FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Pube Use Report No. 300a-ME APPRAISAL OF THE PANUCO FIRST-STAGE PROJECT MEXICO February 4, 1974 Latin America and Caribbean Regional Office This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the wacy or completeness of the report. Currency Equivalents Currency Unit = Mexican Peso (Mex$) 1 Mex$ = US$ 0.08 US$1 = Mex$ 12.5 Mex$ 1 million = US$ 80,000 Measures mm = millimeter (1 nm = 0.039 inch) m = meter (1 m 3.28 feet) km = kilometer (1 km = 0.62 miles) ha = hectare (1 ha = 10,000 m2 = 2.47 acres) km2 = square kilometer (1 km2 = 247.1 acres 100 ha = 0.386 square miles) m3 = cubic meter (1 m3 = 1.31 cubic yards = 264.2 US gallons) Mm3 = million m3 (1 Mm3 = 811 acre feet) kg = kilogram (1 kg = 2.2 lb) ton = 1,000 kg = 2,205 lb Abbreviations SRH Secretaria de Recursos Hidraulicos (Ministry of Water Resources) PSG = Comision de Estudios del Rio Panuico (SRH{ Commission dealing with the Panuco Basin DAAC = Departamento de Asuntos Agrarios y Colonizacion (Department of Agrarian Affairs and Colonization) FONDO = Fondo de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (Fund in Central Bank to provide agricultural credit) *G = Secretaria de Agricultura y Ganaderia (Ministry of Agriculture and Livestock) PLAMEPA Plan de Mejoramiento Parcelario (SRH group providing intensive extension service) CONASUP0 = Compania Nacional de Subsistencias Populares (Government organization guaranteeing prices and purchases of subsistence crops) BAN&JIDAL = Banco Nacional de Credito Ejidal (official Bank granting credit to ejidatarios only) BANCO AGRICOLA = Banco Nacional de Credito Agricola, S.A. (official Bank granting credit to small private holders and colonists) BANAGRO, = Banco Nacional Agropecuario, S.A. IDB = Interamerican Development Bank USAID = United States Agency for International Development Fiscal Year - January 1 - December 31 MEXICO PANUCO FIRST-STAGE PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ........................... i - ii I. INTRODUCTION ..................................... 1 II. BACKGROUND .. .................................. 1 General 1........................ . Agricultural Sector ................... .... 2 Government Policy for Agriculture ................ 2 Agricultural Supporting Services ............ 4 III. THE PROJECT AREA ................................ 5 Climate ........................................ 6 Population .................. ...6................6 Present Land Use ................................. 6 Transportation, Processing and Marketing ......... 6 Land Tenure and Farm Size ....................... 7 IV. THE PROJECT ......... ............... 8 Description ...................................... 8 Water Supply, Requirements and Utilization ....... 10 Status of Engineering ............................ 11 Cost Estimates ................................... 11 Financing ........................................ 13 Procurement ...................................... 13 Expenditure Schedules ............................ 14 Disbursements .................................... 14 Advance Contracting .............................. 15 Accounts and Auditing ............................ 16 V. ORGANIZATION AND MANAGEMENT ...................... 16 Administration ................................... 16 Operation and Maintenance ........................ 16 Agricultural Services .......................... 17 Water and Development Charges .................... 17  Table of Contents (cont'd) Page No. VI. PRODUCTION, MARKETS, PRICES AND FARMERS' INCOME .. 18 Production ...................................... 18 Markets and Marketing ............................ 20 Farmers' Income .................................... 20 VII. BENEFITS AND JUSTIFICATION ............ .......... 22 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS ........... 23 ANNEXES Annex 1 - Bank Loans for the Agricultural Sector in Mexico Annex 2 - Soils and Topography Annex 3 - Precipitation Pattern Annex 4 - The Ejidal System, Water Law, and Land Tenure Annex 5 - Project Works Annex 6 - Construction Schedule Annex 7 - Water Availability, Requirements, Utilization and Quality Annex 8 - Cost Estimates Annex 9 - Equipment and Materials Annex 10 - Expenditure Schedules Annex 11 - Disbursement Schedule Annex 12 - Advance Contracting Annex 13 - Operation and Maintenance Annex 14 - Agricultural Services Annex 15 - Assumption on Crops, Areas, Labor, Yields, Faragate Prices and Cost of Production Annex 16 - Detailed Production Costs Annex 17 - Cropping Pattern, Production, Costs and Value of Production Annex 18 - The Outlook for Cotton Annex 19 - Markets and Marketing Annex 20 - Farm Budgets Annex 21 - Economic Evaluation CHARTS 7434 - Organization of SRH 8110 - Organization Panuco Study Commission MAP 10554 - Panuco Stage-One Project MEXICO PANUCO FIRST-STAGE PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a project for the construction of irrigation systems to serve 137,000 ha in three separate areas of the Panuco Basin in the States of Tamaulipas, San Luis Potosi, and Veracruz. ii. Of Mexico's population of 54 million, about 21 million live in rural areas. Increase of rural population is estimated to be close to 2% p.a., and in view of the limited land resources -- 16.4 million ha including 4.2 million under irrigation, were cultivated in 1972 out of a potential of 35 million ha -- the Government is faced with problems regarding agricultural production and distribution of wealth. Government policies place emphasis on irrigation as the most effective means of both increasing agricultural production to meet the growing local demands, and to serve as a means to distribute wealth more equitably through the application of agrarian reform. The creation of three new irrigation districts envisaged under the project would allow the redistribution of all privately owned farms larger than 20 ha per holding to form new communal farms. iii. The three project areas are Las Animas, Pujal Coy and Chicayan. The development plans for each differ only in the means of providing the irrigation water supply. In the case of Las Animas, a diversion dam would be constructed to divert water from the Guayalejo River into an offstream storage reservoir. Pujal Coy would have no major water storage facility and water would be pumped from the uncontrolled flows of the Tampaon River. Chicayan would involve construction of a storage reservoir across the Chicayan River. All three areas would have an irrigation water distribution system, a drainage system, and a road network. Lands requiring it would be cleared and all lands would be leveled. An intensive agricultural extension program is included. iv. The total cost of the proposed project is US$208.4 million, in- clusive of interest on the Bank loan during the construction period. The proposed Bank loan of USS77 million would cover the estimated foreign ex- change component of US$75.2 million (including the estimated interest of US$11.0 million on the Bank loan during the construction period but exclud- ing the foreign exchange components of the costs of steel, cement and small equipment (US$4 million)), plus US$1.8 million as one-half the cost of the extension program. The remaining costs of the project would be met through Government budgetary allocations. Major civil works contracts, and equip- ment purchases financed under the loan, would be let under international bidding procedures in accordance with Bank guidelines. Some land clearing, the land leveling and certain small civil works contracts aggregating not over Mex$ 30 million would be done through standard Government procedures. Disbursements under the loan would be made as 38% of payments to contractors on contracts let under international bidding procedures and. 38% of payments to contractors for land clearing, leveling and small contracts. Disbursements for equipment purchased under international bidding would be 100% of foreign expenditure. Disbursement for the costs of the extension program would be 50% of actual cost, and, for 100% of interest and other charges on the Bank loan. v. The Ministry of Water Resources (Secreteria de Recursos Hidraulicos) (SRi) would have responsibility for constructing, operating, and main- taining the project, and for providing the agricultural extension service. The Ministry of Agriculture would assist in the technical aspects of the extension service, while the Department of Agrarian Affairs would be responsible for redistribution of lands, selection of new ejidatarios, 1/ and organizing new ejidos for the project. Normal banking channels would provide the credit requirements. The private sector, assisted by Govern- ment, would aprovide additional marketing and supply facilities. vi. The annual value of net production in the project area would in- crease from Mex$101 million (US$8.1 million) to Mex$763 million (US$61.0 million) as measured in average 1971/72 farm-gate financial prices. To achieve this production, approximately 17,000 man-years of employment would be required, compared to 2,000 man-years at present. Approximately 5,300 individuals over and above those now on the project area would be given the opportunity to become ejidatarios. The average net income of an individual ejidatario would increase from about Mex$17,000 to Mex$68,000, about 83% of the project benefits would accrue to ejidatarios. The economic rate of return of the three projects, when evaluated individually, is 19% for Las Animas, 20% for Pujal Coy, and 22% for Chicayan, showing that each area justifies its development. vii. With satisfactory assurances having been obtained at negotiations, the project is suitable for a Bank loan of US$77 million, for a term of 25 years, with a grace period of five years. The borrower would be Nac- ional Financiera, S.A., the Government agency empowered to contract for external financing. The United Mexican States would guarantee the loan and carry the exchange risk. 1/ Ejidatarios are members of ejidos (communal farms). MEXICO PANUCO FIRST-STAGE PROJECT I. INTRODUCTION 1.01 The Government of Mexico has requested a Bank loan of US$77 mil- lion to help finance the construction of the first-stage of the Panuco ir- rigation system, which is designed to serve about 137,000 ha within the Panuco River Basin. The loan would be made to Nacional Financiera with the United Mexican States as Guarantor. Four previous Bank loans, totalling US$71.5 1/, million have been made for irrigation projects, as well as four loans, totalling US$275.0 million for agricultural credit. Progress on these projects has been generally satisfactory, although cost over-runs due to particular local circumstances have occurred on the last two irrigation pro- jects. An overall performance evaluation is given in Annex 1. 1.02 Three separate and distinct areas are proposed for development under the Panuco First-Stage Project. Each was chosen as having the most merit for early development, based on the suitability of lands, the avail- ability of water and sufficient basic data on which to plan development. They are an initial stage of an envisaged large regional development effort of the Government. The project was prepared by the Secretaria de Recursos Hidraulicos (SRH1) and its subsidiary local organization, the Comision de Estudios de la Cuenca del Rio Panuco (Panuco Study Commission, PSC). 1.03 This report is based on the studies prepared by SRH and PSC, and on the findings of an appraisal mission in May 1973, composed of J.C. Doug- lass, R. R. Rossi, A. Amir and M. Miller (Bank staff). II. BACKGROUND General 2.01 Since 1060, Mexico's overall economic performance has been impressive, with GDP growing at an average annual rate of 7% and infla- tion being limited to about 3.5% annually. Despite this, Mexico is faced with the triple problems of a rapidly increasing population, uneven dis- tribution of wealth, and relatively limited agricultural resources in relation to its size. The total population is just over 54 million, of which 21 million (41%) live in the rural areas. With an annual rate of increase of 3.4%, the population is likely to be 100 million by 1990. Income distribution 1/ Loan 275-ME in January 1961 for US$15 million; Loan 336-ME in April 1963 for US$12.5 million; Loan 450-DE in May 1966 for US$19 million; and Loan 527-ME in January 1968 for US$25 million. - 2 - is highly skewed, with the top 10% of the population in 1969 comanding 51% of the disposable income and the bottom 20% only 4%. There is also a marked disparity between urban and rural incomes, for, whereas the average per capita GNP for the country as a whole was US$670 in 1971, in the rural areas it was less than US$200. Nor is the pattern of land use very favorable. Out of a total area of nearly 200 million ha, only 35 million ha is potential crop land, of which about 16 million are presently cultivated including 4 million under irrigation. it is estimated that about 12 million ha is suitable for irrigation. The Mexican Government has given agricultural development in general, and irrigation development in particular, priority, particularly, as such development is a suitable vehicle for extending agrarian reform. Agricultural Sector 2.02 Although agriculture's direct contribution to GDP dropped from 25% in 1950 to 11% in 1972, it still plays a major role in the Mexican economy. Approximately 39% of the labor force obtains its main income from agriculture and, in 1972, the sector contributed about 50% of export earnings. The target now is to sustain this export level while, at the same time, producing enough food to meet the demand of a rapidly growing domestic market. 2.03 From 1961 through 1965, agricultural production increased at an average rate of 4.7% per year, but from 1966 onwards, it dropped to about 2%. For major staple foods, the poor performance is considered to be largely the result of unfavorable climatic conditions and no permanent shortages are forecasted. For livestock products, fats and oils, and fruits and vegetables, however, production has continuously failed to keep pace with demand. This situation is reflected in the market prices at farmgate, which exceed Govern- ment guaranteed prices for most products, and in consumer prices, which since 1966 have increased faster than prices in general. Government has recognized the seriousness of the situation and lists the achievement of production increases among its main objectives for the agricultural sector. The main constraints on agricultural development are the limited cultivable area, a shortage of water and lack of access to technical assistance, long-term credit, and farm inputs for a large number of producers. Government Policy for Agriculture 2.04 Production Objective. Mexico is facing two major problems. The first is to keep pace with the growth of demand for agricultural products and the second is to correct maldistribution of income. Since the majority of the population is located in the northern part of the country where rainfall is low, Government has emphasized irrigation as a means of increasing produc- tion. Irri-ated areas have tripled since 1950 and in 1970 covered 4.2 mil- lion ha, producing 40% of the total agricultural production value and 60% of the total crop output. However, if population continues to grow at its present rate and productivity trends do not improve rapidly, Mexico will - 3 - face a severe food shortage before the end of the century. Simultaneously, there is a potential water scarcity that could lead to regional water shortages in the late 1970's. 1/ Although increased attention is being given to settlement and rural development projects, sustained efforts to improve land productivity through efficient use of irrigation will be necessary if Mexico is to achieve its agricultural production goals. 2.05 Distribution Objective. The second big problem facing Mexican agriculture is maldistribution of income (para 2.01). The average net annual family income in Mexico is estimated at US$2,280, but the average net annual family income in rural areas is only about US$860. However, about 40% of the rural families have net annual family incomes of less than US$560. These discrepancies arise mainly from the land tenure system. 2.06 The agricultural population can be subdivided into three groups: landless peasants, ejidatarios, and private landowners. The landless peasants provide most of the seasonal farm labor. Widespread unemployment among the landless has caused massive migration towards the cities. Ejidatarios are members of ejidos, which are groups of farmers. The land remains the property of the ejido and is worked by the ejidatarios individually or collectively. Although the ejidos were institutionalized after the Mexican Revolution and their rights and obligations defined by successive agrarian laws since 1917, their lot has improved very little over the years. Private landowners generally have better access to resources than the ejidatarios, but they often still lack critical inputs such as water, capital, and technical expertise. While private farmers with sufficient land have usually obtained satisfactory incomes, the majority of those with less than 20 ha have not been much better off than the ejidatarios. 2.07 In recognition of the situation, the President of the Republic has pledged to improve the lot of the poorer farmers and the Government has passed two major laws to this effect: the new Federal Agrarian Reform Law and the Federal Water Law. The new Agrarian Reform Law is development oriented. It recognizes the legal status of the ejidos, which makes it possible for ejidatarios to obtain credit; gives power to the Departamento de Asuntos Agrarios y Colonizacion (DAAC) to carry out land reform; determines the maximum and minimum sizes of farms to be held nrivat2lv fixes a ceiling on taxes to be paid by ejidatarios; and provides for redistribution of funds from production taxes paid by private farmers. Finally, it encourages ejidos to diversify into small-scale indus- tries. The Federal Water Law regulates the distribution of water and land in Irrigation Districts in a more eauitable way. Under this law, the Govern- ment can set up new Irrigation Districts and expropriate, with compensation, all land and irrigation facilities in an area. The law also stipulates the 1/ IBRD is executive agency for a UNDP-financed a National Water Plan Study. procedure for fixing water charges, requiring that the social and economic situ.ation of individual farmers in each district be taken into consideration. Both laws provide a good basis for development efforts aimed at helping the poor Mexican farmers. Agricultural Supporting Services 2.08 Secretaria de Recursos Hidraulicos(R. In 1947, SRI! was established as a Federal Ministry, directly responsible to the President of the Republic, with powers to control and expand exploitation of the country's water resources. Due to Government's emphasis on irrigation, SRH grew rapidly and has now become the main agricultural organization in the country. By 1971/72, it had developed 3.0 million ha under irrigation, or 70% of the country's total irrigated area, the remaining 1.2 million ha being privately developed. Plans are now almost complete which call for new irrigation schemies to be constructed over 800,000 ha and old districts to be rehabilitated over 450,000 ha by 1976. 2.09 SPH has, at headquarters level, four main subsecretaries concerned with planning, construction, operation, and administration, but most of its regional activities are undertaken directly by SRH-managed Irrigation Dis- tricts. In five major river basins, however, including that of the Panuco River, SRH commissions have been established. In the case of Panuco, the Commission has a dual function and is responsible for studies for future development of the Panuco Basin and for managing irrigation development for SRH including construction and operation of the proposed project. 2.10 The Federal Water Law (para 2.07) requires that each Irrigation District have a Management Committee (Comite Directivo) to advise and co- ordinate operations in the District. This committee is made up of repre- sentatives of SRH, the Ministry of Agriculture and Livestock, DAAC, the credit institutions and private banks, the National Insurance Agency for Agriculture anc, Livestock, Nacional Financiera (if it so requests), and farmers. One of its important duties is to set the cropping pattern. Private farmers and ejidos submit their individual proposals, which the Committee then combines and adjusts to the overall water, technical, credit, and market con6itions. 2.11 Research Tnd Extension. While little has been done on rainfed crops, research on trfated crops has achieved considerable success. Agri- cultural ex:ension services have been extremely poor. Several Government agencies provice extension services, but, except for some irrigation districts, they have been spread too thin (approximately I office to 1,600 farmers) to have any measurable impact. To compensate for this deficiency, private banks and farm-iapur suppliers provide their own technical assistance to clients, but ther acrjvitie.-, have naturally been concentrated on the most creditworthy farmers, leaving the others without adequate help. In irrigated areas, SRH - 5- has set up an organization called Plan de Mejoramiento Parcelario (PLAMEPA) to direct efforts aimed at improving water use on farms that fall below the average effIciency of a particular district. This constitutes an intensive extension effort. Results have been satisfactory, particularly with ejidata- rios. PLAMEPA's assistance is often a condition for obtaining credit from the private banks (see para 5.05). The Inter-American Development Bank (IDB) recently granted a US$23 million loan to help finance the first phase of a US$47 million project aimed at extending PLANEPA's activities over about 1 million ha of ongoing irrigation projects, also financed with IDB assistance. 2.12 Agricultural Credit. Farm credit is provided by both official and private institutions. The Government's Banco Nacional de Credito Ejidal S.A. de C.V. (Banco Ejidal) lends to ejidatarios, the Banco Nacional de Credito Agricola, S.A. (Banco Agricola) concentrates on lending to small- scale farmers, and the Banco Nacional Agropecuario (BANAGRO) lends to any farmer who has technical assistance. About 70% of agricultural lending is by these official institutions and is in the form of short-term credit. Medium and long-term credit from Government has become significant only in the last few years through the Fondo de Garantia y Fomento para la Agricul- tura, Ganaderia y Avicultura (FONDO) managed by the Bank of Mexico and has been mostly financed by IBRD, IDB and USAID loans. Until 1972, less than 5% of the most needy farmers had received credit, but Government has since announced its intention to guarantee at least 60% of the amount of the long- term loans made by private financial institutions to groups of ejidatarios or other small farmers. Also, in Bank loan 910-Mv, US$25 million has been reserved for lending to low income producers. III. THE PROJECT AREA 3.01 The project would cover three separate and distinct areas, which combined, would total 137,000 ha. All lie in the coastal plains of the Panuco River Basin (see map 10,554). Las Animas is the farthest north of the three and includes 48,000 ha lying on both banks of the Guayalejo River, do{mstream of the city of Mante in Tamaulipas state. Puial Coy encompasses 72,000 ha lving south of Las Animas and is situated between the left bank of the Panuco River and right bank of the Guayalejo River. The area lies in the stats of Tamaulipas, San Luis Potosi and Veracruz. Chicayan is the farthest south1 and contains 17,000 ha lying along both banks of the Chicayan River south of the city of Panuco in Veracruz state. 3.02 ?roject lands lie between 5 m and 60 m above sea level and slope towards the sea at a gradient of between 0 and 12 m per Im. All three areas arp generally flat, with good internal drainage, although they are subject to seasonal flooding. The soils are mainly alluvial clays and - 6 - clay loams of fine texture, which, while inherently fertile, require skill- ful management when irrigated. In general, the soils are well suited to a wide range of crops. The current cropping intensity is of the order of 57% with equal areas devoted to rainfed crops and pastures for beef cattle pro- duction. Only about 5,900 ha are irrigated mainly for vegetables and sugar cane. Annex 2 gives details on soils and topography. Climate 3.03 The climate is tropical with a distinct rainy season from June to October. About once in 10 years, major hurricane storms strike the area, usually in September or October. Although the mean annual rainfall is about 700 mm at Las Animas and about 950 at Pujal Coy and Chicayan, the pattern is too erratic to support reasonably intensive agriculture. Annex 3 provides monthly rainfall records at the city of Panuco between 1943 and 1971, which illustrates the wide variations in rainfall which can be experienced at one station. Temperatures range from a monthly average of 28*C in June to 18.5* in January. Extremes vary from 42*C in June to 100C in January. There are no frosts. Population 3.04 The estimated population in the project and adjacent areas, was about 200,000 inhabitants in 1970, 35% of whom were classified as rural. The rate of population growth is high (4.6% - 5.3% according to different munici- palities), due to both natural increase and considerable immigration into the area in search of work. The population is relatively young, about 65% being under 24 years of age. In 1970, 24% of the population within the Las Animas area had originated in other parts of the country. More than half of the labor force is employed in agriculture. Considerable seasonal unemployment exists within the region. Present Land Use 3.05 Out of a total of 137,000 ha, approximately 59,000 ha are still undeveloped, 35,200 ha are under rainfed farm crops, and 37,100 ha are in improved pastures. Only about 5,900 ha are currently irrigated, mostly by means of small pumping schemes. Some 4,800 ha of the irrigated land are devoted to vegetables and the balance to sugarcane, fruit trees and im- proved pastures. Corn, sorghum, safflower and beef-cattle are the most important activities under rainfed conditions. In the past, cotton was important, but has since declined due to the incidence of pests and diseases and the fact that harvesting often coincided with wet weather. Transportation, Processing, and Marketing 3.06 The towns within the project area are connected by a secondary road network to Tampico, which is, in turn, linked by rail and road to - 7 - Mexico City and Monterrey. Highways also link Tampico to San Luis Potosi and Guadalajara, as well as to Matamoros (Brownsville, U.S.). Marine and air transportation is available at Tampico. The project area needs additional internal roads and the improvement of the few that do exist, both to provide a basic network suitable for distributing farm inputs and for transporting produce to other parts of Mexico or for export. 3.07 There are numerous cotton ginneries, sugar mills and grain storage facilities, and, to a lesser extent, meat, fruit, and vegetable packing plants, located in or adjacent to the project area. There are also trans- portation companies providing non-refrigerated trucking services. The existing facilities are generally adequate for present production and have some surplus capacity. However, increased production due to the project would require some enlargement, which is expected to be provided primarily by the private sector. 3.08 Government annually fixes guaranteed prices for key commodities such as maize, sorghum, safflower, soya, and beans and acts as residual buyer through the Compania Nacional de Subsistencias Populares (CONASUPO). Cattle are usually sold "on the hoof" to packing plants in Mexico City and Monterrey. Sugarcane and cotton are the only crops processed in the region, with soybean and safflower being sold to processing mills in the larger cities outside the region. Most of the tomatoes and mangoes are selected for export, graded, and packed in the region and trucked directly to the border for export by the farmers and/or the packing plant operators, using their own vehicles or trucks, which are readily available on a con- tract basis. 3.09 The storage and processing of produce is reasonably adapted to the present stage of development. For certain commodities like cotton and sugar, there is, in fact, over-capacity due to decline in area devoted to these crops over the last few years. With expansion of agricultural production due to the project, there is potential for further development of processing industries in the region, principally livestock, soybeans, fruits, and vegetables, thereby creating additional employment. Land Tenure and Farm Size 3.10 In the project area, approximately 105,700 ha are privately owned or held by colonos (individuals who were settled on federal lands under a colonization scheme sponsored by the Government). In general, the colonos have discharged their repayment obligation to the Government and now have title, making them for practical purposes, small private land owners. The balance of the 137,000 ha area, or 31,300 ha, belongs to ejidos. The average size of the present private or colonos holding is 66 ha, while for the ejidatario, it is about 17 ha. Annex 4 gives fur- ther details of the ejido system of farming, an analysis of holding sizes of the private farmers and ejidos, and the changes that would be induced by the project. 3.11 Under the Federal Water Law of 1971, the maximum size holding allowed to a private individual in new irrigation districts is 20 ha and the minimum allotment to an ejidatario is 10 ha. While some irriga- tion is currently practiced on the project lands by pumping from the rivers, no permanent irrigated land rights have been established. Acqui- sition of such rights was specifically prohibited by Government decree, pending preparation of a plan for development of the Panuco Basin. Thus, all project lands are subject to the provisions of the Federal Water Law and all present private and colonos holdings would be expropriated under the project. Compensation would be provided and lands reallotted in 20-ha irrigated units to existing private holders and colonos. New owners would, however, be obliged to pay the appraised value of the new irrigated holding. Present ejidal land would not be expropriated, but the ejidos would be reorganized on the basis of 15 ha per ejidatario. This size was chosen by the Government in order to establish full time farms and raise the income of the ejidatario to a reasonable level. Lands acquired from the private owners and colonos and not reallotted to them, would be used to form new ejidos. The following tabulation compares the projected land holding pattern with that now in effect. Present Situation With Project No. Ha. Ave. Size No. Ha. Ave. Size Ha. Ha. Private owners 755 72,997 97 685 /1 12,953 19 Colonos 839 32,687 39 839 16,780 20 Ejidatarios 1,873 31,361 17 7,153 107,312 15 TOTAL 3,467 137,045 8,677 137,045 /1 Assumes that some present private owners, with small holdings, would elect to receive cash compensation in lieu of an equal size irrigated holding. The project would provide an opportunity to establish about 5,300 new ejidatarios, which in effect more than doubles the numbers of families with direct access to lands. IV. THE PROJECT Description 4.01 The proposed project would develop intensive irrigated agricul- ture on 137,000 ha in three distinct areas in the Panuco River Basin: Las Animas in zhe State of Tamaulipas; Pujal Coy in the States of Tamauli- pas, San Luis Potosi and Veracruz; and Chicayan in the State of Veracruz. - 9 - The project would be in line with Government's overall policy to increase production and provide for more equitable income distribution. Increased production would be obtained through a more dependable water supply, im- proved technology, a better supply of farm inputs generally, and improved marketing facilities. A more equitable income distribution would be obtained by settling a larger number of farmers on small farms capable of providing acceptable levels of income, which would conform to the general philosophy of the Agrarian Reform Law. Project works are detailed in Annex 5 and are summarized below. (a) Water Supply Features (i) Las Animas. A diversion dam would be constructed across the Guayalejo River to divert water into a feeder canal ending in a storage reservoir to be built across Las Animas Arroyo. The reservoir would have a capacity of 600 Mm3 to supply the main canals for the irrigation system. (ii) Pujal Cay. A diversion dam would be constructed across the Tampaon River to divert water into a feeder canal supplying a pumping plant. The plant would have two sets of pumps to discharge water into two small regulat- ing reservoirs located at different elevations. The main canal serving lands to the north would be supplied from the higher regulating reservoir, while the main canal serving lands along the Tampaon and Panuco Rivers would be supplied from the lower regulating reservoir. A second pumping plant would be constructed at station 40 km on the higher canal to serve other higher project lands. (iii) Chicayan. A storage reservoir with a capacity of 570 Mm3 would be constructed across the Chicayan River to regulate the flows of that stream and provide the necessary water supply to the main irrigation canals at each end of the dam. (b) Irrigation Distribution System. Each area would have its own irrigation distribution system, consisting of main canals, laterals, and sublaterals, to supply water to blocks of about 60 ha each. Devices would be installed for measuring deliveries of irrigation water. Preliminary plans call for the system to be lined with concrete, but, further study for final designs will probably show that much of the lining could be eliminated. (c) Drainage System. Each area would have a complete drainage system to remove surplus rain and irrigation water. This system would consist of open main and secondary drains to discharge water into the natural stream channels. Total length of drains would be about 1,600 km. - 10 - (d) Roads. A total of about 1,800 km of roads would be con- structed along canals and drains to facilitate operation and maintenance and for use by farmers. This system would be supplemented by other connecting roads to provide a complete network. Access roads to the storage reservoirs of Las Animas and Chicayan are under construction and will provide the main access to these operations. (e) Auxiliary Works. Houses would be constructed for ditchriders, and headquarters and suboffices would be built in each area. A telephone network, linking key operating points, would also be installed at each site. (f) Land Preparation. Lands still in native vegetation would be cleared and all project lands leveled. In addition to the above civil works, the project would provide equipment and materials to be used for operation and maintenance purposes. It would also finance an intensive agricultural extension program in the initial 4- year period to insure proper use of water. All project activities are ex- pected to be completed by June 30, 1980. A construction schedule is given in Annex 6. SRH would have overall responsibility for project implementation. Water Supply, Requirements, and Utilization 4.02 Each of the three areas would derive its water supply from separate tributaries of the Panuco River. Analyses of water available at project diversion points have been based on stream flow records cover- ing the period 1955 through 1972 at Las Animas and Pujal Coy projects. The gauging station at Chicayan was not installed until 1969, but flows for the period 1944 through June 1969 have been inferred by using another stream flow record in an adjacent basin over the period of concurrent record as a basis. Requirements for irrigation water have been estimated, using the cropping pattern for each area, the Blaney-Criddle consumptive use formula, and rainfall data. The main irrigation season would be from December to June. Conveyance efficiency to the farm has been generally taken as 70% and the farm application efficiency as 70% giving an overall efficiency of about 50%. A study of the adequacy of the available water, as regulated by the project facilities, to meet the water requirements indicates that on each sub-project, there would be occasional periods of up to three months when shortages in supply could be experienced. These would generally occur at the end of the dry season in May and June. However, in view of the infrequency of such occurrences, it is concluded that the water supply for each project would be adequate to meet crop requirements (see Annex 7). 4.03 While the facilities proposed are expected to give an adequate water supply for project purposes, there are many opportunities for further irrigation developments in the Panuco Basin, both above and below - 11 - the three sites now proposed. These would, however, require construction of new storage reservoirs if they were not to deplete water supplies to the proposed project. The Government has given an assurance that it would not permi.t depletion of flows of the Guayalejo, Tampaon or Chicayan Rivers that would adversely affect the project without specific concurrence of the Bank. Status of Engineering 4.04 Preliminary designs adequate for estimating project costs have been made for all project features. In addition, final designs and tender documents have been prepared for all features on which construction would be initiated in 1973 (para 4.13). Certain contracts have already been negotiated for access roads and construction camps. Cost Estimates 4.05 Project cost estimates are detailed by individual areas in Annex 8 and summarized below. The total foreign exchange costs are estimated at US$64.2 million, including US$4 million foreign exchange components of the costs of material and small equipment which the Government would furnish directly to contractors (see para 4.10) and of negotiated contracts other than for land clearing and leveling (para 4.13). After deducting these items, the remaining foreign exchange costs would be US$60.2 million which is con- sidered in establishing the amount of the Bank loan. - 12 - ---Mex$ Millions--- --- US$ Millions--- % /1 Foreign Local Foreign Total Local Foreign-Total Exchange Civil Works Let under international competitive bidding including small contracts 847 541 1,388 67.8 43.3 111.1 39 Land clearing & leveling 154 65 219 12.3 5.2 17.5 30 Negotiated contracts (Access Road and Camp) 24 - 24 1.9 (0.5) 1.9 0 Equipment & Materials Furnished by SRH (not ICB) 113 - 113 9.0 (2.3) 9.0 0 Operation and Mainte- nance (Not ICB) 29 - 29 2.3 (1.2) 2.3 0 Purchased by SRH (ICB) - 71 71 - 5.7 5.7 100 Engineering & Adminis- tration 178 - 178 14.2 - 14.2 0 Rights of Way 36 - 36 2.9 - 2.9 0 Contingencies 10% physical 120.5 62.5 18.3 9.6 5.0 14.6 35 10% price 120.5 62.5 18.3 9.7 5.0 14.7 35 Extension services 44 - 44 3.5 - 3.5 0 Total 1,666 802 2,468 133.2 64.2 197.4 33 Interest on loan dur- ing construction - 138 138 - 11.0 11.0 1,666 940 2,606 133.2 75.2 208.4 /1 Amounts in brackets, totaling US$4 million, indicate the estimated for- eign exchange components for items not financed by the proposed loan; they are not included in the column total. Total project costs (in millions of US$) are divided between sub-projects as follows: Las Animas 75.7 Pujal Coy 93.2 Chicayan 28.5 Total 197.4 4.06 Quantities of work items were estimated on the basis of the preliminary designs. Unit costs for work items were based on information provided by the construction division of SRH, which maintains a current - 13 - list of unit prices for all categories of work by geographical area. Con- tingencies of 10% have been added for physical aspects on civil works and equipment and material purchases, and 10% for escalation of prices. Escal- ation of construction costs has been about 3 to 4% per year according to SRI data and, since most of the construction work would be started in 1973 and 1974, the allowance is considered adequate. Some contracts have al- ready been awarded for amounts below the estimates given in para 4.05, and some at higher prices. The estimates are considered adequate, particularly since much of the concrete lining of canals included in the estimates should prove to be unnecessary (para 4.01). The foreign exchange component of civil works has been estimated on basis of depreciation of heavy equipment considered appropriate during the period of construction. Financing 4.07 The proposed Bank loan of US$77 million would finance the foreign exchange component of the project except for the US$4 million referred to in paragraph 4.05. The loan would also cover US$11 million interest on the Bank loan during construction plus half the cost of the extension program (US$1.8 million). The balance would be financed under Government budget to SRH. The loan would be made for 25 years with five years' grace, at the current Bank rate of interest, to Nacional Financiera, S.A., Government agency in charge of handling foreign loans and credits. The United Mexican States would be the guarantor and would carry the foreign exchange risk. Following a request by Government at negotiations the closing date has been extended to December 31, 1980 to allow adequate time to complete the agriculture extension (PLAMEPA) program, since this can only be fully effective after water is available. The grace period has not been extended since the PLAMEPA program is only a small portion of the project costs and the flow of project benefits should still permit the repayment pattern that was originally envisaged. An appropriate share of contracts let under approved procedures prior to the date of loan signing (para 4.13) would be financed up to a maximum of US$3.0 million of loan funds. Procurement 4.08 Contracts for the principal features of construction work would be awarded on the basis of international competitive bidding in accordance with the Bank guidelines for procurement. Mexico has a well developed and competent contracting industry, capable of doing all types of civil works at competitive prices, and only rarely is a bid submitted from a non-Mexican firm. H.owever, in order to make practicable the participation of interna- tional conzractors, civil works would be grouped into contracts having a minimum value of Mex$20 million (US$1.6 million) insofar as possible. Assur- ances to this effect were given by Government during negotiations. 4.09 On previous Bank loans for irrigation projects, up to 20% of the total value of civil works contracts could be done by force account, local bidding or on a negotiated contract basis and still be eligible for fi- nancing under the Bank loan. This provision covered the performance of small - 14- jobs and SRH has used it, principally, to accomplish much of the land clearing and leveling. Local groups of farmers have been organized into partnerships to contract land leveling on small tracts up to 100 ha in size, using their own farm machinery. The work provides income to the farmers pending completion of the irrigation facilities, but, more importantly, it trains them in proper leveling procedures and prepares them to maintain their fields in proper con- dition. SRH has provided engineering services and supervision of such con- tracts. Since there is proven merit in this procedure, the Government would award contracts for such activity under its standard procedures. Also, to expedite the construction of civil works under ICB, small jobs which because of timing or nature of the work cannot be included in the major contracts, would be done under ordinary Government procedures up to a maximum value of each contract of one million pesos provided the aggregate amount of these contracts does not exceed 30 million pesos. 4.10 The normal practice for SRH is to let contracts under local bidding procedures for supply, in bulk, of common building materials such as cement and reinforcing steel. It then furnishes such items to civil works contractors and the cost of such items is not included in the bids submitted by the contractors. However, other items readily available in Mexico, such as fabricated gates, and structural steel shapes, are included in the civil works contracts on a furnish and install basis and are included in the con- tractor's bids and paid for as a part of the civil works contracts. Special equipment not available in Mexico such as large size electric motors and pumps, certain types of valves and gate hoists are procured by SRH under inter- national bidding procedures and paid for under separate supply contracts. Equipment for operation and maintenance purposes such as tractors, trucks, draglines, etc., are available in Mexico and are purchased under local bidding procedures. Annex 9 gives further details on equipment and materials to be purchased by SRH under local bidding, and that which would be purchased under international bids. The items to be financed under the loan would be payments to civil works contractors and the CIF value of equipment purchased under international bidding. Expenditure Schedules 4.11 Annex 10 gives schedules of annual expenditures for project implementation. Disbursements 4.12 Loan categories, amounts, and the basis for disbursement are as follows: - 15 - Category Item Total Loan Basis for Cost Amount Disbursement --US$ Million-- I Civil works Let under ICB 108.7) 128.6 48.5 38% of payments to contractors Small contracts under local bidding 2.4) Clearing & level- ing 17.5) II Equipment purchased under ICB 5.7 5.7 100% CIF III Extension services 3.5 1.8 50% of total costs as certified by SRH IV Interest during construction 11.0 11.0 100% of actual costs V Unallocated 10.0 77.0 Of the expenditures for equipment, only that purchased under international bidding procedures would be eligible for disbursement. The expenditures for the four-year period terminating June 30, 1980 of the extension program would also be eligible for disbursement. In the event of higher costs in the first four categories, funds would be shifted from the unallocated category to increase the amounts as appropriate. Any funds remaining at the close of disbursement would be cancelled. An estimated schedule of disbursements is given in Annex 11. Because of overlap of closing date with the grace period (para 4.07) disbursements would continue after the expiration of the grace period. Advance Contracting 4.13 The Government has recognized the urgency of initiating construc- tion work on this project. Consequently, in 1972, SR11 negotiated contracts for access roads to the Las Animas storage reservoir and the Paso de Piedras dam site on the Chicayan. SR-, in 1973, negotiated contracts for building construction camps at Las Aztecas on Las Animas, at Ebano on Pujal Coy,.and at the dam site of Chicayan. Costs incurred under these negotiated contracts are not recommended for disbursement. SRH has, however, followed acceptable international bidding procedures in seeking bids for civil works for Las Animas and Pujal Coy. Annex 12 shows the details of such contracts that have been awarded during calendar year 1973. Payments to contractors during - 16 - 1973 are scheduled at Mex$80.6 million, but due to slippage, it is probable that the full amount will not be earned. At the recommended disbursement percentage of 38%, disbursement for contracts let before loan signing would be about US$2.5 million, and it was agreed that up to US$3.0 million are eligible for disbursement under the Bank loan. Accounts and Auditing 4.14 SRH would maintain separate project accounts to reflect the fi- nancial situation of the project. Accounts are subject to internal and external audit by the Secretaria de la Presidencia, Direccion de Inversiones, and the Secretaria del Patrimonio Nacional, Direccion de Contratos y Presupuestos. Such audits are not conducted on a regular schedule. The Government gave an assurance that they would promptly make available to the Bank such accounts as audited under its laws and furnish such other pertinent information as the Bank may reasonably request. V. ORGANIZATION AND MANAGEMENT Administration 5.01 The project would be administered by SRH through its normal organization channels, with the Tampico office having direct responsibility for project construction and operation and maintenance (Chart 7434 shows the organization of the Mexico City headquarters of SRH, while Chart 8110 illustra- tes the organization of the Tampico office). The Gerencia General del Rio Panuco (office of the General Manager for Rio Panuco) at Tampico handles all SRH activities in the lower Panuco Basin and the Comision de Estudios del Rio Panuco (Panuco Study Commission) prepares plans for development of the entire Basin. The same staff serves both entities. It reports to the General Mana- ger on administrative matters, but looks to SRH headquarters on technical matters. DAAC in cooperation with SRH would be responsible for land redistri- bution and the application of the agrarian reform and water laws to project lands. DAAC would be involved in the expropriation of the private lands, the layout of new farmplots and the compensation of private farmers. It would also be responsible for reorganization of the ejidos. DAAC has started preliminary reallocation work and it is expected that all such activities would be com- pleted by the time water is available. Operation and Maintenance 5.02 Three Irrigation Districts would be established to embrace each of the'project areas, and each would have its own Management Committee (Comite Directivo, para 2.10) to foster agricultural development. These committees would decide on the cropping pattern and related use of water, formulate and foster credit plans, promote farmers' organizations, and periodically consider and recommend the water charges to be levied. Phys- ical operation and maintenance of the project's systems would be handled by - 17 - the Panuco Study Commission responsible for such activities. Annex 13 gives details of operation and maintenance costs at full development and shows the following: Las Animas Pujal Coy Chicayan Annual operation and maintenance costs Total (Mex$ millions) 15.3 37.3 5.3 Per ha (Mex$) 318 518 311 US$ equivalent per ha 25.40 41.40 24.90 The higher per hectare cost of Pujal Coy is attributed to the cost of pumping. Agricultural Services 5.03 Training. Yexico has many schools and institutions devoted to agricultural education and training. These are considered adequate and no special additional training component is included in the project (see Annex 14 for description of facilities). 5.04 Extension. SRH, assisted by SAG, would provide an intensive agricultural extension service during a four-year period to ensure good irrigation practices. During negotiations, an assurance was obtained that such a service would be provided and continued after this initial period. The estimated cost of the initial program is MEX$44.0 million (US$3.5 million). Details are in Annex 14. 5.05 Credit. Annex 14 describes the various banking institutions that provide agricultural credit. BANAGRO is the official bank which is expected to handle most of the credit needs of project farmers. Current rates of interest for short-term credit are 10.8% p.a., and from 7.6% to 12.0% for long-term credit. Under the USAID - and IDB - supported projects for low income producers, the long-term interest rate is now 7.6%, but it originally started in 1963 at 5.5% and has increased steadily ever since. Under the IBRD-supported projects, the interest rate to low income producers is 7.6%, but varies from 10 to 127 on loans to commercial farmers. At full develop- ment, the annual credit required for crop production would be on the order of Mex$900 million. Long term credit of about Mex$200 million would be required to establish fruit trees and livestock farms. During negotiations, the Government gave an assurance that it would make its best effort to make available, promptly as needed, medium and long-term agricultural credit on reasonable terms to farmers in the project area. Water and Development Charges 5.06 The new Federal Water Law of 1971 requires SRH, with the advice of DAAC and the Management Committee of each District to carry out socio- economic studies to determine appropriate charges for the services rendered - 18 - in each irrigation district. Water rates must take into account the re- coverable portion of the capital costs of the project, and the annual re- current costs of administration, operation and maintenance. Charges may be var ed on the basis of the quantity of water used, the area irrigated and the cro7s grown. The law requires that water rates be reviewed periodically on the basis of data from socio-economic studies. Irrigation service may be susoended for failure to pay water rates, or compulsory proceedings may be instituted through the 7ederal Treasury to collect outstanding charges. For the project, SRH proposes to establish a dual-type water charge, one component to consist of a per ha charge, and a second component to be related to volume of water used and crop grown. The total charge would be sufficient to pay operation and maintenance costs, and as much of the capital investment as appears reasonable; such judgment being on the basis of socioeconomic studies. During negotiations, assurances were given that the Government would (a) charge and collect water charges on the basis of the ability of water users to pay and the need to maintain an incentive for them to make best use of the land and water available to them, as necessary to cover all the operation and main- tenance costs of the project and as much as practicable of the investment; (b) carry out the initial socio-economic study by June 30, 1979, or such later date as may be agreed with the Bank, to determine the ability of water users to pay; (c) periodically review such study with a view to revise charges, if appropriate; and (d) promptly give the Bank an opportunity to comment on conclusions and recommendations of the socioeconomic studies after each is completed. In determining the investment cost to be repaid, the objective should be to recover the investment cost in as short a time as possible (see paras 6.06-6.08 for discussion of farmers' income, capacity to repay water charges, and possible return on investment). VI. PRODUCTION, MARKETS, PRICES & FARMERS' INCOME Production 6.01 The project would substantially increase the cropping intensity in all three areas. At present only one crop is grown per year and, bearing in mind the amount of land in native vegetation, results in a cropping in- tensity of 57%. With the project, some 50,000 ha would be in perennial crops such as sugarcane, fruit trees and pastures. If these are treated as single crops, the cropping intensity under project conditions would be 129%. The entire area would be under crop for four months of the year (December through March) and even in April, the period of minimum use, at least 78,'00 ha would be in crops. Soybeans, cotton, safflower and sorghum would occuny the largest areas, while vegetables would make a major contri- bution to increased returns. Cotton would be reinstated since with irrigation, the planting season would be shifted to allow for growing and harvesting to coincide wi:h dry weather, thus improving the effectiveness of disease and insect contr:ol and enabling the crop to be picked under dry conditions. The cropping pattern with and without the project is summarized in para 6.03 below. - 19 - 6.02 Yields would increase as a result of irrigation and the availabil- ity of better technical assistance. Annex 15 provides further details, which are summarized in para 6.03. The present yields reflect current experience in the area, whereas projected yields are based on what has been accomnlished under similar irrigated conditions elsewhere in Mexico, and are about 75% of experimental results in an area immediately adjacent to the project. They are considered realistic and fully attainable. The effect of dry years and possible water shortages are reflected in the yield estimates. 6.03 Overall production in the project area would increase about 900,000 tons. Annex 16 details the production costs by crop, while An- nex 17 shows the net value of production with and without the project and The increment attributed to the project. This shows a net annual produc- tion value with the project at full development of Mex$763 million, a value without the project of Mex$101 million, and an incremental net value of Mex$662 million. Production data is summarized below. Net Incremental Without Project With Project Production Produc- Crop- Produc- Produc- Produc- Yield tion ped Yield tion tion tion Area (Tons/ ('000 Area (Tons/ ('000 ('000 Value Crops (ha) ha) Ton) (ha) ha) Ton) Ton) (US$'000) Soybeans 1,200 0.9 1.08 30,000 2.5 75 73.92 6.78 Vege- tables 4,800 11.0 52.80 8,000 18.0 144 91.20 5.84 Beans/ Pulses 2,000 1.0 2.00 4,000 1.5 6 4.00 0.19 \_Rice - - 6,000 5.0. 30 30.00 2.02 Corn 11,000 1.1 12.10 4,000 3.0 12 (0.10) 0.19 Cotton 2,000 1.5 3.00 25,000 2-5 12 59.50 5.69 Saf- flower 8,000 0.7 5.60 20,000 2.0 40 34.40 3.16 Sorghum 11,000 1.8 19.80 30,000 5.0 150 130.20 4.60 Sugar- cane 400 60.0 24.00 3,000 100.0 300 276.00 1.11 Fruit trees 700 8.0 5.60 8,000 20.0 160 154.40 19.22 Das- tures 37,100 0.3 9.09 39,000 1.5 57 48.24 4.16 Native Veg. 58,8Szi5 - - - - - - TOTAL 137,045 135.07 _177,00 1036 901.76 52.96 CrorpPdg ITnte.nSity 8,0 57 129 - 20 - Markets and Marketing 6.04 Market opportunities have been carefully considered in determining the proposed cropping pattern. !Then fully operational, the project would produce significant quantities of sorghum, rice, soybeans, safflower, fruits and cotton (Annex 18) together with relatively small quantities of corn, vegetables, beans, sugarcane and beef. Fruits, sugar and a small portion of the vegetable productions will be exported and are expected to find ready markets in the U.S. Most of the production, however, from the project will go to the domestic market as import substitutes. Annex 19 further discusses market aspects. 6.05 The increase in output would require a corresponding expansion and improvement of the Panuco region transport, packing and processing facilities as well as related managerial capabilities. No provision has been made for improving such facilities under the project, because it is difficult to determine what type and capacity would be required seven to eight years from now and because it is expected that the private sector will, of its own initiative, provide these services, as it has done in other parts of Mexico. However, the processing and marketing facilities for sugar and cotton are con- sidered adequate. The Government gave an assurance that it would continue to make its best efforts to promote, through existing organizations or otherwise, the establishment of agro-industries in or close to the project area. Farmers' Income 6.06 The project envisages two different types of farmer, the private farmer and the ejidatario, collectively growing a wide range of crops. After project implementation, the average private farmer would have 20 ha, while the average ejidatario would have 15 ha, in both cases the farm units being fully irrigated. Although the size of unit would be fairly uniform, individual cropping patterns could and would be very varied depending on individual preferences, technical skills, and capital resources. Not every farmer would grow every crop. The majority would probably grow only a few of those listed in para 6.03. There would, therefore, be many variations in cropping between farms. Sample budgets have been prepared which illustrate some of the many possibilities. These are detailed in Annex 20 and are sum- marized below. It should be emphasized that the sample budgets should be viewed as average possibilities rather than specified circumstances which will apply in every case. - 21 - Area Net Value of Production Farm Ty e ithout With ithout With Increment Project Project Project Project Ha Ha ----------- Mex$ -------------- General Crop Private 97 20 85,700 90,200 4,500 Private (Colono) 39 20 36,700 90,200 53,500 Ejidatario 17 15 16,700 68,500 51,800 Exclusive Livestock Private 97 20 19,900 30,600 10,700 Ejidatario 17 15 3,500 22,900 19,400 The above net income reflects the return per farm family that can be used for the family living and to pay water charges. 6.07 Water CharLes. The assurances outlined in paragraph 5.06 would require that water users pay all operation and maintenance costs, estimated on the average at Mex$422/ha for the three project areas (see Annex 13), and as much as practicable of the investment cost with due regard to ability of the water users to pay. Mexican law allows water charges to be varied on the basis of area, volume of water, or crops, but requires that the same basis be applied to all users. SRH intends to link the investment cost recovery to volume of water used and the specific crops grown. Higher rates will be levied for higher value crops than for lower value crops. However, the actual charges wilil only be determined after completion of a detailed socio-economic study - prescribed by the Federal Water Law. 6.08 Repayment of Investment. The degree of recovery of the project's investment costs can only be estimated with accuracy once the socio-economic studies have been completed. It depends on (a) the farmer's net income after meeting all crop production costs, taxes and project oneration and mainten- ance charges less (b) the amount he needs to cover his family living costs and have a reasonable incentive to continue irrigated farming. Items under (n) can be calculated but those under (b) are matters of judgement. The exican authorities have suggested that a sum equivalent to twice the regional minimum salary ("o-v$19,750) would Ie an appropriate subsistence income. Look- ing at the result from the point of view of einity, twice the regional minimum salary roepresents the approximate clut-off point for the lowest 40% of personal incors in -exico. oreover, it should he noted that both private farmers and the ejidatarios in the Panuco project have similar farm sizes and in both cases enjoy full irrigation, thus being provided with similar condi- tions. Twice the regional minimum should also provide adequate incentives for irrigated farming by both groups. Deducting this from projected net farm income yields residual income for water charges which would produce for the Government recovery of project investment costs at an interest rate of - 22 - 6.5% over 50 years or 9.57 over 50 years if taxes on incremental production were included. However, during negotiations, the Government representatives indicated that present Governmental thinking is to recover only the investment cos withcut interest. On this assumption investment costs could be recovered in ;bout 10 years. However, it should be realised that such a level assumes that the farmer would be contributing about 65% of his net income at full production (not of all operating costs and operation and maintenance charges). It is unlik±l-y that such a contribution could be levied and a more realistic amount would be nearer half this figure. VII. BENEFITS AND JUSTIFICATION 7.01 At full development, about 12 years after completion of project works, the annual net value of production from the project, valued in economic terms (expressed in 1973 prices) would be Mex$1,087 million (US$87.0 million), compared to Mex$157 million (US$12.5 million) under future condi- tions without the project. The useful life of the project facilities would he almost indefinite, but, for the analysis of economic benefits, it has been assumed at 40 years. Over this period, the economic rates of return would be 19% for Las Animas, 20% for Pujal Coy, and 22% for Chicayan. To measure tAe project's sensitivity to deviations, several alternatives have been considered: (a) construction period extended by one year, investment costs increased by 20%, and incremental benefit delayed by one year; (b) benefits decreased by 25%; (c) farm labor costs fully valued at the official wage rate, instead of being shadow priced; and (d) combined (a) and (b) tests. None of these alter- natives, except (d), which is very unlikely, would result in an internal rate of return of less than 12%, which is considered as the opportunity costs of capital. Annex 21 gives further details on the project economic evaluation. 7.02 It can be argued that with the relatively high rainfall in the project area, and by clearing the lands not now cultivated, a higher level of production could be achieved from the project area without the need for irrivation facilities. About 59,000 ha (43%) of the Project lands are still undeveloped and it would be possible to clear such lands and achieve comparable returns as those obtained from the presently cultivated land. It is nuestionable, however, whether such develonment would, in fact, take rlaco in the absence of the project, largely because of the pattern of land ownership. From a national point of view, given the scarcity of land and the population pressure, government has to exploit all available resources. From the project point of view, it is doubtful whether development can be based on a 13 ha rainfed farm with the erratic rainfall distribution. In addition, without the proposed project, no land distribution would be feasible, since the Federal Water Law can only be applied to irrigation and drainage projects. - 23 - 7.03 About 8,700 farmers would benefit from the project, 7,150 of which would be ejidatarios, 850 colonos, and the rest private owners. The number of private owners would be slightly smaller, and the number of colonos would remain the same as under pre-project conditions, while about 5,300 new individuals would become ejidatarios (see paras 3.11, 6.06, and 6.07). 7.04 The project would require about 17,000 man-years of employment annually; the existing demand is of the order of 2,000 man-years. 1/ The annual net of tax income of the average ejidatario farm would increase from about Mex$17,000 to Mex$68,000 at full development, while the expected cor- responding increase for the average private farm would be from Mex$86,000 to Mex$90,000. 7.05 Since most of the project products are either for export or for use as import substitutes, for which deficiencies are expected in the future, the project would make a valuable contribution to Mexico's balance of pay- ments. It would also provide increased employment and serve the social needs of the country. 7.06 Additional employment and value added which would result from crop marketing and processing and other related activities, as well as secondary benefits due to the acceleration of the general economic activity in the region as a result of the project construction and operation, were not quantified, and consequently have not been included in the economic analysis. 7.07 There are no known water-borne diseases such as bilharzia in the project areas. Increased use of fertilizers and pesticides as part of the farming operation could result in some increase of residual quantities of such chemicals in downstream flows. However, it is not believed these would exceed acceptable limits. VIII. AGREEMENTS REACHED AND RECOMMENDATION 8.01 During loan negotiations, assurances were obtained that Govern- ment would: (a) not permit the depletion of water flows in the Guayalejo, Tampaon or Chicayan Rivers, that would adversely affect the project, without specific concurrence of the Bank (para 4.03); 1/ Only direct employment in field activities is considered and 250 working days per one man-year is assumed. - 24 - (b) prepare tender documents for civil works in groups having as far as practicable a minimum value of Mex$20 million (para 4.08); (c) maintain separate project accounts, and promptly submit to the Bank reports as audited according to Mexican laws (para 4.14); (d) ?rovide an intensive agricultural extension service for the four-year implementation period and continue at an adequate level thereafter (para 5.04); (e) make best effort to make available adequate credit resources to meet the needs of farmers engaged in the project (para 5.05); (f) levy charges for water services sufficient to pay operation and maintenance costs plus as much as was practicable of in- vestment costs. Such charges would be determined following socio-economic surveys made periodically, the first of which would be undertaken by June 30, 1979. The Bank would be given a reasonable opportunity to comment on conclusions and re- commendations of the studies (para 5.06); (g) maket its best efforts to promote the location of agro-indus- tries in the Panuco Basin (para 6.05). 8.02 Contracts let under international competitive bidding procedures prior to signing of the loan would be eligible for financing under the loan up to a maximum of US$3.0 million (para 4.13). 8.03 The proposed project constitutes a suitable basis for a Bank loan of US$71 million. ANNEX 1 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT Bank Loans for the Agricultural Sector in Mexico 1. Since 1961, the Bank has helped finance eight loans in the agricul- tural sector in Mexico - four for irrigation and four for livestock and agricultural credit. Pertinent facts concerning the implementation of these projects are discussed below and a statement of each is given in Table 1. Loan 275-ME of Jan. 1961 - First Irrigation Rehabilitation Project 2. Rehabilitation work under this project was completed in 1966 in the four districts over a total irrigated area of about 690,000 ha, or an area about 20% larger than anticipated. Project costs remained within the US$110/ha estimates. On-farm development was affected initially by the lack of credit, which the Government had agreed to provide, but, at the end of the development period, private bankers and commercial food and marketing agencies supplied much of the needed financial support and technical assist- ance, especially to vegetable growers. Water charges are being collected substantially in accordance with the loan agreement. Agricultural develop- ment has been considerable, surpassing appraisal expectations, and agro- business in particular has been making spectacular progress. Loan 336-ME of April 1963 - Second Irrigation Rehabilitation Project 3. Rehabilitation works on 350,000 ha were completed in 1970, and costs remained in line with the appraisal estimates of US$110/ha. The principal problems encountered were: (a) leakage from unlined canals; (b) high water- table in one district; (c) inadequacy of technical assistance to ejidatarios, and (d) radical changes in the cropping patterns. As complete lining of the canals would be too costly, determined efforts are being made to reduce water needs by modifying the cropping pattern and increasing the on-farm water efficiency. SRH will construct additional drains to reclaim land affected by high salinity where the watertable is too high. Although research and exten- sion services have been satisfactorily increased since project completion, credit to ejidatarios has remained inadequate because of lack of education and farming experience and cumbersome administrative procedures. As a result, on-farm improvements and farm machinery services remain inadequate. Cotton has been largely replaced in the cropping patterns by cereals, fodder crops, and pasture as a result of technical problems, shifting marketing conditions, and Government support prices. In spite of all this, the project is expected to yield the expected benefits. The total irrigated area exceeds the appraisal estimate, and yields and farm income are considerably higher than those pre- vailing when the project started. Water charges of Mex$ 100 to 120/ha (US$8.00 - 9.60) are being collected but no contribution to capital recovery charges is yet being made. The Government is reviewing the situation (see para. 4). ANNEX 1 Page 2 Loan 450-ME of May 1966 - Rehabilitation and Expansion of the Region Lagunera and San Juan del Rio Irrigation Districts 4. Most project construction works on about 95,000 ha were completed ahead of time except for land leveling in Lagunera, but costs were about 30% higher than the appraisal estimate of US$688/ha largely because of foundation problems encountered at Las Tortola Dam, changes in plan on San Juan del Rio and higher unit costs of land leveling. The main problems were lack of ex- tension services and water shortage, the former being acute in Lagunera where the farmers themselves were the main obstacle to land leveling. With more technical assistance, however, such work could be terminated before the scheduled time. In San Juan, overall water efficiency is only 50%, with considerable quantities of water being lost from the reservoirs through seepage. Additional technical assistance would be required to increase water efficiency above the current 70% if the area is to be fully irrigated. Unlike the situation in the other projects, credit distribution-particularly for short-term--has been adequate and has increased significantly in the project areas, even for ejidatarious. Cotton or high value crops such as vines have replaced cereals in the cropping pattern and farm incomes have increased significantly and exceed appraisal estimates by 30%. Operating and maintenance charges are inadequate and deficits amount to about 35% of the running costs. No capital recovery charge is being collected. The project should be completed by the end of 1973 and Government is planning to modify and introduce higher water rates to allow partial recovery of investment costs. The Government's position concerning levels of charges for this and other projects is expected at time of negotiations. Loan 527-ME of Jan. 1968 - Rio Colorado Project 5. Estimated costs of this project, which became effective in 1969, have risen by 30%, largely bicause of modifications and enlargements of the development plan. Although construction and land leveling will probably be completed before the closing date, extension activities will need to be expanded considerably to ensure successful project implementation. Overall water efficiency is currently only about 30% (50% in canals and 65% on farms), and since salinity affects a large portion of the project area, total reclama- tion will take more time than anticipated. Adequate credit funds appear to be available, but small farmers and ejidatarios have difficulties in obtaining short-term credit due to troublesome administrative procedures. The cropping Dattern has changed significantly, with cotton being replaced by wheat, vege- tables, and fodder crops. Current water charges pending completion of the project cover only 75% of operating and maintenance costs. These would be reviewed after the project is complete. Loans 430-ME, 610-ME, 747-ME, and 910-ME Livestock and Agricultural Credit Projects 6. The above four loans, for a total of US$275 million, were signed in October 1965, June 1969, June 1971 and June 1973, respectively. They support projects under which loans for agricultural and livestock producers and for agro-industries are made through private and public banks. These loans are ANNEX 1 Page 3 eligible for rediscounting through the Fondo. The first three Projects have been very successful in providing credit and technical services for commercial farmers and for agro-industries. The Fourth Project, supported by Loan 910-ME for US$110 million, signed in June 1973, includes an amount of US$25 million for a credit program to ejidatarios and individual small farmers. 7. In addition to the above Bank loans, SRH has received 26 loans .since 1961 from the Interamerican Development Bank, totaling in excess of US$358 million for irrigation development. I ANNEX 1 Table 1 MEXICO PANUCO FIRST-STAGE PROJECT Statement of Bank Loans in Agriculture (as of 1972) Loan (less Number Year Borrower Purpose Cancellations) ---US$m---- 1. Fully Disbursed Nacional 275-ME 1961 Financiera, S.A. Irrigation 15.00 Nacional 3364E 1964 Financiera, S.A. Irrigation 11.35 Nacional Agricultural 430-ME 1965 Financiera, S.A. Credit 25.00 Nacional Agricultural 610--ME 1969 Financiera, S.A. Credit 65.00 2. Still Being Disbursed Nacional 450-ME 1966 Financiera, S.A. Irrigation 19.00 Nacional 5274E 1968 Financiera, S.A. Irrigation 25.00 Nacional Agricultural 7471E 1971 Financiera, S.A. Credit 75.00 Nacional Agricultural 110-j4E 1973 Financiera, S.A. Credit 110.00 September 26, 1973  ANNEX 2 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT Soils and Topography 1. The soils of the project area are predominantly heavy alluvial of fine texture and located on a flat coastal plain of the Panuco River Basin. They occur along the terraces and flood plains of the main tributaries of the Panuco River, such as the Guayalejo (Las Animas), Coy, Choy, Tampaon and Mactezuma (Pujal Coy); and Chicayan (Chicayan). Soils are generally deep with good internal drainage. Their parent materials are limestone, sandstone, and schist, and the general level of salinity is low. Most of the year, the water table remains deep, except in small areas inundated during periods of excep- tional heavy rains or when hurricane conditions are present. 2. The main deficiency of project soils is linked to their fine and heavy texture. This point has important bearing on managing this type of soil under irrigation conditions. In general, soils are fertile and well adapted to cultivation of a wide range of crops. Current cropping intensity is of the order of 57%, with equal areas devoted to rainfed annual crops and dry farming pastures for beef; there are at present only about 6,000 ha of irrigated crops such as vegetables, sugarcane, and fruit trees. 3. Following the system of the U.S. Bureau of Reclamation, lands have been classified as follows: Total Land Net Classes Las Animas Pujal Coy Chicayan Irrigable Percentage -------------------------(ha)------------ (%) I 30,317 15,858 4,859 51,034 37 II 16,282 52,559 9,609 78,450 57 III 1,434 3,595 2,532 7,561 6 Total net irrigable 48,033 72,012 17,000 137,045 100 Percentage 35 53 12 100 4. Project lands lie between 5 m and 60 m above sea level, having a general gradient between 0 and 12 m per km to the sea. Predominant relief is uniformly flat, occasionally interrupted by small areas of undulating land or by small isolated hills. Some ponding occurs during the wet season, but because the project soils have good internal drainage, they dry out in a relatively short time. Generally, the area is high enough that there is no tidal effect or salt water intrusion.  ANNEX 3 MEXICO PANUCO FIRST-STAGE PROJECT Precipitation Pattern Table 1 shows the monthly rainfall pattern for the meteorological station at the Town of Panuco as being typical of the area. It illustrates the variations in the rainfall and shows the normal dry season extending from November through May and the normally wet season June through October. The year 1955 is not necessarily typical but it does show the vagaries of the rainfall pattern. The total rainfall figure for that year is one of the highest, but 439 am fell in July and 958 mm in September, thus 1,397 mm of the total of 1,544 um fell in only two months. The September record fall was followed by 8 mm in October. PANUCO F1RST-STAGE PROJiECT Pr_~ipt.at.ion_Pattern at Station -Panuco, Veracruz (in mm) YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC ANNUAL 1943 71.0 0 16.0 45.5 12.5 95.0 77.8 45.6 52.5 6.5 31.0 53.5 506.9 1944 11.5 5.5 0 41.0 21.8 136.7 57.6 214.0 382.0 58.5 41.0 50.4 1020.0 1945 24.5 - 0 0 0 2.5 40.8 -1.0 -1.0 -1.0 -1.0- -1.0 37.6 -i.< 1946 38.5 27-0 1 5 38.0 38.0 131.5 42.0 119.5 184.0 158.5 46.5 17.0 842.0 1947 26.0 15.0 7.0 12.5 41.6 35.0 25.0 397.0 234.0 148.5 107.0 40.0 1088.6 1948 44.5 8.0 4.5 0 91.5 128.0 304.0 34.0 97.0 81.0 14.0 16.0 822.5 1949 52.0 39.0 0 4.0 33.0 54.0 22.0 76.0 105.5 16.5 4.0 96.0 502.0 1950 14.0 6.5 36.0 29.0 68.0 107.5 48.0 34.0 60.5 133.7 3.0 4.0 544.2 1951 14.7 0 0 0 16.0 320.0 56.0 226.0 197.0 171.0 39.0 18.0 1057.7 1952 7 0 0 0 68.0 8.0 329.5 283.5 400.0 313.5 14.5 243.5 0 1667.5 1953 0 10.0 2.5 ;2.0 1.0 39.5 151.5 32.0 87.0 52.5 6.0 5.0 479.0 1954 0 15.0 1.0 37.0 0 89,5 283.5 94.5 293.5 354.0 8.0 6.5 1182.5 1955 7.5 4.0 2.0 t.0 4.0 6.5 439.0 84.0 957.5 8.0 26.0 0 1544.5 1956 0 0 3.0 50.5 46.0 160.0 132.5 50.5 379.5 35.0 36.5 20.5 920.0 1957 20.0 62.5 10,0 65.5 90.5 28,0 105.' 4b.5 68.0 46.5 8.0 15.5 566.0 1958 50.1 21.0 5.0 0 66.0 350.0 382.5 33.5 167.0 404.5 35.5 29.5 1544.5 1959 43.5 75.0 0 45.0 2.0 216.0 52.0 39.5 6.0 178.0 54.0 0 711.0 1960 0 2.0 0 1.0 47.5 26.5 169.5 106.5 121.0 93.0 43.0 12.5 622.5 1961 66.0 7.5 5.0 0 48.5 144.0 202.0 45.5 83.5 61.0 33.5 15.0 711.5 1962 3.5 0 4.0 82.5 34.0 310.0 52.0 16.0 232.0 41.0 65.0 39.0 879.0 1963 9.0 9.0 3.0 0 90.0 126.0 69.0 82.0 82.0 24.0 0 96.0 590.0 1964 21.0 14.0 3.0 24.0 187.5 69.0 18.0 19.0 152.5 5.0 59.0 14.0 586.0 1965 37.0 13.0 0 10.0 4.5 155.0 110.0 135.0 243.0 62.5 13.0 27.0 810.0 1966 50.5 48.0 9.0 32.0 108.0 313.0 36.5 73.0 66.0 753.5 12.0. 21.0 1522.5 1967 35.0 15.5 50.0 3.0 41.6 66.5 14.5 224.0 633.0 58.0 90.0 16.5 1247.6 1968 52.5 20.5 45.0 46.0 25.0 162.0 80.5 169.5 85.5 85.5 45.0 80.0 897.0 1969 40.0 13.5 16.0 44.0 10.5 133.0 389.0 275.0 275.0 37.5 41.0 8.0 1282.5 - 0 17.0 53.0 0 0 26.0 415.0 190.0 119.0 279.0 49.5 7.5 17.0 1173.0 1971 15.5 3.0 0 0 55.0 257.0 54.5 117.5 151.5 136.5 32.5 25.0 848.0 NOTE: Minus one indicates absence of Data AVERAGE 26.6 10.s 7.7 27.0 42.1 153.3 137.4 118.2 213.9 116.9 40.9 26.9 934.6 M\XIMUM 71.0 7 i 50.0 92.0 187.5 415.0 439.0 400.0 957.5 753.5 243.5 96.0 1667.5 M1*' o u 0 0 0 6.5 14.5 16.0 6.0 5.0 0 0 479.0 ANNEX 4 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT The Ejidal System, Water Law, and Land Tenure General 1. There are three classes of land holders in the project area: private small holders, colonos and ejidos. The colonos were settled under a program, now discontinued, for colonization of federal lands. The individual colono obtains title to his allotment of land after he has made full payment to the Government under the colonization agreement. In general, the colonos living in the project area have discharged their repayment obligation and now have title. They are, therefore, the same as private small holders. Ejidos are made up of individuals known as ejidatarios who have specific rights as members of the ejido. Two recent laws, the Agrarian Reform Law 1/ and the Federal Water Law 2/, define lands which may be expropriated by the Government for Agrarian Reform purposes or to establish new irrigation districts and the rights of the private holders to retain lands. Both laws are operable in the project area. The Ejido System and the Agrarian Reform Law 2. The ejido system was officially established as a tenure system by the Agrarian Reform Law of 1915, under whose provisions existing rural com- munities were confirmed in their ownership rights and ejidos were created and endowed with land, water, and all the natural resources within a demarcated area. The ejido, as the community, is the legal proprietor of the land, but it cannot transfer, rent, or mortgage it. Land can be withdrawn from an ejido only for reason of public use, in which case compensation must be paid (para 4). The ejido may operate as a communal farm, with the members being similar to shareholders in a corporation, or it can elect to parcel out its land to its members on a pro rata share. In this case, the individual ejidatario manages his own holding as though it were his own, although he has use of the land only and cannot mortgage, sell, or rent it. He may pass on his rights to one designated successor, such as his spouse, child, or some one financially dependent on him, who must then accept the financial obligation of supporting the dependents of the original member. An ejidatario loses his right (a) if he or his famifly does not work the land allotted personally for two consecutive years or if he does not perform his required service to the communal farm; (b) if he has acquired his rights by succession and does not financially sup- port the dependents of the deceased; (c) if he uses ejidal land for unlawful purposes; (d) if he has interest in other ejidal land; or (e) if he is con- victed of growing narcotic plants. If an ejidatario unit becomes vacant, it is realloted by the ejido to an eligible individual. ANNEX 4 Page 2 3. Membership in an ejido is entirely free and no one can be forced to join. Any group of individuals can petition the Government to form a new ejido, provided the prospective members can meet the eligibility requirements for ejidatarios. These call for the candidate to: (a) be Mexican by birth, over 16 years old or of any age if he or she has a dependent family; (b) have resided in the population center filing the re- quest for at least six months; (c) agree to work the land personally; (d) not own in his own name any land equal to or greater than 10 ha of irrigated land or 20 ha of dry land; (e) not own capital in industry or commerce exceeding Mex$ 10,000 or agricultural capital exceeding Mex$ 20,000; and (f) not have been convicted for planting marijuana or narcotics. After a petition is filed, DAAC must review all lands within a prescribed distance of the petitioning population center to see if land can be made available. Private lands may not be expropriated for purposes of forming ejidos if the individual holding does not exceed the following limits: (a) 100 ha of irrigated or first class watered land; (b) 150 ha utilized for cotton if irrigation takes place through flooding or pumping; (c) 300 ha in plantation crops such as sugarcane; and (d) an area sufficient to maintain 500 head of cattle or the equivalent in other livestock. Land that exceed these limits and certain federal lands can be taken, with compensation, but private owners are entitled to retain buildings, or improve- ments such as wells. 4. DAAC is responsible for managing ejido affairs at the Government level and for applying the Agrarian Reform Law. This law specifies operational procedures for the ejidos and most importantly grants legal status to it so that it is eligible for credit. Among other things, the law has the following provisions: ANNEX 4 Page 3 (a) ejidatarios shall pay a property tax but it cannot ex- ceed 5% of the value of marketed production; the tax liability is binding on the ejido and all its members; (b) each ejidatario is entitled o a houselot without charge not exceeding 2,500 m in size. He is obliged to occupy the lot and build on it, with DAAC supply- ing suitable plans and technical assistance; (c) ejidos may be subdivided in specific cases where tech- nical studies indicate that subdivision is appropriate; (d) ejidal property can be expropriated for public purposes. SRH is specifically mentioned as having that right when lands are needed for hydraulic works. However, the in- demnity paid must be set aside to acquire equivalent lands where the agrarian group can be reestablished; (e) two or more ejidatarios can agree to work their parcels jointly; (f) ejidos are entitled to preference in all government activities such as technical assistance, provision of credit, and purchase of produce; and (g) ejidos using water belonging to an irrigation district must pay the usual water charges for that district. The Federal Water Law 5. This law complements the Agrarian Reform Law and sets the procedures which are applicable in developing the nation's water resources, specifically invoking the Agrarian Reform Law in cases involving ejidal or community pro- perties. The law also does the following: (a) Establishes priorities for use of water as: (i) domestic purpose; (ii) urban public services; (iii) cattle watering; (iv) irrigation; a. ejidal and communal lands; b. privately owned lands; (v) industrial purposes; a. electric generation for public use; b. other uses; ANNEX 4 Page 4 (vi) aquatic culture; (vii) electric generation for private use; (viii) soil leaching; and (ix) other uses; (b) Establishes procedures for setting up new irrigation districts and requires that all land within the bound- aries be expropriated. It further requires DAAC to define the rights of ownership by ejidos whithin the district; (c) States that when the irrigation district is declared for expropriation, landholders must prove their rights of ownership for compensation, which may be in cash or in kind. In the latter case, the payment may comprise not more than 20 ha of irrigated land with any balance paid in cash or credited to the persons concerned for payment of water charges; (d) Requires DAAC to propose new holding sizes for ejida- tarios if ejido lands are included in an irrigation district; (e) Allows for the Federal Government to declare the size of irrigation unit to be assigned to small private landowners or to colonos. The area may never exceed 20 ha (the Agrarian Reform Law provision of a minimum allotment per ejidatario of 10 ha of irrigated land is mentioned, (para 3d); (f) Entitles each user to his pro rata share in times of water shortage; and (g) Allows double cropping without implying any permanent right to such use when there is surplus water. Land Tenure 6. At about the time the Comision de Estudios del Rio Panuco was established in 1959, the Government prohibited the granting of any further permanent rights to private individuals to use waters of the Panuco Basin. Although several private pumps have been installed since then to pump water from tributaries of the Panuco, no one enjoys permanent rights nor can in- dividual owners claim that their lands are irrigated in the sense that it would exempt their holdings from expropriation under the Agrarian Reform Law. There is no existing Irrigation District covering any portion of the project lands. Thus, as the Government establishes the three new Irrigation Districts, one for each area, all private and colonos lands would be expropriated for district purposes, with compensation either in cash or in land. Reallotment ANNEX 4 Page 5 of lands would be made to present private owners and to colonos who choose that methods of compensation for their present holding. The reallotment would not exceed the size of the present holding or 20 ha, whichever is smaller and the allottee would be required to pay the appraised value of the land. In most cases, the value of the irrigated allotment would exceed the value of the non irrigated present holding and the allottee would be required to pay the difference. The new allotment does not necessarily have to include any of the land previously held by the individual except that cognizance must be given to established permanent crops such as orchards and to improvements. 7. Private owners of land in the reservoir basins of the Las Animas and Chicayan Projects could elect to be paid in cash for the value of their present holding, or, if they prefer, they could choose to be compensated by an allotment of land in the service area of the project in the same sense as a private owner now living in the proposed service area. Ejidal property lying in the reservoirs could be expropriated by SRH if necessary. However, there is only one ejido involved and that in the basin of the Las Animas Reservoir. It has elected to voluntarily sell its lands to SRH and be re- located in the irrigated area. 8. Ejidal land lying in the proposed irrigated areas would not be subject to expropriation. The ejidos would, however, be reorganized as allow- ed by the law and the holding per ejidatario adjusted to meet the new allot- ment of 15 ha per ejidatario. Lands made available from the private and colonos holdings would be used only to enlarge present ejidos or to form new ones. 9. Table 1 shows the land tenure system as it exists at present in the proposed irrigated areas and as it is expected to be under the project. The table is based on the assumption that private owners in the reservoir areas would opt for cash compensation and will not seek an allotment of irrigated land. If any of the private owners do request compensation by an allotment of irrigated land, the number of private owners under the "with" project conditions would increase. The table also assumes that some of the private holders on the Pujal Coy project having very small holdings would elect cash compensation rather than seek to keep their less than 20-ha hold- ings under project conditions. The table is further based on the Government's recommendation of 20-ha allotments, the maximum allowed under the Federal Water Law, to private holders and a 15-ha allotment per ejidatario to ejidos. This size exceeds the minimum allowed by the law of 10 ha per ejidatario and has been recommended by the Government in order to establish the ejidatarios at a reasonable level of living.  ANNEX 4 Table 1 MEXICO PANUCO FIRST STAGE PROJECT Land Tenure Present Situation With Project Las Animas No. Ha Ave. Size Ha No. Ha Ave Size Ha Private Owners 230 2637 115 230 4,700 20.0 Colonos 36 3,572 99 36 720 20.0 Ejidatarios 953 17 924 18.8 17 42,713 15.0 1,219 39. 3,113 48,033 1 5. Pujal Coy Private Owners 277 29,742 107 207 4,140 20.0 Colonos 803 29,115 36.3 803 16,060 20.0 Ejidatarios 818 1,,155 16.1 3 45h 51 2 15.0 1,7 72,012 3. 72,012 16.1 ,hicayan Private Owners 248 16,718 67.5 248 4,213 17.0 Ejidatarios 102 282 2.8 852 12,787 15.0 350 17,000 1,100 17,000 Project Private Owners 755 72,997 96.4 685 12,953 18.9 Colonos 839 32,687 39.0 839 16,780 20.0 Ejidatarios 1 873 31,361 16.7 7 153 107,312 15.0 3 .67 137,045 39. 1 1 .7 September 26, 1973  ANNEX 5 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT Project Works Existing Irrigation Facilities 1. There are a few small private pumps installed in each of the three project areas, but owners have only temporary rights to pump froI the rivers. All such installations would be supplanted by project facilities and the equipment salvaged by the owner. Las Animas 2. The basic water supply for Las Animas would be a direct gravity diversion of water from the Guayalejo River into a feeder canal, ending in the Las Animas storage reservoir. Main canals would head at each end of the storage reservoir dam to distribute water to the irrigation system on each side of the Guayalejo River. 3. Guayalejo Diversion Dam. This structure would be a concrete gravity type located across the Guayalejo River about 8 km northwest of the city of Mante. Radial gates would be installed to control water levels and when fully opened would be capable of passing floods of 3,500 m3 down the Guayalejo River. The feeder canal would be located on the right bank and discharges into the canal would be controlled by four radial gates. Sufficient drill holes have been sunk to explore foundation condi- tions and to prove the suitability of the site. 4. Feeder Canal. This canal would be 16.8 km long and excavated in earth its entire length. It would be concrete lined, with a capacity of 100 m3/sec. 5. Las Animas Storage Dam. This structure would be constructed across the normally dry arroyo of the same name. All the water to be stored would be delivered by feeder canal from the Guayalejo River. This site was chosen over an alternative site on the Guayalejo River as it would inundate less agricultural land and the ratio of land benefited to the land taken out of production due to reservoir construction would be much greater. The dam would be 7.8 km long, with a maximum height of about 28 in above foundation and have a zoned earth fill with a central impermeable zone. Two auxiliary dikes would be required to close low places on the periphery of the reservoir ANNEX 5 Page 2 and would be similar in design to the main dam. The spillwiy would be an overflow concrete crest 300 m long with a capacity of 500 m /sec discharging into an arroyo leading back to the Guayalejo River. This spillway capacity, together with use of about 70 Mm3 of storage ca acity, would control the maximum probable flood having a peak of 2,500 m3/sec. Operation of the reservoir would be restricted to ensure that 70 Mm3 of space is available from June to November. Irrigation outlets, with top seal radial gates, would be installed at each end of the dam to serve the two main canals. The reservoir would cover about 9,800 ha and have a total capacity of 600 Mm3, of whish 62 Mm3 is dead storage and for sediment accumulation, leaving 538 Mm of usable storage. Sufficient drilling has been accomplished to explore the foundation conditions to prove the suitability of the site and to locate adequate materials for the embankment. An access road to the site from the paved highway Tampico-Mante has been constructed by SRh under a negotiated contract. Houses would be constructed at the dam for use of reservoir operators. 6. Ninety families live in the reservoir area, 87 being ejidatarios and three private owner families. Ownership is by 21 private owners and one ejido. The ejido has elected to voluntarily sell its land to SRH and be relocated in the irrigated area. Sixteen of the private owners have elected to receive compensation in cash and the balance have not made a decision as yet. 7. Irrigation and Drainage Facilities. Two main canals heading at each end of Las Animas dam would feed the irrigation distribution system. The right bank canal would be 53 km long and the one on the left bank, 126 km long. The right bank canal would have an initial capacity of 24 m3/sec and that on the left, 25 m3/sec. The left bank canal would have a siphon crossing the Guayalejo River to serve about 18,700 ha on the left bank of the Guayalejo. The main canals would have turnouts to secondary laterals, whicb, in turn, would feed the tertiary system. A turnout and measuring device would serve each 60-ha block. Estimates of cost have been based on concrete lining throughout, but, further soil tests would be made as part of final designs, and lining would be eliminated in those reaches not requiring it. A complete drainage system to remove excess surface water would be constructed. Open drains would have a minimum depth of 1.5 m, while larger drains would be at least 2 m deep. 8. Roads and Complementary Works. Roads would be constructed along all canals and drains for operation and maintenance purposes. This network would he supplemented with connections to form a logical road system. About c70 km of roads would be a part of the canal and drain system and 85 km would he constructed specifically to make connections. About 12 houses for ditch riders would be constructed and 183 km of telephone system installed to assist in the operation and maintenance of the project. A project head- quarters located at Los Aztecas is under construction under a contract negotiated by SUL. ANNEX 5 Page 3 9. Land Preparation. About 22,700 ha would require clearing of the native brush. Approximately 7,000 of this is on the left bank and 15,700 on the right bank. All 48,000 ha in the project would be leveled. Pujal Coy 10. The water supply for Pujal Coy would be by gravity diversion from the Tampaon River, effected by a diversion dam on that stream to direct water into a feeder canal ending at a pumping plant. The pumping plant would have two sets of pumps discharging into two small regulating reservoirs located at different elevations. The lower reservoir would feed the main canal serving lands adjacent to the Tampaon River, while the higher one would feed the main canal serving lands north towards Las Animas. One relift pump would be re- quired to pump water from the north main canal into a lateral serving a higher area. 11. Diversion Dam San Jose del Limon. This diversion dam would be of a type used very successfully in Mexico and would consist essentially of an 65 m long overflow section constructed of compacted earth material protected by a heavy grouted rock fill. The upstream face would have a slope of about 3.33 to 1 up to the top of a concrete wall forming the crest of the dam. Down- stream of the wall, there would be a vertical drop of 1 m to a long apron laid on a 9:1 slope back to stream bed. Concrete sills would be constructed at about 9 m intervals to control erosion in the apron. At the left of the dam, a sluiceway controlled by radial gates would be constructed to pass sediments downstream to the Tampaon River and avoid, as much as possible, diverting them into the feeder canal. The gate structure for the intake into the feeder canal would be located on the left abutment and the intake to the canal would be from the sluiceway structure. 12. Diversion Canal. This canal would be 4.43 km long and have a designed capacity of 60 m3/sec without sediment or 50 m3/sec with approximately 0.5 m of sediment deposited in the bottom of the canal. The canal would start in a fairly deep cut of about 14 m, gradually reducing to about 8 m where it crosses the Laguna San Jose del Limon, then increasing again to about 23 m at the pumping plant. Berms would be constructed on the slopes in the deep cuts to insure stability of the cut banks. 13. Pumping Plant. The main pumping plant would be constructed at the end of the feeder canal and would house the two sets of pumps feeding the regulating reservoirs. The exact number and characteristics of the pumps would be determined in the final design, but estimates are based on use of pump units with a hydraulic capacity of 6 m3/sec each. Seven pumps, plus one standby pump, would serve the nigher reservoir and would be equipped with 3,500 hp electric motors. The other two units, equipped with 2,200 hp electric motors, would serve the lower reservoir. Electric power would be brought to the plant by a new line from an existing high tension line about 15 km north of the pumping plant. The Commission of Electricity and SRI would share the cost of constructing the line and installing the substation equipment. ANNEX 5 Page 4 14. Discharge Canals. Steel pipes would carry the pump discharge up to the elevation of the discharge canals to the high and low reservoir. These would be lined canals, having the following characteristics: Low Canal High Canal Length 800 m 170 m 33 Capacity 12 m /sec 42 m 3/sec 15. Regulating Reservoirs. The lower reservoir would be formed by a dike 710 m long and approximately 16 m high above foundation, containing 260,000 113 of fill. The total capacity of the reservoir would be 2.0 Mm3, of which 1.85 Mm3 would be usable. The elevation of the normal water surface is about 25 m above sea level, giving a static pump lift of about 18 m from the water surface in the feeder canal. The upper reservoir would be formed by two dikes having a total length of 1650 m, with a maximum neight above foundation of 18.5 m. The total capacity would be 6.5 Mm3, of which 5.5 Mm3 would be usable. The elevation of the normal water surface would be 37.5 m above sea level, giving a static pump lift of about 30.5 m from the water surface in the feeder canal. 16. Vain Canals. The main canal serving the area along the Tampaon River would receive its water from the lower regulating reservoir and have a length of 83 km. The main canal serving the northern portion of the area would derive its water from the upper regulating reservoir and would have a total length of 99 km. At station km 40,000 of this canal there would be a pumping plant containing three units of 6.0 I3/sec capacity each, with a dynamic head of 28.0 m to serve the 60 km long main canal, Rebombeo Chapaco. All the main canals would be concrete lined unless later investigations showed that lining could be eliminated in certain reaches. 17. IrriQation and Drainage System. The main canals would supply water to the secondary and tertiary irrigation canals, which would then distribute it to approximately 60-ha blocks where turnouts and measuring devices would be installed. The estimates assume a wholly concrete-lined system, but further investigation may prove this to be unnecessary. The total length of the distribution canals would approximate 625 km. About 950 km of drains would be constructed to remove excess surface water. These would vary from 1.5 to 4.5 i in depth and would serve to return drain water to the rivers or natural water courses leading to the rivers. 18. Roads and Complementary Works. Roads for operation and maintenance purposes and for farmer use would be constructed along all of the larger canals and drains. This network would be supplemented by connecting roads to give a complete road network, all of which would be paved or surfaced to provide dependable all-weather use. Altogether there would be about 980 km of internal roads in the Pujal Coy area. Seventeen houses for ditchriders and three for the pumping plant personnel would be constructed and about 170 km of telephone system would be installed. Operating headquarters would be located at Ebano. ANNEX 5 Page 5 19. Land Preparation. The total area to be cleared is about 28,250 ha, of which 2,900 ha is medium, 11,800 na light, and the balance merely in bush. All 72,000 ha of the area would be leveled. About 23,800 ha would require smoothing only, about 24,400 ha light leveling, and 23,800 considerable earth movement. Chic ayan 20. The basic water supply for Chicayan would be the flows of the Chicayan River, as regulated by Paso de Piedras dam and reservoir. Main canals would head at each end of the dam to irrigate the lands on both sides of the Chicayan River below the dam. 21. Paso de Piedras Dam and Reservoir. Only preliminary designs have been prepared and final designs could change details of the structure from those described. The dam would be 2.076 km long and have a maximum height above the present stream bed of 25 m. However, there will be considerable excavation for foundation of the dam and the maximum height above foundation may be of the order of 31 m. The preliminary design calls for the dam to be constructed primarily of readily available impermeable material, with a filter near the center of the dam. The filter would outlet near the downstream toe. Upstream and downstream slopes would be protected with riprap. About 1.8 In3 of fill material would be required. The spillway would be located in the dam at a point where the fill is very shallow and where the spillway structure could be founded on the original ground. Present plans call for a concrete ogee crest with ten 8 m by 8' m radial gates to control discharges. The ogee crest would lead to a stilling pool from which flows would return to the Chicayan River channel. The spillway capacity would ue about 3,000 m3/sec, which, with use of the flood control space, would accomodate the maximum probable flood estimated to have a peak of 5,000 m3/sec. The two irrigation outlets would be located in natural ground near each end of the dam and would consist of an upstream gate structure with an emergency and service gate and a concrete pipe through the dam. The concrete pipe would be cast in place in a deep cut, and then the dam would be completed as a fill over the pipe. Dry season flows of the Chicayan River are very small and the schedule would call for construction during a two-year period. Preparatory work would be done in one dry season, with the main fill placed during the second season, thus avoiding any expensive means of handling floods during construction. The reservoir would inundate about 9,000 ha and have a total capacity of 570 m3 made up as follows: Dead storage and sediment 120 im 3 Irrigation 340 Mm3 Flood Control 110 Mm3 Total 570Tm 3 ANNEX 5 Page 6 22. There are 160 families living in the reservoir area on 154 o)rivately owned blocks. Ao ejidatarios are involved. So far, 30 owners nave registered their ownership. Two have decided to take payment in cash and 28 have elected to receive payment in irrigated land on the project. It is not known now, what the others will do. 23. Access Road and Construction Camp. The dam site can be reached only by jeepable roads in the dry season. SRH, however, has started con- struction of a 25 km all-weather road running from the Tempoal-Tampico road to the site, and it will be the main connection between the project area and the Aexican highway network serving the balance of the country. To provide facilities for construction of the dam and to later serve as operating head- quarters for the area, a permanent camp is being constructed nearby. Both the access road and camp are being built under contracts negotiated by SRH with local contractors. 24. Irrigation and Drainage System. The main canal serving the right bank would have an initial capacity of 9 m3/sec, a length of 52 km, and serve 8,057 ha. The left bank main canal would have an initial capacity of 10 m3/sec, a length of 50 km, and serve 8,943 ha. The irrigation distribution system would consist of secondary and tertiary laterals, totaling about 148 km in length. Turnouts and measuring devices would serve about 60-ha units eaca. Present plans call for the entire system to be lined with concrete but further study may indicate that some or all of the lining can be eliminated. Drainage of the area is relatively good, but the project would improve the natural water courses and supplement them with constructed drains to remove excess surface water. The total length of drains would be about 127 km and they would vary in depth from 1.5 m to 2.5 m. 25. Roads and Complementary Works. About 261 km of roads would be constructed along irrigation and drainage canals to serve operation and maintenance purposes and for farmer use, and 12 km connecting roads would be built to complete a logical network. Seven houses for ditchriders would be constructed, 65 km of telephone system would be installed, and sub-district offices would be built within the irrigated area at locations some distance from the aeadquarters at the dam site. 26. Land Preparation. Clearing would be required on 7,250 ha, 5,440 of which has medium cover and the balance just bush. All lands would be smoothed dnd leveled. About 8,5U0 ha would require light leveling, 5,100 ha medium, and 3,400 ha rather extensive work. ANNEX 6 MEXICO PANUCO FIRST-STAGE PROJECT Construction Schedule June Calendar Year 1973 1974 1975 1976 1977 1978 1979 1980 Las Animas Access Road Construction Camp Diversion Dam Feeder Canal Las Animas Reservoir ========== Main Canals Irrigation System-================================= Drainage System ========== ========= Roads Ditchrider Houses == Telephone System District Offices == Land learing and Leveling-========================= == Equipment ======= ==== == = Rights of Way PLAYEPA (Extension) === Pujal 'joy Diversion Dam Feeder 3anal Puiping Plants Regul.ating Reservoirs Main Canals ==== irrigation System ==== = Drainage System ==== = = = = == = == = = Rcads Offices Ditchrider Houses -=--= Telenhone System == Land Itearing an" Leveling Equipment-================================ = Rights of Way PLAMEPA (Extension) hic ayan Paso de Piedra Dam-========================= Main Canals-=-======================= Irrigation System Drainage System Road System =========== Ditch-ider Houses District Offices Telephone System Land Clearing and Leveling Access Road Construction Gamp= tquipment === Rights of Way === = PLAMEPA (Extension)-==================================================-================ February 4, 1974  ANNEX 7 Page 1 MEXICO PANUCO FIRST - STAGE PROJECT Water Availability, Requirements, Utilization, and Quality Las Animas 1. Water Availability. The basic water supply for Las Animas would be from the uncontrolled flows of the Guayalejo River. Available water would be diverted into a feeder canal leading to the Las Animas reservoir where it would be regulated to supply the canal systems. 2. Records of flows of the Guayalejo River are available at the Majiscatzin gage, about 5 km below the diversion site, from 1954 to the present. The flow at the gage has averaged about 2,300 Mm3 annually. All this water cannot be diverted as about 5 m3/sec is required for downstream uses primarily in the Tampico area and diversions are limited by the feeder canal capacity. Studies were made of divertable water with various canal capacities ranging from 50 to 150 m3/sec, and 100 m3/sec was chosen. Amounts divertable with that canal capacity vary from a low of 788 Mm3 in 1962 to about 1,600 Mm3 in 1972. 3. Water Requirements. These were computed by the modified Blaney- Criddle method, using factors found locally applicable. The net annual irriga- tion depth required is 0.71 m. Using 75% as conveyance efficiency and 70% farm irrigation efficiency, overall efficiency is about 50% of water diverted. Thus, the gross requirement is 1.37 m or 13,700 m3/ha. For the total area of 48,000 ha, water requirements are then 660 Mm3 per year. 4. Water Utilization. Studies were made of the operation of Las Animas Reservoir for the period August 1954 through 1972, using the water divertable fron the Guayalajo River by a 100 m3/sec feeder canal as the supply and con- sidering the evaporation losses of the reservoir and the irrigation requirements as demands. The useable capacity of the reservoir was taken as 538 :rm3, considering 62 .bm3 of the total 600 Mm3 capacity as being for dead storage and sedimant accumulation, In only one of the years of study was the supply inadequate to meet the full irrigation requirements and the deficit would have amounted to about 100 1m3, or 18% of that year's requirements. This shortage is considered tolerable and the water supply adequate. Quality. Tests of the Guayalejo water shows that it has a total salt content varying between 700 and 820 ppm, with SAR about 0.8. This would class it as medium salinity water with low sodium hazard and make it suitable for irrigation use. ANNEX 7 Page 2 Pujal Coy 6. Water Availablility. Pujal Coy depends on pumping the unregulated flows of the Tampaon River. There is no stream gauging station at the diver- sion site. Flows available for diversion have been estimated from flows re- corded at stations on two tributaries upstream, at Ballesimi and at Pujal. Approximately 70% of the flows at the diversion site originate in the Tampaon River, measured at the Pujal station and the balance from the Coy River, meas- ured at Ballesimi. Average flows passing the diversion point are about 5,200 Ah3 annually. 7. Water Requirements. Since there is no storage available, the water supply adequacy must be judged by the flows available in periods of low flow. The cropping pattern chosen for the area takes into account that the lowest flows occur in April-May, at the end of the dry season, and planting times have been adjusted so that the peak water use period does not fall in these months. The net irrigation requirement, determined by the modified Blaney Criddle method, using temperature and precipitation records at Panuco and Pujal, is about 0.72 m net and 1.38 m gross, or 13,800 m3/ha. The gross re- quirement assumes 75% conveyance efficiency and 70% for farm efficiency. The total requirement for the 72,000 ha is about 990 am3. 8. Utilization. The adequacy of the water supply to meet irrigation requirements has been judged by comparing flows available by 10-day periods to meet the concurrent irrigation requirement. During the study period extend- ing for 19 years from 1954 through 1972, only 36 of the 684 periods analyzed showed some deficiency, but none of these deficiencies exceeded 10% of the requirements for the month, or 1% of the annual. Thus, it is concluded that the water supply is adequate to meet project requirements. 9. Quality. Analysis of water at the diversion site shows total salt content varying from 600 to 1,200 ppm and SAR from 0.8 to 2.9. It is thus concluded that the water lias a medium salinity but low sodium hazard and is quite suitable for irrigation use. Chicayan 10. Water Availability. Chicayan would obtain its water supply from tne Chicayan River as regulated by a storage reservoir to be constructed at tie Paso de Piedras site. A guaging station was established upstream of the ,am site and started operation on July 5, 1969, so that the direct record of flows available for use is very short. An estimate of flows at the dam site [or tno period 1944 to 1969 was made by establishing a relationship 'Otweon flows at the dam site to flows recorded at a station on an adjacent stream with a longer period of record, and to rainfall. The rainfall and adjacent stream records were then used as the basis for estimating the flows at tie dam site. These studies indicate an average annual flow at tne dam site of 278 Mm3, a iinimum of 78 jm3, and a maximum of 700 Mm3. ANNEX 7 Page 3 11. Water Requirements. The water requirements were estimated using the Blaney-Criddle method, with temperature and precipitation data from sta- tions at Panuco and Chicayan. The net irrigation requirement was estimated at 0.74 m. The conveyance efficiency was taken as 85% (appropriate for lined canals and the short distances involved) and farm irrigation efficiency as 70% to give an overall efficiency of 60% and a gross water requirement of 1.23 m, or 12,300 m3 per ha. For the 17,000-ha area, the annual water requirements are then 210 :jm3 per year. 12. Water Utilization. The total capacity of the Paso de Piedras reser- voir would be 570 Hm3. To provide head to operate the irrigation canals and space for sediment, 110 Mm of the capacity would be dead storage, leaving 450 M4m3 us useable. Studies of flood hazards at the reservoir and the incidence of hurricanes in the area further indicate that the total water in storage should not exceed 460 Am3 from June through September and 525 Mm3 in October. The balance of the year. the full capacity of 570 Mm3 could be used, as the flood hazard would be minimal. A study was made of the operation of the reservoir and its ability to meet the irrigation requirements with the above limitations on usable storage space. For the 28-year period studied (1944 through 1971), there were three consecutive years when the full irrigation requirement could not be met. The annual shortages expressed as a percentage of the total annual requirement were 40%, 15%, and 10%. In each case, the shortage would occur in the last part of the dry period prior to the usual onset of the rains in June. These relatively few shortages are considered acceptable and it is concluded that the water supply is adequate. 13. Quality. Total dissolved salts range from 300 to 400 ppm on Chicayan River water and the SAR averages about 1.3. This classes it as a slightly saline water with low sodium hazard and suitable for irrigation.  Annex 8 Page 1 MEXICO PANUCO FIRST STAGE PROJECT Cost Estimates Las Animas --Mex. $ Millions---- US $ Millions -- Fof-eign Local Foreign Total Local Foreign Total Exchange Civil Works Under ICB Diversion Dam 15.20 8.18 23.38 1.22 0.65 1.87 35 Feeder Canal 28.20 18.80 47.00 2.26 1.50 3.76 40 Storage Dam ana Reservoir 112.42 74.94 187.36 8.99 6.00 14.99 4O Main Canals 104.27 69.51 173.78 8.34 5.56 13.90 40 Irrigation Distribution System 40.43 26.95 67.38 3.23 2.16 5.39 40 Drainage System 23.13 12.46 35.59 1.85 1.00 2.85 35 Roads 19.70 13.14 32.84 1.58 1.05 2.63 4O Ditchrider Houses, 0.50 0.50 0.04 - 0.04/ 0 Telephone System 1.83 - 1.83 0.15 0.15 0 District Offices 1.50 - 1.50 0.12 0.12 0 Subtotal 3777 2 3=9 57T.V 77 75*7 -37 Civil Works Under Local Bids Land Clearing 16.o4 10.68 26.72 1.28 0.85 2.13 40 Land Leveling 39.65 13.22 52.87 3.17 1.06 4.23 25 Subtotal 5.69 23.0 7-37 .f 9-1 3 T Civil Works Under Negotiated Contracts Access Road to Reservoir 5.34 5.34 o-43 0.43 0 Construction Camp 5.00 5.00 0.40 0.40, 0 Subtotal f 631 37 -0 r3 Total Civil Works 413.21 247.88 661.09 33.06 19.83 52.89 37 Equipment and Materials Materials and. Equipment Furnished by SRH 29.67 - 29.67 2.37 - 2.37 0 Operation and Maintenance Equipment 8.94 - 8.94 0.72 - 0.72 0 Equipment Purchased by SRE under ICB 0.14 2.73 2.87 0.01 0.22 0.23 95 Subtotal 2 Engineering and Adtinistration 68.18 68.18 5.45 - 5.45 C Rights of Way 17.56 1756 1.40 - 1.40 0 Contingencies Yhysiosl,1C% 0n Civil Works and EquiLpment 45.19 25.07 70.26 3.62 2.00 5.62 36 Prices, 10% on Civil Works and Equipment 45.19 25.07 70.26 3.62 2.00 5.62 36 Subtotal 79 T 170.32 -2 0 11.214 36 Project Total Exclusive of PLAMEPA 628.08 300.75 928.83 50.25 21405 71430 32 PLAMEPA 17.00 - 17.00 1.36 - 1.36 0 Project Total with PLAMEPA 645.08 30075 945.83 51.61 2405 75.66 32 August 17, 1973 Annex B Page 2 MEXICO PANUCO FIRST STAGE PROJECT Cost Estimates Pujal Coy --- Mex. $ Millions --- --- us $ Millions --- Foreign Local Foreign Total Local Foreign Total Exchange Civil Works Under ICB Diversion Dam 3.30 2.38 5.68 0.26 0.19 o.45 h2 Feeder Canal 8.36 5.58 13.94 0.67 0.45 1.12 [0 Pumping Plant No. 1 15.24 6.53 21.77 1.22 0.52 1.74 30 Pumping Plant No. 2A 6.80 2.92 9.72 0.54 0.23 0.77 30 Discharge Canals 0.30 0.20 0.50 0.02 0.02 0.04 40 Regulating Reservoirs 13.73 9.16 22.89 1.10 0.73 1.83 40 Main Canals 168.86 112.57 281.43 13.51 9.00 22.51 40 Irrigation istribution System 99.30 63.53 158.83 7.62 5.08 12.70 40 Drainage 3ysTems 45.91 24.72 70.63 3.67 1.98 5.65 35 Roads 19.60 13.06 32.66 1.57 1.04 2.61 40 Offices 1.50 0 1.50 0.12 - 0.12 0 Ditchrider Houses 1.20 0 1.20 0.10 - 0.10 / 0 Telephone Systm 1.70 0 1.70 0.14 - 0.14 0 Subtotal 381730 240.65 622.45 30.54 19.24 49.76 39 Civil 'orks Under Local Bids Land aearing 24.19 13.03 37.22 1.91 1.04 2.98 35 Land Leveling 52.78 17.60 70.38 4.22 1.41 5.63 25 Subtotal 76.97 30.63 107.60 6.16 2.15 8.61 Total Civil Works 458.77 271.28 730.05 36.70 21.69 58.39 37 Equipment and Materials Constraction M2terials Furnished by SRH 62.90 - 62.90 5.03 - 5.03 0 Operation and Maintenance Equipment 16.49 - 16.49 1.32 - 1.32 0 Eauiprent Purchased by SRH under ICB - 67.60 67.60 - 5.40 9.40 100 Subtotal __16 9 921.7 Engineering and Administration 84.96 0 84.96 6.80 - 6.80 0 Rights of way 8.83 0 8.83 0.71 - 0.71 0 Gontingencies Physical, 10% Civil Works and Equipment 57.75 28.75 86.50 4.62 2.30 6.92 33 Prices,10% Civil Works and Equipment 57.75 28.75 86.50 4.62 2.30 6.92 33 Subtotal 1 173-00 7T-7k =0 1 33 Project Total Exclusive of PIAMIEPA 747. 9 3P 1111.83 5 116 31 PIMEPA 19.50 19.50 1.56 - 1.56 0 Project Total With PLAMEPA 766.95 396.38 1163.33 61.36 31.69 93.05 30 1/ Civil Works, Installation of Pumping Equipment and SRH share of power line January 17, 1974 Annex 8 Page 3 MEXICO PANUCO FIRST STAGE PROJECT Cost Estimate Chicayan --- Mex. $ Millions --- --- US $ Millions --- Foreign Local Foreign Total Local Foreign Total Exchange Civil Works Under ICB Paso de las Piedras Dam ................... 35.[5 23.64 59.09 2.84 1.89 4.73 40 Main Canals ............................... 53.33 35.55 86.88 4.27 2.84 7.11 [0 Irrigation Distribution System ........... 16.07 10.71 26.78 1.29 0.86 2.15 40 Drainage System .......................... 9.14 4.92 14.o6 0.73 0.39 1.12 35 Road System .............................. 2.33 1.56 3.89 0.19 0.12 0.31 40 Ditchrider Houses ....................... 0.29 - 0.29 0.02 - 0.02/ 0 District Offices ......................... 1.00 - 1.00 0.08 - 0.08 0 Telephone System ......................... 0.65 - 0.65 0.05 - 0.05 0 Subtotal 11. 26 19. 9 7 Civil Works Under Local Bids Land Clearing ............................ 10.66 5.74 16.40 0.85 o.46 1.31 35 Land Leveling .............. 10.83 4.64 15.47 0.87 0.37 1.24 30 Subtotal 214 10.37 31.87 7 22 Civil Works Under Negotiated Contracts Access Road to Dam ....................... 8.75 - 8.75 0.70 - 0.70 0 Construction Camp ........................ 5.00 - 5.00 0.40 - 0.40 0 Subtotal 13.75 1.10 - 1.10 Total Civil Works 153.50 86.76 240.26 12.29 6.93 19.22 36 Equipment and Materials Construction Materials Furnished by SRH 17.98 - 17.98 1.44 - 1.44 0 Operation and Maintenance Equipment ...... 3.63 - 3.63 0.29 - 0.29 0 Equipment Purchased by SRH under ICB .... 0.02 0.38 0.4O - 0.03 0.03 95 Subtotal 21.63 2 2.01 0*03 1-76 Engineering and Administration ................ 24.39 - 2k.39 1.95 - 1.95 0 Rights of Way ................................ 9.59 - 9.59 0.77 - 0.77 0 Contingencies Yhysical, 10% Civil Works and Equipment . 17.51 8.71 26.22 1-40 0.70 2.10 33 Prices,10%Civil Works and Equipment ...... 17.51 8.71 26.22 1*40 0.70 2.10 33 Subtotal 35*02 $2. 4 2.80 1T1*20 3 Project Total Exclusive of PLAMEPA ............2k.17 1-07 34b6 1 6 T790 30 PLAMEPA ....................................... 7.50 - 7.50 0.60 - 0.60 0 Project Total With PLAMEPA 251.63 104.56 356.19 20.1 8. 36 2850 29 August 17, 1973  ANNEX 9 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT Equipment and Materials General 1. SRHI traditionally purchases common building materials such as cement and reinforcing steel in bulk orders and furnishes them to the contractors for use on SRH work. Relatively small items such as structural steel shapes, culverts, and valves are included in the civil works contracts on a furnish and install basis. Large special equipment is purchased by SRH under separate bidding documents and furnished to the civil works contractor for installa- tion. Equipment and materials available in Mexico cannot be imported by SRH. In general, only large size or special equipment is not available and thus may be imported. Equipment and Materials for use in Project Furnished by SRH Under Local Bids 2. The following items would be purchased by SRH under local bidding procedures; and furnished to the contractor for installation in the project. These items are not included in Bank financing: Las Animas Pujal Coy Chicayan Total - ------------------Mex$ Millions------------- Cement 23.7 52.8 15.6 92.1 Reinforcing Steel 6.0 10.1 2.4 18.5 Pumps and Accessories 29.7 62.9 18.0 110.6 Operation and Maintenance Equipment 3. Certain equipment would be purchased to supplement that presently available to operate and maintain the project. Most of this equipment could be obtained in Mexico and would be purchased under local bidding procedures. It would be excluded from Bank financing. ANNEX 9 Page 2 Las Animas Pujal Coy Chicayan Total ------------------- Mex$ '000 -------------- Crawler Tractors 2.44 2.68 1.40 6.52 Drag Lines 4.18 0.88 5.06 Motor Graders 1.41 1.64 0.47 3.52 Vibrator Rollers 0.33 - 0.17 0.50 Small Tractor 0.58 - 0.58 1.16 Pickup with Equipment - 0.87 0.13 1.00 Compressor - 0.07 - 0.07 Welding Equipment - 0.15 - 0.15 Excavator - 6.54 - 6.54 Motor Scraper - 1.47 - 1.47 Tractor Scraper - 0.66 - 0.66 Agricultural Tractor - 0.22 - 0.22 Slopemower - 0.54 - 0.54 Miscellaneous - 1.65 - 1.65 8.94 16.49 3.63 29.06 Equipment Purchased by SRH Under International Bidding Procedure 4. The following equipment would be purchased by SRH for installation in the project. International bids would be sought and these items would be included in Bank financing: Las Animas Pulal Co Chicayan Total ------------------ Mex$ Million--------------- Gate Hoists 2.9 - 0.4 3.3 10 Electric Motors 2,500 hp - 10.0 - 10.0 2 Electric Motors 1,250 hp - 1.3 - 1.3 Butterfly and Check Valves - 3.6 - 3.6 3 Electric Motors of 2,600 hp, with Valves - 2.9 - 2.9 Pumps and Accessories - 38.8 - 38.8 1 Dredge - 11.0 - 11.0 2.9 67.6 0.4 70.9 MEXICO PANUCO FIRST STAGE PROJECT SumnarEXpenditure Schedule (US$ Millions) Calendar Year 1973 114. 12 2 11 1978 1979 1980 Total Civil Works Under ICB 6.99 42.61 41.17 18.66 1.62 - - - 111.05 Under Local Bids - 3.90 7.80 4.81 1.01 - - - 17.52 Inder tiated Contracts m . - - - 1.9O Total Civil Works 8.54 46.89 48.97 23.47 2.63 - - - 130.50 Equipment and Materials By SRH (not ICB) 0.70 2.97 3.80 1.36 - - - - 11.9h Operation and Maintenance - 0.45 1.14 0.74 - - - - 2.33 By SRH (ICB) - 1.53 1.83 2.32 - - - - 1.68 Engineering and Administration 1.70 4.40 4.40 3.50 0.20 - - - 14.20 Rights of Way 1.42 1.22 0.24 - - - - -2.8 Contingencies o.75 5.OO 11.90 11.19 044 - - - 29.28 Extension Services - - - 0.81 0.91 0.82 0.81 0.17 3.52 Project Total (without Interest) 13.11 62.L6 72.28 42.50 4.18 0.82 0.81 0.17 196.33 O ANNEX 10 Page 2 MEXICO PANUCO FIRST-STAGE PROJECT Expenditure Schedule-Las Animas Calendar Year 1973 1974 1975 1976 1977 19 1979 1980 Total Civil Works Under ICB-----------------------------M------------------- -------------- Diversion Dam 0.47 1.40 1.87 Feeder Canal 0.95 2.81 - 3.76 Storage Dam and Reservoir 0.90 10.00 4.09 - 14-99 Main Canals 0.68 4.40 6.55 2.27 --1.90 Irrigation System 0.34 2.00 1.80 1.25 - .3 Drainage System 0.34 1.60 0.80 0.11 2.85 Roads - 0.40 1.20 1.03 2.63 Ditchrider Houses - - 0.02 0.02 0.04 Telephone System - 0.10 0.05 0.15 District Offices - - 0.906 0.6 1 0.12 Subtotal 3.6 22.61 14.62 - - - 14.70 Civil Works Under Local Bids Land Clearing - 0.80 - - - - - 2.13 Lend Leveling - 0.80 2.50 0 - - - - 14.23 Subtotal - 1.30 3.70 1.36 - - - - 6.36 CvlWorks Under Negotiated Contracts Access Road to Reservoir 0.38 0.0 0 0 - - - - 0*43 Construction &u3 02 0 - - - 0.10 Subtotal 0.70 0.13 - - - - 0.83 Total Civil Works3.8 22.61 1.32 . - - - - 82.89 Equipment and Materials Furnished by SRH- (Not ICB) 0.20 1.20 0.90 0.17 -- -- 2.37 Operation and Mintenance - - 0.140 0.32 - - - - 0.72 Purchased by SHE (ICB) 0.23 - - - - - 0.23 Subtotal 0.20 1.33 1.30 0149 - - - - 3.32 EAgineering and Administration 0.90 1.0 1 - - - - - 0..5 Rights of Way 0.80 0.60 - - - - - - 1.40 ontingencies 0.78 2.00 8.00v- - - - 11.2)4 Extension Services - - - 0.22 - 0.36 -6 0.06 1.36 Proect Total 7.03 29.7 26.22 11.70 0.36 0.36 0.36 0.06 71.66 ,anuary 28, 1974 ANNEX 10 MEXICO Page 3 PANUCO FIRST STAGE PROJECT Expenditures Schedule-Pujal Coy Calendar Year 1973 1974 1975 1976 1977 1978 1979 1980 TotPl ---------------------- ------------US$ Milions --------------------------------- Civil Works Under I,B Diversion Dam 0.30 0.15 - - - - - - 0.15 Feeder Canal 0.77 0.35 - - - - .1.12 Pumping Plant No. 1 - 1.60 0.11 - - - - 1.74 Pumping Plant No. 2 - 0.20 0.57 - - - - - 0.77 Discharge Canals - 0.041 - - - - - 0.0l Regulating Reservoirs - 1.40 0.43 - - - - - 1,83 Main Canals 1.30 6.00 10.30 4.00 0.91 - - - 22.51 Irrigation System 0.50 2.50 '1.30 1.70 0.20 - - - 12.70 Drainage System 0.35 1.65 1.65 1.60 0.)40 - - - 5.65 Roads - 0.25 1.25 1.00 0.11 - - - 2.61 Offices 0.09 0.03 - - - - - - 0.12 Ditchrider Houses - 0.01 0.07 0.02 - - - - 0.10 / Telephone System - 0.03 0.07 0.04 - - - - 0.14 Subtotal 3.31 14.21 19.28 11.36 1.62 - - - 49.78 Civil Works Under Local Bids Land Clearing - 0.60 1.00 1.00 0.38 - - - 2.98 Land Leveling - 1.00 2.00 2.00 0.63 - - - 5.63 Subtotal - 1.60 3.00 3.00 1.01 - - - 8.61 Total Civil Works 3.31 7 2. - - - Equipment and Materials Construction Materials (not ICB) 0.46 1.22 2.20 1.114 - - - - 8.13 Operation and Maintenance Equipment - 0.30 0.60 0.42 - - - - 1.32 Equipment (ICB) - 1.30 1.80 2.32 - - - - 1.12 Subtotal 0.136 2.82 4.60 2.99 - - - - 10,87 Engineering and Administration 0.60 2.00 2.00 2.00 0.20 - - - 6.80 Rights of Way 0.22 0.25 0.24 - - - - - 0.71 Contingencies - 2.00 140 7.00 0.44 - - - 1.811 Extension Services - - - 0.10 0.36 0.36 0.5 0.09 1.56 Projnct Total 4.59 22.88 33.52 26.75 3.63 0.36 0.35 0.09 92.17 January 26, 1974 ANNEX 10 Page 4 MEXICO PANUCO FIRST STAGE PROJECT Expenditure Schedule - Chicayan 1973 1974 1975 1976 1977 1978 1979 1970 Total Civil Works Under ICB ---------------------------------US Mi ions- --------------------------------- Paso de las Piedres Dam - 2.00 2.50 0.23 - - - - 4.73 Madn Canals - 2.50 3.00 1.61 - - - - 7.11 Irrigation System - 0.50 1.10 0.55 - - - - 2.15 Drainage System - 0.60 0.40 0.12 - - - - 1.12 Road System - 0.1C 0.21 - - - - - 0.31 Ditchrider Houses - 0.01 0.01 - - - - - 0.02 District Offices - 0.06 0.02 - - - - - 0.08 Telephone System - 0.02 0.03 - - - - - 0.05 Subtotal - 7 7.27 - - - - 1"7 Civil Works Under Local Bids Land Clearing - 0.50 0.60 0.21 - - - - 1.31 Land Leveling - 0.50 0.50 0.24 - - - _ 1.24 Subtotal - T-.00 TI T 07 - - - - Civil Works Under Negotiated Contracts Access Road to Dan 0.65 0.05 - - - - - - 0.70 Construction Camp 0.20 0.20 - - - - - - 0-1 Subtotal - - - - - 1.10 Total Civil Works ...- - - - 19.22 Equipment and Materials Furnished by SRH (Not ICB) C.04 0.65 0.70 0.05 - - - - 1.44 Operation and Mointenance - 0.15 0.1-4 - - 0.29 Purchased by S2H (ICB) - - 0.03 - - - - - 0.03 Subtotal 0 -014 -07-0 0-6 -07 - .7 Engineering and Administration 0.20 0.80 0.80 0.15 - - - - 1.95 Rights of Way C.40 0.37 - - - - - 0 0.77 Contingencies - 1.00 2.50 0.70 - - - - 4.20 Extension Services - - - 0.19 0.19 0.10 0.10 0.02 0.60 PROJET TOTAL 1.49 10.01 12.)t 4.05 0.19 0.10 0.10 0.02 28.50 January 28, 1974 ANNEX 11 MEXICO PANUCO FIRST STAGE PROJECT Schedule of Yisbursements Cumulative Disbursement at end of Semester Fiscal Year and Semester US$ Million 1974 June 30, 1974 3.0 1975 December 31, 1974 12.0 June 30, 1975 24.0 1976 December 31, 1975 36.0 June 30, 1976 49.0 1977 December 31, 1976 56.0 June 30, 1977 64.o 1978 December 31, 1977 68.0 June 30, 1978 73.0 1979 December 31, 1978 76.0 June 30, 1979 76.4 1980 December 31, 1979 76.6 June 30, 1980 76.8 1981 Decemnber 31, 1980 77.0 February .4, 1574~ ANNEX 12 MEXICO PANUCO FIRST-STAGE PROJECTS Advance Contracting 1. The Mexican Government has recognized the urgency of construction of the Panuco First-Stage Project and has initiated construction of some features on all three areas of the project. Some works such as access roads to dam sites and construction camps are being accomplished by contracts nego- tiated with individual contractors using standard unit prices established for the particular items of work for the geographical location involved. For example, the Mexican Department of Highways furnished the unit prices used in the negotiations for access roads. The work let under negotiated contracts is excluded from financing under the project. 2. Construction work on certain other features has been initiated under international competitive bidding procedures. The procedures followed for seeking international bids have been the same as used on the four previous Bank irrigation loans to Mexico. Bidding documents have been submitted to the Bank for comment. Recommendation for award of contracts and copies of contracts as awarded have been furnished to the Bank. 3. Table 1 shows the status of contracts let under international bid- ding procedures as of September 1, 1973. The anticipated contractor earnings as of January 1, 1974 are shown as reflecting a possible date of loan signing and also as a measure of the portion of the Bank loan which would be eligible for disbursement if the Bank agrees to finance work let prior to loan signing. MEXICO PANUCO FIRST-STAGE PROJECT Contracts Let Under International Bidding Procedures in 1973 Iate Contract Value of Probable Contract No. Work Item Bids Opened Date Contractor Contract, Earnings 1973 1973 MEX$ To Million Jan 1974 * Contracts Let Under ICE Las Animas Unit G1C-73-5 Feeder Canal-Diversion Dam to Las Animas Reservoir February 20 March 13 Mexico, Compania Constructora, S.A. 32.293 11.0 nCC-73-6 Diversion Dam across Cuayalejo River April 10 April 30 Bufete Industrial Construcciones .A,.deC.V. 31.129 9.0 GIC-73-21 Right Bank Main Canal Km 0+000 to Km 30+100 July 24 August 7 Ingenieros Y Arquitectos S.A. GIC-73-43 Storage Dam Las Animas July 30 August31 Construcciones Integrales, S.A. GlC-73-56 Zone Irrigation Right Bank, 5,000 ha September 11 September 25 Constructora Regional del Bravo, S.A. 26.432 4.0 GIC-73-57 Zone Irrigation Right Bank, 12,000 ha September 11 1/ Ingenierios y Arquitectos, S.A. 70.705 10.0 Main Canal Left Bank Km 0+000 to Km 22 and 6,000 ha 1/ of Irrigation 1/ 1/ 1/ 1/ 4.0 Subtotal 47.0 Pujal Coy Unit GIC-73-17 Diversion Dam San Jose del Limon ind Feeder Canal to ?mping Plant March 20 1/ Constructora Regional del Bravo, S.A. 30.C24 12.0 GIC-73-23 Main Canal Barrote Km 0+000 to Km 31+130 July 30 August 14 Caminos and Vias, S.A. 21.064 6.5 GIC-73-36 First Zone Irrigation 4200 ha June 19 July 4 Constructora Regional del Bravo, S.A. 13.577 6.5 GIC-73-48 Main Canal Ebano October 30 1/ 1/ 1/ 4.5 Dikes E and F (Regulating Reservoirs) - - 4.1 Subtotal 33.6 Chicayan Unit None 0 Total 80.6 Equiv. US$Million 6.4 1/ Data not yet available  ANNEX 13 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT Operation and Maintenance General 1. The only irrigation presently practiced on the project areas is done privately by pumping directly from the streams, but records are not available of costs incurred. Operation and Maintenance Costs 2. Long experience in operating irrigation projects in Mexico has led SRH to relate general operating and maintenanc costs to the amount of water delivered. A unit cost of Mex$ 25 per 1,000 m has been adopted as average for a fully developed project involving storage dams and typical irrigation facilities. Any special costs such as th9se to cover pumping, as on Pujal Coy, is additional. Makeup of the 1,000m estimated cost is: Amount Function Percent Mex$ Operation 25 6.25 Engineering for Irrigation and Drainage 10 2.50 Maintenance 40 10.00 Administration 15 3.75 Other Costs 10 2.50 100 25.00 3. Pujal Coy is the only area for which water would have to be pumped. SRH and the Electricity Commission would share the costs of building a trans- mission line to bring electric power to the plants. The rate for power at the plants is taken as Mex$ 0.12 per kwhr. The costs of pumping are then estimated as follows: Mex$ Million Electric Energy 138 106 kwhr 16.359 Lubricants .464 Maintenance 1.560 Labor .458 Total 18.841 ANNEX 13 Page 2 4. The annual operation and maintenance costs for each area are then: Las Animas Pujal Coy Chicayan Total Water Diverted, Mm3 610 739 211 1,560 O&M, Mex$ Millions 15.25 18.47 5.28 39.00 Pumping Costs 18.84 - 18.84 Total, Mex$ Millions 15.25 37.31 5.28 57.84 US$ Millions 1.22 2.98 0.42 4.62 Project Area '000's ha 48 72 17 137 Mex$ per ha 318 518 311 Ave. 422 US$ per ha 25.44 41.44 24.88 Ave. 33.76 Organization 5. The typical organization pattern for operation and maintenance would call for one District Chief in each of the three areas to direct all such activities. The district would be divided into four or five units, each headed by a chief. The units would again be divided into four zones with a supervisor. The zones, in turn would be divided into about four sections, with a canalero (ditchrider) who would physically operate the turnouts in his section to deliver water to the individual users. Staff would have to be re- cruited and trained for these positions but many candidates would be available. ANNEX 14 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT Agricultural Services 1. Mexican agricultural services providing education, training, re- search, extension and credit are reputed to be among the best in Latin America. They have had an important bearing on Mexico's relatively rapid agricultural development. They are, however, still insufficient to cope with the growing needs of the country, but offer a sound basis for expansion. Education: Professional Level 2. At the university level, agricultural education has grown steadily for more than a century and Mexico now has 15 undergraduate schools. Five of the major schools show a combined enrollment of about 6,600 students, of whom about 1,150 will graduate this year (Ingeniero Agronomo degree). It is estimated that Mexico has about 9,000 agriculture graduates (Ingenieros Agronomos) now practicing their profession. 3. Three of the major agricultural schools have postgraduate courses. The National School of Agriculture, Chapingo near Mexico City, is part of the Ministry of Agriculture (SAG) and functions as a regional center for agricultural education, research and extension. It is supported by the Rockefeller and Ford Foundations, IDB, USAID, FAO/UNDP and Government. Chapingo is the biggest and oldest postgraduate school and has nine depart- ments offering Masters and two offering Doctors degrees. The Graduate School has 230 students and, to date, 207 Masters degrees have been granted. 4. Mexico also has nine veterinary schools, with a total enrollment of about 4,200 undergraduate students, about 700 of whom graduate this year. The Mexican National University is the only one having postgraduate courses in Veterinary Medicine. There are about 3,000 veterinarians now practicing their profession, the majority of whom work in clinics and animal disease fields. Only a relatively small number are directly engaged in animal production. Education: Sub-Professional Level 5. Currently seven technical agricultural and livestock schools financed jointly by SAG and State Governments have a student population of about 2,400 and a yearly output of about 700 sub-professionals. The role of the sub-professionals as technical assistants to enlarge the effectiveness of .the professionals is being expanded, mainly by the Secretary of Hydraulic Resources (SRH), Fondo de Garantia para la Agricultura, Ganaderia and Avicultura (FONDO), the Banco Nacional Agropecuario System (BANAGRO) and other official and private banks. ANNEX 14 Page 2 6. About 159 secondary schools offer three-year courses in farming, animal husbandry, farm machinery and elements of rural management. Training 7. The National School of Agriculture, Chapingo also has continuing special agricultural training courses. One special course of six-month duration is for technicians of the on-going Plan De 'Mejoramiento Parcelario - PLAMEPA - of SRH. Another special training course is for technicians from the FONDO and public and private institutions associated with the Credit Program of FONDO. FONDO has established an office at Chapingo to coordinate activities of the various institutions engaged in agricultural and livestock activities and to promote application of research findings at farm level. Research 8. Agricultural research is based on two main institutions: Instituto Nacional de Investigaciones Agricolas - INIA, and Instituto Nacional de Investigaciones Pecuarias - INIP. Administratively both belong to SAG - INIA to the Under Secretary for Agriculture and INIP to the Under Secretary for Livestock. However, there is little coordination between them. Govern- ment and the Rockefeller Foundation have given significant support to agri- culture research, especially since 1943. Under this support, some of the high yielding varieties of wheat and corn have been developed and produced in Mexico and are being exported to other countries as a part of the so- called "Green Revolution." 9. Other types of research are carried out by specialized institutions such as the Mexican Institute of Technological Research of Monterrey, which devotes particular attention to agro-industries; the Institute for Improve- ment of Sugar Production; the National Forestry Service; SRH on hydrologic research; the Mexican Coffee Institute; the Center for Agrarian Research; the Universities, mostly in connection with graduate studies; and the Latin American Association for Animal Production with headquarters in Mexico. Extension 10. Agricultural extension services to meet the needs of about three million Mexican farmers are provided by: - Government through SAG, SRH, and State Governments; - Banking institutions; and - Private organizations. 11. The Federal Service, the biggest of all, has some 1,900 officers, 80% of whom are graduates in either agriculture or veterinary science. The remaining 20% are sub-professionals. Taking into account this number of extension officers and the total number of farmers, a ratio of approximately ANNEX 14 Page 3 one officer to 1,600 farmers is obtained, which is inadequate to meet far- mers' needs by any standard. Government is in the process of correcting this numeric deficiency and is also engaged in providing better facilities and incentives to their Federal and State Services. Both SAG and SRH concentrate in the irrigation areas while the rainfed cropping and ranching areas are relatively neglected. Plan de Mejoramiento Parcelario (PLAMEPA) 12. SRH has long had a section concerned with irrigation and drainage problems in its usual irrigation district organization. These sections have been concerned with improving irrigation practices and making more efficient use of irrigation water in SRH districts. Over the years, this program evolved into PLAMEPA, which now works with individual farmers (private as well as colonos), ejidos, or ejidatarios to improve use of irrigation water. While irrigation practices are given emphasis in the program, a full line of extension services, including choice of seed variety, cultivation prac- tices, and use of fertilizer and pesticides, is also provided. The project would include an intensive four-year PLAMEPA effort as a development cost. A program would be continued at a.reduced rate after completion of the ini- tial phase and be an annual cost to be borne by the Government. The timing of the intensive program would be from 1974 to approximately 1978. This would insure that all newly settled ejidatarios are given PLAMEPA assistance. The proposed investment schedule is presented in Table 1 and would result in a ratio of about one PLAMEPA employee to each 80 farmers. Credit 13. Agricultural credit to meet the needs of a complex farming com- munity composed of about three million farmers and producers in Mexico is provided by the official banks and private credit institutions. 14. Official banks are those organized or created by Government. To serve the agricultural sector, Mexico has three official banks: Banco Nacional de Credito Ejidal S.A. de C.V. (BANEJIDAL), which lends only to ejidatarios; - Banco Nacional de Credito Agricola (BANAGRICOLA) which concentrates on lending to smallholders and colonistas (colonos); and - Banco Nacional Agropecuario (BANAGRO), which lends to any technically assisted type of farmer. In addition, the FONDO de Garantia y Fomento para la Agricultura, Ganaderia y Avicultura (FONDO) was established in 1955 as a trust fund in the Central Bank of Mexico (BANXICO), to carry out a program which provides financial ANNEX 14 Page 4 support and agricultural technical services to official and private banks active in agriculture. Financial support to the banking system is provided through a rediscounting mechanism. 1/ 15. Private credit institutions dealing with agricultural credit are commercial banks and "Financieras." These have technical departments staffed by loan officers who normally coordinate with FONDO technicians in matters related to preparation and appraisal of farm development plans. Government has announced its intention to guarantee at least 60% of the amount of long term loans made by private financial institutions to ejedatarios and small farmers. 1/ More complete and extensive information concerning the credit system is given in the Appraisal Report of the Fourth Livestock and Agricultural Development Project 133a ME dated May 25, 1973. M'EXICO PANUCO FIRST STAGE PROJECT AGRICULTURAL EXTENSTON SERVICES Investment Schedule --------------- Las Animas------------------------------Pujal Coy---------------------------Chicayan------------ ------- Panuco Year Year Year Year Vear Year Yart Year Y Y Grand I 2 3 4 Total 1 2 3 4 Total 1 2 3 4 Total Total ACTIVITIES ------------------------------------------ ex$'000---------------------------------------------------------- Topographic surveying 600 840 - - 1,440 300 600 900 360 2,160 240 273 - - 513 4,113 Preparation of farm plans 650 650 650 650 2,600 700 700 700 700 2,800 320 320 320 320 1,280 6,680 Snil and drainage studies 380 380 380 380 1,520 400 400 400 400 1,600 30 50 50 50 180 3,300 Laboratory tests 310 310 310 310 1,240 350 350 350 350 1,400 30 50 50 50 180 2,820 Field demonstrat:ons - 1,400 2,600 2,600 6,600 700 2,200 2,200 2,740 7,840 - 600 1,245 1,245 3,090 17,530 Artificial insemination 30 40 40 40 150 40 50 50 50 190 20 20 30 30 100 440 M Agricultural and livestock trials - 100 '00 100 300 50 100 100 100 350 - 50 50 50 150 800 m s 30 30 30 10 60 100 100 100 360 20 27 20 20 87 567 aSubtotal 2,000 3,750 4,110 4,110 13,970 2,600 4,500 4,800 4,800 16,700 660 1,390 1,765 1,765 5,580 36,250 Procurement, Constructions and ,o Installations Soils and water laboratory equipment 230 - - - 230 230 - 230 - - - - - 460 Laboratory and equipment for artificial insemination - - Wu - - - 500 - - Laboratory and equipment for animal production - - - - - 500 - - - 500 - - - - - 500 Land leveling equipment 350 - - - 350 700 - - - 700 350 - - - 350 1,400 Agricultural and livestock equipment 700 - - - 700 1,050 - - - 1,050 350 - - - 350 2,100 Vehicles 126 90 - - 216 168 120 - - 288 84 - - - 84 588 Audio Visual aid equipment 105 - - - 105 105 - - - 105 - - - - - 210 Irrigation equipment - - - - - 175 - - - 175 - - - - - 175 Office equipment and supplies 80 30 30 30 170 120 50 50 50 270 60 20 20 20 120 560 Training facilities 100 100 100 100 400 130 130 130 130 520 80 80 80 80 320 1,240 Miscellaneous 59 30 10 10 109 97 75 20 20 212 41 10 10 10 71 392 Subtotal, 1,750 250 '40 140 2,280 3,775 375 200 200 4,550 965 110 110 110 1,295 8,125 Total 3,750 4,006 4,250 41250 6,250 6,375 4,875 5,000 5,000 21,250 1,625 1,500 1,875 1,875 6,875 44,375 Personnell/ ------------------------------------------Numbers----------------------------------------------------------- Senior extension officer 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 Extension officers 3 5 9 9 9 "1 6 10 10 10 3 3 3 3 3 22 Sub-professional extension off cers 7 13 23 23 23 8 14 24 24 24 7 7 7 7 7 54 Surveyors 1 2 3 3 3 2 3 4 4 4 1 1 1 1 1 8 Research assistants 2 6 7 7 7 3 5 8 8 8 2 2 2 2 2 17 Secretaries 1 2 3 3 3 2 3 4 4 4 1 1 1 1 1 8 Workers 9 15 24 24 24 10 16 25 25 25 9 9 9 9 9 58 - Total 24 42 70 70 70 30 48 76 76 76 24 24 24 24 24 170 1/ Salaries included in activities  ANNEX 15 MEXICO PANUCO FIRST STAGE PROJECT Assumptins on Crop, Areas, Labor. Yields, -Farogate Prices and Cost of Production Years Years 0 1 2 3 4 0 1 2 3 4 Unit Without -----------With Project------------ Without -----------With Project----------- Project Project Soybeans Cotton Area ha 1,200 10,000 19,500 30,000 30,000 2,000 9,000 17,00C 25,000 25,000 Labor rquirements man-days/ha 3 10 14 16 16 30 35 4C 45 50 Yields tons/ha 0.9 1.5 2.0 2.5 2.5 1.5 2.0 2.5 2.5 2.5 Rural price Mex$/ton 1,900 1,900 1,900 1,900 1,900 2,700 2,700 2,700 2,700 2,700 Gross production value Mes$/ha 1,710 3,850 3,800 4,750 4,750 4,050 5,400 6,750 6,75) 6,750 Cost Mex$/ha 1,000 1,300 1600 1,900 1,900 2,700 3,000 3,800 3,800 3,800 Net value of production (NVP) Mex$/ha 710 1,550 2,200 2,850 2,850 1,350 2,400 2,950 2,950 2,950 Incremental NVP Mex$/ha - 840 1,490 2,140 2,140 - 1,050 1,600 1,600 1,600 Vegetables and Melons Safflow,er Area ha 4,800 6,000 7,000 8,000 8,000 8,000 12,000 17,000 20,000 20,000 Labor requirements man-days/ha 90 150 220 280 280 3 14 15 15 15 Yields tons/ba 11 13 15 18 18 0.7 1.0 1.5 2.0 2.0 Rural price Mex$/ton 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 Gross production value Mex$/ha 19,800 23,400 27,000 32,400 32,400 1,260 1,800 2,700 3,600 3,600 Cost Mex$/ha 6,000 9,000 12,000 15,000 15,000 700 1,000 1,200 1,400 1,400 Net value of production (NVP) Mex$/ha 13,800 14,400 15,000 17,400 17,400 560 800 1,500 2,200 2,200 incremental NVP Mex$/ha - 600 1,200 3,600 3,600 - 240 940 1,640 1,640 Beans and Pulses S.rgh Area ha 2,000 2,500 3,500 4,000 4,000 11,000 14,000 19,500 30,000 30,000 Labor requirements man-days/ha 3 10 14 16 16 6 17 18 19 19 Yilds tons/ho 1.0 1.2 1.4 1.5 1.5 1.8 3.0 4.0 5.0 5.0 Rural price Mex$/ton 1,800 1,800 1,800 1,800 1,800 750 750 750 750 750 Gross production value Mex$/ha 1,800 2,160 2,520 2,700 2,700 1,350 2,250 3,000 3,750 3,750 Cost Mex$/ha 860 1,200 1,500 1,600 1,600 720 1,200 1,400 1,600 1,600 Net value of production (NVP) Mex$/ha 940 960 1,020 1,100 1,100 630 1,050 1,600 2,150 2,150 Incremental NVP Mex$/ha - 20 80 160 160 - 420 970 1,520 1,520 Rice Sugar Cane Area ha - 3,000 6,000 6,000 6,000 400 1,500 2,500 3,000 3,000 Labor A equirements man-days/ha - 20 22 23 23 30 35 40 45 45 Yie3Ks tons/ha - 3.0 4.0 5.0 5.0 60 75 90 100 100 price Mex$/ton 1,400 1,400 1,400 1,400 1,400 80 80 80 80 80 Goss productloo value Mex$/ha - 4,200 5,600 7,000 7,000 4,800 6,000 7,200 8,000 8,000 lust Mex$/ha - 2,400 2,600 2,800 2,800 2,200 2,600 2,800 3,000 3,000 Net value of production (NVP) Mex$/ha - 1,800 3,000 5,200 5,200 2,600 3,400 4,400 5,000 5,000 Incremental NVP Mex$/ha - 1 800 3,000 5,200 5,200 - 800 1,800 2,400 2,400 Pasture, Beef/ Corn Pattenisg Area ha 11,000 8,000 4,000 4,000 4,000 37,100 38,000 39,000 39,000 39,000 Labor equirements man-days/ha 10 20 22 22 22 1 2 3 3 3 Yie1 tons/ha 1 2 3 3 3 0.245 0.49 0.98 1.47 1.47 price Mex$/ton 900 900 900 900 900 9,000 9,000 9,000 9,000 9,000 Gross production value Mex$/ha 900 1,800 2,700 2,700 2,700 2,205 4,410 8,820 13,230 13,230 Cost Mex$/ba 850 1,200 1,700 1,700 1,700 2,000 4,000 8,000 11,700 11,700 Net value of productiou (NVp) Mex$/ha 50 600 1,000 1,000 1,000 205 410 820 1,530 1,530 Incre,entsl (NVP) Mea$/ha - 550 950 950 950 - 205 615 1,325 1,325 --------------------------------------------Years------------------------------------------- Fruit Trees 1 2 3 4 5 6 7 8 9 10 Area ho 700 2,500 5,000 6,500 8,000 Labor requirements man-days/ha 90 100 110 120 130 Yields, existing tons/ha 8 12 16 20 20 Yields, new tons/ha 0 0 0 0 C 2 5 8 12 16 20 Rural price Mex$/ton 2,000 2,000 2,000 2,000 2,000 Gross production value Mex$/ha 16,000 24,000 32,000 40,000 40,000 Cost Mex$/ha 5,000 7,000 8,000 9,000 9,000 Net value of production (NVP) Mex$/ha 11,000 11,000 24,000 31,000 31,000 Incremental (NVP) Mex$/ha - 6,000 13,000 20,000 20,000 September 18, 1973  MEXICO PANUCO FIRST STAGE PROJECT Detailed Production Costs ' Without Proiect Soybeans Vegetables Beans and Rice Corn Cotton Safflower Sorghum Sugar Cane Fruit Trees Pasture/ and Melons Pulses Bee Operating Cost3 Without Project , Present Situation Contract Cultivation 410 700 320 - 240 340 330 230 350 1,100 50 Seeds and Planting Materials 210 260 230 - 60 70 50 50 - - - Pesticides and Weed Control 100 /130 60 - 40 925 - 90 80 300 20 Fertilizers and Inoculants 25 700 - - - - - - 190 60 - Implements and 'ools 20 140 20 - 20 3510 10 60 80 10 Harvesting Supplies 40 250 40 - 50 40 40 40 80 340 - Labor 90 2,700 90 - 300 900 90 180 900 2,700 30 Repairs and Maintenance - - - - - - - - 200 - 10 Animal Health - - - 10 Mineral Salts -- - - - - - - - 10 Livestock Purchase - - - - - - - - - 1,800 Miscellaneous 105 820 100 - 140 390 180 120 340 420 60 Total 1,000 6,000 860 - 850 2,700 700 720 2,200 5,000 2,000 Szptember 10, 1973 mm M n~ ANNEX 16 Page 2 MEXICO PANUCO FIRST STAGE PROJECT Detailed Production Costs Perennial Crops and Livestock with Project (Includes Investment Cost) (Mex$ per ha) Year 1 Year 2 Year 3 Year 4 Sugarcane Machinery 1,760 - - - 1,760 Planting material 660 - - - 660 Fertilizers 190 - - - 190 Insecticides 80 - - - 80 Other materials and tools - - - - Labor 1,170 - - - 1,170 Miscellaneous 240 - - - 2140 Total 1,100 - - - 1100 Fruit Trees Machinery 1,430 1,120 1,120 1,120 4,790 Planting materials 3,500 - - - 3,500 Fertilizers 40 140 250 300 730 Inrsecticides 270 270 270 270 1,080 Other materials and tools 230 180 80 80 570 Labor 2,280 1,090 1,550 2,000 6,920 Miscellaneous 250 200 230 230 910 Total F7-0 3,000 3a007O- Z- 18,500 Livestockl/ Pasture, beef fattening Pasture establishment 1,450 45- - 1,0 Fixed fences, Mex$3,500/n 70 - 70 Electric portable fences Mex$2,500/km 20 - - 20 Corral and additional structures 70 - - - 70 Miscellaneous 90 - - - 90 Total 1,700 - -- 1,700 1/ Investment cost estimates based on a one-thousand hectares ejido cooperative ranch but figures refer to 1 ha. MEXICO PANUGO FIRST STAGE PROJECT Detailed Production Costs Annual Crope with Project (Mex$ er ha) Beans Pasture, Operating Costs Soybeans Vegetables and Rice Corn Cotton Safflower Sorghum Sugar Fruit Beeff With Project, at Full Development and melons Pulses Cane Trees Fattening Contract cultivation 500 900 430 600 400 500 400 450 400 1,200 - Seeds and planting materials 265 310 300 300 75 170 75 95 - - - Pesticides and weed control 120 1,500 70 360 80 620 50 100 100 600 20 Fertilizers and inoculants 175 1,200 70 340 185 300 70 120 250 1,000 230 Implements and tools 30 800 30 100 60 100 45 35 150 300 10 Harvesting supplies 70 1,400 70 150 80 100 60 80 150 700 10 Labor 480 8,400 480 690 660 1,500 450 570 1,350 3,900 90 Repairs and maintenance - - - - - - - - 100 400 30 Animal health - - - - - - - - - 60 Mineral salts - - - - - - - - - 50 Supplements - - - - - - - - - 250 Livestock purchases - - - - - - - - - - 10,800 * Miscellaneous 260 490 150 260 160 510 250 150 500 900 150 Total 1,900 15,000 1,600 2,800 1,700 3,800 1,400 1,600 3,000 9,000 11,700 September 13, 1973 X  ANNEX 1 Page 1 MEXICO PARUCO FIRST-STAGE PROJECT Gropping Pattern, Production. ; te and Net Value of Production Without Pro i & Produc- Gross tion Prices Production Production Costs Net Value Area Yields (metric (Mex$/ Value (Mex$ (Mex$ Production Croos (ha) ton) ton) (MxV000) _ ha) '000) (Mexs '000) Las Animas Soybeans 1,200 900 1,080 1,900 2,052 1,000 1,200 852 Corn 5,000 1,100 5,500 900 4,950 850 4,250 700 Cotton 1,000 1,500 1,500 2,700 4,050 2,700 2,700 1,350 Safflower 6,000 700 4,200 1,800 7,560 700 4,200 3,360 Sorghum 5,000 1,800 9,000 750 6,750 720 3,600 3,150 Subtotal rainfed 18,200 1,169 21,280 1,192 25,362 876 15,950 9,412 Pastures, rainfed 5.500 245 1.348 2,000 l212 2 1 Vegetables and melons irrigated 1,200 1.1,000 13,200 1,800 23,760 6,000 7,200 16,560 Sugar cane irrigated 400 60,000 24,000 80 1,920 2,200 880 1,040 Fruit trees irrigated 200 8,000 1,600 2,000 3,200 5,000 1,000 2,200 Subtotal irrigated 1 21,556 38,800 744 28,880 5,044 9,080 19,800 Native vegetation zz,5j - 3- - . - Total 48,033 1,279 61,428 1,081 66,374 750 36,030 30,344 Cropping intensity, %: 53 ru.ia coy Beans and pulses 2,000 1,000 2,000 1,900 3,800 860 1,720 2,080 Corn 6,000 1,100 6,600 900 5,940 850 5,100 840 Cotton 1,000 1,500 1,500 2,700 4,050 2,700 2,700 1,350 SafFlower 2,000 700 1,400 1,800 2,520 700 1,400 1,120 Sorghum 6,00 l 10 _ 00 750 80 720 4 3 Subtotal rainfed 17,000 1,312 22,300 24,410 896 15,240 9,170 Pastures, rainfed 22,000 245 5,390 9,000 48,510 2,000 44,000 4,510 Vegetables and melons irrigated 3,500 11,000 38,00CC 1,800 69,300 6,000 21,000 43,300 Fruit trees irrigated 500 8 00r0 .000 0 000 2,500 5,500 Subtotal irrigated 4,000 1,063 42,500 1,819 77,300 5,875 23,500 53,800 Native vegetation 29,012 - - - - - - - Total 72,012 975 70,190 2,140 150,220 1,149 82,740 67,480 Cropping intensity, %: 60 Chicayan Pasture, rainfed 9,600 245 2,352 9,000 21,168 2,000 19,200 1,968 Subtotal irrigated 100 11,000 1y00 1,800 1,980 6,000 600 1,380 Native vegetation 7300 - - - - - - - Total 17,000 203 3,652 6,7C6 23,148 1,165 19,800 3,348 Cropping intensity, %: 57 SUMMARY Rainfed 35,200 1,238 43,580 1,142 49,772 887 31,190 18,582 Pastures, rainfed 37,100 245 9,090 9,000 81,810 2,000 74,200 7,610 Irrigated 5,900 13,966 82,400 1,313 108,160 5,624 33,180 74,980 Subtotal 78,200 1,727 135,070 1,775 239,742 1,772 138,570 101,172 Native vegetation - - Grand Total 137,045 986 135,070 1,775 239,742 1,011 138,570 101,172 Cropping intensity, %: 57 September 19, 1973 MEXICO PANUCO FIRST-STAGE PROJECT Cropping Pattern, Production, Costs and Net Value of Production -------------------------------------:7:----------------------------------------------WihPoet.................................. Gross Production Net Value of Incremental net Area Yields Production Pr les- Value Production,r Costs Production value of production Crops khal (kg/ha) _etricton _x$/ton_ (Mex$'000)_ _ LMexL/ha .Me 00 (Mex$'000) PXS'000) Las Animas Soybeans 12,500 2,500 31,250 1,900 59,375 1,900 23,750 35,625 34,773 Vegetables and melons 3,000 18,000 54,000 1,800 97,200 15,000 45,000 52,200 35,640 Beans and pulses 1,500 1,500 2,250 1,800 4,050 1,600 2,400 1,650 1,650 -t Rice 2,000 5,000 10,000 1,400 14,000 2,800 5,600 8,400 8,400 Corn 1,500 3,000 4,500 900 4,050 1,700 2,550 1,500 800 Cotton 9,000 2,500 22,500 2,700 60,750 3,800 34,200 26,550 25,200 Safflower 9,000 2,000 18,000 1,800 32,400 1,400 12,600 19,800 16,440 Sorghum 12,500 5,000 62,500 750 46,875 1,600 20,000 26,875 23,725 Sugar cane 500 100,000 50,000 80 4,000 3,000 1,500 2,500 1,460 I Truit trees 3,000 20,000 60,000 2,000 120,000 9,000 27,000 93,000 90,800 Pasture beef fattening 10,000 1,470 14700 9 1 11,700 1170 514,168 Total 64,500 329,700 575,000 291,600 283,400 253,056 Cropping Intensity, %: 134 Puial Coy Soybeans 15,500 2,500 38,750 1,900 73,625 1,900 29,450 44,175 44,175 Vegetables and melons 4,000 18,000 72,000 1,800 129,600 15,000 60,000 69,600 21,300 Beans and pulses 1,500 1,500 2,250 1,800 4,050 1,600 2,400 1,650 (430) Rice 2,000 5,000 10,000 1,400 14,000 2,800 5,600 8,400 8,400 Corn 1,500 3,000 4,500 900 4,050 1,700 2,550 1,500 660 Cotton 15,000 2,500 37,500 2,700 101,250 3,800 57,000 44,250 42,900 Safflower 9,000 2,000 18,000 1,800 32,400 1,400 12,600 19,800 18,680 Sorghum 15,500 5,000 77,500 750 58,125 1,600 24,800 33,325 29,545 Fruit trees 4,000 20,000 80,000 2,000 160,000 9,000 36,000 124,000 118,500 Pasture, beef/ fattening 22 l 321 97 29,0 11,700 257400 Total 90,000 372,840 868,160 487,800 380,360 312,880 Cropping intensity, %: 125 Chicayan Soybeans 2,000 2,500 5,000 1,900 9,500 1,900 3,800 5,700 5,700 Vegetables and melons 1,000 18,000 18,000 1,800 32,400 15,000 15,000 17,400 16,020 Beans and pulses 1,000 1,500 1,500 1,800 2,700 1,600 1,600 1,100 1,100 Rice 2,000 5,000 10,000 1,400 14,000 2,800 5,600 8,400 8,400 Corn 1,000 3,000 3,000 900 2,700 1,700 1,700 1,000 1,000 Cotton 1,000 2,500 2,500 2,700 6,750 3,800 3,800 2,950 2,950 Safflower 2,000 2,000 4,000 1,800 7,200 1,400 2,800 4,400 4,400 Sorghum 2,000 5,000 10,000 750 7,500 1,600 3,200 4,300 4,300 OQ z Sugar cane 2,500 100,000 250,000 80 20,000 3,000 7,500 12,500 12,500 M Fruit trees 1,000 20,000 20,000 2,000 40,000 9,000 9,000 31,000 31,000 Pasture, beef fattening 7,0 147 190 9000 10,710 8,7 Total 22,500 334,290 235,360 135,900 99,460 96,112 Cropping intensity, % 132 Total O 1,036,830 1,678,520 915,300 763220 MEXICO PANUCO FIRST-STAGE PROJECT Cropping Pattern, Production, Costs and Net Value of Production --------------------- Susmary with Project --------------------- Gross Production Net Value of Incremental Net Area Yields Production Prices Value Production Costs Production value of Production Cros(ha) (kg/ha) (metric on) (ex$/ton (Mex$'000) (ex$/a) j -00 (e$'00) (Mex$'000) w Soybeans 30,000 2,500 75,000 1,900 142.500 1,900 57,000 85,500 84,648 Vegetables and melons 8,000 18,000 144,000 1,800 259,200 15,000 120,000 139,200 72,960 Beans and pulses 4,000 1,500 6,000 1,800 10,800 1,600 6,400 4,400 2,320 r Rice 6,000 5,000 30,000 1,400 42,000 2,800 16,800 25,200 25,200 n Corn 4,000 3,000 12,000 900 10,800 1,700 6,800 4,000 2,460 Cotton 25,000 2,500 62,500 2,700 168,750 3,800 95,000 73,750 71,050 Safflower 20,000 2,000 40,000 1,800 72,000 1,400 28,000 44,000 39,520 Sorghum 30,000 5,000 150,000 750 112,500 1,600 48,000 64,500 57,570 Sugarcane 3,000 100,000 300,000 80 24,000 3,000 9,000 15,000 13,960 Fruit trees 8,000 20,000 160,000 2,000 320,000 9,000 72,000 248,000 240,300 Pasture, beef fattening 1,470 5 9 5 13 52,060 Total 177,000 1 91,036,830 1,678, 763,220 662,048 Cropping intensity, 1: 129 MEXICO PANUCO FIRST-STAGE PROJECT Cropping Pattern, Production. Costs qnd Net Value of Production Growing Season and Physical Areas in ha ------------ Dry Season ------------- -------------------- Wet Season --------------- --- ---- Dry Season ---- Crops January February March April May June July August September October November December Soybeans =====30,000=========== --====---30, 000--== Vegetables and melons -=-====-- 8,000- 9 Beans and pulses -4,00= Co Rice 6,000============ ------=6,000=== = Corn ==4,000=======-========----=4, 000=== ==--- Cotton ==================25,000== =======-=25 ,000==== = ------ = =25,000== Safflower ====================20, 000========20,000= =20,000= Sorghum ===========30,000== .30,000== Sugarcane ==== === ===3,000=3,000== 3,000=-===- = ------- =----= ==3,000- Fruit trees ===8,000== == == 5,000,====== .=..==....=== ==.===8,000== Pasture, beef fattening ==-===== ========39-,000=============39,000 =39,000==-==-= ====---------=----39,000= Physcial areas in ha 137,000 110,000 115,000 137,000 ANNEX 18 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT The Outlook for Cotton 1. Cotton is produced in varying quantities in more than 80 countries. Roughly one-third of the world crop is produced for export in raw (fiber) form and significant amounts are exported by producing countries as textiles. The United States, the USSR and the People's Republic of China are the world's three largest producers, accounting together for about one-half of the world output. The bulk of the remainder is produced by a large number of develop- ing countries. 2. The United States remains the world's leading cotton exporter, although its share in the world cotton trade has been declining historically. During the past ten years, U.S. exports accounted on the average for 22 per- cent of the world's total exports. Over the same period, centrally planned countries accounted for another 13 percent and developing countries for the remaining 65 percent. (See Table 1.) 3. World cotton prices in current terms are forecast to decline by some 10 percent from recent high levels (1969/70-1971/72) by the end of the seventies. In terms of Mexican SM 1-1/16," a representative grade of medium-long cotton which normally accounts for more than 60 percent of total world cotton output, this points to a 1980 price of about 30.0 U.S. cents per pound, c.i.f. Liverpool. (See Table 2.) 4. The expected downward trend reflects a number of assumptions: (a) that the current high prices are temporary and reflect a demand-supply im- balance caused largely by a temporary supply shortage; (b) that in the absence of a decline in prices production will tend again to outpace con- sumption by the late seventies; (c) that inter-fiber competition will con- tinue to limit the growth of cotton consumption but that no major break- through in man-made fiber technology will greatly accelerate recent substi- tution trends; and (d) that price adjustments will take place within the framework of a relatively freer, more competitive market. This, in turn, implies continued competition among some 60 exporting countries (many of them heavily dependent on cotton exports); absence, in future U.S. price support and cotton export policies, of the elements which made that coun- try a residual supplier in the world market and led to recurring stock ac- cumulation in the United States; and, finally, no international cotton agreement. 5. The future growth of world cotton production depends not only on the natural supply response to change in price but also - and quite cru- cially - on the cotton policies of the major producers. The United States and the USSR account together for almost 39 percent of world cotton pro- duction. The production policies necessarily influence the growth path of ANNEX 18 Page 2 world cotton supply. In our supply projections we have taken U.S. cotton output at about 13 million bales and USSR total output at about 11.5 mil- lion bales. The combined production share of the two countries would therefore remain roughly the same as during the past five seasons. Should the U.S. cotton policy change and output stabilize around 10 million bales and the USSR output remain at about 10.5 million bales, the projected sur- plus situation would turn, other things being equal, into one of rough demand-supply equilibrium and lead to prices 5 percent higher than those forecast in paragraph 3. 6. Demand uncertainties, however, call for a certain degree of pru- dence in forecasting cotton prices. World cotton consumption is projected to grow at an average annual rate of 1.6 percent during the next ten years. Even this modest growth rate of cotton consumption presupposes some further improvement in the quality composition of cotton and progress in promotional activity and, furthermore, that no new breakthrough in the production of man-made fibers would occur - and lead to a faster displacement of cotton by man-made fibers. 7. World cotton demand remained weak throughout the late sixties, par- ticularly in developed countries, where the general stagnation of the textile industry and strong competition from man-made (especially non-cellulosic) fibers led to a decline in the consumption of cotton. The increase in the utilization of cotton in developing and centrally planned countries only partially offset the overall decline in developed countries. Between 1966/ 67 and 1971/72, world cotton consumption grew at an average annual rate of 0.9 percent, compared to the 2.2 percent per annum of the preceding 11 years. 8. Competition from synthetic substitutes, moreover, is by no means restricted to developed countries. In Central America, South America and Asia, synthetic fibers have already penetrated the market and further in- roads are expected during the next decade. During the past ten years, while cotton's share of world total fiber market fell from nearly 66 to 44 percent, the market share of man-made fibers increased from 29 to 50 percent. Inter- fiber competition hinges upon two main factors: relative prices and product performance. Prices of man-made fibers (especially polyester fibers) de- clined considerably in the past five years, thereby moving price parities in favor of man-made fibers. Recent high cotton prices, moreover, are likely to accelerate the trend in substitution of cotton by polyester fibers, par- ticularly in developed countries. The quality or product performance of man-made fibers is superior to cotton in some crucial end-uses (e.g., apparel) where cotton lacks the "easy-care" properties characteristic of synthetic fibers (alone or blended with cotton). Although further sharp declines in the prices of the most important non-cellulosic fibers do not appear very likely in the short run, the possibility of increased competition from these fibers still remains strong, given the technical advantages that man-made fibers have in new high-speed spinning and weaving machines. This could seriously affect cotton demand and slow down its growth to a very modest 1 percent per annum over the next ten years. ANNEX 18 Page 3 9. At projected equilibrium levels of demand, supply and price for the mid-seventies, world raw cotton exports would experience a growth rate of around 1.2 percent per annum between 1967-69 and 1975, although develop- ing countries' exports may grow at a higher rate (between 1.5 and 2.0 percent per annum). Assuming that world cotton prices move in the late seventies toward long-term equilibrium levels, world raw cotton exports may continue to grow throughout the late seventies at approximately the same rate en- visaged for the earlier period. Export shares, however, become more diffi- cult to predict, given their dependence on possible future policy actions by major producing and exporting countries such as the United States and the USSR. 10. The export performance and prospects of individual developing countries will continue to vary depending, inter alia, on availability of land, trends in yields, quality and marketability of cotton grown, domestic consumption trends and cotton textiles trade balances. Competition among producing countries is expected to continue and small producing countries with limited production alternatives are likely to push output and succeed in expanding their small shares. 11. Mexico is a medium-size cotton producer. It accounts for about 3 percent of world production and 5 percent of world exports. Cotton pro- duction in Mexico has been declining since the mid-sixties. (See Table 3.) Substantial reductions in acreage - particularly intense in some growing areas such as Mexicali, Altamira, Matamoros and Delicias - were responsible for the fall in cotton output. Yields, on the contrary, increased regularly throughout the past 20 years and somewhat offset the decline in cultivated areas. (See Chart 1.) Cotton production in Mexico appears to be constrained by severe competition for land coming from alternative cash crops (e.g., soy beans, wheat). In 1972/73, in spite of the sharp rise in cotton prices, acreage increased only marginally over 1971/72 and output actually fell with respect to the past year. Cotton prices, relative to those of competing cash crops, will to a great extent determine the future amount of land under cotton cultivation. Other factors, such as availability of water, will also have some influence over the choice of crop. Total acreage under cotton has tended downward throughout most of the post-war period. (See Chart 1.) Even considering the fact that recent years may have shown a fall in acreage below the historical trend and assuming continued government encouragement to cotton cultivation, total area under cotton is projected to be by 1980 only about 1.1 million acres. Yields on the contrary are expected to in- crease and to reach by the end of the seventies 893 pounds per acre. Total production of cotton is therefore projected to be by 1980 only slightly above 2 miLlion bales. (See Table 3.) 12. Domestic consumption of textile fibers in Mexico has increased at over 5 percent per annum during the past 20 years. Man-made fibers consumption grew faster (at some 7.5 percent per annum) but still consump- tion of cotton also expanded at over 4 percent per annum throughout the ANNEX 18 Page 4 period. Based on income projections for the seventies and income elasti- cities of demand derived from regression analysis, 1/ cotton consumption in Mexico can be forecast to grow at an average of 2.0 percent per annum throughout the seventies and to reach 1 million bales by 1980. (See Table 3.) Exportable supply of cotton can therefore be estimated to be by 1980 at about 1.0 to 1.1 million bales, only slightly above the average of the past three seasons and considerably below the levels reached throughout the late fifties and most of the sixties. Mexico's share of world exports is expected to remain unchanged with respect to the past three seasons. 1/ Income elasticity of demand for all textile fiber was found to be 0.85, for man-made fibers 1.60, and for cotton 0.50. Cotton consumption was forecast individually and as a residual after forecasting total textile fiber consumption and man-made fiber consumption by 1980. All estimates converged within a fairly narrow range. ANEX 18 Table 1 Table li COTTON: RECENT TREiDS IN WORLD PPODUC1MI, ifLIATION AND TRAIE (million bales) Average Year Beginning 1958/59- 1963/6h 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 August 1 1962/63 consuVtiof United States 8.7 8.6 9.2 9.5 9.5 9.0 8.2 8.0 8.1 8.0 Western Europe 7.5 7.A 7.2 7.3 7.1 6.7 6.8 6.8 6.8 6.4 Japan 3.0 3.2 3.4 3.2 3.3 3.11 3.5 3. 3.2 3.4 Other (excl. c.p.e.) 12.1 13.8 ih.5 11.6 15.1 15.8 16.5 17.2 17.3 18.2 Centrally Planned 1 .1 1F. 16.4 17. 18.5 18. 18.9 1 0 19.6 20.0 .,brld Gonseto 71d i. T 2.0 53.5 3.871b 5. Production United States 14.0 15.3 35.2 14.9 9.9 7.2 11.0 10.0 10.3 10.3 Other (excl. C.p.c.) 19.0 22.2 23.0 23.7 22.9 21.0 26.5 25.9 23.5 28.0 Centrally Planned 13. 12.9 14.8 16.1 17.3 17.8 17.0 16.h 18.7 18. World Production . 3T 53.0 3 3j.1 9.0 352.3. T7 57.0 Exports Ud ted States 5.0 5.7 4.1 2.9 6.7 1.2 2.7 2.8 3.7 3.2 Cther (excl. c.p.c.) 9.0 10.4 10.6 11.6 10.7 10.3 11.6 12.3 11.2 12.3 Centrally Planned 1.8 1.8 2.1 2.4 2.5 2.6 2.2 2.4 2.6 2. -r V 0 rt 8 17.9 1i . 17.9 17.1 1 17. 1.. I.aorts Japan 3.1 3.2 3.4 3.1 3.6 3.5 3.1 3.5 3.7 3.6 Western Europe 7.0 7.2 6.5 6.8 6.8 6.5 6.5 6.1 5.9 5.9 Other (excl. c.p.c.) 2.8 3.3 3.3 3.4 3.8 3.9 3.7 4.1 1.7 1.5 Centrally Planned - 1.0 1.3 14.2 3.9 3.8 3-J h1. 1. h* or 16.2 17.7 1i7 75 1 17.7 17.0 171 187 18.3 Stocks itted States 8.0 11.2 22.4 14.3 16.9 12.5 6.5 6.5 5.8 4.3 Other Net Exporters 3.7 3.8 3.8 1.2 4.5 4.7 5,3 6.8 6.8 5.6 t Importers (ex.c.p.e.)d 5.9 5.8 6.8 6.2 5.9 6.4 7.0 6.6 6.1 5.8 Centrally Planned 3.1 2.5 0 3.6 1j.o 11.1 4.1 3.8 World Stocks 207 2. 5. 53 313 2. 2.9 23.7 27 1; Noe: World totals may not add exactly due to rounding. /I August 1 of first year shown. /2 Including India and afloat. 13 Stocks on August 1, 1972, are estimated as follows (in million bales): United States, 3.3; other net exporters, 6.5; net i:porters, 6.5; centrally planned countries, 3.9; and world total 20.2. Source: International Cotton Advisory Committee, Cotton World Statistics, various issues. ANNEX 18 Table 2 Table 2. COTTON: RECENP TRENDS IN WORLD PRICES - C.I.F. 1U0TAT10NS AT LIVE;ROOL (U.S. cents per pound) Origin Speoification 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 United States Orleans/Texas ML" 26.1 25.1 27.5 26.6 26.3 29.7 35.8 Uni ted States Memphis SM 1-1/16' 29.3 28.7 33.8 30.4 29.2 31.8 36.6 United Statea California SM 1-3/32" 33.4 n.a. 39.8 /1 33.9 31.3 33.3 38.3 Iexico SM 1-1/16" 28.3 29.3 1 31.9 28.9 29.3 33.1 38.2 Braril Sao Paolo Type 5, 1-1/32" 25.0 / 24.8 27.8 /1 24.5 /1 2h.7 Ll 30.3 /1 34.8 Pakistan 2 289 F Punjab S.0. 28.0 26.0 26.3 26.1 L 27.8 31.3 34.7 Turkey Ismir St. I Aite, 1-1/16" RG 288 28.3 31.5 29.1 27.4 30.7 36.9 Syria SM 1-1/16" n.E. 28.2 32.2 30.6 28.4 31.1 38.8 Iran SK 1-1/16" 28.1 /1 29.0 32.0 L 30.1 L 28.2 31.4 38.5 Nicaragua sM 1-1/16" 27.1 27.6 30.4 27.4 /1 27.3 31.0 36.0 Greece sM 1-1/16" 29.1 /l 28.9 /1 31.4 31.4 28.4 31.3 38.7 Uganda 12 B.P. 52 31.9 32.0 36.7 36.0 31.2 33.9 Ll n.a. USSR SM 1-1/16' 29.0 30.0 33.2 30.4 30.7 33.0 38.2 India /2 Bengal Desi Choice 25.9 21.8 2n.1 L 26.6 27.4 31.9 30.1 Peru Tanguis Type 3 34.0 39.0 37.9 32.6 32.9 38.5 44.2 Peru Pima No. 1, 1-9/16" 41.2 /1 43.9 47.7 Ll h6.1 48.0 L W.14 L 49.) Sudan /2 G 5 L 38.9 33.9 35.2 37.7 38.7 38.8 39.6 Sudan a 5 s 43.8 38.2 40.7 L 44.3 4h.0 45.2 Li 46.1 UAR Dendera F.O. 39.6 40.4 44.7 h9.3 49.3 48.5 55.2 UAR Menoufi F.G. 49.8 51.3 55.8 62.5 63.2 61.2 64.9 n.a. - not available. /I Averages for less than twelve months. 12 From 1967/68 on, shipment via Cape. -ce: International Cotton Advisory Committee, Cotton - World Statistics, various issues. ANNEX 18 Table 3 Table 3: MEXIO'S COTTO0 SUPPLY A1D 1 TRBUTID)T 1T71/52 TO 1971/72 AND 7R0JECTI0NS TO 1980 Area Yield Production Conau!p tion Eports (1,000 acres) (1b./acre) (.... ..O.. bales........... 1951/52 2,182 280 1,280 315 981 1952/53 1,937 308 1,250 330 988 1953/54 1,863 312 1,215 330 948 1954/55 2,278 380 1,810 385 1,248 1955/56 2,617 410 2,242 U15 2,018 1956/67 2,157 116 1,877 470 1,304 1957/58 2,264 445 2,106 118o 1, 411 1958/59 2,553 442 2,359 480 1,800 1959/60 1,863 426 1,660 485 1,298 1960/61 2,234 449 2,100 500 1,602 1961/62 1,972 482 1,990 510 1,488 1962/63 2,058 557 2,400 515 1,888 1963/64 1,949 511 2,085 560 1,419 1964/65 1,941 587 2,385 600 1,608 1965/66 1,959 638 2,615 650 2,118 1966/67 1,733 618 2,240 670 1,386 1967/68 1,703 562 2,000 710 1,233 1968/69 1,787 655 2,1t50 685 1,623 1969/70 1,296 646 1,750 685 1,221 1970/71 995 692 1,1h140 675 756 1971/72 1,134 723 1,715 735 905 1980/81 (projected) 1,100 893 2,050 900 1,100 Source: International Cotton Advisory Cormiittee, CottIon - World Statistics (various issues); and IDRD, Econor!Ic Analysis and Projections Department.  ANNEX 18 Chart 1 CHART 1: COTTON, PLANTED AREA AND Y1FLDS IN MEXICO (1951/52 - 1971/72) THOUSAND ACRES LB/PER ACRE 2800 1000 2600 - - 900 2400 - - 800 2200 - - 700 AREA (Left Scale) 2000 - - 600 1800 - - 500 1600 - YIELD (Right Scale) - 400 1400 -, - 300 1200 ~ - 200 1000- - 100 0 i | | i I I | 1951 '52 '53 '54 '55 '56 '57 '8'59 '60 '61 '62 '63 '64 65 '66 '67 '68 '69 '70 '71 '52 '53 '54 '55 '56 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 Wor,ld Bank--7852  ANNEX 19 Page 1 NEXICO PANUCO FIRST STAGE PROJECT Markets and Marketing Markets 1. The project would give rise to an increased production of soybeans, vegetables and melons, beans, rice, cotton, safflower, sorghum, sugarcane, fruits and beef, as against a reduction in the output of corn from the area. An analysis of the estimated national production, projected demand and supply position in 1982 and the comparative position of the proposed project incre- mental production is given at Table 1. This shows that only in the case of rice does project incremental production at full development represent more than the 20% of the gap between projected national demand in 1982 and esti- mated national production in 1973. Project incremental production of soy- beans, rice, cotton, sorghum, fruits, vegetables and beef would go towards meeting expected internal market deficiencies in these products. Only in the case of safflower is current production above the projected national demand level for 1982; but the extra output of safflower should not pose marketing problems since it is interchangeable with other oilseeds for which an overall deficiency is projected. 2. According to the national projections given in Table 1, export surpluses may arise in the case of corn and beans; the project would in fact decrease the supply of corn and have a minimal effect on the future supply of beans. It should also be noted that there is an export element in the 1982 demand projections for cotton and sugar, but, these are traditional Mexican export crops. The annual average of unrefined sugar exports for the period 1970-1972 was 580,000 tons and this is expected to increase to 820,000 tons by 1976. The cotton situation is analysed in detail in Annex 18, which concludes that by 1980, Mexican lint exports are likely to be about 1.0 to 1.1 million bales (or slightly above the average of the past three seasons) representing about 5% of world exports. No export market problems for the likely project production of these crops are anticipated. Marketing 3. General. Adequate attention must be given to the marketing, storage, processing, and related aspects so that the additional production can be handled. The present storage capacity in the area is insufficient, and, while a regional initiative can be expected to correct the situation, efforts must be coordinated. Government should review marketing and processing re- quirements and take the necessary steps to meet the needs. The following paragraphs review briefly the existing facilities and explore the areas that require study and action. ANNEX 19 Page 2 4. Cattle are usually sold "on the hoof" to packing plants in Mexico City and Monterey. Sugarcane and cotton are the only crops processed in the region; soybean and safflower are sold to processing mills in the large cities outside the region. Some initial attempts to export mangoes are under- way; they are graded and packed in the region and trucked directly to the border either by the farmers or the packing plant operators. Transportation companies provide non-refrigerated trucking services for the movement of produce. 5. Apart from direct sales by producers of seed cotton, sugarcane and rice to processing plants, the normal marketing channels are provided by middlemen-truckers. These buyers, who collect at the farm gate, frequently provide credit to farmers, and the prices they pay reflect the cost of the services they render. Government annually fixes guaranteed prices for key commodities such as maize, sorghum, safflower, soya and beans, and acts as residual buyer through the Compania Nacional de Subsistencias Populares (CONASUPO). For these operations, CONASUPO has warehouse space in Tampico (15,000 tons capacity) and in Mante (3,500 tons). 6. Storage. At present levels of agricultural activity, the Panuco Region has insufficient storage capacity at certain periods of the year de- spite the fact that, since the cotton industry peaked in the mid-1960's and then declined because of pest attacks and bad weather, two out of seven cotton gins have been left idle and are now used for grain storage. Pre- liminary and tentative estimates suggest that, ihen the project is fully operational, additional storage capacity of the order of 120,000 tons would be needed. 7. Processing. Of the 487 classified industrial establishments in the vicinity of the project area, most are in Mante, Panuco, Tamuin and Valles and are concerned with processing cotton, sugar and foodstuffs such as tortilla flour and bakery products. Owing to the declivs, in pioduction of seed cotton and sugarcane, there is a surplus ginning and sugar refining capacity in the area, which, with improvements and modernization, should be able to handle easily the expected increase in production of tiese crops under the project. 8. There are no plants in the region for the processing of oilseeds (safflower, soybean and cotton seed) despite the aigh Internal demand for vegetable oils and cake (as animal feed). With the participation of Nacional Financiera and Banco Agropecuario, a feasibility report is being prepared for a group of farmers who are contemplating establishing an oilseed mill with a processing capacity of 20,000 tons of soybeans per year at a total capital cost of Mex$12 million (US$1.0 million). This evaluation will have to take into account the fact that existing milling capacity in other regions is in excess of current needs and believed to be adequate to meet national requirements up to 1980. By that date, the growth of oilseed output from the project (which, at full production, is expected to reach 74,000 tons of soybeans, 33,000 tons of cottonseed and 34,000 tons of safflower), should be sufficient to warrant expansion of processing facilities in the project area. ANNEX 19 Page 3 9. Abbattoirs and meat packing plants. To meet the projected rise in the regional demand for meat, based on population growth and higher per capita consumption levels, not only would production have to be increased (as en- visaged under the project) but also the existing slaughter-houses and the one meat packing plant in the region would have to be improved and enlarged, or new units established. This would call for considerable investment. For example,to modernize the installation at Tampico to enable it to handle 600 head per day would cost an estimated Mex$20 million (US$1.6 million). 10. Fruit and vegetable packing and processing. The region has two small fruit packing establishments, dealing chiefly with mangoes, and two vegetable packing plants, mainly for tomatoes and onions. Their indivIdual capacit ies range from 50 to 100 tons per day with storage from 1,200 m to 1,800 m . To handle the increased output expected from the project, this through-put capacity would have to be increased, and the investment cost is preliminarily estimated at Mex$14 million (US$1.2 million). Conclusion 11. The expansion of output proposed under the project would call for an expansion and improvement of the storage, transport, packing and processing facilities (and related managerial capabilities) existing in the Panuco region, except in the case of sugar and cotton, where there is at present surplus processing capacity. It is, however, difficult to determine the exact facil- itie$ that would be required seven to eight years from now. Moreover, it is assumed that the private sector will, of its own initiative, provide for ex- pansion of these services, as it has done in other parts of Mexico. Since, as indicated above, the total investment requirements, particularly in the processing sector, are likely to be considerable. Government assistance, by way of credit or otherwise, may well be necessary. If sufficient private capital is not forthcoming, Government should be prepared to authorize public investment to ensure that the development of marketing facilities parallels the growth of production under the project. I MEXICO PANUCO FIRST STAGE PROJECT Analysis of Estimated National Production, Projected Demand and Supply and the Project Production Projected Estimated Projected Projected Surpluses and Gap Project (6) as National National National Deficiencies Between Incremental percent of Production 19731 Production 19822/ Demand 1982- 1982-/ (3) and (1) Production 5 (5) (1) (2) (3) (4) (5) (6) (7) --------------------------------------------------Metric '000 tons---------------------------------------------- Soybeans 240 488 609 (121) 3614 20 Vegetables and melons6/ 1,140 1,417 1,7662 (349) 626 91 14 Beans 1,060 1,447 1,205 242 145 4 3 Rice 410 546 541 5 131 30 23 Corn 9,950 13,250 12,385 865 2,435 - - Cotton (Fibers) 400 555 9602/ (405) 560 20 4 Cotton (seeds) 680 898 1,664 (766) 984 33 3 Safflower 460 312 288 24 (172) 34 20 Sorghum 2,410 4,188 4,2053/8/ (17) 1,7958/ 130 7 Sugarcane 33,570 52,763 57,773- (5,010) 24,203- 276 1 FruitsZ/ 700 1,280-2 1,6902/ (410)- 986 154 16 Beef 1,080 1,570 2,026 (456) 946 48 5 1/. Mission estimation, net of waste 2/. Source: Mission estimation and Caracteristicas de la Agricultura Mexicana by M.R. Cisneros 3/. Including domestic and external demand 41. (2) minus (3) 5/. According to the Production Table Chapter VI 6/. Tomatoes were chosen as the representative vegetable 7/. Avocado, mango, guayava, papaya and tamarind were chosen as the representative fruits 8/. Conversion factor of 12.5 was used in order to express unrefined sugar in raw sugarcane equivalent 9/. The projections are 1990, since only by that time the project fruits would reach full production. November 5, 1973  ANNEX 20 Table 1 MEXICO PANUCO FIRST STAGE PROJECT Farm Budizet Projected Income on 1 ha Ejido Farms Without Project With Project at Full Development Cropped Area N.V.P. Cropped Area .Y.P. Crops (ha) (Mex$) (ha) ) Soybeans 0.25 178 3.40 9.6c2O Vegetables and melons 1.00 13,800 0.90 15,660 Beans and pulses 0.43 404 0.45 495 Rice - - 0.75 3,900 Corn 2.40 120 0.50 500 Cotton 0.43 580 3.00 8,850 Safflower 1.73 969 2.60 5,720 Sorghum 2.40 1,512 3.40 7,31C Sugarcane - - 0.30 1,500 Fruit trees 0.01 110 0.70 21,700 Pasture beef-fattening 1.35 277 3.40 5 202 Total cropped area 1C.0 17,950 19.0 0, 27 Native vegetation 7.00 - Total farm size 17.00 15.00 Cropping intensity, % 57 129 Without With Fann Income Project Project Increment ------------- Mex$------------- Net value of Production (NVP) 17,950 80,527 62,577 Annual Interest on short-term credit at 12% p.a. 1,213 121038 10,825 Farm family benefit 16,737 66-,49 51,752 ANNEX 20 Table 2 MEXICO PANUCO FIRST-STAGE PROJECT Farm Budget Projected Income on 20 ha Private Farms Without Project With Project at Full Developm(-t Cropped Area N.V.P. Cropped Area N.Y.P. Crops (ha) (Mex$) (ha) (MexS Soybeans 1.50 1,065 4.5 12,825 Vegetables and melons 5.00 69,000 1.2 20,880 Beans and pulses 2.50 2,350 0.6 660 Rice - - 1.0 5,200 Corn 13.50 675 0.7 700 Cotton 2.50 3,375 4.0 11,800 Safflower 9.50 5,320 3.5 7,700 Sorghum 13.50 8,505 4.5 9,675 Sugarcane 0.05 130 0.4 2,000 Fruit trees 0.05 550 0.9 27,900 Pasture, beef-fattening 7.00 1,435 4.5 6,885 Total cropped area 55.00 92,405 25.8 106,225 Native vegetation 42.00 - Total fair. size 97.00 20.0 Cropping intensity, % 57 129 Farm Income Without With Project Project Increment ----------- Mex$------------- Net Value of Production (NVP) 92,405 106,225 13,820 Annual Interest on short-term credit at 12% p.a. 6,673 16,009 9,336 Farm family benefit 85,732 90,216 4,484 September 24, 1973 ANNEX 20 Table 3 MEXICO PANUCO FIRST STAGE PROJECT Farm Budget Projected Income on,20 ha Colono Farm Without Project With Project at Full Development Cropped Area N.V.P. Cropped Area N.V.P. Crops (ha) (Mex$) (ha) (ex$) Soybeans 0.50 399 h.9 12,825 Vegetables and melons 2.20 30,360 1.2 20,880 Bean and pulses 0.94 884 0.6 660 Rice - - 1.0 5,200 Corn 5.30 265 0.7 700 Cotton 0.94 1,269 4.0 11,800 Safflower 3.80 2,128 3.5 7,700 Sorghum 5.30 3,339 4.5 9,675 Sugarcane 0.01 26 0.4 2,000 Fruit trees 0.01 110 0.9 27,900 Pasture, beef-fattening 3.00 615 4.5 6,885 Total cropped area 22.00 39,31 106,22 Native vegetation 17.00 Total farm size 39.00 20.0 Cropping intensity, % 57 129 Without With Farm Income Project Project Increment - --- Mex$ Net value of production (NVP) 39,351 106,225 66,874 Annual Interest on short-term credit at 12% p.a. 2 669 16 009 13 3I.Ah Farm family benefit 3 8 o26J. ANNEX 20 Table 4 PANUCO FIRST STAGE PROJECT Farm Budget One Thousand ha Livestock Cooperative Farm Years (1) (2) (3) (4) (5) (6-10) Without -----------------------With Project-------------------- Project Basic Assumptions Carrying Capacity, AU/ha/year 1.0 1.3 2.0 3.0 3.0 3.0 3.0 Turnover/ha/year- 1.0 1.5 2.0 2.0 2.0 2.0 2.0 Number of animal o;its per ha per yeor 1.0 2.0 4.0 6.0 6.0 6.0 6.0 Live weight after fattening, kg/AU 450 450 450 450 450 450 450 Live weight at purchases, kg/AU 200 200 200 200 200 200 200 Total live weight sold kg/ha 450 900 1,800 2,700 2,700 2,700 2,700 Total live weight before fattening kg/ha 200 400 800 1,200 1,200 1,200 1,200 Balance 250 500 1,000 L,500 1,500 1,500 1,500 Losses due to various causes 27, 5 10 20 30 30 30 30 Net live weight, kg/ha 245 490 980 1,470 1,470 1,470 1,470 Farmgate price, live weight, Mex.$/kg 9 9 9 9 9 9 9 - ------------------ --Thousand Mex.$----- ------------ Gross Production Value 2,205 4,410 8,820 13,230 13,230 13,230 13,230 Investment costs based on Annex 17, page 2 - 1,700 - - - - - Operating costs based on Annexes 15 and 17, pages 1 and 3 - 4,000 8,000 11,700 11,700 11,700 11,700 Total production costs 2,000 5,700 8,000 11,700 11,700 11,700 11,700 Net Value of Production 205 (1,290) 820 1,530 1,530 1,530 1,530 Incremental net value of production - (1,495) 615 1,325 1,325 1,325 1,325 NOTES: 1. In the case of an ejido farm the area wuld group 100 ejidatarios for 10 ha farm each, or about 67 ejidatarios of 15 ha farm each, but also applies to Colonos and private farmers, 2. The ejido farm would operate as a cooperative closely supervised by technicians from the PLAIAEPA Extension Service. 3. AU: animal units, 1/. Without the project annually one young steer is bought per ha and sold after fattening. With the project in year two, twice a year a young steer is fattened and sold in the year of purchase. October 19, 1973 ANNEX 20 Table 5 MEXICO PANUCO FIRST-STAGE PROJECT Farm Budget Agricultural Taxation Statel/L Federal 2J Crops Taxes Taxes Total ------------Mex$l ha------------ Soybeans 36 55 91 Vegetables and melons 621 - 621 Beans 38 52 90 Rice 92 - 92 Corn 40 75 115 Cotton 171 - 171 Safflower 41 108 149 Sorghum 38 52 90 Sugarcane 78 - 78 Fruit 216 - 216 Pasture 150 57 207 1/ Membership fee to the Associations of the private farmer which is Mex$15 per ha is not included. 2/ Includes sowing license, land, state and crop production taxes. Note: Current collection of agricultural taxes in the Panuco region is almost negligible. The Mexican authorities intend to take steps to improve the situation following the implementation of the project and will establish proper administrative procedures. The above table shows the taxes per ha according to current law.  ANNEX 21 Page 1 MEXICO PANUCO FIRST-STAGE PROJECT Economic Rate of Return 1. The rate of return rom the project to the economy has been calcu- lated on the following assumptions: (a) Agricultural Output Prices. For export and import - substitution commodities, i.e. soybeans, rice, corn, cotton lint, cottonseed, safflower, sorghum, sugarcane and beef, international prices for 1980 1/ have been used. After calculating the equivalent FOB or CIF prices, allowances were made for local port expenses, transportation costs and processing costs in order to arrive at the economic farmgate price. The only destination considered for vegetables and fruits was the domestic market; consequently, low prices and suitable marketing constraints were imposed to reflect the situation. The assumption is a fairly conservative one, since the export of some fruits and vegetables is considered as a possibility in the future. The following Table shows the farmgate prices used in the calculation of both economic rates of return, and farm budgets. Farmgate Price Assumptions Commodity Economic Farm Budget Rate of Return (based on Prevailing Prices) -----------------Mex$/ton------------ Cotton 2,750 2,750 Rice 1,100 1,400 Corn 580 900 Sorghum 800 750 Beans 2,500 1,800 Soybeans 1,200 1,900 Safflower 1,450 1,800 Vegetables and melons 1,500 1,800 Fruits 1,600 2,000 Sugarcane 80 80 Beef 9,000 9,000 1/ As projected by the Commodity and Export Projections Division of the Economic Analysis and Projections Department of the Bank. ANNEX 21 Page 2 (b) Labor Costs. In view of the considerable under-employment existing in the Mexican rural sector, official wage rates are considered to be higher than the opportunity cost of labor. For this reason a shadow price of 50% of the official wage rate for farm labor was used in the economic rate of return calculation 1/. (c) Development Schedule. Physical construction of the Las Animas and Chicayan Projects would be completed in four years and Pujal Coy in five years. Agriculture benefits would start to accrue immediately after termination of physical construction and would reach full development by the eighth year for Las Animas and Chicayan and by the ninth year in the case of Pujal Coy. In the case of fruits, however, production would not start until the fifth year after completion of construction works and would not reach full development until five years later. (d) Project Costs. The investments and their timings are as shown in Annexes 8 and 10. To give the economic investment cost, the items for land acquisition and price contingencies have been excluded. Incremental operational and maintenance costs corresponding to the area to be irrigated under the project in each year have been included in the calculations. (e) Project Life. For economic analysis purposes, the Project life has been taken as 40 years. (f) Project Benefits. These have been calculated considering the economic farmgate prices and the development schedule (Annex 15). Project economic benefits are defined as the increments over the benefits obtainable without the project. Only direct benefits and their corresponding costs were considered. Annex 15 shows the incremental net value of production based on current farm- gate prices. These values have been adjusted for the economic farmgate prices for produce outlined in this Annex eliminating the taxes paid from the production cost used in Annex 16 and making the adjustment mentioned above in labor costs. Economic Rates of Return and Sensitivity Analysis 2. Calculated on the basis of the assumptions detailed in para. 1, the economic rates of return are estimated to be 19% for Las Animas, 20% for Pujal Coy and 22% for Chicayan. The cost and benefit streams involved in this calculation are shown in Table 1. 1/ Nacional Financiera uses the same criteria in its evaluation of similar projects. ANNEX 21 Page 3 3. To test the sensitivity of these results to variations in basic assumptions, the following tests were made: Rate of Return Assumption Change Las Animas Pujal Coy Chicayan (a) Construction period extended by one year, investment costs increased by 20% and incre- mental benefits starting one year later 15% 16% 18% (b) Benefits decreased by 25% 12% 12% 14% (c) Full farm labor costs valued at official salary rate 18% 19% 21% (d) Benefits increased by 25% 25% 26% 29% (e) Combined (a) and (b) 10% 10% 11% The above mentioned results show that, within a reasonable range of circum- stances, the risk of not achieving an acceptable rate of return for the proposed project is low. Cases (b) and (e) are unlikely to happen since the output price assumptions are already very conservative.  MEXICO PANUCO FIRST-STAGE PROJECT Project Economic Cost and Benefit Streams (Mex$ million) ------------------------------------------------------Years--------------------------------------------------- /1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18-401 Las Animas Without Project Production Net Value 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 36 With Project Production Net ValueI2 36 36 36 36 76 221 279 283 285 291 301 313 328 322 355 361 361 361 Investments 73 348 294 137 4 - - - - - - - - - - - - O & M Costs - - - - 8.3 11.7 15.3 15.3 15 .3 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.3 15.3 Incremental Stream -73 -348 -294 -137 28 173 228 232 234 240 250 262 277 271 304 310 310 310 Pujal Coy Without Project Production Net Value 99 99 99 99 99 99 99 99 99 99 99 99 99 99 99 99 99 99 With Project Production Net Value/2 99 99 99 99 99 196 409 472 481 482 485 495 511 528 512 566 577 577 Investments 55 260 394 297 48 - - - - - - - - - - - - - O & M Costs - - - - - 22.6 28.8 37.3 37.3 37.3 37.3 37.3 37.3 37.3 37.3 37.3 37.3 37.3 Incremental Stream -55 -260 -394 -297 -48 74 281 336 345 346 349 359 375 392 376 430 441 442 Chicayan Without Project Production Net Value 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22 With Project Production Net Value/2 22 22 22 22 45 108 134 138 139 142 146 150 156 127 164 164 164 164 Investments 14 115 144 44 2 - - - - - - - - - - - - - 0 & M Costs - - - - 3.9 4.9 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 Incremental Stream -14 -115 -144 -44 17 81 107 111 112 115 119 123 129 100 137 137 137 137 /1. Values in this column are slightly lower in the 24th and 34th years for Las Animas and Chicayan and the 25th and 35th years for Pujal Coy because assumed replacements are taking place in those years. /2. Gross value of production minus agricultural investment and production costs. November 6, 1973  MEXICO Organization of SRH THE PRESIDENT OF THE REPUBLIC SECRETARY OF T.E WATER RESOUCES THE COMMISSION OF PAALTOAA PRIVATE SECRETARY TECHNEICAL SECRETAR¥ THE COMMISSION OF THE ALSAS RIVER AIR TRANSPORTATION THE COMMItSSION OF THE FUERTE R-eE oNTERNAL COMMiSION OF TRE DM INISTFATION THE COMMISSIONS OF GRIlALVA WATER C~-0ISSION OF THE BASIN OF MEXICO VALLEY OIRECTOR OF THE PRESS COMMIELATI ON TUSC THE COMMISSIONI OF THE STUDIES OF THE PANUCO RIVER TECHNICAL CONSULTATIVE THE COMMISSON1 OF THE UTIUZATION OF SALINE IWTER GENERAL. COMPTRILLER SU SECRETARY OF SUR-SECRETARY OF --.BSECRETA.Y OF PL-NNNG CONSTRUCTION OPERATONS SENIOR OFFICIAL PRIVATE TECHNICAL PRIVATE TECHNICAL PRIVATE TECHNICAL PRIVATE TECHNI-CL SECRETARY ASISTANT SECRETARY ASISTANT HECRETARY ASSISTANT HECRETARY ASS,STANT ro. Gtat OTe Geel Te GenHrl TT l T Hrl Tn The Gen.e Generet Sub-OffGenra Sb.Offt GenrHI SHb-Ottoœ Gantral SubOffic Gateere1 Sfii tOrld Ban - 7434  PRESIDE POF MEXICO MINISTER OF HYDRAULIC RESOURCES, PRESIDENT OF THE COMMISSION MNSOFAGRICULTURAL IRRIGATIONERTIO GENERAL MANAGER FOR IRRIGATINN ACTING PRESIDENT OF PANUCO AND RIVR FOR RRAL PUBIC UTILTIES NOERATINSE AND SANISTCG D LNTNR STUDES OCIOCONMIC FLOD CNTRL DEELOMEN AGRCULURA NONSRMTION STUDY CPMMISSION AERIL TANSPRTSRESIDENT/ REPRESENTATIVE ADMINITRATIO IRRIGAIN MEXICO CITY LEGAL ADVISER ADVISER REGIONAL PLANNING RADIO AND COMMUNICATIONS OrFF I CnEkS AGRICULTURAL IRGTO INEERIG ANDIRRIGATION IRRIGATION WORKS IPRRIATION AD SAITC N 'TI OI ADMINISTRATION IRRIGATION DISTRICTS IRGTO NT AND GENERAL SERVICES LAS ANIMAS PUJAL COY CHICAYAN World Bank-8110  L..: -, ' - Gonzale ,,~nhon El N,I T -7S 4 &PROJECT r'r PROJET ARA LADS MEICO HICAAN - Las. AnmosJ PROJERIGAIO PROJECTSPROEC - -- Feede Canals -- RoadMEIC CHICHCAANYAMAN H -- -Ialo d r. . :P.:.ii I . PI.P- Sk-g R-- .10.TER R..&i DPHICAYAN DAM AND T-- 'Tn; -ýO Nl,Rý SROJaCe BoAr ANDSPJ TM CO ~~T' C.caya IRRIGThONcROJEn