Report No. 1218-YU FILE COPYAppraisal of the Metohija I MultipurposeProject YugoslaviaDecember 23, 1976

Irrigation DivisionProjects DepartmentEurope, Middle East and North Africa Region

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Dinar (Din)

Din 1 = US$0.055

Din 1,000 = US$55.55

Din 1,000,000 = US$555,555

WEIGHTS AND MEASURES

1 millimeter (mm) = 0.039 inches (in)

1 meter (m) = 39 inches (in)

1 kilometer (km) = 0.62 miles (mi)

1 hectare (ha) = 2.47 acres (ac)

1 square meter (m2 ) = 10.76 square feet (ft2)

1 cubic meter (m3 ) = 35.31 cubic feet (ft3)

1 million cubic meter (Mm3) = 264 million US gallons (gal)

1 kilogram (kg) = 2.205 pounds (lb)

1 Metric ton (ton) = 2,205.00 pounds (lb)

1 bar = 14.666 pounds/square inch (psi)

1 liter (1) = 0.264 US gallons (gal)

1 hectoliter (hl) = 26.4 US gallons (gal)

SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA

Fiscal Year

January 1 - December 31

FOR OFFICIAL USE ONLY

ABBREVIATIONS

Bankkos Bank of Kosovo

BOAL Basic Organization of Associated Labor

GNP Gross Material Product

Kosovo Socialist Autonomous Province of Kosovo

VOM Water Management Organization Metohija

This document has a reatricted distribution and may be used by recipients only in the performanceof their omcial duti". Its contents may not otherwise be disclosed without World lank authorization.

I

APPRAISAL OF

METOHIJA I MULTIPURPOSE PROJECT

YUGOSLAVIA

Table of Contents

Page No.

SUMMARY AND CONCLUSIONS ............. .................. i-ii

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

II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR ........ 2

A. Country Background ...................... ............ 2

B. The Agricultural Sector .......................... 2

III. THE PROJECT AREA AND NATIONAL INSTITUTIONS ....... ..... 4

AA. The Project Area ................................. 4

B. Natural Resources ................................ 5C. Land Tenure ..................................... . 6

D. Land Use, Agricultural Production and Yields ..... 6E. Farm Inputs ...................................... 6F. Agricultural Research and Extension ............... 7G. Credit ......................................................... 7H. Marketing .......................*.. . . . . . ............... 8

IV. THE PROJECT ........ ................. 8

A. Objectives ...... .......................... 8B. Description ...... ................................ 8

C. Detailed Features ................................ 9

D. Water Demand, Supply, Quality and Rights ......... 10E. Status of Engineering ............................ 11F. Cost Estimates ................................... 11

G. Financing ...... ............... ................... 13H. Construction Schedule ............. .. ............. 13I. Procurement ...................................... 13

J. Disbursements .................................... 14

K. Environmental Impact ............. .. .............. 14

V. PROJECT IMPLEMENTATION ................................ 15

A. Organization and Management ...................... 15B. Operation and Maintenance .... .................... 16C. Boundary Adjustment .............................. 17D. Support Services ................................. 17E. Credit ........................................... 18

Table of Contents (Continued) Page No.

F. Marketing ....................................................... 18G. Recovery of Project Costs ........................ 19H. Financial Performance of the Borrower ............ 20I. Accounts and Audit ................................ 21J. Monitoring of Key Project Indicators . ............ 21

VI. BENEFITS AND JUSTIFICATION ............................ 22

A. Crop Production ............................................ 22B. Markets ..... ...... ..... 23C. Prices ........................................... 24D. Producers' Income ................. ............... 24E. Main Benefits and Beneficiaries ................ .. 25F. Economic Rate of Return ..... ..................... 25

VII. RECOMMENDATIONS ...................................... 26

ANNEXES

1. Agriculture2. Agricultural Finance3. Marketing, Markets and Prices4. Description of the Irrigation Component5. Description of the Potable Water Supply Component6. Water Requirements and Availability7. Cost Estimate8. Schedule of Expenditures9. Schedule of Activities (Chart No. 16230)10. Procurement11. Schedule of Disbursement12. Farm Budgets and Recovery of Project Irrigation Costs13. Financing Plan14. Financial Projection of VOM15. Economic Evaluation

Chart 16006RMap 12060RMap 12061RMap 12062R

APPRAISAL OF

METOHIJA I MULTIPURPOSE PROJECT

YUGOSLAVIA

SUMMARY AND CONCLUSIONS

The Federal Republic of Yugoslavia has a total area of 255,800 km2and a population of 21 million, which is growing at about 1% per annum. Therural population amounts to about 7.7 million. GNP per capita in 1975 wasestimated at US$1,480. About 35% of the rural population is in the povertytarget group. Regional disparity is wide, with large portions of the bene-fits from growth accruing to the central and northern regions. The SocialistAutonomous Province of Kosovo (Kosovo) in the southern part of Yugoslavia isthe poorest with an estimated per capita income of one third the nationalaverage and which is declining relative to the national average. The FederalGovernment gives high priority to the less developed regions. It assiststhem by providing investment resources through its Fund for AcceleratedDevelopment of Less Developed Regions. The present Five-Year Plan (1976-80)gives increasing attention to regional distribution of benefits from growth,particularly to less developed regions.

ii. The Bank has made a total of 39 loans to Yugoslavia totallingUS$1,313 million. Of these, three loans amounting US$126 million were foragricultural projects, one of which included an irrigation component. Pro-gress of these projects is generally satisfactory. The proposed loan wouldbe the fourth to the agricultural sector.

iii. Agriculture in Kosovo supports directly about half of the popula-tion of the province. Available demographic and economic evidence suggeststhat Kosovo's agriculture sector suffers from severe overpopulation and thatdevelopment has largely bypassed the peasant sector. Irrigation is importantto increase agricultural growth and development in Kosovo because of low andirregular rainfall during the growing season. The proposed Metohija I Multi-purpose Project would contribute to the realization of the objectives of theFederal and Provincial Governments which call for (a) better income distribu-tion on provincial and national level; (b) increased production; and (c)better living conditions for the peasant sector. To promote these objectives,the Government of Kosovo has requested Bank assistance to help finance theproposed Metohija I Multipurpose Project which is located in the southernand poorest part of Kosovo.

iv. The proposed project would provide irrigation to about 10,250ha (net), of which about 68% would be farmed by 2,200 smallholder privatefarmers and the remaining 32% by social sector kombinats. It would alsoprovide potable water to about 64,700 inhabitants and to industry locatedin and around the project area.

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v. Total project cost is estimated at about US$110.3 million, witha foreign exchange component of US$43 million or 39%. Interest and othercharges during construction on the Bank loan are estimated at US$11 million.The proposed Bank loan of US$54 million would finance the full foreign ex-change costs and interest and other charges during construction. The localcost component of the project (US$67.3 million) would be financed by loansfrom Kosovo. Construction would start in 1977 and would be completed in 1981.Total value of the works and equipment including contingencies that would beprocured following international competitive bidding amounts to US$61 million.Goods and services financed through the proposed Bank loan would be procuredin accordance with the Bank's Guidelines.

vi. The Water Management Organization "Metohija" (VOM) would haveresponsibility for planning and construction and operation and maintenanceof project facilities. VOM would expand and reorganize to meet project needs.It would establish a new department (BOAL Hydro-System Radenic) which wouldundertake operation and maintenance of the project.

vii. At full development, the project would increase annual productionof main crops as follows: sugar beet 61,500 tons, vegetables 41,700 tons,fruits 33,200 tons and maize 24,600 tons. The annual gross value of in-cremental production would amount to about US$12 million. Main projectbeneficiaries would be about 2,200 smallholder private farm households (17,600people) who constitute part of the Poverty Target Group in Yugoslavia. Theaverage annual per capita income of these beneficiaries would increase fromUS$150 to US$412 or 175%. The economic rate of return on the project isestimated at 11%. The rate of return of both the irrigation and the watersupply component is about equal.

viii. Provided agreements are reached on issues set forth in this report,the project is suitable for a Bank loan of US$54 million to the Water Manage-ment Organization-Metohija for a term of 15 years, including 3 years of graceat interest rate of 8.7%. The Federal Government of Yugoslavia would guaranteethe loan.

APPRAISAL OF

METOHIJA I MULTIPURPOSE PROJECT

YUGOSLAVIA

I. INTRODUCTION

1.01 The Government of the Socialist Autonomous Province of Kosovo(Kosovo) has requested Bank assistance to help finance the Metohija I Multi-purpose Project. The project, which is located in the Metohija region ofKosovo, would be the first phase of a two-phase development called the Hydro-System Radenic. It would provide (a) irrigation to 10,250 ha, of which6,950 ha would be owned by smallholder private farmers and the remaining3,300 ha by social sector kombinats, and (b) domestic and industrial watersupply in an area affected by waterborne diseases and whose industrial dev-elopment is hampered by inadequate water supply. Total project cost isestimated at US$110.3 million with a foreign exchange component of US$43million (39%). Most of the beneficiaries are poor and constitute part ofthe poverty target group in Yugoslavia.

1.02 The Hydro-System Radenic is a part of the master plan for the waterresources development of the Metohija region. According to the master plan,the Government of Kosovo intends to increase agricultural production in theregion by providing irrigation to about 93,000 ha, and to promote industrialexpansion and improve health standards of the inhabitants by supplying pot-able water. These objectives can be achieved only through construction ofstorage facilities because there is no other reliable and economically viablealternative.

1.03 When completed, the Hydro-System Radenic would provide irrigationto about 21,000 ha and would supply different towns and villages in theMetohija region with industrial and domestic water. Because of budgetaryconstraints, it was decided to implement the System in two phases. The pro-posed project constitutes the first phase. A feasibility study for thisproject was prepared by the Water Management Organization-Metohija (VOM) andits consultants (Kosovoprojekt) with the assistance of the IBRD/FAO Coopera-tive Program. The feasibility report was submitted to the Bank in October1975. The project was appraised in November 1975 and January 1976 by two Bankmissions consisting of Messrs. M. Raczynski, T. Haile-Mariam, J.H. Laeyendecker,R. MacWilliam, J. Renkewitz, F. Miyanaga and A. Zulfiqar (Bank), all of whomand Messrs. V. Nwaneri and K. Thomas (Bank) participated in the preparation ofthis report.

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II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR

A. Country Background

2.01 The Federal Republic of Yugoslavia has a population of 21.0 million(mid-1973 estimate) which is growing at about 1% per annum; the rural popula-tion amounts to about 7.7 million. GNP per capita in 1975 was estimated atUS$1,480, and the poverty income level is estimated at US$165; about 35% ofthe rural population is in the Poverty Target Group.

2.02 The economy is broadly characterized by social ownership of themeans of production, with management of resource allocation entrusted toworkers (social sector). However, private enterprise (private sector) alsoplays a significant role, especially in agriculture. Regional income dispar-ity is wide. Kosovo, in the south, is the poorest region with an estimatedper capita income of one-third the national average. The province accounts forabout 6% of the population in the country but contributes only 2% of GrossMaterial Product (GMP). 1/ Recently, GMP growth rate in the province hasabout equalled the national average, but because of a rapid increase inpopulation (about 2.4% per year), the per capita income has tended to declinerelative to the national average. This has increasingly limited the capacityof the province to mobilize savings. The Federal Government assists theprovince by providing it with investment resources through its Fund forAccelerated Development of Less Developed Regions (Federal Fund). Presently,this Fund amounts to Din 2 billion (US$110 million) per year, and is expectedto reach about Din 4 billion (US$220 million) within the next two years.

B. The Agricultural Sector

2.03 Resources. Agricultural lands are estimated at 14.5 million ha or57% of the total area. Of these, about 8.1 million ha are arable with 0.7million ha under vineyards and orchards. The remaining 6.4 million ha arepermanent meadows and pastures. The soils are fertile and the climate condu-cive to growing many crops, livestock and poultry. However, droughts arecommon and cause frequent instability in production. Although the countryhas substantial sources of exploitable irrigation water, only about 133,000 haare presently under modern irrigation systems.

2.04 In 1974, the country produced about 22 million tons of cereals,5 million tons of vegetables, 4 million tons of sugar beet and 2.4 million

11/ GMP differs from GDP in that the former excludes services such as publicadministration, defense, education, health and social insurance.

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tons of various fruits and grapes. In the same year, the livestock popula-tion was estimated at 5.7 million cattle, 7.4 million pigs, 7.8 millionsheep and 1.0 million horses and mules. The poultry population was 54.7million. Output of livestock and poultry products amounted to 2 milliontons (liveweight) of meat, 3.5 billion liters of milk and 3.5 billion eggs.

2.05 Sector Organization. Agricultural production is organized intotwo separate but interdependent social and private sectors. The socialsector, which consists of complex agro-industrial kombinats and agriculturalcooperatives, operates under the principle of social ownership of the meansof production and workers' self-management. The private sector comprisesof smallholder farmers.

2.06 Sector in the Economy. About 38% of the population derives its in-come directly from agriculture. Agriculture accounts for about 20% of GMP,20% of exports and employs 47% of the labor force. Investment in agriculturehas been low relative to the sector's share of GMP, accounting for about 10%of total investments in the last ten years. About 70% of the investment wasallocated to the social sector which accounted for less than 30% of agricul-tural output. The private sector received about 30% of the investmentsalthough it produced more than 70% of the output and employed over 90% ofthe farm population. Resource mobilization in the private sector has beenconstrained by a rapidly growing farm population which has led to a subsis-tence production. This has contributed to slow growth in agriculture whichaveraged about 3% per annum during 1968-1973, to growing food imports and tolow labor productivity which is estimated at one-fourth of that in industry.

2.07 Future Development. With the emerging problems of food deficitand rural poverty, increasing emphasis is being given to rapid developmentof agriculture. During the 1976-1980 Plan period, the volume of agricul-tural production is expected to grow at an annual rate of 4%. Crop production(particularly sunflower, sugar beet, maize, wheat and fodder) would grow atabout 3.6% and livestock production at about 5% per year. Annual investmentwould amount to Din 6.3 billion or US$350 million (in 1974 prices), more than50% of which would be allocated to the private sector.

2.08 The social sector's share of output is expected to increaseslightly, but the bulk of production would continue to be accounted for bythe private sector. More emphasis would be given to increasing output andlabor productivity in the private sector by increasing investments in proj-ects which would directly benefit smallholder producers, increasing access tofarm credit, providing more technical support through the social sector andwidening the markets for outputs by establishing agricultural processingplants to utilize marketed production from private farms. Also, particularattention would be given to the development of agriculture in the less devel-oped regions. The proposed project is an important component in the nationalplan for achieving the above objectives.

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2.09 Previous Agricultural Projects. Three previous Bank loans havebeen extended to Yugoslavia to help finance agricultural projects, one ofwhich included an irrigation component. The Ibar Mfultipurpose Water Project(Loan 777-YU), which was financed under a 1971 loan, is behind schedule be-cause of delay in passage of legislation on boundary adjustment and in secur-ing funds to finance cost overruns. However, the legislation which allowsfor boundary adjustment has now been passed and satisfactory progress isbeing made in securing funds to finance the cost overruns. These develop-ments are expected to improve project implementation. Progress on the othertwo loans, a 1973 loan to finance an Agricultural Industries Project (Loan894-YU) and a 1975 loan for an Agricultural Credit Project (Loan 1129-YU),is satisfactory.

III. THE PROJECT AREA AND NATIONAL INSTITUTIONS

A. The Project Area

3.01 Location. The project area is located in the Metohija region ofSAPK. It extends along the Beli Drim river and comprises part of the com-munes of Djakovica, Orahovac and Prizren (Map IBRD 12060R).

3.02 Population. The population of the project area, including thetowns of Djakovica, Orahovac, and Zrze amounts to 64,700, about 24,000 ofwhom constitute the active labor force. About 74% of this force is directlyemployed in agriculture, 24% in industrial and service sectors and the re-maining 2% in retail merchandizing and marketing of agricultural produce.About 85% of the labor force works in the private sector and the remaining15% in the social sector.

3.03 Electricity. Kosovo is a net exporter of electric power and theMetohija region suffers no deficiency in transmission lines. Djakovica,Orahovac and Zrze are linked by 35 kv lines connected to a 110/35 kv sub-station at Djakovica.

3.04 Water Supply. Existing public water supply in the project areais deficient in towns and practically non-existent in rural areas where theinhabitants rely on shallow wells with low yields of doubtful quality. In-creasing human and livestock population and expanding industry would worsenthe present situation unless new sources are developed.

3.05 One spring of variable yield, supplemented by two boreholes, pre-sently supplies Djakovica, the largest town. After allowing for industrialconsumption and system losses, the combined sources provide about 60 litersper capita per day, which is insufficient to meet present demand. Attemptsto obtain more water from underground sources have been unsuccessful. Thenext largest community of Orahovac derives its supply from two wells witha total of 10-12 liters per second, but has problems of both quality and

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quantity. Water demand cannot be met and consumers are supplied on an inter-mittent basis, some by day and others by night, raising the potential forpollution within the pipe network. In Djakovica all consumers are metered,but in Orahovac only 40% are metered and 60% obtain water from public taps.Current practice is for meters to be privately owned but VOM will be workingtowards a policy which will vest meter ownership in the supply authority,including maintenance and will otherwise follow sound public utility practicesin its operations.

3.06 Transportation and Communication. The project area has one railand one all weather road linking it to Pristina, the capital of Kosovo. Theroad system within the project area meets present needs, but additional feederroads would be needed to meet the demands of increased traffic after theproject.

3.07 Health. A 480-bed (70 doctors) hospital in Prizren and an 80-bed(8 doctors) hospital in Djakovica serve the project area. A particular healthproblem is the high incidence of infectious intestinal diseases caused by de-ficient water supply. Bacillary disentery is common. In 1961 and 1971, therewere outbreaks of typhoid and infectious hepatitis in Orahovac which were at-tributed to the use of polluted water. In 1970 the first smallpox epidemic inEurope, after half a century, started and took most of its toll in Metohija.A Government vaccination program has already eradicated smallpox.

B. Natural Resources

3.08 Climate. Metohija has a continental climate with mediterranean in-fluence. Annual rainfall averages 844 mm and the pattern shows a moderatelydry period during the growing season, and great variation from year to year.Average minimum temperature amounts to -5.80C in January and the averagemaximum temperature is 29.10C in August. The potential evapotranspirationis estimated at 1,300 mm and the water deficit in the growing season amountsto about 700 mm. Annex 1 summarizes climatic data of the project area.

3.09 Soils. Based on land capability classification, about 17% of theproject land is Class I, 35% Class II and 48% Class III. Soils are suitablefor irrigated farming, but some areas require drainage, liming and/or sub-soiling. Details on soils and soil improvement measures are given in Annex 1.

3.10 Water Resources. As the quality and quantity of groundwater isinadequate, sources of water for the project would be the Decanska Bistricariver, which is a tributary of the Beli Drim river. The Beli Drim river isthe major river flowing through Metohija to Albania. Its average dischargeat the border is 60 m3/sec of which one-third emerges from mostly karsticsprings. Total diversion for the project is estimated at about 68 Mm3 peryear or about 3.5% of total annual flow of the river.

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C. Land Tenure

3.11 Of the total project land of 10,250 ha (net), about 3,280 ha (32%)is owned by Agro-Kosovo Kombinat, which is an association of social sectorenterprises. The remainirng 6,950 ha '68%) is owned by smallholders most ofwhom own less than 5 ha each. Holdings are irregular and scattered, averag-ing 7.3 parcels each. The minimum size of an individual parcel is about 0.1ha. None of the private farmers own more than 20 ha each. Details on landtenure are in Annex 1.

D. Land Use, Agricultural Production and Yields

3.12 All project land is presently dry farmed with cereals occupying 56%,alfalfa 6%, orchards and vineyards 10% and other crops (sugar beet, sunflower,peas, vegetables) 11%. About 17% is occupied by meadows and forests of littleeconomic value. Present yields are low because of moisture deficits duringthe growing season, inadequate drainage and poor soil management practices.Yields in the private sector are slightly below those of the social sector,mainly due to lower levels of technology. Present average yields of majorcrops per hectare in the social sector are as follows: wheat 3 tons, barley2.5 tons, maize 4 tons, sunflower 2 tons, sugar beet 30 tons, peas 3.5 tons,orchards 20 tons, grapes 8 tons and alfalfa 5 tons.

E. Farm Inputs

3.13 Seeds, Fertilizers and Plant Protection Material. Various nationalinstitutes for agricultural production multiply and distribute seeds to allfarmers. Kombinats also operate fruit-tree nurseries for their own use andfor sale to private farmers. Yugoslavia produces various types of fertil-izers and plant protection materials which are sold to farmers through var-ious marketing intermediaries. It is also a common practice for kombinatsto supply private farmers with such inputs on credit.

3.14 Labor. There is an abundant supply of farm labor in the projectarea. Private farmers depend on the services of family labor. Demand forlabor in the social sector is satisfied by permanent workers and by temporarylabor supplied by the private sector.

3.15 Farm Machinery. Yugoslavia manufactures tractors for export anddomestic use. The social sector has its own farm machinery stations, butmost private farmers depend on kombinats or private entrepreneurs for mechan-ization services.

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F. Agricultural Research and Extension

3.16 The social sector has its own technical staff and advises privatefarmers on agricultural production and marketing of those commodities whichare of interest for its own processing industry. No independent extensionservice exists. Applied agricultural research is carried out by the kombinatsand cooperatives under guidance of the national agriculture institutes. Thereis also an Institute for Mechanization in Belgrade which carries out researchon farm machinery, including the introduction of appropriate implements forsmallholders. There is a need to strengthen agricultural support services inthe project area (para. 5.14).

G. Credit

3.17 The primary sources of agricultural credit in Kosovo are the Bankof Kosovo (Bankkos) and a Provincial Fund for Betterment of the IndividualSector (Provincial Fund) (Annex 2).

3.18 Bankkos was founded in 1962 as a development bank to channel andregulate use of resources for the development of Kosovo; it is also involvedin commercial banking. Almost its entire resources for long-term investmentsare borrowed at 3% from the Federal Fund which it relends at not more than 4%;contribution from the Federal Fund has financed almost 40% of Kosovo's develop-ment expenditures since 1971. In 1974, about 18% of credits sanctioned byBankkos were allocated to agriculture and a third of these were used fordevelopment of irrigation. Bankkos also extends credits to private farmersfrom its own resources for purchase of tractors, marketing and other activities.Such loans carry interest rates of 10-12% and are usually repayable within 5years.

3.19 The Provincial Fund was created in 1972 by Kosovo Government toprovide private farmers in relatively less developed communes financial assist-ance to purchase improved seeds, fertilizer, farm machinery and other invest-ment items and to improve quality of livestock. It receives contributionsfrom the provincial budget which currently amounts to Din 10.0 million(US$0.5 million) per year. About 30% of the total resources are utilizedas grants to meet the cost of high-breed livestock, poultry, high qualityseeds and artificial insemination services; the balance is loaned for agricul-tural infrastructure at 4% interest, repayable in 8 years.

3.20 The interest rates, particularly on loans from the Provincial andFederal Funds, are low and imply negative real rates of interest. TheYugoslavs consider low interest rates on investment credits an importantpolicy instrument for development, especially in the development of agricul-ture and the less developed regions. The Bank has provided funds for the

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study of interest rate structure for the agricultural sector under a previousAgricultural Credit Project (Loan 1129-YU). This study is in progress andresults are not yet available.

H. Marketing

3.21 As in other economic activities in Yugoslavia, marketing of agri-cultural products is organized into social and private sectors. The socialsector includes autonomous marketing enterprises with authority to buy andsell commodities and with legal obligations to honor all contracts. Theprivate sector consists mainly of village free markets where producers andconsumers exchange goods. Most marketed agricultural products flow throughthe social sector enterprises, although substantial volumes of some commo-dities, particularly in the rural areas, are marketed through village markets(Annex 3).

IV. THE PROJECT

A. Objectives

4.01 The main objectives of the project are to (a) increase and stabilizecrop production in an area of 10,250 ha; (b) increase income of 2,200 farmfamilies who are among the poorest in Yugoslavia; and (c) improve water supplyto three towns and 12 villages to benefit a present population of 64,700,which is expected to double by the year 2000.

B. Description

4.02 The project would divert water from the Decanska Bistrica River intoan off-channel reservoir formed by a dam on a small tributary, the Prue River.The project works would include (a) a diversion weir and a supply canal fromthe Decanska Bistrica River; (b) a rock-fill dam and reservoir on the PrueRiver; (c) an irrigation distribution system to serve 10,250 ha, including onepumping station; (d) a water supply distribution network, including a treatmentplant and a pumping station; and (e) miscellaneous works comprising drainage,erosion control, soil improvement, power supply lines, equipment, farm roads,buildings, demonstration farms and consultant services. Detailed features ofthese works are described in Section C and Annexes 4 and 5.

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C. Detailed Features

4.03 Diversion. A 45 m wide 2.5 m high concrete weir in the DecanskaBistrica River would divert water into a 7.4 km long concrete-lined supplycanal. The canal would terminate in a ravine, which would inlet into thereservoir to be created by the Dam. Maximum capacity of the inlet and thesupply canal would be 15 m3/sec.

4.04 Dam and Reservoir. A 550,000 m3 rockfill dam with a crest lengthof 200 m and a height of 57 m would be constructed on the Prue River (Map IBRD12061R). The reservoir would have a total capacity of 113 Mm3 (live capacity102 Mm3), but because it is off-channel, the spillway would have a capacityof only 2.6 m3/sec to pass the 1,000 year flood of the small Prue River. Thereservoir outlet would consist of a common tower with multiple intakes, butseparate irrigation and domestic water supply pipes would use the same tunnel.No serious siltation problems are expected in the reservoir, as a sand-trap onthe supply canal from the Decanska Bistrica River would exclude sediment entryfrom that river. The small catchment area of the Prue River would contributeonly a negligible amount of sediment. Special instruments would be installedin the dam to monitor its safety. In accordance with existing laws adequatecash or land compensation would be provided to 90 farm families, presentlyliving in the reservoir area.

4.05 Irrigation Distribution System. The irrigation distribution systemwould consist of a 27 km main canal and 245 km primary and secondary pressurepipe network (Map IBRD 12062R). All project land of 10,250 ha would beirrigated by sprinklers. Sprinkler irrigation was adopted because of uneventopography. About 7,500 ha would be pressurized by gravity and the remaining2,750 ha would require pumping. The buried pipe network would have a densityof 47 m/ha for field crops in the social sector and 100 m/ha in the privatesector. The distribution system would be "on demand" with a design module of0.8 1/sec/ha. The pumping station would consist of nine units with a totalinstalled capacity of 1,700 kw; six pumps would have a head of 35 m and threepumps would have a head of 76 m.

4.06 The portable irrigation equipment for field crops in the socialsector would consist of pipes and sprinkler which would operate in a 12 m x18 m pattern under a nozzle pressure of 3.5 atm. For the private sector andtree crops in the social sector the portable equipment would include individ-ual sprinklers on 50 m long "garden hoses", which would be designed for a 12 mx 12 m pattern operating at 3 atm. While the system is slightly more expensivethan a conventional layout it would allow irrigation of small plots. Such asystem was the only alternative that was acceptable to the smallholder farmersin the private sector.

4.07 Potable Water Supply Works. These would consist of distributionpipelines, a treatment plant (400 1/sec) for filtration and chlorination andpumping stations (Map IBRD 12061R). The reservoir level would be sufficientlyhigh to feed the treatment plant by gravity for nine months; for the remaining3 months pumping would be required.

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4.08 From the treatment plant, water would be distributed by a 40 kmtrunk main for bulk supply to the towns of Djakovica, Orahovac and Zrze.About 28 km of minor distribution Diping would be connected to the trunk tosupply about 12 villages. The pipes would be designed to meet graduallyincreasing demand with allowance for peaks. New storage facilities totalling10,000 m3 would be construc2-ed s- D§iZcvica, Orahovac and Zrze. A boosterpump on the trunk main would pump water to Orahovac and nearby villages. Anextension of the distribution syster is visualized in a second phase, butits implementation is for later consideration and depends on VJOM's future per-formance.

4.09 Drainage, Erosion Control and Soil Improvement Works. Open drainswould be constructed on 380 ha and underground drains on 3,500 ha. Draindensity would vary from 140 m/ha to 230 m/ha. Anti-erosion measures wouldconsist of reforestation, gully control and terracing on about 2,600 ha. Soilimprovement works would include liming, subsoiling and phosphate treatment of3,000 ha, 4,000 ha and 6,000 ha respectively.

4.10 Power Supply Lines. A 110 Kv/35 Kv substation at Diakovica wouldbe extended and a new 35 Kv substation would be constructed at Petrovac. A7.5 km long 35 Kv transmission line and a similar length of 6 Kv line wouldconnect the two substations with the dam site and the pumping stations.

4.11 Equipment. The project would provide vehicles and other equipmentfor operation and maintenance of irrigation facilities and for other projectrelated works.

4.12 Farm Roads, Buildings and Demonstration Farms. Farm roads would be6 m wide. The access road to the dam site would be asphalted. Buildingswould include expansion of VOM's headquarters in Prizren, construction offield headquarters in Zrze, and field offices. A 40 ha demonstration area,involving 18 owners, who have volunteered for this purpose, would be equippedwith the proposed portable sprinkler system. In addition the project wouldequip a 20 ha experimental farm for vegetable production and mechanization anda 4.5 ha trial area for study of irrigation methods for the vineyards.

4.13 Consultants. The project would provide funds for local consultants,who are already employed by VOM and have completed preliminary designs of theirrigation system. These consultants would complete final design, superviseconstruction and prepare and evaluate bid documents. Foreign consultantswould be required to review final design of the pipe network, assist in prep-aration of tender documents and train local staff. VOM has agreed to retainforeign consultants to s:-u.ply this expertise, and has already taken steps inconsultation with the Bank to employ a qualified firm. Terms of Referenceare in Annex 4.

D. Water Demand, Supply, Quality and Rights

4.14 Water Demand. Allowing for effective rainfall the net requirementper hectare would be 3,250 m3. With an overall efficiency of 71%, the grossirrigation demand would be 4,580 m3/ha or a total of 47.5 Mm30 The domestic

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water requirement is calculated on the basis of a future daily consumption of200 1/capita for the towns and 150 1/capita for the village population. Thelatter figure includes an allowance for livestock. Allowing for a systemefficiency of 90%, the annual domestic requirements would amount to 13.5 Mm3.Thus the total project water requirement would amount to about 60 Mm3 peryear. The proposed capacity of the reservoir would meet the project needsadequately. In addition it would also be able to meet the demands of thesecond phase development of the Hydro-System Radenic. The alternative tolimit the size of the reservoir to only the project's needs with the possi-bility of extension later was found uneconomical. Details on water require-ment and availability are given in Annex 6.

4.15 Water Supply and Quality. The source of water for the projectwould be the Decanska Bistrica River. A detailed reservoir operating studyindicated that no water shortages would occur. High river discharges occurfrom March to May, and usually the irrigation season would start with a fullreservoir. The waters of the Decanska Bistrica River are of excellent qualityfor irrigation and domestic water supply purposes.

4.16 Water Rights. The Decanska Bistrica River is a tributary of theBeli Drim River which flows into Albania. A treaty signed in 1962 betweenAlbania and Yugoslavia allows Yugoslavia to divert up to 216 Mm3 per year.Project needs would equal only 32% of the allowable diversion. Government ofKosovo has submitted to the Bank a statement indicating that the proposeddiversions for the project comply with the treaty.

E. Status of Engineering

4.17 Preliminary design for all major project works has been completedby VOM's consultants, Kosovoprojekt. Final design for the intake, feedercanal and dam is well advanced. Longitudinal profiles for all mains, primaryand secondary pipes have been surveyed. Maps for drainage, erosion control,and soil improvement works have been prepared. The final design of the watertreatment plant would be based on the proposal submitted by the successfultenderer following international competitive bidding. VOM has engaged Kosovo-projekt to prepare final design, tender documents for the project works andalso to supervise their construction; this arrangement is acceptable to theBank.

F. Cost Estimates

4.18 Total project costs are estimated at Din 1,986 million (US$110.3million) including taxes, duties and physical and price contingencies.The foreign exchange component would amount to Din 774.0 million (US$43.0million) or 39% of total costs. Taxes and duties are estimated at aboutUS$22.0 million equivalent. Interest and other charges during construction

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on the foreign costs are estimated at about Din 198 million (US$11.0 million).Cost estimates for civil works and major equipment are based on unit ratesobtained in contracts for similar works in Kosovo and Serbia in 1975, whichhave been updated to September 1976 equivalent. Physical contingencies aretaken at 15% for the dam and water supply component, and at 10% for othercivil works and equipment. For all civil works, price contingencies arecompounded at annual rates of 12% (1977-1979) and 10% (1980-1981) and forequipment at annual rates of 8% (1977-1979), and 7% (1980-1981). Overallcontingencies amount to about 49% of base cost. Cost estimates are summarizedbelow and given in detail in Annex 7. Estimated schedule of expenditure is inAnnex 8.

ForeignItem Local Foreign Total Local Foreign Total Exchange

---- Din million /1---- ----US$ million/l----- %

Dam and Intake 80.4 75.7 156.1 4.4 4.2 8.6 49Domestic SupplyCivil Works 55.5 27.8 83.3 3.1 1.5 4.6 33

Domestic SupplyEquipment 73.3 47.3 120.6 4.1 2.6 6.7 39Irrigation NetworkCivil Works 273.5 235.6 509.1 15.2 13.1 28.3 46Irrigation Equip-ment & Vehicles 27.2 54.8 82.0 1.5 3.0 4.5 67Buildings & Demon-stration Farms 33.8 7.2 41.0 1.9 0.4 2.3 25

Expropriation andCompensation 123.7 - 123.7 6.9 - 6.9 -Land Improvement 63.8 60.2 124.0 3.4 3.5 6.9 49Engineering 89.5 4.1 93.6 5.0 0.2 5.2 4

Subtotal 820.7 512.7 1,333.4 45.5 28.5 74.0 39

Physical Con-tingencies 99.8 63.2 163.0 5.6 3.5 9.1 39

Price Con-tingencies 291.6 198.1 489.7 16.2 11.0 27.2 41

Total ProjectCost 1,212.1 774.0 1,986.1 67.3 43.0 110.3 39

Interest & OtherCharges DuringConstruction - 198.0 198.0 - 11.0 11.0 -

Total FinancingRequirements 1,212.1 972.0 2,184.1 67.3 54.0 121.3

/1 Discrepancies due to rounding.

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G. Financing

4.19 The proposed Bank loan to VOM of US$54 million would financein full (a) the estimated foreign exchange component of the project cost,and (b) the estimated interest and other charges during construction onthe proposed Bank loan. The project's local cost of Din 1,212 million(US$67.3 million) would be met by loans from Kosovo to VOM through Bankkos.The proposed Bank loan would be for 15 years including 3 years of grace.

H. Construction Schedule

4.20 Construction of works would start in 1977 and be completed in 1980and 1981 for the water supply and irrigation components respectively (Annex 9).

I. Procurement

4.21 Contracts for civil works and equipment financed under the proposedBank loan would be grouped, to the extent practicable, into 18 contracts asindicated in Annex 10 and would be tendered in accordance with the Bank Guide-lines. Of these, 10 contracts totalling about US$61.0 million would be tenderedon the basis of international competitive bidding. A 15% preference margin,or prevailing custom duty if lower, would be extended to local manufacturersin the evaluation of bids for equipment under international competitive bidding.Individual purchases of equipment not exceeding US$40,000 in value would beallowed to be procured in accordance with applicable local procedures whichare acceptable up to an aggregate value of US$300,000. Agreement was reachedduring negotiations that construction and equipment contracts, listed in Annex10, would be awarded in accordance with the Bank Guidelines.

4.22 Procurement in accordance with local competitive bidding, followingGovernment procedures which are acceptable to the Bank, would be appropriatefor the remaining eight contracts totalling about US$15.3 million. Thesecontracts would consist of such items as first section of main canal, accessroad, diversion tunnel, grouting, erosion control works, buildings, etc.Most of the works are scattered over the project area, are of minor nature andwould be built at different times; others will be procured locally to avoiddelays in project implementation.

4.23 Construction of the tertiary network and farm roads, and soil improve-ment measures (cost US$11.0 million) would be carried out by VOM under forceaccount, because (i) VOM is familiar with the traditions and customs in theproject area and would be able to minimize interruption to cropping; (ii) itwould further increase VOM's leverage to implement boundary alignment; and(iii) it would permit training of VOM's staff for future repair work. Theconstruction equipment and materials would be procured under the Bank'sguidelines (para 4.21) and are listed in Annex 10, Tables 2 and 3.

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J. Disbursements

4.24 The proposed Bank Loan would be disbursed as follows:

(i) Civil Works (US$21.0 million) - 40% of total expenditures.

(ii) Equipment (US$16.0 million) - 100% of foreign expenditure or100% of local ex-factory cost.

(iii) Buildings and Demonstration - 20% of total expenditure.Farms (US$0.7 million).

(iv) Foreign Consultants (US$0.3 million) - 100% of foreign expenditure.

(v) Interest and Other Charges - Amount due.(US$11.0 million)

(vi) Unallocated (US$5.0 million).

Expenditure of foreign consultants, after June 30, 1976, but up to US$100,000would also be admissible for disbursement. Savings on the proposed loan, ifany, would be cancelled. The estimated disbursement schedule is presented inAnnex 11.

K. Environmental Impact

4.25 The availability of a safe water supply will improve the health ofthe inhabitants of the area. The introduction of piped water would improvesanitation in rural and urban areas. The need to prevent the spread of water-borne pollution is well recognized by the communes and the towns. BothDjakovica and Orahovac have sewage treatment plants nearing completion. Inthe rural areas the soils are suitable for treated effluent disposal fromindividual properties and it has been confirmed that provincial financialassistance might be forthcoming for the construction of village seweragesystems if community resources prove insufficient. A recently completed UNDPprovince wide study has made preliminary proposals, in the project area, forfurther wastewater facilities to regulate discharges to meet Yugoslav riverstandards. VOM has a special responsibility for water management and pollu-tion control measures in its area of operations and will use this study as abasis for future actions.

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V. PROJECT IMPLEMENTATION

A. Organization and Management

The Borrower

5.01 VOM would be the borrower of the Bank loan under the guarantee ofthe Governments of the Federal Republic of Yugoslavia and would be responsiblefor project implementation. VOM is an organization of associated labor whichhas an independent legal personality. It is composed of the following threeUnits of Associated Labor: Irrigation, Construction and Engine Repair andMaintenance plus a Joint Service. Unit Irrigation operates and maintainssmall and traditional irrigation systems and Unit Construction carries outcivil works construction in and around the project area. The Unit EngineRepair and Maintenance is a machinery service unit which serves the privateand social sectors. The Joint Service provides planning and administrativeservices to the other units of associated labor. VOM has presently 167permanent and 60 temporary employees.

5.02 VOM is headed by a workers' council which includes elected repre-sentatives of all units, a seven-member executive committee and an executiveGeneral Manager. It is a member of the composite organization of associatedlabor, Water Nanagement-Kosovo formed under a joint self-management agreement,executed in 1973 between its thirteen participants. The activities of VOM areregulated by this agreement and by its own statute. The latter provides thatVOM is authorized to borrow money, to operate a bank account, and to enterinto contracts; the individual units are not so empowered. For this reason,Government of Kosovo has designated VOM as the borrower of the Bank loan.

5.03 Organizational Changes. With the project VOM would be reorganizedand expanded (Chart 16006R). The position of General Manager would be up-graded to General Director, and a qualified person would be appointed to serveas Financial Director and Deputy General Director. During negotiationsagreement was reached that the position of General Director would at alltimes be occupied by a person experienced in the operation of irrigationsystems and water supply networks and that the Financial Director would be asuitable qualified person selected by VOM in consultation with the Bank. Theappointment of a Financial Director would be a condition of effectiveness ofthe loan.

5.04 VOM plans to transform its three units into Basic Organizationsof Associated Labor (BOAL). An additional BOAL to be known as BOAL Hydro-System Radenic would be formed within VOM. This BOAL would be responsible foroperation and maintenance of the project and would be headed by a qualifiedengineer Director assisted by a Financial Director. It would have a Finance,an Adminstration, and an Operation Division. The BOAL's headquarters would beat Zrze. The Operations Division would have four sectors to be headquarteredat Djakovica, Rogovo, Ratkovac and Velika Krusa (Map IBRD 12062R). During

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negotiation agreement was reached that (a) VOM would create Hydro-SystemRadenic under arrangements satisfactory to Kosovo, VOM and the Bank prior toDecember 31, 1978, and (b) Hydro-System Radenic would employ at all times aqualified and experienced engineer to act as its Director and a qualifiedfinancial expert to act as its Deputy.

5.05 Joint Services would be enlarged by the establishment of an Agri-cultural and a Technical Service. The Agricultural Service, in cooperationwith various national agricultural institutes (para. 3.-16) would provideextension services to assist the farmers to adopt new irrigation technology,and would provide training for new agricultural staff. The Technical Divisionwould provide design support to field units. It would be assisted by localconsultants, who would be responsible to the General Director.

Implementing Agencies

5.06 VOM. The overall responsibility for planning, construction andoperation and maintenance of the project as well as keeping project accounts(para 5.27) would rest with VOM. It will finalize the design, prepare andevaluate bids, and coordinate construction. Construction of the tertiaryirrigation system and farm roads, as well as soil improvement measures wouldbe carried out by VOM on force account.

5.07 Bankkos. All financial contributions to the project from the Federaland Provincial Funds and other local sources would be channelled to VOM throughBankkos. This Bank would also be a source of credit to farmers in the projectarea (para. 5.15).

B. Operation and Maintenance

5.08 Irrigation Component. The irrigation works including the Dam wouldbe operated and maintained by BOAL Hydro-System Radenic. Kosovoprojekt wouldassist the BOAL in the Dam's operation and maintenance. To assure the Dam'ssafety, VOM would arrange, at intervals of not more than five years, a formalinspection of the Dam and appurtenant structures to determine any actual orpotential deficiencies in the condition of these structures or in the qualityof their maintenance or methods of operation which may endanger their safetyand to take any remedial action necessary. A copy of each inspection reportwould be forwarded to the Bank. During negotiations agreement was reachedto this effect.

5.09 The irrigation works would be operated and maintained by the fourSector Offices of the Operations Division of the BOAL Hydro-System Radenic(para. 5.04). Each sector would service about 2,500 ha and would be staffedby a maintenance engineer, a skilled technician, and a storekeeper. Fieldoperation staff (ditchriders) would cooperate with extension units to promoteproper use of irrigation water. The staff would also record acreage and hoursof irrigation and prepare water use data.

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5.10 Water Supply Component. The water supply facilities, except forthe distribution systems for the towns of Djakovica and Orahovac and thewater treatment plant, would be operated and maintained by the four sectorsmentioned above (para. 5.09). The towns of Djakovica and Orahovac wouldoperate and maintain their distribution systems through the existing waterdepartments (Vodovods), as at present. The water treatment plant would beoperated by BOAL Hydro-System Radenic, but under the separate control of achemist manager, who would be assisted by technicians.

5.11 The BOAL Hydro-System Radenic would supply potable water fromsource to faucet for consumers in rural areas and directly to industry inZrze and to the towns of Djakovica and Orahovac on the basis of metered bulksupply.

5.12 The annual operation and maintenance cost of project facilitiesis estimated at about Din 31.4 million (US$1.7 million). Of this, about Din24.7 million (US$1.4 million) would be chargeable to the irrigation componentand Din 6.7 million (US$0.3 million) to the water supply component.

C. Boundary Adjustment

5.13 Because of the irregular and scattered nature of private holdings,it would have been desirable to carry out land consolidation and to designthe on-farm irrigation system accordingly. Although appropriate legislationexists, land consolidation has not been successful because of farmers' resis-tance. For this reason, the on-farm irrigation system for private farmers hasbeen designed on the basis of minor boundary adjustments rather than landconsolidation. A law which allows for boundary adjustment has been passed bythe Assembly of Kosovo. Farmers in the project area have been consultedon boundary adjustment and have agreed in principle to this proposal. Somefarmers have volunteered to carry out boundary adjustment between themselvesand to demonstrate the proposed irrigation method. It is expected that thefarmers would adopt the proposed system without undue delay. Assuranceswere obtained during negotiations that farm boundaries would be adjusted,when and wherever necessary, to permit a regular irrigation layout.

D. Support Services

5.14 The social sector would strengthen its technical staff to meet itsown needs, and would continue to provide extension service to the privatefarmers. In addition, the project would provide for and equip six extensionunits to serve the private sector. These units would be under the Hydro-SystemRadenic and would be staffed with three extension agents who would be Univer-sity graduates; each unit would serve about 1,200 ha. Technical supervisionwould be provided to the extension units by appropriate national agricultural

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institutes. VOM would also provide on-the-job training and short technicalcourses for the benefit of its staff. Existing agricultural research stationswould provide necessary technical assistance to the project area. Experi-mental farms would also be established within the project area to supplementthe research efforts. During negotiations VOM agreed to employ at all timessufficient agricultural saf-' -- me_i 'he project needs.

E. Credit

5.15 Bankkos would continue to be the major source of agriculturalcredit in the project area. It has two existing branches in Prizren andDjakovica and an office in Orahovac, all of which would be expanded to serveprivate farmers and social enterprises. In addition, Agro-Kosovo kombinatwould set up its own in-house bank to act as a clearing mechanism for de-posits and loan application of its member organizations and private farmerswho cooperate with them. VOM would have power to certify credit needs ofindividual farmers, who would then be able to approach Bankkos directlywith loan applications rather than through social sector enterprises asat present.

5.16 With the project, medium and long-term credit requirements offarmers would increase. About Din 68 million (US$3.8 million), includingcontingencies, would be required to purchase portable irrigation equipmentfor the social and private sectors. During negotiations, assurances wereobtained that Government of Kosovo would ensure that adequate credit wouldbe made available by Bankkos to the farmers at standard terms applicable toother borrowers of such funds (paras. 3.17-3.20). The use of equipment byfarmers would be prescribed by the irrigation system installed, leaving littleroom for misallocation of resources.

F. Marketing

5.17 Project output would be marketed by the existing trade organi-zations (para. 3.21 and Annex 3), but marketing facilities would need tobe improved. The project would provide funds for expansion of farm roadsto enhance transport of commodities. As a part of an integrated develop-ment program for the project area, there is a plan to establish four vege-table collecting centers; construct a packing plant and cooling station forvegetables in Zrze; provide trucks to transport commodities to differentmarkets; and expand capacities of an existing sugar factory and a vegetableprocessing/canning plant. These new facilities would not be essential forthe project until 1983 when substantial incremental production is attained,ar, therefore _re not in-luded in the project. Assurances were obtainedduring negotiations that the Government of Kosovo would ensure that thesemarketing facilities would be made available to the project prior to 1983.

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G. Recovery of Project Costs

5.18 General. For the purpose of project analysis, investment and opera-tion and maintenance costs of project facilities, common to the irrigation andwater supply components, have been allocated to each component in proportion tothe volume of water to be utilized. These costs would then be recovered fromthe beneficiaries through water charges. Irrigation charges would be based onfarmers' ability to pay.

5.19 Irrigation Component. The maximum feasible level of water charge,which is equivalent to the project rent, is estimated at about Din 5,000(US$278) per ha in constant 1976 prices. It is not appropriate to recoverall of the project rent from the smallholder private farmers because they areamong the poorest in Yugoslavia, having an average per capita consumptionlevel equal to about 50% of the critical consumption level in the country.It would have been socially desirable not to recover project costs from suchbeneficiaries at all. However, to generate adequate revenues for VOM to meetthe operation and maintenance costs of the project facilities, about Din 3,000(US$167) per ha or 60% of the project rent would be recovered from the privatefarmers. The kombinats would pay higher water charges as, in addition to thedirect benefits, they would also gain substantially due to an increased supplyof sugar beet to their factories at costs lower than they pay at present; thecurrent major source being 200 km away from the project area. Therefore, thefull project rent of Din 5,000 (US$278) per ha would be recovered from thekombinats. The actual water charges to be levied on the farmers as well asthe kombinats would be agreed with the Bank for the first time in 1979 andlater on periodically as the need arises. The agreed water charges would berecovered from the beneficiaries at full rate in the fourth year followingcommencement of irrigation; for the first three years the charge would beincreased gradually. During negotiations it was agreed that (a) VOM wouldcollect, from commencement of irrigation, water charges annually at rateswhich would be agreed with the Bank and review these rates periodically inconsultation with the Bank; and (b) the rates for the kombinats would alwaysbe higher than those for the private farmers.

5.20 The present value of project charges calculated on the basis ofproposed rates in para 5.19 and in constant 1976 prices and discounted atabout 10% is estimated at Din 292.0 million (US$16.0 million). This wouldrecover 100% of the operation and maintenance costs and about 10% of theinvestment costs over the assumed project life of 40 years. The Cost RecoveryIndex would amount to about 30%, the Benefit Recovery Index would be about25%, and the Rent Recovery Index about 55%. Details are in Annex 12.

5.21 Water Supply Component. Investment costs and operation and main-tenance costs of water supply facilities would be recovered through a watertariff. This tariff has been set at the level of long-run average cost ofdomestic and industrial water, which at a discount rate of about 10% isestimated at about Din 4.32/m3 in 1976 domestic market prices. Adjusted

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for inflation, this would be sufficient to produce a financial rate of returnof 7% by 1981, the first year of full supply. During negotiations, assuranceswere obtained that VOM would impose charges for potable water sufficient toprovide, in any given year, revenues to cover all administrative and operatingexpenses (including depreciation) incurred in providing the supply and inaddition to provide a rate of return on the fixed assets employed of not lessthan 7% by the year 1982 and thereafter. Although such a price represents aconsiderable increase over the present charges for domestic supplies in theproject area, it is broadly consistent with the charges levied under otherBank-assisted projects in Yugoslavia. Since about two-thirds of the expectedconsumption is accounted for by bulk supplies to the towns of Djakovica andOrahovac, it is not considered practical to attempt to apply separate tariffsto industrial and domestic consumers.

H. Financial Performance of the Borrower

5.22 Past Performance and Present Financial Position. In each of thepast three years, VOM earned a small net income, although the rate of returnon assets employed was under 2%. At the end of 1975, its debt/equity ratiowas 35:65 and it held cash balances of Din 1.2 million, equivalent to about25% of past average annual capital expenditure. However, the proposed proj-ect will expand the nature and scale of VOM's operations to such an extentthat past financial results are not useful as a guide to future performance.

5.23 Future Financial Performance. The sale of potable water will pro-duce a positive rate of return on the attributable assets from the outset,rising to 20% by 1987. However, the constraints on pricing the irrigationservice (para 5.19) mean that this activity will incur operating losses,reducing the financial rate of return to the project to 3% in that year.The other activities of VOM will by then be so small in comparison to theoperation of the project as to have no significant effect on VON's overallrate of return.

5.24 All the funds for project construction will be provided in theform of loans from IBRD and Bankkos. The loans have repayment terms of 12and 20 years respectively, compared with a project life of approximately40 years. Taken in conjunction with the low rate of return, this situationimposes on VOM a debt service burden which is beyond its capability to sup-port from operational cash flow; for practical purposes this condition maybe expected to persist, though to a diminishing extent, until retirement ofthe IBRD loan in 1992. Therefore, a second financing plan has been developedto provide VOM with the funds it requires during this period. The plan com-prises grants towards interest payments by Kosovo, and partial refinancingof the original project loans by a second loan from Bankkos to be repaid over25 years beginning in 1993. Details of both financing plans are in Annex 13;the assurances necessary to implement them were received at negotiations fromGovernment of Kosovo and Bankkos.

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5.25 The effect of these arrangements is to secure a small positive cashflow for VOM in each of the years following project completion. Although theenterprise will be entirely debt-financed for a number of years, it canreasonably be expected to be capable of servicing this debt unaided by 1992,and to develop an increasing degree of self-financing thereafter. Projectedfinancial statements, and an explanation of the assumptions on which they areconstructed, appear in Annex 14.

I. Accounts and Audit

5.26 The greatly increased scale of operations envisaged by the projectwould place significantly greater demands on VOM's accounting system andstaff. In particular, the creation of the proposed BOAL Hydro-System Radenicwould call for an increased analytical capability in order to distinguish theseparate results of its irrigation and water supply activities. During nego-tiations, assurances were obtained that VOM would (a) recruit suitably quali-fied personnel to ensure that its accounting department is adequately staffed;(b) within six months after appointment of the Finance Director of VOM (para5.03), review and, if necessary, modify its accounting procedures to ensurethat they are capable of providing timely, relevant and accurate informationon current financial performance and future projections. VOM would keepseparate accounts which show (a) all project expenditures including thoserelated to goods and services financed out of the proceeds of the proposedBank loan; (b) overall financial position of VOM; and (c) separate financialresults of BOAL Hydro-System Radenic, distinguishing its irrigation and watersupply activities.

5.27 VOM's financial statements are prepared in accordance with Yugoslavaccounting law and the national code of accounts, and their format is ac-ceptable to the Bank. During negotiations, assurances were obtained thatthese accounts would be submitted to the Bank annually within four months ofthe close of the Yugoslav fiscal year. They would be audited by the SocialAccounting Service of Yugoslavia (SAS). Recently, a special group of SASinspectors has been trained in carrying out audits to international standards.

J. Monitoring of Key Project Indicators

5.28 The Borrower would arrange to carry out a base survey before startof the first irrigation season in 1979 and thereafter furnish to the Banknecessary information through periodic reports for review of progress towardsattainment of project objectives. The information would include data onphysical implementation of the project; procurement and disbursement; projectcosts; type, amount and terms of credit to farmers; area under irrigation inthe private and social sectors; cropping pattern and yields; farm-gate pricesof inputs and outputs; annual costs of producing crops; water charges; wagesto employees of the kombinats and incomes to typical farm models representingsmallholder private farmers; and population benefiting from domestic watersupply.

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VI. BENEFITS AND JUSTIFICATION

A. Crop Production

6.01 Presently, the project land is mostly dry farmed with winter cerealsand maize occupying about 56% of the cropped area. The estimated gross annualproduction (at 1975 domestic farm-gate prices) amounts to Din 95.0 million(US$5.3 million). Without the project, rainfed cultivation would continueand the cropping pattern would not alter. But yields could improve by about10-20% due to application of improved technology and better farm managementpractices; further yield increases would be constrained by moisture deficits,drainage and soil management problems. Without the project, the future grossvalue of production would increase to about Din 115 million (US$6.4 million).

6.02 With the project, the cropping pattern would change in favor ofcrops which are relatively more responsive to irrigation. Cropped area wouldbe increased by about 2,070 ha due to an increase in cropping intensity toabout 117% and reclamation of about 300 ha of wooded lands. Areas under maize,sugar beet, vegetables and alfalfa would increase substantially, mainly atthe expense of wheat. Because of adequate and secure irrigation supplies,increased fertilizer applications and better drainage and soil managementpractices, incremental yields of crops would be as follows: wheat 40%, maize85%, sugar beet 60%, vegetables 50%, alfalfa 160%, fruit trees 35%, and allother crops 30-50%. Projected yields from any given area would be obtainedsix years following initial irrigation in the private sector and four yearsin the social sector. Yields and their development are based on experimentalresults and on experiences gained from other irrigation projects in the region(Annex 1).

6.03 Cropped area and output of various crops at present and in futurewithout and with the project are detailed in Annex 1, and summarized below:

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Cropped Area OutputPresent and Present Future Incremental

Future Without Future With Without WithProject Project Project Project

----------- ha ------------- ---------- '000 tons --------

Wheat 2,810 1,080 7.4 8.8 4.9 (3.9)Maize I 2,700 1,160 7.2 8.1 7.1 (1.0)Barley 270 340 0.6 0.8 1.4 0.6Sunflower 280 320 0.5 0.6 0.8 0.2Beans - 140 - - 1.4 1.4Peas 370 580 1.3 1.5 3.8 2.3Sugar beet 160 1,470 4.2 4.7 66.2 61.5Vegetables /1 300 1,400 6.4 7.3 49.0 41.7Fruit /2 340 1,270 6.8 8.2 41.4 33.2Grape 720 720 5.8 7.2 10.1 2.9Alfalfa (Hay) 590 1,760 2.5 2.7 21.2 18.5Meadows &

Pastures 1,400 - /5 - - -Maize II - 1,770 - - 8.5 8.5By-Products /3 - - 17.2 19.8 45.4 25.6

Total 9,940 12,010Gross Value

(Din million) /4 95.0 115.0 330.0 215.0

/1 Mainly tomatoes and pepper./2 Primarily apples.T3 Stalks of wheat, barley, beans and peas, corn cobs and sugar beet leaves./4 In 1975 (normal crop year) domestic farm-gate prices./5 Not harvested.

Full project benefits would be realized in 1987, eight years following com-mencement of irrigation. At full development, the annual gross value ofproduction would amount to Din 330.0 million (US$18.3 million).

B. MIarkets

6.04 Despite substantial increases in production expected from theproject, the incremental outputs would represent only minor proportions oftotal national production. The additional production of main project com-modities such as sugar beet (61,500 tons), vegetables (41,700 tons), fruit(33,200 tons) and maize (7,500 tons) would account for only about 1% each,of total national production of these commodities by 1980. Similarly, theincremental output of grapes, sunflower and barley would not exceed 0.2% ofexpected production of these commodities in 1980; output of wheat woulddecline slightly.

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6.05 No serious marketing problems are foreseen for the project's out-put. The entire incremental output of cereals, fruits, sugar beet (sugar)and alfalfa, and most of the additional output of vegetables would be usedto satisfy a growing domestic demand. A small portion of project output ofvegetables and all additional output of grapes (wine) and sunflower wouldbe exported and the market outlook for these exports is favorable. Detailson markets are in Annex 3.

C. Prices

6.06 The socio-political system in Yugoslavia accepts the concept of theprice system as a guide for resource allocation, though with major qualifica-tions. Prices are generally free to respond to changes in demand and supplyexcept for limited Government control over markets for a few selected commo-dities. For wheat and maize, the Government provides farmers with modestpremiums above market prices. Prices of all other project commodities aredetermined by free interplay of market forces except those of sunflower andsugar beet where minimum official prices apply. In general, however, thefarm-gate prices of most commodities are about the same as prices elsewherein Yugoslavia and are in line with IBRD forecasts of World prices of similarcommodities for 1975-85. For these reasons, the actual average post-harvestprices for 1975 (which was a normal crop year), net of all subsidies, areused for the economic analysis of the project. For farm budget analysis,however, the farm-gate prices including all subsidies are used. Project out-put of crops is not expected to have significant influence on the domesticand international markets for these commodities. Prices of output used forappraisal of the irrigation component are in Annex 15, Table 11.

D. Producers' Income

6.07 Three farm budgets were prepared to show the irrigation component'simpact on incomes to smallholder private farmers. These include a 1.5 havegetable farm; a 4 ha and an 8 ha field crop farm. These farm models repres-ent all smallholders in the project area who derive their incomes entirelyfrom farming.

6.08 The farm budgets show that the present household income for all farmmodels amounts to about Din 21,790 (US$1,210). This is equivalent to a percapita income of about Din 2,720 (US$150), which is below the upper limit ofincome to the poverty target group in Yugoslavia. The average household in-come would increase by 26% to Din 27,400 (US$1,520) in the future withoutthe project. The project would increase the farm income by a further 117% toDin 59,360 (US$3,300) and the average per capita income to Din 7,420 (US$412).Details are given in Annex 12.

- 25 -

6.09 The impact of the project on wages of workers in the kombinats isnot clear as their wages depend on the total income and profit of the kombi-nats including their profits from non-project activities such as processing.Presently, the workers are paid a minimum wage of about Din 150 (US$8.30) perday or an equivalent of about Din 36,300 (US$2,020) per year. This is likelyto be increased in future with the project.

E. Main Benefits and Beneficiaries

6.10 Main Benefits of Irrigation Component. The major quantifiabledirect benefit of the project would be a substantial increase in the produc-tion of crops. At full development, net incremental benefits at efficiencyprices would amount to about Din 112 million (US$6.3 million) per year. Inaddition, the project would help to alleviate underemployment particularlyof smallholder private farmers, and would about double the labor productivityfrom the present level of about Din 9,000 (US$400). It would also reduceinstability in crop production and help a sugar factory in the area by pro-viding cheaper source of sugar beet.

6.11 Main Benefits of Water Supply Component. The main benefit of thewater supply component would be improvement of the health and standard ofliving of the inhabitants at the project area by providing them with potablewater. The project would also help industrial expansion in the towns ofDjakovica, Orahovac and Zrze.

6.12 Beneficiaries. Principal direct beneficiaries of irrigation wouldbe about 2,200 smallholder and poor private farmers and their families. Theproject is also expected to increase profits to the social sector and incomesto its workers. Ultimately, indirect beneficiaries would include otherresidents of Kosovo through increased and stable supplies of food.

6.13 The water supply component would benefit the entire population ofthe project area (presently 64,700) which is expected to more than double bythe year 2000. It would also benefit growing social sector industrial enter-prises within the project area, and a rising livestock population which isowned by private farmers.

F. Economic Rate of Return

6.14 The economic rate of return on all project components is estimatedat about 11%. Assumptions used in computing the rate of return and resultsof sensitivity analyses are in Annex 15.

6.15 Irrigation Component. The economic rate of return on the irriga-tion component is estimated at about 11.1%. The investment cost at borderprices is estimated at Din 94,440 (US$5,250) per ha. The high investment cost

- 26 -

results (a) from the design of the subproject to fit the needs of smallfragmented holdings, and (b) inclusion in phase I costs of those commonfacilities which would serve both phases I and II of the project. If landconsolidation was practical, investment costs would have been lowered by about5% and the economic rate of return would have increased from 11.1% to 11.4%.Prorating of costs of project facilities which would benefit both phases I andII would have increased the rate of return on phase I to 13%. The rate ofreturn would increase to 13.8% if land consolidation was practical and if itwere possible to realistically quantify the benefits from phase II facilities.

6.16 Total cost of the irrigation component of the project, excludingprice contingencies, and taxes and duties, is equivalent to about Din 270,000(US$15,000) per family. This is high although it is not unusual when comparedwith other irrigation projects elsewhere. The beneficiaries have limitedopportunities for gainful employment outside of agriculture. Their incomelevel productivity can be increased only through development of agriculture,but the development of agriculture is constrained by shortage of soil moisture.

6.17 Water Supply Component. The project represents the least cost solu-tion to the water supply problems of the project area. Using incremental re-venues as minimum measures of economic benefits, existing water tariffs resultin a negative economic rate of return. This demonstrates that existing chargesfor potable water are inadequate to cover the incremental cost of additionalwater. Based on estimated long-run average cost of potable water (para. 5.21)and assuming quantifiable benefits as minimum measures of economic benefits,the economic rate of return on the water supply component is computed at about10.9%.

VII. RECOMMENDATIONS

7.01 During negotiation agreement was reached on the following mainpoints:

(a) Construction and equipment contracts listed in Annex 10 wouldbe awarded in accordance with Bank guidelines (para 4.21).

(b) VOM would employ:

(i) at all times a General Director experienced in the opera-tion of irrigation systems and water supply networks;

(ii) in consultation with the Bank a suitable qualified Finan-cial Director;

(iii) suitable, qualified Director and Finance Director forBOAL Hydro-System Radenic;

(iv) at all times sufficient agricultural staff to meetproject needs; and

- 27 -

(v) suitable qualified personnel for its accounting depart-ment (paras 5.03; 5.05; 5.14; and 5.26).

(c) VOM would create Hydro-System Radenic under arrangementssatisfactory to Kosovo, VOM and the Bank prior to December 31,1978 (para 5.04).

(d) Farm boundaries would be adjusted when and wherever necessaryto permit regular irrigation layout (para 5.13).

(e) VOM would collect:

(i) from commencement of irrigation water charges annuallyat rates which would be agreed with the Bank, andreview these rates periodically in consultation withthe Bank. Rates for the kombinats shall always behigher than those for the private farmers, and

(ii) charges for potable water sufficient to provide, inany given year, revenues to cover all administrative andoperating expenses incurred in providing the supply andin addition to provide a rate of return on the fixed assetsemployed of not less than 7% by the year 1982 and thereafter(paras 5.19 and 5.21).

(f) Government of Kosovo and Bankkos would implement financingplans as outlined in Annex 13 (para 5.24).

7.02 The appointment of a Finance Director for VOM would be a conditionof effectiveness for the proposed loan (para 5.03).

7.03 With agreement on the assurances sought and fulfillment of theproposed conditions, the proposed project would be suitable for a Bank loanof US$54 million to VOM under a guarantee of the Socialist Federal Republic ofYugoslavia. The loan would be repayable over 15 years with a three years graceperiod at an interest rate of 8.7%.

December 23, 1976

ANNEX 1Page 1

YUGOSLAVIA

METOHIJA MULTIPURPOSE PROJECT

Agriculture

Organization of Production and Farm Size

1. General. One of the most important characteristic features ofthe Yugoslav Agriculture is the existence of two separate sectors, socialand private, with different farm structures. The social sector includes:(a) agro-industrial kombinats (integrated factory farms); (b) agriculturalkombinats (both general agriculture and livestock farms); and (c) generalagricultural cooperatives. These organizations operate under the principlesof social ownership of means of production and workers self-management. In1973, the social sector owned and operated 15% of the agricultural land inYugoslavia, employed 6% of the total agricultural manpower, and produced33% of the agricultural output. During the same year, there were 1,745social sector holdings averaging 1,250 ha. The private sector comprisesabout 96% of the agricultural population and owns and operates about 85%of the agricultural land. The size of private holding is presently limitedto a maximum of 10 ha of arable land.

2. In the Socialist Autonomous Province of Kosovo (KOSOVO) thedominant social organizations are the kombinats and the cooperatives. UntilOctober 1, 1972 there were 6 kombinats and 33 cooperatives. However, aftera referendum of the workers' council in 1972 the larger of the social under-takings have been integrated into the enterprise, "Agro-Kosovo", which iscomposed of the following nine social enterprises:

(i) all kombinats Prizren, Pec, Pristina, Orahovac, Djakovica,and Klina;

(ii) two production cooperatives Lipljan and Orahovac; and

(iii) one grain mill "Zito Promet", Pristina.

3. The private sector of the Kosovo consists of 108,000 small holdings,about 58% of which average 3 ha or less. The Government is currently con-sidering a limited land reform which, if realized, would extend the maximumsize of private holding from 10 ha to 20 ha. The reform would also allowfarmers to divide the land among family members. Productivity of the privatesector lags behind the social sector due to inferior land, seeds, livestockbreeds, lower fertilizer consumption, limited mechanization and inadequateextension services.

ANNEX 1Page 2

4. Farm Size in Project Area. Of the project area of 10,250 ha,about 3,300 ha would be owned and operated by Agro-Kosovo Kombinat. Theremaining 6,950 ha is private freehold. About 80% of the smallholdersown less than 5 ha, and the remaining 16% own and operate 5-10 ha each.Holdings are scattered, averaging 7.3 parcels, and the minimum size ofindividual plot is about 0.1 ha. The law of "Land Redistribution, Consolida-tion and Boundary Adjustment" (Official Gazette No. 32/76) and the "LandSurvey and Cadastre Law" (Official Gazette SAP Kosovo No. 12/73) provide forland consolidation and boundary adjustment. Land consolidation has never beensuccessfully implemented in Kosovo or in Yugoslavia as, because of traditionaland social ties, farmers have resisted to exchange part of their lands. TheBank financed Ibar Multipurpose Project has suffered delays because of landconsolidation and the Bank agreed to implement boundary adjustment. Forthe present project only boundary adjustment would be implemented and theirrigation system has been designed to serve smallholders, provided boun-daries are adjusted, but without requiring land consolidation. The projectauthority has started to promote use of individual sprinklers on 50m long"garden hoses" among smallholders and 18 farmers owning a total area of 40 hahave volunteered to implement boundary alignment and demonstrate applicationof this irrigation method which is suitable for irrigation of small plots.The method is simple and it is expected that farmers would adapt to the newtechnology without undue delay.

Natural Resources

5. Climate. Metohija has a continental climate with mediterraneaninfluence. Temperature vary from an average minimum of -5.80C in January toan average maximum of 29.10C in August. Frosts occur between November 1 andApril 1. The annual potential evapotranspiration (Penman) has been estimatedat about 1,300 mm with 75% occuring during the growing season. Maximum aver-age daily evapotranspiration amounts to 6.5 mm per day in July. Strong windswith speeds about 12 m/sec were recorded during 16 days per year and the per-centage of calm days is about 37%. Annual rainfall averages 844 mm withabout 90 rainy days per year, but only 23 days with precipitation exceeding10 mm. Rainfall is least during June to September (25%) and greatest duringNovember to February (42%). Variations from year to year are large. Thewater deficit in the growing season (April-October) amounts to about 700 mm.Table 1 summarizes climatic data in the project area.

6. Soils. Soils in the project area are suitable for irrigated farming,but some would require improvements in drainage, liming, fertilization and/orerosion control. The soils in the project area are alluvial and colluvialsoils, pseudogleys, vertisols, gleys and semigleys. Alluvial soils developedfrom transported and relatively recently deposited material along the mainrivers in the area. They are of variable texture and in general do notpresent management problems, but some areas require drainage. Colluvialsoils developed from foothill deposits. Slopes are gentle to moderateand physical and chemical characteristics are favorable for agriculture.

ANNEX 1Page 3

Pseudogleys consist of an upper layer of clay soil of good structure andphysical characteristics but of high acidity. At depths of about 70 cmthe profile shows a dense acid clay layer. The main constraints of thesesoils are poor drainage and high acidity. Vertisols are dark colored, ofheavy texture with a high content of swelling clay minerals, which whendry resul, ln 1eep and wide c:7acks. These vertisols are susceptible toerosion from runoff water. Gleys and semigleys are of varying texture andsubject to a fluctuating water table. They are presently used as meadows.

7. Land Classification. Based on land capability study, about 17%of the project area is classified as belonging to class I, 35% to class IIand 48% to class III.

8. Drainage. Based on results obtained under similar conditions inBosnia and experimentation in the project area, vibratory subsoiling withphosphate injection combined with mole drainage or tile drainage would becarried out on slightly sloping (less than 3%) pseudogley soils. The moles(at 70 cm depth) would discharge into collector drains at a depth of 1 m.Localized perched water tables would also be drained. Material from localmarl deposits would be used to correct acidity.

Present and Future Land Use, Yields and Production

9. Present and future land use, yields and production are summarized inTables 2 and 3. The project area is presently dry farmed with cereals occupy-ing 56%, alfalfa 6%, orchards and vineyards 10%, and other crops (sugar beet,sunflower, peas and vegetables) 11%. About 17% is presently occupied bymeadows or forest of little economic value. Present yields are low becauseof moisture deficits during the growing season, inadequate drainage and poorsoil management practices. Yields of private farms are slightly below thoseof the social sector, mainly due to lower levels of technology and inadequatefarm equipment. Orchards and vineyards are cultivated on trellises. Totalproduction presently amounts to 8,000 tons of wheat and barley, 7,200 tons ofmaize, 6,400 tons of vegetables, 4,200 tons of sugar beet, 6,800 tons of ap-ples and 5,800 tons of wine grapes. The cropping pattern is not expected tochange in the future without the project but yields would improve slightlydue to improvement in farm management practices. Yields of fruit trees andvineyards and winter crops could increase by about 20% and of summer crops byabout 10% in the next 5 years. Any additional increase would require irriga-tion, drainage and/or substantial soil improvement measures such as thoseprovided for under the project.

10. With the project, the cropping pattern would change. Areas undermaize, sugar beet, vegetables and alfalfa would increase substantially atthe expense of mainly wheat. Cropped area would increase by about 2,070ha due to an increase in cropping intensity by about 17% and reclamation ofabout 500 ha of wooded land. Choice of crops and crop rotations take intoaccount soli conditions. Vegetables and fruit trees are mostly grown onthe alluvial soils. Maize would be cultivated as second crop after peas,

ANNEX 1Page 4

beans, and winter cereals. Incremental yields would be as follows: wheat(40%); maize (85%); sugar beet (60%); vegetables (50%); alfalfa (160%);fruit trees (35%); and all other crops (30-50%). Peak yields from anygiven area would be obtained six years following initial irrigation in theprivate sector and four years in the social sector. About 50% of the in-cremental yields in the private sector would be obtained during the firstyear of irrigation, 70% during the second year and 80%, 90%, 95% and 100%during the third, fourth, fifth and sixth year respectively. In the socialsector, 50% of incremental yields would be obtained in the first year ofirrigation, 75% in the second year, 90% and 100% in the third and fourthyear respectively. These projections are based on experimental results 1/,experiences gained from other irrigation projects in the region, and studiescarried out with OECD assistance.

Farm Inputs

11. Farm Machinery and Labor. Under the project, land preparationand harvesting of field crops would be mechanized to assure that a secondcrop can be grown on time. The relatively heavy texture of soils and theamount of rainfall during land preparation and harvesting make timely andadequate operations with animal traction difficult. There is an adequatesupply of farm labor in the project area. Smallholder private farmerswould satisfy their own labor requirements. Part of the demand for laborby the social sector would, however, be satisfied with temporary laborsupplied by the private sector.

12. Seeds. Improved seeds are available and would be used in theproject area. There are various National Institutes for AgricultureProduction which are responsible for production and distribution ofimproved seeds through agro-kombinats and cooperatives. Vegetable seedsare also available through local merchants. Agro-kombinats operatenurseries for fruit trees.

13. Fertilizers and Plant Protection Materials. The present con-sumption of fertilizers in the project area amounts to about 550 tons ofN, 450 tons of P205 and 350 tons of K20. Future recommended doses assume

10 tons per ha of animal manure for vegetables, maize, sunflower, sugarbeet and orchards. With the project, fertilizer consumption would increaseto about 1,100 tons N, 1,100 tons P205, and 900 tons K20. A summary of

estimated future fertilizer demand is presented below:

1/ Experimental results per ha: Apples 45 tons, grape 22 tons, sugarbeets 70 tons, vegetables 50 tons, maize 10 tons.

ANNEX 1Page 5

Nutrient Consumption

Crops N P2 05 K20

-- kg/ha/year------

Wheat 120 60 30Barley 100 60 30Maize 1 120 120 120Maize 2 120 120 120Sugar beet 120 120 120Sunflower 70 70 70Peas 100 100 100Pepper 100 100 100Tomatoes 100 100 100Beans 100 100 100Alfalfa - 80 -Vineyards 150 150 150Orchards 90 70 50

A wide variety of chemical fertilizers and plant protection materials areproduced in Yugoslavia. Organization of the distribution system for thesechemicals is adequate, and private farmers could buy the chemicals from localagro-kombinats, cooperatives or private retail outlets.

Research and Extension Services

14. The social sector maintains its own staff of technicians and onspecial matters is advised by various Agricultural Institutes of Belgrade.Applied research is carried out on agro-kombinats. The social sector givestechnical assistance to private farmers for crops that are of interest totheir own processing industry. This extension service to farmers is defi-cient and does not satisfy present or future needs. The project wouldprovide and equip 6 extension units for the private sector each coveringabout 1,200 ha. Each unit, which would have about 3 extension agents, wouldbe directly responsible to VOM. VOM has an ongoing agreement with differentAgricultural Institutes in Belgrade (Soil Science Institute, Institute forMechanization, Institute for Cereals and Maize, Institute for Oil Crops,Institute for Livestock) to provide the necessary subject matter specialiststo assist its agriculture service and to provide the necessary training forlocal technicians.

December 23, 1976

ANNEX 1Table 1

YUGOSLAVIA

METOHIJA MULTIPURPOSE PROJECT

Climatic Data

Month Temperature Relative HumidityMaximum Minimum Average Rainfall Average Minimum Evaporation

(OC) (°C) (0 C) (mm) (%) (%) (mm)

January 3.2 -5.8 0.0 85 88 57 6

February 7.6 -2.8 2.6 78 84 44 21

March 11.1 1.1 6.1 65 72 25 52

April 17.7 5.1 11.8 65 71 26 107

May 22.6 8.7 16.8 77 67 33 144

June 25.7 11.6 20.4 58 70 42 173

July 28.2 12.6 22.4 51 72 37 195

August 29.1 12.4 22.5 43 67 32 169

September 24.3 9.4 18.2 60 77 41 109

October 19.6 5.5 12.3 70 75 38 41

November 13.4 2.9 7.8 99 84 43 10

December 5.9 -1.9 2.8 93 89 62 10

Total 844 1,037

Average 17.4 4.9 12.0 76 40

December L9l6

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Land Use, Yields and Production

SOCIAL SECTOR PRIVATE SECTORPresent Future Without Project Future With Project Present Future Without Project Future With Project

Crop Area Yield Production Area Yield Production Area Yield Production Area Yield Production Area Yield Production Area Yield Productionha ton/ha ton ha ton/ha ton ha to7a -ton h a ton/ha toht naon h a ton/ha ton h Ta- ton/na ton

Existing Orchards /i 330 20.0 6,600 330 24.0 7,920 330 30.0 9,900 10 15.0 150 10 18.0 180 10 25.0 250New Orchards /1 - - - - - - 650 35.0 22,750 - - - - - - 280 30.0 8,400Vineyard 720 8.0 5,760 720 10,0 7,200 720 14.0 10,080 - - - - - - - - -Wheat 755 3.0 2,265 755 3.5 2,643 200 4.5 900 2,055 2.5 5,138 2,055 3.0 6,165 880 4.5 3,960

Barley 195 2.5 488 195 3.0 585 160 4.5 720 75 2.0 150 75 2.5 188 180 4.0 720

Maize I 330 4.0 1,320 330 4.4 1,452 170 7.0 1,190 2,370 2.5 5,925 2,370 2.8 6,636 990 6.0 5,940

Maize II /2 - - - - - - 550 5.5 3,025 - - - - - - 1,220 5.0 6,100Sugar Beet 50 30.0 1,500 50 33.0 1,650 200 45.0 9,000 110 25.0 2,750 110 28.0 3,080 1,270 45.0 57,150

Sunflower 170 2.0 340 170 2.2 374 170 3.0 510 110 1.5 165 110 1.7 187 150 2.5 375

Peas 260 3.5 910 260 4.2 1,092 295 6.5 1,918 110 3.5 385 110 4.2 420 285 6.5 1,853Beans - - - - - - 140 1.4 916 - - - - - - - - -

Vegetables /3 - - - - - - - - - 300 21.0 6,300 300 24.0 7,200 1,400 35.0 49,000

Alfalfa 100 5.0 /4 500 100 5.5 550 260 12.0 3,120 490 4.0 1,960 490 4.4 2,156 1,500 12.0 18,000Meadow 390 3.0 /4 1,170 390 3.0 1,170 - - - 1,010 3.0 3,030 1,010 3.0 3,030 - -

Forest - - - - - - - - - 310 - - 310 - - - - -

Total: 330 3,300 - - 3_845 - - 6.950 - - 6-950 - - 8165 -_

/1 Based on apples.

/2 Second Crop.

/3 Based on tomatoes, pepper, melons etc.

4 Hay

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Cropped Area and Output

Crop Cropped Area __Ou t u t _ _ _

Present and Future Present Future IncrementalFuture Without With Without With

Project Project Project Project…____----…(ha) ------------ ----------------- ('000 tons)----

Wheat 2,810 1,080 7.4 8.8 4.9 (3.9)Maize I 2,700 1,160 7.2 8.1 7.1 (1.0)Barley 270 340 0.6 0.8 1.4 0.6Sunflower 280 320 0.5 0.6 0.8 0.2Beans - 140 - - 1.4 1.4Peas 370 580 1.3 1.5 3.8 2.3Sugar beet 160 1,470 4.2 4.7 66.2 61L5Vegetables/1 300 1,400 6.4 7.3 49.0 41.7Fruit/ 2 340 1,270 6.8 8.2 41.4 33.2Grape 720 720 5.8 7.2 10.1 2.9Alfalfa (Hay) 590 1,760 2.5 2.7 21.2 18.5Meadows and Pastures 1,400 - /5 - - -

Maize II - 1,770 - - 8.5 8.5By-products/3 - 17.2 19.8 45.4 25.6

Total 9,940 12_010

Gross Value (Din million)/4 95.0 115.0 330.0 215.0

/1 Mainly tomatoes and pepper./2 Primarily apples./3 Stalks of wheat, barley, beans and peas, corn cobs and sugar beet leaves./4 In 1975 (normal crop year) domestic farm-gate prices./5 Not harvested.

December 1976

ANNEX 2Page 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Agricultural Finance

A. Sources and Terms of Finance

1. The primary sources of agricultural finance in Kosovo include aProvincial Fund for Betterment of the Individual Sector, the Bank of Kosovoand Association of Communes.

2. The Provincial Fund. This was created in 1972 by the Kosovo Govern-ment to provide private farmers in relatively less developed communes finan-cial assistance to purchase improved quality seeds, farm machinery and otherinvestment items and to improve quality of livestock. A Board, consisting ofrepresentatives of private farmers, kombinats, cooperatives, agriculturalresearch institutions and the Ministry of Agriculture, controls and managesthe Fund.

3. The Fund receives contributions from the provincial budget whichpresently amount to Din 10.0 million (US$0.5 million) per year. About 30%of the total resources are utilized as grants to meet the cost of high-breedlivestock, poultry, hives, high quality seeds and artificial inseminationservices. The balance is loaned at 4% per annum repayable over eight years;farmers are required to contribute about 20% of investment costs financedthrough such loans. The financial assistance is routed through kombinats andcooperatives, thus limiting the beneficiaries to farmers who cooperate withthe social sector.

4. Bank of Kosovo (Bankkos). The Bank of Kosovo was founded in 1962as a development bank to channel and regulate use of resources for the devel-opment of Kosovo; it is also involved in commercial banking. Bankkos is oneof eight major banks in Yugoslavia and the sole administrator of public invest-ment funds in Kosovo. Its overall management is vested in an Assembly, whichdetermines general policies. Implementation of business policy and approvalof loans exceeding Din 100,000 (US$5,550) is the responsibility of an ExecutiveBoard, whose members are elected by the Assembly; smaller loans can be approvedby a Credit Board at the head office in Pristina. Bankkos has a well qualifiedstaff, about 30% and 10% of whom have received university and post-secondaryeducation, respectively.

5. Almost the entire resources of Bankkos for long-term investmentsare borrowed at low interest from the Federal Fund for Accelerated Developmentof Less Developed Regions. The Federal Fund consists of contributions fromall republics of Yugoslavia for use in development of poor areas, and is lentto Bankkos at an interest rate of 3% per annum. It has financed almost 40%

kNNEX 2Page 2

of Kosovo's development expenditures since 1971. Annual assistance to theprovince through the Federal Fund is expected to increase from the presentlevel of Din 2 billion (US$110.0 million) to Din 4 billion (US$220 million)in the near future.

6. In 1974, about 18% of credits sanctioned by Bankkos were allocatedto agriculture and a third of the agricultural loans were used for develop-ment of irrigation (Tables 1 and 2). Relending terms vary according to proj-ects and financial conditions of borrowing enterprises. In general, however,the loans are recovered in not more than 25 years and carry interest rate of3-4% per annum (Table 3); borrowers are required to meet about 10% of invest-ments financed through such loans.

7. Bankkos also sanctions a few advances for tractors directly toprivate farmers, but requires 50% participation and charges 12% interest withrepayment within 5 years. Short-term credits for production and storage ofagricultural produce, import of raw materials, general trading and marketingactivities are provided mostly from Bankkos own resources, including deposits,at 10-12% interest. To date, repayment records have been satisfactory.

8. Association of Communes. Seventeen of twenty-two communes in Kosovoprovince have their owr funds for extending financial aid to small farmers intheir respective areas.

B. Credit Arrangements for the Project

9. Bankkos would continue to be the major source of agriculturalfinance in the project area. It has two existing branches in Prizren andDjakovica and an office in Orahovac, all of which would be expanded to serveprivate farmers and social enterprises. In addition, Agro-Kosovo Kombinatwould set its own in-house bank to act as a clearing mechanism for depositsand loan application to its member organizations and private farmers who co-operate with them. It is expected that the project entity, VOM, would havepower to certify credit needs and financial soundness of individual farmers,who would then be able to approach Bankkos directly with loan applicationsrather than through social sector enterprises as in past practices.

10. With project, medium and long-term credit requirements of farmerswould increase. This would be needed primarily to purchase sprinklers,tractors and other equipment. It is expected that Bankkos would providefarmers in the project area with adequate short, medium and long termcredit. The Government of Kosovo would ensure that adequate credit wouldbe made available by 2ankkos to the farmers at standard terms applicableto other borrowers ofi such funds. The low interest rates, particularlyon loans from the Federal Fund, are unlikely to have serious resource

ANNEX 2Page 3

misallocative effect because (a) the choice of design for the on-farmirrigation system is based on the least cost solution of providing irrig-ation, given the structure and size of holdings, and (b) VOM, in collabora-tion with Bankkos, would have the opportunity to review the technical andeconomic appropriateness of farmers' choice of technology of productionbefore approving loans for such purposes.

December 23, 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Sectoral Allocation of Development Credits Sanctioned by Bank of Kosovo, 1973-1974

Sector Loans Sanctioned /1Total Increase (Decrease) Proportion in 1974

1973 1974 ------ ( %)--------- -- (- )…-- -----…------(Din million) ------

Industry and Mining 1,062.93 2,228.64 109.7 64.5Agriculture, processing,forestry, etc. 213.47 609.55 185.5 17.7

Construction 10.91 28.03 156.9 0.8Transportation 312.84 348.94 11.5 10.1Trade 34.59 115.05 232.6 3.3Tourism and Catering 99.95 49.02 (103.9) 1.4Handicraft 1.51 0.89 (69.7) -

Sub-total 1,736.20 3,380.12 94.7 97.8Non-Economic 89.33 74.18 (20.4) 2.2

Total 1,825.53 3,454.30 89.2 100.0

/1 As of December 31

December 1976

ANNEX 2Table 2

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Loans Sanctioned by Bank of Kosovo for AgriculturalDevelopment in 1974

Number of Total Loans Sanctioned /1Purpose Projects Amount Proportion

(Din million) (%)

Processing Capacity 8 181.82 29.8

Irrigation Works 2 178.96 29.4

Farm Machinery 25 82.27 13.5

Rehabilitation Credits 6 47.95 7.9

Livestock and Stables 4 47.66 7.8

Storage and Civil Works 10 30.78 5.0

Forestry 4 20.60 3.4

Revolving Funds 2 19.01 3.1

Orchards and Vineyards 2 0.50 0.1

Total 609.55 100.0

/1 As of December 31, 1974

December 1976

ANNEX 2Table 3

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Repayment Terms on Developmental Credits in_Agriculture by Bank of Kosovo (1975)

Purpose Repayment Period Interest Rate(Years) (%)

Irrigation 25 3

Vineyards and Orchards 20 3

Water Storage and CivilWorks 20 3

Livestock Farms and Stables 20 4

Wine Cellars and ColdStorage 20 4

Livestock Breeding 8 4

Agricultural Machinery 7 4

Transport Means 7 4

Poultry 5 4

December 1976

ANNEX 3Page 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Marketing, Markets and Prices

A. Marketing

Organization

1. As in other economic activities in Yugoslavia, marketing of agri-cultural products is organized into social and private sectors. The socialsector includes autonomous marketing enterprises (or enterprises owned bykombinats) with authority to buy and sell commodities and with legal obliga-tions to honor all contracts. The private sector consists mainly of peasantfree markets where producers and consumers exchange goods. Most marketedagricultural products flow through the social sector enterprises althoughsubstantial volumes of some commodities, particularly in the rural areas,are marketed through numerous peasant free markets.

2. Cereals. Almost the entire marketed production of cereals flowsthrough socially owned and operated marketing enterprises. Special wholesaleenterprises buy the commodities from kombinats directly and from private farm-ers through intermediaries like marketing cooperatives. About 60% of marketedproduction of cereals is produced by kombinats and other social sector farmswhich sell their produce entirely through the wholesale enterprises. Onlya small portion of production from private farms is marketed since a sub-stantial part is retained on the farm for human and livestock consumption.

3. Fruits and Vegetables. A variety of channels exist for marketingof fruits and vegetables. About 60% of marketed production is distributedto consumers through processing enterprises and wholesale trade, and theremaining 40% is sold directly through retail grocery shops and peasant freemarkets. In general, processing units purchase the commodities from privateproducers at minimum contract prices fixed at the beginning of the croppingseason, but these contract prices can be increased at the time of delivery ifsupply is lower than demand. However, farmers sometimes hire jointly trans-port facilities to market their own produce to large markets in distant places.Transportation is generally by common trucks for short journeys and by refri-gerated trucks or railroad cars for longer trips. Shortage of storage facili-ties and lack of adequate quality standards are common problems of vegetablemarketing.

4. Industrial Products. Trade in industrial crops (sugar beet, sun-flower, etc) is generally based on purchases by processing units from social

ANNEX 3Page 2

arid private farms directly and/or through marketing cooperatives. The pro-cessed products are sold in domestic and international markets through thepracessing units' own. shops and/or specialized trade organizations.

5. Project Output. Al prooj t ld be marketed throughexisting specialized trade organizat icn network. Kombinats in the projectarea would purchase industrial crops, fruits and most vegetables from allproducers through annual contracts for processing. Sales of these commodi-ties and/or their products outside of Kosovo Province would be coordinatedby Agro-Kosovo, which has future delivery contracts with major buying andselling organizations throughout Yugoslavia, and with importers in WestGermany and other European countries. Cereals would be distributed throughexisting wholesale grain enterprises which are equipped to handle incrementaloutput of grains from the project area. A part of project output of vegeta-bles is also expected to be marketed by farmers through peasant free marketsin Prizren and the surrounding area.

6. To ensure timely and efficient distribution of project output, par-ticularly of perishable commodities, the project would provide funds forimprovement and expansion of farm roads, establishment of four vegetablecollecting centers, construction of a packaging and cooling station forvegetables in Zrze and provision of trucks to transport project commoditiesto different markets. Under separate but related projects, processing capaci-ties of a sugar factory and a vegetable processing/canning factory would beexpanded and improved to handle increased production of project commoditiesmore efficiently. The attainment of project objectives, therefore, is un-likely to be affected seriously by inadequacies of market organization.

B. Markets

7. The incremental outputs of sugar beet, vegetables, fruits, alfalfaand maize would be substantial; those of barley, sunflower, beans, peas andgrapes would not exceed 3,000 tons each; and that of wheat would decline(Annex 1, Table 2). The additional outputs could be consumed domesticaliyand/or exported, and the outlook for expansion of sales in both markets isgood. It is, however, expected that most of the incremental supply would beabsorbed by a fast growing domestic demand. Official Yugoslav plans callfor increased consumption of foodstuffs as a result of increased populationand of expected higher incomes. Current demands for many products are higherthan available supplies and significant quantities have to be imported tofill the deficits.

Domestic Markets

8. Cereals. With the project, the production of wheat would declineand that of barley and maize would increase by 600 tons and 7,500 tons

ANNEX 3Page 3

respectively. The incremental production of barley would help to substitutefor imports which currently average over 15,000 tons per year. The additionaloutput of maize would represent about 1% of forecast production of maize inthe country by 1980; almost all of the incremental output would be used byKosovo Polje fpedmill which is presently operating at 60% of its 30,000tons capacity because of shortage of raw materials. Feed produced wouldhelp to feed a growing livestock population in the project area.

9. Vegetables. In the past, vegetable consumption in Yugoslavia hasgrown at a faster pace than production resulting in substantial price rises.It is expected that future consumption of fresh vegetables would increase atabout 4% annually (based on an income elasticity of demand of 0.64), withper capita consumption (excluding beans and potatoes) amounting to about 85kg by 1980 compared with about 70 kg in 1972. Per capita consumption of pro-cessed vegetables is expected to increase to 10 kg by 1980, which would betwice the amount consumed in 1972.

10. At full development, the incremental output of vegetables would beabout 42,000 tons or an equivalent of 2% of total Yugoslav production by mid-1980s. It is expected that about 10% of the additional output would be keptfor on-farm use, about 40% would be processed by the social sector and theremaining 50% would be marketed by private farmers in various local peasantfree markets as fresh vegetables. In the long run, all the fresh market pro-duction of vegetables is expected to flow through the packaging and coolingstation, which would be constructed under the project, and sold throughoutKosovo Province, on the Adriatic Coast, and in large towns such as Belgradeand Zagreb. The project would enjoy a particular marketing advantage infresh vegetables since, owing to favorable natural conditions, its outputswould be available for marketing relatively early in the season.

11. Fruit. Per capita fruit consumption in Yugoslavia is currentlyabout 60 kg, which is among the lowest in Europe. With the project, fruitproduction (most of which is apples) would increase by about 33,200 tons.This is equivalent to less than 2% of projected production of fruit in thecountry which is estimated to reach about 2.0 million tons by 1980. Theadditional output is expected to be consumed domestically, where the marketoutlook is favorable.

12. Sugar. Presently, the per capita consumption of sugar in Yugoslaviais estimated at about 27 kg, which is also among the lowest in Europe. Do-mestic demand has been increasing faster than supply necessitating significantimports throughout the post war period. Recently, imports have amounted tonearly 50% of domestic consumption, averaging about 300,000 tons of sugar peryear. At full development, the incremental output of sugar beet would amountto about 61,500 tons per year all of which would be processed by an existingsugar factory in Pec, whose capacity is expected to be increased. This wouldyield about 8,600 tons of sugar which would be used to substitute for imports.

ANNEX 3Page 4

13. Alfalfa. The incremental output of alfalfa is estimated at 18,500tons of hay equivalent, all of which would be used to feed a growing livestockpopulation in the Metohija Region.

Export Markets

14. With the exception of grapes (wine), sunflower and part of vegetables,projects outputs of all other commodities are expected to substitute for cur-rent imports and/or supply a growing domestic demand.

15. Wine. Yugoslavia has recently been exporting large quantities ofordinary and high quality wines primarily to West Germany, United Kingdom,Switzerland, Poland, East Germany and U.S.S.R. Prospects for continued expan-sion of exports, particularly to Western Europe, are less favorable than theyare in the past and competition would intensify with increased production inthe European Economic Community. However, the Agro-kombinats, which wouldprocess the entire project output of grapes, have a long-run contract tosupply West Germany with high quality wine. For this reason, no seriousproblems are anticipated in marketing grape products from the project area.

16. Sunflower. Yugoslavia is a net exporter of sunflower seed. Recentannual exports averaged about 2,500 tons compared to imports of about 200 tons.The incremental output of sunflower seed, which would be processed in an exist-ing factory in Orahovac, is estimated at only 200 tons. The world market out-look for oilseeds is favorable and can easily absorb this increased output.

17. Vegetables. Traditional importers of vegetables from Yugoslaviainclude many Western European countries, particularly West Germany andCzechoslovakfa. Import demand in these markets is expected to increase butYugoslavia would face severe competition from other suppliers. However, withbetter organization and product quality, exports from Yugoslavia are expectedto reach about 120,000 tons by 1980 compared with about 20,000 tons in 1972.Project outputs could contribute about 10% of the projected exports.

C. Domestic Prices

18. The socio-political system in Yugoslavia accepts the concept of theprice sytem as a guide for resource allocation, though with major qualifica-tions. Market prices for some products (e.g. vegetables and fruits) are deter-mined freely by the forces of supply and demand, while prices of others arecontrolled by the Government. There is a system of "protective prices" whichaims to provide security and profitability in the production of selected com-modities. This system consists of guaranteed and minimum pricing policy. Theformer category embraces crops such as wheat, maize, fattened livestock, cot-ton, potatoes and plums. If prices of these commodities fall below guaranteedlevels, producers may offer their entire stock for purchase by the Federal

ANNEX 3Page 5

Office of Food Product Reserves, which coordinates the markets for these com-modities throughout Yugoslavia. The policy of minimum prices applies to sugar,sunflower, soybean, tobacco and milk. The Government is not obliged to buythese commodities, but no purchaser may pay farmers prices which are lowerthan those which are established by law. The minimum purchase price policyis designed to protect farmers from monopsonist or oligopsonist enterpriseswhich process these commodities.

19. Protective prices are established by agreements between republicsand autonomous regions at the federal level, and enacted by the Federal Exe-cutive Council. Prices are set at the beginning of each year on the basis ofproduction costs on social farms in the preceding year, plus a reasonable rateof profit on capital engaged in production. The effort is to promote the roleof prices in resource allocation while at the same time ensuring that pricesof basic food remain within the reaches of consumers. If market prices in-crease beyond consumers' capacity to pay, usually they are lowered and thedistributors are paid the difference through subsidies from budgets of socio-political organizations in the region affected.

20. In general, prices of most project commodities are about the samein different markets throughout Yugoslavia and are in line with prices ofsimilar commodities elsewhere in the international market. Project outputsare not expected to have any significant influence on the domestic and inter-national prices of these commodities. Prices of outputs used for appraisalare summarized in Annex 14, Table 1.

December 23, 1976

ANNEX 4Page 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Description of Irrigation Component

A. Selection and Formulation of the Project

1. In August 1973 the consulting firm Energoprojekt was commissionedby the Provincial Government of Kosovo to study water development in Meto-hija. After the consultants had completed their preliminary report on amaster plan for water resources development of Metohija in May 1974, an FAO/IBRD Cooperative Program mission, joined by a Bank mission, reviewed thereport in Belgrade and subsequently visited the project area and held dis-cussions with the Provincial Government and other interested parties. Ac-cording to the master plan, total irrigated area in Metohija Region wouldreach 74,000 ha by the year 2000 with an annual gross demand of 4,900 m3/ha.The master plan also suggests that 93,000 ha might be irrigated if shortagesare accepted, provided adequate storage facilities are constructed. As apart of this master plan, Energoprojekt proposed development of Hydro-SystemRadenic which would provide irrigation and potable water to a part of theMetohija Region. The Hydro-System Radenic involves construction of theRadenic Dam which would have a storage capacity enough to irrigate about21,000 ha and to provide industrial and domestic water supply to urban andrural areas in the region. Because of budgetary constraints, however, itwas decided to implement the Hydro-System Radenic in two phases. The pro-posed project, which is Phase I of the Hydro-System Radenic, would pro-vide irrigation to about 10,250 ha and smaller than originally envisageddomestic and industrial water supply to urban areas and villages in andaround the project area. The Radenic reservoir, which would be constructedunder the project, would have a storage capacity which would be adequateto serve both phases of the Hydro-System Radenic. The alternative of limit-ing the size of the reservoir to only the project's needs with a possibilityfor further expansion later was studied, but this alternative was found tobe inefficient.

B. Description

2. The irrigation component of the project would consist of:

(a) a diversion weir on and supply canal from the DecanskaBistrica river;

(b) a rock fill dam and reservoir on the Prue river;

(c) irrigation distribution system;

ANNEX 4Page 2

(d) a pumping station; and

(e) miscellaneous works like drainage, erosion control, soilimprovement, power supply lines, equipment, construction offarm roads, buildings, establishment of demonstration farms,and consultant services.

3. Diversion Weir. A 45 m wide and 2.5 m high concrete diversionweir would be constructed in the Decanska Bistrica river (see Map 12061R).From the weir, which is designed to pass a 100 year flood with 1 m freeboard,an intake structure with sand trap would lead the water into a 7.5 km concretelined canal. This canal would be crossed by four road bridges and 15 smallerbridges for tractor and animal drawn farm vehicles. Eleven aqueducts wouldcarry existing small irrigation canals over the supply canal. Maximumcapacity of the intake would be 15 m3/sec. The canal would end in a rockyravine, through which water would cascade into the reservoir.

4. Dam and Reservoir. The dam would be a rockfill structure withimpervious core. It would close a gap in the serpentine-peridotite hillsthrough which the small Prue river has pierced its way. The off-channelreservoir thus formed would have a normal maximum elevation of 456 m anda maximum storage capacity of 113 Mm3, of which 11 Mm3 would be dead storage.The dam would have a height of 57 m above the river bed, a crest length of 200m, crest elevation of 458 m, an upstream slope of 1:1.9 and a downstream slopeof 1:1.75. On top of the left abutment a 500 m long spur dike 4.0 to 4.5 mhigh would be required. The spillway would be placed in this abutment. Thedesign capacity of the spillway would only be 2.6 m3/sec, enough to dischargethe 1,000 year flood of the small Prue river. Total volume of dam and coffer-dam would be 550,000 m3. The dam would be constructed from locally availablequarts-diabase, clay material for the core would also be available on site,but sand would have to be obtained from the Beli Drim 20 km away.

5. Irrigation and domestic water would share a common intake and con-trol tower at the upstream end of the dam. A 325 m long tunnel through theright abutment would carry the separate irrigation and domestic supply con-duits. The irrigation conduit, with a diameter of 2.9 m, would have acapacity of 16.8 m3/sec. At the downstream end, the irrigation conduitwould discharge into an open main canal.

6. Irrigation Distribution System. The irrigation distribution mains(average length 1.3 m/ha) consist of concrete lined canals. Equalizingreservoirs would be located at the main bifurcation and transitions fromgravity conduits to pressure conduits. They would contain automatic gates,emergency overflows and telemetering devices. Automatic control devices andgauging equipment would be installed in all major lines to guard against surgesin the system. River crossings by major lines would be steel siphons.

7. The primary and secondary pipe network (average length 26 m/ha)would be of asbestos cement. An alternative of prestressed concrete pipeswould be allowed for and encouraged in the bidding, because of possible price

ANNEX 4Page 3

advantage. Pressure reducing valves in the secondaries would provide forautomatic control of pressure fluctuations in the tertiaries so that thesmall automatic pressure regulators in the sprinklers can operate withintheir working range. Primaries and secondaries would have valves at theirlowest point and the system would be emptied in the winter. Nevertheless,all buried pipes would have sufficient protective frost cover. Design module

would be 0.8 1/sec/ha.

8. - Two types of tertiary distribution systems are foreseen. For the1,600 ha of social sector field crops, PVC tertiaries would run at 200 mintervals with hydrants at every 54 m; 100 m moveable aluminium lines wouldtake off from these hydrants, each line carrying 8 sprinklers which wouldoperate in a 12 m x 18 m pattern with a nozzle pressure of 3.5 atmosphere.Average length of the tertiaries would be 47 m/ha. With an application rateof 7 mm/hr per setting of 7.4 hours and an interval of 8 days, about 200 mmof gross irrigation would be supplied in the period of peak demand.

9. On the remaining areas the tertiary distribution system would con-sist of PVC underground pipes (100 m/ha) at 100 m intervals with PVC hydrantsat 24 m intervals. Smallholders would use mobile equipment, which wouldconsist of a single sprinkler on a 50 m long "garden hose"t. The system wouldbe designed for a 12 m x 12 m pattern, operating at 3.0 atmosphere. With anapplication rate of 7.5 mm/hr per setting of 7 hours and an interval of 8 days,about 200 mm monthly of gross irrigation could be supplied. This system wouldbe the only possible solution to circumvent the severe limitations imposed bysmall size of holdings. Farmers would own several portable units since theymay want to irrigate several scattered parcels simultaneously. For orchardsand vineyards, elevated sprinklers would be used.

10. Pumping Station. One pumping station, consisting of 9 units wouldserve 2,750 ha and pump into a ground storage equalizing reservoir from whichthe system would be gravity fed. Six pumps would have a head of 35 m and theremaining three pumps a head of 76 m. Total installed capacity of 9 unitswould be 1,700 kw.

11. Drainage. Drainage works would consist of open drains on 385 ha,tile drains on 3,500 ha of lowland with a high groundwater table (presentlyused as meadows), and pseudogley soils. A drainage module of 1 1/sec/ha wouldbe used. Moles would be installed on 650 ha and discharge into an open systemafter completion of the tertiary irrigation network.

12. Erosion Control. Soil erosion works would be provided on about2,600 ha. Overgrazed areas would be reforested. Landslides would bestabilized and gullies controlled through the construction of check dams andreforestation.

13. Soil Improvement. Different soil improvement works would be pro-vided on various parts of the project area. About 3,040 ha would receive anapplication of 12-14 tons/ha of local marl (50% CAC03). A further 3,100 ha

ANNEX 4Page 4

would benefit through application of 300 kg/ha of P205 and another 2,900 hawould benefit from application of 200 kg/ha of P205; 4,000 ha would be sub-soiled, and 540 ha of the best area under forests will be converted to culti-vated land.

14. Power Supply Lines. A 110 kv/35 kv substation at Djakovica wouldbe extended and a new 35 kv/6 kv substation constructed at Petrovac; 7.5 kmof 35 k-v and 7.5 km of 6 kv transmission lines would connect the two sub-stations with the dama site and pumping station CS3 (see Map 12061).

15. Equipment. The project would provide vehicles and other equipmentfor operation and maintenance of irrigation facilities and for demonstration/experimental farms (para. 18).

16. Farm Roads. Farm roads would be provided with a density of 18 m/ha.An access road to the dam site would be asphalt paved.

17. Buildings. Buildings would be provided for housing of staff andproject officers, workshops, stores, etc. VOM's office in Prizren would beexpanded and field headquarters for the Metohija project established at Zrze.Four section field offices and six extension units would be established inthe project area. Buildings which would be constructed under the projectare in Table I and staff who would operate and maintain the irrigation facil-ities are in Table 2.

18. Demonstration Farms. Eighteen farmers owning about 40 ha nearMarmule have volunteered to carry out boundary alignment and to demonstratethe proposed mobile irrigation method as well as modern cultivation practiceson their land. In addition, the project would equip a 20 ha experimentalfarm for vegetable production and mechanization, and a 4.5 ha trial farmwould be strengthened to experiment with various irrigation methods for treecrops. Until water becomes available from the dam, irrigation would be pro-vided to these areas from small local streams through mobile pumping equip-ment.

19. Consultants. Funds for local and foreign consultants would be pro-vided under the project. Local consultants would be retained to preparefinal design and tender documents. Foreign consultants (60 man months) wouldbe needed to train local staff in advanced computer technology of hydraulics,review final design of the irrigation network, and assist the local consultantin preparation of tender documents.

December 23, 1976

ANNEX 4Attachment 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Project Description, Irrigation Component

Terms of Reference for Foreign Consultants

1. The Consultants will review the final design of the irrigation canalsystem and the pipe distribution network, which is being carried out by Kosovo-projekt--a Yugoslavian consultant already retained by VOM for this Project,and will make such modifications to the design that the Consultants may con-sider essential to bring it to international standards. They will also assistin the preparation of tender documents. In particular, the Consultants will:

(a) ensure that the proposed pipe layout, including the pipesizes used, is optimal. If not, the Consultants willmodify the design to achieve optimization;

(b) propose adequate safety measures in the canal and thepipe distribution networks that will ensure a safeoperation of the whole irrigation system against watersurges and water hammer caused by sudden closures of apart of the system or the whole system. The Consultantswill also carry out the detailed design of such measures;and

(c) train local staff in the design work to be carried outby the Consultants.

December 23, 1976

ANNEX 4Table 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Project Buildings

Location Type Number Total Total Cost

mZ (Din '000)

General Management .

Prizren Headqtiarters Extension 1 564 4,230"1 Garage 6 120 420"t Apartments 10 750 3,750"t Store 1 80 280

Subtotal Prizren 8,680

Djakovica Apartments 7 525 2,625

Total Buildings for General Management 11,305

Irrigation Management

Zrze Central Office 1 220 1,430Store 1 80 280Apartments 8 600 3,000

Subtotal Zrze 4,710

Section Office 1 120 780Store 1 250 750Garage 3 90 270Apartments 3 225 1,125

Subtotal for one section 2,925For 4 Sections 11,700

DistributionCenter Office 1 20 130

Store 1 50 150Apartment 1 70 350

Subtotal for one Center 630For 6 Centers 3,780

Guardhouses 3 225 1,125

Total Buildings for Irrigation Management 21,315

December 197A

ANNEX 4Table 2

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Operation, Maintenance and Agricultural Personnel

Location Qualification Number Salary(Din '000)

Prizren Agriculture Subject MatterSpecialists4 418Economist 1 104Administration 4 248Skilled 1 45Unskilled 3 115

Zrze Chief Engineer 1 122Assistant Chief 1 113Mechanics 3 261Agronomists 2 209Accountant 1 104Bookkeepers 2 122Skilled 2 90Unskilled 2 77

Sections (4) Head 4 452Technician 4 348Storekeeper 4 180

PumpingStation Mechanics (low grade) 2 139

Dam, Intake,Canals Skilled 2 90

Unskilled 7 292

Field Ditchriders 42 1,900

Total 5,429

/1 Gross annual salary; includes 45% social charges.

December 1976

ANNEX 5Page 1

YUGOSLAVIA

METHOHIJAL- I MULTIPURPOSE PROJECT

Description of Potable Water Supply Component

General

1. A 1975 study undertaken for UNDP by Hydroprojekt of Prague, madeshort term proposals for augmenting water supplies in the towns of Djakovicaand Orahovac (Map IBRD 12060R) to alleviate existing severe water inadequaciesas regards quantity and quality. For Djakovica, the study recommended develop-ment of a spring about 15 km from the town, now used exclusively and reservedfor local irrigation, and for Orahovac, development of shallow wells near Zrze.This latter proposal required a long pumping main of limited output whichwould have become redundant in the long run. Other problems with the interimsolution are related to yield from the wells and evidence of a pollution risk.The UNDP study also focused on wastewater treatment facility requirements tomeet Yugoslav discharge standards for the prevention of river pollution andVOM will review what additional works by the operating authorities arerequired to meet these standards.

2. The long-term solution of potable water supply problems in the townsand rural project area is best met from a single reliable source located at anelevation which would permit gravity distribution to the maximum number ofconsumers. Such solution is possible from the proposed Radenic dam. Thestored and "free water" would be jointly used on the basis of 80% for irri-gation and 20% for water supply purposes for long-term use, and common costswould be allocated accordingly. An operational study of the combined wateruse from the proposed impounding reservoir over a 19-year period indicatesthat 80% of the raw water requirement could gravitate directly to the pro-posed water treatment plant; at other times, when the reservoir water levelis low, some pumping would be necessary. A future Phase II extension of thedistribution system would supply the remaining 35 villages in the projectarea but the date of its implementation remains uncertain. The present pro-posals visualize another trunk main from the new treatment plant but beforebeing finalized VOM will examine the possibility of supplying these consumersfrom shallow wells, fed by infiltration galleries, from the Beli Drim Riverto ensure that the least cost solution is adopted.

Project Works

3. The proposed project would provide domestic and industrial waterto the towns of Djakovica Grahovac and Zrze, and domestic water to a further12 villages in the Metohija Region. The project works, in addition toa share of the Radenic dam., would consist of:

ANNEX 5Page 2

(a) a potable treatment plant with all ancillary work;

(b) a pipe distribution network; and

(c) a pumping station to boost supply to Orahovac.

4. Treatment Plant. The water treatment plant, which would be locatedadjacent to the proposed Radenic dam, would have an initial capacity of400 1/sec. This capacity would be adequate to satisfy the projected demandup to about 1995. Expansion thereafter would be necessary to satisfy growingdemand. The plant would consist of primary clarifiers followed by rapidgravity filtration and chlorination. Ancillary pumping for raw water and fromclear water storage for backwashing would be provided in conjunction withbuildings which would house the filters and main controls. The quality ofwater produced would be consistent with the Yugoslav National Regulations forDrinking Water.

5. Distribution Network. The distribution system consists of a mainsupply pipe with an initial diameter of 1,000 mm which would lead to thetown of Djakovica, there reducing to a diameter of 700 mm to Zrze and there-after continuing as a 500 mm and 450 mm pipe to Orahovac. About 13 villageswould be served by pipe network which would be extended from this main trunk.The lengths and diameters of the water main would be as follows:

Diameter (mm) 1,000 700 500 450 200 150 100

Length (km) 10.0 18.5 1.5 10.0 5.5 5.5 17.2

The larger diameters are likely to be in asbestos cement, material alreadyavailable in Yugoslavia, but equally acceptable pre-stressed concrete pipeswould be allowed and supply would be encouraged in the bidding. Smallerdiameters which would be in the 150 m to 100 m range are likely to be ofplastic. The elevation of Orahovac requires that all water be pumped tothis town but the pumping arrangements would make use of the residualpressure in the pipeline at the location of the pumping station.

6. The distribution has been designed on the basis of maximum flowsof 1.4 to 1.5 times the average in the trunk mains and twice the average inthe minor village systems. Staging of the larger trunks was examined andfound uneconomic in view of the anticipated early build-up in water demandnow currently suppressed. In the event that the extension of the distribu-tion to the villages south of Zrze is not carried out, total flow in thistrunk main would reduce by 12%. This unused capacity does not upset theeconomic advantage of a single pipe, as opposed to twinning at a later date.The evaluation suggests a second trunk in 9 years at 10% higher cost usinga 9-1/2% discount rate. In the same analysis the consultant considered thepossibility of supplying Djakovica (the nearest town to Radenic dam) with rawwater from the irrigation system and constructing a separate treatment plant,but also found this uneconomic. From the standpoint of economic viability the

ANNEX 5Page 3

advantages of reaching, as rapidly as possible, the main centers of water con-sumption are considerable and also provide for the possibility for continuousand orderly expansion of the system to the rural area where now no serviceexists.

7. Associated with the distribution system clear water storage inreinforced concrete construction would be provided as follows:

Location Volume(m3)

Djakovica 5,410

Orahovac 1,990

Zrze 2,860

Total 10,260

The above storage would be provided at a level compatible with the existingstorage and supply arrangements.

8. Pumping Station. The pumping equipment to supply Orahovac would bedesigned on the basis of a phased increase in demand. Initially, two pumpswould be installed with a combined capacity of 70 1/sec, and a third unitwould be installed at a later date. Use would be made of the residualpressure in the supply line at the pumping station location to minimizepumping head and operating costs. The pumping station would be designed toaccommodate equipment for the ultimate pumping requirement.

Status of Engineering

9. Detailed design of the potable water supply component is well ad-vanced and a considerable amount of field survey has been undertaken by VOM'sconsultant in routing pipelines in the preparation of hydraulic profiles. Asite has been selected for the water treatment plant and the main structuresthroughout the system. The preliminary design of the water treatment plantwould be made by the main consultant in conjunction with specialists in thisfield. The final design of the water treatment plant would be the result ofinternational competitive bidding based on performance proposals and award forsupply of equipment will be made to the lowest evaluated bidder. Followingaward of equipment the consultants would prepare final design and bid docu-ments for the civil works which would be bid and evaluated separately.

December 23, 1976

ANNEX 6Page 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Water Requirements and Availability

Need for Irrigation and Potable Water

1. Irrigation. Because of the low rainfall in the project area (Annex1), water deficit, particularly during the critical growing season is substan-tial. The water deficit during the growing season amounts to about 700 mm andagricultural production in the area is unlikely to increase substantiallywithout irrigation.

2. Potable Water. The total population in the project area is esti-mated at about 64,000 people, which is growing at about 3% per annum. Ofthese, about 47% live in scattered villages and the remaining 43% in the townsof Djakovica and Orahovac. The existing supply situation in the villages isunsatisfactory because the sources are mainly shallow wells of limited yieldand doubtful quality. A UNDP sponsored study indicates that in DjakovicaCommune only about 5% of the rural population obtains water through a pipedsystem and in adjacent communes the situation is similar, or worse. Djakovica,the largest town, has a public water supply system supplied from springand augmented by two deep boreholes. Quality of water supplied is generallysatisfactory as water before distribution undergoes disinfection. There are,however, serious water shortages and the situation is worsening as the towncontinues to grow. The spring is located 18 km from the town and yields from18-180 1/sec. As the minimum flow is the critical factor, the two boreholeswith a combined output not exceeding 40 1/sec are in almost continuous usesupplementing the supply. Quantity of water supplied in 1973 totalled 800,000m3, with about 500,000 m3, equivalent to about 45 l.c.d. for domestic purposes,and 300,000 m3 for industry. Orahovac, a town on the edge of the project area,is desperately short of water and despite continuing exploration has been un-able to find new sources of reasonable quality or quantity to relieve the situa-tion. The sources of supply for this town are two deep wells with a combinedoutput of between 10-12 1/sec. Allowing for a 30% consumption by industrialusers, and system losses, the available consumption is less than 40 l.c.d. basedon production figures obtained for 1973. As demand cannot be met 24 hours perday, the distribution system is operated on a shift basis which raises thepotential for pollution within the pipe network. One half of the town receiveswater by night and the other half by day.

Water Requirement

3. The total gross water requirement for the project is estimated atabout 61.0 Mm3/year, of which about 47.5 Mm3 would be required for irrigationand about 13.5 Mm3 for domestic and industrial water use. Details are inTable 1.

ANNEX 6Page 2

4. Irrigation Demand. Water requirements for different crops werecomputed using the Penman formula with crop and growth stage factors recom-mended in FAO Water Supply and Paper No. 24. Meteorological data from Prizrenand Pec and covering the period 1927-1966 were used. Allowing for effectiverainfall of 75% and an overall irrigation efficiency of 71%, the net waterrequirement is estimated at about 33.7 Mm3/year, about 30% of which wouldbe required in July, the month of the maximum demand. Details on net monthlyirrigation demand for different crops are in Table 2.

5. Potable Water Demand. Domestic and industrial demand projectionsassume maximum per capita daily consumptions of 200 litres per capita fortowns and 150 litres per capita for villages by the year 2000 in the areaswhich would be served by the project. In forecasting this demand, VOM'sConsultant, Kosoprojekt, has assumed gradually increasing consumption, dif-ferentiating between the urban and rural communities as follows:

1975 2000

Towns (l.c.d.) /1 150 200Villages (l.c.d.) 100 150

Between 30% and 40% of the per capita water allowance in the rural area wouldbe allocated for the use of livestock. Industrial demand would be centered onDjakovica, Orahovac and Zrze. The first two towns already accommodate manufac-turers of textiles, engineering food processing, metal and metal working,wines, soft drinks, electroplating, etc., while Zrze would be an industrialdevelopment center of the future. Allowing for system efficiency of 90%, thenet water requirement would be about 12.1 Mm3 per year.

Water Availability

6. Water would be supplied from the Decanska Bistrica river. As con-sumption increases, a further source of supply could be the Locanska Bistricariver. A reservoir operating study was conducted for a 19-year period ofstreamflow records. The study indicated that no water shortages would occureven after deducting a minimum flow for (a) biological reasons in both streams,and (b) upstream irrigation requirements from the Decanska Bistrica river.Highest discharges in the rivers occur from March to May, and usually theirrigation season would start with a full reservoir. The reservoir is off-channel and closes off the 26 km2 catchment area of the Prue stream. Inflowfrom this stream would balance estimated evaporation and leakage losses fromthe reservoir. The Decanska Bistrica river also receives a base flow fromkarstic springs and consequently never runs dry.

Water Quality

7. Water quality of the Decanska Bistrica and Locanska Bistrica riversis excellent. For both streams total dissolved solids are 165 ppm, consisting

/1 Includes industrial demand.

ANNEX 6Page 3

of 90% calcium bicarbonate and pH of 7.5. The chemical analysis of the waterfor potable water supply is within recognized international standards fordrinking water. Initially, due to storage in the reservoir basin, there wouldbe an increase in suspended matter and bacteriological activity; but theseconditions would be overcome by treatment (Annex 5). In the long run thereservoir would have a beneficial effect bacteriologically and on turbidity.

Water Rights

8. Decanska Bistrica and Locanska Bistrica rivers are tributaries ofthe Beli Drim river which flows into Albania. An agreement between Yugoslaviaand Albania for water management, signed in Tirana on July 16, 1962, allowsYugoslavia to divert up to 216 Mm3 per year. The project's requirement wouldamount to only 28% of this allowable diversion. Therefore, no serious problemsare anticipated on international water rights.

December 23, 1976

ANNEX 6Table 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Gross Average Water Requirements

Year Domestic Demand Irrigation Demand Total Demand

------- (Mm3 /year)-----------------------

1979 0 5.8 5.81980 4.0 16.3 20.31981 4.5 28.0 32.51982 5.0 32.7 37.71983 5.6 37.4 43.01984 6.1 42.1 48.11985 6.7 45.7 52.41986 7.2 47.5 54.71987 7.7 47.5 55.21988 8.1 47.5 55.61989 8.7 47.5 56.21990 9.0 47.5 56.51991 9.3 47.5 56.81992 9.8 47.5 57.31993 10.2 47.5 57.71994 10.6 47.5 58.11995 11.1 47.5 58.61996 11.5 47.5 59.01997 12.0 47.5 59.51998 12.5 47.5 60.01999 13.0 47.5 60.52000-16 13.5 47.5 61.0

December 1976

ANNEX 6Table 2

YUGOSLAVIA

MUTOHIJA I MULTIPURPOSE PROJECT

Average Net Irrigation Demand

Crop May June July August September Total- - ---- (mm)-

Wheat and Barley 69 - - - - 69

Maize 29 95 133 76 4 337

Sunflowers 34 109 118 11 - 272

Summer Vegetables 29 95 133 76 4 337

Sugar Beet 29 95 133 76 7 340

Peas 69 102 - - - 171

Alfalfa 40 74 94 83 29 320

Green Beans - - 24 83 42 149

Second Crop Maize - - 24 83 42 149

Orchards 29 95 133 116 51 424

Vineyards - 40 71 62 7 180

December 1976

ANNEX 7

YUGOSLAVIA

METO'11JA I ULTIPURPOSE PROJECT

Cost Estitela /1

1im Fore rgoLoral Pevt

3f- lg ocal Ltczl lorLan Inl Exchange

- --Dtn Nillio---- --- - -LS$ --11 -0 -

Dam and Intake 80.4 73.7 156.1 4.47 4.20 8.67 49Price Contlgency 24.5 23.i 47.7 1.36 1.29 2.65

Total 104.9 98.9 207.8 5.81 5.49 11.32 49

Domestit Sup0l - C W-k bob

Treatment Plaot 22.2 3.9 26.1 1.23 0.22 1.45 1tTrank and Discrlibtiot Noons 17.6 15.7 33.3 0.98 0.87 1.85 47Minor Sapply oains 2.3 2.G 4.3 0.13 G.11 0.24 47Storage Reservoir 12.3 6.0 18.3 0.6S C.33 1.01 33Psnpig Station 1.1 0.2 1.3 0.06 0.01 0.07 15

Subtocal 5535 27.8 83.3 3.08 1.54 4.62Price Cor-tlgotry 14.4 7.0 21.4 0.80 0.39 1.19

Totol 69.9 34.8 I4.7 3.88 1.93 5.81 33

Dnot.esti Sorply - itolepmolt(Toreaten P iant 25.5 12.6 38.1 1.42 0.70 2.12 33Crook and Diatelbotion Rains ls.9 32.5 77.4 2.49 1.81 4.30 42Minor Supply Noino 1.0 0.8 1.8 0.06 0.04 0.10 44Storgeg R-erc_oirs 1.0 1.0 2.0 0.08 0.06 0.12 50

Posp'og stolls- 0.9 0.4 1.3 0.05 0.02 0.07 31Subto-l 73.3 47.3 120,6 4.08 2.63 1.74prico Co-tingetoy 12.4 7.9 20.3 0.69 0.44 1.13

Total 85.7 55.2 140.9 4.77 3.07 7.81 39

Irnigj.toi - Ciil o WsrksNoit Conalo 51.7 65.5 157.2 5.09 3.64 8.73 42Prnstro 7eNotrik 94.2 73.0 17.2 5.23 4.06 9.29 44

Terniary Network 03.6 63.1 101.7 2.98 3.27 6.76 36.arr Rgods 21.5 19.0 40.5 1.19 1.06 2.25 47

P--e Solpply 7.3 7.4 l4.7 0.41 0.41 0.82 50pvmpilng Station 5.2 2.6 7.8 0.29 0.14 0.43 33

Subtotal 273.3 735.6 D09.1 13.19 13.09 28.228

Prior Co-ti,g-cy 105.1 92.3 197.4 5.04 5.13 10.97

Totl1 378.6 327.9 746.5 21.03 18.22 39.25 46

Sneigation - Land leprovot.orcDrainage works 28.8 36.9 6507 1.60 2.05 3.65 56Erosion Control 17.4 4.5 21.9 0.97 0.25 1.52 20Seil I,prt-ceost 17.0 18.3 36.4 0.98 1.04 8.02 52

gubtotal 63.8 63.2 124.0 3.55 3.34 6.09Prit. Co-tieg-cy 29.1 25.8 54,9 0.62 1.43 3.05

Total 92.9 86.0 178.9 5.17 4.77 9.94 48

Irrsgalion -EgguipmentNobale cqralpeeot 18.2 33.8 52.0 l.Cl 1.88 2.08 65Auttomtit Sarge Cs-trol 5.2 12.1 17,3 0.24 0.67 0.86 70operot-ot and Nolto aser Veltetet 3.8 8.9 22.7 '.21 C.49 0.72 70

Sobtotol 27.2 51.8 82.0 1.51 3.04 4.51Peito Colttrg_cty 9.7 55.8 5.35 0.54 0.86 1.s7

Total 36.9 70.6 107.5 2.05 3.92 5.97 66

Buildings otd Demonstration ormsBtildings 25.8 4.5 30.3 1.43 0.25 1.68 15

Don.nootorico Forn i.E 7. 10.7 0.t14 0. 15 0.59 25Dent,o 33Fi 8 7.2 41.0 1.87 9.40 2.27

PDeco Co-tiog-tty 11.7 2.3 14.0 0.66 D.12 0.78

Total 45.5 9.3 55.0 2.53 0.52 3.05 17

C -rpertci-r 05.4 - 95.4 5.31 - 5.31

Crop ,sdniflootor 20.0 - 20.0 1.11 - 1.11B-esd-ry .Adjootmett 8.3 - 8.3 0.46 - C.46

Subtotal 123.7 - 123.7 6.88 - 6.88Prim Contiogency 24.2 - 24.2 1.34 - 1.54

To010 147.9 - 147.9 8.22 - 8,22

Croocltoot3 and Adolnist-aianPoCnOgflConsultantn 1.0 4.1 5.1 0.06 0.23 0.29 80Loal Consultan-t and Adriliatrat-on 88.5 - 88.5 4.91 -- 4.91 -

Subtotal 09.5 4.1 93.6 4.97 0.23 5.20Price Conllrgotcy 30,8 1.8 32.6 1.71 0.10 1.81

Total 120.3 5.9 126.2 6.68 0.33 7.01 5

Total Tncledlng Proco C.ntieg-c--s 1,08?.4 688.8 1,771.4 60.14 38.27 08.41 39

Physinal Coong retna 99.8 63.2 163.0 5.00 3.51 9.06PocO_ntingnoo 29.7 2-2. 51.7~I 1.83 1.27 2.87Total Pentical Cynsiogranies 129.5 85.2 214.7 7.20 4.73 11.93 45

GEANID TOTAL 1,212.1 274.0 1,986.1 67.34 43.00 111.34 39

Totl Cotingtnc.e 391.4 261.3 652.7 21.75 14.52 36.27

Total Prite Coetitg-eni-s 291.6 198.1 489.7 16.20 11.Ot 27.21

/L Dil-ropanoi-o dan 1o rounding.

Decobeer 1976

ANNEX 8YUC0OS.AV.

88101IA I MUITIIpLi8 SE PkOJECT

Schedule of Expenditurss

Itm Total 1977 3 1978 1979 1900 1981 ForoignFor-locc Total Foreign Tot,a F-reign Total elmrlig Total Woet38 bot; oroi.on T t Total Excharge

Dom and Intske 75.7 156.1 15.9 33.7 29.3 62.5 28.2 53.3 2.3 6.6 - - 19Price Contingency 23.2 47.7 2.1 4.5 7.9 16.9- 11.9 22.5 1.3 3.8 - _

Total 98.9 203.8 18.0 33.2 37.2 79.4 40.1 75.8 3.S 10.4 4 _ 49

Do-Ootic Supply - Civil WorksTrootsot Ploat 3.9 26.1 0.7 4.8 2.5 16.5 0.7 4.8 - - - - 15Trook and Dlstrlbutoo Mains 15.7 33.3 7.3 4.5 12.4 26.3 1.0 2.2 - - - 47Minor Supply Mai=o 2.0 4,3 1.0 2.2 1.0 2.1 - - - - - - 47Stor-go R-esrvoir- 6.0 18.3 1.3 4.0 4.7 14.3 - - - - - 33PuapIng Staction 0.2 1.3 - 0.1 0.2 1.2 - - - -- 15

Subtotal 27.8 83.3 5.3 15.9 20.8 60.4 1.7 7.0Price Contingocay 7.0 21.4 0.7 2.1 5.6 16.3 C.7 3.0

Total 34.8 104.7 6.0 18.0 26.4 76.7 2.4 10.0 - - - - 33

Dlo[estic Sopply - EauipmetoaTreat-not Plout 12.6 38.1 2.0 6.0 7.1 21.4 3.5 10.7 - - - 33Truck cod Distribution Mnion 32.5 77.4 10.0 23.0 20.2 48.2 2.3 5.4 _ _ _ _ 42Minor Supply Maino 0.8 1.3 0.4 0.9 0.4 0.9 - - - - - 44Sto-ago Reso- -eo 1.0 2.0 0.2 0.4 0.8 1.6 -0P_apig Statl-on 0.4 1.3 0.2 0.6 0.2 0.7 - _ - - - - 31

SubLotal 47.3 120.6 12.8 31.7 28.7 72.8 5.8 16.1Price Coctingoocy 7.9 20.3 1.2 2.9 5.1 13.0 1.6 4.4 - _ -

Total 55.2 140.9 14.0 34.6 33.8 85.8 7.4 20.5 - - - - 39

rrigatio. - Civil Wor-kMain Canals 69.5 157.2 - - 33.5 79.7 32.0 77.5 - - - 42FPrare o Network 73.0 167.2 - - 23.4 54.7 26.7 62.6 19.4 42.6 3.9 7.3 44Tertiary Not-cck 68.1 121.7 _ _ 22.7 40.6 22.7 40.6 22.7 40.5 - - 56Farm Roado i9.0 40.5 _ 6.3 13.5 6.4 13.5 6,3 13.5 - - 47Pover Supply 7.4 14.7 7.4 14.7 - - - - - - - - 50PUlapmg Statica 2.6 7.0 2.6 7.8 33

Subtotal 235.6 309.1 10.0 22.5 85.9 188.5 87.8 194.2 48.0 96.6 3.9 7.3Fri-c Cnctiga-cy 92.3 197.4 1.3 3.0 23.2 50.9 37.1 8201 27.8 55.9 7.9 5.5

Total 327.9 706.5 11.3 25.5 109.1 239.4 124.9 276.3 75.8 152.5 6.6 12.8 46

lrrigation - Lsod IaprovementDroincgo Wueko 36.9 65.7 4.1 7.3 8.2 14.6 8.2 14.6 8.2 14.6 8.2 14.6 56Ero-on- Co-trol 4.5 21.9 - - 0.8 3.9 0.7 3.4 1.5 7.3 1.0 7.3 20Soil lup-ov---oc 18,0 36,4 3.4 6.6 3,4 6.6 12.0 23.7 - 7 - 52

Subtot.l 80.2 124.0 7.5 13.9 12.4 25.1 20.9 41.2 9,7 21.9 9.7 21.9PFice Conntingecy 25.8 54.9 1.0 1.9 3.3 6.8 8.8 17.4 5.6 12.7 7.1 16.1

Total 86.9 178.9 8.3 15.8 15.7 31.9 28.2 8.6E 15.3 34.6 16.8 38.0 48

borlation - EauiPmentMobilc Eqiuipent 33.8 52.0 - - 6.0 8.5 2.8 3.5 .9 70.0 12.9 20.0 65Automatic Surge Coatrp 12.1 17.3 2.3 3.3 4.9 7.0 4.9 7.0 - - - - 70Op-ration oud Maint-nanc Vehiulot 8.9 12.7 - - 4.2 6.0 4.7 6.7 -

Subtotal 54.8 82.0 2.3 3.3 15.1 2105 11.6 17.2 12.9 20.0 12.9 20.0Frric Conting-cy 15.8 25.3 0.2 0.3 2.7 3.8 2.1 11.7 4.8 7.4 6.0 9.3

Total 70.6 107.5 2.5 3.6 17.8 25.3 13.7 21.9 17.7 27.4 10.9 29.3 67

8uildings cod Deonstration FarpsBuildings 4.5 30.3 1.4 9.0 0.5 3.5 2.0 13.5 - - 0.6 4.3 15Demonstr-tico Farm 2.7 10.7 0.9 3.5 0.9 36 0.9 3.6 -.-- -3 25

Subtotal 7.2 41.0 2.3 12.5 1.4 7.1 2.9 17.1 - - 0.6 4.3Frioc Cocuingrn_y 2.3 14.0 0.3 1.7 0.4 1.9 1.2 7.2 - _ 0.4 3.2

Total 9.5 55.0 2.6 14.2 1.8 9.0 4.1 24.3 - _ 1.0 7.5 17

Coampensation cod Ocoudacy AdustnmentExprupriation - 95.4 - 90.3 - 2.4 . 2.7 - - - - 0Crop Indemnification - 20.0 - - - 6.0 - 7.0 - 7.0 - . °Boundary Adjuatnont - 8.3 - 4.0 _ 4.3 -- 0

Subtctal - 123.7 94.3 - 12.7 - 9.7 7.0Mrtoe ContinSency - 24.2 - 12.6 - 3.4 - 4.1 - 4.1

Total _ 147.9 - 106.9 - 10.1 - 13.d - 11.1 - 0

Conuultants and .8d,ooaooratiooForeign Cnonultanto 4.1 5.1 2.1 2.6 - - - 2.0 2.5 0L.ocl Cnonultants and Admiuiotr-tio - 88.5 - 22.5 - 31.0 - 16.4 - 9.9 - 8.7 0

Subtotal 4.1 93.6 2.1 25.1 - 31.0 - 16.4 - 9.9 2.0 11.2Frico Contingency 1.8 32.6 9.3 3.4 - 0.4 - 6.9 - 5.7 1.3 8.2

Total 5.9 126.2 2.4 28.5 - 39.4 - 23.3 _ 15.6 3.5 19.4 5

T1t01 Includiog Pri-c COtingonCinS 668,8 1,771,4 65,3 285.3 g/4,3 603.0 222.3 524.5 112.4 251.6 47.0 107.0 39

Fhysical Cottingonicis 63.2 163.0 .35 38.8 23.3 38.5 19.8 79.4 7.7 16.7 4.7 9.6 39

Priar Coatiog-ncy 22.0 31.3 0.9 5.0 6.2 15.5 7.8 16.9 1.2 0.0 2.9 6.2

Total Physical Conting-ncieo 85.2 214.7 8.4 43.s 29.5 74.0 2F.6 55.4 2.1. 2507 7.6 15.8 45

G8AND TOTAL 774.0 1,906.1 73.7 320.1 271.3 62770 29 ,74 2 3 .IZL.7 40= _ _49 910405- .~2,§ 4Total Contingencieo 261.3 652.7 16.3 76.2 78.7 095.4 89.4 207.7 51.4 115.3 25.5 58.1 40

Total Pri-e Contingencis 198.1 489.7 8.0 37.4 54.4 136,9 70.9 166.5 43.7 98.6 20.8 48.5 41

1ecemcr 19-76

YUGOSLAVIAMETOHIJA I MULTIPURPOSE PROJECT

Schedule of Activities

CALENDAR YEAR 1976 1977 1978 1979 1980 1981

DAM

DIVERSION WEIR _

FEEDER CANAL __

POWER SUPPLY

WATER TREATMENT PLANT

PUMPING STATIONS

DISTRIBUTION MAINS (Domestic Supply)

MINOR SUPPLY MAINS (Domestic Supply)

STORAGE RESERVOIRS (Domestic Supply)

MAIN IRRIGATION CANALS

UNDERGROUND NETWORK _ _________ _ _

FARM ROADS P___*P____*__

DRAINAGE WORKS ________

__ -_ __ _EROSION CONTROL A VA

SOIL IMPROVEMENT #4 ___r____

BUILDINGS 7 1 110 4'111.

TEST FARMS _ _ n

2750ha 6700ha 1 0,250ha

CUMULATIVE AREA IRRIGATED

* _ _ _Final Design and Document Preparation_W A ff r Bidding and Award of Contract

Construction Period RIWorld Bank-16230 X

I

ANNEX 10Table 1

YUGOSLAVIA

METOEIJA I MULTIPURPOSE PROJECT

Procurement

Total Cost /1Item (Din Million) (US$ Million)

A. Procurement Following InternationalCompetitive Bidding

1. Diversion Weir, Feeder Canal, Dam 181.6 10.12. Water Treatment Plant, Civil Works 33.2 1.83. Water Treatment Plant, Equipment 45.4 2.54. Domestic Trunk Mains, Storage,

Pumping Stations 158.2 8.85. Irrigation Mains, Pressure Network,

Reservoirs 410.0 22.86. Equipment for Pumping Stations 7.2 0.47. Mobile Irrigation Equipment,

Water Meters 71.2 4.08. Automatic Surge Control Equipment /2 20.7 1.29. Operation and Maintenance Vehicles - 15.6 0.910. Equipment and Materials for Tertiary

Network, Farm Roads, Soil Improvement-3 153.1 8.5

Total 1,096.2 61.0

B. Procurement Following LocalCompetitive Bidding

1. First Section Main Canal 40.0 2.22. Access Road, Diversion Tunnel, Grouting 22.2 1.23. Domestic Supply, Small Mains 7.2 0.44. Erosion Control, Drainage 130.3 7.25. Power Supply 16.7 0.96. Irrigation Pumping Station, Civil Works 3.2 0.27. Buildings 41.3 2.38. Demonstration and Test Farms 13.7 0.8

Total 274.6 15.2

C. Procurement of Consultants

1. Foreign Consultants 7.3 0.42. Local Consultants 118.9 6.6

Tctal 126.2 7.0

/1 Cost Includes price contingencies but excludes physical contingency/2 Details Annex 10, Table 2/3 Details Annex 10, Table 3

December 1976

ANNEX 10Table 2

YUGOSLAVIA

METOHIJA I MULTIKfJkRPOSE PROJECT

Operation and Maintenance Vehicles

Item No. Total Cost(Din Million)

Four Wheel Drive Cars 9 l.0

Cars 8 0.9

Motor Bicycles 54 1.4

Trucks (5 T) 4 1.4

Tractors (75 HP) 4 0.5

Crane Trucks 2 0.8

Excavators 2 1.6

Graders 2 2.6

Subtotal 10.2Duty and Taxes (35%) 3.6

13.8Price Contingency 1.8

Total 15.6

December 1976

ANNEX 10Table 3

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Force Account Procurement

Item HP No. (Din Million)

Equipment1. Trenching Machine 215 2 5.02. Bulldozer 66 2 0.93. Tractors and Trailers 35 8 1.44. Kiptrucks 140 4 1.45. Tractors and Trailers 60 2 0.46. Bulldozers 170 2 2.47. Graders 130 2 2.68. Dump Trucks 140 2 0.79. Front Loader 175 1 1.210. Autobus 190 2 1.311. Mobile Cranes (2.5.ton) 60 2 0.812. Vibrators 160 3 7.513. Tank Truck 145 1 0.614. Flatbed Truck 220 1 1.3

27.5Spare Parts 33% 9.1

36.6Duty and Taxes 35% 12.8

49.4Price Contingency 12.7Total 62.1

Mobile Plastic Pipe Plant 7.2Price Contingency 1.9

Total 9.1

PVC Pellets (1,200 tons) 17.5Price Contingency 6.3

Total 23.8

Fittings and Hydrants 28.4Price Contingency 10.3

Total 38.7

Chemicals for Soil Improvement 15.4Price Contingency 4.0Total 19.4

GRAND TOTAL 153.1

December 1976

ANNEX 11

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Schedule of Disbursement

IBRD Fiscal Year Cumulativeand Quarter Disbursement

(US$ million)

1976/77:June 30, 1977 0.2

1977/78:September 30, 1977 2.2December 31, 1977 4.3March 31, 1978June 30, 1978 9.0

1978/79:September 30, 1978 13.2December 31, 1978 18.2March 31, 1979 21.4June 30, 1979 25.7

1979/80:September 30, 1979 28.0December 31, 1979 31.3March 31, 1980 33.5June 30, 1980 37.2

1980/81:September 30, 1980 39.1December 31, 1980 42.8March 31, 1981 44.2June 30, 1981 47.4

1981/82:September 30, 1981 48.3December 31, 1981 51.4March 31, 1982 52.4June 30, 1982 54.0

December 1976

ANNEX 12Page 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Farm Budgets and Recovery of Project Irrigation Costs

A. Farm Budgets

1. Three farm budgets (Tables 1-3) are prepared to show the project'simpact on incomes of smallholder private farmers. Based on expected croppingpattern in the future with project, the farm models selected for the analysisinclude a 1.5 ha vegetable farm representing about 20% of the households, a4 ha field crop growing farm representing another 20% of the households andan 8 ha field crop farm representing about 15% of the farmers. These farmmodels represent all smallholders in the project area who derive their incomesentirely from farming. The remaining 45% of the smallholders have othersources of income, including income from livestock production and from part-time employment with the kombinats and elsewhere, but these farmers are notexpected to be any better or worse off than those represented by the house-holds selected for the analysis. No farm budgets are prepared for the kom-binats because the impact of the project on salaries of the workers is notclear. The salaries would depend on income and profits of the kombinatsnot only from project related farming, but also from other non-project relatedactivities such as processing. Presently, the workers are paid minimum wageof about Din 150 (US$8.30) per day or an equivalent of about Din 36,300(US$2,020) per year.

2. The assumptions made in preparing the farm budgets are summarizedbelow:

(i) Sizes of Holdings. About 15% of the smallholders own andoperate 5-10 ha each, nearly 20% of them have holdings of3-5 ha and holdings by the remaining 65% of the farm fami-lies own and operate less than 3 ha each. Because of thelabor intensive nature of vegetable production and of rela-tively high return to labor from such activities, holdingsrepresented by 1.5 ha are expected to emphasize production ofvegetables and relatively large holdings production of fieldcrops.

(ii) Cropping Pattern and Yield. Cropping pattern in the futurewithout the project is expected to remain the same as inthe present but yields would improve slightly as a resultof application of improved farm technology and of betterfarm management practices. Compared to the present,average yields of cereals in future with the project

ANNEX 12Page 2

would increase by about 110%, sugar beet by 80%, vege-tables by 70% and all other crops by at least 70%.Details of yields for individual crops are in Annex 1.

(iii) Annual Production Costs. Annual costs of producing variouscrops in the private sector are in Table 4. These do notinclude water charges (and interest) and taxes. Imputedcost of family labor and costs of other inputs supplied byfarm families are not included in the computation of farmincome.

(iv) Household Size and Demand for Labor. There are about 8people per household, no more than 3 males of whom arepresently active members of the labor force. Because ofexpected increase in demand for labor with the project,female members would participate in the labor force andthe additional demand for labor is expected to be suppliedentirely by the household.

(v) Project Charges. All private farmers would pay a uniformnominal water charge of Din 3,000 (US$167) per ha. Therewould also be project induced additional land tax ofDin 200 (US$11.10) per ha per year.

(vi) Taxes. Presently, farmers in the project area pay an aver-age land tax of about Din 800 (US$44.40) per ha per year,and this is assumed to remain unchanged in the futurewithout the project. Farmers do not pay and are notexpected to pay any other taxes.

(vii) Prices of Inputs and Outputs. Domestic farm-gate pricesof inputs and outputs, which are used for the farm budgetanalysis, are in Annex 14, Tables 8 and 11 respectively.

3. Results of the farm budget analysis are summarized below:

ANNEX 12Page 3

Farm Model/I II III Average

----------------- (Din)-------------------

Present

Production and IncomeGross Value of Production 34,400 36,910 42,390Production Costs 10,980 12,240 14,340Land Tax (Din 800/ha) 1,200 3,200 6,400Income 22,220 21,470 21,650 21,790Income Per Capita /2 2,780 2,680 2,710 2,720

Future Without Project

Production and IncomeGross Value and Production 39,750 43,650 50,190Production Costs 12,030 13,140 15,090Land Tax (Din 800/ha) 1,200 3,200 6,400Income 26,520 27,310 28,700 27,400Income Per Capita /2 3,310 3,410 3,590 3,420

Future With Project

Production and IncomeGross Value of Production 92,310 123,550 177,550Production Costs 28,600 52,150 78,710Land Tax (Din 800/ha) 1,200 3,200 6,400Income before project charges 62,510 68,200 92,440Proposed Project Charges 4,800 12,800 25,600Income after proposedproject charges 57,710 55,400 66,840 59,360Income Per Capita 7,210 6,920 8,350 7,420Incremental Income Per Capita 3,900 3,510 4,760 4,000

Percentage Incremental IncomePer Capita 120% 100% 130% 120%

/1 Model I is a 1.5 ha vegetable farm, model II is a 4 ha field crop farm andmodel III an 8 ha field crop farm.

/2 Household size is estimated at 8 people.

4. The farm budgets show that the present average household income forall farm models amounts to about Din 21,790 (US$1,210). This is equivalentto a per capita income of about Din 2,720 (US$150), which is below the upperlimit of income to the poverty target group in Yugoslavia.

ANNEX 12Page 4

5. The average household income would increase to Din 27,400 (US$1,250)in the future without the project and to Din 59,360 (US$3,300) with project.This means that per capita income would increase to Din 3,420 (US$190) in thefuture without the project, and to Din 7,420 (US$412) in the future withproject.

B. Recovery of Project Irrigation Costs

The Setting

6. Investments in, and operation and maintenance of project facilitieswhich would commonly serve the irrigation and water supply, components wouldbe allocated to each component in proportion to the volume of water whichwould be utilized by each subproject. According to existing procedures,project costs which would be chargeable to the irrigation component or a partof such costs would be recovered from the beneficiaries through water chargesand project induced incremental land taxes.

Feasible Level of Water Charge

7. The maximum feasible level of water charge should not exceed theproject rent, which is defined as incremental income to the beneficiariesless allowances to additional family labor, entrepreneurship and risk. Ifthe water charge exceeds the project rent, farmers would have little or nofinancial incentives to participate in the project. The project rent to allbeneficiaries is estimated at about Din 5,000 (US$278) per ha in constant1976 prices. Estimation of the project rent for different farm types issummarized below:

ANNEX 12Page 5

Project Rent

Item Farm Type/1Model I Model II MIodel III----------- Dinars ------------

Farm Income

Present 22,220 21,470 21,650Future Without Project 26,520 27,310 28,700Future With Project

(before project charges) 62,510 68,200 92,440Incremental income

(before project charges) 35,990 40,890 63,740Incremental income per ha 23,990 10,220 7,970

Distribution of Incremental Income

Additional family labor 16,350 8,100 1,250Entrepreneurship 8,280 8,020 12,460Risk 1,660 3,900 6,360Project rent 9,700 20,870 43,670Project rent per ha 6,470 5,220 5,460

/1 Model I is a 1-5 ha vegetable farm, model II a 4 ha field crop farm andmodel III an 8 ha field crop farm.

Computation of the rent is based on the assumption that (a) the additionalfamily labor is fully remunerated, (b) payment to entrepreneurship equals thedifference between income to smallholders in the future without the projectand minimum wage of comparable labor in the social sector kombinats, thisbeing equivalent to an average of about 20% of incremental income, and (c)return to risk equals insurance premium on incremental costs of purchasedinputs. The allowances to additional family labor are assumed to be equiva-lent to additional labor costs of producing the different crops for each farmtype. However, computed returns to entrepreneurship and risk involve uncer-tainty and the derived project rents for the different farm models are sub-ject to errors of estimation.

Socially Desirable Level of Water Charge

8. If all of the project rent is assumed to be used for consumption,the socially desirable level of water charge would equal all project rentfrom beneficiaries who are above the critical consumption level and nonefrom those who are below the critical consumption level. Average level ofconsumption by project area farmers is estimated at about Din 2,450 (US$136)

ANNEX 12Page 6

compared to the critical consumption level in Yugoslavia of about Din 5,130(US$285). This implies that all project rent should accrue to the beneficia-ries. However, to ensure at least adequate supply of funds required foroperation and maintenance of project facilities, VOM could recover part of theproject rent and still provide incentives for farmers to encourage their par-ticipation in the project.

Proposed Level of Water Charge

9. To be able to recoup at least the full cost of operation and main-tenance of irrigation facilities, about Din 3,000 (US$167) per ha of theproject rent in constant 1976 prices would be recovered from private farmers,and all of the project rent, also in constant 1976 prices, from the kombinats.Since the incomes to all the private farmers in the project area are about thesame, the proposed water charge would apply equally to all beneficiaries. Thekombinats would pay higher water charges because in addition to direct benefitsfrom increased output of commodities they benefit indirectly through linkageswhich result from the project. The kombinats own and operate a sugar factorywhich presently obtains costly supply of raw material inputs from Vojvodina,about 200 km from the project area. With project, the operating cost of thefactory could decline by at least Din 6 million (US$0.3 million) when moresugar beet would be available from the project area. This is equivalent toan additional benefit of about Din 2,000 (US$110) per ha of project land whichwould be cultivated by the kombinats. Any additional water charge could dis-courage farmers from participating in the project. For this and for equityreasons, a higher than the above water charges at this time is not desirable.

Cost, Benefit and Rent Recovery Indices

10. Cost Recovery Index. The streams of project induced costs of theirrigation component, excluding price contingencies but including physicalcontingencies, and estimated project charges which are proposed to be reco-vered from the beneficiaries are in Table 5. The present value of the projectcharges in constant 1976 prices, discounted at 10%, is estimated at Din 292million (US$16.0 million). This would recover 100% of Operation and Main-tenance and about 11% of investment costs over project life of 40 years. Thetotal project cost recovery index, however, would amount to about 30%.

11. Benefit and Rent Recovery Indices. The proposed project chargeswould result in average benefit recovery index of about 25% and rent recoveryindex of about 55% (Table 6). Most of the project rent which is retained bythe beneficiaries would probably be used for consumption but some of it wouldalso be used as source of future investment resources. The proposed projectcharge would also promote equitable distribution of income among the benefi-ciaries because farmers with larger incomes would pay higher proportions oftheir incremental incomes than poorer farmers.

December 23, 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Farm Budget for a 1.5 ha Vegetable Farm

Item Cropped Production Production IncomeArea Output Value Cost(ha) (tons) -- Din--------------

PresentVegetables 0.75 15.7 31,400 9,670 21,730Wheat 0.50 1.2 3,000 1,310 1,690Pastures and Meadows 0.25 - - - -

Total 1.50 34,400 10,980 23,420

Future Without ProjectVegetables 0.75 18.0 36,000 10,690 25,310Wheat 0.50 1.5 3,750 1,340 2,410Pastures and Meadows O.25 _ ___ _

Total 1.50 39,750 12,030 27,20

Future With ProjectVegetables 1.25 43.7 87,400 25,750 61,650Wheat 0.25 1.1 2,750 1,050 1,700Maize (double crop) 0.25 1.2 2,160 1,90 360

Total 1.75 92,310 28,600 63,710

H

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Farm Budget for a 4 ha Field Crop Farm

Item Cultivated Production ProductionArea Output Value Cost Income(ha) (tons) ------ ------

PresentWheat 1.5 3.7 9,250 3,930 5,320Maize 1.5 3.7 6,660 1,860 4,800Vegetables 0.5 10.5 21,000 6,450 14,550Pastures and Meadows 0.5 - - - -

Total 4.0 36,910 12.24 24,670

Future Without ProjectWheat 1.5 4.5 11,250 3,930 7,320Maize 1.5 4.2 8,400 2,080 6,320Vegetables 0.5 12.0 24,000 7,130 16,870Pastures and Meadows 0.5 - - - -Total 4.0 43,650 13,140 30,510

Future With ProjectWheat 1.0 4.5 11,250 4,190 7,060Maize I 1.0 6.0 10,800 7,210 3,590Sugar beet 1.0 45.0 22,500 12,940 9,560Vegetables 1.0 35.0 70,000 20,600 49,400Maize II (Double Crop) 1. 5.0 9,000 7,210 1,790 frTotal 5.0 123,550 52,150 71.400

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Farm Budget for an 8 ha Field Crop Farm

Item Cultivated Production Production IncomeArea Output Value Cost(ha) (tons) --------- Din------------

PresentWheat 3.5 8.7 21,750 9,170 12,580Maize 3.0 7.5 13,500 3,720 9,780Peas 0.5 1.7 7,140 1,450 5,690Pastures and Meadows 1.0 - - - -

Total 8.0 - 42,390 14,340 28,050

Future Without ProjectWheat 3.5 10.5 26,250 9,380 16,870Maize 3.0 8.4 15,120 4,170 10,950Peas 0.5 2.1 8,820 1,540 7,280Pastures and Meadows 1.0 - - - -

Total 8.0 50,190 15,090 35,100

Future With ProjectWheat 1.0 4.5 11,250 4,200 7,050Maize 3.0 13.5 24,300 21,630 2,670Sugar beet 3.0 135.0 67,500 28,680 38,820Vegetables 1.0 35.0 70,000 20,600 49,400Maize II 0.5 2.5 4,500 3,600 900

Total __ 177,550 78,710 98,840

D bX

WH'

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Annual Production Cost in the Private Sector

Based on Domestic Prices of Inputs

Item Chemical Plant Animal /1Seeds Manure Fertilizers Protection Machinery Power Laboi' Total

---------- ------------------- ----- Din per ha------ - -- ---

PresentWheat 610 - 580 120 1,320 400 1,500 4,530Maize 120 1,000 680 - 440 1,230 5,000 8,470Barley 540 - 530 90 1,060 400 1,500 4,120Sunflower 80 1,000 660 370 2,210 - 1,000 5,320Peas 2,000 - 570 - 330 3,000 15,000 20,900Sugar beet 170 1,000 670 290 550 2,250 13,000 17,930Vegetables 10,000 1,000 570 2 , 0 00wa 330 3,240 15,000 32,140Fruit - - 460 2,900 3,000 - 13,000 19,360Alfalfa (Hay) 100 _ 210 - 80 760 3,000 4,150Meadows and Pastures - - - - - 200 2,000 2,200

Future Without ProjectWheat 610 - 630 120 1,320 400 1,500 4,580Maize 100 1,000 850 - 440 1,730 5,500 9,620Barley 540 - 590 120 1,320 400 1,600 4,570Sunflower 80 1,000 740 400 2,210 - 1,200 5,630Peas 2,000 - 760 - 330 3,00Q 15,000 21,090Sugar beet 170 1,000 830 340 550 2,250 14,000 19,140Vegetables 10,000 1,000 710 3 , 2 20;2 330 3,240 16,000 34,500Fruit - - 550 3,480 3,000 - 15,600 22,630Alfalfa (Hay) 100 _ 310 - 80 920 3,000 4,410Meadows and Pastures - - - - - 200 2,000 2,200

Future With ProjectWheat 610 - 1,060 580 1,940 - 400 4,590Maize (I and II) 80 1,000 1,360 380 4,390 - 1,000 8,210Barley 540 - 920 460 1,940 - 400 4,260Sunflower 80 1,000 990 370 2,210 - 900 5,550Beans 2,300 - 1,140 1,400 6,180 - 900 11,920Peas 2,000 - 1,140 240 6,230 - 400 10,010Sugar beet 170 1,000 1,340 640 9,790 - 1,200 14,140Vegetables 10,000 1,000 1,020 3 , 8 0 0L 4,780 - 23,000 43,600Fruit - - 670 3,640 3,270 - 20,000 27,580Alfalfa (Hay) 80 - 490 80 2,750 - 950 4,350

_~~~~~~~~~~~~~~~~~~~~~~~~~~~ I

/1 Based on imputed wage for family labor of Din 100 (US$5.6) per manday./2 Including wires and other plant supports.

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Annual Production Cost in the Social Sector

Based on Domestic Prices of Inputs

Item Chemical PlantSeeds Manure Fertilizers Protection Machinery Labor Total----------------------------------Din per ha-----------------------------------

PresentWheat 610 - 790 180 1,940 600 4,120Maize 80 1,000 1,000 380 3,950 1,500 7,910Barley 540 - 650 150 1,680 600 3,620Sunflower 80 1,000 570 300 1,210 1,000 4,160Peas 2,000 - 760 180 840 600 4,380Sugar beet 170 1,000 1,000 640 9,340 1,500 13,650Fruit - - 620 3,900 3,820 13,000 21,340

Grape - - 1,140 740 5,340 15,000 22,220Alfalfa (Hay) 80 - 310 - 1,920 1,400 3,710Meadows and Pastures - - - - 1,400 1,000 2,400

Future Without ProjectWheat 610 - 880 470 1,940 600 4,500Maize 80 1,000 1,080 380 3,900 1,500 7,940Barley 540 - 680 460 1,940 600 4,220Sunflower 80 1,000 660 300 1,320 1,200 4,560Peas 2,000 - 850 190 6,230 750 10,020Sugar beet 170 1,000 1,080 640 9,790 1,800 14,4JOFruit - - 740 4,700 3,820 14,000 23,260Grape - - 1,430 890 6,230 15,750 24,300Alfalfa (Hay) 80 - 310 80 2,260 1,400 4,130Meadows and Pastures - - - - 1,400 1,000 2,400

Future With ProiectWheat 610 - 1,060 580 1,940 600 4,790Maize 80 1,000 1,340 390 4,400 1,500 8,710Barley 540 - 920 460 1,940 600 4,460Sunflower 80 1,000 990 300 2,210 600 5,180Beans 2,300 - 1,140 1,400 6,180 900 11,920Peas 2,000 - 1,140 240 6,230 900 10,510Sugar beet 170 1,000 1,340 640 9,790 1,800 14,740Fruit - - 950 5,200 4,670 17,000 27,820Grape - - 1,880 890 6,230 18,000 27,000Alfalfa (Hay) 80 - 490 80 2,750 1,420 4,820

/1 Based on an equivalent wage rate of Din 150 (US$8.30) per manday.

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Project Costs and Charges

of Irrigation Component L

Project Years CostsInvestment Operation and Total Water Charges

Maintenance -Din Million------------Din Million -----------

77 303 6 30978 297 13 31079 212 21 233 680 61 21 82 1681 30 22 52 3082 - 22 22 3683 22 22 3984 22 22 39

Discount Rates (Z) Present ValuesCosts Project Charges

Investment Operation and TotalMaintenance

------------ Din Million -------------------------

7.6 833 269 1,102 3929.0 822 232 1,054 3299.6 817 219 1,036 306

10.0 814 211 1,025 292

/1 All costs and project charges are in constant 1976 prices. The investment coststreams do not include investments in vegetable packaging plant and related facilities,farm machinery , mobile equipment and in establishment of new orchards. These would be extended to thebeneficiaries as credits and recovered according to existing terms of loans.

December 1976

ANNEX 12Table 7

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Effect of Project Charges on Farm Income

Item Farm TypeModel I Mcdel 1I Model III-Din---------------

Farm IncomePresent 22,220 21,470 21,650Future Without Project 26,520 27,310 28,700Future With Project(before Project Charges) 62,510 68,200 92,440

Incremental income(before Project Charges) 35,990 40,890 63,740

Project Rent 9,700 20,870 43,670

Project ChargesWater Charge 4,500 12,000 24,000Betterment Levy 300 800 1,600Total 4,800 12,800 25,600

Ratio of Project Chargesto incremental income (%) /1 10 30 40

Ratio of Project Chargesto project rent (%) /1 50 60 60

ii Discrepancy due to rounding. The average benefit and rent recovery.indices for the three farm models amount to about 25% and 55%respectively.

December 1976

ANNEX 13Page 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Financing Plan

1. Requirements. Excluding VOM's resource requirements for non-projectrelated activities, the funds which would be required by the enterprise forproject implementation during the construction period would be as follows:

1977-81Item Din Million US$ Million

Capital Expenditures 1,986.1 110.3Interest During Construction 274.7 15.3Working Capital 50.8 2.8Pre-Operating Expenses 24.2 1.3Amortization of IBRD Loan 121.4 6.7

Total 2,457.2 136.4

2. Sources. The financing plan agreed at negotiations to fund theabove requirements is as follows:

1977-81Source Din Million US$ Million

Net Internal Cash Generation 12.3 0.7Sales of Sprinkler Equipment /1 52.0 2.9Kosovo Grants /2 121.4 6.7

Proposed Borrowings:IBRD 970.8 53.9Bankkos 1,300.7 72.2

Total 2,457.2 136.4

/1 This is assumed to be recovered from farmers through sales of sprinklerequipment, the cost of which is included in the project capital expendi-tures.

/2 These grants from Kosovo will cover the repayments of principal of theIBRD loan which fall due during the project construction period.

ANNEX 13Page 2

3. The term of IBRD loan is 15 years, including 3 years of grace, andan interest rate of 8.9% has been assumed for the financial projections. Theloan from Bankkos (the source of which would be Kosovo) would be for 25 years,including 5 years of grace, at an interest rate of 2%. The loans from IBRDand Bankkos would place a heavier debt service burden on VOM than it would beable to support from internally generated funds. Although VOM's revenue isexpected to grow during the early years of project operation, the rate ofgrowth is uncertain and dependent in part on the course of inflation; it isunlikely to be sufficient to enable VOM to meet its debt service obligationsunaided until the Bank loan is retired in 1992.

4. A second financing plan has, therefore, been developed to limitthe debt service obligations on VOM to what it can reasonably be expectedto meet during the early years of project operation by a program includinggrants and partial refinancing of the original project loans. The mainelements of the plan are as follows:

(a) VOM is expected to meet, from its own resources, a propor-tion of the amortization of the IBRD and Bankkos projectloans. The proportion increases, in line with expectedgrowth of VOM's revenue, from 10% in 1982 to 80% in 1991;details are given in Attachment 1;

(b) Kosovo will provide to VOM by way of grant a proportion ofthe interest due to IBRD and Bankkos, decreasing annuallyaccording to the schedule in Attachment 1;

(c) advances to cover the remainder of total debt service ineach year from 1982 to 1991 will be made by Bankkos. Theseadvances will be accumulated interest-free until 1993 whenthey will be consolidated into a loan repayable over 25years at 2% interest.

5. Undertakings necessary to implement this financing plan weregiven by Government of Kosovo and Bankkos at negotiations.

December 23, 1976

ANNEX 13Attachment I

YUGOSLAVIA

NETOHIJA I MULTIPURPOSE PROJECT

Proportions of Debt Service to be Paidby VOM and Kosovo, 1982-1991

Percentage ofAmortization Interest toto be Paid be Paidby VOM by Kosovo

1982 10 801983 20 701984 30 601985 40 501986 50 401987 60 301988 60 201989 60 101990 70 -1991 80

December 23, 1976

YUGOSLAVIA

METOHIJA I MDLTIFDRPOSE PROJECT

VOM: Income Statements for the veOra ending December 31. 1973-1987(Millions nf Dinars)

1973 1974 1975 1976 1977 1978 1979 1980 '-9l 1982 1983 1984 1985 1986 1987

RevenuesIrrigation & Water Supply - - - - - - - 33.3 61.8 87.7 107.2 124.7 138.8 152.8 168.3Other Activities 8.6 14.9 16.0 18.6 21.1 78.4 85.7 93.7 39.3 42.9 46.9 51.3 56.0 61.2 66.9

T.tal Revenue 9.6 14.9 16.0 18.6 21.1 Z784 8 a 101.1 130.6 134.1 176,0 Il2i.a0 . 2Zi5-2

Net Operatine IncomeIrrigation & Water Supply - - - - - (50.7) (30.3) (14.6) 1.1 14.7 26.0 38.5 52.8Other Activities 0.6 0_5 0.1 0.4 01.1 9.1 q.0 11.1 (0.9) (0.6) (0.2) 0.7 4.2 6.1 6.6

0.6 0.5 0.1 0.4 0.1 9.1 9.0 (39.6) (31.2) (15.2) 0.9 15.4 30.2 46.6 59.4Non-Operating Income 0 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.4 0.4 0.4 05 0.5 0.5

Net Inco=e before Interest 0.6 0.7 0.3 0.6 0.3 9.4 9.3 (39.3) (30.9) (14.8) 1.3 15.8 30.7 45.1 59.9

InterestIrrigation & Water Supply - - - - - - - 56.9 85.1 101.6 93.3 85.0 76.7 68.4 60.0Other Activitiec 0,2 0.1 0.2 0.4 0.6 0.6 0.2 0.1 0.1 0.1 0,1 0.1 0.1 0.1 0.1

0.4 0.6 0.1 0.2 (0.3) 8.8 9.1 (96.3) (116.1) (116.5) ( 92.1) (69.3) (46.1) (23.4 ( 0.2)

Goverunent Grants - - _ _ _ _ _ _ 9 81.2 65.3 51.0 38.4 27.4 18.0

Net Income 0.4 0.6 0.1 0.2 (0.3) 8.8 9.1 (96.3) (116.1) (35.3) (26.8) (18.3) ( 7.7) 4.0 17.9

Analysis of Net Income:Irnigation and Water Supply _ - - - - - - (107.6) (115.4) (35.0) (26.9) (19,3) (12.3) (2.5) 10.8Other Activities 0.4 0.6 0.1 0.2 (0.3) 8.8 9.1 11.3 (0.7) (0.3) 0.1 1.0 4.6 6.5 7.0

Rate of Return (.):Irrigation _ _ _ _ _ _ _ (4.3) (3.5) (2.7) (2.1) (1.7) (1.6) (1.3) (1.2)Water Supply _ - - - - - 2.3 5.9 7.2 9.1 11.5 14.4 17.4 20.8Irrigation & Water Supply _ - - - - - - (2.6) (1.5) (0.8) ( - ) 0.8 1.5 2.3 3.1Other Activities 1.3 0.9 0.2 0.7 0.2 13.8 14.8 19.2 (1.7) (1.3) (O.S) 1.9 11.5 18.3 22.3VOM 1.3 0.9 0.2 0.7 0.2 13.8 14.8 (2.0) (1.5) (0.8) - 0.8 1.6 2.5 3.5

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURHOSE PROJECT

VOM: Bslane- Sheets as at Deem-ber 31, 1973-1987(Millions of Din-rs)

Item 1973 1974 1975 1976 1977 1979 1979 1980 1981 1982 1983 1984 1985 1986 1987

ASSETSNet Fixed Assets is Operatien:

Irrigatio- & Water Supply - - - - - - 1696.1 1934.9 1998.3 1944.7 1891.1 1837.5 1783.9 1730.3 1676.7Other Aetivities 44.0 43.3 43.3 42.8 64.3 68.9 63.4 57.6 51.6 45.4 38.9 37.8 36.4 33.2 29.6

44.0 43.3 43.3 42.8 64.3 68.9 1759.5 1992.5 2049.9 1990.1 1930.0 1875.3 1820.3 1763.5 1706.3Work il Peogre-s 9.2 11.4 15.8 18.1 361.9 1081.0 8.7 8.6 9.3 9.9 20.2 32.7 33.1 33.6 A40

Total Fixed Assets 53.2 54.7 59.1 60.9 426.2 1149.9 1768.2 2001.1 2059.2 2000.0 1950.2 1908.0 1853.4 1797.1 1740.3

I-og Term Isveatmenta 0.7 0.4 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0.8 0.8 0.9 1.0 1.1 1.2Current Assets:

Invent-ries 4.8 4.0 4.3 1.9 2.1 8.5 9.2 10.8 5.4 16.7 18.5 19.8 20.7 22.0 23.1Axesanta Receivable 3.7 5.2 6.1 3.1 3.5 8.4 9.3 17.5 21.0 29.0 34.4 39.4 43.5 47.7 52.2Cash sad Equivalent 0.6 1.0 1.2 2.4 (0.3) 3.2 27.1 3.3 45.3 62.3 79.5 90.8 116.6 141.6 169.3

Total Currest Asseta 9.1 10.2 11.6 7.4 5.3 20.1 45.6 31.6 71.7 108.0 132.4 150.0 180.8 711.3 244.6

TOTAL ASSETS 63.0 65.3 71.1 68.7 432.0 1170.5 1814.4 2033.3 2131.6 2108.8 2083.4 2058.9 2035.2 2509.5 1986.1

EQUITY AND LIABILITIESBusineas Feed & Reserve 27.3 42.1 41.5 41.7 41.4 50.2 39.3 (37.0) (153.1) (269.6) (361.7) (431.0) (477.1) (500.5) (500.7)Government Contribations - - - - _ _ _ 40.5 121.4 202.6 267.9 318.9 357.3 384.7 402.7

Total Equity 27.3 42.1 41.5 41.7 41.4 50.2 59.3 3.5 (31.7) ( 67.0) (93.8) (112.1) (119.8) (115.8) (98.0)Loag Term Debt:

Eniatieg L.oan 30.7 16.5 22.7 21.8 20.8 19.8 5.6 5.1 4.6 4.1 3.7 3.4 3.1 2.7 2.4Proposed IBRD - - - - 76.6 328.0 564.4 730.8 804.4 768.5 687.6 606.7 525.8 444.9 364.0Peoposed bakkos I - - - - 262.6 732.5 1151.2 1275.2 1300.7 1247.2 1192.6 1136.9 1080.1 1022.2 963.1Propo.sd Baskkos II - _ , , - - - 141.4 277.8 407.4 528.3 638.7 736.7

Total Long Term Debt 30.7 16.5 22.7 21.8 360.0 1080.3 1721.2 2011.1 2109.7 2161.2 2161.7 2154.4 2137.3 2108.5 2066.2

Nan-Current Liabilities - - - - 25.0 25.0 10.0 - - - - - - - -

Carreat Liabilities 5.0 6.7 6.9 5.2 5.6 15.0 23.9 18.7 53.6 14.6 15.5 16.6 17.7 16.8 17.9 t

TOTAL EQUITY AND LIABILITIES 63.0 65.3 71.1 68.7 432.0 1170.5 1814.4 2033.3 2131.6 2108.8 2083.4 2058.9 2035.2 2009.5 1986.1

Lecehber 1976

YUGOSLAVIA

HETOHIJA I MULTIPURPOSE PROJECT

VOM: G..h Flow St.teeente for ve-re dlop December 31. 1974-1987

__---Actual ------ ----- ------------------ --- ---------------- ____Forecar.t------- ------- ----- ----- ------------------ ------------ ----- --------- _--------------Itte 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

Internal SoerceeNet Incote before Interett 0.7 0.3 0.6 0.3 9.4 9.3 (39.3) (30.9) (14.8) 1.3 15.8 30.7 45.1 59.9Depreciation 1.8 2.4 2.4 2.9 6.4 8.1 52.5 57.8 63.1 63.4 63.9 61.9 60.8 61.7Fixed Ascet Disposal L - - - - - 15.4 - - - - - - - -Sales of Sprickler Equipnent - - 10.0 21.0 21.0 _- _

Total Internal Souree 2.5 2.7 3.0 3.2 15.8 42.8 34.2 47.9 48.3 64.7 79.7 92.6 105.9 121.6

Operotionol Rcquire=entsWorking Capital (1.0) 1.0 (3.7) 0.2 1.9 (7.3) 15.0 (36.8) 58.3 6.3 5.2 4.0 6.3 4.5Debt Service 14.2 0.2 1.3 14.1 34,3 80.0 134.4 177.0 236.6 229 222.0 214.8 207. 6 200.4Totol Operati0onl Req.irecto 13.2 1.2 (2.4) 14.3 36.2 72.7 149.4 140.2 294.9 235. 227.2 218.8 213.9 204.9

Net Availablc from Operati.co (10.7) 1.5 5.4 (11.1) (20.4) (29.9) (115.2) (92.3) (246.6) (170.8) (147.5) (126.2) (108.0) ( 83.3)

lacital EcpendttureProposed Project - - - 329.1 684.3 596.8 277.3 122.8 9 10.0 11.9 - -Other Projects 3.4 6.8 4.2 26.6 13.1 4.4 2.7 3.7 3.9 3.7

9.8 7.2 4.7 4.9Total Capital Eopenditure 3.4 6.8 4.2 355.7 697.4 601.2 280.0 128.5 5.9 15.7 21.7 7.244.7 4.9

l-veetento (0.3) - - 0.1 - 0.1 - 0.1 0.1 - 0.1 0.1 0.1 0.1

Balance to Fina.ce 13.8 5.3 (1.2) 366.9 717.8 631.2 395.2 218.9 250.6 184.5 169.3 133.5 112.8 88.3Equity 14.2 (0.7) - - - - - - - - - - -E.i6ting Leons - 6.2Proposed Loaneo

THRD _ - _ 76.6 251.4 236.4 206.9 154.5 45.0 - - _ _ _Bankkos I --- 262.6 469.9 418.7 124.0 25.5 - - - - --

bbnkkos II - - - 141.4 136.4 129.6 120.9 110.4 98.0Short Term Debt - - - 25.0 - - - - - - -.oversamst Graets _ - - - - _ 40.5 80.9 81.2 65.3 51.0 33.4 27.4 18.0

C:.h Flow for Year 0.4 0.2 1.2 (2.7) 3.5 23.9 (23.8) 42.0 17.0 17.2 11.3 25.8 25.0 27.7Carb at 8eginning 0.6 1.0 1.2 2.4 (0.3) 3.2 27.1 3.3 45.3 62.3 79.5 90.8 116.6 141.6Cash at ERd 1.0 1.2 2.4 (0.3) 3.2 27.1 3.3 45.3 62.3 79.5 90.8 116.6 141.6 169.3 5 x

Ttra.ofr of aceeoolsted project expenditures from B0AL Cpnstruction to BOAL Hydro Systm Radenic reflected in proposed project .opooditures.

December 1976

AMUl 14Attaeph_t 1

Y1OSvGAVIA

M8HC5TA I MYLTIPL6POSE PROJECT

A.s'ntfons for Financial Pro1 ctions

Irrigation ond Potable Other ActivitiesITEM Wetor Supply of VOM

A. General 1. Inflation is capital ad operating cost has bean asssed at tha following rates:

1977 1978 1979 1980 1981-1987

Capita Costs 12 12 12 10 10Operating Costs 13 10 8 8 7

2. Oper-ting spces and fitd as-et costs for the separate serenes of VOM resithar pecifically idsntified froe accounts, or where this is iVoesible,allocatd em a reas ble basis. All roots relating to ths d-c h". beenallocated betwen th eter supply (201) nd the irrigation ceepocent (80%).

B. Incotm Statiets

3. Reveues Irrigation The proposed charges for irrigatio REistin. Irrietien gevenuc arc assued stable,are she in A.nee 12 .sbject to adjustment for inflation, since future

ns ii-igatio needs ill bh ceterod by the projct.Water Revnuse frct ter sales re based ons average pric of Din 4.32/s3 at 1976 prics. Construction Construction revenues re eapected

Charges for both servi,ee have been to increase considrably during 1978-80 as a resultadjuated for inflation at 8% through 1980, of work concerted with th projct. Fro 198172 thereaft r they are projectd at the 1977 Ivel subject to

adjustment for ieflation.

4. Operticg Er nesee Olaris wages, legal obligations to Poracasts of comstructioo repccs. d-ring 1978-80various funds and allocated costs of co on are bas on dstailed estimates by co-sultacic.ervic.e ar bas d on for casts prepared by The reining astisstee are projectd or previousVOM nd itu con_sltnts yars ratio to rev ns.e.

Pfer costs nd the cost of chemicalf-r wter treatment re clculted with to-fre_nc to the erpcted rosiesioning dat sof the puVpiug statioco and treatment work.AllPeC for inflatioc is iccloded inaccordance ith the rates set ont at Aabov Pro-operating eapenee in 1978/9has beet capitalied.

;. D-rreciatio- Lepreciatioc has been providd, fret Depoecietioc has beet proidtd:th yar following the -secud date of con-nissocing, at th followin g rats (a) at 3% on entering ir-igatioc assets;

(b) at 13% on costutin .uets.,lerigatioc assets (including 807 of ths de): 2.3%water eseets (ircluding 207% of the dee): 2.5%

6. Intrert Icterost has ben cocputd: Interest has been coqputd:(s) oc IBgD lons, at 8.97% c the outstanding (a) on existing BRnkkos 1ane, at 2.9% o the

balanc outet-adiog b.lanc(b) on B nkkos lonse at 2% on the ousteanding (b) 00 short-terc borroi-gg, at 2%

7 GOa-cs Grants hane boon assucod(a) iu 1910 acd 198. tcdo:cer the

arsirtlootls of thy Bas I-ac;(b) othrwi=, as described is

Acse 13

C. Cash Flow Statemeote

8. Debt Service Debt cornic paynots are based on loans tsken for feasibility nstdiee end prelimii-rythe ficnncing pln in A.nce 13 cud aseuc engineering of the project (totalling Din 15.1 nillio-(a) rctiremc-t of the IBRD lon over 12 at the nd of 1975) ar *aeuced retired in 1979, whn

ytaro by lo nl inst-llmnts of principal; the corrsponding espenditure are trasferred to(b) r tirement of Bankkos loans by the DAL hyrdro System Radnic, Debt servic for tho

anuity method: reinder of the period ie accordiog to the repayment(i) oner 25 years (including S grace) schedul of the othe loansh nec oustetading.

is respect cf bcrr-visig fro=(ii) 1977-81;

over 25 years froc 1993 in -rep-rof borrouingu froc 1982-91.

9. Capital E spndit-rcs Capital eepunditrur Cpital epeudlres cndfsage a shbstantial roqcire-(a) for 1977-81, project epecnditure as set =net of now construction quipment in 1977 and 78 for

ost in Aer x 8 plus pre-op-reting expeacs: project emrs; in sobsequent years because of antici-(b) is suhbcqu nt yars, replacemect of patrd lower leve1s of activity only pproeir-tely one-

vehicles, third of this equipmnet is epected to bh replacedInterest applicable to esste undr construction at the end of its norl life.has been capitaliced.

10. Preposed Lons Borrowings ar in accordance ith thefinancing plan d scribed in Anner 13.

D. Be-nc Sheet

11. Long-ter Investments long-term iovesimente represent .ontributiens requiredto be mde by VOM to th -ospost strprise WaterManagement Kesovo under the torcs of the JoiJt .elfmanagoen't agree'ent.

12. Inentories Inventories repres nt Inventories repr sent four months' eatimtad usage(a) for irigatio-, 6 mn-ths' requirement of materials throughout lhe period

of materials;(b) for eater supply, 6 months' requireents

of materials d cheicls.

13. Accounne Recei-nblo Accont re-eiv-ble represent 3-1/2 Accounte receivabl represent 3-1/2 .onths' revenumonths' rn fo irigatio ad 2-1/2 mnths for irrigation ad 2-1/2 montha for osstructfo,.fo wter supply.

l-ebethe 1976

ANNEX 15Page 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Economic Evaluation

A. Introduction

1. The economic merits of the project have been evaluated using effi-ciency and social prices. This Annex presents only analysis of the economicrate of return on the project, based on efficiency prices of inputs andoutputs. However, analysis of the social rate of return on the project, basedon social prices of inputs and outputs, reveals that the project is sound onsocial grounds. The beneficiaries are among the poorest in Yugoslavia or evenin Kosovo. Then present average level of per capita consumption is computedat about 50% of the critical consumption level in Yugoslavia.

B. Economic Rate of Return

2. The economic rate of return on all project components is estimatedat about 11%. The rates of return on the irrigation component and on thewater supply component are computed at about 11% and 10.9%, respectively.Cost and benefit streams are calculated over an assumed project life of 40years (Table 2). Other assumptions made in calculating the rates of returnare summarized below:

Investment Costs

3. Joint Costs. All investments in project facilities which wouldserve commonly the irrigation and water supply components are charge to eachcomponent in proportion to the volume of water which would be utilized by eachsubproject. Thus, about 80% of the investments in the Radonic dam and inrelated facilities are charged to the irrigation subproject and the remaining20% to the water supply subproject.

4. Irrigation Component. Investment costs are estimated using July1976 prices. The cost streams exclude:

(i) cost of farm machinery because this is included in theannual cost of mechanization services;

(ii) cost of land needed for farm roads and right of way, be-cause these are reflected when computing project benefitsfrom smaller area;

ANNEX 15Page 2

(iii) price contingency because all costs and benefits are cal-culated in constant 1976 prices; and

(iv) taxes and duties.

5. The remaining cost streams are disaggregated into foreign exchangeand local components (Table 3). No adjustment is made to the foreign ex-change component of investment cost streams because it is already expressedin CIF prices. The local cost components, which include labor, transportation,materials and equipment are converted into their border equivalents by multi-plying them with various conversion factors which were derived on the assump-tions that about 30% of the local cost components of most items consist ofunskilled labor and transportation, and the remaining 70% skilled labor,equipment and materials. The conversion factors for unskilled labor andtransportation are estimated at 0.80 each. The conversion factors for skilledlabor, equipment and materials are about the same as the standard conversionfactor (SCF) which is estimated at 0.93. Thus, a weighted average of the SCFand of transportation, which is estimated at 0.90, is used to convert localcost components of most primary inputs into their border equivalents.

6. Water Supply Component. The proposed water supply subproject re-presents the least cost solution to the water supply problem of the projectarea. UNDP consultants, Hydroprojekt of Prague, have established that alter-native sources of water from groundwater are not in sufficient quantity tomeet demand in the project area.

7. To derive costs based on efficiency prices, subproject costs aredisaggregated into foreign exchange, local cost and taxes/duties components.The local cost components are further disaggregated into skilled and un-skilled labor, transportation, materials (such as pipes, cement, fuel, etc.)and equipment (Table 4). These are then converted to their border equivalentsby multiplying them with various conversion factors (Table 5); the conversionfactors are derived on the same basis as those used for estimating bordercosts of the irrigation subproject.

Development Period

8. Irrigation Component

(i) Construction would start in 1977 and be completed in 1981.Drainage works on about 3,700 ha would be carried out during1978-81 and erosion control works on about 2,700 ha during1979-82. Initial irrigation benefits would accrue to about2,750 ha in 1979 and the entire project area of 10,250 hawould be irrigated by 1981.

ANNEX 15Page 3

(ii) Full project benefit would be realized in 1986, seven yearsfollowing commencement of irrigation. Yield developmentwould proceed at varying rates in the private and socialsectors (Annex 1). Details about development of outputafter irrigation are in Table 6.

(iii) Cropping pattern in the future without the project wouldremain unchanged but yields would increase by about 10-20%due to application of improved farm technology and of betterfarm management practices (Annex 1). The additional yieldswould be attained in equal installments over five years.Development of output in the future without the project isdetailed in Table 7.

9. Water Supply Component. Construction of the trunk distributionsystem is expected to commence by mid-1977 and of the water treatment plantshortly thereafter; both would be completed by late 1978 or early 1979. Minorsupply mains, storage reservoirs and pumping stations would be constructed con-currently. Impounding from the Radenic dam would start in the winter of 1978and be completed in 1979 for full cycle operation in 1980.

Production Costs

10. Irrigation Component. Border prices of inputs used in computingthe economic rate of return are in Table 8. The assumptions made in derivingthese prices are summarized below:

(i) Mechanization Services. About 20% of domestic cost ofmechanization services include fuel and lubricants, 20%skilled labor and the remaining 60% depreciation and spareparts. The conversion factor for fuel and lubricants isestimated at about 0.62, shadow wage rate for skilledlabor at 93% of market wage and the conversion factor fordepreciation and spare parts is assumed to be equivalentto a conversion factor for tractors which is computed at0.68. Thus, domestic costs of mechanization services areconverted into their border equivalents by multiplying themwith a weighted average of the above conversion factors.

(ii) Fertilizers. Border prices of chemical fertilizers havebeen derived by adding Government subsidies to prices paidby farmers. As there is substitution between chemical fer-tilizers and manure, domestic price of manure was increasedby about 12%, which is equivalent to the average rate ofsubsidy for chemical fertilizers.

(iii) Animal Power. Domestic prices, which include feed and de-preciation, are converted into their border equivalents bymultiplying them with the SCF.

ANNEX 15Page 4

(iv) Seeds and plant protection. No adjustment was made todomestic prices of these inputs because distortions intrade with these inputs are insignificant.

(v) Operation and Maintenance. More than 85% of the cost iscomposed of electrical energy, material and skilled labor.The conversion factors for each of these components areclose or equal to the SCF. For this reason, the SCF isused to convert domestic prices into their border equi-valents.

Annual production costs of different crops in the private and social sectorsbased on border prices of inputs are in Tables 9 and 10, respectively.

11. Water Supply Component. Operation and maintenance costs are dis-aggregated into labor, materials, equipment, chemicals and miscellaneous.A weighted average of the conversion factors for these components is esti-mated at about 0.90. This is used to convert domestic operation and mainte-nance costs into their border equivalents.

Output Prices

12. Irrigation Component. There are little or no import duties orexport taxes on major project commodities, and prices are generally free torespond to changes in demand and supply. But to encourage production ofmaize, wheat, sunflower and sugar beet, the Government provides farmers withmodest premiums above market prices. In general, however, the farm-gateprices of most commodities are about the same as prices elsewhere inYugoslavia and are in line with IBRD forecasts of world prices of similarcommodities for 1975-1985. For these reasons, normal year's post-harvestdomestic prices, net of all subsidies, are assumed to be about the same asborder prices equivalent of farm-gate prices. Efficiency prices of cropoutput used in project appraisal are in Table 11.

13. Water Supply Component. Existing charges for potable water inthe project area are inadequate to cover the incremental cost of additionalwater supply. As in most water supply projects, it is likely that thesecharges do not reflect adequately the willingness of consumers to pay forwater. For this reason and because of widespread externalities in watersupply projects, benefits are usually underestimated. The long-run averageincremental cost of treated water in domestic prices is computed at aboutDin 4.32 per m3. This figure converted to border prices is used to computethe benefits from the water supply component.

ANNEX 15Page 5

C. Sensitivity Analysis: Economic Rate of Returns

14. Irrigation Component. Investment cost at border prices is estimatedat Din 94,440 (US$5,250) per ha. The high investment cost results partly fromdesign of the subproject to fit the needs of small fragmented holdings, andinclusion in Phase I of the project, cost of facilities which would serve bothPhases I and II. If land consolidation was practical, investment costs wouldhave been lowered by about 5% and the economic rate of return increased from11% to 11.4%. Prorating of costs of project facilities which would benefitboth Phases I and II would increase the rate of return on Phase I to 13%. Therate of return would increase to 13.8% if land consolidation was practical andif the benefits from Phase II facilities can be realistically estimated.

15. Water Supply Component. Results of sensitivity analysis of theeconomic rate of return on the water supply subproject and further resultsof sensitivity analysis on the return to the irrigation component aresummarized below:

Economic Rate of ReturnAssumptions All Project Water

Components Irrigation Supply--------------Percent-------------

(a) Basic Run 11.0 11.1 10.9(b) Project Costs Increased by 15% 8.9 8.5 9.6(c) Project Benefits Reduced by 15% 8.5 8.1 9.4(d) Project Costs Reduced by 15% 13.7 14.1 12.5(e) Project Benefits Increased by 15% 13.3 13.7 12.3(f) Investment Costs Prorated between

Phases I and II - /1 13.0 - /1(g) Land Consolidation Practical - /1 11.4 - /1(h) (f) and (g) Combined - /1 13.8 - /1

/1 Not applicable.

December 23, 1976

ANNEX 15Table 1

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Summary of Shadow Pricing Parameters

Item Co-efficient

General Conversion FactorsStandard Conversion Factor (SCF) 0.93Consumption Conversion Factor (CCF) 0.93Conversion Factor for Intermediates 0.93Conversion Factor for Investment Goods 0.91Conversion Factor for Transport (CFT) 0.82Conversion Factor for Construction 0.80

Project-Specific Conversion Factors /1Conversion Factor for Inputs

Operation and Maintenance 0.93Tractors 0.68Machinery Services 0.70Fertilizers 1.12Insecticides and Herbicides 1.00Seeds and Seedlings 1.00AAimal Power 0.90Fuel 0.62

Conversion Factors for OutputsWheat 0.84Sunflower 0.96Sugar beet 0.94All others 1.00

Marginal Product of Capital at Market Prices 9.0Marginal Product of Capital at Border Prices 9.6

Interpersonal Distribution WeightsElasticity of Marginal Utility

with respect to consumption (n) 1.0Value of Public Income (v) 1.65Critical Consumption Level (CCL) 0.65

Discount RatesAccounting Rate of Interest (ARI) 7.6Consumption Rate of Interest (CRI) 7.6

Shadow Wage Rates for Unskilled Rural LaborEfficiency (SWUL) 0.80Social 0.42

Shadow Wage Rates for Skilled LaborEfficiency (SWSL) 0.93Social 0.93

/1 These have been estlted by the mission based on information obtainedduring appraisal.

December 1976

YEUCOSLAV IA

METOHIJA I M4ULTIPURPOSE PROJECT

Econoic Coot nod B-cfit Stre- With no,d Without the Project

Cetegory 1977 1978 0979 t98O 0981 1982 1983 1984 1985~ 0986 1987 I2M IQli 12938 1991 0992 1993 1994 1995 1292 1997 1998 1999 2800-6 2007-8 2009 2210-11 2012Zo16

With ProJect

Irrigottoc 2Rh 293 189 92 88 0 W otarO PppEy 88 036 17 - - - - - - - - - - - - - -- - - - ----

Irrigation 75 75 81 1083 130 137 043 148 109 159 050 159 159 199 150 150 150 105 150 150 158 150 150 150 108 150 158 158

Oparatioc 6 Maiet-eooonod Roploco..e.tIrrIgation 2 4 6 12 14 17 28 23 27 23 23 28 23 27 23 29 26 41 37 33 23 25 32 23 36 43 33 23Wat-rSPppEy - - - 3 3 3 4 4 5 5 5 5 -5 -5 -5 -5 1 6 8 6 6 6 6 6 6 6 6

ToteR Costs 411 988 293 209 27 157 175 17 182 078 178 ER 178 182 178 184 182 197 193 089 079 179 188 179 192 199 189 717

B ...fits

IreRgatle 97 101 035 288 260 294 317 334 341 343 343 343 343 349 343 343 343 343 343 543 343 343 343 343 343 343 343 343

W.at-rOeppi - - - 21 24 28 32L 36 48 42 44 46 4!8 58O 52 54 56 5_8 68 63 65 67 69 72 72 72 72 72

Total Benefits 7 0 135 22- 8 2 4 378 381 385 38 38 39 93 39 397 399 401 403 486 488 418 412 415 41 49 45 45

Without Project

Irttgatiee 75 75 75 75 75 75 75 75 75 75 75 75 75 79 75 75 75 75 75 75 75 72 71 70 75 75 70 75Zetarlapply - - - - - - - - - - - - -: - - - - _ -_ - -- -

T.t.1 Costs 7L5 75 7L5 79 75 75 75 75 75 75 75 75 75 75 75 70 75 75 75 75 75 79 75 75 75 70 75 75

Ban... Eit.

Wat.erSupply - - - - - - - - - - - - - - _- _- _- _- _- _- - _- _- _- _- - _-

Ieorassate1 Costs

Irrlatee288 297 201 132 149 79 96 96 102 98 98 103 98 102 98 104 101 116 112 108 98 98 107 98 ill 118 188 94Wa 1tarlepply 8§8 136 17 5 3 3I 4 4 5 _5 5 _5 5 5 5 5 6 6 6§ 6 6 6 6 6 6 6 6 6

TotalSe1 ees Costs 376 433 218 13 12 82 188 188 187 13 183 08 103 187 103 109 107 12 118 114 1 0414 113 14 11 124 014 14

Isora-ta1 B-efits

Irtigattue 8 8 32 93 149 183 206 223 230 232 232 232 232 232 232 232 232 232 232 232 232 232 232 232 232 232 202 252Wutr Oepply 5 0 0 21 2 28 3 36 40 42 4 46 48 50 52 54 5 58 60 63 6 67 69 72 72 72 72 72

Totol Ieoau-tol B-efito 0 0 32 114 173 211 238 259 270 274 276 278 280 282 284 286 288 298 292 295 927 299 301 384 384 304 304 304

D--,hsr 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Investment Cost of Irrigation Component

Item Domestic Cost Conversion Facto 4 ll Border CostForeign Local Total for Local Cost Foreign Local Total--- Din Million--------- - --- Din Million---------

Intake and D 49.0 36.0 85.0 0.90 49.0 32.4 81.4Land Acquisition for Dam - 61.7 61.7 0.93 - 57.4 57.4Main Canals 63.7 57.6 121.3 0.90 63.7 518 115.5Primary Pipes 41.1 37.1 78.2 0.90 41.1 33.4 74.5Secondary Pipes 19.7 17.8 37.5 0.90 19,7 16.0 35.7Tertiary Pipes 68.1 18.3 S6.4 0.90 68.1 16,5 84.6Equalizing Reservoirs 1.8 2.5 4.3 0.90 1.8 2.2 4.0Fittings 4.6 1.9 6.5 0.90 .4.6 1.7 6.3Discharge Control Equipment 12.1 1.2 13.3 0.90 U1.1 1.1 13.2Sprinklers (Social Sector) 3.2 4.3 7.5 0.90 3.2 3.9 7.1Farm Roads 19.0 11.3 30.3 0.90 19,0 10.2 29.2Land Acquisition for Farm Roads - 7.3 7.3 0.93 (SCF) - 6.8 6.8Land Acquisition for Canals - 10.4 10.4 0.93 (SCF) - 9.7 9.7Compensation for Crop Losses - 20.0 20.0 1.00 - 20.0 20.0Boundary Adjustment - 8.3 8.3 0.93 (SW8L) - 7.7 7.7Power Network 7.3 5.4 12.7 0.90 7.3 4.9 12.2Reservoirs B2 and B9 1.1 1.5 2.6 0.90 1.1 1.3 2,4Pumping Station 1.4 2.3 3.7 0.90 1.4 2.1 3.5Drainage 36.8 15.8 52.6 0.93 (SCF) 36.8 14.7 51.5Erosion Control 4.4 13.1 17.5 0.93 (SCF) 4.4 12.2 16.6Soil Improvement 8.0 11.9 19.9 0.93 (SCF) 8.0 11.1 19.1Buildings 4.7 22.5 27.2 0.90 4.7 20.2 24.9Operation and Maintenance Vehicles 8.9 1.3 10.2 0.80 (CFT) 8.9 1.0 9.9Test Farms 6.0 2.2 8.2 0.93 (SCP) 6.0 2.0 8.0Consultants 4.1 1.0 5.1 0.93 (CCF) 4.1 0.9 5.0Sprinklers (Private Sector) 10.5 14.0 24.5 0.80 (SWUL & CFT) 10.5 11.2 21.7Others 40.2 43.1 83.3 0.85 /2 40.2 36.7 76.9Engineering and Administration - 72.1 72.1 0.93 (SCF) - 67.0 67.0Physical Contingency 47.0 53.0 100.0 0.93 (SCF) 47.0 49.0 96.0

Total 462.7 554.9 1.01-7.6 462.7 505.1 967.8

a See Table 1 for more on the Conversion Factors.Average of Conversion Factors for different components.

December 1976

METOHIJA I MULTIPURPOSE PROJECT

Breakdown of Cost Items of Water Supply Component

Distribution of Total Cost Distribution of Local CostCost Item Foreign Taxes Local Skilled Labor Unskilled Labor Materials Equipment

---------------------------------------Percent…-------------------------------------

I. Civil Works

20% share of dam 47 25 28 10 20 20 50Filter Station 33 13 54 10 20 35 35Distribution and Trunks 47 25 28 5 20 50 25Village Mains 47 25 28 5 20 50 25Storage Reservoirs 33 20 47 5 25 50 20Pumping Station 33 13 54 15 10 50 25

II. Equipment

20% share of dam 47 25 28 10 20 20 50Filter station 33 13 54 20 10 40 30Distribution and Trunks 42 20 38 5 10 55 30Village Mains 42 20 38 5 10 55 30Storage Reservoirs 33 20 47 5 20 55 20Pumping Station 33 13 54 20 10 40 30

III. Other Capital Costs

Land Appropriation - - 100 - - - -Engineering Services - - 100 90 5 3 215% Physical Contingencies 38 - 62 10 20 40 30

IV. Operation and Maintenance

Salaries - - 100 25 75 - -Materials - - 100 20 - 60 20Administration - 100 50 50 - - C x

Chemicals /1 40 - 60 20 - 60 20 4 ~Other Expenses - 20 5 75 10 35 35 20

1/ Mainly Power, fuel and transport.

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Capital Expenditure on Potable Water Component

Border CostDomestic Cost Distribution of Total Cost

Item Foreign Local Taxes Total Local Total 1977 1978 1979 1980 1981Exch4nste

----------------------------------------------------------- Din Million---------------------------------------------------

Civil WorksDam 10.6 6.3 5.6 22.5 5.7 16.3 8.3 8.0 -

F;ilter Station 8.6 14.1 3.4 26.1 12.7 21.3 3.9 17.4 -

Distribution and Trunks 15.7 9.3 8.4 33.3 8.4 24.1 3.4 19.0 1.6

Village Mains 2.0 1.2 1.1 4.3 1.1 3.1 2.0 1.1 -

Storage Reservoir 6.0 8.6 3.6 18.3 7.7 13.7 3.0 10.7 -

Pumping Station 0.4 0.7 0.2 1.3 0.7 1.1 0.1 1.0 -

Sub-total 43.3 40.2 22.3 105.8 36.3 79.6 20.7 57.2 1.6

EquipmentDam 2.6 1.5 1.4 5.5 1.4 4.0 2.0 2.0 -

Filter Station 12.6 20.6 4.9 38.1 18.5 31.1 4.8 17.5 8.7

Distribution and Trunks 32.5 29.4 15.5 77.4 26.5 59.0 18.2 36.7 4.1

Village Mains 0.7 0.7 0.3 1.8 0.6 1.3 0.7 0.7 -

Storage Reservoir 0.6 0.9 0.4 2.0 0.8 1.5 0.3 1.2 -

Pumping Station 0.4 0.7 0.2 1.3 0.6 1.1 0.5 0.5 -

Sub-total 49.4 53.8 22.7 126.1 48.4 98.0 26.5 58.6 12.8

Land Appropriation - 16.0 - 16.0 14.9 14.9 14.9 - -

Engineering Services - 18.7 - 18.7 17.4 17.4 17.4 - -

Physical Contingency(15%) 13.2 21.5 - 34.8 18.1 31.3 8.1 20.3 2.9

Total Costs 105.9 150.2 45.0 301.4 135.1 241.2 87.6 136,1 17.3,-_ -

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

/1Development of Output After Irrigation

Item 1979 1980 1981 1982 1983 1984 1985 1986-2015------------------------------ '000 tons -------------------------------

Crop

Wheat 6.9 6.7 6.5 5.8 5.4 5.1 4.9 4.9Maize 8.2 10.2 12.4 13.6 14.7 15.4 15.4 15.6Barley 0.6 0.9 1.1 1.1 1.2 1.4 1.4 1.4Sunflower 0.4 0.5 0.6 0.7 0.7 0.7 0.8 0.8Beans 0.2 0.5 0.9 1.1 1.2 1.3 1.4 1.4Peas 1.4 2.0 2.7 3.1 3.5 3.7 3.8 3.8Sugar beet 10.0 23.2 40.2 49.9 57.5 63.4 65.8 66.2Vegetables/2 11.8 20.0 31.3 37.8 42.7 46.6 48.7 49.0Fruit/3 15.1 26.5 34.3 38.0 40.2 41.2 41.4 41.4Grape 8.6 9.4 9.8 10.1 10.1 10.1 10.1 10.1Alfalfa (Hay) 4.6 8.1 12.8 15.9 18.4 20.0 21.0 21.2Meadows and Pastures 6.4 4.1 2.1 1.3 0.7 0.2 - -

By-product

Wheat Straw 6.9 6.5 6.1 5.6 5.2 5.0 4.9 4.9Barley Straw 0.6 0.9 1.1 1.1 1.2 1.4 1.4 1.4Beans Straw 0.2 0.5 0.9 1.1 1.2 1.3 1.4 1.4Peas Straw 1.4 2.0 2.7 3.1 3.5 3.7 3.8 3.8Corn Cobs 7.4 9.2 11.2 12.3 13.2 13.9 13.9 14.0Sugar beet Leaves 3.0 7.0 12.1 15.0 17.3 19.0 19.7 19.9

. _.~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~q

/1 Outputs during 1977-1978 would remain the same as those in future without the project (See Table _4)./2 Mainly tomatoes and peppers. X

/3 Primarily apples. ° C

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

/1Development of Output in Future Without Project

1977 1978 1979 1980 1981-2016…('--------------('000 tons)…------------------

Crop

Wheat 7.7 8.0 8.2 8.3 8.8Maize 7.3 7.5 7.6 7.8 8.1Barley 0.7 0.7 0.7 0.7 0.8Sunflower 0.5 0.5 0.5 0.6 0.6Peas 1.3 1.4 1.4 1.5 1.5Sugar beet 4.3 4.4 4.5 4.6 4.7Vegetables/2 6.6 6.8 6.9 7.1 7.3Fruit/3 7.1 7.4 7.6 7.9 8.2Grape 6.0 6.3 6.6 6.9 7.2Alfalfa (Hay) 2.5 2.6 2.6 2.7 2.7Meadows and Pastures 4.2 4.2 4.2 4.2 4.2

By-Product

Wheat Straw 7.7 8.0 8.2 8.3 8.8Barley Straw 0.7 0.7 0.7 0.7 0.8Peas Straw 1.3 1.4 1.4 1.5 1.5Corn Cobs 6.6 6.7 6.8 7.0 7.3Sugar beet Leaves 1.3 1.3 1.4 1.4 1.4

/1 Discrepancy due to rounding./2 Primarily tomatoes and peppers./3 Mainly apples.

December 1976

ANi1EX 15

Table 8

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Prices of Inputs Used for Appraisal of Irrigation Component

Item PriceUnit Domestic Border

(Din)---------

SeedsWheat ton 3,030 3,030Maize ton 4,000 4,000Barley ton 3,000 3,000Sunflower ton 5,500 5,500Beans ton 23,000 23,000Peas ton 10,000 10,000Sugar beet ton 25,000 25,000Alfalfa ton 40,000 40,000

SeedlingsTomatoes 1,000 pcs 400 400Peppers 1,000 pcs 100 100

MachineryLight day 680 480Medium day 890 620Heavy day 1,110 780Combine day 2,570 1,800

FertilizersUrea ton 2,800 3,08010:30:20 ton 2,500 2,75012:30:16 ton 2,520 2,81014:14:14 ton 1,670 1,86014:22:9 ton 1,960 2,15016:16:16 ton 1,880 2,10017:13:10 ton 1,620 1,84045% P2 0 ton 2,450 2,750Manure ton 1,000 1,120

Plant ProtectionGeolin ton 3,700 3,700Mitation E-50 ton 28,400 28,400Etasin ton 35,500 35,500Kasin ton 8,000 8,000Diasinol ton 70,000 70,000Lindan ton 8,150 8,150Manila ton 32,000 32,000Piramin ton 81,400 81,400Agelon ton 135,000 135,000

LaborUnskilled (Private Sector) day 100 80Semi-skilled (Social Sector) day 150 140

Animal Power day 100 90

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Annual Production Cost of Crops in the Private Sector

Based on Border Prices of Inputs

Item Chemical Plant AnimalSeeds Manure Fertilizers Protection Machinery Power Labor Total

------------------------------------------ Din per ha--------------___________________________

PresentWheat 610 - 650 120 820 370 1,200 3,770Maize 120 1,120 760 - 270 1,140 4,000 7,410Barley 540 - 590 90 660 370 1,200 3,450Sunflower 80 1,120 740 370 1,370 - 720 4,400Peas 2,000 - 640 - 200 2,850 12,000 17,690Sugar beet 170 1,120 750 290 340 2,090 10,400 15,160Vegetables 10,000 1,120 640 2,000 200 3,010 12,000 28,970Fruit - - 510 2,900 1,860 - 10,400 15,670Alfalfa (Hay) _ _ 230 - 460 710 2,400 3,800Meadows and Pastures - - - - - 190 1,600 1,790

Future Without ProjectWheat 610 - 650 120 820 370 1,200 3,770Maize 100 1,120 950 - 270 1,140 4,400 7,980Barley 540 - 660 120 820 370 1,280 3,790Sunflower 80 1,120 830 370 1,370 - 720 4,490Peas 2,000 - 850 - 200 2,850 12,000 17,900bugar beet 170 1,120 930 340 340 2,090 10,400 15,390Vegetables 10,000 1,120 790 460 200 3,010 12,800 28,380Fruit - - 620 3,480 1,860 - 12,480 18,440Alfalfa (Hay) 100 _ 270 - 680 850 2,400 4,300Meadows and Pastures - - - - - 190 1,600 1,790

Future With ProjectWheat 610 - 1,190 580 1,200 - 320 3,900Maize 80 1,120 1,520 380 2,720 - 800 6,620Barley 540 - 1,030 460 1,200 - 320 3,550Sunflower 80 1,120 1,110 370 1,370 - 720 4,770Beans 2,300 - 1,280 1,400 3,830 - 720 9,530Peas 2,000 - 1,280 240 3,860 - 320 7,700Sugar beet 170 1,120 1,500 640 6,070 - 960 10,460Vegetables 10,000 1,120 1,140 980 2,960 - 18,400 34,600Fruit - - 750 3,640 2,030 - 16,000 22,420Alfalfa (Hay) 80 - 420 20 1,700 - 760 2,980 LA

December 1976

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Annual Production Cost of Crops in the Social Sector

Based on Border Prices of Inputs

Item Chemical PlantSeeds Manure Fertilizers Protection Machinery Labor Total

-------------------- Din per ha--------------------

PresentWheat 610 - 880 180 1,200 560 3,430Maize 80 1,120 1,120 380 2,450 1,390 6,540Barley 540 - 730 150 1,040 560 3,020Sunflower 80 1,120 640 300 750 930 3,820Peas 2,000 - 850 180 520 560 4,110Sugar beet 170 1,120 1,120 640 5,790 1,390 10,230Fruit - - 690 3,900 2,370 12,090 19,050Grape - 1,280 740 3,310 13,950 19,280Alfalfa (Hay) 80 - 350 - 1,190 1,300 2,920Meadows and Pastures - - - 970 930 1,900

Future Without ProjectWheat 610 - 980 470 1,200 560 3,820Maize 80 1,120 1,210 380 2,420 1,390 6,600Barley 540 - 760 460 1,200 560 3,520Sunflower 80 1,120 740 300 820 1,120 4,180Peas 2,000 - 950 190 3,860 700 7,700Sugar beet 170 1,120 1,210 640 6,070 1,620 10,830Fruit - - 1,600 890 2,370 14,650 19,510Grape - 1,600 890 3,860 14,650 21,000Alfalfa (Hay) 80 - 350 20 1,400 1,300 3,150Meadows and Pastures - - - 870 930 1,800

Future With ProjectWheat 610 - 1,190 580 1,200 560 4,140Maize 80 1,120 1,500 390 2,730 1,390 7,210Barley 540 - 1,030 460 1,200 560 3,790Sunflower 80 1,120 1,110 300 1,370 560 4,540Beans 2,300 - 1,280 1,400 3,830 840 9,650Peas 2,000 - 1,280 240 3,860 840 8,220Sugar beet 170 1,120 1,500 640 6,070 1,670 11,170Fruit - - 1,060 5,200 2,890 15,810 24,960Grape - 2,100 890 3,860 16,740 23,590 Alfalfa (Hay) 80 - 420 20 1,700 1,320 3,540

0 br

December 1976

ANNEX 15Table 11

YUGOSLAVIA

METOHIJA I MULTIPURPOSE PROJECT

Prices of Output Used for Appraisal of Irrigation Component

Item PricesDomestic /1 Border----------(Din per ton)-------

CropWheat 2,500 2,100Maize 1,800 1,800Barley 1,800 1,800Sunflower 5,200 5,000Beans 3,000 3,000Peas 4,200 4,200Sugar beet 500 470Vegetables /2 2,000 2,000Fruit /3 2,000 2,000Grape 4,000 4,000Alfalfa (Hay) 800 800Meadows and Pastures 250 250

By-productWheat Straw 100 100Barley Straw 100 100Beans Straw 100 100Peas Straw 100 100Corn Cobs 150 150Sugar beet leaves 150 150

/1 These are based on post-harvest prices during 1975 and expected toprevail in 1976 on an assumption that both years have normal agricul-tural seasons. Prices at other times of the year could be differentbecause of storage costs.

/2 Mainly tomatoes and peppers.

/3 Primarily apples.

December 1976

YUGOSLAVIAMETHOHIJA I MULTI PURPOSE PROJECT

VOM -Future Organization Chart

FOUNOERS COUNCIL

EXECUTIVE COMMITTEE

|ENERAL DIRECTOR

| JOIT SERVICES

I FERVICI L AMINISTRATIVE

8.0 A.L ENGINE REPAIR B.O.A.L. CONSTRUCTION B3.O AL IRRIGATION R.O A7L HYRO SYSTEM RADENIC

WORKERS COUNCIL WORKERS COUNCIL7 WORKERS COUNCIL WORKERS COUNCIL

CHIEF DIRECTOR DIRECTOR

WORK SHOP CONSTRUCTION ADMINISTRATION ~~~~~~~~~PERATON FINANCIAL SERVICE TECRNICAL SERVICE -ADMIINISTRATIVE SERVICE

FINANCINGNACCOUNTING WATER SUPPLY IRRIGATION PERSONNEL LEGAL

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