Document of

The World Bank i OrlLw cop%y

FOR OFFICIAL USE ONLY

Report No. 1 990b-TUIN

TUNISIA

STAFF APPRAISAL REPORT OF

A RURAL ROADS PROJECT

June 2, 1978

Projects DepartmentEurope, Middle East and North AfricaRegional Office

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CU,RMCY gQUIVA 4L S

Currency Unit = Dinar (D)D 1 = US$2.3D 1,000 US$2,300D 1,000,000 = US$2,300,000US$1 = D 0.435

WEIGHTS AND MEASURES

Metric Systeni British/U.S. System

1 meter (m) = 3.28 feet (ft)1 kilometer (km) 0.62 miles (mi)1 sq. kilometer (km2) 0.386 sq. miles (mi 2 )1 hectare (ha) = 2.47 acres (ac)1 litre (1) = 0.2200 Imperial gallons (I gal)

0.2642 U.S. gallonLs (gal)1 metric ton (m ton) = 2,205 pounds (lb)

ACRONYMS AND ABBREVIATIONS

BNT - Banque Nationalede Tunisie (Tunisian National Bank)CLCM - Caisse Locale de Credit Mutuel (Local Credit Cooperative)CRDA - Commissariat Regional de Developpement Agricole

(Regional Agricultural Development Commission)DPA - Direction de la Production Agricole

(Agricultural Production Department)DPAEP - Direction du Plan, de l'Analyse Economique et des Projets

(Planning, Economic Analysis and Projects Department)DPC - Direction des Ponts et Chaussees (Highway Department)FOSDA - Fond Special pour le Developpement Agricole (Special Fund for

Agricultural Development)MA - Ministare de l'Agriculture (Ministry of Agriculture)MP - Ministere du Plan (Ministry of Planning)MPW - Ministere de l'Equipement (Ministry of Public Works)MTC - Ministere des Transports et des Communications (Ministry of

Transport and Communications)OC - Office des Cereales (Cereal Board)OMIVAN - Office de Mise en Valeur de Nebhana (Nebhana Development Board)OMVVM-PPI - Office de la Mise en Valeur de la Vallee de la Medjerda et des

Perimetres Publics Irrigues (Medjerda Valley and PublicIrrigation Districts Development Board)

SCM - Societe de Caution Mutuelle (Mutual Guarantee Association)SONAM - Societe Nationale de Motoculture (National Mechanized Farming

Company)STIL - Socigte Tunisienne d'Industries Laitiares (Tunisian Dairy

Industry Company)

REPUBLIC OF TUNISIA

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLY

TUNISIA

APPRAISAL OF

A RURAL ROADS PROJECT

Table of Contents

Page No.

I. TRANSPORTATION AND AGRICULTURE ..................... 1

A. General ....................................... 1B. Transportation ................................ 1C. Agriculture ................................... 3D. Previous Projects ............................. 5

II. RURAL ROADS AND AGRICULTURAL DEVELOPMENT .... ....... 6

A. Road Network .................................. 6B. Road Administration ........................... 7C. Agricultural Institutions ..... ................ 9D. Agricultural Credit ........................... 11E. Land Tenure ................................... 12

III. PROJECT AREAS AND APPROACH ......................... 13

A. Project Areas ................................. 13B. Approach ........ .............................. 15

IV. THE PROJECT ........................................ 18

A. Objectives .................................... 18B. Description ................................... 18C. Sub-Project Review ............................ 22D. Costs and Financing ........................... 23E. Implementation ................................ 26F. Disbursements ................................. 31G. Environmental Impact .......................... 32

The report is based on the findings of an appraisal mission in October!November 1977, composed of Messrs. H.L. Beenhakker (Economist), P. Long(Engineer), K. Vencatachellum (Loan Officer), G. Ludwig (EngineeringConsultant), P. Blom (Agricultural Consultant) and H. de Meel (AgriculturalConsultant).

This document ha a re tricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (Continued)

V. ECONOMIC EVALUATION ................................ 33

A. Sector Lending Approach ..... .................. 33B. Main Benefits and Beneficiaries .... ........... 34C. Marketing ..................................... 34D. Economic Analysis ............................. 34E. Project Risks ........ . ..........I....35F. Government's Capabilities .... ................. 36G. Technical Assistance .......................... 36

VI. AGREEMENTS REACHED AND RECOMMENDATIONS .... ......... 37

ANNEXES

1. Projects Previously Financed by the Bank2. Principal Engineering Criteria3. Terms and Conditions of Loans to Farmers4. Key Project Data5. Example of Application of Methodology6. Sample Farm Budget7. Cost of Means of Transport8. Related Documents and Data Available in the Project File

CHARTS

World Bank 18504 Organization of the Ministry of Public Works andHighway Department

World Bank 18505 Project Implementation ScheduleWorld Bank 18872 Project Implementation Organization

MAPS

IBRD 13318 Project AreasIBRD 13319 Project Roads and Zones of Influence in Le KefIBRD 13320 Project Roads and Zones of Influence in SilianaIBRD 13321 Project Roads and Zones of Influence in West KairouanIBRD 13322 Project Roads and Zones of Influence in East KairouanIBRD 13323 Project Roads and Zones of Influence in South Kairouan and

Sidi-BouzidIBRD 13324 Project Roads in NabeulIBRD 13325 Project Roads in KasserineIBRD 13326 Project Roads in East Sidi Bouzid and GafsaIBRD 13327 Project Roads in West Sidi Bouzid and GafsaIBRD 13328 Project Roads in Gabes

I. TRANSPORTATION AND AGRICULTURE

A. General

1.01 From an environmental view, Tunisia can be divided into three parts.Northern Tunisia, with an average rainfall of more than 350 mm and favorablesoil conditions, produces rainfed crops, in particular wheat and barley; itis the most developed part with a dense road system. In Central Tunisia, theaverage rainfall is 200-350 mm and the dominant outputs are: rainfed treecrops, mainly olives and almonds; cereal production, but at lower yields thanin the north; and sheep grazing. In Southern Tunisia the rainfall drops below200 mm and agriculture is therefore limited to sheep raising and the produc-tion of some date and vegetable crops in the oases. Agriculture is bestserved by the road network in the northern part; going south the networkbecomes less dense and the road standards become lower.

1.02 The population of about 5.9 million (1977) is heavily concentratedin Northern Tunisia and in the coastal plain. There is significant migrationinto the cities. The average annual population growth rate between 1966 and1975 was about 2.3%. The rate of natural increase is about 2.6%.

1.03 During 1973-76, the period covered by the Fourth Development Plan,Gross Domestic Product (GDP) grew in real terms at an average annual rate of7.6%, resulting in a 1976 per capita GDP of about US$840 (Atlas basis).During the same period, the annual growth rate of the basic trend in agricul-tural production is estimated at 5.5%. Road traffic in terms of passenger-kmand ton-km is estimated to have grown at an annual rate of 7% and 6%, respec-tively.

1.04 The Fifth Development Plan (1977-81) aims to maintain the growthmomentum; its average annual target growth rate of GDP is 7.6% per year. Inparticular, the new plan aims: (i) to create sufficient additional employmentto absorb the incremental labor force; (ii) to achieve self-sufficiency inmajor food products by 1981; (iii) to raise the standard of living; and (iv)to achieve social stability through wage and price harmonization and incomepolicies. The strategy to achieve these aims is to emphasize the creation ofemployment through investment in industry and agriculture. The volume ofagricultural output is planned to increase at an average annual rate of 4.4%.To achieve this target, the authorities recognize that agricultural infra-structure, including rural roads must be improved and appropriate policiesintroduced to strengthen the agricultural sector.

B. Transportation

1.05 A detailed description of the transportation sector is contained inBank Reports No. 930-TUN of December 1975 and No. 1539-TUN of May 1977. Sincemodes other than road transport have insignificant direct impact on rural roaddevelopment, no reference to them is made in this report.

1.06 The performance of road transport is critical for the agriculturalsector, because it is the dominant carrier of its outputs and inputs, as wellas other supplies and services for the rural population. With the publicinvestments made in the road transport companies during the Fourth Plan andthose planned for the Fifth Plan, together with the expansion of the privatesector, the vehicle fleet is not expected to be a constraint on the expectedgrowth of the agricultural sector.

1.07 Although certain sections are below standard for traffic require-ments, the main highway network is generally adequate in coverage and length.The First and Second Highway Projects were designed to improve the most criti-cal sections. The rural roads, which are defined as roads outside urban areascarrying predominantly agriculturally-related traffic irrespective of theirclassification, are, however, in poor condition and an impediment to agricul-tural development. They are essentially dry weather facilities which becomeimpassable during the rains. A large number of these roads have deterioratedover the past two decades due to lack of proper maintenance. Improvement ofthe rural road network now has high priority, as explained in more detail inChapter II.

Transport Policy, Planning and Coordination

1.08 The Government exercises considerable control over road transportand the road network, especially through the Ministry of Transport andCommunications (MTC) and the Ministry of Public Works (MPW). Public roadtransport (freight and passengers) is provided by large state companies whileprivate operators are limited to the transport of goods by light truck (pay-load capacity below 3.5 tons), or the transport of persons by passenger car.Upon the Bank's recommendation, regulations restricting owners of light trucksto the transport of only their own goods have recently been abolished. Other-wise, progress with simplification of regulations has been slow. Improvementsproposed by the MTC, but still awaiting Cabinet approval, include the aboli-tion of zonal restrictions for transport by truck, and of distance restric-tions for the use of trailers. The Bank plans to continue the dialogue onthese matters with the Government. -

1.09 Government-controlled transportation tariffs reflect the conditionof specific roads. Therefore, savings in vehicle operating costs due to roadimprovements are passed on to the farmers, other producers, consumers andpassengers in the form of reduced tariffs.

1.10 The detailed planning, administration, construction and maintenanceof the classified roads (which constitute about 50% of the rural roads) and,since 1974, also of the unclassified roads (which include the other 50% ofrural oads) is the responsibility of the MPW, in particular the Highway Depart-ment 'Lirection des Ponts et Chaussees, DPC) in the MPW. Until 1974, theMinistry of Agriculture (MA) was responsible for the unclassified roads. TheMTC is responsible for the planning and overall administration of investmentsin state transport enterprises. Both MTC and MPW suffer from a shortage ofqualified and experienced staff. To help fill this gap, they have contractedshe services of consultants, with Bank financing under the Second HighwayProject, to update the 1968 Transport Plan and in particular to prepare a`ilot rural roads improvement project which is the subject of this report.

- 3 -

1.11 The Fifth Development Plan envisages investments in the road networkand road transport companies of about D 126 million and D 79 million, respec-tively, in current prices. These investments represent 5% of total plannedinvestments and an increase of 59% in average annual investments over theactual investments during the Fourth Plan. The planned investments areadequate to cover high priority needs, including an initial program forimproving the rural roads.

1.12 The strategy of Bank lending for highways in previous years was toimprove: (i) the existing infrastructure; (ii) project preparation and imple-mentation; and (iii) transport policies and the institutional framework. Theresults of these efforts are described in Annex 1. The main thrust of futurelending would be to: (i) further improve the maintenance of the road network;(ii) consolidate progress in institutional development and the formulation ofpolicies; and (iii) prepare and implement a comprehensive and continuingprogram for the development and maintenance of the rural road network.

C. Agriculture

1.13 A number of Bank reports deal in detail with the Tunisian agri-cultural sector including No. 1133-TUN of October 1976, No. 1215-TUN andNo. 1539-TUN both of May 1977. Therefore, the present report covers onlythose sector features which are relevant to the proposed project.

1.14 The total area suitable for agriculture is about 9.0 million ha,of which 5.3 million ha are classified as cultivable; the remainder comprisesrange land for extensive sheep grazing, low yielding forests and desert. Thecropped area is about 3.1 million ha (about 0.5 ha per capita), including 1.3million ha under perennial crops. Only 110,000 ha are irrigated and devotedmainly to the production of tomatoes, peppers, potatoes, melons and citrus.

1.15 Agriculture is an important economic sector; in 1976 it absorbedabout 45% of the labor force, constituted 21% of GDP, and provided 13% oftotal value of exports, primarily olive oil, citrus, and other fruits andvegetables. Imports of agricultural products, mainly cereals, edible oils,dairy products, livestock and sugar, represented 12% of the total value ofimports in 1976.

1.16 Agricultural production was disrupted during the 1960s, when theauthorities attempted to organize the sector into cooperatives. This experi-ment was abandoned in 1969 and, since then, about 4.5 million ha have beenreturned to private farming. During 1973-76, the value of agricultural pro-duction grew rapidly (para. 1.03) partly as a result of extremely good weatherand favorable terms of trade for olive oil, but also due to internal factorssuch as Government policies supporting the resurgence of the private sector.

1.17 At present, the main constraints on the growth of agricultural pro-duction are: the poor condition of the rural roads; inadequate supply ofcredit, especially to low-income farmers; inefficiencies in extension services;poor soil conservation; and insufficient development of water resources. The

- 4 -

potential benefits from Government efforts to alleviate the above constraintsother than roads have often not materialized because farmers were unable tomarket their products and obtain necessary inputs on time due to the poor roadconditions.

Agricultural Policy, Planning and Coordination

1.18 The Government controls the ex-farm gate prices and marketing mar-gins of the major agricultural products, partly to protect the cost of livingand partly to provide the necessary incentives to farmers. Prices of the mainfoodstuffs are fixed by the Ministry of Economy, in practice once every year,upon request from and upon consultation with the MA and the National FarmersAssociation. During the previous plan period, domestic agricultural prices,including those of foodstuffs at the retail level, rose less rapidly than theprices of other items because the favorable weather and other conditionsraised production and thereby compensated the farmers at least partly for thedecline in prices. However, the authorities are aware that such favorableconditions are unlikely to repeat themselves and overall farm prices areexpected to increase by 5% annually during the present plan period.

1.19 The Government also exerts a large influence on agriculture throughits credit policies, extension and other services in support of the farmers.Encouraging efforts have been made in recent years to make these policies andmeasures more responsive and more efficient to meet the need of the farmers,but additional efforts need to be made during the current Development Plan.

1.20 The MA is principally responsible for the detailed planning, admin-istration and implementation of agricultural policies, support measures, andprojects such as irrigation works, soil conservation, the provision of farmequipment, extension services and agricultural credit. At the national level,the Planning Department of the MA (Direction du Plan, de l'Analyse Economiqueet des Projets, DPAEP) is mainly responsible for preparing the agriculturalplan and the collection of data and research needed for project preparation.At the provincial level, the MA is represented by Regional Field Divisions(Commissariats Regionaux de Developpement Agricole, CRDAs).

1.21 The Fifth Development Plan aims to intensify previous efforts toremedy the principal deficiencies in agricultural development (para. 1.17).During 1977-81, total agricultural investments are planned to reach D 500million in current prices, representing 12% of total plan investments andan increase of 103% in the average of annual investments over actual invest-ments during the Fourth Plan.

1.22 Except for more emphasis on water resource projects, the Bank'sstrategy in Tunisia's agricultural sector remains the same as in the past;namely, to improve the use of fertilizers and seeds, to improve credit poli-cies and institutions, to improve extension services, and to improve irriga-tion programs and water development policies.

-5-

D. Previous Projects

1.23 The Bank has lent a total of US$92.0 million equivalent for seventransport projects,-and US$92.2 million equivalent for six agricultural proj-ects, of which US$31.6 million was for agricultural credit. The proposedproject would be the third in the road subsector. The Irrigation Rehabilita-tion Project (Loan 1068-TUN, US$12.2 million) and the Sidi Salem MultipurposeProject (Loan 1431-TUN, US$42.0 million) include US$1.0 million and US$4.0million, respectively, for the partial improvement of rural roads in theMedjerda Valley and Nebhana area (1,700 km) and in Beja and Nabeul (660 km),respectively. The Government's execution of the transport and agriculturalprojects has been generally satisfactory. Annex 1 gives brief details ofprevious projects.

- 6 -

II. RURAL ROADS AND AGRICULTURAL DEVELOPMENT

A. Road Network

2.01 Tunisia's network comprises about 31,000 km of roads, of which17,000 km are classified and 14,000 km unclassified. The breakdown by classand surface type for the classified network is shown in Table 2.1.

Table 2.1: ROAD NETWORK IN 1976

Surface Length Administrative Classification (km)Type (km) Primary Secondary Tertiary

Paved 7,679 3,306 3,290 1,083Gravel 615 34 206 375Earth 8,401 735 3,074 4,592

TOTAL 16,695 4,075 6,570 6,050

2.02 In 1974, the MPW, after it became responsible for the unclassifiednetwork, started preparing an inventory of these roads, which is now almostcomplete. About 5,000 km of the 14,000 km are forestry roads and the remainderare roads serving agricultural areas.

2.03 During project preparation rural roads were defined as roads outsideurban areas carrying predominantly agriculturally-related traffic, irrespec-tive of their classification (para. 1.07); they are mostly unpaved low-volumeroads. On this basis, the rural road network is estimated to total 18,000 kmcomprising approximately 9,000 km of unpaved classified roads and 9,000 kmof unpaved unclassified roads.

2.04 Traffic counts were not normally made on rural roads; they are nowbeing carried out on the roads being studied under the proposed project.Furthermore, the rural roads were rarely maintained by the MA (para. 1.10).Since most of them were originally built to low design standards, they arenow practically impassable during the rainy season and beyond the capacityof normal maintenance. As a result, farmers are unable to obtain essentialinputs and to sell their products on time and at reasonable transport costs.Also, the full benefits of existing extension and other support servicescannot be realized, because experts cannot reach farmers without undue diffi-culties, and credit is beyond reach. Many areas are virtually isolated formany months each year and have not been able to realize their full developmentpotential.

2.05 The Government submitted the proposed project for Bank considerationin late 1975 as a pilot scheme of high priority for launching a comprehensiveand continuing program for the development and maintenance of the rural roadnetwork. The Bank's experience indicates that, to achieve optimal benefits,it is frequently necessary to integrate road improvements and agriculturaldevelopment; the main reason for not achieving forecast economic returns (ERs)of road improvements in the past is the absence of a complementary agricul-tural development program. 1/ Thus rural road improvements often cannot beexpected to raise agricultural production automatically. Vice versa, mostagricultural investments by themselves would yield insufficient benefits tojustify their costs because the poor condition of the rural roads would weakentheir full potential impact. The pilot scheme would, therefore, comprise bothimprovements of rural roads and complementary agricultural investments.

B. Road Administration

2.06 The DPC is responsible for the construction and maintenance of themain and rural road networks (both classified and unclassified). Its head-quarters in Tunis consists of six divisions (programs, maintenance andoperations, major construction projects, studies, research and materialslaboratory, and equipment maintenance) plus a central administrative andaccounting service (Chart No. 18504).

2.07 In the regions, DPC has 11 field divisions (arrondissements), anincrease of 5 since 1975. A total of 18 are planned to be in place by 1981,1 for each province. The corresponding 18 roads subdivisions are already inplace, although not all the maintenance crews have yet been established andsome are undermanned. The full complement of 133 crews for the whole countryis planned to be operational by the end of 1981. The subdivisions are pri-marily concerned with maintenance, but also handle smaller constructionprojects.

2.08 DPC has almost its full complement of engineering assistants andtechnicians but its staff of 46 engineers is below strength. Recruitmentis difficult as civil service conditions are not attractive. Consultants,including 4 competent Tunisian firms, are providing highway design services.DPC engineers in charge are competent and most have been trained abroad,mainly in France.

2.09 Supervision of road works, including those in the Second HighwayProject, is carried out by DPC. The supervision is adequate. Supervision ofworks of the scope of the proposed rural road improvements would normally bedelegated to the field divisions (para 4.05). However, in view of the con-centration of some of the items, and more particularly of the recent estab-lishment of some of the field divisions, some assistance will be given fromheadquarters divisions in the form of resident engineers and laboratorytechnicians. This reinforcement of the field divisions is expected to ensurecompetent administration and supervision of the road improvement works pro-posed under the project. During negotiations assurances were obtained from

1/ Comparative Evaluation of Selected Highway Projects, OED, 1974.

- 8 -

the Government that it will make available, on site, sufficient qualified per-sonnel and other resources necessary to ensure satisfactory constructionsupervision.

Financing

2.10 The financing of rural road improvements is still evolving, bothbecause of the lack of priority given to these roads until recently and of therecent change in administrative responsibilities. In principle, rural roadimprovements may be financed from two capital budgets. The first is the RuralDevelopment Fund, which is administered by the governor of each province athis discretion among the many rural development needs. The funds devoted sofar to rural road improvement have been modest and have generally been limitedto such spot improvements as paving fords. The second is the recently estab-lished budget for the sole purpose of financing rural road improvements underthe proposed project. This budget will be administered by DPC.

Planning and Engineering

2.11 Prior to the proposed project, there was virtually no planning andno engineering of rural roads in Tunisia. Criteria have now been developedduring project preparation by a joint venture of French and Tunisian consul-tants, financed under the Second Highway Project. Annex 2 shows the principalengineering criteria, which are satisfactory and were discussed and agreedupon with the Government during negotiations. A technical manual for futureapplication by field divisions is being prepared and will be available beforeproject implementation starts.

2.12 During loan negotiations, assurances were obtained from theGovernment that it will continue the collection of technical, traffic,and other relevant data as a means to monitor project results and as abasis for the proper planning of the entire rural road network.

Construction and Maintenance

2.13 Other than spot improvements, little rural road construction hasas yet been undertaken in Tunisia. Construction works are normally carriedout under unit price contract. There are many large contractors in Tunisia.For the Second Highway Project 31 foreign and 8 Tunisian contractors pre-qualified, and the most recent tender call produced 7 bids, 4 of which werefrom Tunisian firms. Moreover, smaller regional contractors are likely to beinterested in the proposed works; these firms can take on contracts up to avalue of about D 1 million (US$2.3 million).

2.14 Maintenance of the classified highway network was studied under theFirst Highway Project, and the reorganization is now being satisfactorilyimplemented by DPC (para. 2.07). The new headquarters division in charge ofMaintenance and Operations (Chart No. 18504) began tunctioning in 1976. Thefield subdivisions carry out the maintenance of the roads and routine main-tenance of the main roads is now reasonably well in hand. Although routinemaintenance of the rural roads is not effective because of their condition(para. 2.04),the field subdivisions would be able to carry out routine main-tenance of the proposed project roads once they are improved (para. 2.09).

- 9 -

However, the subdivisions would need additional road maintenance equipment

(para. 4.05). Routine maintenance of the 1,000 km of roads in the project is

estimated to require an annual budget of approximately D 250,000. This repre-

sents about 6% of the total highway maintenance budget. Assurances were

obtained during negotiations that all rural roads improved to an appropriate

service level will be adequately maintained in accordance with sound engineer-

ing and financial practices, and the funds, facilities, services and other

resources required for this will be provided promptly as needed. The DPC is

expected to be able to carry out this task.

C. Agricultural Institutions

2.15 The MA has overall responsibility for agricultural planning and

development. Its DPAEP is responsible for the preparation of the agricultural

components of the proposed project, with the assistance of the same joint

venture of consultants which assists the DPC (para. 2.11).

2.16 For project implementation, several semi-autonomous public agencies

under the authority of the MA will be involved in addition to its Extension

Department, Crop Protection Department, Agricultural Production Department and

Livestock Production Department. The main semi-autonomous public agencies are:

(i) the Office de Mise en Valeur de la Vallee de la Medjerda et

des Perimetres PublicsIrrigues (OMVVM-PPI) and the Office de

Mise en Valeur de Nebhana (OMIVAN), which are primarily respon-

sible for the management and maintenance of the irrigation

network and for extension services and credit in kind to

farmers engaged in irrigated crop production;

(ii) the Office National de l'Elevage et des Paturages (ONEP),which supplies farmers with high-quality farm animals on

credit and is encouraging farmers to grow fodder crops underirrigation;

(iii) the Societe Tunisienne d'Industries Laitieres (STIL), which

is responsible for the transport of milk from collection

centers to processing plants and the production and dis-

tribution of milk and milk products in the country;

(iv) the Office des Cereales (OC), Cooperative Centrale de Ble(COCEBLE) and Cooperative Centrale des Grandes Cultures(CCGC), which market cereals and provide farmers with inputsfor cereal production and information about improved wheat

varieties; and

(v) the Societe Nationale de Motoculture (SONAM), which provides

equipment rental and maintealance services and sells equipmeniLand spare parts.

To facilitate project implementation, the number of agencies would be kept to

a minimum. For instance, OC would be responsible for all r-c7mmended -ictions

dealing with cereal production, rather than OC, COCEBLE . C? ZZGC.

- 10 -

2.17 MA's regional field divisions (CRDAs) are responsible for overseeingthe coordination of programs of semi-autonomous public agricultural agenciesand divisions of the MA, and would be responsible for coordinating the comple-mentary agricultural investments in the field. The staff of the CRDAs and ofall of the agencies of para. 2.16 is capable of implementing and monitoringthe project. In view of the deficiencies in equipment and maintenance insome of SONAM's regional work centers, the Government intends to strengthenexisting service cooperatives and to increase their number; these coopera-tives have functioned satisfactorily. The total staff serving the agricul-tural extension sector consists of about 175 chief engineers, 385 worksengineers, 240 assistant engineers, 1,060 technical assistants and 1,820technical officers. Some of this staff could be made more effective byimproving its communications capabilities and procuring new equipment suchas mobile extension units and audio-visual equipment (para. 4.09). Thecoordination among extension organizations also needs to be improved (paras.3.06-3.07 and 4.06-4.10).

2.18 A Coordinating Committee consisting of one high-ranking Governmentofficial from each of the Ministries of Public Works, Agriculture, Planningand Interior, especially created for the preparation of the proposed project,is responsible for the overall planning and administration of the rural roadworks and the complementary agricultural investments. This Committee, whichwas established upon the Bank's recommendation, has been functioning satis-factorily for project preparation but should be reinforced for project imple-mentation (para. 4.31).

2.19 The marketing of most agricultural products is in the hands ofprivate traders, some organized into cooperatives. Vegetables and fruitsfor export are usually graded, packed and exported through cooperatives.Milk is mostly sold to STIL, but sometimes to industrial vendors, while live-stock is sold by farmers in local markets, mostly to independent butchers.Some capacity shortages of collection facilities for products such as wheatand milk exist.

Agronomic Research

2.20 Agronomic research is concentrated around 3 main institutions:the Tunisian National Agronomic Research Institute (Institut National de laRecherche Agronomique Tunisienne) with central laboratories in Tunis and 16experimental farms spread through the country, the Tunis National AgronomicInstitute (Institut National Agronomique de Tunis) and the Rural EngineeringResearch Center (Centre de Recherche de Genie Rural). There are regionalresearch centers in Beja, Bizerte, Jendouba, Sousse and Gabes provinces.According to Government claims, significant results were recently obtainedin the field of new varieties of high-yielding wheat, in improvement of cul-tivation systems (crop rotation and weeding), in selection of fodder plantssuited to each region and in development of new varieties of vegetables andfruit trees. There is no research in the proposed project since the tech-nology to be applied would, except for the proposed production of medicagoin the provinces of Le Kef and Siliana, be known in Tunisia.

- 11 -

D. Agricultural Credit

2.21 Report No. 1133-TUN describes in detail lending policies, proceduresand related issues. The main issues have been resolved although the Bank andGovernment continue their dialogue under the Second Agricultural Credit Project.

2.22 The Tunisian National Bank (Banque Nationale de Tunisie, BNT) is themain institution extending investment credit to agriculture. It is one of thelargest commercial banks and the largest provider of short-term agriculturalcredit (about 65%). However, most of BNT's own resources are used for themore profitable non-agricultural operations, and for agricultural credit itrelies mainly on outside funds.

Investment Credit

2.23 Investment credit from BNT to agriculture encompasses medium-term(1-7 years) and long-term credit (more than 7 years); it is financed 97%from budgetary and foreign resources provided by the Bank, the United StatesAgency for International Development (USAID), the Swedish InternationalDevelopment Agency (SIDA), and the World Food Program (WFP). All resourcesmade available to BNT are placed in special funds with their own lendingrules and appraisal procedures. The most important fund is the Special Fundfor Agricultural Development (Fond Special pour le Developpement Agricole,FOSDA), which is financed from yearly budget appropriations. For FOSDA,which also provides investment grants, rules are specified for each type ofinvestment credit, fixing the proportion of loan, grant, and self-financing,the maximum loan amount (per ha, tree or other investment unit), and termsand conditions of the credit.

2.24 In 1977, the conditions for FOSDA credit were changed in the contextof the Bank-financed Second Agricultural CreditjProject. The new conditionsare described in Annex 3. The eligibility criteria for low-income farmers forconcessionary investment credit based on a family net annual income of D 600are expected to improve their access to credit. To streamline the rate struc-ture, the interest rate of FOSDA loans and loans financed with the SecondAgricultural Credit Project was increased in 1977 from 3.5 to 4.5% to astandard rate of 6.0% for low-income farmers, with the Government providingsmaller subsidies than under the previous FOSDA regulations. Furthermore,interest rates for commercial farmers were increased to 7% and those for agro-industrial borrowers to 8%.

Short-Term Credit

2.25 BNT makes short-term loans from its own resources to large commer-cial farmers and cooperatives. The 1974 creation of Mutual Guarantee Associa-tions (Societes de Caution Mutuelle, SCMs) has in principle made productioncredit from BNT more easily accessible to low-income farmers since they arejointly liable as members of an SCM. Requirements for SCM membership haverecently been lowered from a 20-ha farm to a 10-ha farm for grain producersin northern Tunisia, although loans to this lower category are in kind.Interest rates for short-term loans are 6% for low-income farmers and 7% forcommercial farmers (Annex 3).

- 12 -

2.26 Short-term credit in cash is also provided by the local creditcooperatives (Caisses Locales de Credit Mutuel, CLCMs), but about half ofthese cooperatives have been plagued by poor management, poor repaymentand continuing losses. Of the 42 existing CLCMs, 14 are planned to be takenover by BNT as agencies in 1978. Eventually, all will be taken over. IfCLCMs are considered to be part of BNT, over 90% of short-term credit wouldhave been made available by BNT. The remainder has been granted primarilyby the OC.

2.27 A number of government agencies provide short-term credit in kindto low-income farmers (para. 2.16). In 1977, the OC extended about 10,250loans, totalling D 461,000 to low-income farmers primarily for seeds, fer-tilizers and herbicides.

2.28 Despite the improvements mentioned in para. 2.25, no more than 5%of all low-incomle farmers in Tunisia received short-term credit in 1977 (para.4.13).

BNT Management

2.29 BNT management practices are satisfactory; further improvements arebeing discussed under the Second Agricultural Credit Project. Central BNTstaff approve short-term loans above D 3,000 and investment loans made fromits own and foreign funds. For investment loans from FOSDA and other specialfunds, local BNT staff perform a credit-worthiness study, and the lendingdecision is taken by the National Credit Committee on the advice of RegionalCredit Committees of which a CRDA representative is chairman. The technicalappraisal of investment loans is made by extension agents of the MA or itssemi-autonomous agencies. In 1977, local BNT staff were given the authorityto approve short-term loans under D 3,000. This procedure is satisfactory.However, greater decentralization of investment credit decisions would bedesirable to accelerate the processing of loan applications. This issue andrelated required training of local BNT staff is under discussion with theBank.

E. Land Tenure

2.30 Private property and collective ownership are the two principalforms of land tenure and account for about 90% of the cultivated land in thezones of influence of the rural roads. The remaining 10% consists of StateFarms and Farmer Cooperatives managed by the State Lands Bureau (Office desTerres Domaniales, OTD) of the Ministry of Interior. In most provinces about85% of the private holdings are less than 20 ha, 13% between 20 and 100 haand 2% more than 100 ha.

2.31 The OTD program to provide private titles to collective land ismaking steady progress, though the process may require about 15 years tocomplete. In the meantime, a simple property certificate ("Certificat dePossession"), which takes about three months to obtain, is acceptable assecurity by the BNT in cases where cadastral or Islamic titles are lacking.Such security is only required for long-term credit.

- 13 -

III. PROJECT AREAS AND APPROACH

A. Project Areas

3.01 The project areas would primarily consist of zones of influence ofrural roads in the provinces of Le Kef, Siliana, Kairouan, Sidi-Bouzid,

Kasserine, Gafsa, Nabeul and Gabes. The total area would be about 385,000 haand the total number of farm families would amount to approximately 32,000.

About 60% of the population in this area, which constitute primarily farmfamilies, belong to the rural poverty target group (para. 5.05). Annex 4 and

Maps IBRD 13319-13328 show the identified rural roads.

Land Use and Agricultural Potential of the Project Areas

Le Kef and Siliana

3.02 These provinces have a hilly terrain with an average rainfallbetween 500 and 600 mm. The present land use consists mainly of dry farming

with a two-year crop rotation of cereals and fallow. The project would facil-itate the accessibility of the region by improving rural roads, increaseinputs and credit availability, and improve extension services. The proposed

technical package would mainly include the introduction of fodder products(medicago and vetch oats) in the crop rotation. Fallow land is expected todecrease significantly and livestock production (cattle and sheep) to increase.

The proposed fodder crops and techniques have already been tested in the area.However, medicago is still at an early stage of experimentation. Based onongoing FAO and bilateral assistance projects, farmers' acceptability of thenew techniques is expected to be good. This is particularly true for farmersnot belonging to the low-income category (para. 2.24). The zones where ruralroads are to be improved would cover about 100,000 ha and 5,700 farm families.

Kairouan, Sidi-Bouzid, Gafsa and Kasserine

3.03 These provinces belong to the Central Tunisian region which isadversely affected by low rainfall (200 to 350 mm) and consequently has alimited agricultural potential. The identified roads' zones of influencewould cover about 250,000 ha and a population of 14,300 farm families. Theregion is a marginal sector for cereals and is mainly oriented towards rainfedarboriculture (olives and almonds), as well as extensive grazing for sheep.The development would be mainly limited to expanding fruit trees and rangemanagement. Some small irrigation schemes, primarily the drilling of newwells and deepening of existing ones, would also be considered. The agri-cultural potential of the zones of influence of rural roads in Sidi-Bouzid,Gafsa and Kasserine is particularly poor. Under the highway sector lendingapproach (para. 3.13), rural roads identified for possible improvementwould not be included in the proposed project if they are not economicallyviable. In such a case, a shift to other regions would be considered (para5.03). The Government wishes to examine the economic viability of improvingrural roads in the aforementioned three provinces since the Fifth Development

- 14 -

Plan objective of raising the standard of living (para. 1.04) applies partic-ularly to Central Tunisia. The Bank does not object to this examination pro-vided the cautious approach of paras. 4.20-4.23 is followed.

Nabeul

3.04 This is one of the richest of the proposed project areas. Irrigatedvegetables, citrus orchards, vineyards and cereals are the main crops of theregion. Agricultural production is now limited by poor access to markets andlack of basic agricultural supporting services, mainly for the small vegetableand fruit growers of the Northern Cap Bon area. The proposed rural road worksare expected to improve marketing conditions, and although no innovation wouldbe introduced in cropping patterns, technical agricultural packages would sig-nificantly improve present cropping techniques. The expected roads' zones ofinfluence would cover about 23,000 ha and 2,000 farm families.

Gabes

3.05 The main potential of the semi-desertic area of this province in thesouth is date palm and vegetable production in oases covering about 12,000 haand 10,000 farm families. Since large underground water resources have beenidentified in the south, the Government is planning to double the oasis areas,mainly for date production, which is of a high quality in Southern Tunisia andhas a good potential market in Europe. Growing alfalfa and developing live-stock are also envisaged. With the exception of some large State and privatefarms, most of the date palm groves belong to low-income farmers living at orbelow the absolute poverty level. Rural roads would facilitate the creationof new oases as well as marketing of existing and future date and vegetableproduction. The agricultural package would include improvement of date palmand intercropped vegetable production techniques. New plantations are plannedin the framework of the Southern Irrigation Project now under considerationfor Bank financing (FY79).

Services in Project Areas

3.06 In addition to insufficient lending resources being channelled intoagriculture, the following main issues exist:

(i) inadequate coordination among extension organizations suchas the MA's Extension Department, OMVVM-PPI and OMIVAM;

(ii) inadequate coordination between extension services andsuppliers of credit; and

(iii) lack of detailed, uniform guidelines applicable to allextension organizations.

3.07 As a result of insufficient coordination, farmers often obtain con-flicting advice, and due to the shortage of credit they may not be able tofollow up extension agents' advice. The MA is aware of this issue and, underits current five-year plan, aims to reorient its extension services in such a

- 15 -

manner that farmers will be in contact with only one extension agent. Smallregional extension units are planned to be introduced, which will grouptogether in the field the agents of the various organizations. These measures,which have been discussed and agreed upon during negotiations, should beeffective and would be supplemented by extension manuals with specific actionprograms (paras. 4.06-4.10).

B. Approach

3.08 Upon the reques,t of the DPC in 1975, each province sent in proposalsfor improvements of specific rural roads. Based on the estimated absorptivecapacity of the MPW and the MA, especially with regard to supervision, supportservices and maintenance requirements, the Government and the Bank selectedfrom these proposals about 1,000 km of rural roads for immediate study. Apilot scheme of this size was also felt to give appropriate impetus to afollow up project and to fall within budgetary constraints. The 1,000 km ofroads are located in diverse areas, because the proposed project is intendedto cover representative terrain, soil and environmental conditions, and agri-cultural potential in Tunisia. These areas are located in the provinces ofLe Kef, Siliana, Kairouan, Sidi-Bouzid, Gafsa, Kasserine, Nabeul and Gabes(paras. 3.02-3.05).

3.09 To achieve optimal benefits from a rural road development program(para. 2.05), the main features of the approach in project preparation are:(i) focus on individual rural roads and their specific zones of influence;(ii) the development of an integrated investment package for each road's zoneof influence; and (iii) the integration of these investment packages intoregional and national development plans. This integration was ensured by theMA during project preparation by taking into consideration the developmentplans of its semi-autonomous public agencies (para. 2.16). The main objectiveis to develop integrated investment packages, not only for those roads whoseimprovement could not be justified without complementary agricultural invest-ments, but also for those roads where road user savings alone would warrantimprovement. Moreover, to support the above investment packages, projectpreparation includes extension manuals with specific recommended actions,production goals to be attained, and procedures for monitoring success in eachrural road's zone of influence. To ensure sound development proposals, a dis-tinction between small, medium and large farmers, based on agro-economic con-siderations, is made in setting the goals and recommended actions. In rainfedareas, small, medium and large farmers are defined as holders of farms withsizes below 20 ha, between 20 and 100 ha, and above 100 ha, respectively. Therespective ranges are below 1 ha, between 1 and 5 ha and above 5 ha in irri-gated areas. The above distinction does not apply to investment credit, whichis granted mainly on the basis of income criteria (para. 2.24). The avail-ability of investment packages for each road makes it possible, from theoutset, to identify key crops and actions to be taken for successful projectimplementation. As a result, available extension and other support servicescan be focussed from the start on these crops and actions and their effective-ness should therefore be considerably improved. Annex 5 describes an exampleof an investment package.

- 16 -

3.10 Investment packages may consist of: (i) investments for rural road

improvements; (ii) rural road maintenance requirements; (iii) on-farm invest-

ments by participating farmers in land clearing, planting of permanent crops,

purchase of cattle, equipment and tool procurement, development of on-farm

storage, etc.; (iv) incremental working capital (purchased inputs, renting of

equipment, labor) required to achieve estimated production increases; (v)

incremental costs of improved extension services; and (vi) investments required

for collection facilities, equipment maintenance and rental facilities, etc.

Recommendations with regard to the inclusion of certain or all components in

the investment package are based on an analysis of the potential agricultural

development and traffic requirements in each rural road's zone of influence.

3.11 The zones of influence of the rural roads are determined by: (i) the

rural road network around the road being analyzed; (ii) the distances between

farms and local markets; (iii) the terrain; and (iv) the means of transport

used such as pack animals, animal-drawn carts, agricultural tractors, pickups,

trucks, passenger cars, and buses.

3.12 A series of models has been developed and a computer program written

to carry out the calculations required to quantify the costs and benefits of

the proposed investment packages for each rural road and its zone of influence.

Given forecasts of agricultural potentials and implementation rates, together

with road and traffic data, the program calculates agricultural revenues,

future traffic and transport benefits, the ER and optimal year for project

implementation. The results can also be tested for their sensitivity to

single and joint effects of different design standards, different assumptions

on agricultural and transportation policies, development strategies and pro-

cedures. One of the advantages of the approach is that all roads, and their

related investments are treated according to a consistent methodology. This

methodology has been tested in the field and can handle a range of traffic

requirements and agro-ecological environments. Of the 19 roads totalling

about 400 km which have been tested and evaluated, 18 were found to be eco-

nomically viable (para. 5.01). Annex 5 presents an example of the application

of the methodology and the resulting investment package (para. 3.10). The

project file contains full details of all the 19 packages which have been

analyzed (Annex 8).

3.13 Appraisal of the proposed project follows the general lines of the

highway sector lending approach. However, it differs from many projects

appraised in accordance with this approach, since it includes:

(i) an evaluation of the detailed preparation and economic

analysis of 19 specific rural roads with a total length of

about 400 km (para. 3.12) and complementary agricultural

investments in three provinces (Le Kef, Siliana and Kairouan)

according to a methodology acceptable to the Bank;

(ii) the identification of a further 40 roads totalling about

600 km and related agricultural investments, which will be

subjected to similar analyses and evaluation;

- 17 -

(iii) an assessment of the Government's capabilities to under-take the analyses and evaluation related to these further40 road sections; and

(iv) an assessment of the Government's capabilities to implementthe proposed investments and other measures.

Chapter IV describes procedures and criteria for Bank financing of individualroad sections of the aforementioned 600 km and their related agriculturalinvestments (paras. 4.20-4.23).

- 18 -

IV. THE PROJECT

A. Objectives

4.01 The proposed project would establish a pilot scheme for improving

rural roads and raising the agricultural production and standard of living

of the rural population. Better rural roads would facilitate the provision of

social and administrative services, while the increase in economic acti-

vity would create additional employment opportunities. Once established, the

pilot scheme would serve as a consistent methodology for and approach to the

development of the rural road network.

B. Description

4.02 The project would be based on specific rural roads and would com-

prise both road improvements and complementary agricultural investments.

Because most of the proposed road improvements and agricultural investments

are highly interdependent, such an integrated approach would achieve an

optimal development package (para. 3.09).

4.03 The project would consist of:

(i) civil works to improve about 60 rural road sections

totalling about 1,000 kIn;

(ii) road maintenance equipment, spare parts and workshop

machine tools;

(iii) equipment and training for agricultural extension

services;

(iv) agricultural credit;

(v) agricultural equipment and the construction of col-

lection and equipment rental facilities and workshops;

and

(vi) technical assistance.

The roads to be evaluated are listed in Annex 4 and shown on Maps IBRD 13319-

13328.

Rural Road Improvements

4.04 Improvements would consist of rehabilitation, upgrading or new con-

struction, all with particular attention to drainage, and would conform to the

design standards of Annex 2, which are satisfactory. Rehabilitation would

generally be on sections of roads that were previously engineered but

have not been maintained. Upgrading would generally follow the existing

alignment but would improve the pavement structure and longitudinal profile.

- 19 -

Rural Road Maintenance

4.05 As explained in Chapter II, rural road maintenance has been lackingin the past, but the organizational structure necessary has recently beenestablished and MPW's field sub-divisions would be able to carry out themaintenance of the roads of the proposed project (para. 2.14). Most sub-divisions are short of road maintenance equipment. Therefore, the proposedproject includes the purchase of road maintenance equipment to maintainabout 1,000 km of rural roads. The equipment would be distributed to thesubdivisions responsible for maintaining the project roads once they areimproved. However, because of practical organization and job scheduling, theequipment purchased under the proposed project would not be earmarked only formaintenance of project roads. In some cases the equipment would be used tocarry out additional tasks on other roads, and in other cases, project roadswould be maintained with other equipment.

Agricultural Extension Services

4.06 The Fifth Plan proposes the introduction of agricultural extensionunits (para. 3.07) and priority will be given to their introduction in theroads' zones of influence. These units will be staffed by technical officersof existing organizations. Such grouping would improve the coordination amongextension organizations. In addition, to improve the effectiveness of exten-sion services, each officer would be made responsible for a given area. Thefrequency of extension services would be in line with projected needs, whichare more frequent for small farmers than for medium farmers, while few addi-tional extension services to large farmers are planned, or needed.

4.07 Extension manuals, with specific action programs geared to theparticular provincial problems, have been prepared for each of the provincesof Le Kef, Siliana and Kairouan. Additional manuals are being prepared, onefor each province in which rural roads' zones of influence of the proposedproject are located. The action programs deal with diverse issues such ascrop rotation, coordination with credit suppliers, and indicators of progress.Therefore, the availability of these manuals is an important instrument forimproving the efficiency of the extension services.

4.08 The proposed introduction of medicago in the provinces of Le Kef andSiliana is the only technique with which Tunisian farmers have little expe-rience. It is, therefore, proposed to increase works engineers from two tofour in Le Kef and from one to two in Siliana during the first year of projectimplementation. The number of technical officers would be increased from fiveto twelve in Le Kef and from two to six in Siliana during the first two yearsof project implementation. The number of technical officers in Kairouan is tobe increased from 36 to 41, while an increase in works engineers is not neces-sary. Based on the total number of ha of all the zones of influence of theroads in the pilot project (385,000) and the total number of farmers' families

- 20 -

(32,000) and cropping patterns in these zones (paras. 3.02-3.05), it is esti-mated that the total number of works engineers would be increased from about385 to about 390. The increase in technical officers would be from 1,820 to

approximately 1,845 (para. 2.17), during the first two years of project imple-

mentation. The projection of graduates from agricultural schools indicatesthat these additional staffing needs can be easily met. In addition, theseneeds are not out of line with expectations about the normal growth of exten-sion staff in Tunisia.

4.09 Most engineers and technical officers whose territories wouldinclude zones of influence of the proposed project would require additional

training in specialized subjects such as communications with farmers. Thistraining, to be provided by about 6 man-months of consulting time, would takeplace in the form of seminars in Tunisia. In addition, there would be visits

to demonstration farms abroad during the first year of project implementation.The engineers and technical officers whose territories would include zones ofinfluence in the provinces of Le Kef and Siliana would receive training andfield assistance in medicago cropping from one expatriate expert (12 man-months) during the first year of project implementation.

4.10 Additional extension equipment is needed (para. 2.17). The proposedreinforcement of extension services would therefore consist of the purchase ofequipment such as mobile extension units, audio-visual equipment, cars, lightmotorcycles, furniture and brochures; and 18 man-months of expatriate expertsin Tunisia (para. 4.09). The proposed reinforcement of extension services isrealistic (para. 4.09) and is expected to remove existing problems (para.2.17). Bank financing of the foreign costs, for the above training and equip-ment, during the first five years of project implementation, is proposed. Dur-ing loan negotiations assurances were obtained from the Government that funds,manpower, and other resources to reinforce the extension services in the zonesof influence of the proposed project roads will be provided promptly as needed.

Agricultural Credit

4.11 Chapter II indicated that insufficient lending resources are chan-nelled into agriculture. Until recently other constraints in agriculturalinvestment credit included a multiplicity of credit terms and conditions, lowinterest rates, ill-defined credit eligibility crtiteria and limited access tocredit because of lack of valid titles to land ownership. Policy and insti-

tutional measures were introduced under the Second Agricultural Credit Projectto remove these constraints. For short-term credit the multiplicity of creditinstitutions in Tunisia, their inertia and overly prudent attitude towardslow-income farmers are the main constraints.

4.12 Long- and medium-term credit to private farmers would be requiredto purchase agricultural machinery, dairy cows, and sheds for livestock; toplant cactus; to introduce medicago; and to construct wells. The reinforcedextension program would result in additional investment credit requirementsestimated at US$17.2 million equivalent, including a foreign cost of US$6.8million. About 50% of the foreign cost or US$3.3 million is expected to beused during 1979-80 and would be financed under the Second Agricultural CreditProject (Closing Date: December 31, 1980).

- 21 -

4.13 Short-term credit would be required to cover the recurrent cost ofinputs such as fertilizers, pesticides and feed concentrates. The short-termcredit requirements which are based on incremental needs would be included inthe proposed project to ensure that it would be available to low-incomefarmers in view of present difficulties.

4.14 The foreign costs of the above credit requirements would be coveredas follows: (i) those of short-term credit requirements by the BNT; (ii)those of the 1979-80 investment credit needs under the Second AgriculturalCredit Project; and (iii) those of the investment credit needs beyond 1980 bythe Government. During negotiations assurances were obtained from the Govern-ment and the BNT that the necessary foreign and local funds will be madeavailable.

4.15 Annex 3 summarizes the terms and conditions of FOSDA investmentcredit; although these have been accepted by the Bank (except for medicago,para. 2.24), the terms and conditions set out in the Second AgriculturalCredit Project are proposed for this project. Loan conditions related tomedicago do not yet exist, since the production of this crop is not common.Annex 3 shows the terms and conditions of credit and a related grant proposedfor medicago production; they would be for an initial period of three years,in order to encourage farmers to introduce it.

4.16 BNT's terms and conditions for short-term credit (Annex 3) arerecommended. These terms and conditions together with those proposed formedicago were discussed and agreed upon with the Government and the BNTduring negotiations.

Facilities and Equipment

4.17 Whereas the existing capacity of agro-industries such as canningfactories is sufficient to take the increased production resulting from theproposed project, the number and capacity of collection facilities and ofworkshops for the rental and maintenance services of agricultural equipmentare inadequate in some areas (paras. 2.17 and 2.19). For instance, projectpreparation in the province of Le Kef indicates that increased production ofmilk would require the construction of a refrigerated milk collection centerwith a capacity of 9,000 liters along Road 101 (Map IBRD 13319). Anotherexample is the need for additional agricultural equipment for rent and for anadditional workshop to maintain such equipment in Tadjerouine (Le Kef) toserve the zones of influence of Roads 106 and 110.

Technical Assistance

4.18 The experience gained with the pilot scheme would be applied by theGovernment to the next phase of the comprehensive program of rural road devel-opment consisting of the preparation and evaluation of 2,500 km of roads whichhave already been identified. No physical improvements would be undertaken on

- 22 -

this second phase until sufficient experience had been gained with the pilotscheme. However, to retain the impetus and expertise in project preparationdeveloped under the pilot scheme, it is proposed to continue with the analysesat an early date. Consultants would assist the MPW and the MA in projectpreparation in a similar manner as for the pilot project. About 130 man-months would be required which, together with the 18 man-months of technicalassistance for extension services (para. 4.10), would result in a total of148 man-months of technical assistance.

C. Sub-Project Review

4.19 The appraisal is based on the detailed preparation and economicanalysis of 19 sections of rural roads with a total length of about 400 kmand complementary agricultural investments (para. 3.13). Annex 4 shows keydata pertaining to traffic and costs of each of these roads. Further detailsare in the project file (Annex 8).

4.20 The criteria for the evaluation and approval of a further 40 pro-posed rural roads totaling an additional 600 km and complementary agricul-tural investments will be the same as those for the 19 roads (400 km) alreadyappraised. The first step would be the submission by the Government to theBank of a report showing that, based on an initial screening of the roads andtheir related agricultural investments, their further preparation and economicand financial analyses should be pursued.

4.21 The second step would be the submission of:

(i) a report covering preliminary engineering and cost estimatesof construction and periodic and routine maintenance;

(ii) a report covering present and future traffic in the zone ofinfluence of each rural road and the related agriculturaldevelopment package in accordance with the agro-ecologicalpotential (paras. 3.03-3.05);

(iii) an extension manual applicable to each zone of influence; and

(iv) computer input and output data for each road (para. 3.12).

4.22 With reference to Item (ii), if the introduction of a new productis proposed, the report on an agricultural development package would containdetailed results of research and subsequent field trials under typical farmingconditions. As a practical matter, the reports mentioned in (i) through (iii)above would generally cover a group of rural roads and agricultural invest-ments. These reports would be followed by the submission of final engineeringand contract documents, provided that the ERs and financial rates of returnare acceptable to the Bank (para. 4.23).

4.23 The criteria for Bank approval of sub-projects are that:

- 23 -

(i) the quality of the preparation and analysis of sub-projectsshould be acceptable to the Bank (equivalent to that ofthe sub-projects in Le Kef, Siliana and Kairouan alreadyappraised);

(ii) the ER of the investment package is at least equal to theopportunity cost of capital in Tunisia (1O0);

(iii) the financial rates of return based on representative farmmodels are sufficiently high to provide incentives to farmersto take advantage of the additional credit facilities foragricultural investments; and

(iv) the implementation of an investment package will not be startedbefore its optimal year.

These criteria will be reviewed from time to time in the light of experiencesgained. During loan negotiations assurances were obtained from the Govern-ment and BNT that the procedures and criteria of paras. 4.20 to 4.23 will befollowed.

4.24 The review of the sub-projects, based on the further 40 identifiedroads, would constitute a part of project supervision. In view of thecapability of the Government in project preparation, which has been estab-lished during work on the 19 roads already appraised in detail, of which 18were found to be economically viable (para. 3.12), a detailed review of allpotential sub-project roads by the Bank is not necessary. A detailed reviewwould only be made of those proposed sub-projects with a Bank participationof US$350,000 equivalent or more, provided at least one investment packagerelated to each agro-ecological zone in each province is examined.

D. Costs and Financing

4.25 The total cost of the proposed project is estimated at D 40.7 mil-lion (US$93.6 million equivalent) including a foreign cost of D 17.8 million(US$40.9 million). Table 4.1 shows the estimated costs of the project compo-nents. These estimates are derived from detailed quantities and rates forthe 18 roads and complementary agricultural investments so far appraised andincluded in the project and, for the remainder, from order of magnitudeestimates based on the following assumptions:

(i) rural road improvements would consist of the upgrading fromearth to gravel of 45 km of 9 meter wide sections, 95 km of6 meter wide sections, and 460 km of 5 meter wide sections;

(ii) rural road maintenance equipment for approximately 9 main-tenance crews would suffice;

- 24 -

(iii) improvements in equipment for extension services would be ofthe same nature as those in the provinces of Le Kef, Silianaand Kairouan (para 4.10) and are based on number of extensionengineers and officers in the remaining five provinces (para.4.08);

(iv) investment credit for small irrigation schemes based on dataregarding underground water resources would be for the pur-chase of equipment similar to that in Kairouan, credit forsheds would be in line with present and potential livestockproduction (paras. 3.03-3.05), and credit for the improvementof range management would be similar to that of Kairouan;

(v) short-term credit requirements would be for the purchase offertilizers, pesticides and feed concentrates and are in linewith the expected development (paras. 3.03-3.05); and

(vi) improvements in agricultural facilities and equipment are basedon information obtained from semi-autonomous organizations(para 2.16).

All of the above assumptions are based on a preliminary review and reconnais-sance of most of the roads and areas concerned.

4.26 Except for technical assistance, final quantities and costs for theadditional 40 roads would depend on the detailed preparation and analyses ofeach road and its related agricultural investments. Depending on these finalcosts, the total number and length of the rural roads to be improved may,therefore, differ from the estimated 60 and 1,000 km, respectively. The costsof technical assistance (para. 4.18) are based on consultants' rates pertain-ing in early 1978 (US$7,700 gross per man-month). The cost estimates of Table4.1 were discussed and confirmed with the Government and the BNT duringnegotiations.

- 25 -

Table 4.1: PROJECT COST

Dinars (Million) US$ (Million) Foreign

Local Foreign Total Local Foreign Total Exchange

Rural RoadImprovements 9.8 6.6 16.4 22.6 15.1 37.7 40

Road Main. Equipment 0.4 1.5 1.9 0.9 3.5 4.4 80

Extension Services 0.4 0.6 1.0 1.1 1.3 2.4 55

Investment Credit 3.4 2.3 5.7 7.8 5.3 13.1 40

Short-Term Credit 1.7 0.7 2.4 3.9 1.6 5.5 28

AgriculturalFacil. & Equip. 1.4 1.6 3.0 3.2 3.6 6.8 53

Technical Assistance 0.2 0.3 0.5 0.3 0.8 1.1 75

Subtotal 17.3 13.6 30.9 39.8 31.2 71.0 44

Physical Contingencies 1.7 1.4 3.1 4.0 3.1 7.1 44

Price Escalation 3.9 2.8 6.7 8.9 6.6 15.5 43

Total 22.9 17.8 40.7 52.7 40.9 93.6 44

4.27 The costs of Table 4.1, which are expressed in beginning 1978 prices,

include a physical contingency of 10%. Price escalation contingencies have

been included in the estimate of total project costs based on the proposed

implementation timetable (Chart No. 18505). The rates are 8%, 7.5% and 7%

for 1978, 1979 and 1980-83, respectively for civil works and consulting ser-

vices, and 7%, 6.5% and 6.0% for the same periods for agricultural equipment.

Duties and taxes are 20% on civil works, 16% on agricultural equipment and 11%

on livestock and sheds. The foreign exchange costs are 40% for civil works,

based on the assumption that one-third of the contracts will be awarded to

Tunisian firms and two-thirds to foreign firms. Foreign exchange costs for

other items are shown in Table 4.1.

4.28 Table 4.2 shows the proposed financing. The Bank would finance

all foreign exchange costs except those for investment credit for the

period 1981-82, which amount to US$3.5 million and those for short-term

credit amounting to US$2.0 million. However, the Bank financing of the

foreign exchange costs of investment credit for the period 1979-80, esti-

mated to be US$3.3,million would be done under the Second Agricultural Credit

Project. Thus the Bank loan for the proposed project would be US$32.0 million.

The Government would provide the foreign exchange cost of investment creditfor 1981-82, the grant (paras. 2.23 and 4.15) and the local components of all

other items from its relevant budgets.

- 26 -

Table 4.2: PROJECT FINANCING

------------------US$ (Million)--------------------Sub- x

MPW MA BNT Grant Borrowers Bank Bank Total

Rural Road Improvements 30.3 - - - - 20.2 40 50.5Road Main. Equipment 1.0 - - - - 4.4 80 5.4Extension Services - 1.2 - - - 1.6 55 2.8Investment Credit - - 6.7 3.5 3.7 3.3 /1 19 17.2Short-Term Credit - - 5.8 - 1.4 - - 7.2Agri. Facil. & Equip. - - 1.6 - 2.7 4.8 53 9.1Technical Assistance 0.3 0.1 - - - 1.0 75 1.4

Total 31.6 1.3 14.1 3.5 7.8 35.3 38 93.6

/1 Financed under Second Agricultural Credit Project.

4.29 The loan proceeds would be made available to the responsible Govern-ment agencies (MPW and MA for rural road improvements, road maintenance equip-ment, extension services and technical assistance) or on-lent to BNT (foragricultural facilities and equipment) on the same terms and conditions asthose of the proposed loan (para. 4.36), which would be for a period of 17years, including a 4-year grace period, at the current Bank rate. Theseconditions reflect the average expected life of project components. TheGovernment would carry the foreign exchange risk. Similarly to the arrange-ments made under the Second Agricultural Credit Project, the Government wouldpay to BNT a compensatory commission equal to 3% of the portion of outstandingloans financed by the Bank. This commission would cover BNT's project relatedadministrative expenses and would enable BNT to set up an adequate provisionfor bad debts.

4.30 The sub-borrowers' contribution from their own funds in case ofinvestment credit to private farmers would average about 22% of investmentcosts, but would vary according to the investment item. The sub-borrowers'contribution in case of investment credit to organizations in charge of col-lection facilities, equipment services, and workshops (para 4.17) would be30%. Sub-borrowers' contribution in case of short-term credit is not stipu-lated in the Government's credit regulations and varies between 10% for lowincome farmers and 50% for commercial farmers. The share BNT would financefrom its own resources for individual short-term sub-loan amounts (US$5.8million) was discussed and agreed upon with the Government and BNT duringnegotiations.

E. Implementation

4.31 The organization proposed for project implementation is shownon Chart No. 18872. This organization is based upon the organizationwhich has satisfactorily undertaken project preparation. To ensure adequate

- 27 -

impetus for the project and to provide direction to the Coordinating Committee,the overall responsibility for the project should be vested in the Ministry ofI iblic Works since the MPW is the major executing agency for the project.DuLing loan negotiations assurances were obtained from the Government that itwill assign specific overall responsibility for project implementation to theMPW which will, in turn, administer the project through the CoordinatingCommittee to ensure that all of the project elements are carried out in atimely and coordinated manner.

4.32 The membership of the Coordinating Committee (para. 2.18) duringthe project implementation stage would be increased by one member from the BNTand an additional member from the MA. Two representatives from the MA areproposed, namely one from DPAEP and one from the Agricultural ProductionDepartment (Direction de la Production Agricole, DPA) since these departmentscover the planning and operational functions respectively. The MPW represen-tative would be from DPC which covers planning, construction and maintenancefunctions. In view of the successful experience with the Coordinating Com-mittee and with the semi-autonomous agencies during project preparation, itis considered that the proposed project implementation organization shownon Chart 18872 would be effective. A condition of loan effectiveness isthe formal establishment of the Coordinating Committee including its legalstanding, powers and terms of reference.

4.33 Responsibility for the execution of the various project investmentsand actions would remain with the existing agencies, and experience with theproject should enhance their capability in coordinating their activities andannual plans. The Coordinating Committee would function through the MA andMPW members, who have line authority over their regional offices. In thecase of other agencies the Coordinating Committee should have the authorityto enter into written agreements (para. 4.36). In the case of significantproblems the Minister of Public Works would raise the matter directly withhis responsible colleague. The Coordinating Committee would meet not lessthan once a quarter, or more often if necessary. It would review quarterlyprogress reports (para. 4.35) and would determine appropriate action to betaken to resolve any problems. It would also review future works programsand budgets for each of the participating organizations (para. 4.35) to ensurethat all necessary activities are coordinated.

4.34 At the central government level, the DPC would be responsible forimplementing the: (i) rural road construction works; (ii) procurement ofrural road maintenance equipment; and (iii) technical assistance to MPW forthe preparation of sub-projects for 2,500km of roads; the DPA would beresponsible for: (i) improvements of extension services including trainingof agents; (ii) construction works related to collection and equipmentfacilities; (iii) agricultural equipment procurements; and (iv) technicalassistance to MA for the preparation of complementary agricultural investmentsfor the aforementioned 2,500 km of roads.

4.35 At the provipcial level, the heads of field divisions of the MPWwould be responsible for supplying the Coordinating Committee, through theDPC, with quarterly reports about progress with rural road works and technical

- 28 -

data, and coordinating rural road works with agricultural activities. Simi-larly, the heads of CRDAs would be responsible for supplying the CoordinatingCommittee through the DPA with quarterly progress reports on the implementa-tion of all agricultural components of the proposed project; to inform theCoordinating Committee of unforeseen problems, whenever necessary; and tocoordinate the implementation of agricultural investments with rural roadworks. Since the overall project covers a number of related activities andthe timing and scope of some activities will undoubtedly require adjustmentas experience is gained, a certain degree of flexibility in project executionwill need to be maintained. Each participating agency (para. 4.36) would,therefore, review jointly with the Coordinating Committee an annual plandetailing the activities and expenditures under the project for the followingyear. The annual plans would provide the critical operational detail neededto implement, and as necessary adjust, the timing of the road and comple-mentary agricultural investments as well as the actions initially defined inthe manuals for the extension program. During negotiations assurances wereobtained from the Government that these annual plans will be submitted tothe Bank for review and comment by September 30 of each year, starting in 1979.

Operating Agreements

4.36 Apart from independent contractors for construction works, a numberof agencies which are not part of the MA or are largely autonomous wouldparticipate in project implementation. The Coordinating Committee would enterinto written arrangements acceptable to the Bank, with such agencies specifyingtheir specific responsibilities with respect to project implementation. TheGovernment would enter into a written agreement with BNT for those componentsof the project which deal with short-term credit to farmers, and investmentcredit to farmers and organizations in charge of collection facilities andequipment (para. 4.17). During loan negotiations, assurances were obtainedfrom the Government that all arrangements necessary to ensure the activeparticipation of the various executing agencies, including BNT, would beentered into. Furthermore, the signature of the agreement with BNT is acondition of loan effectiveness.

Executing Agencies

4.37 All rural road improvement works would be carried out by contractand supervised by the DPC, which is competent for this purpose. The technicalassistance to MPW and MA for preparation of an additional 2,500 km would beprovided by qualified and experienced consultants according to terms and con-ditions satisfactory to the Bank.

4.38 The strengthening of extension services (para. 4.10) would beachieved by the introduction of extension cells to be staffed with personnelfrom OMVVM-PPI, ONEP and MA's departments involved in extension work, theadditional training of this personnel, and the purchase of equipment (para.4.10). The additional training would be given by specialists already employedby these agencies and by qualified and experienced experts on terms andconditions satisfactory to the Bank (para. 4.09). The training procurementwill be supervised by DPA which is competent for this purpose.

- 29 -

4.39 In the provinces of Le Kef, Siliana and Kairouan, the construction

of collection and equipment facilities would be carried out by contract and

supervised by OC for grain facilities, STIL for milk facilities, and SONAMor a service cooperative for agricultural equipment workshops. The agricul-tural equipment would be primarily purchased by service cooperatives; SONAM

would only procure equipment for a workshop in a certain area if a service

cooperative does not exist (para. 2.17). For other provinces similar arrange-ments would be made, as appropriate.

4.40 The BNT would make both investment and short-term credit avail-able. The CRDAs would assist BNT in appraising loan applications. Lendingpolicies, procedures, terms and conditions of project sub-loans for investment

credit would be the same as for those under the Second Agricultural CreditProject, while for short-term credit they would be the same as those in usefor short-term credit by BNT (Annex 3), both of which are acceptable to the

Bank.

4.41 During loan negotiations the Bank, Government and BNT discussed andagreed that the arrangements for the percentages of default risk on sub-loansto be assumed by the Government and BNT would be the same as those applicable

to the Second Agricultural Credit Project.

Audit of Accounts

4.42 Government agencies maintain budgets and accounts which are underconstant supervision by a "controleur financier," appointed to each agency by

the Ministry of Finance. The present system is satisfactory. Under theSecond Agricultural Credit Project, BNT subjects its accounts to an audit byindependent auditors acceptable to the Bank. During loan negotiations assur-

ances were obtained that each executing agency would maintain separate

accounts for its part of project work and that annual financial statementswould be forwarded to the Bank, in a form acceptable to the Bank, within

four months after the end of each fiscal year.

Land Acquisition for Right-of-Way

4.43 During loan negotiations assurances were obtained from the Govern-ment that it will make available all right-of-way as needed for the timely

implementation of the proposed project. Since the roads are located in rural

areas, no delays in land acquisition are expected.

Procurement

4.44 Road construction contracts based on unit prices would be awardedafter international competitive bidding in accordance with the Bank's Guide-lines for Procurement. Contractors would be prequalified to undertake eithersingle or several lots. Lot sizes are small enough to be undertaken byregional contractors. Several lots would also be grouped to be of interestto large contractors or a consortium of smaller contractors. Except whereimpractical for geographical and/or administrative reasons, the minimum sizeof a group would correspond to one with a total cost of at least 2.5 million

- 30 -

dinars(US$5.8 million). Contractors should be allowed to bid for one or morecontracts, or for a group of contracts in combination, up to their prequali-fied capacity. During loan negotiations assurances were obtained from theGovernment that such bidding procedures would be followed. Maintenanceequipment contracts would be awarded by the MPW after international compe-titive bidding, in accordance with Bank guidelines.

4.45 The range of goods to be financed by short-term and investment creditor to be purchased by the MA or its associated semi-autonomous public agenciesis varied and not suitable for bulk procurement, and individual contracts wouldbe far too small to warrant full international advertisement. However, foreignsuppliers of fertilizers, herbicides, insecticides, farm machinery and equip-ment are well represented in Tunisia; necessary service facilities are avail-able; competition is keen and prices are competitive. Farmers would, therefore,be enabled to purchase agricultural equipment and inputs of their choice on thedomestic market. Machinery and equipment to be purchased by the MA or itsassociated agencies would also be procured through local channels on the basisof the best offer out of no less than three. Well drilling works, the con-struction of collection facilities and simple workshops would be carried outafter local competitive bidding had been announced in the local press whichallows foreign firms to participate. Experience with Bank agricultural creditprojects has shown that the local bidding procedures are satisfactory. Copiesof each contract would be sent to the Bank.

4.46 The terms of reference for consulting services related to thepreparation of a further 2,500 km (para. 4.18) would be similar to those usedfor the consulting services on the pilot project; the terms of reference forexperts to train extension agents were discussed and confirmed during loannegotiations.

Project Implementation Schedule

4.47 The schedule for carrying out the project (Chart No. 18505), whichcovers about six years, was discussed and confirmed during loan negotiations.Prequalification for road works was started early 1978 and a call for tendersfor the first group of lots is planned shortly after the approval of theproposed p-oject by the Board. The remaining two groups of lots would be letlater to spread the need for local financing.

Monitoring and Evaluation

4.48 The monitoring and evaluation of the proposed project are importantin view of: (i) the Government's intention to use experience from this proj-ect in launching a comprehensive program for rural road improvements andraising agricultural production; and (ii) the desirability of being ableto identify and to respond quickly to any unexpected side effects of theproject.

4.49 DPC and DPA would, therefore, prepare quarterly progress reportson the rural road improvements, purchases of maintenance equipment, the

- 31 -

strengthening of extension services, the provision of credit, the construction

of collection and equipment facilities and the purchase of agricultural equip-ment. These reports would be based on: (i) the targets outlined in the annual

operating plans of participating agencies (para. 4.35) and extension manuals;and (ii) the progress reports by CRDAs and MPW field divisions (para. 4.35).The reports would be consolidated into a single report by the CoordinatingCommittee. The Government would also be asked to prepare a project completionreport. During loan negotiations, assurances were obtained from the Government

that it will prepare a quarterly progress report covering the above mattersand send it to the Bank (the first one within six months of the Loan Effective-ness Date) and the project completion report (within six months of the LoanClosing Date).

F. Disbursements

4.50 The proposed Bank loan of US$32.0 million would be equal to the foreignexchange cost of all project components except short-term and investmentcredit (para. 4.28) and would be disbursed over about six years as follows:

US$million

(i) Rural Road Works 15.1 40% of total expenditures

(ii) R