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The World Bank Documentof The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized MTCR)EI CIHF GOPY Report, No.: 10850-CH Type: (SAR1) Ti tle: IRRIGATION DEVELOPMENT PR(JECT ReportNo. 10350-CH Author: WITTNDEREG, P E>-xt. ::3l,18"2 Ioroom: I60(05 Dept., :I,A4AG STAFF APPRAISAL.REPORT Public Disclosure Authorized CHILE IRRIGATIONDEVELOPMENT PROJECT OCTOBER26, 1992 Public Disclosure Authorized Public Disclosure Authorized Country Department IV Agriculture Operations Division Latin America and the Caribbean Regional Office Thisdocunnent has a restricteddistribution and may be usedby recipientsonly in the performanceof their offlicialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization.| CURRENCY UNIT Peso (Ch$) EXCHANGE RATE (as of June 23, 1992) US$1.00 = CH$345 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES The metric system has been used throughout the report. ABBREVIATIONS A list of abbreviations used in the report is shown in Annex 12. FOR OMCIL USE ONLY CHILE IRRIGATION DEVELOPMENTPROJECT Table of Contents I. LOAN AND PROJECT SUMHARY . .*.. i II. TH SECTORCONTEXT . A. Agriculture in the Econinth.omy.. 1 B. The Irrigation Subsector a . L III. DEVELOPMENTALPOTENTIAL AND CONST%AINTS . ....... 5 A* Potential . 5 . * *. 5 B. Irrigation Water Management . 5 C. Investment Policy 6 D. Agricultural Development 7 E. Environmental Constraints . 7 IV. BANK INVOLVEMENT AND LESSONS LEARNED . .... 10 A. Bankwide Lending for Irrigatio-iand Drainage . 10 B. Lending to Agriculture in LAC . 1 1 . LL C. Bank Involvement in Chile . 1 . * 1L V. PROPOSED STRATEGY, DESIGN, AND RATIONALE FOR BANK INVOLVEMNET . ll A. Government Strategy in Irrigation . ll B. Rationale for Bank Involvement . 12 C. Project Design and Strategy . .. 13 VY. THE PROJECT o * . ..... ... .3 . 13 A. Project Objectives . 1 . 13 B. Project Components . 14 C. Detailed Project Features . 14 VTI. PROJECT COSTS AND FINANCING . .. ...... ..... 19 A. Costs . ..... @- *0-*@e.......................Lg B. Financing . .... ... .. .. .* . .. .. * 19 C. Disbursements . .-. 19 D. Procurement . * * . ..* . 20 e. Cost Recovery . .*. * . 22 F. Environmental Screening . 23 G. Rural Women . ..... ........ *............ 24 VIII. PROJECT ORGANIZATION . ............... ..... 25 A. Project Coordination . .. 25 B. Accounts and Audits ......... ... ................... 26 C. Monitoring and Evaluation . .. ..... 26 This report is based on the findings of an appraisal mission which visited Chile In March 1992, comprising Messrs. Hagerstrom (Mission Leader), Wittenberg, Tobelem (Bank), Floto (FAO/CP) and Carroll (Consultant). Peer reviewers were Messrs. Ruivivar and Kramer (LALAG). Messrs. Ping-Cheung Loh, Mark Wilson, and Peter Wittenberg are the Department Director, Division Chief, and Task Manager, respectively, for the operation. iThsdocument has a restricted distribution and may be used by recipients only in the performance | of their officialduties. Its contents may not otherwise be disclosedwithout World Bank authorization. Table of Contents (Continued) IX. BENEFITS, ECONOMIC ANALYSIS, ENVIRONMENTAL IMPACT AND RISKS . 27 A. Benefits . .. 27 B. Economic Analysis . ... 27 C. Environmental ImpRe- . 27 D. Project Risks . 28 X. SUMMARYOF AGREEMENTSTO BE REACHED AND RECONNENDATION . 28 ANNEXES: 1. List of che 100 Poorest Rurul Municipalities in Chile 2. Criteria for FeasibilityStudies Financed by the Government 3. InstitutionalDevelopment 4. AgriculturalDevelopment 5. RegularizingWater Titles 6. Summary Project Cost Tables 7. Executive Summary of the Sectoral EnvironmentalAssessment 8. Key Performance Indicators 9. Allocation of Loan Proceeds 10. Loan DisbursementSchedule 11. List of Documents Available in the Project File 12. Abbreviations HAP: IBRD 23006 CHILE IRRIGATIONDEVELOPMENT PROJECT X. LOAN AND PROJECT SUMMARY Borrower: Republic of Chile Loan Amount: US$45.0 million equivalen. Terms: Scventeen years, including five years of grace, with level payments of principal, at the Bank's standard variable interest rate. Proiect Objectives: The project would aim to improve the operation and efficiency of existing and future irrigationschemes and enhance the welfare of small farmers. It would also improve the allocationand sustainabilityof investmentsand strengthen the capacity of user groups and small farmers to exploit better irrigated agriculture. Proiect Description: The project would: (a) invest in rehabilitationand modernizationof exiating irrigation schemes and in the constructionof new small and medium-size schemes; (b) support small farmers in agriculturaldevelopment to complement irrigation investment;and (c) regularize water titles and strengthenthe managerial capacity of user groups. Benefits: The main project benefits would include: (a) expansion of the irrigated area benefitingmostly small farmers in marginal rainfed areas; (b) enhanced environmentand efficiency in water allocation resulting from improved conservationand management of water resources; and (c) greater water security leading to improved yields, better quality output and increased investment in high-valueexport crops. Risks: The main risks relate to prcject management capacity and cost recovery. Both the size and complexityof the proposed project appear to be within the capacity of the public agencies involved. However, because there has been no new public investmentin irrigation for about fifteen years their ability to coordinate and implement such a project remains untested. To minimize this risk an institutionalskills gap analysis was undertaken and mitigating measures have been developed. On cost recovery, given the poor results worldwide in developing effective cost recovery of irrigation investments and the poor performance in Chile of recovering loans from other sectors, the commitmentof government to cost recovery is a concern. However, the overall risk of non-collectionwould be substantially mitigated by having the Treasury collect the resources concomitantlywith property taxes, for which the collection rate is about 99X. - ii - Estimated Costs Olt Local Foreign Total -US$ million--------- I. Irrigation Infrastructure A. Civil Works 54.6 38.9 93.5 B. InstitutionalDevelopment 1.5 0.8 2.3 II. AgriculturalDevelopment A. Adaptive Research 2.8 0.0 2.8 B. Technology Transfer 1.3 0.4 1.7 C. Extension 3.6 0.1 3.7 D. InstitutionalDevelopment 0.5 0.2 0.7 III. StrengtheningUser Groups A. Training 0.9 0.0 0.9 B. Water Rights Titling 1.3 0.0 1.3 Total Baseline Costs b/ 66.5 40.4 106.9 Physical Contingencies£/ 0.1 0.1 0.2 Price Contingencies 7.1 4.5 11.6 Total Project Costs 73.7 45.0 118.7 Financing Plan: IBRD -- 45.0 45.0 Government of Chile 73.Z7 - 7L3. Total 73.7 45.0 118.7 Estimated IBRD Disbursements: IBRD FY 1993 ' 1994 1995 1996 1997 1998 1999 ---------------------------US$ million ---------------------- Annual 7.0 7.0 10.0 8.0 8.0 3.0 2.0 Cumulative 7.0 14.0 24.0 32.0 40.0 43.0 45.0 Economic Rate of Return: Estimated at no less than 12Z, based on criteria for selection of individual sub-projects. MAP: IBRD No. 23006 AI Valun rounded. ki Inckbn teax nwunt to US19.7 nilln. gI Not ppied to civi works.resch nd exteneion. / Inlnuds initi dpoit In the pcal accountof US*2.0rriion equivalent. II. THE SECTORCONTEXT A. ARriculture in the Economy 2.01 Though Chile is andowedwith a great diversity of natural resources, agriculturewas 1 ng regarded as an inconsequential,stagnant sector. Beginning in the mid-1960s, however, agriculturebegan to respond to policy reforms with an extended period of growth, only briefly interruptedby the turmoil of the early 1970s and macroeconomic imbalances in the early 1980s. Grow-thhas acceleratedto a rate of 51 2er annum since 1985, rural-urbanmigration has been stemmed, and agriculturehas become a dynamic and increasinglvvital sector in the economy. Currently, agriculture, including forestry and fisheries, generates about 10% of GDP, employs 19X of the labor force, and accounts for over one-third of the value of merchandise exnorts. 2.02 Recent growth is attributed largely to sustained liberalizationof the economy, macroeconomic stability, and fiscal stringency leading to a realistic exchange rate, particularlysince 19S5. Trade reforms and deregulationof factor markets have been complementedby sectoral measures to diminish the role of government in favor of private sector initiatives. With a relatively small domestic market, exports have provided most of .hze5 -rth, led by fresh fruit, forest, and fish products. The value of agricultureand forest exports relative to net value of production inc eaead from less than 5Z in 1965 to 20Z in 1982 and over 80% during 1988-90,while the share of total foreign exchange earnings from agriculture,forestry, and fisheries rose from 81 in 1965 and 61 in 1973 to an average of 351 during 1988-90. Import-competingcrops have also responded to improved incentives and productivitygains have helped to lower the share of food in total imports from 201 in 1965 to 4Z in 1988-90. B. The Irritation Subsector BackIaround and Development 2.03 About 35Z of the cropped area is dependent on irrigation, including all fruit orchards, which produced almost US$800 million in foreign exchange during 1990. The command area totals some 1.8 million ha, with about 1.2 million ha irrigated on a regular basis. Field crops, including cereals, maize, potatoes, and sugarbeet account for over 40Z of the regularly irrigatnd area, followed by pastures at 301, fruit trees at around 20Z, and vegetables ar less than 10Z. The areas with less reliable water supplies
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