Technical Assistance Consultant’s Report

Project Number: 45353-001 June 2015

Azerbaijan: Developing Water Resources Sector Strategies in Central and West Asia

RETA 8015

Prepared by Ramchand Oad, Dennis Wichelns, Ted Patterson, Steve Parsons For Asian Development Bank and

Ministry of Emergency Situations, Government of Azerbaijan This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Currency Unit – Manat (As of 15 May 2015) $1.00 = 1.03 Manat

(In Sept-Dec 2014, when this study was conducted in Azerbaijan, the currency conversion rate was $1.00 = 0.75 manat. All currency numbers mentioned in the report are at this rate).

Abbreviations

ADB – Asian Development Bank AOJSC – Azerbaijan Amelioration and Water Management Open Joint Stock Company AZN – Azerbaijan Manat billion m

3 – Billion cubic metres CCA – cultivable command area EAP – Environmental Action Plan EC – European Commission EECCA – Eastern Europe, Caucasus and Central Asia (countries) EU – European Union FAO – Food and Agriculture Organisation of the UN GDP – Gross Domestic Product GEF – Global Environment Fund GIS – Geographic Information Systems GISS – Goddard Institute of Space Science GFDL – Geophysical Fluid Dynamics Laboratory IFAD – International Fund for Agricultural Development ISD – Irrigation Systems Department IWRM – Integrated Water Resources Management Plan JICA – Japanese International Co-operation Agency JSC – Joint Stock Company KfW – Kreditanstalt für Wiederaufbau - German development bank MAC – Maximum allowable concentration mcm – Million cubic metres m

3/s – Cubic metres per second

MENR – Ministry of Ecology and Natural Resources NHD – National Hydro-meteorology Department (of MENR) NPD – National Policy Dialogue NWS – National Water Strategy OECD – Organisation for Economic Co-operation and Development OSCE – Organization on Security and Cooperation in Europe OJSC – Open Joint Stock Company O&M – operation and maintenance PCB – Polychlorinated Biphenyls PRECIS – Climate modelling system from UK Met Office (Providing Regional Climates for

Impacts Studies) RBMP – River Basin Management Planning SAWR – State Agency for Water Resources SIDA – Swedish International Development Agency SPSD – State Program for Socio-economic Development SNC – Second National Communication (to the UNFCCC) TA – Technical Assistance TACIS – Technical Assistance to CIS (EU aid programme) UNDP – United Nations Development Program UNECE – United Nations Economic commission for Europe UNESCO – United Nations Education, Scientific and Cultural Organisation UNFCCC – United Nations Framework Convention on Climate Change USAID – United States Agency for International Development WFD WB – World Bank WFD – Water Framework Directive WUA – Water User Association WUAP – WUA Development Support Project

WEIGHTS AND MEASURES

ha – hectare km – kilometer km2

– square kilometer m – meter m3 – cubic meter

NOTES (i) The fiscal year (FY) of the Government of Azerbaijan ends on 31 December. FY

before a calendar year denotes the year in which the fiscal year ends. (ii) In this report, "$" refers to US dollars.

CONTENTS

PREFACE iv

EXECUTIVE SUMMARY v

1. INTRODUCTION 1

1.1 Purpose 1

1.2 Motivation for a Water Strategy 1

1.3 Objectives, Strategies, and Tactics 2

1.4 This Study 3

1.5 Structure of the Report 4

PART A: WATER RESOURCE ASSESSMENT 5

2. NATIONAL SETTING 6

2.1 Location 6

2.2 Climate 6

2.3 Population 7

2.4 Economy 8

3. WATER RESOURCES 9

3.1 Rainfall 9

3.2 Surface Water 10

3.3 Groundwater 11

3.4 Marginal Quality Water 12

3.5 Floodwater 12

3.6 Climate Change 12

4. WATER USE 13

4.1 Agriculture 14

4.2 Domestic 14

4.3 Industry and Energy 15

4.4 Environment and Recreation 15

5. WATER MANAGEMENT 15

5.1. Physical Features 15

5.2. Water Monitoring 16

5.3. Water Policy and Legislation 16

5.4. Institutions 17

5.5. Financing the Water Sector 19

5.6. Managing Floods and Droughts 20

5.7. Water Sector Reforms 21

6. AGRICULTURE, IRRIGATION, AND LAND DRAINAGE 22

6.1 Overview 22

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6.2 Crop Areas and Yields 22

6.3 Government Policies – Agricultural Subsidies 24

6.4 Ensuring Food Security 25

6.5 Irrigation and Drainage 26

PART B 27

DEVELOPING A WATER STRATEGY 27

7. THE CHANGE DRIVERS FOR A WATER STRATEGY 28

7.1 Demographics, Regional Integration and Economic Growth 28

7.2 Urbanization 28

7.3 Environment and Climate Change 28

7.4 Changing Responsibilities in Water Administration and Governance 28

8. THE KEY CHALLENGES AND OPPORTUNITIES 29

8.1 Trans-boundary Rivers – Related Water Quality and Quantity Issues 29

8.2 Managing Increasing Demand for Water 31

8.3 Agriculture – Irrigation, Drainage and Low Productivity 31

8.4 Managing Water Related Hazards – Floods and Droughts 33

8.5 Water Governance for Improved Water Management 34

9. POLICY ENVIRONMENT 35

9.1 Current Initiatives 35

9.2 Potential Future Initiatives 35

10. STRATEGY FORMULATION 36

10.1 Envisioning the Future 36

10.2 Setting the Goal and Objectives 37

10.3 Strategy Framework 37

11. POTENTIAL INTERVENTIONS AND INVESTMENTS 40

11.1 Investing in Institutions 40

11.2 Investing in Water Resource Monitoring and Data Management 41

11.3 Investing in Irrigation and Drainage 41

11.4 Investing in Agricultural Extension Education 43

12. STRATEGY IMPLEMENTATION 44

12.1 Deriving Investment Plans for the Strategy 44

12.4 Monitoring and Evaluation (M&E) 45

REFERENCES 46

Azerbaijan Developing Water Resources Sector Strategies in Central and West Asia

June 2015

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PREFACE

1. Water is a scarce and valuable resource in the Republic of Azerbaijan, where the average annual rainfall is less than 450 mm. Two large rivers of the South Caucasus region, – the Kura and the Aras – flow through the country, forming a large fertile lowland plain suitable for irrigated agriculture. All sectors; including agriculture, commerce, industry, and urban use water from these rivers, which also provide environmental amenities, both in stream and in the discharge of fresh water to the Caspian Sea. Thus, the whole of the country and its entire population will benefit by implementing policies and supporting investments that regulate and enhance the use of limited water supplies, while addressing the demands of competing sectors. Such policies and investments will form the core of a national water strategy. 2. The agriculture sector requires a substantial portion of the country's fresh water supplies, and that dependence could increase, over time, with climate change. Other sectors will also require more water in the future, in view of both an increasing population and continued growth in the national economy.

3. This report has been prepared by consultants retained by the Asian Development Bank. The team was assisted in country by the ADB Azerbaijan Resident Mission and the Ministry of Emergency Services through its State Agency for Water Resources. Dr. Ramchand Oad, served as the Team Leader and Water Resources Specialist; Ted Patterson as the Irrigation and Drainage Engineer, Steve Parsons as the Hydrologist, and Dennis Wichelns as the Economist. The team was assisted by local consultants Rafig Verdiyev, Niyazi Sulemanov, and Farda Imanov. 4. The consultant team is grateful for the warm reception and technical support provided by many people and organizations in Baku. Mr. Arif Akhundov and other specialists in the State Agency for Water Resources assisted the team in obtaining helpful information from stakeholders. The ADB Country Director, Olly Norojono, and Program Officer, Yagut Ertenliche, and their staff arranged stakeholder workshops and meetings with government agencies. The ADB Project Officer, Akhtar Ali, and his colleague, Mariz Igaya, provided helpful guidance and logistical support. The team appreciates all of the assistance received. Ramchand Oad, Dennis Wichlens, Steve Parson and Ted Patterson: 30 June 2015.

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EXECUTIVE SUMMARY 1. This report presents an assessment of water resources in Azerbaijan Republic with the objective of developing a national water strategy for the country. The report provides an overview of water availability and management, and describes the outlook for water supplies and demands in future. It identifies and analyses water related challenges and opportunities for addressing those challenges. The analysis provides the base for formulation of a water strategy including the country vision and goals, strategy components, and related infrastructure investments and institutional enhancements. 2. The climate of Azerbaijan is continental. Annual rainfall varies from about 300 mm in eastern areas to more than 1,000 mm in the western mountains. The total renewable surface water resources are about 30 billion m3/year. Two major rivers (the Kura and Aras) flow through the country, forming a large basin occupied by good agricultural soils. The country also has groundwater resources, which are located mostly in the foothills of the Greater and Lesser Caucasus and in the alluvial aquifers of the Kura-Aras plain. The average annual rainfall on the Kura-Aras plain is less than 400 mm, which is insufficient for crop production. Irrigation is required to achieve profitable yields in this largely agricultural zone. 3. About two-thirds of Azerbaijan's water resources arise outside the country. Both the Kura and Aras rivers traverse national boundaries. Thus, the volume and quality of water entering Azerbaijan are influenced in part by activities in upstream countries. The annual water withdrawal in Azerbaijan in 2013 was about 12.5 billion m3, of which about 8.23 billion m3 were usefully consumed and about 4.28 billion m3 were recorded as losses. Demand for water will increase in future, with increasing population and economic growth. Climate change also will influence future water demands, particularly in agriculture. The national water strategy for Azerbaijan should include a discussion of the policies and investments needed to ensure that the limited water resources are allocated wisely and used efficiently in all sectors.

4. Major issues regarding water resource management in Azerbaijan include increasing demands for water in agriculture, industry, and households; degradation of water quality; water-related hazards including floods and droughts; and the low productivity of land and water use in agriculture. The agriculture sector is strategically important for the country’s social and economic development, as it provides income and employment for about 40% of the work force, while ensuring household and national food security. Agriculture uses an estimated 70% of the water diverted from rivers, and there are significant opportunities to enhance the productivity of land and water in agriculture. Most crop production takes place on irrigated lands in the Kura-Aras River basin, and the yields of most crops are low by international standards (World Bank, 2012).

5. The administrative structure for water governance currently in place falls short of ensuring optimal use of country’s water resources, but it can be enhanced. The primary challenge is to ensure that water is allocated and used efficiently in meeting several objectives, including food security, domestic water supply, commercial and industrial demands, and environmental requirements. A central government organization with a mandate for central planning and supervision related to all aspects of water resource development would greatly benefit resource management. Efforts that have worked well in other countries include the establishment of a Ministry of Water Resources that oversees trans-boundary coordination, water policy, legislation, planning, regulation and water monitoring. Some countries have established a National Water Authority or a National Water Board, which acts as a central water oversight organization.

6. Efforts to enhance institutional capacity to acquire information and utilize it for decision making also should be considered when forming the national water strategy. Water quality and volume are monitored in Azerbaijan, and that information can be used to improve water management. Information describing groundwater availability and quality is especially important. The institutional capacity to manage information in support of decision making can be enhanced through education, training, and applied research. Minimizing the damage from floods and droughts also requires coordinated planning, management, and response activities involving several government agencies. Planning and management can be enhanced by increasing the efficient collection and wilful sharing of real-time information regarding stremflow, weather, aquifer parameters, and water supply and demands, across the country.

7. The quality of surface water in Azerbaijan, particularly in the Kura and Aras Rivers, is an issue requiring substantial attention. Data gathered at the Georgian-Azerbaijani border reflect values higher than maximum allowable concentrations (MACs) for phenols, oil products, metals and sulphates. The Aras River water entering Azerbaijan is reported to exhibit concentrations in excess of the MACs for copper, molybdenum and other heavy metals. Efforts are needed also to enhance the management of floods and droughts in Azerbaijan, as these events occur with some frequency, and often with substantial impacts on livelihoods and property. 8. Azerbaijan has substantial water infrastructure in place, including major dams and

reservoirs and an extensive irrigation distribution and drainage network. Yet, in recent years, agriculture has not received the investments needed to sustain and enhance productivity. A majority of the irrigation canals are earthen, resulting in substantial conveyance and operational losses. Rehabilitation and modernization, coupled with improved management, are needed to improve irrigation efficiencies and increase crop production. Proper drainage of agricultural land is also essential to sustain irrigated agriculture. For security against flooding, an effective flood forecasting system needs to be established and flood protection infrastructure improved. To facilitate both flood forecasting and water resource planning and management, meteorological stations and a telemetric network need to be rehabilitated and upgraded to function properly.

9. Given the challenges and opportunities discussed above, the overall goal of formulating a water strategy would be, “to ensure that adequate quantities of suitable quality water is available for economic and social development of Azerbaijan while fully meeting the water allocation requirements for sustainable environmental management.” The desired outcomes or components of the national water strategy would be: (i) Improved access to good quality water for all social and economic purposes; (ii) effective cooperation mechanisms in place with neighbouring countries for managing trans-boundary waters in terms of both quantity and quality (iii) modernized agriculture sector through investments in irrigation and drainage infrastructure and better water management practices, as well as improving farmer access to other inputs and technical assistance; (iv) enhanced water administration and governance, for both surface and ground water, and (v) adaptation to climate change and ability to manage risks due to exceptional water conditions including floods and droughts.

1. INTRODUCTION

1.1 Purpose 1. This report is an assessment of water resources in Azerbaijan Republic with a view to formulate a national strategy for promoting efficient management of available water resources for social and economic development on a sustainable basis. We provide an overview of water availability and its current management, as well as describing the outlook for both water supply and demand in the future. We consider water requirements of all sectors of the economy including agriculture, urban and industry as well as environmental water allocations and water management for natural disasters including floods and droughts. We identify the major challenges the country faces in water resource management, and identify options for meeting these challenges. We then formulate a strategy for how best to realize these options, which includes establishing country goals and objectives as well as a strategic framework reflecting desired outcomes and identifying required institutional enhancements and investment areas. The national strategy will be complete when all water related government agencies and stakeholders fine tune the strategic framework and detail both their future development plans and related investment requirements.

1.2 Motivation for a Water Strategy

2. Azerbaijan is considering the reform of its water management policies and programs, to ensure future food and energy supplies, sustain the environment, and achieve important components of national security. To achieve these goals, the country must address identified challenges regarding water supply and demand. These include better protection of water resources from pollution, improvements in water use efficiency, better planning and management of floods and droughts, and successful collection of revenues from water users to ensure the sustainable management and delivery of water services (OECD/EAP, 2014).

3. A national water strategy is needed for addressing such challenges in a coordinated way, across all levels of government, while involving other stakeholders and ensuring consistency of policy. Since 2010, the United Nations Economic Commission for Europe (UNECE) has assisted the Government in developing a water strategy through the National Policy Dialogue (NPD) initiated by the European Union (EU). The UNECE is assisting also in the development of an agricultural strategy paper, which will include discussion of water availability, allocation, and management in agriculture.

4. Azerbaijan has a continental climate, with notable variation in average rainfall and temperatures from eastern lowlands to the western mountains. The average annual rainfall in the largely agricultural Kura-Aras lowland is less than 400 mm, which is insufficient for crop production. Average annual rainfall in the higher-elevation western areas is greater than 600 mm. Several data sources report the total renewable water resources in Azerbaijan are about 30 billion cubic meters (billion m3) per year for surface water (Arif Akhundov, 2014). The average annual withdrawal from surface water is about 12 billion m3, or about 40% of the country's estimated 30 billion m3 of annual surface water resources1 (FAO, 2009). Thus, from an aggregate perspective, the supply of water is sufficient to meet current demands, and there is potential to further develop the country's surface water resources. Yet, issues

1 Please note that the actual river water diversions are about half of the available stream flow. The difference

accounts, among others, for water discharges to the Caspian Sea and for other environmental purposes including maintaining habitats for wildlife. It also indicates future potential for investment in water storage facilities.

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regarding water quality, agricultural productivity, soil salinization and waterlogging, and competing demands for water in other sectors must be considered in the context of developing a national strategy regarding water resources.

5. Water is unevenly distributed across the seasons and regions in Azerbaijan. The mountainous areas of the Greater Caucasus experience increasingly prolonged inundations and flash floods during the wet season and extended dry spells during the dry season. Two major rivers (the Kura and Aras) flow through the country, forming a basin between them with good agricultural soils. Crop production on the Kura-Aras plain requires irrigation, although many farmers produce winter2 wheat and barley using rainfall with only limited supplemental irrigation. Agriculture accounts for a substantial portion of the water consumed in Azerbaijan each year, and an estimated 90% of the value of agriculture generated each year relies on irrigation. The agriculture sector therefore needs a renewed focus as much of the consumptive use of water in Azerbaijan, typical of most countries, occurs in agriculture. 6. Prior to the 1990s, Azerbaijan's extensive system of municipal water supply and wastewater collection and treatment plants were operated largely by the “vodokanal” organizations of local administrations. The piped water supply systems served 95% of the population of Baku and about 83% of the population in other smaller cities. In the recent past, the condition of some water supply and treatment facilities has noticeably depreciated. Leakage from these systems is high but poorly documented, and metering of water supplies is not complete. The Government has adopted the target of providing all towns and villages with a reliable water supply system and complete sanitation services, as part of its State Program on Poverty Reduction and Sustainable Development (Government of Azerbaijan, 2008).

7. Looking forward, the demands for water will increase in Azerbaijan, while the annual supply will remain largely the same, or will be modified somewhat by the influence of climate change. Competition for water also will increase, both within and across productive sectors, in both cities and rural areas. Institutional enhancements and investments will be needed to ensure that water resources are developed in accordance with national interests, and that water is allocated and used wisely in all sectors. Those institutional enhancements and investments should be consistent with a national water strategy that depicts the long-term view for water resource development in Azerbaijan, and acknowledges the important roles of water in agricultural and industrial production, in commerce, in households, and in environmental applications. 8. The process for developing a national water strategy should include a thoughtful discussion pertaining to the broader questions of social and economic development in Azerbaijan. At present, much of the country's GDP is earned through the production and sale of oil and gas. Given the fixed nature of the volume of those resources, the relative importance of the primary energy sector will inevitably decline at some point in the future. Prior to that decline, Azerbaijan should have established a plan and made the necessary investments for sustaining desirable rates of economic growth and continuing to enhance livelihoods in rural and urban areas.

1.3 Objectives, Strategies, and Tactics

9. Strategies are best described in the context of well-defined goals and objectives. Once the goals and the components of a strategy are identified and agreed, one can determine the best approach for implementing the strategy. Tactical considerations will become pertinent when implementing the components of a strategy to best effect. In a

2 In Azerbaijan, the winter crop is referred to as autumn wheat or autumn barley.

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sense, a strategy involves a long-term perspective, while tactics involve shorter term efforts to implement components of the over-arching strategy. 10. Many questions of national importance require strategic approaches and strategic investments if they are to be satisfactorily resolved. Strategies normally involve both investments in infrastructure as well as institutional enhancements, with long-term and wide-reaching implications. Once the strategies are identified, appropriate tactics and activities can be implemented, and revised as needed, to achieve the strategic objectives. In Azerbaijan, one plausible national goal might be that of maintaining economic growth and continuing to enhance social welfare, even as revenues from the sale of gas and oil inevitably decline in future. For a national water strategy, the primary goal could be to ensure that adequate quantities of good quality water are available for all social and economic development needs as well as that required to ensure environmental management at acceptable levels. It is evident that agriculture and other non-oil sectors will regain importance in the mix of economic activities that comprise Azerbaijan’s national GDP in the future, and water is a critical input to agriculture production.

11. Four additional considerations for the national water strategy, in addition to agriculture, seem pertinent. These involve maintaining and/or improving water quality, sustainable management of the country’s groundwater resources, the improvement of water and sanitation services and their extension to currently non-served areas, and the optimal management of both floods and drought to minimize the resultant negative impacts. Later quality issues are perhaps most challenging, given that much of the surface water in Azerbaijan arises in neighbouring countries, where the water quality is significantly degraded by agricultural, industrial, and municipal effluent. Water pollution occurs also within Azerbaijan, from both point and nonpoint sources. These pollutants impair the quality of water for a range of uses, including irrigation, drinking, and environmental enhancement.

12. The strategy must address improving the quality of surface water, giving full consideration to both internal and international sources of water pollution. The strategy must also address the need to optimize the management and use of groundwater. The annual net groundwater recharge in Azerbaijan is notably smaller than the amount of surface water available, yet groundwater serves as an important source of drinking water and supplemental irrigation in some areas. Groundwater use is versatile to a degree and it can be effectively used to offset the negative impacts of drought. A comprehensive plan that describes how groundwater will be managed, particularly in aquifers recharged by major rivers, will be helpful in generating greater return from the country's groundwater resources. 13. The Government already is implementing a program of extending water and sanitation service across the country, and that effort certainly should continue under any future strategy. It will also be helpful to provide guidelines for extending service, in conjunction with other efforts to enhance the supply of water for agriculture and to improve water quality, particularly in rural areas. Water supply and sanitation service have notable impacts on water quality, and efforts to expand service can be designed in conjunction with efforts to extend irrigation systems. Considerations for managing floods and droughts are particularly pertinent in Azerbaijan, given the frequency with which these events occur. Programs for addressing floods and droughts should include the components of monitoring, planning, response, and adaptation.

1.4 This Study 14. This study provides a comprehensive review and analysis of Azerbaijan’s water resources and identifies the main challenges the sector faces. It analyses the issues and highlights opportunities that exist in the specific socio-economic environment of Azerbaijan.

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The study reinforces the need for a national water strategy (NWS) to address the issues and it provides the necessary framework for compilation of a comprehensive NWS. The transformation of this framework into a complete NWS will require preparing medium and long term development and investment plans for all water based sub-sectors by concerned government agencies in close collaboration with end-users. 15. The study reviewed available secondary information, conducted two comprehensive stakeholders’ consultations, held numerous meetings with officials from the main government ministries, agencies, institutions and companies, which are involved in the management and regulation of water resources, collected relevant data from them and discussed in detail their visions of future sector evolvement from their perspective,. The study benefitted from the experience and contributions by the Government’s higher authorities, policy makers, managers, national and international organizations, academicians and water experts. Two reviews by the Government Ministries and other stakeholders’ helped improve the final report (The team’s response to comments from various stakeholders on earlier drafts of the report are documented in Appendices A & B).

1.5 Structure of the Report 16. The main report consists of two parts: Part A: Water Resource Assessment

Analysis of supply and demand for water nation-wide and by key sectors

Part B: Formulation of National Water Strategy

Change drivers for a national water strategy Identification and analysis of water related challenges and opportunities

for improvement, Strategic Framework: establishing country-wide goals and objectives,

desired outcomes and indicators Potential investments and institutional enhancements.

17. Four annexes supplement the background information presented for selected subject areas in the Main Report. These are:

Annex A: Institutions for water resources management in Azerbaijan

Annex B: Revitalizing agriculture in Azerbaijan Annex C: Water resources assessment for Azerbaijan Annex D: Irrigation and drainage subsector in Azerbaijan

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PART A: WATER RESOURCE ASSESSMENT

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2. NATIONAL SETTING

2.1 Location

18. Azerbaijan is located on the western shores of the Caspian Sea, in the eastern part of the South Caucasus region (Figure 1), with a land area of 8.64 million hectares (ha) and a population in 2015 of 9.7 million (FAO, 2015). About 4.75 million ha are considered agricultural land and about 1.0 million ha are forest lands. In 2005, the cultivated area was 2.06 million ha, or 43% of the total agricultural land area.

Figure 1. Map of Azerbaijan

2.2 Climate 19. Nine of eleven defined climate zones are found in Azerbaijan. The average annual temperature is about 15o C in the Kura-Aras Lowland, the coastal regions south of the Absheron Peninsula, and in the Lankaran Lowland. The temperature declines near the mountains, averaging about 5o C at an altitude of 2,000 m, and 2o C at 3,000 m. The highest annual rainfall occurs in the higher elevations of the western region, while the least rainfall occurs on the Absheron Peninsula, in the east. About 43% of the country is at an elevation more than 1,000 m above sea level (FAO, 2009). 20. The climate zones of Azerbaijan can be summarized as follows:3

(i) Semi-desert and dry steppe in the central lowlands in the Kur to elevation 400 m, the Caspian zone from the end of Samur River to the Gizilagaj gulf, the plains of Nakhchivan along the Aras River, and the valleys of the Talish

3 http://en.wikipedia.org/wiki/Climate_of_Azerbaijan. Accessed 19 May 2015.

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Mountains below 1,000 m. Annual rainfall accounts for 15-50% of the potential evaporation. Winters are usually cool, though cold on the Aras River plains, and in the valleys of the Talish Mountains. Summer temperatures can exceed 40o C.

(ii) A moderate climate with mild, dry winters covers the south hills (below 1,000 m)

of the Greater Caucasus, the Ganikh-Eyrichay Valley between 200 and 500 m, and the north and east hills of the Lesser Caucasus between 400 and 1,500 m. Annual rainfall accounts for 50-100% of the potential evaporation.

(iii) The Lankaran-Astara region is moderately warm, with dry summers. Annual

rainfall accounts for 100-150% of the potential evaporation. Winters are cool, summers are hot and dry, and autumns are rainy. The months of May through August are usually dry, requiring irrigation to support crop production.

(iv) A cold climate with heavy precipitation, year-round, in the south hills of the

Greater Caucasus between 1,500 and 2,700 m, includes forest, subalpine, and alpine zones. Annual rainfall accounts for more than 150-200% of the potential evaporation. Winters are cold, summers are cool.

(v) Alpine tundra in the areas of the Greater and Lesser Caucasus above 2,700 m,

and Nakhchivan above 3,200 m. Annual precipitation accounts for more than 100-200% of potential evaporation. Winters and summers are both cold. In some places, snow does not melt until the following winter.

2.3 Population

21. Azerbaijan’s population increased from 2.9 million in 1950 to 9.7 million in 2015. The urban proportion of 40% in 1950 increased to 53% in 2010. Azerbaijani comprise about 92% of the population, followed by Lezgi and Russian at 1.4% each. About 45% of the population is between the ages of 25 and 54, 22.7% are children (0-14 years), 17.5% are young (15-24 years) and 14.8% are above 55. The population growth rate declined sharply in the 1990s, before increasing in the early 2000s, and reaching 1.2% in 2008 (Figure 2). The current growth rate of about 1.0% is expected to decline in the future, reaching zero in 2040, when the population will have reached a peak of about 10.6 million (Figure 2). 22. Although the population growth rate is about 1.0% and declining, population will continue increasing in Azerbaijan through 2040. The larger population, and the increasing per capita income, will contribute to increasing demands for water in agricultural, industrial, domestic, and environmental uses. According to official estimates, the national poverty prevalence fell from 50% in 2001 to 7.6% in 2011. Much of the reduction in poverty other than that derived through employment opportunities offered directly as a result of oil and gas development has been achieved by investing revenues from oil and gas production in schools, universities, hospitals, and the modernization of social programs (OECD, 2011).

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Figure 2. Population and population growth rate (1992 to 2050)

Source: FAO, 2015.

2.4 Economy 23. Prior to gaining independence in 1991, Azerbaijan’s economy was mainly agriculture based. In the 1990s and 2000s, the country transitioned from an agriculture-based, centrally planned economy, to an oil-industry led market economy. With the rapid growth in the energy sector from 2005 to 2008, Azerbaijan’s economy expanded significantly, with average annual GDP growth of 24%. The non-oil sectors grew by 12% annually during those years. In 2008, GDP growth declined to 9% overall and 3% in the non-oil sectors, due to the global economic recession. Although Azerbaijan was less impacted by the international financial crisis of 2008 to 2009, than were other countries in Eastern Europe and the South Caucasus, the sharp decline in oil and gas revenues revealed the vulnerability of its economy to energy shocks and commodity price risk (OECD, 2011). 24. Agriculture maintained a positive growth of 3.5% in 2009, which increased to about 8.6% from 2010 through 2012 and posted an annual growth of 8.2% in 2013. This relatively robust growth has significantly reduced poverty in the country. In 2013, only 6% of the population was considered poor, compared with 50% in 2001.4 However, given the inevitable limitation of its oil and gas reserves, the Government is challenged to diversify the sources of economic growth, while reducing dependence on the energy sector. Investments that improve agricultural productivity will be important components of an economic diversification program that enhances future growth opportunities (Ciarreta and Nasirov, 2012).

25. The Government is implementing an ambitious program to improve transportation, expand access to water and sanitation, and extend communication and information technology (Government of Azerbaijan, 2008). With rapid growth of the energy industry, agriculture’s weight in the national economy has declined from about 35% of GDP in Soviet times to about 5.5% in 2012. However, agriculture still has strategic importance for the country’s social and economic development, as it provides income and employment for about 40% of the work force. In the late 1990s, the Government implemented major land reforms in which collective and state lands were distributed to rural households, leading to an expansion in cropping and livestock (Government of Azerbaijan, 1996a). By 2000, about 97% of the entitled rural population received land titles with an average landholding size of 2.3 ha per household. The amount of land suitable for supporting a farm household varies by region, ranging from 2.1 ha in Sabirabad, 4.2 ha in Salyan, and 13 ha in Barda (State Statistics Committee, 2005; Rzayev, 2007). Survey data for 2000 to 2012 suggest the average size of family farms in Azerbaijan is about 2 ha (ECA, 2012). Given its knowledge

4 Based on the 2001 poverty line of AZM (Old Menat) 120,000 or US$30 per capita per month.

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and export base and the favourable climate and geographic location, agriculture has significant development opportunities that remain unutilized. Presently, the sector is characterized largely by low-productivity subsistence agriculture. 26. The Government has recently implemented several strategic programs to improve agriculture, including the Reliable Provision of Food Products Program (2008-2015; Government of Azerbaijan, 2008), which seeks to rehabilitate irrigation infrastructure, develop food processing and marketing enterprises and establish a Research Centre for Agriculture. The irrigation subsector development strategy was outlined in the State Program on Amelioration and Irrigation in the Presidential Decree of 2006, with a view to improving water resources and the irrigation sector (Government of Azerbaijan, 2006b). 27. Azerbaijan implemented the state program for socio-economic development (SPSD) from 2004 to 2008 and from 2009 to 2013. The SPSD contributed to a high growth rate in the non-oil sector by creating new enterprises and job opportunities, increasing the quality and number of public utilities and social infrastructure, improving the business environment, improving infrastructure, and decreasing poverty. The State Program for Poverty Reduction and Sustainable Development (2008-2015) also helped to reduce poverty significantly. Azerbaijan’s Vision 2020 document describes the country's goals of achieving a competitive economy, upgrading communications, establishing a knowledge-based society, developing human capital, and enhancing civil society, while protecting cultural heritage and the environment, and improving institutions and legislation. The vision is to establish Azerbaijan as an economically and politically developed, and competitive, country by 2020.

3. WATER RESOURCES

3.1 Rainfall 28. The long-term, average annual precipitation in Azerbaijan is about 450 mm5, which is equivalent to an annual volume of 38.7 billion m3 (FAO Aquastat, Azerbaijan Country Fact Sheet). The amount of rainfall received each month varies substantially during the year and across the country, with important implications for water runoff, capture, storage, and management. Generally, rainfall is higher in western portions of Azerbaijan and lower in eastern regions.

29. Monthly rainfall in Azerbaijan is best characterized as a bi-modal distribution, with a notable rainy season in the spring (April to June) and a somewhat less notable rainy season in the fall (September to November). The mean-monthly rainfall at various locations in Azerbaijan and for the country is given in Table 1, based on estimations derived from the World Bank Climate Change Information Portal for the period 1990 to 2009. The amount of rainfall received each year actually varies substantially across the country, with largest rainfall experienced in the Southern Caucasus Mountains in the North-west of the country, and the Lankaran area of the extreme south-east. Lowest rainfall is within the lower Kura-Aras plains and the Caspian Sea coastal area near Baku. 30. The high rainfall in western Azerbaijan provides the opportunity to produce winter grains (referred to as autumn grains in Azerbaijan) without irrigation on limited areas and to capture and store excess water in reservoirs. Indeed, several reservoirs have been built in central and western Azerbaijan, including the large Mingachevir Reservoir, to provide flood control and capture excess water for irrigation. Farmers in western Azerbaijan can produce

5 The average annual precipitation is the sum of average monthly precipitation. In Table 1, the annual average

rainfall for Azerbaijan is shown as 421 mm.

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winter small grains without irrigation, although yields will be limited in years when rainfall is not sufficient to satisfy crop water requirements. Crop production in eastern Azerbaijan is not possible without irrigation.

Table 1. Mean-monthly Rainfall in Azerbaijan Stations Mean-monthly Rainfall (mm) in period 1990 to 2009

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual

Azerbaijan 22.2 26.5 39.6 51.6 59.9 51.2 25.8 23.0 29.4 41.4 28.0 23.0 421.6

Baku 20.8 13.0 19.8 25.9 24.1 18.8 13.8 11.1 34.4 38.4 24.3 17.7 262.1

Ganja 19.1 15.3 31.7 74.3 61.4 68.8 45.0 28.1 24.5 51.6 27.9 28.2 475.9

Gazakh 19.9 24.3 40.5 92.4 81.4 103.3 51.6 42.4 32.0 48.1 37.4 39.3 612.6

Lankaran 212.0 192.6 206.6 194.5 119.6 97.2 79.1 82.3 106.9 128.2 185.4 184.8 1789.2

Salyan 28.4 22.5 26.1 41.2 25.8 17.8 10.5 10.4 30.9 42.9 29.3 25.8 311.6

Zagatala 26.4 23.8 46.5 91.8 99.2 102.8 74.0 54.9 49.4 53.6 46.3 47.1 715.8

Nakchivan 20.4 15.6 45.5 85.7 75.0 46.8 45.2 20.9 17.6 44.4 31.4 30.4 478.9

Source: World Bank, Climate Change Information Portal, May 2015.

3.2 Surface Water 31. The total renewable surface water resources are estimated to be about 30 billion m3/year (please note this is the surface runoff resulting from the rainfall of about 38.7 billion m3/year mentioned in para 28). The annual internally generated surface water resources are about 7.5 billion m3 and the incoming annual stream flow from neighbouring countries is about 22.5 billion m3. Annual groundwater recharge is estimated at about 6.5 billion m3. Most recent figures presented to the team by the State Agency for Water Resources (SAWR) cite annual surface water resources of 28.5 to 30.5 billion m3. During droughts, the annual surface water supply can be as low as 22.6 billion m3 (Akhundov, 2014). We accepted the number 30 billion m3 for surface water resources and used it in our analyses of water supply. 32. Azerbaijan has four major river basins, including two international basins, the Kura and Aras, and two internal coastal basins, one in the northeast, between the Samur and Kura Rivers, and one in the southeast, in the Lankaran region (Figure 1). The Kura and Aras rivers together form the largest basin in the country. The Kura River rises in the Kars upland in northeast Turkey, flows into Georgia and crosses the border to Azerbaijan in the northwest, before discharging into the Caspian Sea. The river is 1,515 km in length, forming a basin of 188,000 km2, of which 58,000 km2 (31%) are in Azerbaijan (UNECE, 2011). The estimated annual inflow from Georgia is 10.3 billion m3 (Akhundov, 2014). The Aras River also rises in the northeast of Turkey and enters Azerbaijan from territories of Turkey and Armenia. It discharges into the Kura River about 100 km downstream of the border with Armenia. The estimated annual flow of the main branch of the Aras River and its tributaries from neighbouring countries is 12.2 billion m3, which brings the annual trans-boundary flow into Azerbaijan to 22.5 billion m3. 33. The Samur River, located in the northeast of the country, rises in Russia and then forms a portion of the border with Azerbaijan. Its estimated annual discharge is 2.4 billion m3 half of which is considered to be available for Azerbaijan. The internal basins comprise the

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Caspian Sea coastal river basins in the northeast, between the Samur and Kura River Basins and the Caspian Sea coastal river basins in the Lankaran region in the southeast, south of the Kura River Basin.

3.3 Groundwater 34. There are 18 hydro-geologic basins in Azerbaijan, within three geo-structural regions, the Fold Mountains Area of the Greater Caucasus, the Fold Mountains Area of the Lesser Caucasus, and the Kura-Aras Lowland (Alakbarov, c.2000). Most of the potable and mildly mineralized groundwater occurs in the Kura-Aras Lowland and the porous-stratal basin of the Samur-Gusarchay Valley (Figure 3). 35. Eestimates of groundwater recharge and the volume available for withdrawal vary, and some are not necessarily current. Aquifers in Azerbaijan are recharged by rainfall, river flow, and seepage from canals (Alakbarov, c.2000). Annual recharge is estimated to be about 6.5 billion m3, of which about 4.35 billion m3 constitute the base flow of the main rivers. Thus, the actual groundwater resource is 2.15 billion m3 (FAO 2009; quoted in UNDP/GEF, 2013a). The largest sources of recharge are the Kura and Aras Rivers, which carry heavy pollutant loads from neighboring countries, thus potentially degrading the quality of groundwater in Azerbaijan (Alakbarov and Imanov, 2010).

Figure 3. Location of Groundwater in Azerbaijan

Legend: Unit rates of usable groundwater, in litres per second (l/s)

1: up to 0.1 l/s, 2: 0.1 to 1.0 l/s, 3: 1 to 10 l/s, 4: greater than 10 l/s, 5: borders of areas with differing rates of groundwater availability

Source: Alakbarov, c. 2000. Groundwater of Azerbaijan. This is an undated, unpublished report, 16 pages.

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3.4 Marginal Quality Water 36. The volume of water recycled and reused in Azerbaijan has ranged from about 1.5 billion m3 to 2.5 billion m3 since 2000, with the exception of 2002, when the volume recycled was less than 1.0 billion m3. Thus, in most years, the volume of water recycled has ranged from 15% to 21% of the volume withdrawn from surface water sources.6 Ideally, opportunities exist for optimizing the collection and reuse of agricultural drainage water. As sections of the irrigation and drainage system are renovated and improved in future, provision can be made for capturing and reusing surface and subsurface drain water. However, using practices that are consistent with maintaining soil salinity within an acceptable range requires sophisticated management techniques coupled with state of the art real time monitoring of flow volumes and salt loads.

3.5 Floodwater 37. The pattern of flooding in the Kura River basin has been significantly influenced by the construction of the Mingachevir Reservoir in 1953. Hasanova and Imanov (2010) report that prior to construction of the dam, the Kura flooded its lower valley in most years, during the late spring and early summer snowmelt period. Following completion of the reservoir and the smaller Shamkir dam (1982), and the Aras dam on the Aras River (1971), flooding incidence has been notably reduced. Thus, much of the floodwater potential in Azerbaijan already has been developed with the construction and operation of large and small dams on the Kura and Aras Rivers. The Mingachevir reservoir holds about 2.5 billion m3 of flood runoff each year for release during the rest of the year. The other reservoirs in the country are significantly smaller, but on average it is expected that about 3 billion m3 of flood runoff is retained for use within the country each year.

3.6 Climate Change

38. The United Nations Framework Convention on Climate Change (the Second National Communication) has evaluated the possible impacts of climate change on the water resources of Azerbaijan (MENR, 2010). The United Kingdom's Hadley Centre for Climate Change performed the modelling, using the PRECIS 1.4 modelling system. Modelling projections were made for 2021 to 2050, and for 2071 to 2100.

39. For 2021 to 2050, the modelling indicates rainfall in Azerbaijan will increase by 10% to 20% compared with the period 1961-1990. Increases vary with location – increases are 0% to 10% in Nakhchivan and 20% in the eastern part of the country. From 2021 to 2050, the temperature is expected to rise by 1.5 to 1.6oC, leading to evaporative increases of 0.4 mm to 1.2 mm per day. Modelling of water resources indicates these changes will result in little change to the available resources, with a reduction in water resources in the Aras basin being compensated by additional resources expected in the eastern part of the country.

40. From 2071 to 2100, rainfall is expected to increase from the west of the country to the east, from 20% in the west to 80% in the east. Temperatures are expected to increase by 3 to 6oC, with most of the country having a 5oC rise compared to the 1961 to 1990 period. The large predicted increases in rainfall in the model are doubted, and it is suggested by the report that predictions from other models of changes in water resources for the period 2071 to 2100 indicating a 15% reduction in water resources are more plausible. Other work undertaken on climate change impacts in Azerbaijan has produced different estimates of expected changes. The National Climate Change Centre of Azerbaijan in the MENR used

6 The consultant team highly suspects these reuse numbers.

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model results including the GISS (Goddard Institute of Space Studies model) and GFDL-3 (Geophysical Fluid Dynamics Laboratory model) Models. 41. The Climate Change Centre also examined climate projections from the Special Report on Emissions Scenarios, and agrees with the climate change scenario suggested by the Azerbaijan Academy of Sciences, regarding a 10% to 15% reduction in water resources by 2100 (Table 2). 42. Impacts of climate change on crop water requirements. Irrigated agriculture likely will be impacted by higher temperatures due to climate change. With evaporation rates increasing by 0.4 mm to 1.2 mm/day from 2021 to 2050, irrigation requirements might increase by 15%-20%. From 2071 to 2100, water requirements for crops will be higher due to higher temperatures, but crop irrigation requirements might be partly offset by significantly increased rainfall. The Climate Change and Ozone Centre of MENR have responsibility within the Government to “assess potential impacts on natural ecosystems and the economy of the expected climate change” and so should be the main source of information on the impact of climate change and water requirements. The process of preparation of the third national submission to the UN Framework Convention on Climate Change has started, and is due for reporting soon (March 2015)7. This process will generate improved estimates of possible climate change and its impacts should be available soon.

Table 2. Potential effects of climate change on water resources United Kingdom's Hadley Centre for Climate Change

Scenario (50 years, or as noted) Potential surface water resources (% of present)

GISS 86

GFDL-3 81

SRES_A2 79

Azerbaijan Academy of Sciences 90

PRECIS model for 2021-50 100

PRECIS model for 2071-2100 80-85

4. WATER USE

43. For the most recent year 2013, the total water abstraction is about 12.5 billion m3, of which about 8.230 billion m3 are usefully consumed and about 4.28 billion m3 constitute losses (Table 3). The losses, mostly in the conveyance of water supplies for irrigation, municipal and other uses and application to irrigated lands, are quite high – about 35%.

44. Irrigated agriculture is the largest water user, consuming about 40-50% of the total water withdrawn. Industry accounts for about 15-20% of surface water deliveries, while the domestic uses and drinking water volumes are much smaller. While these abstractions are generally accepted to lie within the allocations for the various uses, the precise allocation mechanism remains unclear. Regarding environmental flows, there is an old Soviet-period agreement for the minimum flows that should be left in rivers. For the Kura and Aras, these minimum environmental flows are 175 m3/s for Kura and 35 m3/s for the Aras (Team meeting with MENR, Sept. 29, 2014).

7 http://www.az.undp.org/content/azerbaijan/en/home/operations/projects/sustain_development/tnc/

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Table 3. Surface water withdrawals and use (billion m3)

Water Withdrawals 2000 2005 2007 2008 2009 2010 2011 2012 2013

A. Total water abstractions

11.11

12.05

12.27

11.74

11.43

11.57

11.78

12.48

12.51

B. Total water use 6.6 8.61 8.37 7.89 7.64 7.72 8.01 8.25 8.23

B.1 Irrigation

3.82

5.71

5.84

5.47

5.59

5.50

5.75

5.77

5.75

B.2 Domestic use

0.45

0.52

0.36

0.35

0.38

0.41

0.40

0.28

0.31

B.3 Industrial needs

2.32

2.36

2.16

2.04

1.64

1.74

1.76

2.10

2.06

B.4 Drinking water

0.08

0.06

0.05

0.04

0.05

0.05

0.05

0.04

0.05

C. Reported water losses

3.05

3.46

3.90

3.85

3.79

3.85

3.77

4.24

4.28 Note: Minor inconsistencies in water uses and water losses are attributed to data by different sources. Source: United Nations Development Programme.

4.1 Agriculture 45. Irrigated agriculture accounts for the largest portion of water abstractions in Azerbaijan. From 2000 to 2013, about 40-50% of the total water withdrawn from surface sources was beneficially used for irrigation (Table 3). Irrigation is essential to both Azerbaijan’s agriculture and economy as it supports water requirements of a large part of Azerbaijan’s cropped land (World Bank, 2012). Current irrigated area is reported to be 1.45 million ha and the total cultivated land is about 2.1 million ha. We describe water use in agriculture in greater detail in Chapter 6 of this report on Agriculture, Irrigation, and Drainage.

4.2 Domestic

46. The Azersu Joint Stock Company utilizes both surface water and groundwater when delivering domestic supply. According to Azersu, about one-fifth of the water supplied is derived from groundwater. Of 80 small cities, 48 are supplied with groundwater, and in 32 cities, groundwater is the sole source of water supply (Team meeting with Azersu JSC on September 25, 2014). 47. High quality drinking water for the city of Baku is obtained from several sources, at some distance from the city:

Khachmaz (established in 1956; design flow capacity 2.65 m3/s) Shollar lines (1917, 1937; 187 km from Baku, design flow capacity 1.5 m3/sec ) Djeiranbatan water intake (fed from the Samur river by Samur-Absheron Canal) The recently constructed Oguz Gabala Baku water pipeline project can deliver

fresh drinking water to Baku at design capacity of 5 m3/s. 48. Azerbaijan has made notable progress in recent years, in extending water supply and sanitation in both urban and rural areas. As the national population increased from 8.1 million in 2000 to 9.3 million in 2011, and the proportion of citizens living in urban areas increased from 51% to 54%, sanitation service coverage increased from 73% to 86% of urban residents (WHO, 2013). Sanitation coverage in rural areas increased from 50% of households in 2000 to 78% of households in 2011, such that the national rate of sanitation coverage increased from 62% in 2000 to 82% in 2011.

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49. The proportion of urban residents in Azerbaijan with access to improved water supply has remained constant at 88% from 1990 through 2011, while the proportion with access to a piped water supply has increased from 67% in 1990 to 72% in 2000 and 78% in 2011 (WHO, 2013). Notable progress has been achieved in rural areas, where access to an improved water supply has increased from 49% in 1990 to 59% in 2000 and 71% in 2011. However, most rural residents lack access to a piped water supply. Just 20% of rural residents had access to a piped water supply in 2011.

50. In 2005, wastewater treatment plants were operating in 16 of the 75 important cities and towns in Azerbaijan, yet all had been constructed during the Soviet era, and most were no longer fully functional (ADB, 2005; Puri and Romanenko, 2006). Also in that year, about 78% of households on the Absheron peninsula, which includes Baku, were connected to a wastewater collection system. Although these data are somewhat old, it is likely that substantial investments are needed to enhance wastewater capture, treatment, and reuse in Azerbaijan. Such efforts can generate water for use in agriculture and also for landscape irrigation. FAO (2009) and Sato et al. (2013) report that of the 0.659 billion m3 of wastewater generated in Azerbaijan in 2005, 0.161 billion m3 were treated and used for such purposes.

4.3 Industry and Energy 51. Industrial water requirements are specified in abstraction licences that reflect established norms for industrial facilities. The largest licensed water use is for energy generation, in the form of hydropower and for cooling thermal energy plants. The largest hydropower stations are located at the Mingachevir Reservoir on the Kura River, with a capacity of 402 MW, and at the Shamkir reservoir, upstream of Mingechevir, with a capacity 380 MW. The estimated national requirement for cooling water is 2.4 billion m3 per year. Most of this water flows through a thermal energy facility, and is returned to the river at a higher temperature. The estimated flow through hydropower turbines each year is 14 billion m3. This volume is returned directly to the river after energy generation, largely unaltered from its original state. Hydropower generation is not a major consumptive water user and the country plans to construct additional hydro-electric capacity in future without adding much additional demands on the country's water resources (UNDP/GEF, 2013d).

4.4 Environment and Recreation 52. Water in the Kura and Aras Rivers provides environmental amenities, both in stream and in the form of discharges into the Caspian Sea. We are not aware of in-stream flow requirements or targets for the discharge of water into the Sea, either annually or by season. Thus, we are unable to estimate the volume of water required for environmental maintenance flows. The “norms” or guidelines establishing minimum environmental maintenance flows in the Kura nd Aras Rivers during the Soviet era is given in paragraph 44. We are aware that the Mingachevir Reservoir as well as other reservoirs, the rivers themselves, and the Caspian Sea are all used for a variety of recreational activities but these do not involve consumptive water use.

5. WATER MANAGEMENT

5.1. Physical Features 53. There are more than 140 reservoirs in Azerbaijan with a total storage capacity of about 21.5 billion m3, of which, about 10.9 billion m3 are usable (FAO, 2009, UNDP/GEF, 2013d). The largest of these is the Mingachevir reservoir, commissioned in 1953, which has a design storage capacity of 15,370 million m3. Other large reservoirs include: Shamkir

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(commissioned in 1982) with a storage capacity of 2,677 million m3; Aras (commissioned in 1971) with a storage capacity of 1,254 million m3; and Sarsang8 (commissioned in 1976) with a storage capacity of 565 million m3. Many of the reservoirs are multi-purpose, providing irrigation storage, hydropower generation, and flood protection. In addition to storage reservoirs there are sixteen gated diversion structures on major streams and rivers providing gravity fed water supplies for irrigation and other uses. 54. In 2013, the estimated length of all irrigation canals, including primary and secondary delivery canals and tertiary on-farm canals, was 52,000 km, of which fewer than 5% were concrete lined. The largest canals are the Upper Garabakh, the Upper Shirvan and the Samur-Apsheron, all of which are earthen canals. The Upper Garbakh canal, which runs southeast from the Mingachevir Reservoir to the Aras River, is 174 km long and has a flow capacity of 113.5 m3 per second (m3/s). About 85,000 ha of agricultural land receive irrigation water from this canal. The Upper Shirvan canal also heads at the Mingachevir Reservoir and runs east to the Akhsu River. It is 126 km in length, with a capacity of 78 m3/s, and provides irrigation water for about 91,100 ha. 55. Many of Azerbaijan's irrigation canals and water control structures, and the extensive drainage system, were constructed during the Soviet era, and many would now benefit from repair, rehabilitation, and modernization (UNDP/GEF, 2013a, page 10).

5.2. Water Monitoring 56. The National Environmental Monitoring Department in the Ministry of Ecology and Natural Resources (MENR) is responsible for monitoring the quality of all surface waters, including transboundary rivers. The Hydro-Meteorology and Geological Survey Departments in MENR monitor the climate, rivers, lakes, and groundwater. The Department of Hydro-Meteorology monitors rainfall, air temperatures, and the flow, depth, and discharge in major rivers. The Geological Survey Department monitors groundwater quality and water table elevations. 57. Several other agencies also monitor water resources, in according with their responsibilities. For example, the Amelioration JSC monitors the volume of water diverted in the main and secondary irrigation canals, the deliveries to Azersu and water user associations (WUAs), and the discharges from main drains. 58. The State Agency of Water Resources (SAWR), established in 2011, develops operational rules for major reservoirs with a view to reducing flood peaks. The Amelioration JSC, which designs, builds and operates the dams and reservoirs, operates the primary water distribution network and maintains records of water deliveries to Azersu and WUAs. The Azersu JSC subsequently monitors the volume and quality of water delivered to its customers.

5.3. Water Policy and Legislation 59. Water policy in Azerbaijan is implemented largely through legislation, and in particular through the National Water Code of 1997 (Government of Azerbaijan, 1997). Several laws and bylaws have been adopted on the basis of this Code, including the Law on Water Supply and Wastewater, the Law on Amelioration and Irrigation (Government of Azerbaijan, 1996b), the Law on Hydro-meteorological Activities, and the Law on Safety of

8 The Sarsang reservoir is within the occupied territory and currently is not under control of Azerbaijan

authorities.

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Hydro-technical Installations. Water policy is implemented also through National Plans, State Programs, and Action Plans. By the end of 1996, the Government, with the support of the World Bank, developed the National Environmental Action Plan, which highlights the importance of protecting and managing water resources. 60. The State Water Policy of Azerbaijan provides for: 1) access to safe drinking water for all citizens, in compliance with international water quality standards, 2) a balance between the economic needs and the sustainable use of water resources, and 3) the right of present and future generations to use water in an environmentally sustainable manner. 61. The recent transition to a market economy provides a unique opportunity to consider environmental problems while conducting economic and political reforms. On February 18, 2003, the Government adopted the National Program for Sustainable Socio-Economic Development in the Environmental Context. One section of the Program is dedicated to water policy issues. According to the National Program, by 2010, “every person in the country shall have access to good quality water” (Government of Azerbaijan, 2003). The Program promotes efficient water use by providing economic incentives, improving drinking water quality, revising environmental laws, and reducing pollution in transboundary rivers.

62. As part of its program of enhanced cooperation with the European Union, Azerbaijan has defined priority areas for improving resource management in the Country Strategy Paper for 2007-2013, under the European Neighbourhood and Partnership Instrument (Voloshin, 2014). The most important legislation regarding water resources in the EU is the Water Framework Directive, which defines key principles and objectives, and provides a framework for integrated management of water resources (UNDP/GEF, 2013). The Directive was translated in Azeri, and is being used by several government agencies to implement a pilot river basin management plan according to integrated water resource management principles in the Ganikh and Ganjachay river basins.

5.4. Institutions 63. Several ministries, agencies and joint stock companies share responsibility for managing water resources in Azerbaijan. The entities with foremost responsibility include the MENR; the Amelioration and Irrigation Joint Stock Company (JSC), which manages water deliveries for irrigation; and the Azersu JSC, which is responsible for municipal and industrial water supply (Table 4). The Ministries of Emergency Situations, Agriculture, Energy, and Health also have interests and responsibilities that involve water resources. 64. A number of other agencies share minor degrees of responsibility for water management in Azerbaijan, including the Tariff Council, which determines service charges for the delivery of water, and the State Statistics Committee, which records information and data describing and documenting water resource availability and utilization, . In addition, there are many WUAs representing smallholder farmers, and technical irrigation departments, the field arm of the Amelioration JSC, responsible for operating and maintaining the irrigation and drainage networks. In summary, there is at present a wide array of institutions with mandates pertaining to the country’s water resources (Table 4). 65. None of the agencies involved in water resources and enumerated above has an over-arching supervisory role for specific river basins. Such a role might include authority to make decisions regarding sectoral water allocations, to regulate water use through water permits, and to mitigate water conflicts within a given river basin or basins.

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Table 4. Institutions Involved in Water Management Ministry, Department, or Company

Responsibilities Pertaining to Water

Ministry of Emergency Situations State Agency for Water Resources

Develops operational rules for major reservoirs for reducing flood peaks; Monitors surface and groundwater resources

MENR National Hydro-Meteorological Dept.

National Environmental Monitoring Dept.

Participates in establishment of government policies and planning exercises regarding water resources. Monitors water quality of surface waters entering the country.

Caspian Environmental Monitoring Admin.

Carries out routine stream discharge measurements and systematically monitors both surface and groundwater quality.

National Geological Exploration Service

Ministry of Agriculture

Participates in framing Government policies regarding water resources for irrigation and provides technical support to farmers in matters related to efficient water use in agriculture production.

State Phyto-Sanitary Control Service

Ministry of Health Monitors the quality of water supplied to the public for drinking and other domestic purposes.

Republic Hygienic and Epidemic. Centre

Amelioration and Irrigation Joint Stock Company

Designs and builds country’s water related infrastructure including the flood protection network. Manages irrigation and drainage infrastructure, and facilitates irrigation water delivery to farmers as well as water supply to certain Azersu projects and industrial concerns. The nation-wide flood protection and agricultural drainage networks are also the responsibility 0f the Amelioration and Irrigation Joint Stock Company.

Azer- energy JSC Manages both hydropower and thermal generation; of electricity and its subsequent transmission and distribution to all users.

Azersu JSC Develops and manages water resources subsequently, supplying, treating and delivering the water for both household and industrial use. Azersu is also responsible for wastewater treatment and sanitation.

66. The MENR holds the constitutional authority for water resources planning. Historically, planning was the responsibility of the Amelioration Ministry, and the work done by the Ministry in the past remains the basis of many water resources planning decisions. Several government agencies share flood management and protection responsibilities. The SAWR has management responsibility, while MENR and the Amelioration JSC also have substantial areas of responsibility. In particular, MENR is responsible for forecasting and the Amelioration JSC is responsible for planning, construction, management, maintenance and renewal of the extensive system of flood protection infrastructure throughout the country. MENR has primary responsibility for water quality management, which includes monitoring, permitting of discharges, and enforcement of environmental regulations. The responsibility for regulating environmental flows in rivers is not completely clear. However, the monitoring information gathered and maintained by MENR could be used to develop and enforce environmental flow requirements. 67. The benefits and synergy of integrated water resources management and river basin planning can be achieved through several efforts that improve institutional coordination (UNDP/GEF, 2013):

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Appropriate re-aligning of institutional roles, with especial attention to water

regulation and governance, Improving lines of collaboration between institutions, and Effective sharing of data and compilation of integrated data-bases available to all key

stakeholders and donors involved in water resources management.

5.5. Financing the Water Sector 68. The Amelioration and Azersu JSCs receive large budget allocations, as shown in budget allocations data in Figure 4. From 2008 to 2013, the budget allocation for the Amelioration JSC increased from about 400 million AZN to 900 million AZN (Figure 4). The organizations also receive differing amounts of foreign investment. The Amelioration JSC received foreign investments of 77 million AZN in 2012. Both external and internal financial resources are used to build, rehabilitate and modernize infrastructure while recurrent costs, including payroll, and system operation and maintenance are normally met from local resources alone. The foreign loans and grants are used largely to supplement financing of infrastructure projects (UNDP/GEF, 2013; page 23). 69. The Azersu JSC has performed well in developing infrastructure for providing water to urban and rural communities. This is reflected in the large government budget allocations and foreign investments it has received during the last decade. However, sanitation facilities and water treatment plants need increased attention, especially in rural communities. Likewise the Amelioration JSC has performed well in building, operating and managing major reservoirs, the irrigation distribution and agricultural drainage networks, and the country’s flood protection infrastructure. As noted with regard to Azersu above, further improvement with respect to the agricultural drainage system, portions of which no longer function, are required on the part of Amelioration JSC.

Figure 4. Budget allocations for water organizations

Source: UNDP/GEF, 2013. Azerbaijan National IWRM Plan, page 23.

70. The Amelioration and Azersu JSCs are not collecting sufficient revenues from water users. At minimum, the water supply companies should collect adequate service charges from users to finance normal operation and maintenance costs. An example of the costs and revenues associated with providing irrigation service illustrates the financing gap in one irrigation system which seems to be representative of conditions throughout the country (please see the box, below). In the Salyan region, Amelioration delivers water to WUAs at an

20

average cost of 5 to 10 AZN per 1,000 m3. Yet, the payment received from WUAs can be as little as 0.5 AZN per m3. WUAs further deliver the water to members, who pay 2.0 AZN per 1,000 m3. Yet, the average payment required for sustainable operation and maintenance by the WUA is from 10 to 17 AZN per 1,000 m3. In this example, neither the Amelioration JSC nor the WUA is collecting sufficient revenue to sustain water delivery service without a perpetual subsidy from the government.

5.6. Managing Floods and Droughts 71. The World Health Organization (WHO-ROE, 2010) has compiled a flood hazard distribution map that has been cited by the UNDP-GEF (2013) as an indication of where the key flood hazards exist in the country. The areas of “high” and “very high” flood risk are in the main Kura and Aras River valleys, and in the mountain valleys of the Greater Caucasus. It should also be noted that there is also an area to the south of the lower Kura in the vicinity of the Gizil-Agach State Reserve which is subject to frequent flooding. As this is an area of wetlands included in the UNESCO list of Ramsar sites of ecological importance it is assumed this frequent inundation is indeed beneficial. Three types of floods occur in Azerbaijan:

(i) Fluvial floods associated with the major river system of the Kura and Aras, (ii) Mountain torrent floods in the highlands resulting from rainfall and snowmelt.

Associated mudslides and hillside movement can occur, and (iii) Coastal flooding, exacerbated by the rising level of the Caspian Sea.

72. Data from the second submission by Azerbaijan to the UN Forum on climate change indicates a recent increase in the number of flood events occurring annually. While this increase might be attributed to the effects of climate change, the MENR report does not comment on the changes. 73. The key agencies associated with flood management are the Amelioration JSC and SAWR. Amelioration has several departments that design and implement operations, and manage water resources. The Amelioration JSC has the advantage of having field offices, such as the Irrigation Systems Department (ISD), which performs the operation and maintenance of irrigation and flood protection facilities in each district. The size of the field staff within SAWR is limited and mot compatible with the work required to operate and maintain the country's major dams and reservoirs and the balance of flood protection infrastructure. 74. Earlier assessments of water resources in Azerbaijan largely report average values of water availability, rather than describing the variation over time or across seasons.

Example of Charges for Irrigation Water Delivery

Payment from WUA to Amelioration = 0.5 AZN per 1000 m3

Required = 5 to 10 AZN per 1000 m3

Present payment from farmer to WUA: 2.0 AZN per 1000 m3.

Required for sustainable O&M = 10 to 17 AZN per 1000 m3

Sources: Team interviews with the Amelioration OJSC and a WUA in the

Salyan region, 2014. Data also from World Bank, 2012.

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Without access to detailed information describing variability, it is difficult to evaluate the frequency or significance of droughts. The ongoing work of the Institute of Water Problems in evaluating water resource availability will enhance understanding of the variation in water supplies, and the potential impacts of droughts.

75. Previous studies reveal little evidence of severe droughts in Azerbaijan. While 2014 was identified as a particularly dry year, the impacts appear to be localized to the slopes of the Greater Caucasus, where agriculture is mostly reliant on rainfall, and farmers irrigate from small streams. Most of Azerbaijan's water resources are concentrated within the Kura-Aras basin, where the Mingachevir reservoir provides the opportunity to offset the potential impacts of annual droughts. The reservoir also allows for the coordination of river releases to achieve both agricultural and environmental objectives during dry periods.

5.7. Water Sector Reforms 76. Several ministries and JSCs are implementing water development and management projects. The Amelioration JSC is building several new water reservoirs and canals, including the Takhtakorpu reservoir to ensure the safety of drinking water in Baku as well as the remaining portion of the Absheron peninsula, and the water reservoir and hydropower plant on the Shamkir River (tributary of the Kura River). Amelioration is planning to also construct three hydropower stations below the Shemkirchay reservoir, which is currently used only to supply irrigation water. 77. The Azersu JSC is building facilities to extend drinking water supply and sanitation service. New wastewater treatment plants are designed for 29 cities and are under construction in 21 cities in the Kura-Aras basin. All major cities and nearby villages will be connected to the Waste Water Treatment Plant Network by 2015. Remaining communities will be connected to the network by 2030. All newly constructed plants are required to meet international standards. Azersu is also planning to provide continuous (daily, 24-hour) high-quality water supply to all residential areas of Azerbaijan by 2030. 78. The Government of Azerbaijan has sought active cooperation with international development agencies including the World Bank, ADB, KfW and JICA in implementing and planning projects to improve water sector management. Since 2003, the Government, with the assistance of the World Bank, has implemented three projects to rehabilitate and improve on-farm irrigation systems, and subsequently turn the improved systems over to WUAs for management.

79. The Rehabilitation and Completion of Irrigation and Drainage Infrastructure Project (RIDIP) and the Irrigation Distribution System and Management Improvement Project (IDSMIP) were implemented by the Amelioration JSC. On-farm irrigation systems serving more than 80,000 ha have been completed, and work on systems serving an additional 82,000 ha is underway. A third project, WUA Development Support Project (WUAP), is underway to further strengthen farmers’ associations. The projects are considered a success and provide a good model for further rehabilitation and upgrading of irrigation and drainage systems (The World Bank, 2012). 80. ADB is the principal financier of Azersu’s water supply efforts, presently approaching USD $1 billion. ADB is also supporting the Government’s State Program on Poverty Reduction and Economic Development, and has initiated the poverty reduction partnership process. Beginning with this Technical Assistance assignment, ADB will also assist in developing a country operational strategy, emphasizing integrated and sustainable water resource management.

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81. Another program of high priority has been water policy reform, including strategy development and related legislation to achieve consistency with the principles of water management based on river basins and integrated water resources water management. The European Union has supported these efforts through its National Policy Dialogue (NPD) under the EU Water Initiative. Such dialogues improve regulatory and administrative frameworks, assist countries in determining priorities, and identify projects that need support and raise capacity in countries addressing water management challenges. ADB supports the establishment of river basin organizations (both formal and informal) to facilitate stakeholder consultation and participation, and to improve planning, information gathering, monitoring, and advisory services (ADB, 2003). 6. AGRICULTURE, IRRIGATION, AND LAND DRAINAGE 6.1 Overview A large number of residents in rural areas earn their living in agriculture, either as a farm owner, farm worker, or employment in the processing or marketing of farm products. Thus, agriculture remains an important source of employment and livelihood support in rural areas, even though the sector no longer accounts for a large portion of Azerbaijan's GDP. Of the $64 billion national GDP in 2011, agriculture, fisheries, and forestry accounted for just $5.8 billion, or 9% (EU/FAO, 2012). Yet, agriculture accounts for about 38% of the country's labor force and 40% of the female labor force (Merkle et al., 2012). The rate of growth in the agricultural labor force has been declining in recent years, but the number of persons employed in the sector has increased over time. In 2013, an estimated 1.08 million persons were employed in agriculture (FAO, 2015). 82. Despite the importance of agriculture as a source of employment in rural areas, the sector receives little public investment. In 2012, the agriculture line item in the national budget was $580 million, or just 2% of total expenditures in that year (EU/FAO, 2012). Inadequate investment in agriculture likely is partly responsible for the decline in productivity observed since the early 1990s. As previously noted agriculture also accounts for a substantial portion of the water consumed in the country each year. Crop production in summer requires irrigation, and farmers also irrigate winter wheat and barley crops. . Meat and milk production account for the largest annual values of agricultural output in Azerbaijan, followed by wheat, fruit, and vegetables. 83. Of the 4.9 million ha suitable for cultivation and grazing in Azerbaijan, an estimated 1.5 million ha are irrigated. Some of the irrigated land has been degraded by waterlogging and high salinity, which often is a symptom of poor water management and inadequate drainage. An estimated 1.1 million ha suffer from moderate to severe salinization, while an estimated 0.4 million ha are slightly saline (World Bank, 2013). Many observers of irrigated agriculture in Azerbaijan and other countries in the region have suggested the need to rehabilitate large areas of irrigation and drainage systems, which fell into disrepair with the dissolution of the Soviet Union. There no longer was an institutional structure in place to support the collective management of the irrigation and drainage network. Individual households had little incentive and limited capital with which to operate and maintain the large canals, pump stations, and diversion structures.

6.2 Crop Areas and Yields

84. Following the dissolution of the collective farm system, small-scale, private farms account for most of the agricultural area and most of the value of production in Azerbaijan. In 2011, private entrepreneurs operating small and large farms accounted for $5.5 billion of the $5.8 billion (93%) in agricultural value generated (EU/FAO, 2012). Within the private sector,

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67% of the specialized agricultural producers are family households, 33% percent are small farms, and only 0.2% are large farms (FAO, 2012).

85. The area planted in crops has increased from about 1.0 million hectares (ha) in 2000 to 1.6 million ha in 2013, of which about 1.5 million ha are on small-scale, private farms (Figure 5). Much of the increase in sown area since 2000 is due to increases in the production of winter small grains, and fodder. Cotton production has declined from about 100,000 ha in 2000 to 20,000 ha in 2014, while the area planted in vegetables has increased from about 60,000 ha to 80,000 ha during that time. The areas planted to maize and potatoes also have increased, while the area planted to sugar beets has remained less than 10,000 ha.

Figure 5. Area planted in all crops, 2000 to 2014, in 1,000 ha

Source: Azerbaijan statistics, www. Azstat.org.

86. The yields of major crops in Azerbaijan have been largely constant for many years, showing only small increases, over time. Since 2000, barley yields have remained in the range of 2.0 to 2.5 tons/ha, while wheat yields have been constant at about 2.7 tons/ha (www.Azstat.org). Average cotton yields have increased over that time, from 1 to 2 tons per ha, but this has occurred while the area planted to cotton has declined from 100,000 ha to just 20,000 ha. The average yields of fruit and berry crops have increased from about 6 tons per ha to about 7 tons per ha (www.Azstat.org).

87. The average yields of vegetables, maize for grain, and potatoes have increased more notably, over time, while the average yield of sugar beets has varied somewhat more than the yields for other crops (www.Azstat.org). Vegetable yields have increased from about 13 tons per ha to 15 tons per ha, while maize yields have increased from 3 to 5 tons per ha. Potato yields have almost doubled since 2000, increasing from 8 to 15 tons per ha (www.Azstat.org). The average yield of sugar beets has been increasing since 2005, which is the same year that the area planted in sugar beets increased from 3,000 to 8,000 ha. The increasing yield might reflect the contribution of a newly formed large-scale corporate sugar beet operation in the country.

900

1050

1200

1350

1500

1650

1800

00 02 04 06 08 10 12 14

All Farms, 1000 ha Small Farms, 1000 ha

Year

Planted Area, 1000 ha

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88. Many farm households raise livestock as sources of meat and milk. Animals are no longer used for draft power. (EU/FAO, 2012). The numbers of cattle, sheep, and poultry have increased by 40%, 50%, and 70%, respectively, since 2000 (Figure 6). In 2014, there were an estimated 2.7 million cattle and buffaloes, 8.6 million sheep and goats, and 25.2 million poultry in Azerbaijan (www.Azstat.org). The market value of milk and meat production is much higher than the market value of individual major crops. The estimated value of milk production in 2012 is $502 million, while the estimated value of cattle, sheep, and chicken production is $640 million (Azstat.org). Taken together, the summary value of milk and meat production in 2012 ($1,142 million) represents about 50% of the value of agricultural production in that year. Fruit production represents about 17% of the agricultural value, while vegetables account for 12% of the value. Wheat and potatoes, together, account for about 14% of the value of agricultural production in 2012.

Figure 6. Index of numbers of livestock (Year 2000 = 1.00), 2000 to 2014

Source: Azerbaijan statistics, www.Azstat.org.

6.3 Government Policies – Agricultural Subsidies 89. The Government promotes wheat production, in part, to ensure national food security. In recent years, domestic wheat production has accounted for 50% to 60% of wheat consumption, while imports have accounted for the remaining 40% to 50% (ww.Azstat.org). The average amount of wheat available for domestic consumption has remained in the range of about 200 kg to 220 kg per person, per year, over time (www.Azstat.org). The program of domestic production and imports has been successful in ensuring a sufficient aggregate supply of cereals, meat, and vegetables in Azerbaijan. Since the break-up of the Soviet Union, the amount of calories/person/day has increased from fewer than 2,500 calories/person/day to about 3,000 calories/person/day (www.Azstat.org).

90. The Government supports agricultural producers primarily through subsidies on fertilizer, seed production, machinery, direct transfers, and reduced taxation. The direct transfers include a 40AZN payment/ha/year, for the area planted, and an additional 40 AZN/ha/year, for the area planted in wheat, barley, or rice (EU/FAO, 2012; EC/FAO, 2013). The Government also provides fertilizer and wheat seeds to farmers at 50% of the market

0.8

1.0

1.2

1.4

1.6

1.8

00 02 04 06 08 10 12 14

Cattle, Buffaloes Sheep, Goats Poultry

Index Number (Year 2000 = 1.0)

Year

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price. These payments likely have contributed to the decline in cotton and tobacco production in Azerbaijan in recent years, as the areas planted in wheat and other grains have increased (EU/FAO, 2012).

91. The payments for wheat, barley, and rice reflect the Government's interest in promoting the production of basic food crops. Farmers have responded by planting large areas of wheat, such that the sum of the additional subsidy payment to wheat and rice producers in 2012 was AZN 25 million (EC/FAO, 2013). Those farmers received an additional AZN 64 million for inputs and through the above-market prices they received for wheat delivered to the State Grain Reserves. The latter component is made possible through Government support of producer prices. In 2010, the Government supported price of wheat in Azerbaijan was $288/ton, while the producer prices for wheat in Russia, Ukraine, and Kazakhstan were $127, $136, and $148, respectively (EC/FAO, 2013).

92. The Government's financial support of wheat, barley, and rice production might reflect a policy goal of achieving national food self-sufficiency, rather than food security. The farm-level margins from producing fruits and vegetables are substantially higher than those pertaining to wheat and rice. In 2013, the estimated margin for wheat production was AZN 237/ha, while the estimated margins for potatoes, vegetables, and melons were AZN 2,543, AZN 2,113, and AZN 1,450 per ha, respectively (EC/FAO, 2013). It must be noted here that the irrigation water requirements of potatoes, vegetables and melons are considerably greater than those for wheat and barley. This explains while farmers in Azerbaijan produce a fair amount of fruits and vegetables, grain production continues to account for more than half the area planted in recent years. Seasonal availability of supplemental irrigation of wheat and barley is generally assured, while water availability for additional areas of crops requiring irrigation during the summer months is highly questionable. Farmers are aware of this when arriving at their cropping plans for any given year.

6.4 Ensuring Food Security 93. With an increasing population and rising aggregate income, food demands have increased in recent years. Those demands have been met by increases in the areas planted in wheat and rice, and also through larger purchases of grain on international markets. In addition to seasonable availability of irrigation supples government subsidies also influence farm-level crop production choices as well as provide higher incomes to many farmers. As indicated, reliable supplies of irrigation water as perceived by the farmer are a legitimate factor influencing the cropping pattern choices. Yet, the agricultural subsidy program in Azerbaijan is costly, and seems to prevent market signals from working their way through to decision makers at the farm and processing levels.

94. Past investments in the sector, from both private and public sources, have not been sufficient to maintain desirable levels of productivity. As a result, the condition of land and water resources in agriculture has degraded, over time, input use has declined, and crop yields have not increased at desirable rates. Land degradation has impaired crop yields, and the lower yields have reduced the potential for farmers to invest in efforts to restore productivity. Small farmers with limited financial ability will need assistance from the private sector or the government to lift themselves out of this cycle of resource degradation and inadequate investment. The Government is eager to increase wheat production, in the interest of producing a larger portion of the country's wheat requirement, and reducing grain imports. Food security is certainly an important objective, but grain self-sufficiency is not necessarily an efficient program. As earlier indicated, there are many sources of wheat and other grains in international markets, and the price of these grains appears generally affordable.

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95. An alternative strategy might involve increasing the production of higher valued crops in Azerbaijan, for sale in domestic and international markets, while reducing the production of lower valued commodities. The higher values would be helpful in generating employment opportunities, increasing incomes, and enhancing livelihoods, particularly in rural areas. They would also create opportunities for farmers and their associations to invest more heavily in the natural and physical capital that will enable them to generate higher crop yields and greater values, over time. Crop diversification, resulting in higher valued cropping patterns will increase the incremental value of water in agriculture, such that farmers will have greater incentive to manage water wisely, to reduce system losses, and to implement efficient irrigation and drainage strategies. Farmers also will have greater incentive to pay irrigation service fees, thus providing the funds necessary to support their WUAs. For all of these reasons, investments in agriculture and innovations in the policy environment will lead to wiser use of water in the sector, with positive implications for land and water management in Azerbaijan.

6.5 Irrigation and Drainage 96. An estimated 1.45 million ha of Azerbaijan's 2.1 million ha of agricultural land are equipped for irrigation (World Bank, 2012). In 1913, less than 600,00 ha were irrigated. The intensive development of irrigation occurred after World War II, growing rapidly until the mid-seventies, then steadily increased to current levels in the mid-nineties. The area has remained largely constant since that time. 97. Producing a summer crop in the Kura-Aras lowlands requires about 7,500 m3 of irrigation water per hectare (refer Annex D). Yet, the irrigation norms used by the Amelioration JSC recommend delivering about 5,000 m3 per ha for summer crops, including cotton and corn. That volume is about 60% of the irrigation requirement quantified by accepted professional standards. (World Bank. 2012: Table 1, page 1). Thus, summer crops are grown in conditions in which they frequently experience water stress. Cotton production has largely been discontinued in Azerbaijan, due partly to low yields, resulting from water shortages in summer. 98. Wheat is the dominant winter crop in Azerbaijan, accounting for about 40% of planted area in 2013. Farmers recognize that in the Kura-Aras lowlands, more than 75% of the annual rainfall occurs during the growing period for winter wheat (Oct–June). Producing wheat is a risk-minimizing strategy, given the limited and unreliable supply of irrigation water. Effective rainfall satisfies about 40% of the crop water requirement in the lowlands of the Kura-Aras Basin. Inadequate irrigation water limits the yields of wheat and other crops. The average yield of wheat obtained in recent years is less than 2.5 tons per ha, which is notably lower than the yield achieved in other countries (World Bank, 2012: Table 2, page 2). 99. Surface or subsurface drains are required on much of the irrigated farmland in Azerbaijan, to collect and remove saline drainage water that would, otherwise, cause waterlogging and/or increase soil salinity. About 610,000 ha (42%) of the irrigated land in Azerbaijan is equipped with a drainage system. Most of the collected drainage water flows through large collector drains to the Caspian Sea. Not all of the drainage systems and collectors are functioning as designed. Estimates suggest that repairs and renovation are needed on as much as one-half the area originally equipped with drainage systems (Rzayev, 2007). In addition, new drainage systems are needed on as many as 200,000 ha, where rising water tables are threatening agricultural productivity (Consultant team meeting with specialists at the Amelioration Joint Stock Company, Sept. 24, 2014).

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PART B

DEVELOPING A WATER STRATEGY

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7. THE CHANGE DRIVERS FOR A WATER STRATEGY 7.1 Demographics, Regional Integration and Economic Growth 100. The demand for water in Azerbaijan will increase in the future, due partly to increasing population and rising incomes. The current population growth rate is about 1.0% and declining, such that population will continue increasing through 2040. The increasing demand for water will be limited to some extent by the relative inelasticity of water use in the domestic sector. In addition, most of the water used in households can be recovered and treated for re-use in agriculture, landscape, and other applications. In this sense, most water use in households is non-consumptive. Thus, investments in wastewater recovery, treatment, and re-use will limit the impacts of increasing population and income on the net increase in demand for water in the domestic sector.

7.2 Urbanization 101. Developed urban centers in future will attract more rural population to migrate for their livelihood and better life style. Current urban-rural proportion of 53:47 is likely to considerably change in next 2-3 decades due to cities with better opportunities. The urbanization and change in lifestyle will increase water and sanitation demands in future. A strategy to maintain a reliable and increased water supply to cities needed. Both groundwater and surface water resources will be in pressure and needed to be strategized. Wastewater treatment could be one option as urban water is not a consumptive use. Azerbaijan already has invested in developing reliable water supplies for Baku. Similar investments are needed for other cities and also in rural areas, where water and sanitation service is not yet adequate.

7.3 Environment and Climate Change 102. With increasing levels of income, the demand for environmental amenities also will increase. Residents of Azerbaijan and those in neighboring countries will desire higher levels of water quality in the Kura, Aras, and other rivers and also in the Caspian Sea. Higher levels of aggregate income will facilitate national investments in improving water quality, in conjunction with investments that extend water supply and sanitation to rural areas. In developing the national water strategy, we must consider investments in water quality as integral components of investments to enhance water supply. Efforts to reduce water pollution within Azerbaijan and in upstream countries will increase the value of water in rivers for use in agriculture, municipal and industrial water supply, and in providing environmental amenities. 103. Climate change will modify the pattern of precipitation and temperature in Azerbaijan. It is projected that temperature above 10 Celcius will increase by 10-35 days a year and surface water will reduce by 23% by 2050 (UNDP, GEF and Ministry of Ecology, 2010). Both will have implication to water availability and crop production. As previously suggested, some areas likely will see increasing rainfall, while others will see reductions. Investments in water storage will enhance the ability to adapt to changes in the amount and variation in annual rainfall, while also reducing the vulnerability of agriculture to climate change. Investments in other forms of water infrastructure, such as irrigation canals and drains, will also enhance climate change resilience, by reducing water losses within the delivery system.

7.4 Changing Responsibilities in Water Administration and Governance 104. As pointed out in Part A of this report, responsibility for managing water resources in Azerbaijan is shared across several ministries and agencies, including MENR, SAWR, the Amelioration JSC and Azersu. This structure has worked well in the past, and has merits in

29

the present, as well. Yet, in future, it will be useful to consider merging key responsibilities for water supply, allocation, and quality within a single government authority. As the demand for water increases, decisions regarding investments in water supply and allocation of developed water resources will gain importance, as will policies regarding water quality, wastewater recovery, and re-use. Thus, it may be necessary to develop comprehensive water policies and investments within a single authority that is home to specialists with expertise in a wide array of technical disciplines. 105. Agriculture will continue to be the sector in which most of the developed water resources are utilized in Azerbaijan. Investments in the productivity of agriculture, which are essential to improve rural incomes and enhance food security, will increase the value of water applied on farms. As a result, water users will increasingly value both water conservation and better crop management practices. Investments in irrigation, drainage, and agricultural productivity will all lead to better water management and conservation. Water deliveries for agriculture can be adjusted annually, as needed, to accommodate for fluctuations in supply that result from normal variation in weather or from climate change. For these reasons - the large volume of water used in agriculture and the ability to adjust deliveries annually - specialists in the Ministry of Agriculture need to be involved in policy discussions and investment decisions pertaining to water resources in Azerbaijan. 106. Investments in peri-urban agriculture also will enhance water management, production, and employment in key regions. With increasing urbanization, the volume of wastewater generated in cities and requiring treatment for re-use will increase, over time. Agricultural areas on the fringes of large and medium-sized cities will provide ready sources of demand for fully treated and partially treated wastewater. Policies that promote wastewater treatment and re-use, with due consideration of water quality and public health issues, will enhance peri-urban agriculture, with positive implications for food and nutrition in urban areas and also for household incomes in the agricultural sector. 8. THE KEY CHALLENGES AND OPPORTUNITIES

107. We have identified a number of challenges including (i) water quality and quantity issues related to trans-boundary rivers, (ii) managing increasing demand for water (iii) low water and land productivity in irrigated agriculture, (iv) managing water related hazards, and (v) water administration and governance. Proper monitoring of water resources, data management and its use in decision-making is an important issue that is common to most of the identified challenges. We explain these challenges and describe opportunities to address them with a view to enhance the sustainable management of water resources.

8.1 Trans-boundary Rivers – Related Water Quality and Quantity Issues

108. Challenge. The quality of surface water in Azerbaijan, particularly in the Kura and Aras Rivers, is an issue requiring substantial attention. An estimated 80% of the wastewater load from countries in the basin is discharged into surface waters (Campana et al., 2012). As earlier noted, data gathered at the Georgian-Azerbaijani border reflects values higher than maximum allowable concentrations (MACs) for phenols, oil products, metals and sulphates. The Aras River water entering Azerbaijan is reported to exhibit concentrations in excess of the MACs for copper, molybdenum and other heavy metals (UNDP/GDF, 2013b: Water Quality Assessment). 109. The quantity of stream flow in the trans-boundary rivers varies over a wide range making its management difficult, and the river flows entering Azerbaijan have decreased over time (UNDP/GEF, 2013c). High temporal and spatial variability create water scarcity in some regions of the country.

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110. Assessment. Countries located downstream on trans-boundary rivers often face problems of (i) poor water quality, (ii) upstream induced flow variations over time, including reduced stream flow at critical times (e.g. during summer cropping season), ( iii) degradation of riverine ecosystems, and (iv) unexpected flooding resulting from untold releases of water by the upstream entities.

111. Information received from MENR verifies that water quality is a pressing issue in Azerbaijan.9 Many households in rural areas do not have reliable access to safe drinking water, and the lakes and rivers of the country are polluted with both organic and inorganic substances (UNDP/GEF (2013b). Much of this pollution originates in upstream reaches of the Kura and Aras Rivers. However, lower reaches of the Kura River and its delta as well as the Absheron Peninsula are contaminated with residual chlorine pesticides and other chemicals from agricultural and industrial processing facilities located within the country (De Mora et al., 2004; Aliyeva et al., 2012, 2013).

112. Opportunities. Regional collaboration is needed to improve the quality and quantity of surface water entering Azerbaijan via trans-boundary rivers. Thus, Azerbaijan should continue to participate in international deliberations regarding water quality. There is significant international support for improving collaboration in managing the trans-boundary rivers. The UNECE-sponsored National Policy Dialogues and the UNDP-GEF project are among those offering support. Progress is slow, in part, because both Georgia and Armenia have not yet signed the Helsinki convention on trans-boundary watercourses (United Nations, 2014).10

113. Azerbaijan should move forward with its ongoing investments in water measurement and monitoring, to enhance understanding of the concentrations and transport of pollutants. The country will also continue upgrading wastewater treatment facilities in rural and urban areas, while prioritizing investments in areas with the highest potential returns to improvements in water quality. Azerbaijan should also establish a program of water quality targets, investment requirements, and program delivery schedules, which can be used as a guide for securing international support for contributing to the achievement of regional water quality objectives

114. Groundwater in Azerbaijan generally is characterized by high quality and is commonly used for agricultural and industrial uses (Alakbarov, c.2000). However, in the lowlands, groundwater often has a high salt content, due primarily to geological characteristics, improper management of irrigation water and poor surface and subsurface drainage. As groundwater is a major source of water supply for domestic uses, its quality is important in view of health concerns.

115. Variation in hydrological flow is caused by numerous human interventions including direct water abstraction from surface and groundwater bodies, increased evaporation due to impoundments, urbanization and deforestation. Severe water deficit has not occurred in the Kura-Aras basin to date and consequently shortages of water have not presented any serious threats to the population. However, population growth and rapid economic development in the basin will impose increased pressure on surface and groundwater resources. Climate change could also have an adverse impact in the medium and long term (UNDP/GEF, 2013c).

9 Monitoring network operated by MENR, with support from international agencies (particularly EU-funded

projects within the Kura and Caspian Sea basins) 10

The United Nations Treaty Collection, Chapter XXVII Environment. Status on Dec. 8, 2014. https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXVII-5&chapter=27&lang=en

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8.2 Managing Increasing Demand for Water 116. Challenge. Further development of water use within Azerbaijan, notably for irrigation, is limited by the management capacity and infrastructure and the available water. To make the most of limited water resources, management systems promoting efficient use of water and good governance within the water sector are needed. 117. Assessment. The current annual water abstraction of about 12.5 billion m3 is considerably less than the available water supply of about 30 billion m3. Thus, on a yearly basis, the available water supply is sufficient to meet demand. However, within the year, there are periods of high and low stream flows. What is lacking is the management capacity and infrastructure to capture excess stream flows during the high runoff period, so they are available for use during the times of shortage. In addition, about 35% of the abstracted water is not consumptively used, but rather is lost in conveyance and distribution systems.11

118. In aggregate, the annual water supply in Azerbaijan is sufficient to meet annual demands, yet there are regions and periods in which water is scarce. Most agricultural production takes place in the Kura-Aras lowland, where rainfall is not sufficient to carry summer crops through the season. Irrigation is required, and yet the delivery system does not have the capacity to deliver water in a timely fashion to all farms in the region. Thus, crop yields are constrained by limited supplies of irrigation water as well as by inadequate access to high-quality seeds, affordable fertilizer, technical assistance, and financial credit. 119. Opportunities. Efforts to better understand the demand and supply of water, across sectors and supported by enhanced water monitoring and analysis, will be helpful in motivating improvements in water management. Regarding demand, improvement of water use efficiency should be given high priority, especially in the irrigated agriculture sector. This can be accomplished, in part, through physical measures such as canal improvements inclusive of installation of appropriate flow control and measuring structures. Policies that provide incentives for efficient management, such as water allocations, irrigation and domestic supply service fees, also are appropriate. Demand management in river basins involves raising awareness that water is scarce, and that all water users must implement wise management practices.

120. Regarding supply, measures can be taken to increase the amount of water available for agriculture, cities, and other societal needs. Storing water during high flows and releasing it in low flow season can overcome certain water deficiencies in the low flow season. Minimizing water losses in conveyance and distribution systems can also help bolster water availability. Appropriate water conservation measures include rainwater harvesting, and wastewater collection and reuse. Rainwater harvesting can provide households with good quality water for domestic purposes. Development of groundwater also can provide additional water supplies for domestic use and irrigation.

8.3 Agriculture – Irrigation, Drainage and Low Productivity 121. Challenge. Crop yields in irrigated areas are low (wheat yields average 2.5 tons/ha), due principally to shortages of irrigation water supply. The delivery capacity of some canals is not sufficient to serve all of the irrigated area during periods of peak crop water use. More than 90% of the irrigation canals in Azerbaijan are earthen, resulting in substantial conveyance and operational losses (World Bank, 2012; page 15).

11

It should be noted that water “lost” from irrigation canals contributes towards groundwater recharge and is partly used by trees and other vegetation growing along the canals.

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122. Agricultural drainage systems serve more than 600,000 ha of irrigated land in Azerbaijan, yet about half of the drains comprising the systems have deteriorated to some degree, due to the lack of needed maintenance (Rzayev, 2007). In addition, soil salinity and waterlogging impair productivity and limit crop production opportunities on areas with rising watertables not yet served by the drainage network. The worsening drainage situation is another serious constraint to the productivity of irrrigated agriculture in Azerbijan. 123. Assessment. Azerbaijan has an extensive system of irrigation infrastructure. The performance of the canal system, however, has depreciated during many years of use and inadequate maintenance. Many main and secondary canals are unreliable for sustained operation and critical reaches suffer from excessive seepage losses. Upgrading and rehabilitation, coupled with improved management (including proper O&M) are needed to improve irrigation efficiencies and increase crop production.

124. The Government is working with the World Bank, IFAD, and other donors to rehabilitate and improve farm-level irrigation distribution systems,12 and then assign them to WUAs for management (World Bank, 2012: page 4). In recent years, on-farm systems serving more than 80,000 ha have been completed with World Bank and IFAD assistance and work on systems serving another 82,000 ha is underway. An additional $900 million are required to complete this work on the balance of the irrigated area (Interview with the World Bank WUA Implementation Unit; Sept 26, 2014). 125. Inefficient water use is reported to be a problem throughout the Kura-Aras river basin. There are considerable conveyance losses in those reaches of the earthen irrigation canals traversing areas of permeable soils and the absence of adequate water control structures contributes to significant operational losses. The underlying causes include:

Inadequate recurring expenditure to provide proper operation and maintenance, A lack of capital investment in rehabilitating and modernizing irrigation schemes, and A lack of knowledge of the hydrologic regime upon which to base an integrated water

resource management and river basin management policy and regulatory framework (World Bank, 2012).

126. Rehabilitation of inoperable drains nationwide, provision of drainage relief to waterlogged areas, and rebuilding the outfall system are priority needs. More than 50% of the installed drainage system requires rehabilitation and improvement. A national assessment of groundwater levels and salinity conditions will be helpful in identifying and prioritizing the additional areas requiring drainage service. Given the large role of irrigated agriculture in providing rural employment and ensuring food security, the rehabilitation and improvement of existing drains and providing drainage relief to areas with high groundwater levels should be given high priority.

127. Opportunities. Upgrading and rehabilitation, coupled with improved management (including proper O&M) are needed to improve irrigation efficiencies and crop production. The Amelioration JSC should comprehensively assess the main system infrastructure and management, identifying priority opportunities to improve performance as a part of the preparation of an Irrigation Master Plan, followed by a physical upgrading program consistent with the findings of the assessment. With regard to the on-farm systems,

12

On-farm irrigation systems in the Azerbaijan context date back to Soviet times and are at the level then used to deliver irrigation water to a single state or collective farm which typically covered between 1,500 and 5,000 ha. At present these “on-farm” systems continue to serve the same area which is now broken down into hundreds of individual farms. A WUA is formed for each of the former on-farm systems which at some point in time will assume responsibility for management, operation and maintenance of the distribution system.

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Amelioration JSC should prioritize and package the systems remaining to be rehabilitated and transferred to the WUAs, such that the groupings identified are of interest to the various potential donors.

128. The Amelioration JSC should assemble a database of water levels and soil and water salinity data, while preparing a national drainage plan, which would provide an assessment of groundwater levels on all agricultural lands, including irrigated lands (1.5 million ha) and those already drained (600,000 ha). The plan would identify the need for drainage and describe the best ways to improve drainage service. In addition, drainage service should be extended to an additional 200,000 ha of irrigated land, comprised of principally covered horizontal drains for about 150,000 ha, with the balance served either by open field drains or drainage wells in fresh groundwater areas. It will be helpful also to establish a drain monitoring network for both existing and new drains, to enable real time analysis of water and salt balances 8.4 Managing Water Related Hazards – Floods and Droughts 129. Challenge. Extreme events such as floods and droughts often cause substantial damage to livelihoods and property.

130. Assessment. The capability to forecast floods and an early warning system are presently quite limited. Many metrological stations and portions of the telemetric network would also benefit from a comprehensive rehabilitation and modernization. The ability of district offices to forecast floods can be improved by developing an early warning system. In parallel, flood protection infrastructure such as river levees must be provided in vulnerable river reaches and existing levee systems rehabilitated and improved, ensuring safe passage of design floods. Flood zoning is an important non-structural measure, which minimizes the long-term potential for flood damage by relegating development away from flood prone areas of the floodplain.

131. Several water related agencies collect data describing water flow rates, flow volumes, and water quality, at various sites. Such data is collected with varying frequency and only some of the information is made publically available. Most of the data are maintained within internal data banks of the agency or institutions involved and are not easily accessible. This limits the data use by researcher academicians, students, independent scholars, and donor organizations and restricts the research and innovation in the sector. 132. Opportunities. The key opportunity underlying any improvement in the management of floods must be the understanding of the flooding process. Therefore, there is significant potential for (i) improving and strengthening the knowledge base; (ii) improving the capacity for analysis of floods; and (iii) providing new and improving existing flood control and protection works. 133. A comprehensive monitoring system for rainfall and river flow, stream flow and flood forecasting models and issuing early warnings can help reduce potential damage from flood and drought. This improved knowledge base will also enhance understanding of flood and drought mechanism. Mapping flood and hazard zones will also be required to effectively manage the extreme events and minimize the risk from flood. Flow regulation and reservoir water management and providing advance information on flood through hydrological and climatological monitoring and modelling also offer opportunity to reduce the risks. Provision of properly designed flood management infrastructure should be considered, where feasible and existing flood protection works rehabilitated and improved as necessary.

134. Past experiences related to floods have shown that (i) defining clear role and responsibilities of the participating agencies, (ii) a mechanism for efficient sharing of

34

information, (iii) adequate resources to deal with rescue and recovery operations, and (iv)relevant training of the agencies and their staff are required to effectively manage the impacts of flood and drought. The role of affected communities should also be recognized in the management of extreme events. Most of the system appears to already exist, and reorganizing the role and responsibilities among agencies and relevant training will be required for this initiative.

135. For flooding on the Kura – Aras River System, possible solutions include (i) integrated management of reservoirs to optimize benefits of irrigation and hydropower generation while minimizing flooding; (ii) advanced information on possible floods through a comprehensive program of hydrological and climatological monitoring and modelling; and (iii) flood protection projects to address key limitations in the existing channel system and existing flood embankments in the flood prone areas.

8.5 Water Governance for Improved Water Management 136. Challenge. Several institutions are responsible for management of water resources in their domains. As indicated earlier, there is no central body to plan, coordinate, monitor and evaluate, and transparently manage water. Therefore ineffective coordination and the expedient flow of information pose various challenges in water management. An apex water body that has the mandate of ensuring proper water administration and supervision, and the needed resources to implement the mandate is missing. 137. Assessment. The water sector’s institutional framework suffers from a lack of integration and coordination among related organizations. Information sharing among institutions is largely informal, and takes place as needed. Communication and data sharing can be improved between water management authorities and other agencies concerned with water, land, agriculture, ecology and other related disciplines13. Our assessment further indicates that:

(i) There is no central planning entity that currently considers anticipated future

water availability in line with the projected demands of all sectors including industry, municipal and domestic, irrigation, and environmental maintenance flows;

(ii) Integrated management of the river system and infrastructure needs

improvement to minimize the flood threat while maintaining adequate reservoir storage to meet the various sub-sectors late season demands;14

(iii) Again, there is a need for a comprehensive quantity and quality monitoring

system for both water resource availability as well as sectoral abstraction and use. Such a monitoring system would allow the generation of meaningful and accurate water balances for any desired timeframe;

138. Opportunities. A modern water management administrative structure can be established upon the strengths of existing institutions. Opportunities for capacity building and additional activities have been identified in consultation with stakeholders.

(i) The National Water Policy Dialogue for Azerbaijan, which draws from many ministries and agencies, provides a coordination mechanism between some water related organizations. Such coordinating mechanisms, including trans-

13

Annex A on Institutional Framework provides more detailed information on institutional aspects of water management in Azerbaijan.

14 This situation is perhaps improving with the recent efforts of the State Agency for Water Resources.

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boundary discussions with neighboring countries, should be continued and maintained.

(ii) A central apex body, such as a ministry, cabinet level coordinating commission or oversight board, might improve coordination, in support of sustainable water management. An independent Ministry for Water Resources or National Water Authority might be considered. The Authority would determine and implement water allocations across competing sectors. The Authority would oversee a system of water withdrawal and use permits, and would ensure that water is put to good use in all activities for which such permits are issued.

9. POLICY ENVIRONMENT

9.1 Current Initiatives 139. National water strategy. The Government is currently undertaking several important policy initiatives to secure its water resources. The SAWR is conducting a comprehensive assessment of water supply and demand, and plans to use this information in formulating the national water strategy. Also, the Amelioration JSC through its Institute for Water Problems is involved in water resources assessment and formulation of development plans for water resources.

140. Trans-boundary water management. The Government is actively involved in obtaining international agreements to ensure the perpetual security of trans-boundary relations and resources, with particular emphasis on the quantity and quality of water in rivers that enter Azerbaijan from the territory of its upstream neighbours. The national policy dialogues have been effective in this context and the government plans to continue its participation in such initiatives (UNDP/GEF; 2013a, b, c).

141. Devolution of water governance. The Government is implementing institutional enhancements to achieve the best management of Azerbaijan's human and natural resources, including water. It continues to decentralize responsibility for natural resource management to those with the greatest stake in resource use. Both Amelioration and Azer Su, two main water suppliers, have been structured as open joint stock companies. The government also has encouraged farmers to organize into WUAs to better manage irrigation water distribution and achieve efficient use.

142. Revitalizing agriculture. Growth in agriculture has lagged behind that of industries and manufacturing, and the government is working to revitalize the sector. The President issued a decree on January 16, 2014 commissioning the Ministry of Agriculture to develop a strategy to improve the agriculture sector, with special emphasis on production, processing, marketing, and the environment. The Ministry of Agriculture, with EU assistance, has formulated a Draft Strategy for Agriculture (Development Strategy for Agriculture in the Republic of Azerbaijan, Second Draft: Nov 3, 2014).

9.2 Potential Future Initiatives 143. Several additional interventions also could improve water management. The components of the water strategy we have formulated in next chapters of this report includes the following interventions:

(i) Enhancing the institutional assignment of responsibility for proper governance and supervision of water resources. Continuing to decentralize water management responsibilities to water users, while ensuring that appropriate

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prices, allocations, and other policies are in place to motivate users to implement wise management practices.

(ii) Implementing a regular program of assessing the supply and demand for

water, with the goal of incorporating risk and uncertainty in supply forecasts and addressing the economic components of water demand.

(iii) Investing in new infrastructure and equipment, as needed, to provide reliable

water supply to agriculture, industry, and domestic users, while ensuring that the costs of such investments are reflected in the prices of delivered water.

(iv) Promoting improvements in existing irrigation, drainage, and re-use practices

with a view toward revitalizing the agriculture sector economically. (v) Enhancing monitoring of water resources and data management. A limited

water monitoring system already exists and managed by various organizations. The new database and information sharing in rainfall, potential evaporation, stream flow measurements, reservoir and lake water levels, and groundwater levels, will be most helpful. Enhanced regional coordination of data collection and reporting efforts is also important.

10. STRATEGY FORMULATION

10.1 Envisioning the Future 144. The initial step in the process of developing a national water strategy is to envision the desired trajectory of economic growth and development, and to describe water's role in achieving that trajectory. With the diminishing role of the mining and oil sectors as an economic growth engine in the future, other sectors will gain relative importance in sustaining economic growth and development. Among those sectors will be agriculture, services, tourism, and finance. Population growth and the pursuit for a better life will accelerate urbanization. The industrial sector is also expected to grow at a moderate pace. Each of these sectors will require adequate and safe water supplies for their future development.

145. The visioning process will benefit from analysis of population trends, resource requirements, and market opportunities. Water resource planning should project the corresponding increases in food, water supply and sanitation services to support that population. Planning should also project the likely changes in commercial and industrial demands for water, as the mix of economic activities moves away from oil and gas, toward services, tourism, and finance. Agriculture planning should envision the rate of growth in area planted, area irrigated, and crop output, in addition to projecting likely changes in cropping patterns, in response to market demands and more reliable supplies of irrigation water, planners must estimate the net effect on agricultural water demands.

146. In summary, the visioning process should produce alternative scenarios of economic activity in the future, with estimates of both the quantity and quality of water required to support the activities in each sector. A water accounting and water balance exercise should accompany the visioning process, to ensure that sufficient water is available, in aggregate and with respect to both time and geography, to support sectoral activities in each scenario. It will be necessary to include an analysis of the potential impacts of climate change on agriculture and other sectors, and to allow for accompanying uncertainties when considering alternative scenarios.

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10.2 Setting the Goal and Objectives 147. Once the future scenarios are in place, the Government can realistically identify goals and objectives that will provide the basis for developing the building blocks or components of the national water strategy. For example, if the desired vision includes a thriving agriculture sector that produces a wide array of high valued crops, then the goal of ensuring timely and reliable irrigation supply for the modified cropping pattern becomes most pertinent. The goal of extending water supply and sanitation service to all villages in the country has already clearly stated and undertaken by the Government. The strategy for finalizing achievement of that objective should be considered in concert with the objectives of enhancing the irrigation supply and improving both surface and groundwater management toward that end. Efficiency can be gained by coordinating certain activities and investments across the various sectors requiring water supplies.

148. The goal of reducing damage from floods and droughts also has been defined in advance, as it is important to limit such damage in any future scenario. However, the strategy for minimizing damage might benefit from consideration of other objectives and the strategies to achieve those objectives. For example, agriculture is perhaps uniquely impacted by both floods and droughts, and the potential harm from each event can be substantial. The optimal investments in flood and drought protection might vary with considerations regarding likely cropping patterns and the potential impact of floods and droughts on specific crops.

149. A visioning exercise encompassing the country, regional and grass root levels is required to capture pertinent details of all sectors using water. Each sector using water resources as well as the sectors that deal with the extreme events should undertake a comprehensive assessment of their future water needs. For example, the Ministry of Agriculture, with EU assistance, has formulated a Draft Strategy for Agriculture (Development Strategy for Agriculture in the Republic of Azerbaijan, Second Draft: Nov 3, 2014). This is a good start as outcome of this exercise will serve as an important input in the development of the national water strategy. Similarly MENR’s initiative on climate change with the United Nations Framework Convention on Climate Change is also a positive step.

10.3 Strategy Framework 150. With input from the above exercises one can now frame Azerbaijan’s national vision and goal for managing water resources. This can be stated as, “to ensure that adequate quantities of suitable quality water are available for the full economic and social development of Azerbaijan while fully meeting the water allocation requirements for sustainable environmental management”. For achieving this country vision/goal, we need to identify components or building blocks of the National Water Strategy (NWS). The strategy components, after agreed upon by all water stakeholders, will be implemented through appropriate institutional enhancements and investments. Based on the analysis of water related challenges and opportunities, we suggest consideration of the following components for the NWS (A brief outline of the NWS including components, needed investments and outcome indicators is provided in Table 6 )

Strategy Component 1. National Water Information System Development of a robust water resources monitoring and information system inclusive of all surface and groundwater sources is an important building block of the NWS. The country’s water sector will benefit from modern water monitoring facilities and improved prediction capabilities using robust modelling and mechanisms to generate dependable early warnings of flood events. The water monitoring system will be upgraded covering all the major reservoirs, rivers and water bodies.

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Knowledge concerning groundwater status will be upgraded with improved monitoring of its discharge, configuration and quality. Such detail will allow projections of optimal groundwater use ensuring annual abstractions are matched by natural recharge.

Component 2. Water infrastructure. The agricultural sector, in particular, needs renewed focus to increase productivity through investments in modern irrigation and land drainage infrastructure. The State Program for Azerbaijan (2006-2015) identified 11 priority areas in irrigation and drainage. Among these: (i) rehabilitation and upgrading the existing infrastructure, (ii) land improvement (primarily agricultural drains), (iii) expansion of irrigation,15 (iv) flood protection, (v) water storages, and (vi) research and training. The Amelioration JSC should comprehensively assess the main system infrastructure and management, identifying priority opportunities to improve performance as a part of the preparation of an Irrigation Master Plan. Rehabilitation of inoperable drains nation-wide, provision of drainage relief to recently water-logged areas and rebuilding the outfall system are priority sector needs, and would be similarly identified in the Drainage Masterplan to be prepared by Amelioration JSC. Component 3. Responsive and efficient institutions and improved governance. A transparent, participatory, efficient and effective water governance is needed. The government needs to increase capacity in water administration and governance by (i) instituting transparent and unbiased allocation of the rights to use water, (ii) continue effective cooperation with neighbouring countries to better manage both quantity and quality off trans-boundary river water, (iii) promoting adaptation to climate change and ability to manage risks due to exceptional water conditions including floods and droughts, and (iv) Ensuring participation of beneficiaries in planning and implementation of policies and investments. Component 4. Improve water use efficiency and reduce impact of floods and droughts. Our assessment of water resources indicates that about 35% of the water diverted at the source is lost in the water conveyance and distribution system. Although, the “lost” water has some beneficial uses, e.g. it contributes towards groundwater recharge; it is nonetheless not available for the purpose it was diverted for (irrigation or domestic water supply). The losses occur both in the irrigation canal network and in the network for industrial and domestic water supply. Improving water use efficiency will require, (i) providing piped water supply and sanitation facilities to 90% of urban and 40% of rural population, (ii) rehabilitating and upgrading earthen irrigation canals and related control structures, and (iii) improved water use and management practices both in water delivery and on-farm systems. Investments made under this component would ensure irrigation water supply meeting water requirements of all users 90% of the time. At the same time, the available water supplies should be sufficient to meet the projected water demand by industrial and environmental sectors. Component 5: An apex water body to better coordinate and oversee water governance.

15

The team does not necessarily endorse the option of expanding irrigated area. We anticipate Amelioration JSC’s master planning effort will show the wisdom of increasing reliable irrigation supplies to presently irrigated areas resulting in both increased yields and higher cropping intensities as opposed to further development of raw land and the high costs associated therewith.

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The government may consider instituting an organization (an Authority or a Ministry) that has the mandate of ensuring proper water administration and supervision, and the needed resources to implement the mandate. This Authority would determine and implement water allocations across competing sectors. The Authority would oversee a system of water withdrawal and use permits, and would ensure that water is put to good use in all activities for which such permits are issued. The Authority also would oversee a comprehensive and informative water monitoring program.

Table 6. Summary Outline of Water Strategy for Azerbaijan

No Component

Investments/Actions Indicators

1

National water information system

Assess needs & opportunities evaluating existing water monitoring and information system;

Develop an action agenda, implementation and investment plans and prioritize actions.

Develop comprehensive plan for future monitoring networks and appropriate processing and analysis of the data generated.

Procure equipment, install and develop data management systems

Develop advisory services for users of hydrological data

Training in use of new monitoring and data management systems;

Needs assessment report prepared and approved (Year 1);

Implementation and investment plans approved (Year 1-2);

Priority components started (yr. 3).

Availability higher quality hydrological data and improved user access to the information. (Years 5-6)

2

Irrigation and drainage infrastructure

Conduct country-wide assessment of existing irrigation & drainage facilities,

Develop detailed master plans for both irrigation and agricultural drainage,

Conduct feasibility studies for priority investments identified in the master planning exercises, including (a) rehab & improvement of main irrigation systems, (b)rehab & improvement of on-farm irrigation systems, (c) rehab & and improvement of existing agricultural drains, and (d) construction of new agricultural drains

Finalize designs and tender initial contract packages .

Implement over the next 5 -20 years

Needs assessment report prepared and approved (Yr. 1):

Short to Mediun term:-Master plans for irrigation & drainage approved and undertaken, Year 1;

Subsequent feasibility & design work on high priority investment packages undertaken during year 2;

Construction work on high priority projects from year 3 to year 7.

Long-term: improved crop yields, reduced O&M costs.

3 Improve water use efficiency and

Quantify water losses and efficiency at system, project and user levels

Develop investment and implementation plans and monitor results

Develop flood management plans Implement risk reduction plan and

monitor results. Contract for development of DSS for

Needs assessment reports for all sectors (Agriculture, domestic, and environment) (2-3 years)

Investment, implementation and monitoring plan for water use efficiency prepared and implemented (5-10

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reduce water-related hazards

flood management and provision of technical advice on use of information from DSS;

Contract for technical assistance for

flood mitigation in Southern Caucasus region

TA for reservoir management and resource allocation processes for drought impact mitigation, including development of early warning systems for drought

years) Need assessment

reports on flood forecasting and early warning systems; water quality management and mitigating land degradation (1-3 years)

Investment and implementation plans for flood management, protecting water quality and halting land degradation (10-20 years)

Development, implementation and investment plans approved (Year 1-2)

Priority projects started (year 3)

Final reports from technical assistance contracts (Years 5-6)

4 Create a water apex body to better coordinate and oversee the sector – Ministry or National Water Authority

Allocates water for various uses, Provides coordination among all water related organizations and oversees actions and facilitates conflict resolution

Promotes IWRM approaches and other best practices.

A water apex body constituted (1 year); agreed upon by all relevant water institutions

Operationalizing IWRM and other best practices (2-3 years)

Monitor and evaluate performance. Make adjustments

11. POTENTIAL INTERVENTIONS AND INVESTMENTS 153 Consistent with the strategy components described above, we also suggested related investments and actions that might be considered (Table 6). We now describe in detail several interventions and investments or projects that it appears would have first priority in strategy implementation. We describe one intervention that involves support for institutional enhancement, two that involve investments in physical infrastructure, and one that involves investment in education and outreach.

11.1 Investing in Institutions 154 As indicated throughout this report, an apex water body is needed to oversee, plan and optimize water sector activities and to coordinate actions identified in the NWS. This body will provide central supervision and oversight at both the country-wide and river basin s, including water allocation among various sectoral uses. The body could take the form of a water ministry or a cabinet level authority.16 In either case the goal would be that of

16

Should an authority be established, it might consist of about five appointed members, each of whom has notable experience in at least one area of the water resources sector, yet with no current appointment in any of the pertinent water resource ministries. Members would be appointed by the Prime Minister and approved by the Parliament. The appointed members might include distinguished academics, retired specialists from pertinent ministries, and private sector individuals.

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establishing an oversight body to formulate water policy, effectively plan for sectoral development, and oversee the day to day activities within the water sector. Regardless of the form of central water body opted for by the Government and sector stakeholders, it is paramount that the interests of all concerned sub-sectors including (i) Agriculture and Fisheries; (ii) Irrigation and Drainage: (iii) Commerce and Industry; (iv) Environment and Natural Resources; (v) Hydrology and Engineering; and (vi) Water Supply and Sanitation be suitably represented within the organization.

11.2 Investing in Water Resource Monitoring and Data Management 155 The Government should consider investing in efforts to extend enhanced water monitoring capability, as well as improved data storage and management, and more comprehensive analysis of data sets, as part of the Government's ongoing program of upgrading its hydrologic information network. Goals would include achieving real-time analysis and reporting of a wide range of hydrologic information, in support of better quantitative and qualitative resource management as well as prediction of floods. 156 It will be important to replace outdated and un-serviceable equipment and provide comprehensive training on topics such as data collection, data management, and data analysis. Equipment requirements might include:

Modern equipment for hydrometeorology: automatic weather stations, acoustic-Doppler current profilers for measuring river discharge (ADCP), current meters, cableways, automatic water level recorders.

Water level recorders for key hydrogeological measuring points. New hydrogeological monitoring equipment: borehole loggers, salinity probes, water

level dippers, differential GPS, field water quality measuring kits. Field measurement instruments, sampling and laboratory equipment for water quality

measurements. Real time data transmission and receiving equipment for key monitoring locations:

including reservoirs, rivers, key groundwater sites, weather stations and important water quality sampling points.

Computers for the office and field, and database servers. Software for data entry and management (including checking and validation), secure data storage, and data sharing.

Computers for capture of water use data for integration into core databases

157 In addition to the above hardware components, it will be necessary to design and put in place new procedures and processes for network management, data capture, data processing and data dissemination. This will entail considerable institutional development and capacity building to develop agencies capable of delivering efficient support to modern water management techniques in Azerbaijan. Such a program might also include support for flood forecasting systems, but those might be developed separately. Flood forecasting might be better included in a subsequent project. 11.3 Investing in Irrigation and Drainage 158 There will be four categories of potential major investments necessary to adequately rehabilitate and modernize existing irrigation and drainage infrastructure, while also providing new infrastructure where no alternatives exist.

(i) Continuation of the ongoing rehabilitation and modernization of on-farm

irrigation infrastructure, with a view toward transferring the completed facilities to water user associations for management and maintenance;

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(ii) Comprehensive rehabilitation and modernization of main irrigation

infrastructure, including main and secondary canals, diversion structures, and pumping plants. Discussions with Amelioration JSC indicate that costs will not be available until the agency conducts its detailed assessments and planning studies, as one of the initial steps within this effort;17

(iii) Comprehensive rehabilitation and modernization of the existing drainage

network, covering some 610,000 ha, including both covered and open field drains and the collector system; and

(iv) Provision of agricultural drainage to an additional 200,000 ha of irrigated land.

A detailed assessment and planning study of these required facilities will be conducted as an initial step within this effort and will be include a drain monitoring network for both existing and new drains. This will enable real-time analysis of both water and salt balances.

159 Substantial investments in irrigation and drainage systems will be required in the next 15 to 20 years. The Government and donors will benefit from early indications regarding the project packages that will require funding in the short and medium term. These investment packages and time frames for possible processing and implementation include:

(i) A Technical Assistance (TA) loan for the Amelioration JSC, to assist them in

preparing irrigation and drainage master plans. This TA could be processed and implemented with the Government’s approval, and is estimated to cost $8.0 to $10.0 million.

(ii) Additional packages of on-farm irrigation system improvement, formulated In

accordance with the ongoing World Bank financed work. (iii) The initial package of new drainage facilities, consisting of covered horizontal

drains on some 50,000 ha. Each package is addressed briefly below.

160 TA Loan for Forward Planning in the Irrigation and Drainage Sector: With the Government’s approval, forward planning in both the irrigation and drainage subsectors might become a priority investment. The proposed TA Loan would provide Amelioration JSC the necessary assistance to prepare Irrigation and Drainage Master Plans, conduct feasibility studies, and prepare final designs for the initial investment envisaged under each sub-sector plan.

161 Additional Packages of On-Farm Irrigation System Improvements: The Amelioration JSC will package the remaining irrigation rehabilitation and improvement works under this ongoing program into suitably sized investments, to interest a broad array of international donors and multi-lateral finance institutions. The Amelioration JSC and the World Bank have estimated the total cost of the remaining rehabilitation and improvement work on on-farm systems at between $800 and $900 million. All additional packages would be tailored after the works currently ongoing and in addition to the physical improvement works provide organizational strengthening for water user associations. The executing agency for all additional works under this program would be the Amelioration JSC and concerned Rayon Irrigation Departments (RIDs).

17

The irrigation development master plan to be prepared by AIOJSC is envisaged to include in the longer term (15 to 20 years) an appropriate number of major river diversion structures, with associated distribution works to provide gravity irrigation deliveries to areas currently receiving pumped supplies.

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162 Initial Package of New Agricultural Drains: Subject to the findings of the Drainage Master Plan study and subsequent project preparation of this package, financed under the initial investment described above, it is anticipated this subproject would finance the installation of horizontal perforated plastic drains enveloped in an appropriate gravel pack under about 50,000 ha of irrigated land now affected by a high water table.18 The first subproject, which will be identified in the planning study, will subsequently undergo a feasibility study, followed by final design. It will most probably include the drainage of the 50,000 ha mentioned above, associated drain monitoring provisions, construction supervision consultants, vehicles and office equipment, and both physical and financial contingency provisions.

11.4 Investing in Agricultural Extension Education 163 Investments in the number and quality of agricultural extension service personnel who advise farmers regarding water management and their production and marketing activities would be helpful. Extension service personnel serve a particularly important role in Azerbaijan, where many current smallholder farmers did not choose farming as an occupation, but rather became farmers somewhat suddenly in the early 1990s, when the Soviet Union unexpectedly collapsed. At that time, large state farms were dissolved and the land was distributed among farm workers and their families. The new farmers had little or no experience operating the many aspects of an independent farming operation. Many of the new farm households lack a sufficient understanding of crop production and marketing opportunities, and many would benefit substantially from greater advice and guidance from extension service personnel.

164 The Government, with ADB support, might consider investing in training and education programs that will enhance capacity in agricultural extension. For example, ADB might support the establishment of an Extension Service Training and Education Program, in conjunction with an appropriate university in Azerbaijan. One goal of such a program would be to increase the number of highly trained and motivated extension service personnel available to assist farmers, farm cooperatives, and water user associations.

165 An Extension Service Training and Education Program (ESTEP) might provide certificates that reflect training in selected technical areas. For example, the ESTEP might offer a 12-month program in Agricultural Extension for individuals already possessing a 4-year degree in agronomy, horticulture, animal science, or hydrology. A 24-month program might be offered for individuals who do not yet have such a degree. In addition, ESTEP might provide a 6-month Water Management Certificate Program for farmers and staff members of regional water offices and water user associations, wishing to enhance their capacity to manage water in agriculture. Such a certificate program might require only a high school diploma, in order to maximize the appeal and the extensive value of the program.

166 ADB's support for an ESTEP might involve finance for building and equipping new facilities, funds for hiring and retaining faculty members, and scholarships for participants. Targets could be established for the number of graduates leaving the program, by year, with an overall goal of producing 10,000 to 20,000 highly trained extension service personnel within 10 years. Given that there are more than 800,000 small-scale farms in Azerbaijan, a large number of extension service personnel could be gainfully employed. Training as many as 20,000 new professionals within 10 years might require the establishment of regional programs on two or more university campuses.

18

Based on the mix of drainage modes utilized in the currently drained areas, and with due consideration to the additional constraints to open field drains as a result of land reform, it is likely that no fewer than 150,000 ha of the 200,000 ha to be newly drained will be served by covered horizontal drains. Construction of open field drains could eliminate small farms by reducing the cultivable area below the minimum size required for financial viability.

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167 One rationale for investing in the training and education of agricultural and water management professionals, in addition to enhancing farm production, is to elevate the perception of agriculture in Azerbaijan. The program also would provide significant rural employment opportunities for trainers and for the new extension service personnel.

12. STRATEGY IMPLEMENTATION 12.1 Deriving Investment Plans for the Strategy 168 An investment plan will include individual investment packages by sub-sector and in the order of established priority. For each investment package, the start date, completion date and anticipated cost would be provided (please see Table 7 for an illustrative investment plan outline). The development of an investment plan and action plan must involve active participation and coordination of all government and non-government stakeholders. All water related government organizations will prepare their medium and long term development plans. The medium term development (10-15 years) will provide the overall sector plan, while emphasizing investments in the water sector.

169 The consultant team has formulated the basic elements of the water strategy that can provide useful guidelines for the government in its subsequent efforts to derive an investment plan. Before that happens, the government departments and all other stakeholders should agree on the water strategy. This should not be very difficult to accomplish since the water strategy was developed with active participation of all water related government and non-government stakeholders. The State Program Vision 2020 and the strategy components presented in this report can provide guidance, but the appropriate government agencies must formulate the desired investment plans.

Table 7. Sample Investment Plan

Sector Implementing

Agency Investment Package

Priority and Time Frame

Cost Estimate

($)

National Water Information System

MENR SAWR

Develop comprehensive plan for water resources monitoring and data management.

Priority 1. Project start: immediate Project completion:

tbd

Water Infrastructure -- Irrigation

Amelioration JSC

Rehabilitation and upgrading of water delivery canals and related control structures.

Priority 1 Project start date: Project end date:

tbd

Water Governance & Management

tbd

Assessment of existing water institutions and improvement opportunities

Priority 1 Project start: immediate Project end:

tbd

Water Related Hazards

Amelioration JSC, SAWR.

Contract for development of DSS for flood management and provision of technical advice on use of information from DSS

tbd

tbd

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12.2 Stakeholder Participation

170 Effective and transparent methods of implementing Azerbaijan’s Water Strategy are crucial to ensuring long-term protection and wise management of water resources. The development of this implementation framework will be a participatory process that considers both present and future demands on water, and ensures the protection of ecosystems. Participation of all stakeholders and beneficiaries is important in the planning and implementation of development interventions. Supporting legislation must provide appropriate roles and responsibilities for regulation and management of the water sector, in a way that meets internationally accepted norms to allow appropriate international cooperation in water resources management. Regulation of water use such as permitting water withdrawals and restricting wastewater discharge, should be time-limited (i.e. subject to periodic review and revision) and appropriately monitored, to ensure that water users follow the conditions imposed by the licences and permits. 12.3 Financing

171 It is important to analyse and strengthen the economic dimension of the water strategy. A comprehensive analysis would: (i) make the national strategy financially robust, in a manner that contributes to economic development, (ii) put water policy and strategy on a sustainable financial path, (iii) reform economic instruments, and (iv) make the link between water policies and economic development. The first step in achieving a robust strategy is to inventory the economic instruments available to policy makers, as such instruments can generate revenues to finance water services, promote water efficient practices and enhance the financial viability of low cost options. Some commonly used forms of economic instruments are: abstraction charges or fees and pollution charges, tariffs for water services, and payments for ecosystem services.

12.4 Monitoring and Evaluation (M&E)

172 A monitoring and evaluation plan is important for successful implementation of the water strategy. Such a plan would ensure that the components of the strategy and the desired outcomes are achieved as planned in the short and medium term, and that long-term goals are in focus and achievable. If the desired outcomes are not being achieved in the short to medium term, the planned investments and actions can be modified accordingly. 173 The M&E plan should identify indicators for each investment, and provide for measurement of these indicators to establish whether the investments are indeed meeting the objectives of each strategy component (or contributing to achieving the desired outcomes).

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REFERENCES

Ahouissoussi, N., Neumann, J.E., Srivastava, J.P., Okan, C., Boehlert, B.B., Strzepek, K.M.

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ANNEX A: INSTITUTIONS FOR WATER RESOURCES

MANAGEMENT IN AZERBAIJAN I. Overview

1. Several ministries and agencies share responsibility for managing water resources in Azerbaijan. The ministry with foremost responsibility is the Ministry of Ecology and Natural Resources (MENR). Substantial authority is found also in the Amelioration and Irrigation Open Joint Stock Company, which manages water deliveries for irrigation and other uses, and the Azer Su Joint Stock Company (JSC), which is responsible for municipal and industrial water supply (Table 1). The Ministries of Emergency Situations (MES) as well as Agriculture, Energy, and Health have interests in water management, yet they are not charged with responsibility for determining how water resources are allocated or used in Azerbaijan (Table 2).

Table 1: Azerbaijan Ministries and JSCs responsible for water management

1 Ministry of Ecology and Natural Resources (MENR) National Hydro-meteorological Department National Environmental Monitoring Department Caspian Complex Environmental Monitoring

Administration National Geological Exploration Service

2 Amelioration and Irrigation JSC 3 Azer Su JSC 4 Ministry of Emergency Situations

State Water Resources Agency (SAWR) 2. Several other agencies share some degree of responsibility for water management in Azerbaijan, including the Tariff Council, which determines service charges for the delivery of water, and the State Statistics Committee, which records information describing the state of water resources in the country. In addition, there are many WUAs representing smallholder farmers, and there are technical irrigation departments 1 responsible for operating and maintaining the irrigation and drainage works. In sum, there is an array of institutional assignments pertaining to water resources.

1 The Rayon Irrigation Departmets (RIDs) are the field units of the Amelioration and Irrigation JSC.

2

Table 2. Ministries with interest in water management, but without direct responsibility

1 Ministry of Agriculture State Phyto-sanitary Control Service

2 Ministry of Energy State Agency on Alternative and

Renewable Energy Sources Azer energy JSC

3 Ministry of Health Hygienic and Epidemiological Centre

II. Perspective 3. In many countries, the responsibility for allocating and managing water resources is divided among ministries and agencies. Often, the current assignments reflect the evolution of the relative importance of water in different sectors. For example, in countries in which agriculture has long been the dominant water using sector, the agriculture ministry might carry responsibility for managing a large portion of the national water supply. In other countries with little agriculture, but substantial industrial and commercial activity, water resources might be overseen by a ministry of industry or a ministry of commerce. Some countries have established ministries of water or ministries of water and infrastructure, which oversee the development and allocation of water resources across sectors. 4. Given the importance of water in supporting agriculture, industry, commerce, mining, and municipalities in Azerbaijan, it is reasonable to suggest that the country might establish a new agency, ministry or authority with oversight responsibility for water resources. The new body might also be charged with coordinating water resource development and allocation with all of the ministries and agencies that presently share responsibility for water management. This new, oversight entity might be constituted as a Ministry of Water Resources or National Water Authority with the mandate to supervise and coordinate all water related activities. 5. The new organization might include several departments, staffed by technical specialists with notable expertise in pertinent subjects. For example, the agency might include departments pertaining to surface water, groundwater, water quality, trans-boundary issues, economics and policy, irrigation and drainage, energy, industry and commerce, public water supply. Each department might be home also to a liaison specialist who maintains communication with technical staff persons in pertinent ministries and agencies. This would enable the new body to encourage helpful interaction among technical specialists across the spectrum of disciplines involved in water resource development and water management. 6. The new apex could also be charged with the mission of communicating water scarcity conditions across sectors and over time. As the demands and competition for water increase, it is essential that all water users in Azerbaijan are made aware of scarcity conditions in ways that influence their water use decisions. The new, oversight agency would be well placed to implement a highly visible and effective program that would inform all water users of relative scarcity conditions in all areas of the country.

3

III. Considerations 7. We understand that the Government is presently considering the establishment of several new entities with responsibility for water resources in Azerbaijan. Those entities include:

(i) A Water Policy Department within MENR, (ii) A Water Sector of the Gazakh Division within MENR, (iii) A Central Kura River Basin Council within MENR, and (iv) A State Water Commission of the Azerbaijan Republic.

8. As noted, three of these new entities would reside within one ministry, MENR, while the proposed State Water Commission would be an over-arching panel of high-level representatives from many ministries and organizations. We agree with the notion of establishing River Basin Councils and we appreciate also the desire to establish a department for establishing water policies. Yet, we wonder if this configuration of new entities will be successful in achieving the desired outcomes. 9. The rationale for establishing a State Water Commission with broad representation, is sensible, given the importance of water resources in all sectors of the country. Yet, such a large panel involving so many high-level representatives might have difficulty operating effectively in addressing complex water resource issues of interest to many individuals, communities, commercial entities, and government organizations. 10. As proposed, the State Water Commission would include more than 20 high-level members, in addition to a Chairman and Vice-Chairman. Each member naturally would represent the interest and technical expertise of his or her ministry or organization, while also giving due consideration to the national perspective regarding investments, development, and allocations pertaining to water resources. While all representatives likely would provide excellent, professional input to the proceedings of the State Water Commission, it likely would be difficult to obtain consensus on important matters, given the large number of Commission members. It might also be difficult to arrange well-attended meetings of such a high-level, heavily obligated group of individuals. 11. One of a number of alternatives to such a large commission might possibly be the formation of a National Water Authority (NWA), with oversight mandate for water resource development and allocation in Azerbaijan. The Authority would consist of three to five appointed members, each of whom has notable experience in at least one area of water resources specialty, yet with no current appointment in any of the pertinent water resource ministries. The appointed members might include distinguished academics, retired specialists from pertinent ministries, and private sector individuals. The goal would be that of establishing an oversight authority with no current obligations to any particular ministry. Service on the NWA might be limited to two terms of fixed duration, such as three or four years per term. 12. The NWA, configured in this fashion would be given a technical staff to assist them in analyzing technical and policy issues that come before the Authority. Such issues might include petitions for new water allocations of new investments that would modify the flow of water resources in the country. Representatives of ministries and departments might petition the Authority for consideration of new policies regarding the use or discharge of water in the country.

4

13. The Authority would meet on a regular schedule and it would announce its agenda in advance. Those ministries, departments, and individuals with issues before the Authority would be given time to speak and present materials. The Authority would establish periods of public comment before reaching decisions. Members of the public would be given the opportunity to speak during regularly scheduled sessions of the Authority meetings. 14. The NWA would oversee the development of national water policies. Among its technical staff, the Authority would include well-trained hydrologists, engineers, economists, and other social scientists, with experience in designing and implementing water policies. The Authority would rely on its technical staff for guidance when reviewing policy proposals, and it would also issue contracts with independent firms for special studies, as needed, to enhance current understanding of pertinent water issues. The National Water Authority would maintain a degree of separation from existing ministries and departments in the water sectors, so that its decisions would reflect only the interests of the country, rather than the interests of any one ministry, department, or sector. 15. In consideration of the “pros and cons” of establishing such a body in Azerbaijan, pitfalls relating to the body’s acceptance by existing and long established entities currently controlling the sector and by far the greatest proportion of its development and recurrent budgets such as Amelioration JSC and Azersu. The JSCs are staffed by able, experienced professional and technical; staff, whom collectively could be most weary of a new entity made up of academics with little “hands on” experience in the sector, 16. Considering both the positive and negative aspects of establishing a National Water Authority, the Government will want to consider in parallel, the utility of establishing a Ministry of Water Resources. Such governmental organizational arrangements have proved quite successful in framing and overseeing national water policy in developing economies such as Egypt. Regardless of the reorganization configuration judged most suitable and effective in the Azerbaijan context, it must, in view of the strategic importance of water to agriculture, industry, commerce, mining, and municipalities in the country, provide effective sectoral oversight conducive to informed sector planning, robust and efficient sector development and equitable sharing of water supplies among all users.

5

ANNEX B: REVITALIZING AGRICULTURE IN AZERBAIJAN

1. Many residents of Azerbaijan earn their living in agriculture, either as a farm owner, farm worker, or employment in the processing or marketing of farm products. Thus, agriculture remains an important source of livelihood support in rural areas, even though the sector no longer accounts for a large portion of Azerbaijan's gross domestic product (GDP). With the increasing production of gas and oil products in Azerbaijan in recent years, agriculture's contribution to GDP has declined to less than 10%. Of the $64 billion national GDP in 2011, agriculture, fisheries, and forestry accounted for just $5.8 billion, or 9% (EU/FAO, 2012). Yet, agriculture accounts for more than 20% of the country's active labor force. The rate of growth in the agricultural labor force has been declining in recent years, but the number of persons employed in the sector has increased over time. In 2013, an estimated 1.08 million persons were employed in agriculture (Table 1).

2. Despite the importance of agriculture as a source of employment in rural areas, the sector receives little public investment aside from that targeted to irrigation and drainage through the annual and development budgets of the Amelioration JSC. In 2012, the agriculture line item in the national budget was $580 million, or just 2% of total expenditures in that year (EU/FAO, 2012). Inadequate investment in agriculture likely is partly responsible for the decline in productivity observed since the early 1990s. 3. Women comprise more than half of the agricultural labor force in Azerbaijan. Since 1998, women have accounted for about 53% of the labor force (Table 2). Such a pattern is typical of agricultural labor composition in many developing countries, in which men migrate to cities in search of employment, while women remain on the farm (Nation, 2010; Gunchinmaa et al., 2011; Doss et al., 2014; wa Gĩthĩnji et al., 2014).

Table 1.

Evolution of population and labor force in Azerbaijan, 1998 to 2013

Population, in millions 1998 2003 2008 2013

Total population 8.0 8.4 8.9 9.4

Total labor force 3.4 3.9 4.5 5.0

Labor force in agriculture 1.0 1.0 1.1 1.1

1998 to 2003 to 2008 to

Annual growth rate (%) 2003 2008 2013

Total population 1.0 1.2 1.2

Total labor force 2.8 2.7 2.1

Labor force in agriculture 1.2 1.0 0.4

Source: FAOSTAT, FAO of the United Nations

http://faostat.fao.org/site/550/default.aspx#ancor

Accessed on Jan. 14, 2014

6

4. Agriculture also accounts for a large portion of the water volume consumed in the country each year. Crop production in summer requires irrigation, and farmers also irrigate wheat and barley in winter. An estimated 90% of the value of agriculture generated each year relies on irrigation, either directly in crop production for sale or home consumption, or indirectly, through the production of crops fed to livestock. Meat and milk production account for the largest annual values of agricultural output in Azerbaijan, followed by wheat, fruit, and vegetables. Each of these activities provides employment opportunities and creates demand for complementary inputs, transport services, and processing. 5. Of the 4.9 million ha suitable for cultivation in Azerbaijan, an estimated 1.5 million ha are irrigated. Some of the irrigated land has been degraded by waterlogging and salinity, which often are symptoms of canal conveyance losses, excessive water application and inadequate subsurface drainage. An estimated 1.1 million ha suffer from moderate to severe salinization, while an estimated 0.4 million ha are slightly saline (World Bank, 2012). 6. Many observers of irrigated agriculture in Azerbaijan and other countries in the region have expressed the need to rehabilitate large areas of irrigation and drainage systems, which fell into disrepair with the dissolution of the Soviet Union. The systems, which were designed originally to serve large-scale irrigation on state farms, are not well suited for serving much smaller farms operated by individual households. In addition, when the Soviet Union dissolved, there no longer was an institutional structure in place to support the collective management of the irrigation and drainage network. Individual households had little incentive and limited capital with which to operate and maintain the large canals, pump stations, and diversion structures.

Table 2.

Population and labor force composition in Azerbaijan, 1998 to 2013

Item, in percent 1998 2003 2008 2013

Rural population 48.7 48.0 47.0 45.9

[% of total population]

Labor force in agriculture 27.7 25.6 23.6 21.6

[% of total labor force]

Females 54.1 54.2 53.5 52.6

[% of labor force in agriculture]

1998 to 2003 to 2008 to

Annual growth rate (%) 2003 2008 2013

Rural population -0.3 -0.4 -0.5

[% of total population]

Labor force in agriculture -1.6 -1.6 -1.7

[% of total labor force]

Females 0.0 -0.3 -0.4

[% of labor force in agriculture]

Source: FAOSTAT, FAO of the United Nations

http://faostat.fao.org/site/550/default.aspx#ancor

Accessed on Jan. 24, 2014

7

I. Recent trends in cropped area

7. Following the dissolution of the collective farm system, small-scale, private farms account for most of the agricultural area and most of the value of production in Azerbaijan. In 2011, private entrepreneurs operating small and large farms accounted for $5.5 billion of the $5.8 billion (93%) of the agricultural value generated (EU/FAO, 2012). Within the private sector, 67% of the specialized agricultural producers are family households, 33% percent are small farms, and only 0.2% are large farms (FAO, 2012b). 8. The area planted in crops has increased from about 1.0 million ha in 2000 to 1.6 million ha in 2013, of which about 1.5 million ha are on small-scale, private farms (Figure 1). Much of the increase in sown area since 2000 is due to increases in the production of winter wheat, barley, and fodder (Figure 2). Cotton production has declined from about 100,000 ha in 2000 to 20,000 ha in 2013 (Figure 2), while the area planted in vegetables has increased from about 60,000 ha to 80,000 ha during that time (Figure 3). The areas planted in maize and potatoes also have increased, while the area planted in sugar beets has remained at less than 10,000 ha (Figure 3).

Figure 1. Area in all crops, 2000 to 2013 (Source: Azstat.org)

900

1050

1200

1350

1500

1650

1800

00 02 04 06 08 10 12 14

All Farms, 1000 ha Small Farms, 1000 ha

Year

Planted Area, 1000 ha

8

Figure 2. Area in selected crops, 2000 to 2013 (Source: Azstat.org)

Figure 3. Area in selected crops, 2000 to 2013 (Source: Azstat.org)

30

40

50

60

70

80

90

00 02 04 06 08 10 12

Vegetables

Vegetables,1000ha

0

9

18

27

36

45

00 02 04 06 08 10 12

Maize(Grain)

Maize(Grain),1000ha

0123456789

00 02 04 06 08 10 12

Sugarbeets

Sugarbeets,1000ha

0

15

30

45

60

75

00 02 04 06 08 10 12

Potatoes

Potatoes,1000ha

9

9. The yields of major crops in Azerbaijan have been largely constant for many years, showing only small increases, over time. Since 2000, barley yields have remained in the range of 2.0 to 2.5 tons per ha, while wheat yields have been about 2.5-2.7 tons per ha (Figure 4). Average cotton yields have increased over that time, from 1 to 2 tons per ha, but this has occurred while the area planted in cotton has declined from 100,000 ha to just 20,000 ha. It is reasonable to expect the average yields of cotton on remaining lands to increase, as the area in cotton production declines. The average yields of fruit and berry crops have increased from about 6 tons per ha to about 7 tons per ha (Figure 4).

Figure 4. Average crop yields, 2000 to 2013 (Source: Azstat.org)

10. The average yields of vegetables and potatoes have increased more notably, over time, while the average yield of sugar-beets has varied somewhat more than the yields for other crops (Figure 5). Vegetable yields have increased from about 13 tons per ha to 15 tons per ha, while potato yields have almost doubled since 2000, increasing from 8 to 15 tons per ha (Figure 5). The average yield of sugar-beets has been increasing since 2005, which is the same year that the area planted in sugar-beets increased from 3,000 to 8,000 ha. The increasing yield for sugar-beets may well reflect the contribution of a newly formed corporate, large-scale sugar-beet operation in the country.

10

Figure 5. Average crop yields, 2000 to 2013 (Source: Azstat.org)

11. Many farm households raise livestock in Azerbaijan, primarily as sources of meat and mil for both home consumption and the market. Animals are no longer used to power farm machinery (EU/FAO, 2012). The numbers of cattle, sheep, and poultry have increased by 40%, 50%, and 70%, respectively, since 2000. (Figure 6).

Figure 6. Livestock proportional increase rate, 2000 to 2013 (Source: Azstat.org)

12. In 2014, there were an estimated 2.7 million cattle and buffaloes, 8.6 million sheep and goats, and 25.2 million poultry in Azerbaijan (Azstat.org). The market value of milk and meat production is much higher than the market value of individual major crops. The estimated value of milk production in 2012 is $502 million, while the estimated value

12

13

14

15

16

00 02 04 06 08 10 12

Vegetables

Vegetables,tons/ha

2

3

4

5

6

00 02 04 06 08 10 12

Maize(Grain)

Maize(Grain),tons/ha

0

10

20

30

40

50

00 02 04 06 08 10 12

Sugarbeets

Sugarbeets,tons/ha

0

4

8

12

16

20

00 02 04 06 08 10 12

Potatoes

Potatoes,tons/ha

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ca le,Buffaloes Sheep,Goats Poultry

11

of cattle, sheep, and chicken production is $640 million (Table 3). The cumulative value of milk and meat production in 2012 ($1,142 million) represents about 50% of the value of agricultural production in that year. Fruit production represents about 17% of the agricultural value, while vegetables account for 12% of the value. Wheat and potatoes, together, account for about 14% of the value of agricultural production in 2012.

13. The Government of Azerbaijan promotes wheat production, in part, to ensure national food security. In recent years, domestic wheat production has accounted for 50% to 60% of wheat consumption, while imports have accounted for the remaining 40% to 50% (Table 4). The average amount of wheat available for domestic consumption has remained in the range of about 200 to 220 kg per person, per year, over time (Table 4).

Table 3.Agricultural production, by value of commodity, Azerbaijan, 2012Source: FAO Statsitics

PercentProduction Production of top

Value Amount 20 Crops(Int $1,000) (Tonnes) (%)

1 Milk, whole fresh cow 502,226 * 1,683,424 22.402 Meat indigenous, cattle 316,795 * 117,272 Fc 14.133 Meat indigenous, sheep 206,826 * 75,961 Fc 9.224 Wheat 181,684 * 1,797,028 8.105 Tomatoes 174,291 * 471,612 7.776 Potatoes 124,078 * 968,545 5.537 Meat indigenous, chicken 123,690 * 86,836 Fc 5.528 Apples 99,288 * 234,771 4.439 Grapes 86,307 * 150,987 3.85

10 Eggs, hen, in shell 61,283 * 73,889 2.7311 Fruit, fresh nes 57,067 * 163,500 * 2.5412 Hazelnuts, with shell 47,485 * 29,624 2.1213 Persimmons 45,186 * 140,082 2.0214 Cucumbers and gherkins 41,729 * 210,172 1.8615 Watermelons 35,581 * 312,336 1.5916 Onions, dry 34,904 * 166,183 1.5617 Wool, greasy 31,498 * 16,464 1.4018 Cotton lint 26,869 * 18,800 * 1.2019 Chillies and peppers, green 23,151 * 49,178 1.0320 Raspberries 22,446 * 11,600 * 1.00

Sum of Crop Values 2,242,384 100.00Notes: * : Unofficial figure [ ] : Official data Fc : Calculated data

12

14. The program of domestic production and imports has been successful in ensuring a sufficient aggregate supply of cereals, meat, and vegetables in Azerbaijan. During the years since the break-up of the Soviet Union, the amount of calories available per person, per day has increased from fewer than 2,500 calories per person, per day, to about 3,000 calories per person, per day (Figure 7). Figure 7. Aggregate calories supply (meat, vegetables, and cereals), 1992 to 2011

Source: FAO Statistics, www.fao.org 15. The current composition of the aggregate food supply includes about 2,500 kcal per person, per day from vegetables and cereals, and about 500 kcal per person, per day from animal products (Table 5). The annual increase in the number of calories

Table 4.Domestic production and imports of wheat, Azerbaijan, 2000 to 2011, in thousand tonnes

YearNational

Population (1000)

Production (1000

tonnes)

Import Quantity

(1000 tonnes)

Food supply quantity

(kg/capita/yr)

2000 8,118 1,150 763 190.92001 8,195 1,494 658 200.52002 8,280 1,693 719 206.82003 8,370 1,510 858 213.72004 8,465 1,573 1,302 227.52005 8,563 1,527 1,029 224.22006 8,665 1,460 1,143 221.62007 8,770 1,305 1,487 218.72008 8,878 1,646 1,502 218.22009 8,986 2,096 1,035 216.02010 9,095 1,272 1,390 212.72011 9,202 1,594 1,464 210.1

Source: FAO Statistics, www.fao.org

1,000

1,500

2,000

2,500

3,000

3,500

92 94 96 98 00 02 04 06 08 10

Aggregatesupplyofcalories

kcal/capita/day

13

available, per person, was notable during the early 2000s, but has diminished in recent years, as the average number of calories available has reached almost 3,000 kcal per person, per day (Table 5).

II. Grain Production, Prices, Imports, and Food Security

16. Grain production in Azerbaijan, as in other countries, varies with differences in weather during the planting and growing seasons, and also with extreme events that occur while the crop is maturing or near harvest. Grain trades on international markets, and thus the prices received by farmers and paid by consumers are influenced by aggregate supply and demand conditions. The sharp rise in grain prices internationally in 2008 caused grain prices in Azerbaijan to rise, as well. 17. Grain prices in Azerbaijan declined in 2009, but began rising again in 2010, due partly to flooding in the country. The estimated 2 million tons of cereals that were produced in Azerbaijan in 2010 represent a decline of about 33% from the amount of cereals produced in 2009, and a 14% decline from the average production of 2005 through 2009 (FAO, 2010a). Given this shortfall, Azerbaijan imported 1.3 million tons of cereals between January and November, 2010, an amount that is 45% larger than the cereal imports in 2009, and 29% larger than the average annual cereal imports from 2005 through 2009 (FAO, 2010a). The cost of cereal imports in 2010 was $270 million, which is 44% and 32% greater than the 2009 cost and the five-year average cost, respectively. 18. Food prices continued increasing in Azerbaijan in 2011, rising by about 5.6% from December 2010 to March 2011 (FAO, 2011a). The impact of higher food prices, as in most countries, is most notable in poor households, which spend about 60% of their

Table 5.Calories available for consumption in Azerbaijan,per person, per day, 2000 to 2011

Year

Veg, Cereals Food supply

quantity (kcal/cap/day)

Animal Prods. Food supply

quantity (kcal/cap/day)

Sum, Veg, Meat Food supply

quantity (kcal/cap/day)

Annual increase in food supply

(kcal/cap/day)

2000 2,081 314 2,395 1162001 2,152 311 2,463 682002 2,258 327 2,585 1222003 2,365 341 2,706 1212004 2,505 337 2,842 1362005 2,566 357 2,923 812006 2,552 360 2,912 -112007 2,517 373 2,890 -222008 2,487 380 2,867 -232009 2,458 450 2,908 412010 2,459 489 2,948 402011 2,446 505 2,951 3

Source: FAO Statistics, www.fao.org

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income on food. Bread prices stabilized in 2011, due partly to the Government's decision in 2010 to exempt wheat sales from the Value Added Tax. Potato prices increased, due partly to reduced production within Azerbaijan, and also to the higher price of imported potatoes (FAO, 2011a). Beef prices also continued increasing in 2011, such that the average price for beef during January through March 2011 was about 16% above the average price during January through March 2010 (FAO, 2011a). 19. Agricultural output increased by 5.8% in 2011, while cereal production increased by 23% (FAO, 2011b). The higher rate of increase for cereals reflects recovery form the very low output of cereals in 2010, due to the damaging floods in that year. Despite the increase in agricultural output, food prices increased by 10.6% in 2011, thus maintaining price pressure on poor households. Notably higher prices were seen for fruits (18% increase), bread (13%), vegetables (12%), meat products (11%), and fats and oils (10%). The prices of beef and mutton increased by 22% and 16%, respectively, due largely to increases in the cost of animal feed (FAO, 2011b). 20. Cereal production increased by an additional 14% in 2012, due to favorable weather and government incentives (FAO, 2012a). Cereal imports also increased in 2012, rising by 16% over the previous year. Aggregate agricultural output increased by 5.8% in 2012, with notable increases in both the crop and animal sectors. Annual food price inflation was much lower in 2012 than in 2011, although the prices of several commodities rose somewhat in the third and fourth quarters (FAO, 2012a). 21. The Government remained heavily involved in agriculture in 2012, providing substantial subsidies in support of wheat and rice production. The AZN 40 payment per hectare of wheat or rice resulted in a 24.9 million AZN expenditure, while an additional 56.7 million AZN were paid to subsidize fuel and lubricants. Government expenses for the fertilizer and seed subsidies were 2.5 million AZN and 7.3 million AZN, respectively, in 2012 (FAO, 2012a). The Government also offered the price of AZN 210 per tonne (about USD 248) for high quality grain delivered to the State Grain Reserves. The substantial price subsidy, in addition to the input subsidies, encourages farmers to produce wheat or rice. The cereal import bill increased from less than 300 million AZN in 2011 to about 360 million AZN in 2012, as the amount of cereal imported increased from 1.3 million tonnes to 1.5 million tonnes (FAO, 2012a). III. Agricultural Subsidies

22. The Government of Azerbaijan supports agricultural producers primarily through subsidies on fertilizer, seed production, machinery, direct transfers and reduced taxation. The direct transfers include a 40-manat payment per ha, per year, for the area planted, and an additional 40 manat per ha, per year, for the area planted in wheat, barley, or rice (EU/FAO, 2012; EC/FAO, 2013). The Government also provides fertilizer and wheat seeds to farmers at 50% of the market price. These payments have likely contributed to the decline in cotton and tobacco production in Azerbaijan in recent years, as the areas planted in wheat and other grains have increased (EU/FAO, 2012). 23. The incentive payments for wheat, barley, and rice reflect the Government's interest in promoting the production of basic food crops. Farmers have responded by planting large areas of wheat, such that the sum of the additional subsidy payment to wheat and rice producers in 2012 was AZN 25 million (EC/FAO, 2013). Those farmers received an additional AZN 64 million for inputs and through the above-market prices

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they received for wheat delivered to the State Grain Reserves. The latter component is made possible through Government support of producer prices. In 2010, the Government supported price of wheat in Azerbaijan was $288 per tonne, while the producer prices for wheat in Russia, Ukraine, and Kazakhstan were $127, $136, and $148, respectively (EC/FAO, 2013). 24. The Government's financial support of wheat, barley, and rice production might reflect a policy goal of achieving national food self-sufficiency, rather than food security. The farm-level margins from producing fruits and vegetables are substantially higher than those pertaining to wheat and rice. In 2013, the estimated margin for wheat production was AZN 237 per ha, while the estimated margins for potatoes, vegetables, and melons were AZN 2,543, AZN 2,113, and AZN 1,450 per ha, respectively (EC/FAO, 2013). Farmers in Azerbaijan produce a fair amount of fruits and vegetables, yet grain production has accounted for more than half the area planted in recent years. 25. While the analysis above, undoubtedly has merit, it should likewise be noted as shown in “Irrigation and Drainage”, Annex 4 to the Strategy Report that the reasons for farmers abandoning “king cotton” were marginal yield and production levels resulting from the short summer irrigation supplies being less than adequate to meet the crop’s relatively high crop water requirements, not necessarily increasing small grain production. It is also shown that in the Kura-Aras lowlands only seven percent of cotton’s crop water requirement is met from the scant effective rainfall during the summer months. The annex also clarifies that while there are some indications of a slow trend to crop diversification with temperate climate fruits, vineyards, vegetables, corn and tea being grown in some areas of the country, wheat remains the dominant crop in the cropping pattern, occupying, as noted above, some 41 percent of the total cropped area in 2013. The question is, why do farmers prefer to grow wheat. Farmers are quite perceptive and recognize that in the Kura-Aras lowlands over 75 percent of the scant annual rainfall occurs during the growing period (Oct –May) for winter wheat. Maintaining wheat as a principle crop is a hedge against unreliable and short supplies of irrigation water as effective rainfall meets over 25 percent of the wheat’s crop water requirement in the lowlands of the Kura-Aras Basin. The monthly distribution of annual rainfall and the farmer’s desire to capitalize to the fullest on it is most likely an incentive equal to Government subsidies of recent years to grow wheat. IV. Recommendations Regarding Agricultural Subsidies

26. The Food and Agriculture Organization of the United Nations (FAO) and the European Union (EU) have collaborated in assessing agricultural and food security issues in Azerbaijan and neighboring countries, through the “EC/FAO Program on information systems to improve food security decision-making in the European Neighborhood Policy East Area.” Part of that program has involved the analysis of agricultural policies and subsidies. In policy brief published in 2013, the EC/FAO Program makes the following recommendations, regarding the form and focus of agricultural policies in Azerbaijan (EC/FAO, 2013).

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V. Key messages

27. Azerbaijan has successfully risen to the challenges of improving agriculture, and reducing poverty and food insecurity. However, additional actions could be taken to achieve greater impact of the agricultural subsidies in future. These include:

(i) Increasing grain production by raising productivity, rather than expanding planted areas, at the expense of cotton, tobacco, grapes, tea, and other more profitable products.

(ii) Increasing the quality of wheat, to better meet the needs of the milling

industry. (iii) Promoting the production and improving the productivity of other

commodities which have greater comparative advantage and are more labor intensive, which will increase employment and rural incomes.

(iv) Improving the transparency of the subsidy mechanism, so that it reaches

all intended beneficiaries. (v) Ensuring that subsidies do not encourage environmental harm, by

expanding crop production into fragile pasture areas, or by increasing salinization through inappropriate irrigation practices.

28. It is further recommended that the Government focus on improving the value of agriculture generated by small producers, as they account for 96% of production. This will contribute to increasing employment, reducing rural poverty, increasing household food security and slowing the pace of rural-urban migration. Priorities include improving the technologies available for small farmers and establishing technology and market information systems that are accessible to them, together with better access to markets through improved infrastructure and the development organization of small farmer organizations to give them better access to markets. 29. The recommendations appearing the in EC/FAO Policy Brief reflect the importance attached to improving productivity in agriculture. Although the sector accounts for only 6% of GDP, nearly 40% of the rural labor force is employed in agriculture. Thus, employment in the sector is a critical component of efforts to increase incomes and sustain food security in rural areas. The supply-side implications of the agricultural setting also are significant, as 96% of agricultural output in Azerbaijan is produced on small farms (EC/FAO, 2013). An estimated 42% of farmers own just 1 to 2 hectares, while 54% own 2 to 5 hectares. Thus, policies and programs that enhance production opportunities for smallholders are most appropriate. 30. Efforts to increase yields per hectare are needed, in conjunction with efforts to improve farmer access to viable markets. The area planted in wheat has increased by 68% since 1990, while yields have remained somewhat constant, at about 2.5 tons per hectare (EC/FAO, 2013). The average calorie intake declined in the 1990s, but has increased in recent years. At present, only 5% of the population is estimated to be undernourished, although the prevalence of stunting among children under 5 years remains high at 25% (EC/FAO, 2013). Thus, substantial work remains in providing sufficient food and nutrition at the household level.

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VI. Summing Up

31. This review of crop production, food prices, and cereal imports from 2009 through 2012 suggests that both domestic production and imports play important roles in improving and sustaining food security in Azerbaijan. With an increasing population and rising aggregate income, food demands have increased in recent years. Those demands have been met by increases in the areas planted in wheat and rice, and also through larger purchases of grain on international markets. Both Government subsidies and climatic conditions and irrigation water supply in the growing areas influence farm-level crop production choices. The agricultural subsidy program in Azerbaijan is costly, and it prevents market signals from working their way through to decision makers at the farm and processing levels. 32. Over time, the subsidies and price supports should be phased out, so that farmers, middlemen, and processors will make decisions that reflect both production and market conditions, as communicated via prices that are determined by the interactions of market participants. 33. The substantial sums expended on annual subsidies pertaining to crop area, farm inputs, and output prices would be better invested in technical assistance and in efforts to improve the resource base on which agriculture depends. For example, a portion of the subsidy payments for producing wheat and rice could be used, instead, to finance an agricultural extension service that would assist farmers in learning and implementing practices that would enable them to increase output per hectare. Another portion of the funds could be used to finance investments in regional drainage systems that would enable small-scale farmers to achieve better leaching of soils and gain relief from saline high water tables. Low-interest loans and co-investment programs would enable farmers and water user associations to speed the pace of soil reclamation efforts. 34. As earlier indicated, agriculture contributes only a small portion of Azerbaijan's annual GDP, yet it remains an important source of employment, particularly in rural areas. Investments in the sector, from both private and public sources, during the years since the break-up of the Soviet Union have not been sufficient to maintain desirable levels of productivity. As a result, the condition of land and water resources in agriculture has degraded, over time, input use has declined, and crop yields have not increased at desirable rates. Land degradation has impaired crop yields, and the lower yields have reduced the potential for farmers to invest in efforts to restore productivity. Small-scale farmers with limited financial ability will need assistance from the private sector or the government to lift themselves out of this non-virtuous cycle of resource degradation and inadequate investment. 35. The Government of Azerbaijan is eager to increase wheat production, in the interest of producing a larger portion of the country's wheat requirement, and reducing grain imports. Food security is certainly an important objective, but grain self -sufficiency is not necessarily an efficient program. There are many sources of wheat and other grains on international markets, and the price of grains generally is affordable although transport and handling costs can be significant. Prices can rise substantially in some years, with regional shortfalls in production, and subsequent supply hoarding on the part of some countries. Yet, the impacts of such periods of high prices and short supplies generally can be limited by maintaining a domestic reserve or through measured government intervention to ease the temporary imbalance between supply and demand.

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36. A smarter strategy might involve increasing the production of higher valued crops as appropriate in Azerbaijan, for sale in domestic and international markets, while reducing the production of lower valued commodities. The higher values would be helpful in generating employment opportunities, increasing incomes, and enhancing livelihoods, particularly in rural areas. They would also create opportunities for farmers and their associations to invest more heavily in the natural and physical capital that will enable them to generate higher crop yields and greater values, over time. In a sense, a program of increasing the production of higher valued crops, while reducing the production of lower valued crops would set in motion a virtuous cycle of larger investments and greater returns in agriculture, much to the benefit of many rural and urban households.

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References Doss, C., Summerfield, G., Tsikata, D. 2014. Land, gender, and food security. Feminist Economics 20(1), 1-23. EC/FAO, 2013. Recommendations to reorient the agricultural subsidy policy so that it further contributes to growth, food security and poverty reduction. Azerbaijan Policy Brief, available at www.fao.org, 2 pages. EU/FAO, 2012. Assessment of the agriculture and rural development sectors in the eastern partnership countries: The Republic of Azerbaijan. Budapest: FAO Regional Office for Europe and Central Asia, 66 pages. Food and Agriculture Organization (FAO) 2010a. Price monitoring and analysis country brief, Azerbaijan, September-December 2010. Available at www.fao.org. Food and Agriculture Organization (FAO) 2011a. Food security and agriculture highlights, Azerbaijan, January-March 2011. Available at www.fao.org. Food and Agriculture Organization (FAO) 2011b. Food security and agriculture highlights, Azerbaijan, October-December 2011. Available at www.fao.org. Food and Agriculture Organization (FAO) 2012a. Food security and agriculture highlights, Azerbaijan, October-December 2012. Available at www.fao.org. Food and Agriculture Organization (FAO) 2012b. Eastern Europe and Central Asia agro-industry development country brief: Azerbaijan. Rome: FAO, 16 pages. Gunchinmaa, T., Hamdamova, D., van Koppen, B. 2011. Gender in irrigated farming: A case study in the Zerafshan river basin, Uzbekistan. Gender, Technology and Development 15(2), 201-222. Nation, M.L. 2010. Understanding women's participation in irrigated agriculture: A case study from Senegal. Agriculture and Human Values 27(2),163-176. wa Gĩthĩnji, M., Konstantinidis, C., Barenberg, A. 2014. Small and productive: Kenyan women and crop choice. Feminist Economics 20(1), 101-129. World Bank, 2013. Review of World Bank engagement in the irrigation and drainage sector in Azerbaijan. Document 75967. Washington: World Bank.

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ANNEX C

WATER RESOURCES ASSESSMENT

I. NATURAL WATER RESOURCES AVAILABILITY

A. Available Information

a. Data Archives 1. Comprehensive data on water resource availability and water use exists from the Soviet period. In 1991, water resource information systems appear to have collapsed, but since that time have been steadily reestablished. Databases are not yet state of the art using powerful database engines allowing storage of a wide range of information, complete with a geographical information system and provision for multiple user access, with database backup and protection procedures to avoid data loss. 2. We are also not aware of any effort to synchronize river discharge data sets with water abstraction data resulting in “naturalized” flow information – flow data sets that are modified to account for changes to the flow regime through water abstractions, return flows and storage in reservoirs. Such data-sets are becoming more important with a view to facilitate study of climate change impacts and calibration of hydrological models. Information on water use is also understood to be of low reliability apparently due to lack of rigorous measurement of actual abstractions, and little hard knowledge of return flows to the river system including agricultural drainage, sewer discharges, cooling water returns and contribution to base flow from groundwater sources. b. Data Collection Networks 3. MENR2 has the responsibility for:

Maintaining the meteorological data collection network (70 locations). Measurements made 8 times a day of key climatic parameters needed to better understand the evaporative process, and rainfall.

Maintaining the hydrometric data network for monitoring quantity of flow in rivers and the storage in lakes and reservoirs. (108 locations across the country). Water levels measurements are made twice daily current meter measurement of discharge are made seasonally throughout the flow range at each site to ensure the derivation of reliable rating curves. .

The water quality monitoring network for surface water includes 52 locations where both bank-side measurements are made and samples are taken for subsequent analysis of a total of 58 water quality parameters at associated laboratories. Water samples are taken for laboratory analysis about three times a month. The sites for quality monitoring are transboundary points, as well as points above and below major stream confluences and re-entry of return flows from industrial treatment plants municipal and agricultural drainage.

The groundwater monitoring network consisting of about 800 locations where groundwater levels are measured in observation wells or the discharge of

2 Information provided at meetings on 29 September and 2 October 2014.

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springs is recorded dates back to the 1950s. Manual measurements are made at all but a very few locations, however some water level recorders have now been installed at selected observation wells. Measurements are normally made three times monthly. Groundwater samples are simultaneously collected for water quality analysis.

4. The surface water monitoring network of the MENR is shown in Figure 1.

Figure 1: The Surface Water Gauging Locations

5. There has been some support provided MENR to develop real-time monitoring systems allowing the real-time transmission of data directly to a data center but these efforts have not resulted in installation of any telemetry based networks. Currently, all readings are taken manually, and reported at pre-set times of the day by observers. Only four or five water level recorders are reportedly used at present. Data is normally recorded in hard copy at the field sites, but urgent data is simultaneously transmitted to data centers by various means. It is understood that telephone, facsimile and SMS text messages are currently used for this purpose. There have been recent moves to improve warning systems for critical water quality incidents at the main transboundary locations, with field teams deployed to take samples and promptly test for key potential contaminants to provide early warning services to downstream water users. It is understood this system is to be further developed and a more comprehensive system put in place. 6. The hydrometric network has suffered from low funding for equipment repair and replacement which renders questionable the accuracy of observations. A specific problem identified is that there has been no re-calibration of current meters in the last 15 years. The magnitude of the impacts of this anomally on observed river flows should be

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evaluated as a matter of urgency – and additional and replacement instruments be promptly procured. Arrangements for maintenance and timely periodic calibration of the replacement instruments should be ensured. 7. The Amelioration JSC reportedly maintains records of flows into its irrigation canals, and at distribution points within the canal system. It also has responsibility for monitoring groundwater pumped for irrigation. It also records (for revenue purposes as well) flows provided to WUAs for further distribution to their users. These data have not been seen, but accuracy is questionable. Because the measuring points are not regularly re-calibrated. Amelioration also has responsibility for measurement of flows within the agricultural drainage network. AzerSu has responsibility for measurement of abstractions from water bodies (surface and groundwater) an Amelioration’s canals for its water supply schemes, as well as recording flows returned to the river systems from its treatment plants. c. Management and Dissemination of Water Resources Data 8. The current management of sector data needs significant improvement. There is data management software available that could be used to retain the information data base more reliably and make data validation and analysis much easier. Integration of databases across the key water resources subsectors would greatly assist in country wide studies related to water resources. This does not require complete integration of systems into one unified database, but should allow copying of information between database systems, with each data owner remaining responsible for the integrity and accuracy of its own database. 9. Without the modern database management systems, the current system, based on paper copies of data (processed using independent computers) means any use of the data requires a lengthy and time-consuming process of re-entry of data from copied paper summaries or compilation of data files from a number of data sources. Risk of data loss is relatively high (as individual computers are liable to failure and paper copies can be lost of destroyed) and the whole system is labor intensive. 10. We understood from MENR that the hydro-meteorological monitoring services are expected to be self-funding, using funds derived from sale of data to provide resources for maintaining the network. The result is that there are excessive charges for provision of data, and access to hydrological data is limited to those entities which can arrange the necessary payment. This is contrary to international practice where integrated water resources management is being implemented. Ready access to basic information for all stakeholders is a basic pre-requisite for optimal sector development and management. The US provides a key example of how data can be made widely available for all to access and use (see http://waterdata.usgs.gov/nwis/rt).

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B. Surface Water Resources

a. Internally Generated

11. Mean annual rainfall in Azerbaijan is reported to be about 400-450 mm3. This gives rise to an estimated 5.95 billion cubic meters (billion m3) average flow in the rivers annually. Runoff is generated largely from the mountains of the Greater Caucasus, the Lesser Caucasus, and the Lankaran area in the south of the country. Figure 2 shows the estimated runoff distribution across the country.

Figure 2. Estimated Average Annual Runoff Generation Map

b. Transboundary Rivers

12. The Aquastat data provides an estimate of the transboundary surface water inflow to Azerbaijan. This includes:

The main Kura river inflowing from Georgia

The Aras river, flowing from the Armenia border, along the Azerbaijan / Iran border

Flow in tributaries to the Kura river across the Georgia border

Flow in tributaries to the Aras river across the Armenia border

Flow in tributaries to the Aras river across the Iran border

Flows in the Samir river system, forming the border with Russia

13. The external flows in these rivers provides a resource that is quantified at 26.56 billion m3 annually by Aquastat. Akhundov (20144) states surface water resources in the

3 Data from Aquastat. http://www.fao.org/nr/water/aquastat/data/wrs/readPdf.html?f=AZE-WRS_eng.pdf

4 Presentation made to first Stakeholder Workshop, Baku on 1 October 2014.

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country (including both internally-generated and externally-derived flows) are between 28.5 and 30.5 billion m3 a year. During dry years he states this can fall to 22.6 billion m3. c. Surface Water Resource Constraints

14. The surface waters of Azerbaijan are plagued with water quality problems. It is recorded that the principal transboundary flows of the Kura and Aras rivers are not suitable for domestic use, with a number of parameters (mostly industrial contaminants) being well outside the limits for potable water. Salinity is also a problem, particularly in the lower reaches of the Kura. However, these quality concerns are not a direct limitation on the quantification of water resources, as the river water can be used for irrigation, and the water can be made suitable for municipal water supply, provided adequate water treatment facilities are provided.. There are also high sediment concentration in the rivers, particularly following periods of heavy rainfall and subsequent runoff. This leads to problems requiring special consideration in both the design and management of water diversion and conveyance facilities and results in rapid accumulation of sediment within reservoirs reducing their capacity and shortening their useful life. 15. Work by UNDP-GEF on transboundary diagnostic analysis in the Kura-Aras basin has sought to identify trends in observed flows at key points in the river system. While there is strong evidence that flows in the Kura at its mouth have declined over the period 1950 to 2010, there is no evidence of decline of flows in the Kura within Georgia, and only modest declines in the flow of the Aras River within Armenia. Most of the observed decline in the Kura discharge to the Caspian Sea is understood to ressult from water use within Azerbaijan. It is however noted that both Armenia and Georgia have stated plans to increase surface water use within their countries, so in the medium and longer term it is to be expected that transboundary flows will decrease. C. Groundwater Resources

16. The Aquastat database provides an estimate of the annual groundwater recharge to aquifers within Azerbaijan at 6.51 billion m3. This is derived from rainfall. Of this amount, it is estimated that some 4.35 billion m3 naturally re-emerges as surface flow, and is also included in the estimated surface water resource availability. 17. In a paper on Azerbaijan groundwater Alakbarov has provided information on groundwater reserves. He estimates the usable reserves of fresh and slightly-mineralized groundwater to be 12 million m3/day, but reports that only half this amount was “approved” by the State Commission on Reserves of Azerbaijan and the former USSR. He also reports this analysis was based only on data to 1980, and the situation has undoubtedly changed since that time. He identifies groundwater bodies with salinity levels in excess of that suitable for direct use for irrigation (and unsuitable for drinking water); these are located in portions of the Kura plains, and in areas adjacent to the Caspian Sea. The distribution of saline groundwater is complex as there are numerous confined and unconfined aquifers in the lenticular sediments of the Kura plains, and fresh water occupies some layers, while saline water occupies others. While fresh groundwater have to a degree been augmented by seepage from the irrigation systems commanding the plains, salinization of groundwater has significantly increased in waterlogged areas where excessive recharge has brought water tables close to the ground surface.

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18. There are reportedly a number of other issues related to groundwater quality in Azerbaijan. Some contamination from oil products has been identified in areas oil production on the Absheron peninsula. Contamination from seepage of poor quality river water as well as from local industries including the aluminum plants in the Ganja area of the central Kura plain is mentioned by Alakbarov). In addition, agricultural contaminants derived from pesticide stockpiles or intensive livestock feeding facilities are occasionally found. 19. Even in view of the constraints outlined above, properly planned and managed groundwater development can be achieved in Azerbaijan. Azersu JSC have recently completed a major well field in Oguz with 100 production wells to provide a total of 5 m3/s of good quality water and piped it 280 km to Baku. The well field features 50 observation wells with water level recorders providing real time information to a central management facility. The groundwater information so collected provides input to a groundwater model which serves as a tool for both managing groundwater extraction and monitoring well field performance. D. Total Sustainable Water Resources Available

20. The summation of surface and ground water availability estimates oversimplifies the determination of water actually available, in part because of the interaction between surface water and groundwater. As mentioned in Section 1.3, it is estimated that 4.35 billion m3 of the annual groundwater recharge finds its way into the river system as river base-flow and so is double-counted. After allowing for this the Aquastat estimate of the annual average total water resource availability is 34.68 billion m3, of which 76.6 % is through transboundary flows. 21. There are other constraints on water availability. Water quality constrains water usability, so including water that is not useable in any resource assessment can be misleading. There are other water management issues “hidden” in the average numbers. For example, Sarsang reservoir was originally built to supply water for irrigation to 100,000 ha near the Nagorno-Karabakh area. This reservoir is no longer under the control of Amelioration JSC, and the water is released through the canals on schedules not conducive to beneficial use for irrigation. Consequently, wells have been drilled to provide supplemental water to the farmers, but this is heavily stressing the aquifer, and there is currently significant water shortages in the area.5 22. A further constraint on “usability” is control of the runoff to allow it to be used. Significant volumes of water flow in rivers during times of flood, and these pass downstream to the Caspian Sea because they cannot be retained. Additional reservoirs must be constructed if a greater proportion of the annual surface water flows are to be harnessed. While total capture is not practical within the foreseeable future, studies should be undertaken identifying additional technically feasible and economically viable mult-purpose storage sites. Storages provide not only reliable water supplies but provide flood sorage resulting in significant flood damage reduction downstream. An indication of the extent to which existing reservoirs control flood runoff is given in Figure 3. The hydrographs shows flows upstream and downstream of the Shamkir / Mingechevir reservoir system, clearly indicating releases downstream tend to conform to water

5 Information provided at Workshop, 17 November 2014.

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requirements for energy production, irrigation, municipal supplies and environmental maintenance with minimal significant uncontrolled flood flow to the sea. It should be noted that Mingachevir reservoir has an active storage volume equivalent of about 75% of the mean annual flow volume through the reservoir.

Figure 3. Average Hydrographs on Kura River (data from SCP ESIA Report6)

23. Any average figure for the whole country does not, of course, provide any information about how the resource availability changes in space (across the country) and in time (seasonally, and from year to year). This variation is critical to understanding sufficiency of water resources, and where water resource availability is a problem that needs to be urgently addressed. It is understood from the Institute of Water Problems (of the Amelioration JSC) there is an on-going exercise to re-compute the soviet period estimates of water resource availability using more recent data. This is a three year study, due for completion in 2015 (Ganbarov, pers comm7). II. WATER DEMANDS

A. Irrigation

a. Management System and Data Availability 24. Irrigation is identified as the major water consuming sector in Azerbaijan: Akhundov (2014) provides the following picture regarding total abstractions for all sectors for 2013:

Total abstraction was 12.5 billion m3

Water consumption calculated at 8.2 billion m3 – 3.8% of this was for domestic water, 25.0% for industry, and 69.8% for agriculture

6 “Hydrology and Water Quality”. Hydrology Baseline Report, draft for disclosure, for South Caucasus

Pipeline Environment and Social Impact Assessment, Azerbaijan. Downloaded from http://subsites.bp.com/caspian/CAU/Eng/esia1/Tec_B_Rt/B_Rpts/chp10.PDF

7 Meeting held on 23 September 2014 at Institute of Water Problems, Baku

27

Water lost in transmission – 4.28 billion m3 or 34% of the abstracted water (or 52% of the used water).

25. It is noted that “water lost in transmission” is treated as a separate category – in practice this would largely be water diverted for irrigation use that is lost from the canals and transmission pipelines. Irrigation water is basically managed by Amelioration JSC. They plan irrigation developments, manage construction, operate and maintain irrigation systems using surface water and groundwater (A description of the system is provided in Annex D: Irrigation and Drainage). 26. Data on flows within the irrigation systems is kept by Amelioration JSC. It is understood that water level measurements are made at the head of most large canals, and theoretical relationships between water level and discharge used to provide a value for canal discharge at the time of water level measurement. These will be inaccurate unless supported by regular current meter (or other) measurements of water velocity, as relationships between water level and discharge change with condition of channel downstream, gate condition and the like and so the relationship needs regular recalibration unless the water level measurements are taken at the site of a permanent water measurement or control structure. 27. It is noted that about 40% of the irrigated area is not commanded by gravity but involves pumping water (see Annex D) to elevations required to achieve the desired command.. For the pumped irrigation supplies, it is understood that flow estimates are based on nominal pump discharges and time for which the pump is operated. However, wear of pump impellors over time will reduce the pump discharge significantly (as will other deterioration in the pump sets) so such data will not be accurate unless actual pump discharges are regularly checked. Measurements of water provided to WUAs are also recorded (for revenue purposes), but it is understood that these measurements are also often nominal based on “understood” flow rates rather than accurate measurements. b. Computation of Water Requirements 28. Irrigation water needs are computed based on areas sown for each crop within the command area of the irrigation system, and water requirement “norms” developed by Amelioration JSC and the Ministry of Agriculture. Amelioration JSC have traditionally managed all State water management planning – during the Soviet period their (predecessor) organization prepared comprehensive water use planning for all water users, which at that time were limited to the large state farms. Amelioration JSC developed multi-purpose schemes as well as irrigation schemes. It is understood that the institutional capabilities required for such planning remains with the organization, and they have the capacity to continue to plan, design. Construct, operate and manage both irrigation and multi-purpose water use schemes. These days such projects must be submitted to MENR for clearance. We were informed at a meeting8 with Amelioration JSC officers that schemes for construction of irrigation facilities for an additional 200,000ha have already been prepared and now await Government approval. Development projects focused on increasing water supplies within existing irrigated areas to facilitate both intensification and diversification of cropping patterns have also

8 Held 11 November 2014.

28

been prepared. Such initiatives form the core of required efforts to revitalize the agricultural sector. B. Industrial Water Requirements

c. Management System and Data Availability 29. Industrial water requirements are specified by abstraction licenses, and these are developed by requirements of the particular industry, the capacity of the industrial plant and agreed “norms” of water requirements for the particular industry. By far the largest industrial user of water is electrical energy generation, this is inclusive of both hydropower installations and the large cooling water requirements for thermal generation plants. The two largest hydro-power stations in Azerbaijan are located below the Mingechevir Dam on the Kura with an installed capacity of 402 MW and below Shamkir reservoir also on the Kura with an installed capacity of capacity 380 MW. Likewise, the the largest thermal power stations both use water from the Kura river for cooling purposes. The Mingechevir thermal power plant with an installed capacity of 2-4 GW, diverts water from Amelioration JSC’s Karabag canal for cooling purposes. The thermal plant located near Shirvan has capacity of 900 MW, and uses water taken directly from the lower Kura River for cooling. Together the four plants described above represent over 55% of the total installed generating capacity in the country9. 30. It is estimated that the nation-wide requirement for cooling water is about 2.4 billion m3 per year most of which is returned directly to the source, albeit at a marginally higher temperature. The total flow through the hydropower turbines is estimated to be about 14 billion m3 per year. These hydropower flows are returned directly to the river after energy generation, unaltered in either quality or quantity. 31. Industrial water users’ needs are estimated by the concerned industry, and permission sought from the appropriate licensing authority for the abstraction. It is reported that Amelioration JSC manages water abstraction licensing (see, for example, the Draft National Water Strategy document, 2013 and the Water Governance Project Completion Report by EU/TACIS prepared in June 2010), AzerSu indicated that they do not follow this procedure but apply to the MENR for permission to abstract water (meeting, 25 September 2014). The energy company Azer Energy JSC has sole responsibility for development of thermal and hydro-power energy generation within Azerbaijan. They compute water needs based on the technical requirements of the proposed generation facility, and seek all necessary clearances for construction, water abstraction and return water permits. C. Municipal and Domestic Water Requirements

d. Management System and Data Availability

32. The Government of Azerbaijan has accorded very high priority in the development of good water supply systems for the country. It has invested heavily in the refurbishment and further development of municipal water supply systems and wastewater collection and treatment systems throughout the country.

9 Information from

http://www.azerenerji.gov.az/index.php?option=com_content&view=article&id=91&Itemid=112&lang=en

29

33. In 2007 about 55% of the population had access to improved sanitation facilities. The numbers were higher in urban areas (73%) than rural areas (36%). Verdiyev (2009) states that there were 16 wastewater treatment plants in secondary cities but most were partly or completely out of operation. In secondary cities, up to half the waste entering the sewer system was reported lost through leakage prior to arrival at treatment works. In rural areas, people mostly used latrines. 34. World Bank (2007) identified (i) deterioration of the physical condition of water supply infrastructure, (ii) deterioration of the physical condition of wastewater infrastructure, (iii) utilities lack of modern management, (iv) poor demand-side management practices, and (v) unplanned and uncontrolled urban sprawl in Baku as the nation-wide issues faced in the water supply and sanitation sector. In July 2004 ownership of the water supply and sewerage systems in municipal areas was largely taken over from the numerous “vodokanal” organizations and merged into a new joint stock company Azer Su which also took over the water supply and wastewater systems of the Baku and Absheron Peninsula areas. This new organization Azer Su JSC led the work to rehabilitate and replace the old systems. 35. Domestic water requirements are now largely met through the agency Azer Su JSC. The company supplies drinking water and sanitation services to population centers throughout the country. It has responsibility for design, construction, operation and maintenance of intake structures, regulating reservoirs, pumping stations, fresh water pipelines, sewerage collection and transport systems and wastewater treatment. Municipal and domestic use accounts for less than 5% of countries overall water consumption. International funding has supported this work, with projects funded by World Bank, Asian Development Bank, KfW and major investments by the Azerbaijan Government all contributing to a rapidly improving picture. 36. Azer Su has developed planning for improved water supply systems based on old Soviet planning, and established updated and improved engineering practices and conducted investigations for finding additional sources of water.10 Typically, rehabilitated schemes will establish new wells or well fields to augment water supplies to meet requirements for a 24 hour supply and the larger populations served by the new schemes. Groundwater often requires only chlorination treatment before use. Rehabilitated waste-water treatment plants are designed to release effluent which does not have significant adverse impact on the receiving stream or other water bodies, and otherwise function according to accepted international standards. Azer Su works with MENR staff regarding the licensing of new abstractions, and establishing the location of discharge points for new waste-water treatment plants. D. Environmental Flows

37. Provision for environmental flows poses some constraint on the development of water use within Azerbaijan. We understand11 that agreements reached during the Soviet period required that “environmental flows” in the two major rivers are maintained as follows:

175 m3/s in the Kura river at its confluence with the Aras

10

Information from meeting at AzerSu, 25 September 2014. 11

Information provided at meeting with SWRA on 7 November 2014.

30

35 m3/s in the Aras River at its confluence with the Kura.

38. This is equivalent of 6.6 billion m3 per year into the Caspian Sea. There is a current project within the MENR to re-calculate the environmental flow requirements for all rivers in Azerbaijan. It is not known what criteria will be used to evaluate the required environmental flow, but it is suspected that given the lack of detailed knowledge of the hydro-biology, hydro-ecology and hydro-morphology of the river systems this will be largely based on empirical formulae. In view of the substantial volumes of water involved it is believed to be very important to revisit these issues in a more scientific way to refine the minimum flow requirements that should be maintained in the rivers to preserve the riverine environment and ecology, and to protect the environment of the Caspian Sea. It will also be important to determine necessary distribution of these flow volumes during the year – minimum acceptable flows, mini-floods needed for sediment flushing and maintaining bio-diversity, river-bank ecology and the like. In addition to environmental flow requirements. There are proposals to re-establish navigation within the lower reaches of the Kura River, requiring certain water depths to be maintained in the river. This proposal would have important implications for minimum flows which have to be released from upstream reservoirs. III. CLIMATE AND LAND USE CHANGE

a. Possible Impact on Water Resources

39. The evaluation of the possible impact of climate change on the water resources of Azerbaijan is presented in the Second National Communication to the UN Framework Convention on Climate Change (MENR, 2010). This document reports on a number of modeling studies carried out using the PRECIS 1.4 modelling system by the UK’s Hadley Centre for Climate Change. Projections were made for 2021-50, and for 2071-2100. 40. For 2021-50, the model indicates rainfall in Azerbaijan will increase by 10 to 20% compared to the period 1961-1990. Increases vary with location – increases are 0 to 10% in Nakhchivan AR and 20% in the eastern part of the country. In 2021-50 the temperature is expected to rise by 1.5 to 1.6oC, leading to evaporative increases of 0.4 to 1.2 mm a day. These studies indicate that the increased temperatures and evaporation coupled with the higher rainfall will result in little change to the overall availability of water resources in the country. However, spatially, marginal reductions in water availability may be experienced in the Araz basin, however it is expected that these reductions will be fully offset by increased water availability in the eastern part of the country. 41. For 2071-2100, rainfall is expected to increase from the west of the country to the east, ranging from 20% in the west to 80% in the east. Temperatures are expected to increase by 3 to 6oC, with most of the country having a 5oC rise compared to the 1961-1990 period. The large predicted increases in rainfall in the model appear questionable , and it is suggested in the report on the results that predictions sourced from other models of overall changes in water availability for the period 2071-2100 indicate a 15-20% overall reduction seem more plausible.

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42. Other work undertaken on climate change impacts in Azerbaijan has produced varying estimates of expected changes. The National Climate Change Centre of Azerbaijan within the MENR conducted a number of model studies for which they have published results including:

GISS (Goddard Institute of Space Studies model)

GFDL-3 (Geophysical Fluid Dynamics Laboratory model)

43. MENR has also examined climate studies from the Special Report on Emissions Scenarios (scenario A2) and a climate change scenario suggested by Azerbaijan Academy of Sciences. Following is a summary of the results of this work:

Scenario Potential surface water resources (as proportion of

present) Present 100% GISS 86% GFDL-3 81% SRES_A2 79% Academy of Science assumption 90% PRECIS model for 2021-50 100% PRECIS model for 2071-2100 80-85%

44. In a report prepared for KfW Entwicklungsbank12 a wide variety of circulation models and changes in climate drivers have been examined for their impact on the water resources of the Kura basin. The conclusions of this work are summarized as follows:

“Future projections indicate more extreme weather events and continuing ice and snow melting at the higher elevations. The Intergovernmental Panel on Climate Change (IPCC) bases its analysis on several of the most commonly used General Circulation Models (GCMs), comparing projections for temperature and hydrological variables for the period 2030-2049 to historical figures of the period 1980-1999. An analysis of seven locations in the Kura-Aras River Basin using the World Bank’s climate change data tool shows that most projections by the models are relatively consistent concerning the following:

(i) Air temperatures will most likely increase. (ii) Precipitation variability: Precipitation is likely to happen less regularly but

more intensely. (iii) Average annual precipitation is projected to decrease except for the

eastern part of the river basin (Azerbaijan), where the models do not agree.

45. Concerning runoff (precipitation minus evapotranspiration), the future development is not clear. The tool does not project changes in river discharge, but the projections on rainfall happening less regularly but more intensely indicate an increased risk of floods and droughts. Melting snow and ice will most likely increase regular

12

“Adaptation to Climate Change in the Kura-Aras River Basin” dated September 2010, prepared by Martin Kerres. Downloaded from http://iwlearn.net/publications/ll/adaptation-to-climate-change-in-the-kura-aras-river-basin

32

discharge during summer. Once the glaciers disappear completely (estimates suggest that hardly any glaciers might be left by 2100), the hydrology of the Kura basin will lose one of its main regulators, agin suggesting the possibility of increased flood potential in the lower parts of the basin.. In areas where total average discharge decreases, this will contribute to water quality degradation, since reduced water volume has less potential to dilute pollutants. Concerning the future levels of the Caspian Sea, projections are inconsistent.”

E. Possible Impact on Water Requirements

46. The key sector likely to require adjusted water supply rates is irrigated agriculture. With evaporation rates increasing by 0.4 to 1.2 mm a day for the 2021-50 period, irrigation requirements might increase by 20% or more. For the period 2071-2100 water requirements for crops will be much higher because of the predicted higher temperatures, but increases in crop irrigation requirements might be partly offset by predictions of significantly increased rainfall. 47. The Climate Change and Ozone Centre of MENR has responsibility within Government to “assess potential impacts on natural ecosystems and the economy of expected climate change” and should be the go-to source for information on the impact of forthcoming climate change and resultant variations in water requirements. The process of preparation of the third national submission to the UN Framework Convention on Climate Change is underway, and is due for reporting soon (March 2015).13 Improved estimates of likely climate change and its impact on the water resource sector is expected to be available soon. IV. WATER RESOURCE MANAGEMENT PLANNING

a. Present Systems

48. The most recent comprehensive planning for development of water resources in Azerbaijan was carried out during the Soviet period, and the resulting documentation seems to remain the principal reference for the present. For example, the development of the Oguz well field for Baku water supply completed over the last 5 years was included in the Soviet-period planning. The organization most concerned with overall water resources planning (“complex use of water resources”) and still having the mandate for this is the Amelioration JSC. The Institute of Water Problems of the JSC is currently undertaking work on water resources assessment nationally to update Soviet era planning (Gamberov, meeting on 23 September). 49. In a meeting with Azer Su, we were informed that they continue to use the Soviet-period water resources use plan for identifying water sources needed for municipal water supplies, but also have developed and amassed supplemental data for sourcing additional required water

13

http://www.az.undp.org/content/azerbaijan/en/home/operations/projects/sustain_development/1st_biennial_report_unfcc.html

33

b. Requirements for Water Resources Planning

50. In the past, when comprehensive “River Basin Management Planning” was popular (in the 1970s) extensive plans were drawn up which:

Identified the complete water resources of the river basin

Identified current uses of the water, and projected future water demands for these (and possible other) uses

Identified engineering schemes to match the extrapolated future water needs to the water resources available.

51. Presently, “River Basin Plans” are more concerned with achieving environmental goals, and establishing limits to exploitation of water resources in order to preserve environmental needs. In order to establish water resources planning and management on a rational basis in Azerbaijan, and to promote integrated water resources management, the following are the suggested needs:

(i) Establish a comprehensive database of hydrological information to define the water resource availability within each river basin

(ii) Establish current categories and levels of water use within the basin (iii) Confirm the current water balance for each basin (iv) Extrapolate water needs of the users of each basin including

environmental needs. (v) Identify where conflicts arise (where water requirements are higher than

resources available) and develop technically feasible and economically viable solutions for these conflicts.

52. Where this process was traditionally all done by the agency responsible for preparing such water management plans, the modern approach for the regulating agency tends to be different. Where major agencies provide bulk water supplies (such as Amelioration and Azer Su) the approach used elsewhere is to put responsibility for extrapolation and management of future water needs on the bulk supplier, and also give them responsibility for preparation of formal plans showing which water sources they propose to use to meet these requirements on the planning horizon. The regulating agency then has responsibility to review such plans, making sure all conflicts with other water users (and the environment) are flagged for resolution. The process would look like this:

(i) Identify agency responsible for the regulation and management of the water resources of the country – for “good governance” reasons this should NOT be an agency with responsibilities for supplying water to one or more of the sectors using the country’s water resources.

(ii) Major bulk water suppliers prepare dynamic projections of water required by their clients from the present until the date of the planning horizon

(iii) Bulk water suppliers prepare plans identifying proposed sources of water to meet these growing future needs, and submit to the regulating agency for review

(iv) Regulating Agency reviews proposed plans for all bulk water suppliers, identifying any conflicts between suppliers (both using the same

34

resources) or environmental needs and advise bulk suppliers to revise plans if necessary

(v) Bulk suppliers then prepare formal documents for approval, identifying their water management plans, and these plans are available to all stakeholders.

53. While the bulk water suppliers are best equipped financially and technically to prepare such water management plans, the regulation agency also has considerable responsibilities, including:

Establishing the planning process , and making appropriate data available for those preparing the water resources plans

Processing technical expertise to review in detail the plans submitted. While it would be appropriate to require all suppliers submitting plans to also submit their data and methodology for water resources assessment and demand projections, there is still a need for substantial technical input to confirm the validity of assumptions, water balances, environmental requirements and other pertinent issues.

Providing meaningful oversight for future development of multi-purpose schemes, and major reservoirs. While development of such schemes is likely to be driven by one of the major bulk water supplier needs (probably to provide irrigation water) such large schemes normally provide multiple benefits to other users as well and should be developed in a way that allows such cross-benefits to be optimized. This requires comprehensive overview of a central agency responsible for multi sectoral development of Azerbaijan’s water resources.

Watershed management planning. As part of the regulating agency’s responsibilities to properly manage water resources, they should require or prepare regular overview reports on the state of the catchments, and future plans for their development to improve their management to ensure continued yields of water undiminished in quantity or quality. These are termed catchment management plans, and will serve as an important tool to help evaluate proposals for new (or modified) water abstraction licences or effluent discharge permits.

54. In view of the uncertainty concerning the accuracy of some key hydrologic data, it is most important to prepare in a timely manner a detailed water resources assessment for the country – a basin by basin review of available resources and water use (and environmental needs) to determine key water management issues for each basin . The data collected for this exercise should be carefully stored in an appropriate database for ease of future use.

F. Issues to be addressed in Water Strategy

Legislation to establish appropriate water resources assessment and planning procedures

Responsibility for data management, and making all relevant data available for assessment and planning purposes (including both water resources data and water use data)

Responsibility for detailed planning to identify future water needs to a pre-set planning horizon (perhaps 15 years), plus

35

development of plans to show how these requirements are to be met

Responsibility for reviewing submitted plans for water supply, checking and auditing proposals and making sure that all such proposals still leave required resources for environment and other statutory needs. Facilitating and mediating reconciliation of plans if conflicts are found.

Institutional development, and capacity building to allow the Ministries, agencies and water management companies to develop in a way, which while capitalizing on existing institutional expertise and skills is most appropriate for their newly defined roles.

V. STRATEGY FOR WATER RESOURCES MANAGEMENT

G. Information availability and sharing

55. Integrated water resources management requires extensive cooperation between all sector stakeholders in order to derive optimal benefits from water use – synergy is only developed by understanding other stakeholder’s issues and requirements. Therefore a fundamental requirement is complete transparency with respect to data concerning water resources, water use and water discharges. All data management systems should be open and shared. 56. Within Azerbaijan data sharing was not an issue when the Amelioration JSC had full responsibility for the water sector. All data was collected, processed and used within one organization. Since that time the various components of water management have been dispersed to a number of entities and issues of access to data have emerged. In fact, the process of acquiring sufficient information to make appropriate water sector development and management decisions has become a major problem. Urgent steps are therefore clearly needed to break down these barriers. All water resources data (hydrometeorology, hydro-metry, groundwater, water quality, water resources abstractions, water effluent discharges, operation records for major reservoirs) should be collated into readily accessible databases available to all water sector stakeholders. Making access to all relevant data simple for those involved with water resources investigations, water resources assessments and water operation and regulation is of key importance in improving the performance of the water sector. . This will require investments to provide the necessary IT equipment, software and training to all relevant agencies, plus resources to enter all historic information into the new system. H. Environmental Flows

57. The environmental flow requirements for each river basin in the country should be re-examined using up-to-date morphological and ecological data, and internationally acceptable methods of assessment. Comprehensive ecological and morphological examination necessary to establish environmental flows needed to ensure the hydrobiology of the river and floodplain, to preserve the delta of the river (especially capacity to pass flood flows) and meet needs of the Caspian Sea should be carried out. The investigation should examine how such requirements can be met in the most

36

efficient way to reduce volumes of water needed at critical times of the year for other water demands. I. System of Planning for future water needs

58. A new system for planning for water resources is suggested. (i) Legislation is needed to require major water suppliers (such as

Amelioration JSC, Azer Su JSC) to prepare comprehensive water supply master plans to meet projected water needs to a planning horizon (such as to year 2030). These strategies should incorporate demand management and water saving, and well as development of new water sources where required.

(ii) The plans should then be submitted to a regulatory body yet to be established (with all working data) for audit and reconciliation with known water availability, environmental flow needs and other constraints – including Water Plans submitted by other suppliers.

(iii) The regulatory body would then identify conflicts and seek plan revision as needed.

(iv) Agreed plans to be approved by the regulatory body. . (v) Monitoring and audit of approved plans to check implementation

according to agreement to be conducted by the regulatory body, (vi) Plans to be periodically revised (every 5 years?) and appropriately

updated based on new hydrological data and revised demand projections.

J. Catchment management plans

59. It is recognised that with the move to align water management to follow the systems currently in use within the European Union, there will be a need to develop management plans based on river basins. As part of this process, and to facilitate the Water Agency’s management of water resources, it is recommended that the Government prepare catchment management plans. A key tool in the development of these plans should include development of computer models of water resources (hydrological models), planned water use and environmental requirements, simulating the impact of “approved” water abstractions (and other water management processes) and the impact of these on expected flows, water levels and other parameters for a range of scenarios (dry years, wet years, average years and the like). 60. Such planning should also include groundwater. It might be that these can be considered separately for catchment planning (as prepared aquifer development plans based on groundwater modelling) but may require inclusion in the overall catchment planning where natural interactions between surface water and groundwater are strong or where conjunctive use of surface and groundwater are anticipated. Initial work in this area should be an immediate water resources assessment exercise to collate all water resources and water use data and to identify where, and how severe, current water shortages are, and where additional water resources might be available for further development.

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K. Institutional Development

61. All agency staff involved in the proposed revised system for water resources assessment and planning will require significant training to allow them to participate in the new processes effectively and efficiently. To accomplish this, support and investment in institutional development and capacity building will be a priority undertaking. Training of staff (including newly recruited) should be a major feature of this institutional development.

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Annex D:

IRRIGATION AND DRAINAGE SUB-SECTOR IN AZERBAIJAN I. INTRODUCTION

1. National Setting. Azerbaijan, the largest country in the South Caucas region has a population of 9.56 million14 and possesses a rich resource base. The country covers an area of 8,640,000 ha, of which 4,755,000 ha are considered agricultural land. As a result of the recent oil and gas boom, Azerbaijan’s economy has grown significantly over the past decade with an average annual GDP growth rate of 24 percent in 2005-2008 period. During the same time period a 12 percent growth was experienced in the non-oil sectors. As a result of the global economic recession in 2008, GDP growth decreased to 9 percent overall, and 3 percent in the non-oil sectors in 2009. Overall GDP growth averaged only 2.4 percent from 2010 through 2012 but recovered to 5.3 percent during 2013. 2. Agriculture maintained a positive growth of 3.5 percent in 2009 in part due to government support during the global food price crisis, averaged about 8.6 percent from 2010 through 2012 and posted an annual growth of 8.2 percent in 2013. This relatively robust economic growth has significantly reduced poverty levels in the country. In 2013, only 6 percent of the population was poor, compared to 50 percent in 2001.15 After growing at a brisk 5.3 percent in 2013, the World Bank suggests the economy grew at 2.1 percent year-on-year in the first half of 2014 on the back of declining oil production and slow growth in the non-oil sector. Oil GDP contracted by 3.7 percent in the first half of 2014 due to lower production. The non-oil economy grew at 7 percent, slower than a year ago. With limited oil and gas reserves, a major challenge faced by the Government is to diversify the engines driving the economy and reduce dependence on the oil sector. 3. Purpose of this Annex. In view of the fact that the agriculture sector uses about 70 percent of the water annually abstracted in the Republic of Azerbaijan, it is appropriate to deal with the agriculture sector water related issues in a comprehensive manner. In this Annex, the Team will briefly assess the country’s agricultural sector and address the major water related issues and challenges facing the sector. Proceeding from this broad agriculture sector background, we will turn to the irrigation/drainage sub-sector in some detail including a sector assessment followed by identification of the problems and challenges the country faces in the irrigation/drainage sub-sector and how Azerbaijan might effectively address and satisfactorily rectify these shortfalls as a part of the integrated water resource management approach. Proposed actions will be prioritized and classified into possible short, medium and long term interventions forming a building block in Azerbaijan’s Water Strategy. Institutional arrangements which might

14

2013 population as reported in the statistical database of the State Statistical Committee of the Republic of Azerbaijan.

15 Based on the 2001 poverty line of AZM120,000/ US$30 per capita/ month.

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be considered to ensure optimal implementation of the identified actions and interventions will also be addressed. As a culmination of this subsector strategy formulation, high-priority short and medium term interventions will be identified for the Government’s and ADB’s further consideration in this water sector partnership. II. THE AGRICULTURE SECTOR

4. Synopsis. The agriculture sector is a key component of country’s non-oil/gas economy with considerable potential for competing in both internal and external markets. While at present the agricultural sector accounts for less than 6 percent of GDP, it provides income and employment for about 40 percent of the country’s workforce. Agriculture is seen as a priority sector by the Government considering the critical importance of food security to the country and policy makers are further encouraged by the fact that the sector has been growing at an average annual rate of about 8.5 percent since the world economic crisis in 2008. There appear to be more than adequate opportunities in the sector for growth, private sector investment and trade opportunity. However, a number of critical issues must be addressed, if indeed these opportunities are to be realized. The most pressing of these constraints lie in the crucial irrigation/drainage subsector. The prominent issues evident in the irrigation-drainage sub-sector include: (i) an ongoing but incomplete irrigation sector reform agenda;16 (ii) seriously deteriorated irrigation infrastructure, in particular what in Azerbaijan are termed “on-farm” irrigation systems 17 nation-wide; (iii) an extensive agricultural drainage network, a considerable portion of which no longer functions or functions only marginally and areas of recently waterlogged lands which have yet to be provided with drainage relief; (iv) salinization of large areas of once productive irrigated soils; (v) recurrent shortages of irrigation water supply; and (vi) a continuing shortfall of funds available for both system rehabilitation and improvement as well as for sustainable management, operation and maintenance of irrigation and drainage facilities at all levels. 5. Land Resource Base. A breakdown of land use is presented in Table 1. Of the 2.10 million ha of reportedly cultivated land about 1.4 million ha is currently served by irrigation facilities and it is on these lands that about 85 percent of Azerbaijan’s total cropped agriculture is sourced.18 In Azerbaijan today, most cultivable land, countrywide, has been converted from the large state or collective farms of the Soviet era to many much smaller privately owned farms.19 Pasture lands used for the grazing of livestock, however, remain communal in a number of areas.

16

The core irrigation reform currently in progress consists of the transfer of selected on-farm irrigation distribution infrastructure to water user associations (WUAs) for management, operation and maintenance in an effort to ensure both improved system performance and water delivery reliability as well as prudent financial management.

17 On-farm irrigation systems in the Azerbaijan context date back to Soviet times and are at the level then used to deliver irrigation water to a single state or collective farm which typically covered between 1,500 and 5,000 ha. At present these “on-farm” systems continue to serve the same area which is now broken down into hundreds of individual farms. A WUA is formed for each of the former on-farm systems which at some point in time will assume responsibility for management, operation and maintenance of the distribution system. These irrigation conveyance facilities are usually at the secondary or tertiary level while the off-farm conveyances are at hydrologic levels above that of the on-farm system normally at the main and secondary canal levels.

18 The proportional share of annual agriculture production sourced from rainfed and irrigated cropland understandably varies as a function of varying conditions.

19 In the process of land reform, numerous small and fragmented holdings resulted. Therefore there are many subsistence level farms with inherent low productivity operating within the agricultural sector at present.

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Table 1: Land Use in Azerbaijan Land Use ha

(million) percent Cultivated land 2.10 24.3 Pasture and Hay 2.64 30.6 Forestland 1.04 12.0 Wasteland and Miscellaneous 2.71 31.4 Water basins 0.15 1.7

Total 8.64 100

6. Agricultural Cropping Practice. The total sown area to agricultural crops in 2013 was 1.68 million ha according to data from the State Statistical Committee. This represents a significant increase over the total sown area in the late 1990s which averaged just over 1.0 million ha. Of the 2013 sown area, about 689,000 ha were sown to winter wheat and 313,000 ha to winter barley resulting in winter grown cereal grains being by far the most popular crops to farmers in the country. Other crops of significance include fodder, sown on 396,000 ha, perennial fruits and berries on 134,200 ha, vegetables on 77,000 ha and potatoes on 65,300 ha. Details of the nation-wide cropping pattern for 2013 are shown in Table 2 and the increase in total area sown and the variations in areas planted to wheat, cotton, fodder and vegetables between 1995 and the present are shown in Table 3.

7. One anomaly in the Statistical Committee’s data which should be clarified is the total area sown in 2013 which is reported as 1,684,200 ha and is indicated in Table 3 appears wrongly defined. Instead of total area sown, it appears that this is total area cropped.20 The nationwide cropping intensity indicated in column 3 of Table 2 is as

shown on the table a percentage of the land area cropped in that given year. To roughly estimate nationwide cropping intensity for 2013 according to standard practice one would use the total cultivable land figure of 2.1 million ha from Table 1 as a base and given the area of crops shown in Table 2 the nationwide cropping intensity would have been about 90 percent in 2013, a figure which seems to correctly reflect the apparent low intensity of Azerbaijan agriculture.

Table 2. Azerbaijan Cropping - 201321

Crop Area Percent of ('000 ha) Total Area Cropped

Winter Wheat 689.1 40.9 Winter Barley 312.9 19.6 Maize (Corn) 38.6 2.3 Cotton 23.5 1.4 Potatoes 65.3 3.9 Vegetables 77.6 4.6 Melons 28.5 1.7 Fodder Crops (all) 396.4 23.5 Perennial Fruits/Berries 133.5 7.9 Grapes 16.1 1.0 Other crops 91.3 5.4

TOTAL 1872.8 111.2

20

Total area sown would be inclusive of areas on which more than one cro1.0p were planted within a given year while the area cropped would be only the land used for crop production 5.4 in a given year regardless of the number of plantings made during the year.

21 It should be noted that cropped area figures from the State Statistical Office fail to differentiate between rain-fed and irrigated areas. It also appears that areas reported are based on subsidy payments made rather than actual land cropped and as a result may be over reported.

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Table 3

Area Cropped and Planted to Various Crops 1995 to 2013 ________________________________________________________

Area Winter Fodder Vegetables Cropped Wheat (all types) Cotton (all types)

Year (000' ha) (000' ha) (000' ha) (000' ha) (000' ha) _________________________________________________________ 1995 1207.9 417.5 322.1 210.4 26.8 1996 1207.4 459.6 273.4 213.4 30.7 1997 1077.0 537.7 128.1 211.8 27.2 1998 920.4 514.3 78.4 155.5 31.8 1999 832.7 422.9 101.1 94.4 46.3 2000 1041.5 494.8 139.0 101.2 56.8 2001 1162.3 570.7 151.2 83.3 67.1 2002 1222.9 850.3 165.1 61.0 70.9 2003 1219.5 591.5 190.0 66.8 73.1 2004 1293.8 610.0 206.3 78.2 77.9 2005 1327.9 591.2 213.9 112.4 78.8 2006 1326.3 561.4 239.5 102.3 80.2 2007 1323.9 487.3 303.5 75.8 85.0 2008 1499.9 598.2 348.6 48.5 83.2 2009 1705.4 803.8 361.4 21.1 80.9 2010 1583.9 655.8 384.5 30.2 81.1 2011 1608.2 653.8 394.3 12.8 81.1 2012 1647.1 687.5 392.7 29.2 78.3 2013 1684.2 689.1 396.4 23.5 77.6

8. The most dramatic change in cropping over the past 18 years has been the near disappearance of cotton from the mix. The reasons for the farmers abandoning “king cotton” were marginal yield and production levels resulting from the short summer irrigation supplies being less than adequate to meet the crop’s relatively high crop water requirements. As indicated in Table 4 in the Kura-Aras lowlands only seven percent of cotton’s crop water requirement is met from the scant effective rainfall during the summer months. While there are some indications of a slow trend to crop diversification with temperate climate fruits, vineyards, vegetables, corn and tea being grown in some areas of the country, wheat remains the dominant crop in the cropping pattern, occupying some 41 percent of the total cropped area in 2013. The question is why do farmers prefer to grow wheat. Farmers are quite perceptive and recognize that in the Kura-Aras lowlands over 75 percent of the scant annual rainfall occurs during the growing period (Oct –May) for winter wheat. Maintaining wheat as a principle crop is a hedge against unreliable and short supplies of irrigation water.22 As shown in Table 5,

effective rainfall meets over 25 percent of the wheat’s crop water requirement in the lowlands of the Kura-Aras Basin.

22

The monthly distribution of annual rainfall and the farmer’s desire to capitalize to the fullest on it is most likely an incentive equal to Government subsidies of recent years to grow wheat.

42

Table 4 Crop Irrigation Requirements - Cotton

Lower Kura-Aras Basin Month Decade Stage Kc

coeff ETc

mm/d ETc

mm/dec Eff rain mm/dec

Irr. Req. mm/dec

Apr 2 Initial 0.35 1.08 6.5 3.4 3.6 Apr 3 Initial 0.35 1.30 13.0 5.8 7.2 May 1 Initial 0.35 1.51 15.1 6.1 9.0 May 2 Development 0.39 1.91 19.1 6.2 12.9 May 3 Development 0.56 3.08 33.9 5.0 28.8 Jun 1 Development 0.74 4.51 45.1 3.6 41.5 Jun 2 Development 0.91 6.09 60.9 2.5 58.4 Jun 3 Development 1.09 7.74 77.4 1.9 75.6 Jul 1 Mid 1.21 9.44 94.4 1.0 93.3 Jul 2 Mid 1.22 10.16 101.6 0.2 101.4 Jul 3 Mid 1.22 9.49 104.4 0.8 103.6 Aug 1 Mid 1.22 8.70 87.0 1.4 85.6 Aug 2 Mid 1.22 8.16 81.6 1.8 79.8 Aug 3 Late 1.21 7.23 79.5 2.8 76.7 Sep 1 Late 1.11 5.87 58.7 3.9 54.8 Sep 2 Late 1.01 4.58 45.8 4.9 40.9 Sep 3 Late 0.90 3.50 35.0 5.9 29.1 Oct 1 Late 0.79 2.46 24.6 7.1 17.5 Oct 2 Late 0.73 1.75 1.7 0.8 1.7

Totals 985.2 65.2 921.5

Table 5 Crop Irrigation Requirement – Wheat

Lower Kura-Aras Basin Month Decade Stage Kc

coeff ETc

mm/day ETc

mm/dec Eff rain mm/dec

Irr. Req. mm/dec

Oct 2 Initial 0.70 1.68 1.7 0.8 1.7 Oct 3 Initial 0.70 1.76 19.4 8.6 10.8 Nov 1 Initial 0.70 1.94 19.4 9.2 10.2 Nov 2 Initial 0.70 2.01 20.1 9.9 10.2 Nov 3 Development 0.71 1.75 17.5 9.3 8.1 Dec 1 Development 0.74 1.51 15.1 8.7 6.4 Dec 2 Development 0.78 1.29 12.9 8.3 4.6 Dec 3 Development 0.81 1.20 13.2 7.8 5.4 Jan 1 Development 0.85 1.10 11.0 7.2 3.8 Jan 2 Development 0.88 0.99 9.9 6.6 3.2 Jan 3 Development 0.92 1.10 12.1 6.6 5.6 Feb 1 Development 0.96 1.22 12.2 6.5 5.7 Feb 2 Development 0.99 1.35 13.5 6.4 7.1 Feb 3 Development 1.02 1.49 11.9 6.5 5.4 Mar 1 Development 1.05 1.57 15.7 6.8 8.9 Mar 2 Development 1.09 1.69 16.9 6.9 10.0 Mar 3 Development 1.12 2.32 25.5 6.6 19.0 Apr 1 Development 1.16 3.03 30.3 6.1 24.2 Apr 2 Mid 1.18 3.65 36.5 5.7 30.8 Apr 3 Mid 1.18 4.38 43.8 5.8 38.1 May 1 Mid 1.18 5.12 51.2 6.1 45.1 May 2 Mid 1.18 5.85 58.5 6.2 52.2 May 3 Late 1.07 5.93 65.2 5.0 60.1

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Jun 1 Late 0.80 4.85 48.5 3.6 44.9 Jun 2 Late 0.53 3.53 35.3 2.5 32.8 Jun 3 Late 0.32 2.26 13.5 1.1 12.6

Totals 630.8 164.9 466.9

9. Crop Yields and Agricultural Productivity: As earlier indicated, most arable land in Azerbaijan today has been converted to private ownership and as a result there is a predominance of subsistence and small family farms exhibiting low productivity, particularly in the lowlands of the Kura/Aras Basin. Wheat yields remain alarmingly low, the average being about 2.75 tons/ha in 2013.23 Wheat yields experienced in country

over the past two decades are shown in Figure 1.

Figure 1: Crop Yields of Winter Wheat

10. Agriculture Sector Overview: As indicated earlier, much of Azerbaijan's

agriculture is conducted by smallholder households with limited land and capital. Many farmers in this country inhabited by bread and meat eaters, produce wheat and fodder on their larger parcels, while producing fruits and vegetables on small plots formerly known as kitchen gardens. Investments in additional land and/or modern agricultural equipment are constrained by the limited savings of small households, while annual expenditures on plant nutrients and pesticides are restrained by inadequate savings and the risk faced by the farmers producing crops in an environment of constrained and unreliable irrigation water supplies, inadequate marketing opportunities, and fluctuating output prices. In a sense, much of agriculture operates in a low-level equilibrium in which small to moderate crop yields generate insufficient revenue to support investments and expenditures that might lead to higher crop yields and more attractive production opportunities, over time. Farmers also lack the incentive or necessary understanding as well as financial ability to invest in repairing the irrigation and drainage systems that provide “life-blood” support for their farming operation. . Thus, the systems degrade over time, with negative consequences for crop yields, and the inefficient conveyance and

23

The current average annual winter wheat yields of about 2.75 mt/ha \might be acceptable as rainfed yields in climates somewhat more conducive to winter wheat production than in Azerbaijan but are less than one half of the irrigated yields experienced in other emerging economies such as China and Mexico where average yields are over 6.0 mt/ha.

44

application of irrigation water results in increasing incidence of soil salinity, and rising water tables. Efforts are needed to lift agriculture out of this low-level equilibrium. A more viable agriculture, in which farmers generate larger yields with a greater proportion of higher valued crops in the mix, will encourage greater investments in land and water resources including the irrigation delivery systems and application techniques. III. IRRIGATION AND DRAINAGE SUB-SECTOR

11. Water Resources of Azerbaijan: It is estimated that internally generated renewable water resources are about 6 billion m3/year. The estimated incoming surface flow from neighboring countries is about 25 billion m3/year, of which about 10.5 billion m3/year is from Georgia, 7.0 billion m3/year from the Islamic Republic of Iran and 5.5 billion m3/year from Armenia. The Sumar River, with a total flow of about 2.0 billion m3/year, forms the border between Azerbaijan and the Russian Federation. The total renewable surface water resources, including incoming and bordering flows, are therefore estimated at about 31.0 billion m3/year.24 12. Azerbaijan has four major river basins, two of which are international: The basin of the Kura and Aras Rivers. This is by far the largest basin in the country The Kura River rises in the Kars upland in northeast Turkey. It then flows into Georgia and crosses the border to Azerbaijan in the northwest. The total length of the Kura River system is 1,515 km, of which 900 km is located within Azerbaijan. The Aras River also rises in the northeast of Turkey and enters Azerbaijan from Armenia. About 100 km downstream of the border it joins the Kura River, which continues to flow southeast towards the Caspian Sea. 13. The Samur River Basin, is located in the northeast of the country. The Samur River rises in the Russia and then forms its border with Azerbaijan. Its estimated annual discharge is about 2.36 bcm, half of which is considered to be available for Azerbaijan. The river fans into several branches before flowing into the Caspian Sea. The internal basins comprise the Caspian Sea coastal river basins in the northeast, between the Samur and Kura River Basins and the Caspian Sea coastal river basins in the Lankaran region in the southeast, south of the Kura River Basin. 14. Water Use in Azerbaijan: Annual water withdrawal for beneficial use averages between 12 and 13 billion m3, of which around seventy percent is for agricultural purposes, twenty five percent for industrial use, and five percent for municipal use. Figures for 2013, provided the team by SAWR reflect this pattern with 12.5 billion m3/year being abstracted of which 69.8 percent was used for irrigation, 24.9 percent for industry and 3.7 percent for municipal/domestic use. While these abstractions are generally accepted to lie within the allocations for the various uses, the precise allocation mechanism remains unclear to the team. We understand that at present no allocations exist for environmental purposes including water for leaching and transport of salts from saline affected soils to a safe outlet, providing necessary water for maintaining wetland habitat for migrating waterfowl, ensuring necessary environmental maintenance flows in

24

Recent figures (??) presented to the team by the State Water Resources Agency (SWRA) cite annual surface water resources of only between 28.5 and 30.5 bcm per annum and that these average annual surface water volumes can drop to as low as 22,6 bcm during years of drought.

45

all river channels and meeting discharge requirements to the Caspian Sea. 25 In Azerbaijan effective irrigation and drainage governed by sound integrated water resources management principles is fundamental to ensuring sustainable economic development. While irrigation currently uses some seventy percent of the water abstracted annually, competition for the resource is becoming increasingly competitive, with municipal and rural water supply, industry, and energy all demanding their fair share. Better definition of and subsequent allocation of water for legitimate environmental purposes could further add to the competition but in all likelihood will be considerably less than present discharge to the Caspian Sea which Azerbaijan considers the principal measure of the environmental maintenance requirement. 15. Irrigation Development in Azerbaijan. Irrigation is essential to both Azerbaijan’s agriculture and economy. During the nineteenth century, irrigation was concentrated adjacent to the rivers and it was only at the beginning of the twentieth century that the construction of large irrigation canals was initiated. In 1913, only 582 000 ha were irrigated. The most intensive development of irrigation facilities occurred after the Second World War and by 1975 the area equipped for irrigation was about 1.17 million ha. By 1995 1.45 million ha was irrigated and the figure has remained largely constant since that time. The dynamics of the growth of the countries irrigated area is shown in Figure 2. 16. As of 2013 there were some 135 reservoirs in Azerbaijan with a total capacity of about 21.5 billion m3. The largest of these is the Mingachevir reservoir which was commissioned in 1953 and has a capacity of 15,370 million m3. Other of the largest reservoirs include: (i) Shamkir reservoir commissioned in 1982 with a storage capacity of 2,677 million m3; (ii) Araz reservoir commissioned in 1971 with a storage capacity of 1,254 million m3; and (iii) Sarsang reservoir commissioned in 1976 with a storage capacity of 565 million m3. In addition to the storage reservoirs there are sixteen diversion structures on major streams and rivers.26 17. In 2013, the total length of all irrigation canals was estimated at about 52,000 km, of which less than five percent, were concrete lined. The largest canals are the Upper Garabakh, the Upper Shirvan and the Samur-Apsheron, all earthen. The Upper Gabarakh canal runs southeast from the Mingachevir reservoir to the Aras River. It is about 174 km long and has a capacity of 113.5 cubic meters per second (m3/s). About 85 000 ha are irrigated by this canal. The Upper Shirvan canal also heads at Mingachevir reservoir and runs east to the Akhsu River. It is about 126 km in length and has a capacity of 78 cms and irrigates about 91,100 ha. Of the total of 52,000 km of canal in the country about 2,200 km are main canals, 8,000 km are off-farm or secondary canals and 41,800 km are “on-farm” canals.27 It is further estimated by SAWR

25

The binding requirements both nationally and internationally regarding annual deliveries to the Caspian sea with a view to maintaining both its water’s salinity content and the water level elevation within an acceptable range, if they exist, were not available to the team.

26 Irrigation diversion structures across a stream or river are termed “weirs” in Azerbaijan.

27 On-farm irrigation systems in the Azerbaijan context date back to Soviet times and are at the level then used to deliver irrigation water to a single state or collective farm which typically covered between 1,500 and 5,000 ha. At present these “on-farm” systems continue to serve the same area which is now broken down into hundreds of individual farms. A WUA is formed for each of the former on-farm systems which at some point in time will assume responsibility for management, operation and maintenance of the distribution system. These irrigation conveyance facilities are usually at the tertiary level while the off-farm conveyances are at hydrologic levels above that of the on-farm system normally at the main and secondary canal levels.

46

that there are some 117,000 water control structures of various nature associated with these canal systems nationwide.

Figure 2: 100 Years of Irrigation Development

18. About 817,000 ha of the irrigated land (56 percent) receive water supplies from gravity fed sources but about 565,000 ha or 39 percent is supplied by lift through some 941 pump stations, most of which are located along the Kura and Aras rivers. One such pump station, a floating arrangement serving the Arun WUA in the Salang area from the Kura river is shown in Figure 8. The balance of 68,000 ha of irrigated land is served by over 7,000 wells.28 19. Approximately 50 percent of all irrigation infrastructure and pumping plants are in urgent need of rehabilitation and/or modernization. Even in view of the World Bank and IFAD’s recent and ongoing assistance, over 400 on-farm systems serving about one million ha require urgent rehabilitation. Projected investments for on-farm irrigation will not meet the needs to rehabilitate the remaining one million ha, the projected cost of which is about $900 million USD. While rehabilitation of “on-farm” systems is the Government’s top priority for the irrigation sub-sector, the main and secondary distribution networks as well as farmer owned farm level facilities require similar attention. A major concern of the team is that land claimed as irrigated land is not necessarily cultivable command area (CCA). In a recent unpublished report, the World Bank expresses concern that only about 25 percent of irrigated land has completely adequate access to irrigation water. Assessments some years ago apparently found that 15 percent of irrigated farmland had limited or no access to irrigation supplies. Forty

28

The area irrigated from groundwater sources and the number of irrigation wells in service remains unclear, as various references paint differing pictures. In addition to government installed wells, affluent private farmers in some areas exploit this source intensively in view of the disrepair and unreliability of the surface irrigation networks serving the area.

47

one percent had access with difficulty and only the afore-mentioned 25 percent of irrigated land had good access to irrigation water.29 20. Such statements should not be surprising, topographical constraints accepted. It is suggested that an annual abstraction of 8.75 billion m3 equally distributed over the 1.45 million ha claimed as “irrigated” represent an average depth of water of only about 600 mm. If a 40 percent overall irrigation efficiency is assumed and one allows for those losses, an average depth of water of only 240 mm is available to meet crop irrigation requirements. Referring to crop irrigation requirements for wheat and cotton derived and referenced in paragraph 5, Tables 4 and 5 and the crop irrigation requirements for barley, corn, potatoes, vegetables, melons, fodder and perennial fruit/berries and grapes detailed in Tables 6 through 12 respectively, it is readily apparent that the irrigation supplies available fall far short of that necessary to support a 100 percent cropping intensity on the land area claimed as irrigated, under the scenario where moisture stress, resulting from inadequate irrigation supplies, does not limit the yield potential of the crop being grown. 21. Assuming 30 percent of the wheat, barley and fodder which the State Statistical Office reported being grown during 2013 was produced on rain-fed lands,30 the total irrigation crop water requirements for an approximate 91 percent cropping intensity on the 1.45 million ha of land claimed as irrigated is summarized in Table 13. It is apparent that system rehab including required increases in capacity to significantly boost agricultural production 31 on existing irrigated area should be the priority thrust of irrigation sub-sector investment in the near term.

29

This is typical of soviet irrigation systems developed in the Central and Western Asia countries during the twentieth century; equipping of extensive land area for irrigation but with severely limited capacities for delivery of irrigation water.

30 This area of rain-fed production is assumed to be responsible for about 10 percent of total agriculture output in 2013.

31 Wheat yields, given full water supply, assuming reasonable levels of complementary crop husbandry practice(improved seed, fertilizer, pesticides, etc) could realistically increase to 4.0 to 4.5 tons per ha on average with top producers reaching 6.0.. Irrigated crops are currently grown under severe moisture stress conditions.

48

Figure 3. Floating Pump Station on the Kura River

Table 6. Crop Irrigation Requirements – Barley Kura-Aras Basin

Month Decade Stage Kc ETc ETc Eff rain Irr. Req. coeff mm/day mm/dec mm/dec mm/dec Oct 3 Init 0.30 0.76 4.5 4.7 0.2 Nov 1 Init 0.30 0.83 8.3 9.2 0.0 Nov 2 Init 0.30 0.86 8.6 9.9 0.0 Nov 3 Deve 0.32 0.78 7.8 9.3 0.0 Dec 1 Deve 0.38 0.78 7.8 8.7 0.0 Dec 2 Deve 0.46 0.76 7.6 8.3 0.0 Dec 3 Deve 0.54 0.79 8.7 7.8 0.9 Jan 1 Deve 0.61 0.79 7.9 7.2 0.8 Jan 2 Deve 0.69 0.77 7.7 6.6 1.0 Jan 3 Deve 0.76 0.91 10.1 6.6 3.5 Feb 1 Deve 0.84 1.08 10.8 6.5 4.2 Feb 2 Deve 0.91 1.24 12.4 6.4 6.0 Feb 3 Deve 0.98 1.43 11.4 6.5 4.9 Mar 1 Deve 1.05 1.56 15.6 6.8 8.8 Mar 2 Deve 1.12 1.74 17.4 6.9 10.5 Mar 3 Mid 1.18 2.43 26.8 6.6 20.2 Apr 1 Mid 1.18 3.09 30.9 6.1 24.8 Apr 2 Mid 1.18 3.65 36.5 5.7 30.8 Apr 3 Mid 1.18 4.38 43.8 5.8 38.1 May 1 Late 1.10 4.74 47.4 6.1 41.3 May 2 Late 0.79 3.93 39.3 6.2 33.0 May 3 Late 0.47 2.58 28.4 5.0 23.4 Jun 1 Late 0.27 1.62 3.2 0.7 3.2 Totals 402.9 153.7 255.7

49

Table 7. Crop Irrigation Requirements – Corn (Maize) Lower Kura-Aras Basin

Month Decade Stage Kc ETc ETc Eff rain Irr. Req. coeff mm/day mm/dec mm/dec mm/dec Apr 2 Init 0.70 2.16 13.0 3.4 10.1 Apr 3 Deve 0.70 2.60 26.0 5.8 20.3 May 1 Deve 0.85 3.68 36.8 6.1 30.7 May 2 Deve 1.09 5.36 53.6 6.2 47.4 May 3 Mid 1.27 7.01 77.1 5.0 72.1 Jun 1 Mid 1.28 7.82 78.2 3.6 74.6 Jun 2 Mid 1.28 8.56 85.6 2.5 83.1 Jun 3 Mid 1.28 9.15 91.5 1.9 89.6 Jul 1 Mid 1.28 10.00 100.0 1.0 99.0 Jul 2 Mid 1.28 10.72 107.2 0.2 107.0 Jul 3 Mid 1.28 10.02 110.2 0.8 109.4 Aug 1 Late 1.22 8.72 87.2 1.4 85.8 Aug 2 Late 1.04 6.97 69.7 1.8 67.9 Aug 3 Late 0.85 5.08 55.9 2.8 53.1 Sep 1 Late 0.66 3.47 34.7 3.9 30.7 Sep 2 Late 0.56 2.54 2.5 0.5 2.5 Totals 1029.1 46.9 983.2

Table 8. Crop Irrigation Requirements – Potato Lower Kura-Aras Basin

Month Decade Stage Kc ETc ETc Eff rain Irr. Req. coeff mm/day mm/dec mm/dec mm/dec Dec 2 Init 0.50 0.83 5.0 5.0 0.8 Dec 3 Init 0.50 0.74 8.1 7.8 0.3 Jan 1 Init 0.50 0.65 6.5 7.2 0.0 Jan 2 Deve 0.55 0.62 6.2 6.6 0.0 Jan 3 Deve 0.75 0.90 9.9 6.6 3.3 Feb 1 Deve 0.95 1.22 12.2 6.5 5.7 Feb 2 Mid 1.13 1.54 15.4 6.4 9.0 Feb 3 Mid 1.18 1.71 13.7 6.5 7.2 Mar 1 Mid 1.18 1.75 17.5 6.8 10.7 Mar 2 Mid 1.18 1.82 18.2 6.9 11.3 Mar 3 Mid 1.18 2.42 26.7 6.6 20.1 Apr 1 Late 1.17 3.05 30.5 6.1 24.4 Apr 2 Late 1.04 3.22 32.2 5.7 26.5 Apr 3 Late 0.87 3.21 32.1 5.8 26.3 May 1 Late 0.75 3.25 9.7 1.8 6.7 Totals 243.9 92.2 152.4

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Table 9. Crop Irrigation Requirements – Vegetables (Tomato) Lower Kura-Aras Basin

Month Decade Stage Kc ETc ETc Eff rain Irr. Req. coeff mm/day mm/dec mm/dec mm/dec Apr 2 Init 0.60 1.85 11.1 3.4 8.2 Apr 3 Init 0.60 2.22 22.2 5.8 16.5 May 1 Init 0.60 2.59 25.9 6.1 19.8 May 2 Deve 0.60 2.97 29.7 6.2 23.5 May 3 Deve 0.71 3.91 43.0 5.0 38.0 Jun 1 Deve 0.87 5.31 53.1 3.6 49.5 Jun 2 Deve 1.03 6.84 68.4 2.5 65.9 Jun 3 Mid 1.18 8.39 83.9 1.9 82.0 Jul 1 Mid 1.22 9.50 95.0 1.0 94.0 Jul 2 Mid 1.22 10.19 101.9 0.2 101.7 Jul 3 Mid 1.22 9.52 104.7 0.8 103.9 Aug 1 Mid 1.22 8.73 87.3 1.4 85.9 Aug 2 Late 1.16 7.80 78.0 1.8 76.2 Aug 3 Late 1.00 5.97 65.6 2.8 62.8 Sep 1 Late 0.83 4.37 43.7 3.9 39.8 Sep 2 Late 0.74 3.37 3.4 0.5 3.4 Totals 916.9 46.9 871.0

Table 10. Crop Irrigation Requirements – Melons Lower Kura – Aras Basin

Month Decade Stage Kc ETc ETc Eff rain Irr. Req. coeff mm/day mm/dec mm/dec mm/dec Apr 2 Init 0.50 1.54 9.3 3.4 6.4 Apr 3 Init 0.50 1.85 18.5 5.8 12.8 May 1 Deve 0.50 2.17 21.7 6.1 15.6 May 2 Deve 0.61 3.02 30.2 6.2 24.0 May 3 Deve 0.79 4.36 48.0 5.0 43.0 Jun 1 Deve 0.97 5.91 59.1 3.6 55.5 Jun 2 Mid 1.09 7.29 72.9 2.5 70.4 Jun 3 Mid 1.10 7.83 78.3 1.9 76.5 Jul 1 Mid 1.10 8.56 85.6 1.0 84.6 Jul 2 Mid 1.10 9.18 91.8 0.2 91.6 Jul 3 Late 1.05 8.19 90.1 0.8 89.3 Aug 1 Late 0.89 6.39 63.9 1.4 62.5 Aug 2 Late 0.80 5.38 10.8 0.4 10.8 Totals 680.2 38.3 642.8

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Table 11. Crop Irrigation Requirements – Fodder (Alfalfa/Lucerne) Lower Kura – Aras Basin

Month Decade Stage Kc ETc ETc Eff rain Irr. Req. coeff mm/day mm/dec mm/dec mm/dec Jan 1 Init 0.90 1.17 11.7 7.2 4.5 Jan 2 Init 0.90 1.00 10.0 6.6 3.4 Jan 3 Init 0.90 1.08 11.8 6.6 5.3 Feb 1 Init 0.90 1.15 11.5 6.5 5.0 Feb 2 Init 0.90 1.22 12.2 6.4 5.8 Feb 3 Init 0.90 1.31 10.5 6.5 4.0 Mar 1 Deve 0.90 1.34 13.4 6.8 6.7 Mar 2 Deve 0.91 1.40 14.0 6.9 7.1 Mar 3 Deve 0.91 1.88 20.6 6.6 14.1 Apr 1 Deve 0.91 2.38 23.8 6.1 17.7 Apr 2 Deve 0.92 2.83 28.3 5.7 22.5 Apr 3 Deve 0.92 3.41 34.1 5.8 28.3 May 1 Deve 0.92 3.99 39.9 6.1 33.8 May 2 Deve 0.93 4.58 45.8 6.2 39.6 May 3 Deve 0.93 5.13 56.5 5.0 51.4 Jun 1 Deve 0.93 5.69 56.9 3.6 53.3 Jun 2 Deve 0.94 6.25 62.5 2.5 60.0 Jun 3 Deve 0.94 6.71 67.1 1.9 65.2 Jul 1 Mid 0.94 7.35 73.5 1.0 72.5 Jul 2 Mid 0.94 7.88 78.8 0.2 78.6 Jul 3 Mid 0.94 7.36 81.0 0.8 80.2 Aug 1 Mid 0.94 6.75 67.5 1.4 66.1 Aug 2 Mid 0.94 6.33 63.3 1.8 61.5 Aug 3 Mid 0.94 5.65 62.2 2.8 59.4 Sep 1 Mid 0.94 4.98 49.8 3.9 45.8 Sep 2 Mid 0.94 4.30 43.0 4.9 38.1 Sep 3 Mid 0.94 3.68 36.8 5.9 30.9 Oct 1 Mid 0.94 2.94 29.4 7.1 22.3 Oct 2 Mid 0.94 2.26 22.6 8.2 14.4 Oct 3 Mid 0.94 2.38 26.2 8.6 17.5 Nov 1 Late 0.94 2.62 26.2 9.2 17.0 Nov 2 Late 0.94 2.71 27.1 9.9 17.2 Nov 3 Late 0.94 2.33 23.3 9.3 13.9 Dec 1 Late 0.94 1.91 19.1 8.7 10.4 Dec 2 Late 0.94 1.57 15.7 8.3 7.4 Dec 3 Late 0.94 1.39 15.3 7.8 7.6 Totals 1291.6 202.9 1088.7

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Table 12. Crop Irrigation Requirements – Perennial Fruits and Berries Lower Kura-Aras Basin

Month Decade Stage Kc ETc ETc Eff rain Irr. Req. coeff mm/day mm/dec mm/dec mm/dec Feb 2 Init 0.55 0.75 4.5 3.8 1.3 Feb 3 Init 0.55 0.80 6.4 6.5 0.0 Mar 1 Deve 0.56 0.83 8.3 6.8 1.5 Mar 2 Deve 0.61 0.94 9.4 6.9 2.5 Mar 3 Deve 0.67 1.39 15.3 6.6 8.7 Apr 1 Deve 0.74 1.92 19.2 6.1 13.1 Apr 2 Deve 0.80 2.46 24.6 5.7 18.9 Apr 3 Deve 0.86 3.18 31.8 5.8 26.0 May 1 Deve 0.92 3.97 39.7 6.1 33.6 May 2 Mid 0.97 4.80 48.0 6.2 41.7 May 3 Mid 0.98 5.39 59.3 5.0 54.2 Jun 1 Mid 0.98 5.95 59.5 3.6 55.9 Jun 2 Mid 0.98 6.51 65.1 2.5 62.6 Jun 3 Mid 0.98 6.96 69.6 1.9 67.8 Jul 1 Mid 0.98 7.61 76.1 1.0 75.1 Jul 2 Mid 0.98 8.16 81.6 0.2 81.4 Jul 3 Mid 0.98 7.62 83.9 0.8 83.1 Aug 1 Mid 0.98 6.99 69.9 1.4 68.5 Aug 2 Mid 0.98 6.55 65.5 1.8 63.7 Aug 3 Mid 0.98 5.85 64.4 2.8 61.5 Sep 1 Mid 0.98 5.15 51.5 3.9 47.6 Sep 2 Late 0.96 4.37 43.7 4.9 38.9 Sep 3 Late 0.91 3.57 35.7 5.9 29.8 Oct 1 Late 0.87 2.71 27.1 7.1 20.0 Oct 2 Late 0.82 1.97 19.7 8.2 11.5 Oct 3 Late 0.77 1.95 21.5 8.6 12.8 Nov 1 Late 0.73 2.01 20.1 9.2 10.9 Nov 2 Late 0.70 2.01 2.0 1.0 2.0 Totals 1123.3 130.4 994.6

Table 13. Summary of 2013 Crop Irrigation Requirements32 Azerbaijan

32

Cropped areas of wheat, barley and fodder have been reduced by 30 percent to: (i) eliminate areas of low yielding rain-fed crops reported in the national statistics; and (ii) compensate for apparent over-estimations of cropped areas resulting from inclusion of areas on which cropping subsidies were paid but crops were not subsequently grown.

Crop CWR Area CWR

(m3/ha) (ha) billion m

3

Winter Wheat 4,670 482,400 2.25

Winter Barley 2,560 219,000 0.56

Fodder 10,887 277,480 3.02

Corn 9,832 38,600 0.38

Cotton 9,125 23,500 0.21

Potatoes 1,524 65,300 0.10

Vegetables (tomato) 8,710 77,600 0.68

Melons 6,428 28,500 0.18

53

22. Irrigation application methodology employed by over 90 percent of Azerbaijan’s farmers is surface application. Both furrow and border strip application is practiced. Observations noted by the FAO and World Bank indicate that farm level irrigation management techniques for improving irrigation application efficiency, such as land leveling and adjustment of stream size, are not commonly imparted to the farming community. Unfortunately, government personnel seem more inclined to view sprinkler and drip application as the sole avenue for improving application efficiency. The majority of the farmers cannot afford the equipment necessary to change application methodology, nor in many cases, the crops they grow are conducive to such a change. Significant increases in both irrigation application efficiencies and crop yields would result from programs tailored to encourage and assist farmers in improving the surface application of their constrained irrigation supplies. Having said that, introduction of alternative irrigation application technology, including sprinkler and drip should also be encouraged for larger farms, particularly for tree crops, vegetables and vineyards.33 23. Agricultural Land Drainage in Azerbaijan: About 610,000 ha is equipped for drainage which represents about 42 percent of the irrigated land. Of the 610,000 ha of land currently provided with drainage facilities, 326,000 ha are served by closed horizontal drains (tile), 271,000 ha are served by open field drains and 13,000 ha are served by vertical drainage (wells). SAWR has confirmed to the team that there are some 29,800 km of collector drain networks currently in place. Drainage water flows to the Caspian Sea through three main collectors, the Mil-Mugan main, the Shirvan main and Mugan-Salyan main. Estimates indicate that the drainage facilities serving at least one-half the area equipped for drainage is in urgent need of repair. The balance of the drainage systems currently in place reportedly have inadequate capacity and laid at or excavated to depths inadequate to offer the required drainage relief.34

. In addition to the critical need for rehabilitation and upgrading of the existing drainage networks there is similar urgency for equipping additional areas of about 200,000 ha with sub surface drainage. 24. Timely rehabilitation of inoperable drains nation-wide, provision of drainage relief to recently water-logged areas and required revamping of the outfall system are priority sector needs. Reports indicate the operating condition of the existing agricultural drainage network has deteriorated significantly from many years of use and inadequate maintenance. Over 50 percent of the network requires rehabilitation and improvement. Comprehensive studies of water level trends by area and the progression of consequent soil salinization processes would serve to conveniently prioritize additional areas requiring drainage relief. Lack of recent or time based data and /or more probably lack

33

Current and authoritative information regarding the amount of land currently being irrigated in country using sprinklers or drip variants appears not available.

34In-depth discussions- with stall at the Amelioration lab within the Soil Science Institute reveals that equipment for rehabilitation of plugged tile systems (back pressure treatment) is presently not available with either AIOJSC or private contractors The same is the case with modern equipment for laying of new tile fields setting the stage, not for equipping AIOJSC with equipment, but for further development of capability of the private sector construction industry whose performance in the urban, transport and industrial sectors over the past decade appears to have been stellar.

Fruits/Berries/Grapes 9,946 105,000 1.04

Totals 1,317,380 8.43

54

of access to such data may render this straight forward process more difficult.35 Careful study and reliable groundwater data showing seasonal fluctuations is a must for identifying/prioritizing additional areas requiring drainage. Absence to access of such data precludes the team from quantifying the area to be newly drained, but broad estimates obtained from stakeholders suggest an additional area of plus or minus 200,000 ha. 25. Salinity Problems in the Irrigated Areas: As a result of the deteriorating condition of the existing drainage networks and the growing need for drainage relief in additional irrigated areas, soil salinity is becoming serious problem in Azerbaijan. Local research institutes have found that the area of salinized soils has grown rapidly since 2005. At present the area of slightly salinized soils is about 406,000 ha, the area of moderately salinized soils 292,000 ha and the area of strongly salinized soil, 320,000 ha.36,37 Canal seepage and inefficient application of irrigation water raise the water table resulting in capillary rise of water to the soil surface with subsequent evaporation and deposition of salt solids at the soil surface. Upon further application of irrigation water, the high water table restricts drainage and transport of the accumulated salts from the area. This scenario is exacerbated in the Kura-Aras plain (lowland) by the recent rise in water level of the Caspian Sea which resulted in significant deltaic deposits which continue to restrict drainage and salt transport from the plain. The inherent high clay content of some Azerbaijan soils further promotes the development of salinity by reducing the leaching effect of both natural rainfall and the leaching fraction of subsequent irrigation applications. 26. Reclaiming of saline soils and restoring their agricultural production potential is increasingly becoming in both the interest of the Government and the farming public as the sector’s production base as well as that of many individual farm holdings is being seriously eroded as a result of the rapidly expanding salinity problem. A reclamation program for any given area or for an individual farm holding has the following basic requirements: (i) an effective agricultural drainage system must be in place serving the designated area or individual farm holding; 38 (ii) an appropriate allocation for and physical availability of adequate additional water for satisfactorily leaching the salts from the root zone for their subsequent transport from the area by the drainage system;39 and (iii) extensive training of farmers, irrigators and WUAs on managing and carrying out a

35

The absence of readily available groundwater level data and its fluctuation over time is another example of the chronic problem of data availability in Azerbaijan. The mindset of those who collect the field data and tabulate the results that the information is theirs and theirs alone serves no purpose. If data is not readily available to all end users (at no charge) it is of no value what-so-ever.

36 These unpublished numbers, although unconfirmed, remain the best available to the team. Extensive efforts to access this data base were met by rejection at all points.

37 It is not possible to delineate the proportions of the salinized areas lying within and outside the presently irrigated command. It is believed that some reported salinized area lies adjacent to but outside the current commanded area.

38 In those areas previously not served by sub-surface drainage networks this involves the construction of new drains to serve the concerned areas and In those areas or on those farms previously served by the less than effective existing agricultural drainage network, adequate rehabilitation and improvement must be in place.

39 In cases of soils with a high inherent clay content or in those soils where sodium contents and proportions are beyond the threshold resulting in breakdown of soil structure and a resulting reduction in permeability special practices such as deep tillage may be required prior to the initial application of leaching water. In the case of the afore mentioned sodium affected soils, applications of calcium sulfate (gypsum) may be required to convert the sodium ion association to a soluble form so it too may be removed from the root-zone and transported to a suitable outlet.

55

successful short term reclamation leaching process as well as a comprehensive program for maintaining salt concentration and distribution within the root zone at acceptable levels in the longer term. 27. Establishing and Financing Sustainable Operation and Maintenance As has been noted in the preceding paragraphs rehabilitation and modernization of both irrigation and drainage infrastructure and provision of additional coverage to the existing drainage network are musts for the sub-sector’s acceptable future performance. However, rehabilitated and modernized irrigation and drainage infrastructure alone, are not the complete answer to the sub-sector’s performance. Sustainability of the new and rehabilitated facilities and their improved performance requires a comprehensive and systematic operation and maintenance program and the resources necessary to ensure its annual implementation. 28. To ensure that irrigation and drainage operation and maintenance programs are updated and kept current from year to year establishes a need to continually monitor the functional condition of the infrastructure and its performance at all levels of both the irrigation distribution systems and the agricultural drainage networks. A key challenge for the sustainability of irrigation and drainage and precluding the concerned infrastructure from again falling into a state of disrepair and functioning poorly is for both AIOJSC and the WUAs to achieve cost recovery on the order of the actual cost of operation, maintenance and management of each level of the system. 40 This will require improvements in the delivery of irrigation services to the end users as the collection of irrigation service fees based on the actual cost of irrigation and drainage will come from them. Their ability to pay will also depend in large part on an increasing trend in the economic productivity of agriculture, through increases in crop yields, changes to high-value crops, introduction of value-added processing activities and better marketing opportunities. The provision enabling the collection of irrigation service fees from end users in Azerbaijan was established in 1997. World Bank reports indicate significant increases in the collection of fees between 2000 and 2009 in the major irrigated regions of Ganca-qazax, Alazan-Ayricay, Samur-Absera, Mugan-Salyan, Sirvan, Mil, Lankaran-Masalli, and Qarabag. As shown in Figure 9 there has been an overall increase in fees collected by about 335 percent. 29. Since its establishment in 1997 the irrigation service fee has become a two-part fee consisting of a token amount of 0.5 AZN per thousand cubic meters (t m3) for bulk water supply to the WUA and another portion for WUA costs of management, operation and maintenance which vary depending on actual scheme costs. As shown in Table 14, at present WUAs are paying AZN 0.5 per thousand m3 for bulk irrigation deliveries from the Raion Irrigation Department (RID)/AIOJSC while according to the World Bank and AIOJSC the real cost of water from RID/AIOJSC is closer to AZN 5.0 to 10.0 per thousand m3.41 In addition, WUAs require about AZN 10.0 -17.0 per thousand m3 for on-farm management, operation and maintenance. Yet, at present WUA members or end users are paying on average less than AZN 2.0 per thousand m3, which is only about 20 percent of the amount required for sustainable management, operation and maintenance

40

In the future, as the WUAs become financially solvent and more technically competent, the team suggests that consideration be given to enabling the WUAs to federate and form organizations of multiple WUAs at the inter-farm or secondary canal level with a view to eventual transfer of the secondary canal system to the Federation for management, operation and maintenance.

41 The cost range of 5.0 to 10.0 AZN per tcm if for areas enjoying delivery by gravity means and the World Bank/AIOJSC suggests the costs for pump based lift schemes the costs are even higher.

56

requiring large subsidies from the State. Non-availability of those subsidies has led to the declining condition of the on-farm systems noted in the country.

Figure 9: Irrigation Service Fee Collection

Table 14: Actual versus Required Irrigation Service Fees

Present Payment Required

Payment for Sustainability

Payment From, To and For (AZN per tcm) (AZN per tcm)

End User to WUA for O&M 2.0 10.0 to 17.0

WUA to AIOJSC for Delivery of Bulk Supply

0.5 5.0 to 10.0

30. AIOJSC is the principal institution involved in irrigation and drainage. After the breakup of the Soviet Union and the consequent dismantling of the approximately 2,000 collective and state farms in the country, “on-farm”42 irrigation responsibility was left with no clear party taking responsibility for the management, operation and maintenance of the on-farm infrastructure. To address this problem, Decree No. 43 of the Cabinet of Ministers, dated March 15, 2001, transferred the irrigation and drainage infrastructure of the former collective and state farms to the State Amelioration and Irrigation Committee (SAIC), which subsequently became AIOJSC. Under this decree it was also stated that

42

On-farm irrigation systems in the Azerbaijan context date back to Soviet times and are at the level then used to deliver irrigation water to a single state or collective farm which typically covered between 1,500 and 5,000 ha. At present these “on-farm” systems continue to serve the same area which is now broken down into hundreds of individual farms. A WUA is formed for each of the former on-farm systems which at some point in time will assume responsibility for management, operation and maintenance of the distribution system. These irrigation conveyance facilities are usually at the tertiary level while the off-farm conveyances are at hydrologic levels above that of the on-farm system normally at the main and secondary canal levels.

0

0.5

1

1.5

2

2.5

3

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

AZ

N (

mil

lio

n)

Year

Irrigation Service Fee Collection

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the operation and maintenance of said on-farm irrigation and drainage facilities was to be the responsibility of SAIC and a budget of AZN 1.8 million made available in 2001. This was clearly a token allocation when compared to the millions of AZN actually required to properly maintain on-farm irrigation systems in the country. 31. In 2006 the Amelioration and Irrigation Open Joint Stock Company (AIOJSC) was established, replacing SAIC, with the essentially governmental roles of providing bulk water supplies to irrigation systems as well as for other uses and overseeing the planning, development and management of irrigation and drainage systems nationwide. All shares of AIOJSC are state owned. Since the AIOJSC is essentially a state agency as defined by functions and funded largely from the State budget, there are those who question whether it is best that Amelioration and Irrigation remain a joint stock company or become a regular Government agency, possibly under a newly established Ministry of Water Resources or National Water Authority.43 32. Under the present institutional set-up, AIOJSC is primarily responsible for irrigation and drainage, whereas overall water resources management is under the mandate of several ministries including MENR. According to its Charter, AIOJSC has the following responsibilities:44

(i) Provision of water to users;45 (ii) Operate, maintain and protect surface water facilities; (iii) Mobilize financing for development, rehabilitation and maintenance of

irrigation and drainage systems; (iv) Set water tariffs; (v) Capacity building of WUAs and WUA staff; (vi) Monitor ameliorative condition of irrigated land; (vii) Regulation of management and use of water supplied all end users; (viii) Implement/supervise regional water management projects and programs; (ix) Generate forecasts related to water resource availability; (x) Prepare irrigation and drainage projects for enhancing agricultural

productivity; (xi) Adopt standards, norms and rules for water management; (xii) Develop and regulate Water Users Associations; (xiii) Monitor operation and maintenance of surface water facilities; (xiv) Regulate water reservoirs to prevent adverse impacts of floods and

droughts; (xv) Identify flood prone areas and the need for river bank protection facilities;

and (xvi) Ensure scientific research oriented toward irrigation and drainage is

carried out. 33. In 2010, AIOJSC had a total of about 21,000 staff, of which some 5,000 were engineers and other technical staff, 15,000 were field workers, and 1,000 were support staff. AIOJSC is headed by a Director who has three deputies. The first deputy is

43

This possibility along with related restructuring considerations is further explored in paragraphs xx to xx of this Annex.

44 There is little doubt that this tabulation of AIOJSC responsibilities has lost considerable in its translation.

45 While AIOJSC’s principle mandates lie with irrigated agriculture it also delivers water for municipal and industrial use.

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responsible for two departments: (i) Design/Construction, Science/ Foreign Relations; and (ii) Human Resources. The second deputy is responsible for four departments: (i) Economy, Finance and Wages; (ii) Accounting; (iii) Internal Auditing; and (iv) Mechanization, Industry and Maintenance. The third Deputy Director is also responsible for four departments including: (i) Supplies; (ii) Irrigation System Operations; (iii) Amelioration, Water Resources and WUA Support; and (iv) Operation of Water Reservoirs and Head-works. 34. While the vast majority of AIOJSC staff are located in the regional and rayon offices, the headquarters office of AIOJSC retains the significant decision making powers over programs, budgets and special projects of regional and rayon offices. The Rayon Irrigation Departments (RID) are district-level extensions of the AIOJSC and maintain the day to day working contacts with the WUAs. In fact, Rayon Support Units for WUAs have been established within RIDs with on-going on-farm system improvement projects. It is the teams understanding that the donors involved including the World Bank and IFAD foresee the need for these RSUs to play a long-term role in training and supporting the WUAs to whom the on-farm distribution systems have been transferred for management, operation and maintenance. The team understands that AIOJSC does not share the donor’s views regarding the WUA’s continuing need for guidance and support during the early years of their take-over of significant past responsibilities of AIOJSC and the concerned RID. 35. Establishment of WUAs in Azerbaijan and Enabling Legislation. The Law on Amelioration and Irrigation (LAI) was adopted in June 1996. Article 24 of the LAI included a provision for farmers to establish WUAs. Resolution 150 introduced later the same year amended the law to define the process of transitioning to a cost recovery system for irrigation service and the introduction of irrigation service fees (ISF). However, an earlier resolution (Number 97) entitled Enactment of the Statute of Paid Water Use Rules and Water Use Tariffs set the proportion of ISF collected that could be retained by WUAs at no more than 25 percent of the heavily subsidized Rayon Irrigation Department’s (RID) water rate. This effectively negated the ISF resolution (number 150) and as a result led to the financial failure of a number of early WUAs. Eventually, this anomaly was recognized and Resolution 97 was retracted. 36. The formation of WUAs began in earnest during the year 2000. WUAs were organized under the direction of and with guidance from AIOJSC which formed Rayon Support Units for WUAs for both this task and providing subsequent training and support for the Associations. With the changes and amendments to the Law on Amelioration and Irrigation, the WUAs became non-profit entities, the physical extent of each based on the hydraulic boundaries of its irrigated command area. Given the limited number of AIOJSC staff and serious budgetary limitations, the results were impressive. By September 2002 a total of 552 WUAs had been legally established in 44 rayons, with 387,000 members and a total command area of 644,000 ha. 37. Unfortunately, in many cases the WUAs created ended up resembling the Collective and State Farms they were meant to replace. WUA Chairmen replicated the role of the former Chairmen of the Collective and State Farms, with little or no interest in a participatory association operated and governed by its members. AIOJSC staff extended most of their effort on helping the WUAs complete registration forms, and signing contracts with the concerned RIDs for water delivery. Once registered there was

59

no formal training for the WUAs and AIOJSC had no staff available to monitor WUA performance or to work with WUA staff to ensure they operated the system properly. 38. It became readily apparent that in spite of the considerable efforts extended, Azerbaijan did not have an adequate nor appropriate legal framework for the establishment and sustainable and effective operation of WUAs. Major legislative inadequacies identified included the following: (i) absence of provisions permitting the legal transfer of on-farm systems to WUAs for management, operation and maintenance; (ii) absence of clear and appropriate provisions for establishing irrigation service fees (ISF), which allow each WUA to determine its own tariff for operation and maintenance of the on-farm systems, free of government interference; (iii) absence of legal provisions conferring substantive and secure rights to WUAs in respect of their supply of irrigation water from AIOJSC/RID; and (iv) absence of provisions conferring necessary legal rights to WUAs, enabling them to access, and when required for operation and maintenance of the system, use land that does not belonging to a third party. 39. In response to the inadequate legal basis for WUAs described in the preceding paragraph, the Law on Amelioration and Irrigation (LAI) was amended in 2004. Most notable of the amendments was the introduction of a new section on WUAs. This section, which contains fifteen articles, provides for the establishment of WUAs as a legal entity, details procedures for their establishment and comprehensively defines their mandate. Likewise the new section establishes provisions on WUA members individual rights and obligations and details procedure for establishment of a WUA Regulatory body. Other key changes to the LAI, as a result of the 2004 amendment, provide for the transfer of on-farm irrigation infrastructure to WUAs on a twenty year basis and ensures the ‘bulk’ supply of irrigation water to each WUA on the basis of long-term contracts.46 Lastly, the amended LAI is quite clear in the provision that Individual WUAs are to set their own irrigation service fees without undue influence from AIOJSC or the Government. 40. The revised LAI was approved by Parliament on 30 April, 2004. It then became necessary to rewrite the charters of each WUA and institute required changes in their organizational structure and re-elect Management Boards and Representatives. With World Bank assistance, Central Support Units (CSUs) for WUAs was established in Baku and Nakhchivan. Further, Rayon Support Units (RSUs) for WUAs were established in all the Rayon Irrigation Department (RID) offices. These support units worked closely and reached agreement with the Ministry of Justice on the process for de-registering WUAs and re-registering WUAs under the amended LAI. Initially, public meetings were convened for both local governments and WUAs and the support units outlined both the amended Law on Amelioration and Irrigation and the new WUA structure. The support units (CSUs and RSUs) then assisted all WUAs in meeting necessary administrative and legal requirements. This process started in 2005 and by January 2010 five hundred forty

46

The team is concerned that in view of the overall shortfall of irrigation water deliveries to the irrigated commands (discussed elsewhere in this Annex) the guaranteed deliveries to individual WUAs are inadequate to meet the crop irrigation requirements of the present cropping pattern over the WUAs command if water stress is limited to a level not restrictive to obtaining crop yields compatible with present days international standards. The ensured deliveries may also restrict the WUAs from introducing significant areas of higher value crops to replace a portion of the current winter small grain and annual fodder production.

60

six WUAs with a reported irrigated area of 1,320,500 ha47 (91 percent of the reportedly irrigated land in Azerbaijan) had been duly reorganized and re-registered in accordance with provisions of the amended LAI. IV. STRATEGIES TO MEET IRRIGATION/DRAINAGE SUBSECTOR

CHALLENGES

41. Restructuring the Institutional Framework for Managing Water Resources in Azerbaijan: A major challenge facing Azerbaijan’s water sector in general including the irrigation/drainage sub-sector is the administrative structure currently in place which is neither conducive to introducing integrated water resource management (IWRM) to the country, nor to help ensure optimization of the production of irrigated agriculture. During its assessment, the team has both observed48 and been informed by concerned stakeholders that the sector’s institutional framework suffers from a lack of integration and coordination among related authorities. While it would not be wise to dismantle any competent and highly experienced entity currently working in the water sector, the benefits associated with those agencies working together under a common umbrella, coordinating work programs and development interventions as well as the overall management of the water resource would be considerable. Specifically within, the irrigation/drainage sub sector, as indicated in some detail in this annex, there have been considerable institutional changes and improvements during the past fifteen years which have allowed the establishment and efficient functioning of the WUAs and establishment of Central and Rayon level WUA support units within AIOJSC and the RIDs respectively have been key to the WUAs success to date, serving as evidence of the importance of implementing required institutional adjustments in meeting water sector problems.

42. In looking at the water sector as a whole, the team has identified a number of shortfalls which appear to be institutionally based. While not intended to be an exhaustive list, the problems include: (i) no central planning entity currently effectively considering anticipated future water availability in concert with the projected needs of all sub-sectors including industry, energy, municipal and domestic, irrigation, navigation and environmental maintenance flows; 49 (ii) absence of river system and infrastructure management to minimize the flood threat while maintaining adequate reservoir storage

47

As is the case with nationwide figures on the extent of irrigated land, it is unclear as to whether the 1,320,500 ha (2,423 ha per WUA) is gross command area (GCA) or cultivable command area (CCA), terms that are not commonly used in Azerbaijan. Thinking remains as it was in Soviet times, extensive areas that are supposedly commanded but with system capacities significantly below the necessary to support reasonable and economic cropping patterns.

48 The Ministry of Ecology and Natural Resources (MENR) carries out hydrological and meteorological monitoring, water quality monitoring and assimilates data and prepares reports on both surface and ground waters; the Amelioration and Irrigation Open Joint Stock Company (AIOJSC) supplies arable lands with irrigation water and manages the operation of both state owned irrigation and drainage facilities and maintains the Government’s accounting of water use; the Azersu Open Joint Stock Company supplies the villages and cities with potable water; the State Agency for Water Resources (SAWR) was established in 2010 and is involved in flood management efforts as well as bearing the responsibility for operational management of Mingachevir, Shamkir, Yenikand, Varvara and Jeyranbatan reservoirs; and, the Water User Associations (WUAs) which distribute irrigation water received from the regional irrigation system management units and RIDs of AIOJSC to farmers and collect irrigation service fees for its delivery.

49 Indeed if such a body were in place the, incentive for the line agencies in various ministries and the semi-autonomous entities, for cooperation would be nil in the absence of a common authority to which each of the players must answer, i.e. a cabinet level organization to which all sub-sector oriented line agency or semi autonomous body are jointly responsible.

61

to meet the various sub-sectors late season demands; (iii) need for a comprehensive quantity and quality monitoring system for both water resource availability and each sub-sector’s abstraction and use allowing the generation of meaningful and accurate water balances for any timeframe desired eliminating all possibilities of data gaps and guarding against duplication of effort in gathering duplicate information;50 (iv) absence of a sector information generation and dissemination program ensuring that data gathered and compiled by a given line agency in the sector is readily available to all sector stakeholders and the public in general; and (v) rationalize the large number of research institutes serving the sector with a view to weeding out those of little or no relevance and strengthening those currently providing valuable guidance relative to sector management issues. 43. Strategy: To identify and enumerate all of the many short falls of the present institutional set-up serving Azerbaijan’s water resources sector and evaluate alternative set-ups to overcome those shortfalls would be an exhaustive undertaking on its own and is most certainly outside the scope of the present strategy review. It is however recommended that the Government establish, on a priority basis, a task force, with both clear mandate and adequate resources to formulate the most effective framework to effectively manage Azerbaijan’s water resources as well as address all ramifications of such reorganization. While this is most definitely a Government determination, the team suggests that the Task Force may wish to consider, among others, a scenario similar to that outlined in footnote fifty one.51 Further consideration of this issue is addressed elsewhere in this report. 44. Irrigation System Rehabilitation and Improvement: A second significant challenge is the less than adequate state of repair of a significant portion of the irrigation systems, at all levels (off-farm/main; on-farm and farm level), resulting in high conveyance and application losses of irrigation water, further limiting the potential for increasing agriculture production to internationally acceptable levels. Comprehensive upgrading, modernization and rehabilitation, coupled with improved management, operation and maintenance is a must if overall irrigation efficiencies are to improve and the output of Azerbaijan’s agriculture sector is to significantly increase.52 By all reports the operating condition of these irrigation distribution systems has deteriorated significantly from many years of use and inadequate maintenance. Over 50 percent of the main and secondary distribution system is said to be in such a poor state as to render it unreliable for sustained operation. Rehabilitation and improvement of on-farm level irrigation distribution systems (and their subsequent turnover to WUAs for management, operation and maintenance) is a priority Government undertaking. Over

50

This program should be inclusive of quarterly areal distribution of groundwater levels and quality and annual areal distribution of soil salinity (by levels) in the whole of the irrigated area.

51 It is the team’s view that a separate cabinet level body, be it a ministry or National Water Authority etc. should be established. Existing agencies and Companies including Azersu and AIOJSC, could be placed under this body maintaining a degree of the autonomy they now enjoy. The Hydrology and Meteorology Department could be moved from MENR to the newly established body as they are central in providing the data required by other key sector players. The SAWR could become the central line agency in the new cabinet level entity allowing it to better fulfill its original mandate as a coordinating body ensuring improved and optimal management of the nation’s water resources. This and other options are discussed elsewhere in this report.

52 These systems are often of obsolete design with inadequate design capacities and flow levels for effective delivery and lacking provision for water level control (cross regulators), display reaches of earthen channels excavated in permeable soil materials and are lacking in discharge measurement/monitoring provisions.

62

the past few years the on-farm systems53 serving over 80,000 ha has been completed with World Bank and IFAD assistance and work on systems serving an additional 82,000 ha is underway, again with World Bank Assistance. It has been suggested that an additional $800 to $900 million (a figure with which AIOJC agrees) is required to complete this work on the balance of the irrigated area, an intervention to which they assign the highest of priorities. 54 Rehabilitation and improvement and enhanced operation of irrigation infrastructure at the main/off-farm and on-farm levels alone will not optimize overall irrigation efficiency. Inter farm and farm level conveyance below the outlet from the on-farm or WUA canal as well as irrigation application itself also require due attention. 45. Strategy: AIOJSC must comprehensively assess both system infrastructure and system management practice related to main/off-farm irrigation facilities, identifying priority opportunities to improve system performance and irrigation water deliveries to the WUAs with a view to a physical upgrading program consistent with the findings of the assessment. With regard to the on-farm systems, AIO JSC should prioritize and package the systems remaining to be rehabilitated and transferred to the WUAs, such that the groupings identified are of interest to the various potential donors. With respect to farm .level conveyance and control of irrigation water and field application issues, AIOJC should develop action plans for strengthening WUAs technical staff to provide necessary technical assistance to small farmer groups with irrigation infrastructure requirements as well as field reconfiguration and/or leveling needs to achieve significant improvement in irrigation application efficiencies. The priority sub-sector interventions outlined above and others as appropriate should be included in a time bound master plan for modernization of Azerbaijan’s irrigation and agricultural drainage infrastructure. In development of the plan the identification, prioritization and sequencing of component interventions should be framed with full consideration of the sectoral shortcomings identified below, using them as guiding principles in identifying an optimal package of required actions tailored to address the ultimate objective of enhancing both the output and output value of Azerbaijan’s agriculture sector. 46. A number of shortcomings with respect to the effective management of water resources for irrigation have been noted and should be addressed in the formulation and implementation of future plans for sector improvement, These are as follows:

(i) All crops included in the cropping pattern on Azerbaijan’s irrigated lands have water requirements considerably in excess of the Soviet “norms” of old. Failure to meet these crop water requirements in full results in crop moisture stress which limits crop yields to levels well below the crops potential and in turn appears to be the major factor suppressing the

53

On-farm irrigation systems in the Azerbaijan context date back to Soviet times and are at the level then used to deliver irrigation water to a single state or collective farm which typically covered between 1,500 and 5,000 ha. At present these “on-farm” systems continue to serve the same area which is now broken down into hundreds of individual farms. A WUA is formed for each of the former on-farm systems which at some point in time will assume responsibility for management, operation and maintenance of the distribution system. These irrigation conveyance facilities are usually at the tertiary level while the off-farm conveyances are at hydrologic levels above that of the on-farm system normally at the main and secondary canal levels.

54 Investment completion reports from both the World Bank and IFAD both report the successful nature of investments in these activities, a view shared by AIOJSC. The team endorses the high priority accorded this work.

63

countries agricultural output to levels well below reasonable expectations.55 Work initiated by the team confirms these shortages and the need for full consideration of these constraints when modernizing and/or upgrading irrigation systems at all levels. The former mindset of equipping extensive land area for irrigation, but providing only limited capacity for water delivery should be set aside. Increased supplies of crop water can be obtained by improving conveyance, operational and application efficiencies and/or by increasing abstraction rates and the design capacity of the conveyance systems. Full consideration needs be given to these anomalies in the planning, design and operation of upgraded and improved systems; 56 Work carried out by the team based on 2013 nationwide cropping patterns shows that the premier Upper Shirwan Canal has only the approximate capacity for the July peak water requirements for the present low summer cropping intensity (39 percent) and could not support intensity increases on a command wide basis. See Table 15.

(ii) In line with the above thinking, it follows that the most cost effective

opportunities for significantly increasing Azerbaijan’s irrigated agriculture output is through ensuring adequate and reliable water supplies to currently irrigated areas with a view to both increased cropping intensities and increased yields from those areas. Irrigation sector investment in the foreseeable future would, it seems, be best directed to improving production on area presently under irrigated command;

(iii) Incorporation of item (i) in future planning and rehabilitation and

modernization of systems at all levels dictates that the total network from the reservoir to the farmer’s field will be operated on the demand basis. It would no longer be responsible to say crop “a” will get three “irrigations” and crop “b” will receive four (whatever that may mean). The system will be utilized to deliver the volumetric requirement of crops as required. Operating a demand based system dictates the need for a comprehensive system of flow measurement at all control points on a real time basis. This requirement must also be addressed in the system rehabilitation/modernization undertakings;

(iv) Provision of enhanced system infrastructure and improved management

and operation of those facilities will not be sufficient to optimize water availability for the cropping pattern in place at any given period of time. The farmers efficient field application of that water is also of utmost

55

It is conceded that the introduction of quality seeds, improved fertilizer use and other crop husbandry practices are also required to complement an adequate supply of crop water. Observations over many years in many geographical areas of the world indicate that farmers understandably, are quite hesitant to make these additional investments in production costs until or if an adequate and reliable irrigation water supply is available.

56 It is estimated that some 39 percent of Azerbaijan’s irrigated area is served by lift irrigation from some 941 pumping plants. The majority of lift areas lie adjacent to the lower Aras and Kura Rivers and involve pumping directly from the rivers to canals of adequate elevation to serve the command area without further lift. Lift irrigation is associated with much lower reliabilities of delivery than is gravity irrigation and the energy costs involved result in high recurrent operation and maintenance cost. With this in view forward planning efforts for the longer term must remain ever cognizant of opportunities to replace pumps with gravity fed systems, can suitable diversion sites be identified on the rivers.

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importance. In forward planning, the technical staff of the WUAs must be well versed in surface application methods (i.e. furrow and/or border strips) and arrange training sessions for all farmers served by the WUA on these important techniques. Conversely to popular thinking there are a number of simple, yet effective techniques that can be used to improve surface application efficiencies, without costly and unaffordable transition to drip or sprinkler application techniques. For farms producing perennial fruit crops and/or high return vegetables, improved irrigation application techniques should be considered and encouraged if deemed viable.57

Table 15: Shirivan Canal Capacity Requirements

Required Upper Shirvan Canal Capacity - July - Present Nationwide Cropping

Required Required Required

Cnl Cap Cnl Cap Cnl Cap

Crop % CCA Area CIR CIR at 100% at 60% at 40%

(ha) (mm) (m3) (m

3/s) (m

3/s) (m

3/s)

Corn 2.7 2459.7 315 7748055 3.0 5.0 7.5

Vegetables 5.3 4828.3 300 14484900 5.6 9.3 14.0

Melons 2 1822 267 4864740 1.9 3.1 4.7

Fodder 19.1 17400.1 230 40020230 15.4 25.7 38.6 Perennial

Fruits/Berries 7.2 6559.2 254 16660368 6.4 10.7 16.1

Cotton 1.6 1457.6 298 4343648 1.7 2.8 4.2

Totals 37.9 34526.9 88121941 34.0 56.7 85.0

47. Required Expansion and Critical Rehabilitation and Upgrading of the Agricultural Drainage Network: Although agricultural drainage facilities currently serve about 610,000 ha in Azerbaijan, 58 the physical condition of systems serving some

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Perceptions in Azerbaijan seem to be that introduction of sprinkler or drip irrigation application techniques on large areas is the answer to improving irrigation application efficiencies. Improved and more sophisticated application equipment certainly has a place and under given conditions can indeed significantly improve irrigation application efficiency. The team suggests, however that either drip or sprinkler systems are not appropriate technology on the bulk of Azerbaijan’s irrigated lands at the present time, but their use should be encouraged when the situation allows. First most farmers in the country are growing wheat and/ or fodder. Drip application is not well suited to these close growing crops. Sprinkler irrigation, while well suited to applications for both wheat and alfalfa are expensive and have a relatively high recurrent cost for power required to pressurize the system. The cost of sprinkler irrigation would be beyond the financial reach of most small grain and hay producers. Larger operators, growing perennial fruit and berry crops, grapes, vegetables, and melons should be encouraged to employ drip application. Necessary technical assistance is many times provided to the farmer by the firm manufacturing or selling the drip equipment.

58 Of the 610,000 ha of irrigated land currently provided with drainage facilities, 326,000 ha are served by closed horizontal drains (tile), 271,000 ha are served by open field drains and 13,000 ha is served by vertical drainage, (wells). At least a portion of the 326,000 ha of covered horizontal drains which were installed during Soviet times are reportedly clay tile drains manually placed in open excavated trenches which were subsequently back filled. The areal extent of covered drains included in the 307,000 ha requiring rehabilitation is not known nor is the proportion of the undefined extent that is equipped with clay tiles as opposed to perforated plastic drain tubing. This is critical as the possibility of restoring the function of the horizontal drains laid with perforated plastic drainage tubing in a gravel envelope through back pressure treatment exists. In the case of plugged or clogged tile drains, replacement would most likely be required.

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307,000 ha have been described as seriously deteriorated. An additional area of currently undrained land, about 200,000 ha in size, the location of which is undefined59, have experienced significant water table rise and subsequent water-logging in the recent past rendering them in urgent need of drainage relief. These problems are further exacerbated by the historical rise in the level of the Caspian Sea which resulted in deltaic deposits which rendered disposal of collected agricultural drainage flow more difficult. The worsening drainage situation is yet another constraint to the productivity of the agriculture sector. Restoring effective drainage relief is one of the major challenges facing irrigated agriculture. 48. Timely rehabilitation of inoperable drains nation-wide, provision of drainage relief to recently water-logged areas and required revamping of the outfall system are priority sector needs. Again reports indicate the operating condition of the existing agricultural drainage network has deteriorated significantly from many years of use and inadequate maintenance. 60 Over 50 percent of the network requires urgent rehabilitation and improvement and comprehensive studies of water level trends by area and the progression of consequent soil salinization processes would serve to conveniently prioritize additional areas requiring drainage relief. Lack of recent or time based data and /or more probably lack of access to such data may render this straight forward process more difficult. Careful study and reliable groundwater data showing seasonal fluctuations is a must for identifying/prioritizing additional areas requiring drainage. Absence to access of such data precludes the team from locating or precisely quantifying the area to be newly drained, but broad estimates were obtained from stakeholders suggest an additional area of plus or minus 200,000 ha. 49. With regard to lands currently equipped with drainage facilities, AIOJSC should: (i) comprehensively assess all existing drainage facilities including collector drains and outfall arrangements; and (ii) identify as well as carry out all works required to optimize overall performance of the existing agricultural drainage system. These works will: (i) afford improved control of groundwater levels in the irrigated areas: (ii) reduce the potential for further soil salinization; and (iii) restore the potential for agriculture\al production on the currently drained areas. 50. Strategy: AIOJSC will also in cooperation with all necessary parties, assemble a data base of water level and soil and water salinity data for the whole of Azerbaijan’s irrigated area adequate to facilitate a comprehensive drainage plan inclusive of areas not included in the 610,000 ha currently drained and allow for both identification and prioritization of additional areas requiring drainage treatment. Subsequently, and in line with priorities and time frames established, AIOJSC should implement the necessary works and ensure that a comprehensive drain monitoring program is in place that will

59

The location of this +/- 200,000 ha is not defined. AIOJSC was unable to provide any maps pinpointing

the newly identified areas requiring drainage relief. It must be assumed the area is not contiguous, but the degree of fragmentation is not known.

60 These systems are often of obsolete design with inadequate capacity and laid at or excavated to depths inadequate to offer the required drainage relief.) In-depth discussions with stall at the Amelioration lab within the Soil Science Institute reveals that equipment for rehabilitation of plugged tile systems constructed with perforated plastic drainage tubing (back pressure treatment) is presently not available with either AIOJSC or private contractors. The same is the case with modern equipment for laying of new tile fields setting the stage. AIOJSC should not be equipped to handle these specialized tasks, but the capability of the private sector construction industry enhanced to handle this work. The local construction industry’s performance in the urban, transport and industrial sectors over the past decade is said to have to have been stellar.

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readily indicate malfunction of any system component and allow for its timely repair. In addition, the areal coverage of the drain monitoring network will be adequate to allow early detection of additional areas of rapidly rising or high water tables. V. PRIORITY INFRASTRUCTURE INVESTMENT UNDER THE STRATEGY

51. From the assessments, identification of priority challenges and strategy paths defined in this annex, it appears that, in all probability, there will be four categories of required major investment in rehabilitation and modernization of existing irrigation and drainage infrastructure and provision of additional sub-sector infrastructure. These are:

(i) Continuation of rehabilitation and modernization of “on-farm” (secondary and tertiary canals) irrigation infrastructure with a view to transferring the completed facilities to the concerned WUA for subsequent management, operation and maintenance. Joint World Bank/AIOJSC estimates indicate the balance of work remaining under this program will cost between $800 and $900 million;

(ii) Comprehensive rehabilitation and modernization of main/off-farm irrigation infrastructure including main and secondary canals, diversion structures and pumping plants. Discussions with AIOJSC indicate that while preliminary cost estimates of these works are not currently available, it will be sizeable. Costs will not be available until AIOJSC carries out its detailed assessments and planning studies as one of the initial steps under the strategy;61

(iii) Comprehensive rehabilitation and modernization of the existing drainage

network covering some 610,000 ha including both covered and open field drains and the collector system. Discussions with AIOJSC again indicate that while preliminary cost estimates of these works are not currently available, it will be sizeable. Costs will not be available until AIOJSC carries out its detailed assessments and planning studies as one of the initial step under the strategy; and

(iv) Provision of agricultural drainage to an additional 200,000 ha of irrigated

land comprised of principally covered horizontal drains (+/- 150 ha) with the balance being drained by either open field drains or drainage wells in fresh groundwater areas. A detailed assessment and planning study of these required facilities will be carried out as an initial step under the adopted strategy and also be inclusive of a drain monitoring network for both existing and new drains which will enable real time analysis of both water and salt balances.

52. It is clear that sizeable investment in the irrigation/drainage subsector will be required within the next 15 to 20 years. It is the team’s view that this will in all likely-hood exceed $5.0 billion. The Government and donor’s alike would benefit from early

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The irrigation development master plan to be prepared by AIOJSC is envisaged to include in the longer term (15 to 20 years) an appropriate number of major river diversion structures with associated distribution works to provide gravity irrigation deliveries to areas currently receiving pumped supplies.

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indications as to project packages which will require funding in the short and medium term timeframe under the strategy. The team will concentrate on three of these for which preliminary financial requirements can be estimated. These investment packages and time frames for possible processing and implementation include: (i) a TA loan for AIOJSC to assist them in preparation of both the irrigation and drainage masterplans which could be processed and implementation begun immediately upon the Government’s adoption of the strategy and is estimated to cost between $8.0 and $10.0 million; (ii) additional packages of on-farm irrigation system improvement formulated In accordance with the on-going World Bank financed work which could be processed immediately if triggered by the Governments request with each package having an approximate cost $150.0 million; and (iii) the initial package of new drainage facilities consisting of covered horizontal drains on some 50,000 ha and costing approximately $300 million which could be processed approximately 18 months after commencement of the planning studies referenced in item (i). Each package is addressed briefly below. 53. TA Loan – Forward Planning – Irrigation and Drainage Sub-sector. Upon the Government’s adoption of a water sector strategy forward planning in both the irrigation and drainage subsectors is a priority requirement. The proposed TA Loan would provide AIOJC the necessary assistance to prepare both an Irrigation Master Plan and Drainage Master Plan as well as conduct feasibility studies of and prepare final designs for the initial investment envisaged under each subsector plan. The assistance would provide for about 144 person months of internationally recruited and 200 person months of national consultants to assist AIOJSC with the aforementioned activities. The approximate $10,000,000 cost includes provision for remuneration of the consultants, per diem allowances, international and in-country travel expenses, rental of office space and procurement of necessary vehicles and equipment. The work would be carried out jointly with AIOJSC over a 24 month period. 54. Additional Packages of “On-Farm” Irrigation Systems Improvement - As provided for under the proposed strategy, AIOJSC will package the remaining irrigation rehabilitation and improvement works under this on-going program into suitably sized investments to interest a broad array of international donors and multi-lateral finance institutions. As pointed out above AIOJSC and the World Bank have estimated the total cost of the remaining rehabilitation and improvement work on “on-farm” systems at between $800 and $900 million. All additional packages would be tailored after the works currently on-going and in addition to the physical improvement works provide organizational strengthening for the concerned WUAs with a view to the transfer of the infrastructure to the association for management, operation and maintenance. The executing agency for all additional works under this program would be the AIOJSC and concerned Rayon Irrigation Departments (RIDs). Hopefully significant portions of this work can be undertaken early-on while the Government deliberates and adopts the Water Strategy and the subsequent two year period during which the drainage and irrigation master plans are under preparation. 55. Initial Package of New Covered Horizontal Agricultural Drains – Subject to the findings of the Drainage Master Plan study and subsequent project preparation of this package financed under the initial investment described above, it is anticipated this sub-project would finance the laying of horizontal perforated plastic drains enveloped in an appropriate gravel pack under about 50,000 ha of irrigated land now affected by a

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high water table.62 The first subproject, which will be identified in the planning study and subsequently undergo a feasibility study followed by final design, will most probably include the drainage of the 50,000 ha mentioned above, associated drain monitoring provisions, construction supervision consultants, vehicles and office equipment, and both physical and financial contingency provisions. AIOJSC would be the executing agency for the project. The construction contract for laying the drains will be awarded to a pre-qualified bidder under international competitive bidding. Total project cost will be about $300 million, a significant portion of which will be foreign exchange. It is anticipated these works can be undertaken only some two years after adoption of the strategy and commencement of the Drainage Master Plan study.

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Based on the mix of drainage modes utilized in the currently drained areas and with due consideration to the additional constraints to open field drains as a result of land reform, the team has preliminarily projected that no less than 150,000 ha of the 200,000 ha to be newly drained will be served by covered horizontal drains. Construction of open field drains could wipe out entire small farms or decrease the size and fragment the holding to where it was no longer a viable entity.