Mexico - Irrigation Rehabilitation Project

| REPOJ;TU To R E S T R I C T E D |REPOFj-rTS3 DES,, R e p o r t N o. TO-258b 1 ONE: ' --l I e] .- This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF MEXICAN IRRIGATION REHABILITATION PROJECT January 5, 1961 FILE COPY Department of Technical Operations  - 2L - T-7Toou iS 2flJW '  APPRAISAL OF MEXICAN IRRIGATION REHABILITATION PROJECT TABLE OF CONTENTS Page No. SUitVIARY ..........ea*********@************** i - ii I. INTRODUCTION .*.....................o.e 1 II. EXISTING IRRIGATION IN EXICO ........................ 1 A. Development of Irrigation 1............I B. Organization of Irrigation .................. 2 C. Rehabilitation Program . .. .. ... ..... 3 III. THE PROJECT AREA ...........................4 A. Present Condition of Agriculture O S............. 5 B. Pr'esent Condition of Irrigation Works ........ 7 IV. THE PROJECT ............. ....... .... , 8 A. The Proposed Works . ................... , ,. 8 B. Construlction Schedule ............................. 9 C. Cost Estimates ...........0..... 0* *o.* ..o... **... 9 D. Finance .......................... .... 10 E. Organization and MIanagement ..................... 12 F. Water Charges and Financial Results . ........ 13 i) Legal Arrangements . ................... 13 ii) Water Quotas for Operation and Maintenance . 15 iii) Rehabilitation Quotas for Repayment . 16 V., BENEFITS AND JUSTIFICATION ........................... 18 A. Increase in Farm Production .................... 18 B. Return on Investment ... ...... 19 VI. CONCLUSIONS AND RECOIHfENDATIONS *......**. *******, 20 ANNEXES 1. Distribution of Land Cwnership 2. Rio Culiacan District 3. El Fuerte District 4. Rio Mayo District 5. Rio Yaqui District MAPS  SUi4ARY io The Government of Mexico, through its Secretaria de Recursos Hidraulicos (SRH) has asked the Bank to help finance a program of rehabi- litation of 22 irrigation districts. The Bank project would be limited to the first stage involving four irrigation districts on the west coast of Mexico. Priority was given to these districts because they have serious salinity and drainage problems, the work could be started promptly, the benefits from rehabilitation would be large, and local interest in parti- cipation is evident. ii. Irrigation farming is important in the Mexican economy and in- vestments in irrigation have been justified. The urgency of bringing new lands under irrigation, as a whole, however, has resulted in the lack of funds for completion and adequate maintenance of drainage and other works. A program of rehabilitation and completion is now urgently needed to pro- tect the irrigable lands from further deterioration due to the rising water table and encroaching salinity and to reclaim land already lost. iiio The project would consist of the rehabilitation and completion of existing irrigation works on 580,000 hectares. The work would be done over a period of three years starting early in 1961. The cost of the public works is estimated at pesos 512 million (US$41 million). An additional private investment in on-farm drainage and improvement estimated at pesos 305 million (Us$24 million) would also be necessary to take full advantage of the public works. iv. The proposed Bank loan would cover the foreign exchange com- ponent of the costs of the public works estimated at pesos 187.5 million (US$15.0 million) or about 35% of public costs. The balance of the pub- lic costs would be met by the Government. The private investment would be financed from the farmerst own resources and from credit from govern- mental and commercial banks. v. The project would be executed by the Secretaria de Recursos Hidraulicos through its Division of Irrigation Districts. There is a competent staff organization in each of the four districts. The proposed public works have been soundly planned and the cost estimates are realis- tic. The services of drainage experts, backed by some short-term research, would be used for preparation of plans for the private on-farm works. vi. Annual water quotas (charges) payable by all water-users would he increased to a level sufficient to meet the full cost of adequate opera- tion and maintenance and provision of reserves. In addition, it is pro- posed to enter into contractual arrangements with the individual water- users to pay rehabilitation quotas to amortize the new public investment in the project over a reasonable period. Substantia&_rogrets- t6wards: ; completion of arrazagements- satisfactory-to'the Bank would be a condition ofoeffect1veness of the proposed loan. vii. The economic benefits from the project include an increase in annual net farm benefits estimated at pesos 238 million. The ratio of this return to the total public and private costs (pesos 817 million), is 29%. In addition to this favorable rate of return, the investment  - ii - would also increase foreign exchange earnings by about pesos 200 million per annum and assure sustained production from the four irrigation districts. viii. The project is suitable for a Bank loan of US$15.0 million equiva- lent for a term of 20 years, including a grace period of three and one half years. The Borrower would be the Nacional Financiera, an agency of the Government of Mexico.  APPPAISAL OF iL,XICAii IRRIGATIOti REHABILITATTON PROJECT I. INTRODUCTION 1. The Bank mission which visited iiexico in 1957 to analyze the Governmentts investment program for 1957-58 found, ihter alia, that although the development of irrigation had been successful, project worLcs had not been fully completed or adequately maintained. In October 1959, the Govern- ment informally requested Bank assistance in financing irrigation with special reference to completion and rehabilitation of existing projects. An exploratory Bank mission visited Mexico in November 1959 and found that a program of completion and rehabilitation of existing irrigation projects was urgently necessary; that such a program would undoubtedly benefit the eco.onmy although, under the principles of the Agrarian Reform, some pro- jects might not be self-liquidating. The Government was later invited to submit specific proposals. 2. In MvIarch 1960, the Secretaria de Recursos Hidraulicos (SRH) pre- sented proposals covering a program of completion and rehabilitation of 22 irrigation districts during the four years 1960 through 1963 (see map). Another Bank mission during Mlay/June 1960 found that the project for Bank financing should at this time be confined to four irrigation districts where works could be commenced late in 1960 or early in 1961. The public works involved are estimated to cost pesos 512 million (US3h41 million equivalent), including US?l5.0 million in foreign exchange. The mission's appraisal of the four rehabilitation projects is given in the following sections of this report. II. EXISTING IRRIGATION IN MEXICO A. The Development of Irrigation 3. Irrigation has an important role in Mexican agriculture. Produc- tion from irrigated land represents more than one third of the total value of agricultural production and contributes about one third of total commodi- ty exports. 4. The area of irrigated land increased rapidly from about 200,000 hectares in 1938 to over three and a half million hectares at present. i4ost of this expansion has been as the result of public investment, mainly in large scale projects. Public projects now cover some 2.6 million hec- tares. The remainder of the expansion has been through the development of scattered and usually small-scale private projects. 5. The public irrigation projects are operated by 64 Irrigation Dis- tricts or by 6 Regional Commissions. The total public investment in irri- gation had amounted to about pesos 2.6 billion by 1952 and, including sub- stantial expenditures on flood cont ql works not all related to irrigation, amounted to about pesos 6.6 billion_Y/by the end of 1959. 1/ Unadjusted for changes in the value of the peso.  - 2 - 6. Soils anld climate are favorable for irrigation and, although the standard of production practice varies widely, crop yields are genera.ly satisfactory. The main crops are cotton, wheat, corn, sugar- cane and truck and other food crops. Host of the cotton and a consider- able proportion of the sugar and truck crops (particularly tomatoes and melons) are exported. Until recently Mexico imported substantial volumes of wheat and corn, but requirements of almost all food crops are now pro- duced domestically. Production in 1959 from the public irrigation projects alone was valued at approximately pesos 5 billion. 7. The development of irrigation has contributed substantially to the lMexican economy and the investment as a whole has been justified0 The farmers, with the exception of some of the ''ejidatarios 1, are in general prosperous and some have rapidly become wealthy. The farmers, however, have not been made to contribute adequately to the cost of the irrigation services pro-vided by the Government. This is because, under the principles of the Agrarian Reform, the irrigation laws provide that farmer contributions be based on ability to pay and Government-fixed assessments have been too lenient. In consequence, farmers "compensation" payments meet only a fraction of investment costs and wTater charges have until recently covered less than half of the costs of operation and pro- per maintenance. B. Organization of Irrigation 8. SRH was established in 1947 to develop and administer the water resources of lIexico. Its broad responsibilities are to control and im- prove water resources and to plan, execute and operate works for irri- gation, potable water supply and sewage and flood control. 9. The Secretary of SRH is a member of the Cabinet. A Sub-secre- secretary, who is an engineer, is the senior official. Responsible to him are a Chief of Irrigation and Flood Control in charge of a group of Divisions concerned with planning and construction of works; a Chief of Potable Water Supply in charge of a group of Divisions responsible for water supply and sewerage; a Controller, in charge of administration; and a number of other Divisions including the Division of Irrigation Districts. This Division supervises operation and maintenance of works in each state. Each of the 64 Irrigation Districts has its own technical and administrative staff. 10. In addition to areas 'Cbv6red by-the Irrigation Dis*tiits, there are six regions controlled by Commissions which have considerable autonomy in developing and operating water resources within their respective areas. Each conmission consists of the Secretary of SRH as president; and an executive member and a secretary both appointed by the President of the Republic to represent the SRH and Ministry of Finance respectively. The Commissions employ their own staff, mathoriz6 expenditudres and operate. under the general supervision of SRH. 1/ Ejidatarios are members of Hejidosit which are group settlements under a system of farming approaching collective farming at little above subsistence level.  - 3- 11. The technical staff of SRH is well qualified and experienced. Adequate hydraulics, soil mechanics and material testing laboratories are maintained. Financial accounts are audited by Government auditors and in 9ome cases by external auditors. The SRH in general carries out its responsibilities effectivelyp but lack of funds has always. been an obstacle to an adequate maintenance policy. 12. At present nine large irrigation projects are under construction. The total cost of these projects is estimated at pesos 600 million, of which 53% had been spent to the end of 1959. The works include seven storage dams, two diversion dams and some distribution and flood control works. The Government intends to complete these works under construction but to give the rehabilitation program priority over the commencement of new projects during the next few years. 13. A summary of SP-His budget for 1959 and of the amounts for 1960 which had been approved by the end of May are set out below: 1959 1960 (budget) (appropriations to June) (pesos millionT Major irrigation projects 263 162 Minor irrigation projects 70 58 ComTissions 153 139 WTater supply and sewerage 144 100 0 & ElH Irrigation Districtsl/ 190 80 Other, including Central Office 134 173 Total 954 712 14. In addition to the amounts appropriated for 1960, SRH is author- ized to undertake further works to the value of pesos 105 million under contractors' credits if these can be negotiated. Further sums are likely to be approved under supplementary appropriations. C. The Rehabilitation Program 15. During most of the last two decades of rapid expansion of irri- gation there has been continuing pressure to bring new land under culti- vation. Farmers were waiting to take over the new land as soon as water became available and budgetary appropriations have emphasized new pro- jects. In consequence, construction plants have been diverted to new areas before works under construction were fully completed. Little or no pro-vision was made for drainage, canal systems were not completed, struc- tures to reduce maintenance and improve operation were not built, and, in cases where lining was desirable, the canals remained unlined. Lack of funds for proper maintenance has led to further deterioration of the facilities. The result has been curtailment of water deliveries in some 1/ Operation and lviaintenance expenditures over and above payments by Twyater users. The 1959 figure included special provision for excep- tional flood damage and was much higher than any previous year.  - 4 - areas and, more important and widespread$ rising water tables and in- creasing salinity through lack of drainage. Substantial areas are already salted and out of production; crop yields on even larger areas are pro- gressively declining and future production on the remaining unaffected land is threatenied. 16. The authorities and the farmers have becone increasingly aware of this situation and it is now recognized that a program of completion and rehabilitation is urgently necessary. Farmers' associations in many irrigation districts have petitioned the Govemment to have the works undertaken and have offered to pay the cost if long-term finance can be arranged. The SRH has already increased the annual wfater charge in many districts to permit more adequate maintenance until the works are under- taken, 17. SRH during 1959 made a preliminary review of the works necessary for completion and I-ehabilitation of all 64 irrigation districts and tenta- tively estinnted the cost at about pesos 2.5 billion. Since that time SRH has been develop-ng priorities within the overall requirements and has come fonrard with a program covering 22 irrigation districts, to be undertaken in three stages during the four years 1960 through 1963. The program is summarized below: SRH Irrigation Rehabilitation Program Estimated Cost of Public Wcrks Area (pesos mrillion) Stage ('000 ha.) 1960 1961 1962 1963 Total First 580 200 195 395/1 Second 350 135 135 270- Third 57o 230 230 460 Total 1,500 200 330 365 230 1,125 III. THE PROJECT AREA 18. The area to be covered under the Bank project would be the irri- gation districts of Rio Culiacan, El Fuerte_/, Rio lWayo and Rio Yaqui which make up the first stage of the rehabilitation program of SRH. 19. These four districts, wihich are located on the west coast on the Gulf of California (see map) have been given priority because they have serious drainage and salinity problems; the potential benefits from rehabi- litation are large and the farmers and most of the ejidatarios are keenly interested and have already agreed to participate. / Cost estimate increased to pesos 512 million and construction period to three years during appraisal. Stages 2 and 3 were not appraised by the Bank mission. / The El Fuerte irrigation system is within the area of responsibility of the El Fuerte Regional Commission and is not officially an "Irrigation Distr-ict" although for convenience this term is used in this report.  - 5 - 20. Irrigation was commenced in these areas on a small scale at the beginning of the century. It was not, however, until the reservoirs and main canals were established between 1948 and 1956 that the systems could be counted among the larger irrigation districts in vlvexico. The total area of irrigable land is 580,OOO hectares (143 million acres). The area population is nearly 500,000 and each district supports at least one im- portant city. A. Present Condition of Agriculture 21. Topography, Climate and Soils. The land, which is 5 to 50 meters above sea level, is nearly flat and slopes gently towards the coast. The topography is ideal for irrigation. 22. The climate is semi-arid with 200 to 600 mm. of rainfall per year with 75% occurring July-September. Temperatures produce occasional light frost and frequently reach 480C. (1180F.) in summer. 23. Soils range from sandy silt loam to heavy clay loams. Alkali- nity is high and soluble salts are accumulating in considerable areas in the lower and older parts of the irriga-ted land. Such soils tend to bake and are hard to work; the wear on machinery is heavy and yields progres- sively decline until the lands go out of production. Although the areas affected by salinity have not been surveyed in detail, except in the dis- trict of Yaqui, the following estimates are reasonably firm: (in '000 hectares) Culiacan 1l Fuerte Rio Mayo Rio Yaqui Total Not saline; full production 5OZ1 50 58 185 343 Moderate salinity; partial production 28/l 100 8 22 158 Saline; out of production 7 5