India - Purna Irrigation (State of Maharashtra) Project

R E STR ICTE D Report No.P-286 LE Copy -9 This report was prepared for use within the Association. It may not be published nor may it be quoted as representing the Association's views. The Association accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO INDIA FOR THE PURNA IRRIGATION PROJECT IN THE STATE OF MAHARASHTRA July 10, 1962  INTER=LATIONAL DEVELOPIMEN1T ASSOCIATION REPORT AIM RECO:WE-AIXDATIONS OF TIHE PRESIDENT TO THE EX'ECUTIVE DIDECTORS ON A PROPOSED DEVELOPIZNT CREDIT TO THE GOVERILTMENT OF IN\IA F'a THE PURNA IR1IGATION PROJECT IN THE STATE OF MAHARASHTRA I submit herewsith the following report and recommendations on a pro- posed development credit to the Government of India in an amount in various currencies equivalent to .13 million to assist in financing the cornpletion of the Purna Project for irrigating an area of about L52,000 acres in the State of Iviaharashtra. PART I - HISTORICAL BACKGROUND 20 India aims during her Third Five-Year Plan to achieve self-sufficiency in foodgrains and a substantial increase in the output of commcercial crops to meet the requirements of exports and industry. Since there are only limited opportunities in India of bringing new land under cultivation, an increase in agricultural production must be based chiefly on raising yields in areas al- ready being cultivated by expanding irrigation facilities and the use of fer- tilizers, and by introducing better agricultural technology. To this end, the Government plans to invest the equiva'lent of about $02.75 billion - more tl-han twice the amount scent in the Second Plan - in the hope of more than doubling the growth rate of agricultural output. In view of the great import- ance of agriculture to India's economic development, the Association has already made credits to assist in the financing oi five agricultural projects. Two agricultural projects were appraised by a mission which visited India earl,r this year, one the Sone Irrigation Project in the State of Bihar for which the Association made a credit on June 29, 1962, and the other the Plurna Irrigation Project in the State of Maharashtra. Negotiations with the representatives of the Government of India and of the State of H4aharashtra commenced on June 18 and were concluded on July 3, 1962. 3. This proposed credit and the credit proposed for the Bombay Port Project would increase the total of the Association's credit to India to $4l53 million made up as follows:  - 2 - Credit Noo Purpose Amount ($ million) 3-IN National Highways 60.0 8-I.N Tubewell Irrigation 6.0 13-IN Shetrunji Irrigation 4.5 14-IN Salandi Irrigation 8.0 15-IN Punjab Drainage and Flood Protection 10.0 19-IN Fourth DVC Project 1805 21-IN Sone Irrigation 15.0 Bombay Port 18.0 Purna Irrigation 13.0 153.0 The Bank has now made 30 loans for projects in India. Their status as of May 31, 1962 was as follows: (; million) Total loans, net of cancellations 1/ 817,5 of which has been repaid 92.2 Total now outstanding 725e3 Amount sold 66.0 of which has been repaid 45.1 20.9 Net mnount held by tlhe Bank 704.4 l/ Including $19.5 million not yret effective and 3175.0 million not yet disbursed. PART II - DESCRIPTIOi' OF TIE PROPOSED CREDIT 4. The main features of the proposed credit are as follows: Purpose: To finance about one half of the total cost to be incurred during the Third Plan of a project for the completion of works to ir- rigate an area of about 152,000 acres from water impounded by two dams now under con- struction across the Purna River in the State of Nlaharashtra. The project also includes a 15 PiW hydro-electric plant. Borrower: India, acting by its President. Amount: The equivalent in various currencies of 's,13 million.  - 3 - Term and Amortization: The term of the credit would be 50 years, with a grace period of 10 years. From January 1, 1973 one half of one per cent of the principal amiount would be repayable semi-annually for ten years, and one and one half per cent would be repayable semi- annually commencing January 1, 1983 and ending July l, 2012. Payment Dates: January 1 and July la Project Agreement: The Association would enter into a Project Agreement with the State of Maharashtra which will construct and operate the project, PART III - L1.GAL INSTRUIENTS AD LEGAL AUTHORITY 5. Attached are a draft Development Credit Agreement between India and the Association (No. 1) and a draft Project Agreement between the State of Maharashtra and the Association (No, 2). These draft Agreements are sub- stantially in the form used for the Association's previous credits for irri- gation projects in India. 6. The strict administration of a water management program is of paramo-unt imoortance to the success of the Project, and ifaharashtra vould therefore undertake in Section 2e02 of the Project Agreement to employ consultants to examine and to make recommendations concerning the progress and operation of such a program. The selection of the consultants, and the terms and conditions of their employment, are to be agreed with the Association. WSith reference to that Section, Maharashtra would give an outline of the scope of the con- sultants' assignment in the attached letter (No. 3), In Section 2.05(a) of the Project Agreement, Maharashtra would undertake to recover on reasonable terms and conditions the moneys invested in the Project with reasonable interest thereon by wzater charges, by imposing other charges on land benefiting from the Project, and by a rental charge for the power plant. Pursuant to Section 2.05(b) of this Agreement, rates and charges would be set at such levels as to cover also all operation and maintenance costs of the Project, 7. The recomnmendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association is attached (No. 4)e PART IV - APPRAISAL OF THE PROPOSED CREDIT The Project 8. A detailed appraisal of the project (TO-326b) is attached (No. 5). The Purna Irrigation scheme was commienced shortly before the Second Five-Year Plan, It is designed to provide irrigation water to about 152,000 acres in  - 4 - the Purna River Valley and electric power from a 15 IAM hydro station. Wlork on the two dams included in the scheme has already well advanced and some of the canal system has also been completed. The project to be financed is the completion of twqo dams and of the canal system, and the installation of power equipment. The total cost of the project is estimated at the equivalent of about `':35 million, of which about K9 million had been spent prior to the Third Plan. 90 The project is located in the western part of the Indian high plateau in an area where the soils are prone to waterlogging and the accumulation of salt, The project does not include sub-surface drainage facilities since their cost would be prohibitive. Therefore, the strict administration of a carefully worked out water management program is fundamental to the success of the project. Maharashtra will operate such a program with the help of a consultant who would pay particular attention to the establishment of ground- water observation wells, the cropping pattern, and controlling the application of water. In addition, Maharashtra would provide services to the farmers in the project area to improve farming and irrigation practices, and to meet their requirements for fertilizer and agricultural credit. Only a few farmers in the area have had previous experience in irrigation, and it will probably take about 10 years to achieve the full level of crop yields expected, 10. The principal benefit will be higher food production in an area of short supply. The cultivators' income will increase substantially. Aside from increasing the yields of crops already being growin, such as grain sorghum and cotton, a number of new crops will be grown, especially fruits. The gross value of production is estimated to rise fromn a present Rs. 1365 million to about Rs. 84.5 million. As to power, a regular supplr would for the first time be ensured in the project area and its vicinity. 11. The Government of India is contributing to the financing of projects like the Purna project approximately 60 per cent of the total cost with the remainder coming from the State Government. The Central Government's contri- bution to the cost of constructing these projects is made available in the form of annual advances, bearing interest at varying rates and being repaid in 7 to 15 annual instalments after a grace period normally corresponding to the period of construction. The proposed credit would be used to finance part of the Central Government's contribution. After construction has been completed, the revenues collected from water charges and other charges imposed on land bene- fiting from the project would meet all the project's operation and maintenance costs and recover the entire investment attributable to irrigation with reason- able interest thereon in a period considerably shorter than the useful life of the project. Rental charges to be paid by the State Electricity Board for the power plant w;ill recover the investment in a period commensurate to the life of the asset. 12. The project will be constructed by the Statets Department of irrigation and Power , which will also operate the project's irrigation features. The hydro station will be operated by the State Electricity Board. Most of the wqorks will be carried out by local contractors selected on the basis of com- petitive bidding. The goods to be imported wfill be procured on the basis of international competitive bidding.  The Economy 13. A suirmary of India's current economic position was included in my Report and Recommendations (P-285) of July 3, 1962, on a proposed development credit to India for the Port of Bombay project. Since then two developments are noteworthy, both related to India's tight balance of payments position. In the context of further restrictions on foreign exchange expenditures, the Government has cut certain categories of import licenses for the current year by as much as 50 per cent, and regulations governing foreign travel and pri- vate remittances abroad have been tightened up, In addition, India arranged on July 9 with the International HIonetary Fund for a one-year stand-by credit of $P100 million. PART V - COYIPLIANCE WITH ARTICLES OF AGREEMENT 14. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECO-1IENDATIONS 15. I recommend that the Association make available a Development Credit to India in an amount in various currencies equivalent to $13 million for a total term of 50 years with service charge of 3/4 of 1 per cent per annum and on such other terms as are specified in the draft Development Credit Agreement and draft Project Agreement, and that the Executive Directors adopt a reso- Lution to that effect in the form attached (No. 6). Eugene R, Black President t;Tashington, D.Ce July 10, 1962.