Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No. 11786

PERFORMANCE AUDIT REPORT

DOMINICAN REPUBLIC Public Disclosure Authorized

NIZAO IRRIGATION PROJECT (LOAN 1655-DO)

APRIL 12, 1993 Public Disclosure Authorized Public Disclosure Authorized Operations Evaluation Department

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

Name of Currency (Abbreviation) = Peso (RD$) Currency Exchange Rate:

Appraisal Year (1978) Average: US$1.00 = RD$ 1.00 Until December 31, 1984: US$1.00 = RD$ 1.00 Average 1985: US$1.00 = RD$ 3.11 Average 1986: US$1.00 = RD$ 2.88 Average 1987: US$1.00 = RD$ 3.23 On June 1, 1988: US$1.00 = RD$ 6.20

WEIGHTS AND MEASURES

Metric System and 1 TAREA = 0.062 Hectares (ha)

ABBREVIATIONS

BA (Agricultural Bank) CAE (State Sugar Council) CDE (Electric Company) CPS Central Project Staff DR Dominican Republic ERR Economic Rate of Return FACI Food and Agricultural Organization of the United Nations GODR Government of the Dominican Republic LAD Instituto Agrario Dominicano (Dominican Agrarian Institute) IDB Inter-American Development Bank IFAD International Fund for Agricultural Development IICA Instituto Interamericano de Cooperacifn para la Agricultura (Inter-American Institute of Cooperation for Agriculture) INDRHI Instituto Nacional de Recursos Hidraulicos (National Institute of Hydraulic Resources) NIP Nizao Irrigation Project OED Operations Evaluation Department O&M Operation and Maintenance ONAPLAN (Planning Secretariat of the Presidency) OPS Operational Policy Staff PAR Performance Audit Report PCR Project Completion Report PRODAS (Agricultural Development Project - San Juan) SAL Structural Adjustment Loan SEA Secretary of Agriculture SECAL Sector Adjustment Loan

GOVERNMENT OF THE DOMINICAN REPUBLIC FISCAL YEAR

January 1 - December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A.

Office of Director-General Operations Evaluation

April 12, 1993

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Performance Audit Report on DOMINICAN REPUBLIC Nizao Irrigation Project (Ln. 1655-DO)

Attached is a copy of a report entitled "Performance Audit Report Dominican Republic Irrigation Project (Loan 1655-DO)" prepared by the Operations Evaluation Department.

The audit confirms the findings of the Project Completion Report, especially the poor design and implementation, inadequate organizational arrangements and limited institutional development. Agricultural development was not given the needed priority, water management aspects were neglected and macroeconomic conditions were unfavorable. While some of the physical targets were attained, the project is rated as unsatisfactory overall because the economic return is now estimated at about 6 percent, well short of the 10 percent minimum threshold and only a fraction of the return estimated at completion (16 percent).

An impact evaluation will be considered given the complex externalities of the project and Government indications that subsequent action has been taken to increase investment productivity and improve socioeconomic conditions.

Attachment

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

PERFORMANCE AUDIT REPORT

DOMINICAN REPUBLIC

NIZAO IRRIGATION PROJECT (LOAN 1655-DO)

TABLE OF CONTENTS

PaeNo.

PREFACE ...... i BASIC DATA SHEET ...... iii EVALUATION SUMMARY ...... v

I. INTRODUCTION ...... 1 A. Background ...... 1 B. History of Irrigation Development ...... 1 C. Bank's Experience with Irrigation ...... 2 D. Other Donors' Experience ...... 3

II. THE PROJECT ...... 4 A. Sectoral Considerations ...... 4 B. Project Objectives ...... 5 C. Project Costs ...... 5 D. Project Preparation and Design ...... 6

III. IMPLEMENTATION EXPERIENCE...... 8 A. Early Stages...... 8 B. Change in Project Directions...... 8 C. Changes in the Project Unit...... 9 D. Weak Coordination Arrangements...... 10 E. Mid-Term Evaluation...... 11 F. Competition for Water ...... 12 G. Monitoring and Evaluation ...... 12 H. Supervision and Compliance with Conditionality ...... 12 I. Overview of Implementation...... 8...14

IV. PROJECT OUTCOME...... 15 A. General Performance...... 15 B. Water Management...... 17 C. Economic Rate of Return ...... 19

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents Pa-e No.

V. FINDINGS AND LESSONS ...... 22 A. Major Determinants of Sustainability ...... 22 B. Design and Technical Problems ...... 23 C. Sector and Macroeconomic Aspects of Performance ...... 26 D. Lessons ...... 27

TABLES:

1. Surface Water Potential in the Dominican Republic ...... 29 2a. Cumulated Area Under Irrigation (Potential) ...... 30 2b. Irrigated Area Expansion Since 1985 ...... 30 3. Sedimentation in a Sample of Reservoirs ...... 31 4. Water Charges: Actual Versus Suggested 1989-1990 ...... 31 5. Water Charges and Cost Recovery ...... 32 6. External Financing Contracted According to Lender and Executing Agency ...... 33

ANNEX ...... 35

LIST OF REFERENCES ...... 39

APPENDIX ...... 43 ATTACHMENTS

1. Comments from ONAPLAN ...... 47 2. Comments from INDRHI ...... 49

MAP IBRD 13748 -1-

PERFORMANCE AUDIT REPORT

DOMINICAN REPUBLIC

NIZAO IRRIGATION PROJECT (LOAN 1655-DO)

PREFACE

This is a Performance Audit Report (PAR) on the Nizao Irrigation Project for which an IBRD loan in the amount of US$27 million was approved on January 23, 1979, with the objective of financing, over a five-year period, works to rehabilitate the irrigation systems under the command of the Marcos A. Cabral and Nizao-Najayo canals, to better utilize regulated water from the Valdesia dam, and to extend the existing irrigation system. The loan became effective on January 16, 1980. The closing date of December 31, 1984 was extended to December 31, 1986 and ultimately to December 31, 1987. Final disbursement was made on June 30, 1988.

The PAR is based on the Project Completion Report (PCR) of the project prepared by the Latin America and the Caribbean Regional Office (Dominican Republic - Nizao Irrigation Project - Report No. 7747 - May 1989), the Staff Appraisal and the President's Reports, the loan documents, the transcript of the Executive Directors' meeting at which the project was considered, on a study of project files, and on discussions with Bank staff. An OED mission visited the Dominican Republic in August 1991, and discussed the effectiveness of the Bank's assistance with several Government agencies and departments directly or indirectly involved in the project. The principal interlocutors were at the Instituto Nacional de Recursos Hidraulicos (INDRHI). Their kind cooperation and valuable assistance in the preparation of this report is gratefully acknowledged.

The PCR provides a barely satisfactory account and assessment of the project experience, and discusses the performance of the Bank and the project executing agencies. The PAR elaborates on particular aspects such as the design and institutional issues, Bank operational effectiveness, and a series of implementation issues and constraints.

Following standard OED procedures, copies of the draft PAR were sent to the Borrower on May 20, 1992. The comments received from the Borrower are reproduced in their entirety as Attachments 1 and 2 and noted in the main text or in footnotes.

- iii -

PERFORMANCE AUDIT REPORT

DOMINICAN REPUBLIC

NIZAO IRRIGATION PROJECT (LOAN 1655-DO)

BASIC DATA SHEET

KEY PROJECT DATA Actual as Reappraisal Actual or a % of Actual as a % Appraisal Estimate Estimated Appraisal of Reappraisal Estimate (May 1983) Actual Estimate Estimate

Project cost (US$ million) 50.6 38.0 39.8 79 105 Loan amount (US$ million) 27.0 27.0 27.0 100 100 Date Board approval NA - 01/23/79 - - Date effectiveness 05/16/79 - 01/16/80 - - Closing Date 12/31/84 12/31/86 12/31/87 - - Project implementation period aj 59.5 83.5 95.5 161 114 Economic rate of return (%) 14.4 13.6 5.7 b/ - - Financial rate of return (%) Satis. Satis. Unsatis. - - Institutional performance Good Good Unsatis. g/ - - Number of Direct Beneficiaries 3,200 2,450 n.a. d/ 108 141 (households)

CUMULATIVE DISBURSEMENTS

FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88

Appraisal estimate (US$ million) 1.3 5.4 12.2 20.4 25.8 27.0 27.0 27.0 27.0 Reappraisal estimate (US$ million) - - - 7.0 10.0 18.0 25.0 27.0 27.0 Actual (US$ million) 0.1 2.4 4.0 5.4 8.0 11.5 16.3 20.5 27.0 Actual as a % of appraisal estimate 8.0 44.0 33.0 26.0 31.0 43.0 60.0 76.0 100.0 Actual as a % of reappraisal estimate - - - 77.0 80.0 64.0 65.0 76.0 100.0

Date of final disbursement 6/30/88 Amount cancelled NA

a/ Number of months from effectiveness to Closing Date. b/ Overall ERR for the entire project. c/ During project implementation INDRHI did not have sufficient counterpart funds and was a weak institution due to: managerial problems, frequent changes of Executive Directors and technical staff, lack of organization and financial autonomy of the Project Unit, and lack of coordination with other institutions in the area of the project. d/ The PCR estimated that the number of beneficiaries increased due to a division of project farms to 3,470 families, as a result, new families entered as owners, renters and sharecroppers. - iv -

MISSION DATA Date No. of Man-days Specializations Performance Type of (mo/yr-) Persons in Fields Represented a\ Ratints b\ Trend c\ Problems d\

Identification -/70 NA NA NA Preparation 1 -/74 NA NA NA 2 6/75 NA NA NA Preparation 1 FAO/CP 5/77 2 50 b,d Preparation 2 FAO/CP 2/78 3 33 a,b,d Appraisal 4fl8 5 98 a,b,c,d,e Post-Appraisal 9/78 1 7 e Supervision 1 2/80 1 5 e 1 2 M,F 2 4/80 1 5 e 1 2 M 3 8/80 1 11 e 2 2 M,F 4 11/80 1 9 e 2 2 M,F 5 4/81 2 16 a,e 2 2 M,F 6 10/81 1 11 e 2 2 M,F,T 7 1/82 1 11 e 2 3 M,F 8 10/82 1 4 e - - - 9 1/83 1 7 e 3 3 M,F,T 10 f 5/83 2 24 b,e 3 3 M,F,T 11 12/83 1 10 e 3 2 M,F,T 12 7/84 1 10 e 3 2 M 13 11/84 2 26 c,e 3 1 M 14 2/85 1 7 e 2 1 M 15g/ 10-12/85 2 16 a,e 3 - M,F 16 4/86 1 11 e 3 - . 17 10/86 1 10 e 3 - - 18 4/87 1 10 e 2 - - 19 10/87 1 14 e 2 - -

TOTAL SUPERVISION 405

STAFF INPUTS g/ (staff weeks) FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 TOTAL

Preparation 9.3 46.8 56.1 Appraisal 42.1 19.7 61.8 Negotiations 18.0 18.0 Supervision 2.0 11.9 20.9 14.5 13.9 19.3 11.5 15.1 13.0 3.5 125.6 Total 9.3 88.9 39.7 11.9 20.9 14.5 13.9 19.3 11.5 15.1 13.0 3.5 261.5 OTHER PROJECT DATA

Borrower- Government of the Dominican Republic Executing agency: National Institute of Hydraulic Resources (INDRHI) Follow-up project: Irrigated Farming Development Project Status: Under Preparation

INDRHI identified the project around 1970. A consortium of a Spanish and a Dominican Republic Firm prepared the pre-feasibility study in 1974. The same consortium prepared in 1975 a detailed study of the project best alternative selected by INDRHI. a/ a = agriculturist; b = economist or agricultural economist; c = financial analyst; d - mission leader; e = irrigation engineer; b/ 1 = problem-free or minor problems; 2 = moderate problems; and 3 = major problems. c/ 1 = improving; 2 = stationary; 3 = worsening. d/ M = managerial; F = financial; T - technical. e/ Limited Supervision Mission; no Form 590 filled. Y The project was re-evaluated. g/ Source: TRS data information from LACCA. PERFORMANCE AUDIT REPORT

DOMINICAN REPUBLIC

NIZAO IRRIGATION PROJECT (Loan 1655-DO)

EVALUATION SUMMARY

Introduction Objectives

1. Water resource development has long 3. The main objective of the project was to been central to the economic strategy of the improve agricultural development in the Nizao Dominican Republic (DR). It provides drinking region by increasing land productivity, accelerat- water, hydroelectric power and irrigation, where ing agricultural diversification, promoting exports the latter is said to be one of the keys to accel- of high-value commodities and directly benefit- erated growth in the agricultural sector. The ting small farmers and the landless (this includes first concerted effort to develop irrigation took 80 percent of the 3,000 farm families affected by place in 1885, to expand sugar production. the project). Important complementary objec- Currently, there are 250 irrigation systems distri- tives were: (a) strengthening farmers and water buted along eight water districts, covering a total users associations; (b) decreasing the amount of of 230,000 hectares. harvest losses; (c) improving domestic and inter- national marketing; and (d) creating a project 2. Several striking features of irrigation organizational structure capable of rehabilitating development in the DR should be noted: the irrigation system and attaining other longer- term agricultural development objectives. * major investments have shown little in terms of net value added; 4. The Nizao Irrigation Project was the instrument selected to attain these objectives. * construction of large-scale infrastructure (e.g., The main components of the project were: dams and water reservoirs) has been given (a) the rehabilitation of existing irrigation high priority; increased productivity at the systems under the command of the Marcos A. farm level has been given lesser priority; Cabral and Nizao-Najayo canals (13,700 hectares), in order to make better use of * development of an adequate institutional regulated water from the Valdesia dam and framework and the expansion of human improve water supply in about 4,200 hectares; capital have been given little attention; (b) the extension of the system to cater to the irrigation requirements of 2,300 hectares of new * financial management arrangements at the lands, including resettlement of farmers and on- sector level have been ineffective and have farm development on these lands; and (c) the delayed extraction of the potential benefits construction of 25 km of rural roads. from irrigation; and Implementation Experience * organizational changes have been excessive and have negatively affected project perfor- 5. Early stages. The loan became effective mance. on January 16, 1980, one year after it was - vi - approved by the Board and after four extensions thus proved ineffective and, after several of the original effectiveness date of May 19, months, the project was returned to INDRHI. 1979. Extensions were required because the Government failed to fulfill several conditions. 8. Inter-institutional coordination. The ap- praisal report proposed the creation of a Coordi- 6. The project was beset by implementation nation Committee to plan and coordinate actions problems due mainly to Government's inability across all the development agencies (e.g., agri- to provide adequate and timely financial resourc- culture, land reform, credit). In practice, this es; excessive organizational changes; and signifi- coordinating arrangement was never put in cant inadequacies in project design. Even the place. Agencies that were supposed to deliver modest works of the first 1.2 km section of the services to the project were never consulted and canal, originally scheduled to be finished in 13 no significant budgetary allocations were made weeks, took 38 weeks to be completed. Due to to enable those agencies to carry out the expect- acute financial difficulties, the construction of ed tasks. As implementation got more compli- the rest of the project did not start until July cated and project performance deteriorated, the 1981. The contractor worked to schedule Bank and the Government decided to concen- through December 1981, and then stopped work trate all efforts into the construction and reha- until October 1982, due to lack of payment. bilitation of infrastructure. This was a major Work was only resumed when a new Govern- strategic decision that severely limited the ment was inaugurated in August 1982. project's capacity to attain other socioeconomic objectives. 7. Organizational changes. A number of unsatisfactory organizational changes prevented 9. Mid-Term evaluation. Implementation the project from attaining its institution building failures necessitated a mid-term evaluation which objective. In March 1984, the Bank reported resulted in substantive restructuring. A major that INDRHI's Executive Director had changed criterion for restructuring was the Government's seven times since the project was signed in 1979; ability to come up with counterpart financing. i.e., there was more than one Director per year Delays in implementation had already caused of implementation. These changes affected cost escalations of nearly 30 percent. After morale and purpose. In addition, as if studying several options, the Government ac- INDRHI's leadership changes were not enough, cepted the one which put the project at US$37.8 implementation deadlocks provoked a change in million in total costs. The Bank's contribution in who was to "house" the project unit--INDRHI or money terms more than doubled (i.e., from ONAPLAN (the planning secretariat of the US$11 to US$23 million). The mid-term evalua- presidency). The Bank recommended a change tion also canceled some of the original compo- in housing in early 1983, because of frustration nents (e.g., roads, irrigation expansion, water- with the inadequate levels of counterpart financ- shed management and soil conservation). ing, slow rates of disbursement and lack of compliance with conditionality. Bank staff also 10. Monitoring and Evaluation (M&E). recommended cancellation of the loan. This Managers made many decisions without ade- recommendation was not followed and, in April quate and opportune information. Monitoring 1983, the Bank instead requested the creation of of the project began too late, despite the fact a Presidential level "Commission" to execute the this activity was clearly singled out in the loan project from then onwards. However, only a few agreement. While the Government accepted the months after its creation, the Commission en- Bank's proposals, the Government was never tered into conflict with several other parts of the convinced of the merits of M&E and, thus, no institutional system. This organizational change major support was given to this activity. More- - vni - over, nothing of what little was done--namely, that enforcement of these conditions was not a the buying of computers, software and advice on Bank priority. reporting systems--remains in the project area. The computers that were provided in the field to Results monitor information were brought into head- quarters. The software and programs designed 13. Agricultural development. The agricultur- for the project have been reported lost. al development objectives were not attained. Discussions with beneficiaries suggest that the 11. Competition for water. The Valdesia area under cultivation is now much less than in Dam and its regulation dam, Las Barias, were the without project situation and data from designed mostly for non-irrigation uses; and the recent surveys carried out by INDRHI shows institutional framework which was used during that only 50 percent of the irrigable land in the implementation to regulate water flows from the project area is being cultivated. In the areas dam (i.e., "the working rules" of the water reser- under cultivation, productivity has declined over voir) confirmed the lower priority given to irriga- time, except for a few crops for which productiv- tion. Experience showed that as the electricity ity has stayed relatively constant. Comparative system failed to supply Santo Domingo, the analysis of the project area's performance with hydropower from the Valdesia Dam was used to those areas under the old irrigation system shows meet peak demands during the whole year, and that significant increases in productivity could that the Electric Company was, institutionally, have been achieved with improvements in water the main authority with regard to decisions management, operation and maintenance, related to water use. Only recently, an farming systems and marketing and distribution. intersectoral committee has been formed to Research carried out by INDRHI's staff shows regulate water flow. that the irrigation system's operationalefficiency is dismally low and that the water distribution system is inefficient and inequitable. 12. Compliance with conditionality. The project had to meet several conditions during its 14. The NIP meant to redistribute income by implementation, including: (a) providing the regularizing land tenure in the area, assigning local currency requirements for the project by land titles, and creating jobs for the landless. annual budgetary appropriations to INDRHI, Little was accomplished in this area. Most of SEA (Ministry of Agriculture) and IAD (Land the tasks defined in the appraisal report were Reform Institute); (b) strengthening research not implemented due to lack of commitment as and extension services to meet project require- well as lack of funds from the implementation ments; (c) ensuring that the Agricultural Bank agency. The equity impacts were aggravated, in meets the project incremental needs for fact, by a series of design changes which actually medium-term and seasonal credit and has the benefitted the richest farmers in the project necessary financial resources for the purpose; (d) area. continuing with the soil conservation program in the Nizao catchment basin; (e) doubling present 15. The environmental and conservation water rates in all irrigation systems administered oriented objectives--e.g., managing the reservoir by INDRHI, by December 31, 1979; and waters among alternative uses, controlling sedi- (f) establishing a monitoring and evaluation mentation and soil erosion in the watershed, and system. Claims of non-compliance were improving water management at the district and repeated so frequently, by one supervision project level--were put in second place or ig- mission after the other, that one must conclude nored by both the Bank and the Government, as - VHIi - the main preoccupation became the rehabilita- advice of a cabo de agua (water master)--would tion of the irrigation infrastructure. make water allocation decisions within their districts. This was conceived as an effective way 16. Crop diversification--another important to increase agricultural productivity and improve objective of the project--was not achieved. The water use efficiency. These efforts have been expected benefits from diversification were unsuccessful to say the least. Lack of financial related to increases in land productivity in areas resources to carry out field activities is one under sugar plantations; increases in the supply reason for the precarious situation at the water of high-value crops (e.g., horticulture, fruits) to district level. domestic markets; and expansion of the country's export prospects (particularly to the USA). In 19. Operation and maintenance. The project practice, constraints to diversification were also aimed at putting in place an efficient and underestimated, despite the fact that the diversi- effective operation and maintenance system. fication theme was not new at the time of This was not accomplished due to financial preparation and appraisal. Irrigation water was difficulties and technical constraints. The not the most significant constraint to diversifica- present system suffers from major shortcomings, tion; however, the absence of a series of agricul- including: a) water runs continuously, indepen- tural services--including education and training-- dently of whether it is being used or not; and macro policies proved critical. Moreover, b) operation responds to ad hoc demands for local studies show that the economic incentive electricity and, in the future, it will respond to structure (e.g., price and trade policies) was not demands for drinking water supply; c) mainte- adequate for high value crops; and that partici- nance of canals and other infrastructure is pating farmers did not have the necessary skills minimal and sporadic; d) equipment used to to handle the new farming system and practices, maintain the main canal is inadequate and the and had only a limited ability to participate in lining work is at risk; and e) estimates of O&M marketing and distribution. Bank reports cor- costs are inadequate and, thus, financial roborate these findings by pointing out that the management is precarious. effective rate of protection for sugar producers has increased significantly; that not enough 20. Water charges and cost recovery. The credit has been made available to satisfy the project, as presented to the Board, had clearly demands generated by the diversification effort; specified the need to reformulate the borrower's and that, as expected, only highly skilled farmers policy on cost recovery and water charges. The have been able to enter the export market with, purpose of reformulation was twofold: for example, tomatoes and melons. drastically diminish water wastage and, therefore, improve water management; and increase fiscal 17. Infrastructure development The rehabili- revenues, with part of the revenues to be re- tation and expansion of the irrigation infrastruc- invested in the project area. However, the ture was, to a large extent, achieved. However, agreed policy on water charges and cost recovery though most of the rehabilitation was carried was never implemented. out, the expansion--as conceived originally--was only partial. 21. Economic Rate of Return. Several as- sumptions made at appraisal and completion 18. Water districts. Another expected out- proved to be unrealistic. The audit questions come of this project was the enhancement of the relatively high ERR estimated at completion. water districts and water users associations. One In fact, given the PCR's own evaluation of project aim was the creation of well organized performance, it is difficult to see how the project water districts, in which farmers--following the could have, at completion, attained an ERR of 15.9 percent (higher than 14.5 percent at deliver services to the project; and inadequate appraisal and 13.6 percent at mid-term sector management and legislation. Te situa- evaluation). tion can be changed by creating the necessary environment for farmers and other beneficiaries 22. The most important conceptual lacuna in to participate in the management of project the economic analysis, both at appraisal and assets. completion, was related to the definition of the "with" and "without" project situations. Because 26. Third, lack of attention given to such the project area was already under irrigation issues as managing water (e.g., reservoir, regula- before the NIP was designed and implemented, tory dam, main canals), controlling sedimentation a much more thorough analysis of the "future and soils erosion, and managing the Nizao water- without the project situation" should have been shed. Better use of the project-financed studies carried out. INDRHI provided the audit field should be made, particularly in the areas of mission with a new set of information on the water management, and the most relevant "without"project situation. This includes field recommendations should be applied. observations during the project implementation period as well as yield projectionsfor the remain- 27. Fourth, speed at which demographic and ing economic life of the project. For the "with" cultural changes are taking place. A major project situation, the audit has accepted the esti- migration to Santo Domingo is taking place, mates presented in the PCR. The re-estimated resulting in a significant change in the labor ERR came out to be 5.7 percent, much lower supply for agriculture. The process may eventu- than the ERR at completion (15.87 percent). ally drive wages up, and reverse migration may eventually occur. With regard to cultural chang- Sustainability es, it is important to note that the project's proximity to the capital city is changing the 23. If present conditions continue, this project traditional values of the farming community. is unlikely to be sustainable. While the project There is less association of the land with agricul- has been instrumental in the rehabilitation of ture and recent trends show that a significant infrastructure in the project area, its productivity number of hectares is being converted into has been extremely low. Several factors are weekend farms and tourism businesses. affecting project sustainability. Findings and Lessons 24. First, inadequate policies with regard to counterpart financing. These policies were 28. Project preparation. The project was totally inadequate during project implementa- inadequately prepared, and this greatly compro- tion. To a significant extent, experience with mised the chance of success. The construction this projects shows that changes in policy must of the project became a day-to-day affair; since be necessarily linked to adjustments at the macro there were no specific designs to follow, lots of level (e.g., fiscal policy). problems were encountered. Lack of soil sur- veys prevented engineers from knowing which 25. Second, precarious levels of human capital areas were easy to excavate, how to properly line and institutional development. Sustainability is the new canal, and how to avoid major water conditioned by weak organizational arrange- stoppage of the existing canals during ments at the regional and local levels (e.g., water construction. Several shortcuts had to be made, user associations); passive role of the private some of which haunted the project in the first sector (e.g., diversification and export few years of implementation. The results were promotion); inability of public sector agencies to major delays and great cost escalation. 29. Many important decisions were made reform in certain areas. However, as stated without adequate technical data. For example, earlier, compliance with these conditions was knowledge regarding such basic information as weak. In fact, the Bank accepted this situation hydrometric variables does not exist even today. in the expectation that a SAL--under As a result, little is known about operational preparation at the time--would include those efficiency or water use efficiency at the farm conditions. However, the SAL was never made level. Existing measurements of water use effi- and the project was greatly affected by existing ciency for the whole project area show that, for distortions in the macroeconomic environment. the last year, the system was running close to 13 percent water efficiency, and it is not yet fully 32. Lessons. The lessons learned here are no understood where the rest of the water goes. different than those from other irrigation pro- jects in the Dominican Republic. Five general 30. In addition, very little empirical lessons should be noted. information was available during preparation and appraisal to draw an adequate picture of the 33. First, the productivity of investments in economic potential of the project area. No irrigation in the Dominican Republic appears to benchmark farm surveys were available to be much less than appraisal expectations. In this establish the main production parameters of the regard, the Government has to increase the project. This affected the way in which farm effectiveness of irrigation systems and, thus, budgets were made, and, therefore, there was no materialize important benefits now. Such ac- way to know if the agronomic practices tions may include a comprehensive program to advocated were at all realistic. The farm budgets develop institutions and accelerate the growth of used were all rough estimates since primary data human capital; an adequate incentive structure; only began to be collected in 1987. This data an effective development effort linked to has never been used either to redesign this national and local organizations; an improved project or other projects in the region. system for beneficiaries' participation; and an appropriate policy on recurrent cost financing 31. Sector and macroeconomic aspects of and operation and maintenance. performance. Several Bank reports have noted that the policy environment has been an impor- 34. Second, development of irrigation must be tant determinant of project performance. Those accompanied by an effective agricultural reports have emphasized, for example, the role development program. It appears that the Nizao of prices and export incentives in increasing the region still offers a great potential for output productivity of traditional crops. The Bank also expansion for both domestic and export markets. noted that implicit and explicit export taxes on The region's proximity to roads and port facili- crops produced in the project area were high ties gives it an indisputable advantage. A com- during the period and that significant contra- prehensive study on comparative advantage may dictions between agricultural and macroeconomic be called for. policies existed. In this context, most efforts to correct existing distortions at the macro level 35. Third, organizational and institutional before Board presentation were ineffective due arrangements for project implementation must to the weaknesses inherent in the policy dia- be assessed and agreed upon before implemcnta- logue and the political instability of the country. tion. This is particularly important in a situation Project based conditionality was accepted as an where the absorptive capacity of local institu- effective way to remove those distortions, and tions is weak in relation comparison to the the project became an instrument of policy demands of the project. 36. Fourth, good projects do not yield their 37. Fifth, non-compliance with covenants may expected benefits in an unfavorable macroeco- have serious detrimental effects on development nomic environment. This calls for strengthening performance. In this case, non-compliance sector work and for a detailed evaluation of meant minimal counterpart financing, which had investment and expenditures at the national and a damaging effect on scope and timeliness of regional level. implementation.

PERFORMANCE AUDIT REPORT

DOMINICAN REPUBLIC

NIZAO IRRIGATION PROJECT (Loan 1655-DO)

I. INTRODUCTION

1.1 This is the performance audit report of the Nizao Irrigation Project (NIP) in the Dominican Republic (DR) for which an IBRD loan in the amount of US$27 million was approved on January 23, 1979. The loan closing date was December 31, 1987, and the final disbursement was made on June 30, 1988.

A. Background

1.2 The Dominican Republic extends for 48,442 square kilometers (see Map attached). The large majority of soils are irrigable, but they are shallow and subject to erosion. In addition, there are salinity problems due to salt water intrusion and excessive water-logging. Fifty-four percent of the DR's 5 million hectares are suitable for agriculture; and out of this total, 1.2 million are devoted to pastures, 1.3 million to cultivated lands, and only 0.16 million to forests.

1.3 The development of water resources has been central to the economic strategy of the Dominican Republic for most of this century. It provides drinking water, hydroelectric power and irrigation, where the latter is said to be one of the keys to accelerated growth in the agricultural sector. The country has 108 independent river systems. The five largest are: The Yuna, Yaque del Norte, Yaque del Sur, Azua and Artibonito. The overall potential of surface irrigation water is estimated to be 21,000 million cubic meters (or a flow of 667 cubic meters per second). Ground water potential is estimated at 1.3 million cubic meters (see Table 1). To date, there are 250 irrigation systems distributed along eight water districts, covering a total of 230,000 hectares,j/ and 218 of these irrigation systems, (representing 86 percent) cover irrigated areas of less than 1000 hectares. The total area covered by these minor irrigation schemes is only 60,000 hectares. The total volume of water stored in major dams and reservoirs amounts to 2.5 million cubic meters (see Tables 2a and 2b).

B. History of IrrigationDevelopment

1.4 The first significant and concerted effort to develop irrigation in the Dominican Republic took place in 1885. This effort was associated with the expansion of sugar production and the lead was taken by the private sector which implemented a project in the Bani area. Several striking features of irrigation development in DR should be noted.

y See I. Cruz and G. Pichardo, "Situaci6n del Sector Riego en La Repdblica Dominicana," Draft Paper (Santo Domingo, 1991). This is a rough estimate, given data gaps and modes of measurement. Much more research should be done. -2-

1.5 First, the comparatively major investment in the subsector has shown very little in terms of net value added. Country studies _V have found that economic returns from irrigation are much lower than originally envisaged. Concerns about economic viability are not new; these were raised in 1927, when President Horacio Visquez formed a commission of Puerto Rican engineers to assess the economic viability of the irrigation infrastructure in Bani, Santiago and Montecristi. These concerns are still valid today.

1.6 Second, the government has given high priority to large-scale infrastructure (e.g., dams and water reservoirs). Less concern has been shown for increasing agricultural productivity at the farm level. Irrigation projects have been a vehicle to expand the physical infrastructure rather than to promote the development of agriculture. While some benefits from agriculture have materialized (e.g., increased employment, regional integration), the country has a significant stock of physical capital whose profitability and sustainability is in doubt. Most benefits are yet to be seen.

1.7 Third, the development of institutional and human capital has received little attention. Most resources have been allocated to expand the infrastructure and most donors have supported this approach to irrigation. However, in order to maximize the net value added of water, the expansion of other forms of capital --e.g., human, institutional, natural and cultural-- has to take place at a faster pace.

1.8 Fourth, the management of financial resources at the sector level has been unsatisfactory. This has generated significant delays in extracting the potential benefits from irrigation. Most projects find themselves short of cash to operate, maintain and repair existing assets. As a result, the economic life of dams and other infrastructure has been negatively affected by, for example, sedimentation, destruction of gate systems, and depreciation of hydroelectric equipment.

1.9 Fifth, the development performance of irrigation has been influenced by excessive organizational changes. In the earlier part of this century, irrigation development was carried out mainly by the private sector with no interference from the public sector. Today, most development interventions are dominated by the state. The Government established the "Technical Office for Irrigation Development" (Ministry of Public Works and Development) in 1928, to be responsible for all tasks related to water development, including watershed management. The nature of the tasks which this office was to perform changed several times before the Instituto Nacional de Recursos Hidrdulicos (INDRHI) was created on September 8, 1965. Organizational development has subsequently become a continuous process of fragmentation, affecting such activities as river-basin planning, identification and design of multipurpose projects, and watershed management. C. Bank's Experience with Irrigation

1.10 Yaque del Norte was the first irrigation project financed by the Bank in the Dominican Republic. The overall performance was poor and the extent to which the economy truly benefitted

2I See Cruz and Pichardo, 1991, and INDRHI, "Boceto Historia del Desarrollo de los Recursos HidrAulicos en La Republics Dominicana," Draft Report (not dated). See paragraphs 10 and 11. -3-

from that investment is doubtful. The audit report 3& revealed no evidence at completion that either productivity or production had increased in the area as a result of the project. The re- estimated rate of return was negative, compared with an ERR of 14 percent estimated at appraisal. The main determinants of unsatisfactory performance were: unrealistic project design, ineffective performance by the executing agency, non-compliance with many loan covenants and inadequate provision of counterpart funds, and sub-par performance by contractors and consultants. The audit recommended that: (a) difficult but necessary institutional changes such as land reform should be effected before project approval; and (b) complex irrigation projects need to be carefully prepared; in particular, efforts need to be made to provide full engineering studies and accurate cost and time estimates. This is consistent with the Bank's operational guidelines which require an advanced stage of field investigation and detailed design prior to Board presentation.

D. Other Donors' Experience 41

1.11 Reports prepared by the Inter-American Development Bank have found that:

* The period of project execution was more than twice that estimated at appraisal. This was due to lack of preparation, inadequate designs, and fiscal allocations too meager for proper execution.

* The total cost of completed operations was 23 percent higher than estimated at appraisal. Most projects were redesigned at mid-stream and the final size of the projects was reduced. Inadequate designs were the main cause of cost escalations.

* The operation and maintenance systems were inadequate. There was little or no sedimentation cleaning and management.

* The implementation environment was characterized by severe institutional weaknesses and lack of participation by beneficiaries.

* The yields of most crops remained below appraisal expectations, and much lower than the assessed optimal potential. Yields were affected primarily by the availability of technology and much less by water alone.

* The average ERR of all completed operations was between 5.5 percent and 9 percent.

&/ See World Bank, "Yaque del Norte Irrigation Project," Credit 352-DO, PPA Report No. 4749, 1983.

Thisb section relies heavily on the information and analysis provided in two reports: a) Robert Henriques Girling, "Problems and Issues of Project Management in the Dominican Republic With Recommendations for Action," Consultant Report, Revised Draft (June 27, 1983); and b) Inter-American Development Bank, "Resumen de las Evaluaciones a Posteriori de Operaciones de Riego de Pequefia y Medians Escala Parcialmente Financiados con Prdstamos del BID," Draft Report to the Board, GN-1433 (May 19, 1982). This later report is accompanied by a letter to the Executive Director of INDRHI, Ing. Carlos A. Rodriguez (dated June 16, 1983). -4-

* The actual supply of water was very small in relation to the design potential of most irrigation projects.

* The water charges and cost recovery systems were ineffective and seldom applied correctly.

II. THE PROJECT

A. Sectoral Considerations

2.1 The appraisal report, issued on January 3, 1979, emphasized that for the period 1960- 1971, three-quarters of the increase in agricultural output was due to land expansion and only one- quarter to increases in land productivity; and that, furthermore, land-use patterns responded to the uncertainties created by the application of the agrarian reform laws among medium- and large-scale farmers. The discussion of irrigation development emphasized the high priority given by Government to water resource development and to fact that expenditures on large infrastructure amounted to 10 percent of total public expenditures during 1973-77. Current expenditures, on the other hand, had increased only slightly since 1971, resulting in a continuous lack of emphasis on the operation and maintenance of existing irrigation systems.5 At the time, the irrigated area was estimated at a little over 150,000 hectares. Several constraints to irrigation, which justified the NIP, were identified:

* inadequate water delivery and distribution systems, bringing the level of water use and operational efficiency to extremely low standards;

* low and inadequate water charges and cost recovery;

* minimal levels of government O&M expenditures by comparison to the real needs of irrigation systems;

* inefficient subsidies channeled to the irrigated areas (target groups did not benefit); and

* delayed project implementation due to land reform related problems that had proven difficult to resolve.

2.2 The appraisal report considered four sectoral objectives: (i) employment creation in rural areas to reduce underemployment and avoid migration to urban centers; (ii) improvement in the nutritional status of the population, particularly that of the poorest of the poor; (iii) contribution to the economy's industrial development through the supply of raw materials of adequate quality; and (iv) expansion of the sector contributions to foreign exchange earnings through increased exports.

See V page 5, para. 1.16 of the World Bank, "Dominican Republic Nizao Irrigation Project," Staff Appraisal Report No 2209-b-DO (Washington, D.C., January 3,1979). -5-

B. Project Objectives

2.3 Within that sectoral context, the main objective of the project was to enhance agricultural development in the Nizao region. This included enhancing several organizational aspects of farmers associations, decreasing the physical amount of harvest losses, and improving domestic and international marketing. In relation to agricultural development, the project was expected to increase productivity significantly (on a per-hectare basis), and to generate a major output expansion and product diversification (mainly for exports).

2.4 The project embraced several institutional development goals. The most important one was the creation of an organizational structure capable of rehabilitating the irrigation system and attaining other longer-term agricultural development objectives. In this regard, the project was to be carried out by INDRHI, assisted by SEA and IAD staff. A Project Coordination Committee-- including regional representatives of the above mentioned agencies and representatives of the Agricultural Bank, Electric Company and farmers--was to be established to approve the yearly agricultural development program for the project, supervise its execution and evaluate its results.

2.5 The main instruments selected to attain these objectives were: (a) financing works, over a five-year period, to rehabilitate the irrigation systems under the command of the Marcos A. Cabral and Nizao-Najayo canals (13,700 hectares), in order to make better use of regulated water from the Valdesia dam and improve water supply in about 4,200 hectares; (b) extending the system to cater to the irrigation requirements of 2,300 hectares of new lands, including resettlement of farmers and on-farm development on these lands; and (c) constructing 25 km of rural roads.

2.6 The project was also to provide additional staff and equipment for operation and maintenance, and to implement the agrarian reform program (selection and settlement of landless farmers in the newly irrigated areas) and the agricultural development program (provision of extension services to new settlers). The staff and farmers were to be trained. Consultant services were to be provided for, including completion of final designs; supervision of construction, operation, and maintenance of the irrigation systems; and formulation and implementation of the agricultural development program periodic inspections of the Valdesia dam. It was expected that the project would directly benefit 3,200 farm families of whom 80 percent were small and landless farmers.

2.7 It was estimated that implementation of the project would require about five years, 1979- 1984, with construction likely to commence by the end of 1979. Assurances for compliance were sought with several conditions, the most important of which were the provision of counterpart financing, the delivery of agricultural services including credit, the establishment of an adequate system of water charges and cost recovery, the execution of several studies and research, and the implementation of a soil conservation and watershed management program. The project expected an economic rate of return of 14.4 percent. The only risk identified at appraisal was the potential cost of the interruption of the water delivery system due to construction and rehabilitation works.

C. Project Costs

2.8 Total project costs were estimated at US$50.6 million, of which US$27 million, or 53 percent, would represent the Bank's contribution. However, as a result of a mid-term evaluation (see Section III below) the total cost of the project was reduced to US$38 million, of which the Bank agreed to finance US$27 million, or 71 percent of the total project costs. The Bank contribution -6- covered all the foreign-exchange costs and additionally 38 percent of the local currency cost. The Government share became US$11 million, or 29 percent of the total cost. The central reason for restructuring the project finances was the Government's inability to come up with the necessary counterpart financing (see Section II).

D. Project Preparation and Design

2.9 Overview. The project was prepared and designed by consultants under INDRHI's supervision, assisted by the FAO/CP. The quality of preparation was severely criticized within the Bank. The most important points of contention were related to: The quality of the hydrological information; the uncertainties regarding the management of water stored in the Valdesia dam; the inadequacy of the data and analysis of farm models; the unresolved issues regarding land tenure and property rights; the unclear definition of purposes and functions of water users associations; the inadequacy of the management and organizational arrangements; the absence of government commitment to adopt a more efficient pricing system (including water); the real effectiveness of existing arrangements for operation, maintenance and repairs of the irrigation system; INDRHI's capacity to execute the project; the lack of a complete assessment of rural sector services including agricultural credit; and the inadequacies in the water use and management systems.

2.10 When the project was conceived (around 1977) the Bank technical staff's perspective was that if the Bank was interested in the Nizao Irrigation Project a large, time consuming, and expensive effort would be required to bring it to the appraisal stage./ At that time, technical staff in the projects division informed management about the deficiencies in preparation and about the fact that this project had to be conceived as "irrigation rehabilitation" to be economically feasible. This opinion was shared, to a large extent, by the Country Programs Department, which added a new list of issues that required careful attention: cost recovery and water charges; quality of agricultural services (such as extension, seed selection and improvement, and research); delays in land titling; and use of force accounts.

2.11 Several versions of the preparation report were rejected.71 Questions were raised in almost all areas of the project. During the review process, it was often stated that there was no solid presentation of the facts and that the economic justification began moving away from direct benefits (e.g., net incremental output per hectare basis) to more indirect ones (e.g., market expansion, employment generation, diversification, income redistribution). In early 1978, decisions were made with regard to how this project should be justified to the Loan Committee. Four arguments prevailed:

* The proposed irrigation project was the only way to expand the agricultural frontier in the area.a/

9I See correspondence file material in early 1977.

2/ In a report prepared in June 1977, the FAO/CP Review Mission stated that "neither of the reports issued by the consultants constitutes an Irrigation feasibility report and substantial further preparation is needed to complete and bring the existing information up to standards required for Bank appraisal" (para. 7).

& This implied a confirmation that water was the main source of growth in agriculture in every portion of the project area. -7-

* The project was going to benefit small farmers, and, despite of its apparently low ERR, was a worthwhile proposition.

* The project was the most effective instrument to regularize land title related problems in the Nizao region.

* The labor-intensive nature of the production process was expected to generate substantial employment.9

2.12 The economic viability of the project was also questioned in several instances. Preliminary estimates of the ERR fluctuated between 9 and 12 percent, and thus further assessment were needed before presentation to the Loan Committee. Modifications of the original ideas embraced by the project were suggested, including changing the size of the project area or eliminating part of the infrastructure.

2.13 The Advisory Staff (grouped in CPS/OPS) raised a series of technical issues and requested that losses resulting from construction be included in the economic analysis. They also questioned how the net benefits were to be attributed to the project.

2.14 Evaluation of Alternatives. The preparation mission did not use an evaluation framework congruent with a multipurpose water project.Q/ Several options were not evaluated, cost assignment analysis was not carried out, and technical/economic alternatives were not explicitly assessed.11/ This happened despite Bank guidelines and procedures. Several design aspects-- such as the management of water at the reservoir and the river basin levels--were left to be studied during implementation. Colorado State University carried out one of these studies, but the audit found that few decision makers were aware of its contents, and its recommendations were not applied. Because the study was managed by INDRHI and not by the Electric Company, the latter never participated nor intended to apply the study's recommendations. Signals were also crossed with regard to water pricing and cost recovery. While the NIP financed a comprehensive study on irrigation water use and pricing, the Bank financed another study to determine the economic value of water through the Electric Company. There was no coordination between the two studies.12J

2y Here, agriculture was seen as the main source of employment, something that proved wrong as tourism and services in the capital city and surrounding areas have been more important.

10/ The Bank's Project Brief, issued on January 9, 1978, states as a major design issue the operation of Valdesia dam for optimizing the generation of hydro-power and supply of water to irrigated areas and urban centers.

Ll/ The Bank did recognize the existence of those alternatives but it did not evaluate them systematically. One decisive factor in the ainalysis was the minimization of costs. See Project Brief, June 9, 1978.

Ag The main issue here is the lack of a tariff structure that would reflect the economic cost of energy. Since 1973, the discrepancy between the financial value of electricity and its economic cost has been widening. In addition, it has been recognized that the operational efficiency of the electric company is extremely low, and that the operation and maintenance of facilities is practically non-eistent. The number of times electricity services are cut-off (apagones) has increased in the last few years. The average price that should be charged, assuming the highest level of efficiency at the operational level, is at least 50 percent higher than it is now. The actual price can only finance the energy costs embodied in the plants, but it does not allow for covering costs related to operation and maintenance, repairs and spare parts, or the epansion of the system. In addition, this tariff does not cover the recovery of capital costs. There are also other characteristica of the tariff structure, such as regressivity with regard to the provision of certain services, that need careful attention. See Corporaci6n Dominicans de Electricidad, "Eatudio General de Tarifas de Electricidad." Santo Domingo. March 1988. -8-

III. IMPLEMENTATION EXPERIENCE

A. Early Stages

3.1 The loan became effective on January 16, 1980, one year after it was approved by the Board and after four extensions of the original effectiveness date of May 19, 1979. Extensions were required because the Government failed to fulfill several conditions.La/

3.2 Project execution began in March 1980, with the construction of a small section of the main canal: supplementary intake works, control structures and 1.2 km of lined canal. These works were selected on an emergency basis, in agreement with the Bank, after hurricanes David and Frederick hit the country in August/September 1979. The hurricanes destroyed part of the Marcos Cabral canal interrupting irrigation water deliveries in the project area. From the beginning, the Government was unable to provide adequate and timely financial resources to INDRHI for the project. Consequently, even the modest works of that section of the canal, originally scheduled to be finished in 13 weeks, took 38 weeks to be completed.

3.3 The next phase of the project--the project proper--was also beset by financial difficulties and construction did not start until July 1981. The contractor worked to schedule through December 1981, and then stopped work until October 1982, due to the lack of payment. Work was only resumed when the new Government was inaugurated in August 1982. Lack of counterpart financing continued to be a problem which affected almost every activity of the project during construction.

B. Change in Project Directions

3.4 Implementation was characterized by a large number of unsatisfactory organizational changes. Coupled with the inexperience of those in charge of implementation, those changes debilitated the project's ability to attain the institution building objective. A supervision report, dated March 12, 1984, stated that "INDRHI's Executive Director has changed seven times since the project was signed in 1979 (page 2)"; i.e., there was more than one Director per year of implementation. These changes affected morale and purpose and the best engineers left the institution for better opportunities in the private sector. Moreover, the organizational structure did not provide the framework needed to accelerate economic development in the region.J.4 As such it suffered from two major shortcomings: i) The important budgetary and strategic decisions, such as those related to changes in sector and project objectives, were often made outside the domain of the project unit; and ii) The support received at the operating level, most importantly from planning and programming, was weak.

L3/ Details of those conditions are in the project file, memo dated October 4, 1979.

4/ The supervision report issued only on August 25, 1980 stated that "the Project Unit is not appropriately organized to carry out and control all the project investments in the next four to five years (para. 4)". This was stated again in February 1983, several years after initiating implementation. -9-

C. Changes In The Project Unit

3.5 As if INDRHI's leadership changes were not enough, design and implementation deadlocks provoked a change in who was to "house" the project unit--INDRHI or ONAPLAN (the planning secretariat of the presidency). The arguments that justified a move away from INDRHI focused on issues related to disbursement and time overruns, rather than on finding the proper milieu for managing the project under such difficult conditions.1/ The Bank recommended an initial change in early 1983, as a result of frustration with regard to disbursement and lack of compliance with conditionality. There was an internal discussion within the Bank about canceling the project altogether.1J6 Loan cancellation was recommended by the staff on the grounds that the Government was not taking the necessary measures to ensure funds for implementation.J/ 18/ This recommendation was not followed.

3.6 In April 1983, the Bank requested the creation of a Presidential level "Commission" to execute the project from then on. By January 1984, only a few month after its creation, the Commission entered into conflict with several other parts of the institutional system.L/ An interim Advisory Commission was created to resolve some of the conflicts, but they could not be resolved.LO/ LI/ The correspondence file does not have a document showing the Bank's official sanction of the change in project management, despite its active participation in the original proposal for the Commission.2/

L5/ See letter from the President of the Commission, dated April 19, 1983.

16/ A file memorandum dated February 23,1983, stated that: "in view of INDRHI's long-term managerial problems, a separate Project Management Unit should be established outside INDRHI's administration. The Unit would be staffed with experienced staff contracted for the duration of the project. The Unit's manager would be in charge of day to day management decisions, and would also be responsible for the management of the project's financial resources. A Committee comprised of INDRHI, the Technical Secretariat, ONAPLAN, and the Central Bank would provide general directives (page 4, para. 13)".

2/ See, Supervision Report dated March 24, 1983.

18/ A memo dated May 6, 1983 reiterated the Bank's desire to cancel the loan. The emphasis of the memo was on the suspension of disbursements of all Bank loans in the Dominican Republic, as the problems of counterpart financing and implementation inefficiencies have permeated all Bank-financed operations.

9/ This was already noticed during the supervision mission of September 1983, when a proposal for restructuring the project was entertained. The supervision report stated that "Asswances should be obtained from the Government that: (a) INDRHI and CDE (the Electric Company) would cooperate with the Commission and with the consultants.... and (b) CDE would implement the consultant's recommendations" (para. 31).

LO/ The Executive Commission was announced to the Bank in a Letter from the Presidency, dated April 19, 1983. There the new President of the Commission, Dr. Jose A. Fernandez C., states that the Commission has been empowered to complete the project.

2/ A memo to files, dated May 19,1983, stated that: "On March 19 Presidential Decree No. 899 was published, creating an Executive Committee to be in charge of project implementation canceling direct INDRHI's responsibility. INDRHI should, however, provide all the staff and equipment necessary to avoid stoppage. No information was given on the financial resources available to the Committee and the project (para. 1)". The memo added that: "The main problem in project implementation is the lack of Government counterpart funds....It is doubtful whether the Government will have funds to execute the Nizao project on the scope set up at appraisal (para. 2)....The contractor seems to have no interest in carrying out the project (para. 3)".

2/ See letter from INDRHI dated January 4, 1984. - 10 -

3.7 This institutional change proved ineffective and, after several months, the project was returned to INDRHI.Q/ In the midst of institutional changes, the Bank recommended a reduction in scope of the project.24/ The change was ineffective even from the perspective of the premise that such change would speed up disbursements. In fact, a review of disbursement records at the level of ONAPLAN showed that no major financial decisions were made at the presidential level at the time and, thus, the main purposes of the Commission were never fulfilled.&

D. Weak Coordination Arrangements

3.8 The appraisal report identified the creation and empowerment of a Coordination Committee as a major determinant of the project performance, particularly in regard to the agricultural development components. The Committee was to plan and coordinate all actions across all the development agencies (e.g., agriculture, land reform, credit, services). In practice, the inter- institutional coordinating arrangements needed for effective implementation were never properly carried out. Agencies that were supposed to deliver services to the project were never consulted. In addition, no significant budgetary allocations were made to enable the agencies (e.g., Agricultural Bank, Secretariat of Agriculture and Land Reform Institute) to carry out the expected functions. Several supervision reports noted that development activities were not being implemented, or that loan conditions were not being fulfilled, because the Government did not allocate the necessary resources to implement them (e.g., the seed development component, the tasks and activities associated with land reform and the activities related to soil conservation and watershed management).

3.9 The lack of coordination inhibited the attainment of the equity and sustainability objectives. As implementation got more complicated and project performance was deteriorating, it was decided to concentrate all efforts into the construction and rehabilitation of infrastructure. This was a major strategic decision that severely limited the project's capacity to attain other socioeconomic objectives. From hindsight, that strategic decision meant a major change in the project concept.

3.10 With regard to equity, the new implementation strategy greatly diminished the Bank's original intentions in the area of land tenure and assignment of land rights. Land tenure and prevailing property rights in the area were to be changed, but the project failed to do so and the positive equity impacts were much less than envisaged at appraisal. Discussions with the Land Reform Institute showed that the Bank contacted them once or twice in the life span of the project, but that no incremental resources were added to their budget for the proper execution of the land

P/ The Bank recognized the failures resulting from the Executive Commission. It is important to note that the Commission did not receive formal approval by the Bank or the Congress of the Dominican Republic. The Commission, therefore, had no legal authority to utilize Loan funds. In view of the difficulties in making the Commission operative, the Government decided to return responsibility for the project to INDRHI in December 1983. See Supervision Report dated March 12, 1984.

L/ It is in this context that there is an intimate connection between the institutional changes proposed and the changes in project scope and implementation.

Z/ As stated in paragraph 29, in addition to the above changes, the supervision report of March 12, 1984 stated that "INDRHI's Executive Director has changed seven times since the project was signed in 1979". - 11 - title component. The Bank took a similar posture and had a similar experience with other irrigation projects.26

3.11 With regard to sustainability--in an environmental sense--conservation and resource management aspects were given a low priority. The supervision report, dated March 12, 1984, issued after the mid-term evaluation (see below), stated that the covenant 4.04, i.e., "The Borrower shall carry out a soil conservation program in the Nizao catchment area", did not apply anymore. Specifically, the report stated that "the proposed project revision nullifies this requirement (page 10)."

3.12 A similar situation was experienced in regard to the project's credit component, which was to be executed by the Banco Agricola. A local study on agricultural credit shows no sign that the project area became anything special to the already existing system, in terms of volume, priorities, or special lines of credit. In real terms, the amount of credit channelled "with" the project is less than without.

E. Mid-Tenn Evaluation

3.13 When the project failed to achieve the expected objectives during the first few years of implementation, a mid-term evaluation took place. The supervision report dated September 27, 1983, presents the main issues and recommendations.27/ Substantive restructuring was undertaken as a result. A major consideration was the Government's ability to come up with counterpart financing. The Government studied four options, and accepted the one which put the project at US$37.8 million in total costs. The Bank's contribution in money terms more than doubled (i.e., from US$11 to US$23 million). Delays in implementation compared to the original schedule had already caused cost escalations of nearly 30 percent.

3.14 In addition to the institutional changes discussed earlier, the creation of the Executive Commission left INDRHI out of the mid-term evaluation process. The mid-term evaluation was carried out mainly with ONAPLAN and there was very little INDRHI participation. The mid-term evaluation not only decided which areas would benefit by the project but also canceled some of the original components. Since the road component was being financed from other sources, this component was excluded. In terms of irrigation expansion, the mid-term evaluation canceled a component that was to benefit the tail end and dry soils areas. The main argument in this case was related to the high cost of transporting water to those areas and to the expectation that benefits would not justify the costs. The mid-term evaluation mission also recommended some studies, e.g., research and extension related to cropping patterns and agricultural practices.

_/ World Bank, "Dominican Republic, Yaque del Norte Irrigation Project," Project Completion Report, Report No. 4749 (Washington, D.C., October 20, 1963).

X7 Three options were considered, inter alia the cancellation of: "(a) the road component; (b) construction work at the extreme west of the project area (1500 hectares); and (c) on-farm works in the area" (Supervision Report, June 6, 1983, pars. 7). The same report stated that "the least expensive alternative appeared to be the most favorable given the present economic situation of the Government" (para. 10). - 12 -

F. Competition for Water

3.15 The Valdesia Dam, and its regulation dam, Las Barias--the main sources of irrigation water--were designed mostly for other non-irrigation uses. The institutional framework which is used to regulate water flows from the dam (i.e., "the working rules" of the water reservoir) confirmed the lower priority given to irrigation. Implementation experience showed that as the electricity system failed to supply Santo Domingo, the hydropower from the Valdesia Dam was used to meet peak demands during the whole year. During project implementation, the Electric Company was, institutionally, the main authority with regard to decisions related to water use. Only recently, an intersectoral committee has been formed to regulate water flow.L/ Information collected during a field visit to Las Barias, confirmed that the implementation of the new institutional arrangements needs to be improved. It appears that it is the Electric Company which decides when and where water should be distributed at the margin.

G. Monitoring and Evaluation

3.16 Managers made many decisions without adequate and opportune information. Monitoring of the project began too late, despite the fact that this activity was clearly singled out in the loan agreement. While the Government accepted the Bank's proposals, the Government was never convinced of their merits and, thus, no major support was given to this activity. Moreover, nothing remains in the project area of what little was done--namely, the buying of computers, software and advice on reporting systems. The computers that were provided in the field to monitor information were brought into headquarters. The software and programs designed for the project have been reported lost.L9/

3.17 Some monitoring and evaluation was done at the level of the Secretariat of Agriculture. This work was undertaken mainly due to the dedication of one individual, and was useful for planning and implementation.

H. Supervision and Compliance with Conditionality

3.18 Supervision. It is very difficult to assess the net value added by supervision in any quantitative way. This assessment is therefore subjective. The NIP's unsatisfactory performance can be explained, in part, by shortcomings in supervision and by the inability, or reluctance, to enforce important loan conditions. The two issues are intricately related as supervision should have been

M As stated in the Government comments to this audit, there is now a joint committee to establish priorities with regard to water allocation for hydroelectric power and other uses. The Government states that: "with respect to priorities of the irrigation sector, although the energy crisis that occurred during project implementation made 'spills' [vertidos] at the Barias regulatory dam unavoidable, which affected irrigation in the area, the situation is now back to normal. INDRHI and CDE have established a Dam Operation Committee, its membership made up of irrigation system users. INDRHI has, in coordination with all the institutions involved in the water sector, also devised a new Water Code, which establishes priorities for water use and the necessary coordination mechanisms needed to ensure its proper use. It further regulates the manner in which the Government hands over irrigation canals to user." These are all new developments which, if adequately implemented, will certainly improve water allocation and efficiency at all levels.

P/ Even by January 1985, a Bank letter to the Director of INDRHI noted that no monitoring and evaluation had been carried out yet. This included monitoring of implementation as well as of project outcomes. - 13 -

more effective in creating the conditions to enable the Government to comply with agreed loan conditions.

3.19 Former project managers, local engineers and foreign contractors, consulted by the audit mission, stated that the supervision arrangements for the project's construction were not effective. Local staff were paid much less than the foreign consultants supervising the project and thought that the professional advice given was poor. The differences in salaries between local and foreign professionals were significant enough to provoke some friction. (The experience should be evaluated in more detail, since it may serve as a case for other situations where the Bank feels that the local capacity is fairly limited.)L/ In an effort to lift some of the constraints imposed by poor prepara- tion and design, a supervision "super-structure" was created.Ll/ Coordination at the field level was inadequate. Severe delays resulted, further compounded by excessive red tape at the local and national level.

3.20 Compliance with conditionality. As stated in the last section of the appraisal report, this project had to meet several conditions during its implementation. Examples of these include:

* Finance the local currency requirements for the project by annual budgetary appropriations to INDRHI, SEA and IAD.

* Strengthen research and extension services to meet project requirements.

* Ensure that BA (the Agricultural Bank) meets the project incremental needs for medium-term and seasonal credit and has the necessary financial resources for the purpose.

* Continue with the soil conservation program in the Nizao catchment basin.

* Double present water rates in all irrigation systems administered by INDRHI, by December 31, 1979.

* Establish a monitoring and evaluation system.

3.21 The above conditions were in addition to the standard conditions, including operational conditions related to competitive bidding, and contracts with firms associated with the construction of the project.L2/

NJ This can be easily seen by analyzing the performance ratings during supervision. The first two items to reach 3 were "financial practices" and "performance of consultants." See supervision report dated September 18, 1980.

EL It must be said that the initiative to create such a "super-structure" came from the Government. See letter from INDRHI dated November 5, 1980. This was approved by the Bank by the end of 1980.

2 It is important to highlight some characteristics of those conditions: * Conditions were related to sectoral matters or countrywide issues and, thus, out of the strict domain of the project authority (e.g., management of financial resources). This diminished the chance that conditionality could have been fulfilled during implementation. * Several of the conditions were key for attaining any level of agricultural development in the project area (i.e., defining the project's potential comparative advantages). * Compliance with conditions was not adequately supervised, perhaps because other project implementation problems required more attention. * Compliance with several conditions was dependent on government budget allocations which were, for the most part, not forthcoming in an effective and timely way. - 14 -

3.22 Supervision reports and aide-memoirs did point out that several conditions upon which all had agreed had not been met. The theme of non-compliance became "ddj1-vu" as one reviews the correspondence file. The themes were repeated so frequently, by one supervision mission after the other, that one must only conclude that the enforcement of those conditions was not a Bank priority. One reason for such a low priority might have been the weak state of the country-Bank dialogue, which constrained the Bank from pushing too hard; another might have been internal disagreements between what were called "Programs" and "Projects," the latter being more relaxed on the question of compliance.

I. Overview of Implementation

3.23 It is evident that the project faced serious implementation problems that impaired its ability to achieve the desired development objectives. There were other implementation problems, which are mentioned here because they were detailed in the PCR (see the Appendix for details).

3.24 From a national perspective, the Government was very keen on financing this project because of the unique characteristics of the project area: a major concentration of urban and rural population, an important supplier of basic products to Santo Domingo (like legumes and fruits) and a major organized farm labor force (i.e., powerful labor union). Despite the country's implementation problems, the Bank insisted on an increase in lending. At one time, while the NIP was sagging due to inadequate institutional absorptive capacity, the Bank was pressuring the government to accept a new lending program of nearly US$500 million.3/ To expand lending--through projects or special action programs--the government had to move at a faster pace at the project level, a pace which further limited the absorptive capacity.34f These pressures, in the absence of a SAL, put the lending program in a very precarious condition: pressure was put on project entities which did not have the necessary institutional capacity to deliver the advocated reforms.]&

3.25 Government officials in charge of implementation stated during the audit field mission that the project was a complex task from the start due mainly to the lack of preparation.26/ This was true from both an engineering and a management perspective. Those involved found themselves acting on the spot, and making decisions without a great deal of information, adding to delays and to the total costs of the project (see details in paras. 4.7 to 5.11). In addition, the project team was not aware of Bank procedures (e.g., procurement), making the first year extremely cumbersome. (It took the project manager nine trips to Washington to understand different procedures.) While

&/ See memo from Bank staff dated November 1982, and the letter from the Bank to the Governor of the Central Bank, dated also November 1982.

M/ Memo from Bank staff, dated November 1982.

& A consultant report written in 1983 had already pointed out that pressure to lend was creating immense institutional friction in the country. That report stated that "as a result of the rapid expansion in lending, government's absorptive capacity was heavily strained. As of mid-1983, a large number of projects were ahibiting implementation difficulties. A study of 48 projects with external financing indicated that 79 percent were aperiencing problems of management, lack of counterpart, construction and consultant difficulties or failures to meet loan conditions or gain in legislative approval.." (R.H. Girling 1983, para. 1.06).

_W See, for cxample, letter to INDRHI by the consulting firm in charge of supervision. September, 1982. - 15 - supervision helped project management in the process, the tasks at hand were too heavy for the existing absorptive capacity at the implementation agency level.

IV. PROJECT OUTCOME

A. Generzl Performance

4.1 The overall performance of the NIP is similar to that of other irrigation projects in the Dominican Republic (see Section I). While most of the project's infrastructure as re-defined by the mid-term evaluation were completed, most of the project's ultimate objectives were either attained only partially or not at all.

4.2 Irrigation expansion and rehabilitation. The rehabilitation and expansion of the irrigation infrastructure was, to a large extent, achieved. While most of the rehabilitation was carried out, the expansion--as conceived originally--was only partial. As stated in the last section of this report, the project had serious implementation problems in the area of expansion and some of the former project managers felt that nothing major was accomplished.

4.3 Production impacts. The agricultural development objectives were not attained; e.g., increase in agricultural output and agricultural diversification.2/ First, discussions with beneficiaries suggest that the area under cultivation is now much less than in the without project situation. This contention was supported by discussions with enumerators dealing with data collection on land use at the field level. Data shows that only 50 percent of the irrigable land in the project area is being cultivated. This is also confirmed by recent statistics on areas used under irrigation for the country as a whole. Part of the problem in the Nizao area is that the opportunity cost of land has increased sharply for such uses as weekend farms and tourism, and labor supply--particularly of young people--has declined. Urban sprawl in some areas is important too. The PCR estimates that the land under fallow is nearly 30 percent. Thus, the project has not brought more land into production.8/

7/ The Government recognizes that major emphasis has been given to the expansion of physical infrastructure and little emphasis given to agricultural development. In this respect, the GODR states that "Although it is true that emphasis was placed in the past on building infrastructure works, which were strictly necessary, as points of departure for harnessing water resources for agricultural purposes, in recent years, the Dominican Government has changed its policy and now places emphasis on agricultural development projects in irrigated areas, as demonstrated by the IAD III Project (in the southwest); the development project targeted at three irrigated areas, which was prepared, then submitted to the World Bank in 1989, and is still pending; the Sustainable Agriculture Development Project in San Juan de Is Maguana (PRODAS), which has been submitted to IDB, with implementation scheduled to begin during the first half of 1993; and a series of other similar projects of equal importance for the country" (see Attachment 2).

3 The official Government comments to this audit do not fully agree with this view (see Attachment 2). However, during the audit field mission, several government officials were interviewed and a comprehensive discussion of the land use issues took place. The consensus was that there was much less land under cultivation than originally envisaged. Several reasons account for this, including major demographic changes, changes in the composition of the farm labor force, increase in tourism, prodmity to Santo Domingo, inefficiencies of the irrigation system, and the like. This subject needs much more research than was possible during an audit mission. - 16 -

4.4 Second, land productivity has also declined over time, except for certain crops for which productivity has stayed constant.& Because the project area was already under irrigation, normal increases in productivity could have been achieved without the project (i.e., as a result of technological change, planting of better seeds). Moreover, available information demonstrates that the irrigation system's operationalefficiency is dismally low and that the water distribution system is inefficient and inequitable. As a result, zones--like the tail ends of the canal system, and arid areas-- that would have most benefitted from irrigation, in practice, did not.

4.5 The Agricultural diversification strategy. Promotion of crop diversification was an important objective of this project. The expected benefits were related to increase in land productivity in areas under sugar plantations; the ability to an increase the supply of high-value crops (e.g., horticulture, fruits) to domestic markets; and the expansion of the country's export prospects (particularly to the USA).4/ This objective was never accomplished, due not to lack of water, but to the absence of a series of services and actions that were never implemented (see the PCR, para. 3.20).

4.6 The constraints to diversification were underestimated, despite the fact that the diversification theme was not new at the time of preparation and appraisal. Agricultural diversification had been attempted many times before because of the Dominican Republic's excessive dependency on sugar exports that have been subject to unfavorable fluctuations in international prices. Diversification experiments managed by CAE (Sugar Corporation), involving 300 hectares, did not prosper. The land is now back in sugar cane. Local studies show that existing economic incentives were not adequate for high value crops; and that participating farmers did not have the necessary skills to handle the new farming system and practices, and had only a limited ability to participate in marketing and distribution. Bank economic reports show that the effective rate of protection for sugar producers has increased significantly; that not enough credit has been made available to satisfy the demands generated by the diversification effort; and that, as expected, only highly skilled farmers have been able to enter the export market with, for example, tomatoes and melons.

4.7 Benefitting smallholders in the project area. The income distribution related objectives required much more than building the irrigation infrastructure. Most of the tasks defined in the appraisal report were not implemented due to lack of commitment as well as due to lack of funds from the implementation agency. The equity impacts were aggravated, in fact, by a series of design changes which actually benefitted the richest farmers in the project area.

4.8 The NIP meant to redistribute income by regularizing land tenure in the area, assigning land titles, and creating jobs for the landless. Some 2,900 smallholders were expected to benefit from

3/ The PCR generally agrees with this view (see Appendix).

40/ The Government feels that the NIP has been a major contributor to the expansion of agricultural exports. The Government comments to this audit state that "The Nizao-Valdesia Irrigation Project has helped increase exports of fruits and vegetables. There has been a marked increase in the production of vegetables and rice, the result of a regular supply of irrigation water..." In some respects this audit agrees with the Government's view on the subject. In particular, the project may have been a major contributor to "securing" the flow of irrigation water (see section dealing with the economic evaluation of the project). However, it is unclear that any major expansion has taken place, except in rather small areas, with a net increase in production that does not justify the resources embodied in this project (see Attachment 1). - 17 -

land regularization and titling, and 900 landless families from additional employment. Little was accomplished in this area.!J]

4.9 The need to design an irrigation system whereby water would reach the tail ends in a predictable and reliable way was a central aspect of equity issues in the project area. From the beginning, there were doubts that this condition could be met. Thus, the project's emphasis on rehabilitation and expansion of the Nizao-Najayo canal generated great controversy due to the uncertainties as to who would actually benefit. A large group of organized farmers opposed the project during its first year of implementation. They argued that the rehabilitation and expansion of that canal would benefit large latifundia rather than smallholders. When, (as a result of the mid-term review) the decision was made to eliminate from the project the eastern part or tail end --an area with a significant concentration of small farmers-- the two expensive syphons, designed with the view to benefit that area, had already been put in place (i.e., La Cabria and Mani). As a result, those syphons only benefitted one single farm. This farm stopped using several water pumps, effecting considerable savings in terms of fuel. Stopping construction of those syphons would have saved the country nearly US$12 million. As it stands now, the syphons have twice as much water-holding capacity as the old dirt canal to which those syphons are connected.

4.10 Environment and conservation. The environmental and conservation oriented objectives--e.g., managing the reservoir waters among alternative uses, controlling sedimentation and soil erosion in the watershed, and improving water management at the district and project level--were put in second place or ignored by both the Bank and the Government, as the main preoccupation became the rehabilitation of the irrigation infrastructure. Two aspects related to sedimentation management should be noted:4J2

* The exploitation of forest and vegetation is not dictated by clear policies. Thus, in some areas where the slope is too steep, or where the land should have remained uncultivated to protect the canal embankments from further erosion, plots have been allocated to landless people. As a result those objectives linked to sedimentation and erosion rates were never accomplished.

* The project concept did include a component for watershed management but the component failed to be implemented. It was always unclear who had the responsibility for such a program, except for those aspects related to soil conservation (i.e., the Secretary of Agriculture).

4.11 It is important, in this regard, to point out the Dominican Government's interest in watershed management and conservation, particularly where the Nizao River Watershed is concerned.

Lj/ In the earlier Yaque del Norte Irrigation Project, the results were the same--despite the efforts made, land tenure issues were never resolved. The audit report of that project stated that "... a cadastral survey and a preparation of agrarian reform should have been completed before project appraisal. In addition, the adoption of agrarian reform legislation should have been made a condition of negotiation for Board presentation" (page 5, para. 18). g/ The audit does not make references to such problems as alkalinity and salinity in the area between the Catalina Creek and the Nizao River. Information is too limited to analyze the magnitude of these problems. See FAO/CP Review Mission. June 1977. See also, FAO/CP, Progress Report, issued in March 1978. - 18 -

A Nizao River Watershed Conservation and Management Project is currently in progress, with technical assistance from FAO, and other efforts, in addition to the Management Plan, have involved the planting of some 625,000 trees, including coffee, cedar, mahogany, corazdn de paloma, pine and bamboo, storm water control and embankment protection work. Other basins where watershed management and conservation work or studies are in progress are the Bao River Basin, with IDB financing, and the Blanco River Basin, where a detailed geomorphological study is being carried out preparatory to formulation of the Management Plan.

B. Water Management

4.12 Water charges and cost recovery. The project, as presented to the Board, had clearly specified the need to reformulate the borrower's policy on cost recovery and water charges. The purpose was twofold: to drastically diminish water wastage and, therefore, improve water management; and to increase fiscal revenues, with part of the revenues to be re-invested in the project area. However, the agreed policy on water charges and cost recovery was never implemented. In fact, the lack of implementation eventually provided the justification for possible project cancellation (see para. 30). When the Government decided to act in this area, and passed a new law, this was not consistent with the project's agreed covenants. Part of the loan agreement had to do with the conditionality on recovery of capital cost and another part had to do with the level of tariff's progressivity.!L The policy, as stated at appraisal, has never been given a fair chance, and the mood in the country tends to be indifferent.AA/

4.13 Water districts. Another expected outcome of this project was the enhancement of water districts and water users associations. The project aim was a well organized water district, in which farmers--following the advice of a cabo de agua (water master)--would make water allocation decisions within that district. This was conceived as an effective way to increase agricultural productivity and improve water use efficiency. These efforts have been unsuccessful to say the least. In a random visit to the project area, it was found that many cabos de agua were not in the area where they were supposed to be; and, when they were, they had no understanding of what they were supposed to do that particular day. Many of the middle-level managers did not know the location or the tasks that their cabo de agua had to carry out, and many farmers stated that they did not know them or that they did not know what they actually do.4§j

4.14 The lack of financial resources to carry out field activities is one explanation for the precarious situation at the water district level. The project has been functioning without the needed resources which the Borrower agreed to provide. Allocations of funds are often meager and tend

L/ The Bank noted in January 1985 that "the existing Water Law- #5852, 1962 (modified in December 1982), whereby the recovery of O&M costs shall increase to 100% by 1990, is inconsistent with the requirement of the Loan Agreement" (para. 6).

ff The subject of cost recovery and water charges has been a controversial one all along. In commenting on this audit, the Government stated that "an important achievement of the project is its continuous availability of water for irrigation, which has enabled farmers to increase production and consequently their profits. The water rate in this area is the lowest nationally, owing to the low cost of irrigation." (See Government response for details.)

L/ During identification, the Bank recognized the need to upgrade the organization and management capabilities of existing irrigation districts, considering the participation of farmers and Government agencies directly related to agriculture. These efforts failed to yield the expected results. - 19 - to concentrate on the immediate everyday crises and not on the sustainability of the irrigationsystem. One cannot expect the cabo de agua to perform his functions adequately without the necessary resources and incentives to do it.

4.15 Operation and Maintenance. The project also aimed at putting in place an efficient and effective operation and maintenance system. This was not accomplished due to financial difficulties and technical constraints. The present system suffers from important shortcomings. Examples are:

* Water runs continuously, independently of whether it is being used or not.

* Operation responds to ad hoc demands for electricity and, in the future, it will respond to demands for drinking water supply.

* Operational training at the field level is not functioning.

* Maintenance of canals and other infrastructure is minimal and sporadic.

* Maintenance facilities for trucks and other equipment are not in operating condition. Additional financial and human resources are required.

* Equipment used to maintain the main canal is inadequate and the lining work is at risk.

* Estimates of O&M costs are inadequate and, thus, financial management is precarious.

C. Economic Rate of Return

4.16 Several assumptions made at appraisal and completion proved to be unrealistic. The audit questions the relatively high ERR estimated at completion. In fact, given the PCR's own evaluation of performance, it is difficult to see how the project could have, at completion, attained an ERR of 15.9 percent (higher than 14.5 percent at appraisal and 13.6 percent at mid-term evaluation).

4.17 The most important assumptions made at appraisal were:

* First, that rehabilitation was more profitable than irrigation expansion or institutional development.

* Second, that cement lining of canals represented the best of all alternatives. An assessment of the merits of the ways to improve water efficiency and management, not directly linked to cement lining per se, was never carried out. In fact, part of the canals were already lined (the "without" project situation), but with stones and not - 20 -

with cement.A/ There are several areas within the project today where the old stone-lined canals (principal and secondary) still operate, and they operate rather well. The appraisal report (see para. 3.04) stated that some of the canals have been rehabilitated several times since the turn of the century. The main canal was rehabilitated in 1920, 1943 and 1958.47/ The Bank-financed project was to further rehabilitate and expand the canal capacity to 16.5 m3 per second.y/

* Third, that there were several indirect ways the project could accomplish its economic objectives--the structure and performance of marketing and distribution, the expansion of international trade and agricultural diversification. Experience demonstrated that this approach was too far removed from the real nature of the project.

* Fourth, that the macroeconomic incentive structure and policies were favorable to the needed project outcomes. The weakest link in the system was agricultural diversification: it did not take place contrary to what was expected at appraisal.49/5

4.18 At completion, the PCR made several statements which are directly linked to the re- estimation of the ERR:

* "At appraisal it was expected that the project would lead to a more intensive cropping pattern and to increased productivity. These hopes did not fully materialize...." (see section on Results)

_V The FAO/CP Review Mission (see back-to-office report dated June 30, 1977) stated that the system has been in operation for about 30 yeam.

47 Data pertaining to the Trujillo era is quite revealing about this issue. In a book devoted to an analysis of the contributions made by that Government to the development of the Dominican Republic, a full chapter is devoted to irrigatloi. In pages 266-268, the book shows the cost, kilometers of canals, area under irrigation and water-flowing capacity of each canal in different irrigation districts. The cost per kilometer of canal ranged from RD$1,400 up to RDS16,000. The highest value was registered in the San Cristobal Water District, which is part of the NIP area. The investments in the two canals included in the Bank financed project are quite revealing. The cost per kilometer of the Nizao-Najayo was RDS72,600 and of the Marcos A. Cabral was RDS35,000.

4N Using the same data base as the previous footnote, it is possible to show that the cost per liter of water made available was at least 100 percent higher in the two canals, compared to the average for their respective water districts.

I The management of CEA stated that it was better for farmers to continue producing sugar cane than other agricultural products. Given the existing sets of incentives, diversification has little chance of success. This is particularly true for small farmers, given that diversification requires in most cases a fairly intensive system of cultivation.

5O Other assumptions worth noting are that: a) the project faced favorable conditions for agricultural diversification; b) "the project represents the best alternative for developing the Nizao region and for use of water resources regulated by the Valdesia Dam" (appraisal report, para 8.01); c) the highest marginal returns to water were in irrigation; d) the macroeconomic incentive structure and policies was favorable; e) agricultural services (e.g., etension and research, marketing and distribution) were going to be provided in the "right" quantities; and f) the amount of indirect benefits from the project was relatively large (or even larger) than the direct oncs. As discussed in the previous section of this audit, these assumptions did not materialize. - 21 -

* "The failure to bring water charges to an appropriate level means that there are no strong incentives to move into more efficient modes of cultivation." (see section on Results)

* "While the project has improved farmers incomes, the expected upgrading of the entire production system has not yet taken place. A more realistic pricing for irrigation water would be essential ... [to] ... create conditions conducive to enhancing agricultural productivity...." (see section on Sustainability)

* "At project completion there is, however, still between 15 percent and 30 percent of fallow; the cropping intensity, at farm level, remains static at the same level as at appraisal; and the project did not achieve the production envisaged at appraisal." (see section on Agricultural Impacts)

* "[The] shift of production towards higher value crops cannot be attributed to project measures, because both the cropping intensity and the irrigation efficiency--the main indicators of improved irrigation water supply and management--have not changed during project implementation ... as the project also did not provide specific measures to strengthen extension and credit services which could have influenced project farmers' production decisions." (see section on Agricultural Impacts)

4.19 The most important conceptual lacuna in the economic analysis, both at appraisal and completion, was related to the definition of the "with" and "without" project situations. The project area was already under irrigation before the NIP was designed and implemented, and consequently a much more thorough analysis of the "future without the project situation" should have been carried out. This would have resulted in a better understanding that the only net benefits that can be attributed to the project were those which were incremental in relation to the investment in question.LI/2/ Information from the project area as well as from those areas just outside shows that significant crop yield increases have been achieved under the old irrigation system.

4.20 INDRHI provided the audit field mission with a new set of information on the "without" project situation. This includes field observations during the project implementationperiod as well as yieldprojections for the remaimmg economic life of theproject. Forthe "with"project situation, the audit

LI/ To arrive at yields, technical coefficients of irrigation and other important data for the analysis, several projects were reviewed. In addition, IICA, which was in charge of monitoring and evaluation of the NIP, facilitated its data base--probably the beat in the country--to check the information coming from a working group formed during the audit field mission. Because of some inconsis- tencies found in most instances, much more research is needed.

2 The internal debate within the Bank about the merits of the project is worth noting. As per memo of September 8, 1978, which reviewed the yellow cover staff appraisal report, it was stated, "production increases actually attributable to the project are probably lower than estimated in the report. Substantial increases in real production value are due to shifts in cropping patterns, which would be certainly feasible also without the project" (para. 1). - 22 -

has accepted the estimates presented in the PCR. The re-estimated ERR came out to be 5.7 percent, much lower than the ERR at completion (15.87 percent).5_3 5&

4.21 The audit assumes that labor markets are competitive in the area (i.e., market wages paid reflect the opportunity cost of labor); that the standard conversion factor reflects the average distortions faced by this project; and that such conversion factor closely reflects the ratio between the official and shadow exchange rate./ Since almost all the commodities of this project are "tradeable," and since the labor markets are assumed to be competitive, the conversion factor plays a minor role in determining the final ERR of the project. Assumptions have been made regarding the level and distribution of future benefits. Finally, 1986 was the first year when net incremental output can be attributed to the project.i/ 57/

V. FINDINGS AND LESSONS

A. Major Detenninants of Sustainabiity

5.1 If present conditions remain the same, this project is unlikely to be sustainable. For a start, the economic benefits are extremely low, certainly lower than the opportunity cost of capital in the Dominican Republic (assumed during appraisal to be 12 percent). Sustainability of development requires net growth and, therefore, capital accumulation. Without capital accumulation, in its several fonns (e.g., physica financial, human, natural, institutiona4 and cultural),L8 the project will never be sustainable.

5.2 The project has been instrumental in accumulating physical capital in the project area. However, its productivity is extremely low and the ability the economy of the region will have to

S& It should be noted that even during preparation there were serious doubts about the ERR of this project. The third preparation mission report by the FAO/CP stated that the ERR would never exceed 10 percent (2 percentage points below the opportunity cost of capital).

L/ Due to data constraints, this PAR neither estimated the "social" rate of return nor the value of "indirect effects" of irrigation development.

L5/ Sensitivity analysis was carried out to estimate the "switching value" of the conversion factor. The ERR is not very sensitive to changes in such parameters.

Sl Sensitivity analysis shows that the ERR is not very sensitive to changes in this assumption, if the range is maintained at 1-2 year periods. It is important to note, also, that the economic analysis carried out at appraisal rightly identified some negative benefits coming from interruptions in the water supply and distribution system. Field agronomists stated during the audit that losses of agricultural income during construction were very significant. In some areas, agricultural income will not reach the "without" project situation for several more years.

7/ During the audit mission, it was suggested that "securing water supplies" could be counted as an additional benefit of this project. Securing water supply is an important dimension due to variability in rainfall and apparent micro-climate changes within several areas of the project. However, the audit is of the view that there were other ways to secure water and increasing the efficiency of the already existing irrigation system (e.g., better water management, improved operation and maintenance, adequate water allocation system at the farm level). This potential benefit has been greatly eroded by two major factors.: i) decisions to give highest priority for water allocations to hydroelectric power and drinking water rather than irrigation, and ii) decisions not to implement the watershed management component, diminishing the river system's ability to store water.

/ See definitions of different forms of capital and their relationship to sustainability in OED's Annual Review of Evaluaion Resuls for 1988 (Washington, D.C.: World Bank, 1989). -23- sustain and increase the level of net benefits is rather doubtful. As regards financial capital, the Government policy with regard to counterpart financing has been inadequate and the results of such a policy have been presented earlier in this report. There is little doubt that there is an intimate relationship between the productivity of physical capital and the constraints imposed by the supply and quality of the financial capital.

5.3 The sustainability of this project is also determined by the precarious levels of human capital and institutional development. More specifically, the project was not able to improve agricultural services in the area, including education, training and extension; nor did the project create the necessary environment for farmers' and other beneficiaries' participation in the management of project assets--all of which is essential to attaining sustainability. In addition, institutional development was weak, and the sustainability of the project's assets will very much depend on the resources devoted to (a) creating a more favorable incentive structure; (b) improving organizational arrangements at the regional and local levels (e.g., water users associations, management schemes for O&M);59/ (c) enhancing the role of the private sector particularly in areas related to agricultural diversification and export promotion; (d) increasing the ability of public sector agencies to deliver services to the project and improve monitoring and evaluation; and (e) improving sector management and legislation.

5.4 With regard to natural resources, the lack of attention given to such issues as managing water at all levels (e.g., reservoir, regulatory dam, main canals); controlling sedimentation; and soils erosion and managing the Nizao watershed will continue to impair project sustainability. An effort should be made to make better use of the studies which this project and other projects have financed in the area of natural resource management, and to apply the most relevant recommendations.

5.5 With regard to socio-cultural aspects of irrigation development, it is important to note that demographic and cultural aspects within the project area are rapidly changing. A major migration to Santo Domingo is taking place, resulting in a significant change in the labor supply for agricultural purposes. It is the young people who are migrating out of the project area and into Santo Domingo, and, as a result, the supply of labor to carry out several tasks associated with irrigation development has diminished.600 The out-migration process may eventually drive wages up, and immigration may eventually occur. A condition to reverse migration will provide a concomitant increase in net benefits. With regard to cultural changes, it is important to note that the proximity to the capital city is changing the traditional values of the farming community. There is less association of the land with agriculture, unless the agricultural enterprise is highly capitalized

L/ The Government recognizes the importance of water users associations. As stated In attachment 2, "INDRHI has started a program designed to hand over irrigation systems to the users, based on eperience with the Mamjo deA8ua a Nivel de Fincas Project and has already transferred systems to irrigators in the Azua, Ban(, Santiago and Dajab6n irrigation areas."

At/ Information from social surveys and field interviews shows that the population of active young farmers is rapidly declining. Thus the farmer population is aging. These older farmers are more dependent on hired labor than on family labor. Off-farm labor wages have been increasing as jobs, particularly tourism and related urban services, become more popular among the new generation. In addition, the proximity of the project region to the capital city, Santo Domingo, has not helped reverse those trends. This shows that neither agriculture nor irrigated agriculture may prove to be the engine for growth in that area; that, in fact, expansion of services and tourism may replace agriculture in the future. Other signs confirming such significant demographic trends are the rate of conversion of agricultural land into other uses (e.g., weekend farms, tourism, urban growth), and the increase in the number of leases which is taking place in the project area. - 24 - and the value added in production is equally high. Land values are changing and land use has followed a trend in which a significant number of hectares is now being converted into weekend farms and tourism businesses.

5.6 Finally, sustainability of the NIP also depends on beneficiaries' participation and on the extent to which they will benefit from changes in land tenure. As significant changes in tenure never took place, farmers are reluctant to invest in the land they cultivate, and thus land productivity may also deteriorate, despite the availability of irrigation. This situation is also influencing the effective- ness of government actions at the watershed level. As a consequence, deforestation and mismanagement of pasture lands upstream is taking place and sedimentation rates are high. Such rates put into serious question the capacity to sustain the economic life of existing assets (including hydroelectric equipment). The impacts will be felt beyond agriculture, as those assets are serving the production of electricity and drinking water supply.

B. Design and Technical Problems

5.7 Lack of technical data and Its implications. Many basic decisions were made without adequate technical data. Knowledge regarding such basic information as hydrometric variables does not exist even today.!6/ Given the quality of existing data, measurements, for example, of water efficiency can only be done for the project area as a whole. Little is known about operational efficiency or water use efficiency at the farm level. Given that the area was already under irrigation, these efficiency-related coefficients are particularly important in evaluating the economic benefits of this project. Existing measurement of global efficiency shows extremely poor results for the "with" project situation. Estimates for last year show that the system is running close to 13 percent water efficiency, and it is not yet fully understood where the rest of the water goes.62.

5.8 Lack of information at the time of project preparation greatly compromised the chance of success.6i3 The construction of the project became a day-to-day affair, and since there were no specific designs to follow, lots of problems were encountered. Lack of soil surveys prevented engineers from knowing which areas were easier to excavate, how to properly line the new canal, and how to avoid major water stoppage of the existing canals during construction. Several shortcuts had to be made, some of which haunted the project in the first few years of implementation. The results were major delays, imposition of a supervision infrastructure and great escalation of costs.

61/ In a memo dated May 2, 1977, a Bank staff member stated the need for collecting and studying hydrological information for an adequate design of the project.

62/ The figure quoted here was taken from draft reports prepared by INDRHI staff. Even if one corrects measurement errors, it appears that water use efficiency has never been greater than 20-25 percent. This subject needs much more research if water management in the irrigation area is to increase.

63/ The FAO/CP Review Mission of 1977 identified the following informational gaps: agricultural production, hydrological information, engineering designs and costs, plans for on-farm development, credit requirements, water charges, farm budgets and economic justification. -25-

5.9 Government officials know now that a major decline in the use of land has taken place.& The decline responds to the following variables: a) an inadequate set of incentives (e.g., prices, effective protection) and policies at the sector and macro levels; b) a significant vacuum with regard to the provision of agricultural services (e.g., extension, research, marketing, credit); c) a diminished prospect for expanding supply to traditional consumption centers and to international trade; d) a failure in the agricultural diversification efforts; and e) special evolution of some socio- demographic aspects in the region.

5.10 Socioeconomic data. Very little information existed at the time of preparation and appraisal with which to draw an adequate picture of the additional (net) economic potential of the region.L/ There was no benchmark farm survey from which to establish the main production parameters of the project._/ This affected the way in which farm budgets were made, and, therefore, there was no way to know if the agronomic practices advocated were at all realistic. The farm budgets used were all rough estimates since primary data was collected only in 1987. However, none has ever been used to redesign either this project or other projects in the region.As a result, land has been incorporated into the project without knowing what the potential benefits would be.

5.11 Finally, several subjects were either ignored or misunderstood because the Bank did not know what was happening on the socioeconomic front. For example:

* There is little understanding of the importance of linkages between land levelling and preparation and agricultural productivity; of why, for instance, farmers prefer to cultivate in "small squares" rather than on a plowed field.

* Seed selection and genetic improvements are not being given adequate attention by the Ministry of Agriculture. As a result, the genetic material used in the project area is largely sub-optimal.

* Technology at the farm level, including farm machinery and equipment, is deficient.

* Technical assistance and extension service are inadequate. There are very few well qualified technicians who are prepared to work in irrigated agriculture. Thus, extension advice is often irrelevant and seldom followed.

5.12 Important technical shortcomings. Even as an engineering proposition, the project faced many design problems:

!H/ See previous section for more discussion on this subject. There is no consensus as to the exact statistic on land use within the command area.

§/ See memo dated May 2, 1977, explaining the need to work out feasible cropping patterns.

66/ A memo dated December 1977 from a Bank staff member, stated that the preparation of the on-farm development program has been assigned to an agronomist with little experience. -26-

* The canals do not have the necessary drainage infrastructure needed to avoid siltation or damage during rainstorms.67/

* The erosion control structures on the hill side of the canal were not adequately designed. They used earth structures rather than harder material to save money. This was a decision that has proven costly as heavy rains are significantly eroding the lined canals.

* The forecast for equipment, including its operation, maintenance and repairs, was not adequately done. As a result, there is a lack of equipment, and that which works is often not of the right specification for some maintenance activities (e.g., cleaning of sedimentation).

* Lack of an adequate set of gates along the canals has severely limited the capacity to operate the system and allocate the water in an effective way. In fact, the location of the gates was not planned because land tenure issues arose when new places were used to locate the new gates. Those closer to the gates have a clear advantage in exercising their rent seeking practices. A change in location implied a major change in public and private access, i.e., changing the power structure.

* Water and sediments can enter the canals in too many places. Since irrigation canals and their corresponding design flows should not be affected by "random entrances" of water or sediments, managing water and infrastructure has been extremely difficult. This is largely linked to the lack of an adequate drainage system, which was not put in place in order to save money.

* From a hydrological point of view, the main canals and laterals were not well designed. It is practically impossible to transfer the required amounts of water to the tail ends even if the canals are running at their full capacity.

* From the start, the project accepted as a design parameter the capture of 3 m3/sec of water to supply the city of Santo Domingo. It was this design parameter that justified, to a large extent the construction of the Nizao Najayo canal towards its tail end, at the eastern side of the project area (see map attached).

C. Sector and Macroeconomic Aspects of Performance

5.13 Impacts on performance. It is difficult to separate each factor influencing productivity in the project area (e.g., technology, weather, incentives). However, several Bank reports have noted that there seems to be a consensus that the policy environment was an important determinant of performance. For example, Bank reports recognize the role that price and export incentives played in increasing the productivity of traditional crops as well as in creating a strong environment for

U7 This was known very early in the project cycle (see memo from Bank staff, May 2, 1977). - 27 - diversification. Implicit and explicit export taxes on crops produced in the project area were high and always increasing during the period.f 69/

5.14 Bank economic reports, available during implementation, identified major contradictions between agricultural and macroeconomic policies. These contradictions were not addressed by policy makers or Bank operational staff and, thus, many of the key parameters for project selection and appraisal (e.g., economic prices, domestic resource costs) were inadequate to appraise this irrigation project. For example, as the net effective protection of several of the commodities to be produced by the project was negative, the preparation and appraisal report over-estimated the ability of the project to diversify into export crops, or away from sugar production.

5.15 Before Board presentation, most efforts to correct existing distortions at the macro level were ineffective due to the weaknesses inherent in the policy dialogue and the political instability of the country. At the time it appeared that the use of conditionality could be effective in removing these distortions, and the project became an instrument of policy reform in certain areas. However, conditionality was not effectively implemented. As it turned out, several conditions listed in the project agreement were never met, and the Bank accepted this situation in the expectation that a SAL--under preparation at the time--would include those conditions. However, the SAL was never made and the project was greatly affected by the macroeconomic environment.

5.16 The adequacy of changes in relative prices, and pricing policy in general, have been studied by the Bank. This is illustrated by the work carried out by O'Mara, which was an input to one of the agricultural sector reviews in 1986/87.10/ His report stated that:

"Over the past two decades an import substitution economic policy has been in place in the Dominican Republic with the typical anti-export bias emerging through an overvalued currency and the imposition of a heavy protective fence of import tariffs, quotas and prohibitions [including exchange-rate policy]. In more recent years, there has been a policy shift toward government consumption and away from government investment. Equally important, the tax revenue base has been seriously eroded over the past 15 years, due in part to liberal exemptions and exonerations granted to import substituting firms, and government has responded by accumu- lating external debt and creating money. This mix of policies suffers from a lack of coherence that has been exacerbated by the effects of external shocks...." (para. 16)

/ Implicit taxes are defined as those computed at the shadow exchange rate rather than at the official exchange rate. In the latter years, implicit cxport taxation reached nearly 100 percent. These facts had a clear and significant influence on project results.

69 The PCR attributes to price increases the potential gains for this project or the eventual decline in economic performance. See section D on economic analysis of the NIP.

N Gerald O'Mara, "The Process of Formulation and Implementation of Economic and Agricultural Policy in the Dominican Republic," World Bank Staff Working Paper No. 116 (Washington, D.C.: World Bank, June 1986). -28-

D. Lessons

5.17 The lessons are similar to those of the Bank-financed Yaque del Norte Irrigation Project (see para. 10 and footnote 3), and to those of other irrigation projects in the Dominican Republic. Five general lessons should be noted.71/

5.18 First, the economic returns of most irrigation projects in the Dominican Republic appear to be much less than appraisal expectations. In this regard, the Government has to increase the effectiveness of irrigation and, thus, materialize important benefits now. Such actions may include, for example, an accelerated growth of human and institutional capital, an adequate incentive structure, an effective development effort linked to national and local organizations, an improved system for beneficiaries' participation, and an appropriate policy on recurrent cost financing and operation and maintenance.

5.19 Second, development of irrigation must be accompanied by an effective agricultural development program. It appears that the Nizao region still offers a great potential for output expansion for both domestic and export markets. The region's proximity to roads and port facilities gives it an indisputable advantage. A comprehensive study on comparative advantage may be called for.

5.20 Third, organizational and institutional arrangements for project implementation must be assessed and agreed upon before implementation. This is particularly important in a situation where the absorptive capacity of local institutions is weak in relation to the demands of the project.

5.21 Fourth, good projects do not yield their expected benefits in an unfavorable macroeco- nomic environment. This calls for strengthening sector work and for a detailed evaluation of investment and expenditures at the national and regional level.

5.22 Fifth, non-compliance with covenants may have serious detrimental effects on develop- ment performance. In this case, non-compliance meant minimal counterpart financing, which had a damaging effect on scope and timeliness of implementation.

1J/ They were based on the review of several completion reports of Bank-financed projects as well as completion reports by other donors. - 29 -

Table 1: SURFACE WATER POTENTIAL IN THE DOMINICAN REPUBLIC

Average Base Flow Average Total Flow a/ Region River m3/s 106m3/Year m3Is 106 m3/Year

Yaque del Norte Yaque del 78 2460 111 3500 Norte Otros 31 980 70 2200 Subtotal 109 3440 181 5700

San Juan San Juan 25 785 29 900 Artibonito 18 575 32 1015 Subtotal 43 1360 61 1915

Azua b Varios 4 125 7 220

Yaque del Sur Yaque del 14 430 40 1250 Sur Otros 20 630 39 1240 Subtotal 34 1060 79 2490

Yuna-Camd Yuna 54 1700 100 3150 Camd 24 770 52 1630 Subtotal 78 2470 152 4780

Ozama-Nizao Nizao 19 610 30 945 Ozama 45 1410 89 2810 Ocoa 4 120 7 230 Haina 14 440 22 685 Chavdn 6 190 13 420 Otros 15 470 26 800 Subtotal 103 3240 187 5890

TOTAL 371 11695 667 20995

a/ Natural flows in the premise of no interference. Average inter-year values. b/ Estimated values of natural flows.

Source: Cruz y Pichardo, 1991. - 30 -

Table 2a: CUMULATED AREA UNDER IRRIGATION (POTENTIAL)

Year Surface (ha)

1916 12,580 1928 21,580 1941 32,410 1944 79,000 1954 132,000 1980 178,000 1990 230,000

Source: INDRHI

Table 2b: IRRIGATED AREA EXPANSION SINCE 1985

Irrigation District Surface (ha)

Alto Yaque del Norte 750

Bayo Yaque del Norte 1,250

Alto Yuna 650

Ozama-Nizao 40

Ysura 120

San Juan 60

U. Operativa del Este 130

Total 3,000

Source: INDRHI - 31 -

Table 3: SEDIMENTATION IN A SAMPLE OF RESERVOIRS

% of Inactive Area Total Inactive Normal Sed. Total Vol. Capacity of Reservoir Km2 Volume Volume Year M3/Km2/Yr. IOX6M Reservoirs

Tavera 785 173 50 1973 2,000 34.30 69 Valdesia 909 186 54 1975 1,600 43.00 80 Rincon 180 75 14 1978 500 6.95 50

Source: Conseso Agrario 1989. Aprovechamiento y Manejo de I Recursos Hidraulicos

Table 4: WATER CHARGES: ACTUAL VERSUS SUGGESTED 1989-1990

Water Charge A. B. A./B. Irrigation District Actual Suggested (%) ------(RD#1 ha/yr) ------

Dajab6n 14.6 81.3 5.6 Villa Vasquez 25.0 202.5 8.1 Las Matos de Sta Cruz 19.1 106.0 5.6 Santiago 20.4 193.7 9.5 Esperanza 25.0 105.4 4.2 Mao 19.0 95.7 5.0 La Vega 16.4 75.5 4.6 Bonao 16.4 96.9 5.9 Cotui 15.6 126.1 8.0 Constanza 56.8 375.2 6.6 Naqua 15.2 117.8 7.8 Limon de Yuma 15.0 313.7 20.9 Aqlipo 15.2 610.4 40.3 Banf 27.6 159.4 5.8 San Cristobal 27.6 248.2 9.0 Azua 12.9 165.5 12.8 San Juan 16.7 73.7 4.4 Las Matos de Farfan 15.5 290.2 18.7 Barahola 12.5 190.7 15.3 Neyba 13.2 259.3 19.7 Higuey 11.5 108.6 9.4 Bayaguana 16.5 205.3 15.1

Source: Cruz and Pichardo - 32 -

Table 5: WATER CHARGES AND COST RECOVERY

Total Paid on a % of Total Paid Expenditures Year (RD$) (%)

1980 557,126 14.1

1981 548,248 7.3

1982 507,840 10.7

1983 758,281 17.1

1984 1,168,990 9.5

1985 2,016,797 26.0

1986 2,701,078 19.0

1987 3,772,728 21.2

198 4,071,450 13.8

1989 3,980,047 11.0

1990 3,658,259 6.4

Source: INDRHI Table 6

EXTERNAL FINANCING CONTRACTED ACCORDING TO LENDER AND EXECUTING AGENCY (in US millions)

TRADITIONAL SOURCES OTHER SOURCES GRAND EXECUTING AGENCY TOTAL IBRD IDB AID VIF TOTAL KWT BANCO EXTERIOR JAPAN OTHERS TOTAL OF SPAIN

CENTRAL GOVERNMENT 71.5 169.0 39.6 18.8 298.1 - - 15.5 24.8 40.2 338.3

SEA - 24.6 11.0 - 35.6 - - - 10.7 10.7 46.3 SEOPC 63.5 114.8 10.0 18.0 206.3 - - 15.5 - 15.5 221.8 SESPAS - 20.0 8.2 - 28.2 - - - 13.7 13.7 41.9 ,SEEBAC 8.0 7.2 10.4 - 25.6 - - - - - 25.6 CNPE ------0.085 0.085 0.085 DGM ------0.266 0.266 0.266 DGON - 2.4 - - 2.4 - - - - - 2.4

AUTONONOUS INSTITUTION 192.8 253.7 7.8 - 495.4 - 164.9 - 20.8 193.7 689.1

INVI 25.0 - - - 25.0 - - - 0.722 0.722 25.7 INDESUR ------0.472 0.472 LAD 0.472 - 31.0 - - 31.0 - - - 12.0 12.0 43.0 INDRHI 40.8 89.0 - - 129.9 - 28.8 - 5.7 34.5 164.4 INAPA - 6.9 - - 6.9 - - - - - 6.9 BAGRICOLA 21.0 36.5 7.9 - 65.4 - - - - - 65.4 BC 56.0 7.6 - - 63.5 4.0 - - - 4.0 67.5 CEA 35.0 - - - 35.0 - - - - - 35.0 CDE 15.0 82.7 - 41.0 138.7 4.0 136.1 - 1.9 142.0 280.7

TOTAL 264.6 422.7 47.5 59.0 793 5 8.0 164.9 15.5 45.6 233.9 4.0274

Source: ONAPLAN

Dominican Republic Nizao Irrigation Project

Table 1

Economic Benefits and Costs, Without and With Project

1979 1980 1981 1982 1983 1984 1985 1986 1987 A. WITHOUT PROJECT US$ '000

Agricultural Income 7,141 10,590 10,858 17,830 16,866 20,239 11,558 10,954 13,102 Cost of Production 3,978 4,330 6,001 6,561 6,814 7,588 8,450 9,409 8,398 Investment Cost 844 760 ------Operational Maintenance 55 168 213 192 162 197 85 93 86

Net Benefits Z264 5.332 4,644 11,077 9,890 12,454 3,023 1,452 4,618

B. WITH PROJECT

Agricultural Income - - - - (3.546) (2,851) (278) 0 16,765 Cost of Production - - - - 1,951 1,694 590 0 8,398

Cost of Infrastructure 0 561 4,103 1,931 1,483 2,678 4,802 4,131 5,487 Machnery & Equpment 0 0 243 596 0 0 0 202 1,783 O & M Cost 0 0 0 0 0 0 0 174 276 Administrative Cost 39 39 39 39 52 274 97 103 94 Cost of Supervision 0 0 0 0 0 161 836 541 442 consultants and TA 0 0 85 330 284 659 990 609 712 0* OtherCosts 0 31 35 39 67 106 52 13 20 *

Net Benefits (39) (631) (4.505) (2,935) (7,383) (8,323) (7,645) (5,773) (447)

C. WITH - WITHOUT (2303) (5,963) (9.149) (14.012) (17,273) (20.777) (10,668) (7,225) (5,065) Dominican Republic Nizao Irrigation Project

Table 1 (cont.)

Economic Benefits and Costs, Without and With Project

1988 1989 1990 1991 1992 1993 1994 A. WITHOUT PROJECT US$ '000

Agricultural Income 5,740 6,666 4,845 8,091 8,091 8,091 8,091 Cost of Production 4,959 3,077 3,856 5,050 5,050 5,050 5,050 Investment Cost ------Operational Maintenance 94 63 65 62 74 88 105

Net Benefits 687 3,526 924 2,979 2,967 2,953 2,936

B. WITH PROJECT ON

Agricultural Income 16,489 18,001 20,178 22,205 23.773 23,773 23,773 Cost of Production 4,959 3,077 3,856 5,050 5,050 5,050 5,050

Cost of Infrastructure 4,343 5,422 0 0 0 0 0 Machinery & Equipment 0 0 0 0 0 0 0 O & M Cost 504 401 660 850 850 850 850 Administrative Cost 51 22 15 39 39 39 39 Cost of Supervision 296 21 15 0 0 0 0 Consultants and T.A. 585 0 0 0 0 0 0 Other Costs 7 109 85 - - - - 0 Net Benefits 5,744 8,949 15,547 16,266 17,834 17,834 17,834

C. WITH - WITHOUT 5,057 5,423 14,623 13,287 14,867 14,881 14,898 Dominican Republic Nizao Irrigation Project

Table 1 (cont.)

Economic Benefits and Costs, Without and With Project

1995 1996 1997 1998 1999 2000 A. WITHOUT PROJECT US$ '000

Agricultural Income 8,091 8,091 8,091 8,091 8,091 8,091 Cost of Production 5,050 5,050 5,050 5,050 5,050 5,050 Investment Cost ------Operational Maintenance 109 149 177 211 251 298

Net Benefits 2,932 2,892 2,864 2,830 2,790 2,743

B. WITH PROJECT

Agricultural Income 23,773 23,773 23,773 23,773 23,773 23,773 Cost of Production 5,050 5,050 5,050 5,050 5,050 5,050

Cost of Infrastructure 0 0 0 0 0 0 Machinery & Equipment 0 0 0 0 0 0 O & M Cost 850 850 850 850 850 850 Administrative Cost 39 39 39 39 39 39 Cost of Supervision 0 0 0 0 0 0 Consultants and T.A. 0 0 0 0 0 0 o Other Costs ------

Net Benefits 17,834 17,834 17,834 17,834 17,834 17,834

C. WITH - WITHOUT 14,902 14,942 14,970 15,004 15,044 15,091

- 39 -

LIST OF REFERENCES

Barea, Francisco. Diagnóstico del Sector Aarorecuario. Santo Domingo, R.D.: Instituto Interamericano de Cooperación para la Agricultura. September 1990.

Banco Interamericano de Desarrollo. Resumen de las Evaluaciones a Posteriori de Oeraciones de Riego de Pequeña y Mediana Escala Parcialmente Financiados con Préstamos del BID. Santo Domingo, República Dominicana. April 1982.

Boceto: Historia del Desarrollo de los Recursos Hidraúlicos en República Dominica.

Colección Era de Trujillo. La Política de los Riegos. Capítulo 10. 1955.

Compañia Financiera Dominicana, S.A. Analisis del Sector Financiero. Santo Domingo, República Dominicana: Alfa y Omega.

Corporación Dominicana de Electricidad. Estudio General de Tarifas de Electricidad. Santo Domingo, República Dominicana. March 1988.

Cruz, Julian and Pichardo, German. Situación del Sub-Sector Riego en la República Dominicana. 1991.

Fondo de Cooperación Económica de Ultramar. "Reporte Breve de la Misión de Post- Evaluación OECF para el Proyecto de Desarrollo Agricola AGLIPO (El Pozo). June 1990.

Frederiksen, Kamine & Assit. Provecto Nizao-Valdesia - Organizacion de Operacion y Mantenimiento - Informe Preliminar del Diagnostico. Santo Domingo, R.D.: Estudios de Desarrollo Agrícola, S.A. (EDASA), February 1985.

Henriques Girling, Robert. Problems and Issues of Proiect Management in the Dominican Reoublic with Recommendations for Action. Washington, D.C.: World Bank, June 27, 1983.

Instituto Nacional de Recursos Hidraúlicos. Proyecto de Riego Nizao-Valdesia Informe de Terminación de Proyecto. Santo Domingo, R.D. June 30, 1988.

McCaffrey, Dennis and others. "Concept Paper: Forestry Policy and Development Project for the Dominican Republic." Gainesville, Florida: Tropical Research and Development, Inc. No date.

Mejias, M.R. 1990. Diagnóstico Sub-Sector Riego.

Office of U.S. Foreign Disaster Assistance, Agency for International Development, "Dominican Republic, A Country Profile." Washington, D.C. May 1984. - 40 -

Plans and Programs Department, Programs Division 1, "Dominican Republic Country Programming Paper." April 1991.

Tejera, Eduardo J. (Dr.). Una Ddcada de Desarrollo Econ6mico Dominicano: 1963-1973. Santo Domingo, Rep6blica Dominicana, 1975.

Tejera, Eduardo J. (Dr.). Diaqn6stico de 1a Economla Dominicana. 1979-1981 y Recomendaciones Preliminares. Santo Domingo, Rep6blica Dominicana, 1981.

U.S. Agency for International Development, "Dominican Republic, Biological Diversity Assessment." Washington, D.C. December 1988.

Varangis, Panos. "Coffee Pricing Policies in the Dominican Republic." World Bank Working Paper, no. WPS21 1. Washington, D.C.: World Bank, May 1989.

Vega, Bernardo. La Covuntura Econ6mica Dominicana 1980-1981. Santo Domingo, Rep6blica Dominicana, 1981.

Vega, Bernardo. Comentarios Sabatinos 1981-1982. Santo Domingo, Repiblica Dominicana: Fundaci6n Cultura Dominicana, 1982.

Venning, F., McAnlis G. and Guilldn, F. "Proyecto de Riego Nizao-Valdesia - Estudio para la Organizaci6n de la Operaci6n y el Mantenimiento - Evaluaci6n Tarifa de Riego y Propuesta para Tasaci6n y Cobro. Santo Domingo, Rep. Dom.: Esdutios de Desarrollo Agricola, S.A. (EDASA), April 1986.

Wight, R.A. "Summary Report on the Dominican Republic." Washington, D.C.: World Bank, October 1948.

World Bank. 1963. "Dominican Republic - The Economy." Report No. WHO130. Washington, D.C.

-----. 1965. "Dominican Republic - Recent Economic Situation." Report No. WHO150. Washington, D.C.

-----. 1971. "Dominican Republic - Livestock Development Project." Appraisal Report No. PA0071 President's Report No. P0915 PPAR Report No. 2052 Impact Evaluation Report No. 4732 Washington, D.C.

-----. 1971a. "Dominican Republic - Current Economic Position and Prospects. Report No. CA0008. Washington, D.C. - 41 -

-----. 1972. "Dominican Republic - Yaque del Norte Irrigation Project." Appraisal Report No. PA0148 President's Report No. P1164 PPAR Report No. 4749 Washington, D.C.

-----. 1975. "Dominican Republic - Updating Report on the Economy." Report No. 0611. Washington, D.C.

-----. 1977. "Main Problems in the Economic Development of the Dominican Republic." Volume 1: Main Text. Report No. 1705-DO. Washington, D.C. -----. 1979a. "Staff Appraisal Report on Dominican Republic: Nizao Irrigation Project." Report No. 2209b-DO. Washington, D.C.

-----. 1979b. "President's Report on a Proposed Loan to the Dominican Republic for the Nizao Irrigation Project". Report No. P-2397-DO. Washington, D.C.

-----. 1979c. "Dominican Republic - Sugar Rehabilitation Project." Appraisal Report No. 2468. President's Report No. P2602. Washington, D.C.

-----. 1979d. "Dominican Republic - Performance and Prospects of the Manufacturing Sector." Report No. 2486. Washington, D.C.

-----. 1979e. "Dominican Republic - Current Economic Memorandum." Report No. 2492. Washington, D.C.

-----. 1980. "Dominican Republic - Major Social Concerns and Policy Recommendations." Report No. 2803-DO. Washington, D.C. -----. 1980b. "Dominican Republic - Economic Memorandum." Report No. 3009. Washington, D.C.

-----. 1981. "Dominican Republic - Power Sector Memorandum." Report No. 3140. Washington, D.C.

-----. 1981a. "Dominican Republic - Agricultural Sector Review." Report No. 3165a-DO. Washington, D.C.

-----. 1981b. "Dominican Republic - Cocoa and Coffee Development Project." Appraisal Report No. 3379. Washington, D.C.

-----. 1981c. "Dominican Republic - Cocoa and Coffee Development Project." President's Report No. P3022. Washington, D.C. - 42-

1981d.-. "Dominican Republic - Cocoa and Coffee Development Project." Completion Report No. 9600.

1981e.-. "Dominican Republic - Economic Memorandum." Report No. 3446. Washington, D.C.

1984.-. "Dominican Republic - Economic Prospects and Policies to Renew Growth." Report No. PUB4735. Washington, D.C.

1986a.-. "Dominican Republic: Agricultural Sector Study." Report No. 6267-DO. Washington, D.C.

- 1986b.-. "The Process of Formulation and Implementation of Economic and Agricultural Policy in the Dominican Republic." AGREP Division Working Paper No. 116.

1986c.-. "Dominican Republic - Agricultural Sector Study." Report No. 6267. Washington, D.C.

1987a.-. "Dominican Republic: An Agenda for Reform." Report No. 5965-DO. Washington, D.C.

---. 1987b. "Dominican Republic: An Agenda for Reform." Report No. 5965. Washington, D.C.

1989.-. "Project Completion Report on Dominican Republic: Nizao Irrigation Project (Loan 1655-DO)." Report No.7747. Washington, D.C.

---. 1990a. "Dominican Republic: "The 1989-1991 Public Sector Investment Program - List of Projects for External Financing." 2 Vols. Report No.7600-DO. Washington, D.C.

1990b.-. "Dominican Republic: The 1989-91 Public Sector Investment Program." Report No. 7600. Washington, D.C.

-. 1991a. "Dominican Republic: Country Economic Memorandum - Beyond Stabilization: an Agenda for Sustainable Growth." Report No. 9749-DO. Washington, D.C.

1991b.-. "Project Performance Audit Report on India: Karnataka Irrigation Project, Gujarat Medium Irrigation Project, Second Maharashtra Irrigation Project, Subernarekha Irrigation Project, Andhra Pradesh Irrigation and CAD Composite Projects". Report No.9716. Washington, D.C.

1991-. c. "Dominican Republic: Country Economic Memorandum: Beyond Stabilization: an Agenda for Sustainable Growth." Report No. 9749. Washington, D.C. - 43 - APPENDIX

EXCERPTS TAKEN FROM THE PROJECT COMPLETION REPORT FOR

THE NIZAO IRRIGATION PROJECT (LOAN 1655-DO) 1/

Excerpts from the Evaluation Summary:

Imolementation Experience

... Several Covenants in the Loan Agreement were not, or not fully, complied with. In most cases, these shortfalls came about because the Government did not have suffi- cient funds to cover associated expenses. In one case, the failure to implement a covenant is bound to have serious repercussions for the operation and maintenance of the system and (partial) investment cost recovery: by 1987 no adequate raise in user charges to offset the effects of inflation had taken place yet (PCR, para. 3.20).

During most of the project implementation period, the performance of INDRHI, the implementing agency, was less than satisfactory...

Results

At appraisal it was expected that the project would lead to a more intensive cropping pattern and to increased productivity. These hopes did not fully materialize...

The failure to bring water charges to an appropriate level means that there are no strong incentives to move into more efficient modes of cultivation; this shortcoming goes hand in hand with a lack of local water user associations and weaknesses in the agricultur- al support structure, particularly in extension...

Sustainability

While the project has improved farmers' incomes, the expected upgrading of the entire production system has not yet taken place. A more realistic pricing for irrigation water would be essential for improving O&M and coupled with an upgrading of support services and local institutional development, create conditions conducive to enhancing agricultural productivity...

1/ See Dominican Republic - Project Completion Report - Nizao Irrigation Project (Loan 1655-DO). Report No. 7747. May 1989. - 44 -

Excerpts from the main text:

Ill. B. Imolementation of Proiect ComDonents 3.05 Rehabilitation of the Irriaation System by Contracting Firms.

3.07 Delays occurred during the construction period due mainly to a lack of sufficient and timely counterpart funds, and also because: (a) construction designs had to be revised and the consulting firm, contracted to provide technical assistance in the supervision of construction and in the revision of construction designs, had difficulties in producing final designs for construction due to insufficient INDRHI counterpart staff and their lack of experience (Annex 1); and (b) INDRHI's failure to resolve claims presented by the contractor for stoppage of works produced unavoidable delays in construction works... 3.11 Technical Services.

3.12 The implementation of the technical services component was not carried out as anticipated. Some of the services were contracted with delays and the consultant's recommendations came too close to project completion to be implemented or were not implemented for lack of funds.

IV. INSTITUTIONAL PERFORMANCE

4.01 The performance of INDRHI during project implementation was unsatisfacto- ry largely before a new administration took office in August 1986 and which has since given more support to the project...

(a) from the project's inception, INDRHI's centralized organization has been handicapped by a weak accounting and financial control system (para. 3.19);

(b) decision-making lacked consistency and continuity because of frequent turnovers of INDRHI's Executive Directors...

(c) lack of organizational and financial autonomy... and

(d) lack of coordination with other agencies in the project area essentially because the Regional Coordinating Committee did not work (para. 3.20).

In March 1983, in an effort to improve on INDRHI's performance, the Government created an Executive Commission (CE) to replace INDRHI as executing agency. However, there was duplication of effort and conflicts arose between INDRHI and the CE such that the Government, in December 1983, reinstated project responsibility to INDRHI.

VI. AGRICULTURAL IMPACT

6.01 .... At project completion there is, however, still between 15% and 30% of fallow; the cropping intensity, at farm level, remains static at the same levels as at appraisal; and the project did not achieve the production envisaged at appraisal. However, - 45 -

the project was successful in the promotion of higher value crops in part due to better prices. This shift of production towards higher value crops cannot be attributed to project measures, because both the cropping intensity and the irrigation efficiency--the main indicators of improved irrigation water supply and management--have not changed during project implementation. ... as the project also did not provide specific measures to strengthen extension and credit services which could have influenced project farmers' production decisions.

6.02 The lack of both local institutional coordination and water user associations made it almost impossible to prepare and implement annual irrigation plans. More efficient irrigation techniques have not yet been adopted and full recovery of water charges as established in 1982 have not been achieved. Moreover, there is still a lack of sufficient support services to agricultural production. For these reasons, yields did not increase as anticipated with the exception of rice...

VII. LESSONS LEARNED

7.01 The key lessons learned are:

(a) future agricultural projects in the Dominican Republic should give much more attention to ensuring that provision be made for institutional support from all agencies expected to participate in project execution, given the institutional weaknesses and budgetary constraints...

(c) for future projects of this kind in the Dominican Republic, Bank consideration should be given for Borrower assurance of project managerial continuity and the training of personnel to manage, operate and maintain the project.

(d) studies to organize the O&M of the project irrigation district and to prepare the project agricultural development should have been initiated in the early project years in order to be able to carry out the main recommendations during project implementation...

- 47 -

COMMENTS FROM THE BORROWER ATTACHMENT 1 (ONAPLAN)

COMMENTS ON THE PROJECT PERFORMANCE AUDIT FOR THE NIZAO-VALDESIA IRRIGATION PROJECT (LN. 1655-DO)

Below we detail the most significant aspects regarding the PAR for the Nizao-Valdesia Irrigation Project.

A. Supervision and Maintenance of the Project In conversation with INDRHI specialists associated PAR acknowledges recent with the project, we have found that that institution is changes suggested by govern- focusing on maintenance of project infrastructure and ment. Maintenance needs to supervision in the project area, where fallow land has be improved. Do not agree diminished considerably. with number of hectares under fallow (see footnote 38).

B. Agricultural Development At present, the project is supplying water to some N.A. 150,000 tareas. Production and net farmer income have both risen. C. Irrigation Water Rates An important achievement of the project is the Issues regarding production continuous availability of water for irrigation, which has and net profits are discussed in enabled farmers to increase production and consequently their chapter 4, sections A and C. net profits. The water rate in this area is the lowest Disagree with water charges nationally, owing to the low cost of irrigation. policy. See footnote 44. D. Foreign Exchange The Nizao-Valdesia Irrigation Project has helped See footnote 40. ERR analysis increase exports of fruits and vegetables. There has been a shows poor results. marked increase in the production of vegetables and rice, the result of a regular supply of irrigation water. Exports of these crops clearly provide some of the foreign exchange the country needs for its development. E. Support Services With regard to the support services to the project, the N.A. State Secretariat of Agriculture (SEA) and the Agricultural Bank are interested in improving the conditions for technical assistance and credit, respectively, for farmers in the project area.

Prepared by: Projects Department ONAPLAN June 24, 1992

- 49 -

COMMENTS FROM THE BORROWER ATTACHMENT 2 (INDRHI)

COMMENTS ON THE PROJECT PERFORMANCE AUDIT OF THE NIZAO-VALDESIA PROJECT

After examining the draft Project Performance Audit Report on the Nizao-Valdesia Project prepared by the World Bank's Operations Evaluation Department, the Instituto Nacional de Recursos Hidrdulicos (INDRHI) wishes to make the following comments:

- If the Nizao Irrigation Project (NIP) is considered an Agreed. The term/classifi- "old-style" project (irrigation infrastructure only), this criterion cation of "old style" is not in should have been taken into account in evaluating the overall the text. economic return of the Project, instead of bringing management analysis and sustainable development into the picture, which had not been considered during project implementation.

- The statement that performance in the irrigation See chapter IV, section C for subsector has been adversely affected by macroeconomic details. Due to data factors and by design and implementation constraints (nothing constraints this PAR neither being said about the financing of the Sistematizaci6nParcelaria estimated the social rate of (Land Tenure Regularization Scheme) is based on the return nor the level of indirect premise, which we do not share, that it is appropriate to benefits. evaluate the performance of irrigation as if it were merely a commercial activity, while ignoring its implications in terms of development. This effect is amply demonstrated by the development of the Azua Valley, which has been converted from a semi-arid area, with meager transient agriculture, into a major producer of small fruits and vegetables, thereby bringing about a real improvement in the living conditions of local farmers, thanks to higher income. Massive investment in infrastructure, such as dams and canals, was needed in order to achieve these results, but without which these areas would have continued in their former state of poverty.

Although it is true that emphasis was placed in the Agreed. See footnote 37. past on building infrastructure works, which were strictly necessary, as points of departure for harnessing water resources for agricultural purposes, in recent years, the Dominican Government has changed its policy and now places emphasis on agricultural development projects in irrigated areas, as demonstrated by the IFAD III Project (in the south- west); the development project targeted at three irrigated areas, which was prepared, then submitted to the World Bank in 1989, and is still pending; the Sustainable Agriculture Development Project in San Juan de la Maguana (PRODAS), which has been submitted to IDB, with implementation scheduled to begin during the first half of 1993; and a series of other similar projects of equal importance for the country. - 50 -

INDRHI has started a program designed to hand over See footnote 59. irrigation systems to the users, based on experience with the Manejo de Aguas a Nivel de Fincas Project and has already transferred systems to irrigators in the Azua, Banf, Santiago and Dajab6n irrigation areas.

With respect to the priorities of the irrigation sector, Acknowledged. See footnote although the energy crisis that occurred during project imple- 28. mentation made "spills" [vertidos] at the Las Barfas regulatory dam unavoidable, which affected irrigation in the area, the situation is now back to normal. INDRHI and CDE have established a Dam Operation Committee, its membership made up of irrigation system users. INDRHI has, in coor- dination with all the institutions involved in the water sector, also devised a new Water Code, which establishes priorities for water use and the necessary coordination mechanisms needed to ensure its proper use. It further regulates the manner in which the Government hands over irrigation canals to users.

We do not agree with the report's statement with Agreed. See para. 4.11. reference to the useful capacity of the Valdesia dam, since a recent bathometric reading taken by INDRHI indicates that its useful capacity has decreased by 25% over the 16 years of the dam's operation, this figure being significantly lower than the one mentioned in the report. It is important, in this regard, to point out the Dominican Government's interest in watershed management and conservation, particularly where the Nizao River Watershed is concerned. A Nizao River Watershed Conservation and Management Project is currently in progress, with technical assistance from FAO, and other efforts, in addition to the Management Plan, have involved the planting of some 625,000 trees, including coffee, cedar, mahogany, coraz6n de paloma, pine and bamboo, storm water control and embankment protection work.

Other basins where watershed management and Agreed. See para. 4.11. conservation work or studies are in progress are the Bao River Basin, with IDB financing, and the Blanco River Basin, where a detailed geomorphological study is being carried out preparatory to formulation of the Management Plan. We would very much like to know the precise reasons Done. See chapter IV, section for the difference between the Project Completion Report C. (prepared by the WB) and the conclusions of the project performance audit mission. We currently lack the background data needed to be able to check on the economic return calculations in each case. INDRHI did, however, prepare a Final Project Report, which it submitted to the World Bank, in which all the favorable economic parameters concerning the economic returns of the Project were set out. - 51 -

The rates of return for irrigation projects must take Detailed discussion of the other factors into account, such as social and marginal bene- "without project" situation is fits. Care must be taken to evaluate project sensitivity, since presented in chapter IV, analyses of the "withoutproject" situation may not have given section C. consideration to the possible collapse of the irrigation area or the eventual collapse of the production system as a whole. This could have degenerated into a crisis with unforeseeable economic, political and social consequences. We have an example of such a "withoutproject" situation right now in the case of the Nizao-Najavo canal within this same Project, where, following the suspension of the rehabilitation of a large proportion of its supply and distribution network, agriculture in this area is in a state of marked decline because of the inefficiency of the system, with the result that farmers are abandoning their land and causing increasing demographic pressure in the urban areas adjacent to the Project.

- 8R D13748 AUGUSTI

DOMINICAN REPUBLIC NIZAO IRRIGATION PROJECT

Proe Rad VALIESIADAM-

N.. A,-eÅSa,

Irngated AreaDAM$PO

MILES 0 3

Secondary Rod, KILOMETERS0 2 -

R-.r N

C~~tahÅ.ol BANI -

sk-/

Towns ic -~C> -NZUL t ct, c

co' Eluano

C^~FAA VNEZUELA