Document of The World Bank FOR OFFICIAL USE ONLY L^//3//3 -C Repot No.P4987-CO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$78.2 MILLION TO THE REPUBLIC OF COLOMBIA FOR A SMALL-SCALE IRRIGATION PROJECT JULY 11, 1989 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY AND EQUIVALENT UNITS Currency Unit - Colombian Peso (Col$) US$1.00 - Col$ 382.58 US$0.00306 - Col$ 382.58 (7111189) WEIGHTS AND MEASURES Metric System ABBREVIATIONS BOR - Banco de la RepUblica (Bank of the Republic (Central Bank)) CAJA - Caja de Cr6dito Agrario, Industrial y Minero (Caja Agraria) (Agricultural, Industrial and Mining Credit Bank) DNP - Departamento Nacional de Planeacion (National Planning Department) DRI - Desarrollo Rural Integrado (Integrated Rural Development) FFAP - Fondo Financiero Agropecuario (Agricultural Financing Fund) HIMAT - Instituto Colombiano de Hidrologia, Meteorologia y Adecuacion de Tierras (Colombian Institute for Hydrology, Meteorology and Land Improvement) ICA - Instituto Colombiano Agropecuario (Colombian Agricultural Institute) INCORA - Instituto Colombiano de la Reforma Agraria (Colombian Institute for Agrarian Reform) INDERENA - Instituto Nacional de Recursos Naturales Renovables (National Institute for Renewable Natural Resources) PNR - Plan Nacional de Rehabilitaci6n (National Rehabilitation Plan) SENA - Servicio Nacional de Aprendizaje (National Apprenticeship Service) FISCAL YEAR January 1 - December 31 FOR COFICIAL USE ONLY COLOMBIA SMALL-SCALE IRIGATION PROJECT Loan and Project Summary Borrowers Republic of Colombia Executing Agency: Inatituto Colombiano de Hidrologia, Meteorologia y Adecuaci6n de Tierras (HIMAT) Beneficiaries: (i) Approximately 43,000 farm families; and (ii) HIMAT; Amounts US$78.2 iAllion equivalent Terms: Seventeen years, including five years of grace, at the Bank's standard variable interest rate. Financing Plans Government US$43.4 million Small farmers US$33.5 million Financial Intermediaries US$40.9 million IBID US$78.2 million Total US$196.0 million Economic Rate of Returns 231 Staff Appraisal Report s Report No. 7624-CO Map No. 21413 This documeflt has a restred distribution and may be used by reiipients cb in the performance of their official duties. Its contents may not otherwise be disclsed without korld Bauk authorization. T01 M OFCIL USE ONLY COLOMBIA SMALL-SCALE IRRIGATION PROJECT Loan and Proiect Summary Borrower: Republic of Colombia ExecutinR Agency: Instituto Colombiano de Hidrologia, Meteorologia y Adecuaci6n de Tierras (HIMAT) Beneficiaries: (i) Approximately 43,000 farm families; and (ii) IMAT; Amount: US$78.2 million equivalent Terms: Seventeen years, including five years of grace, at the Bank's standard variable interest rate. Financins Plan: Government US$43.4 million Small farmers US$33.5 million Financial Intermediaries US$40.9 million TBID US$78.2 million Total US$196.0 million Economic Rate of Returns 232 Staff Appraisal Report X Report No. 7624-CO Mans No. 21413 This document has a restricted distribution and may be used by recipients only in the perfomance of their official duties. Its contents may not otherwise be disclod without World Dank authorization. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTEtNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF COLOMBIA FOR A SMALL-SCALE IRRIGATION PROJECT 1. The following memorandum and recommendation on a proposed loan to the Republic of Colombia for US$78.2 million equivalent is submitted for approval. The proposed loan, which would be repayable in 17 years, including five years of grace, at the Bank's standard variable interest rate, would help to finance a small-scale irrigation project. 2. Background. About 600,000 ha are presently under irrigation in Colombia. This is only about 172 of the area that can be technically irrigated, less than 12 of the total land area and about 22 of the area presently under agricultural use. About 802 of the existing irrigation infrastructure (500,000 ha) was developed and is managed and maintained by the private sector, serving predominantly large farms. Public sector investment in irrigation began in the 1940s and expanded to cover about 275,000 ha in 25 districts, primarily during the Agrarian Reform push of the 1960s. However, many of the irrigation systems were not completed due to the reduced budgetary appropriations for the Agrarian Reform program in the 19709. This resulted in inadequate water supply, inadequate maintenance and cost recovery shortfalls. This, in turn, led to the deterioration of the irrigation districts, so that only about 402 of the areas in the districts were receiving water by the late 19708 and a large proportion of the irrigated areas were underutilized, being used for low value or subsistence crops or for livestock. 3. With domestic and external demand projections for foodstuffs by the year 2000 indicating that between 29 and 39 million ha would be required to be in agricultural production by that year to meet the additional demand, compared with the 27 million ha now under production, the Government, with Bank support (Irrigatien Rehabilitation I and IT Loans), initiated a program to complete and rehabilitate the 25 irrigation/drainage districts and to improve cost recovery. This approach together with increased emphasis on research to increase productivity through agricultural intensification and improved yields, rather than through land development, was considered the most efficient way to meet the projected demand and increase rural incomes. Also, starting in the mid-1980s, the Government began to assess the technical and economic feasibility of small-scale, gravity-type irrigation schemes to raise the productivity of small farmers, of which there are some 1.8 million in Colombia with less than 20 ha each. To date, about 17,000 ha have been developed through small-scale irrigation schemes, of which almost 4,200 ha have been financed by the Bank as part of a 8,000 ha pilot component included in the Bank's Irrigation Rehabilitation II Project. Evaluations of such schemes have been positive. The schemes have: (a) been effectively planned and constructed; (b) low investment costs (US$1,200 per ha); (c) significantly increased productivity and income of the poorer segments of the Colombian farmer population; (d) reduced crop and market - 2 - risk associated with agroclimatic conditLons and cyclical production patterns; and Ce) promoted community involvement in their construction, operation and maintenance. Implementation problems identified, i.e., need for training in optimal water usage, improper utiliszation of some on-farm irrigation equipment and the insufficiency of technical assistance are being tackled by HIMAT and are specifically addressed under the proposed project. HIMAT, the main implementing agency for the proposed project, has nationwide responsibility for public sector irrigation and drainage in Colombia. HIKAT is an efficient institution with a well-deserved reputation for sound engineering. It is well managed and has a relatively small but well motivated staff. It has been adequately funded, mainly through budget transfers and external oorrowing. Inadequate recovery of irrigation investments and operating costs is one of the weaknesses which is being addressed under an ongoing Bank loan to HIMAT and would also be addressed under the proposed project. Other areas which need strengthening in connection with the small-scale irrigation program are staffing, monitoring and evaluation, and interinstitutional coordination. 4. Rationale for Bank Involvement. The proposed project supports the Bank's dual strategy for the agricultural sector of promoting efficient. growth, and alleviating rural poverty. Specifically, the project would build on results of a recently completed irrigation subsector analysis, by helping to ensure that: (a) sound and efficiency-based criteria are established and applied for the selection of areas to receive irrigation infrastructure; (b) measures are taken to achieve greater involvement of corunity in the construction, financing, operation and maintenance of irrigation schemes; (c) continued attention is given to improving cost recovery and to rationalizing public sector outlays in irrigation; and (d) environmentally sound methods are employed in the use of water resources and the introduction of irrigated agricultural practices onto small farms. It would also help to ensure the sound development of the environmentally fragile La Mojana area for agricultural purposes. 5. Project Obiectives. The major objectives of the project would be to: (a) increase agricultural productivity and cropping intensity and therefore rural incomes of about 43,000 small-scale farmers; (b) reduce market risks by smoothing out production throughout the year; lc) develop the technological base for the future development of La Hojans Region; (d) improve cost recovery from public sector investment in irrigation and thereby reduce the subsidy to water users for fiscal as well as for resource allocation purposes; and (e) strengthen coammnity participation in the construction, financing, operation and management of the irrigation schemes. 6. Project Description. The project would provide supplementary irrigation for about 43,000 farmers in about 60,000 ha over a six-year period by financing: (a) the off-farm irrigation infrastructure and road repair investments needed to establish some 850 small-scale irrigation schemes, each ranging between 20 and 300 ha in size, with each beneficiary receiving irrigation on an average of 1.4 ha; (b) the on-farm irrigation infrastructure and the incremental on-farm agricultural investment required to efficiently use irrigation; this would be financed through credit provided by local sources; (c) technology improvement and transfer comprising: (i) applied field research by the Colombian Agricultural Institute (ICA) for the validation of technological packages for - 3 - irrigation; (ii) incremental extension services by Caja Agraria and other extension agencies; and (iii) community training programs in operating and maintaining the irrigation schemes; (d) an institutional strengthening program for HIMAT, Caja Agrari*, the Colombian Institute for Agraria Reform (INCORA), ICA, the National Apprenticeship Service (SEMA) and the National Institute for Renewable Natural Resources (INDERENA) which would comprise: (i) 42 nanlmonths of consultant services for organization and management, community support and monitoring and evaluation for HIMAT; (ii) local and e-ternal training for staff of HDMAT and the other agencies; and (iii) vehicles and equipment for HIMAT; (e) soil conservation activities in the proposed project areas and INDERENA's incremental operating costs; (f) studies, consultant services and field tri.ls to ascertain the agricultural potential of La Mojana area, and the type of agriculture that could be developed while avoiding damage to the environment. The total cost of the project is estimated at US$196.0 million equivalent, of which the Bank would finance US$78.2 million (40X), equivalent to the foreign exchange component. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of jisbursements, together with the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank group operations in Colombia are given in Schedules C and D respectively. A map is attached. The Staff Appraisal Report No. 7624-CO dated July 11, 1989, is also attached. 7. Actions Agreed. During negotiations, assurances were obtained from the Government in regard to ensuring the availability of credit from Caja Agraria and the Agricultural Financing Fund (FFAP) for beneficiaries of the irrigation schemes. It was agreed that an adverse change in present agricultural interest rate policy would be a condition of default. Assurances were also obtained that HIMAT would: (c) adopt and use for the duration of the project the criteria to be applied for the selection of irrigation subprojects and for road repair, including accessibility of the areas for the purposes of execution and supervision; (d) enter into a Road Maintenace Agreement with the Municipalities where roads are to be improved or repaired; (e) submit by September 30, 1989 and December 31, 1989 final terms of reference satisfactory to the Bank for project evaluation and institutional development consultants, respectively, and employ the consultants by March 31, 1990; and (f) submit to the Bank annual work and operational training programs and progress repo2ts, and bi-annual project evaluation reports. Conditions of effectiveness would be that: (a) the Borrower has entered into a Subsidiary Loan Agreement with HIMAT, satisfactory to the Bank; (b) HIMAT submits to the Bank final contractual agreements and letters of understanding between HDMAT and the implementing and extension agencies; and (c) HIMAT has formally approved the Manual establishing the technical criteria for selection of subprojects and cost recovery policies and mechanisms, i.e., full recovery of operation and maintenance (O&M) irrigation costs and of on-farm investment costs, and the recovery of at least 202 of off-farm irrigation infrastructure costs. 8. Benefits. The major benefits of the project would be of three types. First, the project would help increase incomes and reduce crop and price fluctuations for about 43,000 small farmers. Second, the project would expand agricultural production of primarily food crops and some export and import-substitution commodities and increase crop diversification into higher value crops. Third, the project would rosult in the reduction of public sector subsidies for irrigation and improve rsozurce allocatiu. The expected Eli for thc project would be 23S. 9. Risks. The economic risk of the project appears to be low. The main risk would * slower-than-expoctcd transition towards more intensive land use if satisfectory levels of technical assistance are not achieved. The extension and research component under the project should mitigate this risk. Likewise the availability of credit could be a risk. However, the risk would be minimised by the very small size of the credit requireents in relation to total agricultural credit, and by the strengthening of extension services under the projoct. A secondary risk relates to the possibility that the selection of areas and individuals would be biased in favor of larger farmers In view of the expected high profitability of small-scale irrigation, This risk would be minmisoed through the regular supervision of the application of the agreed selection criterLa. 10. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommnd that the Executive Directors approve the proposed loan. Barber S. Conable President Attachments Washington, DC July 11, 1989 - S5 Schedule A COLOMBIA SMALL-SCALE IRRIGATION PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Costs: al Local Foreian Total --------(US$ Million)-------- Off-Farm Irrigation Infrastructure 53.1 39.1 92.2 On-Farm Investme,ts 32.0 15.1 47.1 Technology Transfer 4.8 0.6 5.4 Institutional Development 3.2 2.9 6.1 Environment 0.8 0.2 1.0 La Mojana Pilot Project 1.1 3.2 4.3 Base Cost 95.0 61.1 156.1 Physical Contingencies 5.7 4.8 10.5 Price Contingencies 17.1 12.S 29.4 Total Project Costs 117.8 78.2 196.0 al Includes US$3.1 million in taxes. Financing Plan: Local Foreian Total --------(US$ million)-------- Government 43.4 - 43.4 Beneficiaries 33.5 - 33.5 Financial Intermediaries 40.9 - 40.9 Bank - 78.2 78.2 Total 117.8 78.2 196.0 _n m_ - .6. S Schedule B COLOMDIA SMALL-SCALE IRRIGATION PROJECT PROCUREMENT METHOD AND DISBURSEMINTS Project Element Procurement Method Total ICB LCB Other NA. Cost Civil Works 91.3 21.8 1i 113.3 (53.1) (12.0)- (65.1) Equipment 0.5 0.2 0.1 0.8 (0.2) (C.1) I_ / 10 3) Consultant Services 11.6 - 11.6 (6.7) (6.7) Training 1.9 1.9 On-Farm Investments 56.9 2/ (0.9 Technology Trannfer 6.2 3/ .2 (2.5)- ~~(2.5) Incremental Operating Costs 5.3 5.3 (2.7) (2.7) TOTAL 0.5 91.7 96.6 7.2 196.0 (0.2) (53.2) (21.2) (3.6) (78.2) Note: Figures in parentheses are the respective amounts financed by the Bank. 1; Civil work contracts costing less than US$70,000 equivalent each and equipment valued at less than US$50,000 equivalent would be procured on basis of price quotations from at least three qualified local contractorsisuppliers. 2/ Procurement under the credit component would be in accordance with normal coumercial practice. *4/ Negotiated contracts would be entered into with Government agencies responsible for providing various forms of specialized technical assistance. Disbursements Amount 2 (US$ million) Off-Farm Irrigation Infrastructure 65.5 552 of civil works and 602 of consultants expenditures Technology Transfer 2.5 90S of extension expenditures and 602 of research expenditures Institutional Development 3.2 1002 of foreign, 80S of local for vehicles and equipment, and 602 of other local expenditures La Mojana Pilot Project 3.0 1002 of foreign, 602 of local consultants, and 552 of civil works expenditures Unallocated 4.0 Estimated Bank Disbursements: Bank Fiscal Year 90 91 92 93 94 95 96 97 ---- ----------US$ million-------------------------- Annual 4.1 3.2 7.8 12.6 11.7 16.4 14.8 7.6 Cusulative 4.1 7.3 15.1 27.7 39.4 55.8 70.6 78.2 -7 Schedule C COLOMBIA SMALL-SCALE IRRIGATION PROJECT Timetable of Key Project Processin8 Events (a) Time taken to prepare: Six Months (b) Prepared bys HTMAT with Bank assistance (c) First Bank mission: June 27, 1988 (d) Appraisal mission departuret November 21, 1988 3e) Negotiationst May 22-26, 1989 (f) Planned Pate of Effectiveness: December 15, 1989 -8- Schedule D Page I of 4 COLOMBIA SMALL-SCALE IRRIGATION PROJECT StATUS OF L_PR OMTIOuNS A. STATEMENT OF BANK LOANS AND IDA CREDITS IN COLOIMBA Sas of M ach 31. 1989) Loan or Amount (1e9 cancellationS) Credit Fiscal Cisburned Undis- Number Year Borrower Purpose bank IDA bursed Total (In millions of U.S. dollars) 92 fully disbursed loans and one IDA credit 2,839.3 23.5 11 -- 1593 1970 Zona Franc, Ind. Export 14.7 0.1 13.97 1725 1979 ISA Power 72.0 0.03 71.97 1953 1981 3PM Pover 85.0 38.6 46.2 1996 1968 IAT Irrigation 34.3 0.1 34.2 1999 1981 Corelca Pover 34.2 4.1 30.1 2008 1981 EKEB Power 359.0 6.6 352.4 2090 1962 FNC Raillrays 30.0 1.0 29.0 2121 1982 Fondo Vial Nihgways 149.6 6.5 143.1 2174 1982 Govt. Rural Development 53.0 26.7 26.3 2192 1982 Min.Education Rural Education 14.1 2.0 12.1 2303 1983 ICA Agricultural Research 63.4 19.4 44.0 2349 1983 Carbocol Coal Exploration 9.5 4.0 4.9 2449 1984 EPM Power & Water Supply 164.5 118.9 45.6 2453 1964 Fedecafe Agric. diversification 50.0 11.3 38.? 2464 1984 B.de l Rep. Industrial credit 40.0 1.2 38.8 2470 1984 SWC Water Supply 18.5 11.0 7.5 2476 1984 :opetrol Petroleum 130.0 23.1 106.9 2477 1984 o.de la Rep. Development Banking 90.0 24.3 65.7 2512 1985 EAAI Water Supply 129.0 88.5 40.5 2551 1985 Govt. Tr.Pol &xp.Divers. 300.0 0.5 299.5 2611 1985 Govt. Health Services 36.5 29.3 7.2 2634 1985 EEEB Power 171.0 152.2 18.8 2635 1985 Colpuertos Port Rehabilitation 42.8 29.9 12.9 2637 1985 EPM Barrqlla Water Supply 24.0 11.7 12.3 11 Includes exchange adjustment of US$4.0 million. 9 Schedule D Page 2 of 4 COLOMBIA SMALL-SCALE IRRIGATION PROJECT STATEMENT Of DANK LOANS AND IDA CRDITS (s of March 31, 1989) . Loon or Amount (les cancellations) Credit Fiscal Disbursed Undis- Number Year Borrower Purpose Bank IDA buried Total (In millions of U.S. dollars) 2661 1986 HIMAT Irrigation 114.0 92.6 21.4 2668 1986 Cavecinales Rural Transport 62.0 26.3 35.7 2677 1986 Govt Tr.& Agriculture Policy 250.0 1.9 248.1 2829 1987 Fondo Vial II Highway 180.3 166.9 13.4 2889 1988 Govt Poyer Sector 300.0 150.0 150.0 2909 1988 Caja Agraria Caja Agraria 15.0 13.0 2.0 2961 1988 BCH Water Supply Sector 150.0 150.0 -^ 3010 1968 Govt It Primary Education 100.0 100.0 -- 3025 1989 B.de la Rep. V Sm/Mldium Sc.Enterp. 80.0 80.0 -- TOTAL 6,205.7 23.5 Of which has been repaid 1,609.9 7.6 Amount sold 51.0 Of which has been repaid 51.0 Total now outstanding 4,344.8 15.9 (Kxchange Adjustment B-Loans) .4 Total now held by Bank and IDA 4,344.8 15.9 Total undisbursed 13Q92.5 - 10 - Schedule ) COLOMBIA Page 3 of 4 SMALL-SCALE IRRIGATION PROJECT S. STATEMENT OF IFC IWISSTMENTS Las of March 31. 1989) Fiscal Yr Obligor Type of Business Loan Zquity Total (In millions of U.S. dollars) 1959 Laminas Caribe Fireboard 0.50 0.50 1960165 Ind.Al.Noel Food&Food Proc. 1.98 0.08 2.06 1961 Envases Col. Metal Cans 0.70 0.70 1961/68 Morfeo Prod. Home Furn. 0.08 0.09 0.17 1961 Electromanuf. Electrical Eq. 0.50 0.50 1962/85 Corp.Fin.Col Develp.Finance 6.00 2.02 8.02 62163185 Corp.Fin.Nac. Develp.Finance 6.00 2.04 8.04 1963167 Comp.Col. TextileslFibres 1.98 0.15 2.13 68/69 de Tejidos 1964/70 CorpFinCaldas Develp.Finance 0.81 0.81 1964/66 Forjas de Col. Iron & Steel 1.27 1.27 1966 Almviva Warehousing 1.00 1.00 1966 Ind.Ganadera Livestock 1.00 0.58 1.58 67/70/74 Enka de Col Teztiles/Fibres 58.31 2.61 60.92 85186187 1969 CoDesar Hoteles Tourism 0.01 0.01 1969/73 Corp.Pin Norte Dev. Finance 0.45 0.45 1969185 CorpFin Valle Dev. Finance 6.00 0.43 6.43 1970 PromdotTurMed. Tourism 0.23 0.11 0.34 1970177 Pro Hoteles Tourism 0.80 0.24 1.04 1973/75 CorpAhorro/Vda. MoneylCapMrkt. 0.46 0.46 1974 Cemts.Boyaca Cement & Const. 1.50 1.50 1974 Cemts.Caribe Cement & Const. 3.60 3.60 - 11 - Schedule D Page 4 of 4 COLO(1BIA SMALL-SCALE IRRIGATION PROJECT B. STATEMENT 01 IFC INVESTMENTS (as of March 31. 1989) Fiscal Yr Obligor Type of Business Loan Equity Total (In millions of U.S. dollars) 1976 MineraLasBrisas Mining asbestos 6.00 6.00 1977 Promotora de Utilities -Gas 13.00 2.00 15.00 Gasoductos de la Costa Atlantica 1977/80 Colclinker Cement 0.49 2.24 2.73 81/85/87 Leasing3olivar Equipment Lsg. 14.00 0.20 14.20 1983 Frisor.Col Cold Storage 1.00 0.54 1.54 1981182 Petrocol Petro chem 12.15 3.86 16.01 1984/87 Carb.Caribe Energy 14.78 14.78 1984 Cem.Rio Claro Cement 22.47 5.00 27.47 1986 A.Ban Fdo.Expl. Energy 5.00 5.00 1987 Prod.der.Sal Chemicals 6.00 1.18 7.18 1987 PromGasoducto Chemicals 0.04 0.04 1988 Corp.Fin Valle Dev. Finance 2.28 2.28 1989 Corp.Fin Valle Dev. Finance 5.00 2.50 7.50 Total Gross Commitments 185.08 36.19 221.27 Less cancellations, termina- tions, repayments and sales 119.05 14.19 133.24 Total commitments now held/IFC 66.02 22.01 88.03 Total undisbursed (including participants) 40.70 7.23 47.93 m~~~~~~L 2~~~~~~~~~~~~~~~~~~(t~ 3I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~