FILE copy. Document of The World Bank FOR OFFICIAL USE ONLY. Public Disclosure Authorized. Report No. P-2547-MA. Public Disclosure Authorized

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO MALAYSIA FOR A MUDA II IRRIGATION PROJECT May 16, 1979 FILE copy Report No. P-2547-MA This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without Worild Bank authorization.

2 CURRENCY EQUIVALENT US$1.00 = M$2.21 * M$1.00 = US$0.45 M$1 million = US$452,000 * The exchange rate is floating; the rate used in this report is the short-term average at the time of appraisal. ABBREVIATIONS BPM - Bank Pertanian Malaysia (Agricultural Bank of Malaysia) CCL - Critical Consumption Level DID - Drainage and Irrigation Department DOA - Department of Agriculture FDC - Farmers Development Center FOA - Farmers Organization Authority ISA - Irrigation Service Area isu - Irrigation Service Unit MADA - Muda Agricultural Development Authority MARDI - Malaysia Agricultural Research and Development Institute MOA - Ministry of Agriculture SMP - Second Malaysia Plan TMP - Third Malaysia Plan GOVERNMENT OF MALAYSIA FISCAL YEAR January 1-December 31

3 FOR OFFICIAL USE ONLY MALAYSIA - MUDA II IRRIGATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Malaysia Amount: US$31.0 million Terms: 17 years, including 4 years of grace, with interest at 7.9% per annum. Project Description: The main objective of the proposed project is to raise the productivity and incomes of about 16,000 smallholder padifarming families through improved water management in those parts of the Muda irrigation area which are least adequately served by the existing irrigation and drainage network. In additidn, by strengthening agricultural support services, the yield and incomes of all 60,000 padi farming families in the Muda area, or 340,000 people, will be improved. To achieve these aims, the proposed project would provide financing for: (a) construction of tertiary canal and drainage systems and farm roads in 37 discrete irrigation blocks; (b) improvements to major outfall drains and natural channels; (c) rehabilitation of coastal bunds; (d) construction of tidal gates, water control structures and escape structures; (e) upgrading of the existing water control communications system; (f) construction of workshops, administration buildings and seed stores; (g) pilot projects, engineering and management studies, a groundwater study and a rural development project feasibility study; (h) purchase of vehicles and equipment for project works and studies; and (i) consultant services and training. Benefits: Upon project completion, incremental padi production is expected to be 56,600 tons, or 2% of total domestic supply, and median income of project beneficiaries is estimated at US$430 per capita per annum, compared with US$250 at present. Risks: The risks are no greater than can normally be expected with operations of this type. The main problem encountered in similar projects in Malaysia has been delays in implementation. This experience has been taken into account in sizing and scheduling the project's civil works, and in providing for sufficient staff. Sensitivity analysis shows that the economic rate of return would not be sensitive to implementation delays if they occur despite the precautions taken. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - ii - Estimated Local Foreign Total Costs: Project Item Groups --- (US$ million) --- On-farm irrigation block development General irrigation system development Buildings Equipment Studies Technical services Total base cost Contingencies Physical Price Total contingencies Total project cost /a Financing Plan: The proposed loan would finance the foreign exchange component, estimated at US$31.0 million, or 45% of the total project cost. The remaining US$38.0 million in local costs would be financed by the Government. Estimated Bank Fiscal Year Disbursements: (US$ million) Annual Cumulative Rate of Return: 18% on 78% of project costs for which benefits have been quantified. Staff Appraisal Report: No MA, dated May 16, /a Because of the tax-exempt status of government departments, cost estimates exclude all known taxes and duties.

5 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO MALAYSIA FOR A MUDA II IRRIGATION PROJECT 1. I submit the following report and recommendation on a proposed loan to Malaysia for the equivalent of US$31.0 million to help finance the Muda II Irrigation Project. The loan would have a term of 17 years including 4 years of grace, with interest at 7.9% per year. PART I - THE ECONOMY /1 2. The latest economic report, "Malaysia: New Perspectives on the Third Malaysia Plan" (No MA), is dated October 14, Detailed data on Malaysia's economy are shown in Annex I. 3. By most economic indicators, Malaysia has done well in the past and, in particular, during the Second Malaysia Plan period (SMP, ). The per capita income of US$930 (in 1977) is among the highest in Southeast Asia. Public and private investment activity was stepped up and, as a result, GNP growth, which during the 1960s averaged 6% a year, increased during the SMP period to 7%. Moreover, the declining trend in the terms of trade during the 1960s was reversed during the 1970s, and as a result there was an acceleration in per capita income growth on a trend basis from 2% during the 1960s to about 5% during the SMP period. Progress has also been made in reducing the economy's dependence on rubber, and the manufacturing sector has performed well in terms of output, employment, and exports. With a high export component in GNP, the country is very vulnerable to external fluctuations, which were significant during the SMP period. In spite of the increased investment activity and resulting current account deficits in the balance of payments, Malaysia managed to maintain a strong external position during the SMP period with relatively low debt service payments and growing international reserves. 4. Notwithstanding this good performance, existing racial inequalities in income and employment, and considerable poverty, especially in the countryside, persist. The inferior income position of the Malays is related to the concentration of Malays in traditional smallholder agriculture and their meager ownership of corporate assets; furthermore, Malays are poorly represented in the modern industrial sector, especially in managerial, professional, supervisory, and clerical occupations. The inequalities threatened the stability of the country and, in 1971, prompted the Government to introduce a New Economic Policy, which is designed to achieve national unity through the two-pronged objective of eradicating poverty and restructuring society to eliminate the identification of race with economic function. /1 Parts I and II are essentially the same as those contained in the corresponding sections of the President's Report No. P-2449-MA, dated January 16, 1979, on the Fifth Education Project which was approved on January 30, 1979.

6 More specifically, the policy proposes to reduce, in a 20-year period ( ), the sharp income differences between Malays and non-malays by reducing disparities in the ownership and control of wealth in the corporate sector, and by reducing the concentration of Malay employment in traditional low-income rural activities, while increasing Malay presence in the relatively high-income urban sectors. Since poverty is largely concentrated among Malays, a redressal of poverty would contribute significantly to a reduction of the racial inequalities of income. 6. The principal means proposed to achieve these objectives is a rapid growth of the industrial and service sectors. This growth will not only increase average incomes but will also serve the objective of racial restructuring of the labor force. In addition to pursuing a rapid growth strategy, the Government also proposes to achieve its goals through more direct means: on the poverty side, mainly through public investment programs directed towards the poor; and on the racial restructuring side, through controls and quotas. 7. In mid-1976, the Government initiated the Third Malaysia Plan (TtMP, ) reconfirming the goals of the New Economic Policy. The major objectives of the TMP are: (a) to reduce the overall incidence of poverty (from 44% in 1975 to 34% by 1980, which would mean reducing poverty in the agricultural sector from 63% to 49%); (b) to increase Malay employment in the modern sectors of the economy (from the 1975 Malay share of 32% towards the 1990 goal of 50%); and (c) to increase the share of Malays in the equity ownership of the corporate sector (from the 1975 Malay share of 8% to 16% in 1980). 8. The TMP goals are set out in a framework of substantial economic growth. The target growth rate for GDP is set at 8.5% per annum. Private investment is targeted to grow about 10% a year and public investment about 6%, resulting in an investment of M$44 billion in current prices over the TMP period. Public development expenditures were set at M$18.6 billion, with a higher level of M$20 billion targeted if additional resources became available. 9. In addition to following a rapid growth strategy, the Government proposes to reduce poverty through direct programs that will raise agricultural productivity. In the TMP, one quarter (M$4.7 billion) of total public development expenditures is allocated to the agricultural sector (compared with M$2.1 billion or 22% in the SMP). Of this, more than one third will be spent on increasing productivity in existing agricultural areas. In addition, one million acres of new land are scheduled for development. As a means of reducing poverty, the TIIP also provides for improved housing and other essential services for the poor in both rural and urban areas. The TMP also stresses that greater attention will be given to improving the less developed states. 10. Recent economic information, however, has significantly altered the macro framework of the TMP. First, there was a larger recovery than expected in traditional exports and in the terms of trade in 1976, as well as higher

7 present and prospective levels of oil production. Second, it now appears that the rate of private investment (excluding investment in oil) fell considerably in 1975 and 1976 and did not recover significantly in During 1976, significant increases in exports, both in prices and volumes, particularly of oil, combined with moderate increases in imports, resulted in a current account surplus equivalent to about 6% of GDP. Despite a reduction in market borrowing by the Government, reserves increased by US$900 million. At the end of 1976, gross official reserves were the equivalent of about seven months of imports. This favorable balance of payments position continued in Current projections of oil exports and of export prices in general are higher than those used as a basis for the TMP. Therefore, the resource outlook for Malaysia is now brighter than was forecast in the TM?. Overall export earnings during the Plan period should be about US$5 billion more than was forecast. Largely as a result of this increase, public sector revenues are also expected to be higher by about US$3 billion. The likelihood of these additional resources has prompted the Government to increase substantially the allocation for development expenditures from M$18.6 billion to M$32 billion. While actual expenditures are expected to fall far short of this increased allocation, the projected expenditure level of M$25 billion would still be significantly above the original target. 13. While the availability of resources is thus expected to be considerably improved, there is some uncertainty about achieving the Plan's private investment targets. As a result of the decline in the rate of private investment during the past few years, private investment would now have to grow substantially faster than the projected 10% rate during the remaining years of the Plan in order to achieve the Plan targets. While there are a number of possible factors involved in this downturn in the rate of private investment, particularly manufacturing investment, it is difficult to determine their relative importance with any certainty. First, the world recession which began in 1974, no doubt had some negative impact in Malaysia on private investments planned for Second, 1974 was a peak period for private investment in Malaysia so that some cyclical decline in the rate of private investment would have been experienced in 1975 anyway. Third, there was considerable uncertainty in the private sector regarding the impact of the Industrial Coordination Act (ICA), passed by the Parliament in 1975, which enforces racial restructuring targets for equity and employment through a system of licensing existing and new firms above a certain minimum size. 14. The Government acknowledged the uneasiness in the business community and amended the Act in An important change approved was the establishment of an appeals procedure. The Government has also repeatedly emphasized that the restructuring targets will be implemented in a pragmatic manner and has embarked on a vigorous investment promotion drive. Nevertheless, a major recovery in the rate of private (non-oil) investment is not foreseen during the next couple of years. Partly to offset this possible shortfall in private,investment, the Government has increased substantially the public investment targets for the Third Plan. 15. Assuming a moderate long-term recovery in private investment, Malaysia's balance of payments should, aside from short-term fluctuations, remain in surplus.

8 -4- During the Third Plan period, , the cumulative current account surplus should exceed 3% of GDP compared to a negligible current surplus in the previous five years. Such a current account surplus would be sufficient to provide for an adequate level of reserves, and public capital inflow requirements are likely to be less than originally projected in the Plan. At present, about 16% of public debt outstanding and disbursed is from the World Bank; this percentage may increase somewhat by the early 1980s. Reserves are also expected to continue to increase slowly, while the debt service on public obligations is likely to average about 5% of export earnings, slightly lower than the present level of 7%. The Bank's share of debt service is currently about 11% and may increase to 12-14% by the early 1980s. 16. In general, over the next few years, it is likely that the Government will need less external capital than previously forecast, largely because of strong commodity prices and oil earnings. At the same time, Malaysia has a serious income distribution and poverty problem. The country needs technical assistance and expertise to help develop poverty alleviation programs and to assist in designing and packaging projects that reach out directly to lowincome families. The Malaysians believe strongly that project borrowing, particularly from development institutions such as the World Bank, is necessary to assist them to mount an effective attack on poverty. Bank lending is therefore focused on strengthening government efforts to reduce poverty directly. PART II - BANK GROUP OPERATIONS IN MALAYSIA 17. The Bank has made 45 loans to Malaysia for projects in education, population, agriculture, forestry, industrial finance, power, water supply, sewerage, telecommunications, ports, railways, roads, and urban transport. 18. Although in many cases disbursements have been slower than expected, the execution of Bank projects in Malaysia has generally been satisfactory. As of March 31, 1979, the loans to Malaysia held by the Bank amounted to US$902.8 million. Seventeen loans have been fully disbursed. Annex II contains a summary statement of Bank loans as well as notes on the execution of ongoing projects. 19. While currently Malaysia is a resource surplus country, the openness of the economy (exports constituting 45% of the GDP) and the volatility of the prices of Malaysia's main exports (rubber, palm oil, and tin) make the continuance of large surpluses uncertain. To cushion against fluctuation in exports, large reserves are needed. With regard to Bank lending, however, the primary consideration is not resource transfer; rather, it is institutionbuilding and helping Malaysia to expand its capacity to implement programs to combat the deep-rooted problems of poverty and unemployment, particularly in the rural areas. 20. Malaysia's commitment to assist its low-income groups has strengthened significantly in the past few years. The Bank can justifiably take some measure of credit for its efforts to help Malaysia identify and prepare projects geared toward the rural poor. The number of rural development projects recently financed and in the current pipeline is impressive. Recently, in order to reach a greater number of low-income households, the

9 Government and the Bank have been emphasizing in situ agricultural projects, such as those for small-scale irrigation, integrated rural area development, and agricultural support services. 21. While these recent projects are by themselves impressive, they are not truly representative of the Government's general capacity to develop projects; this capacity remains very weak, largely because of a shortage of trained staff. With the help of the UNDP-financed and Bank-executed State and Rural Development Project, which provides technical assistance to selected federal agencies and state governments, the Bank is helping the country to develop further its programs and projects for reducing poverty. 22. The country needs assistance to develop poverty redressal programs and projects that would reach out directly to low-income families in the rural and urban areas. Bank loans are assisting those in absolute poverty by strengthening research and extension, and providing on-farm development including irrigation and drainage, and other facilities such as farm-to-market roads. At the same time, the Bank will continue to assist lancdless laborers through development of larger areas of new land for agriculture. Bank lending will also help improve support services by expanding extension services, increasing agricultural and small-scale industrial credit, and producing higher quality seeds. The Bank plans to mount a concentrated effort to help such institutio, is T '`DA (Rtubber Industry Smallholders Development Authority), FELCRA (Federal Land Consolidation and Rehabilitation Authority), and BPM (Agricultural Credit Bank). It also plans to help the Government expand social services, particularly for low-income groups, through assistance for formal and informal skill training and for the expansion of family planning services. Assistance to infrastructure development would be very selective. 23. IFC has been active in Malaysia since 1963 and has made six investments totaling US$8.69 million. The total commitments under the investments held by IFC as of March 31, 1979 amounted to US$1.23 million (Annex II). PART III - THE AGRICULTURAL SECTOR 24. Malaysia's agricultural sector occupies a predominant position in the country's international trade through the exports of natural rubber, palm oil, hardwoods and pepper. Agricultural commodities generate about 60% of the country's export earnings and about 30% of GNP. Most of the agricultural land in Malaysia is under three crops: rubber (58%), oil palm (18%) and padi (14%). Except for oil palm, all principal crops are grown mainly on smallholdings, althciig- private and public estates continue to play a vital role in the production of rubber and coconuts. Reflecting world market conditions, oil palm is gradually replacing rubber plantations in coastal areas since these areas are better suited to the cultivation of oil palm. This trend is evident in both smallholder and estate production.

10 Agriculture, which currently employs 49% of the labor force, will continue to be the largest source of employment, providing about 12% of total new employment in the long term, according to the Government's projections. The sector also accounts for two-thirds of the poverty households which are defined by the Government as having insufficient incomes to purchase the minimum diet needed to maintain good nutritional health and other essential needs such as housing, clothing, health and education. According to Government estimates, 55% of the farm households in Peninsular Malaysia are in poverty, with the incidence of poverty rising as high as 74% among padi farmers. One of the Government's basic policy objectives is to help eradicate poverty through programs aimed at productivity increases on existing smallholdings, and by resettling people with little or no land on new land developments. The land development programs provide new settlers with the means to earn a better living, while relieving pressure on the already occupied land. 26. The Government is committed to a large degree of self-sufficiency in rice production, which, as a result of favorable weather in the early 70s, reached nearly 90% of domestic consumption. Self-sufficiency has, however, decreased since 1975, mainly due to unusually poor weather affecting the Muda region. A prolonged drought in that major rice-producing area resulted in an increase in the import of rice to 18% of domestic consumption in 1977 and over 20% of domestic requirements in Reversal of this trend by increasing rice production is thus a serious national objective. Irrigation Development 27. Rice production is largely confined to irrigated areas in the coastal plains. The Government has encouraged and maintained support for irrigation development in order to reduce the country's dependence on rice imports, and to alleviate the poverty of large padi-farming communities. Government-financed irrigation development began in 1880 with the first major irrigation scheme in Krian, followed by the construction of irrigation systems in Sungei Manik (1933), Tanjong Karang (1937), Pasir Mas (1958), Sungei Lemal (1962), Muda (1965), Kemubu (1967), and Besut (1970). About 80% of Peninsular Malaysia's 370,000 ha of padi land has now been provided with some form of irrigation and 57% of the irrigated area is technically suited for double-cropping. As part of the overall program to increase rice production in the country, the Government continues to invest in construction of drainage and irrigation facilities. Under the Third Malaysia Plan, about 97,000 ha of padi fields will be provided with new or improved facilities. By the end of 1980, the area suitable for double-cropping is expected to increase to 278,000 ha, or 73% of the irrigated area. 28. The Bank has participated in irrigation development in Malaysia since 1965 when it financed the first Muda Irrigation Project (Loan 434-MA), followed in 1967 by the Kemubu Project (Loan 500-MA). These projects have been successfully completed and, according to the Project Performance Audit Report (Sec M76-670, September 24, 1976), have made a major contribution to the Government's two objectives of reducing rice imports and improving rural incomes in three of the poorest states of Malaysia. An additional five

11 Bank-financed projects, i.e. Western Johore Agricultural Development Project (Loan 973-MA), North Kelantan Rural Development Project (Loan 1294-MA), National Small Scale Irrigation Project (Loan 1444-MA), Northwest Selangor Integrated Agricultural Development Project (Loan 1522-MA), and Krian-Sungei Manik Integrated Agricultural Development Project (Loan 1632-MA), had irrigation and drainage works as their major components. 29. In recent years, the major thrust in irrigation development has shifted from construction of new schemes to providing tertiary canals and drains in existing schemes to upgrade the standard of water control necessary to increase padi yields and cropping intensities. Improved standards of water control have been augmented with strong integrated agricultural services to realize higher padi yields, production and farm incomes. Although the Bank-assisted irrigation projects under implementation have, by and large, been slow to get started, due primarily to staff shortages and delays in land acquisition, the Government is taking appropriate action to remedy the situation. Since the Government is committed to an expanding program of investment in rural areas, however, staff limitations are likely to persist, and have been taken into account in the implementation schedule for the proposed project. Institutions 30. Nearly all government agencies involved in agricultural development are in the Ministry of Agriculture (MOA), including the Federal and State Drainage and Irrigation Departments (DID), the Federal and State Departments of Agriculture (DOA), the Farmers Organization Authority (FOA), Bank Pertanian Malaysia (BPM)(Agricultural Bank of Malaysia), the Malaysian Agricultural Research and Development Institute (MARDI), and the semi-autonomous Muda Agricultural Development Authority (MADA). The National Padi and Rice Board, which regulates marketing, milling, and import of rice, falls under the Ministry of Public Enterprise. 31. DID is responsible for planning and carrying out most public works for water use and conservation throughout Malaysia, including irrigation of rice fields, drainage of tree crop areas, flood and coastal protection and major urban drainage. The Federal DID, with headquarters in Kuala Lumpur, is responsible for overall planning and design, while the State DIDs are responsible for operation and maintenance. The Federal and State DIDs usually cooperate in the supervision of construction of major projects. 32. The Federal DOA provides policy guidance and technical support to the State DOAs. Technical support services to the State DOAs are provided by Federal branches for crop production, crop protection, soils, agricultural education, extension, and farm mechanization. The State DOAs are primarily responsible for field extension services. A recent Bank loan for the National Extension Project (Loan 1493-MA) is assisting the Government in improving its extension services throughout the country and in improving seed supplies.

12 MARDI has been responsible for all crop research (except for rubber) since Rice research is problem- and location-oriented, and focuses on varietal improvement, plant and crop physiology, agronomy and crop protection. Through central and local research, MARDI formulates packages of recommendations for specific padi areas and soils. A Bank loan for the AgricuLtural Research and Extension Project (Loan 1115-MA) is assisting MARDI in expanding its research capability. 34. The Farmers Organization Authority (FOA) is responsible for supervising Farmers Associations and cooperatives with the aim of integrating these organizations into Farmers Organizations which are served from Farmers Development Centers (FDCs) covering from 1,000 to 6,000 farm families each. The FOA provides credit, supplies inputs, and markets and processes agricultural products through the FDCs. Marketing of rice is mainly carried out by private enterprises. 35. Malaysia's agricultural credit bank, Bank Pertanian Malaysia (BPM), was established in 1969 to strengthen and coordinate agricultural credit programs, with particular emphasis on loans for small farmers. It presently provides short-term credit to padi farmers, and medium-term credit for purchasing agricultural machinery, and for purchasing and developing land. Crop production loans are mainly channeled through Farmers Organizations, but eligible non-members may obtain credit directly from BPM. Expanding crop production credit to the majority of small farmers is one of the objectives of the proposed project. 36. Since 1970 the management of the engineering, agricultural extension, cooperative, production credit, and monitoring aspects of the Muda irrigation scheme has been vested in MADA. MADA was originally staffed by officers seconded from other Federal agencies under MOA, in particular, agricultural officers from DOA and engineers from DID. In addition to taking full responsibility for operating and maintaining the irrigation system and dams, organizing 27 Farmers Associations and numerous business subsidiaries, implementing agricultural credit and extension programs, and promoting agricultural innovations such as mechanization of land preparation and harvesting, MADA has for several years undertaken a series of pilot development projects and studies. These pilot projects have been aimed at developing a system of tertiary irrigation and drainage development which would be implemented over the entire Muda command area, and have resulted in detailed analysis of civil works requirements, cropping schedules, water management guidelines, water demand and availability, and project costs and benefits. PART IV - THE PROJECT Background 37. The project was prepared between 1975 and 1977 by M)ADA and appraised in October A Staff Appraisal Report (No MA), dated May 16, 1979, is being distributed separately. Supplementary project data are provided in Annex III. Negotiations were held in Washington from April 5 to 10, 1979; the Malaysian delegation was led by Mr. Duleep Singh.

13 -9- Project Area 38. The Muda irrigation scheme is located in the states of Kedah and Perlis in northwestern Peninsular Malaysia. It covers about 98,000 ha of padi land, farmed by over 60,000 families on individual smallholdings. Limitations of existing infrastructure restrict cropping intensity and yields, which limit average per capita income to about US$250 per annum. Thus, while Muda farmers are generally better off than padi farmers elsewhere in Malaysia, they are poor in comparison with most other occupational groups; approximately 60% of Muda families subsist on incomes below the absolute poverty line. Project Description 39. The proposed project would be the first phase of tertiary irrigation and drainage development throughout the 98,000 ha Muda irrigation area. The main objective of the proposed project is to raise the productivity and incomes of about 16,000 smallholder padi-farming families in those parts of the Muda area which have the least adequate water control at field level. This goal would be achieved through construction of tertiary canal and drainage systems and farm roads in 37 discrete irrigation blocks covering some 25,000 ha, selected from among the 110 blocks which comprise the Muda padi area. The number of blocks to be included was determined by DID's and MADA's capacity to implement work of this kind over a five-year period. Agricultural productivity throughout the Muda area would be improved by establishing a highly organized extension system under MADA, and by improving operation and maintenance facilities, equipment fleets, and the drainage and coastal protection works serving the entire area. 40. The proposed project represents a natural follow-up to the first Muda Irrigation Project (Loan 434-MA), which provided the storage facilities and main canal system to transform an impoverished single-cropping padi area into a relatively commercialized region characterized by a high degree of double-cropping. While that project was a notable success,/l the design of the field distribution and drainage system, based on the standards prevailing in Malaysia in the 1960s, involved widely spaced secondary canals and fieldto-field irrigation and drainage. At the time there was little experience in the design and construction of more intensive systems of on-farm development, which have recently been introduced in Malaysia and other countries in the region. Also, the short-statured, high-yielding padi varieties which depend on precise water control at field level were still being developed when the Muda system was being designed. Finally, the main concern of the designers at the time was a series of difficult, large-scale engineering problems which were successfully resolved within a relatively short time, allowing for later /1 The Project Completion Report (No. 795-MA) of June 15, 1975 estimated the economic rate of return on the project to be 18%. An updated analysis based on experience through 1978, using lower actual cropping intensities and yields and a higher actual and projected world market price for rice than in the PCR, also gives an economic rate of return of 18%.

14 development of more intensive field distribution, drainage and road systems now being proposed. On the agricultural side, the project was successful in promoting significant institutional improvements which brought about the unification of services under one authority, the allocation to MADA of a strong cadre of competent and committed staff, and a pragmatic approach to achieving goals. Its main accomplishments were the promotion of doublecropping and the introduction of production credit and inputs through a number of "saturation coverage" extension campaigns, with the participation of all MADA staff, local government officials and community leaders. For the future, however, the campaign approach alone will not be sufficient to sustain continuous improvements in agricultural practices, input usage, yields and incomes. Field services must be intensified so that farmers can realize the full potential benefits of investments in infrastructure at the field level. 41. Tertiary Development. The proposed tertiary system designed to intensify the existing Muda irrigation scheme is the main feature of the Muda II project. Each irrigation block would be divided into four to six Irrigation Service Areas (ISAs) which would be served by one tertiary canal. Each ISA would be further divided into Irrigation Service Units (ISUs) of ha, each of which would follow a uniform cropping schedule. The overall cropping pattern within each block would be staggered over a period of two months, but presaturation of each ISU would be completed in eight days or less. Upon completion of construction, 80% of farm lots would have direct access to tertiary canals, drains and access roads. The irrigation run from a tertiary canal to a drain would be meters, compared with the present distance between secondary canals and drains of 2,000-2,500 meters. All tertiary canal embankments would carry a laterite foot path or farm road, while all tertiary drains would have a farm road on one bank. In addition to the 37 blocks, a series of small, scattered, tertiary canal, drain and farm road systems would be provided in high priority locations throughout the Muda area, benefiting a total of about 1,200 ha. 42. Other Project Works. Major outfall drains and natural channels would be improved where experience has proved them to be inadequate. About 6 km of coastal bund which has been damaged by wave erosion would be rehabilitated and faced with rock, following a design concept used successfully in the Western Johore Agricultural Development Project (Loan 973-MA). New tidal gates, water control structures on the primary canal system and an escape structure on the southern main canal would be built, and the existing water management and control communication system would be upgraded and simplified. Additional workshops, administrative buildings and seed stores would be constructed at appropriate locations to serve the entire Muda area. 43. Equipment and Vehicles. Vehicles and equipment would be purchased under the project to improve the capability of DID to supervise construction and of MADA to operate and maintain project works. The workshops to be constructed, enlarged and equipped under the project would perform routine maintenance and minor repairs for this equipment, while major repairs of heavy equipment and fabrication of parts would be undertaken by the DID Federal Workshop in Ipoh. Agricultural equipment and vehicles would also be purchased to improve the mobility of MADA agricultural extension staff and to enable the FDCs operated by MADA to provide expanded transport and tractoring services to farmers on a fee basis.

15 Studies. An important feature of the first Muda Project is the program of studies and investigations carried out by project management to improve efficiency and provide a sound basis for future development. Many features of the proposed project are based on the experience gained from the pilot studies. Similar studies covering engineering, management and pilot tertiary demonstration areas, would be carried out on a regular basis under the proposed project, and additional staff and operating budgets would be made available. An assurance was obtained that by December 31, 1979 MADA would prepare for review by the Bank a detailed program for studies (Section 3.08 of the draft Loan Agreement). The proposed project would also include two studies related to future agricultural and rural development outside the Muda region. One is a groundwater study for the development of additional water resources for irrigation in selected areas of Malaysia. The other is a feasibility study for an integrated rural development project in the Pergau- Golas region of the state of Kelantan. These studies have been included in the project in view of the institution-building aspect of the Bank's technical assistance to DID for groundwater development and the significant economic and social implications of the Pergau-Golas study for the development of the Kelantan river basin, one of the poorest areas in Malaysia. 45. Consulting Services. To augment the DID and MADA staff available for this project, the services of local consulting engineers, surveyors and architects, including 200 man-months of professional staff, 100 man-months of technical assistants and 150 man-months of technicians and draftsmen, would be provided under the project. Total costs of this consultant input are expected to average US$1,300/man-month for professionals, US$950/man-month for technical assistants and US$430/man-month for technicians and draftsmen. In addition, approximately 170 man-months of professional consulting services at an estimated cost of US$7,000/man-month would be employed to assist with the proposed groundwater and Pergau-Golas studies. Assurances were obtained that consultants employed for project implementation and studies would be acceptable to the Bank and would be engaged as required, under terms and conditions satisfactory to the Bank (Section 3.03 of the draft Loan Agreement). 46. Training. The project would include funds for short- and medium-term training for selected DID and MADA staff and farm group leaders. Local training includes project orientation training for all key staff and farn group leaders, short field courses for ISA farm groups, and program review sessions after every cropping season for all field staff. Longer-term in-service training courses for agricultural personnel would be conducted at the Rural Extension Training Center to be constructed at Telok Chengai under the Nat:ional Extension Project (Loan 1493-MA), while water management training would be conducted at the Water Management Training Center now being established by DID at Kota Bharu in Kelantan. Training would also be provided for 18 technical staff in rice production, crop protection, agricultural engineering, monitoring and evaluation, engineering design techniques, erosion protection, water rnanagement, agribusiness and extension methods. Two-week training and study tours to neighboring countries employing the integrated agricultural services system would be provided for farm group leaders and field workers involved in extension, water management and agribusiness activities.

16 Project Cost and Financing 47. The total project cost is estimated at US$69.0 million, with a foreign exchange component of US$31.0 million (45%). Because of the tax-exempt status of government departments, cost estimates exclude all known taxes and duties. Physical contingencies of 10% were applied to all works and equipment. Expected price increases over the implementation period amount to 21% of base costs plus physical contingencies and assume annual rates of price inflation of 7% for civil works and services and 6% for equipment and vehicles in The proposed Bank loan of US$31.0 million would finance the foreign exchange requirements of the project. The Government would finance all local costs through annual budget allocations, and would provide funds to MADA for carrying out its part of the project as a grant. Retroactive financing has been included for most Bank-assisted projects in Malaysia to maximize the Bank's participation from the beginning of project implementation, to ensure that satisfactory procurement procedures are followed from an early stage and to facilitate discussion of staffing requirements and agency responsibilities early in the project cycle. In this case, basic issues concerning project scope, procurement procedures, staffing requirements and inter-agency collaboration were resolved in the course of preappraisal in November 1977 and follow-up discussions in March Construction of sample areas began in early 1978 and all construction since April 1978 has been in accordance with procedures acceptable to the Bank. The loan would therefore finance relroactively the foreign exchange component of expenditures incurred since April The estimated total cost of such works is US$2.8 million, of which US$1.4 million (50%) would be foreign exchange. Procurement 48. All tertiary works within each irrigation block would be tendered under a single contract, resulting in about 38 tertiary works contracts /1 of about US$1.1 million each. To the extent that progress on design and land acquisition permits, such works would be grouped in appropriate bid packages and contractors would be allowed to bid on one or more blocks. Other civil works and buildings (US$12.0 million) would also be tendered in relatively small packages of about US$2.0 million. Because these contracts would be small and scattered, and would require coordination with operation and maintenance activities, land acquisition and large numbers of small farmers maintaining continuous cropping schedules, these works would not be suitable for international tender. Contracts would thus be awarded after competitive bidding in accordance with government procedures satisfactory to the Bank. The local contracting industry is competitive and strong, and local tendering is well managed and publicized. Bids would be accepted from foreign contractors who wish to participate and no preference margins would be utilized in the evaluation and award of civil works contracts. 49. Equipment and vehicles (US$3.8 million) would be procured under international competitive bidding in accordance with Bank Guidelines. A 15% preference margin, or the prevailing customs duty, whichever is less, /1 Construction of 37 discrete blocks and one other contract for a series of small scattered tertiary works.

17 would be extended to local manufacturers of these items. Off-the-shelf items costing less than US$35,000 each and limited to a total of US$1,200,000 would be procured through normal government procedures. Force account work would be limited to the fabrication and supply of gates and hoists for water control structures (which would be executed by the DID Federal Workshop in Ipoh). The total cost of such work is estimated at US$0.9 million. Disbursements 50. Disbursements would be made at the rate of 100% against foreign exchange expenditures on directly imported equipment and vehicles, 100% of the ex-factory cost of such items manufactured locally, and 80% of the total cost of locally procured items. Disbursements for civil works executed by contract would equal 50% of total costs. Disbursements for force account work would equal 50% of total costs, and would be made against a certificate of expenditure, the documentation for which would be retained by the borrower and would be available for inspection by the Bank during project supervision. For consulting services, fellowships and study tours, disbursements would equal 100% of total expenditures. It is expected that disbursements would be completed by December 31, The disbursement schedule is given in the Loan and Project Summary. Project Coordination and Implementation 51. MADA is responsible for a wide range of administrative, agricultural extension, engineering operation and maintenance, agribusiness, monitoring, evaluation and planning functions pertaining to the general agricultural development of the Muda command area. The present General Manager of MADA would serve as Project Manager and be responsible for coordinating the implementation of the project. He would be guided on policy matters by a Steering Committee chaired by the Secretary General of the Ministry of Agriculture and including other officials the chairman may nominate. MADA would be responsible for the design, tendering and construction of MADA offices, workshops, quarters and pilot projects, and for upgrading the existing water control system. Final design and contract supervision of drainage, irrigation and coastal protective works would be the responsibility of DID. To accomplish this, DID would establish a Project Office in Alor Star headed by a Project Director, with branches in the four MADA districts. The Project Director would report to the Director General of DID and coordinate DID activities in the Muda area with the Project Manager. The commissioning of all completed works would be the joint responsibility of DID and MIADA, while the Engineering Division of MADA would assume responsibility for operation and maintenance upon satisfactory commissioning of the works. To ensure that design concepts, features, assumptions and data are transmitted effectively from the DID design staff to the MADA staff who would operate and maintain the systems, assurances were obtained that upon completion of final design, DID would prepare a designer's operation manual covering major project works (Section 3.09(a) of the draft Loan Agreement). 52. The agricultural service component would cover the entire Muda area. The Agricultural Division of MADA would be responsible for implementation, but would work closely with the State Directors of Agriculture and the Federal technical units represented in the area to ensure efficient

18 use of staff and facilities for the MADA and non-mada areas in the states of Kedah and Perlis. The objective is to achieve group action at field level with regard to planting and irrigation schedules, water management, pest control and other activities. Groups of roughly 100 farmers would be organized according to Irrigation Service Areas covering contiguous blocks of ha of padi land, and each group would be provided with an effective integrated service package covering extension, water management, plant protection, credit, input supply and marketing on a regular and continuous basis. An assurance was obtained that MADA would prepare an operations manual for extension and other supporting services, and would submit a draft to the Bank for review by December 31, 1979 (Section 3.09(b) of the draft Loan Agreement). 53. The most serious threat to the Muda region is pest attack by the brown planthopper, which has caused serious losses in neighboring countries practising intensive rice cultivation. As Muda is the "rice bowl" of Malaysia, a widespread outbreak would not only reduce project benefits, but would jeopardize the Government's efforts to reduce rice imports. The Government is currently reviewing a national program to strengthen crop protection services and assurances were obtained that, as part of that program, the Government would submit to the Bank for review a proposal for strengthening the crop protection program in the Muda irrigation area by December 31, 1979, and would implement an agreed program by June 30, 1980 (Section 4.03 of the draft Loan Agreement). 54. The project would be implemented over a period of five years. Construction of tertiaries in the first irrigation block began in early 1978 and all construction is expected to be completed by the end of The agricultural support programs provide for a buildup of staff and facilities over the implementation period. Assurances were obtained that all DID and MADA staff required to implement, operate and maintain the project would be appointed in a timely manner (Section 3.07 of the draft Loan Agreement). Assurances were also obtained that the implementing agencies would maintain separate accounts for the project which would be collated by the Project Manager, audited by auditors satisfactory to the Bank, and forwarded to the Bank within nine months of the close of each year (Section 4.02 of the draft Loan Agreement). Production and Marketing 55. Project area farmers have already adopted high-yielding varieties with reasonably high rates of inputs to optimize their yield under conditions of limited water control. Project works would reduce farmers' dependence on their neighbors for irrigation, drainage and access, and would allow the establishment of clearly defined cropping patterns, while the greatly intensified extension and service system would encourage the shift to an even higher level of agricultural technique. With the project, the sustainable average cropping intensity in the blocks to receive tertiary development is expected to increase from 175% to 193%. Average padi yields would increase with tertiary development from 3.3 to 4.0 tons/ha in the main season, and from 3.5 to 4.3 tons/ha in the dry season, while padi production would increase by about 30% from 150,300 tons at present to 193,300 tons at full development. In addition, an estimated incremental 13,600 tons of padi would be produced each year due to improvements in general engineering and agricultural services

19 in the parts of Mluda currently not covered under this first phase of the tertiary development program, bringing total incremental padi production from the project to 56,600 tons (36,800 tons of milled rice). This would represent an increase of 2% of the total domestic supply which, in the present deficit situation, would be easily marketable within Malaysia. Farm Incomes 56. At present the total annual family income generated by a median 1.4 ha farm model is about M$3,000 (US$1,360). This family income, which includes income from agricultural wages and off-farm work, is approximately equal to a per capita income of US$250 per annum. The range of per capita incomes derived from the various sizes of farms is relatively narrow, varying from US$120 for a 0.2 ha farm to US$470 for a 4.5 ha farm. These figures should be compared with the estimated absolute poverty line of US$270, the critical consumption level (CCL)/l of US$430 and the national average personal income of US$1,030 (all in 1979 prices). Approximately 50% of project beneficiary families subsist on incomes below the absolute poverty line, while 90% are below the CCL. At full project development, the median per capita income would rise to US$430, approximately equal to the present CCL, while the projected national per capita income would rise to US$1,530. Implementation of the project would lift 75% of all beneficiaries out of absolute poverty, but would still leave more than half below the CCL. Given the typically small landholdings, this represents the most cost-effective means of dealing with the hard-core poverty problem in the project area (at an investment cost of about US$3,050 per family), while emphasizing the difficulty of raising incomes in the padi sector apace with the rest of the Malaysian economy. Regional Impact 57. A separate analysis has been carried out to measure the project's impact on incomes in the surrounding region. These indirect effects would arise mainly because the higher incomes flowing from the project would induce increased demands for the output of other sectors, as well as investment and intermediate goods. The results show that for every additional dollar of value added in padi production arising from the project at maturity, there would be about 75 cents of value added generated in "downstream" effects, mostly accruing to nonfarm households. Each dollar of "downstream" value added would require about one dollar of complementary investment appropriately distributed over all nonpadi sectors. Project Charges 58. Given the low incomes of the padi farmers in the project area, government policy would require no special taxation of project beneficiaries /1 The level at which the Government gives equal value to additional private consumption and additional public sector investment. In this case it has been estimated by the annual per capita income level which is exempt from income tax.

20 to recover project costs. The farmers already pay a wide variety of landbased taxes and irrigation rates averaging US$19/ha/annum, and an Islamic padi production tithe (zakat) to the Kedah and Perlis State Departments of Religious Affairs, which use the receipts to finance the religious school system, teachers' salaries, welfare expenses, and maintenance of mosques. Zakat payments are an integral part of traditional Malay culture, which remains an especially strong force in the padi-farming areas, and they can be expected to continue regardless of general tax policy. Estimated zakat payments average about US$100/ha, and are projected to increase to US$160/ha with project-induced production increases, far in excess of incremental O&M costs of US$25/ha. Incremental zakat payments discounted at 10% over the life of the project would recover 26% of project costs. Rent recovery indices vary from 0% to 14%, averaging 11% for the entire project. It should be noted that O&M of irrigation facilities in Malaysia is totally divorced from collections of either land-based irrigation charges or zakat payments; irrigation O&M is financed out of general revenues supported by a highly efficient and generally progressive tax system, and that the level of O&M is not constrained by a shortage of funds. In view of these factors and the level of farm incomes, the present structure and level of charges are considered acceptable. Assurances were obtained that the Kedah and Perlis state governments would continue to collect irrigation charges, the level of which would be determined taking into account O&M and capital costs, incentives to farmers, farmers' capacity to pay, and other taxes and charges imposed upon them, and that the Government would exchange views with the Bank from time to time on the level of those charges (Section 4.04 of the draft Loan Agreement). Project Benefits and Risks 59. The expected economic rate of return of tertiary irrigation block development, representing 78% of total project cost, is 18%. Although it was not possible to compute an economic rate of return for minor general improvements and agricultural services outside the tertiary development area, an indirect analysis indicates that padi yields would have to increase by only 40 kg/ha to justify those investments. Such an increase is well within the production response which would be expected. The economic rate of return showed little sensitivity to the assumptions made about padi yields, cropping intensity, prices, construction costs or development period. The project would directly benefit some 16,000 smallholder families with improved water control and farm access, and all 60,000 smallholder families in the Muda irrigation area, or about 340,000 people, with improved agricultural services. 60. Most project beneficiaries are poor, with incomes below the CCL. In order to measure the impact of the project on income distribution and saving, a social cost-benefit analysis was carried out for the tertiary development area to reflect the Government's objectives of growth and income distribution. The results of the analysis give a social rate of return of 35%, indicating that the project would have a positive distributional impact as well as satisfy the traditional economic efficiency criterion. Sensitivity analysis showed that the project's social rate of return would exceed the economic rate of return under any reasonable assumptions about the Government's economic and social objectives.

21 Project risks are no greater than can normally be expected with operations of this type. The main problem encountered in similar projects in Malaysia has been delays in implementation. This experience has been taken into account in sizing and scheduling the project's civil works and in providing for sufficient staff. The economic rate of return is not sensitive to implementation delays if they occur despite the precautions taken. Environmental Effects 62. All project works would be implemented within a densely populated area which has been relatively intensively cultivated, chiefly for padi production, for generations. Chemical fertilizers and pesticides are already widely used in the area and the extension service would continue to caution farmers in the use of toxic chemicals. Effects on the existing environment would thus be minimal. PART V - LEGAL INSTRUMENTS AND AUTHORITY 63. The draft Loan Agreement between Malaysia and the Bank and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed separately to the Executive Directors. Special conditions of the project are listed in Section III of Annex III. 64. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 65. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by I.P.M. Cargill Washington, D.C. May 16, 1979

22 ANNEX I TABLE 3A MALAYSIA - SOCIAL INDICATORS DATA SHEET Page 1 of 5 REFERENCE GROUPS (ADJUSTED AVERAGES MALAYS IA /a LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE) TOTAL SAME SAME NEXT HIGHER AGRICULTURAL 60.4 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e GNP PER CAPITA (US$) ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) URBAN POPULATION (PERCENT OF TOTAL) POPULATION DENSITY PER SQ. EM PER SQ. KM. AGRICULTURAL LAND POPULATION AGE STRUCTURE (PERCENT) YRS /f.g.7 /R 42.1 /f YRS /_.A 52.1 /R 54.4 ft YRS. AND ABOVE 2.8 /f.r 3.2 /g 3.5 /f POPULATION GROWTH RATE (PERCENT) TOTAL URBAN CRUDE BIRTH RATE (PER THOUSAND) CRUDE DEATH RATE (PER THOUSAND) GROSS REPRODUCTION RATE At FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970=100) 70.1 /f f ft PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) /g ft /f PROTEINS (GRAMS PER DAY) 53.7 /g 49.0 /f 56.5 /g OF WHICH ANIMAL AND PULSE 17.8 /g 20.0 /g 18.5 /R CHILD (AGES 1-4) MORTALITY RATE HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) INFANT MORTALITY RATE (PER ft THOUSAND) /g 33.2 /f ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL URBAN RURAL ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL URBAN RLSRAL POPULATION PER PHYSICIAN fg POPULATION PER NURSING PERSON t ft POPULATION PER HOSPITAL BED TOTAL /g /g ft URBAN * fg /f RURAL * /g /g ADMISSIONS PER HOSPITAL BED HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL /g URBAN /g RURAL. 5.5 ft AVERAGE NUMBER OF PERSONS PER ROOM TOTAL ft URBAN ft RURAL ft ACCESS TO ELECTRICITY (PERCENT })F DWELLINGS) TOTAL /g URBAN /g RURAL t

23 - 19- ANNEX I Page 2 of 5 TABLE 3A MALAYSIA. - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES MALAYSIA - MOST RECENT ESTIMATE) La SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION ic GROUP Id GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL FEMALE SECONDARY: TOTAL FEMALE VOCATIONAL (PERCENT OF SECONDARY) PUPIL-TEACHER RATIO PRIMARY SECONDARY ADULT LITERACY RATE (PERCENT) /h CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION RADIO RECEIVERS PER THOUSAND POPULATION TV RECEIVERS PER THOUSAND POPULATION NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION CINEMA ANNUAL ATTENDANCE PER CAPITA EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) FEMALE (PERCENT) AGRICULTURE (PERCENT) INDUSTRY (PERCENT) PARTICIPATION RATE (PERCENT) TOTAL MALE FEMALE ECONOMIC DEPENDENCY RATIO INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS HIGHEST 20 PERCENT OF HOUSEHOLDS LOWEST 20 PERCENT OF HOUSEHOLDS LOWEST 40 PERCENT OF HOUSEHOLDS * POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN RURAL Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwiae noted, data fur 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and /c East Asia & Pacific; /d Intermediate Middle Income ($ per capita, 1976); /e Upper Middle Income ($ per capita, 1976); /f 1957; /g W. Malaysia; /h September 1978

24 ANNEX I DEFINITIONS OF SOCIAL INaDICAIORS Page 3 olf 5 SDl: The adjusted group averages for each indicator are population-weighted geonetric means, excluding the extreme values of the indicator a.d rho nos: populateo country in each group. Coverage of countries among the indirators depends on a-silability of date and is not uniform. Doe to lack of data, group averages for Capital Surplus Oil Exporters and indicators of access to water snd escreta disposal, housing, income distribution and poverty ate siepie population-weighted geoxetric eaons without the exclusion of extreme values. LAIl AREA (thousand sq. kro) Population per hospital bed - rotal, urbat, ovd rural - Popucaticr tuf- _ctal - Total nuroc area cmo.rling land area and inland waters. urban, and royal) divided by their respective vamber of hospital -'10 Agr_cultural o-vt recant estieate of agricultural 0000 used temporarily available in public and private general and specialized hospitai and tror yermanrrtly for cra?s. pautnre, oerkot and kitohen gardens or to habilitation centers. Hospitals are establishments permanently utaffed by ti failow. at least one physician. Estabhlishntas pr-vdieg principally andiw. ours are non included. brat boopitial, however., Onvinde I r an -c c- CNP PER APTA Sij- CN:' per capita estimates at current market prices, cal cenrers not permanently staffed by a phy.ician fhut by a -nedical s- calculated by same coonersion method as World Bank Atlas ( basis); sitent, nurse, midwife, etc.) which offer in-pstient aroon-d-iotn rod 19C, 1970, and 1977 dots. provide a liit ed rxnge uf =ediral farilities. Adeissians per hospitel bed - Total nu=ber of adnisohons to or dlschorgrc ENERiY CONSLMPTION PER CAPITA - Annual. onsumption of rommerrial energy froe hospitals divided by the number of beds. (veal cod lrgrrt, petroleum, an,ural gas and hydeo-, -xclear and geerbhrmal electricity) ho kilogrums of coal equivalent per capita. HOUSING Average slam of house.;hold (Persona per hosehold) - total, urban and ural - POPULATION Alit VITAL STATISIRTCi A heu..eheld c..es.ista faeo ef,idividua:a1wi share ivin cu... Total population, mid-year (millions) - As of July 1; if cot available, and their main meals. A boarder or ledger moy or ray nrohr beincuded cn averoge of two cod-year estimates; 196C, 1970, and 1977 data. the household for statistical purposes. Stutistica- definitirns onf lnrir3un populattun (percent of total) - Ratio of urban to total popula- hold vary. tin; different definitions of urban areas may affert c-oparability Average anuber of persons Per coos - total, urban, and ruanl - Average cvof data aong countries. ber of persons per room in all, urban, and rural occupied conve_tlcnal too density dwellings, respectively. Dwellings excludo rvn-p-rtent structure- u-. Per _sq. ki. - Mid-year population per square kiloneter (101 hectares) unoccupied parts. of total area. Access to electricity (perrent of dwellings) - total, urban, aid cural Por sq. ki. agrigulture land - Computed as above for agricultural land Conventional dwellings ith electrioity in living quarters us percentage only. of total, urban, and rural dwellings respectively. Pcpulanion age strurture (pernenc) - Children (0-14 years), working-age (15-64 years), and rerired (61 years and ever) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Fcualcgrnwr rac - pren)-tta,ad ra Compound annual primary ehnol - tota,l, and fenale,- Total ad femal enrollmet of all air. gr-wrh rates of toal and urbar mid-yea, papulati.ns foe , at the primary level a perctage of respectively primary.. h ol-age 196C-7C, and populations; normally includes rhildren aged n-il yearn but ad!noted Icr Crude bur rae_(per ou thousand) - Annual live births per thousand of different lengths of primary education: for -cuntrie- with univensal. dumid-year popylanion; ten-year arithmetic averages ending in 1960 and cation enrollment nay exceed 19O percent since soee pupils are below cv 1971 and Cfinc-pear aneragr endig ic 1975 for nost recent entlnats. above ch. efficial school age. Crude odth rate (per thosuand) - Annual deaths per thousand of mid- school -econdarv- total, and female - Cemputed an aohoe; secondary ducavrear cupulatios; ten-y-ar avith-ctir averugns ending in 1960 and 1970 tion requires at least four years of approv-d primary instruction; pry- -oa f.c-yvea averoge onding in 1971 for =oscrenct -- ti-at-. sides general vocational, or toucher training inscructions fcr pupic reproduction -;rsu rate - Average number of daughters a unman will bnar us-ally of 12 to 17 years of age; orrespondencecourses arc grnvcu iu cry normal -opr-ducti-o period if nhe eoperienres present age- excluded. specific fertility rates; usually fine-year averages ending in 1960, ocational anrollmene (Percent of secondar-) - Vc-uri-al inutirjr-., in-:n 197C, and clude technic-l, industrial, or other progra- whiri operate undevnopentic Family planning - acceptoru, annual (thousands) - Annsal number of rr as departments of secondary institutiosu. acceptors of birth-control devices under auspices of national family Popol-arecher ratio - primary, and secondarv - Total students enrclled c: planning program, primary and secondary levels divided by numbers of tsach-rs in thy ccvrr- F-mily pl-siog-nuora prero aridwmc Perenag. o pending levels. marriedl women n f niuheasrb-ing ge (15-44 years) who use birthc-ontrol Aduit literacy rate (percent) - Litnerte adults able vc mad and ovitn an devices to all earned women in naoe age group. a percentage of total adult population aged 1 years and cccv. FiOl AND NfTRITIIN CONSUlLPTION index o food yroducclun per capita (ly7c=lcc) - index somber of per Passenger cars (per thossand population) - Pussenger corn compris;nclre ur : capita annual production of all ford commodities. seating less than eight persons; excludes ambulances, hearten any vi1:tux Per capita supply of colonies (percent of ronolrenests) - Computed from vehicles. energv equivalent of sot Toni supplies available is country per capita Radio receivers (per thusand populocics) - All typen of receive, u c, dipen day. Available supp1ios comprise domes.ti production, imports less broadcasts to general public per th.ousnd of population; excludes uvluc,cccu e-po-tc, any changes in stock. Net supplies -elude animal feed, seeds, receivers in countries and in years whon registrati-n of rudir sets wan in quenritirs curd in fod proceesing, and louses in distribucion. Re- effeoc; date for recent year may non be c-mpoaalc incesos ncuntvr. quir-rennunvor estimated by FAO based on physiological needs fur nor- abolishnd licensing. n.a activity and hbaith cunsidering environmental tempeorture, body TV receivers (per thousand opulanien) - ITV receivers for br-udc-rt cgrve-i ceighto, ago and sex diniributioes of popuiation. and allowing 1i per- public par rhousand popula-ien; exrludes umlinenson TV receif ens in v cent,, cr wasce at household level, tries and in years when registration of TV sets was in efcec. Per capita supply oi protein (grois per day) - Protein content of per Newspaper cirnalation (per thousand population) - Shows the arorage ucrrsu-- capita net supply ci icod per day. let supply of food is defined as tion of "daily general interest newspaper". definod as a oeriudicul pucliabove. Require=ents ifr all cnuntrie- established by CSIA provide for cation devoted pri.earily to recording general nus, In in conidcred tc amint mum allowance of 60 grams of total protein per day and 21 grats he 'daily" if it appears at leot four imes a week. of un.al and paine protein, of which 1C grams should be animal protein. Cinema annual attendanne per c.pice per your - lusnd cc thi ccshcr - ( <Arty These otuncu-ds are lower th-a those of 75 grams of total protein and sold during the year, including admissions vt drive-ir cnom-ac arc c-vt I3 grant of urinal ptrotin an as -venuge for the rorld, proposed by units. FAy in thr Third Wirld FoodSurvey. for capcto crvoici supiplyn fromnimol and Pulse - Protein scpply of forod EMPLOYMENT derived Iyre ani:ais and pulses in grams per day. Total labo force (tho.uands) - Efconnically active per-ons, including ac:oc Child (age -1-4m a r - Annual deaths per thous- forces and unemployed bat eocluding hbusec-i-e, students, e C t c. f n.- and in age gr-uc 1-4 years, tc children in thin age group. tiers in various countries are not conp-rable. Female (percen) - Fe=ale labor force as percentage Cf totul lance fcrcn. HEAL-H Agriculture (percent) - Labor forno in farming, f_crosty. hurting and fisind Lit cesocvancy at hicti (years) - Average number of years of life as peroentage of total labor forre. vemaiving st birth; usually fin-ypear averages ending in 1960, 1970, Industry (pernnnt) - Labor for- in mio ig, cetrtcrucion, manufacruring usr and eltetiriy, water and gas as percentage nf total labor force. Infant met:alivy ruin (pernthouuand) - Annual deaths of isfannt under P-rniu-panion rate (percent) total., mai, end fem-la Trial, m-1r, and one your of ago per th-osand lion birhts. teale labor force as per-ntnnges of their re-cective poyulasinu. AcSum e o afoar (perct of population) - total, urban, and rural - Rene ture s a1. popdj-ted p-tinipati-on s reflecting are-se ',,nh,r cf pepic (rura, urban, and -rura)wirh reason.able o-ens to - r-t- of the Popcluti-n end o-g ti- trend. sole outer cupply (includes treated surfare waters or untreated bht E.oenoic dependency ratio - Ratio of copulation -nde- 15 und 65 and ccvt rs -uncotcamnated water such as that from protected boreholes, springs, the labor force in age group of yearn. and u,,itury wells) as percnrtoges of their renpe_tive posplationa. n an urban area a public fountain or standpo-t located not more IgCOSE DISTRIBUTIOS mnan 23C nrers fmv a house may he considered as being within me- Percentage of private incore (both in cash and kihd) received by rirhest nonab:e access of thur house. In rural areas reasonable acress would percent. richest 20 percent, poorest 20 porcent, uvc poorenst 4J prcen - Iply that the Ce or -rnoe nembers of the household do not hone to of households. spend A disproporti_nuae pert of the day in fetching the family's water needs. POVERTY TARGET GROUPS Accens to excreta dieosal (percent of eocularten) - total, urban, and Entimated absolute poverry income level iusi Per capita)-uban.. t,i raunl rural - Number of people (cotal, urban, and rural) served by:esreta Abso-lte poverty income level is that incone level beluw which a minut.a disposal as percentages of their respective populations. lexreta -turitionally adequate diet plus essertial nun-food requirements is 'G' d.tpucsl nay cnclude one -cllection and disposal, with or without affordable. tr_averni of human excreta and waste-water by water-boe este eisimared relation povety iesome lee (TSS pr -aitul -b- ad rrl or the use of pit privies and similar installations. Re;atine poverty incoe level is that incme 1lel les uhan one-third PRoulatii par phvsician - Papuiation divided by number of prrcticing per capita personal income of the country. pynyicianrs qu-lified from a medical school at unoiersity level. Estimated population below poverty income level (percent) - urcn and rural - Pc lutiun per namsing Fettle - Population divided by number of Percent of population (urban and rural) who are either "abuote your' cr pravtlcing male aed female graduate norses, pr-etial nur-nn, and "relative poor" hiche-vr in greater. Economic and Social Dat. Divinirn Efooomic Analysin and Pr-jeuclons inpcr:scvr

25 ANNEX I Page 4 of 5 COUNTRY DATA - MALAYSIA GROSS NATIONAL PRODUCT IN 1977: ANNUAL RATE OF GROWTH (% in constant prices and M$) US$ Mln % GNP at Market Prices 12, Gross Domestic Investment 3, Gross National Saving 3, Exports of Goods, NFS 6, Imports of Goods, NFS 5, OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1975 Value Added Labor Force V.A. Per Worker US$ Mln Min % US$ % Agriculture 2, , Industry 2, , Services 3, , Unemployed Total/Average GOVERNMENT FINANCE General Government MS Mln % of GDP Current Receipts 8, Current Expenditures 8, Public Authorities Surplus Current Surplus Development Expenditures 4, Foreign Borrowing (net) MONEY, CREDIT AND PRICES (Million M$ outstanding end period) Money and Quasi-Money 3,724 4,131 4,666 5,770 7,574 8,729 10,001 12,769 14,861 Bank Credit to Public Sector ,045 1,186 1,375 1,746 2,148 3,036 3,583 Bank Credit to Private Sector 1,841 2,246 2,572 3,014 4,586 5,278 6,084 7,471 8,970 (Percentages or Index Numbers) Money and Quasi-Money as % of GDP Consumer Price Index (1967 = 100) Annual Percentage Changes in: Consumer Price Index Bank Credit to Public Sector Bank Credit to Private Sector not applicable NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered.

26 ANNEX I Page 5 of 5 TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE ) US$ Mln % (US$ million) Exports f.o.b 3,774 5,248 6,043 Imports f.o.b. 3,472 3,759 4,521 Rubber 1, Nonfactor services (net) Timber Resource Gap (deficit) 20 1,144 1,076 Petroleum Factor services (net) Tin Net Transfers Palm Oil Balance on Current Account All Other Commodities 1, Total 5, Direct Foreign Investment Net MLT Borrowing /a EXTERNAL DEBT, DECEMBER 31, 1977 Disbursements Amortization US$ Mln Subtotal Public Debt, incl. Guaranteed 2,053 Other items n.e.i ,160 Non-Guaranteed Private Debt Increase in Reserves (-) Total Outstanding & Disbursed 2,053 Gross Official Reserves DEBT-SERVICE RATIO FOR 1977 (end year) 1,701 2,513 2,794 % Public Debt, incl. Guaranteed 6.5 Fuel and Related Materials Non-Guaranteed Private Debt Imports Total Outstanding & Disbursed 6.5 Exports of which: Petroleum IBRD/IDA LENDING (March 31, 1979) (US$ million) RATE OF EXCHANGE IBRD Average rate during period: Outstanding & Disbursed M$ per US$ US$ per M$ Undisbursed Outstanding incl. Undisbursed /a Medium and long-term capital flows are obtained from World Bank debt data and are not comparable with balance of payments estimates... not available

27 ANNEX II Page 1 of 12 THE STATUS OF BANK GROUP OPERATIONS IN MALAYSIA A. STATEMENT OF BANK LOANS (AS OF MARCH 31, 1979) Amount in US$ Million Loan (Less Cancellations) Number Year Borrower Purpose Bank Undisbursed Seventeen loans fully disbursed Sabah Ports Authority Ports Malaysia Education (II) Malaysia Population Malaysia Land Settlement Malaysia Water Supply (II) Malaysia Highway (II) Malaysia Land Settlement Malaysia Agricultural Development Malaysia Education (III) National Electricity Board Power (VI) Malaysia Land Settlement Malaysia Agricultural Research and Extension National Electricity Board Power (VII) Malaysia Sewerage Malaysia Urban Transport (II) Malaysia Rural Development Malaysia Education (IV) Malaysia Highway (III) National Electricity Board Power (VIII) Malaysia Irrigation Malaysia National Extension Malaysia Agricultural Develoment Sabah Ports Authority Ports (II) Malaysia Land Settlement Malaysia Population (II) Malaysia Coconut Smallholders Dev Malaysia Agricultural Development Malaysia Fifth Education Total loans (less cancellations) 1,029.5 of which has been repaid 98.7 Total now outstanding Amount sold 43.6 of which has been repaid Total loans now held by Bank Total undisbursed 534.6

28 ANNEX II Page 2 of 12 B. STATEMENT OF IFC INVESTMENTS (AS OF MARCH 31, 1979) Type of Amount in US$ Million Year Business Loan Equity Total 1964 Malaysian Industrial Development Finance Development Ltd. (MIDF) Financing Tasek Cement Ltd. Cement Malayawata Steel Ltd. Steel Malayawata Steel Ltd. Steel India-Malaysia Textiles Ltd. Textiles Malaysian Industrial Development Finance Development Ltd. (MIDF) Financing Total gross commitment Less: repayments, sales, cancellations, terminations and write-offs Total commitments now held by IFC Total undisbursed - - -

29 ANNEX II Page 3 of 12 C. PROJECTS IN EXECUTION /1 Loan No. 774 Sabah Ports Project; US$16.1 Million Loan of June 30, 1971; Effective Date: August 24, 1971; Closing Date: September 30, 1979 Work was satisfactorily completed on the new berths at Kota Kinabalu and Sandakan by end-1976, but slow progress in completing the access road to Sandakan delayed full use of the Sandakan berths until mid Delay in mobilization and procurement of materials and difficulties in retaining suitable consultant engineers, compounded with the world-wide inflation, resulted in a cost overrun of about 50%. Settlement of an outstanding claim by the contractors is being processed by the Sabah Ports Authority. Final accounts are expected to be completed before September Loan No Second Sabah Ports Project; US$13.0 Million Loan of September 20, 1978; Effective Date: November 10, 1978; Closing Date: September 30, 1982 The project aims at (a) providing Tawau port with the capacity to meet forecast traffic; (b) providing the ports of Kota Kinabalu, Sandakan and Tawau with cargo handling equipment to meet future traffic growth and to replace worn-out items; and (c) improving the performance of the Sabah Ports Authority (SPA) by providing technical assistance and staff training. SPA has appointed consulting engineers for detailed engineering and supervision. Tenders for the civil works are being finalized. Traffic and financial results for 1978 were generally better than forecast. SPA intends to invite technical assistance proposals from management consultants in mid-1979 when adequate counterpart staff will be available. Loan No. 931 Second Highway Project; US$19.5 Million Loan of August 22, 1973; Effective Date: October 25, 1973; Closing Date: March 31, 1980 Overall, the project is about 90% completed. Two of the three contract sections constituting the new Kuala Lumpur-Seremban Expressway have been completed and the third section has been partially taken over. Except for a two mile section at the northern end, the Expressway was opened for traffic in October The improvement works to the existing Kuala Lumpur- Seremban Road are almost completed, but the widening and improvement works of /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

30 ANNEX II Page 4 of 12 the Kuala Lumpur-Batang Kali Road, which were started in November 1976, will still take more than one year to complete. Consulting services for various studies and detailed engineering have been completed. Construction costs have escalated sharply because of rapid inflation, and the total project cost is now estimated to be US$49 million, compared to an appraisal estimate of US$37 million. Loan No Second Kuala Lumpur Urban Transport Project; US$26.0 Million Loan of March 11, 1976; Effective Date: November 11, 1976; Closing Date: June 30, 1981 The main objective of the project is to increase the efficiency of the transport system in Kuala Lumpur. Public transport services will be improved while the use of private cars will be restrained. Although primarily concerned with urban transport, the project also introduces new approaches to residential development for low-income families. The main components are: (a) road and intersection improvements, traffic engineering and control schemes and construction of new radial roads; (b) transport policy measures including introduction of minibus services, traffic priorities for highoccupancy vehicles and area road pricing; (c) provision of new serviced plots for households and businesses, and improvement of infrastructure services for existing households; and (d) technical assistance to support traffic management and transport planning, to prepare an urban development project for Kuantan, and to review national housing policies and programs. Overall progress on the transport components has been quite satisfactory, with a sharp acceleration in construction activities over the past several months. Initial delays, however, have not been fully overcome and the estimated project completion date has been moved back 15 months. Execution of the residential components has been less satisfactory due to administrative and policy problems which are in the process of being resolved. This is resulting in some project redesign. Cost overruns are expected in some project elements, especially in the Traffic Dispersal Schemes. Loan No Third Highway Project; US$35.0 Million Loan of April 4, 1977; Effective Date: May 4, 1977; Closing Date: June 30, 1982 The main objective of the project is to improve the highway network in the East Malaysian State of Sabah through the reconstruction and upgrading of priority links and the development of the road maintenance capacity of the Sabah State Public Works Department. A further objective is to protect road investments in Peninsular Malaysia through a pilot program for road maintenance and pavement strengthening in three states. The project also includes an urban study of Kota Kinabalu in Sabah and a transport/railway study in Peninsular Malaysia. Construction work on the east and west coast roads in Sabah started in September 1977, about five months behind schedule. Progress thus far has been unsatisfactory. Overall, with almost half the construction period expired, less than 20% of the work has been completed. The Government has been requested to take the necessary steps to expedite the work. The highway maintenance and upgrading program in Sabah started about twelve months behind schedule due to late appointment of consultants to assist the Sabah Public Works Department. While satisfactory progress has been made

31 ANNEX II Page 5 of 12 on the preparatory works for the pavement strengthening program in Peninsular Malaysia, the reorganization of maintenance sections in the three pilot states is behind schedule due to staff shortages. Loan No Sixth Power Project; US$45.0 M4illion Loan of July 25, 1974; Effective Date: October 22, 1974; Closing Date: June 30, 1980 Loan No Seventh Power Project; US$35.0 Million Loan of December 17, 1975; Effective Date: March 10, 1976; Closing Date: June 30, 1981 Loan No Eighth Power Project; US$22.0 Million Loan of August 3, 1977; Effective Date: January 9, 1978; Closing Date: June 30, 1982 The 275 kv transmission lines from Temengor to Papan and from Port Dickson to Malacca financed under the Sixth Power Project have been completed. Under the Seventh Power Project, the final stage extension of the Prai Power Station (3 x 120 rrw) is about 40% complete and progress is satisfactory. The Eighth Power Project (the Pasir Gudang Power Station, 2 x 120 MW) is still in the early stages of construction; 20% of the work has been completed. NEB's financial performance is deteriorating and liquidity is tight. Unless remedial action is taken soon it is likely that NEB will not meet the covenanted 8% rate of return for FY79. NEB and Government are in the process of devising means to improve NEB's financial position. Loan No. 908 Second Kuala Lumpur Water Supply Project; US$13.5 Million Loan of June 14, 1973; Effective Date: August 27, 1973; Closing Date: June 30, 1980 The project consists of the expansion of water supply facilities to meet increasing demand in Kuala Lumpur and the Klang Valley area. The first part of the project, comprising ordinary water works, was completed in 1976, practically on schedule and within the cost estimates, and is operational. The construction of the Langat Dam, the last and major work of the project, is progressing satisfactorily and is expected to be completed by the end of Completion will be two years behind the appraisal schedule. Cost of the dam is likely to be about 25% more than originally estimated, resulting in an increase in total project cost of about 15%. No difficulties are foreseen in raising the additional funds required. Staffing problems persist within the Selangor State Water Department, which is responsible for the project. Physical operations are satisfactory. There are deficiencies in the accounting, billing and collection and reporting system which the concerned government agencies have undertaken to correct through a program of support for the Water Department.

32 ANNEX II Page 6 of 12 Loan 1213-MA Kuala Lumpur Sewerage Project; US$21.5 Million Loan of March 11, 1976; Effective Date: August 25, 1976 Closing Date: December 31, 1981 The project is the first stage ( ) of a 30-year master plan for sewerage development in the Kuala Lumpur metropolitan area. It includes the extension of sewage collection (about 70 miles of trunk and lateral sewers) and treatment facilities to serve an additional population of 200,000 in the Kuala Lumpur Federal Territory; the institution of a separate Sewerage Department within the Kuala Lumpur City Hall, with its own accounting system and finances; engineering and management consultant services; staff training; and the preparation of sewerage and pollution control in the Kuala Lumpur metropolitan area. The engineering of the project has been satisfactorily completed. Construction of two out of the three major contracts (sewers) has started. Land acquisition and resettlement of present occupants have created serious problems but these are now being solved. The setting up of a separate accounting system for the Sewerage Department (Kuala Lumpur City Hall) has progressed well. Sewerage surcharges on water bills were instituted after delays. Loan No. 885 Third Jengka Triangle Land Settlement Project; US$25.0 Million Loan of March 30, 1973; Effective Date: June 22, 1973; Closing Date: December 31, 1981 About 23,500 acres of oil palm and 16,500 acres of rubber have been planted. Planting and maintenance standards are satisfactory. A severe drought in 1976 and 1977 caused heavy losses in rubber planted in schemes 21 and 22. A major program to supply replacements is under way and scheduled for completion in April Oil palm on schemes 15, 17, 18, 19 and 23 has been brought into production. Good progress has been made in village development in 1978 but settler intake is generally years behind appraisal estimates because of earlier delays in construction of access roads. So far, about 2,200 houses have been completed and about 2,070 settlers moved into schemes Initial intake to schemes is anticipated by the end of Water supplies are now satisfactory on all schemes but delays are still being experienced in school and clinic construction. Oil palm mill construction in scheme 18 is almost complete and the plant is expected to be commissioned shortly. Loan No. 967 Johore Land Settlement Project; US$40.0 Million Loan of February 27, 1974; Effective Date: May 16, 1974; Closing Date: June 30, 1982 Clearing has been completed and final planting is being carried out on Phase III of Ulu Dengar scheme. Planting and maintenance standards are satisfactory. Oil palm production has started in 5 schemes and production has recovered from initially disappointing levels. A major resupplying program to replace losses to game is under way and boundary trenches have been completed. Due to delays in infrastructure development, village development is one to three years behind schedule. Rising timber prices and labor

33 ANNEX II Page 7 of 12 shortages are also creating difficulties for contractors. Regular coordination committee meetings have improved interagency relationships, but shortfalls in construction of water supply and access roads will cause some further slippage in The third and the fourth oil mills are expected to be completed by June Loan No. 973 Western Johore Agricultural Development Project; US$45.0 Million Loan of April 5, 1974; Effective Date: August 14, 1974; Closing Date: June 30, 1980 The project includes main and feeder drains, coastal embankments and tidal gates to improve drainage in an area of over 135,000 ha in southwest Peninsular Malaysia, as well as an integrated agricultural development program to introduce intercropping and other changes in cropping patterns, construction of Farmers Development Centers, and improvements in research, extension, and crop processing. Civil works got off to a slow start and are about three years behind schedule, but progress is accelerating. Initial staffing problems have been largely overcome and some improvements have been made in procedures to acquire right-of-way. Technical questions on the optimum spacing and depth of feeder drains in acid sulfate soils appear to have been resolved on the basis of a pilot drainage area. Work is progressing on drainage contracts, remaining farm roads are being retendered and prequalification of secondary road contractors is expected soon. Progress on the agricultural side is generally satisfactory and in line with appraisal estimates except for pineapple, where production is declining. The Project Manager is taking steps to develop an integrated agricultural service system to coordinate the efforts of the crop-based development agencies with the extension activities in the project area. Work is also proceeding on the preparation of a second phase project. Loan No Keratong Land Settlement Project; US$36.0 Million Loan of October 3, 1974; Effective Date: January 9, 1975; Closing Date: June 30, 1983 Clearing and planting operations on schemes 8 and 9 are nearing completion having been delayed one year by late logging. On four schemes, 25% of palms were damaged by game. Perimeter trenches are being dug and seedlings resupplied. So far, 610 houses have been completed and 593 settlers moved in in schemes 1 and 2. Settler intake during 1978 was less than half that scheduled. Established contractors are reluctant to seek work in Keratong because of its location and unattractiveness to labor. Rising timber prices have created difficulties for small contractors which have been aggravated by access difficulties caused by heavy rains in the second half of the year. Limited use of a new highway is expected in early FELDA is also withdrawing half of the housing contracts for villages 4 and 5 of town 22 and will retender. These actions should result in more rapid progress in 1980.

34 ANNEX II Page 8 of 12 Loan No Agricultural Research and Extension Project; US$28.5 Million Loan of May 30, 1975; Effective Date: October 21, 1975; Closing Date: June 30, 1982 Project implementation is more than two years behind the appraisal estimates. A new Director General was appointed in mid-1977 and a new Deputy Director for Administration was appointed in January 1978; the post of Deputy Director for Research is still vacant. The effort to recruit international scientists is still inadequate. Ten scientists have been recruited, totaling 16.5 man-years, representing 15% of the total scheduled under the project. An additional one man-year has been utilized for consultants to conduct nine program reviews. Civil works and fellowships are the only components of the project that have been proceeding at a satisfactory pace. The extension component of the project is also more than two years behind schedule and has had similar management constraints with a change in Directors occurring in March Although there has been a marginal improvement in implementation, the short-term outlook is not encouraging. Loan No North Kelantan Rural Development Project; US$21.0 Million Loan of July 21, 1976; Effective Date: October 28, 1976; Closing Date: December 31, 1981 The project will provide drainage and flood protection for 30,000 ha; intensive irrigation for 12,000 ha of padi land; construction of 190 km of rural roads; 15 small irrigation schemes serving 1,300 ha; 25 Farmers Development Centers; and an integrated agricultural service system. Implementation of civil works has fallen about a year behind schedule, due mainly to staffing shortages, particularly in DID headquarters for design and tendering. Providing adequate flood protection is the most difficult engineering problem. Progress in finding a technical and economic solution acceptable to Government bodies and local people has been slow. Total project cost is likely to exceed the appraisal estimate by about 20%, due mainly to the higher costs of flood protection and rural roads, and exchange rate adjustments since Expenditures and disbursements are behind schedule but are beginning to accelerate. Progress on the agricultural side is mixed. Progress on extension in the first two districts is good, although introduction of the program to the next two districts is more than a year behind schedule due to staff shortages. A good start has been made in the pilot credit program, but proposals to introduce a fertilizer subsidy for all padi farmers may, if adopted, undermine farmers' incentives to repay. The program to integrate irrigation O&M with extension is scheduled to begin in June 1979.

35 ANNEX II Page 9 of 12 Loan No National Small-Scale Irrigation Project; US$39.0 Million Loan of August 3, 1977; Effective Date: October 25, 1977; Closing Date: March 31, 1983 The project includes construction of small irrigation systems with a total irrigable area of 54,000 ha distributed throughout Malaysia, technical assistance and training for DID, procurement of equipment and a feasibility study for the Rompin/Endau irrigation project. Construction is proceeding satisfactorily and most schemes should be completed on schedule by the end of 1982, although some work may extend into Of the 195 proposed schemes to be implemented under the project, 50 have been approved by the Bank for inclusion in the project following appraisal by the Preparation and Evaluation Teams, 25 are under construction and 61 more are in various stages of preparation. The interim report for the Rompin/Endau Study has been completed and the final report is scheduled for mid Loan No National Extension Project; US$19.0 Million Loan of January 10, 1978; Effective Date: September 8, 1978; Closing Date: December 31, 1983 This is a project designed to strengthen agriculture extension in all 13 States in Malaysia, and increase the production capacity for quality of seeds. The project was appraised in October 1976, but only became effective in September 1978 due to internal problems over financial arrangements between the Federal Government and the States (extension is a State function). All key appointments that were conditions of effectiveness have now been made and are satisfactory to the Bank. Implementation planning for 1979 has been completed, posts have been established and 41 extension technicians have been recruited, some civil works designed have been initiated and sites acquired. The State of Sarawak has commenced civil works construction at 6 sites. There are two issues that could hinder implementation: (i) timely preparation of civil works designs, and (ii) the Federal Government's policy to establish Federal supernumerary posts in lieu of permanent State posts during the project period. These matters are being taken up with the appropriate authorities. Overall prospects for project implementation in 1979 are good. Loan No Northwest Selangor Integrated Agricultural Development Project; US$26.0 Million Loan of March 8, 1978; Effective Date: June 21, 1978; Closing Date: December 31, 1983 The project includes intensification of irrigation networks for 20,000 ha of padi, drainage works for 77,000 ha of tree crops, and facilities, equipment, and training to support an intensified program of agricultural services for smallholders. The project started out about one year behind schedule due primarily to staff shortages, but significant progress has been made in the last six months on staffing, the design and tendering of structural tertiaries, and planning, survey and design of drainage areas. Land acquisition should be relatively easy since the right-of-way is already generally available for the drains, and structural tertiaries require only a narrow strip of land. Progress on the agricultural component is satisfactory.

36 ANNEX II Page 10 of 12 Loan No FELDA VI Land Settlement Project; US$28.0 Million Loan of August 11, 1978; Effective Date: March 9, 1979; Closing Date: June 30, 1985 The project supports the development objectives of the Government to raise productivity and incomes, and to reduce poverty. It consists of: land clearing and planting of 62,000 acres of rubber, up to 10,000 acres of cocoa in a pilot project, and 500 acres of annual crops on an experimental basis. About 6,200 families would be settled in the rubber areas, and 1,500 additional families would work on cocoa. The project includes ancillary roads, settler and staff housing, and basic education, health, and community service facilities. The first supervision is now under way. Loan No Coconut Smallholders Development Project; US$19.5 Million Loan of October 24, 1978; Effective Date: February 23, 1979; Closing Date: March 31, 1984 The project consists of rehabilitation of about 44,200 acres of traditional MT Coconuts and intercropping with cocoa, coffee, fruits, etc; replanting of about 17,000 acres with hybrid coconuts and associated cash crop gardens in the initial years; the provision for the importation of about 6,400 crossbred dairy animals for the development of about 3,340 integrated dairy and beef operations; and the strengthening of support services for crop and dairy production. It should be noted that importation of cattle has been banned due to the recent outbreak of foot-and-mouth disease; this could seriously delay the implementation of the livestock component of this project. Loan No Krian-Sungei Manik Integrated Agricultural Development Project; US$26.5 Million Loan of December 13, 1978; Effective Date: March 6, 1979; Closing Date: December 31, 1984 The project will provide improved drainage and irrigation facilities, access roads, training and intensified agricultural supporting services in two separate areas, covering a total of about 30,000 ha of padi land in the state of Perak. Despite Government action before loan signing to create additional positions for DID engineers and district land offices, these positions are only now being filled, with the result that the project is starting off more slowly than planned. Loan No. 810 Second Education Project; US$15.5 Million Loan of April 5, 1972; Effective Date: July 7, 1972; Closing Date: December 31, 1979 The project is financing the establishment of a curriculum development center, science schools for the University of Penang, vocational schools, and an educational television system. With the exception of parts of the University and one vocational school, project institutions are practically completed and operating. Project implementation is about two years behind schedule because of earlier delays in appointing consultant architects, slow completion of design documents and delays in obtaining Government approvals

37 ANNEX II Page 11 of 12 for design and contract awards. Staff shortages on the project have also contributed to delays. The closing date of the loan has been extended for one year to December 31, Loan No. 974 Third Education Project; US$19.0 Million Loan of April 5, 1974; Effective Date: June 26, 1974; Closing Date: December 31, 1980 The project assists the Government to develop technical training, pre-service teacher training, and an East Malaysia educational television system. Implementation has improved since a year ago when less than 50% of project civil works had been tendered. Contracts have now been awarded for 11 out of 13 project institutions. Construction began in early 1976 and most of the project institutes are scheduled for completion by early The Project Unit is functioning satisfactorily, despite current problems with bid evaluation. Loan No Fourth Education Project; US$35.0 Million Loan of November 18, 1976; Effective Date: January 14, 1977; Closing Date: June 30, 1982 The project provides US$35.0 million for: (a) improved planning and construction of approximately 850 primary schools in the most disadvantaged states of Malaysia; (b) establishment of four education resource centers and one teacher training school; (c) expansion of two, and establishment of three, industrial training institutes; and (d) further study of community educational needs. Project implementation is improving. Disbursement is proceeding normally for the Ministry of Education component. No disbursements have yet been made against the Ministry of Labor and Manpower component, due to delays at the design stage of the buildings. This is now 80% complete and no further problems are expected. Loan No Fifth Education Project; US$38.0 Million Loan of January 30, 1979; Effective Date: May 7, 1979; Closing Date: June 30, 1985 The project is designed to equalize access to lower secondary education throughout Malaysia and to improve the planning, implementation, and management capability of public administration. It will provide about 46,500 lower secondary school places in disadvantaged districts, and establish a Ministry of Education Staff Training Institute (MESTI) for administrative school staff and government education officials, as well as a new central campus and three new centers for the Public Administration Training Institute (INTAN) in Peninsular Malaysia. The project also provides technical assistance for the preparation of a long-term plan for occupational training and the development of new teaching programs at MESTI and INTAN. Sites have been acquired and site surveys are nearing completion. Contracts for architecture design services for MESTI and INTAN have been awarded.

38 ANNEX II Page 12 of 12 Loan No. 880 Population Project; US$5.0 Million Loan of February 9, 1973; Effective Date: June 21, 1973; Closing Date: December 31, 1981 The National Family Planning Board (NFPB), by activating the national and state level committees and subcommittees, has recently gained greater managerial control over the project implementation. With the creation of the Project Construction Coordination Unit (PCCU), the Government has succeeded in halting the slow progress in the civil works reported earlier. To date, 337 buildings out of a total of 571 have been completed and a further 104 are under construction. According to the revised schedule, construction of some facilities will be completed only by mid Due to this delay, the closing date has been extended to the end of Disbursements increased from 5% of the loan amount in September 1976, to 10% in June 1977 and about 46% in March Annual contraceptive acceptors rose from about 75,000 in 1976 to over 85,000 in 1978; more than 35,000 of these acceptors were reported to have been recruited through the integrated rural health facilities supported through the project. The percentage of women in childbearing age currently using contraception increased from 16 in 1970 to over 39 by Loan No Second Population and Family Health Project; US$17.0 Million Loan of July 17, 1978; Effective Date: December 15, 1978; Closing Date: December 31, 1983 The Government had met all the conditions precedent to making the loan effective on December 15, Momemtum created with activities undertaken to meet these conditions has contributed to the smooth beginning of the second project implementation. Creation of the Project Construction Coordination Unit (PCCU) with full-time staff has accelerated progress in preparatory civil works activities. All sites required for facilities scheduled for construction during the first year of the project have been acquired. Architect's briefs and sketch plans for most of these facilities have been completed and some tenders have been invited. NFPB has drafted the action plans for Family Planning specialist centers. Beginning mid-january 1979 limited clinical services and laboratory works have been started under the National FP Specialist Center (NFSC). Recent administrative realignment in the Ministry of Agriculture has created a greater supportive climate for women's development programs and this has accelerated civil works preparatory activities. However, unstable building prices, MOH's delayed decision on MCH/FP clinics and sporadic religious sensitivity to family planning are some of the potential problems that have to be watched closely.

39 ANNEX III Page 1 of 2 MALAYSIA MUDA II IRRIGATION PROJECT Section I: Timetable of Key Events (a) Time taken to prepare project: 2 years (b) Project prepared by: DID, MADA, MOA (c) First presented to the Bank: August 1976 (d) Preparation mission: August 1977 (e) Departure of appraisal mission: October 1978 (f) Completion of negotiations: April 1979 (g) Estimated date of effectiveness: September 1979 Section II: Special Bank Implementation Actions None. Section III: Special Conditions Special conditions of the project are: (a) MADA would prepare, by December 31, 1979, a detailed program for studies for review by the Bank (para. 44); (b) Consultants acceptable to the Bank would be employed as required for project implementation and studies, under terms and conditions satisfactory to the Bank (para. 45); (c) DID would prepare a designer's operation manual covering major project works (para. 51); (d) MADA would prepare and submit to the Bank for review by December 31, 1979, an operations manual for extension and other support services (para. 52); (e) By December 31, 1979, the Government would submit to the Bank for review a proposal for strengthening the crop protection program and would implement an agreed program by June 30, 1980 (para. 53); (f) All DID and MADA staff required to implement, operate and maintain the project would be appointed in a timely manner (para. 54);

40 ANNEX III Page 2 of 2 (g) The implementing agencies would maintain separate accounts for the project; these would be audited by auditors satisfactory to the Bank and forwarded to the Bank within nine months of close of each year (para. 54); and (h) Kedah and Perlis state governments would continue to collect irrigation charges, and the Government would from time to time exchange views with the Bank on the level of these charges (para. 58).

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