Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized FILE COPY

Report No. 2448a-YU Public Disclosure Authorized

STAFF APVPAISAL REPORT

YUGOSLAVIA

CROATIA SAVA DRAINAGE PROJECT

Public Disclosure Authorized August 8, 1979 Public Disclosure Authorized Regional Projects Department Europe, Middle East and North Africa AgricultureIII

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

US$ 1 = Dinars (Din) 18.0 Din 1 = US$ 0.0556 Din 1,000,000 = US$ 55,555.56

WEIGHTS AND MEASURES

1 kilogram (kg) = 2.20 pounds 1 quintal = 100 kilograms 1 metric ton (m ton) 1,000 kilograms 1 metric ton (m ton) 0.98 long ton 1 millimeter (mm) = 0.04 inch 1 centimeter (cm) = 0.39 inch 1 meter (m) = 1.09 yards 1 kilometer (km) = 0.62 mile 1 hectare (ha) = 2.47 acres 1 square meter (m2) = 10.76 square feet 1 square kilometer (km2) 0.384 square mile 1 liter (1) = 0.264 gallon 1 cubic meter (m3) = 1.31 cubic yards

ABBREVIATIONS

BOAL = Basic Organizationof Associated Labor (in Serbo Croatian,OOUR) OVP (SRA) = Sava River Authority (Opce Vodoprivredno Poduzece za Vodno Podrucje Sliva Save) PU = Project Unit SDK = Social Accounting Service SIZ = Self Managed Water Economy Interest Community of the Catchment Areas SR of Croatia = SocialistRepublic of Croatia SVIZ-Sava = Self Managed Water Economy Interest Community of the Sava River ZB = Zagrebacka Banka

FISCAL YEAR January 1 - December 31

* The Yugoslav Dinar has been floating since July 13, 1973. The currency equivalentsgiven above are those effective in October, 1978. FOR OFFICtALUSE ONLY

APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Table of Contents

Page No.

I. AGRICULTURAL SECTOR ...... 1

A. Project Background ...... 1 B. Agriculture Sector ...... 2 C. Drainage Subsector ...... 3

II. PROJECT AREA ...... 3

A. Description of the Project Area ...... 3 B. Agricultural Situation in the Project Area ...... 7 C. Principal Institutions Participating in the Project ...... 9

III. THE PROJECT ...... 11

A. Project Objectives ...... 11 B. Project Description ...... 11 C. Cost Estimates ...... 14 D. Financing ...... 15 E. Procurement ...... 16 F. Disbursements ...... 17 G. Environmental Impact ...... 18 H. Role of Women ...... 18

IV. ORGANIZATION AND MANAGEMENT ...... 19

A. Borrower: ZB ...... 19 B. Implementing Agency: OP ...... 21 C. Project Monitoring and Evaluation ...... 25

V. BENEFITS AND JUSTIFICATION ...... 26

A. Land Use ...... 26 B. Production ...... 28 C. Markets, Market Prospects and Prices ...... 30 D. Financial Benefits ...... 32 E. Cost Recovery ...... 33 F. Economic Justification ...... 37 G. Project Risks and Uncertainty ...... 40

VI. SUMMARYOF AGREEMENTTO BE REACHED AND RECOMMENDATIONS .. 41

This document has a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (Continued)

ANNEXES

Annex 1 - Supporting Tables and Charts

1 Cropping - Before project *...s..e...... s ...... 43 2 Cropping - Full Project Development ...... 44 3 Livestock Production ...... 45 4 Zagrebacka Banka -Balance Sheet ...... 46 5 Zagrebacka Banka - Statement of Income ...... 47 6 Project-Related ZB Cash Flows during Life of Proposed IBRD Loan ...... 48 7 Number of Employees according to Qualification in the Sava River Authority (OVP) as of June 30, 1978 ..... 49 8 Estimated Schedule of Expenditures ...... 50 9 Estimated Schedule of Disbursements *..Of .... 51 10 Operationand MaintenanceEquipment List ...... 52 11 Financial and Economic Prices of Project Benefits ...... 53 12 Farm Model (Private Sector): 5 ha ...... 56 13 Social Sector Cash Flows - Generated from Crop ProductionOperations ... 57 14 Detailed Phasing of Drainage ...... 58 15 Drained Area by Catchmentat Full Project Development 59 16 Detailed Phasing of Cropped Area (ha) ...... 60 17 Detailed Phasing of Crop Production(tons) ...... 61 18 Detailed LivestockPhasing ...... 62 19 Incremental Costs...... 63 20 IncrementalEconomic Benefits and Costs ...... 64

Chart 1 - Participating Agencies in the Project Area ...... 65

Annex 2 - Related Documents and Data Available in the Project File . 66

MAP

IBRD No. 14150 General Layout APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

I. AGRICULTURAL SECTOR

A. Project Background

1.01 Numerous generations have searched for hydrotechnical solutions to prevent Sava River flooding and enable drainage of swampy areas in its basin. The first proposals to solve the drainage problem date back to 1770. Basic concepts and approaches were developed in the period from 1770 to 1868. In 1868 the Lonjsko Polje Drainage Act was passed by the Croatian Parliament, after which a consortium was established to prepare and execute works. Due in large part to a lack of financial means, these proposals were not implemented. After the Second World War, the Five-Year Plan Act of 1947 set out the task of preparing a feasibility study of drainage in the project area. In 1957 the question of land reclamation in the middle Sava River valley was again raised by the district authorities. Flooding of the town of Zagreb in 1964, and floods in Sisak and Karlovac in 1965 and 1966 urged the pressing need for the protection of these towns from floods, and the Direckcija za Savu-Zagreb (Sava River Authority) undertook a study of the problem. The Federal Govern- ment of Yugoslavia asked the United Nations for technical assistance in the elaboration of the complex study "Regulation and Management of the Sava River". The UN Special Fund selected a group of experts for the study from Polytechna, Prague, and Carlo Lotti, Rome. The study was completed in 1972 with the assistance of Direkcija za Savu and other Yugoslav experts. The result of the study was the definition of a Water Management Plan proposing a large number of actions to be implemented in stages until Year 2000. The principal components of the flood control part of the Water Management Plan are flood relief reservoirs and channels. Detailed analyses indicate that the Middle Sava Basin can be protected by two storage reservoirs and key relief channels, Odra (52 km), Lonja-Strug (105 km) and Kupa-Kupa (22 km). At present construction of the storage reservoirs and flood relief channels has reached a stage at which it is possible to proceed with drainage of the project area.

1.02 The proposed project has been prepared by the Sava River Authority (OVP) with the assistance of FAO/IBRD Cooperative Program staff and Bank staff. This report is based on the findings of an appraisal mission to Croatia in October/November 1978 comprising Messrs. H. Feuerstein, A. Akant (Bank), and M. Fireman, P. Harrison, C. Maierhofer and M. Walshe (Consul- tants). - 2 -

B. Agriculture Sector

Sector Development

1.03 Of the total territory of Yugoslavia, 44% is mountainous and 56% or 14.6 million hectares is agriculturally productive, with 70% of arable land and the remainder permanent pastures. Droughts, and in some areas flooding, are common, causing frequent instability in production. About 35% of the population still lives in the rural areas and, of these, about one-third is in the poverty target group. More than 40% of the labor force is still engaged in agriculture. A key feature of Yugoslav agriculture is the co-existence and complementarity of the individual and social sectors. The social sector, with 15% of the agricultural land and about 6% of agricultural manpower, produces one-third of the total agricultural output. The individual sector, which owns 85% of the cultivated land and employs over 90% of agricultural manpower, is handicapped by small, fragmented, lesser quality holdings, and has been neglected relative to the social sector in terms of access to basic infra- structure, financing and technology. In 1976 the agricultural sector as a whole accounted for 16% of the national product and for about 12% of total commodity exports. Thus, notwithstanding a policy of rapid industrialization, the role of agriculture, while declining, remains one of basic importance in the overall development of the Yugoslav economy.

1.04 In the current (1976-1980) Five-Year Plan, the more rapid develop- ment of agriculture is a stated precondition to achieving the planned growth rate, self-sufficiency in agricultural products and to fulfilling the three major long-term country objectives, i.e. to ensure improved living standards, to provide adequate gainful domestic employment, and to reduce the large inter-regional income disparities. Regional income disparity is one of the major development issues facing the country. Income disparity between the agricultural and non-agricultural sectors, and within agriculture, between the social and individual sectors, is a key problem which largely determines the disparity between the regions.

Bank Role and Sector Lending Strategy

1.05 The World Bank strategy in the agriculture sector in Yugoslavia is to support development of less developed regions and promote agricultural development in both the individual and social sectors through providing basic infrastructure and credit. Development of the agriculture sector is consid- ered essential to address the problems of rural poverty which underlie regional disparity; provide gainful employment to rural population; and, reduce imports and increase exports. In general, the Bank supports increase in primary production through the individual sector while the vital marketing and proces- sing requirements are met through the social sector. The Bank proposes to expand its role in the agriculture sector by seeking ways to reach individual farmers who do not have cooperative arrangements with the social sector. The Government is strongly committed to and supports the Bank's envisaged role in the agriculture sector. - 3 -

1.06 Bank lending policy is consistent with and closely parallels the country's development strategies. The Bank assisted in formulating the 1973 "Green Plan", a comprehensive framework for agricultural development, which emphasized the need to support the individual farm sector in order to accelerate agricultural growth. The 1976 "Green Plan" pursues this policy even further. 67% of Bank resources through FY82 is to be channelled to the four lesser developed regions (Kosovo, Bosnia-Herzegovina, Macedonia and Montenegro). In the more developed regions Bank support is essentially restricted to infrastructure schemes which would serve the whole country.

1.07 The Bank has made 55 loans to Yugoslavia totalling about US$2,266 million, of which seven loans totalling US$343 million have been made for agriculture and agro-industries. In addition, two Bank multipurpose projects included substantial irrigation components. The Republic of Croatia partici- pated in the first and second country-wide agricultural credit projects and this would be the first agricultural loan limited to this republic.

C. Drainage Subsector

1.08 The need for drainage, including both surface and subsurface drains, is most pronounced in the Sava River Basin where subsoils with low perme- ability prevent the realization of full crop production potentials. The total area requiring drainage in the Sava River Basin comprises about 1.2 million ha. In some areas the land is not utilized for cropping because of an absence of drainage. In many regions drainage and land consolidation would be a precondition for efficient mechanization of both the private and social sectors. The need for extensive flood control and surface drainage along with ancillary pumping facilities and protective dikes is clearly evident. Field observations also suggest the need for subsurface drainage exists, and that subsurface drainage can be successfully achieved if properly implemented. However, there is still an urgent requirement to investigate soil profiles and permeabilities, groundwater conditions, and drain performance, with the objective of developing design criteria for effective subsurface drainage at least cost.

II. PROJECT AREA

A. Description of the Project Area

Location and Topography

2.01 The project area is located in the middle Sava River Valley between 13°46' and 14 15' east longitude and 45°31' and 45049' north latitude. It comprises the triangle between the towns of Zagreb, Cazma and Sisak. The project area consists mostly of a relatively flat plain with a small area in the northeast of low hills interspersed with small valleys. The elevation ranges from a maximum of 189m in the northeast hilly area to about 106m in the trough of the valley at the western edge of the project to a low of 95m in the southeast. The average downvalley slope is 0.03% and crossvalley slopes range from almost zero to as much as 3% in the hilly area. The plain consists of three topographic features: the elevated Sava River bank zone 0.5 to 2 km wide along the southwestern border of the project area, a slightly elevated terrace and hillslope area along the north and northeastern borders, and the low central valley trough.

Climate

2.02 The climate is described as "moderate continental", and is charac- terized by warm summers and fairly cold winters, with a moderate annual rainfall usually well distributed throughout the year. The rainstorms are quite gentle, the maximum precipitation being less than 100 mm in a three-day period. The average annual rainfall during the last 55 years was about 920 mm and the range 625 to 1387 mm. Based on past records, the 50% probable annual rainfall is between 780 and 1060 mm, and the annual rainfall has been less than 708 or more than 1150 mm about once in each 10 year period. The monthly rainfall distribution is on average fairly uniform with a mean low of 54 mm in March and a high of 97 mm in June. About 54% of the annual rainfall normally falls during the warm growing season, April 1 to September 30. Of the remainder, about 20% falls as snow in December, January and February, and some hail falls about 5 times in a 10 year period, almost exclusively in summer. Class A Pan evaporation records and Penman formula calculations indicate that the daily crop water requirement, April 1 through September 30, ranges from 2 to 4 mm and averages about 3 mm per day, for a total of about 550 mm for the six-month long, warm-season cropping period. In this regard, it should be noted that total rainfall during April to September was less than 400 mm, a total of 15 times in the last 55 years; thus drought is fairly common and must be reckoned with, especially in regard to the coarser-textured well-drained soils of the project. The mean annual temperature is 10.1 C, and monthly averages range from a low of -1.60 C in January to a high of 20.30 C in July. The average diurnal change in temperature ranges from only 3.50 C in September to 14.8° C in February. The mean annual humidity is 79% and monthly averages range from 74 to 85%. Winds are gentle and changeable; sunshine hours amount to about 60% of the potential, with a higher percentage of sunshine in the warm season than in the cold.

Soils

2.03 The 25 distinct soil "units" that have been identified in the project area have been aggregated into 4 broad soil groups with somewhat similar char- acteristics and crop production problems. These are the elevated "alluvial" soils of the Sava River bank zone, the adjacent, slightly lower "meadow" soils, the somewhat elevated "podzolic - pseudogley" soils of the low terraces and hill slopes to the north, and the frequently flooded, perennially water- logged "mineral - hydromorphic gleyed and gley" soils of the Sava Valley lowlands. All of these have a moderate to highly permeable surface layer about 30 cm deep and are relatively high in organic matter content and in - 5 - fertility. Except in the case of the alluvial soils, the more or less perme- able surface layer is underlain by a much finer textured, slowly to extremely slowly permeable second layer which extends to a depth of 70 to 130 cm; this is underlain by a substratum of somewhat coarser textured, much more per- meable material. The alluvial soils are permeable, well drained, calcareous sandy loams and loams of moderate organic matter content and fertility and are easy to cultivate; they are considered to be the best soils in the project area. The meadow soils are somewhat higher in organic matter content and in fertility, and are slightly acid in the surface layer; they are of moder- ately fine texture, are subject to periodic flooding and have rather low subsoil permeabilities; hence they are moderately poorly to poorly drained and as a consequence are partially gleyed (reduced and colored blue-gray-green interspersed with iron-stain mottles); they are not difficult to cultivate where drainage facilities are provided, and the rating of the several units in this soil group ranges from good to poor, depending upon drainability. The podzolic - pseudogley soils have a moderately fine-textured, permeable surface over a finer textured layer with very low to extremely low permeability; the third layer, the substratum, is coarser and higher in permeability. These soils are moderately acid to very acid in the top and second layers and have somewhat higher organic matter contents and fertility levels than the alluvial soil group; they are seldom, if ever, waterlogged in the third, i.e. the subsoil, layer, but the lower portion of the surface layer and the top few centimeters of the almost impermeable second layer may be slightly to moderately gleyed owing to the almost constant downslope movement of water through the surface and over the second layer; the soil units in this group are classed good to fair. The mineral hydromorphic valley trough soils are very fine-textured, very slightly permeable, almost perennially waterlogged and regularly flooded. As a consequence, they are gleyed (reduced and colored blue-gray-green inter- spersed with iron-stain mottles) below the surface 30 to 40 cm layer, are moderately acid to a depth of 70 to 80 cm, are high in organic matter content and relatively high in fertility, are difficult to cultivate, etc., owing to the high moisture content resulting from being waterlogged; they are classed as fair to unsuitable for cropping in accordance with the feasibility of providing adequate drainage facilities.

Population and Employment

2.04 Population in the project area was about 42,500 in 1971, the year of the last census, and remained almost constant over the last two decades. However, the number of inhabitants decreased in 80% of the 104 settlements and increased in the remaining 20% which are in the vicinity of the urban centers of Zagreb, Ivanic Grad, Dugo Selo and Sesvete. About 45% of the inhabitants in the project area are classified as farmers. The average size of a house- hold is 3.3 inhabitants. About 42% of households are earning their income from non-farm employment, 36% earn their income entirely from farming, and 22% have mixed sources of income. Country-wide unemployment and underemploy- ment also affect the project area but rural unemployment near major urban centers appears to have decreased in recent years. Because of the small average farm size in the individual farm sector a high degree of underemploy- ment can be assumed. -6-

Land Tenure and Use

2.05 The land use in the project area is changing as farmers age and part of the new generation seeks non-farm employment. This trend has been sup- ported mainly by employment opportunities created due to industrial growth in the Zagreb area. Much of the land given up is expected to be acquired by the social sector with due compensation, and it is projected that some 3,100 ha of agricultural land would move from the individual to the social sector between 1977 and 1985. The number of farm families in the individual sector has de- creased from about 7,500 in 1971 to 6,200 in 1978 and is expected to decrease to 5,200 in 1985. In 1977, 11,400 ha belonged to the social sector, 26,200 ha to individual farmers, and 6,400 ha to non-agricultural households. The 6,400 ha of land owned by non-agricultural households is partly rented to farm fami- lies, partly donated to relatives without having been officially registered, and is partly hobby land, gardens, orchards, etc. cultivated by suburban households. According to the latest census of 1971 the farm size distribution of the 26,200 ha belonging to the individual farm sector is as follows:

Land Tenure Pattern in Project Area in 1971

Farms Area Average Average Number Farm Size Per- Per- Farm of Plots per ha Number cent ha cent Size ha Farmer

Less than 1 86 1.2 43 0.2 0.5 2 1 to 2 1,786 23.9 2,679 10.2 1.5 4 2 to 3 1,894 25.4 4,735 18.0 2.5 7 3 to 4 1,103 14.8 3,860 14.7 3.5 10 4 to 5 1,104 14.8 4,968 19.0 4.5 13 5 to 6 721 9.7 3,966 15.1 5.5 16 6 to 8 509 6.8 3,563 13.6 7.0 20 8 to 10 230 3.0 2,070 7.9 9.0 26 More than 10 27 .4 324 1.3 12.0 34

TOTAL 7,460 100.0 26,208 100.0 3.5 10

The average farm size in the individual sector in 1971 was 3.5 ha with an average number of 10 plots per farmer. In 1978 the average farm size was about 4 ha. The small average farm size and large numbers of scattered plots results in low labor productivity and low farm income.

Existing Infrastructure

2.06 Transport facilities, power supply, schools, health services, etc. are generally well established in the project area. Transport is by road, railway and partly by river. The Zagreb-Belgrade highway, partly financed by the Bank, is going through the project area, and other major roads connect important settlements such as Sesvete, Dugo Selo, Ivanic Grad and Sisak. All settlements are connected to the electrical power network. For the entire project area, as in other parts of Yugoslavia, an 8-year primary school education is compulsory. The network of schools covers all settlements and - 7 - there are 7 secondary schools in Ivanic Grad, Sesvete, and other surrounding towns such as Zagreb and Sisak. Medical service in Yugoslavia is gener- ally well advanced. Workers, no matter whether they are employed in the individual or social sector, pay medical insurance tax and thereby have the right to use the medical service. Individual farmers are also covered by medical insurance, have the right to use medical services, but in contrast to workers, have to pay for their medical prescriptions.

B. Agricultural Situation in the Project Area

Agricultural Production

2.07 Agricultural production is based on rainfed agriculture and the dominant crops in the project area are maize, wheat and some rape seed on the 1,600 ha cropped by social sector enterprises. About 12,800 ha of arable land is cropped by individual farmers, mainly for cereal production (maize, wheat and some barley and oats) and fodder crops and vegetables. Because of the drainage problems in the project area, most of the remaining land is used for the production of hay and for extensive grazing. More intensive forms of livestock production (dairy cattle, baby beef, pigs) tend to be concentrated on the elevated alluvial soils of the Sava River bank zone. Details on the present cropping pattern and crop and livestock production are given in Annex 1, Tables 1, 2, and 3.

2.08 Three year average yields for representative crops in the social sector and crops and livestock in the individual farm sector are given in paragraph 5.04. The lower yields in the individual sector farms are the reflection of a variety of factors. Until recently there had been few attempts in the region to modernize production of small farms, and almost no financial resources had been directed towards the individual sector. Tradi- tional farming practices were generally used and fertilizer and chemical utilization was at a low level. The large majority of individual farmers had no access to credit and technical advice. Presently, only a small number of farmers are cooperating with the social sector, although the number is increasing. There is also a lack of knowledge on animal nutrition and other modern livestock husbandry practices on the part of farmers in the individual sector.

Agro-Industries and Markets

2.09 One of the important stimuli for the development of agriculture in the project area, particularly on individual farms, has come from the markets offered by the existing agro-industries in the vicinity of the project area. The existing and planned capacities of the agro-industries in the vicinity of the project area are sufficient to absorb the incremental production from the project. The oil mill in Zagreb for example has lost part of its raw material supply from other republics and therefore promotes the local expansion of rape seed production. The most important organizations dealing with production, processing and marketing of agricultural products are Agroposavina-Ivanic-Grad and Posavina-Bozjakovina. - 8 -

2.10 In the project area, as elsewhere in Yugoslavia, organized markets with authorized purchases by social sector organizations at or above minimum prices exist side by side with informal markets, where individual farmers sell directly to consumers. Social sector enterprises and cooperatives also provide individual farmers with farm inputs. To increase their production and income the individual farms depend on organized markets, except for the many individual farmers who produce mainly for subsistence purposes and market only a small share of their limited output for supplementary cash income on the informal markets.

2.11 The organized trading in the project area is done by the Zagreb Dairy for milk, by the various slaughterhouses and sausage factories for meat, by the various feed mills and bakeries for grains and by the oil mill for rape seed.

Extension Service

2.12 Extension activities in the project area include: the Zagreb dairy and the Zagreb oil mill, an extension station at Sesvete and the extension department of Kombinat Vrbovec. In addition there is a center for extension based in Zagreb with a permanent staff of about 50 and about 20 part-time associates which undertakes work throughout Croatia.

2.13 At present there is no republic-wide, state-funded extension service operating in SR Croatia. Prior to 1968, 90 extension service stations had existed, but following the formation of the large kombinats most of the exten- sion stations were merged with the technical departments of the kombinats. In 1978 there were 45 extension stations in Croatia; 28 were parts of kombinats, and 17 were independent stations. Extension service in the project area is generally weak and does not focus on the major problems of the area. It is directed to a limited number of producers and is oriented mainly towards supply of products to kombinats or processing facilities. Generally extension agents are over burdened with regulatory matters leaving them little time for farm visits and training. No satisfactory technical advice is available to farmers on crop production. Advice on livestock production, other than for dairy cows, is generally only available to the relatively few farmers who contract livestock for fattening. Even in the case of dairy farmers the impact of extension is limited. The government of SR Croatia is aware of these deficiencies in agricultural extension and is in the process of enact- ing a law which will require each municipality to establish its own extension service with a minimum of 5 agriculturalists. Full details of this law are not yet available but it is understood that a final organization of individual extension services and the method of paying for them is still under discussion.

Other Support Services

2.14 Several agricultural support services have been in operation in the project area. The Croatian Veterinary Service, an established service, is staffed with qualified veterinarians, well organized, has good laboratories, stores, offices and other facilities at regional and municipal levels. The - 9 -

quality of service provided to the farmer, including artificial insemination for cows, is satisfactory down to the municipal level. The veterinary service is self-financed from fees and charges paid for its services by private and public sector producers. Credit for machinery, mainly provided by Zagrebacka Banka (ZB) and suppliers credit is generally available in the project area. ZB has concentrated largely on the social sector enterprises and credit sources for individual farmers are limited. In the past, individual farmer credit was made available only through cooperative arrangements. An expansion of the credit program to the individual farmer would be necessary to realize increased production. The Rugvica seed breeding and production unit of the Agricultural Institute, Zagreb, operates in the project area. It has about 1,200 ha and concentrates mainly on maize hybrids and some other crops useful for Yugoslavia as a whole and specifically for the project area. The pilot farm Jezevo is organized as a separate unit of the Agricultural University, Zagreb. It comprises about 430 ha of improved land where various technical solutions of subsurface drainage have been tested. However, the pilot farm is not representative for all soil types in the project area and the tests performed in the past are not sufficient to make specific recommendations on spacing, depth and type of subsurface drains necessary in the project area.

C. Principal Institutions Participating in the Project

Zagrebacka Banka (ZB)

2.15 ZB was formed January 1, 1978 as the legal successor of the former Kreditna Banka, Zagreb, and the former Jugobanka-Main Branch, Zagreb. In the six months since its formation ZB's total assets (see Annex 1, Table 4) are estimated to have grown from 57,838 million dinars (US$3,213 million) to 66,431 million dinars (US$3,691 million), or by about 15%. This growth is largely due to a faster integration of new BOALs into ZB prompted by the increase in opportunities for cooperation offered by the new bank. The net worth of ZB (which is distributed over various funds) has grown from 4,138 million dinars (US$230 million) on January 1, 1978, to 4,476 million dinars (US$249 million) on June 30, 1978, or by about 8%. The income statements of ZB (and predecessor banks) indicate that net earnings grew from 701 million dinars (US$38.9 million) in 1977 to an estimated 804 million dinars (US$44.7 million) in 1978, or by about 15% (see Annex 1, Table 5). Only 0.2% of total loans outstanding were written off as bad debts in 1977 and 0.02% in 1976. The capital, liquidity, and profitability positions of ZB are judged to be financially sound and satisfactory. ZB and its predecessors are participating in the First and Second Agricultural Credit Projects (Loans 1129-YU and 1477-YU) and their general performance has been satisfactory. It is expected that ZB will be fully capable of meeting its share of 932 million dinars (US$52 million) of project financing over the project construction period. A project-related cash flow for ZB over the life of the proposed IBRD loan is given in Annex 1, Table 6. - 10 -

Sava River Authority (OVP)

2.16 OVP, an autonomous agency was founded in 1961 and is headquartered at Zagreb. It is a financially autonomous enterprise managed by a director and comprising ten basic organizations of associated labor (BOALs) of which 4 BOALs, Zagreb, Dugo Selo, Kutina and Sisak function in the project area. OVP's small central office has a director and the 10 BOALs have a total of 190 professional staff and 2,400 supporting staff (see Annex 1, Table 7). OVP's main responsibility is to perform operation and maintenance work, flood control operations and construction of flood control and drainage infrastruc- ture. OVP's overall technical and operational capability and performance is more than satisfactory.

2.17 A consolidated income statement of OVP is prepared each year from the computed totals of the accounts of the member BOALs. The BOALs have the status of legal entities, thus all assets, equity and liabilities of OVP remain under the authority of the individual BOALs and a yearly consolidated balance sheet is not prepared, although each BOAL prepares its own balance sheet. However, BOALs are jointly liable for the debts of the central office of OVP. OVP's total revenues (483 million dinars or US$26.8 million in 1977), are mainly derived from civil works contracts (269 million dinars or US$14.9 million in 1977) and funds obtained through SIZs (141 million dinars or US$7.8 million in 1977). The net income of OVP, which is distributed to reserve funds for working capital and wages, was 26.5 million dinars or US$1.5 million in 1977, up by 64% from the previous year. This large increase in profits is mainly attributable to a near quadrupling of SIZ revenues from 1977 to 1978. Maximizing the average surplus per worker instead of net profits is the usual financial objective of firms in Yugoslavia. The average surplus per worker was 88,560 dinars or US$4,920 in 1977 and is estimated to have been 77,500 dinars or US$4,306 in 1976. This performance is judged to be satis- factory since it has kept up with inflation a high level of surplus per worker. OVP's overall financial situation is sound and no difficulty is anticipated in OVP being able to meet its share in project investments and repayments to ZB for project loans.

2.18 The Self Managed Water Economy Interest Communities of the Catchment Areas (SIZs) are regional drainage user associations of which all farms in the catchment areas are members. Each SIZ is independently responsible for its own financial obligations. They are responsible for making decisions in relation to new drainage investments and operation and maintenance of drainage works and for collection of funds from users. The Self Managed Water Economy Interest Community of the Sava River (SVIZ-Sava) is the flood control associa- tion for the Sava River Basin and as such is responsible for making investment decisions in relation to flood control and collecting funds from social sector enterprises in the Sava River Basin. As associations, SIZs and SVIZ-Sava have no staff and therefore must employ contractors and/or BOALs to construct project works and carry out operation and maintenance. - 11 -

III. THE PROJECT

A. Project Objectives

3.01 The main objectives of the project are to: (a) assist in the develop- ment of the Sava River Basin, which suffers from flooding by external water and water logging due to lack of drainage, by financing investments in drain- age infrastructure and on-farm development; (b) through drainage, land consol- idation and on-farm development increase land and labor productivity and income of rural population in the project area to levels approaching averages of regions without drainage problems; and (c) increase production of wheat, maize, rape seed and livestock products such as meat and milk primarily for the domestic market to better achieve self-sufficiency in agricultural pro- ducts. The project would also help in institution-building of OVP for imple- mentation of subsurface drainage through provision of technical assistance and training of key staff. It would introduce a unified training and visit extension service which could, if successful, be used as an example for other areas in Yugoslavia. The project's objectives are in line with the Government of SR Croatia's plan to protect from floods large areas of the Sava River Basin, and to drain these areas, and this project could be used as a model for planned follow-up drainage projects in the basin.

B. Project Description

3.02 The project would consist of 5 components: (1) project works; (2) on-farm development credit; (3) equipment for construction, operation and maintenance; (4) consultants and overseas training; and (5) management and technical services. These components are described below. The proposed Bank loan would be made to Zagrebacka Banka, Zagreb (ZB), who would on-lend to (a) SVIZ-Sava, SIZs and OVP for project works, equipment, and consultants and overseas training, and to (b) the social sector enterprises and the individual farmers under the on-farm development credit component.

Project Works

3.03 For purposes of design and construction scheduling, the project area has been divided into 7 catchment areas. Major works to be constructed under the project in these catchment areas are illustrated in map IBRD 14150. These have been divided into the following categories:

3.04 Protection from external water. To protect the project area from external water, 7 channels, with embankments will be constructed to intercept water coming from higher elevations. In addition the capacity of the natural streams Crnec, Zelina, Lonja, and Chesma will be enlarged. With the comple- tion of these works the project lands will be isolated from external waters. The bottom width of the 7 channels will vary from 2 to 4 m and their depth will be up to 4 m with side slopes of 1 vertical to 2-3 horizontal. - 12 -

3.05 Internal Surface Drainage. Components of the internal surface drain- age system are parallel open field drains spaced 300 m apart, and collector drains with depth up to 2.5 m in all the arable lands. Eight pumping plants would lift water from the collector drains over dikes into outlet channels, when flow in the channels is high; at low flows the drains would discharge into these outlet channels by gravity through sluices. Outlets consist of the flood way Lonja Strug, main lateral drains, and Chesma river. The sluice gates allow some gravity flow during periods of low run-off and prevent water from entering the project during periods of high water levels in the outlets. All project water will ultimately enter Lonja Strug, to be carried to Sava River at a point far downstream from the project. Bridges, culverts and dirt roads along the drains will also be constructed.

3.06 There will be about 220 km of major channels (protection from outside waters and basic drainage), about 325 km of collector drains and about 1,620 km of detailed drainage channels constructed. An estimated 10.4 million cubic meters of material will be excavated and another 0.4 million cubic meters will be handled for the construction of embankments.

On-Farm Development Credit

3.07 This component would aim to achieve an increase in crop and livestock production in the individual sector and in crop production in social sector enterprises. It would consist of the following sub-components:

3.08 Individual Farm Sector Investments. Out of about 5,200 farmers farm- ing an area of 25,500 ha who will benefit from general drainage infrastructure, it is estimated that about 1,500 farmers with an average farm size of about 5 ha will participate in the on-farm development credit program provided under the project. Medium- and long-term investment credit would be provided for land improvements including subsurface drains, livestock development and for farm machinery. Subprojects in the individual farm sector would normally be submitted to ZB by social sector enterprises, or cooperatives which aggregate investment proposals of several farmers with whom they have entered into a cooperation agreement and borrow on their behalf. However, individual farmers may also submit subproject investment proposals directly to ZB.

3.09 Social Sector On-Farm Development Credit. Subloans would be pro- vided to social sector enterprises for on-farm development, including land clearing and levelling and subsurface drains for about 12,300 ha, farm machin- ery consisting mainly of heavy tractors and implements and combines for crop production, four new farmyards, and 25 km of macadam and 10 km of gravel access roads. Subsoiling, liming and moling, to improve soil drainability, of part of project area is not considered necessary as none of these methods has been tried out in the project area and proved to be effective in improving drain- ability. Therefore no provision has been included in the project cost for these activities.

Equipment

3.10 The project would provide OVP with equipment for construction and operation and maintenance of project works, vehicles and equipment for offices, laboratories and field tests. - 13 -

3.11 Construction Equipment. The project would furnish 2 heavy draglines (a boom length of up to 40 m and a bucket size of up to 4 to 6 m3) for the construction of interceptor drains, major lateral channels and basic drainage works. The project would also finance the procurement of 6 drain layers for the construction of subsurface drains. This equipment would be purchased by OVP and would be used to carry out these works under force account.

3.12 Operation and Maintenance Equipment. Necessary equipment to operate and maintain the drainage infrastructure (listed in Annex 1) would be financed under the project, and would be purchased by the OVP's four Basic Organizations of Associated Labor (BOALs). These BOALs need this equipment for the operation and maintenance of the works to be constructed under the Project.

3.13 Vehicles and Equipment for Offices, Laboratories and Field Testing. Vehicles and miscellaneous equipment would be procured under the project, and would be used by OVP and its BOALs in project related work.

Consultants and Training Abroad.

3.14 The project would provide funds for local and foreign consultants, who would (a) carry out investigations for drainage works, review drainage design and analyze data collected on monitoring of groundwater after drainage works have been constructed (8 man-months), and (b) help establish an effec- tive extension service (6 man-months). The cost per man/month for these consultants is estimated at US$7,500. Consultants would be recruited on terms and conditions satisfactory to the Bank. Training abroad of selected staff in prominent institutions dealing with drainage works and extension service and study tours would be arranged under the project.

Management and Technical Services

3.15 The project would provide funds for project administration, land consolidation, technical design, extension service and project monitoring.

3.16 Project Administration and Land Consolidation. The project would provide funds for salaries, operating costs, and office overheads for project administration and for the administration of the land consolidation program. Project administration would be carried out by the project unit in OVP and land consolidation by local communities. The funds would mainly be used to finalize designs, prepare and evaluate bids, coordinate construction of all components of the project and to monitor the project.

3.17 Extension Service. The project would finance investments and oper- ating costs for a technical support unit (subject matter specialists) in the project area and for general extension officers (farm level agents). The staffing of the subject matter specialist group would provide specialized technical assistance to general extension officers and would comprise an extension director, a crop production specialist, a pasture and forage spe- cialist, a pest and disease control specialist, an animal production (nutri- tion) specialist, a dairy specialist, a farm management and credit specialist and one technician for drawing up farm plans. The subject matter specialists - 14 - of this unit would identify the technologies, in their respective fields, suited for application in the project area; establish a link between the field extension staff and the research centers; participate in training staff and farmers; prepare training materials and organize agricultural fairs and competitions. Included in the project would be the housing and transport facilities required for the staff and purchase of training and laboratory equipment. The technical support unit of subject matter specialists would be able to provide support to 60 to 70 general extension officers. This is about twice the number that would be required in the project area. Consequently, the group would also support extension officers belonging to neighboring municipalities.

C. Cost Estimates

3.18 The total project cost, including physical and price contingencies but excluding interest during construction, is estimated at Din 2390 million (about US$133 million) of which Din 918 million (US$51 million) or 39% would be the foreign exchange component. The cost estimates include import duties and taxes estimated at Din 300 million (US$17 million). These estimates are based on unit rates for similar works prevailing at the end of 1977 when the feasibility study was completed, and have been updated to reflect the costs that would prevail in April 1979. A physical contingency of 15% has been included for construction of subsurface drains, and a contingency of 10% on all other items except the individual farm credit component where no physical contingency has been applied. A total price contingency of 27% on base cost plus physical contingencies is included for expected international price inflation. From April 1979 to the end of 1979 the rates used for equipment are 10% p.a. and for all other items 11% p.a. The rate used for equipment is 7% for 1980 and 6% thereafter and for all other items 8% for 1980 and 7% thereafter. Project cost estimates are shown below; further details and an estimated schedule of expenditures is given in Annex 1, Table 8. - 15 -

Project Cost Estimates

Foreign Exchange Total Foreign Local % ------(US$ million)----

I. Project works 37.70 13.51 24.19 36

II. On-farm development credit A. Social Sector 32.95 15.49 17.46 47 B. Individual Sector 5.66 1.64 4.02 29

Subtotal 38.61 17.13 21.48 44

III. Equipment (except social sector farm machinery) 6.53 4.73 1.80 72

IV. Foreign consultants and training abroad .20 .18 .02 90

V. Support services 11.93 1.28 10.65 11

Base cost estimate 94.97 36.83 58.14 39

Total physical contingencies 9.55 3.76 5.79 39 Total price contingencies 28.12 10.52 17.60 37

Total project cost including contingencies 132.64 51.11 81.53 39

D. Financing

3.19 The Bank would finance 39% (US$51 million), ZB 41% (US$55 million), and on-farm development credit subborrowers, OVP, SVIZ-Sava, SIZs and/or Communes 20% (US$26.6 million) of total project costs. The Bank loan of US$51 million would be limited to the foreign exchange component of the project. The proposed Bank loan would be made to ZB for 15 years including 3 years of grace. For the on-farm development credit component, ZB would on-lend the loan proceeds (about US$21 million) to the individual farmers and social sector enterprises in the project area in accordance with the terms described in paragraphs 4.02 to 4.08.

3.20 For all other components of the project ZB would on-lend the loan proceeds to OVP, SVIZ-Sava and four SIZs in accordance with the terms des- cribed in paragraphs 4.03 to 4.05 under six Subsidiary Loan Agreements the signing of which is a condition of effectiveness. The contributions from social sector subborrowers, SVIZ-Sava, SIZs, OVP, and/or Communes would be channelled through ZB for project expenditures. The subborrowers' repayments would be sufficient to enable ZB to repay the Bank loan within 15 years as seen in Annex 1, Table 6. Assurances on the above financing arrangements were obtained during negotiations. - 16 -

E. Procurement

3.21 Contracts for construction of project works (apart from force account work) costing about US$33 million and purchase of major items of construction and operation and maintenance equipment (about US$6 million) would be procured by OVP and on-farm machinery for social sector enterprises (about US$11 million) would be procured by ZB through international competi- tive bidding in accordance with the Bank Guidelines. Construction equipment would include six drain layers and two draglines. The lower of a 15% prefer- ence or prevailing custom duty margin would be extended to local manufacturers in the evaluation of bids for equipment under international competitive bidding. Procurement for individual purchases of equipment not exceeding US$100,000 in value would be allowed in accordance with applicable local procedures which are acceptable to the Bank, up to an aggregate value of US$1 million for the project. Terms of reference and qualifications of consultants and selected training courses and study tours for training abroad (US$0.2 million) would be subject to Bank approval for financing from the loan.

3.22 Construction of subsurface drains, and works to be performed by two heavy draglines to be financed under the project for about 220 km of major channels and river channels and about 325 km of collector drains (about US$17 million) would be carried out by OVP under force account. There has been a general lack of interest towards Yugoslav contracts displayed by international contractors, even for larger contracts. Local contracting for the construc- tion of interceptor drains and other major drainage channels and for the enlarging of capacities of natural streams would be more expensive and time consuming than force account. Local contractors lack appropriate equip- ment for these works, which necessitates rehandling of excavated materials and, therefore, makes such excavation more expensive. The OVP Construction Unit has experience in handling construction machinery and the acquisition of the new machinery would upgrade the technical experience and provide equipment which would also be useful for follow-up projects. The need for flexibility on installing subsurface drains combined with the critical timing and season- ality of the construction period, and lack of local contractors with the requisite skills leaves force account as the only practical method for carry- ing out this work.

3.23 Procurement of items under the individual farmer on-farm credit component (about US$6 million) would be made through existing commercial channels under negotiated purchase or other local procedures. No individual contract is expected to exceed the equivalent of US$100,000. Items financed under the individual farmer credit component would not be suitable for bulk purchase and international competitive bidding because of size and phasing of subprojects. Existing commercial channels maintain generally adequate supplies of spare parts, provide servicing and repair facilities and are suitably competitive.

3.24 Procurement in accordance with competitive bidding advertised locally, which are acceptable to the Bank, would be appropriate for the remaining items consisting mainly of farmyards, access roads, land clearing - 17 -

and levelling,vehicles, and office, laboratory and field test equipment (about US$9 million). Procurementfor individual contracts and purchases of equipmentnot exceedingUS$100,000 in value would be allowed in accordance with applicablelocal procedureswhich are acceptable to the Bank. Suitable assurances were obtained from ZB and OVP with respect to procurementarrange- ments set out above.

F. Disbursements

3.25 The proposed Bank loan of US$51 million would be disbursed, net of taxes, over 5 years as follows:

(a) Project works - 39% of total expenditures (i) By contracts (US$13 million) (ii) By force account (US$7 million)

(b) Social sector on-farm - 59% of amounts disbursed by ZB developmentcredit (US$19 million)

(c) Individual sector on-farm - 36% of amounts disbursed by ZB developmentcredit (US$2 million)

(d) Equipment - 100% of foreign expendituresand (US$5.8million) 100% of local expendituresex- factory and 60% of local expendi- tures for imported goods

(e) Consultantsand training abroad - 100% of total expenditures (US$0.2 million)

(f) Unallocated (US$4 million)

3.26 Disbursementsagainst item (a) (ii) and (c) of paragraph 3.25, will be made against a certificate of expenditure,the documentationfor which will not be submitted for review, but will be retained by the borrower and made available for inspectionby the Bank during the course of project supervisionmissions. All other expendituresunder the loan will be fully documented and submitted to the Bank along with the respective withdrawal applications. Savings under any category could, upon agreementbetween the Bank and the borrower, be allocated to any other category. A schedule of estimated Bank disbursementsis given in Annex 1, Table 9.

3.27 Under the proposed project, force account procedureswould be employed by OVP for subsurfacepipe drain constructionand for the construc- tion of interceptordrains, major lateral channels and embankmentsand basic drainage and river channels. The PU through its AccountingDepartment would - 18 -

establish a system satisfactory to the Bank to monitor the cost in each case and produce adequate data to support Statement of Expenditures for Bank with- drawal applications. Under the project on-farm development credit component for individual farmers ZB would disburse loans for some 1,500 farmers. Presently, the Bank accepts from ZB under the First and Second Agricultural Credit projects (Loans 1129-YU and 1477-YU) Statements of Expenditure to cover Bank disbursements. ZB is experienced with this type of application and its accounting and administrative procedures are satisfactory. OVP's present cost accounting procedures for monitoring costs have been reviewed by the appraisal mission and are considered to be satisfactory. Supervision missions would be required to spot check civil works undertaken under force account procedures, and make inspections to satisfy themselves that the work has been completed and that the expenditure claim is reasonable. Supervision missions would also continue to make spot checks of the data retained by ZB. In all cases, disbursements would be made in local currency.

G. Environmental Impact

3.28 The project is not expected to have any adverse environmental impact on the project area, and is likely to have beneficial effects in several areas by providing drainage to the water-logged land. Most of the flood control works have already been constructed. They consist of flood control bypass channels which relieve urban areas that would be inundated during high floods. Multipurpose dams have not been constructed at this stage and are not necessary for this project. No detrimental effects on the physical/chemical regime of the water are expected.

H. Role of Women

3.29 Yugoslavia has made considerable progress with respect to ensuring equal opportunities for women. During the preparation of this project, the Bank hired a consultant to study the role of women in the project area. 102 farm families in the project area were interviewed. It is expected that women will be more directly involved in the primary agricultural production when more employment opportunities arise outside the farm sector. However, women often take over the work which men who have moved out of agriculture have left. Since they practically have no other alternatives, employment in agriculture is for them a social and economic necessity rather than the result of their own free choice. It is expected that women will also benefit from the increased employment opportunities resulting from the social sector components of the project. - 19 -

IV. ORGANIZATION AND MANAGEMENT

A. Borrower: ZB

General

4.01 Zagrebacka Bank, Zagreb (ZB) would be the borrower of the proposed loan. It would on-lend the Bank funds, together with its own resources to finance civil works, equipment, consultants and training and on-farm develop- ment investments by individual farmers and social sector enterprises in the project area. It would mobilize other funds, if needed, to cover any finan- cial deficit in the early years of the project until full development when subborrowers would be financially self-sufficient. It would be responsible for the appraisal and supervision of on-farm investments to be financed under the agricultural credit component. ZB is the major source of credit to the agricultural sector in the Republic. It is experienced in lending to agricul- ture in both the social and the individual sectors. The quality of subproject appraisals carried out by ZB under the Bank-financed agricultural projects has been acceptable. ZB's Department of Agriculture and Food Industry would handle long-term credit for all project components. It would be responsible for the appraisal of all subloans to individual and social sector enterprises for on-farm development investments with the exception of technical appraisal of subloans for subsurface drainage investments, for which OVP would be responsible. The staff in the Department of Agriculture and Food Industry has a satisfactory level of experience in appraising agricultural subprojects under the Bank-financed projects as well as under its other operations. Since 1976, the staff has prepared appraisals according to the Bank's appraisal requirements; these appraisals covered agro-industries as well as agricultural subprojects in the social sector and agricultural production subprojects in the individual sector. The staff members have undergone training organized under the First Agricultural Credit Project in appraisal techniques. The appraisal capability of ZB staff should further improve as a result of their participation in seminars on appraisal techniques to be conducted under the Second Agricultural Credit Project.

Appraisal Criteria for On-Farm Development Subprojects

4.02 ZB would carry out full appraisal of each loan request for on-farm development with the exception of technical appraisal of subloans for sub- surface pipe drain investments, paying particular attention to its technical, financial, and economic viability; organization and management capabilities of the subborrower; marketing aspects; adequacy of contingency allowances; and the credit-worthiness of the subborrower. A particular justification will be required, if the financial rate of return is below 12% in constant Dinars. ZB would satisfy itself that subprojects and subborrowers have adequate debt capacities in that they would generate sufficient cash flow to cover debt service after meeting legal claims and appropriate reinvestment levels. In case of individual farmer subloans which would normally be submitted to ZB by social sector enterprises, or cooperatives which aggregate investment - 20 - proposals of several farmers with whom they have entered into a cooperation agreement and borrow on their behalf, ZB would satisfy itself that the co- operation agreements are satisfactory in all respects. In case of each social sector subproject, for on-farm machinery, farmyards and access roads, ZB would prepare a technical report with the assistance of consultants, as needed, containing an evaluation of: (1) proposed scale of the subproject; (2) suit- ability of the equipment to be used; (3) estimated investment and maintenance and operating costs, including working capital requirements; (4) suitability of proposed location; (5) subproject layout and design; (6) staff available to the subborrower both for carrying out the subproject and for its operation. ZB would also be responsible for meeting seasonal credit requirements for each subborrower during the implementation of the project. Assurances were obtained during negotiations from ZB that it will follow the above criteria in apprais- ing subprojects.

Lending Terms

4.03 The terms of subloans for all components except for on-farm devel- opment credit and subloans to OVP for equipment under the project would be for a period of 15 years with a grace period of 5 years. The terms of subloans to OVP for equipment would be for a period of 8 years with a grace period of 3 years and under the on-farm development credit component would be related to the cash flow projections of each subproject and would range from 3 to 15 years including up to 5 years of grace on repayment of principal. Provided the actual and projected financial situation of the subborrower permits, 20% of investment costs defined to include all incremental investments in project supported activities would be required in the form of equity.

4.04 The foreign exchange risk for the individual sector on-farm develop- ment credit component would be borne by SR Croatia. For all other components of the project the foreign exchange risk would be borne by social sector enterprises, OVP, SVIZ-Sava and SIZ. ZB would take adequate steps to protect itself against the exchange risk on subloan repayments made earlier than amortization payments of the Bank loan. Assurances on foreign exchange risk arrangements were obtained during negotiations.

On-Lending Interest Rates

4.05 ZB would under the on-farm development component on-lend the loan proceeds to individual and social sector subborrowers at an effective rate of 11 percent through charging an on-lending interest rate of 9 percent and a fee of 2 percent per annum for guarantee and other operations performed by ZB. It would lend local funds at a minimum of 5 percent and 6 percent to individual and social sector subborrowers respectively. The above on-lending rates are in line with those established for recent Bank-financed agricultural and industrial credit projects. These rates are expected to result in the minimum blend rate of approximately 9.0% for the social, and 7.2% for the individual sector subborrowers. For all other components of the project ZB would on-lend the loan proceeds to OVP, SVIZ-Sava and SIZs at a spread of at least 0.5 percent above the Bank loan rate of 7.9% to ZB to cover administrative costs. Assurances on the above interest rates were obtained during negotiations. - 21 -

4.06 The annual inflation rate for Yugoslavia in 1978 is estimated to have been about 13 percent and the actual annual inflation rates in 1977 and 1976 were 13 percent and 9 percent respectively. The projected annual rate of inflation for the next three years is estimated to be 12 percent. On-lending local interest rates are about 10-12 percent for funds from commercial banks and 4-5 percent from funds available through budgetary transfers. The on- lending rates to the social sector for Bank funds under the on-farm development credit component of this project are not expected to be negative in real terms given that the social sector enterprises would also be bearing the foreign exchange risk. For the individual sector, the rates, though higher than those charged by local banks will nevertheless not result in positive real rates. The introduction of the new system of planning in Yugoslavia which embodies a process of harmonization of investment programs through direct negotiations between enterprises, raises questions about the precise role of interest rates in the allocative process. This issue of the role of interest rates is currently being analyzed in a special study being undertaken under the Second Agricultural Credit Project (Loan No. 1477-YU). As an interim measure, however, it was agreed that uniform floor interest rates be set for on-lending of local funds, a policy that has been pursued in subsequent agricultural and industrial credit projects. Therefore, it has been decided, pending the findings of the study, to maintain on-lending rates for the on-farm development credit component of the project at the same level as those under the Second Agricultural Credit Project.

Free Limit

4.07 ZB would forward to the Bank for review and approval its own appraisal reports together with the technical reports prepared by its staff or its consultants for agricultural credit subprojects whose total costs exceed US$1.5 million. This would result in the Bank reviewing about 10 subproject appraisal reports over a 5-year period.

Supervision

4.08 ZB would supervise on-farm development subloans to ensure adequate technical and financial supervision of the subprojects during and after their construction. ZB will also require the subborrowers to submit their annual financial statements, within 6 months of the end of each fiscal year.

B. Implementing Agency: OVP

General

4.09 OVP as the Croatian water resource management agency for the Sava River Basin would be in charge of project implementation and overall coordina- tion between the various entities specifically responsible for carrying out drainage works and operation and maintenance of drainage systems. Social sector enterprises undertaking on-farm development investments, SIZs and SVIZ-Sava have,with OVP, formed a community of associated labor to carry out - 22 - the project. OVP is considered to be a competent and suitable entity for discharging the above responsibility. Its organizational management and staff structure in the project area is given in the Chart of Annex 1. A project agreement with OVP details its specific responsibilities and obligations under the project.

4.10 OVP's central office would implement the above functions through the normal organizational channels within OVP. However, to handle the additional work created by the project during its implementation, a Project Unit (PU) would be established in the central office of OVP. The PU will supplement and strengthen the central office of OVP during project implementation. The PU would perform or coordinate all necessary actions to implement the project, and subloan requests for subsurface pipe drains would be submitted to ZB through PU. PU would be headed by an experienced director, who would report directly to the director of OVP. PU would have adequate staff and would also employ consultants to help improve the implementation of subsurface drainage and set up an effective extension service. During negotiations, assurances were obtained from OVP that no later than March 31, 1980 PU would be created and that its key staff would be appointed.

Responsibilities of OVP

4.11 As the implementation agency, OVP would have the direct responsibil- ity to:

(a) finalize designs, prepare bid documents, evaluate bids, and coordinate and supervise construction on all civil works components of the project;

(b) construct by force account (i) interceptor drains, major lateral channels and embankments, including enlargement of capacities of river channels in the project area, and (ii) subsurface drains with the construction machinery to be financed under the project;

(c) take all necessary steps to support the land consolidation program to be carried out by the communes and coordinate all project construction activities with this program;

(d) form an agricultural extension service for the project area as specified below;

(e) carry out adequate operation and maintenance of works in the project area with operation and maintenance machinery to be financed under the project;

(f) implement the training program for selected technical staff for subsurface drains and extension service; and

(g) consult the Bank concerning any reorganization of OVP which may affect project implementation. - 23 -

Assurances were obtained during negotiations that OVP will carry out these responsibilities.

Land Consolidation

4.12 Because of the irregular and scattered nature of private holdings, a land consolidation program would be part of the project. Prior to the beginning of construction in each specific area an agreement to consolidate land would be obtained from participating farmers. No problems are antici- pated because during project preparation, farmers in the project area were consulted on land consolidation measures and almost all expressed readiness to cooperate in these actions. However, should difficulties arise as they have in other areas of Yugoslavia, the commission appointed by the Municipal Authorities has the power under the SR Croatia Agricultural Land Use and Consolidation Act of 1979 to carry out land consolidation without the consent of land owners for the specific purpose of soil reclamation. OVP would cause the communes to carry out the land consolidation program and would coordinate this program with the project works. Assurances in this respect were obtained from OVP during negotiations. It is expected that farmers would adopt the proposed system without undue delays, since the ongoing land consolidation program has shown good progress recently (for example, 3,500 ha of land has been consolidated in Ivanic Grad and another 3,500 ha has been approved for consolidation under this project).

Extension Service

4.13 During project implementation, the Project Unit would organize an extension service for about 5,200 farmers in the project area. The proposals are for a unified extension service which would have responsibility for all individual farmers in the project area. It would operate a Training and Visit Extension system. The service would be controlled by a Director of Extension for the project. It would comprise generalist farm level extension staff, who would be managed by a senior extension officer per 8-10 field staff and an extension training group which would consist of subject matter specialists. After the project implementation period the projects extension service would be integrated in the republic-wide extension service to be implemented under the extension service law presently under consideration.

4.14 This part of Yugoslavia lends itself well to group organization as the farmers live in villages and are strongly community minded. Thus com- munications between lead farmers and other farmers in the group could be expected to be effective. The proposed extension service is planned with a ratio of one extension staff to about 200 farmers. Participating farmers under the supervision of one generalist would be divided into 8 groups of about 25 farmers per group. They would be visited by the general extension staff once every two weeks. These group sessions would be supported by visits to demonstration farms and by meetings, lectures, etc. given by subject matter specialists. Every two weeks, the extension staff would attend training sessions given by the specialist extension training group and recommendations for the next two weeks would be focused upon. - 24 -

4.1'- The specialist extension training group to be set up under the project would be based in the project area. The group would be able to provide continuous training and support for about 70 general extension staff. This is about twice the number that would be required in the project area. Consequentiy, the group would also support extension staff belonging to neighboring communes. The reorganized extension service should be responsible sol1y1 for advising and training farmers. It should not become directly involved with input supply or marketing. These services would continue to be administered by co-operatives, the co-operative departments of the kombinats and commercial organizations.

4.16 The main area of attention of the extension service with crops would be the timeliness and level of fertilizer use. With livestock, atten- tion should be given to buildings, particularly those for pigs, and feeding systems. Recommendations would be developed for improving the quality of home grown forage and for making the best use of concentrate rations for milk production and cattle and pig fattening. Introduction of oil rape seed, a new crop, would require particular effort on behalf of the extension service. It would need to be supported by technical specialists from the oil rape seed factory.

Operation and Maintenance

4.17 The four SIZs (Drainage User Associations) in the project area are responsible for ensuring that operation and maintenance works are being carried out and that funds for this purpose are being collected. The drainage works including the pumping stations would be operated and maintained by the four basic organizations of associated labor (BOALs Zagreb, Dugo Selo, Kutina and Sisak) which operate in the project area. The standards of operation and maintenance in the project area are still far from those required to obtain efficient and dependable functioning of the drainage infrastructure. Under the Project, OVP through its member BOAL's would initiate a program to provide adequate maintenance service in the project area. This would be achieved by purchasing equipment totalling US$1.5 million to perform the maintenance work by BOALs under the technical direction of the Project Unit. A list of equip- ment to be purchased for operation and maintenance is presented in Annex 1, Table 10. The annual O&M cost is estimated to increase from about US$15/ha without the project to US$30/ha at full development.

Training and Technical Assistance

4.18 The Project Unit would provide training and technical assistance to technical staff involved in the construction and monitoring of subsurface drains and would also establish a technical support unit for the training of extension workers. Specialized training to the staff of the subsurface drain unit will be necessary for efficient operation of these facilities.

4.19 Specialized consultants, on a short-term basis, would be engaged by the Project Unit under terms and conditions satisfactory to the Bank for subsurface drain investigations, design, construction and monitoring and for the establishment of an extension service program. The Project Unit would also select key staff involved in subsurface drainage and extension service for Bank approved selected training courses abroad. - 25 -

C. Project Monitoring and Evaluation

Accounts and Audit

4.20 ZB would maintain a separate account for the project. ZB will pro- vide for independent examination and will obtain an opinion from independent auditors on whether or not the funds have been used for the purpose for which they were provided. As required by Yugoslav law, all banks and enterprises are audited annually by the Social Accounting Service (SDK) which is accept- able to the Bank. A full and qualified audit report on ZB for 1977 was produced by SDK following generally accepted standards.

4.21 OVP would establish appropriate record keeping and reporting proce- dures for the Project Unit. OVP would maintain separate accounts for all financial transactions under the project and would submit annual reports audited by SDK and acceptable to the Bank within 6 months of the end of the fiscal year. Assurances were obtained that ZB and OVP will send audit reports satisfactory to the Bank, within 6 months from the end of each fiscal year.

Monitoring and Evaluation

4.22 The project components to be constructed have been competently conceived and formulated into a sound project plan. Whether successful sub- surface drainage of the slowly permeable clays can be achieved, has not been demonstrated or technically rationalized through the investigation on the pilot farm Jezevo. Field observations suggest that the need for subsurface drainage exists and that such drainage can be successfully achieved if pro- perly implemented. However, there is an urgent requirement for competent staff in the PU to investigate soil profiles and permeabilities, groundwater conditions, and drain performance with the objective of developing design criteria for effective subsurface drainage at least cost. Assurances were obtained during negotiations that OVP would (a) no later than March 31, 1980, submit to the Bank for its review a subsurface drainage investigation and monitoring program to measure the effectiveness of different types, spacing and depth of existing and new subsurface drains in various soil categories, (b) implement programs for investigations and monitoring taking into account the Bank's comments, and (c) proceed with large scale subsurface pipe drain investments only as and when the Bank has agreed upon the technical aspects.

4.23 Although OVP would be responsible for monitoring the project works and subsurface drains, ZB would be responsible for monitoring and evaluation of the project's credit component, and for this purpose would establish a management information system. The monitoring system would focus on the real- ization of the project as against the targets established during the appraisal and would identify issues and potential implementation problems to be resolved. The monitoring system should cover the following key aspects of project imple- mentation: physical execution of the project; provision of extension and other support services to individual farmers; extent of participation of individual farmers in the land consolidation program; and production, yields and income achieved in individual farms and social sector enterprises. - 2b -

4.24 The project would include on-going evaluationto measure the pro- gress realized and to enable remedial actions as necessary, so that all of the project objectives are realized. It would focus on assessing productivityand income iacreanss in individualfarms and social sector enterprises. The on- going evaluationwould particularlyfocus on checking the developingimpact of the project and in the light of experiencegained, propose adjustments needed to achieve the project objectives. The results would also be used for the design of possible follow-up projects. At mid 1979 prices, the monitoring and evaluationsystem is estimated to cost Dinars 8 million or US$0.5 million (0.4% of total project cost); the cost would be borne by OVP and ZB.

Reporting Requirements

4.25 ZB, with support of OVP, would provide the Bank, within 45 days after the end of each calendar quarter, a progress report on the physical execution and other aspects of the project. This report would focus on implementationproblems and correctiveactions. It would also cover the progress of sublendingoperations under the project. In addition ZB would provide annual project evaluationreports covering aspects listed under Monitoring and Evaluation. The first of such reports would be prepared for the period ending December 31, 1980 and submitted within 3 months of the end of the period and the last would coincide with the project completiondate.

Project CompletionReport

4.26 Assurances were obtained during negotiationsthat within 6 months of project completion,ZB, in coordinationwith OVP, would submit to the Bank a report on the execution and initial operationof the project, its cost, the benefit derived and to be derived from it, the performanceby the Bank, OVP and ZB of their respectiveobligations under the proposed loan, and project agreementsand accomplishmentof the objectivesof the proposed loan. This report would be based mainly on the semi-annualprogress reports of ZB, and the monitoring reports and on-going evaluationreports for the project.

V. BENEFITS AND JUSTIFICATION

A. Land Use

Land Consolidation

5.01 In 1985 with the completion of the land consolidationprogram it is expected that 14,500 ha will belong to the social sector, 25,500 ha to individualfarmers and 4,000 ha to non-agriculturalhouseholds but partly used for agriculture. It is projected that with the land consolidationprogram the average number of plots per farm will decrease from 10 to 2. The average farm size will increase from 4 ha in 1978 to 4.9 ha per farm at full develop- ment, thus contributingto an increase in labor productivity. The 25,500 ha belonging to the individualfarm sector are expected to be distributedamong farm sizes as follows: - 27 -

Land Tenure Pattern in Project Area in 1985

Average Farm Size Farms Area Farm Size ha Number Percent ha Percent ha

Less than 2 250 4.8 375 1.5 1.5 2 to 3 850 16.2 2,125 8.3 2.5 3 to 4 1,000 19.1 3,500 13.8 3.5 4 to 5 1,100 21.0 4,950 19.4 4.5 5 to 6 900 17.2 4,950 19.4 5.5 6 to 8 700 13.4 4,900 19.2 7.0 8 to 10 300 5.7 2,700 10.6 9.0 More than 10 133 2.6 2,000 7.8 15.0

TOTAL 5,233 100.0 25,500 100.0 4.9

Cropping Pattern

5.02 The main changes in the cropping pattern as a result of the project are summarized below:

Cropping Pattern

Before Project Full Development ------thousand ha------

Individual Sector

Cereals 12.8 17.8 Industrial crops 0.0 1.0 Fruits and vegetables 2.7 2.7 Improved grass/forage 4.1 8.0 Permanent grass 12.1 0.0 Second crop forage 0.0 2.5 Sub-Total 31.7 32.0

Social Sector

Cereals 2.8 11.4 Industrial crops 0.1 2.8 Forage 0.3 0.3 Permanent grass 7.6 0.0 Sub-Total 10.8 14.5

TOTAL CROPPED AREA 42.5 46.5 - 28 -

B. Production

5.03 Agricultural production would increase substantially as a result of the project. About 19,700 ha of land previously in low yielding permanent grass would come into arable rotation. Furthermore projected yields on cropped lands throughout the 44,000 ha of land drained under the project would be ex- pected to rise substantially as a result of the improved drainage and the parallel establishment of an effective extension service. An increase in the utilization of fertilizers and chemicals would be required to support these higher yields. In the social sector it is assumed that land previously cropped would follow a cropping pattern comprising approximately 40% wheat, 40% maize and 20% rape seed immediately after drainage. Land which was pre- viously permanent pasture however would normally be planted to wheat or possibly maize for the first two years after drainage and would then shift to a three-crop rotation as above. The incremental production of wheat, maize and rape seed would respectively meet the raw material needs of the existing bakeries, feedmills and the oil extraction plant. In the private sector the main change in the cropping pattern would be an increase in the percentage of maize and the introduction of a small area of rape seed. As a result of drainage a far smaller area of pasture would be required to supply the forage needs of livestock. Much of the private sector incremental production of maize would be fed to livestock and the livestock numbers, particularly pigs, would expand accordingly. Under the project cow numbers would stay virtually the same, but because of the availability of improved fodder most of the calves would be fattened and sold at about 440 kg, rather than being sold as weaned calves at about 110 kg.

5.04 Yield increases would take place in parallel with the expansion of cropped areas. During the actual year of drainage, yields would be depressed due to equipment moving and excavation material spreading over the land. Con- sequently a yield of 80% of the "before project" situation is estimated to be achieved in the year when the drainage actually takes place on any particular piece of land. Full yield would not be achieved immediately after drainage and it is expected that on any area of drained land it would take 3 years phased at 80%, 90% and 100% of full development yields before those yields would be reached. The before project and full development yields are shown below: - 29 -

Crop and Livestock Yields

Social Sector

Unit Before Project Full Development

Wheat ton/ha 3.7 5.5 Maize and other cereals ton/ha 4.8 7.5 Other cereals ton/ha 2.5 N.A. Rape seed ton/ha 2.0 3.0

Private Sector

Unit Before Project Full Development

Crops

Wheat ton/ha 2.8 4.6 Maize ton/ha 3.5 6.3 Other cereals ton/ha 1.9 N.A. Rape seed ton/ha N.A. 2.5 Potatoes ton/ha 8.0 10.0 Vegetables ton/ha 9.0 11.0

Livestock

Milk 1/cow 2,000 2,550 Pigs pigs/sow 9 12 Poultry eggs/hen 120 150 Grass (dry matter) ton/ha 4 10 Stocking rate animal 0.9 2 unit/ha

5.05 The following table shows the annual production of primary products expected from the project. - 30 -

Annual Crop Production and Livestock Sales in Project Area

Before Full Project Development Incremental ------thousand tons------

Crop Production

Wheat 11.7 59.8 48.1 Maize and other cereals /1 41.5 115.8 74.3 Rape seed 0.2 10.9 10.7 Potatoes and vegetables 17.4 21.6 4.2

Livestock Production

Cattle (l.w.) 2.7 4.6 1.9 Milk 22,500 35,000 12,500 Pigs (l.w.) 2.1 6.8 4.7 Poultry (l.w.) 0.8 1.0 0.2 Eggs (millions) 13.1 16.5 3.3

/1 Includes home grown maize and other cereals fed to livestock of 19.8 thousands tons before project and 39.1 thousand tons at full development. Thus incremental maize sales amount to 55 thousand tons.

C. Markets, Market Prospects and Prices

5.06 Because of its proximity to Zagreb the project area has direct access to a substantial domestic market of over one million people, to well developed agro-processing industries and to exporters. Virtually all of the incremental project production would be consumed in Zagreb and the surrounding area.

5.07 Agricultural products from the agrokombinats would normally pass directly to the commercial processing and market agencies. There would normally be an intermediary in the chain for the produce from individual farmers, either a cooperative or a cooperative department of a kombinat. In municipalities where neither a cooperative nor the cooperative department of an agricultural kombinat is active, processing agencies handle collection/ purchasing themselves. For example the Zagreb dairy administers directly the milk collection centers in Ivanic Grad. No problems are expected in the physical transport and marketing of produce from the project area. Buying agencies are active and marketing margins which are limited by law in most cases, are reasonable. - 31 -

5.08 In the past Yugoslavia has been a net importer of wheat and market prospects for domestically produced wheat are favorable. Incremental traded wheat production of about 40,000 tons/year at full project development would be absorbed entirely by Zitokombinat in Zagreb. Zitokombinat which is a flour and baking organization has sufficient storage capacity around its factories to buy the total incremental wheat production at harvest time. This quantity of wheat is substantially less than the present annual usage of 100,000 tons of which some 60% is obtained from Vojvodina.

5.09 Yugoslavia is usually a net exporter of maize. Maize produced in the social sector would be marketed through the commercial network after having been dried within the project area. The production from small farmers would be stored on the farms in cribs and allowed to dry naturally. Maize not used on the farm for animal feeding, would be sold through the cooperatives or kombinats to the animal feed industry or possibly to exporters in Zagreb. It is expected that increased livestock production will absorb the incremental maize production.

5.10 Yugoslavia has been, and is expected to continue to be, importing substantial amounts of vegetable oil. The final purchaser of rape seed would be the oil crushing mill in Zagreb which is in the process of relocating and expanding its capacity from 60,000 tons to 150,000 tons input annually. Rape seed from both the social and individual sectors would need to be dried. This would be organized by the producer in the case of kombinats and by the coop- eratives, and the cooperative departments of kombinats for the small farmers.

5.11 To cope with the expansion of cereal and oilseed production in the area it will probably be necessary to increase drying capacity. The mission was assured that when the amount of produce to be dried expands as a result of the project, normal commercial investments would be made in drying facilities by the kombinats.

5.12 Yugoslavia has experienced occasional shortages of milk supply and therefore the incremental production of milk and milk products would be readily absorbed. Most of the incremental milk produced in the project area would be taken by producers to village collection centers (normally there is a collec- tion center within 1.5 km of each dairy farm) from where it would be trans- ported to Zagreb Dairy. These collection centers are run either by the Zagreb Dairy directly or by the local cooperative and the system operates effectively. In addition to milk sold to the dairy, a proportion of about 20% would be retained for home consumption and for making fresh cheese which is a popular local delicacy. Zagreb Dairy is presently moving into new premises where it has the capacity for handling half a million liters of milk per day. Planned utilization is 60% pasteurized fresh milk, 20% sterilized milk and 20% fresh cheese, seasonal dried milk and other milk products. - 32 -

5.13 Cattle and pigs would be marketed through the cooperatives that arrange collection at village centers on behalf of processors. Final use will mostly be in the form of fresh and processed meat in the Zagreb area although a small quantity may go for export as Yugoslavia is a net exporter of meat products. Prospects for continued exports and increased local demand for meat are considered to be satisfactory.

5.14 Poultry, eggs, potatoes and vegetables would be marketed within the villages or in Zagreb through the cooperatives or through private traders. As Zagreb only receives about 20% of its potato and vegetable requirements from surrounding municipalities, the small incremental production of the project would be readily absorbed.

5.15 The main financial and economic prices which would apply to project production are listed below. Details of calculations are shown in Annex 1, Table 11.

Producer Prices (Constant October 1978 Prices)

On-Farm Projected 1990 Financial Prices Economic Prices Din/kg US$/ton Din/kg US$/ton

Wheat, individual sector 2.7 150 3.58 201 Wheat, social sector 2.8 156 3.50 201 Maize 2.5 139 2.72 151 Other cereals 2.4 133 2.43 135 Rape seed 6.1 339 5.62 312 Potatoes 2.5 139 2.5 139 Vegetables 3.0 167 3.0 167 Beef (l.w.) 25.0 1,390 23.5 1,306 Fat pigs (l.w.) 24.0 1,333 21.81 1,212 Poultry (l.w.) 22.0 1,222 22.0 1,222

Milk 4.3 din/1. 23.9 $/1. 3.36 din/l. 18.7 $/1. Eggs 1.2 din/ea. 6.7 c/ea. 1.2 din/ea. 6.7 c/ea.

D. Financial Benefits

5.16 There are approximately 5,200 farms in the individual sector. A farm budget and cash flow statement have been prepared (Annex 1, Table 12) for a representative farm of 5 ha since farms cannot be larger than 10 ha by Yugoslav law, and farming systems are uniform on farms within the range of 1 to 10 ha. Apart from an increase in cropped area from about 45% to 70% of farm area because of drainage, there will not be a major change in the basic farming system. The present agricultural annual income for farmers ranges from about 7,800 dinars (US$433) for 1 ha farm households to 78,000 dinars - 33 -

(US$4,330)for 10 ha farm households. For families on smaller farms (less than 3 ha) agriculturalincome constitutesonly an estimatedfourth to a half of total income. As a result of the project, farm family net benefits per ha will increaseby over 70% at full development. The cash flows indicate that farmers will be in a liquid financialposition throughoutthe project and can expect high financialrates of return. Assuming a farm family of 3.3 on a 5 ha farm, the per capita agriculturalannual income will rise from about 11,800 dinars (US$657)to about 20,300 dinars (US$1,130)at full development.

5.17 The social sector kombinats in the project area are large enterprises with diverse operationsbeside crop production. Currently the social sector incurs net losses of about 8.6 million dinars (US$0.5million) per year from its crop productionoperations mainly because of drainage problems. It is estimated that at full developmentthe social sector will realize an average of 73.8 million dinars (US$4.1million) of annual net benefits (revenuesless operatingcosts less taxes less reinvestments). The cash flows for the social sector (Annex 1, Table 13) indicate that the sector as a whole will not be in a liquid financialposition in its crop production operationsuntil the fifth year of the project due to the gradual build-up of benefits. The deficits will be covered from other profitable operationsof the kombinats (mainly processing, and some trade). The financialrate of return for all resources used (infrastructureand on-farm developmentinvestments), including borrowed and equity funds is expected to be about 11%.

E. Cost Recovery

5.18 In determiningthe extent of cost recovery a cost recovery index has been derived using a typical farm model for the private sector and the esti- mated cash flows for the total social sector. The Cost Recovery Index is defined as the ratio of the present worth of incrementalproject charges paid by project farmers to present worth of incrementalproject constructionand operation and maintenance costs.

5.19 All charges, taxes, costs and benefits are measured at present values discountedat 10% annual rate of discount over the 40-year evaluation period, and in terms of October 1978 constantprices. Costs and benefits representfinancial flows and in determining the cost recovery index, project capital costs include taxes. Recovery of the capital and recurrentcosts of the proposed project will be effected through four types of charges detailed below:

(1) There will be a project charge of 2,000 dinars/ha to be paid to the local municipalitiesover a period of two years in four equal installments.This charge will be paid by both the indi- vidual and social sectors and will be for partial coverage of capital costs of the project (drainageinfrastructure works, pumping station costs, administrativecosts, etc.). The dif- ferencebetween the costs and charges for the project will be financed through municipalitybudgets, the local Self-Managed Water Economy Interest Communities(SIZ) and the Self-Managed - 34 -

Water Economy Interest Community of the Sava River (SVIZ-Sava). The present value of the incremental capital outlays by the public sector excluding investments financed under the on-farm development credit component is 17,052 dinars/ha on behalf of the social sector in the project area (5 kombinats, the pilot farm, and plant breeding institute), and 24,916 dinars/ha on behalf of the individual sector. Of these incremental discounted public sector capital outlays, a present value of 1,350 dinars/ha from the social sector and 1,736 dinars/ha from the individual sector are recovered via this project charge.

(2) Under the Croatian system of taxation, all social sector enterprises in the Republic pay a tax equal to 0.765% of their value-added (revenue less production costs exclusive of salaries, and less depreciation) to the Republic SVIZs of the river basins. Some incremental revenues will accrue to SVIZ after implementation of the project as a result of the incre- mental value added of the project area kombinats generated by increased crop production. The incremental revenues of SVIZ are for partial recovery of capital costs of the project and not for O&M costs. The present value of the incremental Republic water taxes to be paid by the social sector in the project area is 327 dinars/ha.

(3) In Croatia the individual farmer pays a land tax calculated on the basis of the cadastral value of the land determined every few years by local authorities according to the land's estimated productivity. This land tax is paid to local communities and therefore any incremental land tax revenues accruing to these communities as a result of the project can be considered to be a recovery of capital outlays made on behalf of the individual sector from community budgets. It is assumed that this cadastral land tax will increase in approxi- mate proportion to the increase in revenue less operating costs as a result of the improvement of the land starting in year 4. The current level of this tax is 1,100 dinars/ha; the final estimated level is 1,900 dinars/ha. The present value of the incremental land tax paid by the individual sector is 5,850 dinars/ha.

(4) There exists an annual drainage charge of 270 dinars/ha. This charge has been historically maintained at or below the value of 100 kg of wheat, and is paid to the local SIZ by both the individual and social sectors. The funds generated from this charge are used for the operation and maintenance of the channels and pumping stations by SIZ. This charge will be increased after the implementation of the project, as necessary, to meet the O&M costs of the expanded network. According to Articles 113 and 114 of the Water Act of 1974, the local SIZ must recover fully O&M costs via drainage charges, or else - 35 -

communes will intervene and collect the necessary funds. A drainage charge holiday of three years for the individual sector participating in land consolidation is anticipated. It is assumed that the full burden of O&M costs will be shared equally by the individual and social sectors on the basis of land area after the three year grace period for the individual sector, and will amount to 540 dinars/ha/ year. The present value of the O&M charge paid by the social sector is 1,981 dinars/ha and by the individual sector is 1,302 dinars/ha.

5.20 In sum, of the 19,033 dinars/ha incremental discounted public sector outlays for both capital and O&M costs made on behalf of the social sector, 3,658 dinars/ha will be recovered. Similarly, of the 27,562 dinars/ha incremental discounted public sector outlays for the individual sector, 8,888 dinars/ha will be recovered. The cost recovery indices is 19% for the social sector and 32% for the individual sector. Including subsurface pipe drains the cost recovery index for the social sector is 26%. The cost recovery index for both sectors taken together is approximately 29% excluding subsur- face drains and 32% including subsurface drains. The balance would be borne by ZB by charging less than 10% interest in real terms and by SVIZ-Sava repaying for investment costs for main drains and pumping stations from their overall basin charges. Examination of cash flow Table 13 indicates that higher water charges are not justifiable for the social sector. A higher level of cost recovery is justified for the individual sector on the basis of the farm model cash flows of Table 12 and the high financial rate of return. However, the average individual sector farmer's income is much lower than the social sector staff income which precludes achievement of a much higher level of cost recovery from the individual sector.

5.21 It should be noted that subsurface pipe drains will be financed through credit from ZB. Capital cost for these investments will therefore be fully recovered through credit repayments at 9% interest and an assumption of the foreign exchange risk for a 59% portion of the subloan. The lower cost recovery index for the social sector must also be viewed in light of the fact that the social sector will bear the full foreign exchange risk on the foreign exchange component of on-farm development credit whereas the individual sector's foreign exchange risk on the foreign exchange component for on-farm development credit will be borne by the SR Croatia.

5.22 As a result of the project, the tax base of the kombinats will in- crease thereby generating incremental discounted tax revenue of 75.83 million dinars from the social sector over the life of the project for use by other special interest unions (e.g. culture, education, social security, health, etc.) at the republic level. These additional tax revenues are not taken into account in this cost recovery analysis since they accrue to authorities other than those that undertake the project's investments.

5.23 The taxes and charges are selective in the sense that they affect only project beneficiaries. However it must be noted that although general taxes are not increased for non-project participants as a result of the - 36 -

APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Calculation of Cost Recovery Index /a (Excluding On-Farm Development Credit Component)

Private Sector Social Sector Both Sectors /b Farm Model: 5 ha Crop Production: 14,500 ha 44,000 ha Thousand Dinars Million Dinars Million Dinars

1) Gross value of farm production 550.41 1,430.41 4,677.83 2) Less production cash costs 240.41 582.62 2,001.04 3) Equals net cash income (1-2) 310.00 847.79 2,676.79 4) Cadastral land tax /c 29.25 _ 172.58 5) Croatia Water Interest Union (SVIZ) tax /d - 4.74 4.74 6) Drainage charge /e 6.51 28.73 67.14 7) Project charge /f 8.68 19.57 70.78 8) Total direct charges/taxes (4+5+6+7) 44.44 53.04 315.24 9) Public sector capital outlays /g 124.58 247.25 982.27 10) Public sector O+M outlays /h 13.23 28.73 106.79 11) Total public sector outlays 137.81 275.98 1,089.06 12) Cost Recovery Index (8:11 in %) 32% 19% 291

/a All items are incremental, discounted values at constant October 1978 prices, or percentages derived from them. The discounting rate used is 10%, and the period 40 years. /b Figures are estimated by aggregating the farm model for the private sector and adding on the social sector. /c Tax based on estimated productive value of land for private sector only. Assumed to increase in approximate proportion to increase in revenue less operating costs as a result of improvement of land with project starting in year 4 (increase from 1,100 to 1,900 dinars/ha). /d No incremental general taxes for the private sector. For the social sector incremental tax stream computed as follows: Inc. taxes = Max 0; 13% (Inc. revenues - Inc. Op. Costs + Inc. Direct labor costs - Inc. drainage fee - Inc. Depreciation) /e It is assumed that a drainage charge will not be assessed for the first 3 years after project implementation only for the private sector. It is also assumed that the drainage charge will be increased from the current 270 dinars/ha to cover drainage infrastructure O+M costs of 540 dinars/ha starting in year 4 for the private sector, and upon completion of project works (year 7) for the social sector. /f 2,000 dinars/ha paid over two years to the municipalities for partial coverage of project costs for newly drained land starting in the year of drainage (the year of drainage is year 1 for the private sector farm model, and includes proper phasing for the social sector.) /g Outlays by the Water Economy Interest Community (SIZ/SVIZ) and communes. 24,917 dinars/ha in year I for the private sector farm model. For the social sector, derived from allocation of proiect costs including taxes and physical contingencies. /h Outlays by Water Economy Interest Communities and communes. A difference between O+M public sector outlays and drainage charges appears only for the private sector farm model and is due to the initial 3 year period when the drainage charge is waived. The private sector O+M costs during this period are assumed to remain at 270 dinars/ha.

December 1978 - 37 - project, public sector outlays come in part from Water Economy Interest Community funds generated throughout the Republic (SVIZ funds) and from general municipality funds with diverse sources.

F. Economic Justification

5.24 The economic benefits of the project would stem from switching 19,700 ha of land which was previously undrained growing low yielding permanent grass into arable land, and from increases in yields and an increase of about 6% of cropping intensity on the remaining 24,300 ha drained under the project. Of the total land, 14,500 ha would be in the social sector and 29,500 ha in the individual sector after project implementation. In the individual sector the increases in production of cereal crops and higher yields of grassland would be utilized through an expansion of livestock, mainly pigs and cattle. The direct beneficiaries would be some 5,200 farmers in the individual sector, 5 kombinats, a plant breeding institute and a pilot farm. Indirect benefits would be realized in agro-industries mainly outside the project area. Some 8,000 non-farm families in the project area would also benefit because the surface drainage implemented under the project would lower the water table and reduce the risk of flooding in vegetable gardens attached to houses.

5.25 Although the access roads to be constructed under the project are primarily for the purpose of moving agricultural machinery from field to field they would also reduce personal transport costs of people living in the vicinity of them.

5.26 In the individual farm sector the cost of basic drainage infra- structure and land consolidation including physical contingencies would be about US$1,290 per ha. While in the social sector the cost for basic infra- structure, subsurface drains, farmyards and farm roads including physical contingencies would average about US$3,050 per hectare. Costs per farm family in the individual sector would be about US$8,700.

5.27 During the five year project implementation period an average of 500 new jobs per year would be created. The project would also increase employ- ment for underemployed family members of the 5,200 farmers and thus increase their income. About 400 new permanent positions would be created in the social sector at full development.

5.28 From the national standpoint, the project would support the Govern- ment's plans of increasing grain and livestock production. It would also help to reduce disparities between urban and rural area. Since this would be the first of a series of drainage projects in the Sava River Basin, the participat- ing agencies would gain experience under the project which would be valuable later.

Economic Rate of Return and Sensitivity Analysis

5.29 Basis. The economic rate of return was calculated (Annex 1, Table 20) on the basis of changes forecast in agricultural production with the - 38 - project compared with the agricultural situation "before" the project on the 44,000 ha drained under the project. Implicit in this assumption is the fact that the level of yield increases and other changes due to non-project factors without the project would be the same as with the project. Details of the drainage phasing and the development of cropped areas and crop yields in both the social and the individual sector are given in Annex 1, Tables 14-18.

5.30 Cost Stream. The economic cost stream includes drainage infrastruc- ture, on-farm development (levelling, clearing, subsurface drainage, roads, buildings), investment in farm machinery, project administration, incremental costs of extension and banking services, the operation and maintenance of the drainage system, and the incremental agricultural operating costs.

5.31 The project cost table (Annex 1, Table 8) includes only project works which will be undertaken from January 1980 on. Some preliminary project works have been undertaken in 1978 and are being undertaken in 1979. For analytical purposes these costs which are equivalent to about 5% of the total are added and are considered to have been incurred in 1979. The economic costs for the on-farm development and machinery in the public sector are based on the same items as in the project cost table. Economic on-farm investment in the individual sector has been calculated on the basis of the additional livestock which would be kept under the project and on the machinery which would be required to cultivate the additional hectares of cropped land. These investment figures do not correspond precisely to the individual sector credit component of the project as part of the investments are assumed to be self- financed and others, for example the purchase of livestock by one farmer from another, are not considered economic costs.

5.32 Drainage maintenance costs estimated at US$30/ha including pumping would be considered an economic cost as would incremental banking administra- tion costs at an estimated 2% of loans disbursed.

5.33 Incremental annual agricultural costs for both sectors shown in Annex 1, Table 19 are calculated on the basis of the detailed phasing of areas cropped and livestock numbers of Annex 1, Tables 16-18 and the cost coeffi- cients given in the Project Implementation Volume. These costs are adjusted so that they occur prior to the corresponding output thereby taking account of incremental working capital including carrying of home grown maize inventories.

5.34 Additional cost streams of the economic analysis include reinvest- ment costs to be incurred in replacing farm machinery, drainage maintenance equipment and extension service vehicles.

5.35 Benefits. Details of the calculation of the incremental quantities of crop and livestock products coming from the project are given in the Proj- ect Implementation Volume. The areas being drained are phased in line with the physical development of the catchment areas and yield increases are phased as well. A crop yield of 80% of the without project situation has been assumed in the year when the drainage is actually taking place. Thereafter yields are phased at 80%, 90% and 100% of full development yields. Livestock numbers are projected to increase at a similar rate, i.e., in parallel to the expansion of the feed base. This gives full project production by 1988. - 39 -

5.36 Prices. Project output prices for wheat, maize, barley, rape seed, beef, and indirectlyfor pork and poultry, using grain price projections,are based on the World Bank's Commodity Price projectionsin constant 1978 dollars for 1990. Local prices have been used for potatoes,vegetables, eggs and the proportion of milk which is consumed on farm or made into cheese on the farm. For local fresh milk sales an import parity price of constituentparts plus cost of reconstitutionplus a 50% consumer preference has been used. For all other manufacturedmilk products such as dried milk and yogurt the import parity price of constituentparts plus cost of reconstitutionhas been used. Details of the calculationof economic prices are given in Annex 1, Table 11.

5.37 Investment and operating costs have been priced at constant 1978 figures, based on local financialprices, adjusted for taxes and duties. However in the case of fertilizer there is an expected increase of the world price in real terms between 1978 and 1990. Consequently,fertilizer prices are adjusted to bring them in line with the 1990 projections,in parallel to output items. Economic costs and benefits are assessed at October 1978 prices while in the project cost table they are estimated at June 1979 prices--an estimated 8% higher than the investment cost in the economic analysis.

5.38 Hired labour in the public sector is included at its financial cost, ranging from $2.17 per hour for a farm laborer to $14,800 per year for the project director. In the individual sector, family labour is shadow- priced at 80% of the farm laborer'srate. This rate reflects under-employment on most of the family farms.

5.39 A standard conversion factor (officialexchange rate, divided by shadow exchange rate) of 0.93 is applied to the prices of non-traded outputs and the local cost component of non-traded input items.

5.40 The economic analysis of the project is calculated over a 40-year period. A residual value for constructionequipment, at one third of its initial cost, is allowed for the draglines and drain layers in 1985 (year 7). Residual values for incremental livestocknumbers and agriculturalequipment have been estimated for year 41.

5.41 The best estimate of the overall economic rate of return for the whole project with indicated shadow pricing of family labour and foreign exchange is 17%. Without shadow pricing of family labour, and the exchange rate, the ERR would be 15%. Changes in the investment costs in the range consideredwould have little impact on the overall rate of return. The table below shows the sensitivity of the internal rate of return to various factors. The project can be seen to be insensitiveto most changes, although a 15% reduction in benefits with no change in costs would bring the ERR close to 11%. - 40 -

Summary of Economic Rates of Return (%)

With Without Best Sh.Pricing Sh. Pricing Present Value But Without at 12% For Best Sh. Labor Estimates Test Cases Estimate F/X F/X and labor (US$ million)

Base Case 16.6 15.5 15.0 24.3 Benefits down 10% 13.2 12.1 11.6 6 Benefits down 15% 11.4 10.5 10.0 -3 Investment costs up 10% 15.1 14.1 13.6 17.6 Investment costs up 20% 13.8 12.8 12.4 10.9 Operating costs up 10% 15.0 13.9 13.3 15.5 Benefits and Costs down 20% 13.2 12.4 12.0 6.2 Benefits and Costs lagged 1 year 14.4 13.5 13.1 14.3

Percent Change Leading to Switching Values

Crop Benefits - 19.6%; Livestock Benefits - 45.5%; Operating Costs - 27.8%; Investment Costs - 36.5%.

G. Project Risks and Uncertainty

5.42 The main risks to the economic success of the project lie in the estimation of benefits. Decreases in project commodity prices, or the achievement of significantly lower yields than those forecast would lead to a significant reduction in the project's rate of return. The switching values indicate that a 19.6% decrease of crop benefits would lead to a net present value of zero using a 12% discount rate. The possibility that part of the land in the social sector cannot effectively be drained by subsurface drains and will be unsuitable for mechanized cropping exists. However, even if this figure were as high as 20% of the land in the social sector (2,900 ha), the rate of return would only be 2% lower. Since subsurface drain effectiveness has not been properly investigated in the project area there is a risk that drains to be implemented in the first year of the project will not be designed at least cost. However, the risk that part of the investments in an area of about 1,000 ha costing about US$1.3 million in mid 1979 prices may not be implemented at least cost must be compared with the costs for new drainage investigations and loss of benefits due to postponement of a project with 85% of the investment costs demonstrated to have little uncertainty. Risks in overrun of construction costs exist, however, adequate physical contingen- cies have been included in the ERR calculation. Other risks are very low. OVP is a well established body with considerable engineering experience, the - 41 - kombinats in the area are well staffed with agriculturalists, and, most important, the individual farmers are experienced and skilled in the type of agriculture to be practiced under the project.

VI. SUMMARY OF AGREEMENT TO BE REACHED AND RECOMMENDATIONS

6.01 During negotiations, assurances were obtained from ZB that it would:

(i) follow the financing procedures outlined in paras 3.19 and 3.20;

(ii) follow the procurement procedures outlined in paras 3.21 through 3.24;

(iii) follow sub-loan appraising criteria described in para 4.02;

(iv) follow foreign exchange risk arrangements as outlined in para 4.04;

(v) charge interest rates as outlined in para 4.05;

(vi) follow the auditing procedures as outlined in paras 4.20 and 4.21;

(vii) submit to the Bank a Project Completion Report as outlined in para 4.26.

6.02 Assurances were obtained during negotiations from OVP that it would:

(i) follow the procurement procedures as outlined in paras 3.21 through 3.24;

(ii) no later than March 31, 1980 establish the Project Unit, and appoint key staff of the Project Unit (para 4.10);

(iii) carry out its responsibilities under the project as outlined in para 4.11;

(iv) cause the communes to carry out the land consolidation program and would coordinate this program with the project works (para 4.12);

(v) follow the auditing procedures as outlined in paras 4.20 and 4.21;

(vi) submit to the Bank for its review a subsurface drainage investigation and monitoring program no later than - 42 -

March 31, 1980, as outlined in para 4.22, implement programs for investigationsand monitoring taking into account the Bank's comments and proceed with large scale subsurfacepipe drain investmentsonly as and when the Bank has agreed upon the technicalaspects.

6.03 The signing of six SubsidiaryLoan Agreementsto reflect financial arrangementsbetween ZB and OVP, SVIZ-Savaand four SIZs would be a condition of the loan's effectiveness(para 3.20).

6.04 Subject to the above assurancesand conditions,the project would be suitable for a Bank loan of US$51 million equivalentwith a term of 15 years, including a 3-year grace period. - 43 - ANNEX 1 APPRAISAL OF Table 1

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Cropping - Before Project/i

Public sector Private sector Total ha % ha % ha Cultivatedarea Annual crops Cereals Wheat 800 7 3,100 10 3,900 9 Maize 1,700 15 8,900 27 10,600 24 Others 300 3 800 2 1,100 2

Total cereals 2,800 25 12,800 39 15,600 35

Rape seed 100 1 - - 100 -

Vegetables Potatoes - - 1,500 4 1,500 4 Other veg. - - 600 2 600 1

Total vegetables - - 2,100 6 2,100 5

Forage crops 300 2 1,200 4 1,500 4

Perennial crops Clover/alfalfa - - 2,900 9 2,900 7

Fallow 600 5 900 3 1,500 3

TOTAL CULTIVATED 3,800 33 19,900 61 23,700 54

Permanent grass Meadows 4,400 39 11,300 35 15,700 36 Pasture 3,200 28 800 2 4,000 9

Total perm. grass 7,600 67 12,100 37 19,700 45

Orchards - - 600 2 600 1

TOTAL CROPPING 11,400 100 32,600 100 44,000 100

/1 The project area is 61,200 ha of which 17,200 ha is forests and other non-agriculturalland. December 1978 - 44 - ANNEX 1 APPRAISAL OF Table 2

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Cropping - Full Project Development/1

Public sector Private sector Total ha % ha % ha Annual crops Cereals Wheat 5,700 39 6,200 21 11,900 27 Maize 5,700 39 11,600 39 17,300 39

Total cereals 11,400 78 17,800 60 29,200 66

Rape seed 2,800 20 1,000 4 3,800 9

Vegetables Potatoes - - 1,500 5 1,500 4 Other veg. - - 600 2 600 1 Total vegetables - - 2,100 7 2,100 5 Forage crops Maize silage 300 2 1,000 3 1,300 3 2nd crop /2 - - 2,500 8 2,500 6

Perennial crops Grass/clover/3 - - 7,000 24 7,000 16

Orchards - - 600 2 600 1

TOTAL CROPPING 14,500 100 32,000 108 46,500 106

Land area cropped 14,500 100 29,500 100 44,000 100

/1 The project area is 61,200 ha of which 17,200 ha is forests and other non- agriculturalland. Loss of area due to drainage channels and dykes is compensatedby clearance of land which was in forest "before project". /2 Green fed grown after wheat or rape seed. /3 About 5,000 ha rotational,2,000 ha permanent. December 1978 - 45 - ANNEX 1 APPRAISAL OF Table 3

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Livestock Production

Before Project With Project Incremental No. No. Situation

Livestock Numbers /1 Cattle Milk cows 14,500 14,000 (500) Pregnant heifers 2,000 2,000 nil Young stock 4-14 months 4,100 10,000 5,900 Calves 0-4 months 2,100 3,550 1,450 Total cattle 22,700 29,550 6,850 Horses 5 800 2,000 (3,800)

Pigs /1 Sows 6,000 9,000 3,000 Pigs 25-100 kg 3,800 21,150 17,350 Pigs under 25 kg 10,800 21,600 10,800 Total pigs 20,600 51,750 31,150 Laying hens 110,000 110,000 nil Other poultry 65,000 65,000 nil

Net sales Meat No. tons l.w. No. tons l.w. No. tons l.w. Beef cull cows (550 kg) 2,750 1,510 2,600 1,460 (90) (50) 440 kg cattle /2 1,200 530 7,200 3,170 6,000 2,640 110 kg calves 6,350 700 - - (6,350) (700) 10,300 2,740 9,800 4,630 (440) 1,890 Pork Cull sows (150 kg) 1,980 300 2,970 450 990 150 100 kg pigs 6,940 690 50,000 5,000 43,060 4,310 25 kg pigs 45,000 1.125 54,940 1,370 9A940 245 53,940 2,115 107,910 6,820 53,990 4,705 Poultry /3 820 950 130 Milk (million 1) 22.5 35.0 12.5 Eggs (million) 13.2 16.5 3.3

/1 Numbers based on year round breeding. /2 About 20% of these would be sold at lighter weights (200 kg) as veal, and about 30% at 600 kg as heavy beef for the domestic market, then the average would remain at 440 kg. /3 Geese and ducks as well as cull hens.

December 1978 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

ZAGREBACKA BANKA

BALANCE SHEET (B thousands of dinars) 1 $ = Din 18,8035 ASSETS 1.1.1978 30.6.1978 iindex LIABILITIES 1.1.1978 30.6.1978 3inde2 ______~~~~~~~~~~~~~~~~~~3:232 1 2 3 4 1 2 3 4 CASH AND OTHER LIQUID ASSETS 1,578,646 2,119,634 134 FUNDS 4,138,341 | 4,476,806 ,108 in dinars 895,267 1,143,578 128 joint and several liability fund 2,134,592 2,495,397 117 reserve fund 619,542 619,542 100 in foreign exchange 683,379 976,056 143 fixed assets fund 1,241,857 1,242,366 100 OBLIGATORY RESERVE AND other funds 142,350 119,501 84 DEPOSITS WITH THE NATIONALDEPOSITS BANKWITH THE NATIONAL ~SHORT-TERMASSOCIATED FUNDS 4,472,071 5,160,413 5 AND OTHER DEPOSITS 32,599,943 355910,116 110 b y le galI e nt it i es 23.812,911 25,571,932- 1_07_ ASSOCIATED FUNDS, TIME DEPOSITS in dinars 20,498,918 20,348,520 99 AND SECURITIES 5,586,438 7,709,350 138 in foreign exchange 3,313,993 5,223,412 158 s h o r t - t e r m d e p o s i t s 1,921,927 2,881,965 150 s h o rt - t e r m p er s onalI d ep os i ts 8,787.032 10,338,184 118 in dinars 1,869,295 2,803,171 150 in dinars 4,900,606 6,055,619 124 > in foreign exchange 52,632 78,794 150 in foreign exchange 3,886,426 4,282,565 110 I 0 n g - t e r m d e p o s i t s 3,664,511 4,827,385 132 MEDIUM & LONG-TERM ASSOCIATED in dinars ______FUNDS AND OTHER DEPOSITS 7.626,430 8,253,179 108 in dinars 3,664,511 4,826,206 132 by I eg a I e n t i t i e s 3,532,369 3,928,405 111 in foreign exchange - 1,179 - in dinars 3,527,607 3,923,599 111 in foreign exchange SHORT-TERM LOANS 11,827,002 12,669,566 107 medium & long - term 4.762 4,806 101 in dinars 11,777,971 12,585,384 107 p e r s o n a I d e po s i t s 4,094,061 4,324,774 105 in foreign exchange 49,031 84,182 172 in dinars 1,787,128 1,652,836 92 in foreign exchane 2,306.933 2,671,938 116 MEDIUM & LONG-TERM LOANS 25,290,779 28,246,181 112 SECURITIES - - _ in dinars 23,966,240 26,756,487 112 SHORT-TERM BORROWINGS 2,548.884 3,847,063 151 in foreign exchange 1,324,539 1,489,694 112 domestic 2,490,473 3,820,834 153 foreign exchange 1,489,694 ~~~~~~~~~~~~~~~foreign 58.409 26.229 45 INTERBANK RELATIONS - - - MEDIUM & LONG TERM BORROWINGS 3.727,034 4,038,504 108 domestic 2,406,181 2,606,527 .108 FIXED ASSETS 581,293 664,127 114 foreign 1,320,853 1,431,977 108 INTERBANK RELATIONS - - _ OTHER ASSETS 2,341,782 3,016,614 129 OTHER LIABILITIES 1,037,379 3,060,217 295 SUB-TOTAL ASSETS 51,678,011 59,585,885 115 SUB-TOTAL LIABILITIES 51,678,011 59,585,885 115 TRANSACTIONS ON BEHALF AND TRANSACTIONS ON BEHALF AND FOR ACCOUNT OF LEGAL ENTITIES FOR ACCOUNT OF LEGAL ENTITIES AND CITIZENS 6,160,447 6,845,652 111 AND CITIZENS 6,160,447 6,845,652 111 TOTAL ASSETS 57,838,458 66,431,537 115 TOTAL LIABILITIES 57,838,458 66,431,537 115 OTHER BANKING TRANSACTIONS 42,446,917 50,609,173 119 OTHER BANKING TRANSACTIONS 42,446,917 50,609,173 119 letters of credit 11,130,836 11,618,091 104 letters of credit 11,130,836 11,618,091 104 gua-afitees 18,930,142 25,410,537 134 guarantees 18,930,142 25,410,537 134 _ collection of commercial papers 2,810,213 3,417,439 122 collection of commeroial papers 2,810,213 3,417,439 122 other transactions 9,575,726 10,163,106 106 other transactions 9,575,726 10,163,106 106 TOTAL 100,285,375 117,040,710 117 TOTAL 100,285,375 117,040,710 117 - 47 -

ANNEX1 APPRAISAL OF Table 5

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Zagrebacka Banka Statftent of Income Years Ended Decemiber31, 1978; 1977, and 1976 (Million Dinars)

1978 /1 1977 /2 1976 /2 Revenues Interest and charges on loans 3,341.1 2,937.9 2,287.8 Banking services and fees 144.6 131.6 80.8 Other 355.0 702.6 538.7

Total 3,840.7 3,772.1 2,907.3

Expenses Financial Interest and charges on short- term borrowings 450.4 267.2 135.6 Loans written off ) 2 106.6 4.5 Other 2,051.7 / 2,262.7 1,766.3 Subtotal 2,502.1 2,636.5 1,906.4 Administrative Salaries and related expenses 380.1 297.5 239.8 Depreciation 33.4 31.5 29.6 Other 121.4 105.8 84.0 Subtotal 534.9 434.8 353.4

Total 3,037.0 3,071.3 2,259.8

Net operating surplus 803.7 700.8 647.5

Less general taxes 0 0 0

Net surplus after taxes 803.7 700.8 647.5

Distribution of net surplus To working capital fund 0 0 298.0 To property and equipment fund 500.0 384.5 0 To reserve fund 155.0 122.0 146.0 To joint liability fund 90.0 91.3 92.6 To communities fund 58.7 61.2 47.0 To other funds 0 0 4.3 to members of Bank 0 41.8 59.6

Total 803.7 700.8 647.5

/1 Estimated figures. /2 Based on statements of ZB's predecessors,Kreditna Banka, Zagreb, and Jugobanka-MainBranch, Zagreb. /3 A breakdown of loans written off and Other not available. December 1978 APPRAISALOF

CROATIASAVA DRAINAGEPROJECT

YUGOSLAVIA

Project-RelatedZB Cash Flows During Life f Froposed IBRD Loan (MillUion Dinaa) L

1980 1981 1982 198 198 1985 1986 1987 198 1989 1990 199 199 194 19- J12-19 1997 1998 INFLOWS

Proposed TERD loan 'La 181.95 199.55 182.18h 172.39 187.70 Loan and Interest Collection £ Principal 0 0 o.64 4.87 12.73 46.20o 85.12 113.63 145.28 177.34 185.40 188.22 189.02 190.25 185.71 152.38 108.39 82.09 40.36 Interest 28.72 64.90 97.95 129.36 162.28 161.37 157,2 150.4 140.7 128.04 1-12.69 96.25 80.46 614.46 48.29 32.67 19.29 9.87 3.29

Total inflows 210.67 268.45 280.13 306.62 3~62.67 207.5i7 242.54 264.03 286.08 905.98 298.09 284.47 269.48 254.71 233.88 185.01 137.68 91.96 44.25 OUTFLOWS

Loans to subborrowers 944.57 425.92 376.77 375.04 386.30 Financial expenses Cooituent fee i 6.99 5.56 4.07 2.70 i.41 Interest to TEED i81.4o 90.09 48.49 58.03 72.00 70.28 6s.55 64.oS 59.32 54.38 48.79 43.20 36.97 30.90 23.68 15.90 9.67 4.9;. 1.72 Repayment to IBRD £4. 0 0 0 9.90 21.58 35.29 47.10 59.10 63.29 67.29 72.43 77.38 82.91 88.62 94.90 78.72 59.10 40.5!'. 21.76 Administration of loans £ 1.72 9.85 5.73 7.59 9.846 9).24 8.83 8.241 7.50 6.6i 5.69 4.75 3.80 2.85 1.91 i.i4 o.58 0.19 0

Total outflows 367.62 464.82 431.06 453.26 490.75 114.81 121.48 191j.99, 130.11 '128,28 126.91 125.33 129.68 115.92 120.45 95.76 69.35 45.67 29.48

Surplus (Deficit) of Year j7 (156.95) (200.7) (150.93) (146.64)(128.08) 92.76 121.06 132.64 155.93 176.1 171.18 igiiis8 195.7945. 11357 .39 89.25 68.39 46.29 20.77

Cumuative balance (15.5)(57.32)(508.25) (651.89) (792.97) (690.21) (569.15) (436.51) (280.58) (1ot.48) 66.7 225.88 371.64 507.43 620.82 710.07 77O.4 824.69) 84r,n46

7'] All figures in nominal terms. ft2Figuresdo not show lag of 1 quarter between ZR's making of leans cod claiming of reimbursments from TEED. 3Collection of ZB loans from aubborrowers assuming the following terms: Type of loan interest rate (2) Term (years) Grace period (years) To SVIZ-Sava sod SIZ 7 13 5 TosOVP 7 8 3 To individual sect. for equipment 7.2 5 2 To individual sect, for other 7.2 10 3 m To social sector for equipment 9.0 10 30~ To social sector for other 9.0 15 3 /4 3/4 of 1% on undisbursed portion of IBED loan. /5 Interest rate of 7.9%, term of 15 years, sod grace period of 3 years. 761Assume cost of 1/22 of balance of outstanding lents to subborrowers for administration of project leans. 77 Includes ZB's contribution to project financing. APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

NUMBER OF EMPLOYEES ACCORDING TO QUALIFICATION IN THE SAVA RIVER AUTHORITY AS OF JUNE 30, 1978

BOAL BOAL BOAL BOAL BOAL BOAL Common Total Qualification BOAL BOAL BOAL BOAL services Karlovac Kutina Novska Sisak Sl.Brod Zagreb Projekts D. Selo Perivoj Hidroput 9 lo 11 12 13 1 2 3 4 5 6 7 8

3 1 6 M.Sc. - 1 - - - 1 B.Sc. ,B.A. 18 2 - 4 27 98 - civil engineers lo 5 3 7 lo 12 1 1 1 - - 2 9 -survey engineers 2 - 1 1 - - - - 3 - 4 -machine engineers - 1 - - - - 1 - 1 4 9 -forestry engineers 1 - - 1 1 - 2 - 4 5 11 -agronomists - - - - - 1 - 1 2 4 5 22 -economists 2 3 1 2 1 - 1 1 2 4 15 -lawyers 2 1 - 1 1 2 - 1 2 6 16 -others 2 - - 1 1 2 1 26 5 9 15 54 19o Subtotal 19 11 5 13 14 19

Intermediate Vocational Training

15 16 4 _ 6 14 104 - civil eng.technicians 17 7 4 7 14 lo 4 - - 1 31 -survey technicians 4 2 2 2 3 3 - machin.and electr. - - - 15 2 27 technicians 1 2 - 1 2 4 14 4 4 3 8 12 74 - economic technicians 3 5 4 7 lo 2 4 2 2 9 55 -others 6 3 2 13 8 4

5 31 38 291 jubtotal 31 19 12 30 37 40 32 16

Support Staff

5 5 3 15 19 88 Trained 3 4 2 1 17 14 1 3 59 2 149 , x Nighly skilled workers 4 20 26 1 21 12 - 1 49 11 177 12 893 Skilled workers 60 72 26 107 207 171 Semi-skilled and non-skilled - 33 36 118 16 793 workers 72 84 8 117 115 194

6 88 53 369 49 1,923 Subtotal 139 180 62 226 360 391

64 109 67 415 141 2404 GRAND TOTAIL 189 210 79 269 411 450 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Estimated Schedule of Expenditures L (MiLLion Dollars)

Tact 90,~18 Xa983 1984 % Fix otaL l're8-al l Totla Fe =oca 2!t12oEd n 8f Total Local Total Foreign Local TotalForeign Local PROJECT WORKS TNTEREcrC'FOR 1RAINS 24 1.94 0.47 1.47 0.11 0.03 0.08 0.00 0.00 0.00 0.17 0,04 0.13 1.05 0.25 0.00 0.61 o0.15 0.46 DRAINAGE CANALS 34 22.92 7,79 15.13 4.38 1.49 2.89 5.79 1.97 3.82 4,07 1.38 2.69 4.50 1.53 2.97 4.18 1.42 2.76 PUMPING STATIONS 44 9.50 4.18 5.32 2.39 1.05 1.34 2.90 1.31 1.67 1.98 0.S7 1.11 1.03 0.45 0.58 1.12 0.49 0.63 BRIDGES,CULVERTS,OTHER 2 32 3.34 1.07 2.27 0.71 0.23 0.48 0.69 0.22 0.47 0.63 0.20 0.43 0.77 0.25 0.52 0.54 0.17 0.37 SUBTOTAL 36 37.70 13.51 24,19 7.59 2.79 4.80 9.46 3. 50 5.96 6.85 2.50 4.35 7.35 2.48 4.17 6.45 2.23 4.22

ON--FARM DEVELOPMENT KOMBINA7S(CREDITJ LAND CLEARING 26 1.34 0.35 0.99 0.00 0.00 0.00 0.38 0.10 0,28 0.51 0.13 0.3B 0.23 0.06 0.17 0.22 0.06 0.16 LAND LEVELLZNG 36 2.06 1.03 1.83 0.00 0.00 0.00 0.93 0.33 0.60 1,11 0,40 0.71 0.35 0.13 0.22 0.47 0.17 0.30 BSBSURFACE DRAINS /j 39 12.44 4.85 7.59 1.38 0.54 0.84 2.76 1.08 1.68 2.76 1,08 1,68 2.77 1.08 1.69 2.77 1.09 1.69 FARM ROADS 35 3.47 1.21 2.26 0.34 0.12 0.22 0.66 0.23 0.43 0.85 0.30 0.55 0.88 0.31 0.57 0,74 0.26 0.48 FARMYARDS 41 1.74 0.71 1.03 0.17 0.07 0.10 0.33 0.14 0.19 0.43 0.10 0.25 0.44 0.18 0.26 0.37 0.15 0.22 SUBTOTAL 37 21.85 8.16 13.69 1.89 0.73 1.16 5.06 1.88 3.18 5.66 2.08 3.5B 4.67 1.75 2.92 4.57 1.72 2.85

LOU I F'MENT DRAINLAYERS 73 1.36 0.99 0.37 0.45 0.33 0.12 0.91 0.66 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 DRAGLINES 73 3.50 2.55 0.95 3.50 2.55 0.95 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 06M 73 1.30 O.5 0.35 0.50 0.37 0.14 0.40 0.29 0.11 0.40 0.29 0.11 0.00 0.00 0.00 0.00 0.(0 0.00 FARM MACHINERY KOMBINATS(CREDIT) 66 11.10 7.33 3.77 0.71 0.47 0.24 2.12 1.40 0.72 2.69 1.78 0.91 2.19 1.45 0.74 3.39 2.24 1.15 VEHICLES EXTENSION 73 0.16 0.12 0.04 0.16 0.12 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 APPLIED INVESTIGATIONS 73 0.02 0.01 0.01 0.02 0.01 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ADMINISTRATION 73 0.05 0.04 0.01 0.05 0.04 0.01 0.00 0,00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0,00 0.00 0.00 MONIrORING 73 0.03 0.02 0.01 0.03 0.02 0.01 0.00 0.00 0.00 0.00 0,00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 u OFFICE AND PROFESSIONAL EfXTENSION 40 0.02 0.01 0.01 0.02 0.01 0.01 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 APPLIED INVESTIGATIONS 40 0.03 0.01 0.02 0.03 0.01 0.02 0.(0 0.00 0.(0 0.00 0,00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ADMINISTRATION 40 0.05 0.02 0.03 0.05 0.02 0.03 0.00 0,00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 MUNITORING 0.01 40 0.00 0.01 0.01 0.0( 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 SLUBO'T1AL 68 17.63 12.06 5.57 5.53 3.95 1.58 3.43 2.36 1.07 3.09 2.07 1.02 2.19 1.45 0.74 3.39 2.24 1.15

PRIVATE SECTOR CREDIT /4 29 5.66 1.64 4.02 1.13 0.33 0.80 1.13 0.33 0.80 1.13 0.33 0.80 1.13 0.33 0.80 1.13 0.33 0.80

MANAC'MNT & IECH. SERVICES LAND CONSOLIDATION / 13 3.05 0.40 2.65 0.25 0.03 0.22 1.38 0.18 1.20 0.42 0.05 0.37 0.70 0.09 0.61 0.30 0.04 0.26 TECHNICAL DESIGN /5 13 3.89 0.51 3.38 1.35 0.18 1.17 0.94 0.12 0.82 0.65 0.08 0.57 0.69 0.09 0.60 0.26 0.03 0.23 EXIENSION j 10 2.26 0.23 2.03 0.27 0.03 0.24 0.52 0.05 0.47 0.49 0.05 0.44 0.49 0.05 0.44 0.49 0.05 0.44 APPLIED INVESTIGATIONS , 30 0.52 0.16 0.36 0.18 0.05 0.13 0.11 0.03 0.0( 0.07 0.02 0.05 0.07 0.02 0.05 0,07 0.02 0.05 PROJEC1 MONIrORING 6 10 0.43 0.04 0.39 0.05 0.01 0.08 0.09 0.01 0.08 0.09 0.01 0.00 0.10 0.01 0.09 0.10 0.01 0.09 PROJECT ADMINISTRATION L6 7 1.98 0.14 1.84 0.22 0.02 0.20 0.44 0.03 0.41 0.44 0,03 0.41 0.44 0.03 0.41 0.44 0.03 0.41 SUBT0TAL 12 12.13 1.46 10.66 2.32 0.31 2.01 3.48 0.43 3.06 2.16 0.25 1.91 2.49 0.29 2.20 1.66 0.18 1.40

TOTAL BASE COST 39 94.97 36.83 58.14 18.46 8.n 10.35 22.57 8.49 14.o8 18.90 7.23 11.67 17.84 6.30 fL.53 17.21 6.70 10.50 PHYSICAL CONFINGENCIES /7 39 9.55 3.76 5.79 1.80 0.81 1.00 2.28 0.87 1.41 1.91 0.74 1.17 1.81 o.65 1.16 1.75 o.69 1.05 pUICE CO1 INGENCICES 37 / 28.12 10.52 17.6 2.49 1.06 1.42 4.85 1.79 3.o6 5.62 2.1U 3.51 6.93 2.41 4.53 8.22 3.14 5.10 101TAL COST WITH CONTINGENCIES 39 132.64 51.11 81.53 22.75 9.98 12.77 29.70 11.15 18.55 26.Ji3 io.08 16. 35 26.58 9.36 17.22 27.18 10.53 16 65

1E Ieee price estimates are in April 1979 prices. /2 Other includes $350,000 in 1980 for construction of housing unit for extension. 3 Cost figure includes operating costs only. Capital cost of drain layers is included under equipmnt. Approximate Ly 11,% *rould be for equipment. 5 Service charges paid for detailed project design and administration of land consolidation. Includes salaries, vehicle operating costs, office overheads, overseas training and consultants. Capital items included under "On-farm Development" or "Equipment". 7 Physical contingencies computed on the basis or 10% for all items except 15% for subsurface drains and 0% for credit to private sector. Price contingencies computed on the basis of the following assuneptions: - Project years are calendar years and expenditures occur uniformly throughout years. - Annual inflation for equipment is 10% from April 1979 to the end of 1979, 7% in 1980 and 6% thereafter. _ Annual inflation fcr all ether items is 11% from April 1979 to the end of 1979, 8% in 1980 and 7% thereafter.

A,. - 51 -

ANNEX 1 Table 9 APPRAISALOF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Estimated Schedule of Disbursements

CumulativeDisbursements. IBRD Fiscal Year and Quarter in the Quarter (US$ Million) FY80 June 30, 1980 2.5

FY81 September30, 1980 5.0 December 31, 1980 7.5 March 31, 1981 10.0 June 30, 1981 12.5

FY82 September30, 1981 15.5 December 31, 1981 19.0 March 31, 1982 21.5 June 30, 1982 24.0

FY83 September 30, 1982 26.0 December 31, 1982 29.0 March 31, 1983 31.5 June 30, 1983 33.5

FY84 September30, 1983 36.0 December 31, 1983 38.0 March 31, 1984 41.0 June 30, 1984 43.5

FY85 September 30, 1984 46.0 December 31, 1984 49.0 March 31, 1985 51.0

/1 Disbursementprojections based on uniform phasing of expendituresin calendaryears. A lag of one quarter has been allowed in incurring of expendituresand claiming of reimbursementfrom the Bank. Figures have been rounded to the nearest 0.5 million US$.

December 1978 - 52 - ANNEX 1 Table 10 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Operation and MaintenanceEquipment List

Number

Universal tractormower 25

Tractor sprayer 4

Floating mower 1

Straddle excavator 5

High pressure pipe drain cleaner, nozzles, etc. 4

Automatic rake-cleanerfor pump intake 7

Hydraulic backhoe 2

Vehicles

Four-wheeldrive cars 6

Other cars 33 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Financial and Economic Prices of Project Benefits

Financial Economic Dinars/ton US$/ton US$ per head Dinars/ton US$/ton US$/head

Grains Wheat 1/ ) ex-farm or village, 2,700-2,800 150-156 3,580 201 Maize 2/ ) at harvest 2,500 139 2,720 151 Barley/Other cereals 3/ ) moisture 14% 2,400 133 2,430 135

Oilseed rape 4/ ) dried at ex-farm 6,100 339 5,620 312

Vegetables Potatoes 5/ ) 2,500 139 2,500 139 1 °'thervegetai-ies / ) ex-farm 3,000 167 3,000 167 Meat 7/ Cattle Cull cow (550 kg) ) 16,000 889 489 15,050 836 460 Calf (110 kg) - Male ) 42,000 2,333 257 (28,200 (1.567 172 - Female ) 35,000 1,944 214 ( ( Fat beast (440 kg) ) liveweight price ex- 25,000 1,390 612 23,500 1,306 575 ) farm or at village ) collection center Pigs 8/ Cull sow (150 kg) ) 17,000 944 142 15,450 858 129 Weaner (25 kg) ) 29,000 1,611 40 26,370 1,465 37 Fat pig (100 kg) ) 24,000 1,333 133 21,820 1,212 121 OQ Poultry meat 9/ ) 22,000 1,222 n/a 22,000 1,222 n/a X

Milk 10/ ) 3.65% butterfat, ex- ) village collection 10/ ) center 4.3 dine/litet 23.9 US$/litor 3.36dins/liter 18.7 US$/liter- Eggs 11/ ) hen's eggs, ex-farm 1.2 each 6.7 cents each 1.2 each 6.7 cents each-"/

Footnotes 1/ to 11/ on following pages. 54 ANNEX 1 Table 11 Page 2 Footnotes:

1/ Import parity price: i.e. World Bank Commodities Division forecast for 1990, US$174/ton, plus transport, Thunder Bay to Rijeka, US$24/ton, plus port charges and transport Rijeka to Zagreb US$8 per ton, less local assembly transport US$5/ton - equals US$201/ton.

2/ Export parity price: i.e. World Bank Commodities Division Projection for 1990, US$150/ton, plus transport, Gulf ports to Rotterdam US$6/ton, less local assembly transport US$5/ton - equals US$151/ton assuming maize free on rail Zagreb would be equally valuable to Southern and Central European markets as maize f.o.b. Northern European ports.

3/ On basis of value to animal feeds industry i.e. 90% valt.eof maize at Zagreb less local assembly costs = US$156 x 0.9 - US$5 = US$135.

4/ Import parity price: World Bank Commodities Division projections for 1990, US$305 adjusted for higher freight, Canada to Rijeka than Canada to Rotterdam, say US$4/ton, plus port charges and transport to Zagreb US$8/ton. Free at Zagreb factory price US$317/ton, less US$5 for local assembly - farm gate price US$312/ton.

5/ Not traded - Local price which is equivalent to US Cents 6.3 per lb (in line with US prices) taken.

6/ Not traded - local prices taken.

7/ Export parity price: Fat beasts which give high quality chilled beef are valued at export prices, and the economic price per kilo for cull cows and calves is derived from the economic price of fat beasts, plus a veal premium in the case of calves, and less a quality discount related to the financial price discount for cows. Fat beasts: Actual export prices include auality sides (280 kg dead carcass weight dcw) exported to Greece Nay 1978, IUS$1,850and June 1978, US$2,150 per ton compensated quarters f.o.b. Rijeka. Other prices quoted to the mission for carcass beef exports, destination unknown, October 1978 were US$1,850 and US$1,900 per ton f.o.b. dcw. Live steers for finishing (280 kg liveweight) are exported to Italy at US$1,500 per ton l.w. Taking the lower of these figures, US$1,850 as the f.o.b. price, the free at Zagreb price (after adjusting for chilled meat transport to the Port) would be US$1,830. With chilled carcasses, 5th quarter value would normally equal processing costs (including transport to slaughterhouse). Therefore "at village" liveweight price would be US$1,830 multiplied by the kill out 56% which equals US$1,025 per ton for 1978. 1990 figures are projected to rise 27% for Argentina/Australian beef - rise considered same for quality beef. This gives beef prices US$1,306 ex-farm (US$2,331 ex-slaughterhouse dcw). This is about 4% below the real average price 1968-1978. As the cost of concentrate feeds measured by an index 80% maize, 20% soya meal is projected to rise 40% over the same period (1978-1990), this projection is reasonable from a cost plus viewpoint. Calves: Valued at 20% above beef price - that is the export premium for veal to give US$1,567 per ton l.w. Cull cows: Valued at same discount to fat beast price as on domestic market, i.e. 36% below in liveweight terms to give US$836 per ton l.w. 55 - ANNEX 1 Table 11 Page 3 Footnotes (con'd)

8/ Fat pig: Economic price considered to be the same as for Romania, adjusted upwards by US$40 per ton of product sold because of lower land transport costs to Italy, Spain, and Greece. This gives a price of US$1,040 per ton l.w. ex-farm for 1971-1977 expressed in 1978 dollar terms. Application of 16½<%increase in value due to correspondingincrease in the economic price of feeds (index comprising 20% soya: 80% maize) would give US$1,212 per ton l.w. for 1990 economic price. Sow: Taken at same ratio with fat pig as in financial prices, e.g. US$944 to US$1,333 gives US$858/ton l.w. Weaner: Taken at same ratio to fat pig price as with the financialprice, i.e. about 20% higher. This gives weaner value of US$1,465 per ton l.w.

9/ Poultry meat: Not traded - valued at 92% of pigmeat price as in financial prices - US$1,111 per ton l.w.

10/ Milk: Import parity price of constituentparts plus cost of reconstitu- tion for proportion dried (5%) same value for proportion made into yoghurt and other manufacturedproducts (27%), import parity price of constituent parts plus cost of reconstitutionplus 50% consumer preferencepremium for local fresh sales (48%) and local price for on-farm consumptionand proportion made into local cheese (20%). That is 32% at Dinar 2.4, 48% at Dinar 3.6 and 20% at Dinar 4.3. Average Dinar 3.36 equals US Cents 18.7.

11/ Eggs: Not traded - Valued at domestic price of US Cents 6.7 per egg. This is about 15% above the December 1968 US wholesale price. APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Farm Model (Private Sector): 5 ha Cash Flows (Dinars) /

Without Year Project 1 2 3 4 5 6 7 8 9 10 11-40 41 Cash inflow Revenues /2 72,405 67,493 86,706 131,886 140,510 140,510 140,510 140,510 140,510 140,510 140,510 140,510 158,610 Long-term loans /3 IBRD funds /4 16,168 0 0 0 0 0 0 0 0 0 0 0 Local funds /5 28,432 0 0 0 0 0 0 0 0 0 0 0 Farmer's equityL6 _ 11,150 0 0 0 0 0 0 0 0 0 0 0

Subtotal 72,405 123,243 86,706 131,886 140,510 140,510 140,510 140,510 140,510 140,510 140,510 140,510 158,610

Cash outflow Investments /7 55,750 0 0 0 0 0 2,700 5,575 8,360 8,360 8,360 8,360 Operating costs /8 26,460 31,416 52,996 52,996 52,996 52,996 52,996 52,996 52,996 52,996 52,996 52,996 52,996 Land tax /9 5,500 5,500 5,500 5,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500 9,500 Drainage charge /10 1,350 0 0 0 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 Project works charge /11 5,000 5,000 0 0 0 0 0 0 0 0 0 0 erinc epal/10 0 0,920 b,920 0,920 o,yz- 0,y20 Interest > 1,6o6 3,211 3,211 2,569 1,927 1,284 642 a

Subtotal 33,310 99,272 66,707 70,627 76,685 76,o43 75,200 77,458 70,771 73,556 73,556 73,556 73,556

Farm family net benefit 39,095 23,971 19,999 61,259 63,825 64,467 65,310 63,052 69,739 66,954 66,954 66,954 85,0514 Less: Income without project 39,095 39,095 39,095 39,095 39,095 39,095 39,095 39,095 39,095 39,095 39,095 39,095 Incremental benefits to farmer's own equity -15.124 -19,096 22,164 24,730 25,372 26,215 23,957 30,644 27,059 27,059 27,059 45,959 FRR = 57,%

/1 October 1978 prices except for debt service and project charge figures which are nominal. /2 Sale and home consumption of crops and livestock and income from machine contracting. /3 80% of Year I investments. sAissume5,000 dinars for machinery, 39,600 dinars for other investments). Reinvestments are assumed to be self financed. /4 29% of Year 1 investments is F/X and financed through IBRD funds. /5 51% of Year I inve6tment6. 76 20% of Year 1 investments. /7 Assume reinvestments start in Year 7 as follows: Year 7: 5% of original investment, Year 8: 107, Years 9-41: 15%. /8 Includes seeds, fertilizers, sprays, machinery operating costs, protein balancer, milk powder, calf starter, calf meal, veterinary and A.I., maintenance and farm electricity, and miscellaneous. /9 Cadastral land tax. Assumed to increase in proportion to increase in revenue less operating costs as a result of improvement of land with project starting in Year 4. /10 It is assumed that a drainage charge will not be assessed for the first 3 years after project implementation. It is also assumed that the drainage charge will increase to cover drainage infrastructure 04M costs of $30/ha starting in lear 4. /11 2,000 dinars/ha paid in four equal installments over the first two years to the municipality for partial coverage of project costs. 712 It is assumed that combined IBRD and ZB funds are lent at 7.2% for 7 years including a grace period of two years for Drincial payments. Interest during the grace period is paid as it falls due.

December 1978 APPRAISAL OF

CROATIA SAVA DRAINAGEPROJECT

YUGOSLAVIA

Social Sector Cash Flows Generated from Crop Production Operations (Million Dollars) 2!

Project works period Without Y ear Project 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21-40

Cash inflow Revenues /2 1.76 1.90 2.50 3.74 6.24 9.63 11.47 13.07 13.41 13.59 13.59 13.59 13.59 13.59 13.59 13.59 13.59 13.59 13.59 13.59 13.59 13.59 Long-term loans I!3RD funds 03O 1.27 3.50 4.06 3.35 3.87 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ZB funds /4 1.2 0.89 2.46 2.85 2.35 2.72 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Social Sector equity L 0.3 0.55 1.48 1.72 1.42 1.65 0 0 0° 0 0 0 0 0 0 0° 0 0 0 Subtotal 1.76 3.4 5.21 11.18 14.87 16.75 19.71 13.07 13.411 13.59 13.59 13.59 13.59 13. 59 9 13.59 3.59 131.59 13.59.59.59 I3 359

Cash outflow Inrvestments1-AR 1.5 2.71 7.44 8.63 7.22 8.24 0.57 1.14 1.70 1.70 1.70 1.70 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 Operating costs/Z 2.07 2.17 2.61 3.21 4.29 5.62 6.15 6.61 6.64 6.66 6.66 6.66 6.66 6.66 6.66 6.66 6.66 6.66 6.66 6.66 6.66 6.66 Drainage charge A 0.17 0.19 0.19 .20 0.21 0.21 0.21 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 D.44 0.44 0.44 0.44 0.44 Project charge 9 .51 .62 .32 .46 .34 .18 .08 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Taxes L12 o 0 0 0.04 0.18 0.41 0.53 0.65 o.67 o.6y 0.66 o.67 o.68 0.69 0.7l1 D.69 o.69 o.69 o.69 o.69 o.69 o.69 Debt service LU. Principal 0 0 0 0 0.10 0.52 1.05 1.75 2.66 3.01 3.33 3.23 2.92 2.54 2.23 1.62 1.48 1.09 o.67 0.32 0 Interest 0.05 0.20 0.57 1.15 1.72 2.26 2.51 2.42 2.26 2.02 1.75 1.45 1.16 0.90 o.67 0.47 0.32 0.19 0.09 0.03 0

Subtotal 2.24 4.52 6.33 11.78 14.92 15.52 18.1 11.91 13.06 14.38 14.49 14.55 14.15 13.57 12.95 12.38 11.58 11.29 10.77 10.25 9.84 9.49

Social Sector net benefit Ll -o.48 -1.12 -1.12 -o.6 -0.05 1.23 1.61 1.16 0.35 -o.79 -0.9 -0.96 -o.56 0.02 o.64 1.21 2.01 2.3 2.82 3.34 3.75 L.1

Cash flow for all resources used L.U -2.57 -3.63 -7.47 -7.53 -4.07 -3.84 4.72 4.52 4.12 4.13 4.12 4.11 4.10 4,0s 4.10 4.10 4.1o 4.10 4.1o 4,1o 4.io

FRR = 10,9Y

/ October 1978 prices except for debt service and project charge figures which are nominal. / Sale of craps. i 47% of project investments (i.e. F/X component). Note that Bank financing does not cover Year I (calendar year 1979). A 33% of project investments. 20% of project investments. Reinvestments starting in Year 7 assumed to be self-financed. b 1 / On-farm development and farm machinery credit including physical contingencies. /7 Includes seeds, fertilizers, sprays, drying and spraying service, machinery, labor, and overhead costs. AIt is assumed that the current yearly drainage charge of $15/ha will be increased to cover yearly drainage infrastructure O+N costs of 930/ha as of the completion of project works (Year 7). i u 2,000 dinars/ha paid over two years for newly drained land starting in the year of drainage for partial coverage of project costs. w /10 Computed as follows: Taxes = Nlax 0; 13% (Revenues - Operating costs + Direct labor costs - Drainage charge - Depreciation) Depreciation has been computed using the straight line method over 10 years for machinery and using t.5s per year over the lifetime of the project for other investments. Note that the 13% tax rate includes a 0.0765% component for the Croatia water interest union (SVIZ). L/1 Repayment terms assumed: 9% combined ZB and IBRD funds; 10 years with 3 year grace period for machinery credit; 15 years with 5 year grace period for other credit; interest paid as it falls due during the grace period; loans disbursed uniformly throughout the year. Figures not deflated to account for inflation. /12 Cash inflow less cash outflow. Lu Revenues less operating costs less charges less taxes less investments. December 1978 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Detailed Phasing of Drainage (hectares)

Before Project Social Sector 1979 1980 1981 1982 1983 1984 1985 Basic infrastructure Cernec 500 /1 400 930 2,670 2,660 - - Zelina - - - - 230 460 460 Lonje - - - - 460 820 820 Cesma I - - 140 280 270 - - Cesma II - - - - 90 190 180 Sisak - - 430 860 860 - - Kutina - 600 - - - - -

Total completed in year /2 500 /1 1,000 1,500 3,800 4,600 1,500 1,500 1

Cumulative area with Basic inf.(Yr. end) (A) 500 1,500 3,000 6,800 11,400 12.900 14,500 14,500 of which pipe drains installed in year - 1,000 1,300 2,500 2,500 2,500 2,500 Cumulative pipe drained area (Yr. end) - 1,000 2,300 4,800 7,300 9,800 12,300 12,300 Undrained land in Social Sector (Yr. end) (B)10,900 11,000 9,900 6,500 2,300 1.200 -

Total area in Social Sector /1 (A + B) 11,400 12,500 12,900 13,300 13,700 14,100 14,500 14,500

Private Sector Area drained in Year /2 - 100 3,300 5,900 8,100 6,000 6,100 Cumulative area drained (Yr. end) (C) - 100 3,400 9,300 17,400 23,400 29,500 29,500 Undrained land in Priv.Sector (Yr.end) (D) 32,600 31,400 27,700 21,400 12,900 6,500 -

Total land in Private Sector (C + D) 32,600 31,500 31,100 30,700 30,300 29,900 29,500 29,500 -

TOTAL LAND IN PROJECT (A + B + C + D) 44,000 44,000 44,000 44,000 44,000 44,000 44,000 44,000 >

/1 Pilot farm. /2 Totals rounded to nearest 100 ha. December 1978 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Drained Area by Catchment at Full Project Development

Cernec Zelina Lonje Cesma I Cesma II Sisak Kutina Total -- …------…(ha)…------… Social Sector 580 12,300 Basic network and new subsurface 6,000 1,000 2,000 600 400 1,720 2,200 Basic network only 1,160 /I 150 300 90 60 420 20 Total Social Sector 7,160 1,150 2,300 690 460 2,140 600 14,500

Private Sector 29,650 Basic network 7,440 5,550 8,100 2,510 1,440 2,880 1,730 44,150 TOTAL DRAINED AREA 14,600 6,700 10,400 3,200 1,900 5,020 2,330 Total Gum.!2 Phasing of Construction of Basic Network (ha comp. in year) _ _ 500 500 Before project (pilot farm) 500 _ _ _ _ 700 1,100 1,600 Works prior to Year 1 400 - - - - - 810 4,800 6,400 Year 1 2,420 - - 640 _ 1,000 820 9,700 16,100 Year 2 5,640 - - 1,280 - 2,010 12,700 28,800 Year 3 5,640 1,340 2,080 1,280 380 2,010 - 7,600 36,400 Year 4 - 2,680 4,160 - 760 - - 7,600 44,000 Year 5 - 2,680 4,160 - 760 - - /2 TOTAL DRAINED AREA 14,600 6,700 10,400 3,200 1,900 5,020 2,330 44,000

/1 Includes pilot farm, 500 ha. /2 Total by catchment of 44,150 rounded to 44 000,

December 1978 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Detailed Phasing of Cropped Area (ha)

Without Year Proj ect 1 2 3 4 5 6 7 8 9-40

PRiIVATE SEC:TORfi WHREAT 3100 3000 3000 3300 4000 4800 5500 6200 6200 6200 MAIZE 8900 8600 8500 8800 9300 10300 10800 11600 11600 11600 OTHER CEREALS 800 800 800 700 500 300 100 0 0 0 R APE SE:E:ED 0 0 0 100 300 600 800 1000 1000 1000 FOlATOES 1500 1400 1400 1400 1400 1500 1500 1.500 1500 1500 VEGETAEBLES 600 600 600 600 600 600 600 600 600 600 o MAIZE SILAGE 0 0 0 100 300 600 800 1000 1000 1000 OTHER FORAGE 1200 1200 1100 1000 800 500 200 0 0 0 SECONDi CROP FORAGE' 0 0 0 300 800 1500 2000 2500 2500 2500 IMPROVED GRASS 2900 2800 2800 3200 4100 5200 6100 7000 7000 7000 FALLOW 900 900 900 800 600 300 200 0 0 0 PERMANENT GRASS 12100 11600 11500 10100 7800 4600 2300 0 0 0 ORCHARDS 600 600 600 600 600 600 600 600 600 600 SlJBTOTAL 32600 31500 31200 30700 30300 29900 29500 29500 29500 29500

SOCIAL SECTOR WHEAT 800 900 1400 2400 4200 6100 6300 6200 6000 5700 MAIZE 1700 1900 2100 2600 3400 4500 5100 5600 5600 5700 OTHER CEREALS 300 300 300 300 200 100 0 0 0 0 RAPE SEED, 100 100 200 300 600 1200 1700 2400 2600 2800 MAIZE' SILAGE 300 300 300 300 300 300 300 300 300 300 FALLOW 600 700 600 500 400 100 100 0 0 0 FPERMANENT GRASS 7600 8300 7900 6900 4600 1900 1000 0 0 0 I SUBTOTAL 11400 12500 12800 13300 13700 14200 14500 14500 14500 14500j APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Detailed Phasing of Crop Production (tons)

Without Year Project 1 2 3 4 5 6 7 8 9-40 F'RIVATE SECTOR WHEAT 8700( 8400 8200 9600 :1.2700 17700 22000 26800 27900 28500 MAIZE 31100 30.100 29200 31.700 37800 48400 57600 68600 71600 73100 OTHER CEREALS 1500 1500 1400 1200 900 500 '200 0 0 0 RAPE SEED 0 0 0 200 700 1300 1800 2300 2400 2500 POTATOES 12000 11600 11200 11000 110OO 11900 12700 14100 14700 15000 VEGETAB LES 5400 5200 5000 4900 4900 5300 5600 6200 6500 6600 MAIZE S:ILA GCE 0 0 0 1600 4400 8700 12200 15800 16500 16800 OTHER FORAGE 14400 13900 13400 11500 8600 5000 2200 0 0 0 SECOND CROP FORAGE 0 0 100 1800 5300 10300 14500 18600 19600 20000 IMPROVED GRASS 23200 22400 21800 25300 33000 45500 56300 68300 71.300 72800 FAL[OW 00 0 0 0 0 0 0 0 0 PERMANENT GRASS 48400 46700 45000 38800 28800 16800 7200 0 0 0 ORCHARDS 4200 4100 3900 3800 3600 3600 3700 3900 4100 4200

SOCIAL SECIOR WHEAT 3000 3200 5500 10300 18800 29200 31900 32900 32300 31300 MAIZE 8200 8800 10300 13300 19900 29100 35000 40500 41800 42700 OTHER CEREALS 700 800 700 600 400 200 100 0 0 0 RAPE SEED 200 200 400 700 1600 3200 5000 7100 7800 8400 MAIZE SILAGE 5000 5400 5300 5000 4700 4600 4800 5000 5a00 5000 FALLOW 00 0 0 0 0 0 0 0 0 F'ERMANENT GRASS 30400 32800 30700 25500 16000 6600 3200 0 0 0

-'Da APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Detailed Livestock Phasing

Before Year Cattle Project 1 2 3 4 5 6 7 8 Cattle numbers & sales Numbers Milk cows (at start of year) 14,500 14,500 14,400 14,300 14,200 14,100 14,000 14,000 14,000 Pregnant heifers 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Repl. heifers 4-16 months 2,900 2,880 2,860 2,840 2,820 2,800 2,800 2,800 2,800 Other cattle 4-16 months (Yr.end) 1,200 1,570 2,540 3,460 4,380 5,300 6,200 7,200 7,200 Calves born in year & surviving 10,450 10,450 10,400 10,300 10,200 10,100 10,000 10,000 10,000 Sales Calves sold at 110 kg 6,350 6,000 5,000 4,000 3,000 2,000 1,000 nil nil Steers (440 kg LW) sold 1,200 1,200 1,570 2,540 3,460 4,380 5,300 6,200 7,200 Replacement heifers produced 2,900 2,900 2,880 2,860 2,840 2,820 2,800 2,800 2,800 Cull cows sold (550 kg LW) 2,750 2,850 2,840 2,820 2,800 2,780 2,660 2,660 2,660 Milk sold 1/cow 1,550 1,550 1,650 1,850 2,050 2,200 2,350 2,450 2,500 Milk sold (Million 1) 22.5 22.5 23.8 26.5 29.1 31.0 32.9 34.3 35.0 Pigs Sow numbers - beginning year 6,000 6,000 6,000 6,000 7,000 8,000 9,000 9,000 9,000 Pigs/sow/year 9 9 92 10 10½ 11 11½ 12 12 Pigs born 54,000 54,000 57,000 60,000 73,500 88,000 103,500 108,000 108,000 of which to be replacement - gilts 2,040 2,040 2,040 3,040 3,380 3,720 3,060 3,060 3,060 - 100 kg pigs 6,940 6,940 7,500 9,000 18,000 30,000 46,000 50,000 50,000 25 kg - pigs 45,020 45,020 47,460 47,960 52,120 54,280 54,440 54,940 54,940 Sales or production in year Cull sows 1,980 1,980 1,980 1,980 2,310 2,640 2,970 2,970 2,970 100 kg pigs 6,940 6,940 7,150 8,070 12,420 22,560 36,080 47.520 50,000 25 kg pigs 45,020 45,020 46,970 47,860 51,290 53,850 54,410 54,840 54,940 Replacement gilts produced 2,040 2,040 2,040 3,040 3,380 3,720 3,060 3,060 3,060 Poultry Laying hens Number 110,000 110,000 110,000 110,000 110,000 110,000 110,000 110,000 110,000 Eggs produced (Million) 13.2 13.2 13.5 13.9 14.5 15.2 15.8 16.3 16.5 Other poultry Number 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 65,000 Tons gained 820 820 833 856 872 898 924 937 950

Dcb z

December 1978 - 63 - ANNEX1 Table 19 APPRAISALOF

CROATIASAVA DRAINAGE PROJECT

YUGOSLAVIA

InerenentalCosts /1 (Million Dollars)

Total Costs Year Without Project 1 2 3 4 5 6 7 8 9-40

Social Sector Crops - Seeds 0.15 0,.O o.o6 0.14 0.28 0.45 0.48 0.50 o.49 0.47 - Fertilizers 0.29 0.03 0.10 0.23 o.48 0.79 0.91 1.02 1.03 1.04 - Sprays 0.09 0.01 0.03 0.06 0.12 0.20 0.25 0.30 0.31 0.32 - Drying and spraying service 0.13 0.01 0.05 0.13 0.29 o.48 0.57 o.65 o.66 o.67 - Variable machinery 0.49 0.05 0.10 0.18 0.31 0.48 0.55 o.60 O.60 0.60 - Direct labor 0.29 0.03 0.05 0.08 0.13 0.19 0.22 0.24 0.24 0.24 - Overheads o.63 0.06 0.15 0.32 0.61 0.96 1.10 1.23 1.24 1.25

Subtotal 2.07 0.20 0.54 1.14 2.22 3.55 4.o8 4.54 4.57 4.59

Private Sector Crops - Seeds 1.74 -o.o6 -o.o8 -o.o4 0.04 0.17 0.26 0.36 0.36 o.36 - Pertilizers 0.77 -0.03 -0.03 0.22 0.71 1.37 1.84 2.33 2.33 2.33 - Sprays 0.14 0.00 0.00 O.o6 0.18 0.34 0.47 0.59 0.59 0.59 - Sundry direct items 0.13 0.00 -0.01 0.01 0.03 0.06 0.08 O.11 o.11 0.11 - Combine harvesting 0.32 -0.01 -0.01 0.02 0.09 0.18 0.24 0.32 0.32 0.32 - Drying 0.00 0.00 0.00 0.00 0.01 0.01 0.02 0.03 0.03 0.03 - Direct macbinery 1.16 -0.03 -0.05 -o.o4 -0.03 -0.01 0.02 0.07 0.07 0.07 - Family labor 4.14 -o.io -0.16 -0.13 -o.o6 0.07 0.21 0.39 0.39 0.39

Subtotal 8.40 -0.23 -0.34 0.12 0.97 2.19 3.i4' 4.20 4.20 4.20

Livestock - Calf starter/milkoovder 0.00 0.00 0.00 0.04 0.10 0.19 0.29 0.39 o.44 0.51 - Home-grown maize 2.74 0.02 0.14 o.38 0.89 1.59 2.28 2.69 2.75 2.69 - Balancer - 0.73 0.01 0.05 0.22 0.50 1.02 1.63 2.17 2.39 2.53 - Vet., Med., and A.I. 0.52 0.00 0.00 0.00 0.04 0.08 0.12 0.13 0.14 0.14 - Sundry direct items 0.14 0.00 0.00 0.01 0.01 0.03 o.OL 0.05 0.05 0.05 - Family labor 7.93 0.01 0.01 -0.02 0.15 0.24 0.32 0.23 o.16 0.04

Subtotal 12.06 o.o4 0.20 o.63 1.69 3.15 4.68 5.66 5.93 5.96

TOTAL 22-53 o.ol o.44 1.89 4.88 8.89 11.gO 14.40 14.70 14.75

/1 October 1978 financial prices. December 1978 - 64 - ANNEX 1 APPRAISAL OF Table 20

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Incremental Economic Benefits and Costs /1 (Million Dollars Equivalent) /2

Year 1 2 3 4 5 6 7 8 9-40 41 Benefits_ Social Sector Crops /3 0.16 0.88 2.38 5.35 9.30 11.29 12.95 13.25 13.38 Private Sector Crops /4 -0.33 -0.62 0.03 1.65 4.55 7.09 10.16 11.03 11.46 Livestock /5 -0.01 0.39 1.46 3.05 5.18 7.60 9.66 10.69 10.69 Residuals /6 1.15 14.40

Total Benefits -0.18 0.65 3.87 10.05 19.03 25.98 33.92 34.97 35.53 14.40

Costs Operating Social Sector Crops /7 0.20 0.54 1.15 2.27 3.63 4.17 4.64 4.66 4.68 Private Sector Crops /8 -0.19 -0.28 0.24 1.23 2.61 3.67 4.84 4.84 4.84 Livestock /9 0.04 0.21 0.65 1.68 3.14 4.66 5.65 5.92 5.96 O-M, Ext. Banking /10 0.11 0.34 .58 0.90 1.09 1.36 1.36 1.36 Investment /11 Project works 1.85 6.19 8.10 5.86 6.29 5.52 Equipment 4.66 2.00 2.46 1.74 2.69 On-farm development 1.23 2.10 4.44 4.95 4.10 4.02 Build.+Mach.+Livest.(Priv.) 1.31 1.31 1.31 1.31 1.32 Manag. + Technical services 1.33 1.90 2.97 1.81 2.12 1.35 Working capital /12 0.2 0.4 0.8 1.1 0.7 0.8 0.3 Reinvestment /13 .01 .01 .69 1.49 1.99

Total Costs 4.66 17.14 22.00 23.25 26.55 29.30 17.48 18.27 18.83

Net Value /14 -4.84 -16.49 -18.13 -13.20 -7.52 -3.32 16.44 16.70 16.70 14.40 ERR 16.6%

/1 Foreign exchange and unskilled on-farm labor have been shadow priced. /2 October 1978 prices. /3 Sale and home consumption of wheat, maize, other cereals, and rape seed. /4 Sale and home consumption of wheat, maize, other cereals, rape seed, potatoes, vegetables, and apples. Figures include home-grown maize for livestock feed. /5 Sale and home consumption of calves, steers, cull cows, milk, cull sows, fat pigs, weaners, eggs, and poultry. /6 Residual value of drag lines and drain layers in year 7 and residual value of farm machinery and livestock and recovery of working capital in year 41. /7 Seeds, fertilizers, sprays, drying and spraying services, variable machinery, direct labor, and overheads. /8 Seeds, fertilizers, sprays, sundry direct items, combine harvesting, drying, direct machinery, and family labor. /9 Calf starter/milk powder, home-grown maize,balancer, veterinary, medical and artificial insemination, sundry direct items, and family labor. /10 Operation and maintenance of drainage infrastructure (US$30 per ha), extension costs, and economic banking costs due to administration of project loans (assumed to be 2% of new loans). /11 Based on Project Cost estimates of Table e adjusted to October 1978 prices(deflated by 7.4%). Year 1 figures include investments already made and not financed under the loan. Operating costs and benefits have been calculated accordingly. /12 Working capital for crop and livestock production. For crop production it is assumed that 50% of a given year's production costs for wheat, rape seed and other cereals and 20% of a given year's production costs for maize are incurred in the year prior to the year of sale. For livestock production it is assumed that storage costs amounting to 50% of the value of the incremental home-grown maize are incurred in the year of feed production. /13 Includes machinery for private and social sectors, refurbishing of pumping stations, vehicle coats for research, extension and monitoring. /14 Total incremental benefits less total incremental costs.

December 1978 APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Participating Agencies in the Project Area

SAVARIVER AUTHORITY (OVP) I ZAGREBACKA BANKA, ZAGREB (ZB) Agenc ____ Borrower ~ExEcuting

User Flood Control! Basic Organization of Social Sector t Individual Drainage I Agency Associated Labour BOALs Enterprises Farm Sector Association

| "Agroposavina" IZLogZ t SVIZ-Sava Administration anc "grop osadina- Ivanic Grad Ivanic Grad Kut

| BOAL Zagreb VI L "Posavina"F

BOAL Dugo Selo Institute of Plant _ _ r Selo _ Breeding Zagreb . g

Lonja-Zelina, BOAL Kutina 1 Pilot farm "Jezevo" SIZ Selo S Zagreb Dugo BOAL Sisak

"Sljeme" BOAL Cattle Farm Sesvetski I-- Sesveste Kraljevec

"Cazma" Agrokombimat Cazma [SIZCesma-Glogovnica,

I I SIZ Sisak-Banija i Sia 'Koopexport" Sisak - Sisak _ ~ _~ ~ ~ ~ ~~~~~~~~~~ein Sisakt ANNEX 2 - 66 -

APPRAISAL OF

CROATIA SAVA DRAINAGE PROJECT

YUGOSLAVIA

Related Documents and Data Available in the Project File

A. General Reports and Studies Related to the Sava River Basin

A.1 "Study for the Regulation and Management of the Sava River Basin; Final Report", by Consulting Engineers Consortium,UN, April 1972.

A.2 "Land Reclamationand Development in Sava River Basin", Final Report of ILACO, # AGS:DP/YUG/68/509UNDP/WHO, 1973.

A.3 "Sava River Basin Study", Briefing Paper by C. Brochu, FAO, July 1976.

B. Reports and Studies Specific to the Project

B.1 Project FeasibilityStudy: "InvestmentProject Crnec Polje", by Opce VodoprivrednaPoduzece (OVP), Zagreb, 1977.

- Main Report - Annex 1: Project area - Annex 2: Demography - Annex 3: Agriculture - Annex 4: Technical aspects - Annex 5: Institutionsconcerned with the project - Annex 6: Land tenure and land consolidation - Annex 7: Organizationand management of the project - Annex 8: Market and prices - Annex 9: Recapitulationof cost estimates - Annex 10: Financial analysis - Annex 11: Economic analysis

B.2 Ruza First-Dilic(Bank Consultant)Reports with parts in Serbo- Croatian and parts in English.

- Social Impact of Land ConsolidationMeasures in SR Croatia - Role of Farm Women in SR Croatia

C. Project ImplementationVolume (WorkingPaper) IBRD 14150 MARCH 1979 | < AB1'C'';-X0S~~~~~~~~~~~Cc

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