Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 6780

PROJECT PERFORMANCE AUDIT REPORT

PAKISTAN

SEED PROJECT

(CREDIT 620-PAK)

May 21, 1987

Operations Evaluation Department

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

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CURRENCY EXCHANGE RATES

Name of Currency RupeeAppraisal Year Average US$1 = Rs 9.9Intervening Years Average US$1 = Rs 10.5Completion Year Average US$1 = Rs 13.0

WEIGHTS AND MEASURES

1 acre (ac) = 0.405 hectaresI mile (mi) - 1.609 kilometersI pound (lb) = 0.454 kilograms1 maund (md) 37.36 kilogramsI metric ton (mt) = 26.80 maunds

ABBREVIATIONS

ADBP - Agricultural Development Bank of PakistanADC - Agricultural Development CorporationARC - Agricultural Research CouncilERR - Economic Rate of ReturnFAO - Food and Agriculture Organization (UN)FMA - Federal Ministry of AgricultureGOP - Goverment of PakistanHYV - High Yielding VarietyNRA - National Registration AgencyNRC - National Research CenterNSC - National Seed CouncilNSCA - National Seed Certification AgencyNWFP - North West Frontier ProvincePADSC - Punjab Agricultural Development and Supplies

CorporationPCCC - Pakistan Central Cotton CommitteePCR - Project Completion ReportPPAM - Project Performance Audit MemorandumPSC - Punjab Seed CorporationSSC - Sind Seed Corporation

SEED CLASSIFICATION(based on OECD nomenclature)

PRE-BASIC - seed of high genetic purity produced by the plantbreeder

BASIC - progeny of pre-basic seed produced by the SeedCorporations

CERTIFIED - progeny of basic seed certified by the SeedCertification Agency

APPROVED - seed true to species, multiplied from certifiedseed

FISCAL YEAR OF BORROWER

July 1 - June 30

THE WORLD SANK K0 * US ONLYWasington, D.C. 20433

U.S.A.

Ofke of OKctWGwalOpatinsn 1walwtm

May 21, 1987

MEMORAwUM TO TiE EXECUTIVE DIRECTORS AND "'RE PRESIDENT

SUBJECT: Project Performance Audit Report: Pakistan - Seed Projoct(Credit 620-PAK)

Attached, for information, is a copy of a report entitled"Project Performance Audit Report: Pakistan - Seed Project (Credit620-PAK)" prepared by the Operations Evaluation Department.

Attachment

This document has a restricted distribution and may be used by rcipients only la the perorenuceof their oMial duties. Its contents may not otherwise be oisclosed withrmt World Onk authorlation.

PROJECT PERFORMANCE AUDIT REPORT

PAKISTAN SED PROJECT(CREDIT 620-PAK)

TABLE OF CONTENTS

Page No.

Pref*p ********************************Basic Data Sheet ................................................. iiEvaluation Summary ................................................. iv

PROJECT PERFORMANCE AUDIT MEMORANDUM

I. PROJECT BACKGROUND .... . 1

Introduction ........................................... 1The Project ..... .................................. 1Project Cost **********************************.... 2

II. PROJECT IMPLEMENTATION AND OUTCOME ....................... 2

III. FINDINGS AND ISSUES . ..................... ...... 4

Overview ****************************************** 4Findings and Lessons ................................... 4

Attachments

1. Comments from the Ministry of Food and Agriculture ... o*.... 92. Comments from the Punjab Seed Corporation ..................... 113. Comments from the Federal Seed Certification Department *.... 15

PROJECT COMPLETION REPORT

I. Introduction ........................................... 19II. Seed Subsector ........ 00000000000000 .000000:00000000 19

III. Project Formulation .......................... 0...... 21IV. Project Implementation ................................... 26V. Project Justification .................................... 41VI. Institutional Development .*.........*.*.0000.0000000000 0 43

VII. Performance *...........................**........... . 43VIII. Project Impact .......................................... 6

Ixe conclusions ... *.0 ... **,...*.*.... 47

Annexes

1. Summary of Project Costs ................. ,* 492. Actual and Estimated Project Costs 000*6*600*000000000*000000 503. Actual and Estimated Disbursements by Category ***e*eeoe****o 51

ap IRD 11616 PPA

PROJECT PERFORMANCE AUDIT REPORT

PAKISTAN SEED PROJECT(CREDIT 620-PAK)

PREFACE

This is a Project Performance Audit Report (PPAR) on the PakistanSeed Project, for which Credit 620-PAK was approved in March 1976 for the sumof US$23.0 million. The project became effective on November 29, 1976. Itwas expected to be completed by June, 1980 and the Credit to be closed byDecember 31, 1980. There was substantial delay, however, and the Credit wasclosed Jrne 30, 1983, the project still incomplete. An amount ofUS$4,444,000 was cancelled March 21, 1984, following the last disbursement.

The audit report consists of a Project Performance Audit Memorandum(PPAM), prepared by the Operations Evaluation Department (OED), and a ProjectCompletion Report (PCR) prepared by the South Asia Regional Office.

The audit memorandum is based on a review of the Appraisal Report(No. 781a-PAK) of January 21, 1976, the President's Report (P-1778-PAK) ofMarch 2, 1976 the Development Credit Agreement of March 29, 1976, and theproject agreements with the provinces of Sind, Punjab and Baluchistan, alldated March 29, 1976.

Correspondence with the Borrower and internal Bank memoranda onproject issues have been studied and Bank staff associated with the projecthave been interviewed. An OED mission visited Pakistan in January 1986.Discussions were held in Islamabad, Lahore and Karachi with agriculturalofficials of the national and provincial governments and visits were made toSahiwal, Khanewal and Sarkand to inspect project works, review seed certifi-cation procedures and hold further discussions. Aspects of the seed systemwere also discussed with resident CIMMYT staff and others.

The audit agrees with the principal conclusions of the PCR withrespect to the limited impact achieved during the disbursement period. Theaudit also finds that the PCR covers the main features of implementationproblems encountered by the project entities, expatriate and local contrac-tors and Bank supervisory staff. The PPAM immarizes the objectives andresults of the project and examines issues related to project impact, genericproblems in estimating benefits, public and private sector roles in the seedindustry, processing plant design, and sustainability.

The audit gratefully acknowledges the assistance provided byofficials of the Ministry of Food, Agriculture and Cooperatives, the Agri-cultural Departments and Seed Corporations of the Provinces of Punjab andSind, cooperating agencies and project field staff.

A copy of the draft audit report was sent to the Borrower onNovember 12, 1986 for comments. Comments received have been incorporated inthe final report and are included as Attachments 1 - 3 to the auditmemorandum.

PROJECT PERFORMANCE AUDIT REPORT

PAKISTAN

SEED PROJECT(CREDIT 620-PK)

BASIC DATA SHEET

KEY PROJECT DATA

Original Actual orPlan current Estimate

Project Cost (U$M) 56.5 44.0 ACredit Amount (US$M) 23.0 18.6

Disbursed 23.0 18.6Cancelled - 4.4

Date for Completion of Physical Components 12/31/80 06/30/83 lbProportion Completed by Target Date (%) 100 80Economic Rate of Return (%) 82 30 AInstitutional Performance - Poor

STAFF INor(Staff ;eeks)

FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85

Preappraisal 1.0 27.6 0.6Appraisal 80.1 12.6Negotiation 0.2 24.7Supervision 6.1 24.5 50.8 47.4 26.3 24. 22.8 23.5 17.9 3.6Other 0.7 0.1

Total 1.0 108.6 44.1 24.5 50.8 47.4 26.3 24.2 22.8 23.5 17.9 3.6

CUMULATIVE ESTIMATED AND ACTUAL DISBURSMENS(US$14)

FY77 FY78 FY79 FY80 FY81 FY82 FMS3 FY84

Appraisal Estimate 1.5 8.7 19.0 22.6 23.0 - - -

Actual 0.2 0.7 5.1 11.5 14.8 16.2 17.8 18.6Actual as a % of Estimate 13 8 27 51 65 70 77 80Final Disbursement Date: 03/21/84

/a Estimated cast when project completed, tentatively 1986.75 Project was incomplete at Closing Date, June 30, 1983; two of the four processing

plants were badly constructed and their future replacement is planned by theborrower.

/c The audit considers an economic rate of return of 10-12% more likely (PPM, para.14).

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MISSION DATA

Month/ No. of No. of man Date ofItem Year Weeks Persons Weeks Report

Preparation 05/73Appraisal 11/74 5 6 30 01/21/76

Supervision 1 02/76 1 1 1 11/03/76Supervision 2 11/76 2 1 2 01/12/77Supervision 3 03/77 2 2 3 05/13/77Supervision 4 07/77 4 1 3 09/22/77Supervision 5 02/78 3 2 6 03/14/78Supervision 6 05/78 1.5 3 4.5 07/13/78Supervision 7 11/78 5 3 15 12/22/76Supervision 8 01/79 1 2 2 03/06/79Supervision 9 05/79 3 1 3 06/12/79Supervision 10 07/79 4 5 20 08/06/79Supervision 11 02/80 3 2 6 04/15/80Supervision 12 10/80 1 2 2 11/03/80Supervision 13 12/80 2 2 4 01/16/81Supervision 14 06/81 2 2 4 07/31/81Supervision 15 04/82 2 2 4 05/26/82Supervision 16 11/82 2 3 6 12/15/82Supervision 17 04/83 1 1 1 04/28/83

OTHER PROJECT DATA

OriginalItem Plan Revisions Actual

Conception in Bank 1972 - -Negotiations 09/75 - 09/75Board/Credit Signing 03/76 - 03/16/76Effectiveness 09/76 - 11/29/76Closing Date 12/31/80 06/30/82 06/30/83Borrower Islamic Republic of PakistanExecuting Agency Ministry of AgricultureFollow-up Project None

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PROJECT PERFORMANCE AUDIT REPORT

PAYISTAN SEED PROJECT(CREDIT 620-PAK)

EVALUATION SUMMARY

Introduction

The Pakistan Seed Project was the fourth IDA Credit for the devel-Z opment of the agricultural sector in Pakistan. The project was consistent

with the Government's 1975/80 Developmen t Perspective Plan which gave highpriority to the establishment of an effective seed industry. The use ofimproved seed of high yielding varieties was expected to increase crop pro-duction and thus enable farmers to realize greater benefits from their laborand other inputs.

Earlier attempts to establish a seed industry, first by thePakistan Department of Agriculture and later by the Agricultural DevelopmentCorporation (ADC), had not been successful. Generally unsatisfactoryperfor-ance by ADC led to its dissolution in 1972 and the subsequent transferof its major functions to provincial organizations. However, seed qualityboth physically and in genetic purity had continued to be inadequate.

Objectives

The Project was intended to be the first phase in the developmentof a modern seed industry in Pakistan. It involved research, varietyrelease, seed multiplication, processing, certification, storage and market-ing. The specific objectives were: to establish and equip Provincial SeedCorporations in Punjab and Sind and to finance pilot projects for vegetableand potato seed production in Baluchistan, Northwest Frontier Province (NWFP)and Punjab; to develop Corporation and private seed farms and to providetechnical assistance and training to the seed industry; and to establishand/or equip a National Seed Certification Agency, Registration Agency andResearch Institutes. Total project costs were estimated at US$56.5 millionwith a foreign exchange component ef about US$23.0 million (41%). IDAprovided a development credit of US$23.0 million and the remaining 59% ofproject cost was to be financed by provincial governments, local banks andseed growers.

Implementation

The delays and problems encountered during implementation severelylimited the success of the project. Only two of the four project-financed

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seed processing plants were satisfactorily completed, and with a three-yeardelay. The remaining two were se poorly constructed as to be unusable andmust be replaced. The Borrower intends to finance the additional construc-tion. The pilot vegetable and potato seed plants, smaller components, werefairly successful. The National Seed Certification Agency and the NationalRegistration Agency were established and have been moderately successful inensuring that seed of genetic purity and good quality is used in plant breed-ing and multiplication of seed for general distribution.

The PCR provides substantial background on the procurement andconstruction difficulties encounrered during implementation (PCR paras.4.01-4.25). Project implementation was marked by many differences betweenthe Ministry and PSC on one side, and the project consultants, equipment sup-pliers and civil works contractors on the other, in two instances ending inlitigation initiated by the latter. The adversarial relationship whichdeveloped seriously affected project implementation. The SSC had fewerimplementation problems in completing its single seed processing plant,benefiting in part from the experience of the PSC.

Results

In spite of the problems mentioned above, at project completionabout 44,500 tons of wheat and 23,500 tons of cotton seed were being pro-cessed annually and distributed by PSC and SSC-about 66% of the 103,000 tonappraisal projection for full development. However, much of this seed wasonly of "approved" quality because the delays in producing pure seed, and incompleting the processing plants, retarded large scale production of certi-fied seed. Institutionally, there has been progress in that staff haveobtained both training and experience in seed processing, and the certifica-tion systems now exist to handle large quantities of genetically improvedseed in the future (PCR paras. 6.01-6.03).

Sustainability

The procedures established for seed certification and quality con-trol, and staff training and experience achieved under the project, areexpected to provide a sustainable improvement for the seed industry ofPakistan. Seed certification now appears well established as an independentfunction. Whether the provincial governments will continue their presentlevel of support for the two parastatal firms will depend on budget andpolicy considerations as well as the effectiveness of these firms in provid-ing farmers with a reliable supply of quality seed in a timely manner.

Findings and Lessons

At this time, 10 years after approval, the project appears still tohave been of very mixed success. Much of the reason is found in theinability to develop relationships of full mutual trust between implementing

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entities of the Borrower and the contractors, consultants and the Associa-tion, As these relationships deteriorated, the solution of problems as theyoccurred became more difficult as evidenced by the history of the ill-con-structed processing plants (PCR parse. 4.18-4.19); the history of consultingactivities (PCR paras. 4.03-4.06, 4.15-4.17 and 7.04); and the activities ofcivil work contractors (PCR parse. 4.11-4.13) and equipment suppliers (PCRparas. 4.14 and 7.05).

Much of this set of problems could have been avoided by early deci-sive action on the part of the Association to avoid fragmenting the respon-siblity for construction, installation of equipment, testing, and initialoperation of the seed processing plants.

Plant breeding aspects were given belated attention because of theattention required by the processing problems. However, an eight-week visitof a seed expert helped to identify the breeding problems and catalyzed move-ment toward change (PCR paras. 4.28-4,29). Improvement of seed quality isbehind schedule because of delays in completing the new processing plants(PCR paras. 4.37-4.38). Because of these problems the benefits appear to bemuch less than projected at appraisal (PCR paras. 5.04-5.07). However, thedifficulties of estimating small yield differences over large and hetero-geneous geographical areas, as well as the problems of attribution, severelylimit what can be concluded about project impact (PPAM paras. 18-21). Theaudit also questions the appropriateness of project design with respect tothe degree of reliance on public sector entities for seed processing and dis-tribution (PPAM paras. 22-23).

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PROJECT PERFORMANCE AUDIT MEMORANDUM

PAKISTAN SEED PROJECT(CREDIT 620-PAK)

1. PROJECT BACKGROUND

Introluction

1. The Pakistan Seed Project was the fourth IDA Credit for the devel-opment of the agricultural sector in Pakistan. The project was consistentwith the Government's 1975/80 Development Perspective Plan which gave highpriority to the establishment of an improved and effective seed industry.The improved seed was expected to improve crop yieldi and thus enable farmersto realize greater benefits from their labor and other inputs.

2. Earlier attempts to establish a seed industry, first by thePakistan Department of Agriculture and later by the Agricultural DevelopmentCorporation (ADC), had not been successful. Generally unsatisfactory per-formance by ADC led to its dissolution in 1972 and the subsequent transfer ofits major functions to provincial organizations. However, seed quality bothphysically and in genetic purity continued to be inadequate.

The Project

3. The project was formulated by GOP with the assistance of an FAOCooperative Program (FAO/CP) mission which visited Pakistan in the Spring of1973. Following a subsequent policy decision by GOP to exclude privatesector participation, and to make agriculture a Provincial responsibilityinstead of a Federal one, the Provinces submitted to IDA, in the Fall of1974, separate proposals modifying those contained in the FAO/CP Report.

4. The Pakistan Seed Project was intended to be the first phase in thedevelopment of a modern seed industry in Pakistan. It involved research,variety release, seed multiplication, processing, certification, storage andmarketing.

5. Spe"ifically the project was expected to:

(a) establish and equip Provincial Seed Corporations in Punjab and Sindand finance pilot projects for vegetable and potato seed productionin Baluchistan, Northwest Frontier Province (NWFP) and Punjab;

(b) develop Corporation and private seed farms and provide technicalassistance and training to the seed industry; and

(c) establish and/or equip a National Seed Certification Agency, Regis-tration Agency and Research Institutes,

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6. Commercial. scale operations were to be undertaken by two new Pro-vincial Seed CorporatZions - one each in Punjab and Sind Provinces. Improvedseed was to be grown )y registered farmers and the Corporation farms for atotal of 28,000 ha of cereals, and about 99,000 ha of cotton, assisted byexisting research institutes and under supervision of the two Corporations.Seed quality was to he controlled mainly through two new national institu-tions - a National Seed Council and a National Seed Certification Agency.The potato and vegetable seed pilot projects in Punjab, NWFP and Baluchistanwere to be the responsibility of the respective Provincial Departments ofAgriculture. Annual seed production at the end of the five-year projectperiod was expected to be about 103,000 tons, including 60,700 tons of wheat,36,500 tons of cotton, about 2,500 tons each of rice and maize, plus smallamounts of other crops.

Project Cost

7. At appraisal, project cost covering a five year disbursement periodwas estimated at US$56.5 million with a foreign exchange component of aboutUS$23 million (41%). IDA provided a development credit of US$23.0 million.The remaining 59% of project cost was to be financed by provincial govern-ments, local banks and seed growers.

8. Project investments were to include construction of seed processingplants, seed storage, administrative buildings, vehicles, and farm develop-ment and machinery for the Seed Corporations; development of seed growers'farms including tubewells and farm machinery; assistance to Research Insti-tutes; pilot project operations; laboratory buildings and equipment, facili-ties for variety trials, and supervision vehicles for the National SeedCertification Agency and the Registration Agency (an arm of the National SeedCouncil) and substantial technical assistance and training. The latter wasto include consultants' services to help in seed production, processing andpilot project activities; engineering advisory services; and training oflocal personnel overseas in seed industry technology and management.

II. PROJECT IMPLEMENTATION AND OUTCOME

9. Overall, the delays and problems encountered during implementationseverely limited the success of the project. Only two of the four project-financed seed processing plants were satisfactorily completed, and with athree-year delay. The remaining two were so poorly constructed as to beunusable and must be replaced. The Borrower has the intention of financirgthe additional construction from its own resources. The pilot vegetable andpotato seed plants, smaller components, were fairly successful but continuingsupport will be necessary if a vegetable seed industry is to develop.

10. The National Seed Certification Agency and the National Registra-tion Agency were established and are instilling some discipline in the indus-try, ensuring that seed of genetic purity and good quality is used in breed-ing seed for general distribution and controlling the varieties of crops bred

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and developed. However, the delay in producing pure seed, and the processingplant problems retarded the commercial production of certified seed. ThePunjab Seed Corporation (PSC) did produce large amounts of seed of partiallyimproved qualitl using rerted equipment, but only a fraction of targets.

11. The PCR provides substantial background on the procurement andconstruction difficulties encountered during implementation. Project imple-mentation was marked by many differences between the Ministry and PSC on oneside, and t'e project consultants, equipment suppliers and civil works con-tractors on the other, in two instances ending in litigation initiated by thelatter. The adversarial relationship which developed seriously affectedproject implementation. Another important factor was some ambivalence towardthe project by those involved in the seed industry. Many farmers, commercialinterests, civil servants and others held the opinion that the seed industrywas already both adequate and prosperous. As project implementation pro-gressed the difficulties experienced, particularly those of the seed plants,may have reinforced these reservations, which were in a way self-fulfilling.Moreover, this was the first venture of the Ministry of Agriculture and thetwo seed companies in a Bank-Group financed project. Consequently, they wereunfamiliar with Bank principles and procedures, a situation which exacerbatedthe difficulties.

12. In evaluating performance of the Borrower, consultants, contrac-tors, equipment suppliers and the Association, the PCR provides a criticalbut fair analysis of the role of each, particularly with respect to estab-lishing the processing facilities (PCR paras. 7.01-7.11).

13. In spite of the above problems, the audit found that some progresshad been made toward the objectives of modernizing the seed industry andincreasing crop yields. There has been a fair level of continuity in projectstaff and a good level of commitment in the provincial corporations forcontinuing and strengthening the seeds system. The Punjab plant at Khanewaland the Sind plant at Sarkand are in operation, and processing sizablequantities of approved seed and some certified seed. At the Sahival plant,which is still in litigation because of construction defects, the first flooris being used for seed cleaning. The R.Y. Khan plant is now under construc-tion.

14. In view of the delays and problems mentioned above, the economicrate of return will certainly be lower than the 82% estimated at appraisaland will likely fall below the tentative 30% figure suggested in the PCR.While the outcomes are still highly unprediatable given the uncertaintiesinvolved, there is nevertheless the possibility that the project can bemarginally successful, perhaps in the range of a 10-12% return. However, itcould be less (see also paras. 3.04-3,07).

III. FINDINGS AND ISSUES

Overview

15. The audit f inds that the PCR prepared by the South Asia RegionalOffice of the Bank provides a generally comprehensive and accurate report ofthe .project experience. However, the assessment of project impact is stillprovisional because of numerous implementation problems, described in detailin the PCR, including the fact that two of the four seed processing plantsare not yet completed.

Findings and Lessons

16. The review of project experience does raise issues and reveallessons of experience that deserve specific mention as they are of concernbeyond this project. These include: project impact, level of precision inestimating benefits, the roles of the public and private sectors, processingplant design and sustainability.

17. Project Impact. During the project period, national statisticsindicate that average yields of cotton and wheat improved substantially.However, how much, if any, of this increase can be attributed to the projectis not known. Only two of the four project-financed seed processing plantswere completed, and with a three year delay. In the meantime, the seed cor-porations have used existing facilities to process annually 44,500 tons ofwheat seed and 23,500 tons of cotton seed--about 66% of the 103,000 tons ofthe appraisal estimate for full development.

18. Limitations of Precision in Estimating Benefits. At project com-pletion the PCR reestimated the economic rate of return at 30%, a substantialdecrease from the appraisal estimate of 82%, and probably too optimisticconsidering the many delays and defective works (see para. 2.06). Why theproblem of estimating ERR on a seeds project? On the cost side of the equa-tion, the reestimation of ERR at project completion is straightforward.Costs are systematically recorded by project accountants as part of normaladministrative procedure. In this case project costs, including estimatesfor completing the two defective plants, were 21% less than anticipated.However, the savings were entirely in research and pilot components, techni-cal assistance and training and credit for seed growers farms. The costcategories for the Punjab Seed Corporation and the Sind Seed Corporation weresomewhat in excess of estimates. Nevertheless, the crux of the problem is onthe benefit side of the equation. The economic benefits are much more diffi-cult to quantify and particularly so in a seeds project.

19. At appraisal in this project, the estimate of benefits was based onan assumed increase in crop yield by the end users (farmers) that could beattributable to project-produced seed. It was estimated that the use ofimproved seed from the project would result in a yield increase of 20% formaize over a 3-year replacement period, and 10% for wheat, rice and cotton

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iver a 5-year replacement period. The yield increment for maize was epectedto be higher because traditional varieties would be replaced by HYVs; inother crops HYV areas would be virtually unchanged but seed would be ofhigher physical quality and varietal purity. In the case of cotton, theimproved seed and varietal zoning to be enforced were expected to result in asignificant improvement in fiber quality in addition to the increase in cropyields. The improved staple length and uniformity were expected to commandat least a 10% premium in the market. Further, it was assumed that at fulldevelopment about six million hectares, farmed by 2.1 million farmers, wouldbenefit. The annual increase in production of commercial grain was estimatedat 640,000 tons valued at US$120 million. The incremental benefit fromcotton was valued at US$170 million annually, one-half of which is attributedto increased production and the other half to premium price on improved lintquality.

20. At project completion the revised ERR was calculated taking foreconomic benefits the yield and price increments postulated at appraisal, andassuming that the two seed processing plants which were successfully builtand became fully operational for the 1984 crop season would produce the p,o-jected quantity of quality seed. The exercise used projected seed productionwith a lag of five years, commencing 1979. On this hypothetical basis theERR would be 30% versus an ERR of 82% at appraisal.

21. It should be made clear, however, that with present samplingmethods it is very difficult to measure accurately the 2 to 7% annual yieldincrements that are postulated. Also, there is no certainty that such dif-ferences are attributable to improved seed processing financed under theproject. In this type of project, measurement is especially difficultbecause the expected production increase is based on a small yield increaseper hectare over a vast and heterogeneous geographical area. Thus the auditrecommends caution in relying on use of reestimated ERRs derived from thistype of benefit data for anything further than a statement of project poten-tial.

22. Project Design: Public and Private Sector Roles. The feasibilitystudy, carried out for the Government in 1973 by FAO/CP, recommended that theprivate sector develop the seed industry. Initially, Government and Bankaccepted the private sector recommendation. However, the Government even-tually decided on public ownership, over the objections of the Bank's projectstaff and FAO/CP. At this time, Government also made agriculture a provin-cial responsibility rather than a federal one. Consequently, in 1974 theprovinces submitted proposals modifying somewhat those of the FAO/CP report.The project was appraised following this, in November 1974. In the two maincrop-growing provinces, the Punjab Seed Corporation (PSC) and the Sind SeedCorporation (SSC), were established as successors in a sense to the earlierstate seed authorities. As already documented in the PCR, the results,havefallen short of expectations, probably due in part to this decision.

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23. In the opinion of the audit, the project experience supports theconclusions of two early studiesl/ 2 / with respect to the relevant roles ofthe public and private sectors iriadeveloping seed industry. In most cases,crop breeding and initial seed increases will need to be carried out byGovernment institutions or with their assistance. However, the large scaleproduction and marketlng of the seed can usually be done most effectively bythe private sector, bcause of special management problems generic to theseed industry, such as the following: (a) both seed production and marketingare seasonal; (b) unlike conventional manufacturing where most processes areunder complete control, with seeds there are frequent changes of varieties,differing climatic conditions, and varying threats of disease and pests whichforce sudden changes in production technology; (c) production is dispersedover large areas and involves many seed growers who vary in experience andcapability, and (d) the end product-seed-is a living material that must behandled and stored carefully, and used before it dies. This kind of industrydoes not lend itself well to the limitations of normal bureaucratic proce-dures, working hours, and financing.

24. Processing Plant Design. At the time of project preparation andappraisal, the conceptual framework for processing plant design was influ-enced by the large seed industries in the western world and more specificallyby the successful experience of the Tarai Seeds Project in India, the firstseeds project with Bank financing. The approach used in the Pakistan SeedsProjects was essentially an attempt to create a modern seed industry with asmall number of very large processing plants each surrounded by contract pro-ducers in a relatively compact area nearby.

25. This approach is very similar to that of a typical sugar mill wherethe plant is located in the center of an intensive producing area in order tokeep down the high costs of transporting bulky raw material to the mill. Inseeds, however, the reduction in bulk and weight at the processing plant isinsignificant in comparison. It is also desirable to keep seed productionand processing near to the farmers who will be using the seed, for severalreasons including reduction of transport costs. This suggests the alterna-tive, also mentioned in the OED Impact Evaluation Report cited earlier, of adecentralized system with a large number of local small pr:- ate firms orcooperatives to carry out the seed production, processing and diatributionfunction while retaining the government role in plant breedi-ig, basic seedsupply and seed certification/quality control.

26. Sustainability. The audit considers the seed certification andquality control achievements of the project highly sustainable. Certifica-tion is the main way of assuring the farmer that he is receiving genetically

1/ Impact Evaluation Report of India Tarai Seeds (Loan 614-IN) andIndonesia Seeds I (Credit 246-IND), Operations Evaluation Department,World Bank, 1986 (not yet published).

2/ Successful Seed Programs: A Planning and Management Guide, Chapter 4.Johnson E. Douglas, Westview Press, 1980.

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pure seed of the variety identified on the label. Seed certification is nowwell established as an independent function. Whether the provin,tal govern-ments will continue their present level of support for the two parastatalfirms will depend on budget limitations and policy considerations as well asthe effectivenees of these firms in providing farmers with a reliable supplyof quality seed in a timely manner.

IPAGE

IS LAN

-9-ATTACHMENT 1

PAKISTAN

PAKISTAN SEED PROJECT (Cr. 620-PAK)

Comments of the Ministry of Food and Agricultureon the Project Comletion Report

Para 3.09: The role of FMA seems to have been confused with that of the SeedProject Coordination Committee (SPCC). The Committee was set up at Federallevel to perform functions as laid down in para 17 and chart 3 of Annexure 10of the final Appraisal Report. The composition of the Committee which hadrepresentatives of all the implementing agencies also had approval of theWorld Bank. The matters like award of contract, etc., came before theCommittee during the review of the progress of the project, one of itsresponsibilities on the feedback of implementing agencies and the decisionsmade by it had consensus of opinion of all the implementing agenciesinvolved. Therefore, the overall supervisory role was performed by theCommittee and not FMA alone and execution of the project rested with theagencies concerned.

Para A.U: The rules prevailing in the country did not allow exempt4on oftaxes and import duties on the cars and private goods of the Consultant.However, the GOP had guaranteed reimbursement of such duties in the agreementsigned with them.

The GOP tried its best to resolve the currency dispute amicablywith the consultants and agreed to submit it to the arbitrators with regardto interpretation of section 3.01 of the Consultancy Agreement. The GOP evenexpressed its willingness to make payments subject to the conditions that theConsultants would furnish undertakings in writing that in case thearbitrator's award was given in favor of GOP, they would refund the excessof US dollar spent on the purchase of DM and that they would not leave thejob unfinished if maximum limit of the US dollar mentioned in section 3.01of the agreement was reached prior to the award of arbitrators. But theConsultants refused to do so. Accordingly, deductions on account offluctuation in exchange rate between dollar and DM were started.

Par 4.06: The contract with the successive Joint Venture was signed withinabout three months after consulting various government agencies. As far as

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entrusting of responsibilities to the partners of the Joint Venture isconcerned, this was agreed to mutually by the parties concerned of JointVenture.

Parg 4.10: The bid evaluation for Sind Seed Corporation was done by the SPCCand not by FNA.

Para 4,15: The GOP was ready to pay in bidders currency on the exchange ratespecified in the Consultancy Agreement.

Par 4.16: The notice of Termination was given by the Consultants undersection 6.05 of the Consultancy Agreement. Under section 6.06 of the Agree-ment in case of termination pursuance to section 6.05 no payment was to bepaid to them except for the services satisfactorily performed. The GOP wasnot satisfied with the services rendered by them and hence the claimsremaiued unsettled. The Consultants after termination of the contract choseto resolve the dispute through arbitration and a case in this connection issubjudice in the court of Senior Civil Judge, Lahore.

Para 4.17: The Punjab Seed Corporation and Sind Seed Corporation both signedagreement with a new consultancy company to get the incomplete work done.

Para 7.01: As indicated earlier the performance of SPCC has been confusedwith that of FMA.

Para 7.02: The supervision was conducted by the Consultants throughout thecurrency of the agreement. However, Punjab Seed Corporation also employedits own engineers to supervise work independent of the Consultants engineerin order to strengthen the supervision. PSC was organised on the linessuggested in the final appraisal report. It was unfortunate that Departmentof Civil Work was not recommended in the appraisal report and this departmentwas established by the corporation later on.

Para 7.04: The evaluation of the performance of the Consultants would notbe complete unless the report of July 1979 by their own Senior Civil Engineeris taken into consideration which broadly list their failures of the process-ing sites of the Project. In our view the Consultants are guilty of select-ing sites for seed processing plants prior to soil investigation report,wrong preparation of bills of quantites, rendering improper services inrespect of tender documents, uncarefully and improperly pre-qualifying civilwork contractors, under designing the plant buildings, recommending oversizedmachinery, poor contract supervision and management and wrong verification ofcontractors' bill, etc.

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PAISTAN

PAKISTAN SEED PROJECT (Cr. 620-PAZ)

Comments of the Punjab Seed Corporationon the Proiect Coaletion Renort

PAges i-iv: We generally agree that the Seed Industry could not bemodernized for want of installation of Seed Processing Plants. The otherareas like development of Corporation Farms, streamlining of procedures ofprocurement and multiplication, etc., have however, been taken care of.

Para 3.14: The entire award of contracts regarding civil works and process-ing machinery was finalized with the advice and guidance of the experts ofthe World Bank.

Para 4.07: We do not agree that procurement of machinery markedirregularities due to PSC proceedings and delayed payments. Problemsconnected with the payments were sorted out and it in no way resulted indelay in the completion of the project.

Para 4.09: It may be mentioned that the World Bank accorded clearance tothe appointment of two consultancy companies. One became bankrupt and theother formed a Joint Venture with another Consultant with clearance from theWorld Bank. The Consultants' new Joint Venture proved a failure and involvedthe Seed Corporation in endless litigation. The designs of the buildingswhich were prepared in advance were also not in conformity with the machineryto be installed. The soil bearing capacity at the plant site was also notknown at the time of preparation of the designs. Wrong selection of contrac-tors by the Consultants made the matter worse. The Consultants those toselect in-experienced, incompetent and financially unsound contractors byputting unrealistic conditions for the award of contracts. The completionperiod of seven months for instance, could not be acceptable to any soundfirm. The pre-requisite of having construction machinery, shuttering, etc.,were also relaxed/overlooked in favour of the selected contractors contraryto the advertisement in the newspapers.

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Para 4.11: The Seed Processing Plants at Sahiwal and R.Y. Khan were notabandoned, however, the defective buildings were declared unfit and it wasdecided to reconstruct these buildings. The works at R.Y. Khan have alreadybeen started and are expected to be completed by 1987.

Para 4.12: It is not correct to say that the PSC is responsible for thebuildings due to poor contract administration. Contract administration wasthe exclusive responsibility of the Consultants. There was no delay in theprocurement of equipment and the escalations due were paid, (para 4.12 L).

Para 4.14: All problems with the equipment suppliers were sorted out intime. If there were any problems in this behalf these were dua to delay inconstruction of building, (para 4.14 LD .

Para 4,20: Inspite of the serious problems into which the PSC ran it hasdone a good job in as much as the plant at Khaneval has been completed andis functioning, the work at Rahimyar Khan has gone up to over 40% and workat Sahiwal is about to commence very shortly (para 4.20 LU.).

Para 4,37: We do not agree that the quality standards have not been adheredto. A statement showing qualities of certified seed at the National SeedCouncil Standards is attached as Annexure 'A' and will prove that we haveachieved National Seed Standards to a fairly large extent. The standards ofgenetic purity were also achieved in respect of basic seed produced at theCorporation Farms. The pre-basic seed produced at the Corporation Farmsunder the supervision of the breeders is also 100% pure now. Certainrelaxations in case of standards of certified seeds were sought but thesewere in the national interest to meet the requirement of the farmers, whichdoes happen during the initial years (para 4.37 114.

We do not agree with the view that cotton yields at KhanewalFarms are traditionally high. It is the sustained hard work put in by thePSC, which has resulted in increasing the yields from 15.69 ads/acre (pre-PSCperiod) to 39.34 mds/acre (the present level). The yield obtained at theFarm are three times as much as the national average. It may, however, benoted that the report referred to in the PCR is semi-technical in nature andwas not prepared for the World Bank Review Mission. (Text modified,para 4.37.)

The Punjab Provincial Cooperative Bank (PPCB) was involved inthe seed distribution system with a view to supplying seed to CooperativeSocieties through them. The experience has not been a happy one and it isnow under consideration to involve the Rural Supply Cooperative CorporationLtd., which have come in commercial business of inputs with the backing ofCooperative Banks. The Punjab Agricultural Development and Supplies Corpora-tion and private dealers, however, continue to assist the Punjab SeedCorporation in marketing its seed. (Text modified, para 4.37.)

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Paras 4.42 to 4.45: A break-through has been achieved in production ofdisease froe potato seed from autumn-to-autumn cycle at Sahival Farm, where'virus-free potato seed is now being produced for the last few years. Thisseed has been successfully used at farmers fields for growing disease freepotato crop. The PSC is now planning to go in for large scale production ofvirus and disease free potato seed through the technology developed.

Para 4.47: It is incorrect to say that subsidy given by the Government hasresulted in increasing the profit of the Punjab Seed Corporation. In factsubsidy is given for the farmers and it is being passed on to them in theshape of reduced cost price of seed.

Para 4,49: An effort was made to find out the credit requirements of thefarmers against the loan allocated by World Bank against this head. Theregistered growers, in most of the cases, were already having this facilityfrom the Goverment, through Agriculture Development Bank of Pakistan,Cooperative Societies, etc., and were reluctant to avail this interestbearing credit. Later the amount allocated under this head was transferredby World Bank to Seed Processing Plant Machinery for meeting the escalations,etc.

Para 4,51: It would be unfair to say that the Seed Project has not beenimplemented in letter and spirit. There were weaknesses in the system which*are being attended to. The judgement is certainly premature.

Para 6.03: PSC feels that farmers are appreciative of the work done by thePunjab Seed Corporation especially for cotton seed supply, the credibilityof which stands established. For other major cereal crop seeds it hopes toachieve the same after completion of the seed plants. Government of Pakistanhave encouraged the private sector to meet the requirements of the farmers inrespect of vegetable and other minor crop seeds not handled by the PunjabSeed Corporation. Some of the private seed agencies did undertake major cropseeds like cotton but have failed to establish the same level of credibilityas the Punjab Seed Corporation. The World Bank follow up missions as well asthe Government has recognized the good work done by the Punjab Seed Corpora-tion as is evident from the reports attached as Annexure 'B' to thesecomments.

Para 8.01: Punjab Seed Corporation does not agree with the World Bank view-point that management and technical staff of the Punjab Seed Corporation isnot comparable to that of Sind Seed Corporation. In fact, we are quite aheadof Sind Seed Corporation in our seed programme. We are meeting a part of theSind Seed Corporation's requirement for basic and certified seeds of wheatand cotton. This demand is increasing in size every year.

Paras 9.01 to 9.04 (CONCLUSION): Seed Processing Plants were only one partof the Project. The Project also included development of PSC farms, develop-ment of registered growers farms, streamlining of seed multiplicationsystems, etc., with the ultimate objective of accomplishing targets to anappreciable extent thus taking PSC from the nascent pre-project stage towardsestablishing a reasonably modern commercial seed industry for the country.

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The project has no doubt suffered from delays/high costs andlegal wranglings in the initial stages but the provincial government and thePSC are resolved to complete the Project with a view to achieving breakthrough in the field of Agricultural Production which is the ultimateobjective.

The objective of establishing a full scale seed industry has beeriachieved to a considerable extent, thus ensuring a continuing supply of purehigh quality seed and removing many of the uncertainties and inadequacies toa great extent. The project experience has ended the confusion about theviability of the Project amidst a whirlpool of not entirely called forcritism against the PSC which during the stage of infancy has been throughmany teaching problems.

The expanse of seed production activities of the Corporation canbe estimated from the fact that total sales stand at about Re 30,00 croresin tye year, 1984-85 as against Re 78 lace in the year 1977-78. Seeds ofgenetic purity and better quality in sizeable quantities have been providedto growers from the pre-project levels. The discipline exercised in thisfield has had a wide national impact in bringing about the much needed aware-ness in the farmer community. All this has been achieved inspite of theinherited problems in the completion of the Processing Plants.

The PSC is a pioneer seed project of the World Bank and it shouldnot be given a stop motherly treatment especially when it has been nursed allthese years and in the end denied the much needed funds (20% of the originalcredit). The Rahinyar Khan Plant is likely to become operational .in nearfuture. The work on Sahival Plant is in progress.

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ATTACHMENT 3

PAKISTAN 8ED PROJECT (Cr. 620-2"1

Comments of the Federal Seed Certification Departmenton the PrEiect Comnlation Renort

hKar 2.01: As an outcome of the Seed Industry Project, all of the fourclasses were subject to quality control by the Federal Seed CertificationDepartment. Therefore, the following ay be added on page 2, after approvedclass.

"All the above four classes of seed were subject toquality control by Federal Seed CertificationDepartment."

Para 4.,9: The methodology for production of vegetable seeds and theirprocessing seems to be completed successfully but on the marketing side, thestudy for the demand and sale of such seed has not been carried out. As aresult, seed produced worh US$75,000 could not be disposed due to marketinginefficiency which resulted in carryovers year after year. It should havebeen better if the study of marketing component should have also formed apart of this Project.

PAA 4.42: The introduction of the uid-hills in the seed production schemewas later on found defective because of Msg Per&1a population built upin the mid-hills. Therefore, this area has been excluded from the sequenceof seed potato production programe.

PAra .34: The registration was a new system being introduced in thecountry. The Department persuaded the crop breeders at Provincial ResearchInstitutes to provide seed material of varieties for pre-registration check-ing and by the end of 1981, after conducting preliminary trials, all existingcommercial varieties of what had been registered. Similarly, the work onother important crop varieties was taken up with the availability of moretechnical staff and those were registered/notified.

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PROJECT CMPLETION REPORT

PAKISTAN

SEED PROJECT (CREDIT 620-PAK)

South Asia Regional OfficeGeneral Agriculture I Division

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PAKISTAN

PAKISTAN SEED PROJECT (Cr. 620-PAK)

PROJECT COMPLETION REPORT

I. INTRODUCTION

1.01 The project was the fourth IDA Credit for the development of theagriculture sector in Pakistanp aside from irrigation development undermultipurpose projects. The previous three projects for agricultural creditwere all made to the Agriculture Development Bank of Pakistan (ADSP),Cr. 76-PAK (1965). Cr. 117-PAK (1968) and Cr. 457-PAK (1969)p aggregatingUS$67 Million. They assisted farmers to finance agricultural implementsttractors* tubewells, farm improvements and the like. The first two creditswere successful, but the third experienced difficulties. Howeverp a sub-sequent fourth credIt to ADOP was fully successful and a fifth is proceedingon schedule. Bank-Group projects assisted in financing four multipurposeprojectsp including Mangla and Tarbelap under the Indus Basin Developmentprogram, aggregating US$176 million.

1.02 Agriculture accounts for about 40% of GDP# 40Z of export earnings,and employment of 85% of the country's labor force. Wheat# rice, cotton andsugarcane are predominant. In 1974, when the project was appraised, therewere about 4.9 million farmers cultivating a total of 49 million acres.Pakistan had the largest irrigation system in the world* Howeverp unimprovedirrigation technology and cultivation methodst the occurrence of large areasof saline or water logged soils, shortage of draft.powerv and the lack ofhigh quality seed and other inputs have resulted in low crop yields; produc-tion of wheat per acre in Pakistan was little more than half that of the USAtand rice about 25%.

1.03 Agriculture policy had been defined within the framework ofDevelopment Plans. Under the 1975-80 Plant agriculture and agro-industrywere emphasized and the need for providing farm inputs, in particular highquality seedt was stressed. The provision of good seed, nationwidep becamea major objective of GOP's agricultural policy*

II. SEED SUBSECTOR

2.01 The classes of seed are listed below for reference.

- pre-basic (nucleus) seed is pr-oduced under control of the plantbreeder, and is of high quality and purity;

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- basic (foundation) seed is the progeny of pre-basic seed;

- certified seed is produced from basic seed;

- certified seed (second generation) is the progeny of first generationcertified seed; its production is supervised and quality approvedby the certifying agency to the standards set for that crop variety;and

- approved seed is true to species and of at least the minimal qualityprescribed for the particular crop variety.

The four classes of seed were subject to control by the Federal Seed Corpora-tion system.

2.02 The Agriculture Development Corporation (ADC), constituted in 1962,was historically the main producer and distributor of seed. Constrained inits effort to obtain experienced staff, and forced to carry out Government(seed) policies sometimes inimical to financial viability, includingunrealistic practices for the procurement and distribution of fertilizer, ADCproved unsuccessful. Pre-basic seed from Government research institutes wasmultiplied on ADC basic seed farms and then on registered grower farms.However, the quantity of seed procured and distributed, after initiallystarting to increase, declined because of poor quality. The Department ofAgriculture had retained the best seed farms as research stations, ratherthan turn them over to ADC as was the intention. The quantity of pre-basicseed ADC received was small and of poor quality. ADC therefore purchasedbasic seed from private farmers, but it was often not of basic seed quality.Moreover, the seed certification apparatus was not properly organized andmanaged. There was no grower selection process, firm contracts were not madewith the farmers who grew the seed, and the premium ADC gave farmers was toosmall an incentive for them to give the crop destined for seed replicationthe necessary care, and earmark it for ADC. The consequence was that adul-terated seed was common on the open seed market. Seed was generally neithercleaned, processed or graded, but only threshed and winnowed in the tradi-tional manner. It was stored in almost any conceivable facility, even in theopen when necessary.

2.03 In any case ADC was not financially viable, given its non-commercialquasi-Government status and Government interference and control, and it hadto be subsidized. Eventually, ADC was broken up and replaced by state ownedcorporations, which acquired ADC's assets and personnel. The state companiesexperienced the same difficulties and problems that beset ADC and the seedproduced continued to be of poor quality. Cotton exporters, on the otherhand, supplied their growers with (good) seed, having established a distribu-tion system for this purpose (as well as for other farming inputs), incontrast with the limitations of the Government operated seed enterprises.

2.04 Under the circumstances farmers sowed their own seed; only a smallfraction bought it, from whatever source available, except cotton farmers whogenerally purchased it. Indicative of what quality seed could do were theresults obtained from the good quality, high yield wheat seed (HYV) importedin 1968 of which about 1.2 million acres were sown. The yield was so

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improved that its use spread rapidly, and 9 million acres were eventuallyplanted. Yields subsequently declined due to the deterioration in seedquality caused by admixture with other seed, as it was not possible to main-tain HYV basic seed quality with all the defects of the established system.It was in recognition of this state of affairs that the seed project wasdevised.

III. PROJECT FORMULATION

3.01 To lay a sound foundation for growth, given the very poor base, theproject was designed to provide finance for setting-up of a seed system forthe large scale production of seed of the main cereal crops: wheat, (includ-ing HYV varieties), rice, maize, and cotton, the main cash crop. The Foodand Agriculture Organization of the United Nations (FAO) made a feasibilitystudy in 1973 under the auspices of the FAO/CP (Cooperative Program with theWorld Bank). The Bank and Government accepted the FAO Report, withexceptions.

3.02 One of the principal FA0 recommendations was to have the privatesector develop the new seed industry. FAO listed four alternatives in orderof merit: private enterprise; cooperatives; a semi-autonomous agency; and,lastly, a government agency. Government and Bank accepted the private sectorrecommendation. However, discussion in favor of public ownership developed.Eventually, the Government decided on public ownership, over the strong andcontinuing objections of the Bank's project staff and FAO. It was obviousfrom the history that public ownership of -he seed industry had not worked,and the Government, FAO and the Bank were all aware of this. Bank stafftried to improve the prospects of success of public ownership by introducingundertakings of a safeguard nature in the project legal documents, but to noavail. The weaknesses of public sector ownership were to largely nullify theproject.

3.03 GOP then elected to make agriculture a provincial responsibilityrather than a federal one. Consequently, in 1974 the Provinces submittedproposals somewhat modifying those of the FA0 Report. The project wasappraised following this, in November 1974. In Punjab and Sind, the maincrop growing Provinces, the Punjab Seed Corporation (PSC) and the Sind SeedCorporation (SSC), successors to the state seed authorities, were to beestablished. They were to develop lands provided them into seed farms,undertake multiplication of basic seed from pre-basic seed supplied by theresearch institutes, supervise the selection of farmers who were to producecertified seed under contract and be registered as such, provide advice on,and supervision of, the growing of seed crops, and process all basic andcertified seed, including their procurement and sale.

3.04 PSC and SSC were to gin seed cotton from the basic and certified seedcrops. Approved cotton seed from other than Corporation supervised farmswould be ginned at existing private ginneries, the Corporations contractingfor that part of the crop destined for seed. Delinting, cleaning, treating,packaging and storing would also be done at Corporation plants.

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Project Content

3.05 The project included the following:

- Seed Corporations: (i) four seed processing plants, three locatedin Punjab and one in Sind, with annual throughput of 19,100 tons ofwheat in each of the former, and 16,000 tons of cotton in two ofthem, and 9,400 tons wheat and 8,500 tons cotton in the latter; and(ii) development of basic seed farms: land levelling, tubewells,farm machinery, vehicles, workshops and other buildings;

- Seed Growers Farms: farmer related investment in tractors, farmingimplements, tubewells and land development;

- National Seed Certification Agency (NSCA): offices, seedlaboratories, vehicles and operating costs;

- National Seed Council (NSC): similar provisions as for NSCA above;

- Research and Pilot Projects: Research equipment and pilot projectsfor growing potatoes and vegetable seeds, located in Baluchistan,NWFP 1/, Punjab, and Baluchistan.

- Technical Assistance and Training: provision of 33 man-years ofexpertise in seed processing and production, quality control andpilot projects. This encompassed siting, design, specifications,procurement and supervision of construction for seed processingplants and other project related facilities, expertise to assist inthe initial operation of the plants, head up the pilot projects anddevelop seed industry registration, certification and breeding/reproduction cycle capacity and organisation. It was a majorconsulting undertaking.

Cost Estimates

3.06 The estimated cost of the project was US$56.5 million of which US$23million foreign exchange, including physical contingency of 3% and pricecontingencies aggregating 42%, averaging annually 9%.for equipment and serv-ices and 13.5% for civil works. A summary of the estimated costs is providedin Annex 1.

1/ Northwest Frontier Province.

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3.07 Financing PlanProvincial Seed

IDA Governments SBP /a Growers Total(US MilTlions)

Seed Corporations 8.7 15.5 24.2Seed Growers 4.0 2.4 2.4 8.8Tubewell Rigs 1.0 1.0Quality Control 0.4 0.5 0.9Research Pilot Projects 0.7 1.0 1.7T/A & Training 2.0 0.4 2.4Contingencies 6.2 9.1 1.1 1.1 17.5

Total 23.0 26.5 3.5 3.5 56.5

/a State Bank of Pakistan.

The Credit funds were on-lent to Punjab and Sind by GOP at 8% interest with20-year term and 10 years grace; the two Provincial Governments conveyedthese funds to the seed corporations as equity, except those for tubewelldrilling rigs which were conveyed as grants.

Organization

3.08 The two seed corporations were to be autonomous. They were headed bya Managing Director, with financing, production (seed farms), processing andmarketing (sale of seed) departments lead by Operating Directors. Thequality of seed was to be controlled by the corporations and by the NSC 2/and NSCA 3/, bodies to be newly established. The Research Institutes were tobe under the jurisdiction of the provincial Departments of Agriculture aswould be the respective potato and vegetable pilot projects.

3.49 A Seed Project Coordination Committee, with representatives from theFederal Ministries of Agriculture, Planning and Finance, the ProvincialGovernments and Seed Corporations, was to be established to coordinateactivities, including the recruitment of TA Specialists, procurement,inter-governmental and institutional matters, IDA liaison, disbursements, andproject progress. The arrangements were not spelled out in the AppraisalReport and there was seemingly little examination, a priori, of theirimplications. What they meant in practice was that the Federal Ministry ofAgriculture (FMA), responsible for disbursing the Credit funds for TA, alsoassumed responsibility for their use, thereby becoming involved in theaffairs of the Seed Corporations and other project institutions through theprocess of selection and administration of the consulting firms andindividual experts (para 3.05) and project activities pursuant to the con-sultants work, for example, the award of contracts. Thus, the apparatus inthe agricultural ministries of the four Provincial Governments responsible

2/ National Seed Council.

3/ National Seed Certification Agency.

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for project activities, the two Seed Corporations and the certifying agencieswere subordinated de facto to the supervision of FMA. 4/

Project Goals and Objectives

3.10 The project's objective was to provide quality seed which wouldenable farmers to obtain crop yields substantially greater than obtained fromthe poor quality seed used in the past. To accomplish this, the project wasintended to establish a new seed industry including variety release, seedmultiplication, processing, certification, storage and marketing for the maincrops: cotton, wheat, maize and rice. It was also to take an important steptoward diversifying the seed industry by establishing pilot plants to producehigh quality potato and vegetable seed.

3.11 The new seed industry was to provide about 100,000 t of seed annuallywhich would enable about 15 million acres to be sown at full development.Project seed would be provided for 53% of total farm area, cuLtivated byabout two million farmers. The increased annual production of commercialgrain was estimated to be about 640,000 t valued at US$120 million, and200,000 t of cotton worth US$160 million. The economic rate of return wasestimated at 82%.

Finance

3.12 The Seed Corporations and other entities involved in the project wereto operate on a commercial basis and to prepare annual budgets, and projectaccounts. Functioning on this basis was contingent on the recruitment ofqualified personnel in Pakistan. There was no dearth of them in the countryand had they been recruited and given the intended mandate, the Seed Corpora-tions would have been established property. Notwithstanding prior agree-ments, the Government established corporations akin to Government Departmentsand, in fact, the Seed Corporations have been in a position analogous toGovernment Departments with regard to financial operations.

Procurement

3.13 Procurement was to be on the basis of international competitivebidding in accordance with IDA's procurement guidelines, including civilworks, predominantly the construction of the four seed processing plants,except for: (i) minor civil works for the pilot projects, which would be

4/ The FMA observes that its role seems to have been confused with that ofthe Seed Project Coordination Committee (SPCC), which was set-up atFederal level to perform administrative and coordinative duties (para4.01). The FMA states, therefore, that contract award decisions made bythe SPCC had the consensus of the implementation agencies involved; thatthe overall supervisory role was performed by the Conaittee and not FMAalone, and execution of the project rested with the agencies con-erned(Annex 4). (While the seed companies were responsible for physicalexecution of the works, the records suggest the situation was much asdescribed in para 3.09.)

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according to local procedures; (ii) farm machinery and tubewell equipment, ona negotiated basis following solicitation of quotations from local manufac-turers and representatives of foreign ones; (iii) equipment costing less thanUS$20,000; (iv) tractors for farmers, on the basis of their preference, underprocedures acceptable to the Association; and (v) farm improvement works,under force account.

3.14 Seed processing plants are one of the simpler types of infrastructurefrom a construction standpoint and often are done turnkey on the basis of asingle tender calling for construction, supply and installation of equipment.In some large agricultural development projects consultants are recruited toimplement the project, the mechanical engineer is responsible for the seedplant and exercises general supervision of the civil works which are usuallydone under contract. However, the turnkey approach was not considered forthe project, one reason being the unsatisfactory bidder response to a tendercalling for turnkey bids on another seed project in India. Instead, separatecontracts were awarded for civil works, equipment and so forth.

Loan Negotiations/Board

3.15 No major issues arose at negotiations in September, 1975. Theproject was approved by the Board March 16, 1976 and became effectiveNovember 1976, being delayed somewhat by the establishment of the legalarrangements for the Seed Corporations.

Important Covenants

3.16 The more important covenants in the Credit Documents were as follows:

- Punjab and Sind Governments to provide equity capital to the SeedCorporations for the development period, and long term loans forpermanent working capital;

- transfer of existing farms, suitable for basic seed production, tothe Seed Corporations;

- selection of farms and locations of processing plants to be done inconsultation with the Association;

- enactment of legislation relating to the seed industry, and estab-lishment of NSCA and of the Seed Registration Agency;

- provision of technical assistance experts, to be acceptable to theAssociation; and

- Punjab and Sind Governments to reimburse the Seed Corporations forsubsidies involved in the marketing of seeds.

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IV. PROJECT IMPLEMENTATION

Overview

4.01 The project was of very limited success. Two of the four seedprocessing plants, the keystone component, must be replaced because of theirpoor construction: work was suspended on them late in 1979 and 1980, whencracks in the structures occurred while trying out the machinery(paras 4.18-4.19), and was never resumed. This situation, and delay of theproject in general, impacted on the plans for the development and use ofquality seed, and crop production. At any rate, after a 2-1/2-year exten-sion, the Association decided not to extend the Closing Date further and theCredit was closed, on June 30, 1983, disbursements subsequently terminatedand the Credit balance of US$4.4 million cancelled. Cost of replacement ofthe two processing plants and other prospective expenditures, includingsettlement of litigation, will have to be financed by Pakistan. As ofend-1984 construction of replacement plant had not started but tenders hadbeen prepared and budget provision cleared by GOP. A mitigating factor inthe history was that this was FMA's first Bank Group operation.

4.02 The history of project implementation is highly complex - there areover 20 volumes of correspondence in Bank files, much of it relating todifferences between the Borrower and the consultants, and between PSC and SSCon the one hand, and the contractors and manufacturers on the other. Forthis reason, the histories of FMA, PSC, and SSC, the two local firms ofconsultants and the two foreign consulting firms, the manufacturers of equip-ment and the various contractors, are described chronologically in a separatereport prepared for reference purposes in conjunction with this PCR. Themain items chronicled in the "reference" report are keyed to the correspon-dence files by footnotes. The general description of the implementationexperience which follows in this PCR reflects the details (and implications)of the reference report, which is in the South Asia Regional ProjectsInformation Center.

Selection of Consultants

4.03 Selection of a foreign consulting firm to provide the variousservices followed Bank guidelines. FMA insisted on: (i) Pakistan law andjurisdiction, rather than the International Chamber of Commerce Rule ofConciliation and Arbitration; (ii) had reservations about the usual waiverexempting taxes and import duties on cars and private goods of consultants;(iii) most importantly, seemed to insist on the consultants bearing theexchange risk on payment for their service -- FMA agreed to pay the contractin foreign currency of the country of the consultants but restricted totalpayment to a fixed US dollar amount; and (iv) disputed the contract

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escalation provision. A somewhat adversarial relationship was established atthe outset. 5/ 6/

4.04 The Association would have been well advised to address the exchangerate/payment issue without delay. The bearing of the exchange risk by theconsultant was in contravention to the Association's rule of not allowingsuppliers of goods and services to take the exchange risk. The issue was toarise often when the foreign consulants requested payment for their servicesfrom the Borrower. The results were substantial delays, consequential costincreases and, eventually, litigation.

4.05 The foreign consultants visited Pakistan in April, 1977 for siteselection, design and the preparation of tenders for the seed processingplants. They subcontracted a local consulting firm to assist with the seedplant buildings. The foreign consultants also provided experts in seedproduction for PSC, SSC and the potato and vegetable seed components, whocommenced work in March 1977. The foreign firm delivered the tender docu-ments on schedule.

4.06 However, in February, 1978, the foreign firm went bankrupt. Anotherforeign firm, heretofore, a silent partner of the first one, undertook tocontinue to pay the salaries of the foreign experts resident in Pakistan.FMA agreed subsequently to hire this firm which took responsibility for thefield seed experts and after three months delay a contract was made with thejoint-venture foreign/local consultants under the same conditions as theoriginal contract. The local consultant was given responsibility for theconstruction supervision of the processing plants.

Procurement

4.07 Procurement was marked by irregularities in respect to PSC proceed-ings. Delivery of the major equipment became hostage to the payment ofaccounts overdue by PSC. Relationship between PSC and FMA on the one side,and consultants, suppliers and civil works contractors on the other becameacrimonious. These developments were serious and, taken together, were amajor cause of the project delay and the failure in seed plant construction

5/ The FMA states that prev4iling rules in Pakistan did not allow exemptionof taxes and import duties on the cars and private goods of consultants,but that the GOP had guaranteed their reimbursement in the agreement(Annex 4). (The dispute between Borrower and consultants in this respectoccurred after the agreement came into effect and no legal issue wasinvolved.)

6/ The FMA also states that it tried to resolve the currency dispute withthe consultants amicably and offerred to submit the issue to arbitrationand make payments to them, contingent on the consultants rebating anyexcess of US dollars spent purchasing DM (the currency of the contract)should the arbitrators find in favor of the Borrower, but that the con-sultant refused (Annex 4). (There is no basis to change the Bank's view,paras 4.03-4.04.)

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as they imposed barriers to effective communication, so that it took monthsto do things that ordinarily took days.

4.08 One of the first procurement activities was the construction of smallbuildings for PSC, contracts for which were let without reference to theAssociation. The awards were finally accepted by the Association, beingsmall. PSC said it knew of no requirements for ICB for construction as localcompetitive bidding was prescribed in the Appraisal Report, which is thecase, contrary to the provisions of the Credit Agreement.

4.09 Tendering for civil works contracts for PSC's seed plants was quiteirregular. Foreign firms were, perhaps unwittingly, effectively excludedfrom bidding and only local firms were prequalified in the end. In fact, thelocal firms selected to construct PSC's three processing plants turned out tobe mostly inadequate and certainly not qualified. There were someirregulorities in the procurement of PSC's processing equipment as well.

4.10 Bid opening for civil works for SSC's single processing plant provedcontroversial. A discount offered in a transmittal letter came to light wellafter bids had been opened. FMA, in evaluating the bids, proposed to excludethe discount, while SSC and the Association wanted it taken into considera-tion. Finally, retendering was agreed and the two firms rebid. FMA hadproposed in the first round to make the award to the company which had wonthe award for one PSC plant, whereas the firm proposed by PSC finally gotthe contract. The relationship between SSC and FMA, in which FMA controlledthe bidding process, but SSC was the owner of the plant, is illustrated bythis. Without Association support SSC would not have been likely to get thefirm it favored. 7/

Construction

4.11 Construction of the PSC processing plants, under separate civil workscontract was mainly disastrous. Of the three plants Khanewal, Sahiwal andR.Y. Khan, Khanewal was the only one to be completed and commissioned. Theother two were found to be unfit, and in need of either reconstruction orreplacement.

4.12 The contractors experienced financial difficulties from the outset,lacking adequate financial resources, and because of the poor contractadministration of PSC. Among the problems the contractors faced were longdelays in payment by PSC, reductions by PSC in the quantities of work cer-tified by the engineer, delays in equipment procurement and the unwillingnessof PSC to make payment for cost escalation as provided under the contract,because construction was not completed within the contract period, althoughmuch of the delay was caused by events beyond the contractors control. Thequality of construction was certainly not improved by the above, but thoseproblems aside, the contractors work on the two plants abandoned was

..1

7/ The FMA asserts that the bid evaluation for Sind Seed Corporation wasdone by the SPCC and not by FMA (Annex 4).

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unacceptable, the building design possibly abetting the grave structuralweaknesses. 8/

4.13 The contracts of all three contractors were terminated either by PSC,or by their own sheer lack of money. The contractors in the case of the twoPSC terminations obtained court injunctions against further work being doneon the processing plants under the contract. In the event, however, con-struction of Khanewal was finally completed by force account and completionof the remaining construction on the other two plants, Sahiwal and R.Y. Khan,became moot when the machinery operation trials disclosed the structuralweaknesses (para 4.18-4.19).

Installation of Equipment

4.14 The installation of equipment, as the buildings becare sufficientlyadvanced, was beset with problems, including:

- overdue payments of PSC to suppliers;

- FMA and PSC's unwillingness to pay the consequential extra cost ofproject delays, that is, the interest payments claimed by the sup-pliers on machinery, insurance, retention money, and so forth; somesuppliers' claims were still outstanding at Credit closing;

- failure to open Letters of Credit on which the supplier was to drawfunds as a condition of shipment of equipment (here, lack of previousexperience with the Associations Letter of Credit procedures may havebeen a factor);

- confusion about mostly ex-post changes in design of the seed process-ing buildings which, in turn, might affect equipment dimensions;

- lack of readiness of the buildings, to enable installation of equip-ment; and

- above all, adversarial relationships and lack of trust. 9/

4.15 The first intimations of inadequate construction work, came inFebruary 1979, about two years after the project began. The foreign consult-ants (by this time the second set) dismissed the allegations as groundless,but in the following months conceded that the contractors' performance wasintolerable. Arguments ensued about performance ot the local consulting firmthat was supposed to supervise construction. By early 1980, work on all

8/ The PSC said that contract administration was the exclusive respon-sibility of the consultants 6nd that there were no delays in procurementof equipment and the payments for escalation were made (Annex 5).

9/ The PSC advises that all problems with the equipment suppliers weresorted out in time (Annex 5). (This would have occurred subsequent tothe Bank's association with the project, which terminated end-1983.)

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three PSC processing plants had ceased. Finally in September 1980, theforeign consultant gave Notice of Termination of contract under the 60-dayFailure to Receive Payment clause, to take effect unless FMA agreed to paythe foreign consultant in his currency as billed, without adjustment. Theforeign consultant had received from FMA a payment much less than thatbilled, because of FMA adjustment for the exchange rate, instead of paying inthe bidders' currency as specified in the contract.

4.16 Eventually FMA and PSC decided to accept the foreign consultant'sNotice of Termination, but without settling outstanding claims. The foreignconsultant went to arbitration in Pakistan's courts over non-payment by FMAbut without success. 10/

4.17 On the initiative of FMA, a well-known Pakistani consulting firm thenbecame the consultant for the PSC and SSC's seed processing plants. SSCexpressed reservations about this as it had experienced no difficulty withthe construction of its single plant, using the same now terminated foreignconsulting firm. The new consultants continued with the design of reinforce-ment for the two defective PSC plants. But it became evident that this effortwas unlikely to be successful.

4.18 The history of Sahiwal in this respect is illustrative of the similarproblems at the R.Y. Khan and to a lesser extent, the Khanewal facilities.Paras 4.18 and 4.19 reflect the contents of a report prepared by consultantsretained by the Bank to evaluate the history of the seed plants and thequality of their construction. The main problem at Sahiwal started out as aheavy building vibration felt during the trial of the vibrating screensmachines on the second floor in the main seed cleaning area. The earlierconsultant, aware of the weakness of a portion of this floor, had proposedtwo steel beams to strengthen it. The new (local) consultants adopted thisbasic scheme from its predecessor but in the redesign changed the beammaterial to concrete as its understanding had been that to counter vibrationsonly the floor panel needed reinforcement. However, calculations indicatedthat the addition of beams would cause a redistribution of the design loadson other beams, requiring further redesign. The new (local) consultantsdesign therefore finally provided for the remedying of the vibration problemitself and the redistribution of the design load.

4.19 However, on making the openings in the floor panel to install theadditional beams, it was evident that the quality of construction had beenvery poor, and that it was clearly inadequate and unacceptable. The work wascareless: the spacing of reinforcing steel rods was not only incorrect butappeared almost random. There was an insufficient number of bars, there werebars missing around openings and insufficient splice lengths, rods were laid

10/ The FMA states that Notice of Termination was given under clauses of theConsultancy Agreement which provided that in such case no payment was tobe made except for services satisfactorily performed, and that GOP, notsatisfied with the services rendered by the consultants, the claimremained unsettled (Annex 4). (This is an example of the occasionalshift in rationale found in the project history.)

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lengthwise but not cross-wise and the results of concrete testing disclosedvalues ranging from 30% to 50% below required strength. The floor panelconstruction was so poor that there could have been a question whether thefloor might collapse of its own weight. Additional problems were noted:large amounts of water had been allowed to accumulate around the silo founda-tions (no precautions had been taken to prevent rainwater from flowing nearthe foundations), large settlements occurred in the brick paved areas, and amasonary wall supported by a grade beam adjacent to the processing area hadsettled 2 inches or more, cracking the entire wall.

4.20 Altogether, 16 months elapsed between the first failures in Sahiwaland R.Y. Khan and the taking of a decision to replace them. Reinforcement ofthe two plants was considered, material tests were initiated with arguableresults, and it was only in face of continued evidence that cracks in thebuilding developed whenever the machines were operated that the decision wasmade to replace the Sahiwal and R.Y. Khan plants. PSC had lacked the techni-cal and administrative depth and experience to organize and focus a campaignwhich would quickly establish the facts, identify alternatives, decide on acourse, and put it in action. ll/

Punjab Seed Corporation

4.21 One of the causes of PSC weakness and poor project implementation wasthe change in leadership of PSC during the project. PSC affairs appeared tobe going well initially and its leadership was considered quite good by theAssociation. However, the Chairman of PSC had said on earlier occasions thatPunjab did not want the new seed processing facilities and that the benefitsof them to seed quality would be poor. This was a view he was to expressseveral times in the future and a manifestation, evidently, of the feelingsof a sizeable body of agriculture practitioners concerning traditional seedpractices and the development of the new seed industry. This posture may haveinfluenced what happened. The Managing Director was dismissed in October1978, PSC alleging that he was involved in corrupt practices. The Associa-tion thought that internal politics and other considerations were the likelycause of the dismissal and made strong representations to the nationalGovernment that the Managing Director should be retained. However, a newDirector was appointed. The former Managing Director was placed under inves-tigation in October, 1978, ostensibly on charges of corruption in connectionwith the award of the small construction contracts.

4.22 The Association was aware of the many problems which beset theproject but was often ambivalent about their correction. In August, 1930 itrealized that the local consultant was supervising construction very po lyand proposed that the local consultant should be dismissed and the foreiLlconsultant retained. It noted the lack of trust and willingness to effec-tively cooperate between contractors, consultants and the corporation. TheAssociation also advised a re-examination of the consultancy agreement and a

11/ The PSC advised that as of early 1987 the job of rebuilding the RY Khanplant is over 40% completed and work on Sahiwal is to commence shortly(Annex 5).

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review of the policies and operations of PSC, and said that there wereserious problems with the quality and effectiveness of civil works design andsupervision (of construction) services. In the fall of 1980 the Associationagain expressed concern. It noted the irregular nature of constructionsupervision arrangements -- site supervision was by then being carried out byPSC engineers with the assistance of the local consultants, an arrangement inwhich neither came under the supervision of the foreign consultant.

4.23 In the spring of 1981 the Association wrote the Borrower observingthat there was general discord between PSC and the consultants, suppliers andcontractors, the fact that the non-payment of the foreign consultant wasgoing to arbitration, that the Punjab Government had previously declined topay the foreign consultants engaged in the Livestock Project, and that con-cerned Governments were now complaining to the Bank. It urged FMA and PSC toresolve these problems, but said that it did not wish to influence the out-comes of the disputes.

4.24 However, the Association was less objective and decisive than theserepresentations imply. It did not resolve the currency of payment problem.It sometimes took a position of advocacy on behalf of the Borrower, which didnot encourage him to settle his debts or other problem. The clearly inade-quate local consultants remained on the jobs. During the last 1-1/2 years ofimplementation the Association became firmer, but by then it was too late tochange the project results.

Sind Seed Corporations

4.25 In contrast with the PSG, the SSC experienced comparatively fewproblems and did commission their single seed processing plant. The ManagingDirector of SSC attributed this to the fact that: (i) SSC lagged somewhatbehind PSC and profited by the latter's experience; (ii) its consultants -the same ones as for PSC - incorporated reinforcement of the seed processingbuilding during construction (not after); (iii) their civil works contractordid a good job; and (iv) SSC maintained good relationships and cooperatedwith the consultants and suppliers. Moreover, SSC had a management and staffwith considerable hands-on experience and SSC quickly took the initiative tocorrect project defects and oversights.

Seed Breeding and Production

4.26 The objective was to produce enough certified seed to: (i) servicethe area under HYV wheat (90% of irrigated areas and 50-60% of rainfedareas); (ii) expand and service the area under HYV maize very substantially;and (iii) service 90% of the total cotton area, about 5 million acres. Thethen methods of producing and processing pre-basic seed were inadequate andthe seed industry was vulnerable to deficiencies in basic and pre-basic seed.The remedy was to ensure that Research Institutions that breed genetic seedwould follow sound (and classical) methods in pre-basic seed production, andproduce enough seed for the annual requirements. Secondly, basic seed wouldbe produced under the Seed Corporations' control and, when seed had improved,by contract growing through the selection of seed from the best among cer-tified growers. Finally, certified seed would be obtained under contract

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from private selected farmers, processed in the new seed plants, andmarketed.

4.27 Under the first Managing Director (para 4.21), PSC acquired threefarms for seed growing. Land levelling commenced in 1976/77 and registeredgrowers schemes in 1978. That same year rust attacked the main wheatvariety, which accounted for most of the basic seed production, withdisastrous results to the seed supply for the following season. SSC's seedactivities at the outset were quite limited. However, in 1978 forty acresof pre-basic seed were planted and a start was made by contract growers ofcertified seed on 400 acres.

4.28 In late-1978, a consulting seeds expert, retained by the Association,made an in depth survey and evaluation of seed breeding, technology andorganization in Pakistan. He concluded, they were in a near-chaotic state,and proposed remedies. This seems to have given the impetus required toshake-up traditional practices and catalyze actions to improve research,registration and organization. The report was unpopular in officialdom andthe object of considerable criticism, yet over the next several years, itsrecommendations were largely followed. The seeds expert said that:

- plant breeding research was uncoordinated and fragmented;

- progress lagged behind that of other countries which started with thesame problems and opportunities;

- standards of purity were so low in some crops that the breeders ofseed could scarcely comprehend the magnitude and difficulty of thetask before them;

- without a quick and dramatic improvement in breeding and productionstandards, the efforts of the new seed corporations were doomed tofailure -- clean, treated seed could be produced, but genetic puritywould be lacking; and

- many of the senior breeders were not open to constructive criticismand needed re-motivation.

The expert thought that the PSC's seed farms should do well, provided thatgood basic seed was eventually contrived and supplied. A point at issue wasthe advisability of using new replacement varieties, once they had beenapproved. He said that at SSC, wheat seed production tended to be poor,broadcast sowing of gaps with no isolation, and for the cotton crops, theconsiderable cross-fertilization was ignored. At both PSC and SSC a majorconcern was the lack of control of irrigation water, particularly for tenantcotton farms.

4.29 Among the experts' recommendations, in which the purity of pre-basicseed and the urgency of avoiding contamination by inferior seed wereemphasized, were the following:

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- at research stations greater priority should be given to seedproduction, and young, western trained breeders should be allowed touse their training effectively;

- seed from maintenance breeder trials should never go back to themultiplication scheme and seed of new experimental lines should beretrieved from farmers after multiplication;

- NSRA should review varietal material, aimed at eliminating orcontrolling (breeding out) problem varieties, otherwise most seedproduced would continue to be substandard;

- there should be no pre-release of varieties to farmers beforeregistration;

- the situation with cotton was potentially disastrous and areorganization of the existing breeding and seed production program(which should be laid down) was necessary;

- more wheat seed breeding should be carried out at the expense of thetoo numerous agronomy trials; and

- seed purification for production should be carried out in parallelwith selection for trials, to speed multiplication.

On this basis, in July, 1979, the Association and GOP reached agreement thatno seed would be multiplied that had not been registered by the RegistrationAgency and certified at all stages of multiplication by the CertificationDepartment. Progresa was made the following year in instituting this system.

4.30 In 1979, the NSCA certified the wheat seed from the PSC farms but thebasic crop had to be rogued 12/ four times to do so. PSC was concerned atits inability to sell certified seed at a premium, the decision not to do sohaving been made by its Chairman (who was also the Agriculture Adviser to theGovernor of Punjab), although the decision likely reflected the seed qualityas well. Cotton pre-basic seed obtained from the research stations was ofpoor quality. At SSC the years entire basic seed crop was rejected by FSCAfor excessive admixture, reflecting the very poor quality of pre-basic seedprovided by the Research Center. In 1980, as a result, SSC had no contractwith wheat growers and no wheat or cotton crops in the multiplicationpipeline, from which certified seed could result. At the same time SSCwas experiencing disappointing yields at its PAC farm due to inadequatelevelling, having not purchased equipment adequate to level, drain and cul-tivate the farm properly.

4.31 During 1980, PSC marketed about 15,000 tons of cotton seed, certifiedby FSCA. By early 1982, SSC's farm was nearly completed, a wheat basic seedcrop was being grown and a contract for growing certified seeds and a fouryear production schedule for processing cotton seed and wheat were arranged.

12/ Process of removing off-types from crop.

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By this time seed certification arrangements in both Punjab and Sind appearedfairly satisfactory.

4.32 In July, 1982, a mission to supervise the technical aspect;' ofpre-basic seed production reported that seed production techniques hadimproved substantially in the four years since the 1978 survey: (i) at PSCwheat seed was processed by using portable cleaning equipment, in the absenceof the new processing plant; (ii) the amount of production of pre-basic seedof wheat, rice and cotton was adequate, but cotton contained off-types whichshould be removed; (iii) maize seed production methods were poor with noalternatives in sight; (iv) the use of commercial cotton gins had beendiscontinued and, instead, gins were hired to work exclusively on seedproduction for the entire processing season, to avoid the mixing of cottonseed varieties; (v) basic seed produced on tenant farms was subjected to theirregularities in the irrigation schedule, which made tenants reluctant torogue their plots because of loss of yield; (vi) by producing basic seed incooperation with the breeders the problem of the poor quality of pre-basicseed grown by them before had been largely overcome; and (vii) the productionof the registered seed farm growers was being Parketed satisfactorily.

4.33 SSC was found to be at a disadvantage because it lacked workingcapital to enter seed procurement and trading activities. It had no portableequipment to clean seed and was selling unprocessed and uncleaned seedobtained from registered growers. It was using commercial ginneries for theginning of its varieties, and the cotton crops from tenant farms were highlyvariable, with little prospect of certification.

Certification and Registration

4.34 By 1979, the Federal Seed Certification Department (FSCD) was becom-ing well established. Following the recommendations of the 1978 seeds-expertmission (para 4.28), the National Seed Council (NSC) authorized FSCD toinspect pre-basic seed of the Research Institutes, a move reinforced by therejection of the entire basic wheat seed crop at SSC's farm because of exces-sive admixture. By this time FSCD was said to be inspecting all basic wheatseed on PSC and SSC farms and pre-basic seed at the Research Institutes.However, none of the FSCD officers dealing with PSC had any real cottonexperience, which nullified their ability to deal with cotton certification.Indeed in Sind, cotton breeders refused access of FSCD to the research sta-tion crops, and would not accept that FSCD was authorized to clear its seedbefore its release to SSC, a situation afterwards resolved. The National SeedRegistration Agency (NSRA) was still at the paper stage as registration was anew stage being introduced in the country. By end-1981 all existing commer-cial varieties of wheat had been registered.

4.35 The 1982 supervision mission (para 4.32) found FSCD fully staffed,establisbed and funded. It had a certified seed standard of 98% purity and75% germination. However, seed was not free of inert matter. It found thework of the (NSRA) disappointing; it had carried out distinctness, uniformityand stability (DUS) trials on wheat varieties and commenced work on rice, butno work had started on maize or the minor crops. By 1983/84 FSRD had con-ducted extensive trials on rice varieties, cotton, oil seed, and pulses, and

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was conducting tests on maize germination and, altogether, ap.,ared to beprogressing.

4.36 In any case there existed confusion over the mechanism for varietalcontrol and release and the relationship to registration, which itself doesnot assess the merit of the variety, but only its characteristics. Areleased variety is one with proven agriculture value which has previouslybeen registered by FSRD. However, provinces are the authorities whichrelease varieties within their own boundaries. While the National SeedsCouncil (NSC) is indeed notified of wide adaptability (varieties) that couldbe of interest and use elsewhere, there is ample scope for uncertainty inthis decentralized procedure.

4.37 Toward the close of the project, PSC prepared a report 13/ describingits breeding and seed production experience, which gave a favorable picture.However, there is insufficient supporting information in the report tovalidate the production results, and no correlation of PSC quality standardswith the actual quality of certified seed produced and sold. 14/ The figuresare not inherently consistent with the PSC history and limitaiTons describedin the foregoing. In particular, employing rented machinery, PSC processinghad been limited to cleaning, and seed had not been created, nor inert matterand weeds removed, so that while quality improved, it was but to a degree.More specifically:

- the seed standards described in the PSC report as pre-PSC may haveexisted, but mainly would not have been adhered to;

- there had been progress in improving the quality of pre-basic andbasic seeds, but the new standards contained in the report couldhave been applied to only a limited quantity of the certified seedproduced through the implementation period;

- some of the standards are down-graded;

- the standard for inert matter content has not changed, in the absenceof new processing equipment;

- PSC's seed farms are good, but it must be noted, they are mainlygrowing cotton, which has been traditionally fair, and has been keptup, both prior to and under PSC supervision;

13/ The Report "Achievement of Seed Industry Project in the Punjab, June1983", is available in the South Asia Regional file; it is not a comple-tion report and, semi-technical in nature, was obviously prepared forinformation purposes.

14/ The PSC asserts that certified seed was of the National Seed Councilstandard to a large extent and, in any event, that now prebasic seedproduced at corporation farms is 100% pure (Annex 5).

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- the large 1982/83 yields inter alia reflect that it was a good yearand crops were abundant, however, 1983/84 was a bad one, and bollinfection of cotton widespread; the cotton crop was very poor, anddifficulty was anticipated in recuperating it;

- PSC report remarked favorably on the use of cooperatives outlets buthas since become disenchanted with them; in any case, the resultsdescribed in the report generally do not come out of it.

4.38 Bank agronomists emphasize the difficulty in checking the conditionsand numbers of crop and seed results and quality, and that to begin to do soit is necessary to review conditions in the field and check the extent, usageand efficacy of inputs with extension workers. As to ascertaining the statusof breeding - the presence of varieties, impurities and the like, it isnecessary to have a detailed survey undertaken by a top seeds expert, as wasthe case in 1978. The PSC seed crop results are assessed necessarily on thebasis of this history in the project justification section. 15/

VEGETABLE AND POTATO PILOT COMPONENTS

Vegetable Seed

4.39 The object of the vegetable component was to create a small seedproduction farm and processing facilities in order to investigate the methodsof producing and processing high quality vegetable seeds in the Province ofBaluchistan. The program was quite successful and was still underway as theCredit closed. The recommendations forthcoming were: (i) to implement afollow-up project to maintain the momentum and direction; (ii) the follow-upproject should provide expertise in packaging and marketing seed, storage,herbicidal weed control, sprinkler and drip irrigation and the organizationof national seed trials; (iii) to conduct national trials of the seed in thevarious ecological zones of the country, before marketing seed in them;(iv) the continuation of trials of new species and varieties of seed from theUnited Kingdom; (v) establishment of a small testing laboratory; (vi) over-seas training of staff in a commercial operation context; and (vii) that thefollow-up project should be expanded to include all crops.

4.40 The seed farm, 62 acres in extent, purchased in 1978, encounteredproblems but was fully completed in 1982. The terrain was difficult for cropdevelopment - 1,500 hours of bulldozer time was required, three 100 ft deepwells had to be dug to replace the traditional system of flood recessionirrigation which had created many problems, and flood relief channels had tobe provided. A sprinkler irrigation trial in 1981 was favorable. A smallprocessing plant was installed and functioned well. The operation wasdirected throughout by the vegetable seed expert provided by the first firmof foreign consultants.

15/ Cargill International, one of the world's major privately-owned seedproducers, was in 1984 invited by the Government of Pakistan to estab-lish itself to breed and produce oilseeds (flowers, nuts, etc.).

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4.41 All crops were inspected and certified by FSCD and seed produced wassampled and tested for purity and germination by FSCD before being sold.Actual seed production was said to be as follows:

Actual Seed Production(Lbs)

Lbs. Seedrequired to

1979 1980 1981 1982 1983 Plant 1 acre

Turnip 734 726 550 412 584 4Beet Root 220 930 151 15Onion 107 55 90 5Okra 38 605 321 600 10Tomato 5 4 7 4 1/4Melon 37 13 80 2-1/2Eggplant 18 24 2 1/4Peas 7 18 360 90Cabbage 44 3 1/4Broccoli 21 7 1/2Radish 154 11Spinach 440 10Marrow 25 2Carrot 9 4-1/2

Approximately 6,500 lbs of the seed of main crops was produced during theproject at a value of about US$75,000, sufficient to plant about 1,250 acres.

Potato Seed

4.42 Over 50,000 acres are under potato planting in the country, mainlyin Punjab, of which possibly 10,000 acres are in the hills. While seed isimported, mainly from Europe, it is small in relation to the regenerativeneeds and the bulk of seed in typically degenerated from successive exposuresto viral disease. The potato seed program is therefore of some economicimportance and follow-up of the project efforts, which are incomplete so far,is warranted.

4.43 This component was to be carried out in Baluchistan, NWFP and Punjab.Activities commenced in mid-1979 under the direction of a Potato Seed Expertprovided by the original foreign consultant. Land suitable for high hillsplanting was found to be scarce and difficulties with sea shipment of seedpotatoes were experienced. A 1979 supervision mission recommended having onemultiplication in the high hills of imported seed, subsequent multiplicationsin the mid-hills which however was subsequently discontinued because themid-hills cultivation proved prone to infection, and a final multiplication,as an autumn crop, in the plains; also, that the project should be organizedon a national basis, rather than three provincial undertakings. High hillsplanting was concentrated in Baluchistan, with some in NWFP.

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4.44 By mid-1982 most of the needed investments had been made inBaluchistan and importation of potaLo seed for planting was put in process.According to the Directorate of Agriculture, 16/ 20-25 acres at a potato seedfarm in the Pishin District were generally kept under planting for potatoseed, with about 90% of it being harvested, with annual production of 50 t to100 t. The Directorate expected that maximum production as the result of theproject would not exceed 100 acres sown with 100 t of imported pre-basicseed, producing 800 t of seed potatoteso after culling and grading this wouldleave about 500-600 t of basic seed for multiplication on about 600 acres ofmid-hill lands. This could produce 5,000 t of seed available for sowing forcommercial seed purposes on some 5,000 acres, sufficient to meet 50-80% ofthe needs of Baluchistan.

4.45 PSC initiated in 1980 a new potato seed program anticipating elimina-tion of the spring seed crop, which is a source of virus induced potatodisease in the seed, in the mid-hills. From the autumn crop of plantselections for 1981-82 basic seed production, over 700 t of basic seed wasproduced at the PSC seed farm and contract farms, of which PSC processed/stored 200 t. The remainder was graded and storad by individual growers forplanting in the next (autumn) seed crop. Several cycles will be required toevaluate this program. 17/

FINANCIAL OPERATIONS

4.46 PSC conducts a large trading operation, purchasing seed from seedfarms, processing it (to the extent possible with the facilities) and sellingit as certified or approved seed to farmers for cropping and to seed farms.There is considerable speculation in this. PSC proposes how much seed to buyfor processing, but the Government has the final say. PSC is not assured ofa market for its entire production, or that it can sell at a price sufficientto make a profit. One of the uncertainties is farmer variety acceptance andchanging taste. Price movement, of course, is a fundamental uncertainty.Any seed leftover is sold for consumption at the market price.

4.47 PSC management considers trading one of its most important functions.PSC has made a profit so far and accumulated retained earnings of Rs 94.7million (about US$7 million), mainly since 1979, with current annual sales ofUS$14 million. However, one-half to one-third of this represents the annualsubsidy it receives from State Government in recognition that PSC is in thedevelopment or preproduction stage. An abbreviated FY83 financial statementis given below.

16/ In a short report, dated December 26, 1983, covering the Pilot Vegetableand Potato Seed components.

17/ The PSC reports a breakthrough has been achieved in the production ofdisease-free potato from autumn-to-autumn cycle at Sahiwal farms andPSC is planning to go into large-scale production (Annex 5).

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Assets Liabilities(In Rs Million)

Working capital (current assets Provincial Grants 167less current liabilities) 184 Equity (provided by Punjab) 101

Fixed Assets 182 Retained Earning 98Total Assets 366 Total Liabilities 366

Profit and Loss

Sales 253Cost of Sales 228Profit on sales 25

Financial and administrativecosts 14Govt. subsidy 10Net profit 21

SSC

4.48 SSC produced but small amounts of seed until FY81 and FY82 and didnot in any case have the funds - working capital - to trade on a sizeablescale. A brief statement of the FY82 financial position is as follows:

(In Rs Million)

Liabilities Assets

Capital,of which Rs 12.3 67 Fixed assets 56million was interest Administration andon capital overhead (unallocated) 22

Equity (Association Credit) 21 Current assets (including 16Current Liabilities 6 Rs 12.3 million in

cash and Banks)

Total 94 Total 94

SSC is relatively liquid with about US$1 million equivalent in cash, aboutthe amount of interest it receives annually on capital, which reflects inpart the continued provision of funds by State Government.

Project Cost

4.49 The cost of the project was Rs 455 million, including substantialcosts estimated by PSC to provide processing buildings at Sahiwal andR.Y. Khan to eventually replace the unusable ones. This compares with theoriginal cost estimate of Rs 559 million. The actual cost includes onlyRs 15 million expenditure on seed growers farms, for credit to purchasetractors and farm implements, out of the originally estimated Rs 133 million,as indicated in Annex 3 (Actual and Estimated Disbursements by Category), as

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there were no disbursements of credit to farmers to make on-farm improve-ments. The Association had reported in December, 1978, early in the project,that no interest was evinced by contract growers in obtaining credit for thatpurpose, although some 130 growers had been registered in Punjab and Sind asprospectively eligible. The situation remained this way. It is likely thatthese large farms had the necessary working capital as they were well estab-lished and had been marketing their harvests for years. Tere may have beensome intent to reach smaller tarmers as well.

4.50 The PSC cost was Rs 306 million against Re 271 million estimated,the difference largely reflecting the extra future cost of replacing theprocessing buildings. The SSC expenditure was close to estimate, Rs 92million against Rs 89 million at appraisal. The technical assistance costwas substantially less than estimated. Annex 2 contains the actual andestimated project cost.

Covenant Experience

4.51 The specific covenants of the Credit Agreement were met -- equitycapital was provided to the seed Corporations as required, seed farms weretransferred to them, the NSCA and NRA were established. However, the basicgeneral covenant was not.

V. PROJECT JUSTIFICATION

5.01 At appraisal in 1975 it was assessed that the principal quantifiableeconomic benefits from the project to Pakistan would be from higher cropyieldA obtained by the farmers use of project seed, and, in the case ofcotton, also through an improvement in the quality of lint as well. Theindividual farmer using high quality project seed, it was assumed, wouldachieve yields that are higher than those he obtained from the mixed lowquality seed that he would continue to use without the project. The emphasiswas on the incremental production of the major crops namely wheat, cotton,rice and maize through the use of seed processed under the project.

5.02 In the case of wheat and rice, high yielding varieties (HYV) werealready being used and a limited yield increase was projected from processedseed, 10% over the five year seed replacement period. In the case of maize,as little HYV were being used, the expectation was for a 20% increase inyield over a 3 year period, while for cotton which would be replaced everyyear, a yield increment of 10% was assumed. The improvement of lint staplelength was assumed to result in an average price increase for cotton lint of10%. However, in the estimation of the increase in yields, and for practicalpurposes, a major, almost insurmountable problem, is to isolate the effect ofyield itcrements due to the use of higher quality seed from other yieldaugmenting factors.

5.03 Annual seed production under the project at full development wasestimated at 103,000 tons at appraisal; the bulk of it wheat followed bycotton. The seed project at full development was projected to benefit 15

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million acres with an annual incremental production of 640,000 tons of grainand 200,000 tons of cotton.

5.04 For the purposes of the economic evaluation, it is necessary toexamine not only seed production by variety and the quality of seed producedbut for other non-quantifiable and sometimes longer term effects of theproject components on the seed industry. At the Credit closing, none of thefour seed processing.plants had been commissioned, although two were within afew months. However, pre-basic seed from government research institutes wasmultiplied on government seed farms prior to and during the term of thisproject, but the project history discloses considerable uncertainty aboutthe quality of certified seed and the scale of distribution during projectimplementation. If however the statistics provided are not discounted toreflect such uncertainties, the quantity of (certified) seed processedannually at project closing was 66% of that envisaged under the project,44,500 t and 23,500 t for wheat and cotton, respectively. The questionremains as to whether the seed, processed outside the project equipment, wasimproved enough to generate a yield increment of the assumed magnitude. Atany rate progress was made in registration and certification procedures whichit is hoped, will have a long term impact on the seed industry. The pilotproject for vegetable and potato seed production made good progress andprovided a basis for further development of this industry. The researchinstitutes and other agencies benefitted from the technical assistance andtraining.

5.05 Agricultural productivity made considerable headway during thisperiod in Pakistan. National average yields for cotton rose from 250 kgper hectare in 1978/79 to 361 kg in 1982/83, (but thL crop was a failure in1983), while wheat rose from 1,488 kg/hectare in 1978/79 to 1,666 in 1980/81.Although this increase could be attributed to several yield augmenting inputscombined with good seasons, at least in part, it could reflect the contribu-tion of improved seed made possible under the project.

5.06 To obtain some idea of the economic rate of return, and recognizingthe above non-quantifiable elements of the project, the ERR was calculated onthe basis of project costs incurred annually over all project components,taking for economic benefits the yield and price increments postulated atappraisal, assuming that the two seed processing plants which were success-fully built and became fully operational for the 1984 crop season, producedthe requisite quantity of quality seed. The exercise used projected seedproduction with a lag of five years, commencing 1979. On this hypotheticalbasis the ERR would be 30% versui an ERR of 82% at appraisal.

5.07 This is a possible scenario, but a word of caution is necessaryregarding the calculation. On all counts this estimate is optimistic. Amongother things, the yield increments as projected at appraisal would seemunlikely to be realized in the future, particularly because of the sharp riserecorded in recent years. However, the hypothetical ERR figure - 30% - isuseful in indicating the potential of the situation.

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VI. INSTITUTIONAL DEVELOPMENT

6.01 It is not evident that FMA or PSC made pronounced progrees in aninstitutional sense. Likely, research groups made progress in seed develop-ment and some progress was made in seed breeding. The Natlonal SeedCertification Agency and the Seed Registration Agency do now exist and seedcertification and seed approval is better understood and accepted. Subjectto getting all the originally proposed seed processing plants in operation,the knowledge, certification systems and processing capacity exist, subjectto proper discipline, to provide and maintain large amounts of geneticallypure seed in the future.

6.02 A fair start has been made on establishing vegetable seed facilitiesand production capability and a start on potato seed development has beenmade.

6.03 Whether the project has created in the mind of the average farmer asounder appreciation of quality seed, and the realization of what qualityseed in combination with proper farming practices means in terms of improvedyield, is not clear. While some seed has been improved during projectimplementation it may not have been in sufficient quantity to have a nationaldemonstration effect and impact. Likewise, it is not clear whether theproject has changed the traditional thinking of certain of the agricultureelite. 18/

VII. PERFORMANCE

The Borrower's Performance

7.01 The performance of FMA and PSC was weak. The former did not fillwell the role of administrator it assumed, and must share responsibility forthe relationships with its consultants, and inter alia the delay and litiga-tion over the payment of currency and exchange rate and amount owing for theconsultants' services. It appears that FMA and PSC were factors in the defacto exclusion of the foreign consultants from immediate supervision ofconstruction of the PSC processing plants, when at a critical time, it wasknown that the local consulting firm was doing an inadequate job, and goodsupervision might have lead to construction of adequate quality. FMAinvolved itself more than appeared warranted in affairs such as procurement.For example, the disagreement with SSC over the choice of civil works con-tractor. Indeed, FMA functioned much as an implementing agency, to theattrition of the roles of the Seed Corporations which were the actualim,tementing agencies, contrary to the Association's original understanding.

18/ PSC feels that farmers are appreciative of the work done by PSC,especially for cotton seed supply, the creditability of which standsestablished (Annex 5).

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As put in an early supervision report, it was probably ton much to expectthat PHA would relinquish the traditional power it had exercised. 19/

7.02 PSC was weak administratively and did not have the experience to dealeffectively with the situations which arose, which otherwise might not havebecome such problems. It often dealt with issues without due regard to thehistory and equity of the matter, sometimes appearing to take advantage ofsuppliers and contractors. Yet, this is difficult to accept, given thecounter productive results, the long delays, the refusal of suppliers tocontinue installation until amounts outstanding were paid, and finally theloss of IDA funds, through cancellation of the unused funds remaining in theCredit.

7.03 PSC did have a basic problem. Construction having been delayed,installation of equipment had likewise to be delayed, and PSC was going tohave to pay the the cost to equipment suppliers of the interest foregone,price escalation, and of additional insurance, prolonged Performance Bondand withheld Retention Money. Normally, there is little problem in reachingagreement in such circumstances, which are not unusual. PSC inexperience, andwhatever other factors and influences brought to bearp nullified the process,compousdng delays and costs. PSC was particularly handicapped in contendingwith the ill-constructed processing plant buildings and it was 18 monthsbefore PSC decided to replace the buildings. PSC and FMA appeared to thinkthat it was inadequate consultants, designs and contractors, and uncoopera-tive suppliers, who caused the problems, and were responsible for theresults. They may not have profited, institutionally, from the experience,therefore.

Consultants Performance

7.04 The foreign consultants were not without problems. Certainly, theoriginal local consultants performed badly. It appears that the seed expertsprovided by the original foreign consultants did their jobs well, and infact, after the firm quit Pakistan, the seed r-,irts stayed on independently,in the Borrower's employ. As to the building design, reference is made toparas 4.18-4.19, and the complexities of sorting it out. The second set oflocal consultants, the national firm, found it difficult to coordinate with

19/ The FMA remarks that supervision was conducted by the consultants,however, PSC also used its own engineers to supervise work, independentof the consultant, to strengthen the supervision. It states, further,that OSC was organized on the lines suggested in the Appraisal Report,that it was unfortunate that a Department of Civil Works was not recom-mended in the A.R. and that, in fact, a Civil Works Department wasestablished by NSC later on (Annex 4).

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PSC. Consequently, the study, analysis and results of the constructioninvestigations were delayed and not handled in an entirely orderlymanner. 20/

The Manufacturers (Suppliers)

7.05 The suppliers were well-known as responsible seed equipment manufac-turers. It is not surprising that becoming involved in many confrontationsand situations of seeming lack of confidence, they began to exhibit somewhatthe same behavior. Thus they at times temporized, delaying installation toforce at least partial payment of extra costs. Their equipment has hadlimited operation to date but appeared satisfactory. There was contentionabout the cotton processing equipment, which may sulbsequently have beensettled, which appeared to reflect whether flame delinting equipment shouldhave been specified rather than mechanical delinting, and differences aboutfibre length.

The Contractors

7.06 The prequalification and bidding procedures for the processing plantcivil works contracts were marred and little is known of the firms awardedthe contracts, but certainly the work of those for Sahiwal and R.Y. Khan dida very poor job. Some of the poor work can be readily seen. One of thefailings, concrete of markedly less strength than specified, was potentiallycriminally liable. However, the carelessness with which reinforcing steelrods were put in place and joints made, as an example, is hardly a means fora contractor to cut corners, but indicative more of very inexperienced laborand next to no qualified foreman supervision. Even in the case of theKhanewal processing plant, which was completed, PSC terminated the construc-tion contract and eventually finished construction by force account.

7.07 Parenthetically, it is observed that construction control, qualityand accuracy is fundamentally the job of the contractors' foreman and/orengineer, but not the final responsibility of the owners resident engineer orconsultant who checks.quality, materials and monthly bills, inter aliamonitoring work progress, and secures rectification should plans and properpractices be deviated from. This role was filled by the local consultant

20/ The FMA suggests that the evaluation of the performance of the consult-ants would not be complete unless the report of July 1979 by their ownSenior Civil Engineer, which lists their failures at the seed proceedingplant sites, is taken into consideration. The FMA states that in itsview the consultants are guilty of selecting sites for seed processingplants prior to soil investigation report, incorrect preparation ofbills of quantities, rendering improper services in respect of tenderdocuments, uncarefully and improperly qualifying civil works contrac-tors, under-designing plant buildings, recommending oversized machinery,poor contract supervision and management and incorrect unification ofcontractor bills (Annex 4). (The Bank's views on the above are given inpara 4.10, irregularity in award of civil works contracts,para 4.18, poor construction, para 7.06, poor construction supervision.)

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very poorly. Had it been filled properly, much of the defective constructionpractices might have been detected and corrected. However, proper construc-tion was the contractors' responsibility. Whether PSC's laxness in payingthe contractors, and refusal to pay project delay induced costs, were reasonsfor the poor work of the contractor is not known. However, these practicesdid not help and certainly made the contractors task that much more dif-ficult.

Association Performance

7.08 The Association mounted 17 supervision missions, an adequate number,except for a critical period in 1980/81 when thera was one only every 8-9months. However, the Association performance was mixed. It sometimes allowedproblems to drag, its approach indirectly reinforced the Borrower's tendencyto bargain to extreme with consultants, contractors and so forth, it under-stated the nature and extent of the difficulties, the project being clearlyheaded toward serious problems early, but the scope of the problems, repeatedwith remarkable consistency, was not fully reflected in supervision reports.

7.09 In fact the project was rated steadily at "2", until about the lastyear, and was well beyond recuperation when it became a "3" problem project.This may have been one reason the project's problems received little atten-tion from senior management. The Association did not consider decisiveaction to move the project along: that is, the threat of juspension ofdisbursements, or their informal suspension, a Bank sanction sometimesemployed, of the PSC component, which might have been an effective move.

7.10 The Association focussed supervision efforts on the processing plantproblems during the last part of implementation at the expense of seed breed-ing and production developments. Recruitment of a seeds consulting expertin 1978 to review the status had been highly productive, probably the singlemost important initiative in the entire project, and a follow-up in the samedepth in 1982-83 to review the status might have been equally so. As itstands, the Association's knowledge of the state of seed breeding, qualityand production is quite limited.

7.11 The Association acted decisively in not further extending the ClosingDate on June 30, 1983, when it had already been extended 2-1/2 years. It hadbecome clear that to replace the Sahiwal and R.Y. Khan processing plantswould take at least two years more, there was no evidence that a similarproblem scenario might not be reenActed, and clearly, it was best to make aclean break.

VIII. PROJECT IMPACT

8.01 It is difficult to assess the project's impact. The necessaryinstitutions for certifying and approving seed and registering varietieshave been put in place. Systems of breeding and producing genetically purequality seed have been established in Punjab and Sind. Pilot operations forproducing potato seed and vegetable seeds have been developed. However, thesystems have yet to function fully and, considering the poor experience of

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the main components during implementation, and the generally weak state ofthe organizations, the future is uncertain.

8.02 The seed industry had traditionally been considered of subsidiaryimportance, which perhaps explains why much of the agriculture communitythought it was satisfactory as it was before the seed project, as well as therelative indifference of the authorities to the problems encountered by theproject. A continuation of these attitudes might lead to a return of thelack of discipline that pervaded the seed industry with regard to seedcertification, release of unproven varieties, genetic deterioration of seedand the widespread use of unreliable poor quality seed, which were respon-sible for the weak state of the industry in the first place.

8.03 One means to avoid this would be to have a responsible, technicallyqualified group in the FMA through which seed breeding and processingproblems of central government concern are channeled, a group sympathetic tothe objectives and active enough to take timely positions in guiding seedindustry development.

8.04 It is also necessary to have first class management and technicalsupport staff in the Seed Corporations, which implies bolstering of PSC andthe maintenance, at least, of SSC's standard of organization and staff.

8.05 If the Association again became active in the seed industry, atten-tion to the foregoing would be a priority. It is possible of course that theSeed Corporations will finally produce large quantities of genetically purequality seed, which farmers will find so successful that it will lead, even-tually, to nationwide use. The demand for such seed would serve as a forceto exert discipline on the seed industry.

IX. CONCLUSIONS

9.01 The project was of very mixed success, indeed, the degree of successof some components is not clear. Of the main infrastructure, two of the fourseed processing plants were completed and commissioned, the remaining twowere badly constructed and must be replaced. No seed was actually processedin the new plants except for trial runs, prior to closing of the Credit inJune, 1983. However, the PSC did clean seed in rented plant, which itmarketed in sizeable quantities. It was of better quality, it is believed,than pre-project seed but not of the genetic purity and quality the newprocessing plants will provide. Seed certification and registration ageacieswere established, are functioning and are exercising some discipline overgenetic purity and quality. It is not possible to say how much impact thishas had nationally, although it appears limited to date. The vegetable seedpilot component was quite successful and marked an important step towardestablishment of a vegetable seed industry. The potato seed pilot componentachieved some success, but the results will only be known after a few cropcycles.

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9.02 Whereas the objective of the project was the establishment of a fullscale seed industry which by project completion would have sufficient impactto increase about half the national crop production sizeably (10%), andensure a continuing supply of pure high quality seed, the present status mustbe regarded as an interim one. With only two of the four processing plantsjust beginning operation, it will take a few years to see what happens. Notthe least of the uncertainties is the quality of Seed Corporation managementand the role of the FMA. Inadequacies in this respect might cause the seedindustry, to the extent it has developed under the project, to revert towardspre-project state.

9.03 The project ended in a state of confusion. After a 2-1/2 year exten-sion of the Closing Date, during which minimal progress was made in dealingwith the situation of the ill-constructed processing plants, and in the faceof an inability to deal coherently with the FMA and PSC on the matter, theAssociation decided not to further extend the Closing Date and the Credit wasclosed June 30, 1983. Disbursements against existing contracts were con-tinued for another six months. The undisbursed balance, US$4,444,000, almost20% of the original Credit amount, was cancelled March 21, 1984. Thecancellations had a pronounced impact on the principals, FMA and the SeedCorporations, who in the face of the Association's seeming propensity tooverlook their continual failure to improve the project, had got the impres-sion that the funds would be available indefinitely. They complained to theAssociation accordingly. However, the Government had by this time realizedthe state of affairs and did no more than routinely query Credit closing.

9.04 In any case, the Government established a commission to make aninvestigation of the seed project experience, focussing on the project delay,the ill-constructed processing buildings, the underutilization of the Creditand related matters. As a consequence, the PSC and MFA appeared to be mark-ing time in resolving the processing plant situation and other seed matterspending the outcome of proceedings. The GOP and PSC were reluctant todisclose further developments when the Association inquired in December 1984.However, it was learned that the federal investigation had completed itsenquiry but the results had not yet been made known. The defective process-ing plants had not been replaced. However, tender documents had beenprepared and COP had cleared budget provision for the plants. The Bank hasnot since initiated any similar seed project activities.

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PAKISTAN

PAKISTAN SEED PROJECT (Cr. 620-PAR)

PROJECT COMPLETION REPORT

Summary of Project Costs(US$ Million)

LogeLl Foreign Tola

Seed Corporations 17.1 7.1 24.2Seed Growers Farms 3.8 6.0 9.8Registration and Certification 0.7 0.2 0.9Pilot Project and Research 1.0 0.7 1.7Technical Assistance 0.4 2.0 2.4Contingencies I. I..L-1 ILI

Total 33.9 22.6 56.5

- 50 -ANNEX 2

PAKISTAN

PAKISTAN SEED PROJECT (Cr. 620-PAK)

PROJECT COMPLETION REPORT

Actual and Estimated Project Cost(Rs Million)

Original Actual as aActual Etimte L. of estimate

Punjab Seed Corp 305.5 L 271.4 112Sind Seed Corp 92.3 89.3 103Registration &

Certification 15.0 12.0 125Research and PilotComponents 12.7 21.7 59

Technical Assistance &Training 14.5 31.7 47

Seed Growers Farms 15.2 133.4 Ll 13Total 455.2 559.5 N.A.

L Includes contingencies.IJ Including cost to replace two poorly constructed seed processing

buildings, tentatively in 1985 and 1986.I The only expenditure on credit for tractors and farm implements; there

was no demand for credit for on-farm improvements.

-51 - ANNEX 3

PAKISTAN

PAKISTAN SEED PROJECT (Cr. 620-PAK)

PROJECT COMPLETION REPORT

Actual and Estimated Disbursements by Category(US$ Million)

Allocated Disbursed

Civil Works- FMA 0.09 0.26- PSC 1.23 1.60- SSC 0.30 1.05- Baluchistan 0.08 .06

1.70 2.97

Materials and Equipment- FMA 0.25 0.60- PSC 6.30 10.79- SSC 2.35 2.53- Baluchistan 0.10 0.16

9.00 14.08

Seed Growers, Tractors and Implements- PSC 1.87 -- SSC 0.39 -

2.26 1.44

Seed Growers - PSC 1.45 -(Through Commercial Banks) - SSC 0.30Farm Development 1.75 0.08 /a

Overseas Training 0.25 -

Technical Assistance 1.80 - /b

Unallocated 6.24 -Total 23.00 18.57

/a This category was reallocated as practically no funds were expended onfarm development.

lb TA disbursements were distributed among its recipients, Punjab, Sind andBaluchistan.

��