Morocco - Second Small and Medium Scale Irrigation Project

Do ent of The World Bank FOR OFFICIAL USE ONLY tAM a qrZ t 1/e Rqot No. P-4701-MOR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RFCONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO USS23 MILLION TO THE KINGDOM OF MOROCCO FOR A SECOND SMALL AND MEDIUM SCALE IRRIGATION PROJECT May 19, 1988 This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND EQUIVALEFT UNITS Currency Unit * Dirhau (DU) US$1.00 - DE 8.00 DE 1.00 * US*0.125 WEIGHTIS AND MEASURES The metric system is used throughout this report. 1 Hectare (ha) l0,00Om2 1 Square Kilometer 5 100 ha 1 Metric Ton = 1,000 kg ABBREVIATIONS DER - Rural Engineering Directorate (within MARA) DPA - Provincial Directorate for Agriculture MARA - Ministry of Agriculture and Land Reform ORMVA - Regional Office for Agricultural Development (Irrigation) SMSI - Small and Medium Scale Irrigation FISCAL YEAR January 1 - December 31  FOR OMCIAL USE ONLY KINGDOM OF MOROCCO SECOND SMALL AND MEDIUM SCALE IRRIGATION PROJECT Loan and Project Summary Borrower: Kingdom of Morocco Beneficiary: Ministry of Agriculture Amount: US$23 Million equivalent Terms: 20 years including a 5 years grace period with interest at the Bank's standard variable interest rate. Onleading Terms: Not applicable Financing Plan: Government US$10.1 million Cofinancing (bilateral sources) US$11.8 million IBRD US$23.0 million TOTAL US$44.9 .million Economic Rate of Return: 20% " Staff Apprais Report: Report No. 6902-MOR Date: May 16, 1988 Map No.: IBRD 19927 /a On first tranche of subprojects. Minimum return of 12% set for inclusion of subprojects in subsequent tranches. This document has a restricted distribution and may be used by recipients only in the perforriance of their official duties. Its c ontents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT CF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR A SECOND SMALL AND MEDIUM SCALE IRRIGATION PROJECT 1. The foll3wing report on a proposed loan co the Kingdom of Morocco of US$23.0 million is submitted for approval. The proposed loan will carry the Bank's standard variable interest rate with a maturity of 20 years including 5 years grace and will helo finance a Second Small and Medium Scale Irrigation Project. 2. Background. Agriculture in Morocco accounts for about 172 of GDP, a third of merchandise exports and provides 40Z of all employment. The performance of the agriculture sector has been uneven. Food production has bee.a affected by droughts and has failed to keep pace with the increased domestic demand generated by a rapid population growth, high rate of urbanization and declining real prices for food; food imports have increased and self-sufficiency ratios have fallen to SOZ for cereals and to 152 for edible oils. Altogether, agricultural imports now account for about 25% of merchandise imports. In response to the poor performance of the sector, the Government initiated a medium term adjustment program in 1985 with the objective of: (a) :estructuriig t'e public investment and expenditure program in agriculture; (b) correcting the prices and incentives framework; (c) strengthening the agricultural support services: (d) building up institutional capacity for agricultural policy planning and analysis and strengthening the organization and structure of the agricultural sector; and (e) helping resolve the basic issues of improving productivity of land use and protecting the natural resource base. The Bank is strongly supporting this program through two agricultural sector adjustment lgans. Increased productivity for crops in which Morocco has a comparative advantage in both rainfed and irrigated areas -the latter cover only 102 of the cultivable land but provide 452 of the sector value added- is an essential component of this strategy. 3. While the major part of the investment budget in the agricultural sector during the 1970's was in large scale irrigation (65% of total sector investments and 902 of investment in irrigation), in the 1980's the Government has placed increased emphasis on investment in schemes that have a short gestation period, have low unit development cost, and impose a low burden on the Government in terms of operation and maintenance. The rehabilitation of small and medium scale irrigation schemes meets these criteria. The Directorate for Rural Engineering (DER) in the Ministry of Agriculture and Agrarian Reform (MARA), through its Service for Small and Medium Scale Irrigation, is responsible for the formulation of annual programs and overseeing design, while the Provincial Directorates of Agriculture (DPA) and Regional Offices for Agricultural Development (ORMVA) are responsible for project construction and subsequent operation and maintenance working with Irrigation Water Users Associations. 4507 E  -2- 4. Rationale for Bank Involvement. The Project is in line with the public investment strategies adopted under the medium term sectoral adjustment program which is supported by the Bank, and it particularly furthers the goals of irrigation development policy including the up-grading of traditional small and medium scale irrigation schemes which meet agreed selection criteria. Since the majority of farm families on these schemes are poor it is a good vehicle for mitigating rural poverty. The project continues efforts to strengthen Government agencies responsible for SMSI development launched in 1983 under the first small and medium scale irrigation project (Loan 2253-MOR). 5. Project Obiectives. The central objective of the proposed project is to pursue and strengthen the systematic approach to the development of small and medium scale irrigation that was initiated with the first project. The project would: (a) support Government policy concerning the upgrading of traditional small and medium scale irrigation schemes meeting the criteria defined under the second sector loan; (b) strengthen the Government agencies at the central and provincial level, which are responsible for small and medium scale irrigation development; (c) promote the creation of water user associations to be responsible for the operation and maintenance of irrigation networks and for cost recovery. 6. Project Description. The proposed project would support the Government's Investment Program in Small and Medium Scale Irrigation (SMSI) over a 5 year period through: (a) renovation and upgrading of about 120 traditional SMSI schemes totalling about 32,000 hectares, of which nine (8,000 hecLares) are expected to be spate irrigation schemes in the more underdeveloped semi-arid areas; (b) eo.uipping 7 spate irrigation repair and maintenance brigades in selected southern provinces; (c) providing vehicles and equipment for MARA's Central Management Unit (DER) and for the Provincial Agricultural Directorates concerned with implemp.Ling renovation schemes; and kd) funding technical assistance, staff trainirg and studies for DER and DPA staff dealing with SMSI activities and funding design work carried out by local consulting firms. The project has been designed as a subsector program operation and was appraised on the basis of feasibility studies for four schemes totalling 7,800 hectares which make up the first year's program. The remaining subprojects would be selected according to agreed criteria, prepared and appraised during project implementation. The preparation of each subsequent annual program will in-lude the iritial selection by Provincial Agricultural Directorates and Regional Irrigation Offices of perimeters to be renovated, feasibility studies with specific investigations and preliminary technical studies when necessary, environmental impact assessment, evaluation of a selected sample of subprojects and of feasibility studies and approval of the annual program by the Bank, and preparation of detailed designs and bidding documents. The provision of spate irrigation repair and maintenance brigades will build on experience with a pilot project financed by FAO in 1986/87. The total cost of the project is estimated at US$44.9 million equivalent, with a foreign exchange component of US$15.8 million (352). A breakdown of cost and the financing plan are shown in Schedule A. Amounts and method of procurement and disbursements, as well as the disbursement schedule are shown in Schedule B. A timetable of key project plocessing events and the status of Bank group operations in Morocco are given in Schedule C and D, respectively. A map is also attached. The Staff Appraisal Report No. 6902-MOR (dated May 16, 1988) is being distributed separately. 4507E  - 3 - 7. Agreed Actions. The Government has agreed on the following actions: (a) selection of future subprojects on the basis of the following criteria: (i) all projects should be for rehabilitation of existing SMSI schemes; (ii) only those schemes where small to middle-size farms are predominant will be rehabilitated; (iii) the general criterion for project acceptability would be an economic rate of return of at least 12X, except for those pro4ects which cover less than 100 ha for which the criterion would be that investment expenditures do not exceed US$1500 (DH 12,000)/ha in 1987 prices; (iv) works for any project should be implemented over a period of two years or .ess; and (v) the beneficiaries have established Water Users' Associations and Government has made arrangements with the association to ensure proper execution of works, operation and maintenance and collection of water charges; (b) retention of the Project Consultative Coordinating Committee and Project Coordination and Monitoring Unit set up under the first project; and (c) application of agreed cost recovery formulae (recovery of lO0 of O&M and at least 10X of investment costs over 30 years). The strengthening of the project coordination and monitoring unit set up under the first project will be a condition of effectiveness. 8. Justification. Economic benefits would stem from increased crop and livestock production by the 9,800 farm families expected to participate directly in schemes rehabilitated under the project. Many of these families are below the rural poverty level. The project would help develop a sub-sector wide approach to sub-project selection, appraisal, implementation, and monitoring and rationalization of the role of Government agencies in the management of SMSI schemes, and increasing farmer participation in operation and maintenance. The project would be expected to slow the rural exodus from semi-arid areas, and would have a positive environmental impact in areas threatened by desertification and in areas where spate irrigation works would recharge groundwater aquifers. 9. Risks. Possible risks would derive from (a) budgetary shortfalls and (b) from institutional weaknesses. Continued budgetary problems could prevent Government adequately funding its share of project cost which could delay sub-project implementation. However in view of Government's expressed policy of emphasizing small and medium scale irrigation investmer , as well as arrangements made under the second sector loan for counterpart funds, the risk is minimal. Moreover, the expected provision of bilateral cofinancing to meet a considerable portion of local costs will ease the Government's financial burden. The institutions involved are relatively small and untested and this could lead to delays particularly in the design phase. To avoid this risk funds have been provided under the loan for employing local consulting firms for up to 50% of the design work and DER staff is to be reinforced. The Bank will also review selected feasibility studies prior to execution. 10. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President Washington, D.C. May 19, 1988  KINGDOM OF MOROCCO SECOND SMALL AND MEDIUM SCALE IRRIGATION PROJECT Estimated Coss ad Fmnc Plan Estimated Costs a/ Local Foreign Total -1 *U$ millio- Renovation Works 20.2 10.8 31.0 Vehicles and Equipment 1.1 1.9 3.0 Technical Assistance, Studies and Training 0.6 0.7 1.3 Incremental Recurrent Costs 1.2 1.1 2.3 Base Cost 23.1 14.5 37.6 Physical Contingencies 0.6 0.5 1.1 Price Contingencies 5.4 0.8 6.2 Total Project Cost 29.1 15.8 44.9 a/ Inclusive of taxes and duties of $7.2 million. Financing Plan Local Foreign Total -------US$ million--------- World Bank 12.9 10.1 23.0 Cofinancing k' 7.4 4.4 11.8 Government 1.6 1.3 2.9 New Project Costs 21.9 15.8 37.7 Taxes and Duties 7.2 - 7.2 Total 29.1 15.8 44.9 b/ Bilateral sources expected to provide parallel or joint financing of the civil works program from 1990. 4507E  Scelule 6 Page 1 of 2 KINGDOM OF MOROCCO SECOND SIMALL AND MEDIUM SCALE IRRIGATION PROJECT Procurement Method and Disbursemente Procurement Methods /a (USS MWii Procurement Method Project Element ICL LCB Other N.A. Total Cost Civil Works - 34.2 3.0 - 37.2 (17.3) (1.7) (19.0) Equipment and Vehicles 3.0 0.3 - 3.3 (2.5) (0.2) (2.7) Miscellaneous Equipment - - 0.2 - 0.2 (0.1) (0.1) Training; Technical Assistance and Studies - - 1.3 - 1.3 (1.2) (1.2) Incremental Operating Costs 2.9 2.9 Total 3.0 34.5 4.5 2.9 44.9 (2.5) (17.5) (3.0) (-) (23.0) /a Figures in parenthesis are the respective amounts financed by the Bank. Disbursements Category Amount Percent (US$ million) Civil Works 16.9 801 (of expenditures) Equipment and Vehicles 2.6 100l (of foreign expenditures) 100S (local expenditures - ex- factory cost) 652 (of local expenditures for other items procured locally) Training, Technical Assistance and Studies 1.0 100% (of expenditures) Unallocated 2.5 23.0 4507E  Setwdul* a Page 2 of 2 Fstimted Ink Dbburuffia9ts Bank Fiscal Year 89 90 91 92 93 94 Annual 1.7 1.7 4.5 5.6 5.7 3.8 Cumulative 1.7 3.4 7.9 13.5 19.2 23.0 4507 E  KINGDOM OF MOROCCO SECOND SMALL AND MEDIUM SCALE IRRIGATION PROJECT Timetabl ot Key Projet Procung E"nts (a) Time taken to prepare: 2 years (b) Prepared by: Ministry of Agriculture with assistance from FAO Cooperative Program (c) First Bank Mission: September 1986 (d) Appraisal Mission Departure: April 1987 (e) Negotiations: May 1988 (f) Planned Date of Effectiveness: September 1988 (g) List of Relevant PCRs and PPAPs: Second Doukkala Irrigation Project (PPAR No. 6860) 4 S07 E  KINGDOM oF MOROCCO Schedule D Page 1 of 2 STATUS Of RANK OIStAI!0US IN MN= A. sTATIMINr oF SANK LOANS AND IDA CRED2?S tAx of Mareh 31. l9AR) Loan or USS Million Anunt Credit ILeeg anemllatan Numnbar ar U arrawar eMrnOM JInU IDA Undlibursed Fourty-ftve Loans Fully Disbursed 1.642.J3 Five Credits Fully Disbursed 45.16 1602 1978 Kingdom of Morocco Agriculture 40.0 14.13 1081 1979 Kingdom of Morocco Education 68.0 14.8U 1848 1980 Kingdom of Morocco Agriculture 18.0 4.66 1943 1981 CIi Tourism 100.0 5.47 1944 1981 Kingdom of Morocco Urbt Development 20.0 10.68 2006 1982 Kingdom of Morocco Water Supply 7S.0 33.88 2037 1982 BNOE OFC 70.0 3.83 2038 1982 Kingdom of Morocco DFC (SSZ) 30.0 19.27 2082 198t Kingdom of Morocco Agriculture 16.0 10.71 2109 !Q