ASIAN DEVELOPMENT BANK PCR: PAK 17055

PROJECT COMPLETION REPORT

ON THE

LEFT BANK OUTFALL DRAIN PROJECT (STAGE I)(Loan 700-PAK [SF])

IN

PAKISTAN

December 2000

CURRENCY EQUIVALENTS

Currency Unit – Pakistan Rupee/s (PRe/PRs)

At Appraisal(February 1984)

At Project Completion(June 2000)

PRe1.00 $1.00

==

$0.0699PRs14.30

$0.0192PRs52.0

ABBREVIATIONS

ADBAWBCIFDIPDOWMDPODEIAEIRREMCFOFOBFOPICBIMOIWMIKPODLBODNDPOFWMO&MWAPDAWUAWUF

– – – – – – – – – – – – – – – – – – – – – –

Asian Development Bankarea water boardCost, Insurance and FreightDepartment of Irrigation and PowerDirectorate of On-Farm Water ManagementDhoro Puran Outfall Drainenvironmental impact assessmenteconomic internal rate of returnEnvironmental Management Committeefarmer organizationfree on boardFuture Operation Planinternational competitive biddingIntegrated Management OrganizationInternational Water Management InstituteKadhan Pateji Outfall DrainLeft Bank Outfall DrainNational Drainage Programon-farm water managementoperation and maintenanceWater and Power Development Authoritywater users associationwater users federation

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June.(ii) In this report, “$” refers to US dollars.

CONTENTS

Page

BASIC DATA ii

MAP vii

I. PROJECT DESCRIPTION 1

II. EVALUATION OF IMPLEMENTATION 2

A. Project Components 2B. Project Implementation 3C. Project Costs and Financing 4D. Project Schedule 5E. Engagement of Consultants and Procurement of Goods 6

and Services F. Performance of Consultants, Contractors, and Suppliers 6G. Conditions and Covenants 7H. Contract Awards and Disbursements 8I. Environmental and Social Measures and Impacts 8J. Performance of the Borrower and the Executing Agencies 9K. Performance of Asian Development Bank 10

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS 11

A. Initial Performance 11B. Financial Performance 12C. Economic Performance 12D. Attainment and Sustainability of Benefits 13

IV. CONCLUSIONS AND RECOMMENDATIONS 14

A. Conclusions 14B. Lessons Learned 15C. Recommendations 15

APPENDIXES

BASIC DATA

A. Loan Identification

1. Country Pakistan2. Loan Number 700-PAK(SF)3. Project Title Left Bank Outfall Drain Project (Stage I)4. Borrower Islamic Republic of Pakistan5. Executing Agency Water and Power Development Authority (WAPDA)6. Amount of Loan SDR121,976,0007. PCR Number PCR:PAK 17055

B. Loan Data

1. Appraisal- Date Started 30 January 1984- Date Completed 23 February 1984

2. Loan Negotiations- Date Started 18 September 1984- Date Completed 25 September 1984

3. Date of Board Approval 25 October 1984

4. Date of Loan Agreement 14 December 1984

5. Date of Loan Effectiveness- In Loan Agreement 14 March 1985- Actual 11 November 1985

6. Closing Date- In Loan Agreement 31 December 1993- Actual 08 January 1998

7. Terms of Loan- Service Charge 1 percent- Maturity 40 years- Grace Period 10 years

8. Disbursements

a. Dates

Initial Disbursement Final Disbursement Time Interval24 July 1986 12 September 1997 11 years and 1.5 months

Effective Date Original Closing Date Time Interval11 November 1985 31 December 1993 8 years and 1.5 months

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b. Amount (SDR)

Category OriginalAllocation

LatestRevised

Allocation

NetAmount

DisbursedUndisbursed

Balance

01A Civil Works & Materials – Surface Drainage

28,695,000 83,600,000 85,634,174 (2,034,174)

01B Civil Works & Materials –DrainageTubewells

33,893,000 23,299,000 22,463,516 835,484

01C Civil Works & Materials –Scavenger Wells

10,697,000 0 0 0

01D Civil Works & Materials –Interceptor Drains

9,998,000 0 0 0

02 Consulting Services 5,399,000 14,645,000 11,606,949 3,038,05103 Training 600,000 67,000 0 67,00005 Unallocated 32,694,000 365,000 0 365,000

Total 121,976,000 121,976,000 119,704,639 2,271,361

c. Amount (US$)

Category OriginalAllocation

LatestRevised

Allocation

NetAmount

DisbursedUndisbursed

Balance

01A Civil Works & Materials – Surface Drainage

23,700,000 118,301,795 121,050,304 (2,748,509)

01B Civil Works & Materials –DrainageTubewells

29,500,000 33,239,608 32,115,582 1,124,026

01C Civil Works & Materials –Scavenger Wells

10,600,000 0 0 0

01D Civil Works & Materials –Interceptor Drains

8,400,000 0 0 0

02 Consulting Services 5,300,000 20,348,530 16,261,258 4,087,27203 Training 500,000 90,139 0 90,13905 Unallocated 44,000,000 502,870 0 502,870

Total 122,000,000 172,482,942 169,427,144 3,055,798

9. Local Costs (ADB-Financed)

Appraisal Estimate ActualAmount ($) 35,000,000 40,922,560Percentage of Local Costs 11 9Percentage of Total Cost 5 5

C. Project Data

1. Project Cost ($ million)

Appraisal Estimate ActualForeign Exchange Cost 336.3 286.0Local Cost 318.5 558.1 Total Cost 654.8 844.1

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2. Financing Plan ($ million)

Appraisal Estimate Actual at end-1997 a

Financier Foreign Local Total Foreign Local TotalBorrower 48.5 189.4 237.9 6.4 408.5 414.9ADB 87.0 35.0 122.0 128.5 40.9 169.4World Bank 99.9 50.1 150.0 60.8 79.3 140.1ODA/DFID 32.1 3.6 35.7 27.8 4.8 32.6CIDA 27.1 10.1 37.2 11.9 0.0 11.9Saudi Fund 38.5 13.5 52.0 32.3 10.8 43.1SDC 2.7 7.3 10.0 0.0 10.0 10.0OPEC 7.8 2.2 10.0 8.8 0.0 8.8IsDB — — — 7.7 1.0 8.7M&E Trust Fund — — — 1.8 2.8 4.6 Total 336.3 318.5 654.8 b 286.0 558.1 844.1b

ADB = Asian Development Bank; CIDA = Canadian International Development Agency; DFID = Department for InternationalDevelopment; IsDB = Islamic Development Bank; M&E = Monitoring and Evaluation Trust Fund (DFID, CIDA, SDC), ODA =Overseas Development Administration; OPEC = Organization of Petroleum Exporting Countries; SDC = Swiss DevelopmentCooperation.a For the estimated project cost at completion in 2002, $963.0 million, see Appendix 2.b Including interest during construction.

3. Cost Breakdown by Project Components ($ million)

Appraisal Estimate Actual at end-1997Foreign Local Total Foreign Local Total

Spinal & Outfall Drain 27.4 12.3 39.7 31.2 26.8 58.0Drainage Network 76.5 32.0 108.5 144.8 105.8 250.6Irrigation Works 33.6 44.4 78.0 53.0 132.7 185.711 kV Distribution 31.4 13.9 45.3 14.9 13.1 28.0Maintenance Equipment, Workshops & Depots

14.9 1.1 16.0 18.4 0.8 19.2

Consultants & Training 8.4 0.9 9.3 21.4 10.2 31.6Monitoring and Evaluation 1.5 1.5 3.0 1.6 2.9 4.5Land Acquisition and Resettlement

— 11.5 11.5 — 60.9 60.9

Administration 3.7 28.0 31.7 0.7 57.0 57.7O&M of Drains — — — 0.0 2.8 2.8Taxes & Duties — 61.4 61.4 — a — Base Cost 197.4 207.0 404.4 286.0 413.0Physical Contingencies 27.9 29.1 57.0 — — —Price Escalation 92.7 82.4 175.1 — — —Interest DuringConstruction

18.3 — 18.3 — 145.1 145.1

Total Project Cost 336.3 318.5 654.8 286.0 558.1 844.1O&M = operation and maintenance.a Included in the costs of the relevant components.

v

4. Project Schedule

Appraisal Estimate Actuala. Date of Contract with Consultants June 1985 May 1986b. Civil Works Date of Award July 1985 November 1987 Completion of Work June 1992 June 2002c. Materials, Equipment and Vehicles First Procurement June 1985 June 1986d. Commissioning of:

LBOD’s Tidal Link June 1991 June 1995Nawabshah drainage system June 1989 December 1997Sanghar drainage system December 1990 December 1998Mirpurkhas drainage system December 1992 December 1998Remodeled Nara and Jamrao canal systems December 1992 June 1995Chotiari Reservoir and the Ranto Canal December 1992 June 2002a

LBOD = Left Bank Outfall Draina Expected date.

D. Data on Bank Missions

Mission Type DateNo. of

Persons

No. ofPerson-

days Specialization of Members

Project PreparationReview

25 Jan -2 Feb 1983

3 27 Project EngineerProject EconomistAgronomist

Follow-up ProjectPreparation

14-24 May 1983 2 22 Project EngineerAgronomist

Appraisal 30 Jan –23 Feb 1984

10 204 Senior Project EngineerAgronomistSenior Project EconomistProject EconomistSenior Country EconomistSr. Environmental Spec.Senior CounselRural Sociologist (Consultant)Hydraulics Engr. (Consultant)Mission Secretary

Inception 26 Jan – 12 Feb 1985

1 18 a Senior Project Engineer

Review (No. 1) 27-28 Apr 1985 2 4 Senior Project EngineerProject Engineer

Review (No. 2) 5 – 17 Apr 1986 3 30 Senior Project Engineer (2)

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Mission Type DateNo. of

Persons

No. ofPerson-

days Specialization of MembersSenior Assistant

Special Project Admi-nistration (SPA No. 1)

15-26 Sep 1986 2 24 Senior Project EngineerSenior Counsel

Review (No. 3) 7-14 Nov 1986 1 8 Senior Project EngineerReview (No. 4) 3-11 Apr 1987 1 9 Senior Project EngineerReview (No. 5) 7-19 Nov 1987 2 26 Senior Project Engineer

Loan Adm. AssistantReview (No. 6) 12-22 Apr 1988 1 11 Senior Project EngineerReview (No. 7) 31 Jan – 14 Feb

19891 15 a Project Engineer

SPA Mission (No. 2) 24 Apr – 4 May1989

2 7 a Senior AgronomistCountry Officer

Review (No. 8) 4 – 13 Nov 1989 1 10 Project EngineerReview (No. 9) 5 – 17 May 1990 2 26 Project Engineer

Loan Adm. AssistantReview (No. 10) 6 – 22 Nov 1990 1 17 Project EngineerReview (No. 11) 20 Nov – 4 Dec

19911 15 Project Engineer

Review (No. 12) 26 Apr – 10 May1992

1 15 Project Engineer

Review (No. 13) 1 – 12 Dec 1992 2 24 Project EngineerConsultant (Irrigation Engineer)

Review (No. 14) 8 – 24 Jun 1993 2 34 Project ManagerConsultant (Irrigation Engineer)

Review (No. 15) 28 Jan – 14 Feb1994

3 37 a Project EngineerControl OfficerLoan Adm. Assistant

Review (No. 16) 26 Apr – 7 May1995

3 36 Project EngineerConsultant (Irrigation Engineer)Loan Adm. Assistant

Review (No. 17) 23 Jan – 5 Feb1996

2 20 Project EngineerLoan Adm. Assistant

SPA Mission (No. 3) 15-16 Jul 1998 1 2 Finance/Administrative OfficerProject CompletionReview (PCR)

Follow-up PCR

Follow-up PCR

18 Nov-3 Dec1998

30 Jul - 4 Aug1999

24 Feb 2000

3

1

1

37

6a

1a

Sr. Project EngineerProject EconomistConsultant (Civil Engineer)Project Economist

Project Economist

aCombined with other missions.

I. PROJECT DESCRIPTION

1. To increase agriculture production and improve the socioeconomic conditions for therural population in Pakistan, the Project was to improve irrigation and drainage conditions for anarea of about 516,500 hectares (ha) in the southeastern part of Sindh. The project area is partof the 2.5 million ha catchment of the Left Bank Outfall Drain (LBOD), which comprises theirrigated area in the saline groundwater zone on the left bank of the Indus River between theSukkur and Kotri barrages. This area had been subjected to decades of extensive irrigation,which resulted in rising watertables with consequent waterlogging and soil salinization, therebythreatening the sustainability of the agricultural resource base and adversely affecting thelivelihood of rural communities. The project area includes the three priority areas: Nawabshah,Sanghar, and Mirpurkas. These areas drain into the Arabian Sea through the first stage ofLBOD, construction of which started in 1974. At the time of appraisal, about 25 percent of theland within the project area had been abandoned because of waterlogging and salinity.

2. The Project was the largest undertaking in Pakistan’s water resources sector in the1980s and 1990s.1 Its main objectives were to (i) improve drainage for about 516,500 ha; (ii)increase irrigation supplies to about 290,000 ha; and (iii) transport excess water and salt out ofthe project area, thus reversing the deterioration of the land resource base due to waterloggingand salinity. These objectives were to be achieved through (i) construction of an outfall forLBOD to dispose saline effluent into the Arabian Sea; (ii) construction of surface drains for thewhole area; (iii) installation of a subsurface drainage network on 392,000 ha out of the totalarea; (iv) installation of interceptor drains along selected reaches of irrigation canals; (v)installation of a distribution network to electrify the drainage tubewells and pumps; (vi) on-farmwater management including improvement of watercourses and precision land leveling; (vii)remodeling of Nara and Jamrao irrigation systems and the construction of the Chotiari Reservoirand the associated Ranto Canal to provide supplementary irrigation; (viii) provision of operationand maintenance (O&M) equipment; and (ix) consulting services and training. The project costwas estimated at $636.5 million and the Asian Development Bank (ADB), together with sevenother external financiers,2 were to provide financial assistance. ADB was to finance part of thesurface and subsurface drainage works and installation of interceptor drains and the associatedelectrification works. The Project was to be implemented in eight years starting in 1985 with theWater and Power Development Authority (WAPDA) as the principal executing agency beingresponsible for the drainage works and overall project coordination; the Department of Irrigationand Power (DIP) and the Directorate of On-farm Water Management (DOWM) of Sindh wereresponsible for the Project’s irrigation and on-farm water management works, respectively.

3. The Project’s objectives were highly relevant to the Government’s overall developmentstrategy, especially in the water sector, and were in line with ADB’s lending strategy for Pakistanas well as its strategic objectives both at the time of appraisal and preparation of this report. TheProject intended to support three major goals of the Government as outlined in the Sixth Five-Year Plan (FY1983/84–FY1987/88), to (i) increase agricultural production by improving theefficiency of irrigation infrastructure; (ii) phase out subsidies for inputs and involve the privatesector in the distribution of inputs and development of fresh groundwater resources; and (iii)reduce the controls on export of cotton and rice and rationalize the output prices. ADB’s lendingstrategy supported Government’s efforts to expand its irrigation and drainage infrastructure as 1 A Project Preparation Report was prepared with assistance from United Nations Development Programme and

the World Bank.2 The World Bank, Department for International Development, UK, Canadian International Development Agency,

Saudi Fund, the Swiss Development Cooperation, the Organization of Petroleum Exporting Countries, and theIslamic Development Bank.

2

well as to improve efficiencies in this subsector to boost production to achieve Sixth Five-YearPlan’s goal of five percent rate of growth in the agricultural sector.

II. EVALUATION OF IMPLEMENTATION

A. Project Components

4. The scope of the Project was reduced during project implementation (Appendix 1).Increased cost and financing constraints led to a reduction in scope of the subsurface drainageworks and interceptor drains together with a corresponding reduction in the electrificationworks.3 Part of the remodeling for the Nara Canal was deleted when the World Bank creditclosed in 1997. The works deleted from the Project were included in the National DrainageProgram (NDP) launched in 1998 and cofinanced by ADB,4 the World Bank, and the JapanBank for International Cooperation. However, these changes in scope did not affect the efficacyof the Project in any significant way.

5. As of June 2000, the Project had achieved more than 95 percent of its objectives underthe reduced scope, with full completion expected in 2002. The main spinal drain and the 1,466kilometer (km) long surface drainage network serving the originally planned 516,500 ha arecomplete, 333,000 ha out of the planned 392,000 ha have been provided with subsurfacedrainage facilities, and 154 km out of the planned 550 km of interceptor drains have beeninstalled. O&M equipment and workshops have also been provided. A total of 1,481watercourses have been remodeled and precision land leveling for 33,600 ha has beenundertaken, exceeding the appraisal targets of 920 watercourses and 26,000 ha, respectively.Remodeling of 608 km of canals is substantially complete while the construction of the RantoCanal is also complete. The 55 km embankment for the Chotiari Reservoir with its associatedresettlement program is the only major project component for which work is still in progress.

6. The Project provided consulting services to assist the executing agencies inimplementing their respective components. This included 878 person-months of consultingservices cofinanced by ADB to assist WAPDA and DIP.5 During implementation, this provisionwas increased to 3,433 person-months. The main reasons for this increase were (i) the 4.5-yearextension of the implementation period; (ii) an enhancement of the role of consultants incontract supervision; (iii) the need to undertake additional engineering investigations andstudies; and (iv) consultants’ assistance in resettlement, communication, and stakeholdermobilization. The Project’s training program was successfully implemented. It provided forexternal and local training for staff of the executing agencies, and for training of farmers throughfield demonstrations. A comprehensive program to monitor the physical performance of theProject was undertaken together with a program for benefit monitoring, which included variousthematic studies. These two programs have provided valuable baseline data. The monitoringprograms are continuing under NDP, albeit at a reduced scale.

3 Canadian International Development Agency withdrew during project implementation.4 Loan No. 1413-PAK, National Drainage Sector Project, for $140 million, approved on 12 December 1995.5 Other consulting services were financed through the World Bank, Department for International Development and

Swiss Development Corporation.

3

B. Project Implementation

7. The overall implementation arrangements remained as appraised, but a number ofadjustments were made during project implementation. WAPDA acted as the principal executingagency and was responsible for the spinal drain works, all drainage works, and the associatedelectrification as well as for the construction of the Chotiari Reservoir. In addition, WAPDA alsoundertook the Project’s physical monitoring program. DIP was responsible for canal remodelingwhile DOWM was the executing agency for the on-farm water management activities. Duringimplementation, the Planning and Development Department (PDD) of Sindh assumedresponsibility for the benefit monitoring program, which it outsourced to a local institute that hada collaborative arrangement with an institute abroad. Also, the Chotiari Resettlement Agencywas established by the Government of Sindh for the resettlement program for the ChotiariReservoir. A local nongovernment organization (NGO) was employed to assist in theimplementation of the resettlement program.

8. The Project Steering Committee, headed by the additional chief secretary (development)of Sindh provided overall guidance and coordination. At the project level, overall coordinationwas provided by the Integrated Management Organization (IMO) established under the Projectand headed by a chief engineer of WAPDA. The IMO comprised WAPDA staff and a limitednumber of DIP staff on a secondment basis. The IMO proved reasonably successful incoordinating the planning and execution of the drainage and irrigation works. The continuity ofsenior staff within IMO and assistance provided by the consultants contributed to this success.DOWM and PDD did not have a representation in the IMO. As a result, the on-farm watermanagement and benefit monitoring activities were not fully integrated with the other projectcomponents. IMO employed panels of experts to provide independent advice on major designand implementation issues. An environmental management committee (EMC) was constitutedin 1995 comprising representatives of the executing agencies, local, and internationalnongovernment organizations as well as local educational establishments. The EMC wassupported by an environmental cell established by WAPDA in the IMO office. The EMC and thecell played a useful role in implementing and monitoring the Project’s environmentalmanagement program.

9. During project implementation, the arrangements for postconstruction O&M wereadjusted. Facilities completed by WAPDA were initially handed over to DIP in 1993, butbecause DIP was not fully geared up to undertake the O&M, they were handed back to WAPDAin 1994 and handled by its new and separate O&M division. Handing over of facilities to DIPresumed in 1999 and will be completed by the end of 2001.

10. Two new approaches for the O&M of irrigation and drainage facilities were initiatedunder the Project. First, WAPDA’s O&M Division undertook part of the O&M work through“quasi-performance” contracts, which allow greater private sector participation in O&M than thenormal in-house O&M arrangement. Based on the experience with these contracts, improvedO&M performance contract arrangements were developed that have been adopted for O&Mperformance contracts awarded under NDP. Second, to initiate and facilitate a decentralizedand participatory approach to irrigation management, the Project supported (i) a study for theestablishment of an area water board and its constituent farmers’ organizations for the NaraCanal system, and (ii) the formation of farmer organizations (FOs) for three distributary canals.The formation of FOs was done in collaboration with the International Water ManagementInstitute (IWMI). The Nara Area Water Board (AWB) was inaugurated in December 1999 but thetransfer of the O&M of the three distributary canals for which FOs were formed under theProject is still awaiting Government of Sindh’s final approval.

4

C. Project Costs and Financing

11. The total cost at project completion is estimated at $963.0 million, $308.2 million higherthan the appraisal estimate of $654.8 million (Appendix 2). The 47 percent cost overrun ismainly the result of major cost overruns for surface drainage and canal remodeling, the ChotiariReservoir, and land acquisition and resettlement. The twice as long implementation period alsoresulted in large increase in interest during construction. These cost overruns exceeded the costunderruns for certain other components. With respect to the surface drainage works, a numberof the early contracts failed and were subsequently re-awarded at significantly higher ratesbecause of the deteriorated law and order situation. Furthermore, the number of bridges andwatercourse crossing structures increased because of demands from the local communitiesand, in the case of bridges, because of the expansion of the road network following appraisal.The increase in the cost of canal remodeling was mainly due to delayed implementationresulting in higher rates for the same reason as for the drainage works, i.e., the deteriorated lawand order situation. The cost of the Chotiari Reservoir significantly exceeds the appraisalestimate because of adjustments in design to minimize the negative social and environmentalimpacts of the reservoir coupled with unfavorable foundation conditions not foreseen atappraisal. The cost of land acquisition increased fourfold because more land had to be acquiredand higher compensation payments made than originally envisaged.

12. With respect to cost underruns, the cost of the “scavenger” wells (one of the three typesof subsurface drainage facilities installed under the Project)6 remained substantially below theappraisal estimate. Less than half of the number of wells anticipated at appraisal were installedbecause the scope of fresh groundwater recovery from canal seepage turned out to be limited.The cost of the other subsurface drainage facilities, i.e., “vertical” drainage tubewells and“horizontal” subsurface pipe systems, and the cost of the interceptor drains also remained belowthe appraisal estimate because part of these facilities were deleted from the Project due tofinancing constraints (para. 4). The cost of the electrification facilities was lower than appraisedbecause its scope was reduced after the deletion of parts of the subsurface drainage facilitiesand the interceptor drains. Furthermore, electrification equipment was purchased at ratessubstantially lower than anticipated. The cost of the on-farm water management worksremained significantly below the appraisal estimate because of lower unit costs.

13. ADB’s loan of $122.0 million was to finance 19 percent of the total project cost, asshown in the following table. The other seven external cofinanciers and the Government were tofinance $294.9 million and $237.9 million, equivalent to 45 percent and 36 percent of the totalcost, respectively. The share of the individual financiers were affected by the reduction in scopeof certain components and changes in the exchange rate of the Pakistan rupee and other majorcurrencies.7 At the same time, the value of the special drawing rights appreciated, therebyincreasing the availability of ADB financing in US dollar terms.8 Because of these factors, ADBfinancing increased to $169.4 million but its financing share decreased marginally from 19percent to 18 percent. The financing provided by the other cofinanciers is estimated at about$293.4 million, equivalent to 30 percent of the project cost. The Government’s financing isexpected to be double that of estimated at appraisal to reach $500.2 million, equivalent to 52

6 Scavenger wells have two pumps: one pump for the fresh groundwater lens overlying the saline groundwater

and the second one at a lower level for the saline groundwater. The fresh groundwater pump discharges into awatercourse, thereby supplementing canal supplies.

7 The $-PRs exchange rate dropped from $1.0=PRs14.3 at the time of appraisal to $1.0=PRs40.0 by the end ofDecember 1997.

8 The SDR-$ exchange rate increased from SDR1.0=$1.034 at the time of appraisal to SDR1.0=$1.349 by the endof December 1997.

5

percent of the project cost. This significant increase is mainly the result of increases in the costof land acquisition, resettlement, project administration, and interest during construction.

Overall Project Cost and Financing Plan

Source At A ppraisal At Com pletion b y end-2002 $ million % $ million %

Asian Development Bank 122.0 19 169.4 18Other External Financiers 294.9 45 293.4 30Government 237.9a 36 500.2b 52

Total 654.8 100 963.0 100a Including interest during construction estimated at $18.3 million.b Indicative estimate including interest during construction estimated at $152.4 million.

D. Project Schedule

14. An eight-year implementation period starting in mid-1985 was envisaged at appraisal(Appendix 3). Actual implementation started in mid-1986 following the fielding of theconsultants. Completion of the Project with the reduced scope is scheduled for the end of 2002,resulting in an implementation period of 16 years. However, several project components werecompleted earlier. The work on the main drains and Tidal Link was completed in 1995, and thesurface and subsurface drainage facilities together with the on-farm water management workswere completed between 1995 and 1997. Canal remodeling and the construction of the ChotiariReservoir continued after 1997. All works financed by ADB were completed in late 1997,requiring an extension of the loan closing date by four years.

15. Because of the Project’s magnitude, its technical complexity, and the involvement of alarge number of financiers, several factors contributed to the overall implementation delay. Theprincipal factors were (i) a one-year delay in the engagement of the consultants; (ii)shortcomings in designs coupled with insufficient consultations during the design phase with theprimary beneficiaries and adversely affected persons; (iii) delays in decision making primarily byWAPDA on procurement and contract management matters and by Government of Sindh onresettlement planning; (iv) unsatisfactory procurement arrangements and sequencing ofcontracts; (v) unsatisfactory supervision arrangements during the early implementation phase;(vi) poor performance of certain contractors; (vii) insufficient consultation with local communitiesand delays in compensation payments resulting in occasional stoppage of works; (viii) the needto redesign part of the canal remodeling works and the Chotiari Reservoir;9 (ix) conditionalitiesimposed by cofinanciers during project implementation;10 and (x) budget and delays in therelease of counterpart funds shortfalls during certain years. Factors beyond the control of theBorrower, provincial government, and the executing agencies that contributed to the delayswere (i) the serious law and order problems for about three years in the early implementationphase; and (ii) the widespread flooding caused by heavy rainfall in 1988, 1992, and 1994.

9 The design for the remodeling of the Nara Canal was changed as a result of the outcome of the environmental

impact assessment carried out during project implementation and the financing shortfall. The design of theChotiari embankment was changed to minimize the resettlement impact, the unfavorable foundation conditions,and the inclusion of an emergency spillway.

10 These additional conditionalities included (i) the undertaking of environmental impact assessments for theremodeling of the Nara Canal and the Chotiari Reservoir; (ii) the preparation of a full resettlement planassociated with the Chotiari Reservoir; (iii) a reassessment of the viability of the Project; and (iv) resolution ofO&M issues. These conditionalities affected the implementation of the Project’s irrigation component.

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E. Engagement of Consultants and Procurement of Goods and Services

16. ADB and the World Bank were to jointly finance the consulting services for design andconstruction of the Project’s drainage and irrigation components. Selection and engagement ofthese consultants were done in accordance with ADB’s Guidelines on the Use of Consultants.The engagement of the consultants was delayed by nearly a year, initially by the need toimprove the terms of reference and subsequently by the evaluation process. The consultancyservices contract was awarded to an international firm acting in association with two domesticfirms (the LBOD consultants).

17. According to the overall financing plan of the Project, ADB was to finance contracts forsurface and subsurface drainage facilities and interceptor drains, and the contracts were toinclude civil works as well as the supply and installation of equipment. Procurement of thesecontracts was undertaken in accordance with ADB’s Guidelines for Procurement and the LoanAgreement. ADB-financed contracts were awarded on the basis of international competitivebidding (ICB) procedures and local competitive bidding (LCB) procedures acceptable to ADB.Prequalification of contractors was undertaken for all contracts except for electrical supplycontracts for which postqualification was undertaken. There was limited interest on the part ofinternational contractors to participate in the ICB because of the relatively small size of thecontracts, i.e., generally less than $25 million, and the difficult law and order situation during theearly implementation phase. As a result, of the 13 ADB-financed ICB contracts, only three wereawarded to international contractors. The large number of relatively small contracts contributedto implementation delays and also resulted in an additional burden and costs in terms ofcontract supervision and administration.11 This could have been avoided if the works had beenpackaged in larger contracts.

F. Performance of Consultants, Contractors, and Suppliers

18. The performance of the consultants was mixed but overall it was satisfactory in theexecution of a complex and challenging assignment, partly due to the continuity of consultantstaff at the senior level. The consultants provided valuable assistance to WAPDA and DIP interms of overall project management and administration. They also assisted WAPDA in thesuccessful introduction of computer-aided design, a novelty in the early days of the Project.Nevertheless, detailed engineering planning and design of some works was not fully satisfactoryand did not adequately take into account the complexity of the local conditions. With respect toconstruction supervision, decision making at the technical level improved when the LBODconsultants assumed the role of the engineer for contract administration. They also assisted inimproving quality control, but maintaining quality standards for small structures in remote areasproved difficult especially during the period of serious law and order problems.

19. The performance of contractors under the ADB-financed components has been variable.In earlier contracts, a shortage of plants in the country was a constraint, particularly for smallercontractors. A number of the early surface drainage contracts failed and were subsequently re-awarded at significantly higher rates. The failure of these contracts was due to inadequatecontractor performance for which law and order problems were a contributing factor. Morerigorous prequalification criteria and more thorough verification of information submitted byprequalification applicants would have precluded the participation of some of the unsuccessfulcontractors. While there have been successes and failures on the part of both international and

11 In total, more than 90 contracts were awarded under the Project.

7

domestic contractors, the international contractors were prepared to invest more resources toensure the successful execution of their contracts than the domestic contractors.

G. Conditions and Covenants

20. Significant policy reforms in the agriculture sector were covenanted in the LoanAgreement (Appendix 4). The Borrower was to eliminate the subsidy on fertilizers andrationalize agriculture prices.12 It also was to reduce its control on the export of rice and cotton.The Borrower substantially complied with these covenants.

21. An important sector covenant was the requirement to achieve full recovery of the O&Mcost of Sindh’s irrigation system by gradually increasing irrigation service fees. AlthoughGovernment of Sindh has increased the irrigation services fees by more than 100 percent since1984, the actual level of cost recovery declined due to inflation. To address the continuingproblems faced in the irrigation sector, the provincial government adopted a new strategy in1997. This strategy, the implementation of which is supported through NDP, aims to redefinethe government’s role with the ultimate aim of (i) establishing autonomous managementorganizations for irrigation supply and drainage, (ii) transferring secondary-level irrigation anddrainage O&M to FOs, and (iii) phasing out subsidies for O&M within 7 to 10 years. The SindhIrrigation and Drainage Authority Act adopted in 1997 provides the legal framework forimplementation of the new strategy. The Project helped prepare the ground for theimplementation of the new strategy by forming the first three FOs in Sindh and supportingpreparatory work for the establishment of the Nara AWB.

22. Government of Sindh was to introduce a drainage cess to finance the O&M costs of theProject’s extensive surface and subsurface drainage facilities,13 but has not yet done so.14

Recognizing that special measures are required to finance the high O&M costs of the Project’sdrainage facilities, a comprehensive future operation plan (FOP) has been prepared and wasapproved by Government of Sindh in September 2000. This plan includes a statement forsustainable O&M of the Project’s drainage facilities in part through the partial transfer ofresponsibility for subsurface drainage to beneficiaries, the introduction of drainage service fees,and the operationalization of the new sector strategy in the project area through the transfer ofO&M at the distributary canal level to FOs.

23. Most other conditions and covenants in the Loan Agreement have been met. TheBorrower and the Government of Sindh provided the necessary counterpart funds during mostof the implementation period, a remarkable achievement considering the 45 percent increase incounterpart fund requirements and the fact that the Project required more than half of thedevelopment budget for the country’s water sector during its peak construction years.Acquisition of land for the construction of drainage facilities was carried out in accordance withthe Land Acquisition Act, and most of the land was handed over to contractors in time. Theoriginal mechanism for recovery of the beneficiaries’ share in the cost of materials forwatercourse improvement through annual installments over five years was not fully satisfactory.This mechanism was replaced during project implementation by a one-time “upfront”

12 Implementation of these reforms was supported by ADB through Loan No. 1062, Agriculture Sector Program, for

$200 million, approved on 11 December 1990.13 These fees to be introduced upon completion of a drainage unit were to recover initially 25 percent of the O&M

cost and were to be increased gradually to achieve full cost recovery in 2005.14 To recover the full costs of O&M of the drainage facilities, annual drainage cess would amount to about

PRs1,000/ha, much higher than the current irrigation service fee, which ranges from PRs100/ha for fodder toPRs450/ha for sugarcane.

8

contribution, a satisfactory mechanism adopted by the Government of Sindh for all its on-farmwater management programs.

H. Contract Awards and Disbursements

24. Contract awards and disbursements remained low until 1991 because of the delays inthe commencement of the civil works (Appendix 5). Disbursements reached a peak in 1993when $37.6 million was disbursed. The direct payment procedure was used for most of thedisbursements of eligible expenditures under ICB contracts. An imprest account wasestablished with WAPDA in January 1991 to facilitate disbursements under the smaller LCBcontracts and a total of $54.8 million was disbursed through this account. When the Loanaccount was closed in January 1998, $3.1 million was cancelled.

I. Environmental and Social Measures and Impacts

1. Environmental Measures and Impacts

25. Under the Project, provisions were made to protect the natural environment both throughthe design and during construction (Appendix 6). Specific environmental impact assessmentswere made for LBOD’s Tidal Link, the Chotiari Reservoir, and for the Nara and Ranto canals.Following the environmental impact assessment for the Tidal Link, its design was amended toprotect the ecology of shallow water bodies north of the Tidal Link. Measures have also beentaken to protect endangered species in the location of Chotiari Reservoir. Furthermore,adjustments to spoil disposal for the Nara Canal works were made while additional crossingstructures were built in the Ranto Canal to facilitate the passage of grazing animals. TheEnvironmental Management and Monitoring Plan prepared in 1995 provided the framework forrequired analysis and lead to establishment of the EMC, which commissioned specificenvironmental surveys to gather data on flora and fauna in both the Chotiari and Tidal Linkareas. The EMC ceased to function in late 1997 but it was reconstituted in 1999 and itsoperations continue to be funded through NDP.

26. The Project has started to have widespread environmental benefits through thereduction in waterlogging and salinity in the project area and through the disposal of its salineeffluent into the sea. In addition, the Project has reduced stagnant and polluted surface waterbodies, thereby lessening the potential for diseases from direct contact with such water andwater-borne vectors such as mosquitoes. The additional abstraction of water from the IndusRiver at the Sukkur Barrage for the annual filling of the Chotiari Reservoir will not have asignificant adverse impact on the areas downstream of this barrage. Filling of the reservoir willtake place during the flood season and the abstraction will be between 2 and 5 percent of theflow downstream of Kotri Barrage in the flood season.

2. Social Measures and Impacts

27. The Project provided for stakeholder consultation and involvement in the on-farm watermanagement component. This was only partially effective in view of the target-driven approachadopted by DOWM. Most water users’ associations (WUAs) formed to mobilize the farmers forwatercourse improvement have ceased functioning and the O&M of the watercourses continuesto be undertaken through the traditional informal arrangements.

28. During the second half of project implementation, two initiatives were taken to activelyinvolve the farmers in the O&M of irrigation and drainage facilities. To communicate the benefits

9

of the Project’s drainage facilities and secure their cooperation in guarding and maintainingsubsurface drainage facilities, WAPDA with the assistance of an NGO, established a unit thatprovided drainage advisory services between 1994 and 1997. The unit was successful inestablishing better rapport between WAPDA and the farming communities. Cooperation of thefarmers in safeguarding pumps and electrical connections and in maintaining disposal channelscould, however, not be obtained because they considered this work to be the Government’sobligation. The second initiative was the formation of FOs for three distributary canals. FOswere established through a participatory process while IWMI provided assistance to build uptheir capacity to undertake the O&M of canals (Appendix 7). Following their formation, the FOsundertook certain maintenance and improvement works. Since their distributary canals have notyet been transferred, the capacity of these FOs to undertake the complex task of O&M remainsto be established.

29. The Project already has a significant positive impact on the population in the projectarea. On the whole, small and marginal farmers, tenants, and landless laborers constitute over75 percent of the households in the project area. Due to improved drainage and theaccompanying increase in farm productivity, household incomes and employment opportunitieshave increased significantly. Average yields of main crops – wheat and cotton – are already upby 40 percent and 35 percent, respectively. Similarly, farm incomes have increased over 70percent. As more area is being reclaimed each year, the on-farm as well as off-farmemployment opportunities have significantly improved. Women directly benefit from the Project’sdrainage component through increase in household income and farm employment opportunities.They also benefit from improved health conditions and a reduction in the maintenance of mudhouses, a task traditionally done by women, because of the lowering of the groundwater table.15

30. The Project involved significant land acquisition and resettlement. A total of 25,650 ha ofland had to be acquired for the right-of-way of new drainage facilities, remodeling of canals, andthe establishment of the Chotiari Reservoir. The land acquired was generally of low productivitysince it was mostly located in the waterlogged area and often abandoned. Land valueassessment, acquisition, and compensation were undertaken in accordance with the LandAcquisition Act. However, compensation payments were often delayed because of the usuallyprecarious counterpart fund situation under which WAPDA gave priority to its contractualobligations with respect to the ongoing civil works. The construction of the Chotiari Reservoirinvolved significant resettlement. Although the design of the embankment was adjusted tominimize resettlement, 594 households were affected. The resettlement plan has encounteredseveral problems and has been negatively affected by early irregularities with the compensationprocess, insufficient allocation of funds, and delays in the development of the resettlementsite.16 The resettlement process is expected to be completed in 2001.

J. Performance of the Borrower and the Executing Agencies

31. The Borrower’s main role was to allocate adequate budget for the project componentsexecuted by WAPDA. For most years, the Government fulfilled this role satisfactorily despite thesignificant increase in its financing share of the Project. The same applies for Government ofSindh in terms of its role of budget appropriation and release of funds for the Projectcomponents executed by DIP and DOWM. The Borrower and the Government of Sindh alsodisplayed adequate flexibility in adjusting the project design and implementation arrangements

15 International Waterlogging and Salinity Research Institute. Women and Drainage in Pakistan, December 1999.16 Currently, the Government of Sindh is planning to offer PRs150,000 per household as cash compensation rather

than resettling them as earlier planned.

10

during implementation. Performance of the Government of Sindh in other areas was mixed. TheGovernment of Sindh discharged its role in terms of overall project coordination satisfactorilythrough the Project Steering Committee. However, it lacked resolve to address in a timelymanner important matters such as its contribution to the funding of O&M of completed facilitiesduring project implementation, the introduction of drainage service fees, implementation of theresettlement program associated with the Chotiari Reservoir, and the transfer of the O&M ofthree distributary canals to the FOs established under the Project.

32. WAPDA’s overall performance was mixed but generally satisfactory, considering thecomplexity of the Project and the serious problems with law and order between 1988 and 1991.WAPDA proved receptive to changes during project implementation as manifested by theestablishment of its LBOD O&M Division, its support for the pilot for O&M performancecontracts, and the active participation in and support for the Project’s EMC. WAPDA’s record interms of procurement and contract administration was, however, not satisfactory primarilybecause of centralized decision making. This resulted in unreasonable delays inprequalification, procurement of civil works and supply contracts, approval of contract variationsand time extensions, settlement of claims, delayed payments to contractors and suppliers, andthe nondisbursement of $3.1 million of eligible expenditures.17 Decision making at the technicallevel improved with the assignment of the LBOD consultants as the engineer. WAPDA’s O&MDivision was successful in carrying out its functions despite severe financial constraints.WAPDA’s supervision of consultants was also generally satisfactory.

33. DIP’s performance improved to a satisfactory level during project implementation. Itsperformance was adversely affected by the frequent changes of key staff. DIP also facedproblems in providing design staff. DIP’s procurement and contract administration was generallysatisfactory but its capability to supervise contracts was initially limited. This situation wasrectified in 1994 when the LBOD consultants were assigned as the engineer. DIP also facedproblems in assuming the responsibility for the O&M of major drainage facilities handed over in1993 because it was not sufficiently prepared for this task. As a result, the O&M of thesefacilities was handed back to WAPDA in 1994.

34. Although DOWM exceeded its physical targets, its performance was not fully satisfactorybut it improved during project implementation. Delays in posting of several key staff and the lateengagement of consultants resulted in inadequate supervision of the watercourse improvementworks during the initial years. DOWM’s continuing focus on achieving physical targets was atthe expense of quality of beneficiary participation and mobilization.

K. Performance of Asian Development Bank

35. During appraisal, ADB together with the other external financiers did not sufficientlyrecognize the complexity of the Project, its fiscal implications on the development budget, or itsextraordinary demands on the capacity of the executing agencies. At that stage, the financiersalso placed insufficient emphasis on the sustainability of the Project’s drainage facilities: in fact,the estimated incremental O&M cost, as a result of the Project, required a doubling of DIP’sannual O&M budget, and there were already indications of difficulties in ensuring adequateO&M for drainage tubewells installed in other parts of the country. During the initial stage ofproject implementation, the focus of ADB and the other financiers was primarily on engineeringaspects and procurement of the major civil works and supply contracts. As a result, land

17 WAPDA was not able to approve the pending contract variations, claims, and time extensions prior to the closing

of the loan account.

11

acquisition, stakeholder participation, and post-project O&M did not receive sufficient attentionduring these years. However, these matters became the focus of discussions between theexternal financiers, the Borrower, and the Government of Sindh from 1992 onward. Although theexternal financiers under the leadership of the World Bank could reach a commonunderstanding most of the time, the occasions of disagreement caused problems for theGovernment of Sindh and WAPDA.

36. ADB played an active role within the group of external financiers. ADB joined most of theWorld Bank-led joint review missions, thereby helping to resolve overall project implementationissues. The continuity of ADB staff ensured effective supervision and a consistent approach onthe part of ADB, both of which were appreciated by the Government, the Government of Sindhand WAPDA.18 To follow-up on post-project O&M and other issues, ADB fielded two missionsafter its project completion mission in December 1998.

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

A. Initial Performance

37. Physical performance monitoring data indicate that the Project’s drainage system isworking satisfactorily. Saline effluent is being evacuated from the project area into the sea.Groundwater tables are falling in all three subproject areas, and previously abandoned landsare gradually being reclaimed (Appendix 8). In 1999, about 65 percent of the project area hadgroundwater tables equal to or deeper than 150 centimeters, whereas in 1994 this was only 27percent.19 The rains of 1992 and 1994 demonstrated the effectiveness of the drainage system indisposal of storm runoff. A component that is not performing according to design expectations isLBOD’s outfall into the Arabian Sea, i.e., the Tidal Link. Erosion of parts of slopes andembankments of the Tidal Link started in 1996, leading to a partial collapse of the Cholri weir in1998. Further extensive damage was done to the Tidal Link as a result of the 1999 cyclone. Thedamage has not affected the disposal of saline effluent but the influence of the tide has movedmore than 20 km upstream along the Tidal Link. This has an adverse impact on the ecology ofthe shallow water bodies north of the Tidal Link and on the nearby communities and agriculturallands. Further monitoring and studies are being done under NDP to decide on the appropriatecourse of action.

38. Although the Chotiari Reservoir is not yet complete, irrigation supplies have increased inthe Sanghar and Mirpurkas areas following completion of the remodeling of the Jamrao CanalSystem in 1995. These increases are, however, achieved by compromising the freeboard of thecanals. The full increase envisaged at appraisal will materialize in late 2002 with the expectedcommissioning of the Chotiari Reservoir. Through the continuing remodeling of the Rohri Canalfinanced by the Government of Sindh through its own resources, irrigation supplies to theNawabshah area are gradually being increased.

39. The extensive field visits undertaken by the project completion mission in 1998 and animpact assessment undertaken in 200020 confirmed that the Project has reversed thewaterlogging trend. Wherever drainage facilities were in operation, farmers expressed theirsatisfaction about the improved drainage conditions. They were convinced that the Project had 18 Because ADB only financed contracts executed by WAPDA, it did not interact directly with DIP or the

Department of Agriculture.19 A depth of 150 centimeters is generally considered a “safe” depth to prevent the capillary rise of groundwater

with the associated effect on salinization of the root zone, which reduces or prevents crop growth.20 M. Mirani, Rapid Assessment of LBOD Stage-1 Project, July 2000.

12

provided a solution to their decades-old problems. The farmers also believed that the opendrains have provided considerable relief from storm water and floods. Some dozen newginneries set up in the project area indicate that private investors were confident that productionof cotton, a crop highly sensitive to waterlogging, would increase.

B. Financial Performance

40. The estimated current population of the area is about 1.92 million – an increase of over60 percent since appraisal. About 70 percent of the population is still rural compared with 90percent at appraisal. About 75 percent of the estimated 320,000 households earn a large part oftheir income from agriculture and over 60 percent are small or marginal farmers, sharecroppers,and landless laborers. The other important source of income is livestock rearing. In Pakistan,poverty worsened in the 1990s. In terms of basic needs and income distribution, the percentageof population below poverty line increased from 29 percent in 1986 to 36 percent in 1994. RuralSindh has the highest concentration of poor in Pakistan. Recent surveys conducted in someparts of the project area have reported an incidence of poverty as high as 46 percent.21

41. The Project has already yielded significant benefits to owner-farmers and sharecroppersin terms of higher farm income. The increasingly intensive farming is also benefiting the wage-earning farm workers through expanded employment opportunities. The incremental benefitswould have significant impact on poverty reduction in the project area. To meet food needs, afamily of six requires an income of PRs3,600 per month (or PRs43,200 per annum). Over 55percent of the estimated 113,000 farms have landholdings equal to or less than 3 ha. Financialanalysis of a typical 3-ha farm shows that average incomes, after taxes, have already increasedby over 70 percent. At full development, in 2004, these incomes are expected to have increasedby more than 140 percent compared with those in the without-project scenario: from PRs18,000to over PRs43,000 per annum (Appendix 9). These estimates do not include the expectedincremental income from livestock. An important impact of the Project is on the increasinglylarge proportion of the area being reclaimed and put back into farming. The value of the landhas also increased many fold, from PRs15,000 – PRs50,000 per ha before the Project tocurrently PRs300,000 – PRs400,000 per ha. There is now a net in-migration into the projectarea as the on- and off-farm employment opportunities are expanding at a considerable pace.

C. Economic Performance

42. The re-estimated economic internal rate of return (EIRR) is 12.8 percent compared to13.6 percent estimated at appraisal (Appendix 9). The analysis in this report is based on moreconservative benefits assumptions than those used at appraisal.22 If the same level of wheatand cotton yields were used in this analysis as those assumed at appraisal, the re-estimatedEIRR would be 15.3 percent, holding all other variables constant. The EIRRs are notcomparable due to significant changes in the input and output price ratios; however, despite acost overrun of 47 percent (about $308.2 million) and assuming lower crop yields, the re-estimated EIRR is not significantly different from that estimated at appraisal. The reason is that,for this analysis, based on the field observations (i) the full development is assumed four yearsearlier, by 2004; (ii) O&M costs are assumed substantially lower according to ongoingperformance contracts; (iii) the estimated abandoned area is assumed to be 20,000 ha less; and(iv) the cropping intensity is assumed 120 percent compared to that of 114 percent at appraisal. 21 The National Rural Support Program conducted surveys in 1,333 villages of the Mirpurkhas subproject area. It

defined poor households as those having a landholding of two ha or less.22 Crop yield levels and their growth projections assumed at appraisal seem high given the current circumstances

in the project area.

13

Regular O&M of the infrastructure is an important factor in keeping the Project economicallyviable. The sensitivity analysis shows that the provision of inadequate O&M after 2010 wouldrender the Project unviable as the EIRR drops below 10 percent.

43. Secondary impacts of the Project are just as considerable. The cost of O&M for theinfrastructure such as roads, rails, and private and commercial building has considerablydeclined. Spin-off economic benefits – such as establishment of new oil extraction units, flour,and cotton ginning factories, both the large and cottage industries such as sugar mills, brickkilns, woodworks, farm machinery, and other related trade – have also been considerable andquite visible.

D. Attainment and Sustainability of Benefits

44. To attain and sustain full benefits, completion of the Project’s irrigation component andadequate O&M of irrigation and drainage facilities during the life of the Project are required.Increased irrigation supplies are not only important for meeting peak crop water requirementsbut also for accelerating the reclamation of abandoned land. Completion of the Project’sirrigation component is expected in 2002; it will then allow full realization of the irrigation benefitsin the Mirpurkhas and Sanghar areas. For the Nawabshah area, irrigation supplies have alreadyincreased, albeit by about 55 percent from what was assumed at appraisal as a result of theremodeling of the Rohri Canal and its Nasrat branch by the Government of Sindh through itsown resources. The exceptional nationwide drought during 1999-2000 and the resultingshortage in irrigation supplies highlighted the project area’s high degree of dependence onirrigation supplies for crop production.

45. The Project’s objectives were highly relevant to the Government’s overall developmentstrategy, especially in the water sector, and to those of ADB’s lending strategy for Pakistan aswell as its strategic objectives both at the time of appraisal and preparation of this report (para3). The efficacy of the Project was also attained satisfactorily to the extent that the physical andinstitutional goals adopted at appraisal were substantially accomplished. The initial performanceindicates that the drainage works are performing well, have started to reverse the landdeterioration, and will eventually fulfill the overall objectives. The efficiency of the Project israted as less than satisfactory because of a cost overrun of 47 percent and a time overrun ofalmost 100 percent.23 In many instances both types of overrun were caused by the poor law andorder situation in the area. However, the Project is having a significant positive impact onbeneficiaries’ incomes and on poverty reduction (paras. 40-41). The re-estimated EIRR is 12.8percent (para 42). The secondary impact of the Project is also considerable (para 43).

46. To ensure sustainability of the project benefits, adequate O&M of the Project’s irrigationand drainage facilities is essential. The Government of Sindh continues to allocate insufficientfunds for O&M,24 with the result that proper maintenance of certain irrigation facilities was visiblylacking during the project completion mission. Recently, the Government of Sindh formallyapproved and adopted the FOP. However, it has not yet decided to levy the drainage cess onbeneficiaries. The estimated O&M expenditure for the project infrastructure is equivalent toalmost a quarter of DIP’s current annual budget. This is a considerable fiscal liability thatrequires additional revenue-raising measures such as levying a drainage cess. At present, O&M

23 The time overrun for ADB’s loan was about 38 percent. However, by the time the Project itself is completed by

2002, it will have taken twice as long to finish. As of now, 95 percent of the Project is complete; the remainingworks pertain to irrigation infrastructure and are being financed under NDP.

24 During FY 1998, O&M expenditures were about one third of the requirement.

14

of the Project is financed under the NDP through eight performance contracts.25 However, thesecontracts are due to expire by 2003. Given the current hesitation to levy drainage cess, it is notclear how the Government of Sindh will provide for sustainable O&M for the Project beyond2003. If the Government of Sindh will not implement the policy and institutional measures thatare required to provide for O&M on sustainable basis, project benefits could dissipate within 10years, rendering it economically unviable. As a result, sustainability of the Project has beenrated as less than satisfactory.

47. The Project has demonstrated the viability of new approaches to O&M by adopting theconcept of performance contracts and by preparing the Nara Canal AWB and forming therelated FOs on a pilot basis. To that extent the institutional developments under the Projecthave been effective and satisfactory. Overall, the Project has been rated as successful(Appendix 10). However, the long-term sustainability and overall success of the Project willremain questionable until the Government of Sindh directly involves the beneficiaries in themanagement of the infrastructure and levies the drainage cess.

IV. CONCLUSIONS AND RECOMMENDATIONS

A. Conclusions

48. The substantial completion of the Project is a major achievement considering itsmagnitude and the difficult conditions under which its components were executed. The Projecthas been implemented as appraised albeit with a 20 percent reduction of its scope, a 47 percenthigher cost, and an extended implementation period. The main difficulties encountered duringproject implementation were (i) the immense scale and technical complexity of the Project; (ii)the one-year delay in the engagement of consultants; (iii) serious law and order problems in theearly implementation phase; (iv) shortcomings in engineering designs; (v) insufficientconsultations during the design phase with the primary stakeholders and adversely affectedpersons; (vi) delays in decision making on procurement and contract management matters andon resettlement planning; (vii) unsatisfactory procurement arrangements and sequencing ofcontracts; (viii) poor performance of contractors; (ix) widespread flooding caused by heavyrainfall in 1988, 1992, and 1994; and (x) funding constraints during certain years.

49. The Project has substantially realized two of its primary development objectives, i.e.improved drainage and disposal of excess water and salt out of the project area covering516,500 ha, thus reversing the deterioration of the land resource base due to waterlogging andsalinity. The third objective of increased irrigation supplies for about 290,000 ha is expected tobe fully realized in 2002 following completion of the Chotiari Reservoir. The main beneficiariesare the 1.92 million people living in the project area, over 40 percent of whom are poor. TheProject has demonstrated the viability of new approaches to O&M in the irrigation and drainagesector. These approaches enhance the role of primary stakeholders in O&M through formationof FOs at the distributary canal level, and that of the private sector through performance-basedO&M contracts for drainage facilities. The Project through its preparatory work for the NaraCanal AWB and its FOs contributed to the adoption of the Government of Sindh’s new strategyfor the irrigation and drainage sector in 1997 and facilitated its implementation.

50. Due to significant achievements and its relevance and efficacy in the context of thedevelopment strategy of the Borrower, the Government of Sindh, and ADB, the Project is rated

25 The estimated total cost is PRs316.65 million. Of these, six contracts (for PRs251.10 million) are financed by

ADB and the other two, for PRs65.55 million, by the World Bank.

15

as successful. However, the sustainability of the O&M of the Project’s drainage facilities remainsuncertain. If the Government of Sindh does not adopt the required policy reforms and involvethe beneficiaries in its management and levy drainage cess, the Project may be renderedunsuccessful in less than 10 years.

B. Lessons Learned

51. The key lessons learned from the Project relate to the preparation and implementation oflarge-scale water sector projects and their sustainability. Where projects will result in significantadditional O&M liabilities, a comprehensive affordability analysis should be undertaken at anearly stage of project preparation in consultation with all stakeholders, i.e. the Government, theagency responsible for O&M, and the end-users. To ensure that the primary end-users areready to assume O&M responsibilities and share in the O&M costs, their involvement in both thedesign and construction phase is essential. The Project has also demonstrated that farmers inPakistan are prepared to organize themselves to undertake O&M tasks at the distributary canallevel, whereas traditionally farmer involvement for these tasks in the Indus basin irrigationsystem is limited to the watercourse level. A large number of financiers complicated the Projectimplementation. Moreover, the large number of relatively small contracts contributed toimplementation delays and also resulted in additional burden and costs.

C. Recommendations

52. The project completion mission, the Government of Sindh, and the executing agenciesagreed on a number of follow-up actions to ensure attainment of full benefits and their long-termsustainability. These agreements were summarized in an action plan prepared during themission which was subsequently reviewed and revised through two follow-up missions in 1999and 2000 (Appendix 11). To ensure the sustainability of the Project’s irrigation and drainagefacilities, a number of actions have already been accomplished but the Government of Sindhstill need to (i) implement the FOP to transfer the O&M responsibilities to FOs and drainagebeneficiary groups, (ii) introduce a drainage cess, and (iii) increase the irrigation service fee. Ifselected for postevaluation, the Project’s performance audit report should preferably beprepared in 2003 or later so that benefits can be more firmly assessed. Other generalrecommendations are as follows:

(i) To reinforce implementation of agreed policies under project loans, compliance withmajor policy-related loan covenants needs to be linked with important project milestones.

(ii) For projects requiring cofinancing, the number of financiers should be limited to minimizecoordination problems. If multiple financiers are to be involved, coordination problemscan be minimized by encouraging them to finance complete components.

(iii) To avoid implementation delays and escalation of costs, the number of interdependentcontracts needs to be limited. Civil works involving supply and installation of equipmentneed to be packaged, where possible, in one contract.

(iv) To ensure a smooth handing over of completed works under projects where theconstruction is undertaken by an agency other than the “owner” agency, the handing-over process needs to be carefully planned together with the transfer of technical andoperational knowhow.

16

APPENDIXES

Number Title Page Cited onpage, para.

1 Appraised and Actual Project Scope 17 2, 4

2 Appraised and Actual Project Cost 20 4, 11

3 Appraised and Actual Implementation Schedule 21 5, 14

4 Status of Compliance with Major LoanCovenants

22 7, 20

5 Annual Contract Awards and Disbursements 28 8, 24

6 Environmental Measures 29 8, 25

7 Farmer Organizations 32 9, 28

8 Physical Impacts of Drainage Works 34 11, 37

9 Financial and Economic Analysis 36 12, 41

10 Project Rating 51 14, 47

11 Revised Action Plan 52 15, 52

Appendix 1, page 1

APPRAISED AND ACTUAL PROJECT SCOPE

Component Appraisal Target AchievementA. Completion of Left Bank

Outfall Drain

• Remodel Kadhan PatejiOutfall Drain (KPOD)/Dhoro Puran Outfall Drain(DPOD)

KPOD – length: 56 kilometers(km); capacity: 62 – 90 cubicmeters (m3/s)DPOD – length 38 km;capacity: 57 cubic meters

KPOD – length: 56 km; capacity:74 – 92 cubic metersDPOD – length: 38 km; capacity:57 cubic meters

• Tidal Link length: 38 km length: 41 km; capacity: 92– 174cubic meters

B. Surface Drainage 516,500 hectares (ha); 1,280km of surface drains

516,500 ha; 1,466 km of surfacedrains

• Nawabshah area 157 km main, 439 km branch &subdrains, 975 major structures& 643 drain inlets

• Sanghar area 48 km main, 375 km branch &subdrains, 750 major structures& 661 drain inlets

• Mirpurkhas area 117 km main, 330 km branch &subdrains, 530 major structures& 699 drain inlets

C. Subsurface Drainage 392,000 ha of cultivablecommand area (CCA)

333,000 ha of CCA (45,000 hadeferred to National DrainageProgram [NDP])

1. Vertical Drainage Wells

• Nawabshah area• Sanghar area• Mirpurkhas area

385 wells300 wells715 wells

302 wells627 wells326 wells (444 wells deferred toNDP)

2. Vertical Scavenger Wells

• Nawabshah area• Sanghar area

92 wells758 wells

189 wells172 wells

3. Horizontal Drainage Pipe Systems• Mirpurkhas area 875 km of laterals and

collectors, 52 sumps each with2 or 3 pumps

1,070 km of laterals andcollectors, 37 sumps

17

Appendix 1, page 2

Component Appraisal Target Achievement

4. Interceptor Drains• Nawabshah area• Sanghar area• Mirpurkhas area

total 580 km, approx 160sumps each with 2 pumps of28 or 56 l/s capacity

154 km, 54 sumpsSanghar/Mirpurkhas interceptorsdeferred to NDP

D. Electrification

1. Grid Station Extensions 4 transformer bays 4 transformer bays

2. Distribution Lines• Nawabshah area• Sanghar area• Mirpurkhas area

1,100 km1,950 km1,350 km

1,000 km1,500 km900 km (remainder deferred toNDP)

E. Operations & MaintenanceWorkshops & Equipment

1. Maintenance Depot

2. Workshop

Nawabshah, Sanghar andMirpurkhas

Khoski

Approach to provision of O&Mfacilities revised; fully equippedprimary workshops atMirpurkhas & Badin

3. Secondary Depot Depot at Ali Bandar and KPOD

4. Maintenance Equipment Extensive plant and spares Supply of 9 units 90 tondraglines, 7 bulldozers, 3graders plus support transport,fuel and water tankers, plant forminor works, workshopequipment and spares

F. Housing & Colonies Offices and housing atNawabshah, Sanghar,Mirpurkhas, Daur, Badin,Kadhan, and Jati

Completed as appraised

G. Irrigation Works

1. Jamrao Canal New 88 km long 88 m3/s TwinCanal with silt extractor atJamrao Head

Completed as appraised; TwinCanal to be commissioned underNDP

2. Jamrao System Remodeling

345 km branch, distributaryand minor canals in Sangharand Mirpurkhas sub-areas

Completed as appraised

3. Nara Canal Remodeling Increase capacity of 175 kmlong Nara Canal from 364 m3/sto 560 m3/s

Partly completed; 2 fallstructures and headworksprotection completed. Remainingworks being completed underNDP

18

Appendix 1, page 3

Component Appraisal Target Achievement4. Ranto Canal New 19 km long 184 m3/s

feeder canal to ChotiariReservoir

28 km long 184 m3/s canal

5. Chotiari Reservoir 56 km embankment to enclosereservoir with 0.9 billion m3

storage

Remains under construction,about 30 % complete

H. On-Farm WaterManagement

Improvement of 920watercourses; precision landleveling of 26,000 ha

1,481 watercourses improved;33,600 ha precision land levelingcarried out

• Nawabshah area• Sanghar area• Mirpurkhas area

270 watercourses310 watercourses340 watercourses

551 watercourses450 watercourses480 watercourses

I. Consulting Services(to assist Water and PowerDevelopment Authority[WAPDA] and Department ofIrrigation and Power [DIP] inthe implementation of theirrespective components)

878 person-months with up toabout 25 percent expected tobe provided by domesticconsultants

3,433 person-months including1,303 person-monthsinternational and 2,130 person-months domestic services

J. Training(for WAPDA and DIPprofessionals)

30 professionals to receive in-service training in projectimplementation and O&M

20 professionals receivedexternal training. Formal in-service training provided insurveying, computers,construction supervision andO&M

K. Monitoring & Evaluation Physical monitoring program

Agriculture and socioeconomicsurveys and studies

Monitoring of groundwater levelsand quality, and soil salinitylevels

Agriculture and socioeconomicsurveys and studies undertaken

L. Drainage Advisory Service

Formed in 1995 tasked withdeveloping a communicationstrategy and encouragingbeneficiary participation indevelopment process and O&M

M. Pilot for O&M Benificiaries

Pilot project undertaken on threedistribution canals aimed atfarmer organizations taking overO&M tasks

19

Appendix 2

APPRAISED AND ACTUAL PROJECT COST($ million)

Item Appraisal Estimate Actual at end 1997 At Project Completion(2002)

ForeignCost

LocalCost

TotalCost

ForeignCost

LocalCost

TotalCost

ForeignCost

LocalCost

TotalCost

1. LBOD and its Outfall Core Programme 3.6 3.4 7.0 8.4 8.6 17.0 8.4 8.6 17.0 Kadhan Pateji and Dhoro Puran Outfall Drains

9.7 5.3 15.0 5.0 3.9 8.9 5.0 3.9 8.9

Tidal Link 14.1 3.6 17.7 17.8 14.3 32.1 17.8 14.3 32.1

2. Drainage Components Surface Drainage 11.2 12.5 23.7 85.6 77.9 163.5 86.0 78.1 164.1 Drainage Tubewells 23.4 6.1 29.5 23.9 11.0 34.9 23.9 11.0 34.9 Scavenger Wells 14.8 3.2 18.0 9.4 5.5 14.9 9.4 5.5 14.9 Interceptor Drains 12.6 5.9 18.5 11.9 0.1 12.0 11.9 0.1 12.0 Tile Drains 14.5 4.3 18.8 14.0 11.3 25.3 14.0 11.3 25.3

3. Irrigation/OFWM Works Nara & Jamrao Canal

22.3 20.7 43.0 37.2 103.3 140.5 47.8 132.8 180.6

Chotiari Reservoir 8.2 9.4 17.6 14.5 16.9 31.4 40.2 46.8 87.0 OFWM 3.1 14.3 17.4 1.3 12.5 13.8 1.3 12.5 13.8

4. Electrification 31.4 13.9 45.3 14.9 13.1 28.0 15.3 15.9 31.2

5. Maintenance Work-shops & Equipment

14.9 1.1 16.0 18.4 0.8 19.2 18.4 0.8 19.2

6. Land Acquisition — 11.5 11.5 — 60.9 60.9 — 60.9 60.9

7. Administration, Over- heads, Engineering, Camps, Buildings

3.7 28.0 31.7 0.7 57.0 57.7 7.7 62.1 69.8

8. Consulting Services & Training

8.4 0.9 9.3 21.4 10.2 31.6 21.4 10.2 31.6

9. Monitoring & Evaluation

1.5 1.5 3.0 1.6 2.9 4.5 1.6 2.9 4.5

10. O&M of Drains — — — 0.0 2.8 2.8 0.0 2.8 2.8

11. Taxes & Duties — 61.4 61.4 — a — — a —

Base Cost 197.4 207.0 404.4 286.0 413.0 699.0 330.1 480.5 810.6

PhysicalContingencies

27.9 29.1 57.0 — — — — — —

Price Escalation 92.7 82.4 175.1 — — — — — —

Interest During Construction 18.3 — 18.3 — 145.1 145.1b — 152.4b 152.4 Total Cost 336.3 318.5 654.8 286.0 558.1 844.1 330.1 632.9 963.0

— = zero magnitude, LBOD = Left Bank Outfall Drain, O&M = operation & maintenance, OFWM = on-farm water management.a Included in the costs of the various components.

b Includes both foreign and local costs.

20

A. Drainage Works 1. LBOD

a. Spinal Drain/ KPOD/ DPOD

b. Tidal Link

2. Nawabshah Subproject Areaa. Surface Drains

<===== ADB financed

b. Drainage Tubewells<===== ADB financed

c. Scavenger Wells

d. Interceptor Drains<===== ADB financed

e. Electricity Distribution Network

3. Sanghar Subproject Areaa. Surface Drains

<===== ADB financed

b. Drainage Tubewells<===== ADB financed

c. Scavenger Wells

d. Interceptor Drains

e. Electricity Distribution Network

4. Mirpurkhas Subproject Areaa. Surface Drains

<===== ADB financed

b. Drainage Tubewells<===== ADB financed

c. Subsurface Pipe System

d. Interceptor Drains

e. Electricity Distribution Network

5. Maintenance Facilities

B. On-Farm Water Management

C. Irrigation Works 1. Nara Canal Remodeling

2. Jamrao Canal Remodeling

3. Chotiari Reservoir and Ranto Canal

ADB = Asian Development Bank, DPOD = Dhoro Puran Outfall Drain, KPOD = Kadhan Pateji Outfall Drain, LBOD = Left Bank Outfall Drain

Legend: Planned at AppraisalActual

<------- deleted ----------->

1997 19981990 1991

<------- deleted ----------->

1987 19991993 1994 1995 1996 2002

APPRAISED AND ACTUAL IMPLEMENTATION SCHEDULE2001

Pilot

1985 1986 1988 20001989 199221

Appendix 3

Appendix 4, page 1

STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS

Description Reference Status of ComplianceA. Institutional Arrangements

1. Borrower shall establish a ProjectSteering Committee (PSC) whoshall be responsible for overallcoordination and shall oversee andmonitor the overall progress ofproject implementation. The PSCshall meet quarterly or as often asmay be required by projectdevelopments.

LA Schedule 6,para. 2

Complied with.

2. An Integrated ManagementOrganization (IMO) shall beestablished to undertake detailedmanagement and coordination ofproject implementation.

LA. Schedule 6,para. 3

Complied with.

3. A Project Office shall beestablished for each of thefollowing:

LA Schedule 6,para. 4

Complied with.

(i) central design and monitoring;(ii) spinal drain and outfall;(iii) electrification; and(iv) Nawabshah, Sanghar, and

Tharparkar districts.

4. The Sindh agencies responsible foron-farm water management andcanal remodeling activities shallliaise and coordinate with IMOthroughout the implementationperiod.

LA Schedule 6,para. 5

Complied with in the case ofcanal remodeling; notcomplied with for on-farmwater management

B.

5.

Operation and Maintenance(O&M)

The project drainage facilities shallbe operated and maintained byWater and Power DevelopmentAuthority (WAPDA), aftercompletion, for an initial period of

LA Schedule 6,para. 6 (a) (i)

Post-completion O&Marrangements were modifiedduring implementation. As aresult, WAPDA remainedresponsible for all completed

22

Appendix 4, page 2

Description Reference Status of Complianceone year. Thereafter, fullresponsibility shall be transferred toDepartment of Irrigation and Powerof Sindh (DIP).

facilities until 1999 whentransfer to DIP was initiatedaccording to a two-yeartransfer program.

6. Not later than 1 January 1988,WAPDA shall prepare and furnishto Asian Development Bank forreview and comment, a draft O&Mmanual for the project facilities. Afinal manual shall be prepared notlater than 1 January 1991.

LA Schedule 6,para. 6 (a) (iv)

Complied with delay. FutureOperations Plan (FOP)submitted in 1999.

7. WAPDA shall operate and maintainthe Chotiari reservoir for one yearafter completion and, thereafter,shall transfer the responsibility forits O&M to DIP.

LA Schedule 6,para. 6 (b)

Not yet applicable. Chotiarireservoir not yet completed.

8. WAPDA's Power Wing shalloperate and maintain theelectrification works constructedunder the Project.

LA Schedule 6,para. 6 (c)

Complied with.

9. The farmer-beneficiaries shall bejointly responsible for the O&M ofwatercourses improved orreconstructed, and field drainsconstructed, under the Project. These beneficiaries shall beorganized into water usersassociations.

LA Schedule 6,para. 6 (d)

Complied with.

10. Borrower shall promptly provideadequate funds, staff, andequipment to ensure fulleffectiveness of the O&Marrangements for project facilities.

LA Schedule 6, para.6 (e)

Partially complied with. Post-completion O&M funding notsufficient for adequate O&M.

C.

11.

Agricultural Policies andActivities

Borrower shall cause Sindh to:

(a) periodically increase irrigationwater rates, or to make othersuitable financialarrangements, to recover anincreasing percentage of the

LA Schedule 6, para.7

Partially complied with.Government of Sindhincreased the water rates bymore than 100 percentbetween 1984 and 1999. Because of inflation, full costrecovery has not yet been

23

Appendix 4, page 3

Description Reference Status of ComplianceO&M costs of the provincialirrigation system for fullrecovery by 1 July 1988; and

(b) increase the irrigation waterrates by 25 percent overexisting rates not later thanFY1986.

achieved despite this rateincrease. Within theframework of the NationalDrainage Program (NDP)supported by ADB throughLoan No. 1413: NationalDrainage Sector Project,ADB and Sindh agreed in1995 on a new policy andstrategy for sustainable O&M.Implementation of this newpolicy and strategy is beingdelayed.

12. Borrower shall cause Sindh toprovide adequate funds for theO&M of drainage facilities underthe Project and for this purpose,shall periodically increase thedrainage service rates to becollected from the projectbeneficiaries to cover full O&Mcosts.

LA Schedule 6, para.8 (a)

Not yet complied with. Seeunder para. 13. Drainagecess not yet introduced.

13. Upon completion and full operationof drainage facilities, beneficiariesshall have one year of grace beforebeing required to contribute towardO&M costs. Thereafter andcommensurate with the accrual ofproject benefits, the Borrower shallcause Sindh to ensure thatdrainage rates are recovered frombeneficiaries and that:

(a) the initial drainage servicerates recovered present atleast 25 percent of the fullO&M cost; and

(b) drainage cess increasedperiodically so that at least 50percent of the costs arerecovered by 1 July 1995 andfull recovery by 1 July 2005.

LA Schedule 6, para.8 (b)

Not yet complied with. Sindhhas not yet introduceddrainage cess. However,recognizing that specialmeasures are required tofinance the high O&M cost ofthe drainage facilities, acomprehensive FOP hasbeen approved by Sindh. The FOP aims at sustainableO&M through, among otherthings, the partial transfer ofO&M responsibility tobeneficiaries, and the phasedintroduction of drainage cess.

14. Borrower shall gradually reduce thesubsidy per unit cost of fertilizer inorder to eliminate it by 30 June

LA Schedule 6,para. 9

Subsidy eliminated on ureaand substantially reduced fordiammonium phosphate.

24

Appendix 4, page 4

Description Reference Status of Compliance1985.

15. Borrower shall ensure that prices ofcrops (i.e. wheat, sugar, andcotton) are set at levels that provideadequate incentives to the farmers.

LA Schedule 6,para. 10

Complied with.

16. Borrower shall ensure that theAgriculture Development Bank ofPakistan (ADBP), commercialbanks and cooperatives makeavailable to farmers an adequateamount of production anddevelopment credit to the farmers.

LA Schedule 6,para. 11

Partially complied with.Borrower’s directives toADBP, other banks andcooperatives to makeavailable agricultural creditremained in effect. However,official banking sectorremains unable to deliversufficient credit to thefarmers.

17. Extension services in the projectarea shall be strengthened toensure that the benefits ofimproved drainage are translatedinto increased agriculturalproductivity.

LA Schedule 6,para. 12

Partially complied with.Drainage advisory serviceswere provided under theProject for about two years.

18. (a)By 1 July 1986, the Borrower shallcause Sindh to review andconsider suitable arrangements orto amend the Sindh IrrigationWater Users AssociationOrdinance (1982) with a view ofextending the powers andresponsibilities of water usersassociations into the drainagefield including the responsibility toconstruct and maintain farmdrains.

LA Schedule 6, para. 14 (a)

Amendment to the Ordinanceis no longer required. Withinthe framework of NDP, ADBand Sindh agreed in 1995 ona new policy and strategy forsustainable O&M.

(b)Borrower shall ensure thatfarmers benefiting fromwatercourse improvement arerequired to contribute allunskilled labor and to repay aportion (25 percent) of the capitalcost of materials over a period offive years.

LA Schedule 6,para. 14 (b)

Complied with. During Projectimplementation, originalarrangement for partialrecovery of the capital costreplaced by a more effectiveupfront contribution in cashand/or kind.

25

Appendix 4, page 5

Description Reference Status of Compliance

D.

19.

Other Matters

Borrower shall cause Sindh toensure that the Rohri Canalremodeling progresses at such arate that the benefits of the sameare available within the Rohri CanalCommand Area not later thanJanuary 1990 or such other date asthe ADB may otherwise agree.

LA Schedule 6,para. 15

Complied with. Someremodeling work of the RohriCanal is still ongoing.

20. The Makhi-Faresh Project shall beimplemented to allow full use of theadditional storage benefits to beprovided with the construction ofthe Chotiari Reservoir.

LA Schedule 6,para. 17

Sindh remains committed toimplement the Makhi-FareshProject. Its implementationnot required for achieving fullbenefits in the project area.

21. (a) WAPDA shall undertakesuitable monitoring andevaluation activities.

LA Schedule 6,para. 19 (a)

Complied with.

(b) Sindh shall undertake socio-economic surveys and othercase studies in specific areas toassess and quantify projectimpact.

LA Schedule 6,para. 19 (b)

Complied with

(c) Implementation progress moni-toring shall be the responsibilityof IMO. The monitoring ofphysical parameters shall beintegrated with the ongoingprogram of WAPDA'sMonitoring and EvaluationOrganization (South).

LA Schedule 6para. 19 (c)

Complied with.

22. Selected professional staff ofWAPDA and DIP of Sindh shall beprovided with appropriate training.

LA Schedule 6,para. 20

Complied with.

23. WAPDA shall furnish to ADBquarterly progress reports andsemiannual reports summarizingbudget allocations andexpenditures.

P.A. Section 2.09(b)

Complied with.

26

Appendix 4, page 6

Description Reference Status of Compliance

24. Promptly after physical completionof the Project, but not later than sixmonths thereafter or such later dateas ADB may agree for this purpose,WAPDA shall furnish to ADB areport on the execution and initialoperation of the Project, their costand the benefits derived and to bederived from them, the performanceby the Borrower and WAPDA of itsobligations under the LoanAgreement, and theaccomplishment of the purposes ofthe loan.

P. A. Section 2.09(c)

Complied with.

25. WAPDA and Sindh shall furnish toADB certified copies of auditedfinancial statements and reports ofthe auditors relating thereto, notlater than nine months after closeof the fiscal year.

L.A. Section 4.04P.A. Section 2.09.

Complied with.

27

Appendix 5

ANNUAL CONTRACT AWARDS AND DISBURSEMENTS($ million)

Year Contract Awards DisbursementsYear-wise Cumulative Year-wise Cumulative

1986 16.045 16.045 0.411 0.411

1987 14.000 30.045 0.926 1.337

1988 0.324 30.369 3.611 4.948

1989 13.096 43.465 5.729 10.677

1990 1.915 45.380 6.624 17.301

1991 37.868 83.248 11.621 28.922

1992 62.887 146.135 29.646 58.568

1993 10.336 156.471 37.577 96.145

1994 6.214 162.685 31.458 127.603

1995 2.046 164.731 23.060 150.663

1996 4.696 169.427 10.954 161.617

1997 0.000 169.427 7.810 169.427

Source: Asian Development Bank’s Loan Financial Information System.

28

Appendix 6, page 1

ENVIRONMENTAL MEASURES

A. Introduction

1. The provision of perennial irrigation to the lower Indus Basin following construction of theSukkur Barrage in 1932 led to a steady increase in groundwater levels in the area. In time, therising watertable caused waterlogging and high salinity, which reduced agricultural output andultimately resulted in the abandonment of large tracts of land. The Project aimed to reverse thissituation through the installation of subsurface drainage to lower the watertable and of a surfacedrainage network for the disposal of drainage effluent into the Arabian Sea. The need toconserve major open water bodies supporting a varied aquatic life and wintering areas formigratory birds was recognised at appraisal. Issues considered at appraisal included the impacton surrounding land of surface drains carrying saline effluent, arrangements at Left Bank OutfallDrain’s (LBOD) outfall and the impact on fish of the expansion of Chotiari Reservoir. Althoughfew specific environmental issues were identified for further study, the consultants to beengaged under the Project were required to prepare an environmental impact assessment (EIA)of the planned outfall arrangements for the LBOD. B. Environmental Impact Assessment 2. The EIA of LBOD’s outfall was carried out in 1989. It found no adverse long-term impactfrom the arrangement for disposal of the saline effluent to the sea and the passage of stormwater to shallow water bodies (locally called dhands) in the outfall area. The EIA noted fewexisting mangrove plants at the outfall and recommended trial plantations, which, if successful,would provide vegetative protection to canal embankments. In 1990, a trial plantation ofmangroves was installed at the mouth of the Tidal Link with the assistance of Sindh ForestryDepartment and World Conservation Union (IUCN). While this trial was not very successful,self-seeding of mangroves has taken place at the mouth of the Tidal Link since it becameoperational in 1995. 3. The EIA recommended the separation of the Tidal Link from the dhands to the north toavoid potential pollution of these areas by the drainage effluent and to prevent them frombecoming tidal once connected to the sea through the Tidal Link. Frequent change in levels inthe dhands was considered detrimental to an existing ecology supporting vast numbers ofdifferent species of wintering birds. As a result of these recommendations, the design of theTidal Link was amended to provide partial separation of the channel and the northern dhands.An embankment was included on the northern side of the Tidal Link, and the Cholri weir wasprovided to allow drainage flows from the north to escape at low tides and to permit temporarystorage of drain water at high tides. Such storage would have served to attenuate peak waterlevels in the upstream Tidal Link and thus improve conditions for the Kotri surface drains. InJune 1998, a section of the Cholri weir collapsed as a result of erosion in the Tidal Link. Inconsequence, deep channels developed into the dhands from the Tidal Link. Later, in 1999, acyclone hit the project area, seriously damaging the Tidal Link’s embankments. The damagehas not affected the disposal of saline effluent from the project area into the sea, but theinfluence of the tide has moved more than 20 kilometers (km) upstream along the Tidal Link.The impact of these events on the dhand ecology and the food chain for wintering birds isexpected to be detrimental. It also adversely affects communities living along the periphery ofthe dhands. The performance of the Tidal Link continues to be monitored under NationalDrainage Program to assist in deciding on the appropriate course of action.

29

Appendix 6, page 2

4. The Project’s midterm review in 1993 identified the need for an EIA of Chotiari Reservoirand the Nara Canal and for specific studies of resettlement issues associated with Chotiari.These studies were conducted in 1994 and resulted in revisions to the alignment of thereservoir embankment specifically to exclude from inundation an area of relatively productiveand populated land and to protect other areas of particular ecological value. Recommendationswere made for the gradual filling of the reservoir on completion and for actions to minimizeadverse impacts arising from construction activities. These included the provision of a roadbypass for the nearby town of Sanghar to reduce problems arising from the large number oftrucks hauling construction materials. The bypass road was constructed except for a shortsection for which the land could not be acquired because of a land compensation issue. Thebypass road has therefore not been used, and hauling of materials is mainly being done atnight. Further surveys to obtain more information on species such as crocodiles, hog deer, andbirds, considered to be endangered from the development, have since been carried out to alimited extent. The EIA for the Nara Canal identified the main impact as arising from disposal oflarge volumes of dredged material from the canal and recommended actions to mitigate suchimpact. An additional EIA was conducted for the Ranto Canal, the new 26 km long canal thatfeeds the Chotiari Reservoir from the Nara Canal. As a result of this EIA, additional structureswere included in the contract to facilitate the passage of grazing animals, and a large number oftrees were planted adjacent to the canal.

C. Environmental Management

5. During project implementation, a number of actions were taken to strengthenenvironmental management. Additional consulting services were provided to addressenvironmental and resettlement issues identified through the EIAs conducted during projectimplementation, to strengthen the capacity of the concerned institutions, and to develop greaterawareness of environmental issues. Water and Power Development Authority created anenvironmental cell in the Integrated Management Organization office with a part-time directorand two junior professional staff. An Environmental Management Committee was established inAugust 1995 to be led by Water and Power Development Authority’s general manager (WaterSouth). The committee included representatives of the Department of Irrigation and Power,Sindh Environmental Protection Agency, Sindh Wildlife Department, Mehran University and theUniversity of Sindh, Jamshoro, IUCN, World Wildlife Fund, Dharti Dhost Sangat, and other localnongovernment organizations.

6. An Environmental Management and Monitoring Plan for the construction and post-construction phases of the Project was prepared in October 1995. The Plan was updated in late1997 and expanded to take into account recommendations of the Environmental ManagementCommittee. It also includes analysis of preliminary information obtained from the field surveys offauna, flora, and water quality within the Chotiari catchment and the Tidal Link area. Thesesurveys were carried out by the Zoological Survey Department of Pakistan and the FreshwaterBiology and Fisheries Department of the University of Sindh, Jamshoro in 1997. Although usefulinformation was gathered, it is to be considered preliminary as the surveys were intended to runfor a number of years. Indeed, in the case of avifauna, the survey period did not extend overthe full winter migratory period. Implementation of the Environmental Management andMonitoring Plan has been supported through National Drainage Program since 1999.

7. In order to promote understanding of the Project and its associated environmentalissues, a seminar was held at Mehran University in October 1997. Additional studies intospecific environmental issues were also undertaken. These studies confirmed that the sodicsoils within the project area were limited to marginal lands and would not further spread under

30

Appendix 6, page 3

project conditions. The studies also made recommendations for the establishment of wildlifesanctuaries in the Chotiari and Tidal Link areas and for an environmental education center atSanghar.

D. Indus Water Abstraction

8. The water required to fill the Chotiari Reservoir is 0.9 billion cubic meters, which is to beabstracted annually from the River Indus at Sukkur Barrage when the river is in flood, i.e.,between mid June and late September. This abstraction will reduce the volume of water passingthrough Kotri Barrage to the sea. Studies indicate that seasonal minimum flows are moreimportant than annual totals for the ecology downstream of Kotri Barrage. Since theabstractions for Chotiari will take place in the flood season, they will therefore have a minoradverse impact. The peak abstraction for Chotiari will be equivalent to less than 5 percent of theaverage flow downstream of Kotri Barrage in the flood period. During dry years, abstraction forChotiari could be restricted to preserve flows downstream of Kotri Barrage.

31

Appendix 7, page 1

FARMER ORGANIZATIONS

1. In 1997, each of the four provinces in Pakistan passed the Provincial Irrigation andDrainage Authority (PIDA) Act and thereby began changing the institutional relationshipsbetween the provincial irrigation departments and farmers that had been governed by theIrrigation and Drainage Act of 1873. It is expected that, within 7-10 years, formal farmerorganizations (FOs) will become actively involved in the day-to-day tasks of distributary canaloperation and maintenance (O&M), as well as in mobilizing the financial resources required tosustain the O&M of the Indus Basin's canal irrigation systems. In addition, farmers will berepresented in the new agencies such as PIDAs and area water boards formed for each canalsystem.

2. In anticipation of these more participatory institutional arrangements in the irrigationsector, several pilot projects to organize farmers at the minor or distributary canal level hadalready been initiated. In mid-1995, the local office of the International Water ManagementInstitute (IWMI) commissioned by Directorate of On-Farm Water Management of Sindh, initiatedan "action research program" to establish water user federations (WUFs) on three distributarycanals in the Left Bank Outfall Drain project area. The objectives of IWMI’s program were "totest the viability of farmers' managing parts of the irrigation and drainage system" in order toachieve a more equitable and efficient distribution of irrigation water, and "to makerecommendations for policies on future extension of this work." It was intended that, onceestablished, each WUF would take over all or part of the O&M responsibilities for its respectivedistributary or minor canal.

3. The process of developing FOs was carefully planned and included an extensive trainingprogram for members of social organization field teams assigned to each pilot distributarycommand. Each field team comprised five staff – two field engineers, two social organizers,and one team leader – who were based in an IWMI field station. This was the first of fourphases conceptualized by IWMI for the process of organizing farmers in a distributary commandarea, i.e. the support mobilization phase. The other three phases are that of initial organization,organization consolidation, and organizational action.

4. The support mobilization and initial organization phases were completed in eachdistributary canal command by the end of 1996, or about 18 months after IWMI initiated theSindh pilot project. Initial organization involved the formation of watercourse-based water userassociations (WUAs) for which leadership was selected either by election or consensus; thelatter process appears to have been followed in the great majority of cases. A total of 80 WUAs– one per watercourse command – were formed in three distributary command areas. EachWUA nominated two representatives for the WUF assembly, and in a general meeting of theassembly, the executive board – officers and general members – of each distributary WUF wereselected.

5. The process of organization consolidation continued throughout 1997 and 1998. Itincluded registering both the WUAs and the WUFs as formal farmer water managementorganizations under the relevant provisions of the 1981 Water Users Association Ordinance ofSindh. With the signing of joint management agreements between each distributary WUF andthe Sindh Irrigation Department in October 1997, it was expected that the organizational actionphase had begun. However, less than two weeks later, the Government of Sindh suspendedthese agreements.

32

Appendix 7, page 2

6. Despite this obvious setback, WUAs and WUFs remained active. Officers continued tofunction in their specific capacities, regular WUF meetings were held, records of decisionsreached were kept, and bank accounts were opened in the name of the WUFs in which modestsums mobilized through the organizations have been kept. A large number of agriculturalextension-related "collaborative activities" were arranged with local agencies (e.g. VeterinaryDepartment, Forest Department, Agricultural Extension Directorate, Agricultural University atTando Jam) in which large number of interested farmers participated.

7. Following the suspension of joint management agreements, increased attention wasplaced upon involving the WUAs and WUFs of Heran, Dhoro Naro, and Bareji distributaries inactivities intended to strengthen or further consolidate their respective organizations. Theseactivities have varied from farmer-organized desilting of each canal during the annual closureperiod to command area development works identified by the WUAs/WUFs, with technicalsupport being provided by IWMI. The development works already implemented include suchactivities as construction of a WUF office (Dhoro Naro), construction and/or repair of sections ofthe canal inspection path (Heran, Dhoro Naro), and the installation of numerous culverts (Bareji,Dhoro Naro) to facilitate watercourse command access and minimize disruptions or obstructionof watercourse discharge. These physical works were jointly financed and implemented by theWUAs/WUFs (labor, some material) – who also recommended the specific work and its location– and IWMI (capital).

8. IWMI’s involvement ceased in early 1998, three months after the expiration of theoriginal agreement, and the program was put on hold. A second phase of the pilot programcommenced in April 1999 under which IWMI continued to organize farmers and assist in thetransfer process for these three WUFs. An additional 10 WUFs were established in other partsof Nara Canal command. All 13 WUFs have now been registered as farmer organizations underthe PIDA Act and they have formed their own council. Parallel with the IWMI program, formalbylaws for FOs were drawn up and the terms of management transfer agreements weredefined.

9. In order to proceed with the actual transfer of O&M to these FOs, the Government ofSindh constituted a committee, which includes representatives of all concerned Governmentdepartments and farmer representatives. The committee prepared its proposal andrecommendations, but as of June 2000 the Government had not yet acted upon them, therebystalling the transfer process.

10. The formation of FOs up to June 2000 has shown that, with adequate opportunity tofreely interact among themselves, water users are capable of selecting their leaders in ademocratic manner. The deployment of small field teams assisted by community-basedvolunteers, adopting a step-wise social organization process, deviating from the usual fundingfor physical improvements as an incentive, and not focusing on the need to reduce Governmentbudgets were the main innovative ideas that were tested and found valid. Efforts to build trust,providing equal opportunity for all members of the community to participate, and staying awayfrom party politics were among the other field strategies successfully adopted under theprogram. The selection of a majority of medium-size and small landowners (and even tenants)as WUA leaders, and reasonably equitable considerations in decision making suggest a goodpotential for avoiding the dominance of large landowners in the affairs of FOs.

33

34Appendix 8, page 1

35 Appendix 8, page 2

FINANCIAL AND ECONOMIC ANALYSIS

A. Introduction

1. General

1. This economic re-evaluation has been carried out to ascertain the financial andeconomic viability of the Project by employing updated cost estimates and project impact andbenefit data.

2. Data

2. Data on agricultural inputs, outputs, and cropping practices were attained from theappraisal report, the revised project documents prepared by the Borrower, and the rapid ruralassessment carried out in June 2000.

B. Methodology

3. The methodology used in this analysis follows the Asian Development Bank’s (ADB)Guidelines for Economic Analysis. The assumptions are summarized in paras. 4-6.

1. Exchange Rate

4. The rupee has devalued substantially since June 1998. The Government has nowadopted a policy of dual exchange rate. For this analysis, the prevailing official exchange rate,i.e., PRs52 per dollar, is used for all conversions.

2. Price Assumptions

5. A world price numeraire is used in the analysis. For internationally traded commodities,i.e., wheat, paddy, cotton, sugarcane, urea, and diammonium phosphate, economic prices wereestimated based on the World Bank’s commodity price projections of April 2000. The 1990constant prices were converted to 2000 level by using the manufacturers’ unit value (MUV)index. Variable commodity prices were used for the period 2000 to 2010. The financial pricesof the non-traded commodities, net of transfer payments, were adjusted by employing astandard conversion factor of 0.9. To adjust the average daily wage in the project area forseasonal unemployment and underemployment, the shadow wage rate factor was assessed at0.75. The cost of seed was assumed 20 percent higher than the respective crop price.

3. Other Relevant Assumptions

6. Project life is assumed to be 40 years beyond its completion date in 2002. Previouscosts incurred on construction of the main and distributary canals were assumed as sunk costs.

C. Subsidies and Tariffs

7. Canal irrigation and drainage in Pakistan are subsidized to varying degrees in all fourprovinces. In Sindh, the overall gap between operation and maintenance (O&M) expendituresand recoveries has been in the range of 30 percent to 40 percent over the past five years.1

1 Data collected during recent review missions and the Project completion mission.

36Appendix 9, page 1

Until the mid-1980s, no such gap existed. In the past, irrigation service fees were meant torecover the capital costs as well as those for O&M. However, increases in these fees have notkept pace with costs; consequently recoveries currently fall short of O&M expenditures. Underthe ongoing ADB-cofinanced National Drainage Program, the issue of O&M subsidies is beingaddressed.2 The Government of Sindh has historically levied drainage cess in other drainageprojects that has varied from PRs120-PRs150/hectare (ha) per annum. At full development, adrainage cess of about PRs1,000/ha per annum will be required to recover the full O&M cost ofthe Project’s drainage infrastructure.

8. Large-scale price subsidies on inputs (urea and diammonium phosphate) and outputs(wheat) were withdrawn in the 1980s. The Government does not apply any specific tariffs onagricultural inputs and outputs. Over the last five years, the domestic wheat price has graduallybeen brought near to the import price parity — the gap between the two has varied but hasbeen less than 10 percent. In the last five years, wheat imports have averaged 1.5 to 2.0 milliontons per year — 10 to 12 percent of the domestic consumption. However, due to good harvest,Pakistan had exportable wheat surplus in 1999. There is no considerable difference in borderand domestic financial prices for sugarcane. For cotton, since 1994, the price differential hasbeen minimal and the trade has been liberalized. The international cotton prices now effectivelydetermine the level of farmgate prices.

9. Urea comprises approximately two thirds of the fertilizers used in Pakistan and thecountry is almost self-sufficient in its production. In recent years, the shortfall in local demandand supply has ranged from 5 to 15 percent. The border price of urea has historically fluctuatedand in the future, it is forecast to be lower. In the year when the imported urea is costlier, it ismarketed along with the local brands by the domestic producers through a mechanism of pricepooling. The price of the local urea is marginally raised to cover the difference between the priceof imported and local brands, implying that the Government does not have to bear the cost assubsidy.

10. The issue of agricultural subsidies in Pakistan is complicated, and the extent ofsubsidies cannot be determined by merely comparing border prices with domestic financialprices of individual commodities. There is now considerable empirical evidence to show that, onthe whole, there is a net transfer of resources out of agriculture and into rest of the economy,implying the agriculture sector has been subsidizing other sectors. The Government isaddressing the issue of agricultural subsidies in association with a proposed project to befinanced by the World Bank.3 In this economic analysis, therefore, no discount was made forwheat and occasional urea subsidies.

D. Agricultural Benefits

11. Left Bank Outfall Drain covers a large and diverse canal command area spread over516,500 ha. Not all of this area, even after full development of the Project, would directly benefitfrom the drainage. The associated salinity problems along with shortage of irrigation waterwould still leave about 15 percent of this area uncultivated. In this analysis, it is assumed that, atfull development, a total of 439,190 ha would benefit directly from the Project’s irrigation anddrainage infrastructure. The overall cropping intensity in the “future without” project scenariowas estimated, at appraisal, to be 80 percent. At full development, by a conservative estimate, itwould increase to 120 percent in part due to increased irrigation supplies from the construction

2 Loan No. 1413-PAK (SF): National Drainage Sector Project, for $140 million, approved on 12 December 1995.3 Agriculture Sector Investment Project, scheduled for approval in FY00/01.

37Appendix 9, page 2

of Chotiari Reservoir and remodeling of Nara Canal. Data on crop yields, cropping patterns, andintensities for “future without” and “with” project scenarios are presented in Table A9.1. Thesedata are based on the prevailing conditions in the project area. Estimates are thus assumed tobe realistic and rather conservative. In this analysis, only the direct and readily quantifiablebenefits have been accounted for. Several other obvious benefits that are expected to beconsiderable (e.g., conversion of fodder into milk, meat, and hides) and indirect, family, anddown- and upstream employment opportunities have not been accounted for. Even though thefull completion is expected by 2002, about 95 percent of the work is already accomplished.Benefits in certain areas of Nawabshah, the largest of the three subproject areas, startedmaterializing as early as 1995. In the late 1990s, visible signs of the project benefits could bewidely observed. In this analysis benefits are assumed to accumulate at 10 percent per annumstarting from 1995. Full benefits are assumed from 2004.

E. Financial Analysis

12. The Project has already yielded significant benefits to owner-farmers and sharecroppersin terms of increased farm income. A great majority of the estimated 113,000 farms havelandholdings equal to or less than 3 ha. Financial analysis of a typical 3-ha farm shows thataverage incomes, after taxes, have already increased by over 70 percent. At full development,in 2004, these incomes will have increased in excess of 140 percent compared with those in thewithout-project scenario — from PRs18,000 to PRs43,000 per annum (Table A9.2). Theseestimates do not include the expected incremental income from livestock.

F. Economic Analysis

1. Project Economic Benefits

13. The main benefits of the Project will accrue from crop production. Correspondingdetailed crop budgets, based on one ha representative farms for future-without and with-projectscenarios, were prepared. Economic valuation of the additional production was estimatedbased on the expected crop production. The economic and financial prices of inputs and outputsused in the analysis are presented in Table A9.3. The derived economic prices of tradablecommodities are presented in Tables A9.4 to A9.10. The resulting incremental net value ofproduction is based on the estimates of drained area and the expected uptake by the farmers.

2. Project Investment and Recurrent Costs

14. All relevant project investment and post-implementation O&M costs are shown in TableA9.10. Cost estimates have been expressed in 2000 prices by using appropriate MUV Indexand the prevailing exchange rates.4 The transfer payments such as taxes and duties, interestduring construction, and price contingencies were deducted from the cost stream, but the costof land acquisition was included. Post-implementation drainage, on-farm water management,farmers’ contribution in O&M, and overall O&M costs are included in the total cost stream of theProject.

4 During the implementation, contracts for procurement of goods and services and for civil works were/are pegged

to a variety of exchange rates over time. The phased-out investment cost stream used in this analysis is the bestestimate of all these factors thus not directly convertible to a single or current exchange rate.

38Appendix 9, page 3

3. Economic Internal Rate of Return

15. The re-estimated economic internal rate of return, for the base case, is 12.8 percent.The estimated net present value is PRs898.0 million, indicating current value of the netincremental cash flow if the opportunity cost of capital is assumed to be 12 percent (TableA9.11).

4. Sensitivity Analysis

16. Sensitivity analysis was carried out to ascertain the economic viability of the Project ifthe base case assumptions did not hold. The usual sensitivity analysis scenarios do not apply tothis Project. For example, the benefits are based on conservative cropping intensity and yieldassumptions. Recent field surveys have shown that these levels are already being achieved.With better farm management, i.e., more intensive input use, better quality seed, and increasedwater supplies, Project benefits would far exceed those assumed in this analysis. Since thedesired levels of agricultural credit and extension training have not yet been attained, theirimpact on benefits is not assumed in the base case scenario. However, the most crucialassumption in the base case pertains to the long-term O&M of the project infrastructure. Giventhe large size of the project area and variety of infrastructure, fiscal requirements for O&M willbe a significant undertaking for the Government of Sindh — PRs439 million is almost a quarterof the total annual O&M budget of the Department of Irrigation. Without levying drainage cess,the provincial government will not be able to provide for sustainable maintenance of the Projectin the medium to long term.5 To test the sensitivity, when the yields of major crops (wheat andcotton) or the total canal command area were allowed to decrease by 20 percent, economicinternal rate of return dropped to less than 10 percent — making the Project economicallyunviable.

5 At present, O&M of the Project is financed under ADB-cofinanced National Drainage Program through eight

performance contracts. However, these contracts are due to expire by 2003. Given the current hesitation to levydrainage cess, it is not clear how the Government of Sindh will provide for sustainable O&M for the Projectbeyond 2003.

39Appendix 9, page 4

Table A9.1: Future Area, Production, and Yield of Major Crops

Future Without Project Future With Project AdditionalArea Yield Prod Area Yield Prod Production

Crop (ha) (t/ha) (t) (ha) (t/ha) (t) (t)

Cultivated Area 396,356 439,190Cropped Area 317,085 527,028Wheat 126,834 1.50 190,251 166,892 2.75 458,954 268,703Rabi Fodder 19,818 65.00 1,288,157 30,743 75.00 2,305,748 1,017,591Legumes/Pulses 0 0.00 0 0 0.00 0 0Paddy 7,927 2.50 19,818 17,568 3.00 52,703 32,885Cotton 110,980 0.60 66,588 263,514 1.60 421,622 355,035Kharif Fodder 19,818 20.00 396,356 26,351 35.00 922,299 525,943Vegetables 0 0.00 0 0 0.00 0 0Sugarcane 31,708 40.00 1,268,340 21,960 60.00 1,315,570 49,231Cropping Intensity 80.0 120.0

By-Product a

Wheat Straw 126,834 3.00 380,502 166,892 5.50 917,907 537,405Paddy Straw 7,927 3.75 29,727 17,568 4.50 79,054 49,328Cotton Stalk 110,980 1.20 133,176 263,514 3.20 843,245 710,069Sugarcane Tops 31,708 8.00 253,668 21,960 12.00 263,514 9,846

ha = hectare, t = tonaBy-products of wheat, paddy, cotton, and sugarcane are assumed to be 200%, 150%, 200%, and 20% of respective crop yields.Source: Appraisal Report, project completion missions, and rapid rural assessment conducted in June 2000.

40A

ppendix 9, pa ge 5

Table A9.2: Summary of a 3-Hectare Farm Budget

Without With Increase IncreaseItem Pro ject Pro ject (PRs) (Percent)

Cropping Intensity (%) 80 120.0 40Value of Farm Output 40,362 102,791 62,429 155Production Cost 19,932 47,855 27,922 140Irrigation Costa 2,472 3,708 1,236 50Agricultural Income Taxb 0 6,250 6,250Finance Tax (malia)c 0 1,250 1,250Total Net Farm Income 17,958 43,729 25,771 144Net Farm Income/ha 3,592 8,746 5,154 144

ha = hectare.a Based on average irrigation service fee (ablana) of PRs 250/acre/year (PRs618/ha/year) – adjusted to cropping intensity.B Based on PRs1235/ha for irrigated areas. Waterlogged areas are exempt.C Based on a flat rate of PRs250/ha for irrigated areas. Waterlogged areas are exempt.Source: Project completion missions and rapid rural assessment conducted in June 2000.

41Appendix 9, page 6

Table A9.3: Prices Used in the Financial and Economic Analyses(2000 Farmgate Prices in 2000 Constant Terms)

Item Unit Financial Economic Price

Price 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

A Output a

Wheat PRs/kg 7.5 8.1 8.4 8.8 8.9 9.1 9.2 9.1 9.0 9.0 8.9 8.8Rabbi Fodder (berseem) “ 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5Legumes/Pulses “ 17.0 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5Paddy “ 5.0 5.0 5.1 5.2 5.4 5.6 5.8 5.7 5.7 5.6 5.6 5.6Cotton “ 16.3 16.7 17.2 17.7 18.3 18.9 19.4 19.5 19.5 19.5 19.5 19.5Kharif Fodder (maize) “ 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6Vegetables (onion) “ 5.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0Sugarcane “ 0.9 0.4 0.4 0.4 0.5 0.6 0.6 0.6 0.6 0.6 0.7 0.7

B Output (by-product) b

Wheat Straw PRs/kg 1.0 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9Paddy Straw “ 1.0 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9Cotton Stalk “ 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2Sugarcane Tops “ 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

C Seed c

Wheat PRs/kg 9.0 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7Rabbi Fodder “ 48.0 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2Legumes/Pulses “ 24.6 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1Paddy “ 18.0 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9Cotton “ 20.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0Kharif Fodder “ 5.0 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5Vegetables (onion) “ 110.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0

D Fertilizer & ChemicalsUrea PRs/kg 7.0 6.5 7.4 7.7 7.8 7.8 7.8 7.9 7.9 7.9 8.0 8.0DAP “ 12.0 10.4 10.7 10.7 10.8 10.8 10.8 10.7 10.6 10.5 10.3 10.2Chemicals “ 1,500.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350. 1,350.0

E Labor & PowerManual Labor d PRs/day 60.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0Tractor PRs/hour 180.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0

DAP = diammonium phosphate; kg = kilogram.a For internationally traded commodities, wheat, rice, cotton, sugarcane, urea, and DAP, economic prices were calculated. Financial prices of all other commodities were converted to border price equivalent by using a SCF of 0.90.b All by-products are non-tradables, economic prices derived using SCF. Sugarcane tops were valued as green fodder.c For seed prices, a 20% premium was added to the price of crop.d The opportunity cost of labor was derived by adjusting the prevailing wage rate with a conversion factor of 0.75 to adjust for seasonal unemployment and underemployment.

42A

ppendix 9, page 7

Table A9.4: Import Parity for Wheat

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Wheat price, constant 1990 a 113.0 119.50 125.40 128.23 131.07 133.90 132.28 130.66 129.04 127.42 125.80Wheat price, MUV-adjusted 2000 119.95 126.85 133.11 136.12 139.13 142.13 140.42 138.70 136.98 135.26 133.54 Plus freight 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00CIF Karachi 149.95 156.85 163.11 166.12 169.13 172.13 170.42 168.70 166.98 165.26 163.54

CIF Karachi b 7797.37 8156.16 8481.83 8638.22 8794.62 8951.01 8861.59 8772.17 8682.75 8593.33 8503.91 Plus port charges 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 Plus transport c 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00Price in project area 8387.37 8746.16 9071.83 9228.22 9384.62 9541.01 9451.59 9362.17 9272.75 9183.33 9093.91 Less local agent’s commission d 167.75 174.92 181.44 184.56 187.69 190.82 189.03 187.24 185.45 183.67 181.88 Less transport – farm to market 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00Import parity price at farmgate 8094.63 8446.24 8765.39 8918.66 9071.93 9225.19 9137.56 9049.93 8962.29 8874.66 8787.03Local farmgate price e 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00Ratio of border to local price 1.08 1.13 1.17 1.19 1.21 1.23 1.22 1.21 1.19 1.18 1.17

CIF = cost, insurance and freight; MUV = manufacturers’ unit value.aCanadian No. 1 W Red spring, Free on Board St. Lawrence PortsbExchange rate assumed as 1$ = PRs52.00cEstimated at PRs0.70/mt/km from Karachi to Hyderabad (200 km)d@ 2%ePRs per maund (or per 40 kg) = 300Source: World Bank Commodity Price Projections (April 2000).

43A

ppendix 9, page 8

Table A9.5: Export Parity Price for Paddy (IRR 6)

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Rice Price, Constant 1990 a 235.50 239.00 241.90 249.13 256.37 263.60 261.96 260.32 258.68 257.04 255.40Rice Price, MUV-adjusted 2000 249.98 253.70 256.78 264.46 272.13 279.81 278.07 276.33 274.59 272.85 271.11Rice Price, adjusted for quality b 199.99 202.96 205.42 211.56 217.71 223.85 222.46 221.06 219.67 218.28 216.89FOB Karachi 199.99 202.96 205.42 211.56 217.71 223.85 222.46 221.06 219.67 218.28 216.89

FOB Karachi 10,399.30 10,553.86 10,681.92 11,001.33 11,320.74 11,640.15 11,567.73 11,495.31 11,422.89 11,350.48 11,278.06 Less port charges 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Less storage and handling 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 Less transport to project area c 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Value of rice, ex mill 9,359.30 9,513.86 9,641.92 9,961.33 10,280.74 10,600.15 10,527.73 10,455.31 10,382.89 10,310.48 10,238.06 Less milling cost 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 Less value of bran 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Less cost of bags for export 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00Value of paddy d 5,187.14 5,289.15 5,373.67 5,584.48 5,795.29 6,006.10 5,958.30 5,910.51 5,862.71 5,814.91 5,767.12 Less local agent’s commission (1.5%) 77.81 79.34 80.60 83.77 86.93 90.09 89.37 88.66 87.94 87.22 86.51 Less transport – farm to market 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00Export parity price at farmgate 4,984.33 5,084.81 5,168.06 5,375.71 5,583.36 5,791.01 5,743.93 5,696.85 5,649.77 5,602.69 5,555.61Local farmgate price e 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00Ratio of border to local price 1.00 1.02 1.03 1.08 1.12 1.16 1.15 1.14 1.13 1.12 1.11

FOB = free on board, MUV = manufacturers’ unit value.a Thai 596 (5% broken), FOB Bangkokb Quality adjustment factor assumed to be 0.82c Estimated at PRs0.70/mt/km from Karachi to Hyderabad (200 km)d Estimated at 66% of ricee PRs per maund (or per 40 kg) = 200Source: World Bank Commodity Price Projections (April 2000).

Appendix 9, page 9

44

Table A9.6: Import Parity Price for Cottonseed Oil and Cake

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Soybean oil price, constant 1990 a 381.50 376.80 385.20 385.10 385.00 384.90 385.64 386.38 387.12 387.86 388.60Soybean oil price, MUV-adjusted 2000 404.96 399.97 408.89 408.78 408.68 408.57 409.36 410.14 410.93 411.71 412.50 Plus freight 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Plus insurance 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00CIF Karachi 444.96 439.97 448.89 448.78 448.68 448.57 449.36 450.14 450.93 451.71 452.50

CIF Karachi 23,138.04 22,878.61 23,342.27 23,336.75 23,331.23 23,325.71 23,366.56 23,407.40 23,448.25 23,489.10 23,529.94 Plus port charges 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 Plus transport to Multan 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00Value ex-mill 24,188.04 23,928.61 24,392.27 24,386.75 24,381.23 24,375.71 24,416.56 24,457.40 24,498.25 24,539.10 24,579.94Value of cotton oil b 2,418.80 2,392.66 2,439.23 2,438.67 2,438.12 2,437.57 2,441.66 2,445.74 2,449.82 2,453.91 2,457.99

Soybean meal Price, Constant 1990 a 156.60 161.90 166.70 169.88 173.05 176.23 179.40 176.70 174.00 171.30 168.60Soybean meal Price, MUV-adjusted2000

165.04 170.63 175.69 179.03 182.38 185.72 189.07 186.22 183.38 180.53 177.69

Plus freight 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00CIF Karachi 195.04 200.63 205.69 209.03 212.38 215.72 219.07 216.22 213.38 210.53 207.69CIF Karachi (cotton cake price) c 107.27 110.34 113.13 114.97 116.81 118.65 120.49 118.92 117.36 115.79 114.23

CIF Karachi 5,578.17 5,737.92 5,882.59 5,978.29 6,073.99 6,169.69 6,265.39 6,184.01 6,102.63 6,021.25 5,939.86Value of cotton cake d 5,020.35 5,164.12 5,294.34 5,380.46 5,466.59 5,552.72 5,638.85 5,565.61 5,492.37 5,419.12 5,345.88 Less crushing cost 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 Less storage, etc. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Less transport to Multan 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00Value of cotton cake 3,710.35 3,854.12 3,984.34 4,070.46 4,156.59 4,242.72 4,328.85 4,255.61 4,182.37 4,109.12 4,035.88

CIF = cost, insurance and freight; MUV = manufacturers’ unit value.a Soybean oil (Dutch crude) Free on Board ex-mill USA. Soybean oil is used as proxy for cottonseed oil.b Oil component of cottonseed is assumed 10%c Soybean cake used as proxy for cotton cake, adjustment factor assumed at 55%d Cake component of cottonseed is assumed 90%Source: World Bank Commodity Price Projections (April 2000). A

ppendix 9, page 1045

Table A9.7: Export Parity Price for Cotton

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Cotton price, constant 1990 a 116.30 119.60 122.50 125.93 129.37 132.80 133.00 133.20 133.40 133.60 133.80Cotton price, MUV-adjusted 2000 1234.52 1269.55 1300.34 1336.78 1373.23 1409.67 1411.80 1413.92 1416.04 1418.16 1420.29Quality adjustment b 1074.04 1104.51 1131.29 1163.00 1194.71 1226.41 1228.26 1230.11 1231.96 1233.80 1235.65 Less freight 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Less insurance 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00FOB Karachi 939.04 969.51 996.29 1028.00 1059.71 1091.41 1093.26 1095.11 1096.96 1098.80 1100.65

FOB Karachi 48829.89 50414.62 51807.27 53456.03 55104.80 56753.56 56849.61 56945.65 57041.69 57137.74 57233.78 Less port charges 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Less transport to Multan l 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 Less ginning cost 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00Value of lint ex gin 45929.89 47514.62 48907.27 50556.03 52204.80 53853.56 53949.61 54045.65 54141.69 54237.74 54333.78 Plus value of cottonseed oil 2418.80 2392.86 2439.23 2438.67 2438.12 2437.57 2441.66 2445.74 2449.82 2453.91 2457.99 Plus value of cottoncake 3710.35 3854.12 3984.34 4070.46 4156.59 4242.72 4328.85 4255.61 4182.37 4109.12 4035.88Value of seedcotton at gin c 17179.48 17741.33 18259.17 18831.51 19403.84 19976.17 20037.64 20046.51 20055.38 20064.25 20073.13 Less transport to gin from market 150.00 151.00 152.00 153.00 154.00 155.00 156.00 157.00 158.00 159.00 160.00 Less local agent’s commission (1.5%) 257.69 266.12 273.89 282.47 291.06 299.64 300.56 300.70 300.83 300.96 301.10 Less transport farm to market 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00Export parity value at farmgate 16671.79 17224.21 17733.29 18296.03 18858.78 19421.53 19481.07 19488.81 19496.55 19504.29 19512.03Local farmgate price d 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00Ratio of border to local farmgate 1.03 1.06 1.09 1.13 1.16 1.20 1.20 1.20 1.20 1.20 1.20

FOB = free on board, MUV = manufacturers’ unit value.a Cotton – middling 1-3/32 inch, cost, insurance and freight European Ports.b Cotton quality adjustment is assumed at 87%c Lint component of seed-cotton is assumed at 33%d PRs per maund (or 40 kg) = 650Source: World Bank Commodity Price Projections (April 2000).

Appendix 9, page 11

46

Table A9.8: Import Parity Price for Sugarcane

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sugar price, constant 1990 a 12.70 13.10 13.00 14.23 15.47 16.70 16.92 17.14 17.36 17.58 17.80Sugar price, MUV-adjusted 2000 134.81 139.06 138.00 151.09 164.18 177.27 179.61 181.94 184.28 186.61 188.95 Plus freight 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00CIF Karachi 169.81 174.06 173.00 186.09 199.18 212.27 214.61 216.94 219.28 221.61 223.95

CIF Karachi 8,830.15 9,050.94 8,995.74 9,676.52 10,357.29 11,038.07 11,159.50 11,280.94 11,402.37 11,523.81 11,645.24 Plus port charges 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 Plus storage & handling 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 Plus transport to Faisalabad 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00Value at sugar mill 10,330.15 10,550.94 10,495.74 11,176.52 11,857.29 12,538.07 12,659.50 12,780.94 12,902.37 13,023.81 13,145.24 Less processing cost 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00Value of raw sugar 5,730.15 5,950.94 5,895.74 6,576.52 7,257.29 7,938.07 8,059.50 8,180.94 8,302.37 8,423.81 8,545.24Value of sugarcane b 487.06 505.83 501.14 559.00 616.87 674.74 685.06 695.38 705.70 716.02 726.35 Less transport, farm to market 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00Import parity at farmgate 427.06 445.83 441.14 499.00 556.87 614.74 625.06 635.38 645.70 656.02 666.35Local farmgate price c 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00Ratio of border to local price 0.49 0.51 0.50 0.57 0.64 0.70 0.71 0.73 0.74 0.75 0.76

CIF = cost, insurance and freight; MUV = manufacturers’ unit value.a ISA daily, Free on Board Greater Caribbean Ports.b Extraction rate assumed to be 8.5%c PRs per maund (or 40 kg) = 35Source: World Bank Commodity Price Projections (April 2000).

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Table A9.9: Import Parity Price for Urea

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Urea price, constant 1990 a 84.80 91.90 98.50 99.13 99.77 100.40 101.04 101.68 102.32 102.96 103.60Urea price, MUV-adjusted 2000 90.02 97.55 104.56 105.23 105.90 106.57 107.25 107.93 108.61 109.29 109.97 Plus freight 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00CIF Karachi 110.02 117.55 124.56 125.23 125.90 126.57 127.25 127.93 128.61 129.29 129.97

CIF Karachi 5,720.29 6,112.70 6,477.00 6,511.96 6,546.92 6,581.88 6,617.21 6,652.53 6,687.86 6,723.19 6,758.51 Plus port charges 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 Plus bagging etc. 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 Plus transport 140.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00Value project in area 6,410.79 7,262.70 7,627.00 7,661.96 7,696.92 7,731.88 7,767.21 7,802.53 7,837.66 7,873.19 7,908.51 Plus transport, market to farm 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00Import parity price at farmgate 6,520.79 7,372.70 7,737.00 7,771.96 7,806.92 7,841.88 7,877.21 7,912.53 7,947.86 7,983.19 8,018.51Local farmgate price b 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00Ratio of border to local price 0.93 1.05 1.11 1.11 1.12 1.12 1.13 1.13 1.14 1.14 1.15

CIF = cost, insurance and freight; MUV = manufacturers’ unit value.a Urea (bulk), Free on Board NW Europe Ports.b PRs per 50 kg bag = 350Source: World Bank Commodity Price Projections (April 2000).

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Table A9.10: Import Parity Price for DAP

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

DAP price, constant 1990 a 155.40 160.90 161.30 161.93 162.57 163.20 160.92 158.64 156.36 154.08 151.80DAP price, MUV-adjusted 2000 164.96 170.80 171.22 171.89 172.56 173.24 170.82 168.40 165.98 163.56 161.14 Plus freight 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00CIF Karachi 184.96 190.80 191.22 191.89 192.56 193.24 190.82 188.40 185.98 183.56 181.14

CIF Karachi 9,617.77 9,921.36 9,943.44 9,978.40 10,013.35 10,048.31 9,922.46 9,796.61 9,670.76 9,544.91 9,419.06 Plus port charges 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 Plus bagging, etc 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 Plus transport 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00Value in project area 10,307.77 10,611.36 10,633.44 10,668.40 10,703.35 10,738.31 10,612.46 10,486.61 10,360.76 10,234.91 10,109.06 Plus transport, market to farm 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00Import parity price at farmgate 10,417.77 10,721.36 10,743.44 10,778.40 10,813.35 10,848.31 10,722.46 10,596.61 10,470.76 10,344.91 10,219.06Local farmgate price e 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00Ratio of border to local price 0.87 0.89 0.90 0.90 0.90 0.90 0.89 0.88 0.87 0.86 0.85

CIF = cost, insurance and freight; DAP = diammonium phosphate; MUV = manufacturers’ unit value.a DAP (bulk), US Gulf Portsb PRs per 50 kg bag = 600Source: World Bank Commodity Price Projections (April 2000).

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Table A9.11: Cost and Benefit Streams (PRs million) a

Phased out Total NetYear Investment O&M Total Incremental Benefit

Beginning Costs Costs b Costs Benefits Stream

1986 116.1 0.0 116.1 0.0 -116.11987 460.6 0.0 460.6 0.0 -460.61988 811.8 0.0 811.8 0.0 -811.81989 901.4 0.0 901.4 0.0 -901.41990 974.8 0.0 974.8 0.0 -974.81991 1,256.4 0.0 1,256.4 0.0 -1,256.41992 2,242.4 0.0 2,242.4 0.0 -2,242.41993 2,971.1 0.0 2,971.1 0.0 -2,971.11994 2,889.6 0.0 2,889.6 0.0 -2,889.61995 3,205.6 0.0 3,205.6 552.5 -2,653.11996 3,115.1 0.0 3,115.1 1,140.0 -1,975.11997 3,130.2 0.0 3,130.2 1,772.1 -1,358.11998 2,137.7 0.0 2,137.7 2,452.0 314.31999 1,750.3 0.0 1,750.3 3,176.5 1,426.22000 1,360.8 0.0 1,360.8 3,945.6 2,584.82001 784.2 0.0 784.2 4,605.3 3,821.12002 852.0 0.0 852.0 5,251.8 4,399.82003 439.0 439.0 5,895.5 5,456.52004 439.0 439.0 6,536.4 6,097.42005 439.0 439.0 6,536.4 6,097.42006 439.0 439.0 6,536.4 6,097.42007 439.0 439.0 6,536.4 6,097.42008 439.0 439.0 6,536.4 6,097.42009 439.0 439.0 6,536.4 6,097.42010 439.0 439.0 6,536.4 6,097.42011 439.0 439.0 6,536.4 6,097.42012 439.0 439.0 6,536.4 6,097.42013 439.0 439.0 6,536.4 6,097.42014 439.0 439.0 6,536.4 6,097.42015 439.0 439.0 6,536.4 6,097.42016 439.0 439.0 6,536.4 6,097.42017 439.0 439.0 6,536.4 6,097.42018 439.0 439.0 6,536.4 6,097.42019 439.0 439.0 6,536.4 6,097.42020 439.0 439.0 6,536.4 6,097.42021 439.0 439.0 6,536.4 6,097.42022 439.0 439.0 6,536.4 6,097.42023 439.0 439.0 6,536.4 6,097.42024 439.0 439.0 6,536.4 6,097.42025 439.0 439.0 6,536.4 6,097.4

Economic Internal Rate of Return 12.9%Net Present Value (PRs million) 1,033.1

O&M = operation and maintenance.a For the estimation of net present value, opportunity cost of capital is assumed to be 12 percent.b O&M cost during implementation is included in the investment cost.

50Appendix 9, page 15

PROJECT RATING

Criterion Assessment Rating(0-3)

Weight(%)

WeightedRating

Justification

Relevance HS 3 20 0.60 The Project was highly relevant in the context of the developmentstrategy of the Borrower, Govt of Sindh, and Asian Development Bankat the time of appraisal. The Project has remained relevant under thelatest development strategy as illustrated by the inclusion of theProject’s remaining works under the National Drainage Program (NDP).

Efficacy S 2 25 0.50 The Project is substantially complete but its scope was reduced byabout 20%. The initial performance of the drainage works issatisfactory. It has started to reverse the deterioration of land andrelated resource base.

Efficiency LTS 1 20 0.20 The Project was implemented with a significant cost overrun of about27% and a time overrun of almost 100%.a The financial returns tobeneficiaries and impact on poverty are considerable. The economicinternal rate of return has been reestimated at 13.1% .

Sustainability LTS 1 20 0.20 In the short run, financing for operation and maintenance (O&M) of thedrainage works is provided through NDP. But it is uncertain whetherGovt of Sindh will adopt the policy and institutional measures that arerequired to make the O&M sustainable beyond the close of NDP in2003.

InstitutionalDevelopment

S 2 15 0.30 The Project has demonstrated the viability of new approaches to O&M.The Project also helped in preparing the new strategy adopted by Govtof Sindh in 1997 for the irrigation and drainage sector, and hasfacilitated the implementation of this strategy through its preparatorywork for the Nara Area Water Board and the formation of pilot farmerorganizations.

Overall Rating S 1.80 The Government’s commitment toward meeting the long-term O&Mobligations remains unclear. If appropriate O&M is not provided by2010, the EIRR will drop below 10 percent making the Projecteconomically unviable.

Rating: 3=highly satisfactory, 2=satisfactory, 1=less than satisfactory, 0=unsatisfactoryOverall Rating: HS=highly successful (>2.5), S=successful (1.6≤S≤2.5), LTS=less than successful, (0.6≤LTS≤1.6), U=unsuccessful (<0.6)a The time overrun for Asian Development Bank’s loan was about 38 percent. However, by the time the Project itself is completed by 2002, it will have taken

twice as long to finish. As of now, more than 95 percent of the Project is complete; the remaining works pertain to irrigation infrastructure and are beingfinanced under NDP.

Appendix 10

51

REVISED ACTION PLAN(updated on 30 June 2000)

Action ResponsibleAgency(ies)

Status as of30 June 2000

Remarks

A Policy MattersA.1 Prepare draft supplementary policy

statement regarding the O&M of theLBOD system covering institutionalarrangement; partial transfer ofresponsibility for subsurface drainage tobeneficiaries; and generation ofrevenues.

DIP & WAPDA Accomplished The draft supplementary policy statementhas been incorporated in the FOP. The FOPwas finalized in February 2000.

A.2 Conduct consultations about O&Msupplementary policy statement with allstakeholders.

Govt of Sindh,DIP & WAPDA

Accomplished

A.3 Issue final supplementary policystatement regarding O&M.

Govt of Sindh,DIP & WAPDA

Accomplished Govt of Sindh approved the FOP inSeptember 2000.

A.4 Adopt time-bound plan for institutionalmeasures, transfer of O&Mresponsibilities and the raising ofrevenues

Govt of Sindh,DIP & WAPDA

Accomplished A time-bound O&M Action Plan has beenincorporated in the FOP.

A.5 Accelerate the establishment of theArea Water Board for Nara Canal.

Govt of Sindh &DIP/SIDA

Accomplished Nara Area Water Board inaugurated inDecember 1999.

A.6 Submit proposal to the competentauthorities within Govt of Sindh tointroduce drainage cess in the LBODarea (as part of the FOP).

Govt of Sindh,DIP, Revenue &Finance Depts.

Partlyaccomplished

This proposal is part of the FOP butdrainage cess has not been levied.

B Project MattersB.1 Transfer O&M of the distributary canal

system to 13 pilot farmer organizationsestablished with IWMI assistance.

Govt of Sindh Not yetaccomplished

Govt of Sindh constituted a committee whichprepared a document on O&M transfer butendorsement of this document still awaited.Farmer organizations are ready to take overthe O&M.

B.2 Finalize a detailed plan for the handingover of LBOD assets from WAPDA toDIP/Sindh Irrigation and DrainageAuthority.

WAPDA & DIP Accomplished All assets handed over except the LBOD andits outfall drains which is now scheduled forhanding over in December 2002.

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Action ResponsibleAgency(ies)

Status as of30 June 2000

Remarks

B.3 Award performance contracts for O&Mof Project facilities under NDP.

WAPDA, Govt ofSindh & DIP

Accomplished Eight performance contracts, for PRs316.65million, have been awarded.

B.4 Resolve problems of power cuts andvoltage regulation and theft oftransformers and lines.

DIP,& WAPDA Not yetaccomplished

Power cuts and voltage regulation and theftof transformer and lines remain a continuingproblem.

B.5 Adjust operation of drainage tubewellsand sumps according to drainage cesscollected and groundwater tablemovements.

DIP Not yetaccomplished

Tubewells’ running-hours will be optimizedduring the implementation of O&Mperformance contracts. Drainage cess notyet levied.

B.6 Continue monitoring the Tidal Link andadopt measures to ensure its functions.Arrange for further study of the systemand undertake measures to stabilizeCholri Weir.

WAPDA Accomplished

B.7 Constitute a committee comprisingrepresentatives from Govt of Sindh andWAPDA to determine the optimalapproach to ensure a sustainedoperation of LBOD’s Tidal Link in viewof the 1999 cyclone damage and the in-channel erosion problems that emergedsince its commissioning.

Govt of Sindh,DIP, WAPDA

Accomplished

B.8 Conclude agreement for continuation ofphysical and benefit monitoring underNDP.

WAPDA Accomplished

B.9 Reactivate the EMC for LBOD; continuethe implementation of the EMMP andrestart environmental surveys underNDP.

WAPDA & Govtof Sindh

Partlyaccomplished

EMC reconstituted and reactivated. Activitiesand surveys under the EMMP firmed up buttheir financing through NDP still awaitsapproval .

B.10 Expedite payment of outstandingcompensation payments for landalready acquired.

WAPDA & Govtof Sindh

Substantiallyaccomplished

Current remaining balance is PRs93 million.

DIP = Department of Irrigation and Power, EMC = environmental management committee, EMMP = environmental management andmonitoring plan, FOP = Future Operations Plan, LBOD = Left Bank Outfall Drain, O&M = operation and maintenance, SIDA = SindhIrrigation and Drainage Authority, WAPDA = Water and Power Development Authority.

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