World Bank Document · 2016. 8. 26. · Documeot of The World Bank FOR OFFICIAL USE ONLY Report No....

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Documeotof TheWorld Bank FOR OFFICIAL USE ONLY ReportNo. 7782 PROJECT COMPLETION REPORT MEXICO OCORONI IRRIGATION PROJECT (LOAN 1908-ME) APRIL 20, 1989 Latin America and the Caribbean Regional Office 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 disclosedwithout World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

Transcript of World Bank Document · 2016. 8. 26. · Documeot of The World Bank FOR OFFICIAL USE ONLY Report No....

Page 1: World Bank Document · 2016. 8. 26. · Documeot of The World Bank FOR OFFICIAL USE ONLY Report No. 7782 PROJECT COMPLETION REPORT MEXICO OCORONI IRRIGATION PROJECT (LOAN 1908-ME)

Documeot of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 7782

PROJECT COMPLETION REPORT

MEXICO

OCORONI IRRIGATION PROJECT

(LOAN 1908-ME)

APRIL 20, 1989

Latin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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ACRONYKNS

AGR/CPS Bank's Agricultural Department, Central Project StaffEDs Executive DirectorsERR Economic Rate of ReturnFE Foreign ExchangeGOM Government of MexicoO&M Operation and MaintenancePCR Project Completion ReportSAP Special Action ProgramSAR Staff Appraisal ReportSARl Ministry of Agriculture and Hydraulic ResourcesSEP SARH, Sub-secretariat for Planning and StudiesSIH SARH, Sub-secretariat for Hydraulic Infrastructure

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FoR OMCIL USE ONLYTHE WORLD BANK

Washington. D.C. 20433U.S.A.

Oolk .i DetsoiCum" a

May 25, 1989

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report - Mexico Ocoroni Irrigation Project(Loan 1908-lE)

Attached, for infoimation, is a copy of a report entitled"Project Completion Report - Mexico Ocoroni Irrigation Project (Loan1908-ME)" prepared by the Latin America and the Caribbean RegionalOffice. Further evaluation of this project by the Operations EvaluationDepartment has not been made.

Attachment

This document has a restricted distribution and may be used by recipients only in the porfonnanceof their official duties. Its contents may not otherwise be discosed without World Dank authoriation.

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.L. 6 __., IALL .. LUS

PROJECT COMPLETION REPORTMEXICO

OCORONI IRRIGATION PROJECT - (LOAN 1908-ME)

PAGE

PREFACE. ... . . ............................... .........* * * * * * * * * *

BASIC DATA SHEET . ................ ii

EVALUATION SUMMARY . . ............... ivIntroduction ........................... ivImplementation .... . ....... .................. . ** ivImpact ...... $*. . ............ 0.... .. 0 . ... vLessons Learned ... . .. ........... .... ........ vi

I. INTRODUCTION ...................... . ............... 1

II. PROJECT FORMULATICN ........ 1........1Preparation and Appraisal .... a.. ..... . 1Negotiations and Board Approval............................. 2

III. IMPLEMENTATION ....................... ...... 4General ....... 4Project Costs and Expenditures. 4Table 3.1: Summary of Total and Annual Expenditures ...... 6Implementation Coumpouents . . . ... .o.... .. * . .. .. .. ........ 7Table 3.2: Summary of Physical Achievements. 8El Sabinal Dam ............. ................ ........... 8Irrigation Canals and Drainage .............................. 10Demonstration Tubewells. ....... ............ .............. 10Operation and Maintenance ................ 10O&M Cost Recovery .. . .. ...................................... 10Land Clearing and Land Leveling ................... 11Technical Assistance .............. .. . ..... ... *.*... . 11Resettlement and Indemnification ............................ 11Disbursements ...... ....................................... .. 11Table 3.3: Summary of Disbursements by Category ........... 12Procurement ................... ................ #o#..#...... 12Reports and Auditing. .... ................. ... ............. 12Compliance with Covenants .... ............................... 13

IV. AGRICULTURAL AND ECONOMIC IMPACT ........................... O... 13Agricultural Impact ................... .......... ##*..... 13Table 4.1: Crop Production.... .......... *............. 15Economic Impact ... .. ................................ 16Table 4.2: Rate of Return Analysis Constant 1979 . .. 17

V. INSTITUTIONAL PERFORMANCE . ....................... ...... 18

VI. BANK PERFORMANCE. . . . .... .................. ... 18

VII. CONCLUSIONS AND LESSONS LEARNED....... 19

VIII. ANNEX: Comments received from NAFN...... ...... . 21

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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PROJECT COMPLETION REPORT

MEXICO

OCO.-.T IRRIGATION .ROJECT - (LOAN 1908-ME)

PREFACE

This is a Project Completion Report (PCR) for th.e OcoroniIrrigation Project, Loan 1908-ME. The loan of US$23, million wasapproved October 14, 1980 and became effective July 1, 1981. TheClosing Date was extended once from June 1986 to December 1986 and theloan was fully disbursed February 1987, although the project asappraised has yet to be completed.

The PCR was prepared by the Latin America and Caribbean Regionbased on a report prepared by the Borrower, the President's Report (No.A-2881-ME), the Staff Appraisal Report (No. 3083-ME), supervisionreports, periodic progress reports, and general internal as well ascommunications with the Borrower contained in Bank files, anddiscussions with Bank staff familiar with the project during itsprocessing and implementation. The Borrower's PCR is based on data theend of 1986; however, a review in 1988 reveals that the situation hasnot changed sufficiently to justify further evaluation at this time orchanges in the assumptions and conclusions contained in the Borrower'sPCR. A follow-up evaluation should perhaps be considered as the projectreaches maturity.

The Project Completion Report was sent to the Borrower inFebruary 1989. Comments were received from the Borroer on April 5,1989 and are reflected in the report.

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pROJECT COMPLETION REPORT

MEXICO

OCONI IRRIGATION PROJECT

LN 1900-ME

BASIC DATA SHEET

MISSION DATE No. of Mandays Special lastions Performano. Type ofDate Persons In tiold repreant.d reting Tred Problem

Identification 12179PreparationAppraisel 4/80 a 12 a.b.c

SeDrVlsionI 581 1 6 a 2 1 Fu rvivson 2 1 a c 2 F- IFuDr Ive Ion3 6922 c T

ervisson 4 3 1 1 irvrvs*or0 6 1 tc 1

D*fVio -1 s -~ 1014 I- --- ~ c n0eto S90 1F 1-~rvision ?36 1 1 e ___ _

5uzrv 9 on 8 12/8 T r ca_uD rviyion 9 685 1 6 c 2 _ -

Suirvision 10 68U 1 c 2 -Suc-rvision 11 _ _e 8?z *t e o S90 ~~-F~~~

purvision 12 1 /87 c - -ma rvson 643 2u rvison 64

5uoervieion 15Ita (___) S4 _ _

OTHER PROJECT DATA

Borroer: NAFINSExecutino ncy: SARMFiscal Year: January 1 - December 31

Now of Currency (abbreviation): Mexican Pesos (Vex$)

Currency Exchang Rate:AMraiolI Year Avera (Maw 1981) IUS3 1.1 a 23ntervns Y ears Avr 198 -1 US2 1.6* alSS

Lost Year Averae-1986 USS 1. a * 612

Follow-.. Projct:Name: NoneLeanlNvuber:

Date * Approval: st. _

oa agriculturlisTt; b a economist; c a Irrigation engineer.1 = problem-froe or *inor problems; 2 a oderate problems; 3 a major problms; 4 major problems objective

will not be met.I = improving; 2 = stationary; and 3 = deteriorating.F financial; M z aanajer;al; T 2 *echnical; P a political; and 0 m oth-r overall.

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PROJECT COMPLETION REPORT

MXCOOCORONI IRRIGATION PROJECT

_11 1008-ME

KEY PROJECT 0L& BASIC DATA SHEET

Appraisal SAP Actual as percent of Actual as percentEstimate Estimtea / ActatI 2/ Aroraisal Estl mate f SAE Estimato

Project cost (USS million) 64.8 94.0 77.4 142 8iLoon Amount (USS million) 23.0 23.0 23.0 100 100Date of board approval 10/14/80 - -- -- --Date of effectiveness 07/01/81 -- -- -- --Date of project completion 06/86 12/86 NA __ __Closing date 12/31/88 0S/86 12/86 -- --Economic rate of return (X) 16 NA 0 -- --Project arsa affectedby civil works (ha) 10,000 10,260 7,77/ 78 76Farm family beneficiaries

la(No. in 4,000 ha) 2,000 2,000 2,378 119 119

CUMULATIVE DISWMS EMENTSBapk mi 19S 192 1 14 9 198S 1z

Appraisal estimate (US$ million) 64.8 0.7 2.0 9.0 16.0 21.0 23.0 - -Actual (USM million) 1.5 2.5 6.7 8.5 18.9 22.1 23.0Actual as percent of APRprior to SAP

Date of Final DisbursementsFebruary 19, 1987

Date of Final CancellationDecember 31, 1986

Principal repaid (USS million) as of 10/30/88 USS8.S4

1/ Special Action Program approved Jan. 14, 1984.2/ Source - Borrower's PCR dated 12/87.A/ Will be 11235 when fully developed and 11ZX of SAR estimate.

Note: Although the loan was fully disbursed 2/87, the project has yet to be completed.

NA: Not available. Although the loan has been fully disbursed the project has yet to be vompleted.

October 31, 1988

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PR.oECT COMPLETION REPORT

MEXICO

OCORONI IRRIGATION PROJECT - (LOAN 1908-ME)

EVALUATION SUMMARY

Introduction

This was the fourth Bank financed project to improve efficiency ofirrigation systems and extend the area under irrigation in the State ofSinaloa. The principal objectives were to increase the income and standardof living of about 2,000 ejido families in the Ocoroni River Valley byproviding infrastructure to irrigate 10,000 ha to be distributed among 800families already living in the area and an additional 1,200 families to besettled. The project was particularly attractive for Bank finance becausethe beneficiaries were some of the poorest in Mexico. The project alsosupported the Government's rural development policy by focusing on aparticularly poor segment of the population and would enhance the goal ofself-sufficiency in production of basic cereals.

The project provided for the construction of an earth fill dam onthe Ocoroni River. with an effective capacity of 260 million m3, andconstruction of an irrigation system to benefit 10,000 ha. On-farm worksincluded land clearing, land leveling and stone removal. Productionsupporting services were also to be strengthened.

Implementation

Project ezecution got off to an early and rapid start withcontracts signed and construction beginning for the dam and associatedworks before the loan became effective in July 1981. Initial contractcosts (1981 Mex$) exceeded estimates by more than 10O, raising concernsabout the adequacy of designs available at appraisal. The firstsupervision mission in May 1981 estimated that with these increases,project cost would nearly double, and suggested that a re-evaluation beundertaken. Execution and disbursements exceeded targets in 1981 and 1982creating expectations that the project would be completed at least one yearahead of schedule. By the end of 1982 a re-evaluation had not been doneand it was concluded that it was now too late in view of the already sunkcosts.

Construction progress was satisfactory until mid-1982 when cashflow difficulties delayed payment to contractors and slowed progress. Thebudget allocation was reduced in 21i84 and construction continued at a

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slower pace; nevertheless the dam was inaugurated in December 1985 onlyslightly behind the SAR schedule. Continuing budgetary conetraints delayedcompletion of the distrib1ution and drainage system, on-farm development,and irrigated crop production. The area cropped in the main season(fall/winter-November/April) increased from 1,000 ha 1985/86 (10X of theproject area} to 4,800 ha 1987/88 (48% of the project area). An additional1,130 ha downstream of El Sabinal Dam, outside of the project area, wasdeveloped by private investors working with ejidos, producing horticulturecrops for export during the 1987/88 fall/winter season; about X,500 ha isprogrammed for irrigated horticulture crop production for the 1988/89season.

Investments under the project during the period of Bank financewere US$77.3 million, exceeding SAR estimates by 42%, but substantiallylas8s than had been predicted in 1981 soon after contracts for constructionof the El Sabinal Dam, principal distribution works, and the diversion damhad been awarded then exceeding recent appraisal estimates by more than100X. Subsequent devaluations of the keso (Mex$) reduced cost overruns inUSS terms. It has been estimated that idditional investments required tocomplete the project as appraised would bring the cost to about US$83million. This does not include investments required to implement theproposed program for livestock production on 3,500 ha of problem soils, orinvestments downstream for development of lands outside the originalproject area (now benefitting from the project) that should be included infuture agricultural and economic impact calculations.

Impact

Delays in completing construction of infrastructure and on-farmdevelopment, uncertainty about the use of 3,500 ha unsuitable for an anntsalcrop ?roduction, the extended period for reaching full development, andcost overruns, have resulted in an unsatisfactory production and economicimpact of the project. The Borrower's PCR dated December 1987, besd onend of 1986 data, estimates an ERR of about zero. A review of tIae mostrecent data shows that less tnan 50% of the area was irrigated and croppedduring the 1987/88 crop seasons, thus leading to the concluz-ion thatdevelopment had not progressed sufficiently to materially alter the outcomeor justify the time required to assemble data and revise assumptions neededto recalculate the ERR at this time.

The project obviously has potential for further development thatcould improve the agricultural and economic impact. A supplementaryproject has been proposed to use the 3,500 ha with soil and topographylimitations for intensive livestock production. The proposal has meritbecause livestock production was an important activity under the

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traditional rainfed agricultural regime of the area; however, it has yet tobe implemented and tried. There are already some fish being harvested fromthe El Sabinal Reservoir. but data are not available to vqantify thebenefits. It has been suggested that problem soil areas might also be usedfor tree crops, but opinions vary about tne type of fruits, markets, etc.

Also. private ,nvestors are developing land downstream from theproject area, produciu- horticulture crops for export, using water from theEl Sabinal Dam; about 1,500 ha has been programmed for the 1988/89fall/vinter crop season. At this juncture, the downstream area does nothave permanent water rights and producers are authorized by SARH to useexcess water only during the fall/winter season. Depending upon the finaldevelorment and water demands upstream, water could be cut off orrestricted and production reduced or eliminated downstream; thus benefitsfrom this area would have to be calculated on a year-by-year basis.

Considaring that calculation of the benefits of the project atthis time would be highly speculative, it is recommended that a follow-upevaluation be carried out in two or three years as the project developmentnears maturity.

Lessons Learned

-more time spent on preparation could have identified soil andtopographic limitations that reduced the area suitable for annualcrop production, and thus the ERR;

-more time spent on preparation could have determined thatsuitable fill materials were not located sufficiently close to thesite for the dam permitting adjustments in costs or selection of adifferent site or both;

-a more gradual change in cropping patterns and lower initialyield estimates should have been used at appraisal;

-comments of the Bank review system while appropriate, were notadequately taken into consideration during the appraisal process;

-dam safety (OHS 3.80) is sufficiently important to be covered byan appropriate covenant in the legal documents; and

-consideration should have been given to postponing the PCR untilthe project itself was nearer completion so that a more accurateassessment of the impact could have been made.

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I. INTRODUCTION

1.01 Since the adoption of Government policy in 1946 to promoteirrigation, about 5 million of the 22 million ha of cropped land is nowirrigated and accounts for about SO of the total agricultural production.In the 1970s the Government shifted priorities for development fromirrigated to rainfed areas that make up more than 75: of the cult3vatedland and 852 of the farms; while still recognizing the continuing need forirrigation investments in low rainfall areas where soils and hydraulicconditions are favorable. The Government's fundamental agricultural policyhas long been and still is directed to increasing basic food cropproduction and increasing rural incomes and employment.

1.02 This project aimed to support the Government developmentobjectives of increasing basic food production and assisting the ruralpoor. The project areas id located in the State of Sinaloa on the OcoroniRiver where rainfall (550 mm annually) is marginal for rainfed cropproduction. Adequate good quality water is available form normal riverflow to irrigate at least 10,000 ha. Because the rainfall and river flowoccurs in a period of three to four months, a reservoir is required toconserve enough water for adequate irrigation under the two season regime.There were about 800 ejidatorio families in project area and the projectwas to settle an additional 1,200 families.

1.03 The project was designed to irrigate about one-third of the 30,000ha in the Ocoroni River valley and increase the cultivated area from theoriginal 4,300 ha rainfed (with some supplementary irrigation) to 10,000 hairrigated with a cropping intensity of 1472 and yield increases of 200Z ormore. The project would benefit the 800 ejidatario families already livingin the project area and provide for settling an additional 1,200 families.The project, as designed, conformed vith the Banks strategy to supportGOM's policy to increase basic food production, increase employmentopportunities, and increase the income of the rural poor.

II. PROJECT FORMULATION

Preparation and Appraisal

2.01 This project was a logical continuation of Bank participation inthe finance of improvement and expansion of irrigation in the State ofSinaloa. The first project (Loan 0275-ME) in 1961 provided for thetransfer of water from Rio Sinaloa to Rio Fuerte for rehabilitation ofabout 77,000 ha of saline soils; the second project (Loan 0970-HE) in 1974provided for irrigation of an additional 29,000 ha: and the third project(Loan 1706-ME) in 1979 again provided for improvement of the irrigationsystem on about 120,000 ha, including rehabilitation of 60,000 ha of salinesoils, and completion of the irrigation system on about 76,000 ha. The

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proposed Ocoroni Project to irrigate an additional 10,000 ha, althoughinitially considered too small as a free standing project, was particularlyattractive because the beneficiaries would be predominantly ejidatarioswith average income well below the poverty level. Also, the project wouldmake it possible to settle an additional 1,200 families in the arearelieving social pressures of the landless and unemployed. The project wasprepared by the Government of Mexico's Secretiriat for Agriculture andHydraulic Resources (SARH); Sub-secretariat for Hydraulic Infrastracture(SIH); Sub-directicn tor Programs and Studies (SPS). The Bank was firstpresented with a draft report mid-1979 and preparation was completed inDecember 1979. A Bank mission in February 1980 determined that the projectwas ready for appraisal.

2.02 The project was appraised in April 1980. No major issues wereidentified by the mission; an issues paper was distributed raquestingcomments and none were received. A decision meeting was not convened. Adec4sion memo was issued in June endorsing the proposed loan of US$22million and stating that the normal covenant on cost recovery 4 Mexicowould be proposed and would require water charges sufficient ti r:over 0&Mand investments costs on the basis of a socio-economic study t. be carriedout under the project. Followind distribution of the Decision Memorandum,comments were received from the office of the OVP expressing concern aboutcompliance with OMS 3.80 regarding dam safety and review of the design by apanel of experts. It was explained that this issue would be reviewed priorto Board presentation. The loan documents package transmittal memo to theRVP, stated detailed infrastructure designs (OMS 2.28) would be ready andreviewed at loan negotiations.

2.03 Considerable discussion took place following distribution of theyellow cover report with (AGR/CPS) objecting strongly to the arrangementsproposed for cost recovery. The appraisal mission explained that thewording used was the same as that for the recently approved ApatzinganIrrigation Project. It was determined that the cost recovery statement inthe Apatzingan SAR had been changed during green cover, after approval byCPS, and that CPS had never agreed to or been advised of the cakange. Itwas then agreed to seek a stronger coammitment from the Borrower duringnegotiations with particular emphasis on the establishment of interim watercharges concurrently with the socio-economic study required by law inMexico and until such time that water charges would be determined by thestudy. AGR/CPS also indicated that start-up yield estimates were too high;however, mission staff reported that similar yields were already beingobtained in nearby areas. No adjustments in yield estimates were made, butAGRICPS went on record as still having reservations.

Negotiations and Board Approval

2.04 Negotiations took place in September 1980. The scope of theproject was modified, eliminating the rainfed agriculture component,increasing the estimated construction period from 4 to 5 years, and addingpte-investment studies to be *arried out under the project. Project costs

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were revised from US$49.0 to US$54.5 million resulting from a 40? increaseln price contingencies--base costs essentially were unchanted. The foreignexchange (FE) element increased from about US$22 million to US$24 millionand Bank finance was increased from UL$22 million (para. 2.02) to US$23million to cover FE cost (excluding land leveling that would be financed byGOH). The most contentious issue. once ag&in, was that related to costrecovery and as usual the Bank agreed to accept a clause in the loanagreement stating water charges will be determined on the basis of asocio-economic study." The Mexican Delegation objected to any legaldocument commitment on interim water charges (para 2.03); however. it wasagreed that the cveruiment would send a letter stating it would exert itsbest efforts to establish and collect interim-water-charges. After lengthydiscussion it was agreed that the word 'verifiedm in the audit coverantwould be substituted for the word audited*.

2.05 During negotiations the Borrower submitted a letter (in accordancewith OMS 3.80) with the curriculum vitae of a panel of experts to reviewdesigns, construction and operation of dams (para 2.02); on the basis ofthis, a covenant regarding dam safety was not included in the legaldocuments. No evidence was found during the desk review that wouldindicate that final infrastructure designs were made available or reviewedduring negotiations as had previously been indicated (para 2.02).

2.06 The loan package was approved by the SVOP without further commentand presented to the Board. The only question cf substance raised by EDswas regarding water charges and the time-frame completion of the socio-economic study only by the end of 1985. It was explained that theirrigation works had to be completed before the socio-economic study couldbe undertaken. The Loan of US$23 million was approved by the Board onOctober 14, 1980; signed on March 2, 1981; and became effective July 1.1981.

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III. IMPLEMENTATION

General

3.01 The SAR assumed a total of six years for completion of the projectand five years for construction of the El Sabinal Dam and associatedirrigation distribution works. Contracts were signed and civil worksconstruction began in January 1981 as scheduled--six months before the loanbecame effective.

3.02 The project actually got off to an early anSA rap start and bythe'end of 1982 both the Borrower and the Bank were predicting that theproject would be completed ahead of schedule with irrigatic to begin theend of 1984. By mid-1983 Bank supervision missions were L A1l optimisticabout completing the works by the end of 1984, but with the caveat 'subjectto an increased budget allocation, thus recognizing the deterioratingeconomic situation and budgetary constraints. By the end of 1983 projectcash flow began to delay payments to contractors slowing the pace ofconstruction.

3.03 Although it was still possible to complete construction of the ElSabinal Dam the end of 1985, it is now apparent that completion of on-farmsworks (water distribution, land leveling and rock removal) included in theproject concept and design, as appraised, may not be completed yet forseveral years; thus a fair measure of full development benefits wouldrequire a post-evaluation in perhaps another two to three years.

3.04 The Bank's supervision input was 63.5 man-weeks (including 17 man-weeks in the field) from June 1981 through June 1987 or about 10 man-weeksannually. Although 10 m/wks is close to the Bank norm, however, it wasprobably too low considering persistent problems related to cost overruns,design, review by panel of experts, budget constraints, etc. Supervisionmissions after 1982 were made up exclusively of irrigation engineers,economists never participated in supervision even though cost overruns andproject viability was already an issue before the loan become effective andsupervision missions frequently indicated the need to re-evaluate the ERR.Also an agriculturalist probably could have made a useful contribution asthe civil works neared ccmpletion and the transitiorn began from rainfed toirrigated agriculture.

Pro1ect Costs and Expenditures

3.05 The appraisal project cost estimate (September 1980) wae US$54.55million; however, by the time of the first supervision May 1981, contractshad been let for the dam and associated works at a cost of over US$51million, exceeding appraisal estimates by about 10O for those components.The Borrower's PCR estimates that the total cost end of 1986 to be US$77.3million. Nevertheless, it is important to note th,t, although the loan hadclosed and was fully disbursed, February 1987 the 'project' was not yet

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completed. Thus the total expenditure (Table 3.1) does not represent thefu'l cost of the project as appraised, an investment of an additionalUS,5-6 million would be required to complete the project. Although thefinal irrigation distribution canals and drainage works could be completedin 1988/1989 (according to the final supervision report May 1987); some ofthe on-farm works including land leveling ann stone removal, required toreach full production potential. may not be ccw;pleted for several years(para. 3.03).

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Ocoroni 1908

TABILE .1: Sumry of Total and Annual Expenditures (?5SO0O)

(Exchange Rate July 1908 US * NoeS2,250)

SAR Actual as

Coampnent li°O 1081 1062 1028 1904 1965 199S 1057 1063 Total F-timata 4 S

El Sabinal Do 1 982.00 8,888.60 8,737.90 4,724.80 8,327.60 2,588.90 183.80 24,850.80 18,000.00 185

Diversion Dam 70.20 1,921.90 787.20 615.00 22.40 112.90 8.40 3,738.00 1,840.00 207

Irrigation Work Roads 175.40 8,a80.So 2,406.00 2,261.80 4,603.3 39,193.20 1,791.90 18,269.30 14,890.00 156

Bldgs/}teriala 701.70 601.70 701.00 788.70 92C.80D 5.60 34.40 8,194.20 1,216.00 820

Land Clearing/Leveling - - - 218.00 94.70 2.60 - 265.50 89°8.00 1U

Hi acllan eue 2 684.70 1,249.80 1,972.20 918.90 819.20 8,144.30 " NA

Sub-Totl Civil Works 84,948.60 40,800.00 18T

Ra.°ttlsmnt and

ndenSification 178.40 949.60 5,11S.50 4,063.80 1,714.60 442.70 18.70 12,891.60 8,200 240

StudtIo - - - - - - - 000 1,000 0

Technical Asistanc - 182.S0 610.60 144.10 00.40 - - 917.40 1,900 48

011 Equipmnt - - - 886.8D 248.40 - 176.70 756.30 1,400 s0

Volt S 245.60 - - 809.90 160.20 83.80 78.90 828.40 0 0

Exor/Adsinistration 128.80 1.32Ofl 1-0 L.0 8J I.EL80 7321820 Lm 1

Sub-Totel Other 22,408.90 14,000 160

Total 77,854.80 S4,800 142

Source: SAURF ,R dated Decoetr 1967.

I Include. accs road

2/ Ineludes IVA

A/ Pilot bor. hotes to tet feasibility of sprinkles and gravity irrigation

J/ Includes contingencise but not IVA

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3.06 In 1981 approximately one year after appraisal, the principalcivil works contracts had been awarded as follows (base cost at current1981 exchange rate)l (i) El Sabinal Dam US$25.2 million; (ii) irrigationdistribution works US$23.4 million, and (iii) diversion dam US$2.7 millionexceeding appraisal base cost estimates by more than 1002. The final costof these works, (including design and quantity changes, and costescalations (in Mex pesos)), resulted in dollar cost (Table 3.1) lower thanthe original (1981) contract amounts due to the relative devaluation of thepeso in relation to the dollar that subsequently occurred. The largestcost overrun was for resettlement and indemnification and probably reflectsthe lack of data available during preparation and appraisal about thepeople, land and infrastructure to be affected by dam construction-and costto settle additional families in the area to be irrigated (para. 3.08).

3.0? Project investments to the end of 1986 exceeded the total SARestimated cost by about 42S as compared to estimates of 1002 in 1981 (para.3.05). Completion of the project, as appraised, could increase totalproject cost an additional lOZ. Civil works represents 712 of totalproject cost, approximately equal to appraisal estimates. Whileindenmification expenditures were higher than anticipated, they arenevertheless acceptable. Engineering and administration costs whileexceeding appraisal estimates, are still less than 102 of total projectcost, a reasonable lsvel for this type of operation reflecting theefficient engineering and management system of SARH and IrrigationDistricts in Mexico.

Imolementation-Comonents

3.08 Physical achievements (Table 3.2) under the project; although notyet completed, were satisfactory in view of economic conditions andbudgetary constraints. By the end of 1986 the irrigation distributionsystem had been extended to 7773 ha providing the basis for potentialbenefits to 1670 families. When the project is completed it is estimatedthat irrigation would benefit 11,235 ha and 2,378 families exceeding theappraisal estimates of 10,000 ha and 2,000 families by 11 and 192respectively.

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TABUE_J2s Su_aary of Physical Achievementa

Programl Actu*12 s 2 Target2

Component as Apprai sd end 0380 Achieved When(Revised Taraet) Cognl*ted

El Sabinol DaElevation (m) 70 of 10 8Width (i) 375 400 1i 400Volume (mJ)61tllon J00 407 1ff 407Volume for Irrigation (t 8) -illion 240 200 INf 260Spillway (a) $20 455 100 455

Acces Road (km) s0 27.5 1ff 27.6

Service Road. (km) 13 78 55 183

Diversion Dam (a) 245 245 100 245

Water Distribution canalsPrimary (km) 37 40 97 47Secondary (km) 54 s0 70 93DraIn. (ki) 32 e1 65 123

Complementary Work* 7 units 4 so

Land LevelIng (ha) 3,500 0 o 1,6ff

Land Clearing (ha) 6,00 3a80 1S 3880

Stone Removal (ha) 2,100 0 0 21f0

CAM EquIpmnt 9 unite NA NA 12

}/ SA Septemb 10V SARN PCR December 19W?

El Sabinal Dam

3.09 The dam and associated irrigation and drainage works were the mostimportant components of the project, absorbing more than 702 of the projectinvestments and were the focus of SARH and Bank supervision staff effortsuntil the loan closing date December 1986. Construction of the access roadto the dam site began in 1980 and was nearing completion when the contractfor construction of the dam was signed in early 1981. By May 1981 (first

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supervision) the tunnel to divert water during construction of the dam andthe diversion dam were well underway.

3.10 Although project execution was off to a good start even before theloan became effective, there was already concern about cost overruns (para.3.05), reportedly resulting from the use of preliminary designs and costestimates at appraisal (paras. 2.02 and 2.05). thus implying that Bankguidelines had not been adhered to during loan processing. Reports of thefirst and second supervision missions once again drew attention of Bankadvisory staff and renewed concerns about the adequacy of compliance withOHS 2.28 (State of Project Preparation Necessary for Loan Appraisal) andOMS 3.80 (Safety of Dams) during loan processing. Supervision missionsconcluded that cost overruns were caused by two factorst (i) appraisalestimates based on preliminary designs. and (ii) the unavailability ofsuffJi-ent suitable fill material close to the construction site. AGR/CPSsuggested that these problems could have been avoided with a more thoroughpreparation and appraisal.

3.11 The first report of the *Consultivc Tecnicoo (Panel of Experts,for review of dam construction) was submitted to the Bank April 1982, twoyears following appraisal and at a time when construction was already welladvanced. Bank staff reviewed the report of the Panel of Experts andindicated that it was satisfactory. Although it would appear that Banksupervision missions had good intentions about the need to receive thepanel report at an earlier date, in the absence of a specific covenant, acommittment on the part of the Borrower did not exist to carry out reviewswithin any particular time frame or report to the Bank. The issue was putto rest in the Bank in 1984 following concerns over the same issue for theApatzingan, Chilatan Dam. At that time the Bank concluded thatrequirements of the panel and compliance with OMS 2.28 and 3.80 wassomewhat obscured by the lack of a specific covenant in the legal documentsand recommended that in the future an appropriate covenant be included forprojects involving Bank finance of dam construction.

3.12 Nevertheless construction of the dam and associated works wereprogressing well and by mid-1983 it was estimated that the civil workscould be completed by the end of 1984, one year ahead of the SAR schedule.Unfortunately budgetary constraints began to take a toll the latter half of1983 as contractors began to slow down because they were no longerreceiving timely payment. In spite of budgetary limitations, SARH stillhoped to close the dam before the onset of the rainey season in November1984, however, this was not possible and emergency measures were taken toprotect the structure during the rainey season. Supervision missionsconsidered that engineering performance had been excellent and executioncapacity was adequate if only sufficient funding would be available.Funding subsequently was not adequate and the dam was finally completed andinaugursted in December 1985 on schedule as appraised, but later thanenvisaged by SARK and supervision missions during 1982 and 1983.Irrigation (using water from the dam) began with 998 ha under productionfor the fall/winter 1985/1986 season, and 1,808 ha for the spring/summerseason, a total of 2,893 ha for the 2 crops cycle regime of 1985/1986.

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Irriaation Canals and Drainage

3.13 By the end of 1986, 70% of the primary distribution and 66% of thesecondary distribution works were completed to irrigate 4282 ha on theright Bank and 3491 ha on the left Bank. The distribution works would becompleted for the original 10,000 ha and extended on the lower bank of theriver to ultimately benefit 11,235 ha by the end of 1988; 1,235 ha morethan estimated at appraisal. On-farm investments required to obtain thefull benefit of the project, land leveling and stone removal are always thelast to be done, and will continue for several more years. Considering thedelays in completion of the distribution works, uncertainty of completior.of on-farm works, and the normal transition time to achieve full acceptanceand benefits of irrigation, a post evaluation is suggested (para. 3.5).The drainage works, like the irrigation distribution system was notcompleted the end of 1986, but was programmed for completion in 1988.

Demonstration Tubewells

3.14 Although little mention is made in supervision reports, aboutUS$800,000 was invested in tubewells as a pilot irrigation demonstrationprogram (Table 3.1). These wells were used to train and prepare farmersfor the transition from rainfed to irrigated agriculture. This seemed tobe a logical and worthwhile program, but unfortunately with the focus onconstruction of infrastructure and related financial and technical issues,supervision missions failed to comment or monitor the results.

Operation and Maintenance

3.15 Due to budgetary constraints, there was a reluctance to use Bankloan funds to finance purchase of operation and maintenance equipment andof the US$1.1 million allocated only US$140,000 was disbursed; however,approximately US$750,000 was spent on equipment, financed primarily by theborrower. Bank supervision missions encouraged project authorities topurchase additional equipment, but in the end the balance of fundsavailable for equipment was reallocated and disbursed for civil works.

O&M Cost Recovery

3.16 Normal quotas for cost recovery would be applied in accordancewith Mexican law. The socio-economic study required in accordance with theguarantee agreement (to be completed December 1985) was completed August1986. The basic conclusion of the study was that at full maturity of theproject (about 1996) the beneficiaries would have the capacity to pay thecost of O&M. Interim charges bave yet to be formulated and applied (para.2.03).

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Land Clearinn and Land Levelint

3.17 As expected, on-farm operations, such as 'and clearing (in thiscase including stone removal) are the last to be implemented. The targetarea for land clearing wgs reduced from 6,000 ha to 380 ha which wascompleted the end of 1984. The SAR estimated that 2,100 ha would requirestone removal; however, it was determined that some of the area requiringstone removal is unsuitable for annual crop production and thus it isproposed that about 3,500 ha be used for intensive livestock production.Land leveling has been postponed indefinitely and the target has beenreduced from 3,500 to 1,000 ha. Supervision reports, imply that therevised target of 1000 ha reflects a practical estimate of what would beachieved and not that required for efficient irrigation; ultimately, mostof the area to be irrigated would require land leveling or contourfurrowing to obtain efficient water distribution.

Technical Assistance

3.18 Technical assistance under the project has been satisfactoryconsidering the budgetary constraints under which it has been necessary tooperate. The end of 1986, 20 supporting staff posts (including 6 extensionworkers) were still vacant because of budgetary restrictions existing sincethe end of 1982. Additional strengthening of production supportingservices (research extension, credit, farmer organization for O&H) will berequired to complete the transition from rainfed to efficient productiveirrigated agriculture. As long as the 'Economic Solidarity Pact" and thehiring freeze are in effect, the Rural Development District, and theproject will have to operate vith existing staff.

Resettlement and Indemnification

3.19 The number of families benefitting from the project exceededappraisal estimates of 2,000 by about 222 increasing from 760 pre-projectto 2,378 with the project. Beneficiaries received equitable land*:locations irrespective of their level of income and were resettled asnear as possible to their original areas; some had to be relocated outsideof the project area. Most of the land required for the resettlementprogram was purchased from the owners. In addition to resettlement, theproject built primary and secondary schools; and improved electrical,telephone and potable water supply systems.

Disbursements

3.20 During the first two years following loan effectiveness (1981 and1982) disbursements exceeded appraisal estimates. This good performancecan be attributed to accelerated execution and the initial IOOZ costincrease of civil works (para. 3.06). After 1982 disbursements were slowedby devaluation of the Mexican peso in relation to tne US dollar and reducedbudgetary allocations that continued to delay execution. An attempt was

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made in 1984 to accelerate execution and disbursements ursdea the SpecialAction Program (SAP); the percentage of Bank finance for cvil works wssincreased from 49Z to 702. SAP achieved the obiective of Increasingdisbursements in relation to what otherwise vould have been; however,because there Is no linkage between the GOM budget and percentage of Bankfinance, SAP had no direct impact on the rate of project *secution.

3.21 The loan closed December 31, 1986 and the last disbursement wasmade February 19, 1987. Bank finance was exhausted before the project(even the irrigation civil works) was completed; 982 of the Bank finance ofUS$23 million was disbursed under category 1, civil works (Table 3.3).Supervision missions from time to time expressed concern about theprospects of disbursing Bank loan fund before project conpl.etiou andsuggested two alternativess (a) reduce the percentages of Sank finance, or(b) make a supplementary loan. Under the conditions of the originalappraisal the Bank would finance 422 of the total project cost of US$54.4million, but in fact the Bank financed only 301 of expenditures incurreduntil the end of 1986 (i.e.9 US$23 million out of US$77.3 szilliom). Whenthe project is completed, and full development costs determined, thepercentage of Bank finance will be even less.

TABLE 3.3: Summary of Disbursements by Category

ActualCatetory Oritinal Allocation Disbursement

Civil Works 16,000,000 22,651,122.16Land Clearing 600,000 00.00Equipment 1,100,000 140,480.81Incremental Operations 1,800,000 235,226.87Unallocated 3.500.000 - t26.829.84)

23,000,000 23,00,000.00

Procurement

3.22 The legal documents provided that civil works would be packaged Incontracts of not less than US$2.0 million and procured following ICBprocedures. Supervision reports Indicated that the Bank was stasfied withprocurement procedures followed for the El Sabinal Dam and associated workscontracts let in 1981 (para. 3.06). Subsequent contracts were scattered intime and place, and limited by budget allocations, making packaging for ICBimpractical.

Reports and Audit ing

3.23 Progress reporting was initially carried out with a*ce delay, butoverall, reporting was satisfactory. A draft PCR, prepared by the GeneralDirectorate for Policy and Sectorial Evaluation of SEP, SAIR,

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was submitted to the Bank in April 1988 based upon the status of projectexecution to the end 1986. Information from the SARH PCR has been used inpreparing this report. In hindsight, perhaps it would have been moreeffective to have prepared the PCR the end of 1990 or some otherappropriate date nearer to full development. The legal documents providedthat separate accounts maintained under the project would be 'verified'(para. 3.04). In May 1983 it was reported that agreement had been reachedon verification procedures for project accounts and that the firststatement was expected in July of that year. No evidence was found on fileof receipt of overdue verified project accounts or subsequent actions.

Compliance with Covenants

3.24 The borrower was unable to provide adequate counterpart funds andother resources to implement the project as scheduled, an issue thathampered compliance with general covenants. Considering economicconstraints, compliance with covenants other than verification of accountsin the beginning, was considered satisfactory. In 1984, Rank staffrecommended that all future loan agreements for projects, involving damconstruction, c;..ntain a covenant to assure compliance with OMS 3.80 (para.3.11).

IV. AGRICULTURAL AND ECONOMIC IMPACT

Azricultural Impact

4.01 Before the project, 4,300 ha (1979/1980) of predominantly rainfedcrops (sorghum/safflower) were produced in the project area; about 50% ofthe area received some supplementary irrigation during the main spring-summer crop season. According to SARH data 2,876 ha was harvested for thespring-summer cycle of 1979/80 and sorghum made up 93X of the area cropped.In the same year 1,445 ha was harvested from the fall-winter cycle and 982of the area cropped was safflower.

4.02 In 1985/86, 2,893 ha was irrigated using water from the El Sabinalsystem. The cropping pattern continued to be dominated by sorghum andsafflower as in the pre-project situation; the only significant new cropwas wheat in the fall/winter season. More recent data for the 1987/88 cropseason show that while sorghum is still the dominant crop for thespring/summer season, soybeans now account for 25% of the area planted.Likewise, in the fall/winter season wheat has replaced safflower as thenumber one crop. Yields under irrigation were substantially higher thanthe combined average yield for both irrigated and rainfed production (onlydata available in previous years); but generally lower than appraisalestimates. A comparison of the SAR with and without-project situation isnot meaningful because neither of the principal crops (sorghum andsafflower) were expected to be cultivated (Table 4.1) except for a reducedarea of sorghum to be grown in the second cycle. Yield results tend toconfirm the concerns of AGR/CPS during loan processing (para. 2.03).Soybeans, wheat, beans and chickpeas were expected to become thepredominant crops. Wheat has shown promise by increasing from nothing in

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1983/84 to 2,185 ha In 1987/88 with an average yield of 2.3 ton/ha comparedto the appraisal estimate of 3.75 tonslha; while soybeans has increased to985 ha yielding 2 tons per ha.

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TABLE 4.1: Crop Production

Preprojoct 1979/80 SAR Estbimate 1986/88 Actual 1986/86 Z Actual 1987/88 SArerlha YieidaTIha Area/ha YieldiT/ha Ares/ha Yt-ldiTihs Area/hs YipidaT/ha

Main season-srring/pummer:

Crop:Cott-on - - 400 2.4 - - 993 2.0Chick poes - - 118 1.4 - - - -

Wheat - - 2400 4.0 268 8.o 2185 2.8Beans 8 0.7 206f 1.8 59 6.3 10 06.8Tomato.s 62 16.4 165 11.0 - - - -

Chile/Cucumbers - - 190 14.0 - - 2 1.2Safflower 1377 0.7 - - 410 1.0 1448 1.3Peanuts - - - - - - - -maize - - - - - - 84 1.2Sorghum 1/ _ _ _ _- -

Other A/ 8 - - - 140 18.0 102 -

Sub-Total 144S 8Slu

Fal4lmnter:Maize 264 1.2 - - 42 - 488 3.0Sesame 17 0.5 - - - - 468 0.7Soybeans - - 3600 2.0 as - 986 2.1

Sorghum 2586 1.3 450 4.5 18S8 - 1726 3.2Melons 1/ - - e6 9.6 - - - -Beans 1/ - - - - - -

Tomatoes - - - - - - 86 1Chick peas - - _ _ _ _ _ _Other I/ 28 - - - - - - -

Sub-Total 2Af - 16 18ff lilaTOTAL 4321 13560 2742 8641

1/ Supplementary Irrigation-pump

2/ Area benefitting from the project1/ Other crops, Including pasturejJ Source Distrito de Desarrollo Rural No. 124 Sept. 1981/ Melon - 15 tons per ha 1986/8S

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4.03 It is accepted that the transition from rainfed to irrigatedagriculture is long and uncertain, particularly under a smallholder system.Farmers can be expected initially to continue to produce the crops theyknow best, sorghum and safflover, even though other crops may generate ahigher rate of return. Right now neither animal or tractor power areadequate to fully cultivate the average of 5 ha available per family, butmeasures are being taken to increase the mechanization capacity.

4.04 At this point in time estimating the agricultural impact of theproject is speculative. The land and water resources are the only knownfactors; cropping patterns, intensities and yields have yet to evolve. Ameaningful agricultural and economic impact probably can only be determinedas development reaches maturity in the early 1990s.

4.05 With extension and completion of the irrigation works on the leftbank of the Rio Ocoroni, it is estimated that the irrigation system wouldbe in place to serve 11,235 ha; 1,235 more than estimated at appraisal(including 3.500 ha not suitable for annual crop production!. By the endof 1986 the distribution works covered 7,773 ha, 4,282 ha on the right bankand 3,491 on the left bank; but only about 2,900 was cropped using waterfrom the El Sabinal Dam for irrigation in 1986 bnd 4,800 ha for the 1987/88crop season.

4.06 The total area suitable for intensive annual crop production willbe substantially less than the gross area of 11,000 ha. Some errors weremade in the original topographic and soil surveys and approximately 3,500ha will only be useable for pastures or tree crops; for which the final useand benefits have yet to be determined. Some land is still idle or underutilized requiring farm investments for land clearing, land leveling, stoneremoval, and mechanization to bring these lands under efficient irrigatedcrop production. Mechanized stone removal is costly, particularlyconsidering that the operation must be repeated as stones continue to worktheir way to the surface for several years. In addition to livestock therewill be some fisheries production in the El Sabinal Reservoir; however, nodata is currently available to measure these benefits.

Economic Impact

4.07 Prior to the project there were 760 families in the OcoroniValley, all ejidatarios with 60S having incomes less than the minimum wage.These families agreed that with irrigation land would be redistributed withan allocation of 5 ha per family. By the end of 1986, 1,670 families hadbenefitted from land distribution and 2,358 would benefit by the time theproject is completed. There are still some land titling and organizationalproblems to be resolved, nevertheless the social benefits of the projectare important. Settlement of nearly 1,600 families and provision of landand water resources provides the potential for significant economic andsocial benefits.

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4.08 The Borrower has estimated a rate of return (ERR), excludingpossible livestock and fisheries benefits (para. 4.06), of about zero atconstant peso flow of 1979 prices (Table 4.2) compared to the appraisalestimated ERR of 1S5. The result is much lower than appraisal because:tl) investment costs have increased; (ii) implementation has been delayed;(iii) full development will take longer than expected; (iv) the physical(topography and soils) of about one-third of the project area will limitdevelopment potential for intensive irrigated cnnual crops production; and(v) the change in cropping pattern and yields will be slower thananticipated. Some benefits may be derived from livestock and fisheries,but no experience or data is available to measure their impact.

TABLE 4.2: Rate of Return Analysis Constant 1979 Pesos(Hex $000)

Incremental Incremental NetInvestment l/ Benefits Benefits

Year

1979 0 0 01980 64,733 (14,206) ( 78,939)1981 284,388 (10,649) (295,036)1982 352,063 (15,695) (367,758)1983 372,361 C 9,032) (381,393)1984 434,493 ( 782) (435,275)1985 173,113 (17,008) (190,121)1986 63,308 25,513 ( 37,795)1987 24,161 32.837 ( 8,675)1988 96,405 31,864 ( 6,541)1989 1,277 52,752 51,4751990 1,277 52,752 51,4751991 1,277 52,752 51,4751992 1,277 52,752 51,4751993 1,277 84,411 83,1342012

ERR O.o0

11 Includes costs of operation, maintenance and administration.

Source: SARH PCR December 1987

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V. INSTITUTIONAL PERFORMANCE

5.01 Problems with initial cost overruns for contracts for constructionof El Sabinal Dam and associated works and the selection of some areas withlimited potential for irrigation indicate that project preparation perhapswas not sufficiently thorough. Once beyond the preparation and appraisalphase, project execution performance from a technical viewpoint, wasexcellent. There were early warnings about cost overruns and concernsabout the effect on the ERR of the project, but by the time this conc3rnwas being taken seriously in 1982, construction was advancing rapidly andthe sunk costs probably would have resulted in a decision to continueregardless of any revised estimate of the ERR. Also it is doubtful thatthe soil, topography, and cropping pattern issue would have been evident in1982 anymore than at appraisal in 1980; however, soil and topographyproblems should have been identified during preparation. If soil pr;.blemsare not identified during preparation, then it is possible that they wouldnot be noticed until construction of secondary and terciary canals are welladvanced.

5.02 Organization and management, particularly of irrigation districts,has generally been a strong point in the Mexican (SARH) administrationsystem and performance was considered satisfactory. The reorganization ofSARH in January 1986 and absorption of Irrigation District No. 63 intoRural Development District No. 134 went through smoothly and performance atthe local level continued to be satisfactory although severely constrainedby limited budgetary allocations. Coordination of project operationsbetween SARH Departments and communications with the beneficiaries improvedunder the new organization. The modernized organization made it possibleto simplify administrative procedures and generally make better use oflimited resources; particularly manpower. Considering the hiring freeze,vacant posts, and limited budget, the performance of all staff under tryingconditions is commendable.

VI. BANK PERFORMANCE

6.01 In view of appropriate questions (para 2.02) that arose regardingthe adequacy of designs for appraisal (OHS 2.28), functioning of the panelof experts for review of dam safety (OMS 3.80). initial cost overrunsattributed to preliminary designs, inadequate soil and topographic surveys,and overestimation of initial yields, it would appear that projectpreparation and appraisal were somewhat superficial and rushed. The Loanwas appraised by a three man-mission that visited Mexico for two weeks inApril 1980. An issues meeting was not convened and the first internalreview queries followed the distribution of the Decisions Memorandum. TheLoan was subsequently negotiated, and approved by the Board October 14,1980, less than six months after the return of the appraisal mission.

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6.02 There were 11 supervision missions, 8 of them by a single Bankstaff member, for a total of 84 man-days in the field during a period of 6112 years, which is on the low side even for a simple project. Staff oftensupervised 2 or 3 p2'ojects during one mission substantially limiting timedevoted to complex project issues. The majority of supervision was carriedout by irrigation engineers and in spite of concerns about cost over runsand project viability an economist never participated in supervision; abetter mix of specialist should be considered in the future for suchprojects. Banks internal reviewers repeatedly raised questions aboutadequacy of designs, performance of the panel of experts, and cost over-runs. The review by a panel of experts issue was not fully addressedwithin the Bank until 1984 (para 3.11) far too late to do anything haddesign problems developed that could affect safety of the dam. Cost-overruns were reported numerous times, but a revised analysis was neverdone. By the end of 1982 supervision missions rightly conciuded that itwas already too late to re-evaluate the project because the advanced stateof construction would lead to the conclusion, taking into account sunkcosts, that the project should be completed.

VII. CONCLUSIONS AND LESSONS LEARNED

Conclusions

7.01 The social benefits. though difficult to measure are significant;and thus compensate somewhat for the low ERR. The disappointing ERR wascaused by three factors: (i) cost overruns, (ii) delays in execution, and(iii) inadequate topographic and soil surveys at the time of projectpreparation. With a more thorough preparation and appraisal perhaps theproject design could have been modified to eliminate areas with problemsoils, and to include part of the downstream area with excellent soils thatis currently being developed and put into production using excess waterfrom the project area thus enhancing the prospects of a satisfactory ratereturns. More time spent on preparation, also may have identified the lackof suitable fill material for the dam and even justified relocating thestructure or at least more accurate cost estimates could have beendetermined. The medium-term benefits of the project are premised oncontinued production of basic crops particularly sorghum, safflower, wheat,maize and possibly soybeans. There is however, potential for producinghigher value crops and increasing cropping intensity. Also, livestock andpossibly tree crops urgently need to be developed for the 3,500 ha withsoil and topography conditions inadequate for irrigated annual cropproduction. In order to improve production, agricultural supportingservices (farmer organization, extension, credit, and marketing) need to bestrengthened.

7.02 The project would appear to have far greater potential than has so,far been demonstrated by the agricultural and economic impact analysis.Significant changes will occur as production evolves from low input rainfed

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agriculture to high input irrigated agriculture; more time will be requiredfor this transition. However, it is also urgent that follow-up investmentsbe made to complete development and to fully exploit the potential of theapproximately 7,750 ha determined to be suitable for lntensive cropproduction. A cropping intensity of 1.5, as indicated in the SAR isfeasible and experience already indicates that the cropping pattern ischanging from the dominance of basic grains to more high value crops; thistype of experience is already well established in the State of Sinaloa.

7.03 There are two other prospects that ultimately will probablydetermine whether the ERR of this project can be improved: ti) implementinga suitable production system for the 3500 ha of problem soils; and (ii)determining whether the area of influence of the project can permanently beextended to areas with much better soils downstream. The Bank shouldcontinue to work with SARK to see that this project is successfullycompleted.

Lessons Learned

7.04 -more time spent on preparation could have identified soil andtopographic limitations that reduced the area suitable for annualcrop production, and thus the ERR;

-more time spent on preparation could have determined thatsuitable fill materials were not located sufficiently close to thesite for the dam permitting adjustments in costs or selection of adifferent site or both;

-more gradual changes in the cropping pattern and lower initialyield estimates should be used at appraisalt

-coments of the Bank review system while appropriate, were notadequately taken into consideration during the appraisal process;

-dam safety (OMS 3.80) is sufficiently important to be covered byan appropriate covenant in the legal documents; and

-consideration should have been given to postponing the PCR untilthe project itself was nearer completion and more accurateestimates and conclusion could have been drawn.

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COMNENTS F'IOM BORROWER Page 1 of 6

NACIONAL FINANCIERA

World Bank Financing Department

Mexico CityMarch 30, 1989

Mr. Graham DonaldsonChief, Agriculture, Infrastructureand Human Resources Division

Operations Evaluation DepartmentIBRDWashington, D.C.

Subject: World Bank Loan 1908-ME, Ocoroni Irrigation Proiect

Dear Mr. Donaldson:

Attached are the comments the Government of Mexico wishes to make onthe Project Completion Report in this matter prepared by the Bank's LatinAmerica and Caribbean Regional Office.

In our view, the document does not provide a full, current pictureof the project or the benefits it is generating. This is largely because theevaluation was based on figures and results for the period ending December1986; at that point in time, for budgetary reasons, the project war not yet infull operation and not all the benefits anticipated from it had materialized.

Steps were taken to overcome this difficulty during Mr. CharlesDowning's visit to the target area in September 1988. He was provided withtables giving the 1987 and 1988 figures on agricultural production in thezone, data that was to be included in the PCR or, alternatively, would justifya subsequent re-evaluation of the project. In the end, however, the data werenot taken into account in the PCR.

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Page 2 of 6

We are anxious to learn why the additional production figures givento Mr. Downing were not considered in the evaluation process, and also whatthe Bank's position is on the possibility of carrying out a new evaluation ofthe project that would give a clearer picture of the goals achieved through itso far.

Yours, etc.

/s/ H6ctor Flores SantanaHead of Department

Copies to Secretariat of Agriculture and Water Resources (SARH):

Cesar Octavio Ramos, Deputy Director General of Water Supply Infrastructure

Antonio del Rio Ballesteros, Director General of Sector Policy

Guillermo Funes Rodriguez, Director General of International Affairs

Julio Lorda Andrade, Director of Progranmming and Evaluation

Copy to Secretariat of Treasury and Public Credit:

Ricardo Ochoa R., Deputy Director of Agriculture Sector Projects

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ANNEX-23- Page 3 of 6

A. GENERAL COMMENTS

The evaluation of the project given in the World Bank PCR does not

reflect its present status or the benefits it has generated. The fundamental

reason for this is that its execution was considerably delayed as a result of

inadequate budget allocations; in fact, some of its components are still in

the implementation process.

Furthermore, the statistical data on which the PCR's comparative

analysis of estimated and actual goals was based referred, in the best of

cases, to 1986, a year when project benefits had still not had enough time to

materialize fully.

Accordingly, World Bank representative Mr. Charles Downing came to

Mexico on mission in September 1988 to obtain more extensive data that would

allow a better evaluation of the project. Among other places, he inspected:

project facilities then in operation; land areas not suitable for agriculture

but mistakenly treated as such in project plans; and 2,500 ha not originally

included in those plans but incorporated shortly before the mission visit and

located within the area of influence of El Sabinal dam.

At his own request, Mr. Downing was provided with statistical

information on crop and livestock production in 1987 and 1988, which he

indicated would be taken into account in the final evaluation of the project.

However, it is not reflected in the Bank version of the PCR.

Finally, the Basic Data Sheet gives the actual project closing date

as December 1986 when it was in fact December 1987, and there are discrepancies

in the figures reported for fiscal years 1981-1987 in the data on cumulative

disbursements.

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24 -ANNEX-24- Page4 of 6

B. SPECIFIC COMMENTS

POINT AT ISSUE PAGE/PARA. COMMENT

1. The area cropped in the v/i The statistical informationmain season (fall/winter assembled by DGPEG covered--November/April) increased 1986 but not 1987/88.from 1,000 ha in 1985/86(102 of the project area)to 4,800 ha in 1987/88 (48Xof the project area).

2. Private investors working v/l There is no such thing inwith ejido owners.... Mexico as an ejido owner. We

suggest replacing "owners" with"occupants."

3. A more gradual change in vii/l Cropping systems were decided incropping patterns..., in the light of staff experience

in Rural Development DistrictNo. 134, Guasave (Sinaloa).

5. There was a reluctance to 10/3.15 Replace "reluctance." Theuse Bank loan funds to fundamental reason was the lackfinance purchase of operation of budget allocation to thisand maintenance equipment.... item.

6. The Bank recognizes that 5/3.05 Since the project is toalthough the loan was fully continue beyond the datesdisbursed, the project was not originally set, Bank partici-completed and that the pation in its financing willimplementation process will fall from 422 to 302.continue beyond the datesoriginally set.

7. No exchange rate for converting 6/6.01 State what rate was used forpesos to dollars is given. [??] converting Table I11.6.1 from

the SARH version of the PCR),which is in current pesos, todollars.

8. ....US$600,000 was invested 10/3.14 This figure does not coincidein tubewells.... with Table 3.1, (on page 6),

which shows a total ofUS$828,400.

9. However, approximately 10/3.15 This figure does not coincideUS$800,000 was spent on with Table 3.1 (page 6), whichequipment.... shows a total of US$756,300.

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(continuation)

10. After 1982 and until the 11/3.20 Despite the slowing down in theloatn closed, disbursements 3.21 rate of disbursement, the totaldeclined drastically allocated to civil works

(originally 552 of loanproceeds) was exceeded by awide margin, reaching 95X ofall disbursements. It wastherefore unnecessary to cancelany part of the line of credit,since the proceeds were paidout in their entirety.

11. The draft PCR was prepared by 12/3.23 This draft was in fact preparedSARH through its Subsecretariat by the Subsecretariat offor Studies and Planning Planning, through its DGPES.

12. In 1986, 2,742 ha was 13/4.02 This should read:irrigated.... "In 1986, an area of 2,742 ha

was cropped....," since thearea irrigated during the1985/86 season was 3,891 ha.(See Table IV.l.l, page 46 ofthe draft PCR prepared by SARH.)

13. Table 4.1. Colukn headed 15/Table 4.1 The figures given here differ"Pre-Project 1979/80" from those shown in Table IV.1.2

of the draft PCR prepared bySARH; the areas put under cropsin the fall/winter and spring/summer seasons are reversed,and there are differences inyield figures. There are alsodiscrepancies in the figuresgiven for the areas cropped inthe fall/winter and spring/summer cycles of the 1985/86season.

14. The land and water resources 16/4.04 At the time of the last Bankare the only known factors; visit to the project area incropping patterns, intensities September 1988, Mr. Charlesand yields have yet to evolve. Downing noted the incorporation

of such factors as fertilizers,farm machinery, technicalassistance. This is the casethroughout the project area, sothe Bank's assertion isincorrect.

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(continuation)

15. The area for crop production 16/4.06 As the Bank notes, thisis substantially less than reduction in the size of thethe 11,000 ha originally crop production area was theestimated. result of errors made at the

project appraisal stage, whenland unsuitable for farming wasincluded. However, the losswas offset by the incorporationof 2,500 ha not originallyconsidered part of the targetarea but which are anyhowlocated in the zone ofinfluence of the project.

16. No data is available with 17/4.08 The statistical data given towhich to measure the benefits Mr. Downing last September onderived from livestock and livestock and fishery activitiesfishery activity in the in the project area should beproject area. included in the PCR. During

his mission, visits were madeto areas devoted to both typesof activity so that thebenefits being derived fromthem at that time could benoted.

17. "...y evaluaci6n del 18/6.01 The Bank's Spanish text shouldproyecto eueron superficiales read:y apresuradas." " ....y la evaluaci6n

ex-antedel proyecto fueronsuperficiales y apresuradas."

18. " .... The approximately 19/7.02 This should read:7,750 ha determined to be ".... The approximately 7,773 hasuitable for production." determined to be suitable for

production." [TN: Additionalerror in the Bank's Spanishversion, where inadecuadashould be replaced byadecueda.]