Documnt of

The World Bank

FOR OFFICIAL ISE ONLY

Z,Al 32-7(,=-c .=<Repot No. 8792-EC

STAFF APPRAISAL REPORT

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

NOVEMBER 13, 1990

Agricultural Operations Division IVLatin America and the Caribbean Regional Office

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

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CURREC 2l' - SQR iS/.I

(as of June 20, 1990)

US$1.00 - S/. 805.50SI. 1.00 - US$.00124

Ela M

January 1 - December 31

WEIGETS AND MEASURES

The metric system has been used throughout the report.

ABBREVIATIONS

ASA Lgricultural Service Agency(Agencia de Servicios Agropecuarios)

BNF National Development Bank(Banco Nacional de Fomento)

CEDEGE Commission for the Development of the Guayas River Basin(Comision de Estudioa para el Desarrollo de la Cuenca del RioGuayas)

CONADE National Development Conmission(comision Nacional de Desarrollo)

DZNAMA National Office of Environmental Affairs(Direccion Nacional def Medio Ambiente)

DINAC National Office of Land Assessment(Direccion Nacional de Avaluo y Catastro)

D1NAF National Office of Borestry(Direccion Nacional de Asuntos Forestales)

DTDR Technical Directorate for Rural Development(Direccion Tecnica de Desarrollo Rural)

ZIA Environmental Impact Assessment

ENAC State Enterprise for Agricultural Marketing(Empresa Nacional de Almacenamiento y Comercializacion deProductos Agropecuarios)

GOE Government of Ecuador

GON Government of the Netherlands

HASKONING Royal Dutch Consulting Engineers and Architects

iCe International Competitive Bidding

ZDA International Development Association

IDS Inter-American Development Bank

ZERAC Ecuadorian Institute for Land Reform and Settlement(Instituto Ecuatoriano de la Reforma Agraria y Colonizacion)

IICA Inter-American Institute of Cooperation for Agriculture(Instituto Interamericano de Cooperacion para la Agricultura)

INOCA National Institute for Peasant Training(Instituto Nacional de Capacitacion Campesina)

INERSI Ecuadorian Institute for Water Resources(Instituto Ecuatoriano de Recursos Ridraulitos)

INIAP National Institute for Agricultural and Livestock Research(Instituto Nacional de Investigaciones Agropecuarias)

LCB Local Competitive Bidding

hAG Ministry of Agriculture and Livestock(Ministerio de Agricultura y Ganader a)

NBS Ministry for Social Welfare(M.inisterio de Bienestar Social)

M&E Monitoring and Evaluation

MOP Ministry for Public Works(Ministerio de Obras Publicas)

NGO Non-Governmental organization

OaR Operation and Maintenance

PDA Agricultural Development Plan(Plan de Desarrollo Agropecuario)

PSIDC Project Supported Institutional Development Component

PROTSCA National Program for Agricultural Technology Transfer(Programa de Desarrollo Tecnologico Agropecuario)

TOR Terms of Reference

UCB Project Executing Unit(Unidad Cuenca Baial

ECUADOR FOR OMCIAL USE ONLY

LONER 9UAAS FPLOOD CONTROL PROJECT

STnFF APPRAISAL REPORT

Table of Contents

Paoce No.

I. LOAN AND PROJECT SUARY . . . . . . . . . . . . 1

II. THE AGRICULTURAL SECTOR . . . . . . . . . . . . 4Agriculture in the National Economy . . . . 4Major Public Institutions in the Sector . SPrevious Bank Lending in the

Agricultural Sector . . . . . . . . . . . 5Dank Lending Strategy for the Sector . . . . 6The Lower Guayas River Basin . . . . . . . . 7

III. THE PROJECT . . . . . . . 9

A. GENERAL . . . . . . . . . . . . . . . . . . 9Project Origin and Rationale for Dank

Involvement . . . . . . . . . . . . . . 9Project Objectives and Beneficiaries . . . 10

B. PROJECT DESCRIPTION . . . . . . . . . . . . 10Infrastructural Features . . . . . . . . . 10Agricultural Development . . . . . . . . 11Environmental Component . . . . . . . . . 13Master Plan for the Lower Guayas Basin . . 14Institutional Development . . . . . . . 14

C. PROJECT ORGANIZATION . . . . . . . . . . . . 15Project Management . . . . . . . . . . . . . 15operation and Maintenance (O&M) . . . . . 16Monitoring and Evaluation (M&E) . . . . . 17Accounts and Audits . . . . . . . . . . . 17

D. PROJECT COST AND FINANCING . . . . . . . . . 18Cost . . . . . . . . . . . . . . . . . . . isFinancing . . . . . . . . . . . . . . . . 18Special Account . . . . . . . . . . . . . 19Procurement . . . . . . . . . . . . . . 19

E. PROJECT BENEFITS . . . . . . . . . . . . . . 23Flood Protection . . . . . . . . . . . . . 23Drainage . . . . . . . . . . . . . . . . 23Agricultural Development . . . . . . . . 24Socioeconomic Impact . . . . . . . . . . 24Environmental Impact . . . . . . . . . . . 24Economic Analysis . . . . . . . . . . . . 24Project Risks . . . . . . . . . . . . . . 25

IV. SUMMARY OF AGRZEDENTS AND RECOIAEDASION . . . . 26

This report is based on the findings of an appraisal mission that visitedEcuador in March 1990. The mission comprised Messrs. P. Wittenberg (MissionLeader), M. Hagerstrom (Economist), C. Plaza (Environmental Officer), A.Tobelem (Institutional Specialist), J. Carvalho (Lawyer), and M. Carroll(Agronomist Consultant).

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.

ANNEXES:

Annex 1 -Infrastructure Works . . . . . . . . . 28

Annex 2 - Operation and Maintenance . . . . . . . . 30

Annex 3 - Agricultural Development Pl.. . . . . . . . 32

Annex 4 - Institutional Development Component . . . . 49

Annex 5 - Environmental Component . . . . . . . . . . 55

Annex 6 - Implementation Schedule . . . . . . . . . . 62

Annex 7 - Estimated Schedule of Bank Disbursements . 63

Annex 8 - Project Cost Summary Analysis . . . . . . . 64

Annex 9 - Financial and Economic Analysis . . . . . . 68

Annex 10 - Selected Documents Available in the ProjectFile .... . . . . . ... . . . . . . 83

MAPs IBRD No. 22256

STAFF APRAISAL REPORT

LOW=R GUAAS FLOOD CONTROL PROJEC1P

T. I OAN AnD PROJECT SUNNA8Y

Borrowe-rs The Republic of Ecuador

axocutinaagn:t The Commission for the Development of the Guayas River Basin

(CEDEGE)

Lo-as Aouats i US$S9.0 million equivalent

Repayable in 17 years on a fixed amortization schedule,including S years of grace, at the Bank's standard variableinterest rate.

ft9j,ntObiectivest The project would aim to: (a) reduce the risk of rural and

urban flooding and resultant losses to life, property andoutput in the Lower Guayas Basin; (b) improve health andliving conditions in the area; (c) support agricultural andlivestock development; and (d) protect and conserve thenatural environment in the Lower Basin and parts of theupper catchment area.

ProifDnscriptiona The project was conceived as the first phase of a broader

plan for development of water, soil and human resources inthe Lower Guayas Basin. It would provide flood control anddrair.age for a priority area of about 170,000 ha. Principalinvestments would consist of dikes, bypass (flood-relief)channels, main and secondary drainage systems (newconstruction and rehabilitation), rural roads, bridges andvarious control and conveyance structures. To ensurelong-term sustainability, the project would include anAgricultural Development Plan (PDA) aimed at supporting andimproving smallholder (<10 ha) production systems. The PDAwould be coordinated by cEDEGE and would includes (a)adaptive research programs in rice, cacao, and small-scalemechanization; (b) seed production; (c) extension; and (d)strengthening smallholder farmer organizations. The PDA,combined with the added security afforded by floodprotection, would result in substantial on-farm investment,which would be financed by farmars using their own resourcesor resources from the credit system.

The project would provide for environmental protection andconservation within the project area and in its closevicinity, both in the lower zone (the El Churute NatureReserve and the Guayas Estuary) and in the surrounding uppercatchment areas. The main objectives would be to: (a)prepare a comprehensive environmental management plan; (b)monitor environmental impacts; (c) develop integrated pestmanagement practices; (d) prepare studies on selectedpriority subjects (such as mangrove management,reforestation, etc.); and (e) strengthen the institutionalcapacity of CEDEGE and other agencies that would be involvedin the environmental component. The project would include

an institutional strengthening component (technicalassistance, training and provision of vehicles andequipment) for CEDEGE and for agencies participating inagricultural development and environmental initiatives.

A monitoring and evaluation (M&E) process would enable earlyidentification of implementation problems and appropriateactions to solve them. A mid-term review would analyze theimpact of flood control works, the delivery of theagricultural support services, the effectiveness of theenvironrental measures taken, and the results of the MasterPlan and the Environmental Studies, and would recommendnecessary measures to be taken to reach project targets,including reallocation of funds, institutional changes,additional studies and pcsoible follow-up projects. Theproject would also finance a Master Plan for the entireLower Guayas Basin and for selected upper catchment areasthat would delineate a sound development strategy for thearea's n&tural and human resources.

Beneflg iajAgst The flood control system would directly benefit the 188,800urban and rural inhabitants of the 170,000 ha project area.In any given year an estimated 36,400 people in this areaare directly affected by flood waters. ln addition, some2,400 farmers would benefit from improved drainage and some3,300 small farmers would benefit directly from theagricultural development component.

Proiect Risks: (a) A change in government investment priorities could causeinadequate counterpart funding. The present government hasgiven high priority to socially-oriented projects in thesector, and its proposed contribution (US$20.0 million)still represents a strong commitment. (b) Environmentalagencies and NGOs may withdraw commitment to the project ifenvironmental monitoring and corrective actions fail tomatch hIA goals. The project's design, organization andfinancing have been geared to fulfill ZIA expectations, andEGOs would be actively involved in reviewing theimplementation of VIA recommendations. (c) CEDEGE lacksexperience in multiagency coordination and agriculturaldevelopment. Substantial technical assistance and trainingwould be financed by the project. (d) Benefits could bereduced by institutional weakness and inadequate commitmentof support agencies. Considerable resources are proposed inthe project to strengthen all entities involved. Commitmentwould be strengthened through subsidiary agreements betweenCEDEGE and each participating agency. (e) Deterioration ofthe macroeconomic environment may undermine incentives foragricultural production. The GOESs improved economicmanagement and its recent agreement with the IMF mitigatethis risk.

Bstimated Costs: Local 9EkOW Total------ (USS Million)--- …

Flood Control 17.7 22.4 40.1Drainage 3.2 8.6 11.8Agricultural Development 8.7 7.6 16.3Environment 0.8 2.8 3.6Master Plan 0.4 1.8 2.2Management and Training 1.1 a a3.

Total Baseline Cost 31.9 45.5 77.4Physical Cont.ngencies 3.4 4.6 8.0Price Contingencies 5.1 7-0 11

Total Project Cost 40.4 57.1 97.5

Financinu Plan:

Government of Ecuador 18.2 a/ 1.8 20.0Project Beneficiaries 6.8 4.7 11.5Government of the Netherlands 1.6 5.4 7.0IBRD 13.8 AILA 5.96

Total Financing 40.4 57.1 97.5

Estimated IBRD Fiscal YearDisbursements: 1991 1992 1993 1994 1995 1996 1997 1998 1999

----------------------- (USS Million)…------ ---------…Annual 2.0 b/ 2.7 4.0 11.5 16.1 10.7 6.8 4.2 1.0Cumulative 2.0 4.7 8.7 20.2 36.3 47.0 53.8 58.0 59.0

Economic Rate of Return, 15%

Mag: IBRD No. 22256

&l Includes US$6.5 million equivalent in taxes and duties.k/ Initial deposit in the Special Account of US$2.0 million.

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IS. THE AGRICULTURAL SECTOR

Aariculture in the National Economy

2.01 The agricultural sector is an important contributor to Ecuador'seconomy, accounting for about 14% of GDP and about 52% of the country'sforeign exchange. Agricultural produc ,n in Ecuador takes place in two quitedifferent ecological regions: the highiands and the coast. The highlands arecharacterized by small-scale traditioncL f&rmers who produce food crops(principally potatoes, vegetables, temperate fruit and wheat) oriented towardsthe domestic marxet. Small-, medium- and large-scale commercial farms arelocated in the coastal plains, which accounts for 80% of the area planted andwhere the main agricultural products are bananas, cacao, sugarcane, rice,livestock, and shrimp.

2.02 Because agricultural production is labor-intensive, agriculture'simportance to national employment, especially for the poor, is substantial.Despite high rural-to-urban migration, the agricultural sector still employsabout half of Ecuador's economically active population. If agroindustries areincluded, employment provided directly and indirectly by agriculture increasesto over 60% of the active work force. With rural incomes substantiall- belowurban levels and underemployment in rural areas about 50% of the availai-labor, agricultural growth and improved productivity are essential to expandemployment and enhance the incomes of Ecuador's poor.

2.03 Despite its importance to the economy and rural welfare, there ismuch scope to improve sectoral performance. Although Ecuador has favorableconditions for growing most crops, agricultural land remains underexploited:only about 44% of land suitable for cropping and a.bout 62% of its pasture landare fully utilized. In addition, except for bananas and palm oil, averageyields have not increased for major crops, remaining at levels well belowthose obtained by advatnced farmers using improved technology and having accessto adequate extension and credit.

2.04 Considerable scope also exists to boost agricultural exports. Thecomparative advantage of Ecuador's traditional export commodities--bananas,coffee, and cacao--remains strong (representing about 96% of the total valueof agricultural exports in 1986/87), and shrimp production has the fastestgrowth in agriculture (17% p.a. in value terms between 1981-86). Ecuador alsohas good conditions for the production of rice, fresh fruit, vegetables andflowers. A sound economy and policies that encourage agricultural investmentcould stimulate production and lead eventually to sustained export of thesenontraditional export crops.

2.05 The sector suffered during the oil boom when an overvaluedexchange rate, combined with restrictions on agricultural trade and subsidiesto domestic food consumers, hampered the growth of botb agricultural exportsand the production of domestic food crops. Major floot.ing of the coastalregion in 1983 contributed further to the decline in agricultural output.Agricultural growth resumed in 1984, particularly in high-value exportables,as a result of sucre devaluations begun in 1982. Nevertheless, manydisincentives still remain in trade and domestic food policy, which areimporta:t subjects in the Bank's ongoing dialogue with the Government onsectoral policy.

2.06 The Government (which took office in August 1988) has initiated anumber of structural reforms and economic policy adjustments. These measures,which encouraqe agricultural sector growth, now include a more competitiveexchange rate, partial reduction of export restrictions and a reduction indomestic price controls for agricultural products. Financial sector reformsinclude a phased reduction of subsidies on official interest rates. In arecent Letter of Development Policy, GOE requested the support of the Bank to

finance a medium-term program of structural reforms needed to maintain thedesired process of economic growth, within a setting of overall stability.

Major Public institutions in the Sector

2.07 The Miniutry of Agriculture and Livestock (MAG), the Ministry forSocial Welfare (MBS), through its Rural Development Under-Secretary, and theNational Development Commission (CONADE) are the main policy-making agenciesoverseeing agricultural develooment in Ecuador. A number ol' semi-autonomousagencies are responsible for planning and implementing water-relateddevelopment programs. The Ecuadorian Institute for Water Resources (INERHI),which is linked to the MAG, is responsible for overall water management, andis in charge of planning and operation and maintenance (O&M) of irrigation anddrainage systems. Regional development corporations have been involvedincreasingly in water resources development by planning, implementing, andmanaging a wide array cf irrigation, drainage and flood control schemes. Aprominent regional institution in this regard is the Commission for theDevelopment of the Guayas River Basin (CEDEGE).

Previous Bank Lendino in the Auricultural 8ector

2.08 Bank and IDA lending to Ecuador was originally concentrated in thetransport and power sectors. A first livestock development loan approved in1967 marked the beginning of diversification in the Bank Group's lendingprogram away from infrastructure. Since then, the Bank has made 13 loans andcredits, totalling US$244.1 million (net of cancellations), for agriculturaland rural development. These includes (a) a loan and two credits forlivestock development for US$15.6 million; (b) a loan for fisheries (US$3.8million); (c) a credit for the Milagro Irrigation Project (located within theLower Guayas area) for US$4.4 million; (d) a loan for seeds improvement forUS$3.0 million; (e) a loan for technical assistance (US$2.8 million); (f) afirst agricultural credit project loan for US$15.5 million; (g) loans forthree rural development projects, totalling US$51.0 million; (h) anagricultural sector loan of US$1000. million; and (i) a second agriculturalcredit loan of US$48.0 million.

2.09 Comleted Prolects. The Milagro Irrigation Project (Cr. 425-EC)was the first Bank irrigation project in Ecuador and was considered atappraisal in 1973 to be part of a comprehensive development plan for theGuayas River Basin. It is located on the northern boundary of the proposedproject. Its key objective was to develop an area of about 7,000 ha underirrigation, benefitting some 825 families. The project failed to achieve itsobjectives because:

(a) a wrong conceptual approach was used wherein irrigation water wasseen as the single important input, esaentially to the exclusion ofagricultural development services;

(b) measures to rectify the institutional weaknesses of participatingagencies were ineffective because: (i) these were not clearlyspelled out at appraisal; (ii) institutional strengthening was nota project objective; and (iii) there was no reliable N&E ofimplementation progress, and hence no awareness of the need toimprove institutional coordination; and

(c) it was incorrectly assumed that a well-established, low-input,rainfed farming system could be changed into one based onhigh-input, irrigated cropping in an area of diverse small farm

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holdings not easily converted to an extensive gravity irrigationnetwork. 11

These lessons have been taken into account in designing the proposed project.

2.10 The Tungurahua Project (Ln. 1644-SC) closed on December 31, 1987,with significant progress made during the last year of implementation,following several difficult years caused by the complexity of project design,inadequate institutional capacity, and lack of counterpart funds. TheAgricultural Sector Loan (Ln. 2626-EC), effective in January 1986, sought tosupport a government program of rolicy reform in the sector which emphasizedthe liberalization of commodity pricing and interest rates, and the reductionof public sector intervention 'n agricultural trade. The loan, which financedimports of agricultural inputs, is fully disbursed, but achieved only limitedresults in agricultural policy adjustment. This loan was closed on June 30,1989.

2.11 Oanoing Protects. There are three agricultural projects currentlyunder implementations Puerto Ila Chone (Ln. 1991-EC) and Esmeraldas(Ln. 2044-EC) Rural Development Projects, and the Second Agricultural CreditProject (Ln. 2752-EC). The rural development projects, both in their lastyear of implementation, are now progressing satisfactorily after severalperiods of institutional and financial crisis. The Second Agricultural CreditProject aims to stimulate on-farm investment, and to strengthen theoperational efficiency of the National Development Bank (5NF) and otherpa xicipating financial intermediaries. Execution of the project issatisfactory.

sank Leadina 8trateon for the Sector

2.12 In recent years, Bank lending to agriculture has been focused inthree areass (a) policy reform in pricing, trade and credit; (b) provison ofinvestment credit; and (c) an area specific attack on rural poverty. TheBank's operations in these areas have been met with varying degrees ofsuccess. Liberalization of agricultural trade and marketing, pursued throughthe Agricultural Sector Loan (para 2.10), has not been achie-si, though theactivities of the State Marketing Companies which were targeted under the loanhave been partially reduced, as have subsidies on imported commodities,especially wheat. Some progress has also been made on the reduction ofexternal trade restrictions, but further efforts in this direction are stillneeded. In the area of agricultural credit, aolid progress has been achievedwith a general agreement on official interest rates, which are scheduled torise to market levels by June 1992. Under the Second Agricultural CreditProject (para 2.11) commercial bank participation in lending to agriculturehas been increased and Bank resources have been made available to the sectorin an increasingly competitive environment. At the same tims a majorreorganization of BNF, the principal official source of agricultural credit,is being financed by the loan with the agreed objectives of modernizing itsoperations and enabling it to compete more effectively with private commercialbanks.

2.13. Looking to the future, the priority needs of the agriculturalsector are as follows: (a) continued liberalization of trade and marketing tominimize distortions and to increase the efficiency of resource allocationwithin the sector and between agriculture and other sectors of the economy;(b) investment in infrastructure, especially flood control, irrigation andrural roads; (c) technology generation and transfer; and (d) conservation andmanagement of natural resources. Within these broad priority areas, the needsof the commercial farm sector will be best served through the opening up of

2. PCR, May 28, 1982.

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trade and the development of more competitive financial markets. These forcesalone would significantly increase access to improved agricultural technologyind wiould improve investment incentives. In the small farm sector, however,nore direct interventions are needed, and this is where the main focus of BankLending should be.

2.14 All of the priorities outlined above are being addressed throughBank operations either under execution or under preparation. The main tradeissues are being incorporated into a proposed trade policy loan; and theactivities of the State Marketing Companies, the restructuring of BNF and themaintenance of the interest rate agreement are being monitored closely throughthe Second Agricultural Credit Project. In the last two years there has beena notable improvement in the management and implementation of ongoing ruraldevelopment projects managed by the Ministry of Social Welfare (M8S) andpreparation is well advanced for a proposed Bank-financed operation in supportof a focussed National Rural Development Program. This would concentrate onsmall scale irrigation infrastructure, applied research and extension forsmall farmers, land titlina and development of small farmers' credit andmarketing organizations with significant involvement of NGOs. The proposedproject would be the first phase of a coordinated attack on rural povertythrough productive investment. In parallel, discussions are proceeding on apossible irrigation sector operation aimed at establishing a more rationalsystem than currently exists for coordinating, financing and implementingirrigation investments throughout the country. This operation would placestrong emphasis on institutional strengthening, evaluation criteria and costrecovery.

2.1S Other possible initiatives with an impact on the sector arecontained in a proposed environmental project now in the early stages ofdiscussion which would establish a stronger institutional framework forenvironmental protection and resource management. Of particular importancefor agriculture, this project would provide a basis on which to developprograms for watershed management, forest protection and soil conservation.In the area of agricultural technology, the Bank has not hitherto played amajor role in Ecuador, though this is clearly a priority area. The IDB iscurrently active in this area through its National Program for AgriculturalTechnology Transfer (PROTECA), but this project has been slow to have animpact and a new approach may now be needed. Exploratory talks on ways ofinvolving IBRD in the expansion and improvement of agricultural services(plant protection, animal health, small farmer extension, applied research) inconjunction with other agenc' s, will be undertaken as the next phase of theBank's dialogue on sector issues.

2.16 The Lower Guayas Flood Control Project proposed here is consistentwith the strategy outlined above. It is the first phase of the long-termdevelopment of potentially the most productive agricultural region in Ecuadorand one which is heavily populated with small producers. By providing thenecessary infrastructure for flood control, combined with a coordinatedprogram of technical assistance, it would provide the necessary conditions foran important increase in output and social well-being. It would also providea master plan for dealing with the further development of the Guayas Basin inan environmentally sound and economically viable manner.

The Lower Guavas River Basin

2.17 Location and Natural Features. The watershed which comprises theGuayas Basin is located in the coastal lowland area of Ecuador and coversapproximately 35,300 km2, making it the largest drainage network in SouthAmerica flowing into the Pacific Ocean. Its lower part, t'- Lower GuayasRiver Basin, of about 8,000 kin, is located in southwestern Ecuador. The areaextends from the Guayas Estuary along the Daule, Vinces, Babahoyo, Yaguchi andTaura Rivers up to the foothills of the Andes Mountains. Due to the cooling

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effect of the Humbolt Current during a considerable part of the year, averagetemperatures are in the range of 22-25'C. The rainfall pattern ischaracterized by a single rainy season averaging about 1,355 mm that lastsabout six months (the "winter"); the rest of the year (the "summer" or dryseason) records a total rainfall of less than 100 mm. The soils of the Guayasplain range from fertile, well-drained, alluvial soils in the north, to poorlydrained soils subject to seasonal saturation in the south.

2.18 Within the Lower Guayas region lies the El Churute Nature Reservewhose main portion include4s .mportant mangrove forests. A smaller, somewhatdisconnected part includes the El Mirador Lagoon and outcropped hills withincreasingly degraded forests. Although legally protected, both areas of theReserve have already been seriously encroached upon. The main proble'. in themangrove area is illegal clearing of mangro-'es fcr construction of shrimpponds. There are also agricultural and livestock activities taking place inthe Lagoon, around which live about 24 famiVies whc acquired land titles priorto the establishment of the Reserve.

2.19 Floods. Flooding in the Lower Guayas River Basin is a naturalphenomenon which has been occurring regularly throughout history. Therelatively flat topography and low gradient (1:1,000) result in a rather wide,meandering river system with limited capacity for evacuating the high-velocitywater flows coming of f the western face of the Andes Mountains, which towerover the Basin. Sedimentation, aggravated by deforestation in the uppercatchment area, cont.ibutes to limiting the water evacuation performance ofthe river system.

2.20 Flooding in the area has adverse consequences for both urban andrural life. In urban areas, flood waters curcail commercial and socialactivities, interrupt public services--including water and sewage--andincrease the incidence of water-borne diseases and the loss of life. In ruralareas, in addition to causing the same devastation as in urban areas, floodwaters destroy crops and farm assets, including land, animal stock, buildingsand farm implements. The extert of damage to output depends on the timing,duration, depth, and velocity as well as the role of flood waters as a vectorfor pests. Damage can also be of a more permanent nature through sanddeposits. In the long run, the constant risk of flooding also dissuadesfarmers frem investing. In some instances large farmers are able to invest inon-farm flood control and drainage works. These, however, are costly anddivert flood waters to the land of less well-off neighbors during normalyears, and they are generally inadequate for averting damage during years ofheavy floods.

2.21 The existing system of flood control consists of dikes constructedalong the perimeters of the major water courses. Maintenance of these dikes,which has proved to be ineffective even in years of average rainfall,generally involves repairing breaches and annually shoring up dikes inanticipation of flooding. Until 1989/90, such work was done by INERHI in theLower Guayas Basin, but now CEDEGE has assumed this role, along withresponsibility for overall development of the Basin's water resources.Designated as emergency expenditures, annual costs of INERHI operations in thearea during the five-year period 1983-87 averaged US$680,000. There have beenfour episodes of major flooding in the past 17 years: 1973, 1982/83, 1984/85,and 1986/87. Depending on the year, these f'oods have covered from 36,000 to184,000 ha and have adversely affected the lives of 31,000 to 187,000 peopleliving and working in the area. The value of crop losses alone during theseepisodes ranges from US$2.2 to US$14.7 million at 1987 prices.

2.22 Agricultural Production. The soils and climate of the Guayas Basinare suitable for the production of a variety of crops. Parming is apredominantly market-driven activity, with small-, medium- and large-scalecommercial producers supplying tropical and subtropical commodities, including

bananas, cacao, coffee, cotton, maize, rice, sugarcane and livestock productsfor the domestic and export markets. Land distribution in the area issignificantly skewed. Until the mid-1960s, the majority of land In the LowerGuayas area was concentrated in a small number of agricultural enterprisesdedicated to the production of sugarcane and rice and export crops such asbananas and cacao. As a result of the various agrarian reform laws (passedsince 1964), some 100,000 ha were redistributed to about 8,000 small (lessthan 20 ha) and medium (from 20 to 100 ha) farmers. It is estimated that atpresent about 84% of the farmers in the project area are smallholders (lessthan 20 ha holdings), of whom about 25% are organized in cooperatives. Thesmallholders own about 20% of the land.

2.23 The production systems in the area are largely related to the sizeof holdings. Although the risk (and effects) of annual flooding are by farthe most important limitation to sustained agricultural performance, thevulnerability of the smallholder is generally compounded by additionalconstraints. The larger production units (500 to over 1,000 ha) are mostlyinvolved in highly profitable, export-oriented products (banar.as and shrimp)or are vertically integrated (sugarcane). Irrigation and drainage systems,mechanized operations, adequate use of inputs, skilled management, effectivemarketing channels and affordability of commercial credit contribute torelatively high returns and an enhanced ability to mitigate the impact offlooding. on the other hand, small farmers generally produce crops fordomestic consumption, in particular rice in low areas subject to flooding,maize and cacao for export. Smallholder production systems are characterizedby labor-intensive operations, low use of yield-augmenting inputs, inadequatecrop management practices due to poor research and extension services,monopsonistic marketing systems, inconsistent pricing policies, and limitedaccecs to affordable credit. As a result, average yields and income are lowin normal years, investments in required infrastructure are limited, andfarmers are unable to overcome the increased costs and crop losses caused byfloods.

III. THE PROJECT

A. GENERAL

Proiect Orioi and Rationale for Dank Involvement

3.01 Project preparation (feasibility studies) was carried out fromSeptember 1987 to November 1388 by INERHI, in cooperation with the Royal DutchConsulting Engineers and Architects (HASKONING) consultants, under a grantfrom the Government of the Netherlands (GON). In November 1988 the Governmentof Ecuador (GOB) nominated CEDEGE to take over from INERHI the remainingpreparation work and responsibility for project implementation. CEDEGE, withsupport from HASKONING, completed the local preparatory works in May 1990.Preparation progress was monitored by eight Bank missions that visited Ecuadorover the October 1987-January 1990 period. The project was appraised by theBank in March 1990, with participation by GON.

3.02 The Lower Guayas Basin is one of the country's most importantagricultural production areas. As such, the commercial and export orientedgrowth of this region is a high priority for the government to achieve itsobjectives of self-sufficiency in food and increased foreign exchangeearnings. Bank involvement in the preparation and appraisal of the projecthas already led to a reorientation of project objectives and resulted in: (a)a redesign of project to meet environmental concerns raised in theEnvironmental Impact Assessment (BIA); (b) a TA component (about 20% ofproject cost) to strengthen the institutions involved in project

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implementation} and (c) an Agricultural Development Plan (PDA) to increase theproject's social and productive focus.

Project Obiec&Lves ln ' Beneficiaries

3.03 The p.- ct0 woulds (a) reduce the risk of rural and urban floodingand resultant lc -.o life, property and output in the Lower Guayas Basin;(b) improve hecltk ana living conditions through flood control and drainage;(c) promote agricu.tural and livestock development through improved supportservices; and (d) protect and conserve the natural environment in the LowerGuayas Basin (800,000 ha), including the E1 Churute Reserve, and part of theUpper Guayas watershed (409,000 ha). The project"s flood control system wouldbenefit the 188,800 urban and rural inhabitants of the 170,000 ha project areathrough protection from up to 1X50 year frequency (i.e., catastrophic)flooding. In any given year, an average of 36,400 people would be protectedagainst major flooding. In addition, about 3,300 small farmers (<10 ha) woulddirectly benefit from the agricultural development component.

S. PROJECT DESCRIPTION

3.04 The feasibility study area (IBRD Map No. 22256) is located in theLower Guayas River Basin, east of the city of Guayaquil. The area of about420,000 ha, selected as a result of pre-feasibility studies completed in 1984,is bounded by the Guayas and Babahoyo rivers to the west, the Jujan andChilintomo rivers to the north, the Cahar River to the south, and thefoothills of the Andes Mountains to the east. The area is crossed by variousriver systems, some of which have their origin within the area and someoriginate in the Andes, carrying large amounts of rainwater. Soils arealluvial and slopes are very gentle. Most river stretches do not haveadequate carrying capacity to convey seasonal rainwater, which leads tofrequent and often devastating floods. The most flood-prone area has beendelineated by the 1982/83 flood, considered to have at least a 1:50 yearfrequency. This area of about 184,000 ha is mostly high-potentialagricultural land but also includes a number of urban and semi-urbansettlements.

3.05 The main project civil works would include a flood control system,consisting of bypass (flood-relief) channels, and construction/improvement ofriver dikes. Modelling was used to design the most cost-effective andenvironmentally sound flood control system. Various basic alternatives forflood control have been identified and evaluated on the basis of technical,social and economic criteria. The works configuration selected is the mosteconomically attractive option which at the same time minimizes environmentaldegradation. Other works would include improvement of the existing drainagesystem and construction of new drains, servicing a 60,460 ha area andconstruction/upgrading of the rural road system within the project area. Theproject would also provide support services for agricultural and livestockdevelopment and for strengthening producer organizations. It would encourageenvironmental protection of the ecological reserve in the project area andwould strengthen government institutions dealing with environmental matters.The project would finance a global master plan for the entire Lower GuayasBasin and part of the Upper Basin.

Infrastructural Features

3.06 Flood Control. The project would include construction of bypass(flood-relief) channels connected to rivers that cause most of the floods. Toconvey the normal flow, existing river dikes would be reshaped and, wherenecessary, new dike reaches would be constructed. By means of hydraulicallycontrolled and manually adjustable diversion structures, peak flows exceedingriver capacity would be diverted through bypass channels and into the Guayas

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River. Bypass channels would consist of a central canal, flanked by floodplains on both sides and protected by dikes. Before reaching the GuayasRiver, flood water would be discharged into a natural flood plain area ofabout 1,600 ha of unproductive scrub land. Due to the damping and dispersivecharacter of the proposed outlet works, the destructive effect of flood waterswould be dissipated prior to entering the mangrove tidal creek system(Annex 1).

3.07 Drainage Improvement Works. The flood control system would improvedrainage in the immediate vicinity of the rivers and bypass channels byproviding drainage outlets. In addition, the principal natural drains withinthe project area would be cleaned, additional main and secondary drainsconstructed, and existing drains reshaped. As a result, an area of about60,460 ha, including an estimated 10,610 ha outside the project area, wouldhave a continuous and adequate drainage system, conveying drainage watereither into a principal natural drain or a bypass channel.

3.08 Roads and Bridges. All-weather roads would be constructed on oneof the two dikes along the bypass channels and principal drains. Existingroads along rivers would be upgraded. Bridges and crossovers would beconstructed across bypass channels; culverts and other required structureswould be added. The resulting road system would make possible adequatemaintenance of all major project features and, by means of upgraded dry-seasonroads, would be connected to the existing road system, thereby improvingaccessibility within the area.

Aqricultural Develooment

3.09 Reduction in crop losses alone offers sufficient benefits tojustify the flood control works. However, once the risk of flooding isreduced, the area is potentially capable of achieving a substantialimprovement in existing farming systems as well as a sustainable increase inagricultural production. Given their more favorable financial position, thelarger commercial farms in the area would be able to intensify productionwithout additional support. However, small-scale farmers would requireassistance in exploiting the security afforded by flood protection. Theagricultural development component of the project would provide productionsupport to the low-income farmer-beneficiaries (3,270 farmers having less than10 ha holdings) which would promote incremental production through improvedagricultural practices (management, crop diversification, cropping patterns,cropping intensity, and input use) and expanded investment in on-farminfrastructure (machinery, marketing and construction of drainage systems).As no significant change in the current production systems is likely to occuruntil floods are effectively controlled, the agricultural development programwould be phased and contingent on the construction schedule of civil works.These activities are described below and detailed in Annex 3.

(a) Research. Support would be provided to the National Institute forAgricultural and Livestock Research (INIAP) to develop andstrengthen specific on-farm research programs, including ricetechnology, water management, alternative crops, integrated pestmanagement, miechanization of small-scale operations, and seedproduction. It would be channelled directly to the BolicheResearch Station (located in the project area) in the form oftechnical assistance, equipment and vehicles and staff training,and would complement the activities currently supported by theIDB-financed PROTECA project. Research initiatives supported bythe project would start as soon as the project is underway.

(b) Extension. To enhance extension services currently available tosmall farmers, the four Agricultural Service Agencies (ASA) locatedin the project area would be strengthened. The assistance to be

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provided would include additional staffing, training, vehicles,short-term technical assistance and equipment. As in the case ofresearch, project activities would be complementary to thosesupported by PROTECA (currently being reformulated) and implementedfocusing on the priority areas (poliaonos) established in theproject area. Specific mechanisms for coordination of extensionactivities would be defined with MAG agencies prior tonegotiations.

(c) Narketing. The project area suffers, along with much of the restof the country, from inadequate marketing of agricultural output.While a specific program to improve marketing organizations in theproject area--either owned by the State Enterprise for AgriculturalMarketing (ENAC) or privately owned-- would be beyond the scope ofthe project, improvements in marketing conditions would be promotedthrough special extension and farmer training programs. Inaddition, BNP will be encouraged to provide credit for investmentsin on-farm storage facilities.

(d) Farmer Organizations. Over 40 organizations, representing about25% of the smallholder farmers, currently exist in the projectarea. These include cooperatives and crop-oriented associations.However, most of these are not assisting individual farmers mainlydue to financial constraints and weak management capabilities. Tostrengthen existing viable organizations, develop improvedorganizational structures and to promote the active participationof individual farmers in project activities, a series of specificinterventions would be provided, including: (i) a diagnosticreview of existing organizations; (ii) construction, staffing, andoperation of a regional training center; (iii) specializedtechnical assistance to UCB and the training center; and (iv)organization of courses and workshops to be conducted by staff ofthe National Institute for Peasant Training (INCCA) and theTechnical Directorate for Rural Development (DTDR).

(e) Land Titlina. Lack of legal ownership of land has a negativeimpact on farmer willingness and ability to invest in on-farmimprovements. At present only about 250 smallholders either useland without legal ownership, or their land tenure is notformalized. Nevertheless, CEDEGE would sign an agreement andprovide logistical support to the Ecuadorian Institute for LandReform and Settlement (IERAC) to carry out the legal proceduresnecessary to provide land titles to these farmers who represent 6%of the 4,100 farmers with less than 20 ha holdings.

(f) Credit. Flood damage and associated risks have corntributed, alongwith weak organizational capacity and lack of land titles, toconstrain the flow of credit to small farmers in the area and toreduce substantially their creditworthiness. The impact of theproject via flood control, drainage, land titling, farmerorganization strengthening, agricultural research and extension,would be to remove these constraints and to help integrate smallfarmers into the credit system. Existing credit lines for smallfarmers administered by BNF would be sufficient to meet the needsof the beneficiaries of the PDA, and commercial credit would beavailable for larger farmers. Interest rates for all officiallending to agriculture are subject to a general agreement with theBank and, by June 30, 1992, will reach market levels.

3.10 To implement the above activities, CEDEGE would establishsubsidiary agreements with MAG's various specialized agencies and institutions(see para 3.20). CEDEGE would retain a coordination/administration role,

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while monitoring the progress of each subcomponent. For this purpose specificinstitutional strengthening would be provided to the Project gxecuting Unit's(UCB) Agricultural Division.

Environuental Comoonent

3.11 There is a growing awareness in Ecuador of the negativeenvironmental consequencen of uncontrolled deforestation, the destruction ofmangroves and the excessive use of agrochemicals in farming. The projectarea, bounded by mangroves and wetlands to the west and south and by thefoothills of the Andes to the east, offers an excellent opportuntity forpromoting sustainable development through rational exploitation of naturalresources and protection of fragile ecological zones. Unfortunately, beyondthe establishment of the 35,000 ha El Churute Reserve, little has been done todate in the area. Indeed, poor management and lack of political resolve haveresulted in increased resource degradation in the Reserve itself, stemmingfrom human encroachment and expansion of shrimp farming.

3.12 An Environmental Impact Assessment (EIA) of the project wasconducted by CEDEGE and the Office of Environmental Affairs (DINAMA) of theMinistry of Energy and Mines, assisted by HASKONING consultants, in closecollaboration with numerous NGOs and other agencies, including Fundaci6nNatura, Fundaci6n Flora y Fauna, Fundaci6n IDEA, the National Office ofForestry (DINAF), USAID, the Faculty of Natural Sciences, and the NationalInstitute of Fisheries of the University of Guayaquil. The ZIA identified theflood control design option that would minimize any adverse environmentalimpact. It recommended specific actions to enhance environmental protectionin the project area and its area of influence, which have been integratedfully into the design of the proposed project (see Annex 5), including:

(a) preparation of an environmental management plan for the lower andupper watersheds of the Guayas Basin;

(b) preparation and implementation of a long-term management plan forthe El Churute Nature Reserve;

(c) monitoring of environmental impacts on water bodies, soil andfauna, during construction of civil works and implementation ofother project initiatives;

(d) development and promotion of integrated pest management practicesto reduce use of agrochemicals;

(e) strengthening the institutional capacity of CEDEGE, DINAF andDINAMA to carry out environmental protection measures and toenforce existing environmental regulations more effectively; and

(f) studies to advance knowledge on selected subjects such as mangrovemanagement and reserve protection and administration.

3.13 Environmental Konitorina. Monitoring activities would be carriedout by CEDEGE, with the assistance of DINAF. and the environmental NGOs.Assurances were obtained at negotiations that CEDEGE would not later than June30, 1991 reach an agreement with the group of concerned environmental NGOs onthe procedures for their participation. During project i- lementation,monitoring of soil erosion and water-borne sedimentation would receivepriority. During the operational phase, monitoring would focus on waterquality to determine possible chemical contamination (from agriculturalproduction or from agroindustries) of water courses, including the GuayasEstuary, as well as on the ecological hualth of the wetlands and mangroves.The project would monitor the impact of excess flood water (carried by thebypass channels) on the mangroves and on shrimp and crab production. CEDEGE

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would design, establish and maintain a network of stations for water sampling.Monitoring (in consultation with participating agricultural agencies) wouldalso be done of integrated pest control practices supported by the project aswell as pesticide and fertilizer use. CEDEGE, in consultation with theConsultative Group to be formed by the NGOs participating in the review of theZIA, would monitor implementation of EIA's recommendations to ensure that theabove activities are carried out in a timely manner and that any correctiveactions needed are taken expeditiously by participating institutions.

3.14 Studies. Environmental research would advance knowledge onselected subjects associated with protection of ecological reserves andfragile ecosystems (mangroves) in the project area. Topics to be coveredwould be determined when DINAP presents its management plan for the El ChuruteReserve as part of the larger master plan proposed for the Lower Guayas Basin,discussed below. It was agreed at negotiations that adequate TORs would bepresented not later than December 31, 1990.

Master Plan for the Lower Guavas Basin

3.15 Consistent with EIA recommendations, a master plan would beprepared for the Lower Guayas Basin (800,000 ha) and for selected uppercatchment areas (409,000 ha) which could influence flood patterns in the lowerbasin. The master plan, to be prepared by CEDEGE, would establish prioritiesfor the integrated development of soil, water, and human resources within thestudy areas. The plan would assess existing public irrigation, drainage andflood control projects and those in various phases of design. It would alsoestablish a basin-wide management plan for institutional, agricultural andlivestock development as well as environmental protection. It wouldrecommend:

(a) institutional changes to improve implementation of projects;

(b) prioritization of potential irrigation, drainage, and flood controlprojects within the study area based on technical, economic, socialand environmental criteria;

(c) immediate actions to mitigate identified environmental problems inthe upper zone--especially soil erosion and possible reforestationactivities--and specific studies required for the enhancedmanagement of the studied upper catchment areas;

(d) environmental actions to preserve natural habitats and to afoidand/or minimize the negative impact of existing and futureirrigation, drainage, and flood control projects on soil, water andfauna;

(e) possible priority projects to improve rural water supplies anddevelop river fishing potential; and

(f) agricultural and livestock development activities with smallfarmer-orientation to increase production and incomes.

Institutional Development

3.16 The proposed project would be a major challenge to theinstitutional capacity of agencies involved in project implementation. Thiscomponent would aim to strengthen CEDEGE's capacity to manage and implementthe project and to improve intra- and interinstitutional coordination. Duringproject preparation an in-depth institutional capacity analysis was carriedout and capacity gaps identified against project tasks in terms oflegislation, interinstitutional relationships, organization, personnel policyand skills. As a result, a project-supported institutional development

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component (PSIDC) was prepared and designed to help mitigate or eliminatethese capacity gaps. This would include 710 m/m of specialist assistance tocover management and professional functions (US$12.6 million); skill upgradingactivities to bridge identified skill gaps at virtually all levels of staffand beneficiaries (US$1.0 million) and related equipment and vehicles(US$4.0 million). Total PSIDC costs amount to US$17.6 million (Annex 4).

3.17 PSIDC would help the Project Executing Unit (UCB) get organized, asshown in the interins?itutional relationships map (Annex 4, Appendix 2) andhelp carry out major management and coordinating functions. Furthermore, thetechnical assistance provided through PSIDC would also help reduce or eveneliminate most of the identified capacity gapa in the institutions which wouldimplement the project. This would include the interinstitutional network ofreletionships that would be defined in the subsidiary agreements to be signedbetween CEDEGE and the other agencies participating in project implementation.Envisaged measures would strengthen the existing organizational structures ofthe participating agencies. Monitoring and evaluation functions would beorganized and strengthened (paras 3.24-25). Technical assistance would beprovided in a way to ensure that new systems and procedures are transferredand the required institutional capacity installed efficiently--not only forthe achievement of project objectives but also for the longer-termsustainability of their corresponding benefits.

3.18 Training activities would help achieve the same objectives as thetechnical assistance subcomponent. Skill gaps have been thoroughly identifiedand the training plan is based on the management/staff/beneficiaries' tasksimplementation schedule so as to ensure adequate timing and smooth andefficient task implementation. Seventy four professionals from CEDEGE andninety from other agencies would be trained to upgrade their identifiedprofessional/technical skills as required by their assigned tasks. CEDEGEsupport staff would also be trained in clerical skills and about 3,000 smallfarmers would learn to use modern farming practices.

3.19 PSIDC implementation would be the responsibility of theInstitutional Development Division within the UCB, which would be headed by anorganization specialist and staffed by two professionals in training andmonitoring and evaluation. This division would also be responsible for thecontinuing analysis )f the institutional environment in which the project isbeing implemented. This would help project management to identify issues, andformulate alternative solutions to make adequate and timely decisions. Thisdivision would rely on UCB's and CEDEGE's administrative and technical supportto implement its own tasks. To help this civision incorporate modernorganization and management tools and processes, specific technical assistancewould be delivered in the form of 12 m/m of organization specialists.

C. PROJECT ORGANIZATION

Project Nanaaement

3.20 CEDEGE would be in charge of project implementation and would beinvolved directly in the construction of the civil works and subsequent O&M.It would carry out the required studies and designs with its own staff andwith technical assistance. CEDEGE would coordinate all other projectactivities and would enter into subsidiary agreements, satisfactory to theBank, with executing agencies and institutions specialized in the respectivefields, such as: (i} HAG, INIAP, and PROTECA (for the PDA) and (ii) DINAF(for the Environmental Component). Agreement was reached during negotiationsthat CEDEGE would enter into subsidiary agreements, satisfactory to the Bank,with the agencies mentioned in (i) and (ii) above, not later than Jure 30,1991; and (iii) IERAC for land titling and land acquisition procedures.

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Finalization of the agreement with IERAC would be a condition ofeffectiveness.

3.21 CEDEGE would implement the project through the UCB, designed aftersimilar units already in operation in CEDEGE. Under a Project Director, thisUCS would have seven divisions: (a) Planning and Control; (b) Administrativeand Financial Services; (c) Institutional Development; (d) Engineering; (e)Construction Supervision; (f) Operation and Maintenance; and (g) AgriculturalDevelopment and Environment. CEDEGE would be strengthened through trainingand technical assistance (as described in para 3.16). Assurances wereobtained at negotiations that: (i) GOE would employ and maintain staffinvolved with project implementation in all above-mentioned agencies, innumbers and positions in accordance with the Institutional Development Planand as updated by the PSIDC, for the efficient implementation of the project;and (ii) UCB would be maintained with structure and functions acceptable tothe Bank, throughout the project implementation period.

Operation and Maintenance IO&M}

3.22 Adequate O&M would be essential to project succe,s. In the past,attention given to preventive maintenance has been inadequate and, as aresult, many flood control and drainage works in the area have tended to beineffective when ieeded. Part of the problem has been the lack ofwell-formulated OM procedures as well as inadequate budgetary allocations,usually approved as emergency operations only after flood damage has occurred.Provision for these costs during the implementation period has been made underthe project. About one third of the estimated US$2.7 million equivalent wouldbe financed through the loan, on a declining basis, reaching full localfinancing by project completion. The UCB would be responsible for O&M of allproject features until they are completed. It would also assumeresponsibility for the O&M of all flood control structures constructedpreviously by INERHI and incorporated into the new flood control scheme. Itwould coordinate with the Ministry for Public Works (MOP) for the maintenanceof roads, bridges, and culverts included in tha road system within projectboundaries and under MOP jurisdiction. The operating rules of the floodcontrol system would be defined during the preparation of the final designsand would be incorporated in the O&M manual to be prepared by the UCB (seeAnnex 2). Following completion, all main and certain secondary drains andflood protection dikes--serving more than one owner or farmer organization--would be operated and maintained by CEDEGE, in accordance with specificregulations to be established during the first year of project implementation.Tertiary drains and roads would be maintained by local water boards to beestablished after being proper training and following a running-in period, tobe specified in the O&M manual. On-farm drains would be operated andmaintained by the beneficiaries.

3.23 The following would enable proper local funding of project O&M:

(a) Annual flooding historically has required sizable publicexpenditures to repair the existing, but ineffective, dike systemin the Guayas Basin, to restore public services and to providepublic relief assistance to disaster victims. With the project,such emergency outlays can be foregone (para 3.44), thereby freeingup resources to cover project O&M.

(b) Ecuador maintains a system of land taxation based on its assessedvalue. With the project, the Guayas area would enjoy protectionfrom the annual risks of flooding, resulting in higher land values.These higher land values would generate incremental tax revenues,which would enable GOE to meet its obligations.

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(c) CEDEGE proposes to elicit beneficiary participat.on in-kind (e.g.,labor, fuel and machinery services) in maintenance activities.

It was agreed at negotiations that GOE would provide adequate and timelyfunding to CEDEGE and other participating agencies for project-related O&M.In addition, assurances were also obtained from GOE that on completion ofproject works, a reassessment of land values in the project area would be madefor tax purposes.

MonitorinQ and Evaluation {M&E)

3.24 A Monitoring and Evaluation sub-unit would be established withinthe Institutional Development Division of the UCB. This sub-unit would beformed by a multidisciplinary team and would monitor progress in reachingproject targets, based on verifiable, time-bound, key performance indicatorsfor all project components. The M&E team would coordinate its activities withUCB's Planning and PDA/Environmental Division (and through the latter with theother participating agencies), allowing project management earlyidentification of implementation problems and appropriate actions to solvethem. Semi-annual progress reports would be submitted to all participatingimplementing agencies, the Bank and the GON not later than three months afterthe end of each respective period. The reports would include all relevantdata on physical and financial progress of the project together with reasonsfor deviations from the targets set under annual work programs, identifyingmajor issues/problems in planning and implementation of the project. Thesereports would help the Bank to plan and decide together with the UCB on thetiming and composition of supervision missions.

3.25 The main objectives of the evaluation studies would be to estimatethe direct and indirect benefits resulting from the project as well as thesocioeconomic characteristics of the project beneficiaries. A baseline surveywould be conducted during the first year of implementation to establish theoverall pre-project situation. Subsequently, two evaluation surveys would beconducted: a mid-term review at the end of year four and a final reviewwithin one year of project completion. The mid-term review would analyze theimpact of flood control works, the delivery of agricultural support services,the effectiveness of the environmental measixres taken, and the results of theGuayas Master Plan and the Environmental Studies; thereafter recommendationswould be made of necessary measures to be taken to ensure optimal use ofavailable resources to reach project targets, including reallocation of funds,institutional changes, additional studies and possible follow-up projects.The final, broad assessment of the project's impact would comprise thesubstance of the Project Completion Report. Assurances were obtained atnegotiations that: (i) UCB would not later than June 30, 1991 satisfactorilyestablish and put into operation a monitoring system; and (ii) submit to theBank a satisfactory list of performance indicators as a condition ofeffectiveness. At negotiations assurances were also obtained that: (a) UCBwould submit to the Bank no later than three months after the end of eachrespective period semi-annual progress reports; and (b) following receipt cithe mid-term review recommendations, the GOE and the Bank would agree on anyspecific measures to be taken to ascertain achievement of all projectobjectives. If agreement could not be reached, or if the GOE were unable toimplement agreed measures within a three-month period from the end of theconsultation in question, new requests would cease to be presented fordisbursements.

Accounts and Audits

3.26 As CEDEGE would have overall responsibility for projectimplementation, other participating agencies and NGOs would submit theirrequests for reimbursement of project expenditures to CEDEGE, which wouldmaintain separate project accounts and records for each project component and

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prepare statements of expenditure (SOEs). Supporting documentation providedby the various implementing agencies would be maintained by CEDEGE and madeavailable to visiting Bank mLssions and independent auditors, who on theirjudgment would make field visits to implementing agencies for the purpose ofthe overall audit. CEDEGE has prepared a standard chart of accounts for theproject that was reviewed and approved at appraisal. CEDEGE currently lacksthe capacity to maintain the project accounts. However, with the help ofmanagement consultants it has developed an action plan to strei.gthen itsaccounting procedures and staff. Successful completion of this plan would bea condition of effectiveness of the loan.

3.27 Project accounts, including the special account (para 3.33), andSOEs would be audited annually in accordance with appropriate auditingprinciples consistently applied by external indepandent auditors acceptable tothe Bank, with terms of reference (TORs) approved by the Bank. At presentCEDEGE is audited by the Government auditor, i.e. the General Auditor of theState (Contralor General del Estado). At appraisal, it was determined thatthis auditor lacks the capacity to complete the project audit in the timerequired. It was agreed at negotiations that CEDEGE would hire a privateauditing firm acceptable to the Bank, to be financed from the proceeds of theBank loan. Audit of the special account in the Central Bank would be theresponsibility of the Superintendent of Banks. Certified copies of theseaudits would be submitted to the Bank no later than six months after the closeof each fiscal year. At negotiations agreement was reached on TORs for theaudit work.

D. PROJECT COST AND FINANW.ING

cost

3.28 The total cost of the project has been estimated atUS$97.5 million, including US$6.5 million in duties and taxes. Landacquisition for project works has been estimated at US$3.2 million. Directand indirect foreign exchange costs would be about US$57.1 million, or 63% oftotal project cost net of taxes and duties. The base cost is estimated atUS$77.4 million in March 1990 prices. Physical contingencies ofUS$8.0 million are estimated at 15% for major civil works and 5% for otheractivities. Price contingencies of US$12.1 million are estimated at 3.6%annually during the implementation period. Project costs and the annualphasing of investments are summarized in Annex 8.

Financina

3.29 A proposed Bank loan of US$59.0 million would finance 65% of totalproject cost net of taxes and duties. A condition of loan effectiveness wouldbe that the Borrower would enter into a contractual arrangement with CEDEGE,satisfactory to the Bank, to make available to CEDEGE the proceeds of theloan. Bank financing, on a net of taxes and duties basis, would comprise 100%of foreign exchange expenditures and 80% of local costs for earth moving andcivil works in the construction of bypass channels, dikes, diversionstructures, main and secondary drains, bridges and roads. In addition itwould finance 42% of O&M costs during implementation, on a declining base(100% up to an aggregate amount of US$200,000; 75% up to an aggregate amountof US$540,000; 50% up to an aggregate amount of US$880,000 and 25% up to enaggregate amount ot, US$1,000,000). The Bank would also finance 100% offoreign exchange expenditures and 80% of local costs for vehicles andequipment and 100% of technical assistance for: (a) the design and supervisionof construction works; (b) project management (including the overall trainingrrogram); and (c) preparation of the Master Plan. Bank Financing would alsoinclude 100% of expenditures for the environmental component (except the Upper

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Watershed Area activities), including technical assistance, vehicles andequipment, local manpower, and recurrent costs.

3.30 The Government of the Netherlands is expected to cofinance theproject under joint financing arragements with the Bank, through a grant ofUS$7.0 million equivalent, representing 8.0% of project costs, net of taxesand duties. This would cover 100% of the following expenditures for theagricultural development component: (a) technical assistance, including:(i) consulting services (US$2.7 million); (ii) vehicles and equipment (US$1.1million); and (iii) training (US$0.5 million); (b) works for extensionservices (US$0.5 million); and (c) miscellaneous materials and services(US$0.5 million), totalling US$5.3 million. It would also finance 100% ofexpenditures for the upper watershed area activities, within the environmentalcomponent, including: (at technical assistance, through: (i) consultingservices (US$650,000); and (ii) vehicles and equipment (US$120,000); (b)studies (US$800,000); and (c) recurrent costs (US$130,000) totallingUS$1,700,000. A condition of loan effectiveness would be the reciprocaleffectiveness of the GON grant.

3.31 All land acquisition, recurrent expenditures (for project staff),as well as duties and taxes would be financed solely by GOE. Assurances wereobtained at negotiations that adequate and tiz.iely counterpart funding will bemade available to CEDEGE and all the other implementing agenjies. Projectbeneficiaries would finance the costs of on-farm investments in drainage andplantation establishment and rehabilitation.

3.32 IBRD Disbursements. Loan proceeds would be disbursed over8.5 years, consistent with the standard disbursement profile for Bank-fundedagricultural projects in Ecuador. Estimated schedules of Bank loandisbursements are shown in Annex 7.

Soecial Account

3.33 To expedite implementation, GOE would establish a special accountfor the project in the Central Bank, in US dollars, to cover eligible Bankexpenditures under the loan. The Bank would deposit up to an initial US$2.0million into this account, equivalent to an estimated four months of averagedisbursements. CEDEGE would manage this account and make withdrawals.Disbursements from the account would be made on the basis of SOEs. SOEs wouldbe accepted under civil works contracts valued at less than the equivalent ofUS$1.0 million. For goods and equipment, the limit should be equivalent ofUS$150,000 or less. The account would be replenished through normalreimbursement of project expPnditures.

Procurement

3.34 Procurement for all items, including those financed by GON, wouldfollow Bank procurement guidelines as follows:

(a) Civil Works. Civil works would be contracted in lots of more thanUS$50,000 ' and would be procured according to the followingcontract amounts. Works costing between US$50,000 and US$2.0million equivalent, representing an estimated 42% of civil works,would be procured under local competiti'-e bidding procedures (LCB)acceptable to the Bank and through whi4h: (i) foreign contractorswould be allowed to bid on all contracts; (ii) a minimum of 30 dayswould be allowed between the date of publication of the last

2/ Except for the small works required for environmental activities,estimated to cost in aggregate no more than US$40,000 for which GOEprocedures for local shopping would be followed.

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advertisement and the bid opening date; (iii) each bidding would beadvertised for at least three days in a national newspaper; and(iv) bidders would be allowed to submit their bids by mail. Civilworks contracts above US$2.0 million equivalent, totalling aboutUSS30.7 million, would be procured under international competitivebidding (ICB) procedures in accordance with Bank guidelines.

To minimize adverse impacts on the environment duringconstruction, specifications in the bidding documents for the majorworks would include clauses under which contractors would berequired to prevent, minimize or mitigate environmental damage.

(b) Goods and Consultant Services. Vehicles required for the project,estimated to cost about US$1.0 million equivalent (Bank financing),would be procured--in three bid packages valued at more thanUS$250,000 equivalent each--in accordance with the projectimplementation schedule, and would be procured under ICB proceduresfollowing Bank guidelines. Miscellaneous equipment (computers,field survey equipment, etc.) needed for the project, costing inaggregate no more than US$1.0 million equivalent, and vehiclesrequired at a later stage of project implementation, ̂ osting inaggregate no more than US$0.4 million equivalent, would bepurchased in several lots of under US$250,000 equivalent each, andwould be procured under LCB procedures acceptable to the Bank. GOEprocedures for local shopping would be followed, obtaining pricequotations from at least three qualified suppliers for theprocurement of various office and field equipment, in lots of under$25,000 equivalent each, costing in aggregate no more than US$0.4million equivalent. Consultants for: (i) design and supervision ofthe construction component; (ii) project management and O&M; (iii)preparation of the Master Plan Studies; and (iv) the environmentalactivities (except the Upper Watershed study), would be selectedand retained in accordance with Bank guidelines.

3.35 Contract Review. Civil works contracts above US$1.5 million, andgoods and equipment contracts costing more than US$250,000, as well as thefirst two contracts for works and the first two for goods below theaforwmentioned respective limits, would be subject to the Bank's prior reviewof procurement documentation before invitations '-o bid were issued andcontracts awarded. This review would result in a coverage of about 80% of thetotal estimated value of works contracts and about 60% of goods contracts.The balance of contracts would be subject to post-review by the Bank aftercontract award. Consultant contracts (other than the first three suchcontracts), for services costing the equivalent of US$30,000 or less, would beexempted from such prior review, but will be sabjected to post-review by theBank after contract award.

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Pkon rnentA Amungemew' a

(USS NiltlIon)

PocreMnt ethod

ProjectElement ICe LCB ?.1her Total

30.7 22.1 52.8Civil Works (25.8) (18.7) (4.5)

Vehicles and 1.8 1.8 0.4 4.0Equipment (1.0) (1.4) (0.4) (2.8)

Technical h/ 16.5 S/ 16.5Assistance (10.7) (10.7)

Land 3.2 3.2Acquisition (0.0) (0.0)

Miscellanecus S/ 21.0 21.0(1.0) (1.0)

Total 32.5 23.9 41.1 97.5(26.8) (20.1) (12.1) (59.0)

a, Figures in parentheses reflect the estimated amount financed by IBRD./ Including: (M) consulting services; (it) training; (iif) studies; and

(iv) recurrent expenditures for environmental activities.m/ Including on-farm investments, O& and recurrent expenditures.

3.36 Since 1987, the Bank has conducted a series of detailed reviews todetermine the consistency of Ecuadorian procurement procedures with Bankguidelines. During the reviews, the following specific points of conflictbetween Ecuador's Procurement Law and Bank procurement guidelines wereidentified. Local law:

(a) requires that for purposes of submitting bids foreign bidders havea local representative;

(b) specifies a two-envelope bid submission system, whereas the Bankrequires a single-envelope method;

(c) requires that bid and performance guarantees be supplied by a bankestablished in Ecuador, whereas the Bank accepts banks locatedanywhere, provided that they are acceptable to the Ecuadorianauthorities;

(d) does not specify clear evaluation criteria for selecting a bid;

(e) requires that the financial solvency of a foreign bidder, whencertified by a foreign bank, must be re-certified by a local bank;and

(f) requires that letter of credit or other advances to coverpurchases of goods or services be secured by a 100% Bank guaranteeby the seller or service-provider.

3.37 In addition, GOE recently promulgated a new law on consultants(Lev de Consultoria) which introduces some provisions that are in directconflict with Bank guidelines. Although amended in August 1990, this lawstill retains the following conflicting provisions:

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(a) it requires prior registration of consultants to be eligible forhiring; and

(b) it requires mandatory co-participation of local consultants in allconsulting works, and that proposal evaluation takes intoconsideration the level of utilization of local expertise in theassignments uader consideration;

3.38 GOE recently promulgated a new law on public contracting (Lay deContratacion Publica) and amended the law on consultants. Both laws nowinclude a clause stating that in cases of procurement or consulting contractsfinanced through loans from multilateral institutions, such as the Bank,procurement procedures stated in the respective loan agreements will prevail.Accordingly, the loan agreement would contain express provisions to resolvethe specific conflicts between Bank guidelines and local law. GOE and CEDEGEprovided assurances at negotiations that procurement procedures regarding Bankfinanced components will be acceptable to the Bank, and in accordance withBank guidelines.

3.39 For purposes of Loan effectiveness, a legal opinion from Ecuador'sAttorney General (Procurador General del Estado), the highest legal authorityin the Ecuadorian executive branch, will be required, stating that the termsof the Loan and Project Agreements with the Bank (which include the termsregarding procurement and consultants) are valid and binding in Ecuador.

3.40 Land Acquisition. Land acquisition would take place for thoseareas where flood-control and related infrastructural works are planned. Intotal, some 6,500 ha of land would be acquired, of which some 4,600 ha arecurrently used for agricultural activities Y; the remaining 1,900 ha areunused land covered with buoh, including the 1,600 ha to be used as a floodattenuating reservoir. Of the total area to be acquired, 71% belongs to largefarmers, 24.8% to medium farmers and 4.2% to smallholders. CEDEGE would signa subsidiary agreement with IERAC to eorure timely assessment of the value ofland, improvements, and standing crops to be compensated in accordance withthe Land Reform Law, in order to avoid any possible delays in the civil workscontracts processing.

3.41 Cost Recovory. Cost recovery from the beneficiaries of floodcontrol and drainage works is a complex issue. As in many countries,protection against flooding in Ecuador is considered a social service, i.e.,the Government's responsibility; hence the accepted view is that beneficiariesshould not be directly charged. Unlike irrigation systems, for whichcollection of water charges is regulated by law--although the charges areunrealistically low and their collection is ineffective--there is nolegislation for cost recovery of flood control and drainage works. Moreover,benefits from flood control and drainage works vary, depending on location,land level and soil quality and use. Unless cost recovery is done through aland productivity-based system, it appears very difficult to design anequitable system uf direct cost recovery. For these reasons and given thesocial dimension of the project--its beneficiaries being mainly the poor smallfarmers, who represent two thirds of the rural population in the projectarea--GOE and the Bank agreed that direct cost recovery from beneficiaries isnot a realistic objective for the project. Nevertheless, the estimated annualO&M expenditures, expected to reach about USS7SO,000 at project completion,would be more than compensated by budgetary savings and additional income, asoutlined in para 3.21.

V) Land acquisition will not affect settlements and will not causeinterruption of agricultural and/or livestock activities on any of thefarms affected.

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E. PROJECT BENEFITS

3.42 The project would generate a variety of benefits in both rural andurban areas, including averting losses in economic output and infrastructure,facilitating increased investment, productivity and incomes particularly amongsmall farmers, improving health and sanitation conditionu, increasinggovernment savings and revenues, and enhancing the environmental quality ofareas both inside and outside the project boundaries. Some of these benefits,particularly those related to health, sanitation, and environmental quality,cannot be readily quantified, though they are likely to be considerable.

Flood Protection

3.43 The benefits from flood control and protection include avertinglosses in economic output, destruction of private and public property andgovernment emergency expenditures. In rural areas the direct impact offlooding on agricultural production is manifested by foregone output fromareas that cannot be planted or additional costs for replanting of standingannual crops, lower yields and lower quality output. Damage to farm aasetsincludes flood destruction of perennial crops, machinery, buildings and otherinfrastructure. The monetary value of these kinds of damage was estimatedusing crop budgets representing the major crops and farming technologies ofthe project area. Three categories of losses were estimated: (a) net income;(b) cost of replanting annual crops; and (c) reestablishment of perennialcrops and shrimp ponds. Not estiamated were repairs and replacement of farminvestments, including infrastructure and animal stock. No allowance wss madefor price increases caused by lost output to reflect scarcity during flooding.Estimates of these losses (e'pressed in 1987 prices) for the four most recentmajor floods are: 1973, US$4.3 million; 1982/83, US$8.9 million; 1984/85,US$1.7 million; 1986/87, US$2.6 million.

3.44 Official estimates of damage, in urban areas exist, but the coverageof such information is incomplete and available only for the 1982/83 and1986/87 floods. Damage to both private and public property was conservativelyestimated at US$3.4 million in 1982/83, US$0.8 million in 1984/85 and US$2.9million in 1986/87.

3.45 Implementation of the proposed flood control system would -!sogenerate public savings by avoiding emergency expenditures to shore up theexisting, but largely ineffective, dike system. Budgetary outlays for thisactivity have averaged about US$635,000 p.a. during the past five years.

3.46 Once completed, the flood control system would offer security toarea farmers; increased on-farm investments and better land use are expectedto follow. While the PDA would support these activities for small farmers(and hence benefits are assigned to that component), larger farmers producingbananas and sugarcane would be able to undertake investments on their own.Conservatively, an estimated 5,360 ha of land currently used as low-valuepasture are expected to be converted to more intensive, high-value production(e.g., bananas and rice) with the project.

Drainage

3.47 Improved drainage would result in increased production from higheryields and from an expansion of crops into areas previously flooded due topoor drainage. Most larger farms already have on-farm drainage systems but anestimated 6,620 ha will require further investment to take advantage of theproposed drainage system. on the 60,460 ha benefiting from improved drainage,including an estimated 10,610 ha outside the project area, yield increaseswith the project have been estimated for the main crops as follows: rice andsugarcane, 10%; bananas and cacao, 5%.

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Agricultural Develonment

3.48 Benefits from extension and research activities in support of smallfarmers would include increased production and incomes stemming fromimprovements in input use and farming practices, renovation of plantations andchanges in the cropping patterns into high-value crops. Such benefits wouldcomplement improvements in drainage; yield increases of up to 25% for rice,cacao, and horticultural crops are estimated to accrue gradually and reachfull development in year 10. Benefits from research findings with a longer-term impact and those applied outside the project boundaries have not beenquantified.

Socioeconomic ImPact

3.49 An estimated two-thirds of project beneficiaries in rural areaslive in relative poverty, i.e., farm income less than 40% of the average GDPper capita of US$960 in 1987. While the welfare of these farm families isreduced even further during years of flooding, the long-term impact of thefloods is to induce farming practices that limit investment and cash outlaysfor inputs in order to minimize potential flood losses. Once protection fromflooding is ensured by the project, smaller farmers with less than 10 ha willbe targeted to receive technical assistance in upgrading their farmingpractices. Incomes for most small farmers should increase significantly, withall but the smallest able to increase per capita income atove the povertythreshold.

Environmental Impact

3.50 The proposed project would have significant socioeconomic benefitsand a positive net ecological impact. The design for project works reflectsmajor changes recommended by the EIA to minimize environmental degradation.Safeguards have been built into the project to monitor and correct thenegative impacts the project might have, particularly during the constructionphase. As was the case in the preparation of the EIA, the project'sorganization strives to foster the collaboration of key environmental agenciesin its implementation. The project includes specific interventions--institutional strengthening, master plan development, integrated pestmanagement, long-term study of mangrove management and exploitation,environmental monitoring--geared to improve the ecological health of the Lowerand part of the Upper Guayas Basin, not just to address any direct negativeenvironmental effects emanating from the project. As a result, the overallimpact of the project would be more environmentally beneficial than futuredevelopment in the area without the project.

Economic Analysis

3.51 The following paragraphs summarize the cost and benefit streamsincluded in the economic analysis of the project (the financial and economicanalysis is presented in Annex 9):

(a) Costs. (i) construction expenditur,s and O&M of flood control anddrainage works, including on-farm investment; (ii) costs foragricultural development and project management; and (iii) outputforegone from cropland d4isplaced by flood and drair i_ works.

(b) Benefits. (i) averted losses of agricultural output and urbaninfrastructure annualized and weighted by frequency of occurrence;(ii) improved land use and crop yields from drainage investmentsand agricultural support activities; and (iii) savings of publicexpenditures for emergency works. Because of difficulties inquantification, net environmental effects, expected to be positive,have not been considered in the economic analysis of the project.

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3.52 Financial prices for all major outputs and inputs were adjusted toeconomic prices using appropriate border pricing techniques based on 1995commodity price projections from IBRD. Wages for rural labor in the projectarea, which suffers from periodic labor shortages, were assumed to reflecteconomic values. Investment costs were adjusted, on a net of taxes basis,using a conversion factor of 0.875, to reflect the overvalued sucre relativeto the US dollar.

3.53 The economic rate of return (ERR) for the project has beencalculated at 15%. A project life of 40 years was assumed, reflecting theexpected economic life of most of the major investments under the project.Switching tests indicate that expected benefits would have to decline 22%, orcosts increase 24%, before the ERR would fall to 12%, the assumed opportunitycost of capital (OCC) in Ecuador. Sensitivity tests were also run andindicate that the ERR would remain above 12%, even with a two-year lag inbenefits.

3.54 The ERR estimated for flood control as a free-standing project is17%, with a net present value (NPV) of US$10.0 million at the assumed Occ of12%. The drainage and agricultural development components are complementaryto flood control and to each other; thus, meaningful allocation of costs andbenefits between them is not possible. Evaluated jointly, their inclusionwould increase the overall project NPV to US$11.5 million and would generateimiportant social benefits fer small farmers in the area.

Proiect Risks

3.55 The following paragraphs summarize project risks and measures takento mitigate them:

(a) Faced with budgetary shortages, GOE may experience difficulty inproviding adecuate and timely counterpart fundina for the project.Total exterr.al financing of 73% would minimize this risk. Inaddition, actual outlays by GOE would be limited to US$20.0million. Assurances would be obtained that GOB would providesufficient resources to cover these expenditures. Directbeneficiary participation would be encouraged to ensure propermaintenance through provision of assistance in-kind.

(b) Environmental agencies may withdraw commitment to the project ifenvironmental initiatives in the project are not implemented in amanner consistent with EIA recommendations. The project's design,organization, and financing attempt to minimize this risk. Inaddition, environmental groups would be consulted duringimplementation, offering the opportunity to review the project'sconsistency with EIA recommendations.

(c) CEDEGE lacks exoerience in multi-aaency coorcination andagricultural develonment. An adequate complement of agriculturalprofessionals to staff CEDEGE would be recruited. Substantialtechnical assistance and training would be financed by the projectto ensure that CEDEGE can &tract qualified professionals.

(d) Institutional weakness and inadeauate commitment of the varioussupport agencies to project activities could reduce chances forsuccessful implementation. Considerable resources have beenallocated to strengthening all entities involved in projectexecution. Commitment would be sought through a subsidiaryagreement between CEDEGE and each executing agency.

(e) Deterioration of the macroeconomic nolicv environment may undermineincentives for agricultural production. The GOE's improved

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economic management and its recent agreement with the IMF mitigatesthis risk.

IV* SUMMARY OP AGRErM3NTS AND RECONMENDATION

Aareements

4.01 Conditions for loan effectiveness would be that:

(a) CEDEGE would enter into a subsidiary agreement, satisfactory to theBank, with lERAC, for land acquisition and land titling (para3.20):

(b) CEDEGE would submit to the Bank a satisfactory list of performanceindicators (para 3.25);

(c) CEDEGE would satisfactorily complete an action plan to strengthenits acuounting procedures and staff (para 3.26);

(d) the Borrower would enter into a contractual arrangement with CEDEGEsatisfactory to the Bank to make available to CEDEGE the proceedsof the loan (para 3.29); and

(e) reciprocal effectiveness of the GON grant (para 3.30).

4.02 During negotiations the Government and CEDEGE provided assurancesthat:

(a) CEDEGE would enter into subsidiary agreements. satisfactory to theBank, with agencies participating in the project implementation,including: (i) MAG, INIAP, and PROTECA, (for the PDA); and (it)DINAF (for the environmental component) not later than June 30,1991 (para 3.20);

(b) the Borrower would provide adequate and timely funding to CEDEGEand other participating agencies for project-related O&M (para3.23);

(c) CEDEGE would satisfactorily establish and put the monitoringsystem into operation not later than June 30, 1991 (para 3.25);

(d) following receipt of the mid-term recommendations, the GOE and theBank would agree on any specific measures to be taken to achieveproject objectives (para 3.25);

(e) (i) project accounts, including the special account and SOEs, wouldbe maintained and audited annually according to practicessatisfactory to the Bank; (ii) CEDEGE would hire a private auditingfirm acceptable to the Bank; and (iii) audit reports would besubmitted to the Bank no later than six months after the close ofeach fiscal year (para 3.27);

(f) adequate and timely counterpart funds would be made available toCEDEGE and the other participating agencies for the effective andtimely execution of the project (para 3.31); and

(g) (i) CEDEGE and the other participating agencies (which implementproject components to be financed through the Bank loan) wouldfollow procurement arrangements described in paragraphs 3.34 to3.37; and (ii) the loan agreement would contain express provisions

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to resolve specific conflicts between Bank guidelines and local law(para 3.38).

4.03 Assurances were also obtained at negotiations for the following,less central conditions which would be incorporated in the ImplementationProgram:

(a) CEDEGE would reach an agreement with the group of concernedenvironmental NGOs on the procedures pertaining to theirparticipation in environmental monitoring not later than June 30,1991 (para 3.13);

(b) DINAF would present TORe for the preparation of a Management Planfor the El Churute Reserve not later than December 31, 1990 (para3.14);

(c) the Borrower would employ and maintain staff --involved withproject implementation in all participating agencies-- in numbersand positions in accordance with the Institutional Development Plan(para 3.21);

(d) UCB would be maintained with structure and functions acceptable tothe Bank (para 3.21);

(e) on completion of project works, a reassessment of project area landvalues would be made expeditiously for tax purposes (para 3.23);and

(f) CEDEGE would submit to the Bank semiannual progress reports nolater than three months after the end of each respective period(para 3.25).

Recommendation

4.04 With the above assurances, the proposed project would be suitablefor a Bank loan of US$59.0 million on standard terms for Ecuador.

November 13, 1990

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ANNEX 1Page 1 of 2

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Infrastructure Works

l. The works foreseen under the project would provide 1:50 yearsfrequency flood control for a highly flood-pror.a area of about 170,000 ha,including one urban and seven semi-urban settlements. If implemented, theflood control works would improve natural drainage conditions in the adjacentareas by lowering groundwater levels. In addition, the existing drainagesystem would be cleared, and where required, reshaped, and additional drainswould be constructed. As a result, an area of about 63,000 ha, which havebeen identified as priority areas concerning expected benefits resulting fromimproved draina;S, would have a continuous and adequate drainage system. Theproject would also build 801 km of access and service roads and would upgrade110 km of existing roads. Bridges and other required structures would beconstructed. These works are described below.

2. Flood Control. Various flood control methods and combination ofthem have been analyzed. The adopted solution, based on morphological,social, and economic considerations, would consist of constructingflood-relief (bypass) channels, reinforcing existing dikes along rivers, andwhere necessary, constructing new dikes and limited river-training works.Design criteria have been established regarding the shape and dimensions ofchannels and dikes. Field surveys and geotechnical investigations providedthe indications for allowable depths, heights, gradients, and side slopes.

3. Flood-Relief (BvDass) Channels. The Bulubulu and Chimbo Riverswould be connected to flood-relief channels through diversion structures.These structures have been designed to allow a base flow, which equals futureriver capacity, to flow through the river system, while excess water would bediverted into the flood-relief channels. Four channels have been designed,with carrying capacities ranging from 300 to 665 m3/s, having a total lengthof 49 km. These channels have been designed to have a balanced cut and fillcross section, divided into two parts: a 1.25 to 2.50 m deep and 25 to 40 mwide central part, flanked by 40 to 50 m wide flood plains. Earth excavatedfrom the central part would generally be used to build the dikes protectingthe flood plains. Potential borrow areas would be located to provide dikefilling material, if needed. The flood plains will be flooded only in case ofmajor floods (frequencies 1:5 years and up). These land strips would begrassed to provide good erosion protection, and controlled grazing would beallowed on them. Six bridges across the flood-relief channels would enablecontinuous traffic on existing roads. Fourteen crossing ramps wouldfacilitate crossing bypasses at existing paths or in the vicinity ofsettlements. At seven locations, where a flood-relief channel would cross astream, inlet structures have been planned to enable collection of streamwater into the channel. Five structures would be provided with invertedsiphons to maintain the existing flow pattern during the dry season. Inaddition, 21 smaller structures (culverts and siphons) would ensure futureoperation of existing irrigation and drainage canals. Along the outside slopeof the channels' protection dikes, collector ditches have been planned. Theseditches would collect excess water from the neighboring lands, discharging itinto the channel through nine culverts, equipped with flapgates to avoidbackflow in case of high water levels in the channels. The flood-reliefchannels would originate at the Bulubulu and Chimbo Rivers, and, unified,would reach a natural flood plain area of about 1,600 ha, located west of the"Cerro Masuale," where the floodwave would be attenuated prior to entering thetidal creek system, on its way to the Guayas River. The outflow would be

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A1NKX1Page 2 of 2

controlled through some 30 culverts with a total cross-sectional area of 50sqm and a low earth spillway of nearly 700 m length.

4. Urban Flood Control. Under present conditions, eight urbancenters suffer from frequent flooding, five of which (Taura, Pedro J. Montero,El Triunfo, Manuel J. Calle and La Troncal) are located in the Bulubulu RiverBasin, and three (Marcelino MariduefAo, Naranjito, and Milagro) in the ChimboRiver Basin. As a result of the implementation of the flood control system,all urban centers except El Triunfo would be protected against river flooding.Additional measures are required to protect the city of El Triunfo againstflooding of the Verde River, and the Estero Galapagos River. The excessdischarge of these rivers will be diverted through a new channel (to beconstructed) of about 3 km length that will be connected to the improveddrainage system located between the Chimbo and Bulubulu Rivers from where itwill eventually discharge into the Barranco Alto River.

5. Dikes and River Training. Based on field investigations, it wasdetermined that 154 km of dikes (in several stretches) along the Bulubulu,Boliche, Chimbo, and Chanchan Rivers, and some affluents, would be reinforcedand 100 km should be newly constructed. Similarly, it was established thatabout 24 km of river banks within the project area need to be reshaped toenable the passing of the respective design flows. To ensure maximumstability of the dike system, within reasonable cost limits, their height waslimited to 3.25 m above natural ground level, to provide a 0.75 m freeboard(for the estimated 1:50-year frequency flood event) and to allow a 4.0 m widetop width. This would be covered by a 20 cm thick compacted surfacing layerand used as both project service road and access road for the farmers.

6. Drainage System. Four distinct operations have been envisaged toenhance drainage conditions in the project areas (1) cleaning and reshapingthe rivers and streams that are natural recipients of drain water (about 176km); (2) improving 158 km of existing artificial drains to ensure that theywill have the carrying capacity for the estimated drainage flow; (3) adding4S1 km of new main and secondary drains wherever required to ensure continuousflow; and (4) connecting the flood-relief channels through their collectorditches to the drainage systems in their vicinity. The above measures wouldresult in direct improvement of drainage conditions of about 30,800 ha, inabout 2.0 km wide land stretches adjacent to the rivers and streams within theproject area. Field investigations indicated that 60,460 ha of land wouldbenefit from the improved new drainage system.

7. Road System. Surfaced service roads (801 km) have been planned onboth sides of the top of river dikes and on one side of dikes alongflood-relief channels, new main and about 50% of new secondary drains. Inaddition, some 110 km of existing summer roads would be upgraded toall-weather roads to provide the necessary linkage between the existingregional all-weather roadway system, and the newly planned project roads.These roads are needed for access to perform proper and timely maintenance.They would also improve transport of farm products and would assist inimprovements related to the social well being of project beneficiaries. Inaddition, the construction of 13 bridges has been planned over the Bulubulu,Boliche, Taura, Chimbo, and Milagro Rivers and some of their tributaries toensure continuity of the rural road system within the project area.

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ANNEX 2Page 1 of 2

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Operation and Maintenanc e ( 0MM

1. CEDEGE would be responsible for O&M of all flood control works,new and existing, and drainage works down to secondary drains. The operatingrules of the flood control system would be defined during the preparation ofthe final designs and would be included in the operating manual. Duringconstruction CEDEGE would operate and maintain all completed facilities.Project features would be considered complete only when fully operational,i.e. when: (a) any deficiencies in design or construction of the respectivefeatures have been identified and corrected; (b) responsibilities for O&M havebeen clearly defined and the O&M procedures established and fully understoodby the staff concerned; and (c) beneficiaries, local authorities and supportagencies have been informed about the flood control and/or drainage facilitiescompleted, and the subsequent improved production practices made possible. Inareas where new drains would be constructed by the project, the farmers wouldhave to complete and maintain their on-farm drains. Extension workers wouldpromote maintenance by farmers and train farmers in correct maintenanceprocedures.

2. Before handing over the responsibility for O&M, CEDEGE wouldprepare and finalize an O&M manual, which would specify the technical,organizational, and financial requirements for optimal operation andmaintenance of project facilities. The manual would be prepared in fullconsultation with the Project Beneficiaries Committee (para 3.21) and itssubstance discussed in meetings with representatives of all beneficiaries. Asa first step in the preparation of the O&M manual, an operational plan wouldbe drawn up by CEDEGE at the detailed engineering phase. Depending on thetype of works, the operational plan would cover:

(a) operational reauirements, e.g., operation of flood-reliefchannel and drainage gates;

(b) inspection reguirements for flood-relief channels, dikes, mainand secondary drains, and appurtenant structures;

(C) maintenance reauirements, including: (i) preventivemaintenance, such as servicing of vehicles and equipment,removal of obstructions in channels, repairs of potholes inservice roads; (ii) annual maintenance such as weed control anddesalting of drains, reshaping dike slopes, repair ofstructures; and (iii) emergency repairs related to floods;

(d) oroanization and staffing requirements, specifying the proposedresponsibilities and tasks of beneficiaries and localauthorities, as well as qualifications and numbers of staffneeded for O&M; and

(e) financing reauirements, specifying proposed sources and use offunds for O&N, including proposed contributions in cash or kindby the beneficiaries.

4. The operational plan would be fully discussed with the ProjectBeneficiaries Committee before the start of construction works. The final O&Mmanual would describe all elements of the operational plan described above,

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ANNEiX 2Page 2 of 2

and would specify the responsibilities of all entities and individual staffinvolved in the OEM of the project. The O&M manual would be completed withinthe first year of implementation and revised and updated every year thereafterbased on experience gained during the preceding O&M season.

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ANME 3Page 1 of 9

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Auricultural Development Plan

Introduction

1. The Lower Guayas Flood Control Project in Ecuador was conceived asa mechanism to minimize the risk of periodic floods in the most affected areaof the Lower Guayas Basin. The Agricultural Development Plan (PDA) wasdeveloped as a complementary component aimed at assisting small-scale farmersin the project area to benefit fully from improved conditions for agriculturalproduction. The present annex provides some basic information on therational, structure, and implementation mechanisms of the PDA.

Selection of PDA Beneficiaries

2. Given the nature of the infrastructure to be provided by theproject, the entire farming community within the project area will benefitfrom the flood control works, regardless of the size of holdings. However,the PDA component has been primarily designed to address the particular needsand constraints of farmers and rural population whose limited resourcespreclude them from fully benefitting from flood-free conditions withoutadditional assistance.

3. The methodology utilized to define the PDA's "target group" wasprimarily based on the size of holdings. Taking into consideration suchfactors as soil quality, predominant land use patterns, present averageyields, and net income generated, it has been established that those farmerswith less than 10 ha of land 1I would require additional project support.Consequently, PDA interventions would provide direct support to an estimated3,270 farmers. As illustrated in the following, this target group representsalmost 70% of the total production units in the project area.

X}J Cooperatives are also included based on the average land allocated to eachmember.

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ANNEX 3Page 2 of 9

Land Tenure in the Project Area

Holding Size Farms Area(Has) (No.) (M) ('000) (%)

< 10 a/ 3,271 67.0 15.6 10.910 - 20 831 17.1 12.8 9.020 - 100 661 13.6 26.3 18.5

> 100 113 2.3 87.7 61.5

a/ Project Target Group

4. The overall rationale for developing the structure of the PDA isthat, once the floods are controlled, those larger farmers not included withinthe target group should be capable of improving their production systemsutilizing their own resources. However, it is acknowledged that the potentialimpact of a series of indirect interventions (i.e improvement in INIAP's seedproduction facilities, upgrading of the foot-and-mouth vaccine laboratory, andcertain research and technology transfer programs) will not be restricted onlyto the target farmers. Thus, it is expected that the benefits from theproject should also reach a substantial proportion of non-target small andmedium farmers (about 1,500) within the project area.

Applied Research

5. The National Institute for Agricultural Research (INIAP) is asemi-autonomous entity within the Ministry of Agriculture. INIAP's researchnetwork comprises seven research centres located in major agricultural areasthroughout the country. One of them, the Boliche Research Station is locatedin the project area. With a staff complement of about 95 professionals,technicians and workers, Boliche conducts basic and applied research programs,as well as production of registered seed, in rice, legumes, sorghum, oilseedsand cacao.

6. Consistent with the overall weaknesses of agricultural research inthe country, the impact on production of Boliche's current programs andservices is substantially restricted by a lack of adequate resources(insufficient budget, obsolete equipment, ind inadequate salaries ofscientists and technicians). Under the present conditions, Soliche would beunable to respond effectively to the expected increased demand for services inthe project area, particularly regarding the areas of validation oftechnologies and seed production.

7. In the context of the overall goal of increasing agriculturalproduction of small-scale farms in the project area, the specific objective ofthe PDA regarding research is to develop improved production systems that willallow smallholder farmers to benefit fully from the flood-free conditions ofthe project area. To achieve this objective, direct assistance to Boliche inthe implementation of specific applied research programs is consideredessential for the overall success of the project. More specifically, theassistance to be provided will allow the research station to conduct thefollowing activities:

(a) generate improved technological packages for smallholder riceproduction;

- 34 -

AMRE 3Page 3 of 9

(b) establish a cacao nursery and genetic bank;

(C) develop a crop diversification program suitable for small-scaleconditions;

(d) introduce a multi-disciplinary adaptive research program aimed atdeveloping and promoting an Integrated Pest Management (IPM)package for the main crops in the region;

(e) establish a mechanization program to identify, test, and adaptappropiate machinery for small-scale farmers;

(f) increase the number and quality of outreach activities, includingtechnology-validation trials at the farm level;

(g) contribute to the improvement of extension services to localfarmers, through the participation of researchers in field daysand training courses to extensionists; and

(h) increase the volume and quality of registered seed of selectedcrops.

8. In order to assist the Boliche Research Station in theimplementation of the above described activities, the project will provide acomprehensive support package aimed at complementing the station's existingresources (as well as those to be provided through the PROTECA project). Thissupport involves five main components, i.e. office and laboratory equipment,vehicles, technical assistance, training, and upgrading/expansion of existingseed processing facilities. Full details, costs and operati.g budgets areprovided in Tables 1 and 2.

Agricultural Extension

9. The problems resulting in the provision of inadequate extensionservices in Ecuador are similar to those affecting research. Furthermore, thesituation is further aggravated by the complexity and weakness of theinstitutional network responsible for extension services in the country. Thenegative consequences of this situation are particularly evident in thesmallholder sector, which ie generally unable to obtain assistance fromprivate sources.

10. In spite of the limitations described above, and in response tothe critical need for extension assistance of the project's target group, thePDA will initially include an extension component to be implemented throughthe existing organizations. The main objective of this component is toimprove the extension services provided to small-scale farmers through: (i)strengthening the delivery mechanisms of extension agencies in the projectareal (ii) training of extensionists in methodological and technical issues;and (iii) improving the coordination, and communication, between the existinginstitutions responsible for research and extension in the region.

11. The support to be provided by the project will be focussed on thefour Agricultural Service Agencies (ASAs), located within the project area inMilagro, El Triunfo, Naranjito, and Yaguachi. In addition, the project willestablish and operate a Regional Training Center. Among other functions, thiscenter will provide the necessary facilities to conduct courses, workshops andseminars for extensionists. Specific elements to be provided by the projectinclude:

(a) Recruitment of additional staff for each ASA;

- 35 -

aEX 3Page 4 of 9

(b) Specialists (local and expatriate) in extension methods;

(c) Upgrading of ASA offices;

(d) Office and extension equipment;

(e) Vehicles;

(f) in-country and overseas training; and

(g) Construction, staffing and operation of the Regional TrainingCenter.

12. During the first three years of the project, new staff will berecruited. In addition to regular extension activities, the staff recruitedin the first year will also participate in the preparation of a detailedsocio-economic survey of the project area. Once recruitment is completed, theextension personnel of the three ASAs will total 30 extension agents and 3supervisors), reaching a farmer to extensionist ratio of approximately 100:1.Both existing and newly-recruited extension agents will receive acomprehensive training program (groups of 15-20 participants during 80 days)in modern extension methods and technical aspects related to small-scale cropmanagement and production systems. The recruitment and training ofextensionists will be conducted prior to the completion of the flood controlworks (see table below).

Schedule for Recruitment and Training of Extensionists

Activity/Year 0 1 2 3

Agent Recruitment 10 10 10Supervisors Recruit. 1 1 1

Training (Survey) 11Training (Extension) 11 11 11Non-project Trainees a/ 6 6 6

Total Extensionists Trained 17 17 17

a/ Extensionists from other ASAs

13. Subsequent to the recruitment and training phase, a structuredprogram of assistance to farmers through periodic field visits will beimplemented by each ASA. This direct assistance will be supported by a seriesof complementary activities, including work with farmer leaders, practicalworkshops, field days, demonstration plots, and validation trials conducted byINIAP-Boliche. An itemized description and breakdown of costs for theextension component of the PDA is provided in Tables 3 and 4.

Suoxort to Farmer Organizations

14. Due to the particular characteristics of the Agrarian Reform,through which most of the smallholders in the project area obtained theirland, the organization of farmers in cooperatives has existed for many years.Initially, the possesion and titling of expropiated land was only givencollectively to groups of farmers associated in cooperatives. In the past 20

- 36 -

ANNEX 3Page 5 of 9

years, the majority of cooperatives in the project area have experienced aserieB of organizational and financial problems. A combination of manyfactors, in particular inadequate management, poor planning and allocation ofresources, and default in financial obligations has resulted in a gradualprocess of reduction in the number of active cooperatives and, in many cases;of members within the remaining cooperatives. In spite of this, a total of 42cooperatives with over 1,200 members are currently functioning in the projectarea (see Appendix 1). It should be noted that, in addition to cooperatives,other systems of farmer organizations operate in the project area. Althoughnot limited to smallholders, several second-grade -.rganizations andassociations have been created in recent years.

15. In spite of the overall failure of the cooperative system in theproject area, there is considerable potential to promote the establishment ofmore effective forms of farmer organizations. Furthermore, the long-termimpact of the project, as well as the sustainability of the peasant communitywill, to a large extent, depend on the development of strong organtzationalstructures with active participation of member farmers.

16. Although implemented as part of the PDA, this component of theproject is not only aimed at achieving increased levels of agriculturalproduction. Through the implementation of mechanisms to promote andstrengthen existing or newly-created farmer organizations, the project is alsoexpected to: (i) ensure the active participation of smallholder beneficiariesin project decisions, particularly for the operation and maintenance ofsecondary and tertiary flood control/drainage works; (ii) assist ruralcommunities in obtaining improved social services; and (iii) develop specificinitiatives to enhance the role and participation of women in ruralactivities.

17. The actual delivery mechanisms of project assistance to farmerorganizations will be implemented by two agencies within the MAG structure:the Technical Office for Rural Development (DTDR) and the National Institutefor Peasant Training (INCCA). The project will provide resources (see below)to strengthen the operations of these two agencies within the project area.However, the multi-disciplinary nature of this component will require thecomplementary participation of a number of specialized organizations, eitherfrom other ministries, local NGOs, or the private sector.

18. INCCA and DTDR will appoint (or recruit, if necessary) a total ofeight professionals who will receive specialized training courses during theearly stages of the project. Subsequently, they will operate in teams of twobased in each of the four ASAs in the project area. The main activities to beconducted as part of this component will include:

(a) an operational assesment of characteristics, needs, andconstraints of each of the existing farmer organizations;

(b) planning, organization, and coordination of a program ofactivities related to the promotion and development of farmerorganizations, including meetings, courses, workshops, etc.;

(c) assistance to farmer organizations in ensuring their activeparticipation in project activities and committees;

(d) liaison with extensionists and researchers in the implementationof technology transfer activities;

(e) identification of specialized institutions to provide additionalsupport to project activities, based on the needs of thesmallholder community, and

- 37 -

ANNE 3Page 6 of 9

(f) preparation of appropiate training and promotion ma-cerials,

The resources to be provided by the project in support of this componentinclude institutional strengthening (training of INCCA and DTDR staff),vehicles (for field activities), farmer training facilities (use of theRegional Training Center), equipment (office furniture, audiovisual aids,publications, etc.) and technical assistance. The description and costs ofthis component are illustrated in Table 5.

Credit

19. The overall concept of the project is ultimately designed toprovide smallholder farmers in the area with suitable conditions forsustainable agricultural production. However, the availability of flood-freeland as well as improved technological systems may not necessarily generatethe expected results on production if the farmers are faced with financialrestrictions.

20. In the past, most cooperativ-s and individual small farmers in theproject area have been unable to repay the loans provided by BNP or othercommercial sources, vainly due to crop losses in years of severe floodepisodes. Under the present conditions, it appears that project objectiveswill be difficult to achieve unless smallholder farmers have access toadequate credit.

21. In addition to contributing directly to improving small farmers,eligibility to obtain credits and to their repayment capabilities, the projectwill also include specialized assistance to small farmers in accessingexisting credit lines in BNF. Subject to the requirements of the improvedproduction systems to be developed, small farmers will use BNF creditfacilities and will be supervised by ASA extensionists in the followinginvestment activities:

(a) land preparation and inputs for annual crops, particularly riceand suitable alternative crops;

(b) establishment of annual and perennial crops, including cacao andcoffee;

(c) on-farm drainage infrastructure;

(d) small-scale machinery;

(s) purchase of livestock, and

(f) on-farm storage and processing facilities.

The estimated investment needs of farmers under the PDA are shown in Table 6.

Organization and Coordination of PDA Activities

22. As in the case of all other project components, CEDEGE will be theprimary executing agency. The coordination and supervision of the variousinstitutions responsible for the actual implementation of the PDA will beundertaken by staff of the Department of Agricultural Development andEnvironment (DDAMA) within the Project Executing Unit (UCB). Prior to theinitiation of PDA activities, subsidiary agreements will be signed betweenCEDEGE and MAG (on behalf of ASAs, INCCA, and DTDR), PROTECA, and INIAP.Appendix 2 of Annex 4 illustrates the organizational structure of the project,including the PDA.

- 38 -

Page 7 of 9

23. In addition to its coordinating role, DDAMA will also beresponsible for providing specialized assistance (particularly training) tothe staff of the various implementation agencies. In order to develop animproved and sustainable agricultural unit within CEDEGE, the PDA will alsoprovide institutional strengthening resources to DDAMA.

24. DDAMA's staff structure will be representative of the differentcomponents of the PDA. Overall management and supervision of PDA activitieswill be the responsibility of the Director, assisted during the initial fouryears of the project by an expatriate coordinator. The full-time professionalstaff will also include extension specialists (agronomy and methods), anagro-sociologist, an agro-economist, an economist specialized in agriculturalcredit, and an expert in farmer organization and training.

25. Project assistance to the organization and operation of the DDAMAwill include technical assistance, vehicles and equipment. Detailed costbreakdown for this component is provided in Table 7.

26. Effective inter-institutional planning and coordination will bethe main requisites for the overall success of the PDA. To ensure adequateparticipation of all parties involved in the PDA (particularly the farmers)two committes will be organized at the onset of the project.

27. The Consultative Committee will meet every six months and will beresponsible for addressing normative and policy issues related to theimplementation of the PDA. This committee will be integrated by seniorofficials of the different participating institutions (CEDEGE, UCB, MAG,INIAP, and ASAs), as well as two representatives from the farmerorganizations.

28. The Coordinating Committee will be comprised of representativesfrom all agencies actively involved in the operation of the PDA, includingDDAMA, INIAP-Boliche, ASAs, INCCA, DTDR, PROTECA, National Programs, andfarmer organizations). Meetings will be held every three months at theRegional Training Center to be located in the project area.

Technical Assistance

29. The effective implementation of the PDA will require the provisionof specialized technical services (consultants). The technical assistancesubcomponent of the project would consist of short- and long-term assignmentsby experts primarily expected to assist UCB/DDAMA and participatinginstitutions to coordinate and implement PDA activities, but also to conductcourses and on-the-job training for DDAMA staff, reserchers, extensionists,social workers, and farmers.

30. The requirements for technical assistance for the agriculturalcomponent of the project have been estimated at about 150 person-months overthe entire implementation period. The specific areas of expertise required bythe PDA include: project management and coordination, agro-sociology,extension methods, research agronomy, on-farm drainage and agriculturaleconomics. The tentative structure of the technical assistance to the PDA isprovided in the following table.

- 39 -

ANNEX 3Page 8 of 9

Technical Assistance to the PDA

Total CounterpartSpecialist Person-Months Institution (a)

Agro-Economist/ 54 DDAMADeputy Director

Extensionist 22 DDAMA/ASAs

Research Agronomist 12 DDAMA/INIAP(Farming Systems)

Water Management Expert 48 DDAMA/DTDR

Agro-Sociologist 6 DDAMA/INCCA/DTDR/Farmer Organizations

Non-Specified 7

Total 149

Table 7 shows the costs involved in the implementation of this component.

31. All technical assistance experts to be recruited would work inclose collaboration with one or more local counterparts designated by theappropiate institutions. In all cases, the main duties of the consultantswill be to (i) assist PDA staff and institutions in the preparation of annualworkplans, (ii) assessment of ongoing activities, and (iii) organize andconduct training programs (as outlined in Annex 4, Institutional DevelopmentPlan)

implementation Schedule

32. The implementation schedule of the PDA component of the project iscontingent on the completion of the flood control works (expected to occurduring the third year of the project). In practical terms, this approachimplies that certain elements of the PDA such as the adoption of improvedtechnological systems would not be encouraged unless flood-free productionconditions are provided.

33. However, the initial stages of the project would be utilized toconduct a series of preparatory activities that will ensure that JAprovedsupport services are available to farmers once the full implementation of thePDA is underway. The preparatory activities to be conducted during thePreliminary Phase of the PDA include:

(a) Finalization of the Implementation Plan for the PDA by staff(local and technical assistance) of DDAMA, in close consultationwith all participating institutions and farmer organizations.This will also include a detailed socio-economic survey of theproject's target group;

(b) Construction of the Regional Training Center, and upgrading ofoffice facilities of the four participating ASAs;

- 40 -

ANNEX 3Page 9 of 9

(c) Initiation of the adaptive research programs at INIAP's olicheResearch Station; and

(d) Recruitment of additional professional and support personnel, andimplementation of training programs for staff from DDAMA, ASAS,INCCA, and DTDR.

REPUSLIC OF ECUADORLOWER GUAYAS FLOOD CONTROL

Aaricultural ResearchDetailed Cost Table

(USg)

Quantity Base Costs

Unit 1991 1902 1993 1994 1995 96-97 Total 1991 1992 1993 1994 1995 1996-97 Total… --- ----------------- --- ---------…-------…

I. INVESTMENT COSTS

A. Vehicles and Equipm_t4WD Unit 1 0 0 a 0 0 1 18.0 0.0 o.o 0e. o.0 0.e 18.0Pick-Up Unit 6 0 O a 0 0 6 78.0 6.6 o.e 6.0 e.0 *.a 78.0Coaputers Unit 2 a 0 a 0 0 2 6.0 0.0 0.0 0.0 0.0 0.0 S.0Copier Unit 1 0 0 0 0 0 1 4.0 0.0 0.0 0.0 0.0 0.0 4.0Furniture Unit - - - - - - - 1.3 0.0 0.0 0.0 0.0 0.0 1.aBalance Scale Unit 6 0 0 0 0 0 5 10.0 0.0 e .0 0.0 0.0 0.0 10.0Incubator Unit 1 a 0 0 a 0 1 1.0 0.0 0.0 0.0 0.0 0.0 1.0Moisture Ueasure Unit 4 a O a 0 0 4 0.8 0.9 0.0 0.0 0.0 0.0 2.8Other Lab Equipment Unit - - - - - - - 2.0 e.g 0.e 0.e 0.0 0.0 2.6Machinery A Tools unit - - - - - - - S0.0 69.90 so lS0.

Sub-Tota l 170.0 S0.0 60.0 0.0 0.0 0.0 270.0D. Training

Craduate (Overseas) 0 2 1 0 0 0 3 0.0 40.0 20.0 0.0 0.0 0.0 89.aCourses (Overseas) 0 2 2 2 0 0 8 C.6 2090 2090 20.0 0.0 0.0 8.0e

Sub-Total .0 8.9 40.0 29.0 0.0 0.0 120.0C. Cacao Plantation - - - - - - - 7.8 0.0 0.0 0.0 0.0 0.0 7.8

---- --- --- ---- ------- ------ $.-

Total INVESTMENT COSTS 177.8 110.0 90.0 20.0 0.0 0.0 397.8

II. RECURRENT COSTS

A. StaffingCoordinator (Fare Systam)Months 8 12 12 12 12 12 78 2.6 6.3 6.3 6.8 5.8 6.8 84.3Agriculture EconomIst months 6 12 12 12 12 12 78 2.4 4.0 4.8 4.8 4.8 4.8 31.1Agronomist months 18 1i 48 48 48 48 272 8.4 6.4 19.1 19.1 19.1 19.1 108.4Asat. Coordinator Months 8 24 24 24 24 24 162 8.2 9.6 9.6 9.8 9.8 9.6 66.6Secrotary Months 8 12 12 12 12 12 78 1.0 2.1 2.1 2.1 2.1 2.1 13.6

Sub-Total 16.6 28.1 40.8 49.8 40.B 40.8 248.0S. Social Charges - - - - - - - 8.8 11.2 16.3 16.3 16.8 16.3 99.2C. Vehiele OAM

4vD 1 1 1 1 1 1 7 2.2 2.2 2.2 2.2 2.2 2.2 16.6Pick-UpS 6 6 6 6 6 6 42 10.3 10.8 10.3 10.3 10.8 10.8 72.1

Sub-Total 12.6 12.5 12.5 12.6 12.6 12.5 87.0D. Trials and Events

Annual Crops Unit 0 128 170 212 266 258 1278 0.0 10.6 14.1 17.6 21.8 21.8 106.1Cacao Unit 0 4 4 4 4 4 24 6.0 2.2 2.2 2.2 2.2 2.2 13.8Detailed Studies Unit 0 6 6 6 6 4 32 0.0 2.0 2.0 2.0 2.0 1.3 16.8Field Days Days 0 16 16 l 16 18 96 0.0 8.6 3.5 3.6 3.6 3.6 21.3Courses Unit 0 1 1 1 1 1 6 6.9 6.6 6.6 6.6 5.6 6.6 38.2Plantation Maintenance - - - - - - - 0.0 0.8 0.6 0.6 9.06 0.6 8.3 -3

-- - - - - - - - - - - - - - - - - -0-

Sub-Total 0.0 24.6 28.0 31.4 36.1 34.4 187.8 F .

Total RECURRENT COSTS 34.4 76.3 97.6 101.1 16.8 104.1 822.6= = == = ===

Tote I 212.3 186.3 187.6 121.1 104.8 104.1 1020.4

- Values scaled by 1000.0 6/18/1996 16:02

- 42 -

ANNEX 3Table 2

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Asricultural InDut Infrastructure

Basic Seed and ftimal Health

Detailed Cost Table (USS)

Qdantity Base Costs

Unit 1991 92-97 Total 1991 192 1993 94-96 98-97 Total

I. INVESTMENT COSTS

A. 54dLab Equip..Sreinator Unit 1 0 1 4.0 0.0 0.0 0.0 0.0 4.0Psychometer Unit 2 0 2 0.6 0.0 0.0 0.0 0.0 0.5Hydrometor Unit 2 0 2 1.8 0.0 0.0 0.0 0.0 1.8Hydrothermograph Unit 8 0 3 4.5 0.0 0.0 0.0 0.0 4.6Analyzer Unit 1 0 1 0.5 0.0 0.0 0.0 0.0 0.5Ventilation Unit 1 0 1 2.5 0.0 0.0 0.0 0.0 2.5Vitascope Unit 1 0 1 1.9 0.0 0.0 0.0 0.0 1.9Bag Closer Unit 2 0 2 2.8 0.0 0.0 0.0 0.0 2.8Balance Scale Unit 3 0 a 0.0 0.0 0.0 0.0 0.0 .e0

Sub-Total 24.3 0.0 0.0 0.0 0.0 24.3B. Seed Processing Equtp.

Dehumidifier Unit 2 0 2 8.0 0.0 0.0 0.0 0.0 8.0Seed Cleaner Unit 1 0 1 a.5 0.0 0.0 0.0 0.0 8.6Treatment Plant Unit 1 0 1 9.7 0.0 0.0 0.0 0.0 9.1Seed Dryer Unit 1 0 1 8.4 0.0 0.0 0.0 0.0 3.4Air Conditioner Unit 1 0 1 8.3 0.0 0.0 0.0 0.0 8.8

_- - _ - - -- -- ------ -- - -_- - -- _ - _ _--

Sub-Total 27.9 0.0 0.0 0.0 0.0 27.9C. Seed Storage - - - 28.9 0.0 0.0 0.0 0.0 28.90. Foot & Mouth

Equipment Rehab Unit - - - 0.0 1S.0 20.0 0.0 0.0 85.0Raw Materials Unit - - - 0.0 0.0 40.0 80.0 0.0 180.0

Sub-Total 0.0 15.0 80.0 60.0 0.0 195.0

Total INVESTMENT COSTS 81.1 15.0 80.0 80.0 0.0 276.1

It. RECURRENT COSTS

A. StaffElectro-Mechanic Months 0 12 78 2.8 5.6 5.8 5.8 5.8 88.5

8. Social Charges - - - 1.1 2.2 2.2 2.2 2.2 14.8

Total RECURRENT COSTS 8.9 7.9 7.9 7.9 7.9 51.1== = === = _=

Total 85.0 22.9 67.9 87.9 7.9 327.2

- Values :caled by 1000.0 6/18/1990 15:02

- 43- ANNEX 3Table 3

RitIC OF iCUA" 9YA8 FI.8 CONTROL0

(U)

ustity Base Costa

Unit 1 S91 9M 18 194 19 9-J Total 199 1992 193 1994 1995 1999-97 Total

I. INVESTMENT COSTS

A. Regional Training Cen.out ldtng mg2 e lW 0 00 a isle e.0 etae.s e.o 0.0 o.9 8.0 288.6

FrndA? o.e 2e.8 *.e 0.0 o.o 9.9 20.8nct.3 - - - - - 90 . .9.0 38 oeg e o.e 8.3

Furr & Equip. Unit - - - - - - - e.e 7.6 0.0 0.0 0.0 0.0 7.6Paver Plant Ur tt - 0 - -. e 1.6 9.8 9.8 8.8 1e.e@ar.a. us 9189 a 8 0 e smse e.0 16.1 8.8 . o 9.9 16.8

Sub-Total 8.8 84.2 9.9 e.0 o.0 o.o i0.26. Vehicles

Pick-UpS Unoit 0 0 2 1 * 0 S e.o O.o 26.8 18.0 29. o.e 66.9Motore.ye Unit 8 9 18 18 t1 a 88 9.0 09 . 22.9 22.0 22.0 0.0 96.9

Sub-Total 0.0 9.0 48.0 35.0 48.0 0.0 181.8C. Audio - 'teau Equip.

Video Casro Unit 0 4 a a 9 O 4 0.0 6.8 0.0 0.8 a.9 o.e O.o

CaSsettes Unit 0 2ee a 0 9 21a 0.0 1.8 8.9 8.0 o.e g*g 1.gV=d oRccorder Unit 0 4 a a a 0 4 0.0 2.4 0.0 0.0 9.f0 00 2.4TV Menttor unit 0 4 * 0 * 4 * .*0 8.2 00. 0.0 .e0 0 0 8.2Generator Uiit e 4 0 a 0 0 4 0.0 2.4 9.9 9.9 0.0 0J. 2.4Slide Projector Unit a 4 O * 9 a 4 9.9 9.6 .9 0. 9 0. 8.9 8.6slen Csmrs Unit 0 4 a 0 a a 4 8.9 1.9 0.9 9.9 9.8 9.9 1.9Overhed Project. Unit a 4 a O 0 * 4 9.9 1.2 0.8 0. 0 0. 0 9.8 1.2Projertor Scren Unit 0 tO 0 9 8 9 tO 0.0 0.4 e.o 0.0 g.e 0.0 0.4

Sub-Total 0 0 1S 2 8.9 OJ 0.0 0.0 1S.2O. Other Equipment

Black eards Unit a 29 9 a 0 O0 g 0.0 0.4 9.9 9.9 9.9 0.0 9.4Draftsmn Tablo unit 0 I 0 a 9 0 1 9.0 4.8 0.0 8.9 9.8 0.0 4.9Small Equipment Unit 0 is is 1s .8 a 48 9.9 1.8 1.8 1.9 0.0 090 4.6Pamphlets Unit 0 0 18e 8s SW0 711e101 0.0 O.o 6.9 11.9 1t.0 9.8 85.8Field Manule Unit 0 19e 9 a a 0 1t4 9.9 18.9 0.9 9.0 0.8 9.9 19.8Offtri Equipment Unlt - - - - - - - 8.9 7.6 9.9 9.8 8.8 9.9 7.8

Sub-Total 9.9 23.6 .S t8.0 1 5. 0 80 91.7E. Training

raduato (Oversea) 8 2 2 9 9 o 4 9.8 40.0 40.8 9.9 9.8 9.9 99.9Course (Over"e*) O 1 1 a 0 0 2 9.8 18.9 1t.9 9.9 9.9 8.9 20.9Ceurse (Loct) 9 1 2 2 1 1 8 9.9 20.9 40.0 49.0 20.0 29.0 169.0

Sub-Tetal 0 0 7. 0 99.8 40.9 20.8 29. 26e.9

Total DiVESTMENT COSTS 0 0 451 9 144 . 91.9 S8.9 28.0 811.1

I1. RECURRENT CST

A. Stafting

Supervisors Ndnt. 9 6 11 24 eo 89o 1e 8.9 2.4 4.9 9.6 14.13 14. 59.6Ext.ensieftiats Meotteo 8 89 129 248 899 8ON 1478 .9. 9.8 85.2 79.4 185.6 185.6 431.1Specilista K6not i 9 6 9 0 a 6 8.0 0.0 2.6 9.9 9.9 9.9 2.9Secreties ent t 8 12 24 24 24 24 112 8.9 2.1 4.8 4.3 4.8 4.3 23.4Support booths a 48 71 7n na 71 498 g.e 5.3 9.e s.9 *.0 8.0 46.2

Sub-Total 0.0 16.9 55.O 92.2 132.2 112.2 662 4d. Social Charges, - - - .8 7.5 22.0 86.9 52.0 62.0 224.1C. Vehicle OUt

Pick-Ups unit O a 2 8 e * t0 0.0 9.0 3.4 6.1 6.6 9.S 84.8Motorcycles unit 8 e tO 29 Be t9 o 1N 9.9 9. 4.9 9.7 14.6 14.6 56.4

Sub-Total 9.9 9.9 .83 14.9 23.2 18.2 92 .0. Office Opertion

General - - - - - - - 9. 9.9 5o 9.9 9.9 9.9 44.4Electricity - - - - - . 8 .6 9.6 g.e 2.5

Sub-Total 0.0 G.8 5.8 18.4 8.4 10.4 46.sE. Events

field Osys tOp 9 O a 4 9 to 43 9.9 9.8 9.8 4.4 1t.9 18.6 47.6mint - Fi-ld Days Doa 9 a 62 194 1t NO9 9.8 09. 9.9 14.4 29.6 48.7 14U.8Oenentrattoe Unit * a 62 m84 179 696 9.8 9.9 9.9 6.6 11.6 19.6 56.2Group Visit. Unit a 8 a so we S4 1799 6969 9.9 8.9 o.9 2s.6 57.9 97.4 281.2

Sub-Tetal 9.9 9o.9 . 53.4 to7.s9 12.2 526.0

Tot l RECURRENT COSTS *.9 29.1 99.6 297.7 8.S 4aa.9 1462.6-m~somm somo am~s nam - -

Total 9.8 477.9 2114. 299.8 499.5 428.9 29".7

- Values sesled by 1969.8 9/19/1998 16S81

- 44 -

ANNEX 3Table 4

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Africultural Eztension

Agricultural Services Azeucv

Detailed Cost Tattle (USS$

Quantity Base Costs

Unit 1991 92-97 Total 1991 92-97 Total

1. INVESTMENT COSTS

A. Building UpgradingMilagro 1M2 408 0 400 23.8 o.a 23.0El Triunfo 12 28S 0 286 16.4 5.0 16.4Naranjito 112 80 a 80 4.8 O.0 4.6Yaguachi 112 1SO 0 159 6.6 9.9 8.8

Sub-Total 52.7 5.0 62.7=B. Vehicles

Pick-Ups Unit 6 a 6 78.0 O.O 78.0C. Furniture Unit - - - 18.4 9.0 18.40. Equipment Unit - - - 12.5 0.9 12.6

Total INESTMENT COSTS 161.6 O.0 161.6

II. RECURRENT COSTS

A. Vehicle CAM Unit 6 6 42 10.8 10.8 72.18. Office Operation - - - 0.0 2.0 12.3

Total RECURRENT COSTS 10.3 12. 84.45 2=== =

Total 171.9 12.3 245.9

- Values scaled by 1000.0 6/18/1990 15:02

REPWUSC OF ECUAORLOER UAYAS FLOOD CaNTROL

PvdtiT: ~OrtInI~zat ionZetSe C°ost a,,ble.&io

us,

Quantity 8MW Coots

UnIt 1991 1092 1993 1t94 190 96-97 Total 191 1992 1998 1994 199S 19I9 1997 Total

1. T COSTS

A. Vebielog43D unit 6 a O O O O a *.0 64.0 0.0 0.o 0.0 o.o o.o 64.0Pick-UpS Unit 0 4 o e 0 0 4 e.g S2.0 o.0 0.0 0._ 0.0 0.0 52.0

Sub-Toetl 0.0 10B.0 0.0 P.0 0.0 0.0 6.6 106.0S. Audio-Visual Equipment

Video Cmera Unit O 1 6 0 0 0 1 0.0 1.6 0.0 0.0 0.o e.0 e.g '1.SVideo Cassettes Unit 0 10t 0 0 0 0 100 t.0 0.6 0.0 O.0 o.e 6.0 0.0 0.6Video Reconrd Unit 0 4 0 0 a 0 4 0.0 2.4 0.0 0.0 0.0 6.6 0.0 2.4TV lnitoe unit 0 4 0 0 0 0 4 0.0 8.2 0.0 0.0 0.0 0.0 o0. 8.2Generator Unit 0 4 0 0 a * 4 0.6 2.4 0.0 6.0 0.0 0.0 6.0 2.4Tape Recorder Unit 0 1 0 0 0 0 1 0.0 0.6 0.0 0.6 0.0 0.0 0.o 0.6Slide Projector Unit 0 4 a 0 a 0 4 0.0 0.6 6.0 o.0 0.0 0.0 0.o o.0Owbead Projector Unit 0 4 0 0 0 0 4 0.0 1.2 0.0 6.0 0.0 0.0 0.0 1.2Projector Scroen Unit 0 4 0 0 0 0 4 0.0 0.2 0.0 0.o o.0 0.6 0.0 0.2

_____ ____. - -__. ___ ___. O- _ _- ._-- -

Sub-Total 9.0 12.B o.0. 6.6 6.0 6.0 0.0 12.6C. Othe Equipment

Block Boards Unit 0 4 0 a 0 0 4 0.0 0.1 0.0 0.0 o.6 0.0 6.0 o.1brftenen Table Unit a 1 0 0 0 0 1 0.0 4.6 0.0 0.6 0.0 0.0 0.0 4.0Pamphlet. unit o o 1660 0 0 0 1O06 0.0 0.e 6.0 0.0 6.0 0.0 0.6 6.6 ISmall Equipment Unit - - - - - - - 0.0 1.0 0.0 0.0 0.0 o.0 0.0 1.6

-- -- -.-- -VI---U

Sub-Tote I o. 6.1 5.0 0.6 0.0 0.0 o.0 10.10. Otfice Furnlture Unit - - - - - - - 0.0 7.0 0.0 0.0 6.0 0.0 0.6 7.0 I

Total IIEESTENT COSTS 6.0 180.6 6.0 0.0 0.6 0.0 6.6 186.6

11. REOJCREIT COSTS

A. StaffINCCA Technicians lonth. 12 24 24 24 24 24 166 4.8 9.6 9.0 9.6 9.0 9.0 9.0 02.2Rural evlpmnt Expert Month. 0 12 12 12 12 12 78 2.4 4.8 4.0 4.0 4.6 4.8 4.0 81.1Prtessur. Monthn 40 96 96 9S 90 90 024 14.1 20.2 20.2 20.2 26.2 20.2 28.2 183.1Othor Specloillet months 8 0 8 0 0 0 42 2.4 2.4 2.4 2.4 2.4 2.4 2.4 10.7

Sub-Total 21.0 44.9 44.9 44.9 44.9 44.9 44.9 293.0b. Social Charge. - - - - - - - 9.6 10.0 18.0 10.0 18.0 16.0 18.0 117.2C. Vehicl O8M

4WD 6 a 3 S 8 10 0.0 0.6 6.0 0.0 6.6 0.0 8.0 89.9Pick-UPS 0 4 4 4 4 4 24 0.0 0.9 0.9 0.9 0.9 0.9 8.9 41.2

Sub-Total . ..0 18.6 13.6 18.6 18.6 18.6 18.6 01.00. Promotionel Actliitleo

Seminars 6 a 16 10 0 0 23 0.0 8.a 11.1 11.1 6.6 6.o 0.6 25.6Meeting 0 a 60 100 Go Be 8e 0.0 0.0 6.S 11.1 6.6 6.6 6.6 8a.2material - - - - - - - 0.6 0.8 1.1 1.1 1.1 1.1 0.6 5.0

Progrm 0 20 60 so so 0 170 0.0 0,2 0.0 0.8 0.0 0.0 6.0 1.9 FmSub-Total 0.0 4.1 10.8 2a.0 7.2 6.8 6.S 06.6

Total RECURRNT COSTS 88.1 80.6 94.6 100.2 08.0 68.0 61.9 660.8

Tote I S8.1 211.0 99.0 106.2 08.8 08.6 01.9 692.4

- Valu, cled by 1600.6 S/18/19S0 ISMoS

- 46 -

ANNEX 3Table 6

ECUADOR

LOtWER GUAYAS FLOOD CONTROL PROJECT

On-Farm Investment

Detailed Cost Table (USS)

Quantity

Unit 1991 1992 1993 1994 199S 1996 1997 Total

I. INVESTMENT COSTS

A. On-Farm Drainage Ha 0 68 359 2503 2026 1243 420 6817B. Cacao Renovation Ha 0 6 201 438 438 436 236 1745C. Banana Plantation Ha 0 0 290 380 380 80 0 1ll00. Sugarcane Ha 0 a 80 140 140 80 0 420

6/18/1990 1S:09

Base Costs

1991 1992 1993 1994 1996 1998 1997 Total

I. INVESTMENT COSTS

A. On-Farm Drainage 0.0 5.7 30.9 215.3 174.2 108.9 38.1 689.1B. Cacao Renovation 0.0 0.0 223.1 484.0 484.0 484.0 282.0 1936.9C. Banana Plantation 0.0 0.0 1603.7 1990.8 2101.4 442.4 0.0 8138.80. Sugarcane 0.0 0.0 39.0 91.0 91.0 52.0 0.0 273.0

Total INVESTMENt COSTS 0.0 6.7 1898.7 2781.0 2850.6 1085.8 298.1 8917.38S=S====_== =5

Total 0.0 5.7 1896.7 2781.0 2860.6 1085.3 298.1 8917.3

- Values scaled by 1000.0 8/18/1990 16:09

REPUBLIC OF ECUADORLOWER 6UAYAS FLOOD CtXTROLRrcultmrag DeVe1QPment

Coorainat on and T tnicat Ass stance

Detailed Cost Table (US$)

Quantity Base Costs

Unit 1991 199 1993 1994 1995 1991997 Total 1991 1992 1993 1994 1995 1996 1997 Total................................ .................. ........................ ..................................................... ... .... .....

1. INVESTMENT COSTS

A. Technfeal AssistanceAgriculture Economist 3 6 12 12 12 6 3 54 48.0 96.0 192.0 192.0 192.0 96.0 48.0 864.0Extensionfet (Agronomy) 0 2 5 5 5 5 0 22 0.0 29.0 72.5 72.5 72.5 72.5 0.0 319.0Water Mgt. Specialfat 3 6 12 12 12 3 0 48 43.5 87.0 174.0 174.0 174.0 43.5 0.0 696.0Resarch Agronomist 1 2 2 2 2 2 1 12 17.5 35.0 35.0 35.0 35.0 35.0 t7.5 210.'Rural Sociologist I I I I 1 I 0 6 17.5 17.5 17.5 17.5 17.5 17.5 0.0 105.0Other SpecialIsts 2 1 1 1 1 1 0 7 35.0 17.5 17.5 17.5 17.5 17.5 0.0 122.5

Sub-Total 161.5 282.0 508.5 508.5 508.5 282.0 65.5 2316.5B. Vehicles and Equipment

4WD Unit 2 2 2 0 0 0 0 6 36.0 36.0 36.0 0.0 0.0 0.0 0.0 108.0Vehicle O&N 2 4 6 6 6 6 6 36 4.0 8.0 12.0 12.0 12.0 12.0 12.0 72.0 Z-Computers Unit 3 0 2 0 0 0 0 5 9.0 0.0 6.0 0.0 0.0 0.0 0.0 15.0

Sub-Total 49.0 44.0 54.0 12.0 12.0 12.0 12.0 195.0

Total INVESTMENT COSTS 210.5 326.0 562.5 520.5 520.5 294.0 77.5 2511.5

It. RECURRENT COSTS

A. StaffDirector Months 12 12 12 12 12 12 12 84 5.3 5.3 5.3 5.3 5.3 5.3 5.3 37.2Extensionfst (Agronomy)Months 12 12 12 12 12 12 12 84 4.8 4.8 4.8 4.8 4.8 4.8 4.8 33.5Extensionist (Methods) Months 12 12 12 12 12 12 12 84 4.8 4.8 4.8 4.8 4.8 4.8 4.8 33.5Rural Sociologist Months 12 12 12 12 12 12 12 84 4.8 4.8 4.8 4.8 4.8 4.8 4.8 33.5Economist Months 12 12 12 12 12 12 12 84 4.8 4.8 4.8 4.8 4.8 4.8 4.8 33.5Institutional Expert Months 12 12 12 12 12 12 12 84 4.8 4.8 4.8 4.8 4.8 4.8 4.8 33.5Secretary Months 12 12 12 12 12 12 12 84 2.1 2.1 2.1 2.1 2.1 2.1 2.1 14.9Drivers Months 72 72 72 72 72 72 72 504 10.0 10.0 10.0 10.0 10.0 10.0 10.0 69.7

Sub-Total 41.3 41.3 41.3 41.3 41.3 41.3 41.3 289.2B. Social Charges - - * - - - 16.5 16.5 16.5 16.5 16.5 16.5 16.5 115.7

Total RECURRENT COSTS 57.8 57.8 57.8 57.8 57.8 57.8 57.8 404.9

Total 268.3 383.8 620.3 578.3 578.3 351.8 135.3 2916.4

- Values scaled by 1000.0 10/2211990 13:09 isA

- 48 -ANNEX 3

ORGANIZACIONES AGRICOLAS EN EL AREA OEL PROVECTO - 3

NONBRE a g C T A R E A S No, DE eOCIos PRONEOSO

lN1- ACTUA- VENDI- INl- ACTUA- HAS/

CIALES LES OIDAS CIALES LES SoCIO.................................................................................................

Cristobal Colon 797 537 260 52 52 10

Mango Arracero 1.012 612 200 60 37 17

Flor del Progreso 220 100 120 16 6 17

Carlos i. Arosemena 630 348 282 42 20 17

El Mate 784 0 784 24 0

Churute 958 531 427 52 40 13

La Flora 192 1928) 12 0

Libertad de Churute 551 372 19 14 27

4 1e Agosto 700 420 20 12 35

Cimalon 189 0 189 12 0

Caputto 101 101 12 12 9

Agricola Setgica 220 220 - 37 22 10

Santa Isabel 240 240 11 7 34

Rosa Elvira 246 160 86 24 24 7

La Puntilta 300 30d 46 46 7

La Union 330 330 36 40 8

Pay, 314 314 * 42 40 11

19 de ayo 364 364 - 28 26 14

Tierra at Campesino 400 400 - 80 75 5

Caimital 1.000 1.000 - 40 40 23

Miranda Giron 1.001 1.001 35 35 29

Rio Verde 1.100 1.100 80 20 14

Taura 1.664 1.664 170 74 23

San Mauricio 140 140 - 17 10 14

Palo ALto 181 181 37 37 5

12 de Octubre 161 161 - 26 24 7

Simon Bolivar 504 283 2.2 45 24 11

Santa 9arbara. 184 184 * 21 21 9

Nueva Gloria 60 60 - 17 14 4

P.J.montero 170 170 16 17 10

Patria Nueva 122 122 - 27 15 8

19 de Agosto 130 130 - 19 19 7

San Antonio 160 160 19 18 9

Santa Rosa 1 368 368 49 49 8

Santa Rosa 2 346 346 - 43 43 8

San Jose 120 120 - 34 10 12

Lucha y Progreso 310 310 - 32 22 14

Arrocera taguachl 302 202 10 11 11 9

La Lola 161 161 - 35 22 7

ViLta Gladis 42 42 - 11 11 4

22 de Abril 176; 176 * 32 26 6

El Condor 345 345 - 25 S2 7

Nueva Era 30.7 30*7 - 8 8 4

Isle Rosa AmeLia 39 39 - 17 14 3

10 de Octubre 183 183 - 22 15 12

Unidos Venceremoab) 33,4 33 4 11 11 3

Rio Chimbo 173 173 - 24 24 7

Agropecuaris 322 322 - 69 69 5

CaAaveralb)

tOTAL 18.0761 14.556,1 26.422 1.617 1.228. . .. .. .. . .. . . . _. . . . .. . . . . .. . ............ L......................................................

a) La venta de to tiorra esta en procaso.

b) Estoe son respectivamente Asociscion de Cacaoteros r Asoceeacon Agricola

Fuente: Encuentas CEDEGE-UASKONING AbrlU-Mayo 1989

- 49 -

ANNEX 4Page 1 of 4

ECUAIoR

LOWER GUAYAS FLOOD CONTROL PROJECT

Institutional Develoament Comoonent

Organization

1. Appendix 1 shows the interinstitutional network for implementingthe project and carrying out the related agriculture and environmentalcomponents. Project management will be carried out by of a special ProjectExecuting Unit (UCB) within CEDEGE, partly building on its existing functionalorganization but largely new. UCB is being organized and staffed at alevel I') consistent with project administration. The necessary technicalassistance would be provided under the project '). Organized and staffed asdescribed, UCB should be a strong entity for project implementation (includinginfrastructure, agricultural development plan and environment andinstitutional development). Both UCB organization and staffing have beendesigned to help CEDEGE ensure: (a) adequate interinstitutional relationships(as shown in the corresponding diagram (Appendix 2) and in the description ofhow these relationships will function (Appendix 1)) based on explicitagreements already discussed during project preparation, to be signed prior toJune 30, 1991 (see para 3.20); (b) acceptable and timely flow of funds (GOE,the Bank, and the Dutch Government) to the various implementing agencies,coordinated by and through CEDEGE; (c) appropriate action taken in time forimplementing institutional strengthening activities (such as technicalassistance and training), for UCB and other implementing agencies' managementand staff.

Institutional Canacitv Assessment

2. During project preparation, a careful institutiorql capacityanalysis was carried out by CEDEGE's staff for assessing req rements forstrengthening all agencies involved. Based on project object-.ves and proposedstrategies and resources that would be made available through the project,work programs have been disaggregated into tasks to describe how the sharingof institutional responsibilities would work. A review of the capacity of theagencies involved to implement such work programs helped identifyinstitutional capacity gaps (ICGs) from the legal, organizational,administrative, and skills viewpoints.

3. The sectoral legislation does not provide a clear definition ofinstitutional responsibilities for all infrastructure and agriculturedevelopment-related activities; this must be solved through interagencyagreements as provided in this component. Furthermore, the implementation ofthe Agriculture Development Plan requires that farmers should be organized in

I/ UCB will include 68 professionals, 22 technicians, and 60 support staff,organized into 3 divisions (institutional development; infrastructureprogramming and control; finance and administration); and 4 departments(agriculture development and environment; feasibility studies and design;construction; and operation and maintenance).

2,1 About 710 m/m of technical assistance would be provided in total (see para8 below for details).

- 50 -

ANNEX 4Page 2 of 4

committees to operate and maintain farm-level infrastructure in addition toparticipating in local consulting committees in charge of the preparation ofagriculture plans, monitoring and evaluating their implementation, andapproving related budgets. There is no national legal provision allowing thiskind of committee to be created, although many have been spontaneously createdin the past. Traditionally, CEDEGE and the Ministry of Agriculture havedeveloped reasonable interinstitutional relationships, in particular inimplementing other projects such as the Daule Peripa. However, relationshipsbetween the Ministry of Agriculture and agencies with which organizationallinks are not well established have resulted in serious capacity gaps thatmight threaten project implementation. The most serious hurdles in this fieldoccur between national extension, research, animal health, and regionalprograms of the same kind in agricultural development action plans.Distribution of roles and sharing of institutional responsibilities are notexplicit or clear. Otber interinstitutional-related capacity gaps includeagricultural credit programs handled by the National Development Bank (BNF),which does not accept the intervention of any other agency. Finally, overlapsare also found in extension activities carried out by PROTECA and ASAs.

4. Implementing agencies' orcanization also contributes to weakenoverall institutional capacity. In general, all implementing agencies lackadequate explicit procedures and norms, let alone organization manuals. Staffdo not feel they have clear-cut terms of reference and are often givendifferent functions for which they have not been necessarily prepared. Thiscreates a lack of commitment and continuity for certain functions resulting inlower performance. Personnel tolicies for involved agencies are restrictivedue to lack of budget that would help match growing activities, especially inagriculture extension, farmers' organizations, and in animal health programsof the relevant Directorate of the Ministry of Agriculture. Furthermore,field work is difficult because of lack of adequate incentives. Allowances donot even cover time actually worked in the field, and transportation isavailable only where farmers cooperatives are equipped and/or where publictransportation exists and field workers willing to use it.

S. Finally, skill aaps have been identified at all levels:professional staff, technicians, support staff, and beneficiaries. At theadministrative level system administration, computer-related skills andsupport staff skills are weak or missing. At the professional/technical levelof CEDEGE, needed skills are related to catchment area management andconservation; operation and maintenance of automatic hydrometeorologicalnetworks; construction supervision; drainage; early warning systems andprevention of flood peaks; operation and maintenance of dikes; flood controland drainage systems; geotechniques; geomorphology; land-titling; ruraldevelopment planning; and monitoring water quality control. Similarly, skillgaps have been identified in efficiently carrying out applied research andextension (within the PDA) and in the environmental activities. All skillgaps would be reexamined and detailed measures would be recommended tomitigate or eliminate them during the institutional strengthening process,planned to start as soon as the loan becomes effective.

The Project-Supported Institutional Development Component

6. Obiective. PSIDC's inputs have been designed so as to eliminateand/or mitigate identified capacity gaps described above. This will be donethrough: (a) administrative measures taken by GOE; (b) new management andorganization processes established with the help of technical assistanceincluding related vehicles and equipment; and (c) skill upgrading activitiesfor all levels of staff. Total cost of PSIDC would amount to about US$18.4million.

- 51 -

ANNEX 4Page 3 of 4

7. ICGs to be Addressed by Administrative Measures. All legalhurdles, largely due to lack of specificity and/or clarity of related laws anddecrees, and the lack of interinstitutional arrancements for project-relatedtasks are to be solved by the signature of agreements between agencies and/orwith CEDEGE's UCB. Thus, all involved administrative units would know: (a)the respective agencies' roles; (b) how their relationships are going to work;and (c) what are their respective work programs, disaggregated into detailedtasks. Some organization problems internal to implementing agencies would besolved by decisions made at the management level of these agencies. This istrue for CEDEGE, which will create UCB and would define acceptable financialflows from the center and towards implementing agencies. It is also the caseof INIAP and PROTECA, in which envisaged measures would strengthen theexisting organization structure and would improve research/extensionrelationships and coherence. Furthermore, the expected decentralized mandategiven to CEDEGE-UCB would help solve many of the identified ICGs related topersonnel policy problems. Lack of incentives for field workers (such asextension agents) would be solved partly through ad hoc allocations specifiedin interagency agreements.

S. ICGs to be Addressed through Technical Assistance. About 710 m/mof technical assistance are included in PSIDC to help remove all identifiedICGs related to highly technical skills and to the institutional environmentin which the project is going to be implemented. This would support projectmanagement and organization, monitoring and evaluation (about 108 m/m) andsubstantially increase technical skills and organization for bothinfrastructure design and construction supervision (179 m/m) operation andmaintenance (91 m/m), preparation of the master plan studies (76 m/m),environmental activities (107 m/m) and acricultural development (149 m/m).This TA has been designed in such a way that the specialists would transfernew systems and procedures and install efficiently the institutional capacityrequired not only for the achievement of project objectives but also for thelonger-term sustainability of their corresponding benefits. This subcomponentwould be financed partly by the Dutch Government (for PDA and the upperwatershed environmental activities)i and for all the other activities by theBank. Its cost amounts to US$12.6 million for specialists and US$4.0 millionfor related vehicles and equipment. Specialists financed by the Bank would beidentified and hired in accordance with the corresponding Bank guidelines.

9. ICGs to be Addressed throuah Trainina Activities. The trainingsubcomponent would help eliminate identified skill gaps. Administrativetraining activities including computer-related courses, would be delivered toabout 74 CEDEGE professional. Most of CEDEGE's support staff skills wouldalso be upgraded. Professional-level training would be delivered in coursesof seven to 90 days as early as possi.ble during PSIDC implementation, whichwould start soon after project appraisal. Other implementing agencies' staffwould also be trained, mainly for the agriculture development plan. Thiswould include 90 professionals in all aspects of agricultural extension in 30-to 40-day courses; two would seek a master's degree in extension abroad andthree researchers would also get a master's degree abroad (two years).Finally, about 3,000 farmers would be trained for the introduction of modernfarming practices resulting from improved flood control and drainage. Totalcost of training activities amounts to about US$1.0 million.

PSIDC Imolementation

10. PSIDC would be implemented by a special UCB section ("Unidad deDesarrollo Institucional") that would be headed by an organizationalspecialist and staffed with two professionals in training, monitoring, andevaluation. This division would also be responsible for the institutionaldevelopment function, that is, the analysis of the institutional environmentin which the project is going to be implemented so as to identify anticipated

- 52 -

ANNEX 4Page 4 of 4

problems and formulate alternative solutions to help project management makeadequate and timely decisions. This unit would use other UCB'e as well asCEDEGE's administrative and technical support to implement its own tasks andhelp ensure amooth interinstitutional relationships as defined in the variousagreements to be signed between implementing agencies and with CEDEGE. Tohelp this unit incorporate modern organization and management tools andprocesses, specific technical assistance would be delivered in the form of 12m/m of an organizational specialist (included in the TA program described inpara 8 above) who would start work as early as possible after loaneffectiveness.

- 53 -

ANNEX 4Appendix 1

Implementina Institutional Universe Matrix

Interinstitutional relationships are to be formalized in agreements to besigned between every implementing agency and CEDEGE which would centralizecoordination and project management functions. The following matrixidentifies involved agencies, their administrative units and respective roles.The codes refer to boxes in the project interinstitutional relationship mapwhich is in the project file.

Administrative Unit in Charge Implementing Role/Function

CEDEGE: Directorio Policy MakingPresidencia Responsible for ImplementationDireccion Ejecutiva Planning, Budgeting & SupervisionComite de Licitaciones Procurement FunctionsAsesoria Juridica Legal CounsellingDireccion Recursos Humanos Hiring StaffDireccion Administ-ativa Equipment ImportsDireccion Financiera Approve Budgets, Financial FlowsPlanificacion Overall Planning/Cost Recovery

UNIDAD CUENCA BAJA: Direccion Project CoordinationDesarrollo Institucional Implementation of Inst. Dev. Comp.Control Obras Fisicas Civil Works SupervisionAdministracion/Finanzas Administration & Financial ControlDesarrollo Agrop./Medio Ambiente Plan. & Coord. Ag. Dev. & Env. Act.Estudios y DiseAo Studies and DesignConstruccion de Obras Construct. Implem. Revision & SPNOperacion y Mantenimiento Project Operation and MaintenanceJunta de Beneficiarios Target Population RepresentationComite Consultivo Agric. Development Committee

CONTRALORIA GENERAL DEL ESTADO Financial Control and AuditBANCO NACIONAL DE FOMENTO Development FinancingSUBSECRETARIA DE CREDITO PUBLICO Fiscal, Debt, Counterpart FundsDIRECCION NACIONAL AVALUOS Y CATASTROS Property Evaluation, CadasterSUBSECRETARIA DEL MEDIO AMBIENTE Environment Aspects-National LevelDIRECCION NACIONAL DEL MEDIO AMBIENTE Water Quality MonitoringINS. ECUATORIANO REFORMA AGRARIA Y COLONI. Land Acquisition, TitlingSUBSECRETARIA FORESTAL Y RECURSOS HUMANOS Forestry (upper catchment) Monit.CEDEGE Ecological Reserve AdministrationSUBSECRETARIA COSTA Y REGION INSULAR Coord. of Regional Dev. ActivitiesAGENCIAS DE SERVICIO AGROPECUARIO Agricultural Extension ServicesPROGRAMA TECNOLOGIA AGROPECUARIA Agricultural Research SupportDIRECCION PROVINCIAL DES. AGROPECUARIO Cooperatives and MarketingDIRECCION TECNICA DE GANADERIA Animal Products DevelopmentDIRECCION TECNICA SANIDAD ANIMAL Animal Health ServicesINSTITUTO NACIONAL CAPACITACION CAMPESINA Farmer Training for Rural Develop.PROGRAMA DE ARROZ Rice Production Policy & SPNPROGRAMA DE CACAO Cacao Production Policy & SPNMUNICIPIOS (6) Cost Recovery IntermediariesBENEFICIARIOS Project BeneficiariesCOOPERATIVAS CooperativesORGANIZACIONES NO GUBERNAMENTALES Environment Monitoring

MAPA DE RELACIONES INTERINSTITUCIONALES

_ _ T "t~~~~~~~~~~~~~~~~mo .~c 0m.m

'' 1 ' ' -tar . .a

Sc-1

l,.. Oa L .:. A. I n 1

wn,1I

- 55 -

ANNEX 5Page 1 of 7

ECVADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Environmental Component

Introduction

1. The Lower Guayas Flood Control Project is a first step within thecontext of a broader program to develop the Lower Guayas Basin. It has beendesigned to reduce damage caused by annual floods of three rivers: Bulubulu,Boliche, and Taura. Depending on the severity, between 36,000 ha and 184,000ha are inundated every year and seriously affect the lives of about 187,000people, causing crop production losses and damaging existing roads anddrainage systems at a high cost to the economy. Moreover, floods in the areaincrease human health problems such as intestinal disorders resulting fromcontamination of water used for domestic purposes, and malaria resulting fromfavorable breeding conditions for vectors that carry this and other diseases.The extent of damage is dramatically enhanced during periods of exceptionallyheavy rains such as the 1992/83 period when about 185,000 ha were flooded.

2. During project preparation an environmental impact assessment(EIA) of the proposed project development activities was carried out in clovecollaboration with official agencies and local non-governmental institutions.Copy of the full EIA report is available in the project file. Engineeringdesign and project components have been adjusted to reflect findings andrecommendations of the EIA. While as designed the project would have minordirect ecological impacts it is also felt that it would improve the ecologicaland socioeconomic environment to mitigate such impacts.

Environmental Setting (Without Proiect)

3. Lower Guavas Basin. The area is a poorly drained alluvial plainformerly covered with forests and swamps and is considered to have been ofsignificant biodiversity value. Little is left of the original vegetationbecause to a large extent it has been cleared for agricultural and livestockactivities. With few exceptions, the entire area is under some form ofexploitation, except for part of the mangrove area and part of the El ChuruteReserve.4. The climate and weather, inadequate drainage of poorly permeablesoils, reduced carrying capacity of the river system, and intensedeforestation of the upper watersheds, determine the extent of the annualinundations of the area. In addition, existing roads and dikes also affectthe natural surface hydrology. Although the temperature varies littlethroughout the year (the average annual temperature is 24.80C, ranging from23.50C in July to 26.1c in April), the climate is highly seasonal because ofthe rainfall pattern. About 80% of the rains fall between January and April(averaging about 1,355 mm). The wettest month is March while August is thedriest. The excess of water in the rainy season causes yearly floods. Inyears of extraordinary rainfall the existing river system cannot carry theextra volume and overflows, with devastating effects in urban and rural areas.The extent of damage depends on the timing, intensity and duration of thefloods.

5. Flooding in the Lower Guayas River Basin is a natural phenomenonwhich has been occurring regularly throughout recorded history. Most recentdata refers to major floods occurring since 1973. From this data it ts

- 56 -

ANNX 5Page 2 of 7

assumed that major floods such as the ones in 1973 and 1982/1983 occur with afrequency of every 25 or 50 years. While the 1984/1985 and 1986/1987 typefloods tend to occur every two to four years.

6. From the standpoint of land use the area can be divided into threezones: The first is the Piedemonte (foothills) which represents a transitionzone between the upper and lower watersheds and it lies between 50 and 200 mtabove sea level. There are about 90,000 ha of poor soils thus agriculture islimited to subsistence farming. Second is the Central Zone, by far thelargest (about 170,000 ha), which is occupied by agricultural and livestockactivities, and by urban centers (total population about 220,000) such as ElTriunfo and Milagro. The main crops are sugarcane, bananas, cacao, coffee andpastures. In general, the degree of agricultural technology used varies frommedium to high in plantation-type crops such as sugarcane, bananas and cacao,and from low to medium among other farming systems. About 27% of the areaemploying improved technologies has irrigation systems and receivesapplications of fertilizers and pesticides. The land has little gradient andis thus the most affected by flooding. Although there are dikes along therivers that run through it, these are of insufficient capacity and break oftenbecause of poor maintenance. Third are the wetlands of about 80,000 ha(permanent and seasonal) including the mangroves. The former are partiallyutilized by subsistence farmers growing rice under traditional methods andraising dual-purpose livestock. The contamination of wetlands by pollutedwater affects their role as a buffer for the mangroves trapping contaminantsand sediment. In the mangrove area permits have been granted to use about9,000 ha for the establishment of shrimp farming, which is very important forthe economy since it is the second most important export commodity after oil.Excessive use of pesticides and the expanding trend of shrimp ponds play animportant role in diminishing the biodiversity value of this zone.Ecologically, the wetlands and mangroves form the most critical area of theLower Guayas Basin.

7. Although part of the area of influence of the project, the ElChurute Reserve is treated in this report as a separate zone. The Reservecomprises about 23,000 ha of mangroves on the eastern side and a semicircle ofsix outcropping hills on the western side at the bottom of which is the ElJirador Lagoon. The Cimalon Hill is the least affected by human interventionsand constitutes one of the last vestiges of dry tropical forests in thewestern part of Ecuador. On the other hills are signs of periodic logging forfirewood or for lumber for repairing houses.

8. The lagoon comprises about 800 ha of which about half is underwater during normal flooding. Of the other half about 80 ha constitutepermanent swamps and the rest (320 ha) is under natural pastures and brush.It contains a great number of bird species of which at least one, the HornedScreamer, is reportedly near extinction in Ecuador. There are also species ofmonkeys like the Howler Monkey and various species of reptiles.

9. Since 1976 the population of the lagoon has remained more or lessconstant. Since that time, and prior to the legal establishment of thereserve (July 1979) some 24 families were granted land titles to about 320 halocated mostly around the lagoon. Because there is minimal protection of thereserve, settlers make unrestrictive use of the lagoon area and pasture-landto graze livestock and grow subsistence crops. Construction of the road fromBoliche to Puerto Inca divided the lagoon into two parts and interrupted thenatural drainage. The lagoon is still largely open and water hyacinth, whichis a problem for most water bodies, has not invaded much of its surface.Water supply to the lagoon originates from watersheds in the surroundingforested hills rather than from surface drainage or spills from rivers. Thewater level in the dry period is largely determined by the level of theculverts in the road, which act as a dike and prevent natural drainage. In

- 57 -

ANNEX 5Page 3 of 7

this regard the road has probably had a favorable impact on the ecosystem ofthe lagoon by preventing full drainage as is the case on the part on the otherside of the road which dries out in the dry season.

10. Within the perimeter of the reserve and west of the lagoon in themangrove area there are some 1,800 ha under commercial shrimp production.Reportedly the majority of these operations were established during the early1970. However, some expansion has occurred and new farms have beenestablished during the past decade, in spite of existing legislationprotectirng the mangrove areas. Mangroves are also suffering from illegalcutting for the construction and/or expanding of ponds for shrimp farming andfor other uses. In addition, other negative impacts resulting from shrimpfarming include water pollution with organic wastes resulting from theperiodic cleaning of ponds, interruption of the normal water flow by theconstruction of dikes and roads and by the recycling of water pumped intoponds. Recent studies indicate mangroves in the area are currently underattack by a species of caterpillar (Oiketicus kirby) previously uncommon tothe area which is causing widespread defoliation. It is not clear whetherthis is the result of excessive pesticide use in nearby areas which is killingthe natural enemies of this insect or from water contamination weakening themangroves natural resistance to such attacks.

11. In general, water contamination is a serious problem in the LowerGuayas Basin. The main sources are: (i) untreated sewerage and solid wastefrom urban centers; (ii) industrial pollutents from sugar and paper mills andalcohol distilleries; and (iii) agricultural, mainly runoff containingagrochemicals and effluents from slaughter houses. Data results of analysisdone during project preparation (1988-1989) show that nearly all major riversreceive pollutants from one or more sources. Reportedly water samples fromthe Culebras river show the highest degree of contamination from E. Coli andthe El Ruidoso river from heavy metals such as zinc and lead. Analysis ofwater samples from the El Mirador Lagoon did not detect any contamination.

12. In short, the biodiversity value of the area and thesustainability of shrimp and fish farming are negatively affected by: waterpollution, deterioration of mangroves by accelerated expansion of shrimpponds, illegal logging and farming activities in the Reserve, and excessiveuse of pesticides.

Upper Watershed (Cuenca Alta)

13. Flooding of the project area is partially caused by deforestationand unsustainable land use in the upper watershed region. This causesincreased floods and erosion, which in turn results in the continuedsedimentation of riverbeds and reduction of the rivers' carrying capacity.The type of crops grown in this region varies according to the altitude, butin general the tendency is for cultivation of single annual crops. In theareas where farmers use traditional farming methods without fertilizers landis usually abandoned without vegetation cover when it is no longer fertile.This causes serious soil erosion problems.

14. Reforestation of the Cuenca Alta is often suggested as one of theremedial actions to control flooding and halt soil erosion and sedimentationin the Lower Guayas Basin. For years such actions have been stronglysupported by all concerned; however, little if anything has been done aboutit. In any case, there is a general consensus that while reforestation isurgently needed it will not prevent flooding in the project area completely.Before widespread deforestation took place in the upper watershed, the LowerGuayas Basin flooded regularly as a natural phenomenon due to the geography ofthe area. It is estimated that reforestation would reduce peak floods byabout 20%.

- 58 -

ANNEX 5Page 4 of 7

Environmental Impact Assessment (EIA)

15. The initial proposal of the Pre-Feasibility Study to controlflooding contemplated the construction of a combination of dikes andflood-relief channels (by-passes). Regarding bypasses it considered fouralternatives one of which would use the El Mirador Lagoon as a temporaryreservoir from where a channel would carry the overflow to the Guayas River.A complement to the dike-bypass combination would be a program to improve mainand secondary drains.

16. To determine the potential environmental impact of each of thealternatives proposed an impact assessment was commissioned by the GOE in May1989. For this purpose CEDEGE, the official entity responsible for projectpreparation, in collaboration with HASKONING, the Dutch consulting firmassisting the GOE in this endeavor under a bilateral agreement, and with thesupport of DINAMA (National Directorate for Environment), organized amultidisciplinary team, which included representatives from local NGOs such asFundacion Flora y Fauna, Fundacion IDEA, and Fundacion Natura. Alsorepresented was Guayaquil University. Throughout the process of the study thegroup submitted progress reports to the Bank and other interested entitiessuch as USAID.

17. The scope of the assessment included an overview of the current(without project) environmental situation in the Lower Guayas Basin and in theupper watersheds, and an in-depth study of potential impacts of each of theproject components such as the flood control and drainage systems contemplatedand the agricultural development program. Particular attention was given topotential adverse impact on natural ecosystems such as the El Churute Reserveand the mangroves.

18. Other areas of concern included the potential increase of watercontamination resulting from more intense use of agrochemicals under improvedfarming practices and from soil erosion and sedimentation during theconstruction stage of the project.

19. Summary of ZIA Findinas and Reconmendations. Recommendations wereformulated based on an analysis which identified 39 impacts and 21 variables.An impact or combination of them can be positive or negative. Eachcombination was assigned a rank and weight according to the Leopold Matrix,and, where required, mitigating measures have been recommended.

20. Bypass. As a result of intensive consultations between the EIAteam and the designing engineers, the alternative finally 2elected would notuse the El Mirador Lagoon as an attenuating reservoir so as not to alterexisting environmental conditions of the flora and fauna there. Instead theoriginal alignment was changed so that water would be discharged in a seasonalwetland from where it would drain over a wide area into the mangroves. Thisalternative has the least impact, since at present this wetland area alreadydrains into the mangroves during the wet season. As designed, during peakfloods when the bypass is in operation more water would flow through thewetland into the mangroves.

21. Conveying the bypass water through the wetland has the twinadvantages of acting as a buffer to prevent contaminants and sediments fromreaching the mangroves, and absorbing the eroding forces of the dischargeflowing from the bypass.

22. El Churute Reserve. The Reserve would not be affected by thebypass alternative selected; however, when flood measures become operationalit is possible that there would be less backup of water in the lagoon. Thiswould happen as a result of less flooding in the adjacent flood plain to the

- 59 -

ANNEX SPage 5 of 7

west of the road with which the lagoon water is connected at present throughculverts in the road. Thus, the EIA has recommended a hydrological study ofthe lagoon to determine what possible engineering measures could beimplemented to prevent drainage.

23. Moreover, the EIA recognizes that under present administrativeconditions maintaining integrity of the Reserve is questionable, sinceresources for its upkeep and management are almost nonexistent. Thus, itrecommends the preparation of a management plan and reinforcing DINAF withadditional staff and training. This plan should include specific actions toenforce protection and to foster scientific research.

24. Sedimentation. It is forecast that with flood control measures inplace sedimentation will tend to diminish. What impact this would have on theproductivity of soils under crops is highly speculative since it depends onthe type of sediment deposited. There are already considerable differences inthe soils of the flooded area and fertility ranges from low to high.Nevertheless, the EIA recommends that analysis of silt deposits be included aspart of the monitoring system of the project.

25. Water Pollution. Flood control is expected to promote moredevelopment of the area and as a consequence water pollution from all sourcesis expected to increase. Therefore, the XEA recommends that sectoralauthorities be made aware of the problem and be encouraged to enforce existingregulations. In addition, the EIA recommendL establishing a comprehensivewater quality monitoring program as part of the execution of a proposed masterplan for the Lower Guayas Basin.

26. Aarochemicals. Flood control and the opportunities offered by theproject would make more land available for agricultural and livestockactivities. This, accompanied by technical assistance and access to credit,would promote the use of pesticides and fertilizers and, unless controlled, itwould contribute to existing river water contamination. Ths EIA recommendscarrying out a diagnosis on the use of agrochemicals in the area with specialemphasis on proposing measures to promote the use of integrated pestmanagement and the enforcement of regulations prohibiting the use ofpesticides that have been banned in other countries. Moreover, it supportsthe technical assistance program built into the project design to promoteadequate and efficient use of agrochemicals.

Environmental ComDonent

27. The recommendations of the EIA have been incorporated into thePreparation Report. Thus, the proposed component supports and reflects whatis proposed in that report. In addition, it enhances aspects that appraisalof the project revealed as needing reinforcement.

28. Institutional Strengthening. The degree of success inimplementing the project in a way that is environmentally sound would dependto a large extent on the institutional capacity of the apex as well as theother implementing institutions. The main entities responsible for theimplementation of this component would be CEDEGE and DINAF. Details aboutproject measures to strengthen CEDEGE are indicated in detail in theInstitutional Development component. Thus, within the Project Unit alreadyestablished in CEDEGE, the Division would be reinforced with the recruitmentof specialists in the areas of ecology, environmental engineering, geology,forestry, and ervironmental legislation. Moreover, staff training andseminars would also be provided. This division would be responsible forcoordinating and supervising environmental actions. In this endeavour itwould seek the collaboration of local NGos.

- 60 -

ANNEX SPage 6 of 7

29. DINAF, and more specifically the office in Guayaquil (DistritoForestal del Guayas), is responsible for the administration, management,protection and conservation of El Churute Reserve through its Division ofReserves and Natural Areas (DIRENA). As currently organized, however, it isunable to perform any of its functions since it has only one staff at theprofessional level plus seven "park guards" to protect the Reserve's 35,000ha. The Reserve includes rivers, forests, swamps and mangroves. moreover,the staff lacks basic equipment for inspection such as motorboats andmotorcycles, and has no facilities to eat and sleep. In addition, DINAF doesnot have budgetary resources to conduct any studies or to establish a database inventory of the Reserve's biodiversity.

30. Under the project DIRENA's staffing would be expanded to includefour specialists in the areas of conservation, biology, forestry, andeducation/promotion. The number of park guards would be increased to 17, ofwhich seven live within the Reserve since they are members of the familiesthat have legal land titles. The idea is to integrate these families in theconservation activities and thus to discourage unnecessary logging and burningby them.

31. Under the project, about US$350,000 would be made available toDINAF for the procurement of vehicles, equipment, and tools such asmotorboats, four wheel-drive cars, motorcycles, communications and videoequipment. In addition, the project would finance the construction of officeand housing facilities. These investments would complement those plannedunder a different program by Fundacion Natura using Debt-for-Nature Swapfunds.

32. El Churute Reserve. The administration and protection of ElChurute Reserve must be based on a comprehensive management plan to beprepared under the project by DINAF with assistance from appropriate experts.It was agreed at appraisal that pertinent terms of reference would be preparedby DINAP in collaboration with local NGOs and submitted to the Bank not laterthan December 31, 1990. A final version of the Management Plan should beready no latter than June 30, 1991.

33. To further assist in the protection of the Reserve the projectwould finance the delimitation of the entire perimeter with special emphasisin identifying the exact location of existing shrimp farms so as to controland prevent further expansion. Delimitation would be carried out undercontract with CLIRSEN (Centro de Levantamiento Integrados de RecursosNaturales por Sensores Remotos), which already has obtained the basicsatellite information of the area. A detailed contract proposal should besubmitted to the Bank no latter than June 30, 1991.

34. Additional works in the Reserve to be carried out under theproject are the construction/improvement of pedestrian roads and trails, andthe installation of signs and information stations for visitors. It ispossible that the Management Plan would identify other investments that may beneeded. Their consideration for financing under the project would be done atthe time of the proposed midterm review.

35. Studies. Knowledge of environmental aspects of the project areaand specifically of the areas with fragile ecosystems is limited. Althoughthere are on-going studies about coastal resources of the country there is alack of research on the complex food chain of the mangroves' ecosystem and ofthe human-created factors that may be affecting it. Similarly, although thereis much talk about reforestation of the upper watershed (Cuenca Alta) littleis known about species of trees that farmers living in these area may be

- 61 -

ANNEX 5Page 7 of 7

willing to plant based on quick return on investment. As to the problem ofwater contamination, although the sources are known, no alternative solutionsto correct the problem have been offered.

36. To remedy this lack of basic information on critical environmentalproblems, under the project the following studies would be carried out undercontract either by public or private institutions. These studies should becompleted according to the following time schedules

(a) Management Plan for El Churute Reserve: June 30, 1991

(b) Water contamination: Sources, Solutions: December 31, 1991

(c) Diagnosis about the use of pesticides: December 31, 1991

(d) Market Demand for Tree Species with Potential for Reforestation:June 30, 1992

(e) Management Plan for Guayas Estuary: June 30, 1992

(f) Management Plan for Upper Watershed: December 31, 1992

37. In total, 107 m/m of technical assistance would be provided forenvironmental activities: 34 m/m for the Upper Watershed studies and 73 m/mfor the Guayas Estuary. Its cost amounts to US$1.9 million for specialistsand US$0.8 million for vehicles and equipment. Training (local and overseas)would be available to the CEDEGE and DINA" staff dealing with project-relatedenvironmental activities.

Monitorina and Evaluation

38. The activities of M&E would be carried out by the Project Unitwith the assistance of the participating institutions. At appraisal it wasagreed that CEDEGE would seek the collaboration of local N3Os to monitorenvironmental impact. In turn NGOs agreed, in principle, during appraisal toform a Consultative Group with representatives from the NGOs that participatedin the review of the EIA for purposes of ensuring that EIA's recommendationsare being followed. Under the prc3ect CEDEGE would design a network of sitesin the project area to collect water bamples to detect contamination and topropose control measures. CEDEGE authorities have agreed to providelogistical support to them during supervision activities. Key indicatorswould include: water quality, rates of sedimentation, presence of pesticideresidues in river water, completion of the studies to be done under theproject, and progress of the activities plan for the Reserve.

Project Implenientatlon Schedule'991 1992 1993 1994 9+95 1998 1997

__ E JE ~IthI~iL ITiib ___E _U _Th_A.ctMiWoes1. CMIWors.Flod Control*Land AcqRison-p ngd ProqawloatIon -

- Flnal DesignsConsttIonyass 3 . . . e

-Bypass IS yas 2

Nart Nwal Drains- aodShtckues

- Flood Contrl for SedmentsDrain bImvemnwtt

* Sector -* Setor 2 ,- - -.. _

2. §qvoft AdciesAgrcuta Developnent Plan (PDA)Pretwamlon Aethiss ,a

POX lnWlnwrbXon ~~~~~~~~~~~~~~. .. .. *.. *.....***Environmrenal Prom andMasr Plan

- Guayas Estua,y Management Plan- Upper Guayas Watershod Management Plan ...... .. .....- Lower Guayas Basln Master Plan - _ ...

InstitdonalStrengtenn ......... ......... .............. ...... *..*.....Landflng

OperatIon and Maintenance -

Technial As _itance

Flood ControlDralnage Irmprovement . . ...... *** .

- Agrcultnal Deveopment Plan . .... *** * . * * * .EnvironnIealApoAts p........

*..u.oe.. .... ....Train and Technology Tranfer ..- _.___...

EkA"4744S

- 63 - ANNEX 7

ECUADORLOVER GUAYAS FLOOD CONTROL PROJECT

Estimated Schedule of Bank Disbursements(US$ million)

Disbursement Cumulative Balance ofPY End of Semester Durina Semester Amount Loan

FY 1991June 30, 1991 2.0 a/ 2.0 57.0

FY 1992December 31, 1991 1.1 3.1 55.9June 30, 1992 1.6 4.7 54.3

FY 1993December 31, 1992 1.4 6.1 52.9June 30, 1993 2.6 8.7 50.3

FY 1994December 31, 1993 5.6 14.3 44.7June 30, 1994 5.9 20.2 38.8

FY 1995December 31, 1994 8.1 28.3 30.7June 30, 1995 8.0 36.3 22.7

FY 1996December 31, 1995 5.6 41.9 17.1June 30, 1996 5.1 47.0 12.0

FY 1997December 31, 1996 3.6 50.6 8.4June 30, 1997 3.2 53.8 5.2

FY 1998December 31, 1997 2.9 56.7 2.3June 30, 1998 1.3 58.0 1.0

FY 1999December 31, 1998 1.0 59.0 0.0

a/ Initial deposit into the Special Account.

- 64 -

ANNEX 8Tabl 1

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Proiect Comwonents by Year

Base Cost. Total

991 1992 1993 1994 199S 1996 1997 US$ US$

A. Flood Control1. Bypass and Dikes 0.9 8.6 13.3 5.6 1.7 0.9 0.8 31.7 31.72. Roads and Bridges .0 0.0 0.3 1.7 2.8 2.7 1.0 8.5 8.5

Sub-total 0.9 8.6 13.6 7.2 4.6 3.6 1.8 40.1 40 1B. Drainage 0.4 2.2 1.0 3.2 1.8 1.6 0.8 11.8 11.8C. Agricultural Development1. Extension 0.2 0.5 0.2 0.3 0.4 0.4 0.4 2.5 2.62. Research A Inputs 0.3 0.2 0.3 0.2 0.2 0.1 0.1 1.3 1.38. Farmer Training A Organ. 0.0 0.2 0.1 0.1 0.1 0.1 0.1 0.7 0.74. On-Farm Investment 0.0 0.0 1.9 2.8 2.9 1.1 0.3 8.9 8.95. Coordination 0.3 0.3 0.6 0.5 0.6 0.3 0.2 2.9 2.9

Sub-total 0.8 1.3 3.1 8.9 4.1 2.1 1.1 16.4 16.4D. Cuayas Basin Master Plan 0.0 9.0 1.2 0.8 0.0 0.a 0.0 2.1 2.1E. Environment 1.3 0.7 0.9 0.7 0.0 0.0 0.0 3.6 3.6F. Management A Training 0.9 0.5 0.4 0.4 0.4 0 4 0.4 8.4 3.4

Total BASELINE COSTS 4.3 13.2 21.0 16.2 10.7 7.7 4.2 77.4 77.4Physical Contingencies 0.1 1.4 2.4 1.8 1.2 0.9 0.4 8.1 8.1Price Contingencies 0.2 1.0 2.5 2.7 2.8 2.0 1.3 12.1 12.1

Total PROJECT COSTS 4.6 15.8 26.9 20.6 14.3 10.6 6.9 97.6 97.6

Taxes 0.0 1.1 1.9 1.4 0.9 0.8 0.4 6.3 6.5Foreign Exchange 3.4 9.6 16.2 11.8 7.5 6.5 3.1 67.1 57.1

Values Scaled by 1060009.0 6/18/1990 15:11

REPUBLIC OF ECUADORLOWER GUAYAS FLOOD CONTROL

Summary Account by Project Component(us$)

GuayasBypass Roads Farmer On-Farm Basin Uanagae

and and Extensto Research Training Investme Coordina Mastor Environn nt aDikes Bridges Drainage n a Inputs a Organ. nt tion Plan ent Training

I. INVESTMENT COSTS

A. Civil Works 8.8 8.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.08. Eorthmoving 18.7 090 9.1 0.0 0.0 6.0 0. .0 0.0 0.0 0.0C. Vehicles and Equipmant1. Vehicles 6.8 0.0 0.1 0.2 0.1 0.1 0.0 0.1 0.1 0.2 0.12. Equipment A Materials 0.3 0.0 0.1 0.0 0.4 0.0 0.0 0.0 0.8 0.4 0.03. Office Equip. A Furn. 0.0 0.0 0.6 0.1 0.0 0.0 0.0 0.0 0.0 6.0 0.1

- --------- _ - _________________-------________- -- -- -- -____ ------- - _____ -- - - - - - -

Sub-total 0.8 6.0 0.2 6.3 0.6 0.1 0.0 0.1 0.7 0.7 0.1D. Buildings 0.0 0.0 0.1 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0E. Technical Assistance

1. Personnel 3.3 0.0 1.1 6.0 0.0 0.0 0.0 2.8 1.2 1.7 1.62. Operating Costs 0.2 0.0 0.1 0.0 0.0 0.0 0.0 0.1 0.6 0.0 0.0

__________________________________--_--------_---------_- - -___-_ _---_-_____----_--_________

Sub-total 8.5 0.6 1.2 0.0 0.0 0.0 0.0 2.e 1.2 1.7 1.7 O%

F. Training1. Overseas 0.0 0.0 0.0 0.1 0.1 0.0 0.6 0.0 0.0 0.0 0.22. Local 0.0 6.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.2

__________ ____----_-_----_- ---- ------- --- -

Sub-total 0.0 6.0 0.0 0.3 0.1 0.0 0.0 0.0 0.0 0.0 0.40. Studies A Pilot Projects 0.1 0.0 0.1 0.0 0.0 V.0 6.0 0.6 0.0 0.7 6.0H. Indemnification 2.9 6.0 0.0 o.6 6.6 0.6 0.6 0.0 6.6 0.0 0.0I. On-Farm Investment 6.0 0.0 0.0 0.0 0.0 0.0 8.9 0.0 0.0 a a 0.0

________________- ----- __-_--_____-------------------- -- - --- _--- - ---- - -- __- ___________________

i Totnl INVESTMENT COSTS 29.4 8.4 10.7 1.0 0.7 0.1 8.9 2.6 1.9 3.2 2.2

II. RECURRENT COSTS___________________

A. Staff1. Salaries 0.8 0.0 0.2 0.8 0.3 0.3 0.0 0.8 0.2 0.2 0.42. Social Charges 0.8 0.0 0.1 0.2 0.1 0.1 0.0 0.1 0.1 6.1 0.2

Sub-total 1.1 0.0 0.3 0.8 0.4 0.4 0.0 0.4 0.2 0.2 0.6

B. Operating Costs 0.0 0.0 0.0 0.7 0.3 0.1 0.0 0.0 0.0 0.1 0.6C. Infrastructure O&U 1.0 0.1 0.7 0.0 0.0 0.0 0.0 0.0 0.0 9.0 0.0

__ __ _ __ __ _ _ -__-----_------- ------------ _ --- ____-- - --- -- - -- - - - -- - -- - _-______-_____

Total RECURRENT COSTS 2.2 0.1 1.0 1.5 0.7 0.8 0.0 0.4 0.2 0.4 1.2

Total BASELINE COSTS 81.7 8.5 11.8 2.6 1.3 0.7 8.9 2.9 2.1 3.8 3.4Physical Contingencies 3.9 1.3 1.6 0.1 0.1 0.0 0.9 0.0 0.1 0.1 0.1 H _

Price Contingencies 4.0 2.0 2.1 0.4 0.2 0.1 1.7 0.4 0.3 0.3 0.5 Q cra

Total PROJECT COSTS 39.8 11.8 16.4 3.1 1.8 0.8 11.6 3.3 2.5 4.0 3.9 ,

Taxes 3.5 1.4 1.6 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.6 OmForeign Exchange 23.4 5.3 11.2 0.8 0.8 0.2 4.7 2.8 2.1 3.1 2.6

-------- -------- -------- -------- -------- -------- -------- -------- ---- - -------- -------- -------- -------- -------- -------- -------

- 66 -

ANNEX 8Table 2Page 2 of 2

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Summar AccoQut by Proiect Comonent (USS)

Physical PriceContingencies Conttngencies

Total X Amount X Amount

I. INVESTMENT COSTS===___________ ____

A. Civil Works 17.0 16.4 2.6 19.0 3.2B. Earthmoving 22.8 15.3 3.6 15.6 3.5C. Vehicles and Equipment1. Vehicles 1.3 5.b 0.1 7.7 0.12. Equipment A Materials 1.8 8.3 0.1 11.7 0.23. Office Equip. A Furn. 0.2 6.3 0.0 8.0 0.0

Sub-total 3.4 5.7 0.2 9.8 0.3D. Buildings 0.6 13.5 0.1 7.8 0.0E. Technical Assistance1. Personnel 11.2 0.0 0.0 12.4 1.42. Operating Costs 0.5 5.0 0.0 17.1 0.1

Sub-total 11.7 0.2 0.6 12.6 1.5F. Training1. Overseas 0.4 5.0 0.0 8.5 0.02. Local 0.4 5.0 0.0 10.1 0.0

Sub-total 0.8 S.0 0.0 9.8 0.1C. Studies A Pilot Projects 0.9 8.6 0.1 11.8 0.1H. Indemnification 2.9 10.0 0.3 0.0 0.0I. On-Farm Investment 8.9 10.0 0.9 19.1 1.7

Total INVESTMENT COSTS 89.1 11.2 7.7 15.2 10.5

II. RECURRENT COSTS

A. Staff1. Salaries 3.2 0.0 0.0 16.3 0.52. Social Charges 1.3 0.0 0.0 16.3 0.2

Sub-total 4.5 0.0 0.0 18.3 0.78. Operating Costs 2.0 5.0 0.1 19.2 0.4C. Infrastructure OM 1.8 15.0 0.3 24.7 0.5

Total RECURRENT COSTS 8.3 4.S 0.4 18.9 1.6

Total BASE&NE COSTS 77.4 10.4 8.1 16.8 12.1Physical Contingencies 8.1Price Contingencies 12.1 9.7 1.2

Total PROJECT COSTS 97.6 9.5 9.2 12.4 12.1

Taxes 6.5 13.3 0.9Foreign Exchange S7.1 9.2 5.2

____ -_________ -- - - - - - - - - -______ ---- - ----- _ - --- - _-_-_-___

REPUBLIC OF ECUADORLOWER GUAYAS FLOOD CONMROL

(USS)

Summary Accounts by Year

ease Cost. Foreign Exchange

1991 1992 1998 19 199S 1996 1997 TotaI S Amount

I. INVESTMENT COSTS

A. Civil Works 0.6 2.S 3.1 4.2 3.6 2.7 1.0 17.0 45.0 7.7B. Earthmoving O.0 4.8 9.6 4.4 1.7 1.5 0.8 22.8 72.0 18.4C. Vehicles and Equipment

1. Vehieles 0.6 0.4 0.2 0.0 0.6 6.6 0.0 1.3 80.5 1.12. Equipment A Materials 0.6 6.3 0.6 0.2 0.1 6.1 6.1 1.8 81.8 1.5a. Offiee Equip. A Furn. 6.1 0.1 0.6 0.0 9.0 6.o 0.6 0.2 33.9 6.1

Sub-total 1.2 0.8 0.8 0.8 0.2 0.1 0.1 8.4 77.8 2.?0. Buildings O.1 0.4 0.0 0.0 0.0 0.0 0.0 0.6 45.0 0.2E. Technical Assistance

1. Personnel 1.9 2.3 2.6 2.3 1.0 6.7 6.5 11.2 100.6 11.22. Operating Cost. 0.0 O.1 O.1 0.1 O.1 6,1 6.1 O.6 106.0 0.5

Sub-total 1.9 2.4 2.7 2.4 1.1 0.8 6.5 11.7 166.6 11.7F. Training

1. Overseas 6.1 0.2 6.1 6.0 6.0 0.6 6.6 0.4 160.0 0.42. Local 0.2 6.1 0.0 0.0 0.0 0.0 0.0 0.4 86.3 0.1 Cs

Sub-total 0.3 6.3 6.1 6.1 0.0 0.0 0.0 0.8 68.s 6.5 40. Studies & Pilot Projects 6.8 0.0 0.4 0.3 0.0 6.0 0.0 0.9 60.0 6.5H. Indemnification 0.0 1.2 1.2 0.6 0.0 0.0 0.0 2.9 0.0 0.0I. On-Form Investment 6.0 0.6 1.9 2.8 2.9 1.1 0.3 8.9 40.7 3.6

Total INVESTMENT COSTS 3.8 12.4 19.9 14.8 9.4 6.2 2.7 69.1 62.8 43.8

1I. RECURRENT COSTS

J. Staff1. Salaries 6.8 0.4 0.6 0.6 0.6 9.6 0.5 8.2 6.0 0.02. Social Charges 6.1 0.2 0.2 0.2 0.2 0.2 0.2 1.8 0.6 6.6

Sub-total 0.4 6.6 0.8 0.8 6.7 0.6 0.6 4.5 0.0 0.0K. Operating Costs 6.1 0.2 0.2 0.3 0.3 0.4 0.4 2.0 89.4 0.8L. Infrastructure OaM 0.0 0.0 0.1 0.8 0.4 0.5 6.5 1.8 75.1 1.4

Total RECURRENT COSTS 0.6 0.9 1.1 1.4 1.4 1.6 1.5 8.8 26.0 2.2

Total BASELINE COSTS 4.8 18.2 21.0 16.2 10.7 7.7 4.2 77.4 68.8 45.5Physical Contingencies 0.1 1.4 2.4 1.8 1.2 0.9 0.4 8.1 56.8 4.6Price Continencies 0.2 1.6 2.6 2.7 2.3 2.0 1.3 12.1 58.1 7.0

Total PROJECT COSTS 4.6 16.6 26.9 20.6 14.8 10.6 6.6 97.6 68.6 57.1

Taxes 6.0 1.1 1.9 1.4 0.9 0.8 0.4 8.6 0.0 6.6Foreign Exchange 3.4 9.6 16.2 11.8 7.6 5.6 3.1 67.1 100.6 57.1

Values Scaled by 1606666.0 6/18/1990 15:10 L.oo

- 68 -

ANNEX 9Page 1 of 7

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Financial and Economic Ana lvsis

Proiect Costs

1. Project base cost has been estimated in US dollars (March 1990)and adjusted to January 1991 prices, the expected date for initiating projectimplementation, using a forecasted change of 2.7% in the Manufacturers UnitValue index (MUV) 1' Price contingencies are also estimated at 3.6% annuallyduring the implementation period. For most goods and services, current sucreprices were available and simply converted to US dollars using the prevailingexchange rate. In the case of civil works and earthmoving, however, unitprices were in September 1987 sucres, which were converted to September 1987US$ dollars at the then prevailing exchange rate of S/.210/US$l. Based oncalculations by the Country Operations Division, this rate is assumed toreflect the real effective equilibrium rate following the macroeconomicadjustments and Sucre devaluations during early 1987. Finally, theseSeptember 1987 US dollar costs have been adjusted to March 1990 prices basedon XUV increase of 7.85% for the period. Sample comparisons of these priceswith March 1990 sucre prices converted to US dollars indicate that prices forthe particular items involved have moved in line with general price increases.For all project costs, it was further assumed that future devaluations willreflect inflation differential between the sucre and the US dollar during thecourse of implementation.

Benefits

2. The project would generate a variety of benefits in both rural andurban areas, including averting losses in economic output and infrastructure,facilitating increased investment, productivity and incomes (particularlyamong small farmers), improving health and sanitation conditions, increasinggovernment savings and revenues, and enhancing the environmental quality ofareas both inside and outside the project boundaries. Some of these benefits,particularly those related to health, sanitation, and environmental quality,cannot be readily quantified, though they are likely to be considerable.

Flood Losses in Acriculture

3. The impact of flood waters on agricultural production ismanifested in a variety of ways which affect the level and quality of outputthrough the negative influence of excess water on the physiological process ofthe plant, the introduction of pests and silt transported by flood waters, andlimitations in access to farms and fields with adverse consequences for timelyfarming and harvesting. The nature and level of output lost depend on avariety of factors, which can be interdependent, including the -tration andlevel of flood waters, occurrence of flooding within the croppin.g cycle andthe velocity of flood waters. Flooding can also influence longer-termproduction and productivity levels through actual damage and losses to on-farminvestments, including machinery and perennial crops and livestock, and siltdeposits that can render farmland unusable. Longer-term development is also

I/ Price projections, US dollar and commodity, are based on the IBRDCommodity Price Forecasts, dated January 1990, and the subsequent OD 6.50of June 1990.

- 69 -

ANNEX 9Page 2 of 7

undermined by the risk from potential flooding. While, individual farmers,with the financial wherewithal, can reduce this risk by investing in on-farmflood control works, these investments, in turn, greatly increase the cost offarming and the flood damage in neighboring farms.

4. There has been no systematic monitoring of flood damage in theproject area or rigorous assessment of the economic impact of flooding in theLower Guayas Basin. Therefore, for this analysis, estimates of the lossesfrom flooding are based on a modelling exercise of the four major floodepisodes since the early 1970s using available and estimated parameters, wnichinclude area flooded, duration and period of flooding, land use, croppingcalendars, net income, investment costs, and replanting costs for the majorcrops, and estimates of flood frequency.

5. There are few scientific studies that quantify the relationshipbetween flood losses and the variety of factors that cause them and noresearch has been undertaken ia the Lower Guayas Basin. For this analysis,the only measured factors available are duration and timing of the floods.Data on flood duration are only available on a monthly basis. While this is arelatively long period which would appear to provide an upward bias in damageestimates, depending on the height and velocity (factors not available)shorter periods of flooding may be even more destructive that longer periodsof standing flood waters. The other factor for which data are available, thetiming of the floods, has been related to the vegetative cycle of the cropsinvolved as follows:

(i) Annual crops are generally planted during a two-month period. Forthe purposes of the analysis, when flooding is limited to thefirst month after the beginning of the planting period, it isassumed that crops will be replanted and develop subsequentlywithout adverse consequence on yield levels. Losses in thissituation involve the costs of replanting. Flooding in the secondmonth of planting and thereafter are assumed to result in loweryields or total loss of crop depending on the vegetative cycle ofthe particular species and the duration of the flooding. Theabove applies to annual crops planted in winter (primarily riceand maize). Summer crops are generally planted in April throughJune. Only rarely does flooding occur as late as April; however,when it does, it is assumed that 33% of the area must bereplanted.

(ii) Output losses for perennial crops (and shrimp farming) arecalculated based on the relationship between harvest periods andthe timing and duration of flooding. In the case of bananas andsugarcane, long periods of flooding result in damage to the plantand require replanting, while cacao, coffee and citrus appear moreresistant to such damage.

6. Table 1 presents the timing and duration of the four majorflooding periods since 1973 by month and area affected. Estimates of theaffect on individual crops is presented in Table 2.

7. Indicative crop budgets, including establishment costs forperennial crops, have been developed for most of the crops and technologylevels present in the project area, and are available in the Technical File.These budgets are used to estimate three categories of losses: net income,costs of replanting annual crops, and reestablishment of perennial crops andshrimp ponds. Not included in the analysis and estimation are repairs andreconstruction of farm investments including access roads and storagefacilities, and losses of farm animals. Although there is no allowance madefor price increases for output harvested to reflect scarcity during the

- 70 -

AMNX 9Page 3 of 7

flooding, such effects are likely to be limited to food crops with littleweight in the aggregate estimates. Finally, for simplicity, it iL assumedthat flooding of pastures does not involve losses because livestock can bemoved to higher ground, although weight, mortality and calving rates wouldlikely be adversely affected.

8. Losses estimated (in 1987 USS) using the above methodology are asfollows for the four major flooding episodess 1973, US$4.5 million; 1982/83,US$8.9 million; 1984/85, US$1.7 million; and 1986/87, US$2.6 million(Table 3).

Urban Flood Losses

9. Unlike the agricultural sector there are some official dataavailable on urban flood damage; however, they only cover the 1982/83 and1986/87 floods for the four largest towns, and for the city of Milagro for1982/83, 1984/85, and 1986/87. These estimates include damages to publicfacilities, agroindustrial processing p,aants, and housing, and are presentedin Table 4. These losses, which should be considered underestimated,amounted to US$3.4 million in 1982/83, US$0.8 million in 1984/85, and US$2.9million in 1986/87.

ImDroved Drainaae and Acricultural Development

10. Drainage works to be constructed by the project are expected tobenefit agricultural productivity on some 60,460 ha, including 10,610 haoutside the project area. Benefits attributable to yield increases fromimproved drainage have been modelled based on the crop budgets. Estimatedincreases are 10% for rice and sugarcane and 5% for bananas and cacao.

11. Improved security from flooding is likely to stimulate investmentsin agriculture to increase productivity of existing crops. The agriculturaldevelopment component would seek to assist small farmers in making theseimprovements in input use and farming practices. In conjunction with improveddrainage, yield increases are estimated at 25% for maize, cacao andhorticultural crops by full development in year ten. Benefits from researchfindings with a longer-term application throughout the Lower Guayas Basin havenot been quantified.

12. Reduced risk of flooding is also likely to induce changes in thecropping mix to higher value activities. Shifts in the crop mix have beenconservatively estimated to involve cropping of 4,630 ha currently underpasture, which represents 4% of the agricultural area.

Socioeconomic Imoact

13. Based on representative crop budgets, land use and tenure,estimates of farm income in the project area indicate that at least two-thirdsof project beneficiaries in rural areas live in relative poverty, i.e., farmincome of less than 40% of the average GDP per capita of US$960 in 1987.While the welfare of these farm families is reduced even further during yearsof flooding, the major influence of the floods is to induce farming practiceswhich limit investment and cash outlays for inputs in order to minimizepotential flood losses.

14. Reducing risk associated with flooding and improving drainagewould stimulate greater investment by farmers and improvements in farmingpractices. While larger farmers in the project area are expected to takeadvantage of the new situation without project support, smaller farmers withless than 10 ha have been targeted to receive technical assistance. Farmmodels suggest that incomes for most small farmers should increase

- 71 -

ANNLEX 9Page 4 of 7

significantly, with all but the smallest able to increase per capita incomeabove the relative poverty threshold (Table 5).

Imnact on Government Savinqs and Revenues

15. Implementation of the flood control works would result in savingsof government expenditures for emergency works and maintenance of existingflood control works in the area. During the 1983-88 period, theseexpenditures have averaged about US$635,000 annually, as detailed belows

Expenditures for Emergency Works and O&N

Local External ExchangeFinancing Financing Total Rate Total

Year (S/.M) (S/.N) (S.M) (S/./US$) (USS T)

1983 49.8 49.8 83.2 5981984 94.2 94.2 92.6 1,0171985 35.7 48.5 84.2 96.1 8761986 64.1 10.5 74.6 123.4 6041987 70.9 13.8 84.7 171.0 4951988 54.6 54.6 350.0 218

Sources CEDEGE Planning Department.

16. Flood protection is generally considered to be a socialresponsibility of the government, and therefore, provisions for direct costrecovery have not been implemented. The social aspects of this particularproject are heightened with two-thirds of the rural beneficiaries being poorsmall farmers. Practical considerations also limited cost recovery asbenefits from flood control and drainage vary, depending on location, landlevel, and soil quality and use. Nevertheless, in theory the government couldexpect to receive increased tax revenues from greater and more secure economicactivity in the project area. In Ecuador, taxation of agriculture is minimal,despite the legal existence of a number of revenue raising laws, nostlyrelated to property taxes and presumptive income. Property assessments areonly carried out every five years and no allowance is made for inflation. Thelast cadastre for revaluing assessments in the area was carried out in 1986,with the next one scheduled for 1991. Although assessments and rates areextremely low, actual collection of taxes in the area varies between 20-70% ofthe potential depending on the municipality. Property is taxed bymunicipalities in both urban and rural areas. For rural areas, the averageassessed value of land in 1986 was equivalent to about US$825/ha taxed at arate of 1.2%. The presumptive income tax collected by the national governmentuses a somewhet lower base, which includes only the value of the land, and atax rate of 5%.

17. An estimate of potential increases in revenue at fulldevelopment can be made under the assumption that future assessments areindexed, taxes are fully collected, and the increase in future land values canbe approximated by annual incremental income per ha of about 15% from avertedflood losses, productivity increases, and changes in the cropping mix. Forsimpl.city the same base is used for both prope-.ty and presumptive incometaxes, yielding the results below:

- 72 -

ANz 9Page 5 of 7

Estimated Increase in Tax Revenues With Project

Project Area Incremental Value Tax YieldValue

(Ha) (USS/ha) (US$)

Property Tax 115,500 1.50 173,250Income Tax 115,500 6.25 721,875

Total 895,125

Sources Bank Estimates.

18. While these assumptions result in an overestimation of revenuesfrom these sources, there are likely to be revenue increases from other taxesnot included, e.g., urban property taxes and corporate taxes on the largerfarming enterprises in the project area.

Economic Prices

19. Shadow Exchanae Rate. The financial rate of exchange (S/./US$) inSeptember 1987 was S/.210/USS. For the economic analysis, a shadow rate ofexchange was calculated to reflect the impact of the trade regime, i.e.,taxes, duties, and import deposits, on the demand for foreign exchange and theexchange rate. The table below indicates that import taxes and dutiesincreased the cost of imports by about :.3%.

Value of Imports and Duties - 1983-87

Value of Imports Imports Duties ShareYear (USS M) (S/./US5) (S/. M) (S/. M) (C)

1983 1.305 83.47 108.928 10.578 9.71984 1.396 96.07 143.142 17.360 12.91985 1.544 116.29 179.552 25.997 14.51986 1.575 151.40 236.455 36.189 15.21987 1.054 158.43 166.985 18.169 10.9

Average 21.6

Source: Central Bank of Ecuador.20. Deposit requirements that cover the full value of merchandise tobe imported also increase the cost of imports. For 1987, a commercial rate ofinterest of 36% and inflation of 30% suggests a real financial cost of 1 ofthe value of imports, assuming a two-month deposit period. Together withaverage effective import duties during 1983-87, the trade regime is estimatedto increase the cost of imports by about 14%. Consequently, the shadowexchange rate is calculated to be S/.240 (S/.210 X 1.14).

Shadow Waae Rate

21. A review of the supply and demand for labor il. the project area bythe preparation team indicates that the area suffers from periodic laborshortages and suggests that adjustments to financial wage rates for labor are

- 73 -

ANNEX 9Page 6 of 7

not required for estimating a shadow wage rate. Thus, the financial wage ratefor unskilled labor of S/.800/day is used in the economic analysis. Semi-skilled labor used in banana operations receives a wage of S/.1,900. Laborfor sugarcane production, the other major employer in the project area, ispaid on the basis of tonnage cut. Based on S/.150/ton and an average of fivetons per day, the daily wage during harvest is S/.750. However, to attractworkers, usually brought in from the Sierra for the zafra (harvest), thelarger plantations also provide housing and food (beef, milk, and riceproduced on the farm) at subsidized prices. The value of these benefits isestimated to be S/.560/day, for a total remuneration of S1.1,300 per day.

Product and Input Prices

22. The economic analysis is based on September 1987 real prices.Economic prices for agricultural output and inputs have been calculated forall major traded items using appropriate border pricing techniques to reflecthandling, transport, and processing costs where applicable. Four majorproducts, banana, coffee, cacao, and shrimp are exported. The IBRD CommodityPrice Forecasts (dated January 1990) were used for adjusting prices to 1995real levels. These calculations are available in the Technical File. Pricesfor tradable inputs, for which border prices were not readily available, wereadjusted using the shadow exchange rate. Project costs, including civilworks, vehicles and equipment, salaries and operating costs, net of taxes,have been adjusted using a standard conversion factor of .875,(S/.210/S/.240),to reflect the overvalued Sucre due to trade distortions.

Economic Analysis

23. Cost Stream. The cost stream for the project includes: (i)construction expenditures and O&M of flood control and drainage works,including on-farm investment; (ii) costs for agricultural development andproject management; and (iii) output foregone from agricultural lands occupiedby project works. Calculation of (iii) is detailed below:

Area Occupied by Project Works

Annual Net Value ofArea Occupied Production

Crop Ha (S/. M. economic prices)

Rice 250 6.3Banana 160 195.7Sugarcane 400 41.7Tree Fruit 100 9.9Pastures 500 7.3Other Crops 280 7.7Brush 3,230

Total 4,920 268.6

24. For the economic analysis, expenditures on the Guayas Basin MasterPlan and those for environmental activities have not be included in the coststream because the associated benefits, although likely to be considerable insustaining long-term development in the area, are not readily quantified.

- 74 -

aNNX 9Page 7 of 7

Benefit Stream

25. The benefit stream used for the economic analysis of the projectincludess (i) averted losses to agricultural output and investments; (ii)damages to urban infrastructure; (iii) improved crop yields from drainage andother on-farm investments; (iv) incremental agricultural output from changesin crop mix due to greater security from flooding and improved drainage; and(v) savings of government expenditures for emergency works.

26. The calculation of benefits from averted losses is based on thefour most recent major floods in the area. These losses, in turn, have beenannualized and weighted according to estimates of flood frequency as follows:

Major Flood Frequency in the Lower Guayas Basin

Frequency of Occurrence Weight of LossesFlood (Years) (%)

1973 1:25 11.51982/83 1:50 3.01984/85 1:2 62.51986/87 1:4 23.0

27. The continued risk of extreme flooding has also been factored intothe calculation of the benefit stream. While design criteria calls forprotection from flooding occurring at a frequency of 1:50 and the resultingbenefits in averted losses are used in the analysis, further investments inbypass stabilization to be executed under the project would diminish the riskof floods to those with a 100-year return period and lead to greater benefits.Cost and benefit streams are presented in Table 6.

Rate of Return and sensitivity

28. The economic rate of return (ERR) for the project is estimated at15% over 40 years, the expected life of major investments (Table 7).Switching tests indicate that expected benefits would have to decline 22% orcosts increase 29% befo-e the ERR would fall to 12%, the assumed opportunitycost of capital (OCC). Sensitivity tests were also run which indicate the ERRwould remain above 12% even with a two-year lag in benefits.

29. The ERR estimated for the flood control as a free-standing projectis 17%, with a net present value (NPV) of US$10.0 million at the assumed OCC.The drainage and agricultural development components are complementary toflood control and to each other; however, meaningful allocation of costs andbenefits between them is not possible. Evaluated jointly, their inclusionincreases the overall NPV to US$11.5 million and would generate importantsocial benefits for small farmers in the area.

- 75 -

ANNEX 9Table 1

ECUADORLower Guayas Flood Control Project

Summary of Flooding by Month and Duration(Percent of Flooded Area)

1973 1982/83 1984185 1986/87

One MonthDecemberJanuaryFebruaryMarch 8 30April 30 30

Two MonthsDec. - Jan.Jan. - Feb.Feb. - March 20 20March - April 20 20

Three MonthsDec. - Feb.Jan. - March 18 50Feb. - April 20 20

Four MonthsDec. - March 54Jan. - April 30 30

Total 100 100 100 100

Area Flooded (Ha) 16,100 41,699 5,000 14,700

EaNADORLOWER WUAYAS FLOOD CONTROL PROJECT

Estimated Flood Impact by Crop

TreeRIco RIco Bona"a /e Coftee Cacao Shrimp /a Fruit Sugarcane(Tech) (Trad) Output Invostment Output Investsoat

(Percent of Total)One Month

December so so a5 70 0.6 /b 1o 8e 80January 6a so 85 70 19 a8 69Februory s0 30 386 s 1.5 /c 10 8s 8sMarch 76 199 6o 8o 66 69 2.6 /c 1o 46 8BApril 100 1Z0 60 89 56 so 2.5 /c 19 46 80

Two MonthsDec - Jan 76 75 e6 76 1.5 /b 20 59 70Jan - Feb 76 76 es 76 1.6 /c 20 59 70Feb -Mr 76 1e 75 75 75 76 2.9 / 20 so 85Mar - Apr 199 19 76 75 75 76 2.5 /c 20 s0 85

Three MonthsDec - Feb 100 199 so o0 2.9 /d 40 70 10Jan - Nor 76 199 199 100 90 so 2.6 /c 40 70 199Feb - April 199 1O9 199 190 80 so 2.5 /c 40 70 199

Four MonthsDoe -Mar 199 100 109 199 199 1W a.0 /d SO 199 199Jan - Apr 19 199 199 1O9 100 l9 8.0 6s lea wea

/a Output refers to number of harvests; Investment refers to ponds only./b Loss of previous stocking/c LoSu of future harvest/d Loss of previous stocking and future harvest./o Investment reters to replanting.

- 77 - ANIE 9Table 3

ECUADORLOWER CUAYAS FLOOD CONTROL PROJECT

Agricultural Flood LossesFinancial Prices

1973 1982-83 1984-96 1986-67

Duration/Month Area Total Area Total Area Total Area Totalflooded losses flooded loesea flooded louses flooded logss"

(Ha) (S/.U) (Ha) (S/.M) (Ha) (S/.U) (1H) (S/.M)

Traditional 700 7.0 276 2.8 200 2.0 76 0.8Semi-Technified 2,200 38.2 8,500 50.2 1,060 14.1 500 7.7

Coffee/Cacao 7,800 111.9 9,560 158.1 2,800 87.1 2,150 80.8

Tree Fruit 2,560 178.7 8,100 2S0.8 1,100 865. 725 49.4

BananasOutput 1,800 800.8 2,601 462.6 Sbf 108.4 1,426 287.7Investment 206.5 847.4 74.6 188.4

Sugarcane 6,400 114.1 28,700 637.8 2,950 52.7 8,650 68.4

Shrimp FarmingOutput 125 87.1Investment 89.0

Total 21,460 947 47,762 :,880 8,760 864 8,426 658

Frequency (1:60 years)/a 11.5% 8.0% 62.5G 28.0X

Total614 109 s6 221 127

Frequency (1:100 years)/a 4.6% 1.5X 82.6% 11.5XTotal

427 48 28 292 64

/a Of the 1982-83 flood.

- 78- AhNEX 9Table 4

ECUADORLOWER GUAYAS FLOOD CONTROL PROJECT

Estimated Urban Flood Logse"(S/. el I I I on)

El Triunfo M.J. Calle P.J. montero Taura Milagro

1988 1987 1988 1987 1988 188? 1988 1987 1983 198 19I7

Roads 59.0 2.6 7.0 12.8 29.4 40.7Dikes 8.0 7.6 28.1 1.7Education Facilities 24.0 68.0 1.0 1.3 4.0 2.0 4.9 83.6 15.2Health Facillties 6.0 20.0 3.0 S.0Sport Facilities 0.2Water and Sewage 0.2 29.6 85.4Housing 20.0 280.0 7.5 8.6 1.4 7.6 6.0 30.0 2.4 3.6Rice Processors 19.6 68.0 21.0 67.0Unspeciftied 15.6 16.5

Total(Current Prices) 128.6 426.5 24.0 18.1 88.4 77.1 11.0 47.6 81.8 111.8 42.4

Price Index 2.7 1.0 2.7 1.0 2.7 1.0 2.7 1.0 2.7 1.5 1.0(Sept. 1987 Prices) 846.9 426.5 64.8 18.1 90.18 77.1 29.7 47.6 219.5 167.4 42.4

(US8 million) 1.6 2.0 0.8 0.1 0.4 0.4 0.1 0.2 1.0 0.8 0.2

WsIght ax 28W 3x 28W ax 238 ax 23X ax 6e% 23Weighted Tosal 10.4 98.1 1.9 8.0 2.7 17.'- 0.9 10.9 6.6 104.6 9.8

ECUADORLOWER GUAYAS FLOOD CONTROL PROJECT

Net Inc~e by Farm Type(USS 1987)

Actual Future With Project

Farm Farm Gross Net Cash Net Family Per Capita Gross Net Cash Net Family Per Capita IncrmntlModel Area Margin Income Income Income Margin Income Income Income per Capita

(Ha) (

I 3.0 214 729 814 164 790 1,481 1,848 311 102%II 3.6 362 978 1,095 207 1,087 1,978 2,162 408 97%III 4.0 588 1,724 1,796 339 2,410 3,638 2,790 527 5S%IV 8.6 481 1,506 1,586 299 2,100 3,795 3,919 739 147%V 8.0 976 2,748 2,976 582 1,824 3,314 3,738 70 28%VI 9.0 757 2,505 2,590 489 2,643 4,643 4,710 889 82%VII 14.0 1,938 S,300 3,571 87.. 4,052 5,981 8,190 1,188 73%VIII 19.0 1,382 6,062 5,200 981 5,019 7,788 ?.*'9 1,507 54%

Source: CEDEGE/HASKONING

IiD

REPU8LIC OF ECUADOR

LOWER WUAYAS FLOOD CONTROL PROJECT

Economic Analysis

(Millons of 1087 Sucres)

1991 1992 1993 1994 1995 1998 1997 1998 1999 2B00 2001 2002 2003 2004-30

Flood Control 156.4 1417.1 2387.4 1292.5 858.5 887.4 385.4 178.3 178.8 178.3 178.3 178.3 178.3 178.3

Main Drainage Network 72.3 419.8 844.7 820.7 835.9 804.3 159.6 58.4 58.4 68.4 56.4 56.4 58.4 58.4

On-Farm Investment - 238.3 224.9 341.8 296.2 187.4 82.2 - - - - -

Agricultural Development 104.7 219.8 192.6 170.4 188.4 152.0 121.3 121.3 121.3 121.3 121.3 121.3 121.3 121.3

Administration 152.4 73.5 59.2 47.2 47.2 47.2 57.7 5.8 5.8 6.8 5.8 5.8 5.8 5.8

Total Costs 484.8 2388,8 3208.7 2481.8 1723.2 1378.3 788.1 381.8 381.8 381.8 381.8 381.8 381.8 381.8

Averted Crop Losses - - 438.3 730.5 1022.7 1481.0 1481.0 1481.0 1481.0 1461.0 1481.0 1481.0 1481.0

Averted Urban Losses - - - 80.0 133.3 188.8 288.8 288.8 288.8 268.8 2e8s6 286.8 268.8 268.8

Budgetary Savings - - 48.2 77.0 107.8 164.0 154.0 154.0 154.0 164.0 154.0 lS4.0 154.0 164.0

Land Use -17.7 -141.8 -177.0 177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0

Extreme Floods - - -30.8 -51.8 -88.4 -84.8 -61.2 -57.8 -54.0 -60.4 -48.8 -42.1 -38.0 -36.0

Crop Mix fflooding - - - - 41.1 88.8 50.7 107.0 102.0 83.1 70.7 88.8 8e.8 86.8

Crop Mix (Drainage) - - - - 57.7 127.8 122.0 197.4 210.8 207.3 205.4 204.7 204.7 204.7

Crop Productivity - - - - 158.6 179.8 238.4 378.9 581.0 880.0 759.9 847.8 888.8 917.1 0

_=== --- ==:= _ =- .==33=--- __ == C_= ===-__ 3 _ _ =t_ =-= z== I

Total Benefits -17.7 -141.8 -181.4 388.5 983.6 1515.7 2052.6 2330.3 2543.9 2804.8 2893.8 27& -i 2828.1 28s7.2

Net Bonefit, -502.5 -2608.2 -3370.1 -2115.1 -739.8 137.4 1316.4 1988.6 2182.1 2242.8 2332.0 2419.8 24e4.9 2495.4

___________________-_-_-_-__________-- - -____ _ -_ _ _ _ __ -- _ _---- - -- _- ---- ----- ----- _--…_____________.______

5/20/1990 18:00

oI0Fb

- 81 -ANNEX 9Table 6

Switching Values at 12.0% Page 2 of 2

Appraisal Switching PercentageStream Value Value Change

…-------------- -- ----- …

OTOTAL 12277.9 9521.0 -22.SX

C8TOTAL 9521.0 12277.9 29.0X

…--------- - -- - -------- … - …----

Not Present Value at OCC 12.0% = 2756.9Internal Rate of Return = 15.4%Coupon Equivalent Rate of Return = 16.6X

Present Values of Net Streams at a Discount Rate of 12.0X

BTOTAL UP 10% UP 20% Up 50% DOWN 10% DOWN 20X DOWN 50X

CBTOTAL 2758.9 3984.7 5212.5 8895.9 1629.1 301.3 -3382.0

UP 10% 1804.8 3032.8 4280.4 7943.8 577.0 -850.8 -4334.1

UP 20X 852.7 2080.5 3308.3 8991.7 -375.1 -1802.9 -5286.2

UP S0% -2003.6 -776.8 452.0 4135.4 -3231.4 -4459.1 -8142.5

DOWN 10X 3709.0 493e.8 6184.8 9848.0 2481.2 1253.4 -2429.9

DOWN 20% 4681.1 6888.9 7118.7 10800.1 3433.3 220S.s -1477.8

DOWN 50% 7517.4 8745.2 9973.0 13858.3 8289.8 50el.8 1378.6

BTOTAL LAG 1 LAG 2 LAC 3

CBTOTAL 2756.9 1441.4 286.9 -781.8

UP 10% 18*4.8 489.3 -886.2 -1733.9

UP 20X 852.7 -462.8 -1837.3 -2e88.0

UP 50% -2003.8 -3319.1 -4493.6 -6542.3

DOWN 10% 3709.0 2393.E 1219.0 170.3

DOWN 20% 4861.1 3345.8 2171.1 1122.4

DOWN 50% 7517.4 8201.9 5027.4 3978.7

LAG 1 - 2481.5 1287.0 238.3

LAG 2 - - 2197.8 1149.1

LAG 3 - - - 1962.3

Internal Rates of Returns of Net Streams

8TOTAL UP 10 UP 20X UP 50% DOWN 10% DOWN 20% DOWN 50%

CB.OTAL 15.403 18.796 18.125 21.818 13.941 12.395 8.974

UP 10% 14.077 15.403 18.871 20.190 12.683 11.206 6.984

UP 20% 12.921 14.190 15.403 18.770 11.s84 10.184 5.102

UP 50% 10.164 11.307 12.39S 15.403 8.955 7.680 2.894

DOWN 10% 18.945 18.413 19.817 23.709 15.403 13.774 8.103

DOWN 20% 18.770 20.329 21.818 25.940 17.133 15.403 9.417

DOWN 60% 27.214 29.185 31.018 38.078 25.153 22.965 15.403

BTOTAL LAG 1 LAO 2 LAG 3

CBTOTAL 15.403 13.839 12.285 11.204

UP 10% 14.077 12.521 11.313 18.340UP 20% 12.921 11.538 10.461 9.571UP S0% 10.184 9.165 8.344 7.875

DOWN 10% 18.946 14.926 13.398 12.188

DOWN 20% 18.770 16.433 14.887 13.319

DOWN 50% 27.214 23.224 20.389 18.250

LAO 1 - 15.403 13.839 12.288

LAG 2 - - 15.403 13.639

LAG 3 - - - 15.403

REPUBLUC OF ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Economic Analysis - Flood Control Component

(Millions of 198t Sucres)

…__________-____________ …_-_____________- ---- ------- -------- -…

1991 1992 1993 1994 1995 199 1997 1998 1999 2000 2001 2002 2003 ?004-30…-~~~~ -----------------------------------------------

---…------------------

Flood Control 165.4 1417.1 2387.4 1293.5 856.6 687.4 356.4 178.3 178.3 178.3 178.8 178.3 178.3 178.3

Administration 162.4 73.6 69.2 47.2 47.2 47.2 67.7 6.8 6.8 6.8 5.8 6.8 6.8 6.8

=== _= _ -= ~ ======Q =:= ~===s----=Total Costs 307.8 1490.7 2448.8 1340.7 903.7 734.6 393.1 184.1 184.1 184.1 184.1 184.1 184.1 184.1

Averted Crop Losses - - - 438.3 730.6 1022.7 1481.0 1481.0 1481.0 1481.0 1481.0 1461.6 1481.0 1481.0

Averted Urban Losses - - - 80.0 133.3 188.8 286.8 288.8 288.8 268.8 288.6 288.8 286.8 28.6.

Budgetary Savings - - 48.2 77.0 107.8 164.0 164.0 164.0 154.0 164.0 164.0 154.0 164.0 164.0

Land Use -17.7 -141.8 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0 -177.0

Extreme Floods - - -30.8 -61.8 -88.4 -84.8 -81.2 -67.8 -54.0 -60.4 -48.8 -42.1 -38.0 -38.0

Crop Mix - - - - 41.1 86.6 60.7 107.0 102.0 83.1 70.7 68.8 86.8 68.8

Total Benefits -17.7 -141.6 -181.4 366.6 787.3 1208.1 1894.1 1764.0 1762.8 1737.3 1728.6 1729.3 1733.4 1735.4

Net Benefits -325.6 -1632.3 -2608.0 -974.2 -136.4 473.6 1301.0 1689.9 1668.6 1563.2 1644.4 1646.2 1649.3 1651.3

- - - ---------- -------------------------------- - ------------------ --------------- _-----____--_____________________________----

6/20/1999 18:01

Switching Values at 12.0X

Appraisal Switching PercentageStream Value Value Change

STOTAL 8199.7 6796.9 -29.3%

CBTOTAL 6796.9 8199.7 41.4%

Net Present Value at OCC 12.0% = 2402.8Internal Rate of Return = 16.9%Coupon Equivalent Rate of Return = 17.1X

- 83 -

ANNEX 10Page 1 of 2

ECUADOR

LOWER GUAYAS FLOOD CONTROL PROJECT

Selected Documents Available in the Proiect File

1. Estudios de Factibilidad y Diseflo del Control de Inundaciones de laCuenca Baja del Guayas (Abril 1990):

Volumen 1 - Informe PrincipalVolumen 2 - Anexo A, Topografia, Cartografla, Geotecnica e

Investigaciones de Campo.Volumen 3 - Anexo B, HidrologiaVolumen 4 - Anexo C, HidraulicaVolumen 5 - Anexo D, MorfologiaVolumen 6 - Anexo E, Aspectos AgropecuariosVolumen 7 - Anexo F, Aspectos SocialesVolumen 8 - Anexo G, Impactos AmbientalesVolumen 9 - Anexo H, Control de InundacionesVolumen 10 - Anexo I, DrenajeVolumen 11 - Anexo J, Plan de Desarrollo AgropecuarioVolumen 12 - Anexo K, Plan de Desarrollo Institucional (Tomo I)

- Anexo K, Plan de Desarrollo Institucional (Tomo II)Volumen 13 - Anexo L, Analisis Econ6micoVolumen 14 - Anexo M, Plan Maestro

2. Procedimientos para adquisiciones de Bienes, Prestacion de Serviciosy Ejecuci6n de Obras (Marzo 1990).

3. Borrador del Manual de Operaci6n y Mantenimiento (Marzo 1990).

4. Estudio del Impacto Ambiental (Octubre 1989).

Informe No. 1 - Recopilaci6n y Necesidad de Informaci6nInforme No. 2 - Diagn6stico Situaci6n ActualInforme No. 3 - Pron6stico del Impacto AmbientalInforme No. 4 - Evaluaci6n de los Impactos Ambientales

5. Borrador del Proceso de Legalizaci6n de Tenencia de la Tierra enAreas Beneficiadas del Proyecto, Plan de Trabajo (Junio 1989).

6. Borrador del Proceso de Ocupaci6n de las Tierras de Obras delProyecto, Plan de Trabajo (Junio 1989).

7. Plan Operativo para los Estudios de Factibilidad y Disefto de Controlde Inundaciones en la Cuenca Baja .l Ouayas. Ampliaci6n de Acuerdo deCooperaci6n Tecnica Ecuador-Holanda (Enero 1989).

- 84 -

ANNEX 10Page 2 of 2

8. Plan Operativo para los Estudios de Factibilidad y Diseflo de Controlde Inundaciones en la Cuenca Baja del Guayas. Acuerdo de Cooperacion T6cnicaEcuador-Holanda (Abril 1987).

9. Agricultural Development Working Paper.

10. Detailed Projec*,Cost Tables.

11. Financial and Economic Analysis Background Data.

12. Detailed Project Maps.

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i ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RJCT COMP<1OUNENTS

BY-PAIS ROAD

C

F CHURUTE NATURE

RESERVE

EAIBILIT STUDYBOUDAR

/LL M ROAD

JUNE 1990