Tunisia Agricultural Credit Project Banque Nationale De Tunisie Organization Chart

Loiq'A/FLr< C~ PY1 RESTRICTED Report No. PA-79a

Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracyor completeness.The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

AGRICULTURAL CREDIT PROJECT

TUNISIA Public Disclosure Authorized

May 7, 1971 Public Disclosure Authorized

Agriculture Projects Department CURRENCYEQUIVALENTS

US$1 = D 0.525 D 1 - US$1.905 D 1,000 = US$1.905 D1,000,000 = US$1,905,000

WEIGHTSAND MEASURES

Metric System

ABBREVIATIONS

BNT : Banque Nationale de Tunisie STIL : Societe Tunisienne de l'IndustrieLaitiere BCT : Banque Centrale de Tunisie BIRH : Bureau d'Inventairedes RessourcesHydrauliques OMVVM: Office de Mise en Valeur de la Vallee de la Medjerda DLF : DevelopmentLoan Fund TUNISIA

AGRICULTURALCREDIT PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ......

I. INTRODUCTION...... ,., ......

II. BACKGROUNDOF AGRICULTURE .. 2

III. THE PROJECT .. 4

A. Description .. 4 B. Detailed Features .. 5 C. Cost Estimate and Financing . . 7 D. Procurementand Disbursement . .10 E. Project Administration. 11

IV. BANQUE NATIONALE DE TUNISIE (BNT) .. 11

V. PRODUCTION, MARKETS, PRODUCER BENEFITS, AND REVENUE GENERATION.. 16

VI. BENEFITS AND JUSTIFICATION . 18

VII. RECOMMENDATIONS .. 19

ANNEXES

1. GDP, Cereal Production,and Exports and Imports

Table 1 Gross Domestic Product by Sectoral Origin Table 2 Cereal Production and Requirements Table 3 AgriculturalExports and Imports

2. InstitutionalFramework for Credit Table 1 Banking Law Requirementsand Central Bank Regulations Table 2 AgriculturalLoans, 1962-1969 Table 3 BNT's Yearly AgriculturalLending

This report is based on the findings of a Bank/IDA appraisal mission to Tunisia in June/July 1970 composed of Messrs. H. von Oppenfeld and J. Gregor (Bank/IDA)and Messrs. A. Bonnier and M. Delavalle (consultantsto the Bank/ IDA).. - 2-

3. Banque Nationale de Tunisie (BNT) Table 1 SummarizedBalance Sheets Table 2 Financial Analysis of Balance Sheets Table 3 Investmentin Shares and Stocks Table 4 indebtednessof Farming Cooperatives Table 5 Project Cash Flow Table 6 Cash Flow Projections Table 7 Comparativeand Forecast Operating Results Accounts Table 8 Projected Balance Sheets Table 9 Summary of Revenue and Expenses Appendix 1 Statement of Policy Appendix 2 OrganizationChart Appendix 3 Terms of Reference for Farm Management Specialist

4. Grain Farm Mechanization Table I Basic Data and Financial Rate of Return

5. Dairy Farm Sub-project Table I Milk Received, Processed and Sold, by Principal Milk Products Societe Tunisiennede l'IndustrieLaitiere (STIL) Table 2 Basic Data and Financial Rate of Return Table 3 Dairy Extension Service Appendix 1 Cropping Pattern for Irrigated Area

6. Date-Palm DevelopmentSub-project Table 1 Date-Palm DevelopmentCost Table 2 Basic Assumptions Table 3 IncrementalNet Value and Financial Rates of Return Appendix 1 Societe Tunisiennede l'IndustrieLaitiere (STIL) Table 1 STIL: SummarizedBalance Sheets Table 2 STIL: Summarized Earnings Appendix 2 GroundwaterSupply in Nefzaoua and Djerid Region Table 1 Cost of Borehole and Pumping - Nefzaoua Region Table 2 Investmentand Operating Cost for Water Supply - Nefzaoua Region Table 3 Cost of Borehole - Djerid Region Table 4 Investmentand Operating Cost for Water Supply - Djerid Region Appendix 3 Terms of Reference for AgriculturalExpert

7. Estimated Schedule of Disbursement

8. Economic Rate of Return

I4APS

1. Project Areas 2. Date-Palm Plantations TUNISIA

AGRICULTURALCREDIT PROJECT

SUMMARY AND CONCLUSIONS

I. This report appraises an agriculturalcredit project for which a Bank loan of US$5.0 million equivalentand an IDA credit of US$3.0 million equivalent,a total of US$8.0 million equivalent,is proposed. The Project would support a three-yearlending program for grain farm mechanization and dairy farm and date-palm development. Governmentwould be the borrower of the IDA credit which it would on-lend to the Banque Nationale de Tunisie (BNT) while the Bank loan would be extended to BNT directly. BNT would be responsiblefor Project administration. This would be the second agricultural project the Bank/IDA has helped finance in Tunisia. ii. BNT, a multi-purposebank establishedin 1959 and mainly owned by Government,is the major source of agriculturalfinance in Tunisia. It has used funds from its own sources -- share capital, reserves and deposits -- and has also been the agent for Governmentfinancing in agriculture. To implementthe proposed Project, BNT would develop a small, appropriately staffed unit, headed by a qualifiedand experiencedfarm managementspecialist. Technical assistancein establishingthis post and others under the Project would be provided in the proposed loan/credit. Although BNT is a mature institution,its financialsituation was not entirely satisfactoryand some correctivemeasures were needed before the Project is presented to the Board. iii. From Tunisia's independencein 1956 until 1969, Government's policy was to increase and diversifyagricultural production through cooperatives,wherever possible. The Bank/IDA's first agriculturalproject (484/99-TUN),approved in 1967, was in line with this policy. In January 1969, however, attempts to extend cooperativesto cover all arable land met with such opposition from private farmers and disillusionedcooperative members that Governmentreversed its policies and is now determinedto encourageand support individualfarmers. For the period 1965-1969,the total value of agriculturaloutput has declined in real terms by 22%, while the overall economy has expanded. Its contributionto GDP has declined from 23% in 1965 to 16% in 1969. To some extent, this deteriorationhas been due to adverse weather but more significanthas been the poor performance, in general,of productioncooperatives and the lack of confidenceof private farmers. Notwithstanding,agriculture is importantto the Tunisian economy, accountingfor a quarter of total exports and employinghalf of the working population. iv. The proposed Project is designed to finance individualfarmers for the productionof grain and dairy products in Northern Tunisia. In addition, it would support date-palm productiondevelopment in southern Tunisia by lending through BNT to the Societe Tunisiennede l'Industrie Laitiere (STIL). The Project would increase productionof wheat for import substitution,dates for export, and milk for local consumption. Investments would be mainly in tractors and combines,livestock, tubewells, and land - ii -

improvement. Annual net foreign exchange earnings at full development are estimated at US$8 million. v. Total Project cost would amount to US$15 million equivalent. Sub-borrowerswould contribute about 30% and BNT about 17%. The proposed loan and credit, equivalent to about 53% of total Project cost, would finance the estimated foreign exchange component. Sub-borrowerswould be charged 8% per annum interest. Governmentwould bear the foreign exchange risk and on-lend IDA funds at 1% for 15 years, including five years of grace. vi. The range of items to be financed under the Project is varied and most of it unsuitable for bulk procurement. With regard to agricultural machinery and pumpsets, a number of foreign firms are represented through local dealers, supplies are adequate, and prices competitive. Procurement would, therefore,be through normal commercial channels. However, contracts for large deep well drilling amounting to about US$400.000would be awarded on the basis of internationalcompetitive bidding. vii. The financial rates of return on individual sub-projectsare estimated to range between 14% and 26%. The overall economic rate of return is estimatedat about 22%. Appropriate assurances were obtained during negotiations. The Project is suitable for a Bank loan of US$5.0 million for a term of 15 years, including a five-year grace period, and for an IDA credit of US$3 million on IDA's standard terms. AGRIC}lLTURALCREDIT PROJECT

I. INTRODUCTION

l.0l In 1967 Tunisia received a Bank loan of US$12 million and an IDA credit of US$6 million for the developmentof agriculturalproduction cooperatives. Implementation of theL p ro ect was substantially affected by changes in agriculturalpolicies during 1969. Ir.January of that year Government announced a greatly accelerated coOperativ;t development that went far beyond agreement reached with Bank/IDA, but, afte-zopposition by private farmers as well as cooperativemenbers and in recognitii;nof the strain which such a policy put on scarce human and finaincialresources, drasticallyre- vised this policy in September 1969. At that time, a law was enacted that stipulated that, henceforth, state farms, cooperatives,and private farmers would coexist. This had the effect of removing cooperativesfrom the central role they had been expected to play in Tunisia's development. The change in the basic situation instigated a review by a Bank/IDA mission in October 1969, which, in turn, led to a reduction of its loan/credit from US$18 million to US$9.2 million. The change in the project was œiproved by the Bank/IDA in November 1970.

1.02 In the course of renegotiatingthe cooperative farm project, the Bank/IDA offered to study the problems and needs of small farmers, including the former production cooperativemembers. The study was designed to review what could be done to improve the productivityand efficiency of small farm units and to cover such matters as marketing of their production,input supply and extension services, and credit facilities. However, the Govern- ment did not want the Bank/IDA to concern itself at this time with this aspect of its revised agriculturalpolicy and assured that it would undertake such a study without Bank/IDA assistance. To revive the private farming sector which, until September 1969, had insufficientaccess to credit facilities,the Government requested the Bank/IDA to assist in the preparation of a credit project for the private farming sector in Northern Tunisia and to review a tree-crop development scheme in Southern Tunisia. In February 1970, a Bank and FAO/IBRD cooperativemission helped prepare such a credit project. A formal Government request for financial assistance was received by April 1970.

1,03 This report is based on the findings of a Bank/IDA appraisal mission to Tunisia in June/July 1970, composed of Messrs. H. von Oppenfeld and J. Gregor (Bank/IDA) and Messrs A. Bonnier and M. Delavalle (consultants to the Bank/IDA). -2-

II. BACKGROUND OF AGRICULTURE

Role of Agriculture

2.01 Tunisia has an area of about 160,000 km and a population of about 5.2 million which is growing at about 2.8% per year. About a quarter of the total land is classified as cultivable,about 37% as grazing and range land and the balance (about 37%) as arid or desert land. Agriculture is the main sector of the economy, employing about half of the active population and accounting for about 16% of GNP and a quarter of total exports (Annex 1).

2.02 Only in Northern Tunisia, which contains about 60% of the population, is agriculturalproduction reasonably dependable. While the modern sector of agriculture is still relatively small, there are more than 2,000 farms of over 100 ha, and nearly all are located in the north. In this region, rainfall is adequate and soils are good; available water is generally acceptable for the irrigation of most crops. Presently, about 16,000 ha are irrigated from the Medjerda and there are plans to expand to about 75,000 ha. A study of water resources in the north, undertaken by consultants and financed by the Bank, was completed in July 1970. It revlewed an outline master plan, prepared by the Government,and covered alternative development approaches -- with a time horizon of 25 years -- involvinghydropower, flood control, irrigation,and urban water supply.

2.03 The southern region, while semidesertic,supports oasis-type agriculture,producing vegetables,dates, and livestock. Development oppor- tunities under such conditions are restricted but not negligible. A third region, "the Center," is steppe country, with rainfall not exceeding 200 mm annually, and essentially a stock breeding zone; irrigation possibil- * ities are limited. _

2.04 While the growth of the overall economy has been positive in the recent past, agriculturaloutput in real terms was less in 1969 than it was in 1965. The decline in agriculturehas been due partly to adverse weather conditions and partly to the poor performanceof production cooperatives, togetherwith a lack of confidence on the part of private farmers.

2.05 The balance of trade in agriculturalproducts has seriously deterioratedin the past decade. Exports of Tunisian hard wheat have ceased, whereas in 1959 they were some 180,000 tons. Grain imports (mainly soft wheat) have grown substantially,reaching 480,000 tons in 1969, more than half of Tunisian annual grain requirements. The value of Tunisia's leading agricultureexport commodity, olive oil, has also shown a decline, dropping from D 13.5 million in 1966 to D 11 million in 1969, while imports of soya bean oil have increased in recent years. In coming years, the imbalancewill be aggravatedby increasing demands for fresh food products, such as vegetables,fruits, fish, and meats. -3-

2.06 From independencein 1956 to 1969, agriculturalpolicies emphasizedincreased and diversifiedagricultural production through cooperativeswherever possible. Previously,most of the better lands were farmed by French and Italian settlers (colons),covering about 300,000 ha in Northern Tunisia. In 1964 most of these lands were expropriatedand subsequentlyamalgamated with adjacent lands, owned and farmed by small Tunisian farmers, into productioncooperatives. Progresswas slow, however, due to inadequatemanagement and excessive Governmentinterference. In January, 1969, when Governmentdeclared that the cooperativesystem would be extended to all arable lands, disinvestmentby private farmers began to reach serious proportions. Liquidationby sale or slaughter of livestock is estimated to have reduced the national herd by about 25%. Standardsof land preparationhad already declined over the last two years, productivity deteriorated,and, on many farms, the cropped area was reduced due to lack of adequate farm inputs.

2.07 In September1969, agriculturalpolicies were drasticallychanged. A new law made participationin cooperativesvoluntary. As a result, nearly all former landed members of the cooperatives,dissatisfied with the system, reclaimed their lands (coveringabout 150,000 ha) and the cooperativeswere left with about 200,000 ha to be farmed by landless members, the former laborers on colon farms.

AgriculturalCredit

2.08 The banking system consists of the Banque Centrale de Tunisie (BCT), 11 deposit banks, and one investmentbank. Two of the deposit banks are mainly Government-owned-- the Societe Tunisienne de Banque (STB) and the Banque Nationale de Tunisie (BNT). These account for more than two- thirds of the total credit to the economy and almost 40% of total deposits. Provisionsof the basic bank law are given in Annex 2.

2.09 Agriculture'sshare of loans outstandingincreased from D 6.2 million (5%) in 1964 to D 21.7 million in 1969, but this still represented only 10% of overall credit (D 227 million). BNT, is the principal source, accountingfor 92% (D 20 million) in 1969. In line with developmentpolicy, there was a noticeableshift in lending away from the private farming sector: its share of loans declined from about 30% in 1965 to 11% in 1969, and the actual amount of such loans declined from D 2 million to D 1.2 million. Cooperativelending increased from D 4.6 million in 1965 (70% of total loans) to D 9.6 million in 1969 (89% of total loans). Loans to very small farmersare providedby credit cooperatives(Caisses Locales de Credit MutuellesAgricole), introducedby the Government in 1963; there are presently 52 throughoutthe country, with a membershipof over 70,000 small farmers. These credit cooperativesare administeredby BNT for Government.

2.10 Practicallyall of BNT's lending is short-termbecause of the nature of its resources (para 4.05 and Annex 3). Medium- and long-term lending is dependent on Governmentfunds, which are used to support various agriculturalsubsectors at low interest rates. All types of credit are in short supply, and the remainder of the banking system has provided very little assistanceto agriculture. - 4 -

2.11 The Central Bank's basic discount rate is presently 5%. Banking interest rates, which are subject to Central Bank regulations,vary according to the purpose for which loans are made and whether they are rediscountable (Annex 2). At present, they range between 4.75% per annum (the lowest rate for financingof exports) and 9% per annum. The latter applies only to non-rediscountablecommercial lending. With regard to agricultural credit, rates for seasonal crop finance are between 6% and 6.75%, while advances on paper secured for essential products carry interest charges ranging between 5.75% and 6.75%. Medium- and long-term loans for agriculture are granted only by BNT from Government-providedfunds at interest rates ranging from 3-1/2% to 6%, with the exceptionof a loan from US Aid granted in 1961 for which farmers pay 7%. In October 1970 the rates on Government provided funds, were lowered to rates ranging from 3% to 4-1/2%. In addition,Government provides subsidieson a selectivebasis to encourage certain investmentsin agriculture.

2.12 Since Governmentchanged its policy in September1969, the demand for developmentcredit from the modern private farming sector in North- ern Tunisia has shown a marked increase,particularly for investmentsin mechanizationand implements,dairy equipment,livestock, and date plantations. However, because the amount of funds available from BNT's own resources and from Government is not sufficientto meet these demands, the rehabilitationof the modern private farming sector will be retarded unless additional finance can be obtained.

III. THE PROJECT

A. Description

3.01 The Project, which is part of lNT's lending program,would finance, over three years, on-farm investmentsfor grain farm mechanization and dairy farm and date-palm development. It would include technical assistanceto strengthenBNT's loan appraisaldivision, plantation management of the Societe Tunisienne de l'IndustrieLaitiere (STIL) (the sub-borrower for the date-palm development(para 3.06)), and Government'sdairy extension services.

3.02 Kind of investment,typical farm size, average investmentper farm, and phasing under the proposed lending program would be approximately as follows: -5-

Typical Average Total Farm Number of Loans Invest- Invest- Size Year Year Year ment ment Investment (ha) 1 2 3 Total (D) (D '000)

1. Grain Farm Mechanization Wheel tractors and attachments 100 155 155 155 465 3,900 1,815 Crawler tractors and attachments 200 45 45 45 135 9,000 1,215 Combines 200 80 80 80 240 7,500 1,800

Sub-total: 280 280 280 840 4)830

2. Dairy Farm Development 90 75 30 45 150 7,300 1,090

3. Date-Palm Development First year establishment50 5 6 7 18 88,000 1,585 Follow-up investment: Year 2 50 5 6 11 7,600 85 Year 3 50 5 5 7,600 40

Sub-total: 5 6 7 18 1,710

Total: 360 316 332 1,008

Investments for grain farm mechanizationwould be in Northern Tunisia (Map 1) on farms of about 100 ha. There are more than 2,000 farmers operating at least 100 ha each in this region. Investment in dairy farms would also be in Northern Tunisia. Date-palms would be planted in the oasis region of Southern Tunisia (Maps 1 and 2) by STIL which has experience in date production and operates Tunisia's only modern date-palm plantations. Sub-borrowersare expected to contribute about 30% of the investment cost, which is within their means.

B. Detailed Features

Grain Farm Mechanization

3.03 The dry farming system is used in Northern Tunisia. In areas where annual rainfall is below 500 mm, alternate-yearcropping is practiced. Where limited irrigation facilitiesare available, livestock production and particularly,dairy farming can be combined with dry farming (para 3.05). The cropping pattern is based principally on grains, such as barley and soft and hard wheat.

3.04 About 850 grain farmers in Northern Tunisia would be expected to invest in a mix of mechanized equipment, including about 135 crawler tractors (70 to 75 hp) and 465 wheel tractors (50 to 70 hp) with suitable attachments, - 6 - and about 240 grain combines with about 3.60 m cutter bars. At the same time, farmers would gradually replace local soft wheat with improved local and Mexican varieties and increase the use of fertilizersand herbicides (Annex 4).

Dairy Farm Development

3.05 Fearing expropriationin 1969, many farmers slaughtered their livestock (para 2.06). The dairy development sub-projectwould help these and others who wished to establish a dairy enterprisewithin their grain farms. Normally, these farmers would own a wheel tractor with grain farm attachments. Their farms would be about 90 ha and possibly less, provided their forage requirementswere ensured from irrigatedlands. To qualify for a loan, each farmer would submit a satisfactorydairy farm developmentplan, on the basis of which certain investmentswould be financed under the sub- project: (a) pump irrigationfor about 8 ha to ensure year-roundsupply of feed (alfalfa,bersim, corn) planted to an extent matching the herd build-up from 12 to about 20 dairy cows; (b) barn improvements,including watering facilities; (c) attachmentsto existing wheel tractors for forage cutting and haymaking; and (d) purchase of about 12 in-calf heifers. Aver- age loans to about 150 dairy farmerswould amount to about D 5,000 (US$9,500). Further details on dairy farms are given in Annex 5.

Date-Palm Plantation Development

3.06 This sub-project (Annex 6) would be carried out by STIL (Annex 6, Appendix 1) on the basis of a general developmentagreement with BNT under which loans would be issued in tranches to finance about eighteen 50-ha developmentunits. Investmentswould be for: (a) groundwaterdevelopment, including irrigationand drainage network; (b) land preparation; (c) nursery stock, transplantingand maintenance of windbreak trees and date-palms; (d) tractors with trailers; (e) buildings for field office, storage, and packaging; and (f) houses for permanent laborers.

3.07 The date-palm sub-projectwould be in two main locations on currently unused desert land: the Djerid region and the Nefzaoua region, as shown on Maps 1 and 2. In both locations,groundwater would come from artesian aquifers (Annex 6, Appendix 2). In the Djerid, where the pressure is sufficientto generate a sustained artesian flow, the main investment would be for pipes and boreholes about 600 m deep. In the Nefzaoua, where the aquifer is nearer the surface, the artesian flow from about 200 m would need to be supportedby pumping to make the most economic use of the resources. A flow of about 0.9 liter per sec is required for each hectare of date plantation. The flow of wells ranges from 35 to 65/sec; plantation units would thus average about 50 ha in size. The location, design, soil survey, electric sounding, pumping tests and trial of each borehole would be certified by the Ministry of Agriculture'sBureau d'Inventairedes Ressources Hydrauliques (BIRH). BNT would not disburse to STIL prior to obtaining such certificationand assurances to this effect were obtained from Governmentand BNT during negotiations. In addition, Governmenthas assured to grant appropriate land use rights to STIL, by way of a long-term lease. - 7 -

3.08 Available groundwaterand soil investigations,carried out by SCET, a French consulting firm, and a UNESCO team, indicate that groundwater resourcesare adequate in quantity and quality and that soils are suitable for developing 600 ha. Financingof an additional 300 ha would be provided for, subject to certificationby BTRH that water supplies are adequate taking into account adjacent developmentsdepending on water from the same aquifer and that soil conditionsare suitable in each specific location (Annex 6). Assurances&wereobtained at negotiaticnsthat BIRH would conduct necessary studies and that BNT would finance the additional 300-ha date-palm developmentonly after survey results, satisfactoryto the Bank/IDA, had become available.

SupportingServices

3.09 To ensure effectiveProject implementation,technical services would be strengthenedas follows: (a) a team of locally recruiteddairy extensionagents would be trained and supervisedunder the existing bi- laterally supportedGovernment dairy training centers (para 3.16); (b) an agriculturalexpert would be in charge of STIL's date-palmplantation project; and (c) a farm management specialistwould train and supervise BNT techniciansin loan evaluation (para 4.13).

C. Cost Estimate and Financing

Cost Estimate

3.10 Total Project cost is estimatedat D 8 million (Us$15 million), of which D 4.2 million (US$8 million) would be foreign exchange. Cost estimates,including foreign exchange requirementsare: -8-

D ('000) US$ ('000) Foreign Local Foreign Total Local Foreign Total Exchange A. Lending Program

1. Grain Farms W.heeltractors 490 880 1,370 930 1,680 2,610 65 Crawler tractors 390 700 1,090 740 1,340 2,080 65 Combines 640 1,180 1,820 1,230 2,240 3,470 65 Attachments 160 390 550 300 740 1,040 65

Sub-total: 1,680 3,150 4,830 3,200 6,000 9,200 65

2. Dairy Farms Heifers in-calf: local 290 -- 290 560 --- 560 --- imported -- 180 180 --- 350 350 100/1 Water supply development 190 270 460 360 520 880 60 Barn improvement 90 30 120 170 60 230 25 Minor equipment 10 30 40 20 50 70 70

Sub-total: 580 510 1,090 1,110 980 2,090 47

3. Date-Palm Plantations Irrigation, drainage, land preparation, and planting 19280 430 1,710 2,450 810 3,260 25

Total: 3,540 4,09 7,630 6,760 7,790 14,550 53

B. Support Services

Expert services 15 95 110 30 180 210 86 Dairy extension services 100 --- 100 200 --- 200 --- Vehicles for extension staff and BNT 5 15 20 10 30 40 75

Sub-total: 120 110 230 240 210 450 47

GRAND TOTAL: 3,660 4,200 7,860 7,000 8,000 15,000 53

/1 Transportationcosts from harbor to farm are not significantand have not been included.

Estimates are based on present prices, plus a 10% allowance for price increases. -9-

Financing

3.11 Of the total Project cost (US$15 million),US$8 million would be financedby a Bank loan of US$5 million and by an IDA credit of US$3 million. BNT would contributefrom its own resourcesUS$2.5 million equivalentand the Governmentwould cover half of the cost of support services,or US$0.2 million equivalent. The remainingUS$4.3 million would come from the subborrow- ers' contribution,equivalent to 30% of their investments. The financing plan for individualcomponents of the Project is summarizedin the following table: Total Foreign Farmers Government BNT Bank/IDA Cost Exchange (D mil- (D mil- (D mil- (D mil- (D million (%) lion (%) lion (%) lion (%) lion . of Total

Lending Program Grain Farms 1.4 30 -- -- 0.8 17 2.6 53 4.8 65 Dairy Farms 0.3 30 -- -- 0.2 17 0.6 53 1.1 47 Date-Palm Plantation 0.5 30 -- -- 0.3 17 0.9 53 1.7 25

Sub-total: 2.2 30 -- -- 1.3 17 4.1 53 7.6 53

Support Services -- -- 0.1 53 -- -- 0.1 47 0.2 47

Total: 2.3 29 0.1 1 1.3 17 4.2 53 7.8 53

US$ (4.3) (0.2) (2.5) (8.0) (15.0)

BNT would be the borrower of the Bank loan and Governmentof the IDA credit. The Bank loan would be extended for 15 years includinga five-year grace period at 7-1/4% interest. The IDA credit would be on usual terms to the Governmentand on-lent to BNT at 1% for 15 years, includinga five-year grace period. Governmentwould carry the foreign exchange risk. During negotiationsassurances were obtained on the foregoing.

3.12 Although BNT's contributionfor long-term lending is estimated at D 1.3 million, only about two-thirdsof this amount would, in fact, be required because repaymentsfrom grain farmers, commencingin year 3, would generate the other portion of the requirement (Annex 3, Table 6). Cash flow projections (Annex 3, Table 5) indicate that farmers' repaymentswould generate sufficientinflows to enable BNT to repay to Bank and Government loan/creditfunds within 15 years, including five years of grace. Accumulation of surpluseswould reach a peak during year 9 (D 1.4 million, US$2.7 million), which would adequatelycover any unforeseenslippage in commitmentsand repayments. If demands for credit under any of the categoriesshown in paragraph 3.11 should decrease, the amount of the loan/creditno longer required would be reallocatedto another category to allow full utilizationof the loan/credit. - 10 -

D. Procurementand Disbursement

Procurement

3.13 The range of items to be financed is varied and would not be suitable for bulk procurement. Farmers would purchase tractors,combines and tractor attachmentsof their choice through existing commercial channels. Ma*or producers of farm machinery from at least five Bank/IDA member countries are representedin Tunisia and have adequate sales services. The dairy development sub-projectwould require about 1,800 in-calf heifers, most of which would come from Government dairy farms in the Medjerda Valley (Office de Mise en Valeur de la Vallee de Medjerda, OMVVM). However, it is expected that not all heifers requiredwill be readily available, especiallyat the start of the Project. Provisionwould, therefore,be made to import about 700 heifers. Existing channels for livestockprocurement are satisfactorY. Groundwaterdevelopment for STIL's date-palm development(mainly for deep wells) would involve about D 270,000 (US$514,000)phased over three years. Prior to making subloans to STIL, BNT would require that contracts for drilling be awarded on the basis of internationalcompetitive bidding. Assurances to that effect were obtained during negotiations. However, because of time constraintsand limited operationsenvisaged for the 1971 planting season, the Bank/IDA agreed that contracts to be executed before end-August 1971 and not to exceed D 50,000 in the aggregate,could be awarded without international competitivebidding. The amount for the purchase and installationof pumps, about US$40,000,would be too small to attract foreign firms and procurementwould, therefore,be through normal commercial channels.

Disbursement

3.14 BNT's disbursementsto sub-borrowerswould take about four years. The Bank/IDA would disburse against appropriatestatements and documents for 75% (53% of investmentcost) of all loans disbursedunder the Project for investmentsin grain farm mechanization,dairy farm development,and date- palm plantationsup to an amount provided for each of the three categories (US$5 million, US$1.2 million, and US$1.7 million, respectively). This represents the average estimated foreign exchange component (para 3.11). On sub-loans for dairy farms it was agreed during negotiationsthat no dis- bursementswould be made for the purchase of dairy heifers without evidence that Tunisia's total heifer imports, from the datc of signing, would be at least 40% of the number of heifers financed under the Project. In addition, reimbursementfor support services, includingthe farm managementspecialist, the agriculturalexpert, and vehicles,would be made on the basis of actual foreign exchange cost. A schedule of estimated Bank/IDA disbursementsis given in Annex 7. - 11 -

E. Project Administration

3.15 BNT would carry out the Project and would be assisted by the Ministry of Agriculture,in respect of the dairy developmentsub-project.

Ministry of Agriculture

3.16 Dairy training centers, run with the assistanceof FAQ and German, Dutch, Belgian, and other bilateral assistance,are already establishedin sub-projectareas. The Ministry of Agricultureproposes that these centers provide artificialinsemination services and training for Project farmers. The Ministry would also supply and finance dairy extensionservices, in- volving about 15 extensionagents (adjoint technique),their supervisors, and support staff within the centers. During negotiations,assurances were obtained that the Governmentwould ensure that the centers provide the services and trainingmentioned above (Annex 5, Table 3).

IV. BANQUENATIONALE DE TUNISIE (BNT)

General

4.01 BNT, a multi-purposebank, was establishedat Government'sinitiative in 1959. Its primary objective is to promote agriculturaldevelopment by providing short-,medium- and long-termloans and, more generally,to carry on all normal banking and financialoperations, including commercial loans. It can also participatein industrialand agriculturalenterprises by taking direct equity investments. BNT has played a dominant role in agricultural credit; its share of total loans granted by banks grew from 68% in 1962 to 92% in 1969. BNT has expanded rapidly over its 11-year existence. While its managementhas taken some risk during this period of growth (para 4.07), BNT has reached a stage where its policy must become more in line with prudent financialpractices. For this purpose, a policy statement (Annex 3, Appendix 1) governingBNT's future operationwas agreed upon between BNT and the Bank/IDA during negotiationsand its implementationwould be a conditionof effectiveness. Any changes to the statementwould be made in consultationwith the Bank/IDA.

Resources

4.02 BNT derives its resources from its own capital, deposits, rediscountfacilities, and borrowings. It has an authorizedcapital of D 2 million. Its paid-in capital amounts to D 1.6 million, of which the Governmentowns 25%; Government-controlledcorporations and marketing cooperatives,35.7%; the Caisses Locales de Credit Mutuel, 23.7%; and private shareholders,15.6%. Deposits, amounting to D 25 million as of December 1970, are collectedmainly from parastatalorganizations and private customers. BNT, like other banks, has access to rediscountingfaci- lities. Normal and seasonal quotas are set each year and BNT was entitled, - 12 - in 1969, to a normal quota of D 1.2 million. As of December 31, 1970 borrowing outstandingamounted to D 5.4 million and equity plus free reserves to D 5.3 million (see 4.07 below), giving a debt-equityratio of 1:1.

4.03 Besides the above resources,BNT administersseveral "Special Funds" on behalf of Government for various agriculturalsubsectors in the framework of a law on agriculturaldevelopment. These funds are extended on concessionaryterms to stimulate various activities under specific Government policies. The total of these Special Funds on December 31, 1970 was D 17.7 million.

Use of Resources

4.04 BNT's resourceshave been used for loans and for equity investments,mainly in agriculture,housing, processing,and general merchandising.

4.05 Lending Operations. Since sight and term deposits form BNT's largest single resource (D 25 million as of December 31, 1970), it has followed a policy of short-termlending (D 32 million as of December 31, 1970 of which over D 6 million are invested in agriculturalcooperatives). This is well in line with BNT's financial structureand Government'spast policy, which called for tight control over medium- and long-term capital. One exception to this policy was, however, made in favor of STIL, a corporation largely controlled,financed, and managed until the end of 1969 by BNT (whose Chairman was simultaneouslyChairman of STIL). Since the Chairman was appointedMinister of Commerce, two new chairmen have been appointed,one for BNT and one for STIL. BNT's financial engagementwith STIL is discussed in paragraph 4.07.

4.06 Equity Investments. These participationsamounted to D 485,000 as of December 1970 (Annex 3, Table 3). Out of this amount, D 54,000 of bad investmentshave been fully covered by a reserve and D 38,000 have been covered up to 50%. The market value of BNT's participationswas estimated by the end of 1970 at D 537,000, or 10% more than Lheir nominal value. Accord- ing to BCT regulations,a bank equity participationin a single enterprise should not exceed 20% of the share capital of any corporation. BNT slightly exceeds this percentagefor STIL (D 43,200 instead of D 30,000) and for Societe Tuniso-Yuougoslavede Developpement (D 5,300 instead of D 4,200). Assuranceswere obtained from BNT during negotiationsthat it would take steps to reduce its equity participationto levels permissibleunder Central Bank regulationsby the end of 1972.

4.07 BNT's Financing of STIL. Besides its equity participation,loans outstandingto STIL amounted to D 2.7 million as of March 15, 1971, D 1 million for short-termand D 1.7 million for medium- and long-tern. Short- term credits were given to finance stocks, estimated by BNT at more than D 2.5 million. Medium-andlong-term loans financed the building of a hotel in Nefta, a housing scheme with a shopping center, and date plantations. - 13 -

BNT's loans to STIL are secured by mortgages and liens of D 2 million. In addition, short-termcredits outstanding for financing exports amounted to D 400,000 as of March 15, 1971. These were fully securedby export documents. BNT's financialstake in STIL amounts to AhoUt 50t of itti Owu net worth (capitalplus free reserves of D 5.3 million),whiclh is nol considered financiallysound. Assuranceswere obtained during negotiationsthat this percentagewould be graduallyreduced to 25% by the end of 1975. It was also agreed that as a conditionof project sub-loans,STIL would have its accounts audited annually by independentauditors acceptableto the Bank/IDA.

BNT's FinancialPosition

4.08 BNT has a good and consistentrecord of earnings (Annex 3, Table 7). Five--percentdividends on capital have been paid every year since its inception,the balance of net profit having been transferredto various reserves. Present provisionsfor bad debts (D 0.6 million) and free reserves, includingD 2.5 million for various risks, are adequate.

4.09 BNT's liquidity position is strained. Short-termliabilities exceed current assets by D 1.9 million (ratio,0.9:1) (Annex 3, Table 2). While BNT has been able to increase its sight and term deposits from D 15 million in 1965 to D 25 million in 1970, part of these resources have been used to finance long-term loans to STIL and short-termloans to cooperatives, which are now overdue.

4.10 When the CooperativeFarm Project was revised in 1970 the cooperatives' debts to BNT amounted to D 6 million. Governmentagreed at that time to reschedulethe debts of the remainingcooperatives (D 3.4 million, meanwhile reduced to D 3.0 million) which will be repaid over five years, partly by the Governmentand partly by these Cooperatives. It has now agreed to repay under its guaranteeobligation in five equal annual installmentsthe debts of dissolved cooperativesin order to cover BNT's cash deficit. With these repaymentsand those of STII.'smedium- and long-termdebt (para 4.07), BNT's current asset would exceed current liabilitiesby D 3.8 million in the fifth year of the project, thus resulting in an improved liquidity ratio of 1.1 to 1 (see projectedbalance sheet in Annex 3, Table 8).

4.11 To further strengthenthe financialposition of BNT upon Government's proposal it was agreed that the IDA credit portion of US$3 million would be on-lent to BNT at 1% interest p.a. The cost of Bank/IDA funds (4.9%) and of BNT's own resources(4%) would result in a blended cost of 4.7%, giving BNT an overall margin on project operationsof 3.3%. This would correspondto a margin of 3.3 and 3.1 respectivelyon BNT's overall operationsin 1969 and 1970 (Annex 3, Table 9, part 2). The 3.3% margin would be adequate to cover BNT's operatingexpanses for the project (estimatedat 1.5%) and would result in an excess of revenue over expenses,which would enable BNT to establishadequate reserves after payment of taxes (Annex 3, Table 7). - 14 -

Organizationand Management

4.12 BNT is administeredby a Board of nine members who serve for six- year periods. The Board is chaired by the General Manager and has three representativesof Government, three representativesof Government-controlled corporationsand cooperatives,and two representativesof private shareholders. The present Chairman was, appointed in September 1969. HIehad been a senior executive of BNT before. The institutionis well managed and its staff competent. Full details of BNT's organizationand management are given in Annex 3.

4.13 BNT has substantialexperience in short-term agriculturallending, but its capabilitiesin project evaluation are limited. This is mainly because, for medium- and long-term lending operations,it has used mostly Government funds at Government'srisk, and project evaluation and final authorizationhave been handled by Ministry of Agriculture technicians. BNT's administrativeprocedures concernedwith loan repayment, including bookkeeping,have been satisfactory. Under the Project, strengtheningwould be required in technicaland financialProject evaluationand assessment of investmenteffectiveness. This strengtheningwould be accomplishedby adding a qualified and experienced farm management specialist,to be in charge of training and supervising techniciansin loan evaluation (Annex 3, Appendix 3). He would be supported by three locally recruited senior techniciansin BNT's Tunis head office and six locally recruitedjunior techniciansattached to BNT's branches in the Project area. In order to strengthen STIL's technicalservices, BNT would ensure as a conditionof its subloan that a qualified and experienced agriculturistbe recruited (para 3.09 and Annex 6, Appendix 3). The appointmentof the farm management specialist, in consultationwith and on terms and conditions acceptable to the Bank/IDA, and of the senior technicianswould be a condition of loan/crediteffectiveness. Furthermore,BNT would ensure, as a condition of its project subloans that STIL had employed a qualified and experiencedagriculturist after consultation with and on terms and conditions acceptable to the Bank/IDA.

Lending Policies and Procedures

4.14 BNT's agriculturalstaff would assist applicants in the preparationof detailed plans, includingpreparation of farm plans, income and expenditureestimates, and cash flows. In the case of lending to STIL, BNT's technicalwork would not include preparationassistance but would be restricted to the appraisal of STIL's proposal. BNT's staff would appraise all sub-projectsin terms of incrementalreturns and submit recommendationsto its management and Board. Subloans for dairy and cereal development in excess of US$100,000 would require prior approval by the Bank/IDA. Technical staff would periodicallyvisit sub-borrowers'properties to ensure that funds were being used for the intended purposes. The above procedureswould not be altered without the prior approval of the Bank/IDA. Assurances to this effect were obtained during negotiations.

4.15 With regard to dairy loans, assuranceswere obtained that BNT would require: (a) from farmers a satisfactoryfarm plan prepared and carried out under guidance of a qualified extension agent (para 3.05); and (b) - 15 -

an assessmentof BIRH that water supplies are sufficientto irrigate at least 8 ha for forage production,in accordancewith the farm plan. With regard to date-palm subloans,assurances were also obtained that after the four-year loan/creditdisbursement period and up to the early bearing age (end year 7), BNT would either finance from its own resources or assure that adequate finance is available for STIL's follow-up investment.

Terms and Conditionsof Project Loans

4.16 As stated in paragraph 2.11, banking interest rates in Tunisia vary from as low as 4.75% for export financingup to 9% for commercial lending. BNT has traditionallycharged 6% for lending (mainly short term) from its own resources. To the extent it can be ascertained,present interest rates bear little or no relationshipto the real cost of capital. In lieu of the allocativefunction of the cost of capital, Governmenthas institutedan administrativeresource allocationmechanism under which subsidizedcredit facilitiesare made available for a wide variety of purposes. In spite of low interest rates, BNT has made reasonableprofits, mainly because of the low cost of its resources and non-assumptionof risks under special programs.

4.17 During negotiationsGovernment and BNT agreed to raise interest rates for medium- and long-term loans from 4% at present (para 2.11) to 8%, for Project loans and for all similar loans that wou]d qualify under the Project. However, in line with its recently stated policy to restore confidencein the private sector and to encourage commercialfarmers' investments,Government wishes to mitigate the impact of increased interest rates by payment of certain subsidies, for which details are yet to be defined. These subsidies,which would not exceed in the aggregate the equivalentof 2% of interest payable on sub-loans,would be a temporary measure and phased out gradually,subject to Governmentreview of its assistance to the agriculturalsector. This review would cover agriculturaltaxation (includingimport duties on farm implementsand inputs), price policies and other subsidies.

4.18 Farm and date-palmdevelopment model calculations,summarized in paragraph5.08 and detailed in Annexes 4, 5, and 6, indicate that the following repaymentperiods for loans to sub-borrowerswould be appropriate: Grace Repayment Period Period Total ______- Years…------Models 1-2 Grain Farms 1 5 6

Model 3 Dairy Farm 3 5 8

Model 4 Date-Palm Plantation 8 7 15 - 16 -

During negotiations,assurances were obtained that these periods would not be exceeded without the Bank/IDA's prior approval.

Accounts and Auditing

4.19 BNT has a good accounting organization,as well as a management informationsystem. Under various supervisory functions,BNT is subject to the customary supervisionof banks by the Central Bank and Government appoints a Financial Controller to protect its interest in BNT. Internal audit is carried out by a section responsibledirectly to the Chairman/Cen- eral Manager and the shareholderselect two auditors (Commissairesaux Comptes). External audit is carried out by two accountants (Commissaires aux Comptes) elected by the shareholdersbut has not been found adequate, consideringBNT's importanceas a deposit and developmentbank. Therefore, BNT's accounts would have to be audited by independentauditors acceptable 0 to the Bank/IDA. Assurances were obtained during negotiationsto this effect. The first independentaudit, relating to BNT's annual accounts for the year ending December 31, 1970, was submitted to the Bank/IDA in May 1971.

V. PRODUCTION,MARKETS, PRODUCER BENEFITS, AND REVENUE GENERATION

Production

5.01 Under the Project, about 750 farms, cultivatingsome 135,000 ha, would benefit from mechanizationand dairy development. Annual incremental production at full development is estimated at 85,000 tons of wheat and 9,300 tons of milk. At full production,the date-palm plantationssub- project would yield about 10,000 tons each year, or over twice the volume of present exports. Assuming that two-thirdsof the new productionwould be exported,present export earnings from dates would more than double. The intercroppingof about 20% of the date-palm plantationswith early vegetableswould yield approximately2,000 tons of tomatoes, 400 tons of garlic, and 250 tons of melon, about 75% of which could be exported.

Markets and Prices

5.02 Grains. Wheat imports have averaged 200,000 tons annually during 1965, 1966, and 1967, rising to 402,000 tons in 1968 and 480,000 tons in 1969. The incrementaloutput under the Project would reduce the import- ation needs. The Project's financial and economic rates of return have been based on present prices, net of production tax, of D 38 per ton (US$72.39)for soft wheat and D 43 per ton (US$81.92)for hard wheat, both being the present average landed cost in Tunis.

5.03 The world market price projections indicate that, in the mid- 1970's, the soft and hard wheat prices may be about US$65 and US$75 per ton (CIF Tunis), respectively,equivalent to a decline of 10% for soft wheat and 8.4% for hard wheat on the Project prices. To assess the - 17 -

effects of such a decline of farmers' income, a sensitivity analysis was applied (para 5.09). The results remain satisfactory.

5.04 Milk. The incremental output of milk is needed to balance STIL's fresh milk requirements for mixing with the imported dry milk component. The sales of the reconstituted milk have been consistently increasing, rising from 14.3 million liters in 1968 to 17.3 million liters in 1969.

5.05 Farmers would receive between D 0.052 per kg for milk with 3% fat content and up to D 0.054 per kg for higher fat content. This provides an adequate price incentive for the farmers (at US$0.10 per liter, which is acceptable when compared with other countries), while keeping the cost of reconstituted milk reasonably low, due to the low cost of dry milk powder.

5.06 Dates. Prices paid to growers vary according to quality and average D 0.09 per kg. Export-quality dates would be produced by STIL, which is the sole exporter of Tunisian dates and has well established distribution channels in Europe. During its financial year, ended on September 30, 1969, STIL handled a total of 6,265 tons, of which 4,547 tons were exported, for a total of D 967,000. The main importing countries were: France, 1,756 tons; Italy, 1,589 tons; and Britain, 452 tons. In these markets, Tunisian dates enjoy a privileged position because of their quality and presentation.

5.07 To diversify its markets and to enable the adoption of more efficient marketing techniques, STIL has undertaken studies of consumer preferences in several European markets, mainly in Switzerland, Italy, and the Scandinavian countries, building on the already excellent reputa- tion of Tunisian dates. There should be no difficulty in disposing of the additonal date production.

Producer Benefits and Revenue Generation

5.08 The Project would substantially increase farm income by restoring fertility to neglected land and provide a return ranging from 14% to 26% (before debt service on borrowed funds) on all incremental Project investments. Financial returns and income to farmers, as well as to STIL for its date-palm development, have been estimated on the basis of farm model calculations (Annex 4, Table 1; Annex 5, Table 2; and Annex 6, Table 1). Annual incremental net incomes before and after debt service are shown below: - 18 -

Model 1 2 3 4

Farm Size: 400 ha /1 100 ha 90 ha 50 ha

Principal Investment: Crawler Wheel Dairy and Tractor and Tractor and Irrigation Attachments Attachment facility Date Palm

Investment (in Dinar) 9,000 3,900 7,300 95,600 Number of years to full development 3 3 10 15 Net Income (in Dinar) at present 1,012 485 1,480 at full development 4,380 1,813 3,570 35,320 /2 Increment 3,368 1,328 2,090 35,320 Debt Service (interest and principal) 1,575 683 1,275 12,845 Increment after Debt Service 1,793 645 815 22,475

/1 Of which 200 ha cropped and 200 ha left fallow to restore soil moisture. /2 Investment on idle land.

5.09 Taxes, duties, and other relevant levies have been deducted in computing the net incrementalincome. In all cases, the net income provides adequate incentive to invest under the Project on the terms and conditions set out in paragraphs 4.17 and 4.18. As they are based on representative models, some incomes, in practice,may range higher than indicated,while other ones would undoubtedlybe lower. The sensitivityof the grain and dairy sub-projectswas tested by assuming incrementalnet benefits 25% lower than best estimates,due to lower yield or prices. The results still showed adequate returns respectivelyof 15% and 12%.

5.10 Governmentrevenue from duties and taxes generatedby the Project would be substantial. During the first three years, Government would collect about D 1 million (US$1.9million) from duties and levies on imported machinery. In addition, the sales tax generated by incremental grain, milk, and date output is estimated to reach about D 300,000 in year 9 and stabilizeat D 340,000 (US$650,000)annually on present tax rates, once date palms have reached full development.

VI. BENEFITS AND JUSTIFICATION

6.01 The Project, while assisting the private agriculturalsector, which has been stagnatingbecause of fears of compulsoryabsorption into cooperatives,would reduce Tunisian dependence on imports of wheat and dairy products. The Project would also assist STIL in additionalwork on date- palm plantationdevelopment in the south, where its plantationwould - 19 - eventuallyprovide jobs and housing for about a thousand families of the desert nomads, at present living in extreme poverty. Import substitution of cereals and export of dates and off-seasonvegetables would be equivalent to net foreign exchange savings of about US$8 million per annum at full development.

6.02 Long-term credit support to private commercialfarmers should help to establishconfidence in the Government'srevised agricultural policies and then contributesignificantly to the much needed improvement in the investmentclimate for agriculture. This, together with the introduction of realistic terms of lending, would mobilize commercialfarmers' own resources through the requirementof a substantialcontribution to investments as well as help to strengthenfurther BNT lendable resources. In addition, the developmentof BNT's technicalservices should make it an increasinglyeffective provider of long-term finance for agriculturaland related developments. The setting up of the dairy extension service to act as coordinator of the currently fragmented efforts under various bilateral agreementsshould go a long way towards re-establishingand developingthe national herd, decimated during the period of farmers' fears (para 2.06). While the Project as proposed would not directly help the majority of Tunisia's rural population,it representsa first step towards the revival of the agriculturalsector. Commercialfarmers expected to invest under the Project would readily respond to opportunitiesof improved technologywhen coupled with availabilityof credit. Their incrementaloutput would contribute towards improvementsin the net balance of foreign exchange.

6.03 The economic rate of return for the overall Project at present prices has been estimatedat 22%. When computed separately,rates of return to the economy are 24% for grain farm mechanizationand dairy development and 18% for date-palm development(Annex 8). Assuming price declines of 10% for grain to projected1975 world market prices (para 5.03) and 10% lower prices for dates and milk, the economic rate would still be satisfactory at 18%.

VII. RECOMMENDATIONS

7.01 During loan/creditnegotiations, assurances were obtained to ensure satisfactoryProject performance. Some of the principal assurances involved:

From Government

(a) provisionof extension services for dairy farms and technical services for groundwaterdevelopment on dairy farms and date- palm plantations (paras 3.07, 3.08, 3.16);

From BNT

(b) recruitmentof a farm management specialistfor BNT's credit division and an agriculturistfor STIL's date-palmoperations, - 20 -

both after consultationwith and on terms and conditions acceptableto the Bank/IDA (para 4.13);

(d) reduction of BNT's financialengagement with STIL (para 4.07).

7.02 The proposed Project is suitable for a Bank loan of US$5 million for a term of 15 years to BNT, and an IDA credit of US$3 million on IDA's standard terms.

May7 , 1971 TUNISIA AGRICULTURALCREDIT PROJECT Gross Domestic Product by Sectoral Origin 1965-1969 (in millions of dinar) Provisional 1965 1966 1967 1968 1969

Agriculture 102.5 74.5 63.8 82.9 80.3

Mining 10.1 15.7 21.4 28.4 29.6 Extractiveindustry l11.5 8.9 10.3 8.8 CrudeOil 0.7 4.2 12.5 18.1 20.8 Powerand Water 7.5 8.2 8.8 9.5 10.8 Manufacturing 60.8 63.7 65.2 69.0 76.1 Foodindustry 28.5 26.3 24. 27.9 28.9 Petroleumrefinery 2.3 2.5 2.6 3.0 3.5 Metallurgy,mechanical and electrical 2.3 3.5 4.1 4.1 4.5 Constructionmaterials 4.5 5.2 6.1 6.5 6.7 Chemicals 2.3 2.3 2.7 3.3 3.5 Textiles 12.0 13.8 14.7 13.1 17.4 Wood and furniture 4.4 5.1 4.9 5.0 4.8 Paper,printing, miscellaneous 4.5 5.0 5.5 6.1 6.8 Transportand Communications 40.5 41.3 41.5 41.7 41.7 Buildingand PublicWorks 40.6 41.5 40.5 40.2 40.4 Services 116.2 113.2 118.0 124.5 128.0 Housing 17.8 19.0 20.0 20.0 Tourism 4.8 7.0 9.1 11.1 12.5 Commerce 65.9 60.0 51.5 65.0 67.1 Other1/ 28.6 28.4 28.4 28.4 28.4

GeneralGovernment 63.5 71.8 75.5 82.7 89.5 GDP at factorCost 441.7 429.9 434.7 478.9 4 Indirecttaxes less subsidies 69. 75.0 7 86.9 GDP at MarketPrices 511.2 507.5 509.7 557.2 583.3

(D(D4 M 1/ Includesservices of domestics and all other services. H H

Source: Secretariatd'Etat au Plan

December 1, 1970 ANNEX1 Table 2

T U N I S I A

AGRICULTURALCREDIT PROJECT

-Cereal Production and Requirements_ Export and Imaport

1959 to 1969

Requirements Production Export Import All Cereals All Cereals of Hard Wheat of Cereals ------tons ------

1959 493,000 760,700 186,300 68,600

1960 51-4.,000 574,900 116,ooo 157,900

1961 535,000 293,200 33,000 397,700

1962 558,000 496,lo0 28,700 364,500

1963 581,000 912,000 116,100 159,000

1964 606,000 550,900 90,400 89,000

1965 631,000 700,000 8,800 215,500

1966 657,000 429,200 94.,000 207,600

1967 683,000 400,000 940 209,000

1968 710,000 513,000 -- 402,000

1969 738,000 450,ooo0 480,ooo

Source: Annuaire de Statistiques. Service de la Statistique Agricole.

July 27, 1970 ANNEX1 Table 3

TULPTISIA

.AGRICULTURALEXPORTS AND IMPORTS (in millions of dinars)

1966 1967 1968 1969 (Provisional)

A. Sxports: Total Agriculture 32.3 2h.5 24.6 22.9

Cereals -4.3 .1 - -

Citrus + other fruit 5.3 5.3 4.1 4.6

PreservedfLuit + vegetables 2.3 2.5 2.2 1.7

Clive oil 13.hB 8.o 11.9 11.0

T iine + beverages 4LX 5.2 3.6 2.9

Animal przoducts 2.1 3.0 2.6 2.4

Preserved fish .5 .3 .2 .3 Total Tunisia 74 78 83 83

B. Im-orts: Total Agriculture 25.0 35.4 29.5 39.1

Soybean oil 3.9 4.0 3.4 6.0

Tobacco .8 .7 .6 1.0

.'Rawcotton .8 1.3 1.5 1.8

,ereals 8.2 17.4 12.0 17.3

;therfoodstuLffs 11.3 12.0 12.0 13.0 Total Tunisia 127 137 114 137

November 5, 1970

ANNEX 2 Page 1

TUNISIA

AGRICULTURAL CREDIT PROJECT

INSTITUTIONAL FRAMEWORKFOR CREDIT

A. The Banking System

General

1. Tunisia'smonetary system consists of the Central Bank of Tunisia, 12 banking institutions,the Postal Checking system, and the National Savings Fund. Of the 12 institutions,two are mainly Government-owned:the Societe Tunisiennede Banque (STB) and the Banque Nationale de Tunisie (BNT). They account for more than two-thirdsof total credit to the economy and receive about 40% of total deposits. A new bank, created in the autumn of 1968, is expected to assist in the developmentof the southern region of Tunisia. The Banking Law

2. The operationsof banking institutionsin Tunisia were codified in a regulatorylaw (67-51), which was promulgated on December 7, 1967. Each bank has to apply for an authorizationto carry out its functionsand has to specify whether it wishes to operate as a deposit money bank or as an investment bank. The deposit banks are entitled to receive deposits without any limitationof duration. They may invest them either in short-termloans or in medium-term loans (five years) within certain limits set by the Central Bank. They are authorizedalso to issue long-term loans with the proceeds of special resources. The investmentbanks are entitled to receive only fixed term deposits for more than one year. They promote new ventures through equity participationsand medium- and long-term loans.

3. The law sets various requirements,which are mainly as follows:

(a) a bank must have a minimum paid-in capital of D 200,000.00;

(b) a bank must allocate to its legal reserves 20% of its net yearly profit until its own resources (capital and reserves) have reached a certain percentage,to be fixed by the Central Bank, of its demand and term deposits;

(d) a deposit bank shall neither invest more than 5% of its own resources in an equity participationinto a single venture nor have shares that exceed 20% of the share capital of any corporation. However, the Central Bank ANNEX 2 Page 2

may authorize a banking institution to raise these ceilings, provided that such authorizationdoes not extend beyond 5 years;

(e) the banks are obliged to comply with the Central Bank regulationsand, particularly,to observe the various ratios set up by the Central Bank;

(f) the banks must close their annual accounts as of December 31; these accounts should be submitted to the General Assembly of shareholdersand be certifiedby a Commissioner for Accounts selected from a list established in agreement by both the Ministry of Planning and the Central Bank of Tunisia. The banks should also submit to the Central Bank their monthly financialstatements, establishedaccording to standard forms.

4. Simultaneouslywith the law regulating the banking profession, another law establishing the National Credit Council (law 67-50) was promulgated. The Council's main objective, when it is established, will be to set guidelines for the volume, distributionand control of credit in relation to plan objectives and the general economic situation,with particular reference to seasonal and special sectoral needs.

Central Bank Operations

5. The Central Bank of Tunisia, in addition to its functions as bank of issue and custodian of official foreign reserves, acts as banker to the Government and to the deposit money banks. In the frame of annual stabilization programs underlying consecutivestand-by arrangementswith the InternationalMonetary Fund (IMF) in 1964, various ceilings were established. The 1969 stabilizationprogram provided for a single ceiling in the domestic assets of the Central Bank and the foreign short-term indebtednessof the deposit money banks.

The Control of Credit

6. In order to control the operations of the deposit money banks, the Central Bank relies primarily on the followinginstruments:

(a) Changes in the rediscountrate: The interest rates have remained relativelystable since 1966, when the Central Bank's basic rediscountrate was raised from 4 to 5% per annum. For certain sectors, the Central Bank applies preferentialrates. Thus, a rate of 4% is charged for paper related to export operations,seasonal crop financing, and medium-term credit for housing guaranteed by the Government;financial paper is rediscountedat 5.5% and medium-term securities at 5.75%; and guaranteedoverdraft advances carry a rate of 7%. A penalty rate of 2% is added if the rediscount ceiling is exceeded by 10%. If ANNEX2 Page 3

the ceiling is exceeded by 15%, the penalty is 2.5% and if over 15%, the penalty is 3%.

(b) Control of the deposit banks' rate structure: The Central Bank controls the banks' rate structure.

(i) Deposits: At present, banks are allowed to pay interest at the following rates:

Demand deposits: Up to 1.75% per annum

Time deposits (minimum terms, 3 months): From 3% to 4% for 12 months or more

Deposits subject to advance notice: Between 2.25% and 3%

Certificatesof deposits: Between 3% and 4%

Savings deposits: 3%

If left for more than six months: 3.5%

(ii) Lending operations: Interest rates charged by banks on their lending operations are also subject to Central Bank regulations,which indicate minimum and maximum rates for certain kinds of transactions. The rates are arrived at by adding to the official rediscountrate percentages that vary according to the type of transaction. Any change in the rediscount rate will, therefore, trigger a change in the lending structure. At present, the banking system's lending rates range between 4.75% and 8% for transactionsinvolving rediscountablepaper and over 8% for non-rediscountable paper. The lowest rates are charged for the financing of exports (4.75% to 5.75%). Seasonal crop financing ranges between 6% and 6.75%. Advances on paper secured by essential products (cereals, olive oil, wine, canned foodstuffs) carry interest charges ranging between 5.75% and 6.75%. Agricultural and industrial medium-term loans carry 6.25% and 7.25%, provided they are rediscountable. For non- rediscountablemedium-term loans, made with their own resources, banks are free to charge rates in accor- dance with normal banking practice. (For medium- and long-term loans issued by BNT using Government's funds in the frame of specific agreements, the rates are not subject to such regulations; they are lower and aim to support various agricultural sectors; for example, plantation development loans are issued at 3.5% for the first 10 years, and rise to 5.5% thereafter.) ANNEX2 Page 4

(c) Rediscount ceilings: In order to regulate the overall level of rediscounting,the Central Bank has established four types of ceilings:

(i) Regular ceiling (cote normale): This ceiling, which was fixed in 1961 in conjunctionwith the first stabilization program with IMF, is subdivided for each deposit money bank on an individualbasis according to each bank's share in total credit operations in the past and to the level of its deposits. Banks that exceed their ceilings have to pay penalty interest charges (see above). However, bills regarding exports and guaranteedby Banks are discounted outside such ceiling and without any limit- ation.

(ii) Seasonal ceiling (cote saisonniere): This ceiling is set to take into account the financing of the marketing of the three major crops: a cereal ceiling for BNT only, fixed in June/July for almost nine months, and, for all deposit banks, a wine ceiling, fixed around December/January for about six months, as well as an olive oil ceiling, fixed around October/November for about nine months;

(iii) Crop expenditures ceiling (cote frais de culture): As the seasonal ceiling relates only to the financing of the crop itself, the Central Bank was obliged, in mid-1969, to set up an additional crop expenditureceiling to provide rediscount facilities for BNT for the financing of current expendituresassociated with the acceleration of the agriculturalcooperative movement. This ceiling was fixed at D 2 million for 1969.

(iv) A special ceiling on medium-termcredit: Rediscounts under this ceiling are provided to the deposit banks for the purpose of extending medium-term credit, provided that a bank can show that at least 10% of its deposits relate to medium-term credits approved by the Central Bank (ratio d'emploi).

(d) Ratios on the deposits

(i) Use of resources ratio for medium-term credit (as mentioned above);

(ii) Liquidity ratio: Holdings by the bank of the following types of assets must be equal to 60% of their short-term liabilities:cash on hand (includingdeposits with the Central Bank), funds lent on the interbankmoney market, deposits with correspondents,portfolio of rediscountable loans, bills under collection,Treasury Bonds, 50% of Government Equipment Bonds; ANNEX 2 Page 5

(iii) Solvency ratio: This is clefined as the ratio between a bank s capital and reserves and its deposit liabilities; it stands at 10%.

(iv) Treasury bonds' ratio: At least 30% of the bank's deposits should consist of treasury bonds (this ratio is about 10% below the target, owing to the fairly tight liquidity position of the banks as well as the limitations placed in their subscriptionsof Government bonds under the succes- sive stabilizationprograms).

(e) Direct approval of bank loans

(i) Short-term loans: Short-term loans that exceed D 5,000 are rediscountableonly with the approval of the Central Bank, which may authorize rediscount to be limited to a part of the loan. Furthermore,loans of large amounts cannot be extended without prior approval of the Central Bank; such an approval was originally required for loans exceeding D 75,000 but with the first stabilization program in 1964, this limit was lowered to D 50,000.

(ii) Medium-termcredit: All rediscountablemedium-term loans are subject to prior Central Bank authorization.

(f) Yearly increase of loans: The yearly overall increase in credit, exclusiveof that covered by special lending funds provided by the Government,shall not exceed percentages fixed every year by the Central Bank (this rule, established in 1964, has been discontinued).

(g) Reserve requirements: The deposit banks have to deposit to the Central Bank a part of the increase in their deposits. Since April 1968, compulsory reserves to be lodged with the Central Bank were to amount to 10% of any increase in demand deposits of up to 1% a month over the level of February 29, 1968 and to amount to 30% for any increase in demand deposits above 1% a month over the level of the same base period. (The main requirementsof the Banking Law and the Central Bank Regu- lations are summarized in Table 1.)

B. AgriculturalCredit

Background

7. Before independence,the organizationof agriculturalcredit in Tunisia reflected the dualistic aspect of the economy. The modern foreign sector was financed by the Caisse Mutuelle de Credit Agricole de Tunisie (CMCAT) and private banks. The Tunisian sector was financed partly by the ANNEX 2 Page 6

Caisse Fonciere de Tunisie (CFT), with regard to medium and large land- owners, and partly by the Societes Tunisiennede Prevoyance (STP), as far as the subsistence farmers were concerned. In 1959 these institutionswere liquidated and the Banque Nationale Agricole (BNA) was establishedby the Government. Its primary objectivewas to concentrate the financingof agriculture within a single institutiongeared to the requirementsof a newly independentcountry. In its desire to eventuallyseparate the subsidy and assistance type of interventionto agriculturefrom regular methods of financing, the Government accepted that the new agriculturalcredit institution should be operated by a businessman-typemanagement. The BNA was therefore given the legal status of a private corporation.

8. BNA did not enjoy a monopoly. However, the private commercial banks have never been very active in the field of agriculturalcredit and restrict their operations to financing agriculturalproducts and short-term production loans to well-establishedfarmers. Therefore,BNA has played a dominant role. In order to divide its risks, it expanded its activitiesto all sectors of the economy. On its tenth anniversary,its name was changed to Banque Nationale de Tunisie to stress its national importanceand the fact that, apart from agriculture,it finances industry and commerce as well. Table 2 gives comparativefigures for BNT and other banks from 1962 to 1969.

9. In financing agriculture,BNT had to take into account two con- straints. First, it had to grow as a sound banking institution. Therefore, its policy was to restrict its operation to creditworthymedium and large farmers. Second, it had to consider the nature of its resources. Since most of them originated from demand deposits and rediscountfacilities from the Central Bank, BNT deals mainly in short-term credit. For medium- and long-term financing,it depends on funds provided by Governmentand, therefore, distributessuch loans with the technicaladvice of the Ministry of Agriculture.

The Credit Cooperatives

10. The Governmenttried to meet the credit needs of the small farmers in various ways. Initially,BNT, acting as agent on behalf of Government, had to extend loans to small farmers selected by administrativeauthorities (prets speciaux de campagne.) Mearwhile,Government decided to integrate the credit to its cooperativemovement policy and promoted the establishment of credit cooperatives(Caisses Locales de Credit Mutuel.) The first mutual credit cooperativeswere establishedin 1963 in the province of CapBon. Since then, they have spread throughout the country, especiallyin the north. There are now 52 credit cooperatives,with a total membership of over 70,000 farmers. At the end of 1969, capital subscribedby members was D 0.7 million, the Governmentendowment was D 0.3 million, and deposits were D 4.3 million. A number of the cooperativeshave been financiallyunsuccessful because of high administrativecosts in relation to the transactionshandled and losses suffered as a result of poor repayment performanceby borrowers. BNT is the official administratorof these cooperativesand gives them ad- ministrativeand financial support. ANNEX2 Page 7

The Farming Cooperatives

11. Government policy involved also the establishment of farming cooperatives, which had to integrate smallholders' land. The Bank/IDA granted a loan of US$12 million and a credit of US$6 million in 1967 (Loan 404/Credit 99-TUN) for the financing of irnvestments. It was agreed that BNT would act as financial agent for the Government, and Government loans to the cooperatives, including the proceeds of the loan and credit, would be channelled through it. For the financing of seasonal expenditures, BNT had to issue short-term loans with its normal resources under a Government guarantee. Many of the cooperatives have become insolvent, and most of the funds made available to various cooperatives over the last four years have not been repaid. Government has agreed to repay all these debts.

Needs for Agricultural Credit

12. Under the cooperative Government policy, the amount of agricultural credits issued by BNT rose from D 6.6 million in 1965 to D 10.8 million in 1969, after reaching D 13.6 million in 1968 (Table 3). However, the share of the cooperative sector was of paramount importance (about 90% in 1968 and 1969). The private sector, discouraged by the Government policy and reluctant to invest, never received more than D 2.5 million per annum. This amount was reached in 1966 and declined to D 1.2 million in 1969. Furthermore, medium- and long-term loans to private farmers never exceeded one-third of the total amount of loans approved. It is noteworthy that the overall amount of loans from the banking institutions to all sectors have almost doubled during the last five years, rising from D 134 million in 1964 to D 227 million in 1969. Even though agriculture's share within those figures trebled from D 6.3 million in 1966' to D 21.7 million in 1969, its overall share remains small: 5% in 1966, rising to 10% in 1969, although it has been contributing around 16% to the GDP.

13. Since the Government decided in September 1969 to restore the private sector, there has been an urgent need to strengthen BNT finances. The lending program included in the Agricultural Credit Project appraised in this report aims mainly at restoring and improving the productivity of the medium and large farms in the north. Small farmers would not benefit from this Project but about 1,000 families would each gain a permanent income of about D 60 per annum by way of wages from their work in the date-palm development sub-project. The Government is aware of small farmers' needs and is presently considering ways and means for assisting them.

May 4, 1971

ANNEX 2 Table 1

TUNISIA

AGRICULTURALCREDIT PROJECT

BANQUE NATIONALEDE TUNISIE (BNT)

Main Requirementsof the Banking Law and the Central Bank Regulations

Percentage Fixed by Central Bank

I. Ratios Establishedfor InstitutionalManagement Purposes:

1. LiquidityRatio: Cash on hand and in banks plus redis- countableloans, bills under collection, Treasury Bonds, and 50% of Equipment bonds: short-termliabilities Min. 60%

2. SolvencyRatio: Capital and reserves: deposits Min. 10%

3. Fixed Assets and Fixed assets and investments: InvestmentRatio: Capital and reserves Max. 75% 4. Equity Participa- In relationwith the capital tion into a single of the corporation Max. 20% Corporation: In relation with the capital and reserves of the banking institution: Max. 5%

II. Ratios Establishedfor National Economy Parposes:

5. Use of Resources Approved medium-termcredits: Ratio: deposits Min. 10%

6. Treasury Bond Treasurybonds: deposits Min. 30% Ratio:

7. Reserve to be In relationwith the increase Deposited to the of demand deposits up to 1% Central Bank: of increase 10% More than 1% of increase 30%

February 25, 1971 ANNEX 2 Table 2

TUNISIA

AGRICUILTURALCREDIT PROJECT

BANQUENATIONALE DE TUNISIE

Agricultural Loans (Portfolio end of Year)

Comparative Figures for BNT and Other Banks (in D I'000)

B N T Other Banks Total

1962 3,900 68.4 1,800 31.6 5,700

1963 3,800 77.5 1,100 22.5 4,900

1964 4h,400 71.0 1,800 29.0 6,200

1965 6,600 88.0 900 12.0 7,500

1966 8,900 83.2 1,800 16.8 10,700

1967 10,000 62.9 5,900 37.1 15,900

1968 14,600 69.5 6,400 30.5 21,000

1969 19,900 91.7 1,800 8.3 21,700

1/ In addition to loans from its own resources, BNT's balance of loans outstanding from special (Government) funds during the 1965/69 period have averaged about D 8 million.

Source: BNT

February 25, 1971 TUNISIA

AGRICULTURALCREDIT PROJECT

BANQUENATIONALE DE TUNISIE

Year1y Agricultural Lending Operaions (Loans Approved) (in D '000)

1965 1966 1967 1968 1969

Short Term

Individual 1,687 1,660 1,326 1,148 963 Cooperatives 2,853 2,561 5,377 6,375 6,602 Sub-total: 4,540 4,221 6,703 7,523 7,565

Medium and Long Term

Individual 361 830 455 491 225 Cooperatives 1,708 1,831 2,571 5,624 2,988 Sub-total: 2,069 2,661 3,026 6,115 3,213

Total: 6,609 6,882 9,729 13,638 10,778

Individual

Short Term 1,687 1,660 1,326 1,148 963 Medium Term 361 830 455 491 225 Sub-total: 2,048 2,490 1,781 1,639 1,188

Cooperatives

Short Term 2,853 2,561 5,377 6,375 6,602 Medium and Long Term 1,708 1,831 2,571 5,624 2,988 Sub-total: 4,561 4,392 7,948 11,999 9,590

Total: 6,609 6,882 9,729 13,638 10,778

November 19, 1970

ANNEX 3 Page 1

TUNISIA

AGRICULTURAL CREDIT PROJECT

BANQUENATIONALE DE TUNISIE (BNT)

General

1. The primary objectiveof BNT is to promote agriculturaldevelopment by providing short-, medium- and long-term loans, and, more generally, to carry on all normal banking and financialoperations, including commercial loans. It can also participatein industrialenterprises by taking direct equity investments. BNT operates under a banking law and Central Bank regulations (Annex 2). Future operationswould also be governed by a policy statement,drafted in accordancewith guidelinesset out in Appendix 1, agreed upon between BNT and the Bank/IDA.

2. BNT has an authorized capital of D 2 million. Its paid-in capital,which amounted initially to D 400,000, has been increased to D 1,200,000 in 1968 and D 1,600,000in 1969. It is distributedas follows:

Tunisian Government 25% Government-controlledCorporations and Cooperatives 35.7% Caisses Locales de Credit Mutuel 23.7% Private Tunisian Shareholders 15.6%

Its financialstatements from 1966 to 1970 are listed in Tables 1 and 2.

Administrationand Management

3. BNT is administeredby a nine-memberboard (maximumnumber: 12), whose members serve for six-year periods. The Board consists of a chairman who is simultaneouslythe general manager, three representativesof the Government,three representativesof the Government-controlledcorporations and cooperatives,and two private members.

4. The lines of authorityare well defined and the personnel conditionsare stable. BNT is a mature institutionwith a good coverage of the country through its network of 23 agencies. Its head office is in Tunis and there are also two agency offices in the city, making a total of 25 in all. During 1969, a computerwas installed and the administrative benefits are obvious from a series of new controls BNT introducedduring 1970, particularlyas they relate to loan repayments. BNT, a highly cen- tralizedinstitution, employs 522 people, of whom 289 are at headquarters; 130 are assigned to agency offices, which average about five employees each; and 103 are seconded to Caisses Locales. Its organizationalstructure ap- pears in Appendix 2. ANNEX 3 Page 2

Accounts and Audit

5. It has a reasonablygood accountingorganization, as well as a management informationsystem. There are four supervisory functions:

(a) As a bank, BNT is subject to the usual Central Bank supervision;

(b) Shareholderselect two auditors (commissairesaux comptes) at their annual general meeting;

(c) Government appoints a financialcontroller (controleur financier), chargedwith the protectionof Government's interest in BNT; and

(d) Internal audit is carried out by a separate BNT section, responsible directly to the chairman-general manager.

Lending Policies and Procedures

6. Current lending procedures of BNT are to secure short-term seasonal loans over the relevant crop, reinforced by insurance against fire and hail risks, the cost of which is about 1% per annum. For medium- and long-term loans, up to 70% of the cost of on-farm improvements,livestock and machinery and equipment and its installationis advanced. On-farm improvements are generally financed for between five and 10 years and other items for five years. Lien over stock and equipment is required as is mortgage on land in most cases. Not all land is properly titled, but the type of participantenvisaged is not likely to have difficultiesin this respect. BNT is fully aware that its real security,besides Project soundness,stems from the borrower's integrity and technicalability. However, to collect the informationand be better prepared for loan evaluationanalysis, BNT would need to strengthen its organizationby adding a qualified and experienced farm management specialist,to be in charge of training and supervising techniciansin loan evaluation (Appendix3), and by recruiting three senior techniciansin its head office and six junior techniciansin its branches located in the Project area.

7. BNT generally carries the full non-repaymentrisk for loans made with its normal resource. However, it was requested to undertake loans to cooperativesunder a Government guarantee. The Government carries the full risk on loans made with Special Government funds, whose issue is subject to approval by various governmentaldepartments.

Interest Rates and Terms

8. On the average, BNT lends its own resourcesat 6% per annum. Overdrawn current accounts pay 7% per annum and BNT charges an additional 2% on delinquent balances. The special fund loans vary from fund to fund. ANNEX 3 Page 3

Resources

9. BNT classifies its resources into two categories: normal resources and special resources.

Normal Resources

10. (a) Own resources. These include capital of D 1,600,000 and free reserves,which have steadily grown, thanks to BNT regular annual profit, and had reached about D 3.7 million as of December 31, 1970.

(b) Deposits. These started at D 2.6 million in 1960 and have increasedyear by year. The deposits held on December 31, 1970 amounted to D 18 million sight and 7 million term. They are collected in the rural and urban sector and include deposits from parastatal bodies, cooperatives,private customers, and USAID.

(c) Rediscount Facilities. They are provided by the Central Bank. BNT's regular ceiling amounts to D 1.2 million. Further- more the Central Bank allocates to BNT a crop expenditure ceiling and seasonal ceilings for the financing of cereals, wine and oils the amount of which is fixed according to annual requirements. Bills regarding exports and guaranteed by banks are rediscountedoutside any ceiling.

Special Resources

11. (a) In 1961, BNT borrowed direqtly from USAID (DevelopmentLoan Fund (DLF) ), with the Government'sguarantee, US$5.0 million for a term of 15 years, including one year of grace. The object was to enable BNT to make medium- and long-term loans to the agriculturalsector for production and processing. Full disbursementwas achieved by 1967. One of the conditions of this 4% loan was that BNT's clients would pay 7% per annum interest, the highest rate charged by BNT for any type of agricultural loan.

(b) BNT administers several "Special Funds" made available to it by Government or by external agencies under a Government guarantee for various agriculturalsubsectors or in the frameworkof a law on agriculturaldevelopment (May 1963). These funds are given on concessionaryterms in order to stimulate various priority activities under specific Govern- imientpolicy. The total of these Special Funds on December 31, 1970 was D 17.7 million, which included the USAID (DLF) funds (D 1.5 million). The amount received as an agent from Bank/IDA for the financing of cooperativeswas D 3.2 million. ANNEX 3 Page 4

Use of Resources

12. (a) Investments: BNT's own resources are partly used for equity investments. As of December 31, 1970, its participations amounted to D 485,500 (Table 3). Out of this amount, D 54,300 of bad investmentshas been fully covered by a reserve and D 38,000 is covered up to 50%. The market value of these participationswas estimated in January 1971 at D 537,100 or 11%omore than their nominal value. BNT has agreed to take appropriatesteps that would reduce its participations to 20% of the capital of any single corporation, according to BCT regulations (Annex 2). BNT exceeds this percentagefor STIL (participationof 29%, D 43,200 instead of D 30,000) and for Societe Tuniso Yougoslave de Developpe- ment (participationof 25%, D 5,300 instead of D 4,200). (b) Loans:

(i) Loans on Normal Resources

Sight deposits form BNT's largest single resource, and it, therefore,follows a basic policy of investing its "own" resources almost entirely in short-term loans. An exception to this policy was, however, made in favor of STIL (Annex 6, Appendix 1), a corporation largely controlled and managed until the end of 1969 by BNT (same chairman) and, to a large extent, financed only by BNT. Since that time, however, two new chairmen have been appointed,one for BNT and one for STIL. Besides its equity participation,total loans outstanding to STIL amounted to D 2.7 million, as of March 15, 1971, of which STIL has agreed to repay D 1.7 million in 7 equal annual installments. Additionally,BNT has agreed to reduce its financial engagementwith STIL (other than short-term financing of export commodities)from 50% of its capital and free reserves at present to 25% by end- 1975. This disengagement plan, recommended by Bank/IDA, would not impose undue restrictionson STIL's financial resources and would not impede its development program. STIL has competentmanagement and its overall operations have been consistentlyprofitable (Annex 6, Appendix 1).

(ii) Loans on Special Funds

Special Funds are generally invested in medium- and long-term loans. The relevant investmentsare shown under "Assets" in Table 1 (Summarized Balance Sheets, 1966-1970). The difference between the total borrowed, as shown under Special Funds,and invested remains available for investments. AA1NEX3 "'age 5

13. It is worthwhile to mention that fanming cnoperetives were financed with BNT normal resources as well as DLF and Government funds. Table 4 gives the amount of loans due from farming coopezatives. Following the reduction in number of cooperatives from 350 to 21S in Septeiber 1969, the Bank/IDA and Government agreed in November 1970, to reschedule the debt to be repaid, partly by the remaining cooperatives and partL; by the Government. Details are as follows:

(a) Remaining Cooperatives: D 3.4 million (P 3.3 million on BiNTfunds and D 0.1 million on DLP funds) will be repaid:

(i) up to about D 1.5 million by Gevernmentin annual installments of D 0.3 million, commencingJuns 30, 1971;

(ii) up to about D 1.9 million by the cooperatives, according to schedulesover five years.

(b) Dissolved Cooperatives: The amount of debts on BNT funds (D 2.5 million) and DLF funds (D 0.1 million) wil'lbe repaid by the Governmentaccording to BNT's needs.

As of March 15, 1971 the remaining cooperatives'debts had been reduced to D 3.0 million. To cover the projected cash deficit, Governmenthas agreed to honor its guarantee obligationand repay the dissolved cooperatives'debts in five annual installments,starting in Year 1.

BNT Financial Structure

14. Table 2 gives a classificationof BNT assets and liabilities as of December 31, 1970, which is summarizedbelow (in D million).

Current Assets 34.1 Current Liabilities 36.0 Medium- and Long- Term Assets 13.5 Medium- and Long- Less Provision 0.6 12.9 Term Liabilities 3.9 Investmentsand Fixed Assets 1.0 Capital Reserves and Surplus 5.3 48.0 45.2 Special Funds Loans Special Funds Government 14.5 GovernmentFunds 16.2 Funds DLF 1.5 DLF 0.4 14.9 17.7

62.9 62.9

15. BNT's liquidityposition i8 not satisfactory. Short-termliabilities exceed current assets by D 1.9 million (ratio 0.9/1). While BNT has been able to increase its sight and term deposits from D 17 million in 1966 to D 25 million in 1970, part of these resourceshave been used to finance ANNEX 3 Page 6 long-term loans to STIL and short-termloans to cooperatives,which are overdue.

Project Requirements

16. The cash flow projections (Table 5) assume that BNT borrows at an average cost of 4.7% per annum the funds required for its lending program and that BNT lends to sub-borrowersat 8%, leaving it with a 3.3% margin. This is sufficientto pay for BNT's incremental costs under the Project, create a sufficientreserve for bad debts and leave it with a reasonable profit. During the disbursementperiod, BNT would have to provide funds required to cover the cumulativedeficit, which would reach a peak of D 918 in year 3 but would thereafterbe reduced through repayments under the Proj- ect.

17. Furthermore,BNT would be expected to provide short-term (seasonal)credit to the farm mechanizationand dairy developmentsub- project farmers. At 50% of operating costs, the requirementsare estimated at D 4,000 for Model 1 (crawler tractor),D 2,000 for Model 2 (wheel tractor), and D 2,000 for Model 3 (dairy). Converted to total requirements,based on the projected entries of farmers, the position would be:

Model 1 Model 2 Model 3 Total No. of No. of No. of No. of Farmers D'000 Farmers D'000 Farmers D'000 Farmers D'O00

Year 1 125 500 155 310 75 150 355 960 Year 2 125 500 155 310 30 60 310 870 Year 3 125 500 155 310 45 90 325 900

375 1,500 465 930 150 300 990 2,730

These short-term requirementshave not been computed in the Project cash 0 flow but in the overall BNT cash flow.

BNT Projected Financial Statements

18. Tables 6, 7, and 8 give projected cash flow, balance sheets, and operating results from year 1 through year 5. Deposits,which increasedby D 8 million during the last five years, are expected to increase by D 1.1 million only during the next five years. It is anticipatedthat BNT would recover D 1.4 million every year from Government,cooperatives, and STIL. Projected balance sheets show that at the end of year 5 current assets would exceed current liabilitiesby D 3.7 million (ratio 1.1:1).

Medium- and Long-TermDebt Equity Ratio

19. The following table shows that the medium- and long-term debt/ equity ratio, which was 1:1 as of December 31,1970 would be 1.3:1 at the end of year 5. ANNEX 3 Page 7

Actual I'rol cL t-d 1970 Year 5 - -(D '000) - - - - Medium- and Long-term Debt Bank and Government (IDA) Loans - 4,210 Various Creditors 3,793 3,643 Bonds and Term Deposits 130 280 DLF 1,515 255 5,438 8,388 Capital, Reserves, Provision for Various Risks, Profit 5,325 6,679

Financial Results

20. BNT has a good and consistent record of earnings. Tables 7 and 9 give the summarized Profit and Loss Accounts for the last five years. The small decline of revenues was due partly to a change in the accountingpro- cedures during the 1969 introduction of the computer, under which interest on loans is not charged out until collected. This method reflects income received rather than income earned, and represents,therefore, a more con- servative approach. Furthermore,expenses have been consistentlyrising and BNT became liable to pay income tax in 1969 (after a nine-year exemption). The resultingnarrowing margin will require strong managementcontrol.

21. A 5% dividend on capital has been paid consistentlythroughout, the balance of net profit being transferredto various reserves. The provision for bad debts and investmentshad a balance of D 0.6 million at the end of 1970. Provision for various risks, which might be consideredas a general reserve, and reserves amount to D 3.7 million. These provisionsare adequate to meet any contingenciesarising out of non-repaymentof loans.

Future Earnings

22. Income and expenditureprojections for five years (Table 7) indicate that BNT would continue to make profits, be able to maintain a dividend of 5%, and establishadequate reserves after payment of taxes.

May 3, 1971

ANNEX3 Table 1

TUNISIA

AGRICULTURALCREDIT PROJECT

Banane Nationale de Tunisie

Susnai.ed Balance Sheets 1966 - 1970 (in D '990)

As at D-cenbe- 31 ...... 1966 1967 1966 1969 1970

A S S E T S

Cash in hand, Central Bank, potal checks. 674 606 1,307 916 988 Banks and .- rrtspond-nti 1,578 1,431 2,296 3,820 2,472 G-v--cenet bhnds and chort-tern bills poetfalic 22,989 26,900 33,498 27,258 24,085 Shat- and aediun-ter- loans 2,883 3,140 1,681 10,189 12,659 Redisco.nted bills, Ceetr-l Back 4,145 4,290 4,203 798 1,320 Gnac-cced advance 339 183 232 34 74 Niscellaeane. .dvanons and a unts receivablc 994 1,264 1,71 1,233 3,970 Inve 'ents 275 286 329 337 485 Suntease ai.onin cad niucell-..o.s 1,119 1,245 1,725 1,855 1,995 Fined onsets 385 439 533 530 525 G-oractee deposits 1 1 13 13 13 35,382 39,781 47,555 46,983 4S,586

Special FPad It.et.n.t-s

Special Agricultural Fand (FSA) a/ 1,050 1,149 860 751 760 Debtr Caonslidstiia (AD) 178 162 144 123 110 Practiac oE Ui- Industey (cv) Development Loan oFnds, USAID (DLy) 1,192 916 673 502 389 Grain Fond (Cereale- 1962/63) 919 - - Fand far the Develapnenit f Agricultuacl Pr-d-etiac and Service Coopeeati-e (FODUPCAS) 484 470 462 444 426 Groin F-nd ( A=retlrs1963/643 209 - - Special Fond ftr Ag_icoltural Develap=ent C(FIlA) 2,902 3,790 6,040 8,177 6,152 Special Pond far Financial Accth=ond-- at n of nperaciven (FOSAF) -- 12 062 621 Special Food ion the Encanrngennrt of Fishing (FOSEP) - - 93 163 173 IBtDIIA f4I4/99-Tgti) F A 1,554 2,199 2,995 German Fond far Iriarigaton (FAI) - - - 46 L60 Cooperative- f-o Sundry Crops of Central and Southern Tunisia (CPCS) - 314 1,240

6.934 6.487 10,338 13.471 14,921

42,316 46,268 57,993 60,454 63,507

Cvovernment credits as per contra 3,711 3,578 3.740 3.536 3,394

TFtal: ...... 46.027 49.846 61.6 66,901

L I A 3 I L I 1 I E S

Deposits aod current accoonts 12,301 11,961 13,964 18,162 17,939 BInic cod tdoonspondents 3,386 2,635 5,052 5,466 4,546 Sills deposited for colle- tion 818 1,033 948 1,969 1,398 Sondrp creditors 1,521 3,806 6,25U 3,779 4,199 Dinidends to he paid 54 27 56 73 135 Bandn and Gene dcpanic_ 4,819 4,736 4,476 5,835 7,145 Snspense accounts and niscellaneois 2,026 2,055 2,393 3,768 2,673 Payment received ag-ont- Brrentvonnioments 1,299 2,999 2,932 - b/ _ b/ Rediscounted bills, Central Bank64.145 4.290 4.203 799 1.330

30,369 33,441 40,274 39,752 39,546

Special Foods Geceived foe Governuent

Specia.l_AginoltnralIFunD)(0 1,707 1,313 2,002 2,235 2,593 Dehtn C ldationf - (AD) ' 320 320 131 149 149 Protection of Wine Industry ISP) 131 150 150 150 153 Develop-eet Loon FAnd, USAID (DLF) 2,207 2,D47 1,973 1,699 1,315 Groin Feed (Cereales 1962/63) 1,093 1608 - 1 Pond tar the Developmenatof Agricalcucal Producti-n end Service Coepe-atives (FODUPCAS) 660 660 660 463 463 Groim Fond (Cereales 1963164) 197 - - - - Special Fend for Agriculnural Development (F08DA) 2,945 3,915 5,579 6,164 6,751 Special Fund far FiPanoial Acconsedatic- of Caoperati-ee (PFSAF) - 50D 515 427 623 Special Fund for the Encouragem-ent af Fishing (FOSEP) - - 200 200 375 73RD/IDA (484/99-TUN) _ _ 1,554 2,643 3,228 GeernE F-nd foe Ietigotice (FAI) - - - 89 446 Conperative- far S-ndry Crops of Centeel and Southern Tuniesi (CPCS) - 451 1,192 9,269 9,465 12,686 14,870 17,665

Capital 400 403 1,200 1,600 1,600 previsions 1,481 1,992 2,745 2,943 3,116 '/ Eeservs.597 842 709 968 1,187 Sociel Pond 153 185 228 272 322 Pr-fits carried foavaod 47 53 51 49 40

2,678 3,362 4,933 5,932 6,265

Goverseent ceedit accots to collect pee .cntra 3,711 3,57B 3.740 3,536 3,394

Tol:.. 46.027 49,646 61.633 63,990 66.901

a/ The abbreviations in bracket ace coteactions o-f the P-h c tee ari-us Eands, as used by BNT. b/ System changed: pri-r tc 1969 paetial payments were kept separately from main debt, feet 1969 -nwerds these ate conpensated in see accoit. ofO/ ehich D 618,000 prevision for bad debts and ina_stcants.

April 10, 1971 TU N I S I A

AGRICULTURALCREDIT PROJET

BANQUENATIONALE DE TUNISIE

Financial Analysis of the Balance Sheet as of December 31, 1970 (D '000)

A S S E T S L I A B I L I T I E S

Current Assets (Maturity less than 12 Months) Current Liabilities (Maturity less than 12 Months)

Cash in Hand 988 Sight Deposits 17,938 Banks and Correspondents z,472 Bonds and Tere Deposits 7,014 Government Bonds and Treasury Bills 3,902 Banks and Correspondence 4,548 Short-temn Bills Credits for Bills under Collection 1,598 Commercial Accommodations 1,611 General Short-tenm Funds from Third Parties 977 Financial Accomeodations 5,510 Clearing House 2,324 Warrants Office des Cereales 3,550 Expenditures to be Paid 237 Caisses Locales RBediscounted Bills 1,320 Mature Bills under Collection 4,618 15,289

Short-tem Loans Agricultural Current Accounts 699 Agricultural Short-term Loans 1,276 Coemercial Current Accounts 6,161 Tunisian Government for Wine Coops 1,229 9,365

Documentary and Collection Accounts 391 Clearing House 323 Rediscounted Bills 1,320 34,050 35,956

Assets with Liquidity sore than 12 Months Liabilities with Maturity of more than 12 Months

Suspense Accounts and Miscellaneous 1,995 Suspense Accounts and Miscellaneous 2,673 Accommodation Bills 1,084 Bonds and Term Deposits 130 Commercial Bills 64 Various Accounts of Third Parties including Liquidation 226 Frozen Accounts, Guarantee Accounts, Liquidation Various Loans including Staff 339 and Staff Provision Fund 1,120 d/ 3,923 Medium-tenm Loans 248 Mortgage and Guarantee Deposits 87 4,043

STIL (Medium- and Long-term Loans) 2,0So Capital 1,600 Overdues Reserves 1,187 Agricultural Loans Overdue Profits 40 Short-term a/ 6,491 Provisions for Bad Debts and Investments 618 Medium-tenm 343 Provisions for Various Risks 2,498 5,943 9,866 6,834 45,822 Bills under Litigation 599 7,433

Investments in Shares and Stocks 485 Equipment, Building, Other Fixed Assets 525 14,536 48,586

Special Funds Loans; Government Funds b/ 14,532 Special Funds Received; Government Funds 16,170 DLF o/ 389 14,921 DLF 1,515 17,685

63,507 65,507

a/ Approximately D 5.4 million is owed by the Farming Cooperatives included in the Bank/IDA Project. b/ Of which about D 5.5 million is owed by the Farming Cooperatives. c/ Of which about D 302 is owed by the Farming Cooperatives (D 201 by remaining coops and D 101 by dissolved coops). / Of which D 322 for Staff Provision Fund (free reserve).

April 12, 1971 TU N IS I A

AGRICULTURALCREDIT PROJECT

BANQUENATIONALE DE TUNISIE

Detail of Investments in Shares and Stocks (as of Dec. 1970) (D 'ooo)

Share ENT Percentage Dividends Received Operating Results Reserve for Incremental Capital Participation of Capital 1967 1968 1969 1967 1968 1969 Depreciation Value Cormsents

6 43.6 a/ Soci4t Tunisienne de l'Industrie Laitiere (STIL) 150 43.2 28.8 4.2 4.1 4.9 93 131 164 Societ6 Industries Chimiques Maghrebines 3,150 50.o 1.6 ------4 34 Banque du Sud 1,000 30.0 3.0 - - - - 230 32.5 14.0 2.1 2.3 2.5 17 23 37 - SIDPAD 2.8a/ Socidte Nationale d'Investissements 3,000 118.4 4.0 0.6 0.6 o.6 159 257 99 ' Societe Tunisienne de l'Industrie Automobile 150 18.3 12.2 0.8 0.9 1.3 152 268 272 .77.3- Societ6 Tunisienne do Sucro 1,700 10.0 0.6 0.4 o.6 0.6 447 692 182 1.2 a/ Societe Nationale de Mise en Valeur du Sud 1,000 19.0 1.9 - - _ _ _ - Societe Tuniso-Yougoslave de L'eveloppement 21 5.3 25.2 - - - 1 12 Societ6 d'Investissement de Bizerte 100 5.0 5.o - - Societe El Kantaoui 250 5.0 2.0 - - - - - 3 Societe E1 Tublsid- 150 4.0 2.7 - - Societ6 Suffetula 150 3.0 2.0 - - Sogitex 600 2.5 0.4 - _ _ (188) (1,360) (514) Socomena 650 2.0 0.3 - (187) (182) (138) Union des Banques Arabes et Frangaises 100,000 c/ 40.8 0.5 ------Societ6 Transport de Marchandises 442 4.2 1.0 - _ - 68 203 -

Sub-total: 393.2 8.1 8.5 9.9 124.9

Doubtful Investments (Reserve 50%)

Socidte Tunisienne de Sid6rurgie El Fouladh 4,200 33.0 0.8 - - - (1,774) (1,186) 330 16.5 2.5 - In Liquidation Soci6te Internationale Harvester 210 5.0 2.4 _ - - 6 10 (81)

Sub-total: 38.0 -_ _ 19.09

Bad Investments (Reserve 100%)

Societ6 de Transformation de l'Orange et 29.5 - In Liquidation des Produits Agricoles 200 29.5 14.8 ------Marbres de Tunisie 150 10.0 6.7 10.0 4 7.0 - Soci te l'Action d'Edition et de Presse 250 7.0 2.8 - - - (113) 24 23 6 (9) (14) 4.0 Societ Ismobili;re et Hfteliere de lasserine 350 4.0 1.2 - - - (54) 3.0 - In Liquidation Societe M6diterraneenne des Produits de l'Olivier 80 3.0 3.7 ------Societe de Transports et Travaux Adriens 14 0.5 3.5 ------0.5 0.1 - In Liquidation Soci6te Tunis-Consult 10 0.1 1.0 ------Societe Nationale Tunisienne de Cellulose 5,211 0.1 - _ _ - (163) (195) - 0.1 - In Liquidation Caisse de Compensation des Affaires et Marchandises - 0.1 ------0.1

Sub-total: 54.3 - _ - 54.3

GRAND TOTAL: 485.5 8.1 8.5 9.9 73.3 124.9

a a/ Incremental value estimated on the basis of recent quotations on Tunis Stock Exchange. b/ Incremental value resulting from an allotment of free shares. c/ Amount in French Francs.

April 12, 1971 ANNEX 3 Table 4

TUNISIA

AGRICULTURALCREDIT PROJECT

Banque Nationale de Tunisie

Indebtednessof Farming Cooperatives

As of December 31, 1970 (in D '000)

Total Overdue Not yet Due

I. All Cooperatives

BNT Funds 5,275 5,159 116 DLF Funds 302 126 176

Sub-total: 5,577 5,285 292

GovernmentFunds 5,510 2,047 3,463

Total: 11,087 7,332 3,755

II. Remaining Cooperatives

BNT Funds 2,764 2,683 81 DLF Funds 201 65 136

Sub-total: 2,965 2,748 217

Government Funds 3,360 1,168 2,192

Total: 6,325 3,916 2,1409

III. Dissolved Cooperatives

BNT Funds 2,511 2,476 35 DLF Funds 101 61 40

Sub-total: 2,612 2,537 75

GovernmentFunds 2,150 879 1,271

Total: 4,762 3,416 1,346

April 26, 1971 TUN ISIA

AGRICULTURALCREDIT PROJECT

Banque NosionaLe do TonisEe

Proiect Cash Flow (D '000)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Totol

INFLOW

Bank/IDA funds for on-lending to sob-borrowers 707 1,353 1,343 697 ------4,100 Bank/IDA fondn for expert servicen 31 32 32 ------95 Bank/IDA fRndo for porohase of vehicles 15 - - 15 BNT's sob-borrowters repsynt of principol - - 78 254 488 681 789 762 584 338 188 197 196 202 214 229 198 127 40 5,565 Isterert Iron BNT's sob-borrowers (8X) 37 147 280 371 384 356 318 262 203 155 126 104 89 74 59 43 27 12 2 3.049

Total: 790 1_53 1733 1.322 872 1_037 1.107 1.024 787 493 314 301 285 276 273 272 225 139 42 12824

OUTFELOW

Loans to DNTnob-borrowers 939 1,785 1,777 916 ------5,417 lasso for follow-op en dait-palm - - - - 63 63 64 ------190 Vebirles purchbsed by BNT 20 ------20 Iscreseotal rosn of BNT 31 41 47 57 36 29 20 11 1 1 ------274 Inters- pi for Dank/IDA foods (overag 37. 19 73 141 193 210 210 193 178 160 141 171 100 77 32 27---- 1,897 dank/GiA funds as-rtisation - - - - - 338 352 369 387 406 426 447 470 495 520 - - 4,210 Casnit-int fRe for Bask fGods 20 16 10 3 ------49 Cost of BNT fisds (47.)a 5 18 31 34 21 - - - - 109

Tonal: 134 91.33 380 640 631 8 5 48 540 541 7 547 547 347 12.166

Ass..l orplon (Deficit) (244) (401) (273) 119 542 397 476 466 239 (55) (233) (246) (262) (271) (274) 272 225 139 42 658

Comslatioe 8urplos (Deficit) (244) (645) (918) (799) (257) 140 616 1,082 1,321 1,266 1,033 787 525 254 (20) 252 477 616 658 -

GOVERNMENT

Inflow

DNT's repaymetis of IDA oredit - - - - - 127 132 138 145 152 160 168 176 186 195 - - - - 1,579 Import doties en form -oohinery b/ 148 299 299 152 ------_ _ _ - 898 Tam on inrrementl Farm ountpt _/ 14 54 105 161 218 257 282 287 293 299 299 299 299 299 299 - _ _ - 3,465 NDt s-rplot (deficit) en IDA inter--t paymen-s - 2 3 4 4 4 3 3 3 2 2 2 1 1 (1) - - - - 33

Total: 162 355 407 317 222 388 417 478 441 453 461 469 476 486 493 5 975

Gutflow

nepay-mot.n T.DA crdit ------13 16 13 16 135 77 Dairy -eteonioo services 34 34 36 18 18 18 ------_ - 158 Psy-mets to fatmers (eqoivalent to 2% interest per anonu dase-pelm oper-tion esnluded) _/ 8 3i 54 70 72 80 55 42 27 15 8 4 3 - _ _ _ _ - 478

Total: 42 64 98 88 90 lD8 35 42 27 15 23 20 18 16 15 713

Net 120 291 317 229 132 280 362 386 414 438 438 449 458 470 478 5,262

CumIlative 120 411 728 957 1,089 1,369 1,731 2,117 2,531 2,969 3,407 3,856 4,314 4,784 5,262 -

a! It in asosmd thit funds t caver deficit will rent 4% per annum to BNT. b/ Dased on preennt tax sod interest struct-re which on expected to change, following Government' treniew of oversll I-centives for agricolturn.

April 10, 1971 ANNEX 3 TABLE 6

TUNISIA

AGRICULTURAL CREDIT PROJECT

BANQUENATIONALE DE TUNISIE

CASH FLOW PROJECTIONS (in D'OOO)

Year 1 2 3 4 5

Cash at Beginning of Year 988 1,871 1,569 728 162

I N F L 0 W

Excess of income over expenditure put into reserve and depreciation (as per Annex 3, Table 7) 255 a) 269 337 424 499

Non-Project Operations

Deposits and various creditors 200 200 200 200 300 Special funds from Government 200 200 300 300 300 Repayment of special funds loans 6,600 6,700 6,900 7,100 7,100 Repayment of normal resources loans (without coops) 29,670 29,880 30,866 32,078 33,361 Repayment for remaining coops of BNT loans D 1,401 by Government in five equal annual installments 280 280 280 280 281 D 1,363 by coops according to schedules 272 272 273 273 273 Repayment by maintained coops of DLF loans (D201) 41 40 40 40 40 Repayment by Government for dissolved coops D 101 DLF loans ) D 2,612 in five equal 524 522 522 522 522 D 2,511 BNT loans ) annual installments Repayment by STIL b) D 2,050 in seven equal annual installments 293 293 293 293 293

Project Operations

Bank/IDA funds for on-lending to sub-borrowers - 707 1,353 1,343 697 Bank/IDA funds for expert services - 31 32 32 - Bank/IDA funds for vehicles - 15 - - - BNT's sub-borrowers repayment of principal - - - 78 254

39,323 41,280 42,965 43,691 44,082

O U T F L O W

Non-Project Operations

Advances out of own resources (short-term) 30,200 31,400 32,700 34,000 35,300 Repayment USAID/DLF 252 252 252 252 252 Advances against special funds from Government 6,800 6,900 7,200 7,400 7,400 Building, equipment, fixed assets 200 200 300 100 200

Project Operations

Loans to BNT sub-borrowers - 939 1,785 1,777 916 Purchase of vehicles - 20 - - -

Total 37,452 39,711 42,237 43,529 44,068

Cash at End of Year 1,871 1,569 728 162 14

a) Including D10 from increased carry-forward of profits. b) Amount reduced to D 1.7 million as of March 15, 1971.

April 17, 1971 TUNISIA

AGRICULTURAL CREDIT PROJECT

BANQUE NATIONALE DE TUNISIE (BNT)

Comparative and Forecast Operating Results Accounts (D' 000)

ACTUAL PROJECTED

1966 1967 1968 1969 1970 1 2 3 4 5

I N C O M E

Interest and Commissions Received 1,947 2,155 2,733 2,630 2,597 2,727 2,863 3,006 3,156 3,314 Project Ineose ------37 147 280 371

Total Income 1,947 2,155 2,733 2,630 2,597 2,727 2,900 3,153 3,436 3,685

E X P E N D I T U R E

Personnel Cost 500 520 574 613 648 650 660 670 680 690 Other Operating Coots 172 163 244 317 229 240 265 290 315 340 Coot of normal Resources (except Rediscount) 485 495 491 623 712 715 720 725 730 735 Cost of Rediscount 70 158 199 95 39 50 50 50 50 50 Provisions for Bad Debts and Ipvestments 100 101 134 82 86 250 290 304 302 314 Provisions for Various Risks a 375 390 710 135 113 - - -

Sub Total 1,702 1,827 2,352 1,865 1,827 1,905 1,985 2,039 2,077 2,128

Project Expenditure

Incremental Costs ------31 41 47 57 Interest paid on Bank/IDA Funds ------19 73 141 193 Commitment Fees (Bank FPnds) ------20 16 10 3 Cost of BNT Funds - - - 5 18 31 34 Sub Total _ _ _ _ _ - 75 148 229 287

Total Expenditure 1,702 1,827 2,352 1,865 1,827 1,905 2,060 2,187 2,306 2,416

NET INCOME (DEFICIT) 245 328 381 765 770 822 840 966 1,130 1,269

Depreciation 25 26 34 51 56 66 76 86 96 106

RESULT AFTER DEPRECIATION 220 302 347 714 714 756 764 880 1,034 1,163

Income Tax - - - 355 335 378 382 440 517 581

RESULT AFTER INCOME TAX 220 302 347 359 379 378 382 440 517 582

Balance of Profit brought Forward 39 47 53 51 49 40 50 50 50 50

Total Available for Allocation 259 349 400 410 428 418 432 490 567 632

ALLOCATION OF AVAILABLE SURPLUS

Dividends, Directors'Fees and Social FPnds 86 51 82 103 169 189 189 189 189 189 Reserve 126 245 267 258 219 179 193 251 328 393

Sub Total 212 296 349 361 388 368 382 440 517 582

BALANCE OF PROFIT CARRIED FORWARD 47 53 51 49 40 50 50 50 50 50

a) This provision, which is not related to specific bad debts, has to be considered as a free reserve. In the projected results, only provision for bad debts has been taken into account before taxation.

April 17, 1971

TUNISIA

AGRICULTURAL CREDIT PROJECT

BANQUE NATIONALE DE TUNISIE

Projected Balance Sheets (D'OOO) Year Ending December 31 Actual a) Year 1 Year 2 Year 3 Year 4 Year 5 (1970) ASSETS

Current Assets (Maturity less than 12 months)

Cash in Hand 988 1,871 1,569 728 162 14 Banks and Correspondents 2,472 2,572 2,672 2,772 2,872 2,972 Government Bonds and Treasury Bills 3,902 3,902 3,902 3,902 3,902 3,902 Short-term Loans and Advances 25,368 25,898 27,418 29,252 31,174 33,113 Rediscounted Bills with Central Bank 1,320 1,320 1,320 1,320 1,320 1,320

Sub-Total 34,050 35,563 36,881 37,974 39,430 41,321

Assets with Liquidity more than 12 months Project Operations: Medium- and long-term loans - - 939 2,724 4,423 5,085 Non-Project Operations Loans, Advances and Miscellaneous Accounts 4,043 4,043 4,043 4,043 4,043 4,043 STIL (repayable in 7 equal annual installments) 2,050 1,757 1,464 1,171 878 585 Overdue Loans to Coops (Farming Coop Project-BNT Funds) Remaining Cooperatives Overdues repayable by Government 1,401 1,121 841 561 281 - Ovqrducs repayable by Cooperatives 1,363 1,091 819 546 273 Dissolved Cooperatives 2,511 2,008 1,506 1,004 502 - Other Overdues and Bills under Litigation 2,158 2,408 2,698 3,002 3,304 3,618 Investments in Shares and Stocks 485 485 485 485 485 485 Equipment, Buildings and Other Fixed Assets 525 659 803 1,017 1,021 1,115 (less depreciation) Sub-Total 14,536 13,572 13,598 14,553 15,210 14,931

Special Funds Loans Government Funds 14,532 14,732 14,932 15,232 15,532 15,832 DLF b) 389 327 267 207 147 87

Sub-Total 14,921 15,059 15,199 15,439 15,679 15,919

Grand Total 63,507 64,194 65,678 67,966 70,319 72,171

a) It is assumed that 1972 will be year 1 of the Project. b) Of which D201 owned by maintained cooperatives to be repaid over 5 years and D101 owned by dissolved cooperatives to be repaid by government over 5 years.

April. 17, 1971 X x

co L TUNISIA

AGRICULTURALCREDIT PROJECT

BANQUENATIONALE DE TUNISIE (BNT)

Projected Balance Sheets (D'OOO)

Year Ending December 31 Actual Year 1 Year 2 Year 3 Year 4 Year 5 (1970) LIABILITIES

Current Liabilities (Maturity less than 12 months) Sight Deposits 17,938 18,138 18,338 18,538 18,738 19,038 Bond and Term Deposits 7,014 7,014 7,014 7,014 7,014 7,014 Bank and Correspondents 4,548 4,648 4,748 4,848 4,948 5,048 General Short-term Funds from Third Parties 977 1,077 1,177 1,277 1,377 1,477 Various Creditors 4,159 4,059 3,959 3,859 3,759 3,659 Central Bank Rediscounted Bills 1,320 1,320 1,320 1,320 1,320 1,320

Sub Total 35,956 36,256 36,556 36,856 37,156 37,556

Liabilities with Maturity of more than 12 months Project Operations: Loans from Bank and Government (IDA funds) - - 753 2,138 3,513 4,210 Non-Project Operations Various Creditors 3,793 3,763 3,733 3,703 3,673 3,643 Bonds and Term Deposits 130 160 190 220 250 280

Capital 1,600 1,600 1,600 1,600 1,600 1,600 Reserves 1,187 1,366 1,559 1,810 2,138 2,531 Profit Carried Forward 40 50 50 50 50 50 Provision for Bad Debts and Investments 618 868 1,158 1,462 1,764 2,078 Provision for Various Risks 2,498 2,498 2,498 2,498 2,498 2,498

Sub Total 9,866 10,305 11,541 13,481 15,486 16,890

Special Funds Received Government Funds 16,170 16,370 16,570 16,870 17,170 17,470 DLF 1,515 1,263 1,011 759 507 255 Sub Total 17,685 17,633 17,581 17,629 17,677 17,725

Grand Total 63,507 64,194 65,678 67,966 70,319 72,171

April 17, 1971 0 |

00 W ANNEX3 Table 9

TUNISIA

AGRICULTURALCREDIT PROJECT

Banque Nationale de Tunisie (BNT)

I. Summary of Revenues and Expenses

1966 1967 1968 1969 1970 ---- (in D million) ------

Revenues 1.9 2.2 2.7 2.6 2.6

Less Expenses 1.2 1.4 1.5 1.7 1.7 Sub-total: 0.7 0.8 1.2 0.9 0.9

Less Provision for Bad Debts and Various Risks 0.5 0.5 0.8 0.2 0.2 Sub-total: 0.2 0.3 0.4 0.7 0.7

Less Income Tax - - - 0.3 0.3

Net Profit: 0.2 0.3 o.4 0.4 0.4

II. Revenues and Expenses Expressed As a Percentageof Average Resources

1966 1967 1968 1969 1970

_____- - ______------

Revenues 5.6 5.4 5.7 4.6 4.3

Financial Costs 1.6 1.6 1.4 1.3 1.2 Excess of Revenue over FinancialCosts 4.0 3.8 4.3 3.3 3.1

Other Expenses 2.0 1.8 1.8 1.7 1.5

Excessof Revenues over Expenses before Providing for Bad Debts Various Risks and Income Tax 2.0 2.0 2.5 1.6 1.6

April 21, 1971

ANNEX 3 Appendix 1 Page 1

TUNISIA

AGRICULTURAL CREDIT PROJECT

BANQUENATIONALE DE TUNISIE GUIDELINES FOR PREPARATION OF A POLICY STATEMENT

General

1. The National Bank of Tunisia (BNT), as a deposit money bank established as a joint stock company governed by the Code of Commerce and the Banking Laws, will conduct its affairs and operations under the management of experienced and competentofficers observing the principles of liquidity, profitability,and security, guided by the aim to contribute to the economic developmentof Tunisia.

Organization and Personnel

2. The organizationof the BNT and the internal methods of work will have to be adjusted to the growing tasks.

3. Staff will be employed, trained and promoted only according to their abilities and professionalknowledge in banking, accounting,administration, and agriculture (includingfisheries).

Scope of Operations

4. BNT may extend its financingactivities primarily to agricultural enterprises.

5. To qualify for BNT's assistance,an enterprise should be finan- cially viable and its projectedoperations should be consistentwith the national economic developmentpriorities.

Form of Assistance

6. BNT will make assistanceavailable for enterpriseswithin the limits of sound financialpractice, by means of loans and various forms of investment including guarantees,equity participations,and the underwriting of securities issues.

7. In order to assist the developmentof the Tunisian capital and money market, BNT should stand ready to sell portions of its investments to other investors or to require other banks' participationin lending to an enterprise,with due respect to its own interests and to those of the other participants. ANNEX 3 Appendix 1 Page 2

Limits of Commitment

8. (i) The minimum size of loans made by BNT should not be less than D 100.

(ii) The aggregate of lending to and equity participationin any single enterpriseshould not exceed any of the following, unless such excess is fully guaranteedby Govern- ment or responsiblefinancial institution:

(a) 25% of BNT's net worth, i.e., paid-up equity plus free reserves;

(b) 15% of BNT's net worth plus outstanding long-term Government loans;

fc) 50% of the total assets of an enterprise.

However, the above limitationsdo not apply to short-term financingby BNT of products for export or purchase of grains, vines and olive oil secured by chattel mortgage.

(iii) BNT should normally limit its participationin the equity of a single enterprise to a maximum of 20% of the capital of the enterprise.

Security

9. BNT should seek to obtain adequate security on loans made, subject to satisfactionon the viability of the project and the earnings potential of the enterprise. Aside from security considerations,BNT should evaluate medium- and long-term loan applicationsin terms of incrementalreturns from the additional investmentto be financed and in terms of loan repayment capacity.

General Lending Principles

10. (i) BNT will aim at financing only sound projects which are financiallyviable with satisfactorytechnical and administrativemanagement;

(ii) BNT will seek to avoid taking a management control of any enterprisewhich it finances. Where, in exceptional circumstances, such action may be required to protect BNT's interest, BNT will seek to divest itself of its management control whenever appropriatearrangements can be made;

(iii) The period of repayment on loans made by BNT shiould be related to the life of the asset financed and realistic projections of cash flow for the enterprise; ANNEX3 Appendix 1 Page 3

(iv) BNT will ordinarily avoid re-financingsince the purpose of its assistanceshould be to increase the productive capacity of the enterprise;

(v) When financing investmentexpenditures through medium- and long-term loans, BNT will either finance the working capital or assure that adequate finance is available for current expenditures.

Financial Policy

11. (i) BNT's interest rate and other fees should be fixed from time to time in light of current market rate but the rate of interest and other fees charged on any particular loan should be fixed for the life of that loan. BNT will set a reasonableinterest rate and other fees in order to cover the cost of its funds and its operating expenses, including adequate provision for bad debts, depreciationand taxes and to build up such reserves as necessary to maintain at all times an aggregate of capital and reserves, equivalent to at least 10% of sight and fixed term deposits;

(ii) BNT shall ensure that medium- and long-term loans are financed by resourceswith appropriateterms such as equity capital and reserves, long- and medium-term borrowings, including medium-term rediscount facilities from the Central Bank;

(iii) BNT shall strictly comply with financial ratios prescribed for banks by the Central Bank of Tunisia;

(iv) Fixed assets of BNT, including participations,shall not exceed 75% of its net worth, as defined in paragraph 8;

(v) BNT shall ensure that the total of its outstanding debts of more than one year does not exceed four times the total of its paid-up equity capital plus free reserves; and

(vi) BNT will obtain suitable protection against the foreign exchange risk in respect of foreign loans.

Government Funds

12. The present rules do not apply to operationsmade on behalf of the Governmentwith special funds provided by the Government and adminis- tered by BNT as an agent in the frame of specific agreements.

May 3, 1971

TUNISIA AGRICULTURAL CREDIT PROJECT BANQUE NATIONALE DE TUNISIE ORGANIZATION CHART

TOOT CONAT TALTRTARRLFTFDTCENTRA OF FRTNGNIA TOLe

BY ANA TLLOT NO TTO TO .PrGMUeTO CG,BREOLTB.A I:

CC¶TL3 AAND GE I-GENERALOAE MANAGEMENT| lC ABELEOTFO GENERALNETTINGI GENEEAL

E | AS515.ANI MANAGER | -| ~~~~~~~~~~~~~~~~~~~ECONOMA YTUDIEL

1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1' GAN; 3 :3

2 OF.O~~~~~~TO~ ~~ EDNAD

TAo~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IR OLONT EL

ANNEX 3 Appendix 3

TUNISIA

AGRICULTURAL CREDIT PROJECT

TERMS OF REFERENCE FOR FARM MANAGEMENTSPECIALIST

Post Title: Farm ManagementSpecialist in charge of TechnicalUnit responsiblefor project.

Employer: Banque Nationale de Tunisie (BNT)

Duty Station: Tunis (Tunisia)

Duration: 3 years

Duties: (a) prepare model farm plans; plan loan appraisal and evaluationsystem and guide the staff of the TechnicalUnit in their implementation;

(b) examine loan applicationssubmitted and advise managementon the economic and financialaspects.

(d) advise managementon its overall lending program and particularlyin the field of agricultural credit.

Qualifications: Farm ManagementSpecialist with backgroundin agricultural economics and experiencein development banking.

Language: French essential. Arabic an asset.

January 4, 1971

ANINEX4 Page 1

TUN-SIA

AGRICULTURALCREDIT PROJECT

GRAIN FARM 1ECHANIZATION SUB-PROJECT

Models I and 2

Project Area

1. The grain farm mechanizationsub-project area comprisesthe GovernoratsBizerte, Jendouba,Beja, Le Kef and parts of Tunis, in north- western Tunisia, north of the 400-mm rainfall line (Mtap 1). This area accounts for nearly four-fifths (78%) of the country's barley and hard and soft wheat production. Alluvial, inherently fertile soils predominate in the low-lying cropland areas. However, differences in annual rainfall govern land use and cropping patternts: extensive, alternate year cropping in the southwesternportion and semit-intensivecropping in the remaining portion.

2. Aside from rainfall,competition from weeds is the main factor liniting productivity. In recent years, weed infestationshave seriously increased. Changes in Governmentpolicy and lack of investmentand production credit have discouragedprivate sector farmers from maintainingand replacing their grain farm equipment. Standardsof land preparatiornand weed controlhave thus declined and productivityhas deterioratedand on many farms, the cropped area was reduced,due to lack of adequate farm inputs.

3. Key factors towards restorationand improvementof productivity are: (a) investmentin tractors,attachments and combines (an estimated 75% of the cereal farms rely on mechanizedland preparationand harvesting); (b) improved weed control, partly through timely and thorough land preparation and partly through herbicides; (c) gradual replacementof local soft wheat witlhimproved local and Mexican varieties; (d) increased use of fertilizer,especially on the improvedvarieties; and (e) timely harvesting through purchase of grain combines.

Alternate Year Cropping -- Model 1

4. In the western and southern portions of the sub-projectarea (Pont du Fahs, Ebba Ksour, LeKef, Sakiet, Sidi Youssef), annual rainfall rarely exceeds 450 mm. Typical grain farms in this region average about 200 ha in cereals: hard wheat, soft wheat and barley. These crops provide about 1,500 hours of productivework annually for a crawler tractor, 1,100 hours for a wheel tractor, and 300 to 400 hours for a grain combine. ANNEX4 Page 2

5. Soil and climatic conditionsrequire that a crawler tractor be used for two crucial operations:deep plowing of dry, hard soils (following harvest in summer and prior to the fallow period) and land preparation prior to seeding in November/December,when clay soils are often wet and slippery. Wheel tractors,have insufficientpower and traction. In recent years, most farmers have either not been able to purchase such heavy equipment as crawler tractors and combines, for want of credit, or have post- poned such investmentsbecause they feared expropriation.

6. The investmentcost on such farms would average D 8,000 (US$15,200)for a crawler tractor and about D 1,000 (US$1,900)for attachments. Not all of the existing attachmentswould need to be replaced. The investment,coupled with increased short-termproduction credit, would enable farmers to improve land preparation,weed control and fertilizeruse. With these practices,hard wheat and soft wheat yields are expected to increase from present levels of about 0.8 tons/ha to about 1.3 tons/ha. A further increase in productivityis expected through gradual replacementsof local varieties by Mexican wheat seed. In 1969/70, Tunisian farmers planted some 5,000 ha of Mexican-typewheat for seed multiplication and about 60,000 ha for commercial use or for exchange of seed with neighbors. Availabilityof improved seed is thus assured.

7. Other essential inputs, such as fertilizerand herbicides, are readily available through normal commercial channels, or from service cooperatives. Phosphate is one of Tunisia'smajor exports. Mechanization facilitatesrelatively efficient use of labor. Unskilled farm laborers earn about D 0.6 per day (US$1.15);tractors and mechanics receive up to twice that amount.

8. Basic assumptionsin cropping pattern and cost/revenueaspects are sunmarized in Table 1. The financial rate of return is about 25%. The sensitivitywas tested, assuming a yield or price decrease of 25% below the best estimate and the result still showed an adequate return of 15%.

9. Model 1 uses a crawler tractor purchased in year 1 (D 8,000) throughoutthe life of the Project.

10. Although 200 ha of cereal crops do not suffice to justify exclusive use of a new combine, the area is too large to rely on outside custom services. Demand for custom services has been increasing,but, due to lack of combines, available units could not cope with it. Farmers have lost up to 20% of their grain harvest, particularlyin hot, dry years. With the use of combine-harvesting,available at appropriatetimes, grain losses should not exceed 5%. The savings represent about D 2,000 annually. Those investing in new combines will therefore find it easy and financiallyattractive to render custom combine services for other farmers at rates of D 4 to 5 per hour. In these circumstances, the annual demand for the next three years is estimated at 80 units. ANNEX 4 Page 3

Semi-intensive Cropping -- Model 2

11. In the northern portion of the sub-project area (Beja, Sedjenana, Mateur, Jendouba), average annual rainfall (450 to 650 mm) permits annual cropping. Typical farms produce hard and soft wheat, pulses (mainly chick peas) and green or dry forage (mainly oats and vetch). These crops provide about 1,100 hours of productive work per year for a medium size tractor (60 hp). Land preparation for pulses and forage is performed in spring when soil conditions are more suitable for wheel tractors. Occasionally, crawler tractors are rented for deep summer plowing and most farmers rely on custom harvesters because the area in cereal and pulse crops does not justify ownership of a combine.

12. Investment cost on these farms would average 1)2,900 (US$5,500) for a 60 hp tractor and D 1,000 (US$1,900) for appropriate attachments. Basic assumptions and cash flow are shown in Table 1. As illustrated in model 1, the investment, coupled with increased short-term credit for purchased inputs, would increase productivity, mainly through better and more timely land preparation and weed control. Returns would also be improved through expansion of areas in Mexican wheat for which ecological conditions are suitable. The financial rate of return, based on the assumptions indicated in Model 2, is 21%. The sensitivity was also tested. Assuming a yield or price decline of 25% below the best estimate, the result still slhowed a rate of return of 12%, which is satisfactory.

Demand for Tractors and Combines

13. According to a farm equipment census in 1968/69, private farmers in northern Tunisia owned about 4,000 (3,000 wheel and 1,000 crawler) tractors. Annual demand under this sub-project is estimated at 200 units (155 wheel and 45 crawler tractors), or 5% of the tractor population. This estimate is low. It takes into account (a) arrangements for financing farmers' tractor purchases through supplier credits, (b) a tendency of farmers to over-mechanize, and (c) BNT's limited capacity to appraise loan applications.

January 4, 1971

TLTNISLA

AGRICULTURAL CREDIT PROJECT

GRAIP FARM SUB-PROJECT

Basic Data and Financial Rate of Rotorn

Model 1 sod 2

Gross Production Net Value of Net Incretental Ares Yield Priae Value Operating Cost Production Value After Deduc- Without With Without With ties of Pro- Without With Without With Without With Proiset Project duction Tax PreJast Projert Proisot ----- h - __ q------q - -l------D/Far ------

MODEL I (Grafe Dry Fasieg)

Far SiDe: 400 ha Investaent: 70 hp Crawler Tractor (D 8,000), Attach-eets (D 1,000) Annual Use: 1,500 hrs

Croos:

Hard wheat 70 70 9.0 13.0-/ 4.3 Local soft wheat 60 20 9.5 13.5 3.8 ) 6,188 12,940 5,176 8,560 1,012 4,380 3,368 Mexirc soft wheat 20 100 13.0 21.0 3.8 Darley 10 10 13.0 11.0 2.5 160 200 Fallow laud Fall- 1-d 240241 2002100oprcsineeta F~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~isanialRate of Raters; heast estimate: - - 225 5% Seaaitivity Test: If due to lower yields or prices, *jcrm-tal net heoefits wooId he lower than beat estimates., the rates of retora could he 20% less than estimated: 177. 257. less the.aetimated: 157.

MODEL 2 (Grati Dry Faring)

Far Sie : 100 ha Investmest: 60 hp Wheel Tractor CD 2,900), Attachmeets (D 1,000) Annual Use: 1,100 hrs

Crops:

Hard wheat 25 20 1.0 13.0" 4.3 Local soft wheat 15 - 9.5 - 3.8 Mexican soft wheat 6 30 13.0 20.0 3.8 ) 2,735 5,533 2,250 3,720 485 1,813 1,328 Chick peas 15 25 8.0 12.0 4.2 Forage, green vatch and oats 19 25 90.0 140.0 0.25 80 100 Follow laud 20 - Pisasrial Rate of Return; beet eatimate: 21% Sensitivity Test: It due to lower yields or price, incremental net hea..fits weold be lowe thea hest estimates, the rates of re turn wosid he 207 less than estimated: 14% 25% lees thas estimated: 127. 1/ Full development at year 3; year 2 - 807.; year 1 - 60%

Decemper 14, 1970

ANNEX 5 Page 1

TUNISIA

AGRICULTURALCREDIT PROJECT

DAIRY FARM SUB-SUBPROJECT

Model 3

1. Dairy farming is at present concentratedin large Government and cooperative farms in the lower Medjerda Valley. The Office Mise en Valeur Valley Medjerda (OMVVM) plans to expand its herd of 2,000 to about 5,000 cows. Import of Friesian cattle, establishmentand management of Government and cooperativedairy farms has been supported through bilateral and multi- lateral technical and financial assistance (Belgian, Canadian,Danish, Dutch, German and FAO).

2. OMVVM operates a calf rearing scheme. It buys female Friesian one-month old calves from private farmers at D 25, and rears and breeds them, either for expansion of its own herd or to sell later to farmers at D 280 for one in-calf heifer. Farmers receive a D 30 Government subsidy per heifer bought under the program; D 80 credit is repayable from milk deliveries from the Medjerda loan fund and additional credit can be obtained from BNT for the balance. The program has been confined to irrigated Med- jerda Valley farms near Tunis, but it has aroused interest among other farmers, notably in areas where irrigated forage production is feasible.

Demand and Marketing

3. While Tunisia's fresh milk production increased from about 3,000 tons per annum in 1960 to 9,300 tons in 1969, fluid milk consumptionhas increased much more rapidly. It rose from 3,000 tons in 1960 to 18,000 tons in 1969, mainly because of urbanizationand tourism, but also as a result of progressivemarketing by the Societe Tunisienne de l'Industrie Laitiere (STIL) (see Table 1). By means of reconstitutingimported dry milk and blending it with locally produced fresh milk, STIL has been able to pay adequate prices to farmers. STIL needs additional fresh milk, however, to maintain the quality of fluid milk demanded by its customers. It has a line of 16 dairy products on the shelves of its retail outlets. Milk collection in major production areas is adequately organized and can be expanded into new areas. Processing facilitiesare also adequate and can absorb additional output.

Project Area

4. Dairy farms (about 150) would be established on existing grain farms in the vicinity of Mateur, Sedjenana, Beja and Jendouba (See Map 1). Ecologically, this region is somewhat better suited to dairy farming than existing Medjerda Valley farms, because of higher elevation and rainfall. ANNEX 5 Page 2

Prior to 1969, many grain farmers in this region kept beef cattle, and a few have had experiencewith dairy cattle. Fearing expropriation,they sold much of their stock but are now keen to re-establishbeef enterprises or to convert them to dairy.

Investment

5. Average investmentcost is estimated as follows:

D/farm

Irrigation for 8 ha 3,060 Shallow well and pumpset at D 1,950 Irrigationnetwork at D 1,110

Barn Improvements 800 Includingwatering facilitiesand milk room at D 40 for 20 cows

Forage and Hay-makingAttachments 240 for existing wheel tractor

Purchase of Dairy Heifers 3,200 at D 267 for 12 __-

Total... . 7,300

6. BNT's technicalstaff would appraise all aspects of these investments as a package on the basis of incremental returns, subject to the following conditions:

(a) approval of technical aspects of irrigation (well site or alternate source of water, pump specifications, quality and availability of water) by an authorized engineer of the Bureau de l'Inventaire des RessourcesHydrauliques (BIRH) of the Ministry of Agriculture:

(b) establishment of irrigation facilities for at least 8 ha and acceptance by the farmer of a crop plan that would meet year-round feed requirements;

(c) low-cost,but adequate barn and watering facilitiesfor 12 cows and young stock, with provision for expanding the herd to 20 cows;

(d) availabilityof artificialinsemination services and training for the Project area farmers (see para 7 below). Farmers would be required to agree to follow technicaladvice given by the extension agents working under the supervisionof the dairy training centers; ANNEX 5 Page 3

(e) STIL's agreementthat the location is suitable for regular collectionor delivery of milk to a collectioncenter; and

(f) defermentof loan release for purchase of dairy heifers by BNT until the authorizedextension supervisorcertifies that the applicanthas a secured feed base and has compliedwith the above conditions.

7. The provision of artificialinsemination services and training would be based on the use of Government-approvedbilateral (German, Dutch, Belgian) and FAQ joint training centers.

8. Basic assumptionsfor dairy farm developmentare indicated in Model 3, (Table 2) showing a financialrate of return of 26%, the cropping schedules and crop pattern are illustratedin Appendix 1. The dairy feed supply would be secured mainly from irrigated alfalfa and bersim, and from unirrigatedforage crops, mainly vetch and oats (green forage, hay or silage). The portion of the 8-ha irrigated land not used for alfalfa and bersim production would be planted to high-yieldingMexican soft wheat and maize, and where appropriate,to commercialvegetables. By-productsfrom sugar beet production (tops and pulp) would be available as supplementaryfeed in the Jendouba and Beja regions.

9. The dairy heifers would mainly come from OMVVM, which plans to have an annual surplus of about 400 heifers for sale from 1971 onwards, from their own herd and from their heifer raising scheme. The Project provides financingfor import of about 700 heifers because it is expected that at the start of the Project the required number of good quality stock might not be readily available.

10. The demand for dairy farm loans is estimatedat 75 in the first, 30 in the second and 45 in the third year of the lending program. Since the establishment of irrigationand alfalfa is a precondition,the heifers would be purchased 9 to 12 months followingeach loan approval. Staff requirements and cost estimates of the dairy extension service for 150 farms are shown in Table 3.

January 4, 1971

T U N I S I A

AGRICULTURALCREDIT PRDJECT

MILK RECEIVED, PHRCESSEDAND SOLD,BYPRINCIPAL MILK PRODUCTS

Societe Tunisienne de l'Industrie Laitiere (STIL)

Milk Processed Sale of Principal Milk Products a/ Fresh Milk Dry Milk Re- Total Milk Received constituted Processed Pasteurized Pasteurized Sterilized Sterilized Yogurt Buttermilk Butter Year (1) (1) (1) (one 1) (½ 1) (one 1) (½ 1) (< 1) - (1) (kg)

1960 2,953,388 603,669 3,557,057 163,924 3,418,063 731,709 99,241 2,870,165 -- 6,473 1961 3,081,319 581,900 3,663,219 433,030 3,856,837 415,618 366,919 2,776,485 __ 24,743 196n 4,193,851 654,750 4,848,601 435,484 4,952,613 253,171 148,44? 3,031,447 __ 36,099

1963 5,792,202 868,740 6,660,942 572,657 6,680,284 293,863 338,756 4,663,824 -- 77,512

1964 7,706,341 1,105,269 8,811,610 894,279 8,980,078 341,758 487,309 6,222,080 357,996 94,262

1965 8,424,689 2,602,630 11,027,319 1,215,998 10,896,256 619,631 1,068,828 9,793,913 1,095,706 113,169 1966 8,023,761 5,244,210 13,267,971 2,618,223 10,512,845 913,652 1,675,567 13,686,567 1,234,394 82,113 1967 10,180,484 3,875,428 14,055,912 558,408 14,527,763 1,096,321 1,539,003 16,422,781 762,997 44,117 1968 9,177,612 5,795,298 14,972,910 -- 16,402,455 886,473 1,266,153 18,979,248 1,179,887 78,118 1969 9,277,089 8,664,296 17,941,385 -- 20,396,807 1,267,710 1,788,836 22,053,043 2,715,236 40,158

a/ Nine other milk products not shown above are also sold by STIL or on consignmentby retail outlets.

August 19, 1970 H tn T U N I S I A

AGRICULTURALCREDIT PROJECT

DAIRY FARMSSUB-PROJECT

BASIC DATA AND FINANCIAL RATE OF RETURN

MODEL3

Gross Net Value Area Yield Price Production Value Orati Cost of Production Net Incremental in ha q in nD/Farm iDarm in D/Far Value Without With Without With in D/q Wihout With Without With Without htith in D/Farm Non-Irrigated Crops ect Proct (Year 10oJ (iar Project (Year!) ect (Year 10)

Dairy Farms: Model 4 at Full Development (Tear 10)

Hard wheat 39 15 8 13 4.3 )

Farm Size: 82 ha dry land Mexican soft wheat 6 26 12 20 3.8 8 ha irrigated

Herd Size: Initial - 12 pregnant Chick peas 22.5 11 8 12 4 .2 heifers

Ultimate - 20 cows with Forage, green, vetch young stock and oats 22.5 30 100 140 0.25

Total: 90 82

5,020 8,990 3,540 5,b20 1,480 3,570 2,090

Investment: Irrigation D

Irrigation 3,060 Alfalfa, green - 3 - 500 Barn improvements 800 Attachments for C Mexican soft wheat - 2 - 40 3.8 tractor 240 Heifers 3,200 Yaize - 3 - 45 4.53

Total: 7,300 Berzim (intercropped) - (3) - 500 -

Number of Cows kg/cow/Year Beaidual Herd3Value, Year 21 5,640 Initial mltimate _ D/kg

Milk Production 12 20 2,700 3,100 0.054 }

Sale of 7 male calves at D 15 )

Sale of 3 heifers at D 250

Sale of 2 old coms at D 125 ) in Year 1O

Sale of manare not needed for ) ) Financial Bate of Raturn: 26% irrigated crops D 250

September 29, 1970

. * 0 ANNEX5 Table 3

T U N I S I A

AGRICULTURALCREDIT PROJECT

DAIRY EXTENSIONSERVICES

Work Load and OperatingCost

Year 1 Year 2 Year 3 Total

--- No of farms supervised-

WArk Load Assumptions

One extension agent (adjoint technique): New Project farms ...... 5 2 3 10 (cumulative) . . . (5) (7) (10)

15 extensionagents:

New project farms 75 75 30 45 150 (cumulative)...... (75) (105) (150)

OperatingCost

Staff salaries:a! (in D) 15 extensionagents - @ D 1,200 p.a. 18,000 18,000 18,000 19,800 55,800

4 Supervisors - CaD 1,800 p.a. 7,200 7,200 8,000 22,400

2 Artificialinseminators 1 © D 1,200 p.a. 2,400 2,1400 2,400 2,600 7,400

3 Mechanics - @D 900 p.m...... 2,700 2,700 3,000 8,400

Vehicle operatingcost ... 3,100 3,300 3,600 10,000

Total cost 33,400 33,1400 33,600 37,000 104,000

a/ A provisionfor 10% increasemade in year 3.

November18, 1970

TUNISIA AGRICULTURALCREDIT PROJECT DAIRYFARM SUBPROJECT IRRIGATEDAREA - CROPPINGSCHEDULE AND CROPPATTERN

YEARS 1 2 3 4 5 6 7 8 9 10 11 12 113 14 1s

1ha __ =LZi r _____

iha

1ha _A. - -rL>- ing = - '

1 ha I [ I i

__MEM Alfalfa Mexican soft wheat 1 Bersim : Corn

IBRD - 5173(2R)

ANNEX 6 Page 1

TUNISIA

AGRICULTURAL CREDIT PROJECT

DATE-PALM DEVELOPMENTSUB-PROJECT

Model 4

Production

1. Between 1965 and 1969, the production of dates from Tunisia's 8,000 ha of mature palms has averaged about 5,000 tons annually. Most of the 8,000 ha is in traditionaloasis plantations. Oasis land ownership is traditionallyshared by many people with minute holdings, and the fruit of a single palm tree may belong to more than one family. The pattern of fractionalownership has led to excessively close spacing of 300 to 400 palms per ha; however, less than half the trees bear fruit. In modern plantations,it is considered unwise to exceed 130 palm trees per ha. Efforts to modernize such old plantationshave not yet been successful despite substantial Government investments. Results of newly developed smallholderunits on 1 to 2 ha of irrigated land have also been disappoint- ing, mainly because of poor management.

Marketing

2. Date production has primarily satisfied domestic demand. From 1965 to 1969, exports have averaged only 3,300 tons, or 7% of total production. Of three main types or varieties (Deglat,Alligh and Communes), Deglat accounts for practicallyall the exports. The Societe Tunisienne de l'IndustrieLaitiere (STIL) is the sole exporter of dates (Appendix 1) and has modern processing,packaging, refrigeration,and storage facilities. Date merchants and processors in Marseille, France, are its main customers for bulk or wholesale shipment of dates to Europe. To diversify its markets and to pursue more aggressive marketing techniques,STIL has developed 250 g retail packs. Through study of preferences in several European markets (mainly in Switzerland,Italy, and Scandinaviancountries), STIL has learned to differentiatebetween the degree of dryness and the design of labels of its retail pack in accordancewith consumer preferences in specific markets. Nearly one-third of its exports are now marketed in retail packs and this position is increasing. STIL sells these packs at an average price of D 0.400 per kg, of which D 0.090 to D 0.100 is the wholesale buying price, D 0.200 the cost of packaging and marketing, and about D 0.100 STIL's net profit. AANNEX6 Page 2

Commercial Date-Palm Development

3. STIL has not been able to satisfy export market demands. There- fore, because the domestic supply of Deglat dates is limited, STIL has become involved in modern date-palm development. Since 1964, it has managed a mature commercial plantation established by a Frenclh company. In additioni, it has established about 400 ha of modern Deglat plantations, the first of which are now beginning to bear fruit. They are in two principal locations: Nefzaoua and Djerid, soutlhwest and south of Gafsa in the Tunisian Sahara, the date-palm sub-project area (Mfaps 1 and 2).

Investments and Financial Rate of Return of 50-ha Plantation

4. Principal investment items of a 50-ha date-palm unit, designed for deep (600 m) and medium deep (200 m) boreholes are shown in Table 1. These costs are typical for the Djerid location (deep boreholes and artesian flow) and for the Nefzaoua region (medium deep with pump unit). The basic assumptions on yields and prices are given in Table 2. The financial rate of return based on these assumptions is 14%, as shown in Table 3.

5. Investment cost estimates include provision for "dead" and "planted" windbreaks (especially important as protection against Sahara sand storms); 15 houses for permanent labor and staff and one shed with space for field office, packaging, and supplies; and 10% for overhead and contingencies.

Water Resources

6. Location and groundwater availability for new plantations are described in Appendix 2. STIL employs competent contractors for well drilling, uses reasonably sound agronomic techniques, and has developed competent plantation management. Availability of water supplies and land suitability for about 600 ha (12 units averaging 50 ha) are adequate. Provision for 0 financing an additional 300 ha (second tranche) is also included under this sub-project, subject to certification by Bureau d'Inventaire des Resources Hydrauliques (BIRH) of the Ministry of Agriculture as to adequacy of water supplies and suitability of soils for each specific location. It would also be subject to approval by the Bank/IDA. Likely locations for the 300 ha are:

Nefzaoua: Jabria area 40 ha

Djerid: Louah area 100 ha Hazoua area 80 ha Between Neftah and Tozeur 40 ha North of "L'Oasis" 40 ha

Total .. . 300 ha

7. Water requirements range from about 0.5 liter/sec for 1 ha during the establishment period to about 0.9 liter/sec at full development, years ANNEX 6 Page 3

12 to 15. A safety factor of 10% has been included and all water requirc- ments were computed at 1 liter/sec per ha. Initialwater supplies can be more fully utilized through intercroppingof vegetables- tomatoes, melons, garlic, onions and hot peppers - or fruit - apricots and pomegranate. On average, 20% of each 50-ha unit could be intercropped.

Necessary Improvements

8. Although STIL has demonstratedcompetence in planning, establishing, and operatingmodern date-palmplantations, improvements could be made in three principal areas:

(a) Economizingwater use. Estimates of water requirements should take into account the likely decline of artesian flows in future years. Better long-run water use should be secured through appropriatecombination of artesian f low and pumping (Appendix2).

(b) Agronomic practices. The weakest aspects of STIL's date- palm management are fertilizeruse and watering practices. As regards intercropping,STIL is just beginning to exploit the advantagesof soil, climate, and water conditions,which permit harvesting of tomatoes in the second half of January; apricots in the second half of April; melon, onion, garlic, and pomegranate,with a view to marketing such produce in European markets, during off-season. STIL should, therefore, secure the services of a qualifiedagricultural expert with broad experience in producing and marketing tree fruit and vegetables. Because it is unlikely that STIL can secure the services of a Tunisian expert with such qualifications,provision for financing expert services is included in the estimated Project costs. Terms of reference for the expert are included in Appendix 3.

(c) Accounting. Present record and accounting practices are inadequate, even for the existing date-palm plantations. Substantial improvementsare necessary to satisfy the requirementsof improved plantation management and financialmanagement of STIL's head office.

January 4, 1971

ANNE 6 T U N I S I A Table 1

ArRICULTURAL CREDIT PROJECT

Date Palm Development Cost for 50-Ha Unit

MODEL4

Alternative A Alternative B Djerid Locations Nefzaua Locations Deep Borehole (600 m) without Pumping Medium Deep Borehole with Pumping ...... Dinars I. Estimated First Year Establishment Cost

Equipment and plantation

1. Water supply 1.1 Bore-hole(inol. pipe and strainer) 27,000 1/ 1.1 Bore-hole 1O000.°°° _ 1.2 Main irrigation network, D250/ha x 50 ha 12,500 39,500 1.2 Main irrigation - network 12,500 22,500

2. Land development 2.1 First plowing D 10/ha x 50 ha 500 2.2 Levelling D 32/ha x 50 ha 1,600 2,100 2,100

3. Establishment of windbreaks 3.1 Planted windbreaks: Plant purchase 0.035 Transport 0.002 Digging hole 0.025 Planting 0.010 26,500 units at ..... 0.072 1,908 3.2 Dead windbreaks D 0.043/in xn 10,000 m 4,300 3.3 Temporary irrigation canals D 0.250/m x 3,000 m 750 6,958 6,958

4. Planting palm trees 2/ 4.1 Purchase of trees D 1.250/tree x 132 x 50 ha 8,250 4.2 Digging holes D 0.25/tree x 132 x 50 ha 1,650 4.3 Planting trees D 0.750/tree x 132 x 50 ha 495 10,395 10,395

5. Irrigation and drainage channels 5.1 Earth roads, earth channel irrigation basins D 100 /ha x 50 ha 5,000 5.2 Drainage network D 80/ha x 50 ha 4,000 9,000 9,000

6. Buildings 6.1 Houses for staff and permanent labor D 400/house x 15 6,000 6.2 Shed for supplies and packaging 2,000 8,000 8,000

7. Cropping equipment 7.1 Wheel tractor 55 HP 2,300 7.2 Trailers 1,000 7.3 Attachments 60o 3,920 39 79,853 62,85-3 Overhead and Contingencies 8 147 8,147 Total Investment - year 1 ...... 71,000

II. Estimated Follow-up Investment Cost

a. Year 2: purchase and installation of pumpset and pumphouse, Alternative B only -- 5,500 /

b. Year 2, 3 & 4: Tractor operating cost - 13 hrs/ha x D 0.640/hrs x 50 ha 416 416 Purchase of fertilizer 2,610 2,610 Labor 4,020 4,020 Management D 50/month x 12 600 7,646 600 7,646 2/

c. Year 3 & 4: Alternative B only -- -- Pump operating cost: Fuel 630 Oil & grease 220 Maintenance 300 Labor 220 1,370

9,016

1/ Details in Appendix 2, Table 3. 2/ Details in Appendix 2, Table 2. 10% of the initial palm trees will have to be replaced during the first year. 4 The follow-up investment cost in year 2 will be D 5,500 + D 7,646, say D 13,150. In year 3 & 4 it will be about D 9,020 (D 7,646 + D 1,370).

August 20, 1970 I U N I I I A

AGRICULTURAL CREDIT PROJECT

DATE PALM PLANTATIONM 8UB-PPOJECT.

RBADII ASSUMITIONS

MODEL 4: Unit size - 50 ha

Initial Yield Ultimate Yield Years Years to Poll t/ha t/he Without Cro,p D-ielopment

Average Yields

Dates 2.4 11.4 4 15 Intereropping: Tomatoes 20.0 30.0 1 6 Garlic 5.0 8.0 1 5 Mel.e 4.0 8.0 2 5 Hot pepper 2.0 3.0 1 4

Initial Prise Ultimate Price Years Years to Full D/t D/t Without Crop Development

Average Prices

Dates 4o 90 4 15 _Intercropping: Tomatoes 50 6o 1 6 Garlic 65 80 1 5 Melon 50 70 2 5 Hot pepper 100 150 1 4

Total Operating Additional Cost Additional Cost Total Operating Tractor and Maintenance of Management of Cost without PLmping of Pumping (Nuel of Pumping Cost with Pumping Years Attachments Fertilizers Irrigation Network the Plantation Men Labor (Model 1) and Maintenance) (Labor) (Model 2)

Oprtingosts

flWth Palms

Year.... 5 11,730 5 0,COO 8,600 12,000 103,800 193,180 - 6 12,350 57,000 8,600 12,000 105,600 195,550 ------7 12,930 57,000 8,6oo 12,000 107,400 197,930 23,000 4,4oo 225,330 8 13,500 57,000 8,6oo 12,000 109,200 200,300 23,000 4,4oo 227,700 9 14,080 57,000 8,600 12,000 111,OO 202,680 23,000 4,400 230,080 10 14,660 57,000 8,60o 18,000 130,800 229,060 23,000 4,4oo 256,46o 11 15,230 57,000 8,6oo 18,000 132,600 231,430 23,000 4,400 258,830 12 15,810 57,000 8,600 18,000 134,400 233,810 23,000 4,400 261,210 13 16,380 57,000 8,60o 18,000 136,200 236,180 23,000 4,400 263,580 14 16,960 57,000 8,600 18,000 138,000 238,560 23,000 4,40o 265,960 15 17,540 57,000 8,600 18,000 139,800 240,940 23,000 4,4o0 268,340

Tomatoes Garlic Melon Hot Pepper Initial Ultimate Time Lag Buildup Initial Ultimate Time Lag Buildup Initial Ultimate Time Iag Buildup Initial Ultimate Time Lag Buildup Cost Cost Time Cost Cost Time Cost Cost Tine Cost Cost Cost (D/ha) (D/ha) (Years) (Years) (D/ha) (2/ha) (Years) (Years) (D/ha) (D/ha) (Years) (Years) (D/ha) (D/ha) (Years) (Years) Interoropping

Tractor and attachments 8.0 10.0 1 5 8.o 10.0 1 4 8.o 10.0 2 3 8.o 10.0 1 3 Fertilizero 70.0 70.0 1 0 40.0 40.1 1 0 25.0 25.0 2 0 30.0 30.0 1 0 Seeds 5.0 5.0 1 0 150.0 150.0 1 0 10.0 10.0 2 0 16.0 16.0 1 0 Pesticides 4o.o 4o.o 1 0 -- -- 0 0 ------__ __ Windbreaks and coveres 50.0 50.0 1 0 10.0 10.0 1 0 ------__ __ Men labor 280.0 330.0 1 5 110.0 140.0 1 4 125.0 145.0 2 3 105.0 125.0 1 3

Total ...... 453.0 505.0 1 5 318.0 350.0 1 4 168.0 190.0 2 3 159.0 181.0 1 3

August 25, 1970 ANNEX 6 Table 3 T U N I S I A

AGRICULTURAL CREDIT PROJECT

DATE PALM PLANTATION SUB-PROJECT

INCREMENTAL NET VALUE OF RETURN AND FINANCIAL RATE OF RETURN

Date Palm Plantation only Temporary Inter-cropping Net Incremental Total Net Incremental Gross Value Operating Investments Value Gross Value Operating Value of Dates with Years of Production Cost and Renewals (Dates only) of Production Cost Net Value Inter-cropping ______------Dinars ------Model 4 (50 ha) (10 ha maximum area intercropped)

A. Deep Bore-hole Without Pumping

1 -- -- 88, b/ - 88,000 ------88,000 2 _ __ 7,650 - 7,650 2,530 1,380 + 1,150 - 6,500 3 _ 7,650 2/ - 7,650 6,o8o 2,870 t 3,210 - 4,440 4 -- -- 7,650 -' - 7,650 8,240 3,470 + 4,770 - 2,880 5 4,800 9,660 -- - 4,860 9,810 3,580 + 6,230 + 1,370 6 8,250 9,780 -- - 1,530 10,690 3,620 + 7,070 + 5,540 7 12,600 9,900 -- + 2,700 7,690 2,570 + 5,120 + 7,820 8 17,850 10,010 -- + 7,840 4,800 1,550 + 3,250 + 11,090 9 24,000 10,140 __ + 13,860 __ __ + 13,860 10 31,050 10,460 __ +20,590 + 20,590 11 35,100 11,570 -- + 23,530 + 23,530 12 39,150 11,690 -- 27,460 + 27,460 13 43,200 11,810 3,900 21 + 27,490 + 27,490 14 47,250 11,930 __ + 35,320 + 35,320 15-2C 51,300 12,050 -- + 39,250 + 39,250 21 51,300 12,050 27,000 J + 12,250 + 12,250 22-24 51,300 12,050 + 39,250 + 39,250 25 51,300 12,050 3,900 i/ + 35,350 + 35,350 26-29 51,300 12,050 - + 39,250 + 39,250 30 51,300 12,050 14,500 2/ + 24,850 + 24,850 31-36 51,300 12,050 c/ + 39,250 + 39,250 37 51,300 12,050 3,900 / + 35,350 + 35,350 38-40 51,300 12,050 -- + 39,250 + 39,250

Financial Rate of Return: 14% a/ Initial investment. bJ Follow-up investment cost to be repeated in years 2, 3 and 4. / Renewal of the tractor and attachments. J Renewal of the artesian bore-hole. | Renewal of the irrigation network and of the shed.

B. Medium Depth Bore-hole with Pumping

1 __ 71 000 -/ - 71, 000 __ _ + -- - 71,000 2 __ __ 13,150 - 13,150 2,530 1,380 + 1,150 - 12,000 3 __ -- 9,020 c/ - 9,020 6,o80 2,870 + 3,210 - 5,810 4 __ -_ 9,020 J - 9,020 8,240 3,470 + 4,770 - 4,250 5 4,800 11,030 __ - 6,230 9,810 3,580 + 6,230 0 6 8,250 11,150 -- - 2,900 10,690 3,620 + 7,070 + 4,170 7 12,600 11,270 -- + 1,330 7,690 2,570 + 5,120 + 6,450 8 17,850 11,380 __ + 6,470 4,800 1,550 + 3,250 + 9,720 9 24,000 11,500 -- + 12,500 ------+ 12,500 10 31,050 12,820 -- + 18,230 + 18,230 11 35,100 12,940 +22,16 + 22,160 12 39,150 13,060 4,000 -/ + 22,090 + 22,090 13 43,200 13,180 3,900 e + 26,120 + 26,120 14 47,250 13,300 -- + 33,950 + 33,950 15-19 51,300 13,420 -- +,+ 37,880 + 37,880 P0 51,300 13,420 10,000 J + 27,880 + 27,880 21 51,300 13,420 d + 37,880 + 37,880 22 51,300 13,420 4,000o + 33,880 + 33,880 23-24 51,300 13,420 e/ + 37,880 + 37,880 25 51,300 13,420 3,900 Je + 33,980 + 33,980 26-29 51,300 13,420 -- + 37,880 + 37,880 30 51,300 13,420 14, 500 d + 23,380 + 23,380 31 51,300 13,420 4,000 / + 33,880 + 33,880 32-36 51,300 13,420 - + 37,880 + 37,880 37 51,300 13,420 3,900 + 33,980 + 33,980 38-40 51,300 13,420 -- + 37,880 + 37,880

Financial Rate of Return: 14% a/ Initial investment except the pumping station. bJ Follow-up investment cost including new pumpset (D 1,650 + 5,500) / Follow-up investment cost including pump operating costs (D 7,650 + 1,370) / Renewal of the pump and engine. /Renewal of the tractor. Renewal of the bore-hole. if Renewal of the irrigation network.

August 20, 1970

ANNEX 6 Appendix 1 Page 1

TUNISIA

AGRICULTURALCREDIT PROJECT

SOCIETE TUNISIENNE DE L'INDUSTRIE LAITIERE (STIL)

Origin and Objectives

1. STIL was formed in 1961 as a public company with the object of acquiring a milk processing enterprise operating as a branch of a metro- politan French enterprise. Additionally, STIL was to operate road transport, develop fruit and vegetable conditioningand processing,operate as importer and exporter of agriculturaland food products and undertake such other industrial and commercial activities consistentwith the achieve- ment of the preceding objectives. STIL's authorized and paid-up capital is D 150,000, held as follows: Banque Nationale de Tunisie (BNT), 28.7%; parastatal bodies, 24.3%; individual shareholders37% and corporate entities, 10%.

Principal Activities

2. STIL's activities,initially concentratedon milk processing and distribution,now include: fruit and vegetable processing, transport, export and import, general merchandising,tourist hotel operations, and date- palm plantations (para 4). Involvementin date-palm developmentbegan in 1964 when it took over the management of a mature plantation establishedby a French company. As the sole authorized exporter of dates, facing a con- tinuous short supply of export-qualitydates, STIL subsequentlyestablished 400 ha of modern plantations, the first ones of which are now approaching the first bearing stage.

Administrationand Management

3. STIL's governing body is a Board of Directors (Conseil d'Admin- istration), consisting of three to 12 members holding shares and elected for six years by the Annual General Meeting; members may succeed them- selves. The Board elects one of its members as chairman-generalmanager. A new full time chairman-generalmanager was elected in September 1969; his predecessorwas simultaneouslythe chairman-generalmanager of BNT and relinquishedboth posts on being nominated the Minister of Commerce.

4. There are five departments,each headed by a departmentalmanager, reporting directly to the chairman-generalmanager. They are:

(a) Industrial Department

(i) Canning operation; (ii) Fruit and vegetable conditioningand packing; and (iii) Milk processing. ANNEX 6 Appendix 1 Page 2

(b) Commercial Department

(i) Transport fleet administrationand shipping office; (ii) Import and export; and (iii) Retail and general merchandising.

(i) Date-palm plantations;and (ii) Cattle operationsin Djerid and Mateur.

(d) Real Estate Department

(i) Hotel; and (ii) Other buildings.

(e) Administrative Department

(i) Accounting; (ii) Personnel; and (iii) Staff - social services.

5. STIL employs about 130 people on a monthly payroll and, de- pending on the season, between 600 and 1,300 weekly paid laborers. The simple pattern of five departmentshas been successfulunder the strong management of the previous general manager and there are indicationsthat the present general manager will continue along the same lines of control. The present weight of his responsibilitiescontributed to his ready acceptance that an agricultural expert, capable of implementing the date-palm plantation sub-project, will need to be employed to run this sub-project.

Resources,Their Use and FinancialPosition

6. According to the last balance sheet (September30, 1970), the value of STIL's net assets was D 3.7 million. The correspondingresources were: Capital, D 150,000; Reserves, D 598,000; and Provisions,D 2,993,000. Normally, Provisions would not be included in the shareholders'funds, as its main purpose is to act as an adjustment factor to the value of various assets such as debtors and perishable stock. In this case, however, the large amount accumulatedover the last four years has not been assigned to any class of asset and, therefore, the Provisions, as they now stand, are really reserves on which taxation has not yet been levied.

7. Summarized details of STIL's balance sheet from 1967 through 1970 are given in Table 1. The substantial increase in bank overdrafts from D 1.2 million in 1968 to D 3.0 million in 1970 is related mainly to investments made in a hotel and date-palm plantations. Part of these overdrafts (D 1.7 million) have been converted into long-term liabilitiesin March 1971.

8. STIL's shares are traded on the Tunis Stock Exchange, and their recent price, which was between D 16.0 to D 16.5 per D 10 share in June ANNEX6 Appendix 1 Page 3

1970, has further increased to D 20 in January 1971. This reflects the favorable assessmentmade by investors of STIL undertakings,based on the high dividends paid so far (12% on the 1969 earnings, 10% on the previous two years' earnings).

9. Table 2 gives a summary of STIL's earnings and their derivation. In order to obtain a clear picture of real profits, an adjustmentneeds to be made for the excess Provisions charged, thus:

1967 1968 1969 1970 …------…inD'00------

Net Profit after Tax 93 131 163 74 Add Back 80% of Provisions 176 382 755 200 Less Taxation at 46.5% 82 178 351 93 94 204 404 107

Adjusted Net Tax Paid Profit 187 335 567 181

Capital 150 150 150 150

Return to Capital 125% 223% 378% 121%

Shareholders'Funds as Shown at Present 431 546 693 748 Add 80% of Accumulated Provisions 1,057 1,439 2,194 2,394 Less Taxation at 46.5% 492 669 1,020 1,113 565 770 1,174 1,281

Adjusted Shareholders'Funds 996 1,316 1,867 2,029

Adjusted Profit as Percentage of Adjusted Shareholders' Funds 18.8% 25.5% 30.4% 8.9%

Accounts and Audit

10. STIL's accountingsystem is based on a generally accepted (in Tunisia) model codificationand classification,which enables clear records to be kept of past transactionsbut does little for the management in the way of budgeting, cost control, profit planning, and other means of measuring money or physical factors in terms of predeterminedexpectations.

11. Audit is carried out by a "commissaireaux comptes" appointed by the shareholdersin general meeting. This report on STIL accounts as of September 30, 1969 is limited to comments on technical aspects of accounting and comparisonof variations from year to year without adequate verification that the accounts are in accordancewith the true situation. This audit, though in formal compliancewith STIL's legal requirements,is from a finan- AW=I 6 Appendix 1 Page 4 cl- and mmag*rial point of view inadequate. For the future, STIL will 1 Its accounts audited by independent auditors acceptable to the Bank/IDA.

ay 3., t97? ANNEX 6 Appendix Table 1

TUNISIA

AGRICULTURALCREDIT PROJECT

Societe Tunisienne de l'Industrie Laitiere (STIL)

Summarized Balance Sheets (in D million)

As at September 30 1967 1968 1969 1970

Current Assets

Debtors 1.1 1.2 3.1 2.3 Banks 0.1 0.7 0.7 0.6 1.2 1.9 3.8 2.9

Less Current Liabilities

Creditors 1.7 1.8 1.9 2.5 Bank Overdraft 0.8 1.2 2.5 3:0 a/ 2.5 3.0 4.4 5.5

Working Capital Excluding Stocks (1.3) (1.1) (0.6) (2.6)

Add Stocks 1.7 1.9 2.4 2.5

Working Capital Including Stocks 0.4 0.8 1.8 (0.1)

Add:

Fixed Assets after Depreciation 1.2 1.4 1.6 3.7 Stocks and Bonds 0.2 0.3 0.3 0.3 1.4 1.7 1.9 4.0

1;8 2.5 3.7 3.9

Less Long-Term Liabilities - 0.2 0.3 0.2

1.8 2.3 3.4 3.7

Represented By:

Capital 150 150 150 150 Reserves 281 396 543 598 Provisions 1.321 1.799 2,743 2,993

1,752 2,345 3,436 3,741

1.8 2.3 3.4 3.7

a/ Of which D 1.7 million have been converted into long-term liabilities (March 1971).

April 23, 1971 ANNEX 6 Appendix 1 Table 2

TUNISIA

AGRICULTURALCREDIT PROJECT

Summarized Earnings of

Societe Tunisiennede l'IndustrieLaitiere (STIL) (in D million)

1967 L 1968 j 1969 A 1970

Sales 10.9 100.0* 10.2 100.0 16.0 100.0 14.9 100.0

Cost of Sales 10.3 94.7 9.3 91.4 14.5 90.8 13.9 93.3

Gross Profit 0.6 5.3 0.9 8.6 1.5 9.2 1.0 6.7

Less Overheads 0.3 2.4 0.2 1.4 0.2 1.3 0.6 4.2

0.3 2.9 0.7 7.2 1.3 7.9 0.4 2.5

Less Provisionsfor CammercialRisks 0.2 1.6 0.5 5.2 1.0 6.2 0.3 2.0

0.1 1.3 0.2 2.0 0.3 1.7 0.1 0.5

Less Income Tax - 0.4 0.1 0.7 0.1 0.7 - -

0.1 0.9 0.1 1.3 0.2 1.0 0.1 0.5

* Percentages have been drawn from unabridged figures.

April 23, 1971 ANNEX 6 Appendix 2 Page 1

TUNISIA

AGRICULTURALCREDIT PROJECT

GROUNDWATERSUPPLY IN THE NEFZAOUAAND DJERID REGIONS

A. Chott el Djerid Basin Area General Natural Conditionsand Potential

1. The chott el Djerid, a large natural depression that was formerly a great lake in the early quaternary era, lies 400 km south of Tunis on the northern edge of the Sahara desert. The "chott," from an Arab word meaning "ishore,"is primarily a large dry basin filled with important deposits of salt and gypsum that were washed out by leakage of underlying artesian aquifers and by concentrationsof runoff washing the salted slopes of the basin under heavy evaporationconditions. Temperaturein this region ranges from 0 to 50C and, though not far distant from the sea (120 km), the evaporationis increased by a low grade of air moisture (less than 25%).

2. Despite these hard climatic conditions,Chott el Djerid basin is well fitted with groundwaterresources, occurring mainly under artesian conditions at depths ranging from less than 80 m in the southern area -- the Nefzaoua -- to more than 500 m in the northern edge -- the Draa el Djerid (see Map 2).

3. Though many surveys have been carried out, the total availability of water is not yet fully determined. Full estimates are expected to be available in 1971 from the UNESCOERRES Project, which is actually under operation.

4. As a consequenceof high evaporation and the numerous layers of saline deposits in geological formations, the standard of water quality is generally low, ranging from 1,500 to 2,500 ppm of total salt. Consequent- ly, soils used for agriculturemust be carefully selected. Drainage in the lower areas is quite often a prerequisiteto any cropping activity. Palm trees and other selected crops, however, provide reasonableyields, especially of the well known "Deglat Nour" dates that are so popular in European markets.

5. Provided that modernizationand rationalizationis carried out to take more advantage of existing resources and to further develop potential resources, the natural conditionsdescribed above can be considered propitious for economic development. ANNEX 6 Appendix 2 Page 2

B. Aquifer Analysis

6. Since CH. Domergue and J. M. Daniel conducted their surveys 1/, it has been generally accepted that the Nefzaoua and the Djerid aquifers are closely connected and are two parts of the same groundwatersystem, the "ContinentalTerminal." The western part of this important system extends into Algeria (Oued Rhir), while the eastern part runs close to the Libyan border. The DJerid and Nefzaoua springs, the Chott el Rharsa and the Chott el Djerid, represent the main downstreamlimits of the system. However, since there is no hydrogeologicalinformation on the Chott el Djerid and Great Eastern Erg regions, the Djerid and the Nefzaoua aquifers must be considered as two different units. The Nefzaoua aquifer is in the southern part of Chott Djerid while Draa el Djerid aquifer lies in the northern part.

Nefzaoua Aquifer

7. The groundwater flow of the Nefzaoua aquifer is provided by rain infiltrations,either on the sand dunes of the Great Eastern Erg or in temporarymarshes at the bottom of the Dahar Plateau. The recharge basin extends over 10,000 km2 and the average annual flow is about 1.6 to 2.2 m3/sec, assuming an infiltrationrate of 5% to 7% and an average annual rainfall of 100 mm. Equal piezometric lines go from 70 m above sea level to 40 m, from SE to NW. The aquifer lies in fractured limestonesof upper Senonian, whose thickness ranges from 40 m to 120 m because of an old erosion surface. These limestonessettle down from SE to NW under Miocene and Pliocene sediments and near Kebili the head of this previous layer is at a depth of 40 m to 50 m. Under these general conditions, the Nefzaoua aquifer is, in southern and eastern areas, a free water table (replenishment area); it then becomes a confined aquifer, and, finally, an artesian one. However, the downstreamlimits are complicatedbecause the Senonian limestonesare connected with the Turonian limestones (Tebaga mountains), 0 which contain a free-watertable. At the upstream and downstreamboundaries, therefore,steady state conditionsprevail, which permit a limited over- exploitation.

8. Groundwateroutlets fall into one of two main categories:

(a) Natural

(i) Springs. The most important springs are located near Kebili. While the total flow is now roughly 0.35 m3/sec, it was more than 1.0 m3 /sec before borehole drilling commenced;

1/ XIX InternationalGeological Symposium,Algiers, 1952; "Les Bassins Artesiens de Sud Tunisien", Ch. Domerque Monographies,Regionales 2nd Serie -- Tunisia No. 3; Tunis, 1952. ANNEX 6 Appendix 2 Page 3

(ii) Evapotranspirationlosses. These occur along the boundaries of the aquifer and near the existing springs (wild vegetation);and

(iii) Evaporation losses in the Chott el Djerid area. These occur because of numerous springs and direct evaporation from the surface of the Chott el DJerid. Although evapotranspiration and evaporation losses cannot be quantified,one must assume that, before the boreholes existed, the flow of the Nefzaoua aquifer was about 2 m3/sec.

(b) Man-made. Roughly 110 boreholes have been drilled from 1907 to 1970. The following table gives the number and the artesian flow (1970 data) for each area:

Area No. of Boreholes Flow (m3/sec)

Mansourah 26 (5 out of order) 0.500 Kebili 30 (18 out of order) 0.200 Rahmat-Douz 28 (6 out of order) 0.700 Along the Chott Limit 22 (8 out of order) 0.450

Total: ...... 106 (37 out of order) 1.850

The growing water exploitationfrom boreholes is directly related to the decreasingspring flows. At present, the total water used amounts to about 2.2 m3/sec (1.850 from boreholes and 0.350 from springs).

9. It seems, therefore, that the aquifer is now over-utilized. How- ever, the average decrease of the water levels (2 or 3 m during the last 20 years) is not alarming. Such a drawdown is permissible,and, oonsidering the free-boundaryconditions and the size of the aquifer (para 7), an equivalent amount could be withdrawn without serious risk during the life of the Project.

10. The growing water utilization and the average water table drawdown have also caused a decrease of the size of the artesian region. In several locations, pumping is now necessary to obtain, from one borehole, the same quantity of water as was formerly available through artesian flow.

11. A UNESCO team 1/ is presently engaged in a major study of groundwaterresources. Within a few months, this team will establish a mathematicalmodel to determine more accurately the groundwaterbudget for the Nefzaoua region. While it would not be safe to accept a large increase of water exploitationbefore results of the study are available,

1/ UNESCO-ERSSProject "Etude des Resources en Eau du Sahara Septentrional" 7- (Survey of the Underground Water Resources of Northern Sahara). ANNEX 6 Appendix 2 Page 4 a modest increase, estimated at roughly 0.200 m3 /sec, is feasible and in agreement with preliminary conclusionsof the UNESCO survey.

Priority Areas

12. Based on Tunisian Governmentsoil surveys, two locationsare suitable for new date palm perimeters.

(a) Tarfaiet el Kraroub area. A 35-ha date-palmplantation in this area receives water from a borehole. However, a later pedological survey 1/ indicates that the most suitable soils are located 2 km from this perimeter. A new borehole could be dug close to this new location for an expected artesian flow of 80 liter/sec5sufficient to water 80 ha of date-palm plantation. It is likely, however, that after five years of utilization,it would be necessary to pump to obtain the same flow.

(b) Diemna area (Atilet Zabli). One kilometer from Djemna, a survey 1/ has shown the existence of about 135 ha of good soils and about 160 ha of medium quality soils. Since the aquifer in this area is presently not over-utilized,a 120- ha date-palm perimeter could be irrigated from two boreholes, each yielding about 60 liter/sec. There should be two pump units, since the upstream boundary of the artesian region is not far from the proposed location. The average total salt content is about 1,400 ppm in the Tarfaiet el Kraroub area and 1,600 ppm in the Djemna area.

Cost Estimate

13. In the Tarfaiet el Kraroub and in the Djeama areas, geological conditions are very similar: the head of the limestone layer is at an average depth of about 60 m, while the bottom is at a depth of 150 m to 160 m. These considerationslead to the followingproposed design for Project boreholes:

Total depth 160 m Drilling diameter : 17-1/2 in 13-3/8 in blind tubing : Ju m Open hole in limestone layers 100 m

Acidificationof the limestoneswill be required.

The estimated cost of such a borehole would be D 10,000 (Table 1), with a foreign exchange requirementof 35%.

1/ "Etudes de Mise en Valeur et de PromotionHumaine dans le Sud Tunisien", M. Bel Hadj Amor, Ministere de l'Agriculture;Tunis, May 1970. ANNEX 6 Appendix 2 Page 5

14. Pump diameter (deepwell turbines)would be 8 in or 10 in, with a 30 to 50 HP diesel engine. A complete pump unit, including transportation, pump installationand pump house, would cost D 5,500, 50% of which would be the foreign exchange cost. Annual average operating cost for a 50-HP pump unit reaches D 1,150 (Table 1), 55% of which would be foreign exchange cost.

15. Boreholeswould have to be replaced after 20 years and pumps after 10 years. However, pump replacementwould cost only D 4,000 because pipes and pump houses would have longer useful life. Investment and operating costs for 200 ha of date-palmsover 40 years are shown in Table 2.

Djerid Aquifer

16. The DJerid area, located north of Chott el Djerid, extends from the Algerian border to the western limit of the Tebaga mountains. To the north, from a hydrogeologicviewpoint, the Djerid region reaches Chott el Rharsa, which can be consideredas the downstreamboundary of the water table, although the Draa el Djerid anticlineseparate Chott et Djerid from Chott el Rharsa.

17. The Djerid aquifer is replenishedby rainfall on the sand dunes of Great Eastern Erg, located south and west of the area mentioned above. After percolation through these sands, the water reaches the Senonian limestones. In Nefzaoua, the boreholes went into the limestones,but in Djerid, the hydrogeologicoutline is a little different. In this area, the mio-pliocenelayers are not clayey but sandy sediments and it is into these that the boreholes are drilled. In such conditions, the Senonian limestones can be compared to a pipe that carrieswater from the upstream and dunes to the downstream mio-pliocene sands. The size of the replenishment area and the average porosity of the sand determineshow much water can be stored. It can reach tens of billions of m 3.

18. The Draa el DJerid anticlineis the major characteristic of the Djerid aquifer. It caused the mio-pliocene pervious layers to outcrop, and the aquifer, which is artesian along the Chott el Djerid limits, becomes a free-watertable in the greatest part of the Draa el Djerid hills. To the north, the opposite happens: the free-watertable becomes an artesian aquifer. Taking into account the differencebetween the porosity of sediments in the free-water table and their storage coefficients in both artesian areas, the Djerid aquifer is, in fact, cut into two parts. Because of this division, an over-utilization in the southern part could not seriously affect the northern part for 10 years at least.

19. The thicknessof the pervious sands ranges from 200 m to 300 m. However, the head of this layer is often very deep, running 200 m to 450 m along the Chott el Djerid coast and more than 600 m near Louah, north of Draa el Djerid. The equal piezometriccontours, from south to north, range from 65 m to 45 m above sea level. ANNEX 6 Appendix 2 Page 6

20. The main springs of the DJerid area are a result of the Draa el Djerid anticline. At present, the flow issuing from these springs can be estimated at 1.180 m3/s, while in 1952 it was 1.500 m3/s. The following table gives the location of the most importantspring areas and the total flow for each area in 1952 and in 1970.

Flow (m3/s) Location 1952 1970

Nefta 0.500 0.350 Tozeur 0.500 0.450 Degache 0.320 0.260 El Hamma 0.170 0.120

Total 1.490 1.180

It can be assumed that before boreholes drilling commenced (1905), the total flow was about 1.8 m3/s. Taking into account the other outlets (springs and evaporationlosses in Chott el Rharsa and in one part of Chott el Djerid, small springs not measured), the total yield of the DJerid aquifer is nearly 2.5 or 3 m3/s.

21. The undergroundwater is exploitedby at least 35 boreholes 1/. The following table gives the number of boreholes and the amount of utilized artesian water (1970 date) for each region:

Number of Location Boreholes Flow (m3/s)

South of Draa el Dierid Hazoua 1 0.050 From Nefta to Rherdgaya 5 0.130 From Tozeur to Seddada 18 0.300 Dghoumess 1 0.030

North of Draa el Djerid L'oasis-elHamma 8 0.170 Neflayet 1 0.030 Louah 1 0.030

Total 35 0.740

The existing boreholes can actually give more than the plans shown above because sluice gates are often installedon the dischargepipes and they are

1/ "Region du Djerid, ExploitationActuelle, DisponibilitesImmediates -- Creation des Nouveaux Perimetres",M. Ricolvi, Ministere de l'Agricul- ture -- Division des Ressources en Eau; Tunis, April 1970; and "Etudes de Mise en Valeur et de PromotionHumaine dans le Sud Tunisien",M. Bel iladjAmor, Ministere de l'Agriculture; Tunis, May 1970. ANNEX 6 Appendix 2 Page 7 not always wide open. In the Tozeur-Seddadaarea, for example, the artesian flow can reach 0.500 m3 /s; however, an exploitationat such a flow would decrease the Tozeur and Degache spring yield (opening the gates might provide a net increased flow of 0.130 m /s).

22. The analysis above indicates that water utilizationin the Djerid area from springs and boreholes amounts to 1.9 to 2.0 m3/s, which leads to the assumption that the Djerid aquifer is not now over-utilized. This assumption,however, must be modified to take into account the borehole density in some areas. For instance, in the Tozeur-Seddadaand in the Oasis-el Hamma areas, there is more than one borehole per km and it can be assumed that in the traditionaloases (Nefta-Tozeur-Degache-elHamma), the aquifer is overutilized. The way in which the natural oases were developed brought on this situation. New date-palm plantationswere always located close to the traditional ones and borehole density increased year by year in restricted areas.

Priority Areas

23. Because soil surveys have not been made in many parts of the regions, the location of new perimentersmust be presently based on hydrogeologic conditions. This would permit only a determinationof general areas as sites of new date-palmplantations. Later on, soil surveys should be made so that precise locations of the perimeters can be established.

24. Priority areas are as follows:

(a) Hazoua area. Between the Algerian border (Hazoua) and Nefta (35 km), only one borehole has been drilled. According to the flow of the aquifer in that region, it is possible to withdraw at least 0.200 m3 /s. The head of the pervious layers is located at a 450-m depth and the thicknessof the aquifer can run as much as 150 m. The artesian flow is expected to be nearly 50 to 60 1/s for each borehole. Therefore, to irrigate 200 ha of new date-palm plantations, four boreholes would be required.

(b) Between Nefta and Tozeur (Draa el Dierid area). The aquifer of the Nefta and Tozeur areas is over-used except along the Draa el Djerid hills, between Rherdgaya and Tozeur, where there are no boreholes. Surveys indicate the presence of suitable soils in all of this area. Two boreholes could, therefore,be drilled, one at each of the following suggested locations: (i) 4 km east of the existing Rherdgaya borehole, and (ii) 4 km east of the above location. Each borehole should be 500 m deep and give an average expected yield of 40 to 50 1/s. This would provide irrigation for 80 ha of date-palm plantations. ANNEX 6 Appendix 2 Page 8

(c) Dghoumess area. One borehole could be drilled in this area. It should be 600 m deep and give an expected flow of 40 to 50 l/s, sufficientfor watering 40 ha of date- palm plantations.

(d) Louah area. In this area, located north of the Draa el DJerid anticline,only one borehole taps the groundwater table. It is thereforepossible to drill at least two new boreholes in a first stage project. Each borehole would be 700 m deep (screens from 600 m to 700 m depth) and the expected artesian flow would be 45 1/s. This would irrigate 80 ha of date-palm plantations.

25. The average salt content is about 2,750 PPM in the Hazoua area, 2,200 PPM in the Nefta-Tozeurarea, 3,000 PPM in the Dghoumessarea and 3,500 PPM in the Louah area.

Cost Estimate

26. Table 3 gives the cost of an average borehole and the foreign exchange requirement. While hydrogeologicconditions change from one location to another, each borehole would have the followingcommon characteristics:

(a) 16-1/2 in drilling diameter;

(b) 9-5/8 in blind tubing; and

27. Artesian flow could locally be lower than expected or it could decrease during the useful life. It would thereforebe necessary to make provision for pumping after the first 10 years, in possibly three locations out of nine. Investment,with replacementand operatingcosts for 400 ha of date-palmplantations over 40 years are shown in Table 4.

C. TechnicalGuidelines

28. The size of a date-palmplantation should not be determined on the basis of the water yield of a borehole just after its completion. This flow will decrease at a rate, dependingon its exploitation. It can be calculated that, if the initialwater yield of a new borehole is 100%, it will go down as follows:

(a) 92.5Z after six months;

(b) 89% after one year;

(d) 83% after five years;

(e) 81% after 10 years; and

(f) 79% after 20 years.

(for a confined aquifer of hydrogeologic characteristics;transmissibility, l1-Um2/s and storage coefficient,4.10-4). These figures could be lower for an older borehole. The choice would, therefore,be made in each case between:

(a) An artesian exploitationbased on a safe yield value (for instance, 75% of the original flow);

(b) An artesian pumping exploitationbased on the original flow; and

(c) A pumping exploitationbased on a desirable flow (higher than the initial one), consistentwith the borehole characteristics.

29. Provided soil surveys indicate that the areas are suitable for development, the precise location of perimeterswould have to be determinedby BIRH 1/ hydrogeologists,taking into account the results of completed or pending pumping tests, geophysicalsurveys, trial boreholes, and well design considerations.

30. Proposed date-palm plantation increases (400 ha in Djerid and 200 ha in Nefzaoua) should be considered maximum until the results of the UNESCO survey are available. Under these circumstances,the Tunisian Government should give an assurance that any date-palm developmentenvisaged with Italian Government financingwill not compete for water from the Djerid and Nefzaoua aquifers.

31. If the results of the UNESCO survey show that it is possible to increase the date-palm plantations,a second phase project would be established. It can expected that the location of new perimeterswould be in the following areas:

(a) Nefzaoua: 40 ha near Jabria; and

(b) Djerid:

(i) Louah area: 100 ha; (ii) Hazoua area: 80 ha; (iii) Between Nefta and Tozeur: 40 ha; and (iv) North to "L'Oasis": 40 ha.

1/ "Bureau de l'Inventairedes Ressources Hydrauliques" of the Ministry of Agriculture. January 4, 1971

ANNEX 6 Appendix 2 Table 1

TUNISIA

AGRICULTURALCREDIT PROJECT

DATE-PALM PLANTATIONSSUB-PROJECT

NEFZAOUA AREA

A. Average Cost of One Borehole (in Tunisian Dinars) Total Depth - About 160 m 13-3/8" Tubing - About 60 m in D

Transportationand Preparation 3,750 Casing, Borehole, Tubing, and Cementation 5,800 Total...... 9,550 (rounded to 10,000)1l

B. Average Cost of a Pump Unit (in Tunisian Dinars) 8" Underwater Pump (verticalaxle) with 50 HP Diesel Engine in D

Transportation 500 Pump, Engine, Spares and Pump-House 5,000 Total.5,500 /2

C. Average Operating Cost of a Pump Unit (in Tunisian Dinars) Pumping Duration 3,000 hr/yr

(i) Fuel Consumption Fuel consumption 0.160 kg/hr Average price of fuel D 0.030/kg Annual Fuel ConsumptionCost D 720

(ii) Oil and Lubricant Consumption Annual Oil and Lubricant ConsumptionCost (roughly 20% of the annual fuel consumptioncost) D 150

(iii) Annual Spare Parts and Repairs Cost Roughly 5% of the Pump Unit Cost D 275 Total.. D 1,145 (rounded to D 1,150) /3

/1 Of which 35% would be foreign exchange. /2 Of which 50% would be foreign exchange. /3 Of which 55% would be foreign exchange. January 4, 1971 ANNEX 6 Appendix 2 Table 2

TUNISIA

AGRICULTURAL CREDIT PROJECT

DATE-PALM PLANTATIONS SUB-PROJECT NEFZAOUAAREA (200 Ha)

Investment and Operating Costs for Water Supply (in Tunisian Dinars) Investment Cost Year Boreholes No. Pumping Stations No. Operating Cost 1 30,000 3 -- _ 2 -- 11,000 2 2,300 3 -- -- 2,300 4 ---- 2,300 5 -- 5,500 1 3,450 3 -- -- 450 7 3 897_ __ 3,450s450 9 -- -_ 3,450 10 -- 3,450 11 ---- 3,450 12 -- 8,000 2 3,450 13 -- -- 3,450 14 ---- 3,450 15 __ 4,000 1 3,450 16 ---- 3,450 17 __ 3,450 18 3,450 19 - 3,450 20 -- -- 3,450 21 30,000 3 -- 3,450 22 -- 8,000 2 3,450 23 ---- 3,450 24 -- -- 3,450 3,450 25 -- 4,000 1 26 ---- 3,450 27 3,450 28 -- -- 3,450 29 -- -- 3,450 30 -- -- 3,450 31 ---- 3,450 32 __ 8,000 2 3,450 33 ---- 3,450 34 -- 3,450 35 -- 4,000 3,450

36 ---- 3,450 37 3,450 38 -_ -- 3,450 39 -- -- 3,450 40 -- 3,450

January 4, 1971 ANNEX6 Appendix 2 Table 3

TUNISIA

AGRICULTURALCREDIT PROJECT

DATE-PALMPLANTATIONS SUB-PROJECT

DJERID AREA

Average Cost of One Borehole (in Tunisian Dinars)

Total Depth : About 600 m

9-5/8" Tubing : About 500 m

6-5/8" Screens: About 100 m in D

(i) Transportationand Preparation 4,000 (ii) 18" Tubing (10 m) 250 (iii) Pilot Borehole (8-1/2") 600 m at D 9 per m 5,400 (iv) Widening to 16-1/2" 600 m at D 11 per m 6,600 (v) 9-5/8" Tubing and Cementation 500 m at D 14 per m 7,000 (vi) 6-5/8" Screens and Gravel-packing100 m at D 36 per m 3,600 (vii) Pumping Tests 250

Total ...... 27,100

(rounded to .... 27,000)/l

/1 Of which 30% would be foreign exchange.

January 4, 1971 ANNEX 6 Appendix2 Table 4

TUNISIA

AGRICULTURALCREDIT PROJECT

DATE-PALMPLANTATIONS SUB-PROJECT DJERID AREA

Investmentand OperatingCosts for Water Supply(in TunisianDinars)

InvestmentCost Year Boreholes No. PumpingStations No. OperatingCost

1 243,000 9 _ 2 - 3 __ 4 -- __ 5 -- __ 6 __ __ 7 -- __ 8 -- _. 9 __ _ 10 __ 16,500 3 3,450 11 _ -- 3,450 12 -- -- 3,450 13 -- -- 3,450 14 -- -- 3,450 15 -- -- 3,450 16 -- -- 3,450 17 -- -- 3,450 18 -- -- 3,450 19 __ -- 3,450 20 -- 12,000 3 3,450 21 243,000 9 -- 3,450 22 -- -- 3,450 23 -- -- 3,450 24 -- -- 3,450 25 -- -- 3,450 26 3,450 27 -- -- 3,450 28 -- -- 3,450 29 -- -- 3,450 30 -- 12,000 3 3,450 31 -- -- 3,450 32 -- -- 3,450 33 -- -- 3,450 34 -- -- 3,450 35 -- -- 3,450 36 -- -- 3,450 37 -- -- 3,450 38 -- -- 3,450 39 -- -- 3,450 40 - -- 3,450

January4, 1971 ANNEX6 Appendix 3

TUNISIA

AGRICULTURALCREDIT PROJECT

DATE-PALMDEVELOPMENT SUB-PROJECT

TERMSOF REFERENCEFOR AGRICULTURALEXPERT

Post Title : Agriculturist,specializing in date-palmsand vegetable cultivation.

Employer Societe Tunisiennede l'IndustriesLaitiere (STIL) or the Governmentof Tunisia.

Duty Station : Degache, southern Tunisia with frequent visits to plantationsin Djerid and Nefzaoua areas.

Duration : 3 years

Duties : To assist and guide STIL technicaland management staff in the developmentof date-palmplantations with inter- croppedvegetables, the Agriculturistwill have the following duties:

(a) to assist and supervise the overall development of the plantations;

(b) to guide and assist in improving the harvest and post-harvesthandling of fruits and vegetables;

(d) to train STIL's staff in all the above aspects.

Qualifications: An Agriculturistwith extensive experience in date-palm and vegetable growing, handling and shipping of dates and vegetables.

Language : French essential. Arabic is an asset.

January 4, 1971

Annex 7

TUNISIA AGRICULTURALCREDIT PROJECT Estimated Schedule of Disbursement

Undisbursed QuarterEnding Lending Program Support Services Total Balance (D'OOO) (DOOOo) US$'000) (us$'ooo)

June 30, 1971 - - - - 8,000

Sept. 30, 1971 - - 8,000

Dec. 31, 1971 50 20 70 133 72867

Mar. 31, 1972 260 7 267 508 7,359

June 30, 1972 120 8 128 2k3 7,116

Sept. 30, 1972 200 8 208 396 6,720

Dec. 31, 1972 75 8 83 158 6,562

Mar. 31, 1973 495 9 504 958 5,604

June 30, 1973 190 9 199 379 5,225

Sept. 30, 1973 460 8 468 890 4,335

Dec. 31, 1973 210 8 218 415 3,920

Mar. 31, 1974 610 8 618 1,175 2,745

June 30, 1974 185 7 192 365 2,380

Sept. 30, 1974 465 10 475 896 1,484

Dec. 31, 1974 80 _ 80 152 1,332

March 31, 1975 350 - 350 666 666

June 30, 1975 160 160 304 362

Sept. 30, 1975• 190 - 190 362 -

Total: 4,110 4 210 8.O00

M Estimated date of signing. Estimateddate of effectiveness. a$ Estimatedproject completion. Closing date.

January 4, 1971

ANNEX 8

TUNISIA

AGRICULTURALCREDIT PROJECT

ECONOMIC RATE OF RETURN

1. The two rates of return from the Project to the economy have been calculatedas shown in the attached table. Investment,operating cost and farm gate prices have been calculatedat current levels. Based on these assumptions,the economic rate of return over a Project life of 40 years would be 22% 1/.

2. The sensitivityof the Project has been tested. Assuming yields would be 10% less than estimated,or that there would be a 10% price decline of farm prices in line with 1975 projectedworld market prices while costs would remain at the same level, the rate of return to the economy would drop to 18%, still a satisfactoryreturn.

3. Additionalbenefits not taken into account are:

(a) the demonstrationeffect the Project would have on other farmers;

(b) the strengtheningof BNT's technical departmentand the provision of additionalloanable funds for agriculture;and

Though not readily quantifiable,these factorswould further enhance the Project's already adequate rate of return.

I/ In addition, separate *rateshave been calculatedfor date-palmplantations on one hand for which the economic life is 40 years (15 years to full bearing and 25 years of full yield) and for the remaining sub- projects (grain farm mechanization and dairy) for which the economic life has been assumed at 20 years, on the other. The rates are: 15% for date-palm plantations, without intercropping; 18% for date-palm plantations, intercropped with vegetables; 24% for the other sub-projects (grain fam mechani2:ation and dairy development). January 4, 1971 ANNEX 8 Page 2-

TUNISIA

AGRICULTURALCREDIT PROJECT

ECONOMICRkTE OF RETURN

Incremental Net Value Incremental Net Value of Production at Year Investment of Production 10% Reduced Yields - - - - - in D '000 ------

1 2,620 19 2 2 2,546 223 148 3 2,251 611 465 4 284 1,191 958 5 450 2,057 1,747 6 412 2,595 2,227 7 1,016 2,9947 2,545 8 1,509 3,047 2,634 9 1,612 3,208 2,782 10 1,079 3,368 2,928 11 1,158 3,578 3,123 12 1,127 3,683 3,217 13 1,552 3,764 3,289 14 633 3,837 3,355 15 787 3,914 3,424 16 511 3,967 3,472 17 874 3,995 3,497 18 880 3,995 3,497 19 786 3,995 3,497 20 338 3,995 3,497 21 _ 3,1331/ 2,781 22 - 1,849 T/ 1,624 23 _ 866T/ 774 24 - 747 655 25 20 747 655 26 20 747 655 27 20 747 655 28 - 747 655 29 - 747 655 30 73 747 655 31 73 747 655 32 73 747 655 33 7- 747 655 34 - 747 655 35 747 655 36 - 747 655 37 20 747 655 38 20 747 655 39 20 747 655 40 - 747 655

Rate of Rsturn ...... O...... 22% 15%

/,f Includes residual herd value of D 228,000, D 314,000 and D U19,000 in years 21, 22 and 23 respectively. September 29, 1970 M AP I

M e d ite r r a n e 'a n 5

20~~~~~ ., : °a 1)JC 0_ )0s - $ 9; (,/( ^? 0 ( \; .~~~~

f < < ~~~~~~~~~~~~~Gulf of HGmmbe5

% < DOHOUMESSc400. _;S

-a4¢h e .t- D C, .+ -- 2 '; (i ' 34°-~~~~~~~~~~~~~~~~~~~Sir

_~~~~~~~~~~a _ _8 J j11

i,~~~~~~~~~~~- ._EI Diem +

{ . \ * EsNTHecd ffice - "I) , .,1

0 0 0 D 6 0 , ReDe);L1' V

SETEMBER1970 I RD -309

MAP 2

i-~ , 7 RH.R.A-,

" " ' ,; . ... :~~ ~ ~ ~~8 HA flJ / 'eg' 6 ~J

- - ,gXf E L =HAR a-~ Dea;~-r

0L j FAD>* 0 | =g~oun

C HO T T E L D J E R /D hmat 7,&e

0 Roads

.ouz V,?. A ' _ . n /\\ wf0Date-Palm Plantations

' \i9 Cet/wt Salt evaporation areas % ~~~~~~~~~~~~~~~~~~~~8 Ael Kraroub viohbe MountainsMotan . ) ~~~~~~~~~~~~~~~~~~~<< k. F8.5-80HA| Plantation area based on M/ . A N4 N A water availability.

0S . ]D ... : 20 30KM ( *_ U Jo 'EACOVH GO TUNISI A AGRICULTURALCREDIT PROJECT t 8 G DATE-PALMPLANTATIONS 0kTUNISIl _ GROUND WATER AVAiLABILITY IN THE :U-NI;, IAt J ...... -. 8S NEFZAOUA AND DJERID REGIONS ALGEIA~ LIBYA

IBRD 3114R OCTOBER 1970