China - Heilongjiang Land Reclamation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 8443 PROJECT COMPLETION REPORT CHINA HEILONGJIANG LAND RECLAMATION PROJECT (LOAN 2261-CHA/CREDIT 1347-CHA) MARCH 6, 1990 Agriculture Operations Division China Department, Asia Region lhb document has a rstited dstrbutIon nd may be ued by anly In the perfomunxe of their offi dus Its contents ay n otwrwie be discled Wodd Bank authorWllo  WEIGHTS AND MASURZS 1 Meter (m) * 3.28 Feet (ft) 1 Kilometer (km) - 0.62 Xile I Hectare (ha) * 2.47 acrea 15 au 1 Kilogram (kg) 2.2 pounds (tlb) - 2 Chinese jin 1 Ton (t) - 1,000 kg - 2,205 lb GLSSARY OF ABBREVIATIONS CoB Central General Bureau of State Farm. CIDA Canadian International Development Agency mmfa Economic Rate of Return FIMO Foreign Investment Office FMR Financial Rate of Return KGB Heilongjiang General Bureau of State Farms ICB International Competitive Bidding IRR Internal Rate of Return NOA Ministry of Agriculture MOFERT Ministry of Foreign Economic Relations and Trade PCR Project Completion Report SAR Staif Appraisal Report sma Special Draving Rights  FrOR OFFICIAL USE ONLY T1H WOILD SANK Washiton. D.C. 20433 U.S A. opw_so baa^sm March 6, 1990 NEKORAN1pDU TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report - China HeilongJiang Land Reclamation Protect (Loan 2261-CHA/Credit 1347-CHA) Attached, for information, is a copy of a report entitled "Project Completion Report - China Heilongjiang Land Reclamation Project (Loan 2261-CHA/Credit 1347-CHA)", prepared by the Asia Regional Office. No audit of this project has been made by the operations Evaluation Department at this time. Attachment This document has a estricted dWibuion and may be ue by cipients on in th perforanen of ther offical dutie Its contents may not othrise be dibcbsd wihot Wodd Snk authorio  FOR OFFICIAL USE ONLY CHINA HEILONGJIANG LAND RECLAMATION PROJECT (LOAN 2261-CIIAZCUEDIT 134lZOA.). TABLE OF CONTENTS Paie No Preface i. Evaluation Summary l. U PART I Project Identity 1 Project Background 1 Project Objectives and Description. 2 Project Design and Organization. 3 Project Implementation. 4 Project Results. 5 Project Sustainability. 6 Project Impact. 7 Bank Performance. 8 Borrower Performance. 9 Experience and Lessons Learned .10 Training and Technical Assistance .11 Project Documentation and Data .12 Conclusions and Recommendations .12 PARTII Standards of the Engineering Design .15 The Necessity of the Engineering Construction .15 Main Results .16 Results and Lessons .20 Cost of the Technical Aids .23 The World Bank Performance .24 Project Office Performance .27 PART III Table 1 - Related Bank Loans and/or Credits Table 2 - Project Timetable Table 3 - Cumulative Estimated and Actual Disbursements Table 4 - Project Land Development Table 5 - Physical Quantities Table 6 - Estimated Costs and Expenditures Table 7 - Project Financing Table 8 - Economic and Financial Impact Table 9 - Sensitivity Analysis Table 10 - Comparison of Cropped Area, Yields and Production Figure 1 - Estimated and A.:tual/Projected Area Cultivated Figure 2 -Estimated and Actual/Projected Yields Figure 3 -Estimated and Actual/Projected Production Table 11 - Status of Covenants Table 12 - Staff Inputs Table 13 -Missions Table 14 -Costs MAP - IBRD Map No. 16545R This document has a restrted distribution and may be used by recipients only in the perfomanc of their officil duties. Its contents may nxt otherwise be discled without Wordd Dk authozation.  JECT COMPLTION REPORT CHINA HEILONGJIANG LAND RECLANATION PRWECT (LOAN 2261-CHAZClEDIT 1347-CHA) PREFACE 1. -his is the Project Completion Report (PCR) for the Heilongjiang Land Reclamation Project in China, for which Loan No.2261-CHA in the amount of US$35.3 million and Credit No.1347-CHA in the amount of SDR41.3 million were approved on April 19, 1983. The Loan/Credit was closed on March 31, 1989, two years and three months behind the original schedule. The Loan was 99.31 disbursed (including cancellatior. of US$10 mill'on on November 26, 1984) and the Credit 99.31. The last disbursement was on August 30, 1989. 2. The PCR was jointly prepared by the Agriculture Operations Division, China Department, Asia Region (Preface, Evaluation Summary, Parts I & III), and the Borrower (Part II). Part II was prepared in Chinese and translated by the Project Office, Heilongjiang General Bureau of State Farms and vetted by the Central Bureau of Stata Farms, Ministry of Agriculture, China. 3. Preparation of this PCR was started during the Bank's final supervision mission of the projqet in April 1989, and is based, inter alia, on the Staff Appraisal Report, the LoanL/Credit, and Project Agreements; supervision reports; correspondence between the Bank and the Borrower; internal Bank memoranda and the Borrower's internal project reports.  (ii) CHINA HEILONGJIANG LAND RECLAMATION PROJECT (LOAN 22611CREDIT 1347-CHA) PROJECT COMPLETION REPORT EVALUATION SUMKARY Project Ob ectives 1. The main objective of the project was to develop 200,000 ha of unused wasteland for production of food grains and industrial crops (soybean and corn): thereby helping to reduce food grain deficits in China. It would also upgrade farm mechanization and crop technology for existing state farms and serve aa a model for future development of large tracts of unused land in Heilongjiang Province. (Part I, Para.3.1) Imuplementation Experience 2. The project was formulated according to Government's plan to increase marketable crop surplus and it formed part of the national land development program planned by the Central General Bureau of State Farms for 1981-86. As a first Bank-financed project, considerable effort was made by the State Farm authorities, both at Central and Province, in project planning, implementation and management. (Part I, Para.4.1) 3. The project, covering 31 farms and 75 project sites, has been successfully implemented within the basic framework designed at appraisal. A review in 1984 replaced seven farms with three new ones with better site conditions, reduced the area of two large farms and added a cadre college farm, whilst maintaining the total project area of 200,000 ha. (Part I, Para.4,2, 5.2) The investment program was somewhat curtailed due to shortage of local funds (Y260 million approved against SAR estimate of Y300 million). Priority was given to construction of 'drainage works and facilities required for crop production. Some of the lateral and sub-lateral drains, field roads, bridges and culverts, housing and communication networks were deferred to be completed in stages later when respective farms have accumulated enough funds. Bank funds (Credit SDR41 million and Loan US$25.1 million) were efficiently used mainly for procurement of farm ano -onstruction machinery and equipment. Due to keen competition and a depressed world market for machinery in 1984, the saving made available led to cancellation of US$10 million of loan funds requested by the Borrower and purchase of additional and new items of machinery, equipment and vehicles. (Part I, Paras.5.1, S.3. 5.4) Funds allocated for the technical assistance component were virtually unused. Local expertise was largely used instead and required training was carried out internally within the project entity or provided by suppliers through contracts for machinery and equipment. The unused funds were subsequently re- allocated for purchase of additional spare parts for machinery and equipment. (Part I, Paras.5.6, 12.1, 12.2)  (iii) 4. The project was implemented and managed by the full-time Foreign Investment Management Office (FIMO) with guidance and technical support from the Heilongjiang General Bureau of State Farms and assisted by project offices established under the six project sub-Bureaus. Project management and coordination were effective, much facilitated by the set of procedures established for work supervision, financial management, procurement and inspection of machinery and equipment. Project performance was monitored through task contracts drawn up between the General Bureau, the project sub- bureaus and farms based on annual targets and investment. (Part I, Paras.10.1- 10.3) Results 5. The project has achieved its main objective of producing 220,000 tons of grain of which about 702 is marketable (SO? projected at full development in 1990). Although land reclamation and cultivated area lagged slightly behind the SAR schedule due to initial project delay and changes, the average yields for wheat, soybean and corn have equalled or exceeded SAR targets. The cropping pattern in the SAR has been generally followed, but the project authority plans to plant more soybean and less corn in response to changing market demand and government procurement prices. (Part I, Para.6.1) 6. Economic performance of the project is consistent with the SAR projection. The recalculated economic rate of return (EUR) is 22?, compared to 23? in SAR. The financial rate of return (FRR) is 7.7Z which is much lower than the cash flow projection indicated in the SAR (no FRR was calculated in the SAR), due mainly to the low parity prices for grain and the substantial devaluation of local currency during 1984, 1985 and 1986. FRR indicates that, unless procurement prices for grain are substantially increased, it is less attractive to invest in a repeater project involving reclamation of new marginal land requiring expensive basic infrastructure than in rehabilitation and intensification of exis*t'ng low- and medium-yield cultivated land and value-added activities. (Part I, Para.6.2, 6.3) Project Sustaiaability 7. Undoubtedly the project will be sustainable during its economic life span. As part of China's major commercial grain base the project has the full commitment and support of the Government to succeed. This is evidenced by the recent Government decision to invest Y450 million during 1989-90 to expand and upgrade state farm operations in Heilongjiang Province. (Part I, pfra. 7 .1) 8. Each project farm is operating as an economic entity, with most of them showing profits during the last three years. This healthy trend is expected to continue barring any circumstances beyond their control (drop in export prices and inflationary rise in prices of agricultural inputs). However, the project farms are supported during emergency by the Heilongjiang General Bureau of State Farms which has adequate resources and maintained a good track record of performance. (Part I, Para.7.2) 9. Arrangements have also been made to obtain an additional 5,000 tons export quota for soybean and to retain 80? of the foreign exchange earnings exclusively for purchase of spare parts to maintain the large fleet  (iv) of imported farm and construction machinery and equipment. This would ensure that the machinery and equipment would be operational until their replacement for which the farms would also steadily build up a reserve of foreign exchange. (Part I, Para.7.3) Findings and Lessons Learned 10. Implementation of the project has provided the following valuable findings and lessons to the Borrower and the Banks (Part I, Para. 11.1) * Adequate time should be given for project planning, investigation and design; and provision should be included to review and adjust project components at an early stage of project implementation; * A full-time management system, staffed by qualified personnel and supported by other units, is essential for successful project management and coordination. Work procedures and job specification should be established; * Imported high-powered farm machinery and construction equipment have been proven to be very efficient and highly productive in Heilongjiang for large-scale land reclamation and cultivation under constraints of limited time for growing crops and weather conditions; * ICB procurement of a large fleet of farm and construction machinery and equipment based on the World Bank Guidelines for Procurement proved to be very efficient - competitive in price and assured quality. This requires careful preparation of bidding documents, procedures for bid evaluation, inspection and testing of equipment; and * Imported machinery and equipment should be adequately supported by logistics which would include supplies of spare parts, tools, special oils and lubricants, servicing and repair facilities, trained operators and maintenance technicians. 11. The PCR mission recommends the following actions to be followed-up by the Borrower to enhance further the success of the project: (Part I, Para. 14.4) * Adequate domestic funds should be provided annually to complete the remaining drainage works at tertiary level to reduce 10-152 of total project area still affected by waterlogging. A survey of the affected areas should be carried out and a program prepared for upgrading or extending the drainage works by project drainage equipment; * A task force should be established immediately to study in depth the problems affecting the existing system of spare part purchase, management, storage and distribution, and to recommend measures for improvement; and * There is potential to increase soybean production through better seed varieties, adequate agricultural inputs, better cultural practices, minimizing waterlogging and drought during critical stage of growth, and reduction of harvest and post-harvest losses with better  (v) machinery. Funds should be provided to resume the study. experiments. demonstration and extension discontinued in 1987.  cam LAXD NPRJECT Pa =T CC1W 1OU 31O0r? 1L PART I 1. Project Identity Project Name: Heilongjiang Land Reciamation Project Loan/Credit No.% Loan 22611 Credit 1347-CHA RVP Unit: Asia Country: China Sectors Agriculture Subsectors Land Reclamation, Drainage and Flood Control. .2. 2.1 Agriculture has been a high priority sector of the Chinese economy for more than 30 years, with special attention given to grain production in efforts to attain self-sufficiency. Thls sector is a major source of Income for some 190 million farm families and accounts for about 302 of the countrr's GDP. Food grains occupy about 702 of the crop land and account for about 113 of the total agricultural output. China has been able to provide basic food requirements of her population through intensive farming systems carried out on her limited arable land. 2.2 The Government's long-term objectives for the agricultural sector ares (a) to increase production of food, feed, industrial crops and animal products to meet increasing demands created by population a-d income growth, and (b) to raise income and living standards in rural areas. Measures taken to achieve these objectives included restructuring and liberalizing its rural economy under the economic reforms introduced in 1979. Dramatic results have been achieved: annual production has increased over 102 between 1980-84 (before declining to less than 1O2 from 1985 onwards) compared with the historical 32 growth over the last two decades, and grain production increased steadily to a record high of 407 million tons in 1984. Further reforms introduced by the Government (replacing compulsory procurement quotas with voluntary contracts, adjusting procurement prices and enlarging the role of- the market) have prompted farmers to shift production into high-valued 1/ Ths report Is boed on tho filnrips ot a PCR mlison In April 169. Mi-bue at the mionsso were L. S. Toy Bl Si Mlngilen trm ASSAG.  2 industrial crops and livestock resulting in a drop in grain production (379 million tons in 1985, 391 million in 1986, 402 million In 1987 and 393 million tons in 1988 with very poor weather). Government intervention to check declines in grain production included subsidies for production inputs and investment Incentives for establishment of grain baser. 2.3 At project inceptici, the maIor task in the agriculture sector was to reduce import of grains and %.otton. I The gap between domestic supply and demand for food and fibre was widening. Met import of grains (including soybean) in 1981 was 13.2 million tons and cotton about 570,000 tons. The much needed Increase in food grain production and marketed surpluses would require incentives and assistance to areas best suited to grain production. The overnment, therefore, designated some areas, particularly the *1ortheast Region, as grain base regions and initiated programs to increase rapidly their grain production and marketable surplus capacities. 2.4 The Government selected Heilongjiang Province in Northeast China, with about 1.7 million ha of unused land suitable for crop cultivation, as a high priority agricultural development region, with mechanization and new land development as the major program elements. This region was historically sparsely settled and undeveloped agriculturally due to the extrqmely severe climate (winter minima of about -50 degree C and frost-free period of only 110 days) and the great difficulty in developing and draining bog soils without modern heavy machinery. Given the natural conditions, the Government had little alternative but to develop such areas through the highly organized, large-scale system of land settlement and development exemplified by state farms. Development commenced in the area in 1950. The Central General Bureau of State Farms (COB) within the Ministry of Agriculture (HOA) had about 0.7 million ha of unused land under its control in Heilongjiang Province, in sizeable blocks fringing existing state farms. COB selected 200,000 ha as a first phase of the total plan for development of the 0.7 million ha under its responsibility In the province. The first phase project was approv.d by the Government and included in the Bank's lending program in April 1981. 3. ProJect Obiectives and Description 3.1 The main objective of the project was to develop 200,000 ha of unused wasteland for production of food grains and industrial crops (soybean and corn); thereby helping to reduce growing food grain deficits in China. As a commercial grain base, expected to market over 80Z of production at full development, the project would make an important contribution to Government's efforts to increase grain supplies. It would also upgrade farm mechanization and crop technology for existing state farms and serve as a model for future development of large tracts of unused land in Heilongjiang Province. 2/ China bce set-.ufficl.nt in cotton starting from loe.  3 3.2 The project, covering 31 state farms in the Sanjiang Plain and Lesser Xinganling regions, was pre-appraised in February 1982 and appraised in MaylJune 1982. The main components of the project, as appraised, weres * Construction of drainage networks, flood embankments, drainage pumping stations and ancillary structures; * Construction of housing, offices, stores and workshops, power and telephone lines, roads, bridges, culverts and concrete drying floors; * Provision of agricultural and construction machinery and special tools and equipment for machinery maintenance; and * Provision of technical avvistance and-trainint for-upgrading-seed-.- production and distribution systems and for improvement of construction and agricultural technology and of management. 4. ProJect Desian and Organisation 4.1 The project was formulated in accordance with Government's plan to increase marketable crop surplus. It was part of the major national land development program planned by the CGB for the period 1981-86. The national plan called for development of 1.1 million ha of unused land for field crops, 60,000 ha for tree crops and 2.2 million ha for improved pasture at a total estimated cost of about US$4.0 billion. 4.2 Under the guidance of the Planning Division of CGS, proposals from each of the participating state farms were consolidated into a project plan which was reviewd by a Bank reconnaissance mission in July/August 1981. The project plan was further refined and consolidated (37 farms with 118 development sites reduced to 31 farms with 75 sites) for the 200,000-ha project area. The revised plan - incorporating a modified cropping pattern and machinery complement, and more details on engineering management and training aspects of the project - was used as a basis for the project appraisal completed in MaylJune 1982. 4.3 Primary responsibility for project implementation and management was given to the Foreign Investment Management Office (FIMO) establirhed under the Heilongjiang General Bureau of State Farms (HGB). The FIMO was assisted by the various departments under the HGB (finance, design, water conservancy, procurement etc.). Project management offices were established in the project's six sub-bureaus. A Project Coordinator at the Deputy Director- General level in CGB in Beijing was responsible for overall direction of the project. The project implementation and management machinery as set up has worked well as good coordination was maintained between the various levels within the same state farm hierarchy. Moreover, project staff were drawn from experienced staff within the state farm system in Heilngjiang which had successfully carried out simila. development work in the area for the last three decades.  4 4.4 One of the innovative features of the project was the introduction of large and modern imported farm machinery (tractors and combines) and construction equipment (hydraulic backhoes). This machinery and equipment proved to be more efficient than the domestic equipment in operating under adverse weather and poor soil conditions prevailing in the project area. The provision of seed processing equipment also proved to be efficient in insuring quality seeds for planting. 4.5 Project features apparently not given adequate attention were design standards of the drainage works and access roads. Design standards for lateral and sub-lateral drains based on storms of 1 in 5 years return period seem inadequate judging from the annual area affected by waterlogging and flooding. The standard of access roads was low for the heavy traffic oi farm machinery, farm produce and inputs. The problem was further aggravated by inadequate maintenance and--frigi4d-weathe --that- -damaged- the road-aur