Docutent of The World Bank FOR OFFlCIAL USE ONLY 41 (~cJ i-'( I' 0.i1>;. C-:-} y lepir': t. ,Nq< . L'!M IQ- (AŹ V'oz<1EIZE/ X81 ?Y AI- t AZ i Repwt No. P-5510-CE *~~~~~~~z ---0 z MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 21.9 MILLION TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A NATIONAL IRRIGATION REHABILITATION PROJECT MAY 9 ,1991 Thi doument has a retrcted didtbutlon ad may be used by rcpent only In the pterformance of tbeir oMil dti Its conteost may Iot otherwise be discld without .'orId Dak autorzation. CURRENCY EQUIVALENTS (as of December 1990) Currency Unit - Sri Lanka Rupee (SL Rs) SL Rs 1 G US$0.0248 US$1.00 = SL Rs 40.3 WEIGHTS AND MEASURES 1 hectare (hia) - 2.47 acres (ac) 1 kilometer (km) 0.62 mile (mi) 1 metric ton (mt) - 2,205 pounds (lbs) ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank EEC - European Economic Community GOSL - Government of Sri Lanka IFAD - International Fund for Agricultural Development MIRP - Major Irrigation Rehabilitation Project OECF - Overseas Economic Cooperation Fund of Japan 0&M - Operation and Maintenance USAID - United States Agency for International Development VIRP - Village Irrigation Rehabilitation Project FISCAL YEAR January 1 - December 31 FOR OFFICIAL Use ONLY SRI LOUK NATIONAL IRRIGATION REHABILITATION PROJECT Credit and Project Summary Borrowers Democratic Socialist Republic of Sri Lanka Amounts SDR 21.9 million (US$29.6 million equivalent) Term8s Standard, with 40 years' maturity Cofinancier: The European Economic Conmmunity (EEC) will provide a grant of ECU 3.34 million (US$4.0 million equivalent) Financing Plans Local Foreign Total -US$ million------- Government 16.2 - 16.2 EEC - 4.0 4.0 IDA 25.0 4.6 29.6 Total 41.2 8.6 49.8 Economic Rate of Return: 312 Staff Appraisal Report: Report No. 9425-CE IBRD 22876 This document has a restricted distribution and may be used by recipients only .n the wrfornme of their official duties. Its contents may not otherwise be disclosed without Worn' Bank wthoriton. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A NATIONAL IRRIGATION REHABILITATION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Democratic Socialist Republic of Sri Lanka for SDR 21.9 million (US$29.6 million equivalent). The credit would be on standard IDA terms with a maturity of 40 years. It would help finance the National Irrigation Rehabilitation Project. The European Economic Community (EEC) would provide parallel grant financing for tecbnical assistance, training, and institutional support components of the project (US$4.0 million equivalent). 2. Background. Rice is the principal food crop in Sri Lanka, occupying nearly 402 of all cultivated land and 802 of the area under irrigation. Over the last 20 years the area under irrigation increased by about 200,000 ha to about 550,000 ha (25% of cultivated land), most of it through river diversions and implementation of settlement schemes in the northern and eastern dry zones. While generally successful, the high cost of the schemes has reduced the funds available for investments in other sectors and for maintenance of existing irrigation infrastructure. In addition, economic rates of return of the new schemes have been low in recent years, largely due to the depressed world market for rice. In 1988 IDA recommended that the Government of Sri Lanka (GOSL) (a) reduce the share of expenditures for irrigation and resettlement in the Public Investment Program, (b) give priority to rehabilitati;. and upgrading of existing schemes, and (c) postpone the start- up of construction of proposed major new schemes. Continued armed conflict and political uncertainties in the Northeast are added reasons for emphasising the preservation and improvement of existing infrastructure, much of which was constructed long ago. GOSL has agreed with this assessment and with the help of major donors has begun to correct the balance between construction of new projects and rehabilitation and improvement of existing schemes. IDA, ADD, OECF and USAID are currently financing rehabilitation of major schemes (those exceeding 600 ha), including the Major Irrigation Rehabilitation Project (MIRP, Cr. 1537-CE). T.DA, IFAD and several bilateral donors have financed rehabilitation of min, schemes (under 80 ha) and medium schemes (80 - 600 ha) under a series of Integrated Rural Development Projects and the Village Irrigation Rehabilitation Project (VIRP, Cr. 1160-CE). Progress under these projects has generally been satisfactory. However, implementation in seven northeastern districts was suspended in 1986 due to civil strife. Recent estimates indicate that some 10,000 minor schemes covering about 110,000 ha, and 190 medium and major schemes covering about 50,000 ha, still require rehabilitatior works. 3. All minor and most medium schemes have traditionally been managed and maintained by the farmers themselves, except for major repairs to headworks which are undertaken by GOSL. Most major schemes were built over the last 40 years and until recently all were managed and maintained by GOSL. In 1988 GOSL took a policy decision to reduce the role of the public sector in - 2 - irrigation and to increase the involvement and responsibilities of the farmers for operation and maintenance (O&M) of their schemes. The new policy was prompted by (a) positive results of several experimental programs to establish farmer organizations for O&M, and (b) failure of GOSL's efforts to recover O&M costs from the beneficiaries. The ongoing USAID-supported Irrigation Management Policy Support Activity project is expected to result in a detailed policy statement and draft legislation for implementing GOSL's new irrigation policy by the end of 1991. Meanwhile, the Agrarian Services Act already has been amended in February 1991 to provide for the establishment of farmer organizations and their registration as legal entities. The Irrigation Ordinance also is being amended to (a) empower the farmer organizations to collect irrigation charges after they have taken over O&M responsibilities for distributory and field channels, and (b) specify the legal powers of management committees for major irrigation projects. 4. In the framework of the decentralization process, the provincial councils have recently assumed the responsibility for providing services to about 60Z of the area under irrigation, while the balance 402 remains under the control of central government agencies. All provincial councils, except the Northern and Eastern Provinces, have already established irrigation units. These units are now responsible for planning and implementation of construction and rehabilitation works and for providing technical advice on O&M, while staff of the central Department of Agrarian Services remain responsible for advising the farmers on the establishment of farmer organizations and scheme management. While workable, the decentralized irrigation units should be kept under close review by GOSL and, where necessary, the central Irrigation Department should provide support to the provincial administrations. 5. Lessons Learned from Previous IDA Operations. The main lesson learned from the implementation of recent irrigation projects is that farmers should be closely involved in all stages of construction or rehabilitation in order to ensure the success of the operation. Farmer organizations should be established before works begin, their views should be reflected in the plans, they should participate in the construction, and they should assume full responsibility for O&M of the schemes. 6. Rationale for IDA Involvement. GOSL's current strategy for the irrigation subsector emphasizes completing projects under construction, and preserving and improving performance of existing schemes in order to stabilize and increase agricultural production. IDA supports this strategy and already has financed rehabilitation and improvement of minor schemes under VIRP (Cr. 1160-CE), which closed in December 1990, and that of major schemes under the ongoing MIRP (Cr. 1537-CE). Although several other donors also have financed such works, minor schemes covering at least 452 of the command area under such schemes and mediumlmajor schemes for about 152 of their command area still require rehabilitation. The proposed project is a national program which would support GOSL's strategy, build on experience gained under VIRP and similar recent projects, and assist provincial councils in executing their new responsibilities. IDA support is justified as it would (a) improve the capacity and efficiency of public irrigation services at the center and in the - 3 - provinces, and (b) promote increased participation In system management by farmer organizations. 7. Project Obiectives. The project's main objectives are to stabilize and increase agricultural production and incomes and to raise the standards of living through rehabilitation and improved 0&M of existing irrigation schemes. Subsidiary objectives include (a) upgrading the skills of farmers and staff of the implementing agencies, and (b) creating viable farmer organizations for managing the rehabilitation schemes. 8. Prolect Description. The proposed seven-year project (1991-97), would support a series of interrelated actions designed to upgrade the level of services provided by existing irrigation schemes. Specifically, the project would finance (a) rehabilitation and improvement of about 1,000 minor and 60 medium/major irrigation schemes covering about 37,500 ha, (b) establishment of farmer organizations and introduction of improved O&M practices in all rehabilitation schemes, (c) training of farmers and staff of the implementing agencies, (d) execution of environmental protection studies and works, (e) establishment of three new support units in the Irrigation Department and execution of socio-economic and hydrological studies, and (f) technical assistance for project planning, implementation, and impact assessment. The Department of Irrigation would have overall responsibility for project implementation and monitoring. The total cost is estimated at US$49.8 million equivalent, with a foreign exchange component of US$8.6 million (17Z). In order to facilitate the early start-up of the project and to complete VIRP carry-over works and studies, expenditures of up to US$1.2 million equivalent incurred after December 31, 1990, would be considered for retroactive financing. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, and the disbursement schedule, are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Sri Lanka are given in Schedules C and D, respectively. The Staff Appraisal Report, No.9425-CE, dated May 9, 1991 is being distributed separately. 9. ARreed Actions. Agreements reached at negotiations include (a) selection of schemes in accordance with agreed criteria, (b) appointment of consultants for planning and implementation by December 31, 1991, (c) submission of (i) a proposal for future organizational arrangements of public services for the irrigation sector by June 30, 1992, and (ii) a timetable for implementation of agreed recommendations by December 31, 1992, and (d) submission of draft annual work programs, budgets, and staff requirements by June 30 of each project year. Conditions of effectiveness for the IDA credit would be (a) signing the cofinancing agreement between GOSL and EEC, and (b) submission of a draft work program, budget, and staff requirements for 1992. A condition of disbursement against expenditures for works in the Northern and Eastern Provinces would be the completion of on-site appraisal of selected schemes and a review of implementation arrangements to the satisfaction of IDA. 10. Environmental Aspects. Potential harmful effects of the rehabilitation works to the environment would be assessed during the feasibility studies to be conducted for all schemes. Where necessary, - 4 - provisions would be made to remedy these effects. Seepage of water from reservoirs causing drainage congestion would be reduced or eliminated. In addition, the project would provide for planting of trees in the borrow areas and canal reservations. The project's training programs for farmers and staff of the implementing agencies would emphasize environmental awareness. 11. Special Operational Emphasis. Rehabilitation and improvement of existing irrigation schemes, of which many were constructed centuries ago, would benefit entir%s local communities in Sri Lanka. Additional employment opportunities would be created, especially for the landless, both off-farm during construction and on-farm during planting and harvesting seasons. Sri Lankan men and women have equal access to economic opportunities and social facilities. Many of the farmers are women, and women are active participants in community activities, including the farmer organizations now being established in the irrigation schemes. Therefore, women and men are expected to benefit equally from the project. 12. Proiect Benefits. The project would stabilize the production of up to 100,000 mt of paddy per year which would otherwise be lost through further deterioration of the schemes, and also increase annual production by about 20,000 mt of paddy and about 5,700 mt of other field crops due to improvement works and better water management practices. Average incomes of about 100,000 farm families would increase by 152 to 55? over present levels. Employment for on-farm activities would increase by about 2,000 person-years annually, largely hired labor. Temporary off-farm employment generated during project implementation is estimated at about 7,000 person-yearst this employment would primarily benefit the landless. The economic rate of return of the project is estimated at 312. 13. Risks. The project faces two main risks. First, inadequate staffing of the new provincial administrations could cause implementation delays or sub-standard quality of works. To minimize this risk, a central project management cell would be established in the Irrigation Department and consultants would be employed to assist the provincial administrations with project planning and implementation and to monitor the quality of the -orks. The capacity of the provincial administrations would be reviewed each year and, if necessary, tasks beyond theix capacity would be assigned to the Irrigation Department. Second, the establishment of farmer organizations could proceed at a slower pace than expected, causing delays in project implementation. Institutional organizers would be employed in all schemes to assist with the formation of farmer organizations. 14. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. may 9, 1991 - 5 Schedule A SRI LAM NATIONAL IRRIGATION RRHABILITATION PROJECT Estlmated Cost and Financing Plan (US$ million) Local Foreign Total Estimated Proiect Cost a/ Rehabilitation and Improvement Works, Surveys and Investigations 0.4 - 0.4 Civil Works 15.8 3.0 18.8 Engineeriag and Administration 2.2 - 2.2 Subtotal 18.4 3.0 21.4 Farmer Organizations 1.9 - 1.9 Training 0.8 1.2 2.0 Environmental Protection 0.7 - 0.7 Institutional Support and Studies 2.1 0.9 3.0 Technical Assistance 3.1 0.6 3.7 Vehicles and Squipment 1.6 1.7 3.3 Base Cost 28.6 7.4 36.0 Physical Contingencies 0.9 0.2 1.1 Price Contingencies 11.7 1.0 12.7 Total Project Cost a/ 41.2 8.6 49.8 Financing Plan Government 16.2 - 16.2 EC - 4.0 4.0 * IDA 25.0 4.6 29.6 Total 41.2 8.6 49.8 a/ Including taxes and duties equivalent to US$2.3 million Scbedule S Page 1 of 2 SRI LAM NATIONAL IUIGATION UNASILITATION PROJECT Procurement Methods and Digbursements (US$ million) Procur_ment Methods a/ Proiect Element ICB LCB Other N.A. b/ Total Surveys and Invostigations - 0.2 0.3 - 0.5 (0.2) (0.3) (0.5) Civil Works - 21.9 5.5 - 27.4 (18.8) (4.7) (23.5) Engineering and Administration - - 3.4 3.4 (1.7) (1.7) Farmer Organizations - - - 2.7 2.7 (2.7) (2.7) Training cl - - , 2.3. 2.3 Environmental Protection cl - - - 1.0 1.0 Institutional Support and Studies d/ - - 0.1 3.7 3.8 (0.1) (0.1) Technical Assistance cl - - - 5.1 5.1 Vehicles and Equipment el 2.6 - 1.0 - 3.6 (0.8) (0.3) (1.1) Total 2.6 22.1 6.9 18.2 49.8 (0.8) (19.0) (5.4) (4.4) (29.6) al Figures in parenthesis are the respective amounts to be financed by IDA and include contingencies. b/ Not applicable. c/ To be financed fully by EEC and EEC Food-aid counterpart funds. 41 To be financed partially by EEC and EEC Food-aid counterpart funds. el To be financed partially by EEC. 7- Schedule B Page 2 of 2 Di}bursements Percentage of Expenditures to Category Amount be financed Civil Works a/ 21.5 95X Surveys and Investigations 0.4 1002 Engineering and Administration 1.5 50Z Farmer Organizations 2.5 1002 Vehicles and Equipment 1.0 100? for imported and locally manu- factured goods and 70? for locally procured goods Consultants' Services 0.1 100? Unallocated 2.6 29.6 Estimated IDA Disbursements IDA FY 1992 1993 1994 1995 1996 1997 1998 Annual 2.0 1.9 5.5 5.6 5.6 5.0 4.0 Cumulative 2.0 3.9 9.4 15.0 20.6 25.6 29.6 al Excluding a contribution of at least 10? of construction cost to be made by the farmer orgaxxizations. - 8 - Schedule C SRI LANKA NATIONAL IRRIGATION REHABILITATION PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare the project. Three years (b) Prepared by: Government with IDA assistance (c) First IDA mission: January 1988 (d) Appraisal mission departure: November 1990 (e) Negotiations: April 22-25, 1991 (f) Planned date of effectiveness: September 30, 1991 (g) List of relevant PCRs and PPARs: Credit No. Pr%Ject PCR Date PPAR No. Cr. 666-CE Tank Irrigation Modernization December 23, 1985 9 Schedule 0 Pag9 1 of 2 THE STAPJ OF BO SORP WERATIONS IN SRI LANKA A. STAME OF SAWK IOA AND IDA CREDtTS (As of March 81, 2991) Amount In USS million (less cancel lotions) Loan or Fiscal Undts- Credit No. Year Borrower Purpo" Bank IDA burted 12 loans and 88 crecito have ben fully disburse 181.1 470.0 Cr. 1180-SRI 19S1 Sri Lanka Village Irrigation Rehab 27.1 7.1 Cr. 1168-SRI 1981 Sri Lanka lihaweli l anga D-v III 90.0 26.6 Cr. 1317-SRI 1982 Sri Lanka Forestry I 9.0 5.2 Cr. 1637-SRI 1985 Sri Lanka Major Irrigation Rehab 17.0 9.5 Cr. 1662-SRI 1985 Sri Lanka Fourth Tree Crops SS.0 8.0 Cr. 1092-SRI 1988 Sri Lanka Industrlal D-v II 20.0 3.0 Cr. 1897-SRI 1986 Sri Lanka municipal Managemnt 13.0 8.3 Cr. 1698-SRI 1988 Sri Lanka Second Vocational Training 15.0 11.4 Cr. 1700-SRI 1988 Sri Lanka Water Supply and Sanitation 37.0 33.0 Cr. 1738-SRI 1987 Sri Lanka Ninth Power 52.0 38.4 Cr. 1778-SRI 1987 Sri Lanka Agriculture Rosearch 18.8 17.1 Cr. 1860-SRI 1987 Sri Lanka Third Small A Med Industries 20.0 5.3 Cr. 1883-SRI 1988 Sri Lanka Emergency Recon & Robab 78.0 43.9 Cr. 1903-SRI 1989 Sri Lanka Health A Family Planning 17.6 18.4 Cr. 1909-SRI 1989 Sri Lanka 2nd Smallholder Rubber Rehab 23.5 20.3 Cr. 1933-SRI 1989 Sri Lanka Power Distrib & Transmission 40.6 37.0 Cr. 1948-SRI 1989 Sri Lanka Third Industrial Development 43.8 26.8 Cr. 2043-SRI 1989 Sri Lanka Forestry II 19.9 20.0 Cr. 2072-SRI 1990 Sri Lanka General Education 49.0 51.1 oCr. 2120-SRI 1990 Sri Lanka Economic Restruc. Credit 90.0 48.3 *Cr. 2128-1-SRI 1990 Sri Lanka Economic Restruc. Credit 4.4 0.2 *Cr. 2128-2-SRI 1991 Sri Lanka Economic Reotruc. Credit 7.0 0.0 Cr. 2188-SRI 1991 Sri Lanka 3rd Roads 42.S 39.2 sCr. 2185-SRI 1991 Sri Lanka Public Manuf. Enter. AdJust. 120.0 97.3 Total 131.1 1380.4 a> 571.1 Of which has been repaid 74.2 16.0 Total now held by Bank and IDA 50.9 13.6 6 Amount sold 3.8 Of which repaid 3.6 Total undisbursed 571.1 a> The prinlcipal aounts of IDA credits are shown in US Dollor *taIvalewit at date of neotiations, as shown In the PresIdent's Report. Undisbursed aounts shown In US Dollar equivalent are valued at the *xchango rate applicable on the date of thIs statment. In some cases, therefore, the undisbursed balanco lndicates a dollar amount greater than the original principal credit amount exprseod In dollars. * Indicates SAL/SECAL Loans and Credits - 10 - Schedule 0 Page 2 of 2 STATESEMT OF IC INWESTVENTS (As of Match 81, 1991) Flscal Obilgor ous Loa roult Eoottv s I 1970 Pearl Textile Mille Trxtl e and Fibers 2.6 0.76 8.25 1978, Dovolopoent Finance Development Finance - 0.46 0.4S 1980, Corporation of Ceylon 1988 1978 Bank of Ceylon Development Finance 7.00 - 7.00 1981 1979, Ceylon Synthetic Textile and Fibers 3.16 0.64 3.88 1991 extIle 1979 Mikechrla Industrios Woven Polypropylene 0.89 0.10 0.99 Limited and Ceylon Begs Papor Sacks Ltd. 1980/ Lanka Orient Leating Capital Market 8.00 0.34 8.34 1984 Company Ltd. 1908 1981 Lanka Motols Tourism 19.80 0.70 20.00 1088 UAL Money and Capital - 0.49 0.49 Market Total Cross CommitentU 85.84 8.a8 89.20 Loeo cancellations, termination., repayont and a loe 32.54 1.7? 84.81 Total Co_mitments now held by IFC 8.80 1.59 4.89 Total Undteborsd (including partiecpant'e portion) - - _ . !J Exchange adjustmente account for variation In total gross commitmnt., less cancellations, etc., and total commitmetnt nom hld by IFC. ISRD 228/6 Jaffno a SRI LANKA NATIONAL IRRIGATION REHABILITATION PROJECT mu$ 0 Io 20 20 / LOCATION OF SCHEMES IO1OMETO I2 Z ; ;0 ApprOised Schemes: i /- -. 0 Medium and Major Schemes 0 Minor Schemes 9'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~9 Prepored Schemes C/ Medium and Major Schemes Minor Schemes Agro-Climatic Zones An 30hipur / S - Major Roads Anuradhapura/o| !. 34 / t s District Cp'ials /* Prayince Capitals * Nafional Capitol - International Boundary 2 | RaNTERM a 'f DRY 'aic.loa \ , { 2 WE7 Mt ( TE DIATE~~~~~IDI WET vX ,.,# WET {J v a i T 7~~~~~~~~~~~~~fRUR' 199 7- r COLOMB o 2 *ft^ ^ , 0- L4Rctncpuna 8 3 MO.Kftlbw\ /- , 4 Ot VV- 04 f 7 tA -k kiET 12 tElApitXcbhnt \ } i / ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~SRI 13 _ X 9Lcile t t I~~~~~~~~~~~~~~~~~~~ANKA V7 WQ*Ab C et 81 1 j | ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~FEBRUAW 199