Do_imntof TheWorld Bank

FOROMCIAL USE ONLY Public Disclosure Authorized

Report ro. 6514-AL Public Disclosure Authorized

STAFF APPPRAISAL REPORT

DEMOCRATICAND POPULARREPUBLIC OF ALGERIA

CHELIFF IRRIGATION PROJECT

April 1, 1987 Public Disclosure Authorized Public Disclosure Authorized

Regional Projects Department Europe, Middle East and North Africa Regional Office Agriculture II Division

This documenthas a restricteddistribution and may be usedby recipientsonly in the performance of their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bankauthorization. CURRENCY EQUVALENTS

Currency Unit Dinar (DA) US$1.00 DA 4.7 DA 1.00 US$0.213

WEIGHTS AND MEASURES

The metric system is used throughout this report.

FISCALYEAR

January 1 - December 31

GLOSSARYOF ABBREVIATIONS

BADR Banque de l'Agriculture et du Developpement Rural (Bank for Agricultural and Rural Development) DAD Delegation Agricole de Daira (Agricultural office of MAP at the DaYra level) DAP Direction de l'Agriculture et de la Peche de la Wilaya (Provincial Directorate for Agriculture and Fisheries) DAS Domaine agricole socialiste (Socialist Sector Farm) DGPI Direction des Grandes Perimetres Irrigues (Department of Irrigation and Drainage of MHEF) LSI Large-scale Irrigation MAP Ministere de l'Agriculture et de la Peche (Ministry of Agriculture and Fisheries) MHEF Ministere de l'Hydraulique, de l'Environnement et des Forets (Ministry of Hydraulics, Environment and Forests) OPI Office des Perimetres d'Irrigation (Regional Irrigation Authority) SDA Secteur de Developpement Agricole (Agricultural Development Service) SMSI Small and Medium-Scale Irrigation FOROFFCIAL US ONLY

STAFF APPRAISAL REPORT DEMOCRATICAND POPULAR REPUBLIC OF ALGERIA CHEI1FF IRRIGATIONPROJECT

LOAN AND PROJECT SUMMARY

Bornower Governmentof Algeria AmAount US$94million equivalent Terms 15 yearsincluding 3 yearsof grace,at the standard variableinterest rate. ProsectDesor4dipti: The proposedProject has the followingobjectives: (a) at the locallevel: (i) to implementthe first priorityinvestment package for the developmentof the Cheliffriver basin; and (ii)to safeguardand improve the incomeof the farmersand theirfamilies living in the subprojectareas and improvesocial welfare by providingsome basic infrastructure;(b) at the sector level: (i) to developand implementnew institutional arrangementsto ensureadequate water management, operationand maintenancein the Cheliffriver basin which,when replicated,would benefit all major irrigationin the country;and (ii)to developand improveinternal financing of O&M by increasinguser chargesto fullycover costs; and (c) at the national level,to developefficiently irrigation potential in the countryby expandingthe large-scaleirrigation areaspresently used for irrigationby about252. The Projectwould consist of (a) rehabilitationof existingirrigation infrastructure over 5,000 ha in Bas Cheliff;(b) constructionof new irrigationsystems over8,000 ha in Haut Cheliff;(c) provisionfor equipmentand vehiclesfor extensionand O&M staff; (d) technicalassistance for the supervisionof works, for studiesof furtherirrigation works in the Cheliff valleyand for O&M; (e) trainingand recruitmentof localstaff; and (f)on-farm investments. The riskof slowproject implementation which was experiencedwith a previousProject has beenminimized by careful designof the procurementpackages to facilitate efficientconstruction operations (large contracts). The riskof a slowerbuildup of benefitsthan the conservativeestimate made has beenminimized by introducinga strictmonitoring system and remedial measuresto be takento improveagricultural performance if necessary.

Thk lhas a rstrited distrbutonand maybe ued byrecipients only in the prformac oftheiroffkW dutble ItscentDts mayno othefwisebediscosed wihout World Sankauthoriution. (ii)

EstimatedProiect Costs: Local Forsiam Total (US$ million) -

Civil works 44.9 45.0 89.9 Equipment and vehicles 5.1 14.7 19.8 Technicalassistance, Training and studies 1.5 5.2 6.7 On-farm Investments 9.8 8.1 17.9 IncrementalRecurrent costs 3.2 2.3 5.5

Total Base Costs 64.5 75.3 139.8

Physicalcontingencies 6.5 7.9 14.4 Price contingencies 20.2 11.2 31.4

Grand total'A 91.2 94.4 185.6

FinancinsPlan: Local Forei Total (US$million)

World Bank - 94.0 94.0 Government 32.6 - 32.6 Beneficiaries 7.5 - 7.5 BADR 17.0 - 17.0

Net ProjectCosts 57.1 94.0 151.1 Taxes and Duties 34.5 34.5 Total ProjectCosts 91.6 94.0 185.6

EstimatedDisbursements: 1988 1989 1990 1991 1992 1993 1994 1995 _ ~~(i Tmil-lion)-

Annual 2 5 12 16 19 16 15 9 Cumulative 2 7 19 35 54 70 85 94

EconomicRate of Return: The CheliffWater Master Plan: 17X The Project: 15S

Staff'AvpraisalReport: No. 6514-AL map No. IBRD 19879A

/a IncludingUS$ 34.5 million in taxes and duties. (.ii)

SrAFF APPRAISALREPORT DEMOCRATICAND POPULAR REPUBLIC OF ALGERIA CHELIFFIRRIGATION PROJECT

Table of Contents

PbReNo. I. INTRODUCTION. 1

II. TEE AGRICULTURAL SECTOR ...... 2

A. Role of Agriculture in the Economy ...... 2 B. Experiencewith Past Lending in the Sector * ...... 5

III. THE IRRIGATION SUBSECTOR ...... e.ee 6

A. General Performance ...... 6 B. Subsector Issues Relevant to the Project ...... 8

IV. THE PROJECT AREA ...... 11

A. The Cheliff Water Master Plan ...... 11 B. Location, Climate and Soils ...... 1...... 13 C. Land Tenure, Irrigation and Land Use ...... 14 D. Water Demand and Resources ...... 15 E. AgriculturalSupport Servicesand Institutions ...... 17

V* THE PROJECT ...... * ...... 20

A. Rationalefor Bank Involvementand ProjectObjectives ..... 20 B. Suiary Project Description ...... 21 C. Detailed Features ...... 22 D. Status of Project Preparation ...... 24 S. Cost Estimates ...... 25 F* Procurement ...... 27 G. Disbursement ...... 29

Thisreport is basedon the findingsof an appraisalmission whichvisited Algeria in April-May1986 composed of Mr. Darghouth (missionleader)-and Ms. Effron(Bank), Mr. Dumaset(FAO/CP). and Messrs.Abu Sharrand Feher (consultants). (iv)

Table of Contents (Cont'd) Page No.

VI. ORGANIZATIONAND MANAGEMENT...... 31 A. ProjectOrganization ...... 31 B. Organisationfor Operationand Maintenance ...... 33 C. Performanceof the SocialistFarms ...... 34

VII. BEN-FITSAND JUSTIFICATION...... 35

A. General ...... 35 B. Land Use, Yieldsand Production ...... 36 C. Marketingand Prices 39 D. Farm Incomeand PovertyAlleviation ...... 41 E. Cost Recovery...... 43 F. EnvironmentImpact ...... 46 G. EconomicAnalysis . .46 H. Risks and SensitivityAnalysis 49 VIII. AGREEMENTSREACHED AND RECOMMENDATIONS...... 52

SUPPORTINGTABLES

Table1. ProjectCost Summaryand Scheduleof Expenditures.. 54 Table 2. EstimatedSchedule of Disbursementof Bank Loan .... 56 Table3. Listof Equipmentto be Procuredunder the Project. 57 Table4. Costand RentRecovery .e...... 58 Table5. SelectedDocuments and DataAvailable in the Project File and Annexes in ImplementationVolume ...... 59

CHARTS

1. OrganizationChart of MEF ...... 60 2. ImplementationSchedule 61

MAP IBRD.19879A STAFFAPPRAISAL REPORT DEMOCRATICAND POPULAR REPUBLIC OF ALGERIA CHELW!IRIGATION PROJECT

L INTRODUCTION

1.01 Duringthe '970s,Algeria experienced high economic growth, with GrossDomestic Production (GDP), in constantprices, increasing by 7.2Zp.a. and GNP per capitamore thandoubling to US$1,930in 1980. The evolutionof the economywas characterizedby stronginvestment growth (more than 151 p.a.),a aighsavings rate (about38% of GDP),substantial growth in the hydrocarbon,industry and constructionsectors, high employment creation and sustainedregional development efforts. However, in additionto pressureon externaland domesticfinancial resources, there were seriousimbalances in the distributionof investmentbetween industry and othersectors, especially the agriculturalsector, during this period. As a result,the agricultural sectorwas unableto satisfythe rapidlyincreasing food consumption(6X p.a. from the mid 19609to the late1970s) and importsg ew sharplyto fillthe gap. Thisgrowing dependence on foodimports caused the Government,in the contextof the 1980-84Economic Development Plan, to increasepublic investmentand to introducemajor reforms to improveperformance of the agriculturalsector. 1.02 Thesereforms included the promotionof privatesector activity in agricultureand small-and medium-scaleindustries through selective credit and taxationmeasures, decentralizing and restructuringparastatal enterprises and statefarms, introducing financial incentives to improvelabor productivityand deregulatingsome agricultural m&rketing and prices. The reformsare beingcontinued under the current1985-89 Plan. 1.03 Among the measurestaken to improveagricultural productivity are thoseaimed at the irrigationsubsector which provides 402 of agricultural production.Programs are underwayto expandthe availabilityof irrigation waterand to improvethe efficiencyof its use by extendingand rehabilitating large-scaleirrigation perimeters, expanding small- and medium-scale irrigationdevelopment, establishing institutions capable of ensuringadequate O&M,and improvingcost recovery policy and mechanisms.The proposedproject wouldcontribute to theseobjectives by extendingirrigation over new areas and improvingthe efficiencyof existingirrigation works in the Cheliffriver basin,and by improvingO&M activitiesand costrecovery. The Projectwas identifiedduring a Bankreconnaissance mission which visited Algeria in February1985. It was preparedby the Governmentwith assistance of the FAO/IBRDCooperative Program in January1986 and appraisedin April-May1986 by a missioncomposed of Mr. Darghouth(mission leader), Ms. Effron(Bank), Mr. Dumaxet(FAO/CP) and Messrs.Abu Sharrand Feher(consultants). -2-

EL THE AGRICULTURALSECTOR

A. Role of AMriculture in The Econom

General Performance of the Sector 2.01 Algeriahas a totalland area of 238 millionha of which48.5 million ha are suitablefor agricultureand grazing.Forests and espartograss cover 9 millionha and 32 millionha are used for grazing.Of the 7.5 millionha of cultivablearea, 36S are plantedin cereals,8% in foragecrops, 3S in vegetables,22 in pulses,and 431 is normallyleft fallow. Algeria'sratio of irrigableland to arableland is very low (11%compared with Morocco's 191) reflectingscarcity of waterresources. Algeria has an irrigationpotential of about800,000 ha of whichabout 400,000 ha are presentlyirrigable and about310,000 ha effectivelyirrigated. Of the cultivableland, 4.7 million ha or 631 are underprivate farms and 2.8million ha or 37S undersocialist farms. 2.02 The rapidlygrowing "food gap" is a major currentissue for Algeria. As a resultof the rapidincrease in populationand per capitaincomes, demand for foodhas grownfaster than supply. Algeria'sfood self-suffiency ratio fell to 401 in 1984from roughly901 in 1962. Thisdecline has been particularlysevere for cereals,imports of which,after practically quadruplingduring the 1970s,now meetalmost two-thirds of the country's needs. At the same time,the volumeof foodexports (principally wine, fruits,and vegetables)fell by almost901 duringthe lastdecade, representingonly 3% of totalimports at the end of the period,compared with 631 at the beginning.During the 1980-84Plan period, Algeria had to spend almost151 of its merchandiseexport earnings to importfoodstuffs (cereals, dairyproducts, sugar, oil products,etc.). 2.03 The foodgap has increasedin spiteof the respectablegrowth in the valueadded of the agriculturalsector of about41 per yearsince 1973-75. Most of the growthhas occurredin the relativelyhigh-value vegetables (7.41 per year)and freshfruits (4.31 per year- otherthan citrus and grapes), which in any caseare not imported,and in animalproduction (9.71 per year) wheretotal consumption has growneven faster. Thusthe high growthof these subsectorshas not affectedthe foodself-sufficiency of Algeria, while the performanceof cerealsand legumeshas been stagnantand thatof citrusfruit and wine grapeshas been downward(-6% per year). It is the indifferent performanceof cerealsand poorperformance of citrusand wineproducts that underliesthe increasein foodimports and the decreasein agricultural exportsduring this period. In spiteof the overallincrease in valueadded of agriculturalproduction since 1973-75, the agriculturalsector's contributionto Algeria'sGDP has declinedsteadily from 161 in 1960to about 6% in 1984. Thisdecline reflects primarily the higherrelative growth of othersectors, principally petroleum and, to a lesserextent, the manufacturingindustry. 2.04 The unevenperformance of the sectoris partlybecause agriculture has to datebeen unable to achievepublic investment program targets. The

z9s:z -3- effectiveshare of agriculturein total public investmentover the period 1975-84amounted to about 4.51. In addition,the amountsallocated to investmentin agricultureunder successivedevelopment plans have been systematicallyunder-implemented as a resultof institutional,organizational and managerialconstraints. The 61 allocationin the 1980-84Plan has not been achievedand disbursementshave fallen short of budgetaryallocations. While purchaseof equipment(tractors, agricultural equipment, farm machinery, equipmentfor crop growingunder plastic)for the socialistsector and more recentlyfor the privatesector has been favored,little attention has been paid to modernizationof agriculturalinfrastructure, equipment of irrigated areas, and facilitiesfor stock raising. Investmentin water resource developmenthas been focussedon the constructionof water storageworks and facilitiesfor the supply and distributionof water for household consumption. Improvementsin the irrigationinfrastructure have been delayed by a shortageof preparedprojects, cumbersome procedures in contractawards, and an inefficientlocal constructionindustry.

2.05 For all crops,including those enjoyingthe most favorable conditions,yields remainlow in comparisonwith other Mediterraneancountries despitetheir increasein 1984-85. For most crops,average yields represent 50 to 70% of those in neighboringcountries. Yields of most crops did not increasebetween 1980 and 1984 despitethe increasein investmentin agriculturalequipment and inputschanneled to the sector,due largelyto successivedrought years. With greatlyimproved weather, greatly improved harvestswere obtainedin 1985 and 1986 and the effectsof increased investmentand reorganizationin the sectorare becomingapparent.

Reforms IntroduedDuring the 1980-84 Plan

2.06 With a view to ensuringoptimum use of productioncapacities, maintainingand revitalizingagriculture and stemmingrural depopulation,the Governmentintroduced a seriesof reformsin the sector in the 1980-84 EconomicDevelopment Plan which have been graduallyimplemented over the last five years. Many of these reformsare consistentwith recommendationsmade by the Bank in the 1981 AgriculturalSector Survey.L' The reformshave been primarilyaimed at improvementsin four areas: (a) performanceof socialist sector farms; (b) supportprovided to the privatesector farms; (c) organizationof marketing;and (d) currentmarketing and pricingpolicy throughderegulation. The reorganizationof the socialistsector farms is a major sectoralissue directlyrelevant to the Project;it is treatedin paras. 3.09 - 3.11. Progressin the threeother aspectsare discussedbelow.

2.07 Importantsteps have been taken to give a greaterrole to the private sector in agriculturalproduction and servicessince 1981. This has resulted in the quantityof the major inputs (fertilizersand farm machineryequipment) distributedto the privatefarmers doubling over the last five years. The Bank for Agriculturl. and Rural Development(BADR) has put greateremphasis on lending for the privatesector: loans to the privatesector and the number of

1/ Algeria:Agricultural sector memorandum (Report No. 3593-AL),September 1981.

29g3g -4- privatefarmer clientsalmost quadrupledbetween 1983 and 1985. For input supply,the role of the privateretailers in distributingspare parts of agriculturalmachinery and in providingrepair services is increasing. In addition,about 850,000ha of state or.cooperative lands have been distributed to privatefarmers: 740,000ha as a resultof the restructuringof the self-managedsocialist farms and the dismantlingof the productionformer cooperatives(para. 3.09) and 110,000ha distributedunder a programstarted by Governmentin 1984 to encourageland reclamationand use in the southern and centralregions of the country. Promotionof the privatesector is also a major objectiveof the current 1985-89Development Plan.

2.08 As part of the restructuringeffort, marketina aaencies, both for inputsand outputs,have been placedon a more sound financialfooting: their accumulateddebts have been assumedby Government,additional capital in the form of both equity and loans have been providedand operatingnorms have been establishedfor each marketingagency to monitortheir performance. In addition,the Governmenthas decentralizedseveral national marketing agencies by settingup three regionalOffices (East,Center, West) in place of the one centralizedbureau to serve the needs of each respectiveregion. For distributionof most seasonalinputs at a local level (districtand province), Governmentservices have been transferredto financiallyreorganized cooperatives. These cooperativesact as distributionagencies that dependon the national inputsmarketing agency, ONAPSA (OfficeNational des Approvisionnementset des ServicesAgricoles). The impactthis restructuring will have on timelyand adequatedelivery of inputsand marketingof output and on improvedfinancial performance remains to be seen but the early years since restructuringhave shown some promise (para.2.10).

2.09 The aricultural price and marketingsystem has been gradually deregulatedsince 1981. All producers,including those in the socialist sector,are now free to sell their productsoutside the state marketing agencies,except for cereals,pulses, edible oils and industrialcrops. This has considerablystrengthened the role of the privatesector in the marketing of agriculturalproduce, at both wholesaleand retaillevels. As the prices paid by privatetraders are higher than those offeredby officialbuyers, the functionof the latternow appearsto be essentiallyto absorb surplus productionand keep regionalsupply and demand in balance. Since 1982, retail prices for perishableproducts have in practicebeen mostly deregulatedand administeredprices for cereals,pulses and wine have been increased substantially(40-802) and are now somewhatabove border prices.

ReeentTrendsand RemaniAng Constraints

2.10 Becausethe reformmeasures have been put into effect only recently, it is too early to assess their impacton the growthof agricultural production. The restructuringof the agriculturalsector involveda considerableeffort on the part of all the institutionsinvolved (redeployment of personnel,establishment of new structures,reorganization of existing boards often performingvaried functions). The structuralchanges introduced in the socialistproduction sector, the lack of experienceamong new supervisors,and problemsin startingup the new input distributionsystems

2Ss9g hampered any immediate expansion in production whicb remained stagnant up to 1983/84, although agricultural growth was also greatly affected by a far below normal rainfall in 1981-1984. Production increased impressively, due to a combination of factors including goodweather, in 1984/85. The major positive results that can be partially attributed to the Government reforms can be sumarized as follows: (a) after an intensive campaign to promote cereal production, cereal production in 1984/85, a year of favorable weather, sharply increased to its highest level ever of 3.1 M tons, which can be compared to 2.4 M tons in 1980, also a year of good weather; (b) following the deregulation of prices and maketing, there has been conticuous growth in production of vegetables (SS p.a.) and poultry products (132 p.a. for meat) since 1980; (c) the proportion of profitable socialist farms has increased from 20S to 30S; (d) the majority of cne marketing agencies were profitable in 1985; (e) the quantity of inputs marketed by the newly restructured marketing agencies increased substantially; fertilizer distribution, for example, increased by 36% between 1984 and 1985; and (f) the private sector has had access to additional land, more credit and more inputs (para. 2.07). 2.11 Despite these improvements, much remains to be done. Performance of the agricultural sector can still be greatly improved and major issues are: (a) shortages and untimely distribution of agricultural inputs and credit, particularly for the private sector; (b) inadequate research programs and extension services, particularly for the private sector, and insufficient staff training; (c) limited use of igrigation potential (para. 3.02); (d) inadequate incentives for workers in socialist farms to achieve higher productivity; (e) limited capacity of the agricultural sector to use the investment allocations and to implement projects; and (f) need for continued reform of the system for setting producer and input prices (including irrigation water). The irrigation subsector, even though it contributes about 40% of national production, has under-performed compared to its potential, because insufficient funds have been allocated for rehabilitation and managementimprovement and because institutional arrangements in place for using irrigation facilities efficiently are inadequate. The Bank has begun a dislogue with the Government that covers each .ofthese aspects, with particular focus on the first three topics. B. Experience withPast LendI In theSecto 2.12 Bank Group lending for Agriculture in Algeria started in 1974, and to date only three projects have been approved for a total of US$58 million of Bank funds. Performance under these three projects was mixed, reflecting the institutional constraints in the sector. The Technical Assistance - Rural Development Project (Loan 1159-AL) was completed in 1983 after considerable delays mainly due to lack of commitment, lack of coordination and poor supervision by Ministry of Agriculture. In spite of the delays, the Project partly met its objectives of analyzing the major constraints and designing and, in some cases, testing different approaches to rural development in Algeria. The Bas-Cheliff Irrigation Project (Loan 1802-AL) was 80% completed when the Government and the Bank decided to close the Loan in 1985, two years after the Closing Date foreseen at appraisal. Delays occurred after bidding when no offers or expressions of interest were received for the majorcivil

29,93 -6- works because of the very modest size of these works. The works were finally carried out by a local public sector enterprise. The project's physical works willbe completed by the end of 1986 and project studies have provided an essential framework for the future development of the Cheliff river basin (paras. 4.01 - 4.04). The Meat Industry Project (Luan 1739-AL) was cancelled in 1983 at the Government's request, a few months after the Loan became effective. No reasons were given by the Government for this request. Experience gained during the implementation of the Bas Cheliff Project has been used in the design of the proposed project. The works have been packaged so that their sizs is such that larger, efficient contractors are likely to express interest in implementing these works. In addition, bidding for part of the major works has already started to ensure that procurement does not become a major source of delay.

mITHE IRRGATIONSUDSECTOR

A. General Performance 3.01 Although some 40X of current agricultural production value is from the irrigated areas, the potential for increased production from existing irrigated areas and for development of new irrigation is still important. The estimates available show that the total area that can be irrigated is about 800,000 ha or 10.5S of total arable land (7.5 million ha) compared with only 310,000 ba presently actually irrigated. These include 180,000 ha (or 602) in the socialist farms and 130,000 ha (or 40%) in the private sector farms. Between Independence in 1962 and 1980 total irrigation area almost stagnated because the slow development of new irrigated areas was offset by the decline in the use of land equipped for irrigation. 3.02 The present use of existing irrigation infrastructure is low. The current irrigated land (310,000 ha) represents about 702 of the estimated 400,000 ha of land equipped for irrigation. The main reasons for the under-utilization of the irrigated systems reflect the lack of interest given to the irrigation sector before 1980 and are: (a) increased use of water to meet urban and industrial demand without coensurate investments in water development structures reducing, therefore, the amount of water available for irrigation; (b) insufficient investment programs for irrigation before 1980 causing: (i) limited rehabilitation of old irrigation systems; and (ii) lack of adequate drainage systems, which were considered unnecessary at the time of construction, causing serious soil salinization in many areas; and (c) lack of adequate maintenance of irrigation structures and equipment causing inefficient use of water for irrigation (para. 3.05). While the use of existing irrigation infrastructure, in particular in the large-scale perimeters, is low for the reasons stated above, the limited water available at the field level is fully used and primarily devoted to the most highly profitable crops, mainly vegetables and fruit trees which together cover 802 of the total irrigated area.

29933 -7-

Prospeots for the Iritation Subsector 3.03 A majoreffort to boost the performanceof the irrigationsubsector startedwith the 1980-84National Development Plan. Actualinvestment expendituresfor waterdevelopment increased from 850 millionDA/year during the 1977-79Plan to 2,420million DA/year during the 1980-84Plan, almost a twofoldincrease in constantterms. The mostnoticeable progress was made, however,in the mobilizationof additionalwater resources by the construction of new damsand main infrastructure.Thus, in orderto makeup for the insufficiencyof watersupplies and enableexisting schemes to be usedmore fully,nine dams have been commissioned since 1980 and twelveothers are being constructed,while only threedams were constructedbetween 1962 and 1980. Thishas aboutdoubled the annualsurface water resources available for irrigationin Algeriaand willmake possiblea much fulleruse of existing irrigationfacilities. However, Government performance in buildingthe irrigationfacilities to make fulluse of thesenewly mobilized water supplies has beenhampered due to lackof engineeringstudies, delays in construction works,and inadequatesupervisory capacity from Ministere de l'Hydraulique,de l'Snvironnementet des Forets(MHEF). As a result,the progressin developing irrigationover new landsduring the 1980-84Plan was lowerthan planned ('7,500ha insteadof 50,000ha, an implementationrate of 752)and renovation of existingirrigation perimeters was even lower(10,000 ha out of 25,000ha planned,an implementationrate of 40X). 3.04 Underthe 1985-89Plan, the Governmentcontinues to givean important role to the irrigationsubsector as a key partof the effortto improve performanceof the agriculturalsector. The main objectivesassigned for this subsectorunder this Plan are to: (a)continue mobilization of additional waterresources by completingconstruction of the 12 on-goingstorage dams and initiatingthe constructionof 17 others;(b) continueexpansion and renovationworks with the aim of puttingunder irrigationan additional50,000 ha in the large-scaleirrigation (LSI) areas and 25,000ha in the small-and medium-scaleirrigation (SMSI) areas; (c) intensifyirrigation in the southern areasthrough drilling of tubewells;and (d) carryout a numberof key studies with a particularemphasis on riverbasin water master plans of whichthe most important,the CheliffWater Master Plan (paras.4.01 - 4.04),has already been completedunder the Bas CheliffIrrigation Project financed by the Bank (underLoan 1802-AL).On the institutionalside, the Governmentintends to improveO&M of existingirrigation areas, improve cost recovery, enhance the performanceof the publicconstruction companies, expand staff training programs,and completewater legislation. In view of recentbudgetary constraintsbecause of the dropin oil revenues,Government was askedto confirmto the Bank thatsufficient priority would be given to the irrigation subsector to ensure project funding. Government has confirmed this and has submitted to the Bank details on the size and composition of the revised expenditureprogram for the irrigationsector for the 1985-87 period which clearlyshows the importancegiven to irrigationin currentpolicy.

29933 -8-

B Subsector Iss1 Relevant to the ProJect Organization for Operation and Ma te

3.05 Operationand maintenanceof irrigationschemes have been long neglectedin Algeriaresulting in a seriousdeterioration of the irrigation system. Operationand maintenanceare the responsibilityof MHEF field subdivisionalunits locatedin each irrigationdistrict. Theseunits have had littleautonomy and have lackedqualified staff and financialresources for adequateO&M. Most of the 06M staffare experiencedbut are relatively discouragedby the poor conditionof the networks. Practicallyall authority includingawarding of contractsis centralizedin the Ministry'sRegional officeslocated in the provincialcapitals which leadsto inefficienciesin ongoingmaintenance work. 3.06 The problemof O&M was raisedin 1984by the Bank,which urged the Governmentto take stepsto enhanceefficiency of OEM operationsin the LSI perimeterslike thosein Cheliff,before financing any new projectsin the subsector.Government responded by takingmeasures to addressthis issue: (a) in October1985, two decreeswere issued:onel' defining the rolesand responsibilitiesand the othert'the statuteof new autonomousIrrigation Authorities(OPI, Offices des PerimetresIrrigues) to be responsiblefor O&M in the country'sLSI perimeters;(b) at the same time,four decreeswere Issuedfor the creationof OPIs includingone in the CheliffRiver Valley encompassingthe projectarea; (c) a studyby internationalconsultants on the detailedorganization and managementof the CheliffOPI and financedby the FrenchCCCEI" was startedin March1987; the findingsof this studywill be used to help set up the properorganization and managementstructures of the otherOPIs throughoutthe country. The new OPIs will be state-owned enterpriseswith a separatelegal entity and financialautonomy. TheirBoard of Directorswill includerepresentatives of localgovernment as well as local farmersin the irrigationschemes. Through contractual agreements to be signedwith the MHEF,OPIs will be made responsiblefor: (a) adequatewater distributionamong farmers; (b) operatingand maintainingthe irrigationand drainagesystems under theircontrol; (c) collectingwater charges;and (d) providingassistance to farmersfor on-farmwater management. These recent actionsundertaken by Governmentto createthe conditionsto permitimproved O&M are a majorstep towardstarting to resolvethese problems in Algeria. The proposedproject would include the necessaryinvestments (equipment and vehicles)required to establishthe CheliffOPI and providetechnical assistanceto help put into effectthe proposalsof the studymentioned above on organization,management, and operationsof the new CheliffOPI (para. 5.07).

C4s Recvr

3.07 Historically,cost recoveryarrangements in Algeria have been unsatisfactorywith only a smallpart of O&M mud capitalcosts raised from beneficiaries.No policyframework of irrigationcost recoveryexisted and

1/ DecreeNo. 85-260,dated October 29, 1985. 2/ DecreeNo. 85-261,dated October 29, 1985. 3/ CCCE- CaisseCentrale de la Coop6rationEconomique.

2as*s -9- water chargeswere kept low and were revisedonly once between1972 and 1985. This bas resultedin inadequatebudgeting of fundsfor 06M. However, substantialimprovements in cost recoverypolicy were introducedin 1985:

(a) in October1985, Government issued a decreeL'defining the policy frameworkof cost recoveryin the LSI perimeters.The main features of thispolicy are that:

(i) watercharges will continueto be basedon a binominalrate structureincluding: a fixedannual levy, based on the nominal hydrauliccapacity at the farm turnoutgate appliedon a per liter/second/hectare(li//ha) basis and a volumetriccharge appliedon a per m3 basis;the chargestructure is supposedto encourageuse of the irrigationnetwork in particularfor winter cropswhen water is plentiful;and (ii) the principleof recoveringa proportionof capitalcosts was established;the decreedid not specifyhow thiswould be done, althoughin practicethe fixedannual levy mentioned above-and the on-farmitrigation works which are generallyleft to farmers'financing are meant to ensurefarmers' contribution to capitalcost recovery; (b) it was statedin the decreecreating the OPIs (para.3.06) that water chargerevenues of the Officesshould cover O& as well as the replacementcosts of all hydroa-mchanicaland electromechanical equipment;and (c) Governmentissued at the same date a jointministerial order increasingthe 1979 watercharges, as follows:

INCREASEIN WATERCHARGES (In CurrentTerms)

1979 1985 _ FixedLevy VolumetricCharges Fixed Volumetric Increase Increase Perimeters Levy Charge Amount Over 1979 Amount Over 1979 (DA) (DA/m3) (DA) (2) (DA/mW) (2)

Bounamoussa - - 200 (100) 0.17 (70) Haut Cheliff 100 0.10 200 (100) 0.15 (50) Bas Cheliffand others 100 0.08 150 ( 50) 0.12 (50)

1/ DecreeNo. 85-267dated October 29, 1985.

2S9*X -10-

3.08 However,although increased by more than 501 in currentterms, water chargesremained almost unchangedin constantterms and are still low: they currentlycover less than 60% of operationand maintenancecosts. At the same time, they also currentlyrepresent only a low percentageof the cost of produetionof the irrigatedcrops ranging,for example,in the proposed projectarea, from about 31 for the socialistfarms to 62 for private farmers. They can be increasedwithout seriously affecting farmers' revenues (para.7.17). Becauseof the great scarcityof water, farmersknow that if they do not pay the due charges,water will be deliveredinstead to those farmerswho are ready to pay. Water charge collectionrates are therefore good (they exceed 802). However,a current issue is that water charge receiptsare transferreddirectly to the Treasuryand there is thereforeno assurancethat collectedfunds will be made availableto financeOUM requirements.The proposedproject would includeactions to introducefurther improvementsin cost recoveryin the Cheliff perimeter(para. 7.15).

Performanceof SocialsSector Farms

3.09 At least 601 of the areas currentlyunder irrigationand the bulk of new lands that could be developedin large schemesare formedby socialist sector farms. Becauseof their poor performanceand low productivityin the past, reorganizationof socialistfarms became necessaryand was startedby Governmentin 1982. It was aimed at establishingfarm enterprisesthat are technicallyefficient and financiallyviable. The program startedwith the implementationof land consolidationin the 2,100 self-managedfarms and the 6,400 productioncooperatives existing in the countryand coveredover 3.7 million ha. As a resultof the restructuringof the former self-managed and cooperativefarms: (a) close to 3,400 manageableproduction units (DAS)-'have been formedwith an average size of 680 ha each (against1,140 ha prior to restructuring),covering a total of 2.3 millions'ha of arable land; (b) productioncooperatives have been dissolvedbecause of their past failure;and (c) about 740,000ha of land which could not be allocatedto the DAS efficientlyhave been distributedto small private farmersas individual holdings.

3.10 In additionto this land consolidationprogram, the followingmajor organizationalchanges have been introduced: (a) the DAS have been grouped together,25 to 30 at r time, to be assistedby 108 technicaladvisory units (SDA, Se..teursde developpementagricole) under the responsibilityof agronomistsassigned to assist the managersof the DAB; (b) DAS management units have been grantedgreater authority over farm level planningand operational and financialmanagement. Governmentno longer imposesfarm plans which are now established by the management unit councilsin collaboration with their SDA; (c) a large number of engineersand technicianshave been hired as farm managers of the restructured new DAS farms to replace unqualifiedpersonnel. These have become full members of the managementunits and have full decisionmaking power in the planningand managementof the farms. For most farms, qualifiedaccountants have also been hired. At the

1/ DAS a domainesagricoles socialistes 2/ Total land owned if 2.8 million ha averaging825 ha per farm.

2993Z -11- same time most of the elderlyworkers have been encouraged,with some success, to retire;and (d) performancecriteria and a monitoringsystem of the farms' operationshas been established,the accountingsystem of the farms has been simplifiedand improvedand strictauditing measures introduced.

3.11 Althoughit is too soon after the restructuringto form a firm judgmenton its effectivenessin improvingoverall DAS performance,first signs are encouraging. The proportionof profitableDAS increasedfrom 202 to 302 between 1984 and 1985, for example. For that part of the projectcovered by DAS, measureswould be taken under the proposedproject to ensure that any DAB benefittingfrom projectworks would be restructuredto facilitate efficientuse of these facilitiesand strictperformance and profitability monitoringwould be introduced(paxa. 6.12).

N. THE PROJECT AREA

A. he Cheiff Water Master Pla

4.01 The project area is the Cheliff river basin, which is situated 100 to 200 km south-eastof Algiers. This river basin, which covers44,500 kma, is the la:gestin the countryand one which shows the greatestpotential for developmentgiven the land and water resourcespresently unused. A Water Master Plan to completethe developmentof Cheliffwas completedunder the Bank financedBas Cheliff IrrigationProject (Loan 1802-AL)in 1983-85.

4.02 Full developmentof the water resourcesof the Cheliffbasin would providefor a total annualassured water supply of 870 Mm3 of which the total annual regulatedsurface flow would be about 545 Mm' and 325 Mm3of groundwater and unregulatedFsirface water. These waters have been allocated under the Master Plan giving priorityto urban and individualuse, as follows:

PROJECTEDWATER ALLOCATIONIN THE CHELIFFVALLEY /a

Domesticand IndustrialUse Irrigation Oran Other Cities Total (million m3i)

Haut Cheliff 215 46 261 Moyen Cheliff 225 - 22 247 Bas Cheliff 190 150 /b 22 362

Total 630 150 90 870 () (73) (17) (10) (100)

/I Source:The CheliffWater Master Plan Study preparedby SOGREAH/SNC. /b These waters would be transferredto Oran, locatedoutside and downstream of the CheliffBasin -12-

4.03 Under the Master Plan, the potentialfor the improveduse and developmentof the land and water resourcesof the Cheliffriver basin to use theseallocated water resourceswere studiedand a priorityinvestment program preparedfor implementation.The developmentpotential of the three parts of the riverbasin (Bas (Lower),Moyen (Middle),and Haut (Upper)Cheliff) was evaluatedas follows:

EVALUATEDIRRIGATION DEVELOPMENT POTENTIAL IN CEELIFFVALLSY /a

Haut Moyen Bas Cheliff Cheliff Cheliff Total (ha) --

At Present

(1) Area Rquipped Newlyequipped 16,300 - - 16,300 Old, deteriorated - 21,800 22,500 44.300

Subtotal 16,300 21,800 22,500 60,600

(2) Area PresentlY Irrigated 4,800 7,800 3,650 16,250

Pro2osedat Full Development

Newly equipped 16,300 - - 16,300 To be rehabilitated - 17,600 9,300 /b 26,900 To be newly equipped 8.800 /c 4,000 10.000 22.800

Subtotal 25,100 21,600 19,300 66,000

/I Source:The CheliffWater Master Plan Study Preparedby SOGREAH/SNC. /b Including5,000 ha in the Bas Cheliffsubproject area. /c Including8,000 ha in the Haut Cheliff subprojectarea.

4.04 About 60,600ha are presentlyequipped for irrigation;they include 16,300ha new sprinklerschemes in Haut Cheliffcompleted in 1984/85and 44,300ha old surfaceirrigation schemes in Moyen and Bas Cheliff. Only 16,250ha, or 27S, were irrigatedin 1985 becauseof deteriorationof the existing irrigation infrastructure, inadequate drainage in some areas and, more particularly, lack of developed water resources. The three dams -13- completedin 1985s'are rot yet fully operationalbut, when filled, these dams will permita further20,000 ha to be irrigated. As recommendedby the Master Plan, eight storagedams will finallybe operationaland a total of about 66,000ha will be equippedand fully irrigated. Taking into accountthe investmentsmade so far by the Governmentin the CheliffValley and by optimizingthe use of all the land and water resources,the Master Plan has determinedthe optimalinvestment program, including: (a) the constructionof the eighth reservoirdamL' (the Sidi Mohamed Ben Taiba dam) '^catedon the Ebda riverwhich is an upstreamtributary of the CheliffRiver (see map); (b) rehabilitationof about 26,900 ha or about 60% of the area of the existing deterioratedold schemes,and abandonmentof the other equippedarea; and (c) constructionof new schemesover about 22,800ha. Investmentsare proposedto be carriedout over a period of elevenyears. The proposedproject would financea first time-sliceof this programinvolving the developmentand rehabilitationof irrigationsystems in the upper and lowerparts of the CheliffValley.

B. Locaton, Climate and Soils

4.05 Within the Cheliff river basin, there would be two separate subprojectareas where irrigationworks will be carriedout under the Project: one in the Haut Cheliffcovering about 8,000 ha (about30% of the new irrigationincluded in the Master Plan) and the other in the Bas Cheliff coveringabout 5,000 ha (about20% of the rehabilitationwork includedin the Master Plan). The Haut Cheliff subprojectarea is locatedin the Ain Defla district (in Ain Defla Province)which is about 100 km southwestof Algiers and the Bas Cheliffsubproject area is locatedin the Oued Rhiou district (in RelizaneProvince), about 70 km east of Amn Defla (see map).

4.06 The climate in the projectarea is characterizedby cool wet winters followedby hot, dry summers. Dry periodsextend over four months and the rainfall,averaging 414 mm in Bas Cheliffand 474 mm in Haut Cheliff,shows great variations from year to year. Average monthly temperatures vary widely from 9C in Januaryto 29@C in August. Under these conditions,rainfed farming is limitedto some winter crops (wheat,barley, vetch-oat). Irrigationis necessaryfor diversifyingcrops in winter, growingcrops in summerand obtaininghigh yields.

4.07 While soils in Haut Cheliffare mostly deep, light and highly permeableand have high gradient,those in Bas Cheliffare heavy and less permeable. Soil capabilityanalysis indicates no major problemsfor growing vegetables,fruits, and forage in the Haut Cheliffsubproject area. Extensive soil, hydrologicaland topographicsurveys undertaken in the Bas Cheliff districtarea since 1966 were completedand analyzedby consultantsunder the Water Master Plan studies. They determinedthat tile drainageis needed over

1/ At present,three storagedams are operationalin the CheliffRiver (the Ghrib, Fodda and Sidi Ben Ebda dams), three otherscompleted in 1985 are being filled (the Sly, Harrezaand Deurdeurdams) and one is being constructed(the Gargar dam) (see map).

2 9 9 -14- about 1,000 ha or 201 of the Bas Cheliffsubproject area to ensure sustainable and profitableirrigation.

C. land Tenure.bIration and Land Use

4.08 Land Tenure. About 752 of the subprojectareas is under socialist farm (DAS) ownership and 251 under private farm ownership. Land tenure in the two subprojectareas is as follows:

LAND TENURE IN THE TWO SUBPROJECTAREAS

Haut Choliff Bas Cheliff Tenure Total No. Per Farm Total No. Per Farm (ha) Farms (ha) (ha) Farms (ha)

Socialistfarms (DAS) 5,100 8 638.0 4,700 28 168 Private farms 2.900 704 4.1 310 138 2.2

Total 8,000 712 5,010 166

These areas includeonly those that will be irrigatedunder the Project. While almost all the private participating farmers' lands are fully within the irrigatedareas, the socialistfarms are only partlywithin the proposed irrigatedarea so that part of these farms would remain under rainfed agriculture. Socialistfarms averagea total of 820 ha in Haut Cheliffand 500 ha in Bas Cheliff. Private land distributionis characterizedby the predominanceof small farms. While farm sizes average4.1 ha in Haut Cheliff and 2.2 ha in Bas Cheliff,851 of the farm units have less than 2 ha in Raut Cheliffand less than 5 ha in Bas Cheliff. Currentland distributionof private farms relatedto farm sizes is as follows:

LAND DISTRIBUTIONOF PROJECTPRIVATE FARMS

Range of Size Haut Cheliff Bas Cheliff Farms Area (ha) Farms Area (ha) Nb 2 Total 2 Nb 2 Total X

Less tian 2 ha 591 (84) n.a. n.a. 96 (69) 67 (23) 2 to 5 ha 84 (12) n.a. n.a. 22 (16) 76 (24) More than 5 ha 29 (_4) n.a. n.ea. 20 (15) 167 t53)

Total 704 (100) 2,900 (100) 138 (100) 310 (100)

20*33 -15-

4.09 PresentLand Use. At present,about 16% of the total subproject areas,or 2,130 ha, are already irrigated,including 1,760 ha in Bas Cheliff and 370 ha in Raut Cheliff. Irrigationin Haut Cheliff is made mainly through individualshallow wells, but also throughtubewells and pumpingfrom the CheliffRiver. Irrigationin Bas Cheliff is made throughthe existingpublic surfaceirrigation scheme served by the Boukaderdiversion weir and main canalsrehabilitated under the Bas CheliffProject (Loan 1802-ALG). The distributionnetwork, which was not includedin the Bas Cheliff Project,was developedin 1936 and has exceededits economiclife. The elevatedirrigation canalsand outletsare deterioratedand drainagechannels are silted up. This deterioration was exacerbated by inadequate operation and maintenance of the systems over the past 20 years. Because of insufficient water resources, irrigationis presentlyrestricted to the summer crops (April-October)and rainfedcrops are grown in winter.

4.10 Cropping patterns are currently characterized by the predominance of cereals (wheat,barley, oat) and legumes(vetch, beans) in the rainfedareas where fallow still occupiesa certainportion (about81 in Haut Cheliffand 131 in 8as Cheliff). In the areas alreadyirrigated, vegetables are predominant,mainly potato,melon, watermelon,onion and cauliflower. Fruit trees are also grown,mainly citrusbut also olive trees in Bas Cheliff. Due to strongdemand for most fruit and vegetablesin the countryand the liberalizationof the marketingsystem since 1982, farmerswho grow irrigated crops currentlyobtain very high prices for most of their production(para. 2.09) and thus generatehigh revenues. Irrigatedfarming is consequently highly profitable. The net returnsper hectarefrom irrigatedvegetable productionare high: they vary from US$2,000for season tomato to US$12,000 for melons,and there is room for higher returnsbecause currentcrop yields are low (para. 7.04) and farming techniquesstill inadequate. The use of improvedseeds, fertilizersand pesticidesare low, farmingoperations are not alwaysundertaken on time due to delays in input distributionby some public marketingbureaus, farm machineryequipment is lacking,and technicalstaff is still lackingin most DAS in Bas Cheliffdespite the increasedtechnical staff at the DAS level in the countryas whole since 1982 (para.3.10).

D. Water Demand and REsourtes

4.11 Water requirementsat full developmenthave been estimatedfor the climaticconditions prevailing in both subprojectareas. Based on an average on-farmefficiency of 801 in Haut Cheliffand 701 in Bas Cheliff and on a conveyancedistribution efficiency of 951 in Haut Cheliff (sprinkler irrigationsystem) and 801 in Bas Cheliff (canaland low-pressurepipe irrigationsystem), the annual diversionwater requirementsare estimatedat 7 400 m3/ha or 59 Mm3 in Haut Cheliffand 10,600m 3/ha (including1,560 m for leaching)or 53 Mm3 in Bas Cheliff.

4.12 The water resourcesdevelopment potential in the two subprojectareas has been estimatedby the studiesundertaken under the CheliffWater Master Plan. Water for the Haut Cheliffarea would be pumped from the Cheliffriver after releasesfrom the Cheliffupstream dams which would also irrigatetwo upstreamperimeters. The upstreamdams includethe Ghrib dam (annual

29931 -16-

regulatedflow, RF = 82 Mm3, constrsictedin 1936), the Deurdeur(RF = 44 Mm ) and the Harreza (RF 24 Mm3) dams commissionedin 1985 and the Sidi Mohamed Ben Taiba dam (RF a 56 Mm3) plannedto be constructedin 1988-92 (see map). Preliminarydesigns of this dam have been completedunder the Master Plan and detaileddesigns of this dam are currentlyunderway. The two upstreamperimeters are 16,300ha in Khemis Melianacompleted in 1984 and 800 ha along the Deurdeurriver planned to be constructedin 1988/89. Before the Sidi MohamedBen Taiba dam is constructed,the demand for water in the subprojectarea would be met by releasesfrom the currentlyexisting dams after irrigationof the KhemisMeliana scheme. Startingin 1994, water regulatedin the existingdams would become insufficientto meet the requirementsof all Haut Cheliff perimeters(including the subprojectarea) and the Sidi MohamedBen Taiba dam is plannedto be commissionedby then. In order to ensure that there are adequatewater suppliesfor the Projectin 1994 and beyond,Government has confirmedthat funds for the constructionof the Sidi MohamedBen Taiba dam as well as for the projectworks have been firmly scheduledin the DevelopmentPlan startingin 1987. In addition,the Governmenthas assured that it would cause constructionof the dam to be completedbefore September30, 1993. Furthermore,it was agreed at negotiationsthat after December31, 1988 no furtherdisbursements would be made againstProject infrastructureand equipmentin Haut Cheliffunless the tenderdocuments had been issuedfor the constructionof the Sidi MohamedBen Taiba dam (para.5.20). Water for the Bas Cheliffsuborolect area would originatefrom unregulatedflows of the Cheliffriver divertedat the existing Boukaderdiversion weir rehabilitatedunder the Bas Cheliff IrrigationProject (1802-AL). In winter,part of the divertedflows would be used for irrigation,the other part is stored in the existingMerja Sidi Abed storage reservoir(see map). This reservoirhas a capacityof 57 Mm3 and would providea regulatedvolume of 48 Nm' per year or 901 of the irrigation requirementsof the subprojectarea. Water stored in the reservoirwould be deliveredfor irrigationduring the low rainfallseason (Aprilto October) with the balance of the requirementscoming from direct river diversionin the winter. Becauseof the importanceof the upstreamstructures to the success of the Project,agreement was obtainedat negotiationsthat Governmentwould ensure routinesafety inspectionof all dams upstreamof both Haut and Bas Cheliff subprojectaraas.

4.13 At full development,water balance in the Haut Cheliffand the Bas Cheliff subprojectareas would be as follows:

2 9 9 3 E -17-

WATER BALANCEIN THE SUBPROJECTAREAS

Subproject Requirements Resources Area Area (ha) Mm Dams Mm

Haut Cheliff 8,000 59 Sidi Ben Taiba Reservoir 56 /a UnregulatedWater 3 Total 59

Bas Cheliff 5,000 53 Nerja Sidi Abed Reservoir 48 /I UnregulatedWater 5 Total 53

I. Representingvolume of annual regulatedflow with a returnprobability of 801.

E. AgriculturalSupport Servkies andMtitutios

4.14 The wholesalesupply of inputsand agriculturalmachinery in the Projectarea, as in the rest of Algeria,is the responsibilityof specialized Governmentagencies (Offices). At a local lovel,distribution is mainly handledby specializedcooperatives although private sector tradersare also licensedto sell these products.

4.15 Seeds,Plants and Seedlings. In the projectarea a certainnumber of DAS are contractedby the Coop6rativesdes C6r6aleset des L6gumes Secs (CCLS) in Ain Defla and Relizaneto multiplycertified cereals and pulse seeds. The CCLS then collect,select, condition, and store the seeds. For vegetableseed production,the Union des Coop6rativesde SemencesMaraicheres (UNICOSAM) organizeslocal production,although most seeds for potatoesand other vegetablesare importedby the OfficeNational des Approvisionnementset ServicesAgricoles (ONAPSA). At the local level, the CooperativesAgricoles Specialis6esen Approvisionnements(CASSAP) in Ain Defla and Relizanehandle the collectionand distributionof vegetableseeds throughtheir networkof agents. ResearchInstitutes which specialixein variouscrops are responsible for overseeingthe selection,testing, and adaptive trialsof the appropriate varietiesand in the case of cereals,for the seed certificationas well. Timelydelivery of adequatequantities of seed has not been a problem in the projectarea, althoughthe poor qualityof the vegetableseeds, which affects farmersthroughout the country,is an issue and is being addressedon a nationallevel under the currentNational Development Plan.

2999t -18-

4.16 Fertilixers.Plant ProtectionChemicalss Animal Feed and Veterinary Supplies. At the nationallevel, ONAPSA is responsiblefor the distribution of all fertilizersand plant protectionchemicals domestically produced and importedand for the importof pure-bredheifers. At a local level, the CASSAP and their agentsand depots distributethese inputs. Animal feed and veterinarysupplies are the responsibilityof the OfficeNational des Aliments du B6tail (ONAB)at a nationallevel and the Coop6rativesde Services Specialiseesen Elevage (COOPSSEL)at a local level. While the DAS in the projectarea have had no seriousinterruptions in the timelysupply of needed inputs,the privatefarms, as elsewherein the country,continue to have limitedaccess to inputs. The situationIs improving,however, as the Governmenthas been making an increasedeffort to supply the privatesector with inputsand, in the past five years,an increasedportion of fertilizer has gone to the privatesector. In order to ensure that adequateattention is given by input agenciesto the needs of the projectarea, the Governmenthas agreed that it would cause input deliveriesto the Projectparticipants to be timelyand in adequatequantities to meet demand.

4.17 AgriculturalEauipment and MachineryServices. The OfficeNational du Mat6rielAgricole (ONAMA)has the monopolyon the distributionof all agriculturalequipment, its after-salesservice, repair work and supply of spare parts. The project area is served by the southern regional headquarters of this officeat Ain Defla,and two agents in Relizane. As of 1986, several privateagents have also been licensedto sell spare parta and do some repair work. Although the supplyof agriculturalequipment does not fully meet demand in the projectarea, Governmenthas made progressin providinggreater access over the years to the privatesector.

AgnidturalCredit

4.18 Since 1982 when the BADR was createdfrom the BanqueNationale d'Alg6rie,all credit to the agriculturaland rural sectorhas been channeled throughthe BADR. The BADR had, as of mid-1986,31 regionaloffices at the provinciallevel and about 200 branch offices. In the projectarea, agriculturalcredit is handledby a regionaloffice and about 15 branch officesand creditdelivery to farmershas greatly expandedin recent years.

4.19 Lendingto the DAS has, in the past, been virtuallyautomatic, as the loans were implicitlyguaranteed by Government. However,for DAS consistently making operatinglosses and unable to repay their loans, Governmenthas now introducedfinancial discipline by allowingBADR to refusecredit to uncreditworthyclients. Lending to the private sectorhas certainconstraints which involveproblems of guaranteesfor long-termloans and reachingadequate numbersof small-scalefarmers. Nevertheless,impressive efforts have been made to reach the privatesector in the projectarea, includingestablishing mobile credit units accompaniedby input distributionagents and since 1982 the number of privatefarmers receiving short-term credit in the two provinces of the projectarea increasedfrom 324 in 1982 to about 3,500 in 1985. The issuesof credit deliveryare nationwideand are being discussedwith Governmentunder a separateoperation.

29SIS -19-

4.20 As of October1, 1986, the terms of lendingare aa follows:

TERMS OF LENDING

RepaymentPeriod Grace Period InterestRate

Short-Term 12 - 14 months - 4.5 - 7.0% Medium-Term 7 years 0 - 2 years 4.0 - 7.0% Long-Term 8 - 12 years 0 - 4 years 3.0 - 6.02

The loans to the DAS are financedat 100% of the investmentcosts, while to the privatesector the financingvaries from 60 to 801.

Extensionad Research

4.21 Extension. Extensionis under the auspicesof the Directionde l'agricultureet de la p$che de Wilaya (DAP) and is the responsibilityof the Secteursde d6veloppementagricole (SDA) for the DAS and of the D6l6gation agricolede Daira (DAD) for the privatefarmers. The SDA are responsiblefor: (a) giving technicaland managerialadvice on carryingout the investmentand productionplans; (b) servingas liaisonsbetween research findings and DAS croppingactivities; and (c) providingstatistics on the productionplans, input and equipmentrequirements, and financingplans of the DAS with the cooperatives and Officesand the credit committee". In the provincesof the projectarea four SDA cover a total of 98 DAS in Ain Defla and 2 SDA supervise48 DAS in Relizane. Each SDA is staffedby three or four technical graduatesspecializing in differentaspects of DAS productionand management, and four or five technicalassistants. In addition,an effort has been made to staff the DAS with technicians and competent mana ers, although satisfactory technicalcompetence is still lackingin many DAS. In Haut Cheliff,the eight DAB in the subprosectarea are well servedby the SDA in Amn Defla. The total techeicalstaffing available is adequate,the relationshipbetween the SDA staff and DAS staff seems good, and the SDA complementthe technicaldeficiencies of the DAS and are active in the day to day activitiesof the DAS. In the Bas Pheliffsubproject area, the SDA are not so well staffed,and the technicalcompetence of both the SDA and the DAS is inadequate,which may partiallyexplain the poor performanceof these DAS, although the severe drought of the past four years has been the major factor. The Government plans to ensure that the SDA are strengthenedto cover the

1/ The credit committee involvesrepresentatives of BADR, DAP and the provincialgovernment; its job is to coordinatedemand for credit with availabilityof inputsand equipment.

29933 -20- needs of the Projectby recruitmentof additionallocal staff and selected technicalassistance (para. 5.07).

4.22 The DAD responsiblefor all extensionactivities suffer from inadequatestaff and means. As a result,they limit their work to gathering informationon the demand for inputsand equipmentand put together agriculturalstatistics. In the projectarea, the DAD in Haut Cheliffhas an agriculturaltechnician and an agent at the provinciallevel and one or severaltechnicians in each communewhile in Bas Cheliffnot all communeseven have a technician. The ratio of techniciansto privatefarmers in the project area varies from 1 to 2,000 to 1 to,10,000 and is clearlyinadequate to provideadequate assistance either for extensionactivities or in drawingup the importantfarm plans to qualifyfarmers for access to inputsand equipment. The Projectwould providefor recruitmentof more qualified8 aff at the DAD level (para.5.07).

4.23 Research. Specializedresearch institutes are responsiblefor researchand about 60 researchstations are scatteredthroughout the country. In the projectarea, two researchstations exist, one at Khemis Meliananow specializingin industrialcrops and one at Remadenaworking on improvementof farmingtechniques under irrigationand on the improvementof saline soils. The industrialcrops stationhas producedsome potentiallyuseful results,but most have been on crops that have proveduninteresting (results on sunflower and safflowerhave been disappointingand work on sugar beet and soya has been stopped). The researchstation at Hemadenais understaffedand research activitiesare minimal. SDA staff have also begun to do their own experimentalwork on cerealvarieties and pulsesbecause they feel that insufficientwork on these crops is done locally. In addition,in 1983 a DAS of 520 ha in Haut Cheliffwas convertedinto a pilot/demonstrationfarm involvinga range of crops and a small herd of cattle. Demonstrationshave been held for DAS farmerson the use of farm equipment(seed drills, tractors). Researchcountry-wide suffers from dispersalof effort, under-staffing,and lack of organization;research in the projectarea reflectsthese weaknesses. While currentresearch results available are adequatefor the early years of projectdevelopment, improvements will be requiredin the futureand the Governmentis currentlyreviewing options for reorganizingand strengtheningthe researchsystem under its currentNational DevelopmentPlan.

V. THE PROJECT

A. Ratioale for Bak Involvementand Prowe¢tObjectives

Rationale for Bnk Iwolvemeat

5.01 The proposedproject would be the first operationin the agricultural sector for the Bank since the FY80 US$8.0million Bas CheliffIrrigation Projectwhich closed in June 1985 and under which the Bank had financed,inter alia, the CheliffWater Master Plan which providedfor the technical

299a3 -21- underpinningof this project. In additionto providingfor a direct impacton production,the proposedproject has been designedto addressa key institutionalproblem facing irrigationin Algeria- the lack of suitable organizationaland financialarrangements for the operationand maintenanceof existingschemes. Ths Projectprovides an opportunityto developarrangements which, when replicated,could lead to improved0&M in all large-scale irrigationschemes in Algeria (currentlycovering some 100,000ha of which about 64,000 ha are irrigated)and as such, its projectedimpact should be seen as much greaterthan that of the 13,000ha actuallybeing built or rehabilitatedunder the Project. Thus, apart from the satisfactoryeconomic benefitsthat it would provide,the proposedproject is justifiedin having the Bank supportbecause of the broad sectorimpact it is expectedto have in promotinginstitutional reforms and improvedO&M organizationand training.

ProJeWt ObJecives

5.02 The proposed project has the followingobjectives: (a) at the local level (i) to implement the first priority investment package for the developmentof the Cheliffriver basin;and (ii) to safeguard and improve the incomeof the farmersand their familiesliving in the subproject areas and improvesocial welfare by providingsome basic infrastructure;(b) at the sector level (i) to developand implementnew institutionalarrangements to ensure adequatewater management,operation and maintenancein the Cheliff river basin which, when replicated,would benefitall major irrigationin the country;and (ii) to develop improvedinternal financing of OLM by increasing user chargesto fully cover costs;and (c) at the nationallevel, to develop efficientlyirrigation potential in the countryby expandingthe LSI areas presentlyused for irrigationby about 20%.

B. Summary ProheotDescriwton

5.03 To achieveits objectives,the Projectwould finance,over seven years, the followingcomponents:

(a) An investmentcomponent, including:

- constructionof new sprinklerirrigation, drainage and road infrastructureserving about 8,000 ha in Haut Cheliff;

- rehabilitationor upgradingof existingsurface irrigation, drainage, and road infrastructure serving about 5,000 ha in Bas Cheliff; and

- purchase of equipment and vehicles for O&M and extension staff;

(b) A technical assistance, training, and support-action component, including:

- technical assistance to the Ministryof Hydraulics,Environment and Forestry( MEF) for the supervision of works and for the studiesof furtherirrigation works in the Cheliffvalley, to

29932 -22-

the Cheliff IrrigationOffice (OPI) for the operationand maintenanceof irrigationsystems, and to the Ministryof Agricultureand Fisheries(MAP) for the monitoringand evaluationof socialistfarmss and

- overseastraining in operationand maintenanceof local staff of the CheliffOPI;

(c) On-farm investmentsas requiredto developand intensifyirrigated crops, includingsprinkler irrigation equipment, farm machinery equipment,high-yielding milk covs, stablesand fruit tree plantations;and

(d) Incrementalrecurrent costs, including:

- recruitmentof local technicalstaff by the CheliffOPI to strengthenoperation and maintenanceand by MAP to strengthen extension services and management, monitoring and evaluation of the socialistfarms;

- operationand maintenanceof the new systems,including the additionalcosts of the OPI; and

- pumpingcosts for the irrigationsystem in Raut Cheliff. C. Detailed Featres

5.04 ConstructionWorks in Raut Cheliff. The Projectwould providefor the constructionof an 8,000 ha aprinklerirrigation system in the Amra Abadia districtof Raut Cheliff (see map). The systemwould consistof two sectors, each servedby individualpumping stations and an undergroundwater distributionnetwork: the Amra sector covering.3,600 ha and the Abadia sector covering4,400 ha. The works would include: (a) constructionof buildings and equipmentfor two pumpingstations on the Cheliffriver, with a total installedcapacity of 9,250 kW, liftingwater with a combinedflow of 6,000 1/s to two regulatingreservoirs serving the Amra and the Abadia sectors;(b) construction of a 366 km underground concrete/asbestos pipe network and installation of hydrants each serving blocks of about 20 ha; (d) construction of about 300 km of open ditches to drain overlandflows and percolated irrigationwater; and (e) constructionof about 9.5 km of gravel feeder roads. The constructioncost per hectareis estimatedto be DA 45,200 (or US$9,600)in 1987 prices.

5.05 ConstructionWorks in Bas Cheliff. The Projectwould providefor the rehabilitation/upgradingof part of the existingsurface irrigation systems in Bas Cheliffwhich is most urgentlyin need of rehabilitation(see Map). These works would be carriedout in seven sectorstotalling about 5,000 ha, of which about 3,400 ha would be on the left bank and 1,600 ha on the right bank. The works would include:(a) improvementof the irrigationnetwork by the

29esX -23- replacementof the deterioratedcanals by about 63 km of new elevatedprecast concretecanals over 2,700 ha and by about 48 km of low pressure concrete/asbestospipes over 2,300 ha and insttallationof new hydro-mechanical equipmentas necessary;(b) enlargementof existingdrainage channels and constructionof new channelsinvolving earth-moving of about 200,000M3; (c) placementof tile drains over about 1,000 ha; and (d) repairsof 28 km of existinggravelled roads and constructionof 65 km of new unsurfacedfeeder and farm access roads. The rehabilitationcost per hectare is estimatedto be DA 27,500 (or US$5,900)in 1987 prices.

5.06 fEuipmentand Vehicles. The Projectwould providefor the purchase of 06M, radio-communicationand computer equipment to support management and field operationsof the new CheliffOPI. It would also finance the purchase of vehiclesfor supervisionof works by MHEF, for O&M by the CheliffOPI and for extensionservices by NAP. A list of equipmentto be purchasedunder the Projectis given in Table 3. Techicaln a eTainigand SuuottAtion romen

5.07 The Project would finance components which would support MEF and MAP staff in supervisingthe projectworks, enhancing0&M operationsin the Choliffvalley and improvingextension services (the TORs of the technical asistance studiesand trainingare in Annex 8 in the ImplementationVolume). These would include the following:

(a) Technical Assistance consisting of 340 man-months. The consultant services would be to assist MHEFstaff in supervising the project works in gaut Cheliff (142 man-months)and in Bas Cheliff (102 man-months),the CheliffOPI in operationand maintenance (48 man-months)and financialmanagement and cost accounting (24 man-months),and MAP in monitoringand evaluatingperformance of the socialist farms (24 man-months);

(b) Studies. The Project would also includestudies for the detailed designof the remainingworks in the Bas Cheliff district, including rehabilitationworks over 4,300 ha and new irrigationover 10,000ha;

(e) Staff Traininsinvolving local and overseastraining sessions and projectvisits for staff in charge of OWM and extensionservices for crop productionand livestockdevelopment. Assistanceand training of the OPI staff in computeruse would be providedby the suppliers of the computerequipment; and

(d) Recruitmentof local key staff consistingof: (i) two irrigation engineersand one electromechanicsengineer to head the works supervision teams in Haut and Bas Cheliff; (ii) four agriculturists and five agricultural assistants to support extension services provided to the DAS in Bas Cheliff by the SDA of Oued Rhiou and Djidiouia and to the privatefarmers in laut Cheliffby the DAD of Ain Defla; (iii) two financial analysts to supervise monitoringand evaluation of DAS in Haut and Bas Cheliff; and (iv) seven engineers

2a.2. -24-

to head the new DAS that would be establishedunder the Projectas a resultof the restructuringof the existingDAS in the Haut Cheliff subprojectarea (para.6.11).

On-Farm Investments

5.08 Farmersand DAS will make on-farminvestments to take advantageof the increasedwater resourcesavailable. These investmentswould be for mobile pipes and sprinklerequipment, 34 stables,stores and repairworkshops, 1,450 high-yieldingmilk cows, replacementof 636 ha of citrus plantations, planting256 ha of new apple trees,and farm machineryequipment. Detailsfor each subprojectarea are in Annex 5 of the ImplementationVolume.

Inremental Rourrent Costs

5.09 Additionalrecurrent costs under the Projectwould includelocal personnelhired to strengthenOPI for operationand maintenanceof the irrigationschemes and to strengthenthe SDA in Bas Cheliffand DAD in both areas to provide technicalservices and extensionadvice to farmers. It would also includeincremental operating and maintenancecosts of the rehabilitated and new schemesand the additionalpumping costs for Haut Cheliff. This latteritem would begin only in the last year of the Project.

D. Statusof ProJectPreparation

5.10 Status of Lngineerin^. Detaileddesigns and biddingdocuments for the Bas Cheliffworks are available. Detaileddesigns and biddingdocuments for the Haut Cheliffworks were completedin 1971 by internationalconsultants and are currentlvbeing updatedby the Ministryof Hydraulics. Most of the design featuresare acceptableand will be maintained. However,some changes will need to be made in the design of the pumpingstations which were overdesigned,of the water distributionpipes (the steel pipes proposedin the original studies for the small-diameter pipes will be replaced by more cost effective asbestos pipes), and of the open drainage and road networks, part of which have been constructedsince 1971. These design changesare currently being introducedby MHEF and their consultants. The study of detailed proposalsfor the organizationand managementof the CheliffOPI (the general outlineof this new organizationis alreadydecided: see para. 3.06) was startedin March 1987 and is expectedto be completedin about 10 months. It is to be carriedout by a French internationalconsulting firm with financing from the French Caisse Centrale de Cooperation Economique. The study will determinethe inventoryand the working conditionsof the irrigation,drainage and road infrastructurethat the OPI will run on behalf of the Government,the physical,husman and financialneeds of the Office,and its detailed organization,staffing, management and budget structures. In particular,the study will determinethe preciselist of equipment,vehicles and technical assistancenecessary to ensuresuccessful OPI operations. The Projectwould contributeto the start-upof the OPI by financinga first packageof this list.

5.11 Schedulefor ProlectImplementation. The Projectwould be implementedover a seven-yearperiod (January1987 to December 1993) in

2993K -25- accordancewith the implementationschedule shown in the bar chart attached to this report. Invitationto bid for the works in Bas Cheliffand prequalificationfor the works in Haut Cheliffare plannedto take place during the first semesterof calendaryear 1987. The first year of the Projectwould be primarilydevoted to awarding the correspondingcontracts, hiring consultantsand purchasingsome equipmentand vehicles. Preparationof detailedterms of referenceand lettersof invitationfor the Project technicalassistance and studiesis expected to be completedby June 1987. Contractsfor the work supervisionconsultants would be awardedby March 1988 and for the other consultantsby June 1988. Implementationof the irrigation works would follow the schedulebelow:

IMPLEMENTATIONSCHEDULE

Work Implementation Sector Area (ha) Start Completion Duration (months)

Haut Cheliff Amra 3,600 July 1988 December1992 54 . Abadia 4,400 January 1989 December1993 60

Bas Cheliff . Zone IX 1,570 April 1988 March 1992 48 Other Zones 3,430 October 1988 March 1993 54

E. Cost Eftimates

5.12 Total Projectcosts include (a) the cost of the proposedinvestments, technicalassistance, training and studies; (b) incrementaloperating costs linked to the Project;and (c) incrementalon-farm development costs due to increasedagricultural activity induced by the Projectduring the project period. Total projectcosts are estimatedat US$185.6million (DA 872 million) of which it is estimatedthat US$94 million (DA 444 million)or 511 is foreign exchange. They Includean estimatedUS$34.5 million (DA 162 million)or 18.61 in taxes and duties. Base costs,valued in March 1987 prices,were derived from recent bidding and appraisal estimates and updated price contCngencies as indicated below -'. Physicalcontingencies have been includedat 151 for the pumping station civil works and 101 for the other civil works, equipment, vehicles, and technicalassistance. They amount to US$14.4 million or 8% of total projectcosts. Price contingencieshave been calculatedon the basis of the projectedannual price increases-Lapplied to local and foreigncosts

1/ Annual projectprice increasesare as follows:

1986 1987 1988 1989 1990 1991 1992 1993 1994 Local Costs (S) 7 7 7 7 7 7 7 7 7 ForeignCosts (1) 12 3 1 1 1 3.5 3.5 3.5 3.5

066'V -26- includingphysical contingencies. They amount to US$31.4million or 171 of total projectcosts. Cost estimatesare presentedin detailby componentin Table 1 and by subprojectin Annex 5 in the implementationvolume and are summarizedas follows:

PROJECTCOST SIDARY /&

Local Foreign Total Local foreign Total X Foreign X Total Costs Costs Costs Costs Costs Costs xehane Base Costs ---- DA million ------US$ million----

CivilWorks 209 212 421 44.9 45.0 89.9 sO 64 E9uignent and Vehicles 24 69 93 5.1 14.7 I9.6 74 14 Tecnical Assistance. Trainingand Studies S 24 32 1.5 5.2 6.7 78 5 on-farmInvestments 46 38 84 9.8 8.1 17.9 45 13 Incremontal Recurrent Costs -a az_U .W _Ua 5" la - TOTALBASE COSTS 303 3S4 657 645 75.3 139.S 54 l00 PhysicalContingencies 30 37 67 6.1 7.9 14.4 SS 10 PriceContingencies _9 _U5 Iin 3L2 11 .214 28 _21 GRANDTOTAL /l 428 444 672 91.2 94.4 185.6 51 133

/i DiscrepOnciesdue to rounding /l Ifcluding US$ 34.5 million in taxes and duties.

5.13 A Bank loan of US$94 million is proposedto be made to the Government of Algeria to finance1001 of the foreignexchange component of the Project. On-farm investmentswould be financedby the beneficiaries(US$7.5 million) and by BADR (US$17million) under its current lendingpolicies and procedures (para.4.20). Bank financingwould cover an estimated51. of total project costs or 621 of projectcosts net of taxes. The Governmentwould finance the balanceof net projectcosts (US$32.6million). The Bank loan would be for 15 years including a 3 year grace period. The followingtable sunmrises the proposed financing plan for project costs:

2 eas. -27-

PROJECTFINANCING PLAN

Percentageof Prolect Net Costs For. Exchange Local Foreign Total Costs

- (U8$million) -

World Bank - 94.0 94.0 62 100 Government 32.6 - 32.6 22 - Beneficiaries 7.5 - 7.5 5 - BADR 17.0 - 17.0 11

Net ProjectCosts 57.1 94.0 151.1 100 100 Taxes and Duties 34.5 - 34.5

Total ProjectCosts 91.6 94.0 185.6

5.14 The Governmentwould earmark the proceedsof the Loan and its own financingfor the Projectto MUEF (US$153.9million), to the CheliffOPI (US$6.5million) and to MAP (US$0.7million) throughtheir annualbudgets to financeproject activities. The Governmentwould also cause BADR to provide investmentcredit to farmers(US$17 million). Beneficiarieswould share the project cost throughtheir down paymentsfor the creditcomponent. F. Procvrement

5.15 Procurementwould be carriedout by the Projectexecuting agencies for the goods, works and services included in their respective components as describedin paras. 5.04 - 5.08. Major project irrigationworks are expected to be groupedin three large contracts(two in Raut Cheliffand one in Bas Cheliff). Procurementarrangements are describedbelow and summarisedin the following table:

299*3 -28-

PROCUREMF9TMETHODS /a (Us$million) ProjectElement ProcurementMethods Total ICB LCB Other N.A. Cost

Civil Works 114.3 4.8 - 119.1 Equipmentand Vehicles 22.1 3.0 - 25.1 TechnicalAssistance, Studiesand Training - - 8.5 - 8.5 IncrementalOperating Costs - - - 8.4 8.4 On-farmInvestments 24.5 24.5

TOTAL 136.4 4.8 11.5 32.9 185.6

(80.3) (3.3) (10.4) (-) (94.0)

/a Figuresin parenthesesare the respectiveamounts financed by the lank.

5.16 Contractsfor civilworks estimated to costUS$1,000,000 equivalent or more eachand contractsfor equipmentand vehiclesestimated to cost US$300,000equivalent or more eachand valuedtogether at a totalof about US$136.4million, would be awardedthrough international competitive bidding (ICB),in accordancewith Bankguidelines. Qualifying domestic manufacturers of equipmentwould receive preference in bid evaluationof 15% or the prevailingimport duty, whichever is less. Contractsfor civilworks estimatedto costless than US$1,000,000 equivalent each and aggregatingnot more than US$4.8million would be awardedon the basisof localcompetitive bidding(MCD) in accordancewith proceduresacceptable to the Bank (para. 5.17). Contractsfor equipmentand vehiclesestimated to costless than US$300,000equivalent each and aggregatingUS$3.0 million would be purchased throughSONACOM and otherspecialized agencies who shallfollow international shopping procedures acceptable to the Bank. Contracts for technical assistance, studies and training totaling about US$8.5 million would be awardedin accordanceto Bank guidelines. 5.17 Localcompetitive bidding procedures are generallyconsistent with the need for economyand efficiencyin the executionof the Project.There were,however, a few procedureswhich were inconsistentwith Bankprocurement guidelinesand otherswhich required clarificaton. During negotiations, agreement was reached regarding the changes needed to make the procedures acceptable to the hank. 5.18 Contractreview. All biddingdocuments and awards of contractsfor civilworks estimated to costthe equivalentof U8$2,000,000 and for vehicles and equipmentestimated to cost the equivalentof US$300,000or morewould requirethe Bank's priorapproval. This priorapproval would also be needed

29913 -29- for the biddingdocuments and awards of all contractsregarding radio-communicationand computerequipment. These arrangementswould representprior reviewby the Bank of about 82% of total estimatedvalue of contracts. The other contractswould be subject to random post-reviewby the Bank after contractaward, in the courseof supervisionmissions.

G. Disbursement

5.19 Disbursement Schedule. The proposed Bank loan of US$94.0 million has been estimatedto be disbursedover a period of eight fiscalyears in a manner closelyfollowing the profile for irrigationprojects in EMENA. The Closing Date of titcLoan would be December31, 1994 or one year after the provisional acceptanceof the works, which is the time needed to monitor the performance of the works and to return retentionmoney on the civil work contracts. The historicaldisbursement profiles for Bank-wideand EMENA and Algerian irrigationprojects indicate that full disbursementgenerally requires eight years. Effortshave been made in the projectdesign and processingto ensure that this profilewill be adhered to, as follows: (a) the advanced stage of preparationof the detaileddesigns which will permit prompt start of project works; (b) major projectworks will be grouped into a small number of large contracts;(c) projectworks would be implementedseparately and simultaneouslyin Bas and Haut Cheliff;and (d) major investmentsare scheduledfor the first five years of the projectperiod. The expected detailedschedule of disbursementsis given in Table 2 and summarizedbelow:

DISBURSEMENTSCHEDULE

Bank Fiscal Year …----US$ million ------

Disbursements 1988 1989 1990 1991 1992 1993 1994 1995

Annual 2 5 12 16 19 16 15 9 Cumulative 2 7 19 35 54 70 85 94

5.20 DisbursementProcedures. Disbursementcategories, loan amount allocatedand the share of expendituresto be financedwould be as follows:

2993E -30-

DISBURSEMENTPROCEDURES

Categories Amount of the 2 of Expenditures Loan Allocated to be financed (US$ million)

1. Civil Works (a) Haut Cheliff 43.0 65% of total expenditures (b) Bas Cheliff and Others 20.5 652 of total expenditures

2. Equipment,Vehicles, and Spare Parts (a) Haut Cheliff 12 0 75% of local expendituresand 1002 of foreignexpenditures (b) Bas Cheliffand Others 2.0 75% of local expendituresand 1002 of foreignexpenditures

3. Training,Technical 1002 of total expenditures Assistanceand Studies 7.5

4. Unallocated 9.0

TOTAL 94.0

Disbursementsfor the above items would be made after receiptby the Bank of full documentationexcept for goods and servicesprovided under contractsof less than US$200,000for which disbursementswould be against statementsof expenditures(SOE) certifiedby the executingagency involved. The agency would retain the supportingdocumentation and make it availablefor inspection by Bank supervisionmissions and by externalauditors. The total amount of the loan disbursedunder SOE procedureswould not be more than US$11.0 million. No reimbursementsapplications for less than US$20,000would be accepted. The conditionof disbursementfor categoriesl(a) and 2(a) would be that after December31, 1988 no furtherdisbursements would be made in these categoriesunless the biddingdocuments for the constructionof the Sidi MohamedBen Taiba dam had been issued (para.4.12).

5.21 Revolvingfund. To improvethe efficientand timely implementation of the Project,the Bank would deposit,after Loan effectiveness,a sum of up to US$8.0 million into a specialaccount establishedby the Governmentto be used as a revolvingfund to financeeligible expenditures corresponding to the Bank's share of the average four-monthProject needs. The accountwould be maintainedin US dollars in the CentralBank of Algeria. Government counterpartfunds would be secured in a timelymanner throughappropriate budget allocations. Applicationswith appropriatesupporting documentation,

2993E -31- coveringthe replenishmentof the Fund, would be submittedwhen approximately half the maximum allowedamount in the Fund has been spent.

VI. ORGANIZATIONAND MANAGEMENT

A. Project x anization Organization for Inplementation

6.01 The Ministryof Hydraulics,Environment and Forestry(MHEF) and the Ministryof Agricultureand Fisheries(MAP) would have the overall responsibilityfor the executionof the Project. Within these two ministries, allocationof responsibilitiesat the centraland provinciallevel would be as describedbelow. The Bank for Agricultureand Rural Development(BADR) would providecredit for financingon-farm investments.

6.02 Ministryof Hydraulics,Environment and Forestry. Within this Ministry,the lead would be taken by the Departmentof Large-ScaleIrrigation Schemes (DGPI),which is responsiblefor design, constructionand O&M of the LSI perimetersin the country. DGPI would be responsiblefor overall managementof the irrigationconstruction and managementactivities of the Project. At the projectarea level, DGPI will act through:(a) two work units, one in Bas Cheliffand one in Haut Cheliff,to superviseproject constructionworks. Each unit would includeat least two engineers,two engineerassistants and work supervisorsas needed and would be assistedby a team of consultantsto be hired under the Project (para.5.07); these consultarntswould includean irrigationengineer, a civil engineer,a topographicengineer, and an electromechanicalengineer (only in Haut Cheliff);the units would be controlledat the regionallevel by the provincialdirectorate in Relizaneand Ain Defla, respectively;and (b) the new Cheliff IrrigationAuthority (OPI) which would executeproject activities regardingstrengthening organization and managementof the OPI, O&M staff trainingand cost recoveryimprovement. The OPI will be assistedby a team of consultantsincluding specialists in water management,operatior, of pumping stationsand financialmanagement and accounting. During the earlieryears of the project the OPI would be built up and strengthenedto handle the gradual take over of Projectworks startingin 1989 and other existingworks in the Cheliffriver basin coveringabout 36,000ha. The Governmenthas agreed to these proceduresand arrangementsfor implementationof the project.

6.03 Ministryof Agricultureand Fisheries(MAP). Within this Ministry, the Departmentof Planningwould be responsiblefor coordinatingat the centrallevel the agriculturalsupport activities needed in the subproject areas in collaborationwith the departmentsof the MAP involvedin the Project (cropproduction, livestock, extension and rural development). It would also be responsiblefor reportingon and evaluatingagriculture-related project activities. At the projectarea level, the ProvincialDirectorates in Ain Defla and in Relizanewill be responsiblefor executingproject activities with regard to restructuringthe DAS in Haut-Cheliff,monitoring and

2993E -32- evaluatingDAS' performance(para. 6.12), and strengtheningextension services to all farmers in the Projectarea throughtheir SDA and DAD (para.5.07).

Project Coordination

6.04 Overall coordination of project implementationand related institutionaldevelopment would be carriedout at the nationallevel by periodicmeetings of representativesof all agenciesinvolved in the Project. The purposeof the meetingswould be to monitorprogress in projectexecution, reviewwork programsand progress,resolve problems involving different Governmentdepartments and recommendany additionalmeasures to assure prompt executionof the Project. These meetingswould occur when necessary,but at least twice a year to reviewand agree on the projectbudget for the coming year and the annual reportof projectactivities for the previousyear. They would be chairedby the SecretaryGeneral of MHEF and includeat least the Directorof DGPI in MHEF and the Directorsof planning,crop production, livestock,extension and researchin MAP. Since the MHEF's DC-PIwould have the primary responsibilityof most projectactivities it would assume the Secretariatof this committee.

Project Monitoring and Evaluation

6.05 The DGPI of MHEF would be responsiblefor overallmonitoring of projectimplementation through the office of the projectmanager. It would act on behalf of MHEF in dealingwith MAP to discussactions necessary for implementingthe projectmeasures on restructuringand improvingperformance of the DAS and strengtheningextension in the subprojectareas. It would be responsiblefor monitoringpreparation by the provincialdepartments of MHEF and MAP of semi-annualprogress reports and synthesizingthem in an overall report to be given to the coordinatingcommittees and to the Bank. DGPI would also preparea projectcompletion report within six months of the loan closing date on the executionand initialoperation of the Project,its costs and the benefitsderived and to be derivedfrom it, the performanceand fulfillmentby the Government,MHEF and the Bank of their respectiveobligations under the Loan and the accomplishmentof the objectivesof this loan. The Government has agreed to these arrangementsfor monitoringand evaluation.

ProjectAccounts and Audit

6.06 A separateproject account and recordswould be maintainedby MHEF for the Project. A financialcontroller from the Ministryof Finance permanentlycontrols the accountsof MHEF, which neverthelessshould be auditedby independentauditors. To this end, the Governmenthas agreed that the project accountalong with the statementsof expendituressent to the Bank for disbursements,the revolvingfund account (para.5.21), and the accounts of the CheliffOPI would be auditedannually by independentauditors acceptableto the Bank and submittedto the Bank not later than six months after the end of each fiscalyear. Certifiedcopies of the accountsas well as the auditors'report would also be furnishedto the Bank.

2993E -33-

B. Organizationfor Oieration and Maitenane

6.07 One of the key objectivesof the Projectis to improvethe operation and maintenanceof irrigationsystems, one of the major issuesthat has seriouslyconstrained the efficientperformance of the irrigationsubsector in the past. As specifiedin para. 3.05, the regionaloffices of MHEF have been unable to operateand maintainadequately the irrigationand drainage networks. In the projectarea, the main problemsof O&M are similar to those encounteredby any O&M regionaloffice in the country: lack of autonomy, cumbersomeprocedures for purchaseof equipment,lack of financialresources becausewater chargeshave been too low to cover full O&M costs and are in any case remitteddirectly to the Treasury. The problemsare, however, exacerbatedin the projectarea because: (a) the existingnetworks in Bas Cheliffhave outlastedtheir economiclife; they were constructedin 1940 and no rehabilitationhas been done since then; and (b) the two regionalO&M Officesconcerned by the Project (one in Haut Cheliffand one in 8aa Cheliff) suffer from a seriouslack of qualifiedstaff to run the 25,000ha presently under their control. The technicalstaff of these two districtsinclude only two engineersand eight technicians.Although experienced, most of the existingstaff are relativelyold and discouragedby the poor conditionsof the networks.

6.08 Operationand maintenanceof the project irrigationinfrastructure, which will start in 1989 in some sectors in Bas Cheliff,would be undertaken by the CueliffOPI recentlycreated by the Governmentto be responsiblefor all public irrigationconstruction in the Cheliffvalley. The roles and responsibilitiesof the OPIs are describedin para. 3.06. This OPI would benefitfrom the Projectwhich would providefor managementconsultants' assistanceto help it put into place a sound organizationalstructure and operationalprocedures by advisingon certainaspects of the Office's organizationand management,O&M procedure,water chargecollection and accountingand financialstructure. The Projectwould also providefor staff training,O&M, radio-communicationand computerequipment as requiredfor a good start-upof the Office. The CheliffOPI startedto work in July 1986 using facilities,equipment and staff of the MHEF O&M regionaloffices existingin the Cheliffvalley (includingfour districts: one in Haut, one Moyen, one Bas Cheliffand one in Mina). The existingfacilities are sufficientfor the OPI to start its work in the short term. In additionto procuringand installingthe equipmentand vehiclesmentioned above, the OPI would give priorityto takingover the irrigationsystems under its jurisdiction,hiring additional engineers to the key positionsand training the existingstaff. Accordingto the decreeestablishing the OPIs, their financialresources would consistof revenuescoming primarily from water chargesand Governmentbudgetary allocations.

6.09 In order to ensure that the CheliffOPI is organizedand managed adequatelyto performits tasks, the Governmenthas agreed that: (a) Governmentwould submitto the Bank for reviewand comment the findingsof the CheliffOPI study (para.3.06); and (b) Governmentwould agree on the principlethat the CheliffOPI would become financiallyindependent from Governmentbudgetary support by December 31, 1989. Measuresto meet this targetinclude those presentedin para. 7.16.

2993X -34-

C. Perfowanoeof the SoeiaHstFarms 6.10 Measureswould be taken under the Projectto ensure efficientuse of the project irrigationsystem by the projectwater users once the rehabilitatedand the new systemsare operational.About 751 of the subprojectareas are under DAS ownership. There are 8 DAS in Haut Cheliff which have been profitablesince they were restructuredin 1982 (para.3.10). The main reasonsfor this satisfactoryperformance are: (a) their land has a high productionpotential; most soils are light,deep and easily drainable; (b) competentengineers or experiencedtechnicians were assignedas managers of most farms; (c) the farms benefitfrom efficientassistance from MAP services,especially the SDA establishedduring the restructuringprogram of the socialistfarms (para.3.10). On the other hand, performanceof the 28 socialistfarms in the Ras Cheliffsubproject area has bee'nmixed; most of them have had operatinglosses over the last three years. The main reasons are: (a) droughtconditions have persistedin the area over the last four years: no cerealswere harvestedand the area was officiallydeclared to be a victim of naturaldisaster in 1984/85,a good crop year in other parts of the country includingHaut Cheliff;(b) irrigationpossibilities have declined becauseof the increasingdeterioration of the irrigationsystems and the absenceof adequatedrainage which has resultedin the formationof heavy-salinesoils in some places (para.4.07); (c) the limitedwater resourcesavailable have been primarilyused for irrigationof the existing olive trees rather than for more highly renumerativecrops such as vegetables; and (d) in contrastto the situationin Raut Cheliff,the SDA and the DAS in Bas Cheliffsuffer from a shortageof qualifiedstaff.

6.11 All DAS in the two subprojectareas have been consolidatedand restructuredin 1982-84,but in the contextof rainfedagriculture. The averagesize of the DAS is currently820 ha in Haut Cheliffand 500 ha in Bas Cheliff. Since the farms in Haut Cheliffwill almostbe fully irrigatedby the new irrigationsystem, they are currentlytoo big to be managedas one unit and furthersubdivision is required. On the other hand, only a small part of each farm (about170 ha) in Bas Cheliffwill be irrigatedby the rehabilitatednetwork and no furthersubdivision is necessaryin that part of the Project. In order to ensure the irrigationintensity projected (1002 and 1082 in Haut and Bas Cheliff,respectively), the socialistfarms in Haut Cheliff would thereforeneed to be subdividedinto smaller,more manageable units of 300 to 400 ha under the Project. MAP has decidedto do this for all DAS in irrigatedareas of the countryand has agreed in principlethat this restructuringis appropriatefor haut Cheliffprior to the commissioningof the new irrigationsyscem in 1993.

6.12 The DAS would introduceimproved self-monitoring systems under the Projectas a managementtool to help improveand maintaingood performance. Criteriafor monitoringthis performancewould includeconsideration of productivityin terms of inputs (totalcost of direct and indirectlabor, of farm machineryand of seasonalinputs, water use per irrigatedha) and output (irrigationintensityZ', yields of major crops)relative to established

1/ Irrigationintensity = area irrigatedto area equippedfor irrigation.

29*I3 -35- norms,and financialperformance in termsof cash-flowby quarterand profit/lossfor the croppingyear. Existingplanning and accountingsystems willbe usedas ~he basisfor establishingthe criteria.Details on the proposedmonitoring system are in Annex7 of the implementationvolume. 6.13 The Governmenthas submitteda statementacceptable to the Bank definingthe principlesto be followedand actionsto be takenduring project implementationto restructurethe DAS and ensuresatisfactory performance. In addition,it has been agreedthat: (a) by December31, 1988,Government would exchange views with the Bank on the detailedmanagement and financialcriteria, such as those describedin paragraph6.12, to be usedby the DAS and the Government to measureDAS performanceand establisha detailedmonitoring system basedon thesecriteria to monitorperformance of eachDAS5 (b) by December31, 1988,Government would also exchange views with the Bankon actionsthat will be takenif the expectedperformance levels are not met. In Algeria,such actions currently include changing or improving management and technical staff,strengthening technical assistance to DAS, consolidation of operations, and/or breaking up the DASand attributingsome or all of the land to neighboring DAS or to the privatesector; (c) by December31, 1989,Government would complete the restructuringof the 8 DAS of the HautCheliff subproject area so thatthey can use efficientlythe projectirrigation system and be.profitable under irrigationconditions. This would imply: (i) landconsolidation and subdivisionof the existing8 DAB in Naut Cheliffinto farms of a manageablesize; (ii) the designationof additionalqualified technicalstaff necessary to managethese farms; (iii) the preparationby eachDAS of a detailedmulti-year development restructuringprogram based on fulluse of water made available under the projectand aimedat improvingtechnical and financial performance of each DAS.

VIL BENEFITSAND JUIFMICATION A. Geneal 7.01 The discussion that follows quantifies the costs and benefits, in somedetail, for the timeslice of theMaster Plan that thisProject would finance.The economicanalysis has beendone for the entireMaster Plan as wellas for the Project,using the dataand analysisof the Projectas the basis. This is discussedfurther in the sectionon economicanalysis (paras. 7.19to 7.26). 7.02 The directlyquantifiable benefits of the Projectwould comefrom the increasedproduction and improvedproductivity obtained from rehabilitating irrigationworks in Bas Cheliffand the extensionof the irrigationsystem in

209$2 -36-

Haut Cheliffwhich would resultin providingmore water and more efficientuse of water for agriculturaland livestockactivities. These works would result in a shift from rainfedcrops (cereals)to highervalue fruitsand vegetables and fodder crops for livestock,and would lead to a higher croppingintensity and to higheryields for all crops. The resultwould also be increasedcrops (mainlyvegetables and fruits,but also fodderand cereals)and livestock (mainlymilk) production,income generation for membersof the ProjectDAS and their families,increased income for the Projectprivate farmers and increased employmentopportunities for seasonalworkers. Cost savingsin foreign exchangewould resultfrom the reducedimports of wheat, livestockproducts, potatoesand other vegetables. Financialsavings for Governmentwould result from improvedcost recoverywhich would permitadequate operation and maintenanceof the irrigationsystem, thus reducingthe need for eventual major rehabilitationin the futureand reducingas well the budgetaryoutlays to financethe O&M costs. Secondarybenefits which are not quantifiedhere include: (a) improvedwater management,irrigation system operation and maintenanceby the new OPI in the 38,000ha of the irrigatedareas in the Cheliffriver basin expectedto be operationalby the end of the Project period in 1994; (b) establishinga model for water managementthrough the newly createdOPI that could be replicatedin irrigatedareas elsewherein the country;(c) providing a drainage technology that will eventuallybe applied to the futurerehabilitation of 21,900ha in the Cheliffarea; (d) restructuringthe DAS in the Haut Cheliffarea which could serve as a model for DAS restructuringin other irrigatedareas; and (e) establishinga monitoringsystem for the DAS that could be used elsewherein the country,in rainfedas well as in irrigatedareas. These are importantsectoral contributions,particularly but not exclusivelyin the contextof irrigation developmentin Algeria.

B. Laud Use. Yieldsand Production

7.03 Land Use. Detailedcropping patterns and yields for three situations (existingsituation, future "without Project" and future"with Project")are presentedin Annex 4 of the implementationvolume and sumarized in the Table below for the principlecrops. At present,about 871 of the Haut Cheliff Projectarea and 601 of the Bas Cheliffproject area are under rainfed conditionsand the croppingpattern reflects this, with about 60% of the two cropped areas combined used for cerealsand fodder crops and the remaining402 for vegetablesand fruit trees. Withoutthe Project,further deterioration of the irrigationnetwork in Bas Cheliffis expected,resulting in a gradual decreasein water availabilityand a switch from fruits and vegetablesinto rainfedcrops such as cereals,pulses and livestockfodder. Under the Project,about 571 of the area would be devotedto vegetablesand another 121 to fruit trees. The remainingarea would be grown to wheat and to fodder crops for the increasedlivestock planned under the Project. Cropping intensitywould increasefrom a futureprojected average for the two areas, withoutthe Project,of 881, to about 1071 under the Project. The incremental croppingintensity due to the Projectwould thus be 191. The details of land use and croppingintensities for Haut Cheliffand Bas Cheliff in the three situationsare shown in Annex 4 of the ImplementationVolume and summarised below.

2992E -37-

7.04 Yields. At present,the range of actual yields is quite wide, from one year to the next, among farmers,and even within a small area where soil conditionsand water availabilitycan vary considerably.The yields used to calculateproduction under existingconditions were taken as averagesof actual yields realizedin the Projectarea. It is furtherestimated that in the "withoutProject" situation at full development,the yieldswould remain the same as before the Projectand that the decreasein productionof certain crops would be the resultof reducedarea planted. The increasein yields at full developmentas a result of the Projectare conservative,although they representincreases of 40-1252of the presentyields achieved /'. For any one farm (DAS or private)these yield increasesare estimated,for annual crops, to occur over a four-yearperiod after the irrigatedwater is introduced,with a yield build-upas follows: 60X of the projectedyield attainedin Year 1, 80S in Year 2, 902 in Year 3 and 1001 in Year 4. The introductionof new cattleand upgradingof existingherds would also increase milk and meat yields,as shown in the table above,by about 35% over the existingsituation for DAS and by four-foldfor privatefarmers who already have cows. Most of the DAS do not now have cattle,however, so that most of the milk and meat productionunder the Projectwould be incremental. This wouLd occur graduallyover a 16-yearperiod.

1/ A notable exceptionto this is in foddercrops, where the increasein yields is due to a switchfrom the lower-yieldingvetch oats to higher yieldingberseem and alfafa.

2 993 -38-

CROPPINGPATTERNS AND CROP YIELDS IN THE SUBPROJECTAREAS

-- At full Development - ExistingSituation WithoutProject With Prolect Area Yield Area Yield Area Yield (ha) (tlba) (ha) (tha) (ha) (t/ha)

Wheat 3,530 1.2 4,665 1.2 1,940 4.0 Fodder crops 2,580 2.0 4,665 1.2 2,360 4.6 Potatoes 780 10.7 453 10.7 3,330 15.0 Melons 240 12.0 86 12.0 935 17.0 Watermelons 375 12.0 130 12.0 1,000 18.0 Vegetables 805 7.5 /a 435 7.5 /a 2,690 11.5 /a Citrus 575 10.0 175 10.0 1,340 18.0 Other fruit trees 30 10.0 - - 245 17.0 Olives 508 3.5 170 2.5 112 10.0 Other crops 2,107 1.3 2,761 1.3 - - Fallow 1.471 - 1.558 - - -

Total 13,000 13,000 13,954

Croppingintensity (S) 89 88 107

Dairy cattle (no. head) 1,300 1,300 2,900 Milk (1/head) - Private 480-650 2,240 -DAS 2,275 3,040 Neat (liveweight in kg/head) - Private (18 mos.) 220-240 400 - DAS (3 mos.) 110 130

/a Weighted average of onions, tomatoes, artichokes, cauliflower and peppers.

7.05 Production. Becausethe introductionof the irrigationwater from the new and rehabilitatedschemes occurs over 8 years and the yields develop gradually, particularly for the fruit trees which reach full production only in Year 10 after planting, full production from the scheme would not occur until year 18. The Table below shows estimated production from the Project at full development and compares this to estimated production in year 18 without the Project. Incremental production is the result of the following changes: (a) the total cropped area would increase by 22S; (b) a switch from wheat,

29SC, -39- oats,barley, vetch oats and pulsesto the highervalue crops, mainly vegetables,particularly potatoes and fruittrees, plus some foddercrops for milk production;(c) increasedyields, as discussedabove. At full development,the valueof annualincremental production represents, in 1985 financialprices, about 694 millionDA, of which658 millionDA i8 for crop productionand 36 millionDA is for animalproduction. As a proportionof totalannual national production in 1984185,the incrementalquantities producedunder the Projectare small,in all casesless than lOS.

INCREASESIN ANNUALPRODUCTION FROMTHE SUBPROJECTAREAS

ProductionIn- creaseover Ex- istingSituation - -At Full )evelopment -- As I of 1984/85 Existing Without With National Situation Project Project IncrementalProduction la '000tons

Wheat 4.2 5.6 7.8 2.2 1 Foragecrops 5.0 3.2 10.9 7.7 1 Potatoes 8.3 4.8 50.0 45.2 6 Melons 2.9 1.0 15.9 14.9 ) 9 Watermelons 4.5 1.6 18.0 16.4 ) Vegetables/b 6.1 3.2 30.8 27.6 3 Citrus(oranges) 5.8 1.8 24.1 22.3 8 Apples 0.3 - 4.2 4.2 10 Olives 1.8 0.4 1.1 0.7 decrease Milk 1.2 1.2 9.1 7.9 1 Beef 0.2 0.2 0.6 0.4 1

/a Fulldevelopment would occur in year 18, or in 2004. Thusannual Project production in 2004 is compared to total anual production in 1985. /b Cauliflower, onions, tomato, peppers, artichokes.

C. Ma _Uxtanad Prie

7.06 The agricultural priceand marketingsystem has been gradually deregulatedsince 1981. All producers,including those in the socialist sector,are now freeto sell theirproducts outside the statemarketing agencies,except for cereals,pulses, edible oils and industrialcrops. This has strengthenedthe roleof the privatesector in the marketingof agriculturalproduce, at bothwholesale and retaillevels. As pricespaid by

a993X -40-

private tradersare higher than those offeredby officialbuyers, the function of the latternow appearsto be to absorb surplusproduction and keep regional supplyand demand in balance. Since 1982, producerprices for most perishable productshave been deregulatedand have risen considerably(80-2002); administeredprices for cereals,pulses and wine have also been increased substantially(40-802).

7.37 In the projectarea, the CCLS would be responsiblefor all purchases of cereals. They have to date been responsivebuyers, paying promptlyand storingunder acceptableconditions all cerealspresented for sale. No problem is anticipatedin the purchaseof increasedamounts of cereals from the Projectarea; these amountswill represeintonly about 3% of current purchaseswithin the Projectarea. In addition,as importsof wheat and wheat productshave accountedsince 1980 for 65-801of total consumption,any incrementalproduction from the Projectwould be an importsubstitute.-'

7.08 The marketingof vegetablesis often done by selling the standing crop to privatetraders; the principleadvantage to the farms is the savings of the harvestingcosts. Pricesof standingcrops are sometimeshigher than officialprices offered by the Governmentagencies for deliveredcrops. Of the incrementalvegetable production, potatoes and citrusfruit are the most important,representing about 421 of total financialand 381 of total economic benefitsfrom the Project. Potatoesare an importantelement in the Algerian diet (averageper capita supplyin the 1982-84period was estimatedat about 37 kg, comparedto 32 kg and 24 kg per capita in Morocco and Tunisia, respectively),and historicallyhave been importedin significantquantities (197,000tons, representing21% of total consumption,in 1985). Thus the incrementalproduction from the Projectarea would be an importsubstitute. In addition,in the Ain Defla province,cold storagefacilities for potatoes are being built by severalofficial organizations so that Government provincialstorage capacity will be about 10,000tons. Citrus fruits are not reportedin the officialimport statistics, but recentdomestic price increasessuggest that demand has grown much faster than supply. Since 1980 the domesticprice has more than tripled in nominal terms and about doubled in real terms. The same is true for most of the vegetablesproduced under the Project. The increasedproduction of fruits and vegetablesfrom the Project at full development represent about 3-52 of current 1984-85 national production levels. With population growing at a rate of 3.21, Algeria's populationwill doublein 'ess than 25 years, so that the demand for fresh fruitsand vegetablesis likely to increasefaster than the growth in

1/ In the discussionthat follows,all referencescomparing actual levelsof purchasesor consumption of crops to the "increased" production from the Project refers to levels of production over and above current production levels. This is in contrastto "incrGmental"production, wheich refers to levelsof productionover and above future levelswithout the Project. The distinctionis important: increasedproduction is relevantfor establishfngthe markets'ability to absorb the increasedproduction while incrementalproduction is the relevantmeasure for thq economicvalue of the Project.

2993Z -41- productionfrom the Project. Thus the absorptionof the increasedProject productionin the domesticmarket representsno major barrierand is not likelyto result in any decreasein real terms of the financialprices.

7.09 On a nationallevel, the three milk regionalmarketing Offices (East, Center,West) buy about 61 of the nationalproduction of milk, the rest going throughprivate channels. In the Projectarea, ORLAC (Officeregional du Lait du Centre)would buy the incrementalmilk from the DAS, which would invest in milk tanks for daily storageuntil collection. ORLAC is buildinga milk processingunit, in Aarib in the Cheliffarea, to be operationalin 1988, with a capacityto process200,000 liters per day initiallyand the ability to expand capacityto 400,000liters per day in the near future.

7.10 Prices for cerealsare regulatedand fixed each year in consideration of the costs of production. Prices for other crops and livestockproducts are not regulated,although the existenceof officialmarketing agencies offering fixed and announcedprices servesas a supportin times of surplus. At present privatetraders offer more attractiveprices than the officially announcedones and profitabilityof the productionof these unregulatedcrops is quite high (para.4.10).

7.11 The Projectwould result in foreignexchange savings as a resultof the incrementalwheat, milk and other livestockproducts, and potatoeswhich are now imported. In addition,the productionof fruitsand vegetableswould reducethe border trade in these products. The total estimatedannual savings in foreignexchange at full developmentis US$9.5M, of which livestock productsaccount for about US$2.1 M (in projected1995 prices).

D. Farm Income and PovetyAlleviation

7.12 The Projectwould directlybenefit about 850 privatefarm families (or about 6,340 people)and about 1,870 membersof DAS and their families (or about 14,030people),.' for a total of 20,370people in the schemeswhere the irrigationimprovement and extensionwould be located. In addition,the Projectwould generateabout 1.8 millionman-days of employmenton the participatingfarms at full development,which is equivalentto the creation of about 6,250 full-timejobs. Only about 211 of this would be family and direct DAS labor and the rest would be hired labor. Indirectbenefits would accrue to the surroundingpopulations from activitiesassociated with the construction,operating and maintenanceof the works and with the marketing, processingand transportingof the incrementalproduction.

7.13 The financialcosts and benefitsto the farms are summarizedin five farm models. Two farm models are presentedfor the DAS farms,one each for Bas Cheliffand Haut Cheliff. Three farm models representthe private farmers,two in Bas Cheliffand one in Haut Cheliff. The table below shows the resultsof the analysis,found in greaterdetail in Annex 4 of the ImplementationVolume. The existingsituation in Bas Cheliff is much better

1/ Each householdis estimatedto have 7.5 people.

2993E -42- than the futurewithout the Projectbecause of the deteriorating infrastructure(para. 4.09). This deteriorationwould mean a complete reversionto rainfedcrops, on soils of averagequality. Thus, the deteriorationin net revenuesin the "withoutproject" situation reflects this reversionto rainfedagriculture under relativelydifficult conditions. In addition,the tablebelow shows a negativereturn to DAS in Haut Cheliff, reflectingthe marginalnature of rainfedfarming for DAS. The eight DAS which are currentlycultivating land within the Projectarea also have land outsidethe Projectarea, much of which is under irrigatedconditions. On balancethe eight DAS have been profitable,but this is due largelyto their cultivationof irrigatedcrops, which are highlyprofitable, while their cultivationof rainfedcrops has been marginallynegative (incurring an estimatedloss of DA 115/ha). This is consistentwith countrywideinformation on DAS performance,which shows that the majorityof DAS have been loss makers becauseof excessivepayments of salariesand a high levelof mechanixation with mediocreyields. Without the Project to permit irrigatedagriculture and, equallyas important,to introducea monitoringsystem to ensure better use of factorsof production(para. 6.12), this situationwould likely continue. Thus the table below shows that in the futurewithout the Project,

FARMMODELS: NET INCOMESPRESENT AND FUTURE La

HautCheliffPrivAte fars OAS farms Lk HauitChel1ff _Bas Choliff Haut Cheliff Bas Chglitf

Size of farm (ha) 4.1 - 4.5 1.1 9.0 340 168 Numberof farms 118 707 20 15 28 ------'000DA ------Net Income-Present 52.S 29.8 163.5 -39.2 1,136.8 Net Income-Future withoutproject 52.5 4.0 11.4 -39.2 -1,010.3 Net Income-Future with project 178.4 83.4 428.1 10,147.0 6.761.2 Incrementalnet Income 125.9 79.4 416.7 10,186.2 7,771.S Per capitaRasis ------DA ------Net Incomeper capita Future-without project 7.000 533 1520 S.000La 5,000L& Net Incomeper capita Future-with project 23,785 11.120 57.080 25.815Ld 33,170Lg

La Excludesother incomefrom non-farmingactivities. For privatefarms this could include agro-industrialactivities, and commerce. For OAS, it includesmainly hiring machinery services. Lk For OAS withoutlivestock activities at present,under project will have 50 new head of dairycattle. La OAS membersare paid a guaranteedminimum salary$ regardless of the profitabilityof the DAS. £4 Includesguaranteed minimum salary and totalper capitaprofit from OAS activities;most of the profitswould be reinvestedin DAS activities.

29933 -43- the revenuesfrom rainfed agriculture would continue to be marginally negative.Incremental income increases from 79,400 DA (US$16,715)for the farmsof 1.1 ha in Bas-Cheliffto 10.2M DA (US$2.1M) for the DAS farmsof 340 ha and 65 membersin RautCheliff. For the DAS, the increasedincome wouldbenefit the 32-65members of the DAS and be usedas wellfor reinvestmentin the DAS'activities. 7.14 Withan officialestimate of absolutepoverty threshold being US$650 per capita(or DA 3,090),none of the beneficiariesof the projectfall into thiscategory in the existingsituation. The tableabove shows that the smallestprivate farmers, with farmsof about 1.1 ha, havea net per capita income,before the Project,of an equivalentUS$830, which is about282 above the officialestimate. Without the project,however, the farmsin Bas Cheliff are expectedto decreaseirrigated production and experiencea declinein incomes.With no furtherinvestment in irrigation,all the privatefarmers in Bas Cheliffwould fallbelow the povertythreshold. Thus about 730 farms,or 5,450people would be in thiscategory, representing 271 of direct beneficiaries. E. Cost Ecovery 7.15 The Projectwould ensure that proper cost recovery levels would be appliedin the Cheliffvalley to ensurerecovery of 1001of O&M costsand a reasonableproportion of capitalcost. Thiswould also allow for financial independencefor the CheliffOPt in chargeof 0&M of irrigationinfrastructure in the valley(para. 6.09). As for elsewherein the country,the 1979water chargesin the projectarea, includingthe volumetricwater chargesand the fixedannual levy, were increasedin 1985by 561 (para.3.07). Despitethis substantialincrease in currentterms, water charges remained almost unchanged in realterms compared to their1979 level. 7.16 In order to meet the objectivesstated above, water chargeswould have to be increasedas follows: (a) VolumetricWater Charges (VWC). The currentVWC are DA 0.12/m3in Bas Cheliffand DA 0.15/m3in HautCheliff. At theselevels, the participatingfarmers and DAS wouldcontribute to about551 of the O&M costsincurred to the CheliffOPI. It has been estimated,based on the projectcost figures, that if the OPI is to cover100% of its O&M costs,including e?uipment replacement, the VWC wouldhave to be increasedto DA 0.19/r for Bas Cheliffand DA 0.43/m3for Haut Cheliff. Thiswould involvea 581 and a 1851increase, respectively, over currentVWC. The chargefor the irrigatedwater in Haut Cheliff includesabout DA 0.08/m3for pumpingcosts and the replacement costsof the pumpingequipment, which explains why it is so much higherthan the VWC for Bas Cheliff. (b) FixedAnnual Levy. At present,in additionto the VWC,farmers are requiredto pay a fixedannual levy which is DA 150/hain Bas Cheliff and DA 200/hain HautCheliff. In additionto thislevy, farmers are requiredto financeall on-farmirrigation investments, pipes and

2993K -44-

sprinklerequipment in Haut Cheliffand quaternarycanals and drains in Bas Cheliff. In addition,a part of the volumetricwater charges will pay for the replacementcosts of the equipmentunder the control of OPI. It has been calculatedthat by financingthese three elements,l.e., the levy, the on-farminvestments, and the replacementof the systems'equipment, farmers would contributeabout 152 and 7% of total Project investmentcosts for taut and Bas Cheliff,respectively. On the other hand, if all investmentcosts were to be 100% recovered,farmers would have to pay DA 2,825/ha/year in Bas Cheliffand DA 5,470/hain Haut Cheliff. This would imply a huge increaseover the currentlevel of farmers'contribution to the investmentcosts in both areas.

7.17 The returns to farmersfrom participatingin the Projectare quite high (para 7.12) s0 that there is scope for cost recoveryof both O&M and capitalcosts. The table below shows the burden of full cost recoveryas a proportionof total rents accruingto the farms of differentsizes. The rents are definedas net incrementalincome less imputedcosts of a number of factorsplus an allowancefor risk. Detailsof the calculationare in Table 4 and in Annex 4 of the ImplementationVolume, and summarizedbelow, in present value terms,discounted over the life of the Project.

2993 -45-

COST ANDRENT RECOVERY a

Haut Cheliff Bas Cheliff Haut Cheliff Bas Cheliff Farm model Farm Farm DAB DAS model model Size of farm 4.1 ha 1.1 ha 9.0 ha 340 ha 165 ha --- - million-DA

1. Net Incremental Income 1.10 0.59 2.86 92.22 51.63

2. Rent 0.68 0.32 2.03 71.81 40.54

3. VolumetricWater Charges /b 0.10 0.02 0.16 7.46 2.85

4. Land BettermentLevy/c 0.02 0.00 0.03 1.86 0.47

5. Total direct charges (3+4)Id 0.12 0.02 0.19 9.32 3.32

6. Rent Recovery Index (5:2) 0.17 0.07 0.09 0.13 0.08

7. Net Increm. Income Index (5:1) 0.11 0.04 0.07 0.10 0.06

/a All figures are discounted valuesover 40 years at 10%. See Annex 4 in the ImplementationVolume for details /b DA 0.425/m3for wittCheliff and DA 0.19/m3 for Bas Cheliff /c Full capitalcost recovery /d Nay not add due to rounding.

7.18 From a financial point of view, if expected production targets are met, the analysisshows that full cost recovery would not imposea hardshipon the participantsin the Project. If fullcost recovery were institutedfor bothO&M and capitalcosts, the burdento the farmerswould be relatively small,at 7-172of the rentsand 4-11 of the net incrementalincomes estimatedto accrueto the privatefarmers and at 8-131of the rentsand 6-101 of thenet incrementalincome accruing to the DAB. It shouldbe noted, however,that water charges were increasedsubstantially in 1985and under thisProject the VWC wouldbe increasedagain substantially. The scopeto increasefixed annual levies at the same timemight thereforebe politically difficult,in spiteof the fact thatfinancially such increaseswould not impose greathardship, even on the smallestfarmers. Governmentshould

2993S -46- neverthelessminimize the fiscal burdenof the Projectinvestment. It was agreed duringnegotiations that:

(a) Governmentwould annuallyincrease the volumetricwater chargesand the fixed annual levy in the subprojectareas so that 100% of O&M expenditureswould be recoveredby December31, 1989 and that at least 251 of the capitalcosts would be recoveredby December31, 1992. Accordingto the calculationshere, this would mean that: (i) VWC per m3 would be increasedfrom DA 0.12 to DA 0.19 in Bas Cheliffand from DA 0.15 to DA 0.43 in Haut Cheliff;and (ii) the annual levy would be increasedfrom DA 150 to DA 675 in Bas Cheliff and from DA 200 to DA 825 in Haut Cheliff,in constant1985 terms; and

(b) Governmentwould carry out a study on capitalcost recoverypolicy with a view to determiningif furtherincreased levels of recovery would be possible,discuss the recommendationsof the study with the Bank before June 30, 1989, and, on the basis of such discussions, take all measuresnecessary to implementsuch recommendations. F. Envhiromentaluwet

7.19 The Project is not expectedto have adverseeffects on the environment. Bilharziais not expectedto arise with the use of elevated concretecanals and buried pipes in the subprojectareas. However,cities such as Bch Chlef and Khemis Melianapresently discharge untreated sewage in the Cheliff River. A study conductedunder the CheliffMaster Plan has shown that, althoughno problemhas been noticedyet, this may pose a danger for the irrigationof fruitsand vegetablesin the future. To allow the Governmentto undertaketimely corrective measures if needed, it has been agreed that: (a) MBF would, throughthe CheliffOPI, closelymonitor the variationin the pollutionof the Cheliffwater, includingdownstream and upstreamof the basin, causedby sewage (coliformbacteria and biologicaloxygen demand, nutrientlevels, pesticides, etc.); (b) not later than December31, 1990, forwardto the Bank for its reviewand commenta report summarizingthe data recordedon the evolutionof this pollutionand (c) take all such remedial actionsas may be requiredto limit this pollutionhazard. In additionto this pollutionmonitoring the Governmentis establishinga system to assess the overallenvironmental impact of irrigationdevelopment, including in the Cheliffvalley, and the resultsof such assessmentwill be closelyfollowed by MNWl and the Bank.

G. EconomicAnyi

7.20 The Projectwould financea time-sliceof the MasterPlan for the developmentof the CheliffValley (paras.4.01 - 4.05), which involves developingwater resourcesboth for irrigatedagriculture as well as for potablewater. Becauseof the difficultyof accuratelyallocating economic costs to the Projectalone, an analysishas been carriedout of the whole Master Plan involvingequipping and operating49,700 new and rehabilitated hectaresin the Cheliffriver basin (para 4.03) as well as for the investments

as2a3 -47-

includedin the Project. The investmentsalready undertaken since development of the river basin startedin the 1940'sinclude 16,300 ha equippedwith hydraulicworks and six dams. Ongoing investmentsinclude construction of one dam (para.4.04).

7.21 The constructionof new and rehabilitatedirrigation schemes and dams would be carriedout accordingto an eleven-yearschedule. The overalllife of investmentsunder the Plan has been assumed to be 40 years,with replacementof vehiclesand equipmentduring the periodaccording to the economiclife estimatedfor each item. Deliveryof water to the schemeswould start in Year 2 of the Plan and continueto build up to the full 66,000ha. The implementationschedule is sumarized in the table below. The build-upof yields to projectedlevels begins in the first year of the water deliveryand for annual crops builds up to full Projectexpectations in four years; for tree crops the build-uptakes 10 to 12 years. Full developmentof the Master Plan is consideredto be in Year 24 (comparedto Year 18 for full development of the Project).

EVOLUTIONOF EOUIPPEDAREAS IN THE CHELIFF VALLEY

im1 im2 Ma3 I=4 ma5 ma6 im7 im8 im9 im10 mz11 im12 Ma13 am14 ------'000ha - cumulative------

-ExistingEquipped Area 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 -Rehabilitation -- 0.4 1.0 2.0 3.0 4.0 5.0 7.6 15.6 23.6 23.6 23.6 25.1 26.9 -Extension _ _ _ LAQ LA LA 1AA- 1. A I 31.1 =IZ Z2.8 TOTAL 16.3 16.7 17.3 19.3 22.3 26.1 30.1 38.1 47.8 57.5 59.2 61.0 64.2 66.0

7.22 Costs and Benefits. All costs were expressedin 1985 constantprices and valuedat borderprices. Works under the Master Plan involvecompleted works which were treatedin the basic analysisas sunk costs. The economic costs of the Master Plan were taken from financialcost estimatesof civil works, equipmentand vehicles,and operatingcosts preparedby consultants, convertedinto borderprices. The economiccosts and benefitsof on-farm productionexpected from the expansionand rehabilitationof irrigationunder the Master Plan were projectedusing the parametersof on-farminvestment and productioncosts and on the croppingpatterns, yields and productionlevels developedin some detail for the rehabilitationin Bas Cheliffand the newly built areas in Haut Cheliffin the Projectproposed; then applied to the largerareas coveredby the Master Plan, i.e., for 26,900hectares to be rehabilitatedand for 22,800hectares to be newly built (para.4.03). Whereverpossible, import parity prices were used for items such as fertilizers,diesel, and agriculturalequipment, factoring in the World Bank's comuodityprice projectionsfor 1990 and 1995 whereverrelevant. The conversionof investmentcosts in financialterms to economicterms for the economicanalysis was based on the relationshipsof domesticprices to world prices for the componentsof civil works and equipment,i.e., steel, copper, and cement,and on the economicprices for labor, taken as 602 of the market

299s3 -48-

wage for unskilledlabor, 802 of the market wage for local skilled labor (20% taxes)and 1002 of the marketwage for foreignskilled labor. Because the detailsof the potableand industrialwater sugply subprojectwere not available,the benefitsand coats of the 150Mm allocatedto potablewater were excludedfrom the calculation(para 4.02).

7.23 EconomicPrices of Output. Cotmdities that are officiallytraded have been pricedat the actual 1985 importparity price, adjustedfor the World Bank's commodityforecasts for 1990 and 1995. Non-tradedcommodities, such as fruitsand vegetables,currently command exceptionally high prices in Algeriawhich may not continuein the medium-term. Commoditiesthat are not officiallytraded have thereforebeen conservativelypriced at Moroccanor Tunisianborder equivalents, based on 1985 Moroccanor Tunisianfinancial prices,and adjustedfor transportcosts. The detailedcalculation by crop and comparisonwith the financialprices are found in Annex 6 of the ImplementationVolume.

7.24 EconomicRate of Returnof the Master Plan. The overall economic rate of returnfor the Master Plan is shown in the table below and is estimatedat 171. The Net PresentValue of the Plan at a discountrate of 101 is estimatedat DA 1,310.8million. The Plan is thus consideredeconomically acceptablefor financing. If sunk costs and the relatedbenefits are included in the analysisof the Master Plan (whichinvolve 16,300 ha of extensionand seven dams - see paragraph7.20), the overaillrate of return is still an acceptable111. Thus even if an economicanalysis has been carriedout (in 1985 terms) for the entire schemebefore its start in 1979, it would have been found economicallyviable.

7.25 EconomicRate of Returnof the Prolect. A subsidiaryeconomic analysiswas also carriedout for the investmentunder the time-slicethat would be financedby the Project. Since the economicrate of return of the Master Plan was based on the data and assumptionsdeveloped in some detail for the 13,000ha in the Projectarea (8,000ha in Haut Cheliffand 5,000 ha in Bas Cheliff),the calculationof the economicrate of returnfor the Project alone was a matter of applyingthem to the investmentsand benefitsfor the 13,000ha. The one diffic'-ttyof evaluatingthis time-slicewas the allocationof costs of the Sidi Ben Taiba dam, which is to be constructed startingin 1989, but outsidethe scope of the financingof this project. As water from the dam will eventuallybe necessaryfor irrigationin the Haut Cheliffsubproject area, at least a part of the costs had to be includedin the economicanalysis. Part of the water is to be used for irrigationoutside the subprojectarea and part for potableand industrialwater (para.4.02). Since it is estimatedthat seventypercent of the water is to be used in the Haut Cheliffarea, the simpleassumption was made that 701 of the costs of the dam shouldbe allocatedto the Project for the purposeof this analysis. The resultsin the table below show that the rate of return for the Projectis estimatedat 151 and the net presentvalue at a discountrate of 101%is DA 256 million.

299SZ -49-

H. Risksand Senrstivity Analyis

7.26 The major rists whieh could adverselyaffect the economicviability of the Projectare the following:

(a) The newly createdDAS in the Haut Cheliffand the existingDAB in the Bas Cheliffmay not make efficientuse of the irrigationfacilities providedby the Project so that the expectedbenefits are not achieved. In the Haut Cheliff,the proposedrestructuring of the existingDAS will create pressureon DAS managementduring a transitionalperiod and cause delays in the productionbuild-up rates. Contraryto the DAS in Haut Cheliff,those in Bas Cheliff have not had great successunder difficultsoil conditionsand bad weather,and the risk also exists that these DAS will be unable to handle,at the projectedpace, the more intenseactivities required for an irrigatedarea. This would also resultin slower production build-uprates and thus lower returns. Sensitivityanalysis 'was carriedout to test these risks by decreasingDAB yield.by 10% and increasingtheir on-farmoperating costs by 10 to reflect inadequate management. The rate of returncombining both effortsdrops to 11.61 (the analysiswas done on all yields and on-farminvestment costs, but as DAB will occupy 80-85%of the area, this is only a slightly more pessimisticassumption than if DAS yields and operatingcosts were isolatedin the analysis). A lag of one year in benefits reAultsin a rate of returnof 12.9%and a lag of two years in a rate of returnof 10.4%;

(b) Both privateand DAS farms couldbe affectedif agricultural equipment,livestock and associatedinvestment, or credit were not availablein a timelymanner. This might occur eitherbecause of the physicalunavailability of the equipmentor becauseof the length of time for credit to be accorded. Croppingoperations would thus sufferand yields be affected,or alternativelythe benefitsof the Projectwould be delayed. A 101 decreasein yields would lower the rate of return to 13.5% and a 201 decreaseto 9.51. The lag in benefitswould affect the rate of returnas mentionedabove in para. (a); and

(c) Establishinga new organization,such as the OPI, has certainrisks. It may not operateeffectively at first,either because of lack of managementor lack of experience. It may not be financially self-sufficientbecause it may in the early years underestimateits operatingcosts and be under-funded,by its collectionof waterchargesand by its receiptsfrom Governmentto make up the difference. This would ultimatelyaffect deliveryof water to the irrigationschemes, and also might requirehigher than anticipated rehabilitationor maintenancecharges in later years. These factors would tend to lower yieldsand increaseoperating costs, respectively,beyond those estimatedhere. The risk of inadequate maintenanceof the irrigationsystem was shown by a decreaseof 101 in all crop yieldsand a 101 decreasein croppingintensity, for a -50-

total decreasein benefitsof 202 and an Increasein operatingcosts of 10X. The combinedimpact of these changeswould be to lower the economicrate of returnto 9.32.

7.27 The projectdesign has attemptedto minimisethese risks. As far as achievingacceptable performance by the DAS, the Projectwould ensure that adequatearrangements are in place to restructurethe DAB to handle the increasedagricultural activities and to establishperformance monitoring arrangements. In addition,unacceptable performance of the DAS would be addressedby changes in management,improvements in technicalexpertise, and if necessary,by allocatingsome or all of the land to other farms (para. 6.13).

7.28 Availabilityof credit, inputsand equipmentwould be ensuredby agreementwith Governmentthat this is a priorityinvestment area (para. 4.16). Governmentis committedto improvingdistribution of these factorsof production. In addition,the proceduresfor obtainingcredit are being simplified,so that credit allocationwill be festor also lead time between the beginningof the Projectworks and deliveryof water is sufficientlylong that creditfor equipmentcan be appliedfor in advanceof water delivery. Finally,to ensure efficientoperation of OPI, the Projectwould provide technicalassistance in the early years to help the newly formedorganization begin its operations(para. 5.07). In addition,water deliverywould come on-streamgradually, and this would give OPI time to developsatisfactory staff and organization. This shouldmitigate against ineffectiveoperation.

7.29 The switchingvalues of the projectare -18.92 for all benefitsand +23.3S for all costs before the net presentvalue drops below 102, the opportunitycost of capital. While certainrisks discussedabove could cause the rate of return to drop to slightlybelow 102, the Projectdesign has tried to ensure againstthe worst-casescenarios (decrease in benefitsof 202). Particularlyconsidering the conservativeassumptions used on yield and croppingintensity changes and prices,the Master Plan shouldbe considered economicallyviable and the Projectas a time-sliceof the Master Plan suitablefor World Bank financing.

2993E -51-

RESULTSOF ECONOMICANALYSIS

Rate of Return - -

A. Master Plan Excludins Sunk Costs

Base Case 17.2 Benefits Down 101 and on-farm recurrent Costs up 101 /a 11.6 Benefits Down 101 /b 13.5 Yields Down 101 and Cropping Intensity Down 10% /e 9.5 BenefitsDown 201 and OperatingCosts Up 101 1d 9.3 Lag 1 year /a 12.9 Lag 2 years la 10.4

Switching Values 2 Change in:

Investmentcosts 83 Operatingcosts 461 On-farm investments 315 Productioncosts 39 Total costs 23.3 Total benefits 18.9

B. Master Plan Includins Sunk Costs 11.2

C. ProiectTime Slice 14.8

/a See risk in paragraph7.26(a) /b See risk in paragraph7.26(b) Ic See risk in paragraph7.26(c) /d See risk in paragraph7.26(c)

2993* -52-

VIIL AGREEMDENTSREACHED AND RECOMMENDATIONS

8.01 Prior to negotiationsof the Loan, the Government:

(a) gave the Bank detailson the size and compositionof the revised expenditureprogram for the 1985-87period (para3.04);

(b) confirmedthat funds for the constructionof the Sidi MohamedBen Taiba dam as well as for the projectworks have been scheduledin the currentDevelopment Plan startingin 1987 (para.4.12);

(c) confirmed that the organization and management study for the new Cheliff OPI would start by end-March(para. 5.10); and

(e) provided a statement acceptable to the Bank defining the principles to be followedand actionsto be taken duringproject implementation to ensure satisfactoryperformance for the DAB (para.6.13).

8.02 Agreementswere reachedduring negotiations that included:

(a) Government would cause constructionof the Sidi MohamedBen Taiba dam to be completedbefore September30, 1993 (para.4.12);

(b) Governmentwould ensure routinesafety inspectionof all dams upstreamof Projectareas (para.4.12);

(c) Government would cause input deliveriesto the projectfarmers to be timely and in adequate quantities to meet demand (para. 4.16);

(d) the procedures and arrangements described in para. 6.02 with regard to t'ie project organization for its implementation;

(e) the procedures and arrangements described in para. 6.05 -Ath regard to the projectmonitoring and evaluationand the Projectcompletion report;

(f) the procedures and arrangements described in para. 6.06 with regard to the project accounts and audit;

(g) regardingthe organizationfor improvedO&M: (i) Governmentwould submit to the Bank for reviewand comment the findingsof the study on the detailedorganization and staffingarrangements of the Cheliff OPI; and (ii) Governmentwould agree on the principlethat the Cheliff OPI would become financially independent from Government budgetarysupport by December31, 1989 (para.6.09);

(h) regardingthe improvementof the socialistfarms' performance:(i) by December31, 1988, Governmentwould exchangeviews with the Bank on the detailedmanagement and financialcriteria, such as those describedin paragraph6.12, to be used to evaluateDAS performance

2".33 -53-

and establisha detailedmonitoring system based on these criteriato monitorperformance of each DAS; (ii) by December31, 1988, Governmentwould exchangeviews with the Bank on actionsthat will be taken if the expectedperformance levels are not met; and (iii) by December31, 1989, Governmentwould completethe restructuringof the 8 DAS of the sautCheliff subproject area so that they can use efficientlythe project irrigationsystems and be profitableunder irrigationconditions (pars. 6.13);

(i) regardiugcost recovery:(i) Governmentwould annuallyincrease the volumetricwater chargesand the fixed annual levy in the subproject area so that, by December31, 1989, 100% of O&M expendituresand by December31, 1992 at least 25% of the investmentcosts would be recovered;and (ii) Governmentwould carry out a study on capital cost recoverypolicy with a view to determiningif inereasedlevels of recoverywould be possible,discuss the recommendationsof the study with the Bank before June 30, 1989, and, on the basis of such discussions,take all measuresnecessary to implementsuch recommendations(para. 7.18); and

(j) MElF would, throughthe CheliffOPI: (i) closelymonitor the variationof pollutionof the Cheliffwater causedby sewage; (ii) not later than December31, 1990, forwardto the Bank for its review and comment a report suinarizing the data recorded in the evolutionof this pollutionand the findingsand recommendationsof the environmentassessment study; and (iiM) take all such remedial actionsas may be requiredto limit this pollutionhazard (para. 7.19).

8.03 It would be a conditionof disbursementagainst expenditures for constructionof infrastructureand purchaseof equipmentfor the Raut Cheliff perimeter that after Decembe,- 31, 1988 no disbursementswould be made in the relevant categoriesunless the biddingdocuments for the constructionof Sidi Mohamed Ben Taiba dam had been issued (paras .4.12and 5.20).

8.04 Subject to the above assurancesand conditions,the Projectis suitablefor a loan of US$94 millionequivalent with a term of 15 years, includinga three-yeargrvce period. The Project is expectedto completedby December 31, 1993.

2993t - 54 - Table I *ccowis COSTiae 1

9imot*Y*4IXnwr cOst mstl"R (3* '000) (19 000) Total ---- *~~*~--- - -I^---Forests Base Local Foreign total Local Foreign total Eeiagedb Costs .wU8 muaw aua_a ssa. ausa_ auaaaaansua.n

It INlEl COSTS

A. GENIECIVIL

1.STATIGON KEPONPAI 164215 16.311 32.526 3.450 30470 6920 50 5 2. REkUX IRRISATON 127V35A1289062 255.417 27V09727,247 54344 50 39 3. RESEAUXA9AINSI t 31,933 32,121 64.055 6,794 6934 13,69 SO 10 4* RESEAUXDEBRAINAKC 11..98 11.667 23,265 29468 2.482 4,950 50 4 5. PISTESRURIES 22.009 229943 4572 4.B53 4.801 9734 50 7

Sub-TotalGENIE CIVIL 209S91211.103 421.015 449662449916 894578 50 64 -. ERUIPENEWT

1* MuRIELElE3:1nCTRM NIUCSP 12.959 38994951.900 2757 8.207 l1.044 75 2. IATERIELHNDflHEA I0OUE 6.725 19,248 25.973 1,431 4.095 5.526 74 4 S. RADIO- TEECUUOWICATIOU 1.304 3,911 5.214 277 832 1.109 75 1 4. lIWORHAtU1E 912 277 3.6N0 194 582 m 75 1 5. NAMTRILENINETt6 OEMUX 89B 2.698 3,596 191 574 765 75 1

Sub-totl EOUVIFIENT 227M 67544 90.341 4,831 14.371 19.221 75 14 C. INWESTISENTISA LAFERIE

1. NATERIEL000IEt 2.052 4.796 6.849 437 1,021 1.457 70 1 2. SAtIIENTI 21.929 14647 369476 4.645 3.116 7.761 40 6 3. IRACTEURS 49412 6.648 11.064 m 1415 2.353 60 2 4.EIPENENT 1.327 39103 4.430 282 660 943 70 1 5. WLANTIONS 1294 1.399 13.893 29659 299 2W956 10 2 6.ACHAT KETAIL 39946 7.3 11.317 839 1.569 2400 65 2

sb-TotoaliNMEStIS9ENENT A LAFERNE 46.060 37.964 94.25 9.900 8.077 17.870 45 13 t YEHICULES 1.076 1.622 2.699 229 345 574 60 0 E.ASSISTANCE TECONMIGE 3l535 loO6 14.141 752 29256 39009 75 2 F. FORRATION 623 19460 2.083 133 311 443 70 0 do EtlUDES 34128 12.514 15,642 666 2,663 3.328 s0 2

tOW INVEBtNTCOSTS 28?91323424.12 629944 61.092 72939 134031 54 96

tI.RE,RREUT COSTS

Al. _RO L 6093 - 6.093 1.296 - 1,296 - I t. RONCTIGIUEwTEtENTREtIEN 8.476 10,414 18.891 1 803 2h216 4.019 55 3 C. EIGIE POE 1.214 1.223 2,437 258 260 519 S0 0

TOtalRECURRENT COSTS 15.783 11.317 27.421 3.358 29476 5834 42 4 taWlSAGELIME COSTS 302916 354w450657.365 64.450 75,415 139,06S 54 100 FIwsical Ctstndtlaniss 30.649 36.886 67.536 6.521 7.848 14.369 55 t0 Price Cmntinduics 95M000S2.01 147.609 20.215 11.2 31.406 36 22 tta PROFECTCOSTS 4289573443997 m 2.510 n1.10* 94.55 195.641 51 133 *~~~~~~~~~~~naa __aaa inaauu a_sagg mum amaas uauua, - 55 - TabletI

SJs v Akeourmtsbs YTt (PA1000) bu Cots ForeignEhcinge _ ...... , ...... , , , ., _ , ...... _ _ _ , _ . 07 00 89 90 91 92 93 total X Aat

1. INVESTmENCOSTS

A*BENIE CIVIL 1. STATIONSt PAE - 1*95 4,715 10733 1053 4.554 32.26 50,1 16t311 2, RESEXIRRIBATION - 28049 56us7 72s53263,206 280849 69024255417 50.1 128062 3. REEUXAUAINISlT - 10264 12.011 17.706 13.478 99796 - 64t055 50.1 324121 4. REAUXDE DRAINAE - - 4,004 49942 6.745 6.745 830 239265 50.1 11.67 5. PISTESIRALES - 5359 9,935 1447M 12,190 3.791 - 45752 50.1 22.943

Sub-TotalCENIE CIVIL - 45.iU 80,22112030 106l191 335M 6,853 421,015 50.1 211t103 B. EOUIPENT

1. NATERIELELECTROCCIGUE U - - 1,928 12990428*622 0,453 - 51M90M750 380.9 2.MATERIEL HYMBANNUECNIO - 222 1.332 7I325 12.042 052 - 25.973 74.1 19,248 3sRADIO - TELECOGtNCATION - 1,564 29607 19043 - - - 5.214 75.0 3,911 4.INVFORMATIE - 109J 1,025 730 - - - 3P650 75.0 2,737 5. MATERIALENTRTIEN REOCAUX - - 3.179 104 104 104 104 3.596 75.0 2.698

Sub-TotalEUIPENENT - 20881 10.0?1 22,106 40.768 13#609 104 90,341 74.8 679544 C. INVESTISSENENTSA LAFERNE

1. MATERIELNOILE - - - 1.578 2,899 2,371 - 6,949 MO 49796 2.BATIMENTS - - 1.153 9.006 1570?610,530 - 369476 40.2 14.647 3. TRACTEURS - 2.594 3.394 2s923 19009 19141 - 11.060 60.1 6648 4.EGUIPENENT - 11009 11076 929 721 695 - 49430 70.0 34103 5.PLkNTATIONS - - 3.879 5.049 3.016 1.950 - 134893 10.1 1.99. 6,ACHAT PETAIL -- - 1 61719634 3.512 - 11.317 65.1 79371

Sub-TotalINVESTISSEETS A LAFERE - 3603 9.S01 20965630.065 209200 - 84,025 45.2 37.964 D0.VERICULES 1627 1,023 7 42 - - 269 60.1 1.622 E. ASSISTANCETECHNIOtE - 1,710 4964 3963 2M753 751 - 149141 t5.0 10,605 F. FORMATION - 312 365 677 521 208 - 2,003 70.1 1,460 G. ETUDES - 4.693 7.821 3128 - - - 15642 80.0 12,514

Total INVESTMENTCOSTS 1,627 59,046121,751 170.962 ±N0298 88,503 6.950 629.944 54.4 342012

11, RECURRW3iCOSTS

A. PERSONNEL - 675 9o 1,084 1llS lt1lit 1.115 6t93 0.0 0 B. FONCTIONWEMENTTENRETIEN 322 493 594 1.22 1S052 3.990 109412 180891 55.1 10.414 C. ENERBIEPOtAPE - - - - - 722 1.715 2U437 50.2 1,223

Total RECtURRENtCOSTS 322 1.168 1.584 2.312 2,967 5.826 13.242 27.421 42.4 114637 Total BASELINECOSTS 1.49 619014123.335 143,274103265 94,330 20.t1 657,365 53.9 3549450 Phisic,l Continrfwcles 195 6366 12.061 17.912 18,744 9.549 1.908 67s536 54,6 36.886 Price Cantintencis 160 74547 19,918 354379 45.744 30.425 8.437 1479609 MM. 52.601

Total PROJECtCOSTS 2.304 74927 156,115226,565 24M752 134,303 30.545 82,510 50.9 443P937

TOX06 4p2 15.187 29.712 41.76 457m 24846 4409 163154 0.0 .0 ForuimExchang 1.367 40426 M1M73113.7 1274VM91 6111 13645443.93 0.0 0 -56- Table 2 STAFFAPPRAISAL REPORT DEMOCRATICAND POPULAR REPUBLIC OF ALGERtA CHELIFFIRRIGATION PROJECT Estimated Sohedue of Dibursement of BankLoan a/

(US$ Millions)

Bank Disbursements IBRD By End Cumulative FiscalYear QuarterEnding of Quarter Cumulative % Disbursed

1988 September30, 1987 0 0.0 0 December 31, 1987 1 1 1 March 31, 1988 2 3 3 June 30, 1988 1 4 4

1989 September30, 1988 1 5 5 December 31, 1988 1 6 6 March 31, 1989 1 7 7 June 30, 1989 2 9 10

1990 September30, 1989 2 11 12 December 31, 1989 3 14 15 March 31, 1990 3 17 18 June 30, 1990 4 21 22

1991 September30, 1990 4 25 27 December 31, 1990 4 29 31 March 31, 1991 4 33 35 June 30, 1991 4 37 39

1992 September30, 1991 4 41 44 December 31, 1991 5 46 49 March 31, 1992 5 51 54 June 30, 1992 5 56 60

1993 September30, 1992 5 61 65 December 31, 1992 4 65 69 March 31, 1993 4 69 73 June 30, 1993 3 72 77

1994 September30, 1993 3 75 80 December 31, 1993 4 79 84 March 31, 1994 4 83 88 June 30, 1994 4 87 93

1995 September30, 1994 4 91 97 December 31, 1994 (ClosingDate) 3 94 100 a/ Expected Completion Date : December31, 1993 Expected Closing Date : December31, 1994 2993E/p57

(Figures do not reflect use of special account) - 57 - Table 3

STAFFAPPRAISAL REPORT DEMOCRATICAND POPULAR REPUBUC OF ALGERIA CHELIFFIRRIGATION PROJECT

Ist of EcuiDment to be Prooured Under the Proleot

Estimated Base Cost Item Quantity DA '000

(1) Operation and Maintenance Equipment

* HydraulicExcavator, 125 UP 1 835 * Tractor-mountedCrane, 4 tons 1 315 * Truck-mountedCrane, 1 ton 1 190 * Motor Grader,125 HP 1 625 Traxcavator,im 3, 9O HP 1 470 * Compactor 1 365 • Compressor 1 125 * Truck, 7 tons 1 155 * Miscellaneous - 520

Subtotal 3,600

(2) Radio-TelecommunicationEquipment 5,200

(3) ComputerEquipment 3,650

(4) ElectromechanicalEquipment 52,000

(5) Hydro-mechanicalEquipment 26.000

TOTAL 90,450

2993Ep58 5S8- TTable 4

Cost Nantb ROMA (36ltalliom)o

Fat Nadel V.t. Nudel Fae bde aft dIe FarsNadel Fare sie 4.1 h 1.l ha 9.0 ha 340h 16 h *umbrof fam 118 707 20 15 28 DiscmtedValue of Strm /a 1. NetIncemntal Incom/b 1.10 059 2.66 92.22 51.63 2. Less: Iute Vdalwod Fel! Laor /c O.18 0.16 O.1S lted VIlueof anat /A 0.15 0.07 0.45 13.07 7.29 Iutd Return on Caital/0 o0.0 0.0 0.001 0.80 0.1S Allwancefor risk It 0.07 0.0 0.22 6.53 3.64

3. EawlsS Rmt/9urlusA 0.06 0.32 2.03 71.01 40.54 4. Runtas Z of NutInremntl Inm 62.32 54.971 n.01 no." 78.52

5, Vater ChareslA 0.10 0.02 0.16 7.46 2.95 4. LandBlttemnt Le"y/A 0.02 0.003 0.03 1166 0,47 7. Total dit chres (S) 0.12 0.02 0.19 9.32 3.32

S. RentRecover Index :3) 0.17 0.07 0.0 0.13 0.08 9. Net IncrtmentalInm ReoveryIndex (7W1) 0.11 0.04 0.07 0.10 0.06

USDollars

12. Farmer'sIncoe per capita at full developent /i 4231 221 10.41 4M6 6r606 13. EstimatedPoertt threshold. s5 war A S51 511 Sit 511 511

/aForty wars at102. /bExcluding water chares /cValued at the market wae rat of90/dw for talv fatms. /d Calculatedat 102of stossvl oattoduction. Is lmutedreturn on tfaet's asns. /t 52of grss value of production, / Grms ent. incrntal tax Pmnts not deducted. Jh ForNaut Chuliff . t4253/mUOn Cheliff .*190/ inlud muint lac_ent. /i At full ot recory for investent ludlnt eirmnt relacmnt. si Year15 at 7.5 peop per tfulw andUS$1 4.IS0la1forDN mmbersinclude salary. A USMU5 195 rel groth Pot a" at -2.0 flW990-. 1991-195. _59 Table 5

STAFF APPRAISAL REPORT DEMOCRATICAND POPULAR REPUBLIC OF ALGERIA CHELIFFIRRIGATION PROJECT

SelectedDocuments and Data Available in the ProiectFile

1. Algeria - AgriculturalSector Survey - PreliminarySubsector Notes (October1986)

2. Alg6rie- Documentde travail- Missionpreparation - projet hydro-agricoledu Cheliff,FAO/CP (ReportNo. 48/86 CP - ALG 11 WP of March 27, 1986).

3. Plan Quinquennal 1980-84 et plan annuel 1984. Bilan d'ex6cution- Rapport, Ministere de l'ydraulique, de l'Environnement et des For&ts (March1985).

4. Water Code - Law 83-17, July 16, 1983

5. DecreeNo. 85-260dated October 29, 1985 definingroles and responsibilitiesof OPI.

6. Decree No. 85-261 dated October29, 1985 definingstatus of OPt.

7. Decree 85-267 dated October29, 1985 definingthe policyframework of cost recoveryin the LSI perimeters.

8. MinisterialOrder dated October29, 1985, increasingthe 1979 water charges.

9. Etude du Schema Directeurdes Ressourcesen Eau du Cheliffet R6am6nagementdu P6riumtredu Bas-Cheliff(Many reports)SOGUZAN-SNC (i983-86).

10. Annexes in ImolementationVolume

1. Irrigation 2. Crop Production 3. Livestock 4. Production,Farm Budgetsand Cost Recovery 5. DetailedCost Estimates 6.*conomic Analysis 7. MonitoringSystem for the DAS 8. TechnicalAasistance and Training

29932/p59 LYAIFFAPA!AL REOT AL=h CHELIFFTXRREIS PElECT Ministrv of Hvdraulic. Enviroamnt and Forests

Ornanniati on Chart

Mtn ster'sI Offiee

[echnicalAd Afsors Mission Chief5s __

aVceginister for t 1I -Environes:torests

§ SecretaryGeneralIs H:I:3 Office1ft

299SE/0Cooperation VW Trainingad Large Scale waterMob11t- WaterSUPly Planntns Adbinistrationl Lega Af1s Reac rtto rdumSeal a 2attonanW and Sewerae 4 oirectorates sr Sers rrsotren Tranfer Central setoae -Protection § t ~~~~~~~~~~~~~~againstpollution -Parksand Fawna _ ~~~~~~~~~~~~~~~Protection r-- ~~~~~~~~~~~~~~~~~~-Forestry

CentralLevel orsStudies OH|------

!0 I I *"^onal~~~~~~~~~~~Ceta Divisi m

|HautChel1f | aCe1ff | |Chliff OPI| kt"71unitLJ IieSUi

2993E9p0O CI!FFCAI"U4A EL

CH1_Z^ timhcjg .

Project Year-- - ... - ....- .....- - L....- - .L - - Calenr YTear 1967 19"6 19 _ 19 1 199 _ I.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-_ -I _._I__ .9

In frsOwl t -1 ...... M I 1rrgEtentonWrks in

WaistOwl

*061o ETwlpmnt

* Rpaditsauimni ----- *------*------

* Vehicles

?.tduichial a,sts tame,. Studies

* TA for COmliff OPT ... . * TA forMrnwk Saermtso ...... * TAfor GASMonitoring......

* Urs Ch.11ff Study ...... - - - Staff Training

* Opt Staff * ExtensionStaff

...Tenderingand Award ---- Tendering,Award and Delivery ______.leuentatiou If ICIlY lUG!

ALGIERS

ALGERIA Cherche!OI CHELIFFIRRIGATION PROJECT n - TenesOa Blida Sidi Mohamwd BSenTatea

, HAUT CHELIFF

NEW AMRA ACADIADefla r #Ghrlb PERIMETER ~ 'arz12f3 PROJECTMoha0haFEATURESSiEdi I23Mf REMBIUTATEMOVEN C ELIFFM3

BAS CHELIFFA trjad SidiiaeAe U~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ iNA -'-. ' Moataganem Rhlru Statio POIEBTO Aoud rd_u

PROJECTFEATURES: Mohamad .7

Areasto be Equippedfor Irrigation - Irrigated Areasto be Rehabilitated L Major PumpingStations Tieret

OTHERFEATURES: . 0khadd_ _ _ Lower Cheliff CatohmentBoundaries . . ALGIEF3 LriExistingIrrigated Areas1DAAHiL

Areasto be Eqluippedfor Irrigation ARMS Existing Major PumpingStations I , N 5 A Existing DiversionWeirs 4m,osagBaner Existing Dams 4 tnefn O Damsunder Construction 20 40 60 r Damsto be Constructed l°ilometers 198MnmOlVolume of Annually RegulatedWaters ~--- Rivers * ProvinceCapitals UPPERAND LOWER * National Capital CHELIFF CATCHMENTS

APiUL I