Do_imnt of

The World BankFOR OMCIAL USE ONLY

Report ro. 6514-AL

STAFF APPPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA

CHELIFF IRRIGATION PROJECT

April 1, 1987

Regional Projects DepartmentEurope, Middle East and North Africa Regional OfficeAgriculture II Division

This document has a restricted 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.

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CURRENCY EQUVALENTS

Currency Unit Dinar (DA)US$1.00 DA 4.7DA 1.00 US$0.213

WEIGHTS AND MEASURES

The metric system is used throughout this report.

FISCAL YEAR

January 1 - December 31

GLOSSARY OF ABBREVIATIONS

BADR Banque de l'Agriculture et du Developpement Rural(Bank for Agricultural and Rural Development)

DAD Delegation Agricole de Daira(Agricultural office of MAP at the DaYra level)

DAP Direction de l'Agriculture et de la Peche de la Wilaya(Provincial Directorate for Agriculture and Fisheries)

DAS Domaine agricole socialiste(Socialist Sector Farm)

DGPI Direction des Grandes Perimetres Irrigues(Department of Irrigation and Drainage of MHEF)

LSI Large-scale IrrigationMAP Ministere de l'Agriculture et de la Peche

(Ministry of Agriculture and Fisheries)MHEF Ministere de l'Hydraulique, de l'Environnement et des Forets

(Ministry of Hydraulics, Environment and Forests)OPI Office des Perimetres d'Irrigation

(Regional Irrigation Authority)SDA Secteur de Developpement Agricole

(Agricultural Development Service)SMSI Small and Medium-Scale Irrigation

FOR OFFCIAL US ONLY

STAFF APPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA

CHEI1FF IRRIGATION PROJECT

LOAN AND PROJECT SUMMARY

Bornower Government of Algeria

AmAount US$94 million equivalent

Terms 15 years including 3 years of grace, at the standardvariable interest rate.

Prosect Desor4dipti: The proposed Project has the following objectives: (a)at the local level: (i) to implement the firstpriority investment package for the development of theCheliff river basin; and (ii) to safeguard and improvethe income of the farmers and their families living inthe subproject areas and improve social welfare byproviding some basic infrastructure; (b) at the sectorlevel: (i) to develop and implement new institutionalarrangements to ensure adequate water management,operation and maintenance in the Cheliff river basinwhich, when replicated, would benefit all majorirrigation in the country; and (ii) to develop andimprove internal financing of O&M by increasing usercharges to fully cover costs; and (c) at the nationallevel, to develop efficiently irrigation potential inthe country by expanding the large-scale irrigationareas presently used for irrigation by about 252. TheProject would consist of (a) rehabilitation ofexisting irrigation infrastructure over 5,000 ha inBas Cheliff; (b) construction of new irrigation systemsover 8,000 ha in Haut Cheliff; (c) provision forequipment and vehicles for extension and O&M staff;(d) technical assistance for the supervision of works,for studies of further irrigation works in the Cheliffvalley and for O&M; (e) training and recruitment oflocal staff; and (f) on-farm investments. The risk ofslow project implementation which was experienced witha previous Project has been minimized by carefuldesign of the procurement packages to facilitateefficient construction operations (large contracts).The risk of a slower buildup of benefits than theconservative estimate made has been minimized byintroducing a strict monitoring system and remedialmeasures to be taken to improve agriculturalperformance if necessary.

Thk lhas a rstrited distrbuton and may be ued by recipients only in the prformac of theiroffkW dutble Its centDts may no othefwise be discosed wihout World Sankauthoriution.

(ii)

Estimated Proiect Costs: Local Forsiam Total(US$ million) -

Civil works 44.9 45.0 89.9Equipment and vehicles 5.1 14.7 19.8Technical assistance, Training and studies 1.5 5.2 6.7On-farm Investments 9.8 8.1 17.9Incremental Recurrent costs 3.2 2.3 5.5

Total Base Costs 64.5 75.3 139.8

Physical contingencies 6.5 7.9 14.4Price contingencies 20.2 11.2 31.4

Grand total'A 91.2 94.4 185.6

Financins Plan: Local Forei Total(US$ million)

World Bank - 94.0 94.0Government 32.6 - 32.6Beneficiaries 7.5 - 7.5BADR 17.0 - 17.0

Net Project Costs 57.1 94.0 151.1Taxes and Duties 34.5 34.5Total Project Costs 91.6 94.0 185.6

Estimated Disbursements: 1988 1989 1990 1991 1992 1993 1994 1995_ ~~(i Tmil-lion)-

Annual 2 5 12 16 19 16 15 9Cumulative 2 7 19 35 54 70 85 94

Economic Rate of Return: The Cheliff Water Master Plan: 17XThe Project: 15S

Staff'Avpraisal Report: No. 6514-AL

map No. IBRD 19879A

/a Including US$ 34.5 million in taxes and duties.

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SrAFF APPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA

CHELIFF IRRIGATION PROJECT

Table of Contents

PbRe No.

I. INTRODUCTION . 1

II. TEE AGRICULTURAL SECTOR ............. ........... 2

A. Role of Agriculture in the Economy ....... ................. 2B. Experience with Past Lending in the Sector * ............... 5

III. THE IRRIGATION SUBSECTOR ............... ........ e.ee 6

A. General Performance .............. ........................ 6

B. Subsector Issues Relevant to the Project .................. 8

IV. THE PROJECT AREA ...................................... 11

A. The Cheliff Water Master Plan ............................. 11B. Location, Climate and Soils ................... 1........... 13C. Land Tenure, Irrigation and Land Use ...................... 14D. Water Demand and Resources ................................ 15E. Agricultural Support Services and Institutions ............ 17

V* THE PROJECT ..... ....... * .... .... .. .. ...... . 20

A. Rationale for Bank Involvement and Project Objectives ..... 20B. Suiary Project Description .... ................... 21C. Detailed Features ........... .. ............................ 22

D. Status of Project Preparation ........... .................. 24S. Cost Estimates .............. 25

F* Procurement .............. 27

G. Disbursement ............................................. 29

This report is based on the findings of an appraisal missionwhich visited Algeria in April-May 1986 composed of Mr. Darghouth(mission leader)-and Ms. Effron (Bank), Mr. Dumaset (FAO/CP). andMessrs. Abu Sharr and Feher (consultants).

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Table of Contents (Cont'd)

Page No.

VI. ORGANIZATION AND MANAGEMENT ...................... 31A. Project Organization ............... ...................... 31B. Organisation for Operation and Maintenance ............... 33C. Performance of the Socialist Farms ....................... 34

VII. BEN-FITS AND JUSTIFICATION ............. 35

A. General ................ .35B. Land Use, Yields and Production ............ 36C. Marketing and Prices 39D. Farm Income and Poverty Alleviation ......... 41E. Cost Recovery ......... 43F. Environment Impact ........... 46G. Economic Analysis . .46H. Risks and Sensitivity Analysis 49

VIII. AGREEMENTS REACHED AND RECOMMENDATIONS.............. 52

SUPPORTING TABLES

Table 1. Project Cost Summary and Schedule of Expenditures .. 54Table 2. Estimated Schedule of Disbursement of Bank Loan .... 56Table 3. List of Equipment to be Procured under the Project . 57Table 4. Cost and Rent Recovery .e...................... 58Table 5. Selected Documents and Data Available in the Project

File and Annexes in Implementation Volume ........ 59

CHARTS

1. Organization Chart of MEF .......... .. 602. Implementation Schedule 61

MAP

IBRD.19879A

STAFF APPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA

CHELW! IRIGATION PROJECT

L INTRODUCTION

1.01 During the '970s, Algeria experienced high economic growth, withGross Domestic Production (GDP), in constant prices, increasing by 7.2Z p.a.and GNP per capita more than doubling to US$1,930 in 1980. The evolution ofthe economy was characterized by strong investment growth (more than151 p.a.), a aigh savings rate (about 38% of GDP), substantial growth in thehydrocarbon, industry and construction sectors, high employment creation andsustained regional development efforts. However, in addition to pressure onexternal and domestic financial resources, there were serious imbalances inthe distribution of investment between industry and other sectors, especiallythe agricultural sector, during this period. As a result, the agriculturalsector was unable to satisfy the rapidly increasing food consumption (6X p.a.from the mid 19609 to the late 1970s) and imports g ew sharply to fill thegap. This growing dependence on food imports caused the Government, in thecontext of the 1980-84 Economic Development Plan, to increase publicinvestment and to introduce major reforms to improve performance of theagricultural sector.

1.02 These reforms included the promotion of private sector activity inagriculture and small- and medium-scale industries through selective creditand taxation measures, decentralizing and restructuring parastatal enterprisesand state farms, introducing financial incentives to improve laborproductivity and deregulating some agricultural m&rketing and prices. Thereforms are being continued under the current 1985-89 Plan.

1.03 Among the measures taken to improve agricultural productivity arethose aimed at the irrigation subsector which provides 402 of agriculturalproduction. Programs are underway to expand the availability of irrigationwater and to improve the efficiency of its use by extending and rehabilitatinglarge-scale irrigation perimeters, expanding small- and medium-scaleirrigation development, establishing institutions capable of ensuring adequateO&M, and improving cost recovery policy and mechanisms. The proposed projectwould contribute to these objectives by extending irrigation over new areasand improving the efficiency of existing irrigation works in the Cheliff riverbasin, and by improving O&M activities and cost recovery. The Project wasidentified during a Bank reconnaissance mission which visited Algeria inFebruary 1985. It was prepared by the Government with assistance of theFAO/IBRD Cooperative Program in January 1986 and appraised in April-May 1986by a mission composed of Mr. Darghouth (mission leader), Ms. Effron (Bank),Mr. Dumaxet (FAO/CP) and Messrs. Abu Sharr and Feher (consultants).

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EL THE AGRICULTURAL SECTOR

A. Role of AMriculture in The Econom

General Performance of the Sector

2.01 Algeria has a total land area of 238 million ha of which 48.5 millionha are suitable for agriculture and grazing. Forests and esparto grass cover9 million ha and 32 million ha are used for grazing. Of the 7.5 million ha ofcultivable area, 36S are planted in cereals, 8% in forage crops, 3S invegetables, 22 in pulses, and 431 is normally left fallow. Algeria's ratio ofirrigable land to arable land is very low (11% compared with Morocco's 191)reflecting scarcity of water resources. Algeria has an irrigation potentialof about 800,000 ha of which about 400,000 ha are presently irrigable andabout 310,000 ha effectively irrigated. Of the cultivable land, 4.7 millionha or 631 are under private farms and 2.8 million ha or 37S under socialistfarms.

2.02 The rapidly growing "food gap" is a major current issue for Algeria.As a result of the rapid increase in population and per capita incomes, demandfor food has grown faster than supply. Algeria's food self-suffiency ratiofell to 401 in 1984 from roughly 901 in 1962. This decline has beenparticularly severe for cereals, imports of which, after practicallyquadrupling during the 1970s, now meet almost two-thirds of the country'sneeds. At the same time, the volume of food exports (principally wine,fruits, and vegetables) fell by almost 901 during the last decade,representing only 3% of total imports at the end of the period, compared with631 at the beginning. During the 1980-84 Plan period, Algeria had to spendalmost 151 of its merchandise export earnings to import foodstuffs (cereals,dairy products, sugar, oil products, etc.).

2.03 The food gap has increased in spite of the respectable growth in thevalue added of the agricultural sector of about 41 per year since 1973-75.Most of the growth has occurred in the relatively high-value vegetables (7.41per year) and fresh fruits (4.31 per year - other than citrus and grapes),which in any case are not imported, and in animal production (9.71 per year)where total consumption has grown even faster. Thus the high growth of thesesubsectors has not affected the food self-sufficiency of Algeria, while theperformance of cereals and legumes has been stagnant and that of citrus fruitand wine grapes has been downward (-6% per year). It is the indifferentperformance of cereals and poor performance of citrus and wine products thatunderlies the increase in food imports and the decrease in agriculturalexports during this period. In spite of the overall increase in value addedof agricultural production since 1973-75, the agricultural sector'scontribution to Algeria's GDP has declined steadily from 161 in 1960 to about6% in 1984. This decline reflects primarily the higher relative growth ofother sectors, principally petroleum and, to a lesser extent, themanufacturing industry.

2.04 The uneven performance of the sector is partly because agriculturehas to date been unable to achieve public investment program targets. The

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effective share of agriculture in total public investment over the period1975-84 amounted to about 4.51. In addition, the amounts allocated toinvestment in agriculture under successive development plans have beensystematically under-implemented as a result of institutional, organizationaland managerial constraints. The 61 allocation in the 1980-84 Plan has notbeen achieved and disbursements have fallen short of budgetary allocations.While purchase of equipment (tractors, agricultural equipment, farm machinery,equipment for crop growing under plastic) for the socialist sector and morerecently for the private sector has been favored, little attention has beenpaid to modernization of agricultural infrastructure, equipment of irrigatedareas, and facilities for stock raising. Investment in water resourcedevelopment has been focussed on the construction of water storage works andfacilities for the supply and distribution of water for householdconsumption. Improvements in the irrigation infrastructure have been delayedby a shortage of prepared projects, cumbersome procedures in contract awards,and an inefficient local construction industry.

2.05 For all crops, including those enjoying the most favorableconditions, yields remain low in comparison with other Mediterranean countriesdespite their increase in 1984-85. For most crops, average yields represent50 to 70% of those in neighboring countries. Yields of most crops did notincrease between 1980 and 1984 despite the increase in investment inagricultural equipment and inputs channeled to the sector, due largely tosuccessive drought years. With greatly improved weather, greatly improvedharvests were obtained in 1985 and 1986 and the effects of increasedinvestment and reorganization in the sector are becoming apparent.

Reforms Introdued During the 1980-84 Plan

2.06 With a view to ensuring optimum use of production capacities,maintaining and revitalizing agriculture and stemming rural depopulation, theGovernment introduced a series of reforms in the sector in the 1980-84Economic Development Plan which have been gradually implemented over the lastfive years. Many of these reforms are consistent with recommendations made bythe Bank in the 1981 Agricultural Sector Survey.L' The reforms have beenprimarily aimed at improvements in four areas: (a) performance of socialistsector farms; (b) support provided to the private sector farms; (c)organization of marketing; and (d) current marketing and pricing policythrough deregulation. The reorganization of the socialist sector farms is amajor sectoral issue directly relevant to the Project; it is treated in paras.3.09 - 3.11. Progress in the three other aspects are discussed below.

2.07 Important steps have been taken to give a greater role to the privatesector in agricultural production and services since 1981. This has resultedin the quantity of the major inputs (fertilizers and farm machinery equipment)distributed to the private farmers doubling over the last five years. TheBank for Agriculturl. and Rural Development (BADR) has put greater emphasis onlending for the private sector: loans to the private sector and the number of

1/ Algeria: Agricultural sector memorandum (Report No. 3593-AL), September1981.

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private farmer clients almost quadrupled between 1983 and 1985. For inputsupply, the role of the private retailers in distributing spare parts ofagricultural machinery and in providing repair services is increasing. Inaddition, about 850,000 ha of state or. cooperative lands have been distributedto private farmers: 740,000 ha as a result of the restructuring of theself-managed socialist farms and the dismantling of the production formercooperatives (para. 3.09) and 110,000 ha distributed under a program startedby Government in 1984 to encourage land reclamation and use in the southernand central regions of the country. Promotion of the private sector is also amajor objective of the current 1985-89 Development Plan.

2.08 As part of the restructuring effort, marketina aaencies, both forinputs and outputs, have been placed on a more sound financial footing: theiraccumulated debts have been assumed by Government, additional capital in theform of both equity and loans have been provided and operating norms have beenestablished for each marketing agency to monitor their performance. Inaddition, the Government has decentralized several national marketing agenciesby setting up three regional Offices (East, Center, West) in place of the onecentralized bureau to serve the needs of each respective region. Fordistribution of most seasonal inputs at a local level (district and province),Government services have been transferred to financially reorganizedcooperatives. These cooperatives act as distribution agencies that depend onthe national inputs marketing agency, ONAPSA (Office National desApprovisionnements et des Services Agricoles). The impact this restructuringwill have on timely and adequate delivery of inputs and marketing of outputand on improved financial performance remains to be seen but the early yearssince restructuring have shown some promise (para. 2.10).

2.09 The aricultural price and marketing system has been graduallyderegulated since 1981. All producers, including those in the socialistsector, are now free to sell their products outside the state marketingagencies, except for cereals, pulses, edible oils and industrial crops. Thishas considerably strengthened the role of the private sector in the marketingof agricultural produce, at both wholesale and retail levels. As the pricespaid by private traders are higher than those offered by official buyers, thefunction of the latter now appears to be essentially to absorb surplusproduction and keep regional supply and demand in balance. Since 1982, retailprices for perishable products have in practice been mostly deregulated andadministered prices for cereals, pulses and wine have been increasedsubstantially (40-802) and are now somewhat above border prices.

Reeent Trendsand RemaniAng Constraints

2.10 Because the reform measures have been put into effect only recently,it is too early to assess their impact on the growth of agriculturalproduction. The restructuring of the agricultural sector involved aconsiderable effort on the part of all the institutions involved (redeploymentof personnel, establishment of new structures, reorganization of existingboards often performing varied functions). The structural changes introducedin the socialist production sector, the lack of experience among newsupervisors, and problems in starting up the new input distribution systems

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hampered any immediate expansion in production whicb remained stagnant up to1983/84, although agricultural growth was also greatly affected by a far belownormal rainfall in 1981-1984. Production increased impressively, due to acombination of factors including good weather, in 1984/85. The major positiveresults that can be partially attributed to the Government reforms can besumarized as follows: (a) after an intensive campaign to promote cerealproduction, cereal production in 1984/85, a year of favorable weather,sharply increased to its highest level ever of 3.1 M tons, which can becompared to 2.4 M tons in 1980, also a year of good weather; (b) following thederegulation of prices and maketing, there has been conticuous growth inproduction of vegetables (SS p.a.) and poultry products (132 p.a. for meat)since 1980; (c) the proportion of profitable socialist farms has increasedfrom 20S to 30S; (d) the majority of cne marketing agencies were profitable in1985; (e) the quantity of inputs marketed by the newly restructured marketingagencies increased substantially; fertilizer distribution, for example,increased by 36% between 1984 and 1985; and (f) the private sector has hadaccess to additional land, more credit and more inputs (para. 2.07).

2.11 Despite these improvements, much remains to be done. Performance ofthe agricultural sector can still be greatly improved and major issues are:(a) shortages and untimely distribution of agricultural inputs and credit,particularly for the private sector; (b) inadequate research programs andextension services, particularly for the private sector, and insufficientstaff training; (c) limited use of igrigation potential (para. 3.02); (d)inadequate incentives for workers in socialist farms to achieve higherproductivity; (e) limited capacity of the agricultural sector to use theinvestment allocations and to implement projects; and (f) need for continuedreform of the system for setting producer and input prices (includingirrigation water). The irrigation subsector, even though it contributes about40% of national production, has under-performed compared to its potential,because insufficient funds have been allocated for rehabilitation andmanagement improvement and because institutional arrangements in place forusing irrigation facilities efficiently are inadequate. The Bank has begun adislogue with the Government that covers each .of these aspects, withparticular focus on the first three topics.

B. Experience with Past LendI In the Secto

2.12 Bank Group lending for Agriculture in Algeria started in 1974, and todate only three projects have been approved for a total of US$58 million ofBank funds. Performance under these three projects was mixed, reflecting theinstitutional constraints in the sector. The Technical Assistance - RuralDevelopment Project (Loan 1159-AL) was completed in 1983 after considerabledelays mainly due to lack of commitment, lack of coordination and poorsupervision by Ministry of Agriculture. In spite of the delays, the Projectpartly met its objectives of analyzing the major constraints and designingand, in some cases, testing different approaches to rural development inAlgeria. The Bas-Cheliff Irrigation Project (Loan 1802-AL) was 80% completedwhen the Government and the Bank decided to close the Loan in 1985, two yearsafter the Closing Date foreseen at appraisal. Delays occurred after biddingwhen no offers or expressions of interest were received for the major civil

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works because of the very modest size of these works. The works were finallycarried out by a local public sector enterprise. The project's physical workswill be completed by the end of 1986 and project studies have provided anessential framework for the future development of the Cheliff river basin(paras. 4.01 - 4.04). The Meat Industry Project (Luan 1739-AL) was cancelledin 1983 at the Government's request, a few months after the Loan becameeffective. No reasons were given by the Government for this request.Experience gained during the implementation of the Bas Cheliff Project hasbeen used in the design of the proposed project. The works have been packagedso that their sizs is such that larger, efficient contractors are likely toexpress interest in implementing these works. In addition, bidding for partof the major works has already started to ensure that procurement does notbecome a major source of delay.

mI THE IRRGATION SUDSECTOR

A. General Performance

3.01 Although some 40X of current agricultural production value is fromthe irrigated areas, the potential for increased production from existingirrigated areas and for development of new irrigation is still important. Theestimates available show that the total area that can be irrigated is about800,000 ha or 10.5S of total arable land (7.5 million ha) compared with only310,000 ba presently actually irrigated. These include 180,000 ha (or 602) inthe socialist farms and 130,000 ha (or 40%) in the private sector farms.Between Independence in 1962 and 1980 total irrigation area almost stagnatedbecause the slow development of new irrigated areas was offset by the declinein the use of land equipped for irrigation.

3.02 The present use of existing irrigation infrastructure is low. Thecurrent irrigated land (310,000 ha) represents about 702 of the estimated400,000 ha of land equipped for irrigation. The main reasons for theunder-utilization of the irrigated systems reflect the lack of interest givento the irrigation sector before 1980 and are: (a) increased use of water tomeet urban and industrial demand without coensurate investments in waterdevelopment structures reducing, therefore, the amount of water available forirrigation; (b) insufficient investment programs for irrigation before 1980causing: (i) limited rehabilitation of old irrigation systems; and (ii) lackof adequate drainage systems, which were considered unnecessary at the time ofconstruction, causing serious soil salinization in many areas; and (c) lack ofadequate maintenance of irrigation structures and equipment causinginefficient use of water for irrigation (para. 3.05). While the use ofexisting irrigation infrastructure, in particular in the large-scaleperimeters, is low for the reasons stated above, the limited water availableat the field level is fully used and primarily devoted to the most highlyprofitable crops, mainly vegetables and fruit trees which together cover 802of the total irrigated area.

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Prospeots for the Iritation Subsector

3.03 A major effort to boost the performance of the irrigation subsectorstarted with the 1980-84 National Development Plan. Actual investmentexpenditures for water development increased from 850 million DA/year duringthe 1977-79 Plan to 2,420 million DA/year during the 1980-84 Plan, almost atwofold increase in constant terms. The most noticeable progress was made,however, in the mobilization of additional water resources by the constructionof new dams and main infrastructure. Thus, in order to make up for theinsufficiency of water supplies and enable existing schemes to be used morefully, nine dams have been commissioned since 1980 and twelve others are beingconstructed, while only three dams were constructed between 1962 and 1980.This has about doubled the annual surface water resources available forirrigation in Algeria and will make possible a much fuller use of existingirrigation facilities. However, Government performance in building theirrigation facilities to make full use of these newly mobilized water supplieshas been hampered due to lack of engineering studies, delays in constructionworks, and inadequate supervisory capacity from Ministere de l'Hydraulique, del'Snvironnement et des Forets (MHEF). As a result, the progress in developingirrigation over new lands during the 1980-84 Plan was lower than planned('7,500 ha instead of 50,000 ha, an implementation rate of 752) and renovationof existing irrigation perimeters was even lower (10,000 ha out of 25,000 haplanned, an implementation rate of 40X).

3.04 Under the 1985-89 Plan, the Government continues to give an importantrole to the irrigation subsector as a key part of the effort to improveperformance of the agricultural sector. The main objectives assigned for thissubsector under this Plan are to: (a) continue mobilization of additionalwater resources by completing construction of the 12 on-going storage dams andinitiating the construction of 17 others; (b) continue expansion andrenovation works with the aim of putting under irrigation an additional 50,000ha in the large-scale irrigation (LSI) areas and 25,000 ha in the small- andmedium-scale irrigation (SMSI) areas; (c) intensify irrigation in the southernareas through drilling of tubewells; and (d) carry out a number of key studieswith a particular emphasis on river basin water master plans of which the mostimportant, the Cheliff Water Master Plan (paras. 4.01 - 4.04), has alreadybeen completed under the Bas Cheliff Irrigation Project financed by the Bank(under Loan 1802-AL). On the institutional side, the Government intends toimprove O&M of existing irrigation areas, improve cost recovery, enhance theperformance of the public construction companies, expand staff trainingprograms, and complete water legislation. In view of recent budgetaryconstraints because of the drop in oil revenues, Government was asked toconfirm to the Bank that sufficient priority would be given to the irrigationsubsector to ensure project funding. Government has confirmed this and hassubmitted to the Bank details on the size and composition of the revisedexpenditure program for the irrigation sector for the 1985-87 period whichclearly shows the importance given to irrigation in current policy.

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B Subsector Iss1 Relevant to the ProJect

Organization for Operation and Ma te

3.05 Operation and maintenance of irrigation schemes have been longneglected in Algeria resulting in a serious deterioration of the irrigationsystem. Operation and maintenance are the responsibility of MHEF fieldsubdivisional units located in each irrigation district. These units have hadlittle autonomy and have lacked qualified staff and financial resources foradequate O&M. Most of the 06M staff are experienced but are relativelydiscouraged by the poor condition of the networks. Practically all authorityincluding awarding of contracts is centralized in the Ministry's Regionaloffices located in the provincial capitals which leads to inefficiencies inongoing maintenance work.

3.06 The problem of O&M was raised in 1984 by the Bank, which urged theGovernment to take steps to enhance efficiency of OEM operations in the LSIperimeters like those in Cheliff, before financing any new projects in thesubsector. Government responded by taking measures to address this issue:(a) in October 1985, two decrees were issued: onel' defining the roles andresponsibilities and the othert' the statute of new autonomous IrrigationAuthorities (OPI, Offices des Perimetres Irrigues) to be responsible for O&Min the country's LSI perimeters; (b) at the same time, four decrees wereIssued for the creation of OPIs including one in the Cheliff River Valleyencompassing the project area; (c) a study by international consultants on thedetailed organization and management of the Cheliff OPI and financed by theFrench CCCEI" was started in March 1987; the findings of this study will beused to help set up the proper organization and management structures of theother OPIs throughout the country. The new OPIs will be state-ownedenterprises with a separate legal entity and financial autonomy. Their Boardof Directors will include representatives of local government as well as localfarmers in the irrigation schemes. Through contractual agreements to besigned with the MHEF, OPIs will be made responsible for: (a) adequate waterdistribution among farmers; (b) operating and maintaining the irrigation anddrainage systems under their control; (c) collecting water charges; and (d)providing assistance to farmers for on-farm water management. These recentactions undertaken by Government to create the conditions to permit improvedO&M are a major step toward starting to resolve these problems in Algeria.The proposed project would include the necessary investments (equipment andvehicles) required to establish the Cheliff OPI and provide technicalassistance to help put into effect the proposals of the study mentioned aboveon organization, management, and operations of the new Cheliff OPI (para.5.07).

C4s Recvr

3.07 Historically, cost recovery arrangements in Algeria have beenunsatisfactory with only a small part of O&M mud capital costs raised frombeneficiaries. No policy framework of irrigation cost recovery existed and

1/ Decree No. 85-260, dated October 29, 1985.2/ Decree No. 85-261, dated October 29, 1985.3/ CCCE- Caisse Centrale de la Coop6ration Economique.

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water charges were kept low and were revised only once between 1972 and 1985.This bas resulted in inadequate budgeting of funds for 06M. However,substantial improvements in cost recovery policy were introduced in 1985:

(a) in October 1985, Government issued a decreeL' defining the policyframework of cost recovery in the LSI perimeters. The main featuresof this policy are that:

(i) water charges will continue to be based on a binominal ratestructure including: a fixed annual levy, based on the nominalhydraulic capacity at the farm turnout gate applied on a perliter/second/hectare (li//ha) basis and a volumetric chargeapplied on a per m3 basis; the charge structure is supposed toencourage use of the irrigation network in particular for wintercrops when water is plentiful; and

(ii) the principle of recovering a proportion of capital costs wasestablished; the decree did not specify how this would be done,although in practice the fixed annual levy mentioned above-andthe on-farm itrigation works which are generally left tofarmers' financing are meant to ensure farmers' contribution tocapital cost recovery;

(b) it was stated in the decree creating the OPIs (para. 3.06) that watercharge revenues of the Offices should cover O& as well as thereplacement costs of all hydroa-mchanical and electromechanicalequipment; and

(c) Government issued at the same date a joint ministerial orderincreasing the 1979 water charges, as follows:

INCREASE IN WATER CHARGES(In Current Terms)

1979 1985_ Fixed Levy Volumetric Charges

Fixed Volumetric Increase IncreasePerimeters Levy Charge Amount Over 1979 Amount Over 1979

(DA) (DA/m3) (DA) (2) (DA/mW) (2)

Bounamoussa - - 200 (100) 0.17 (70)Haut Cheliff 100 0.10 200 (100) 0.15 (50)Bas Cheliff andothers 100 0.08 150 ( 50) 0.12 (50)

1/ Decree No. 85-267 dated October 29, 1985.

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3.08 However, although increased by more than 501 in current terms, watercharges remained almost unchanged in constant terms and are still low: theycurrently cover less than 60% of operation and maintenance costs. At the sametime, they also currently represent only a low percentage of the cost ofproduetion of the irrigated crops ranging, for example, in the proposedproject area, from about 31 for the socialist farms to 62 for privatefarmers. They can be increased without seriously affecting farmers' revenues(para. 7.17). Because of the great scarcity of water, farmers know that ifthey do not pay the due charges, water will be delivered instead to thosefarmers who are ready to pay. Water charge collection rates are thereforegood (they exceed 802). However, a current issue is that water chargereceipts are transferred directly to the Treasury and there is therefore noassurance that collected funds will be made available to finance OUMrequirements. The proposed project would include actions to introduce furtherimprovements in cost recovery in the Cheliff perimeter (para. 7.15).

Performance of Socials Sector Farms

3.09 At least 601 of the areas currently under irrigation and the bulk ofnew lands that could be developed in large schemes are formed by socialistsector farms. Because of their poor performance and low productivity in thepast, reorganization of socialist farms became necessary and was started byGovernment in 1982. It was aimed at establishing farm enterprises that aretechnically efficient and financially viable. The program started with theimplementation of land consolidation in the 2,100 self-managed farms and the6,400 production cooperatives existing in the country and covered over3.7 million ha. As a result of the restructuring of the former self-managedand cooperative farms: (a) close to 3,400 manageable production units(DAS)-' have been formed with an average size of 680 ha each (against 1,140ha prior to restructuring), covering a total of 2.3 millions' ha of arableland; (b) production cooperatives have been dissolved because of their pastfailure; and (c) about 740,000 ha of land which could not be allocated to theDAS efficiently have been distributed to small private farmers as individualholdings.

3.10 In addition to this land consolidation program, the following majororganizational changes have been introduced: (a) the DAS have been groupedtogether, 25 to 30 at r time, to be assisted by 108 technical advisory units(SDA, Se..teurs de developpement agricole) under the responsibility ofagronomists assigned to assist the managers of the DAB; (b) DAS managementunits have been granted greater authority over farm level planning andoperational and financial management. Government no longer imposes farm planswhich are now established by the management unit councils in collaborationwith their SDA; (c) a large number of engineers and technicians have beenhired as farm managers of the restructured new DAS farms to replaceunqualified personnel. These have become full members of the management unitsand have full decision making power in the planning and management of thefarms. For most farms, qualified accountants have also been hired. At the

1/ DAS a domaines agricoles socialistes2/ Total land owned if 2.8 million ha averaging 825 ha per farm.

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same time most of the elderly workers have been encouraged, with some success,to retire; and (d) performance criteria and a monitoring system of the farms'operations has been established, the accounting system of the farms has beensimplified and improved and strict auditing measures introduced.

3.11 Although it is too soon after the restructuring to form a firmjudgment on its effectiveness in improving overall DAS performance, firstsigns are encouraging. The proportion of profitable DAS increased from 202 to302 between 1984 and 1985, for example. For that part of the project coveredby DAS, measures would be taken under the proposed project to ensure that anyDAB benefitting from project works would be restructured to facilitateefficient use of these facilities and strict performance and profitabilitymonitoring would be introduced (paxa. 6.12).

N. THE PROJECT AREA

A. he Cheiff Water Master Pla

4.01 The project area is the Cheliff river basin, which is situated 100 to200 km south-east of Algiers. This river basin, which covers 44,500 kma, isthe la:gest in the country and one which shows the greatest potential fordevelopment given the land and water resources presently unused. A WaterMaster Plan to complete the development of Cheliff was completed under theBank financed Bas Cheliff Irrigation Project (Loan 1802-AL) in 1983-85.

4.02 Full development of the water resources of the Cheliff basin wouldprovide for a total annual assured water supply of 870 Mm3 of which thetotal annual regulated surface flow would be about 545 Mm' and 325 Mm3 ofground water and unregulated Fsirface water. These waters have been allocatedunder the Master Plan giving priority to urban and individual use, as follows:

PROJECTED WATER ALLOCATION IN THE CHELIFF VALLEY /a

Domestic and Industrial UseIrrigation Oran Other Cities Total

(million m3i)

Haut Cheliff 215 46 261Moyen Cheliff 225 - 22 247Bas Cheliff 190 150 /b 22 362

Total 630 150 90 870() (73) (17) (10) (100)

/I Source: The Cheliff Water Master Plan Study prepared by SOGREAH/SNC./b These waters would be transferred to Oran, located outside and downstream

of the Cheliff Basin

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4.03 Under the Master Plan, the potential for the improved use anddevelopment of the land and water resources of the Cheliff river basin to usethese allocated water resources were studied and a priority investment programprepared for implementation. The development potential of the three parts ofthe river basin (Bas (Lower), Moyen (Middle), and Haut (Upper) Cheliff) wasevaluated as follows:

EVALUATED IRRIGATION DEVELOPMENT POTENTIAL IN CEELIFF VALLSY /a

Haut Moyen BasCheliff Cheliff Cheliff Total

(ha) --

At Present

(1) Area RquippedNewly equipped 16,300 - - 16,300Old, deteriorated - 21,800 22,500 44.300

Subtotal 16,300 21,800 22,500 60,600

(2) Area PresentlYIrrigated 4,800 7,800 3,650 16,250

Pro2osed at Full Development

Newly equipped 16,300 - - 16,300To be rehabilitated - 17,600 9,300 /b 26,900To be newly equipped 8.800 /c 4,000 10.000 22.800

Subtotal 25,100 21,600 19,300 66,000

/I Source: The Cheliff Water Master Plan Study Prepared by SOGREAH/SNC./b Including 5,000 ha in the Bas Cheliff subproject area./c Including 8,000 ha in the Haut Cheliff subproject area.

4.04 About 60,600 ha are presently equipped for irrigation; they include16,300 ha new sprinkler schemes in Haut Cheliff completed in 1984/85 and44,300 ha old surface irrigation schemes in Moyen and Bas Cheliff. Only16,250 ha, or 27S, were irrigated in 1985 because of deterioration of theexisting irrigation infrastructure, inadequate drainage in some areas and,more particularly, lack of developed water resources. The three dams

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completed in 1985s' are rot yet fully operational but, when filled, thesedams will permit a further 20,000 ha to be irrigated. As recommended by theMaster Plan, eight storage dams will finally be operational and a total ofabout 66,000 ha will be equipped and fully irrigated. Taking into account theinvestments made so far by the Government in the Cheliff Valley and byoptimizing the use of all the land and water resources, the Master Plan hasdetermined the optimal investment program, including: (a) the construction ofthe eighth reservoir damL' (the Sidi Mohamed Ben Taiba dam) '^cated on theEbda river which is an upstream tributary of the Cheliff River (see map); (b)rehabilitation of about 26,900 ha or about 60% of the area of the existingdeteriorated old schemes, and abandonment of the other equipped area; and (c)construction of new schemes over about 22,800 ha. Investments are proposed tobe carried out over a period of eleven years. The proposed project wouldfinance a first time-slice of this program involving the development andrehabilitation of irrigation systems in the upper and lower parts of theCheliff Valley.

B. Locaton, Climate and Soils

4.05 Within the Cheliff river basin, there would be two separatesubproject areas where irrigation works will be carried out under theProject: one in the Haut Cheliff covering about 8,000 ha (about 30% of thenew irrigation included in the Master Plan) and the other in the Bas Cheliffcovering about 5,000 ha (about 20% of the rehabilitation work included in theMaster Plan). The Haut Cheliff subproject area is located in the Ain Defladistrict (in Ain Defla Province) which is about 100 km southwest of Algiersand the Bas Cheliff subproject area is located in the Oued Rhiou district (inRelizane Province), about 70 km east of Amn Defla (see map).

4.06 The climate in the project area is characterized by cool wet wintersfollowed by hot, dry summers. Dry periods extend over four months and therainfall, averaging 414 mm in Bas Cheliff and 474 mm in Haut Cheliff, showsgreat variations from year to year. Average monthly temperatures vary widelyfrom 9C in January to 29@C in August. Under these conditions, rainfedfarming is limited to some winter crops (wheat, barley, vetch-oat).Irrigation is necessary for diversifying crops in winter, growing crops insummer and obtaining high yields.

4.07 While soils in Haut Cheliff are mostly deep, light and highlypermeable and have high gradient, those in Bas Cheliff are heavy and lesspermeable. Soil capability analysis indicates no major problems for growingvegetables, fruits, and forage in the Haut Cheliff subproject area. Extensivesoil, hydrological and topographic surveys undertaken in the Bas Cheliffdistrict area since 1966 were completed and analyzed by consultants under theWater Master Plan studies. They determined that tile drainage is needed over

1/ At present, three storage dams are operational in the Cheliff River (theGhrib, Fodda and Sidi Ben Ebda dams), three others completed in 1985 arebeing filled (the Sly, Harreza and Deurdeur dams) and one is beingconstructed (the Gargar dam) (see map).

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about 1,000 ha or 201 of the Bas Cheliff subproject area to ensure sustainableand profitable irrigation.

C. land Tenure. bIration and Land Use

4.08 Land Tenure. About 752 of the subproject areas is under socialistfarm (DAS) ownership and 251 under private farm ownership. Land tenure in thetwo subproject areas is as follows:

LAND TENURE IN THE TWO SUBPROJECT AREAS

Haut Choliff Bas CheliffTenure Total No. Per Farm Total No. Per Farm

(ha) Farms (ha) (ha) Farms (ha)

Socialist farms (DAS) 5,100 8 638.0 4,700 28 168Private farms 2.900 704 4.1 310 138 2.2

Total 8,000 712 5,010 166

These areas include only those that will be irrigated under the Project.While almost all the private participating farmers' lands are fully within theirrigated areas, the socialist farms are only partly within the proposedirrigated area so that part of these farms would remain under rainfedagriculture. Socialist farms average a total of 820 ha in Haut Cheliff and500 ha in Bas Cheliff. Private land distribution is characterized by thepredominance of small farms. While farm sizes average 4.1 ha in Haut Cheliffand 2.2 ha in Bas Cheliff, 851 of the farm units have less than 2 ha in RautCheliff and less than 5 ha in Bas Cheliff. Current land distribution ofprivate farms related to farm sizes is as follows:

LAND DISTRIBUTION OF PROJECT PRIVATE FARMS

Range of Size Haut Cheliff Bas CheliffFarms Area (ha) Farms Area (ha)Nb 2 Total 2 Nb 2 Total X

Less tian 2 ha 591 (84) n.a. n.a. 96 (69) 67 (23)2 to 5 ha 84 (12) n.a. n.a. 22 (16) 76 (24)More than 5 ha 29 (_4) n.a. n.ea. 20 (15) 167 t53)

Total 704 (100) 2,900 (100) 138 (100) 310 (100)

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4.09 Present Land Use. At present, about 16% of the total subprojectareas, or 2,130 ha, are already irrigated, including 1,760 ha in Bas Cheliffand 370 ha in Raut Cheliff. Irrigation in Haut Cheliff is made mainly throughindividual shallow wells, but also through tubewells and pumping from theCheliff River. Irrigation in Bas Cheliff is made through the existing publicsurface irrigation scheme served by the Boukader diversion weir and maincanals rehabilitated under the Bas Cheliff Project (Loan 1802-ALG). Thedistribution network, which was not included in the Bas Cheliff Project, wasdeveloped in 1936 and has exceeded its economic life. The elevated irrigationcanals and outlets are deteriorated and drainage channels are silted up. Thisdeterioration was exacerbated by inadequate operation and maintenance of thesystems over the past 20 years. Because of insufficient water resources,irrigation is presently restricted to the summer crops (April-October) andrainfed crops are grown in winter.

4.10 Cropping patterns are currently characterized by the predominance ofcereals (wheat, barley, oat) and legumes (vetch, beans) in the rainfed areaswhere fallow still occupies a certain portion (about 81 in Haut Cheliff and131 in 8as Cheliff). In the areas already irrigated, vegetables arepredominant, mainly potato, melon, watermelon, onion and cauliflower. Fruittrees are also grown, mainly citrus but also olive trees in Bas Cheliff. Dueto strong demand for most fruit and vegetables in the country and theliberalization of the marketing system since 1982, farmers who grow irrigatedcrops currently obtain very high prices for most of their production (para.2.09) and thus generate high revenues. Irrigated farming is consequentlyhighly profitable. The net returns per hectare from irrigated vegetableproduction are high: they vary from US$2,000 for season tomato to US$12,000for melons, and there is room for higher returns because current crop yieldsare low (para. 7.04) and farming techniques still inadequate. The use ofimproved seeds, fertilizers and pesticides are low, farming operations are notalways undertaken on time due to delays in input distribution by some publicmarketing bureaus, farm machinery equipment is lacking, and technical staff isstill lacking in most DAS in Bas Cheliff despite the increased technical staffat the DAS level in the country as whole since 1982 (para. 3.10).

D. Water Demand and REsourtes

4.11 Water requirements at full development have been estimated for theclimatic conditions prevailing in both subproject areas. Based on an averageon-farm efficiency of 801 in Haut Cheliff and 701 in Bas Cheliff and on aconveyance distribution efficiency of 951 in Haut Cheliff (sprinklerirrigation system) and 801 in Bas Cheliff (canal and low-pressure pipeirrigation system), the annual diversion water requirements are estimated at7 400 m3/ha or 59 Mm3 in Haut Cheliff and 10,600 m3/ha (including 1,560m for leaching) or 53 Mm3 in Bas Cheliff.

4.12 The water resources development potential in the two subproject areashas been estimated by the studies undertaken under the Cheliff Water MasterPlan. Water for the Haut Cheliff area would be pumped from the Cheliff riverafter releases from the Cheliff upstream dams which would also irrigate twoupstream perimeters. The upstream dams include the Ghrib dam (annual

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regulated flow, RF = 82 Mm3, constrsicted in 1936), the Deurdeur (RF = 44Mm ) and the Harreza (RF 24 Mm3) dams commissioned in 1985 and the SidiMohamed Ben Taiba dam (RF a 56 Mm3) planned to be constructed in 1988-92(see map). Preliminary designs of this dam have been completed under theMaster Plan and detailed designs of this dam are currently underway. The twoupstream perimeters are 16,300 ha in Khemis Meliana completed in 1984 and 800ha along the Deurdeur river planned to be constructed in 1988/89. Before theSidi Mohamed Ben Taiba dam is constructed, the demand for water in thesubproject area would be met by releases from the currently existing damsafter irrigation of the Khemis Meliana scheme. Starting in 1994, waterregulated in the existing dams would become insufficient to meet therequirements of all Haut Cheliff perimeters (including the subproject area)and the Sidi Mohamed Ben Taiba dam is planned to be commissioned by then. Inorder to ensure that there are adequate water supplies for the Project in 1994and beyond, Government has confirmed that funds for the construction of theSidi Mohamed Ben Taiba dam as well as for the project works have been firmlyscheduled in the Development Plan starting in 1987. In addition, theGovernment has assured that it would cause construction of the dam to becompleted before September 30, 1993. Furthermore, it was agreed atnegotiations that after December 31, 1988 no further disbursements would bemade against Project infrastructure and equipment in Haut Cheliff unless thetender documents had been issued for the construction of the Sidi Mohamed BenTaiba dam (para. 5.20). Water for the Bas Cheliff suborolect area wouldoriginate from unregulated flows of the Cheliff river diverted at the existingBoukader diversion weir rehabilitated under the Bas Cheliff Irrigation Project(1802-AL). In winter, part of the diverted flows would be used forirrigation, the other part is stored in the existing Merja Sidi Abed storagereservoir (see map). This reservoir has a capacity of 57 Mm3 and wouldprovide a regulated volume of 48 Nm' per year or 901 of the irrigationrequirements of the subproject area. Water stored in the reservoir would bedelivered for irrigation during the low rainfall season (April to October)with the balance of the requirements coming from direct river diversion in thewinter. Because of the importance of the upstream structures to the successof the Project, agreement was obtained at negotiations that Government wouldensure routine safety inspection of all dams upstream of both Haut and BasCheliff subproject araas.

4.13 At full development, water balance in the Haut Cheliff and the BasCheliff subproject areas would be as follows:

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WATER BALANCE IN THE SUBPROJECT AREAS

Subproject Requirements ResourcesArea Area (ha) Mm Dams Mm

Haut Cheliff 8,000 59 Sidi Ben Taiba Reservoir 56 /aUnregulated Water 3

Total 59

Bas Cheliff 5,000 53 Nerja Sidi Abed Reservoir 48 /IUnregulated Water 5

Total 53

I. Representing volume of annual regulated flow with a return probability of801.

E. Agricultural Support Servkies andMtitutios

4.14 The wholesale supply of inputs and agricultural machinery in theProject area, as in the rest of Algeria, is the responsibility of specializedGovernment agencies (Offices). At a local lovel, distribution is mainlyhandled by specialized cooperatives although private sector traders are alsolicensed to sell these products.

4.15 Seeds, Plants and Seedlings. In the project area a certain number ofDAS are contracted by the Coop6ratives des C6r6ales et des L6gumes Secs (CCLS)in Ain Defla and Relizane to multiply certified cereals and pulse seeds. TheCCLS then collect, select, condition, and store the seeds. For vegetable seedproduction, the Union des Coop6ratives de Semences Maraicheres (UNICOSAM)organizes local production, although most seeds for potatoes and othervegetables are imported by the Office National des Approvisionnements etServices Agricoles (ONAPSA). At the local level, the Cooperatives AgricolesSpecialis6es en Approvisionnements (CASSAP) in Ain Defla and Relizane handlethe collection and distribution of vegetable seeds through their network ofagents. Research Institutes which specialixe in various crops are responsiblefor overseeing the selection, testing, and adaptive trials of the appropriatevarieties and in the case of cereals, for the seed certification as well.Timely delivery of adequate quantities of seed has not been a problem in theproject area, although the poor quality of the vegetable seeds, which affectsfarmers throughout the country, is an issue and is being addressed on anational level under the current National Development Plan.

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4.16 Fertilixers. Plant Protection Chemicalss Animal Feed and VeterinarySupplies. At the national level, ONAPSA is responsible for the distributionof all fertilizers and plant protection chemicals domestically produced andimported and for the import of pure-bred heifers. At a local level, theCASSAP and their agents and depots distribute these inputs. Animal feed andveterinary supplies are the responsibility of the Office National des Alimentsdu B6tail (ONAB) at a national level and the Coop6ratives de ServicesSpecialisees en Elevage (COOPSSEL) at a local level. While the DAS in theproject area have had no serious interruptions in the timely supply of neededinputs, the private farms, as elsewhere in the country, continue to havelimited access to inputs. The situation Is improving, however, as theGovernment has been making an increased effort to supply the private sectorwith inputs and, in the past five years, an increased portion of fertilizerhas gone to the private sector. In order to ensure that adequate attention isgiven by input agencies to the needs of the project area, the Government hasagreed that it would cause input deliveries to the Project participants to betimely and in adequate quantities to meet demand.

4.17 Agricultural Eauipment and Machinery Services. The Office Nationaldu Mat6riel Agricole (ONAMA) has the monopoly on the distribution of allagricultural equipment, its after-sales service, repair work and supply ofspare parts. The project area is served by the southern regional headquartersof this office at Ain Defla, and two agents in Relizane. As of 1986, severalprivate agents have also been licensed to sell spare parta and do some repairwork. Although the supply of agricultural equipment does not fully meetdemand in the project area, Government has made progress in providing greateraccess over the years to the private sector.

Agnidtural Credit

4.18 Since 1982 when the BADR was created from the Banque Nationaled'Alg6rie, all credit to the agricultural and rural sector has been channeledthrough the BADR. The BADR had, as of mid-1986, 31 regional offices at theprovincial level and about 200 branch offices. In the project area,agricultural credit is handled by a regional office and about 15 branchoffices and credit delivery to farmers has greatly expanded in recent years.

4.19 Lending to the DAS has, in the past, been virtually automatic, as theloans were implicitly guaranteed by Government. However, for DAS consistentlymaking operating losses and unable to repay their loans, Government has nowintroduced financial discipline by allowing BADR to refuse credit touncreditworthy clients. Lending to the private sector has certain constraintswhich involve problems of guarantees for long-term loans and reaching adequatenumbers of small-scale farmers. Nevertheless, impressive efforts have beenmade to reach the private sector in the project area, including establishingmobile credit units accompanied by input distribution agents and since 1982the number of private farmers receiving short-term credit in the two provincesof the project area increased from 324 in 1982 to about 3,500 in 1985. Theissues of credit delivery are nationwide and are being discussed withGovernment under a separate operation.

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4.20 As of October 1, 1986, the terms of lending are aa follows:

TERMS OF LENDING

Repayment Period Grace Period Interest Rate

Short-Term 12 - 14 months - 4.5 - 7.0%Medium-Term 7 years 0 - 2 years 4.0 - 7.0%Long-Term 8 - 12 years 0 - 4 years 3.0 - 6.02

The loans to the DAS are financed at 100% of the investment costs, while tothe private sector the financing varies from 60 to 801.

Extension ad Research

4.21 Extension. Extension is under the auspices of the Direction del'agriculture et de la p$che de Wilaya (DAP) and is the responsibility of theSecteurs de d6veloppement agricole (SDA) for the DAS and of the D6l6gationagricole de Daira (DAD) for the private farmers. The SDA are responsible for:(a) giving technical and managerial advice on carrying out the investment andproduction plans; (b) serving as liaisons between research findings and DAScropping activities; and (c) providing statistics on the production plans,input and equipment requirements, and financing plans of the DAS with thecooperatives and Offices and the credit committee". In the provinces ofthe project area four SDA cover a total of 98 DAS in Ain Defla and 2 SDAsupervise 48 DAS in Relizane. Each SDA is staffed by three or four technicalgraduates specializing in different aspects of DAS production and management,and four or five technical assistants. In addition, an effort has been madeto staff the DAS with technicians and competent mana ers, althoughsatisfactory technical competence is still lacking in many DAS. In HautCheliff, the eight DAB in the subprosect area are well served by the SDA inAmn Defla. The total techeical staffing available is adequate, therelationship between the SDA staff and DAS staff seems good, and the SDAcomplement the technical deficiencies of the DAS and are active in the day today activities of the DAS. In the Bas Pheliff subproject area, the SDA arenot so well staffed, and the technical competence of both the SDA and the DASis inadequate, which may partially explain the poor performance of these DAS,although the severe drought of the past four years has been the major factor.The Government plans to ensure that the SDA are strengthened to cover the

1/ The credit committee involves representatives of BADR, DAP and theprovincial government; its job is to coordinate demand for credit withavailability of inputs and equipment.

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needs of the Project by recruitment of additional local staff and selectedtechnical assistance (para. 5.07).

4.22 The DAD responsible for all extension activities suffer frominadequate staff and means. As a result, they limit their work to gatheringinformation on the demand for inputs and equipment and put togetheragricultural statistics. In the project area, the DAD in Haut Cheliff has anagricultural technician and an agent at the provincial level and one orseveral technicians in each commune while in Bas Cheliff not all communes evenhave a technician. The ratio of technicians to private farmers in the projectarea varies from 1 to 2,000 to 1 to, 10,000 and is clearly inadequate toprovide adequate assistance either for extension activities or in drawing upthe important farm plans to qualify farmers for access to inputs andequipment. The Project would provide for recruitment of more qualified 8 affat the DAD level (para. 5.07).

4.23 Research. Specialized research institutes are responsible forresearch and about 60 research stations are scattered throughout the country.In the project area, two research stations exist, one at Khemis Meliana nowspecializing in industrial crops and one at Remadena working on improvement offarming techniques under irrigation and on the improvement of saline soils.The industrial crops station has produced some potentially useful results, butmost have been on crops that have proved uninteresting (results on sunflowerand safflower have been disappointing and work on sugar beet and soya has beenstopped). The research station at Hemadena is understaffed and researchactivities are minimal. SDA staff have also begun to do their ownexperimental work on cereal varieties and pulses because they feel thatinsufficient work on these crops is done locally. In addition, in 1983 a DASof 520 ha in Haut Cheliff was converted into a pilot/demonstration farminvolving a range of crops and a small herd of cattle. Demonstrations havebeen held for DAS farmers on the use of farm equipment (seed drills,tractors). Research country-wide suffers from dispersal of effort,under-staffing, and lack of organization; research in the project areareflects these weaknesses. While current research results available areadequate for the early years of project development, improvements will berequired in the future and the Government is currently reviewing options forreorganizing and strengthening the research system under its current NationalDevelopment Plan.

V. THE PROJECT

A. Ratioale for Bak Involvement and Prowe¢t Objectives

Rationale for Bnk Iwolvemeat

5.01 The proposed project would be the first operation in the agriculturalsector for the Bank since the FY80 US$8.0 million Bas Cheliff IrrigationProject which closed in June 1985 and under which the Bank had financed, interalia, the Cheliff Water Master Plan which provided for the technical

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underpinning of this project. In addition to providing for a direct impact onproduction, the proposed project has been designed to address a keyinstitutional problem facing irrigation in Algeria - the lack of suitableorganizational and financial arrangements for the operation and maintenance ofexisting schemes. Ths Project provides an opportunity to develop arrangementswhich, when replicated, could lead to improved 0&M in all large-scaleirrigation schemes in Algeria (currently covering some 100,000 ha of whichabout 64,000 ha are irrigated) and as such, its projected impact should beseen as much greater than that of the 13,000 ha actually being built orrehabilitated under the Project. Thus, apart from the satisfactory economicbenefits that it would provide, the proposed project is justified in havingthe Bank support because of the broad sector impact it is expected to have inpromoting institutional reforms and improved O&M organization and training.

ProJeWt ObJecives

5.02 The proposed project has the following objectives: (a) at the locallevel (i) to implement the first priority investment package for thedevelopment of the Cheliff river basin; and (ii) to safeguard and improve theincome of the farmers and their families living in the subproject areas andimprove social welfare by providing some basic infrastructure; (b) at thesector level (i) to develop and implement new institutional arrangements toensure adequate water management, operation and maintenance in the Cheliffriver basin which, when replicated, would benefit all major irrigation in thecountry; and (ii) to develop improved internal financing of OLM by increasinguser charges to fully cover costs; and (c) at the national level, to developefficiently irrigation potential in the country by expanding the LSI areaspresently used for irrigation by about 20%.

B. Summary Proheot Descriwton

5.03 To achieve its objectives, the Project would finance, over sevenyears, the following components:

(a) An investment component, including:

- construction of new sprinkler irrigation, drainage and roadinfrastructure serving about 8,000 ha in Haut Cheliff;

- rehabilitation or upgrading of existing surface irrigation,drainage, and road infrastructure serving about 5,000 ha in BasCheliff; and

- purchase of equipment and vehicles for O&M and extension staff;

(b) A technical assistance, training, and support-action component,including:

- technical assistance to the Ministry of Hydraulics, Environmentand Forestry ( MEF) for the supervision of works and for thestudies of further irrigation works in the Cheliff valley, to

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the Cheliff Irrigation Office (OPI) for the operation andmaintenance of irrigation systems, and to the Ministry ofAgriculture and Fisheries (MAP) for the monitoring andevaluation of socialist farmss and

- overseas training in operation and maintenance of local staff ofthe Cheliff OPI;

(c) On-farm investments as required to develop and intensify irrigatedcrops, including sprinkler irrigation equipment, farm machineryequipment, high-yielding milk covs, stables and fruit treeplantations; and

(d) Incremental recurrent costs, including:

- recruitment of local technical staff by the Cheliff OPI tostrengthen operation and maintenance and by MAP to strengthenextension services and management, monitoring and evaluation ofthe socialist farms;

- operation and maintenance of the new systems, including theadditional costs of the OPI; and

- pumping costs for the irrigation system in Raut Cheliff.

C. Detailed Featres

5.04 Construction Works in Raut Cheliff. The Project would provide forthe construction of an 8,000 ha aprinkler irrigation system in the Amra Abadiadistrict of Raut Cheliff (see map). The system would consist of two sectors,each served by individual pumping stations and an underground waterdistribution network: the Amra sector covering. 3,600 ha and the Abadia sectorcovering 4,400 ha. The works would include: (a) construction of buildingsand equipment for two pumping stations on the Cheliff river, with a totalinstalled capacity of 9,250 kW, lifting water with a combined flow of 6,0001/s to two regulating reservoirs serving the Amra and the Abadia sectors; (b)construction of a 366 km underground concrete/asbestos pipe network andinstallation of hydrants each serving blocks of about 20 ha; (d) constructionof about 300 km of open ditches to drain overland flows and percolatedirrigation water; and (e) construction of about 9.5 km of gravel feederroads. The construction cost per hectare is estimated to be DA 45,200 (orUS$9,600) in 1987 prices.

5.05 Construction Works in Bas Cheliff. The Project would provide for therehabilitation/upgrading of part of the existing surface irrigation systems inBas Cheliff which is most urgently in need of rehabilitation (see Map). Theseworks would be carried out in seven sectors totalling about 5,000 ha, of whichabout 3,400 ha would be on the left bank and 1,600 ha on the right bank. Theworks would include: (a) improvement of the irrigation network by the

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replacement of the deteriorated canals by about 63 km of new elevated precastconcrete canals over 2,700 ha and by about 48 km of low pressureconcrete/asbestos pipes over 2,300 ha and insttallation of new hydro-mechanicalequipment as necessary; (b) enlargement of existing drainage channels andconstruction of new channels involving earth-moving of about 200,000 M3; (c)placement of tile drains over about 1,000 ha; and (d) repairs of 28 km ofexisting gravelled roads and construction of 65 km of new unsurfaced feederand farm access roads. The rehabilitation cost per hectare is estimated to beDA 27,500 (or US$5,900) in 1987 prices.

5.06 fEuipment and Vehicles. The Project would provide for the purchaseof 06M, radio-communication and computer equipment to support management andfield operations of the new Cheliff OPI. It would also finance the purchaseof vehicles for supervision of works by MHEF, for O&M by the Cheliff OPI andfor extension services by NAP. A list of equipment to be purchased under theProject is given in Table 3.

Techicaln a eTainigand SuuottAtion romen

5.07 The Project would finance components which would support MEF and MAPstaff in supervising the project works, enhancing 0&M operations in theCholiff valley and improving extension services (the TORs of the technicalasistance studies and training are in Annex 8 in the Implementation Volume).These would include the following:

(a) Technical Assistance consisting of 340 man-months. The consultantservices would be to assist MHEF staff in supervising the projectworks in gaut Cheliff (142 man-months) and in Bas Cheliff (102man-months), the Cheliff OPI in operation and maintenance(48 man-months) and financial management and cost accounting(24 man-months), and MAP in monitoring and evaluating performance ofthe socialist farms (24 man-months);

(b) Studies. The Project would also include studies for the detaileddesign of the remaining works in the Bas Cheliff district, includingrehabilitation works over 4,300 ha and new irrigation over 10,000 ha;

(e) Staff Trainins involving local and overseas training sessions andproject visits for staff in charge of OWM and extension services forcrop production and livestock development. Assistance and trainingof the OPI staff in computer use would be provided by the suppliersof the computer equipment; and

(d) Recruitment of local key staff consisting of: (i) two irrigationengineers and one electromechanics engineer to head the workssupervision teams in Haut and Bas Cheliff; (ii) four agriculturistsand five agricultural assistants to support extension servicesprovided to the DAS in Bas Cheliff by the SDA of Oued Rhiou andDjidiouia and to the private farmers in laut Cheliff by the DAD ofAin Defla; (iii) two financial analysts to supervise monitoring andevaluation of DAS in Haut and Bas Cheliff; and (iv) seven engineers

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to head the new DAS that would be established under the Project as aresult of the restructuring of the existing DAS in the Haut Cheliffsubproject area (para. 6.11).

On-Farm Investments

5.08 Farmers and DAS will make on-farm investments to take advantage ofthe increased water resources available. These investments would be formobile pipes and sprinkler equipment, 34 stables, stores and repair workshops,1,450 high-yielding milk cows, replacement of 636 ha of citrus plantations,planting 256 ha of new apple trees, and farm machinery equipment. Details foreach subproject area are in Annex 5 of the Implementation Volume.

Inremental Rourrent Costs

5.09 Additional recurrent costs under the Project would include localpersonnel hired to strengthen OPI for operation and maintenance of theirrigation schemes and to strengthen the SDA in Bas Cheliff and DAD in bothareas to provide technical services and extension advice to farmers. It wouldalso include incremental operating and maintenance costs of the rehabilitatedand new schemes and the additional pumping costs for Haut Cheliff. Thislatter item would begin only in the last year of the Project.

D. Status of ProJect Preparation

5.10 Status of Lngineerin^. Detailed designs and bidding documents forthe Bas Cheliff works are available. Detailed designs and bidding documentsfor the Haut Cheliff works were completed in 1971 by international consultantsand are currentlv being updated by the Ministry of Hydraulics. Most of thedesign features are acceptable and will be maintained. However, some changeswill need to be made in the design of the pumping stations which wereoverdesigned, of the water distribution pipes (the steel pipes proposed in theoriginal studies for the small-diameter pipes will be replaced by more costeffective asbestos pipes), and of the open drainage and road networks, part ofwhich have been constructed since 1971. These design changes are currentlybeing introduced by MHEF and their consultants. The study of detailedproposals for the organization and management of the Cheliff OPI (the generaloutline of this new organization is already decided: see para. 3.06) wasstarted in March 1987 and is expected to be completed in about 10 months. Itis to be carried out by a French international consulting firm with financingfrom the French Caisse Centrale de Cooperation Economique. The study willdetermine the inventory and the working conditions of the irrigation, drainageand road infrastructure that the OPI will run on behalf of the Government, thephysical, husman and financial needs of the Office, and its detailedorganization, staffing, management and budget structures. In particular, thestudy will determine the precise list of equipment, vehicles and technicalassistance necessary to ensure successful OPI operations. The Project wouldcontribute to the start-up of the OPI by financing a first package of thislist.

5.11 Schedule for Prolect Implementation. The Project would beimplemented over a seven-year period (January 1987 to December 1993) in

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accordance with the implementation schedule shown in the bar chart attached tothis report. Invitation to bid for the works in Bas Cheliff andprequalification for the works in Haut Cheliff are planned to take placeduring the first semester of calendar year 1987. The first year of theProject would be primarily devoted to awarding the corresponding contracts,hiring consultants and purchasing some equipment and vehicles. Preparation ofdetailed terms of reference and letters of invitation for the Projecttechnical assistance and studies is expected to be completed by June 1987.Contracts for the work supervision consultants would be awarded by March 1988and for the other consultants by June 1988. Implementation of the irrigationworks would follow the schedule below:

IMPLEMENTATION SCHEDULE

Work ImplementationSector Area (ha) Start Completion Duration

(months)

Haut CheliffAmra 3,600 July 1988 December 1992 54

. Abadia 4,400 January 1989 December 1993 60

Bas Cheliff. Zone IX 1,570 April 1988 March 1992 48Other Zones 3,430 October 1988 March 1993 54

E. Cost Eftimates

5.12 Total Project costs include (a) the cost of the proposed investments,technical assistance, training and studies; (b) incremental operating costslinked to the Project; and (c) incremental on-farm development costs due toincreased agricultural activity induced by the Project during the projectperiod. Total project costs are estimated at US$185.6 million (DA 872 million)of which it is estimated that US$94 million (DA 444 million) or 511 is foreignexchange. They Include an estimated US$34.5 million (DA 162 million) or 18.61in taxes and duties. Base costs, valued in March 1987 prices, were derivedfrom recent bidding and appraisal estimates and updated price contCngencies asindicated below -'. Physical contingencies have been included at 151 forthe pumping station civil works and 101 for the other civil works, equipment,vehicles, and technical assistance. They amount to US$14.4 million or 8% oftotal project costs. Price contingencies have been calculated on the basis ofthe projected annual price increases-L applied to local and foreign costs

1/ Annual project price increases are as follows:

1986 1987 1988 1989 1990 1991 1992 1993 1994Local Costs (S) 7 7 7 7 7 7 7 7 7Foreign Costs (1) 12 3 1 1 1 3.5 3.5 3.5 3.5

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including physical contingencies. They amount to US$31.4 million or 171 oftotal project costs. Cost estimates are presented in detail by component inTable 1 and by subproject in Annex 5 in the implementation volume and aresummarized as follows:

PROJECT COST SIDARY /&

Local Foreign Total Local foreign Total X Foreign X TotalCosts Costs Costs Costs Costs Costs xehane Base Costs---- DA million -- ---- US$ million ----

Civil Works 209 212 421 44.9 45.0 89.9 sO 64E9uignent and Vehicles 24 69 93 5.1 14.7 I9.6 74 14Tecnical Assistance.Training and Studies S 24 32 1.5 5.2 6.7 78 5

on-farm Investments 46 38 84 9.8 8.1 17.9 45 13Incremontal Recurrent Costs -a _U az .W _Ua 5" la -

TOTAL BASE COSTS 303 3S4 657 645 75.3 139.S 54 l00

Physical Contingencies 30 37 67 6.1 7.9 14.4 SS 10Price Contingencies _9 _U5 Iin 3L 2 11 .214 28 _21

GRAND TOTAL /l 428 444 672 91.2 94.4 185.6 51 133

/i DiscrepOncies due to rounding/l Ifcluding US$ 34.5 million in taxes and duties.

5.13 A Bank loan of US$94 million is proposed to be made to the Governmentof Algeria to finance 1001 of the foreign exchange component of the Project.On-farm investments would be financed by the beneficiaries (US$7.5 million)and by BADR (US$17 million) under its current lending policies and procedures(para. 4.20). Bank financing would cover an estimated 51. of total projectcosts or 621 of project costs net of taxes. The Government would finance thebalance of net project costs (US$32.6 million). The Bank loan would be for 15years including a 3 year grace period. The following table sunmrises theproposed financing plan for project costs:

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PROJECT FINANCING PLAN

Percentage of ProlectNet Costs For. Exchange

Local Foreign Total Costs- (U8$ million) -

World Bank - 94.0 94.0 62 100Government 32.6 - 32.6 22 -Beneficiaries 7.5 - 7.5 5 -BADR 17.0 - 17.0 11

Net Project Costs 57.1 94.0 151.1 100 100Taxes and Duties 34.5 - 34.5

Total Project Costs 91.6 94.0 185.6

5.14 The Government would earmark the proceeds of the Loan and its ownfinancing for the Project to MUEF (US$153.9 million), to the Cheliff OPI(US$6.5 million) and to MAP (US$0.7 million) through their annual budgets tofinance project activities. The Government would also cause BADR to provideinvestment credit to farmers (US$17 million). Beneficiaries would share theproject cost through their down payments for the credit component.

F. Procvrement

5.15 Procurement would be carried out by the Project executing agenciesfor the goods, works and services included in their respective components asdescribed in paras. 5.04 - 5.08. Major project irrigation works are expectedto be grouped in three large contracts (two in Raut Cheliff and one in BasCheliff). Procurement arrangements are described below and summarised in thefollowing table:

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PROCUREMF9T METHODS /a(Us$ million)

Project Element Procurement Methods TotalICB LCB Other N.A. Cost

Civil Works 114.3 4.8 - 119.1Equipment and Vehicles 22.1 3.0 - 25.1Technical Assistance,Studies and Training - - 8.5 - 8.5

Incremental Operating Costs - - - 8.4 8.4On-farm Investments 24.5 24.5

TOTAL 136.4 4.8 11.5 32.9 185.6

(80.3) (3.3) (10.4) (-) (94.0)

/a Figures in parentheses are the respective amounts financed by the lank.

5.16 Contracts for civil works estimated to cost US$1,000,000 equivalentor more each and contracts for equipment and vehicles estimated to costUS$300,000 equivalent or more each and valued together at a total of aboutUS$136.4 million, would be awarded through international competitive bidding(ICB), in accordance with Bank guidelines. Qualifying domestic manufacturersof equipment would receive preference in bid evaluation of 15% or theprevailing import duty, whichever is less. Contracts for civil worksestimated to cost less than US$1,000,000 equivalent each and aggregating notmore than US$4.8 million would be awarded on the basis of local competitivebidding (MCD) in accordance with procedures acceptable to the Bank (para.5.17). Contracts for equipment and vehicles estimated to cost less thanUS$300,000 equivalent each and aggregating US$3.0 million would be purchasedthrough SONACOM and other specialized agencies who shall follow internationalshopping procedures acceptable to the Bank. Contracts for technicalassistance, studies and training totaling about US$8.5 million would beawarded in accordance to Bank guidelines.

5.17 Local competitive bidding procedures are generally consistent withthe need for economy and efficiency in the execution of the Project. Therewere, however, a few procedures which were inconsistent with Bank procurementguidelines and others which required clarificaton. During negotiations,agreement was reached regarding the changes needed to make the proceduresacceptable to the hank.

5.18 Contract review. All bidding documents and awards of contracts forcivil works estimated to cost the equivalent of U8$2,000,000 and for vehiclesand equipment estimated to cost the equivalent of US$300,000 or more wouldrequire the Bank's prior approval. This prior approval would also be needed

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for the bidding documents and awards of all contracts regardingradio-communication and computer equipment. These arrangements wouldrepresent prior review by the Bank of about 82% of total estimated value ofcontracts. The other contracts would be subject to random post-review by theBank after contract award, in the course of supervision missions.

G. Disbursement

5.19 Disbursement Schedule. The proposed Bank loan of US$94.0 million hasbeen estimated to be disbursed over a period of eight fiscal years in a mannerclosely following the profile for irrigation projects in EMENA. The ClosingDate of titc Loan would be December 31, 1994 or one year after the provisionalacceptance of the works, which is the time needed to monitor the performanceof the works and to return retention money on the civil work contracts. Thehistorical disbursement profiles for Bank-wide and EMENA and Algerianirrigation projects indicate that full disbursement generally requires eightyears. Efforts have been made in the project design and processing to ensurethat this profile will be adhered to, as follows: (a) the advanced stage ofpreparation of the detailed designs which will permit prompt start of projectworks; (b) major project works will be grouped into a small number of largecontracts; (c) project works would be implemented separately andsimultaneously in Bas and Haut Cheliff; and (d) major investments arescheduled for the first five years of the project period. The expecteddetailed schedule of disbursements is given in Table 2 and summarized below:

DISBURSEMENT SCHEDULE

Bank Fiscal Year…--- -US$ million --------

Disbursements 1988 1989 1990 1991 1992 1993 1994 1995

Annual 2 5 12 16 19 16 15 9Cumulative 2 7 19 35 54 70 85 94

5.20 Disbursement Procedures. Disbursement categories, loan amountallocated and the share of expenditures to be financed would be as follows:

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DISBURSEMENT PROCEDURES

Categories Amount of the 2 of ExpendituresLoan Allocated to be financed(US$ million)

1. Civil Works(a) Haut Cheliff 43.0 65% of total expenditures(b) Bas Cheliff and Others 20.5 652 of total expenditures

2. Equipment, Vehicles, andSpare Parts

(a) Haut Cheliff 12 0 75% of local expenditures and 1002of foreign expenditures

(b) Bas Cheliff and Others 2.0 75% of local expenditures and 1002of foreign expenditures

3. Training, Technical 1002 of total expendituresAssistance and Studies 7.5

4. Unallocated 9.0

TOTAL 94.0

Disbursements for the above items would be made after receipt by the Bank offull documentation except for goods and services provided under contracts ofless than US$200,000 for which disbursements would be against statements ofexpenditures (SOE) certified by the executing agency involved. The agencywould retain the supporting documentation and make it available for inspectionby Bank supervision missions and by external auditors. The total amount ofthe loan disbursed under SOE procedures would not be more than US$11.0million. No reimbursements applications for less than US$20,000 would beaccepted. The condition of disbursement for categories l(a) and 2(a) would bethat after December 31, 1988 no further disbursements would be made in thesecategories unless the bidding documents for the construction of the SidiMohamed Ben Taiba dam had been issued (para. 4.12).

5.21 Revolving fund. To improve the efficient and timely implementationof the Project, the Bank would deposit, after Loan effectiveness, a sum of upto US$8.0 million into a special account established by the Government to beused as a revolving fund to finance eligible expenditures corresponding to theBank's share of the average four-month Project needs. The account would bemaintained in US dollars in the Central Bank of Algeria. Governmentcounterpart funds would be secured in a timely manner through appropriatebudget allocations. Applications with appropriate supporting documentation,

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covering the replenishment of the Fund, would be submitted when approximatelyhalf the maximum allowed amount in the Fund has been spent.

VI. ORGANIZATION AND MANAGEMENT

A. Project x anization

Organization for Inplementation

6.01 The Ministry of Hydraulics, Environment and Forestry (MHEF) and theMinistry of Agriculture and Fisheries (MAP) would have the overallresponsibility for the execution of the Project. Within these two ministries,allocation of responsibilities at the central and provincial level would be asdescribed below. The Bank for Agriculture and Rural Development (BADR) wouldprovide credit for financing on-farm investments.

6.02 Ministry of Hydraulics, Environment and Forestry. Within thisMinistry, the lead would be taken by the Department of Large-Scale IrrigationSchemes (DGPI), which is responsible for design, construction and O&M of theLSI perimeters in the country. DGPI would be responsible for overallmanagement of the irrigation construction and management activities of theProject. At the project area level, DGPI will act through: (a) two workunits, one in Bas Cheliff and one in Haut Cheliff, to supervise projectconstruction works. Each unit would include at least two engineers, twoengineer assistants and work supervisors as needed and would be assisted by ateam of consultants to be hired under the Project (para. 5.07); theseconsultarnts would include an irrigation engineer, a civil engineer, atopographic engineer, and an electromechanical engineer (only in HautCheliff); the units would be controlled at the regional level by theprovincial directorate in Relizane and Ain Defla, respectively; and (b) thenew Cheliff Irrigation Authority (OPI) which would execute project activitiesregarding strengthening organization and management of the OPI, O&M stafftraining and cost recovery improvement. The OPI will be assisted by a team ofconsultants including specialists in water management, operatior, of pumpingstations and financial management and accounting. During the earlier years ofthe project the OPI would be built up and strengthened to handle the gradualtake over of Project works starting in 1989 and other existing works in theCheliff river basin covering about 36,000 ha. The Government has agreed tothese procedures and arrangements for implementation of the project.

6.03 Ministry of Agriculture and Fisheries (MAP). Within this Ministry,the Department of Planning would be responsible for coordinating at thecentral level the agricultural support activities needed in the subprojectareas in collaboration with the departments of the MAP involved in the Project(crop production, livestock, extension and rural development). It would alsobe responsible for reporting on and evaluating agriculture-related projectactivities. At the project area level, the Provincial Directorates in AinDefla and in Relizane will be responsible for executing project activitieswith regard to restructuring the DAS in Haut-Cheliff, monitoring and

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evaluating DAS' performance (para. 6.12), and strengthening extension servicesto all farmers in the Project area through their SDA and DAD (para. 5.07).

Project Coordination

6.04 Overall coordination of project implementation and relatedinstitutional development would be carried out at the national level byperiodic meetings of representatives of all agencies involved in the Project.The purpose of the meetings would be to monitor progress in project execution,review work programs and progress, resolve problems involving differentGovernment departments and recommend any additional measures to assure promptexecution of the Project. These meetings would occur when necessary, but atleast twice a year to review and agree on the project budget for the comingyear and the annual report of project activities for the previous year. Theywould be chaired by the Secretary General of MHEF and include at least theDirector of DGPI in MHEF and the Directors of planning, crop production,livestock, extension and research in MAP. Since the MHEF's DC-PI would havethe primary responsibility of most project activities it would assume theSecretariat of this committee.

Project Monitoring and Evaluation

6.05 The DGPI of MHEF would be responsible for overall monitoring ofproject implementation through the office of the project manager. It wouldact on behalf of MHEF in dealing with MAP to discuss actions necessary forimplementing the project measures on restructuring and improving performanceof the DAS and strengthening extension in the subproject areas. It would beresponsible for monitoring preparation by the provincial departments of MHEFand MAP of semi-annual progress reports and synthesizing them in an overallreport to be given to the coordinating committees and to the Bank. DGPI wouldalso prepare a project completion report within six months of the loan closingdate on the execution and initial operation of the Project, its costs and thebenefits derived and to be derived from it, the performance and fulfillment bythe Government, MHEF and the Bank of their respective obligations under theLoan and the accomplishment of the objectives of this loan. The Governmenthas agreed to these arrangements for monitoring and evaluation.

Project Accounts and Audit

6.06 A separate project account and records would be maintained by MHEFfor the Project. A financial controller from the Ministry of Financepermanently controls the accounts of MHEF, which nevertheless should beaudited by independent auditors. To this end, the Government has agreed thatthe project account along with the statements of expenditures sent to the Bankfor disbursements, the revolving fund account (para. 5.21), and the accountsof the Cheliff OPI would be audited annually by independent auditorsacceptable to the Bank and submitted to the Bank not later than six monthsafter the end of each fiscal year. Certified copies of the accounts as wellas the auditors' report would also be furnished to the Bank.

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B. Organization for Oieration and Maitenane

6.07 One of the key objectives of the Project is to improve the operationand maintenance of irrigation systems, one of the major issues that hasseriously constrained the efficient performance of the irrigation subsector inthe past. As specified in para. 3.05, the regional offices of MHEF have beenunable to operate and maintain adequately the irrigation and drainagenetworks. In the project area, the main problems of O&M are similar to thoseencountered by any O&M regional office in the country: lack of autonomy,cumbersome procedures for purchase of equipment, lack of financial resourcesbecause water charges have been too low to cover full O&M costs and are in anycase remitted directly to the Treasury. The problems are, however,exacerbated in the project area because: (a) the existing networks in BasCheliff have outlasted their economic life; they were constructed in 1940 andno rehabilitation has been done since then; and (b) the two regional O&MOffices concerned by the Project (one in Haut Cheliff and one in 8aa Cheliff)suffer from a serious lack of qualified staff to run the 25,000 ha presentlyunder their control. The technical staff of these two districts include onlytwo engineers and eight technicians. Although experienced, most of theexisting staff are relatively old and discouraged by the poor conditions ofthe networks.

6.08 Operation and maintenance of the project irrigation infrastructure,which will start in 1989 in some sectors in Bas Cheliff, would be undertakenby the Cueliff OPI recently created by the Government to be responsible forall public irrigation construction in the Cheliff valley. The roles andresponsibilities of the OPIs are described in para. 3.06. This OPI wouldbenefit from the Project which would provide for management consultants'assistance to help it put into place a sound organizational structure andoperational procedures by advising on certain aspects of the Office'sorganization and management, O&M procedure, water charge collection andaccounting and financial structure. The Project would also provide for stafftraining, O&M, radio-communication and computer equipment as required for agood start-up of the Office. The Cheliff OPI started to work in July 1986using facilities, equipment and staff of the MHEF O&M regional officesexisting in the Cheliff valley (including four districts: one in Haut, oneMoyen, one Bas Cheliff and one in Mina). The existing facilities aresufficient for the OPI to start its work in the short term. In addition toprocuring and installing the equipment and vehicles mentioned above, the OPIwould give priority to taking over the irrigation systems under itsjurisdiction, hiring additional engineers to the key positions and trainingthe existing staff. According to the decree establishing the OPIs, theirfinancial resources would consist of revenues coming primarily from watercharges and Government budgetary allocations.

6.09 In order to ensure that the Cheliff OPI is organized and managedadequately to perform its tasks, the Government has agreed that:(a) Government would submit to the Bank for review and comment the findings ofthe Cheliff OPI study (para. 3.06); and (b) Government would agree on theprinciple that the Cheliff OPI would become financially independent fromGovernment budgetary support by December 31, 1989. Measures to meet thistarget include those presented in para. 7.16.

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C. Perfowanoe of the SoeiaHst Farms

6.10 Measures would be taken under the Project to ensure efficient use ofthe project irrigation system by the project water users once therehabilitated and the new systems are operational. About 751 of thesubproject areas are under DAS ownership. There are 8 DAS in Haut Cheliffwhich have been profitable since they were restructured in 1982 (para. 3.10).The main reasons for this satisfactory performance are: (a) their land has ahigh production potential; most soils are light, deep and easily drainable;(b) competent engineers or experienced technicians were assigned as managersof most farms; (c) the farms benefit from efficient assistance from MAPservices, especially the SDA established during the restructuring program ofthe socialist farms (para. 3.10). On the other hand, performance of the 28socialist farms in the Ras Cheliff subproject area has bee'n mixed; most ofthem have had operating losses over the last three years. The main reasonsare: (a) drought conditions have persisted in the area over the last fouryears: no cereals were harvested and the area was officially declared to be avictim of natural disaster in 1984/85, a good crop year in other parts of thecountry including Haut Cheliff; (b) irrigation possibilities have declinedbecause of the increasing deterioration of the irrigation systems and theabsence of adequate drainage which has resulted in the formation ofheavy-saline soils in some places (para. 4.07); (c) the limited waterresources available have been primarily used for irrigation of the existingolive trees rather than for more highly renumerative crops such as vegetables;and (d) in contrast to the situation in Raut Cheliff, the SDA and the DAS inBas Cheliff suffer from a shortage of qualified staff.

6.11 All DAS in the two subproject areas have been consolidated andrestructured in 1982-84, but in the context of rainfed agriculture. Theaverage size of the DAS is currently 820 ha in Haut Cheliff and 500 ha in BasCheliff. Since the farms in Haut Cheliff will almost be fully irrigated bythe new irrigation system, they are currently too big to be managed as oneunit and further subdivision is required. On the other hand, only a smallpart of each farm (about 170 ha) in Bas Cheliff will be irrigated by therehabilitated network and no further subdivision is necessary in that part ofthe Project. In order to ensure the irrigation intensity projected (1002 and1082 in Haut and Bas Cheliff, respectively), the socialist farms in HautCheliff would therefore need to be subdivided into smaller, more manageableunits of 300 to 400 ha under the Project. MAP has decided to do this for allDAS in irrigated areas of the country and has agreed in principle that thisrestructuring is appropriate for haut Cheliff prior to the commissioning ofthe new irrigation syscem in 1993.

6.12 The DAS would introduce improved self-monitoring systems under theProject as a management tool to help improve and maintain good performance.Criteria for monitoring this performance would include consideration ofproductivity in terms of inputs (total cost of direct and indirect labor, offarm machinery and of seasonal inputs, water use per irrigated ha) and output(irrigation intensityZ', yields of major crops) relative to established

1/ Irrigation intensity = area irrigated to area equipped for irrigation.

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norms, and financial performance in terms of cash-flow by quarter andprofit/loss for the cropping year. Existing planning and accounting systemswill be used as ~he basis for establishing the criteria. Details on theproposed monitoring system are in Annex 7 of the implementation volume.

6.13 The Government has submitted a statement acceptable to the Bankdefining the principles to be followed and actions to be taken during projectimplementation to restructure the DAS and ensure satisfactory performance. Inaddition, it has been agreed that:

(a) by December 31, 1988, Government would exchange views with the Bankon the detailed management and financial criteria, such as thosedescribed in paragraph 6.12, to be used by the DAS and the Governmentto measure DAS performance and establish a detailed monitoring systembased on these criteria to monitor performance of each DAS5

(b) by December 31, 1988, Government would also exchange views with theBank on actions that will be taken if the expected performance levelsare not met. In Algeria, such actions currently include changing orimproving management and technical staff, strengthening technicalassistance to DAS, consolidation of operations, and/or breaking upthe DAS and attributing some or all of the land to neighboring DAS orto the private sector;

(c) by December 31, 1989, Government would complete the restructuring ofthe 8 DAS of the Haut Cheliff subproject area so that they can useefficiently the project irrigation system and be. profitable underirrigation conditions. This would imply: (i) land consolidation andsubdivision of the existing 8 DAB in Naut Cheliff into farms of amanageable size; (ii) the designation of additional qualifiedtechnical staff necessary to manage these farms; (iii) thepreparation by each DAS of a detailed multi-year developmentrestructuring program based on full use of water made available underthe project and aimed at improving technical and financialperformance of each DAS.

VIL BENEFITS AND JUIFMICATION

A. Geneal

7.01 The discussion that follows quantifies the costs and benefits, insome detail, for the time slice of the Master Plan that this Project wouldfinance. The economic analysis has been done for the entire Master Plan aswell as for the Project, using the data and analysis of the Project as thebasis. This is discussed further in the section on economic analysis (paras.7.19 to 7.26).

7.02 The directly quantifiable benefits of the Project would come from theincreased production and improved productivity obtained from rehabilitatingirrigation works in Bas Cheliff and the extension of the irrigation system in

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Haut Cheliff which would result in providing more water and more efficient useof water for agricultural and livestock activities. These works would resultin a shift from rainfed crops (cereals) to higher value fruits and vegetablesand fodder crops for livestock, and would lead to a higher cropping intensityand to higher yields for all crops. The result would also be increased crops(mainly vegetables and fruits, but also fodder and cereals) and livestock(mainly milk) production, income generation for members of the Project DAS andtheir families, increased income for the Project private farmers and increasedemployment opportunities for seasonal workers. Cost savings in foreignexchange would result from the reduced imports of wheat, livestock products,potatoes and other vegetables. Financial savings for Government would resultfrom improved cost recovery which would permit adequate operation andmaintenance of the irrigation system, thus reducing the need for eventualmajor rehabilitation in the future and reducing as well the budgetary outlaysto finance the O&M costs. Secondary benefits which are not quantified hereinclude: (a) improved water management, irrigation system operation andmaintenance by the new OPI in the 38,000 ha of the irrigated areas in theCheliff river basin expected to be operational by the end of the Projectperiod in 1994; (b) establishing a model for water management through thenewly created OPI that could be replicated in irrigated areas elsewhere in thecountry; (c) providing a drainage technology that will eventually be appliedto the future rehabilitation of 21,900 ha in the Cheliff area; (d)restructuring the DAS in the Haut Cheliff area which could serve as a modelfor DAS restructuring in other irrigated areas; and (e) establishing amonitoring system for the DAS that could be used elsewhere in the country, inrainfed as well as in irrigated areas. These are important sectoralcontributions, particularly but not exclusively in the context of irrigationdevelopment in Algeria.

B. Laud Use. Yields and Production

7.03 Land Use. Detailed cropping patterns and yields for three situations(existing situation, future "without Project" and future "with Project") arepresented in Annex 4 of the implementation volume and sumarized in the Tablebelow for the principle crops. At present, about 871 of the Haut CheliffProject area and 601 of the Bas Cheliff project area are under rainfedconditions and the cropping pattern reflects this, with about 60% of the twocropped areas combined used for cereals and fodder crops and the remaining 402for vegetables and fruit trees. Without the Project, further deterioration ofthe irrigation network in Bas Cheliff is expected, resulting in a gradualdecrease in water availability and a switch from fruits and vegetables intorainfed crops such as cereals, pulses and livestock fodder. Under theProject, about 571 of the area would be devoted to vegetables and another 121to fruit trees. The remaining area would be grown to wheat and to foddercrops for the increased livestock planned under the Project. Croppingintensity would increase from a future projected average for the two areas,without the Project, of 881, to about 1071 under the Project. The incrementalcropping intensity due to the Project would thus be 191. The details of landuse and cropping intensities for Haut Cheliff and Bas Cheliff in the threesituations are shown in Annex 4 of the Implementation Volume and summarisedbelow.

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7.04 Yields. At present, the range of actual yields is quite wide, fromone year to the next, among farmers, and even within a small area where soilconditions and water availability can vary considerably. The yields used tocalculate production under existing conditions were taken as averages ofactual yields realized in the Project area. It is further estimated that inthe "without Project" situation at full development, the yields would remainthe same as before the Project and that the decrease in production of certaincrops would be the result of reduced area planted. The increase in yields atfull development as a result of the Project are conservative, although theyrepresent increases of 40-1252 of the present yields achieved /'. For anyone farm (DAS or private) these yield increases are estimated, for annualcrops, to occur over a four-year period after the irrigated water isintroduced, with a yield build-up as follows: 60X of the projected yieldattained in Year 1, 80S in Year 2, 902 in Year 3 and 1001 in Year 4. Theintroduction of new cattle and upgrading of existing herds would also increasemilk and meat yields, as shown in the table above, by about 35% over theexisting situation for DAS and by four-fold for private farmers who alreadyhave cows. Most of the DAS do not now have cattle, however, so that most ofthe milk and meat production under the Project would be incremental. ThiswouLd occur gradually over a 16-year period.

1/ A notable exception to this is in fodder crops, where the increase inyields is due to a switch from the lower-yielding vetch oats to higheryielding berseem and alfafa.

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CROPPING PATTERNS AND CROP YIELDSIN THE SUBPROJECT AREAS

-- At full Development -Existing Situation Without Project With ProlectArea Yield Area Yield Area Yield(ha) (tlba) (ha) (tha) (ha) (t/ha)

Wheat 3,530 1.2 4,665 1.2 1,940 4.0Fodder crops 2,580 2.0 4,665 1.2 2,360 4.6Potatoes 780 10.7 453 10.7 3,330 15.0Melons 240 12.0 86 12.0 935 17.0Watermelons 375 12.0 130 12.0 1,000 18.0Vegetables 805 7.5 /a 435 7.5 /a 2,690 11.5 /aCitrus 575 10.0 175 10.0 1,340 18.0Other fruit trees 30 10.0 - - 245 17.0Olives 508 3.5 170 2.5 112 10.0Other crops 2,107 1.3 2,761 1.3 - -Fallow 1.471 - 1.558 - - -

Total 13,000 13,000 13,954

Cropping intensity (S) 89 88 107

Dairy cattle(no. head) 1,300 1,300 2,900

Milk (1/head)- Private 480-650 2,240-DAS 2,275 3,040Neat (liveweight in

kg/head)- Private (18 mos.) 220-240 400- DAS (3 mos.) 110 130

/a Weighted average of onions, tomatoes, artichokes, cauliflower and peppers.

7.05 Production. Because the introduction of the irrigation water fromthe new and rehabilitated schemes occurs over 8 years and the yields developgradually, particularly for the fruit trees which reach full production onlyin Year 10 after planting, full production from the scheme would not occuruntil year 18. The Table below shows estimated production from the Project atfull development and compares this to estimated production in year 18 withoutthe Project. Incremental production is the result of the following changes:(a) the total cropped area would increase by 22S; (b) a switch from wheat,

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oats, barley, vetch oats and pulses to the higher value crops, mainlyvegetables, particularly potatoes and fruit trees, plus some fodder crops formilk production; (c) increased yields, as discussed above. At fulldevelopment, the value of annual incremental production represents, in 1985financial prices, about 694 million DA, of which 658 million DA i8 for cropproduction and 36 million DA is for animal production. As a proportion oftotal annual national production in 1984185, the incremental quantitiesproduced under the Project are small, in all cases less than lOS.

INCREASES IN ANNUAL PRODUCTIONFROM THE SUBPROJECT AREAS

Production In-crease over Ex-isting Situation

- -At Full )evelopment -- As I of 1984/85Existing Without With NationalSituation Project Project Incremental Production la

'000 tons

Wheat 4.2 5.6 7.8 2.2 1Forage crops 5.0 3.2 10.9 7.7 1Potatoes 8.3 4.8 50.0 45.2 6Melons 2.9 1.0 15.9 14.9 ) 9Watermelons 4.5 1.6 18.0 16.4 )Vegetables /b 6.1 3.2 30.8 27.6 3Citrus (oranges) 5.8 1.8 24.1 22.3 8Apples 0.3 - 4.2 4.2 10Olives 1.8 0.4 1.1 0.7 decreaseMilk 1.2 1.2 9.1 7.9 1Beef 0.2 0.2 0.6 0.4 1

/a Full development would occur in year 18, or in 2004. Thus annual Projectproduction in 2004 is compared to total anual production in 1985.

/b Cauliflower, onions, tomato, peppers, artichokes.

C. Ma _Uxt anad Prie

7.06 The agricultural price and marketing system has been graduallyderegulated since 1981. All producers, including those in the socialistsector, are now free to sell their products outside the state marketingagencies, except for cereals, pulses, edible oils and industrial crops. Thishas strengthened the role of the private sector in the marketing ofagricultural produce, at both wholesale and retail levels. As prices paid by

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private traders are higher than those offered by official buyers, the functionof the latter now appears to be to absorb surplus production and keep regionalsupply and demand in balance. Since 1982, producer prices for most perishableproducts have been deregulated and have risen considerably (80-2002);administered prices for cereals, pulses and wine have also been increasedsubstantially (40-802).

7.37 In the project area, the CCLS would be responsible for all purchasesof cereals. They have to date been responsive buyers, paying promptly andstoring under acceptable conditions all cereals presented for sale. Noproblem is anticipated in the purchase of increased amounts of cereals fromthe Project area; these amounts will represeint only about 3% of currentpurchases within the Project area. In addition, as imports of wheat and wheatproducts have accounted since 1980 for 65-801 of total consumption, anyincremental production from the Project would be an import substitute.-'

7.08 The marketing of vegetables is often done by selling the standingcrop to private traders; the principle advantage to the farms is the savingsof the harvesting costs. Prices of standing crops are sometimes higher thanofficial prices offered by the Government agencies for delivered crops. Ofthe incremental vegetable production, potatoes and citrus fruit are the mostimportant, representing about 421 of total financial and 381 of total economicbenefits from the Project. Potatoes are an important element in the Algeriandiet (average per capita supply in the 1982-84 period was estimated at about37 kg, compared to 32 kg and 24 kg per capita in Morocco and Tunisia,respectively), and historically have been imported in significant quantities(197,000 tons, representing 21% of total consumption, in 1985). Thus theincremental production from the Project area would be an import substitute.In addition, in the Ain Defla province, cold storage facilities for potatoesare being built by several official organizations so that Governmentprovincial storage capacity will be about 10,000 tons. Citrus fruits are notreported in the official import statistics, but recent domestic priceincreases suggest that demand has grown much faster than supply. Since 1980the domestic price has more than tripled in nominal terms and about doubled inreal terms. The same is true for most of the vegetables produced under theProject. The increased production of fruits and vegetables from the Projectat full development represent about 3-52 of current 1984-85 nationalproduction levels. With population growing at a rate of 3.21, Algeria'spopulation will double in 'ess than 25 years, so that the demand for freshfruits and vegetables is likely to increase faster than the growth in

1/ In the discussion that follows, all references comparing actual levels ofpurchases or consumption of crops to the "increased" production from theProject refers to levels of production over and above current productionlevels. This is in contrast to "incrGmental" production, wheich refers tolevels of production over and above future levels without the Project.The distinction is important: increased production is relevant forestablishfng the markets' ability to absorb the increased production whileincremental production is the relevant measure for thq economic value ofthe Project.

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production from the Project. Thus the absorption of the increased Projectproduction in the domestic market represents no major barrier and is notlikely to result in any decrease in real terms of the financial prices.

7.09 On a national level, the three milk regional marketing Offices (East,Center, West) buy about 61 of the national production of milk, the rest goingthrough private channels. In the Project area, ORLAC (Office regional du Laitdu Centre) would buy the incremental milk from the DAS, which would invest inmilk tanks for daily storage until collection. ORLAC is building a milkprocessing unit, in Aarib in the Cheliff area, to be operational in 1988, witha capacity to process 200,000 liters per day initially and the ability toexpand capacity to 400,000 liters per day in the near future.

7.10 Prices for cereals are regulated and fixed each year in considerationof the costs of production. Prices for other crops and livestock products arenot regulated, although the existence of official marketing agencies offeringfixed and announced prices serves as a support in times of surplus. Atpresent private traders offer more attractive prices than the officiallyannounced ones and profitability of the production of these unregulated cropsis quite high (para. 4.10).

7.11 The Project would result in foreign exchange savings as a result ofthe incremental wheat, milk and other livestock products, and potatoes whichare now imported. In addition, the production of fruits and vegetables wouldreduce the border trade in these products. The total estimated annual savingsin foreign exchange at full development is US$9.5 M, of which livestockproducts account for about US$2.1 M (in projected 1995 prices).

D. Farm Income and Povety Alleviation

7.12 The Project would directly benefit about 850 private farm families(or about 6,340 people) and about 1,870 members of DAS and their families (orabout 14,030 people),.' for a total of 20,370 people in the schemes wherethe irrigation improvement and extension would be located. In addition, theProject would generate about 1.8 million man-days of employment on theparticipating farms at full development, which is equivalent to the creationof about 6,250 full-time jobs. Only about 211 of this would be family anddirect DAS labor and the rest would be hired labor. Indirect benefits wouldaccrue to the surrounding populations from activities associated with theconstruction, operating and maintenance of the works and with the marketing,processing and transporting of the incremental production.

7.13 The financial costs and benefits to the farms are summarized in fivefarm models. Two farm models are presented for the DAS farms, one each forBas Cheliff and Haut Cheliff. Three farm models represent the privatefarmers, two in Bas Cheliff and one in Haut Cheliff. The table below showsthe results of the analysis, found in greater detail in Annex 4 of theImplementation Volume. The existing situation in Bas Cheliff is much better

1/ Each household is estimated to have 7.5 people.

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than the future without the Project because of the deterioratinginfrastructure (para. 4.09). This deterioration would mean a completereversion to rainfed crops, on soils of average quality. Thus, thedeterioration in net revenues in the "without project" situation reflects thisreversion to rainfed agriculture under relatively difficult conditions. Inaddition, the table below shows a negative return to DAS in Haut Cheliff,reflecting the marginal nature of rainfed farming for DAS. The eight DASwhich are currently cultivating land within the Project area also have landoutside the Project area, much of which is under irrigated conditions. Onbalance the eight DAS have been profitable, but this is due largely to theircultivation of irrigated crops, which are highly profitable, while theircultivation of rainfed crops has been marginally negative (incurring anestimated loss of DA 115/ha). This is consistent with countrywide informationon DAS performance, which shows that the majority of DAS have been loss makersbecause of excessive payments of salaries and a high level of mechanixationwith mediocre yields. Without the Project to permit irrigated agricultureand, equally as important, to introduce a monitoring system to ensure betteruse of factors of production (para. 6.12), this situation would likelycontinue. Thus the table below shows that in the future without the Project,

FARM MODELS: NET INCOMES PRESENT AND FUTURE La

HautCheliff PrivAte fars OAS farms LkHauit Chel1ff _Bas Choliff Haut Cheliff Bas Chglitf

Size of farm (ha) 4.1 - 4.5 1.1 9.0 340 168

Number of farms 118 707 20 15 28------------------------------- '000 DA -----------------------------

Net Income- Present 52.S 29.8 163.5 -39.2 1,136.8

Net Income- Futurewithout project 52.5 4.0 11.4 -39.2 -1,010.3

Net Income- Futurewith project 178.4 83.4 428.1 10,147.0 6.761.2

Incremental net Income 125.9 79.4 416.7 10,186.2 7,771.S

Per capita Rasis --------------------------- DA -----------------------------

Net Income per capitaFuture- without project 7.000 533 1520 S.000 La 5,000 L&

Net Income per capitaFuture- with project 23,785 11.120 57.080 25.815 Ld 33,170 Lg

La Excludes other income from non-farming activities. For private farms this could includeagro-industrial activities, and commerce. For OAS, it includes mainly hiring machineryservices.

Lk For OAS without livestock activities at present, under project will have 50 new head ofdairy cattle.

La OAS members are paid a guaranteed minimum salary$ regardless of the profitability of theDAS.

£4 Includes guaranteed minimum salary and total per capita profit from OAS activities; mostof the profits would be reinvested in DAS activities.

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the revenues from rainfed agriculture would continue to be marginallynegative. Incremental income increases from 79,400 DA (US$16,715) for thefarms of 1.1 ha in Bas-Cheliff to 10.2 M DA (US$2.1 M) for the DAS farms of340 ha and 65 members in Raut Cheliff. For the DAS, the increased incomewould benefit the 32-65 members of the DAS and be used as well forreinvestment in the DAS' activities.

7.14 With an official estimate of absolute poverty threshold being US$650per capita (or DA 3,090), none of the beneficiaries of the project fall intothis category in the existing situation. The table above shows that thesmallest private farmers, with farms of about 1.1 ha, have a net per capitaincome, before the Project, of an equivalent US$830, which is about 282 abovethe official estimate. Without the project, however, the farms in Bas Cheliffare expected to decrease irrigated production and experience a decline inincomes. With no further investment in irrigation, all the private farmers inBas Cheliff would fall below the poverty threshold. Thus about 730 farms, or5,450 people would be in this category, representing 271 of directbeneficiaries.

E. Cost Ecovery

7.15 The Project would ensure that proper cost recovery levels would beapplied in the Cheliff valley to ensure recovery of 1001 of O&M costs and areasonable proportion of capital cost. This would also allow for financialindependence for the Cheliff OPt in charge of 0&M of irrigation infrastructurein the valley (para. 6.09). As for elsewhere in the country, the 1979 watercharges in the project area, including the volumetric water charges and thefixed annual levy, were increased in 1985 by 561 (para. 3.07). Despite thissubstantial increase in current terms, water charges remained almost unchangedin real terms compared to their 1979 level.

7.16 In order to meet the objectives stated above, water charges wouldhave to be increased as follows:

(a) Volumetric Water Charges (VWC). The current VWC are DA 0.12/m3 inBas Cheliff and DA 0.15/m3 in Haut Cheliff. At these levels, theparticipating farmers and DAS would contribute to about 551 of theO&M costs incurred to the Cheliff OPI. It has been estimated, basedon the project cost figures, that if the OPI is to cover 100% of itsO&M costs, including e?uipment replacement, the VWC would have to beincreased to DA 0.19/r for Bas Cheliff and DA 0.43/m3 for HautCheliff. This would involve a 581 and a 1851 increase, respectively,over current VWC. The charge for the irrigated water in Haut Cheliffincludes about DA 0.08/m3 for pumping costs and the replacementcosts of the pumping equipment, which explains why it is so muchhigher than the VWC for Bas Cheliff.

(b) Fixed Annual Levy. At present, in addition to the VWC, farmers arerequired to pay a fixed annual levy which is DA 150/ha in Bas Cheliffand DA 200/ha in Haut Cheliff. In addition to this levy, farmers arerequired to finance all on-farm irrigation investments, pipes and

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sprinkler equipment in Haut Cheliff and quaternary canals and drainsin Bas Cheliff. In addition, a part of the volumetric water chargeswill pay for the replacement costs of the equipment under the controlof OPI. It has been calculated that by financing these threeelements, l.e., the levy, the on-farm investments, and thereplacement of the systems' equipment, farmers would contribute about152 and 7% of total Project investment costs for taut and BasCheliff, respectively. On the other hand, if all investment costswere to be 100% recovered, farmers would have to pay DA 2,825/ha/yearin Bas Cheliff and DA 5,470/ha in Haut Cheliff. This would imply ahuge increase over the current level of farmers' contribution to theinvestment costs in both areas.

7.17 The returns to farmers from participating in the Project are quitehigh (para 7.12) s0 that there is scope for cost recovery of both O&M andcapital costs. The table below shows the burden of full cost recovery as aproportion of total rents accruing to the farms of different sizes. The rentsare defined as net incremental income less imputed costs of a number offactors plus an allowance for risk. Details of the calculation are in Table 4and in Annex 4 of the Implementation Volume, and summarized below, in presentvalue terms, discounted over the life of the Project.

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COST AND RENT RECOVERY a

Haut Cheliff Bas Cheliff Haut Cheliff Bas CheliffFarm model Farm Farm DAB DAS

model modelSize of farm 4.1 ha 1.1 ha 9.0 ha 340 ha 165 ha

--- - -DA million

1. Net IncrementalIncome 1.10 0.59 2.86 92.22 51.63

2. Rent 0.68 0.32 2.03 71.81 40.54

3. Volumetric WaterCharges /b 0.10 0.02 0.16 7.46 2.85

4. Land Betterment Levy/c 0.02 0.00 0.03 1.86 0.47

5. Total direct charges(3+4)Id 0.12 0.02 0.19 9.32 3.32

6. Rent Recovery Index(5:2) 0.17 0.07 0.09 0.13 0.08

7. Net Increm. IncomeIndex (5:1) 0.11 0.04 0.07 0.10 0.06

/a All figures are discounted values over 40 years at 10%. See Annex 4 inthe Implementation Volume for details

/b DA 0.425/m3 for witt Cheliff and DA 0.19/m3 for Bas Cheliff/c Full capital cost recovery/d Nay not add due to rounding.

7.18 From a financial point of view, if expected production targets aremet, the analysis shows that full cost recovery would not impose a hardship onthe participants in the Project. If full cost recovery were instituted forboth O&M and capital costs, the burden to the farmers would be relativelysmall, at 7-172 of the rents and 4-11 of the net incremental incomesestimated to accrue to the private farmers and at 8-131 of the rents and 6-101of the net incremental income accruing to the DAB. It should be noted,however, that water charges were increased substantially in 1985 and underthis Project the VWC would be increased again substantially. The scope toincrease fixed annual levies at the same time might therefore be politicallydifficult, in spite of the fact that financially such increases would notimpose great hardship, even on the smallest farmers. Government should

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nevertheless minimize the fiscal burden of the Project investment. It wasagreed during negotiations that:

(a) Government would annually increase the volumetric water charges andthe fixed annual levy in the subproject areas so that 100% of O&Mexpenditures would be recovered by December 31, 1989 and that atleast 251 of the capital costs would be recovered by December 31,1992. According to the calculations here, this would mean that:(i) VWC per m3 would be increased from DA 0.12 to DA 0.19 in BasCheliff and from DA 0.15 to DA 0.43 in Haut Cheliff; and (ii) theannual levy would be increased from DA 150 to DA 675 in Bas Cheliffand from DA 200 to DA 825 in Haut Cheliff, in constant 1985 terms;and

(b) Government would carry out a study on capital cost recovery policywith a view to determining if further increased levels of recoverywould be possible, discuss the recommendations of the study with theBank before June 30, 1989, and, on the basis of such discussions,take all measures necessary to implement such recommendations.

F. Envhiromenta luwet

7.19 The Project is not expected to have adverse effects on theenvironment. Bilharzia is not expected to arise with the use of elevatedconcrete canals and buried pipes in the subproject areas. However, citiessuch as Bch Chlef and Khemis Meliana presently discharge untreated sewage inthe Cheliff River. A study conducted under the Cheliff Master Plan has shownthat, although no problem has been noticed yet, this may pose a danger for theirrigation of fruits and vegetables in the future. To allow the Government toundertake timely corrective measures if needed, it has been agreed that:(a) MBF would, through the Cheliff OPI, closely monitor the variation in thepollution of the Cheliff water, including downstream and upstream of thebasin, caused by sewage (coliform bacteria and biological oxygen demand,nutrient levels, pesticides, etc.); (b) not later than December 31, 1990,forward to the Bank for its review and comment a report summarizing the datarecorded on the evolution of this pollution and (c) take all such remedialactions as may be required to limit this pollution hazard. In addition tothis pollution monitoring the Government is establishing a system to assessthe overall environmental impact of irrigation development, including in theCheliff valley, and the results of such assessment will be closely followed byMNWl and the Bank.

G. Economic Anyi

7.20 The Project would finance a time-slice of the Master Plan for thedevelopment of the Cheliff Valley (paras. 4.01 - 4.05), which involvesdeveloping water resources both for irrigated agriculture as well as forpotable water. Because of the difficulty of accurately allocating economiccosts to the Project alone, an analysis has been carried out of the wholeMaster Plan involving equipping and operating 49,700 new and rehabilitatedhectares in the Cheliff river basin (para 4.03) as well as for the investments

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included in the Project. The investments already undertaken since developmentof the river basin started in the 1940's include 16,300 ha equipped withhydraulic works and six dams. Ongoing investments include construction of onedam (para. 4.04).

7.21 The construction of new and rehabilitated irrigation schemes and damswould be carried out according to an eleven-year schedule. The overall lifeof investments under the Plan has been assumed to be 40 years, withreplacement of vehicles and equipment during the period according to theeconomic life estimated for each item. Delivery of water to the schemes wouldstart in Year 2 of the Plan and continue to build up to the full 66,000 ha.The implementation schedule is sumarized in the table below. The build-up ofyields to projected levels begins in the first year of the water delivery andfor annual crops builds up to full Project expectations in four years; fortree crops the build-up takes 10 to 12 years. Full development of the MasterPlan is considered to be in Year 24 (compared to Year 18 for full developmentof the Project).

EVOLUTION OF EOUIPPED AREAS IN THE CHELIFF VALLEY

1 2 3 4 5 6 7 8 9 10 11 12 13 14im im Ma I= ma ma im im im im mz im Ma am-----------------------------'000 ha - cumulative---------------

-Existing EquippedArea 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3 16.3-Rehabilitation -- 0.4 1.0 2.0 3.0 4.0 5.0 7.6 15.6 23.6 23.6 23.6 25.1 26.9-Extension _ _ _ LA Q LA LA 1AA - A 1. I 31.1 =IZ Z2.8

TOTAL 16.3 16.7 17.3 19.3 22.3 26.1 30.1 38.1 47.8 57.5 59.2 61.0 64.2 66.0

7.22 Costs and Benefits. All costs were expressed in 1985 constant pricesand valued at border prices. Works under the Master Plan involve completedworks which were treated in the basic analysis as sunk costs. The economiccosts of the Master Plan were taken from financial cost estimates of civilworks, equipment and vehicles, and operating costs prepared by consultants,converted into border prices. The economic costs and benefits of on-farmproduction expected from the expansion and rehabilitation of irrigation underthe Master Plan were projected using the parameters of on-farm investment andproduction costs and on the cropping patterns, yields and production levelsdeveloped in some detail for the rehabilitation in Bas Cheliff and the newlybuilt areas in Haut Cheliff in the Project proposed; then applied to thelarger areas covered by the Master Plan, i.e., for 26,900 hectares to berehabilitated and for 22,800 hectares to be newly built (para. 4.03).Wherever possible, import parity prices were used for items such asfertilizers, diesel, and agricultural equipment, factoring in the World Bank'scomuodity price projections for 1990 and 1995 wherever relevant. Theconversion of investment costs in financial terms to economic terms for theeconomic analysis was based on the relationships of domestic prices to worldprices for the components of civil works and equipment, i.e., steel, copper,and cement, and on the economic prices for labor, taken as 602 of the market

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wage for unskilled labor, 802 of the market wage for local skilled labor (20%taxes) and 1002 of the market wage for foreign skilled labor. Because thedetails of the potable and industrial water sugply subproject were notavailable, the benefits and coats of the 150Mm allocated to potable waterwere excluded from the calculation (para 4.02).

7.23 Economic Prices of Output. Cotmdities that are officially tradedhave been priced at the actual 1985 import parity price, adjusted for theWorld Bank's commodity forecasts for 1990 and 1995. Non-traded commodities,such as fruits and vegetables, currently command exceptionally high prices inAlgeria which may not continue in the medium-term. Commodities that are notofficially traded have therefore been conservatively priced at Moroccan orTunisian border equivalents, based on 1985 Moroccan or Tunisian financialprices, and adjusted for transport costs. The detailed calculation by cropand comparison with the financial prices are found in Annex 6 of theImplementation Volume.

7.24 Economic Rate of Return of the Master Plan. The overall economicrate of return for the Master Plan is shown in the table below and isestimated at 171. The Net Present Value of the Plan at a discount rate of 101is estimated at DA 1,310.8 million. The Plan is thus considered economicallyacceptable for financing. If sunk costs and the related benefits are includedin the analysis of the Master Plan (which involve 16,300 ha of extension andseven dams - see paragraph 7.20), the overaill rate of return is still anacceptable 111. Thus even if an economic analysis has been carried out (in1985 terms) for the entire scheme before its start in 1979, it would have beenfound economically viable.

7.25 Economic Rate of Return of the Prolect. A subsidiary economicanalysis was also carried out for the investment under the time-slice thatwould be financed by the Project. Since the economic rate of return of theMaster Plan was based on the data and assumptions developed in some detail forthe 13,000 ha in the Project area (8,000 ha in Haut Cheliff and 5,000 ha inBas Cheliff), the calculation of the economic rate of return for the Projectalone was a matter of applying them to the investments and benefits for the13,000 ha. The one diffic'-tty of evaluating this time-slice was theallocation of costs of the Sidi Ben Taiba dam, which is to be constructedstarting in 1989, but outside the scope of the financing of this project. Aswater from the dam will eventually be necessary for irrigation in the HautCheliff subproject area, at least a part of the costs had to be included inthe economic analysis. Part of the water is to be used for irrigation outsidethe subproject area and part for potable and industrial water (para. 4.02).Since it is estimated that seventy percent of the water is to be used in theHaut Cheliff area, the simple assumption was made that 701 of the costs of thedam should be allocated to the Project for the purpose of this analysis. Theresults in the table below show that the rate of return for the Project isestimated at 151 and the net present value at a discount rate of 101% is DA 256million.

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H. Risks and Senrstivity Analyis

7.26 The major rists whieh could adversely affect the economic viabilityof the Project are the following:

(a) The newly created DAS in the Haut Cheliff and the existing DAB in theBas Cheliff may not make efficient use of the irrigation facilitiesprovided by the Project so that the expected benefits are notachieved. In the Haut Cheliff, the proposed restructuring of theexisting DAS will create pressure on DAS management during atransitional period and cause delays in the production build-uprates. Contrary to the DAS in Haut Cheliff, those in Bas Cheliffhave not had great success under difficult soil conditions and badweather, and the risk also exists that these DAS will be unable tohandle, at the projected pace, the more intense activities requiredfor an irrigated area. This would also result in slower productionbuild-up rates and thus lower returns. Sensitivity analysis 'wascarried out to test these risks by decreasing DAB yield. by 10% andincreasing their on-farm operating costs by 10 to reflect inadequatemanagement. The rate of return combining both efforts drops to 11.61(the analysis was done on all yields and on-farm investment costs,but as DAB will occupy 80-85% of the area, this is only a slightlymore pessimistic assumption than if DAS yields and operating costswere isolated in the analysis). A lag of one year in benefitsreAults in a rate of return of 12.9% and a lag of two years in a rateof return of 10.4%;

(b) Both private and DAS farms could be affected if agriculturalequipment, livestock and associated investment, or credit were notavailable in a timely manner. This might occur either because of thephysical unavailability of the equipment or because of the length oftime for credit to be accorded. Cropping operations would thussuffer and yields be affected, or alternatively the benefits of theProject would be delayed. A 101 decrease in yields would lower therate of return to 13.5% and a 201 decrease to 9.51. The lag inbenefits would affect the rate of return as mentioned above in para.(a); and

(c) Establishing a new organization, such as the OPI, has certain risks.It may not operate effectively at first, either because of lack ofmanagement or lack of experience. It may not be financiallyself-sufficient because it may in the early years underestimate itsoperating costs and be under-funded, by its collection ofwatercharges and by its receipts from Government to make up thedifference. This would ultimately affect delivery of water to theirrigation schemes, and also might require higher than anticipatedrehabilitation or maintenance charges in later years. These factorswould tend to lower yields and increase operating costs,respectively, beyond those estimated here. The risk of inadequatemaintenance of the irrigation system was shown by a decrease of 101in all crop yields and a 101 decrease in cropping intensity, for a

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total decrease in benefits of 202 and an Increase in operating costsof 10X. The combined impact of these changes would be to lower theeconomic rate of return to 9.32.

7.27 The project design has attempted to minimise these risks. As far asachieving acceptable performance by the DAS, the Project would ensure thatadequate arrangements are in place to restructure the DAB to handle theincreased agricultural activities and to establish performance monitoringarrangements. In addition, unacceptable performance of the DAS would beaddressed by changes in management, improvements in technical expertise, andif necessary, by allocating some or all of the land to other farms (para.6.13).

7.28 Availability of credit, inputs and equipment would be ensured byagreement with Government that this is a priority investment area (para.4.16). Government is committed to improving distribution of these factors ofproduction. In addition, the procedures for obtaining credit are beingsimplified, so that credit allocation will be festor also lead time betweenthe beginning of the Project works and delivery of water is sufficiently longthat credit for equipment can be applied for in advance of water delivery.Finally, to ensure efficient operation of OPI, the Project would providetechnical assistance in the early years to help the newly formed organizationbegin its operations (para. 5.07). In addition, water delivery would comeon-stream gradually, and this would give OPI time to develop satisfactorystaff and organization. This should mitigate against ineffective operation.

7.29 The switching values of the project are -18.92 for all benefits and+23.3S for all costs before the net present value drops below 102, theopportunity cost of capital. While certain risks discussed above could causethe rate of return to drop to slightly below 102, the Project design has triedto ensure against the worst-case scenarios (decrease in benefits of 202).Particularly considering the conservative assumptions used on yield andcropping intensity changes and prices, the Master Plan should be consideredeconomically viable and the Project as a time-slice of the Master Plansuitable for World Bank financing.

2993E

-51-

RESULTS OF ECONOMIC ANALYSIS

Rate of Return - -

A. Master Plan Excludins Sunk Costs

Base Case 17.2Benefits Down 101 and on-farm

recurrent Costs up 101 /a 11.6Benefits Down 101 /b 13.5Yields Down 101 and Cropping

Intensity Down 10% /e 9.5Benefits Down 201 andOperating Costs Up 101 1d 9.3

Lag 1 year /a 12.9Lag 2 years la 10.4

Switching Values 2 Change in:

Investment costs 83Operating costs 461On-farm investments 315Production costs 39Total costs 23.3Total benefits 18.9

B. Master Plan Includins Sunk Costs 11.2

C. Proiect Time Slice 14.8

/a See risk in paragraph 7.26(a)/b See risk in paragraph 7.26(b)Ic See risk in paragraph 7.26(c)/d See risk in paragraph 7.26(c)

2993*

-52-

VIIL AGREEMDENTS REACHED AND RECOMMENDATIONS

8.01 Prior to negotiations of the Loan, the Government:

(a) gave the Bank details on the size and composition of the revisedexpenditure program for the 1985-87 period (para 3.04);

(b) confirmed that funds for the construction of the Sidi Mohamed BenTaiba dam as well as for the project works have been scheduled in thecurrent Development Plan starting in 1987 (para. 4.12);

(c) confirmed that the organization and management study for the newCheliff OPI would start by end-March (para. 5.10); and

(e) provided a statement acceptable to the Bank defining the principlesto be followed and actions to be taken during project implementationto ensure satisfactory performance for the DAB (para. 6.13).

8.02 Agreements were reached during negotiations that included:

(a) Government would cause construction of the Sidi Mohamed Ben Taiba damto be completed before September 30, 1993 (para. 4.12);

(b) Government would ensure routine safety inspection of all damsupstream of Project areas (para. 4.12);

(c) Government would cause input deliveries to the project farmers to betimely and in adequate quantities to meet demand (para. 4.16);

(d) the procedures and arrangements described in para. 6.02 with regardto t'ie project organization for its implementation;

(e) the procedures and arrangements described in para. 6.05 -Ath regardto the project monitoring and evaluation and the Project completionreport;

(f) the procedures and arrangements described in para. 6.06 with regardto the project accounts and audit;

(g) regarding the organization for improved O&M: (i) Government wouldsubmit to the Bank for review and comment the findings of the studyon the detailed organization and staffing arrangements of the CheliffOPI; and (ii) Government would agree on the principle that theCheliff OPI would become financially independent from Governmentbudgetary support by December 31, 1989 (para. 6.09);

(h) regarding the improvement of the socialist farms' performance: (i) byDecember 31, 1988, Government would exchange views with the Bank onthe detailed management and financial criteria, such as thosedescribed in paragraph 6.12, to be used to evaluate DAS performance

2".33

-53-

and establish a detailed monitoring system based on these criteria tomonitor performance of each DAS; (ii) by December 31, 1988,Government would exchange views with the Bank on actions that will betaken if the expected performance levels are not met; and (iii) byDecember 31, 1989, Government would complete the restructuring of the8 DAS of the saut Cheliff subproject area so that they can useefficiently the project irrigation systems and be profitable underirrigation conditions (pars. 6.13);

(i) regardiug cost recovery: (i) Government would annually increase thevolumetric water charges and the fixed annual levy in the subprojectarea so that, by December 31, 1989, 100% of O&M expenditures and byDecember 31, 1992 at least 25% of the investment costs would berecovered; and (ii) Government would carry out a study on capitalcost recovery policy with a view to determining if inereased levelsof recovery would be possible, discuss the recommendations of thestudy with the Bank before June 30, 1989, and, on the basis of suchdiscussions, take all measures necessary to implement suchrecommendations (para. 7.18); and

(j) MElF would, through the Cheliff OPI: (i) closely monitor thevariation of pollution of the Cheliff water caused by sewage;(ii) not later than December 31, 1990, forward to the Bank for itsreview and comment a report suinarizing the data recorded in theevolution of this pollution and the findings and recommendations ofthe environment assessment study; and (iiM) take all such remedialactions as may be required to limit this pollution hazard (para.7.19).

8.03 It would be a condition of disbursement against expenditures forconstruction of infrastructure and purchase of equipment for the Raut Cheliffperimeter that after Decembe,- 31, 1988 no disbursements would be made in therelevant categories unless the bidding documents for the construction of SidiMohamed Ben Taiba dam had been issued (paras .4.12 and 5.20).

8.04 Subject to the above assurances and conditions, the Project issuitable for a loan of US$94 million equivalent with a term of 15 years,including a three-year grvce period. The Project is expected to completed byDecember 31, 1993.

2993t

- 54 -Table I

*ccowis COST iae 1

9imot*Y *4IXnwr cOst mstl"R

(3* '000) (19 000) Total---- *~~*~--- - -I^--- Forests Base

Local Foreign total Local Foreign total Eeiagedb Costs.wU8 muaw aua_a ssa. ausa_ auaaaaansua.n

It INlEl COSTS

A. GENIE CIVIL

1. STATIGON KE PONPAI 164215 16.311 32.526 3.450 30470 6920 50 52. REkUX IRRISATON 127V35A 1289062 255.417 27V097 27,247 54344 50 393. RESEAUX A9AINSI t 31,933 32,121 64.055 6,794 6934 13,69 SO 104* RESEAUX DE BRAINAKC 11..98 11.667 23,265 29468 2.482 4,950 50 45. PISTES RURIES 22.009 229943 4572 4.B53 4.801 9734 50 7

Sub-Total GENIE CIVIL 209S91 211.103 421.015 449662 449916 894578 50 64-. ERUIPENEWT

1* MuRIEL ElE3:1nCTRM NIUC SP 12.959 389949 51.900 2757 8.207 l1.044 75 2. IATERIEL HNDflHEA I0OUE 6.725 19,248 25.973 1,431 4.095 5.526 74 4S. RADIO - TEECUUOWICATIOU 1.304 3,911 5.214 277 832 1.109 75 14. lIWORHAtU1E 912 277 3.6N0 194 582 m 75 15. NAMTRIL ENINETt6 OEMUX 89B 2.698 3,596 191 574 765 75 1

Sub-totl EOUVIFIENT 227M 67544 90.341 4,831 14.371 19.221 75 14C. INWESTISENTIS A LA FERIE

1. NATERIEL 000IEt 2.052 4.796 6.849 437 1,021 1.457 70 12. SAtIIENTI 21.929 14647 369476 4.645 3.116 7.761 40 63. IRACTEURS 49412 6.648 11.064 m 1415 2.353 60 24. EIPENENT 1.327 39103 4.430 282 660 943 70 15. WLANTIONS 1294 1.399 13.893 29659 299 2W956 10 26. ACHAT KETAIL 39946 7.3 11.317 839 1.569 2400 65 2

sb-Totoal iNMEStIS9ENENT A LA FERNE 46.060 37.964 94.25 9.900 8.077 17.870 45 13t YEHICULES 1.076 1.622 2.699 229 345 574 60 0E. ASSISTANCE TECONMIGE 3l535 loO6 14.141 752 29256 39009 75 2F. FORRATION 623 19460 2.083 133 311 443 70 0do EtlUDES 34128 12.514 15,642 666 2,663 3.328 s0 2

tOW INVEBtNT COSTS 28?9132 3424.12 629944 61.092 72939 134031 54 96

tI. RE,RREUT COSTS

Al. _RO L 6093 - 6.093 1.296 - 1,296 - It. RONCTIGIUEwT Et ENTREtIEN 8.476 10,414 18.891 1 803 2h216 4.019 55 3C. EIGIE POE 1.214 1.223 2,437 258 260 519 S0 0

TOtal RECURRENT COSTS 15.783 11.317 27.421 3.358 29476 5834 42 4taWl SAGELIME COSTS 302916 354w450 657.365 64.450 75,415 139,06S 54 100

FIwsical Ctstndtlaniss 30.649 36.886 67.536 6.521 7.848 14.369 55 t0

Price Cmntinduics 95M000 S2.01 147.609 20.215 11.2 31.406 36 22

tta PROFECT COSTS 4289573 443997 m 2.510 n1.10* 94.55 195.641 51 133*~~~~~~~~~~~naa __aaa inaauu a_sagg mum amaas uauua,

- 55 -

TabletI

SJs v Akeourmts bs YTt(PA 1000)

bu Cots Foreign Ehcinge_ ....... , . ...... , , , ., _ , .................. _ _ _ ......................... , _ .

07 00 89 90 91 92 93 total X Aat

1. INVESTmEN COSTS

A* BENIE CIVIL

1. STATIONS t PAE - 1*95 4,715 10733 1053 4.554 32.26 50,1 16t3112, RESEX IRRIBATION - 28049 56us7 72s532 63,206 280849 69024 255417 50.1 1280623. REEUX AUAINISlT - 10264 12.011 17.706 13.478 99796 - 64t055 50.1 3241214. REAUX DE DRAINAE - - 4,004 49942 6.745 6.745 830 239265 50.1 11.675. PISTES IRALES - 5359 9,935 1447M 12,190 3.791 - 45752 50.1 22.943

Sub-Total CENIE CIVIL - 45.iU 80,221 12030 106l191 335M 6,853 421,015 50.1 211t103B. EOUIPENT

1. NATERIEL ELECTROCCIGUE U - - 1,928 129904 28*622 0,453 - 51M90M 750 380.92. MATERIEL HYMBANNUECNIO - 222 1.332 7I325 12.042 052 - 25.973 74.1 19,2483s RADIO - TELECOGtNCATION - 1,564 29607 19043 - - - 5.214 75.0 3,9114. INVFORMATIE - 109J 1,025 730 - - - 3P650 75.0 2,7375. MATERIAL ENTRTIEN REOCAUX - - 3.179 104 104 104 104 3.596 75.0 2.698

Sub-Total EUIPENENT - 20881 10.0?1 22,106 40.768 13#609 104 90,341 74.8 679544C. INVESTISSENENTS A LA FERNE

1. MATERIEL NOILE - - - 1.578 2,899 2,371 - 6,949 MO 497962. BATIMENTS - - 1.153 9.006 1570?6 10,530 - 369476 40.2 14.6473. TRACTEURS - 2.594 3.394 2s923 19009 19141 - 11.060 60.1 66484. EGUIPENENT - 11009 11076 929 721 695 - 49430 70.0 341035. PLkNTATIONS - - 3.879 5.049 3.016 1.950 - 134893 10.1 1.99.6, ACHAT PETAIL -- - 1 6171 9634 3.512 - 11.317 65.1 79371

Sub-Total INVESTISSEETS A LA FERE - 3603 9.S01 209656 30.065 209200 - 84,025 45.2 37.964D0. VERICULES 1627 1,023 7 42 - - 269 60.1 1.622E. ASSISTANCE TECHNIOtE - 1,710 4964 3963 2M753 751 - 149141 t5.0 10,605F. FORMATION - 312 365 677 521 208 - 2,003 70.1 1,460G. ETUDES - 4.693 7.821 3128 - - - 15642 80.0 12,514

Total INVESTMENT COSTS 1,627 59,046 121,751 170.962 ±N0298 88,503 6.950 629.944 54.4 342012

11, RECURRW3i COSTS

A. PERSONNEL - 675 9o 1,084 1llS lt1lit 1.115 6t93 0.0 0B. FONCTIONWEMENT TENRETIEN 322 493 594 1.22 1S052 3.990 109412 180891 55.1 10.414C. ENERBIE POtAPE - - - - - 722 1.715 2U437 50.2 1,223

Total RECtURRENt COSTS 322 1.168 1.584 2.312 2,967 5.826 13.242 27.421 42.4 114637Total BASELINE COSTS 1.49 619014 123.335 143,274 103265 94,330 20.t1 657,365 53.9 3549450

Phisic,l Continrfwcles 195 6366 12.061 17.912 18,744 9.549 1.908 67s536 54,6 36.886Price Cantintencis 160 74547 19,918 354379 45.744 30.425 8.437 1479609 MM. 52.601

Total PROJECt COSTS 2.304 74927 156,115 226,565 24M752 134,303 30.545 82,510 50.9 443P937

TOX06 4p2 15.187 29.712 41.76 457m 24846 4409 163154 0.0 .0

Foruim Exchang 1.367 40426 M1M73 113.7 1274 91 VM 6111 13645 443.93 0.0 0

-56- Table 2STAFF APPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERtA

CHELIFF IRRIGATION PROJECT

Estimated Sohedue of Dibursement of Bank Loan a/

(US$ Millions)

Bank DisbursementsIBRD By End Cumulative

Fiscal Year Quarter Ending of Quarter Cumulative % Disbursed

1988 September 30, 1987 0 0.0 0December 31, 1987 1 1 1March 31, 1988 2 3 3June 30, 1988 1 4 4

1989 September 30, 1988 1 5 5December 31, 1988 1 6 6March 31, 1989 1 7 7June 30, 1989 2 9 10

1990 September 30, 1989 2 11 12December 31, 1989 3 14 15March 31, 1990 3 17 18June 30, 1990 4 21 22

1991 September 30, 1990 4 25 27December 31, 1990 4 29 31March 31, 1991 4 33 35June 30, 1991 4 37 39

1992 September 30, 1991 4 41 44December 31, 1991 5 46 49March 31, 1992 5 51 54June 30, 1992 5 56 60

1993 September 30, 1992 5 61 65December 31, 1992 4 65 69March 31, 1993 4 69 73June 30, 1993 3 72 77

1994 September 30, 1993 3 75 80December 31, 1993 4 79 84March 31, 1994 4 83 88June 30, 1994 4 87 93

1995 September 30, 1994 4 91 97December 31, 1994(Closing Date) 3 94 100

a/ Expected Completion Date : December 31, 1993Expected Closing Date : December 31, 1994 2993E/p57

(Figures do not reflect use of special account)

- 57 - Table 3

STAFF APPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBUC OF ALGERIA

CHELIFF IRRIGATION PROJECT

Ist of EcuiDment to be Prooured Under the Proleot

EstimatedBase Cost

Item Quantity DA '000

(1) Operation and Maintenance Equipment

* Hydraulic Excavator, 125 UP 1 835* Tractor-mounted Crane, 4 tons 1 315* Truck-mounted Crane, 1 ton 1 190* Motor Grader, 125 HP 1 625

Traxcavator, im3, 9O HP 1 470* Compactor 1 365• Compressor 1 125* Truck, 7 tons 1 155* Miscellaneous - 520

Subtotal 3,600

(2) Radio-Telecommunication Equipment 5,200

(3) Computer Equipment 3,650

(4) Electromechanical Equipment 52,000

(5) Hydro-mechanical Equipment 26.000

TOTAL 90,450

2993Ep58

5 S8- TTable 4

Cost Nant b ROMA(36lt alliom)o

Fat Nadel V.t. Nudel Fae bde aft dIe Fars NadelFare sie 4.1 h 1.l ha 9.0 ha 340 h 16 h

*umbr of fam 118 707 20 15 28

Discmted Value of Strm /a

1. Net Incemntal Incom /b 1.10 059 2.66 92.22 51.632. Less: Iute Vdalw od Fel! Laor /c O.18 0.16 O.1S

lted VIlue of anat /A 0.15 0.07 0.45 13.07 7.29Iutd Return on Caital /0 o0.0 0.0 0.001 0.80 0.1SAllwance for risk It 0.07 0.0 0.22 6.53 3.64

3. EawlsS Rmt/9urlus A 0.06 0.32 2.03 71.01 40.544. Runt as Z of Nut Inremntl Inm 62.32 54.971 n.01 no." 78.52

5, Vater Chares lA 0.10 0.02 0.16 7.46 2.954. Land Blttemnt Le"y /A 0.02 0.003 0.03 1166 0,477. Total dit chres (S) 0.12 0.02 0.19 9.32 3.32

S. Rent Recover Index :3) 0.17 0.07 0.0 0.13 0.089. Net Incrtmental Inm

Reovery Index (7W1) 0.11 0.04 0.07 0.10 0.06

US Dollars

12. Farmer's Incoe per capitaat full developent /i 4231 221 10.41 4M6 6r606

13. Estimated Poertt threshold.s5 war A S51 511 Sit 511 511

/a Forty wars at 102./b Excluding water chares/c Valued at the market wae rat of 90/dw for talv fatms./d Calculated at 102 of stoss vl oat toduction.Is lmuted return on tfaet's asns./t 52 of grss value of production,/ Grms ent. incrntal tax Pmnts not deducted.Jh For Naut Chuliff . t4253/mU On Cheliff .*190/ inlud muint lac_ent./i At full ot recory for investent ludlnt eirmnt relacmnt.si Year 15 at 7.5 peop per tfulw and US$1 4.IS0la1for DN mmbers include salary.

A US MU5 195 rel groth Pot a" at -2.0 flW990-. 1991-195.

_59 Table 5

STAFF APPRAISAL REPORT

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA

CHELIFF IRRIGATION PROJECT

Selected Documents and Data Available in the Proiect File

1. Algeria - Agricultural Sector Survey - Preliminary Subsector Notes(October 1986)

2. Alg6rie - Document de travail - Mission preparation - projethydro-agricole du Cheliff, FAO/CP (Report No. 48/86 CP - ALG 11 WP ofMarch 27, 1986).

3. Plan Quinquennal 1980-84 et plan annuel 1984. Bilan d'ex6cution -Rapport, Ministere de l'ydraulique, de l'Environnement et des For&ts(March 1985).

4. Water Code - Law 83-17, July 16, 1983

5. Decree No. 85-260 dated October 29, 1985 defining roles andresponsibilities of OPI.

6. Decree No. 85-261 dated October 29, 1985 defining status of OPt.

7. Decree 85-267 dated October 29, 1985 defining the policy framework of costrecovery in the LSI perimeters.

8. Ministerial Order dated October 29, 1985, increasing the 1979 watercharges.

9. Etude du Schema Directeur des Ressources en Eau du Cheliff etR6am6nagement du P6riumtre du Bas-Cheliff (Many reports) SOGUZAN-SNC(i983-86).

10. Annexes in Imolementation Volume

1. Irrigation2. Crop Production3. Livestock4. Production, Farm Budgets and Cost Recovery5. Detailed Cost Estimates6. *conomic Analysis7. Monitoring System for the DAS8. Technical Aasistance and Training

29932/p59

LYAIFF APA!AL RE OTAL=h

CHELIFF TXRREIS PElECT

Ministrv of Hvdraulic. Enviroamnt and Forests

Ornanniati on Chart

Mtn ster'sIOffiee

1I

[echnical Ad Afsors

Mission Chief5s __

aVceginist er for t-Environes:torests

§ Secretary GeneralIs H:I: 3 Office1ft

299SE/0Cooperation VW Training ad Large Scale water Mob11t- Water SUPlyPlanntns Adbinistrationl Lega Af1s Reac rtto rdumSeal a 2atton anW and Sewerae 4 oirectorates

sr Sers rrsotren Tranfer

Central setoae-Protection

§ t ~~~~~~~~~~~~~~against pollution-Parks and Fawna

_ ~~~~~~~~~~~~~~~Protectionr-- ~~~~~~~~~~~~~~~~~~-Forestry

Central Level orsStudies OH|---------------

! 0 I I

*"^onal~~~~~~~~~~~Ceta Divisi m

|Haut Chel1f | aCe1ff | |Chliff OPI|kt"71 unitLJ IieSUi

2993E9p0O

CI!FF CAI"U4A EL

CH1_Z^ timhcjg .

Project Year-- - ... - ....- .....- - L....- - .L - -

Calenr YTear 1967 19"6 19 _ 19 1 199 _

I.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -_ -I _._I__ .9

In frs Owl t -1 .. .. M I ...

1rrgEtenton Wrks in

Waist Owl

* 061o ETwlpmnt* Rpadi tsauimni ----- *-- -- -- *----------------

* Vehicles

?.tduichial a,sts tame,. Studies

* TA for COmliff OPT ... .

* TA forMrnwk Saermtso ......

* TA for GAS Monitoring......

* Urs Ch.11ff Study ... ...- - -

Staff Training

* Opt Staff

* Extension Staff

...Tendering and Award ---- Tendering, Award and Delivery ______ .leuentatiou

If

ICIlY lUG!

ALGIERS

ALGERIA Cherche!OI

CHELIFF IRRIGATION PROJECT n -TenesO a Blida

Sidi MohamwdBSen Tatea

, HAUT CHELIFF

U~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ i NA -'-.

NEW AMRA ACADIADefla r #GhrlbPERIMETER ~ 'arz12f3

PROJECT FEATURESSiEdi Moha0ha I23Mf

POIE BTO Aoud rd_u

REMBIUTATEMOVEN C ELIFFM3

BAS CHELIFFA trjad Ae Sidiiae

' Moataganem Rhlru Statio

PROJECT FEATURES: Mohamad .7

Areas to be Equipped for Irrigation -

Irrigated Areas to be Rehabilitated

L Major Pumping StationsTieret

OTHER FEATURES: . 0khadd_ _ _

Lower Cheliff Catohment Boundaries . . ALGIEF3

LriExisting Irrigated Areas1DAAHiLAreas to be Eqluipped for Irrigation ARMS

Existing Major Pumping Stations I , 5 N

A Existing Diversion Weirs 4m,osagBa nerExisting Dams 4 tnefn

O Dams under Construction 20 40 60r Dams to be Constructed l°ilometers

198MnmOl Volume of Annually Regulated Waters~--- Rivers

* Province Capitals UPPER AND LOWER* National Capital CHELIFF CATCHMENTS

APiUL I