Document of

The World Bank

Report No. 12233-DO

STAFF APPRAISAL REPORT

DOMINICAN REPUBLIC

IRRIGATED LAND AND WATERSHED MANAGEMENT PROJECT

JANUARY 19, 1995

FILE COPY

Country Department IILatin America and the Caribbean Regional Office

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CURRENCY UNIT

Dominican Peso (RD$)

EXCHANGE RATE

(As of December 30, 1994)

US$1.00 = RD$ 12.97

FISCAL YEAR

January 1 - December 31

WEIGHT AND MEASURES

Metric Systemand

1 TAREA = 0.062 Hectares (ha)

MAP SECTION

ACRONYMS AND ABBREVIATIONS

AEO Agricultural Extension Officer(Oficial de Extensi6n de Agricultura)

AIRAC Association of Rural Institutions for Savings and Credit(Asociaci6n de Instituciones Rurales de Ahorros yCreditos)

ADESJO Association for the Development of San Jose de Ocoa(Asociaci6n para el Desarrollo de San Jose de Ocoa)

BA Agricultural Bank(Banco Agrario)

CATIE Tropical Agronomic Center for Investigation andTeaching(Centro Agron6mico Tropical de Investigaci6n yEnsefanza)

CDE Dominican Corporation for Electricity(Corporaci6n Dominicana de Electricidad)

CEA State Council for Sugar(Consejo Estatal del Azucar)

CENDA North Center for Agricultural Development(Centro Norte de Desarrollo Agropecuario)

EMS Environmental Monitoring System(Sistema de Monitoreo Ambiental)

FIDA Agriculture Federation for Development(Federaci6n de Desarrollo de Agricultura)

GEW Group Extension Workers(Grupo de Trabajadores de Extensi6n)

L4D Dominican Agrarian Reform Institute(Instituto Dominicano de Reforma Agraria)

INDRHI National Water Resources Institute(Instituto Nacional de Recursos Hidraulicos)

INESPRE National Institute for Price Stabilization(Instituto Nacional de Estabilizaci6n de Precios)

ISA Higher Institute of Agriculture(Instituto Superior de Agricultura)

M&E Monitoring and Evaluation(Monitoreo y Evaluaci6n)

MIS Management Information System(Administraci6n del Sistema de Informaci6n)

MUV Manufacturing Unit ValveNEP New Economic Program

(Nuevo Programa Econ6mico)NGO Non Governmental Organization

(Organizaci6n no Gubemamental)OFWME P On-Farm Water Management Project

I

(Proyecto de Manejo de Agua a nivel de Finca)O&M Operation and Maintenance

(Operaci6n y Mantenimiento)

PEU Project Execution Unit(Unidad de Ejecuci6n del Proyecto)

POA Annual Work Program(Programa Anual de Trabajo)

PR&D Participatory Research & Development(Investigaci6n y Desarrollo Participatorio)

PROMAF On-Farm Water Management Project(Proyecto Manejo de Agua a Nivel de Finca)

PROMATREC Irrigated Land and Watershed Management Project(Proyecto de Manejo de Tierras Regadas y de Cuencas)

PRYN1 Water Users Association of Nizao, Santiago(Asociaci6n de Usuarios de Agua de Nizao, Santiago)

SDB Standard Bidding Documents(Documentos Corrientes para Propuestas)

SEA Ministry of Agriculture(Secretaria de Estado de Agricultura)

SOEs Statement of Expenditures(Cuentas de Gastos)

WUA Water Users Association(Asociaci6n de Usuarios de Agua)

WMF Water Management Fund(Fondo de Administraci6n de Agua)

YSURA Water Users Association of Azua(Asociaci6n de Usuarios de Agua de Azua)

ANNEX 10

DOMINICAN REPUBLIC

IRRIGATED LAND AND WATERSHED MANAGEMENT PROJECT

Documents Available in Project Flle

A. Background and Project Preparation Papers

1. Dominican Republic. Agricultural Sector Study.1986. World Bank. Report No. 6267-DO.

2. IICA. 1988. Proyecto de Desarollo Agricolaen Tres Areas Prioritarias Bajo Riego. ContratoINDRHI/IICA 2426.

3. Irrigated Farming Development Project. Project Brief. 1989.FAO/CP. Report No. 157/89 CP-DOM. 14 PB.

4. Dominican Republic. Country EconomicMemorandum. Beyond Stabilization: AnAgenda for Sustainable Growth. 1991. WorldBank.

5. Proyecto Integrado de Reforestaci6n yConservaci6n Comunal de la Cuenca del RioNizao.1992. FAO. Report TCP/DOM/2251(F).

6. Proyecto de Desarollo Agricola Bajo Riego y enla Cuenca del Nizao. Preparaci6n del proyecto.2 volumes.1993 FAO/CP. Report No. 55/93 CP-DOM 16.

B. Working Papers

1. Detailed Project Costs and Financing Tables.WP No. 1.

2. Promotion of Credit Cooperatives. WP No. 2.

3. Irrigation Infrastructure. WP No. 3.

4. Economic and Institutional Analysis of SoilConservation Practices in the DominicanRepublic. Jose Abel Hernandez. 1992.

DOMINICAN REPUBLICIRRIGATED LAND AND WATERSHED MANAGEMENT PROJECT

Contents

1. LOAN AND PROJECT SUMMARY ................... i

2. THE SECTOR CONTEXT ......................... 1A. The Economy ............................. 1B. Agriculture in the Economy ..................... 1C. The Irrigation Subsector ....................... 3

3. DEVELOPMENT POTENTIAL AND CONSTRAINTS ...... . 7A. Potential ................................. 7B. Current Irrigation Water Management .... ........... 7C. Agricultural Development ...................... 8D. Environmental Constraints ...................... 9

4. BANK INVOLVEMENT AND LESSONS LEARNED ..... ... 11A. Bankwide Lending for Irrigation and Drainage .. ....... 11B. Lending to Agriculture in Latin America and the Caribbean . 12C. World Bank Involvement in the Dominican Republic ...... 12

5. PROPOSED STRATEGY, DESIGN, AND RATIONALEFOR BANK INVOLVEMENT ....................... 13

A. The Government Strategy in Irrigation .... .......... 13B. Rationale for Bank Involvement ................... 14C. Project Design and Strategy ..................... 15

6. THE PROJECT ................................ 17A. Project Objectives ........................... 17B. Project Components .......................... 17C. Detailed Project Features ............. .......... 18

This report is based on the findings of an appraisal mission which visited theDominican Republic in May-June 1993, comprising Mmes./Messrs. Moreau(Mission Leader), Palaco-Nielsen (Bank), Eastwood (Economist Consultant),Lafont (Irrigation Specialist Consultant), Arboleda (Sociologist Consultant).Peer reviewers were Mme. Lallement (EC4IN) and Mr. Darghouth(AF5AG). Mmes./Messrs. Edilberto Segura, Michael Baxter and ElizabethKatz are the Department Director, Division Chief, and Task Manager,respectively, for the operation.

I

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7. PROJECT COSTS AND FINANCING ...... .. .......... 24A. Costs ................................... 24B. Financing ................................ 25C. Disbursements ............................. 25D. Procurement .............................. 27E. Cost Recovery ............................. 29

8. PROJECT ORGANIZATION ........... ............. 31A. Project Coordination ......................... 31B. Accounts and Audits ......................... 32C. Monitoring and Evaluation ...................... 32

9. BENEFITS, ECONOMIC ANALYSIS, ENVIRONMENTALIMPACT, EFFECT ON WOMEN, AND PROJECT RISKS 34A. Benefits ................................. 34B. Economic Analysis ........... ............... 35C. Environmental Impact ........... .............. 36D. Effect on Women ............ ............... 37E. Project Risks .............................. 37

10. SUMMARY OF AGREEMENTS REACHED ANDRECOMMENDATIONS ......................... 38

ANNEXES

Annex 1. Total Summary AccountsProject Components by YearFinancing Plan by Disbursement CategoryDisbursement by Financier by SemesterEstimated Schedule of Bank Disbursements

Annex 2. Performance Indicators

Annex 3. Supervision Plan

Annex 4. Land Distribution in the Three Project Irrigated Areas

Annex 5. Rio Nizao Watershed Management Program

Annex 6. Participatory Research and Development Grants Scheme

Annex 7. Irrigation Infrastructure Components

Annex 8. Training and Technical Assistance

Annex 9. Financial and Economic Analysis

Annex 10. Documents Available in Project File

ANNEX 9Page 9 of 9

return in YSURA can be found in the cost of irrigation development and the benefitsattributable to increased crop production. Even though investment in the irrigation system inYSURA has been limited to drainage and riverbed protection and land levelling, costs ofoperation and maintenance are particularly high, and the overall base cost of the irrigationcomponent per hectare, at about US$ 1200, is above that in PRYN (US$ 1030) and Nizao-Valdesia (US$ 920). Due to the lack of investment in irrigation per se, a smaller proportionof the area benefits from infrastructure development. The cropping pattern, notwithstandingthe inclusion of industrial tomatoes, also has a relatively limited representation of high valuevegetable crops (reflecting the less favorable location with respect to the major urban centersand resulting poorer marketing opportunities). For these reasons, overall net crop productionbenefits per hectare are about 10 to 20% below those in Nizao-Valdesia and PRYNrespectively.

27. Even at 14%, the IRR for YSURA is satisfactory in the context of an OpportunityCost of Capital (OCC) of 12%. The overall rate of return for the project at 19% indicates asound project.

Sensitivity

28. Sensitivity analysis carried out for the overall project indicates a greater sensitivity tochanges in benefits than in costs. Switching values at the OCC show that benefits wouldneed to fall by 18% while costs could increase by as much as 22% before reducing the IRRto 12%. Both changes are, however, substantial and unlikely to arise. The impact of 10 and20% changes in costs and benefits is indicated in the table below. Another possibility is alag in benefits, if all benefits were to be delayed by one year, the IRR would fall to 14%.Essentially the test results show that relatively significant adverse conditions would berequired to reduce the economic viability of the project to below acceptable levels.

Sensitivity Tests on ERR

ERR

Base Case +10% +20%

Increase in costs 19 15 12Decrease in Benefits 19 15 11Inc. in costs and Dec. in benefits 12 5

DOMIICAN REPUBLIC

IRRIGATED LAND AND WATERSHED MANAGEMENT PROJECT

1. LOAN AND PROJECT SUMMARY

Borrower: Dominican Republic.

ImplementingAgency: National Water Resources Institute (INDRHI)

Beneficiaries: INDRHI; Ministry of Agriculture; Association for the Development ofSan Jose de Ocoa (ADESJO); Water Users Associations of Nizao,Santiago, Azua; and Nizao Watershed Farmer Associations.

Poverty: Program of targeted interventions. Poverty reduction measures includeinvestments in irrigation infrastructure in irrigated small-farm areas, awatershed management program for farmers living below the ruralpoverty threshold, and establishment of eligibility criteria for theallocation of research and extension programs to ensure that theseprograms meet the needs of the small farmers in the project areas.

Amount: US$28.0 million equivalent, including up toUS$800,000 of retroactive financing.

Terms: Maturity of 20 years, including a 5-year grace period, at the Bank'sstandard variable interest rate.

Commitment Fee: 0.75 % on undisbursed loan balances, beginning 60 days after signing,less any waiver.

Financing Plan: See para. 7.2

Economic Rateof Return: Estimated at 19 percent average for the 3 irrigated areas.

Staff AppraisalReport: 12233-DO.

Maps: IBRD No. 25141, Nizao; 25142, Ysura; and 25143, PRYN.

ANNEX 9Page 8 of 9

increases by another 5% of the area each year until the 30% coverage is attained in PY7.The cropping patterns under the different irrigation systems are the same as those indicatedin the financial analysis. Similarly, yields of areas without adequate irrigation or drainageare assumed to be 15% below average in the without project situation and improve toaverage levels with the intervention of the project. In areas benefitting from agriculturaldevelopment, yields increase in accordance with the crop models and cropping intensityimproves 20%. Because of the large proportion of the area affected by land levelling inPRYN and YSURA, it is assumed that this would include the 30% of the area benefittingfrom agricultural development. In the case of Nizao-Valdesia, the area affected by landlevelling would be additional, yields would increase but there would not be any impact oncropping intensity. In PRYN, the areas receiving drainage are assumed to be among thosebenefitting from land levelling.

Prices

23. Because of the frequent changes in trade regime and erratic implementation of taxlaws, the relationship of financial to economic prices in the Dominican Republic fluctuatesand is difficult to determine. Import taxes currently average 25 - 30% and there has beenprogress in stabilizing the exchange rate, which is now guided by market forces. For thepurposes of the economic analysis of the project, an SCF of .8 has been adopted to reflectexisting distortions.

24. For tradeable agricultural inputs and outputs, the border prices estimated by thepreparation mission have been adopted. The appraisal mission has also followed the practiceof using the financial wage rate for unskilled labor to value farm labor as off-farmemployment opportunities at similar wage rates are readily available.

Results

25. The cost and benefit streams used in the economic analysis are given in Tables 1 to12 of Appendix 1 and the results are summarized below:

Internal Rate of Return (%)

Area IR

Nizao-Valdesia 21PRYN 21YSURA 14

Three areas together 19

26. Costs for activities other than irrigation development have been allocated roughly inproportion to the area under the three schemes, so explanatory factors for the lower rate of

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ANNEX 9Page 7 of 9

D. Economic Analysis

Scope

20. Economic analysis has been carried out for the individual irrigation schemes and forthe three combined, accounting for almost 90% of project costs. The analysis covers allrelated investment both for irrigation infrastructure as well as agricultural development andinstitutional strengthening. It does not include the Watershed Development component andrelated research in view of the experimental nature of these activities.

Assumptions

21. The areas under the three irrigation schemes expected to benefit from projectactivities and the phasing of investment are indicated in the tables below. In addition, it isassumed that extension and research activities would have an impact on 30% of the areafarmed under each scheme in the formi of adoption of improved technical packages andincreased yields.

Project Area (ha)

Nizao-Valdesia PRYN YSURA

Total area: 8500 4650 6300

Area benefitting from:Irrigation improvements 3000 600Drainage/Protection - 1200 1800Land Levelling 650 3400 3200

Phasing of Investment (%)

PYl PY2 PY3 PY4 PY5Nizao-ValdesiaIrrigation 5% 40% 40% 15%Land Levelling 10% 40% 50%

PRYNIrrigation 15% 60% 25%Drainage 15% 60% 25%Land Levelling 20% 20% 20% 20% 20%

YSURADrainage 15% 60% 25%Land Levelling 20% 20% 20% 20% 20%

22. The impact on the cropped area is assumed to occur in the year following theinvestment. For the agricultural development the impact starts on 5 % of the area in PY2 and

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2. THE SECTOR CONTEXT

A. The Economy

2.1 The performance of the Dominican Republic's economy sloweddramatically in 1979-90 compared with 1970-78. Economic growth averaged 7.5percent in 1970-78 but only 1.2 percent in 1988-92. In the earlier period, underconditions of domestic price stability and external equilibrium, GDP growth exceededpopulation growth (which was 3 percent) and allowed increasing investment andconsumption per capita. But, since 1979, GDP has not grown as fast as population,and per capita consumption declined at an average annual rate of about 2 percent.

2.2 The reasons for the general stagnation of economic growth includeextensive price controls, poor performance in the public sector, and inadequatepolicies, distortions, and uncertainties in the trade sector. These factors led toinadequate investment in public infrastructure and human capital development.

2.3 In 1990 the Government, with the support of the IMF, initiated aNew Economic Program which has focussed successfully on reducing inflation andstabilizing the economy. The exchange rate system has been unified and a market-determined exchange rate has stabilized at RD$12.97 per U.S. dollar (as ofDecember 30, 1994). Domestic prices have been liberalized and reforms have beeninitiated in trade, taxation, and the financial sector. These recent improvements ineconomic performance provide an opportunity for expanded Bank assistance.

B. Agriculture in the Economy

2.4 Natural conditions in the Dominican Republic are favorable foragriculture development. The sector employs about 35 percent of the labor force.The traditional exports of sugar, coffee, cocoa, and tobacco are the main crops,occupying more than half of the agricultural land and generating more than 60percent of merchandise exports. The remaining land suitable for agriculture isdedicated largely to food crops, of which rice is now the most important. Cropsaccounted in 1991 for about 68 percent of the gross value of agricultural productionwith the remaining 32 percent shared by livestock (28 percent) and forestry andfisheries (4 percent). But the contribution of farming to the economy has beendeclining. The agricultural sector--including the sugar industry--accounted for only17 percent of GDP in 1991, compared with 19 percent in 1980 and 26 percent in1973. Although the annual growth rate of total GDP was about 2.8 percent in 1980-89, for agricultural GDP it was only 1.4 percent, dropping to less than 1 percent in1988-92.

ANNEX 9Page 6 of 9

to family labor at full development is well over twice the wage rate, suggesting that thereshould not be a problem with paying the water charge. In fact, even in this situation, wherethe water charge is highest, it only represents about 11 % of total costs. Supplementaryanalysis of the returns per hectare for individual crops with full costing of the labor inputshows that only a few crops - maize, rice and peanuts - in the situation of inadequateirrigation/drainage would not generate enough revenue to cover the cost of the with projectwater charge.

Payment of Water Charges

18. If this is the situation, why has the record of payment of water charges, which havebeen much lower, been so poor in the past? and what is the implication for payment in thefuture? Essentially there is a problem of perception: in so far as water has been perceived asa free good and irrigation a public service, farmers have been reluctant to contribute toupkeep of the system. The situation has been aggravated when the service has not beenefficient and water has not been available in adequate amounts when required. With thedevelopment of Water Users' Associations and the transfer of responsibility for upkeep of thedistribution system to them, the situation has improved, as witnessed by the better paymentrecord of WUA members. There is a greater sense of responsibility for the system andcorrespondingly a greater willingness to pay for its upkeep. However, experience has shownthat willingness to pay is very closely linked with the quality of the service provided and theneed for water. In these circumstances, the importance of ensuring the efficiency of theirrigation system is underlined. This requires not only better infrastructure but also trainingin improved operation and maintenance practices. It is therefore an integral part of theproject to strengthen the WUAs with a view to improving the effectiveness of servicesrendered to members, enabling enhanced recovery of costs of irrigation system operation andmaintenance and facilitating the achievement of financial viability.

19. Although payment of the water charge does not represent a significant outlay for theaverage farmer, it would not be realistic to expect that full cost recovery could be easilyachieved under the project. Given that existing recovery is about 60 - 70% of amount due inPRYN and YSURA, where the WUAs have been established for some time, and probablylower in Nizao-Valdesia, where users are only partially organized, a reasonable target mightbe cost recovery of the amount required to finance WUA operations, i.e. operation andmaintenance of the distribution network, by the third year of the project. By the end of theproject, about 80% of total 0 & M costs might be recovered under the PRYN and Nizao-Valdesia systems, but it is unlikely that more than 50% recovery of the total 0 & M costs ofYSURA could be achieved. The lower expected recovery under the YSURA system is botha reflection of the higher cost and the fact that project intervention would be lesscomprehensive than in the other two areas.

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2.5 When the agricultural sector is viewed more closely, the problems areclearly found mostly in the crop subsector. The average annual growth rates ofagricultural GDP by subsector for 1980-89 are 3.9 percent, forestry and fisheries;0.7 percent, crops; and 2.4 percent, livestock. Crops lacked dynamism especially inthe second half of the past decade; 1981-90 average growth rates for rice, maize,sorghum, and beans were close to zero or negative. Domestic agricultural policy, alack of credit, deterioration of mechanization services and irrigation systems, and anextreme drought in 1990, all contributed to this situation.

Iblmate and Soils

2.6 The climate and soils in the Dominican Republic place practically norestrictions on growing tropical and some subtropical crops. Warm temperaturesthroughout the year allow a 12-month growing season with irrigation. Although thetemperature does not vary substantially, the seasons are distinguished by variations inrainfall. The summer rainy season lasts from May/June to October/November whenthe winter dry season starts. There are very sharp differences in rainfall between thewindward and leeward sides of the four mountain ranges that cross the island. Therainiest areas are in the northeast, which is exposed to the trade winds, and in theCordillera Central (above 2,000 millimeters per year). In some southern areas,rainfall can be as low as 500 millimeters per year. This range of variations, fromhigh humidity to semi-aridity, is aggravated by the great differences in altitude.

2.7 Soil types vary widely and thus so does production potential. Soilsthat have agricultural potential (Classes I to IV) cover 20 percent of the country'sarea, and soils suitable for pasture (classes V and VI) cover another 25 percent. Theremainder (classes VII and VIII) comprises mountain areas suitable for forests (53percent) and conservation (2 percent).

Land Use and Distribution

2.8 The Dominican Republic has a total area of 4.8 million hectares, ofwhich 2.6 million hectares or 54 percent are suitable for agricultural and livestockproduction. The remaining 46 percent are marginal areas and, at best, are suitablefor forestry and conservation. Of this, large areas have been deforested or arewithout any use. Some 1.7 million hectares are under pasture and support livestockproduction, mainly beef and milk. Approximately 0.6 million hectares are undercultivation, with sugarcane, cocoa, coffee, tobacco, coconuts, and fruit treesoccupying an estimated 0.3 million hectares. About 0.3 million hectares produceseasonal crops for the domestic market, mainly rice, maize, beans', groundnut, rootand tuber crops, and tomatoes. Seasonal crops have shown a strong increase in someareas at the expense of tree crops, pasture, and forest areas. Increased irrigationmay have contributed to this trend.

ANNEX 9Page 5 of 9

limitation to planting of host crops over specified periods, was proving relatively effectiveand industries were returning to the Azua area and expecting to substantially increasecontracts for planting there in the next few years. It was therefore considered appropriate toassume that a relatively important part of the cropped area (25%) under the YSURA modelwould be planted with industrial tomatoes.

15. In the without project situation of inadequate irrigation/drainage envisaged underModel A, yields are 15% below average. With improvement to the irrigation/drainagesystem under the project, yields increase to average levels. Cropping intensity does notchange. Under Model B, yields develop to the full potential identified in the crop modelswhile cropping intensity improves by about 20% to 0.94 in Nizao-Valdesia and YSURA to0.8 in PRYN. For both models, it is assumed that the farmer's family would be in aposition to provide the majority of the labor required and that only 10% of laborrequirements would be hired. In the without project situation, current water charges prevail,whereas with the project, charges are increased to cover WUA costs in the first year andsubsequently to cover the full cost of irrigation system 0 & M.

Results

16. Appendix 1 gives the results of the financial analysis in the form of farm budgets forthe various models achieving in PY5 an averaged incremental farm income of 45% in Nizao-Valdesia, 51% in YSURA, and 72% in PRYN. They are summarized in tenns of return tofamily labor below:

Summary of mnancial Analyis Results

Returns to Family Labor(RD$/person/day)

Irrigation System Without Project Full Development % Increase

PRYNModel A 138 177 28%Model B 172 217 26%

Nizao-ValdesiaModel A 157 191 22%Model B 194 246 27%

YSURAModel A 119 145 22%Model B 150 186 24%

17. In the case of Model B, the combined impact of the increase in labor input and thefull water charge in year 2 causes a drop in return to family labor below that in the withoutproject situation. This is also due to the establishment of new plantations of banana andplantain. Once the establishment phase is over, income improves to a level significantlyabove that in the without project situation. Even in YSURA in the Model A situation, return

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2.9 Land distribution is characterized by a considerable concentration ofland holdings with large farms. Census data from 1981 indicate that almost half (49

percent) of the agricultural land is titled and held by private owner-operators, 22percent is controlled by the state, 3 percent is rented or sharecropped, and 26 percentis illegally occupied state and private land--or is under unclear status. It is estimated

that 29 percent of the total irrigated area is property of the Dominican Agrarian

Reform Institute (IAD) and the State Council for Sugar (CEA), while the remainingis private land. Titles given by IAD to farmers are temporary. This severely limits

farmers' access to credit outside the Agricultural Bank (BA) and restricts full benefits

from on-farm infrastructural investments.

C. The Irigation Subsector

2.10 The Dominican Republic is well endowed with water resources.However, the distribution of those resources is not ideal for irrigation andcultivation. Precipitation ranges from 400 to 2,500 millimeters a year, with sharpdifferences even within relatively small irrigation systems. Because of the steeprelief of the catchments, aggravated by deforestation, river flows closely followrainfall. In the dry season, river flows are low and some rivers are dry in the semi-arid zones. Prospects for expanding cultivation by developing new lands are limited,but considerable opportunities exist for intensification of irrigated agriculture and, in

particular, for better use of the existing irrigation infrastructure.

2.11 Irrigation systems began to appear in the 1920s, and the period 1930-

54 marked the greatest incorporation of areas into irrigation. The National Water

Resources Institute (INDRHI) was founded in 1965, launching a policy of regulatingthe headwaters of Dominican rivers through the construction of storage dams andmodem irrigation systems not far from urban centers. A low pace of irrigationdevelopment, however, was recorded from 1960 to 1979. During these decades the

Government developed a policy of multipurpose use of water resources byconstructing dams for power generation, irrigation, industrial and civil use. From1970, a new irrigation program was initiated mainly to develop large irrigationschemes. During the same period, investments in dams and irrigation infrastructures

averaged about 10 percent of total Government expenditures or about half of allinvestments in agriculture. Hydroelectric power plants associated with 7 storagedams have a total installed capacity of 270 megawatts, with average annualgeneration of 400 million kilowatt hours contributing 12 percent of the annualgeneration of the Dominican Corporation for Electricity.

ANNEX 9Page 4 of 9

Current Water Charge with Project

Systemn RD$ WUA only *YUA + INDRMII DistrictRDS % inc. RD$ % inc.

PRYN 313 355 13% 530 69%

Nizao-Valdesia 219 315 44% 515 135%

YSURA 181 275 52% 785 334%

11. The difference, in terms of a water charge covering the full costs of 0 & M is very

significant, particularly for YSURA. The situation with respect to the costs of the WUA for

0 & M of the distribution network alone represents a relatively modest increase. This is

most true in the case of PRYN, which bears out the impression that this WUA currently

comes closest to covering the costs of its operations.

Assumptions for Financial Analysis

12. Financial analysis has been carried out on the basis of six farm models, two for each

irrigation system. All models are two hectares each, considered to be the modal size of

holding. Cropping intensity (excluding pasture) at the outset of the project reflects current

practice and is 0.78 for YSURA and Nizao-Valdesia and 0.67 in PRYN where there are

several larger holdings which are less intensively farmed. The crop models on which the

farm models are based are those developed by the FAO/CP Preparation Mission.' For

inputs, the prices were obtained from suppliers and verified by SEA technicians working in

the project area, while those for outputs represent average farmgate prices for the period

January-October. Labor was valued at the daily wage rate prevailing in the project area ofRD$ 60/day. The prices used by the Preparation Mission have been adopted with acoefficient of 1.05 to reflect the price increase since the time of collection in January 1993.

13. For each system, farm model A represents a fanner who benefits from improvementin irrigation/drainage alone, while farm model B shows a farmer with adequate irrigationwho benefits from agricultural development on his holding. The models and their evolution

over a five year period are given in Appendix 1. In each area, the cropping pattern differs

in order to represent what is typical based on past practice and an estimate of future

prospects. There is assumed to be a slight change in the relative importance of differentcrops over the development period. The proportions of total cropped area represented by thevarious crops and the yields at different stages of development are also given in Appendix 1.

14. In the case of YSURA, particular consideration has been given to the prospects for

industrial tomatoes. While this crop has been important in the past, in recent years it hasbeen a major victim of the white fly. The mission was informed that control, in terms of

1. See Appendix 5, Annex 1, Volume 1, Report 55/93 CP-DOM 16. A minor modificationwas made to the budget for vegetables (horticolas) in order to include costs of mechanizationin the without project situation.

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Legal and Insttutonal Framework

2.12 Water Rights. In the Dominican Republic, the development and useof public water resources are subject to Law 5852, Ley del Dominio de las AguasTerrestres (Water Law). This law covers virtually every aspect both of waterdevelopment, from underground and surface sources, and end uses, whetherdomestic, industrial, or agricultural. It provides, among other things, for thecreation of irrigation districts. The law also authorizes INDRHI to grant water rightsbased on an appraisal of the adequacy of existing or planned irrigation works to usethe water effectively. INDRHI has responsibility for supervising use of the waterand ensuring that all conditions of the law are met, including measuring the amountof water used and establishing priorities for use among groups of farmers suppliedfrom a common source. Under the law, a water right is tied to the land and does notbelong to the individual who owns or farms the land. Each year, water users mustrequest a specific amount of water that can be used effectively for the purposesindicated in the water right--and this request is granted or modified by INDRHI,depending on the water supply and facilities available to satisfy such requests.INDRHI can also cancel water rights or transfer them to other lands. Uses in thepublic interest have priority over private uses.

2.13 Cost Recovery. The Water Rate Law of 1982 established that allirrigation districts were to become self-financing and recommended a 50 percentrecovery of operation and maintenance expenditures in 1984, to increase annually by10 percent through 1989. INDRHI has been having difficulties enforcing this lawbecause of the unreliability of water supplies and the slow pace of organizing wateruser associations. Water tariffs, therefore, have remained low and cost recovery isunlikely to improve significantly in areas where services to water users are poor orunusable (Table 2.1).Experience with the pilotprogram of On-FarmWater Management Tal PeetRDhatYesoWaer CareProject (PROMAF) (RDS/ha/ Year)shows, however, that, Syslem Non-rice crops Ricewhen responsibility for 10 ha > 10 ha < 10 ha > 10 haoperation andmaintenance is Nizao-Valdesia 219 438 438 876transferred to the I'SURA 180 361 361 723beneficiaries in wateruser associations, feecollection rates are much higher than before. Regarding cost recovery of irrigationinvestments, the current law enables the Government, through IAD, to acquire landfor redistribution through the cuota parte (share of land) system after irrigationcanals have been constructed. Landowners must return to the Government 50

ANNEX 9Page 3 of 9

three systems which have been used in the financial and economic analysis. The revisedcosts are indicated in the table below:

Revised Operation & Maintenance Costs(RD$/ha/year)

Organization Activity Nizao- PRYN I'SURAValdesia

INDRHI Administration 30 45 75Operation 25 25 50Maintenance 145 105 385

Total: 200 175 510

WUA Administration 45 65 40Operation 135 150 100Maintenance 135 140 135

Total: 315 355 275

TOTAL 515 530 785

9. In establishing these costs, it has been assumed that INDRHI would remainresponsible for the 0 & M of feeder/main canals, drainage and river protection works,pumping stations and service roads, while the WUA would take charge of the 0 & M of thedistribution network (mostly lateral and sub-lateral canals and structures). In the calculationof WUA costs, the work of gate keepers and labor contributed by farmers for canal cleaninghave been valued. Inefficiency of the District Offices is assumed to be overcome with areduction of 50% in staff costs compared with the present situation. The existing disparity inremuneration between Santiago (PRYN) and the other areas remains, with salaries for PRYNstaff 60% higher than those elsewhere. As the project intervention in YSURA is limited, ithas been assumed that operation activities of the District Office would not improve althoughthere would be some improvement in maintenance due to the availability of new equipment;at the WUA level, performance would be only 75 % of that of PRYN. District Office 0 &M costs for YSURA are higher than for the other two systems because of the heavymaintenance required by the extensive conveyance canal, the dense drainage network and thewells.

10. The following table provides a comparison of current water charges and thoseproposed under a with-project situation on the assumption that the revised costs would befully reflected in water charges:

-5-

percent to 80 percent of their lands included in public irrigation projects. Farmerswith holdings of less than 6.3 hectares do not pay cuota parte.

2.14 Organization of Water User Asodations Law 5852 also providesfor the formation of water user associations. In 1984, a draft regulation wasprepared for the organization of water users and their representation at all decisionmaking levels of INDRHI (national, irrigation district, zonal, sector and communalfarm turnout levels). So far, water user associations have been created only at thedistrict level in three projects (Azua, Nizao, and Santiago). To help the Governmenttransfer management to water user associations, a pilot project (PROMAF) supportedby USAID was implemented with INDRHI. Two project areas, Azua (YSURA) andSantiago (PRYN Contract I), were partially developed, covering 14,400 hectares andserving 6,000 farmers. The results have been most impressive: water use is moreefficient and fee collection rates are more than 80 percent of potential against thenationwide today of 25 percent.

Public Institutions

2.15 The Ministry of Agriculture (SEA) is nominally responsible forimplementing and coordinating the agricultural policies set out by the presidency andthe National Council for Agriculture (CNA). SEA's administrative control overdecentralized agencies it funds is limited. These include the State Sugar Council(CEA) and the National Institute for Price Stabilization (INESPRE), both of whichhave a significant effect on agriculture. The activities that SEA directly controls areprimarily technical and skill-intensive, such as agricultural research, extension,training, planning, data collection and analysis; performance of these activities isgenerally poor.

2.16 The Dominican Agrarian Reform Institute is an autonomous agencythat was established in 1962 with an endowment of 192,000 hectares expropriated bythe state. Later, other lands were expropriated and entrusted to IAD to manage; forinstance, in 1972, by law, all rice holdings larger than 500 tareas' (about 31.44hectares) were expropriated. Later, all holdings over 100 tareas, which benefittedfrom Government-financed irrigation systems, were required by law to turn over tothe Government a variable fraction of the land--50 percent if the land was cultivatedbefore irrigation and 80 percent if it was not. IAD's land reform program is todistribute land to small farmers on terms that permit most of them to become self-sufficient and productive. Performance of the land distribution program is poor,however, because of cumbersome and lengthy IAD procedures.

1. One Tarea = 0.062 Hectares

ANNEX 9Page 2 of 9

C. Financial Analysis

Scope

4. Financial analysis has been carried out at the farm level in order to determine thefinancial viability for the farmers of the proposed developments and, in particular, to assesstheir capacity to pay water charges to cover the operation and maintenance of the irrigationsystems.

Water Charges

5. In accordance with the provisions of Decree No.555 of December 1982, users ofwater for irrigation provided under INDRHI projects are required to cover the costs incurredby INDRHI to operate, maintain and administer such systems through payment of annualwater charges. The basic tariff is estimated on a per hectare basis for irrigated holdings ofless than 10 ha. Users of water for more than 10 ha pay double the basic amount for eachhectare over 10 and cultivators of rice also pay double per hectare irrigated.

6. Water charges are proposed by INDRHI and established by parliamentary decree.Although they are intended to cover the costs indicated above, in fact the amount charged hasconsistently been inadequate and the amount actually collected, ranging from 20 - 60% of theamount due, considerably less. Furthermore, the process of establishing the charges issubject to political control and consequently it is difficult to introduce increases. Currentcharges were established by Decree No. 435-9 in October 1990. For the three systemscovered under the project, the rates are given below:

System Water ChargeRD$/ha/yr

Santiago (PRYN) 313Bani (Nizao-Valdesia) 219Azua (YSURA) 181

7. Where WUAs have been established, as in PRYN and YSURA, they have been giventhe responsibility for operation and maintenance of the secondary and tertiary canals andauthorized to collect water charges to cover this cost. In these areas, no separate charge iscollected by INDRHI, although the Institution remains responsible for operation andmaintenance of the main canal. Collection, at 60 - 70% of the amount due, is considerablybetter than in areas where WUAs have not been established but the WUAs still rely onINDHRI for provision of heavy equipment and sometimes other support necessary to carryout their responsibilities.

8. Current water charges are inappropriate for two reasons: (a) they are not regularlyupdated to reflect changes in costs; and (b) actual costs do not reflect efficient operation andmaintenance expenses as they are influenced by excessive staff and inadequate facilities. Inthe context of the project and following detailed analysis of budgets of INDRHI IrrigationDistrict Offices and existing WUAs, the mission has estimated revised 0 & M costs for the

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2.17 The National Water Resources Institute, an autonomous state agencyunder SEA, is responsible for planning, development and regulation of waterresources. INDRHI was created by statute in the mid-1960s. The agency hasstatutory authority to investigate potential and proposed water resource developments,to determine availability of water, to adjudicate and allocate water betweencompeting applications, and to charge and collect fees for water use. INDRHI isdivided into four departments: Planning, Projects, Administration, and IrrigationDistricts. For field operations, the country is divided into districts, which aresubdivided into zones (and occasionally subzones) and sectors. Districts are usuallydivided on the basis of watersheds, although rivers sometimes are boundaries. Onlya small portion of the area of a district comprises irrigation systems and relatedprojects.

2.18 The Agricultural Bank was established in 1952 to support theGovernment's agricultural policy by providing the necessary financing. It ismanaged by a 7-member Board of Directors. The chief executive, who is appointedby the president of the republic, is also the director general. The Board of Directorsincludes the governor of the central bank, one representative from each of thecountry's five different administrative regions, and one from the Ministry ofAgriculture. The headquarters is in Santo Domingo and there are 31 branchesthroughout the country. BA is lending mainly to small farmers who cannot obtaincommercial banking credit for reasons of collateral, creditworthiness, and distancefrom bank locations. Of about 104,000 loans that BA had outstanding in 1990, about65,000 (62 percent) averaged US$600; an additional 17,000 (16 percent) averagedUS$1,000. A large part of these small farmers are beneficiaries of the agrarianreform and, as such, have access to BA credit without providing collateral. By law,these agrarian reform loans are guaranteed by the state, which reimburses BA for theunpaid portfolio; it does so very irregularly and with considerable delay, straining onBA's resource availability.

ANNEX 9Page 1 of 9

DOMINICAN REPUBLIC

IRRIGATED LAND AND WATERSHED MANAGEMENT PROJECT

financial and Economic Analysis

A. Introduction

1. Financial and economic analysis has been undertaken for the major part of the projectwhich is concerned with the development of irrigated areas. The analysis does not cover thewatershed management component as the activities proposed at this stage are essentiallyexperimental in nature, intended to provide guidance for more extensive development in thefuture.

B. Target Population

2. It is estimated that there are about 10,300 farmers under the three irrigation systemsinvolved in the project distributed as follows:

Irrigation Scheme No.of Farmers

PRYN 2,015YSURA 4,800Nizao-Valdesia 3,500

The figures for PRYN and YSURA are up-to-date and may be considered accurate asthey refer to members of the Water Users' Associations (WUA). The number of farmersunder the Nizao-Valdesia scheme is more difficult to determine precisely as users have beenorganized in only 3 of the 8 sections, and the number of users in the 3 organized sections isabout 1,260 farmers.

3. In the PRYN area, 48% of farmers are beneficiaries of land reform and account forabout 30% of the land under the scheme. In YSURA, practically all holdings weredistributed as a result of land reform. There are only two settlements of land reformbeneficiaries under the Nizao-Valdesia scheme. Holdings of land reform beneficiariesaverage about 1.5 ha. Because of the significant presence of private landowners in thePRYN and Nizao-Valdesia schemes, there is more variation in land holding size in theseareas, although not all private landowners are large farmers. Even outside the land reformsettlements, not all farmers have title to the land they farm, often as a result of disputes overinheritance.

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3. DEVELOPMENT POTENTIL AND CONSTRAINTS

A. Potential

3.1 Temperatures are conducive to year-round crop growth. And totalaverage precipitation in many areas of the Dominican Republic (Santiago, forexample) may appear to be satisfactory for rainfed crop production, reaching 1,000millimeters per year. But the irregularity of the rainfall pattern and highevapotranspiration rates most commonly produce high risk for rainfed cropproduction. Thus high-input crops, such as tomatoes for processing, face specialconstraints. Typically, areas with average precipitation of 6,000 millimeters/year to1,000 millimeters/year are still classified as having an arid climate. A 1978 studyestimated the country's irrigation potential at 550,000 hectares which would require43 percent of the total annual flow.2 This potential is considered overoptimistic,even unrealistic, however, as it is based on assumed irrigation efficiencies of 50 to60 percent--85 to 90 percent for the conveyance and distribution systems and 60 to65 percent for on-farm efficiency. Irrigated area today is believed to total 230,000hectares. This area has considerable potential given the near proximity of a largeexport and import substitution market.

B. Current rrigation Water Manag t

3.2 The most pressing problem, in all regions in the country but especiallyin irrigated areas, is poor management of existing resources, as reflected by a verylow overall irrigation efficiency, of about 25 percent in the Dominican Republic.This is attributed to the relative abundance of water supplies; in some areas, thefarmer has little incentive to manage water efficiently. Lack of properly designedand constructed primary and secondary canals and of adequate water control,measurement structures, and sufficient farm turnout devices are also key. In most ofthe country's irrigation systems little attention has been paid to minor canals, watermanagement, and on-farm development, which has resulted in low field efficiencies.Similarly, there is insufficient main drainage infrastructure to provide drainageoutlets to all farm units. As a result, about 20 to 25 percent of the land in theirrigation systems suffers from waterlogging, salinity, and high water tables. Otherdeficiencies include poor condition of the irrigation systems, including silted canal

2. INDRHI, 1978: Plan Nacional de Investigaci6n, Aprovechamiento y Control deAguas Subterrdneas (PLANIACAS).

ANNEX 8Page 6 of 6

and implementation and management of adaptive research in the field as well as practicalexperience in technology transfer. Experience with participatory approach would be a strongadvantage. The Research Specialist would speak and write fluent Spanish.

19. Duration of Contract. The assignment would be for 2 months in PY1, then 1month each year during the last four years of project implementation.

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and drains, inoperative gates, and the siltation of regulating and--to a lesser extent--storage reservoirs 3

3.3 Other factors that contribute to the inefficient use of irrigation systemsare the problems in the layout of on-farm irrigation canals because of the incompleteor outdated cadastral maps of the irrigated areas; the poorly developed agriculturalproduction plans and cropping patterns, which are not based on available waterresources in the storage reservoirs at the beginning of each dry season; insufficientknowledge by INDRHI and water user associations of the actual crop coverage; and alack of operational manuals. In addition, irrigation requirements are not calculatedon the basis of crop needs and actual rainfall, but are estimates. Water is deliveredon demand when there is no scarcity and on a rotational basis at other times todifferent farmers, usually without strict time limits. There is no irrigation at nightand on Sundays.

3.4 As a result of system deficiencies and a past mobility to adjust tovariations in demand, large volumes of water are lost to the drains or to the farms atnight and during the rainy season--and substantial areas are affected by waterloggingand salinization.

C. Agriuural Deveopment

3.5 As noted above, agriculture in the Dominican Republic is characterizedby a dualistic system of large and small holdings (para. 2.9). The coexistence ofextensively operated large farms and many smallholders producing mainly forsubsistence constrains technological development, appropriate use of resources, andincreases in productivity. The levels of agricultural technology vary by region, crop,and fann type, but remain generally low. Intensive use of modern production inputsis limited to sugarcane, rice, tobacco, and some vegetables. Reliable data on areasplanted to rainfed or irrigated seasonal crops and agroeconomic comparisons betweenthe two farming systems are lacking. In general, the low productivity of crops in theDominican Republic can be traced to weak research and extension services; lowcropping intensity; inefficient management of farms, particularly those producinglivestock and permanent crops; high cost of inputs; and land tenure and the relatedlimited access to formal credit. In addition, poor water management, low irrigationefficiency and the problems of waterlogging and salinity associated with irrigation

3. Development Strategies for Fragile Lands. 1990. Evaluation of the on-farm watermanagement project in the Dominican Republic. USAID contract no. DHR - 5439-C-19-6054-00.

4. World Bank. 1986. Dominican Republic - Agricultural Sector Study Report no.6267-DO.

ANNEX 8Page 5 of 6

provide on-the-job training in watershed management, as well as help establish the format andtrend of watershed planning during the initial years of project implementation.

12. Scope of Work. Working closely with ADESJO, the specialist would assistproject staff to formulate work plans to guide watershed management planning andimplementation in the Nizao watershed area following the guidelines and concepts presented inAnnex 5. With the project team, the incumbent would assist to assemble baseline data includingmaps, aerial photos, statistical output data, land-use data, climatic data, streamflow and sedimentdischarge data, etc. In addition, he will participate in the definition of research programs andin the preparation and setting-up of an Environmental Monitoring system.

13. Qualification and other Experience. The incumbent would be DR national andwould hold a degree in either watershed management, agricultural science, or forestry. Hewould possess at least 10 years of experience in soil and water resource management. Inaddition, he would be versed in each of the following teclhical skills:

(a) Computer literate in word processing and use of standard spreadsheets;

(b) Soil sampling, soil survey, land use capability, and soil classification;

(c) Soil loss and run-off estimation procedures including for non-agricultural lands;

(d) Participatory land management procedures;

(e) Soil and water conservation;

(f) Mapping skills, aerial photos interpretation.

14. Place of Duty. San Jose de Ocoa.

15. Duration of Contract. 5 years.

Participatory Research Specialist

16. Duties. The Participatory Research Specialist would work with the PEU and thewatershed specialist to establish a Participatory Research and Development Grants Scheme aspresented in Annex 6.

17. Scope of Work. The Research Specialist would prepare detailed technical biddingdocuments for the four major PR&D contracts. In the course of project implementation he/shewould advise the PR&D-GB in preparing standard format for RD&D proposals and in reviewingthe technical proposals as well as their costing.

18. Qualification and Experience. The Research Specialist would be internationallyrecruited and would have agricultural qualifications and post graduate training in rainfed andirrigated crop production. He/she will have more than 10 years field experience in the planning

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also contribute to low productivity. An increase in crop productivity and moreefficient land use depend on the removal of these constraints. The Government hasinitiated development projects aimed at increasing the productivity of some exportcrops, such as coffee and cocoa, but insufficient attention has been given to other

crops.

3.6 Major potential for increasing production lies in improved use ofirrigation facilities, which would allow the present cropping intensity--about 80percent--to be increased to 130 to 140 percent. As mentioned earlier, efficientfunctioning of the existing irrigation system is constrained by institutional, financial,and system design issues of INDRHI and water user associations.

D. Environmental Constraints

Drainage and Salinization

3.7 Most irrigable land in the Dominican Republic is in the 3 large riftvalleys that lie between the island's 4 mountain ranges. The topography of theirrigable areas varies from moderately hilly and undulating to uniformly flat. Slopesof 2 to 5 percent and the many streams allow good surface drainage of gently slopingland. However, incomplete irrigation infrastructure and over-irrigation has produceddrainage problems in low-lying areas. As a result, the permanent waterlogging ofsome plots has created a "water-bridge" between the saline water table and the toplayers of the soil. Little research has been done on this issue. Another problem isthe potential threat of saline intrusion in coastal aquifers. This is most likely tooccur where storage for hydroelectricity or consumptive use of water for irrigation inthe dry season reduce flows near river mouths or estuaries so much that groundwater recharge cannot prevent the advance of seawater. There has been no indicationthat this process is under way in the southwest or northwest, which would affect thequality of water available to the increasing population at beach resorts and othercoastal towns. Nevertheless, the prospect cannot be ignored in view of likelyincreased demands for water for irrigation, industrial production, and domesticconsumption. There is only limited information on the behavior of aquifers (coastalor inland) with which to estimate the probability of saline intrusion and designremedial or preventive measures. The proposed project would require thatinvestments for such areas address this issue as part of the environmental monitoring.

Degradation of Natural Resources

3.8 Deforestation, combined with inappropriate agricultural use ofmountain and hill areas, has intensified soil erosion, which in some areas hasirreversibly damaged the soil's productive capacity. Soil erosion has causedexcessive sedimentation in riverbeds, storage dams, and irrigation canals. The loss

ANNEX 8Page 4 of 6

6. Job descriptions for the T.A. specialists, Economist/MIS/Monitoring Specialist,Watershed Management Specialist, and Participatory Research Specialist would be as describedbelow:

Economist/MIS/Monitoring Specialist

7. Duties. The internationally recruited specialist would be required assist hiscounterpart in PEU to develop practical Management Information Systems/EnvironmentalMonitoring System and to devise a program for monitoring project activities in the irrigatedareas as well as in the Nizao watershed.

8. Scope of Work. The specialist would work closely with PEU personnel andWUAs and ADESJO staff. He/she would devise systems and source for the collection andanalysis of technical and financial parameters of project activities. During projectimplementation, in the irrigated areas, the data base so created would be continuously updatedso that each WUA would be in a better position to manage carefully the use of lands and ofirrigation water, as well as the cash-flow of the different farm models. In the Nizao watershed,the data base would be used to accurately review the MC development plans as low cost,technically and economically viable. The tools and approach to the participatory approach toMC management would be constantly under review and the MIS would assist management todevise ever more transparent means of explanation of options, in the smooth planning andimnplementation, with modifications, if appropriate. Both in irrigated areas and in the watershedarea, the specialist would propose key socioeconomic indicators of project impact (qualitativeand quantitative).

9. Qualifications and Experience. The Economist/MIS/Monitoring specialist wouldhold a degree in agricultural economics and relevant experience extending over at least ten years.He/she would demonstrate ability to work with multi-disciplinary teams and competence to setup operational procedures. Technical skills would include:

(a) computer literacy with experience in setting up large database systems, usingspreadsheets and word processing;

(b) micro project planning and economic and financial feasibility analysis;

(c) knowledge of farm survey participatory approach and systems.

Fluency in Spanish. Experience of working in the irrigated areas and/orwatershed areas would be an advantage.

10. Duration of Contract. 3 months during PYL.

Watershed ant Specialist

11. Duties. The Watershed Management Specialist would work closely with theProject Executing Unit, technical staff of ADESJO, and farming communities representativesto develop management plans for priority microcatchments. In so doing, the incumbent would

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of vegetative cover has reduced water retention capacity in the catchment areas,producing irregular water flows and flooding, and has reportedly led to the drying upof hundreds of small rivers and streams. In addition, the useful life of hydraulicinfrastructre such as storage and re-regulating reservoirs is shortened.

3.9 Little has been done to address the deforestation and inappropriate useof mountain slopes which cause the erosion. Preliminary experience with the PlanSierra (Sierra Plan) and a few projects of the General Forestry Directorate and theMinistry of Agriculture suggests that responsibility for soil and water conservationand management of forest areas are dispersed among various government institutionswith overlapping activities and conflicting objectives. Moreover, land rights andregulations on land use are not clear. Thus, where an individual settler occupiesstate land, neither the individual nor the state is willing to invest in the land, eventhrough tree planting. Private sector involvement generally is constrained by a lackof clear rules about land to be used for forests and uncertainty about future changesin regulations. All these issues would be addressed on a pilot basis through theproposed project.

ANNEX 8Page 3 of 6

* project objectives and participatory MC planning;* study trips to demonstrations and treatment sites;* forest land management treatments;* agroforestry management treatments;* rainfed and irrigated farming techniques;* village responsibilities in the management of community lands.

Detailed training programs would be worked out with the help of the technicalteam and the sociologist/training specialist recruited for reinforcing the team of ADESJO.

Technical Assistance

5. In order to help upgrade technical skills and develop managerial capabilities at thelevel of each WUAs and ADESJO, the project envisages Technical Assistance (TA). TA isidentified as being both national and international and recruitment would be carried outaccordingly.

Technical Assistance Pi, I PY2 PY3 PY4 PY5

Short-Term T.A. (month)

Economist/MIS/Monitoring 3 -Specialist

Accountant 3 1

Legal Expert 1 -

Procurement Specialist 2

Research Specialist 2 1 1 1 1

Long-Term T.A. (year)

Project Coordinator 1 1 1 1 1

Watershed Management 1 1 1 1 1Specialist l

Civil Engineer 1 1 1 1 1

Water Management Expert 1 1 1

Agriculturalist 1 1 1 1 1

Monitoring Specialist 1 1 1 1 1

Administrator 1 1 1 1 1

Accountant 1 1 1 1 1

Computer Specialist 1

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4. BANK INVOLVEMENT AND LESSONS LEARNED

A. Bankwide Lending for Irrigation and Drainage

4.1 Irrigation and drainage projects account for about one-third of Banklending to agriculture. Although Bank-supported investments in irrigation anddrainage have been generally beneficial, there is growing concern about the quality ofsome of the projects. The overall operational performance has been poorer thanexpected and the sustainability of many investments is uncertain. Recurring issuesinclude the effectiveness of large-scale, public sector, gravity irrigation systems asopposed to largely private-sector irrigation development; the proportion of projectsnot completed, especially under program or time-slice approaches; poor preparationand design of schemes; overestimation of irrigation system efficiency; substandardconstruction quality; the low level of cost recovery; and the role of major commodityprice shifts. The physical infrastructure has often deteriorated, leading in some casesto long-term declines in production and low efficiency in water use. Inadequateoperation and maintenance funding and institutional and organizational problems havecontributed to this shortfall in performance. Borrowers often disengaged too earlyfrom projects, leaving irrigation and drainage systems incomplete and landdevelopment unfinished, with complementary services inadequate or seriouslydelayed.5 In addition, some Bank-financed projects suffer from underestimated costsbecause of inadequate engineering designs, preparing tender documents, and bids;slower-than-estimated civil works construction and equipment delivery times; andlower-than-estimated water use efficiencies.'

4.2 Poor design of the system has also contributed to a poor cost-recoveryrecord in Bank-financed irrigation projects. In most cases, no capital costs wererecovered, and in two-thirds of the Bankwide projects reviewed, the covenantrequiring that cost recovery fully satisfy operation and maintenance funding had notbeen met, with the proportion of operation and maintenance costs recovered generallyreaching only a range of 15 to 45 percent. In addition to an unreliable water supplyresulting from poor design and poor operation and maintenance, the two other factorsin weak cost recovery are the often heavy burden of direct and indirect taxes alreadyimposed by governments on farming and a lack of government commitment torecover costs.7

5. Evaluation Results for 1989, Operations Evaluation Department (OED).

6. Annual Review of Evaluation Results for 1989 - Agriculture and RuralDevelopment, OED.

7. World Bank Lending Conditionality: A Review of Cost Recovery in IrrigationProjects, OED, OPS No. 6283, June 1, 1986.

ANNEX 8Page 2 of 6

3. Farmer Training. The content of any training would dependon the training received by the extension staff and the findings of theparticipatory research. Allowance has been made in the costs for a certainnumber of days per year for training in production techniques and watermanagement, and also for field days and visits to research stations orexperimental farms. Provision has also been made for the establishment of ademonstration plot in each sector at a cost of RD$5,000/plot/year. The costsfor the different types of training and the number per year per system areabout DR$60 per participant for training in production techniques and watermanagement, DR$20 for field days, and DR$10 for visits.

Numbers of Participants

Course/Systen PYI PY2 PY3 PV4 PY5S

Productiontechniques

Nizao 700 1000 1000 1000 1000

PRYN 400 600 600 600 600

YSURA 950 1500 1500 1500 1500

WaterManagement

Nizao 700 1000 1000 1000 1000

PRYN 400 600 600 600 600

YSURA 950 1500 1500 1500 1500

Fleld Days

Nizao 1000 2000 3000 3000 a 3000

PRYN 500 1000 1500 1500 1500

YSURA 1000 2500 3500 3500 3500

Visits

Nizao 500 1000 1500 1500 1500

PRYN 400 800 1200 1200 1200

YSURA 800 1500 2500 2500 2500

4. Training in the Nizao watershed will be done following the guidelines describedin Annex 5. Throughout project implementation, the microcatchment planning process willintroduce project objectives, the participatory mode of operation, the technical treatment optionsand their estimated effect on production, the local responsibilities for management of communitylands and the cost sharing arrangements to the concerned villagers. This can be done throughvisits to sites where different demonstration treatments have been implemented. The trainingwould in summary cover the following topics:

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B. Lending to Agriculture in Latin America and the Caribbean

4.3 From recent Bank experience lending to agriculture in the LatinAmerica and the Caribbean Region, several factors have been identified ascontributing to poor project performance: lack of a supportive policy environment;inadequate counterpart funding; weak implementation institutions in the sector; overlycomplex design; and technical shortcomings in preparing and appraising projects.The institutional weakness suggests that the size and complexity should be largelydetermined by the demonstrated implementing and funding capacity--andcommitment--of the agencies involved. For irrigation projects, the failure toadequately involve proposed beneficiaries in project design and implementation isalso seen as a major cause of unsatisfactory performance. The result is overlyoptimistic assumptions about efficiency and productivity increases.

C. World Bank Involvement in the Dominican Republic

4.4 The Dominican Republic experience shows more than a decade ofcheckered relationships between the Government and the Bank. The Bank lent onlyUS$86 million to the Dominican Republic between 1969 and 1978. The relativelysmall amount loaned was mainly a result of the Government's lack of clearinvestment priorities, inadequate project preparation capacity, reluctance to addresssectoral issues in the context of project financing, and extremely conservative policiesregarding external borrowing. Moreover, project implementation performance wasdisappointing and disbursements were slow, while poor management of the publicinvestment program and public finances led to a perennial shortage of counterpartfunds. At the end of the 1970s, a spurt increased Bank lending to US$172 million.Between 1982 and 1986, total Bank lending was only US$66.6 million, 46 percent ofwhich was canceled for similar reasons as in 1969-78.

4.5 The progress of the Government's New Economic Policy has beenencouraging (para. 2.3). Inflation has been dramatically reduced and internationalreserves accumulated. All targets under the first Stand-by Arrangement with theIMF agreed to in August 1991 were met. A Paris Club rescheduling was achieved inNovember 1991 and most of the corresponding bilateral settlements have beencompleted. All arrears to multilateral creditors were eliminated early in 1991, andthe Government has serviced its debt to them on time since then. A second Stand-byAgreement was approved in July 1993. These recent improvements in economicmanagement give the Bank an opportunity to assist the country's developmentthrough an increase in conventional investment lending.

4.6 The Bank has made five agricultural credits or loans to the DominicanRepublic in the past two decades, totaling some US$104 million. Two of them wereirrigation projects--a US$13.0 million IDA credit for the Yaque del Norte Irrigation

ANNEX 8Page 1 of 6

DOMINICAN REPUBLIC

IRRIGATED LAND AND WATERSHED MANAGEMENT PROJECT

Traning and Technical A 2iEanc

1. There is good technical experience within INDRHI inconstruction of irrigation infrastructure, however experience in water andirrigated land management, as well as watershed management is limited. Akey feature of successful irrigated land and watershed management is theclose involvement of the people who use the resources in question. Unlessthe program responds to their priorities and requirements and brings quickand substantial benefits, the improvements are unlikely to be sustained. Thiskind of "participatory" or "interactive" planning is to a large extent new inthe Dominican Republic. ADESJO, the NGO working in the Ocoa area, isone of the few organization with some experience in this domain. Moreover,some gaps have been identified in the areas of financial management,monitoring information system, and management of research and extensionprograms. The training and technical assistance component of the project isdesigned to overcome these gaps in the domestic experience and to upgradethe technical skill of farmers and technical staff in the selected areas who willbe involved in project execution. Recruitment of staff will be done on acontractual basis to give better leverage to the users to monitor and controlthe contracted services.

Traning

2. Staff Training:

(a) Communications. This is the training in extensionmethodology with the interactive process that would be carriedout by ADESJO. Extension staff from the WUAs would go toSan Jose de Ocoa for 6 days each year. The cost per person isestimated on the basis of DR$200/day plus DR$100 formaterials.

(b) Technical. For extension staff from the WUAs, trainingwould be provided by the contracted specialized institutions fortechnology generation and transfer. 10 days per year at a costof DR$200/day.

(c) Study trips to other WUAs. For extension staff to meet andexchange experiences. One day per trimester at a cost ofDR$100/day.

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Project, approved in 1973, and a US$27.0 million Bank loan for the Nizao IrrigationProject, approved in 1979. The others were livestock development, cocoa and coffeedevelopment, and sugar rehabilitation projects. For the two irrigation loans that havebeen evaluated by OED ERRs as calculated by OED have been much lower than inthe respective SAR or PCR. Three lessons are relevant. First, given theinstitutional weakness of public agencies in the agricultural sector, sustainability forirrigated farming development requires the involvement of the private sector.Second, some institutional support is, nevertheless, required for public institutions toensure adequate monitoring, coherent policies, and a long-term investment strategy.Third, implementation of rural development requires a participatory approach. Thisasks for a starting phase of group management training for the farming community todesign and agree on needed investments and rules for managing the land in a holisticand sustainable manner.

5. PROPOSED STRATEGY, DESIGN, AND RATIONALEFOR BANK INVOLVEMENT

A. The Government Strategy in Irrigation

5.1 Agriculture accounts for 17 percent of GDP and more than 70 percentof the country's earnings from merchandise exports. The Government has investedheavily in the sector. Investments in dams and irrigation canals averaged about 10percent of total Government expenditures on capital formation in the last decade orabout half of all investments in agriculture. Little attention has been paid, however,to infrastructure maintenance, on-farm development, water management, and thedevelopment of productive support services. The proposed project reflects the shiftof emphasis from capital-intensive projects to projects that will generate quick returnsand will not rely too heavily on the public sector. With the liberalization of pricesand the transfer of the marketing of most crops to the private sector, the fullexploitation of partially developed irrigation potential offers the best and quickestmeans to increase agricultural production and incomes.

5.2 The Dominican Government has decided to increase investment in theirrigation subsector in order to sustain agricultural and export growth, protectsignificant existing investments in irrigation infrastructure, increase the productivecapacity of small farmers in poor rural areas, and produce the environmentallysustainable systems. Toward this end, the Government has taken several actions tofix the problems of the irrigation sector. The Government is now implementing aprogram to increase water charges, so that the irrigation districts become financiallyself-sufficient, and to transfer the responsibility of operation and maintenance to the

I

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beneficiaries. INDRHI's investment program includes three categories: newprojects, involving irrigation and multi-purpose use; rehabilitation and improvementprojects, including structures missing or in need of repair, to cover about 150,000hectares; and completion projects, to finish up several irrigation systems served byexisting storage dams. The proposed project is one of six priority projects economy-wide for which the Government has sought support from the internationalcommunity.

B. Rationale for Bank Involvement

5.3 The Bank has had a limited lending program in the country, with fewsuccessful projects. There are currently no Bank-financed agricultural projects underimplementation in the Dominican Republic. There is a need to rebuild credibilityand mutual confidence between the Bank and the Government. In this context, theBank has renewed its attempts to develop a policy dialogue in agriculture through in-depth sector work to identify additional measures that can be taken to help theagricultural sector fully benefit from the macro reforms. The proposed projectprovides an opportunity to complement this sector work through limited participationin a project which can achieve useful results without having to tackle issues sector-wide. It builds on a dual lesson from the past: the need for strong Governmentownership and as much private-sector participation as possible--based on a carefulassessment of the risks. This is preferable to relying on weak Governmentinstitutions.

5.4 The main reasons for Bank participation in the project have alreadybeen described above. Irrigation is the major area of focus of Government inagriculture at present. The successful pilot operation (PROMAF) aims to transferresponsibility for operation and maintenance to the beneficiaries organized in wateruser associations. Through the proposed project, the Bank will be able to play a keyrole in helping Government to strengthen and reorient supporting activities--extension, watershed management, cost recovery, the transfer of full responsibilityfor operation and maintenance to farmer groups, approaches to sustainablemanagement by water users, land titling, and defining of the roles of the public andprivate sectors. The Bank has extensive experience in Latin America and elsewherein all these issues.

5.5 The proposed project is consistent with the objectives enunciated in theCountry Assistance Strategy that accompanies this Report, of broadening the benefitsof economic growth and promoting sustainable natural resource use. The project isalso consistent with the Bank lending strategy in agriculture in the DominicanRepublic and the full commitment of the Government to do three things: formulateand implement a rational long-term strategy and policies for irrigation development,complementing the initial steps to be taken under the proposed project; strengthen the

ANNEX 7

DOMINICAN REPUBLIC

IRRIGATED LAND AND WATERSHED MANAGEMENT PROJECT

Iriation I rastructure Components

Nizao-Valdesia PRYN I YSURA'

Related Areas (ha)Gross 10,000 5,500 7,500Net irrigable 8,500 4,650 6,300

Conveyance and Distribution- Rehabilitation and Completion

of canals (kIn) 55 -- Construction of elevated canals/

canalettis (km) 20- Repairing, replacement of

gates (nb) - 32- Lateral water intake (nb) 30 -- Water intake civil works (nb) 845- Junction and Escape civil works (nb) 20 11 -

Drainage and canal protection- Rehabilitation of existing drains (km) - 42 37- Construction of new main drains (km) - - 31- Installation of drain pipes (Iam) - - 13- Main canal ditch protection (nb) - 2

On-farm civil works- Underground pipe drains (Iam) - - 150- Land levelling (net ha) 650 3,400 3,200

Heavy Equipment for O&M- Dredger - 1 1- Back digger 1 1 1-Grader 1 1 1- Pick-up 1 1 1

1. excluding the eastern part of Rio Jura (about 30% of the total area)

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institutional framework, allowing the public sector to play a stronger role inpromoting private sector participation for a more efficient and flexible use ofirrigated areas in a sustainable manner; and alleviate land titling constraints. It isalso consistent with the 1990 World Bank Agricultural Sector Review, whichemphasized the need to promote private sector participation in rehabilitation andmodernization and selected expansion of the irrigated area. Bank involvement wouldhelp strengthen the capacities of the private sector, improve the allocation of publicinvestment, and provide support for improved natural resource management andenvironmental impact assessment in the subsector.

C. Project Design and Strategy

5.6 The strategy for promoting improved irrigation management anddevelopment and the design of the proposed project incorporate lessons learned fromprojects in the Dominican Republic and Latin America and the Caribbean, as well asthe more general lessons from wider Bank lending in irrigation. These relateparticularly to the need to improve the operational performance and the sustainabilityof irrigation projects. The project has been kept small in scope and as simple aspossible to test the implementation capacity of the executing agency and thesubcontracted organizations--and to ensure it would be implemented adequatelyduring the relatively short time of 5 years. If implementation goes smoothly, a quickfollow-up project with larger scope and scale is envisaged.

5.7 The proposed project would be the third Bank-financed irrigationinvestment in the Dominican Republic. It differs from the previous projects in that itwould focus on private user associations. It is designed to support beneficiaryparticipation in irrigation development as a mean of avoiding many of the pitfallsassociated with large-scale public irrigation schemes. In addition, the proposedproject would be innovative by addressing sustainable development andenvironmental issues in the Nizao watershed holistically. So, it should be considerednot only as an irrigation project but as an Irrigated Land and Watershed Managementproject.

5.8 The project would include a relatively large investment program toimprove water management of the overall main and distribution irrigation system, aswell as leveling and drainage in the 3 selected irrigated areas--Nizao-Valdesia,YSURA, and PRYN1. In addition, a pilot program in the Nizao watershed woulddevelop and test methodologies for the protection and sustainable agriculturaldevelopment of the upper part of the Nizao river basin. The different water userassociations and farming community associations have been extensively consulted inproject design and played an active role in project preparation. During projectpreparation, a participatory rural assessment was made by a national team led by arural sociologist.

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5.9 During implementation, farmer approval would be required forproposed investments and for proposed institutional strengthening programs for theiruser organizations. Further, to ensure that investments do not subsidize and promoteinadequate operation and maintenance practiced by private users, agreements withbeneficiaries would specify standards for operation and maintenance and remedies fornoncompliance. There is little or no discriminatory taxation of agriculture. Theproject would help water user associations set overall parameters for cost recoveryand implement a creditable system for collection.

5.10 Last, the project design includes components for agricultural andinstitutional development of water user associations and watershed farmerassociations. Agricultural support services would be contracted to specialized privateorganizations by establishing a competitive system for allocating funds for technologygeneration and transfer--participatory research and development--based on clear,precise eligibility criteria (Annex 6). For Nizao watershed management, 5 microcatchments have been selected, which represent the major farming systems of theregion; models of micro catchment management would be developed that could beextrapolated to the whole Nizao river basin. Because of the project's limitedobjectives, it will not deal with problems of the agricultural credit system. Mostfarmers in the project area are small farmers. Most of the required inputs andexisting technologies are modular and can be adopted gradually, so little capitalwould be needed initially. Project support would be limited to providing assistancefor the preparation of necessary credit documentation and the organization andtraining of farmers' groups of mutual guarantee.

5.11 Beyond the rehabilitation and completion of the three selectedirrigation schemes, the project and the proposed Bank-supported agricultural sectorwork would help with development of a long-term strategy for subsectoral irrigation.The strategy likely will include more clearly defining roles of the public and privatesectors and setting up a participatory approach for sustainable management by theusers of existing irrigated areas. For the Nizao watershed management pilotprogram, the main findings of the project would be analyzed during a workshop thatwould be organized in the fourth year of project implementation. The workshopwould develop a national strategy for natural resources management.

Participatory Research and DevelopmentDetailed Cost

(US$ 000)

Commercial I Watershed| nCrops Irrigated Management,

Technological Land Mtapping andCost Packages Management IPM ENMS Total

Equipment 27,000 146,250 50,000 3,000 226,250

Vehicles: 52,500 52,500 35,000 65,000 205,0004WD bicab (x3) (x3) (x2) (x4) (x12)Motocycle (x3) (x3) (x3) (x2) (xlI )

Demonstration Plots 7,000 149,200 7,000 7,000 170,200

Contract EMS l 198,000 198,000

Contract Mapping r 57,720 57,720Personnel Expenses 858,850 865,750 218,700 218,700 2,162,000

Operating Costs 598,325 102,749 92,650 92,650 886,374

Vehicle O&M 65,625 65,625 43,750 68,125 243,125OQ

Training Expenses 107,500 161,300 50,000 10,000 328,800 ! w l I IIIITOTAL I 1,716,800 1,543,374 497,100 720,195 4,477,469 o

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6. THE PROJECr

A. Project Objectives

6.1 The project's main objective is to improve small-farner income in theselected areas and to test and develop methodologies that can be replicatednationwide both for efficient production support services, water management, andoperation and maintenance of irrigation systems and for sustainable andenvironmentally sound watershed management. The criteria for selection of the threeirrigation areas were based on agronomic and economic potential as well as thestrength of local water users' associations, which are key project beneficiaries andimplementing agencies. The project will also rehabilitate and improve existingirrigation systems and strengthen user associations for the development andmanagement of the selected irrigated areas and the Nizao watershed. The Nizaowatershed was chosen because of its importance to downstream hydroelectric andirrigation facilities, and because of the existence of a strong, local NGO that willplay a key role in mobilizing community participation in the Project. Last, theproject should help reduce the fiscal cost of irrigation schemes to the Governmentthrough appropriate cost-recovery policies.

B. Project Components

6.2 The project would have several activities related to irrigated land andwatershed management. First, it would include investment in rehabilitation andimprovement of irrigation and drainage infrastructure and leveling. Second isprovision of grants to communities in the Nizao watershed to promote improvedmicrocatchment management treatments including farming practices and soil andwater conservation measures. A third activity is to promote agricultural developmentby strengthening support services--technology generation and transfer, extension, andsavings and credit cooperative services to ease access to credit for farmer groups--primarily through contractual arrangements between users and private firms andNGOs. A fourth activity is institutional development for the strengthening of userassociations in the selected areas and of INDRHI through a technical assistance team.The project would also provide for technical studies for the detailed design ofrehabilitation and completion of irrigation and drainage infrastructure and for thedesign of water control devices. Sixth, the project would address development of amanagement information system and the setting up within INDRHI of a unit formonitoring and evaluation, including environmental monitoring. Project financewould be mainly for civil works, training, technical studies, and technical assistancefor producer organizations and INDRHI.

6.3 Land titling is critical, because it enables farmers in the DominicanRepublic to gain access to credit and thus provides farmers an incentive to invest in

ANNEX 6Page 4 of 5

Criteria for Allocating Funds for PR&D Projects

Selection Criteria | Points Qualification concepts

1. No Negative Environ Yes/No * Environmental Assessment of proposed-mental Impact technology

2. Farmers' Interest 50 * Rapid Rural Diagnosis*Farmers' participation

3. Economic Importance 30 * Ranking of main crops (Quantity andof: Value)a) existing crops * National and/or International marketb) new crops potential

4. Short/Medium term 20 * status of existing technologies;expected results and * extent of validation trials required;impact * yield increase and/or production cost

decrease

5. Regional priority 10 * Regional/National ResearchI ____________________ ___________ Development Plan

6. Institutional Capacity 10 *