Document of The World Bank Report No: 23191-IN PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 1 10 MILLION (US$140 MILLION EQUIVALENT) TO THE REPUBLIC OF INDIA FOR THE RAJASTHAN WATER SECTOR RESTRUCTURING PROJECT November 15, 2001 Rural Development Sector Unit South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective October31, 2001) Currency Unit = Indian Rupee Rsl = US$0.0217 US$1 = Rs 46.00 FISCAL YEAR April I - March 31 ABBREVIATIONS AND ACRONYMS AD Agriculture Department IGNP Indira Gandhi Nahar Project APL Adaptable Lending Program IMTI Irrigation Management Training BCM Billions of Cubic Meters Institute CAD Comnand Area Development IPM Integrated Pest Management CAD&WUD Command Area Development and IT Information Technology Water Utilization Department M&E Monitoring and Evaluation CAS Country Assistance Strategy MIS Management Infornation System CBO Community Based Organization NCB National Competitive Bidding CCA Culturable Conmnand Area NGO Non-Governmental Organization CS Chief Secretarv O&M Operations and Maintenance CM Chief Minister OED Operations Evatuation Development DC Distributory Level Committee PC Project Commnittee DEA Departmnent of Economic Affairs PHED Public Health Engineering DGS&D Director General of Supply & Deparunent Disposal PIP Project Implementation Plan DSO Dam Safety Organization PMR Project Management Report EA Environemental Assessment PMU Project Management UJnit EC Environemental Cell PPU Project Preparation Unit ED Environment Department ?SC Project Steering Committee EIA Environmental Impact QCBS Quality and Cost Based Selection Assessment R&R Resettlement and Rehabilitation EMP Environmental Action Plan RAC Research Advisory Committee EPPU Environmental Policy Planning RFMISA Rajasthan Fanners Management of Unit Irrigation Systems Act ERR Economic Rate of Return RWSRP Rajasthan Water Sector FMM Financial Management Manual Restructuring Project FMS Financial Management System SC Standing Committee FO Farmrers Organization SCC State Coordination Committee FRR Financial Rate of Return SEA Sectoral Environmental Assessment GCD Groundwater Conservation District SOE Statement of Expense GIS Global Information System SWP State Water Policy GOI Government of India SWRC State Water Resources Council GOR Government of Rajasthan SWRPD State Water Resources Planning GPLC Gram Panchayat Level Committee Department GSDP Gross State Domestic Product TOR Terns of Reference GWD Groundwater Departrnent TRC Technical Review Committee GWMA Groundwater Management TSG Technical Support Groups Association WC Water Cell ICB International Cornpetitive Bidding WRD Water Resources Department ID Irrigation Department WRRF Water Resources Research Fund IDA International Development WUA Water User Association Association IEC Information, Education, and Communication Vice President: Mieko Nishimizu Country Manager/Director: Edwin Lim Acting Sector Director: Keith Oblitas Task Team Leader/Task Manager: Geoffiey Spencer INDIA RAJASTHAN WATER SECTOR RESTRUCTURING PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 4 C. Project Description Summary 1. Project components 5 2. Key policy and institutional reforms supported by the project 6 3. Benefits and target population 7 4. Institutional and implementation arrangements 7 D. Project Rationale 1. Project alternatives considered and reasons for rejection 8 2. Major related projects financed by the Bank and other development agencies 9 3. Lessons learned and reflected in the project design 10 4. Indications of borrower commitment and ownership 12 5. Value added of Bank support in this project 12 E. Summary Project Analysis 1. Economic 13 2. Financial 14 3. Technical 15 4. Institutional 15 5. Environmental 16 6. Social 19 7. Safeguard Policies 22 F. Sustainability and Risks 1. Sustainability 23 2. Critical risks 23 3. Possible controversial aspects 25 G. Main Credit Conditions 1. Effectiveness Condition 25 2. Other 25 H. Readiness for Implementation 27 I. Compliance with Bank Policies 28 Annexes Annex 1: Project Design Summary 29 Annex 2: Detailed Project Description 35 Attachment 1 - GOR Letter of Policy and Institutional Reforms Annex 3: Estimated Project Costs 49 Annex 4: Cost Benefit Analysis Summary 50 Amnex 5: Financial Summary for Revenue-Earning Project Entities 59 Annex 6: Procurement and Disbursement Arrangements 60 Annex 7: Project Processing Schedule 74 Annex 8: Documents in the Project File 75 Annex 9: Statement of Loans and Credits 76 Annex 10: Country at a Glance 80 MAP(S) IBRD No. 31450 Rajasthan Water Sector Restructuring Project INDIA Rajasthan Water Sector Restructuring Project Project Appraisal Document South Asia Regional Office SASRD Date: November 15, 2001 Team Leader: Geoffrey Spencer Country Manager/Director: Edwin Lim Sector Manager/Director: Keith Oblitas Project ID: P040610 Sector(s): Al - Irrigation & Drainage Lending Instrument: Specific Investment Loan (SIL) Theme(s): Poverty Targeted Intervention: Y Program Financing Data [ ] Loan [XI Credit [ Grant [] Guarantee [ ] Other: For Loans/CreditstOthers: Amount (US$m): $140.0 Proposed Terms (IDA): Standard Credit Financing Plan (US$m): Source Local Foreign Total BORROWER 37.20 0.00 37.20 IBRD 0.00 0.00 0.00 IDA 107.10 32.90 140.00 LOCAL GOVTS. (PROV., DISTRICT, CITY) OF BORROWING 0.00 0.00 0.00 COUNTRY LOCAL FARMER ORGANIZATIONS 3.00 0.00 3.00 Total: 147.30 32.90 180.20 Borrower: GOI Responsible agency: GOR/IRRIGATION DEPARTMENT Departments of the Government of Rajasthan Contact Person: Mr. Parmesh Chandra, Principal Secretary, Irrigation Department Tel: 91-141-380-335 Fax: 91-141-370-928 Email: Contact Person: Mr. D. S. Meena, Principal Secretary, Agriculture Department Tel: 91141 380110 Fax: 91141 380 114 Email: Contact Person: Mr. K. L. Meena, Secretary, Public Health Engineering and Groundwater Department Estimated disbursements ( Bank FY/US$m): FY 2002 2003 2004 2005 2006 2007 2008 Annual 3.76 9.00 36.96 35.64 27.66 18.98 8.00 Cumulative 3.76 12.76 49.72 85.36 113.02 132.00 140.00 Project implementation period: 5.5 years Expected effectiveness date: 04/30/2002 Expected closing date: 03/31/2008 DC P^D FCID Rv h 20X A. Project Development Objective 1. Project development objective: (see Annex 1) A.. 1. 1. The main development objectives of the Rajasthan Water Sector Restructuring project (RWSRP) are to: (i) strengthen the capacity for strategic planning and sustainable development and management a f surface and groundwater resources in Rajasthan; and (ii) increase the productivity of irrigated agriculturn through improved surface irrigation systems performance and strengthened agricultural support services, involving greater participation of users and the private sector in service delivery in Rajasthan. 2. Key performance indicators: (see Annex 1) A.2.1. The key performance indicators are: (a) completion and use of four high priority river bas..n plans, as the basis for sustainable development, allocation, and use of water resources (both surface and groundwater); (b) improved surface irrigation systems performance (620,000 ha rehabilitated, system operating efficiency improved by about five percent); (c) established, well functioning, and financial]y sustainable water user associations (WUAs) (up to 620); (d) full cost recovery of system O&M costs, funding of O&M requirements (Rs 550/ha in FY 2000 prices); (e) increased yields (up to 20 percent for cotton, mustard, and wheat); (f) restored area under-irrigation (about 90,000 ha); and (g) increased farm household incomes per year (up to about Rs 20,000, Rs 15,000 and Rs 5,000 in major, medium and minor schemes respectively). B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex I) Document number: 22541-IN Date of latest CAS discussion: 04/05/2001 B. 1.1. The CAS for India focuses on strengthening the enabling environment for development and growth, and supporting critical interventions of special benefit to the poor. Key program priorities include improving government effectiveness through fiscal and govemance reform and decentralization; promoting private sector-led growth, including achieving faster rural growth by accelerating pro-poor rural development through more effective program delivery mechanisms and beneficiary participation. To achieve these goals, the CAS puts emphasis on building partnerships with and assisting State governments to, implement difficult and controversial reforms. The objectives of the RWSRP are closely linked to these broader goals in several respects. B.1.2. The project aims to promote the more sustainable development and use of one of the state's increasingly scarce natural resources - water. A major thrust of the project is to increase the productivity of irrigated agriculture through improved surface irrigation systems performance and strengthened agricultural support services and hence the efficiency of use of water in agriculture. Achieving these project goals would contribute to sustaining agricultural and rural growth in the state, and in tum to improving rural incomes and reducing poverty in rural areas. This is especially important for Rajasthan, as the rural sector accounts for 77 percent of the population, the majority of which are poor (74 percent). Rural poverty rates of 48 percent (by head count) in 1993/94 are extremely high, exceeding not only the all-India rural poverty rate (37 percent), but also that of other low-income states such as Orissa (40 percent), and Uttar Pradesh (42 percent). Moreover agriculture, for which water is a critical factor of production, remains an important sector in the economy, accounting for about 33 percent of the gross state domestic product (GSDP) in 1999/2000, while providing employment for about 70 percent of the work force. Thus improving water resources management in particular, and agricultural performance in the state in general, would be a critical factor in reducing poverty in the state, as it drives rural employment and -2 - income growth. The project was appraised in January 2001, but because of delays in fulfilling the conditions of negotiations, the planned Board presentation slipped to FY02. 2. Main sector issues and Government strategy: B.2. 1. Rajasthan is India's largest state geographically. It covers an area of 34.3 million hectare (ha), and supports a population of about 50 million people (about five percent of the Indian population). Rajasthan is a desert state with a geographical area equal to 10 percent of all India, but with only one percent of the county's water resources. The present major user of water is agriculture (83 percent of consumptive use). The state is facing increased water scarcity, frequently made more critical by recurring droughts. Future projections to 2025 indicate a rapidly increasing demand for non-irrigation use with domestic and industrial demand set to increase about three to four times by volume, and its overall share would increase from 8 percent at present to about 25 percent. Total demand is projected to increase from 552 billion cubic meters (BCM) in 1997 to 1050 BCM in 2025. This 2025 demand scenario would exceed the state's total available usable water resources. In addition, the deterioration of poor water quality (due to high concentrations of naturally occurring elements such as fluoride and from increasing surface pollution) is also restricting the use of water for domestic and irrigation supply and further stressing the state's available water resources. B.2.2. The critical challenge therefore is ensuring Rajasthan's long-term, sustainable use of increasingly scarce water resources, and particularly improving the efficiency of water for agriculture. The main sectoral issues are: (a) weak capacity and uncoordinated effort among current water sector departments (Irrigation (ID), Ground Water (GWD), Indira Gandhi Nahar Project (IGNP), Command Area Development and Water Utilization (CAD&WUD) to carry out integrated planning, allocation and sustainable management of water resources; (b) weak regulatory framework for managing water resources; (c) poor management practices in the operation of irrigation and drainage systems, leading to inequitable and unreliable water availability, low water use efficiency, low agricultural productivity, and rising water tables resulting in water logging and salinity; (d) financially unsustainable delivery of water services resulting from high recurrent cost dominated by salaries and low cost recovery; (e) lack of beneficiary participation in scheme management; (f) weak agricultural support services in irrigated areas; (g) unsustainable use of groundwater in a number of areas, driven in part by low electricity tariffs for groundwater pumping; and (h) weak resettlement and rehabilitation (R&R) institutional capacity. B.2.3. In May 1999, the Government of Rajasthan (GOR) adopted a state water policy that outlines the government's development framework for the long-term sustainable development and management of water resources in the state. Specifically the policy emphasizes: (a) multidisciplinary, multisectoral, water planning, allocation, and management; (b) establishment of a regulatory framework for managing water resources, including the full range of sector environment issues; (c) reorientation of govenmment water institutions, coupled with increased participation of the private sector through farmer managed WUAs and other private sector entities; (d) adopting modern management functions such as financial management, programming and budgeting, and human resources management; (e) improving water and water related service delivery with an increased focus on high quality, cost effective and financially sustainable irrigation and drainage services through commercially-oriented farmer managed entities; and (f) enhancing technical services through training and education. B.2.4. The activities under the RWSRP are intended to facilitate the achievement of the state water policy goals above by supporting the first phase of GOR's long-term vision of structural reform and complementary investments in the sector. This longer - term program would facilitate the evolution from a purely government operated water resources system, to one where the public sector increasingly focuses on - 3 - providing essential public goods (e.g., the strategic and regulatory framework, and dam safety), while allowing greater user as well as private sector participation in water-related activities where sufficient private incentives exist. As the first phase of this reforn process, this project would support: (a} establishing a water resources planning department and strengthening environmental management capacity with the function of ensuring the efficient and environmentally sustainable allocation and use of increasingly scarce water resources among competing users in the state; (b) shifting the focus from new irrigation development to improving performance of existing irrigation systems, to ensure the longer tenn sustainability of existing systems, and improving the efficiency of water use in agriculture; and (c) greater participation by users and the private sector in the management and operation of surface irrigation systems. It would also include fostering more effective coordination between the departments of Irrigation (ID), Groundwater (GWD), and Agriculture (AD), and between the govemment and the private sector, particularly in the delivery of agricultural support services to fanmers. Greater financial sustainability would be promoted by the right-sizing of the Irrigation Department and through full cost recovery from users of system operations and maintenance (O&M) requirements and through user contribution lo rehabilitation costs. The ID has already implemented the first phase of staff reduction by cutting 8,000 (30%) of its staff through voluntary retirement and redeployment to other Departments (as of May 2001). Over the next five years, the GOR aims to reduce overall staff in water sector-related departments (i.e. Irrigation, Groundwater, CADA&WVUD, IGNPD) further by another 8,500 (50%). This will bring dowr overall staffing from about 55,000 today to 38,500. The project would also support a "commercialization of irrigation services" pilot in a distributory command of about 6000 Ha, which would develop direct ifarmer involvement in management of a larger command area on a commercial basis. To also provide useful inputs toward the development of groundwater legislation and regulations and further investments in the sector, community driven approaches for sustainable groundwater management would also be piloted under the project. B.2.5. Power issues. With respect to sustainable groundwater management, a major cause of over-pumping is low electricity charges and unreliable supply. Rural electricity pricing reform is an integral part of the state's overall pricing reform under the Rajasthan Power Sector project (FY2001.). GOR raised rural electricity tariffs for groundwater pumping by 40% in October 1999. However, because of the importance of the power sector issues in the overall management of ground water, the project teams of RWSR and the power projects, are coordinating activities that link to groundwater management. In the ground water pilot areas the teams would explore options for linking power tariff adjustments to service improvement. These tariff adjustments are intended as a mechanism to influence farmer use of electricityv for ground water pumping. 3. Sector issues to be addressed by the project and strategic choices: B.3.1. The main sector issues to be addressed are: (a) the institutional capacity for current and long-term planning, allocation, and management of water resources, including environmental management; (b) the poor quality of irrigation and drainage services resulting in inefficient water usage, low agricultural productivity, and environmental degradation; (c) the high cost of service, low cost recovery, and low levels of expenditure in O&M; (d) the weak agricultural support services in irrigated areas; (e) the unsustainable management and use of groundwater; and (f) weak R&R institutional capacity. B.3.2. The strategic choice was between a program of ad - hoc water resources development and one focused on building the policy, planning, and institutional framework which would allow for a sensible prioritizing of future investments in the sector, and at the same time concentrate on irnproving the efficiency of existing investments. The GOR water policy opts for the latter, and this would be supported by the project. The strategic framework highlights the need for a more comprehensive program for development -4 - which will require a long-term commitment by the government, assisted by the Bank and other donors; therefore, this project would build the foundation for this long-term program. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): C. 1.1. The RWSRP comprises three components: (i) water sector institutional restructuring and capacity building; (ii) improving irrigation system perfornance; (iii) establishment of a project management unit. Water Sector Institutional Restructuring and Capacity Building ($31.53m) C.1.2. This component focuses on ensuring the effective functioning of key institutions for sutainable water resources managment and systems performance in the State. Specifically, this component would support: (i) the creation of a State Water Resources Planning Department (SWRPD) which would be responsible for planning and regulation and ensuring consistency of implemenation of basin plans across Departments, the restructuring and capacity building of the Irrigation Department (ID) to change its role to one of effectively providing client-oriented water services, and the strengthening of the capacity of the Environment Policy Planning Unit in the SWRPD to formulate and implement environmental protection and management strategies and policies linked to the water sector ($4.12 million); (ii) the modemization of management information systems in the GOR water sector departments (ID, GWD, CAD&WUD) that would provide important inputs to the process of strategy and policy formulation and program implementation ($8.18 million); (iii) the piloting of community-based institutions for more sustainable groundwater management in at least three water-scarce areas and the strengthening of the data collection and technical capacity of the Ground Water Department ($14.71 million); (iv) the establishment, on a pilot basis, of a farmer owned and managed water utility, operating on commercial lines, that would take over the operations and management of a distributory command of about 6000 ha ($1.39 million); (v) strengthening of the ID's capacity for handling R&R issues in the water sector ($1.13 million); (vi) research on critical water-related issues in the State managed by a new Research Advisory Committee (RAC) ($1.07 million); and, (vii) information, education and communication campaigns to build broad-based consensus and support for the State Water Policy and the reform program in the Water Sector (0.93 million). Improving Irrigation System Performance ($147.73m) C. 1.3. This component, to be imnplemented by the ID and the AD, centers on raising irriated agricultural productivity, water use efficiency, and irrigation system performance in the project area through greater participation of users in systems O&M, increased cost recovery, and improved agricultural support services delivery. The restructuring of the ID as outlined above to a more service oriented department would be closely linked to this component. It would support: (i) the fornation and fostering of up to 620 WUAs in the project area, covering about one third of the state's irrigation area. These WUAs would, over time and in close coordination with the ID, take over the operation and management of surface irrigation systems up to the distributory level. The GOR commitment to moving towards full cost recovery of O&M costs would help ensure the longer term financial viability of these farmer organizations ($2.21 million); (ii) participatory rehabilitation of about 90 (major, medium and minor) schemes covering about 620,000 ha by WUAs and ID, with WUAs contributing 15% of the rehabilitation costs of the works under their control. ($114.52 million); (iii) strengthening of agricultural extension services in the project area through the introduction of multidisciplinary (irrigation, agriculture, horticulture, animal husbandry, etc) technical - 5 - support groups (TSGs), and public-private sector coordination for technology transfer to farmers ($12.62 million); and, (iv) enhancing the safety of 16 dams supplying water to the project area through rehabilitation ($18.38 million). Project Management Unit ($0.96m) C.1.4. This component supports the establishment of a project management unit that would ensure the "ffective implementation and coordination of activities that involves several government departments (3.e. SWRPD, various water departments, agriculture, and environment). This component would fund provision of office equipment, computers, training, consultancy services, and some limited incremental recurrent expenditures. ($0.96 million). (See also the PIP for additional details) Indicative Bank- % of Component Sector Costs % of financing Bank- (US$M) Total (US$M) financing (A) Water Sector Institutional Institutional 31.53 17.5 24.66 17.6 Restructuring and Capacity Building Development (B) Improving Irrigation System Irrigation & 147.73 82.0 114.58 81.8 Performance Drainage (C) Project Management 0.96 0.5 0.76 0.5 Total Project Costs 180.22 100.0 140.00 100.0 Total Financing Required 180.22 100.0 140.00 100.0 2. Key policy and institutional reforms supported by the project: C.2. 1. The project would support significant institutional reforms as follows: (i) strengthening institutions within the sector in the areas of strategic water resources planning, including environmental management; (ii) reorientation and capacity building of the line departments that manage surface and ground water; (iii) greater beneficiary participation in irrigation management; (iv) ensuring a level of water charges so that revenue collected is equal to the cost of irrigation system O&M; (v) piloting community driven solutions to sustainable groundwater management; (vi) adopting a new institutional structure for agricultural support services; and, (vii) piloting commercialization/ privatization of irrigation services. -6- 3. Benefits and target population: C.3. 1. The proposed project would directly benefit an estimated 250,000 farm families. The value of incremental agricultural production resulting from improved yields of overall farm output, stimulated by the improved delivery of irrigation water and agricultural support services under the project is estimated to reach Rs 2.1 billion per year by the end of the project. The project would stimulate additional demand for labor estimated at about 29,000 jobs per year, equivalent to about 8.7 million person-days per year. Most of the labor requirement would need to be satisfied by hired labor, which opens greater employment and income opportunities for the landless. Other downstream off-farm employment generated in transport, marketing, and agro-processing, however, could not be quantified. Construction of civil works expected under the project, would generate an additional temporary five-year increase in labor demand in the project area. The formation of water user and community groups under the groundwater pilot components would empower the rural population, including poor people, women, and other disadvantaged people. Improved environmental management capacity would benefit the communities by reducing pollution, preventing water related diseases and improving public health. 4. Institutional and implementation arrangements: C.4. 1. The following would be the new permanent institutional structure for managing water resources in Rajasthan. (a) State Water Resources Council (SWRC-constituted in August 1994), chaired by the Chief Minister and including the minister of ID (vice chairman), and the ministers of the departments of Public Health Engineering (PHED), GWD, AD, and Command Area Development (CAD). The council's role is to approve multisectoral strategies and policies for integrated and sustainable water resources development and management in the state. (b) Standing Committee on State Water Resources, (SC-established in February 1993) chaired by the Chief Secretary (CS), and including a wide range of departmental secretaries and farmer representatives has been established with a strategic focus on the state's water resources issues and as a forum to provide interdepartmental coordination in the water sector. Its flmctions include formulation of strategies and policies for the water sector on issues relating to regulatory, institutional, technical and legal issues, water use, and legal frameworks for interstate diversions, transfer of irrigation management to beneficiaries, and cost recovery. (c) State Water Resources Planning Department (SWRPD). The project would support the establishment of a new SWRPD. This would strengthen the state-wide water planning function. Its primary functions would be to: (i) assume the functions for planning and regulation currently performned by the line operating departments, (ii) develop and enhance multisectoral basin plans, (iii) review and make recommendations to the SC on all proposals for new water sector projects, particularly with respect to water allocations and, (iv) ensure consistency of implementation of state and river basin water plans across departments. As an integral part of the SWRPD, a water tariff regulatory committee would be created to review and recommend water tariff adjustments to GOR. Project Coordination and Management C.4.2. The project coordination and management arrangements would have three levels. At the highest level an interdepartmental project steering comnmittee (PSC) chaired by the CS, with the Secretary of - 7 - Irrigation acting as convener, and with a core membership of Secretaries of the departments directly responsible for project implementation (GWD, Command Area Development and Water Utilization Department (CAD&WUD), ED, AD, Finance, and Revenue) would be established. The PSC would meet frequently and have a project implementation focus, particularly with respect to fund flow, overall procurement management, project disbursement and overall progress of each component against the agreed annual action plans. Each line department--ID, GWD, AD, ED, and SWRPD would be responsible for inplementing its respective components (Annex 2 and the PIP). A small project management unit (PMUJi would be established and report through the ID to the PSC. The PMU's specific functions would be limited to: overall project coordination; procurement management including quality control , financial management (including disbursements), and audits; IEC activities; monitoring and evaluation (M&E) activities; and the preparation of quarterly progress reports to be submitted to the International Development Association (IDA). These quarterly reports would be submitted no later than 45 days after the last day of each month of December, March, June, and September of each year, commencing with a report on the third quarter 2002 - ending September 30, 2002. C.4.3. Key performance indicators are at Annex 1. Progress against these would be monitored as an integral part of project implementation. In addition to quarterly M&E, an external entity would be contracted to carry out more in-depth and quantifiable M&E of project outcomes in particular focusing on behavior and performance of WUAs and measuring the functioning and impact of the technical support groups (TSGs). Formal Project Reviews C.4.4. The project would have two formal reviews to be completed by October 31, 2004, and October 31, 2006. These formal reviews would focus on project progress and impact and utilize the progress reports by the PMU and on reports prepared by an independent agency, based on the key performance indicators and the project baseline survey information. GOR would engage by May 31, 2003 a M&E agency independent of the implementing line departments involved in the project to carry formal M&E under TOR acceptable to the Association. D. Project Rationale 1. Project alternatives considered and reasons for rejection: D 1.1. Traditional lending approach. One alternative was the traditional supply driven approach that placed more emphasis on engineering and asset creation. These have been stand-alone, highly complex, multi-component projects that would seek to address all of the sectoral issues at once, combined with a massive investment program over a relatively long project life (six to seven years). This approach was rejected because asset creation is a necessary but insufficient condition for the improved performance of the water sector. Another draw-back was that the scale and complexity of this style of project strains the capacity of the government to effectively implement. Experience now shows that the full range of reforns required in the sector (institutional, basin planning, environmental management, full-scale investments for management, and new infrastructure development) cannot be successfully implemented within a typical single project time frame. D. 1.2. Adaptable program lending (APL) approach. Another option would have been to adopt an APL approach, involving a long-term well defined schedule of activities, with financing conditional on the fulfillment of a set of predetermined and clearly identified actions/policy triggers. The GOR, while having outlined a long-term vision for the sector, seeks to define the practical implementation of this vision, - 8 - beginning with smaller-scale pilots of alternative management approaches, particularly for the key areas of groundwater and surface irrigation management. These pilots would eventually serve as the basis for scaling-up and subsequently defining more concretely the statewide, sectorwide follow-up plan of action to be pursued. Therefore, the APL approach is viewed to be not suitable in the context of the Rajasthan water sector. D. 1.3. Investment linked to reforms. The above approaches have been rejected in favor of a more phased approach involving a series of projects consisting of up-front reform actions combined with focussed investments supporting the reform process. This is consistent with GOR's long-term strategy and vision, which foresees a substantial change in the way the sector is managed, particularly with respect to intersectoral water resources planning, development, and management, and a reorientation of the institutional focus toward better management of existing infrastructure, with significant beneficiary participation. Such changes take time, and are necessary to properly plan future investments. This project is designed to reorient and restructure the sector and to build capacity to allow GOR institutions and the other major stakeholders to develop new management processes and develop the skills necessary to implement effectively, the GOR water sector policy in the long term. Therefore, the single loan approach within the longer term context is adopted whereby subsequent loans would support up-front reform actions, complemented by distinct investment tranches within the state water policy framework. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Note: Completed (C), On-going (0). For (C) projects the rating refers to implementation completion reports only. Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Water resources and irrigation Orissa Water Resources S S management Consolidation Project (0) Tamil Nadu Water Resources S S Consolidation Project (0) Haryana Water Resources S S Consolidation Project (0) Andhra Pradesh Economic S S Restructuring Project-Irrigation Component (0) Hydrology Project (0) S S Andhra Pradesh Irrigation III S S (0) Agricultural development Rajasthan Agricultural S Development Project (C) Uttar Pradesh Sodic Land S Reclamation I (C) Uttar Pradesh Sodic Land S S Reclamation 11 (0) Water supply and sanitation Kamataka Water Supply and S Environmental Sanitation Project (C) -9- Uttar Pradesh S Water Supply and Environmental Sanitation Project (C) Safety of large dams Dam Safety Project (C) S Other development agencies French Technical Cooperation India Water Club: River Basin Planning, Water Supply and Sanitation UK DFID (formally ODA), Various water supply and UNICEF, DANIDA, The Netherlands, sanitation projects in KfW Andhra Pradesh, Gujarat, Kamataka, Kerala, Maharashtra, and Uttar Pradesh UNICEF, WFP Indira Gandhi Nahar Project (IGNP) KfW minor irrigation IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: D. 3. l. In the past, typical problems encountered Bank-wide with free standing irrigation projects related to a lack of attention to the intersectoral issues and competing demands for water resources without regard for environmental impacts. These projects were often rated, at best, marginally successful. As reported in an Operations Evaluation Development (OED) study, "The World Bank and Irrigation", 1995 (ISBN 101 1-0984), and in various project implementation completion reports, most Bank-funded projects ranged from unsustainable to marginally sustainable due to inappropriate institutional arrangements, inadequate cost recovery and O&M program funding, and most significantly, the almost complete lack of consultation with users on project design, preparation, and implementation. Projects were generally designed, implemented, and managed, by government agencies with little or no customer service orientation, lackLed performance accountability, and were managed in a way that precluded participation by fanners and other relevant govermnent agencies, particularly those in agriculture. The result was often a vicious cycle of poor irrigation service, low water charges and collection rates, under funding of O&M, lack of participatory involvement by farmers, and a disconnect between irrigation and agriculture services. Also most projects inadequately integrated environmental quality objectives in water planning and development decision making. By design, the RWSRP seeks to address these issues. Lessons on Systems Transfer to WUAs I).3.2. The Andhra Pradesh Economic Restructuring Project (FY99), Irrigation Component, and the Rajasthan Agricultural Development Project (FY92) illustrate the key features that lead to successful outcomes in the transfer of irrigation systems to WUAs. These have been incorporated into the design of the project and include: (a) strong government commitment to fiscal and institutional reform at the highest level, as in Andhra - 10 - Pradesh, is a strong catalyst for change. GOR is strongly committed to participatory irrigation management as reflected in the adoption of a state water policy, and a willingness to proceed at an early stage of the project with a massive education, communication, and awareness campaign. (b) a strong legal framework is critical to successful formation and functioning of WUAs. Accordingly, GOR has enacted new legislation: The Rajasthan Farmers Management of Irrigation Systems Act (2000 ,which provides the required legal framework for this important subcomponent of the project. (c) WUAs can effectively and efficiently implement rehabilitation, if they are empowered early, and allowed to take the lead in identifying the system's rehabilitation needs, with subsequent implementation with the support of the line govermnent agencies. This has been incorporated in the project's design and is a strong feature. Relevant lessons from the recently completed Agricultural Development Project in Rajasthan are: (a) hybrid policy cum multisector, statewide investment projects are complex in operation, investments would be better concentrated on a few critical issues. This lesson is reflected in the design of this project with its limited project period objectives, but set in a longer term context; (b) agricultural demonstration programs for application technology should focus on a few high quality demonstrations that can be replicated with good results. This lesson has been incorporated in the design of the Agricultural Support Services sub-component. Specific project management lessons learned are: (a) Minimize turnover of senior staff. In some projects, the frequent turnover of staff increased the difficulty in the effective and timely implementation of the project components. (b) Establish strong procurement capacity. Experience shows that strengthening procurement capacity is essential to timely project implementation. Under the project, selection and training of project procurement staff has been completed for the PMI. Overall responsibility for the management of the procurement function, including quality control would rest with the PMU. Procurement workshops to train the departmental staff involved in project implementation in Bank procurement procedures would be carried out by June 30, 2002. (c) Ensure timely counterpart funding. Increasing revenues from increased water charges would result in funds available for O&M and would improve the state's overall recurrent budget situation. The project design includes direct fanner contribution to investments (15% of WUA-led investments in their area of responsibility) which would reduce the counterpart funding requirement from GOR. (e) Establish strong environmental management capacity. Effective environmental management capacity would be established for ensuring that environmental sustainability criteria and objectives for the water sector are developed (for allocating and using water within sustainable limits, for protecting against irreversible water quality degradation, for protecting against irreversible contamination from pollution and for protecting important watersheds and aquifer recharge areas against encroachment and poor land use, etc.) and integrated in a timely manner in the planning, development and management decision making process. - 1 1 - (f) Establish strong M&E system to monitor project progress and assess impact. The PMU would be set up with dedicated M&E staff. A baseline survey has been completed under project preparation that would serve as a benchmark for evaluating the project's progress in achieving its development objectives. During project implementation two formal project reviews (rather than one midterm review) would be undertaken to assess project progress on activities, as well as project impact against the baseline. 4. Indications of borrower commitment and ownership: D.4. 1. GOR initiated the dialogue with the Bank for the preparation of this project in about 1994. The state is acutely aware that it is approaching the limit of available surface and groundwater resources, and that the performance of existing irrigation and drainage infrastructure must be improved in order to increase agricultural productivity and improve the efficiency of use of available water. Nevertheless, the time taken to get to this point, including delays in recent months towards committing to some policy aspects of the project, indicates a degree of caution. Also, projects in other sectors in Rajasthan have had implementation problems and delays in carrying out agreed project related actions. In view of past experience, emphasis during project preparation has been on initiating reform actions before project implementation. A number of up-front policy and reform actions have been completed by GOR during the extended preparation period that are critical and consistent with GOR's long term vision for the sector. These are listed below. The proposed project would assist the government to further its reform agenda. This still requires significant delivery during project implementation on commitments made by GOR during project preparation, in particular those relating to achievement of full cost recovery and the institutional restructuring aspects. Nevertheless, the actions taken to date provide encouraging signs that these further reform actions would be followed through. D.4.2. The actions taken by GOR to date include the following: (a) formulated a state water resources policy, (b) completed a state water resources plan, (c) constituted a State Water Resources Council and a Standing Committee on water resources, (d) adopted a water sector R&R policy, (e) doubled water charges in April 1999; (f) enacted the Rajasthan Farmers Management of Irrigation Systems Act (RFMISA) and, (g) initiated, as part of an overall GOR program, the rationalization and right-sizing of the various departments within the sector. Under the project and to build on this foundation, the state has also commnitted to the following: (a) the establishment of an independent SWRPD for comprehensive and multisectoral water resources planning, that will ensure the optimal, sustainable and equitable use and development of the state's scarce water resources; (b) the strengthening the environmental management skills in the sector through the creation of environmental cells (ECs) in the SWRPD, ID, and Environment Departments (ED); and (c) the establishment of an R&R directorate in the ID for the effective management of the R&R function in the sector; and, (d) further increases in water charges over the life of the project to recover full O&M costs. 5. Value added of Bank support in this project: D.5. 1. The Bank's shared approach to policy dialogue in the water sector, which includes support for up-front actions and long-term engagement, matches the scale and complexity of reforms required in Rajasthan. The Bank can facilitate and encourage this long-term transformation in the sector through technical assistance, lending, and advice. Accordingly, the Bank would use its global and local knowledge and experience to assist GOR to further its water sector reform program. D.5.2. In Rajasthan the government is undertaking important reforms in both the water resources and - 12 - power sectors. The Bank is active in sector projects in power, health, education, and district poverty initiatives in the state and this places the Bank in a unique position to assist GOR and build synergy with these on-going state assistance initiatives supported by the Bank. In particular, reforms in the power and water sectors are central to the state's fiscal health, and provide the base for the state's economic growth and poverty reduction. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=US$92 million; ERR = 27 % (see Annex 4) o Cost effectiveness O Other (specify) E. 1.1. The economic rate of return (ERR) for the project as a whole is estimated at 27 percent, which is well above the opportunity cost of capital (12%), with a net present value of benefits of about Rs 4.2 billion ($92 million) at 2000 prices. The estimated ERR for each of the two selected major, medium, and minor schemes are respectively: 20 and 43 percent, 37 and 40 percent, and 25 and 19 percent. The variation in ERRs across schemes to a large extent reflects the regional variations in production potential. Sensitivity Analysis E. 1.2. Sensitivity analysis to assess the impact of key project risks indicates that the project's ERR is in general robust when exposed to wide ranging potential project risks. The major risks analyzed relate to: less than 100 percent operational success of the WUAs, a key building block of the GOR's water sector strategy; delays in implementation possibly due to problems of counterpart funding; slower than projected farmer response to the investment program resulting in delayed accrual of benefits; and implementation inefficiencies that could lead to higher investment costs. The results of the sensitivity analysis are presented in the table below. Economic Rate of Return Total | Maior Schemes Medium Schemes Minor Schemes Scenario Project I Bhakra I Gang Sainthal Sagar I Jetoura Jhadol Lodisar Base Case 27% 20% 43% 37% 40% 25% 19% WUAs 80% Operational 21% 16% 34% 30% 32% 200/a 15% 70% ODerational 16% 12% 25% 23% 25% 15% 12% Benefits Lagged I year 22% 17% 32% 29% 31% 21% 17% 2 Years 19% 15% 27% 25% 26% 190% 15% Investment Costs Increase 25% 22% 16% 34% 30% 33% 21% 16% Benefits lagged Iyear+ invest. Increase 25% 19% 14% 27% 25% 27% 18% 14% Benefits lagged lyear+ invest. Increase 25%+ 80% WUA ouerational 15% 12% 22% 21% 23% 15% 12% Implementation over 7 vrs. benefits laiged I Yrl/ 20% 18% 34% Implementation over 5 yrs. benefits lagged I yr 30% 32% 24% 19% Note: I/Major projects are implemented over 7 years. 2/ Medium and minor projects are implemented over 3 years. E. 1.3. The success of the GOR's strategy for surface irrigation rests on the successful performance of - 13- WUAs, particularly on O&M. Sensitivity analysis indicates that at 70 percent and 80 percent WUAs success rate, the ERR of the project declines to 16 percent and 21 percent respectively, but remains above the opportunity cost of capital. Implementation delays could potentially arise as a result of difficulties in the transition to an ID and WUA management, and/or inadequate or delayed provision by the GOR c-f counterpart funding. The impact of possible delays in implementation for the project as a whole and for major schemes is examined by spreading investments over seven years instead of five years, and lagging benefits one year. The results indicate that the ERR for the whole project declines to 20 percent. The impact of delayed farmer and output response to investments, as well as an 80 percent WUA success rat, and a 25 percent increase in project costs are also investigated. The project ERR declines from 27 percent to 15 percent. The individual scheme ERRs remain at or above the cost of capital. 2. Financial (see Annex 4 and Annex 5): NPV=US$ 112 million; FRR = 28 % (see Annex 4) E.2. 1. The financial rate of return for the project is estimated at 28 percent, with a net present value of incremental benefits of about Rs 5.1 billion (2000 prices, $112 million). The project is quite robust to wide ranging project risks identified above. In all scenarios, the financial rate of return remains above the cost of capital of 12 percent. FIiscal Impact: 1.2.2. During the project period, GOR intends to reduce the overall cost structure of the ID, primarily through staff reduction and improvements in efficiency and productivity, and adjust water charges to achieve full cost recovery of O&M. These measures would contribute to the phase out of fiscal subsidies for O&M in the state by about the fifth year of the project, from the current level of about Rs 936 million per year (about 75% of total O&M expenditures or 13% of the ID's recurrent expenditures - FY99/00 ). T able A4.5 in annex 4 presents the results of the analysis wherein the GOR progressively reduces O&M costs per ha from Rs 781 to Rs 550 over the project period, and increases water charges from Rs 191/ha in 1999/00, to Rs 550 /ha by 2005/06, (no adjustment for inflation) to illustrate their fiscal impact. Water charge adjustments are made according to the proposed schedule by GOR, taking into account inflation, to ensure full cost recovery by project completion. Improving collection efficiency would also be critical to ensure the full impact of the cost recovery program. An increase in water rates from the current Rs 191/ha to an equivalent level of Rs 550/ha, (assuming the same gross cultivated area, and that O&M expenditures remains at the 1999/2000 level and 100 percent collection efficiency), would result in a Rs 43 million ($ 0.94 million) surplus. However, if the current collection efficiency level remains at 80 percent, fiscal subsidy required would be about Rs 189 million ($4.1 million). E:.2.3. Several cost recovery scenarios were also analyzed. If GOR hastens staff reduction and the O&M target of Rs 550/ha for RWSRP schemes and Rs 549/ha for other ID schemes are achieved in Y3, this would contribute to an additional reduction in the fiscal subsidy requirement over the project period by as much as Rs 51 million ($1.1 million) per year from the base case. If the GOR staff reduction program is delayed by 50 percent in Y1 and Y2 , the fiscal subsidy requirement per year during the project period would increase by as much as Rs 38 million per year from the base case. If the planned staff reduction is not fully successful and the O&M costs are cut by only 75 percent of the target and water charges are raised to only 75 percent of target, then financial autonomy would not be achieved in Y5, instead the fiscal subsidy requirement would amount to about Rs 215 million. E.2.4. Project impact on farmer incomes. In analyzing the financial effects of the project on farm households, models of typical farms in the six selected schemes were developed. Prevailing financial prices - 14 - are used to value outputs and inputs, and crop budgets on a per ha basis were generated and used as the basis for estimating the impact at the farm level. Overall, the effects of the project on farm incomes is satisfactory. At the project's completion, increases in net farm incomes range from Rs 5,000 to Rs 24,000. These translate to a 30 to 80 percent increase in incomes. The increases in income are derive primarily from the increased productivity due to the increased availability and reliability of irrigation water. This is especially important for farmers, such as those in the tail end, who are able to convert from unirrigated to irrigated agriculture as a result of '.he improved delivery of irrigation coming about due to the rehabilitation of the system. The rates of increase are also greatly influenced by the rather low income base of farm households. The estimate of the net farm incomes in the financial analysis includes the expected increase in water charges to fully cover the cost of O&M. Since these increases in net farm incomes generated by the project already account for increased water costs, it clearly indicates the farmer's ability to pay for O&M costs. 3. Technical: E.3. 1. The project is not technically complex. Canal rehabilitation works are based on full engineering survey and cost estimates on the current schedule of rates (May 2000). The design standards used for the dam safety remedial works are appropriate and meet the national and intemational standards. Part of institutional capacity building under the project would involve modernizing survey and design processing and upgrading skills through training, as well as the introduction of other modem technical computer applications that would enhance a wide range of technical and engineering skills. Construction techniques would be enhanced through building capacity in quality control, training, and introducing modem construction techniques that are practiced in other parts of India. 4. Institutional: 4.1 Executing agencies: E.4. 1. The ID, AD, and GWD and the new SWRPD are the main executing departments. The implementation of the activities under the first component on institutional strengthening would be undertaken by the respective departments. Under the second component, improving irrigation system performance, the ID would be responsible for implementing the participatory rehabilitation and WUA fostering activities. The AD would implement the agricultural support service activities and the GWD would implement the groundwater component. 4.2 Project management: E.4.2. The project coordination and management arrangements would have three levels. They include: an interdepartmental Project Steering Committee (PSC), line department-specific project coordinating cells, and a Project Management Unit (PMU) attached to the ID that would be responsible for overall coordination of project implementation and would report through ID to the PSC. This management model has worked successfully under the Rajasthan Agricultural Development Project, and the borrower has demonstrated a satisfactory level of capacity for its implementation. 4.3 Procurement issues: E.4.3. The "Guidelines for Procurement under IBRD Loans and IDA Credits" would be followed for all goods and works financed under the project, and the "Guidelines for Selection and Employment of Consultants by World Bank Borrowers" would be applied to all consultant services. Given its experience with other recent Bank-funded projects, the implementing departments for this project are considered capable of implementing project procurement without the help of a procurement agent. GOR would establish a high-powered committee to review bids and appoint contacts for all procurement categories in - 15- the project. 4.4 Financial management issues: E.4.4. 1. Proposed financial management arrangements. A financial management system (FMS) has been developed with the assistance of a professional accountant (consultant), which documents the proposed system in a financial management manual (FMM), details of which are in the PIP. The FMMI would be formally adopted by all the project implementing agencies to ensure transparency, uniformity, clarity, and accountability. The FMM would be improved/updated periodically, based on implementation experence. E.4.4.2 The project design provides for the development of a comprehensive computerized M1S (including the financial management modules) as a separate project component. The MIS would not be in place at project start, but would be developed during project implementation. For the interim period records would be maintained manually, or through a simple computerized accounting system. Therefore, the Bank requires that a suitable and simple software be identified or developed for partial and/or complete computerization of the FMS, based on the FMM already prepared. The interim system must be compatibLe with the financial module in the MIS. E.4.4.3 Staffing and training. The PMU would be staffed by an accounts officer, two junior account: officers, and one support staff. It has been agreed that the selection process would ensure that staff, that are hired, would have suitable experience for the size and scope of the project. A transfer order dated October 1, 2001 and with effect from January 1, 2002 would transfer a Finance and Accounts Officer well versed in Government accounting systems to the PMU. E.4.4.4. Disbursement arrangements. Initially, the disbursements would be made under the traditional method. At the end of the first year of implementation, the financial system in place would be reviewed to assess whether PMR-based disbursement procedures can be adopted. The target date for switching over to PMR-based disbursements is October 1, 2003. E.4.4.5. Financial management arrangements for WUAs. Financial policies and procedures regarding transfer of funds to/from line departments to WUAs, and accounting by the WUAs, would be incorporated in the FMM. Good practices from other projects would be adopted during implementation. E.4.4.6. Auditing arrangements. The project's accounts and financial statements would be audited by the Auditor General (Rajasthan) as per terms of reference agreed with the Bank and to be included in the FMM. It was agreed at negotiations that GOR would ensure the appointment and training by June 30, 2002 of appropriate personnel of the Finance wing of ID for carrying out intemal audits of the project in accordance with TOR satisfactory to the Association. E.4.4.7. Readiness for implementation and next steps. The design of the computerized Financial Management System is in progress and until the computerized system is functional, the manual system is adequate for the financial management needs of the project. A Financial Management Manual documenting the financial management system has been prepared and included in the PIP. The design of the computerized system or purchase of accounting system is expected to be completed by June 30, 2002. 5. Environmental: Environmental Category: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. - 16 - E.5.1.1. A sector environmental assessment (SEA) study has been completed by the GOR. This three-volume study [summary, main, and the basin-wise environmental action plan (EMP)] reviewed the baseline environmental conditions across the water sector, mainly based on secondary sources of information. It identified water sector related environmental issues and corresponding mitigatory measures for Rajasthan, and reviewed policies, plans, legal, and institutional frameworks to help achieve long-term sustainable solutions and environmentally sound water sector investment strategies. The summary environmental assessment (EA) for Phase I (including the EMP and performance indicators) has been prepared, based on the SEA study and public consultations and integrated as part of project design. E.5.1.2. Public consultations to obtain views of various interest groups were organized in Banswara, Hanumangarh, Kota, and Udaipur. Participants at these workshops included farmers (including women) at the head, middle and tail-ends of the distribution system, NGOs, Panchayati Raj institutions, and tribal communities. A summary of the draft SEA report (in the local language) for public disclosure was also displayed at two key panchayat locations in each of the nine basins. The following water sector environmental issues are perceived by these stakeholders: (a) seepage and waterlogging problems due to damaged canal sections; (b) absence of drainage, causing waterlogging and salinity; (c) saline water affecting quality of yield; (d) aquatic weed growth causing breaches in head reaches of canals and channels; (e) farmers in head villages getting more canal water than those at middle and tail-end villages; (f) drinking water quality problems in the rural water infiltration system (diggis); (g) effects of upstream developments on the quantity and quality of water imported from other states; (h) spread of waterbome diseases; (i) insects, pests, and diseases in agricultural crops; (j) excessive use of fertilizer; and (k) adverse effects of increased use of fertilizer. E.5.1.3. Significant environmental issues: The proposed project does not entail expansion into new irrigated areas, but it would provide improved irrigation efficiency and sound water management. If the project is implemented judiciously with appropriate mitigation measures, then it is likely to have significant positive effects, including reduced water logging, reduced soil salinity, improved water distribution to tail-enders, increased irrigation efficiency, cropping intensity and crop yield, balanced use of agrochemicals, reduced pollution from agrochemicals, improved participation of farmers in irrigation and drainage, and decreased incidence of water related diseases. Although the project's activities would have positive effects in sustaining the water resources of the basins, there is a concern regarding induced impacts mainly related to increased fertilizer/pesticide use; reduced groundwater recharge; and drainage of wetlands due to rehabilitation and modernization of irrigation systems, particularly in the areas where water tables are currently declining. A critical review of baseline information based on secondary sources of information and public consultations in the project area bring out the following key water sector related environmental issues: Water quantity - (a) groundwater is the main source for meeting most of the domestic demand, with uneven exploitation, varying from safe to over exploitation; (b) inequitable distribution of irrigation water supply results from poor maintenance of the distribution system; and (c) due to the ephemeral nature of most of the river systems, inadequacy of water supply over time would increase, requiring increasing interbasin and intrabasin transfers. Land degradation - (a) application of excess irrigation waters in gypsum and clay soils with poor drainage has resulted in severe water logging and soil salinity in many areas; and (b) intensive agriculture involving high yielding varieties, along with imbalanced fertilizer use has resulted in heavy withdrawals of nutrients from the soil and reduction in soil fertility: Water quality - (a) surface and groundwater quality are major concerns, mainly due to diffused sources of pollution from agricultural operations (from fertilizer, pesticide, and insecticide runoff) and point sources of pollution from industrial discharges and municipal waste water discharge seeping into aquifers and/or the surface waters; (b) poor water quality management and industrial pollution control has resulted in severe pollution of aquifers and the Chambal River; (c) pollution from discharges of municipal - 17 - sewage and from fertilizers and pesticides remain unchecked and its severity and extent are unknown; (d) there is pollution from upstream activities via schemes responsible for transferring waters from upstream basin states. (for example IGNP, Haryana, etc.); (e) high fluoride and nitrate content in some areas is negatively impacting the quality of drinking water in these areas; (f) aquatic weed growth poses problems in the smooth operation of channels and degrades water quality; (g) water related diseases are present, especially in rural areas; and (h) low levels of awareness of rural sanitation and drinking water quality. T'olicy and regulatory - inadequate policy and regulatory framework for effectively managing water resources in an integrated and sustainable manner (details in SEA report) and, Environmental and institutional management - (a) limited and weak institutional capacity to carry out integrated water resources planning, allocation and management, as well as, integration and management of environmental aspects of the water sector; (b) lack of criteria and a framework for addressing water sector environmental sustainability issues; (c) pollution 'monitoring' is partially exercised for industries and hardly at all for municipal waste water and is completely lacking for agriculture run off; (d) pollution 'control' in industries is partially exercised; pollution 'control' for non-point sources is completely absent; and (e) limited umderstanding, awareness, and familiarity, with existing environmental laws, policies, regulations, FA procedures and processes, and EMP preparation, implementation, and monitoring requirements. Mitigation Plan E].5.1.4. The various project components, including the establishment of the SWRPD, formation of WUAs, participatory rehabilitation, agriculture support services, groundwater management, waler resources planning, and environmental management, would have positive effects on sustaining the water resources of the basins. The judicious use of pesticides would be promoted by the AD's support of the integrated pest management, and integrated nutrient management approaches. However, there is a concern regarding induced negative effects, mainly related to increased fertilizer/pesticide use, and reduced groundwater recharge due to rehabilitation and modernization of irrigation systems, especially in areas where water table levels are in decline. Other concems are draining artificial wetlands, due .o (drainage-related activities in the pilot subproject components on sustainable groundwater resource management, and the commercializing surface irrigation. The project has built-in institutional arrangements to ensure that appropriate mitigation measures are undertaken for the pilot subprojects. The environmental unit in the ID is responsible for preparing and implementing a detailed EMP and performance indicators for each pilot subprojects. Project activities designed to maintain the positiPe effects of the project and to address existing environmental issues related to the water sector are in Annex Environmental Management and Institutional Issues E.5.1.5. The basin planning process provides an excellent opportunity to mainstream environmental concerns. The basin planning unit in SWRPD would prepare and integrate multisectoral river basin management plans and the state water plan, supported with GIS. SWRPD's environmental policy planning unit would work closely with the basin planning unit to handle the environmental aspects of the basin planis. E.5.1.6. Institutional strengthening would be an integral part of the project, and these institutional mnechanisms would be established: (a) an environmental policy planning unit in the new SWRPD; (b) a water cell (WC) in the Environment Department; and (c) an environment cell (EC) in the ID, along with three supporting regional cells. The effectiveness of these changes would be reviewed continuously and particularly at the two formal reviews. Based on this review process, appropriate changes would be made. I)etails on the activities to be carried out by the three new environmental units are in Annex 2 and the PIP. At negotiations agreement was reached to fully staff the new environmental units created under the project - 18- by June 30, 2003 and develop an environmental policy and environmental strategy for the water sector by June 30, 2004. 5.2 What are the main features of the EMP and are they adequate? E.5.2.1. Based on the identified issues in each of the nine basins (SEA study), a summary EA has been prepared for Phase I of the project. The EA provides details of environmental issues, mitigation plans including policy, environmental management and institutional aspects, and environmental performance indicators. The performance indicators along with the detailed monitoring plan are in the PIP. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: Category A SEA: start-up date was March 1, 1999; Draft Final Report was submitted on December 6, 1999. Bank review comments were provided on December 15, 1999. The final SEA report was received in April 2000. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? E.5.4.1. For environmental screening, public consultations were held at four key locations, to get views of the various interest groups from four basins, where major water development activities are projected within the next 15 years. The participants represented the various interest groups, farmers (including women) at the head, middle, and tail-end of the irrigation distribution system, NGOs, Panchayati Raj Institutions, and tribal communities. The invitees were provided an information package including information on proposed water development projects in the region, sociocultural and environmental issues, preliminary findings of the SEA study, and a template for facilitating participants to exercise their individual perceptions. Group discussions were held at each of the workshops sessions, where the participants selected a leader to conduct the discussions. Sessions focused on effects of existing irrigation projects, the proposed RWSRP and mitigative measures for sustaining positive and minimizing negative effects. The public consultation workshop were held in Banswara on October 23, 1999 (44 participants), Hanumangarh on October 12, 1999 (41 participants), Kota on October 15,1999 (35 participants), and Udaipur on October 26, 1999 (120 participants). E.5.4.2. A summary of the SEA report (including the proposed EMPs) was translated into the local language and the public disclosure was carried out in two Panchayat Samitis for each of the nine basins statewide. In all 18 public disclosures were spread over a week (starting September 1, 2000); these were carried out by the superintending engineers of the respective areas, under the supervision of the PPU, GOR. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? E.5.5. 1. An M&E strategy has been developed and integrated as part of the project. Relevant environmental performance indicators have been selected to guide the implementation of the EMP (see PIP). These indicators would help to assess the environmental issues related to the water sector, and the implementation of mitigative measures proposed under the project. 6. Social: - 19- 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. E.6.1.1. R&R policy: As part of the project preparation, in October 2000, GOR adopted an R&R policy for all the state's water resources development projects. The policy conforms to the Bank's requirement (OD 4.30 on involuntary resettlement). The policy commits to avoid or minimize adverse impact through alternate project designs; ensure those affected by water sector schemes are supported to regain their previous standard of living; ensure replacement value for the lands and other assets lost to the water sectcr schemes; and to a large extent, to support the affected population through land based resettlement. IHowever, where this is not feasible, assistance for economic rehabilitation would be designed on a scheme-by-scheme basis, as well as linking it with the ongoing government development programs. The policy has special provisions for R&R of vulnerable groups (including tribals, scheduled caste, women, the handicapped, the and the destitute). E.6. 1.2. Land acquisition R&R under the project: Since the project is focused on improving the existing irrigation systems, no displacement of population or major land acquisition are envisaged. However, during the process of project implementation any appropriation of land for project activities (particularly for canal widening and realignment in some areas, and temporary acquisition of land for bypass works) would be addressed per the provisions of the policy. The assessment of land acquired for any of the interventions under the project would be completed before the award of contract in such packages. Based on the assessment rehabilitation measures would be planned and implemented. The budget under this component of the project provides for such land acquisition and R&R program. F.6. 1.3. The main social issues would center on social mobilization of farm communities located within a hydraulic unit into WJUAs (customer grouping based on canal hierarchy). In this context, the equitable participation of women, small farmers, tribals, and tail-enders in the forming and functioning of WUAs would be given special attention. The selection criteria for the Irrigation schemes (major, medium, and rmiinor) included in the project, incorporated a social dimension and targets tribal groups and schemes with poorer farmers. The tribal development strategy, prepared under the project, identifies likely problems that could affect tribal groups in the project area, outlines mitigation actions to address the adverse consequences and specifies the agency responsible for taking these actions. Details of the Tribal Strategy are in Annex 4 of the PIP. 6.2 Participatory Approach: How are key stakeholders participating in the project? WUAs - collaboration Groundwater communities - collaboration River basin stakeholder consultative groups - collaboration Staff of concerned government departments - collaboration E.6.2. 1. The project is based on the fundamental premise of synchronizing the formation of WUAs below the rninor distributory head and investment in systems rehabilitationlenhancement, followed by formal turnover of the works to WUAs. WUAs would be directly involved with identifying needs, prioritizing, planning, designing, and implementing specific rehabilitation and enhancement works in their area of responsibility. WUAs would be encouraged to move upstream, first forming apex-level committees at the distributory canal level, then ultimately taking over minor, and even medium irrigation schemes. E.6.2.2. The project has an objective of forming about 620 WUAs on 620,000 ha on a fully participatory basis, with WUAs contributing 15 percent of the investment cost of civil works within their area of responsibility. All WUAs would have their own bank account. It is envisaged that rehabilitation within - 20 - their defined areas would be undertaken directly by WUAs. On a recurrent basis, it is also envisaged that WUAs would retain a percentage of water charges for the maintenance of their system. Management arrangements defining the WUAs financial responsibilities and accountability's have been developed. (See PIP for details). E.6.2.3. The project also has an objective to develop an effective partnership between farmers and the ID and AD at the WUA level, and higher. Also, where possible, the apex committees would be encouraged to establish marketing tie-ups with agroindustries and private sector input suppliers. E.6.2.4. In commands with successfully operating apex-level committees, a simple multipurpose building or a "distributory committee center", comprising a large multipurpose room and a limited number of small offices for the irrigation and agriculture field operatives at this level, and for the WUA's committee office bearers, would be supported by the project (75 percent) with farmer contribution (25 percent). Land would be donated by the community. WUAs could also build a modest multipurpose building on the same basis. Such centers would: (a) provide a center for the meetings of the apex committee and WUAs to foster communication and interaction among farmers in the command area; (b) provide space and equipment for multipurpose farmer training; (c) encourage and provide the means for regular communication between farmers and the government staff (irrigation, agriculture, etc.); (d) encourage field-level communication, through close proximity of irrigation and agricultural extension staff and WUA representatives; and (e) act as centers for field trials and demonstrations, and for connections with marketing agencies, as well as input and equipment suppliers. E.6.2.5. Distributory committees (DCs) would be encouraged to form coordinating commnittees at the project level to influence management of the overall irrigation system. As part of the development of river basin plans, advisory stakeholder committees would be established to facilitate planned development and implementation. E.6.2.6. Similarly, the centerpiece of sustainable groundwater management would be the formation of community groundwater conservation groups that would take the lead in the development of groundwater management plans in critical areas, supported by NGOs and departmental staff (groundwater, agriculture, and local govenmment). Community groups would be at two levels, Gram Panchayat level committees (GPLC), and groundwater management associations (GWMAs). 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? E.6.3. 1. NGOs would facilitate the fonning and fostering of WUAs. NGOs would play a similar role in the development of community based organizations (CBOs) for the groundwater pilots. The baseline survey has been completed by the Institute of Development Studies in Jaipur with assistance from NGOs, including a gender specialist. Trade unions representing the staff of water institutions would be engaged when developing options for institutional change. Where appropriate, WUAs would manage the implementation of rehabilitation works within their capacity. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? E.6.4. 1. Institutional arrangement for R&R: The project would finance setting up a R&R directorate in the ID to plan, implement, and monitor resettlement programs in the water resources sector in Rajasthan. As coordinating R&R programs requires guidance at a senior level, this directorate would be headed by a director at the additional secretary level and would report directly to the secretary of the ID (see organogram in the PIP). - 21 - E.6.4.2. The R&R directorate would be responsible for carrying out GOR's policies on land acquisition, resettlement, and economic rehabilitation of the people affected by the state's water resources development projects. This would include undertaking/managing baseline surveys, planning, coordinating, implementing, and monitoring and evaluating the R&R programs in the water sector's ongoing and futte construction works. The directorate would develop a data base of involuntary resettlement in the water sector in the state for monitoring project specific R&R programs. The directorate would also ensure the e stablishment of a regional area development organization, for implementing resettlement programs, price determination committees (to determine the cost of land allotted to project affected persons), allotment conmmittee (to ensure allotment of land for resettlement), and grievance redress committee (for redressing the grievances of the affected community) for each of the new water sector schemes involving areas of clisplacement by more than 200 families. Wherever constituted, regional development organizations would be supported by consultants and NGOs to plan, implement, monitor, and evaluate resettlement programs in the project areas. E.6.4.3. Since most of the staff posted to the R&R directorate would have little exposure to R&R issues, umder the project they would be trained in skills required to handle R&R programs. Training would be given to ID staff and others engaged in land acquisition and in R&R programs in other irrigation schemes (not included in the proposed project). Local consultants would be hired to prepare training modules and training materials and training would be organized at the Irrigation Management Training Institute (IMTI), Kota. Staff would also undergo training at ASCI, Hyderabad and visit projects outside of the state ro understand how R&R programs are being successfully managed. A local consultant would be engaged to assist the directorate R&R to develop a database management system of the resettlement program in the water sector in the state, and to prepare data reporting formats and monitoring reports. This would help to monitor the implementation of the state's R&R activities. EP.6.4.4. With respect to the formation of WUAs, the institutional reforms would include a functionial rearrangement of the ID to include a concentration on service delivery and the fostering of WlUAs. The project would seek to empower poorer members of communities by selecting the worst performing irrigation schemes to include in the project, and through formally devolving power to the communities tirough WUAs and CBOs for the groundwater management. In the latter case, by including the poorer sections and members, the communities should be more effective. 6.5 How will the project monitor performnance in terms of social development outcomes? E.6.5. 1. The project's M&E plan would include strengthening capacity to monitor WUA behavior and performance thereby providing feedback on which to base the design and planning of adjustments to the fostering program of WUAs and to measure and provide required feedback on the GPLCs and GWMA.s under the participatory community groundwater pilots. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Policy Applicability Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes C No Natural Habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes @ No Forestry (OP 4.36, GP 4.36) 0 Yes * No Pest Management (OP 4.09) * Yes O No Cultural Property (OPN 11.03) 0 Yes 0 No Indigenous Peoples (OD 4.20) 0 Yes 0 No - 22 - Involuntary Resettlement (OD 4.30) 0 Yes 0 No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* 0 Yes 0 No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. E.7.2.1 Under the recently completed Rajasthan Dam Safety Project, a fully functioning dam safety capacity was developed. All classified large dams within the supply chain of any scheme included in the project would be referred to a DSRP for assessment, and any corrective action needed would be funded under the project (Annex 2). E.7.2.2. An EMP along with related performance indicators have been developed, based on the SEA report. Institutional reforms have been agreed with GOR to strengthen the institutional capability in environmental management of the water sector. Also, water sector related environmental policies, strategies, guidelines, detailed EIA, and EMPs for subprojects and an adequate M&E framework would be developed under the project. Any additional environmental mitigation measures required for any issues that may arise during implementation would also be addressed at that time. E.7.2.3. Integrated pest management (IPM) strategies would be adopted under the project, combining genetic, cultural and biological control measures, to reduce agricultural production costs to farmers, lessen the risks of health hazards and reduce environmental pollution. The project would provide technical assistance, training and demonstrations to farmers and AD and ID staff on the efficient adoption and application of IPM practices. In addition, the project would fund a study to identify institutional and other barriers preventing the state-wide application of IPM. The study would also identify pesticide use impacts in the state. At negotiations agreement it was agreed that an IPM plan would be prepared by the AD by June 30, 2005. F. Sustainability and Risks 1. Sustainability: F. 1.1. Factors that are critical to the sustainability of project benefits for surface irrigation are establishing and fostering long-term sustainability of WUAs, starting with beneficiary participation in project design and implementation; raising the price of water services by GOR to reflect the full O&M costs, and the full funding of O&M programs to ensure sustained system performance beyond the project. The effective establishment of changes to agricultural support services is also considered a critical factor. For groundwater, it is the successful piloting of effective and sustainable groundwater management arrangements in critical areas. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Waning commitment by GOR, and sector S Develop and maintain consensus of the project institutions to the reform agenda. objectives and critical water resource issues in Rajasthan with political parties, farmers and civil society through IEC strategy. Reduced fiscal capacity of GOR affecting S Increasing revenues through cost recovery of counterpart funds & full funding of O&M costs would help ensure availability of O&M. funding. Farmer contribution to investment - 23 - would slightly reduce counterpart funding requirement. Ineffective management of existing M Greater community involvement in the groundwater resources at sustainable development of groundwater management plans levels. through the community dealing with the trade-offs rather the government; ensuring that legislation is developed in consultation with the wider community. Failure to establish an enabling M The Technical Support Groups (TSGs) environment to change agricultural organized under the project, with representation production processes and access to from ID, AD, PS and farmers would facilitate markets and credit. coordination of agricultural support service activities to improve irrigated agricultural productivity. Adverse changes to agricultural policy N National and state agricultural policy changes will impact project outcomes are likely to enhance project objectives. During implementation the task team would monitor progress on major agricultural policy issLies, particularly those that influence farmer response and adoption of new agricultural and irrigation technology, and will maintain close communication with other bank sector teams working on agricultural policy issues. From Components to Outputs Failure to provide timely and adequate S Finance Department to clear annual project counterpart funds plan. Closely monitor project fund flows and agree with GOR on different financial management arrangements. If this is a persistent problem, take early decision to downsize the project. Delayed action on restructuring of the S GOR maintains central control of departmental water departments downsizing and gives priority to the water sector Implementation of the communication strategy to articulate and disseminate restructuring plans. Engage the unions. Use training and staff development and other investments ( MIS) activities to establish incentives for change among the staff. Failure to establish effective S Project management arrangements at PSC and interdepartmental coordination (e.g., ID PMU level should ensure interdepartmental and AD) and project management coordination arrangements Ineffective project management M Establish a competency based PMU with limited (procurement, financial, M&E) responsibilities. Adopt fixed-term appointments Ifor PMU staff, to ensure continuity. 24 - Concentrate on training needs and establishing appropriate MIS. Establish and maintain an empowered committee for managing procurement. Failure to establish adequate incentives M Ensure that rules and regulations are for long term viability of WUAs appropriate to support the formning of WUAs. Use of IEC program early to facilitate change in the mind set of both farmers and ID staff. Concentrate on empowerment and capacity building of WUAs through training early. Use NGOs as facilitators where necessary. Close and continuous process monitoring, and take corrective action. Failure to raise water charges S Agreed timebound schedule for water charge adjustment across life of the project with GOR Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: None G. Main Credit Conditions 1. Effectiveness Condition Standard Conditions of Effectiveness 2. Other [classify according to covenant types used in the Legal Agreements.] G.2. 1. * Project implementation and management: To establish effective project management arrangements, Rajasthan shall; (i) Establish no later than one month after project effective date a PMU under ID for overall project coordination and promptly thereafter equip PMU with computer based MIS. (ii) Ensure that, starting in December 31, 2002 the PMU, no later than December 31 of each year, shall prepare an annual action plan satisfactory to IDA and submit it to the Bank for approval and thereafter implement the project in accordance with the plan. (iii) Maintain policies and procedures adequate to enable it to monitor and evaluate the project on an ongoing basis, in accordance with indicators satisfactory to IDA. (iv) Engage an M&E agency, independent of the implementing departments no later than June 30, 2003, under terms of reference suitable to IDA. (v) Establish by June 30, 2002, the SWRPD and make it fully functional by June 30, 2003. - 25 - (vi) Submit quarterly project reports in a format suitable to IDA, no later than 45-days after the end of each quarter, commencing with a report on the third quarter ending September 30, 2002. (vii) Prepare a report on or about September 30, 2004 and September 2006 respectively under TOR satisfactory to IDA, integrating the M&E activities under the project and submit to IDA for conducting two formal reviews on or about October 31, 2004 and 2006 respectively. * Water Charges: Revise water charges in the irrigation sector no later than April 30, 2004 and April 30, 2007 respectively in accordance with a time bound action plan agreed with IDA, to ensure that the total annual revenue from such revised charges will meet 50% and 100%'/o respectively of the full cost of O&M of the irrigation system. * Environmental Management: Rajasthan shall: (i) Implement the EMP for the project in accordance with a schedule satisfactory to IDA. (i) Develop an environmental policy and strategy for the water sector satisfactory to IDA by June 30, 2004. (ii) Fully staff the new environmental units created under the project by June 30, 2003. - Land Acquisition: Rajasthan shall ensure that any unavoidable displacement of population or major land acquisition that may arise during project implementation be addressed in accordance with Rajasthan's water sector R&R policy. 3 Integrated Pest Management: Rajasthan shall prepare an IPM plan satisfactory to IDA, by June 30, 2005. * Tribal Development Plan: Rajasthan shall ensure that the tribal population in the project area benefit fully from the project activities through the implementation of the tribal development strategy, as agreed with IDA. * Safety of Large Dams: Rajasthan shall constitute a DSRP with membership satisfactory to IDA by June 30, 2002. * Water Sector Research: Rajasthan shall establish a water resources research fund and a managing RAC by June 30, 2002. G.2.2. * Financial management: To establish an effective FMS, Rajasthan shall: (i) By June 30, 2002 develop a computerized financial management system and provide computer hardware to all accounting centers of the project. (ii) By October 1, 2003 develop a fully functional project financial management system (PMR.) and train key staff to a level suitable to IDA. (iii) Ensure that external audits for the project are carried out in accordance with the ID.A - 26 - operational policies, based on terms of reference suitable to IDA. (iv) Ensure the appointment and training, by June 30, 2002 of appropriate personnel of the Finance wing of the ID for carrying out internal audits in accordance with TORs suitable to IDA. * Civil works: Rajasthan shall: (i) Complete the election of all WUAs under the project by June 30, 2002. (ii) Ensure that no participatory rehabilitation works shall commence in areas under the control of WUAs until such time as the WUAs are formed, undertaken key initial training, have a completed design and estimate of the irrigation system based a joint walk through, and the WUAs have committed to contribute either in cash or in kind, 15 percent of the estimated cost of the rehabilitation works under their control, all satisfactory to IDA. (iii) constitute the GPLCs, GWMAs, TSGs, and TRC in accordance with procedures satisfactory to IDA. (iv) Ensure that works are not commenced on the pilot groundwater management plans until the community plans are reviewed and cleared by the TRC and IDA. (v) Establish a DSRP suitable to IDA by June 30, 2002. (vi) Ensure that any unavoidable displacement of population or major land acquisition that may arise during project implementation shall be addressed in accordance with Rajasthan's Water Sector Resettlement and Rehabilitation Policy. (vii) Ensure that the selection criteria for irrigation schemes incorporate provisions of the tribal development strategy and plan, acceptable to IDA. H. Readiness for Implementation 1 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. C: 1. b) Not applicable. O 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. 1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. El 4. The following items are lacking and are discussed under loan conditions (Section G): GOR has completed the following reforms Water Sector Reforms: * State Water Resources Policy adopted * SWRC, chaired by CM established and functioning * Interdepartmental SC on water resources, chaired by CS established and functioning. - 27 - Coordination & Oversight: * The Program Steering Committee, chaired by the Chief Secretary and comprising secretaries of concemed departments has been established. * High powered committee to review procurement bids and award contacts established. * Selection and training of initial project procurement staff for the PMU has been completed. * Agreement in principle on independent M&E consultant (details to be agreed at negotiations). Irrigation & Drainage Sub-Sector Reforrns: * Water charges doubled in April 1999. * Agreed to raise water charges further to cover full O&M by project end. * Adopted a water sector R&R policy. * Enacted the Rajasthan Farmners Management of Irrigation Systems Act (2000). * Baseline survey completed. Procurement * 47 packages amounting to US$33 million have been cleared by the Bank. 1. Compliance with Bank Policies Z 1. This project complies with all applicable Bank policies. [L 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Geoffrey Spencer Keith Oblitas C M Team Leader Sector Manager/Director Country ManagerlDirector -28 - Annex 1: Project Design Summary INDIA: Rajasthan Water Sector Restructuring Project Key Performance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) 1. Spur faster and more 1. Broad increases in the 1. Government statistics Government commitment to sustainable agricultural value and contribution of and period reviews; periodic reform. growth and rural agriculture to economic Bank AAA. development through growth. improvements in technical, financial, and environmental 2. Sustainable use of state Annual reports of the state performance of water surface and groundwater water resources related resources management resources. departments. systems. 2. Reorientation of water 3. Restructuring and Annual reports of AD agencies towards provision reorientation of functions of of public goods and water agencies; increased increased private sector private sector participation participation in the sector. in irrigation systems management. 3. Contribute to reduction 4. Cost recovery improved; in state fiscal deficit. irrigation subsidy reduced. Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: 1. To strengthen the Outcome: Ensure longer 1. Supervision mission Commitment to good fiscal capacity for strategic term, sustainable reports; evaluation mission management and to planning and sustainable intersectoral allocation and reports (midterm and final); improving supporting development, and use of increasingly scarce infrastructure and services management of the surface water resources in the state (rural roads, markets, and groundwater resources and strengthened electricity, transport in Rajasthan. environmental capacity; facilities, credit). Monitoring by PMU; and Effective management of Impact indicator: independent reviews. salinization and water Completion of river basin logging through additional plans in four priority investments statewide; no basins; lessons from major natural calamities groundwater pilots for input (e.g drought). to revised groundwater legislation identified; river basin plans meet environmental requirements as outlined in state environmental strategy. 2. To increase the Outcome: Improved water Monitoring by PMU, ID, productivity of irrigated use efficiency, improved AD and SGWD. Periodic agriculture through delivery of surface water, special studies; evaluation improved surface irrigation increased agricultural mission report (midterm and, - 29 - systems performance, and productivity and final). strengthened agricultural subsequently farm incomes support services, involving in the project area. greater participation of Impact indicators: users and the private sector increased: yields, in service delivery. household incomes, area under irrigation, productivity per unit of water, irrigation system efficiency, and well functioning and sustainable WUAs; full funding of O&M; cost recovery on agreed schedule. - 30 - Key Performance l Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1. Improved quality of GOR: Progress reports Continuing political irrigation, drainage, and from the PMU; review of commitment by GOR and agricultural support irrigation budget implementation commitment services through allocations; project by relevant institutions to establishing a lasting component monitoring the reform agenda, in partnership between reports by the ID, AD and particular increased water farmers, agricultural PHED (GWD), DSRP; charges. extension, and irrigation PMU midterm and project The establishment of and authorities to move from the completion surveys to commitment to effective "vicious cycle" to the assess beneficiary incomes; interdepartmental "virtuous cycle", denoted PMU periodic operational coordination. by: 1.1 Full funding of O&M reports; independent agency Sectors receive appropriate programs on a needs basis; M&E reports; Periodic budgetary allocations. Improved system revenue department reports; 1. 1 High quality, reliable operational efficiency by 5 project specific studies. and equitable irrigation and percent; system operations Farmers adopt modem drainage services; meets established service Bank: Aide Memoires, on-farm agricultural targets. PSRs. practices. Increased farming 1.2. Increase in irrigated efficiency, access to markets area up to about 90,000 ha; and credit. GOR fiscal 1.2 Higher irrigated yields increased by up to capacity to fully fund O&M agriculture productivity; 20% for wheat, mustard programs. Establish and and cotton; rehabilitate maintain incentive regime to about 620,000 ha. form WUAs. 1.3 Increase in farmer 1.3 Increased beneficiary household incomes by up to: Changes in agricultural incomes; major schemes Rs. 20,000, policy will not adversely medium schemes 15,000, affect project outcomes. and minor schemes Rs 5,000. 1.4 Increased cost 1.4 Improved water recovery; charges collections to 90 effective, fully funded percent of assessed O&M programs; and charges/annum 1.5 Creation of effective, 1.5 Established, well inclusive and sustainable functioning and financially WUAs sustainable water WUAs--up to 620; carry out about 1,300 training courses involving 24,000 farmers; carry out about 40 training courses, involving 1.6 Improved safety of 16 950 staff of ID and AD. 1.6 16 dams fully . - 31 - large dams. strengthened to contemporary standards; 2. Restructured water 2. SWRPD established and 2. Periodic customer 2. Continuing political agencies and strengthened fully fumctional. surveys (seasonal technical commitment by GOR and apex water institution Preparation and application assistance reports); implementation comrnitment operating within an effective of integrated and supervision mission reports; by relevant institutions over integrated framework for environmentally sustainable project progress reports. time to the long-term reform long-range sustainable river basin plans in the four agenda. water resources planning, highest-priority basins; allocation and management. establish an environmental strategy and related polices for the water sector; full implementation and evaluation of three community groundwater pilots and development sustainable ground water management strategy: enhanced statewide groundwater monitoring and evaluation system; completion and evaluation of a pilot for systems transfer to private sector; fully operational MIS. 3. Stability and quality of PMU fully resourced (staff, 3. Supervision mission 3. Staff appointed with project management staff. technical, and logistical reports; evaluation mission required skills for duration support). reports (midterm and final). of project. - 32 - Key PerFormance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) A. Water Sector monitoring by PMU: periodic Timely provision of counter Institutional Restructuring project progress reports part funds. and Capacity Building against plans; Supervision and mandatory review reports; disbursement and procurement reports. Bank project status reports (PSR). (i) Create a SWRPD and $4.12m M&E by independent All stakeholders to commit to institutional capacity building. consultant institutional strengthening and reform. (ii) Modernize MIS. $8.18m periodic special review and Adequate incentives and evaluation of pilot project appropriate policy and implementation regulatory framework for private sector participation. (iii) Water resources $1.1 research activities. (iv) Support IEC programs. $0.93m (v) Build capacity for $14.71m Community groups for sustainable groundwater groundwater pilots should be management. willing and able to tackle the issues. (vi) Pilot commercial $1.39m management of irrigation systems. (vii) Strengthen R&R $1.1 3m institutional capacity. B. Improve performance of In Rajasthan, widespread irrigation system monitoring by ID and AD, acceptance of new DSRP: periodic progress institutional models by reports against plans, PMU farmers groups, with disbursement and facilitation by NGOs. procurement reports, supervision and mandatory review reports (i) Form and foster WUAs. $2.21m Bank PSRs WUAs will develop the capacity to manage and contribute to rehabilitation works and ongoing O&M. (ii) Participatory $114.52m M&E by independent agency Adequate incentives to form rehabilitation of 91 schemes. and sustain WUAs. (iii) Strengthen agricultural $12.62m TSGs operate effectively support services. (iv) Dam safety remedial $18.38m DSRP The DSRP would function works on 16 dams. effectively - 33 - C. Project management $0.96 million. Supervision reviews of Effective functioning of PMU effectiveness of project and by empowered committee management. for procurement. Smooth interdepartmental coordination and cooperation. effective fumctioning cof project FMS. - 34 - Annex 2: Detailed Project Description INDIA: Rajasthan Water Sector Restructuring Project 1. Project development objective: (see Annex 1) 1. The project of has two development objectives: (a) to strengthen capacity for strategic planning and sustainable development and management of the surface and groundwater resources in Rajasthan; and (b) to increase the productivity of irrigated agriculture through surface irrigation systems performance, strengthened agricultural support services and increased involvement of users and the private sector in Rajasthan. 2. The proposed project would support the first phase of a long-term (10- to 15-year) program of structural reform and complementary investments that would facilitate the evolution from a purely govemment-managed water resources sector focused on water resources development to one where the public sector increasingly focuses on providing necessary public goods (i.e., the strategic and regulatory framework), while allowing greater user as well as private sector participation in water sector-related activities, where sufficient private incentives exist. Specifically, the aim is for the development of a water sector that is characterized by: (a) strong and effective apex state water planning and regulatory institutions that would ensure the efficient and environmentally sustainable planning, allocation and use of scarce water resources among competing multisectoral users; (b) a shift in focus from irrigation development to performance improvement of existing irrigation investment, driven by the need to increase the productive use of the scarce water resources of the state; (c) ensuring financial sustainability through the development of new cost-sharing arrangements between the public and private sector, and capital contribution by users of irrigation water services; and (d) piloting arrangements that would lead to the sustainable use of groundwater through the development of community-led groundwater management plans, the result of which would help shape groundwater legislation and regulations and further investment in the sector. Institutional reforms would identify a discrete functional area, the management of water services operations, and would seek to unbundle and commercialize service provision by the government departments, and at the same time draw on increased participation by the private sector. This broad level of reform would be built on a strong foundation of direct customer management through WUAs to be developed at three levels. It would also include more effective coordination among govemment departments and the private sector, particularly in the delivery of agricultural support services to farmers. 3. To achieve these development objectives, the project would support the: (a) strengthening of the capacity of key institutions for improved water resources management and system performance; (b) creation of a SWRPD to build institutional capacity in policy, planning, and strategic water management for overall integrated planning, allocation and management of the state's surface and groundwater resources; (c) piloting of a community driven approach to sustainable groundwater management in three pilot areas; (d) forming and fostering of 620 WUAs, participatory rehabilitation of about 620,000 ha of command area in about 90 irrigation schemes with users contributing 15 percent of rehabilitation costs of irrigation system under their control, and the tumover of responsibility for O&M to WUAs; (e) strengthening agricultural support services provided by the agricultural department and the private sector to the 91 irrigation schemes to be rehabilitated; (f) piloting the commercialization of water management in a command area of about 6,000 ha; (g) strengthening and targeting water resources research; and; (h) enhancing the safety of 16 dams supplying water to the project area through rehabilitation. - 35 - Indicative % of Bank Financing % of Bank ComponentlSubcomponent Costs Total (US $M) Financing (US SM) (A) Water Sector Institutional Restructuring 31.53 17.5 24.66 17.6 and Capacity Building (i) Create SWRPD and institutional capacity 4.12 2.3 2.94 2.1 building (ii) Modemize the MIS 8.18 4.5 7.31 5.3 (iii) Water resources research activities 1.07 0.6 1.0 0.7 (iv) Support IEC programs 0.93 0.5 0.84 0.6 (v) Build capacity for sustainable groundwater 14.71 8.2 11.20 8.0 rnanagement (vi) Pilot commercial management of irrigation 1.39 0.8 1.05 0.7 systems (vii) Strengthen R&R institutional capacity 1.13 0.6 0.32 0.2 (B) Improve Irrigation System Performance 147.73 82 114.58 81.8 (i) Form andfoster WUAs (620) 2.21 1.2 1.95 1.4 (ii) Participatory rehabilitation of irrigation 114.52 63.5 90.09 64.3 systems (620,000 ha) (iii) Strengthen agricultural support services 12.62 7.0 9.90 7.1 (iv) Dam safety remedial works (16 dams) 18.38 10.3 12.64 9.0 (C) Project Management 0.96 0.5 0.76 0.5 The activities to be funded by the project are summarized below. Detailed description, costs and implementation arrangements are contained in the PIP. By Component: Project Component 1 - US$31.53 million Water Sector Institutional Restructuring and Capacity Building 4. Subcomponent Al: Institutional capacity building and creation of SWRPD ($4.12 million). The project would support establishing and developing a SWRPD, whose primary role would to establish the framework for ensuring the optimal, sustainable, and equitable development and use of the state's water resources on a multisectoral basis. The core functions of the SWRPD would be to: (a) prepare integrated and multisector river basin and statewide water resource plans that ensure the optimal, sustainable and equitable use and development of the state's scarce water resources; (b) to allocate water to various subsectors including all classes of user groups; (c) review water tariffs and advise the state government on arnual adjustment of water tariffs for all user groups; (d) regulate water use and development by a variety of mechanisms and incentives to ensure the objectives of the state water policy are achieved, and that are in compliance with the State Water Plan. The SWRPD would also deal with all interstate river water sharing agreements and related matters, and would also function as the secretariat to the SWRC. 5. The project would support investment in incremental staff, consultancies and recurrent office operating costs, including supplies and consumables; office modemization, including equipment and furniture; establishing a data center with computerized systems; studies and research; and training, study - 36 - tours, and public awareness programs. 6. The project will also support the restructuring and capacity building of the ID, to enable it to perform the following three broad functions: (a) Irrigation Project Management. The project will support the strengthening of ID research, investigation, design and construction management, and quality control and environmental management at the project level; (b) Water operations units would primarily focus on water, and water-related services delivery through enhanced operations and maintenance of completed projects and the assets remaining with the ID. The institutional reorganization, supported by the project, would implemented in the context of the enhanced role of WUAs and the requirement to foster WUA development and sustainability. Activities would cover a range of technical and management activities, including a greater emphasis on managing the new relationship between customer groups and the ID. (c) Support services such as human resources management, training and development, quality assurance, litigation, finance, accounting, MIS, and R&R. The project would support building the capacity of the ID in the areas of planning, design, strengthening the management of water operations, asset management, environmental management, research, administrative and financial management, and training. Investment would include computerized MIS, training, technical assistance, study tours, equipment, communications systems, vehicle hire, and civil works. The component would also support further studies that would serve as the basis to formulate a program for additional restructuring/adjustments in operations of the water sector agencies, to be implemented in subsequent interventions, based on the results of the pilots and research activities. 7. Institutional strengthening of environmental management for sustainable management of water resources. The institutional strengthening for environmental management would be an ongoing process carried out in two phases. The project would establish: an environmental unit in the new SWRPD; a Water unit in the Environment Department; and an Environment unit located centrally in the ID, along with three supporting regional ID cells. 8. Environmental Policy Planning Unit. Under the project, the environmental units in SWRPD, in conjunction with the ED unit would: (a) formulate and implement a policy for environmental protection and management, applicable to statewide water development projects and agricultural intensification projects (referred as the environmental policy for the water sector); and (b) develop and implement an environmental strategy for the water sector, based on (two detailed studies): (i) a comprehensive assessment of agricultural, municipal, industrial, and ecological "use, exploitation, and pollution" of Rajasthan's water resources, and an analysis of the significance of their negative/positive impacts in terms of an assessment of the social (e.g., public health) and economic costs and benefits; and (ii) options for the effective management of environmental dimensions of water resources in Rajasthan, combining legal/regulatory instruments, economic incentives/instruments and empowerment (through public awareness, education, consultation, participation) of the public/stakeholders. 9. The environmental strategy would be developed in a highly consultative manner and would: * develop a water management manual on selected demand management options (such as - 37 - re-use/recycling of treated wastewater, water quality implications of conjunctive use of surface and groundwater; * detail a water quality management strategy for addressing point (municipal and industrial sources) and nonpoint (agricultural, urban, and other) sources of water pollution in a comprehensive and cost effective manner; * detail changes for strengthening the enforcement of regulations/acts and incentives for control of pollution from municipal sewage and agricultural activities; * define guidelines on management of environmental flows which define, assess, operationalize and enforce environmental flow requirements; * prepare operational guidelines for EIA and implementation for water projects, including river valley projects; * prepare guidelines for natural resources management to support drainage management and land reclamation (waterlogging, salinity, sodicity, etc.), source protection (watershed and recharge area protection), control of aquatic (nuisance) weeds, promote integrated pest management etc.; * develop training policy for the water resources department, various water user departments, and water monitoring departments; * initiate dialogue to develop legal and administrative measures related to water quality of interstate water resources, namely Gujarat, Haryana, Punjab, and Rajasthan; * develop policy to ensure mandatory requirements for the GOR Departments to develop, support, monitor and implement environmental management and mitigation plans, and regular information exchange with the proposed environmental PPU and the Water Cell at the ED. - support information technology (IT) and GIS in the SWRPD in applying technologically efficient analysis; and e define reforms for institutional strengthening and restructuring to enhance the regulatory capacity of the GOR to be implemented during Phase 2. -10. The ED Water unit, in conjunction with the SWRPD, would be responsible for supporting the preparation of the environmental policy and strategy for the water sector. It would also be responsible lor: developing and implementing an environmental awareness program; and monitoring the implementation of policies, strategies, guidelines, and programs prepared by the environmental units in other departments, and line agencies in Rajasthan. 11. The Environment unit in the ID would strengthen the institutional environmental management capacity, and would perform the following functions: * work closely with the SWRPD's environment unit, to prepare operational guidelines and procedures for the EIA and the EMP; * prepare EIAs and EMPs for water projects in all regions, and provide strategic support to implement the EMPs, including mitigation measures and monitoring of environmental indicators. * provide strategic support to regions on natural resources management, including drainage management and land reclamation (in areas under waterlogging, salinity, alkalinity), source protection (watershed and recharge area protection), control of aquatic weeds, pollution monitoring, and integrated pest management; - 38 - * supervise the implementation of strategies for public awareness and enhance stewardship among water users, by coordinating with other agencies; * implement basinwide EMPs, including monitoring the environmental performance indicators, with the help of the regional ECs. One key activity would be to collect and analyze information on water quantity and quality in the proposed project areas. This activity would be coordinated with the GWD and State Pollution Control Board. * provide IT and GIS support. 12. The functions of the three regional ECs, at Jaipur, Kota, and Udaipur would be to assist the ID to: (i) supervise implementation of the EMPs (including monitoring of the corresponding environmental indicators), for water sector projects; (ii) manage the regions natural resources, and other related programs and activities, as identified by ID's environmental cell; (iii) implement a basinwide EMP for the project and monitoring the environmental indicators. One key activity would be to collect and analyze water 'quantity and quality' information within the nine basins (at least three times per year, and monthly during irrigation season) from project areas; and (iv) provide support for IT including GIS. 13. Subcomponent A2: Modernizing the MIS ($8.18 million). The project would finance a major investment in computer hardware and software, other equipment, materials and the considerable training needs to fully utilize the new MIS systems in the areas of: finance and accounting; technical and engineering applications including survey, design, investigation, GIS, data processing and analysis; project management; human resource management; and administration and communications. 14. Subcomponent A3: Water resources research fund ($1.07 million). The challenges in the water sector will require significant innovation, problem solving, and technology transfer for the new SSWRPD, ID, GWD, and other water-related institutions. This would be critical in the short term, but also as an investment for the future. Mechanisms for hamessing Rajasthan-based expertise in the academic and the nongovemment sector are needed. For ID, other government agencies and Rajasthan's universities and research institutes, strengthening links with technology, expertise and ideas from abroad (and elsewhere in India) are also important. Under the project, the SWRPD would set up a water resources research fund (WRRF) to support these objectives. The WRRF would be administered and funded through SWRPD, and would be guided by a six-member research advisory committee. Funds would be provided by SWRPD on a competitive grant basis. Priority would be given to studies that address: cross-sectoral issues in water management and planning; engineering and hydrology; environmental issues; basin planning and modelling; water markets and prices; groundwater regulation and pricing; farmer and other user participation; roles of women, marginal farmers and other target groups; water efficient irrigation and new technologies; and irrigated production and sustainability issues (including IPM). All research proposals would require some participation from institutions in Rajasthan, but the WRRF would favor and encourage collaboration with other Indian or foreign institutions. The RAC would be comprised of five senior experts (not in active government service) with experience in water resource engineering, agricultural science, environmental science, economics, and social sciences, and with at least one member with experience in the urban and industrial sector. The Director of the SWRPD or his delegate as member-secretary of the RAC and would be responsible for reviewing proposals, and would also be proactive in organizing workshops, identifying problems and research needs and advertising the existence of WRRF. It would conduct an annual review of ID's research related activities. The program would be reviewed annually by IDA, based on an annual report to be prepared by the RAC. 15. Subcomponent A4: Information, education, and communication (IEC) programs ($0.93 - 39 - million). The IEC program objective is to communicate and disseminate information at a number of levels to a variety of audiences to support project activities. These levels range from the statewide generic messages on the critical nature and importance of Rajasthan's water resource conservation and its sustainable management, to the specific IEC requirements to support WUAs in participatory rehabilitatior of irrigation systems, agricultural support program, groundwater and surface irrigation pilots. The IEC program would also target all stakeholders regarding necessary reforms in the sector from planning, and institutional changes, to disadvantaged groups that need special access to information. The project would support technical assistance, publications, media coverage, workshops, seminars, village animators, exchange visits, etc. 16. Subcomponent A5: Capacity building for sustainable groundwater management ($14.71 million). The two main objectives of the component are to (i) set the stage for a long-term process of groundwater management capability development, and (ii) to test approaches for community-driven sustainable groundwater management plans. The subcomponent has been designed as a tightly integrated set of activities to address these objectives and would consist of the following: (a) community-driven and irmplemented pilot projects to develop and test groundwater management approaches in three pilot locations; (b) IEC to generate awareness of emerging problems, and broad based public support for management; (c) strengthening Rajasthan's GWD as a scientific and data collection and dissemination organization; and (d) research on key issues related to groundwater management. It is important to recognize the interlinked nature of each element. The participatory pilot projects would test and provide practical experience in community-driven groundwater management. The IEC activities would build a broad base of awareness of the state's groundwater problems and management options. Strengthening the GWD will begin with developing the scientific database and analytical skills essential to monitor groundwater conditions and understand the actual viability of potential management options. The data generated by the GWD would also be used by the SWRPD in the comprehensive planning of surface and groundwater resources. Finally, the research activities proposed would provide insights on key elements of: groundwater pricing, options for legal a framework, and supporting regulation that have been identified as initiatives for sustainable management of groundwater. (a) Community-driven groundwater management pilots. The project would support at least three pilots for a community driven approach to ground water management, involving the establishment of groundwater conservation districts (GCD) covering identified aquifer areas where problems exist in depletion and quality. The creation of the GCDs would include an elected body of stakeholder representatives (rural and urban communities, farmers, industry, states agencies, and local government) empowered to develop and implement groundwater management plans, involving both supply and demand-side approaches for groundwater management. Each plan would typically include infrastructure investment (e.g., in water harvesting structures, groundwater recharge wells, traditional drinking water structures and renovation of water storage structures, watershed development, and sprinkler and drip irrigation technology). At least during initial phases the pilots would operate within existing legal and administrative frameworks. These plans would be prepared at the village level by the Groundwater Management Association (GWMA), and integrated at the community level by the Gram Panchayat Level Committee (GPLC), with assistance from NGOs, and technical support groups (TSGs). The eligibility criteria for project support includes: (i) completing a baseline survey, a technical and social assessment, a network of piezometers for continual groundwater monitoring, a GIS database, and a monitoring system for agricultural and other water uses from the aquifer; (ii) GWMA and GPLC would include the poor, and disadvantaged groups, and (iii) a sustainable groundwater management plan has been developed for each pilot area (technically, economically, socially, and environmentally sound). The lessons from the pilots is expected to contribute to the adjustment of existing groundwater - 40 - legislation and regulations in Rajasthan. It would also likely require reconsideration of the roles and responsibilities of authorities towards a multi-tier participatory framework, including GCDs. The adjustments in legislation may include defining various funding mechanisms; redefining groundwater rights to be introduced progressively starting with piloting; and where possible, should authorize rather than mandate actions. Implementation of the pilots would be managed by GWD, with a nodal project leader, pilot team leaders leading multidisciplinary TSGs, the GWMA at the community level and GLPC at the village level. Management arrangements include a technical review committee (TRC) to appraise community groundwater plans. (b) Institutional strengthening of the GWD. The project would finance the strengthening of the GWD's scientific and data collection and dissemination capabilities, including technical assistance, study tours, and training in modem groundwater scientific and management processes. (c) Research on key issues related to groundwater management: The project would support (i) technical research to generate key insights on data needs and basic components of the hydrological cycle of direct relevance to effective management; (ii) economic research focused primarily on basic economic questions of direct relevance for forming groundwater policy; and (iii) institutional research focused on legal, regulatory, and other institutional issues relevant to formulating future groundwater policy. Where possible, research projects would focus on the pilot project areas--this would complement the process documentation activities and allow extensive leaming regarding the impact of the pilots and the groundwater management context in which they are being implemented. Terms of references for the key studies are provided in the PIP. 17. Subcomponent A6: Piloting commercialization of surface irrigation ($1.39 million). The project would support a pilot for a commercial water services delivery utility, to be owned and managed by farmers. The core function of this entity is to provide water to farners and other users and to manage and maintain the water supply assets, including irrigation and drainage facilities. Over time the entity may expand its functions to include managing and facilitating other agricultural inputs, marketing, etc. The project would support the forming and fostering of the farmer commercial entity situated on a distributory command of about 6,000 ha. The farmer company would develop into an autonomous entity that would operate on commercial lines and have a bulk water entitlement from the ID. Project investment would center on the development and implementation of agricultural enhancement plan for the pilot area developed by the farmers and other water users with assistance from an NGO/consultant and a TSG. Elements of the plan would typically cover (i) irrigation and drainage system rehabilitation and modemization; (ii) water measurement; (iii) strengthened O&M program management, including the integration of both surface and groundwater resources in water operations; (iv) agricultural production systems enhancement including drip and sprinkler irrigation technology; and (v) technical assistance, studies, training, and study tours. The plan would be reviewed by a technical review panel with membership from the ID, AD, and GWD, as well as from the private sector. 18. Subcomponent A7: Strengthen R&R institutional capacity ($1.13m). The project would assist GOR to develop the institutional capacity in the ID to plan, implement and monitor current and future resettlement programs of all projects in the water resources sector. The project would support technical assistance, training, study tours, workshops and seminars, office fumiture, communication equipment, and computerized management information systems. Project Component 2 - US$147.73 million Improving the performance of the irrigation system. - 41 - 19. This component is the main investment component of the project consisting of three (B 1, B2, B3) closely integrated and coordinated sub-components with an over-arching objective of improving the productivity of irrigated agriculture and water use efficiency in about 90 surface irrigation schemes covering about 620,000 ha across the state. A secondary objective would be to improve drinking water and access to villages supported by irrigation systems. The component would bring about a significant shift in the share of responsibility for the management of irrigation systems from solely that of the government l0 a situation where the community, through WUAs, would take over direct management and control of the lower end systems below the minor head. Upstream of this point, farmers would be empowered Vvith greater influence through the establishment of distributory and project level committees. Farmers, through WUAs, would be involved in the planning and implementation of rehabilitation works, including co-financing of 15% of costs for the portion directly under W[JA control. The WUA would become the center of focus for enhancing agricultural support services and developing public/private partnerships for the delivery of services. This would be undertaken in conjunction with the institutional capacity building in the ID (Project Component 1), to contribute to improved irrigation management, system hydraulic performance and efficiency through improved O&M program delivery, and financial sustainability. 20. Subcomponent B1: Forming and fostering WUAs ($2.21 million). The project would support the forming and fostering of about 620 WUAs, primarily through social mobilization and training. In partnership with ID officials, WUAs would take over the management and maintenance of the lower end of irrigation system, generally at the minor canal level. They would also assume responsibility for water distnrbution among users to promote efficient and economical use of water, optimize agricultural production, and environmental protection. The WlUAs would in turn be federated at the distributory level into Distributory Level Committees (DCs), which would serve as the focal point for coordination among the WUAs, and between the WlUAs and the irrigation and agric-ulture support service providers. The DC O&M plan would be prepared, ensuring their consistency with the overall O&M plans at the project le,v el, prepared by the Project Committee (PC). The PC would be the top tier, which would be made up of representatives from the DCs. The PC would approve an operational plan (based on its bulk water entitlement), and an annual maintenance plan. All three levels would have the power to levy and collect fees. 21. The project would support activities to ensure that the WJUAs are transformed into a viable and financially sustainable institution. The challenge of creating successfully functioning and sustainable WUAs can only be met by developing a close partnership between the farmers, the ID, and the AD. This would require heavily supported IEC and training programs. The training program would be implemented through IMTI, with its training capacity enhanced to meet the increased training needs. A trained core of faculty members for the component has been assembled. In addition, trainer groups would be formed and would consist of an irrigation engineer, an agriculture expert, a revenue expert (Patwari or Ziledar) and a social motivator. After training at IMTI, the training group would be deployed to the project areas and conduct more hands-on training directly with WVJAs and departnental staff. NGOs would be recruited as institutional advisors and social motivators to work for continuously for at least two years with WUAs in the project area, and would be responsible for continued interaction with the WUAs, and would also provide the feedback about their activities, including difficulties being experienced. 22. Subcomponent B2: Participatory rehabilitation ($114.52 million). The project would support the participatory rehabilitation of irrigation schemes by WUAs and the ID. The investment program would rectify the identified system deficiencies and restore them to original design capacity through rehabilitation of works in about 90 schemes in 23 districts covering a total of 620,000 ha of surface irrigation area. Farmers, through the WUAs, would contribute 15 percent of the rehabilitation costs for the aortion of the irrigations system to be transferred to their control. Investment would include activities such - 42 - as silt and vegetation removal, resectioning of channels and strengthening of banks, providing lining in specific reaches were justified, replacement of damaged lining, restoring free-board, repairs of deteriorated structures and construction of additional cross-drainage structures, construction of improved canal regulating and discharge measuring structures. The rehabilitation works would be implemented by the ID, but within their area of influence, WUAs would be involved in the planning, designing, and execution of the rehabilitation works. The direct responsibility for supervising construction would be vested in two chief engineers, and a network of staff of the ID. 23. Subcomponent B3: Strengthening agricultural support services ($12.62 million). This component supports the introduction of Technical Support Groups at various levels to support WUAs, to promote interdepartmental coordination to improve the delivery of agricultural services to farmer. The improved delivery of agricultural support services would be essential in taking full advantage of the increased production potential brought about by improved irrigation services. Increased effectiveness for delivering agricultural support services requires the coordinated action of various line departments (especially AD and ID), NGOs, and the private sector, with full involvement of farmers in the identification of constraints and potential for agricultural development. The WUAs would provide the foundation for adopting a more demand-driven extension approach. The AD will be responsible for coordinating and implementing this component. 24. New organization structure for agricultural extension delivery. The backbone of this new approach (with the full participation of farmers), is the creation of technical, multidisciplinary, interdepartmental support groups at three levels (WUAs, district, and state level). At the WUA level, a multidisciplinary TSG would be established with about seven to ten members. These groups would be made up of three farmers (including 1 woman), a representative from an NGO (if available), a representative from input suppliers (if available), local technical staff from the Departments of Agriculture, Horticulture, Irrigation, Cooperatives, Social/Health, and Animal Husbandry (if relevant). Depending on the operating area, the technical staff may cover more than one WUA, but the farmers that constitute each WUA would be specific for each group. The leader of the group would be, in most cases, the local extension supervisor; and when deemed relevant by the group, a farmer. The farmer representatives to the TSG should be members of the WUA and represent the three major sections of the minor (head, middle, and tail). The groups would be formed in a phased manner during the first two years of the project, parallel to the creation of the WUAs, and physical rehabilitation of the irrigation schemes. Technical staff, drawn from the existing pool of government staff, would be officially assigned by the heads of their line departments, while farmers would be nominated by their respective WUAs. The WUAITSGs would be assisted and supervised by the assistant agricultural officer assigned to each scheme. In schemes with more than one WUA, the assistant agricultural officer would coordinate technical assistance to all WUAs. 25. WUA Level. Among the responsibilities of the WUA-TSG, would be the collection and analysis of technical and socioeconomic information regarding the existing farming systems in the area covered by the minor; identification of farmers' needs through participatory approaches; and preparation and dissemination of crop production plans based on priority needs identified by farmers. The WUA-TSG would also forward technical recommendations for implementing demonstration plots, disseminate relevant production technologies, link farmers groups, and interact with input suppliers, credit institutions and market outlets. Field demonstrations would be planned and implemented by the WUA-TSG with each expert contributing relevant knowledge and expertise to the specific task at hand, and (when necessary) providing farmers in-service training, and mobilizing other farmers. They would be guided by the assistant agricultural officer, who would also function as a facilitator. 26. District Level. At the district level, a multidisciplinary district TSG would be formed to provide - 43 - specialized technical support and assistance to WUA-TSGs and to coordinate project implementation at the district level. These groups would be headed by the District Collector or his representative. Members of the district TSG would consist of selected technical staff at the district level: agronomists (research and extension), irrigation (on-farm water management), cooperatives, horticulturists (fruits and vegetables), animal production, human health and nutrition, NGOs, the private sector (input suppliers), and district based FOs. District TSGs would be responsible for consolidating activities at the district level, and preparing district work plans and reports. Other tasks to be carried out by district teams would be the participatory identification of training needs of field staff and farmers and implementing the training. District TSGs would mobilize and facilitate the linkage between farmers groups and input suppliers, credit providers, and market outlets. 27. State Level. At the state level, a multidisciplinary and interdepartmental State Coordination Committee (SCC) of about eight members would be established to supervise and coordinate implementation of the agriculture component. The group would consist of the Director of the AD and senior level representatives from the ID, and Departments of Horticulture, Cooperatives, Animal Husbandry, Health and Nutrition, representatives of apex NGOs, private sector agencies and apex farmers' associations. The SCC, through the AD would ensure that district TSGs and WUA/TSGs receive adequate technical assistance and financial support to implement field activities. It would review technical recommendations put forward by district TSGs and WUA-TSGs, supervise program implementation, assess training needs of field staff and farmers, consolidate project work plans at the state level, monitor project implementation and impact, coordinate links with research institutions and universities, and facilitate interaction with NGOs, and other providers of support service. The chairman of the SCC would be the Director of the AD, and the group would report to the Project Steering Committee. The SCC would meet at least once a month to review progress of project implementation. 28. Operational Support. An operations unit (to be established and stationed in the AD) would support the SCC. The main responsibility of this unit would be to implement decisions and policies established by the SCC, as well as supervise and coordinate district and WUA based support groups. The unit would be headed by an additional director (Agronomy) with background in research, and a deputy director with a background in rural extension and project monitoring. The unit will be supported by an administrative assistant with expertise in computer use, as well as in other necessary office equipment. 29. In addition to the introduction of the new institutional model described above, the project would also support: (a) Field Demonstrations of Improved Production Practices, focusing on improved crop production technologies (integrated plant nutrient management, integrated pest management, crop diversification options), improved irrigation techniques (sprinkler and drip irrigation systems, on-farm water management), efficient use of farm machinery and implements (b) Pilots for Deliverv of extension services through NGOs. The pilots for subcontracting delivery of agricultural extension services to NGOs would be conducted in five select irrigation schemes in the first year, increased to ten schemes in the fifth year of the project. The SCC in coordination with the district TSG and WUA-TSG would select the schemes. The WUA/TSG and district TSG would closely monitor the NGO's performance, and the monitoring will continue as needed, depending on the extent of progress. (c) Support to agricultural research, specifically the establishment of a competitive participatory agricultural research program aimed at developing technologies that address farmers' needs--as perceived by the farmers. Starting in the second year of the project, the SCC would provide competitive research grants to a range of state research institutions, including public and private organizations, and NGOs. Funds would be used to buy materials, supplies, and to pay labor costs - 44 - (field and laboratory workers) that are needed to carry out the activity. Focus areas include impact of pesticide use in the state and the identification policy, regulatory and institutional barriers to the accelerated uptake of IPM in the state. (d) Strengthening of other support services including training of WUA-TSGs on soil and water analysis, training and selective assistance for setting nurseries by farmers, and training and selective assistance for seed production by farmers (e) Training for staff of line departments (AD, ID, Horticulture, Animal Husbandry, Health) and farmers on a series of subjects, in addition to the seasonal training of farmers that would be conducted in the demonstration plots. 30. Subcomponent B4. Dam safety remedial works ($18.38 million). The objective of the component is to ensure the safety of headworks supplying irrigation schemes to be rehabilitated under the project. The project would support remedial works on 16 large dams serving the project area to be to partly or fully rehabilitated. Works activities would include spillway capacity enhancement, strengthening masonry and concrete appurtenant works, modemizing hydro/mechanical and electrical equipment, and installing safety instruments. Training in modem methods of indexing tools to enhance risk analysis and in assessment of nonstructural methods for proper O&M of storages would be supported. A quality management system would be introduced and a quality control plan developed. The recently completed India Dam Safety Project (IN2241 and IN3325) which included Rajasthan among other states, developed a well functioning dam safety organization (DSO) that would assume the responsibility for implementation. A dam safety review panel (DSRP) would be reconstituted independent of the DSO, have three members one of which would be a person with intemational experience. The role of the DSRP would be consultative and provide to review of all dam safety proposals prior to implementation. The DSO has completed the Phase I inspections, and has assessed the types of distress in each of the dams. Steps in implementation would be to: (i) reconstitute the DSRP; (ii) provide clearance of hydrology from Central Water Commission, New Delhi; (iii) provide clearance of hydrology from the dam safety review panel; (iv) finalize remedial works, per the advice of dam safety review panel; (v) estimate and provide technical sanctions the remedial works; (vi) prepare bid documents and get clearance from Bank where required; (vii) invite bids and award of contracts; and (viii) implement works and other activities. Project Component 3 - US$ 0.96 million Project Management 31. While individual project subcomponents would be implemented by the respective line departments, a PMU would be established, with primary responsibility for interdepartmental coordination, procurement, financial management, annual and quarterly reporting, and project M&E. This component would fund provision of office equipment, computers, training, consultancy services, and some limited incremental recurrent expenditures. - 45 - Annex 2 Attachment 1 Rajasthan Water Sector Restructuring Project CGovernegnt or .4th. Government of Rajasthan Sf:rjat, Jalpur Parmeuh C dra I^Letter of Policy and Institutional Reforms Ti. (0) 91-141.3t3466 Parmegh Chandra, t^s ~~~~~~~~~~~~~~~TrItf2X : 91-M4-310335 Priripsa r5Iarq to Ooverrnnnt (R) 91-141-511073 Irrigation CAD WVU apaeuntet CWAtMAN. RLDC _D O- o F 7 (I > 9J1 A I - x il I Scptemnber 27, 200 1. Dear Mr. Lirn, Rajasthan Water Sector Restructuring Project- Policy and Institutional Reforn Program Government of Rajasthan is fully committed to reform and restructure the water sector. Therc is a clear recognition that thc Statc's water resources are scarce and future development and prosperity will depend largely on how effectively planning, allocation and utilization of water resources is carnied out. The proposed Water Sector Restructuring Project (WSRP) would assist the Govemment with its refoTm agenda through institutional restructuring and strengthIening for improving the strategic planning atnd sustainable development and Tnanagement of the surface and groundwaEer resour:s in a comprehensive and inter-sectoral way in the statc and inipruving the productvity of iigated agriculture by improving irrigation systems performance. The GOR has takecn a number of significant steps for implementing the water sector reforms during the comse of project preparation. These include adoption of (i) a state water resources policy, (ii) a water sector widc rehabilitation and resettleuent (R&R) policy, and (iii) the Rajasthan Farmers Management of Irrigation Systentis Act (RFM ISA). The statc has also completed a state water resourcs plan. constitutcd a State Water R.esources Council (SWRC) chaired by the Chief Minister and a Standing Commnittee (SC) on Water Resources under the chairmanship of the Cliier Secretary. The GOR has also initiated rationalization and right-sizing of the variou5 dcparmnts WiiJri the sector. As part of the on-going reform initiatives, which are directly aligned witli Ihe objectives of the pmposed WSRP, the GOR has decidcd to: (i) establish an independent State Water Resources Planning DeparLmcnt (SWRFD) for comprehensive and multi-sectoral water -46 - resources planning, that will ensure the optimal. sustainable; and equitable use and development of the state's scarce water resources; and (ii) strengthen the environmental skills in the sector through the creation of environmental cells in the SWRPD and in the Inigation Dcpartment and also strengthening of the Environment Departrent. The Stare will establish an R&R Cell in the Irrigation Department for the cfective management of the R&R function in the sector. The state has also a&-peed to revisc water charges in the irrigation sector during the project pcriod iu the phased manner, to ensure that by the end of the project period, thc total annual rovenue fron water charges will mneet the full cost of operations and maintenance. The atachment to this letter scts out thc implemnentation schedule of the above reforms, as well as other key project rclated activities. With Regards, Sinzcrely, (Pamc4 Chandra) Principal Sccretary Trrigation Mr. Edwin Lim Country Director, India World Bank 70 Lodi Estate New Delhi 110003 -47- Rajosthan Water Sector Restructuring Project Reform Inititi yes Implementation Schedule Items Action Agreed Implementatiou D-ttclPeriod I. Water Resorcn Polky Planing and Manaemmt _ (a) Water resources pl1aung and envimomental nunagement Establihmen of SWRPD Jurte 30, 2002 EstabLih ENV cell it, ID June 30, 2002 (b) Resettlement and Esablish RAR Call ii ID Jtne 30, 2002 Rehabilitation 2. Improaving Waler Systems Management and Performance (a) Farmer managemClL of Complete clecticos of farmer June 30, 2002 IrigzuiOn system orxanz ion (WUAs I 3. Finaiciul sustainability l'o raise water chargwns to Water charges will bc of Sector and Water meet ful} O&M costs at the hiked/suitably rationali7ed in charges end ofthe project such a way that by the middle of the project period revenue from water charges would cover about 50% uf the O&M cost and by cnd of project pcnod would mieet fiull O&M c-Osts of the irrigation system 4. Project Management Establish PMEU for iff:er- January 1, 2002 arrangemcntJ depw-tmcntal coordinatioti M&E, finuanal management, procurement and .___________________________ _ d .isbursem ent. -48 - Annex 3: Estimated Project Costs INDIA: Rajasthan Water Sector Restructuring Project Local Foreign Total Project Cost By Component US $million US $million US $million Water Sector institutional Restructuring and Capacity Building 19.79 6.21 26.00 Improving Irrigation Systems Performance 107.59 22.27 129.86 Project Management 0.83 0.00 0.83 Total Baseline Cost 128.21 28.48 156.69 Physical Contingencies 6.28 1.50 7.78 Price Contingencies 12.83 2.92 15.75 Total Project Costs' 147.32 32.90 180.22 Total Financing Required 147.32 32.90 180.22 Local Foreign Total Project Cost By Category US $million US $million US $million Civil works including land compensation 101.15 26.74 127.89 Goods, Equipment, Machinery, & Materials 10.13 5.34 15.47 Incremental operating costs 20.22 0.00 20.22 Consultant's Services & Training 15.82 0.82 16.64 Total Project Costs' 147.32 32.90 180.22 Total Financing Required 147.32 32.90 180.22 Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 180.2 (US$m). Therefore, the project cost sharing ratio is 77.69% of total project cost net of taxes. - 49 - Annex 4: Cost Benefit Analysis Summary INDIA: Rajasthan Water Sector Restructuring Project Summary of Benefits and Costs: Project Benefits. Project investments are expected to contribute to increased annual production of major crops such as cotton (18,000 mt), oilseeds (110,900 mt), pulses and coarse grains (56,400 mtl, wheat (393,000 mt), generating an annual value of about Rs 2.1 billion ($47 million) per year (20110 prices) by project end. It is also estimated that as a result of the project, the incremental agricultural production would generate sale tax revenues of about Rs 84 rnillion per year (2000 prices), at a sales tax rate of 4 percent. It is estimated that the project would directly benefit over a quarter of a million farm families. The increased demand for labor at project completion would amnount to 8.7 million person days cr about 29,000 jobs per year. Most of the manpower demand would need to be satisfied by hired labor, which opens greater employment and income opportunities for the landless. Other downstream off-famn employment generated in transport, marketing and agroprocessing, however, could not be quantified. Construction of civil works as foreseen under the project would generate an additional temporary five-year increase in labor demand in the project area. Table A4. 1: Summary of Proiect Impact Item Value Farm families benefitine directly 251.000 families Increased irrigated area 92,224 ha Increased wheat oroduction 393.000 mt/yr Increased cotton production 18.080 mt/yr Increased oilseed productionl/ 110,900 mt/yr Increased pulse and coarse grain wroduction2/ 56,400 mt/yr Increased on-farm labor demand3/ 29,000 jobs/yr (8.7 million days) Increased agricultural value added4/ Rs 2.1 billion/year Notes: 1/ includes mustard, sesame, groundnut, castor, and soybeans. .!/ Includes maize, pearl millet, cluster bean, gram, green gram and other kharif pulses. 3/ Estimated at 300 days per job. Does not include labor generated in associated off-farm activities. 4/ Defined as total gross farm income minus cash inputs (excluding familylabor). Project costs. The financial and economic analysis quantifies the economic irnpact of project investrnents in the following areas: (a) Water resources policy planning, and management component: including institutional refonn and capacity building; dam safety; R&R; water resources research fund; and IEC. (b) Improving surface irrigation systems management and performance component: including FO participatory rehabilitation and transfer, and agricultural support services. (c) Project management. Economic analysis: Two levels of econornic analysis are performed, assuming a 30-year project life. First, the economic impact of the whole project was analyzed. Second, the combined impact of the project components on two major, medium, and minor irrigation schemes in four regions are estimated. These schemes include two major schemes, Gang and Bhakra in the northwestem plain region; a medium scheme - 50 - in Sainthal Sagar (3,267 ha) in the semiarid eastern plain region; a medium scheme in Jetpura (3,730 ha) in the subhumid southern plain and Aravalli Hills region, a minor scheme in Jhadol (1,905 ha) in the subhumid southern plain and Aravalli Hills region; and a minor scheme in Lodisar (1,792 ha) in the humid southern plain region. The analysis of individual schemes is intended to capture the nonhomogeneity of agricultural production potential in different regions of the state. The economic analysis focuses on quantifying the combined benefits of the project on irrigation efficiency and farmer irrigated crop management, as reflected by incremental production achieved in the surface irrigation schemes covered under the project. For the project level and scheme-level analysis, investments associated with the impact of the three subcomponents are taken into account. However, as the first component has a state wide coverage, the proportionate share is taken for the the project level and scheme analysis, which is based on the percentage share of the project/scheme area under surface irrigation relative to total irrigated area. The ERR of the project and selected schemes are all above the opportunity cost of capital (12%) - Table A4.2. The ERR for the whole project is 27 percent, with estimated net present value of incremental benefits estimated at Rs 4.2 billion (2000 rupees). The estimated ERR for selected major schemes, the Bhakra and Gang are 20 percent and 43 percent respectively. The estimated ERR of the Jetpura and Sainthal Sagar medium schemes are 40 percent and 37 percent respectively, while the minor schemes in Jhadol and Lodisar had ERRs of 25 percent and 19 percent respectively. Iable A4.2: Summarv of Economic Analysis Resul :s Item Region Economic Rate of NPV-30 years, 2000 rupees Retumn Rs million Total Prowect 27% 4.220 Major Schemes 1. Bhakra Northwestern Plain 20% 591 2. Gang Northwestem Plain 43% 1,676 Medium Schemes I.Sainthal Sagar Semi-arid eastem plain 37% 57 2.Jetoura Sub-humid southem olain 40% 93 Minor Schemes 1. Jhadol Sub-humid southem plain 25% 19 2. Lodisar Humid southeastern plain 19% 10 Financial analysis: The FRRs are also estimated for the project (Table A4.3). The financial rate of return for the project is estimated at 28 percent, with the net present value of incremental benefits of Rs 5.1 billion (FY2000 prices). The project is quite robust to various risks identifed above. In all scenarios, the FRR remains above the cost of capital of 12 percent. - 51 - Table A4.3: Financial Rate of Return of RWSRP Scenario Financial Rate of NPV-30 years, Return 2000 rupees Rs million Base Case 28% 5,133 WUAs 80% Operational 22% 3,264 70% Operational 17% 4,235 Benefits Lagged I year 23% 4,167 2 years 20% 3,305 Investment Costs Increase 25% 23% 4,273 Benefits lagged lyear+ invest. Increase 25% 19% 3,307 Benefits lagged lyear+ invest. Increase 25%+ 80% WUA operational 16% 1,785 Implementation over 7 vrs, benefits la ed I vrl/ 21% 2,868 Project impact on farmer incomes. In analyzing the financial impact of the project on farm households, models of the typical farms in the six schemes listed above were developed. Prevailing Financial prices are used to value outputs and inputs, and crop budgets on a per ha basis were generated and used as the basis for estimating the project's impact at the farm level. Overall, the impact of the project on farm incomes is satisfactory. At project completion, increases in net farm incomes range from Rs 5,000 to Rs 24,000 (Table A4.4). These translate to a 30 percent to 80 percent in incomes. The increases in income derive primarily from the increased productivity due to the increased availability and reliability of canal water. This is especially important for farmers in the tail end who are able to convert from unirrigated to irrigated agriculture as a result of the improved delivery of irrigation arising from the rehabilitation of the system. The rates of increase are also greatly influenced by the rather low base farm households are starting from. The estimate of the net farm incomes in the financial analysis includes the expected increase in water charges to fully cover the cost of O&M. Since these increases in net farm incomes generated by the project already account for increased water costs, it clearly indicates the farmer's ability to pay for O&M costs. 1ble A4.4: Sum r Impact on Fai er Incomes by Size of Sche ne Scheme Average Farm Net Income Per Farm Increase in Net Income per Year Area Size 2000 Rupees due tot e Project Scheme ha ha Current With Proiect _jLIarm/vr Percent Major Scheme 1. Bhakra 149,774 6.6 42,840 75,165 16,209 37.8% 2. Gang 125.000 5 55.921 79.812 23.891 42.7% Medium Scheme 1. Sainthal Sagar 3,267 1.3 9,973 18,233 8,260 82.8% 3.730 3 26979 4R-329 21.A49 79.1% Minor Scheme I. Jhadol 1,905 2.2 17,659 23,214 5,555 31.5% 1.792 1.6 12.02 17405 5373 44.7% - 52 - Fiscal impact. During the project period, the GOR aims to reduce the overall cost structure of the ID and adjust water charges to achieve full cost recovery of O&M. These measures would contribute to the phasing out of fiscal subsidies for O&M in the state by about the fifth year of the project, from the current level of about Rs 936 million. Table A4.5 presents the results of the analysis wherein the GOR progressively reduces O&M costs per ha from Rs 781 to Rs 550 over the project period and increases water charges from Rs 191/ha in 1999/00 to Rs 709 /ha by project year 5, to illustrate their fiscal impact. Water charge adjustments are made according to the proposed schedule by the GOR, accounting for inflation, to ensure full cost recovery by project completion. An increase in water rates from the current Rs 191/ha to Rs 284/ha in 2001, assuming the same gross cultivated area, O&M expenditures remains at 1999/2000 level and 100 percent collection efficiency, will cut fiscal subsidies by about Rs145 million ($3.2 million) to Rs 791 million ($17 million). However, if the GOR stays at its current collection efficiency level of 80 percent, fiscal subsidy required will be about Rs 851 mnillion ($18.5 million), hence, improving collection efficiency would also be critical to ensure the full impact of the cost recovery program. Several cost recovery scenarios were also analyzed. If GOR hastens staff reduction and the O&M target of Rs 550/ha for RWSRP schemes and Rs 549/ha for other ID are achieved in Y3, this would contribute an additional reduction in the fiscal subsidy requirement over the project period by as much as Rs 51 million ($ 1.1 million) to Rs 171 million ($3.7 million) per year from the base case. If the GOR staff reduction program is delayed by 50 percent in YI and Y2, this increases the fiscal subsidy requirement per year during the project period by an additional Rs 38 million to Rs 90 million from the base case. If the planned staff reduction is not fully successful and the O&M costs are cut by only 75 percent of the target to Rs 608/ha, rather than Rs 550/ha, and water charges are raised to only 75 percent of target to Rs 624/ha rather than Rs709/ha, then financial autonomy will not be achieved in Y5, instead the fiscal subsidy requirement would amount to Rs 215 million. - 53 - Table A4.5: Fiscal Impact of Irrigation Department O&M Cost Recovery (AssumDtion: O&M costs reduced to Rs 550/ha of CCA in Yr 5 and water charee/ha covers full O&M costs by Yr 5. 1999/2000 2000/01 Yr I Yr 2 Yr 3 Yr4 Yr 5 1. Inflation Rate 6.0% 5.0% 5.0% 5.0% 5.0% 2. Culturable Command Area (million ha) 1.577 1.577 1.577 1.577 1.577 1,577 1.577 3. Average O&M Cost, Rs/ha of CCA RWRSP Schemes 781 781 735 689 643 596 550 OtherlD Schemes 781 781 735 688 642 595 549 4. O&M Expenditure Requirement (Rs million, constant 1999/00 prices)I/ Irrigation Department 1,232 1,232 1,159 1,086 1,013 940 867 RWRSP Area 427 427 401 376 351 326 301 Other ID Schemes 805 805 757 710 662 614 566 5. O&M Expenditure Requirement (Rs million adjusted for inflation)2/ Irrigation Department(A) 1,232 1,232 1.204 1,166 1,183 1,153 1,116 RWRSP Area 427 427 401 376 410 400 387 Other ID Schemes 805 805 803 790 773 753 729 Irrigation O&M Revenues from Water Charges 2000/01 Yr I Yr 2 Yr 3 Yr4 Yr 5 6. Gross Irrigated Area (GCA) million ha3/ 1.55 1.55 1.55 1.57 1.59 1.62 1.64 RWRSP schemes 0.24 0.24 0.24 0.26 0.29 0.31 0.33 Other ID Schemes 1.31 1.31 1.31 1.31 1.31 1.31 1.31 4ssuming 100% Collection Efficiency Throughout Project Period 7. Average Water Charge. Rs/ha of GCA a) Proposed Water Rates by GOR 4/ 191 284 284 284 425 520 550 b) Inflation Adjusted Water Rates 191 284 284 284 497 638 709 (% Increase in Water Charge/yr) 00/0 0% 75% 28% 11% 8. Water Charges Revenues, Rs millionS/ 100% collection efficiency 296 441 441 447 792 1031 1159 a) 90% collection efficiency6/ 397 397 402 713 928 1043 b) 80% collection efficiency7/ 353 353 358 634 825 928 9. O&M Deficit, Rs million 100% collection efficiency 8/ -935.8 -79a.8 -763.2 -718.9 -391.5 -122.3 42.9 a) 90% collection efficiency6/ -835 -807 -764 -471 -225 -73 b) 80% collection efficiency7/ -879 -851 -808 -550 -328 -189 Assumptions: ./ Assumes average O&M cost per ha declines from Rs781/ha to Rs550/ha of CCA in RWRSP schemes and from Rs78 I/ha to Rs549/ha of CCA in other schemes under the Irrigation Department by year 5. CCA assumed to remain stable at 1.577 million ha during project period. O&M costs includes maintenance costs, work charge staff cost, 50% of BBMB share and 50% of general establishment cost. 2/ Total inflation adjusted O&M requirement is equal to unadjusted O&M (4) x inflation rate (1). O&M Costs for RWRSP schemes are not adjusted for inflation in Yrl and Yr 2 to take into account of rehabilitation activities which will reduce O&M requirement cluring these years. O&M in non-RWRSP schemes of Irrigation Department are adjusted for inflation, using World Bank estimates of inflation rates. 3/ Gross irrigated area equals sum of irrigated area in Kharif and Rabi seasons. In RWRSP schemes, gross irrigated area assumed to increase due to project interventions, beginning in Yr 2. Gross irrigated area in non-RWRSP schemes assumed to stay constant. 4/ As per water rates schedule, water rates are not adjusted in Year I to 3. 5/ Water revenues are equal to inflation adjusted average water charge (7a) multiplied by gross irrigated area (6). 6f Assumes only 90 percent of water revenue demanded is actually collected 1/ Assumes only 80 percent of water revenue demanded is actually collected. 8/O&M deficit is water charge revenues (8) less inflation adjusted O&M expenditures (5). It estimates amount of O&M subsidy required from GOR to cover full cost of required O&M for a given year. Main Assumptions: Levels of economic analysis. Two levels of economic analysis are performed, assuming project life of 30 years. First, the economic impact of the whole project is analyzed. This analysis aggregates the - 54 - economic impact within the total project area, covering a total of 619,195 ha distributed over 91 surface irrigation schemes (major-6, medium-36, and minor-49). Thirteen representative models of farms in major, medium, and minor schemes for different agroclimatic regions are developed. These farm models serve as the basis for estimating the economic impact first at the scheme level and then are aggregated to obtain the project level impact. Second, the combined impact of the three project components on six different schemes in four regions are estimated. These schemes consists of two major schemes, Bhakra (149,774 ha) andGang (125,000 ha) in the northwestern plain region; the Sainthal Sagar medium scheme (3,267 ha) in the semiarid eastern plain region; the Jetpura medium scheme (3,730 ha) and Jhadol minor scheme (1,905 ha) in the subhumid southern plain and Aravalli Hills region; and the Lodisar minor scheme (1,792 ha) in the humid southern plain region. The value of incremental production for these schemes is estimated using crop budgets per ha expressed in economic terms. Economic Prices Traded outputs. The economic prices of cotton, groundnuts, maize, sorghum, soybean, and wheat are based on projected 2005 import and export parity prices (excluding taxes and duties) derived from the "World Bank Commodity Price Projection, May 2000", and expressed in 2000 constant prices. Cotton, groundnut, and soybean meal are considered as exportable, while maize, groundnut oil, sorghum, soybean oil, and wheat are treated as importables. Nontradable commodities. Other crops produced in the project area, for which no specific world market reference price is obtainable (e.g. vegetables and pulses) were considered as nontradable. To derive their economic prices, the financial prices of all nontradable outputs were multipled by a standard conversion factor (SCF) of 0.9. Inputs. The main fertilizers used in the project area: DAP, potassium chloride, and urea are priced at their import parity price, based on the "World Bank Commodity Price Projections, May 2000". An SCF of 0.9 is applied to pesticides and other chemicals, organic manure, and land preparation. The financial prices of seeds are converted to their economic prices by a SCF of 0.9. Labor. An overall average wage of Rs 60 per day is used in the financial analysis. There has been no detailed study of the shadow price of rural labor in Rajasthan. For the economic analysis, market wages are converted to their economic price by using a SCF of 0.9. Estimated project benefits. The project will generate benefits in terms of increased agricultural output in the project areas. Its value to agriculture is taken as the approximate measure of project benefits. The incremental output derives from: the expansion of actual irrigated area in the irrigation command area; and improved yields. The reduction in water conveyance losses and the more equitable distribution of water within a scheme (e.g., head-end vs. tail-end) permit the expansion of the net irigated area. They enable farmers to irrigate previously unirrigated farm plots as well as to increase cropping intensity (i.e., multiseason cropping). The gross irrigated area within the project area, presently standing at 306,352 ha, is expected to increase to 414,397 ha at the project completion, augmenting production in about 108,000 ha of presently unirrigated land. The expected increased cultivation of less water intensive crops (such as oilseeds), specifically increased mustard cultivation (about 47,000 ha), contribute the expansion of the irrigated cropped area. Increases in yields are derived from the improved equity, reliability and timing of water delivery and improved delivery of agricultural extension services. The yields of cotton, mustard, and wheat (the most extensively grown irrigated crops in the project area) are estimated to increase by 21 percent, 33 percent, - 55 - and 20 percent, respectively. The yields of other crops are projected to increase by an average of 10 percent to 30 percent. The higher percentage growth rate is affected by the low base yields of the crop. Crop yield is also assumed to vary across regions, reflecting the differing productive potential in different schemes. Yield assumptions for the "without" project situation are based on field surveys undertaker as part of the project. The "with" project yield assumptions are based on best estimates of crop scientists in the AD. Crop yield increases are assumed to occur in a phased manner: from Y1 to Y5, at 10 percent, 20 percent, 30 percent, 25 percent, and 15 percent incrementals respectively, subsequently stabilizing for the remainder of the project life. The effect of the project investments on incomes (resulting from both increased yield and area), is assumed to occur gradually over a ten-year period. A technology/income adjustment factor of 0.05, 0.20, 0.35, 0.50, 0.65, 0.80, 0.90, 0.95, 0.98, and 1.0 thereafter, is applied. This take's into account the possible lag in farmer response to the increased availability of water, improved extension delivery, and the operation of the new institutional system, that is the WUAs and coordination between the WUA, ID, and AD. Estimated project costs. The economic analysis was carried out using November 2000 prices over a project life of 30 years. The costs of ongoing civil works, training modules, the MIS, and the purchase of computers and office equipment required for the project are based on the best estimates and detailed preparatory work conducted by the project preparation team and consultants. The specific conversion factors used to convert the financial costs to economic costs are as follows: scheme rehabilitation works 0.88; dam safety investment works 0.83; recurrent maintenance works 0.89; and agricultural support services-0.98. An SCF of 0.90 is applied to the remaining cost items. In spite of proper O&M, all irrigation infrastructure have a limited life span. Major repairs or replacement works need to be performed at regular intervals. For example, unlined canals need to be brought back to their original cross sections once very 20 years. Canal linings have a life span of about 30 years. The life span of an irrigation scheme s equal to the life span of the dam, which is usually over 100 years. Therefore, during the life of the project, it is necessary to include major repairs or replacement of the distribution networks. In the case of major, medium, and minor schemes, major repairs or replacement of the distribution network will be required every ten years. Provisions for replacement of some infrastructure in economic terms, estimated at Rs 250/ha, Rs 150/ha, and 75/ha for major, medium, and minor schemes respectively, are included in the analysis in Y20. To approximate the required investments after Y30 to sustain the life of the irrigation system thereafter, an average replacement cost per year is included in Y30. The cost streams are based on economic costs as calculated in the project cost tables and exclude taxes and price contingencies. In estimating the ERR for specific irrigation schemes, with the exception of the participatory rehabilitation subcomponent, where actual planned investments are used in analysis, the cost share of all other subcomponents are allocated proportionately according to the area of each subproject, on the basis of average cost per ha in economic terms. Sensitivity analysis / Switching values of critical items: Sensitivity analysis to assess the impact of key project risks indicates that the ERR of the project and individual schemes are in general, robust when analyzed against various risk associated with the project. These risks relate to: less than 100 percent operational success of the WUAs, a key building block of the GOR's water sector strategy; delays in implementation possibly due to problems of counterpart funding; slower than projected farmer response to the investment program resulting in delayed accrual of benefits; and implementation inefficiencies that could lead to higher investment costs. The results of the sensitivity analysis to reflect these risks are presented in Table A4.6. Less successful WUA operations. The success of the GOR's strategy for the surface irrigation sector rests on the successful performance of WUAs, particularly on O&M. The impact on the ERR if only 80 - 56 - percent or 60 percent of the WUAs become fully operational is therefore investigated. It is assumed that the rate of failure of the WUAs translates into a corresponding nonperformance of the O&M, and thus reduced availability of water and expansion of irrigated area; and poor transfer of productivity enhancing knowledge under the agricultural support services program. These are captured in terms of a corresponding, proportionate decrease in outputs and benefits received (e.g., 80 percent WUA's operational implies a 20 percent decrease in output and benefits and O&M). The results of the analysis indicate that at 70 percent and 80 percent WUA success rate, the ERR of project and individual schemes while declining, remain above the cost of capital (12 percent). Implementation delays could potentially arise as a result of difficulties in the transition to an ID and WUA management, and/or inadequate or delayed provision by the GOR of counterpart funding. The effect of possible delays in implementation for the project as a whole, and for major schemes is examined by spreading investments over seven years rather than five years, and lagging benefits one year. The results indicate that the ERR for the whole project declines to 20%, 18% and 34% respectively for the major schemes. Similar delays in medium and minor schemes as examined by spreading investments over five years instead of three, and lagging benefits by one year. The resulting ERRs are 19% to 32% respectively. Lagged benefits, 80 percent WUA success rate and increasing investment costs. The effects are also investigated for the delay of fanner and output response to investments, an 80 percent WUA success rate, and an 25 percent increase in project cost. The project ERR declines from 27 percent to 15 percent; the individual scheme ERRs remain at or above the cost of capital. - 57 - Table A4.6: Summary of Results of Economic and Sensitivity Analyses Economic Rate of Retum Total Maior Schemes Medium Schemes Minor Schemes Scenario .Project Bhakra I GaneI Sainthal Sagar Jetpura Jhadol Lodisar Base Case 27% 20% 43% 37% 400/o 25% 19% WUAs 80%/6 Operational 21% 16% 34% 30% 32% 20% 15% 70% Operational 16% 12% 25% 23% 25% 15% 12% Benefits Lagged I year 22% 17% 32% 29% 31% 21% 17% 2 years 19% 15% 27% 25% 26% 19% 15% Investment Costs Increase 25% 22% 16% 34% 30% 33% 21% 16% Benefits lagged lyear+ invest. Increase 25% 19% 14% 27% 25% 27% 18% 14% Benefits lagged lyear+ invest. Increase 25%+ 80% WUA oDerational 15% 12% 22% 21% 23% 15% 12% Implementation over 7 yrs, benefits lagged I yrl/ 20% 18% 34% Implementation over 5 yrs, benefits lagged I yr 30% 32% 24% 19% Note: 1/Major projects are implemented over 7 years. 2/ Medium and minor projects are implemented over 3 years. - 58 - Annex 5: Financial Summary INDIA: Rajasthan Water Sector Restructuring Project Years Ending |-PLEMENTAPTOO PERIOD Year1 I Year 2 Year 3 | Year 4 | Year 5 | Year 6 Year 7 Total Financing Required Project Costs Investment Costs 3.9 10.0 41.1 41.7 32.3 20.4 10.8 Recurrent Costs 0.7 2.0 5.9 5.0 3.4 2.6 0.4 Total Project Costs 4.6 12.0 47.0 46.7 35.7 23.0 11.2 Total Financing 4.6 12.0 47.0 46.7 35.7 23.0 11.2 Financing IBRD/IDA 3.8 9.0 37.0 35.6 27.7 19.0 8.0 Government 0.8 2.7 9.3 10.3 7.4 3.7 3.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.C User Fees/Beneficiaries 0.0 0.3 0.7 0.8 0.6 0.3 0.2 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 4.6 12.0 47.0 46.7 35.7 23.0 11.2 Main assumptions: - 59 - Annex 6: Procurement and Disbursement Arrangements INDIA: Rajasthan Water Sector Restructuring Project Procurement Institutional Capacity An assessment was carried out to determine the institutional capacity of the ID and AD. The assessment was based on the information provided by the GOR in response to a questionnaire, and also on the basis of e xperience with the other Bank-financed projects. The ID has a long tradition of public procurement; officials of the department are well versed with the basic principles underlying the public procurement. Many of them were also exposed to the Bank's procedures during the implementation of the Dam Safety Project. Similarly, officials of the AD were also exposed to the Bank's procedures during their involvement in the Agricultural Development Project. Therefore, the GOR is capable of implementing the procurement without the help of a procurement agent, although there are certain issues in which actions are required to ensure timely and efficient procurement; these include: * Appointment of an empowered committee to take decisions on the procurement matters, including authority to decide on the award of the contracts. This is required as existing procedures are cumbersome and time consuming. This results in delays and in some cases contracts are not awarded during the initial bid validity period. - The project coordination unit would be the focal point for procurement related activities; it would need to coordinate, monitor, and provide guidance on procurement matters. The GOR should appoint a senior officer in charge of procurement in the PMU. The AD and GWvD should identify one nodal officer from each department to coordinate the procurement matters. * One or two workshops should be arranged by the ID for field level officers to educate and expose them to procurement procedures/requirement. Procurement methods (Table A) Procurement for all project activities financed under the loan/credit would be procured in accordance with the Bank's guidelines for procurement (January 1995, revised January and August 1996, September 1997, and January 1999). Attachment 1 summarizes procedures for undertaking procurement on the basis of National Competitive Bidding (NCB). Specific procurement arrangements summarized in Table A are as follows: Civil Works ($127.89 million) Civil works include: (a) rehabilitation of the works to be carried out for irrigation systems including very small channels within the jurisdiction of WUAs, in about 90 Nos. major, medium, and minor schemes to modernize the system; and (b) a limited number of new building works under institutional strengthening and renovation of office buildings of the PMU. Civil works would be procured through NCB or through force account procedures. The maximum value of contract is not likely to exceed S5 million, therefore, in view of the nature and geographical distribution of the works, foreign firms would not find these contracts attractive. - 60 - NCB ($123.29 million) would include civil works for canals, water-courses, and modemization and rehabilitation of drainage systems. The works also includes construction of limited number of new buildings and rehabilitation of office buildings of the PMU; the works would be grouped into convenient packages for bidding and land (if necessary) would be acquired prior to the bidding. All works contracts would be procured as per procedures summarized in Attachment 1. The bids from foreign contractors would not be precluded. Participatory Rehabilitation through Force account ($4.60 million). Civil works contracts valued at less than $30,000, up to an aggregate of $4.60 million would be executed following force account procedures. These include participatory rehabilitation civil works on channels carrying a discharge of less than ten cusecs to be implemented by the WUAs. These works would normally be implemented by these organizations with their own labor force or through local masons, NGOs, or any other method on the basis of implementation plans approved by the ID. In special circumstances, such as a special request, by the WUAs, or when WUAs are unable to implement the approved implementation plans, the ID may carry out these works on behalf of the WUAs according to force account procedures as a last resort in a manner satisfactory to the Bank (in accordance with paragraph 3.8 of the guidelines). The aggregate amounts of works carried out by ID on behalf of the WUAs would not exceed 5% of the aggregate amount of $4.60 million for the force account. Bidding documents: Standard bidding documents as finalized by the GOI task force, and agreed with the Bank, would be used for all NCB contracts. Contracts with NGOs, registered contractors by collecting quotations, would be concluded based on the formats developed by the Bank's Procurement Unit in New Delhi. Goods, Equipment, Machinery and Materials ($15.5 million) The project supports the procurement of computer hardware and peripherals, software, furniture, office equipment, seeds, plants, fertilizers, drip and sprinkler sets, training equipment, laboratory equipment, hydrometeorological equipment, communication equipment, monitoring equipment, books and periodicals, etc. Intemational cometitive bidding (ICB) ($ 4.65 Aillion). Contracts for the purchase of goods and equipment valued at $200,000 or more, per contract, would be procured through ICB procedures in accordance with the Bank's procurement guidelines. National competitive bidding (NCB) ($8.37 million). Contracts for the purchase of goods and equipment valued less than $200,000, per contract, would be procured through NCB procedures in accordance with the provisions of paragraphs 3.3 and 3.4 of the guidelines. DGS&D rate contracts are not acceptable substitutes for NCB. National shopping ($2.47 million). Office equipment, furniture, small equipment, and other supplies, estimated to cost less than the equivalent of $30,000 per contract, up to an aggregate not to exceed $2.47 million, may be procured under contracts awarded on the basis of shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the guidelines. DGS&D rate contracts are acceptable as a substitute for shopping. However, state government rate contracts or procurement through Super Bazaar or cooperative stores would not be acceptable. The rate list of these could be considered as one of the quotations under the shopping procedures. Direct contracting ($ 0.01 million): Books and periodicals, CD ROMs, software, furniture, training aids - 61 - for demonstration, seeds, plants, fertilizers, and proprietary equipment (including spares for already available equipment, extension and publicity material ) up to an aggregate not to exceed $10,000, may be procured on direct contracting procedures in accordance with paragraph 3.7 of the guidelines. Bidding documents: Standard bidding documents as finalized by the GOI task force and agreed with the Bank, would be used for all ICB, and NCB contracts. The contract format would be that developed by the Bank's Procurement Unit in New Delhi. lTechnical Assistance, Studies, and Training ($16.64 million) Technical assistance and consultancy services would be contracted following procedures in accordance with "Bank's Guidelines for Selection and Employment of Consultants by World Bank Borrowers", January 1997, revised September 1997 and January 1999. All the consultancies expected to cost more than $100,000 equivalent would be awarded on the basis of QCBS procedures. For the consultancies estimated to cost less than $100,000 appropriate methods would be used, with the Bank's prior agreement. Traininz of staff from ID, AD, trainers, NGOs, farmers, and WUAs functionaries and facilitators, would be conducted at the IMTI, and at places chosen by IMTI or the ID/AD. Domestic study tours would be arranged by IMTI or the concerned department. Training services in established institutions and universities would be procured directly, subject to the Bank's clearance on course content, number, details of personnel to be trained, and course cost. Other training services would be procured following quality and cost based selection procedures. IThe Bank's Review Procurement Decisions (Table B) Procurement planning. Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with the procurement plan which shall have been approved by the Bank and with the provisions of said paragraph 1. Annual procurement plans would be reviewed by IDA/Bank. Prior review of contracts: C'ivil works and goods contracts. All contracts for civil works exceeding equivalent of $200,000 and all contracts for goods exceeding the equivalent of $100,000, and the first two contracts for goods and works estimated to cost more than $30,000, would be fully documented and subject to prior review by the Bank provided in paragraphs 2 and 3, of Appendix 1, to the Bank's Guidelines. There would be 994 nos. of packages under civil works, out of which 720 packages are very small buildings for WUA offices. There would be 93 packages for works above $200,000 equivalent, and subject to prior review. In terms of value, however, this represents about 80% of cost for civil works. For goods and equipment, there would be 270 packages; of which would be 116 packages above $100,000 equivalent. In terms of value these represent about 75% of cost of goods/estimates that would be subjected to prior review. C'onsultancy contracts. Prior review procedures would be as follows: - 62 - (a) with respect to each contract estimated to cost the equivalent of $100,000 or more, the procedures set forth in paragraphs 1, 2 (other than the third subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply; (b) with respect to each contract for employment of consulting firms/institutions estimated to cost the equivalent of $50,000 or more but less than the equivalent of $100,000, the procedures set forth in paragraphs 1, 2 (other than the second subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply; and (c) with respect to each contract for the employment of individual consultants estimated to cost the equivalent of $50,000 or more, the qualifications, experience, terms of reference, and terms of employment of the consultants shall be furnished to the IDA for its prior review and approval. The contracts shall be awarded only after said approval shall have been given. This would result in a prior review of 20% of all contracts awarded under competitive bidding. Post review Works and goods. The contracts below the prior review threshold for works and goods shall be subject to post-review provided in the procedure set forth in paragraph 4 of Appendix 1 of the Bank's Guidelines; and Technical assistance, studies, and training. Contracts for the employment of consulting firms estimated to cost less than $100,000, and contracts for the employment of individuals estimated to cost less than S50,000, shall be subject to post-review, provided that the generic TORs and shortlists for critical assignments have been cleared by the Bank. Procurement Information Procurement information would be collected and recorded as follows: (a) Prompt reporting of contract award information by PMU of GOR; (b) Comprehensive semiannual reports by PMU indicating: (i) revised cost estimates for individual contracts and the total cost; (ii) revised timings of procurement actions, including advertising, bidding, contract award, and completion time for individual contracts; and (iii) compliance with aggregate limits on the specified methods of procurement; and (c) The Borrower's completion report to be received by the Bank within three months of the credit's closing date. - 63 - Procurement Schedule and Proposed Procurement Arrangements The proposed packages and the Procurement Schedules for goods/equipment required for capacity-building anid project management have been provided by the PMU. The project elements, their estimated costs, and proposed methods of procurement are summarized in Table A. Figures in parentheses are the respective amounts to be financed through the IDA/Bank. Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Procurement Method Expenditure Category ICB NCB Other N.B.F. Total Cost 1. Works 0.00 123.29 4.60 0.00 127.89 (0.00) (104.30) (3.90) (0.00) (108.20) 2. Goods 4.65 8.37 2.48 0.00 15.50 (4.19) (7.55) (2.24) (0.00) (,13.98) 3. Services 0.00 0.00 16.64 0.00 16.64 (0.00) (0.00) (15.91) (0.00) 15.91) 4. Miscellaneous 0.00 0.00 3.22 0.00 3.22 a. Vehicle Hiring & Office Operating Costs and Incremental Staff Salaries (0.00) (0.00) (1.9 1) (0.00) (1.9 1) c. Fixed Staff Salaries & Land 0.00 0.00 0.00 16.97 16.97 Compensation (0.00) (0.00) (0.00) (0.00) (0.00) Total 4.65 131.66 26.94 16.97 180.22 ________________________ (4.19) (111.85) (23.96) (0.00) (140.00) Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies. x Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. - 64 - Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) Selection Method Consultant Services Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total Cost A. Firms 3.60 0.80 0.30 0.00 0.45 0.00 0.00 5.15 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) B. Individuals 1.69 0.61 0.33 0.00 0.33 0.00 0.00 2.96 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) Total 5.29 1.41 0.63 0.00 0.78 0.00 0.00 8.11 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Credit. -65 - Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review' Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ thousands) Method (US$ Ms) 1. Works >30 NCB First two and all contracts above $200,000 <30 Force Account Post Award Review 2. Goods >200 ICB All contracts >30 and <200 NCB First two and all contracts above $100,000 <30 Shopping/DGS&D Rate Post Award Review Contract Books and periodicals, <10 Direct Contracting Post Award Review CD ROMs, software, furniture, training aids for demonstration, seeds, plants, fertilizers, and proprietary equipment including spares for already available equipment, extension and publicity material 3. Services >100 QCBS All contracts <100 As per Bank guidelines: For contracts of value QCBS, QBS, SS, etc. $100,000 and above the procedures set forth in paragraph 1, 2 (other than third sub-paragraph of paragraph 2(a)) and 5 of Appendix 1 of Consultant Guidelines shall apply. For contracts of value $50,000 or more but less than $100,000 the procedures set fcrth in paragraphs 1, 2 (other than second subparagraph of paragraph 2(a)) and 5 of Appendix 1 of Consultant Guidelines shall apply - 66 - For employment of individual consultants of contract value $50,000 or more, the qualifications, experience, termns of reference and terms of employment shall be subject to prior review. 4. Miscellaneous 5. Miscellaneous 6. Miscellaneous Total value of contracts subject to prior review: Overall Procurement Risk Assessment Frequency of procurement supervision missions proposed: One every six months (includes special procurement supervision for post-review/audits) Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. - 67 - Disbursement Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$million Financing Percentage Works 102.47 90% Goods, equipment, machinery, vehicles 13.39 100% of foreign expenditure; 100% of and materials local expenditures (ex-factory cost); and 85% of local expenditure for other items ______________________________ procured locally. Consultants and Training 10.00 100% Incremental Operating Costs and 1.84 85% until April 1, 2004; incremental salaries 75% until; April 1,2005; 60% until April 1,2006; 30% until April 1, 2007; and 20% thereafter. Unallocated 12.30 Total Project Costs 140.00 Total 140.00 Financial Management: Project related accounting, financial management, audit and funds flow are discussed below. Current Accounting Systems of Implementing Agencies. The Department of Irrigation is the nodal agency responsible for the implementation of the project; the Agriculture Department and Groundwater Department would be the other implementing agencies for the project. A PMU with staff drawn from the department would be established within the Department of Irrigation and would be responsible for the overall coordination, monitoring and evaluation and financial management. All state government accounts are maintained uniformly on a cash basis according to a chart of accounts prescribed by the Controller and Auditor General of India. The books of accounts are written up manually and are not computerized. Some of the common accounting records include the cash book, bill register, contractors ledger, measurement books etc. The main objective of the present manual accounting system is book-keeping and therefore has limited focus on meeting project management informnation needs. It also has no provision to bring into the project books of account the value of contributions in kind from farmers which needs to be reflected in the total project cost. An internal control system also needs to be in place to clearly define and document the accounting methodology to be followed for recording individual project related transactions. Flow of Funds. GOI would pass on the World Bank funds to GOR in accordance with the applicable policies and procedures for transfer of Bank funds from GOI to states, with the GOI bearing the foreign exchange risk. These funds are usually transferred through Additional Central Assistance (ACA) to state - 68 - governments that transfer funds to the line departments in installments during the year through annual budgetary allocations (based on annual work plans). Accounting Staff. While some accounting staff in the implementing agencies have been exposed to donor projects, they are not accounting professionals nor have they had prior training in accrual or computerized accounting. They also need to be exposed to the new reporting format designed by the Bank to comply with financial management initiative (FMI) requirements. The staff of the implementing agency would need professional support and training to set up and maintain an appropriate financial management system and to generate quarterly reports as required by the Bank. This support and training would be provided by the consultants who would be setting up the computerized system. Proposed Arrangements Financial Management System and Financial Manual A Financial Management System (FMS) has been developed with the assistance of a professional accountant (consultant) who has documented the proposed system in a financial management manual (FMM). The FMM would be adopted by all the project implementing agencies to ensure transparency, uniformity, clarity and accountability. The FMM covers: (a) flow of funds; (b) financial and accounting policies; (c) accounting system and internal control mechanisms including information flow and flow of documents; (d) chart of accounts; (e) financial reporting (including formats of PMRs); (f) auditing arrangements; (g) budgeting; (h) organization and staffing for financial management functions; and (i) terms of reference for auditors. The FMM would be periodically updated and improved based on implementation experience. Project Accounting System The project design provides for the development of a comprehensive computerized MIS (including the fmancial management modules) as a separate project component. The development of this comprehensive system would be taken up during project implementation, and would not be in place at project start. For the interim period, there are options to maintain the records on a manual basis, or to provide a simple computerized accounting system. The three options that may be considered here are: (a) manual accounting and preparation of accounting reports (current practice) (b) complete computerization at all levels, and (c) computerized accounting software provided at selected locations and PMU to enable speedy preparation of reports and claims. As an interim arrangement, the Bank's recommendation is that a suitable and simple software be identified or developed for partial and/or complete computerization of the financial management system based on the recommendations of the consultant designing the financial system. It would also need to be ensured that any interim system proposed to be used is compatible with the financial module in the MIS component. Staffing and Training The PMU would be staffed by an accounts officer, two junior accounts officers, and one support staff. It is agreed that the selection process would ensure that staff hired have suitable experience for the size and scope of the project. Before the implementation of the project starts, accounting staff at the - 69 - departmental and PMU-level would be trained on the Bank's disbursement and reporting requirements. All accounts staff are drawn from the state accounts cadre, and are familiar with the government accounting, systems and associated rules and procedures. The staff at regional, zonal divisional offices would be trained in modem financial management practices, and Bank-specific reporting requirements. Training would be provided by the departments with assistance from the State Institute of Administration supported by the consultants designing the financial management system. I)isbursement Arrangements Initially, the disbursements for the project would be under the traditional method. At the end of the first year of implementation, the financial system in place would be reviewed to assess whether PMR based disbursement procedures can be adopted. If the system meets the requirements, the type of disbursement would be changed to PMR based disbursements under which disbursements would be made quarterly based on Project Monitoring Reports (PMRs) submitted by the Borrower. the target date for switching to PMR based disbursements is October 1, 2003. F'inancial Management for Water User Associations Financial policies and procedures regarding transfer of fands from Line departments to WUAs, and accounting by the WUAs, would be incorporated in the FM. Good practices in the Andhra Pradesh-project and elsewhere would be adopted during implementation. The Irrigation Department would draw a detailed set of rules and procedures for the WUAs including the format and requirements for maintenance of books of records and reports. Separate bank accounts would be opened for each WUA and a simple manual accounting system would be designed to enable the WUA's to manage the funds. The policies would also cover issues of beneficiary contributions, related accounting issues and requirements of financial and social aadit. Financial Reporting The PMU established under the ID would coordinate the project activities, would be responsible for consolidating and processing all reimbursement claims, as well the submission of quarterly PMRs. Nionthly: Each accounting center (DDOs in the ID) would produce an abstract of project expenses and receipts, submit them to the PMU and other reporting authorities. The PMU would consolidate these reports for the entire project. Quarterly: PMRs would be generated from the manual! computerized accounting system for each implementing agency and for the whole project. These reports would be management-oriented and would be used for project management. The reports would include: (a) a comparison of budgeted and actual expenditure and analysis of major variances, including sources and application of funds (by components and expenditure categories) and key physical parameters and unit rates for selected key items; (b) expenditures by disbursement categories; and (c) forecasts for the next two quarters. The formats of these reports would conform to the Bank's requirements and would be incorporated in the FMM. During Traditional disbursements, transitional PMRs (Reports IA, 3A, 3B, 3C and 3D) would be submitted. On switching to PMR-based disbursements, all PMRs would be required Annually: Audited project financial statements (PFS) would be submnitted to the Bank. PFS would include: (a) a summary of funds received (showing funds received from the central and state governments, World Bank and beneficiaries separately), and a summary of expenditures shown under the main project headings - 70 - (i.e., project components) and by main categories of expenditures; and (b) a balance sheet showing accumulated funds of the project, bank balances, other assets of the project, and liabilities, if any. Each implementing agency would prepare their respective PFS and the PMU would consolidate all the accounts. A consolidated audited PFS for the whole project would be submitted to the Bank not later than six months after the end of the fiscal year (i.e., not later than September 30 for the fiscal year ended March 31 of each year). Auditing Arrangements The accounts and financial statements of the project would be audited by the Auditor General (Rajasthan) as per terms of reference agreed with the Bank and to be included in the FMM. The following audited annual project financial statements would be submitted to the Bank within 6 months of the close of each fiscal year. * statement of sources, and use of funds classified by expenditure categories, components, and sources of funds. * special account reconciliation, and * statement of withdrawals from the creditlloan based on SOEs or PMRs. The following audit reports would be tracked in the Audit report Compliance System (ARCS). I Project Financial Staternents/SOE Irrigation Dept. GOR C&AG, Rajasthan 2 Special Account DEA, GOI C&AG, Delhi To ensure that sound internal control is maintained through out implementation, the Finance wing of the ID would carry out an intemal financial review on a quarterly basis. The TOR for this review has been agreed with the Financial Advisor of the ID and would be incorporated in the FMM. During negotiations it was agreed that GOR would post and train appropriate personnel in the Finance wing of the ID to strengthen their internal audit capacity. Readiness for Implementation and Next Steps Readiness for implementation and next steps. The design of the computerized Financial Management System is in progress; until the computerized system is functional, the manual system is adequate for the financial management needs of the project. A Financial Management Manual documenting the financial management system has been prepared and included in the PIP. The design of the computerized system or purchase of accounting system is expected to be completed by June 30, 2002. There are inherent risks relating largely to timely availability of funds. The fundamental issue relates to the release of ACA funds from GOI. Issues relating to ACA releases have been taken up separately by the Bank with GOI as these affect the entire Bank portfolio. The WlUAs are new organizations and would require some handholding to establish appropriate financial management arrangements. - 71 - Timetable for Implementation of Project Financial Management Systems and Next Steps Agreed Actions By when Redeployment/relocation of key accounting staff: Posting/transfer order issued October 1. 2001 and with effect from January 1, 2002. Develop computerized financial management system June 30, 2002 Provision of computer hardware to all accounting June 30, 2002 centers Train staff in PFMS operation June 30, 2002 Appointment and training of appropriate personnel in June 30, 2002 the intemal audit wing of the office of the Financial Advisor, ID ,GOR for intemal audit purposes of the project. Switch over to PMR-based disbursements October 01, 2003 - 72 - Annex 6 Attachment I With reference to the procedures for undertaking procurement on the basis of NCB, referred to in Part C-I of Section 1, Schedule 1, of the Project Agreement, all NCB contracts shall be awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the "Guidelines for Procurement under IBRD Loans and IDA Credits", January 1995, revised January and August 1996, September 1997, and January 1999. In this regard, all NCB contracts to be financed from the proceeds of the credit and the loan shall follow the following procedures: 1. Only the model bidding docurnents for NCB agreed with the GOI task force (and as amended from time to time), shall be used for bidding. 2. Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days prior to the deadline for the submission of the bids. 3. No special preference would be accorded to any bidder when competing with foreign bidders, state-owned enterprises, small-scale enterprises or enterprises from any given state. 4. Except with the prior concurrence of the Bank, there shall be no negotiation of price with the bidders, even with the lowest evaluated bidder. 5. Except in cases of force majeure and/or situations beyond the control of the project states, extension of bid validity shall not be allowed without the prior concurrence of the Bank (a) for the first request for extension if it is longer than eight weeks; and (b) for all subsequent requests for extension irrespective of the period. 6. Re-bidding shall not be carried out without prior concurrence of the Bank. The system of rejecting the bids outside a predetermiined margin or "bracket" of prices shall not be used. 7. Rate contracts entered into by DGS&D would not be acceptable as a substitute for NCB procedures. Such contracts would be acceptable for any procurement under national shopping procedures. - 73 - Annex 7: Project Processing Schedule INDIA: Rajasthan Water Sector Restructuring Project Project Schedule Planned Actual Time taken to prepare the project (months) 24 36 First Bank mission (identification) 11/01/1994 11/01/1994 Appraisal mission departure 01/08/2001 01/08/2001. Negotiations 10/29/2001 11/01/200C Planned Date of Effectiveness 04/30/2002 Prepared by: Project Preparation Unit, with representation from the Government of Rajasthan's Departments of: Irrigation, Agriculture, and Groundwater. Preparation assistance: Food and Agriculture Organization (FAO), PHRD Trust Fund Bank staff who worked on the project included: Name Speciality Geoff Spencer Task Team Leader R.S. Pathak Co-Task Team Leader-Delhi - Engineering Dina Umali-Deininger Co-Task Team Leader-HQ - Economics Andrea Ruiz-Esparza Program Assistant/Editor - HQ Walter Garvey Water Resources Rifik Hirji Environment Smita Misra Environment P. K. Subramanian Financial Management Manvinder Mamak Financial Management Jayasthree Shahria Team Assistant - Delhi Mohammad Hasan Social Development Shawki Barghouti Agricultural Support Services M. Balasubramanian Agricultural Support Services Deborah Ricks Program Assistant-HQ Sara Gonzalez-Flavell Legal Hyacinth Brown Disbursement D. J. Baxi Procurement Kevin Casey Procurement - 74 - Annex 8: Documents in the Project File* INDIA: Rajasthan Water Sector Restructuring Project A. Project Implementation Plan Project Implementation Plan - Rajasthan Water Sector Restructuring Project - Volume I (Main Report); Volume II - Institutional details and Costs; Volume III - Implementation Schedule; Volume IV: - Implementation Guidance Notes. B. Bank Staff Assessments Rajasthan Water Sector Restructuring Project: Project Information Document. Rajasthan Water Sector Restructuring Project. Pre-Appraisal Aide Memoire, October 2000. Rajasthan Water Sector Restructuring Project. Appraisal Aide Memoire, February 2001. Bandyopadhyay, N.K; Farmers' Organizations; Rajasthan Water Sector Restructuring Project; 2000. Bueno, A; Agricultural Support Services; Rajasthan Water Sector Restructuring Project; 2000. Malhotra, R.K; Participatory Rehabilitation; Rajasthan Water Sector Restructuring Project; 2000. Moench, M; Groundwater Component; Rajasthan Water Sector Restructuring Project; 2000. Umali-Deininger, D; Economic Analysis; Rajasthan Water Sector Restructuring Project; 2000. Umali-Deiininger, Fiscal Impact of Water Sector Restructuring and Cost Recovery Program C. Other 1. Barla, C.S. and Ajmera, S.: Financial Analysis of 13 no. model schemes. 2. Barla, C.S.: Financial Analysis. 3. Dhar, B and Ahuja, R.: Socioeconomic Survey of 13 no. model schemes. 4. Moench, M and Shah, T.: Study of Groundwater management. 5. Perera, J.: Action Plans for WUAs. 6. Institute of Development Studies, Jaipur: Base Line Survey. 7. PriceWater House Coopers Ltd., New Delhi: Cost Recovery from Irrigation Projects; 8. PPU & FAO/CP Team: Feasibility studies and subproject preparation for rehabilitation works (FOPRT). 9. PriceWater House Coopers Ltd., New Delhi: Institutional Strengthening and Restructuring of WRD Departments. 10. PriceWater House Coopers Ltd., New Delhi: Introduction of Information Technology for WRDD. 11. Crux Consultants: Operations and Maintenance Preparatory Study. 12. GOR: Water Resources Development Project in Rajasthan, Policy for Resettlement and Rehabilitation of Persons Displaced or Affected, March 2001. 13. UMA Engineering Ltd.: Sectoral Environment Asssessment Study. *Including electronic files - 75 - Annex 9: Statement of Loans and Credits INDIA: Rajasthan Water Sector Restructuring Project 07-Nov-2001 Difference between expected and actual Original Amount in US$ Millions disbursements ProLect ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd P05.5455 2001 RAJ DPEP II 0.00 74.40 0.00 0.00 71.18 -3.50 0.00 P055454 2001 KERALA RWSS 0.00 65.50 0.00 0.00 60.28 2.38 0.00 P050658 2001 TECHN EDUC III 0.00 64.90 0.00 0.00 58.80 2.86 0.00 P035173 2001 POWERGRID II 450.00 0.00 0.00 0.00 450.00 75.27 0.00 P010566 2001 GUJARATHWYS 381.00 0.00 0.00 0.00 331.89 24.89 0.00 P059242 2001 MP DPIP 0.00 110.10 0.00 0.00 103.91 -3.79 0.00 P071244 2001 Grand Trunk Road lnrovement Project 589.00 0.00 0.00 0.00 589.00 9.33 0.00 P070421 2001 KARN HWYS 360.00 0.00 0.00 0.00 343.40 -1.60 0.00 P067543 2001 LEPROSY II 0.00 30.00 0.00 0.00 28.45 -0.05 0.00 P067216 2001 KARWSHDDEVELOPMENT 00. 100.40 0.00 0.00 97.23 -1.81 0.00 P038334 2001 RAJ POWER I 180.00 0.00 0.00 0.00 161.46 1.17 0.00 P05.5456 2000 Telecormmuni,caons Sector Reform TA 62.00 0.00 0.00 0.00 58.24 16.24 0.00 P003972 2000 NATIONAL HIGHWAYS Ill PROJECT 516.00 0.00 0.00 0.00 459.79 34.06 0.00 P050667 2000 UP DPEP II[ 0.00 182.40 0.00 0.00 124.47 29.64 0.00 P049770 2000 REN EGY 11 80.00 50.00 0.00 0.00 123.69 10.33 0.00 P050657 2000 UP Health Systems Development Project 0.00 110.00 0.00 0.00 102.51 8.93 0.00 P010505 2000 RAJASTRAN DPIP 0.00 100.48 0.00 0.00 90.84 10.13 0.00 P035172 2000 UP POWER SECTOR RESTRUCTURING PROJECT 150.00 0.00 0.00 0.00 117.87 20.53 0.00 P067330 2000 IMMUNZATION STRENGTHENING PROJECT 0.00 142.60 0.00 0.00 82.27 -13.57 0.00 P059501 2000 TA for Econ Reform Project 0.00 45.00 0.00 0.00 40.74 4.42 0.00 P045049 2000 AP DPIP 0.00 111.00 0.00 0.W0 99.81 4.18 0.00 P050651 1999 MAHARASH HEALTH SYS 0.00 134.00 0.00 0.00 116.06 41.66 0.00 P050646 1999 UP SOOIC LANDS II 0.00 194.10 0.00 0.00 147.43 58.79 0.00 P045051 1999 2NDNATL HIVIAIDS CO 0.00 191.00 0.00 0.00 132.32 18.02 0.00 P050637 1999 TN URBAN DEVIl 105.00 0.00 0.00 0.00 34.62 -7.90 0.00 P041264 1999 WTRSHD MGMT HILLS II 85.00 50.00 0.00 0.00 100.48 21.73 0.00 P045050 1999 RAJASTHAN DPEP 0.00 85.70 0.00 0.00 69.51 46.35 0.00 P043537 1999 AP POWER APL I 210.00 0.00 0.00 0.00 105.81 97.15 0.00 P043477 1998 KERALA FORESTRY 0.00 39.00 0.00 0.00 20.87 5.22 0.00 P043385 1998 AP ECCN RESTRUCTURIN 301.30 241.90 0.00 0.00 304.24 156.21 0.00 P035s24 1998 UP DIV AGRC SUPPORT 79.90 50.00 0.00 0.00 97.49 62.23 0.00 P035827 1998 WOMEN & CHILD DEVLPM 0.00 300.00 0.00 0.00 244.74 61.51 0.00 P035169 1998 UP FORESTRY 0.00 52.94 0.00 0.00 25.42 19.14 0.00 P013496 1998 ORISSAHEALTHSYS 0.00 76.40 0.00 0.00 64.42 29.96 0.00 P035C21 1998 DPEP II (BIHAR) 0.00 152.00 0.00 0.00 112.74 86.64 0.00 P019561 1998 NATLAGRTECHNOLOGY 96.80 100.00 0.00 0.00 149.45 85.93 0.00 P043728 1997 ENV CAPACTY BLDG TA 0.00 50.00 0.00 0.00 31.45 29.97 0.00 P0455600 1997 TA ST'S RD INFRA DEV 51.50 0.00 0.00 0.00 9.44 9.44 9.44 P044449 1997 RURAL WOMEN'S DEVELOPMENT 0.00 19.50 0.00 0.00 15.52 16.54 -0.35 P013473 1997 TUBERCULOSIS CONTROL 0.00 142.40 0.00 0.00 96.57 95.15 0.00 P009584 1997 ECODEVELOPMENT 0.00 0.00 0.00 0.00 7.87 9.20 0.00 P035158 1997 APIRRIGATIONIII 175.00 150.00 0.00 0.00 195.61 133.09 0.00 P010531 1997 REPRODUCTIVE HEALTH1 0.0 248.30 0.00 0.00 124.50 103.36 67.85 P010511 1997 MALARACONTROL 0.00 164.80 0.00 0.00 113.10 94.85 0.00 P043301 1997 A.P. EMERG. CYCLONE 50.00 100.00 0.00 19.00 40.12 63.78 0.00 P009995 1997 STATE HIGHWAYS l(AP) 350.00 0.00 0.00 0.00 194.43 101.10 0.00 P036062 1997 ECODEVELOPMENT 00. 28.00 20.00 0.00 14.86 15.08 0.00 P010529 1996 ORISSAWRCP 0.00 290.90 0.00 0.00 88.26 71.17 0.00 P010480 1996 BOMBAYSEWNDISPOSAL 167.00 25.00 0.00 10.00 72.80 81.41 25.76 P010484 1996 UPRURAL WATER 59.60 0.00 0.00 7.20 24.60 25.74 12.93 P035170 1996 ORISSA POWER SECTOR 350.00 0.00 0.00 0.00 215.16 185.16 0.00 P010485 1996 HYDROLOGY PROJECT 0.00 142.00 0.00 19.64 35.60 77.57 22.65 P035821 1996 DPEP 11 0.00 425.20 0.00 0.00 101.29 36.45 0.00 - 76 - Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd P035825 1996 STATE HEALTH SYS It 0,00 350.00 0.00 0.00 119.06 154.83 0.00 P043310 1996 COAL ENV & SOCIAL MITMGATION 0.00 63.00 0.00 6.09 23.96 34.23 0.00 P010476 1995 TAMILNADUWRCP 0.00 282.90 0.00 0.00 107.72 134.47 72.07 P010464 1995 DISTRICT PRIMARY ED 0.00 260.30 0.00 0.00 66.56 74.38 0 00 P010463 1995 INDUS POLLUrION PREV 143.00 25.00 0.00 65.81 64.24 131.42 16.31 P010461 1995 MADRAS WATSUPII 275.80 0.00 0.00 189.30 17.06 204.66 7.36 P010563 1995 FINANCIAL SECTOR DEVPROJ. (FSDP) 700.00 0.00 0.00 316.30 1.93 -381.77 0.00 P010522 1995 ASSAM RURAL INFRA 0.00 126.00 0.00 0.00 49.86 42.26 43.44 P010503 1995 AGRIC HUMAN RES DEVT 0.00 59.50 0.00 0.00 4.03 9.27 4.36 P010489 1995 AP 1ST REF. HEALTH S 0.00 133.00 0.00 0.00 26.32 36.07 0.00 P010457 1994 POPULATION IX 0.00 88.60 0.00 0.00 26.68 31.57 0.00 P010455 1994 BLINDNESS CONTROL 0.00 117.80 0.00 10.00 43.42 56.71 0.00 P010448 1994 FORESTRY RESEARCH ED 0.00 47.00 0.00 0.00 5.94 24.99 -0.58 P009964 1994 WATERRESCONSOLIDH 0.00 258.00 0.00 0.00 19.99 26.11 -12.49 P009870 1994 CONTAINER TRANSPORT 94.00 0.00 0.00 15.00 33.93 48.93 48.92 P010410 1993 RENEWABLE RESOURCES 75.00 115.00 26.00 0.00 23.09 55.54 0.00 P009977 1993 ICDS II (BIHAR& MP) 0.00 194.00 0.00 0.00 40.98 47.95 47.96 P009963 1992 POPULATION Vil 0.00 79.00 0.00 0.00 25.65 28.54 0.00 P009946 1992 NAT. HIGHWAYSII 153.00 153.00 0.00 0.00 27.78 17.13 17.13 P009869 1989 NATHPAJHAKRI HYDRO 485.00 0.00 0.00 0.00 59.82 59.82 39.27 Total: 6774.90 6992.02 46.00 658.34 7490.63 2998.87 422.04 - 77 - INDIA STATEMENT OF IFC's Held and Disbursed Portfolio MAY-2001 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity (Qguasi Partic NlrT 0.00 1.63 0.00 0.00 0.00 0.00 1)00 0.00 2001 Orchid 0.00 0.00 30.00 0.00 0.00 0.00 21).00 0.00 2001 Owens Coming 25.00 0.00 0.00 0.00 25.00 0.00 0.00 0.00 1997 Pennar Steel 0.00 0.07 0.00 0.00 0.00 0.07 1).00 0.00 1981 PrismCement 13.13 5.02 0.00 9.00 13.13 5.02 0.00 9.00 1995 RCIHL 0.00 1.97 0.00 0.00 0.00 1.97 3.00 0.00 2001 RTL 0.00 0.45 0.00 0.00 0.00 0.45 0.00 0.00 2001 Rain Calcining 16.32 5.46 0.00 0.00 16.32 5.46 0.00 0.00 1995 SAPL 0.00 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1997 SREI 10.00 0.00 5.00 0.00 5.00 0.00 5.00 0.00 1997/00 Sara Fund 0.00 5.94 0.00 0.00 0.00 5.94 0.00 0.00 1995 Spryance.com 0.00 2.00 0.00 0.00 0.00 2.00 ).00 0.00 2001 Sundaram Finance 0.00 0.00 0.00 0.00 0.00 0.00 ).00 0.00 1986/93/94/95 Sundaram Home 0.00 2.21 0.00 0.00 0.00 1.15 ).00 0.00 2000 TCW/ICICI 0.00 8.14 0.00 0.00 0.00 8.14 0.00 0.00 1998 TDICI-VECAUS 11 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00 1990 TISCO 0.00 0.00 0.00 0.00 0.00 0.00 3.00 0.00 1981/86/89/92/94 Tanflora Park 0.00 0.51 0.00 0.00 0.00 0.00 i.00 0.00 2000 Tata Electric 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1989/90/94 Taurus Starshare 0.00 2.53 0.00 0.00 0.00 2.53 D.00 0.00 1994 Titan Industries 0.00 0.52 0.00 0.00 0.00 0.52 0.00 0.00 1987/88/90/93 UCAL 0.00 0.54 0.00 0.00 0.00 0.54 0.00 0.00 1989 United Riceland 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 VARUN 0.00 0.00 0.37 0.00 0.00 0.00 0.37 0.00 1991/96/01 Vysya Bank 0.00 7.30 0.00 0.00 0.00 7.30 0.00 0.00 2001 WIV 0.00 5.00 0.00 0.00 0.00 2.40 0.00 0.00 1997 Walden-Mgt India 0.00 0.02 0.00 0.00 0.00 0.02 0.00 0.00 1997 AEC 4.82 0.00 0.00 0.00 4.82 0.00 0.00 0.00 1989 Ambuja Cement 0.47 4.94 0.00 0.00 0.47 4.94 0.00 0.00 1994 Arvind Mills 0.00 5.02 0.00 0.00 0.00 5.02 0.00 0.00 1992/93 Asian Electronic 0.00 5.50 0.00 0.00 0.00 5.50 0.00 0.00 1997 BTVL 0.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Basix Ltd. 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Bihar Sponge 0.00 0.05 0.00 0.00 0.00 0.05 0.00 0.00 1984/91 CCIL 9.00 0.00 0.00 11.50 0.00 0.00 0.00 0.00 2001 CEAT 19.60 0.00 0.00 0.00 19.60 0.00 0.00 0.00 1997 CESC 18.00 0.00 0.00 40.20 18.00 0.00 0.00 40.20 1990/92 Centurion Bank 5.50 0.00 0.00 0.00 5.50 0.00 0.00 0.00 1995/97 Chinai 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Chowgule 10.79 4.58 0.00 16.56 10.79 4.58 0.00 16.56 1994 Duncan Hospital 7.00 0.00 0.00 0.00 7.00 0.00 0.00 0.00 1997 EEPL 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1997 EXB-City Mills 0.18 0.00 0.00 0.00 0.18 0.00 0.00 0.00 1986 EXB-STG 0.31 0.00 0.00 0.00 0.31 0.00 0.00 0.00 1986 Total Portfolio: 198.86 191.95 50.37 77.26 145.45 135.87 40.37 65.76 - 78 - Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 1999 Sarshatali Coal 0.00 0.00 5.00 0.00 2000 Orissa NESCO 28.00 0.00 0.00 0.00 2000 Orissa WESCO 11.00 0.00 0.00 0.00 2000 IL&FS-GF 40.00 0.00 0.00 0.00 2000 APCL 7.10 0.00 1.90 0.00 2001 NIIT Hole Wall 0.00 0.00 1.65 0.00 2001 Bharti Telecom 0.00 0.00 20.00 0.00 2001 IIEL 0.00 0.00 2.00 0.00 2001 Samtel 21.30 0.00 0.00 0.00 2001 ICICI GF 40.00 0.00 0.00 0.00 2001 GI Wind Farms 9.79 0.98 0.00 0.00 2001 Internet Express 0.00 0.00 5.00 0.00 2001 GTF Fact 10.00 0.00 0.00 0.00 Total Pending Commitment: 167.19 0.98 35.55 0.00 - 79 - Annex 10: Country at a Glance INDIA: Rajasthan Water Sector Restructuring Project POVERTY and SOCIAL South Low- India Asia Income Development diamond' 2000I Population, mid-year (millions) 1015.9 1,355 2.459 ILife epectancy GNI per capita (Atlas method, USS) 460 460 420 GNI (Atfas method, USS bitlions) 468.1 617 1,030 Average annual growth, 1994-00 Population (%/ 1-8 1.9 1.9 GN Labor force M%) 2.3 2.4 2.4 GNI Gross per primary Most recent estimate (latest year available, 1994-00) capita enrollment Poverty (% of population below national poverty tine) 35 Urban poDulation (% of total population) 28 28 32 Life expectancy at birth (vears) 63 63 59 Infant mortalitv (per 1,000 live births) 71 74 77 Child malnutrition /% of children under 5) 45 47 , Access to improved water source Access to an improved water source (% of population) 88 87 76 Illiteracy (% of population age 15+) 43 45 38 Gross primary enrollment (% of school-age population) 100 100 96 - India Low-income group Male 109 110 102 Female 90 90 86 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1980 1990 1999 2000 Economic ratlos GDP (USs billions) 182.9 316.9 451.5 474.3 Gross domestic investment/GDP 20.9 25.2 22.7 24.7 Exports of qoods and services/GDP 6.1 7.3 11.8 13.4 Trade Gross domestic savings/GDP 17.3 22.5 19.7 22.2 Gross national savings/GDP 18.9 22.0 21.6 24.1 Current account balance/GDP -1.9 -3.2 -1.1 -0.6 Domestic n Interest oavmentslGDP 0.3 1.2 0.8 0.8 savings Investment Total debtlGDP 11.3 26.4 21.7 21.1 Total debt service/exnorts 9.8 32.4 15.3 12.4 Present value of debt/GDP 15.6 Present value of debt/exports 106.4 Indebtedness 1980-90 1990-00 1999 2000 2000-04 (average annual qrowth) GDP 5.8 6.0 7.2 5.2 6.0 - /ndia Low-income group GDP per caDita 3.5 4.2 5.3 3.3 4.3 Exports of goods and services 5.9 11.7 6.0 5.0 STRUCTURE of the ECONOMY 1980 1990 1999 2000 Growth of Investment and GOP (%) /% of GDP) 30 Aqriculture 38.6 31.3 27.1 25.3 Industry 24.2 27.6 26.1 26.2 20 Manufacturing 16.3 17.2 15.4 15.1 10 Services 37.2 41.1 46.8 48.5 o Private consumption 72.7 65.9 67.5 65.4 so 95 s 97 98 99 DO General qovernment consumption 10.0 11.6 12.9 12A4 GDI _GDP Imports of goods and services 9.7 9.9 14.8 16.0 1980-90 1990-00 1999 2000 Growth of exports and Imports (%) (average annual growth) Auriculture 3.1 3.1 0.7 0.2 c Industrv 6.9 6.4 6.4 5.3 30- Manufacturinq 7.4 7.1 6.8 5.6 20 Services 7.0 8.1 9.6 7.7 sin Private consumption 2.7 5.8 4.8 4.8 oS General qovernment consumption 7.7 6.9 15.0 6.4 -1 9 Gross domestic investment 7.5 7.0 9.4 56 Exports tmports Imports of qoods and services 5.9 9.5 6.0 50 Note: 2000 data are preliminary estimates. - The diamonds show four key indicators in the country (in bold) comDared with its income-group average, If data are missing, the diamond will be incomplete. - 80 - India PRICES and GOVERNMENT FINANCE Domestic prices 1980 1990 1999 2000 Inflation (%) (% change) 1 Consumer prices .. 12.8 3.4 3.8 10 Implicit GDP deflator 11.6 10.4 3.8 5.3 Government finance (% of GDP, includes current qrants) o Current revenue .. .. 18.7 19.1 95 96 97 98 99 0 Current budget balance .. .- GDP deflator -O-CPI Overall surplus/deficit .. .. -11.0 -10.6 TRADE 1980 1990 1999 2000 Export and Import levels (USS mill.) (US$ millions) Total exports (fob) 8,501 18,477 37,542 44,894 75,000 Marine products .. 535 1,183 1,394 0..OC Ores and minerals .. 970 916 1,158 Manufactures 5,105 12,996 29,714 34.511 45,000 Total imports (cif) 15,862 27,914 55,383 59,264 30DO - * 1 Food 1,348 557 2,417 1,432 Fuel and energy 6,669 6,028 12,611 15,650 15.0.0 Capital goods 2,416 5,836 8,965 8,785 o 94 95 96 97 99 99 00 Exportprice index (1995=100) 28 51 116 122 Import price index (1995=100) 27 46 150 162 *Exports mImports Terms of trade (1995=100) 105 109 77 75 BALANCE of PAYMENTS (UIS$ millions) 1980 1990 1999 2000 Current account balance to GDP (%) Exports of goods and services 11,249 23,028 53,251 63,764 0 Imports of goods and services 17,821 31,485 67,028 75,656 Resource balance -6,572 -8,457 -13,777 -11892 Net income 325 -3,753 -3,559 -3 821 Netcurrenttransfers 2,693 2,068 12,256 12,798 1 I I I i ' Current account balance -3,554 -10,142 -5,080 -2,915 Financing items (net) 2,564 7,650 11,482 8,771 Changes in net reserves 990 2,492 -6,402 -5,856 -2 Memo: Reserves includinq gold (US$ millions) 6,823 5,834 38,036 42,281 Conversion rate (DEC. locallUS$) 7.9 17.9 43.3 45.7 EXTERNAL DEBT and RESOURCE FLOWS 1980 1990 1999 2000 (US$ millions) Composition of 2000 debt fUSS mill.) Total debt outstanding and disbursed 20,695 83,717 98,159 100,256 IBRD 827 7,685 7,816 7,063 G: 3,464 A: 7,063 IDA 5,142 13,312 18,930 18,886 Total debt service 1,426 8,191 10,109 9,666 | 18,86 IBRD 137 1,087 1,389 1,421 IDA 50 211 469 505 Composition of net resource flows F: 39,285 Official grants 649 512 382 300 | 7,087 Official creditors 908 2,334 1,068 775 Pnvate creditors 789 1,606 -1,658 4,440 Foreign direct investment 8 97 2,155 2,346 Portfolio equity 0 6 3,036 2,756 |E:24,471 World Bank program Commitments 2,503 2,186 727 2,450 A - IBRD E - Bilateral Disbursements 826 1 981 1,460 1,739 B - tDA D - Other multilateral F - Private Prncipal repayments 86 586 1,228 1,361 C - IMF G - Short-term Net flows 739 1,395 232 378 Interest payments 101 712 630 566 Net transfers 639 683 -398 -188 Development Economics 9/25/01 - 81 - - 82 - INDIA PUNJAB P*INJB ~ t i* ' * SIGNIFICANT IRRIGATION RAJASTHAN WATER SECTOR -Gngan ' SCHEMES IN PROJECT Ociegonagar -. - ~~~~~~~~~~~~~GROUNDWATER PILOT RESTRUCTURING PROJECT I Hanumangarh RIVER BASIN BOUNDARIES * SELECTED CITIES GANGANAGAR t HARYANA RIVER BASINS. O DISTRICT CAPITALS t R*M'atsar ' OShekhawati (®) STATE CAPITAL Q j vZ A x Sy 8 Rupararl STATE CAPITAL ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~()Banganga NATIONAL CAPITAL 0Gahi DISTRICT BOUNDARIES N * Chhatorgarl- DELH I NEW- DELHI Parbati - ' ' ~ STATE BOUNDARIES CU U j .- S \ * *Sabi - NATIONAL BOUNDARY 9 0 Banas i - " O ' ! Char,bal / | _ _ ' ' '/\v° E ~~~~~~~~~~~~~Talchhapur ' ~ z9 . . C OLn .00 I~~~~~~~~~~~ ji 9- /8.>Xv _' . g1ioii44 t0 West Boaos si0 IKA 2 0 Sukli No6a o~ ~ ~ ~ ~ ~~~~~~~~0Ia BtnAP Alwu ' 5.ARA.P2irJ ) Other Nallah of Jalor District { . (I5 Nagaur i > Ra garh, (.) 8hrapu Thre Outside Basin JAISALMER - z t Jaisalmser ' Pholodi NAGAUR BO4 J Jisalme,~~~~~~~~~~~~~~~~~~Lus > ' JOb'HRi8g - % / gtJa'l~~~~~~~~ ~ ~ ~ ~ ~~~~~~~~~~~~pur & g _.* * *, wfX a Barrn, J M H j X Jodhpu f aS ~~~~~~~~~~~~A/ At c j & ~~\ ERk/3l:.W.' " < / ~~~~~~~~PRADESH( GUJARAT tt<9 P<8A;O > o> > $ \+ t A D0ubapurf»\ j.p~~~~~~~~~~~~~~~~~~~~~~~~t,&lp0p,LtT,V,l - O 0 50 100 150 Ba0sworrO ... sire POop Dr U,> so 5aTOo idr,ri io g \* , --p Group th,r ,ridrr o fo te legor , ofoir* r .r. roro o r or,, a rn KILOMETERS N. * ro'epe oo osuchso Ods' _ I _.