Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004275 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-08153) ON A LOAN IN THE AMOUNT OF US$80 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR THE WATER CONSERVATION PROJECT II ( P114138 ) December 18, 2017 Water Global Practice China and Mongolia Country Management Unit East Asia And Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective November 15, 2017) Currency Unit = Chinese Yuan (CNY) 6.59 = US$1 US$ = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CPS Country Partnership Strategy ET Evapotranspiration NBET Non-beneficial Evapotranspiration EMP Environmental Management Plan ERR Economic Rate of Return ICR Implementation Completion and Results Report IO Intermediate Outcome IPM Integrated Pest Management M&E Monitoring and Evaluation MCM Million Cubic Meters MTR Midterm Review MWR Ministry of Water Resources NPV Net Present Value O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PMO Project Management Office RF Results Framework RPF Resettlement Policy Framework WCP Water Conservation Project WRM Water Resources Management WUA Water User Association Regional Vice President: Victoria Kwakwa Country Director: Bert Hofman Senior Global Practice Director: Guang Zhe Chen Practice Manager: Sudipto Sarkar Task Team Leader(s): Sing Cho ICR Main Contributor: Martin B. Albrecht TABLE OF CONTENTS DATA SHEET ........................................................................................................................... I I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 1 A. CONTEXT AT APPRAISAL .........................................................................................................1 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) .......................................5 II. OUTCOME ...................................................................................................................... 7 A. RELEVANCE OF PDOs ..............................................................................................................7 B. ACHIEVEMENT OF PDOs (EFFICACY) ........................................................................................8 C. EFFICIENCY ........................................................................................................................... 11 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 12 E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 12 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 13 A. KEY FACTORS DURING PREPARATION ................................................................................... 13 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 15 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 16 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 16 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 17 C. BANK PERFORMANCE ........................................................................................................... 19 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 21 V. LESSONS AND RECOMMENDATIONS ............................................................................. 21 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 23 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 35 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 37 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 38 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 42 ANNEX 6. SUPPORTING DOCUMENTS .................................................................................. 45 ANNEX 7. MAP .................................................................................................................... 46 The World Bank Water Conservation Project II ( P114138 ) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P114138 WATER CONSERVATION PROJECT II ( P114138 ) Country Financing Instrument China Specific Investment Loan Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency International Department, Ministry of Finance Ministry of Water Resources (MWR) Project Development Objective (PDO) Original PDO To improve agriculture water management and to increase agriculture water productivity in the project areas i The World Bank Water Conservation Project II ( P114138 ) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 80,000,000 76,727,298 76,727,298 IBRD-81530 Total 80,000,000 76,727,298 76,727,298 Non-World Bank Financing Borrower 80,000,000 96,455,000 81,590,000 Total 80,000,000 96,455,000 81,590,000 Total Project Cost 160,000,000 173,182,298 158,317,298 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 10-May-2012 17-Oct-2012 15-Oct-2014 30-Jun-2017 30-Jun-2017 15-Oct-2014 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 02-Jun-2015 35.94 Change in Results Framework Change in Components and Cost Change in Financing Plan Reallocation between Disbursement Categories Change in Disbursements Arrangements KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial ii The World Bank Water Conservation Project II ( P114138 ) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 04-Sep-2012 Satisfactory Satisfactory 0 02 01-Mar-2013 Satisfactory Satisfactory .20 03 11-Sep-2013 Satisfactory Moderately Satisfactory 9.86 04 11-Apr-2014 Satisfactory Satisfactory 18.18 05 24-Oct-2014 Satisfactory Satisfactory 24.10 06 06-May-2015 Satisfactory Moderately Satisfactory 36.14 07 26-Jun-2015 Satisfactory Moderately Satisfactory 36.14 08 29-Nov-2015 Satisfactory Moderately Satisfactory 45.79 09 01-Jun-2016 Satisfactory Moderately Satisfactory 54.10 10 18-Jun-2016 Satisfactory Satisfactory 56.69 11 19-Dec-2016 Satisfactory Satisfactory 67.09 12 15-Jun-2017 Satisfactory Moderately Satisfactory 73.60 SECTORS AND THEMES Sectors Major Sector/Sector (%) Agriculture, Fishing and Forestry 92 Agricultural Extension, Research, and Other Support 2 Activities Irrigation and Drainage 90 Water, Sanitation and Waste Management 8 Public Administration - Water, Sanitation and Waste 8 Management iii The World Bank Water Conservation Project II ( P114138 ) Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Finance 2 Finance for Development 2 Agriculture Finance 2 Urban and Rural Development 81 Rural Development 81 Rural Markets 2 Rural Infrastructure and service delivery 73 Land Administration and Management 6 Environment and Natural Resource Management 38 Climate change 22 Adaptation 22 Renewable Natural Resources Asset Management 12 Biodiversity 6 Landscape Management 6 Water Resource Management 4 Water Institutions, Policies and Reform 4 ADM STAFF Role At Approval At ICR Regional Vice President: Pamela Cox Victoria Kwakwa Country Director: Klaus Rohland Bert Hofman Senior Global Practice Director: John A. Roome Guang Zhe Chen Practice Manager: Paul Kriss Sudipto Sarkar Task Team Leader(s): Xiaokai Li Sing Cho ICR Contributing Author: Martin Benedikt Albrecht iv The World Bank Water Conservation Project II ( P114138 ) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. Irrigated agriculture has been a key contributor to China’s economic growth and poverty reduction, but the sector is also the nation’s largest water user. The country’s continued rapid economic growth and poverty reduction over the past three decades is, to a significant part, attributable to irrigated agriculture, which contributes to 75 percent of total agricultural outputs and employs millions of people. However, irrigated agriculture is also utilizing 60 percent of the nation’s total water resources. 2. China is a water-stressed country with spatial and temporal distribution of water resources varying significantly. The arid and semiarid Hai and Huang (Yellow) River Basins in Northern China, where the project is located, are among the most water-scarce regions in China. Annual rainfall as well as total water flow of the Yellow River has decreased significantly due to higher demand caused by rapid socioeconomic growth and caused by increasing climate variability due to climate change. Compared to historical averages, the average annual precipitation in the project areas since 2000 has decreased by 10– 15 percent, and the water allocated to Ningxia fell by 4 percent due to decreased water flow in the Yellow River. This imposes enormous challenges especially on the irrigated agriculture sector. 3. Water scarcity combined with low water use efficiency, unsustainable water use, low agricultural water productivity, and low farm income in Northern China cause water stress that also takes its toll on socioeconomic development in the region. The challenges the country is facing in its water-scarce Northern Regions are exacerbated by low irrigation water use efficiency due to insufficiently maintained canals and losses through non-beneficial evapotranspiration (NBET) in the dry climate; by unsustainable water use due to overuse of surface and groundwater resources as well as their pollution; and by low agricultural water productivity, which consumes more volume unit of water per agricultural yield. 4. To meet these challenges, secure future economic growth in irrigated agriculture and increase water resources sustainability, promoting agricultural water conservation has been high on the Government’s agenda. Since the mid-1990s, the National Irrigated Agriculture Water-saving Program has been implementing a strategy of enforcing strict water resources management (WRM) in all water use sectors in water-scarce regions, especially for irrigated agriculture. This strategy aimed at controlling total water use, efficiency, and water pollution while at the same time increasing agricultural production and farm income. 5. The World Bank has been supporting the Government’s National Irrigated Agriculture Water- Saving Program for more than 15 years. Both the first Water Conservation Project (WCP1) (CN-Water Conservation [P056516])1 as well as this WCP2 were part of that program. Important achievements have 1WCP1 (CN-Water Conservation [P056516]) consisted of US$74 million IBRD financing; it was approved by the Board in December 2000 and closed in June 2006. Both the Implementation Completion and Results Report (ICR) as well as the 1 The World Bank Water Conservation Project II ( P114138 ) resulted from this long-term engagement in the sector. WCP1 introduced and demonstrated innovative concepts on how water consumption can be reduced while farmers’ income increased and that workable institutional arrangements can be implemented to reduce the long-term depletion of groundwater resources. The achievements of WCP1 led to the scale-up of these lessons through other central government as well as local government programs as part of China’s goal to create a ‘water saving society’. This WCP2 is also considered as one of the ways the approaches and innovations introduced by WCP1 were scaled up to more provinces, demonstrating the success of transformative, long-term engagement. 6. The project was designed to further contribute to China’s long-term objective of sustainable economic growth and poverty reduction through improved agricultural water management and increase in water productivity. The project was further aligned with the 2006–10 Country Partnership Strategy (CPS)2 and directly supported one of the five themes of that CPS: managing resource scarcity and environmental challenges. The project further supported China’s 12th Five-year Plan (2011–15),3 which aimed to further the country’s strategy of building a water-efficient and environmentally friendly society and ensuring food security. Theory of Change (Results Chain) 7. With regards to the sector context described above, the project aimed at addressing issues of increasing water scarcity and sustainable WRM through a series of interlinked operations. To improve agriculture water management and to increase agriculture water productivity in the project areas, the project sought to reduce water withdrawal for irrigated agriculture in Ningxia Province, reduce groundwater overdraft in Hebei Province, reduce groundwater withdrawal in Shanxi Province, and provide incentives to farmers to reduce the agricultural input and/or increase the yield in all three of those provinces. 8. Reasons leading to inefficient and suboptimal agricultural water management are various and complex, including underperforming irrigation systems due to suboptimal design, inadequate system maintenance, or inefficient operating practices. The project sought to achieve improved agricultural water management through physical system improvements aimed at reducing leakages as well as NBET;4 and through institutional improvements, aimed at establishing self-managed water user groups of farmers as well as strengthening existing ones, to improve operation and maintenance (O&M) of the lower irrigation systems. These institutional improvements included extensive training, establishment of volume-based water charges, and the participation in water use planning and monitoring. 9. Another reason for high water withdrawal is uncontrolled water use, particularly through the mining of groundwater. The project sought to address this issue through a combination of supply-side measures such as water-saving infrastructure and technological improvements, as well as demand Independent Evaluation Group’s ICR review rate WCP1 as ‘Highly Satisfactory’. 2 The World Bank Group’s Country Partnership Strategy for the People’s Republic of China for FY2013–16. Report No. 67566-CN, 2012. 3 The 12th Five-year Plan for Economic and Social Development of the People’s Republic of China (2011–2015), Central Compilation and Translation Press, Beijing China, 2011. 4 NBET describes the evapotranspiration (ET) where water is not used for growth of crops. 2 The World Bank Water Conservation Project II ( P114138 ) management interventions such as volume-based water pricing, participatory water planning and self- management, and the introduction of consumption-based groundwater management. 10. Increase in agricultural water productivity was to be achieved through incentives to switch to higher-value crops through assistance with financing, technologies, practical training, and agricultural extension support. Reliable water delivery services further play an important role to provide farmers with the security of taking the risk and switching crops. That would be combined with accessible agricultural extension services, a favorable policy for water conservation and crop diversification. 11. The project further introduced actions to strengthen climate change adaptation capacity for irrigated agriculture, including factoring in increased hydrological variability into analysis and design, promoting water conservation, progressing institutional development, introducing drought-tolerant seed varieties and high-value crops, training on farming technologies to increase resilience, and introducing adaptation measures such as soil moisture preservation and balanced fertilizer application. Figure 1. Schematic Overview of the Project’s Theory of Change (Results Chain) Project Development Objectives (PDOs) 12. The PDOs are to improve agricultural water management and increase agricultural water productivity in the Project Areas. 13. The PDO was not changed during project implementation. 3 The World Bank Water Conservation Project II ( P114138 ) Key Expected Outcomes and Outcome Indicators 14. The project’s key expected outcomes, as stated in the PDO, consist of two parts: the aim to improve agricultural water management and the aim to increase agricultural water productivity. These objectives were to be achieved by the following outcome indicators: (a) reduction in water withdrawal for irrigated agriculture in Ningxia and Shanxi; (b) reduction in groundwater overdraft in Hebei; (c) increase in agricultural water productivity in Ningxia, Shanxi and Hebei; (d) water users provided with new/improved irrigation and drainage services, disaggregated between male and female; and (e) direct project beneficiaries, disaggregated between male and females. Components 15. The project has four components, as summarized in the following sections. Component 1: Water Works and Water-saving Facilities (estimated allocation US$98.71 million, actual allocation US$116.37 million) 16. Under this component, specific investments were carried out in 24 project counties for physical improvements of irrigation systems. The works aimed at increasing the delivery efficiency and included canal lining, dredging, a low rubber dam, a pump station, and conveyance pipelines, as well as on-farm works covering canal rehabilitation, low-pressure pipes, and micro-irrigation. Component 2: Agricultural Water-saving Measures and Support Services (estimated allocation US$25.31 million, actual allocation US$25.68 million) 17. This component aimed at providing financial and technical support to reduce NBET, increase the resilience of farm communities to climate change, and increase farm yield and output value. Activities included land leveling, crop residue utilization, plastic membrane covering for soil moisture preservation, balanced fertilizer applications, new seeds variety application, deep ploughing, integrated pest management (IPM) demonstrations, and greenhouses for high-value vegetables and fruits. Component 3: Management Measures and Institutional Development (estimated allocation US$6.44 million, actual allocation US$5.27 million) 18. Under this component, programs to improve agricultural water management capacity of irrigation management staff and user communities were carried out, aiming at saving water and increasing water productivity. It included activities such as participatory irrigation management through the establishment of water user associations (WUAs), training of farmers in irrigation management and agricultural technologies, development of WRM strategic plans, two innovative WRM pilot schemes, applied research on salinity control in high groundwater table areas, and ET-based WRM planning in water-scarce areas. Component 4: Project Management, Implementation Support (estimated allocation US$7.88 million, actual allocation US$9.89 million) 19. Activities under this component facilitated project implementation through surveys, feasibility 4 The World Bank Water Conservation Project II ( P114138 ) studies, designs, and construction supervision; the provision of mobile specialist teams for technical and management guidance; dam safety expert reviews and advices; the provision of project management support as well as results-based monitoring and evaluation (M&E); and the establishment of a management information system. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 20. The PDO was not changed during project implementation. 21. Linked to the changes made to the wording of the PDO indicators, as described in the following section, the outcome target described through PDO Indicator PO-4 ‘increase in agricultural water productivity’ was increased from 1.20 kg/m3 (of ET) to 1.32 kg/m3 (of ET), as the midterm review (MTR) identified that the achievement of this indicator would be much higher than originally projected. Revised PDO Indicators 22. The PDO indicators were not changed in their substance during project implementation. However, during restructuring, two PDO-level core sector indicators were added to the Results Framework (RF): ‘Direct Project Beneficiaries (number), of which female (%)’, and ‘Water users provided with new/improved irrigation and drainage services (number)’. Additionally, the final target number of one PDO indicator was increased to reflect the higher expected achievements of the projects, and the wording of two PDO indicators was revised to focus on groundwater withdrawal for easier use and measurement: • Indicator PO-1 was changed from ‘reduction in consumptive water use of irrigated agriculture (Ningxia)’ to ‘reduction in water withdrawal for irrigated agriculture (Ningxia)’ • Indicator PO-3 was changed from ‘reduction in consumptive water use of irrigated agriculture (Shanxi)’ to ‘reduction in groundwater withdrawal (Shanxi)’ 23. It is important to note that the terminology of ‘water withdrawal’ is not materially different from ‘reduction in consumptive water use’. No agricultural land was decommissioned, which would also have been one way to reduce water withdrawal and achieve these targets; instead, the project expected to achieve an actual net reduction of water withdrawal. Revised Components 24. The components were not substantially revised during project implementation. Changes made were linked to the change in counterpart financing and included a reallocation of loan proceeds between disbursement categories and changes in disbursement ratios for work categories in Hebei and Shanxi Provinces. 5 The World Bank Water Conservation Project II ( P114138 ) Other Changes 25. In addition to the changes to the PDO indicators, several of the targets of intermediate outcome (IOs) indicators were changed as well during the MTR. This included changes to the name of two IOs to match the wording of core sector indicators: ‘area equipped with water-saving irrigation facilities (ha)’ was changed to ‘area provided with irrigation and drainage services - new and improved (ha)’, and ‘number of functional WUAs new or strengthened (number)’ was changed to ‘operational WUAs created and/or strengthened (number)’; both are Core Sector Indicators. The target number of greenhouses to be built was reduced from 6,920 to 196 to reflect the actual need due to changes in market conditions (see Table 1).5 Additionally, two more Core Sector Indicators were included in the RF: ‘Direct Project Beneficiaries (number), of which female (%)’, and ‘Water users provided with new/improved irrigation and drainage services (number)’. Table 1. Changes in Project Targets of Greenhouses per Province Target No. of Target No. of No. of Greenhouses Province Greenhouses at Greenhouses After Constructed at Appraisal Restructuring Closing Ningxia 6,750 0 0 Shanxi 170 196 196 Hebei 0 0 0 Total 6,920 196 196 26. During restructuring following the MTR, total counterpart financing was increased from US$80,000,000 to US$96,455,000 and reduced to US$83,303,370 at project end. The World Bank loan amount was not changed at the MTR; however, it was reduced to US$76,727,180 at project end bringing the total project cost to US$160,030,540. Rationale for Changes and Their Implication on the Original Theory of Change 27. The reason for the changes in indicators, counterpart financing, and disbursement made during MTR was to adjust the project to the financial conditions in the country and to the implementation progress at that time. Regarding the financial conditions during implementation, the actual costs of completed project activities at the time of the MTR were higher than expected due to a higher inflation rate than estimated at appraisal. Changes in the designs of several subprojects in Shanxi Province and contract variations due to changes made to technical specifications as well as additional flow meters also added to the total costs of the project. A 10 percent devaluation of the U.S. dollar compared to the Chinese yuan since appraisal has increased the projected costs of the project in U.S. dollars. 28. Implementation progress had been delayed during the first half of project implementation in Hebei Province and parts of Shanxi Province due to the unavailability of counterpart funds. To speed up implementation after MTR, several eligible project activities were selected to be fully financed by national 5The construction of greenhouses in Ningxia under the project was cancelled since it became clear during implementation that the expected level of profitability of growing crops in greenhouses had decreased due to the increasing number of greenhouses available in Ningxia Region, which were financed by other programs. 6 The World Bank Water Conservation Project II ( P114138 ) and provincial government-funded agricultural and conservation programs, while other activities were fully financed by the World Bank loan. This required a reallocation of loan proceeds between disbursement categories as well as changes in disbursement ratios. As a concrete example, the construction of pumps was taken out of project-financed water wells rehabilitation contracts and instead provided through a national government-funded program. 29. These changes did not affect the scope or PDO of the project; neither did they trigger any new safeguard policy nor change an existing safeguard category. The overall implementation risk after these changes in funding arrangements was rated as Moderate at that time. II. OUTCOME A. RELEVANCE OF PDOs 30. The PDO ‘to improve agricultural water management and increase agricultural water productivity in the Project Areas’ remained highly relevant to China’s development priorities and the national policy context throughout the duration of the project. The project activities and objectives of improving agricultural water management through reducing water withdrawals are considered an essential contribution to China’s Three Red Lines Policy of Water Resources Management.6 The project further remains aligned with China’s current 13th Five-year Plan 2016–20, where it is specifically linked to a number of chapters on agricultural development and water and food security.7 31. The PDO further remains aligned with the World Bank Group’s CPS for FY13–16, which focuses on three main areas of engagement. As such, the project’s objectives remained important to achieving the CPS’s development objectives through three main areas: (a) supporting greener growth, specifically promoting sustainable agricultural practices and demonstrating pollution management, as well as strengthening mechanisms for managing climate change; (b) promoting more inclusive development, by enhancing opportunities in rural areas; and (c) advancing mutually beneficial relations with the world, by supporting China’s South-South cooperation and China’s role as a global stakeholder through the piloting and advancing of agricultural water management and agricultural productivity. This project, as the follow- up of the WCP1, is following WCP1’s design of introducing and mainstreaming the innovative concept of value added per unit of ET, shifting the focus of the World Bank away from promoting only crop diversification toward promoting improved cropping and agronomic improvements and the volumetric 6 The Three Red Lines Policy was passed in 2011 and outlines efforts to control total water use, improve water use efficiency, and control water pollution. It provides concrete thresholds that must not be exceeded by 2015, 2020, and 2030, respectively. This includes targets for total water consumption as well as minimum irrigation efficiency rates. 7 The 13th Five-year Plan for Economic and Social Development of the People’s Republic of China (2016–20), Central Compilation and Translation Press, Beijing China, 2016. The PDO is aligned with a number of goals in this plan, for example, Chapter 18: Strengthen Capacity for Ensuring Safety of Agricultural Products by fostering Sustainable Agricultural Development; Chapter 19: Establish a Modern Agricultural Operations System that cultivates a new type of professional farmer; Chapter 20: Improve Technology and Equipment and Increase Information Technology Application in Agriculture; Chapter 31: Strengthening Water Security by improving water resource allocation; Chapter 57: Support Accelerated Development of Poor Areas by increasing farmers’ disposable income; and others. 7 The World Bank Water Conservation Project II ( P114138 ) measurement of water use. This concept had changed the way agricultural water is managed in China. Assessment of Relevance of PDOs and Rating 32. With the alignment of the PDOs to all three main areas of engagement of the CPS, as well as its relevance to China’s national water resources related policies, the relevance of the PDO is rated as ‘High’. B. ACHIEVEMENT OF PDOs (EFFICACY) 33. The PDO consists of two parts: (a) improve agriculture water management and (b) increase agriculture water productivity in project areas. The project fully achieved the PDOs according to the agreed indicators, with several of them overachieving their targets. Assessment of Achievement of Each Objective/Outcome 34. PDO#1: Improve agriculture water management: The first part of the PDO, improving agriculture water management, was to be achieved through a reduction of water withdrawal for irrigated agriculture in Ningxia Province, a reduction in groundwater overdraft in Hebei Province, and the reduction of groundwater withdrawal in Shanxi Province. All these indicators have been achieved, some of them beyond the targets set out in the Loan Agreement. Water withdrawal for irrigated agriculture in Ningxia has been reduced by 22.67 million cubic meters (MCM), exceeding the target of 22.20 MCM. Groundwater overdraft in Hebei has been reduced by 16.52 MCM, exceeding the target of 13.50 MCM. Groundwater withdrawal in Shanxi has been reduced by 5.80 MCM, exceeding the target of 5.70 MCM. 35. Overall, new or improved irrigation and drainage services was provided to 594,200 water users, thereby exceeding the target of 552,000. Of these, 287,300 (or 48.35 percent) were women, also slightly exceeding the target of 267,000. As outlined earlier in the Theory of Change, reducing groundwater withdrawal of irrigated agriculture is achieved through a better flow of water through the system, a reduction of losses, and an overall more efficient delivery of water to the irrigation systems. This can be achieved by improving the physical conditions of the irrigation system as well as through increasing institutional and organizational capacity of farmers and operators. The project sought to tackle these challenges of underperformance through physical system improvements such as canal linings, dredging of canals, and the construction of a conveyance pipeline in Shanxi Province as well as by organizing farmers into WUAs and providing them with devised roles and responsibilities as well as training to improve the efficiency and sustainability of the irrigation system. Figure 2 shows an exemplary groundwater table trend line during the Project timeline that shows groundwater table recovery. 36. Specifically, the project completed physical works in the form of main channel linings of 21.765 km (reaching 100 percent of the targets set out in the RF) to reduce non-beneficial leakage and evaporation of irrigation water; water conveyance pipelines of 88.38 km length (100 percent of target) supplying 24.34 MCM per year to townships and villages in Shanxi; and water saving on-farm works and technologies covering an irrigation area of 59,849 ha (100 percent of target), including canal rehabilitation, installation of low-pressure pipes, and micro-irrigation. Further, a low, hydraulically operated rubber dam (weir) for water regulation in Jiexiu County as well as a pump station in Lishi County were completed. 8 The World Bank Water Conservation Project II ( P114138 ) Figure 2. Exemplary Groundwater Table Recovery between November 2011 and November 2016 in the Project Area Linxian Yang Village in Shanxi Province Source: Data from M&E system. Note: Y-axis: water level (m); not all data show results as clear as this one due to seasonal weather variability, but project data provide general evidence of groundwater table recovery in project areas. 37. In parallel, institutional changes were undertaken, aiming at an improvement in system maintenance. In project areas, self-managed WUAs were newly established or existing ones strengthened, giving their member farmers and water users the responsibility to operate and maintain parts of the irrigation system. The introduction of irrigation system management through WUAs followed the lessons on the successful implementation of this approach in WCP1, where management and financing responsibilities were transferred to WUAs together with utilizing the associations as a channel to introduce project innovations such as improving water management and farming productivity. A similar approach was taken during WCP2, which included providing training to farmers on irrigation management and agricultural technologies to save water and increase productivity. WUAs were given the mandate to collect volume-based water charges and participate in water use planning and monitoring. Altogether, 290 WUAs in the three provinces have been created or strengthened by the project, comprising over 800 staff and more than 165,000 members. The WUAs have organized the farmers around the management of the irrigation systems, water conservation, and water-saving measures, as well as tools and approaches to increase their productivity. The WUAs’ influence and support was highly appreciated by their members, as repeatedly expressed during various missions. The involvement of farmers in preparation, management, and maintenance of agricultural water-saving irrigation projects had a direct impact on the functionality and sustainability of the measures taken, as well as on the acceptance of new ideas and concepts by the farmer communities. The project indicators of reduction in water use, ground water abstraction, and increase in productivity are based on the collaboration of farmers toward achieving these targets. 38. In Qingtongxia (Ningxia) and Guantao (Hebei), ET-based water rights/entitlement systems were piloted, aiming at establishing a control target for water consumption, considering all different water 9 The World Bank Water Conservation Project II ( P114138 ) users such as agriculture, domestic, and industrial water use. Based on these pilots, integrated water conservation plans were developed to provide technical support to the development of water systems in the municipalities. Resulting from these pilots, Guantao Municipality established a water entitlement system for the entire county that granted a certain volume of water to each user. Tariffs were set progressively based on availability of water, including another price system ‘mentioning a meeting’ agricultural price system, where overdraw is subject to a surcharge. Water is being measured either by flow measurement facilities or through electricity usage in the absence of these facilities. Luanan County in Hebei Province included the piloted concept into their 13th Five-year Plan, aiming for ‘total volume control, and measure against the quota’, and installed flow meters for all the non-agriculture water use for the collection of the water conservation tax.8 Based on the success of this concept as introduced by the project in Hebei, the Government of China has expanded the use of this water conservation tax to nine other provincial regions, including Beijing, Inner Mongolia and Ningxia9. 39. PDO#2: Increase agriculture water productivity: Regarding the second part of the PDO, average agriculture water productivity in three project provinces has been increased to 1.40 kg/m3 ET, thereby exceeding the target of 1.32 kg/m3 ET (see Table 2). To achieve this increase in agriculture water productivity, the project sought to financially and technically support farm communities to reduce NBET, increase resilience to climate change, and subsequently lead to increased farm yield and output value with much lower water consumption. This was achieved through approaches toward crop diversification switching to less water-intensive and higher-value crops (for example, switching between wheat, corn, vegetables, fruit trees, and cash crops, as well as to greenhouses, see Table 3), preservation of soil moisture and fertility, and overall increase in efficiency of water use. Specifically, this included interventions such as land levelling on 29.492 ha, crop residue utilization on 25,676 ha, plastic membrane covering for soil moisture preservation on 15,222 ha, balanced fertilizer application on 31,114 ha, the application of new seed varieties on 15,057 ha, deep ploughing, demonstrations of IPM, and the development of 196 greenhouses for growing high-value fruit and vegetables. Table 2. Increase in Crop Yield for Selected Crops during Project Implementation Crop Yield at Baseline 2011 Crop Yield at Closing 2016 Province Crop Type (kg/m3) (kg/m3) Ningxia Wheat 0.49/0.59 0.66 Corn 1.03/1.24 1.61 Rice 0.75/0.79 0.9 Shanxi Wheat 0.85/0.88 1.12/1.13 Corn 1.56/1.76/1.75/1.79/1.67 2.24/2.23/2.21/2.21/2.26 Millet 0.57/0.58 0.79/0.72 Vegetables (open field) 4.19/4.68 4.84/5.19 Vegetable (greenhouse) n.a. (no greenhouse) 13.01 Hebei Wheat 1.00 1.32 Corn 1.59 1.97 Peanuts 0.85 1.06 8 This tax is imposed in Hebei at provincial level and used as subsidy for water conservation. 9 China Daily newspaper. http://www.chinadaily.com.cn/china/2017-12/01/content_35148211.htm, accessed Dec. 6, 2017. 10 The World Bank Water Conservation Project II ( P114138 ) Cotton 0.16 0.21 Fruits 8.43 9.67 Walnuts 0.34 0.58 (2014) Vegetables (open field) 4.82 6.04 Source: Data from borrower’s M&E system. Table 3. Change of the Selected Crops during Project Implementation Crop Area at Baseline 2011 Crop Area at Closing 2016 Province Crop Type (Percentage of Total Farm (Percentage of Total Farm Area) Area) Ningxia Wheat 30.02 18.17 Corn 18.70 30.91 Rice 27.07 26.41 Vegetable 7.67 6.91 Shanxi Wheat 8.10 8.76 Corn 66.00 55.90 Millet 11.40 10.34 Vegetables (open field) 14.50 17.81 Walnuts n.a. (no walnuts) 0.47 Hebei Wheat 72.54 59.24 Corn 65.65 56.49 Cotton 22.20 36.25 Fruits 1.28 1.28 Rapeseed 5.56 5.56 Vegetables (open field) 2.78 2.41 Source: Data from borrower’s M&E system. Note: Changes in crop selection varies between province; the corn variety grown in Ningxia, for example, has a higher productivity, a higher market value in recent years, and higher water savings with the use of plastic membrane for soil moisture. In Shanxi and Hebei, corn was reduced in favor of wheat, vegetables, and cotton. Justification of Overall Efficacy Rating 40. Given the full achievement of the targets set out in the PDO indicators, and the almost full achievement of the intermediate indicators, the overall efficacy can be rated as ‘Substantial’. C. EFFICIENCY 41. Following the methodologies adopted in the Project Appraisal Document (PAD), a cost-benefit analysis was conducted to reassess the project’s ex post economic viability, covering the total project costs. The economic benefits associated with the project are derived from three outcomes: (a) the economic value of water resources saved, (b) the value of industrial and drinking water used from reservoirs constructed by Government funding, and (c) agricultural production from improved irrigation efficiency and water productivity. The economic rate of return (ERR) for the whole project was calculated at 19 percent, indicating that the project is economically viable. The result at ICR (ERR of 19 percent) is comparable to that in the PAD (ERR of 20 percent). 11 The World Bank Water Conservation Project II ( P114138 ) 42. Several nonquantifiable social and environmental benefits were also generated by the project, including mitigation of groundwater overdrafting and the consequent degradation of the ecological environment, improved water management including the social capital and institutional capacity involved, and improved quality of soil and agricultural products due to the adoption of IPM. These benefits were not included in the calculation, making the ERR estimation conservative. 43. Financial analysis was conducted to (a) gauge the impact on farmers’ incomes and (b) evaluate farmers’ ability to pay the water charges to cover the O&M costs. Crop budget and farm models have been formulated under ‘with’ and ‘without’ project situations to gauge the financial attractiveness to the beneficiary farmers. The results show a substantial increase in farmers’ income from improved crop production (from 36 percent to 74 percent), providing adequate incentive to farmers to participate in the project, take responsibility for O&M of the on-farm irrigation system through the WUAs, and pay higher unit water charges. The fiscal impact after project completion is minimal as the project introduced participatory and sustainable O&M practices to assure adequate funding for O&M (see annex 4 for more details of financial and economic analysis). Assessment of Efficiency and Rating 44. The administrative efficiency of the project was satisfactory as it completed all tasks and achieved all targets within the envisaged time frame. Efficiency has been rated ‘High’ based on robust economic viability and satisfactory project administrative efficiency. The project was completed by the original closing date and the loan funds were nearly fully utilized (97 percent). D. JUSTIFICATION OF OVERALL OUTCOME RATING 45. Based on the above mentioned assessment and ratings—relevance of the PDO rated as High, efficacy of the PDO achievement rated as Substantial, and efficiency of the project rated as High—the overall outcome rating of the Project is rated as ‘Satisfactory’. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 46. The project did not include a gender tag, indicating that the project design did not conduct specific analysis to identify gaps between men and women related to project activities, did not include specific actions to address gender gaps, nor did it include specific indicators in the RF to measure gender relevant progress. At restructuring, outcome indicators were revised to include the number of female beneficiaries, one of the World Bank’s core indicators, into the RF. This number was measured and reported continuously; the target of 267,000 set for female beneficiaries was achieved with 287,300 female beneficiaries reached. 47. The project did have a positive impact specifically on women in the project areas. In most of the project areas, predominantly male migration to cities has been occurring, leaving women with the remaining work at home, which consists mainly of agricultural labor. Although not measured systematically and in more detail, the introduction of agricultural measures such as the provision of 12 The World Bank Water Conservation Project II ( P114138 ) greenhouses helped reduce heavy physical labor and provided a more protected working environment, specifically benefiting women. The increase in farmers’ income through the increase in yield and value of agricultural products also benefited women by raising the families’ living standard and status, especially for those households where men had migrated to cities and that were (temporarily) headed by women. As reported from Hebei Province, WUAs’ responsibilities included the coordination arrangements for vulnerable groups of women with regard to the rational division of labor based on the capabilities and needs of communities and provided measures to assist families in need of support for certain activities. Institutional Strengthening 48. Component 3 of the project was dedicated to institutional strengthening of water user communities through the establishment of new WUAs, or the strengthening of existing ones, as well as through provision of training of farmers in irrigation management and agricultural technologies. More systematically, institutional development was undertaken through the development of WRM strategic plans in selected counties and through two innovative WRM pilot schemes. As outlined in the section on relevance of the PDO, the aspect of introducing innovative concepts and technologies, and helping local institutions adopt and apply these, was one of the main objectives of this project. As mentioned in section B, Luanan County in Hebei Province adopted the piloted concept into their Five-year Plan. Poverty Reduction and Shared Prosperity 49. The project areas suffered from severe water shortages and faced problems such as drought, low irrigation efficiency, and poor income of farmers. About 10 percent of the beneficiaries of the project were classified as ‘poor’. The project’s achievements of increasing farmer income contributed to shared prosperity of the project areas and thereby also benefitted the poor in each area. Table 4 gives an overview of the social impact, including the number of poor people in Hebei Province. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 50. Soundness of background analysis: The project’s design was built on the successful achievements of and lessons learned from its predecessor project WCP1 (2000–06). The design of WCP1 combined efforts to reduce consumptive water use with incentives for farmers to change water use and water management behavior. Investments in engineering works were combined with agricultural investments in husbandry and cropping pattern improvements and improved irrigation management, which made it possible for farmers to raise their incomes while reducing water consumption and helping groundwater levels recover. This approach was replicated in this WCP2, which aimed at scaling up the successful approach of WCP1 to three most water-stressed provinces. 51. The project further incorporated specific concepts and approaches introduced and piloted by WCP1; consumptive water use was measured per unit of ET10 with the support of remote sensing 10 Measuring water use as per unit of ET provides the most accurate information on actual net water savings made. Although 13 The World Bank Water Conservation Project II ( P114138 ) technology rather than through coefficients or water balance calculations. Although it was initially highly contentious, this new concept proved to be functioning well as a data basis for overall river basin management and for allocation of water rights and quotas at all levels from sub-basins down to individual farmers. In WCP2, this concept of ET measurement was continued. 52. To help farmers adopt these new approaches and methods and ultimately change their water use and water management behavior, the project further incorporated lessons from WCP1 on the flexible and decentralized approach to facilitate WUA development. WUAs were set up as democratic, self-organized associations based on hydraulic boundaries, measuring and charging for water on a volumetric basis. Important factors to be included in WUA development were the adaptation to local social, political, and economic circumstances, the involvement of farmers from the very beginning in the design of subprojects, and the transfer of responsibilities and control to the WUAs. 53. Realistic objectives and design. In line with the high relevance of the PDO with China’s development priorities as well as with the China CPS FY13–16, the objectives selected for this project are clear and well focused to address the sector challenges the country is facing. Further, the project designed its structure by aligning the components with the objectives to separate between physical works, water management, and agricultural water management. 54. Well-designed RF. The RF developed for the project included a systematic and methodological breakdown of the underlying theory of change, with PDO-level indicators and intermediate results indicators adequately but realistically measuring the PDO. The RF included several intermediate result indicators disaggregated by component, which sought to measure key aspects contributing to the outcome indicator. Despite that level of detail, the indicators were designed to be simple and realistic. 55. The project had an appropriate plan for monitoring with M&E consultants being established at provincial level as well as at national level. Establishing a results-based M&E system was included as one of the intermediate results indicators in the RF. The M&E consultants conducted their analysis based on scientifically accepted methodologies that included establishing a baseline, obtaining data from local institutions after having provided training and instructions on data collection standards. The analysis provided a timely identification of the project’s progress as well as potential issues, keeping project management informed and allowing them to act appropriately. 56. Readiness for implementation: The project has undertaken appropriate measures to ensure readiness for implementation. Based on the lessons from the predecessor project WCP1, technologies proposed were international best practice and well-proven. Implementation arrangements followed lessons from WCP1 in considering the different levels of capacities of the project management offices (PMOs), from national and provincial level, down to WUA level. Feasibility studies were carried out by competent national consulting firms before implementation to ensure quality of technical design, and agencies from other related sectors like agriculture actively participated in project design. Project design water can escape from the system through leaking pipes or rough canal walls, this water still returns to the hydrological system through runoff or percolation into aquifers and can potentially be reused afterwards. This causes economic losses since energy has been used to divert, deliver, and apply it to the crops, but no net water losses. Determining net water losses as well as savings can therefore be done by measuring ET and use that as basis for productivity. 14 The World Bank Water Conservation Project II ( P114138 ) further was in line with concerned river basin water resources plans and local agricultural development plans for an integrated approach to implementation. 57. Adequacy of Risk Assessment: The identification of risks to the project and its rating as Moderately Low was adequate. Risks related to the commitment of stakeholders, implementing agency, and complexity of project design were identified during appraisal together with mitigation measures, which proved successful. In the case of a delayed provision of provincial counterpart funds in Shanxi Province, the project design through its combined top-down and bottom-up decision process involving both farmers through the WUAs as well as local government offices ultimately helped expedite implementation in that province and achieve targets as planned in the timeframe provided. B. KEY FACTORS DURING IMPLEMENTATION 58. Government commitment and Implementation Arrangements: Project implementation units were established at national, provincial, and county level, consisting of technical groups, management offices, loan offices, and consultation expert groups, to ensure smooth implementation in line with World Bank regulations as well as national laws and regulations. Through this system, project implementation was supervised and monitored at the appropriate levels, which, together with the availability of timely analysis on project progress from the M&E system, allowed the management team to guide implementation in an effective manner. Given the relevance of the project’s design and objectives to the overall Government agenda of water conservation, and given the success and impact of the WCP1 (rated Highly Satisfactory), commitment and leadership was high from the beginning, and continued throughout project implementation. In line with the objectives set out in the CPS FY13–16, China is continuing to expand its role as a global stakeholder, and innovations in the field of water conservation and agricultural water management, and the project served as an example of the achievements possible with successful interventions. This commitment and leadership was evident through the attention the project received at all levels of government, national, provincial, and county level; the visits the project received from government leaders; and the speed with which arising issues could be resolved. 59. The project provided a range of opportunities for technical training, expert technical lectures, and guidance, both at home and abroad, strengthening the quality and skills of participating project personnel. Through regular project meetings, seminars, exchanges, and training of farmers, the project staff could explain and discuss the concept used, and the results achieved, during implementation with stakeholders. 60. Fiduciary arrangements: The project teams made an effort to comply with existing Government and World Bank standards by carefully distributing and studying all relevant project documents, guidelines, and regulations to the management units at all levels. Small irregularities did occur with regard to financial management and procurement but could be rectified soon after they were identified. Due to the small nature of the physical works, mostly on-farm and without the need for large land acquisition, social and environmental issues were largely managed to a satisfactory level. Where needed, compensation was paid out on time and in full. 61. Mid-term restructuring: At MTR, two PDO indicators were restructured to simplify the technical language to allow for easier measurement - ‘consumptive water use’ was replaced with 15 The World Bank Water Conservation Project II ( P114138 ) ‘water/groundwater withdrawal’ (see section B). Further, several intermediate results indicator targets were changed to account for progress on actual investments and results made to date. These changes were adjustments against arising issues such as initial slow implementation in some areas and the insufficient availability of counterpart funds in one province and allowed project implementation to be fully implemented on time, using nearly full loan resources and in achievement with its core goals. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 62. The project followed a clearly structured theory of change, outlining how project activities of each component would contribute to achieving the PDO. The PDO was disaggregated succinctly into the four main PDO indicators, which covered both parts of the PDO for all provinces—one PDO indicator for the first part of the PDO for each of the three provinces and the last indicator for the second part of the PDO for all three provinces combined.11 63. Individual consultancies were hired during preparation at national level as well as provincial level in all three project provinces to establish a baseline for the M&E system between 2010 and 2012 through soil sampling, field surveys, and farm visits. The baseline values were effectively used during the implementation and ICR, against which to measure the status and the achievements of the PDOs. 64. The initial design of two of the PDO indicators turned out to be less suitable for practical implementation, requiring a change in the wording of the indicators for easier use and measurement (see section B). The RF further had difficulties comprehensively measuring, analyzing, and describing benefits and impacts of some social issues beyond more general indicators such as proportion of women beneficiaries. M&E Implementation 65. The project M&E work was contracted out to well-qualified institutions to undertake continuous monitoring, analysis, and reporting on outcome and intermediate indicators regarding the project’s progress. The contracted institutions followed the methodologies and the frequency of data collection as specified in the PAD, considering lessons from WCP1. Measurement of water withdrawal was done by comparing the water flow in the irrigation system and combining it with samples of water in the crop fields; water productivity was measured through calculating crop production per unit of water evapotranspired. The M&E report was prepared regularly with quantitative target values updated on a timely basis. 66. The M&E teams proceeded with continuous data collection and field investigation throughout project implementation, and the timely monitoring on the project’s overall progress. Information 11 Refer to Section I. Project Context and Development Objectives 16 The World Bank Water Conservation Project II ( P114138 ) provided from the monitoring system was validated with regard to its authenticity and reliability through intercalibration between different sectors, layers, and data sources. Feedback on the project progress was obtained by discussing the monitoring results with technicians and farmers of the project regions, further improving the accuracy of the results as well as providing feedback and training to the implementation level of the aggregated achievements. It would have been desirable to undertake more thorough field surveys with project beneficiaries to identify specific ways that the project benefited women, vulnerable groups, or the poor. M&E Utilization 67. The results of the M&E process have been compiled and utilized by project management and decision makers to monitor progress closely and make changes to the project’s structure during restructuring after MTR as necessary. Owing to extensive monitoring network, the validation methods used for collected data as well as the feedback mechanisms, project management could identify the major issues regarding scope and status of the implementation progress and align the targets of the RF indicators accordingly so that almost all of them were achieved upon completion within a range of a few percentage points above the set targets. Justification of Overall Rating of Quality of M&E 68. Considering the comprehensive and thoroughly designed, implemented, and utilized M&E framework, but also considering a few areas that could have benefited from a more thorough analysis, the overall rating of quality of M&E is ‘Substantial’. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 69. Fiduciary. The project’s overall financial management system can be rated as ‘Moderately Satisfactory’. An integrated project management system was maintained for accounting, financial reporting, and disbursement purposes throughout implementation. However, due to staff turnover and inadequate data entry, not all required financial reports were provided on time for some reporting periods. The required audit reports with unmodified audit opinions have been submitted to the World Bank. General financial management issues included slow implementation, lack of counterpart funds during the early stages of the project, and contract payments. The noncompliance issues have been rectified by PMOs as requested. Issues related to counterpart funding have been addressed through project restructuring. 70. Procurement. The overall project procurement performance was rated as ‘Moderately Satisfactory’. The procurement process of the project has generally complied with the World Bank’s procurement rules and procedures, even though some minor deviations were identified and rectified during the project implementation period, such as delayed payments due to internal management efficiency, and other contract management-related issues. The project implementation agencies demonstrated sufficient capacity in carrying out the project procurement activities in a rather satisfactory manner, including procurement preparation, procurement planning, bidding process, and contract management. 17 The World Bank Water Conservation Project II ( P114138 ) 71. A Resettlement Policy Framework (RPF) and a Social Assessment Report were prepared in the project preparation stage due to minor land acquisition demand and significant social impacts in the three provinces/autonomic administrative regions. Both documents were fully implemented, with separate provincial-level monitoring and reporting. The social safeguards implementation under the project was generally satisfactory. 72. Social impacts and implementation. The project activities involve physical construction and rehabilitation of farmland-related facilities such as paths, irrigation canals, wells, sluices, bridges, and protective forest. Most of these were built and owned by and therefore benefitted local communities. Due to this participatory implementation, hardly any land acquisition or compensation was necessary. Only a few public facilities controlled by the county government or townships in Shanxi Province required land acquisition or compensation. The other two provinces reported no land acquisition impacts. The project did not entail household relocation. All land-related compensation was fully disbursed to the affected people in accordance with the prepared RPF and domestic land law. Table 4 provides an overview of the relevant social data. Table 4. Social Impact During Implementation Item Unit Hebei Ningxia Shanxi Total Permanent land Land Acquisition mu* 0 0 3.58 3.58 acquired Temporary land mu* n.a. n.a. 2,077.281 2,077.281 acquired Cost CNY 1,000 n.a. n.a. 9,310 9,310 Other Social Results WUA Number 201 37 52 290 Trainee Person 300 3,689 3,098 7,087 Female Trainee Person 109 1,417 1,675 3,201 Poverty Trainee Person 33 0 1,080 1,113 Beneficiaries 1,000 persons 322 133 139 594 Female Beneficiaries 1,000 persons 160 61 66 287 Poor Beneficiaries 1,000 persons 12.6 0.0 48.7 61.3 Note: *The data are based on implementation completion reports from the three provincial PMOs. Mu is a Chinese unit of land measurement. 1 hectare equals 15 mu. 73. In total, 290 WUAs were established in the project area, 52 in Shanxi, 37 in Ningxia, and 201 in Hebei, with participation from 760,000 farmers. All WUAs were formally established with proper facilities and management committees and full support from their member farmers. They started their operation to participate in the management of irrigation systems, participate in project activity construction, and coordinate with water authorities. The WUAs promoted self-management and helped increase the capacity of farmers in dealing with irrigation-related matters. Through the close involvement of WUAs, the sustainability of project activities in the project area was strengthened by being in line with local circumstances, traditions, and preferences. In addition, the WUA also functioned as a platform to distribute information, conduct consultations, and for participation, to address complaints or resolve any 18 The World Bank Water Conservation Project II ( P114138 ) problems during project implementation. 74. As anticipated during project preparation, the project implementation has brought about overall positive environmental impacts in the project areas, especially in relation to the improvement of water resource utilization efficiency and farmland ecosystem. The project was appropriately classified as Category B with limited adverse environmental impacts mainly during construction phase. Three environmental safeguard policies were triggered for the project, namely, Environment Assessment (OP/BP 4.01), Pest Management (OP 4.09), and Safety of Dams (OP/BP 4.37). During project preparation, the Environmental Impact Assessment and Environmental Management Plans (EMPs), together with the Pest Management Plan, were developed for all the three project provinces (Hebei, Ningxia, and Shanxi). During implementation, the project compliance with the World Bank’s environmental safeguard policies was generally deemed satisfactory, as described in the following paragraphs. 75. Environment Assessment (OP/BP 4.01). According to the provided semiannual M&E reports, appropriate mitigation measures have been taken during project construction to address the resulting environmental impacts based on the EMPs. In addition, the continuous monitoring of soil and groundwater quality since project implementation has indicated the compliant groundwater quality, slower drop in water table, and soil fertility improvements in the project areas. 76. Pest Management (OP 4.09). The project improved agricultural irrigation systems and provided supports crop diversification (for example, development of vegetable greenhouses). As an integral part of good agricultural practice, the IPM approaches have been promoted in the project areas by following the guidelines of the Pest Management Plan developed during project preparation. Local agricultural technologists were engaged to provide targeted and effective training to the farmers for safe and scientific pest management. 77. Safety of Dams (OP 4.37). The policy was applied to a project-financed two-meter-high rubber dam for irrigation and six existing linked dams upstream of the project areas (four in Shanxi and two in Ningxia). During project preparation and implementation, the independent dam safety specialist has been maintained to review the safety status of six existing linked dams, where no irregularities were found. For the new rubber dam, the qualification of its designer has also been reviewed to ensure a sound design in terms of dam safety. 78. Public consultation and information disclosure. In accordance with World Bank policies, public consultation and information disclosure were conducted during the preparation of Environment Assessment documents. The Chinese versions were disclosed locally in the project areas in October 2010, and the final safeguard documents were sent to the World Bank’s InfoShop for disclosure on October 4, 2010. C. BANK PERFORMANCE Quality at Entry 79. The World Bank teams incorporated relevant lessons from the WCP1 in the design of the project 19 The World Bank Water Conservation Project II ( P114138 ) and ensured that the objectives were fully aligned with the issues highlighted in strategic documents, namely the 2006–10 CPS and the 2002 Country Water Resources Assistance Strategy. The project’s design was further aligned with key Government priorities at the national and provincial levels in the corresponding Five-year Plans. State-of-the-art technologies and management systems were integrated into the project concept and design. The World Bank ensured that a team of specialists was mobilized to address all relevant project aspects, including technical aspects, social and environmental safeguards, and M&E. 80. Measures to mitigate the project’s moderate to low-rated stakeholder risk were incorporated into the project design that combined water-saving efforts with incentives for farmers to increase income. This was further supported by guidance from national authorities on relevant feasibility studies and mobile specialist teams in each province to provide quality assurance. Through this decentralized implementation support structure, the well-designed RF, and the thorough M&E system, the World Bank team was able to closely monitor implementation progress and provide targeted support on relevant issues where needed. Quality of Supervision 81. The World Bank team provided timely and effective advice to counterparts, who ensured satisfactory implementation of the project by quickly addressing issues as they arose. Advice from the World Bank teams focused on the entirety of irrigation systems to ensure functionality and higher efficiency of water savings and increased productivity. Further, advice focused on overcoming delays, inconsistencies, and expediting administrative steps to keep up with the implementation schedule. The World Bank undertook an MTR at the end of 2014, followed up by a restructuring in mid-2015, which identified the adjustments needed for the project to achieve its outcome. 82. The World Bank provided ongoing implementation support on fiduciary and safeguard issues during project implementation. In particular, it provided advice to counterparts on satisfactory implementation of the RPF and compliance with World Bank policies on procurement and financial management (see section B). Project ratings in the Implementation Status and Results Reports were candid. Progress toward achievement of the PDO was consistently rated ‘Satisfactory’ throughout implementation. The aide memoires described the issues encountered in sufficient detail, and recommendations to address issues were agreed with the implementing agencies. Urgent issues were promptly brought to management attention. 83. The World Bank further conducted regular supervision missions with frequent field visits to construction sites, resettlement sites, and other project areas to ensure that effective mechanisms for quality control and compliance with World Bank requirements were in place. The World Bank’s multidisciplinary teams (with skills in financial management, procurement, institutional development, economics, project evaluation, and just-in-time technical expertise) reviewed all relevant documents before, during, and after supervision missions. Justification of Overall Rating of Bank Performance 84. Based on the quality of World Bank performance at entry and at supervision, the overall rating of 20 The World Bank Water Conservation Project II ( P114138 ) World Bank performance is ‘Satisfactory’. D. RISK TO DEVELOPMENT OUTCOME 85. One risk to development outcome pertaining to project completion relates to the financial sustainability of WUAs. Sustainability of WUAs depends on a variety of factors, from the acceptance and engagement by farmers, the overall impact the WUA has on operating and maintaining the irrigation system, the support it provides to farmers on new approaches and technologies used, and the overall increase in yield, productivity, and income achieved among its members. Most of these indicators have shown good results for the majority of the WUAs under the project. However, several also reported operating below cost-recovery level, therefore relying on Government subsidies. This poses a risk to the development outcomes of the project, albeit a low one. With the relevance of the project to the Government’s agenda, and the strong fiscal capacity of the Government, it can be assumed that Government subsidies for WUAs will continue to be made available given the positive results of the project. 86. In the long term, however, WUAs should continue refining their system of volume-based water payments and aim for full cost-recovery level of fee collection. This requires adjustments to the way tariffs are set and collected. Most WUAs do collect tariffs but collection rates are often low or the approved tariff is insufficient for full cost-recovery level. Further, a conflicting set of incentives exists for WUAs located in water-stressed areas (for example, in Ningxia). On the one hand, they are required to work toward reducing overall water use in their respective irrigation systems. On the other hand, their revenues in the form of volume-based water fees will decrease with every unit of water saved. This issue requires rethinking the fee structure, for example, by combining the volume-based fees with a flat rate base tariff to avoid risks to the financial sustainability of the WUA or risks to the reduction of water use in those irrigation systems. V. LESSONS AND RECOMMENDATIONS 87. Key for successful implementation of the project is ownership of the project through all levels of Government. Given the relevance of the project to the Government’s development agenda, leaders at all levels of Government focused on the project’s progress and implementation management, and set up effective interdepartmental, multilevel cooperation mechanisms. This attention and commitment to resolve issues quickly allowed the project to progress as planned and complete its activities on time. It is therefore confirmed again that ownership of the project at all levels of Government is crucial to successfully achieving outcomes, and the World Bank together with the clients should take measures necessary to ensure the relevance of projects from the design phase onwards. 88. Long-term, programmatic engagement is key to introduce innovative approaches and achieve transformative results. WCP2 built on a successful prior project, WCP1, a project that set out to test responses to water scarcity that could be rapidly scaled up. Initially contested, the innovative approach introduced by WCP1 was successfully tested and mainstreamed, because of a partnership approach between the World Bank and China, the flexible and learning approach under the project, and the institutional links between the demonstration project and national policy and programs. WCP2 was able 21 The World Bank Water Conservation Project II ( P114138 ) to capitalize on that previous achievement, which was demonstrated by a high ownership of the project and a high collaboration by all levels of Government and a high managerial effectiveness toward implementation. 89. Albeit more complex in design, the comprehensive approach of combining engineering works and measures to improve agricultural water management with farmer incentives was key to get farmers to adopt the project’s approach. This approach included water conservancy, agricultural and management measures and involved close cooperation between agriculture, forestry, water conservancy and other related departments, as well as the WUAs during the implementation of the project. Incentives for switching to higher-value crops through assistance with financing, technology, practical training, and agricultural extension support led to an increase in farmer’s income, thereby increasing their willingness to adopt changes in water management practices for water conservation. For example, formula fertilization was carried out according to planted crops, soil conditions, water-saving irrigation technology, and agricultural production technology. Combining approaches for changes in water use and water management behavior with incentives for positive changes in the socioeconomic situation of farmers increases the likelihood for a successful project intervention. 90. Strategic pilot projects in the project areas are key to demonstrate advanced concepts for successful implementation by the project. In order to implement advanced, new concept of water conservancy, the three project provinces selected a number of sub-projects, counties and irrigation districts to function as demonstration pilots that carry out water consumption management activities, based on which reasonable irrigation water consumption goals were formulated. This allowed the project implementing entities to set realistic targets based on the experience from these pilots and link the results of agricultural water saving and project implementation to the increase of farmers' income, and finally achieve the project’s development objectives. 91. Well-thought-through and proven financing models are required to ensure sustainability of WUAs. When introducing approaches for water conservation combined with decentralized management of agricultural water use through WUAs, it is important to design well-thought-through financing models for the financial sustainability of the WUAs. Efforts toward decreasing water use have the potential to undermine financial revenues for WUAs if water fees are paid per volume of water used. A fee model should therefore be considered that combines volume-based fees with a base fee, for example per hectare of irrigated land. As a short-term measure, Government subsidies may be necessary to support financial stability of the WUAs, if the fiscal situation and political environment allows it. For China, with the favorable fiscal situation and the relevance of water conservation and agricultural production in the broad development agenda, this is an acceptable interim solution. . 22 The World Bank Water Conservation Project II ( P114138 ) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: To improve agriculture water management Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduction in water Cubic 0.00 22.20 22.20 22.67 withdrawal for irrigated Meter(m3) agriculture (Ningxia) (million m3) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 102% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduction in Groundwater Cubic 0.00 13.50 13.50 16.52 overdraft (Hebei) (million m3) Meter(m3) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 122% target achieved. 23 The World Bank Water Conservation Project II ( P114138 ) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduction in Groundwater Cubic 0.00 6.80 5.70 5.80 Withdrawal (Shanxi) (million Meter(m3) m3) 31-Dec-2011 30-Jun-2017 30-Jun-2017 15-May-2017 Comments (achievements against targets): 102% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Water users provided with Number 0.00 0.00 552000.00 594200.00 new/improved irrigation and drainage services (number) 31-Dec-2011 31-Dec-2011 30-Jun-2017 30-Jun-2017 Water users provided with Number 0.00 0.00 267000.00 287300.00 irrigation and drainage services - female (number) 31-Dec-2011 31-Dec-2011 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 108% target achieved. Objective/Outcome: to increase agriculture water productivity in the project areas Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion 24 The World Bank Water Conservation Project II ( P114138 ) Increase in agricultural water Number 1.00 1.20 1.32 1.40 productivity (Shanxi, Ningxia and Hebei) (kg/m3 of ET) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 106% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 0.00 0.00 552000.00 594200.00 31-Dec-2011 31-Dec-2011 30-Jun-2017 30-Jun-2017 Female beneficiaries Percentage 0.00 0.00 267000.00 287300.00 31-Dec-2011 31-Dec-2011 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 108% target achieved. A.2 Intermediate Results Indicators Component: Component 1: To improve facilities and efficiency of water delivery and on-farm irrigation systems. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-1.1a Length of main canal Kilometers 0.00 21.77 21.77 21.77 25 The World Bank Water Conservation Project II ( P114138 ) lining/dredging (km) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 100% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-1.1b Length of main water Kilometers 0.00 92.82 86.16 88.38 conveyance pipeline 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 106% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Area provided with Hectare(Ha) 0.00 58466.00 59324.00 59849.69 new/improved irrigation or drainage services 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Area provided with new Hectare(Ha) 0.00 58466.00 59324.00 59849.69 irrigation or drainage services 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 101% target achieved. 26 The World Bank Water Conservation Project II ( P114138 ) Component: Component 2: To reduce non-beneficial ET, improve soil fertility and increase farm yield and output value. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-2.1a Farmland area with Hectare(Ha) 0.00 30020.00 29407.00 29492.95 land leveling (ha) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 100% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-2.1b Farmland area Hectare(Ha) 0.00 17580.00 15441.00 15122.65 adopting plastic film covering (ha) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 98% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-2.1c Farmland area Hectare(Ha) 0.00 24428.00 25286.00 25798.11 adopting 'return crop residue to field' practice (ha) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 102% target achieved. 27 The World Bank Water Conservation Project II ( P114138 ) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-2.1 d Farmland area Hectare(Ha) 0.00 27468.00 28351.00 31114.00 adopting balanced fertilizer applications (ha) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 110% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-2.2 a Farmland area Hectare(Ha) 0.00 7864.00 8738.00 15057.00 adopting new and improved seeds (ha) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 172% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-2.3 a Number of green Number 0.00 6920.00 196.00 196.00 houses operational 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 100% target achieved. 28 The World Bank Water Conservation Project II ( P114138 ) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-2.3b Total yield of main Metric ton 0.00 685000.00 465600.00 507850.00 food crops 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 109% target achieved. Component: Component 3: To improve agricultural water management and building the capacity of irrigation management staff and WUAs. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Operational water user Number 0.00 259.00 288.00 290.00 associations created and/or strengthened (number) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 101% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-3.1b Number of farmers Number 0.00 518.00 460.00 468.40 trained (person-month) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 29 The World Bank Water Conservation Project II ( P114138 ) Comments (achievements against targets): 102% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-3.2a Number of county Number 0.00 4.00 4.00 4.00 level groundwater/water resoures management plans 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 (strategic) Comments (achievements against targets): 100% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-3.3a Establishment of ET Text Part of basic Water rights Water rights Water rights based water rights framework in place management system management system management system management system in functional functional functional Guantao County (Hebei) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 100% target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-3.3b Establishment of an Text Withdrawal quota Water rights Water rights Water rights ET-based Water Rights (entitlement) management system management system management system 30 The World Bank Water Conservation Project II ( P114138 ) Management System in the allocated to county functional established established Qingtongxia Pilot Area level (Ningxia) 31-Dec-2011 30-Jun-2017 30-Jun-2017 30-Jun-2017 Comments (achievements against targets): 100% target achieved. Component: Component 4: To ensure timely project inputs and support. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IO-4 Establishing results- Text Not functional Functional Functional Fuctional based M&E System 31-Dec-2011 28-Jun-2013 29-Jun-2013 30-Jun-2017 Comments (achievements against targets): 100% target achieved. 31 The World Bank Water Conservation Project II ( P114138 ) 1. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Improve agriculture water management 1. Reduction in water withdrawal for irrigated agriculture (Ningxia) (million m3) 2. Reduction in Groundwater overdraft (Hebei) (million m3) Outcome Indicators 3. Reduction in Groundwater Withdrawal (Shanxi) (million m3) 4. Water users provided with new/improved irrigation and drainage services (number) Component 1 1. IO-1.1a Length of main canal lining/dredging (km) 2. IO-1.1b Length of main water conveyance pipeline 3. IO-1.2a Area provided with irrigation and drainage services (ha) Component 2 4. IO-2.1a Farmland area with land leveling (ha) Intermediate Results Indicators 5. IO-2.1b Farmland area adopting plastic film covering (ha) 6. IO-2.1c Farmland area adopting 'return crop residue to field' practice (ha) 7. IO-2.1d Farmland area adopting balanced fertilizer applications (ha) 8. IO-2.2a Farmland area adopting new and improved seeds (ha) 9. IO-2.3a Number of greenhouses operational 10. IO-2.3b Total yield of main food crops Component 1 1. IO-1.1a: 21.77 km achieved, 100% of target 2. IO-1.1b: 88.38 km, compared to a target of 86.16 km Key Outputs by Component 3. IO-1.2a: 59,849.69 ha achieved, compared to a target of 59.324 ha (linked to the achievement of the Component 2 Objective/Outcome 1) 4. IO-2.1a: 29,492.95 ha achieved, compared to target 29,407 ha 5. IO-2.1b: 15,222.65 ha achieved, compared to target 15,441 ha 6. IO-2.1c: 25,676.22 ha achieved, compared to target 25,286 ha 7. IO-2.1d: 31,114 ha achieved, compared to target 28,351 ha 32 The World Bank Water Conservation Project II ( P114138 ) 8. IO-2.2a: 15,057 ha achieved, compared to target 8,738 ha 9. IO-2.3a: 196 achieved, 100% of target 10. IO-2.3b: 507,850 metric tons, compared to target 465,600 t Component 3 11. IO-3.1a: 290 out of target 288 12. IO-3.1b: 468.40 achieved, compared to target 460 13. IO-3.2a: 4 achieved, 100% of target 14. IO-3.3a: system functional, 100% of target 15. IO-3.3b: system established, 100% of target Component 4 16. IO-4: M&E System functional, 100% of target Objective/Outcome 2: To increase agriculture water productivity in the project areas Increase in agricultural water productivity (Shanxi, Ningxia and Hebei) (kg/m3 of ET), Outcome Indicators 1. Direct project beneficiaries Component 3 1. IO-3.1a Operational water user associations created and/or strengthened (number), 2. IO-3.1b Number of farmers trained (person-month), 3. IO-3.2a Number of county level groundwater/water resources management plans (strategic), 4. IO-3.3a Establishment of ET based water rights management system in Guantao County Intermediate Results Indicators (Hebei), 5. IO-3.3b Establishment of an ET-based Water Rights Management System in the Qingtongxia Pilot Area (Ningxia) Component 4 6. IO-4 Establishing results-based M&E System Key Outputs by Component 1. Component 3 (linked to the achievement of the 1. IO-3.1a: 290 out of target 288. Objective/Outcome 2) 2. IO-3.1b: 468.40 achieved, compared to target 460. 33 The World Bank Water Conservation Project II ( P114138 ) 3. IO-3.2a: 4 achieved, 100% of target. 4. IO-3.3a: System functional, 100% of target. 5. IO-3.3b: System established, 100% of target. 2. Component 4 6. IO-4: M&E System functional, 100% of target. 34 The World Bank Water Conservation Project II ( P114138 ) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION 1. TASK TEAM MEMBERS Name Role Preparation Supervision/ICR Sing Cho Task Team Leader(s) Yunlong Liu Procurement Specialist(s) Yi Geng Financial Management Specialist Songling Yao Social Safeguards Specialist Ximing Zhang Team Member Xiaodan Huang Environmental Safeguards Specialist A. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY09 8.749 43,834.23 FY10 31.513 223,748.27 FY11 16.250 80,779.68 FY12 9.675 61,366.65 Total 66.19 409,728.83 Supervision/ICR FY12 .600 1,705.45 FY13 19.450 142,439.18 FY14 9.788 90,873.65 FY15 11.600 101,457.47 35 The World Bank Water Conservation Project II ( P114138 ) FY16 12.800 82,055.27 FY17 9.025 51,557.15 FY18 5.075 28,050.26 Total 68.34 498,138.43 36 The World Bank Water Conservation Project II ( P114138 ) ANNEX 3. PROJECT COST BY COMPONENT Actual at Amount at Approval Percentage of Approval Components Project Closing (US$, millions) (US$, millions) (US$, millions) Water Works and Water-saving Facilities 98.71 116.37 118 Agricultural Water-saving Measures and 25.31 25.68 101 Support Services Management Measures and Institutional 6.44 5.27 82 Development Project Management, Implementation 7.88 9.89 126 Support Contingency/IDC/Front-end 21.11 2.82 13 Total 159.45 160.03 100 Project Cost by Component ICR as Percentage Project Component PAD (US$, millions) ICR (US$, millions) of PAD 1. Water Works and Water-saving 116.37 118 98.71 Facilities 2. Agricultural Water-saving Measures 25.68 101 25.31 and Support Services 3. Management Measures and 5.27 82 6.44 Institutional Development 4. Project Management and 9.89 126 7.88 Implementation Support Total Baseline Costs 138.34 157.21 114 Physical Contingencies 13.75 0.00 0 Total Project Costs 152.09 157.21 103 Interest During Implementation 7.16 2.62 37 Front-end fees 0.20 0.20 100 Total Costs to be Financed 159.45 160.03 100 Note: *Totals may not tally due to rounding. Financing Plan (in US$, millions) IBRD Government Beneficiaries Total ICR 76.73 74.89 8.41 160.03 PAD 80.00 69.22 10.23 159.45 37 The World Bank Water Conservation Project II ( P114138 ) ANNEX 4. EFFICIENCY ANALYSIS Economic Analysis 1. Cost-benefit analysis for the project has been conducted to reassess the project’s economic viability at the ICR stage. The analysis has adopted the same approach as at project appraisal to ensure methodological consistency and comparability. 2. Project benefits. The project is designed to (a) raise farmer income through increased agricultural productivity per unit of consumed water; (b) achieve real water conservation by reducing consumptive use in irrigated agriculture; and (c) improve the sustainability of water management in the subproject areas of Ningxia, Shanxi, and Hebei Provinces. 3. Quantifiable benefits. The major quantifiable benefits (on an incremental basis) of the project are derived from (a) the agricultural production from improved irrigation efficiency and water productivity, realized through the above integrated project inventions in infrastructure improvement and construction, and improved water management and agronomic practices; (b) value of industrial and drinking water use in Shanxi Province from reservoirs constructed by Government funding, while the World Bank project would partially finance the water delivery system; and (c) economic value of water resources saved. A substantial amount of real water savings has been achieved by measuring the reduction in consumptive use of water (by measuring the reduction in ET). 4. Nonquantifiable benefits. The project has also generated numerous nonquantifiable social and environmental benefits. These include (a) mitigation of over-drafting of underground water and accompanying degradation of ecological environment; (b) development of improved water management, social capital, and institutional capacity through the success of WUAs; (c) improved road access to communities and the rural social service system; and (d) the improved quality of soil and agricultural products due to adoption of IPM. Methodologies for Quantifying Project Benefits 5. To increase water productivity and reduce consumptive use of water in irrigated agriculture, the water-saving technologies supported under the project would follow the concept of real water savings and ET management and adopt the integrated measures including engineering (land/laser leveling, canal lining with geo-membrane, low-pressure pipes, improved drainage, micro-sprinkler, and so on); agronomic (cropping pattern changes, plant breeding, soil fertility and fertilization, soil salinity control, plastic-culture with mulching, tunnels and greenhouse, and tillage and weed control, and so on;) and management measures (irrigation scheduling, volumetric charges, increase of water charges, conjunctive use of surface and groundwater, and so on). 6. With these project interventions, the increase of crop production would be achieved through (a) enhanced cropping intensity, mainly under greenhouse production; (b) crop yield increases arising from timely provision of water in the critical stages of crop production; and (c) changes in crop patterns shifting to high-value produce. 38 The World Bank Water Conservation Project II ( P114138 ) 7. The water-saving irrigation component also generated additional benefits, including cost reduction of water withdrawal (pumping) because of less water extracted from wells, and decreases in fertilizer use due to its direct application into dripping system. 8. Specially, the following benefits have been achieved through the following project activities: (a) improved irrigation efficiency of gravity flooding from canal rehabilitation and reservoir construction for field crop production; (b) conversion of gravity flooding to dripping system for field crop production; and (c) conversion of gravity flooding for field crop production to dripping system under greenhouses. In calculating the above types of project benefits, crop budgets have been prepared for the ‘with project’ and ‘without project’ situations. Benefit aggregation is based on physical achievements by year and incorporates the cropping pattern changes. 9. Water value addition for industrial use. The total volume of water supplied to industrial use is based on the water balance estimation. The productivity of water used in industry, in terms of the economic value added by industrial production based on the water withdrawn, is defined as economic value added (in yuan) per cubic meter of water withdrawn by industry. Therefore, water productivity in industrial factor can be calculated as Pi = Vi/Wi, where Vi is for total annual industrial value added in region, and Wi is for annual industrial value withdrawn in the region. 10. The water productivity in industrial use is calculated at 143 yuan per m3, and therefore, the total annual industrial value added in region using the incremental water withdrawn from the reservoirs is estimated as Vi = 143Wi. 11. In line with the widely adopted ‘benefit sharing coefficient method in China’ (Codes and Standards for Appraisal of Water Sector Investment in China No. SL72-94 issued by Ministry of Water Resources [MWR]), the net incremental value addition of water for industrial use was estimated at 143 yuan per m3 by MWR), water consumption is assumed to contribute to 2.5 percent of the total industrial value added. Therefore, the net incremental value addition of water for industrial use is calculated using the following formula: Vnv = 0.025 × 143Wi. 12. Value of drinking water. The value of drinking water is conservatively estimated at the prices paid by the consumers, which are way below ‘the willingness to pay’ prices—the more accurate estimation of economic values of drinking water. The economic water price for domestic use is conservatively estimated at the same level as for industrial use. 13. Economic value of water resources saved. The value benefits of the ‘real savings of water’ have been valued conservatively at the water productivity. 39 The World Bank Water Conservation Project II ( P114138 ) Project Costs 14. Project costs include (a) investment costs for reservoir construction and canal rehabilitation; (b) on-farm costs for dripping/pumping system and equipment; (c) incremental costs for crop production; (d) O&M costs for civil works and equipment; and (e) incremental working capital for regular operation. Total project costs at ICR were comparable to the cost estimate at PAD (see annex 3). ERR and NPV Calculations 15. Major assumptions. The main assumptions include the following: (a) Economic prices. The Chinese economy has been increasingly integrated into the world economy and it is generally acknowledged that the economy has achieved ‘market status’. Therefore, current input and output market prices basically reflect actual export and import parity prices for traded products of identical varieties and quality. Furthermore, the project areas are in landlocked provinces, where intraprovincial and interprovincial trade is far more important than international trade. As such, the financial prices are used as ‘proxies’ for economic prices. Similarly, no further adjustments are made to the prices of non-tradable farm inputs and outputs. (b) The economic life of lined irrigation canals and greenhouses is assumed at 15 years and 8 years, respectively. (c) Both cost and benefit flows are based on 2017 constant prices, net of duties, and taxes. (d) The discount rate adopted by the analysis is 8 percent according to guidelines from China National Development and Reform Commission. 16. The economic analysis is first conducted at the provincial level, covering all the project interventions. Incremental benefits generated directly from incremental costs of project interventions are identified and quantified. 17. Cash flows of benefits and costs for each province are projected over a 20-year period to estimate the base case net present value (NPV) at a discount rate of 8 percent and the ERR. The provincial subprojects would generate ERRs ranging from 16 percent to 29 percent, which indicate that each subproject is economically viable on its own. Based on the aggregated cash flows of three provinces, the whole project ERR is estimated at 19 percent, with NPV at US$64.29 million. 18. No sensitivity test is warranted due to (i) output prices in the analysis represent a conservative trend for the project life; (ii) investment costs were actually incurred; and (iii) significant unquantifiable environmental and social benefits (see Para. 4) were not included in the analysis. Financial Analysis 19. Financial analysis is conducted to (a) gauge the project impact on farmers’ incomes and (b) 40 The World Bank Water Conservation Project II ( P114138 ) evaluate farmers’ ability to pay the water charges to cover the O&M costs. 20. Farmers’ income. Based on the data collected by the Government’s completion report team, crop budget and farm models have been formulated under with- and without-project situations to gauge the financial attractiveness to the farmers benefiting from project interventions. The differences in income increases by province are largely due to cropping patterns—Ningxia has more cash crops and vegetables, Hebei is mainly planted with field crops (wheat and corn), and Shanxi in between. A summary of the financial analysis of farmer’s household income (0.4 ha) is described in table 4.1. Table 4.1. Net Incremental Household Income from Improved Irrigation System (CNY, thousands) Hebei Shanxi Ningxia Without Project 6.21 7.36 6.79 With Project 8.47 10.94 11.88 Increase (%) 36 48 74 21. These results show that the project is financially attractive to farmers of all three provinces engaged in all three types of improved irrigation practices. 22. Water charges and farmers’ ability to pay. The substantial increase in beneficiary farmers’ incomes has provided adequate incentives and full ability for farmers to participate in the development investment, take over the full responsibility for O&M of on-farm irrigation system through the WUAs, and pay for the increased water charges. The water charges are recommended to set at the level of fully covering the O&M costs to ensure the regular operations during the economic life of the major infrastructure. The minimum water charges to cover O&M of the project are estimated at CNY 0.38 per m3 for Hebei, CNY 0.56 per m3 for Shanxi, and CNY 0.12 per m3 for Ningxia. The financial analysis indicates that although water charges increased, their actual share in farm incomes dropped. Fiscal Impact 23. The project provincial governments have provided the full amount of counterpart funding. After project completion, the fiscal impact of the project in limited as the project introduced participatory and sustainable O&M practices to assure adequate funding for O&M. 41 The World Bank Water Conservation Project II ( P114138 ) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS The borrower in this project produced a Project Completion Report (PCR) documenting the final outcomes of the project implementation. The borrower’s PCR was used in preparing this Implementation Completion Report (ICR); and the borrower had the opportunity to review and comment on the draft ICR. The borrower’s PCR and their comments on the Bank ICR are on file. This annex is a brief summary of the main points raised in both documents, and particularly those related to two topics: i) the borrower's assessment of the World Bank performance in the project; and ii) the borrower's perspective on the key experiences and lessons learned in the project. 1_ Summary of the Borrower's Assessment of World Bank Performance Note: see Section 6.1 of the Borrower's PCR, and corresponding comments to the Bank's ICR Overall, in all respects, the borrowers agreed in their assessment that the World Bank's performance was "very satisfactory". The borrowers cited five specific areas where the Bank added significant value to the project preparation and implementation: ▪ Introducing advanced technologies and concepts -- for integrated water resources management and water saving technologies ▪ Guiding and pushing forward project implementation -- through the whole process of design, preparation, and implementation so as to ensure the project design was reasonable and could achieve the intended development targets. ▪ Promoting and strengthening collaboration among project departments -- stressing cooperation and actively promoting communication between the different water conservancy, agriculture, forestry and other departments. ▪ Providing strict supervision and inspection during the project -- raising important issues, making useful recommendations, and providing technical guidance through missions, aide memoirs, and annual implementation plans. ▪ Developing and promoting exert technical assistance -- arranging high level consulting experts on water resources management, agricultural technology applications, procurement management, financial management Together, the borrowers stated that by working closely with the borrowers on these five elements, the World Bank helped to ensure that the project effectively promoted standardized and systematic management, and achieved good results. In reviewing the Bank ICR and the project ratings for specific elements, the borrowers recommend elevating the following three aspects, in the following ways: ▪ Social safeguard implementation rating to be adjusted from 'moderately satisfactory' to 'satisfactory' ▪ Environmental safeguard policy compliance rating to be adjusted from 'moderately' satisfactory to 'satisfactory'. ▪ Overall bank performance rating to be adjusted from 'satisfactory' to 'very satisfactory'. 42 The World Bank Water Conservation Project II ( P114138 ) 2_ Summary of the Borrower's Perspective on Main Experiences and Lessons Learned Note: see Section 7 of the Borrower's PCR, and corresponding comments to the Bank's ICR In this section of the borrower's report and comments, they identified seven specific areas where they gained new value and important experience in project planning and execution. They also identified three lessons to feedback to the World Bank process for future improvement in projects in China. The seven identified experiences of added value include: ▪ Leader’s attention at all levels is a key factor in the success of project implementation ▪ The integration of domestic and foreign advanced technology and continuous innovation is the technological basis for the successful implementation of the project ▪ The establishment of inter departmental, multi-level cooperation and stakeholder participation mechanism is the organizational guarantee for the successful implementation of the project ▪ Talent ability construction is the guarantee of human resources for the successful implementation of the project ▪ "Quality monitoring, effect tracking" monitoring and evaluation work is the direction of the implementation of the project success ▪ The comprehensive use of water conservancy, agronomy and management measures is the guarantee of the successful implementation of the project ▪ The implementation of the pilot/demonstration project is a demonstration of the successful implementation of the project The three lessons for future improvement include: ▪ The preparatory work and the implementation cycle of the project are too long, which affect the project management and implementation – project preparation extended to five years before, and the project implementation cycle is also five years. During this period, some sub- projects were instead implemented with other funds, instead of the World Bank loan. This required the design of some sub-projects to change from time to time, and negatively influenced the project. ▪ The payment procedures should be better coordinated with the local financial reimbursement system -- In the project implementation process, the relevant accounting materials and reimbursement procedures, should not only obey the policy of World Bank, but should also comply with the rules of local financial department. This increased the difficulty degree of the preparation materials of reimbursement, and led a big gap between the financial schedule and the implementation schedule. This restricted the implementation of the project construction in a certain extent. ▪ There could have been more of an introduction to key and relevant concepts in the project preparation period -- New concepts, new technologies, and new methods, such as water consumption management, were not prepared adequately. Publicity and promotion efforts were slightly weak, and social influence expanded slightly. This led the schedule of the project 43 The World Bank Water Conservation Project II ( P114138 ) lags behind in the initial stage of the project, and it affects the overall progress of the project to a certain extent. 44 The World Bank Water Conservation Project II ( P114138 ) ANNEX 6. SUPPORTING DOCUMENTS Supporting documents: • Project Appraisal Document • Aide Memoires of Implementation Support Missions 2012-2017 • Implementation Status Reports 2012-2017 • Restructuring Paper • Monitoring Reports from National, Provincial and County level. • Borrower’s Project Completion Report • Implementation Completion Report of WCP1 (2007) • IEG ICR Review of WCP1 (2007) • China CPS FY13-FY16 • China 12th Five Year Plan • China 13th Five Year Plan 45 The World Bank Water Conservation Project II ( P114138 ) ANNEX 7. MAP 46