigation command, 365 ha is state domain, of which 100 ha is used for the professional training center (CFPA Zerkine) and 265 ha is leased to a dairy company (STIL). The remaining 4,435 ha are owned by about 7,500 farmers. Generally, the small size of holdings in the Project area is conducive to intensive development of irrigation and, in addition, cropping systems (vegetables and fruits) are such that land tenure is not a major constraint to agricultural development. Size distribution of holdings shows a predominance of smallholders: Size of holding (ha) 0-0.25 0.25-0.5 0.5-1.0 1 and over Z of farmers 35 27 27 10 v of area 8 17 38 37 An additional characteristic, in several oases, is the large degree of farm fragmentation, found especially in oases close to Gabes where each hectare is typically fragmented into 3-4 parcels owned by different owners. In some cases absentee ownership is a problem or extreme fragmentation is a cause of inefficient farming. For example, the 2,291 parcels of the Oudhref oasis covering 263 ha belong to 1,200 owners, 74Z of whom own between 2 and 15 parcels. Options available to improve land ownership through land consolidation are described in Annex 10. Although available legal provisions would permit the enforced execution of a land reform program on the new developed areas, their application in the Project area would be resisted by the local farmers. Therefore, and because of the relatively small area where land reform would be legally applicable (200 ha) the Project strategy for land improvement focuses on the extension services to motivate farmers in promoting the necessary arrangements for grouping farms into more manageable sizes (para. 5.11). Recent experiences made in this sense have proved to be satisfactory. 3.11 Irrigation and Land Use. In the Gabes Governorate area there are approximately 8,500 ha of irrigated land (oases) of which 7,700 ha get water from deep wells and 800 ha from shallow wells. Shallow wells are all privately operated. Out of the 7,700 ha about 6,150 ha are operated by the water user associations (AIC), which are grouped at the Governorate level in the GIH (Group of hydraulic interest); 800 ha are "state domain" and the remaining 750 ha correspond to 3 public irrigated perimeters (PPI) operated by the OMVGH. The total number of oases in the Governorate is 52, and there are 47 AICs. 3.12 The oases of the Project area can be subdivided in four different types: (a) the oases of El Hamma region which are mainly occupied by common varieties of date palm trees, olive trees and forage; (b) the oases of Gabes where vegetable production predominate; (c) oases of Gabes South where fruit trees (pomegranate) predominates; and (d) the oases of Ghannouche M'Ziraa  - 11 - where there is only production of vegetables. There is direct connection between the availability of water and the willingness of farmers to use inputs. Because of shortage of water, use of agricultural inputs is relatively low. The use of farm machinery is very limited and was introduced only in the seventies. Most farmers still use animal traction or hand labor. Due to shortage of water and insufficient use of fertilizers and other inputs, yields are low (para. 6.01). F. Agricultral Support Services Main Institutions 3.13 For the construction and assistance in the management of publicly financed irrigation facilities in the region, the Gabes and Medenine Irrigation Development Agency (OMVGM) was created by the Law 80-32 of May 26, 1980. In the irrigated perimeters developed by Government in the region the OMVGM is responsible for (a) the provision of extension and other services required to motivate farmers to participate in and reach the objectives of high agricultural production and efficiency; (b) assistance to farmers in obtaining agriculture credit and in creating storage and marketing facilities; and (c) assuring the O&M of irrigation networks. OMVGM is also responsible for providing support to farmers in privately built irrigation schemes. The OMVGM has its headquarters in Gabes and has jurisdiction over four governorates (Kebili, Gabes, Medenine, and Tataouine). Its area of intervention covers 18,500 ha of irrigation of which 14,100 ha are supplied by deep wells and the balance by surface wells. At the present time it comprises three regional directorates (Nefzaoua, Gabes and Medenine); two others (Tataouine and Mareth) are foreseen in the future. Separate from OMVGM, The Regional Agricultural Development Committee (CRDA) in the town of Gabes represents the several services of the Ministry of Agriculture at the provincial level. It is responsible for studies, statistics, credit evaluation and the coordination of agricultural development activities. 3.14 The Associations of Coumon Interest (AIC) are one of the four types of water users association (WUA) existing in Tunisia and it is the only one present in the Gabes region. The AICs are responsible for the operation and maintenance of the irrigation systems in the project area. The AICs are ruled by Decree of April 7, 1936. Their management is assured by a Director and a Coamittee composed of four elected members. The revenues of the AICs are from membership fees, sales of water, subsidies, and loans. Their expenditures are related to executing new works and maintaining and renovating the existing ones, and to operating the water distribution system. The updating of water allocation by users is ar; important role of the AICs. In principle, the Government provides any necessary technical assistance to the AICs and may execute new works or large repairs when necessary. 3.15 The Group of Hydraulic Interest (GIl) are apex institutions for the AIC's which (a) carry out studies for the execution of hydraulic works of common interest; (b) associate the AICs involved in these works; and (c) coordinate the management of those &ICs. The GIH have a Board of Directors with representatives of the interested parties and Government departments. The Code des Eaux - CE (Water Law), dated March 31, 1975, specifies that GIHs are created in each Governorate as consultative bodies (a) to prepare programs for the best use of the water resources; (b) to review water management projects; and (c) to coordinate the WUAs of the Governorate.  _ 12 - Extension and Research 3.16 Extension. Until 1980 extension services were provided by the CRDA through its Directorate of Crop Production. After the creation of the OMVGM, extension services were centralized in the Extension Directorate of OMVGM which comprises three sections - credit, nursery and extension which has separate divisions for livestock, tree crops and vegetables. At the regional level OMVGM provides extension services through 31 CTVs of which 12 are in the Project area. However, the lack of staff (1 extension officer for about 450 farmers), facilities and equipment makes it difficult for OMVGM to provide adequate extension services. The Project would address this issue by financing the construction of buildings, the supply of equipment and vehicles, the provision of demonstration plots, and incremental staff salaries (para. 4.09). Extension work on forage crops is carried out in cooperation with staff'of OEP, who also carry out extension work on animal production. OEP has 4 technicians stationed in Gabes, and additional staff at Chenchou in charge of an alfalfa pellet plant. Agricultural training is provided at the Professional Agricultural Training Center (CFPA) at Zerkine which offers a two-year course for farmers' sons, oriented toward irrigation and animal production. Specialized courses are also provided in special subjects such as tractor operations, greenhouse cultivation, grafting and pruning. The staff consists of 10 instructors and one coordinator for 59 students in the two-year program and 28 students in the greenhouse and tractor courses. 3.17 Research. The Arid Zone Institute (IRA) at Medenine is in charge of agricultural research in the Project area. It has a limited research program at its substations at Gabes and Chenchou. At the latter, research is carried out on milking goats, table olives, pistachios and other fruit trees. Under a recent bilateral agreement with the Government of Italy, IRA will establish a substation at Kebili which would cover some of the research requirements of the Project (para. 4.15). In addition, the Water Resources Department of the Ministry of Agriculture (DRE) has a regional laboratory in Gabes for soil and water analysis. This laboratory would expand its program to include systematic salinity testing for the Project (para. 4.16). Furthermore, OMVGM has conducted some applied research on greenhouse vegetables. Input Supply and Distribution 3.18 In contrast to mobt other parts of the country, basic fertilizers are sold by private retailers in the Project area. The proximity of the fertilizer production plants and the consequential savings in transport c'sts, makes it a more viable operation than anywhere else in the country. Similarly, small- scale mechanized equipment for orchard and vegetable production is available on the private market, because many development activities in the Gabes, most non-agricultural, have attracted the private sector. OMVGM, meanwhile, does provide inputs to farmers as credit in kind, especially for tunnel and greenhouse vegetables. In 1983, 13Z of the total number of seedlings used for orchard establishment in the Gabes Governorate was distributed by OMVGM (7,000 seedlings). In 1984, the Office distributed seed, plant protection chemicals, fertilizer, plastic and other material for covered vegetable production, and agricultural tools with an estimated value of D 144,000. The share in value of each component being respectively 14, 7, 21, 55 and 3Z. Farmers make a down payment and are required to repay the remainder over two years.  - 13 - Government policy is currently to reduce the role of the Office by relying increasingly on the private sector for input distribution. This policy would be continued during the Project period. Agricultural Credit 3.19 BNT is the main agency responsible for providing agricultural credit in the Project area from branches in Gabes. In 1983, a total of about D 600,000 in loans was approved in the Gabes Governorate. rr. addition, for greenhouse establishment in 1981-1984 OMVGM provided farmers with loans in kind amoanting to D 843,440, of which D 238,400 was onlent from a BNT loan. In 1983, OMVGM distributed inputs for a value of D 126,000 as credit in kind. Marketing 3.20 The GIL "Groupement Interprofessionnel des Legumes" (Association of vegetable producers and traders) promotes vegetable exports in various ways. It has established 14 packing and sorting plants, has a marketing agency in Marseille and sends reports on the customer's reactions to Tunisian produce. A 1Z charge on all vegetables passing through the Tunis wholesale market serves to defray its costs. It provides all packing stations participating in its export program with boxes and packing material, provides training, assists with purchase and installation of sorting and packing machines. It has seedling nurseries in Sfax, Monastir, and Bizerte, which can provide support to the Gabes area. SODEPRINE is a private company financed by local investment banks for the marketing of out-of-season fruits and vegetables. It has established a packing plant at Monastir and is offering to farmers production contracts for selected crops, including crops for export. I. has contacted OMVGM as a first step to promote farmers' interest in the Gabes area. The "Groupement Interprofessionnel des Agrumes et des Fruits (GIAF) is an association of fruit and citrus growers and traders, aimed at promoting and supervising exports. It provides technical information, assists in establishing grading and packing plants, supervises quality, and produces fruit tree seedlings in three nurseries. It also assists farmers with pest control. A 2 mill/kg tax was levied on marketed citrus and apricots to enable GIAF to assist farmers with spraying. These agencies would be associated with Project development (paras. 6.02, 6.03). 3.21 A network of 22 marketing cooperatives exist in the Project area with about 6,000 members, 10X of the agricultural population of the region. Only three of these cooperatives are functioning adequately to provide service to farmers. In order to improve the situation, the project for the Promotion of Small and Medium Agricultural Enterprises (PROPEM) is being financed in the Project area by the Tunisian Government and the European Economic Community, with the objective of providing technical assistance for the organization and management of service and marketing cooperatives. Given the activities of this project, the proposed Project would need to only offer limited further marketing assistance to the OMVGM to satisfy the marketing requirements of the Project (para. 5.14). G. Iufrastructure 3.22 The Project area is relatively well provided with economic and social infrastructure. Paved highways connect Gabes to Sfax, to Medenine and to Kebili and serve most of the oases to be rehabilitated. Those oases which are  - 14 - located away from these main axes are interconnected with them through roads which are regularly maintained by the DGPC. However, some minor rehabilitation works are needed on access roads. The national railroad network serves Gabes with a daily train to and from Tunis. Runways in Gabes, Medenine and Yebel Melab can be used by small planes and in the island of Jerba an international airport provides regular flights to Europe. Telephone, telex and radio network services are available in the urban centers and in some rural areas. Four hospitals, mobile clinics, and some 60 dispensaries and similar medical facilities form the health network. The Project area is also well provided with educational facilities. The Naticnal School for Engineers (EMG) for civil engineering and chemistry and a training center for specialized labor are located in Gabes. In Mareth there is an agriculture school. The important urban centers have high schools (6) and there are some 20 primary schools spread over the area. The national electricity grid provided by STEG connects Gabes to Medenine to the south, Sfax to the north and Kebili to the west. Side branches serve the rural population. Every existing oasis is provided with electricity. The urban water supply is based on the main conduit Fedjej-Gabes which brings water pumped from the CI in a series of deep wells in the Ben Chilouf area, west of El Hamma. Side branches supply the population along the way. TV. THE PROJECT A. Concept and Objectives Rationale for Bank Involvement 4.01 The Project is a follow-up to the successful pilot operations in the Gabes region financed under the Southern Irrigation Project. Bank involvement during preparation of the second-phase Project has been instrumental in causing a careful review and optimization of proposed investments and significant reductions in investment costs, which is especially important in the present Tunisian context of austerity and rigorous selection of investments. The proposed Project will also support the Bank's dialogue, already underway in the context of the Irrigation Management Improvement Project, on key irrigation subsector issues such as (a) improving the efficiency of the public (Irrigation Development Authority for Gabes and Medenine - OMYGM) and private (local farmers' organizations - AICs) organizations connected with the provision of irrigation services and with the production and marketing of agricultural goods, and (b) establishment of proper systems for the O&M of hydraulic structures. Project Concept 4.02 The growing industrial development of the Gabes area in recent years is in contrast with the decreasing agricultural production of the formerly prosperous oases. This is due mainly to (a) shortage of water (lowering of artesian head of wells, deteriorating irrigation networks as the irrigation systems have been abandoned or partly abandoned; increasing water losses and, aging of existing deep wells); (b) increasing salinity (poor drainage and insufficient leaching); and (c) aging of trees and subsequent partial abandonment by farmers. Unless corrective and rehabilitative measures are taken within a short period of time to upgrade the situation there will be a  - 15 - further rapid deterioration and the area will become almost totally unproductive from an agricultural viewpoint sometime in the 1990s with a seriously negative social impact on the Gabes Region. In order to relieve this situation, the Project would focus on resolving two main issues - water availability and improved crop production - and would provide the physical infrastructure, the institutional support and the assistance to farmers required for this. Proiect Obiectives 4.03 The objectives of the Project would be to reverse the sharp decline of agriculture in the southeast of Tunisia, to ensure its sustainability through the rehabilitation of the oases of the Gabes Governorate where intervention is economically and socially viable, and putting into place adequate financial and institutional arrangements to ensure maintenance is achieved in the future. It would cover about 5,000 ha in 43 oases gathered in four groups with similar characteristics. In particular, the Project would aim to: (a) provide more and better distributed water; (b) increase and diversify agricultural production; Cc) strengthen public (OMVGM) and private (AIC) organizations directly connected with the production and marketing of agricultural goods; Cd) set up durable arrangements for the O&M of the hydraulic structures; and Ce) stop the exodus from the area, get farmers back to their land and improve the socio-economic standards of the farmers' community. B. components 4.04 To achieve its overall objectives the Project would implement over a six-year period the following actions: (a) Development of Infrastructure: - rehabilitation of 42 oases totalling some 4,800 ha located in the Gabes Governorate, - expansion of irrigation over new areas totalling 200 ha (1 new oasis and expansion of 3 existing oases); (b) Institutional Development: - strengthening of the central and regional administration of OMVGM; - strengthening of the extension services of OMVGM, - increasing the development of applied research, - support to marketing, - strengthening the financial and technical capacity of the AIC's; (c) Support Action: - promotion of credit and input supplies, - strengthening of services to supervise the execution of the works and to monitor and evaluate project impact, and - provision of technical assistance and training.  - 16 - C. Detailed Features 4.05 Rehabilitation of Existing Oases. The Project would provide for the rehabilitation of 42 oases covering 4,800 ha. Rehabilitation aims at (a) improving or renewing water abstraction systems by digging new deep wells or by installing pumps where artesianism is insufficient to allow for gravity flow; (b) diminishing water losses and improving water management in general by setting up a conduit distribution system; (c) improving soil structure and decreasing salinity by improving the drainage network and by applying adequate leaching procedures; (d) changing cropping patterns to obtain higher yields and to orient production toward more valuable crops by uprooting old and low productive trees and by planting others according to practices which can make the best use of the available water. 4.06 Rehabilitation works, which would be implemented over a period of four years, would include: (a) digging of 21 new deep wells and their equipment with pumps; (b) installation of submerged pumps in 32 existing wells; (c) electrification of all new installed pumping equipment; (d) execution of 3 artesian wells, one being provided with a water cooling system; (e) branching to the SONEDE pipeline Chott Fedjej/Gabes for the supply of El Hamma with 150 lls; (f) execution of a buried piped water distribution system provided with regulating reservoirs, valves, flow control devices and hydrants on 4,870 ha; (g) improvement of the drainage network and outlets by cleaning and deepening or increasing the density of the existing system; (h) rehabilitation of the farm access roads inside the oases; and (i) uprooting and removal of about 240,000 palm trees and 30,000 olive trees which are old or unproductive. 4.07 Creation of New Oases. The Project would provide for a minor expansion of the irrigated area by about 200 ha by using available extra yield of newly equipped wells and by digging one more well: Oued Nakhla (30 ha), Ben Chilouf (70 ha), Limaoua (70 ha) and Zrig El Ghandri (30 ha). Works also include the conveyance and distribution water pipe system, drainage network and internal access roads. 4.08 Reserve Tubewells. The Project includes financing for five reserve wells totalling some 1,500 m which are expected to be needed to replace aging boreholes over the Project period. The number of tubewells was determined after examining all existing wells, their performance and yield particularly those which are approaching the end of their expected useful life. 4.09 Extension Services. The Project would strengthen the extension services of OMVGM to achieve an average ratio of about one extension agent per 100 ha. This would require the recruitment of 22 agents, the construction of 10 extension centers and three regional offices, the purchase of 9 cars and 10 mopeds. During four years, 750 demonstration plots would be established at farm level. The principles of "training and visit system" (T&V) would be applied by the extension services of the OMVGM (para. 5.11 and Annex 9). The Project would also finance the recruitment of other technical (two agronomists and two associate engineers) and administrative staff (secretaries, accountants) to help restructure the extension services department of OMVGK and provide technical support in specific subjects. The Technical Assistance and Extension Support components of the Project (paras. 4.12, 4.15) will also include investments having a positive impact on extension. The Project Management Unit (para. 4.14) to be established in OMVGM would measure the impact of the extension services in achieving Project objectives.  - 17 - 4.10 Marketing Support. The Project would finance equipment for an existing Government cold storage (300 m3), grading and packing facility (3,000 t/year) to complete this installation in Gabes and two 10-ton and one 1-ton truck to provide for improved collection of produce from farmers and to transport the products to the storage and market facilities. After an interim period and according to the agreed time frame to be provided by the Office by June 1986 facilities would be rented to the private sector under contract (para. 5.14). The Technical Assistance Component (para. 4.12) would also contribute to improvement of marketing performance at the OMVGM and farmer levels. 4.11 Strengthening of OMVGM. The strengthening of the regional infra- structure of the OMVGM to provide adequate extension services (para. 4.10) has to be accompanied by a supporting effort at the headquarters level in Gabes. This component takes into account the restructuring activities foreseen in the Irrigation Management Improvement Project for OMVGM. The Project would finance the recruitment of additional technical (three mechanics) and administrative staff (four secretaries and typists), the construction of houses (4), and the provision of workshop equipment, and of cars (4). Details of equipment and vehicles to be provided by the Project are given in Table 5. 4.12 Training and Technical Assistance. Training would aim at providing OMVGM staff with the skills required to assist the AICs in dealing with water management and maintenance of pumping and water distribution structures. OMVGM would organize study tours and attendance at seminars and workshops on electromechanics, hydromechanics and water management for a total of 11 man-months. The Project would also finance the training of a financial analyst to assist the DGR in the monitoring of the execution of works (cost, disbursement, administrative aspects). In addition, consultant services totalling 25 man-months would also be financed by the Project to review and give recommendations on specific fields like marketing, organization and management, extension, and hydromechanics. Terms of reference for these services are included in Annex 8. 4.13 Onfarm Investment-Credit. The Project would provide for credit to be made available through BNT for the acquisition and planting of new trees (450,000), small farm machinery, reservoirs and other small structures aiming at making the best use of the available water and at improving production conditions. OMVGM would function as a channel for the partial financing of greenhouses (20 ha) and plastic tunnels (80 ha) (see para. 2.09 for current interest rates structure). Farmers would make a 20% equity contribution to the proposed investments. 4.14 Management, Monitoring and Evaluation. In addition to the monitoring of procurement and of contracts for execution of works to be done by the supervision team and DGR headquarters, the Project would finance a management and monitoring unit to be set up in OMVGM. This unit would be provided with a full-time agroeconomist and an assistant whose qualifications and experience would be approved by the Bank prior to their appointment. This unit would be assisted by the expert to be financed in the context of the Technical Assistance component. Basic indicators to be monitored during project implementation are listed in Annex 3. The creation of this unit and the appointment of its chief would be conditions of effectiveness of the loan.  - 18 - The DPSAE of the Ministry of Agriculture would also carry out the role of periodically supervising and evaluating the Project. The DPSAE is adequately staffed and routinely evaluates investment projects in the agriculture sector for the Ministry. 4.15 Extension Support. The Project would provide for assistance to OMVGM in pursuing ongoing experimentation ir. those themes specifically related to the Project objectives, particularly in the fields of producing good quality seedlings, testing and disseminating water saving practices and controlling water and soil sa'linity (in close collaboration with DRE). In order to help improving the technical messages of extension agents and providing farmers to easy access to regionally tested technological innovations, the Project would finance the construction and equipment of plastic greenhouses (nursery), other miscellaneous structures (shades, etc.) and the equipment of a emall soil and water laboratory. Four technicians would be recruited and they would work in close contact with the OMVGM extension services to ensure that their applied research programs are the most suitable ones, to obtain the feedback and to improve the use of messages resulting from their research activities. The Government, through its research program in the south, under the responsibility of IRA, would carry out the selected research programs essential for the Project according to a protocol to be agreed between OMVGM and IRA. Assurances for the inclusion of these programs in the IRA's activities were obtained at negotiations (para. 5.12). D. Status ofEnineenny 4.16 Standard architectural plens and specifications are available for most Project buildings. The Government through DGR has hired consultants to prepare the detailed design and bidding documents for the rehabilitation works and for the new oases (irrigation and drainage network and roads). Detailed specifications and bidding documents for the first year of works execution and for the supply of goods are being completed and bid results for deep well execution confirm Project cost estimates. Particular attention is being paid to the definition of the permeability characteristics of the soils for the design of the drainage networks, which will permit proper leaching and salinity control. The remainder of the documents for the other three years of the Project would be completed before December 1985. E. Costs 4.17 Over the six-year implementation period (1986-1991), the total cost of the Project is estimated to be US$58.3 million (D 43.8 million) with an estimated foreign exchange component of US$29.6 million (D 22.2 million) or 51X of the total Project cost. The cost estimates include taxes and duties, totalling US$14.3 million (D 10.8 million) or 25% of total Project costs. Project costs are summarized in the following table and shown by year in Table 1 and by summary account in Table 2.  - 19 - PRO3ECT COST SUIMARY Local Foreign Total Local Foreign Total X Foreign X Total Costs Costs Costs Costs Costs Costs Exchange leas Costs ----- (O 000)----- (US$000