Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 27168-YEM

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 27.1 MILLION (US$40.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF YEMEN

FOR A

GROUNDWATER AND SOIL CONSERVATION PROJECT

January 28,2004

Water, Environment, Social and Rural Development Department Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 2,2003)

Currency Unit = Yemeni Rial (YR) YR1 = US$0.0056

US$1 = YR178

AREA CACB CAS C W M U EMP FM FUs GDI GOY GSCP I A S ICR IDA IP I P M JSDF LWCP MA1 M&E MOF MOPIC MWE NGO NWRA NWSA O&M PCU PHRD P M U PPT PRSP ROY SA SBWMP T A WUA WUG

FISCAL, YEAR January 1 -- December 31

ABBREVIATIONS AND ACRONYMS

Agricultural Research and Extension Authority Cooperative and Agriculture Credit Bank Country Assistance Strategy Central Water Monitoring Unit Environmental Management Plan Financial Management Field Units General Directorate o f Irrigation Government o f Yemen Groundwater and Soil Conservation Project Irrigation Advisory Service Implementation Completion Report Intemational Development Association Irrigation Improvement Project Integrated Pest Management Japan Social Development Fund Land and Water Conservation Project Ministry o f Agriculture and Irrigation Monitoring and Evaluation Ministry o f Finance Ministry o f Planning and Intemational Cooperation Ministry o f Water and Environment Non-Governmental Organization National Water Resources Authority National Water and Sanitation Authority Operation and Maintenance Project Coordination Unit Policy and Human Resources Development Project Management Uni t Project Preparation Team Poverty Reduction Strategy Paper Republic o f Yemen Social Assessment Sana'a Basin Water Management Project Technical Assistance Water Users Association Water Users Group

Vice President: Christiaan J. Poortman Country Director: Mahmood A. Ayub

Sector Director: Letitia A. Obeng Sector Manager: Vi jay Jagannathan

Task Team Leader: Satoru Ueda

? I

FOR O F F I W USE ONLY REPUBLIC OF YEMEN

GROUNDWATER AND SOIL CONSERVATION PROJECT

CONTENTS

A. Project Development Objective

1. Project development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Ma in sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices

C. Project Description Summary

1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements

Page

2 3

4 5 6

9 13 14 15

D. Project Rationale t

1. Project altematives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies

17 19 20 22 23

3. Lessons leamed and reflected in the project design 4. Indications of borrower commitment and ownership 5. Value added of Bank support in this project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

23 24 25 27 28 30 31

F. Sustainability and Risks

1. Sustainability 32

This document has a restricted distribution and m a y be used b y recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed (without W o r l d Bank authorization. -

2. Critical risks 3. Possible controversial aspects

G. Main Conditions

1. Effectiveness Condition 2. Other

H. Readiness for Implementation

I. Compliance with Bank Policies

Annexes

Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary Annex 6: (A) Procurement Arrangements

(B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project Fi le Annex 9: Statement o f Loans and Credits Annex 10: Country at a Glance

33 35

35 35

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37 42 49 50 57 59 69 76 77 78 80

MAP( S) IBRD No. 32738

REPUBLIC OF YEMEN Groundwater and Soil Conservation Project

Project Appraisal Document Middle East and North Africa Region

MNSRE

Date: January 28,2004 Sector Manager: Vijay Jagannathan Acting Country Director: Habib M. Fetini Project ID: PO74413 Lending Instrument: Specific Investment Loan (SIL)

Team Leader: Satoru Ueda Sector@): Irrigation and drainage (100%) Theme@): Water resource management (P), Other environment and natural resources management (P)

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[ 3 Loan [XI Credit [ ] Grant [ ]Guarantee [ ]Other: For LoanslCred i tslOt hers: Amount (US$m): 40.0

Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: Standard

Years to maturity: 40 Service charge: 0.75% -

Financing Plan (US$m): Source Local Foreign Total BORROWER IDA

7.55 7'55 I 27.62 1 12.38 I 40.00

O'O0

LOCAL. COMMUNITIES I 5.81 I 0.00 I 5 3 1 Total: 25.74 I 27.62 I 53.36 Borrower: REPUBLIC OF YEMEN REPUBLIC OF YEMEN Responsible agency: MINISTRY OF AGRICULTURE AND IRRIGATION Groundwater & Soil Conservation Project Address: Ministry o f Agriculture and Irrigation Contact Person: MI-. Abdul Malik A1 Arashi, Deputy Minister, MAI, or Director o f Planning and Monitoring, MAI Tel: 967-1-282445 Fax: 967-1-2829991289509 Email: agriculture@yemen.net.ye

Estimated Disbursements ( Bank FY/US$m):

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Project implementation period: The project will be implemented over a period o f five and a half years between May 2004 and October 2009. Expected effectiveness date: 0513012004 Expected closing date: 1013 112009

A. Project Development Objective

1. Project development objective: (see Annex 1)

The Groundwater and Soil Conservation Project (GSCP) i s designed to test innovative solutions to the critical groundwater problem in Yemen. The problem o f unsustainable groundwater extraction has been caused by the rapid spread o f groundwater irrigation, combined with dwindling rates o f recharge. The root cause is a weak management framework ill-adapted to ensuring sustainable extraction levels, efficient water use, and watershed protection.

Yemen i s a predominantly rural country with 73.4 percent o f its total population o f 18.8 mi l l ion living in rural areas. Irrigated agriculture remains the main economic activity and source o f income and employment in rural areas. The depletion o f groundwater directly impacts poverty, employment, and social order. Furthermore, the protection o f the groundwater resource and o f the watersheds that replenish the resource is o f paramount importance.

The objective o f the project i s to assist GOY in promoting groundwater conservation in farming areas and increasing surface and groundwater availability through: (i) improving irrigation water use efficiency, thus increasing farmer returns to water and creating the conditions that would allow them to reduce groundwater pumping from aquifers towards sustainable levels; (ii) improving recharge and Drotection o f watersheds in order to increase surface and groundwater availability through the improvement o f small to medium spate irrigation schemes, bank protection works, terraces and other water harvesting structures; and (iii) sumortina the aoundwater management framework and institutions that will have the incentive and capacity to manage local water resources in a sustainable manner.

The project builds on the positive and negative lessons o f the recently closed Land and Water Conservation Project (LWCP, 2000) and on recent institutional and legislative changes by GOY. I t will scale up (from eleven governorates to fifteen) the successful groundwater efficiency improvement components o f i ts predecessor project, LWCP, and add further measures to improve the water balance.

Diverse climatic conditions and water usekhallenges

Given the wide variations o f climatic and topographical conditions in Yemen, the challenges o f improving water resources management vary from region to region. The GSCP will cover the following agro-ecological zones o f Yemen:

(a) the Highland zone which suffers from rapid aquifer depletion due to the spread o f tubewell technologies and expansion o f the irrigated area;

(b) the Coastal zone (Tihama and Gulf o f Aden) which suffers f rom shallow aquifer depletion and sea water intrusion due to increased groundwater abstraction and deteriorating spate and water harvesting structures;

(c) the Escarpment zone (between Highland and Coastal zones) which suffers f rom deteriorating terraces and soil erosion; and

(d) the Semi Arid Eastern Plateau zone, where shallow and deep aquifer pumping in the areas close to wadis will lead to aquifer depletion in the near future.

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The Highland zone consists o f the western, southern and eastern slopes o f the Yemen Mountainous Massif with altitudes ranging from 1,500 - 2,500 m. Due to the fact that the inter-mountain plains and basins receive l imited rainfall, supplementary irrigation i s needed most o f the year. From the 1970s, tubewell technology use has led to the rapid development o f groundwater irrigation and increased aquifer depletion. Most notably, in the Sa'adah and Amran basins, aquifer depletion is at the rate o f 2-8 meters per year, which warrants urgent measures and better management. In such areas, the project would focus on irrigation efficiency improvement and groundwater management at the field level.

In the Coastal zone, for instance, Tihama and Wadi Tuban, spate irrigation schemes have been developed to regulate water f low and to increase irrigated agricultural production. However, these systems have deteriorated due to lack o f maintenance. Rehabilitation o f the schemes and establishment o f a sustainable community-based management system i s an urgent issue. Groundwater irrigation has also been rapidly expanding and, as a result, sea water intrusion i s increasing in coastal areas, as the water tables gradually decline. Irrigation efficiency improvement and better groundwater management i s vital to conserve coastal aquifers for future economic development, particularly o f coastal cities.

In the Escarpment zone (the governorates o f Al-Mahaweet, Hajjah and Ibb) rainfed agriculture i s widely practiced on terraced slopes. The traditional structures have deteriorated due to intensive labor requirement for maintenance which has become more problematic with the emigration o f some o f the rural population. Given the positive impacts o f terraces on water harvesting, groundwater recharge and erosion control, rehabilitation and improved maintenance o f those terraces is quite important not only for the upper watershed areas but also for the downstream irrigation areas along wadis and for more effective f lood management.

In the Eastern Plateau zone, including Shabwa and Hadramaut, the climate is semi-arid with n o distinct rainy seasons. Human settlements are concentrated in the vicinity o f the major wadis and spate irrigation has been practiced for more than two millennia. This zone suffers periodically f rom torrential rainfall and floods. The 1977, 1982 and 1996 floods caused devastating damage to spate structures, farms and villages along the wadis. Groundwater irrigation has also been expanding and causing aquifer depletion. Groundwater management and improved irrigation efficiency are critical to sustain the rural economy.

2. Key performance indicators: (see Annex 1)

The key performance indicators for the project would consist o f the following:

Implementation indicators:

(a) number o f hectares covered with modernized irrigation through the installation o f piped-groundwater conveyance and localized irrigation systems;

(b) number o f hectares covered by improved spate irrigation schemes, soil conserving terraces, water harvesting structures, bank protection and other soil and water conservation investments;

(c) number o f participating farmers working within water user groups (WUGs) in project areas, respecting covenants not to expand irrigated area, adopting improved water, soil and crop management programs at farm level, and sharing project costs; and

(d) monitoring programs in place at farm and basin levels for supporting groundwater management.

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Impact indicators:

(a) volume o f water saved;

(b) agricultural productivity increases per unit o f water use; and

(c) number of families benefiting from the investment.

Progress toward the project development objectives will be evaluated based on these key indicators. A monitoring and evaluation program has been prepared to monitor progress, including water saving and i t s impact on aquifer sustainability. A baseline survey will be carried out before the start o f the project, and regular reporting will track progress. All monitoring data will be shared with farmers and user associations as part o f the participatory approach and water conservation education program.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDA/R2002-153

Within the general CAS objective o f “environmental sustainability”, improving water resource management is a CAS priority, and a series o f International Development Association (IDA) measures to support Yemen in improving water resources management during the CAS period is set out. In summary, these include:

Date of latest CAS discussion: September 5, 2002

(a) reinforcing the strategic framework through an integrated donor-supported water strategy;

(b) capacity building at the national and local levels;

(c) support to the integrated management o f water resources;

(d) reduction in aquifer depletion through recharge enhancement, end-use efficiency (especially in agnculture) and decentralized and participatory management; and

(e) support to efficient and decentralized urban and rural water supply.

To cany out these measures, the CAS sets out a program o f analytical and advisory activities and projects. The analytical and advisory activities concentrate on helping the GOY, civ i l society and the donor community to harmonize actions and investments withm a practical national strategy for integrated water resources management and efficient water supply to the population. In FY04/05, a Country Water Resources Assistance Strategy will be prepared joint ly with the GOY and donors. On the lending program side, the projects proposed are complementary with one another within the overall strategic framework. For instance, two projects for the area o f Sana’a, the national capital, apply integrated management approaches to water resources while improving the efficiency and sustainability o f both agricultural use and o f water and sanitation for the capital city. The proposed GSCP also pushes forward the water resources management agenda, but mainly for rural areas depending on groundwater and periodic floodwaters (spate) for irrigation.

Water resources are a particular focus o f the CAS, which underlines the vital role that water resources play in keeping Yemen’s economy profitable and sustainable. Similarly, the Poverty Reduction Strategy Paper (PRSP) identified the rural population as the poorest and most vulnerable segment o f society and

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highlighted the growing water shortage as a principal challenge to be met if poverty is to be reduced. The PRSP underlines the fact that the alarming rate o f groundwater mining in the country is creating a high risk o f impoverishment o f rural communities and acceleration o f rural-urban migration. Thus, the CAS points to the need for urgent action on water resources management in rural areas and, in particular, investment in order to reduce aquifer depletion and improve watershed management, with a focus on the most stressed agricultural areas. This i s the objective o f the proposed project, which features as a priority in the base case IDA's lending program for FY03-05.

2. M a i n sector issues and Government strategy:

The dramatic nature o f Yemen's water scarcity was well documented in the 1997 IDA report Yemen: Towards a Water Strategy (Report No. 15718-YEM). This report identified four major challenges:

(a) groundwater mining threatening sustainability o f the resource (water tables dropping in some areas up to eight meters a year);

(b) growing shortage o f water resources for Yemen's cities (part the capital, Sana'a, receives water from the public system only once every four days);

(c) inadequate access to safe water and sanitation (less than ha l f o f Yemen's population has access to safe drinking water and even fewer to safe sanitation); and

(d) weak caDacitv o f formal institutions in the sector (groundwater management decisions are taken by 100,000 individual wel l owners without the GOY'S regulation).

In the 1997 report, IDA proposed an action agenda, including: (i) measures at the macro level (efficiency pricing for water, phasing out o f diesel subsidies, national debate on water use and conservation, reorientation o f public expenditures and action o n qat); (ii) improved sector management (restructuring o f the urban and rural water supply sectors, water conservation in agriculture and a regional approach to water planning); (iii) local level solutions (participatory approaches building o n Yemen's tradition o f community-based water management); and (iv) institutional development measures (adoption o f a national water strategy, a water law, and capacity building for water institutions).

Since 1997, discussion within Yemen on the above agenda culminated in the adoption o f a National Water Strategy by the Council o f Ministers in December 1998. Th is Strategy broadly endorses the agenda discussed in IDA's 1997 report. Since then, despite Yemen's generally weak institutional capacity, GOY has made progress in implementing i t s strategy. Actions include:

(a) creation o f a single water resource agency, the National Water Resources Authority (NWRA);

(b) successive rises in the diesel price towards import parity;

(c) elimination o f credit subsidies for groundwater development;

(d) restructuring o f the urban water supply sector and tar i f f increases (with IDA's support under the ongoing Urban Water Supply and Sanitation APC);

(e) adoption o f a demand-driven approach to rural water supply (with IDA's support under the ongoing Rural Water Supply and Sanitation Project);

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(9 adoption o f a pol icy o f cost recovery and hand-over o f spate irrigation schemes to users (with IDA'S support under the ongoing Irrigation Improvement Project);

(g) implementation o f a water conservation program in agriculture and the creation o f a mechanism to promote it (under the recently completed LWCP) and under the proposed GSCP);

(h) a technical assistance program for dams to enhance the capacity o f the General Directorate o f Irrigation (GDI) under MAI, and a completed dam inventory for Sana'a Basin (with IDA financing under the ongoing Southem Governorates Rural Development Project);

(i) auuroval bv Parliament o f a Water L a w in Julv 2002, signed into effect as Law #33 on August 31, 2002 by the President, followed by Cabinet Decrees declaring the basins o f Sa'adah, Sana'a and Taiz as 'protected zones', under Article 49 o f the Water Law;

(j) creation o f a Sana'a Basin Commission (Decree # 263, 2002 o f September 10, 2002) to deal with the critical problem o f water supply to the capital; and

(k) creation in Auril 2003 o f a new Ministrv o f Water and Environment (MWE) to unify GOY agencies dealing with water planning and management.

All o f the above actions indicate GOY'S commitment to tackle the water problem, and al l o f them will contribute to improving the situation. The most intractable problem, however, remains the overdraft o f groundwater which threatens the future o f large parts o f the rural economy. The challenge i s enormous and many years o f sustained commitment at al l levels will be needed to achieve a measurable impact. Mitigating this problem i s a strategic goal, for which the proposed project, along with the Sana'a Basin Water Management Project (SBWMP) and the Urban Water Supply and Sanitation Project, are two critical interventions.

The recent creation o f the MWE and the passage o f the Water Law provide a new legal and institutional framework for tackling th is problem. The Water L a w provides for assignment and regulation o f groundwater rights, defines the functions and authority o f the NWRA in water management, and provides for the delegation o f powers to decentralized management institutions for self-regulation and participatory management in the water sector. GOY is currently preparing the by-laws to detail the administrative requirements for implementation o f the Law. The project will promote sustainable use o f groundwater within this framework.

3. Sector issues to be addressed by the project and strategic choices:

The recently approved SBWMP is addressing the problem o f integrated water management and rural-urban transfer in the most important and contested basin in Yemen. I ts objective i s to demonstrate a model for sustainable water management in a situation o f intense competition between urban and rural uses for a dwindling resource.

This exceptional and specific problem o f rural-urban inter-sectoral competition i s found in and around two or three other Yemeni cities. Alongside this problem i s the equally grave but far more widespread problem of aquifer exhaustion f rom excessive agricultural use and the associated deteriorating recharge conditions in the watershed. Th is problem, if left uncontrolled, would have serious impacts on the rural economy. I t i s this issue that the proposed project will address.

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Experience from Yemen shows that moderating the groundwater overdraft has both technical and institutional components. On the technical side, the objective i s clearly to enhance recharge and “ ize loss of water f rom the aquifers so as to optimize beneficial use and sustain incomes, while at the same time allowing reduction in groundwater pumping. On the institutional side, given the weakness o f formal institutions and the location o f water use decisions within local communities, the priority i s to engage local water users in structured groupings and develop their institutional capacity to manage the resource and to work in partnership with formal institutions towards sustainable water management.

In light o f the above, the strategic choices that have guided project design are as follows:

Irrigation efficiency imurovement as the f i rs t prioritv. Irrigation uses about 90 percent o f the available water in the country. Thus, any approach to conservation has to focus on improving the water use efficiency in irrigation. Th is focus corresponds to on-the-ground needs, specifically conveyance and on-farm water use efficiency which are very l o w in Yemen. As has been demonstrated in the predecessor LWCP, groundwater irrigation modernization through introduction o f piped conveyance o f groundwater for irrigated agriculture and use o f micro-irrigation technologies results in significant water savings. Where this i s combined with improved water, soil and crop management at the farm level, it can also improve crop yields and net farm incomes. This demonstrated success o f the predecessor project in saving water justifies the strategic choice to make irrigation efficiency improvement a principal project component and expand it to cover further irrigated areas in Yemen.

Water and soil conservation in watersheds and wadis. Capturing and diverting periodic floodwaters (spate) for irrigation has been a main feature o f irrigation in Yemen for centuries. Spate water is a vital complement to groundwater in Yemeni irrigation, and contributes significantly to the water balance. Similarly, the complex terrace systems which cover Yemen’s hillsides are a vital part o f both the local agricultural economy and o f the management o f watersheds that enhance groundwater infiltration, conserve soil and reduce flooding. The strategic choice i s to include spate and terrace systems in the project in order to improve the overall water balance within an integrated approach to the hydraulic cycle. Thus, the proposed project will rehabilitate and improve small and medium spate systems, water harvesting and water and soil conservation structures on terraces in the upper watersheds. These investments will be l o w cost, use participatory contributions o f the local communities, including locally familiar techniques, labor and material. They will significantly help in increasing groundwater recharge and arrest soil loss f rom erosion, which in turn will enhance crop rooting depth, soil moisture retention capacity and improved yields from inigated and rainfed agriculture o n the terraces.

Introducing: an Irrigation Advisory Service (IAS) to increase irrigation efficiencv and amiculture productivity. The predecessor project focused o n conveyance efficiency and micro-irrigation techniques. Accompanying improvements in on-farm soil, water, and crop management also took place but were not a major focus o f the project. However, experience worldwide shows that in the range o f options open to farmers to improve returns per cubic meter o f water (and so allow reduction o f water use) “software” improvements (zero tillage, mulching, deficit irrigation, furrow irrigation, cropping pattern changes, plasticulture, weed control, etc) are l o w cost complements to physical investments. Hence, the establishment o f an I A S constitutes a strategic choice for the project. The main purpose o f such an I A S would be to help coordinate the activities o f the FUs, serve as a liaison between farmers and GOY, and monitor the activities and projects o f farms through regular f ield visits.

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Towards a partnership amroach to groundwater management. Ideally, water resource management takes al l sources and uses of water withm a discrete hydrological unit, normally a basin, and manages them for maximum efficiency. This ideal approach, however, requires elaborate information and well-developed institutions, which do not currently exist in rural Yemen. The project’s approach comprises the following elements: (i) working with individual farmers through local groupings, typically water user groups (WUGs), in order to mobilize a community-wide approach to water management; (ii) setting up a monitoring and information system that will allow users - and the project - to measure the impact o f project investments and local (community) decisions on the level o f groundwater in the local aquifer; and (iii) creating a partnership approach between local users - in their user groups - and formal institutions in which the responsibilities and prerogatives o f each party to the project are set out in a written contract.

A seuarate pi lot uroiect to facilitate the develoDment o f water user associations ( W A S ) for groundwater management. Clearly, the partnership approach proposed above contains elements for sustainable self-management o f the resource by water users and their communities. It does not, however, allow a complete coverage o f a l l water sources and uses. Farmers may choose not to participate, or project interventions may not be appropriate to them. Neither does it allow for effective responsibility o f a WUG and an expanded WUA for the resource. Users in the project may reduce their groundwater pumping, but those not in the project would be under no such obligation and could even profi t by pumping out extra water from the aquifer. A fully integrated approach - taking al l sources and uses o f water in a discrete hydrological area and a fully inclusive management approach, including al l users in that area, needs to be introduced for sustainable management. As there is no fully tested model for this approach in Yemen, it has not been included in the GSCP. However, it was agreed that a separate pi lot project would be proposed to’the JSDF for financing in order to test the concept with a non-governmental organization (NGO), in close cooperation with the GSCP.

Intensified monitoring;. information dissemination and evaluation activities. One o f the new aspects o f th is follow-on project is to establish a monitoring and evaluation (M&E) program covenanted in the credit agreement to measure the project’s impacts and disseminate the information among the communities. Community self-evaluation techniques will be integrated in the program as an incentive for improved water management. The project will conduct measurement o f actual pumping volumes and patterns at farm level, using automatic recording pressure inducers and f low meters/aggregators. Other information, such as irrigated areas, cropping pattern, wel l and aquifer depth, etc. will also be collected. The program will allow measurement of project impacts and will be carried out in participation with local communities as part o f an education and capacity building program.

A cautious amroach on Qat. Qat i s a green leaf that i s chewed for i ts mild stimulant properties by a large cross-section o f the Yemeni population as a social pastime. Inevitably, qat plantations occur in some o f the project areas that are suitable for its cultivation, mostly highland areas surrounded by steep hi l ls which provide a micro climate for protection f rom strong winds and frost. Moreover, many project areas are not suitable for qat cultivation (such as Hadramaut, Shabwa, Tihama, etc.) as they do not have suitable climate and topographic conditions.

Under the project, the strategic choice i s to fol low GOY’s policy which does not ban qat but excludes qat plantations from GOY’s assistance. Thus, qat growers will be excluded f rom the program, and agreements between the project and participating farmers will spell out farmers’ commitment not to begin to cultivate it, The irrigated farming advice given to farmers will present alternative crops. There are, in fact, indications in some areas that farmers would prefer not to grow qat if alternative cash crops were available (for example, in Sa’adah, some farmers call qat “the tree of the devil”, and would prefer to grow citrus). The project w i l l also benefit from the national dialogue on qat which the President launched three years

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ago, with IDA'S assistance, and will work with those who are tackling the qat issue. The objective o f the dialogue is to create a national constituency for moderating, and ultimately reducing, the qat habit.

Diesel pricing. an issue for the broader macro-economic and social dialogue. IDA has long argued that a key incentive to moderating groundwater overdraft i s to move diesel prices progressively towards border parity. This process was initiated in successive rises in recent years. In the late 1990s, internal prices had reached about three quarters o f the border price level, although each price rise caused social disturbance, However, subsequent inflation and devaluation, together with movements in world prices, have again widened the disparity. Currently, domestic prices are YR 17 per liter against a border price estimated at over YR 50 per liter. Discussions at the macro-economic level between GOY and IMF are ongoing, but it seems unlikely that border parity can be achieved in the present political economy o f Yemen. L o w prices are the simplest way for GOY to spread the benefits o f national o i l wealth to the population. Furthermore, the support given to the rural economy and to the poor in terms o f lower agricultural production, food and transport costs i s considerable. Therefore, the approach retained under the project i s to proceed with the essential technical and institution building investments at the project level while the macro-economic dialogue that evaluates the costs and benefits o f a diesel price rise on an economy-wide basis i s pursued at a higher level.

C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

The proposed project would consist o f the following components:

A. million)

Modernization and Imurovement of Groundwater Irripation Svstems (Base cost US$15.47

Th is component would provide for the supply and installation o f buried PVC and overground galvanized iron (GI) pipes to improve water conveyance and distribution efficiency, in turn reducing conveyance losses from existing tubewells to and on existing farms. I t would also provide localized on-farm irrigation systems (drip, bubbler or sprinkler) for a part o f the project area to further reduce on-farm water losses. Specifically, this component would involve:

(a) improving irrigation conveyance efficiency on about 27,000 ha through the supply and installation o f groundwater conveyance pipes; and

(b) modemization and improvement o f localized on-farm irrigation efficiency through: (i) the installation o f localized on-farm irrigation equipment such as drip, bubbler, and sprinkler systems o n about 1,440 ha and (ii) the introduction of farmland leveling on a pi lot basis.

The physical investments would form part o f a farm management plan that would include improvements in on-farm soil and water management and crop husbandry through the establishment o f the IAS.

B. Imurovement of Suate Irripation. Water Harvesting and Soil Conservation (Base cost US$12.02 million)

This component would provide gabion baskets and other materials for the selective improvement of traditional small and medium spate schemes withm identified wadis to improve spate conveyance, diversion efficiency, and groundwater recharge, in addition to associated wadi bank protection for villages. I t would

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also involve rehabilitation o f terraces to conserve soils from water erosion and water harvesting structures, and divert run-off water for irrigation and recharge the groundwater. This would specifically involve:

(a) Small and medium-scale spate irrigation improvement and rehabilitation in the wadis:

Improving spate irrigation through the rehabilitation and construction o f small (benefiting 5 10 ha) and medium (benefiting 1050 ha) spate irrigation systems and wadi bank protection structures (at about 105 locations benefiting approximately 700 ha). Canal structures would also be constructed or rehabilitated (about 130 structures benefiting around 1200 ha).

(b) Improvement o f water harvesting and soil conservation works in the uplands:

(i) Improving water harvesting and soil conservation in the uplands through the construction and rehabilitation o f terrace walls and water harvesting structures (benefiting 550 ha), erosion control structures (benefiting 180 ha), wadi bank protection (benefiting 440 ha) including, inter alia, the provision o f vegetative measures; and

(ii) Improving water storage and groundwater recharge through the construction and rehabilitation o f on-farm water storage tanks (165,000 m3), open pits and underground cistems to collect rainwater (630,000 m3) for human and animal consumption, irrigation and recharge.

C. Institutional Strendhening o f Water Institutions (Base cost US$16.39 million)

This component would provide project implementation support, monitoring and evaluation activities, and institutional and capacity building support in the form o f training and facilities to institutions involved in the project. The components consist of:

(a) Capacity building (equipment, vehicles, materials, office buildings, technical assistance, training, project management and incremental operating costs) for the following institutions:

(i) Strengthening the institutional capacity o f the PCU (within the MAI) and Cooperative and Agriculture Credit Bank (CACB) for project coordination and FUs (within 10 MAI provincial offices for implementation o f physical works) to implement projects and coordinate with stakeholders;

(ii) Strengthening the institutional capacity o f the MAI and GDI including i ts Central Water Monitoring Unit (CWMU) to improve irrigation water use monitoring and other irrigation-related technical aspects;

(iii)Support to NWRA for c a v i n g out (a) water resources assessment, monitoring and management and (b) public information and awareness campaign on groundwater management and conservation; and

(iv) Strengthening the institutional capacity o f MWE for enhancing water policy formulation.

(b) Capacity building and technical assistance for local communities in project areas which includes:

(i) Establishing the I A S within the FUs. The I A S would provide advise on on-farm water, soil and crop management support in addition to communicating lessons leamed from farmers; and

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(ii) Strengthening the institutional capacity o f WUGs to raise awareness about groundwater savings and to assist the FUs in monitoring and managing the irrigated areas and groundwater use.

(c) Communication materials and information-sharing program for community sensitization activities, including women and children.

Component

A. Modernization and Improvement o f Groundwater Irrigation Systems (i) Groundwater Irrigation Conveyance Improvement (ii) Localized On-Farm Irrigation Systems Modernization

and Improvement B. Improvement o f Spate Irrigation, Water Harvesting and Soil Conservation (i) Small and Medium Spate Irrigation Improvement and

Rehabilitation (ii) Improvement o f Water Harvesting and Soil

Conservation in the Uplands C. Institutional Strengthening o f Water Institutions (i) P C U M A V C A C B for project coordination (ii) FUs/Irrigation Departments in MAI Regional Agriculture Offices for project implementation (iii) I A S for water monitoring and soil and crop management support (iv) GDVCWMU for water monitoring and related technica aspects (v) NWRA/Water User Groups for water monitoring, management and public awareness (vi) MWE for enhancing water pol icy formulation

Total Project Costs Total Financing Reauired

'hysical and Price Contingencies included in component costs.

Project Costs and Financing:

Project Costs

16.64 2.83

7.56

7.50

2.48 6.68

4.64

1.05

3.53

0.45

53.36 53.36

0.0

31.2 5.3

0.0

14.2

14.1

4.6 12.5

8.7

2.0

6.6

0.8 0.0

100.0 100.0

1 1.78 2.27

0.00

5.86

5.85

2.25 3.94

3.86

0.79

2.99

0.41

40.00 40.00

0.0

29.5 5.7

0.0

14.7

14.6

5.6 9.9

9.7

2.0

7.5

1 .o 0.0

100.0 100.0

Project quantities are based on surveys o f the l ikely mix o f investments required and experience o f taking up different investments under the predecessor LWCP. Total project costs, including contingencies, are estimated at USS53.36 million, o f which the foreign exchange component is US$27.62 mil l ion or 51.8 percent. Goods and services procured and imported under IDA-financed projects are exempted from import taxes and duties. Unit cost estimates for c iv i l works, equipment, vehicles and materials are based

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on prices used in recent contracts awarded under the previous LWCP, suppliers' quotes or rates prevailing in April 2003.

Project costs include allowances for both physical and price contingencies. Physical contingencies are applied at the rate o f 15 percent on civ i l works and 10 percent on goods and equipment. Price contingencies applied on base costs are derived from local and foreign inflation forecasts as follows:

Annual rates 2004 2005 2006 2007 2008

Local 8.0 5.5 5.2 5.1 5.0 Foreign 10.9 2.4 2.4 2.4 2.4

Total contingencies (physical and price) are estimated at about US$9.5 mi l l ion or about 22 percent o f total base costs.

Financing Plan

The project's total costs o f US$53.36 mi l l ion equivalent would be financed as follows: IDA would provide a total amount o f US$40 mi l l ion (75 percent of total). The GOY would contribute f rom its own resources about US$7.55 mi l l ion equivalent (14.1 percent o f total). Beneficiaries would contribute US$5.81 mi l l ion (10.9 percent o f total) by way o f cost sharing. Details o f project cost-sharing arrangements are detailed below. The project's financing plan is as follows:

Financier Amount

IDA 40.0 GOY 7.55 Beneficiaries 5.81

fUS% million)

Total 53.36

Proiect Cost Sharing

In order to reach the widest number o f beneficiaries possible, the project will (in Component 1) set a ceiling on the area to be provided with piped systems per beneficiary based on experience from the LWCP. Furthermore, a sliding-scale subsidy will be used to cover a range o f farmers, offering higher subsidies to smaller farmers. T h i s feature will support the CAS objective o f alleviating poverty as wel l as improving the management and conservation o f water resources. The following table was agreed upon with GOY and i s subject to three provisions given after (see paragraph below). Cost-sharing percentages provided below are those to be financed by the project. The residual percentage shares are the contributions by the farmer beneficiaries. They may apply to have their land covered within the maximum cap.

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Areas

PVC Pipes (i) Highland Areas

(ii) Lowland and Coastal Areas (including areas in Abs region and areas of' Taiz adjoining Tihama) GI Pipes Generally in Highlands only

(a) tripartite agreements will be signed by the beneficiary (neither to expand irrigated land with saved water, nor to grow qat) and the representatives of GOY through the MAVEU. These will be endorsed by WUGs, local agricultural cooperatives or local authorities;

Maximum size of Subsidy Percentage Farm area to be (sliding scale); Installation

Covered (Ha) Farm Size (Ha) project's share of (TA by FUs) under Project investment cost

5 0-2 70% Responsibility o f the 2-5 50% Farmer under Project

design and supervision.

12 0-6 70% Responsibility o f 6-12 50% Farmer under Project

design and supervision.

4 0-2 50 % Responsibility o f 2-4 30 % Farmer under Project

design and supervision.

(b) no project materials, especially pipes, will be issued to a potential beneficiary if their farm has qat trees or if the farmer intends to plant qat on his farm to be irrigated from project investments. In short, qat growers will be effectively excluded from participating in the proposed project; and

(c) beneficiaries would be expected to j o in WUGs wherever they exist, or become members o f the local agricultural cooperatives.

2. Key policy and institutional reforms supported by the project:

The project will scale up the successes o f the predecessor LWCP in the area o f irrigation improvement and watershed management, and extend coverage from eleven to fifteen governorates. The reforms and innovations supported by the project include:

(a) Irrigation Advisory Service (IAS). Under LWCP, the focus was on equipping farmers with the investments they needed, but little attention was paid to on-farm water management and crop husbandry. Under the proposed project, a key institutional reform item that would be supported i s the establishment o f an IAS in each o f the project f ield units. The I A S would be introduced to advise farmers on how best to use and maintain their localized irrigation technologies and improve on-farm surface irrigation systems for best results, including systems layout, operations, irrigation scheduling, crop-water requirements, and o n raising farm yields per cubic meter o f water used (i.e., more crop per drop).

(b) Intensive Groundwater Monitoring and Regulation. Under the project, intensive monitoring and evaluation activities will measure project impacts and al l information will be shared with farmers

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and the local communities. The systematic measurement o f pumping volume and patterns o f farmers’ wells will be the first such initiative in the country. The M&E program will be used for the supervision o f the beneficiaries’ compliance with the covenants. On a basin level, the recent Water L a w reinforced NWRA’s role in water monitoring and regulation. The project will provide TA for NWRA to conduct water resources monitoring at basin level and to begin to apply the legislation to control drilling rigs and drilling (see Annex 2 for M&E Program).

(c) Water User Groups (WUGs). All farmers participating in the project would be required to be members of some form of WUGs. Although these groups cannot be expected to exercise communal management o f the resource, their constitution or recognition in the project areas will represent a start in a process of capacity building through education, information sharing and dialogue that is intended to lead over time to a participatory management role in water resources.

3. Benefits and target population:

Benefits

The principal benefit will be water saved and applied to reducing groundwater overdraft. This i s estimated to reach about 47 mi l l ion m3 a year at full development, equivalent to about 1.8 percent o f the country’s renewable water resource and to cover net annual water requirements for a 1.25 mi l l ion urban population (see Section E l below).

The project will also generate income benefits. Incremental production benefits are expected from improved conveyance and on-farm irrigation systems, and from improved on-farm soil, water and crop management. This, in addition to increasing crop yields per cubic meter o f water, will reduce pumping and labor costs. There will also be incremental production f rom the water harvesting structures, spate irrigation and terrace rehabilitation, which in turn shall improve agricultural production and enhance soil conservation and groundwater recharge.

The non-quantifiable benefits o f the project are both environmental and institutional. The environment benefits include those arising f rom reducing the aquifer’s depletion speed. The institutional benefits would derive from strengthening key institutions in the irrigation sector. The most important benefits would consist o f strengthening community groups’ abilities to manage water for sustainability. Community groups will have gained some experience and capacity in water management. Among public institutions, the project will: (i) strengthen the on-farm water monitoring capacities o f the MAI FU; (ii) create the I A S which would represent a permanent extension and monitoring service within the MAI FU; (iii) strengthen the GDI and CWMU for irrigation policy formulation and monitoring capacity; and (iv) strengthen N W R A ‘ s field presence and M W E ’ s policy formulation capacity.

Target population

The project will target al l levels o f farmers utilizing groundwater for irrigation in rural communities where critical groundwater depletion is occuning. I t i s envisaged that some 7,000 farm families would benefit from the improved conveyance and an additional 700 from the on-farm irrigation systems. The project design allows farmer participation on a demand-driven basis. In order to maximize coverage and introduce a progressive targeting element, there will be a ceiling on the hectarage eligible for project support and a higher level o f subsidy for smaller farmers (see Section E2 below).

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The proposed project will target areas for irrigation modemization based not only o n the economic conditions and needs o f the farmers, but also on prospects for making a difference in improving irrigation efficiency and reducing overdraft o f groundwater resources, and the local population's willingness to participate.

4. Institutional and implementation arrangements:

The project will be implemented by the MAI as the agency responsible for irrigation and watershed management. The MWE and its NWRA will be involved and will receive technical assistance and institutional support. A small Steering Committee will be set up to oversee project implementation and coordinate between different institutions, reflecting the negative lessons o f a large inter-ministerial committee. The committee will be chaired by the Minister o f Agriculture and Irrigation (MAI) and composed o f representatives f rom MAI, Ministry o f Planning and Intemational Cooperation (MOPIC), Ministry o f Finance (MOF), and Ministry o f Water and Environment (MWE). The representatives shall be of General Directorate level and hgher. Representatives from the Agriculture Cooperative Union (ACU) and the Cooperative and Agriculture Credit Bank (CACB) can be invited depending on the issues being discussed by the committee. The PCU director will serve as the Secretariat. The terms o f reference o f the committee have been prepared.

The committee will be responsible in reviewing and approving the following plans submitted f rom the PCU: (i) recruitment o f intemational consultants; (ii) training programs; (iii) distribution o f vehicles; and (iv) proposed expenditures from the existing cost-sharing revolving h d (under the LWCP and the GSCP) to support salaries o f project staff. The committee will also review, on a frequent basis, the cost allocation o f these items and changes based on the results o f the recommendation o f supervision missions, mid-term and other assessment results.

Dai ly coordination o f implementation will be managed by the PCU. For the purpose o f assisting the MAI in the implementation o f the project and in order to ensure proper coordmation o f the execution o f the project, GOY will maintain the PCU, within MAI, with professional staf f in adequate numbers whose qualifications, experience and terms o f reference will be acceptable to the IDA. The PCU will operate under the auspices o f the Steering Committee. The functions o f the P C U will include, inter alia, responsibility for: (i) overall day to day management and coordination o f the project; (ii) procurement and disbursement processes and supervision o f the work o f the FUs; (iii) monitoring project performance and implementation progress in accordance with the targets and indicators agreed upon with the IDA; (iv) management o f the technical assistance components; (v) preparation (for submission to the IDA) o f annual work plans and updated procurement plans; (vi) entering into tripartite agreements for saving water with the beneficiaries and water users groups or other irrigation management bodies; and (vii) preparation (for submission to the IDA) o f the reports. K e y staff o f the P C U will consist o f a director, a procurement specialist, and a financial management specialist.

A s several departments within the MAI are involved, the P C U will report directly to the Deputy Minister o f MAI. In the 15 govemorates covered by the project, 10 field uni ts (FUs) within M A I ' s Regional Agricultural Offices will implement the physical investment components. Both the P C U and the F U s will inherit staff, offices and equipment from the existing units o f the MA1 structure o f the LWCP, w h c h are currently being financed from the revolving fund established from beneficiary participation and cost sharing under the previous LWCP. The FUs have developed and maintained valuable sk i l l s and institutional capacity that will enable the GSCP, unlike the predecessor LWCP, to get o f f to an early start. Of the FUs, seven will be successor uni ts to existing regional implementation uni ts established under the LWCP, and three new FUs wi l l be created in areas not covered by the previous project inside the Regional Agricultural

- 15-

Office o f MI. Within each of the FUs, the new I A S (see Seciton C2 above) will be set up. Of the three new FUs, two are the result of cleavage o f units under the LWCP, necessitated by the establishment o f new administrative units while the third in Hadramaut i s based on the Hadramaut Project Office, which has considerable experience with implementing IDA-funded projects. Moreover, within each o f the FUs, the new I A S will be set up. They will provide technical guidance to the beneficiaries on the options o f water-saving schemes available under the project, the use o f the irrigation equipment installed, the irrigation application techniques, water monitoring and the specific responsibilities o f the beneficiaries.

Imdementation o f a partnership approach in the project

The approach to groundwater conservation proposed by the project i s to work on a partnership basis with public formal and local informal or traditional institutions, with emphasis on decentralization at the local level and the responsibility of users to manage the resource sustainably, along with physical, technical and management support provided by the project. The experience o f the L W C P has led to the introduction of the partnership approach and the concept o f user responsibility for resource management. The following innovations in project design are intended to apply to this partnership approach:

(a) Tripartite Agreements on Project Scope and Responsibilities. The farmer and GOY through the PCU/FUs will agree on a series o f investments and management changes designed to save water. The farmer will commit himself to make his cash contribution and not to expand his irrigated area. Baseline information about the farm and water use would be included in the agreement to allow subsequent jo int monitoring. The agreement will be validated by the WUG, local agricultural cooperatives, or local authorities to which the farmer belongs. A standard form o f the agreement has been prepared and confirmed. Furthermore, GOY will ensure that n o irrigation equipment procured under the project be provided to the beneficiaries unless the tripartite agreement has been entered into between the beneficiaries, representatives o f GOY and WUGs, local agricultural cooperatives or local authorities. The agreement will include the eligibility criteria acceptable to IDA as set forth in the Project Implementation Plan (PIP).

(b) Irrigation Advisory Service (IAS). The FUs and the I A S will provide a full range o f technical guidance to farmers on options available for saving water and increasing agriculture production. They will assist the farmer and the WUG through regular visits to monitor achievements against the baselines established in the initial agreements. The I A S will also establish model farms to demonstrate the merits of improved water, soil and crop management. The terms o f reference o f the I A S including the arrangements have been prepared and confirmed.

(c) Public Awareness and Community Sensitization Activities. The P C U will coordinate the development o f models for public awareness campaigns on water saving in agriculture and, in general, on the benefits available from joining the project. These campaigns will be conducted in the project area by the FUs and the IAS, with the help o f NWRA staff where NWRA has a f ield presence. The terms o f reference o f the campaign and cost estimates have been prepared including the methodologies and types of media. The communication and community sensitization activities will be designed to reach women and children.

(d) Intensive Monitoring and Evaluation (M&E). To help farmers, user groups and FUs characterize the current water resource and irrigation situation, and monitor progress against baselines and targets, the project will set up on-farm monitoring programs including water measurement and irrigation patterns. The basic tool will consist o f f low meters and pressure

- 1 6 -

inducers on randomly selected wells (coverage o f about 15 percent) to measure pumped water volume and patterns. Selected farmers will be required to cooperate as a contractual obligation. The information will be collected by the FUs and shared only among the user groups at the initial stage, As the consensus and support increases, the data will be shared with NWRA to measure changes in the aquifer level and water quality. The information will also be used to establish the database for project M&E and to supervise the beneficiaries' compliance with the covenants. NWRA will also conduct groundwater monitoring using pressure inducers at basin level, satellite imaging analysis for some selected sub-basins to monitor the changes o f the irrigated areas, cropping patterns in coordination with the FUs, and water resource assessment and master planning for areas that have not been prepared. The collected data will also be reviewed and evaluated by IDA supervision missions.

(e) Water User Groups (WUGs). Under the proposed project, participating farmers would be required to be members o f a WUG or local agricultural cooperatives. The objective o f the groups will be: (i) to share information on water use, aquifer conditions and on ways to conserve water; (ii) to influence the size o f the irrigated area and the volume o f groundwater abstraction through the use o f peer pressure within the group; and (iii) to cultivate the notion o f shared water resources and common interests for enhancing water conservation for future generations. Although the groups may have quite a diverse status, they are referred to in the project preparation material as WUGs and this term will be used in th is report.

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

The imgation modernization and water harvesting components are basically a follow-on to the successfully completed LWCP, where various alternatives were tried, and only the more successful components are retained in the proposed project. The overall approach is, therefore, to build upon the successful components of LWCP, incorporating the lessons learned, and scaling up and improving water and soil conservation measures in farming areas and watersheds.

Alternatives considered were as follows:

(a) Integrated basin management approach under APC vs. scaling up and improving the successful water conservation components of LWCP under a regular investment project

Ideally, water resource management problems would be dealt with in a holistic approach. The latter was followed in the recently approved SBWMP where al l water sources and uses were considered, and a plan for moving towards optimal allocation was developed. In the Sana'a Basin, th is approach is essential, as there i s a strong conflict between urban and rural users for the same resource. Moreover, only a basin management approach, arbitrating water between sectors, can resolve the issue. I t is expected that over the 15-year l i fe o f the APC, the SBWMP will demonstrate a workable model for basin management that can then be applied to some other basins in Yemen, where urban-rural competition is a significant problem.

The possibility o f applying this approach to rural areas was considered. I t would have the advantage o f bringing al l sources, uses and users into the management scheme, and would, in principle, hold out the prospect o f achieving sustainable reductions in groundwater use. However, the information and institutional demands o f t h s approach are very high. A basin must be defined where the hydrogeology and hydrology are known, where al l sources and uses can be measured, where public and private institutions

- 1 7 -

exist that can express varying stakeholder interests, where technical and financial capacity to develop and implement water management plans exists, and where a regime o f rules, sanctions and appeal can ensure user behavior in line with the management plan. Although the potential to satisfy these conditions can probably be found in at least some locations in Yemen, it would take several years to test and develop workable models. Meanwhile, the groundwater overdraft problem i s worsening.

Therefore, on the basis o f the successful and tested approach under the LWCP, GOY and IDA agreed that the proposed project should scale up the L W C P model. The integrated basin management approach, however, was not completely abandoned. A modified version o f the sub-basidaquifer management approach at the community level i s proposed to be tested under the TA activity for which JSDF financing i s being sought. Technical and financial assistance will be provided for the local communities to manage water resources through users groups. At the same time, the capacity o f public institutions, such as NWRA, to monitor groundwater and regulate drilling rigs and registration o f wells will be strengthened under the GSCP.

For these reasons, an integrated basin water management approach under an Adaptable Program Credit (APC) was rejected. Instead, a regular investment project was proposed that will scale up the successful LWCP.

(b) A project excluding the highland zone (as opposed to a nationwide project)

Given the recent approval o f the SBWMP, the project considered excluding the highland basins. The argument for exclusion o f highland areas was that the SBWMP, which itself is a highland basin, would act as a pilot, and i t s lessons would provide a roadmap on how to proceed with other lughland basins.

However, this option was rejected for two reasons. First, as discussed above (Sections B3 and Dl), the problem o f the big city basins is more complicated and differs in many ways from smaller, purely agricultural water basins or aquifers. Second, the problem in rural areas is urgent, such as in Sa’adah, where the water table i s dropping at the rate o f up to 8 meters per year - and the highland areas simply could not be omitted.

(c) Focus on the poor small farmers vs. inclusion of large-scale farmers

The possibility o f limiting the target group to smaller farmers on equity grounds was considered. Larger farmers may, in any case, be reluctant to take part in the project as they have less need o f a subsidy for water-saving technology, and could be reluctant to accept constraints imposed on their pumping. During preparation, the conclusion was that, as far as possible, al l rights holders and users within an aquifer or sub-basin should be eligible. The objectives o f water conservation require that those who use the most water - which constitutes a larger part o f the problem - must also be part o f the solution. This conclusion contradicted the equity argument and led to a decision that al l farmers should be included in the project with a lugher ceiling o f area per beneficiary in order to bring both large and small users within the same WUGs and framework o f information sharing and cooperation. Although the workability o f this approach will depend a great deal on local power relations, it i s clearly the better alternative to include the main rights holders in the attempt to manage the resource. The project will test the approach for involving large farmers in water saving and aquifer conservation in order to achieve the i ts main objective.

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2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

I

Bank-financed Irrigation improvement, forestry, soil and water conservation

Urban water supply and sanitation

Basin water resources planning and management

Community-based water management

Land and Water Conservation Project (LWCP)-completed

Irrigation Improvement Project - under implementation

Urban Water Supply and Sanitation Project - under implementation

Sana'a Basin Water Management Project (SBWMP)-- under implementation

Taiz Water Supply & Sanitation Pilot Project

3ther development agencies

Water resources management

Watershed management Dutch support

UNDPDutch support to

DIDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), k

Progress (IP)

S

S

S

S

(Highly UnsatiI

Development Objective (DO)

S

S

S

S

ctory)

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3. Lessons learned and reflected in the project design:

General Considerations. Over thirty years o f project experiences in Yemen, two general lessons for designing and implementing projects have consistently emerged. First, the receptivitv o f the local population is key to project success. For this reason, support under the proposed project would be on a demand-driven basis, and it would work only in communities that can demonstrate some capacity to organize themselves for communal management efforts and where some trust between local communities and GOY exists. Second, simplicity o f project design i s key to project success as implementation problems increase when projects are more complicated. Specific lessons from past and present projects in the sector are discussed in the following paragraphs. Third, GOY'S commitment and ownership i s critical in ensuring the satisfactory completion o f the project in the form o f (i) adequate and timely counterpart fund contribution; (ii) effective coordination between implementing agencies; (iii) a functioning supervisory committee; (iv) retention o f trained civ i l servants; and (v) willingness to support cost-sharing arrangement with farmers.

Land and Water Conservation Project (completed). Th is project experienced init ial start-up delays, largely due to the complexity o f i ts design. A major restructuring resulted in a much simpler project that successfully introduced efficient conveyance, dstribution and micro-irrigation technologies through a decentralized structure and with cost sharing by beneficiaries. The LWCP demonstrated that it is possible to make significant water savings through improved irrigation technologies. Studies carried out under the L W C P indicate savings o f 13 to 20 percent o f pumped groundwater from improved piped-conveyance systems and more than 30 percent from localized on-farm irrigation systems. The institutional strengthening under the water resource management component was instrumental in training large numbers o f staff in water resource management.

The main lessons noted in the Implementation Completion Report (ICR) for the LWCP and incorporated into the proposed project are:

(a) project design and implementation arrangements should be kept simple;

(b) the challenge i s to ensure that saved water reduces the aquifer depletion speed and i s not used for m h e r expansion o f irrigation. Any successor project should incorporate measures to mobilize communal support to limit expansion together with the education, institutional capacity building, technology and monitoring tools needed to help both local people and the project to set benchmarks and measure and control outcomes. The project will fully address this lesson by establishing intensive monitoring and evaluation programs by which information on project impacts will be shared with local communities to sensitize and trigger their actions for water conservation;

(c) a successor project should take a broader approach to water saving than just physical investment in irrigation. I t should cover al l opportunities open to the farmer to save water or increase resources, including watershed management, rainwater harvesting and surface irrigation improvement. I t should also extend the range o f water-saving opportunities to al l aspects o f water, soil and crop management. This finding provided the rationale for the establishment o f the IAS;

(d) the project should support the sector reform agenda, while not being too ambitious - a number of covenants under the LWCP requiring licensing o f drilling rigs and levying o f fees on rigs proved unimplementable. The weight o f a project is too little to force through difficult changes and the timing o f such major changes i s unpredictable and not suited to the rhythm o f a project. Instead, the country dialogue should promote these changes. Institutional development and capacity

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building should be provided to implement policy changes introduced. Th is finding underscores the approach in the proposed project to support NWRA and MWE in implementing the recent policy reforms contained in the Water Law, but does not seek to promote difficult new reforms through a project vehicle, especially when they have an impact well beyond the project scope (i.e., on qat or on diesel pricing); and

(e) it i s not realistic to expect integrated water resources management with al l stakeholders' participation to be introduced right away o n a basidsub-basin scale. Instead, it should be piloted in areas with favorable conditions such as the limited size o f the basin, capacity o f public institutions and a demonstrated ability o f local users to engage in collective action to mitigate local environmental problems. After intensive discussions between the mission team and GOY, the project i s designed to scale up successhl components o f the LWCP with improvements, working with existing WUGs or similar local groups.

Sana'a Basin Water Management Project (under implementation). Th is project wil l apply an integrated water management approach to the very water-scarce Sana'a basin and address the problem of rural-urban water transfer within the basin. The project i s the first in Yemen to apply the basin planning approach and wil l provide strategic lessons for other major basins. The principal lesson from project preparation is that basin planning will place extraordinary demands on Yemen's institutions, and that in the Yemeni context, simpler approaches should be sought for addressing the groundwater challenge wherever possible. Specifically, in areas where resource use i s almost entirely agricultural, and where urban and rural demands are not in conflict, the approach can be simplified.

Urban Water Supply and Sanitation Project (under implementation). This project became effective in November 2002 and aims to upgrade and rehabilitate urban water supply and sewer systems to reduce unaccounted-for water (UFW) as wel l as increase coverage and treated wastewater reuse. The project also aims to establish local water and wastewater corporations to initiate autonomous management mechanisms for urban water supply and sanitation. Relevant lessons learned from the preparation and implementation of th is project include: (i) a more decentralized approach for water management delegating management fimctions to local organizations, (ii) providing adequate support for local units in charge o f project implementation, and (iii) a simple and straightforward project design with a few focused components. While the GSCP will focus on the enhancement o f irrigation water use efficiency and watershed management, this project is addressing urban water and sanitation issues. Both this project and the GSCP are complementary to each other for they address the entire range o f water sector issues in a comprehensive manner. Furthermore, the team has closely communicated with the MEW, which includes NWRA and NWSA, as wel l as the MNSIF and i t s local project office.

Taiz Water Supply and Sanitation Pilot Project (completed). This small project attempted to combine development o f a new water source in the countryside for transfer to the city with a participatory approach to water resources management in the rural source area. According to the ICR, the project was under-designed and could not have achieved these objectives given the resources and the time period allotted. Preliminary studies o f the resource and o f the stakeholders' institutional set up were not carried out. The project area was one where a long history o f rural-urban conflict over water made success in establishing a fair relationship between urban and rural demand virtually impossible. Nonetheless, the project did pilot a model for local water resource management.

The most important lesson learned from the Taiz project and reflected in the proposed project design i s that project areas have to be selected to maximize chances o f local cooperation and success. Within such high potential areas, the I C R lists the following essentials for community-based water management approaches,

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all o f which have contributed to the design o f the present project:

(a) an init ial proper understanding o f the water resource balance and a realistic goal for moving towards sustainable management, together with a water resources management plan (including rules and incentives) for reaching the goal; upfront stakeholder analysis that identifies rights holders, other users, the existing organizational and institutional structure, including the dynamic and scope for change; early involvement o f representative stakeholder institutions and the drafting o f an institutional development plan for stakeholder groups; and an enabling framework for decentralized management that empowers communities to manage the resource.

(b)

(c)

(d)

Irrigation Improvement Project (under implementation). Th is project became effective in January 200 1 and aims to rehabilitate and improve large spate irrigation facilities. The project also aims to establish sustainable spate irrigation management systems through W A S and decentralized management at the scheme level. The project i s an APC, and Phase I focuses o n Wadi Tuban in Lahej Govenorate and Wadi Zabid in Tihama area. The remaining areas would be covered by Phase II if the agreed milestones are passed. Relevant lessons learned from the preparation and first year o f implementation o f this project include: (i) the need to give adequate time for institution building, particularly for the participatory approach; (ii) the need to have M&E systems in place right at the start, and to have adequate baseline data; and (iii) the need to be very clear f rom the outset about cost sharing mechanisms. Although the GSCP will work only with small community-managed spate schemes, where the challenge i s very different, the lessons o f the Irrigation Improvement Project have been valuable for the GSCP's participatory approach and for the proposed M&E system.

4. Indications o f borrower commitment and ownership:

There are three indications o f Borrower's commitment and ownership. First, GOY formally requested IDA'S assistance for the proposed project following the successes o f the predecessor LWCP, which generated considerable benefits in terms of water savings to Yemen's farming communities. The success o f the LWCP prompted the MAI to request through the Ministry o f Planning (now MOPIC), a repeater project, retaining the services o f the LWCP P M U and providing funding for their preparation o f the initial Concept Note for the proposed project. GOY, furthermore, put resources to the formation o f a Project Preparation Team (PPT), reconstituted from some members o f the LWCP PMU, including the appointment o f a Project Director.

Second, GOY requested a PHRD grant of US$331,740 to help prepare the proposed project. Before the effectiveness o f the PHRD grant, GOY demonstrated i ts commitment to the project by agreeing with IDA that a s u m o f US$120,000 be reallocated from the Southern Governorates Rural Development Project (IDA Credit 2998-YEM) for technical assistance (TA) to the preparation o f the proposed project. The PPT has successfully prepared the feasibility studies (nine volumes o f reports) and the PIP, on which the project i s designed, in a participatory manner with the FUs o f Regional Agriculture Offices o f MAI.

Third, the GOY has further demonstrated i t s commitment by enacting a Water L a w in August 2002, which will provide the legal framework for water management in the country. I t has also established a new MWE in April 2003 to unify water resources planning and management. The Water L a w provides for assignment and regulation o f groundwater rights, defines the functions and authority o f the NWRA in water management, and provides for the delegation o f powers to decentralized management institutions for self-regulation and participatory management in the water sector. The MWE, especially NWRA, i s

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currently preparing the by-laws to detail the administrative requirements for implementation o f the Law. Since enactment o f the Law and i ts associated by-laws including the creation o f a new MWE are all essential conditions for the success o f the proposed project, they are also a strong signal o f commitment from GOY in support o f the new generation o f IDA- funded projects in the sector. These are aimed at combining urgent water-saving measures with the long te rm objective o f integrated water resource management.

5. Value added of Bank support in this project:

For a number o f years, IDA has been Yemen’s principal partner in the water sector. At the pol icy level, IDA has been the main extemal adviser on strategy, law and institutional development. This has included advice o n both the 1998 National Water Strategy and on the 2003 Water Law, and had resulted in analytical outputs such as the 1997 Yemen: Towards a Water Strategy (Report No. 15718-YEW and the 1999 Yemen: An Agricultural Strategy (Report No. 17973-YEM). IDA has also taken the lead in donor coordination in the sector. At the project level, IDA has financed many water supply and irrigation projects, including the LWCP. The portfolio and future lending program include a range o f investments in water in support o f the management framework that GOY has put in place. Thus, IDA possesses a strong comparative advantage in supporting the project, linking the strategic level with implementation o f the strategy.

IDA also possesses expertise in the complex social, technical and institutional issues regarding groundwater and soil conservation and participatory natural resource management that are raised by the project .

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Cost benefit NPV=US$14.5 million; ERR = 16.5 % (see Annex 4) 0 Cost effectiveness 0 Other (specify)

1. Economic (see Annex 4):

The economic analysis assessed the benefits o f the project using a withlwithout project methodology, based on estimated changes in water use, yields and cropping pattems. Net Present Value (NPV) and Economic Rate o f Retum (ERR) criteria were used to assess the economic viability o f the project. Benefits and cost streams, using shadow prices, were calculated from financial models reflecting the net incremental financial benefits as a result o f undertaking the project.

The analysis was undertaken separately per type o f investment (improved conveyance, localized irrigation, spate and water harvesting) and aggregated for the overall project. Economic benefits were calculated on the basis of (i) incremental crop production coming from enhanced retums from irrigated agriculture as a result o f more adequate and secure water delivery and improved technology; and (ii) reduced costs o f production under irrigation. For the quantification o f the expected increased production and reduced costs, the results obtained from individual farm models were aggregated according to their respective importance in each area, using shadow prices, to calculate the overall ERR o f the project.

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Additionally, through the adoption o f improved irrigation techniques and enhancing groundwater recharge, net water savings (NWS) were estimated after allowing for some expansion and crop diversification. N W S are expected to reach about 47 MCWyear, extending the useful l i fe o f the aquifers. This amount i s equivalent to the annual per-capita availability for one and a quarter mi l l ion o f urban people under the present circumstances in Yemen. However, the economic value o f the expected N W S was not included in the economic benefits due to the project's principle o f reserving saved water in the aquifers for resource sustainability and future generations' use.

Considering the above mentioned benefits, the overall ERR o f the project was estimated at 16.5 percent. Using a discount rate o f 10 percent, the project NPV i s US$14.5 million. In calculating the ERR for the project: (i) border prices for traded commodities have been calculated from world market price projections; (ii) 15.6 percent o f project costs were excluded as their benefits are dif f icult to quantify (institutional development, drinking water tanks and water recharge pits costs); and (iii) equipment maintenance cost was assumed to be 2 percent o f project investment costs.

Additionally, as the N W S could produce potential economic benefits use for drinking and irrigation purposes, the evaluation was also done to include the benefit f rom saved water using a shadow price for i t in the aquifer. This was estimated to be YR 34.80 /m3 based on a weighted average o f net return to inigation water (95 percent) and the value o f water for human and domestic consumption at the aquifer (5 percent). In this case, the ERR increases to 3 1.6 percent.

2. Financial (see Annex 4 and Annex 5): NPV=US$ 13 million; FRR = 15.8 % (see Annex 4)

Financial analvsis. An analysis was carried out to assess the financial viability o f the productive investments foreseen to be undertaken by farmers and, consequently, their l ikely willingness to adopt the proposed changes in their production systems. At the farm level, financial return calculations included the cost of the incremental on-farm productive investment and recurrent expenditure incurred for the adoption of the new water management practices and sustainable agricultural production systems promoted under the project. Benefits that would accrue to farmers include: (i) lower pumping and labor cost as a result o f saving water; (ii) a conservatively estimated increase in crop yields; and (iii) small shifts towards higher value crops. Saving in cost o f deepening wells as a result o f maintaining and improving the water table in the aquifers and extension o f the l i fe o f pumps as a result o f reduced use were not quantified. From investment in spate works and rehabilitation o f existing water harvesting structures in the uplands, benefits would accrue from a 2 percent crop yield increase and moderate expansion (1 7.5 percent) in irrigated areas based on improved management o f surface water. Financial prices at the farmgate were used in calculation of costs and revenues. Input and output prices were assumed at 2003 constant values, as was the real exchange rate throughout the 20 year time horizon used in the analysis. The financial discount rate was assumed to be 10 percent.

As expected, given the reduction o f irrigation costs and the level o f subsidy on investments under the project, the representative farm models show significant family income increases and relatively high financial rates o f return in spite o f the assumed l o w levels o f productivity increases and moderate shifts in crops. Expected increases in farmers' income, as a result o f project-financed farm investment, ranged from about 8 to 68 percent at full development. Increases in family income are greater in on-farm localized irrigation investments (an average o f 50 percent), followed by improved conveyance and spate and water harvestindsoil conservation investments (average 20 percent increase). The average financial rate o f retum (FRR) for the piped conveyance, localized on-farm irrigation, spate irrigation and water harvesting

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investment type beneficiaries was calculated separately as the crop mix and crop yield differs for each agro-ecological region. Average FRR would be 63.1 percent, 42.3 percent and more than 100 percent, respectively.

The results obtained from individual farm models were aggregated according to their respective importance in each area to calculate the overall FRR o f the project. Aggregated costs also included the farmer's incremental recurrent expenditures and most project investment costs, as wel l as those related to technical assistance and the project coordmating team. If subsidies on investments are included in the calculated costs, the FRR for the overall project i s 15.8 percent. This aggregate rate i s lower than individual farmer FRRs as subsidies are included. They constitute financial costs to GOY. Clearly, the subsidies are a factor in contributing to the high FRR obtained by farmers, together with the subsidized price o f diesel which constitutes a major part o f the farm operation costs.

Cost sharing. A major portion o f the credit i s directed to participatory irrigation modernization. The system o f cost sharing successfully piloted during the L W C P will be followed and expanded. Qualified farmers will participate in sharing the cost o f irrigation equipment installed on their farms either by themselves or with the assistance o f the project. Purchase o f irrigation equipment (PVC pipes, connectors, etc.) wil l be cost shared at 50 percent farmer and 50 percent project. If the area o f the farm is below the lower threshold then the subsidy i s increased to 70 percent by the project. Th is approach, while opening the way for larger farms to be included, nevertheless ensures that the larger subsidy be given to the smaller farms thus combining a progressive element with the groundwater conservation objective o f the project. For spate irrigation works and water harvesting structures, the contribution would be in kind and would amount to 20 percent o f the total cost.

Collectinp, the farmers' contribution. The Cooperative and Agriculture Credit Bank o f Yemen (CACB) is the only viable institution to handle the cost sharing transaction and collection o f the farmers' contribution. CACB carried out this function for a fee during implementation o f the LWCP. The arrangement will be continued under the proposed project.

Financial incentives and proiect obiectives. A prime objective o f the project i s to reduce the rate o f groundwater exploitation. This is considered in part as a public good and, as such, a high level o f subsidy i s justified. The subsidy levels have been set at levels that are reckoned to be adequate - but not too high - to attract farmer's interest. Increasing the farmer's share o f investment in the proposed improvement cost could result in not achieving th is objective. Experience under the predecessor LWCP is that at higher rates of cost sharing, farmers do not take up the package. In fact, at those rates, small farmers could not raise the funds to participate in the project due to their weak financial circumstances and difficulties in obtaining credit.

Fiscal Impact:

Total GOY's counterpart fund contribution to the financing o f the project i s envisaged at US$7.55 mil l ion over 5 years. Th is i s roughly equal to about US$1 mi l l ion per year, which does not represent a significant burden on GOY's budget. GOY has agreed to make i ts counterpart budget available each year.

3. Technical:

Irrigation efficiency improvement: The technical dimension o f on-farm irrigation modernization and groundwater conveyance using pipes has been tried and successfully tested under the LWCP. The pi lot irrigation modernization activities o f the L W C P provided valuable lessons. In most cases, it appears that

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the drip imgation system i s more problematic and more operation and maintenance (O&M) intensive than the bubbler system, although it is less costly on investment and more efficient on water savings and crop yields if used properly. Losses in the sprinkler system can be relatively high if used under windy conditions and operated during the hot period o f the day, which would adversely affect the water-saving objective of the project. However, a short-stem version o f the sprinkler o f the medium pressure type including l ow pressure micro-sprinklers more suitable for arable and line crops are available. They have much lower exposure to wind and i t i s anticipated that they will be wel l suited for the conditions in Yemen. These will be included under the GSCP, together with other techniques to be introduced on a pi lot basis.

Technical sumort for farmers' water use and agriculture production: Based on experience under the LWCP, it was clear that, in addition to installation o f improved conveyance and distribution systems, real water savings can be effected by improving on-farm water and soil management and crop husbandry. The project, therefore, includes the setting up o f technical teams (the IAS) to advise farmers in these areas.

Wadi bank protection materials: The water harvesting and soil conservation component o f the project would require use o f gabions and rock-filled wire baskets for water management in the wadi. The wire baskets are procured and f i l led with rocks before installation. Use o f local materials as a substitute for the wire baskets has been considered and given previous experience gained in the Emergency Flood Rehabilitation Project, th is alternative i s acceptable where the cost o f natural large-sized stones does not exceed that o f gabion baskets.

Rehabilitation and modernization o f spate and other structures: Small and medium spate structure, open pits and water harvesting terraces. have proved to be sustainable systems for centuries. Those traditional structures will be rehabilitated and improved to stabilize spate flows for more efficient and equitable water distribution down to the end within the existing command areas and to control soil erosion o f wadi banks. Under existing practices, earthen embankments need to be re-built after every flood and the sudden breach o f these embankments erodes wadi banks and farm fields. Tlie project will improve those structures with a concrete spillway, which i s designed to allow for controlled overflow to the downstream area. Sediment sluice gates will also be fitted to flush sediments downstream to the wadi. Agreements will be made between the beneficiary farmers and the FUs regarding farmers' responsibility for O&M and cost sharing before investment works commence. Regarding open pits for recharge, site selection will be carefully conducted considering topographical and hydrogeological circumstances.

Monitoring and evaluation (M&E) instruments: A range o f M&E instruments will be introduced at the basin, sub-basin and f ield levels to set the baseline and measure outcomes. The monitoring data will provide valuable information to: (i) examine project impacts; (ii) sensitize the farmers about aquifer conditions and community-based water management; and (iii) supervise the beneficiaries' compliance with the covenants. The monitoring will comprise three sets o f activities. First, monitoring o f farmers wells will be carried out by the IAS, together with the FU. The program will measure the quantity o f water pumped, monitor the pumping schedule, and monitor changes in groundwater level. The information would be used to inform farmers and to better characterize the aquifer. Th is monitoring would include: (i) the installation o f flowmetershlow totalizers on 1000 representative farmers' wells (about 15 percent o f the total beneficiaries' wells); (ii) the installation o f continuous groundwater level monitoring devices in 125 o f the representative f m e r s ' wells; (iii) monthly measurement o f water levels in the remaining representative wells; and (iv) the installation o f about 20 water quality monitoring devices in selected f m e r s wells and monthly field measurements of water quality parameters. Second, basin level monitoring o f aquifer conditions will be conducted by NWRA, with the installation of 100 continuous groundwater level monitoring devices, and 20 continuous groundwater quality monitoring devices on selected wells o f the existing nation-wide groundwater monitoring network that i s being operated by NWRA. T h i s wil l

- 2 6 -

contribute to the strengthening o f the nation-wide groundwater monitoring network. Third, NWRA will carry out monitoring o f changes in the irrigated area and cropping patterns for some selected sub-basins through the analysis o f satellite imagery (Spot and Landsat images). Moreover, the I A S and FUs will collect field data o f the beneficiaries' farms in terms o f irrigation areas and cropping patterns, and create a database to check the project impacts and farmers' compliance with the conditions o f the agreement.

4. Institutional:

4.1 Executing agencies:

The MAI would be the executing agency due to i ts successful records o f the previous LWCP and several earlier IDA-funded agricultural and irrigation projects implemented in the last three decades. I t has competent s taf f and is capable o f executing the project including fiduciary responsibilities. The implementation o f physical components, as wel l as M&E activities, will be carried out by the FUs under the Regional Agricultural Offices o f MAI. Some TA and capacity building components for the MWE and NWRA, as wel l as the Environmental Management Plan (EMP), would be implemented by the P C U in close consultation with those agencies under the guidance o f the steering committee (Section C4).

4.2 Project management:

Project management arrangements are described above (Section C4). They have been designed to build on existing structures, particularly the implementation units that performed wel l in the LWCP. The management arrangements also respect the decision by GOY and IDA to avoid ad hoc project structures - although the P C U and the FUs are dedicated project units, they are within the ministry structure and effectively form a project implementation department within the MAI and its branches rather than an ad hoc unit outside the normal MAI structure. The current PPT and FUs have adequate IDA project experience under the LWCP. The PPT has key professional staff, including a project director, a procurement specialist and a financial specialist acceptable to IDA and has been in place for the GSCP PCU.

4.3 Procurement issues:

The PCU in the MAI will be responsible for procurement planning and the full procurement cycle f rom preparation o f procurement documents through bid evaluation to contract award, and for overseeing the execution of contracts. The P C U will be formed by taking over the existing PPT which was originally established as the Project Management Unit (PMLJ) to implement the successful and recently completed IDA-funded LWCP. These two projects are almost identical f rom an implementation point o f view, thus using the available staffing base and logistics already established under the LWCP which will result in a smooth start up and compliance with IDA'S procurement procedures. The implementation arrangements for the GSCP will thus fol low identical and well established procedures from the earlier LWCP and, in particular, as related to the procurement unit o f the PCU. This arrangement o f a smooth transition between the two implementing uni ts carrying out practically identical projects will ensure continuity o f sound procurement practices which evolved under the LWCP with heavy supervision by IDA missions over an eight-year project cycle.

As per 1995 CPPR procurement thresholds, the Project Director i s authorized for procurements up to thresholds o f US$200,000. For procurements beyond US$200,000, approvals o f procurement recommendations will be taken by the statutory committee within MAI up to US$1.0 million, above which level they will be referred to the High Tender Board to a limit o f US$3.0 mi l l ion contracts. Contracts

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higher than this amount will required clearance from the Council o f Ministers.

A procurement plan and project implementation plan (PIP) have been reviewed and finalized for the f i rst two years o f implementation, during the follow-up mission o f October 2003. A procurement specialist and a financial management specialist with credentials satisfactory to IDA have been assigned to the PPT. An agency procurement capacity assessment o f the MAI has been conducted for the project. Based on the recommendations o f th is assessment, a short-term consultant will be engaged to help conduct procurement training. Capacity-building workshops will be conducted for PCU staff on IDA'S procurement guidelines within the first three months after effectiveness. Details o f procurement arrangements are explained in Annex 6.

4.4 Financial management issues:

The PCU will be responsible for the financial management and accounting aspects for the project. The financial management assessment during the preappraisal mission concluded that several improvements are needed, which are as follows: before effectiveness, a financial management specialist needs to be in place, accounting software needs to be acquired and training conducted. A qualified independent auditor needs to be appointed within s i x months after effectiveness, a financial manual needs to be finalized and the accounting software needs to become operational. These are summarized in the FM action plan in Annex 6. The successfd implementation o f the FM action plan is considered to be a condition for effectiveness.

5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis.

The environmental assessment was prepared by the client using consultants and included consultation with beneficiaries in the project area. During preparation, the mission also carried out f ield visits and consultation meetings, in which the preliminary findings o f the environmental assessment were discussed with project beneficiaries in Dhamar, Taiz, Abyan, Aden, Sa'adah, and Hadramaut.

Environmental Category: B (Partial Assessment)

The proposed project aims at water and soil conservation and i s expected to have significant positive environmental impacts, particularly in terms o f water and soil conservation, with only relatively minor negative impacts. All three components o f the proposed project have been subjected to environmental assessment. Two components have potentially negative, albeit minor environmental impacts: (i) modernization and improvement o f groundwater irrigation systems; and (ii) improvement o f spate irrigation, water harvesting and soil conservation improvement. Component (iii) dealing with institutional strengthening o f water institutions i s an institution buildmg one and i s essentially environmentally neutral.

The GSCP does not trigger the fol lowing Safeguard Policies, i.e. OP 4.04 Natural Habitats, 4.12 Involuntary Resettlement, 4.36 Forests, 4.37 Safety o f Dams, 7.50 Projects on International Waterways, 7.60 Projects in Disputed Areas, OD 4.20 Indigenous People, and OPN 11.03 Cultural Property.

T w o Safeguard Policies apply, although the issues are relatively modest. These are: (i) OP 4.01 Environmental assessment; and (ii) 4.09 Pest Management. Special provisions have been made under the proposed project's Environmental Management Plan (EMP), which has been disclosed in the country and in the Bank's InfoShop to comply with these two Safeguard Policies. In al l these cases, the Bank requirements are reinforced by corresponding Yemeni legislation as well.

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5.2 What are the main features o f the E M P and are they adequate?

An EMP has been prepared for the project and disclosed in the country and in the Bank's Infoshop. The EMP details the mitigating measures necessary to address potential environmental impacts, in particular, in relation to pest management and cultural property, although the latter corresponding safeguard pol icy i s not triggered in this project. These are measures involving the environment screening o f selected sub-projects demonstrating integrated pest management to reduce pesticides use and specific measures to protect cultural property found by chance during land trenching and excavations. These planned corrective measures under the E M P are adequate as n o significant adverse environmental effects are l ikely under the project. This is due to the fact that much o f the area under the project is not new land but existing irrigated area.

5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f final draft: February 2003

5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

Farmers, government officials in the MAI and i t s f ield offices, officials in the NWRA, MWE and some o f the governors of project governorates were consulted at the stage o f environmental screening. The initial draft o f the environmental assessment written up in the EMP was discussed with farmers and concerned government officials during the preappraisal mission. Stakeholders will be further consulted regarding the EMP during implementation o f proposed project activities to ensure that they are aware o f the sustainability dimension o f the EMP.

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP?

The implementation o f the environmental measures o f the EMP can be relatively easily monitored since al l environmental actions are linked to project components and to their performance indicators. Environmental project monitoring would fol low the regular monitoring events established for the project. Of particular importance is the inspection, already identified in the EMP, that is needed to ensure that GSCP interventions will indeed lead to reduced water consumption as planned. This requires regular and specific inspection o f sites where the project i s worlung in order to verify water savings.

A s part o f the GSCP monitoring process, GOY and IDA will joint ly ensure regular monitoring in supervision o f the EMP, including the verification o f the implementation o f mitigation measures. In order to strengthen the monitoring process, provisions were made for outside independent environmental inspection support in project supervision o n two occasions. The dates for supervision and monitoring o f results were set midway and at the end o f the project. However, in case there i s a requirement to have these inputs at an earlier date, for example in response to an environmental crisis or special challenge, then adjustments would be made.

Institutional responsibilities for environmental monitoring o f GSCP should be with the PCU, as shown in the table below.

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Environmental Monitoring and its Implementation

Project component 1

1 + 2

1 + 2

Environmental monitoring actions

Environmental inspection o f sites where project has installed new conveyance to verifv water savines.

Institutional responsibility for implementation MA1 (PCU) in cooperation with national environmental consultant

MA1 (PCU), Bank, in cooperation with national environmental consultant and int. consultant + MWE (former EPA) representative

MA1 (PCU), Bank, in cooperation with national environmental consultant and int. consultant + MWE (former EPA) representative

Environmental inspection o f project activities

Quantities

Once a year o f key sites

Mid-term inspection

End of Project inspection

6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

The key social issues relevant to the project are: (i) willingness among beneficiaries to self-regulate, i.e., to ensure saved water from improved irrigation efficiencies i s not used in imgation expansion; (ii) willingness among beneficiaries to j o in WUGs to cooperate o n water management; (iii) willingness among beneficiaries to share in the costs o f project investments; and (iv) willingness among beneficiaries to participate in capacity-building activities about water use and conservation. The social development outcomes expected from the project consist o f capacity development for local water users to manage water more efficiently and sustainably, awareness about water scarcity, and the initiation or development o f some local institutional capacity to begin to take joint action on water management.

A social assessment (SA) conducted at an early stage o f project preparation shows that access to land, water and to marketing facilities are among the major factors o f socio-economic differences in the project areas and in rural Yemen in general. Recourse to collective drilling, purchase o f water f rom neighbors, reduction o f irrigated areas, and sharecropping are among the most common coping strategies used by farmers. However, due to the high cost o f drilling, access to water remains the privilege of farmers with higher levels o f income. In order to reduce the cost o f water extraction, water users are often organized in informal WUGs around a well. Wel l owners are the main decision makers in terms o f water management. However, the group, as a whole, participates in decisions related to conflict resolution, time sharing, and maintenance o f wells. In some areas, local structures, such as a tribal grouping, have demonstrated an ability to organize themselves to change the water management behavior o f the whole group. Thus, the project's activity o f improving water management will start with the involvement o f individuals and informal groups (through activities such as participatory awareness campaigns and extension work), build up capacity and confidence, and test how far the adaptive capacity o f the group allows them to evolve towards decisions and actions to modify the water use behavior o f al l their members.

To help broaden the membership base o f WUGs, farmers who would want to participate in the project would be required to j o in WUGs, agricultural cooperatives or similar entities. The FUs and the IAS will receive training in social approaches and in communication, education and public awareness techniques so that they can help individuals and WUGs to begin developing the capacity for water management.

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6.2 Participatory Approach: H o w are key stakeholders participating in the project?

The SA has identified the key stakeholders and beneficiaries and has established their socio-economic profile. These include wel l owners, sharecroppers, land owners, landless laborers, f ield technicians, local councils, local natural leaders, and key players in the line ministries. The representatives o f the key stakeholders and beneficiaries have been involved in the project design at an early stage through participatory consultative methods and will continue to be involved throughout project implementation and monitoring. Before the IDA Credit becomes effective, an information-sharing workshop wil l be organized during which the project findings and proposals will be discussed with the representatives o f key stakeholders. Their views will be discussed and incorporated in a report which will be used as a guideline during implementation. This will ensure that project activities take place with the support o f the stakeholders thereby giving them ownership and ensuring the sustainability o f the project.

Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)*

6.3 How does the project involve consultations or collaboration with NGOs or other c iv i l society organizations?

The principal non-governmental partner o f the project wil l be the WUGs, agricultural cooperatives or similar entities, together with other local-level structures. These groupings will be continuously involved in project implementation, and especially in the education and monitoring program.

0 Yes 0 No 0 Yes 0 No

6.4 What institutional arrangements have been provided to ensure the project achieves i ts social development outcomes?

A social scientist with a background in extension, participatory communication and development, and in monitoring will j o in the PCU. The expert wil l participate in the preparation o f the awareness campaigns, the extension work and M&E. The expert will work in close collaboration with the MAI extension workers, FUs, I A S and identify and address any social issues that might arise during project implementation. S h e will also work in close collaboration with IDA'S social team.

6.5 H o w will the project monitor performance in terms o f social development outcomes?

The primary monitoring agency will be the communities themselves through participatory monitoring mechanisms. The social scientist within the P C U will work with the PCU M&E unit to set up a monitoring system. She will be systematically included in IDA supervision missions.

7. Safeguard Policies:

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7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

Of the ten Safeguard Policies, the project triggers only two and the issues are modest in size i.e., environmental assessment and pest management, all o f which will be mitigated through measures in the EMP (See i tem 5.2 above). There will be no land acquisitions or involuntary displacement. The project i s target free and will a im at reaching al l categories o f rural and farming communities. Hence, OD 4.20 and O P B P 4.12 will not be triggered.

F. Sustainability and Risks 1. Sustainability:

Sustainability o f the modernization and improvement o f groundwater irrigation system component o f the project would depend on the degree o f ownership assumed by the participating farmers. I t i s assumed that financial interest, particularly through beneficiary involvement in investment and O&M costs in the project, would lead to a higher degree o f ownership. This in turn would guarantee improved O&M o f works and facilities provided under the project. The latter has been designed to include the I A S in order to improve the performance of investments in terms o f water saving and agriculture productivity increase, and raise the sustainability of th is component. Sustainability o f the improvement o f spate irrigation, water harvesting and soil conservation component i s also ensured by beneficiary participation in the investment cost and subsequent O&M. I t i s also assumed that for al l project interventions, once the participants see the benefits resulting f rom groundwater management and soil conservation, particularly the financial benefits, they would continue on that course even after project completion.

Sustainability o f water savings in the form o f a permanently reduced overdraft o f groundwater to a steady state level is a tough challenge in most o f the project areas but is obtainable in some areas. In the aquifers o f the coastal, escarpment and western plateau regions, over-pumping and saline water intrusion i s s t i l l at the level to the extent that the intervention o f the project through irrigation improvement, watershed management, and irrigation expansion control could bring the resource back into balance. In the highland aquifers, conditions have deteriorated considerably, and restoration o f a balance o f recharge and abstraction volumes may not be feasible. However, in these zones, any intervention to reduce over-abstraction and aquifer depletion would help prolong the l i fe o f aquifers and provide relief for their receding water tables. The use o f buried PVC piped networks, for instance, will reduce the incentives o f farmers to extend the area under cultivation.

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2. Critical R i s k s (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

rom Outputs to Objective 'roject investments may not lead to xpected groundwater savings due to r igation expansion.

Ldequate financial mechanisms cannot be mnd for efficient and effective farmer ost sharing.

,ack o f sustained Government's ommitment to water sector reform in olicy, regulatory, and institutional spects.

:educed grounc..vater use threatens m e r incomes

H

M

M

._. . . ..

P

, ........ "

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Risk Mitigation Measure

The project will emphasize a partnership approach and common action o n water conservation. This will start with a preliminary social assessment o f the likelihood o f al l farmers in the project area, and there will be an up-front requirement that al l participants be members o f a WUG. Specific project measures would encourage cooperation (public awareness campaign, education about water conservation, sharing o f hydrological monitoring information, IAS). Other measures would clearly define monitorable obligations and enforceable penalties (the three-way agreement would spell out those conditions).

The financial mechanisms tried and successfully used under the LWCP will be used for the project. The PPT, MAI and CACB have agreed on the improved cost-sharing arrangement to ensure farmers' cost sharing.

The creation o f the new MWE and the passage o f the Water L a w and current efforts to finalize the by-laws for the law are a very important first step to improving management in the water sector. In addition, the Government has demonstrated its real commitment to reforms and improved water management by its financing o f the TIP and Sana'a Basin projects, both o f which involve commitments to sector reforms. The proposed project will continue in the same approach to improve efficiency and strengthen water institutions.

Given the inefficiency o f water use in most farming systems in Yemen, it is l ikely that packages that save water but increase incomes w i l l be available for most farmers. The I A S w i l l promote integrated packages, includmg management improvements. The relatively high level o f investment subsidy also increases farmers' returns which look attractive in the project financial analysis.

?om Components to Outputs Idequate institutional capacity for Iarticipatory management o f water in the roject areas cannot be developed under he project.

H

S

S

idequate institutional capacity o f the mplementing agencies cannot be leveloped under the project.

History and studies show that Yemen has excellent capacity in many areas o f the country for cooperating on water management. However, experience in recent years shows that capitalizing on this capacity to adapt it to groundwater management i s a slow and uncertain process. The new Water Law's provisions for devolving management to local levels where capability exists provide a framework for trying to develop models o f local self-management. The project will provide the basis o f responsible management with the three way contract that, inter alia, spells out the obligations o f the farmer in the partnership.

The project's implementation arrangement has been simplified in such a way that the MAI i s the primary implementing agency o f the project while the MWE and NWRA are cooperating agencies. Also, the project will provide capacity-building programs for those agencies.

Under the previous LWCP, the recurrent cost o f PMU and PIUs sometimes lagged, while the investment o f the counterpart budget was adequately provided. Assurances have been obtained from the GOY that counterpart funds for investment and recurrent costs would be made available on time.

ivailability o f counterpart funds.

herall Risk Rating isk Rating - H (High Risk), S (Substantial Ris

S , M (Modest Risk), N(Negligib1e or Low Risk)

- 3 4 -

Other External Risk Issues and Measures to Mitigate Them:

(a) Weak Implementation Capacity o f NWR4. NWRA, despite i t s technical strengths, suffers f rom management weakness. Evidently, expectations should not be too high, given the difficult Yemeni environment where both monitoring and regulation could be fiercely contested. Technical assistance from the SBWMP, as well as from other donors, would help strengthen NWRA's capacity. Furthermore, NWRA's role will be deployed at the level o f basin monitoring and management where it has particular strength.

(b) Technical Assistance (TA). There i s a possible risk to project implementation arising from the Government's reluctance to recruit and appropriately remunerate properly qualified TA specialists. Assurances have been secured from the Government to mitigate this risk.

3. Possible Controversial Aspects: The issue o f qat may prove controversial. The project approach i s explained above (Section B3). Effectively, the Government has n o ability to regulate qat, but it can advise citizens against it and can deny public funding for any aspect o f qat cultivation, which is the pragmatic approach followed in the project. I t should also be pointed out that qat, although a mild stimulant, i s not generally treated internationally as a prohibited or dangerous substance. I t i s illegal in only a few countries. Yemen consumes i ts entire production domestically, and there i s little scope for intemational trade in the product, nor for extraction o f its active ingredients. A s explained earlier, qat grows only under specific agro-climatic conditions. The project conditionalities seek to create disincentives for farmers wanting to grow qat. These will be monitored and evaluated by the PCU/FUs based on the tripartite agreement during project implementation.

G. Main Loan Conditions 1. Effectiveness Condition

The successfbl implementation o f the Financial Management Action Plan (as in Annex 6) for the purpose o f establishing a Financial Management System acceptable to IDA is considered to be a condition o f effectiveness.

2. Other [classify according to covenant types used in the Legal Agreements.]

H. Readiness for Implementation iXi 1. a) The engineering design documents for the f i rst year's activities are complete and ready for the start

0 1. b) No t applicable. o f project implementation.

Ixi 2. The procurement documents for the f i rst year's activities are complete and ready for the start o f

ixI 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory

0 4. The following items are lacking and are discussed under loan conditions (Section G):

project implementation.

quality.

- 35 -

1. Compliance with Bank Policies El 1. Th is project complies with al l applicable Bank policies. 0 2. The following exceptions to Bank policies are recommended for approval. The project complies with

al l other applicable Bank policies.

-4 r 3 k / - Satoru Ueda Vi jay Jaganndthan Habib M. Fetini

I Team Leader Sector Manager Acting Country Director

- 36 -

Annex 1: Project Design Summary REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Hierarchy of Objectives Sector-related CAS Goal: ditigating the rapidly imerging freshwater shortage hrough conservation o f nigated water, especially ;roundwater, and reduction in lquifer depletion.

'roject Development )bjective:

Improve water use efficiency and increase farmers return to water through adoption o f watei saving technologies.

Increase surface and groundwater availability through rehabilitation o f small to medium spate irrigation schemes, terrace rehabilitation, bank protection works and other water and soil conservation activities.

Key Performance indicators

Sector Indicators:

Iutcome I Impact ndicators: . .l Evidence o f water savings

during conveyance and application.

.2 Areas where farmers have adopted efficient on-farm under water management practices advised by IAS.

.3 Evidence that the irrigated area has not expanded where farmers have contracted not to expand it.

!. 1. Evidence o f the increased area o f the watershed protection and recharge enhancement in the project areas.

Data Collection Strategy

Sector1 country reports:

'roject reports:

I. 1 Reports o f the MAI; IDA supervision mission reports.

1.2 Reports o f the IAS/FUs/CWMU; Reports o f NWRA

1.3 Reports o f the IAS/FUs/PCU.

!. 1 Reports o f the PCU/FUs; reports o f IDA supervision missions.

Critical Assumptions from Goal to Bank Mission)

from Objective to Goal)

Public willingness to participate.

Sustained coordination between MA1 and NWRA.

Water Law which has recently been passed has appropriate frameworks in place for implementation o f the sector reforms.

Willingness o f farmers to participate in cost shared irrigation modernization as was the case under the recently completed LWCP.

Availability o f profitable water-saving improvements at the farm level.

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-- I. Establish a groundwater

management framework and institution to manage local water resources sustainably through capacity building of government water institutions and community groups.

Iutput from each :omponent:

.l Sustainable modernized irrigation systems operating efficiently at participating farms.

.2 Efficient on-farm water management programs implemented by farmers.

.l Water harvesting and soil conservation

I ~ . i . 1 . Evidence o f farmers’

participation in community-based water management.

i.2 Establishment o f water monitoring progams.

htput Indicators:

. 1 Hectares under pressurized modemized irrigation network: (i) piped conveyance o f groundwater used for imgation; (ii) hectares o f on farm localized pressurized imgation networks completed.

.2 Hectares under improved management programs supervised by the IAS.

.3 Number o f beneficiary farmers.

.4 Increased agricultural productivity per drop o f water.

.l Number o f water harvesting and terrace

.-“--._C1p ___.__-

I ~

,yMidrTerm and I C R Reports.

’roject reports:

. 1 PCU/FUs/IAS reports DA supervision mission eports.

.2 PCU/FUs reports; ID supervision mission

___

from Outputs to Objective)

nstitutional capacity for )articipatory management o f water can be strengthened in a imely manner.

2oordination between the mblic and community-based nstitutions can be established.

:armed interests in cost ;hared modernization o f rrigated agriculture :ontinues.

’roject targets the right )opulation for groundwater nanagement and water iavings.

fl&E i s adequate for ietermination of up-scaling )otential.

- 38 -

-~---- L̂ll

at selected sites.

3.1 Capacity building o f govemment water institutions and community groups to better manage and conserve water and soil resources.

3.2. Strengthened institutional, social, technical, and environmental mechanisms for water management.

I

Project Components I Sub-components:

Com onent 1- Modernization and Imwovement of Groundwater Irrigation Svstems

groundwater for irrigation (27,000 ha).

a) Improved conveyance of

b) Localized on-farm

rehabilitation and other works constructed and area (ha) benefiting.

2.2. Numbers o f small /medium spate and other works completed and arei (ha) benefiting.

2.3 Number o f beneficiaries.

3.1 Number o f staff trained and percentage o f capacity-building budget expended.

5.2 Number o f recruited IAS specialists and beneficiary farmers.

3.3 Number o f demonstration farms.

1.4 IAS/FUs/CWMU programs for on-farm water monitoring; NWRA program for basin water monitoring.

1.5 Number o f WUGs and participating beneficiaries.

;.6 Number o f beneficiaries who complied with the conditions in the tripartite agreements.

?puts: (budget for each omponent)

JS$15.47 million Base Cost)

lS$13.22

reports.

1.1 Project progress report; mission reports.

roject reports:

luarterly project progress reports; quarterly disbursement reports, semi-annual IDA supervision mission reports; and annual audit reports.

irom Components to htputs)

lanagement capacity o f nplementing agencies: MAI, [WE and NWRA.

unctioning cooperation etween public and xn”mnity organizations.

- 39 -

irrigation systems (1,44C ha).

Zomponent 2 - Imwovement of Spate

Irrigation, Water Harvesting and Soil Conservation

(a) Small and medium spate irrigation improvement and rehabilitation

b) Water Harvesting and Soil Conservation in Uplands (including terrace rehabilitation, wadi bank protection, soi conservation in wadis, or farm water storage, wadi bed pits for recharge).

:omponent 3 - nstitutional Strengtheninq I f Water Institutions

including typically: (i) civi l qorks; (ii) material, (iii) ehicles, (iv) TNTraining, (v lroject management expenses nd incremental operating ost)

i) Project Coordination, and nstitutional Strengthening o f 'CUMAIICACB.

ii) Project Implementation, & nstitutional Strengthening o f 'ield Units (FUs)/Irrigation Iepartments in the MA1 griculture Offices

ii) Establishment o f rigation Advisory Service [AS) for field water ionitoring and extension

US$12.02 million :Base Cost)

ITS$6.03 mil l ion

JS$5.99 mil l ion

JSS16.39 million

JS$2.16 mil l ion

JS$5.73 mil l ion

JS$4.20 mill ion

Same as for Component 1

jame as for Component 1

~ - - ~ - - .---- _ _ 3OY's commitment and users -esponsiveness to public iwareness campaign and M&E programs.

3OY's continuous support to ?CU/FUs.

- 40 -

services

(iv) Water Monitoring and Institutional Strengthening o f GDI/CWMU

(v) Water Monitoring, Public Awareness and Institutional Strengthening o f NWRA/WUGs

(vi) Support for MWE (provisional for TA & Training)

US$0.90 million

US$2.98 million

US$0.42 million

- 4 1 -

Annex 2: Detailed Project Description REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Project Cost by Sub-components

Component 1: Modernization and Improvement of Groundwater Irrigation Systems - Groundwater Imgation Conveyance Improvement

- Modernization and Improvement o f Localized On-farm Imgation System

Sub-total Component 1 Component 2: Improvement of Spate Irrigation, Water Harvesting

and Soil Conservation - - Small and Medium Spate Imgation Improvement and Rehabilitation

Improvement of Water Harvesting and Soil Conservation in the uplands

The Groundwater and Soil Conservation Project (GSCP) builds o n the achievements o f the preceding Land and Water Conservation Project (LWCP). The project aims to improve water management and increase irrigation efficiency in Yemen. The project will be implemented over a five-year period. The objective o f the proposed project i s to conserve water in farming areas, especially groundwater, improve recharge and protect watersheds by: (i) improving water use efficiency and increasing farmer retums to water, so creating the conditions that would al low farmers to reduce pumping o f groundwater f rom aquifers towards sustainable levels; (ii) increasing surface and groundwater availability through watershed management and groundwater recharge by supporting the rehabilitation o f small to medium spate irrigation schemes, bank protection works, water harvesting structures, and the rehabilitation o f terraces and other soil and water conservation investments; and (iii) supporting a groundwater management framework and institutions that will have the incentive and capacity to manage local water resources in a sustainable manner.

Local (US% mill)

4.83 0.93

5.76

4.51 '

4.54

To achieve its objectives, the GSCP will finance activities in three distinct project components, at a total cost o f US$53.36 million, as indicated below.

7.90 27.62

18.83 I 53.36

Subtotal Component 4 9.05

- Project Coordination and Institutional Strengthening of PCUiMAVCACB Project Implementation and Institutional Strengthening of FUsiImgation Departments in Agricultural Offices in Govemorates Establishment o f IAS for Water Monitoring, and Extension Services Water Monitoring and Institutional Strengthening of GDVCWMU Water Monitoring, Public Awareness and Institutional Strengthening o f " U G s

-

- - - - Institutional Strengthening o f MWE

1.50

3.57

3.43

0.51

1.65 1 0.27

Subtotal Component 31 10.93 Total Project Costs I 25.74

Foreign (US% mill)

11.81 1.90

13.71

3.05

2.96

6.01

0.98

3.11

1.21

0.54

1.88

0.18

Total (US% mill)

6.64 2.83

19.47

7.56

7.50

15.06

2.48

6.68

4.64

1.05

3.53

0.45

The project will be implemented by MAT and will support NWRA, MWE and WUGs. At MAT, project implementation will be coordinated by a PCU and carried out through Field Units (FUs). Of these FUs, seven existed under the LWCP. In addition, three new FUs are proposed, two (Hajjah and Al-Dale'a FUs) as a result o f reorganization o f the governorates, and the third (Hadramaut) to cover a larger geographical area under the GSCP. The structure o f the FUs, their core staff and other personnel, procedure o f selection and recruitment o f the FU directors and core staff, and their functions will remain largely unchanged from the LWCP.

- 4 2 -

The three GSCP project components are described below.

By Component:

Project Component 1 - US$19.47 million Modernization and Improvement o f Groundwater Irrigation Systems

The modernization and improvement o f groundwater irrigation system component consists o f two subcomponents:

1. Subcomponent - Groundwater irrigation conveyance improvement

The project will provide for the supply and installation o f PVC buried pipes and GI pipes to improve water distribution and reduce conveyance losses over a total area o f 27,000 ha, benefiting about 7,000 farms resulting in net water savings o f about 13 percent. Safeguards will be put in place to prevent the use o f savings for expansion o f irrigated areas. Th is will result in water savings to reduce the rate o f groundwater depletion. The specific sites for improved conveyance will be selected on the basis o f the criteria summarized below.

Selection criteria:

(a) The area where the piped conveyance i s to be installed should already be irrigated by groundwater; (b) Pump and aquifer characteristics and performance must be such as to ensure efficient utilization o f

the system (pump and engine must be capable o f delivering required discharge and additional head for piped system at the rate o f 80 percent without excessive draw-down);

(c) The soil and water conditions o n the farm must be assessed to determine if adding a piped-conveyance system would be beneficial. Farms with problem soils and heavy soils should be excluded;

(d) Farmers’ ability to participate in the project will depend o n their ability to pay in advance for pipes, trench excavation and installation works as per cost-recovery arrangements o f the project and to agree to take delivery o f pipes in installments o f 25 percent o f the quantities each time after installation o f the material received before;

(e) Other things being equal, preference will be given to farmers indicating interests in adopting water use o f efficient localized irrigation for fruits and vegetables and supplementary inrigation for f ield crops;

( f ) The farmer must be prepared to assist the I A S F U staff in monitoring his farm for at least three years to obtain extraction rates, pumping time, water quality and crops grown;

(g) Support would be given to farmers producing agricultural products contributing to food security in Yemen and exportable products;

(h) Farmers growing qat would not be eligible; and (i) Farmers should be members o f a WUG or be prepared to j o in one, or if th is i s not be possible, be

members o f an agricultural cooperative or similar entities.

- 43 -

Implementation Arrangements

The survey of the farm and layout design will be done by the FUs. The responsibility for installation o f the improved conveyance system will be with beneficiary farmers. The FUs will supervise the installation.

2. Subcomponent - Modernization and improvement of localized on-farm irrigation system improvement

In the areas where improved conveyance o f groundwater for irrigation has been provided under the LWCP or i s proposed under the GSCP, the project will provide for installation o f localized on-farm irrigation systems in a total area o f 1,440 ha in the 10 FUs, including drip irrigation system, bubbler irrigation, smallholder drip systems and micro-sprinkler systems, etc.

With a view to m e r improve on-farm irrigation efficiency, over and above the improved conveyance, it i s proposed to introduce land leveling o f farms in the Tihama and Hadramaut FUs. Precision land-leveling machines with laser attachments have been proposed (one for each o f the two FUs).

Implementation arrangements

Implementation will be simi lar to that proposed for improved (piped) conveyance o f groundwater for irrigation.

Project Component 2 - US$15.06 million Improvement of Spate Irrigation, Water Harvesting and Soil Conservation

The improvement o f spate irrigation, water harvesting and soil conservation component, to be funded by GSCP, consists o f two subcomponents:

1. Subcomponent - Small and medium spate irrigation improvement and rehabilitation

The GSCP spate irrigation improvement works comprise 33 small spate diversion works (each costing less than US$50,000), 22 medium spate diversion works (each costing from US$50,000 - 200,000) and 126 canal control structures (each costing f rom US$5,000 - 10,000). The project would also provide 105 wadi bank protection works comprising wadi bank protection walls and spurs made o f gabions and/or traditional systems using dry stones. The specific sites for small and medium spate improvement will be selected on the basis o f the criteria summarized below.

Selection criteria:

(a) Technical feasibility o f the site established after a reconnaissance visit to the site by the engineer; (b) The cost o f small and medium spate diversion works and canal control structures should not be

more than US$750-1000 per benefiting ha. For wadi bank protection works, the cost should not be greater than US$450 per benefiting ha; and

beneficiary participation in the cost sharing and O&M. (c) Willingness o f the beneficiaries exists to establish WUGs, and to organize, mobilize, and ensure

- 44 -

Implementation Arrangements

Quantity

95,764 meters 277 numbers 129 numbers

The design o f small and medium spate diversion works will be carried out by the PCU through a consultancy fm, and implemented through contracts, with the FUs providing construction supervision. For other smaller structures, the FUs will prepare the designs, BOQ and cost estimates and will implement them through local contractors.

Net Irrigable Incremental Area (ha) Area

548 548 2,5 19 44 1 1,019 178

(ha)

2. Subcomponent - Improvement of water harvesting structures and soil conservation in the uplands

53,541 cubic meters 11 6,456 cubic meters

630,000 cubic meters of

excavation

The subcomponent includes small structures in the Yemeni uplands for rehabilitation o f abandoned terraces, protection o f land from water erosion on secondary and tertiary tributaries o f wadis and protection of wadi banks and wadi beds from water erosion. Besides the structural measures proposed under the project for protecting wadi banks and their bed from water erosion, the project would also provide for vegetative measures to ensure wadi banks stabilization and protection o f terraces through tree planting and other similar measures.

17,057 families benefited

The project will also provide for on-farm water storage tanks and for construction o f traditional underground cisterns (pits) to collect rainwater for human, animal and crop consumption, and for recharging the groundwater. For recharging o f groundwater during the spates, the project would also arrange for excavation o f open pits, a traditional practice in Yemen. The site selection o f the open pits wil l be carefully conducted based on topographical and hydrogeological conlt ions. These works are summarized below.

Water Harvesting and Sol Conservation Works

Type of Structures

Rehabilitation of abandoned Terraces Wadi Bank Protection Works in Uplands Spate Breakers, Check Dykes, Vegetative measures for wadi Soil Conservation and Erosion Control Small on-farm Water Storage Tanks

- New Tanks - Rehabilitation of existing

Traditional Water Harvesting Structures to collect rain water for human, animal and crop consumption and for groundwater recharge and open pits for groundwater recharge

Tanks

The specific sites for water harvesting and soil conservation works will be selected on the basis o f the criteria summarized below.

Selection Criteria for water harvesting structures:

(a) Beneficiary farmers should be willing to participate in the implementation o f activities; (b) The sites should be technically feasible from point o f v iew o f construction;

- 45 -

(c) The benefits generated should be reasonable in relation to the cost o f construction]; (d) The works should be simple and capable o f being implemented by small local contractors

(e) The capacity of new on-farm water storage tanks should not exceed 150 m3; and (0 Farmers should be members o f a WUG or be prepared to jo in one. If this is not possible, they

preferably from among the beneficiaries;

should become members o f an agricultural cooperative.

' The cost o f wadi bank protection should generally not exceed US$450 per ha, construction o f on-farm water storage tanks should be US$35-45 per m3, and rehabilitation o f existing tanks should not exceed US$4-5 per m3

Implementation arrangements

The design and supervision o f construction o f a l l water harvesting and soil conservation works will be canied out by the FUs. Local contractors will construct the works.

Project Component 3 - US$18.83 million Institutional Strengthening of Water Institutions

The institutional strengthening of water institution component, to be funded by the GSCP, consists o f six subcomponents as follows:

(a) Project Coordination and Institutional Strengthening o f PCU/MAI/CACB; (b) Project Implementation and Institutional Strengthening o f F U s f i g a t i o n Departments in MAI

(c) Establishment of I A S for Water Monitoring and Extension Services; (d) Water Monitoring and Institutional Strengthening o f GDVCWMU; (e) Water Monitoring, Public Awareness and Institutional Strengthening o f NWRA and WUGs; and (0 Institutional Strengthening o f MWE.

Regional Agricultural Offices;

Most o f the institutions, whose operations will be reinforced by the GSCP, are existing organizations except for the I A S w h c h i s new. Details o f the sub-components are given below.

(a) Project Coordination and Institutional Strengthening o f P C U M A V C A C B through the provision o f works, goods, technical advisory services and training. The sub-component comprises logistical (including CACB office buildindequipment at Al-Dhale'a) and consultancy support to the existing PCU, including the implementation o f the EMP and stakeholders' consultation, and the CACB.

(b) Project Implementation and Institutional Strengthening o f FUs/Irrigation Departments in the M A I ' s Agricultural Offices. The sub-component comprises logistical (including FU office buildingdequipment at Hajjah, Al-Dhale'a and Seiyoun) and consultancy support to the existing FUs, together with extra support to the three FUs to be created under the project through the provision o f works, goods, technical advisory services and training.

(c) Establishment o f the I A S for Water Monitoring and Extension Services. The I A S will be established and supported through the provision o f goods, technical advisory services and training. This service will advise farmers on efficient irrigation practices to optimize use o f groundwater for

- 46 -

water, energy and labor savings as wel l as increasing yields. Demonstration farms will be set up at project cost. The I A S will also be responsible for evaluating the performance o f the irrigation systems implemented under the project, with results reviewed on an annual basis at mid-term and at I C R stages. The I A S shall also be responsible for water monitoring o f wells at farm level to estimate the water abstracted and monitor the groundwater level (see M&E Program under the Project). The sub-component provides for logistical and consultant support to set up and run the IAS, and for training and supervision.

(d) Water Monitoring and Institutional Strengthening o f GDUCWMU. Logistical and consultant support will be provided to GDYCWMU to strengthen its water monitoring and other irrigation-related technical capability (see Water Monitoring under the Project) through the provision o f goods, technical advisory services and training.

(e) Water Monitoring, Public Awareness and Institutional strengthening o f NWRA and WUGs. This subcomponent will comprise aid to NWR4 in water cycle monitoring (for details, see M&E Program under the Project) and support for a public information and awareness campaign o n groundwater management and soil conservation, and office buildindequipment at Sa'adah through the provision o f works, goods, technical advisory services and training.

Capacity building for WUGs: Capacity building support for WUGs will be provided by the FUs. Th is subcomponent will be implemented through the provision o f technical advisory services and training.

( f ) Institutional Strengthening o f MWE: this subcomponent will comprise logistical and technical support and capacity building to the newly established MWE for enhancing water pol icy formulation through the provision o f goods, technical advisory services and training.

M&E Promam under the Proiect

As three institutions will be working together on the M&E Program under the project, the activities are described below to give an overall picture. The M&E Program under the project will comprise three sets o f activities:

(a) Monitoring o f farmers' wells. This will be carried out by the I A S together with the FUEWMU. The program will: (i) measure the quantity o f water pumped; (ii) monitor the pumping schedule; and (iii) monitor changes in groundwater level. The information would also be used to better characterize the aquifer. This monitoring would include:

(i) The installation o f flowmetershlow totalizers on 1,000 representative farmer wells (about 15 percent o f the total beneficiaries' wells);

(ii) The installation o f continuous groundwater-level monitoring devices in 125 o f the representative farmer wells. The measuring devices consist o f pressure transducers with a built-in data logger that i s installed in the well;

(iii) The monthly measurement o f water levels in the remaining representative wells; and (iv) The installation o f about 20 water-quality monitoring devices in selected farmer wells and

monthly field measurements o f water quality parameters.

- 47 -

(b) Basin level monitoring o f aquifer conditions. This wi l l be conducted by NWRA, with the installation o f 100 continuous groundwater-level monitoring devices and 20 continuous groundwater-quality monitoring devices on selected wells o f the existing nation-wide groundwater monitoring network that i s being operated by NWRA. This wi l l contribute to the strengthening o f the nation-wide groundwater monitoring network.

(c) MonitorinP o f changes in irrigated area etc. NWRA will carry out the monitoring o f the changes in the irrigated areas and cropping pattems for some selected sub-basins through the analysis o f satellite imagery (Spot and Landsat images) o f selected basins. Moreover, the IAS/FUs will carry out field survey o f the beneficiaries' farms in terms o f irrigation area, cropping pattem and irrigation practice. I t wi l l create a database for checking project impacts and monitoring the compliance o f the farmers with the conditions in the agreement.

The monitoring program wi l l be implemented jointly by MAI and NWRA o f the MWE. The I A S within the 10 MAI provincial offices will be responsible for the monitoring o f the farmers' wells and farm areas. The data that w i l l be collected wi l l be input into a simple management information system (based on GIs) that will be established to manage the meteorological data (that will be collected as part o f th is project), as well as the groundwater monitoring data. The system wi l l be installed at the C W M U o f the GDI in MAI, as well as at MAI provincial offices. A consulting fm will help establish the system at the CWMU and provide basic training.

NWRA wi l l carry out the analysis o f the satellite imagery in coordination with the PCU and wi l l also be responsible to install and operate the continuous water monitoring devices that will be purchased for the existing NWRA groundwater monitoring network system at basin level.

The information collected by each party will be shared. Each party wi l l provide the data collected to the other parties on a monthly basis. Caution may be required in collecting beneficiaries' well data until the project establishes trust and a genuinely participatory monitoring mechanism.

The information collected wi l l also be used for FUs and IDA missions to monitor the project's progress and supervise the beneficiaries' compliance with the covenants, such as non-expansion o f irrigation area and no qat production.

Capacity building and training wi l l be provided on operation and installation o f continuous groundwater-quality monitoring devices and on quality assurance and quality control procedures for groundwater field-sampling procedures.

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Annex 3: Estimated Project Costs REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Project Cost By Component A. Modemization and Improvement o f Groundwater Irrigation Systems B. Improvement o f Spate Irrigation, Water Harvesting and Soil Conservation C. Institutional Strengthening o f Water Institutions Total Baseline Cost Physical Contingencies Price Contingencies

Local US $million

5.40

7.28

9.60 22.28 2.69 0.77

Foreign US $million

10.07

4.73

6.79 21.59 2.3 1 3.72

Total US $million

15.47

12.01

16.39 43.87

5.00 4.49

Total Project Costs' 25.74 27.62 53.36 Total Financing Rewired 25.74 27.62 53.36

Local Foreign Total Project Cost By Category US $million US $million US $million

I. Investment Costs 0.00 A. Civil Works 11.34 7.09 18.43 B. Equipment and Materials 3.38 13.10 16.48 C. Technical Assistance and Training 6.09 1.40 7.49 II. Recurrent Costs 1.47 0.00 1.47

Physical Contingencies 2.69 2.3 1 5.00 Price Contingencies 0.77 3.72 4.49

Total Project Cost: 25.74 27.62 53.36 Total Financing Required 25.74 27.62 53.36

I Identifiable taxes and duties are 0 (US$m) and the total project cost, net oftaxes, i s 53.36 (US$m). Therefore, the project cost sharing ratio is 74.96% o f

total project cost net of taxes.

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Annex 4: Cost Benefit Analysis Summary REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Summary of Benefits and Costs:

Table 1. Summary of Benefits and Costs

Activities

Benefits Irrigated Agriculture

costs On farm investments Other Project Costs

Financial Analysis (Million YR) (Million US%)

6,886 39.3

4,6 12 26.3 2,475 14.1 2,602 14.9

Incremental Operating Costs * (465) (2.7) Net Present Value ** I 2.274 13.0 1 15.8%

7,015 40.1

4,474 25.6 2,475 14.1 2,602 14.9 (603) (3.4) 2.54 1 14.5

16.5% 1 * ** At 10% discount Rate.

Production cost savings represent negative incremental operating costs.

Background

1. Project objectives. The project's objectives are to conserve water, reduce soil erosion, increase crop yield and farm income, promote cooperation among the water users, and strengthen the institutions dealing with irrigation services. I t s environmental benefits, although not easily quantifiable, come from enhancement o f aquifer recharge and reduced soil erosion. At present, in areas o f groundwater irrigation, the rate o f groundwater depletion in the aquifers i s increasing at an alarming rate. Annual decline o f the water table in many aquifers reaches four to seven meters per year. If these rates continue, the quality o f water would quickly deteriorate resulting in unsuitable water for both drinking and irrigation. In areas of rainfed and spate irrigation, which accounts for about 65 percent o f the total cultivated land, water shortages and flooding are the principal problems. In these areas, water distribution is often inefficient and flood damage i s frequent, due to the dilapidated condition of the spate and terrace irrigation structures, and the eroded state o f wadi banks and canals.

2. Project components. The project will install improved conveyance o f groundwater for irrigation in 27,000 hectares and modernize on-farm irrigation system with drip, bubbler and micro-sprinkles in 1,440 hectares. Moreover, the project would construct new small and medium diversion structures, rehabilitating existing ones, and conduct rehabilitation work for wadi bank protection and soil erosion control structures. Furthermore, the project would improve spate and terrace irrigation in a command area o f about 25,000 hectares (approximately 20,000 hectares o f land presently under cultivation and 4,440 hectares o f increased irrigation area) due to improved water distribution within existing command areas. The project would also construct 405 new o n - f m water storage tanks with a total capacity o f 53,500 m3 and rehabilitate 101 existing tanks, providing drinlung water for about 17,000 families. The project will also upgrade institutions serving the water sector.

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3. Project outcomes. The installation o f groundwater conveyance systems would benefit almost 7,000 farmers and would be given on a cost-sharing arrangement based on a sliding scale in favor o f small farmers. Assurances would be given by the beneficiaries not to engage in horizontal expansion o f their plots o r expansion o f the groundwater irrigated area. In areas where spate diversion structures and bank protection works would be constructed, the farmers’ holdings range from 0.5 to 2.0 hectares in the lowlands and 0.3 to 0.5 hectares in the uplands. The project i s expected to have a demonstration effect. It would promote WUG formation and would finance farmers’ workshops, conduct awareness campaigns and carry out demonstration works.

Economic and Financial Results

4. Financial Analysis. The financial analysis was carried out to assess the financial viability o f the productive investments to be undertaken by small farmers and, consequently, the attractiveness for the farmer o f the proposed changes in their production systems. The financial viability o f these investments was analyzed within the framework o f the most common production systems in the project areas and considering the small and medium size family households. Financial prices at the farmgate are used in the calculation o f costs and revenues. Input and output prices were assumed at 2003 constant values, as was the real exchange rate throughout the 20 year time horizon used in the analysis. The financial discount rate was assumed to be 10 percent.

5. At the farm level, financial return calculations included the cost o f the incremental on-farm productive investment and recurrent expenditure incurred for the adoption o f the new water management practices and sustainable agricultural production systems promoted under the project. Benefits that would accrue to farmers following the introduction o f water saving and production technologies include: (i) lower pumping and labor cost as a result of saving water; (ii) estimated increases in crop yields; and (iii) small shifts towards higher value crops. Savings in the cost o f digging deeper wells and replacing pumps as a result of maintaining and improving the water table in the aquifers were not quantified. From investment in spate works and rehabilitation o f existing water harvesting structures in the uplands, benefits would accrue from a 2 percent crop yield increase and a moderate expansion (1 7.5 percent) in imgated areas based on improved management o f surface water. The farmers’ incremental production cost in fertilizers and labor would be also part of their contribution in cash and kind in the case o f improved conveyance and modernized irrigation systems. In spate irrigation works and rehabilitation o f existing water harvesting structures in the uplands, farmers’ contribution would be in kind, representing 15 to 20 percent o f the cost.

6. below.

A summary o f the main characteristics and results o f these farm models are presented in the table

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Table 2 - Financial Results over Representative F a r m Models

7. As expected, given the reduction o f irrigation costs and the level o f subsidy to be provided to the investments under the project, the representative farm models show significant family income increases and relatively high financial rates o f return despite the assumed l o w levels o f productivity increases and moderate shi f ts in crops. Expected increases in farmers' income as a result o f project-financed farm investment ranged from about 8 percent to 68 percent at full development. Increases in family income are greater in on-farm localized irrigation investments (an average o f 50 percent), followed by improved conveyance, and spate and water harvestinglsoil conservation investments (average 20 percent increase),

8. Per family day o f labor returns was also derived for each farm model. Under the piped conveyance system, the family income would increase by 19 percent and returns per family day worked by 17 percent. Under the localized on-farm irrigation component, family income would increase by 50 percent and daily family labor returns by 37 percent. In the case o f spate irrigation, the expected increases are 50 percent and 37 percent; and in the farms with water harvesting investments, 20 percent and 4 percent. Moreover, due to the increased productivity and some shifts to higher value crops, on-farm employment in improved conveyance and localized irrigation would be increased by 6 percent from installation o f piped conveyance and by 4 percent under the localized on-farm irrigation systems.

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9. The average financial rate o f return (FRR) for the piped conveyance, localized on-farm irrigation, spate irrigation and water-harvesting investment type beneficiaries was calculated separately as the crop mix and crop yield differs for each agro-ecological region. As seen in Table 2, average FRR would be 63.1 percent, 42.3 percent and more than 100 percent, respectively. Although the incremental yield per hectare in farms under spate cultivation i s negligible compared to the other irrigated land, the higher level o f subsidy in the investment cost (80 percent) would result in a higher FRR. The higher level o f subsidy i s justified by externalities, as spate and diversion structures serve to reduce soil erosion and control floods, and assure a more even distribution o f water with downstream farmers.

10. The results obtained from individual farm models were aggregated according to their respective importance in each area to calculate the overall FRR o f the project. If subsidies on investments are included in the calculated costs, the FRR for the overall project i s 15.8 percent. A s incentives, subsidies constitute fiscal financial costs and is one main factor contributing to the high FRR obtained by farmers, together with the subsidized price of diesel which constitutes a major part o f farm operation costs. Aggregated costs also included the farmer's incremental recurrent expenditure and most project investment cost including technical assistance and project coordinating team costs.

11. Level o f financial incentives. A prime objective o f the project i s to reduce the rate o f groundwater exploitation which could be considered as a public good. Consequently, horizontal expansion o f irrigation is discouraged. This objective justifies subsidies to al low for high private FRR as long as social and economic benefits are greater than the economic costs involved. Increasing farmers' share o f investment in the cost could result in not achieving the objective. Even if farmers' contributions were to be increased by 20 percent, the attractiveness of the conveyance system could be reduced and farmers could show little interest in adopting the improved technologies. Furthermore, if farmer contributions were to be increased, small farmers could not raise the necessary fimds to participate in the project due to their tight financial circumstances and difficulties in obtaining credit.

12. Ensuring farmers reduce groundwater extraction. The major incentive to farmers to conserve groundwater is the investment subsidy under the project. This i s reinforced by four other project measures. First, the project will require a written commitment from participating farmers not to indulge in horizontal expansion. Second, the project will establish a team of post-installation I A S to disseminate improved water management practices and production technologies, and to inform the farmers o f the danger of over-exploitation of groundwater aquifers. Third, the project will promote the formation o f WUGs so that neighboring farmers can take joint action in rational utilization o f the groundwater. Fourth, an M&E system monitored by GOY and IDA will assess trends in groundwater extraction and communicate the key lessons to the WUGs.

13. Economic analysis. Economic benefits are calculated on the basis of: (i) incremental crop production coming from more adequate and secure water delivery and improved technology; and (ii) reduced costs o f production under irrigation. For the quantification o f the expected increased production and reduced costs, the results obtained from individual farm models were aggregated using the same aggregation criteria used for the financial analysis.

14. The Net Water Saving (NWS) i s expected to result f rom improved conveyance, from the adoption o f improved irrigation techniques, and from enhanced groundwater recharge from surface run-off through the construction and rehabilitation o f structures while preventing irrigation expansion. At full development, N W S (after allowing for some expansion and crop diversification) i s expected to reach about 47 MCMiyear. However, the economic value of the NWS was not included in the ERR calculation due to the project's principle o f non-use o f saved water for drinking and irrigation purposes, but was rather estimated

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to indicate i t s significant size o f the potential benefits.

15. The analysis was undertaken separately per type o f investment (improved conveyance, localized irrigation, spate and water harvesting) and aggregated for the overall project. Results are presented in Table 3 below.

Table 3. Economic Results Per Type o f Investment

Localized irrigation 207.6 I Spate irrigation I il;:; I 1,170.8

* Costs and benefits of construction and rehabilitation of small on-farm water storage tanks for drinking purposes and cost of water pits for groundwater recharge; and strengthening of water sector institutions (MAI, NWRA & GDI) were not considered for the economic analysis (MYR578.9 and MYR707.2 respectively, representing 15.6% of total project costs).

16. Considering the above mentioned benefits, Table 3 shows that the overall ERR o f the project was estimated at 16.5 percent. Using a discount rate o f 10 percent, the project NPV i s YR 2,541 mi l l ion (US$14.5 million). In calculating the ERR for the project: (i) border prices for traded commodities have been calculated from world market price projections; (ii) 24.5 percent o f project costs were excluded as their benefits are difficult to quantify (institutional development, drinking water tanks and water recharge tip costs); and (iii) equipment maintenance cost was assumed to be 2 percent o f the project investment costs.

Main Assumptions:

17. General approach. The financial and economic analysis has estimated the costs and benefits o f the project. Despite some measurement difficulties and with some assumptions, the project's benefits in the form o f crop production and amount o f groundwater water saved could be estimated. The economic and financial impact on agricultural productivity and farmers' income was analyzed with the help o f detailed farm models illustrative o f typical farming situations in the main ago-ecological zones. Models represent different farm sizes, with characteristic cropping patterns, water availability and costs o f water pumping, improved water use, and technology improvements. The models illustrate the effect o f investments on family income and returns per day of family labor. The results obtained from each o f the farm models are aggregated according to the relative importance o f the expected productive investment proposals as indicated by previous experience, in order to obtain an overall estimate o f the project's l ikely financial and economic rates o f return.

18. Yields. I t was assumed that crop production would increase 5 percent, 10 percent, and 2 percent under piped conveyance, modernized on-farm, and spate imgation systems, respectively. These fairly conservative assumptions regarding yield increases and changes in crop patterns reflect the risk-minimizing production strategies that normally characterize small farmers. The proposed IAS , besides instructing on O&M methods o f advanced water management and raising awareness about the need for water savings, would most probably induce higher productivity increases and crop diversification levels towards higher value crops than the changes assumed for th is evaluation. I t was preferred to maintain conservative

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assumptions to test the feasibility o f the proposed investments under the worse case scenario. Furthermore, crop productivity improvement and crop shifts were assumed to occur gradually and reach stability only after five years.

19. Land use. Under the constraint o f non-expansion o f irrigated areas and limitations on the use o f saved water, the evaluation exercise assumed no increase in cropped area under the improved conveyance and localized irrigation investments. Land use intensity was assumed to increase from 125 to 127 percent; and crop mix would only move from cereal and other l o w value crops toward higher value crops from the actual 59.3 percent to 62.4 percent o f the farm area. Under spate irrigation system, the command area and crop mix are not expected to change. Given the unreliable nature o f spate, few modem inputs are generally used by farmers. The small and medium spate improvement works proposed under the project would distribute water more evenly without concentrating too much water in particular areas, secure water f low downstream and prevent bursting o f flood water when the existing earthen ogmas are destroyed. Based on previous experience, a moderate increase in spate irrigated area i s expected and land under spate irrigation would expand by about 17.5 percent.

20. Water use efficiency. Based on MAI data and the experience o f the predecessor project LWCP, piped conveyance o f groundwater and localized on-farm irrigation systems save around 12 percent and 30 percent o f irrigation water, respectively. The proposed 27,000 ha under the improved conveyance, with an irrigation intensity o f about 125 percent, is expected to save around 47 mi l l ion cubic meters (MCM). This amount i s equivalent to the annual per-capita availability for one and a quarter o f a mi l l ion people under the present circumstances in Yemen. I t was assumed that 80 percent o f the saved water would remain in the aquifer, and farmers who increase their cropping intensity or adopt high value crops in their cropping mix would use the remaining 20 percent. Although the unit cost o f extracting water i s expected to decrease under the project scenario compared to the without project situation, the lack o f recharge-extraction balance in the aquifers involved impedes the estimation o f the decrease in pumping heads. Therefore, it was conservatively assumed that the unit cost o f extraction o f water would remain the same under both scenarios.

21. Prices. World Bank projections were used to estimate 2003 constant economic prices o f traded inputs and outputs. Given that the value o f the Yemen Rial i s currently determined in the open market and trade restrictions are low, it was assumed that domestic prices tend to correspond to border economic values. For the purposes o f economic analysis, border prices were estimated for main tradable consumed and produced by the project: export parity prices were calculated for exportables, and import parity prices for urea, TSP and potassium chloride. While the project would increase on-farm and off-farm employment in the project areas, unemployment and under-employment are not expected to vary significantly. Therefore, shadow prices for rural labor were estimated at 50 percent o f the prevailing market wage rate, while for shl led labor, the market rate was assumed to reflect its opportunity cost. Financial prices were equated to economic prices in the case o f other tradable and al l non-tradable goods, and a standard conversion factor o f unity was applied toward the project costs and benefits. In the case o f water, a shadow price o f YR 34.81” was estimated, based on a weighted average o f the return to water per m’ pumped for the crops being cultivated in the project areas (95 percent) and the market value o f water pumped for domestic purposes (5 percent). I t should be noted that the economic benefits o f the saved water were used only as a reference due to the project principle o f not using saved water for drinking and irrigation purposes.

22. Crop and F a r m Models. With these assumptions, average crop budgets from different agro-climatic zones under with and without project scenarios were developed using FARMOD software.

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Sixty three crop models and 26 farm budget models for piped conveyance o f groundwater (20 models); localized on-farm irrigation systems (3 models), spate improvement and water harvesting (3 models) were constructed. The project benefits and costs are analyzed based on the incremental net family revenue o f these farm models and the water saved compared with traditional practices. For improved conveyance o f groundwater, farmers are expected to bear 100 percent of the installation cost, 50 percent o f PVC and fittings, and 60 percent of the cost of GI and fittings. For on-farm localized inigation investment, farmers would finance 100 percent o f the installation cost and 50 percent o f the cost o f the localized unit. In the case o f farmers below 2 ha in the highlands or 6 ha in the costal areas, farmers' contribution would only be about 30 percent.

23. Economic benefits o f the project would be the result of: (i) higher water use efficiencies; (ii) moderate increases in agricultural production; (iii) reduced costs o f irrigation; and (iv) improved farmers' income. From the analysis o f a sample o f farm models, it can be concluded that farmers would see a significant increase in their on-farm income, mainly as a result o f the pumping water saving investments financed under the project. Project investment would also result in an improvement in labor productivity and food security for these households contributing towards poverty alleviation. The economic value of the net water savings was not included in the ERR calculations, but estimated only as a reference to indicate its high potential values.

24. Project cost, including farmers' contribution, has been estimated at about US$53.36 million, of which beneficiaries' contribution would be about U S 5 . 8 million, or about 11 percent, with GOY contributing about U S 7 . 5 mi l l ion (14 percent) and IDA credit financing about US$40 mi l l ion (75 percent). Excluded from the economic analysis were: (i) the costs and benefits o f the construction o f small on-farm water storage tanks and rehabilitation o f existing water tanks, given that the expected social benefits are difficult to quantify; (ii) the costs and benefits from investments for digging water pits in wadi beds for groundwater recharge, considering that the environmental benefits are also difficult to quantify: and (iii) the costs and benefits for strengthening the water sector institutions (NWRA, MAI and GDI), as their benefit would be both difficult to quantify and would be available not only to project beneficiaries, but to the community at large.

25. Sustainability of project benefits is expected to be high, given that the increase in water use efficiencies would have significant effect on farmer incomes and extend the useful l i fe o f groundwater resources. The sustainability of the investment would be strengthened by improvements in social and human capital through the creation o f water users' organizations, training, technical assistance, and better access to the project's technological services. The combination of improved provision o f production-related support services, public awareness campaigns and assistance to mitigate over-exploitation o f water resources i s expected to increase the effectiveness and efficiency o f public expenditure.

Sensitivity analysis / Switching values of critical items:

26. Sensitivity Analysis. The project's ERR i s robust under different adverse circumstances.

(a) (b) (c)

(d)

If the project's total incremental cost increases by 20 percent If the project's total incremental benefit decreases by 20% If the project's total incremental benefit decreases by 20%

If the project includes the benefit o f net saved water in aquifers

13.6% 13.0%

10.6% 3 1.6%

and i ts total incremental cost increases by 20%

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Annex 5: Financial Summary REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Years Ending

1 Year1 [ Year2 I Year3 I Year4 I Year5 1 Year6 I Year7 Total Financing Required

Project Costs Investment Costs 2.4 13.1 14.9 13.0 8.4 0.0 0.0

Recurrent Costs 0.3 0.3 0.3 0.3 0.3 0.0 0.0 Total Project Costs 2.7 13.4 15.2 13.3 8.7 0.0 0.0

]Total Financing 2.7 13.4 15.2 13.3 8.7 0.0 0.0 I Financing

IBRDll DA 1.9 10.9 11.4 9.6 6.2 0.0 0.0 Government 0.7 1.8 1.9 1.7 1.3 0.0 0.0

Central 0.7 1.8 1.9 1.7 1.3 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.1 0.7 1.9 2.0 1.2 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 2.7 13.4 15.2 13.3 8.7 0.0 0.0

Total Financing Required Project Costs

Investment Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0

IBRDll DA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financing

Main assumptions:

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Project cost a n d financing rules are summarized below.

Areas

Costs. Total project costs, including contingencies, are estimated at US$53.36 million, o f which the foreign exchange component is US27.62 mi l l ion or 52 percent. Goods and services procured under IDA-financed projects in Yemen are exempted from import taxes and duties. Unit cost estimates for c iv i l works, equipment, vehicles and materials are based on prices used in recent contracts awarded under the previous LWCP and suppliers’ quotes or rates prevailing in April 2003.

Maximum size of Farm Size (Ha) Subsidy Percentage Beneficiary share Farm area to be Covered (Ha)

Contingencies. Project costs include allowances for both physical and price contingencies. Physical contingencies are applied at the rate o f 15 percent on civi l works and 10 percent on goods and equipment. Price contingencies applied on base costs are based on local and inflation forecasts as follows:

Annual rates 2004 2005 2006 2007 2008

PVC Pipes (i) Highland Areas

Local 8.0 5.5 5.2 5.1 5.0 Foreign 10.9 2.4 2.4 2.4 2.4

. I

under Project

5 0-2 70% 30%

Total contingencies (physical and price) are estimated at about US$9.5 mi l l ion or about 22 percent o f total base costs.

(ii) Lowland and Coastal Areas (including areas in Abs region and areas of Taiz adjoining Tihama) GI Pipes Generally in Highlands only

Financing plan. The total project costs o f US53.36 mil l ion equivalent would be financed as follows: IDA would provide a total amount of US$40 mi l l ion (75 percent o f total); GOY would contribute f rom i t s own resources about USS7.53 mi l l ion equivalent (14.1 percent o f total); and beneficiaries would contribute U S 5 . 8 1 mi l l ion (10.9 percent o f total) by way o f cost sharing.

2-5 50% 50% 12 0-6 70% 30%

6-12 50% 50%

4 0-2 50 % 50% 2-4 30 % 70%

Proiect cost sharing. The cost-sharing percentages provided below are those to be financed by the project; the residual percentage shares are the contribution by the farmer beneficiaries.

For spate imgation works and rehabilitation o f existing water harvesting structures in the uplands, the contribution would be in kind, and would amount to 20 percent o f the total cost.

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Annex 6(A): Procurement Arrangements REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Procurement

Procurement in Yemen i s currently govemed by L a w No. 3 o f 1997 for government tenders, and by Comprehensive Regulations introduced by the Prime Minister’s Decree No. 234 o f 1997. This legal framework provides for decentralized procurement in the central and local government, state enterprises and governorates. The existing Project Preparation Team (PPT) i s currently nested in the PMU of the predecessor project, the LWCP, in the MAI in anticipation o f the start-up o f the proposed GSCP at which stage the new Project Coordination Unit (PCU) will use the existing staffing structure and infrastructure facilities established under the LWCP to enable an early start-up for the GSCP. The PCU will operate as part o f the MAI to, among other things, manage al l procurement for the project within the mandate o f the Ministry. The P C U will, furthermore, act as a technical body providing administrative support and coordination o f project implementation including planning and monitoring functions. I t will be responsible for preparation o f a l l progress reporting and donor coordination for the project. The PCU will, furthermore, be responsible for preparation o f procurement documents to bid evaluation and contract awards, in addition to overseeing the execution o f contracts. This will cover al l procurement under the IDA Credit, including ICB, N C B and direct contracting for small works, in addition to the procurement o f goods and services.

Use of Bank Guidelines and Standard Documents

Procurement o f works and goods will be carried out in accordance with the Guidelines for Procurement under IBRD Loans and IDA Credits (World Bank, January 1995, Revised January and August 1996, September 1997 and January 1999). The Bank’s Standard Bidding Documents (SBD) will be used for al l procurement under Intemational Competitive Bidding (ICB) and under National Competitive Bidding (NCB) procedures (with modifications acceptable to IDA). Simplified documents would be prepared for use under the Credit for the procurement o f small quantities o f goods, relatively l o w value works and small consulting contracts. National Shopping (NS) procedures would be used where there are at least three capable national suppliers for readily available off-the-shelf goods. The Bank’s Standard Bid Evaluation Form-Procurement o f Goods or Works (April 1996) will be used to evaluate bids.

The procurement o f services will be carried out in accordance with the Guidelines for the Selection and Employment o f Consultants by the World Bank Borrowers (January 1997, revised September 1997, and January 1999 and M a y 2002). The Standard Form o f Contracts will be used for contracts above US$200,000 equivalent. A simplified version o f the standard RFP and contracts will be used for contracts below US$200,000 equivalent for short-term assignments and individual consultants. For the selection process o f firms, the sample Form o f Evaluation Report for the Selection o f Consultants (October 1999) will be used.

Advertising

A General Procurement Notice (GPN) will be published in United Nations Development Business (UNDB) and in at least two national newspapers with wide circulation. The G P N wil l provide a description of the Project and will list al l contracts for Goods to be awarded under I C B and for consultancy services estimated at more than US$200,000. The GPN will be advertised in the UNDB not less than two months prior to the advertisement o f the first Specific Procurement Notice (SPN). The G P N will be updated annually for a l l outstanding procurement.

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The SPN for the main contracts (the description o f which has been covered by the GPN) will also be published in the UNDB and in at least two national newspapers with wide circulation. The SPN w i l l provide a description o f required goods and services and invite expressions o f interest for the services and for the consultants’ long l is t f rom which the short l is t will be composed for IDA’S no objection. Bidders who had expressed an interest in the GPN would be notified directly by the PCU.

Procurement Capacity and Implementation Arrangements

(a) The MAI, through the L W C P PMU and the current GSCP PPT, has considerable experience with Bank Procurement, which was obtained through the predecessor project to the GSCP, i.e., LWCP implementation, and GSCP preparation. The GSCP has evolved from the successful components o f the LWCP, which have been combined for implementation on a larger scale, covering most parts o f the country, under the proposed project. The Ministry has had experience over many years in the implementation o f several other projects, some o f which have successfully closed and others which are ongoing such as the Irrigation Improvement Project and the Southern Governorates Rural Development Project.

(b) Procurement under the proposed GSCP will be carried out through the PCU, which i s a streamlined version o f the PMU, which carried out the earlier LWCP. The P C U will be staffed by a procurement specialist with qualifications to manage IDA-funded procurement in addition to an international consultant engineer and a procurement specialist with experience o n simi lar IDA-funded projects in Yemen. The P C U director, who also has procurement experience, and the financial management specialist wil l also participate in the process o f procurement management. On large contracts, a committee will be formed within the MAI, with participation f rom other departments o f the MAI.

(c) Procurement Thresholds: Procurement thresholds based on 1995 CPPR are as follows:

(i) The Project Director approves contracts not exceeding US$200,000. (ii) The MAI approves contracts between US$200,000 and US$1 million. (iii) The High Tender Board (HTB) approves contracts between U S $ I mi l l ion and USS3.0 million. (iv) The Council o f Ministers approves contracts above US$3.0 million.

(d) The PPT staff, including procurement and FM specialists, has been put in place. The P C U will use the existing staffing structure o f the PPT established under the predecessor L W C P and i t s staf f (procurement specialist and financial management specialist) have been in place. Capacity-building workshops will be conducted for the PCU staff on Bank procurement guidelines and disbursement procedures within the first three months after effectiveness.

(e) The current PPT (former P M U o f LWCP) has furfhermore been continuing i t s activities o f the LWCP, even after the closure o f the IDA Credit, using funds accumulated from the revolving fund and cost-sharing contributions paid by beneficiaries under the LWCP. Thus, the procurement process has not stopped but is continuing with almost the same experienced staff in place. The current PPT has therefore considerable procurement expertise resulting f rom inheriting the staffing, logistics and expertise established by the PMU o f the predecessor project. The mission has concluded, from interviewing staff o n location and in the regional FU of ices and beneficiaries, that the transition from the current PPT to the proposed project’s PCU would be very smooth w i th the in-house expertise built over eight years o f implementation o f the first project being retained for the

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fol low-on GSCP and, in particular, as related to the procurement unit o f the PCU.

( f ) The implementation arrangements for the GSCP will follow identical and well-established procedures f rom the earlier LWCP and, in particular, as related to the procurement unit o f the PCU. T h i s arrangement o f a smooth transition between the two implementing units carrying out practically identical projects will ensure continuity o f good procurement practices which evolved under the LWCP with heavy supervision by IDA missions, extensive staf f training and inputs o f expatriate technical and procurement consultants over eight years o f project implementation. Ths i s considered an ideal arrangement for the project, particularly during the start up period, thus avoiding loss o f time during the initial period o f implementation.

(g) The current PPT (originally LWCP PMU) has a complete set o f a l l IDA’S procurement guidelines and standard bidding documents which it is fully conversant with through i ts own implementation o f the L W C P and which will be passed o n to the GSCP PCU at project effectiveness.

(h) A Procurement Capacity Assessment o f the MAI was conducted in M a y 2000 and updated in October 2003. The Ministry uses committees in most o f i t s procurement processes with the Department o f Contracts and Tendering (DCT) serving as the secretariat o f the Tendering Committee. The Tendering Committee o f the MAI reviews al l bid evaluations and proposed contract awards above US$200,000 equivalent. T h i s i s a result o f a standing agreement o f several years between GOY and the World Bank for IDA-funded projects for the PCU to be able to process procurements below this threshold. Procurement above this amount will be handled by the P C U and the M A I ’ s DCT. Bids up to a limit o f US$l.O mi l l ion equivalent will be processed within the authority o f the MAI while bids above th is limit and up to US$3.0 mi l l ion equivalent will have to be cleared by the High Tender Board (HTB), while contracts above this limit will have to be cleared by the Council o f Ministers.

(i) The Country Procurement Assessment Report (CPAR) o f December 2000 has reviewed the performance o f IDA-assisted projects, including procurement by PMUs (para 6.03 o f CPAR), which are normally staffed by full-time consultants, a director general, an implementation and procurement specialist, a financial specialist, a secretary in addition to various other logistical support being provided. These uni ts are set up to provide efficient procurement services although their freedom o f action i s somewhat limited by GOY’S interpretation o f their function and, to some extent, to the l ow approval threshold under which they operate. The CPAR acknowledges that the P M U pays i t s staf f salaries comparable with those paid in the private sector. Staff, other than core staff, i s also provided to the PMUs such as the staf f attached to the regional implementation offices of the MAI to carry out project implementation in the provinces such as the FUs under the project. The CPAR fbrthermore states that it i s envisaged to reintegrate PMUs into beneficiary ministries to reduce pay disparities, however, this would need to be resolved at the country level.

Procurement Plan

The preliminary procurement plan was completed at preappraisal in June 2003 and the final procurement plan was agreed during the mission in October 2003. The procurement plan is for the first two years o f project implementation and will be updated annually.

- 6 1 -

Procurement Methods (Reference to Table A)

Works: Civil works will consist o f (i) small f ield offices for the three new FUs, a branch o f i c e for CACB at Al-Dale’a and a branch office for the NWRA in Sa’adah with the average size o f each contract estimated to vary between US$lOO,OOO and USS200,OOO and dispersed in four remote locations; (ii) rehabilitation of various existing and construction of new small structures for water harvesting, bank protection, soil conservation, o n farm-water storage, small canal structures, small to medium spate diversion structures, and traditional water harvesting structures, water storage structures, a l l in about 160 remote sites, with the average size o f each contract being between US$5,000 - 50,000 and a maximum contract size o f about USS200,OOO equivalent. Due to the small size o f these individual contracts, having a total value o f about U S 9 . 5 million, and their dispersed geographical locations, they would not l ikely attract the interest of foreign construction companies. Therefore, a l l c iv i l work contracts will be awarded under NCB procedures, packaged together to the extent possible, with interested foreign bidders st i l l eligible to submit bids. Contracts less than US$200,000 per contract up to an aggregate amount not to exceed U S 1 7 . 5 mi l l ion may be procured by NCB procedures. Contracts with a size above USS100,OOO equivalent will be required to be advertised in at least two national newspapers. Smaller c iv i l work contracts below this amount up to an aggregate amount o f USS1.5 mi l l ion may be procured using simplified bidding procedures and documents, and an announcement through posting in public areas. For contracts less than US$50,000 per contract up to an aggregate amount not to exceed USS1.5 mil l ion may be procured under lump sum, futed-price contract awarded on the basis o f quotation obtained from three qualified domestic contractors in response to a written invitation.

Goods: Goods contracts will, to the extent possible, be packaged together for similar products. Bid packages above an estimated size o f USS200,OOO equivalent up to an estimated aggregate contract value o f US$20.0 mi l l ion will be procured using I C B procedures. Bid packages o f estimated size between USS50,OOO and 200,000 per bid up to an aggregated amount not to exceed USS1.5 mi l l ion would be procured using N C B procedures, while contracts and purchase orders below US$50,000 can be procured using national or intemational shopping procedures up to an aggregate amount o f approximately US$270,000 with at least three quotations being solicited from local suppliers, when these goods are available locally at competitive prices; otherwise, quotations would be solicited f rom at least three intemational suppliers f rom at least two different countries. Under ICB procedures, bids offering goods manufactured in the Republic o f Yemen (ROY) would be granted a margin o f preference o f 15 percent, where the provisions o f Appendix 2 to IDA’S Procurement Guidelines would be followed for comparison o f prices o f local and imported goods.

Services: For consultancies above an estimated contract value o f US$lOO,OOO equivalent, the selection method would be Quality and Cost-Based Selection (QCBS) and IBRD’s Standard Request for Proposals (RFP) will be used. The short l is t of consultants for services less than US$lOO,OOO may comprise entirely national consultants. For al l other consultancies, the Consultants’ Qualifications (CQ) and Single-Source Selection (SS) methods would be used for short-term contracts and for contracts below US$50,000. For al l consultancies above US$200,000, a request for expression o f interest would be advertised in the UNDB and in local newspapers. Auditors will be selected using the Least-Cost Selection (LCS) procedures. For contracts with individual consultants, the Selection of Individual Consultant method according to IDA’S Guidelines will be used.

Prior Review: The first three contracts in each category and each procurement method (works, goods and services), irrespective of the estimated contract value would be subject to IDA’S pr ior review, in accordance with the applicable guidelines. Thereafter, a l l procurement o f goods and works, which is subject to I C B procedures, would be subject to IDA’S prior review. Furthermore, any works contract o f a

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size greater than US$200,000 and goods contract o f a size greater than US$lOO,OOO would be subject to IDA’S prior review. All consulting contracts over an estimated size o f US$lOO,OOO with firms and USS$50,000 with individuals, as wel l as single-source contracts, and the first three RFP under any selection method for services would be subject to prior review. The prior-review process would cover about 60 percent o f total works, goods and services contracts, which would be reasonably achieved under the circumstances o f the project where there are many small and scattered civ i l work contracts which fal l below reasonable review thresholds. All other contracts would be subject to post-review on a random basis during supervision missions and procurement audits.

7

8

9

I O

Table B1 PROCUREMENT PLAN (FIRST TWO YEARS)

machines with laser attachments Equipment sets for FUs and Irrig. G 1 ICB Prior 8/1/2004,10/1/2004,6/30/2005 Department in Agricultural. Ofiices , Material for vegetative measures for G I NCB Prior 8/1/2004, 10/1/2004,7/30/2005 Soil Conservation and Erosion Control i) PVC pipes & fittings (700 kms) G I ICB Prior 1/1/2005 ,3/1/2005,9/30/2005 ii) GI pipes & fittings (175 kms)

I LCB Prior 4/l/2004/6/1/2004-l23 I12004 (1 of4)

Monitoring equipment G

* Estimated cost base prices were deleted at the request o f GOY

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Table C

7/1/2005,9/30/2005

10 Installation of Monitoring Stations o f CW NCB Prior 4/1/2004,7/1/2004,9/30/2008

G=G& NWRA &CWMU

CS- Consulting services CW= Civil Works QCBS= Quality & Cost Based Selection

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Procurement Responsibility

The PCU, which will be based in Sana'a, will include a procurement officer as part o f i t s team to be recruited competitively. The PCU will be responsible for: (i) all procurement activities; (ii) supervision o f work procedures at the FUs to ensure quality control and efficienthamparent fiscal procedures; (iii) preparation and updating o f procurement and disbursement plans; and (iv) incremental operating expenses and recurrent budget requirements. The P C U will be responsible for advertising bids, issuing bidding documents, opening and evaluating bids and awarding contracts. All requests for IDA's n o objection will be directed through the P C U director. Consulting f m s or individuals will be contracted, as needed, to prepare engineering designs, specifications and bidding documents in addition to supervision o f implementation of contracts undertaken centrally by the P C U or, for the smaller contracts, by the FUs. The init ial 2-year Procurement Plan is presented in Table B1 above.

Procurement Training

The procurement assessment carried out during the preappraisal mission has indicated that both the h4AI and the PPT have considerable previous experience with IDA-financed projects and procurement guidelines, However, in order to strengthen the PCU, the Ministry's procurement staff and TenderindAwarding Committees and the FUs in procurement, on-the-job training program will be provided under the project (as part o f the training program) by recruiting a short-term procurement specialist and conducting training workshops on procurement.

Recommended Actions (Procurement Capacity Assessment)

The following actions are recommended:

(a) Maintaining and further building the capacity o f the current PPT, which i s the former PMU o f LWCP, including the procurement unit which was a vital and effective part o f the PMU. It i s envisaged that an intemational consultant will be engaged to support the procurement and implementation arm o f the PCU. T h i s practice which was used under the L W C P proved to be of immense importance in propelling the procurement actions under LWCP after a slow start up during the first two years.

(b) Providing further training on procurement by engaging a short-term procurement specialist, in addition to the on-hands training given by the intemational and national consultants who will be engaged under the project.

(c) Following IDA's guidelines for al l procurements, with some simplification to the procedures and documentation being permitted for the small-community type contracts.

(d) PCU to hold two procurement workshops within the f i rst three months after project effectiveness.

(e) PCU to review procurement plan prior to effectiveness and introduce any modifications to the plan prepared by the PPT after obtaining IDA's no objection.

(0 IDA to launch three supervision and procurement review missions in the f i rs t year after IDA Credit effectiveness.

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Procurement methods (Table A)

Procurement Method’ Expenditure Category ICB NCB Othe: N.B.F.

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

Total Cost ~~

,I. Works

2. Goods

3. Services

0.00 19.02 0.00 4.53 23.55 (0.00) (15.72) (0.00) (0.00) (15.72) 16.64 3.05 0.27 0.00 19.96

(14.89) (2.83) (0.24) (0.00) (17.96) 0.00 0.19 6.87 0.00 7.06

4. Training (0.00) (0.15) (4.97) (0.00) (5.12) 0.00 0.00 1.20 0.00 1.20

I’ Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies.

Includes civ i l works and goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

5. Incremental Operating Cost

Total 1

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(0.00) (0.00) (1.20) (0.00) (1.20)

(0.00) (0.00) (0.00) (0.00) (0.00)

(14.89) (1 8.70) (6.41) (0.00) (40.00)

0.00 0.00 1.59 0.00 1.59

16.64 22.26 9.93 4.53 53.36

Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent)

I' Inc lud ing contingencies

Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

Expenditure Category 1. Works

2. Goods

Contract Value Threshold

(US$ thousands) > = 200 < = 200

< 50

>= 200 <= 200

3. Services(Firms) => 100

4. Services (Individuals) > = 50 < 50

5. Miscellaneous 6. Miscellaneous

N C B (aggregate < = 17,500)

Simplified N C B (three quotations, aggregate

<=1,500)

I C B N C B

(aggregate <=1,500)

NS/IS (aggregate <270)

QCBS CQ ss

Section V o f Consultants' Guidelines

Section V o f Consultants' Guidelines

Contracts Subject to Prior Review (US$ millions) All contracts

Tirst three contracts and al l contracts > = 0.2

First three contract

All contracts 'irst three contracts and al l

subsequent > 0.10 First three contracts

All contracts First three contracts

All SS contracts All contracts.

All SS contracts.

Total value of contracts subject to prior review: US$27.219 mi l l ion

Frequency of procurement supervision missions proposed: One every 6 months Overall Procurement Risk Assessment: Average

(includes special procurement supervision for post-review/audits)

"Thresholds generally differ by country and project. Consult "Assessment o f Agency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement Arrangements REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Staffing

Accounting Policies & Procedures

Intemal Audit

Extemal Audit

Reporting and Monitoring

Information System

Overall Control Risk

Financial ManaPement

1. Summary o f the Financial Management Assessment

Moderate Project Director i s experienced with Bank-financed projects. The newly appointed Financial Management Specialist seems knowledgeable and willing to leam and implement. He wil l be assisted by an assistant. The accounting policies and procedures are not yet in place. No Intemal Audit function. However, MOF and MOPIC representatives conduct a 100% ex-ante audit over all expenditures. Wil l ensure that an independent and a qualified private auditor i s hired in accordance with TOR upon which the Bank granted No-Objection and following the WB procurement guidelines. Financial Monitoring Reports will be designed by the newly appointed F M person who wil l be trained on the system by the software company. There i s no MIS in place, however the water engineer has advised that in the plan there i s an MIS system that will be in place at the start o f the project. Procuring, implementing, and training PCU staff on the purchased solution. There i s a big need for continuous I T support.

Moderate

NIA

Moderate

Moderate

High

Moderate

Executive Summarv and Conclusion

An assessment of the financial management (FM) arrangements for the project was undertaken on June 24-25, 2003 to determine whether the FM arrangements for the project are acceptable to the IDA. The assessment concluded that the project's current FM arrangements does not meet the Bank's minimum requirement and accordingly an FM action plan was agreed with the Borrower. I t s successful implementation is considered to be a condition for effectiveness (see schedule below).

Actions

Control R i s k s

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Strendhs and Weaknesses

Strengths

The following strengths were identified during appraisal and we intend to rely on them during project implementation:

Comments

Weakness

- - I approach was very positive. senior management to create a sound FM system. 2- This i s a continuation o f a previous groundwater project. I The lessons can be learned from the previous project

-

Resolution

Also, the following weaknesses were noted

1- The absence o f a proper computerized financial accounting system. 2- Lack o f financial system and proper capacity.

A new Accounting Software needs to be in place.

Capacity building o f PCU is required in the fiduciary

Accountinp Svstem

The project’s Accounting Practices will fol low the International Accounting Standards, including cash basis o f accounting and double-entry bookkeeping, which would be reflected in details in the accounting policies and procedures o f the PCU’s Financial Manual. Local accounting software will be selected and implemented for the project and will assist in generating quarterly FMR.

All accounts and supporting documents will be maintained at the PCU office. The finance officer will develop a chart o f accounts reflecting al l project activities and enabling automatic generation o f FMR and project financial statements. The TORS and job descriptions o f the financial management specialist have been prepared.

Internal Control Procedures (ICP)

The FM Manual, to be adapted by the project’s finance officer from the ongoing Rural Access Project, will define adequate control procedures and proper segregation o f duties among incompatible functions, including dual check signatories, preparation o f monthly general ledger closure, and preparing monthly bank reconciliation for a l l project bank accounts. All financial transactions incurred directly by any o f the f ield offices from i t s own resources has to be pre-approved by the PCU. Intemal control guidelines will cover financial management, disbursement and procurement. The fact that there are currently too many layers o f checking and approvals may serve against the project by delaying the disbursement process and cany a negative effect.

Risk Mitigating Measures

To compensate for the above-mentioned issues, a combination o f “ring-fencing’’ the project, hiring a competent and experienced financial management person to handle the FM, and close supervision by IDA, especially during the first s i x months, will a l l help reduce the level o f risk to an acceptable level.

(a) Annual audit for the project will be handled by a private, qualified, and independent auditor. TOR

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for the assignment will clearly reflect the project’s exact needs and nature. For instance, the auditor should ensure that FUs are operating properly.

(b) Close supervision by IDA through the resident mission office in Yemen. This will entail quarterly missions (at least in the first year o f the project) to review work done by the FM specialist and to ensure that the developed system i s maintained in a consistent manner. Identified financial management risks would also be continually evaluated and appropriate remedial measures taken during the IDA supervision missions.

Proiect Manapement and Coordination

Implementation o f the project would be undertaken by the PCU which would be responsible for the management o f a l l project activities and implementation o f a transparent FM system. The P C U would also be responsible for overall project financial management and accounting. I t would maintain books of accounts for the project, prepare and disseminate financial statements and FMRs, and ensure timely submission of the audit report. Under this principle, the administration o f expenditures and procurement under the SDP will take place.

Flow of Funds

ARer the effectiveness o f the Credit Agreement and to ensure that funds are readily available for the project implementation and to separate and not commingle funds from various sources, the project would open a Special Account (SA) for IDA funds denominated in U S dollars which wil l be opened at a the Central Bank o f Yemen (CBY) and will be operated by the PCU but through continuous coordination with the MOF and MOPIC. Deposits into and payments f rom the SA will be made in accordance with provisions in the Credit Agreement. Withdrawal applications and replenishments o f the SA will be prepared and sent by the P C U carrying the authorized signatures. Each withdrawal application wil l be signed by two authorized representatives. Authorized signatories’ names and corresponding specimen signatures will be submitted to IDA.

Project financing provided by GOY ‘ s contribution will be made through budget allocation arranged by the MAI, which will be either paid directly to the contractor based on a request by the P C U or transferred to another PCU account in the local currency “separate from the U S dollar account” exclusive for the project’s purposes and to be established at the Central Bank accepted by IDA. Or altematively, a local currency account to be opened at the CBY under the name o f PCU-GSCP for GOY ’ s contribution to the project.

Pavments at the PCU Level

Payments to contractors and third parties f rom the SA will fol low the intemal control procedures stipulated in the FM manual, and will include the following steps:

(a) The PCU will be responsible for monitoring and supervising the provision o f services to ensure that they were actually provided.

(b) The PCU will be responsible for coordinating implementation of a l l project components and activities. Support will be given to ten FUs in various locations in order to ensure efficient operation and guarantee that resources are received by them in a timely manner. The f low o f find mechanisms and reporting arrangements should be effective and simple.

(c) The project’s finance officer ensures that al l payments are properly authorized and approved and

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that a l l supporting documents exist. Also, the FM specialist has to ensure the accuracy o f the payments. The purchase order and al l the supporting documents are sent to MOPIC, which verifies the procurement process. Once the supporting documents are complete, then the MOPIC forwards them to MOF together with an approval letter giving the MOF the green light for the payment. The MOF has its own checking and review, once it is satisfied then it authorizes the C B Y by letter to go ahead with the payment.

The suggested payments procedures to the FUs: For medium and large contractors:

(a) All payment requests and invoices be'reviewed and cleared at the FU level. (b) Once cleared to be sent to the P C U Sana'a for further checking and approval. (c) Once approved by the PCU, then it will be sent to the MOPIC for further Approval. (d) Once MOPIC approves, it will be sent to the MOF for further checking and approval and after it i s

cleared, the MOF will notify C B Y in writing to execute the payment.

For small contractors and small quick payments:

(a) All bills will be sent to the PCU Sana'a for verification and, once verified, the bi l ls will be sent to

(b) After it i s cleared by MOF, the PCU shall replenish the FU account by that amount. MOPIC then to MOF.

Most o f the staff (except for the project director and procurement specialist) i s not familiar with Bank guidelines (financial management or disbursement). Developing j o b descriptions and an organizational structure, a strong need for follow-up training on Bank guidelines, including procurement and FM issues, will help ensure that the PCU will be running smoothly.

Accounting Svstem

I t i s agreed that the project accounting (cash basis) will cover al l sources o f project funds and al l utilization o f said funds according to International Accounting Standards. All project-related transactions would be recorded in the books o f accounts and supporting documents will be kept at the P C U level (audit trail). Direct disbursements made by IDA and from the S A will be included in the project accounting system. Funds received from different sources (IDA and GOY budget) would be identified separately and reflected in the project accounts and FS.

To ensure a proper accounting system, this would include the fol lowing tasks:

Creating chart o f accounts in accordance with the International Accounting Standards, taking into account the project's specifications (components and subcomponents as described in the PAD). Defining a cross-indexing system for the reconciliation o f project financial data with the disbursement operations based on categories and transactions reported in SOEs. Designing formats o f various accounting books, records and statements, e.g., cash and bank books, journals, various ledgers, trial balance, voucher formats, etc. Issuing accounting procedure manual for the project which will outline at a minimum: (i)

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accounting j ob responsibilities within the PCU; (ii) monthly, quarterly and annually closing and reconciliation procedures includmg special account, loan account and SOEs; (iii) accounting policies including those related to the conversion from local currency to the loan currency; and (iv) banking and cash procedures.

Reportinq

The P C U will be responsible for issuing quarterly FMRs and annual Project Financial Statements (PFS):

(a) Quarterly un-audited FMR. The format and content o f the FMR, which wil l be produced 45 days from each quarter closing date, were determined as part of the project appraisal and included in the FM manual. The FMR includes financial, procurement, and physical progress information. There should also be an introductory narrative discussions o f project developments and progress during the quarter to provide context to and explanation o f information reported in the FMR.

(b) Annuallv audited PFS. Audit report, submitted to IDA within s i x months after the closing date o f the fiscal year, would have to include: (i) a statement o f sources and uses o f funds indicating funds received from various sources, project expenditures, assets and liabilities; (ii) schedules classifying project expenditures by components, categories, and sectors; (iii) a SA reconciliation statement; and (iv) a statement o f withdrawals made on the basis o f SOEs.

Impact of Procurement Arrangements

A procurement assessment of the P C U was performed by a Bank Procurement Specialist, which states that procurement under the project will fol low the World Bank procurement guidelines according to the Development Credit Agreement. A qualified procurement specialist has been set in place who will execute the procurement plan of the project.

Supervision Plan

Before effectiveness, the development o f the F M S for the PCU will be monitored in detail by the Bank's F M S until credit effectiveness.

After effectiveness, as required, an IDA-accredited FM will assist in the supervision process. The FMRs for the project will be reviewed on a regular basis by the Project F M S and the results o r issues will be followed up during the supervision missions. Financial audit reports wil l be reviewed and issues identified will be followed up by the FMS. Furthermore, during the IDA's supervision missions, the project's financial management and disbursement arrangements (including a review o f a sample o f SOEs and movements on the Special Account) will be reviewed to ensure compliance with the IDA's minimum requirements, and to develop the FM rating recently introduced to the Project Status Report (PSR). The FM ratings are due twice a year: by the end o f June and by the end o f December.

2. Audit Arrangements

Annual audits for the project will be conducted by independent private auditors acceptable to IDA and procured by the PCU in connection with COCA through the Least-Cost Selection process before credit effectiveness. The cost o f the audit will be financed from the proceeds o f the credit. The audit would be performed for the project as a whole. The audit report, accompanied by a management letter, will cover the project's .financial statements, reconciliation and use of the SA, use o f direct payments, and withdrawals

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based on SOEs. The report should be submitted by the PCU to IDA by June 30 o f each year (Le., no later than six months following the closing o f the fiscal year subject o f the audit). The external audit report should encompass al l project activities under the Credit Agreement and should be in accordance with IDA'S auditing requirements and conducted according to International Standards on Auditing.

I. Works

3. Disbursement Arrangements

15.42 85%

Allocation of credit proceeds (Table C)

!. Technical Assistance / Training/

Table C: Allocation of Credit Proceeds

85% o f local expenditures (a) Consultants' services: 90% for 6.38

Expenditure Category 1 Amount in US$million 1 Financing Percentage

Unallocated

rota1 Project Costs with Bank 'inancing

rota1

(ii) other operational costs: 85% 0.70

40.00

40.00

?. Goods 17.50 100% o f foreign expenditures 100% o f local expenditures (ex-factory

cost)

Incremental Operating Costs consulting f m s and 87% for individual consultants.

(b) Training: 100% (c) Incremental operating costs:

(i) salaries o f contractual staf f 80%

Use of statements of expenditures (SOEs):

The Association may require withdrawals from the Credit Account to be made on the basis o f SOEs for expenditures under contracts for: (i) goods costing less than $100,000 equivalent per contract; (ii) works costing less than $200,000 equivalent per contract; (iii) for services o f consulting firms under contracts costing less than $100,000 equivalent per contract; (iv) for services o f individual consultants costing less than $50,000 equivalent per contract; (v) training; and (vi) Incremental Operating Costs, a l l under such terms and conditions as the Association shall specify by notice to the Borrower.

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Special account: The authorized allocation o f the Special Account (SA) would be limited to an amount equivalent to US$2 million. However, the authorized allocation would be limited to an amount equivalent to US$500,000 until the aggregate amount o f withdrawals from the Credit Account plus the total amount o f al l outstanding special commitments shall be equal to or exceed the equivalent o f SDR 5,000,000.

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Annex 7: Project Processing Schedule REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

Project Schedule Planned Actual (Time taken to prepare the project (months) I 19 I 23 I /First Bank mission (identification) I 11/15/2001 I 11/15/2001 I IAppraisal mission departure I 06/15/2003 I 10/18/2003 I I Negotiations I 01/07/2003 I 01/07/2004 I I Planned Date of Effectiveness I 05/30/2004 I I Prepared by: Satoru Ueda, Task Team Leader

Preparation assistance:

Bank staff who worked on the projec

Satoru Ueda Na j i Abu-Hatim Nejdet Al-Salihi Christopher Ward Ti jan Salah Anders M J o h n Buursink Arbi Ben-AchourPaolo Palmien Mikael Mengesha Adel Odeh Hisham Waly Juan Morel l iMohamed Usman Ramez Kayal Jean-Francois Barres Josephine Salang Tuyet Chuppe Gaurav Raina-Thapan Karin Kemper George Pitman

included:

Sr. Water Resources Specialist, Task Team Leader Senior Operations Officer, Yemen WB Office Irrigation Engineer, Consultant Agricultural Economist, Consultant Sr. Economist, previous Task Team Leader Sr. Environment SpecialistKonsultant Sr. Social ScientistKonsultant Sr. Procurement Specialist Financial Management Analyst Sr. Financial Management Specialist Agricultural Economist, Consultants Groundwater Specialist, Consultant Agricultural Economist, Consultant Cluster Program Assistant Environment Program Assistant Operations Analyst, Consultant Sr. Water Resources Specialist, Peer Reviewer Sr. Evaluation Officer, Peer Reviewer

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Annex 8: Documents in the Project File* REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

A. Project Implementation Plan The Project Implementation Plan (PIP) has been prepared by GOY. A copy i s kept in the project files. The PIP i s we l l prepared and has sufficient details to assist project implementation.

B. Bank Staff Assessments 1. Environmental Management Plan 2. Social Assessment Report 3. Agency Procurement Capacity Assessment Report (Questionnaire/Assessment and Summary o f Findings and Actions)

C. Other 1. Groundwater and Soil Conservation Preparation Reports:

Volume 1 : Summary and Conclusions Volume 2: Ma in Report Volume 3: Annex 1-5 (Project areas, unit rates, cost estimates, type designs, etc.) Volume 4: Annex 6 (Design Criteria) Volume 5: Annex 7-16 (List o f proposed works and their cost estimates) Volume 6: Annex 17 (Enhanced groundwater management areas) Volume 7: Annex 18-20 (Economic and financial analysis) Volume 8: Annex 2 1 (Drawings and sketches) Volume 9: Annex 22 (Summary o f other related studies)

2. Groundwater Resources Assessment Report

*Including electronic files

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Annex 9: Statement of Loans and Credits REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

27-Oct-2003 Difference between expected

Oriainal Amount in US$ Millions and actual

disbursements" Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd

1.10 0.00 PO65111 2003 RY-PORT CITIES DEVELOPMENT PROGRAM 0.00 23.40 0.00 24.20 PO57602 PO64981 PO43254 PO70092 PO76183 PO05906 PO62714 PO70391 PO43255 PO68830 PO50706 PO50483 PO50530 PO05902 PO39171 PO05912 PO0591 1

2003 RY-URBAN WATER SUPPLY a SANITATION AP 2003 Yemen SANA'A BASIN WATER MGMNT PROJ 2002 RY-HEALTH REFORM SUPPORT PROJECT (HRS 2002 RY TAIZ MUNICIPAL DEV a FLOOD PROTECT 2002 Yemen Higher Education 2001 Yemen RURAL WATER SUPPLY 8 SANITATION 2001 Yemen IRRIGATION IMPROVEMENT 2001 RURAL ACCESS IMPROVEMENT PROGRAM 2001 Yemen Basic Education Expansion Project 2000 RY-Second Social Fund for Development 2000 Yemen CIVIL SERVICE MODERN 2000 Yemen CHILD DEVELOPMENT 1999 RY-SANA'A EMERG. POWER 1998 Yemen S.GOV AGRl PRlVATlZA 1998 Yemen SEEDS 8 AG. SERVICES 1996 VOC. TRAINING 1994 Yemen Education Sector

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

130.00 24.00 27.53 45.20 5.00

20.00 21.30 45.00 56.00 75.00 30.00 28.90 54.00 24.70 12.50 24.30 33.00

0.00 141.79 17.44 0.00 0.00 24.19 0.35 0.00 0.00 29.74 -0.37 0.00

7.87 0.00 0.00 42.65 0.00 5.45 0.07 0.00 0.00 20.54 7.96 0.00

7.78 0.00 0.00 19.42 0.00 39.55 20.40 0.00 0.00 48.23 3.11 0.00 0.00 22.22 15.00 0.00 0.00 26.97 17.81 0.00 0.00 16.89 1.77 0.00 0.00 16.74 14.87 -1.14 4.01 10.62 12.38 0.00

1.59 0.00 0.00 1.46 0.00 0.82 4.17 2.86 0.00 9.78 10.46 1.65

Total: 0.00 679.83 4.01 501.25 143.75 3.37

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REPUBLIC OF YEMEN STATEMENT OF IFC's

Held and Disbursed Portfolio June 30 - 2003

In Mill ions U S Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1999 ACSM 12.00 0.00 0.00 0.00 8.00 0.00 0.00 0.00 2002 Ahlia Water 1.51 0.00 0.00 0.00 1.00 0.00 0.00 0.00 1998 Radfan 1.90 0.00 0.00 0.00 1.90 0.00 0.00 0.00

Total Portfolio: 15.41 0.00 0.00 0.00 10.90 0.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00

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Annex I O : Country at a Glance REPUBLIC OF YEMEN: Groundwater and Soil Conservation Project

.. 23.0 15.4 15.2

.. 22.7 49.2 46.3

.. 11.0 6.7 6.6

.. 54.3 35.4 38.5

POVERTY and SOCIAL

2002 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1996-02

Population 1%) Labor force 1%) Most recent estimate (latest year available, 1996-02) Poverty (% of population below national povefiy line) Urban population 1% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition 1% of children under 5) Access to an improved water source 1% ofpopulation) Illiteracy (% ofpopulation age 15+) Gross primary enrollment [% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982

I -20

GDP (US$billions) Gross domestic investmenUGDP Exports of goods and serviceslGDP Gross domestic savingslGDP Gross national savingsiGDP

Current account balanceiGDP Interest paymentsiGDP Total debVGDP Total debt servicelexports Present value of debVGDP Present value of debvexports

.. 87.2 65.1 70.7

.. 19.4 13.9 14.2

1982-92 1992-02 (average annual gmwth) GDP .. 5.6 GDP per capita .. 2.6

4 1 -GDI -GDP

Yemen

18.6 490 9.1

2.9 3.0

42 25 57 78 46 69 51 79 96 61

1992

5.8 22.4 21.5 -6.6 3.6

-18.8 0.4

114.2 5.8

2001

4.2 1.1

1982-92 1g92-02 2o01 2o02 (average annual growth) Agriculture .. 5.5 5.9 4.1 Industry .. 7.4 1.9 -2.0

Manufacturing .. 3.9 4.5 3.6 Services .. 4.7 4.8 5.7

Private consumption .. 2.5 15.9 11.7

Gross domestic investment .. 5.4 2.8 -0.9 Imports of goods and services .. 0.0 7.0 6.6

General government Consumption .. 1.9 10.9 3.5

M. East & North

Africa

306 2,070

670

1.9 2.9

58 69 37

68 35 95 98 90

2001

9.4 20.2 37.6 20.9 27.3

11.6 0.5

54.3 5.0

38.0 68.9

2002

3.1

Growth of exports and imports (Yo)

40

20

-2O

0

-40

-Exports -Imports

0.0

Low. income

2,495 430

1,072

1.9 2.3

30 59 81

76 37 95

103 87

2002

9.7 19.6 33.9 15.2 22.2

0.5 54.7 4.8

2002-06

STRUCTURE of the ECONOMY

1% of GDP) Agriculture Industry

Services

Private consumption General government consumption imports of goods and services

Manufacturing

Development diamond.

Life expectancy

T

GNI Gross per primary capita enrollment

1 Access to improved water source

- Yemen, Rep. - Low-income WOUD

Economic ratios.

Trade

Investment Domestic savings

indebtedness

1982 1992 2001 2002 1 Growth of Investment and GDP (K) 1

- 80 -

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplusldeficit

TRADE

(US$ millions) Total exports (fob)

Crude oil (government share) Crude oil (company share) Manufactures

Total imports (cia Food Fuel and energy Capital goods

Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, loca//US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ mi//ions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

1982

1982

1982

4.6

1982

2,403 0

199

102 0 1

275 303 90 30 0

77 36 0

36 1

35

1992

-65.7 17.4

16.9 -7.6

-11.9

1992

1,073 227 592

10 1,935

532 122 439

108 90

121

1992

1,235 2,905

-1,670

-417 1,003

-1,084

1,416 -332

323 33.4

1992

6,571 0

684

133 0 9

98 59 6

718 0

53 53 4

49 5

44

2001

11.9 0.8

34.9 9.2 1.9

2001

3,317 1,585 1,320

42 2,604

851 291 572

132 81

163

2001

3,519 3,455

64

-691 1,273

1,107

-1,827 719

3,673 168.7

2001

5,087 0

1,237

259 0

26

90 31 -7

-205 0

90 77 17 60 9

51

2002

15.8 7.2

32.3 5.8

-0.7

2002

3,052 1,328 1,266

66 2,829

974 288 652

131 81

161

2002

3,283 3,715 -432

-565 1,297

353

4,011 180.5

2002

5,290 0

1,384

171 0

29

57 0

163 83 19 64 10 54

j.2D1 -GDPdeflator -CPI I Export and import levels (US$ mill.)

14,000 7

I 96 97 98 gS 00 01 02

I I# Exports Imports

6

mote I nis tame was proaucea rrom tne ueveiopment tconomics central d a t a b a s e -

Current account balance to GDP (%)

25 T I

:omposition of 2002 debt (US$ mill.)

E - Bilateral

G - Short-tem

, - IBRD , - IDA D ~ Other multilateral F - Private : - IMF

-81 -