Algeria - Sahara Regional Development Project

'Ilie WJoi Rei.,:e N.,,- P- t :;(,-AL '{',, (I'M) ('J X C'AT-mL/ XJ"81 5 L 1ii- i FOR OFFICIA ~~~~3 41 .. ol RE"t No. P-5365-AL MEMORANDUM ANI) RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US$57 MILLION TO THE DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA FOR A SAHARA REGIONAL DEVELOPMENT PROJECT SEPTEMBER 4, 1991 is docuMt has a resbicted dIsributIo and may be used by reeiens only In the pfomce Of hei ofCa dies. Its conten may not othrwise be disdosed wiOlt World Bank authorluado  CURRENCY -QUIVALENTS (March 1991) Currency Unit Algerian Dinar (DA) US$1.00 - DA 16.60 DA 1.00 US$0.06 WEIGHTS AND MEASURES The metric system is used throughout this report GLOSSARY OF ABBREVIATIONS APFA - Accession a la Propriete Foncibre Agricole RIB - European Investment Bank ERESS - Etude des Ressources en Eau du Sahara Septentrional ICB - International Competitive Bidding OPIOR - Office des Pdrixmtres Irrigues de l'Oued R'hir January 1 to December 31  DEMOCRATIC AND POPUMAR RUfiRLIC OF ULGERI LOAN AND PROJECT SU)M&RY Borrower: Demgpratic and Popular Republic of Algeria. Amount: US$57 million equivalent. Terms: Repayment in 17 years, including 5 years of grace. Interest will be at the Bank's standard variable rate. Finacing Plan: US$ millllgn Government 34.8 Beneficiaries 2.6 World Bank 57.0 TOTAL 94.4 Economic Rate of Retur: 17X Staff Appraisal Report: Report No. 8952-AL dated September ,1991 Nap No.: IBRD 22329 Thisdocent ha resticted distibution and may be used by eipients only In the per:oimw,i of eM*t offk, duties. Its contents may not othrwie be discked without Wodd bakaw  MEMOANDUM 1AND fCO AO OF THEl PRIDENT OF THE IBID TO TME EXCUTIVE DIRECTOS CI A ROPO LOAN TO THE DMOCATIC AND POPUUA REPLIC OF FOR A SAHARA REGIONAL DLO T POJ 1. I submit for your approval the following meorandum and recommndation on a proposed loan to Algeria for the equivalent of US$57.0 million to help finance a project for regional development in the Algerian Sahara. The loan would be at the Bank's standard variable interest rate, with a maturity of 17 years, including 5 years of grace. 2. BaMkgrsmnd. Since 1987, the Government of Algeria has undertaken a series of major reforms, touching most areas of the economy. These reforms alm at moving Algeria from a ceintrally-planned economy, to a more open, market-based economy. Notable recent reforms include public enterprise reform and a recent liberalization of imports and access to foreign exchange. One of the earliest and most far-reaching reforms was the break-up of state farms into privatized groups of farmers. Other reforms have followed, aimed at increasing production and self-sufficiency levels; these include a renewed emphasis on development of the nation's irrigation potential. In parallel with these production-oriented objectives, Government continues to give priority to the promotion of balanced regional development, especially the development of the agriculture potential of the Sahara region. Though the region Ls home only to about 8 percent of the Algerian population, it contributes more than proportionately to the country's national identity and economy due to its large hydrocarbon and mineral resources. There has been a recent trend of internal migratlon into the region. To preserve the historic heritage and natural environment of the region, it is critical to stabilize the local population as well as the recent migrants to the area. Traditional agriculture needs to be supported and the means provided to maintain adequate living standards. 3. While considerable potential does exist for development in the region, there are also risks, mainly related to natural resource management. The Government has yet to put in place comprehensive planning for the development of this ecologically fragile zone to prevent, for example, uncontrolled exploitation of renewable and non-renewable groundwater resources and destruction of the delicate desert environment. The Project is designed to help Algeria meet its objectives of lncreased production and balanced regional growth by supporting a prudent program of rehabilitation of existing oases in the region while addressing the institutional and resource management constraints that need to be overcome to ensure an environmentally sound development into the future. 4. gtionale for Bank Involvement. Further development of irrigation in the Sahara Region has to be managed with great care to avoid upsettIng the delicate ecological situation of the region and to ensure sustainability through careful exploitation of the water resources. Given the Bank's successful experience ln neighboring countries with similar development issues in a virtually identical environment, the Bank is in a unique posltion to play a catalytic role in helping the Government achieve objectives of economically viable growth in a difficult are, establishing the required supporting institutions, putting in place long- term planning for development In the area, and monitoring of the impact of this development on the quality and quantity of water and on the quality of soil.  -2- S. l io=t Objectives. The proposed Project would (a) support an .nvironrgntally sound development program for the Northern Sahara; (b) assist Govornmet in the definition of a strategy for agricultural development within the constraints determined by that program; (c) strengthen institutions dealing with anangement, monitoring, and control of water resources; (d) test the technical, organizational and managerial aspects of rehabilitated irrigation in a first phase of renovation of oases. The proposed operation is conceived as a pilot project. Its successful execution is expected to build up the necessary experience for the development and implementation of a comprehensive program which could be extended to the entire Sahara in the future. 6. PrQgect Desgcrition. The Project comprises the following components: (a) Insr,tuional Develg=nt: Strengthening institutions dealing with planning, impleenting, and monitoring of the agricultura' development in the region, including the establishment of monitoring systems for water use and water and &o.l Quality, development of apf-lied research, training and extension; creation of an agency for operation and maintenance of the common main .drainage infrastructure; and development of a Project Management Unit to coordinate Project execution; (b) Rehabilitation of Oases: Drilling of new and replacement wells, provision of pumping equipment and construction of irrigation and drainage networks over an area of about 3,550 ha; (c) On-farm Development: Improvement of agricultural production through provision of farm implements to develop mechanization of agricultural practices; and (d) Studies Technical Assistance and TAiLUg: Preparation of development plans, feasibility studies and environmental assessments for future investments in the sector, provision of technical assistance and training of staff. 7. to1iect Costs and Financl&n. The total cost of the project ia estimated at US$94.4 million with a foreign exchange component of US$57.3 million (61 percent). This cost estimate includes taxes and duties, totalling US$17.5 million. The loan would cover 100 percent of the foreign exchange component of the Project, and 60 percent of Project costs (74.1 percent of Project costs net of taxes). Government will finance the remaining 401 of Project costs.;/ A breakdown of the costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the Status of Bank Group Operations in Algeria are given in Schedules C and D respectively. A map is also attached, as is the Staff Appraisal Report No. 8952-AL, dated September , 1991. 8. Actions agree4. Government agreement has been obtained on the following actions/issues: (a) a system to monitor water quality in the main drainage collectors would be set up by June 30, 1993; (b) further development in the region would be undertaken in accordance with the development plans of the region to be prepared by December 31, 1994 and on the basis of the results obtained from the monitoring system for wvter resources to be set up by December 31, 1993; (c) before such plans and monitoring system are established, (i) irrigation development would be limited to areas already distributed and (ii) distribution of new land for irrigation would comply with the recommendations of the Water Resource Study carried out by the UNDP in 1983 (ERESS); (d) to implement a II is ezeotd to cover pat of tbhee co wader a w oparate loan.  -3 j1ropWM to clas8 eol deteriorated and non-operational wells in the 0ued R'hir Valley and complete this by December 31, 1996; (e) to provide OPIOR, a Project Area Agency, with funds to operate and maintain the common drainage collectors, prior to sufficient cost ree-very from users to finance its operations; (f) to establish formal agreements with farmers or farmers' groups to define and allocate responsibilities Zor the operation and maintenance of the irrigation and drainage systems financed under the Project, before awarding of the works; (g) to establish by December 31, 1992 principles satisfactory to the Bank of cost recovery for the operation and maintenance of the common drainage networks gad to make these principles effective by December 31, 1996; and (h) to apply cost recovery levels in the Project area to ensure recovery of full operation and maintenance costs, and some reanonable portion of investment costs. 4 9. h ne. The proposed Project has been reviewed in accordance with the provisions of World Bank Operational Directive 4.00, Annex A, "8nvironmental Assessment" and placed in environmental screening category B. It does not require preparation of an environmental assessment and will support improved environmntal managemt in the Project area through: (a) a program of studies to promote an environmentally sound development program for the Sahara Region, and (b) a series of specific interventions in the Oued R'hir to improve environment and natural resources management. 10. The proposed Project would support the preparation of an environmentally sound agriculture development plan for the Sahara Region to be complemented by regional agriculture development plans. The Project would support preparation of environmental assessments, consistent with the requirements of the Goverrnmnt of Algeria and the World Bank, as integral components of both the master plan and wilaya development plans. Algeria supports water resource development based on allocations of groundwater resources consistent with the ERMSS study of regional groundwater management. The Project would support training in environmental assessment to improve institutional capabilities and to maximise the participation of Algerian experts in the preparation of the environmental analyses for studies. 11. Ibneft. The directly quantifiable Project benefits will result from incremental date production and the improvement in date quality, as well as from increased production of fodder and vegetable crops. The improvements in supply of water will alleviate the water shortage now experienced on all the farms that will benefit from the infrastructure. The improved drainage system will reduce salinity on the farms and help the quality as well as the yields of dates. Improvements in extension advice should benefit farmers directly, as should an increased availability of farm equipment, helping to raise yields on about 6,500 ha of farms. Both exports of dates and reduced imports of vegetables and fodder crops from the north will result. The Project would directly benefit about 45,000 people In the Project area by raising net farm incomes and generating 200,000 mandays of employment (mostly supplied by family labor). In addition, secondary benefits would accrue in the short-term from increased employment opportunities, linked directly to Project activities. In the longer term, considerable benefits should accrue to the entire northern Sahara region, from the strengthening of institutions to plan and oversee developments in the region and prevent over-exploitation or pollution of water resources, and from the  - 4- master plans for such development to be financed under the Project. The economic rate of return of the Project is estimated ac 17 percent. 12. IJXk.. The main risks relate to: (a) possible delays in project implementation and (b) lack of proper maintenance. Delays could occur because of slow procurement procedures, problems with contractors' performance, or shortage of construction materials. This risk would be minimized through early preparation of bidding documents, strong supervision during the initial implementation period, and wide use of ICB for supply of goods and execution of works. Farmers could also be unwilling to maintain the on-farm irrigation and drainage systems to ensure sustainability of the investments. This risk would be addressed through strengthening the extension services and through the provision by OPIOR of low cost services to repair and maintain the drains. In addition, inadequate operations and/or maintenance of the infrastructure could shorten the life of the investments to less than the originally envisaged 20 years; however, the economic rate of return on investments lasting only 15 years is still about 15 percent. The above risks could decrease the economic viability of the Project, but the sensitivity analysis shows that the economic rate of return remains fairly robust. 13. Recimuida 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. Lewis T. Preston President Attacbments ~ ~ ~ ~ ~ ~ ~ ~ t 84" Washington, D.C September 4 , 1991  .5 Wkeduli A DEOMORTIC AIRD POUA EUBLC or AM=RI ESTIMATED COSTS AND PINANCING PLAN rtiad eCd Proec_t Costs L Local Foreign Total -----US$ million ------- Institutional Development 3.8 5.2 9.0 Rehabilitation of Oases 24.1 33.1 57.2 Studies/Tech.Assist./Train. 0.7 1.7 2.4 On Farm Development .16.7 Total Base Costs 29.7 46.5 76.2 Physical Contingencies 4.3 6.3 10.6 Price Contingencies 3.1.1 4.5 7 Total Project Costs 37.1 57.3 94.4 /. Including US$17.5 million of taxes and duties. Financing Plan: Local Foreign Total ==------ US$ million ------- World Bank 57.0 57.0 Government 17.0 0.3 17.3 Beneficiaries 2.6 - 2. 4 Net Project Cost 19.6 57.3 76.9 Taxes and Duties 17.5 - ILA Total Project Costs 37.1 57.3 94.4 Notes: - Government will recover US$9.8 million from farmers, corresponding to the sale of safety stocks and of equipment for on-farm development - RIB is expected assist in financing Government's contribution.  2b1a44^: tORXZ AEUUNgNS Schedue I (USM mtlIos equlvalent) Page 1 of 2 Procurement Method Total Project Element ICB LCI Other NA Cost Deep Vells 20.43 - 20.43 (16.41) (16.41) Safety stocks 0.68 - - 0.68 (0.65) (0.65) Execution of irrig. 45.87 - - - 45.87 & drainage works (23.27) (23.27) Supply of pumps & 0.56 - - - 0.56 hydro-mec. equip. (0.54) (0.54) Electrification 0.68 - 0.33 - 1.01 (0.65) ( - ) (0.65) Buildings 0.87 0.08 - - 0.95 (0.70) (0.05) (0.75) Vehicles 1.69 - - 1.69 (1.43) (1.43) Construction 2.40 - - - 2.40 equipment (0.60) (0.60) Miscellaneous equip. 1.21 0.30 0.10 - 1.61 and supplies (1.10) (0.23) (0.07) (1.40) On-farm dwvelopment 9.13 - - - 9.13 (8.63) (8.63) Studies, Technical - - 2.24 - 2.24 Assistance (2.24) (2.24) Training . 0.43 - 0.43 (0.43) (0.43) Incremental - - . 7.37 7.37 Recurrent costs (-) (.) Total 83.52 0.38 3.10 7.37 94.37 (53.98) (0.28) (2.74) ( - ) (57.00) Notes: Figures in ( ) would be amounts financed by WB.  -7- Schedule- B Page 2 of 2 DEMOCRATIC AND POPULAR REPUBLIC OF ALGERQA SAHARA REGIONAL D&VELOPUE?T PROJECT PRpOCpRFENT METHODS AMD DISBURSEMENTS Disbursements Category Amount of Z of Expenditure to Loan Allocated be financed (US$ million) 1. Civil works 37.0 70% 2. Equipment, 12.0 100% of foreign materials and expenditures, vehicles 100% of local expenditures (ex-factory cost) and 851 of local expenditures for other items procured locally 3. Consultants and 3.0 100l training 4. Un-allocated 5.0 TOTAL 57.0 . .. ... ,............. *.. ... . _. . . .. . .. .. . . . . . . .. . . .. . . . . Disbursement SghedWle (US$ million) IBRD Fiscal Years 1992 1993 1994 1995 1996 1997 1998 RisbUrsements Annual 5.0 7.0 12.0 12.0 8.0 8.0 5.0 Cumulative 5.0 12.0 24.0 36.0 44.0 52.0 57.0  Schedulge C DENMCRATIC AND POPULAR REPUBLIC OF ALGERI SAHARA REGIONAL DEVELOPMENT PROJECT Timetable of Key Prolect Processing Events (a) Time Taken to prepare 25 months (b) Prepared by Government and FAO (c) First Bank Mission April 1987 (d) Appraisal mission departure May 25, 1990 (e) Negotiations March 19-22, 1991 (f) Planned Date of Effectiveness January 1, 1992  9- Schedule D DEBOCRATIC AiID POPUIJAR REPUBLIC OF ALCERT SAA IREGIONL DEVEPI PROECT T_h Status of Bank Group Ogerations in AIgeria Statement of ank Loans and IDA Credits (As of JMAt 30. 199-l USS Mln mont Lower~~~~~~~~~~~~~nw a btbn.im Credit No. YOU iromr Puroos E18nk IDA Undlaburawd Twnt sixae loa YduliUy 751.06 2370 1904 RepublOc of Ala T I -uic n 104.30 10.06 2461 194 RepAubic oAi water supply 11 290.00 24.04 259 1925 Repubi o tAlge Nat. W Sup/S 2"2.00 47.51 608 1987 Repubic of Ageria Highway V 120.00 74.0 2o 197 Republi of lgert Irgato chai 94.00 83.77 2821 1967 RepublIctAlgeria Na W Supply II 250.00 181.82 276 198N SNTF Rdahw It 143.00 143.00 29?7 to6 RepubIc ot Agtia Voc. Trani 54.00 51.50 29 1968 Republic of Algeti l. 6nge 14.00 10.76 2961 1968 SONELGAZ Power ill 159.43 141.20 39 1980 8ADR Agi. Cri 110.00 57.57 3017 198 Repub i of Agerla Locuwtontron 22.00 2.76 3079 1969 RepubsicotAw Mildlafrtg. 110.00 100.04 3105 I980 Revublic of Algria Poets 111/ 63.00 63.00 3117 190 RepublcoftAlgeria Eacnomic Referm 300.00 76.21 3170 190 Republic of Algeri Tehnica Assistance 26.00 23.71 3210114 190 M. 3C - PROMETAL. lIndusre Pesi. ENORI & Repo Algera 96.50 99.50 3210 1600 Republic of Algria Peaswrh & Extenson 32.00 30.00 3250 1961 Repic odAlgwia Scne & Tech. UnlYJa 600 65.00 3MO 191 Reublic of Algert PM Pub. WWthla 16.00 16.00 ' 3352 1961 PRpubi of Algeri Enbte,r& MA. Sect 350.00 350.00 TOTAL 343 16152.58 Otwhich has baen repaid (only anzati) et.7 Toal held by Bank 2743.53 Amount odd 3637 of which repaid 35.8 Toal unrudraed 1652.58 SAL. SECAL or Program Loa la No yet eflecilv lb Not yW dgaed C P0SBURGMAO'  ALGERIA -TOUGOUUr SAHARA REGIONAL DEVELOPMENT PROJECT - J PROJECT AREA b0 WwWA1A , 4 NolinolCopital - Inhrn010oti Boundary 30- 3a Robabilitad under ihe Prejod o Tawns and Vikiges A L G E R I A ) - Mali Roo4s Future Rehubiftltion - ; Sidi5 Hydrviu oeulera, undados Conmls Drins TN > C ol dl 20- .,, 2.\9go r t - h8i SX M'GHAIER DJAMAA M'GHAIER \\ t m~~~~~~~~~~~~~~~~~~~~~~~~~~ \ t 0 X 2Wf xenkr~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ZaiaSd TZugoujoOli DJAMAA , 1 . h DPIDRO ' As h Te vet \ 3b )T 1f, :,,U, ADX ,,>A.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Sl e TOUGGOURT to1 20 0 10 0 KukOMEua KioMUtno LMTS GOE AIJUST 199