Public Disclosure Authorized Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. 4242 Public Disclosure Authorized PROJECT PERFORMANCE AUDIT REPORT Public Disclosure Authorized BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) December 29, 1982 Public Disclosure Authorized Operations Evaluation Department 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. AVERAGE MARKET EXCHANGE RATES 1972 US$1.00 = Cr$5.934 Cr$1.00 = US$0.169 1973 US$1.00 = Cr$6.126 Cr$1.00 = US$0.163 1974 US$1.00 = Cr$6.790 Cr$1.00 = US$0.147 1975 US$1.00 = Cr$8.126 Cr$1.00 = US$0.123 1976 US$1.00 = Cr$10.670 Cr$1.00 = US$0.093 1977 US$1.00 = Cr$14.138 Cr$1.00 = US$0.071 1978 US$1.00 = Cr$18.086 Cr$1.00 = US$0.053 1979 US$1.00 = Cr$26.870 Cr$1.00 = US$0.037 1980 US$1.00 = Cr$52.699 Cr$1.00 = US$0.019 WEIGHTS AND MEASURES 1 kilometer (km) = 0.62 mi. 1 hectare (ha) = 2.47 acres 1 kilogram (kg) = 2.20 lbs. 1 metric ton (m ton) = 2,204.6 lgs. FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY ABBREVIATIONS BB - Banco do Brasil (Bank of Brazil) BNB - Banco do Nordeste do Brasil (Bank of Northeast Brazil) COLONE - Companhia de Colonizacao do Nordeste (Colonization Company of the Northeast) COMALTA - Cooperativa Mista do Alto Turi (Project Area Cooperative) COTERMA - Companhia de Colonizacao e Terras do Maranhao (State Land and Colonization Company) -- now called ITERMA CP - Cooperative Program (between the World Bank & FAO - see below) DERMA - Departamento de Estradas e Rodagem do Maranhao (Road Construction and Maintenance Agency of Maranhao) EMAPA - Empresa Maranhense de Pesquisa Agropecuaria (State Agricultural Research Company) EMATER - Empresa de Asistencia Tecnica e Extensao Rural (Technical Assistance and Rural Extension Agency) FAO - Food and Agriculture Organization of the United Nations FSESP - Fundacao Servicios Especiais de Saude Publica (Foundation for Special Public Health Services) FUNAI - Fundacao Nacional do Indio (National Indian Foundation) IBDF - Institute Brasileira de Desenvolvimento Florestal (Brazilian Forestry Development Institute) IDB - Inter-American Development Bank INCRA - Instituto Nacional de Colonizacao e Reforma Agraria (National Colonization and Land Reform Institute) IPEAN - predecessor EMAPA ITERMA - Instituto da Terra do Maranhao (State Land Institute) 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. ABBREVIATIONS (Cont'd) MOBRAL - Federal Program for Adult Education ODM - Overseas Development Ministry (U.K.) POLONORDESTE - Programa de Desenvolvimento de Areas Integradas do Nordeste (Development Program for Integrated Areas in the Northeast) SECMA - Secretaria de Educacao do Estado do Maranhao (State Secretariat for Education) SUDENE - Superintendencia do Desenvolvimento do Nordeste (Northeast Economic Development Superintendency) USAID - United States Agency for International Development FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) TABLE OF CONTENTS Page No. Preface ................................ i Basic Data Sheet .ii Highlights .iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. SUMMARY. 1 A. Background and Project Formulation .1 B. Project Implementation and Impact. 2 C. Project Administration and Organization. 4 II. MAIN ISSUES.. 5 A. Project Start-up and Preparation. 5 B. Land Titles . 9 C. Interest Rate .12 D. Supervision .14 E. Reporting to the Board .15 F. Environment .16 G. Road Development .20 Tables: I - Disbursements by Category .22 2 - Brazil Rural Development Project in the Northeast .23 3 - Smallholder Credit Financing in Rural Development Projects in N.E. Brazil .24 Annexes: 1 - Supervision .25 2 - Status of Project as Reported in President's Reports 35 3 - Project References in Reports on Bank/IDA Operations 38 Attachment: Telex from the Borrower .45 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. TABLE OF CONTENTS (continued) Page No. PROJECT COMPLETION REPORT I. Introduction and Overview ................................ 49 II. Background ............................................... 51 III. Formulation ................. 54 IV. Implementation ........................................... 57 V. Procurement, Costs and Disbursement ...................... 65 VI. Development Impact ....................................... 66 VII. Rate of Return ........................................... 69 VIII. Institutional Performance ................................ 70 IX. Special Issues ........................................... 76 X. Changes in Repeater Projects ............................. 78 XI. Bank Performance ......................................... 78 XII. Conclusions and Lessons Learned .......................... 81 PCR Annexes: 1 - Tables 1-15 ............................................. 85 - 99 2 - The Farm Model: Basic Differences as Proposed by Bank and COLONE ............................................. 100 3 - Compliance with Loan Covenants .......................... 103 PCR Charts: 1 - Disbursement Schedules .................................. 105 2 - Crop/Livestock Prices: Relationship of Current and Constant .............................................. 106 3 - COLONE Organization Chart ............................... 107 Maps: PCR Map No. 3-Indian Reserve in Relation to Project Area 108 Audit Notes on Maps .......................................... 109 IBRD 3853 (April 1972) - Project Area (as per appraisal) IBRD 16717 (November 1982) - Project Area Details IBRD 16151 (December 1981) - Follow-on Project Area - i - PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) PREFACE This is a performance audit of the Alto Turi Land Settlement Project in Brazil, for which Loan 853-BR in the amount of US$6.7 million was approved in July 1972. The loan closing date was extended from December 1, 1978 to December 31, 1980, and with a final disbursement on January 20, 1981, this loan became fully disbursed. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated July 30, 1981. The PCR was prepared by the Latin America and the Caribbean Regional Office on the basis of a country visit in March 1981. The audit report is based on a review of the Appraisal Report (PA-132a) dated June 20, 1972, the President's Report (P-1112) dated June 23, 1972, the Loan and Project Agreements dated July 24, 1972, and the PCR. The case study in the Operational Policy Review, The Supervision of Bank Projects (OED Report No. 2858, dated February 22, 1980) was also reviewed. Correspondence with the Borrower and internal Bank memoranda on project issues as contained in relevant Bank files have also been consulted, and Bank staff associated with the project have been interviewed. An OED mission visited Brazil in July 1982. The mission held discussions with officials of the State and Federal Governments and the executing agency. A visit to the project area was undertaken and settlers were interviewed. The information obtained during the mission was used to test the validity of the conclusion of the PCR. The draft report was sent to the Borrower for comments on Octo- ber 13, 1982. Comments from the Borrower have been attached to the audit memorandum. The audit finds the PCR accurate with respect to describing and analyzing the project's implementation and impact. The points discussed in the audit memorandum have been selected because of their importance to this and other Bank-supported projects. The valuable assistance provided during the preparation of this report by Government and executing agency officials, as well as settlers visited, is gratefully acknowledged. - ii - PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT FROJECT (LOAN 853-BR) BASIC DATA SHEET REY PROJECT DATA Appraisal Actual as %of Expectation Actual Appraisal Lstis,ate Total Project Costs (US$ million) 12.6 34.4 273 Loan Amount (US$ million) 6.7 6.7 100 Date Physical Components Completed 12/77 12/80 155 /a Proportion of Originally Defined Project Completed by Above Date (2) 100 75 - Economic Rate of Return (2 16 13 /b 81 Financial Performance - Dnevee-/c - Institutional Performance - Uneve,,/d - Beneficiaries 5,200 3,800 Is. 73 (6,000) /f (115) CUMULATIVE DISBURSEMENTS FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 Appraisal Estimate-/i~ 1.2 3.3 5.4 5.5 5.6 - - - Actual (without interest) - - - 0.9 2.1 5.8 6.2 6.3 Actual as Percentage of Estimate - - - 16 37 104 111 113 Appraisal Estimate (recalculated)LŽh 1.2 3.5 6.0 6.4 6.7 - - - Actual (with interest) - - U.2 1.2 2.5 6.2 6.6 6.7 Actual as Percentage of Estimate - -3 19 37 95 98 100 Loan Terms US$6.7 million, 25 years, 5 years grace, 7.25% interest Final Disbursement 01/20/81 Principal Repaid US$0.9 million (as of June 30, 1982) Plrincipal Outstanding US$5.7 million (as of June 30, 1982) Borrower's ObligatiorQ/- US$5.1 million (as of June 30, 1982) Final Repayment Due 06/01/97 MISSION DATA Sent Date No. of Manweeks Specializations Performance Types of Item ~~~~b (Month/Year) Persons in Field i!2 _ereeteL.kL Trend-/i Problems-l5 Idetifcator~/n 3 Identification- ~~FAO/Bank11/68 8 34/o-- identification;~k FAD-OP 03/69 4 16 - - - TOR Prepar tion~l5 FAO-CP/OtlI 08/69 3 6 - - - TOR Review-r FAO-CP 1970 n.a. n.a. - - - Preparation Cons. 707Zs n.a. n.a. - - - Preparation Review FAD/Bank 12/70 2 3 A, E - - Preparation Review- FAD-CF 04/71 1 1 L - - Preparation Review- FAO-CP 04/71 2 4 C, C - - Preparatign Reviews. Ba nk 10/71 2 2 A, AZ - - Appraisal- / Bank 11/12/71 5 16 A, A, AE, F, YP - - Post-_AppraisalL- Bank 03/72 2 1 A, AE - - Supervision lx Bank 09/ 72 i 0.5 A - - Supervision II bank 01/73 l-1- 2.0 A - - Supervision III Bank 07/73 l~-a-- 2.0 A 2 1 T Supervision IV Ban-k 11/73 2 0.5 A, E - - Supervision V Ba nk 02/7 4 2 1.2 Ii, YF 2 1 T 3 Supervision VI Bank 06/74 /b 4.5 E, A, R 3 2 F, M Supervision VII Bank 09/74 -/bb 4.0 A, R 2 1 F Supervision VIJR~ Bank 01/75 1 1.0 A 2 1 F Supervision IX- bank 03/75 2 4.0 A, R I 1 Supervision X Bank 06/75 1 2.0 A 2 3 M, F Supervision XI Bank 11/75 1 1.5 A 2 3 N, f Supervision XII Bank 01-02/76-d- 2 4.0 A, R 2 1 T, P Supervision XIIJ Bank 05/76 4 8.0 A, R, E, F 2 2 F, T Supervision XIV-e Bank 09/76 3 5.0 A, A, R 2 2 F, M Supervision XV (A) Bank 03/77 1 1.0 A/f 3 3 F, P Supervision XV (B) Bank 04/77 1 1.0 R/11 - - - Supervision XVI / Bank 07/77 2 2.0 A, A/h 3 3 F, P Supervision XVIILM Bank 03/78 2 2.0 A, /--h 2 2 F, P Supervision XVIIIL!'i Bank 11/78 2 2.0 A, EA 3 2 F, P Supervision XIX Bank 05/79 2 2.0 A, R 2 1 F, P Supervision XX Bank 11/79, 1 1.5 A 2 2 F, P Supervision XXI Bank 0 6/80 ~w 1 2.0 A 2 1 F, P Supervision XXII Bank 12/80 1 1.5 A 2 1 P Completion Bank 03/81 1 1.0 A - - * Footnotes next page. PROJECT DATES Original Plan Revisions Actual First Mention in Files or Timetables - 04/11/70 Government's Application n.a. n.a. n.a. Negotiations 05/25-26/72 - 05/26 - 06/U2/72 Board Approval 07/ /72 07/ /72 07/06/72 Loan Agreement Date 0- 7/24/72 Effectiveness Date 10/25/72 /kk 02/15/73 Closing Date 12/01/78 06/30/80 12/31/80 OTHER PROJECT DATA Borrower Federal Government of Brazil Executing Agency COLONE Preceding Project None Follow-on Project Name Maranhao Rural Development Project - Loan Number 2177-BR Amount (USS million) 42.7 Loan Agreement Date June 25, 1982 /a From date of approval. /b At zero opportunity cost of labor; if opportunity costs of labor were assumed to be 50% of current wage rate ROR would be 10%. /c See PCR, paras. 4.02; 4.04; 5.03 for problems related Lo counterpart funding; but farm income benefits are estimated to have Lmproved (PCR, paras. 6.03 and 6.04). /d See PCR, paras. 8.03-8.05. /e 2,600 registered farmers benefitted from all aspects of the project and operated recommended farm plans; 1,200 registered farmers benefitted from the project activities except credit (PCR, para. 4.06). /f About 6,000 farmers were living in the project area which are all estimated to have partially benefitted from the project (PCR, para. 4.06). /g The Appraisal Report did not include the full loan in the estimated disbursement schedules, category 6 (interest) having been omitted from the schedule. /h Appraisal estimate recalculated by audit to include estimated interest payments. /i Includes exchange rate adjustments. fl A = Agronomist; AE - Agricultural Economist; E - Economist; EA Engineer/Architect; M = Bank Manager; R = Road Engineer; C = Credit Specialist; L = Livestock Specialist; F = Forestry Specialist. /k 1 = problem free or minor problems; 2 = moderate problems; 3 = major problems. /1 1 = improving; 2 = stationary; 3 = deteriorating. 7rm M = managerial; F = financial; P = political; T = technical. 7W General identification for agricultural projects in N. E. Brazil. /o Not all details available but staff expertise covered economics, agricultural economics, agronomy, irrigation, livestock. Mission included 4 Bank and 4 FAO-CP staff. p X Follow-up mission to discuss identification report. A3 Joint mission with ODM (ODM would finance the preparation of the feasibility study by British consultants) to prepare terms of reference and determine studies needed to be undertaken by Brazilian authorities. /r Two short missions by FAO-CP staff to London to review terms of reference and status of preparation. /s Contract with consultants signed in July 1970; field work completed in mid-1971, interim study submitted in September 1971 and final feasibility study submitted in November 1971. /t Special review of livestock development and credit aspects respectively in the settlement area (included stop-overs in Washington). /u In conjunction with a land settlement review mission, Bank staff reviewed the draft feasibility study with FAO-CP staff, the consultants and government; a Loan Officer joined the mission also. /v A Bank road engineer joined the mission for a few days; the YP was mainly responsible for the road component; the Loan Officer also attend final meetings. /w Post-appraisal in conjunction with review of identification of the Altamira Settlement Project in the Amazon region. The Loan Officer participated in the mission. /x Main purpose of that mission was to study progress of the preparation of a colonization project in the Amazon basin and the associated environmental problems. /y An FAO-CP staff member and the Loan Officer participated in the Alto Turi discussions. Iz A Bank lawyer participated for a few days in the discussions. aa Loan Officer also participated in the latter half of the supervision mission. /bb Loan Officer participated in some of the discussions. Icc A Disbursement Officer visited the project in February 1975. /dd The Road Engineer visited Brazil in January, and the Agronomist in February, 1976. fee A Disbursement Officer visited the project in June 1976. /ff Visit by Road Engineer, but no BTO in operational files. /-gg- The Programs Director and Programs Division Chief visited the project in December 1977. /hh The Agronomist visited Brazil first week in March and the Road Engineer second week in March; separate reports were produced. /ii A lawyer visited the project in May 1978 to discuss land titling issues. /jj An identification mission for the follow-on project visited the State and the project area during the same period. /kk The terminal date of effectiveness was extended three times: to November 27, 1972; to January 12, 1973; and to February 28, 1973. /11 See: Staff Appraisal Report, Northeast Brazil, Maranhao Rural Development Project, Report No. 3845a-BR, dated May 21, 1982. - iv - PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) HIGHLIGHTS In response to severe cyclical droughts in Brazil's Northeast, migration occurred towards Amazon areas, mainly spontaneously, along new roads that were opened up. Government was looking for viable, low-cost, long-term solutions to resettlement assistance. The Alto Turi project was a pilot effort in that direction. As appraised, the project would provide stable employment and satisfactory incomes for an estimated 5,200 settler families and introduce a number of new concepts and procedures. A special agency was established to execute the project, Companhia de Colonizacao do Nordeste (COLONE). The project was to provide for: surveying and demarcation of 5,200 holdings; construction and/or improvement of 385 km of roads; construction of 62 schools, a hospital and ten dispensaries; expansion of logging and milling operations; research; cattle holding; and studies. The Bank loan of US$6.7 million - approved in July 1972 after a rapid processing period - was to finance 53% of project costs. The project was to be implemented over five years, but protracted start-up problems led to a three-year delay in project completion and was a major factor in the escalation of total project costs from around US$12.6 million to US$34.4 million. Revised project goals regarding basic infra- structure were basically met. However, although surveyed and demarcated, only few titles have so far been issued to settlers. Some 6,100 settlers now live in the project area; some 2,600 have benefitted from all aspects of the project while another 1,200 benefitted from most project activities except credit. Farmers' net cash incomes are well above appraisal estimates. Substantially increased project costs have been offset by higher and higher value production and substantial increases in real prices for beef. The project has only been partly successful. On the positive side, a substantial number of settlers benefitted from the project, and the rate of return (13%), although lower than estimated at appraisal (16%), is still satisfactory. In contrast, as a pilot approach to low-cost settlement the project failed. Some other project objectives (such as environmental pro- tection, community organization and self-help, participation of existing institutions, strengthening of the credit and marketing cooperative movement) have only been partially achieved; also, research in the project area leaves much to be desired. A follow-on project (Maranhao Rural Development Project - Loan 2177-BR) aims to rectify some of these shortcomings. The major lesson from this project experience is that a project cannot be prepared and appraised in "isolation". In particular, this ex- perience demonstrates the need for: (a) a careful review of the institu- tional and legal environment in which the project is to operate; (b) a phased approach to preparation and appraisal; (c) sufficient time to review prepara- tion and appraisal documents; (d) a determination of the role of expatriate consultants in the preparation process; and (e) consensus about project concept (PPAM, paras. 11-24). Another important, although one could argue costly, project experience is that through this project the Bank has gained a far better understanding of the intricacies of land tenure and title issues. This has resulted in the inclusion of substantial numbers of land regulariza- tion components in recent rural development projects in Northeast Brazil (PPAM, paras. 25-31). Other points of interest are: - the Bank was lenient in accepting the continuous non-adherence to counterpart funding covenants (PPAM, para. 19 and PCR, para. 12.04); - excellent cooperation between the highways and agricultural divi- sions ensured sufficient and competent supervision of the feeder roads component (PPAM, para. 37); - good staff continuity during project supervision, but insufficient additional expertise, was added to supervision missions (PPAM, paras. 36-40 and Annex 1, and PCR, paras. 11.03-11.06); - the failure of the environmental components is, to a large extent, due to the failure to translate project objectives into project components (PPAM, paras. 45-48); - farm and approach roads must be aligned according to topography and not on an arbitrary geometric pattern (PPAM, paras. 51-55, and PCR, para. 12.08); and - the bi-monthly reports to the Executive Directors on Bank/IDA operations provide inadequate information on portfolio performance. A review of the present reporting practice might be useful (PPAM, para. 43). -1- PROJECT PERFORMANCE AUDIT MEMORANDUM BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) I. SUMMARY A. Background and Project Formulation 1. During the period 1964-70, mainly in response to severe cyclical droughts in Northeast Brazil, there was growing Government interest in assisting emigration to regions of higher rainfall in the pre-Amazon and Amazon areas. Settlement began spontaneously as new roads were opened up; they often resulted in the degradation of tropical forest areas. The shifting cultivation practiced by the immigrants did not appreciably enhance their income or standard of living. The Government of Brazil, faced by heavy costs and an uneven record of its earlier Amazon settlement efforts, was seeking viable long-term solutions to resettlement problems. The Alto Turi project in the pre-Amazon area of the Northeast State of Maranhao would build upon limited previous settlement efforts in the areal/. It was intended to be a pilot scheme to test the feasibility of a low-cost approach to settlement, relying on considerable inputs of voluntary labor from the settlers for community works. 2. An FAO-CP/Bank identification mission visited Northeast Brazil in November 1968 and identified, among others, the Maranhao Settlement Project. FAO-CP subsequently prepared terms of reference for the feasibility study and determined what additional studies had to be prepared by Brazilian authori- ties. Project preparation was subsequently done by consultants, who were financed by the British Overseas Development Ministry (ODM). A final feasi- bility study was submitted in late 1971.2/ Following appraisal in November/ December 1971, the project was presented to the Board on July 6, 1972 (a relatively rapid processing period). 3. As appraised, the project would provide stable employment and satisfactory incomes for an estimated 5,200 settler families and introduce a number of new concepts and procedures. To reach this objective "the project would be carried out over a five-year period (1973-78) and would include: 1/ The Northeast Development Superintendency (SUDENE) had, since about 1963, sponsored settlement in the project area, especially south of the Turiaucu River. SUDENE had registered and settled about 850 families (out of 2,900 families who spontaneously moved into the area). By 1971, some 18 settlement nuclei and an 80 km narrow feeder road network had been established. 2/ For further details see mission schedule in Basic Data Sheet and PPAM, paras. 11-24). --2 - formation of the Companhia de Colonizacao do Nordeste (COLONE) as an autonomous authority responsible for colonization in the project area, including land surveys, on-farm development, road and building construction, research and extension, cattle supply, surveys and studies; design and construction of about 22 km of penetration roads, 234 km of access roads, and 49 km of trails, as well as the improvement of about 80 km of access roads; land surveys and demarcation of about 5,200 individual holdings of about 40 ha each; establishment and operation of a research station and of cattle holding grounds; expansion of logging and milling operations; construction of 62 schools, a hospital and ten dispensaries; and studies on rice, beef and timber marketing, preparation of a second phase of land settlement, and a survey of the project area's water resources."l/ B. Project Implementation and Impact 4. The Bank loan of US$6.7 million was approved by the Board on July 6, 1972 and the Loan Agreement was signed on July 24, 1972. There was consider- able delay in making the loan effective: the date was postponed three times. The loan was declared effective on February 15, 1973, but the obtaining by COLONE of full and undisputed title to project land remained a problem throughout the project period. 5. The project was to be implemented over five years, but protracted start-up problems led to a three-year delay in project completion and were a major factor in the escalation of total project costs from around US$12.6 million to US$34.4 million in current prices.2/ Among the major factors (some closely interrelated) contributing to implementation delays and higher costs were: inadequate consensus among Government agencies, and between the Government and the Bank, on project design and on the viability of the low- cost settlement model proposed; the need to revise, early in the implemen- tation phase, recommendations on farming systems; irregular and inadequate 1/ Appraisal of the Alto Turi Land Settlement Project, Report No. PA-132a dated June 20, 1972, para. 4.02. 2/ The Bank loan, therefore, financed only 20% of project costs instead of 53%, as envisaged at appraisal. - 3 - provision for counterpart financing; delays and shortages of farm investment (medium-term) credit; and legal difficulties related to land title transfer from Maranhao State to COLONE. Project execution took place, in fact, between 1976-80. 6. The road network, originally expected to be 305 km, was reduced to 238 km, at unit costs substantially above appraisal estimates. Other project goals with regard to basic infrastructure (schools, health posts, hospital and staff housing) were essentially achieved. Land surveys and demarcation were undertaken, but only a few titles have so far been issued to settlers. A cattle quarantine, an experimental farm with improved pastures, and a research station have been established. However, overall research achieve- ments have been limited and research in the project area still leaves much to be desired. Saw milling operations were expanded, and a brick factory and black pepper and rice mills were established. Only some of the envisaged studies were undertaken. 7. Some 6,000 settler families (800 above the appraisal estimate) now live in the project area. Of these, some 2,600 have benefitted from all aspects of the project and are following one of the recommended farm develop- ment plans. Another 1,200 registered farmers have received benefits from most project activities except credit; some 2,200 unregistered farmers can be assumed to have partially benefitted from the social and physical infrastruc- ture. In addition, there are some 4,400 registered settlers in the expansion area who have not yet benefitted from the project (except for occasional community development assistance from COLONE). Production support services, health, education and community development activities are operating. How- ever, the transfer of responsibility for operation and maintenance of these services to the State agencies has been seriously impeded because these agencies had little to do with project design and execution, and by recurrent cost funding constraints in the State budget. Farmers net cash incomes are now estimated to be well above appraisal estimates. The substantially in- creased project costs have been largely offset by higher than expected crop production due to the larger area under cultivation, including food crops, the introduction of black pepper as a major cash crop, 1/ and substantial real price increases for beef. 8. The project has been only partly successful. On the positive side, a substantial number of settlers benefited fully or partially from the project. The rate of return (13%), although lower than estimated at appraisal (16%), is still satisfactory. The project has demonstrated that settlers can develop farms so that they will earn a reasonable living for themselves and their families. However, most of the project's wider objectives have not been achieved. It was mainly seen as a pilot approach to low-cost settlement, to serve as an important guide to future colonization policy. But, firstly, 1/ Black pepper (Piper nigrum) was considered during preparation for inclu- sion in the basic cropping pattern but rejected as it was determined not suitable for wide replication in the Amazon. - 4 - the approach has turned out not a low-cost one; and secondly, therefore, the project has not been replicable for future colonization. Other aspects in which objectives have only been partly achieved are: (a) less than the planned area of forest reserves were established and environmental protection was not achieved; (b) community organization and self-help has not been successfully established in areas of controlled settlement; (c) existing institutions did not fully participate in project implemen- tation; therefore, they did not effectively take over maintenance and operation of project services and facilities; (d) research in the project area leaves much to be desired; and (e) strengthening the credit and marketing cooperative movement in the project area has not been successfully accomplished. Some, but not all, shortcomings have been rectified under the follow-on project (Maranhao Rural Development Project - Loan 2177-BR).I/ Through this project, however, the Bank has gained a far better understanding of the intricacies of land tenure and title issues, which was the most important project experience. This has resulted in substantial land regularization components being included in recent rural development projects in Northeast Brazil. C. Project Administration and Organization 9. The executing agency for the project, Companhia de Colonizacao do Nordeste (COLONE) was created specifically for implementing this project. An autonomous authority was favored at appraisal to facilitate timely decision-making by resident officials and to give terms of service to staff that would attract suitably qualified personnel. However, because of its autonomous status, COLONE initially found itself isolated, without much political and institutional support, and with inadequate funding. This situation has only improved in the last few years of the project. While COLONE has shown its ability to implement land development and settlement to a commendable degree, it has never been on a secure financial footing, and from that point of view, it is difficult to regard it as a well-established insti- tution. Without its significant role in the follow-on project, COLONE would probably not have survived. 10. From the beginning, COLONE had a dual function. First, in relation to the project under review, its role was one of implementation: it was expected to divest itself of all key components, once they were successfully 1/ See Staff Appraisal Report, Northeast Brazil Maranhao Rural Development Project, Report No. 3845a-BR dated May 21, 1982. - 5 - established, to relevant State authorities. Only limited success has been achieved in this area. The transitional role of COLONE has been confirmed under the follow-on project.l/ Second, although created for the project, COLONE was viewed as implementing future colonization projects in the North- east. However, except for the follow-on project, no other colonization projects have yet been clearly identified. Given the role of the Federal and State Land Institutes in settlement, it is unlikely that COLONE will implement any other colonization projects beyond its participation in the follow-on project. II. MAIN ISSUES A. Project Start-up and Preparation 11. The Northeast of Brazil contains possibly the largest concentration of poverty in Latin America. While there has been a long history of deep concern about regional income disparities and about the extent and degree of poverty in the North East, hardly any external funding went to that region in the 1940s and 1950s. In the 19 60s, USAID and IDB undertook to finance proj- ects in that region. The Bank's lending program in Brazil, at that time, was mainly concerned with supporting the Government's program for economic reform, reducing the large public sector deficit, and reducing Brazil's dependency on coffee exports; the main criterion for project selection was ready avail- ability.2/ However, in the late 1960s, institutional pressure grew to direct more Bank funding to the Northeast. The visit of the Bank's President to Brazil in October 1968, including the Northeast, was followed by a major FAO-CP/Bank identification mission in November/December 1968 which identified a settlement project. 12. A follow-up FAO-CP mission in February/March 1969 also discussed, inter alia, the settlement project. It reported as follows: "SUDENE provisionally suggested that the project proposed by the mission includes a 5,000 family scheme and requested Programme assistance to prepare specifications for the resources survey..... On the basis of these surveys, which would be carried out by Brazilian agencies, an international consulting firm would prepare the project. The attache at the British Embassy in Rio expressed a provisional interest in assisting the preparation of the project." 3 / 1/ "Assurances have been received that COLONE would furnish to the Bank, not later than July 31, 1983, a program satisfactory to the Bank for the transfer of project-related responsibilities, facilities and staff to the State or other appropriate entities and complete the program by June 30, 1987." (Maranhao Staff Appraisal Report, op. cit., para. 5.10). 2/ Brazil: The Northeast, memo to the President dated August 20, 1968. 3/ Mission back-to-office and full report dated April 2, 1969. - 6 - 13. In the meantime, settlement was already taking place in the area selected for the project, both spontaneously and organized in a SUDENE scheme south of Alto Turi. A joint ODM/FAO-CP mission in July/August 1969 made detailed recommendations regarding the preparation work and surveys to be undertaken by Brazilian agencies, mainly to map land use capability, recon- naissance soil surveys, forest inventories and a survey of water resources. 14. Consultants were contracted by ODM and fieldwork was started in August/September 1970. An ODM land resources expert, reviewing soil data in the field, concluded that the project area contained soils not suitable for intensive cultivation. When an FAO-CP/Bank mission visited Brazil in December 1970, it was agreed that a more simplified project based on rice and beef (one or two years cropping followed by pasture) should be developed. The same mission also noted that "little was known about the project in Rio de Janeiro, and the SUDENE staff in Recife seemed to be rather detached from the prepara- tion activities" and also recommended that "ODM should be encouraged to send the project coordinator and the project manager to Colombia for about one week to study related problems in the Caqueta Colonization Project"J./ 15. The consultants completed fieldwork in July 1971. Their interim report was reviewed by the consultants, FAO-CP staff, and Government officials in Brazil in October 1971. Three issues were raised: the need for new aerial photography, the formation of an autonomous development company to operate the project, and the mechanism for issuing land titles. 16. Appraisal took place in November/December 1971. The Board approved the loan on July 6, 1972. Substantial delays followed: the project was only implemented between 1976-80 instead of the planned 1973-75 (PCR paras. 4.01-4.04 and PPAM para. 5). Major reasons for this delay were insufficient consultation with various special Government agencies, such as the National Colonization and Land Reform Institute and the Central Bank, and the creation of an autonomous agency (COLONE) which found itself isolated from state, regional and federal agencies. This resulted in insufficient and erratic funding and lack of investment credit. Thus, the project demonstrates a classic case of preparation and appraisal in "isolation"; this project experi- ence also shows that such "isolated" preparation does not work. The following lessons can be learned from the foregoing: the need for: (a) a careful review of the institutional and legal environment in which the project is to operate; (b) a phased approach to preparation and appraisal; 1/ FAO/CP mission back-to-office report. Caqueta Land Colonization Project, dated December 29, 1970 (see para. 23). (c) sufficient time to review preparation and appraisal documents; (d) determining the role of expatriate consultants in the preparation process; and (e) consensus about the project concept. 17. On the other hand, there were intense pressures for speedy prepara- tion. First, substantial colonization was occurring in Brazil in general and the resulting shifting cultivation was beginning to destroy one of Brazil's great natural resources, the tropical forest. Second, there was substantial institutional pressure within the Bank to produce development projects for Northeast Brazil. Third, there was serious concern about the speed of spontaneous settlement in the project area and thus the feeling that a project was needed sooner rather than later. 18. INCRA, the National Colonization and Land Reform Institute, had - and still has - overall national responsibility for settlement. In addition, there was an institute in the State of Maranhao which was also involved in settlement issues. There is no indication that these institutes had been involved in preparation and appraisal to any extent. Neither these, nor the Central Bank, are mentioned in the appraisal report among the institutions that would be concerned with the project, yet, as it later turned out, both the Central Bank and INCRA had approval authority over project proposals.l/ 19. COLONE had no source of revenue and was dependent on budget alloca- tions. There is no indication that during preparation or appraisal the funding of the potential executing agency was investigated in any detail except for obtaining the usual assurances: "Government would make available: (a) quarterly in advance to COLONE funds to cover all project expenses, including those to be reimbursed by the Bank; and 2b) promptly as needed to BNB funds for medium-term onlending to settlers".2, Nevertheless, counter- part funding has been a major problem throughout the life of the project. Substantial efforts were made by Bank staff to resolve continuous financial crises, but to little avail. This may have been partly due to the failure of the Bank to understand fully the institutional framework in which COLONE had to operate. The Bank was lenient in accepting the continuous nonr-adherence to these covenants. 20. From the beginning, the issuing of land titles was regarded as critical for the project; however, only limited effort was made by the Bank to 1/ It should be pointed out that there was also apparently, insufficient coordination within Brazil, as is demonstrated by the fact that a loan was approved for a project which was later strongly opposed by the Central Bank and had not yet been approved by INCRA. 2/ Appraisal Report, op. cit., para. 5.04 and Loan Agreement Article 3.01(d). - 8 - investi ate the complexities of the land tenure and titling laws and regula- tions.T/ Thus, in retrospect, insufficient review of the institutional and legal environment was a serious omission.2/ Such reviews should be an integral part of any preparation and appraisal effort. 21. Because of time constraints imposed by a tight timetable, various preparation phases were carried out simultaneously rather than in their logical sequence. Thus, for example, the reconnaissance soil survey was only completed during the feasibility study phase, necessitating substantial changes during the study. This experience underscores the need to undertake preparation in carefully designed phases with decision points in between. The use, from the beginning, of very detailed preparation timetables, realisti- cally assessing time intervals needed, will facilitate understanding of the critical preparation path. 22. Time is needed to review preparation findings at various intervals and at all relevant levels. A critical decision point occurred upon comple- tion of the reconnaissance soil survey when it became obvious that the only possible cropping system was an extensive one, with provisions for a fallow or pasture period (para. 14). Subsequent prolonged discussions about the need to make some changes in the technical package (PCR para. 4.03) show that insufficient consultation had taken place at that point in the preparation. The preparation report was only discussed with senior officials in the Ministry of Interior and SUDENE. While there was satisfaction with the draft report as far as these officials were concerned, later events make it clear that other interested Government agencies had not been consulted (PCR para. 3.02). The time allocated for an internal review process of the preparation report at all relevant working levels within the Brazilian bureaucracy might also have been too short. There was definitely insufficient time for Govern- ment to review the appraisal report; Government was invited by telex dated May 22, 1972 for negotiations that began on May 26, 1972. There are no indica- tions that draft appraisal reports had been sent to Government in advance of negotiations, despite the recommendations to do so by the appraisalJmission.3/ 1/ Only in May 1978 did a Bank lawyer visit Brazil to obtain a better understanding of the legal issues involved in land titling under the project. 2/ See also PPAR - Ecuador Milagro Irrigation, Credit 425-EC, audit report under preparation. 3/ "The Minister of Planning indicated that the Government would appreciate a preview of the appraisal report well in advance of negotiations; the mission strongly supports this request as this project may have consi- derable bearing on future colonization projects in Brazil and would involve a number of complex policy decisions by Government." Appraisal mission back-to-office report dated December 14, 1971. 23. The role of consultants also needs to be carefully reviewed. There is some doubt as to whether international consultants were needed to undertake the feasibility study; it might have been preferable to use FAO-CP, who had prepared the Caqueta Land Colonization Project in Colombia.!/ Consultant selection was partly based on the assumption that sustained agriculture (possibly with treecrops) was possible in the project area and the consul- tant's experience with preparation of Bank-financed treecrop settlement projects in East Asia was deemed to be relevant; partly also on the availability of bilateral preparation funds. Consultants can play a useful role in preparation, especially in undertaking technical investigations or in pulling together available data and project concepts in a concise feasibility study. But in this case, the consultants were employed too soon; they should only have started after the reconnaissance soil survey had been completed. 24. The audit findings support the PCR (para. 3.02) that "a full and real consensus on project objectives and design was probably never reached (either within the Government or between the Government and the Bank)". Lack of such complete consensus explains to a large extent the difficulties encoun- tered during project implementation. It related to the basics of the project: the pattern of settlement to be followed (support of spontaneous settlement, directed settlement or organized settlement) and the technical package or farm model to be promoted. Full and real consensus is clearly essential for project implementation. B. Land Titles 25. A condition of effectiveness of the loan was that "Maranhao shall have transferred to COLONE the title to all land comprising the project area, free of encumbrances, costs or any other charges".2/ In fact, title was transferred to COLONE, but not free of encumbrances, as was later discovered. 26. What had happened was the following. Originally the State of Maranhao had set aside a large part of its Northwestern territory for coloni- zation. Subsequently the State legislative assembly authorized the State Government to transfer lands belonging to the State to COLONE.3/ The law defined the land to be transferred, and some of the land within that area, 1/ This project, supported by the Bank somewhat ahead of the Alto Turi project, was designed to support spontaneous colonization taking place in the upper reaches of the Colombian Amazon. In fact, there are many similarities between these two projects. See also: PPAR - Colombia Caqueta Land Colonization Project (Loan 739-CO), OED Report No. 2124, dated June 30, 1978. 2/ Loan Agreement, Article 8.01(c). 3/ Law No. 3238 of May 17, 1972. - 10 - which already belonged to private individuals or had been reserved for Indians or other purposes by federal legislation, was excluded. For purposes of fulfilling this condition of effectiveness, the Bank was furnished with a copy of the law, a copy of the proceedings of the meeting of COLONE shareholders in which the State's contribution to the capital of COLONE in the form of 939,000 hectares was approved, and copies of certificates from the real estate registries in the project area, stating that 939,000 hectares had been acquired by COLONE and so recorded in the registry. Furthermore, the legal opinion, required by Section 8.02 of the Loan Agreement, included a statement that the State of Maranhao had transferred to COLONE all the title deeds to the land making up the project area free and unencumbered, without fees, charges and duties. 27. Thus having obtained the necessary documents and legal opinion, the loan was declared effective. The retrospective view of Government and Bank officials knowledgeable about land matters is that, at the time, tpe State of Maranhao should have followed the discrimination procedures- before title of the land could be transferred to COLONE. Two questions arise: first, what should the Bank do if it belatedly discovers that a condition of effectiveness has been improperly met; and second, did the Bank pay enough attention to land titling arrangements initially? 28. As to the first question, the Legal Department's opinion is as follows: "It is incorrect to state that if one discovers later that an effective- ness condition has been 'improperly fulfilled' the Bank has not consi- dered the consequences. If the evidence of fulfillment of an effective- ness condition has been furnished in good faith and there is no fraudulent misrepresentation, in connection therewith, as seems to be the case here, the loan must remain effective. Other remedies may then be found among the covenants in the Loan and Project Agreements which have not been complied with.!2/ 1/ The discrimination process is the specific procedure provided for in Brazilian law for determining Government and private rights to land. This procedure is public, carried out on a block basis, and resolves competing claims to land between Government and private parties, or among private claimants, on an administrative or a judicial basis. The procedure itself cannot be stopped by third party action. Due to its general and public nature, it is very unlikely that final decisions would be contested, although this is a possibility (albeit remote) for up to a 15-year period after the close of the discrimination process. In addi- tion to resolving claims to lands, the discrimination process permits the State to obtain for its own use lands previously under irregular private occupancy. 2/ Memo of Legal Department to OED dated June 8, 1978. - 11 - 29. As to the second question, the audit concludes that the Bank paid insufficient attention to the issue of land titling during preparation, appraisal and initial project implementation. It was known as early as October 1972 that there was a problem with claims to COLONE land. Then, a supervision mission reported that the State Government faced a series of claims from people on the land it had transferred to COLONE. Yet, COLONE took no action, partly because of its relative isolation and partly because there was insufficient knowledge about the issue in the Bank which, therefore, did not urge them to do so. COLONE realized eventually that land transfer had been defective. It tried to have it revalidated by INCRA (representatives of the Federal Government) or by the State itself; however, neither of them wanted to bring discrimination procedures to court. It was only in 1977 and 1978 that legal procedures (acao discriminatorio and acao demarcatoria) were instituted, municipality by municipality. Following publication of the final court document in late 1979, COTERMA (the state land institute) started demarcation in 1980 but progressed slowly because of lack of funds. However, COLONE was able to provide provisional titles to a first group of settlers. As late as April 1981 it was noted that "resolution of remaining land titles through 'discriminatoria' and 'demarcatoria' legal proceedings for the re- mainder of sub-area II (would) continue to move forward (slowly) in the State courts. However, such legal proceedings continue to be costly, partic- ularly in staff time, to COLONE".1/ 30. Under the follow-on Maranhao project alternative methods to speed up matters regarding land ownership have been developed. "The procedure in the Alto Turi area would exclude the discrimination step, including instead a special process of negotiations with unauthorized occupiers, following a protocol established between COLONE and the State. The negotiations would define the area of land the irregular occupiers would be permitted to retain and the amount of compensation to be paid to the settlers for improvements made on the land returned to COLONE. Registration of irregular occupiers in sub-area I of Alto Turi has been completed ... , and steps are being taken by COLONE and INCRA to declare Alto Turi a priority area for purposes of agrarian reform. A condition of loan effectiveness would be that an area of at least 10,000 hectares, including at least three of the fifteen largest plots irregu- larly occupied in the Alto Turi area, had been recovered by COLONE on terms satisfactory to the Bank".2/ 31. In general, land titling was a negative project experience, which in the audit's view, however, had a positive aspect. Had the discrimination procedure been used, it is unlikely that the project could ever have been 1/ Completion mission back-to-office report dated April 10, 1981. 2/ See Maranhao Staff Appraisal Report, op. cit. para. 3.13. In addition, assurances were obtained that agreements to settle the claims of irregu- lar occupiers over 60 ha would be reached not later than March 1, 1983 for those in sub-area I, and not later than December 31, 1983 for those in sub-areas II and III. - 12 - declared effective. Albeit late, the Bank has learned from the Alto Turi experience and obtained a far better understanding about the intricacies of land tenure and titling. This has resulted in the inclusion of substan- tial numbers of land regularization and redistri,ution components in recent rural development projects in Northeast Brazil.-P Given the fact that land and its distribution has been recopnized as an important factor for the economic development of the Northeast_ this must be regarded as an important benefit. C. Interest Rate 32. At the time the project was approved, the Bank's Regional Office was strongly promoting positive real interest rates for agricultural credit.3/ However, in the case of agricultural credit for poor and smaller farmers, it was reluctantly prepared to forego this objective and to agree that "credit to project settlers would be subsidized. Loans would be unindexed and bear interest of 7% per annum although the present annual inflation rate, which may continue for some time, is about 20%. Credit subsidization has been a long- standing policy of Government in its objective of inducing agricultural development, particularly in the Northeast; the Government is firmly committed to this policy .... It would be virtually impossible, both politically and administratively, to establish a loan structure on an unsubsidized basis for the limited area of this particular project" .4 While credit subsidiza- tion was generally regarded as an undesirable practice, it was accepted in the case of this project because: "(a) participating farmers would be a particularly poor segment of the community, and would have no financial resources of their own which they could use for other purposes due to the provision of credit; (b) credit would not induce settlers to substitute capital for labor, as it would be used only for cattle and fencing pur- chases and rice marketing; 1/ See, for example: Ceara Second Rural Development Project (Loan 1924-BR) Staff Appraisal Report No. 3020-BR dated November 11, 1980; Piaui Rural Development Project (Loan 2015-BR) Staff Appraisal Report No. 3398-BR dated May 22, 1981; and Maranhao Rural Development Project (Loan 2177-BR) Staff Appraisal Report No. 3845a-BR dated May 21, 1982. 2/ See, for example, World Bank Research Publication: The Agricultural Economy of Northeast Brazil by Gary P. Kutcher and Pasquale L. Scandizzo. 3/ See, for example: PPAR, First and Interim Second Livestock Development Projects (Loans 516-BR and 868-BR), OED Report No. 2402 dated April 5, 1979; PPAR, Grain Storage Project (Loan 857-BR), OED Report No. 2590 dated June 29, 1979; and Agro-Industries Credit Project, (Loan 924-BR), PPAR under preparation. 4/ Appraisal Report, op. cit., para. 5.08. - 13 - (c) credit would be restricted to the minimum required to ensure a satisfactory level of income for project participants; (d) participants would receive medium-term credit for a period of two years and thereafter would be ineligible for further credit from project funds; and (e) the financial resources of the credit institution (BNB) would not be adversely affected, as the credit fund would be financed directly from Government budgets."1/ 33. The Bank did not disburse against the agricultural credit component (Loan Agreement; Schedule 1). In July 1971, (before the appraisal mission's departure) at a staff meeting, it was "felt that there is no justification for using Bank resources to re-lend to settlers at 7 percent. For one thing, 7 percent nominal would imply a large negative rate of interest, for Brazil involving an open ended subsidy for the project. Secondly, Brazil has enough resources of its own for financing agricultural credit operations in the Northeast and Bank resources for the credit operations would not be a critical factor for success of the colonization project."2/ The decision not to allow Bark funds to be re-lent at negative interest rates was later corr- firmed.3 "However, in case the appraisal shows that interest rate subsidi- zation is, in fact, likely to cause resource misallocation then the Bank would find itself unable to support the project in any way."4/ The apprais- al mission did in fact accept the justification for subsidized credit to small/poor farmers (see PPAM para. 32 above) and it became part of the proj- ect, but wholly financed by Brazilian funds. 34. As it turned out, the Alto Turi project was the first of a series of rural development projects in Northeast Brazil. Subsidized credit posed problems for the Bank in all of these projects, but the issue was handled differently (see Table 3). Under the Lower Sao Francisco Polders Project (Loan 1153-BR) and its succesor, Sao Francisco Irrigation II (Loan 1729-BR), credit was not included as a project component; the Bank was satisfied that credit was readily available from established sources. Only an assurance was included in the first project that Government would ensure that funds for credit were available if needed. During the period 1975-80, credit was included under the rural development projects; and the Bank financed this credit even though it was recognized that interest rates were subsidized. But since it was mainly for small and poor farmers, the Bank's view then was that 1/ Appraisal Report, op. cit., para. 5.09. 2/ Internal memorandum dated July 22, 1971. 3/ Internal memorandum dated November 5, 1971. 4/ Internal memorandum dated November 11, 1971 reporting on discussions between the Bank and the Brazilian Minister of Finance in October 1971. - 14 - it would not result in misallocation of resources. Further, under these projects, the Bank has placed an upper limit on subloans eligible for dis- bursements and intended to establish strong credit monitoring systems. In 1980, the Bank again changed its position: credit was no longer regarded as being eligible for disbursements, nor were incremental credit requirements included under project costs. Increased inflation made the continued subsidi- zation of smallholder credit no longer acceptable to the Bank, but it never- theless required assurances that credit would be available on the same terms as for other similar development projects. 35. Thus, the Bank's approach to the issue of credit to smallholders has changed many times, often in contradictory, confusing directions - to be sure, in a far from settled and consistent fiscal environment. The implica- tions of these changes for rural development projects in Northeast Brazil can perhaps be summed up as follows: (a) Credit to smallholders is no longer included as a significant component. The Bank's contribution to "total" project costs is, in fact, lower than stated (33%); it is probably closer to 20% of the overall costs.l/ (b) Care must be taken in determining actual real unit costs of rural development projects in Northeast Brazil and especially in comparing the unit costs of the various rural development projects. (c) While excluding credit from credit costs, and thus from the financ- ing plan, might increase the Bank's leverage in its dialogue with Government about agricultural credit policies, it might reduce at the same time the Bank's leverage about the execution of the credit component.2/ 1/ The Region disagrees with these figures (which were derived by the audit on the basis of appraisal figures). Actual experience with these credit components suggests that appraisal estimates of project-related credit have been too optimistic by as much as one third. 2/ The Region disagrees with the audit's view. They argue that comparison between projects "with" or "without" credit components reveal no signif- icant differences in credit availability. Furthermore, they feel that Bank efforts with the Central Bank to improve small farmer credit pro- cedures probably have more impact than Bank financing of components. They also point out that beyond such improvement and supervision atten- tion to credit, the Bank has little leverage as the Bank-financed credit share of the POLONORDESTE program is simply too small. Finally, they point out that disbursements are held at the Central Bank and are pooled with other funds; thus disbursements do not go to the operating banks where most problems remain, particularly at the branch level. - 15 - D. Supervision 36. The project has been the subject of a special study on supervision, also referred to in detail in the PCR (paras. 11.03-11.06). The relevant parts of the case study have been attached to this audit memorandum as Annex 1. This case study covers the project implementation period,,until 1978, and its conclusions remain valid, although some improvements were made later in 1979-80, in that more agencies outside COLONE were contacted either in person or by mail. The supervision was, nevertheless, one of relative "isolation," continuing the trend manifest during preparation and appraisal. 37. However, there were some very positive aspects of project super- vision. Excellent cooperation between the highways and agricultural divisions ensured sufficient and competent supervision of the feeder roads component which was well implemented. These arrangements, formalized in the Latin America and the Caribbean Region, could be usefully applied to other projects or components--for example, education and health components.l/ 38. There was excellent staff continuity in the beginning between appraisal and supervision, followed by a period of discontinuity caused mainly by the Bank's reorganization; regrettably, coinciding witli a period of major changes in project concept. Continuity was restored from late 1974 onwards: the same project officer was responsible for supervision until project comple- tion.2 / This resulted in excellent relations with the project executing agency. But insufficient additional expertise was added to supervision missions: no financial analyst, education specialist, health specialist, or anthropologist has even visited the project; a forester participated in supervision only once as did an architect, the latter relatively late during project implementation. 39. SUDENE had originally started settlement in the area, but, as the supervision case study points out, SUDENE was not informed regularly about project implementation, especially in the beginning. This was a serious omission as SUDENE was designated as the representative of the Borrower.3/ Many agencies (such as INCRA, Ministry of Interior, Ministry of Finance, and SUBIN--the international relations department of the Secretariat of Planning) had an interest in the project, but as the case study points out, they were only rarely consulted. Some of the agencies undertook their own supervision, but there was hardly any coordination between their efforts and the Bank's. Communications improved somewhat towards the end of the implementation period. 1/ Another example might be between IDF and agricultural divisions regarding agro-industrial credit projects. (See PPAR - Brazil Agro-Industries Credit Project, Loan 924-BR, OED report under preparation and PPAR - Costa Rica Second Agricultural Credit Project, Loan 827-CR, OED Report No. 3492, dated June 10, 1981.) 2/ Also, the same highway engineer supervised the road component for most of the period. 3/ Loan Agreement, Section 9.01. - 16 - 40. Interested and involved agencies must be kept informed, even if it requires additional time. In other regions, all interested agencies usually participate in the supervision missions' wrap-up meetings. Moreover, even though COLONE's responsibilities were to be handed over to existing state institutions and agencies, contact with them was sporadic; this important aspect of the project was insufficiently supervised. As during preparation and appraisal, insufficient attention was given during supervision to the institutional environment. E. Reporting to the Board 41. Project implementation and Bank activities related to it are re- ported to the Board of Directors in two ways: (a) the status of projects under implementation is mentioned in each President's Report; (b) Bank actions in relation to project implementation are part of the Bi-Monthly Report on Bank and IDA Operations. References to the Alto Turi Land Settlement Project made in President's Reports issued during the 1972-82 period are in Annex 2. In preparing this part of the President's Report, which describes the status of projects in execution, the following are the guidelines: "These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution." 42. Legal complications in transferring land titles, a major problem throughout project execution, were only mentioned since early 1980, although they became an issue much earlier. Problems encountered were duly reported, but there is little mention of remedial actions being taken or contemplated. It was found by the audit that most of these reports tended to be repeti- tive,1/ which may be unavoidable under the present system in countries with large lending programs. In this context reference is made to a recent Board discussion where the extent of the Bank's paper flow and cost of producing almost identical papers were discussed.2/ 1/ An example is the reference to COLONE's revised farm development plans which is repeated, uniformly, from June 1974 to June 1979, while in fact it does not provide the reader with a great deal of information. 2/ Mentioned during a Board discussion regarding two credits to Upper Volta for two agricultural development projects. See: Summary of Discussions at the Meeting of the Executive Directors of the Bank and IDA, July 27, 1982, SDb2-41, dated August 13, 1982, especially paras. 62-64. - 17 - 43. The bi-monthly report to the Executive Directors on Bank and IDA operations contains references to projects under implementation, but only in relation to their signing, effectiveness and closing, and visits by Bank staff. References to the Alto Turi project over the period July 1972 - June 1982 have been assembled in Annex 3. The relevance of this information can only be properly assessed by the recipients of the report. The audit, how- ever, notes that the report has grown in size along with the growth of Bank operations while the message contents have become more concise. The audit suggests that a review of present practice might prove useful to determine the manner and extent of portfolio reporting. F. Environment 44. An in-depth review of the environmental, especially the human and ecological, dimensions of the project is not possible since specific expertise was not available to the audit mission. However, a few perspectives can be usefully developed. 45. Forestry and Ecology. Environmental objectives detailed in the appraisal report were as follows: "In line with present Government policy to leave a substantial part of the Amazon area under forest to protect the environment, two blocks totalling 100,000 ha of forest would be retained in the poorest and topographically most difficult lands in the project area north of the Turiacu river. These blocks would be surveyed, legally set aside, and timber exploita- tion would be permitted only on a controlled basis. About 90% of the land cleared under the project would be planted to permanent pasture and this would help prevent erosion and control runoff. Gauges would be installed to check the possible effects of land clearing on rainfall and on runoff. These measurements would yield useful preliminary infor- mation regarding important effects of deforestation."''/ 46. Sawmill and logging operations have been expanded as planned (PCR paras. 4.18-4.19). The appraisal mission intended that a senior forester in COLONE should supervise the forestry program. The May 1975 supervision mis- sion recommended that a forestry department be established. But although a suitable expatriate candidate was identified, he could not be employed due to problems of double taxation. Only a 12,000 ha forest reserve was estab- lished, and even then there have been continuing problems with encroachment and illegal occupancy by squatters.2 / It is unlikely that the original 1/ Appraisal Report, op. cit., para. 4.05. 2/ Under the follow-on project, fences would be constructed around the perimeter and access and boundary clearing would be improved. Patrols would be established to keep out squatters. - 18 - objective will ever be achieved, even under the follow-on project.l/ There is also no indication that much study was done under the project into the effects of land clearing and pasture development on runoff and soil erosion. 47. The audit mission noted, while driving on the BR-316 and project area roads, the nearly continuous area of secondary shrubs and bushes; only a few blackened remnants of tall tropical trees have remained. In the knowledge that this area was only recently covered by tropical forests, the visual impression forcefully underscores the environmental impact of this and similar projects. Thus, although the project has not demonstrated the "means of preserving a balance between developing new land and retaining the ameliora- tive effects of forest areas and pasture, 2/ its environmental objectives remain as valid as ever and much remains to be done to achieve them. 48. The failure of the environmental component is to a large extent also due to the fact that insufficient allowance was made for it at appraisal. While there were clearly established environmental objectives, they were not translated into actual components in the implementation plan, neither were they costed under the project; this should have been done. 49. Amerindians. The subject was discussed during Board presentation when a question of what would happen to the indigenous population in the area was raised. It was stated that 2,800 settlers, already in the area, would be absorbed into the project; it was then believed that there were no Indian tribes in the project area although it was always known that some lived in adjacent areas: "Adjacent to the project area there are 3,000 km2 of land considered suitable for colonization. The area is inhabited by about 10,000 indigenous Indians and about one-half of the 3 million hectares would be reserved for them; the other half would be colonized as the national and state highways are constructed in the area. 3/ As early as 1975, Amerindian families were reported living in the area, causing problems, including casualties, which temporarily halted settlement activities in the area concerned. The problem was due mainly to inaccurate original surveying. It was finally resolved through a boundary correction between the COLONE and FUNAI territories: 1/ Although that project includes the identification, protection and manage- ment of two new forest reserves, expected to total about 100,000 ha, these reserves are to be in two of this project's sub-areas: Baixada and Alto Turi (sub-area III - the expansion area). 2/ Appraisal Report, op. cit., para. 8.06. 3/ Internal memo to files dated July 14, 1971. - 19 - "The previous problems which had been encountered with Indian settlers of the "Urubu Kaapo" tribe, have now been satisfactorily solved and actually informal technical assistance and emergency health service arrangements between COLONE/FUNAI have brought about a certain coopera- tion between the two agencies. "l/ In view of the increasing emphasis in the Bank on human ecological considera- tions related to economic development and tribal people,2/ it would have seemed natural for the follow-on project to develop this cooperation further. Even though the Office of Environmental Affairs emphasized its potential,3/ the follow-on project did not include such a component. Instead, Amerindian protection was a complementary activity4 /: "Although the project area does not include any land set aside for Amerindian reserves, there are two such reserves situated sufficiently close to the project area to be potentially influenced by development within the area. Both these reserves lie within the influence area of the Carajas - Sao Luis railroad now under construction. In conjunction with the proposed Bank support for the Carajas project, a Special Program has been formulated by the Federal Government to protect Amerindians in the influence area of the railroad in addition to the provision of basic services to the Amerindian population. The proposed Maranhao Rural Development Project would complement these activities with the provision of supporting health care on request as has been the case in the past in the Alto Turi area, and collaboration in the demarcation of one of the reserve boundaries shared with the Alto Turi subproject area. Assurances were obtained from the Federal Government that it would take all neces- sary measures to put into effect the actions included in the Special Program for protecting the Alto Turi and Rio Pindare Amerindian reserves, to ensure that the provisions of the Indian Statute (Law 6001) were observed."5/ 50. Not only does it seem strange to ask a Government to implement its own laws and statutes, but the Bank also missed, in the audit's view, the opportunity to integrate a tribal component in a rural/regional development 1/ Supervision Report dated July 16, 1979. 2/ See, for example: Tribal People and Economic Development, Human Ecologi- cal Considerations, May 1982 and the recently issued OMS 2.34 - Tribal People In Bank-Financed Projects (February 26, 1982). 3/ Internal memo dated January 2, 1980. 4/ Defined as activities which would support the project but which would be financed separately and without Bank participation. 5/ Maranhao Staff Appraisal Report, op. cit. para. 3.45. - 20 - project.l/ A special program was included under the Carajas Iron Ore Pro- ject,2/ which, at a cost of US$13.6 million!/ for land protection, health, administration, economic development, and educatior4/, aimed at minimizing immediate and long-term adverse impacts of accelerated regional development on Amerindians. While the potential benefits of such a component are not in doubt, it is, in the audit's view, more an isolated effort and not part of a rural development project.5/ The Maranhao project would have provided an opportunity to make a systematic start in that direction by attempting to institutionalize contacts between FUNAI and COLONE, which at present are only on a personal level, and with some other agencies responsible for rural development. This needs further attention. G. Road Development6/ 51. The project included a substantial road component, and most of the Bank loan was disbursed for this component--see Table 1. At appraisal it 1/ The Region disagrees with the audit's view (see footnote 3, page 20). 2/ See Staff Appraisal Report - Brazil Carajas Iron Ore Project, Report No. 3921-BR dated July 6, 1982, especially Annex 5-4. 3/ The subcomponent covers activities in 14 reserve areas with an estimated population of about 4,500; thus the resulting incremental costs per beneficiary are about US$3,100. 4/ A major immediate effort to protect Guaja Indians living in small bands around certain reserves was also included. 5/ The Region disagrees with the audit's view that including a special program under the Carajas project makes it an isolated effort. In fact, they argue that a substantial component under one project provides better leverage and a better chance of success than more limited components scattered over various rural development projects. 6/ OPS staff have provided the following observations on this issue: "The original road designs were consistent with the preparation/apprais- al objectives of a low cost approach to settlement which could be widely replicated. This objective seems to have been forgotten during imple- mentation and indeed SUDENE policy makers may never have been convinced that such an approach, which would bear limited political rewards, was the correct way to go. With regard to the geometric layout, this was used at preparation for estimation purposes because of lack of topo- graphic data - surveys had only been carried out on traces at 2 km intervals. The alignments of roads and farm boundaries in these sorts of situations need to be finalized as the area is opened up and one would expect on-site engineering supervisors to make whatever changes are needed to avoid building roads in swamps or straight up steep slopes." While it is true that appraisal designs were low-cost, it remains a fact that final and detailed road design was far beyond standards set at appraisal and followed a rigid geometric pattern. - 21 - was envisaged that 305 km of penetration and access roads and trails would be built and 80 km of access roads would be improved. Consultants would be employed for design work and to supervise construction. Construction would be by contractors selected through international competitive bidding. Mainte- nance would be the responsibility of the State Road Department. 52. Substantially delayed, only about 77% of the road component was completed. Consultants were engaged in June 1975, prequalification of con- tractors took place in late 1975, and a contract for the first 102 km was signed in June 1976. A default by the first contractor ensued, resulting in further delays in execution; all this adding up to sizeable cost increases. Eventually, these forced the scaling-down of the program from 305 km to 238 km. It was completed in 1979. 53. Although road maintenance was to be undertaken by the State (Loan Agreement, Section 4.03), nothing has been done to date. The State Road Department's attitude was that since they were not consulted during the planning of the project, they could not allocate resources from an already inadequate budget. 54. Two issues arise. First, the roads under the project have been overdesigned. The appraisal report specified designs, but those were con- siderably exceeded during construction. This was accepted by the Bank without much debate: none of the supervision reports raises this issue. The PCR even notes (para. 12.08) that over-design is advantageous because roads sub- sequently last longer even without adequate maintenance. This point, however, needs further study. 55. Second, settlement followed a rigid pattern: lot sizes with a depth of 2,500 meters and a road frontage of 150 meters. This resulted in settlers not being given farms with similar potential and also caused roads to be constructed in straight lines, without any regard for geographical contours or natural obstacles such as marshy areas and hills. A little more flexibility to determine plot shapes and actual location of roads seems warranted in settlement projects.l/ 1/ For a more detailed discussion, see PPAR, Sudan - Second Mechanized Farming Project, Credit 311-SU, OED Report No. 4122, dated September 28, 1982, paras. 10-15. That audit report also highlights that farm and approach roads must be aligned according to topography and not on an arbitrary geometric pattern. - 22 - Table 1 PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) DISBURSEMENTS BY CATEGORY Original/a FinaL/b Category Allocation Allocation I. Road Construction $3,600,000 $5,192,210.83 II. Buildings, vehicles and equipment for Colone, and extension and pasture experts 450,000 535,376.51 III. Expansion of Cocalinho 150,000 98,156.12 mill IV. Schools and Health Centers 200,000 466,467.37 V. Studies, survey and other services under Part F of the Project 300,000 0.00 VI. Interest (and other charges) on the Loan accrued on or before December 1, 1977 1,100,000 407,789.17 VII. Unallocated 900,000 - Total $6,700,000 $6,700,000.00 /a Schedule 1, Loan Agreement dated July 24, 1972. /b Upon disbursement of Cruzeiros 398,449.98 equivalent to US$5,964.82 on January 20, 1981 against the Borrower's application No. 42, this loan became fully disbursed (Memo dated February 3, 1981). - 23 - Table 2 PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) BRAZIL RURAL DEVELOPMENT PROJECTS IN THE NORTHEAST 1. Rio Grande do Norte Rural Development Project. Ln. 1195, US$12.0 mil- lion; A - December 11, 1975; S - March 1, 1976; E - July 30, 1976; C - September 30, 1982.1/ President's Report: P-1704-BR (11/13/75); Appraisal Report 922-BR (11/11/75). 2. Ceara Rural Development Project - Ibiapaba. Ln. 1488, US$17.0 million; A - September 13, 1977; S - November 17, 1977; E - March 28, 1978; C - December 31, 1982. President's Report: P-2110-BR (08/30/77), Appraisal Report 1580a-BR (08/22/77). 3. Paraiba Rural Development Project - Brejo. Ln. 1537, US$24.0 million; A - March 21, 1978; S - May 8, 1978; E - October 19, 1978; C - Septem- ber 30, 1983. President's Report P-2207-BR (03/15/78); Appraisal Report 1814-BR (03/10/78). 4. Bahia Rural Development Project - Paraguacu. Ln. 1589, US$37.0 million; A - June 6, 1978; S - July 19, 1978; E - December 5, 1978; C - Decem- ber 31, 1983. President's Report P-2297-BR (05/24/78); Appraisal Report 2009a-BR (05/19/78). 5. Sergipe Rural Development Project - Tabuleiros Sul. Ln. 1714; US$26.0 million; A - May 31, 1979; S - June 20, 1979; E - February 9, 1980; C - September 30, 1984. President's Report P-2554-BR (05/16/79); Appraisal Report 2358 (05/15/79). 6. Pernambuco Rural Development Project - Agreste Setentrional. Ln. 1728; US$40 million; A - June 14, 1979; S - June 20, 1979; E - February 5, 1980; C - December 31, 1984. President's Report P-2578-BR (06/04/79); Appraisal Report 2418-BR (05/22/79). 7. Ceara Rural Development Project (Phase II). Ln. 1924, US$56.0 million; A - December 2, 1980; S - January 14, 1981; E - July 7, 1981; C - Decem- ber 31, 1985. President's Report P-2898-BR (11/11/80); Appraisal Report 3020a-BR (11/11/80). 8. Piaui Rural Development Project. Ln. 2015-BR; US$29 million; A - June 16, 1981; S - August 10, 1981; E - February 5, 1982; C - December 31, 1986. President's Report P-3078-BR (05/28/81); Appraisal Report 3398-BR (05/22/81). 9. Maranhao Rural Development Project. Ln. 2177-BR; US$42.7 million; A - June 10, 1982; S - June 29, 1982; E - (not yet); C - December 31, 1987. President's Report 3327-BR (05/21/82); Appraisal Report 3845a-BR (05/21/82). -/ A = Appraisal; S = Signing; E = Effectiveness; C = Closing. - 24 - Table 3 PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) SMALLHOLDER CREDIT FINANCING IN RURAL DEVELOPMENT PROJECT IN N.E. BRAZIL Smallholder Credit Approval Abbreviated Appraisal Financed Financed Not Financed Loan Number Date Name Reference Disbursed Not disbursed Not Disbursed 853-BR 07/06/72 Alto Turi 5.08; 5.09; X 5.04; 5.06 1153-BR 06/09/75 Lower Sao /a 4.02 X/f Francisco Polder- 1195-BR 12/11/75 Rio Grande do 4.09-4.14; X/b Norte 4.22; 4.24 1362-BR 01/11/77 Minas Gerais I/a 3.8; 4.2; 4.4; x/C 5.4-5.14 1488-BR 09/13/77 Ceara I 4.11-4.15; XLd 5.02; 5.06 1537-BR 03/28/78 Paraiba 4.14-4.16; X/d 5.02; 5.06 1589-BR 06/06/78 Bahia 4.14-4.19; X/d 5.02; 5.06 1714-BR 05/31/79 Sergipe 4.12-4.15; XLd 5.02; 5.06 1728-BR 06/14/79 Pernambuco 4.07-4.10 X/d 1729-BR 06/19/79 Sao Francisco/a 4.08 X/& Irrigation II 1877-BR 06/19/80 Minas Gerais II/ 4.09-4.12 X/ / 5.02; 5.03 1924-BR 12/02/80 Ceara II 4.40-4.43 X/ 2015-BR 06/16/81 Piaui 4.40-4.41 x/h 5.02 2177-BR 05/27/82 Maranhao 3.44 xLh /a Not always regarded as part of the N.E. Rural Development Program. However, the Sao Francisco irrigation projects are within the area, while other definitions of the N.E. sometimes include parts of Minas Gerais. /b Upper limit on sub-loans (total indebtedness 50 times MVR). /c Upper limit on sub-loans (total indebtedness 150 times MVR). /d Upper limit on sub-loans (outstanding seasonal and investment credits not to exceed 100 times MVR). /e Seasonal credit excluded. /f Existing sources adequate; nevertheless assurance that funds for credit made available if needed. a Ample credit available through local banks. /h But assurances obtained that Government would ensure timely availability of credit. NOTE: MVR (Maximum Reference Value) is a unit established by the Brazilian Government and adjusted periodically in accordance with inflation, which is roughly equivalent to the prevailing national minimum wage. - 25 - ANNEX 1 Page 1 of 10 PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND DEVELOPMENT PROJECT (LOAN 853-BR) SUPERVISION 1. In this Annex, relevant parts of a case study of this project, which was part of a special OED report on supervision,l have been reproduced. Part I (Project Description) and Attachment A (Supervision Mission Table) have been deleted as they are already covered by the audit memorandum. 2. The contents of the case study, therefore, are as follows: II. SUPERVISION OPERATIONS A. Supervision Mission 1. First Stage 2. Second Stage 3. Main Issues Pertaining to Supervision Missions B. Other Supervision Work 1. By the Bank 2. By the Borrower III. THE IMPACT OF SUPERVISION A. Supervision of Obligations Under the Loan and Project Agreements B. Implementation Assistance and Problem Solving C. Assisting Institution-Building D. The Learning Process IV. CONCLUSIONS 1/ Operational Policy Review, The Supervision of Bank Projects, Report No. 2858 dated February 22, 1980 (two volumes). The case study has been reproduced verbatim in this Annex, and no updating has been done by the audit mission. Since the case study was done more than two years ago, some of its conclusions have become obsolete. For example (see Annex 1, para. 3.02 last sentence) the Bank has now a far better understanding of the intricacies of land tenure and titling (see PPAM, para. 31). Also on the subject of supervision, see PPAM, paras. 36-40. - 26 - ANNEX 1 Page 2 of 10 II. SUPERVISION OPERATIONS A. Supervision Missions 2.01 Two Bank divisions were involved in supervising the project, and their relations and performance were satisfactory. The only perceived differ- ence in performance between the two stemmed from their priority in allocating resources. Whereas the Agriculture Division was forthcoming with the neces- sary resources to supervise the project, the Highway Division sometimes had difficulties in making staff available for missions at the times planned by the Agriculture Division. 2.02 Twenty supervision missions visited the project between October 1972 and September 1978, with an average interval of 3.8 months between missions. The longest gap between missions was eight months and the shortest gap one month. On the average, missions lasted a week and included two experts. (For a si=mary of supervision inputs, see Table 2.) For purposes of discussion, project supervision can be divided into two stages: late 1972 - mid 1974, and mid 1974 to late 1978. Details of staffing and assignments for supervision missions are given in Attachment A. 1. First Stage 2.03 The first year and a half of project supervision was a time of indecision which coincided with a slow and somewhat rocky start to the pro- ject. Although the appraisal mission leader (an agriculturalist) supervised the project twice before effectiveness--essentially to check on the conditions of effectiveness and to prepare for start up--he left for another Bank assign- ment about the time the project became effective, and his experience was lost. The Division could not easily find a replacement for him, and the next three missions had no continuity, either in terms of personnel or expertise. Five of the six staff members who participated in those three missions visited the project for the first and only time. Neither continuity nor a sense of grasping the nature of the project and its problems are evident from an examination of supervision during that period: a factor in this was the reorganization the Bank was undergoing at the time. 2.04 This was a particularly critical stage in the project which was adversely affected by poor supervision, for it was at that time when Brazilian officials at all levels began to assert that the low cost, self-help model on which the project was based was not feasible in the Brazilian context. As an alternative, COLONE prepared new farm models on a more intensive--and far more expensive-pattern. This would mean completely changing the low cost approach to colonization which the project was trying to demonstrate, and jeopardizing its replicability. The new farm development models required sub-loans 8 times larger than anticipated at appraisal, and hence either the total project cost would rise significantly or the number of beneficiaries would have to be severely reduced. Such a significant change in project concept, design, scope, cost and most certainly, profitability, should have called for a full - 27 - ANNEX 1 Page 3 of 10 project re-appraisal. However, the third mission approved the change and recorded the action in the back-to-office and full report. Headquarters showed no reaction, implicitly endorsing the approved change. Even though it had solved a major impasse, this ill-considered decision--which was adopted by a Programs staff member and one from Projects who possessed no prior experi- ence with the project--distorted project design and contributed to problems which would later affect implementation. 2.05 The analyst concludes that the missions immediately following did little to help the situation. Neither did they insist on a detailed explana- tion of why the original models had proven unfeasible, nor did they recognize the deep-seated factors which were to further delay project implementation. The supervision reports also show that these missions had an inadequate knowledge of crucial project concepts. 2. Second Stage 2.06 From mid-1974 onwards supervision began to improve in all respects. Thirteen regular missions visited the project between then and late 1978, usually composed of a single agriculturalist and engineer. Continuity was strong, and missions were properly staffed and spaced. The same agricul- turalist participated in all missions but one, and of the eight visits by a highway engineer, seven were paid by the same individual. A third expert, usually an agriculturalist, accompanied this basic team on five occasions. This pattern was broken only once, when a four-man mission (the two regulars plus a forestry expert and an agricultural economist) went into the field. The expanded mission had no particular impact on implementation. Only two consultants had a role in supervision: the forestry expert and one of the agriculturalists. 3. Main Issues Pertaining to Supervision Missions 2.07 Most mission members had commitments to Bank projects in addition to Alto Turi. Among the agricultural personnel, several were variously involved with identification, preparation, and appraisal of other projects, as well as project supervision. The highway officer always had additional responsibili- ties. Most of his visits to Alto Turi were part of itineraries that included other projects, and other countries. 2.08 Programs staff participated in three missions. They seemed to have little impact on project execution except for the instance mentioned in the first phase (see para. 2.04). The presence in the third mission of the Programs officer, who had been a loan officer since before the loan was approved, seems to have been aimed at providing continuity. 2.09 There were also two one-man missions from Controllers. No special project needs called for these visits, which were simply part of a much larger itinerary devoted to checking disbursements in several projects. 2.10 Terms of reference were clear and explicit, spelling out in detail most of the tasks to be performed; they reflected the project situation and needs as the Bank perceived them at the time. Adequate notice was given to -- 28 - ANNEX 1 Page 4 of 10 COLONE of the missions' arrival, a fact which was readily acknowledged by COLONE officials themselves; occasionally cables were sent to other agencies. Most of the cables did not spell out explicitly the prospective mission's main areas of concern, but the strong continuity that began in the second stage on both sides (the same man has headed COLONE all throughout project implementa- tion) made it almost unnecessary. COLONE always took all the necessary preparatory actions. 2.11 COLONE was the focal point of all missions. Its headquarters were visited by every mission with two exceptions, and even then the missions met elsewhere with COLONE's Director President. Typically, mission time was divided equally between headquarters and the project area (usually two days in each), and was sufficient for carrying out supervision. Most of the time was spent discussing technical, managerial, and financial problems with COLONE's personnel. 2.12 COLONE personnel interviewed for this case study responded very favorably to Bank supervision. Although they disliked the initial lack of continuity, the strong continuity that was established after the fifth mis- sion, coupled with the fact that COLONE itself maintained a high degree of staff stability, contributed to a very positive experience. They found the Bank staff competent, knowledgeable and personally suited to their tasks. Advance warning of the missions' itineraries was always received, and while these may have lacked specific references to particular issues to be dis- cussed, COLONE staff stated that the congenial and continuous relationship somewhat made up for this. 2.13 COLONE staff noted only two problems: a lack of authority to solve problems in the field and a lack of flexibility. The first observation arose from the fact that often the Bank technician agreed in principle with the urgency of a certain decision, but could not authorize its implementation. It was felt that the delays this problem occasioned were quite serious and involved a substantial "cost" to the project. COLONE staff also felt that mission members were too rigid in using the appraisal report to measure project accomplishments. This procedure was not effective since, in their opinion, the project had not been properly appraised in the first place. 2.14 Although mission staff were comprehensive in their supervision of COLONE and the project site, they failed to systematically visit the rest of the agencies relevant for project implementation, and this proved to be a problem. Both the Ministry of the Interior and the Central Bank had been visited under the first supervision stage, but visits were discontinued in January 1975. The Ministry of Finance and INCRA were. visited only once each, and SUDENE was visited three times. 2.15 The most serious omissions by far were those of INCRA and SUDENE. INCRA, as the official settlement agency of the Govenment, has the mandate to appraise and approve every settlement project in Brazil, and no project exists without INCRA's approval. The Bank had not recognized this, however, and failed to involve INCRA in the preparation and appraisal of the Alto Turi Project. The oversight was carried into implementation and supervision. - 29 - ANNEX 1 Page 5 of 10 Although INCRA's role had by then become self evident, and although implemen- tation was totally or partly delayed twice for one full year each timel/as a result of the time it took INCRA to grant its approval, only one mission ever visited INCRA. Even this visit is not mentioned explicitly in the super- vision report. Through its lack of contact with INCRA, the Bank lost its chance to discuss with INCRA its objections on project design and to act toward accelerating INCRA's approval procedures. 2.16 SUDENE, whose role was equally important, was similarly overlooked. It had been SUDENE, under the Ministry of Interior, who had originally con- ceived the project and who had to procure the financial resources to fund both COLONE and the project. SUDENE also acted as the intermediary between COLONE and the Ministry of Interior, and through this one with all other government agencies--including the Ministry of Finance (which was to provide the project's counterpart financing, but never did), and the Central Bank (which was to finance half of the total project costs: farm development credit). Project financing was the main topic discussed during the three visits. This had considerable impact in at least one instance and caused the immediate release of a considerable sum to COLONE which in turn allowed them to repay a short-term debt. 2.17 SUDENE staff interviewed, who admit a cordial and close relationship with the Bank on other projects, do not have a clear impression of Bank super- vision on Alto Turi. They admit finding it difficult to establish contact with the Bank to discuss problems and find common ground for overcoming them. Officials interviewed said that they were not informed of mission arrival, and that Bank officials visiting COLONE's headquarters did not even visit SUDENE's state representative--even though they were in the same town2 . They would have appreciated a more extensive dialogue with the Bank, which would have covered more than just the project's financial problems. They state that more intensive Bank contact with SUDENE, with some participation by SUDENE staff in the Bank supervision effort, would have resulted in a better understanding and greater support by SUDENE for the project.31 1/ The revised project document was submitted to INCRA first in December 1973, and again in February 1974 after changes had been made per INCRA's request; it was eventually approved in December 1974. Later the project had to be modified to substitute for land occupied by Indians, and amended plans for settlement were submitted to INCRA in early 1976. No INCRA authorization had been received by mid-1977, and there is no further reference to this issue in the files. 2/ Bank staff claim that visits were not made to SUDENE's state representa- tive in Maranhao. 3/ Arrangements were made for SUDENE staff to co-supervise the project in mid-1978, but heated discussions over who was to blame for the lack of funding prevented effective discussions between the Bank, COLONE and SUDENE. Field visits were equally fruitless as SUDENE staff were unfamiliar with project goals and on-site works. Despite this rocky start it was hoped that co-supervision efforts would improve with time. ANNEX 1 30- Page 6 of 10 2.18 Correspondence distribution was as biased toward COLONE as the mission visits. COLONE received a letter after every mission which sent letters; it was the sole recipient of Bank correspondence about half the time. COLONE acknowledged receiving the follow-up letters and stated that, with only one exception, they contained no surprises when compared with the field visits. By contrast, SUDENE received only two regular follow-up letters, which, because of the lack of contact with the missions, were of little use to them. It was also mentioned that Bank missions did not check on previous requirements or commitments. 2.19 Since most missions only visited COLONE, no wrap up meetings were required. Aide memoires between COLONE and the Bank were prepared for most missions, and were found to be extremely useful by COLONE personnel. Back-to- office reports were prepared by seven missions, or about one-third; they were combined with full reports in another three cases. For the most part, satis- factory reports were produced and issued within six weeks after the mission's visit to the project. By and large the reports in the second stage are accurate and comprehensive, and bring out a clear picture of the developments at project level, which is in contrast to the poor reporting of the earlier stage. 2.20 Letters to the government were issued promptly after the missions. In only two cases in the second stage, letters were never sent--after the two Controllers' missions. Cables were also sent to the relevant ministers imme- diately after two missions, requesting immediate action on project financing. B. Other Supervision Work 1. By the Bank 2.21 In addition to the eighteen regular supervision missions two other visits were paid which were not considered as "supervision missions." One of these in late 1977, by the Director of the Programs II Department, the Brazilian Division Chief and the relevant loan officer, resulted in a cable being sent to the Secretary General of the Ministry of Planning, urging him to exercise his best personal efforts to ensure funds reached the COLONE projects. 2.22 In May the following year a Bank lawyer visited the project to learn more about the legal issues surrounding the release of titles to land in the project area. 2.23 A Bank project officer is stationed at SUDENE headquarters, but his/ her terms of reference do not include supervision of ongoing projects, being fully occupied in rural development project identification and preparation. 2. By the Borrower 2.24 INCRA and SUDENE both carried out their own supervision of the project. INCRA claimed eight missions from 1974 to 1978, while SUDENE seems to have supervised both COLONE and the project at least once a vear since the - 31 - ANNEX 1 Page 7 of 10 project's inception. The Bank made no effort to coordinate its efforts with that of the Brazilian agencies, to exchange information with them, or request supervision reports from them. SUTDENE staff interviewed felt this was a serious oversight. 2.25 COLONE sent satisfactory quarterly reports to the Bank, but COLONE staff interviewed felt they should be simplified and shortened. Bank staff always acknowledged receiving the reports and appeared to have a good under- standing of them. COLONE staff had one suggestion which they thought would facilitate matters: that every prospective mission ask in advance for the additional information it may require, which would enable COLONE to prepare it in advance and, if so agreed, incorporate it regularly into the quarterly reports. III. THE IMPACT OF SUPERVISION A. Supervision of Obligations Under the Loan and Project Agreements 3.01 There is little record of whether the covenants have been complied with or not. Compliance with covenants on the operation and management of the project cooperatives and those on procurement procedures seem to have been properly supervised, although supervision reports contain no explicit state- ment on the status of compliance at any given moment. Loan covenants appear not to have been systematically reviewed. 3.02 It is apparent, however, that two loan covenants of major import- ance and a condition of effectiveness have not been complied with, and that, moreov-er, Bank supervision has been weak in dealing with those problems. First, it was a condition of effectiveness that the State Government transfer to COLONE title to all land comprising the project area, free of encumbrances. The Bank was furnished with documentary evidence on the transfer, but one condition of the transfer had not been fulfilled. As a consequence, COLONE's ownership rights on the project area can be challenged--and they have been. But supervision missions failed to report these problems, which COLONE faced fairly early in the project life when it tried to have the land registered under its name. The first reference to legal difficulties related to land titling was in April 1977. The findings of the Bank lawyer visiting the project in May 1978 confirmed that the State Government had not complied with the covenant on land titles, and that the borrower had bona fide misrepre- sented to the Bank its accomplishment. It would appear however, that the Bank has not fully analyzed the situation to satisfy itself that no corrective measures exist, much less notified the borrower that it is aware of the discrepancies and expecting them to adopt corrective measures. 3.03 The major loan covenant--"making available to COLONE, quarterly in advance, such funds as shall be necessary for carrying out the project"--was never complied with. Supervision missions just recorded the fact that counterpart financing was not forthcoming, but did very little to remedy the situation, although the language in the Loan Agreement is abundantly clear ANNEX 1 - 32 - Page 8 of 10 and extremely explicit. The only remedial action taken boy the Bank was the dispatch of a strongly worded cable following mission 161k. This is a major flaw of the Bank in supervising loan covenants--and the project itself. 3.04 The borrower also failed to comply with another financial covenant which would provide SUDENE with all the necessary funds' for the schools and health centers. Again, the fact that such funding was not forthcoming is mentioned in the supervision reports, but there is no explicit reference to this as a breaching of a loan covenant. 3.05 Finally, no financial analyst ever participated in a supervision mission. COLONE, the cooperative accounts and the audits on them seem to have been properly reviewed by the Bank staff only during mission 15. B. Implementation Assistance and Problem Solving 3.06 Execution of project works was properly supervised. The project site, as well as COLONE headquarters, were frequently visited. Technical problems confronted during execution and their possible solutions were discussed. The missions constituted an important technical channel and sounding board for COLONE ideas for an otherwise almost completely isolated project staff. 3.07 But the problems inhibiting project implementation originated out- side COLONE, and supervision missions failed to confront them. Project execu- tion was delayed twice by lack of INCRA's approval of COLONE's original or amended settlement plans. But INCRA was visited only once; no information was requested from it; no correspondence was addressed to it (see paras. 2.15. and 2.18). Insufficient counterpart financing--or the complete lack of it--has been the most pervasive source of the project's problems. Project execution has been systematically delayed for this reason throughout the the project life; COLONE was on the verge of bankruptcy a couple of times because of that. But neither SUDENE nor the Ministries of Interior or Finance were systematically called on for an explanation and for requesting them to honor the Government commitment (see paras. 2.16 and 3.03). Visits to the two ministries were suspended after January 1975. Only on a couple of occa- sions (and mission 16 was particularly successful in this respect) did the Bank contribute substantially to having some funding materialize. Even- tually, in mid-1977 the Ministry of Planning extended the project a lifeline through its Program for the Development of Integrated Areas in the Northeast (POLONORDESTE), but POLONORDESTE has been visited only twice.2/ Letters or cables were very seldom addressed to all these crucial ministries and agencies (see para. 2.18). 1/ Although no records exist on Alto Turi files, the Bank frequently raised the funding issue and other problems of Alto Turi with SUDENE and the Federal Government in general meetings on Bank-financed projects. 2/ POLONORDESTE officials interviewed by OED stated that although generally satisfied with the quality of Bank supervision, in terms of the number, frequency and continuity of the missions, they suggested that Bank super- vision missions should be accompanied by a Government official--someone entitled to commit the Government and adopt decisions. - 31 - ANNEX 1 Page 7 of 10 project's inception. The Bank made no effort to coordinate its efforts with that of the Brazilian agencies, to exchange information with them, or request supervision reports from them. SUDENE staff interviewed felt this was a serious oversight. 2.25 COLONE sent satisfactory quarterly reports to the Bank, but COLONE staff interviewed felt they should be simplified and shortened. Bank staff always acknowledged receiving the reports and appeared to have a good under- standing of them. COLONE staff had one suggestion which they thought would facilitate matters: that every prospective mission ask in advance for the additional information it may require, which would enable COLONE to prepare it in advance and, if so agreed, incorporate it regularly into the quarterly reports. III. THE IMPACT OF SUPERVISION A. Supervision of Obligations Under the Loan and Project Agreements 3.01 There is little record of whether the covenants have been complied with or not. Compliance with covenants on the operation and management of the project cooperatives and those on procurement procedures seem to have been properly supervised, although supervision reports contain no explicit state- ment on the status of compliance at any given moment. Loan covenants appear not to have been systematically reviewed. 3.02 It is apparent, however, that two loan covenants of major import- ance and a condition of effectiveness have not been complied with, and that, moreov-er, Bank supervision has been weak in dealing with those problems. First, it was a condition of effectiveness that the State Government transfer to COLONE title to all land comprising the project area, free of encumbrances. The Bank was furnished with documentary evidence on the transfer, but one condition of the transfer had not been fulfilled. As a consequence, COLONE's ownership rights on the project area can be challenged--and they have been. But supervision missions failed to report these problems, which COLONE faced fairly early in the project life when it tried to have the land registered under its name. The first reference to legal difficulties related to land titling was in April 1977. The findings of the Bank lawyer visiting the project in May 1978 confirmed that the State Government had not complied with the covenant on land titles, and that the borrower had bona fide misrepre- sented to the Bank its accomplishment. It would appear however, that the Bank has not fully analyzed the situation to satisfy itself that no corrective measures exist, much less notified the borrower that it is aware of the discrepancies and expecting them to adopt corrective measures. 3.03 The major loan covenant--"making available to COLONE, quarterly in advance, such funds as shall be necessary for carrying out the project"--was never complied with. Supervision missions just recorded the fact that counterpart financing was not forthcoming, but did very little to remedy the situation, although the language in the Loan Agreement is abundantly clear ANNEX 1 - 32 - rage 8 of 10 and extremely explicit. The only remedial action taken by the Bank was the dispatch of a strongly worded cable following mission 161 . This is a major flaw of the Bank in supervising loan covenants--and the project itself. 3.04 The borrower also failed to comply with another financial covenant which would provide SUDENE with all the necessary funds for the schools and health centers. Again, the fact that such funding was not forthcoming is mentioned in the supervision reports, but there is no explicit reference to this as a breaching of a loan covenant. 3.05 Finally, no financial analyst ever participated in a supervision mission. COLONE, the cooperative accounts and the audits on them seem to have been properly reviewed by the Bank staff only during mission 15. B. Implementation Assistance and Problem Solving 3.06 Execution of project works was properly supervised. The project site, as well as COLONE headquarters, were frequently visited. Technical problems confronted during execution and their possible solutions were discussed. The missions constituted an important technical channel and sounding board for COLONE ideas for an otherwise almost completely isolated project staff. 3.07 But the problems inhibiting project implementation originated out- side COLONE, and supervision missions failed to confront them. Project execu- tion was delayed twice by lack of INCRA's approval of COLONE's original or amended settlement plans. But INCRA was visited only once; no information was requested from it; no correspondence was addressed to it (see paras. 2.15. and 2.18). Insufficient counterpart financing--or the complete lack of it--has been the most pervasive source of the project's problems. Project execution has been systematically delayed for this reason throughout the the project life; COLONE was on the verge of bankruptcy a couple of times because of that. But neither SUDENE nor the Ministries of Interior or Finance were systematically called on for an explanation and for requesting them to honor the Government commitment (see paras. 2.16 and 3.03). Visits to the two ministries were suspended after January 1975. Only on a couple of occa- sions (and mission 16 was particularly successful in this respect) did the Bank contribute substantially to having some funding materialize. Even- tually, in mid-1977 the Ministry of Planning extended the project a lifeline through its Program for the Development of Integrated Areas in the Northeast (POLONORDESTE), but POLONORDESTE has been visited only twice.!/ Letters or cables were very seldom addressed to all these crucial ministries and agencies (see para. 2.18). 1/ Although no records exist on Alto Turi files, the Bank frequently raised the funding issue and other problems of Alto Turi with SUDENE and the Federal Government in general meetings on Bank-financed projects. 2/ POLONORDESTE officials interviewed by OED stated that although generally satisfied with the quality of Bank supervision, in terms of the number, frequency and continuity of the missions, they suggested that Bank super- vision missions should be accompanied by a Government official--someone entitled to commit the Government and adopt decisions. - 33 - ANNEX 1 Page 9 of 10 3.08 SUDENE officials were particularly critical of the Bank's weak stance vis-a-vis project problems. In their view, the Bank was concerned about the project's survival, and thus tempered its tone in discussing the problems with the Government. While admitting that mission members' sympa- thetic approach and support has been crucial for project survival, officials feel a more detached attitude and a stronger stance would have improved the situation. C. Assisting Institution-Building 3.09 Bank supervision has played no major role in institution building. The Bank has always supported the project and COLONE, but COLONE has developed almost by itself into what it now is. D. The Learning Process 3.10 The Alto Turi project, as an experimental, pilot settlement project, offers several lessons for the Bank to learn. These refer mainly to project identification, preparation and appraisal--particularly in the institutional area. Most of these lessons have been learned and new agricultural projects in Brazil have been handled in quite a different way: preparation has been proper and carried out mainly by Brazilian staff; Government commitment has been secured from the very beginning; institutional arrangements have been analyzed much more carefully. 3.11 Supervision history offers a very important lesson, too: the agen- cies whose actions or lack of them are originating, contributing to or com- pounding a project's problems must be visited by supervision missions both to know the reasons behind their behavior and to find workable solutions. Also, they must be kept informed of the main project problems and developments through follow-up letters and cables. This lesson was partly learned during project implementation. Letters and cables have been frequently sent to Government after the sixteenth mission. Also, the last mission arranged for two SUDENE staff members to meet it in Sao Luis for project supervision. IV. CONCLUSIONS 4.01 In analyzing the impact of supervision on this project it is impor- tant to reiterate that the project's structural and financial problems did not originate during implementation. They were built in during identifica- tion, preparation and appraisal. The project was prepared by consultants; its main elements (self-help, low cost settlement) were brought in by the Bank; Brazilian input at either the state or federal level was absent. SUDENE's input was almost restricted to project identification. Thus, it would have been difficult for even a superior supervision effort to overcome these problems!/!. 1/ Bank staff attribute the difficulties with enforcing covenants (see para. 3.02) to the early difficulties with project design and appraisal. 34 - - ANNEX 1 Page 10 of 10 4.02 Even considering what supervision missions were up against, however, they did not measure up. In fact, they failed in exactly the same areas-- organizational and managerial--where preparation had been the weakest. Not only did the Bank allow a major change in the project concept and design (from low cost to fairly capital intensive) without raising any objection, but then proceeded to stand aside as the project deteriorated due to bureaucratic errors over land settlement and a lack of essential counterpart funds. The only apparent solution--going to the various agencies which were the source of the problems--was not taken early enough to fully overcome the difficulties. 4.03 There is reason to believe that the weak supervision of Alto Turi has been more the exception than the rule when compared with other supervision experiences. First of all, although the various borrower staff interviewed for this study rarely held a common viewpoint on Bank supervision, they were all in agreement on the mission's lack of latitute and authority to make deci- sions in the field. This is not typical of Bank missions in general, which generally are commended (or criticized) for their strong stance in the field. Secondly, SUDENE's perception of the missions supervising Alto Turi differs completely from its perception of missions supervising other Bank-financed projects in the same Northeastern Region. The latter have worked very closely with SUDENE, and as a consequence the state agencies involved in these pro- jects feel strongly committed to their successful implementation. On this basis, it may be suggested that the weak supervision which characterized Alto Turi was a peculiarity of this particular project, and reflected the Bank's weak overall stance in this case. - 35 - ANNEX 2 Page 1 of 3 PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND DEVELOPMENT PROJECT (LOAN 853-BR) STATUS OF PROJECT AS REPORTED IN PRESIDENT'S REPORTS The Alto Turi Land Development Project was reported on as follows in the President's Reports for: Power Distribution (Ln. 887), approved April 10, 1973 "The loan became effective on February 15, 1973, and the project is proceeding according to schedule." Itumbiara Hydroelectric and Agro-Industries Credit (Lns. 923 and 924), ap- proved June 28 and July 5, 1973 "The loan became effective on February 15, 1973, and the project is slightly behind schedule. A Bank supervision mission is scheduled to visit the project in the near future and review the causes of delay." Paulo Afonso Hydroelectric Power IV and Minas Gerais Water Supply (Lns. 1008 and 1009), both approved June 4, 1974 "COLONE has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will be significantly higher than originally estimated, although still low in comparison to other settle- ment projects. Physical infrastructure is likely to be completed in 1974, and it is anticipated that the project will be completed in 1978 as envisaged." (Lns. 1067, 1074, 1075, 1151, 1152, 1153, 1171, 1195, 1206, 1207, 1249, 1256, 1257, 1300, 1302, 1309, 1317, 1343, 1362, 1406 and 1411), approved Novem- ber 12, 1974 through April 26, 1977 "COLONE has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will be significantly higher than originally estimated, although still low in comparison to other settle- ment projects. Administrative delays in the release of public funds for farm credit and COLONE working capital requirements and difficulties in recruiting project staff have slowed project executioni/. Settlement, however, has now begun and the project should be completed in 1978 as envisaged." (Lns. 1452, 1488, 1525, 1537, 1538, 1557, 1562, 1563, 1568 and 1589), approved June 9, 1977 through June 6, 1978 "The settlement agency, COLONE, has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will 1/ Beginning with the President's Report for Loan 1206 (February 1976), this wording was changed from "slowed project execution" to "delayed the start of project execution." - 36 - ANNEX 2 Page 2 of 3 be significantly higher than originally estimated, although still low in comparison to other settlement projects. Administrative delays in the release of public funds for farm credit and COLONE working capital require- ments and difficulties in recruiting project staff delayed the start of project execution. COLONE continues to be hampered by lack of assured fi- nancing, and this problem is compounded by cost overruns, which presently amount to 130% over appraisal estimates. The project must now be considered to have major financial problems."!/ Sites and Services, Northeast Water Supply and Valesul Aluminum (Lns. 1654, 1656 and 1660), approved January 23, January 30 and March 6, 1979 "The settlement agency, COLONE, has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will be significantly higher than originally estimated, although still low in comparison to other settlement projects. Administrative delays in the release of public funds for farm credit, road construction and COLONE working capital requirements and difficulties in recruiting project staff delayed the start of project execution. COLONE continues to be hampered by lack of assured financing, and this problem is compounded by cost overruns presently amounting to about 240%."2/ (Lns. 1714, 1720, 1721, 1728, 1729 and 1730), approved May 31 through June 19, 1979 "The road component of the project now completed was reduced from the original 306 km to 238 km. The settlement agency, COLONE, has prepared revised farm development plans whose credit component, to be financed by public financial institutions, will be significantly higher than originally estimated, although still low in comparison to other settlement projects. Administrative delays in the release of public funds for farm credit, road construction and COLONE working capital requirements and difficulties in recruiting project staff delayed the start of project execution. COLONE continues to be hampered by lack of assured financing, and this problem is compounded by cost overruns presently amounting to about 240%." (Lns. 1822, 1823, 1824, 1839, 1850, 1867, 1877 and 1895), approved March 27 through July 22, 1980 "The now completed road component of the project was reduced from the original 306 to 238 km. Other aspects of the project are also nearing completion and 8,000 families have settled in the project area, more than half already 1/ Beginning with the President's Report for Loan 1525 (February 1978), the last sentence of this paragraph was deleted. 2/ The President's Report for Loan 1660 (March 1979) added another sentence at the end: "The original closing date of December 1, 1978 has been postponed to June 30, 1980." - 37 - ANNEX 2 Page 3 of 3 receiving full project services. However, the project has taken longer than expected to complete, having been subject to administrative delays in the release of public funds, unforeseen legal complications in transferring land titles to settlers, and cost overruns presently amounting to about 240%. The Closing Date for this loan has been postponed to December 31, 1980 to allow the Borrower sufficient time to meet final payments on equipment contracts." Ceara Rural Dev. II, Electic Power System and Third Urban Transport (Lns. 1924, 1939 and 1965), approved December 2 and December 23, 1980 and March 31, 1981 "The now completed road component of the project was reduced from the original 306 to 238 km. Other aspects of the project are also nearing completion and 8,000 families have settled in the project area, more than half already receiving full project services. However, the project has taken much longer than expected to complete, having been subject to administrative delays in the release of public funds, unforeseen legal complications in transferring land titles from the state to COLONE, the executing agency, and subsequently to settlers. However, the first 883 land titles were issued to settlers during October 1980. Cost overruns presently amount to about 240% of appraisal estimate."l/ 1/ The President's Report for Loan 1965 (March 1981) added another sentence: "The final disbursement was made January 20, 1981." - 38 - ANNEX 3 Page 1 of 6 PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) PROJECT REFERENCES IN REPORTS ON BANK/IDA OPERATIONS1!/ 1. On July 6, the Executive Directors approved a loan of US$6.7 million for the Alto Turi Land Settlement Project in the State of Maranhao (R72-156).2/ 2. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): This loan was signed on July 24, 1972 (R72-186).J/ 3. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Storrar will visit Brazil from September 29 to October 7 to review the progress of this project. He will also discuss the preparation of the proposed Amazon Settlement project (R72-198).4/ 4. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): The terminal date for the effectiveness of this loan has been postponed from October 25, the original date, to November 27, to enable the Government to examine documents received from project authorities and prepare the necessary legal opinions (R72-219).5/ 5. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): The terminal date for the effectiveness of this loan, originally October 25 and postponed to November 27, has been postponed a second time to January 12, 1973 to provide additional time for the Government to examine documents received from project authorities and complete the necessary administrative formalities (R72-239).6/ 6. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Storrar arrived in Brazil on January 3 for about 10 days to review the progress of this project (R72-271).7/ 1/ Reports to the Executive Directors on Bank and IDA Operations over the period July 1972 - June 1982. 2/ R72-186, dated July 12, 1972. 3/ R72-198, dated July 26, 1972. 4/ R72-219, dated September 20, 1972. 5/ R72-239, dated November 1, 1972. 6/ R72-271, dated December 13, 1972. 7/ R73-7, dated January 11, 1973. - 39 - ANNEX 3 Page 2 of 6 7. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): The terminal date for effectiveness of this loan, originally October 25, 1972 and postponed twice to January 12, 1973, has been postponed a third time to February 28, 1973 to provide time for the Government to register the loan with the Central Bank and thereby complete the conditions of effectiveness (R73-7).1/ 8. US$8.4 Million (Education) Loan of June 21, 1971 (Ln. 755); US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853); US$30 Million (Grain Storage) Loan of September 27, 1972 (Ln. 857): Mr. McCarthy will visit Brazil from February 12 to 16 to review dis- bursement procedures for these projects (R73-18; R72-271). 2 / 9. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): This loan became effective on February 15, 1973 (R73-29) 3 7 10. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Rossi will arrive in Brazil on July 16 for about two weeks to review the progress of this project (R73-32).4/ 11. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Messrs. Schul and Armour will arrive in Brazil on June 2 for about one week to review the progress of this project (R73-174).5/ 12. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Messrs. Armour and Douglas will arrive in Brazil on September 11 for about 10 days to review the progress of this project (R74-118).6/ 13. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Armour arrived in Brazil on January 6 for about one week to review the progress of this project (R74-189).7/ 1/ R73-18, dated January 24, 1973. 2/ R73-29, dated February 7, 1973. 3/ R73-32, dated February 22, 1973. 4/ R73-174, dated July 11, 1973. 5/ R74-118, dated May 30, 1974. 6/ R74-189, dated September 5, 1974. 7/ R75-11, dated January 9, 1975. - 40 - ANNEX 3 Page 3 of 6 14. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Messrs. Armour and Revuelta arrived in Brazil on March 17 for about 10 days to review the progress of this project (R75-11).I/ 15. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Armour will arrive in Brazil on June 23 for about 10 days to review the progress of this project ($75-46).2/ 16. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): While in Brazil, Mr. Armour will review the progress of this project. He will be joined by Mr. Revuelta on November 2 for about two weeks (R75-126).3 / 17. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Revuelta will arrive in Brazil on January 19 for about one week to review the progress of the road component of this project (R75-214).4/ 18. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Armour will arrive in Brazil on February 19 for about two weeks to review progress (R76-3).5/ 19. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Messrs. Armour, Goering, Revuelta and Kehr (consultant) will arrive in Brazil on May 10 for about two weeks to review progress (R76-27).6/ 20. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): and US$40 Million (Agricultural Research) Loan of June 23, 1976 (Ln. 1249): Messrs. Armour and Ashkenazi will arrive in Brazil on September 8 for about two weeks to review progress. They will be joined by Mr. Revuelta from September 13 to 16 for the review of the Alto Turi project (R76-98; R76-74).7/ 1/ R75-46, dated March 20, 1975. 2/ R75-126, dated June 12, 1975. 3/ R75-214, dated October 30, 1975. 4/ R76-3, dated January 8, 1976. 5/ R76-27, dated February 5, 1976. 6/ R76-98, dated April 20, 1976. 7/ R76-213, dated September 2, 1976. - 41 - ANNEX 3 Page 4 of 6 21. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853); and US$40 Million (Agricultural Research) Loan of June 23, 1976 (Ln. 1249): Messrs. Armour and Pachner (consultant) will arrive in Brazil on March 3 for three weeks to review progress (R76-213, R76-241).*/ 22. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Vidalon arrived in Brazil on July 4 for two weeks to review progress and to participate in the appraisal of the proposed agricultural extension project. Mr. Armour who is already in Brazil will join him on July 8 for one week (R77-45; R77-186).2/ 23. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Vidalon arrived in Brazil on February 28 and Mr. Revuelta will arrive on March 11 for about one week each to review progress (R77-204).3/ 24. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Rigo arrived in Sao Luiz on May 23 for three days to discuss land titling matters with Government officials (R78-41).4/ 25. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853); US$40 Million (Agricultural Research) Loan of June 23, 1976 (Ln. 1249; and US$100 Million (Agricultural Extension) Loan of May 22, 1978 (Ln. 1568): Messrs. Armour and Ramirez (consultant) arrived in Brazil on November 5 for three weeks to review progress. While in Brazil Mr. Armour will also participate in the preparation of the proposed second agricultural research project (R78-125; R78-190; R78-208).5/ 26. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): The closing date of this loan, originally December 1, 1978 has been postponed to June 30, 1980 to allow the Borrower additional time to complete implementation of the project and fully disburse the loan. As of November 30, 1978, the undisbursed balance amounted to US$3.8 million (R78-250).6/ 1/ R77-45, dated March 3, 1977. 2/ R77-204, dated July 7, 1977. 3/ R78-41, dated March 2, 1978. 4/ R78-125, dated May 25, 1978. 5/ R78-250, dated November 9, 1978. 6/ R78-280, dated December 21, 1978. - 42 - ANNEX 3 Page 5 of 6 27. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Messrs. Armour and Revuelta will arrive in Sao Luiz on May 9 for eight days to review progress (R78-280).l/ 28. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): a) Mr. Sallier will arrive in Brazil on May 23 for eight days to join the mission reviewing the progress of this project (R79-107). b) At the request of the Borrower, and to reflect the current reduction in the scope of the project, the Loan Agreement has been amended to reduce the road component from 306 km to 238 km (R79-107).2/ 29. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853); and US$100 Million (Agricultural Extension) Loan of May 22, 1978 (Ln. 1568): While in Brazil, Mr. Armour will review progress of these projects from November 8 to 30 (R79-128; R79-107).3/ 30. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): The closing date of this loan, originally December 1, 1978, and postponed once to June 30, 1980, has been postponed for a second time to December 31, 1980 to allow the Borrower additional time to complete the execution of the project and to meet final payments on equipment contracts. As of January 18, 1980, the undisbursed balance amounted to about US$129,000 (R79-265).4/ 31. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): While in Brazil, Mr. Armour will review progress (R80-16) r 32. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): Mr. Armour arrived in Brazil on December 4 for two weeks to review progress (R80-154).6/ 1/ R79-107, dated May 10, 1979. 2/ R79-128, dated May 24, 1979. 3/ R79-265, dated October 25, 1979. 4/ R80-16, dated January 31, 1980. 5/ R80-154, dated June 5, 1980. 6/ R80-357, dated December 18, 1980. - 43 - ANNEX 3 Page 6 of 6 33. US$6.7 Million (Alto Turi Land Settlement) Loan of July 24, 1972 (Ln. 853): This loan has been fully disbursed (R80-357).I 34. US$6.7 Million (Alto Turi Land Settlement) loan of July 24, 1972 (Ln. 853): While in Brazil, Mr. Armour will review progress and obtain information for the preparation of the completion report (R81-11).3/ 1/ R81-11, dated January 29, 1981. 2/ R81-49, dated March 12, 1981. - 45 - ATTACHMENT PROJECT PERFORMANCE AUDIT MEMORANDUM BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) TELEX FROM THE BORROWER (Translation from Portuguese) Translation of Incoming Telex dated December 13, 1982 from SUBIN, Brazil to Mr. Shiv Kapur, OED, IBRD Reference PPAR on Alto Turi Project (Loan 853-BR) pleased to inform you we agree with its content and, consequently, with its publication in its present form. We are sending you separately the comments made by COLONE which, however, will not entail any changes in the report. Regards, Joseh Botafogo Goncalves Secretary, SUBIN/SEPLAN/PR - 47 - PROJECT COMPLETION REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT LOAN 853-BR July 30, 1981 Latin America and the Caribbean Regional Office - 49 - I. INTRODUCTION AND OVERVIEW 1.01 During the period 1964-70, mainly in response to severe cyclical drought conditions in Northeast Brazil, there was a growing Government interest in assisting emigration from drought areas to regions of higher rainfall in the pre-Amazon and Amazon. Such settlement began spontaneously as new roads were opened up, often resulting in the degradation of tropical forest areas. Also, the shifting cultivation practiced, in the long run, was not appreciably enhancing the income or standard of living of the immigrants. Faced by the heavy costs and uneven successes of its early Amazon settlement efforts, the Government of Brazil was seeking viable long-term solutions to resettlement problems. The Alto Turi project in the pre-Amazon area of the Northeast state of Maranhao was to build upon some limited previous settlement efforts in the area and was intended to be a pilot scheme to test the feasibility of a low-cost approach to settlement, relying on considerable inputs of voluntary labor from the settlers for community works. The project was expected to accommodate 5,200 families, providing basic infrastructure, technical assistance, health and education services at an average cost per family of about US$2,400. 1.02 The Bank loan of US$6.7 million was approved in 1972. The project was to be implemented over a period of five years, but protracted start up problems led to a three-year delay in project completion and were a major factor in the escalation of total project costs from around US$12.6 million to US$34.4 million in current prices. Among the major factors (some closely interrelated) contributing to implementation delays and higher costs were: an inadequate consensus among Government agencies and between the Government and the Bank on project design and on the probable viability of the particular low-cost settlement model proposed (e.g., on recommended production systems; income targets; credit needs); the resulting need to revise, very early in the implementation phase, recommendations on farming systems (which initially were probably too optimistic on the settlers' capacity to self-finance on-farm investments, and offered too few production options and inadequate income prospects); irregular and inadequate provision for counterpart financing; delays and shortages of farm investment (medium term) credit; and legal difficulties related to land title transfer from Maranhao state to the executing agency (COLONE). Only after extended negotiation and some revision of the project design did the project and the executing agency receive reasonably sustained Government support; project execution was almost all concentrated in the period beginning in 1976. 1.03 Revised project goals with regard to basic infrastructure (roads, schools, health posts, hospital and staff housing) were essentially achieved by end-1980. Some 6,000 settler families (800 above the appraisal estimate) now live in the two initial project sub-areas (I and II). Of these, some 2,600 are farmers who have benefitted from all aspects of the project and are operating largely under one of the recommended farm development plans. Another 1,200 registered farmers in these two sub-areas have received benefits from most project activities except credit, while the some 2,200 unregistered farmers in these sub-areas can be assumed to have benefitted partially from the social and physical infrastructure. In addition to these beneficiaries in sub-areas I and II, there are some 4,400 registered settlers in the expansion - 50 - area (sub-area III) who have not yet substantially benefitted from the project (except for occasional community development assistance from COLONE). Production support services, health, education and community development activities are now operational. However, the transfer of ongoing responsi- bility for operation and maintenance of these services from the colonization company (COLONE) to the existing state agencies has been seriously impeded by the fact that these agencies had little to do with project design and execution (and remain very weak), and by recurrent cost funding constraints in the state budget. The economic rate of return, which was estimated to be 16% at appraisal, is now estimated at about 13% -- the substantially increased costs having been largely offset by higher than expected crop production and the introduction of black pepper as a major cash crop. Farmer net cash incomes are now estimated at well above appraisal estimates. 1.04 Some key lessons emerging from project experiences are that: (a) an agency formed specifically to execute a project needs full institutional and political support; (b) project design and concept need both to be subject to a reason- able consensus among the parties concerned and also to reasonably reflect the mainstream of Government development priorities in order to ensure the necessary political and financial support; (c) agencies expected to assume and sustain project related services after project completion should preferably participate beginning from the project design and preparation phase; and (d) the realism of assumptions underlying recommended production systems needs to be carefully appraised; and those recommenda- tions should be sufficiently flexible to allow adjustments and variations to reflect changing conditions during the project development period. 1.05 In retrospect, the Bank's appraisal of the project did not adequately foresee or assess the immediately above-mentioned points. Also, it did not fully address the need to assure adequate initiation of such environmentally important measures as reforestation and soil conservation. During supervision, the Bank probably did not act quickly enough in attaining prompt resolution of, or understandings on, the various design, funding, organizational and land titling problems. However, these problems were at least partly rooted in earlier weaknesses in project preparation and appraisal; once the start up issues and delays were treated, supervision efforts generally succeeded in identifying and addressing key new problems as they emerged, in part because of reasonably good staffing continuity. - 51 - II. BACKGROUND The Agricultural Sector 1/ 2 2.01 With a land area of about 8.5 million km , Brazil had a population estimated at about 96 million in 1970 which was heavily concentrated in the South, Southeast and Northeast coastal areas. About half the labor force was employed in agriculture. In 1971, agriculture contributed about 20% of GDP, and GDP per capita was US$426, with wide regional variations. 2.02 Since World War II, the growth of agricultural production had averaged 4% annually but it had been unable to absorb fully the rapidly increasing rural labor force. This was particularly the case in the Northeast, where unemployment and rural poverty were prevalant. Bank financing of Brazilian agricultural projects, as of June 1972, included only one operation with specific emphasis on agriculture, i.e., the first Livestock Development Project (Loan 516-BR) in the Center-South of Brazil, with a total project cost of US$74.7 million and an original loan amount of US$26.0 million. 2/ The Alto Turi Land Settlement Project was therefore to be the first of its kind (small-farmer oriented in Northeast Brazil) to receive Bank financing. Of the 25 Bank loans outstanding in Brazil when the Alto Turi Project loan was signed, the majority were either for electric power projects (48%), roads, ports and railways (20%), or industry (16%). The Northeast and Amazon Regions 2.03 The Northeast covers about one-fifth of Brazil. Climate is tropical and vegetation ranges from rain forest in the coastal areas to grassland and scrubland in the semi-arid areas of the interior. These semi-arid areas comprise about 50% of the region's land area and are subject to drought. Soils are shallow, sandy and unusually poor in plant nutrients. Total population in the region was about 28 million in 1970, heavily con- centrated in the coastal belt (Annex 1, Table 1.1). 2.04 The Northeast is the poorest region of Brazil. Average annual per capita income in 1970 was about US$200, less than 50% of the national average, but rural families which relied on their income from itinerant labor or which lived on subsistence agriculture had annual per capita incomes of only about US$50 per capita. Agriculture was the most important sector, accounting for 66% of total employment and 40% of regional GDP. Agricultural development, however, had been substantially hindered by a poor resource base and by the lack of research, credit and extension services, and of individual land titles. Under these circumstances agriculture had been unable to con- tribute significantly to provide new jobs to meet annual regional increases in the labor force. 1/ Data provided reflects position at 1971/72 which was the basis upon which the project was formulated. 2/ Several other operations for livestock, grain storage and agro-industrial credit lines were, however, at various stages of preparation or appraisal. - 52 - 2.05 Government had recognized that, given the limited labor absorption capacity of industry, much of the solution to the problem of regional unemploy- ment and poverty would have to lie within agriculture itself. Much of the focus on agricultural development in Brazil was at the time being given specifically to development of new lands in the Amazon, which comprises 40% of Brazil's land area and still had very low population densities. Government had recently begun to develop the Amazon on a large scale by building roads, assigning large sums for settlement and agricultural development, creating new agencies to administer major development programs, and giving fiscal incentives to attract private enterprise to the area. Settlement 2.06 During 1965 to 1972, over a million hectares annually were being added to the agricultural area of the country, and until that period coloniza- tion had been occurring on lands mainly in the South. With the South rela- tively well settled, new settlement began occurring mostly in the Amazon, the Center-West, and adjacent areas of the Northeast bordering Amazonia. In most of the Amazon areas, under conditions of high rainfall and temperatures but generally poor soils, it was difficult and expensive to sustain annual cropping of the land. Families cleared small areas for subsistence foods and for rice production; when fertility declined they moved on to new areas, either leaving the land to be developed into extensive pasture by larger-scale private ranchers or to revert to secondary forest. Shifting cultivation was beginning to destroy one of Brazil's great natural resources, its tropical forests; providing only minimal subsistence for the small farmers; and causing serious social problems arising from the lack of proper housing, health and education facilities. 2.07 Much of the settlement in the South (and even the Amazon area) was spontaneous and received little direct Government support. Many of the Government-sponsored settlement projects which were attempted (particularly in the Amazon area) have since proven to have been poorly thought out in the planning stage and then unevenly executed; many participating settlers even- tually left, or ended up practicing the same type of shifting cultivation employed by spontaneous settlers. The main propose of the Alto Turi Project was to help introduce new and simpler methods for officially-sponsored settle- ment activities, at lower financial costs, which would permit the establishment of permanent settlement communities in or bordering the Amazon area. The intended Government policy, during the period, was to eventually re-settle some 700,000 families into the overall Amazon region between 1970 and 1990, mainly away from the drought-related socio-economic problems so prevalent in the Northeast. The Project Area and the Project Concept 1/ 2.08 The project area covers 939,000 ha in the Northwest of the State of Maranhao, which lies in the transition zone between the Northeast and the Amazon regions (Maps 1 and 2). Rainfall varies between 2,000 mm in the north and 1,500 mm in the south. The temperature is about 27 C all year 1/ Project origin and formulation are discussed in greater detail in Chapter III. - 53 - round. The northern part of the project area is covered by primary forest and the southern part by secondary forest. Soils are generally of no more than moderate qualities, shallow and sandy and initially thought to be capable of sustaining without fertilizer only one crop, followed by permanent pasture or tree crops, or a 6 to 10 year natural fallow before returning to an annual crop. The topography is gently undulating. There are numerous permanent streams, and these, together with shallow wells and boreholes, provide sufficient water for settlement needs. Drainage is seldom a problem, although in some areas it limits the choice of crops, and it has created some difficulties for road construction and maintenance. The project area is well served by the major trunk roads, such as the paved highway (BR-316) which links the Northeast (Teresina, Piaui) with the port of Belem near the mouth of the Tocantins River. This highway also forms the longitudinal axis of the project area. Other important roads are MA-15 and BR-135 which link the project area and the city of Sao Luis, capital of Maranhao State. At project appraisal there were about 110 km of feeder roads in fair condition in a partially settled area, south of the Turiacu River. River transport had been of relatively minor importance, and there were no railways. An airstrip, for light aircraft, was usable during both the wet and dry season. Radio communication was available but telephone communication was still extremely unreliable. 2.09 The innovative role which this project had for the Bank and the Brazilian Government was as an experiment in the area of lower cost land-settlement in pre-Amazonia. As such it was hoped to provide a viable pattern for future colonization efforts and to provide guidelines which would serve to limit future social and environmental risk incurred by the high levels of spontaneous settlement which was proceeding at a very brisk pace along the periphery of new roads then under construction in the region. As the Government had such a high settlement target for the overall Amazon and pre-Amazon region over the 1970 to 1990 period, it was clear that only a low-cost approach to settlement would be fiscally feasible. The Northeast Development Superintendency (SUDENE) had, since about 1963 and before initiat- ing the Bank-financed project, been promoting the idea of settlement in the Alto Turi area and had indeed already registered and "settled" about 850 families of the some 2,900 families which had spontaneously moved into the area. The subsequent Alto Turi Project for Bank financing was intended to be developed over five years by the Companhia de Colonizacao do Nordeste (COLONE), providing benefits for 5,200 farm families, construction of about 360 km of road, expansion of agricultural research facilities, construc- tion of about 60 schools and 10 health centers, expansion of an existing lumber mill, studies on marketing, a survey of water resources, preparation of future land settlement projects and the establishment of two cooperatives. Total project cost was estimated at US$12.6 million, of which US$6.7 million would be financed by the Bank loan, US$5.0 million by the Government financial participation, and US$0.9 million by settlers' contributions to the project. The "experimental" nature of the project was destined to play a significant role in subsequent Government and Bank decisions concerning its viability, and much needed reformulation during the project implementation (Chapter IV). Other factors which would prove to have a very pervasive influence upon implementation of the project were the extremely rapid influx of spontaneous settlers, following the paving of the main (BR-316) highway in 1973/74, and unforeseen difficulties surrounding the issue of clear land title to project lands (paras 3.03 and 4.06). - 54 - 2.10 The sources of information upon which this PCR is based were, primarily: (a) project related documents, reports and correspondence in LAC files, including supervision reports and studies commissioned by OED; 1/ and (b) data collected by the Project Completion mission. Much of the latter was compiled by COLONE and a copy of this material is also to be found in LAC files. III. FORMULATION Orgin 3.01 The origins of officially sponsored settlement in the project area go back as far as 1963/64 when SUDENE developed the initial road network and settlement nuclei in the area. By 1971, some 18 settlement nuclei and a road network of approximately 80 km of narrow feeder roads had been built. SUDENE encountered several problems with the initial settlements, but two were especially troublesome. These were: (a) settlers incomes were not appreciably increasing based on a slash and burn type of agriculture; and (b) the credit being given out for crop production each year was not being repaid by the settlers who were tending to treat credit as grant funding rather than repayable loans. As the flux of settlers into the area increased with the opening of the Teresina-Belem Highway (BR-316) the government was seeking, through SUDENE, a solution to the relative failure of the existing settlement project and, at the same time, seeking a project model capable of being applicable to the larger needs of mass emigration from the dry Northeast polygon to Amazonia. As one of the first steps, the Government requested the British Overseas Development Ministry (ODM) to make an identification mission to the Alto Turi region. This mission was done in early 1970. A consultant company was then requested to evaluate the soils of the project area and recommend crops for rational use based upon properly identified and evaluated soil fertility levels. The soil study was provided to SUDENE by October 1970, and it indi- cated the soils as being largely unsuitable for either rubber or oil palm cultivation (although subsequent research development has shown the potential for rubber production in some selected areas to be more promising). SUDENE then requested the consultants to suggest alternative, viable cropping systems. The resulting recommendation was for a farm model based upon upland rice cultivation (one crop only) following initial felling of the forest, to be followed by undersowing to pasture to provide the basis for small intensive beef cattle operations, with a total of 30 animals and 36 ha of pasture and a few (4) hectares for subsistence food and tree crops, plus retaining about 10 ha of forest as a reserve. Under this plan each farmer would effectively operate on 40 ha of land. The consultants' recommendation became available roughly at the same time a Bank mission visited SUDENE in response to informal Government requests for assistance. SUDENE was seeking a viable means of small-scale settlement which could be translated at a later date into a much larger, controlled settlement policy for Amazonia, all with a view to reducing the socio-economic pressures created by the drought problems of the semi-arid Northeast. At the request of SUDENE and the Government, the consulting firm 1/ "Operation Policy Review--The Supervision of Bank Projects," February 2, 1980, Report No. 2858. - 55 - was requested to re-focus the study towards a "feasibility study" of the land settlement potential of the area with a view to presenting a small model, or experiment, to the Bank for possible Bank financing. This study was completed in July 1971, and became the basis for a Bank appraisal mission in November 1971. Meanwhile, it became obvious that two specific Bank positions were not agreed by the Government, namely that: (a) only a very simple and modest farm model should be considered, with minimum credit requirements and with maximum voluntary (unpaid) inputs from settlement family labor; and (b) the interest rates for the credit component should not be subsidized and credit could not be Bank-financed if they were. The differences of opinion remained to adversely affect SUDENE and Government interest in the project. This was particularly so with reference to the provision of credit. These early differences of opinion were complicated by the fact that there was a peculiar dichotomy of objectives between major goals of various Government agencies involved and the Bank, i.e., reducing losses from the existing situation (to rescue some postive results from the earlier land settlement efforts by SUDENE in 1964 to 1971) in the case of the former, and to creating a basis for an experimental or "model" project in the case of the latter. 1/ Some of the lessons to be learned from this unfortunate and conflicting dichotomy of project goals are discussed in Chapter XII. The basic technical differences in approach to the "farm model" are provided in Annex 2. Appraisal, Negotiation and Approval 3.02 Appraisal. The Appraisal, carried out during October and November 1971, relied heavily on the feasibility studies prepared by the consultants under the auspices of the British Overseas Development Ministry, ODM. In retrospect, it may have relied too heavily on the feasibility study as the assumptions regarding farm "models" (what could, should or would be produced, how much that would cost and how it might be financed) would be subject to differences of opinion among Government agencies and between the Government and Bank for some time to come. Later, during a May 1973 supervision mission, the Bank was severely critized by Government for not having adequately addressed the problems of alternate farm models and for undue emphasis on a low-cost approach to settlement per se. The feasibility study on which the appraisal was based was considered by some Government officials to be "useless." Those officials felt that the Bank mission had not consulted sufficiently with the various interested Government agencies, including INCRA, the national coloni- zation and land reform institute and the Central Bank. A full and real consensus on project objectives and design was probably never reached (either within the Government or between Government and the Bank), and the result was something of an uneasy truce between the executing agent (COLONE) and the other state, regional and federal institutions which had to provide close cooperation if the project were to have any hope of success, either to retrieve 1/ In fact, the possibility that the project was not specifically designed or properly appraised for the stated objectives, but rather was an "off-the-shelf" presentation made by Government to the Bank, was raised by an Executive Director when the project was considered by the Bank's Board. - 56 - something from the earlier SUDENE efforts or as an experiment to provide an acceptable model suitable for repetition on a much larger scale. The lack of full consensus also resulted in "on-again-off-again" funding for the project and a longer than expected execution period. 3.03 Negotiations. Several conditions of loan effectiveness, particularly concerning the transfer of project lands from the State of Maranhao to the executing agency, COLONE, and the agreement between these two entities as to how land titles would be issued to settlers, reflected both Bank and Government concern that these matters be handled expeditiously. As discussed further in paragraph 11.01, these matters proved highly problematic in project execution. The matter of share capital for COLONE, in which the State of Maranhao, the Bank of the Northeast and INCRA would participate, was also considered essential to loan effectiveness. A summary of the principal covenents agreed at negotiation is provided at Annex 3. 3.04 Approval. The loan (853-BR) was approved on July 6, 1972 and signed July 24, 1972. 3.05 Project Objectives. These comprised, as described in the appraisal report: (a) providing stable employment and satisfactory incomes for an estimated 4,500 1/ settler families (mainly in what were subsequently referred to as sub-areas I and II) by assisting them to develop farms on which they would produce their basic food requirements and, in addition, surplus quantities of rice and beef cattle for sale as cash income. Such cash incomes were expected to increase from Cr$ 1,500 (US$275) 2/ per family to Cr$ 2,200 (US$402) 2/ per family at project year 13; and (b) introduction of a number of new concepts and procedures including: (i) creation of an autonomous authority to execute the project; (ii) reaching a target income from relatively small operations (40 ha) with a minimum of investment credit; (iii) requiring the settlers to make a substantial contribution of family labor both for farm production and community development; (iv) the issuance of land titles to settlers; (v) creation of credit and marketing cooperatives; (vi) rational use of timber resources after clearance of the forest for settlement and cultivation; and (vii) retention of forest reserves to help protect the environment. 1/ An additional 700 new families were to be located in the region and they would follow the "rice only" model of farming. 2/ In constant prices of late-1971. - 57 - The relative degree to which these various concepts and procedures were indeed implemented during the project is discussed in Chapter IV. 3.06 Project Indicators. Translated into specific physical goals, the above objectives were to be achieved through specific targets covering insti- tution building (i.e., of the executing agency, COLONE, and cooperative, COMALTA) and through land surveys, plot demarcation, farm development, road design and construction, agricultural research, extension, supply of cattle, expansion of the Cocalinho sawmill and studies for rice, beef and lumber marketing, water supply and for possible future projects. Actual achievement of these goals based on key indicators are compared with appraisal estimates in Annex 1, Table 1.2. IV. IMPLEMENTATION Effectiveness and Start-up Problems 4.01 There was considerable delay in achieving loan effectiveness, the deadline for which was postponed twice. The recorded reasons for the delays were associated with: (a) legal assurances that the lands of the project area had indeed been passed to COLONE by the state; and (b) some confusion as to how and whether the loan documents were to be registered by the Central Bank. These issues were finally resolved (or, in the case of (a) thought to be resolved, para 12.09) and the loan became effective on February 14, 1973, some five months after loan signing. 4.02 COLONE experienced considerable difficulties in its efforts to become sufficiently established and to actually commence project execution. Here the problems were two-fold, but closely interrelated, i.e.: (a) lack of working capital (a revolving fund) for COLONE operations; and (b) lack of farm credit funds to be channeled from the Bank of the Northeast (BNB) through COMALTA to the settlers as medium-term investment for on-farm development. In the case of (a) above, a first small advance (Cr$ 3.0 million) from SUDENE was made to COLONE in early January 1973, but investment credit did not become available until 1976, in part because of continued disagreements over production model proposals and credit needs and because of uneven support of the project concept by various of the Government agencies involved. 4.03 The discussion between the Government and Bank concerning the desirability of altering the farm model to include black pepper and also raise the number of cattle to be provided from five to ten seems, in retrospect, to - 58 - have been unnecessarily prolonged. In the process, medium-term credit require- ments in current prices rose from around Cr$ 2,500 (appraisal estimate) to Cr$ 21,000, which was COLONE's new estimate in 1974. The later position, which greatly enlarged total project credit requirements while providing for a more viable farm budget, was agreed to by the Bank in April 1974. 4.04 With these developments and the delay in loan effectiveness, the project was, by June 1974, essentially 18 months behind schedule. COLONE had no more than 10% of the required senior staff at that point. Delays, mostly financial in nature due to a lack of broad political support for the project, but frequently coupled with a lack of agency coordination at federal, regional and state levels, caused the project to fall behind schedule a further six months during the remainder of 1974 and it was not until the second semester of 1975 that disbursements to infrastructure components began to reflect a more normal pace of implementation. Thus, despite relatively good performance during the period of June 1975 to December 1980, the cummu- lative three-year-delay since start-up could not be overcome and project completion was three years later than expected (December 1980 instead of December 1977). Each project component is discussed below with special reference to factors which influenced implementation and the efficient use of the services provided. Physical Infrastructure 4.05 Roads. The objective of the road component was to assist in deve- loping a system of essential access and feeder roads for year-round transit. The proposed road component at appraisal comprised construction of some 22 km of penetration roads (US$15,000 equivalent/km); 234 km of access roads (US$10,000 equivalent/km); 49 km of trails (US$1,000 equivalent/km); and improvements to some 80 km of existing roads (US$7,000 equivalent/km). 1/ Total baseline cost of the road component, including 10% for supervision, was estimated at US$3.6 million equivalent, with expected 100% financing by the Bank. A total of 238 km of penetration and access roads were actually con- structed under the project. Average cost per km was US$38,025 or almost 280% higher than appraisal estimates because: (a) an initial three-year delay in construction coincided with a period of high inflation and rapidly increasing petroleum and construction costs; (b) financial failure of one contractor created a further six-month delay; and (c) the standards used were higher than those assumed at project appraisal (para 12.08). 1/ By 1975 these 80 km of road had also deteriorated so badly as to require full reconstruction and, as a result, were included in a revised total of 238 km to be constructed under the project. - 59 - The remaining net total of 98 km of road, which was designed to be built in sub-area II to the southwest of BR-316, was dropped when it was found that settlement could not take place until the boundary lines, to the extreme southwest of the project area, had been clearly defined in order to avoid conflict with an Indian reserve adjacent to that section (para 9.02). Prior to project completion, SUDENE indicated its agreement with COLONE that an additional 60 km of road, still considered essential to provide an adequate road network to other areas of controlled settlement in the project area, would be constructed shortly under federal (POLONORDESTE) funding. Total road construction costs are shown at Annex 1, Table 1.3. 4.06 Land Settlement. Project goals, at appraisal, called for assisting 2,300 new families and the 2,900 families already living in the project area, or a total of 5,200 families. As of end-December 1980, it was estimated that some 6,000 families were living in the initial colonization areas (sub- areas I and II). Of these, some 2,600 had benefitted from all aspects of the project and were operating largely under one of the recommended farm development plans. Another 1,200 registered farmers in these two sub-areas had received benefits from most project activities except credit, while the some 2,200 unregistered farmers in these sub-areas can be assumed to have benefitted partially from the social and physical infrastructure. In addition to the beneficiaries in sub-areas I and II, there are some 4,400 registered settlers in the expansion area (sub-area III) who have not yet substantially benefitted from the project (except for occasional community development assistance from COLONE). It was also intended that those farmers under "controlled settlement" (in the event, the 2,600 receiving all services, including credit) would receive land titles. However, so far only 883 titles have been issued within 18 settlement nuclei in sub-area I. 1/ The reasons for this are that COLONE generally wanted to be sure that the farmers were well established before receiving land titles and, possibly more important, that only now (1980/81) is COLONE obtaining full undisputed title to project lands. This is further discussed in paragraph 12.09. With reference to the political difficulties and uncertainties in providing title on project lands, both state and federal initiatives have been required to help clear up a rather complex situation. In more recent years, the problem was further complicated by debate -- now resolved in COLONE's favor -- as to who, i.e., COLONE or the state land agency, COTERMA, should issue certificates of "anuencia" (in effect, permission to use the land) for settlers cultivating project lands to which they had no clear title. The distribution of settlement by year and by project area is shown in Annex 1, Table 1.4. 4.07 The main difficulties encountered in land settlement were associated with: (a) the large influx of "spontaneous" settlers which followed the paving of the Teresina-Belem Highway (BR-316) during 1973/74; and (b) the lack of demarcated lots in areas where road access was still lacking. 1/ COLONE records show that this number of land titles were issued in October of 1980. However, later more specific data appear to indicate that only 707 titles were effectively distributed. - 60 - Social Infrastructure 4.08 Schools. Under the project 54 new schools (or 87% of the original target) were constructed. In addition, repairs were made to 16 existing wooden units so that 70 units are now available in the project area, or 10 in excess of appraisal estimate. The educational program has exceeded expectations in the number of participants in the areas of primary and adult education as well as special programs to provide basic literacy skills for both previously untrained teenage children and adults. These programs have been quite successful as evidenced by the fact that more children are now said to be continuing high school level education in adjacent cities (Sao Luis and Belem) and the general level of adult education is said to have also risen. Basic statistics on the current (1980/81) school year program are shown in Annex 1, Table 1.5. 4.09 Health Services. Fifteen health posts are either completed and in operation (10) or currently being completed (5 units). This is 50% above the original target. In addition, sanitary facilities have been constructed for each family in the 15 nuclei (out of a total of 53 nuclei in sub-areas I and II) which have also received a health post. In order to gain maximum utilization of funds designated originally for a new 10-bed hospital, the Noel Nutels Hospital (already established by SUDENE at the Ze Doca field headquarters) was enlarged instead into a 35 bed-unit. In addition, a new 30-bed hospital is being constructed under direct federal funding (though construction was recently halted for lack of funding). During much of the project execution period (1973 to 1978), the medical facilities at Ze Doca could only serve the urgent needs of curative medicine, under rather primitive and crowded conditions. Commencing in 1978, however, and with the benefit of health posts and sanitary measures taken in the field, the program of preventative medicine was able to begin to make a valuable contribution. General health standards, although still poor in parts of the project area, are said to have improved significantly. Health service statistics are provided in Annex 1, Table 1.6. Agricultural Services 4.10 Cooperative and Credit Services. The plan at appraisal called for the strengthening of the existing cooperative, Cooperativa Mista do Alto Turi (COMALTA) through the provision of technical and administrative assistance from the Bank of the Northeast (BNB). Although the technical assistance staff provided by BNB were basically of a high standard, frequent changes in staff assigned to COMALTA over the project period (1973 to 1980) appeared to partly undermine the effort to strengthen the organizational and administrative capacity of COMALTA to a point which would have: (a) enabled it to reach a larger number of clients; and (b) stimulated greater participation of its members to ensure adequate support for increased cooperative activities and possibly a reduction in the bad-debt burden. In the event, it was COLONE which supplied consistent staff support, though these COLONE staff were not well trained in the operation of cooperatives. The end result was that COMALTA was unable to go much beyond a 2,000 member mark and bad debts, from short-term production credit mainly for rice, so weakened the cooperative that its fiscal integrity and the 1979 operating accounts were seriously questioned by the independent auditors. In August of 1980, COLONE began an administrative review of COMALTA operations and, early in 1981, several staff changes were made in order to begin again to strengthen and reorient COMALTA's operations on a more sound footing. - 61 - 4.11 It could be argued that the lack of success in strengthening the cooperative movement in the project area was due at least in part to the lack of adequate representation by its members. It is also true that untimely release of short-term crop loans (para 8.10 ) and the general administrative weakness of the cooperative did not inspire great confidence in the coopera- tive movement among the settlers. The bad debt ratio, which was usually 25% or 6 times that estimated at appraisal, was also a decisive factor in weakening the financial position of COMALTA. 1/ It is obvious, in retrospect, that bad-debt service could not be adequately covered by the planned 1% spread above the interest rate being charged to the cooperative (COMALTA). Experience with farm cooperatives in general in Northeast Brazil appears to confirm that both short (crop) and medium term (farm investment) credit is probably still best handled directly by the national commercial banks. In the case of the project, this solution appeared to be at hand for the 1980/81 crop year when an "advanced credit post" of the Bank of Brazil (BB) was opened at Ze Doca. In the first year of this operation, 70% of COMALTA's credit customers chose to deal directly with this bank. At the same time, however, COMALTA is interested in becoming more deeply involved in rice and black pepper processing and in sawmilling. It is not yet at all clear, however, if COMALTA will be any better equipped to manage these activities more efficiently than it has handled credit. 4.12 As defined at appraisal, short-term (crop production) loans would be made annually to finance rice cultivation. Such loans were expected to average Cr$ 1,050 per farmer per year (in late 1971/early 1972 prices). In actual fact, and using (1972) constant cruzeiro terms, loans were about 50 to 80% of that figure during the period 1973 to 1978. For the past two crop years, however, 1979/80 and 1980/81 they have been in excess of the appraisal estimate by 50 to 75%. This does not reflect, however, a larger (per farmer) participation in rice cultivation but rather reflects lending for black pepper harvest, which is now included in the farm model (para 6.01). The number of short-term loans made each year is now 1,500, or about 65% of the appraisal estimate. 4.13 Significant on-farm investment or medium-term loans were not made prior to 1976. During the period 1976 to 1980, a total of 1,808 such loans were made to settlers, or 40% of the appraisal estimate. The reasons for this relatively low figure, to date, have been (a) long delays and excessively complicated administrative procedures in approval of credit plans submitted through the cooperative and participating banks; and (b) the fact that the limited total amount of credit available could cover only a smaller number of the more expensive farm model, which includes black pepper and/or cattle purchased at prices well above earlier estimates. In constant 1972 terms, investment loans have averaged Cr$ 5,000 as opposed to the Cr$ 2,480 estimated at appraisal. Total value of farm investment loans is currently Cr$ 5.8 million (constant 1972 terms) or 70% of appraisal estimate, with only 40% of the projected number of farmers participating so far. Although shortfalls in the amount of credit and the frequently untimely release of funds had 1/ There is also some indication that the early settlers in sub-area I had been strongly influenced by a paternalistic pattern in early SUDENE management of the project, prior to 1972, which may have encouraged the recipients to treat loans as "grant" funds. - 62 - a negetative effect, the provision of both crop production and on-farm invest- ment credit appears to have played a key role in the relative success of the participating recipients. The timely release of crop production credit was perceived by project officials as having a direct bearing on annual crop production levels (chiefly rice). The full actual benefits of on-farm invest- ment credit (medium-term loans) cannot yet be measured. In the case of black pepper, production benefits peak in years 3 to 8 of a normal ten-year cycle and, in the case of beef, full herd development in the project area will probably not occur much before the end of the century. Nevertheless, the eventual impact of these credit-facilitated investments is considerable, in terms of both economic return and the stabilization of long-term settlement in the area. In sum, both types of credit (short-term and investment) had crucial roles to play. Data on short and medium credit operations is shown in Annex 1, Table 1.7. Technical Assistance Services 4.14 Extension services were being supplied by a total of 45 COLONE technicians 1/ to some 2,200 settlers in 1980, i.e. 85% of the "controlled" settlers or 37% of the total families in sub-areas I and II. Coverage for the 18 nuclei in sub-area I is one agent to a settlement nucleus of 50 farmers, or total coverage of 900 farmers. Some 13 technicians in sub-area II are able to attend to a further 1,300 settlement farmers (about 100 farmers/extensionist). Senior staff in the COLONE agricultural department at Ze Doca provide special- ized technical advice as crop/livestock subject matter specialists, particu- larly for crops such as black pepper, pastures and beef cattle (providing animal health services for the latter). In general, extensionists have focussed much of their technical attention on the crops new to the area, such as black pepper, unfortunately foregoing some possible low-cost yield improve- ments in some of the more mundane basic food crops--maize, rice, cassava and beans. The specialized new crops, particularly black pepper, have been under- standably attractive given the favorable economic returns based on a small unit area (average 0.5 ha). Apart from this criticism of the rather narrow focus provided by the extension services, the results achieved under rather difficult circumstances have been commendable. 4.15 Experimental Farm. Project goals included providing quarantine facilities for purchased beef cattle for subsequent transfer sales through the project cooperative (COMALTA) to the farmers, and providing improved pasture seed. These goals later included propagation of black pepper plants and grafted plants of selected fruit trees. These objectives have all been basically achieved and the experimental farm area under improved pasture has expanded from 400 ha to 800 ha. The volume of cattle passing through the quarantine facility, however, was only 15% of the original estimate mainly because of severe funding shortfalls for credit and a 100% real increase in the price of breeding stock. The quarantine facility could not in any case have accommodated 22,000 head (as compared to the actual 3,225 head) during the four year period, given what has proven to be the facility's maximum holding capacity of 1,200 head during the wet season. Although the estimated time required for inspection and innoculation was not specified at appraisal, 1/ Talks are currently underway on the possibility of transferring these technicians gradually to the state extension service (EMATER-MA). - 63 - in actual practice the poor physical condition of the animals after transporta- tion from adjacent states was such that a minimum period of three to four months in the holding grounds was necessary prior to sale to the settlers. Hence, even if ample investment loan funds had been made available, only some 14,000 animals or 64% of the appraisal target could have been achieved. 4.16 Research. Adaptive research (i.e., on improved rice varieties, improved pasture species and alternative crops), though limited, was in line with appraisal targets in this area. However, more imaginative approaches to the problem of settler acceptance of new high-yielding varieties of rice might have led to earlier seed selection of the variety now being promoted by COLONE. In the area of new crops, the success with black pepper owes a great deal to COLONE's efforts at adaptation. Overall, however, research achievements have been very limited and, since there has been a rather poor relationship with the admittedly still rather weak state research agency, this has meant that research in the project area still leaves much to be desired. Rubber, a crop native to the Amazon and previously tested and abandoned in the early years of settlement in the area (1964 to 1972) is now being reconsidered (based on more recent research results elsewhere) as a possible tree crop to be included in the development plans for the proposed "follow-up" project in COLONE's sub-area III (spontaneous settlement) as part of the Maranhao Rural Development Project. 4.17 Studies and Surveys. At appraisal it was indicated that studies on rice, beef and timber marketing; preparation of a second phase of land settlement and a survey of the project area water resources would be carried out as part of the project. Because of the relative ease of marketing rice, and the minimal amounts of beef produced in a stable "sellers" market locally where prices were above the national norm, the need for a marketing study for these two commodities was not considered urgent. However, when it was found that rice income to the farmer could be improved through greater quality control over the drying and hulling process, a small rice mill (900 bag/day capacity) was constructed and placed in operation by COLONE (para 4.20) just prior to completion of the project, i.e., November/December 1980. Two studies of timber resources were made as a step toward establishing what lumber species, and in what quantity, would be available on a sustainable basis 1/. So far, the main recommendation contained in these two reports (e.g., more effective utilization of available timber through incentives to the setters, and improvements in the COLONE lumbering operation) are not yet fully implemented by COLONE, mainly because of operational difficulties at the Cocalinho sawmill (para 4.19). In addition, a study on pasture management was made under the same French technical assistance grant which provided one of the forest management surveys 2/. Its findings are now integrated into COLONE's technical assistance operation. As to work on follow-up projects, COLONE has played a key role in preparation of that part of the proposed Maranhao Rural Development project to be located in the COLONE area. 1/ "Survey of Forest Resources in the Alto Turi Land Settlement Area" by Karl H. Kehr, Forestry Consultant, September 8, 1976; and "Prospects for Forestry Development by COLONE" by Centre Technique Forestier Tropical, Nogent-Sur-Marue, France, November 1979. 2/ "Some Proposals for Agro-Pastoral Management in the Settlement (COLONE) Area of the State of Maranhao", February 1980. - 64 - Industrial Units 4.18 Sawmill Operations. The project description included "the expan- sion of logging and milling operations" in order to utilize more fully and rationally the lumber resulting from forest clearing operations prior to crop cultivation. Additionally, the Loan Agreement (Schedule 2, Part E) specifically mentioned the "improvement and expansion of an existing lumber mill at Cocalinho"; however, withdrawals from the appropriate loan disburse- ment category (III) were only to be made subject to the condition that a contract satisfactory to the Bank had been entered into by COLONE for the management of the mill. 4.19 Based on the above, COLONE entered into a contract with ITALMA, S.A., of Sao Paulo, Brazil, on January 7, 1974. Some eight months later (September 30, 1974) the contract was rescinded at the request of ITALMA and a penalty of Cr$ 20,000 was paid to COLONE (Bank Supervision Report of October 31, 1974). During the period November 1974 to December 1979 COLONE continued to operate the sawmill with moderate success and carried out improvements on its own account, including the major change from a steam driven engine to an electric motor as the main power source. In December 1979, the Bank, at the request of COLONE, authorized use of part of the Loan funds (previously allocated for sawmill expansion and improvement) for logging equipment purchases. This was primarily to restore an appropriate balance between the logging operation on the one hand and the actual milling and lumber finishing operation on the other. The required equipment and machinery was finally purchased and put into operation during June-November 1980. Apart from the important change under which COLONE, rather than a leasee, operates the mills, the general project goals of promoting more efficient utilization of felled lumber and of the sawmill's output capacity of 175 m /yr milled lumber per year are on their way to being achieved. Opera- tion of the mill at full capacity, however, is still hampered by frequent power failures; also, sawmill net income (in constant cruzeiro terms) is still only 50% of target. 4.20 Brick Factory; Black Pepper and Rice Mills. None of these three additional industrial units, currently operated by COLONE, were visualized at appraisal. They were developed with government funding and have operated, up to the present time,chiefly as service units for the project; the majority of bricks have been utilized in the various COLONE construction projects. In the future, production will largely be for sale. The pepper and rice mills, with adjacent storage capacity,are used exclusively for rice and black pepper produced by the settlers. Full operation of the rice mill was to commence with the 1980/81 crop season, but early indications were that COLONE was having some difficulty in competing effectively with private intermediaries for the purchase of rice from farmers. - 65 - V. PROCUREMENT, COSTS AND DISBURSEMENT Procurement 5.01 Procurement was carried out as stipulated in Schedule 1 of the Project Agreement. For road construction this was by International Competi- tive Bidding (ICB). No non-Brazilian firms competed. The financial failure of the low bidder, contracted for the first section of road construction, suggested some short-comings in the Integrity of the information provided during the pre-selection process. Procurement for other items in excess of US$3,000 was under nationally advertised bidding procedures, and worked quite well. This group of items was composed mostly of vehicles and machinery, and local distributors were, in most cases, the only interested participants. Due to the relative remoteness of the project area, reliable after-sales-service was a key factor in bid evaluations. Project Costs 5.02 Based on current cruzeiro figures and yearly average exchange rates the total project cost to December 31, 1981 was Cr$ 804.5 million (US$34.4 mil- lion) as compared to Cr$ 69.5 million (US$12.6 million including contingencies) for the comparable items as estimated at appraisal. The 173% cost overrun in US dollar terms may be attributed principally to factors of rapidly spiralling construction costs, particularly for roads (following petroleum price increases), agreed changes in road design standards, and delays in project implementation which took place over an eight-year period, or three years longer than estimated. The actual project costs are shown in Annex 1, Table 1.8. The average cost per family was about US$5,700 equivalent (considering only the registered and unregistered farmers living in sub-areas I and II), as compared to US$2,400 per family estimated at appraisal. As noted in paragraphs 7.01 and 7.02, the project cost increases were fortunately at least partly offset by higher than expected production earnings. Also, though the costs per family are still reasonably low in light of the incomes being generated among participants, or when compared to some other settlement projects (e.g., the Government's earlier Amazon settlements), the significant increase does reflect the weaknesses (mentioned elsewhere in the report) in various of the technical, financial, political and social facets of the original project design. Disbursement and Financing 5.03 Allocation of the proceeds of the Bank loan is shown in Annex 1, Table 1.9, and the actual cumulative disbursement schedule is given in Annex 1, Table 1.10. The actual profile of disbursement is fairly similar in shape to the appraisal estimate and also the Bank generated profile for all agricultural and rural development projects, but has the predominent feature of significant start-up delays (Chart 1). The Bank loan only financed about 20% of project costs, as compared to the 53% Bank participation estimated at appraisal. The Brazilian Government participation for credit, both short- term and long-term, while still inadequate for total requirements, was actually Cr$ 17.3 million (constant terms) as opposed to Cr$ 17.0 estimated at appraisal. - 66 - Total short-term (crop) credit was 75% above estimate, while medium-term (on-farm investment) credit was 26% below estimate. The delays and shortfalls in counterpart funding and credit reflected, at least in part (and as noted elsewhere in this report), lack of a political consensus regarding the design and priority of the project. VI. DEVELOPMENT IMPACT Agricultural Production 6.01 The revised farm models introduced black pepper as a new cash crop in the rice/beef cattle model. In addition, such basic food crops as maize, cassava and beans became an important source of income, particularly for the "rice only model and in part because the farmers having the higher income crop/livestock model tended to purchase the basic food items and concentrate on black pepper and cattle production with restricted rice or other food crop cultivation. The estimated areas of production and total yields for project year eight (1979/80 crop year) were as follows: Commodity Area Cultivated Total Production (ha) (metric tons) Rice 14,262 16,262 Black Pepper 304 825 Maize (5,171) 2,171 Cassava (as farinha) (7,705) 11,556 Beans (4,500) 2,520 Pasture (ha), 5,210 Beef as Carcass Weight (mt) 149 19,776 It should be noted that, as the basic food crops (maize, cassava and beans) are intercropped with rice, the total area under cultivation is approximately 20,000 ha. Gross benefits from the marketing of these commodities amounted to Cr$ 241 million or US$4.6 million in 1980. Projected maximum production from the beef herd, assuming no further purchases of animals, would not be reached until project year 20 or 1993 as opposed to year 16 estimated during appraisal. Black pepper, under current plans to plant no more than 600 ha, will reach peak returns in project year 13 (1985), if one were to assume no replacement of older plantings as they reach maturity (Annex 1, Table 1.11). - 67 - Employment 6.02 It is estimated that the project has so far generated the equivalent of about 6,150 jobs. At least 90% of the work requirement generated involves family labor employed on the family farm. However, the demand for labor on other farm properties and in the much enlarged Ze Doca township probably contributes at least 10% to work force requirements. Farm Income 1/ 6.03 By 1980, or project year eight, net cash income per family (cal- culated in a manner comparable to that used at appraisal, and which did not count home consumption of subsistence crops) was estimated to be in the range of Cr$ 5,500 to 5,900 in 1972 cruzeiros (US$926 to 994) 2/ for the rice only model. This compares favorably with the income of Cr$ 1,450 (US$244) forecast at appraisal. The new model having both livestock and black pepper, but with decreasing emphasis on rice and basic food crops, was showing (in 1972 Cr$) net cash income in the range of Cr$ 6,400 to 7,200 (US$1,080 to 1,200), though this is still likely to improve considerably given the late acquisition of cattle and black pepper due to limited availability of medium-term investment loan funds. This income range is also more than double the estimate (Cr$ 3,000) for the beef-rice model forecast at appraisal. A typical farm budget for the two farm models is shown at Annex 1, Table 1.15. Unless improved inputs (i.e., higher yielding varieties, appropriate fertilizer and plant protection methods) are introduced, 3/ the "rice only" farm model would not keep pace with the beef cattle/black pepper model which, by 1985, would generate an income almost three times the "rice only" system. It should be noted that increased farm incomes were derived mainly from the increased land area under production and the inclusion of various food crops. With the exception of beef prices which doubled in value in real terms, and rice prices which increased slightly, real prices for other crops did not change signifi- cantly (Chart 2). Equity 6.04 Benefits were as expected predominantly accrued by small farmers. Actual (1980) cash income per family of US$900 to 1,200 in constant (1972) dollars, compares very favorably with appraisal estimates of US$454 (1972 US$) for settler incomes in project year nine. The spontaneous settlements surrounding project settlement nuclei, and in sub-area III (to be consolidated under the proposed Maranhao Rural Development Project) still include some farmers claiming "squatters rights" on properties in excess of 2,000 ha. However, these do not directly threaten the development of project farms. Also, most are smaller; and COLONE is proposing that, in exchange for access to better infrastructure and services (i.e., feeder roads, technical assistance, 1/ Calculations for average farm incomes were based on a 20% field survey sample of the number of farmers for each of the two farm models. 2/ 1972 US dollars calculated at the prevailing exchange rate of Cr$ 5.934 = US$1.00. 3/ Various such possibilities are being explored for the proposed Maranhao Rural Development (follow-up) Project. - 68 - credit services and improved health and education facilities), the occupiers of larger areas agree to reduce their claims. The legal difficulties surrounding this issue are, however, complex and efforts to satisfactorily resolve them are a key part in the preparation of the proposed follow-up project. Foreign Exchange Effects 6.05 At appraisal, foreign exchange earnings were not projected to be significant. The higher (33%) than expected increase of rice production has made an important contribution to the stabilization of local markets for this staple food crop. Brazil, nationally, fluctuates between being a net exporter and net importer of this crop. Beef production, on the other hand, is only 2% of appraisal estimates and has certainly not yet contributed significantly to supply within the state of Maranhao or the region, and certainly not to exports. Brazil, however, is a net exporter of black pepper, so the project has unexpectedly made an important contribution there. Esti- mates are that the project area will be producing 10% (3,200 tons) of the total national production of black pepper by 1985. Transfer Effects 6.06 Negative changes to non-participating farms appear to have been negligible. Indeed, "non-participating" farms in the project area have benefited considerably in the following areas: (a) basic infrastructure (specifically, penetration and access roads) and resulting improved access to markets; (b) education; and (c) health and community development programs. The only two areas where they have not enjoyed specific benefits, equal to those of project participants in controlled settlement nuclei, have been: (a) crop and investment credit; 1/ and (b) an intensive level of technical assistance services. Secondary Goals and Unexpected Effects 6.07 The experience and the data-base studies of the Alto Turi project are making a considerable contribution to design and preparation of the proposed follow up Maranhao Rural Development project; in this respect, the "lessons learned" on what not to do may be more important than the provision of a proven methodology worth repetition. Major lessons learned are detailed in Chapter XII. The goals of establishing stable farming systems, as opposed to migratory shifting cultivation, were largely achieved. The introduction of improved pastures and the introduction of.a permanent cash crop (black pepper) made significant contributions in this area. The stable community, based on the small town of Ze Doca at the southeastern end of the project area, was a reality before project initiation in 1973; however, at least in part as a result of the project, the community has prospered and has been greatly enlarged with commerce flowing from the project area to local and regional markets. Rural industries, based on lumber, bricks, crop drying and cleaning (rice and black pepper), have all contributed to the general growth of the Ze Doca economy. The project cooperative (COMALTA) is now anxious to add the manufacture of "farinha" or cassava meal to this list of its agro-industrial activities. 1/ For the 1980/81 crop year, production credit from an advance post of the Bank of Brazil (BB) would become available to "spontaneous" settlers also. - 69 - Overall Assessment 6.08 A major project goal stated at appraisal was to provide a model for low-cost settlement in part through the significant contribution of voluntary family labor to self-help projects such as road maintenance, building of schools and health posts. This community organization and "self-help" concept was not successfully achieved in the main project area of controlled settlement, in part because the newly formed executing agency (COLONE) had no previous experience in community development efforts. Interestingly enough, however, these "self-help" concepts have emerged in areas of spontaneous settlement (sub-area III), reflecting probably both the absence of a history of a pater- nalistic Government presence in that area as well as COLONE's gradually growing expertise in selective community development interventions. Another possible explanation is that since COLONE had no resources available for the settlers in sub-area III (which was not programmed for development under the first project), it was forced to develop a new approach to assistance for those settlers. Thus, COLONE provided an umbrella of legitimacy for the settlers and helped them to organize the community largely as a means of protecting their land from threatened invasion, and also, at a later stage, of securing the necessary basic services. 6.09 Other shortcomings in the project, which are probably not too surprising in an experimental project of this type, related to the adequacy of arrangements planned to deal with land tenure problems and spontaneous settlement, and the lack of consistently strong political support for the project at the state and federal level. In the event, these issues severely compromised the pilot concept from the beginning and the executing agency became, of necessity, unduly involved in ensuring the fiscal integrity both of the project and of COLONE itself as an institution. What is probably most rewarding is that, despite the legal, financial and political uncertain- ties involved, the project goals of strengthening infrastructure, social and economic welfare in the project area seem to have been achieved to a signif- icant degree. VII. RATE OF RETURN Economic Rate of Return 7.01 In calculating the economic rate of return of the project, the actual investment and operating costs and project benefits were adjusted to 1972 prices. The estimated cost and benefit flows are indicated at Annex 1, Table 1.11. The methodology was as described in Annex 15 of the appraisal report with the necessary adjustments to reflect: (a) the addition of black pepper in the rice/cattle farm model; and (b) the fact that COLONE continued to operate the sawmill after lease agreements were rescinded on August 30, 1974. The "without project" situation assumed, as at appraisal, an initially constant (then gradually declining) total production of rice. This would reflect shifting production on a gradually larger area (enabled by the improve- ments to the BR-316 highway), but with gradually lower yields and without the benefit of services and greater road penetration off the main highway. Crop and livestock production data, including prices of inputs and outputs were - 70 - based on actual data for the period 1976 to 1980. Except for beef (for which the real price increased considerably) and rice (for which there was a slight price increase), other commodities produced did not experience significant changes in real price levels. Data previous to 1976 are incomplete and therefore must be considered as less reliable estimates. Future production of crops has been conservatively estimated to decline after 1984, reflecting both the need for new investments or efforts (whose costs have not been included) to improve yields or cropping prospects and the gradual likely shift to greater dependence on income from animal production. Data on project implemen- tation and investment costs was supplied by COLONE, but BNB administrative costs were an estimate based on actual staff participation. 7.02 The revised estimate on the internal economic rate of return is 13%, as compared to 16% at appraisal. The revised rate of return estimate assumed, as had been assumed at appraisal, a zero opportunity cost of labor. If, however, the opportunity cost of labor were assumed to be 50% of the current wage rate in the project area, then the revised economic rate of return would be about 10%. Overall, the incremental project costs appear to have been in large part offset by higher than forecast crop earnings (especially with the introduction of black pepper) even though earnings from livestock development have been much delayed. Had this livestock component physically developed as forecast at appraisal, returns would have further helped to offset the affects of overall project price increases. 7.03. As to the fiscal impact of the project, it is estimated that recurring project-related expenditures (excluding credit, but including such things as maintenance of extension and research services, roads, education and health services, some COLONE administrative costs, etc.) will be amounting to roughly US$1.2 million annually. Based on data on actual tax collections over the past several years (mainly the ICM tax on marketed produce) and projected production figures, it is estimated that the project will be yielding around US$0.7 million annually in tax revenues. This would be equivalent to just under 60% of recurring project-related costs. As to the recovery of rural credit, the current unindexed interest rates (Annex 1, Table 1.7) are extremely low in comparison to recent annual inflation of over 100% in Brazil; as a result, the real share of credit funds recovered is very low (as with other rural credit in Brazil). VIII. INSTITUTIONAL PERFORMANCE COLONE 8.01 The executing agency for the project, Companhia de Colonizacao do Nordeste, was created specifically for the project, but with a view to its eventually carrying out other similar colonization and rural development projects in the Northeast. It was officially formed on May 19, 1972, and was registered by the State on July 12, 1972. As executing agent for the project, COLONE had the major responsibility for all phases of project implementation. - 71 - COLONE was also the main contact point for Bank supervision missions. COLONE is a public company whose shares are distributed between the Superintendencia do Desenvolvimento do Nordeste (SUDENE) with 51%, the major stockholder; the State of Maranhao (48%); and the President-Director of COLONE (1%). At appraisal, it was proposed that the Instituto de Colonizacao e Reforma Agraria (INCRA) and the Bank of the Northeast (BNB) also become minority stockholders. INCRA declined to participate; also, it was later realized that, as BNB was to have business dealings with the project cooperative (COMALTA) to which it supplied credit, it could not participate in share ownership of COLONE. 8.02 COLONE's administrative board comprises five members appointed by SUDENE and the sixth member is COLONE's President. As the latter also has the "tie-breaking" vote, he exercises unusual powers. COLONE's day-to-day operations are the responsibility of a three-member Board of Directors, i.e., COLONE's President and the Directors for Technical and Administrative- Financial Operations. COLONE operates from its headquarters in Sao Luis, where approximately 13% of the staff are located. Of these, some 46% are professional staff. 1/ Field operations are implemented from the project field station Ze Doca, where the remaining staff (87%) are located. Admin- istration at this field station is the responsibility of the Project Coordinator with field operations divided into five operational departments as follows: Agriculture; Infrastructure; Community Development; Industrial Units; and Administration. COLONE's current organization is shown in Chart 3. COLONE's role was originally intended to be one of implementation of the project until key components (i.e., infrastructure, settlement, community development, cooperative organization and health, education, agricultural research and extension services) had all been successfully placed in operation. COLONE would then divest itself of these service operations to the appropriate state authorities involved. The limited success achieved in this area is described in paragraphs 8.06 to 8.08, 8.13 and 8.14. 8.03 Despite considerable growth of staffing during the project execution period (1973 to 1980) -- from 15 in 1973 to 542 in 1980 (Annex 1, Table 1.12) -- COLONE was never on a sufficiently secure financial footing to be considered a well-established and functioning institution. Even the special assistance of the business consultant firm (Arthur Anderson) could not be fully absorbed by COLONE although some significant administrative recommendations were imple- mented. The continued precarious financial support to the institution, at least up until mid-1977 when POLONORDESTE funding became available to COLONE for the first time, created a situation in which COLONE could not be consist- ently competitive in the job market; nor could it acquire adequate office space for maximum operating efficiency. This was particularly the case at the Sao Luis office. The important institutional objectives for COLONE as part of the project were to develop: (a) strong administrative capability and tech- niques to be applied to land settlement in the Northeast (Pre-Amazonia); and (b) effective planning and cost management of such projects. In the project area the accomplishments of COLONE staff in the community development, health, education and agricultural extension areas have been relatively good, particu- larly when viewed in light of the slow implementation of the necessary infra- structure and lack of continuous political support. 1/ At appraisal it was indicated that COLONE headquarters would be located at Ze Doca. Because of communication difficulties and the lack of infrastructure this did not prove viable. - 72 - 8.04 The objective of creating permanently improved staff capability was only moderately successful, despite an active training program throughout the project cycle (Annex 1, Table 1.13). Personnel policies within COLONE have been generally commendable in the sense of retaining key personnel despite delays in the payment of salaries and frequent frustrations due to curtailment of annual work programs previously approved but lacking funding when actual implementation should have occurred. Cost accounting, although generally improved along the lines of the recommendations of the consultants, had later to be refined at the recommendation of the auditors. Also, its usefulness for assessing project activities is somewhat limited in that the new system is not really consistent with original presentations of the various cost categories used at appraisal. In retrospect, it can also be said that the project should have had better baseline studies for monitoring and evalua- tion purposes. This is particularly true for evaluation of the farm develop- ment models. 8.05 As to its future, COLONE would probably not survive a project phase-out, if it were not for its planned significant role in the proposed Maranhao Rural Development project. It is probable, however, that COLONE's role in that project will be to coordinate that portion of the project dealing with the expansion or consolidation of settlement activities in sub-area III (Maranhaozinho) of the project area with actual responsibility for execution shared with the various state agencies. In addition, COLONE has some limited revenue generating capacity based mainly on its industrial division (sawmill, brick factory, black pepper and rice processing mills). In general, however, COLONE's role as an executing agency for colonization projects elsewhere in the Northeast is still uncertain. Other specific projects are not clearly identified. Nevertheless, the public image of the agency is relatively good and its linkages to other agencies (SUDENE, INCRA, FUNAI, FSESP, EMATER, EMAPA, etc.) have at least improved during the 1976 to 1980 period. Such distrust as still exists in some cases would appear to lie mainly in the fact that COLONE, in its current activities, infringes on at least part of the broad mandate of the institutions mentioned and, despite financial constraints, has shown a capacity to execute land settlement and rural development to a highly commendable degree when compared with what other institutions, with full political support, have been able to accomplish in the general region. This reflects the very considerable energy, dedication and persistence shown by the COLONE administration. Departamento de Estradas de Rodagem (DER-MA) 8.06 The state road construction and maintenance agency was expected to take over the maintenance of project roads one year after road construction completion. Contacts by COLONE with DER-MA management to discuss the matter, beginning even before road construction was completed have, however, been quite unsuccessful. The state administration recognizes that the DER-MA must accept responsibility for road maintenance in the project area, but is not yet able or prepared to provide the necessary funding. The state government has provisionally agreed that DER-MA accept responsibility for executing road maintenance functions starting with 1982, but provided that COLONE help assure the necessary funding. COLONE's attitude has been that under such arrangements (i.e., COLONE having to find the necessary funding), they might just as well provide maintenance themselves by having these funds directly administered by their Infrastructure Division at Ze Doca. - 73 - Empresa Maranhense de Pesquisa Agropecuaria (EMAPA) 8.07 It was also intended at appraisal that EMAPA (in 1972 it had the name IPEAN) would gradually assume the agricultural research functions and programs related to the project and initiated by COLONE. In November 1977, COLONE entered into a two-year provisional contract arrangement for the period 1978/79. The contract covered all required agricultural research programs under the project, with the exception of pasture research, which was considered essentially complete. The contract was not renewed at the end of the 1979/80 crop year, as new aministrative personnel at the Bacabal (EMAPA) station and at COLONE's Ze Doca field station differed as to how (technically) the black pepper research should be carried out. Also, EMAPA has suffered a lack of state counterpart funding to provide sufficient staff and transportation facilities in order to adequately maintain experiments in the project area, while COLONE has, perhaps justifiably, been extremely reluctant to give up its research staffing and control until a substitute arrangement is firmly and reliably in place. Empresa de Assistencia Tecnica e Extensao Rural (EMATER-MA) 8.08 The State Agricultural Technical Assistance and Rural Extension Agency, EMATER-MA, was expected to be assuming extension responsibilities soon after project implementation was complete. In the event, this also has proven difficult to arrange, primarily because the state was not able to make avail- able the necessary additional funds to EMATER. Also, the technical assistance being provided by COLONE is more intensive than EMATER-MA typically provides, and the technicians live in the settlement nuclei. At least one crop (black pepper) is highly specialized and for that reason receives a higher level of technical assistance inputs. These latter factors have also delayed transfer of responsibility to EMATER. Cooperativa Mista do Alto Turi (COMALTA) 8.09 The project cooperative at Ze Doca, with a field agency at Nova Linda operating only during the two most recent crop years, has operated under procedures close to those visualized at appraisal, i.e., they have channeled credit from the Bank of the Northeast (BNB) to the settlers. Membership of the cooperative had been a mandatory pre-condition for receiving such credit. (In retrospect, it now seems unfortunate that the cooperative was used to pass on credit since this function could probably have been better performed by existing banks suitably strengthened to operate in the project area.) From a management point of view, the credit function of the cooperative is still very weak, and relies heavily on personnel and technical assistance from BNB. Even this arrangement has not been ideal since BNB personnel tend to refuse any type of permanent assignment to COMALTA and turnover is high, e.g., three changes of accounting staff within the past year. Currently, an indepth study of COMALTA's operating procedures, including a complete audit of accounts, is being carried out by an auditor (from Fortaleza) under contract to COLONE. This course of action was taken following the report of the independent auditor (Bouchinas, Campos and Claro S/C Ltda.), which indicated that the state of COMALTA accounts were such they could not provide an opinion based upon the audit made (August 22, 1980). It is interesting to note that, - 74 - mirroring doubts expressed by Executive Directors of the Bank during the discussion on the proposed Alto Turi Loan, the cooperative's functioning depended excessively on outside technical assistance, and in general the results have not been good. Bank of the Northeast of Brazil (BNB) 8.10 As has been noted in paragraph 8.09, BNB was unable to accept the degree of heavy responsibility for management of cooperatives implied in credit arrangements visualized at appraisal. However, BNB did provide inter- mittent technical assistance to COMALTA. This, in the event, proved inadequate to the task of enabling COMALTA to become a strong enough entity, both finan- cially and administratively, to meet the increased demands of the full comple- ment of settlers in the area. BNB did, however, channel both the short-term (crop production) and medium term (farm investment) funds through COMALTA to the settlers. The major complaints concerning this operation were the lack of timely release of short-term loan funds and the inadequacy of the amount of medium-term loan funds made available. In retrospect, the latter should have not been a surprise since, at appraisal, it was noted that BNB appeared to lack sufficient resources for long term financing. This was further exacerbated by the fact that interest rates on official credit (though recently increased) were held by the Government at very low levels, with inflation rapidly increasing, during the project period. Real recoveries have therefore diminished substantially and sharp restrictions on new credit availability have made investment credit extremely scarce. Superintendencia de Desenvolvimento do Nordeste (SUDENE) 8.11 Following the acute physical hardship and social dislocation expe- rienced by the rural population of the Northeast in the especially serious 1958 drought, the Government set up SUDENE in December 1959, with a mandate to promote, supervise and coordinate new development projects either directly or by means of agreement or contracts with other agencies. The relationship of SUDENE to COLONE was more than contractual in that SUDENE was the major stockholder in COLONE, had the majority vote on its Board of Directors and would also have responsibility for channeling federal funds, from the Ministry of the Interior to COLONE, to cover the administrative expenses of COLONE and fund project investments. After the establishment (in 1973) of a revolving fund with Cr$ 3.0 million, SUDENE was subsequently unable to either maintain the revolving fund balance or to meet COLONE's funding requests based on SUDENE-approved annual operating plans. Increasingly, during the years 1975 to 1978, COLONE sought financial assistance directly from Federal authorities in Brasilia. These actions doubtless resulted in a weakening of the COLONE/ SUDENE relationship which had never been strong. It was not until 1977 that, with the allocation of POLONORDESTE program funds to the project through SUDENE, the linkage of COLONE to SUDENE was reinforced. Although it is not quite clear why SUDENE was not more supportive of the fledgling COLONE during the formative years (1973 to 1975), one clue may be that some in SUDENE sought a larger role in coordinating project implementation and grew to resent the fact that both COLONE and the Bank tended initially to consult with SUDENE only to obtain funding for the project (para 11.03), but not on tech- nical matters. SUDENE's current rather supportive attitude towards COLONE and the Alto Turi project are probably stronger than at any time during the eight-year implementation period. - 75 - Instituto Nacional de Colonizacao e Reforma Agraria (INCRA) 8.12 The role of this institution in project implementation was, from the beginning, much less than assumed at project appraisal and stemmed partly from its not fully supporting the project design or concept and, hence, disinterest in becoming a shareholder in COLONE. During the period 1972 to 1975, INCRA was still very much involved with the establishment of settlement along the Transamazon highway and the settlement model (particularly the farm model) to be tested in Maranhao by COLONE was somewhat different from the Transamazon settlement program model (in which, for example, both project investment costs and farm incomes were planned to be much higher). Despite these early differ- ences, the regional INCRA office in Maranhao has in recent years shown an interest in the Alto Turi experiment. Also, COLONE has assisted in the establishment of backyard citrus plots for settlers in other (INCRA directed) settlements within Maranhao. Fundacao Servicos Especiais de Saude Publica (FSESP) 8.13 It was intended, at appraisal, that SUDENE would finance the health services during the first ten years of project life and that, thereafter, such costs would be borne by the Maranhao State Government. In practice, SUDENE has supplied funding to COLONE for operation of the Noel Nutels Hospital in Ze Doca. However, starting in 1979, the State Secretariat of Health has contributed to the annual budget of this hospital by providing medicines and one doctor. On March 12, 1979, COLONE signed a contract with FSESP for the staffing of all project health posts as soon as they became operational. FSESP is also financing the construction of a 30 bed hospital for the project area. Construction of that hospital, now temporarily halted due to funding shortages, had been expected to be completed by the end of 1981; FSESP will staff and operate that facility. Secretaria de Educacao do Estado do Maranhao (SEC-MA) 8.14 As for health services, noted above, the plan at appraisal was for SUDENE to fund expenditures for the project area schools until year 10 of the project, after which such services would be funded through the state education secretariat (SEC-MA). Up to the present time, funds have been channeled to COLONE through SUDENE and, since mid-1977, they have mainly comprised POLONORDESTE funding (99%) with slightly less than 1% coming from the MOBRAL (Federal program resources) specially applied to adult education programs. Progress in transferring all these educational services to the state authority is somewhat similar to the position on road maintenance (i.e., the State Secretariat for Education, SEC-MA, is understandably unwilling to accept responsibility unless incremental funding for teachers' salaries, etc., is included in their budget). An added problem, as in the case of agricultural extension, is that the intensity of services currently being provided by COLONE is higher than those being offered in the general project area municipalities. Discussions with SEC-MA are continuing, but the problems are not expected to be resolved before 1982. - 76 - IX. SPECIAL ISSUES 9.01 Sector and Political Influences. Particularly during the early years of project implementation, i.e., 1973 to 1975, it was evident that the project was not in total conformity with existing key federal plans and priorities. Indeed, during that period, efforts were being made to promote settlement, on a much larger scale, along the newly built Transamazon highway and the Alto Turi "lower cost" approach, though of interest to many in the Government, got little more than token attention overall. After the change of administrations, at both state and federal levels, and increased evidence of serious problems in the Transamazon settlements, the project gradually received more attention and support. 9.02 Contacts with Indian Tribes. It is perhaps worthy of note that, during the discussion by the Bank's Board of Directors on the proposed loan, a question was raised concerning the possible presence of Indian tribes in the area. Based on the knowledge then available to the Bank staff, a reply was given that there were no Indians in the project area. As project property lines were understood at that juncture, the statement was accurate. However, the presence of a settlement of the Urubu-Kaapor tribe was confirmed when project implementation began (1973). There were 262 Indians living along the southern edge of the project area at that time. Later (1976/77), the Indian tribe and their FUNAI agent in Sao Luis reported that COLONE road survey engineers, in project sub-area II, were trespassing on their lands. Meetings between FUNAI and COLONE were held and agreement was reached to re-survey the southwest boundary of the property area. The survey (Map 3) recognized the Indian claim on a pie-shaped strip of land in the extreme southeastern quadrant of the property. As a result, all engineering and subsequent settlement in the section was halted. The Indians now have access to COLONE-provided health services on request; COLONE and FUNAI have also developed a constructive relationship to help ensure protection of the tribe from settler incursions into Indian lands. 9.03 Land Development Strategy. In terms of land development strategy, the project experience allows some useful observations, though not necessarily any clear cut answers. Firstly, it would seem in retrospect that insufficient attention was given to the need to match land use to land capability. The problems here fell into two types: the basic resource surveys seem to have been insufficiently comprehensive and were not followed up with further detailed studies during implementation; and COLONE seemed unable to ensure that actual land use complied with the recommendations arising out of the studies that were carried out. It should be recognized that the spontaneous settlement presented a particular problem for COLONE since this took place outside the areas intended for settlement during the initial phase and, hence, in areas which were inadequately surveyed from a land use standpoint. One lesson to be learned is that if the necessary land use potential surveys have not been fully completed at the time the project starts, they should nonetheless still be carried out during the execution phase. Further, if spontaneous settlement has occured in areas which are subsequently considered unsuitable for development, systematic attempts should be made either to relocate physically the settlers to suitable areas or to require that they adopt certain practices consistent with the land use potential of the area settled. As noted in paragraph 4.06, the latter can be linked to the timing of titling. - 77 - 9.04 A second general observation of relevance for future projects of this type concerns the choice of agricultural development strategy. The choice here is whether to aim for a high cost, high input, high output approach which, with limited funds, can reach only a lower number of settlers, or for a low cost, low input, low output approach which could serve more beneficiaries with the same available funds. (Obviously there are any number of intermediate choices also available.) While the latter approach appears preferable, it is important that the "technological package" offers a return which provides sufficient incentive for its widespread adoption. It is also clearly essential that a thoroughly tested low input technological package really does exist. In the case of the Alto Turi project, it appears that a fully appropriate low input package probably did not exist. Further, the executing agency eventually chose (understandably given that this was its first attempt and one on which it would be judged) to take an approach which minimized the risks of "failure" by tending to concentrate its resources on a relatively low number of settlers and encouraging adoption of a moderately high input-high output technology (i.e., pepper and beef cattle). 9.05 Environmental Impact. The project appraisal report stated that "the project would demonstrate a means of preserving a balance between developing new land and retaining the ameliorative effects of forest areas and pastures." However, as the primary forest in sub-areas I and II had been severely depleted before the project was effectively initiated, it is dif- ficult to determine how the project, as designed, could have been reasonably expected to demonstrate these effects in those areas. The project did not apparently foresee the need to foster reforestation efforts. In the large section (sub-area III) of project lands which is still thought to be mainly in primary forest and where most of the spontaneous settlement has taken place, COLONE is now finding it necessary to call for the assistance of guards supplied by the Instituto Brasileira de Desenvolvimento Forestal (IBDF) to assist in controlling the indiscriminate felling and burning of virgin forest lands. 1/ It is also considering, in the proposed Maranhao Rural Development Project, incorporation of stronger safeguards to protect forest reserves in the area as well as reforestation and conservation programs to help prevent serious environmental degradation. 9.06 In general, the effects of planting pasture on 5,210 ha of pre- viously cultivated (rice) lands in sub-areas I and II of the project can be said to have helped ameliorate soil erosion. The area has now reasonably sustained settlement for the past 20 years. The addition of small tree-fruit orchards in each settlement, in total possibly adding another 2,500 ha to tree-crop cultivation, has also been a small but significant factor in revers- ing the trend to deforestation of the settlement area. A new program, only recently initiated by COLONE, is designed to provide a one hectare farm wood-lot of the tropical cassia (Cassia siamea) for each settler. This reforestation of an additional 5,000 to 6,000 ha of forest in an area already severely cut-over prior to the project would also be in accord (after the fact) with project objectives. 1/ In preparation for the proposed Maranhao Rural Development Project, satelite imagery is currently being examined in order to estimate the area deforested in sub-area III. - 78 - X. CHANGES IN REPEATER PROJECTS 10.01 The early Alto Turi project execution experiences provided various instructive insights in the preparation of subsequent Bank-financed projects in Brazil. For example, as the integrated rural development projects for the Northeast (the first in the State of Rio Grande do Norte) were being prepared, the early participation of the state agencies to be involved in execution has done much to improve the local sense of "ownership" of the project concept and to broaden the consensus of the appropriateness of project designs, as well as to avoid duplication of services and to ensure the continuity of such services. It should not, however, be assumed no great differences exist between the requirements of land settlement projects and rural development projects. The organization implications of providing the initial basic infrastructure, and legal titling of project lands are complex issues which have many political overtones. Furthermore, solutions to these problems may well be area-specific in some respects. Efforts to address such issues, and also environmental and indigenous population protection, have been incorporated in preparation of several proposed projects in the frontier areas of Northwest Brazil. XI. BANK PERFORMANCE 11.01 During the period of actual project implementation (commencing in May 1974), the Alto Turi project showed major problems in six of the supervision reports through December 1980. The remaining reports consistently reported moderate problems. Following directly from its frequent appearance on "Problem Project Reviews", studies by the Bank (OED) in early 1979 reported on one of the consequences of unfavorable implementation performance, i.e., disbursement delays. A study to seek out the possible reasons for the causes of the more general problems affecting implementation, i.e., a Supervision Study, was made about the same time. 1/ As these reports, issued only some 18 months prior to project completion, reflect a detailed and critical analysis of Bank performance, during the years 1973 to 1978, inclusive, the main conclusions drawn are referred to here. 11.02 Project Appraisal. The quality of Bank appraisal of the project was, in retrospect, weak especially in that it did not adequately take account of the following: (a) while land settlement seemed to have some priority in the existing Brazilian development strategy, the small Alto Turi "experiment" was not in the mainstream of the development effort; (b) the organizational structure--a new entity, with few built- in linkages to existing agencies--for project implementation was intrinsically weak; 1/ The Alto Turi Case Study was later incorporated into Report No. 2858 "Operation Policy Review--The Supervision of Bank Projects", February 2, 1980. - 79 - (c) a sufficiently broad Government consensus on the design of the Alto Turi settlement scheme was not achieved; (d) the arrangements for securing counterpart financing were not adequately worked out; (e) COLONE was not in full command of sufficient detail on all intended project components; and (f) several key factors in project planning, particularly related to essential infrastructure, were not well worked out in advance, leading to poor scheduling and subsequent delays. The OED report concluded that, basically, two timely and fortuitous events eventually assisted project implementation and consequently disbursements. These were: (a) the establishment of POLONORDESTE (mid-1975) which eventually provided counterpart funding for the project; and (b) the award of the road construction to an influential contractor (Mendes, Jr.) who was able to assist in securing federal support to finance the road component. 11.03 Project Supervision. Bank performance in project supervision also experienced several shortcomings. As noted in the aforementioned OED report, the major shortcomings appear to have been: (a) failure to take a strong stand earlier concerning the lack of counterpart funding; (b) reflecting probably more the appraisal than the quality of supervision, the need to accept a considerable change in project design less than four months after project effectiveness; and (c) failure to require a full project re-appraisal to evaluate changes to project timing, costs and benefits based on the revised design noted above. 11.04 While most problems concerning Bank performance during project implementation had their origin in the key issues listed in paragraph 11.02, the Bank reaction to such problems should probably have included: (a) more systematic consultations with and visits to other agencies relevant to project implementation, i.e., other than COLONE; (b) more systematic review of compliance with Loan covenants prior to the time such review became subject to routine inclusion in supervision reports; (c) closer supervision of end use of funds (accounts and audits were reviewed in Washington but not in the field by a financial analyst on supervision missions); (d) greater initial continuity in staffing of the supervision missions (this was only achieved after the first few years of project execution); and - 80 - (e) greater delegation to mission member staff of authority to solve supervision problems in the field (Bank positions on various issues having been subject to delayed confirmation after mission returns). 11.05 Following completion of the OED reports, visits to SUDENE and other key agencies following visits to the project area became a routine facet of supervision missions. Invitations were also routinely extended for a SUDENE technician to accompany the Bank missions in the field. An INCRA staff member accompanied one supervision mission in the field and also the March 1981 mission for project completion purposes. Apart from the May 1976 mission, no financial analyst was part of a supervision mission. The initial lack of staff continuity is explained in part by: (a) the Bank's major reorganization in September 1972, just after loan signing; and (b) the reorganization of LCP Agriculture Divisions in July 1975. While increased mission authority in the field would have facilitated handling of various project problems, some of the major problems--i.e., requiring higher level representation regarding project financing or reallocation of funds between categories--by their nature required consultation in Washington. 11.06 An important summary conclusion of the OED reports was that, even with a superior effort in the area of supervision, the project could not be expected to overcome fully the initial flaws in design and concept. - 81 - XII. CONCLUSIONS AND LESSONS LEARNED Project Design 12.01 The principle objective was to demonstrate the feasibility of a low-cost approach to land settlement based upon a small-scale pilot or experiment which would be applicable to larger projects in the future. This objective was not adequately achieved. There is probably still reason to believe that at the margin some of the administrative overhead costs (e.g., COLONE administrative overhead partially duplicating that of the other state agencies) could have been lower had state agencies been more effectively involved from the outset. Nevertheless, much of the cost increase was asso- ciated with the delay in execution, which in turn reflected the fact that the initial project design involved various technical and administrative weaknesses. 12.02 Project experiences do suggest, however, that, given timely and appropriate financial support, a basic infrastructure of roads and the necessary services, sustained settlement in the pre-Amazon area can be achieved with reasonable economic viability. Health, education and farm support services can be delivered at reasonable levels of efficiency, and family incomes can be significantly improved as a result. In the Alto Turi case, the project effort to demonstrate a "low cost approach to settlement was partly compromised by a combination of problems in project design, a lack of broad consensus on project design, unforeseen delays and a period of high inflation. Nevertheless, this should not entirely negate the positive project achievements--i.e., significant increases to family incomes and living standards, based on rela- tively small holdings. 12.03 Where answers to development strategy questions are indeed to be sought by recourse to trial or experimentation, it seems in retrospect that ideally there would need to be a much clearer consensus on and definition of project objectives. Also, such "experiments" might be better made in project areas less compromised by previous related efforts and where baseline data and subsequent achievements can be more accurately established and measured for comparative purposes. Financing 12.04 Project financing arrangements, particularly for possible overruns, should be much more thoroughly worked out prior to loan approval than was apparently the case for this project. This may be especially true where the Bank finances 100% of certain project categories under the loan, in which case the need for counterpart financing, should cost overruns occur, becomes a totally new budget commitment for the Borrower. Clearly, strong political commitment to a project generally should also be a prerequisite to Bank financing as it generally has a direct relationship to the level and timeliness of counterpart funding forthcoming from the Borrower. Selection of Executing Agency 12.05 The frequently chosen method of creating a "new" institution in order to circumvent the problems of existing weak and poorly staffed institu- tions can create very difficult problems in the long run. Such new companies - 82 - can easily become isolated, unless they have strong political approval and support at both the state and federal levels, and can also inadvertently slow efforts to strengthen existing agencies. In the case of COLONE, efforts to transfer operation and maintenance responsibilities to existing agencies have been slow and extremely difficult. As noted in paragraph 8.05, COLONE's future is still somewhat uncertain. Though the creation of this settlement agency was probably necessary, the failure to involve other collaborating agencies at an earlier date, and the lack of other clearly defined settlement project work for COLONE outside the Alto Turi area, probably resulted in COLONE taking on a broader role than would otherwise have been desirable. Participation of State Agencies in Project Execution 12.06 The assumption that such agencies (road maintenance, health, educa- tion, agricultural research and extension agencies) could rather easily absorb programs previously developed and paid for by a different executing agent does not, under the Alto Turi experience at least, appear to have been a viable concept. The participation of all such agencies, commencing with project preparation, is essential if they are to be involved with continued participation in, and have future responsibility for, such services. Farm Models, Land Use and Agricultural Research 12.07 An important lesson learned here is that proposals on farming systems should not only be more realistic, but should be sufficiently flexible to allow adjustments and variations to reflect changing conditions during the project development period. Although at least tentative farm models are necessary for the preparation of farm budgets, and appropriate economic analysis purposes, they should not become straight-jackets. Research knowledge concerning crop diversification possibilities and sustained yield improvements is essential to the agricultural development process in a frontier region. Also important are the establishment of adequate means to continue to assess land use potential, to guide and adjust land use criteria, and to assure reasonable attention to the protection of the environment. In the case of the proposed Maranhao Rural Development Project, the strengthening of the state agricultural research company (EMAPA) would appear to be essential for providing the new agricultural production systems technology required. In addition, planned reforestation and conservation work should strengthen the attention given to environmental protection initiatives. Road Network Design Standards 12.08 The tendency to routinely adopt "federal standards" for roads appears to have led in Brazil to some occasional over-design and to related cost overruns. The Bank agreed with the upgraded designs for project roads, which in the circumstances was probably wise given the current difficulties in organizing adequate maintenance. However, there is still probably scope for considerable gains in Brazil in achieving a lower overall cost balance between the investment for rural roads and the subsequent maintenance. - 83 - Need for Clear Land Titles 12.09 This lesson is rather obvious and yet, from a legal stand-point, it was apparently possible for the Federal Government of Brazil to provide a sufficiently sound legal opinion on the matter of COLONE's rights to project land to provide the assurances to the Bank needed for loan effective- ness. Matters such as land titles are crucial to many rural projects, but especially to settlement initiatives. For the latter, the current tenure situation and planned settler titling arrangements should, in fact, be established clearly before loan approval, as adequate redress after the fact is often difficult. Establishment of Cooperatives 12.10 The wisdom of counting on project cooperatives for project success could certainly be questioned, especially when: (a) there is not a high degree of participation by settlers in the administration of the coopera- tive; and (b) the cooperative and its members are not experienced in compli- cated matters such as managing crop (short-term) and farm investment (long-term) loan programs. "Forced" execution of credit management should be avoided, allowing more gradual growth of simple cooperative functions. Also, more adequate safeguards against the effects of bad debts should be incorporated Into the cooperative's financing plan. ANNEX 1 Table 1.1 - 85 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT NORTHEAST: Population and Area of Sub-Regions, 1970 Population Sub-Region Area No. Percent (Percent of (Million) of Total Total) Zona da Mata 7.7 27.3 7.2 Agreste 4.1 14.5 10.8 Sertao 11.5 41.0 52.4 Transition Zone to Amazonia 3.4 12.0 22.4 Humid Lowlands and Low Hills 1.3 4.5 2.4 Cerrados 0.2 0.7 4.8 Total for Northeast 28.1 100.0 100.0 Source: SUDENE data. ANNEX 1 Table 1.2 - 86 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Key Indicators Total Achievement Estimate Revised at Project at Appraisal Target Completion (6/20/72) (12/31/80) 412/31/80) A. Settlement of Families (i) Controlled 2,900 3,000 2,591 (ii) Regularization of existing families (based on spontaneous Settlement) 2,300 2,200 5,604 B. Demarcation of Lots 5,200 5,200 7,012 C. Research Station (%) Complete (i) Establishment 100 100 100 (ii) Cattle holding grounds 100 100 100 D. Expansion of Logging Operations (i) Swned lumber (m month) 175 175 164 (ii) Average gross receipts (US$'000/month) 22.4 25.0 23.9 E. Construction of Schools (no.) 62 40 54 F. Construction of Health Centers (no.) 10 15 15 G. Rural Credit (i) Short term (crop production) loans (1980/81 cropyear) Number 4,500 2,200 1,492 Amount (US$'000) 1/ 815 1,000 760 (ii) Medium term (investment) loans, cumulative Number 4,000 3,466 1,808 Amount (US$'000) 1,724 3,000 1,206 H. Road Construction (i) Planning and design (km) 336 298 298 (ii) Construction (km) Penetration roads 22 22 23.0 Access roads 234 215 214.6 Improvements 80 - - 2/ Subtotal 336 237 237.6 Trails 49 50 50.0 1/ Data shown in 1972 (constant) US dollars. 2/ The 80 km listed as improvements were actually reconstructed and are included in the 214.6. BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION 1REPORT Project Feeder Road Component Costs (Current Cruzeiros) Length Contract Value of Works Price Total Item (km) Amount at Initial prices Adjustment Expenditure Construction (6.00)1/ 14,329,959.78 2,197,296.95 - 2,197,236.95 Cor::;'ruction 101.78 35,021,217.00 45,788,161.86 6,061,426.37 51,849,588.23 Construction 135.82 62,681,152.40 87,571,412.01 31,493,319.63 119,064,731.64 Total Executed 237.60 99,899,666.35 135,556,870.82 37,554,746.00 173,111,616.82 Supervision 101.78 3,434,786.00 3,408,852.19 319,278.93 3,728,131.12 Supervision 135.82 3,803,687.40 3,933,561.26 1,786,510.60 5,720,071.86 Total Supervision 7,238.473.00 7,342,413.45 2,105,789.53 9,448,202.98 Final Engineering 302.00 4,849,182.58 4,849,182.58 - 4,849,182.58 TOTAL 111,987,322,33 147,748,466.85 39,660,535.53 187,409,002.38 1/ Original contract was for 101.78 km. After completing 6 km, company failed and contract was re-bid and a;^-dcd to another contractor. 2/ >2 consultant d id engineering and final' design on 302.60 km of road, including 64.40 km in the Araguan.a m; .ecu:ion GfT Su`-Area I. 2ue to lack of funding this final portion was not bid for construction and project goal for road ;.:.struction adjusted acco:dingly. S-.-^e.: C-.-sultant s Final Report BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Number of Families Settled by Year and Project Sub-Area S U B -A R E A S SUB-TOTAL TOTAL YEARS I I II III PP(1) REG(l) PP REG PP REG PP REG 1972 850 (3) _- - - 850 _ 850 1973 25 - 278 _ - - 303 _ 303 oD 1974 _ - 661 _ - - 661 - 661 1975 _ - 267 147 _ - 267 147 414 1976 - - - - - - - - 1977 400 _- - 1.036 400 1.036 1,436 1978 _ _- - 1.385 - 1.385 1,385 1979 110 - _ 1.036 - 2.000 110 3.036 3,146 TOTAL 1.385 _ 1.206 1.183 _ 4.421 2.591 5.604 8,195 (1) PP -Phsically planned holdings of 50ha each. (2) REG-Registration following spontaneous settlement. Demarcation of land holdings of variouL sizes following spontaneous settlement. (3) Families originally settled by SUDENE. SOURCE: COLONE, September 1980 June 8, 1981 ANNEX 1 Table 1.5 - 89 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Educational Program Development Item Number 1. Number of Schools in Operation 70 2. Number of Teachers Employed 124 (a) Certificated: 56 (38%) (b) Non-certificated: 90 (62%) 3. Number of Pupils Attending 6,214 (a) Primary and secondary grades: 5,168 (b) Secondary, night classes: 457 (c) Adult (basic literary course): 589 4. Ratio of school pupils to controlled settlement families 2.4 5. Current level of teachers salaries: Cr$ 6,500 - 7,000 per month 6. School year; 1/ two semesters June to November and December to April. 1/ Designed around the crop year to permit use of family labor during planting and harvesting seasons. Source: COLONE Date: December 15, 1980 ANNEX 1 Table 1.6 - 90 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Health Component Data (Noel Nutels Hospital) YEARS Item 1979 1980 A. Curative Medicine (Patients) Emergency room 12,257 7,831 Surgery (office) Patients 5,351 10,748 Medical clinic 3,102 5,199 Pediatric clinic 1,662 3,709 ObstetricB 587 1,840 Total 22,959 29,327 B. Hospital Patients (Interned) Clinical 608 583 Pediatrics 241 353 Obstetrics 635 930 Surgical 73 104 Total 1,557 1,970 C. Preventative Medicine 1/ Poliomylitis (Sabin vaccine) 377 1,334 Small Pox 238 331 Triplice 621 884 Diphtheria vaccine Whooping Cough vaccine Tetanus vaccine Tetanus (for adults) 1,216 2,269 Anti-Rabies - 30 Tuberculosis vaccine 312 288 Total 2,764 5,136 D. Control of Epidemic Diseases Hansen's disease New cases 35 21 Cases under treatment 127 119 Tuberculosis New cases 38 61 Cases under treatment 45 56 Total 245 257 E. Dental Clinic Examinations 1,091 Fillings 292 Extractions 915 Other dental care 2,123 Fluoride treatment 253 Total 4,674 1/ Basically an immunization program against most common illnesses. Source: COLONE December 17, 1980 BRAZIL ALTO TURI LAND SETrLZMENT PROJECT (LOAN 853-BR) COMPIZTION REPORT Project cooperative CoHWLTA Lending for Short-Term (Crop Production) and Medium-Term (Investuet) Loan 1 ____:S _ J 1973 1974 1975 1976 1977 1978 1979 1980 Totals A. Short-Term (Crop Production) Loans/Year Number of Loans 836 1,009 1,004 1,048 1,068 1,368 1,03e 1,492 _ Average Size of Loan 818 452 598 1,145 3,277 3,381 17,872 26,924 (Current Cr$) Total Amount Loaned 684,000 456,000 600,000 1,200,000 3,500,000 4,625,000 18,514,500 40,170,000 (Current Cr$) P. A. Interest Rate Paid (Z) 8 8 8 12 12 13 13 13 - B. Medium-Term Investment Loans/Year Number of Loans _ 180 280 308 - 1,040 1,808 Average Size of Loan - 7,778 29,648 31,353 - 71,868 - (Current Cr$) Total Amount Loaned - 1,400,000 8,301,310 9,656,690 - 74,743,000 94,101,000 (Current Cr$) P. A. Interest Rate Paid (%) - 7 7 - 7 - Source: COMALTA March 1981 ANNEX 1 Table 1.8 - 92 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Summary of Project Costs (US$ Current Million) Account Distribution 1972 1973 1974 1975 1976 1977 1978 1979 1980 Total Appraisal Estimate 1. Implementation COLONE, Operating Costs 0.021 0.461 0.397 1.827 1.914 2.517 2.694 3.462 1.841 15.134 1.349 COLONE, Capital Costs - 0.026 0.050 0.261 0.085 0.175 0.125 0.448 0.301 1.971 0.172 BNB, Administrative Costs - 0.003 0.004 0.004 0.003 0.004 0.007 0.005 0.028 0.058 0.224 Subtotal 0.021 0.490 0.451 2.092 2.002 2.696 2.826 3.915 2.670 17.163 1.745 2. Road Construction - - - 0.084 0.476 1.554 4.437 3.273 2.196 10.020 3.607 3. Land Surveys - 0.025 0.002 0.004 - - - - 1109 0.140 0.180 4. On Farm Investments Beef cattle - - - - 0.155 0.096 0.038 0.059 0.139 0.487 1.906 Pasture development - - - - 0.139 0.217 0.128 0.009 0.078 0.571 0.334 Black Pepper - - - - 0.165 0.201 0.233 0.008 0.059 0.666 - Wells - - - - 0.004 0.013 - - - 0.017 - Implements _ _ _ - 0.009 0.022 0.003 0.002 0.003 0.039 - Subtotal _ _ _ - 0.472 0.549 0.402 0.078 0.279 1.780 2.240 5. Marketing Credit - 0.112 0.067 0.074 0.112 0.247 0.256 0.641 0.762 2.271 0.859 6. Research and Holding GDS - - 0.022 0.022 0.023 0.019 0.016 0.026 0.022 0.150 0.047 7. Forestry _ - - - - - 0.011 - 0.021 0.032 0.152 8. Schools and Health Centers Schools _- - 0.174 0.171 0.448 0.793 0.158 Health Centers - _ _ _ - 0.082 0.035 0.085 0.051 0.253 0.158 Subtotal - _ _ _ _ 0.082 0.109 0.256 0.499 1.046 0.216 9. Studies Z. _ _ 0.005 0.002 - 0.021 0.028 0.300 10. Total Pro1ect Costs 0.021 0.627 0.542 2.276 3.085 5.152 8.159 8.189 4.579 32.630 11.506 11. Interest and Charges on Bank Loan - 0.061 0.203 0.064 0.096 0.131 0.227 0.503 0.446 1.731 1.126 12. Grand Total 0.021 0.688 0.745 2.340 3.181 5.283 8.386 8.692 5.025 34.361 12.632 Average Exchange Rate 5.934 6.126 6.790 8.126 10.670 14.138 18.086 28.870 52.699 5.50 (Cr$ to US$) __ _ _ 1/ Including extension and research services, road maintenance operating costs, as well as general administrative costs. 2/ Includes items not covered by the appraisal estimate as part of project costs (e.g., enlarged programs for educating health and community services, industrial units and higher on-farm investments for black pepper). Source: COLONE Date: March 20, 1981 BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Allocation of Loan Proceeds Appraisal Estimate First Revision Second Revision Actually Disbursed (6-20-72) (4-3-78) I (6-1-80) (12-31-80) % of % of % of Expenditures Expenditures | Expenditures Amount and X Category Amount to be Financed Amount to be Financed Amount to be Financed Actually Financed 1. Road construction 3,500,000 1007o 5,192,210.83 (237) 5,192,210.83 (83%) 5,192,210.83 (52%) 2. Buildings, vehicles and 450,000 1007 450,000.00 (1007) 450,000.00 (1007) 525,376.51 equipment for Colons, and extension and pasture experts 3. Expansion of Cocalinho mill 150,000 1007 100,000.00 (1007) 100,000.00 (1007) 93,156.12 (93%) X 4. Schools and Health Centers 200,000 1007. 550,000.00 (46%) 550,000.00 (46%) 466,467.37 (38%) 5. Studies, survey and other 300,000 1007 - - - - - services under Part F of the Project 6. Interest and other charges 1,100,000 1007 407,789.17 (1007) 407,789.17 (1007) 1/ 407,789.17 (100%) 7. Unallocated 900,000 - - - - - - Total Loan Amount 6,700,000 6,700,000.00 6,700,000.00 6,700,000.00 1/ For interest payments during years 1973 to 1977 inclusive. Source: Bank Mission June 1, 1981 I- I- 10 ANNEX 1 Table 1.10 - 94 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Accumulated Disbursements US$'000 Equivalent Actual Disbursements IBRD Fiscal Actual Total Appraisal as a percentage of I Year and Disbursements Estimate Appraisal Estimate 1973/1974 1,188 1974/1975 _ 3,310 _ 1975/1976 208 5,405 4 1976/1977 Sept. 30 813 5,420 15 Dec. 31 813 5,430 15 Mar. 31 1,144 5,457 21 June 30 1,268 5,479 23 1977/1978 Sept. 30 1,330 5,493 24 Dec. 31 2,066 5,507 38 Mar. 31 2,481 5,528 45 June 30 2,481 5,550 1/ 45 1978/1979 Sept. 30 2,874 _ 52 Dec. 31 3,432 _ 56 Mar. 31 5,183 _ 81 June 30 6,157 _ 95 1979-1980 Sept. 30 6,528 _ 97 Dec. 31 6,571 _ 98 Mar. 31 6,571 _ 98 June 30 6,571 _ _ 1980-1981 Sept. 30 6,650 _ 99 Dec. 31 6,700 100 1/ The Appraisal Report (Report No. 132-a of June 20, 1972) did not include the full loan in the estimated disbursement schedule, Category VI (Interest) having been omitted from the Schedule. June 8, 1981 BRAZIL ALTO TURI LAND SE?rLEEn~T PROJECT (LOAN 853-BR) CQ4PT.TION REPORT Ecoonic Rate of Return (1972) CrS Million Cons.tant Costs 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1. Project Admi.istrative Cost COLIN Administration .34 .27 1.18 1.15 1.12 1.10 1.47 .72 .72 .72 .72 .72 .72 .72 .72 .72 .72 .72 .72 .72 COIfRI Recurrent Costs 1.78 1.55 6.68 6.50 8.22 8.11 10.79 5.30 5.30 S 30 5.30 5.30 5 30 5.30 5.30 5.30 5.30 5.30 5 30 5.30 COLONE Capital Costs .14 .23 1.12 .34 .64 .43 1.59 .07 .07 .07 .07 .07 .07 .07 .07 07 .07 .07 .07 .07 BRB Administration Costs .01 .02 .02 .01 .02 .02 .02 .09 .09 .09 .09 .09 .09 .09 .09 .09 .09 .09 .09 .09 Subtotal 2.27 2.07 9.00 9.00 20.00 9.66 13.87 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 6.18 2. Roads Construction - - - - 5.71 14.04 11.23 - - - - - - - - - - - - - Maintenance 1.39 1.22 1.39 2.73 1.00 .80 .24 .06 .19 .38 .38 .38 .38 .38 .38 .38 .38 .38 .38 .38 Subtotal 1.39 1.22 1.39 2.73 6.71 14.84 11.47 .06 .19 .38 .38 .38 .38 .38 .38 .38 .38 .38 .38 .38 3. Land Surveys .13 .01 .02 - - .09 .10 .21 - - - - - - - - - - - - 4. On-Forn investnsots - - - .52 2.18 1.83 - 4.64 1.55 1.55 1.55 1.55 .23 .04 .05 .06 .06 .07 .08 .09 5. Research aod Holding 0rsnds - .10 .09 .09 .07 .06 - - - - - - - - - - - -- 6. Logging/Milling Capitol Costs- - - - - - - .32 - - - - - - - - - - - 7. Water Supply- - - .02 .05 - - - - - - - - - - - - - - 8. Operating Costs Beef - - - .09 .45 .34 .11 .04 .04 .06 .04 .10 .11 .11 .13 .15 .16 .20 .22 ..26 Rita .09 .14 .11 .08 .18 .33 .58 .91 .91 .91 .91 .91 .62 .74 .66 .50 .54 .48 .44 .39 Block Pepper - - - .01 .04 .06 .24 .51 .7& 1.28 1.73 1.94 1.94 1.94 1.94 1.94 1.84 1.94 1.94 1.94 Timsber - .15 .11 .19 .37 .44 .40 .40 .40 .40 .40 .40 .40 .40 .40 .40 .40 .40 .40 Subtotal .22 .25 37 .92 3.16 3.06 1.47 7.03 3.66 4.20 4.65 4.90 3.50 3.23 3.19 3.05 3.10 3.09 3.08 3.08 9. Total Costs 3.88 3.54 10.76 11.65 19.87 27.58 26.81 13.27 10.03 10.76 11.21 11.46 10.06 9.79 9.74 9.61 9.66 9.65 9.64 9 64 10. Benefits Incr. Beasfits froi Reef - - - .01 .01 .04 .08 .16 .24 .40 .38 .66 .72 .75 .88 1.01 1.58 2.79 3.87 10.52 I0cr. Benefits frcx Rite 1.52 2 18 3.19 3.54 2.59 6.82 15.07 10.28 10.28 10.28 10.28 10.28 9.76 8.79 7.91 7.12 5.09 4.57 4.12 3.70 Tber. Benefits frcs Black Pepper 1f - - - .32 .31 1.14 1.68 4.30 6.68 9.15 10.98 10.03 9.43 8.09 7.29 6.56 5 90 5.31 Incr Benefits from Theber - - .26 .16 .30 .41 .27 .44 .44 .44 .44 .44 44 .4444 .44 .44 .44 .44 .44 Basic Food Crop Surplus .79 1.09 1.59 1.13 1.29 3.60 2.34 3.38 3.60 3.60 3.08 3.08 3 08 3.08 3.08 2.93 2.78 2.65 2.51 2.51 Road User Savings - - - - - .96 .63 1.23 1.30 1.36 1.45 1.53 1.60 1.62 1.66 1.68 1.70 1.73 1.78 1.78 Total Benefits 2.31 3.27 5.04 4.84 4.19 12.15 18.70 16.63 17.54 20.38 22.31 25.14 26.58 24.71 23.40 21.27 18.88 18.74 18.60 24.26 Lass Total Coats 3.88 3.56 10.75 11.65 19.87 27.58 26.81 13.27 10.03 10.76 11.21 11.46 10.06 9.79 9.74 9.61 9.66 9.65 9.64 9.64 Net Benefits -1.57 27 -5.72 -. -6.81 -15.68 -15.43 -8.11 3.36 7.51 9.62 11.10 13.68 16.52 14.92 13.66 11.66 9.22 9.09 8.96 14.62 Index Calculations 2/ 115 148 189 267 381 529 815 611 .- 1611 1611 1611 1611 1611 1611 1611 1611 1611 1611 1611 1611 1/ Shadow price for block popper, as an export itas, was not calculated 2/ Constant (1972) cruceiro value. were calculated on the basis of this indec. ANNEX 1 - 96 - Table 1.12 BRAZIL ALTO TURI LAND SEmL EMENT PROJECT (LOAN 853-BR) COMPLETION REPORT COLONE Staff at February 1981 Sao Luis Ze Doca Sub- Programs/Projects a b c Total a b c Total Total PROGRAM 1: Community Development _ _ _ _ 02 26 86 114 114 Project 01.1 Education _ _ _ _ 01 26 79 106 106 Project 01.2 Organization of Communities _ _ _ _ 01 - 07 08 08 PROGRAM 2: Health Organizations of Communities _ _ _ - 09 - 51 60 60 Project 02.1 Clinical Medicine _ _ _ _ 07 - 37 44 44 Project 02.2 Preventative Medicine _ _ _ - 02 - 14 16 16 PROGRAM 3: Agricultural Development _ _ _ _ 07 33 65 105 105 Project 03.1 Research and Farming Systems _ _ _ _ 03 02 54 60 60 Project 03.2 Agricultural Extension _ _ _ - 04 30 11 45 45 PROGRAM 4: Development of Infrastructure _ _ _ - 03 02 53 58 58 Project 04.1 Construction and Maintenance of - - - - Roads - - - - 02 01 31 34 34 Project 04.2 Construction and Maintenance of Civil Works - - - - 01 01 13 15 15 Project 04.3 Land Titling, Land Survey - - - - - - 09 09 09 PROGRAM 5: Land Titling (Legal Demarcation, etc. - - - - 02 01 10 13 13 PROGRAM 6: Industrial Development - - - - - - 53 53 53 Project 06.1 Brick Factory - - - - - - 27 27 27 Project 06.2 Sawmill - - - - - - 26 26 26 PROGRAM 7: Project-Coordination and Administration _ _ _ _ 02 06 59 67 67 PROGRAM 8: Planning, Control and Monitoring 06 - 01 07 - _ _ _ 07 PROGRAM 9: General Administration 04 29 32 65 _ _ _ _ 65 Total 10 29 32 65 25 68 377 470 542 Note: (a) Superior Grade (b) Middle Level (c) Other Source: COLONE March 16, 1981 -97- ANNEX I Table 1.13 BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Companhia de Colonizacao do Nordeste - COLONE Staff Training Program during Project Period Number of Trainees ea Health Education Agriculture Engineering Administration Other Cours Periodi 0-1 1-3 3-6 0-1 1-3 3-6 0-1 1-3 3-6 0-1 1-3 3-6 0-1 1-3 3-6 0-1 1-3 3-6 Year 1973 - - - - - - - - - - - - - - - - - - 1974 04 _ - - 01 - - - - - 05 - - - 01 - 1975 - _ _ - _- - 01 - - 02 - - - 05 - - 1976 - _ _ _ _ _ 06 - 01 - - - 03 - 01 01 - - 1977 19 _ _ _ _ _ 98 01 01 02 01 _ 07 - 04 02 04 - 1978 01 - - 123 - - 112 - 01 01 - - 08 02 - 05 - 02 1979 38 19 - 222 - - 05 - - - - 11 - 09 11 - - 1980 35 - - 145 - - 02 - _ _ _ - 65 01 - 10 - 01 Totals 197 19 - 490 - - 224 01 04 03 01 02 99 03 14 34 05 03 I/ Duration of course, in months. Note: School teachers receive two courses per year, as in-service training in education techniques. Source: COLONE, December 15, 1980. ANNEX 1 - 98 - Table 1.14 BRAZ IL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Area Cultivated, Yield and Price Comparisons 1/ Item At Appraisal Actual RICE: Area Planted per Settler 3.0 ha 3.8 ha Yield per ha 1,500 kg 1,595.0 kg Farm/gate price Crs/kg 0.36 0.52 BEEF: Area Planted (ha) 24.0 22.8 ha Calving rate I 59% 75% Overall Mortality 2.6% 1.9% Cumulative Turnoff 8.0% 14.3% Live Wt. at Slaughter/kg 350 kg 350 kg No. of head of Livestock 19.3 15.0 Sales (number of head) 2.7 3.0 Farm gate prices per animal (Cr$) 510.00 1,213.53 BLACK PEPPER: Area Planted (ha) I NA 0.5 ha Yield per ha/kg (green pepper) NA 2,072.0 kg Farm gate price per kg NA 36.00 1/ Between Apprasial estimates and actual 1979/80 Crop Year with price expressed in constant (1972) Cruzeiros. BRAZIL ALTO TORI LA14DSTrITIENT PROJECT (LOAN 853-BR) COMIPLETION REPORT Typical Settlers' Budgets Calendar year 1972 1973 197 J1975 1976 (constant, 1972, Cr$) 1977 1978 1979 1980 1981 1982 1983 1984 1985 Project Year - 1 2 ( 3 4 5 6 7 8 9 10 11 12 13 14 A. Without the project 1. Assomes Settler Obtains Land Demarcation 1/ Marketable rice production (kg) 4,500 4,500 4,500 4,500 4,5oo 4,500 4,500 4,500 4.500 4,500 4.50o 4,500 4.500 3,600 3.600 Gross value of rice sales 1,125 1.845 2,790 3.465 2,430 2,340 2,520 3,240 2,385 2,385 2,385 2,385 2,386 190 1,908 Production costs (not counting fasily labor) 50 55 14 84 117 168 232 256 208 208 208 208 208 208 208 Net farm income 1,075 1,790 2, 715 3,381 2,313 2,172 2,288 2,984 2,177 2,177 2,177 2,17. 2,177 1,700 1,700 B. With the Project 1. Ass,ses Land Dasarcation and Marketing Org. for Rice Only (Farm Model 1) Marketable rice production (kg) - 4,500 4,750 5,200 5,500 5,750 5.850 6,100 6,100 6,100 6,100 6,100 6,100 4,900 4,900 Gross value of rice sales - 1,845 2.945 4,040 2,970 2,990 3,276 4,392 3,294 3,294 3,294 3,294 3,294 2,635 2,635 Production costs (not counting family labor) - 55 74 105 147 210 290 320 260 260 260 260 260 260 260 Net income fron rice 1,790 2,871 3,935 2,823 2,780 2,986 4,072 3,034 3,034 3,034 3,034 3,034 2,375 2,375 Met income from basic food crop surplus 2/ -- 58 328 280 1,322 1,200 1,316 1,318 2,556 2,556 2,556 2,556 2,556 3,215 3,215 Total net farm income 1,948 3,199 4,21-5 4,145 3,980 4,320 5,390 5,590 5,590 5,590 5,590 5,590 5,590 5,590 IncToMental net -- 158 484 834 1,832 1,808 2,032 2,406 3,415 3,413 3,413 3,413 3,413 3,890 3,890 2. As~omes Addition of Beefan Black Pepper Production (Farm Model 2) Net value of rice and food crop sales 1, 948 3,199 4,215 4,145 2,780 2,986 2,072 1,034 1,034 1,054 1,034 1,034 1,034 1,034 Het value of black pepper sales - -- -- -641 -394 1,123 2,706 3,759 4,096 4,096 7,464 9.932 9.932 9,932 9.932 Net Value of beef sales - - -- -4,868 -19,728 -104 -1,862 1,096 2,843 2,823 4,797 4,797 4,797 4,797 47~97 Met farm income - 1,948 3,199 -653 -15,583 2,676 1,124 6,927 7,973 7,953 13,295 15,763 15,763 15,763 15,763 Incremental net farm income (over Farm Modal 1) - -- -- -4,868 -19,728 -1,304 -3,195 1,537 2,383 2,363 7,705 10,173 10,173 10,173 10,173 3. Assnees Provisimn of Medlis Term Credit 3/ Net farm income 41 - 1,948 3,199 -653 -15,583 2,676 1,124 7,927 7,973 7,953 13,295 15,763 15,763 15,763 15,763 Medlim term credit - -- -- -- 14,981 -- -- -- -- -- -- -- -- -- -- Debt service - -- -- -- -- -- -- -- 686 686 686 686 686 -- -- Net farm income 5/ - 1,948 3,199 -653 -602 2,676 1,124 7,927 7,287 7,267 12,609 15,077 15,077 15,763 15,763 4. In ron mt if1w~ e: of Farm Model 2 WheM copre to Farm Model 1I- -- -- -4,868 -4,747 -1,304 -3,196 2,537 1,697 1.677 7,091 9,487 9.487 10,173 10.173 When compared v,ilbo.t project (Al) 198 484 -4,034 -2,913 504 -1,184 4,943 5,118 5,090 10,412 12,900 12,900 14,063 1,6 1/ Adjusted to show the effect of actual prices for 1972-1980 period. 2/ Shows sales of maize, beans and cassava to other settlers and to local (Zs Doca) market. -SI The settler makes a 207%down payment on fencing wire and 5 head of cattle. 4/ Before Debt Service. 3I After Debt Service. ANNEX 2 Page 1 of 3 - 100 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT The Farm Model: Basic Differences as Proposed by Bank and COLONE 1/ Farm Development Plan and Credit Programs 1. The farm development plans recommended in the Bank Appraisal Report were to settle families on 40-hectare lots so that these families would produce their basic food requirements and rice and beef for sale. The land would be gradually cleared over a period of years by family hand labor, with initial crops of rice followed by pasture development and a slow build-up of a cattle herd. COLONE officials still wished to follow this general plan. The early revisions they proposed to the plan were for the purpose of achieving a more rapid farm development and a higher and earlier pay-out to the farmer. To achieve this COLONE and the Government proposed increasing the amount of the credit to farmers and extending the repayment and grace periods. COLONE and the Government did not believe any of the changes that they were proposing were inconsistent with the Loan or Project Agreements, since they correctly made the point that these agreements did not describe the farm development plans, the terms of farm credits, or the total amount of credits to be extended. 2. The mid-1973 Bank Supervision Mission reviewed the proposed credit plans with COLONE and other officials and it was clear that the modest Cr$2,480 medium-term credit (there was no provision for a long- term credit) proposed in the Appraisal Report would have to be substan- tially increased, if for no other reason, as a result of the sharp increase in the price of livestock over the previous year. The Appraisal Report contained no factors for contingencies or inflation. In comparing the Bank and COLONE proposed credits, a reView was also made of the credits proposed in the project as originally prepared by the British consultant Hunting Technical Services, Ltd., which was proposed by the Cooperative Programme for the Tapajos project, which was a proposed settlement project for the development of 50-hectare units in a region physically similar to Alto Turi. 1/ The information presented is abstracted from the Back-to-Office Report of August 9, 1973. Date: June 10, 1981 ANNEX 2 - 101 - Page 2 of 3 3. The basic differences between the various proposals were as follows: (a) Amount of credit per settler Bank - Cr$2,480. COLONE - Cr$20,818. Hunting - Cr$11,141. Tapajos - Cr$34,200. (This figure included a 10 percent physical contingency factor and an annual 15 percent inflation factor. (b) Items financed Bank - Four cows, a bull and fencing. The credit covers 80 percent of the cost of these items. COLONE - Nine cows, a bull, a working animal, fencing, a well, agricultural tools and the investment costs of half an acre of pepper plantings and 25 hectares of pasture. Hunting - Eighteen cows, a bull, fencing, a well and pasture seed. Tapajos - Nine cows, half a bull, house materials, tools and implements, rice seed and the investment costs of establishing subsistence crops and rubber. (c) Loan terms All of the proposed projects have a 7 percent nominal interest rate. Bank - 5 years repayment, including 2 of grace. COLONE - 12 years repayment, including 3 of grace. Hunting - 15 years repayment, with no grace period. Tapajos - 11 years repayment, including 3 of grace. (d) Net cash income at full development Bank - A net cash income of Cr$3,400 in settlement year 16. COLONE - A net cash income of Cr$22,570 in settlement year 9. Hunting - A net cash income of Cr$5,725 in settlement year 18. Tapajos - A net cash. income of Cr$16,200 in settlement year 14. (e) Herd size at full development Bank - 30 head in year 15. COLONE - 42 head in year 8. Hunting - 42 head in year 18. Tapajos - 42 head in year 14. ANNEX 2 - 102 - Page 3 of 3 4. COLONE officials criticized the Bank-proposed farm development plan for supposing that all the cash income for rice production would be able to meet the investment costs of the farmer. This, they said, was impossible since the farmer must use the rice production for his own subsistence and the purchase of subsistence commodities such as salt, soap, matches, etc. They believed the Bank plan submitted the farmer to unnecessary hardships and resulted in an income that was too small and distant. Were this plan followed, they stated, only a small percentage of the new settlers could be expected to continue and establish stable farm units. ANNEX 3 Page 1 of 2 - 103 - BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Compliance with Covenants A. Conditions of Loan Effectiveness Covenant Subject Degree of Compliance LA Article VIII, Section 8.01. The following events are speci- fied as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 11.01(c) of the General Conditions: LA Article VIII, Section 8.01(a) The execution and delivery of the Fully complied with. Project Agreement on behalf of Colone have been duly authorized or ratified by all necessary cor- porate and governmental action. LA Article VIII, Section 8.01(b) The Loan Agreement shall have been Caused delay of two months: fully duly registered by Banco Central complied with. do Brasil. LA Article VIII, Section 8.01(c) Maranhao shall have transferred to Although Bank was assured by a legal Colone the title to all land comp- opinion, provided by the GOB, that such rising the Project area, free of transfer had taken place, it later be- encumbrances, costs or any other came evident that legal requirements, charges. specifically discriminatory and demar- cation actions had not been taken at the time legal transfer took place. These actions are now being slowly completed on a municipality by municipality basis. Currently they are considered to be completed for 60X of the project area. LA Article VIII, Section 8.01(d) Colone shall have made specific Fully complied with. arrangements, satisfactory to the Bank, in respect of the procedures for issuing of land titles to settlers in the Project area. LA Article VIII, Section 8.01(e) At least one of the Cooperatives Fully complied with, i.e., one shall have been established and the cooperative in operation. articles of association, the by-laws and the rules and regulations for the operation of the Cooperatives, acceptable to the Bank, shall have been issued. LA Article VIII, Section 8.01(f) Arrangements, satisfactory to the Transfer of shares made to SUDENE Bank, shall have been made for the (512) and State of Maranhao (48%) subscription by, and issuance or but not to BNB. transfer to, Haranhao and BNB of ordinary shares of Colone in such number as shall represent at least forty per cent (40%) of the authori- zed share capital of Colone. B. Assurances Obtained at Negotiations LA Article III, Section 3.01(d)i The Borrower shall: (i) make avail- Not complied with. Particularly able to Colone, quarterly in advance, during the 1973 to 1977 period. such funds as shall be necessary for carrying out Parts A through F of the Project. LA Article IV, Section 4.03 The Borrower shall cause the roads to Roads have been maintained, but by be adequately maintained, and all nec- COLONE, using SUDENE/POLONORDESTE essary repairs therof to be made promptly funding and not Maranhao State funds. by Maranhao, all in accordance with sound engineering practices. ANNEX 3 - 104 - Page 2 of 2 LA Article IV, Section 4.04 The Borrower shall provide or cause POLONORDESTE is now funding the school SUDENE to be provided all necessary operation of schools. Health services funds, facilities, services and other have been provided with Federal resources required for the operation funding (FSESP) for the Health Posts, and maintenance of the schools, hos- and COLONE continues to finance the pital and health centers included in hospital operation. A new hospital was the Project. being built (1980/81) with FSESP funds. LA Article IV, Section 4.05(a) The Borrower shall cause the Coop- Has been generally complied with, eratives to be operated in accor- but financial practices have, on dance with sound administrative, occasion, not been of a high order, agricultural and financial practices. and auditing standards should be To that end, the Borrower shall cause tightened. BNB to provide managerial assistance to the Cooperatives. LA Article IV, Section 4.06(b) The Borrower shall cause the Coop- Has been complied with, but 1979 eratives to have their accounts and account audit was received on 12/5/80. financial statements for each fiscal See also remarks in Section 4.05(a) year audited, in accordance with above. COLONE, with assistance from sound auditing principles consis- BNB, reviewed the cooperative's tently applied, by independent audi- (COMALTA) accounting and administrative tors acceptable to the Bank. procedures during early 1981. PA Article II, Section 2.02 To assist Colone in the preparation Has been fully complied with. of bidding documents, analyzing of bids and in the supervision of con- struction for Part B of the Project (Roads), Colone shall employ con- sultants and experts acceptable to the Bank upon terms and conditions satis- factory to the Bank. PA Article II, Section 2.06(b) Colone shall, by September 30 of each COLONE has drawn up such schedules year, submit to the Bank for agreement each year, but delivery to Bank has a detailed Project implementation generally been delayed 2-3 months. schedule for work to be carried out by Colone in the next succeeding calendar year. PA Article II, Section 2.07(b) Colone shall after December 1, 1977 The agencies referred to here have transfer its functions in respect of since been replaced, as part of the Ze Doca pasture research station national reorganizations of research and the provision of extension ser- and extension services. They are now vices, respectively, to the Agricultural EMAPA (research) and EMATER/MA (exten- Research Institute of the North and to sion. Transfer of services has, so Agricultural Extension Agency of Maran- far, been only partially successful. hao. Plans are for a gradual transfer of duties over a period of several years. PA Article III, Section 3.01(b) During the period before the proceeds Has been fully complied with. of the Loan are fully disbursed, Colone shall ensure that the appointment of the Director President, and the Dir- ector of Agricultural Services, of Colone shall be subject to prior agree- ment with the Bank. PA Article IV, Section 4.02 Colone shall have its accounts and Has been fully complied with. Audit financial statements for each fiscal of CY1980 accounts received year audited, in accordance with sound June 23, 1981. auditing principles consistently applied, by independent auditors acceptable to the Bank. PA Article V, Section 5.02 The Bank and Colone shall promptly There has occasionally been a tendency, inform each other of any condition which on the part of COLONE, to delay pro- interferes with, or threatens to inter- viding such information to Bank until fere with, the accomplishment of the the problem has been resolved. Other- Loan, or the performance by either of wise has been complied with. them of its obligations under this agreement. BRAZIL ALTOTURI LAND SETTLEMENT PROJECT (LOAN 853-BR) PROJECT COMPLETION REPORT DISBURSEMENT SCHEDULES 118- 70-/ , 80-/," ~ ~~~ a. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - z80- / oZ i 880- 30- ~ / ~ ~ ~~~ ,": ~~~~~~~~~~~~~~~~~~~~~~~~~~ 20- / z 0 .. . .. . 5* 0-K , ,-' 0 20- / ,U,.' APPRAISAL EST. 10- -- -- BANK FPA EST. , _ ,. ~~~~~~~~~~~~~~~----- ACTUAL DISBURSEM1ENT 38 42 3 4 5 7 a PROJECT YEAA D - 106 - CHART 2 BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LN-853-BR) PROJECT COMPLETION REPORT Crop/Livestock Prices: Relationship of Current and Constant (1972 Cruzeiros) RICE/K0 MAIZE/KB S 8 2 2 _ --- ~~~~~~~~~~~~......,, _,<~..........- 0*. CASSAVA/Kg S0 BEANS/KG 8 ~~~~~~~~25- 20- 72 74 76 78 88 20,880- BEEF STEERS/HEAD - CURRENT 18,.000-.. CONSTANT 1972 CrS 12,080- 8,000- 7 4, 000-/ ........ ,.......... 72 74 715 78 as BRAZIL ALTO TURI LAND SETTLEMENT PROJECT ILOAN 853-BR) - 107 - COMPLETION REPORT COLONE, Or,g-zation Chw,t I ADlN-PTATIVE II-.D | DINCTATE -T- N <,~~~~~~~~~~~~~~~~~~~~~P8 D- I | | FANCe N DIRETOR X ACCOUNrING -OINISTORTIVE INANC- AGRICULTURE MUNIT-VRELPIE-N, ... II,F--UCTURE LANO TITLING DEIlNISTRSTIVE .. SUVPOR- 'IDOSP NOVA OLINDA NLTELS NOUL DIISIO DIIIOsIVIIG DIGISIUS DIVSIN IVSION DIVISION -IISION DIVISIO SU.-STATION HOSPITAL S-,urc COLDNE Dat MaI~Ish ERnE23061 ISHI9ld - 108 - PCR MAP 3 BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) COMPLETION REPORT Indian Reserve in Relation to Project Area BELEM N~~~~~~~~" INDIAN ORIGINAL SI- KrSRvA TI e PRPET LINE X CARTOGRAPHIC ERROR >/ (II INDIGENOUS RESERVRE 9 INDIGENOUS_POST r A INDIAN VILLAGES R10 w_ - 109 - PROJECT PERFORMANCE AUDIT REPORT BRAZIL ALTO TURI LAND SETTLEMENT PROJECT (LOAN 853-BR) AUDIT NOTES ON MAPS The PCR, as originally submitted to OED, contained three maps: - Map 1 - general location of the project area - Map 2 - project area - Map 3 - indicates Indian reserve in relation to project area Map 1,1- which basically provided details about the 1969 national highway network, was deleted as obsolete. Map 2 has been reprinted and is included in the audit report: it gives project area details as envisaged at appraisal. Map 3 has also been included in this report. The audit has added two further maps: - IBRD 16717 (November 1982), which provides details about the project areas as they were during the audit mission visit. - IBRD 16191 (December 1981), which provides details about the follow-on project area. 1/ An identical copy of the map included in the appraisal report (IBRD 3852, April 1972). MAP 2 &ELEM _ _.. BRAZ IL \ ALTO TURI LAND SETTLEMENT I I \ PROJECT --- I-) \ PROJECT AREA --- I -....._ \ ----........ \ ..... ___, ~ I \\ ----\ \ \ ---,---- \ \ __, \ \ -.) --- TO PI NHEIRO I I EXISTING ROADS I LATER ITE ROADS, 6m w i de on Bm I OTHER embankment ROADS I PROJECT ROADS - PENETRATION ROADS, 4m on 6m I - etftbonkMent - - FARM ACCESS ROADS, 3 m on 4 m I I embankment I I ..! ....! ...! ..! ...! ...! - - - ACCESS TO BE UPGRADED, 4 m with Im 1houlder1 TRAILS I I I I L_ ... . . -- -- -- --- I I ----- _ _j 10 15 20 25 I("' TO BAC A.BAL TJit lwtmJdri13 Jltowit ot1 '"ii map do tt0t bft~ly rndrntmrnt 0' a«tpt•l'lcr by rhr ll-'OrldBa11kandit1aff11iattJ.. APRIL 1972 I BRO 3853 45°30' 2°00' I p A R A ROUTE 106 0 2°30' BRAZIL ALTO TURI LAND SETTLEMENT PROJECT A CTUAL PRO JECT AREA - - - Project Boundary · .___.______,! Future Settlements Existing Settlements : LL"'--) Colone Pedro Rosar io • Sudene ---Main Roads ---Secondary Roads 3°00' - -- Tertiary Roads -==-...... Roads Financed by Bank = Rivers - · · - State Boundary - - --International Boundaries 46°30' Atlantic Newton Belo 3°30' KILOMETERS 0 10 20 30 40 50 48" 47• 45• 44• 43• 42" 1· 1· BRAZ I L MARANHAO RURAL DEVELOPMENT PROJECT V PROJECT AREA AND RAINFALL Project Areo Boundary Sub - project Bounder ies l::::::::::::::::,::q Indian Reserves - Average Annual Roinfol I (mm .) Atlanl1c Ocean 2· Main Roods 2· --..c:-.. Rivers Mun icipality Boundaries State Boundar ies 3• 4• 4• 5• 5• JoOo Lisboa 6" 6" Fortaleza dos NOQueiros 7• ~ N ·. \ .. j \. 0 50 100 150 200 8" \\,.·_..,.-·· KILOMETERS 8" 43• 42° COLOMBIA ::;-· Ls-· VENEZUELA . A1/ant 1c O cean '\.... / < ' 9• Parnoibo 9• I ( · / \f j STATE OF '"'-1'~-.._______(_B PE RU . . R A z I ' L MARANHAO ~ '? BOLIVIA ® Brasilia ')J~::l-\ This map has been prepared by the World Bank ·s staff exclusively for the convenience of the readers of < the report to which 1t is attached Q ~ '' - - ~Q ~- -'{_~~ ~ The denominations used and the v boundafles shown on this map Cl ~ 10• do not imply, on the part of the 10· A1/on11c () CP World Bank and its affiliates, any 1udgment on the legal status of any territory or any endorsement ~ "' v / AR G ENTINA rZ_ Oce on ~ ~ 0 ;o "' or acceptance of such boundaries ci' . '\. ~ 48" 47• 45• 44• URUG ~ '-"