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Rqpt No. 11390

PERFORMANCE AUDIT REPORT

COLOMBIA

UPPER MAGDALENA PILOT WATERSHED MANAGEMENT PROJECT(LOAN 2069-CO)

DECEMBER 1, 1992

Operations Evaluation Department

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

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CURRENCY EQUIVALENTSName of Currency (Abbreviation) = Peso (Col$)

Currency Exchange Rates:

Appraisal Year 1981: US$1.00 = Col$ 57.27Completion Year 1987: US$1.00 = Col$ 194.3

WEIGHTS AND MEASURES

Metric System

ACRONYMS

AGR Agriculture and Rural Development DepartmentAGREP Agriculture Department - Division of Economics and PolicyBTO Back-to-Office ReportCPS Central Project StaffCVC (Corporation of the Cauca Valley)DNP (National Planning Department)DRI (Integrated Rural Development Program)FEDECAFE (National Federation of Coffee Producers)GDP Gross Domestic ProductGOC Government of ColombiaHIMAT (Colombian Institute of Hydrology, Meteorology and Land

Management)ICA (Colombian Institute of Agronomy)IDB Inter-American Development BankINCORA (Agrarian Reform Corporation)INDERENA (National Institute of Renewable Natural Resources and

Environment)ISA (Electric Services)OED Operations Evaluation DepartmentPCR Project Completion ReportPIF Project Information FormPIN (Plan for National Integration)PPAR Project Performance Audit ReportPROCAM (Upper Magdalena Watershed Management Project)R&D Research and Development

(Upper Magdalena Basin Project Unit)RENORDE (National Network for Technical Cooperation in the Management of

Watersheds)SCF Soil Conservation FundSENA (National Training Institute)TOR Terms of Reference

FOR OFFICIL US ONLY

PERFORMANCE AUDffREOR

COLOMBLA

UPPER MAGDALErNA PILOT WAITERSHEID M1ANAG1NT PROJECf(LOAN 2069-CO)

CONTENTS

PREFACE .................................................. iBASIC DATA SHEET .............. ................................ iaEVALUATION SUMMAl4RY ............................. v

PERFORMANCE AUDIT REPORT .................................... 1

L PROJECT BACKGROUND AND DESIGN ...................... 1Background ............. ................................ 1Identification and Design .................................. 2Project Objectives and Components .......................... 3Institutional Framework ................................... 5Project Costs, Budgets, and Conditions ........................ 5

IL IMPLEMENTATION EXPERIENCE .......................... 6Postnegotiation and Mobilization Period ....................... 6Mobilization to Effectiveness Phase .......................... 8Execution Phase ......................................... 9

IlL PROJECT IMPACT ....................................... 12Achievement of Project Objectives ......................... 13Farm and Tree-Crop Systems .............................. 13Institutional Improvement ................................ 14Planning for Phase II .................................... 16Replicability--The Path to Sustainability ...................... 16

IV. FINDINGS AND MAIN ISSUES .............................. 18Project Design and Preparation Shortcomings ................... 20The Conceptual Basis for Watershed Management in

Colombia .............. 25The Institutional Framework for Watershed Management ..... ...... 30The Legislative Framework in Colombia ....................... 31Understanding Watershed Management Economics ..... .......... 32

ANNEXESAnnex 1 . ............................................... 35Annex 2 . ................................................ 39

BIBUOGRAPHY . .................................................. 41

MAP - IBRD 15847

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

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PERFORMANCE AUl)lT REPOR

COLOMBIA


PREFACE

This Performance Audit Report (PAR) was carried out in January/February 1992for the Upper Magdalena Pilot Watershed Management Project in Colombia, which was sup-ported by Loan 2069-CO. Initial project identification and design activities were begun in 197° bythe principal implementation agency, Instituto Nacional de Recursos Naturales Renovables y delMedio Ambiente (INDERENA), and were followed up by various Bank preparation missions in1980. Preappraisal and appraisal missions were undertaken in the first semester of 1981, whileproject negotiation with representatives of the Colombian authorities took place in Washington inNovember 1981, and the project was signed on December 15, 1981. It was not until January1983, however, that the preliminary conditions for effectiveness, mostly related to staffing andinter-institutional agreements, were achieved and that the project became effective.

The original project loan in the equivalent amount of US$9 million 1/ wasintended to support the National Government's activities over a five-year implementation periodand with a total cost of US$27.3 million. After numerous implementational difficulties and delaysin the years thereafter, the project was terminated on June 30, 1987, its original Closing Date.Actual disbursements under Loan 2069-CO amounted to US$2.37 million (26 percent), and thebalance of US$6.63 million was cancelled in January 1988.

This report has been prepared on the basis of a careful review of project docu-mentation including the Project Completion Report (Colombia - Upper Magdalena PilotWatershed Management Project Report No. 8481, March 1990), the President's Report (ReportNo. P-3106-CO),2/ the Loan Agreement, and project files and reports available in bothWashington and Colombia. An Operations Evaluation Department mission visited Colombia inJanuary 1992, during which time intensive discussions were held with the concerned governmentalauthorities. A field visit to the project area was also undertaken.

The Project Completion Report provides a broad overview of the project and itsimplementation experience and problems. The PAR has endeavored to elaborate key issues ofparticular relevance for both the Bank's and national government's activities in watershedmanagement. Following Operations Evaluation Department procedures, copies of the draft PARwere sent to the Borrower on June 4, 1992, for comments by July 22, 1992. No comments werereceived.

1/ Al mferencea to the Bank's loan amount in this report are in USS equialent

Acoording to a footnote In the opening paga of the President' Report "In view of the pilot nature of this project, an appranulreport hs not been prepared.0


COLOMBIA


BASIC DATA SHEET

KEY PROJECT DATA

Apprai Actual or Actual s % oflstimrte cw t a Aoisi 13Atlmat

Project comt (USS milin) 273 &.1 30Loan amount (USS milin) 9.0 2.4 27Economic rate of return (%) n.a La.Insttutionl pefrmance Satidactory UnstiNumber of direct benefidiarkeso .A.

KEY PROJECT DATES

Appil Actual or Actual a % ofEstimate Curet Estil ADsor Eatimac

Date of board approval 12A1SI1Date of effectivenes 07/15R82 01131/3Ckoing Date 06130M NOW30 7Project impkmentation peod t 60 53 88

CUMUIATIVE DISBURSEMENTS

EM EE El EM EM E8 EM

Apprais estimte (USS mInion) 0.9 2.9 48 6.5 8.0 9.0Actual (USS million) - 0.75 122 1.85 2.16 2.16 237Actualas*of rappal admats 0 26 25 28 28 24 26

Date of fin dbbursemnt 09Amount canelled US$6.6 mllion

&I Number of montihm effatvc to aoWUg Date.

I Iv -

MISSION DATA

Stane Date No. of Staff/Dayz Specialization Performance Types of(Mo/Yrj Pesons in Field Represented I Ratin, h Trend S/ Problems y

Identification 03R0 1 7 c - - -

Preparation 10R0 3 63 c,d,ePreappraisal 02R1 2 14 c,unLAppraisal 04R1 4 28 c,d,unk,unkPoetnegotiations 1241 3 42 a,f,g -

Supervision 1 09R2 1 14 g 2 1 MF2 03R3 2 28 unk. 3 2 FMT3 10/83 1 7 g 2 1 FMT4 02R4 3 42 g,a 2 2 TM5 05/O4 1 7 b 3 3 MT6 02485 1 14 a 3 2 MTF7 0486 S/ 3 42 unk. 3 2 MTF8 09R6 1 7 f 3 2 MTF9 1247 1 3 a - -

STAFF INPUTS f/(in staff-weeks)

FY81 FY82 FY83 FY84 FY8S FY86 FY87 FY88 TOTAL

Preparation 28.6 28.6Appraisal 10.7 4.6 15.2Negotiations 153 15.3Supervision 8.9 13.6 21.0 10.7 15.6 20.6 3.7 94.1

Total (staff-weeks) 39.3 28.8 13.6 210 10.7 15.6 20.6 3.7 153.2

OTHER PROJECT DATA

Borrower INSTITUTO NACIONAL DE LOS RECURSOS RENOVABLES Y DEL MEDIO AMBIENTE (INDERENA)Executing agency INDERENA

Follow-on project: ua.

VI a - agriculturist; b - ecoonomist or agricultural economist; c - mision leader, d - environment engineer,e - watershed management; f - lvestock specialist; S - irripton engineer, unk. - unknown

W 1 - problem free or minor problems; 2 - moderate problems; 3 - major problemsSt 1 - Improving 2 - statiooay; 3 - worseningIV M - managerial; F - financial; T - technicalV/ Combined supervion nd mid-term evaluationg Sou TRS data information from LACCA

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COLOMBIA


EVALUATION SUMMARY

Introduction extension; the Servicio Nacional deAprendizaje (SENA), for extension and

1. Some of Colombia's most modern training in environmental awareness and natu-development achievements are linked directly ral resource management; and the Institutoto the environmental stability of some of the Nacional de Hidrologia, Meteorologia ymost backward areas. The national depen- Adecuacion de Tierras (HIMAT), fordence on hydroelectric power, potable water hydrology and river basin studies.supply for the emerging towns and cities, andthe importance of irrigated agriculture for 4. Proyecto Cuencas de Alto Magdalenaexport earmings are all directly tied to the (PROCAM) was to develop the techniquescondition of the watersheds in the Andean and watershed management plans in threeRegion. In the late 1970s, cognizant of the representative pilot watersheds in theincreasing ecological deterioration, the Provinces of Tolima and Huila. These pilotNational Institute for Renewable Natural programs were intended to cover a total areaResources and the Environment of 200,000 hectares and address the needs of(INDERENA) requested the assistance of the approximately 5,000 target farmers, with theWorld Bank for a Pilot Watershed Manage- following components:ment Project in the upper reaches of its mostimportant river--the Rio Magdalena.

* On-farm investmentsObjectives * Public works

* Extension and training2. The main objectives of the project * Staff trainingwere: (a) to develop viable farming and tree- * Research and studiescrop systems as a basis for sustainable land- * Environmental protectionuse; (b) to improve the institutional capability * Preparation of phase II.for promoting and supporting watershedmanagement and development; and, (c) to 5. Total project cost was estimated atprepare the informational baseline for an US$27.3 million, for which the Bank agreed toinvestment project for the entire Upper make available a loan of US$9 million to coverMagdalena Watershed. the foreign-exchange needs of the project.

3. In addition to INDERENA, which had Implementation Experiencethe overall role of administration andcoordination of the project, several other 6. PROCAM, first identified in lateGovernment of Colombia (GOC) agencies 1979, was subsequently approved by the Boardwere provided specialist services: the Caja on December 15, 1981. It was only shortlyAgraria was responsible for a credit program after the completion of negotiations and theaimed at financing small farmer investments in signature of the agreement that those involvedimproved agriculture and soil conservation in the project, both at the Bank and atmeasures; the Instituto Colombiano de INDERENA, realized that it was going to beAgricultura (ICA), for farm-level planning and extremely difficult to implement it as designed.

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7. During the postnegotiation and mobili- needed to come to grips with the overallzation period, a Bank mission delegated to reorientation and to put this flawed projectassist with the preparations for loan effec- back on track. Despite continuing Banktiveness detected a series of shortcomings supervision missions, which outlined theneeding attention. Of greatest concem, as was problems and constraints, only marginalrepeatedly emphasized during project prepa- success was achieved in rectifying the situation.ration but apparently unresolved, was the Among the most significant implementationcomplex institutional setting, particularly the problems that ultimately led to the Bank'sinter-institutional agreements between refusal to extend the project, were theINDERENA and the other GOC agencies. following:Even after the project had been signed, littlehad been done to coalesce these agreements. * The failure to design and implement aOnly in January 1983, after several post- monitorlng and evaluation system essentialponements of the deadline for effectiveness, to guide the pilot activity through analysiswas INDERENA finally able to formalize of problem areas and justification of cor-these agreements. In retrospect, the nature of rective actions and to provide, in part, thethese interagency agreements inhibited the baseline for the second phase.innovative and complex approach that wasoriginally foreseen as the vehicle for problem- * The failure of the credit system for on-farmsolving and for development of integrated interventions: only 270 (5 percent) of thewatershed management plans and practices. planned 5,000 loans to small farmers,

which were designed to assist them with8. Another serious shortcoming was the the improved agriculture and soil conser-inadequate elaboration and implementation of vation practices, were approved. Thethe various components of this complex, inte- credit line and its requirements provedgrated approach to watershed management. beyond the capacity of the majority of theThe seventeen subcomponents had appeared smallholders.to have been designed independently, withoutappropriate sequencing from R&D to fieldimplementation. Bank staff recommended a * A low level of operational capability withinteam of short-term consultants to work with the INDERENA project unit, which wasINDERENA in the final preparation of the charged with the direction and leadershipproject for effectiveness; it was not, however, of the project, resulted from staffuntil after effectiveness that this additional shortages, overwhelming administrativetechnical expertise was contracted. Indeed, responsibilities inherent in the multiplicitydifficulty in recruiting and hiring suitable of subsidiary agreements, and limitationsexperts which the Bank deemed essential for to its financial resources because ofthis project (characterized early on as a successive, austerity govemment budgets.technical assistance project) was to remain amajor constraint of implementation.

* A number of technical difficulties made it9. Project effectiveness was finally recog- impossible for the project to live up to itsnized by the Bank, with some caveats regard- implementation schedule. Trials establish-ing the need for additional development of the ed to test new production with conserva-farm models, strengthening the staffing, and an tion technologies were never completedoverall realignment to take account of the and thus undermined the scientific basisdelays and lessons leamed during inception. to substantiate many of the pilot inter-

ventions.10. Political uncertainties and a changingcast of INDERENA directors and project * Disbursement shortfalls. Both imple-directors characterized the project implemen- mentation difficulties and constraints ontation period and stifled the determination financial resources, as a result of austerity

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budgets, combined to severely limit the 13. Impacts of other kinds, i.e., conceptualutilization of loan funds. This was and institutional, however, bear both mentionexacerbated during the same period by and scrutiny. The local understanding of thethe continuing rapid devaluation of the important relationship between the down-Colombian peso. stream user and the upstream resident is still

vivid and real, the inhabitants are presentlyliving the dilemma of watershed degradation

* The Bank/INDERENA relationship was and appear to have resolved to solve it.hampered by the overall design of the Watershed management is now a part of theproject, involving numerous instances local development plans of the municipalrequiring Bank approval of specific corporations charged with rural development.agreements, subcontracts, and Terms of Their interests are now in their own hands,Reference (TORs). This situation proved and with them, the authority, responsibility,an overwhelming administrative burden and accountability to their constituents for thefor INDERENA and its project unit as stewardship of the resource base. Some farm-well as for the Bank staff charged with ers are making changes in their land-use prac-supervision of the project. As might be tices, shifting off the slopes and seeking newexpected, Bank supervision was no sub- ways to earn a living.stitute for the longer-term technical assis-tance that was never put in place. 14. The national government too has

continued to give priority to watershed11. In late 1986, the Bank, having conclud- management as part of its socioeconomic anded that the project was some two years behind rural development strategy. The new Consti-schedule and that the financial and technical tution will create the "Corporacion Autonomafeasibility of the watershed management plans Regional del Rio Grande de la Magdalena,'and practices was still highly doubtful, decided and the Forestry Action Plan for Colombiato close the project on its originally scheduled also clearly reflects the concern for watershedcompletion date-- June 30, 1987. This decision deterioration. There has been some residualwas taken despite requests from INDERENA impact among the various institutions involvedfor an extension and redesign phase. Accord- in PROCAM; both ICA and SENA have insti-ingly, an undisbursed equivalent amount of tuted programs aimed at watershed issues.US$6.6 million or 74 percent of the original INDERENA has regrouped its Division ofUS$9 million loan, was cancelled; only US$5.7 Watershed Management and is carrying onmillion had been disbursed by the GOC over with two programs as a direct sequel to thethe five years. project.

Project Impact Findings and Main Issues

12. There can be little doubt that 15. The overall design, preparation andPROCAM achieved some impact, albeit far implementation record of the Upperless and in ways not entirely nor originally Magdalena Pilot Watershed Managementforeseen for it. Overall, the project experience Project is so fraught with problems and delayshas been, however, unsatisfactory. The physical that it is difficult to isolate particular problemsachievements in the field are far less signi- and dissect them for lessons leamed. Oneficant as indicators of impact, because ulti- thing is manifestly clear, however. Under nomately, these farm-level interventions proved circumstances should the needs and oppomuni-unsustainable. Little or no progress was made ties for watershed management in Colombia beon establishing the technical and financial judged on the basis of this project's cexpeience.feasibility of improved conservation practices. The basic rationale for this project is thatA return to the old pre-project ways of fire, unless the pervasive and progressive degra-overgrazing, and cultivation of steep slopes has dation of the country's upland watersheds Isbecome visible in the pilot areas. reversed, the socioeconomic development

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potential downstream will be impacted nega- Colombia. In this regard, the following pointstively. This insight remains valid and vivid in have been raised in the full audit report:Colombia today.

21. An important concept is that of land-16. Throughout the project record, this use capability. While it is often possible toaudit could point in numerous instances to "push the envelop" of current practices toissues or failings on the part of the personnel meet land-use capability limitations by increas-and institutions involved, including both the ing conservation measures, these efforts typi-Bank and the agencies in Colombia. A num- cally raise the cost of production substantially.ber of larger concerns, however, are more sig- Additional costs to achieve conservation objec-nificant and may offer guideposts for similar tives must be either paid for through theendeavors, both for the GOC and the Bank. marketplace or offset by incentives or subsidiesThese concerns are as follows: that allow the farmer to continue to sustain a

livelihood.17. Project design and preparation short-comings. Even a precursory reading of the 22. In Colombia, reforestation has tradi-project file would reveal that the design and tionally been a primary component ofpreparation was inadequate. The early and programs for watershed management action,pivotal decision to forego the preparation of a whether it was reforestation for production orStaff Appraisal Report led to an uncritical and for protection purposes. There is reason tooften ad hoc review process within the Bank-- believe that for the moment neither is econo-to the point that the first supervision mission, mically sustainable. Reforestation for protec-shortly after signature of the agreement, called tion purposes, i.e., revegetating degraded areasfor a reorientation and final preparation of the with traditional plantation techniques is rarelyproject. necessary, technically recommended, nor eco-

nomically efficient. In many cases of degraded18. One of the most notable oversights was areas, one can reestablish the vegetative coverthe failure to analyze the cost/benefit equation and with it the watershed function, just byof either of the project itself or of the farm protecting the area from fire and grazing.models being proposed as-the basis of the cre-dit program. This lapse was justified on the 23. In Colombia, reforestation for produc-basis of the pilot nature of the project. This is tion purposes is facing an interesting dilemma.difficult to understand considering that both At present, it is very difficult to earn a positivethe borrower and the target farmer were rate of return on reforestation investments,expected to take loans at commercial rates of because with the exception of pulpwood, theinterest. market is not very attractive.

19. Pilot projects are normally put in place 24. A traditional bias toward reforestationto field test the findings and achievements of and tree-planting for watershed managementpreliminary R&D. Their objective is to test purposes has overshadowed the potential ofreplicability and contribute to fine-tuning the interventions in the agriculture and livestockapproach so as to maximize effectiveness (im- sectors. Unless there is a direct and markedpact) and efficiency (cost-effectiveness). The change in strategy and the country begins toessential and basic components of a pilot deal effectively with the problems broughtwatershed management project design and how about by agriculture and livestock on the steepthe PROCAM design measured up are review- hillsides, degradation will continue. Conse-ed in this audit document. quently, the costs to the country will far

surpass the potential losses from a weak20. The approach to watershed management forestry production sector.in Colombia. On more than one occasion,supervision reports mentioned the lack of an 25. The most important lesson relates tooverall strategy for watershed management in the need to make choices and to do so in a

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logically and sequentially sound manner. One Bank's PCR nor in the Final Report preparedof the greatest weaknesses of integrated rural in-country is there any mention of thedevelopment projects is that they attempt to economic feasibility of watershed managementdo everything--spreading capability, expertise, or of the models put forward during theand resources too thinly and thus failing to project, in either quantitative or qualitativegenerate the momentum needed for real im- terms.pact. PROCAM has suffered to some degreefrom this type of problem. 28. Finally, the following lessons of the

PROCAM experience must be factored into26. For this project, institutional cons- future watershed development programs:traints were a principal concern of the Bank atthe outset, and, as it turned out, were keyelements leading to inefficacy. Building on the * The fundamental principle of a genuinePROCAM experience, institution building participatory approach is that farmersneeds to be elevated to a critical prerequisite of must perceive and receive tangible bene-watershed development. The PROCAMproject fits in return for their efforts to conservesuffered from shallow institutional assessment soil and water.and analysis. Institution-building requiresgoals and benchmarks--that is, a program to * In areas where resource limitations arefollow, specifying anticipated achievements. severe, incentives or subsidies may be

justified to offset the production trade-27. Perhaps the most serious impact of the offs associated with protection andBank not having carried out the appraisal of conservation.this project is the continuing failure to come togrips with the question of the cost of watershed * The dilemmas involved in administeringmanagement. There has been little achieve- such subsidies should be resolved throughment in this realm of inquiry; neither in the pilot schemes.

PERFORMANCE AUDfT REPORT

COLOMBIA


L PROJECT BACKGROUND AND DESIGN

Background

1.1 The Upper Magdalena Pilot Watershed Management Project was identified anddesigned in a period during which recent development achievements were intrinsic to Colombia'ssocioeconomic status. Steady gains in GDP and per capita income had been recorded over thepast few decades and with them significant structural changes to the economy. Rural migrationhad led to increasing urbanization throughout the country, manifest in the emergence of urbanareas and the rapid population growth in the capital. The establishment of an industrial andservice sector centered in these emerging areas transformed the previously agrarian economy.The agriculture sector reflected an increase in irrigation capability, in mechanization and in thediversification of the export crop subsector away from its past dependence on coffee. Thepopulation growth rate had also declined significantly from an estimated high of over 3.5 percentto a more modest and manageable rate of 2.1 percent. In general, important improvements wereachieved in the overall prosperity and well-being of the population.

1.2 These achievements, however, also created new challenges and opportunities forthe GOC and its people. A prime example was the increasing need for electrical energy tosustain industrial production and growth, as well as to meet the domestic needs of the urbansector. Directly linked to electricity, because of the vast potential for the development ofhydropower in the country, was the concem about water supply and demand. Water supply infra-structure was also among the earliest needs of the urbanized sectors of the nation, both fordomestic consumption and industrial use. Thus, a good deal of investment was dedicated to thispurpose. Plans for increasing the relatively modest capability for irrigation were, by definition,also directly linked to the availability of water resources.

1.3 Accompanying this modemization was a concem for the emerging gap between therural and urban economies. Overall national economic advances fueled rising expectations amongthe rural poor who had been overlooked, given the emphasis placed on the urban and industrialsector. Migration to the cities had created increasing rural labor shortages, and as a result, therewas more recourse to more extensive uses of the land, particularly in the livestock subsector. Inthe absence of sufficient govemmental services, guidance, and development resources, anincreasing number of rural people sought sustenance and a livelihood by clearing new lands, manyof which were of marginal quality, for peasant agriculture or for traditional extensive livestockhusbandry practices.

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1.4 In the late 1970s, cognizant of the disparities in socioeconomic development, theGOC launched the Plan de Integracion Nacional (PIN). This plan (a) carried on many of themacroeconomic strategies (aimed at industrialization, export markets, and overall growth) of thepast, and moreover (b) began a concerted attempt to raise production efficiencies and tostrengthen the institutional capacity of governmental services responsible for promoting andmonitoring sectoral development. The PIN also embodied efforts to meet social policy objectiveswith special emphasis on the rural poor. This was to be achieved by creating greater regionalautonomy to promote more decentralized economic and institutional development. Governmentalagencies were specifically mandated to focus attention, services, and resources on helping thepoor farmers participate in the overall goals of the nation.

1.5 In parallel with developments worldwide, in Colombia, this period was also charac-terized by an awakening of national concern about the ecology and the environmental stability onwhich the destiny of many development programs so firmly rested. This concern was obviouslydue to the widening occurrence of erosion and watershed degradation in the upland areas of thecountry. Downstream flooding, siltation, and irregular water flows in the major river systems ofcentral Colombia provoked high-level preoccupation for the future of hydropower as fuel for theengines of growth. Assessments of the forest resource base undertaken in the 1970s alarmedmany because of the estimated loss of more than 10 million hectares, or 20 percent, of the forestcover known to exist in 1960.

Identification and Design

1.6 It is for these reasons that the Bank reacted positively to the notion of a water-shed management project, following the request made by Instituto Nacional de RecursosNaturales Renovables y del Medio Ambiente (INDERENA) in 1979 for assistance to the forestryand natural resources sector. At the time, the Bank was already committed to a program forColombia that emphasized power generation and irrigation and had planned to continuecontributing to the development of hydropower to increase domestic sources of energy.

1.7 These discussions focused on the Rio Magdalena, Colombia's most important river.The GOC had long been concerned about the condition of the natural resources in this keywatershed; it was precisely the experience from activities in this watershed that convinced theGOC to create INDERENA in 1968. The Magdalena watershed covers an area of approximately5.5 million hectares, much of which lies in the hilly and mountainous terrain of the CentralCordillera and the Eastern ranges. Over twenty major tributaries of the Upper Magdalena rise inthese intermountain valleys. Like much of the Andean region, these areas are characterized bysteep, unstable slopes (typically over 60 percent) and by narrow valleys with deep canyons.Although rainfall varies between 1,200 and 4,000 millimeters (the latter occurring in the higherreaches of the Central Cordillera, which also feed the watershed with runoff from mountainglaciers), the more important factor related to precipitation is the propensity for occasionaltorrential rains. These events occur annually, overwhelming the infiltration capability of the soilsand sending cascades of floods down upon the towns, many of which are located near the mouthof these narrow mountain valleys, sometimes with disastrous results.

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1.8 During the protracted period of project preparation, in spite of high-level manage-ment changes, INDERENA continued to assert the importance and priority it assigned towatershed management in its overall scope. This was undoubtedly due to an emerging perceptionof the pervasive decline of many watersheds in the country manifest by the recurrent problems offlooding and interrupted water supply to nearby towns. It was very clear both to INDERENAand the Bank, however, that a large-scale investment, such as the watershed management project,which would encompass the entire Upper Magdalena watershed, was impossible at that time forlimitations in experience, technical capability, and financial resources. Accordingly, a decision wastaken to restrict the project under discussion to pilot activities in selected subwatersheds.

1.9 As the population increased and land clearing both for crops and livestock spreadthroughout the subwatersheds of the Upper Magdalena, the departmental capitals of Ibague inTolima and Neiva in Huila experienced both flooding and water supply problems, resulting fromthe deterioration of the subwatersheds on which they were dependent. Both these subwatersheds,the Rio La Ceibas and, in particular, the Rio Combiema, are among the steepest, most populatedintermountain valleys in the world, surpassing the conditions often seen in the Himalayas becauseof their lack of arable land along the valley bottoms. Cultivations often extend directly up slopesexceeding 60 to 70 percent with extensive livestock grazing on even steeper slopes. Due to theconstruction of the large (500 megawats) Betania hydroelectric plant, it was also decided that oneof the important affluents of the Upper Magdalena River near to the dam would also be chosenas a pilot watershed. The choice of these three subwatersheds j/ was also of interest because ofinherent differences both in their biophysical and socioeconomic characteristics, which wereexpected to generate additional experience and models useful for planning watershed manage-ment activities on a larger scale.

Project Objectives and Components

1.10 The main objectives of the project as described in early Bank briefs referred to theneed to develop the institutional, managerial, budgetary, and technical groundwork and to launchresearch programs for improving the basis for future watershed management in the Magdalenaand elsewhere in Colombia. It is worth noting, however, that these objectives, which alluded tothe need to build institutional and technical capability, were amended in the President's Report,giving the project a more explicit field and operational orientation. An even more succinctversion of project objectives, again of a decisively operational nature, is contained in the loanagreement (Schedule 2--Description of the Project).

1.11 The project objectives identified in the President's Report (which served in lieu ofa Staff Appraisal Report) were as follows:

. . . to develop, within four years, viable farming and tree crop systems as well asinstitutional mechanisms for carrying out soil conservation and erosion control and

/ The term subwatemhed is somewhat misleading because each of these areas is in fact a complete watershed, which contributesto the larger watershed of the Upper Magdalena River. A watershed may be defined as the area between the upper limits ofthe divide from whence water begins to accumulate to the point at which its river meets the next river.

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maximizing the long-term economic use of the soils and water. The project wouldtest production and conservation measures (reforestation, civil works, modifyingland use practices, forest protection measures) to determine feasible and low-costways of introducing soil conservation to farming systems and to the watersheds.The project would also provide the necessary information to prepare a follow-up,larger project covering the entire Upper Magdalena River Basin. An integral partof the project would be the determination of incentives required to motivate landusers to adopt conservation practices and an appropriate role for the public sectorto play in protecting the country's water resources.

1.12 To reach these objectives, the project was expected to undertake investments,research, and the preparation of a follow-up investment project, organized along the lines of thefollowing activities:

* On-farm investments, essentially by providing credit to participating farmers to carryout soil conservation, reforestation, tree crop establishment, and improved livestockand annual crop practices.

* Public works carried out through subcontractual arrangements with both privatecontractors and regional corporations that include reforestation on vulnerable areas ofpublicly owned land and civil works for river control.

* Extension and training primarily the provision of extension services and training forparticipating farmers to enable them to understand and adopt new technologies aimedat the soil conservation and watershed management objectives of the project.

* Staff training for personnel of INDERENA and other participating institutions tobetter prepare them to execute future watershed management programs.

* Research and studies of particular relevance to both the project and future programs.These would include studies of hydrometeorology, sedimentation, and erosion ofmicrowatersheds, of forestry and agroforestry practices, on the policy and economicframework for watershed management, and on general technological development.

* Environmental protection by establishing two field units to monitor and protect forestresources, to manage two national parks within the project areas, and to aid in theenforcement of existing environmental legislation.

* Preparation of Phase 11 mandating pertinent studies required to prepare the follow-upinvestment project that encompasses the entire watershed area of the UpperMagdalena River.

Here again, a succinct version of these activities appears in the loan agreement. While these twosets of descriptions of project activities are basically compatible, neither contains an explanationof how they were quantified or costed.

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Institutional Framework

1.13 For the intents and purposes of this Loan, INDERENA, an agency within theMinistry of Agriculture, was designated as the 'borrower", and the lead institution. The roleassigned to INDERENA, in its own description of the project during the design phase, was toinclude administration, planning, and coordination of the other organizations involved, monitoringand evaluation of their activities, and the execution of certain action subprograms within theirambit of expertise. The other organizations, whose participation was foreseen during the designphase, and their respective areas of responsibilities were to include:

* Instituto Colombiano Agropecuanio (ICA) to provide technical assistance to farmers inthe development and implementation of farm plans. ICA was also expected to takecharge of promoting fruit trees, cacao, and improved pasture and livestock practices.

* Servicio Nacional de Aprendizaje (SENA) to introduce the project to the farmer,watershed users, and communities; to take charge of the extension and training relatedto agriculture; and to coordinate with INDERENA the environmental education ofthe rural communities and project staff.

* Instituto Colombiano de Hidrologia, Meteorologia y Adecuacdon de TYerros (HIMAI) tocarry out the subprogram of hydrometeorological research and to assist INDERENAin the microwatershed research.

- Federacion Nacional de Cafeteros de Colombia under its program of development anddiversification in coffee zones, to execute the subprogram to renew coffee plantationsand to promote fruit trees.

* Caja de Credito Agrario, Industrial y Minero (Caja Agraria), the provision of timelyand sufficient credit for the project, as programmed by the other technical assistanceorganizations.

1.14 Inter-institutional coordination was to be achieved by the establishment and opera-tion of both national- and departmental-level committees. In addition to these principal organiza-tions, the other involvement was also foreseen, including departmental authorities (both asinterested participants and as contributors to the Soil Conservation Fund); the departmentalforestry corporations (to carry out reforestation on public lands); and the Instituto Colombiano deEnergia Electrica (the parent company of the Betania Hydropower Dam and contributor to theSoil Conservation Fund).

Project Costs, Budgets, and Conditions

1.15 The total cost of the project was estimated at US$27.3 million of which a US$17.4million equivalent was to be lent in local currency and US$9.9 million in foreign exchange (seeAnnex 1). The Bank agreed to lend to the "Borrower" (in this case designated as INDERENA)US$9 million, or roughly 33 percent, of total appraised project costs. The loan was to have a

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term of seventeen years, including a four-year grace period, with interest at 11.6 percent perannum.

1.16 The submission of draft terms of reference, which intended to further elaborateseveral of the component activities early on in the course of project implementation, included aseries of requirements related to the training programs on microwatershed and forestry researchand the study of the policy and economic framework. Explicit mention is also made of the needto further improve and document in both technical and financial terms the farm models on whichboth field investments and the credit program were to be based. In the loan agreement, anadditional activity mandating a study on INDERENA's administrative, financial, and informationmanagement systems, apparently proposed by INDERENA itself during negotiations in responseto Bank concerns about its capabilities in that area, was also included. Several of theserequirements were presented as conditions of loan effectiveness, and specific dates for theirpresentation were scheduled.

II. IMPLEMENTATION EXPERIENCE

Postnegotiation and Mobilization Period

2.1 It was only shortly after the completion of negotiations and the signature of theloan agreement on December 15, 1981 that those involved in the project, both at the Bank and inColombia, began to understand that it was going to be a more complex and difficult to implementproject than was at first conceived. The BTO of the postnegotiation mission, dated December 28,1981, identified a series of concerns which, in view of the past performance audit mission, arerecognized to have been of fundamental importance.

2.2 Of greatest concern, as emphasized during preparation but apparently unresolved,was the instiutional setting, particularly the inter-institutional agreements. The postnegotiationMission (November 30-December 11, 1981) detected the fact that "except for HIMAT staff, forstaff of all other institutions it was the first time that they had heard of more than the title of theproposed budget (sic)." This is all the more noteworthy given the fact that the Bank preparationmission one year earlier had identified the exact same situation, to wit: "Regarding the insti-tutional set-up, INDERENA envisaged assuming the planning, coordination and evaluationfunctions and leaving implementation to specialized agencies, such as HIMAT, ICA, SENA, forestcorporations, etc. However, no contacts had been made by INDERENA with these institutions inorder to prepare the project adequately and get commitments from the implementing institutions."

2.3 An inadequate understanding of and attention to the institutional framework forthe project was to continue to be the Achilles tendon of the project during its entire implemen-tation period. The so-called contractual nature of the agreements between INDERENA, as theborrower, and the other implementation institutions must be contrasted with the innovative and

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complex V nature attributed to the pilot project. During the performance audit mission, severalinterviewees, both from INDERENA and at least two of the participating organizations, indicatedthat this contractual relationship stifled the flexibility necessary to find the right combination oftechnical interventions and operational responsibilities for successful project implementation. Inaddition, this relationship appears to have added a high degree of administrative cost, particularlyin terms of staff time for reaching agreements. It was thus only in January 1983, after severalpostponements of the deadline for reaching the conditions of effectiveness of the loan, that theseagreements were finally completed with the other participating institutions and the loan wasdeclared effective.

2.4 Another of the difficulties outlined by the postnegotiation mission was the lack ofa comprehensive conceptual framework for the elaboration and implementation of the variouscomponent subprograms (seventeen) prepared by INDERENA. The aide-memoire prepared bythe Bank team at the conclusion of its visit indicated that some of the subprograms appeared tohave been elaborated independently without taking into account the actual objectives of theproject or the other components foreseen for implementation. According to the team, sequencingof subprograms, the choice of areas to be treated, and the justification of quantitative targets allneeded further elaboration. Concern was expressed about the ambitious nature of some of thedata collection undertakings (study at the microwatershed level) and the parallel lack of attentionto the collection of socioeconomic data and information, which would serve eventually to helpjustify the larger, second phase. INDERENA's attention was also drawn to the need to includeactivities aimed at improving the sustainability of annual crop production practices given theirimportance in farmer income generation and in the incidence of erosion. The team acknowledgedthat while this was a pilot project and that much of its effort would be focused on resolvingmethods and models, nevertheless they would suggest a systematic revision to facilitate the finalpreparation of the project.

2.5 These postnegotiation mission comments are very similar to those contained in aninteroffice memo of July 28, 1981 from the Agriculture and Rural Development Department tothe Central Project staff, which do not seem to have been taken into account during negotiations.While clearly the postnegotiation mission, which included a Bank staff economist, a forester, anagricultural advisor, and a consultant livestock specialist, raised these issues, their resolution wascertainly beyond the scope and breadth of their assignment. The developments described aboveare not atypical of watershed management projects (and other projects similarly based on anintegrated approach to rural development). It is much easier to detail what could be done in awatershed undergoing degradation than to select what it is advisable to do based on priorities andthe resources available for project implementation. Given that the project was also conceived asa pilot project, the choice of activities, knowing that not all the problems could be dealt with,must revolve around the following key elements that are vital to ensuring the step to the nextphase of investment, i.e., impact, replicability, and cost-effectiveness.

_W The repeated statements about the innovativeness and compledty of the pilot project are surprising in that there was a gooddeal of aperience with watershed management in the country. The Corporacdon del Valle de Cauca (CVC) had been carryingout waterhed management activities for almost 15 yeam at the time of the design of the Alto Magdalena Project and theoperational model proposed by INDERENA wasi very similar to the model developed succesfully and being implementedby the CVC.

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2.6 Faced with these circumstances, the Bank team recommended a proposal, whichINDERENA endorsed, that short-term consultants be engaged, as soon as possible, "for preparingthe project for effectiveness." It will certainly be noted by the careful reader that the steps beingrecommended, both in substance and degree, would appear to go well beyond what had beenagreed between the Bank and the Borrower as the conditions for effectiveness (see Annex 2 for alist of the conditions of effectiveness as contained in the loan agreement). Rather the project, asimplied in the comments of the aide-memoire and in the BTO of the postnegotiation mission, wasstill in the stage of final preparation. This recommendation to hire short-term consultants,although quite pertinent, proved more difficult to implement than might otherwise be expected.Terms of reference were prepared for four short-term consultants, including a principal advisor inwatershed planning and management (three person-months), and consultants in agriculturaleconomics (three person-months), in agro-silvo-pastoral systems (three person-months), and inmicrowatershed research (three person-months). In addition, the letter to the director general ofINDERENA resulting from this mission stressed the importance of hiring the long-termconsultants foreseen in the project design and of the timely completion of the conditions ofeffectiveness specified in the loan agreement.

Mobilization to Effectiveness Phase

2.7 During all of 1982, efforts continued both by the Bank and INDERENA to meetthe conditions of effectiveness and to get the project fully operational. In both March andSeptember, Bank staff visited Colombia to assist INDERENA to move forward with the project.Aide-memoires detailing the steps to be taken were prepared and cleared with the INDERENAproject director. In September 1982, the director general of INDERENA was replaced as part ofa change in government. The new director, however, was quick to write to the Bank (letter datedSeptember 8, 1982) stating his support for the project and confirming the ongoing activities tomeet the loan requirements. This period also coincided with austerity budget measures imposedby the new central govemment that further impeded the contracting of both INDERENApersonnel and of the consultants (both short-term and long-term), as agreed to during thepostnegotiation mission.

2.8 During this period, it was necessary to extend three times the date (originallyJuly 15, 1982) proposed as the limit for the fulfillment of the conditions for effectiveness. Therecords reflect some significant confusion over the contracting of the short-term consultants. TheBank mission in November-December 1981 had recommended these consultants to assistINDERENA, and, particularly, the Proyecto Cuenca del Alto Magdalena (PROCAM) ProjectManagement Unit that had been established, with completing the final preparation and meetingthe conditions of effectiveness. INDERENA appears to have been under the impression thatthese foreign short-term consultants could only be hired once the loan had been declaredeffective, presumably because foreign exchange costs incurred before that date would not bereimbursable.

2.9 During this period, INDERENA, in cooperation with the national electricity entityInterconeccion Electrica, sponsored the First National Congress on Watersheds (held in Medellin,Colombia, March 2-6, 1982). The BTO of the Bank staff member, who presented a paper onbehalf of the Bank, demonstrates the duality of opinions regarding the capability for watershed

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management in Colombia that underpinned both Bank supervision and support for PROCAM. Itreported that although Colombia was seen as a leader in the field, the papers presented at thecongress indicated that the efforts were mostly dedicated to the collection of vast quantities ofdata on the conditions of the various watersheds without the overall framework or understandingrequired for resource management decisions and interventions.

2.10 As a result of an intensive supervision mission in September 1982 that produced adetailed aide-memoire and the resulting follow-up by the local project director, the project wasfinally declared to be effective on January 13, 1983. The Bank declared the loan effectiveness,waiving the right to request a report containing the farm models, on which presumably both themacro- and microeconomic feasibility of the project depended, that still needed furtherrefinement. There was also a number of other ongoing constraints, understood by both the Bankand INDERENA, including staffing shortfalls for the project unit and the need to accelerate orpostpone compliance with the preparation of a number of key planning activities related to long-term implementation.

Execution Phase

2.11 Having reached the effectiveness plateau, the project's next six months were verypromising. Considered by the Bank and others as the key feature of the project's design, the SoilConservation Fund was put in place. This fund whereby downstream users of the water flowingfrom the watershed, in this case the hydropower company, the municipal water supply systems anda small irrigated perimeter, agreed to provide financial resources to offset the cost of soil andwater conservation in the upper reaches. A series of small properties were acquired to serve asexperiment and demonstration areas in the target watersheds. The short-term consultants werebrought on board and undertook their work in this period. Work on the diagnostic studies of thelarger Upper Magdalena watershed was well underway by the subcontracted institution--theInstituto Geografico Augustin Codazzi. The staffing situation improved overall, and a proposal toprovide salary supplements to attract and keep highly qualified staff for the project unit was putforward.

2.12 Soon after the third Bank supervisory mission (early October 1983), anotherchange in the leadership at INDERENA took place--the fourth such event in the short life of theproject. There was also a decision by the new director general to replace the PROCAM projectdirector, who had served in that capacity practically from the project's inception.

2.13 Soon thereafter the project entered into a period of considerable uncertainty inimplementation, from which it appeared never to recover. Despite some promising achievements,the inadequate conceptual framework, which undermined the sense of mission and purpose forthe staff and the institutions, combined with other design misconceptions, began to makethemselves felt. Some of the most pertinent considerations 3/ of this period were:

_N Many of the facts and details of the implementation record are discussed in both the PCR and the Final Report of the projectprepared by INDERENA, albeit without the degree of analysis this report is attempting to apply.

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* Project rorientation and realignment. An overall reorientation and realignment of theproject to take account of the delays and findings during its inception, expected to beguided by the short-term consultant in watershed planning, was not achieved to thedegree necessary or anticipated.

* Monitoring and evaluation system. The design and implementation of a monitoringand evaluation system was never realized, although it was also expected of the short-term consultant in watershed planning and subsequently of another longer-termconsultant hired late in the project. These systems were considered essential for twopurposes: (a) to guide the pilot activity through analysis of problem areas andjustification of corrective changes, and (b) to provide part of the baseline for thesubsequent design of the larger investment project encompassing the entire UpperMagdalena Watershed.

* Credit system for on-farm interventions. Perhaps the most salient example of both theinstitutional and design issues hampering the project was the almost total failure ofthe credit component. During 1983 and part of 1984, of the almost three hundredbeneficiaries preselected for credit, only one loan was approved. A considerableeffort to examine and reconcile this issue with the Caja Agraria was made and someslight improvement achieved. As it turned out, however, the guarantees andrequirements to obtain a loan under this credit line proved beyond the capacity of themajority of the smaller farmers residing along in the pilot watersheds that the projectwas trying to reach. The Caja Agraria stood its ground, some would say adamantly, onthe contention that it had agreed to provide credit only within the existing systems andnorms currently practiced in the country. In the final analysis, only 270 loans (only 5percent of the estimated 5,000 originally planned) were made, amounting to roughlyUS$400,000 (again about 5 percent of the projected US$7.1 million planned for thecredit component) over the life of the project.

v Operational capability of the project unit. The project unit that was created as aseparate entity within INDERENA continued to have difficulties responding to thedemanding role of overall manager and coordinator of PROCAM. This was due tocontinuing staff shortages; disapproval by central government of the salary supple-ment; continually growing administrative and financial accountability responsibilities,resulting from the proliferation of subsidiary agreements and subcontracts with othergovernment and private organizations for different facets of project activity; furtherchanges in leadership (both the director general and the project director changedagain between 1984 and the end of the project in 1987), and limitations to its financialresources as a result of successive government austerity budgets.

* Isolaion and resentment of the promject unit. Added to its own inherent difficulties wasthe emerging resentment felt among the other sections of INDERENA, which wasperhaps exacerbated by the period of high-level indifference and even outrightopposition to the goals of the project. This situation was also part of the reason thatthe project unit experienced difficulties in hiring consultants for technical assistanceand in coalescing its training program, which were subject to the reluctant clearanceand approval by other units within the organization. A certain plausibility exists to the

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claim made by project participants that the planned study on the administrative andfinancial management systems never took place because of direct obstruction by otherunits within INDERENA At the height of the most problematic period in 1985, anddespite Bank expressions of concern, by executive fiat, both financial and humanresources destined for the project were deviated for other purposes withinINDERENA.

* Contractual nature of the relationships among the participating institutions. In general,the principal implementation organizations chosen to participate in the Project (ICA,SENA, HIMAT) were selected by virtue of their mandates and functions establishedby law. The contracts, though complying with the conditions set in the loanagreement, proved to be ineffective during implementation (e.g., unclear interagencyarrangements, including budget allocations). The overall orientation of their activitieswas that of completing tasks ("el cumplimiento de metas fisicas") prescribed in theircontracts rather than participating with INDERENA in the joint conceptualizationand testing of an inter-institutional and appropriate model(s) for an integratedapproach to watershed management. This situation was even more accentuated in thenumerous cases of smaller direct subcontracts awarded to both private and publicentities for specific studies and tasks. For example, INDERENA commissioned aseries of engineering studies for civil works, as foreseen under the project, without, inretrospect, the appropriate in-house capability to judge their adequacy. Few of theplanned civil works were actually built, some of which were built washed out. Thedirector general later decided that this kind of work was beyond the mandate ofINDERENA and, thus, cancelled further work in the subprogram.

* Technical difficulties. A number of technical difficulties and the phasing of activitiesto overcome them made it almost impossible for the project to live up to itsimplementation schedule. Trials established to test new production cum conservationtechnologies were found to be statistically invalid and had to be redesigned and re-established. The ICA cooperated by providing specialized research design skills,outside the terms of its contractual relationship, with the net effect that the researchprogram is still ongoing. This left the project without the scientific basis tosubstantiate many of the pilot interventions that were being tried on-farm in thewatersheds.

* Disbursement shortfalls. Both implementation difficulties and constraints on financialresources as a result of successive austerity budgets combined to severely limit theutilization of the loan funds. While after the first spate of mobilization expensescumulative disbursements in early 1984 reached approximately US$1 million, outlayswere considerably off the pace intended thereafter--to the point where by mid-1986the total had only reached US$2 million. It must be borne in mind, however, that partof this slow disbursement was due to the continuing and rapid devaluation of theColombian peso over the same period.

* Bank/lNDERENA relationship. As part of the implementation record, a number offacets of the relationship between the Bank and INDERENA bear scrutiny.

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The review of the project's correspondence files shows the preponderance ofexchanges (with the exception of selected aide-memoires left as a result of supervisionmissions) mainly of administrative nature, i.e., exchanges regarding of loanrequirements completion of terms. Even more notable is the numerous instances inwhich the Bank was reviewing the TORs, draft agreements, draft subcontracts, orsome other implementation planning tool. Several things seem apparent from thissituation: the simple exchange of correspondence, views, and approvals related to themultiplicity of these arrangements of a subcontractual nature (for participating institu-tions, subcontractors, consultants, and project procurement) was an overwhelmingadministrative burden, both for INDERENA and the project unit, as well as for theBank. During the audit mission, INDERENA personnel mentioned that theadministrative minutiae of the project obliterated time (and energy) for anything else.

Thus, it seems that the file contains very little professional or technical exchanges thatmight have influenced some of the more basic terms of project implementation. Inretrospect, the overall design of the project seems to have imposed a burden onINDERENA, in an area in which the Bank judged it to be the weakest--administra-tion and management. It is also clear from the record that Bank supervision cannotand should not be expected to substitute for needed technical assistance.

Another point is that there were several instances and many valid reasons throughoutthe course of implementation that would have allowed the Bank to exercise its rights(contained in the loan agreement--Article VI--Remedies of the Bank) to suspend theloan and move for reappraisal. This did not take place. What is perhaps moresurprising is that in reviewing the entire set of project files, no mention of such apossibility was ever raised. This may be due in part to the fact that, after a certainpoint, supervision missions were undertaken by a changing cast of Bank staff members.This may have required a high learning curve on their part; one that did not allowstaff adequate time to reach the ultimate conclusion that the project was so severelyflawed that it would never be successful. Then again, it may have been a factor of thehigh administrative overhead associated with backstopping this project, which made itdifficult to see or reflect on the larger picture.

III. PROJECT IMPACT

3.1 Undoubtedly, PROCAM achieved some impact, albeit far less and in ways notentirely or originally foreseen. Overall, the project experience, however, has been unsatisfactory.Indeed, only the absolutist language used in the Bank's project information form for defining veryunsatisfactory prevents the audit from evaluating it as such. This rather negative assessment ofthe Upper Magdalena Pilot Watershed Management Project is based on two basic considerations:(a) the project failed, almost completely, to meet the objectives set for it, and in doing so, (b) wasunable to demonstrate the replicability of its approach to watershed management. The sectionthat follows is a discussion of this evaluation of performance and the criteria on which thejudgements put forward immediately above are based.

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Achievement of Project Objectives

3.2 Project documentation mentions three principal objectives: (a) development ofviable farming and tree crop systems, (b) improvement of institutional capability, and (c)preparation of a follow-up investment project.

Farm and Tree-Crop Systems

3.3 In general, the physical achievements in the implementation of farm- and field-level interventions, some of which in the agricultural area exceeded the set targets, are far lesssignificant in terms of impact than might be hoped for. Although it was not possible in the timeavailable for the performance audit to view more than a limited sample of the work sites, fieldobservations in the two (out of three) watershed areas visited suggested that few of the farm-levelinterventions have continued to be applied by the residents. This is hardly surprising in that theneed to further develop and perfect these farm-level interventions was the subject of considerableBank intemal discussion regarding the conditions for effectiveness of the Bank loan.

3.4 PROCAM set up a fair number of experimental runoff plots to test the effective-ness of suggested improved agricultural-cum-soil conservation technologies for the sloping landstypical of the watersheds. This research program on the PROCAM experiment stations in severallocations throughout the pilot watersheds is still ongoing. The plots have as yet to provide thedata and information necessary to confirm either the anticipated improved yields or their effec-tiveness in terms of soil conservation. Even more regrettable is the fact that they have not beenassessed from the point of view of cost/benefit analysis to ensure their viability as recommenda-tions for the farmer or as the basis for a credit program.

3.5 Trials of this nature, with several important variables, require fairly exactingstatistical and economic analysis to assess and extrapolate the results for application under the fullspectrum of diverse conditions in the watersheds. It remains to be seen if the INDERENA staffcurrently manning the stations will be able to perform these analyses without recourse to thetechnical assistance now unavailable to them because of the closure of the project.

3.6 Reforestation was also an important part of the farm and public works investmentcomponents of the project. Although the implementation targets were almost reached, the wholequestion of the role of reforestation must be reviewed in the context of watershed management inColombia and, in particular, as applied in the Upper Magdalena watersheds. For one thing,reforestation has been successfully carried out in these areas for some time. And indeed, almostall of the trees one sees in the area have been planted, e.g., the eucalyptus and Cupressus. Thisis especially true in the middle elevations where for years, according to INDERENA, refores-tation campaigns have been going on for years for both public and private land. Regrettably,many of the areas successfully planted and growing have either not been managed (thinned) orshould not be because of the steepness of the sites. Hence, there is reason to question thefinancial viability of tree planting under such conditions, whether for production or for protection(see next section for more detailed discussion of this topic).

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3.7 Furthermore, evidence of fires, the renewed cutting of trees and clearing ofvegetation on steep slopes for farming, and the continued overgrazing all indicate that many ofthe farmers have gone back to their older ways. Even the promising practice of establishingfodder banks (pastos de corte with King grass and other species) has not apparently beenexpanded despite its high potential still evident in the remanent areas. It would seem that theefforts by SENA to carry out a campaign to sensibilize the peasants to the dangers of naturalresources and watershed degradation fell on deaf ears!

3.8 The reality, however, is otherwise. Too many projects of this nature, i.e.,inherently top-down, start with the premise that they must sensibilize the farmers. Farmers insuch conditions observe the degradation from day-to-day and are very aware of the impact of theirpractices. The watersheds of the Upper Magdalena are no exception; floods, landslides, decliningyields, and the challenge of survival in these areas' are paramount considerations of every smallfarm family. In most cases, the lack of alternatives (that is, technologies applicable under thebiophysical constraints of steep lands, farm inputs, markets or off-farm employment opportunities)compels farmers to behave in seemingly irrational ways. Within the Andean watersheds ofColombia, many farm families have already taken the only real route open to them: immigrationto the towns and cities or to the new lands of the lowland tropics of the country. Perhaps it isthe project personnel who should be the first target of the sensibilization campaigns--shorthandfor saying that, to be effective, watershed management projects must start at the grass roots level.

3.9 In short, the pilot farm- and field-level interventions, some of which undoubtedlyhold promise for achieving both production and protection targets in the context of watershedmanagement, were not successfully developed, promoted, nor implemented during the project.Moreover, the actual definition of this project as a pilot field exercise can be questioned. Inaddition to these needs to further develop the field-level technological packages, it would appearthat the project design grossly oversimplified and underestimated the complexities associated withwatershed management in the conditions typical of the Upper Magdalena. Had there been eventhe slightest possibility of the overall feasibility of the proposed packages of interventions, onewould have expected to see them being adopted by progressive farmers in the area, even in theabsence of incentives or credit. And indeed, progressive farmers have moved off the slopes andare now raising poultry for sale to nearby towns. A more fulsome discussion of the whole conceptof watershed management in Colombia is part of the following sections of this report, which treatthe findings and main issues.

Institutional Improvement

3.10 In general, the demise of the Upper Magdalena Pilot Watershed ManagementProject is moot testimony to the fact that it failed to achieve its institutional strengtheningobjective. It should also be noted, however, that this objective was never particularly welldescribed in project documentation nor was it well articulated with the operational aspects of theproject. Too much emphasis was placed on improving what was seen as INDERENA's adminis-trative and financial management weaknesses. In retrospect, it could be argued that these areasof capability were actually put under more stress and hindered in their development by thedecidedly complex nature of the institutional framework. The contractual posture of therelationship between the lead agency and its other institutional partners also impeded the learning

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and adaptation processes implicit in the pilot stage, especially as this concerns the integratedapproach to watershed management. The reluctance to utilize the technical assistance fequiredand the failure to truly launch the training program, both foreseen as essential parts of the projectstrategy, undermined institution-building.

3.11 Nevertheless, some residual impact has been discerned among the variousinstitutions who played a principal role in the implementation of the Upper Magdalena PilotWatershed Management Project. Both SENA and ICA, drawing on their experience inPROCAM, have established programs aimed at watershed issues. SENA has included watersheddegradation as an important component of its National Prevention of Disasters Program.Concerns about natural resource management and the environment are core elements of theirstandard rural development promotion and training campaigns. They are also collaborating withINDERENA on a series of training bulletins related to watershed management (see below). ICA,for its part, has created a Division of Natural Resources in its new structure, and althoughfundamentally agriculture-production oriented, ICA has become ever more conscious of thewatershed issue, particularly as it applies to irrigation, on which, in many cases, programs foragricultural commodity export depend.

3.12 Despite what must have been an arduous and troubling experience withPROCAM, INDERENA has regrouped its Division of Watershed Management and, with thelimited government funding at its disposal, is executing two programs as a direct sequel to theproject. The Program for Research in Renewable Natural Resources for Watershed Managementis undertaking the investigative work begun during PROCAM, maintaining the experimentstations and continuing the testing of a limited number of other promising technologies. TheDevelopment Program aims at applying the techniques to field conditions in support of otherentities that have defined watershed management as a need. Through this latter program,INDERENA is presently contributing to the GOC's decentralization efforts by assisting municipalcorporations to plan and implement watershed management in the microwatersheds that supplymunicipal water systems, under the overall national campaign of "Municipios Verdes."INDERENA, in collaboration with SENA, has produced a series of training brochures 41 toassist municipal leaders, teachers, farmer leaders, and others to become familiar with watershedmanagement issues and activities.

3.13 The GOC too has given priority to watershed management as part of its overallsocioeconomic and rural development strategies. In the case of the Magdalena River, forexample, specific mention is made in the new 1991 Constitution regarding the creation of theCorporacion Autonoma Regional del Rio Grande de la Magdalena, charging it with, among otherthings, the utilization and preservation of the environment and renewable natural resources.Similarly, in the Forestry Action Plan for Colombia, the first of the four major problem areas isdescribed as follows: "The deforestation rate reflects the overexploitation of natural forests inColombia, resulting in the erosion of 20 percent of the national territory and varying degrees of

Among the titles in this series, which acknowledges the contribution of the Bank through PROCAM, are: 'Todos Necesitamosdel Suelo"; "Especies Vegetales para Proteccion del Recurso Hidrico"; "Manejo de Cuencas Hidrograficas Abastecedoras deAcueductos Municipales"; "El Componente Amnbiental en el Plan de Desarrollo Municipal"; "Autogestion Comunitaria;" and,"Communicacion Participativa."

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imbalance brought to the different watersheds, the sedimentation of the main bodies of water, thefluctuations in flow volume, the reduction of the useful life of reservoirs, the decreasednavigability of rivers, and the destruction of estuary zones." In response to watershed degradation,the plan proposes the establishment of the National Network for Technical Cooperation in theManagement of Watersheds (RENORDE). This project involving the regional corporations,INDERENA, and other public entities under the initial direction of the Corporacion del Valle deCauca (CVC) is expected to take approximately sixty-four months and to cost almost US$5million. RENORDE will provide only the basic technical assistance intended to leverage muchlarger amounts of funding to meet the investment cost of watershed management activitiesassociated with municipal and local water supply systems it helps to get underway.

Planning for Phase II

3.14 Given the many difficulties encountered in the implementation of this pilotproject, it is not surprising that efforts to meet this objective were, at best, half-hearted. Themajor study of the Upper Magdalena watersheds, undertaken by the Instituto GeograficoAugustin Codazzi, while fairly comprehensive, proved to lack the level of analysis required for thedesign of a follow-up project. As discussed at some length in the section that follows, designingintegrated rural development efforts, such as watershed management, requires making prioritizedchoices of activities based on a sound understanding of the constraints and opportunities, bothbiophysical and socioeconomic. PROCAM never reached this stage.

3.15 The other major shortcoming related to the preparation of the investment project,as pointed out on numerous occasions by Bank supervisors, was the total failure to design andimplement the monitoring and evaluation system for PROCAM. Without monitoring and evalua-tion, project personnel were unable to systematically document progress and problems, to makeadjustments to the implementation of the pilot stage, nor to lay the groundwork for a follow-upinvestment project. Unfortunately, although a concerted watershed management program is stillmuch needed in the Upper Magdalena area, PROCAM will be much harder to analyze, and itsexperience will be necessarily more anecdotal than scientific.

Replicability--the Path to Sustainability

3.16 Successful watershed management projects must reach a high degree of auto-sustainability based on the production and returns from the application of technologies appropri-ate to the inherent land-use capabilities. In Colombia and particularly in the steep, unstable soilsof the watersheds of the Upper Magdalena, the recurrent costs of a watershed managementmodel based or dependent on a social welfare approach (incentives to farmers to survive withoutcultivating steep areas) would be, at least for the near- to medium-term, prohibitively expensive.Any analysis of PROCAM that attributes impact to the physical achievements is therefore simplyinadequate.

3.17 One of the implicit aims of PROCAM as a pilot project was to test the replica-bility of and to improve its approach to watershed management--and thus to lay the foundationfor future efforts. Unfortunately, the project's record is so replete with delays and problems thatit was unable to achieve any real testing of the various components of its approach. On the

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technical side, as mentioned previously, the application of new technologies to the problems ofsustainable production under the hillside conditions was at best incipient. While the experimentsare still ongoing, on-farm experiments and introductions are no longer being monitored, therebylimiting the amount of field-informed feedback, which is the normal test of replicability. On theinstitutional side, the best that can be said is that the PROCAM institutional framework--involving many agencies all with operational responsibilities under contract-like arrangements--isnot the route to follow. The quantitative assessments of the project activities were so scarce thateven overall economic feasibility could not be confirmed, nor could cost efficiencies bedetermined to ensure replicability.

3.18 The project has, however, served to confirm replicability in a few areas, and thisshould have some bearing on the long-term sustainability of watershed management in Colombia.The achievements are mainly related to the learning process among the participants. They arethe principal actors on.the stage of watershed degradation and will have to continue to play thatrole to achieve watershed management.

3.19 The local understanding of the important relationships between the downstreamusers of the water resources and the upstream residents of the watershed is still apparent in theUpper Magdalena area of Colombia. During the field visit, municipal authorities voiced theirstrong convictions regarding the need to support conservation and management in the upstreamportions of the watersheds that supply their urban water systems. In many urban areas in thevalley, the water supply is drawn from intermountain rivers and streams. These areas arepresently experiencing the reality of watershed degradation. The high cost associated with themaintenance of upstream intakes and the occasional drought periods serve as testimony to theseconvictions.

3.20 Although it may still be difficult to tap financial resoui'ces directly from concernedmunicipalities to support watershed management in their supply areas, many are now includingthis issue in their local development plans and are seeking government resources to address it.The Soil Conservation Fund attempted under PROCAM was an excellent idea--that is,downstream beneficiaries help to finance upstream costs. Sustaining the willingness to contributeeither directly through SCF-like arrangements or through the tax structure, creates a demand fortangible results. Fortunately, it would appear that the foibles of PROCAM, which never reachedthe stage of producing results that could be detected downstream, have not undermined theoverall concept. Perhaps even more illustrative of the situation, given the new shift withingovernment towards decentralization, local entities have been given the right to issue use permits,for such activities as tree-cutting, gravel extraction, water use, and effluent discharge, all directlyaffecting the watersheds. The vested interests of local entities are now in their own hands andwith it the authority, responsibility, and accountability to their constituents for the stewardship ofthis fundamental resource base.

3.21 There is also an evident and growing awareness among farmers of the watershedsthat their situation is a precarious-one. Several individuals who spoke up during the audit fieldvisit to the project areas demonstrated a sound grasp of watershed degradation issues. Theyevinced a willingness, indeed an urgency, in finding other viable means of earning a livelihood. A

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number of the farmers in the Rio Combeima watershed have turned to poultry raising on a semi-commercial scale rather than continue the numbing existence of exploiting the poor hillsides forsubsistence. These more progressive farmers expressed dismay that PROCAM had ended beforeit had reached its goals and pleaded for its re-establishment. When the unlikelihood ofcommercial farming was apprised, several farmers vowed to continue their own efforts and topressure local authorities to reinstate a similar program.:/ Still other farmers, however, look tothe government to solve their problems and seem little aware that their destiny is inextricablylinked to that of the watersheds.

IV. FINDINGS AND MAIN ISSUES

4.1 The overall design, preparation, and implementation record of the UpperMagdalena Pilot Watershed Management Project is fraught with so many problems and delaysthat it is difficult to isolate particular problems for lessons learned. Several things are,nevertheless, very clear. Under no circumstances should the needs and opportunities for water-shed management in Colombia be judged on the basis of this experience. The basic rationale forthis project remains valid and vivid today, i.e., that unless the pervasive and progressive degradationof the country's upland watershed areas is reversed, there will be significant negative impact on thesocioeconomic development potentials downstream.

4.2 The Project Completion Report prepared by the Bank, in the opinion of thisperformance audit, seems to be following the same path as the design and preparation period -oversimplifying the situation, making vague allusions to institutional concerns, and providing anessentially descriptive rather than analytical treatment of the project.&/ While the persistentconcern with the institutional dimensions of this project, during preparation and implementationphases and in the final synthesis, is well-founded, it overlooks the fact that the Bank wasexperiencing similar problems with its other projects in Colombia during this period of changinggovernments and of austerity budgets.2/

4.3 Numerous instances exist throughout the project record where, with the luxury ofhindsight afforded this performance audit, one could point to issues or problems on the part ofthe personnel and institutions involved. Many of these can best be characterized as instances ofhuman failings where either the institutions involved, both local and Bank, or the personnel whorepresented them, were unable to meet their responsibilities. Examples of individual situations

Watershed management plans have been prepared now for two watersheds included in PROCAM, both the Rio Combeima(which supplies the municipal water system of Ibague, the capital of the Department of Tolima) and the Rio La Ceibas (whichsupplies the municipal water system of Neiva, the capital of the Department of Huila).

It should be noted that according to the written record of the project files, the PCR appears to have been prepared by a Bankstaffer who was not previously involved in the project and who was allocated one day as part of an unrelated TOR to meet withINDERENA and to review the status of that institution's final report, before initiating the preparation of the Bank's PCR.

2/ See the Bank's letter of September 11, 1986 to Dr. Jose Fernando Botero, Minister of Agriculture, regarding the five Banksupported projects under execution at that time.

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where the staff involved did not follow up on some of the important dimensions of the projectpreparation or implementation specifications include the following:

* The decision at the Bank not to carry out a full-scale appraisal of the project and inparticular the lack of a satisfactory examination of the cost/benefit implications ofwatershed management activities proposed as the basis for the loans, both to theborrower and to the farmers.

* Inadequate preparation of the institutional project framework by INDERENA,especially as concerns the working relationships between the principal GOC agenciesand lack of follow-up on this important consideration by Bank staff preparing theproject.

* Lack of clarity in budget estimates, reflected in the confusing budgets attached to thePresident's Report, and an overall lack of breakdown of the operational budget.

* Lost opportunities at the Bank to improve the design and preparation of the project.For instance, apparently no action resulted from a July 1981 Agriculture and RuralDevelopment Department memo raising several concerns about the project; the Bankaccepted farm models despite their known shortcomings; little systematic follow-upoccurred on many serious issues raised by the postnegotiation supervision mission(November/December 1981) or on issues raised by the staff member in a BTO aftervisiting Colombia in March 1982.

* INDERENA's reluctance and overall failure to hire the technical assistanceconsultants foreseen in the loan agreement. Those hired were not contracted in atimely way and the overall level of effort foreseen for consultancies fell far short ofthe estimate made during project preparation.

4.4 Although the cumulative effect was quite serious in its impact on the project,particularly the missed opportunities during design and appraisal, an analysis at this level would dolittle to bolster future efforts. It would appear to this audit that once the project was approved,both INDERENA and Bank staff were unable to muster the time, energy, or will to undertake asystematic analysis of the operational problems and to proceed with the redesign, which wasundoubtedly necessary. Had the consultants foreseen in the agreement been hired as planned(and one can rationalize that both Bank and INDERENA project personnel felt that thistechnical assistance would solve the problems), many of these problems might have beenovercome.

4.5 A number of more significant concerns, however, may offer guideposts for similarendeavors both in Colombia and at the Bank. Four major issues, considered the most salient andfar-reaching, are discussed here below in the hope of further contributing to the outcome of thispilot project, which ultimate goal was to advance the state-of-the-art of watershed management inColombia.

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Project Design and Preparation Shortcomings

4.6 It is clear from a careful reading of project files that a significant degree ofambivalence and confusion existed right from the start regarding the original intent of the project.Although it was nominally called a pilot project from the beginning, frequent statements aboutthe need for technical assistance suggest that its target should have been more basic.

4.7 The interest and enthusiasm of the Bank appears to have been centered on twoinnovative features of the project. The most important of these was the precedent of a well-recognized and functional relationship between the upstream and downstream users, now legallyestablished in Colombia, which requires, as an example, that 2 percent of the net proceeds of theoperation of hydroelectric facilities must be reinvested in the upstream areas. The proposalcontained in the project documents to establish the Soil Conservation Fund with voluntary contri-butions by downstream users (hydroelectric companies, municipal water corporations, and theirrigation associations) was indeed a significant achievement and thus worthy of support. Thesecond characteristic was the integrative approach to watershed management, involving a widesegment of govemment services to achieve a common goal of enhanced and sustainable produc-tion in critical watershed areas. These two characteristics were seen as exemplary features of theproject and explain the high profile of the project, transcending both the Bank and Colombia. Itis somewhat ironic that PROCAM was much discussed in development circles around the worldeven before it became operational.

4.8 If the record is a legitimate reflection of the thinking of the times, the GOC hadperhaps more practical aspirations. In the words of the then director general of INDERENA (inan April 1980 letter to the Bank personnel), their intention was that of learning by doing("aprender haciendo"). INDERENA staff, which were involved in the early design activities andinterviewed during the audit exercise, asserted that it was their intention to investigate the variouswatershed management models and approaches existing in Colombia.J Their vision of theproject, at least as expressed in recent meetings in Bogota, was a project geared to research,experimentation, and data collection on different approaches and technologies applicable towatershed management in the Upper Magdalena and its tributary watersheds.

4.9 These inherent differences of viewpoint, now difficult to substantiate, are certainlyplausible, especially given the fact that the director general of INDERENA, who was the originalproponent and promoter of PROCAM, was replaced during the preparatory period (October1980). Whatever the circumstances, the fact remains that the project as described in theauthorizing documents of the Bank was definitely considered to be a pilot project.

y Here again, it is necessary to set the record straight. In 1979, there were, according to sources at the National PlanningDepartment (DNP), at least ten ongoing watershed management projects in the country, not the least of which was the largeundertaking of this nature being carried out by the Corporacion del Valle de Cauca (CVC). It would also appear in retrospectthat this was not the firt time either that the Bank was involved in watershed management, and depending on one's outlookabout the DRI Project activities that addresed land rehabilitation, pouibly not even the first time the Bank was involved inwatershed management in Colombia. This "whether or not it was the firt" issue is relatively meaningless in practice althoughit does point to a certain superficiality of the preparation process, i.e., no knowledge of past activities in the field in Colombia.

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Pilot projects are normally put in place to field test the findings and results of preliminaryR&D efforts. Their objective is to test replicability and contribute to fine-tuning theapproach, so as to maximize effectiveness (impact) and reach highest efficiency (cost-effectiveness).

4.10 The essential and minimum components of a pilot watershed management projectand how the PROCAM design measured up are:

* Sound understanding of the problem situation. The documentation, which reflects theexperience of the project, is clear in this regard. In absolutely none of the officialproject documentation is there any in-depth analysis of the situation of the watershedsin question, neither from the biophysical nor socioeconomic standpoints. This is insharp contrast with the statements in the early project brief (May 1980) that justifiedthe expanded President's Report in lieu of an appraisal: "The preparation reportwould include detailed technical knowledge of climate, soils, crops and water flows aswell as social and economic information about the regions." Although some of thisinformation may have been available during the early preparation phases,2/ the basicwatershed management plans for the Rio Combeima and, subsequently, for otherwatersheds in the pilot area, are only now being finalized.

At the very least, and to evaluate the planned interventions from an appraisal point ofview, one might have expected to find information on the following:

- topography and altitudes

- soils (although some information on the soils is included in the President'sReport, the data is insufficient for subsequent analysis);

- climate, including rainfall amounts and periodicity, life zones or basicecological information;

- an assessment of the impacts of past practices and abuse and erosion riskassessments;

- socioeconomic data including populations, density, land ownership patterns,occupations, labor availability, off-fann employment, and social, technical,credit and development services in the area;

- an overview of land use and existing farm production systems;

2/ The President's Report mentions the eistence of "A project file .. prepared as a basic guide for the project." Neither thisdocument nor any further reference to it in the preparation or implementation period was found in the record nor recalled bythe personnel interviewed in Colombia.

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- an understanding of consumdtion and commercialization patterns of farmproducts;

- the extent and condition of infrastructure in the project area; an4

- a synopsis of past and present devewlopment activities in the project area.

Without this basic information, it is hard to see how either the Bank or INDERENA,as the borrower, were able to judge the overall feasibility, from either the technical,social, or economic point of view of the project.

Part of the problem lies in the general approach to watershed management inColombia that is still rather directive and patemalistic, despite high-level governmentpolicy decisions regarding decentralization and the admitted importance of thecommunity dimensions. At present, many of the best-intentioned, ongoing efforts ofINDERENA are stili aimed at the development of technologies, with little regard to athorough analysis of the problem, particularly from the point of view of the principalactors--the peasant farmers.

* Technological package to address perceived constraints. The project was premised onthe existence of suitable on-farm technological models applicable to the conditions ofthe watershed, which would enhance or at least maintain productivity while achievingsoil and water conservation. The improvement of the existing models was part of theconditions for effectiveness. After substantial delay, the models were finally acceptedby the Bank in 1983 with the full knowledge that they needed to be further elaboratedand that the cost/benefit analysis need to be carried out. Some of these models,aimed at the introduction and expansion of perennial crops, such as coffee, cacao, andfruit trees, are by definition more suitable to the conservation goals of the watershedmanagement. their productivity, however, in practice on the soils of the area (withthe possible exception of coffee), has as yet to be thoroughly analyzed.

As concerns annual crop production--the main cause of erosion in the project area--much remains to be done. Much of the groundwork for understanding theproduction, conservation, and financial dimensions of these models is still beingstudied. There is simply no shortcut for documenting the soil and water retentionefficiency and production capabilities of new approaches to peasant agriculture. Theextensive network of runoff plots and trials put in place on experimental areas is stillbeing monitored, albeit with the limited local budget now available to INDERENAand its field personnel. These types of experiments are long-term in nature. Newertechniques of monitoring soil movement (with pins) and soil condition can provideindicators of improving soil conditions and stability. They are still, nevertheless,hostage to the longer-term farming systems studies required to assess the productivityof new technologies, particularly for the intercropped systems typical of the projectarea.

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Owing to the institutional orientation and capabilities of the lead agency,INDERENA, the project has emphasized conservation, without adequate attention tothe existing agricultural, livestock, and forestry production systems existing in the area.Sedimentation studies, river control structures, and water quality improvements will dolittle to ameliorate the basic problem of watershed degradation. The key is to resolvethe pervasive and degenerative spiral of improper land use, soil degradation and ero-sion, and decreased agricultural production leading to opening up new lands.

Through the efforts of ICA under the Integrated Rural Development Program (DRI),some achievements have been made in assisting small farmers (less than 20 hectares)to more rationally and fully exploit their holdings. Too little of ICA's resources(according to informed sources, less than 5 percent of its total budget) is devoted(a) to research topics relevant to the small, hillside farmers of the Andean zone, and(b) for effective technological interventions with annual crop schemes so keyed towatershed management.

* Size and scale suitable for pilot operadons. One cannot help but remark that for apilot project, this was quite a large undertaking. With a total cost estimated atUS$27.3 million dollars, it was by far the largest project that INDERENA had everundertaken. Perhaps more to the point is the contrast with the early project brief(May 1980) that described a project where "the total costs are expected to be in theUS$8.14 million range. An estimated Bank loan would amount to US$3-6 million...'How this escalation in size took place is now unclear. As is stated elsewhere in thisreport, however, it is virtually impossible to understand the reasoning behind thevarious budget synopses provided with the loan documents.

The earliest indications of size of the project mentioned an area of approximately15,000 hectares; by the time the preparation was complete, the area had expanded tocover 200,000 hectares, slightly less than one-third of the entire Upper Magdalenawatershed area. Here again, there is a contrast with the stated target areas for thevarious treatments that in total did not amount to 6,000 hectares (5,200 hectares ofon-farm investment and 660 hectares of reforestation on public lands). This smallarea was justified as "an adequate test of the suitability of the particular farmingsystems and their acceptability to farmers.

Herein lies the dilemma of PROCAM and, for that matter, of many other watershedmanagement projects worldwide. Five thousand hectares is too large an area onwhich to test the suitability and acceptability of these new interventions, particularlywith the recognized institutional weaknesses described in the project documentation.It is also too small an area on which to develop the integrated watershed managementmodel.

The most important question related to size and scale of watershed managementprojects is that of impact threshold, i.e., what percentage of the farmers would have toaccept the conservation mandate or what percentage of the land would have to betreated to actually bring the area into sustainable productivity and relative

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environmental stability to restore the watershed function. This concept is oftenoverlooked in watershed management planning, particularly in those programs thattake the technological approach, i.e., the conviction that the challenge lies in introduc-ing new technologies to the farmers. Directly related to and resulting from this point,is the question of what it will take to achieve this impact threshold. This question ispertinent whether the approach be one of govemmental enforcement of land-useregulations or the more socially sensitive and community-oriented approach, such asthat adopted by PROCAM, involving technical assistance, services, credit, andincentives for the farmer.

* Representative pilot test areas. The three watersheds included in PROCAM appear tohave been well chosen, both for their economic importance and for theirrepresentativeness of the conditions in the larger watershed of the Upper Magdalena.The choice, however, in this case was somewhat fortuitous in that the overallassessment of the conditions of the full Upper Magdalena watershed was only begunin year three of the project implementation period, through the sub-contract awardedto the Instituto Geografico Augustin Codazzi. In effect, or at least as far as theproject documentation is concerned, neither INDERENA nor the Bank had any wayof knowing beforehand that the three pilot watersheds were generally representativeof the larger area of the Upper Magdalena.

* Preliminary understanding of watershed management economics. Engaging inwatershed management activities involving a credit program for the on-farminvestments component demands at a minimum preliminary assurances of themicroeconomic feasibility of the technological interventions to avoid putting thefarmer participant at risk. The President's Report stated that, 'The agriculturaltechnologies in themselves, are financially viable--preliminary estimates carried out onone hectare farm models suggest that all investments have financial rates of returngreater than 15 percent." It is unclear whether these analyses of financial rate ofreturn took into account the "effective interest rates on average between 24 percentand 26 percent" and the impact of the inflation.

What is clear, however, is that both the Bank and INDERENA were advised ofdifficulties associated with the on-farm models on several occasions,1JQ/ both duringpreparation and in the postnegotiation period prior to loan effectiveness. It is difficultto comprehend in retrospect why this fundamental issue was not treated with morerigor by the Bank. In January 1983, in a memo by operational staff to the project file,the following decision was recorded: "While the (farm) models are consideredsatisfactory for effectiveness . . ., it is understood that economic analysis techniqueswill be refined as new models are developed during project implementation."

jo/ See for example, the July 28, 1981 memo from AGR to CPS with comments on the green cover draft of the President's Report;the BTO by the livestock consultant on the Postnegotiation Mision dated January 1982; and the June 24, 1982 mcmo fromAGREP to the Latin America region commenting on the methodology of the farm investment model.

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It is ironic that despite the rhetoric about the unresponsiveness of the Caja Agraria infacilitating the credit component, they may in fact have saved many farmers fromincurring unnecessary debts. Little or no appreciation of that reality currently exists inColombia, primarily because only limited progress has been achieved in assessing thecost/benefit dimensions of the farm model.

* An appropriate institutional environment. A good deal of the Bank's early concernsand efforts with project preparation were in establishing the appropriate institutionalenvironment for project implementation. It was a most pertinent issue at the time,and one with which the country is still struggling. The present government isreinforcing the earlier decisions to allocate the role and responsibilities fordevelopment projects to departmental, municipal, and local corporations as the majorthrust of its decentralization strategy.

Both of the prescriptions chosen to overcome the institutional concerns, i.e., theestablishment of an independent project unit within INDERENA and the emphasisplaced on signed subcontractual agreements with the other participating institutionscompounded dramatically the administrative and managerial problems of the project.

* A practical implementation plan. Although detailed implementation planning is usuallyundertaken early on during the mobilization and planning phase of a project, asignificant and indicative implementation plan should be part of any design effort. Nosuch plan was included in the various project documents. It is therefore small wonderthat according to several individuals involved in the project, they felt compelled tomove quickly to achieve the physical targets after the long delay in reachingeffectiveness. Overwhelmed by the continuing and intensive negotiations betweenINDERENA and the Bank and with the other participating institutions, there waslittle time for planning and reflection. This only served to compound the day-to-dayproblems of implementation.

The Conceptual Basis for Watershed Management in Colombia

4.11 On more than one occasion, supervision reports have mentioned the lack of "anoverall conceptual framework" as the basis for the subprograms being implemented by the project.This observation is particularly pertinent, for the reasons inherent in the supervision remarks andbecause, in the opinion of the audit, some of the fundamental premises of watershed managementin Colombia also need to be re-examined and possibly amplified.

4.12 One of the most striking points of the performance audit mission was the dif-ference in impressions between the written description of the project area (admittedly, as statedabove, not well documented) and the field visit to this area. In many cases, the topography ofthese watersheds, with slopes sometimes averaging above 60 percent, and the unstable soilssuggest to the trained observer that the only option is protection. Some of PROCAM'sinterventions were seen to be taking place in areas where continued production under anyformula simply could not be sustained. This was true for both reforestation and improved fodder

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resources planting. This has a number of important implications for the watershed planner, towit:

* Projects must avoid influencing the farmer to think that there is really a future as afarmer under circumstances of "minifundio" in some of these steep and highly erodablewatersheds. These projects should not be palliatives for more drastic changes that maybe needed. Projects must avoid reinforcing the unfortunate status quo or furtherweakening the farm household's tenuous hold on financial and subsistence stability byburdening them with credit that will not or cannot pay off, given the inherent resourcelimitations in which they find themselves. Doing so will at best postpone the finalreckoning, but it is also likely to increase the negative effects downstream and theeventual costs of social and land rehabilitation that might otherwise have beenavoided.

* An important corollary to the first point is that prevention, that is, management andconservation in watershed areas, no matter how costly, will almost always be cheaperthan rehabilitation--both of the watershed areas and of the social systems underminedin the process of watershed degradation.

* Another important concept is that of land-use capability. While it is often possible to'push the envelop" of current practices to meet land-use capability limitations byincreasing conservation measures, these efforts typically raise substantially the cost ofproduction. There is a point of diminishing returns in attempting to do so. Additionalcosts to achieve conservation objectives must either be paid for through themarketplace or must be offset by incentives or subsidies that allow the farmer tocontinue to sustain a livelihood. In other cases, where small farmers must absorbproduction tradeoffs to achieve conservation objectives of importance to largersegments of society, there must be some means for compensating them for theirlosses. No nation has ever been able to sustain a conservation program on the backsof those least able to afford it.

* In Colombia, reforestation has traditionally been a primary component of watershedmanagement action programs, whether for production or for protection purposes.There is reason to believe that for the moment neither is economically sustainable.

Reforestation for protection purposes, i.e., revegetating degraded areas with traditionalplantation techniques, is rarely necessary, technically recommended, nor economicallyefficient. In many cases of degraded areas, one can re-establish the vegetative cover,and with it the watershed function, just by protecting the area from fire and grazingfor a period (both of which are necessary if tree planting has taken place on the site)and allowing natural succession and regeneration to do the work.

If for some reason, one feels compelled to replant a degraded area for protectionpurposes (protection meaning for the soil and slope conditions, the area should not becut in the future again), then one needs to find more effectve and efficient ways to doso than the traditional plastic-bagged nursery-raised seedlings employed in Colombia.

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These techniques are simply too expensive to invest in an area that will only yieldindirect returns through the re-establishment of the watershed function. For example,to lower costs, one could try direct seeding of some of the fast-growing leguminousspecies (e.g., Leucaena spp., Calliandra spp. or Gliricidia sepium or in the higherelevations, Acacia mearnsii or Robinia pseudoacacia). There are also other ways tolower reforestation costs such as planting bare root stock, using the stump technology,pseudoestacas, or revegetating in strips along the contour to help arrest erosion and toallow nature to do the rest in between.

Reforestation for production purposes in Colombia is facing an interesting dilemma. Atpresent, it is very difficult to earn a positive rate of retum on reforestation investments,because with the exception of pulpwood, the market is not very attractive. Plantationshave to be seen for what they are, i.e., capital investments. The amount invested for aplantation should be capitalized over the length of the rotation, which means that thewood produced has a certain value. The present high-interest rates and low-stumpagerates or forest royalties for cutting in the natural forest mean that it is very difficultfor the plantation wood to compete economically. This is especially true for theeucalyptus and pine plantations, which are destined for use as service woods, i.e., notfor fine fumiture. In essence, either Colombia needs to raise forest royalties to reflectthe real value of the natural forests (which might then also have the ancillary effect ofinducing people and companies to manage rather than just exploit the natural forests),so as to even out the competition, or it needs to destroy more natural forests so thesupply/demand curve starts to drive up prices. The latter is undesirable but likely tohappen unless the country takes several serious, practical steps.

3 This bias in the past toward reforestation and tree-planting for watershed managementpurposes has also overshadowed the importance of interventions in the agriculture andlivestock sectors. Unless there is a direct and sharp change in strategy and the countrybegins to deal effectively with the problems brought about by agriculture and livestockon the steep hillsides, degradation will continue and the cost to the country will farsurpass the potential losses from a weak forestry production sector. Colombia hassome of the most potentially severely erodable watersheds in the world, coupled withan economy that is highly linked to the availability of water, both in quantity andquality.

The fact that tree-cutting is sanctioned, but you can do whatever you want on the landafter the trees are gone, reflects best this narrow viewpoint that forestry is the criticalconcern for watershed management. The focus on interventions to bring soil andwater conservation to peasant farming systems during PROCAM was weak andmuddled. Efforts to encourage improved pasture management and the establishmentof the cut-and-carry system of fodder production were pursued with more vigor andwith greater acceptance and success. No discussion was undertaken, however, of theneed to take on the more difficult but possibly longer-term solution to the livestockproblem by reducing herd numbers. Future watershed management action projectsneed a wider variety of tools to choose from in addressing, where feasible, agriculture-and livestock-based conservation needs. The following is a brief list of some of the

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promising technologies being applied around the world to achieve conservationobjectives in hillside farming systems:

- Alley cropping or contour hedgerows producing both fodder and greenmanure while helping to arrest erosion.

- Soil conservation techniques for the enhancement of annual croppingsystems, including: improved crop varieties, seed selection, improvedplanting distances and plant distribution, green manuring and mulching,zero tillage, vegetative and similar barriers to slow water runoff, improvedfallow, strip-cropping of vetiver and leguminous creepers for site and soilenrichment, and the selection and application of appropriate fertilizers.

- Perennial tree crops, including coffee and cacao (as was tried inPROCAM) as well as grafted fruit trees on individual terraces.

- Farm-level conservation engineering works, such as side hill ditches, gullyplugging, and grassed water runoffs.

- Coppice-based fuelwood production woodlots with fast-growing leguminoustree species on steeper slopes and in degraded areas, established throughdirect seeding or by vegetative means.

- Livestock improvement programs (in addition to pasture improvementpractices) to increase the productivity of individual farmer-owned animalsthrough improved nutrition, simple veterinary practices, and selected animalbreeding.

* Even the cursory visit to the PROCAM project area was sufficient to point out thatboth roads and paths through these steep areas are probably responsible for a gooddeal of the erosion problem. Municipal authorities must ensure that the engineeringdesign of the road system avoid channeling water to the point where it gathers suchpower and momentum that it cuts deep gullies and causes severe erosion. In a studycarried out in El Salvador under comparable conditions, the road and path system wasdetermined to be responsible for as much as 25 percent of the total erosion in thewatershed.

4.13 All of these points serve to highlight another principal element of the concept ofwatershed management--that is, the need to make choices and to do so in a logically andsequentially sound manner. One of the greatest weaknesses of integrated rural developmentprojects is that they attempt to do everything, diffusing capability, expertise, and resources andthus failing to generate the momentum needed for real impact. PROCAM has suffered to somedegree from this type of problem.

4.14 Making choices in watershed management is no simple matter. Professionalresource managers assessing the project area--the topography, climate, soils, and land-use

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conditions--cannot fail to note a high degree of variable conditions all needing attention. Thesebiophysical conditions are further compounded by the socioeconomic variables, such as landtenure, household objectives, and farming practices, thereby providing, if the project is indeed anintegrated approach, a potentially staggering array of intervention possibilities.

4.15 Knowing what could be done in watershed management is far easier than knowingwhat should be done. In general, the choice based on a simple assessment of the biophysicalneeds generates a list much too broad for an action program. A thorough assessment of thesocioeconomic parameters of the watershed can help enormously to filter the basic list. Finally,watershed management planners must apply a set of widely accepted selection criteria, based on thelarger development goals of the project. While each project team may wish to develop its own setof selection criteria, the following examples, which might have been applied to PROCAM, areillustrative. The interventions chosen would:

* best meet the needs of the majority of the target population of hillside farmers;

* be most efficient in reversing the trends of watershed degradation in the project area,given the area's socioeconomic constraints;

* have the highest probability of engendering sustainable, productive farming systems.

4.16 Several other techniques may also be required to further narrow the scope ofproject activities to a manageable and focused, overall effort. A full explanation of all thesetechniques is beyond the scope of this report. The following, however, seem pertinent in light ofthe PROCAM experience:

* Land use assessment and planning techniques carried out at a scale most directlyapplicable and practical for local conditions and avoiding compilation of endless dataand information sets that are difficult to synthesize and analyze.

* The application of the newer techniques of rapid rural appraisal (the "sondeo"approach), rather than detailed socioeconomic surveys.

* Using both of the above techniques to establish the biophysical and socioeconomicbaseline essential for a monitoring and evaluation system.

* A monitoring and evaluation system set up to institutionalize the communication,feedback, and flexibility necessary for an effective participatory development process.PROCAM was criticized for failing to set up a monitoring and evaluation system, butthe rationale behind such a system was never succinctly explained as part of theconcept of participatory watershed management. Because of the high degree ofdiversity inherent in participatory watershed management programs, flexibility is veryimportant. This flexibility, however, should not be ad hoc. Monitoring and evaluationcan help assure purposeful change as a result of the analysis of cause and effectregarding constraints (and for that matter successes) in project implementation. It can

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do so as a result of a number of situations that may arise during implementation: animproved or changed understanding of the problem by either technicians or laypersons; the need for adjustment resulting from unforeseen impacts of an activity orintervention; the need to hasten reaction time in the face of failure; and the need toadjust implementation schedules resulting from mobilization and delivery delays thatoften occur.

* Th delimitation of prority work areas within the watersheds that also takes account ofthe relationships between the upper and lower reaches of the watershed area.

The Institutional Framework for Watershed Management

4.17 As is now well known, institutional constraints were a principal concern of theBank at the outset of this project and, in actuality, were key elements leading to its lack ofsuccess. This can be understood from the statement in the Plan de Accion Forestal paraColombia as follows: "Low Managerial Capability of the State--The institutional structure of thesector exhibits problems mainly originating from the multiplicity of agencies created for the samepurpose without national and regional task differentiation, due also to the haphazard delegationof responsibilities and to the lack of an adequate institutional hierarchical structure to effectivelydirect the activities undertaken by the State and the private sector."

4.18 The question, of course, is what to do about it. Building on the PROCAM expe-rience, institution-building or strengthening needs to be further enfranchised as an immediate projectobjective. PROCAM suffered from shallow institutional assessment and analysis. Institution-building requires goals and benchmarks--a path to follow, indicating anticipated achievements.Too often, institution-building, while a principal concern of the project, is relegated to vaguenotions of reorganization and staff development. In the case of PROCAM, constant referenceswere made to the Bank-imposed study of the administrative and financial management proceduresof INDERENA, which eventually was never accomplished. There is good reason to suspect thatthe institutional problems of PROCAM were considerably more fundamental than that.

4.19 A project needs to bring in the specialists in institutional analysis, determine inunderstandable terms what the problems are, and provide indicative designs and models withclearly stated end results. Moreover, local personnel at all levels must be fully apprised of theseefforts. The Bank needs to bear in mind, and remind Colombian and other colleagues, that thesecomplex inter-institutional arrangements are likely to be subject to the old adage that the wholewill only move as fast and as effectively as its weakest component.

4.20 Now that the project has ended, the Watershed Management Division ofINDERENA is valiantly trying to carry on with both the developmental and investigativeprograms begun under PROCAM. The resources are extremely limited, and as a resultINDERENA is seeking cooperative relationships with both other line agencies and thedepartmental and municipal corporate entities now responsible for land management under thedecentralization mandate. They need to be wary of not repeating the institutional problems ofPROCAM. These relationships between institutions, based on collegial and professionalunderstanding between like-minded functionaries of the participating organizations, tend to be

…-~ ~~~~~ _ _ _…_

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rather ad hoc. As these relationships gather momentum, there is the inevitable urge to try andofficialize them; this brings with it a high surcharge of administrative adjustments and bureaucracy,which may ultimately be self-defeating, as it was to some degree during PROCAM.

4.21 A simplified, basic model for participatory watershed management is currentlyemerging in Colombia. Regional or municipal corporations are now responsible for both planningand implementation of watershed management efforts.Jj They will draw on the knowledgeand capabilities of the more specialized line agencies for subject matter advice both in theplanning and implementation stages. For example, INDERENA will provide advice and infor-mation on natural resource management; ICA, on agricultural and livestock improvement anddevelopment approaches and techniques; SENA, on promotion, extension and training techniques,packages and materials; HIMAT, advice and assistance with hydrometeorological concerns; andthe agricultural banks, credit assistance and guidance. Lacking in this equation as yet is aninstitution to guide the community participation process and it would have an in-depth knowledgeof local constituencies. These corporations will be represented in the field by a cadre ofmultipurpose general extensionists, who will deliver project interventions and support elements tothe rural people and local community organizations.

4.22 The key to making the model work is an understanding by all involved of specificroles and responsibilities, as well as an overall sense of service and accountability. Thedepartmental corporations will provide services and be accountable to their local constituents,while the line agencies will provide services and be accountable to the corporations. In cases oflarger corporations, such as the CVC, they will directly employ subject-matter specialists toamplify and accelerate their capabilities in the field. It is also conceivable that, if necessary, lineagencies could be called on to second staff members as subject-matter specialists. TheRENORDE network will allow for inter-institutional cooperation for the purpose of expandingand improving the state-of-the-art of watershed management in Colombia.

4.23 In short, simplifying the inter-institutional structures for watershed management inColombia may prove to be as effective as any single technological innovation or achievement inthe near term.

The Legislative Framework in Colombia

4.24 One further point for the Bank directly related to the institutional concerns is thelegislative framework. There is absolutely no mention of the legislative dimensions of watershedmanagement in the PROCAM documentation. In Colombia, as in few other countries, a gooddeal of the activities undertaken by government organizations are either prescribed or facilitatedby numerous legislative mandates, decretos-leyes, or agreements of a more localized nature, usually

D Many of the people interviewed during the performance audit asaerted that one of the leasons of PROCAM and other watemhedmanagement projects in Colombia is the need to address the problems on a subwatershed basis sub-cuenca. Thia seems to bea rationale approach, but there is also the issue about whether the subwatershed boundaries are compatible with those of theadministmtive boundaries of the regional or municipal corporations. This issue needs further study.

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promulgated by regional entities. For example, Decreto-Ley 2811/74--Codigo Nacional deRecursos Naturales Renovables y Protection del Aznbiente; Decreto-Ley 09/79--Codigo SanitarioNacional; and, Decreto-Ley 56/81--Normas sobre Obras Publicas de Generacion Electrica,Acueductos y Sistems de Regadio, all have major implications related to watershed management.This legislation is in many cases normative and provides the fundamental base for organizationalpolicy, philosophy, and strategy. Incidentally, many specific and facultative references exist tonatural resources in the new Colombian constitution; (see for example, Capitulo 3 Articulos 78-82, Articulo 318, and Articulo 331, the latter of which creates La Corporacion AutonomaRegional del Rio Grande de la Magdalena). Future project endeavors must conform to thelegislative framework.

Understanding Watershed Management Economics

4.25 Perhaps the most serious impact of the Bank not having carried out the appraisalof this project is the continuing failure to come to grips with the question of the costs of watershedmanagement. Little achievement has been obtained in this realm of inquiry--in neither the Bank'sPCR nor in the Final Report prepared in-country is there any mention of the economic feasibilityof watershed management or the models put forward during the project, in either quantitative orqualitative terms. This audit mission, given the relatively short time at its disposition, was nomore successful in assembling any kind of a quantitative assessment of the outcome of the project.This series of circumstances, however, should not and cannot be allowed to minimize thefundamental importance of the economic dimensions, both micro and macro, of watershedmanagement in Colombia. The discussion that follows draws on some of the implicit economicassumptions of the PROCAM experience and raises some points that must be factored into suchprograms in Colombia in the near future.

* As a fundamental principle of a genuine participatory approach to watershedmanagement, farmers must perceive and receive tangible benefits in return for theirefforts to conserve soil and water.

4.26 Colombia, unlike few other countries, is presently experiencing the direct impact ofwatershed conditions on its overall development perspectives. The national dependency onhydroelectric energy, large numbers of urban water systems, irrigation potential for export cropsand transport by means of navigable rivers are all directly and inextricably linked to the destiny ofmountainous watersheds throughout the country. The magnitude of deforestatioh and the subse-quent inappropriate land-use practices are spreading wide and far. It is doubtful that government,either central or more local, with or without donor or multilateral support, can muster theresources necessary for projects in which the full measure of direct inputs, even at relativelymodest costs per hectare treated, would have to be provided and disbursed.

4.27 Fortunately, broad agreement exists in principle in Colombia that what is needed isa pragmatic integration of agriculture, animal husbandry and natural resource managementdevelopment efforts that foster popular participation. These programs must build on thetraditional systems and on the inputs already available to the farmer--the land, labor, capital, andtechnology utilized on a day-to-day basis. Only the farmers, controlling erosion, improving soilconditions, managing pastures and forest areas, because they are interested in the direct economic

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benefits, can begin to make the substantial impact required to restore ecological stability and todeal with the socioeconomic problem of watershed degradation.

4.28 Where sustainable production systems can be achieved by improving farmer accessto agricultural services, inputs, and markets, the costs are those associated with providing theseservices to the farming community. Thus, efficiency becomes the major economic concern. Incases in which credit is necessary to achieve sustainability, the microeconomics of local farmingsystems needs careful study, especially in cases such as PROCAM, in which interest rates are high.

* In areas in which resource limitations are severe, incentives or subsidies may bejustified to offset the production tradeoffs associated with protection and conservation.

4.29 In many areas of the Upper Magdalena watershed, resource limitations are suchthat either land must be taken out of production to be protected, or the cost of additionalmeasures, typically labor-related, to achieve conservation, distort the cost/benefit equation of thefarming system, making it difficult for the farmer to obtain a profit. The economic issue here isthat of calculating the value of soil and water conservation and of watershed management. Thiscalculation is necessarily more complex, because it involves not only the local production andsocioeconomic systems but also an evaluation of the downstream effects.

4.30 For government to be able to justify watershed management incentives orsubsidies, it is necessary to estimate the value of benefits downstream. This was the basic premisebehind the Soil Conservation Fund attempted during PROCAM and is the rationale for the2 percent surcharge on hydroelectric generation. These values are relatively easy to derivealthough it is fundamental to state the assumptions made in doing so--an aspect that is oftenoverlooked. These values can be quite direct and dramatic. The direct costs to the MunicipalWater Supply System of Ibague for continued and extensive maintenance of its water intakefacility on the Rio Combeima could be offset, if the watershed were stabilized. When this issuewas broached during the visit to the area, the immediate reaction was that the watershedmanagement program would require far greater inputs. Perhaps, but the subsequent discussionrevealed that, in fact, no one had any realistic estimate of the cost involved, either for the watersystem maintenance or for the magnitude of the watershed management program needs.

4.31 Often in sensitive watersheds, people live in poverty and misery, while trying tosustain themselves on steep areas and thereby provoking erosion. In some countries with highoverall population density (e.g., Nepal, Haiti, El Salvador, and Bangladesh), this situation must bedealt with in situ. Watershed planners in Colombia, however, have to consider the option ofresettlement. It may be far less costly in social, economic, and ecological terms. In the 1970s,under the Caqueta Land Colonization Project, an INCORA project with Bank support estimatedthat "the average investment per family for farm development," for farms averaging over 100hectares in size, was less than US$5,000. PROCAM spent much more than that, admittedly witha low level of efficiency, on its 270 farmer beneficiaries. Ultimately and unfortunately, no realrecord exists of how much was spent on achieving conservation on these farms.

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Page 1 of 3

ESIMATED PROJECT COSTS AND DISBURSEMENTS

Estimated Cost:Local Emiorrn Total

(USS million euivalent)

On-farm investment 5.3 1.8 7.1Extension and training 1.2 0.4 1.6Public works (including reforestation) 1.1 0.3 1.4Environmental protection and control 1.3 0.5 1.8Research and studies 2.4 2.3 4.7Preparation of Phase II project 1.7 1.7 3.4Project management 1.2 0.5 1.7

Total base costs 14.2 7. 21.7

Physical contingencies 0.4 0.5 0.9Price contingencies 28 1.9 4.7

Total project cost 1/ 17.4 9.9 27.3

Project Financing Plan:

Government 9.5 - 9.5Participating banks 4.8 2.2 7.0IBRD 1.3 7.7 9.0Beneficiaries 1.8 - 1.8

Total Project Financing Cost 17.4 9.9 27.3

Estimated Disbursements:EY8 Y FY84 FM E6 E2YZ

(USS million equivalent)

Annual 0.9 2.0 1.9 1.7 1.5 1.0Cumulative 0.9 2.9 4.8 6.5 &0 9.0

Rate of return: Not applicable.

Project file: A project file containing working papers, which include detailed descriptionsof all components, has been prepared as a basic guide for the project. I viewof the pilot nature of the project, an appraisal report has not been prepared.

SOURCE: President's Report

1/ INDERENA is exempt fmm custom duties.

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ANNEX 1Page 2 of 3

C. Preparation of Phase n1

1. A major goal of the project is to assist Colombia in developing appropriatetechniques and systems for carrying out large-scale efforts in watershed management programs inthe future. In line with this, preparation of a second, larger project would be carried out underthe proposed project. The pertinent studies would be initiated in early 1983 and would serve tomonitor the results of the proposed project. The preparation of the second project is Lo becarried out jointly by INDERENA and mostly local consultants. Specialized foreign consultantswould be engaged as needed and would be used to provide training to INDERENA staff. Inorder to prepare the necessary manpower to carry out large-scale watershed managementactivities, short- and long-term training would also be provided under the project (para. 45).

sts and Fnning

2. The total cost of the project (net of taxes) is estimated at US$27.3 millionequivalent, of which US$9.9 million equivalent (36%) correspond to the foreign exchange costs.Physical contingencies amounting to 15% for civil works, studies and equipment have beenincluded in the estimates. Price contingencies amount to 17% of base costs and are based onforecasts of yearly domestic and international price increases. (Project costs by component arepresented in the Loan and Project Summary.) By type of expenditure, project costs are asfollows:

Loa Foreign Total(in USS million equivalent!

Contracts for civil works and reforestation 1.5 0.4 1.9Vehicles, equipment, and scientific instruments 0.8 2.1 2.9Consultant services, and training 1.0 1.0 2.0Studies and extension - Operational Costs A/ 4.4 1.7 6.1Project administration 1.2 0.5 1.7On-farm investment 5.3 1.8 7.1

Base cost 14.2 7.5 21.7

Physical contingencies 0.4 0.5 0.9Price contingencies 2.8 1.9 4.7

Total cost 17.4 9.9 27.3

V Includes resarch and studies to be caried out by public sector agencies, equipment requiring periodic replacement,mait of vehicles, etc.

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ANNEX IPage 3 of 3

3. Despite extensive preparation, in greater detail than is usual for a pilot project, theproject is too new in conception for every aspect to have been considered in detail at this point.Therefore, in addition to physical and price contingencies, a small additional contingencyamounting to US$500,000 has been included so that financing would be available for studies andtraining heretofore unforeseen or ultimately expanded beyond current expectations. Assuranceshave been provided that the terms of reference of any study or training program to be carried outunder the project would be satisfactory to the Bank (Section 3.01(g) of the draft Loan Agree-ment).

4. The credit component (US$7 million or 26 percent of project costs) equivalent to about80 percent of the on-farm investments (US$8.8 million, including contingencies) would befinanced entirely by the banking system. Since the resources are non-incremental, they are notincluded in Bank financing. The proposed Bank loan of US$9 million (corresponding to 91percent of the foreign exchange cost and about 33 percent of total project costs) would financethe estimated foreign cost portion of all components (except on-farm investments) and US$1.3million of local expenditures for vital project components with low foreign exchange components(such as reforestation and extension). The government would finance US$9.5 million equivalent(35 percent) in local costs, and the beneficiaries would contribute US$1.8 million equivalent (6percent).

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ANNEX2

EXCERPTS FROM THE LOAN AGREEMENT

UPPER MAGDELENA PILOT WATERSHED MANAGEMENT PROJECT(LOAN 2069-CO)

1. Special conditions of the loan are listed in Section HI of Annex Im. Conditions ofEffectiveness would be that:

(a) INDERENA had signed and duly authorized subsidiary agreements with HIMAT,ICA, and SENA and a Cooperating Agreement with either Banco Ganadero orCaja Agraria for carrying out the hydrometeorology, extension, training and creditcomponents, respectively (Section 3.01(c) and (d) and 7.01(c) and (d) of the draftLoan Agreement);

(b) The Project Director and Research Coordinator had been appointed (Section 3.05and 7.01(a) of the draft Loan Agreement);

(c) INDERENA had established the Soil Conservation Fund (Section 3.07(a) and7.01(b) of the draft Loan Agreement);

(d) INDERENA had entered into arrangements, satisfactory to the Bank, for contri-butions to the SCF of no less than Col$60 million (Section 3.07(b) and 7.01(b) ofthe draft Loan Agreement); and

(e) Financial farm models of a scope and detail satisfactory to the Bank had beensubmitted to the Bank (Section 3.010) and 7.01(e) of the draft Loan Agreement).

Conditions of disbursement would be that:

(a) For the advance of the working fund, that the fund had been established and thatthe Government had approved the transfer of its corresponding share (Section2.03(b) of the draft Loan Agreement); and

(b) For subsequent replenishments to the fund, that the Government, the Bank andINDERENA had reached agreement on the size of the fund for the subsequentperiod and that the Government had approved the transfer of its correspondingshare (Part 4(b) of Schedule 1 and Section 2.03(c) and (f) of the draft LoanAgreement).

2. I am satisfied that the proposed loan would comply with the Articles of Agreement of theBank.

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BIBLIOGRAPHY

Departamento Nacional de Planeacion, Plan de Accion Forestal para Colombia Bogota, n.d.

INDERENA, Informe Fmal - Proyecto Cuenca Alto Magdalena (PROCAM). Bogota, June 1988.

World Bank. 1966. "Colombia - Livestock Development Project. Report No. TO-523a.Washington, D.C.

1971. 'Colombia - Caqueta Land Colonization Project." President's Report.Report No. P-921. Washington, D.C.

-----. 1981. "Colombia - Upper Magdalena Pilot Watershed Management Project." President'sReport. Report No. P-3106-CO. Washington, D.C.

-----. 1982. "Colombia - Upper Magdalena Pilot Watershed Management Project - LoanAgreement, Loan No. 2069-CO." Washington, D.C.

1982. "Colombia - Agricultural Research and Extension Project L" Staff AppraisalReport. Report No. 4384-CO. Washington, D.C.

----- 1983. "Colombia - Agricultural Research and Extension Project L" President'sPaper. Report No. P-3579-CO. Washington, D.C.

------ 1983. "Colombian Agriculture: Selected Issues and Some Directions for Strategy."Report No. 4275-CO. Washington, D.C.

-----. 1991. 'Forestry Development: A Review of Bank Experience." Report No. 9524.Operations Evaluation Department. Washington, D.C.

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