Report No. 1757b-MA Mft 0 t

MalaysiaAppraisal of the Northwest SelangorIntegrated Agricultural Development Projectlanuary 30, 1978

Projects DepartmentEast Asia and Pacific Regional OfficeFOR 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.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

US$1.00 = M$2.48M$1.00 = US$0.40M$1 million US$403,000

WEIGHTS AND MEASURES - METRIC SYSTEM

1 millimeter (mm) = 0.039 inches1 meter (m) = 39.37 inches1 kilometer (km) = 0.62 miles1 square kilometer (sq km) = 0.386 square miles1 hectare (ha) = 2.47 acres1 cubic meter (cu m) = 35.31 cubic feetI liter (1) = 0.264 gallons (USA)1 liter/second (l/s) = 0.035 cubic feet per second1 kilogram (kg) = 2.2 pounds1 metric ton (ton) = 2,205 pounds

ABBREVIATIONS

AA = Agriculture AssistantAO = Agriculture OfficerAT = Agriculture TechnicianBPM = Bank Pertanian MalaysiaDID = Drainage and Irrigation DepartmentDOA = Department of AgricultureFOA = Farmers' Organization AuthorityGOM = Government of MalaysiaGRP = Glass-Reinforced PolyesterMOA = Ministry of AgricultureMARDI = Malaysian Agriclture Research and Development InstituteLPN = Lembaga Padi dan Beras Negara = National Padi BoardSG = Sungei = River

MALAYSIAN FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLYMALAYSIA

APPRAISAL OF THE

NORTHWEST SELANGOR INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS i-ii

1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . ..

2. BACKGROUND . . . . . . . . . . . . . . . 1

The Agricultural Sector . . . . . . . . . . . . . . . . . 2Irrigation and Drainage Development in Malaysia . . . .. 2

The State of Selangor. . . . . . . . . . . . . . . . . . . 3

3. THE PROJECT AREA . . . . . . . . . . . . . . . . . . . . . . 4

Climate . . . . . . . . . . . . . . . . . . .. . . . . . 4

Soils, Topography, and Drainage . . . . . . .. 5

Drainage and Irrigation Infrastructure . . . . . . . . . . 6Farm Size and Tenure .. .. . . . . . . . . . . .... 7Estate Agriculture . . . . . . . 8

Agricultural Supporting Services . . . . . . . . . . . . . 8Project Formulation . . . . . . . . . . . . . . . . . . . 11

4. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . 12

Project Components . . . . . . . . . . . . . .. . 12Status of Design . . . . . . . . . . . . . . . . . . . . . 15Implementation Schedule . . . . . . . . . . . . . . . . . 16Cost Estimates . . . . . . . . .. ... 16Financing . . . . - . . . . . * . . . . . . . . . 17Procurement . .. . . . . . . . . . . . . . . . . . . 18Disbursements . . . . . . . . . . . . . . . .. . . 19Accounts and-Audits . . . . . . . . . . . . . . . . . . . 19Environmental Effects . ... .. . . 19

5. ORGANIZATION AND MANAGEMENT ................ 20

Project Coordination . . . . . . . . . . . . . . . . . . . 20Agency Responsibilities . .. . . . . . 21

Smallholder Rent and Cost Recovery . . . . . . . . . . . . 23Estate Taxation . . . . . . . . . . . . . . . . . . . . . 24

This report is based on the findings of an appraisal mission composed of

Messrs J. Goldberg and G. Temple (Bank), and G. Thorsky, R. Shepherd, and

P. Judd (consultants).

This docunent has re tricted distribution and may be usd by recipients only in the performanceof their omcial duties. Its content mAy not otherwise be diclosed without Worid Bank authorization.

Page No.

6. PRODUCTION, MARKETING, PRICES AND FARM INCOME . . . . . . . . 24

Padi Production, Marketing, and Prices . . . . . . . . . . 25Tree Crop Production, Marketing, and Prices . . . . . . . . 25Farm Incomes .. ....... . . .. 27

7. BENEFITS, JUSTIFICATION AND RISK . . . . . . . . . . . . . . 28

8. RECOMMENDATIONS . . . . . . . . . . . 29

ANNEXES

1. Water Demand, Supply, and Quality2 Present and Projected Developments in Padi Production3. Present and Projected Developments in Tree Crop Agriculture4. Drainage and Irrigation Works, Equipment and Staff - Cost

Estimates5. Agricultural Supporting Services6. Summary Cost Estimates7. Expenditure and Disbursement Schedules8. Proposed Allocation of the Proceeds of the Loan9. Production, Marketing and Prices10. Farm Budgets and Incomes11. Economic Analysis

CHARTS

17908 - Proposed Timing of Farm Activities in Tanjong Karang Padi Area(attached to Annex 2)

17696 - Schedule of Implementation of Civil Works (attached to Annex 4)17618 - Tanjong Karang Irrigation Area - Typical Layout (attached to Annex 4)

MAPS

13026R - Northwest Selangor Rural Development Project13027R - Typical Drainage Layout (Sabak Bernam)

REFERENCES

1. FAO/IBRD Cooperative Program; "Draft Report of the Northwest SelangorDrainage and Irrigation Improvement Project Preparation Mission;"March 8, 1977

2. S. Selvadurai, "Coconut Smallholdings in Lower Perak, Kuala Selangor,and Sabak Bernam," Ministry of Agriculture, 1974

3. S. Selvadurai, "Padi Survey in Kuala Selangor and Sabak Bernam,"Ministry of Agriculture, 1976

MALAYSIA

APPRAISAL OF THENORTHWEST SELANGOR INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT

SUMMARY AND CONCLUSIONS

1. The Government of Malaysia has requested Bank assistance in financing

the Northwest Selangor Rural Development Project. The major objective of theproject is to raise the productivity and incomes of about 32,000 smallholderfarm families dependent on the cultivation of padi and a wide variety of tree

crops in a region bordering the northwest coast of the State of Selangor.Project formulation originated in the efforts of the Selangor Drainage andIrrigation Department (DID) to upgrade existing drainage and irrigation infra-

structure and to promote agricultural development (increased cropping intensityin padi areas, intensified intercropping in tree crop areas) in the majoragricultural subregion of the state. Over time it became apparent that only

piecemeal engineering solutions to the region's drainage and irrigation problems

were possible as long as development was dependent on routine annual budget

allocations. It was also necessary to involve the agencies providing agricul-tural supporting services together with DID in an integrated extension effortto upgrade smallholder farm practices in conjunction with full-scale improvementin agricultural infrastructure. The formulation of this project thus involvedthe long-term planning of irrigation works and regional drainage systems on the

engineering side, and the working out of a complete operational methodology offield extension activities with the Department of Agriculture, the Bank Pertanian

Malaysia, the Farmers' Organization Authority, and DID at both the State andFederal levels.

2. The proposed project is composed of three major infrastructureelements, including the upgrading and intensification of the existing Tanjong

Karang irrigation system serving 12,000 families cultivating 20,000 ha of padi;provision of an integrated and improved drainage and flood protection system for

about 10,000 families cultivating 28,000 ha of coconuts and intercrops in theSabak Bernam area; and provision of major drainage works in the Kuala Selangor

area, to serve 10,000 smallholder families cultivating 25,000 ha of tree crops

and to link the private drainage systems of 35 estates with over 26,000 plantedha. In addition to the irrigation and drainage infrastructure elements, the

project would provide required access roads throughout the region and agricul-tural installations, quarters, and equipment to support an expanded program of

agricultural and irrigation extension, production credit, crop marketing, input

supply, and operation and maintenance services for the region's smallholders.

3. The project would advance the Government's two major goals for therural sector - increasing incomes of smallholder farmers and increasing produc-tion of imported staples and diversified export crops. About 65% of the North-west Selangor region's padi and tree crop smallholders currently earn incomesbelow the absolute poverty line, and the incomes of the majority of these

families would be raised above the absolute poverty line by full project develop-ment. A combination of factors, including the rapid spread of intercropping

of cocoa and coffee by coconut farmers, the recent development of very highyielding hybrid dwarf coconuts, and relatively high prices for a range of coconut

products, provides the first opportunity in recent years for large numbers of

coconut farmers to escape poverty, given adequate drainage of the coconut areas.

- ii -

Similarly, padi farmers in the region are progressive enough and possess largeenough farms (1.7 ha on average) to rise out of the poverty group, given anadequate irrigation and drainage system. The project would produce an incre-mental 30,000 tons of milled rice at full development, reducing imports byabout US$10 million per annum at present prices. Total incremental productionof coconut products, cocoa, coffee, rubber and oil palm products would amountto approximately US$9.3 million per annum by the year 2000. The overall eco-nomic rate of return is estimated at 21%, comprising a 19% rate of return forthe irrigation component and a 22% rate of return for the drainage component.

4. Total project cost is estimated at US$60 million (M$148.7 million),of which the foreign exchange component would be US$26 million, or 43% of thetotal cost. The proposed Bank loan of US$26 million would finance the foreignexchange component. The average capital costs of the irrigation works proposedare US$1,390/ha (US$2,100/family), while costs of the tree crop drainage worksin smallholder areas are US$225/ha (US$540/family). Average capital costs ofdrainage directly allocable to estate areas are US$33/ha, or US$52/ha if costsof regional drainage works are allocated pro rata. Incremental annual costs ofagricultural services at project completion (1983) would amount to about US$12per smallholder family.

5. The drainage and irrigation works and access roads would beconstructed through a total of 12 contracts, of which five pertaining tothe Tanjong Karang irrigation component (US$28.3 million) would be subjectto international competitive bidding in accordance with Bank Group guidelines.The three largest ICB contracts; (totalling US$18.3 million) would cover thesupply and installation of the structural tertiary canal system, and wouldbe open to any structural system meeting specified characteristics of speedof installation, minimal disruption of existing crops, total command of thearea, durability, and other factors. Two additional ICB contracts (totallingUS$10 million) would cover construction of secondary and lateral canals,drains, and roads. Rehabilitat:ion and upgrading of headworks, main canals,and coastal bunds, and fabricat:ion of tidal gates, totalling US$2.2 millionin value, would be executed by DID on force account. Drainage of the treecrop areas would be implementedl through seven contracts worth a total ofUS$17.5 million, which would be awarded after competitive bidding advertisedlocally in accordance with Government procedures satisfactory to the Bank.Buildings and facilities costinig a total of US$2.7 million would also betendered locally. Agricultura:L and operation and maintenance equipment andvehicles (US$2.0 million) would be tendered internationally, and a 15%preference margin, or the prevailing customs duty if lower, would beextended to local manufacturers of these items. Small off-the-shelf items,costing less than US$20,000 each and limited to a total of US$500,000,would be procured through normal Government procedures.

6. The project would be implemented over a period of five years. AllFederal agencies involved in the project are under the jurisdiction of theMinistry of Agriculture (IIOA). Federal DID would be responsible for finaldesign, tendering, and supervision of construction of all project civilworks. The agency has successEully completed the Muda (434-MA) and Kemubu(500-MA) Irrigation Projects, and is currently implementing the majordrainage component of the West,ern Johore Agricultural Development Project(973-MA) and the major irrigation component of the North Kelantan Rural

- iii -

Development Project (1294-MA), and is supervising the implementation of

the National Small-Scale Irrigation Project (1444-MA) by the various StateDepartments of Drainage and Irrigation. Implementation of the present projectworks without consultant assistance is considered feasible, particularly sincethe rectangular lot layout of the Tanjong Karang padi area presents a muchless difficult problem of on-farm irrigation and drainage system design thanthat faced by DID planners in North Kelantan, and the areas to be drained aremuch smaller and less complex hydrologically than those of Western Johore. Theagricultural services program would be implemented by local field staff of the

Department of Agriculture, the Farmers' Organization Authority, and the BankPertanian Malaysia, working in cooperation with each other and DID field staff.The project would be administered by a Project Coordinator appointed by the

1O0A, under a Steering Committee co-chaired by the Secretary-General of the MOAand the State Secretary of Selangor.

7. Subject to appropriate assurances, the proposed project is suitablefor a Bank loan of US$26 million, with a 17-year maturity and a grace periodof 4 years. The borrower would be Malaysia.

MALAYSIA

APPRAISAL OF THENORTHWEST SELANGOR INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT

1. INTRODUCTION

1.01 The Government of Malaysia (GOM) has requested Bank assistancein financing the Northwest Selangor Integrated Agricultural DevelopmentProject. The major objective of the project is to raise the productivityand incomes of about 32,000 smallholder farm families dependent on thecultivation of padi and a wide variety of tree crops in a region borderingthe northwest coast of the State of Selangor. Major infrastructure componentswould include the upgrading and intensification of the existing TanjongKarang irrigation scheme, reconstruction and improvement of drainage andflood control networks in the Sabak Bernam and Kuala Selangor tree cropareas, and construction of Farmers' Development Centers and access roadsdistributed throughout the region. Agricultural service components wouldpromote the introduction of an intensive training and visit system ofagricultural extension throughout the smallholder padi and tree crop areas,as well as a marked expansion in volume and coverage of agriculturalproduction credit and input supply and marketing services for smallholders.In addition to substantial increases in smallholder padi and tree cropproduction, the project would permit increased production of various treecrops by private estates (plantations) which would be able to connect theirown internal drainage systems to the new main drainage system.

1.02 The project was identified and formulated by the Drainage and Irri-gation Department (DID) with the assistance of Bank missions in May andAugust 1976. Detailed project preparation was assisted by FAO/CP missionsconsisting of Messrs. C. W. Brookson and M. Sugimura (FAO/CP), and J. Weather-hogg and T. Bright (Consultants), working in close cooperation with Federaland Selangor DID, the Ministry of Agriculture (MOA), the Bank PertanianMalaysia (BPM), Federal and Selangor Departments of Agriculture (DOA) and theFarmers' Organization Authority (FOA). This report is based on the findingsof an appraisal mission which visited Malaysia in April 1977 composed ofMessrs. J. Goldberg and G. Temple (Bank) and G. Thorsky, R. Shepherd andP. Judd (Consultants).

2. BACKGROUND

2.01 Malaysia covers an area of 333,000 sq km, of which 132,000 sq kmare in the 11 States of Peninsular Malaysia and the remaining 60% in theBorneo States of Sarawak and Sabah. Of the total population of 12.3 millionin 1975, 10.2 million lived in Peninsular Malaysia, 1.3 million in Sarawak,and 0.8 million in Sabah. The ethnic composition of the population is approx-imately 47% Malay, 34% Chinese, and 9% Indian, with the remainder chieflyconsisting of groups indigenous to Sabah and Sarawak and a small Eurasiancommunity. In Peninsular Malaysia, the great majority of farm families areMalay, while the population of most urban areas is predominantly Chinese.

2.02 With a per capita income of US$860 in 1976, Malaysia is oneof the most prosperous developing countries in Asia. This high averageincome masks considerable poverty among rural smallholders, however,

among whom padi farmers and coconut and rubber smallholders have beenidentified by GOM /1 as target poverty groups to be assisted by ruraldevelopment programs. The Government's commitment to financing largedrainage and irrigation, agricultural production, rural infrastructureand social service programs has been facilitated by fairly high ratesof economic growth, averaging 6% p.a. during the last decade. The growthrate of the economy slowed down to 1% in 1975 due to softening of inter-national commodity prices, following the boom years of 1973 and 1974 whencommodity prices and GNP growth peaked. The estimated GNP growth in 1976again rose above trend to about ]L0%, and Malaysia's external reserves(US$2.6 billion in February 1977) rose to a level equal to about eightmonths of net imports at current levels.

The Agricultural Sector

2.03 Malaysia's agricultural sector is largely oriented to world exportmarkets, and occupies a predominant position in international trade innatural rubber, palm oil, hardwoods, and pepper. Except for oil palm,acreages of all principal crops mainly consist of smallholdings, althoughthe large private and public estate sector continues to play a vital rolein the production of rubber and coconuts. In this regard, coconut small-holders on the west coast of Johore, Selangor, and Perak have in recentyears followed estate breakthroughs in the intercropping of cocoa and othercrops with mature coconuts. Other recent trends in tree crop agricultureinclude the gradual replacement of rubber by oil palm by estates situatedin coastal regions more suited to the latter, and the initiation of oil palmcultivation by independent smallholders. Planting and production decisionsby both estates and smallholders are closely attuned to existing and projec-ted world market conditions.

Irrigation and Drainage Development in Malaysia

2.04 Irrigation and drainage works in Malaysia constitute a basic infra-structure network on which the settlement, continued habitation, and pros-perity of large coastal regions, including hundreds of thousands of farmersand town dwellers, depend. In this sense the water control network is atleast as important as the road, railway, and electrical networks to thelife of the country. The most productive padi and tree crop areas of thecountry were developed from coastal swamp jungles and marshland whichrequired drainage to permit agric:ultural development, settlement, construc-tion of transport links, and alleviation of the once endemic malaria.Channelization of rivers and bunding of river banks and sea coast wererequired to prevent annual heavy flooding of both crops and towns in monsoonseasons, salt water intrusion, and severe erosion of the coast in storm

/1 See Problems of Rural Poverty in Malaysia, IBRD Report No. 838-MA.

seasons. Irrigation was required to expand the production of the population'sbasic food, rice. All of these activities fall within the purview of DID,which began the survey and design of its first major project (the KrianIrrigation Scheme) in 1880.

2.05 Bank financing of DID activities began with the Muda IrrigationProject (Loan 434-NIA) in 1965, which provided the facilities required toinitiate padi double-cropping in Malaysia's largest coastal plain, in thestates of Kedah and Perlis. The Kemubu Irrigation Project (Loan 500-MIA)enabled a substantial increase in padi double-cropping in the southern por-tion of the Kelantan coastal plain, while the North Kelantan Rural Devel-opment Project (Loan 1294-MA) provides for intensification of padi irriga-tion and drainage facilities originally constructed by DID between 1958 and1962 on the north bank of the Kelantan River, as well as construction of asystem of river flood control bunds. The recently initiated National Small-Scale Irrigation Project (Loan 1444-MA) will finance a program of nearly200 small irrigation schemes throughout the country, several of which wereoriginally developed by DID from coastal swampland. The Western JohoreAgricultural Development Project (Loan 973-MA) is based on the constructionof an intensive drainage and coastal bunding system which will enable thattree-crop region to achieve higher levels of agricultural productivity. Thepresent project would be the first to combine the two major elements of DID'sprogram, drainage and protection of tree crops and irrigation of padi, in asingle area development project.

The State of Selangor

2.06 The State of Selangor is situated in the central portion of thewest coast of Peninsular Malaysia, bounded by Negeri Sembilan to the south,the Central Mountain Range and Pahang to the east, the Bernam River and Perakto the north, and the Strait of Malacca to the west. It surrounds theFederal Territory of Kuala Lumpur, recently detached administratively fromthe jurisdiction of the Selangor State Government. The State is now dividedinto six administrative districts, of which two (Kuala Selangor and SabakBernam) form the present project area. Selangor had a population of 1.63 mil-lion in 1970, of which .87 million were in Kuala Lumpur. Selangor is Malaysia'smost prosperous State, due mainly to the large tin mining and manufacturingindustries in the Klang Valley and the concentration of civil service andcommercial employment in the Kuala Lumpur area, but the economy of the tworelatively isolated districts in the northwest corner of the State is almostentirely dependent on agriculture.

-4-

3. THE PROJECT AREA

3.01 The project area lies in the districts of Sabak Bernam and KualaSelangor (Map 13026R). It includes most of the inhabited area of the two

districts, the remainder largely consisting of a large peat swamp (nearly500 sq km in extent) inland from the project area and smaller coastalmangrove swamps, which would not be affected by the proposed project. The

project area extends about 90 km along the coast and 20 km inland at itswidest point. The total agricultural area of the project is about 97,000 ha,including nearly 20,000 ha of padi in the Tanjong Karang irrigation area; adrained coastal strip between this area and the sea of 7,500 ha largelyplanted with smallholder coconuts; a drained area in Sabak Bernam to thenorth of 21,000 ha largely planted with smallholder coconuts; and a drained

area in Kuala Selangor to the south of 48,500 ha of tree crops (oil palm,rubber, coffee, coconuts, and cocoa), evenly divided between smallholdings

and estates.

3.02 The population of thes two districts in 1970 was 213,000, of which64% were Malay, 21% Chinese, and 15% were Indian. The Chinese population waslargely concentrated in the area's major towns, including Kuala Selangor,Sekinchan, Tanjong Karang, Sungei Besar, and Sabak Bernam, and was largelyinvolved in trade, fishing, and small-scale industry in addition to agricul-tural pursuits. The Indian polpulation was chiefly engaged as laborers inestate agriculture, while the Malays were largely concentrated in smallholder

agriculture. About 73% of the households in the region were engaged insmallholder agriculture. The present smallholder agricultural population of

the project area is estimated at 192,000 (32,000 households), the overwhelmingmajority of which is Malay.

Climate

3.03 The project area has a humid tropical climate characterized byrelatively high rainfall, high humidity, consistently high temperatures,and only minor variations in day length. Annual rainfall averages 1,800 mmwith distribution largely determined by the northeast monsoon (October-March)and intermonsoonal disturbances during the March-April and September-Novemberperiods. The influence of the southwest monsoon (May-September) is weakenedby the sheltering effect of North Sumatra. The wettest months are October-November and April-May. The driest months are February-March and June-July.

3.04 Mean annual temperature is about 26 degrees centigrade and average

relative humidity is about 83%. There are no major climatic constraints toperennial tree crop and upland field crop production, but the unreliabilityof rainfall in the January-August period precludes off-season rice productionwithout supplementary irrigation. In the absence of an intensive drainagesystem, heavy rains in the September-November period also frequently hinder

harvest and drying of late-planted off-season rice crops, and increase theincidence of pest and disease aLttack. Occasional extended flooding, due toheavy localized rainfall and overtopping of rivers, is also capable ofinflicting permanent damage on tree crops.

-5-

Soils, Topography, and Drainage

3.05 The bulk of the project area comprises a flat coastal plain, withrising land and undulations in the southern section between the Buloh Riverand the Klang district boundary. Four rivers drain the area. The BernamRiver meanders along the northwest boundary of the area, while the smallerTinggi, Selangor, and Buloh rivers dissect the southern half of the area andflow in a southwesterly direction to the sea. Due to the low elevation,slight grade and lack of natural drainage lines, the coastal plain is poorlydrained and was historically subject to sea water intrusion along the coastalfringe. Since 1910, the Drainage and Irrigation Department has progressivelyimproved the area with the construction of a coastal bund, tidal gates and abasic network of internal drains at about 2-km intervals. These works haveallowed most of the more suitable soils to be developed for agriculturalpurposes. Nevertheless, problems with the silting of drainage outlets, andthe inadequacy of the existing drainage network still impose a yield constrainton crops in the lower lying areas.

3.06 The bulk of the soils on the plain are fairly heavy alluvial soilsdeveloped under marine or brackish water conditions or organic muck and peatsoils developed under impeded surface drainage conditions in the lower lyingareas. Fresh water alluvial soils occur along the lower reaches of thelarger rivers. The most common soil series in the project area, the Selangorseries, is one of the most fertile series in Peninsular Malaysia, and most ofthe local soils are well suited to rice production and have been successfullydeveloped for the entire range of Malaysian tree crops. However, the heavierphases of these soils are not well suited for rubber production, and arecurrently being converted to oil palm. The yields of all tree crops in theregion are closely correlated with the adequacy of surface drainage. Smallisolated areas of potentially acid sulphate soils have been identified, andwill require careful water table management to insure good tree crop yields.

3.07 A sample survey of the region's coconut smallholders /1 in 1974revealed the extent of drainage problems as follows. Fifty percent of therespondents in Sabak Bernam, and 44% in Kuala Selangor, reported waterloggingof coconut holdings, and 21% and 15% of the respondents in the respectiveareas reported waterlogging of duration between 11 and 30 days. Seventeenpercent of the Sabak Bernam respondents reported waterlogging of over 30 daysduration, which is an indication of serious damage for coconuts and intercrops.Ninety-one percent of Sabak Bernam farmers and 65% of those in Kuala Selangorhad excavated drains on their holdings, but only 19% in the former area and22% in the latter reported that collector drains existed to which their farmdrains could be connected. According to the survey, the largely similarcoconut areas of Lower Perak, immediately north of the Bernam River, are muchbetter served by major drainage infrastructure, and perhaps as a result,report substantially reduced waterlogging and more intensive maintenance andcleaning of farm drains by smallholders.

/1 Coconut Smallholdings in Lower Perak, Kuala Selangor, and Sabak Bernam,S. Selvadurai, Ministry of Agriculture, 1974.

- 6-

Drainage and Irrigation Infrastructure

3.08 The first settlers of the project area, many of whom migrated fromvarious regions of present-day I]ndonesia, constructed open drains throughthe coastal areas to permit coconut cultivation. These systems were notparticularly effective in draining localized flooding, and the area becameincreasingly vulnerable to sea water intrusion, and to river flooding withthe clearing of inland jungles. Government drainage and flood control workswere initiated in Kuala Selangor in 1910 and in Sabak Bernam in 1932, andby 1937 included 90 km of coastal bunds with tidal gates and associated maindrains. Between 1937 and the 15950s DID provided a simple internal drainagenetwork for 6,000 ha of smallholder tree crops in Sabak Bernam, while theprivate estates in Kuala Selangor constructed their own piecemeal drainagesystems. The existing drains in the tree crop areas were designed to evacu-ate a two-year frequency storm in 72 hours, but several large areas are fre-quently flooded for two weeks or more (para. 3.07). Drain capacities aretoo small and drain structures dlo not adequately control water levels. Tidalgates are in many cases much too small and are incorrectly sited in loca-tions that silt up. Much of the coastal and river bund system is inadequateor needs repair. Hundreds of ha of potential coconut land near the sea,and thousands of ha of potential coffee land near the Buloh River, are stillsubject to frequent sea and river flooding, and require improved bunds anddrainage to permit cultivation by smallholders.

3.09 The Tanjong Karang padi irrigation scheme was developed from virginjungle by DID through a series of programs beginning in 1936. Water wasfirst provided for a single wet-season padi crop by a weir on the TinggiRiver via a 40-km main canal along the inland border of the project area. Toaugment the water supply for double-cropping, diversion barrages were construc-ted in 1957 and 1964 on the Bernam River, and a 15-km feeder canal was exca-vated through the peat swamp to transport water to the Tinggi River. A pump-house was constructed in 1962 on the lower reaches of the Bernam River atBagan Terap, to provide a more assured water supply for the northern portionof the scheme. These water sources are augmented by substantial seepage fromthe swamp into the feeder canals, the Tinggi River, and along the entirelength of the main canal which borders the swamp. A water balance study ofthe project area (Annex 1) indicates that the irrigation area would have anassured water supply, with no foreseeable restriction on cropped area due towater shortage. This conforms with historical experience, as the croppingintensity has never been constrained by lack of water (rather by lack ofcommand and a poor distributary system), despite the fact that the presentsystem of irrigation by back-flooding is extremely wasteful (para. 3.10). Noproblem related to water quality has been encountered in Tanjong Karang,despite the fact that from 1938 to 1958 the padi area was virtually entirelysupplied from the peat swamp. Since that time the diversion from the BernamRiver has replaced the swamp as the major supplementary water source, and theirrigation supply has become markedly less acidic. The scheme area isdivided into seven large blocks, of which one (Sawah Sempadan) has been

developed to proposed project standards as a pilot scheme. The padi area isdivided into 16,411 three-acre (1.2 ha) rectangular lots, which significantlyfacilitates the layout and construction of on-farm irrigation and drainageworks.

3.10 The existing irrigation system has fulfilled its original purposeof permitting wet-season padi production and dry-season cropping of an averageof 70% of the scheme area, but still suffers from several deficiencies. Thecapacity of some reaches of the main canal is inadequate, and the gatesof the old Tinggi headworks now leak badly and waste water. Command headof the existing distributary canals is inadequate, causing slow inundationof fields and late transplanting, a problem exacerbated by the fact thatwater must travel one-half mile (.8 km) across farm lots with the presentdensity of distributaries. Since the micro-topography is undulating, thewater must often fill depressions to undesirable depths (30 cm and above)before its flow continues. Much of the area can only be inundated by back-flooding from drains which are kept full for this purpose, thereby wastingsubstantial amounts of both water and fertilizers. These inadequacies haveled to a situation where large areas of padi are continually out of phase,and drainage for drying and harvesting earlier planted fields is impossibleif the water needs of the less mature crops are to be met.

Farm Size and Tenure

3.11 The average size of land holding of the 12,000 padi farmers inthe Tanjong Karang irrigation area is 2 ha (5.1 acre), consisting of 1.6 haof irrigated padi land and 0.5 ha of house lot and village land on which somedry land crops are grown under coconut trees./l Only 5% of the holdingssurveyed were larger than 3 ha, and no holding contained over 5 ha of padiland. An earlier (1967) survey of the area estimated the average padi hold-ing at 1.8 ha, the reduction in average size probably stemming from increasedpopulation pressure. As the padi area has been developed relatively recently,a relatively high proportion (84%) of the land is owner-operated, and theremainder is rented through payment of fixed money rents averaging US$230/haper annum. The bulk of family labor is utilized on the family padi holding.

3.12 By contrast, in the coconut areas less than half of the availablefarm work force has been utilized on the smallholding, and there has beena high dependence on outside work to augment the traditionally meager incomefrom coconuts. Hired labor has been extensively utilized, however, for thephysically difficult and-specialized tasks of plucking ripe coconuts fromthe palms and husking them. This situation is rapidly improving, however,with the expansion of intercropping in the coconut areas and the replace-ment of bananas with cocoa as the predominant intercrop, which providessubstantially improved incomes and useful employment for the farm familieson their own holdings. In 1974 the average coconut holding was 2.8 ha in

/1 Current socioeconomic information is derived from Padi Survey in KualaSelangor and Sabak Bernam, S. Selvadurai, Ministry of Agriculture, 1976.

-8-

Sabak Bernam and 2.6 ha in Kua:La Selangor, 94% owner-operated./l Holdingsof ot.er tree crops average about 2 ha and are almost entirely owner-occupied.Whi,e r- holdings are entireLy devoted to rubber or coffee, there is acooid sirible amount of mixed tree farming, particularly in Kuala Selangor.A typical 2. xed farm would inc:Lude about 1.2 ha of rubber, 0.3 ha of coffee,0.4 ha of oil palm, and the balance under fruit trees and vegetables. Whilethe padi holdings in the project area are slightly larger than the averagefor Peninsular Malaysia (1.3 ha), the tree crop holdings are smaller andless productive than the Malaysian average. This is particularly true forthe rubber smallholders.

Estate Agriculture

3.13 There are 40 private estates /2 in the project area, of which 35are in Kuala Selangor (27,600 ha) and 5 are in Sabak Bernam (5,200 ha). Theestates are typically interspersed among the smallholder areas, making itphysically impossible to drain the latter without also improving the drainageof the former. Mlost of the estate coconut acreage is concentrated in SabakBernam. Most of the 17,600 ha of estate oil palms, and all of the 10,300 haof estate rubber, are found in Kuala Selangor. Cocoa is planted as an estateintercrop in Sabak Bernam (1,500 ha) and as a minor sole crop in two KualaSelangor estates (620 ha). In Kuala Selangor, as in many parts of PeninsularMalaysia, estates are a basic feature of the rural economy, employing thousandsof people,/3 introducing new cr'ops and processing methods later adopted bysmallholders, and providing large and assured tax revenues to the Federal andState Governments (para. 5.11). During their establishment and expansion, theproject area estates evolved their own internal drainage systems and mainoutlets as was expedient. These private systems are now constrained by themain drainage system, consisting of canalized and natural rivers and streams,river and tidal bunds, and major drains, which are the responsibility of DID.Improvement of the regional system, which is a necessary prerequisite forintensive drainage of the smallholder and town areas, would thus also providesubsidiary benefits to the region's estate sector.

Agricultural Supporting Services

3.14 Most of the agencies responsible for providing agricultural supportingservices to project area farmers are under the jurisdiction of the Ministry ofAgriculture (MOA). These include the Department of Agriculture (DOA) and theDrainage and Irrigation Department (DID), which are line departments withinthe Ministry, as well as the Farmers' Organization Authority (FOA), the BankPertanian Malaysia (BPM), the MIalaysian Agricultural Research and DevelopmentInstitute (MARDI), and the Federal Agricultural Marketing Authority (FAMA).

/1 30% of project area coconut farmers owned some padi land, with theaverage subsidiary padi holding equalling 1.3 ha.

/2 An estate is defined as a holding of over 40 ha (100 ac).

/3 Project area estates are estimated to employ about 8,000 laborers,representing about 4,000 households.

-9-

In addition, the Rubber Industry Smallholders' Development Authority (RISDA)/lsupervises rubber replanting, rehabilitation, and cooperative processing pro-grams, and provides extension services to smallholders who are dependent onrubber or who have replanted rubber with other crops, typically oil palm. TheNational Padi Authority (LPN)/2 in the Ministry of Trade, is responsible forregulating the marketing, milling, and importing of rice, maintaining thenational rice stockpile, and operating a network of rice mills in the largerpadi producing areas./3

3.15 The DOA is responsible for agricultural extension to rice andcoconut smallholders, and is thus the key agricultural support agency in theproject area. In addition, the Coconut Smallholders' Development Scheme(CSDS), a branch of the DOA, supervises the Federal coconut replantingprogram, which provides grants to smallholders replanting or rehabilitating(thinning and intercropping) their coconut stands over a five-year period.Extension services within the project area are supervised by an AgriculturalOfficer stationed in Kuala Selangor town, assisted by two AgriculturalAssistants, in Sungei Besar and Tanjong Karang. The Agricultural Assistantssupervise the work of 20 Agricultural Technicians, who are expected to servethe region's smallholders at a ratio of over 1,600 families per extensionagent. As the ATs are also responsible for regulatory duties, statisticalwork, and administration of subsidies, the ratio is much wider in practice,and the ATs contact few farmers in their area of operation. The CSDS isoperated through a similar, though smaller hierarchy, which processes applica-tions for replanting grants, inspects the property of participants to ensurethat planting and cultivation (including excavation of farm drains) is doneto CSDS guidelines, and arranges for the supply of cash, inputs, and seedlingsprovided under the replanting program. Extension for coconut smallholders isgenerally left to the DOA staff, however, as CSDS agents typically visitparticipants only twice a year, and lose contact with participants once thefive-year grant period is completed. While the recently initiated NationalExtension Project (Loan 1493-MA) would increase the overall level of staffing,quarters, and training of the Selangor DOA extension service, an additionalconcerted extension effort will be required in the project area to allowfarmers to realize the full agricultural potential of their smallholdings.

3.16 The Selangor DID is responsible for operating and maintaining thedrainage and irrigation systems in the project area. DID field staff alsoadvise the District Agriculture Committees (comprised of representativesfrom the District Office, DOA, DID, and farmer groups) on the availabilityof water for timing of agricultural operations which are closely related toDID water management responsibilities, including land preparation, nursery

/1 In the Ministry of Primary Industries.

/2 The official name of this agency is Lembaga Padi dan Beras Negara.

/3 Details of the organization and operations of the major agriculturalagencies in the project area are presented in Annex 5.

- 10 -

planting, transplanting, and harvesting. With the implementation of theproject the intensity of drains and canals in the area would be increasedto about four times that of the existing system. To ensure that DID couldcontinue to perform its important advisory role, as well as for properoperation and maintenance of the intensified infrastructure system, asubstantial increase in the number of field staff (particularly technicalassistants, inspectors, and overseers) would be necessary.

3.17 The Selangor FOA operates three Farmers' Development Centers (FDCs)in the project area, in Kuala Selangor, Tanjong Karang, and Sungei Besar,with a total paid-up membership of 7,000. In addition there are 66 privatefarmers' cooperatives, organized for rice-milling, revolving credit, and rubberprocessing activities. Both FDCs and private cooperatives supply inputs andplanting materials (e.g., cocoa and coffee seedlings), and in recent yearshave become involved in the marketing and processing of cocoa beans. Neitherthe official Farmers' Organizations based in the FDCs, nor the private coopera-tives, have yet attained the level of technical skill in their agro-businessactivities or the volume of blusiness required for commercial viability.Input supply for smallholders, processing of tree crops, and provision ofcredit are still largely in tlhe hands of private enterprise, and are likelyto remain so in the foreseeable future. Private enterprise, in this regard,covers a wide spectrum of agents ranging from large rubber and coconut oilfactories in Klang District to the south; through medium-sized coconut oilfactories and copra kilns in the project area; to large middlemen who purchaseprocessed tree crops for transshipment to factories in Klang, Perak, andPenang; to the basic unit, the general store which grants farmers credit tobe repaid with cocoa and coffee beans, coconuts and rubber sheets which thestorekeeper and his family thten process and sell to middlemen or factoryagents. The marketing of rice in the project area is, however, dominated bya Government agency, the National Padi Authority (LPN).

3.18 The LPN has been granted an official monopoly on the purchase ofpadi and rice-milling in the Tanjong Karang irrigation area, which it exercizesonly in regard to the surplus production intended for cash sale and exportfrom the irrigation area. LPN permits padi farmers to mill rice for domesticconsumption at 46 licensed cooperative mills and 120 small unlicensed millsscattered throughout the area. LPN itself operates 5 large milling complexesin the project area, which handle a combined total of 65% of the padi crop.Total rated milling capacity of these mills is 26 tons/hour, rated dryingcapacity is 80 tons/hour, and storage capacity is 44,000 tons. Currently LPNbuys most of its padi during two three-month seasons, dries the padi asquickly as possible, and mills continuously throughout the year. Padi ispurchased through 30 cooperatiLves, two Farmers' Organizations, and privateagents. The major problem faced by LPN is the high moisture and trashcontent of the padi, which should be reflected in standard price discounts bythe LPN mills. As the discounts have not been applied, there has been noincentive for farmers to winnow and sun-dry the padi crop. LPN plans tocorrect this situation through formal testing of moisture content by itsbuying agents. The recent addition of two LPN complexes will ease processingbottlenecks and provide sufficient surplus capacity for the proposed project.

- 11 -

3.19 BPM provides short-term padi production credit in the Tanjong

Karang irrigation area, as part of a national program for irrigated padi.

The credit is supplied in kind in the form of approved quantities of fer-

tilizers, insecticides and pesticides, and contract tractoring, and in cash

for hired labor for cultivation and transplanting, with a six-month term at

4.25% per term. The credit has been provided through the FDCs, which have

functioned as local credit centers for BPM, screening applications, issuing

inputs or credit vouchers for inputs and services, and recovering loans, in

exchange for a commission of 1.25% per season. This program reached a peak

of 2,400 padi farmers (20% of the total) in 1973, but has since largely

retrenched following scandals involving the management of two Farmers'

Organizations, to a point where only 280 farmers took credit in 1976. This

credit program can be revived, and extended to a majority of the area's padi

farmers, provided FOA improves and increases the staffing of the FDCs, BPM

staff are brought in to field operations to control financial transactions

and promote the program, and the credit program is publicized and implemented

as part of a combined extension effort including DOA agricultural advice and

recommendations, DID water management extension, and purchasing and preliminary

drying of rice by FOA as an agent for LPN.

Project Formulation

3.20 Project formulation originated in the efforts of Selangor DID to

upgrade existing drainage and irrigation infrastructure and to promote agri-

cultural improvement (increased cropping intensity in padi areas, intensi-

fied intercropping in tree crop areas) in the major agricultural subregion

of the State. Over time it became apparent that only piecemeal engineering

solutions to the region's drainage and irrigation problems were possible as

long as development was dependent on routine annual budget allocations,

and that the other agricultural agencies would have to be involved with local

DID staff in an integrated extension effort to upgrade smallholder farm

practices in conjunction with full-scale improvement in agricultural infra-

structure. The preparation of this project thus involved the long-term

planning of irrigation works and regional drainage systems on the engineering

side, and the working out of a complete operational methodology of field

extension activities (Annex 5) with DOA, BPM, FOA, and DID at both the State

and Federal levels. The average capital costs of the proposed irrigation works

are US$1,390/ha (US$2,100/family), while costs of tree crop drainage works in

smallholder areas are US$225/ha (US$540/family). Average capital costs of

drainage directly allocable to estate areas are US$33/ha, or US$52/ha if costs

of regional drainage works are allocated pro rata. Incremental annual costs of

agricultural services at project completion (1983) would amount to about US$12

per smallholder family.

- 12 -

4. THE PROJECT

4.01 The project would improve the productivity and incomes of smallholderfarmers throughout the Northwest Selangor region through provision of improveddrainage and irrigation facilities, access roads, and intensified agriculturalsupporting services, and would improve regional drainage systems with subsequentsubsidiary benefits for the region's towns and estates. The main components ofthe project are as follows:

(a) rehabilitation of the existing headworks and feederand main canals and structures serving the 20,000 haof padi in the Tanjong Karang irrigation area; con-struction of required access roads in the padi area;construction of tertiary irrigation and drainagenetworks which would serve each individual padi lot;and provision of required maintenance equipment;

(b) rehabilitation and improvement of existing maindrainage and flood control systems serving 77,000 ha oftree crops, including upgrading and reconstruction ofcoastal and river bunds; provision of tidal gates,bridges, and gated culverts; construction of an inten-sive drainage system serving individual smallholderlots and farm access roads; and upgrading of the maindrainage system in estate areas;

(c) construction of offices, quarters, storehouses, anddrying floors, and provision of vehicles, agricul-tural equipment, anid training to support an intensifiedprogram of agricultural extension, agricultural credit,input supply, and marketing services for the region'ssmallholders.

The components of the project are summarized below, and further detailsare given in Annexes 4 through 6.

Project Components

4.02 Tanjong Karang Irrigation Improvement: The main canal deliverysystem would be improved by enlarging the canal in some locations and byrehabilitating the primary structures. The sluiceway and inlet to the BernamRiver headworks would be modified to reduce sluicing water needs and improvethe removal of bed load material. The Tinggi River headworks structure andspillway would be modified ancd its gates replaced. The wasteway structure tothe Haji Dorani flood relief channel would be rehabilitated and the drop andthe lower end of main canal improved to provide better command and capacity.

- 13 -

4.03 The existing distributary irrigation and drainage system in thepadi area consists of a main canal along the upper boundary of the area,and straight tertiary canals and drains at half mile (800 m) intervalsperpendicular to the main canal./l Under the project existing tertiarycanals would be transformed into drains, and additional small drains would beexcavated parallel to and midway between each existing canal and drain. Thiswould provide a drain spacing of one-quarter mile (400 m), which would permitevacuation of a five-year frequency storm in 72 hours. Irrigation distribu-tion would be intensified by constructing structural canals (para 4.04)midway between each drain, which would thus also lie one-quarter mile apart.The distance between tertiary canals and drains would thus be reduced fromthe present half mile (800 m) to one-eighth mile (200 m), the length of atypical three-acre (1.2 ha) lot, giving each farmer direct access to bothcanals and drains. In three blocks (Sungei Burong, Sungei Leman, andSekinchan) the width of the padi area increases from 2 miles (3.2 km) to4 miles (6.4 km), making it uneconomic to serve the entire block directly bymeans of structural tertiary canals. In these areas, two concrete-linedearth link canals would be constructed from the existing main canal tosmaller transverse secondary canals within the blocks, which would in turnsupply structural tertiaries in the lower part of each block.

4.04 The structural tertiary canal system would total 305 miles (492 km)in length, and the discharge capacity of various segments would range between1.6 cusecs (45 1/sec) and 19 cusecs (538 1/sec). Discharge capacity for outletsto individual lots would be 0.1 cusecs (4.5 I/sec) under 16 in (41 cm) ofhead. The proposed structural tertiary canal system has been completed byDID in the Sawah Sempadan block of Tanjong Karang as a pilot scheme. Thestructural system used there consisted of glass-reinforced polyester (GRP)flumes, placed above ground on concrete pads founded at 20 ft (6 m) centerson bakau wood friction piling. Installation and initiation of the system inthe pilot area has proceeded with a minimum of engineering or social problems.The GRP system has been approved by the Bank for installation in the LemalIrrigation area under the North Kelantan Rural Development Project (Loan1294-MA), after completion in July 1977 of a one-year accelerated testingprogram undertaken by DID to confirm the long-term structural and chemicalproperties of the system. The GRP system would also be installed under thepresent project in the Sungei Nipah block of Tanjong Karang, under the samecentral contract utilized for the Sawah Sempadan and Lemal works./2 For theremaining five blocks in Tanjong Karang, tendering for the tertiary distribu-tary system would again be opened to all structural water conveyance systemswhich could meet the performance specifications already achieved by the GRPsystem, in terms of speed of installation, lack of disruption of croppingactivities, minimization of land acquisition, discharge and command, ease ofmaintenance and durability.

/1 Tertiary canals are now one mile apart, as are the alternatingtertiary drains. See Annex 4, Figure 1 for a layout of typical existingand proposed distributary blocks.

/2 This contract, valid through December 1978, was approved by the Bankduring negotiations for the North Kelantan Rural Development Project,and is described in Report No. 1137-NA, para. 4.15.

- 14 -

4.05 Existing roads run through the padi area parallel to the maincanal at one mile intervals, and will in future cross all tertiary canalsand drains. Checks and culverts would be located at these crossings tocontrol the water surface upstream. Existing tertiary canals and drainshave banks that would be upgraded and surfaced to a 10 ft wide (3 m) roadway.New drains would be provided with a 4 ft wide (1.2 m) laterite surfaced bankon one side. Timber bridges would be provided where necessary.

4.06 Tree Crop Drainage Improvement. Improved drainage in the treecrop areas would be based on evacuating a five-year frequency storm in48 hours, equivalent in the project area to a drainage capacity of 80 cusecs/sq mile (0.9 cumecs/sq km). In smallholder areas existing main drainswould be improved by clearing and deepening, and new main drains constructedwhere necessary. Secondary drains would be constructed at half mile (800 m)intervals, and would discharge into main drains through gated culverts orother suitable water control devices. The water control devices would holdup the water during low flow periods to prevent over-drainage, while allowinglarge storm flows to evacuate quickly. Feeder drains, one-eighth mile (200 m)apart, would be constructed to collect water from farm drains and conveyit to the secondary drains. Construction of farm drains is the responsibilityof individual farmers; in many cases the smallholders have already excavatedthem (para. 3.07), while the remaining tree crop areas in the region areexpected to be covered by the CSDS (para. 3.15) between 1978 and 1983.1l

4.07 Secondary drains would be 5 to 6 ft (1.5 to 1.8 m) deep with abottom width of 6 to 10 ft (1.8 ito 3m), and side slopes of 1-1/2:1 orflatter. Feeder drains would be 3 ft (0.9 m) deep with a bottom width of 4 ft(1.2 n). MIain and secondary drains would have a 10 ft wide (3 m) lateritesurfaced roadway constructed on one bank. Timber bridges would be constructedover main drains and culverts wouild be installed under roadways on secondarydrains. A typical drainage layout for smallholder tree crop areas isprovided in Map 13027R, which portrays a block on the Bernam Peninsulaat the northern extremity of the project area.

4.08 In the tree crop estate areas project works would consist of theconstruction and rehabilitation of main drains and the construction ofbridges across main drains to provide access for smallholders and estatelaborers. These main drainage improvements would serve blocks of about3,000 ac (1,215 ha) of estate land. A low-lying area of 10 sq miles (26 sq km)of State land, located between thLe major estate area of Kuala Selangorand the Buloh River, would be drained and poldered for eventual parcelizationand transfer to smallholders. A pumping plant would also be constructed toevacuate flood waters from this area.

/1 A coconut rehabilitation project, which would support CSDS programs inNorthwest Selangor and throughout the country, has been prepared forBank financing.

- 15 -

4.09 A total of 167 miles (269 km) of bunds protecting the entire coast-

line of the project area and low-lying areas along the lower reaches of the

major rivers would be upgraded or reconstructed under the project (Map 13026R).

Bunds would be designed to protect against floods of 25-year frequencies.

The bunds would consist of earth embankments, with material obtained from

borrow pits on the inland side, and would be finished to 3:1 side slopes with

a 10 ft (3 m) top width. All main drains discharging through the bunds to the

rivers or the sea would be served by reinforced concrete tidal control gate

structures founded on piling. In many installations the existing gates are

too small, and would be replaced by larger gates up to 12 ft (3.7 m) in width.

Some old structures would be abandoned because of constant silting due to poor

siting, and new tidal gates would be added at more suitable locations. All

new gates would be fabricated of marine aluminum alloy.

4.10 Operation and Maintenance Equipment. Vehicles and excavation and

earth-moving equipment would be purchased under the project to improve the

capability of Selangor DID to operate and maintain completed project works

(Annex 4, Table 4). The equipment would be allocated to the Sabak Bernam

and Kuala Selangor District DID offices, which are capable of performing

routine maintenance. Major repairs of heavy equipment and fabrication of

parts would be undertaken by DID's central maintenance shop in Ipoh.

4.11 Agricultural Supporting Services. This component is designed to

institute an integrated agricultural service system which would eventually

provide a wide range of required services to all project area smallholders

on a reliable, timely basis (Annex 5). Two steps are required to achieve this

goal - the upgrading and expansion of the field operations of the four key

agencies responsible for promoting smallholder agricultural development in the

project area (DOA, FOA, BPM, and DID); and the integration of operations of

those key agencies to the extent required to synchronize services to farmers.

Each agency would require a buildup of staff at various levels in the project

area, with an emphasis on adequate numbers of field level staff to form and

regularly service small farmer groups, supported by smaller numbers of addi-

tional supervisory and specialist staff. New staff would require offices,

quarters, vehicles, equipment, and training, which would be financed by the

project, to effectively fulfill their duties. Operations of the various

agricultural agencies would be most closely integrated at the planning and

management level, on the one hand, and at the level where the field workers

contact small farmer groups and individual smallholders on the other. To

facilitate these joint operations, a single project headquarters to be shared

by supervisory staff of the agencies would be constructed under the project.

Seven new secondary-level Farmers' Development Centers (FDCs) would also be

constructed, and the three existing FDCs expanded, to provide office space,

storehouses, meeting rooms, and living quarters for field staff of the

various agencies.

Status of Design

4.12 Federal and Selangor State DID have completed detailed layouts of

representative sample areas for both the padi irrigation and tree crop

drainage components. For the irrigation distribution system the sample areas

utilized were the Sungei Nipah and Sungei Burong blocks, comprising a total

of 27% of the entire irrigable area. In addition, the proposed tertiary

- 16 -

irrigation and drainage system has already been constructed in the SawahSempadan block of Tanjang Karang, representing an additional 12% of the padiarea. Federal DID would be responsible for the final design of all works,including access roads and FDCs. Designs for the FDCs would be based on thestandard designs developed by DID for the seven centers constructed under theWestern Johore Agricultural Development Project (Loan 973-MA).

Implementation Schedule

4.13 The project would be implemented over a period of five years. Theagricultural support components provide for a buildup of staff and facilitiesphased over the implementation period. Much of the survey work in the padiarea has already been done, and except for two drainage blocks in KualaSelangor all surveying should be completed in 1978. Construction of irriga-tion works in the Sungei Nipah block, to be financed retroactively under theproject (para. 4.16) began in July 1977 and is expected to be completed inJuly 1978. Construction of irrigation works in the five remaining blockswould commence immediately thereafter. Building of offices, quarters, andFDCs would begin in February 1978. Construction of drainage works wouldbegin in Sabak Bernam in May 1978. Land acquisition is not expected toseriously delay the implementation of construction as right-of-way for mostof the proposed drainage works has long been reserved by DID, and the use ofstructural tertiary canals in the padi area would require the acquisition ofonly 72 ha of padi land. All project works would be completed by January1983. Further details are presented in Annex 4.

Cost Estimates

4.14 Total project costs are estimated at US$60 million, of whichUS$26.0 million (43%) would be foreign exchange. Cost estimates for irrigationand drainage works (including roads) are based on detailed layout and designof 10% of the drainage area and 27% of the irrigation area (para 4.12) andrecent contract unit costs for earthwork and concrete structures in theproject area. Costs of structural tertiary canals, which represent 38% ofthe total construction costs of project civil works, are based on an existingcentral contract for manufacture and installation of GRP flumes valid throughDecember 1978 (para 4.04). Project cost estimates exclude the costs of thetertiary canal system already installed in the Sawah Sempadan block, at a costof US$2.1 million. Costs of FDCs are based on similar recently completedbuildings in Johore. All incremental operating costs for the project period,including salaries, have been included for the agricultural services component.Cost estimates for equipment and vehicles are based on recent suppliers'quotations, net of taxes and duties. Physical contingencies of 15% onconstruction costs and 10% on equipment have been included. All costestimates have been adjusted to February 1978 levels based on recentMalaysian and international inflationary trends. Expected price increasesdue to inflation of 9% in 1978-79 and 8% thereafter have been included forcivil works and related physical contingencies, land, and operating andpersonnel costs. For equipment, price increases of 7.5% in 1978-79 and 7%thereafter have been allowed. Expected price increases amount to 27% ofbase costs plus physical contingencies.

- 17 -

4.15 Detailed project costs are given in Annexes 4-6 and are summarizedbelow:

ForeignExchange

Local Foreign Total Local Foreign Total Component---- M$ Million --- ---- US$ Million ---

Civil Works:

Tanjong Karang Irrigation 29.6 25.1 54.7 11.9 10.1 22.0 46Tree Crop Drainage 16.6 13.7 30.3 6.7 5.5 12.2 45

Buildings and Facilities 2.9 1.3 4.2 1.2 0.5 1.7 30Engineering and Supervision 6.4 0.7 7.1 2.6 0.3 2.9 10

Equipment:

Agricultural 0.1 0.9 1.0 - 0.4 0.4 90Operation and Maintenance 0.1 2.3 2.4 0.1 0.9 1.0 95

Incremental AgriculturalServices: 3.3 0.4 3.7 1.3 0.2 1.5 10

Base Cost Estimate 59.0 44.4 103.4 23.8 17.9 41.7 43

Physical Contingencies 7.4 6.3 13.7 3.0 2.5 5.5 46Expected Price Increases 17.8 13.8 31.6 7.2 5.6 12.8 43

Total Project Cost 84.2 64.5 148.7 34.0 26.0 60.0 43

Financing

4.16 The proposed Bank loan of US$26 million would finance the foreignexchange requirement of the project. The loan would finance retroactivelythe installation of a GRP flume tertiary canal system in approximately 50%of the Sungei Nipah block (2,500 ac) of Tanjong Karang. Total costs of this

work, which commenced after completion of appraisal in May 1977, are esti-mated at US$1.1 million. As this is a Federal project, all local costs would beborne by GOtM throughout the implementation period of the project. Activitiesfalling under constitutional State jurisdiction, such as operation and main-tenance of the completed irrigation and drainage works and agricultural

extension, would thereafter be financed through normal GOM procedures asnecessary. An assurance to this effect has been obtained from GOM.

- 18 -

Procurement

4.17 The drainage and irrigation works and access roads would be construc-ted through a total of 12 contracts, of which 5 would be subject to inter-national competitive bidding in accordance with Bank Group Guidelines. Thethree largest contracts (totalliLng US$18.3 million) 11 would cover thesupply and installation of the structural tertiary canal system in fivecomplete blocks of Tanjong Karang and in one-half of the Sungei Nipahblock. These contracts would be subject to international tender open toany structural system meeting specified characteristics of speed of instal-lation, minimal disruption of existing crops, total command of the area,durability, and other factors. The tertiary system in the remaining half-of the Sungei Nipah block (US$1.1 million) would be installed under theexisting GRP flume contract (paras. 4.04 and 4.16). Most of the remainingcivil works pertaining to the Tanjong Karang irrigation component, includingconstruction of secondary and lateral canals, drains, and roads, would bedivided into two contracts worth approximately US$5 million each. Thesecontracts would also be subject to international competitive bidding.

4.18 Drainage of the tree crop areas would be implemented throughseven contracts worth a total of US$17.5 million. Three contracts wouldcover Sabak Bernam, phased with the coconut replanting program planned forthat area. Three contracts would cover Kuala Selangor, divided by theTinggi, Selangor, and Buloh rivers, and a single contract would cover thecoastal strip between the padi area and the sea. As these contracts wouldbe too small in value to attract international interest (averaging US$2.5 mil-lion each), they would be awarded after competitive bidding advertised locallyin accordance with Government procedures satisfactory to the Bank. Thelocal contracting industry is extremely competitive and strong, and localtendering is well managed and publicized. Bids would be accepted fromforeign contractors who wish to participate, and no preference margins,whether domestic or international, would be utilized in the evaluation andaward of civil works contracts. Buildings and facilities costing a totalof about US$2.7 million would also be tendered locally.

4.19 Force account work would include the rehabilitation of the BernamRiver and Sungei Tinggi Headworks as well as the feeder canal between them;improvements to portions of the Tanjong Karang main canal and coastalbunds; resurfacing of access farm roads; and the fabrication and supply ofaluminum roller gates and gears for tidal control structures. The totalcost of force account work is esitimated at US$2.2 million.

4.20 Agricultural and operation and maintenance equipment and vehicles(US$2.0 million) would be procured under international competitive biddingin accordance with Bank Group Guidelines. A 15% preference margin, or theprevailing customs duty if lower:, would be extended to local manufacturersof these items. Small off-the-shelf items, costing less than US$20,000each and limited to a total of US$500,000, would be procured through normalGovernment procedures.

/1 All estimates of contract values in this section refer to the total ofbase costs, physical contingencies, and expected price increases.

- 19 -

Disbursements

4.21 Disbursements would be made at the rate of 100% against foreignexchange expenditures on all directly imported equipment and vehicles andtraining, 100% of the ex-factory cost of items manufactured locally, and 80%of the total cost of locally procured items. Disbursements for all civilworks executed by contract would equal 48% of total costs. Disbursements forforce account work (para. 4.19) would equal 48% of total costs, and would bemade against a certificate of expenditures, the documentation for which wouldbe retained by the borrower and be available for inspection by the Bank dur-ing the course of project supervision. Estimated expenditure and disburse-ment schedules for the project, and a proposed allocation of the proceeds ofthe loan, are given in Annexes 7-8. It is expected that disbursements wouldbe completed by August 31, 1983.

Accounts and Audits

4.22 The agencies involved in the project are all subject to normalGovernment control and audit procedures. Assurances have been obtained that:

(a) all agencies involved in project implementation would maintainseparate accounts for the project;

(b) all project accounts would be collated by the Project Manager(para. 5.01);

(c) the Government's Auditor General or other auditors satisfactoryto the Bank would audit these accounts; and

(d) the Project Manager would send the audited project accounts,together with the auditor's comments, to the Bank within ninemonths of the close of each financial year.

Environmental Effects

4.23 The project would not greatly affect the regional environment,as most of the project works would merely intensify water control systemswhich have been established for decades. About 1,000 ac (400 ha) of coastalland subject to frequent sea flooding and salt water intrusion, and 2,500 ac(1,000 ha) of land subject to flooding near the Buloh River, would bereclaimed and protected for agricultural use. Drainage works would reducelocal mosquito habitats and facilitate ongoing malaria and dengue fevercontrol programs. The volume of drainage into the sea would remain essen-tially unchanged and should have no effect on marine fish or shellfish.Project works would not disturb the coastal mangrove fringe or the TanjongKarang swamp.

4.24 The Tanjong Karang peat swamp plays an important role as a waterstorage reservoir for the padi area (Annex 1). Assurances have beenobtained that the swamp would be protected as a forest area, and that theportion of the swamp which serves as a catchment for the irrigation areawould not be drained, logged, or developed in a manner which would jeopardizethe supply of water for irrigation purposes.

- 20 -

5. ORGANIZATION AND MANAGEMENT

Project Coordination

5.01 All the Federal agencies which would be involved in the implemen-tation of the project - the Drainage and Irrigation Department (DID), theDepartment of Agriculture (DOA), the Farmers' Organization Authority (FOA),and the Bank Pertanian Malaysia (BPM) - are under the jurisdiction of theMinistry of Agriculture (MOA). While each agency would be responsible forimplementing specific activitiies within its jurisdiction, responsibility forcoordinating all project activities would rest with a Project Manager in MOA.The Project Manager's main administrative responsibilities would includeassisting the project agencies in the planning of joint field extensionprograms (para. 4.11) and in preparing requests for the staff and operatingbudgets required to implement ithose programs; assisting in planning construc-tion of facilities and equipment procurement programs which would fulfill thevarious agency requirements; representing the project in periodic meetingswith the Public Services Deparitment, the Treasury, and Selangor StateGovernment agencies; monitoring and evaluating the progress of implementationactions and project effects and benefits; and reporting on the progress ofthe project (particularly on behalf of DOA, FOA and BPM) to the SteeringCommittee (para 5.02) and the Bank. Experience in Malaysia indicates thattechnical officers (i.e., agriculture officers or engineers) are able toperform this managerial function most effectively. The appointment of asuitably qualified and experienced Project Manager would be a condition ofeffectiveness of the proposed 'Loan. The Project Manager, who would residein the project area, would have a small staff to assist in budgeting,procurement and disbursement matters.

5.02 The Project Manager would be guided on policy matters by a SteeringCommittee composed of the Secretary General of the Ministry of Agriculture,the State Secretary of Selangor, and other officials they may nominate.Involvement of the State Secretary would ensure the participation of bothState-level agencies and officers and the District Officers, who are incharge of local governmental ftnctions, and should facilitate coordination ofproject activities at the grourLd level. Establishment of the SteeringCommittee would be a condition of effectiveness of the proposed loan.

5.03 At the substantive level the Project Manager would have to provideclose and continuous liaison between the implementing agencies in order tomaximize the impact of the project on the target population. The first andmost difficult task would be the organization of common Small AgriculturalUnits, small groups of farmers which would be contacted by the variousagencies for agricultural extension, marketing, input supply, credit, watermanagement, and operation and maintenance purposes. The organization ofthese groups would have to instill a cooperative spirit necessary for thesuccessful operation of relatively complex irrigation and drainage systemsand for the efficient provision of agricultural services to 32,000 small-holder families. Such groups have operated successfully (on a small scale)

- 21 -

in the project area in the past, particularly when formed voluntarily onthe basis of natural residential and kinship patterns. The first stepin this effort would be to ensure that the local field staff of the variousagencies are themselves organized and aware of each other's activities andprograms, and that they meet the farmers jointly and with a unified program.

5.04 The Project Manager would have to ensure that agricultural recom-mendations developed by the Malaysian Agricultural Research and DevelopmentInstitute (MARDI) for the project area are translated into simple field recom-mendations delivered and demonstrated by the DOA extension staff, and thatrecommended inputs are available in appropriate quantities through the FOA.For this purpose, the Project Manager would function as a member of the StateAgricultural Research Development and Extension Committee, composed of seniorState-level officers in all agriculture-related agencies, including MARDI.Finally, the Project Manager would have to ensure that adequate credit isavailable through BPM to enable farmers to purchase recommended inputs. Onthe last point assurances have been obtained that:

(a) the Project Manager would prepare, in consultation withFOA, DOA, and BPM staff, a statement of annual agriculturalcredit requirements, to be submitted to BPM and the Bank notlater than three months prior to the beginning of each fiscalyear; and

(b) GOM would thereafter ensure that an adequate amount of creditwould be made available to project area farmers through BPM.

Agency Responsibilities

5.05 Drainage and Irrigation Department. DID would be responsiblefor implementing all project civil works. Design work would require thefull-time services of a team of 7 engineers (including a senior engineer)based in DID headquarters, as well as approximately 50 supporting technicalstaff, for a period of 4 years. To ensure that design concepts, features,assumptions, and data are effectively transmitted from the Federal designstaff to the State staff who will eventually operate and maintain thesystems, assurances have been obtained that design staff would produce adesigner's operation manual covering major project works. Supervision ofconstruction would require 6 senior engineers, 15 irrigation engineers,and about 170 technical and clerical staff during the peak years of construc-tion activity (1979-82). This staff would be posted by Federal DID to theproject area during project implementation. Selangor State DID would assumeresponsibility for operation and maintenance of works upon completion andacceptance by Federal DID. To adequately fulfill this responsibility, statestaff in the project area would have to be augmented by an additional seniorengineer and irrigation engineer, 47 technicians, inspectors, overseers,and clerical staff of various grades, and 140 laborers./l An assurance hasbeen obtained that all drainage and irrigation staff required to operate andmaintain the project would be appointed.

/1 Detailed estimates of DID staff requirements are presented in Annex 4.

- 22 -

5.06 Department of Agriculture. DOA would assume primary responsibilityfor the organization and operation of the agricultural services componentof the project, with the assistance of the Project Manager (para. 5.01).As agricultural extension is a State responsibility, the Selangor Director ofAgriculture would be administratively responsible for allocation of extensionstaff to the project and for the general direction of the extension effort inthe project area. A Chief Extension Officer for the State of Selangor, aswell as a number of administrative and field extension staff, would beprovided under the National Extension Project. Additional staffwould be provided under the present project to complement the proposeddrainage and irrigation infrastructure with an intensified agriculturalservices program aimed at raising smallholder agricultural incomes to themaximum extent possible (para. 4.11). The operational methodology of theproposed program is based largely on the training-visit system of agriculturalextension, modified to suit Malaysian institutions and the requirements ofthe smallholders in the project area. The proposed operation and structureof the agricultural services program is described in detail in Annex 5. Inorder to implement that program, the Selangor DOA would require an additional10 agricultural technicians (to bring the field agent:farmer ratio to 1:800),5 Agricultural Assistants, 1 District Agriculture Officer, and 1 seniorproject (regional) Agriculture Officer. Effective technical support of thefield extension staff would require the addition of five subject matterspecialists to the staff of the Selangor DOA, and strengthening of theFederal technical support units serving the State. An assurance has beenobtained that all DOA staff required to serve the project area would beappointed. The operational guidelines for the agricultural extension systempresented in Annex 5 should be updated and refined on the basis of fieldexperience in implementing the system over the entire project area. Accordingly,assurances have been obtained that the DOA, in consultation with DID, FOA,and BPM, would prepare an agricultural services operations manual as a guidefor field extension staff by December 31, 1978.

5.07 Farmers' Organization Authority. FOA facilities in the projectarea, which currently include three FDCs, would be augmented by seven newsecondary-level FDCs (para. 4.11). The subcenters would be operated to theextent possible by farmer group leaders (Annex 5), supervised on a regularbasis by FOA staff based in the FDCs. To improve the FOA management systemin the project area, and to achieve an overall staffing level which wouldpermit FOA to play its role in the integrated agricultural services program,Selangor FOA would require three graduate FDC managers assisted by twoadditional Agriculture Assistants to strengthen and upgrade FDC activitiesin the project area, and one agro-business specialist to provide technicalsupport and training for field staff. The State Director of FOA would bearoverall responsibility for agency activities in the project area. Assuranceshave been obtained that all FOAI staff required to operate FDC facilitiesand to participate in padi credit operations in the project area would beappointed.

5.08 Bank Pertanian Malaysia. BPM staff would work closely with FOAstaff in reviving and expanding institutional smallholder credit in the

- 23 -

project area; the two agencies would adopt the same methods of credit assess-ment and would share the responsibility of making the assessment. With theassistance of the DOA extension workers creditworthiness assessment would beconverted from a seasonal activity undertaken by a few individual FOA creditworkers to a year-round activity handled as part of the overall extensioneffort. Another innovation would introduce the concept of group responsibilityfor credit, in terms of countersignature of ordinary loans by farm groupleaders, and through loans to small groups of farmers, cross-guaranteed byeach, in cases where farmers own no land or are already in debt. BPM wouldappoint 14 credit assistants to serve the project area from the 10 FDCs andthe BPM branch office in Tanjong Karang, and 5 area supervisors (AA level)also to be stationed at the 5 larger FDCs. One thrust of the BPM effortwould be to provide credit directly to farmers unable or unwilling to becomemembers of Farmers' Organizations, who at present frequently find it difficultto gain access to institutional credit programs. The regional BPM programwould continue to be supervised by the branch manager in Tanjong Karang. Anassurance has been obtained that all BPM staff required to serve the projectarea would be appointed.

Smallholder Rent and Cost Recovery

5.09 At present operation and maintenance (O&M) costs of the TanjongKarang irrigation system average US$15/ha, while irrigation charges leviedby the State Government average US$10/ha. The O&M costs in the drainageareas are lower, ranging between US$3 and US$8 per ha in various drainagedistricts. Drainage rates paid by both estates and smallholders generallyare set to cover these O&M costs. Incremental DID O&M costs due to projectimplementation are calculated (Annex 4, Table 5) to average US$15/ha in theirrigation area by 1984, US$7.30/ha in the Sabak Bernam drainage area andin smallholder areas generally, and US$3.60/ha in the Kuala Selangor drain-age area and in estate areas generally. The State Legislature of Selangorhas approved an increase in irrigation rates to a maximum of US$15/ha(in addition to a land tax of US$3/ha), and it is expected that these rateswould be charged by full project development. In addition to these chargesall Malay padi farmers pay the Islamic padi production tithe (zakat) to theSelangor Department of Religious Affairs, which uses the receipts to financethe religious school system, teachers' salaries, welfare expenses, andmaintenance of mosques. Estimated zakat payments (for all irrigation blocksexcept Sekinchan) average US$69/ha, and are projected to rise an incrementof US$40/ha proportionally with project-induced yield increases. Thus thetotal cost recovery index for the non-Sekinchan irrigation blocks is 37% /1and the total rent recovery index for those blocks is 30%. For the non-Moslem Sekinchan farmers, who are not liable for zakat, the cost recoveryindex is 9% and the rent recovery index is 34%./2

/1 Equivalent to 300% of incremental O&M costs and therefore covering asubstantial proportion of capital costs.

/2 The rent recovery index is high because of the more limited potentialbenefits in Sekinchan (Annex 2).

- 24 -

5.10 It should be noted that O&M of irrigation facilities in Malaysiais totally divorced from irrigation charge collections,/l that irrigationO&M is financed out of general revenues supported by a highly efficientand generally progressive tax system, and that the level of O&M is notconstrained by a shortage of funds. In view of these factors and the levelof farm incomes (para. 6.07) the present structure and level of charges areconsidered acceptable. Assurances have been obtained that the Selangor StateGovernment would continue to collect irrigation and drainage charges whoselevel would be determined taking into account O&M and capital costs, incen-tives to farmers, farmers' capacity to pay, and other taxes and chargesimposed upon them; and that the Government would exchange views with the Bankfrom time to time on the level of these charges.

Estate Taxation

5.11 The estates in the project area pay drainage rates typically set tocover O&M costs as calculated by Selangor DID. They also pay export dutiesaveraging 10% of the value of rubber and oil palm production, and quit rents(property taxes) to the Selangor State Government. In addition, all estatesin the project area belong to registered private companies liable to pay thestandard Malaysian company tax equivalent to 45% of net profits. A financialprojection of the incremental tax payments of the 40 estates in the projectarea which would be associated with incremental production due to the projectindicates that the net present value of such incremental taxes (US$10 million)far exceeds the investment costs of drainage works in estate areas (US$2.3million). The cost recovery index in these terms is over 430%./2 Finally,dividend income received by resident owners or shareholders of the estatecompanies is again subject to personal income tax at rates of up to 55%. Insum, the drainage works benefit:ting estates would not constitute a burden onMalaysian public finances.

6. PRODUCTION, MARKETING, PRICES, AND FARM INCOME

6.01 The Tanjong Karang irrigation component would provide each individ-ual padi farmer access to imprcoved irrigation and drainage systems, permit-ting a very high degree of water control over each three-acre (1.2 ha) lot.The tree crop drainage component would provide an intensive drainage systemserving most of the tree crop smallholdings directly, which, with associa-ted gates, checks, and other structures, would provide for the first timea reliable degree of control over the depth of the water table in the treecrop areas. The main drainage systems, river canalization works, and coastalbunds would also provide flood protection to smallholder and estate tree cropareas, as well as providing outlets for numerous internal drainage systemsconstructed by the estates (see Map 13026R). Most of the smallholders haveenough experience with the crops they are growing to be able to take advan-tage of the improved infrastructure systems through changes in cultivation

/1 Irrigation and drainage rates, together with quit rents and land taxes,are paid by landowners to the State Land offices, and not to DID.

/2 The financial rent recovery index is approximately 65%.

- 25 -

practices and input usage. However, changes in the smallholders' agricul-tural practices can be directed and accelerated by an integrated agriculturalextension effort, to make quicker and fuller use of improved facilitiesto increase their production and incomes. This is the function of the pro-ject's agricultural services component. Penetration of the agricultural areasby extension and credit workers, and marketing and input supply activities,would be facilitated by the access road