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1 Public Disclosure Authorized Document of The World Bank Report No: PAK Public Disclosure Authorized Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 16.6 MILLION (US$21.35 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR A NWFP ON-FARM WATER MANAGEMENT PROJECT Public Disclosure Authorized Rural Development Sector Unit South Asia Region April 10, 2001

2 CURRENCY EQUIVALENTS (Exchange Rate Effective March 27, 2001) Currency Unit = Pakistani Rupee (Rs) Rs 1.0 = US$ US$1.0 = Rs FISCAL YEAR July I June 30 ABBREVIATIONS AND ACRONYMS AWB - Area Water Board M&E - Monitoring and Evaluation BST - Baseline Survey Team NDP - National Drainage Project DESA - Distributary Environmental & Social Assessment NGO - Non-Government Organization CAS - Country Assistance Strategy NWFP - North West Frontier Province CDSG - Conmmunity Development and Support Group OFWM - On-Farm Water Management EA - Environmental Assessment O&M - Operations and Maintenance ECNEC - Executive Comnmittee of National Economic PAMIS - Project Accounting and Management Council Information System EMP - Environmental Management Plan PAS - Project Accounting Staff EPA - Environmental Protection Agency PCC - Project Coordination Committee ERR - Economic Rate of Return PID - Provincial Irrigation Department FATA - Federally Administered Tribal Areas PIDA - Provincial Irrigation & Drainage Authority FATADC - FATA Development Corporation PIMM - Participatory Irrigation Management Model FIDA - NWFP Irrigation & Drainage Authority PMR - Project Management Report FIMPS - Framework for Identifying, Preparing, and PPC - Provincial Policy Committee FO Monitoring Sub-Projects SEA - Sector Environmental Assessment - Farner Organization SOT - Social Organization Team FWUA - Federation of Water User Associations TA - Technical Assistance GOP Pakistan - Government of TMM - Transfer Management Model IBIS - Indus Basin Irrigation System TST - Technical Support Team ISRP - Irrigation Systems Rehabilitation Projects WUA - Water User Association Vice President: Country Director Sector Director: Task Team Leader/Task Manager: Mieko Nishimizu John W. Wall Ridwan Ali Rashed ul Qayyum

3 PAKISTAN NWFP ON-FARM WATER MANAGEMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 5 C. Project Description Summary 1. Project components 5 2. Key policy and institutional reforms supported by the project 7 3. Benefits and target population 8 4. Institutional and implementation arrangements 8 D. Project Rationale 1. Project alternatives considered and reasons for rejection Major related projects financed by the Bank and other development agencies Lessons learned and reflected in proposed project design Indications of borrower commitment and ownership Value added of Bank support in this project 13 E. Summary Project Analysis 1. Economic Financial Technical Institutional Environmental Social Safeguard Policies 21 F. Sustainability and Risks 1. Sustainability Critical risks Possible controversial aspects 25

4 G. Main Credit Conditions 1. Effectiveness Condition Other 26 H. Readiness for Implementation 28 I. Compliance with Bank Policies 28 Annexes Annex 1: Project Design Summary 29 Annex 2: Detailed Project Description 33 Annex 3: Estimated Project Costs 51 Annex 4: Cost Benefit Analysis Summary, or Economic Analysis Summary 58 Annex 5: Financial Summary 71 Annex 6: Procurement and Disbursement Arrangements 77 Annex 7: Project Processing Schedule 85 Annex 8: Documents in the Project File 86 Annex 9: Statement of Loans and Credits 87 Annex 10: Country at a Glance 90 Annex 11: Social and Environmental Assessment 92 MAP(S) IBRD 22655R

5 PAKISTAN NWFP ON-FARM WATER MANAGEMENT PROJECT Project Appraisal Document South Asia Regional Office Rural Development Sector Unit South Asia Region Date: April 10, 2001 Team Leader: Rashed U Qayyum Country Manager/Director: John W. Wall Sector Manager/Director: Ridwan Ali Project ID: P Sector(s): Al - Irrigation & Drainage, BD - Decentralization, BI - Institutional Development Lending Instrument: Specific Investment Loan (SIL) Theme(s): Rural Development; Water Poverty Targeted Intervention: Y Project Financing Data [ I Loan [X] Credit [ ] Grant [ ] Guarantee [ Other: For LoanslCreditslOthers: Amount (US$m): $21.35 million (SDR 16.6 million) Proposed Terms (IDA): Standard Credit Grace period (years): 5 Years to maturity: 20 Commitment fee: 0.75% Service charge: 0.01% Financing Plan: Source Local Foreign Total BORROWER IDA FARMER ORGANIZATIONS Total: Borrower: GOVT. OF PAKISTAN Responsible agency: NWFP OFWM DIRECTORATE AND FATADC Water Management Directorate, Agriculture Department, N.W.F.P. Address: 5th Floor, Benevolent Fund Building, Peshawar Cantt Contact Person: Mr. Muhammad Yousaf Khattak, Director Water Management Tel: Fax: Other Agency(ies): Federally Administered Tribal Areas Development Corporation (FATADC) Address: Warsak Road, Peshawar Contact Person: Mr. Taj M. Afridi, Executive Director Tel: Fax: Estimated disbursements (Bank FYIUS$M): FY Annual Cumulative Project implementation period: 5 years Expected effectiveness date: 09/15/2001 Expected closing date: 06/30/2006 OCS PAD PamD Pmt Min 2O00

6 A. Project Development Objective 1. Project development objective: (see Annex 1) A. 1.1 The North West Frontier Province On-Fann Water Management Project's (NWFP-OFWM) development objective is to reduce rural poverty through increased agricultural production leading to increased farm incomes. This objective would be achieved by: (a) improving the reliability, efficiency and equity of distribution of available irrigation water; (b) increasing on-farm water use efficiency; and (c) enhancing long-term financial sustainability of the irrigation system by supporting the government's effort to foster self sustaining farmer organizations (FOs). The FOs will be responsible for: managing, operating, and maintaining the water distribution infrastructure; collecting revenue from water charges; and contributing to the capital cost of investments in the water distribution system. 2. Key performance indicators: (see Annex 1) A.2. 1 The key performance indicators are: higher agricultural productivity (increased crop yields and cropping intensities, and shift in the cropping pattern to higher value crops); formation of effective FOs and their participation in the operation and management of the irrigation systems at the distributary and watercourse levels; reduction in public sector operations and maintenance (O&M) costs at the tertiary levels; increase in water supply; and improved equity and timeliness of water distribution. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: PAK; and Progress Report of December 28, 1998 Date of latest CAS discussion: January 21, 1999 B. 1.1 The overall objective of the Bank's assistance strategy in Pakistan is to help reduce poverty. To address this objective, the Bank's approach highlights two closely linked challenges: improving the inadequate basic social services and reducing constraints to sustained growth. Expanding access to and improving the quality of basic social services are essential to improve living standards in Pakistan. In addition to assisting the completion of fiscal adjustment, the Bank's strategy is to support the growth objectives by focusing on structural reforms, improving the enabling environment for the private sector, strengthening inadequate basic infrastructure, reducing constraints on agriculture productivity, and protecting Pakistan's natural resource base. The Bank is assisting in the redefinition of the public and private sectors in Pakistan by focusing on public policy formulation, institutional development, critical public investments for private sector led growth, and strengthening the basis for private investments. B. 1.2 In the irrigation and drainage subsector, the government has adopted a completely new approach to address the irrigation system crisis (Pakistan-Irrigation and Drainage: Issues and Options, Report No PAK, March 25, 1994), which the Bank is supporting through various operations. Consistent with the CAS, the goals of establishing an efficient, self-sustaining irrigation and drainage system are to be achieved by promoting the use of market-determined incentives for improving the supply and management of irrigation and drainage services, and by giving the beneficiaries a greater stake in the system. The irrigation service is being decentralized by developing commercially oriented area water boards (AWBs) on a canal command level, while the management at the, distributary/minor level would be transferred to FOs. Autonomous provincial irrigation and drainage authorities (PIDAs) have been established for water delivery to AWBs and for handling off-farm drainage and regulations. The ongoing National Drainage Program (NDP) and subsequent proposed irrigation systems improvement projects are providing support -2 -

7 for reinforcing PIDAs and establishing more AWBs. This project would enhance participation of farming communities in irrigation management at the distributary/minor canal level. B.1.3 The project supports the CAS goals for sustainable growth, poverty reduction, and enhanced efficiencies and private/beneficiary participation in the delivery of economic and social services through: (a) promoting agricultural growth and crop diversification by improving the reliability, timeliness and equity in the distribution of irrigation water at the farm level; (b) establishing a decentralized, self-sustaining and participatory institutional apparatus for the operation and management of the irrigation and drainage systems; and (c) the strategic focus on the participation of communities, NGOs and the private sector in the institutional arrangements and processes. 2. Main sector issues and Government strategy: B.2.1 Agriculture is the backbone of Pakistan's economy, employing 47 percent of the labor force and earning 70 percent of export revenues. Total cultivated area is 22 million hectares (ha), with overall cropping intensity of 105 percent. Pakistan's agriculture is almost wholly dependent on irrigation; irrigated land supports more than 90 percent of agricultural production. Agriculture in most areas is not possible without irrigation because the climate is arid to semiarid with low and variable rainfall. However, there are abundant surface water resources in the Indus Basin, which covers 566,000 kmi and is the major source of Pakistan's water. The Indus Basin Irrigation System (IBIS) commands about 14 million ha which accounts for the bulk of the agriculturally productive land. Annual river inflows average about 180 billion m' of which about 130 billion m are diverted to canals. The IBIS is composed of three major reservoirs (Chasma, Mangla, and Tarbela), 19 barrages, 12 link canals, 43 canal commands and about 135,000 watercourses, one-third of which are already renovated. B.2.2 The NWFP covers 13 percent (10.2 million ha) of the total country area. It has nearly 2 million ha cultivated land with an overall cropping intensity of 113 percent. The majority of people (85 percent) live in rural areas, compared to 68 percent for the rest of Pakistan. Consequently, agriculture in the province employs 4 percent more labor force than the country average of 47 percent. Irrigated agriculture which accounts for 51 percent of the cultivated area supports about 60 percent of the agricultural production. While much of the irrigated area is outside the IBIS command, 83 percent of the irrigated lands are supplied water by the canal systems, of which 13 percent of land is supplemented by groundwater (through tubewells and persian-wheel wells). About half the canal command area of 0.78 million ha is served by government canals and the remaining half by the private canals, commonly known as civil canals. NWFP has about 20,400 watercourses, of which 31 percent are already renovated under the previous on-farm water management (OFWM) programs. B.2.3 As is prevalent in Pakistan, the irrigation and drainage systems of the province are facing severe problems. Despite the government's substantial budgetary input (the yearly allocations relative to other sectors may seem healthy but may have been grossly inadequate to effect the required maintenance), the systems face shortage of resources and suffer from worsening operational problems. In addition to water scarcity, the subsector faces major problems: inefficient management of water systems (low delivery efficiency and inequitable distribution); waterlogging and salinity; over-exploitation of groundwater in fresh groundwater areas; inadequate O&M; and insufficient cost recovery. The average delivery efficiency is reported to be between 35 percent to 40 percent from the canal head to the root zone

8 B.2.4 The actual situation is even worse--most of the water losses occur in the unlined watercourses. Traditionally, the watercourses suffer from improper design, poor maintenance of channel banks, frequent siltation, inadequate provision for culverts and animal drinking points, and nonstandard outlets for irrigating the fields. The loss of such a major part of surface water not only reduces the available water for crops but also contributes to waterlogging and salinity. With reduced water availability, irrigators at the tail-end of watercourses, in particular, are exposed to greater risks of crop failures which provides a disincentive for them not to use other non-water inputs. In many instances, farmers are no longer keen to adopt measures which enhance the water application efficiency. B.2.5 Another serious problem is inequitable water distribution, that arises from excessive losses in the conveyance system, and due to unauthorized outlets and illegal pumping from canals. Poorly maintained watercourses and minor canals have the highest incidence of illegal diversion. There are no effective foruns of the farmers to raise their concerns, therefore collective actions are rarely contemplated to check the inequities of water distribution. Moreover, the excessive role of the government in irrigation management does not encourage meaningful beneficiary participation in the system management. B.2.6 Pakistan has invested in rehabilitating the irrigation and drainage systems. At the tertiary level of irrigation distribution system, the OFWM program started in 1976, when the government began improving the watercourses, constructing water storage tanks, and developing hill torrent based irrigation systems. Under this donor (i.e., IDA, USAID, ADB, OECF, and others) supported program, to date about 44,000 watercourses have been improved. Under the Irrigation Systems Rehabilitation Projects (ISRP) which started in 1982, an attempt was made to clear backlog in the maintenance of irrigation canals and surface drains. Both programs were highly successful in making physical improvements to the systems. However, these programs lacked the institutional changes needed for long-term sustainability of the systems. B.2.7 Beneficiary participation is one of the key features of the OFWM program, and it is popular among the fanming community. Under the three completed projects, the water users associations (WUAs) enthusiastically participated in implementing the projects and made considerable contributions to capital costs. However, after the improvement works were completed the WUAs became inactive. Therefore, the gains made by WUA involvement began to dissipate over time as the required maintenance works were not tended to routinely. After analyzing the reasons for inactivity (i.e., lack of partnership approach in irrigation management, continued inequities in water distribution), several pilots were implemented to organize FOs at the distributary/minor level with clearly devolved roles for the operation and management of the infrastructure, and more importantly, recovery of water rates. B.2.8 In the past, various OFWM programs improved the supply of irrigation water below the mogha (a designated water outlet in the minor or distributary canal) level, yet they fell short of addressing the problems of an overly centralized and bureaucratic public sector institutional set-up to manage irrigation and drainage systems. In order to address this problem the federal and provincial governments are moving towards major restructuring of the provincial departments, by establishing autonomous PIDAs, commercially oriented AWBs at the canal comnmands to operate the main and branch canals, and participatory FOs for the operation and management of the system at the distributary/minor level. The proposed NWFP-OFWM would deepen the institutional reforms which aim at improving operational efficiency at all tiers of the system. The project would focus at the tertiary level by establishing and sustaining effective FOs, and hence will form an important link in the chain of institutional reforms

9 3. Sector issues to be addressed by the project and strategic choices: B.3. 1 Building on different pilot projects undertaken in the country, the project would broaden and deepen the recent reform initiatives started under the National Drainage Project (NDP), and enhance the participation of farmers in irrigation management at the distributary/minor canal level. The project would help in establishing sustainable irrigation and drainage systems by rationalizing public expenditures on O&M of the irrigation and drainage systems, increasing recovery of public expenditures on irrigation infrastructure, and improving the efficiency of water use. The strategic choices include: (a) establishing effective organizations, supported by technical staff at the distributary/minor canal level; (b) creating capacity within these organizations to participate in the management of irrigation system on a sustainable basis; (c) providing infrastructure improvements after they have demonstrated such capacity; and (d) enabling farmers' participation in planning, implementing, and maintaining project facilities with substantial contributions to capital cost. B.3.2 A major part of the investments is off-farm as it relates to above mogha improvement works at the distributary and minor canals. These investments are justified because they are instrumental in: (a) redefining the government's role through formation of comnnunity groups that would take over the system's O&M; and (b) ensuring the equitable availability of water at the mogha. Equitable access to water by all users would encourage the laggard WUAs to mobilize their resources for watercourse improvement as the cost sharing arrangement progressively shifts the responsibility to irrigators rather than the government. Moreover, these investments have high rates of return, usually above 30 percent, notwithstanding the catalytic role they will play in bringing about a systemic change. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): C.1.1 The project will cover an area of about 0.23 million ha [210,500 ha in NWFP, and 22,400 ha in federally administered tribal areas (FATA)], and it will be implemented over five years. Its major components are: (a) community development and support program to promote formation of FOs through a well structured social mobilization and support program; (b) distributary-level improvement proram to provide rehabilitation of distributaries/minors; (c) watercourse and on-farn improvements program to help renovating and/or constructing watercourses, field ditches, water storage tanks, as well as promoting other measures which enhance water application efficiency in the canal command and barani areas; (d) improvements in branch/distribution canals supplying water to secondary level channels managed by farmers; (e) local/minor irrigation schemes development prorm outside the Indus Basin Irrigation System; and a (f) project management support component. (a) Through the community development and support program, FOs will be developed at the distributary/minor canal level, and will participate in sustainable management and O&M of the irrigation system. Two models will be followed to enhance the farmers participation in system management: (i) a transfer of management model (TMM) under which irrigation management would be fully transferred to FOs after completing an agreed period ofjoint management. A transfer of management contract will be executed between the government agency and FO, and will define the terms of transfer and roles of all concerned parties. Under this model six FOs, covering an area of about 26,000 ha, will be formed; and (ii) a participatory irrigation management model (PIM1\ where a federation of WUAs (FWUAs, where WUAs are organized at the watercourse level) will be formed at the distributary/minor canal level to participate in managing the irrigation system. Under this model, 16 FWUAs, covering an area of about 90,000 ha, will be forned. These FOs/FWUAs will be - 5 -

10 involved in the irrigation management, and in planning, designing, and implementing irrigation improvement works proposed to be constructed under the project, and will be provided with agricultural support services. Alternate fonrs of the TMM and PIMM approaches, as appropriate (Annex 2), will also be evaluated. (b) The distributary-level improvement program assistance will be provided to improve off-farm distributary/minor canals where FOs/FWUAs have begun participating in the irrigation management. Twenty-two distributary canals within FO/FWUA areas (20 in NWFP and two in FATA) would be rehabilitated/improved. (c) In the watercourse and on-farm improvements program, about 1,380 watercourses (1,330 in NWFP and 50 in FATA) would be renovated, 350 water storage tanks would be built in the barani areas of NWFP, precision land leveling would be done on 3,540 ha (3,034 ha in NWFP and 500 ha in FATA) of land, and 60 demonstration centers (48 in NWFP and 12 in FATA) would be established to disseminate the full range of water management practices and irrigation agronomy techniques. These demonstration centers will be knowledge dissemination points. The project would prioritize investments by focusing on areas that are relatively poor, beginning at the tail-end of the irrigation system in a proportionate manner. About 31,000 ha of canal irrigated and 15,000 ha of barani irrigated area will benefit from improved irrigation. (d) Improvements in branch/distributary canal systems (above FOs/FWUAs) are necessary to improve water distribution to the distributary/minor canal network. The branch/distributary canals have deteriorated over time due to over-use and inadequate maintenance for the lack of required funds. They often carry discharges beyond the limits of safe operation. Under the ongoing reform process the provincial supply agency [the North West Frontier Province Irrigation and Drainage Authority, or FIDAI will be mandated to supply the agreed amount of water to FOs/FWUAs, the project will provide for rehabilitation/improvement of another 20 branch/distributary canals leading to areas managed by FOs/FWUAs. It would cover an incremental area of about 45,000 ha. (e) The local/minor irrigation schemes development program is envisaged, with active participation from farmers, for 25 sites in NWFP and three equivalent sites in FATA (six sites with smaller flows) where perennial/seasonal flows need to be tapped. It would cover an area of about 22,400 ha. The intake structures would be improved to increase water captured from the sources and losses would be reduced in the main delivery channel supplying water to the service area. In flood schemes, simple rehabilitation would be carried out to improve efficiency and equity. (f) The project management support component would provide assistance in project supervision, project launch, mid-term review, impact evaluation, financial management and auditing, development of a management information system, and training

11 Component Sector Indicative Bank- % of Costs % of financing Bank- (US$M) Total (US$M) financing (a) NWFP Institutional Community development and Development support program Distributary-level improvement Irrigation & program Drainage Watercourse and On-farm Irrigation & improvement program Drainage Improvements in branch/distributary Irrigation & canal systems Drainage Local/minor irrigation schemes Irrigation & development program Drainage (b) FATA Institutional Community development and support Development program Distributary-level improvements Irrigation & program Drainage Watercourse and on-farm improvement Irrigation & program Drainage Local/Minor irrigation schemes Irrigation & development program Drainage (c) M&E Wing project management Institutional support Development Total Project Costs Total Financing Required Key policy and institutional reforms supported by the project: C.2.1 The project will not seek new policies or institutional reforns but will support the ongoing institutional reforms involving the decentralization of the provincial irrigation and drainage departments, redefinition of the public sector's role and its interface with the private sector/beneficiary groups in the management, and O&M of the irrigation and drainage systems. The organization of beneficiary groups into viable administrative and financial entities would ensure better cost recovery in collecting water charges and sharing capital costs for the construction/rehabilitation of the irrigation infrastructure

12 3. Benefits and target population: C.3.1 A more efficient, productive, and sustainable irrigation and drainage system is capable of making a greater impact on development at less cost to the government's budget. Cost reduction and efficiency enhancement would largely accrue as a result of participation of the farming community in irrigation management at the distributary/minor canal level. In tangible terms, agricultural productivity gains would come from improved water management practices. Equitable distribution of water would also encourage a greater number of irrigators to optimize use of other nonwater farm inputs, which in turn would lead to higher farm productivity. It is generally expected that due to increased water supply at the farm-gate, cropping intensity would increase by 10 percent or more, and crop yields would increase by five to 10 percent due to better use of inputs and by adopting more appropriate technologies. Moreover, a general trend would emerge for parts of the target area, as indicated by the sections of a few canal command areas that have better access to physical and marketing infrastructure, to undergo a gradual shift from subsistence farming to higher value crops such as orchards and vegetable crops. A great degree of confidence in attaining project benefits is based on demonstrated effects of similar works in several earlier on-farm water management and irrigation system rehabilitation projects supported by IDA, and other donors, notably ADB and OECF. C.3.2 Higher productivity and crop diversification are indicators that increased agricultural growth would alleviate poverty in the rural areas of NWFP and FATA, where most of the poorest live--a target population of some 2.2 million people, constituting about 11 percent of the provincial (including FATA's) population. The project will yield economic benefits in termns of higher agricultural output, greater rural employment, equitable distribution of water, and stronger irrigation and drainage sector institutions. 4. Institutional and implementation arrangements: C.4. 1 A provincial policy committee (PPC), synonymous to the projects review board (that already exists in the NWFP), would provide overall policy guidance and interdepartrnental coordination for the effective and timely implementation of the project. The PPC would be chaired by the Additional Chief Secretary (Development), and it's members would be the Secretaries of Irrigation, Agriculture, Planning and Development/Enviromnent, Finance, and the Director General of the Environmental Protection Agency (EPA). The chairman of FATADC would be the nonprovincial member representing FATA. The Director OFWM would be the convener/secretary to the PPC. The PPC would meet at least every six months, or whenever issues requiring resolution are submitted for its consideration. The PPC's main responsibilities of the PPC would be to: (a) resolve issues not settled by the PCC; (c) ensure provision of an adequate budget for project implementation, and O&M; (c) ensure that project management staffing is adequate and continuous; and (d) ensure that the project complies with the legal and financial covenants. Project Coordination C.4.2 A project coordination committee (PCC) would be responsible for ensuring coordination among various agencies, and facilitating project implementation. The PCC would be chaired by Director, OFWM and it would have members from the provincial Irrigation Department/FIDA (the superintending engineers of concerned canal and drainage circles); Federally Administered Tribal Area Development Corporation (FATADC); provincial Agricultural Department (the relevant area coordinators of OFWM, and the deputy directors of Agriculture); the relevant representatives of the district administration; and the FOs. The PCC would meet quarterly, and its secretariat would compile quarterly monitoring reports and other special reports to be submitted to PPC, federal government entities, and IDA

13 C.4.3 The Monitoring and Evaluation Wing (M&E Wing) at the Planning, Environment and Development Department (NWFP) would carry out activities for project supervision, M&E, and special studies that would help to assess the project's effect. The Wing would: (a) appoint consultants (where required), for quality assurance, financial accounting, and auditing, who would work closely with the relevant agencies of NWFP/FATA; (b) coordinate the monitoring of key project performance indicators; (c) facilitate the project's impact evaluation; and (d) participate in project supervision by the Bank and the Government of Pakistan (GOP). Implementation arrangements are shown schematically in Annex 2, Charts 2.1 and 2.2. Project Implementation C.4.4 The project would be implemented by the: OFWM Directorate of the Agriculture Department; Irrigation Department/FIDA; FATADC; and the FOs with support from project implementation consultants (PICs) and NGOs. The project management would have a minimum of staff for the duration of the project, and would be supported by the consultants and NGOs. The core management structure would consist of Director OFWM, and two ex-officio members, one from the Irrigation Department/FIDA and the other from the Water Management Wing, and would be assisted by the Community Development and Support Group (CDSG). The Director OFWM would have overall responsibility for the community development and support program. CDSG would have offices at headquarters and in the field, as needed, where the social organization program would be launched. CDSG field teams would have multidisciplinary staff consisting of social organizers, institutional development specialists, agriculturists, agricultural economists, engineers, and surveyors. C.4.5 The member (Irrigation), working through the Irrigation Department/FIDA's management and the canal operation divisions would coordinate transfer/participation of FOs/FWUAs in irrigation management, including joint management and execution of managementransfer/participation contracts, improving canal systems leading to the FO/FWUA managed areas, local/minor irrigation schemes, and other support required by FOs/FWUAs to improve canal systems in their areas. The member (OFWM) working with the water management staff would be responsible for watercourse improvements in distributary-level FO/FWUA areas as well as in barani areas, precision land leveling, and in development of demonstration centers. C.4.6 The NGOs would form an integral part of CDSG and play roles at two levels. First, at the provincial level they would assist in designing of the community organization progran, and in conducting staff and farmers training. Second, working with local communities, service-oriented NGOs and other community based organizations (CBOs) they would help in the development of FOs. C.4.7 The FOs have a central role in project implementation. FOs/FWUAs would establish their offices, and progressively take over irrigation management from the government agencies. They would distribute water among users, collect water charges, maintain income and expenditure accounts, and carry out the routine O&M and repairs of the irrigation and drainage infrastructure below, or both below and above, the mogha-level (participatory irrigation management or transfer management models). Initially, FOs/FWUAs would carry out these activities with the support of CDSG staff. After completing the technical assistance and training phase, ultimately the FOs/FWUAs would carry out their activities with the help of their supporting staff. -9-

14 Monitoring and Evaluation Arrangements C.4.8 The PPC would be responsible for overall monitoring of the project. They would meet every six months and review the overall progress of the project, and discuss major policy issues relating to transfer of management, social organization program, staffing, restructuring, project finance and other related matters. C.4.9 The M&E Wing would monitor the physical and financial project progress, analyze data on key performance indicators on a regular basis and collate quarterly progress reports, for submission to the PPC, the federal government and its relevant entities, and to IDA by no later than January 31, April 30, July 31, and October 31 of each year for the preceding three months. The performance indicators would include project planning, programming and budgeting, consultant and contractor performance, cost recovery from users, effectiveness of operations, delivery of irrigation water and drainage services, beneficiary participation, and effectiveness of FOs/FWUAs. Key development objective indicators are presented in Annex 1. Progress against these would be monitored as an integral part of project implementation. C In addition to coordinating the project activities, the M&E Wing would collaborate with the other agencies (NWFP government/fatadc, autonomous, NGOs, and other donors), as cleared by the PPC, to carry out an in-depth quantitative and qualitative evaluation of the project's impact. The impact evaluation studies would focus on: (a) agricultural growth and crop diversification; (b) income and employment, and secondary effects on regional economy; (c) water use efficiency and on equity of distribution; (d) sustainability of irrigation and drainage systems; (e) analysis of O&M expenditures and revenue receipts; and (f) performance of FOs/FWUAs. C The Bank would supervise the project, on an average, twice a year. Supervision would be undertaken more frequently (if needed) during the first two years to steer the project through the start-up stage. A project launch workshop would also be organized during the start-up stage. Relatively, higher Bank supervision effort would be given to this project, because, unlike conventional irrigation projects, this project is "software" intensive rather than "hardware" intensive. Community organization and transfer of irrigation management are central to the project, and are relatively new disciplines being applied to improve the performance of Pakistan's irrigation projects. Environmental and social development specialists would be included in at least two annual supervision missions and as an integral part of the mid-term review to monitor the implementation environmental and social framework approach (Annex 11), with particular attention to early development of baseline survey instruments, checklists and screening guidelines, capacity building and training programs, and extension programs. C.4.12 A midterm review would be carried out before the end of the third year of project implementation (March 31, 2004), at which time the government would review the implementation of the project with IDA on the basis of supervision and monitoring program outcomes. The midterm review would: evaluate the overall progress, assess the need for adjustments in the project design and scope, implementation approach and methodology, and revisit policy aspects to ensure timely completion of the project's activities in a manner that the outcome would be satisfactory and consistent with achieving the project development objective. An implementation completion report (ICR) would be prepared within six months after the closing date, and would focus on the lessons leamed, project outcomes, and the achievement of development objective as reflected by the key indicators presented in Annex

15 D. Project Rationale 1. Project alternatives considered and reasons for rejection: D. 1.1 Over the last decade several approaches been have been tried, without much success, to stop deterioration of the irrigation system and improve its performance. These approaches include: increased water charges, efforts to improve administrative controls and enhance O&M budgets, and technical improvements in carrying out O&M. Despite significant efforts collection of revenues did not increase, the provincial government was unable to provide sufficient funds for O&M and consequently, there was an accumulation of deferred maintenance. This resulted in decreased systems efficiency and heightened inequities in the distribution of irrigation water. These approaches addressed only the problem's symptoms, but not the root cause--a pervasive public sector involvement without meaningful participation of the users in managing and financing the operation of the system. D. 1.2 The proposed approach is based on a thorough analysis of the sectoral issues jointly carried out by the Bank and the GOP, the Bank's water resources management policy, and lessons learned from implementation of several projects and pilots in all of Pakistan's provinces, and in other countries. Beneficiary participation is central to all project activities. Before carrying out any civil works, FOs/FWUAs would be formed to participate in operation and management of the system on a sustainable basis. The proposed approach of enhancing beneficiary participation in irrigation management is considered to be the best alternative for achieving these objectives. A flexible approach is proposed to suit the local needs in forming FOslFWUAs, their structure, size, organization and to incorporate lessons learned as the transfer of management proceeds. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financed l I projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Improving efficiency of water use and On-Farm Water Management S S capital cost recovery Projects, I, II, III, and Conmmand Water Management Rehabilitation of irrigation systems and Irrigation System Rehabilitation S S improvements in its O&M Projects I and II Rationalization of public expenditures Second SCARP Transition S S on O&M and community participation Project and Punjab Private in irrigation management Sector Groundwater Development Project Irrigation improvements, community Fordwah Eastern Sadiqia S S participation, FOs pilot and research (South) Project System improvements, institutional Left Bank Outfall Drain Project S S changes, cost recovery, and community development

16 Community participation, Balochistan Community Minor S S improvements in irrigation facilities and Irrigation Project O&M Institutional reforms, control of National Drainage Program S S waterlogging and salinity, improved water management Decentralization of management at the Proposed Punjab Irrigation canal command level, improved water Systems Improvement -- management Rating not available as the project is in pipeline. Other development agencies Improving efficiency of irrigation systems ADB and OECF supported On-Farn Water Management projects IPJDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: D.3. 1 The project was designed by taking into account the important lessons learned from the Bank's involvement in Pakistan's irrigation and drainage sector, particularly, from the two pilot FWUAs on the participatory irrigation management organized at the Pabbi and Surizai minors in the NWFP, and in other countries such as Argentina, Chile, the Dominican Republic, Mexico, the Philippines, and Turkey. Key lessons incorporated into the project's design are: (a) Beneficiary participation is central to the project; and a social organization and support program is designed to develop sustainable FOs/FWUAs that can participate effectively in managing the irrigation system. In the case of the Pabbi/Surizai pilot, farmers initially perceived that managing irrigation was beyond their capacity, however, with reorganization they accepted that they could undertake the task. Unlike in the past, the FOs/FWUAs would be responsible for crucial functions in irrigation management, that is, distribution of water and collection of water charges. To carry out these functions effectively, they would be formed at the distributary/minor level, the point where water control lies in Pakistan's irrigation system, and would have the authority to levy and collect water charges. They would cover sufficiently large areas, with an average command area of about 4,500 ha, and would generate sufficient revenues to support a team of technical staff, run an office, and to purchase the simple machinery needed to satisfactorily carry out the systems O&M in a cost effective manner; (b) A formal agreement would be executed between the irrigation agency and the FOs/FWUAs in which there would be a clear definition of the roles of both parties, and the procedures for their participation in the system's management. The Pabbi/Surizai experience also reveals that it is essential for the minors to be transferred to FWUAs, the roles of farmers and govemment agencies are clear, and there is agreement on working arrangements; (c) FOs[FWUAs should function for a considerable period of time (while it took three years to federate the WUAs at the minor level in Pabbi/Surizai, a key conclusion of the pilot was that the organization process can be completed in much less time), carrying out the system's O&M. In order to receive assistance from the project FOs/FWUAs should be willing to participate in planning, designing, and implementing improvements in the infrastructure and rehabilitation works;

17 (d) FOs/FWUAs would make substantial (WUAs have demonstrated to pay 20 to 30 percent up-front cost of materials, in addition to providing labor for the works) contributions towards the capital cost of infrastructure improvements and construction works, thereby increasing their stakes in the system and enhancing their ownership of the project; and (e) In order to optimize the benefits of equitably distributed water, an incisive package for disseminating full range of water management practices and irrigation agronomy techniques at the farm level has been included in the project (this was also a key lesson from the Pabbi/Surizai pilot). 4. Indications of borrower commitment and ownership: D.4. 1 The borrower is strongly committed to the program and has requested the Bank to process this project on a priority basis. The project PC-I documents (government's equivalent of a project appraisal document) for NWFP and FATADC have already been approved by the respective govemments, as part of a federal umbrella PC-I which was approved by the ECNEC in September The implementing agencies have provided support in preparing cost estimates, institutional structure, and implementation methodology which are reflected in the project's design (details in Annex 2). The institutional reform program undertaken by the government under the NDP, and commitmento establish AVWBs under the Irrigation Systems Improvement Project clearly demonstrate the government's commitmento implement the sector strategy and to restructure the irrigation and drainage sector, which have the main elements of the transfer of management at the distributary/minor level, and farmers participation. 5. Value added of Bank support in this project: D.5. 1 Of all the major donors, only IDA has a comprehensive view of sector development, a strategic focus and the lessons of experience in implementing sector wide projects through out the world. IDA's role is crucial to achieve the project objectives of reforming the institutional structure and implementing the elements of irrigation and drainage sector strategy. IDA's role is necessary to redefine the role of the government in development of the irrigation sector with an emphasis on decentralization and beneficiary participation. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=US$ 16.5 million; ERR = 26.6 % (see Annex 4) O Cost effectiveness O Other (specify) E.1.1 In Pakistan economic evaluation of similar works has been done more than 20 times over the last two decades for project appraisal, completion and OED audits, and impact evaluation. The economic rate of return (ERR) of watercourse improvement projects has been higher than 20 percent (and as high as 35 percent). The ERR of irrigation systems rehabilitation has been around 50 percent. The farmers' willingness to participate in managing and to make significant up-front contributions for capital cost of the project works are clear indicators that returns from project investments are significant. E. 1.2 The ERR of this project is estimated at 27 percent. The ERR is robust and not very sensitive to variations in the project costs or benefits. It is highly unlikely that unfavorable developments would reduce the project ERR to less than the opportunity cost of capital, taken at 12 percent

18 2. Financial (see Annex 4 and Annex 5): NPV=US$ 14.5 million; FRR = 24.3 % (see Annex 4) Fiscal Impact: E.2. 1 The project would make the Provincial Irrigation Agency (PID)/Frontier Irrigation Drainage Authority (FIDA) more financially sustainable and would have a positive impact on the government budget. Participation of FOs/FWUAs in O&M at the distributary/minor level would result in a savings in the government's recurrent budget, and generate more revenue due to improvements in the collection of water charges. E.2.2 With approximately 22 percent of the total investment costs funded by farmers and 67 percent by IDA, the government will be required to finance only about I 1 percent of total project. When the taxes and duties that are estimated to accrue to the government due to project activities are taken into account ($2.4 million which is about 7 percent of total costs), the net government contribution will amount to about 4 percent of the total project costs. The fiscal impact of the project during implementation, therefore, is not expected to place undue financial strain on the government. E.2.3 Cost recovery: (a) O&M costs. The FOs/FWUAs would be responsible for bearing O&M cost of the system in their area. Additionally, they would pay water charges to cover the O&M cost of the system in the control of the irrigation water supply agency, FIDA. Therefore, in the future, the FOs/FWWUAs would bear the full cost of O&M. These arrangements would be finalized by executing a management contract between FOs/FWUAs and FIDA. The contract would be customized to suit local needs of each FO/FWtA. However, it would clearly indicate a schedule of water rights by volume for each ten-day period, charges which would be payable for O&M of the upper tier of the system to FIDA, and other obligations of FOs/FWUAs and FIDA, including procedures for participatory management and transfer. The FOs would enact its bylaws by defining working procedures, methods of fund raising for capital works, and O&M of the systems in their command. (b) Capital costs. The farmers would also share the cost of capital works. The proposed arrangements are: (i) watercourse improvements and water storage tanks: the farmers, through WUAs, would provide up-front the cost of skilled/unskilled labor and 25 percent of the cost of materials--amounting to about 50 percent recovery of capital costs in real terms. The on-farm works, such as precision land leveling, would be fully funded by the farmers; (ii) distributay/minor rehabilitation/improvements: the farmers located in the canal commands of the pilot AWB would through their FOs, contribute up-front at least 10 percent of the capital. In other canal commands the farmers would be required to pay through the relevant FWUAs or FOs, at least 10 percent of the cost of such works, in 10 equal installments, over a period of five years, along with the water charge (abiana) payments; and (iii) local/minor irrigation schemes: the farmers through the WUAs, would provide up-front (in the case of cash) or commit (in the case of labor) 20 percent cost of such works

19 3. Technical: E.3. l The proposed rehabilitation and improvement works are technically sound; the technology used is well tested and suitable for local conditions. Sirnilar works have been carried out in the country under several IDA assisted projects. Efforts on further improvement, innovation, and reducing costs would continue during project implementation. 4. Institutional: 4.1 Executing agencies: E The main effort under the project is to develop FOs/FWUAs capable of participating and/or taking over the irrigation management at the distributary/minor level. To achieve this objective a comprehensive social mobilization, technical support, and training program is part of the project implementation. The duration and effort to form FOs/FWUAs and their capacity would vary over the project area. Ultimately the FOs/FWUAs would have an ongoing working relationship with the supply agency (FIDA/AWB), that would be determined under the transfer/participatory management agreement. During the transition period, the FOs/FWUAs would be supported by the CDSG under the overall direction of OFWM directorate. This directorate has been involved in formation of FOs/FWUAs at the distributary level, and WUAs at the watercourse level and have significant experience in working with the fanmers. A training program to strengthen the capacity of CDSG, the executing agencies and FOs/FWUAs in social organization and technical as well as extension support is part of the project. The OFWM Directorate has significant experience in the proposed watercourse and on-farm works, while PID/FIDA has expertise in the operation and rehabilitation of the canals systemns. 4.2 Project management: E As explained in Section C(4), the PPC would provide policy guidance and facilitate interagency coordination. The project management would consist of the director, OFWM, with members from Irrigation and Water Management. An internal/external monitoring program would monitor the progress of implementation, and the achievement of the development objectives. The project management and coordination arrangements are satisfactory for proper implementation. The project management will be capable of detecting major issues during implementation, and of steering the project to achieve the development objective. 4.3 Procurement issues: E Procurement of works, goods and services would be carried out in accordance with the IDA/Bank procedures (summarized in Annex-6). Standard procurement documents would be used for all procurements. Progress in procurement of services, goods, and civil works would be given in progress reports every six months. 4.4 Financial management issues: Accounting. Financial Reporting sand Auditing Arrangements (See Annex 5A for details) E Since the departmental accounting staff do not have the required skills to meet the project's unique financial management requirements, a team of professional accountants recruited by the NWFP as project accounting specialists (PAS) would advise, guide, and support the departmental accountants to carry out the accounting and financial management reporting of the project. The PAS would train and assist the departmental staff to: (a) maintain a computerized project accounting system capable of generating financial and procurement reports as required by IDA; (b) ensure that proper intemal controls are in place;

20 (c) facilitate government and external audits; and (d) prepare periodic project financial management reports. A computerized project accounting and management information system (PAMIS) would be used to maintain project accounts, track the physical progress of each component, update procurement information, and review the status of major project activities. A financial manual (FM) documenting the project financial management procedures would be formally adopted by the project implementing agencies to ensure transparency, uniformity, clarity, and accountability. The FM covers: (a) flow of funds; (b) financial and accounting policies; (c) accounting system and internal control mechanisms including information flow, and flow of documents; (d) chart of accounts; (e) financial reporting, including formats of project monitoring reports; (f) auditing arrangements; (g) budgeting; (h) organization and staffing for financial management functions; and (i) terms of reference of accounting consultants and external auditors. The FM would be updated periodically and improved based on implementation experience. The project provides funding for recruiting financial management consultants, purchasing computers and software, and for recruiting external auditors. E The selection of project accounting specialists, and nomination of counterpart government staff, would be completed before board presentation. It was agreed that: (a) the financial manual would be prepared and adopted by October 31, 2001; (b) the initial orientation and training of PAS and government counterpart staff would be completed by August 31, 2001; and (c) a computerized financial management system would be made fully operational not later than June 30, E Project financial statements would be audited annually by external auditors in accordance with auditing standards acceptable to IDA. The financial statements would be submitted to auditors within three months of the end of the each fiscal year (September 30), and the audit report and audited project accounts would be submitted to IDA within six months (December 31) of the end of the fiscal year. E Disbursements: Disbursements would initially be made on the traditional system (reimbursements with full documentation and against statements of expenditure and direct payments) and would be converted to the new procedure [i.e., based on project management reports (PMRs)] after the financial system is operating satisfactorily. The target date for this conversion is September 30, Disbursements are projected over a period of five years. Annex-6 provides allocation of credit proceeds. To facilitate disbursements, two special accounts (one each for NWFP and FATADC) would be opened with the National Bank of Pakistan. The initial deposit into the special accounts would be $0.5 million NWFP, and $0.25 million for FATADC. The special accounts under the project would be operated jointly by two signatories. 5. Environmental: Enviroumental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. E.5..1 The project would have an overall positive impact on the enviromnent. As part of the preparation of a national OFWM project (OFWM-IV), which was designed to include institutional reform and rehabilitation/investment activities in all four provinces, a general review of potential environmental and social issues was conducted. This review also benefited from a detailed sector envirownental assessment (SEA) of drainage issues in Pakistan's IBIS which recommended that: (a) additional irrigation water, if available, should not be supplied to areas where this could exacerbate the need for drainage; (b) undertaking major drainage schemes should be done in conjunction with improvement of irrigation management at main and secondary levels and reduction of water losses at watercourse and field levels; and (c) the government should give special attention to beneficiary participation. These studies were supplemented by a rapid appraisal mission and consultation with key stakeholders, in order to identify - 16-

21 issues specific to the proposed NWFP-OFWM project and to propose a framework for mitigating potential negative impacts and enhancing positive ones. E Given the nature of the issues identified, and the fact that the project involves mainly beneficial rehabilitation work and construction of minor irrigation schemes with low and easily manageable environmental impacts, the project was categorized as "B" under Bank/IDA Operational Policy OP It was also agreed that as part the targeting/demand-driven approach proposed as the main vehicle for identifying priority areas of intervention, environmental, and social issues would form an integral part of the overall framework for identifying, preparing, and monitoring subprojects (FIPMSP). E The rapid screening and scoping exercise which was conducted (in December 2000) in consultation with key stakeholders revealed no major issues which could not be mitigated durng project implementation. The main project related environmental issues include: (a) health risks from silt removal and disposal, and contamination of water storage tanks, (b) water quality impairment, from agricultural runoff, desilting, and potential increase in agrochemical use, and its potential impact on drinking water supply; (c) drainage impact of improved and new irrigation schemes, including water storage tanks; (d) impact on groundwater availability from potential changes to the water balance (e.g., reduced seepage); (e) construction related impacts of rehabilitation works and new irrigation schemes; (f) impacts caused by intensification of agrochemical use; (g) potential impacts on natural habitats; (h) availability of information and enviromnental and social spatial knowledge base; and (i) implementation capacity to adequately address social and environmental issues. E The overall result is that localized impacts of construction/rehabilitation works would not pose major risks, and will be cared for by contractors as part of good engineering practice, and adequate monitoring and quality control. These types of impacts are related to activities such as desilting, channel lining, rehabilitation of gates and diversion structures, wall strengthening/ rebuilding, installation of water measuring structures and gages, watercourse realignment, improved culverts and outlets, animal wallows and laundry sites, construction of small water storage tanks, precision land leveling, rehabilitation of embankments, formation of berms, protection of structures, provision of gates at the cross regulators, minor irrigation schemes (involving water harvesting, and partial perennial flow diversion), and office buildings for FOs/FWUAs. Drainage and salinity do not appear to be a major problem except in Salinity Control And Reclamation Project (SCARP) areas which are outside of the project scope. Water tanks are completely concrete-lined and are planned for barani areas where the water table is generally very deep; they are typically used to capture and store water for irrigation, and not for human consumption. E A number of issues of more strategic importance and indirectly related to project activities, were identified: (a) despite major initiatives during the last 10 years there is weak institutional capacity and weak enforcement of environmental regulations, (b) wastewater discharge into the irrigation/canal system and the resulting potential health impacts (people use irrigation water for various purposes including drinking); (c) groundwater monitoring (there is a need to consolidate and update information on the status of groundwateresources, as some reports indicate potential mining and quality problems in some areas); (d) agrochemical use and pest management--despite relatively low levels of use; (e) natural habitats, because of very little awareness of this issue by the government and farmers; and (f) need for an adequate spatial knowledge-base and analytical capacity for effective environmental and social mainstreaming into an integrated water resources management framework. The project would help to build awareness and capacity over time within govemnment agencies and FOs to deal with these. 5.2 What are the main features of the EMP and are they adequate? - 17-

22 E An environmental management plan (EMP) was not prepared because site specific interventions have not been identified. These would be selected based on a screening process which would include eligibility criteria related to poverty focus, readiness of FOs and FWUAs to assume distributary management responsibilities, and hydrological factors. Such a process will be fornalized in the overall FIPMSP which would specifically cover environmental and social issues, and will be developed in more detail based on overall framework outlined in Annex 11 by the PCC with technical support from the project implementation consultants. An outline of the key step of the FIPMSP is included in Annex For Category A and B projects, timeline and status of EA: Date of receipt of final draft: There was no stand-alone EA Report for the project (see explanation below): Explanation: (a) IDA and GONWFP, based on a rapid screening and scoping exercise with key stakeholders, agreed to a categorization of the project as "B" under OP 4.01 with a simple environmental analysis as part of the project preparation and no separate EA. However, the Environmental Data Sheet (EDS) was submitted to Infoshop and updated on 2/16/2001; (b) as stated in the EDS, there is no stand-alone EA Report. The sub-project screening framework (FIPMSP), as detailed in Annex 11, covers management of social and environmental issues as an integral part of the project design and implementation. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? E During the rapid appraisal of environmental issues that substituted for the environmental assessment (EA), field visits to the proposed project areas, and consultations were held with farmers, WUAs, government functionaries, and scientists working in the area of irrigation management were consulted. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? E The implementation of mitigation measures and recommendations of distributary environmental and social assessments would be monitored as part of the overall arrangements for the project. The objective of developing FIPMSP (Annex 11) earlier on is to ensure that a road map is in place before project activities are initiated; this road map would have clear and measurable screening criteria, a transparent process and procedures, adequate technical and management capacity and financial resources, as well as a timetable and a monitoring system. The M&E expertise is available within the NWFP's M&E Wing and an action plan has been agreed with GONWFP to strengthen the Wing if certain shortfalls are identified. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. E The main project related social issues include: (a) equity and benefits in terms of timely and adequate delivery of irrigation water to poor farmers and tenants including those at the tail end of the watercourse system; (b) inclusion of poor farmers in the WUAs/FOs; (c) govemance and transparency of FOs regarding the formation and registration process (formally ensured by the new autonomous FIDA, financial management and decision making, as well as modes of representation and conflict resolution (which will continue to be based on traditional jirgas); (d gender issues, because due to cultural constraints

23 women are not included as irrigators and do not have a direct role in the irrigation system; and (e) the social mobilization capacity of government agencies and local NGOs/CBOs and their role in project implementation. The project will deal will all these issues as part of the process of forming and empowering FOs/FWUAs. Women and landless tenants will benefit indirectly from improved irrigation efficiency (e.g., increased household income, access to safer drinking water) and directly though targeted training and capacity building activities. E Sites and specific interventions have not been identified. These would be selected based on a screening process which would include eligibility criteria related to poverty focus, readiness of FOs and FWUAs to assume distributary management responsibilities, and hydrological factors. It was agreed that a such a process will be formalized in an overall FIPMSP, which would specifically cover environmental and social issues (see Annex 11). This framework will be developed by the PCC with technical support from the PICs, and will be cleared by the PPC and IDA before selection and implementation of subprojects. An outline of the key step of this screening framework is described below. E Initial screening and area targeting: The identification of priority implementation (geographic) areas where subprojects will be selected based on need, poverty, and willingness to participate should be done throu a mapping and spatial analysis based on criteria such as: (a) areas where most of the land under cultivation is rain fed, but with a potential for expansion or rehabilitation of irrigation coverage; (b) low concentration of land ownership, with most land held by owner operators; (c) other specific poverty criteria; (d) areas with the highest need for system rehabilitation improvement and quality of service; and (e) hydraulic/hydrologic/climatic factors (e.g., state of canal and drainage network, water availability, independence). hydrologic E Dissemination of information and demand promotion: The project description and the requirements for participation (e.g., cost sharing, responsibility for O&M, water charge collection, equitable water management, legal status, and governance requirements) should be disseminated in the areas identified through the initial screening and area targeting. E Screening and identification of subproiects: Based on applications received from groups of potential beneficiaries, subprojects would be screened and selected for implementation. This screening will be conducted by the PCC with the help of the PIC based on eligibility criteria such as: (a) need for rehabilitation or development of in 4 gation infrastructure; (1) hydrologic eonviderationg (e.g., hydrologically independent areas); (c) readiness of applicants to form FOs and FWUAs to assume distributary management responsibilities demonstrated by an application; (d) poverty (e.g., measured through income poverty, low levels of land concentration, or other criteria to be defined); and (e) presence of environmental and social impacts that cannot be mitigated. Thus, there will be no involuntary land acquisition, only cases of verifiable voluntary land acquisition would be eligible for support under the project. E Baseline surveys and information system (distributary profile): Detailed baseline data will only be collected for subprojects selected for implementation (plus a number of representative control group areas without project intetventiong). The data will be organized into a computerizcd information system (including georeferencing in a GIS) and will be used as the baseline for measuring project performance and achievement of outcomes. (The type of data collected for the baseline, and subsequently during monitoring, should therefore lend itself output and outcome monitoring). E Mobilization, capacity building, and planning involving FOs/FWUAs: Using the baseline survey data and the DESA and building on the initial interaction with farmers, before implementation a detailed mobilizing and organizing plan for FOs/FWUAs will be developed and reviewed by the PPC and IDA

24 This plan will include a timetable, and key milestones (initial meetings, agreements, election of representatives, legal notification, office setup, signature of contract transferring/sharing management responsibilities from FIDA/AWB, transfer of management of the irrigation system). In addition, the plan will include details of a training program for management, O&M, and environmental and social issues. E Women play a significant role in the rural economy; and their workload is expected to increase with the increases in irrigation and cropping. However, women are not considered irrigators because of legal, social and cultural constraints. To make their participation a reality and enable them to benefit, the project envisages to evolve gender specific interventions during project implementation. Subsequento conducting a needs assessment, interventions will be formulated (see Annex 11). E The ongoing institutional reform of the irrigation sector is expected to have significant impact on the implementation strategy of this project. The project's social development outcome is social inclusion and empowermenthrough mobilization of FOs resulting in equitable distribution of water. 6.2 Participatory Approach: How are key stakeholders participating in the project? A. Primary Beneficiaries and Other Affected Groups E.6.2.l Within the areas identified on the basis of the screening process described (para E.6.1.3), selection of subprojects will be demand-responsive (pura E6.1.5). The primary beneficiaries are the franers linked with subprojects that are selected on the basis of need, poverty, and willingness to participate. Following formation of WUAs/FOs, the farmers will prepare and agree on an investment plan with technical support from the PIC. The beneficiaries will contribute towards the capital costs (section E.2. 1), be involved in the supervision of works, and the WUAs/FOs will assume fill responsibility for O&M. Based on monitoring information, FIDA will provide follow-up support to those WUAs/FOs that experience problems with either govemance or irrigation system management. B. Other Key Stakeholders E The rigaion Dvpuntnt and On.farn Water Management Aeneies (PIDA and OWIM), government institutions (subsequento devolution of power to district governments) and NGOs or CBOs would be the other stakeholders. The project design has built-in flexibility to accommodate all stakeholders. The project would be implemented in coordination with other major donors involved in the sector, such as FAO and ADB. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? E During project preparation, scoping sessions and consultations were held with several NGOs and &il society organizations in a1l provinces (prepratimn of OFWM-IV project), and later on in NWFP. The project is designed based on years of consultations and experience gained from working with farmers and their organizations under several on-farm water management, irrigation systems rehabilitation, SCARP transition and drainage projects. The project also benefits from several pilot projects initiated in the country to promote FOs at the distributary/minor level. The project envisages NGOs being involved in an advisory capacity on gender issues, social mobilization, and if required, to address other social issues. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? E The lead implementing agency is the OFWM Department supported by the PIC that will be responsible for the social mobilization and technical assistance programs, such as: a core team, a number local

25 of baseline survey teams, social organization team, technical support team, and NGOs. The PIC will provide all the necessary assistance to form FOs/ FWUAs, engineering support, and technical assistance. Based on the approach described in Section E.6. 1 and E.6.2, the FOs/FWUAs would be established to gradually take over the management of watercourses, minors, and distributary canal systems. The WUAs/FOs will receive training on management and O&M. Subsequent to the capacity development of the FOs, their performance will be measured by indicators and successful rating of these indicators would be a prerequisite for irrigation management transfer. In addition, technical assistance [see Section C(a) and (e)] would also be provided to the implementing agencies to ensure that beneficiary participation remains at the center stage. 6.5 How will the project monitor performance in terms of social development outcomes? E Monitoring will be designed to provide for a continuous learning and adjustment of project approach and subproject plans, and will involve (a) participatory monitoring based on self-defined indicators (by focus groups of beneficiaries, and FOs/FWUAs), (b) monitoring data on inputs, outputs and impacts/outcomes by the M&E Wing, and (c) IDA supervision. The implementation of mitigation measures and recommendations of distributory environmental and social assessments (DESAs) would be monitored as part of the overall arrangements for monitoring project performance for use in decision-support. Early in project implementation, before the selection and implementation of subprojects is started, a monitoring framework that includes institutional arrangements and indicators will be submitted to the IDA for clearance (see Annex 1 1 regarding monitoring indicators). 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Policy Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Natural habitats (OP 4.04, BP 4.04, GP 4.04) Forestry (OP 4.36, GP 4.36) Pest Management (OP 4.09) Cultural Property (OPN 11.03) Indigenous Peoples (OD 4.20) Involuntary Resettlement (OD 4.30) Safety of Dams (OP 4.37, BP 4.37) Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) Applicability * Yes 0 No 0 Yes 0 No 0 Yes S No 0 Yes 0 No 0 Yes * No 0 Yes * No 0 Yes * No 0 Yes * No 0 Yes 0 No 0 Yes 0 No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. E Because of weak capacity within the government to develop an environmental and social screening framework independently, the PIC contract for social mobilization, technical support, and baseline surveys would also cover the preparation of the framework and training needs assessment. Funds have been provided for the required expertise, as well as for the fees for the provincial EPA to monitor water quality. The PIC would be required to develop the FIPMSP, consistent with the framework described in Annex 1 1, as part of their inception report. E The project will not involve involuntary land acquisition, and only cases of verifiable voluntary land acquisition or provision of government land would be eligible for support under the project. Regarding both voluntary land donations by project beneficiaries and provision of government land, the project will ensure that the land in question is free of squatters, and other claims or encumbrances. In the case of

26 community land donations, the land will: (a) be identified by the beneficiary community and not by the line agency or project authority (although the project should ensure that the land is appropriate for the intended purpose); (b) the voluntary nature of the donation will be verified from each person donating land; and (c) in case of loss of income or displacement, verification will be obtained from those affected that community devised mitigation measures are acceptable. The title to voluntary land donations will be vested with the WUAs/FOs; and a grievance redress mechanism will be established. F. Sustainability and Risks 1. Sustainability: F. 1.1 The project is inherently designed to ensure the sustainability of the irrigation system by developing effective FOs/FWUAs that will be given the responsibility for the O&M; and redefining the over-centralized role of government in the irrigation system--which would pave the way for greater user participation. Enhanced cost sharing/recovery measures would increase beneficiary ownership of the project facilities which, in turn, would reinforce the sustainability of the irrigation facilities. F. 1.2 Based on the lessons learned from past operations, this project provides for effective and sustainable FOs/FWUAs capable of sharing the management responsibility at the secondary tier of the irrigation system. Contrary to the WUAs formed under previous OFWM projects, these FOs/FWUAs would have a key role in irrigation management at this tier, where WUAs had no role before. The FOs/FWUAs be supported by technical staff, and would participate in day-to-day operation of the system, distribute water to its members, collect revenues. It is expected that the technical staff will be recruited by the FO/FWUA after the technical support phase of the project is complete--two-years on an average. With this essential role assigned to the FOs/FWUAs, they are unlikely to become inactive. Furthermore, evidence from the field suggests that such organizations are sustainable in the long-term. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective It may take longer to form effective M A well designed community mobilization and FOs/FWUAs and transfer of irrigation support program with support from local NGOs management may be slower than will be implemented by the government but duly expected. assisted by expertise it lacks from outside the government. The program would provide training and technical assistance to farmers as it aims at building institutional capacity within the FOs. Despite these mitigation measures, a modest risk remains of the reform process slowing down at the higher government/political level which may have under currents to the irrigation management transfer at the distributary-level

27 Powerful rural elite may dominate the M In this phase of the project, activities would FOs/FWUAs and use these to expand concentrate in areas with relatively their influence. homogeneous land holdings and where number of extremely large farms in not very high. Moreover, the selection criteria based on initial screening would include those distributaries in the project where chances of forming a successful FO/FWUA are highest and areas which are poorer. To further mitigate this risk, an independent monitoring program would be in place to assess the effectiveness of FOs/FWUAs and make changes, as may be required, to the implementation of the farmers participation plan. At the institutional level, FIDA rules would provide for these farmer bodies to be democratic. Given that a sound social mobilization N Physical improvements in the water distribution program mitigates the risks mentioned systems in the past have consistently shown above, better management would leads to increased availability of water as indicated by increased water supply (key output higher cropping intensity, better yields, and indicator) when it acts in synergy with popularity of OFWM programs with the end outputs from other components relating to users. Greater contribution from such users in physical improvements. meeting the capital and operating costs mitigates any risk that physical improvements may not take place. It is assumed that: (a) improved physical N Time and scale studies on watercourses facilities would lead to reduction in water improved earlier (10 years or more) indicate losses; and (b) timely and equitable more than 50 percent reduction in water losses distribution of water would lead to due to conveyance, and farmers' participation efficient use of water only in an enabling mitigates the risk that such water savings would environment which promotes economic not be sustained. Furthermore, a strong growth. technical support program, demonstration centers and orientation of public policies to market friendly approaches would ensure that an enabling environment is there to drive optimum benefits of improved distribution of water. Improved water supply would lead to N As stated above, farmers access to knowledge increased productivity and farmers' and technology is ensured through a technical income, assuming that the input/output support program and demonstration centers, in markets perform better, and farmers' addition to agricultural support services of the access to knowledge and technology is not public, non-government and private sectors. constrained

28 From Components to Outputs Component 1: Community Development N An effective social mobilization phase, designed and Support Program. on the basis of pilots implemented earlier, would Farmers are not ready to form mitigate the risk of farmers being skeptical and Organizations (FOs/FWIUAs). not ready. Assistance in project implementation in the form of baseline survey teams, social organization teams and technical support teams to build FO capacity would be arranged upfront before implementation starts. Component 2: Distributary-level M (a) The willingness of farmers to participate in Improvement Program or take over the management of irrigation (a) Farmers may not be willing to systems has been tested under several projects participate in the management of the on pilot basis. Through component 1, FOs system at the distributary-level, or do not would acquire capacity to discharge take interest in planning and management functions and handle issues related implementation of project works. They to O&M (of distributary govemance, equity, may be unwilling to make cash financial management, environmental awareness contributions. and mitigation. (b) While scaling up the number of farmer b) To mitigate this risk, only six FOs with full organizations from two pilots to 22, there management transfer would be raised in those is an inherent risk that institutional canal commands which have institutional reforms in the irrigation sector do not infrastructure in place under the ongoing reform move forward as anticipated. Therefore, process. In the case of 16 distributaries, farmers may lose interest in taking over FWUAs would be raised which would assume the management of distributaries. joint management responsibility (farmers and (c) While there are no major Irrigation Authority) until such time lessons environmental and socially adverse from the FO management transfer model are impacts, awareness level of the incorporated into the joint management model. beneficiaries will have to be raised in FWUAs may then graduate to FOs. order to take mitigation measures, if (c) DESA would be carried out for every needed, to ensure sustainable use of and FO/FWUA. DESA includes a management plan equitable access to all groups of natural and implementation arrangements for specific resources. mitigation measures

29 Component 3: Watercourse and On-Farm N The negligible risk of slowing down the on-farm Improvement Program irrigation improvement works are minimized by There are no physical, social, financial, incorporating social mobilization and support and environmental risks for this programs, and by prioritizing works in those component because the OFWM program areas which have homogeneous land holdings has withstood about two decades time, is and where possibilities of forming successful highly popular among the farmers, has FOs/FWUAs are highest. Moreover, in the case high level of commitment form the of participatory irrigation management model, government, and financial contribution the lead time for starting on-farm works would from the beneficiaries have been reduce from 12 to 18 months, to less than half. increasing. There is a small risk that Such a model accounts for over 60 percent of vested interests may try to slow down the the on-farm works. managementransfer at the distributary/minor level, which may slow down on-farms works which have been linked to forming "effective FOs". Component 4: Improvements in Branch N FIDA has adequate in-house expertise to Canals (Systems Supplying Water to prepare feasible canal rehabilitation programs. FOs/FWUAs). Technical and economic Technical assistance has been provided to viability of the proposed improvements ensure transparent construction supervision. should be certain. Furthermore, FIDA would consult the established FOs/FWUAs, for the first time, regarding rehabilitation of branch canals leading to their command areas. Component 5: Local/Minor Irrigation N (i) Since this component will have full support Schemes Development Program of the community development and support (a) All stakeholders may not participate group, mitigation measures applicable to this equitably/effectively in all stages of component, as suggested for components I and scheme development. 2 will also be in play in this case. (b) Most minor irrigation schemes are in (ii) Innovative approaches to community poorer areas. Water discharges to be participation would be adopted. As experience hamessed are relatively small as suggest from another IDA-assisted minor compared to canal command areas. There irrigation project in Balochistan, farmers switch is some degree of risk that farmers' to higher value crops to augmen their income repayment capacity may not prove to be and to pay for an equitable share in the capital adequate. cost and O&M of works. Initially conmmunity based savings and mobilization of human resources to carry out smaller contracts provide for the required cost sharing arrangement. Overall Risk Rating Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: None M

30 G. Main CreditConditions 1. Effectiveness Condition None. 2. Other [classify according to covenant types used in the Legal Agreements.] (a) NWFP shall ensure that its PPC shall be established, not later than September 30, 2001, and thereafter maintained throughout the project implementation period, with terms of reference, composition, staffing and other resources satisfactory to IDA. (b) NWFP and FATADC shall, not later than December 31, 2001, obtain PPC's approval of an overall framework, satisfactory to IDA, for the selection of schemes including criteria as specified in Schedule 2 (2) of the Project Agreement. (c) NWFP and FATADC shall, not later than March 31 in each year, furnish to IDA, for its review and concurrence, a draft annual plan of project activities, including a work program and proposed budget, for the next following fiscal year, as approved by the PPC. (d) NWFP and FATADC shall ensure that: (i) construction works under the project will be carried out in accordance with design criteria and specifications satisfactory to IDA; and (ii) that, in particular, the distributary/minor canals included in the project will be rehabilitated to achieve sufficient capacity to deliver their full discharge entitlement determined on the basis of their share of the diversions at the head of the main canal command system over the previous 10 years. (e) NWFP and/or FATADC shall ensure that as a condition for obtaining assistance for renovation of a watercourse or for improvement of a distributary/minor canal under the project: (i) in a canal commanded area within the pilot AWB areas, the farmers of such area will have: (i) formed an FO at the distributary/minor canal level; (ii) acting through such FO reached agreement with FIDA for the O&M of the facilities on which the particular project works are to be carried out; (iii) established that such FO has functioned well and operated and maintained such facilities effectively for a minimum period of one-year thereafter; (iv) established that such FO has the technical capacity to participate in the carrying out of the particular project works; and (v) acting through such FO reached agreement with FIDA to carry out the particular project works and to share the costs thereof in accordance with the agreed provisions. (ii) in a canal conimanded area outside the pilot AWB areas, the farmers of such area will have: (i) formed an FWUA at the distributary/minor level with the functions, powers and obligations specified for FWUAs; (ii) acting through such FWUA reached agreement with FIDA or FATADC, as the case may be, for O&M of the facilities on which the particular project works are to be carried out; and (iii) acting through such FWUA reached agreement with FIDA or FATADC, as the case may be, for the carrying out of the particular project works and for sharing the costs thereof in accordance with the agreed provisions; and (iii) an environmental and social assessment has been made for a distributary/minor canals. (f) NWFP and/or FATADC shall ensure that as a condition to obtain assistance for construction of a water storage tank and associated works under the project, or to carry out a local/minor irrigation scheme under the project in any other area where an environmental and social assessment has been made, the farmers of such area will have: (i) formed a fully functioning WUA at the level of the particular project works; (ii)

31 established that such WUA has the technical capacity to participate in the carrying out of the particular project works; and (iii) acting through such WUA reached agreement with OFWM Directorate or FATADC, as the case may be, to share the costs of the particular project works in accordance with agreed provisions, and to carry out the particular project works and the O&M of the facilities on which the particular project works are to be carried out. (g) NWFP and FATADC shall ensure that regarding works for: (i) renovation of watercourses and construction of water storage tanks and associated watercourses carried out under the project, the farmers concerned will be required to contribute up-front, through their WUA, all of the skilled and unskilled labor together with at least 25 percent equivalent in value of the materials required for such works in NWFP and FATA; (ii) PLL carried out under the project, the farmers concerned will be required to meet 100 percent of the cost of such works; (iii) works carried out under the project for rehabilitation/improvement of distributary/minor canals located within pilot AWB areas, the farmers concerned will be required to meet up-front, through their FO, at least 10 percent of the cost of such works; (iv) carried out under the project for rehabilitation/improvement of distributary/minor canals located outside the pilot AWB areas, the farmers concerned will be required to pay, through their FWUA, at least 10 percent of the cost of such works in 10 equal installments payable semiannually over five-year period, along with the water charge (abiana) payments; (v) carrying out local/minor irrigation schemes under the project, the farmers concerned will be required to meet up-front, through their WUA, at least 20 percent of the cost of such works; and (vi) priority is to be given to watercourses, water storage tanks, distributary/minor canals, and local/minor irrigation schemes located in the poorer regions with greater number of small land holdings. (h) NWFP and FATADC shall ensure that representatives of any FO/FWUA participating in the carrying out of any project works, and in the O&M of the facilities on which such works are to be carried out, will be invited to participate in the procedures for inviting and evaluating bids, and awarding contracts for the procurement of civil works and materials for such project works. (i) NWFP and FATADC shall ensure that: (a) procurement documentation and record keeping systems, all satisfactory to IDA, will be developed and adopted by the OFWM Directorates and FATADC, not later than December 31, 2001; and (b) key procurement staff of the OFWM Directorate and FATADC will be identified, trained in IDA's procurement procedures, and designated as focal points for procurement for the duration of the project, all not later than December 31, (j) NWFP and FATADC shall conduct surveys every six months, to determine the prevailing market prices of construction materials used in the improvement of watercourses and construction of water storage tanks and associated watercourses under the project. (k) NWFP and FATADC shall: (i) maintain policies and procedures adequate to enable them to monitor and evaluate on an ongoing basis, in accordance with indicators satisfactory to IDA, the implementation of the project, and the achievement of the objectives thereof; (ii) prepare under terms of reference satisfactory to IDA, and furnish to IDA, by January 31, 2004, reports integrating the results of the M&E activities on the progress achieved in the implementation of the project during the period preceding the date of said reports and setting out the measures recommended to ensure the efficient implementation of the project

32 and the achievement of the objectives thereof during the period following such date; and (iii) review with IDA, by March 31, 2004, or such later date as IDA shall request, the reports and take all measures required to ensure the efficient completion of the project and the achievement of the objectives thereof, based on the conclusions and recommendations of the said reports and the IDA's views on the matter. Covenants Related to Financial Management Requirements (1) NWFP and FATADC shall ensure that, satisfactory to IDA, a financial manual will be developed and adopted by October 31, 2001, and a computerized project accounting and management information system will be made fully operational by June 30, 2002 by the OFWM Directorate and FATADC. (m) NWFP and FATADC shall carry out a time bound action plan, acceptable to IDA, to strengthen the financial management system not later than September 30, 2002, or such late date as IDA shall agree, to prepare quarterly PMRs, acceptable to IDA. H. Readiness for Implementation D 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. X 1. b) Not applicable The procurement documents for the first year's activities are complete and ready for the start of project implementation The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. a 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies 1 1. This project complies with all applicable Bank policies. O 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Ra;hed r ayy XtidwanAi ivj. Wall T*am ader Sector Manager ountry Manager

33 Annex 1: Project Design Summary PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT Key Performance Hierarchy of Objctives Indicators Monitoring & Evaluation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Faster economy wide growth Percent increase in GDP and Annual Reports of the State The Government might not and poverty reduction. reduction in share of Bank of Pakistan, and GOP's sustain and broaden the population living in absolute Economic Survey. Household reform initiatives underway. poverty. Income and Expenditure Surveys. Establish a more competitive Liberalization of output and Official reports, Bank's ESW. The critical assumption is that environment for agricultural input markets. the government will growth and diversification. accelerate the structural Orient research and extension Monitor agricultural reforms leading to faster to farmers' needs and improve production of major crops growth than in The financial intermediation for (annual updates from risk is that given the strength agricultural producers, and Agricultural Statistics of of vested interests opposing small farmers. Pakistan), note trends of crop such reforms, the diversification, and changes government's commitment in access to rural credit by may falter. small farmers. Redefine governmenfs role Number of farmers' Official reports, Bank's ESW, The critical assumption is that and establish self sustaining organizations (FOs)/ Pubic Sector Expenditure the government would deepen efficient irrigation and Federation of Water Users' Reviews, through project's the reforms agreed under the drainage systems by Associations (FWUAs) M&E system, and from the Irrigation and Drainage decentralizing irrigation formed which are capable of supervision reports of various Sector Strategy and initiated management and enhancing participating in irrigation projects such as Punjab under several IDA assisted farmers participation through management effectively and Private Sector Groundwater projects such as, Third farmers organizations. number of distributaries Development, Fordwah On-Farm Water Management, transferred. Eastern Sadiqia (South), and Fordwah, Punjab Private National Drainage Program. Sector Groundwater Increase in water supply at the Development, and most farm level. importantly under the National Drainage Program. Increase in agricultural production. The risks are the same as above. However, farmers' willingness to participate in irrigation management has been demonstrated under several projects and pilots. Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: To reduce rural poverty (a) Increase in agricultural Project monitoring and impact Reforns and investments through increased productivity through evaluation reports. supported by the project agricultural production enhanced cropping intensities would facilitate an enabling leading to increased farm and crop yields in the target environment for agricultural incomes. project area; and (b) Reduction in rural poverty growth and development. This objective would be through an increase of 5-10% achieved by: in farm incomes

34 (i) improving the reliability, Development of effective Project implementation The reforms would enable efficiency and equity of FOs/FWUAs which are progress reports, public small farmers to access inputs irrigation water distribution; capable of participating in sector expenditure reviews, (especially water and managing the irrigation Bank's ESW and supervision drainage) and services. system. reports. (ii) increasing on-farm The system would be run in As mentioned above. Farmers will make more water use efficiency; and an efficient and sustainable productive investments to manner. fully exploit the increased water availability. (iii) enlhancing long term Same as stated above. As mentioned above. Government efforts remain financial sustainability of consistent and are not diluted the irrigation system by due to political changes and supporting the government's macro-economic adjustments. effort to foster self sustaining farmer's organizations. Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: Component I (C-i1. About 5-10 percent increase Project monitoring reports, There are two main risk Improved irrigation in water supply will result and impact evaluation studies. elements: (a) It may take management (22 FOs/FWUAs from improved management longer to form sustainable commanding about 0.2 alone beginning third year of FOslFWUAs and their million ha.) resulting from: the project. effective participation in the (a) equitable participation management of the system from all stakeholders; (b) may be slower than expected; empowerment of grassroots and (b) powerful rural elite level FOs; and (c) efficiency may dominate the FOs or gains made possible better FWUAs and use these to O&M and cost reduction expand their influence. measures adopted by FOs. Given that a sound social mobilization program mitigates the risks mentioned above, better management leads to increased water supply (key output indicator) when it acts in synergy with outputs from other components relating to physical improvements (C-2 to C-5). C-2 through 5. Efficient (a) Improvements in equity, Project monitoring reports, (a) Improved physical irrigation system resulting and timeliness in water and impact evaluation studies. facilities would lead to from improvements in distribution before the end of reduction in water losses. physical facilities, such as: the project (start in third (C-2) distributary/minor canal year, but would continue to be improvement and construction effected after the project). of FO/FWJUA Offices in 22 cases;

35 (C-3) improvement of 1380 (b) Improved water supply (b) Timely and equitable watercourses, construction of over a longer period of time distribution of water would 350 water storage tanks, and for maturing crops. lead to efficient use of water other on-farm improvements; only in an enabling (C-4) rehabilitation of 20 environment which promotes branch and distributary canals economic growth. supplying water to FOs/FWUAs; and (C-5) development of 31 minor irrigation schemes. Increased productivity and Increased yields (about 8 Project monitoring reports, Improved water supply would farm income (C-6, as a percent), cropping intensity provincial and federal lead to increased productivity dependent variable of C-1 (10 percent), and cropping statistical reports and and farmers' income, through 5) in the target area. pattern (shift towards high bulletins. assuming that the value crops orchard and input/output markets perform vegetables). better, and farmers' access to knowledge and technology is not constrained. Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) (i) Community Development US$2.86 million. Baseline Project supervision and The assumption is that and Support Program survey, social organization, monitoring reports. farmers are ready to form and technical support teams FOs/FWUAs to participate in: will organize and service (a) the management of the about 22 FOs/FWUAs. system at the distributary level; and (b) planning and implementation of project works. (ii) Distributary Level US$4.66 million. About 6 Annual provincial O&M Farmers' willingness to Improvement Program distributaries are improved in budgets for the irrigation participate in or take over the the second project year, 8 by systems and revenue receipts. management of irrigation third and 8 by the fourth systems has been tested under project year. FOs'/FWUAs' Project supervision and several projects on pilot basis. contributions to O&M, and monitoring reports. They are willing to make cash capital costs of improvement contributions also. A key works. assumption in scaling up number of FOs/FWUAs is that institutional reforms in the irrigation sector move forward as anticipated lest farmers' willingness should wane away

36 (iii) Watercourse and US$9.66 million. About 100 Project supervision and In addition to the assumption On-Farm Improvement watercourses improved in monitoring reports. identified above, one risk is Program second year, 360 by third, 570 that vested interests may try to by fourth and 350 by fifth slow down the management project year. FOs'/FWUAs' transfer. Moreover, the contributions to O&M, and powerful rural elite may try to capital costs of improvement works. use these FOs/FWUAs to expand their influence. These risks are minimized by incorporating social mobilization and support programs, and by prioritizing works in those areas which have homogeneous land holdings and where possibilities of forming successful FOslFWUAs are highest. (iv) Improvements in Branch US$1.82 million. About 20 Project monitoring and Technical and economic Canals and Systems branch/distributary canals supervision reports. viability of the proposed Supplying Water to rehabilitated improvements should be FOs/FWUAs. certain. It is assumed that provision of case by case scrutiny by experts would ensure viability. (v) Local/Minor Irrigation US$12.44 million. Following Project monitoring and Development of minor Schemes Development rigorous inputs from supervision reports. irrigation systems is well Program social/technical teams (C-1) tested under several projects. and design development and Since it has been planning phases in the first demonstrated that these two years, about 11 schemes schemes improve water are constructed in third supply, equity and timeliness project year, 12 by fourth and to the local communities, a 8 by fifth project year. key assumption is that all stakeholders participate equitably/effectively in all stages of scheme development. (vi) Project Management US$0.61 million. Support for Project monitoring, Arrangements for social Support (Supervision, project implementation and supervision, and audit reports. mobilization and technical Monitoring, Evaluation, and management to achieve its Reports of third party support, monitoring and Training) targets, quality assurance, supervision. evaluation, and financial financial controls, and staff training. management systems are concluded before project implementation commences

37 By Component: Annex 2: Detailed Project Description PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT Project Component I - US$2.86 million Community Development and Support Program 2.01 One of the basic requirements for achieving the project development objective is to ensure effective community participation in all phases of the development process. For enhancing participation of farmers in system managementwo models would be followed: (a) a transfer of management model (TMM) under which irrigation management would be fully transferred to FOs after completing a period ofjoint management. A transfer of management contract would be executed between the government agency and FO defining the terms of transfer and roles of all parties concerned. About six FOs covering an area of about 26,000 ha would be formed under this model; and (b) a participatory irrigation management model (PIMM) where FWUAs (where WUAs are organized at the watercourse level) would be formed at the distributary/minor canal level for participation in the management of the irrigation system. About 16 FWUAs covering an area of about 90,000 ha. would be formed under this model. These FOs/FWUAs would be involved in the irrigation management, and in planning, designing, and implementing irrigation improvement works proposed to be constructed under the project. Functions, powers and responsibilities of FWUAs would be in accordance with provisions of Annex 2.1. An essential activity is to set up, train and technically support FOs/FWUAs, so that they can effectively participate in management and operation of the irrigation system on sustainable basis. In order to help achieve institutional sustainability which is essential to sustainable resource management and livelihoods, a few altemative institutional models be evaluated during the project implementation. For instance, different forms of TMM and PIMM would be tried paying particular attention to the specific issue of water pricing in order to account for both scarcity and reliability of service. For this purpose, the PCC would seek guidelines from and approval of the of the PPC, after having collected baseline data from at least half of the proposed FOs/FWUAs, as to the number and locations of alternate models to be evaluated The FO's structure would vary to cater to the local needs. However, in general FOs would be organized as three-level organizations. First level would be the WUAs at the watercourse level. The WUAs would then form a WUA group at the distributary/minor canal level or at one of its sections. The WUA groups would then form an FO covering the whole or part of the distributary/minor. Similarly, FWUA would be two or three tiered organizations depending upon the size of the distributary/minor, where the watercourse level WUAs or their groups would be federated at the distributary/minor canal level. There are about 250 distributaries, minors or sub-minors in the canal irrigation system of NWFP which consist of about 10 major canals and several other miscellaneous canals. The command area of these channels vary significantly ranging from 200 ha to 100,000 ha. However, about 70 percent of the channels command less than 5,000 ha. It is estimated that about 22 distributary/minor level FOs/FWUAs would be formed under the project Minimum area covered by an FO/FWUA would be 2,000 ha, with and average size of 4,500 ha except that of the two distributaries of the Bara canal system of Khyber Agency in FATA. The Bara canal commands about 18,200 ha which will be covered by the two FATA based FOs. In the case of smaller distributaries/minors, several would be combined to form an FO/FWUA with the minimum required area. If so, a group of WUAs (WUA groups) would be formed at each channel and these groups would be

38 represented at the FO/FWUA level. In the case of larger distributaries, a group would be formed at each minor or sub-minor or at a section of the distributary which would then participate in the FO/FWUA. Different likely structures of FOs/FWUA are shown schematically in Figures 2.1, 2.2 and 2.3. The size of WUA group would vary throughouthe project area. When formed at the section of a large distributary, the size is likely to be determined by the availability of water control structures at the head and the tail reach of the section. However, in such cases WUA group is likely to consist of about 20 watercourses. The number of watercourses in a WUA group for the local minor irrigation schemes would be far lesser, probably not exceeding 10 in most cases FOs/FWUAs and FIDA/AWB would sign contracts defining roles and responsibilities of both parties. These contracts would cover essential aspects of irrigation management such as: (a) Operation of the system. Water rights of the distributary/minor, where applicable, would be determined based on the actual historic flows at the head of the canal system during the post-tarbela period. These flows are the basis for acquiring provincial water shares from the Indus System River Authority (IRSA) and the 10-daily water allocations for each canal system are part of the Water Apportionment Accord of 1991 (Clause 14) signed by all provinces. The water right would be determined as the share of the distributary in the flow at the canal head. The operation of the distributary would be based on these flows and actual discharge received at the head of the canal system. Given these factors and water requirements, the operation of the distributary would be planned jointly by FIDA/AWB and FO/FWUA. Operation within the distributary would be done by the FOs in case of TMM, and jointly with the FIDA/AWB in case of PIMM; (b) Collection of water charges. In case of TMM, FO and FIDA/AWB would agree to the total amount of water charge to be paid by FO. The water charge would be linked with the volume of water delivered at the head of the distributary/minor system or FO area. FO would deposit the water charge before the start of the season. The FO may levy addition water fees on its members for meeting the cost of maintenance, rehabilitation of the system or other water and non-water related investments. In case of PIMM, FWUA and FIDA/AWB would jointly carry out the assessment and collection of the water charges; (c) System maintenance. Under TMM, FOs would be responsible for maintenance of the channels, and structures. Under PIMM, maintenance would be done jointly by FWUA and FIDA/AWB. The annual maintenance plans, budget allocations and bid documents would be prepared in advance and shared by both parties. As present, farmers would continue to maintain the watercourses; and (d) Rehabilitation/improvements works. The project rehabilitation/improvements works would be implemented jointly by FOs/FWUAs and FIDA/AWB at the distributary level and OFWM directorates and WUAs at the watercourse level. FOs/FWUAs would be involved in planning, designing, contracting, and in implementation of these works For developing effective FOs/FWUAs, the project would support a social mobilization and support program. The Directorate of On-Farm Water Management of NWFP and FATADC in their respective areas would have overall responsibility for social mobilization, working through a community development and support group (CDSG) recruited as consultancy services. The CDSG would consist of a core team at the provincial level for training, managing and coordinating the community participation program, and baseline survey teams (BSTs), social organization teams (SOTs) and technical support teams (TSTs)

39 working in the field offices with the help of local NGOs and village level activists. In order to recruit social organization staff who would reside in project areas and maintain relationship with the farmers, they would be recruited from local-level NGOs The CDSG would establish its headquarters offices at Peshawar (see Charts 2.1 to 2.4). Two Area Offices would be established in NWFP and one in FATADC from where social mobilization/organization activities would be launched. Area Coordinators of Provincial Water Management Directorate/FATADC would coordinate all CDSG activities in the area offices. The team leader of CDSG would be in charge of the headquarters office and responsible for overall FO program. Each area office would have a number of BSTs, SOTs and TSTs depending upon the territorial coverage and intensity of activities at a given stage. Composition of each type of team is given in Table 3 for an average size distributary/minor. The number of staff in each team would depend on the size of the distributary and the complexity of the system on which a particular tearn would be working at a given time. The approximate number of CDSG field teams is summarized in Table 1 below. Table 1: Number of Community Development and Support Teams by Subproject Indus Basin and outside irrigation system NWFP FATA Total Baseline survey teams Social organization teams Technical assistance teams Number of FOs/FWUAs formed Transfer of management model Participatory irrigation management model Local/minor irrigation schemes Baseline survey teams Social organization teams Technical assistance teams Number of schemes The community mobilization efforts would be carried out in three successive waves. First, a baseline survey of the area would be carried out by BSTs with support from SOTs. This information would cover physical features, agricultural aspects, condition of the irrigation and drainage system, surface and groundwater supplies, and socioeconomic factors. BST would develop a computerized database containing this information and a (digitized) area map containing main features such as irrigation channels, drains, roads, location of villages, schools, markets, other civic centers etc. Based on this information, SOTs would prepare a suitable

40 plan and initiate dialogue with the farmers for developing a suitable organization. The SOTs would make an initial visit followed by several return visits. It is estimated that each SOT would develop one FO/FWUA on an average of six months After farmers of a distributary agree to form an FO/FWUA, the structure and membership of the WUA group [FO/FWUA] are determined and farmers'representatives elected, a TST would be assigned to the FO/FWUA to provide technical assistance in its operations. The TST would be fielded by consultants to support activities of each FO/FWUA for a period of 12 to 24 months. Sequencing of different social mobilization, support, and irnprovement activities is given in Figure 2.4 in schematic form During the first year, the TST would: (a) develop a register of water users; (b) working with the Hydrology unit (of headquarters office) and FIDA/AWB, determine a schedule of water rights for the FOs/FWUAs, and based on these rights, define (and develop a register) water rights of each WUA group within the FO/FWUA, each WUA and finally each member; (c) develop a water distribution procedure in the FO/FWUA area; (d) determine the hydraulic condition of the system within the command of FOIFWUA with the help of survey team and develop an operation and maintenance (O&M) program, and determine the O&M cost of each unit within the FO/FWUA as well as each member's share; (e) work with the supply agency (FIDA or AWB) and determine the contribution required for the O&M of system from the FO level to the barrage, as well as, above the barrage; (f) develop the procedure for cost recovery, operation of bank accounts, and an accounting system for the FO/FWUA; (g) screen the environmental and social issues applicable to the command area and population of the FO/FWUA in accordance with the check-list (Annex 11), and prepare a social and environmental management plan; (h) develop plans for distributary as well as watercourse improvements; (i) develop a contract between the FO/FWUA and the supply agency in defining the rights and obligations of both parties in the management of the system; and (j) construct and establish an office for the operation of the FO/FWUA The transfer of management, in the case of TMM, would take place in two stages. In the first phase, the irrigation system would be jointly managed by the FO and the supply agency for a period of six months. During this time, the FO and the supply agency would jointly verify the infiastructure, understand the operation of hydraulic structures including gates, gauges, etc., flow capacities at different points and prepare a water account and a social and environmental management plan. After completing the joint management period, the management of the system would be transferred to the FO in accordance with the conditions stipulated in the contract between FO and the supply agency During the second year, the TST as well as the FO would concentrate on the preparation of improvementlrehabilitation plan of the system in the control of FO. The FO may retain the TST staff or recruit new staff after fully taking over the management of the system. If FO decides to recruit new staff, the TST would provide assistance in recruitment and preparing employment contracts Initially, the FOs/FWUAs would be formed in areas with independent hydrologic unit (which are easier to manage) and relatively homogeneous social conditions. As a result, areas on large distributaries may be left to the supply agency to manage according to the present conditions. After the FOs/FWUAs begin to work for a while and gain experience/confidence in managing the system, a consolidation and

41 expansion phase would begin under which the FOs/FWUAs would merge to create larger FOs/FWUAs and expand to include the remaining minors or sections of the distributary. The consolidation and expansion phase is expected to start after project completion, but would require support from the government Under the community development program, the project would provide support for BSTs, SOTs and TSTs in the field offices. Besides covering the core objective of FO/FWUA formation, the CSDG will provide agricultural support services directly and through fostering linkages with the public, private and nongovernment entities which focus on sustainable promoting sustainable agriculture production systems. The core teams at the headquarters offices would consist of a team leader supported by a deputy team leader, a social mobilization specialist, a training specialist, hydrologist/irrigation engineer, environmental specialist, agricultural economist, data and monitoring specialist, technical staff, and support staff. Strong back-up support would be provided for the field teams through a training program (one month) and expert advice from the core team. The training specialist would help to develop training and promotional material, an appropriate bookkeeping system, and an implementation handbook. The project would also support two weeks training of FOs/FWUAs and their representatives A gender subcomponent for about $0.1 m as part of the community development program aims at evolving appropriate program interventions during implementation as soon as needs assessment of a given community group is carried out. Areas of particular focus for women include: involving women in decision making while framing the design of scheme in terms of location of washing points; awareness raising for issues related to water use and hygiene, storage of pesticide/insecticide, etc. The PICs would include modalities and timetables for addressing gender issues and meeting women groups training needs in their inception report. Project Component 2 - US$4.66 million Distributary Level Improvement Program 2.15 After the FOs/FWUAs are established, the project would provide support for operation of their offices. The size of the office building would vary, however, typically it would have a meeting hall, two offices, a lobby area, a machine shed and a storage shed (godown). The land for the office building would normally be provided by the FO/FWUA, or if an existing building of provincial Irrigation Department is found suitable for FO's/FWUA office, it would be acquired and renovated within the estimated cost for an FO/FWUA office. The FO/FWUA would also contribute to the construction of the office building In addition to establishing offices, the project would provide assistance to improve the canal system in the FOs/FWUAs area. This would include repair of distributary gates, rehabilitation of diversion structures, desilting and improving of critical sections of the canal (including lining) and other adjustments to enable delivery of rightful discharge, water measuring structures and gauges, additional water control structures, and guide sections for the desilting of the canals. These works would not cover complete remodeling of distributaries and should cost below Rs 1,000 per ha. The works would be identified and proposed by FOs/FWUAs with the support of TSTs. In pilot AWB canal command areas, to be eligible for project assistance, an FO should have taken over the operation of the system and should have money available in its Bank account for its share of improvement costs. In other canal commands the FWUAs should have been formed and the distributary/minor canal level and capable of participating the irrigation management and implementation of project works. Depending upon their effectiveness, FOs/FWUAs would also be eligible for a package of machinery/equipment essential for the maintenance of the irrigation and drainage system. The FOs would provide 10 percent of the cost of distributary/minor improvements up-front, while FWUAs would pay 10 percent of cost of such works in 10 installments over a period of

42 year along with their water charge (Abiana). The province and FATADC would ensure that: (a) construction works under the project will be carried out in accordance with design criteria and specifications satisfactory to IDA; and (b) in particular, the distributary/minor canals included in the project will be rehabilitated to achieve sufficient capacity to deliver their full discharge determined on the basis of the diversions at the head of the main canal system over the previous ten years. Project Component 3 - US$ 9.66 million Watercourse and On-Farm Improvements Program 2.17 Watercourses generally command an average area between 75 to 200 ha and serve about 25 to 75 farmers. In NWFP, the average command area of a watercourse is around 50 ha. The communal watercourse (sarkari khal) represent about 20 percent of the watercourse length with the remaining 80 percent being farm branches and field ditches. The losses in watercourses are higher compared to the rest of the conveyance system There are about 135,000 watercourses in Pakistan out of which about 44,000 watercourses are already improved under the previous OFWMPs. NWFP and FATA have a little more than 20,000 watercourses, of which about 6,250 watercourses have been improved. The project would have provision for improving more than 1,380 watercourses, of which 730 will be in canal commnanded and 625 inbarani areas. Preliminary allocation is given in Table 2. The project would prioritize investments by initially focusing on areas that are relatively poor and have been neglected in the past (for instance, those districts where less than 30 percent of watercourses, which is an overall average for NWFP, were improved before this project, where landholdings are smaller and poor are concentrated more would receive priority), beginning at the tail-end of the irrigation system in the case of canal command areas in a proportionate manner The communal watercourse which conveys a large portion of the irrigation water would be realigned and rebuilt with clean compacted soil to improve conveyance of the canal or tubewell water. Precast outlets (pucca naccas) would be installed to reduce channel deterioration and water loss, and improve water control. The critical sections of communal watercourse prone to speedy deterioration would be lined with bricks, stone masonry, three-piece precast concrete slabs, or precast parabolic section. The lining would be generally rectangular. Parabolic or trapezoidal sections may be used where found suitable. It would consist of double-brick masonry wall (23 cm) and a brick masonry bed (7 cm), plastered inside and on top of the wall. Stone masonry or three-piece precast slabs, costing about the same, could be a substitute where good quality bricks are difficult to find. Bricks procured shall be of good quality (free of flaws, cracks and powdery crust of salts), well fired, and meet the following minimum standard: (a) standard size (23 cm x 11 cm x 7 cm) with square comers and parallel sides; (b) absorb nor more than 6 percent of their weight after one hour soaking in water; and (c) withstand a crushing force of 250 kgs/cm 2. All masonry mortar shall have a cement sand mixture of 1:4 (one part cement to four parts of sand). Concrete for lining and structure shall have a mixture of 1:2:4 (1 part cement, two parts sand and four parts aggregate). The lining material would be selected to suit the local conditions. Normally, head reaches of watercourses having maximum flows and hydraulic head would be lined. However, other reaches having excessive water losses because of elevation, soil conditions, chronic sedimentation problems, and high traffic areas around villages and along the roads would also be eligible for pucca lining. The lining would not exceed 15 percent of the total length of communal watercourse in canal command areas and 20 percent in barani areas. However, greater flexibility would be allowed to FOs in selecting the sections for lining. Culverts would be installed at major crossings, and a limited number of check/drop structures, animal wallows/buffalo baths and laundry sites would be provided as required

43 2.20 In pilot AWB canal commanded areas, the watercourse improvements would be undertaken after the FOs have successfully operated the system for at least one year. In other canal commands such works could be started after WUAs are formed at the watercourse level, and FWUAs are formed at the distributary/minor canal level who can participate in planning and implementation of project works at the distnbutary/ninor level. For watercourse improvement farmers would provide unskilled and skilled labor costs and contribute at least 25 percent of the material costs up-front. This would result in about 50 percent of cost contribution by the farmers in real terms Water storage tanks. About 350 water storage tanks would be constructed in barani areas to conserve water by increasing volumetric flows through intermittent and timely releases. Since the yield from many barani water sources is small and variable, high conveyance losses are encountered with direct application of low discharges. The tanks would be designed to store about 8 to 12 hours of inflow from the water source--the storage not exceeding the water requirements. Generally the storage capacity of tank would be about 6,400 cubic feet (representing a size of length and width of 40 feet and depth of 4 feet) serving 5 to 10 farms. As in the case of watercourses, farmers would provide skilled and unsldlled labor and 25 percent of the material cost up-front. Watercourse renovations Table 2: Preliminary Allocation of Project Works Activity by category of project works NWFP FATA Total Canal command: fresh groundwater areas Canal command: saline groundwater areas * * Barani areas Total (*targets for saline groundwater areas not specified; will be 1, ,380 substituted with fresh groundwater areas) Water storage tanks On-farm package Land leveling (ha) 3, Demonstration centers Distributary level improvements in FO/FWUA areas transfer of management model 6-6 participatory irrigation management model Total Branch canals/distributary-level improvements above FO/FWUA area Local/minor irrigation schemes

44 2.22 Precision land leveling. About 3,534 ha of irrigated land (3,034 in NWFP and 500 in FATA) would be precision land leveled in the canal command and barani area. The technical specification for land leveling would be the same as in previous programs, i.e., ± 60 mm in basins and a maximum of 0.4 percent slope on lands to be furrow irrigated. The provincial OFWM Directorate and FATADC would provide technical assistance to farmers for surveying, plan preparation and design, layout and inspection. An engineering plan, field and irrigation ditch layout will be made for each parcel of land or farm to receive precision land leveling. As practiced presently, the cost of precision land leveling would be paid by the farmers Demonstration centers. One demonstration center would be provided for every 10 to 12 renovated watercourses mainly in the canal command areas to demonstrate sustainable soil and water management practices. These centers, up to 2 ha in size, are to be located near a village and should be easily accessible. The site would be selected in consultation with FOs/FWUAs. They will operate for two years after which they would be transferred to FOs/FWUAs to continue these activities in the post-project period. The centers will demonstrate a full range of water management practices and irrigation agronomy techniques. The project would provide technical assistance for the planning and design of water management improvements, including materials and precision land leveling. Field days would be held at these demonstration centers during each crop season. The extension personnel assigned to these centers would receive specific training from the core team on sustainable agricultural practices. Furthermore, consideration should be given to using female extension personnel of government, NGOs, and the project consultanteams, as applicable to a given FO/FWUA, to insure that women also benefit from the demonstration centers. Project Component 4 - US$1.82 million Improvements in Branch/Distributary Canal Systems Above FOs/FWUAs 2.24 Due to over use and inadequate O&M, canals have deteriorated over time and are carrying discharge beyond the limits of safe operation. Many canals are operating with inadequate freeboard, eroded berms, inspection roads with inadequate widths, deteriorated outside embankments, severely reduced capacity due to sedimentation, with many hydraulic structures in need of repair In order to improve water distribution, control and safe operation of the canal, and to ensure that the supply agency could provide the agreed amount of water to the FOs/FWUAs, the project would provide for rehabilitation/improvements in the canals leading to the FO/FWUA areas. This would include works at the branch canals, larger distributaries, cross regulators, falls, rehabilitation of embankments, formation of berms, protection of structures, provision of gates at the cross regulators, and motorization of regulator gates where needed. These works would be carried out by the supply agency along the lines of Irrigation System Rehabilitation Project, with technical assistance from the consultants. The cost of such works would be below Rs. 500 per ha of command area. Schemes above this cost parameter would be rehabilitated/improved only if technical viability is assured and economic analysis done by the implementing agencies and verified by supervisory consultants, and show an economic rate of return of greater than 15 percent. IDA would be consulted on all such schemes prior to starting the construction

45 Project Component 5 - US$12.4 million Local/Minor Irrigation Schemes Development Program 2.26 It is estimated that more than 2 million ha of land is located outside the Indus canal commanded area of the country, scattered in relatively small parcels with water coming from open wells, tubewells, lift pumps, karezes, springs and small diversions. In the NWFP/FATA, such barani areas constitute more than 60 percent of arable land. Water sources for perennial irrigation in such areas are limited. Some extension in partial irrigation is feasible by using flood flows and water harvesting. There are several small (100 to 1,000 ha) perennial surface irrigation schemes. These often consist of a mixture of community and government built structures which usually are inefficient in capturing and transmitting irrigation supplies. Major losses occur in the main delivery channel from the source to the service area, and water intake structures operate poorly. Some structures have reached the end of useful life and some are inadequately built using low cost technology In addition to perennial irrigation, flood plain irrigation ("sailaba" irrigation) has been practiced for years by farmers in the barani areas of NWFP and FATA. Farmers construct temporary "katcha" diversion structures and off-taking channels to divert flood flows from the catchment area or small " nullahs/rod-kohis" (intermittent, nonperennial streams) to adjacent lands. However, the systems need proper designs. During periods of low runoffs, the "head enders" take all of the diverted flows. During flash floods, the "katcha" diversion structures wash out and no one receives irrigation water. Hence, the systems are not dependable and also inequitable. Simple rehabilitation of these systems will improve their performance which in turn would have beneficial impact on the livelihood of farmers in these remote areas Under the ISRP-II, OFWM-III, and lately under the Balochistan Community Irzigation and Agricultural Project, low cost methods of sailaba irrigation, and diverting water for beneficial use have been explored. As shown in Table 1 above, the project would support about 25 localized/minor schemes in NWFP, and 6 in FATA. In all cases, WUAs or FWUAs would be formed before planning and designing these schemes. The WUAs/FWUAs would be responsible for construction of on-farm works, and would share 20 percent cost of the distribution system. The BCIAP model would be followed in community participation and construction. Project Component 6- US$0.61 million Project Management Support Component(Project Supervision, M&E, and Training) 2.29 Supervision support. As described under the implementation arrangements, the province would be responsible for bulk of activities in social mobilization and construction of civil works. The M&E Wing would be responsible for over all project coordination, appointment of supervisory engineers who would work closely with the relevant agencies of NWFP/FATA, monitoring and evaluation, project launch workshops, mid-term review; assistance in financial management and auditing, supervision support to GOP, technical assistance/training and preparation of future project Monitoring and evaluation. Physical and financial monitoring of the project progress would be the responsibility of the provincial implementation agencies. Data on key project indicators would be collected and analyzed regularly to assess progress, exercise control and identify possible problems. The key indicators would include project planning, programming and budgeting, performance of the consultants and contractors, cost recovery from users, effectiveness of operations, mitigation measures and

46 recommendation of canal/distributary environmental and social assessments (C/DESAs), delivery of water and drainage services, water-logging and salinity, beneficiary participation and activities of the FOs/FWUAs Project impact evaluation. The project would also include a program for the overall monitoring of all sub-national OFWM programs and evaluation of the project impact. The M&E Wing would be strengthened by outside experts, where needed, to carry out project impact studies. The project impact evaluation studies would focus on: (a) agricultural growth and crop diversification; (b) impact on income and employment, and secondary effects on regional economy; (c) impact on groundwater aquifers and water quality; (d) impact on water use and equity in distribution; and (e) performance of FOs/FWUAs. Baseline surveys would be completed within one year of the start of the project. During project implementation, baseline data would be compared to on-going data collected in terms of the development indicators. The progress made towards achieving the project objective would be constantly monitored and periodically evaluated Technical assistance and training. Technical assistance (TA) and training are an integral part of the project. Each component includes the required TA and training. In addition, the project would provide for national and international study tours, TA and training in beneficiary participation, community development and strengthening, project planning and management, fnancial accounting and auditing, and modem construction and contract administration techniques. The project would, therefore, provide for technical assistance in the following areas: (a) community development/social organization and supporting technical services including those for social and environmental assessment; (b) project management support; (c) engineering services for surveys, design, and construction supervision of civil works, including the role of the engineer in contract management; (d) financial accounting, auditing, reporting and development of a management information system; (e) support for project supervision and mid-term review; (f) impact evaluation studies; and (g) services for detailed supervision of the project on behalf of the government The consulting services would be recruited in a single package, to be supplemented by individual consultants to strengthen the M&E Wing, to: (a) provide project implementation support to NWFP/FATA including community development support, design and supervision of all civil works (distributary/minor and watercourse improvements, canal improvements, local/minor irrigation schemes); (b) supervise on-farm water management works, monitoring, and impact evaluation; and (c) provide financial management support to the provincial implementing units. The consultants' recruitment would be finalized before Board presentation. Extemal auditors will be recruited for conducting annual audits of the entire project accounts, initially for a period of one year which would be further extended until a satisfactory arrangement with the Auditors General of Pakistan is made. Action plan to recruit auditors was agreed during negotiations

47 Table 3: Composition of Baseline Surveys, Social Mobilization, and Technical Support Teams Number Contract Type Baseline Survey Team (BST) Engineer 1 Consultants AgriculturistlAgri. Economist 1 Seconded Surveyors/Patwaris* 2 Consultants Total: 4 Social Org-anization Team (SOT) Social Coordinator 1 Consultants Social Organizers * 2 Consultants Institutional Specialist 1 Seconded Total: 4 Technical Support Team (TST) Technical Coordinator (Engineer) 1 Consultants Water Management Specialist 1 Seconded Agriculturist 1 Seconded Accounting System Specialist 1 Consultants Patwari/Tapedar 1 Consultants Total: 5 * For an average size distributary/minor level FO. The number may be higher or lower for larger or smaller disbtributaries/minors

48 Annex 2.1 Powers and Functions of Federations of Water Users Associations (FWUAs) FWUAs shall actively participate, along with the Provincial Irrigation Department (PID)/NWFP Irrigation and Drainage Authority (FIDA) or FATADC, in the improvement, O&M of distributaries/minor canals located within their jurisdictions, and to that end, shall be: (a) authorized, inter alia, to: (i) make recommendations and requests to PID/FIDA and FATADC with regard to such matters as: i. the distribution of water into a distributary/minor canal on a demand or fixed delivery basis; and ii. the construction of facilities including bridges, regulators, drop structures, and new minor canals on a cost-sharing or other basis; (ii) enter into contracts with PID/FIDA and FATADC for the supply of canal water on a flat rate basis at the outlet level, or on a volumetric rate basis at the distributary/minor canal level, as provided in the relevant canal rules, or any other basis acceptable to IDA, instead of the crop rate basis commonly used for this purpose, and for collecting and paying water charges at the agreed rate; (iii) represent their members on issues and problems relating to a distributary/minor canal or more than one distributary or the whole canal; and (iv) generally represent their members in various forums, particularly govenmment departments including PID/FIDA, FATADC and provincial Agriculture Department, and serve as a channel of communication between such members and such department; and (b) obligated, inter alia, to: (i) obtain the approval of their members before committing or undertaking or participating in any major capital expenditures or improvements; (ii) obtain the approval of the relevant canal officers before undertaking or participating in any improvement schemes, and carry out such schemes under the supervision of such officers; (iii) maintain financial records and minutes of meetings; and (iv) promulgate bye-laws and rules of operation

49 Pakistan NWFP On Farm Water Munagement Chart 2.1 Proposed Project Management NWFP/FATADC Provincial Policy Committee Provincial Project Coordination Committee M&E WinglPE&D Provincial Project Director ~~~~~~Director General, OFWM I Monitonnw, Evaluation and - Monitoring of Project Impact - Reviewing Perforrnance of Fos - Construction Supervision Member - Quality Control Irrigation Water Management Area Coordinators Canal Commanded Area Coordinators Barani Areas Proiect Imglementation Consultants - Community Development Support - Irrigation Improvement Facilities - Branch Canal Improvements - Technical Assistance and Training -45 -

50 Pakistan NWFP On Farm Water Management Project Chart 2.2 Proposed Organization for Community Development Support Program N.W.F.P. Province and FATA DC Core Team Team Leader Social Organization Expert (2) Training Specialist (2) Hydrologist/liTigation Engineer Agricultural Economist Data Monitoring Specialist CAD/CAM Specialist, and Technical Staff Area Coordinator Minor Community Area Area Area Pabbi Irrigation Devetopment Coordinator Coordinator Coordinator BST (I) Bannu Barani Areas FATA SOT (l) TST (4) Social Mobilization & Social Existng Social Engineering Support - Design, Supervision of Canal Works and Hill TorLentslMmor Technical Assistance Mobilization & OFWM Mobilization & Schemes Field Teams Technical Staff Technical - Construction Assistance Assistance Management Field Teams - Bidding Documents FATA BST (l) SOT(2) BST(1) BST(I) TST (8) SOT (2) SOT (l) (7) ll TST (I) l l l ~~~~~~~~ ~~TST Note: Number of members in the social and technical teams will vary during the project depending on the project activities. BST = Baseline Survey Team, SOT = Social Organization Team, TST = Technical Support Team (See Appendix 2. 1, Table 2 for composition of each team)

51 PAKISTAN NWFP On Farm Water Management Project Figure 2.1 Schematic Diagram Showing Possible Layout of Farmer's Organization (FO) or Federation of Water User Association (FWUA) (About 20 watercourses) Watercourses (WUA) Distributary WUA Farmer's Organization (FO)/ Federation of Water User Association (FWUA) [WUAGI+WUAG2+WUAG3] On large distributaries, Group of Water User Associations (WUAGs) formed at minor canals or on a section of a distributary would then form an FO/FWJA. Note: In pilot Area Water Board (AWB) Canal Cormmand Areas, the Groups of Water user Associations (WUAGs) will federate to form Farmer Organizations (FOs) and in other areas, they will federate to form Federation of Water User Associations (FWUAs)

52 PAKISTAN NWFP On Farm Water Management Project Figure 2.2 Schematic Diagram Showing Possible Layout of Farmer's Organization (FO) or Federation of Water User Association (FWUA) Main /(WUA) Water Userert o WUAt U s A nassociation (W A / WUAG 1W + 2) Sub-Minor _ S l d tate User Association F Farmer's Organization (FO)/ fe to t inor O Federation of Water User s /sassociation (FWUA) 8 (WUAG 1+WUAG 2) (WUA) ~ ~ ~ UA Small distributaries merged in an FO/FWUA after each watercourse level. Watercourses flowing out of the main canal could distributary level and WUAG Note: In pilot Area Water Board (AWB) Canal Conunand Areas, the Groups of Water user Associations (WUJA groups) will federate to form Farmer Organizations (FOs) and in other areas, they will federate to form Federation of Water User Associations (FWUAs)

53 PAKISTAN NWFP On Farm Water Management Project Figure 2.3 Proposed Organizational Set up for Farmer's Organizations (FOs)/Federation of Water User Associations (FWUAs) Farmer's Organization (FOs)/ Federation of Water User Associations (FWUAs) at Distributary Exocutive Body._me General Body 5 Elected Members from each WUAG l Group of WUAs General Body 2 Member-s from each Watercourse F~~~~ Water User's Associations (WUAs) at Watercourse Levels Executive Body 2 Representatives General Body All Water Users 2 Representatives General Body All Water Users Note: In pilot Area Water Board (AWB) Canal Command Areas, the Groups of Water user Associations (WUAGs) will federate to form Farmer Organizations (FOs) and in other areas, they will federate to form Federation of Water User Associations (FWUAs)

54 PAKISTAN NWFP On-Farm Water Management Project Figure 2.4 Calendar of Activities FY2002 FY2003 FY2004 FY2005 FY2006 Ql Q2 Q3 Q4 Ql Q2T. I.Q4 Ql Q2 Q3 Q4 QI Q2 iq3 Q4 QI Q2 Q3 Q4 I Baseline Survey (BSTI) Bi i. i Social Mobilization (SMTI) S S S TechnicalSurvey(TSTI) T T T T T T,T T T T T Joint Management J J. D D. Distributary Improvement D ID D D D Watercourse Improvement i W W W W W W W W 2 Baseline Survey (BSTI) B Social Mobilization (SMTI) S S S j Technical Survey (TST2) T T T T T T T T T T IT Joint Management J. Distributary Improvement D D D D D Watercourse Improvement W W W W W iw W iw 3 Baseline Survey (BSTI) B Social Mobilization (SMTI) S S S Technical Survey (TST3) T T T T T T T IT T T Joint Management i J Distributary Improvement D D D D D i Watercourse Improvement W W lw w w W w 4 Baseline Survey (BST1) B Social Mobilization (SMTI) S S S i Technical Survey (TST4) i T T T T T T T T IT IT Joint Management J J Distributary Improvement D D D ID D D Watercourse Improvement W W W W 5 Baseline Survey (BSTI) B Social Mobilization (SMTI) S S S Technical Survey (TSTI) T T IT it T it T IT Joint Management i i Distributary Improvement i D id D ID Watercourse Improvement _W 50

55 Annex 3: Estimated Project Costs PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT Local Foreign Total Project Cost By Component US $million US $rmllion US $million Community Development and Support Program-NWFP Distributory Level Improvements Program-NWFP Watercourse and On-Farm Improvements Program-NWFP Improvement in Branch/Distribution Canals-NWFP Local/Minor Irrigation Schemes Dev. Program-NWFP Community Development Support Program-FATA Distributory Level Improvements Program-FATA Watercourse and On-Farm Improvements Program-FATA Local/Minor krigation Schemes Dev. Prograrn-FATA Project Management Support-FCU Total Baseline Cost Physical Contingencies Price Contingencies Total Project Costs Total Financing Required Local Foreign Total _Prject Cost By Category US $miwlion US $million US $million Goods Works Services Training Admn. & Operations Total Project Costs Total Financing Required Identifiable taxes and duties are 2.39 (US$m) and the total project cost, net of taxes, is (US$m). Therefore, the project cost sharing ratio is 72% of total project cost net of taxes. Detailed Cost Tables Summary Cost/Expenditure... Tables (a), (b), and (c) Total Cost (including contingencies), NWFP... Table 1-5 Total Cost (including contingencies), FATA... Table 6-9 Total Cost (including contingencies), Spn/M&E... Table

56 Summary Cost Table (a) PAKISTAN NWFP ON-FARM WATER MANAGEMENT Components Proiect Coat Summary # # Total (Re. Million) (1U8ii Millon) Forign Base Local Foreign Total Local Foreln Total Exchanas Costs A. NWFP Community Developmenl Support Program Distibutary Level Impronements Program B Walercourseeand On-Form Improrements Program Improvement in Branch Canals and Systems Sulpplying Waler to FOs/FWU Local/Minor Irrigation Schemes De,elopment Program Subtotal NWFP 1, , B. FATADC Community Development Support Program DistributaryLevel Improvement Program Watercourse and On-Farm Improvements Program Local/Minor Irrigation Schemes Development Program Subtotal FATADC C. MSE Cell Project Management Support (Spn., M&E, TA &Training) i Subtotal M&E Cell D Total EASELINE COSTS 1, , Physical Contingencies Price Contingencies Total PROJECT COSTS 1, , Summary Expendftre T.ble (b) PR. PAKiSTAM NWFP ON-FARM WATER MiANAGEMEtIT Enpanditun A.ssaste by Compe-ests - Ttaln I.eludile Cantlneansla (R.. Miltiont Improvement MAE Call In ir.ech FATADC Pretest C.aas -nd L-el1fidar L.aetIMlnr Msnngem.nt Cemmu1tty DlHulfasary Wnt.r.urna Sypetms Irdlgatlon Cammuelty DletrIbalay Watarsaurna srlatlsn Suppod Devalepmaet Lavna and OG-Fam Supplying Schemes DanIapmant Lend and On.-Frm Oshbma (Spn.. Support ImproevmentsIimpr-nt Water In Denaleprent sappwd Impronamele Impr-nmanl Delplpmnt M&E, TA A ProarNm Program P FOnSFWUAn.,eUEm Proeram Pr Peram Prsarnm P-m Trnelnta Tetal 1Innanb- et Cents A. Clvi Woron 1. Clv Worhk ? Skilled Labor S0 2. UnsMIlIed Labor t.19 Subtotl Cnlvl Werha , 1., Adml.ilmtrlen S OpeatIons C. ConsuOlog Serel..n Eiqlpm-nt E. Vehicles , F. Traning Totl PROJECT COSTS D , Taxes F.r.lgn Ecohu.go PAKiSTAN NWFP ON-FARM WATER MANAGEMENT Espandlt.r A.s..n.t by Camp.anet. - Telale lesladlee Cnllnaen.esla Summary Eependlltr Tabl- e us0 (U50 Millin) NWFP Impranamact MUE CnII ri 5-runo FATADC Pce)ag t Cnnl 1 so d LeaeUMtoar Lasa.lleMner Mdanagamant CemmeeIty Dlatr1berry Watereore syptame Irdgadon Communety Olni1lbstary Watlr-sre 1ral,llse Suppart Usnolypment Lel ned On-Fnrm SepplYIna sehmon Dn-Inspmsmt Len-l sod On-Furr (ssnmsu 1p.. Seppert Imprenamoel. Impr..em.ntn Watarta De..lspme-t sapprd Impreements Impravaeetn Da...eIsPMet MtE, TA S Praram. Pr-.rnm Proa, FOdFWUAn Pr.a.' Pre'am Prer_a Proarm Preaom Tralnint) ToUt 1. Inneubonet Costs A. Cll WIrInk 1. CIvil Werks Skilled Laber Unnkilled Labor D Subtatal CllH Werkn B. Admiis-talio- 5 Operations s C. Ceo-ulling Sroe no Equipm-nl ,050 E. Vehicles ,503 F. Tnining D Total PROJECT COSTS A T..o Fnraign Enohanga

57 PAKISTAN NWFP ON-FARM WATER MANAGEMENT T.biu 1 Conm,tty Oooprn adspportprogram 9WFP DOtlnla Costs (Ro. 000) ParsI aar lin %) QGcootloa Totals IolodlIVCooalossools Cot. Fr. Gross Rots Esoh. Tso Rst Uol Total Unit Cost Total A. Socsi Orgolsaldn Fisid Tsaot I. Isalls Buro.y T.sma (BST) 1s EngNrs slasn todoi , 13z SuaYPtts styos t 0 0 2o *, t II.. l aubfto N at o-oy T- (aol) 1,3500 t ,1-4, Sc.al GogolasN.on Ts-ms isot l SDcDIMc= Uttc ncctodoo afrt ryt n * , ,t Soolovrgar4rY e at Ie t , , , D brttt lsoolat ogcotluo Ta-ot (SOT) 3,2t3 3.e 39 i6i & 3. Tolthlt opport T.acs (TNT) kt Too oi =C.ootria (Englosr) ilot I , , , Aoccootg Systam S"dNI Off y-a to , Subtotal Tach1oel appe T.s.o (TST) 3,400. 3,S9D 5 3, , Oso dd t1 (frt.. GSd) Agn EC= rbtvadotiulto,1st(ost) aisflfar , 940O a0iu8oos SpcdcIilt (SOT) otlf ytta A ,351 I 0 7 I. W.8 le..oagoat OSp-fita l(tst).arylpar , , , IoIfyna , _ Agriouocti (TST) Saft utl I- Socdad B0ttl , ,1303 2,70.7 2, (from G-ot2) 5. opootlm E,,posaB FbId pnog ard o1aurrundngob Amount 2.080,0 2, , _ ,b Scmotei Sooalsi rguatao slonfdtao ,7124 7'iiiT S38083 B. Locl- MIs4t1 81.d (1-hln) Fiald T-s 1. S-no y T...s (SOT) itnulcoat alatlynan , S-crt-c a I to obtodta Ssaios muony T- ma (BST) S.Socal OgsMlo.ts T7- m 00S) Sol.I DC -rdln-ot- I I I , So-WaO 32nrUzcr s 2, utar 1, ,3755 1, i2i 8 Oubtcs1 Sccu GOaccitlca T.acs (.O) - 3. TachoiS1 NBppoat T.sms (TST) TacIcC Co -tralor (Engin-or) so 7801, 1 I a C Accuono SytomS pd dat tffyo phvd ist yns - i I I cisc - 000o uny./Rod-r oa Y- e I ,1 1, , OaOtaOlT.aihol.ucl ppdatta.s.(tot), 4 codd Su Ifo Govt.) Agri EotcolaomAlhgtutloti(SST) a.llpr I440 a Wutor lecosgonnai 4SposicOast(TOT) olsifo, r Ag,cf.ttst (jst) fafyet - I 1 I Foid Avbn -Sut-yot lsdlroer Y - I I - 3 U (TST) 3ubtet0a toodod 0S84f0 from Govt) G S. Opatatlo E.".sac FPidcotgm od ko rsrtdg cols Amouni, s.bftfsl L-I0 imigato (LNi) Flats - 4,3800 4, , Ml.., T-sms C. Curs Ta.. Id 1. Coeoauot M.t Tlom Ladtr 1,0840 1,905 2, , sba lyos I I 1 1 I S-1oic Otgoioetlcn Mon ,7 3, D ntubt Trarlttog Spodeflatlco it. onrt 0 4 I, , , 0 so 20 Hyidoliagil E,r,ionsgl0 M TacYt I I 1 3 3,8o00.0, 037 1,7109 1,0054 5,150, A E--I.ulr Sl Y.. t I I I - 3 MD , hat Mczn8rlnc SpclOEat Sa,lIbo d' ' ' ' I 0 S , ,430, Tachnel sall rste Y.las 1 I 1 1 I , Subctt. Con.cRct satcf io0,170 9,3032 5,914, ,2 0, , ' Secoedad *la vt aum Gowt.) CADlCAMSA^Al sll also r I 1900 D o S. Opeostio Eapvdittu..s FlWtd opotarog und zlct9rrnlnung cgtt Amouot S ,00e ,7 8, ,67 4 3ifliy6 Subtota Coo Taco 1O, ,230.4 D. Tonolg (Cap.Wky BsadloiGaod.o I.ouu) P.omodo sodto1nigmulotr Atoi , Trclchtg 00 P414 Tacoc cod eras coccy aybooing obrottll k ,, , T.Icto folfos aleak 10 1 to Goo dochc: Tn,,fta,TA, 0NW0 Ukcag Aott ,0Y ,8050 1,006. 7,020, OcOtoosa Tclitt (Cupecky Solldloi t sonda asasa) B3 i S9r 2: a Z E. Vohitcl 4WD VaNls (4). V.co (4), PId Ups (to). Motsoo.c (48) Aloot 10, ,04 2,,, 18, r. FrIr. sod Eqolpmo Is Amou"t Tctcl T3I0 40, , , ,2102 ti272f1 to Thstawould h o laihd oboe Esolte Soot cols oid hens cooh051which could oomrplnaosoort 0150 snrcc Moo Stobibiulry months lb Tho stanol br lom omuld dapood on bn Furmn OturaolDeon (ffo) ci ha dtamtcutsymitrct whit bt tray nowcrblou On so soaae so S T wools maca cnoro TO tbou 041 moirito (TMM mo2dnl) 00kb l9t'e 70 to aboutlvcyara (T70M odt), cra pd -oont moolh (J0 modo,). TST -Iwold a ThI, rpftd roil ab Inlltly d Co- tea Wcii Dd topolbta to loatbo Soosoolo Repors hc asooo,odi ptcdctd by Urn TSTs

58 PAJKSrAN NHWFPONFARM U" MNGEEN Ta32 W V m *. mendfam b p Fwnriw 4ga1 - WN:P Cdidoo (R CODO) ~~~~W0)P Ph. Q.rin'Ub rlk* TOWS icwdng Cm*jwildh Coi Fo. Gus Unk _2W 3 29t5 20D Tod Cod 2O D6 To Ro EBdi Tax Rd sm 1. CM vf b No& C0 20D B, , , Skla Labo C0 2C SS34 11,132 7, , U d Labor No& D S S 5SE wst OAW S?98M,9 255i,34a7 1.CM4WwOw Maw No& - 1C025D 25D 13D 73D O0 44, , Sd3JLgbor Ns, D 13) 73D ,9 5,1754 2, Urakl Labor 1d No5-1O 25 25D ) 13D 73D ,471515, %5 43, Subo'w C , ,438335, ,455.1.WdgrxwpTadftk 1. CM ik WOWS NaK D 19 I1O , , A&O 52X Skbdldr Km E ,564 3,3D12 3,4553 3MR6 11S kddlabor Nos W0 1W Z , S Sub. CMWa - 9, S ,4.0 2,428 74,01.8.Laad Lea4 Fb , ,6317 1,7194 3,3098 2, z CamCa no Ad* akdop CA 1. Fasn11U SWSWM Ie abl& Id Aamrt , AmeTem3r1e Am t MS ,02S0 1,0742 4, : ITewm(12)A Amat 9,OSI7 9,576 10, ,57A4 11,1034 5D3S Tes OCp sb Amul 1,I17.1 1J1Q0 1,79I 6 1,8816 1SB4.1 9,OC SUA01aw mnium s11s8s52 jl ~ 1256E , ,155.7 I # Hvctk=2Bdui,15% Fwde r8l sdd.i Wrgh= 1600 m, 20d do52owd aze= 192a tim (6400 dq 5wss3)+Spcitst5) hee Tefmv, ntepe3 s ai 17B t falaiitm mwh and :4PUTe efiddtean (3dku.+ 19 s.p* i hit oldam sa p blet3rc x*g22wt 6Air4,a d5d hadplp er. Ad c9ear and c*e nzt casisl

59 PAKISTAN NWFP ON-FARM WATER MANAGEMENT Tebti 3. Dltfib.toy L.0.01 I m bofto Prog-on - NWFP Dtatled Costs (R6.000) P.M.oota Ifn %n Phy. Ouantttllb Unni Totals lncluding Contlnoanole. Co0t. For. Gr.. UnN To0l Coat Tottl Rate E.oh. To. Rota I.1..v..t lnt Coste A. Di.trtlboory L.-. O... Land Cost Plot S , , o0mc Conotrootlon OfM , B. 15N455. B D0B S.bto.ta Dl.trtb.tany L-oI Offl... 8, , , ,379.7 G Distibtany bnprn7omtnot ha 1 Joint Mao.g..rnt No B , , , , Man-go-nltTrTnaf.r No b B U S.bi8t.1 Dit.ttbfatry tbpnoo.n , B.1 C. Machilory and Eqipmolm No Total 8, Ut lotncludeso Ro P.r distrib.tary fr EPA 0h0rg0. (.ater q00alty mnonllori%n bnoitonntat 000se60 dtaboso) U.01 4 Irp--temOnt In Br..dlVDic4btary Canal... ISy0t AbOca FOSIFWUA. - NWFP Detall0 Co.. (R. '000) PonaatOn r! ln 10 _ Phy. 0,00000 UnIt TouI. nottding COnanO.U.0l0 Con. For G-r0. UnIt Total Coat Total R.t. Erch. Ta. Rat. 1. tnvoatm Costa A. CIWI Work. R.lh.bllItlaonWor. N , , , , B Adrnin.tr.ao and Opatirn Coato Ano-nt , , ,5 1, , C Super.oMo C-00ti001 A-0u S a ForrOtur.nd EqolpOon Tot., A ,90 4 _ , , , ,4206 2, a Table S. Loca1/MInor mgolatlon S0h0m.0 DoO-Io.n,-t Progro. - NWFP Detaltd Coot. (R.. 000) Parameters tin #) Phy. T a.an.tlt. UoIt otal. ton.tdl.n Contt.ntle. Con!. For. Gro00 Unlt Total Coat Total Rat. Eooh. To Rat 1. InvaOtab.at Co.!. A. Cl,l WoYoks NO S 25 20, , , , , S E Adlnitrtatin & Op.rationc.p n.o. Amount 5, , , , , S C. Con..ltirn Se-vie- Amount _ 2, ,2815 5,6009 3, , Total - B, , , , ,531.7 ba Ac. minor irrgaton schoo- -oold h h.. groso command

60 NWFP ON-FARM PAKISTAN WATER MANAGEMENT Tshs 6. C-a DoAlyOtstotlolmc, OSppodPgom n. FATA WItoSH Cott lv,4000) Pacoatsr Phy. Qoantlttas ~~~~Unit CTe.'. %wdm,h. Ctnllntnds Cant Far Grass Unit 2t02 20t N 2050 Total Cast 2MM2 200t 2tl4 20S 2006 tot.' Eat Etch. Ta. s t. 1 Inoitrtt Coat. A. l Ocial tran 1td T.s. b. 1. StaIn su y TeeS.(D ST7m 1ST)l Anohmar adff Onar it.il Agd. Eracor )AgrcioLaDi tlafyfst Nr P.aFstas atell Yn, _ -927 St.Ptal ftaslc iturs.y Ts..oc 403T) Iitlal 0radtvttrn T-al (SOT) li SoYt MocltsL cootlo.r aff D 0 4C C SO4sOrsnltarc C ffoyt7.. ' In0fLmt S.oAhlat slaffys t Sobtittl =ocial 0ro.itinnTars a 100S.0 (SOT) - 3 Tach.lcal itob.op T-tatttST) Id Tc40AcalCoit OSo00(Entlnsr 07 byt' l Z WoalsWM2 -toant5psthi.ol sbff ' 2 14t A40,l,M l adtaff ysr M tatoffrs.' Y i acunonit Sln acoftys.' ' s Palnoll - _ So.t.AI TtamnlI O.p-.o TsTrin (70Z3.T , ,17.4 FM10 pntq st olisniomnoaste A- s2z Z5D ,ctata Oc... OruaIcotta Fisld Tss..s ,800.0 MSorI Oi- atlanil7 n Fl5d Tsm.5 8. icm. Scony Ts... (500) tn(s,ssr n. staff..' J a Ag1. EoonO9AWhItdi-lsi 001ff0 Y '54F51it.05 stif3y*ff iuotawel i S sy T ts (ST) S. Oral Orosnluittlit Ta-s [SOT) S0 mdoatitoso,cooi siaff y P SYD Oits ltf ys b * _ Q25 Sotttl1Scal OrgaitaTac sat- (OT) 3 T-,hnirt ap- a..m. (T0T) Cscitnit CosniDtcso (Engi.9o-) also yaar 0 1 I I - WirM...t2t nttsa elal t yar I IN 1 I raoto asffo I I 0s a 1 1 AocraLos so tyaiao OtsdaIl also yas' PRO d0ar aittfl ast Pota ttaffomar _ ,30744 Sw,tatal Tao00o1 Sit-so T-om (tto).. 4. op Ecpn, 4 g.ndoll.oot. d,,tstt raa D t.58 Ano.ni Local ani lo- itit (LMI) Plidlamit Er Su0tta C Cowa Tesm a l. Ctona'20a Stall - Ta.. L-,dr NrPV T... L.-) SDff r sornat Er OlffoM_Oon MWs 0 2, d Tsisr,g Sapmodo l Sff isoon VrdChLntt C -ts Z Oparaitito Err antusm alto o7os lonliog 0000 Att,ooni _ SoctotslOom Iaitm M S. TrIaodno (Copcty U-dl)gitandac Inoaee P.t- m T.mln-ogMa.SlrDh Amoml C TotnoiS MF Tram and. ratoll a r ln n.c00ffw 10 I t sff_& T,thlorScF Gandra.,I- Trining. 14. SNO Lhkcg. 5mo ochbttdl Training (Cap.coy BEidiniOasdr s.-) S E 9hdNl b 4-W.00 (sl 1). Vla (8 J), Mora-cyas (2) A-ooni qoIO,t7 Amoon o0 29 F.F. Esma -ro Tot 132' T Sl Bs Osose Itol pt s 000th0 FATA00. e-nd-i of Grf lso ff rot - a d. dlslotstatrh o \bt7hs"ratcoieooa edtsoisrlito(.otlohhosotodralbolasulscooa ts.ooroctt cthn s1ira 91 onr solo o dndm spao OFanbraorinhauson (F03I 1Ia dhidholaylrmocdioltobh Aspa,.itolog On santg, ns07t 1ww sojootr i ota 00. shoo ts rros. d TST soul 0 d st, 0n ftoh FO fcoithra msq. Ia Comoso Dasill hi vmayrnla 12Oct10. oranaba Rmrhl0Radla rdicniocogo.ii adonsmas mrofl coo hcis ioaiyahponu 87W ott TOTE. Tatac 7. Wal-oo-r c,,d OroFa- Irop-rsoa Poogoc -0610A Detalted Costa (O. '0003 Far.nmdars Oin S1) Phy. For. GOo. gtntltlo- UnOt Totalsltcto6na Csnitt is.o.c. U05 2t Toa Catol R.8. Eooh. Tao Rota 1. Innastossot Coasb A. Frost,h Or-ndabto, Art- l 1t CIvl Woirks M4t00 N3os d d SklNd L-Yr Noa t1 0.- U.N00dl d LdbOT Soc , OSZ7 Z532j A4 4, Sabtobtl ClIl Werlk 7 S.a. Ars.a E. 1. Ch0 Wortk MMlo N , ,9 2, S0l0lld Lgto Noi e U0n03id L.bo N.s A a 1714 C 0 0 S Coil Worar.k 1,4310 3, , C. (mod Lfsoawnmg Sa , D OorNooolratlorcootoro no - 4 *4 * E. Adntttilttr. and OpWtos Casts 1. SUnNt SlsrI.a Field T-m (23)/b Amount _ , , T...0Op g110 CoUstoc A4oun , B05, Total 00 Tr Fie0l4 ngt. (0 CoOa. I0% ppO0s affgt bor h -oata) lc opafirj rn1 oora rootmg -N rst. I b000 lspo.ibltq fortrnsting 5 0,, aod 500 h. PLL In 3 po-r

61 PAKISTAN NWFP ON-FARM WATER MANAGEIENT Table S. Loraieort u11oo Sob. D-Wlopa Program -FATA Daled Cota (R.. WO) Par-eroter, In 5.% Phy. QOuatla. Total. leladlig ContlWe s Coot For. Groos Unlt Tobt Udt Cod Total Rota Eroh. Tao Rate 1. tnv.at Cocb A. CMI Works u Nos. * , S , , B.AmLon&k8 5 rta oneo erodp Amoant ,80.3 1, , C. CoDleibog Swst A-out A Total - 11, , , ,419.0 b Av. mlinrnooo ohomn wo4d cnd abort 400 ha. gosso ara. PAt3STAN NWFP ON-FARM WATER M1ANAGEMENT Tabte t. Dtb1tbutry Lerel hmprovnabot Proonram - FATA Detaled Cost (Rs. 0WO) Paramets (bi %) Phy. OCedntto Total.steoledlog C-ottnggolsa, Coot. For. Gross, Un.t Tobt Urit G.M Total Rate Eoch. Tao Rate 1. ivaboenl Coat. A. DItdrbutay L-t Offfoa. LanJ Cosl Plots Ofike Consoctlo. Office ,290 1, , , 3, Subtotal Dtitrbutary L-et Offls 1, , B. DistribLiorylmpro-n-rertIdntMarogorreont / Ncs. - I I ,000. 9, , , C. Mactnery ad Equip.rect Nrs , , , , S0 rotd 1, , , ,477.3 a The -ool includos Re 90,000 pr dibutry for EPA chargo. (ooto rquabity -r-noi1rnrmiroomll baeoore datbaos) NwFP ON-FARM WATER MANEAGMENT Table 10. Projet Sup olo.., Nosdout E Evasttuec, ad Training. Detallad Caata (R..00 Par-lrrr o. %t p07. Q.oar,L9ee Unit Totals InoJudin Csn11n2-se Cont. For. Gross Unit Te CoGt Tot l Rt. Enoh. Ta Rate t.hnt Coats A. Suporvy Coneuoltbb lb nrtton EogriEno t Spard SpnArad. 103A , B. Mooteodo ad E-ot-1tio to AgrlEconoe0tlnd. Enh. AM-rar ,D C. Feot lmm- -t -nd Audio PrdeeahaelAosIdngOSpelao I CA) Amo tnl , S-CA.(sp."r h t. 0nbrg)121 Anort T 252.T 1, SuIbebal Fbln lapl MaanndAudit ,190.1 D. Staff Traglrojd Lalnh Am..et 1, , , , , E. AdMnieolrelo and Opa.neeg Eopeno -anrdal 9 fdaritessnoo 1f _ / d A.-ot 3, , , , , onta oarting oomtrtl. Amoot ,08,, , ,2d3.8 5, Subtot Adml nlne, ln and Opoting Eo.n.se 4, , ,8142 6, ,931.0 F. Elulp-tl A.rnl , G. Vhke Arr-a j s0 Total 8, , , , , ,133.7 \n To bh base4 at M6E ClvWhq at Plrrnh.g, Ero-no A Dwc. DGpt. GON PFF lb MAE Cell od -daply 3 SBr. FlWd Ero.: 3 S,rsng; I So-hioglet and I DatgnrC.Ulo Er. Ic MAE Col to r-dope 1 Sr. kflgtim Er.: 1 SodolUAdopo1oti I Ag. Eooordst I Jr. "Ir. Enr.: 2 Capnpwtr AnulIt FIed Enumatr d tote.*w aetff dapwyd ton Sop-rAoy, MAE. Sosadwm-. elsoeno adh.8 cotalrade alas Indda etaff a.ad. and ow-le optg sa, ad handy for MITR Identifiable taxes and duties are 2.39 (US$m) and the total project cost, net of taxes, is (US$m). Therefore, the project cost sharing ratio is % of total project cost net of taxes

62 Annex 4: Cost Benefit Analysis Summary PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT Values are combined for NWFP and FATA [For projects with benefits that are measured in monetary terms] Present Value of Flow Fiscal AmpaXt Econo: femic 0 Financial Analysis' 0 Analysis 1 ;f:xtt:0:tue : : Taxe Tx s Subsidies: Beneflts: PRs (million) Costs: PRs (million) Net Beneflts: (234) 116 PRs (million). IRR: % The taxes on agriculture are assumed to be 20% (includes usher at 10% of produce and income tax at 10% on landholdings above 5 ha), applied to about 10% of the project impact area because of low collection rates. The remaining difference in economic and financial benefit flow is due to implicit subsidy on wheat and sugarcane. On the cost side, fertilizers (N and P) are subsidized (ranging from 5%-20%), with a weighted average subsidy rate of about 4% for all farn inputs, and capital/o&m project costs. The tax rates on costs is about 16% mainly due construction items (cement, steel), machinery/vehicles, fuel, services, and farm inputs. If the difference between the present value of financial and economic flows is large and cannot be explained by taxes and subsidies, a brief explanation of the difference is warranted, e.g. "The value of financial benefits is less than that of economic benefits because of controls on electricity tariffs." Summary of Benefits and Costs: 4.01 The project would increase agricultural production, farm income and employment in some 201,200 ha. of rural areas of the NWFP and the FATA. The project benefits would be due to improved water supply resulting from: (a) better management of the system through enhanced farmers participation which would improve the sustainability of the system, increase cost recovery, and reduce the O&M as well as rehabilitation costs; and (b) improvements in the water delivery infrastructure. The other indirect project benefits from the improved water management include reduced drainage requirements which would help in controlling water-logging, checking rise in water tables, improving water quality and reducing soil salinity risks. It would also reduce the incidence of mosquito-borne diseases by reducing the habitat of mosquitoes with reduction in stagnant water leaking from deteriorated water channels. Furthermore, it would reduce long-term negative effects of poor drainage on buildings, roads and utility lines; thereby reducing the maintenance cost of these facilities. These indirect, yet unquantified, benefits would contribute to improving the living standard of the predominantly poor rural population. The change in management of the system and improved cost recovery would reduce the O&M burden on the government and allow it to redirect resources to improve O&M of larger irrigation infrastructure The economic rate of return (ERR) of the project is estimated at 27 percent. The project ERR is robust and not very sensitive to variations in the project costs or benefits. It is highly unlikely that unfavorable developments would reduce the project ERR to opportunity cost of capital taken as 12 percent. The impact on agricultural production, farm income, and economic and sensitivity analysis is summarized below. The details are in the project file

63 Main Assumptions: A. Agricultural Production 4.03 The impact assessment of various infrastructure improvement and rehabilitation is based on monitoring results of similar works undertaken under various projects and estimates of pre-appraisal and appraisal missions. Specific assumptions made in estimating the impact of various project components are briefly described below Distributary/minor rehabilitation/improvements. Because of poor O&M, the irrigation water distribution system, both at the secondary (distributary/minor canal) and tertiary (on-farm watercourses) levels, has deteriorated to such an extent that the delivery of water, its reliability and equity in distribution has been adversely affected. Monitoring results of IDA assisted Second System Rehabilitation Project (Cr PAK) demonstrate that, unless the system is rehabilitated to catch up with the deferred O&M over the years, the cropping intensity reduces by about 7 percent over a period of five years. The cropping intensity, however, remained unchanged on the channels which were rehabilitated. Therefore, it is assumed in the analysis that the future cropping intensity without the project would reduce by 7 percent while it would remain unchanged in the with project situation. (j/ "Agro-Economic Impact Study of the Venoi Distributary in Punjab", conducted by the Punjab Economic Research Institute, Lahore) 4.05 Watercourse improvements and water storage tanks. The post-evaluation of watercourse improvement surveys conducted for the Third On-Farm Water Management Project (Third OFWM, Cr PAX/Ln PAK). The Post-Evaluation of Watercourse Improvements Surveys' showed increase in irrigation efficiency by reducing spillage and operating losses, seepage, and evaporation. It was estimated that with watercourse improvement package the amount of water delivered to farms has increased by an average of 26 percent, ranging from 19 percent in Punjab/NWFP to 47 percent in Sindh and FATA. Additional water resulted in increased cropping intensity as well as there was shift towards higher value crops. Based on this data it is assumed that the cropping intensities would increase by 28 percent in the canal irrigated areas of NWFP/FATA, 13 percent in barani spring/well irrigated areas where watercourse improvements would take place, and 3 percent in the case of water storage tank construction. Overall crop yields would increase by about 5 percent for fruits, 10 percent for grains, 20 percent for sugarcane, 25 percent for fodder, 16 percent for oilseeds, and 35 percent for vegetables. (2/ Conducted by WAPDA's Watercourse Monitoring and Evaluation Directorate on 14 randomly selected watercourses in the country) 4.06 Local/minor irrigation schemes. Based on experience gained under the Balochistan Minor Irrigation and Agricultural Development Project (Cr PAK), it is assumed that construction or rehabilitation of local/minor irrigation scheme would increase agricultural production through augmented water supplies to some existing irrigated areas (by meeting crop water requirements), and through expansion of irrigated area. On the basis of an average local/minor irrigation development model (for middle altitude cropping pattern), the water flows are expected to increase by 2.5 cusec (from 1.5 cusec to 4.0 cusec with project, and consequently the average cropped area on a 200 ha command area increased from 131 ha to 437 ha on a 400 ha expanded command area. Increases in crop yields would be substantial, ranging from 25 to 50 percent for cash crops to 35 percent for fruits

64 4.07 Improved management The change of system management, specifically the participation of FOs in the management at the distributary/minor level, would result in: (a) enhanced sustainability of the system, reduced O&M costs and improved cost recovery eliminating the need for periodic rehabilitation; and (b) increased agricultural production due to reliable and better managed water supply. However, there is insufficient information to fully quantify the benefits of changing over the management from fully government run system to the one with significant participation of FOs in joint management, and in some cases, full transfer of management. Benefit estimates of changing the managementaken in the analysis are very conservative. It is assumed that the anticipated increase in agricultural production would not be attributed to "management change" and there would be no reduction in O&M costs. In the present situation, the distributary/minor system requires rehabilitation every five years. It would not require any rehabilitation if proper O&M is regularly carried out which is expected under the changed management. Therefore, it is assumed that the cost of rehabilitation every five years would be reduced to half i.e., Rs 350/ha of cultivated command area (full cost for a typical branch canal in Punjab was Rs 600/ha in the mid 90s) Target impact area. Estimates of target impact area, by project component or type of investment, are given below: impact area in ha.) Province/ Watercourse Watercourse Water Distributary Branch Local/minor Entity (canal (barani Storage Canal' Canal irrigation' Total irrigated) irrigated) Tanks' (Above FO)' NWFP 30,400 14,600 10,500 90, ,000 20, ,100* FATA 1, ,200-2,400 21,100* Total 31,720 15,100 10, , ,000 22,400 see below Net impactarea 31,720 15,100 10,500 NWFP: 59,600 45,000 22, ,200 used for ERR FATA: 16,880 (WP caculations Total: 76,450 (NWFP:0 FATA: ~~~21,100) 1. Av. cultivated command area (CCA) of a watercourse (w/c), is assumed to be 50 ha. Additionally 7.5 ha. of PLL is treated as equivalent of one w/c. 2. Av. CCA a barani watercourse and a storage tank is assumed to be 20 ha and 30 ha respectively. 3. Av. CCA of a distributary canal is assumed to be 4,500 ha. Net impact area is the total CCA of all distributaries minus the command area of watercourse to be improved within those distributaries. 4. Av. CCA of a branch canal supplying waterto systems above the FOs (FWUAs) is assumed to be CCA of 5 distributaries with only 10% benefits attributable to investment in rehabilitation. Therefore, "equivalent impact area per branch canal' (with fill benefits) is taken as 5,000 ha. 5. Av. CCA a local minor irrigation scheme is assumed to be 800 ha in NWFP and 400 ha. in FATA. * Because of overap in the watercourse, distributaty and branch canal command areas, the row figures cannot be added Prices. Farm budget analysis is based on prevailing market prices (May 2000) which may increase in future as the Govemnent continues to align domestic and international prices. Economic evaluation is done using the economic prices. Both financial and economic prices used in the analysis are given in Table

65 4.10 Cropping intensities. Cropping intensities assumed to evaluate different scenarios are summarized below: Cropping Intensities (C.I.) Assumed for NWFP/FATA Areas, (%) (under various scenarios) C.I. Canal Barani Water Local/minor Scenario inigated irrigated Storage irrigation areas areas Tanks Present (command areas) Without Project With Distributary/Minor and other Systems Improvements With Minor Irrigation schemes With watercourse Improvements Incremental (over without project) Methodology. Crop budgets and farm models in financial and economic prices were developed representing different cropping and irrigation systems for, NWFP/FATA, Barani Areas, Water Storage Tanks, and Minor/Local Irrigation Schemes. Net crop production values per hectare in with and without project scenarios are given in Table 4-2, and net production values for different subproject areas (NWFP and FATA) are given in Table 4-3. Agricultural Production 4.12 Based on the above production assumptions and phasing of systems and watercourse improvements, water storage tank construction, barani areas improvement and local/minor irrigation development the incremental production due to the project is summarized below: Annual Production (000 tons) Crops Present Without With Project Incremental Project Wheat Maize Fodder (rabi+kh.) Tobacco Vegetables (rabi+kh.) Oilseeds Sugarcane Orchard Total (36% increase)

66 B. Farm Incomes 4.13 The impact on farm incomes (in financial prices) based on seven farm models developed for the project analysis is summarized below: Annual Net Farm Incomes in NWFP/FATA (Rupees) Canal Barani Local! Attribute Irrigated (Spring/well Minor Irrigation irrigated) Farm Size (ha) Present 26,734 25,131 7,286 Without Project 26,577 26,035 7,535 With Project 32,339 34,494 22,579 Incremental 5,605 9,363 15,293 %Increase / Increase with project situation over the present net farm income. Large increase for "minor irrigation" due to greater crop diversification in favor of high value crops (vegetables, orchards) and lower base farm income as experience from Balochistan Conmmunity Minor Irrigation Project suggests. C. Economic Analysis Returns by Types of Investments under the Project 4.14 ERR estimates for differentypes of investments under the project are summarized below, with details available in Tables 4.4 to 4.6. Separate models with one ha as unit cultivated area were constructed for each type of investment because of differences in investment costs, commands areas, cropping pattems and benefits. For the change management subcomponent, project benefits were assumed to be 50 percent of savings in the systems rehabilitation costs every five years as elaborated in para 4.7 above. For the remaining subcomponents, target impact areas (as shown in para 4.8) and net benefits per ha were multiplied to arrive at the benefits. Economic Rates of Return (%) Subcompoonent/Scenarios NWFP FATA Combined Change Management (TMM/PIMM) Distributary level improvement Branch canal improvement above FO 47.7 NA 47.7 Watercourse (irrigated) Improvements Watercourse (barani) Improvements Water Storage Tanks 21.7 NA 21.7 Local/Minor Irrigation Schemes Overall ERR, %

67 4.15 The economic value of the project benefits has been calculated by evaluating incremental outputs and inputs at economic prices and, in the case of nontraded commodities, by using a standard conversion factor (SCF) of 0.9. Economic costs have been calculated from total project costs, including physical contingencies, with the local costs components being adjusted by the SCF and excluding taxes and duties. Economic price derivations are presented in Table 4.7. The life of the project facilities is taken as 20 years except for local/minor schemes which is taken as 25 years. Sensitivity analysis / Switching values of critical items: 4.16 The project ERR is robust and not very sensitive to variations in the project costs or benefits. It is highly unlikely that unfavorable developments would reduce the project ERR to opportunity cost of capital which is taken as 12 percent. Switching values have been computed to determine the effects of deviations from the main assumptions on the economic viability of the subproject models: i.e., the value of the variables tested which would reduce the present values of the net incremental benefits to zero when discounted at oppotunity cost of capital of 12 percent. The analysis shows that in all cases reduction in benefits are more sensitive than increase in costs. The results indicate that the ERR for the models would fall to 12 percent if the cost increased by more than 255 percent for NWFP, 244 percent for FATA and 254 percent for the combined model or the benefits decreased by more than 61 percent in NWFP and combined models and by more than 59 percent in FATA as summarized below: Switching Values at Present Discount Rate (Rs. Million) Project/subproject Total Costs Net Incremental Benefit... Rs, million......rs, million... Base value Switching Change, % Base value Switching Change, % l l I value value NWFP 867 2, , FATA Overall Project 954 2, , Risk Analysis. Various risk analyses have been carried out to test the different possible scenarios, such as institutional, implementation, financial and sustainability, etc. Inadequate use of farm inputs and ineffective agricultural and water management extension services might reduce the expected cropping intensity and crop yields. The project might take longer time to form FOs thereby delaying and prolonging completion of project's civil works and generation of benefits. In addition, delays in the recruitment of consultants would delay project start-up and the mismanagement in civil works contracts thereby increasing the investment costs and delaying projects benefits. Ineffective FOs to manage and sustain the irrigation systems combined with low cost recovery, particularly the collection of water charges, would threaten the sustainability of the irrigation facilities thereby reducing project benefits as well as incurring unnecessary rehabilitation investments. The results of the analyses indicate that in all cases ERR of NWFP, FATA and for the combined model are still above the opportunity capital cost of 12 percent, as summarized below:

68 ERR (%) Response to Various Values Scenarios NWFP FATA Whole Project Base case Total costs (+20%) Incremental benefits (-30%) Benefits lag by one year Benefits lag by two years Increase costs by 20% and decrease benefits by 30%

69 Pakistan NWFP On Farm Water Management Project Table 4.1 Summary of Financial and Economic Prices... as of Oct eepe U Fnnea Fennmie Outputs: Kharif crops Oilseeds Rslkg Vegetables Rs/kg Maize Rs/kg Sunflower Rs/kg Tobacco Rs/kg Kh. Fodder Rs/kg Rabi crops Wheat Rsikg R. Fodder Rslkg Potato Rs/kg Oilseeds Rs/kg Vegetables Rstkg Pulses (Gram) Rs/kg Perenlal crops Sugarcane Rsikg Orchards Rslkg By-Products Wheatstraw Rs/kg Inputs: Seeds Kharif crops Oilseeds.Rslkg Vegetables Rs/kg Maize Rs/kg Sunf1ower Rsr7g Tobacco Rslkg Kh. Fodder Rslkg Pulses (Gram) Rstkg Rabi crops Wheat Rslkg R. Fodder Rs/kg Potato Rs/kg Oilseeds Rsikg Vegetables Rs/Acre 1, Perenial crops Sugarcane Rs/Acre 2, , Orchards Plants/yr 1, Fertilizersimanures Nitrogen (N) Rs/Nut.kg Phosphorus (P) Rs/Nut.kg Potash (K) RslNut.kg Farm Yard Manure Trolley Pesticides (materdals& application) Wheat Rs/Ac Vegetables RslAc Sugarcane Rs/Ac Labor Tractor Labor Rs/Hour Manual Labour Rs/Day Purchased Groundwater Rs/Hour

70 Pakistan NWFP On Farm Water Management Project Table 4.2 Net Production Values Based on Full CroD Budqets CrODS (000 Rs) F;nanc;l EconomiC Without With Without With Project Project Project Project (present) (future) (present) (future) Vegetables 17,807 36,504 16,026 32,853 Maize 159, , , ,433 Sunflower 4,421 13,364 3,979 12,028 Tobacco 122, , , ,770 Kh. Fodder 7,054 11,886 6,349 10,697 Wheat 229, , , ,607 R.Fodder 15,910 28,110 14,319 25,299 Potato 16,041 24,541 14,437 22,087 Oilseeds 23,371 28,979 21,034 26,081 Vegetables 8,033 19,608 7,229 17,647 Pulses (Gram) 8,606 9,037 7,746 8,133 Sugarcane 117, , , ,390 Orchards 41,704 54,288 37,534 48,859 Table 4.3 Net Cros Production Values (at nominal Drices) (Rs Million) Prasent Wu; olut W PCO;eC Project/ Total Cropping Net Total Cropping Net Total Cropping Net sub-project Cropped sub-project Area (Ha) Intensity Production Cropping Intensity Production Cropping Intensity Production (%) Value (Ha) 1%) Value (Ha) (%) Value a. Economic Values NWFP 295, % , % , % FATA 35, % , % , % Overall 331, % , % , % b. Finacial Values NWFP 295, % , % , % FATA 35, % , % , % Overall 331, % , % , %

71 Pakistan NWFP On Farm Water Manaaement Prolect Table 4.4 Economic Analysis bv Sub-Prolect Areas (Rs Million) NWFP Suibrolect EArA SP hroiect Who'e Proiect Years Total Total Nt Total Total Net Total Total Net Costs efits Incremental Costs Benefits Incremental ot t Incremental Coss enfis enfis oss enfibe nefits enefitss Benefits Year (43.27) (10.64) (53.91) Year (110.26) (23.12) (133.38) Year (384.99) (25.35) (410.34) Year (429.56) (27.69) (457.25) Year (143.70) (16.67) (160.37) Year Year , Year Year Year Year-1i Year Year Year Year Year Year Year Year Year ERR 26.6% 26.5% 26.6% Benefits which accrue early, assumed to be 50% savings in the O&M of distributary/minors, are attributed to Change Management

72 Pakistan NWFP On Farm Water Manacement Project Table 4.5: Economic Analysis by Investments (On-Farm Improvements) in Subproject Areas (Rs Million) Years Investment Incremental Total Costs O&M Costs Watercourse, Watercourse, Water Net Inc. Net Canal Barani Storage Benefits Benefits Crrigation Irrigation Tanks A. Watercourses/Water Storage Tanks -- NWFP Year-i (10.46) Year (37.42) Year (101.66) Year (0.63) (161.17) Year (1.58) (79.15) Year-6 (2.63) (2.63) Year-7 (2.63) (2.63) Year-8 (2.63) (2.63) Year-9 (2.63) (2.63) Year-10 (2.63) (2.63) Year-11 (2.63) (2.63) Year-12 (2.63) (2.63) Year-13 (2.63) (2.63) Year-14 (2.63) (2.63) Year-15 (2.63) (2.63) Year-16 (2.63) (2.63) Year-17 (2.63) (2.63) Year-18 (2.63) (2.63) Year-19 (2.63) (2.63) Year-20 (2.63) (2.63) B. Watercourses - FATA ERR 25.56% Year-I Year (0.29) Year (4.06) Year (0.03) (6.86) Year (0.07) (5.30) Year-6 - (0.11) (0.11) Year-7 (0.11) (0.11) Year-8 (0.11) (0.11) Year-9 (0. 11) (0.11) Year-10 (0.11) (0.11) Year-11 (0.11) (0.11) Year-12 (0.11) (0.11) Year-13 (0.11) (0.11) Year-14 (0.11) (0.11) Year-15 (0.11) (0.11) Year-16 (0.11) (0.11) Year-17 (0.11) (0.11) Year-18 (0.11) (0.11) Year-19 (0.11) (0.11) Year-20 (0.11) (0.11) ERR 22.08%

73 Pakistan NWFP On Farm Water Management Prolect Table 486: Economic Anatvsis bv Investments (Off-Farm Channels) In Suborolect Areas (Rs Million) layasto,eat.costa IocameaetaLO&M Incremental-Beaafits Not I---t -3aallit Branch Disty Local Branch Disty Local Branch Disty Local Branch Disty Local Canal Canal Minor Canal Canal Minor Tot Canal Canal Minor Canal Canal Minor lmdrov. mprov. Imrriation ImDrov. Improv. Imrriqabon Costs Imonrv. lmprov. Irrinaton Imrov. Immrov. Inrriation A. Branch Canals. Distributary Canals and Local Minor Irrigatlon Schemes - NWFP Year * (2.49) (6.28) - Year (0.03) (19.84) (28.31) (6.49) Year (0.98) (18.70) (69.29) (188.11) Year (1.92) (18.70) (63.02) (185.62) Year (3.03) (0.13) 9.06 (76.94) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) Year (3.03) S. Branch Canals, Dlsilbutary Canals and Local Minor Irrigation Schemes - FATA ERR 47.7% 34.4% 18.9% Inv_stmsnLCz ts I n± M ihcementaletbnets fjt In--fll -rum Branch Disty Local Branch Disty Local Branch Disty Local Branch Disty Local Canat Canal Minor Canal Canal Miror ota Canal Canal Minor Canal Canal Minor Improv. Improv. Irrigation Improv. Improv. Irrigation Improv. Improv. Irrigabon Improv. Improv. Irrigation Year-1 * (1.26) Year-2 * (0.04) (9.13) (8.77) Year-3 * (0.09) (7.88) (9.61) Year (0.19) (20.08) Year-5 * (0.30) * (18.28) Year (0.30) Year (0.30) Year (0.30) Year (0.30) Year (0.30) Year-1l (0.30) Year (0.30) Year (0.30) Year (0.30) Year (0.30) Year (0.30) Year-17 * 1.29 (0.30) Year-18 * 1.29 (0.30) Year (0.30) Year-20 * 1.29 (0.30)

74 Pakistan NWFP On Farm Water Management Project Table 4.7: Economic Price Derivation PARITY (I) [U [El [E [EJ II] [1] [1] II] Unit Wheat Rice S/Cane S/Cane Maize (5) Urea (6) DAP(7) MOP(8) PROJECTED WORLD MARKET PRICE (YEAR 2000) In 1990 constant dollars (2) USS/MT Adj factor to 2000 dollars (3) In constant 2000 dollars US$/MT QUALITY ADJUSTMENT % WORLDMARKETEQUIVALENT USS/MT International sbipping and insurance USS/MT (35.00) (37.00) CIF/FOB Karachi USS/MT EXCHANGERATE(4) Rs/USS CIF/FOB Karachi Rs/MT 7, , , , , , , , Portcharges Rs/MT (150.00) (220.00) Storageandhandling Rs/MT (314.00) (470.00) Transport to mill Rs/MT (120.00) (800.00) 1, PROCESSED VALUE Rs/MT 8, , , , , , , , Processing ratio % Processing costs RstMT 162A5 (254.96) 3, (3,000.00) WHOLESALE VALUE Rs/MT 7, , , , , , , Local marketingtransport Rs/MT (425.00) (400.00) FARMGATE PRICE (9) Rs/MT 7, , , (113.07) 8, , , , ECONOMIC FARMGATE PRICE Rs/KG (0.11) FINANCIALFARMGATEPRICE Rsa/KG Value ofn in Case of Fertilizers ECO FIN Av. for Sugarcane 0.84 (1) Parity: [1] Import [E] Export (2) World Bank price forecasts dated May 2000 for the year 2005 (3) Inflated by MUV Index (average for 1995 and 1996, base 1990) (4) Based on World Bank Office Memorandum dated 18 December 1996 re Exchange Rates and Price Contingencies for Project Analysis in Pakistan (Value for 1999) (5) Assumed to be hybrids. Economic price of local varieties - Rs6.3/kg - financial price (see footnote (10)) adjusted by SCF (6) 46% nitrogen; (7) 18% nitrogen and 46Y% phosphorus; (8) 60% potassium (9) Bunch farm gate price

75 Annex 5: Financial Summary PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT Years Ending June 30 Year 1I Year 2 I Year 3 i Year 4 Year 5 Year 6 Year 7 Total Financing Required Project Costs Investment Costs Recurrent Costs Total ProjectCosts Total Financing Financing IBRD/IDA Government Central Provincial Co-financiers User Fees/Beneficiaries Others Total Project Financing Main assumptions:

76 Annex 5A: Financial Management NWFP On-Farm Water Management Project Current Accounting Systems of Implementing Agencies 5.01 The provincial government accounts are maintained on a cash basis according to a chart of accounts prescribed by the Auditor General of Pakistan. The books of accounts are written up manually and are not computerized. Some of the common accounting records include the cash book, stock register and a summary statement for operating expenses. In addition to the main cash book, a columnar cash book is maintained which contains various columns with preprinted government account codes related to various activities. The present system of maintenance of accounts is not capable of generating reports on costs according to components and sub-components of the project. It also has no provision to bring into the project books of account the value of contributions in kind from farners which needs to be reflected in the total project cost. An intemal control system also needs to be in place to clearly define and documenthe accounting methodology to be followed for recording individual transactions. Accounting Staff 5.02 Although the Accounts Officers and staff have been exposed to maintenance of special accounts of donors in prior projects, yet they are not accounting professionals nor have they had prior training in accrual or computerized accounting. They need to be exposed to the new reporting format designed by the Bank to comply with project management report (PMR) based disbursements. This type of reporting would be easier with computerized accounting. So, the staff of the implementing agency will need external professional support to set up and maintain computerized project accounting systems and to generate quarterly reports as required by the Bank. Initial orientation and training of Project Accounting Specialists and Govemment staff would be completed by June and refresher training by August Proposed Arrangements 5.03 Financial management system and financial manual. The project's financial management procedures as applicable to the national project have been documented in a draft Financial Manual (FM). This would be customnized the needs of NWFP-OFWM project and would be adopted before October 31, 2001 by the OFWM Directorate. The FM would cover: (a) flow of funds; (b) financial and accounting policies; (c) accounting system and internal control mechanisms including information flow and flow of documents; (d) chart of accounts; (v) financial reporting (including formats of PMRs); (d) auditing arrangements; (e) budgeting; (f) organization and staffing for financial management functions; and (g) terms of reference of external auditors. The FM would be periodically updated and improved based on implementation experience Project accounting support. The project provides funding for financial management guidance and support to the implementing agency. This is being accomplished by the M&E Wing hiring a professional accounting firm as project accounting specialists (PAS) which shall place the required accounting professional in each unit. The recruitment of PAS is in advanced stage. The PAS team will have responsibility for the following: (a) Provide a professional accountant for each implementing unit. The person placed in the NWFP provincial M&E Wing would also be responsible for the accounts of the components in the line departments and in the FATADC. These professionals will provide guidance and support to the departmental accounting staff to set up and maintain a computerized project accounting system to generate financial and procurement reports as required by IDA and the Government

77 (b) Provide input for updating the financial manual based on implementation experience and ensure that proper internal controls are in place. (c) Train the departmental staff on the job, on a regular basis, using the professionals posted at site. (d) Advise and support the departmental staff in preparing periodic project financial statements for each unit, consolidating these at the total project level, and providing annual accounts to the external and govermment auditors. (e) Guide the departmental staff in facilitatin government and external audit and providing information to IDA and the government departments as required. Hardware and Project Accounting Software 5.05 The project provides for acquiring necessary hardware, software, and printers for the financial managementeams. The proposed credit will provide funds for acquiring suitable software and technical support for installing a financial management system in each implementing unit with appropriate chart of accounts. The software providers will also impart on-site-training for the team members who will be handling the project accounts. There will be sufficient provision for continued technical and troubleshooting support for the duration of the project. An integrated project accounting and management information system (PAMIS) which has been developed as part of a pilot program in the South Asia region of the Bank would be customized to the needs of this project and would facilitate double entry bookkeeping, generation of PMRs as required by IDA, and linking of physical details with financial transactions. Project Accounting System 5.06 The designated departmental accounting staff under the guidance of the PAS team would be responsible for overall project financial management and accounting. They would maintain books of accounts for the project, prepare and disseminate financial statements/pmrs and ensure timely audit of financial statements. The overall principles for project accounting are outlined below: (a) Books of accounts for the project would be maintained by the joint team of PAS and departmental staff on double entry bookkeeping principle. Project accounts would be maintained using PAMIS. (b) Project accounting would cover all sources (including beneficiary contributions in cash or kind) and all uses of project funds. Disbursements made directly by the IDA or the beneficiaries (farmers) would also be included in the project accounts. Funds received from various sources would be identified separately and reflected in the project accounts and financial statements. (c) An identifiable trial balance for the project capturing all project receipts, expenditures, and other payments under the project would be prepared. A chart of accounts for the project would be incorporated in the FM which conforns to the classification of expenditures and sources of funds indicated in the project documents (project implementation plan, project appraisal document, COSTAB model). The chart of accounts enables data to be captured in a manner to facilitate financial reporting of project expenditures by: (i) project components and subcomponents; (ii) expenditure categories; (iii) disbursement categories; (iv) implementing agencies. (d) Project financial statements and PMRs would be fully based on the project books of accounts and substantially generated from the PAWIS. (e) Physical informnation on key performance indicators which can be readily linked to financial costs would be maintained as part of the project financial management system

78 Internal Controls 5.07 Internal control mechanisms would include the following: (a) operation of a budgeting system, and regular monitoring of actual financial performance with budgets and targets; (b) adoption and operation of simple, clear and transparent financial and accounting policies which would govern financial management of and accounting for the project. These policies and procedures are included in the FM. These would include identification of expenditures which can be charged to the project and the categories under which the expenditures would be charged; (c) at the transaction level, establishment and operation of policies, procedures and systems for ensuring standard internal controls such as checking of expenditures, appropriate documentation, levels of authorization, bifurcation of duties, periodic reconciliation, physical verification, etc. These policies and procedures are given in the FM and would be reviewed and updated periodically; (d) establishment and operation of a comprehensive audit mechanism, including concurrent audit; and (e) establishment and operation of policies and procedures governing the transfer of funds/reimbursement of expenditures to the field offices and accounting of expenditures by the implementing agencies (these policies are outlined in the FM). These include aspects such as determination of appropriate costs of activities which will be carried out; payment of expenses incurred by the field offices; the limnits for expenditures; time-scale for submission of expenditures and adjustment of advances; supporting documentation and verification procedures for such expenditures; information to be provided (including physical information wherever necessary), standard formats for providing this information; and actions in the event of defaults. Project Management Reports 5.08 Ouarterly: Initially, simplified PMRs would be generated and after completion of installation of the computerized PAMIS system, the full set of PMRs would be generated and produced for each implementing agency and for the whole project. These reports would be management-oriented (i.e., summaries rather than transactional details) and would be used for project management. The reports would include: (a) a comparison of budgeted and actual expenditure and analysis of major variances, including sources and application of funds (by components and expenditure categories) and key physical parameters and unit rates for selected key items; (b) expenditures by disbursement categories; and (c) forecasts for the next two quarters. The format of these reports conformiing to the Bank's LACI/FMI requirements have been agreed during negotiations Annuallv: Audited project financial statements (PFS) would be submitted to the IDA. PFS would include: (a) a summary of funds received (showing funds received from the provincial government (or federal government in the case of FATADC), IDA and beneficiarieseparately), and a summary of expenditureshown under the main project headings (i.e., project components) and by main categories of expenditures; (b) a balance sheet showing accumulated funds of the project, bank balances, other assets of the project, and liabilities, if any; (c) special account statements; and (d) statement of expenditure (SOE) listing. The audited PFS would be submitted to IDA not later than six months after the end of the fiscal year (i.e., not later than December 31 for the fiscal year ended on June 30 of each year). Audit opinion to be tracked in IDA/Bank's Audit Report Compliance System will compose: project/soe; special account (NWFP); and special account (FATADC)

79 Auditing Arrangements 5.10 The accounts and financial statements of the project would be eventually audited by the Auditor General of Pakistan (following GOP's implementing of the new accounting model, or NAM, and IDA reviewing the situation to use AGP as auditors), but initially by a firm of chartered accountants (independent external auditors acceptable to IDA). The external auditors shall commence audit by September 30 and submit the audited accounts and report before December 31 every year. The annual project financial statements audited by the firm of chartered accountants would be submitted to IDA within six months of the close of GOP's fiscal year. The terms of reference and qualifications of the finn of chartered accountants would be reviewed by the IDA. The cost of the firm of chartered accountants would be eligible for financing from the IDA Credit. The Bank's Guidelines for selection of consultants would apply to the engagement of the finm of chartered accountants The audit by the firn of chartered accountants would be comprehensive and cover all aspects of the project (i.e., all sources and utilization of funds, and expenditures incurred by all implementing agencies). The audit will be carried out in accordance with international standards of auditing, and will include such tests and controls as the auditor considers necessary under the circumstances. The auditor will be provided such information and access to project-relatedocuments and records at all implementing agencies, which may be required by the auditor for the purposes of the audit. Terms of reference for the firm of chartered accountants would be included in the financial manual. Selection of Accountants and Auditors 5.12 Selection of the auditing firm will be done through national competitive bidding (NCB) and the evaluation done by a special selection committee of GONWFP. Project accounting specialists have been identified and will be selected on individual basis prior to the Board date and their recruitment will be finalized before the project implementation commences. Readiness for Implementation and Next Steps 5.13 Financial management system. The design of the computerized financial management system is almost complete. A draft financial management manual documenting the financial management system was prepared for the national project and is being customized for this project. The Borrower would ensure that a customizedfinancial manualfor the NWFP project would be prepared and adopted by October 31, 2001, and a computerized project accounting and management information system, satisfactory to IDA, will be made fully operational not later than June 30, Disbursement Arrangements 5.14 Initially, the disbursements for the project will be under the traditional method through two separate special accounts (one each for NWFP and FATADC) that would be opened with the National Bank of Pakistan. Both special accounts under the project would be operated by two signatories. The following action plan has been agreed with the government to enable it to switch to PMR based disbursements by September 30, Sr. No. Action Target Date I Nominate counterpart departmental staff (Accountants). March 31, Finalize contract for appointing three Project Accounting Staff (PAS) June 7, Initial orientation/training of PAS and departmental staff (including AG Office June 30, 2001 staff)

80 4 Install computerized PAMIS June 30, Adopt financial manual July 31, Refresh training of project accounting staff August 3, Submit first (QE September 30, 2001) transitional quarterly PMRs. Report November 15, Nos l-a, 3-A, 3-B, 3-C and 3-D incorporating transactions effective July 1, Submit books of accounts and financial statements to the Auditor General's September office for audit. 30/year 9 Submit annual audit report to IDA December 31/year 10 Full transfer from manual accounting system to computerization (PAMIS fully June 30, 2002 operational) 11 Switching to PMR based disbursement and provision of full set of PMRs September 30,

81 Procurement Annex 6: Procurement and Disbursement Arrangements PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT 6.01 The Borrower and the implementing agencies, OFWM Directorate of NWFP's Department of Agriculture, FATADC, NWFP Irrigation DepartmentlFIDA and FOs (at the watercourse/ distributary level) would be capable of carrying out procurement and contract administration envisaged under the proposed project. These entities have been involved in similar previous Bank-financed projects. Staff from most of the implementing agencies have already completed or are expected to complete formal training on Bank procurement procedures before project effectiveness. This trained staff will serve as focal point within their respective agencies on procurement related matters during the course of the project. The agencies would also be assisted by the project implementation consultants and additional training, if needed, would be given during the course of implementation The selection of major consultants has been made. The Bank has cleared the negotiated contract for the PICs. The negotiated contract for the project supervision, monitoring and impact evaluation consultants was commented upon by the Bank but is not likely to be processed further because the Federal Coordination Unit of MINFAL (the client) will not provide consultancy support to at least two of the four provinces; viz., Balochistan and the NWFP. The NWFP will use its existing M&E Wing to carry out activities envisaged in this contract. Similarly, procurement of project accounting support consultants is also not likely to process further, as the GONWFP decided to procure individual consultants for this kind of activity The development of FOs and FWUAs/WUAs, and building their capacity and ownership is the main objective of the project. Hence, in procurement of construction material and civil works, they would be represented in the procurement committees which make recommendations for award of such contracts All procurement of works and goods financed by the World Bank would be carried out in accordance with the Guidelines for Procurement under IBRD Loans and IDA Credits (January 1995, revised January and August 1996 and in September 1997 and January 1999). The consulting services financed by the World Bank would be selected in accordance with procedures set forth in the Guidelines for Selection of Consultants by World Bank Borrowers (January 1997, revised September 1997 and January 1999). In case of conflict between the Bank's procurement procedures and any national rules and regulations, Bank's procurement procedures would take precedence. To address shortcomings identified in the past, in the national procurement procedures, the government has specifically agreed that: (a) invitations to bid shall be advertised in at least one national newspaper with a wide circulation, at least 30 days prior to the deadline for the submission of bids; (b) bid document shall be made available, by mail or in person, to all who are willing to pay the required fee; (c) foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders in the bidding process; (d) bidding shall not be restricted to preregistered firms; (e) qualification criteria shall be stated in the bidding documents; (f) bids shall be opened in public, immediately after the deadline for submission of bids;

82 (g) bids shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of the Association; (h) before rejecting all bids and soliciting new bids, the Association's prior concurrence shall be obtained; (i) bids shall be solicited and contracts shall be awarded on the basis of unit prices and not on the basis of a composite schedule of rates (CSR); (j) contracts shall not be awarded on the basis of nationally negotiated rates; (k) contracts shall be awarded to the lowest evaluated and qualified bidders; and (1) post-bidding negotiations shall not be allowed with the lowest evaluated or any other bidders. Procurement Methods (Table A) Specific procurement arrangements summarized in Table A, are as follows: 6.05 Works: Civil works under the project (watercourse, distributary, and branch canal improvements, FO/FWUA offices, storage tanks, and local/minor irrigation schemes) involve numerous small contracts widely dispersed over the project area. Such contracts are unlikely to attract the interest of foreign bidders and, therefore, International Competitive Bidding may not be suitable. These contracts would fall into the following broad categories: 6.06 On-farm watercourse improvement and storage tanks category. The watercourse improvements and construction of water storage tanks, representing about 33 percent by value of all works, would be carried out through community participation as a collaborative effort between the community organizations (FOs, FWUAs, WUAs), OFWM Directorate/FATADC, and technical assistance teams. FOs/FWUAs/ WUAs would provide skilled and unskilled labor and contribute 25 percent percent, by value, of the total construction material in kind. Construction material for these small works will be procured through national shopping procedures under one of the following arrangements: FOs/FWUAs/WUAs may either choose to (a) provide their share of the construction material, and ask government to contribute its share of the material; or (b) procure all construction material themselves and receive payment in installments for the cost of government's share. Further explanation for both the cases is provided below: * Regarding (a), in case the government is to provide it share of material, it would be procured by government staff through national shopping procedures, with full and active participation of FOs/FWUAs/WUAs at all stages of the procurement process. The OFWM staff, FOs/FWUAs/ WUAs and the project consultants would carry out six monthly surveys of the prevailing market prices of construction material in the field office area. A comparison of these prices with the actual prices paid by the government would be prepared and provided to IDA on a quarterly basis. * Regarding (b), if the government is to pay the cost of its share, the FOs/FWUAs/WUAs would procure the material through national shopping procedures and get paid for the actual cost of material in workable installments linked to progress of work. The total payment of the government's share for each scheme would be limited to a pre-established aggregate ceiling amounting to 75 percent of the total estimated cost of material. The total estimated cost of material for each scheme would be calculated on the basis of prevailing market prices of construction material in each field office area and would be jointly verified by OFWM staff, FOs/FWUAs/WtUAs and the project consultants. The OFWM staff, FOs/FWUAs/WUAs and the project consultants would carry out six monthly surveys of the prevailing market prices of construction material in the field office area. A comparison of these

83 prices with the actual prices of material procured by the FOs/FWUAs/WUAs would be prepared and provided to IDA on a quarterly basis. The OFWM staff would certify the quality and quantity of construction material and satisfactory completion of work at each stage, as a condition for payment of each installment The supervisory engineers from the M&E Wing (supervisory consultants) would spot-check the quality of works during construction of a minimum of 20 percent of works by value and 100 percent after completion and before submission of final withdrawal application. The supervisory consultants would also verify and certify quantities and quality of the material procured and civil works completed Distributary canal improvement, and minor irrigation schemes category. Distributary improvement works and construction of FO/FWUA offices (about 16 percent by value of all works) and local/minor schemes (about 45 percent by value of all works) would be carried out through national competitive bidding (NCB) procedures, acceptable to IDA. The FOsIFWUAs would be involved in planning and design, as well as contributing in the construction of these works with the assistance of technical support teams Branch canal improvement category. The branch canal improvement works, representing about 6 percent by value of all works, would also be carried out through NCB procedures, acceptable to IDA. Their construction schedule would vary depending on the progress in transfer of irrigation managemento FOs/FWUAs at the distributary/minor level Goods. Procurement of goods involves vehicles, construction of materials for watercourses, water storage tanks and other on-farm improvement works, office and field equipment, fiunmiture, and miscellaneous items. Of these categories of Goods, vehicles will be procured through intemational competitive bidding (ICB). In addition, goods estimated to cost more than $200,000 per contract would also be procured through ICB procedures. Contract packages would be designed to attract international bidders. Qualified domestic bidders competing under ICB would be eligible for domestic preference The remaining goods expected to be procured under the project include mainly: construction of materials for watercourses, water storage tanks and other on-farm improvement works; office, survey and flow measuring equipment; furniture and machinery/implements for use of FOs/FWUAs. These would be procured in numerous small packages as and when FOs/FWUAs are established over the span of the project. The project implementation consultants would act as procurement agents. The project management will be responsible for ensuring that agreed procedures are followed. Such goods (other than vehicles and construction materials) estimated to cost $200,000 equivalent or less per contract up to an aggregate amount not exceeding $570,000 may be procured through NCB procedures, acceptable to IDA. Goods (other than vehicles and construction materials) estimated to cost less than $10,000 per contract and not exceeding $220,000 in aggregate may be procured through national shopping procedures. Construction materials may be procured through community participation following national shopping procedures Services. All consulting services requiring engagement of firms would be procured in accordance with the quality and cost based selection (QCBS) method, except that services for implementation and supervision of the project estimated to cost less than $100,000 equivalent per contract may be procured under the method of selection based on consultants'qualifications (SBCQ). Individual consultants would be procured in accordance with the procedures outlined in Section V of the Consultants' guidelines

84 6.13 Training activities would involve small amounts and would be undertaken for the social mobilization staff and community organizations. Government procedures in practice would be used for carrying out these activities Miscellaneous. Administrative and operating expenditures would be according to the govemment procedures. Procurement methods (Table A) 6.15 For procurement of goods under ICB procedures, the Bank's standard bidding cocuments for procurement of goods would be used. For procurement of goods and works under NCB procedures, model bidding documents would be agreed with the Bank based on the format of the sample NCB bidding documents being used on other Bank-financed projects in Pakistan. For procurement of consulting firms, the Bank's standard request for proposal document would be used. Procurement documentation and record keeping systems, satisfactory to the Association will be developed and adopted by the implementing agencies, by December 31, Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Procurement Method Expenditur Category JCB ; N.B.F, Fther E G 1. Works (0.00) (8.05) (3.95) (0.00) (12.00) 2. Goods (0.25) (0.49) (3.90) (0.00) (4.64) 3. Services Consulting Services and (0.00) (0.00) (2.32) (0.00) (2.32) Training 4. Miscellaneous Incr. administrative and (0.00) (0.00) (2.39) (0.00) (2.39) operating expenditure ' Total (0.25) (8.54) (12.56) (0.00) (21.35) "Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies. Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units

85 Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) Consultant $nrkefss EsXpendfture Categoy OCBS QaS SFB LCS CQ Other N.S.F. ToMtl Cost A. Firms (2.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (2.00) B. Individuals (0.00) (0.00) (0.00) (0.00) (0.00) (0.08) (0.00) (0.08) Total _ (2.00) (0.00) (0.00) (0.00) (0.00) (0.08) (0.00) (2.08) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Setection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Credit

86 Prior review thresholds (Table B) 6.16 Procurement planning. Prior to initiating any procurement of goods and works and consultants' services, procurement arrangements and plans shall be furnished to the Bank for its review and approval, in accordance with the provisions of para I of Appendix 1 to the Guidelines. All procurement shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of para Works. The first NCB contract for works by each participating agency in each fiscal year and, thereafter, all NCB contracts for works exceeding $200,000 equivalent would be subject to prior review by IDA, in accordance with paras 2 and 3 of Appendix I to the Guidelines Goods. All ICB contracts and the first NCB contract for goods by each participating agency in each fiscal year would be subject to prior review by IDA, in accordance with paras 2 and 3 of Appendix 1 to the Guidelines Consultants' services. Contracts with consulting firms estimated to cost more than $100,000 equivalent per contract and, individual consultants contracts estimated to cost more than $50,000 equivalent per contract would be subject to prior review by IDA, in accordance with paras 2 and 3 of Appendix I to the Guidelines Post review. All IDA-financed contracts which are not subject to prior review would be subject to post review on sample basis. With respect to each contract not governed by the preceding paragraph, the procedures set forth in para 4 of Appendix 1 to the Guidelines shall apply. Table B: Thresholds for Procurement Methods and Prior Review' :T reshold Procurement Prior Rview Expenditure Category o(ms) Method i AJS$) 1. Works Civil works Less than 200,000 NCB First contract by each PA in each FY Above 200,000 NCB All contracts 2. Goods Goods: Construction Less than 200,000 Community None materials for w/course, Participation/NS tanks, etc. Above 200,000 All Goods (including ICB vehicles) Goods (other than 10,000 to 200,000 First contract by each PA construction materials NCB in each FY and vehicles) Less than 10,000 None Goods (other than NS construction materials and vehicles)

87 3. Services (Consulting Services) Firms Above 100,000 QCBS All Less than 100,000 SBCQ None Individual Consultants Above 50,000 IC Guidelines All _ Less than 50,000 IC Guidelines None Total value of contracts subject to prior review: Overall Procurement Risk Assessment Frequency of procurement supervision missions proposed: One every 12 months (includes special procurement supervision for post-review/audits) 'Thresholds generally differ by country and project. Consult OD "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. Low

88 Disbursement Allocation of credit proceeds (Table C) 6.21 Initially, disbursements would be made under the traditional system and would be converted to the new procedure of PMR based disbursements after two years. The target date is September 30, The IDA credit of SDRs 16.6 million ($21.35 million equivalent) would be disbursed over a period of five years. The final disbursement is anticipated to be made by June 30, Allocation of credit proceeds by disbursement category and percentage financed are shown in Table C. Table C: Allocation of Credit Proceeds 1. Civil works for: (a) local minor irrigation (b) distributary/minor canals (c) main/branch canals (a) Goods: construction materials for watercourses, water storage tanks, and other on-farm improvement works 2. (b) equipment, vehicles, and office (foreignlex-factory local furniture expenditure) 50 (items procured locally) 3. Consultants services and training Incremental administrative and operating costs 5. Unallocated 0.76 Total credit amount: Goverment fnancin 3.70 Farmers organizations financing 7.00 Total Project Costs Total Use of statements of expenditures (SOEs): 6.22 The credit proceeds would be disbursed against certified statement of expenditures for: (a) civil work contracts and goods costing less than $200,000 equivalent; (b) incremental staff salaries, allowances, and operating costs, and training services; and (c) consultant contracts less than $100,000 in the case of firms and contracts below $50,000 equivalent in the case of individual consultants. All other contracts would be fully documented. Supporting documentation for statements of expenditure would be retained by the project management and made available to IDA staff during supervision. Special account: 6.23 To facilitate disbursements, two special accounts (one each for OFWM Directorate of NWFP and FATADC) would be opened with the National Bank of Pakistan. All eligible expenditures would be funded through these special accounts. The initial deposit into the special accounts would be $0.5 million OFWM Directorate and $0.2 million for FATADC

89 Annex 7: Project Processing Schedule PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT Prect Schedule Plnn" Achat Time taken to prepare the project (months) First Bank mission (identification) 01/06/98 01/04/98 Appraisal mission departure 06/25/98 06/25/98 Negotiations 11/30/98 03/27/2001 Planned Date of Effectiveness 09/15/2001 Prepared by: Federal Coordination Unit in the Ministry of Food, Agriculture and Livestock (GOP); On-Farm Water Management Directorate, Agriculture Department (in collaboration with Irrigation Departmnent) of GONWFP, and Federally Administered Tribal Areas Development Corporation (GOP). Preparation assistance: PHRD Grant (Trust Fund Number ) Bank staff who worked on the project included: Name Speciality Rashed ul Qayyum Task Team Leader, Sr. Agriculture Specialist P.K. Subramanian Financial Management Specialist (Operations) Masood Ahmad Irigation Engineer (former Task Team Leader) Usman Qamar Sr. Irrigation Engineer Herve Plusquellec Participatory Irrigation Engineering Specialist (Consultant) Ahsan Ali Sr. Procurement Specialist Zia Aljalaly/Asger Christensen Social Development Specialists Aziz Bouzaher Sr. Environmental Specialist Anwar Ali Bhatti Disbursement Officer Robert J. Saum/Ken Miller Financial Management Specialists (Loans) Akhtar Hamid/Muhanmmad Nawaz Country Counsel Tasnim Beg Financial Management Specialist Altaf Iqbal Economist (Consultant) T. Lohavisvapanich (FAO/CP) Sr. Economist Meena Munshi NRM Specialist Ghulam Ali Progarm Assistant Lilac Thomas Program Assistant Andrea Ruiz-Esparza Copy Editor

90 Annex 8: Documents in the Project File* PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT A. Project Implementation Plan A project implementation plan (PIP) was prepared for the Fourth OFWM project by the Borrower (Federal Coordinating Unit, MINFAL) during March-June 1999 period. It was appraised by the task team and was found to be satisfactory. Agreements reached during negotiations in April 1999 were reflected in the draft PIP in May/June The province specific PIP, i.e., a PIP for NWFP/FATA has been adapted from the main PIP, and will be further modified by May 31, 2001 based on the final PAD (expected by April 15, 2001) as the 'NWFP OFWM Negotiations" with the Borrower were concluded on March 27, B. Bank Staff Assessments Social Assessment Report Rapid Appraisal of Social and Environmental Issues: Back to office reports Economic Analysis Cost Tables C. Other Terms of reference for: PIP preparation consultants; M&E consultants; and accounting and external audit consultants *Including electronic files

91 Annex 9: Statement of Loans and Credits PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT Mar-2001 Original Arnount in US$ Millions Difference between expected and actual disbursements' Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Fnm Rev'd P POVERTY ALLEVIATION FUND P SOCIAL ACTION PRG II P NORTHERN EDUCATION P NATIONAL DRAINAGE PR P IMPR FIN REP & AUDIT P PVT SECTOR GROUND WA P GHAZI BAROTHA HYDROP P TELECOM REG & PRIVAT P P NWFP COMMUNITY INFRA BALOCHISTAN COMMUNITY IRRIGATION & AGRI P PUNJAB FOREST SECTOR P FIN SECTOR DEEPENING & INTEGRATION P POWER SECT. DEV. PRO Total: s

92 PAKISTAN STATEMENT OF IFC's Held and Disbursed Portfolio Mar-2001 In Millions US Dollars Commiited IFC Disbursed IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1995 ABAMCO AES Lal Pir AES Pak Gen Atlas Inv Bank Atlas Lease BRRIL /94/95 BRRIM BSJS Fund Bank of Khyber CDCPL /97 Crescent Greenwd Crescent IBank /95/96 D.G. Khan Engro Asahi /95/97 Engro Chemnical Engro Paktank /91/96 FIIB Fauji Cement First Crescent /96 First Leasing First UDL GulAhmed Hala Spinning /95 IHFL /96 JSCL Kohinoor /95/97 Maple Leaf /92 Mari Gas Muslim Comm Bank /94 NDLC Orix Finance Orix Leasing PACRA PI&CL /94/95 PILCO /84/94 PPL /80/82/87/91/94/9 Packages 5 Pakistan Service Pakistan Unit Tr Prudential RUPAFIL Regent Knitwear Rupafab Sarah Textiles /96 Total Portfolio:

93 Approvals Pending Comrmitment FY Approval Corpany Loan Equity Quasi Partic Total Pending Commitment:

94 Annex 10: Country at a Glance PAKISTAN: NWFP ON-FARM WATER MANAGEMENT PROJECT POVERTY and SOCIAL South Low : - Pakistan Atia income Development diamond Pnnutiaidn midi-vear (millions) 134 A Life expectancy GNP ner caoita (Atlas method. US$) GNP (Atlas malhod. UJSS billions) 6 f A 61 A 5AA Averag annua:l rowth Pnni,letion 1% '9 Labor force 1%) G2.9 NP Grary ZQ 2,3 2,3 ~ per primar Moat recat08stimae tefsteat Ver availabi capita pnrnimrnyns POVattv 1% Of goouletion below national oovertv line) capita IirhAnnn""tifNrn (6 of lral oooualioni 2P 31 Life exoactancv at birflt (vears)j Inflnt!nrtjlitv foer tlive births. A thlfd,nannemrltlnn f% of children under 5) 3B Access tlo lmroved: water source (% of DooWftion) Access to sate water IllitearaVY 1 of oolatio a0oa * 15*) Sr, Gross orlmarv enroliment (6 of schoolsage ooouletionl Pakistan Male 0 :: : 101t 110 1n2 Low-income group : mf i RR KEY ECONOMIfC RATIOS and LONG-TERtA TRENDS S 199S 1999 GOP fuss bhions I Economicratios: irrnadn"mest InvastmantlGnP 179 1fA Stl Fwnnrt* nf nnfs AndN Arvicj,,np 1n Trade Gros domeasticsavinoslgdp: S r1 (irnss natinnatl savionsicflp n 112 Currant Account : 4.2 4I Domestic < \ tnvestment : Ine tnvinantalgftp Do11.m1eSaicg Tntal dxht/rip : 4.5_. 4S 7 fi1.ft :SRR4 Savings Inve1tment Tot debt servieslaxoorts Prfesent vrbii on tiehtltig.p 41 1 Present value of debtlexoorts : i : I t~~~~~~~~~~~~~~ndebtedness t ti3 (everoe annuvl arowthi ("rip 6N R1 Pakistan GNP ner c-anitst A6 I I 2 A Low-income group Exoots of roods amd serwices STRUCTURE of the ECONOMY Growth of inveatment and GDP %) f% of GOP) 20 Anrdiltuirn Industrv o ^ Mamifactujrlna f Services _lo 04 go s 7 Be. PrivatA c,nsnumntion R3. R S (enerainrnvernmant r.nn.lmntion In,4 16.A S - D ' GDP ImoOrts of onods and services B Growth of exports and imports (%) lovarace annual arowth) Anr,rlhiirt, 4.fi Industrv Manilfacti,rinn n It Services Private cnnsijmntinn i 3 1Genaral novnrnmnnt r.nniermntinn 1n.S fi.1 Gross domestic investment tmnnrts of annds and Aervices R Exports ltmposr Gross national oroduct B Note: 1999 data are preliminary estimates. The diamonds show four kev indicators in the countrv (in boldl comoared with its income-orouo averaoe. If data are missina. the diamond will ha inmomnlte

95 PRICES and GOVERNMENT FINANCE Inflation (%) Domestic pt1ces (16 change) Consumer prices Implicit GDP deflator Pakistan Govemment finance (% of GDP, includes current grants) 0 Current revenue Current budget balance GDP deflator CPI Overall surplusideficit TRADE (USS millions)~ ~ ~ ~ ~ ~~~~ Export and irnport levels (US$ mill.) (US$ millions) Epr n motlvl USml. Total exports (fob).. 4,634 8,433 7,527 15,000 Cotton Rice Manufactures.. 3,312 4,866 4,538 9s*,0 Total imports (cf).. 7,851 10,456 10,8886 Food.... 1,685 1,622 Fuel and energy.. 1,006 1,750 1, Capital goods.... 2,288 3,027 0 ExDort DnCe index (1995= S Imoort oice index (1995=100) U Exports *Irrports Termsof trade (1995=100) BALANCE of PAYMENTS Current account balance to GDP (#) (US$ nuiffions) Exports of goods and services 2,107 5,577 10,017 8,838 o_ Imports of goods and services 4,485 8,736 12,819 11,688 Resource balance -2,378-3,159-2,802-2, Net income ,330-1,808 Net current transfers 1,790 2,687 3,430 2,471 Current account balance ,347-1,702-2,187 Financing items (net) 515 1,347 1,554 3,441 Changes in net reserves ,254-8 Memo: Reserves includino oold (USS millions) Conversion rate (DEC. locallussi EXTERNAL DEBT and RESOURCE FLOWS fuss millionsl Composition of 1999 debt (USS mill.) Total debt outstanding and disbursed 8,919 18,348 32,229 31,176 IBRD 339 1,428 3,262 3,175 G: A: 3,17S IDA 751 1,915 3,732 3,857 F:3,028 Total debt service 658 1,841 2,743 2,743 B: 3,857 IBRD IDA _ Composition of net resource flows c:1,519 Official grants Official creditors ,642 E: 10,680 Private creditors Foreign direct investment , Portfolio equity D: 7,527 World Bank program Commitments A - IBRD E - Bilateral Disbursements B - IDA 0 - Other multilateral F -Private Principal repayments r lur r Netflows Interest payments Net transfers Development Economics 8/25/

96 Additional Annex 11 Environmental and Social Issues Introduction As part of the preparation of a fourth national OFWM project, which was designed to include institutional reform and rehabilitation/investment activities in all four provinces, a general review of potential environmental and social issues was conducted. This review also benefited indirectly from a detailed sector environmental assessment of drainage issues in Pakistan. The Drainage SEA recommended a strategy to deal with the drainage and envirownental problems of the IBIS. Key recommendations of this strategy have direct relevance to NWFP's OFWM program: (a) additional irrigation water, if available, should not be supplied to areas where this could exacerbate the need for drainage; (b) undertaking major drainage schemes should be done in conjunction with improvement of irrigation management at main and secondary levels and reduction of water losses at watercourse and field levels; and (c) the government should give special attention to beneficiary participation. These studies were supplemented by a rapid appraisal mission and consultation with key stakeholders, in order to identify issues specific to the proposed NWFP-OFWM project and to propose a framework for mitigating potential negative impacts and enhancing positive ones Given the nature of the issues identified, and the fact that the project involves mainly beneficial rehabilitation work and construction of minor irrigation schemes with low and easily manageable environmnental imnpacts, IDA and GONWFP based on a rapid screening and scoping exercise with key stakeholders--agreed to a categorization of the project as "B" under Bank/IDA Operational Policy OP 4.01, but not requiring a separate EA or RAP/lPDP. The project's primary aim is to contribute to putting in place far reaching institutional reforms, underpinned by the formation and empowertment of FOs and federations of FWUAs. Farmer organizations and FWUAs will have clearly defined participatory roles for the O&M. In the first case, irrigation management (including recovery of water charges) would be fully transferred to FOs. In the second case, FWUAs, will jointly manage the irrigation system with government agencies. Therefore, it was agreed that as part the targeting/demand-driven approach proposed as the main vehicle for identifying priority areas of intervention, environmental and social issues would form an integral part of an overall FIPMSP. The key principles of such a framework are given below and would be developed in detail in the early part of project implementation, through the technical assistance component, and as part of the process of setting up and transferring management responsibilities to FOs/FWUAs This approach also allows enough flexibility to better target and adapt environmental and social capacity development needs throughout the reform process in conjunction with developments under the NDP (currently undergoing a midterm review expected to result in major restructuring to deal with environmental management issues) which focuses mainly on drainage rehabilitation throughout the entire Indus Basin. The NDP is also underpinned by major institutional reforms of the irrigation departments and the setting up of autonomous provincial rrigation and Drainage Authorities (PIDAs) and AWBs. Coherence is crucial among OFWM, NDP and other proposed and ongoing complementary irrigation and drainage projects because their common denominator, and key to success, is the social infrastructure and capacity for environmental management to be developed in a basin framework. Project Setting Because of the geographical location of NWFP, only about half of its cultivated area is irrigated, and much of it lies outside of the IBIS command area. NWFP's entire irrigated area consists of 10 major

97 canals, 250 distributaries, minors, and subminors, most of them with a command area of 5,000 ha or less. Overall, 20 percent of the gross irrigated area in the province is affected by surface salinity and sodicity, which is half of the national average. In general salinity problems are confined to the southern part of the province in areas already covered by salinity control and reclamation projects After a long period of physical infrastructure development which focused on planning, construction, engineering, and financial management skills, the irrigation system is believed to be characterized by a general breakdown in accountability at all levels and constrained by: (a) a general shortage of good quality canal water, particularly during peak periods of crop water requirements; (b) a maintenance-relatedeterioration resulting in reduced water delivery efficiency, exacerbating water shortages and lack of fiscal sustainability; and (c) centralized administrative and management system which cannot cope with operation and maintenance, as well as equitable water distribution. These problems are compounded by fairly complex rural social system and property rights arrangements. The end result is a stagnant, or sluggishly growing productivity of irrigated agriculture and a diminishing marginal productivity of water and land resources The project's primary aim is to contribute to reforming the system and promoting equity and efficiency through a demand-driven comprehensive approach, thus breaking with the resource expansion or supply-driven approach to irrigation management. In the NWFP and FATA (tribal areas are not subjecto "indigenous people" or "displaced people" status because they are inhabited by the dominant tribes of the NWFP about 10 percent of the irrigation area would benefit from the project through five main components, as described in Section C of the PAD (see also Annex 2) The lead implementing agency, the Directorate of OFWM (Department of Agriculture) supported by PIC. The project will be implemented with the guidance of a technical interdepartmental PCC overseen by a PPC. The PCC will be chaired by the DG OFWM and will include representatives of the provincial Irrigation Department/FIDA, FATA, provincial Agricultural Department, District Administration, FOs, and NGOs. The PPC will be chaired by the additional chief secretary (Development) and will include the secretaries of Irrigation, Agriculture, Planning and Development, Finance, and DG Environmental Protection Agency. A federal coordination unit would coordinate monitoring and evaluation activities and assess project impacts across all provinces. Similar OFWM projects are proposed for other provinces. The implementation consultants will provide all the necessary assistance for formation of FOs/FWUAs, engineering support, and technical assistance. Close joint supervision by GOP/GONWFP and IDA (as reflected in the project supervision plan and budget) will ensure that the consultants have adequate capacity and experience to deal with social and environmental issues. Key Environmental and Social Issues A rapid screening and scoping exercise was conducted jointly with the NWFP/FATA and in consultation with two farmner organizations. The main project related environmental issues reviewed include: (a) health risks from silt removal and disposal, and contamination of water storage tanks, (b) water quality impairment, from agricultural runoff, desilting, and potential increase in agro-chemicals use, and its potential impact on drinking water supply; (c) drainage impact of improved and new irrigation schemes, including water storage tanks; (d) impact on groundwater availability from potential changes to the water balance (e.g., reduced seepage); (e) construction related impacts of rehabilitation works and new irrigation schemes; (f) impacts caused by intensification of agrochemical use; (g) potential impacts on natural habitats; (h) availability of information and environmental and social spatial knowledge base; and (i) implementation capacity to adequately address social and environmental issues

98 11.9. The overall result of the review is that localized impacts of construction/rehabilitation works would not pose major risks and will normally be taken care of as part of good engineering practice by contractors and adequate monitoring and quality control (as described in framework below). These types of impacts are related to activities such as desilting, channel lining, rehabilitation of gates and diversion structures, wall strengthening/rebuilding, installation of water measuring structures and gauges, watercourse realignment, improved culverts and outlets, animal wallows and laundry sites, construction of small water storage tanks, precision land leveling, rehabilitation of embankments, formation of berms, protection of structures, provision of gates at the cross regulators, minor irrigation schemes (involving water harvesting, and partial perennial flow diversion), and office buildings for FOs/FWUAs. Drainage and salinity do not appear to be a major problem except in Salinity Control And Reclamation Project areas which are outside of the project scope. Water tanks are completely concrete-lined and are planned for barani areas where the water table is generally very deep. Moreover, these tanks are typically used to capture and store water for (in some cases supplemental) irrigation water and not for human consumption However, a number of issues of more strategic importance and indirectly related to project activities, were identified: (a) institutional capacity: (i) weak institutional capacity and enforcement of environmental regulation, despite major initiatives during the last 10 years In addition to a National Conservation Strategy (NCS, 1992) supported by several donor initiatives, Environmental Protection and Resources Conservation Project [EPRCP](IDA credit 2383-Pak) supported: i. enactment of new environmental legislation (1997 Environmental Act);, ii. development of national environmental quality standards (pollution emission standards) and environmental impact Assessment guidelines and regulation; iii. strengthening of provincial capacity (in the form of new environmental agencies (EPAs) and/or environmental sections in planning and development departments), and iv. provincial monitoring capacity and training of staff; (b) wastewater discharge into the irrigation/canal system and the resulting potential health impacts (people use irrigation water for various purposes including drinldng); (c) groundwater monitoring (there is a need to consolidate and update information on the status of groundwater resources, as some reports indicate potential mining and quality problems in some areas); (d) agrochemical use and pest management, despite relatively low levels of use: the weakness of the extension system, coupled with prevailing governance problems are such that farmers are generally at the mercy of chemical dealers for product selection and management advice; (e) natural habitats (because of very little awareness of this issues on the part of government officials and farmers, and the fact that province is home to at least two Ramsar sites (Tanda Dam and Thanedar Wala); and (f) need for an adequate spatial knowledge-base and analytical capacity for effective environmental and social mainstreaming into an integrated water resources management framework The project would help build awareness and capacity within government agencies and FOs to deal with these issues over time The main project related social issues reviewed include: (a) equity and benefits to the poor, who are either at the tail end of the watercourse system, or are landless tenants or own very little land (thus the key role of initial screening and targeting); (b) inclusiveness of farmer organizations (WUAs and FOs/FWUAs) particularly in relation to poor framers (at the tail-end of the watercourses), tenants, and

99 women who have no legal land ownership and irrigation rights; (c) governance and transparency of FOs, having to do with the formation and registration process fornally ensured by the FIDA, financial management and decision making, as well as modes of representation and conflict resolution (which will continue to be based on traditionaljirga (traditional jirgas are a conflict resolution mechanism around specific issueslconflicts, and involve representatives of all concerned parties to the conflict along with respected community elders and occasionally third party members. In NWFP, indications are that over 90 percent of conflicts related to irrigation water are solved through jirgas); (d) gender issues, because women are not included as irrigators and do not have a direct role in the irrigation system due to local constraints and culturally defined roles which determines activities they can perform in this sector; and (e) social mobilization capacity of government agencies and local NGOs/CBOs and their role in project implementation (e.g., social infrastructure development, training/awareness raising, and M&E). The project will deal will all these issues directly as part of the process of forming and empowering FOs/FWUAs. Women and landless tenants will benefit indirectly from improved irrigation efficiency (e.g., increased household income, access to safer drinking water) and directly though targeted training and capacity building activities. Framework for Identing and Mitigating Impacts Sites and specific interventions have not been identified. These would be selected based on a screening process with heavy technical assistance support--which would include eligibility criteria related to poverty focus, readiness of FOs and FWUAs to assume distributary management responsibilities, and hydrological factors. It was agreed that a such a process will be formalized in an overall FIPMSP, which would specifically cover environmental and social issues. This framework will be developed by the PCC with technical support from the PIC, and will be cleared by the PPCe and approved by IDA before selection and implementation of subprojects. The objective of developing such a framework is to ensure that a clear road map, with clear and measurable screening criteria, a transparent process and procedures, adequate technical and management capacity and financial resources, as well as a timetable and a monitoring system are in place before project activities are initiated An outline of the key step of the screening framework (FIPMSP), is described below, including mnilestones which require IDA review and clearance: A. Selection of Subprojects and Formation of FOs/FWUAs 1. Initial screening and area targeting: The identification of priority implementation (geographic) areas from which subprojects will be selected based on need, poverty, and willingness to participate, should be done through a mapping and spatial analysis based on criteria such as (to be further refined): (a) areas with predominant rainfed cultivation, but with a potential for expansion or rehabilitation of irrigation coverage, (b) low concentration of land ownership, with most land held by owner operators, (c) other specific poverty criteria, (d) areas with where system rehabilitation improvement and quality of service needs are highest, (e) hydraulic/hydrologic/climatic factors (e.g., state of canal and drainage network, water availability, hydrologic independence), and (f) areas where most lessons could be learned for mainstreaming. The project consultant will be urged to develop a global information system database as early as possible to help in area targeting. If feasible, this should be done in collaboration with the global infonnation system's lab at Peshawar University's Department of Planning and Environmental Management

100 2. Information dissemination and demand promotion. This step, allowing a demand driven process within target areas, will help build ownership and ease the process of social mobilization downstream in the process. The project description and the requirements for participation (e.g., cost sharing, responsibility for O&M, water charge collection, equitable water management, legal status and governance requirements) should be disseminated in the areas identified through the initial screening and area targeting (Al). Since project implementation will have to be phased, the information dissemination and subsequent selection of subprojects should start in the areas identified as being the poorest and in most need of irrigation improvement/development. Applications from potential beneficiary communities will be based on a predefined format which requires that specific types of infonnation are provided (e.g., land use, irrigation coverage, land holding, and land tenure). The infornation dissemination and support to groups of farmers to prepare an application will be done by the project's conmmunity development and support group. 3. Screening and identification of subproiects: based on applications received from groups of potential beneficiaries, subprojects would be screened and selected for implementation based on eligibility criteria such as (to befurther refined, including weights given to each criteria): (a) need for rehabilitation or development of irrigation infrastructure; (b) hydrologic considerations (e.g., hydrologically independent areas); (c) readiness of applicants to form FOs and FWUAs to assume distributary management responsibilities demonstrated by an application; (d) poverty (e.g., measured through income poverty, low levels of land concentration, or other criteria to be defined); and (e) the presence of environmental and social impacts which cannot be mitigated. Impacts subject to screening are as required by GOP/GONWFP regulation and Bank/IDA Safeguard Policies (OP/BP/GP 4.01, OP 4.04, OP 4.07, OP/BP/GP 4.09, OD 4.20, and OD 4.30). The aim of these requirements is to help maximize environmental and social objectives while minimizing negative social and environmental impacts in addition to economic or other relevant criteria. Criteria should clearly specify that in the case of subprojects requiring land acquisition, only cases of verifiable voluntary land acquisition would be eligible for support under the project. This screening will be conducted by the PCC with the help of the PIC. 4. Baseline surveys and information system (distributary profile). Detailed baseline data will only be collected for subprojects selected for implementation (plus a number of representative control group areas without project interventions)these data will be organized into a computerized infonnation system (including georeferencing in a global infonnation system) and will be used as the baseline against which project performance and achievement of outcomes will be measured. The types of data collected for the baseline - and subsequently during monitoring should therefore lend themselves to output and outcome monitoring. Baseline data would be in three (related) parts: (a) Socioeconomic data: Key household information, land ownership (size of landholdings), land tenure (owner operators, land given in tenancy, land held in tenancy), employment (agricultural and non-agricultural), amount of irrigated and nonirrigated land, irrigation water supply (frequency, amount, and reliability), irrigation system maintenance (at different levels, by farmers and by FIDA), income from agriculture and other sources, agricultural production (types of crops and yields, cropping intensity). Where WUAs are already in place and functioning, data will also be collected on inclusiveness, performance in terms of water distribution and system maintenance, and

101 transparency in financial management. The methodology for data collection (e.g., random sampling versus complete enumeration, as well as approach to household data collection) should be specified as part of the detailed framework. (b) Distributary environmental and social assessment: From an environmental point of view, the distributory environmental and social assessment would cover three areas: * Issues (mainly construction) related to physical system improvements (e.g. in the distributary network and the sub-asins that drain it) and requiring mitigation. These issues will require a due diligence process and a mitigation plan to be made part of and procured with engineering/construction services, and agreed upon before contractor RFPs are issued and physical works are undertaken. * Issues related to potential induced impacts ofproject activities and requiring institutional and capacity development. Although the project is expected to increase water use efficiency and provide environmental benefits in the form of improved management of soil salinity and overall water resources, the full benefits from improved irrigation efficiency would not be achieved without other improvements in crop managementechnologies in the form of intensification of chemical and management use and changes in crop mix. A specific assessment of this issue will provide recommendations for a pest management plan which will be incorporated (at least on a pilot basis) into the demonstration centers' programs to be setup under the project, and used for general training a awareness raising of farmers and women groups. In addition, the assessment will include an identification of "natural habitat" areas within the distributary, and propose specific recommendations to alter subproject design to preserve the integrity or protect these areas. * Baseline monitoring information. While the project cannot deal with the whole question of enforcement of effluent emission and water quality regulation, baseline data will be collected as part of the distributory environmental and social assessmento ascertain the quality of irrigation channel water and ground water resources used by households. This will be complemented by selected monitoring of silt removed from irrigation channels and reportedly used by farmers as a top soil on their fields because of it high nutrient content. Appropriate participatory indicators will also be developed for monitoring by the water users themselves. This baseline monitoring program will be implemented in collaboration with the provincial EPA, and designed in such a way as to be replicated at midterm review and at the time of project closing. From a social point of view, the distibutory environmental and social assessment would cover two categories of issues: * Issues related to the formation, governance structure, and inclusive nature of FOs/FWUAs; most of these issues are mitigated through the use of the present framework (FIPMSP). However, a specific plan to insure that women and landless tenants can concretely benefit from project activities, will to be developed, approved by the Project Policy Committee and IDA and monitored during project implementation (e.g., access to water resources, training). * Issues related to potential voluntary land acquisition stemming from new irrigation schemes, channel realigning, construction of animal wallows and laundry sites, establishment of FO offices, demonstration centers, and rehabilitation of inspection roads. In addition to the assessment of the issues described above, the distributory environmental and social assessment will include a management plan with specific mitigation measures, an

102 institutional assessment of existing FOs and CBOs, a gender development program, a budget, and implementation arrangement which wil be built into the development program of each beneficiary FO/distributary. TORsfor the distributory environmental and social assessment as well as implementation of its recommendations will be reviewed and approved by the PPC and IDA. 5. Physical and hydrological data of the eligible distributaries. Basis data needed to help design scheme rehabilitation or development, can be collected separately or as part of the distributory environmental and social assessment. 6. Mobilization. capacity building, and planning involving FOs/FWUAs: (a) Using the baseline survey data and the distributory environmental and social assessment and building on the initial interaction with farmers, a detailed plan of mobilization and organizing FOs/FWUAs will be developed and reviewed by the PPC and IDA before implementation. This plan will include a timetable, and key milestones (initial meetings, agreements, election of representatives, legal notification, office setup, signature of contract transferring/sharing management responsibilities from FIDA/AWB, transfer of management of the irngation system). In addition, the plan will include details of a training program covering management, O&M, environmental, and social issues. B. Preparation and implementation of subproject development plan 1. Initial walk through, jointly by FOs/FWUAs, PCC, AWB, PIDA, and the PIC. 2. Rehabilitation and improvement program (works). Established FOs/FWUAs, with technical support from the PIC, will prepare an investment plan including: (a) a distributary level improvement rehabilitation, and implementation arrangements, (b) watercourse and on-farm improvement program, and implementation arrangements, local/minor irrigation schemes, (c) equipment/machinery needed for O&M, and budget, including beneficiary contributions towards capital costs and O&M. (d) procurement and contractual procedures and arrangements. In addition, established FOs/FWUAs will be consulted regarding rehabilitation of branch canals leading to their command areas. 3. Implementation of the recommendations of the distributorv environmental and social assessment management plarl These will be incorporated and implemented as part of the investment plan and capacity building and strengthening programs. 4. Agreement on final detailed plan by FOs/FWUAs. Implementation of the agreed plan (detailed schedule will need to be developed). 5. Final walk through jointly by FOs/FWUAs, PCC, AWB, PIDA, and the PIC. 6. Commissioning and hand-over of completed works for FOs/FWUAs management

103 7. Follow-up support--based on monitoring information-- to FOs/FWUAs which experience problems with governance or irrigation system management. Technical support teams C. Capacity Building/Strengthening 1. Training and technical assistance programs will be developed in close consultation with the PPC, the PCC, FOslFWUAS, the Department of Extension, and NGOs with relevant expertise. Key areas where capacity development is needed include: (a) environmental management and awareness skills (e.g., water-crop management, fertilizer and pest management, water quality, drainage, sanitation and related envirornental health issues, overall water resources management, and environmental assessment); (b) social skills (e.g., social mobilization, social assessment, and gender issues); (c) management skills (e.g., finance, procurement, O&M); and (d) information management and analysis skills (e.g. GIS use, use of analytical techniques, decision support systems, communication, etc.). 2. Target institutions/groups include: (a) the provincial Departments of Irrigation, On-Farm water Management, and Extension Wings. Because these departments will be undergoing major restructuring and personnel compression, preference would be given to training senior staff already on board (within the OFWM Department, an agricultural engineer with specialization in water management, within the Irrigation Department, a superintendent engineer within the Canal and Drainage Circle areas where the project will be implemented, and within the Extension Department, a plant protection agronomist specializing in integrated pest management). However, if such arrangement is notfeasible, external expertise will need to be recruited and in place by the time ofproject launch.these trained staff would serve as advisors to the PPC and members or advisors to the PCC; (b) the AWBs, either independently or in as part of capacity development of the Irrigation Department and FIDA (being undertaken under NDP); (c) the FOs/FWUAs to be formed; and (d) women and landless tenants (to be specifically identified). 3. Implementation will be done in two phases: (a) a startup phase which will include key staff working in or supporting the PPC and PCC, and the field staff which will conduct the initial screening and targeting, baseline surveys, and social mobilization; and (b) a technical support phase which will be mainly targeted to farmers, women and landless tenants, follow up support to FOs/FWUAS as required, and would extend all the way until the demonstration centers are in place. D. Monitoring and Evaluation Monitoring will be designed to provide for a continuous leaming and adjustment of project approach and subproject plans, and will involve: (a) participatory monitoring based on self-defined indicators (by focus groups of beneficiaries, and FOs/FWUAs), (b) monitoring data on inputs, outputs and impacts/outcomes by the federal coordination unit through the M&E consultants, and (c) Bank supervision. The implementation of mitigation measures and recommendations of DESAs would be monitored as part of the overall arrangements for monitoring project performance for use in decision-support. Early in project implementation, before the start of subproject selection and implementation, a monitoring framework including institutional arrangements and indicators will be submitted to the Bank for clearance

104 The indicators for measuring project achievement of development objectives will include: * Process monitoring covering formation and institutional development of FOs/FWUAs, (e.g., selection of farmer representatives, decision making within FOs/FWUAs, their involvement in subproject planning; and cost contribution); * Capacity building of FOs/FWUAs for management of O&M (monitoring including self-evaluation is also needed for AWB and FIDA staff); * Operation and maintenance performance of FOs/FWUAs, AWBs, and PIDA with regard to hydrologic, agronomic, institutional and social parameters (equity regarding timely and adequate water supply throughouthe system; inclusion of poor farmers; O&M performance; transparency regarding decision making, resource mobilization and financial management; conflict resolution), based on both self-evaluation and external assessment by the M&E consultant. * Impacts and outcomes in terms of: increased household incomes, and a sustainable, technically effective institutional framework for O&M of irrigation works through FOs/FWUAs, AWE3s, and PIDA. * Implementation of the distributary environmental management plans. E. Institutional/Implementation Arrangements Institutional arrangements. The PIC (responsible for the social mobilization and technical assistance programs and which includes a core teamn, and a number of baseline survey teams, social organizations teams, and technical support teams, and NGOs) will have as part of its team at least an environmental expert and a social mobilization expert whose qualification and experience would be acceptable to IDA. Since there is little capacity within the govermnento develop FIPMSP intemally, the PICs' contract for social mobilization, technical support, and baseline surveys would be appropriately amended to: (a) develop the FIPMSP consistent with the present annex (Annex 11) as part of their inception report, and (b) amend the consultant TORs to provide enviromnental and social development expertise required to develop and implement FIPMSP

105 MAP SECTION

106

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