W CJUD~ C gDocument of

The World Bank

IFOIR OFFXCIAL USE ONLY

Report No. P-1986-RO

REPORT AND RECOMMENDATION

OF TIHE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRIJCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN'

TO THE

BANK FOR AGRICULTURE AND FOOD INDUSTRY OF ROMANIA

WITH THE GUARANTEE OF

THE SOCIALIST REPUBLIC OF ROMANIA

FOR THE

IALOMITA-CALMATUI IRRIGATION PROJECT

Februarv 2, 1977

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.

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CURRENCY EQUIVALENTS

1. Official Rate

lei 4.97 = US$1.00

lei 1.00 = US$0.20

2. Tourist Rate

lei 12.00 = US$1.00

lei 1.00 = US$0.08

Conversion Rate for Traded Goods

lei 20.00 = US$1.00

lei 1.00 = US$0.05

FISCAL YEAR

January 1 - December 31

GLOSSARY OF ABBREVIATIONS

BAFI Bank for Agriculture and Food Industry

FOR OFFICIAL USE ONLY

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO

THE BANK FOR AGRICULTURE AND FOOD INDUSTRY OF ROMANIA,WITH THE GUARANTEE OF THE SOCIALIST REPUBLIC OF ROMANIA,

FOR THE IALOMITA-CALMATUI IRRIGATION PROJECT

1. I submit the following report and recommendation on a proposed loanto the Bank for Agriculture and Food Industry of Romania, with the guaranteeof the Socialist Republic of Romania, for the equivalent of US$60 million,to help finance an irrigation project. The loan would have a term of 15years, including three years of grace, with interest at 8.5 percent per annum.

PART I - THE ECONOMY

2. The latest economic memorandum for Romania (818a-RO) was circulatedto the Executive Directors on December 29, 1975, and an agricultural sectorsurvey (953a-RO) was circulated on November 15, 1976. Country social and eco-nomic data are given in Annex I. Updated economic information is based onthe findings of a special economic mission in March 1976 and a basic economicmission in October/November 1976.

3. Since the founding in 1947 of the People's Republic of Romania,which in 1965 was reconstituted as the Socialist Republic of Romania, eco-nomic management has been organized along socialist principles which have in-cluded state and cooperative ownership of almost all productive resources, andthe absence of private enterprise. Economic activity is directed by means ofobligatory development planning, coordinated by the central authorities. Pro-ductive enterprises operate within the framework of the development plan whichdefines the scope of their activity, the outlines of their production and in-vestment goals and their targets for operating efficiency. The plan is elabo-rated within a five-year time frame, each year having a separate Annual Plan.The country began its latest Five-Year Plan in January, 1976.

4. The technical and functional Ministries are the State's chief agentsfor the administration of economic activity. They are assisted by subordinateunits known as Centrals, which coordinate and supervise activities within acommon branch or industry without being directly engaged in production. Enter-prises subordinate to the Centrals are responsible for production which iscontrolled through a system of physical production targets. Production enter-prises generally are not authorized to engage directly in foreign trade andrely on specialized foreign trade enterprises for this purpose. In agricul-ture, large State farms and cooperatives are the predominant units of pro-duction.

This document has a restricted distribution and may be used by recipients only in the perfonmanceof their omcial duties. Its contents may not otherwise be disclosed without World Bank authorzation.

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5. Economic development is of paramount concern to the Romanian Gov-ernment. Rapid industrialization is a major objective with priority beinggiven to heavy industry including steel, engineering products and chemicals.To achieve their growth objectives, the Romanian authorities have made consid-erable efforts to mobilize domestic resources for development and to maintaina high rate of capital formation. In the 1971-75 Five-Year Plan, planned andactual investment rates of around 30 percent of GNP were the norm. As aconsequence, consumption has been restrained, and the development of theconsumer goods industry has been less strongly emphasized than that of heavyindustry. In 1975, heavy industry (led by engineering and metal working,chemicals and ferrous metallurgy) accounted for about 55 percent of industrialproduction.

6. As a result of this strategy, a marked change has been achieved inthe structure of Romania's economy. Rapid industrial growth, which over thelast decade has averaged more than 13 percent per annum, has expanded theshare of the labor force employed in industry (including power and construc-tion) from about 14 percent in 1950 to approximately 40 percent in 1975.During the same period, the share of labor force engaged in agriculturedeclined from 74 percent to around 38 percent; and while agricultural outputalmost tripled, its share in GNP amounted to only 15 percent in 1975.

7. Notwithstanding the emphasis on industrialization, more than halfof the population (about 57 percent in 1975) still lives in rural areas andagriculture remains a key sector of the economy. Apart from supplying food,industrial inputs and the residual labor increment for industrial growth(which requires an expansion in agricultural productivity), the sector alsosupplies about one quarter of the nation's convertible foreign exchangeearnings. These earnings, which are largely used to buy imported inputs forindustry, have often been jeopardized as a result of unstable productiongrowth in agriculture. The maintenance of the industrial development program,therefore, is dependent on the performance of the agricultural sector.

8. Romania's population growth is around one percent per annum. Thus,the impact of rapid economic growth on per capita incomes has been only mar-ginally diluted by the population increase. In the last decade, GNP growthhas averaged nine percent per annum, implying a growth of about eight percentper annum of per capita GNP. It is estimated that GNP per capita in 1975was US$1,300 based upon official national income information and using theWorld Bank Atlas methodology.

9. The organization of production in both the urban sector and in agri-culture is such that all labor is employed and there is no open unemployment.There is, however, some seasonal labor surplus, mainly in agriculture. Incomedistribution is also relatively equal. In 1975, average monthly wages were1,813 lei (over $90 equivalent) up nine percent over the previous year. About87 percent of all monthly wages in 1974 were within the range of 1,300-2,500lei. Four percent were under 1,300 lei and about nine percent were above2,500 lei. Prices for essential consumer goods and services such as basicfoodstuffs, rents and urban transport are relatively low and most social

services, notably education and health care, are provided without charge. Con-tinuous efforts are made to increase the standard of living. Romania alsopursues an active regional policy which has sought to bring a balanced develop-ment of both human and natural resources to all parts of the country.

10. The official exchange rate of lei 4.97 per US$1 is used only foraccounting purposes. The rate used for tourist transactions is lei 12 perUS$1, having been revalued from a rate of lei 14.38 per US$1 in October 1974.Beginning in July 1973, a trading rate of lei 20 per US$1 has been used toconvert the prices of all traded goods; this rate is considered representa-tive of the average cost of convertible foreign exchange. The rate of lei 20per US$1 has also been used to convert national income statistics from lei todollars. Consequently, this rate has been used as the base rate for calcula-tion in the appraisal.

Recent Developments

11. Since the National Party Conference of 1967, which set the stagefor major qualitative advances in Romania's economic and social development,there have been important new emphases in Romania's economic management.Measures were taken to improve the institutional basis of planning (e.g. bycreating centrals to assist in plan administration), to increase the effi-ciency of economic management and to improve upon the quality of productionin industry. In agriculture efforts were made to raise productivity andstabilize growth through irrigation, mechanization and the expanded use ofchemical fertilizers. To promote the growth of foreign trade and technical-economic cooperation the Government has concluded trade and cooperation agree-ments with a wide range of countries. In this context, Romania has also madepositive efforts to expand its multilateral external relations and to pursuefull cooperation with international agencies, including UN, UNCTAD, UNESCO,FAO, UNIDO, GATT and more recently, the IMF and the Bank.

12. Measures aimed at continued improvement of the management systeminclude a reorganization (involving a reduction from 217 to 95 in number)of industrial centrals and a concentration of their planning, control andresearch functions. The pursuit of purely physical goals in production andtrade, while still an important element in the system, is being supplementedby much greater emphasis on productive and investment efficiency, productquality, pricing and foreign competitiveness. To eliminate wasteful invest-ment and production expenditure's, a Superior Court of Financial Control hasbeen established, among other things, to oversee a new system of financialcontrol.

13. Foreign trade has expanded rapidly in recent years both in volumeand in regional diversity. There has also been a tendency to move away fromtrade on a bilateral basis toward trade involving multilateral payments.During 1971-75, total foreign trade grew at approximately 18 percent per

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annum in current prices. In 1975, however, after the very rapid growth inthe value of trade of 33 percent in 1974, trade grew by only 6.6 percent,with exports increasing by 9.6 percent to US$5.34 billion and imports by 3.9percent also to $5.34 billion. This slower increase in 1975 was explained

chiefly by the floods of July 1975 which resulted in a smaller exportablesurplus of agricultural goods and necessitated cancellation of some imports.About 54 percent of 1975 trade was with the convertible currency area. Over-

all trade deficits have generally remained small; in 1975 the deficit wasonly US$135 million, while the deficit with the convertible currency areawas US$260 million. In recent years, imports from eastern European socialistcountries have been slightly lower than Romania's exports to that region. InRomania's trade with western industrialised countries, on the other hand, ex-ports have typically been considerably less than imports. These deficits havegenerally been increased by deficits on the invisibles account with westerncountries. The target for 1976, however, is to attain a trade surplus andindications as of the end of September 1976 were that this target would bemet.

14. The structure of Romania's trade with the developed market econo-mies remains essentially unfavorable. Raw materials and agricultural commod-ities, both of which are subject to unstable price and production conditions,comprise about 60 percent of total exports to these countries. At the sametime imports from these countries are largely of machines and equipment andother manufactures. Because of the present low level of reserves, any insta-bility in export performance, as frequently arises from shortfalls in agricul-ture (paragraph 7 above), tends to place the import program in immediate

jeopardy.

15. Preliminary estimates for 1976 indicate that all major targets ofthe 1976 Annual Plan have been met. National income is estimated to haverisen by 10.5 percent, gross industrial production increased by about 11percent, and gross agricultural production was a record, exceeding the floodaffected 1975 level by 16 percent. Improved performance is also expected inthe external trade sector, where preliminary nine month estimates indicatethat improvements in the country's trade balance were ahead of plan targetsfor that period. In November 1976, Romania's National Assembly approved thecountry's 1977 Annual Plan and Budget, which calls for continued high ratesof growth. National income is expected to rise by 11.3 percent and grossindustrial production by 10.5 percent. The Plan provides a range of 1.9-13.6 percent growth for the gross farm output. This wide range is provided

because of the uncertain impact climatic conditions might have on production.Investments in the national economy are expected to increase by 16.7 percentand total foreign trade volume by 15.5 percent.

16. A campaign to increase efficiency in the utilization of existingcapacities and to effect significant economies in the consumption of rawmaterials and intermediate goods is being implemented throughout the economy.Targets have been established to reduce by 30 percent the previously antici-pated construction and assembly costs of industrial projects between 1976-80.

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Substantial, but as yet unspecified savings have also been prescribed for mostother industrial inputs during 1976-80, while maintaining the global produc-tion targets as set in the Five Year Plan.

External Assistance

17. The expansion of Romania's trade with the non-socialist industrialcountries has led to an increased need to obtain convertible currencies topay for imports from those countries. Romania has met this need both by bor-rowing abroad and by mounting a major effort to expand exports and tourism.Gross inflows of convertible currency through medium- and long-term loanswere US$810 million in 1975, consisting mostly of financial and suppliers'credits with relatively short repayment periods. This gross inflow repre-sented a net inflow of some $440 million after accounting for the country'srepayment obligations.

18. As part of its effort to expand its foreign trade and cooperationrelationships, Romania has also taken active steps to attract long-term pri-vate capital. A regulation passed in 1972 defines the conditions under whichforeign firms can establish joint ventures with domestic enterprises, prefer-ably in foreign exchange earning or saving industries. As of November 1976,six joint venture agreements had been signed, involving direct foreign invest-ment of about US$10 to 15 million. Romania also receives medium-term tradecredits from U.S. Eximbank and trades under ECGD, COFACE, and HERMIES creditguarantees with the United Kingdom, France and the Federal Republic of Germany,respectively. Romania succeeded in securing a US$60 million, eight-year loanfrom Kuwait as part of a general cooperation agreement. In addition, Romaniahas access to non-convertible currency investment credits from the InternationalInvestment Bank, Moscow.

19. As it stands, therefore, Romania's access to long-term finance inconvertible currencies is still very restricted. The IBRD is the only majorsource of such long-term development finance, though Romania is making effortsto improve its access to the major financial markets. The Bank's presence ona significant scale would have a positive influence in this regard and mightserve as a catalyst for involving other lenders in Romania. This couldserve both to increase the total amount of Bank-sponsored funds available toRomania and to build outside confidence in the country, thereby enhancing inthe long-term its independent access to the world's financial markets.

Prospects

20. The 1976-80 Five-Year Plan reflects Romania's continued strategy ofrapid growth. Investment rates of some 30 percent of GNP are to be maintained,and the major thrust is in industry. The plan targets are impressive. Nationalincome is expected to grow at 10-11 percent per annum and gross industrial out-put by 10.2-11.2 percent per annum, with more rapid growth in heavy industry.Continued emphasis is to be maintained on foreign trade which is expected todouble in real terms, with the aim of securing a continued transfer of tech-nology needed for the modernization and diversification of Romanian industry.

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Greater emphasis than in the 1971-75 Plan is to be given to developing theinfrastructure in agriculture, particularly with regard to irrigation anddrainage and the plans for fertilizer production envisage an increase insupply sufficient to double the 1974 application rates by 1980.

21. Romania has good potential for further economic growth. Endowedwith important natural resources (fuels, some minerals, timber, rich soils andsources of irrigation water for agriculture, and a favorable climate for agri-culture and tourism) and located conveniently with respect to its major inter-national markets in the East and West, the country has built a broad indus-trial infrastructure (power, metallurgy, chemicals) which will serve as abase for the expansion of secondary manufacturing sectors such as machinebuilding and consumer durables. Above all, Romania has a hard-working andincreasingly skilled population. In order for Romania to attain its growthobjectives, however, it will have to rely on a major expansion of exports ofmanufactured goods in order to finance an increasing dependence on importedraw materials and fuel.

22. Economic growth and structural change call for the introduction ofnew technologies, improvements in the quality of products, more efficient useof materials and factor inputs, and reductions in production costs. The in-creasing diversity and complexity of Romania's economic structure require con-tinuing improvements in the efficiency of economic planning and coordinationand further refinements in economic management. To keep up with these changesand requirements, large programs of education and manpower training have beenmounted, investments in scientific and technological research have beenemphasized, and efforts are being made to strengthen technical cooperationwith industrialized countries and international organizations.

Creditworthiness

23. As of June 1976, Romania's total medium and long-term external debtamounted to US$2,900 million. Most of these debts (US$2,864 million) weredenominated in convertible currencies, the major creditor countries beingGermany, France, UK and Italy. While the total debt does not appear excessivein relation to the volume and growth of external trade, average maturities arerelatively short and convertible debt service payments are estimated to be inthe order of US$550 million a year during 1975-76. The convertible debtservice ratio was approximately 17 percent in 1975.

24. The organization of economic activity in Romania, the pursuit of adevelopment strategy involving high investment and saving rates, and rapidincome growth ensure Romania's capacity to service external debt with domesticresources converted into foreign exchange for that purpose. Moreover, thecountry's major efforts to expand exports (particularly to convertible cur-rency areas) are increasing the foreign exchange available for debt service.Convertible export earnings rose from US$830 million in 1971 to US$2,839million in 1975, and are expected to be about US$3,250 million in 1976. Thepreferential trade status accorded to Romania by the European Communities

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in June 1973 should facilitate in the long run the further expansion of suchexports as should the granting of most favored nation status by the U.S. In1973, the Government also restricted the use of short-term credit facilitiesfrom western suppliers in an effort to improve the structure of the country'sexternal debt. Because of unusually high scheduled repayments, the convertibledebt service ratio is expected to be 21 percent in 1978, 19 percent in 1979and 24 percent in 1980. However, assuming a continuation of present exportand debt management policies we estimate that the debt service ratio will peakin 1980 and decline thereafter to about 15 percent by 1985. The country'spresent outward-looking posture, the success of both its domestic growthand foreign trade policies, and its potential for continued development, allsupport the judgment that Romania is creditworthy for substantial Bank lending.

25. When Romania joined the Bank, most pre-war foreign debts of thecountry had been settled. Settlements which were still under discussion atthat time concerned claims in the United Kingdom and in the United States.With regard to the settlement of these claims, the final payments of U.S.claims began in September 1975 and were completed in October 1976 based uponagreements reached in May 1975. Settlement of British claims proved moredifficult, but a final agreement was signed in January 1976. The Bank hasalso been informed recently of certain Swedish claims concerning public loansfrom the pre-war period, nationalized Swedish property and other interestssuch as concessions granted to Swedish companies before the Second World War.The eleventh and most recent meeting to discuss these claims was held inBucharest in October 1976 and further discussions are planned at a date tobe established through diplomatic channels.

PART II - BANK GROUP OPERATIONS IN ROMANIA

26. The proposed loan would be the Bank's tenth to Romania and wouldbring total Bank commitments to Romania to US$520 million. Disbursementsunder the Bank's initial loans were slow during 1975, but this situationimproved considerably during 1976. Annex II contains a summary statement ofBank loans to Romania and notes on the execution of ongoing projects as ofDecember 31, 1976.

27. Foreign exchange, especially in convertible currencies, continuesto be a major constraint and one of the major objectives of Bank lending con-tinues to be to help alleviate the country's shortage of foreign exchange byproviding long-term external capital and by financing projects which will ex-pand foreign exchange earnings or savings. Bank lending also aims at sup-porting the Government's efforts to introduce new industrial technologies toimprove the quality of products and production efficiency, to reduce produc-tion costs and to provide for necessary electric power development. Market

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aspects and marketing, especially for export goods, are also emphasized.Special attention is given to agriculture which is heavily dependent upon

favorable weather and where productivity levels are still comparatively low.

28. A number of projects are under consideration for future lending.Projects for bearings production, polyester fibers, glass fibers and porkproduction and processing have been appraised and are expected to provide the

basis for loan proposals during 1977. In addition, projects for further irriga-

tion works, grain storage and poultry production, chemical and tire plants,and seamless pipes have been proposed, and further power projects will also be

considered in context of a sector investment study currently being prepared bythe Government.

29. In addition to lending, the Bank (through EDI) has assisted Romania

by conducting industrial and transportation project appraisal training coursesfor Romanian officials in Belgrade in October 1973 and in Bucharest in January/February 1975, November/December 1975, January/February 1976 and October/November 1976. Additional courses, including one in agricultural projectappraisal, are planned.

30. The projects, for which assistance has been committed or is beingconsidered, represent only a small portion of Romania's total need for ex-ternal financing and of its total disbursed convertible debt. However, theywill provide a substantial net addition to the inflow of convertible currencyfinance, and may set a pattern for obtaining longer term convertible finance

from other sources. The disbursed IBRD debt outstanding to the Bank is ex-pected to constitute about 12 percent of Romania's total projected convert-ible currency debt in 1980; the Bank's share in Romania's debt service pay-ments in 1980 would be about 3 percent.

PART III - THE AGRICULTURAL SECTOR IN ROMANIA

Agriculture

31. Romania continues to be a highly agrarian country in which progressin other sectors (especially in industry) depends upon stable growth in agri-cultural production to provide both convertible foreign exchange earnings and

industrial raw materials. In 1975, agriculture accounted for 15 percent of

national income and 38 percent of the labor force (compared with 74 percent

in 1950). About 14.9 million hectares, or almost two-thirds of the landarea, are used for agriculture; and of these, 8.5 million hectares are inWallachia, the region composed of the southern plains of the Danube Valley.

Approximately 63 percent of all arable land is used for grain production(mainly maize and wheat), while industrial crops (mainly sunflower) are the

next most important. Vegetables are also produced, often in large-scale com-mercial greenhouses, for domestic consumption and export. Livestock accountsfor a relatively high 42 percent of agricultural production.

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32. Investment in agriculture as a percentage of total investment in theeconomy has lagged behind that in other sectors with 12.7 percent of actualtotal investment in the 1966-70 plan period and 14.1 percent in the 1971-75plan period. The proportion of investment for agriculture in the 1976-80 planperiod is expected to be 11.6 percent of the total. However, the averageannual investment in agriculture during the 1976-80 plah period is expected toincrease by about 50 percent in absolute terms above the average investmentsfrom 1971 to 1975. In addition to investment, the Government has also takenother measures, including institutional reforms, price incentives, and pro-duction targets and delivery schedules to stimulate agricultural production.Growth achieved in agricultural production has been slower than in other sec-tors and has been characterized by year-to-year variations. The major problemsof Romanian agriculture are the instability of its output and low productivity.The proposed project would support improvements in both of these areas.

The Need for Irrigation Infrastructure

33. Instability in agricultural production results from vulnerabilityto erratic weather conditions and the lack of infrastructure to mitigate theirimpact. Excessive precipitation and flooding during planting and harvest sea-sons, and inadequate rainfall during summer growing seasons, have resulted inyear to year fluctuations in national output of the order of 10 to 20 percent.Fluctuations of production in particular regions can be even greater. Onlyproduction of vegetables has increased steadily, reflecting the relativelymore controlled conditions under which they are produced. The Government iswell aware of this problem and has placed high priority within the agriculturalsector on solving it. Forty percent of agricultural investment in the 1971-75Five-Year Plan was for land reclamation, irrigation and drainage; the compar-able figure for the 1976-80 Five-Year Plan is about 20 percent, reflectinga relative decline in infrastructure investment and increasing emphasis oninvestments to make productive use of irrigation facilities already estab-lished. Since 1965, total irrigated land has been increased from about 0.2million hectares to 1.5 million hectares in 1975; and, the relative reductionin the share of the agricultural budget allocated for irrigation notwithstand-ing, another 1.1 million hectares are expected to be brought under irrigationduring the 1976-80 plan period. This continued emphasis on irrigation re-flects the high priority which is being given to reducing vulnerability toweather and to stabilizing production in agriculture. Execution of twoearlier Bank-financed projects in irrigation is proceeding satisfactorily(see Annex II), and the proposed project would continue Bank support in thissubsector.

Agricultural Productivity

34. While some productivity gains have been made in recent years, agri-cultural productivity per worker remains less than one-third of that of indus-try. In addition to improving its irrigation infrastructure, Romania is alsotaking measures to improve productivity through upgrading the quality offarm mechanization, increases in the supply and utilization of fertilizers,and the promotion of agro-industrial enterprises to provide processing andmarketing outlets for increased farm production. Steps are also being takento reduce inequality between State farms and cooperatives in access to farm

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inputs. State farms, which own 30 percent and cultivate 14 percent of agri-cultural land, received about 42 percent of on-farm investment in the 1971-75Plan period. Productivity on State farms is correspondingly higher than thaton cooperatives, but the Government is now moving toward elimination of thedisparities between the two types of farm organization in order to stimulategeneral improvement in agricultural productivity. Eighty percent of the landto be irrigated under the project is owned by cooperatives.

Sector Organization

35. State enterprises and cooperatives account for the major portion ofagricultural production; individual farmers play a much less significant role,except in the production of a few selected commodities. State enterprises aregenerally large scale, capital intensive farms which have been favored interms of land allocation, fertilizer distribution and investments in irriga-tion and mechanization. There were 390 such farms in 1975 employing about252,000 people and cultivating 2.1 million hectares of agricultural land.Workers on the farms are employed on salaries which are fixed by law but mayalso receive bonuses for exceptional performance. The state farms are gene-rally well managed by a director (usually an agricultural engineer) who is ap-pointed by the Director General for State Farms of the Ministry of Agricul-ture and is responsible to a workers' council. The Ministry of Agriculturedetermines the production plans for individual state farms; it also has arole in determining the use of their profits, a portion of which are remittedto the state treasury.

36. In 1975 there were 4,400 agricultural production cooperatives withabout 3.4 million member families and cultivating about 9.0 million hectares.Workers in cooperatives are guaranteed a minimum salary, which is lower thanthe salaries of their counterparts on state farms by about 20 percent. Sala-ries of cooperators may be supplemented with the cooperator's shares of profitsin excess of plan targets. More than one member of a family frequently works(on a full- or part-time basis) in the cooperative, and some family membersare employed outside of the cooperatives. Cooperators are also allowed tofarm about 0.15 hectares each in and around their villages for their personaluse, and they are allowed to own livestock. Production on personal plots isalways intensive, and produce is either self-consumed or sold to consumptioncooperatives to supplement other income of the cooperators. A cooperative ismanaged by a General Assembly of cooperators and its elected President; itreports to the District Director General for Agriculture, the local represen-tative of the Ministry of Agriculture.

37. Agricultural production has been increased much more by State farmsthan by cooperatives in the last decade. Gross agricultural production ofState farms rose by 61 percent and that of cooperatives by 29 percent from1965 to 1973. Although land area in different kinds of production units hasnot changed significantly since 1962, use of fertilizer and other inputs hasbeen increased much more on State farms than on cooperatives. Investments perhectare also have been much larger on State farms than on cooperatives. In1975, 22.6 percent of the arable land on State farms was irrigated comparedwith only 13.7 percent on cooperatives. Crop yields per ha average 20 to 30

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percent higher on state farms than cooperatives. However, it appears thatmarginal productivity of capital inputs has on average been higher on coop-eratives than on state farms and that there are opportunities for greatlyincreasing productivity of cooperatives by expanding the irrigated area andusing additional capital inputs to apply improved technology.

38. Individual farmers number only about 150,000 families and own about10 percent of total agricultural land. Their land is often located in moun-tainous regions. The individual farming subsector has not received stronggovernment support but is significant in production of potatoes (16 percentof production), meat (13 percent of production), milk (20 percent of produc-tion), eggs (14 percent of production) and wool (12 percent of production).

39. At the national level, the state institution in the agriculturalsector is the Ministry of Agriculture and Food Industry. It plays a major rolein preparing the Five-Year Plan for the sector and is the supervisory institu-tion for plan implementation. In each district, the Ministry is representedby a general directorate, which is responsible for all agricultural activityin the district including both cooperatives and State farms. Marketing isorganized nationally under 13 centrals accountable to the Ministry and respon-sible for processing and marketing specified commodities. Each central obtainsproduce at the district level and allocates it among domestic retail, process-ing, storage and export channels. A foreign trade company is responsible forthe exports of each central.

The Borrower

40. The Borrower for the proposed loan would be the Bank for Agricul-ture and Food Industry (BAFI), which is the Government's specialized agencyfor financing projects in agriculture, irrigation and food processing. BAFIwas established in 1968 as a channel for, and administrator of, all invest-ment funds provided under the State plan for the agricultural sector. Finan-cing in agriculture had previously been done by a department of the NationalBank of Romania. BAFI is involved in all phases of project appraisal, execu-tion and supervision, and it has a large technical and economic staff locatedin Bucharest, in 39 county (judet) branch offices and in 100 sub-branchesthroughout the country. One of BAFI's more important functions is that offiscal agent administering, for the account of the national budget, allgovernment investments in State farms and enterprises. BAFI also receivesinterest-free funds from the State budget for investment lending to coopera-tives (and in some cases State Farms) and repays the Government as it re-ceives repayments of the sub-loans. BAFI has thorough review and approvalprocedures for all investment projects. In addition to BAFI's review, allagricultural investments for more than Lei 10,000,000 (US$500,000) are re-viewed and approved by the Ministry of Agriculture and those greater thanLei 70,000,000 (US$3.5 million) must be approved by the Council of Ministers.BAFI also provides short-term credit to, and maintains settlement accountsfor, all cooperative and state agricultural enterprises; it also acts asfiscal agent for the Government for collection of state revenues from these

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enterprises. As the Government's channel for investment financing in agricul-ture, BAFI's primary source of funds is the State Budget; the GuaranteeAgreement therefore includes a provision (Section 2.02) that the Guarantorshall provide all necessary funds for the implementation and operation of theproject.

PART IV - I'HE PROJECT

41. The project is part of Romania's 1976-80 Plan for increasing irri-gated land and was proposed for Bank financing in September 1974. A feasibil-ity study for the project was submitted to the Bank in January 1976 and theproject was appraised in April 1976. Negotiations were held in Washington inNovember and December 1976. The Romanian delegation was led by H.E. NicolaeNicolae, Ambassador to the United States, and included representatives of BAFIand of the Ministry of Agriculture and Food Industry.

Project Description

42. The objectives of the project are to increase and stabilize agricul-tural production in the judets (counties) of Ialomita and Braila 120 kilo-meters northeast of Bucharest and west of the Danube in eastern Romania (seemap) and to increase labor productivity. This would be accomplished throughconstruction of a 148,500 hectare irrigation system and related facilities.Irrigation water would be pumped from the lower Danube by a floating pumpingstation and water would be further lifted and distributed through the canalsystem by seven fixed pumping stations. About 28,000 hectares of State farmsand about 120,500 hectares cultivated by cooperatives would receive waterdistributed through concrete-lined canals to 115 pressure pumping stations.The pressure pumping stations would supply water to distribution networks ofburied pipes for sprinkler and furrow irrigation. Also included in theproject would be portable on-farm sprinkler and furrow irrigation equipment,surface drainage works to serve 82,350 hectares, tile drainage for 14,400hectares, erosion control works on 44,700 hectares, land leveling of 40,000hectares, reclamation of 2,650 hectares of saline land and drainage of 2,500hectares of depressions, power lines serving the irrigation system, operationand maintenance equipment, and farm machinery. Annex III contains a loan andproject summary; the Appraisal Report (No. 1228-RO, dated January 10, 1977) isbeing distributed separately to the Executive Directors.

Project Execution and Operation

43. The Ministry of Agriculture and Food Industry (MAIA), through itsvarious departments and trusts, would be responsible for planning, construc-tion and supervision of all project activities. Planning and design ofirrigation works would be carried out by the Institute for Land ReclamationStudies and Design (ISPIF), and construction by the Construction Trust forLand Reclamation Works (TCIF). Both organizations are part of the Ministry'sDepartment of Land Reclamation and Agricultural Construction (DIFCA). The

- 13 -

irrigation works would be operated and maintained by the Ministry's Centralfor Operation of Land Reclamation Works (CELIF). BAFI would serve as financ-ing agency for all project works under the arrangements noted in paragraph 39above. All agencies are competent to carry out the proposed works satisfac-torily.

Project Cost and Financing

44. The estimated total cost of the project is US$195.0 million, withan estimated foreign exchange component of US$44.6 million (excluding $15.4million of interest during construction on the Bank loan). The cost estimatesare based on unit rates of work that are prevalent in Romania under the systemof regulated prices of materials and wages. The cost of equipment andmaterials which are likely to be procured from foreign suppliers, has beenestimated at the international prices expected to be prevailing at the end of1976. Because detailed engineering has already been carried out, physicalcontingencies have been provided at 7.5 percent for irrigation and drainageworks and at 5 percent for other minor items. Price contingencies on foreignexchange cost are based on annual increases of 8 percent for 1977 to 1979, and7 percent thereafter. Due to near zero inflation under the Romanian system ofadministered prices, annual price contingencies on local costs are one percent.

45. The proposed Bank loan of US$60 million would finance the foreignfinancing requirements of the project, including US$15.4 million of interestduring construction and other charges on the loan; it would cover 29 percentof the total financing requirements of the project, including interest duringconstruction on the Bank loan. The remaining project costs would be financedby the Government budget (US$109.8 million), loans from the Bank for Agricul-ture and Food Industry (US$28.6 million), and cooperatives (US$12.0 million).

46. The proposed loan would be made to the Bank for Agriculture andFood Industry (BAFI) with the guarantee of the Socialist Republic of Romania,and would be for a term of 15 years, including three years grace, at an in-terest rate of 8.5 percent per annum. It is the normal practice in Romaniafor the State to invest virtually all funds in agricultural infrastructureprojects through BAFI without formal lending agreements and to recover in-vestment costs from project beneficiaries through a variety of financingmechanisms including the incomes of state farms, taxes, pricing mechanisms fortraded commodities, and payments by cooperatives for mechanization services.For this reason, BAFI would act as a channel for, but would not actuallyrelend, the proceeds of the Bank loan, and funds would be made available toBAFI from the state budget for repayment of the Bank loan. With regard toon-farm irrigation for cooperatives, however, it is Romanian practice for BAFIto finance such investments from its own resources with agricultural creditsubloans to the cooperatives at a rate of interest of 3 percent per annum;recovery of funds for these components of the project would be made throughsubloan repayment. As in the earlier cases of the Sadova-Corabia, FloodRecovery and Rasova-Vederoasa projects, this may be considered a real rate of

- 14 -

interest because of the near-zero rate of inflation in Romania. Since BAFIreceives most of its funding from the government budget at very low rates, itsoverall borrowing cost is below one percent which allows it to operate profit-ably despite the negative spread on the Bank loan.

Audit

47. BAFI would keep separate accounts for all project expenditures andits transactions are subject to continuous control by internal auditors ap-pointed by the Ministry of Finance and to an annual audit by inspectors fromthe Court of Superior Control which reports directly to the Council of Minis-ters and the President. BAFI's accounting system and the audit of its trans-actions are satisfactory and BAFI's audited operating and financing resultswould be sent to the Bank not later than five months after the end of BAFI'sfiscal year (Sections 6.01(c) and (e) of the Loan Agreement).

Procurement

48. Although Romanian laws provide for international competitive biddingand for joint ventures involving foreign and domestic enterprises, in practiceall irrigation works are constructed by Romanian Construction Trusts, whichare experienced and familiar with local conditions, methods and regulations.Therefore, only procurement of equipment and materials equivalent in cost tothe estimated direct and indirect foreign exchange cost of the project wouldbe financed under the proposed loan. Items costing US$45 million includingcontingencies (Annex 7, table 1 of the Appraisal Report) would be procuredfollowing international advertising and competitive bidding in accordancewith the Bank Guidelines. Romanian manufacturers would be allowed a marginof preference of 15 percent or the applicable custom duty, whichever is lower,but the application of the preference is not expected to significantly affectthe outcome of bidding. It is expected that foreign suppliers would win con-tracts for most construction equipment (canal trimming and lining machines,tile laying machines, dewatering equipment and some motor scrapers) estimatedto cost about US$6.5 million. Other items to be procured through interna-tional competitive bidding (estimated to cost US$38.5 million) are availabledomestically and, based on experience with previous Bank-financed projects,it is expected that Romanian manufacturers would be successful in bidding forthese items. The remaining equipment and materials (estimated to cost US$41.3million) would be procured under Romanian procedures and would not be eligiblefor disbursement under the proposed Bank loan.

Disbursements

49. The Bank loan would be disbursed for (i) 100 percent of the foreignexpenditures for imported equipment and materials procured through interna-tional competitive bidding, (ii) 100 percent of the ex-factory prices of goodsmanufactured locally and procured through international competitive bidding,and (iii) interest and other charges during construction until December 14,1981.

- 15 -

International Water Rights

50. There is no international agreement among the Danube river riparianstates for the use of its water for irrigation but a convention exists fordevelopment of the river for mutual benefits, and for protection of navigationand water quality. The International Water Commission for the Danube, of whichRomania is a member, is mainly concerned with schemes which may interfere withnavigation and water quality. The maximum diversion for the project, in July,would amount to about two percent of the minimum river flow in that month. TheGovernment has confirmed that diversions for the project would not reduce theDanube flow below the agreed minimum to sustain international navigation.There is, therefore, no reason to expect that the project would raise issueson the use of Danube waters, and no agreement of other riparians would berequired.

Environment and Health

51. The project area is free of endemic diseases such as malaria andbilharzia. The project would not adversely affect the environment or publichealth. Construction of irrigation works, with variable water flows in thecanals, and a piped distribution network would not promote mosquito breedingand spread of malaria. Some of the lakes in the project area have therapeuticqualities, but none of the waters draining from the project would flow intothem. Fertilizer and salt draining from the project area are not expected todamage the quality of the Danube's waters.

Benefits and Risks

52. The project would contribute to Romania's overall effort to increaseand stabilize agricultural production through investment in irrigation and re-lated farm development. Without the project, production in the project areaunder rainfed agriculture could be expected to fluctuate from year to yearwith an annual average gross production of about US$28 million. The projectis expected to increase the gross value of output to a relatively stableUS$67.5 million annually (an increase of 142 percent). This would be achievedthrough (i) an increase in area available for production by three percent,(ii) a 10 percent increase in cropping intensity made possible by irrigation,and (iii) increases in the yields of various crops ranging from 55 to 150percent. The benefits of stabilizing output have not been quantified but areconsiderable. The project would also reduce underemployment in the projectarea and would increase labor productivity by 250 percent. About 41,200members of cooperatives and 16,200 employees of state farms would participatein the project. This group would not share directly in the benefits of theproject, which accrue to the state, as their incomes are regulated to corre-spond with those of workers with similar skills elsewhere in the economy.Benefits to the project participants are indirect in the sense that they flowback to the population at large over a period of time through increases inpublic services and general compensation packages. It is expected that directand indirect collections from beneficiaries (which include inter alia water

- 16 -

charges, profits of state farms credited to the national budget, contribu-tions of state farms to a depreciation fund kept by BAFI, net returns to thegovernment from investments in the development fund for cooperatives, repay-ment of loans to cooperatives for on-farm development and profits made bygovernment trading companies buying output at relatively low domestic pricesand exporting them at much higher world market prices) would enable recoveryof all project investments. The economic rate of return of the project isestimated at 16.3 percent. The rate of return is relatively more sensitiveto variations in project benefits than to changes in investment costs. Ifproject benefits were reduced by 20 percent with costs unchanged, the rate ofreturn would be 12 percent.

53. The risk of not attaining project benefits is low. Designs havebeen prepared in detail. The Government has satisfactory plans to supplythe farms with the necessary complementary inputs and supporting agriculturalservices. Farm workers are receptive to new technology and would have ade-quate incentives to participate in the project. Anticipated crop yields arecomparable to or lower than the average yields obtained from other irrigatedareas in the region. The marketing system is well organized. Attainment ofthe project's objectives is therefore reasonably assured.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

54. The draft Loan Agreement between the Bank and the Bank for Agricul-ture and Food Industry of Romania, the draft Guarantee Agreement between theSocialist Republic of Romania and the Bank, the report of the Committee pro-vided for in Article III, Section 4(iii) of the Articles of Agreement and thedraft resolution approving the proposed loan are being distributed to theExecutive Directors separately.

55. A special condition of effectiveness of the loan is the approvalby the Council of Ministers of the technical and economic indicators of theproject (Section 7.01 of the Loan Agreement). This approval of detailedproject parameters is normal under Romanian planning procedures and willprovide the legal basis for financing and implementation of the project.

56. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

- 17 -

PART VI - RECOMMENDATION

57. I recommend that the Executive Directors approve the proposed loan

Robert S. McNamaraPresident

AttachmentsFebruary 2, 1977Washington, D.C.

TA8LE 3A ANNEX I

RONANIA, REP OF - SOCIAL INDICATORS DATA SHEET Pag=eof3 pgea

LAND AREA (THOU KM2)…P.. . 1---'-of.......3.....p.....ge......--------------- ROMANIA. REP OF REFERENCE COUNTRIES (1970)

TOTAL 237.5 MOST RECENT **

AGRIC. 149.0 1960 1970 ESTIMATE YUGOSLAVIA ITALY GRMaNAY FED. UEP

GNP PER CAPITA (USS) .. .. 1300.0 820.0 2000.0 4420.0

POPULAII ON AND VITAL STATISTICS

POPULATIUN (MID-YR. MILLION) l1.4 20.3 21.3 20.4 53.7 61.6

POPULATION DENSITYPE' SQUARE Km. 77.0 85.0 89.0 80.0 I1S.0 Z40.0

PER SQ. AM. AGRICULTURAL LAND 127.0 134.0 140.0 138.0 295.0 439.0

VITAL STATISTICSCRUDE BIRTH RATE (/THOU, AV.) 23.9 19.0 19.3 21.0 18.6 17.3

CRUDE DEATH RATE (/THOU, AV.) 10.9 6.9 10.3 9.1 9.7 11.6

INFANT MORTALITY RATE (/THOU) 75.7 49.4 35.0 55.5 29.6 23.6

LIFE EXPECTANCY AT BIRTH CYRS) 65.9 67.7 68.6 67.r 70.9 70.3

GROSS REPRODUCTION RATE 1.2 1.3 1.3 1.3 1.3 1.2

POPULATION GROWTH NATE (0)TOTAL 1.2 1.0 1.0I 1.0 0.8 1.0

URdAN R3.8 3.4 2.3a 4.6 9.8 4.1

URdAN POPULATIUN (I OF TOTAL) 32.0 40.8 43.0 38.7 51.5 82.4

AGE STRUCTURE (PERCENT)0 TO 14 YEARS 27. 91 25.9 25.z2 28. 24.4 23.2

15 tO 64 YEARS 64.919 65.5 65.6 64.3 65.2 63.6

65 YEARS AND OVER 7.212 8.6 9.2 7.4 10.4 13.2

AGL DEPENDENCY RATIO 0.5 0.5 0.5 0.6 0.5 0.6

LCONOMIC DEPENDENCY RATIO 0.7/b 0.7/a o.r71 .. 0.91/ 0.9

FAMILY PLANNINGACCEPTORS (CUMULATIVE. THOU) .. .. ..

USERS (T OF MARRIED WOMEN) .. .. ..

EIPLOYMENT

TOTAL LABOR FORCE (THOUSAND) 9600.0 9900.0 10200.0 .- 19600.0 26500.0

LABOR FORCE IN AGRICULTURE (1) 66.0 49.0 38.0 *- 19.0 8.9

UNEMPLOYED (0 OF LABOR FORCE) .. .. .. .. 3.1 0.7

INCOHE OISTRIBUTION

I OF PRIVATE INCOME RECeO BY-HIGHEST 5s OF HOUSEHOLDS .. .. .. 15.1

HIGHEST 290 OF HOUSEHOLDS .. .. .. 41.4

LOWEST 200 OF HOUSEHOLDS .. .. .. 6.6

LOWEST 400 OF HOUSEHOLDS .. .. .. 18.4

UISTRIBUTION OF LAND OWNERSHIP

1 UWNED VT TOP IOX OF OWNERS .. .. .. IS.I]e

0 OANED BY SMALLEST 100 OWNERS .. .. .. e4.s.

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 740.Oc 680.0 630.0 1000.0 550.0 580.0

POPULATION PER NURSING PERSON 300.0 200.0 .. 350.0j/ 4ro.0 t 350.0

POPULATION PER HOSPITAL BED 140.0 /d 120.0 /d 120.01± 1800. 90.0 90.0

PER CAPITA SUPPLY OF -CALORIES (C OF REQUIREMENTS) 105.0 118.0

1 16.0/f 124.0 126.0 121.0

PROTEIN (GRAMS PER DAY) 81.0 92.0 9.0 92.0 100.0 e.o

-OF WHICH ANIMAL ANO PULSE 24.0 28.0 .. 29.0 42.0 56.0

DEATH RATE C/THOU) AGES 1-4 4.9 9 2.4 .. 2.6 1.0 0.9

LUWCATION

ADJUSTED ENROLLMENT RATIOPRIMARY SCHOOL 97.0 112.0 10

8.0/e 94.0 107o /d 129.0 j,b

SECONDARY SCHOOL 25.0 46.0 65.0Th 45.0 59.01± 66.01lab

YEARS OF SCHOOLING PROVIDED(FIRST AND SECOND LEVEL) IZ.0 12-13 12-13 12.0 13.0 15.0

vOCAT IONAL ENROLLMENT(I OF SECONDARY) 54.0 58.0 64.0/R 72.0 28.0 48.0/a

ADULT LITERACY RATE (C) .. 98.0/h 85.0 97.0 99.0

HOUSING

PERSONS PER ROOM C URBAN ) .. 1.3/b .. .. .. 0.7/c

OCCUPIED DWELLINGS WITHOUTPIPED WATER CI) .. 88.0/b.c .. .. .. 0.3/d

ACCESS TO ELECTRICITY(C OF ALL DWELLINGS) .. 49.Olb .. .. .. 100.0

RURAL DWELLINGS CONNECTEDTO ELECTRICITY (0) .. 21.0b .

CONSUNPTION_ _ _ _ _ _

RAOIO RECEIVERS (PER THOU POP) 109.0 152.0 148.0 163.0 218. 318.0

PASSENGER CARS (PER THOU POP) .. .. .. 35.0 190.0 220.0

ELECTRICITY (KRWH/YR PER CAP) 414.0 1615.0 2221.0 1288.0 2266.0 4128.0

NEWSPRINT (DG/YR PER CAP) 2.1 2.6 3.0 4.3 5.3 17.7

SEE NOTES AND DEFINITIONS ON REVERSE

ANNEXtl IPoge 'F of 3 paso

0

NOTES

coir- otherwise -otd, data for 1960 refer to any year bet.ssn 1959 and 1961, for 1970 betwoco 1968 sod 1970 end for Moot Recent fati-atee between1973 and195.

rho taicolctio ot f the.. figureo to underdloat.

[Ih, Fed:ral Republic 00 ho.ey .o boon nalo-ted as an objective cocotry bttaces it to 00 inucralodiropoa. Country itth major trade tten

RUMANIA 19ol0 1962. /b Ratio of ppoplation coder 15 aod 65 ood oust to totoi labor force; L. Including danrtsraj Id Goosroneot

1970 0 Ratio of popolacloo coder 15 cod 65 end over to total lohor forte lb 1966, /c Isoide onlyIs Id Govermet hosPitalo.

MSOT RiECENT EITTlArfi Ia /1970-75, lb 1970-74. /0 Ratio of population coder 15 and 65 end over to total labor force.__________________ __ dGcovorooct hoepito1 entablis henors; Is Unoadjoneed; proljios.ry enrisesre. i974-75; If 1967- 71

overge; /g 1972; /b 1974, Olficiol osio est 100 paros..t.

YMOGSI.AVIA 1970 /a Agricultore laod held by social ecotot 'Knanbinste; lb Aigrclture lend bold by private seal1-holdere '10 bettors.

oaeiooos", to Soolodingnidwives, a.soitaot midwives,.. acincant nussad nor-iogsaiire.

lEvy ~~~~~~1970 Lo Ratio of population credr 15 and 65 sod over to totld labor force, *b HoePitsi personnel, I. Including rura

hoepita1 and nedital reetars; /d 6-10 and 11-18 years of age respectively.

GIRiANYf ffD1. REP 190 /s loclcdieg the rolevot data relating to E.alto for which aeperato dots boos not bean supplied, lb 6-10 and 11-is yeara

of age resptrio-ly, /c Inside only.

R14, Jacuary 4. 1977

DEFINITIONS OP lSOCIL INDICATORS

Laod Area (tboc fee2) POpolston Per ourstog petroo - Popolation, divded by niaber of practicingTotal -Total ourfovo, aroo ocoPriinig land area aod iol.ad waters, male sod f_eslo graduate ocoe, trai-d' or 'certified" oen,and

Attic. M-Mot retool octLoaco of agrjicltural area used tnporeetly or ...oiliary pereouel with training Or .operienet.

Penonaoetlv for crops. Panturec,. tenet & kItchen gardens or c lho Peculation cet hcsPito1 hod - Pupolatioc divtdad by meeker of bospita1 bode

tel low, avIlabl to public and private general sod epeoialieed hospital and

rehsbglitarton centers, eoclcdse ourstog hcmne and eotablinlhneta for

GSP ocr capita (tS) .- GNP Pet "apita csti,oaten at ourroot earket prices, cuatodiL1 aed preo-otin- care._aclte hs sane, coovdro con, nothd a- orld Rank Atlas. (1973-75 Per cpt e o y ofca rtee (M of reqciromestel - Cmaputod fran energy

kati.); 1960, 1970so 1975os eqialn ofOt icod supplies available to toutr'y per capita par dap,

avatleble eupplteo cooprissdMs.eti production, imports less enports,

PEclrinan vtl taitisand changes to, stock, netsppliessclude so Toal fend, eed,' qu..oti-Poeclcion(oidyr. illio) -Ae of July first' it not availablo, tie cud to food proceseing end l e In distrbution, rquIrenata

o--raco of tw eod-yeor cecteo,1960, 1970 and 1975 data. .. er ectimaled by FAO baocd on physiological ooede for Porna ac.tivityaod h-akth considering envirosocnt1 teoporsture, body esighta, age asd

looclococ densty - cr ovuave In, - Mid-year popoection per rqoare kilo- ecdiotribotiono of population, asd allowing 10%. fOr wate at houe0

ccr(00 bh ire; f oa re hold level.Popclecion deoscoy - cot square ins of egric. land - CanPuted a above for Per capita sooc1y of proteis (jtrans Per dayl - Protein conteot of per

sgriccIctai. lood only. ceptia Par suPply of food per day. not supply of food Ia deftoed anabove. require-enc ford:oil conotrien ectabliahed by USIA Eno-cic

Vital ututlecico Research S-rcc- providefra oieins alwneof 60 grane of total

Crudo hitch rats net thouo-d, avorace - Aoocol live birthe per thooseed protoie per day, end 20 grees of anisoal and pulse protein, of wbtchMf ed-yecr pupclutiuo1

tee-year arithotic -vonagoo ending in 1960 end 10 graew should be animal procoin, these otandards are lower thso those

1970. cod fieporaerg soi. iv 1975 for cost -reeteItoef 75 gram of total proteio and 23 grams of anleal prottein as .

Crde et aoprcono vro-ou deaths pr thbu.acod of id- argsfrtewld pooedb iiothe Third World,Sned '$rvy

your pu""itilc, e-Yelv "cIth'tic avcg ,ndig in 1960 end 1970 end Per acc 'roi sunei " fr I ai al nd ocice Prototo supply of foodcc-you urovcdioc c1975 fo r most recent .stinoco derivedfr naeUcaic adfpoleen in grams per day.

inisont coclc aeCtol- Annual deacho of ofaer und-r one yer of ~ sbrae(tl!_) TLaonI_1- - Arncal deatho per thousand In age grupuige portihoucoo Ioc birthe. t- yan, children in this ago group. sugg-oced an an indicetor of

Life P ......no at hith (yr.) - Average oanber of yeare of life renainig mlontritcon.

cc birch; _sucify five-year -.avgrie endiog in 1960, 1970 and 1975 fordeveloping conrisEd-taion

trouureprnccccoo rot - overegenumber oflive daughtersa wae ill Adlu,ted erlletratio - prieaocho noleto l gsa

hoar c her nrosi rproductive period if hbe eperie:nces presor ego percentege oftprimary schoolag populaton, incldes children aged

upcfc fertilit rc,usoly-tfIveyeraere coig in 160, 6. er u dutdfor different longtha of primary ed-ceion;

I197i and 1975 ford devloioi co..erriec for -eutries with universal Id...atio, nero11ent cay exceed 10072Pouato c o hrot ()- toteI - Conpoud annual growth racee of mid- ames. crn popln ace below or aho- the official school age.

yea popultin o 19060, '1960-70, sod.1970.75. Adlstderooetratic - seconar achooll - Canputed as above,

population growt roe(7-urban - Capted lika growth rare of total secondary ed-cation reuie at leant four years of approved primary

popuci, dfferent definitions of urban aresn maay affect canprar- ieotr_ottn, provIdes general, voctional or tean.her tratotegbiiy fdaaamn% cccre Intution fr cpiln of 12 to 17 yearn cf age, correspondence

Urban populatioo (2 fttl% Ratio of urhan to total population cursee aregeesrel eoclded.different definitIons of urbn ara a fetcnaaiiyo oe Years o shooline eroidd (first and second level) - Tnta1 yearn of

among vooctries. sc~~~~~~~~~hooling, at esondary level, -octtonel i.torution may be par-

Aie structure fe enet) - Children (0-14 years), worhiog-age (15-64 yeare), tially orI nltly encluded.

an eirod (65 years aed -vor) as percentages of ntd-yeer population. Vocational enrolleent (2 of -econdary) - Vocational institutions

Age deoendeney rat - Ratic of population under 15 end 65 and over to include teenhnica, ind-tcria1 or thbnr programs which operate

those of agen 15 throush 64 iedependently or so departments of secondary teuti Lotions.

Econaic deodec r i - Ratio of populocine under 15 and 65 and ovr Adult literacy rate (7.1 - Literate edulte (able to reed end unite) a

to the labor forco en ago group of 15-64 yerar. percentage of total odolt poPulation aged 15 years and over.Fonilo P pl -nini _ acotr (cumlative, thou) -.Cauatv -aber of

aoceptcrn of birth-ccetro1 devices undot .supice. of national fosily H... i.g

Pan-e I prugr cire inception Pesn a oa u oI -Acruge nuber of persons per rmoo iof'oetly ..aenim - unero (% of .mared w-neo - Perceetgee of earned occupied conveotina1 duellingo in urban areas, d-w lingo aeclude

-2oe of child-bearing ago (15-44 years) wh o us hitch-conftrol devices ean-pern-nst otructores and unoccupied parts.

to all married w,nen in --m age group. OcEted ~Idwelng ithot i aod wster1% Occpied cnetoadweling touban d r:s.re,wchu nide or outside piped

tnclny,osot wa~~~~~~~~~~~~~~.ter facilitiec en percentage If all occupie dwellings.

Total labor frce (tussd) - EconoivlIy active per.eono, includiog Acsccectity7,oaldwlng)-Cnostaa w igamdfor.ce end uv lydbt eocluIng hou--ive, otudeoc,o, etc., wiheetiiyi iigqatr oprsr of tcta dwelligo i

defIitionsr - -ario-o cI... tren ore eet canparal. urbae and rura areas,

Lahbor torce In agriculture (7* - Agrivulturo1 labor force (in foesing, Rrtal deslinoon connected to eleocricity (2) -i puted en abov o

fcctrY, hunting end fishing) as percentage of total labor force -rura dwellings only..

Iloptovled M2 of labor force) - hemnployed are usually defined as persOes

who ore able sod wiJlling to tohe a job, out of a job on a gi... day, Consanotlo

rotalcedin, f jMh- an nhIog woI-p,rk fo aspciIe eluopeio Radio reteivers (Per thou se) A ll types f rscetvers for radio brod-so ecoedig oneweek ..ay nlotyh caprble betwee ncoustress dos to tes .tst general pu Pi prthousanrd of Population, secludes

different defieilt-no uonlyd so ancurce. of date, g. , employ- -niosed receiver in countries add to yeasra wh.n registraino

mont ofiec oatiscis. oavle ouroyn, caP.uIsry nemployenet in...ra.ce. radio nets we In effeet, data for recent Years may non he cisparable

locnea ditribution- Percentage of private tnane (both im caah a.nd.kind) Pass.enger earn (eer thou pop) - Pea..eeger Odes eanpriac .. t., cars.receivod by richeot 5%, cicheut 20%, poorest 20%, and P--reot 40%of eseting less than eight person, -ocode aabulances, heerses and

honoehold-. military vehicle..

Electriciry (kwhlyr per cap) -Janea noonro f industrial, tan-Dli,rtuioni of land owne.rship - Percentages of land owed by wealthiest nerniel, public and pri'tvace " elcrcit to hilwte ors Per caplts,

1%and porsoc I0M of laed ownrs. generally base.d on predUttion date, without alwnefor Ilos.sa in.grids but elbowing for imports and enporta of electricity.

Health aed SurtonfearInt (kg/yr Pagr cap) - Per naPita anua tonsuo-ption to kilagr-n

Population Per PhYician - PoPulation divided by nonber of pr-ntising estimated fran dreaotct prodcclti plus met imports of newaprint.

Phytlcisno qualified fran a edicaI school 00 eInvernity level.

ANNEX IPage 3 of 3 pages

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN 1975 ANNUAL RATE OF GROWTH (% constant prices)

US$ Mln. % of GNP 1961-65 1966-70 1971-75

GNP at Market Prices 22,755 100 9.0 7.7 n/ 11.3Gross Fixed Domestic Investment 6,850 30 11.3 2/ 11.2 2/ 11.2 2/Exports of Goods 5,341 23.5 9.0 10.9 / 23.6 Imports of Goods 5,342 23.5 10.7 J 12.7 - 22.3

LABOR FORCE IN 1975 GOVERNMENT FINANCE

Mln. % General Government(lei bill.) % of GDY -

Agriculture 3.9 38 1975 1975Industry 4.0 40Services 2.3 22 Total Receipts 238.6 52.5

Total Expenditure 236.2 52.0Total Surplus 2.4 0.5

RETAIL PRICES 1971 1972 1973 1974 1975(1966 - 100) 101.6 101.6 102.4 103.7 103.9

BALANCE OF PAYMENTS(Mln. US$) 1971 1972 1973 1974 1975

MERCHANDISE EXPORTS 1975Exports of goods 2,102 2,884 3,667 4,858 5,341Imports of goods 2,102 2,910 3,424 5,049 5,342 US$ Mln. %

Trade balance 0 -26 i243 -191 -1 Capital goods 1,351 25Net Services -23 -31 -107 -168 -134 Consumer goods 860 16

Foodstuffs 566 11Balance on goods Intermediate goods 577 11

and services -23 -60 +136 -359 -135 Raw materials 1,986 38Industrial 1,682 32

Net MLT Capital 5 24 83 643 437 Agricultural 304 6Disbursements 350 516 589 1,055 817Amortization -345 -492 -506 412 380 Total 5,341 100

Residual Balance -18 -36 +219 +284 +302

RATE OF EXCHANGE EXTERNAL DEBT. June 30, 1976

Official Rate: Tourist Rate: US$ Mln.Total 2,900

US$ 1.00 = lei 4.97 US$ 1.00 - 12.00 of which convertibleLei 1.00 = US$ 0.20 Lei 1.00 -- 0.08 currencies 2,864

Official Trading Rate: DEBT SERVICE RATIO FOR 1975

US$ 1.00 = Lei 20 Convertible currencies only 17.2Lei 1.00 - US$ 0.25

1/ Net National Income2/ Current Prices3/ Gross Domestic Income Country Programs Department 1

Does not include interest payment obligations Europe, Middle East and North Africa Region

February 2, 1977

ANNEX IIPage 1 of 3 pages

STATUS OF BANK GROUP OPERATIONS IN ROMANIA

A. STATEMENT OF BANK LOANS (As of December 31, 1976)

Amount in $ millionsLoan Less Cancellations

Number Year Borrower Purpose Bank IDA Undisbursed

Ln. 1020-RO 1974 Investment Fertilizer 60.0 - 44.7Bank

Ln 1027-RO 1975 Investment Special 70.0 - 65.8Bank Steel

Ln 1028-RO 1975 Investment Thermal 60.0 - 24.0Bank Power

Ln 1082-RO 1975 BAFI A' Irrigation 70.0 - 4o.6

Ln 1083-RO 1975 BAFI Agriculture 30.0 - 19.8and Credit

Ln 1169-RO 1976 BAFI Flood 40.0 - 3.6Recovery

Ln 1170-RO 1976 Investment Flood 20.0 - 8.0Bank Recovery

Ln 1242-RO 1976 Investment Hydropower 50.0 - 50.0Bank

Ln 1247-RO 1976 BAFI Irrigation 60.O - 59.8

Total 460.0 316.3of which has beenrepaid

Total now outstanding 46o.o -

Amount sold 1.6 - -

of which repaid 0.0 1.6 -

Total now held b/yBank - 458.4 -

Total undisbursed 316.3 - 316.3

1/ Bank for Agriculture and Food Industry

2/ Excluding exchange adjustments

ANNEX IIPage 2 of 3 pages

B. PROJECTS IN EXECUTION

Ln No. 1020 Bacau Fertilizer Project; US$60 million Loan ofJune 28, 1974; Effective Date: December 31, 1974;Closing Date: December 31, 1978.

By agreement between the Bank and the Borrower, the project sitewas changed from Tecuci to Bacau which is more advantageous from the pointof view of controlling effluents. After a slow start, due mainly to thechange of site, lack of familiarity with Bank procurement procedures, andthe floods of spring 1975, the project is now proceeding satisfactorily.

Ln No. 1027 Otelinox Special Steel Project; US$70 million Loan ofJuly 10, 1974; Effective Date: April 4, 1975;Closing Date: December 31, 1979

Execution of the project was delayed several months, primarily be-cause of the complexity of two large bid packages and because of the Romanians'lack of familiarity with international competitive bidding procedures underthe Bank's Guidelines. Progress on procurement has been closely monitored byseveral Bank supervision missions, and US$50,000 allocated for procurementconsultants but not used has been cancelled. The contract for the cold millhas been signed and construction has begun. Bids for the hot mill have beenreceived and are being evaluated.

Ln No. 1028 Turceni Thermal Power Project; US$60 million Loan ofJuly 10, 1974; Effective Date: November 6, 1974;Closing Date: June 30, 1979

There have been minor delays in construction and steps have beentaken to reduce these. Project execution is in general according to plan andsatisfactory. Due to increase in costs of imports, local goods and laborrates, the project cost is now likely to exceed the estimate at appraisal by19 percent. Delays in procurement and related procedural problems have beenresolved, and the rate of disbursement is likely to lag only slightly behindthe original estimates. Training of future operational staff has begun. Fi-nancial performance has been satisfactory despite a reduction in energy salesgrowth in response to energy conservation measures.

Ln No. 1082 Giurgiu-Razmiresti Irrigation Project; US$70 million Loanof February 6, 1975; Effective Date: May 5, 1975; ClosingDate: December 31, 1978.

Construction of project works is progressing satisfactorily andabout 60 percent of the project has been completed more or less on schedule.International procurement was delayed initially by the Romanians' lack offamiliarity with international bidding procedures required by the Bank,and by a delay in appointing consultants to assist with this work. Allcontracts have now been awarded.

ANNEX IIPage 3 of 3 pages

Ln No. 1083 Sadova-Corabia Agricultural Credit Project; US$30 millionLoan of February 6, 1975; Effective Date: April 29, 1975Closing Date: December 31, 1979.

Progress of the project is satisfactory. Contracts for purchasingrefrigerated trucks, building materials, steel products, and electrical cableshave been awarded. Contracts for chemicals were not awarded after interna-tional competitive bidding because the Romanians judged all bid prices to betoo high; the Bank has asked that these contracts be retendered. Bids for thepremix feed mill have been received, formula testing has been carried outas part of bid evaluation and the Romanians are now preparing bid evaluationsfor submission to the Bank.

Ln No. 1169 Flood Recovery Prolect (Agricultural Component); US$40 millionLoan of November 12, 1975; Effective Date: December 2, 1975;Closing Date: June 30, 1979.

Project execution is proceeding well and disbursements are ahead ofschedule. International competitive bidding for most items was combined withthat for the Giurgiu-Razmiresti Irrigation Project as noted above, and con-tracts for these items have been awarded.

Ln No. 1170 Flood Recovery Project (Industry, Mining and Transport Com-ponent); US$20 million Loan of November 12, 1975; EffectiveDate: December 2, 1975; Closing Date: March 31, 1977.

Disbursements under the loan have been slower than anticipatedbecause of difficulties encountered in Romania in preparing and assemblingdocumentation on procurement of imported industrial machinery. Interna-tional competitive bidding for procurement of earthmoving machinery underthis loan was combined with that for the Giurgiu-Razmiresti Irrigation Projectabove, and contracts have been awarded. Disbursements have improved consider-ably since September 1976.

Ln No. 1242 Riul Mare Retezat Hydropower Project; $50 million ofApril 28. 1976: Effective Date: July 26, 1976; ClosingDate: December 31, 1981.

Project execution has begun and access roads to the dam site arewell advanced. Civil works for the dam and underground power station havebegun. Procurement is underway and the first contracts have been awarded.

Ln No. 1247 Rasova-Vederoasa Irrigation and Agriculture DevelopmentProject; $60 million of April 28, 1976; Effective Date:November 3, 1976; Closing Date: June 30, 1981.

Advertisement for international competitive bidding has been com-pleted and the Bank has approved tender documents. Bids are expected inFebruary 1977.

EMENAFebruary 2, 1977

ANNEX IIIPage 1 of 3 pages

ROMANIA

IALOMITA-CALMATUI IRRIGATION PROJECT

Loan and Project Summary

Borrower: Bank for Agriculture and Food Industry (BAFI).

Guarantor: Socialist Republic of Romania.

Beneficiaries: Cooperatives and state farms.

Amount: US$60 million, in various currencies.

Terms: Amortization in 15 years, including 3 years of grace, atan interest rate of 8.5 percent per annum.

Project The project consists of construction of irrigation infra-Description: structure and supply of related facilities to serve an

area of about 148,500 ha. It includes:

(a) a floating pumping station with capacity of 110 m3/sec,and seven fixed pumping stations;

(b) a system of concrete-lined main, branch and distribu-tary canals;

(c) about 115 pressure pumping stations to supply waterto about 2,760 km of distribution pipeline;

(d) about 17 surface drainage networks and 23 relatedpumping stations to serve about 82,350 ha, and sub-surface drainage networks to serve about 14,400 ha;

(e) portable furrow and sprinkler irrigation equipment,operation and maintenance equipment, and farmmachinery;

(f) about 240 km of 110 kv and 20 kv power lines; and

(g) land leveling works on about 40,000 ha, soil erosioncontrol works on about 6,100 ha, and windbreaks toprotect about 38,600 ha.

(h) about 400 observation wells to monitor groundwaterlevels;

(i) construction of buildings for operation and main-tenance of the irrigation system.

ANNEX IIIPage 2 of 3 pages

Cost Estimates

Item Estimated Cost/ ForeignLocal Foreign Total as %------ (US$ million)----- of Total

Irrigation Works 89.7 28.3 118.0 24Drainage Works 16.9 2.8 19.7 14Miscellaneous Works 12.7 1.8 14.5 12Land Compensation 1.0 - 1.0 -Operation and Maintenance

Equipment and Farm Machinery 5.8 3.0 8.8 34Engineering and Administration 12.0 - 12.0 -

Base Cost 138.1 35.9 174.0 21

Physical Contingencies 9.5 2.5 12.0 21Price Contingencies 2.8 6.2 9.0 69

Total Project Cost 150.4 44.6 195.0 23

Interest and Other Chargesaccruing before December 14, 1981 - 15.4 15.4 100

Total Financing Requirements 150.4 60.0 210.4 29

/1 Discrepancies due to rounding.

Financing Plan:US$ million

Local Foreign Total

State Budget 109.8 - 109.8Bank for Agriculture and Food Industry 28.6 - 28.6Cooperatives 12.0 - 12.0

IBRD - 60.0 60.0

Total 150.4 60.0 210.4

EstimatedDisbursements: Calendar Years 1977 1978 1979 1980 1981

------------(US$ million)----------

Annual 5.0 27.0 19.0 4.2 4.8Cumulative 5.0 32.0 51.0 55.2 60.0

ANNEX IIIPage 3 of 3 pages

Procurement: Although Romanian laws provide for international competi-tive bidding and for joint ventures involving foreign anddomestic enterprises, in practice all irrigation works areconstructed by Romanian Construction Trusts, which areexperienced and familiar with local conditions, methodsand regulations. Therefore, only procurement of equipmentand materials equivalent in cost to the estimated foreignexchange cost of the project would be financed under theproposed loan. Items costing US$45 million includingcontingencies (Annex 7, table I of the Appraisal Report)would be procured following international advertising andcompetitive bidding in accordance with the Bank Guidelines.Romanian manufacturers would be allowed a margin of pref-erence of 15 percent or the applicable custom duty, which-ever is lower, but the application of the preference isnot expected to significantly affect the outcome of bidding.It is expected that foreign suppliers would win contractsfor most construction equipment (canal trimming and liningmachines, tile laying machines, dewatering equipment andsome motor scrapers) estimated to cost about US$6.5 million.Other items to be procured through international competi-tive bidding (estimated to cost US$38.5 million) are avail-able domestically and, based on experience with previousBank-financed projects, it is expected that Romanianmanufacturers would be successful in bidding for theseitems. The remaining equipment and materials (estimatedto cost US$41.3 million) would be procured under Romanianprocedures and would not be eligible for disbursementunder the proposed Bank loan.

Economic Rateof Return: 16.3 percent.

Appraisal Report: No. 1228-ROIrrigation DivisionEMENA Projects Department

EMENAFebruary 2, 1977

ANNEX IV

ROMANIA

IALOMITA-CALMATUI IRRIGATON PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Project first identified by the Bank: August 1975

(b) Time taken by the country to prepare the project: Two years(January 1974 to January 1976)

(c) Agency which prepared the Project: Ministry of Agriculture

(d) Date of first Bank mission to consider the Project: August 1975

(e) Date of departure of Appraisal Mission: March 29, 1976

(f) Date of completion of negotiations: November 8, 1976

(g) Planned date of effectiveness: About May 16, 1977

Section II: Special Bank Implementation Actions

International procurement for the project is to be consolidatedwith that for the Rasova-Vederoasa Irrigation and Agricultural DevelopmentProject (Ln. No. 1247). Tender documents have been approved by the Bank,and bids are expected by February 1977.

Section III: Special Conditions

A special condition of effectiveness of the loan is the approvalby the Council of Ministers of the technical and economic indicators of theproject. This approval of detailed project parameters is normal under Romanianplanning procedures and will provide the legal basis for financing and imple-mentation of the project (para. 56).

EMENAFebruary 2, 1977

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