lAWN-P RESTRICTED Report No. PA-Z2 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION PHILIPPINES UPPER PAMPANGA RIVER IRRIGATION PROJECT July 30, 1969 Agriculture Projects Department CURRENCY EQUIVALENTS US$ 1.00 = Philippine Peso E- 3. 90 1 FP = US$ 0. 256 WEIGHTS AND MEASURES - METRIC SYSTEM 1 hectare (ha) = 2.47 acres 1 kilometer (km) = 0. 62 miles 1 square kilometer (krn2) = 0. 3886 square miles 1 rneter (m) = 39. 37 inches 1 square meter (mi2) = 10. 76 square feet 1 cubic meter (m3) = 35. 31 cubic feet 1 million cubic meter (Mm3) = 810.7 acre feet 1 millimeter (mm) = 0. 039 inches 1 kilogram (kg) = 2. 2 pounds I 1 liter (1) = 0. 264 gallons U. S. 1 cavan (paddy) = 44 kg 22. 7 cavans = 1 metric ton INITIALS AND ACRONYMS APC = Agricultural Productivity Commission NIA = National Irrigation Administration NPC = National Power Corporation RCA = Rice and Corn Administration RCPCC = Rice and Corn Production Coordinating Council USAID = US Agency for International Development USBR = US Bureau of Reclamation PHILIPPINES UPPER PAMPANGA RIVER IRRIGATION PROJECT Table of Contents Pag SUNMARY . . . . , , . , . . . . . . . . . . . . . - ii I. INTRODWCTION . . , . . . . . . . . . . . . . . . . . 1 II. BACKGROUND . . . , 9 . , . . . . . . . . . . . . . . 1 III. THE PROJECT AREA , . . . . . . . . . . . . . . . . . 3 General . . . . . . , . . . . . . . . . . . . . . . . 3 Climate . . . . 9 , . . . . . . . . . . . . . . . , . 3 Soils and Drainage ,.............. , 4 Farm Size and Land Tenure F 1* Transportation .at .............. . . Iv. THEPROJECT ... . 999999 99,99999999 9. 5 Proposed lWorks . . . 9 . . . . . . . . . . . . . . . . 5 Wiater Supply and Demand . . . .. . . . . .. . .. . 7 Status of Engineering . . . . . . . . a . . . . . . . 8 Futjre Power Development , . . . . .. .... 9 Flood Control . . . 9 . . . . . . . . . . . . . 9 . . 9 Cost Estimates . . .. .. 9. . 9 Procurement and Disbursement , 10 Financing . 9 .9. , e * .* * * * * v * 11 Auditing of Accounts .t.. . . . ... 12 V. AGRICULTURAL DEVELOPNENT . . . . . . . . . . . . . . 13 Present Conditions . , to. . a . . . . . , . .a. . . , 13 Expected Yields and Production . . , . . . . . . . . . 13 Storage and Marketing 9 9 9 9 9 9 9 9 9 9 . 9 . 11 VI. ORGANIZATION AND MANAGMENT . . . . . . . . . *. . 15 The National Irrigation Administration . . . . . . . * 15 Construction * . . * . . . . * * * * * * * * a * * 16 Operation and Maintenance . . . . . . . . . ... 17 Technical Assistance, Services and Credit to Farmers . 17 VII. FINANCIAL RESULTS , . ........ , .9.9.999999999 . 18 Operation and Maintenance Costs . . . . . . . . . . Water Charges .l. 9 ** Farmers' Income . , . . 9 . . . . , . . . . . . . 20 V:II. BENEFITS AND SAJSTIFICATIONI., ..... .... ........ . 20 ITX CONCLUSIONS AND RECOMMENDATIONS 2.... , ,.. 21 Thits report tas prepa red by Messrs. Golan, Douglass, Marinet and Hoffman (Consultant), and is based on findings of a mission which visited the 7hilippines in September/October 1968. ANNEES 1. Construction Schedule 2. Description of Works 3. Hydrology h. Cost Estimates 5. Equipment, Materials and Supplies 6. Present and T>rojected Yields and Returns 7. Organization and ManagEment 8. Economic Rate of Returm MAP Upper Pampanga River Irrigation Project . PHILIPPI1ES UPPER PAYTANGA RIVER MRFiATION PROJECT Summary io The Government of the Philippines has requested a Bank loan to meet the foreign exchange costs of the Upper Pampanga River Irrigation Project in Central Luzon, The project includes the construction of Pan'tabangan Dam and Reservoir on the Pampanga River, about 10 km north of the town of Rizals rehabilitation of about 46,000 ha of existing irrigation systems and the construction of a new system to serve 31,000 ha. The pro- ject would permit the storage of the flows of the Pampanga River which would provide a dependable water supply for year round cultivation of 72,000 ha and an additional area of 5,000 ha during the wet season only. It would also provide flood protection to lands lying below the dam site. ii.0 Total project cost, including interest during construction, is estimated to be R 263 million (US$ 67.5 million), of which US$ 34 million, or approximately 501. would be in foreign exchange. Design and construction supervision would be the responsibility of consultants to be employed by the National Irrigation Administration (NIA), a Government agency responsible for the national irrigation systems. Construction of the dam and reservoirs the new irrigation systems and project facilities would be done by contract following international competitive bidding procedures. Mbst of the rehab- ilitation work on the existing systems which does not lend itself to contract work would be performed on force account by the NIA. However, the necessary equipments materials and supplies for these works and operation and mainten- ance equipment would be subject to international competitive bidding. Aside from construction work, the project would also include the engagement of a imanagement consultant firm to review NVIA's operations, structure and finan- aial management and a detailed land classification study of the project area. iii. The borrower would be the Government of the Republic of the Philippines and NIA the executing agency for the project. Coordination of S all engineering and agricultural activities on the project would be accom- plished through the Upper Pampanga River Project Coordinating Committee. Members of the Committee are the Administrator of NIA, who is also the chairman; the General Manager of the N4ational Power Corporation; the Director, Bureau of Public Works; and a representative of the Rice and Corn Production Coordinating Council. A Joint Technical Staff comprising senior technicians of the participating agencies would render technical assistance to NIA at the request of the Committee as and when needed. The NIA is staffed with competent personnel and with the arrangements for technical assistance and the employment of consultants would be able to implement the project success- fully. iv. At full development, annual paddy production from project lands is projected to increase from the present level of approximately 130,000C m ton to 570,000 m ton. This production would help meet the expected increased - ii - demand for rice in the country and thereby reduce the need to rely on imports. Assuming all incremental production from the project to be import substitution, foreign exchange savings would amount to about US$ 36.5 million annually at full development, compared with an initial foreign exchange investment, excluding interest, of US$ 29 million. The project would thus enable the Philippines to improve its di$iglt balance of payments position. The project would yield a rate of return to the economy of 131, excluding benefits from power generation. v. The project is technically sound and economically justified. It is suitable for a Bank loan of US$ 34 million and an appropriate term would be 25 years, including a grace period of seven years. PHILIPPINES UPPER P.*1PANGA RIVER IRRIGATION PROJECT I. IITTRODUCTION 1.01 The Goverrnment of the Philippines has requested a Bank loan to meet the foreign exchange costs of the Upper Pampanga River Irrigation Project in Central Luzon. The proposed project would be multi-purpose with primary benefits accruing to irrigation. Upon completion, it would provide a depend- able water supply for year round irrigation of 72,000 ha And an additional area of 5,000 ha during the wet season only, as well as flood protection and a possible future source of hydroelectric power. 1.02 Technical feasibility studies for the project were prepared by the US Bureau of Reclamation (USBR) under an agreement with the US Agency for Inter- national Development (USAID). Several modifications thereto were subsequently prepared by various ministries of the Philippines Government under the auspices of the Upper Pampanga River Project Coordinating Committee. This report is based on these feasibility studies and findings of the Bank's appraisal mission which visited the Philippines in September/October 1968. Members of the mission were Messrs. A.Golan, J.C. Douglass, J.A. Marinet and C.J. Hoffman (Consultant). This report was prepared by members of the mission. II. BACKGROUND 2.01 The Philippines archipelago covers an area of about 298,000 kmm2 (115,000 sq mi), scattered over some 7,100 islands between the Pacific Ocean and the South China Sea. According to latest estimates, the population is around 31.6 million and growing rapidly at about 3.2' per annum. Gross national product at 1967 market prices was US$ 6.3 billion equivalent, and has been rising at an average of 5.1% per annum between 1962-1967. Per capita income based on 1967 population estimates is US$ 182. The agricultural sector wqhich, together with fishery and forestry, employs nearly two-thirds of the labor force, accomnts for only one-third of net domestic product. Income in this sector is substantially lower than the national average. 2.02 Rice, the staple food of the Philippines, is the main agricultural crop, accounting for about one-half of the area planted to food cmps in the country. Despite the predominance of rice, the country has yet to reach sus- tained self-sufficiency in its production. This is directly linked to poor paddy yields, which are among the lowest in Southeast Asia. Several factors have contributed to the low paddy yields, the more important of which is the absence of a dependable water supply which discourages the extensive use of necessary inputs and improved varieties. Adoption of the neur high yielding varieties on irrigated lands, however, has made some impact on yields and production. Average annual production of rough rice2/ in the Philippines for the three years 1965-67, was b.1 million m ton - about 14' higher than the aver- age of the preceding three years. At the same time, the area devoted to paddy production remained virtually unchanged. 1/ Unhusked rice -2- 2.03 The Government recently launched an all out effort to achieve self-sufficiency in food production, particularly of rice and corn. In the case of rice, it has directed these efforts primarily toward the improvement of yields through the introduction of modern agricultural techniques and high yielding varieties. Farmers are showing keen interest in the new varieties and success to date has surpassed expectations. The recent expansion of production has reduced and, some estimates indicate, temporarily eliminated the rice deficit, but unless a reasonable rate of growth of rice production is maintained, increasing demand arising from the growing population will soon exceed supply. 2.04 Further expansion of areas devoted to high yielding varieties -- depends upon the availability of a regulated water supply which is a pre- requisite to their profitable cultivation. However, many of the existing irrigation systems in the country which serve about 500,00O ha during the wet season and about 200,000 ha daring the dry season are incapable of delivering an assured regulated water supply and, with the exception of the Angat Project covering some 32,000 ha, none of these systems have storage facilities for dry season irrigation. 2.05 Water resources in the country are abundant, but largely unexploited; most of the existing irrigation systems rely upon the direct diversion of unregulated stream flows during the wet season. Cultivation during the dry season is limited by the scant rainfall and the absence of irrigation storage. The urgent need to expand the country's irrigation system has been recognized by Government which assigned high priority to irrigation development under the "Four-Year Program of the Philippines", covering the period ending June 30, 1970. 2.06 Emphasis on irrigation development in the Philippines is concentrated on two fronts. First, improvement and rehabilitation of existing irrigation systems and, second, the construction of storage reservoirs for dry season irrigation. The improvement and rehabilitation program is being carried out with the assistance of a USAID loan of US$ 4,7 million for the purchase of operation and maintenance equipment. In addition, the Government is preparing, with the assistance of consultants, feasibility studies for the rehabilitation and expansion of three systems in IvIindanao under a loan from the Asian Development Bank, The first step in developing dry season irrigation has been the construction of Angat Dam in Central Luzon and rehabilitation of the 32,000 ha irrigation system served by the dam. Construction of the dam and a power plant was financed with the assistance of a Bank loan of US$ 34 million (297-PH), and was completed in 1967, while the rehabilitation works were financed in part by a USAID loan. The next dam proposed for dry season irrigation is the Pantabangan Dam, which is the main structure of the Upper Pampanga River Irrigation Project. 2.07 I4ain responsibility for irrigation development in the country is in the hands of the National Irrigation Administration (NIA), a Government agency created in 1961 to investigate, study, improve, construct and administer all national irrigation systems in the Philippines. About half of the existing systems in the country fall into this category. Further details of NIA's operation and performance to date are given in Chapter VI. - 3 - The remaining systems in the country fall into the following categories: communal systems - developed as community or family irrigation schemes with some financial assistance from the Goverment; private systems - constructed and operated by private individuals; and irrigation service units - pump schemes constructed by the Irrigation Service Unit of the Bureau of Public WTorks. III. THE PROJECT AREA General 3.01 Central Luzon, where the project is located, is the most important rice producing region in the Philippines. It contains about 17% of the annual area planted to paddy and supplies roughly a quarter of the nation's total rice production. The region's contribution to total production is projected to increase to one-third by 1980, largely as a result of the con- struction of new irrigation systems in the area. 3.02 The proposed project consists of 77,000 ha in the Province of Nueva Ecija, in Central Luzon, about 80 km north of Manila. Project lands lie in the northern part of the Pampanga River Basin, which is bounded by the Sierra Madre mountains on the east, the Caraballo mountains on the north, the Agno River Basin on the west and Manila Bay on the south. The lands extend along the Pampanga and Talavera Rivers (see Map). 3.03 Population of the project area is close to 500,000; population density is about 1.6 persons per hectare, which is well above the national average of 1.2. 3.0L There are a number of urban centers distributed throughout the project area with populations of more than 20,000 people. The largest city is Cabanatuan, whose population is 100,000. Yost of these towns provide banking, storage facilities and other agricultural services to the surround- ing agricultural areas. The internal network of highways, rail and road connections between the project area and Manila ensure the mobility of the population and access of farmers to service centers to supply their needs. 3.05 The project lands are devoted mainly to one rainy season paddy crop. Only about b6,000 ha are partially irrigated in the wet season. While double cropping of paddy is practiced in various parts of the Philippines, only about 7,000 ha in the project area are double cropped at present due to the absence of a dependable dry season water supply. Climate 3.06 The climate is tropical and is characterized by a distinct wet and dry season with precipitation occurring mostly during the southwest monsoon, between May ard October. August is usually the heaviest month of precipit- ation. The major climatic constraint on agriculture production is the rain- fall pattern. Paddy is now planted to grow during the wet southwest monsoon period. There is insufficient rainfall to support a second paddy crop. 3.07 The mean annual precipitation is lowest in the southern portion of the project and increases towards the mountains. At Cabanatuan City, the mean annual total is about 1,800 mm (711"),of which approximately 85% falls in the wet season. There are occasional months in the dry season when no rain falls. 3.08 Temperature differentials are relatively small throughout the year and for Cabanatuan City the mean monthly temperature varies from a low of 266C in January to a high of 300C in May. Relative humidity averages about 75d0. The project lies in the tropical storm typhoon belt and generally experiences one or more intense storms every year. Soils and Drainage 3.09 A detailed soil survey of the project area carried out in 1967 by the Government's Bureau of Soils, indicates that the project soils are well suited for multicrop irrigated paddy cultivation. About two-thirds of the I soils are medium to coarse in texture, and have topography and drainage characteristics suitable for irrigated paddy cultivation the year round. Some of these soils could also be planted to vegetables and other crops during the dry season. The balance of the soils have generally poor drainage and would only be suitable for paddy cultivation. While the internal drainage system throughout the project area is adequate for paddy cultivation, it would be necessary to improve surface drainage in order to remove excess rainfall and irrigation water. 3.10 Large parts of the project area appear suitable for irrigated dry season production of crops other than rice. Their introduction would have the dual advantage of requiring less water than rice while yielding a higher return. However, since the existing soils surveys are inadequate to determine the exact location and suitability of these soils, a detailed land classific- ation would be carried out on the lighter soils of the project (see para 5.03). Farm Size and Land Tenure 3.11 The average farm unit in the area is 3.2 ha, with about 84% of the farms ranging between one and five hectares and accounting for nearly 70% of the land. Farms larger than 10 ha are few in number, but account for about 10% of the land. The prevailing farm size is suitable for a family type multiple cropping paddy production. 3.12 Of the 15 municipalities in the project area, all but one have been brought under the Agricultural Land Reform Code. The agrarian reform is to be implemented in two stages. The share tenants would first become leasehold tenants, paying a fixed annual land rental to the landowner, and enjoying a security of tenure. Rents are the equivalent of 25% of the average harvest during three years prior to the introduction of land reform in the area less the cost of seed, harvesting, threshing, hauling and processing. In the second stage tenants would become full owners of the land. Landowners would receive 10% of the value of the land in cash and the balance as stocks and/or bonds issued by the Land Bank. Tenants would repay the Land Bank over a period not to exceed 25 years. In the absence of flunds, the second stage of the reform has not yet been implemented. 3.13 Prior to the introduction of land reform, about two-thirds of the farmers in the area were tenants, cultivating the land under a crop sharing arrangement with the landlord. About 6,000 share tenants out of the total of 17,000 in the area have already become lessees and the status of the rest is expected to be changed during the next four years. The introduction of fixed rental payments has provided farmers with an added incentive to increase production. Transportation 3.14 The Upper Pampanga Basin has a well developed network of provincial and municipal roads connecting interior areas with the national highway system. However, the existing network of feeder roads would not be sufficient to allow the transport of expected rice production to storage and marketing centers, The proposed project would provide for the construction of the necessary additional roads, For details of the feeder roads construction program see para 4.08. 3.15 The Pampanga River in the project area is not navigable by any but very small craft. IV. THE PROJECT 14.01 The project proposed for Bank financing would provide a dependable water supply for year round cultivation of 72,000 ha, and an additional area of 5,000 ha during the wet season only and flood protection to lands lying below the dam site. It includes: (a) the construction of an earth and rockfill dam and reservoir at the Pantabangan site; (b) rehabilitation of the existing irrigation systems serving about 146,ooo ha; (c) construction of a new irrigation system to serve about 31,000 ha; (d) construction of feeder roads and operation and maintenance facilities; (e) procurement of equipment, materials and supplies; (f) a study of NIA's operations, structure and financial operations by a management consultant firm; (g) a land classification of the project area; and (h) a feasibility study of possible future power development at Pantabangan Dam. A consulting firm would be engaged to prepare detailed designs for the dam, review and certify designs for all other civil works to be prepared by NIA and supervise all construction works on the project. Construction works on the p project would be completed within six years (see Annex 1). A detailed description of the works is given in Annex 2 and summarized below. Proposed Works h.02 The Pantabangan dam site is located in a canyon section of the Pampanga River, about 10 km north of the town of Rizal, The proposed- dam would be an earth and rockfill structure, rising 110.5 m above stream-bed, with a crest length of about 920 m. It would provide a reservoir with a - 6 - storage ccpoPcity of 3,035 Mm3. Diversion of the river during construction would be throuEh r' tunnel in the left abutment. Tne upstream end of the tunnel would be plugged upon completicn of the dam embankment, and a gnted crest spillTay with an inclined tunnel chute would utilize the downstream portion of the tunnel for spillway discharge. Naximum spillway discharge capacity would be 1,960 / sec which, together with the surcharge storage space, would be adequate to pass the inflow design flood of a peak of 12,000 m3/sec and a 6.5 day volume of 1,6L6 Wm. 4.03 The irrigation outlet would be through a tunnel whose actual size would be determined during the preparation of detailed designs for the dam. Irrigation releases would be controlled by hollow jet valves issuing into a stilling basin below the dam. Emergency gates would be installed in-gate chambers located near the axis of the dam. A 37 km long, 69 KV wood-pole transmission line would be installed to provide construction power to the dam site. An existing unimproved road would be replaced with a modern improved highway and a bridge crossing the Pampanga River to provide access to the dam site. ).04 A new irrigation system for some 31,000 ha would be built under the project. Work on the distribution system for about 12,000 ha out of this total started in 1967 by the NIA has been completed. These works would not be included in the proposed loan. However, additional works required to upgrade the system would be constructed and financed under the loan. Sufficient checks and structures would be installed in the system to enable close control of water delivery to each field. The system would deliver water down to a 10 ha unit, fror which point delivery to individual holdings would be through farm ditches.- Vork on the 19,000 ha yet to be constructed includes: canals, laterals and sub- laterals, together with structures; farm ditches and gate controlled turnouts; drainage canals; and associated works. All canals in the system, wlith the exception of certain reaches of the main canals. would be unlined. 4.05 Two main canals would supply the new lands, as well as supplementing the supply to existing irrigated lands. Construction work on one of these canals, Diversion Canal No, 2, has recently been completed by the NIA with the exception of roadwTay surfacing along the canal banks, installation of gates and concrete lining in certain reaches. Remaining work on this canal would be carried out by contract and is included in the proposed loan. The other canal, Diversion Canal No. 1, would be about 26 km long and serve 25,000 ha of neo lands. Its construction would involve earthwork, a siphon at the Talavera River crossing, checks and structures and maintenanceeroads along both banks. 4.06 The existing Rizal and Panpanga-Bongabon Diversion dam would be modified as part of the new irrigation works. These modifications include heightening of the overflow crest so as to increase diversion capacity and widening of the existing main canals for a length of about 3.1 km. 1.07 The existing irrigation systems in the area, serving about L6,000 ha, would be rehabilitated and improved so as to bring them up to the standards set for the new systems. W[ork to be carried out on these systems includes the repair of existing canals and structures and construction of sub-laterals, structures, farm ditches and turnouts, drainage canals and associated works. Upon completion of the works, the system would be capable of delivering 1.5 liters per second per ha which would be sufficient to meet peak paddy demands for irrigation water. -7- 4.08 All weather gravelled roads for operation and maintenance would be constructed along the main canals. In addition, feeder roads would be constructed along laterals and sub-laterals, mainly with excavation spoil from the canals, so as to achieve a road density of one kilometer per 75 ha. The roads would be of minimum standard with a roadway section of about 3.5 m and a 15 cm surface of selected borrow. Total length of the roads would be about 1,000 km. 4.09 Three operation and maintenance district offices would be constructed in the project area to serve the irrigation systems. In addition, a permanent project headquarters and a central repair shop would be constructed at Cabanatuan. Water Supply and Demand 4.10 The project Twould derive its main water supply from the Pampanga River regulated by storage at Pantabangan Reservoir. Records of stream flow on Pampanga River are available from 1959 through 1965. An estimate of flows for the period 19)49 to 1959 were obtained by correlation with recorded flows on the Agno and Talavera Rivers. On the basis of these records and available rainfall data, a gfairly reliable estimate was obtained for the river discharge over a 17 year period. The average annual stream flow for the period under review is estimated to be 1,388 iin3. 4.11 Unregulated flows from two major tributaries entering the Pampanga River below the dam, but above the existing Pampanga-Bongabon Diversion Damr, and from the Talavera River, would also be available for project use. The quality of water from these rivers and Pampanga is uniformly excellent for irrigation use with all samples analyzed showing less than 300 ppm of dissolved solids. 4.12 Water requirements for the project were based on two crops of paddy in each calendar year. Taking into account conveyance losses and effective rainfall, annual diversion requirements for irrigation water were taken to average 2.0 m in depth for two paddy crops. In determining the operation of Pantabangan Reservoir and judging the adequacy of the water supply, water requirements were computed on a monthly basis using actual rainfall records and consumptive use to estimate residual water requirements to be supplied by irrigation. Monthly irrigation requirements and the flow of the Pampanga River were used in a reser- voir study over the 17 years of hydrologic records. Water releases assumed in the study included requirements for firm power generation of 20 MW at 30% plant factor (7.2 hours daily). On the basis of theseassumptions, the project could provide a dependable water supply for paddy cultivation of 77,000 ha in the wet season and 72,000 ha in the dry season. Actual water releases for power would depend upon the findings of a power study being conducted by the National Power Corporation and their consultants (for details see para b.20). 4.13 Should power be excluded from the project, or if it is developed on the basis dictated by irrigation releases only, the available water supply would be adequate to meet the demand of a further 5,000 ha during the dry season. Expans- ion of the irrigable area during the dry season, however, would have to take place in areas adjacent to the project where sufficient lands are available. Such a move is dictated by the fact that about 5,000 ha of the existing irrigation system to be rehabilitated under the project could not be served by gravity from Pantabangan dam. This area is situated above Diversion Canal No. 1 and would only be served during the wet season out of the Talavera River (see Map). 4.14 Irrigation water demands, both with or without power, could be adequately met with only minor shortages occurring with a frequency of about one in ten years. Shortages of this frequency and magnitude are acceptable. Further details of water supply and demand are provided in Annex 3. -8- 1J.15 Riglhts on all the project's water supply are currently in the hands of the National Power Corporation. Assurances have been obtained that the necessary water rights would be granted to the NIA and that no private water rights which could adversely affect the project's water supply would be granted. Status of Engineering 1.16 Feasibility studies for Pantabangan Dam and Reservoir, together with preliminary design drawings and quantity estimates, were prepared by the US Bureau of Reclamation (USBR). Sufficient drilling and exploratory work were carried out to determine the suitability of the site from an engineering and geologic standpoint and to ensure the availability of materials for construction of an earth and rockfill dam. Studies of the irrigation and drainage systems, both for the new areas and those to be rehabilitated, were made by the NIAo Surveyed traverse lines were rtm for the new main canals on wLich structures were located and from which excavation and embankment quantities have been computed. The lateral and sub-lateral distribution system and the drainage and roads networks were estimated on a unit length or per hecbare basis from previous experience by the NIA. 41.17 The NIA has done considerable work in constructing irrigation distribution systems, but lacks experience in major dam design and con- struction. They wrould, however, receive assistance from the technical staff of the Nationel Poler Corporation and the Bureau of Public lJorks, who have more experience in this field. Arrangements for technical assistance from these agencies would be made under the auspices of the project's coordinating committee (see para 6.06). In addition, consultants would be engaged to prepare final designs and tender documents, to supervise construction and to certify payment documents for all civil works. thile the consultants would have final responsibility for all these aspects, much of the design and field work for the irrigation netwfork would be carried out by NIA's engineers and technicians. The NIA has agreed to engage a consulting en- gineering firm satisfactory to the Bank as outlined above and on terms and conditions to be approved by the Bank. 4.18 Several modifications of the dam design presented in the feasi- bility study lhave been proposed by the Government in an effort to reduce pro- ject costs. These proposals, however, have not been worked out in sufficient detail to evaluate their merit at this time. Further review of the proposed changes would be undertaken by the consultants during the preparation of de- tailed design. Should any special problems related to design criteria arise at that stage, the NIA has agreed that either they or the Bank may call for the appointment of a Review Board consisting of three experts acceptable to the Bank to review the basic design and criteria adopted by the consultants for Pantabangan Dam and to advise as needed on special problems which might de- velop during construction. -9- Future Powrer Development 4.19 Benefits from power installations at Pantabangan Dam would depend upon its joint operation with other existing hydroelectric plants in the country. For this purpose, the Bank recommended to the Government in September 1968 that a study be carried out to determine the benefits from the joint ope- ration of Pantabangan irith the Ambuklao/Binga and Angat Reservoirs. The study has been carried out by the National Power Corporation with the assistance of their consultants, Gilbert Associates of the USA. The findings of this study were somewhat inconclusive and the National Power Corporation has there- fore suggested that a feasibility study should nou be prepared by the con- sultants wqho wnould prepare the detailed design of the Pantabangan Dam. This feas-bility study would be completed before the final designs are ready so that the necessary provisions for power could be incorporated in the designs before the tender documents would be issued. The foreign exchange costs of the study are estimated to be about $100,000 and this amount has been included in the loan. Flood Control 4.20 There are two sources of floods in the project area. One is the heavy rainfall over the relatively flat lands and the second is the run-off from the mountain areas above Pantabangan Dam. In order to control the latter floods in the project area, as well as to help ease the extent of floods fur- ther on downstream, the project includes provisions for flood control. For this purpose, the design of Pantabangan Dam includes an allocation of 486 Mm3 of reservoir space to flood control. Annual flood control benefits are esti- mated to be US$ 500,000 and justify the cost of US$ 2.5 million associated with this aspect of the project. Cost Estimates 4.21 Quantity estimates for Pantabangan Dam and Reservoir are based on the USBR feasibility design. Unit prices incurred during construction of the Angat Dam three years ago adjusted to reflect present day cost levels were I applied to these quantities. Quantity estimates for modification of the existing diversion dams, irrigation and drainage systems and feeder roads are based on surveys and preliminary drawsings which are adequate for cost estimate purposes. Unit prices were based on NIAt's recent experience with similar works elsewhere in the Philippines. Unit costs for equipment, material and supplies are based upon current quotations received by NIA. The estimates include the cost of engineering and management consulting services, super- vision and overhead. A 20% contingency factor was applied to all cost es- timates. Interest during construction on the proposed Bank loan is also included in the estimates. Foreign exchange requirements were based on bids for construction of the Angat Dam and a detailed breakdown of the equipment, materials and supplies required for the project. The cost estimates and foreign exchange requirements are reasonable. Details of tlhe estimates are presented in Annex 4 and are summarized below: - 10 - P (millions) US$ (millions) Local Foreign Total Local Foreign Total Pantabangan Dam and Reservoir 64.14 53.8 118.2 16.5 13.8 30.3 Irrigation System and Roads L!2.1 28.5 70.6 10.8 7.3 18.1 Operation and I4aintenance Equipment 0.8 5.8 6.6 0.2 1.5 1.7 Consulting Services 1.2 5.8 7.0 0.3 1.5 1.8 Sub-total 108.5 93.9 202. 27.8 2L.1 51.9 Contingencies about 20% 22.2 19.1 41.3 5.7 4.9 10.6 Total Investment Cost 130.7 113.0 2L3.7 33.5 29.0 62.5 Interest During Construction D 7.0= - _19.5 19.5 - 5.0 5.0 TOTAL Project Cost 130.7 132.5 263.2 33.5 3b.0 67.5 Procurement and Disbursement 4.22 Construction of Pantabangan Dam, the new irrigation systems, project facilities, feeder and operation and maintenance roads as well as modifications of the existing diversion dams would be done by contracts to be awiarded on the basis of international competitive bidding. A single con- tract is expected to be awarded for construction of the dan and about three for the irrigation works. Rehabilitation wffork on the existing irrigation system, and the construction of farm ditches throughout the area and an access road to the dam which do not lend themselves to international competitive bidding, would be carried out as force account work by the NIA. The esti- mated cost of these works is US$ 6.0 million. However, the necessary equip- ment, materials and supplies for these works, as well as operation and main- tenance equipment, would be purchased following international competitive bidding procedures. A detailed list of these items is presented in Annex 5. v.23 Disbursements out of the loan for civil works contracts to be awarded to non-Filipino contractors and for consulting services would be made against foreign exchange payments. All disbursements for civil works con- tracts which would be awarded to local contractors and for force account work would be made on a percentage basis. For equipment, materials and supplies, disbursements would be made upon presentation of suppliers invoices and evi- dence of shipmnent to the Philippines against their CIF cost or if the success- ful bidder should be a local supplier disbursements would be made following the presentatGion of import documents for the CIF cost of the imported com- ponents utilized in manufacturing the goods. L.21 Several lars in the Philippines prohibit international competitive bidding on civil works and equipment. Furthermore, one of the laws specifies - 11 - that for the purpose of bid analysis on equipment, all custom duties should be added to the foreign bid in addition to a 15% preference margin for local suppliers. Waiver of the restrictive provisions of these laws which required legislation by Congress was obtained prior to negotiations. Special legislation was passed by. Congress in June 1969. According to the provisions of the Act and as agreed during negotiations, equipment and materials for the project would be procured on the basis of international competitive bidding, in which Filipino suppliers could participate with a preference allowance of 15%. The evaluation of bids for such procurement would be made after deducting from bids submitted by non-Filipino bidders customs duties and any other taxes due on the imported goods. No preference would be granted to Filipino contractors on civil works contracts. Agreement was also reached that any contract for the procurement of imported equipment, materials and supplies not exceeding US$ 10,000 would be exempted from inter- national competitive bidding, provided that the aggregate of all such contracts shall not exceed US$ 100,000. Financing 4.25 The proposed Bank loan of US$ 34 million (P 132.5 million) would cover the estimated foreign exchange cost of the project consisting of pay- ments for civil works, imported equipment materials and supplies, consulting services and interest on the loan during the construction period. The loan would represent approximately 50% of the total project cost. It has been agreed that expenditures incurred on the project prior to signing of the loan agreement but after April 30, 1969, would be reimbursable under the loan. Total withdrawals from the loan account for these expenditures would not exceed US$ 200,000. 1..26 Expenditures for the construction of the project, including dis- bursement of the proposed Bank loan, would be approximately as follows: Fiscal Years ending Frior to June 30 of Loan 1970 1971 1972 1973 1974 1975 Total - --- --US illions.----- Government Contribu- tion 1.2 1.4 4.1 5.0 8.2 8.8 4.8 33.5 IBRD Loan - 1.0 4.4 5.8 7.1 8.7 7.0 34.0 TOTAL 1.2 2.4 T. 1075 1i3 17.7 la-l7 77.T 4.27 Local currency requirements for the project estimated at P 131 million (US$ 33.5 million) would be provided by the Government through one or all of the followqing sources: sale of NIA bonds; sale of Government Bonds; and releases out of general revenues. 4.28 The Act creating the NIA specifies that the agency's working capital should be P 300 million (US$ 77 million), to be subscribed and paid by the Government through bonds to be floated by the Central Bank, which shall deliver annually to the NIA the sum of P 30 million (US$ 7.7 million) until its whole capital stock is fully paid up. Meeting the entire local currency - 12 - requirement for the project out of this source as proposed by the Government would present several problems. First, under NIA's present ceiling of P 300 million, only some P 180 million (US$ 46.2 million) remain unsubscribed and, therefore, relying exclusively on this source to finance the project, would seriously hamper NIA's operations in other parts of the country. Second, annual capital releases to the NIA are limited to P 30 million (US$ 7.7 mil- lion), compared with up to P 34 million (US$ 8.8 million) annual local cur- rency requirements for the project. Third, although the NIA has previously used the funds it received from Government for capital investment, the Act does not specifically authorize it to do so. 4.29 Sale of Government Bonds is another source of funds for the pro- ject. Subject to Congressional authorization, the Government can float bonds to finance various development projects. These bonds, as well as the NIA bonds and those of various other Government agencies and public corporations in the Philippines, are usually bought by the Central Bank, the Government Service Insurance System, the Social Security System, the Development Bank of the Philippines and commercial banks. However, the amount of bonds purchased annually by these institutions falls short of the amount offered for sale. With several agencies attempting to sell bonds in a limited market, there is no guarantee that a sufficient amount of bonds could be sold annually to meet the project requirements. 1,.30 Congressional legislation appropriating funds for the project out of general Government revenues is the third source for financing the local curreincy requirements of the project. However, in the past, Government re- venues fell far short of annual appropriations and consequently development projects suffered from inadequate funding. To ensure adequate funding for the project, the Government was requested to obtain the necessary authoriza- tion to finance the local currency portion of the project through the sale of Goverrnent Bonds and releases out of general revenues. Passage of legis- lation to accomplish this was obtained prior to nagot!=tLnsQ 1.31 In order to ensure the continuous and timely flow of funds for the project, assurances were obtained during negotiations that a special fund would be set up prior to the signing of the loan, for the project into which the Government would deposit every month the local currency requirements for the next three months' period. The present estimates for local currency requirements in each fiscal year are presented in para L!.26. Auditing of Accounts 1.32 The NIA is a Government agency and, as such, its accounts are audited annually by the Government's Corporate Auditor's Office. Assurances were obtained that NIA would engage consultants to assist them in setting up a cost accounting system for the project, that it would maintain separate accounts for the project which would be audited by the Government's Corporate Auditor's Office and submit the auditor's annual report to the Bank along with a certified copy of NIA's financial statement within four months after the end of the fiscal year. - 13 - V. AGRICULTURAL DEVELOPMEIT Present Conditions 5.01 Most of the project area now produces only one crop of rice per year, about 7,000 ha are planted to a second crop. Some machinery is used in preparation of the rice fields, but most operations are performed with draft animals. The crop is harvested at the end of the rainy season when substantial losses are incurred due to a lack of dryers. 5.02 Present production in the project area is mainly from traditional unimproved rice varieties. However, in the last tvwo years, since seed of the high yielding varieties, principally IR8, has become readily available, parts of the area are planted with the new varieties. Overall yields, how- ever, are still laf ranging from about 28 cavans (1.2 m ton) per ha on rainfed S lands to b0 cavans (1.8 m ton) per ha on the partially irrigated. Total annual paddy production from the project area is presently around 130,000 m ton. EiMpected Yields and Production 5.03 About 20,000 ha of project lands appear suitable for groTwing crops other than rice and may ultimately be more beneficially used for cul- tivation of other crops. However, until there is a demonstrated market for such crops, all of the project area would be devoted to multiple cropping of rice. In order to identify the exact location and suitability of these soils for the production of crops other than rice, the Government has agreed that the NIA would prepare, with the assistance of consultants, a land classifi- cation of the project area in order to delineate those lands suitable only for paddy and those which can be used also for cultivation of other crops anid to determine their characteristics and best ultimate use. 5 .Ob Completion of the project's distribution system would coincide wrlth the end of construction of Pantabangan Dam. Since the area is already partially irrigated it is expected that within three years after water becomes available for irrigation in the dry season, the entire dry season project area of 72,000 ha would be planted to a second crop. With the better irrigation system, control of water and the application of complementary inputs required by the improved varieties, yields are projected to increase gradually to the level of 87 cavans (3.8 m ton) per ha per crop. Total production from two crops of paddy in each calendar year from the project area at full develop- ment would be about 570,000 m ton, or roughly four times the present level. 5.05 Transformation of the present production levels into those pro- jected in this report is expected to occur gradually following the intro- duction of the high yielding varieties in any given area. The entire project area is expected to be planted to the high yielding varieties by the tenth year of the project. Given the emphasis on continuation of rice as the main crop, and the availability of new high yielding varieties, it would be possible to develop even a higher level of production than is projected, provided an accelerated program for the expansion of extension, storage, marketing, credit - 14 - and other agricultural services could be developed. The assured water supply provided by the project and a general upgrading of cultivation practices, would also lead to a concurrent increase in production costs. This would be due largely to more intensive use of fertilizers, insecticides and im- proved seed all of whzich are readily available to farmers through commercial channels in the project area. Details of yields, cost and returns are pre- sented in Annex 6. 5.o6 Farmers in the project area employ larege numbers of hired labor for land preparation, transplanting, weeding, harvesting and threshing. There is an abundant supply of farm labor in the area to meet the requirements of double cropping cultivation. Upon completion of the project, production costs in the area are expected to increase gradually from the present level of P 350 to P 7h5 per ha per crop. This increase would be associated with the more than doubling of rice yields and more than a five fold increase in the farmer's net income (see Annex 6). Store and arketing 5.07 The Central Luzon Plain is considered to be the rice bowl of the Philippines and has long been a net exporter of rice. Thuch of the surplus produc-tion from the region is shipped to Manila which is a major consumption center. Surplus production from the project area is also expected to be shipped to Manila with which it has good rail and highway connections. 5.08 Farmers in the project area can sell their crops to private buyers, millers or the Rice and Corn Administration (RCA) wxhich is a govern- ment agency created with the main purpose of stabilizing the price of rice and corn to the farmer. The RCA has mdlling and storage facilities throughout the country which are sufficient to handle between 10% and 15% of the rice marketed in the Philippines. This should suffice to maintain the average paddy price to the farmer at a level of about P 15 per cavan (USc 87.4 per n,n ton) which compares favorably Tith the projected world market price for rice. 5.09 About 200 warehouses are located in the project area with an aggregate capacity of more thmn five million cavans (220,000 m ton). tiith more than half of the paddy production reaching market channels, present facilities can adequately handle production from the project until the con- struction works are completed. However, some of the rice produced in the Cagayan Valley is stored in Nueva Ecija and eventual regional increases in production would strain existing facilities by 197h. A storage study pre- pared for the Government by consultants, Weitz-Hettelsater Engineers of the U.S.A., in June, 1968, recommends the construction of additional bulk silos in the project area between 1972 and 1975. The Government has submitted a request to the Bank for financial assistance in implementing the consultant's recommendations for additional storage facilities to be constructed by 1970 in neighboring provinces and elsewhere in the country. It has also obtained a US$ 4.0 million loan from the US Export-Irport Bank of which at least US$ 1.0 million would be used to finance the expansion of storage and milling facilities. - 15 - 5.10 There are sone 160 private rice mills in the project area with a total milling capacity per 12-hour day of approximately 23,000 cavans (equivalent to 300,000 m ton per annum). However, about half of the mills are primitive and have a low milling recovery rate. As production from the project area increases, the existing rice mills would be insufficient to meet the milling demands. The introduction of additional milling facilities would be undertaken by the private sector which has been responsive to the needs of the area in the past. Aside from the need to improve and expand the milling capacity in the a-rea, there is also an urgent need to introduce mechanical driers. 5.11 The number of mechanical driers in use throughout the Philippines is limited and the bulk of production is being sun-dried. However, with the introduction of early maturing and high yielding varieties, sun-drying of paddy during the wet season on a large scale will not be feasible. This fact has been recognized by the Government which is promoting the installation of mechanical driers. Credit is currently being made available through banking institutions for the purchase of driers and the needs of the project area would be met through the expansion of drying facilities by the private sector. VI. ORGAIZATION AND IANAGMMT The National Irrigation Administration 6.01 Responsibility for the 300,000 ha of natianal irrigation systems in the Philippines was in the hands of the irrigation division of the Bureau of Public W4orks up to 196L. At that time, in an effort to accelerate irri- gation development in the country, tlhe Government separated the irrigation branch from the Bureau and set iLt up as the National Irrigation Administration (NIA). The functions of the NIA are to investigate, study, improve, construct and administer all national irrigation systems in the country. Its financial requirements are met by the Government through the sale of bonds. Overall responsibility Łor the agency is vested in a Board of Directors composed of seven members with the Secretary of Public TWiorks and Communication acting as chairman. Management of the agency's affairs and business is in the hands of the Irrigation Administrator. Appointment of the Administrator is in the hands of the Board subject to the approval of the President of the Philip- pines (for further details see Annex 7). It has been agreed that during the disbursement period of the loan and five years thereafter, the Board of NIA would consult w;ith the Bank sufficiently in advance, of amy appointment so that the Banlk could conment on the suitability of the nominee. 6.02 Although the NIA is staffed with competent personnel and has re- cently completed successfully tihe rehabilitation of 32,000 ha on the Angat Proiect and the construction of a new system on 12,000 ha in the Pampanga project area, the agency is hampered by several problems. First and foremost among thesc is the shortage of operating funds. This problem has been sorne- what alleviated by the recent US$ L.7 million equipment loan from the USAID wrhich would enable NIA to better maintain the existing systems, and by the - 16 - increase in irrigation fees (see para 7.03). The other problems relate to manageinent of equipment, billing and collection of irrigation fees, project reporting systems, the internal organization structure of the agency and its financial management. These shortcomings were highlighted in a 1967 report to the Government prepared by a local management consultant firm, Sycip, Gorres, Velayo and Company. 6.03 Several of the recommendations made by the management consultants are now being implemented by the NIA. Houever, many of the recommendations were only prelLminary and did not present detailed programs for implementation. The preparation and implementation of such programs would now be undertaken in two phases. The first phase would take about six months to accomplish and would outline in detail the actlon and programs required to correct the prob- lems identified earlier by the consultants. After consultation between the Banl and NIA, the recommended programs would be implemented under phase two of the study. This phase is expected to be accomplished over a two-year period*. The NIA has agreed to employ a suitably qualified management con- sultant finn acceptable to the Bank to carry out the study as outlined and, after consultation with the Bank, to take all necessary actions to implement the recommended and agreed programs. Construction 6.oL The .IIA would be the executing agency for the planning, design, construction and operation and maintenance of all project works. It would also be responsible for collecting wzater charges. An engineering consulting firm w-ould be engaged by NIA to assist them in all the civil wrorks phases of the project. The consultants would rmake maximum use of NIA personnel, espe- cially in the designs of the distribution system, but would have final respon- sibility for technical adequacy of designs and supervision of construction and would certify applications for withdrawal from the loan account. With the assistance of these consultants, LNIA should be able to implement success- 5 fully all the works on the project. 6.05 The organizational arrangement for discharging the construction responsibility is shonn in chart form in Annex 7. A Project Manager has been appointed by the Irrigation Administrator to have direct responsibility for all actions concerned with construction of the project. He would be assis-ted by two Assistant Project Mianagers concerned with field and office activities. 6.o6 General coordination of project activities between government agencies would be achieved through the Upper Pampanga River Project Coordi- nating Committee, established under a Presidential Administrative Order. The Administrator of the NIlA serves as chairman of the Committee whose members are: the General Manager of the National Power Corporation, the Director, Bureau of Public Works, and a representative of the Rice and Corn Production Coordinating Council (RCPCC). Agricultural activities related to the project such as extension, credit and marketing are coordinated through the RCPCC - 17 - representative. The Committee's Joint Technical Staff, comprising senior technicians of the participating agencies would render technical assistance to the NIA at the request of the Committee as and when necessary. Decisions of the Committee would be relayed to the Project I4anager through the direct authority exercised by the Administrator of the NIA. Operation and MIaintenance 6.07 The NIA would be responsible for operating and maintaining the project. The organization chart is shown in Annex 7. The Project Manager would have his headquarters at Cabanatuan City and from that location direct all opera-ion and maintenance activities for Pantabangan Dam and the irri- gated area. The irrigated lands would be divided into three districts with district headquarters located at Santa Rosa, San Jose and Talavera. Each district would have adCinistrative, equipment and road maintenance sections. S Operation of the irrigation system would be further subdivided into zones, divisions and sections, with ditch :iders responsible for distribution of water to each section of about 400 ha. A central equipment mnaintenance shop for major overhauls -iould be established at Cabanatuan City. Technical Assistance, Services and Credit to Farmers 6.08 Research. The Maligaya Rice Research and Training Center located in the project area would provide the necessary research facilities to the project. It w-ould also serve as a training center for extension service workers. The Center is carrying out research activites on rice in the fol- lowing fields: plant breeding; cultivation requirements; fertilizer and soil management practices; irrigation and drainage requirements; pest contrd2 and storage and processing. It also conducts experiments with cotton, soybean and wheat. Several experirmients on rice and fertilizers are undertaken in cooperation with the International Rice Research Institute, the Philippine Atomic Energy Commission and the United Nations Special Fund. The Center would be able to provide nll necessary research facilities to the project. 6.og Extension. Several Government agencies provide extension services in the area under the supervision and coordination of the Agricultural Pro- ductivity Commission (AEC). The principal extension workers in the area are the farm management technicians, the home management technicians and the cooperative officers. Presently there are about 50 extension workers in the area. In conjunction with the land reform progran and the introduction of double cropping, this number would be gradually increased so that by 1975, whlen construction work on the project is completed, there would be about 390 extension workers in the area. Out of this total about 200 would be farm management teclhncians, each covering about 380 ha. In addition, there would be one supervisor for every 10 farm mnagement technicians. This number, which could be easily recruited from among the graduates of the numerous agricultural colleges in the country, would be adequate to meet the needs of bhe area. Budget requirements for personel and operations of the ex- tension services which is currently about P 220,000 annually, is projected to increase to around P 1.8 million by 1975 and would be provided by the APC - 18 - out of its budgetary appropriations. The Government has agreed that the necessary personnel and budget requirements for the extension services would be made available to the project. 6.10 Credit. Introduction of high yielding varieties and new cultiva- tion techniques would require a large increase in short term (production), medium and long-term credit. There are sufficient credit institutions in the) area to meet the expected increase demand for credit. The major sources of agricultural credit in the area are the Rural Banks followed by the Phil- ippines National Bank, the Development Bank of the Philippines, the Agri- cultural Credit Administration and about 33 private local banks. Eight out of the 13 Rural Banks in the area participate in the IBRD Rural CGredit Pro- ject (432-PH), for which a second loan (607-PH) has recently been signed. These loans provide funds to select rural banks through the Central Bank for medium and long-term loans to agricultural producers. By augmenting the rural banks' lending capacity for medium and long-term loans, the Rural Credit Project also enables these banks to devote more of their own funds for short-term production credit as well as utilizing substantial discount facilities with the Central Bank. 6.I1 The total of all types of agricultural loans granted by the various banks in the area amounted to about P 50 million (US$ 12.8 million) in 1967. In addition, a considerable amount of credit was extended by other sources such as landlords, farm input dealers, marketing and processing firms and private money lenders. Upon completion of the project, production credit requirements in the area for two crops of paddy are expected to amount to about P 60 million (Us$ 15.4 million) annually. The existing credit institutions in the area would be able to meet this need. VII. FINANCIAL RESULTS Operation and M4aintenance Costs 7.01 Operation and maintenance cost estimates have been based on actual expenditures experienced on the Angat Project, a similar type of project in Central Luzon, adjusted upwards to reflect the level of opera- tions and maintenance efficiency assumed for the project. Annual operation - and maintenance costs on the project would amount to about P 08.0 (US$ 12.3) per ha. Operation and maintenance work on the existing irrigation systems in the area are generally inadequate due to lack of equipment and shortage of funds. Since the rehabilitation works on these systems would incorporate deferred maintenance, no attempt would be made to intensify maintenance work on these systems until the rehabilitation works are completed. Operation and maintenance activities on the neTf irrigation areas would commence upon completion of each system. The entire project system is expected to become operational in 1975. Annual expenditures, including the cost of operating Pantabangan Dam and Reservoir allocated to irrigation, are estimated to be as follows: - 19 - Calendar Year 1970-1972 1973 1974 1975 Cost in P millions 0.9 1.8 2.7 3.7 US$ '000 equivalent 230 b60 690 950 Water Charges 7.02 The NIA has the necessary powers to collect from the users of each irrigation system constructed by it such fees as may be necessary to finance the continuous operation of the system and to recover the construc- tion cost thereof. Presently, all such collections are paid into the Govern- ment general revenues fund. Under the project, however, NIA would retain for use on the project that portion of the irrigation fees collected by it S rwhich is necessary to cover actual operation and maintenance costs. This arrangement is required by the Congressional Act under which the Government would borrow funds for the project from the Bank. 7.03 Irrigation fees presently charged by NIA on paddy lands amount to P 25 per ha for the wet season crop and P 35 per ha for the dry season crop. Collections, however, fall far short of assessments. Since annual Government allocations to NIA for operation and maintenance activities are directly related to water charges collections, failure to collect water charges has brought about a serious deterioration in NIA's irrigation sys- tems. The poor collection record of the NIA is partly due to an inadequate collection system. In order to improve collections, the management con- sultant firm which would be employed to review NIA's operations (see para 6.03), would also help install an updated billing and collection system. 7.Ob The NIA has recently increased its irrigation fees on double cropped paddy lands from P 12 to p 60 per ha per annum. This rate would be adequate to cover all operation and maintenance costs on the project but would contribute little toward capital recovery. In order to recover the total investment cost of the project including interest during construction over a 50-year period, irrigation fees would have to be gradually increased from the present annual level of P 60 per ha to P 150 (US$ 38.5) per ha within ten years after completion of the project. In view of the substantial increase in farmers' income which would result from the project, such a charge would not be unduly high and could be met by farmers. To ensure sound operation and maintenance practices on the project as well as equitable con- tribution by benefiting farmers toward recovery of the capital cost of the project, the Government has agreed that: (a) should the irrigation fees collected by NIA in the project area fall short of the amount required for the operation and maintenance thereof, it would provide NIA with the nccessery supplenentary funds. It is currently estimnted th --I 1~~~~~~~~~~~~~~~~~~U rr .< :i CX sl tig+:'=h-'S <~~~~~~~~~~~~~~~~~~~~~~~~~~~~E s s s 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~...............