Document of The World Bank Report No: ICR00004217 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-78780) ON A LOAN IN THE AMOUNT OF US$20 MILLION TO THE REPUBLIC OF PERU FOR A SIERRA IRRIGATION SUBSECTOR PROJECT June 26, 2017 Water Global Practice Latin America and the Caribbean Region CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2017) Currency Unit = Nuevos Soles (S/.) S/. 3.25 = US$1.0 US$0.31 = S/.1.0 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ALA Local Water Administration (Administración Local del Agua) ANA National Water Authority (Autoridad Nacional del Agua) CIRA Certificate of Area Free from Archaeological Remains (Certificado de Inexistencia de Restos Arqueológicos) EIRR Economic Internal Rate of Return EMF Environmental Management Framework FIRR Financial Internal Rate of Return GDP Gross Domestic Product GGERT Management Groups for Improved Irrrigation (Grupos de Gestion Empresarial de Riego Tecnificado) GOP Government of Peru GP Global Practice ICR Implementation Completion and Results Report IRC Indigenous Rural Communities (Comunidades Campesinas Indigenas) IPPF Indigenous People Planning Framework M&E Monitoring and Evaluation MINAGRI Ministry of Agriculture and Irrigation (Ministerio de Agricultura e Irrigación) NPV Net Present Value O&M Operation and Maintenance PDO Project Development Objective PIU Project Implementing Unit PP Procurement Plan PROFODUA Irrigation Water Rights Formalization Program (Programa de Formalización de Derechos de Uso de Agua) PSI Irrigation Subsector Program (Programa Subsectorial de Irrigación) RADA Water Use Right Registry (Registro Administrativo de Uso de Agua) SEPA Procurement Plan Execution System (Sistema de Ejecución del Plan de Adquisiciones) SNIP National System for Public Investment (Sistema Nacional de Inversión Pública) TTL Task Team Leader WUO Water Users’ Organization (Organizaciones de Usuarios) Senior Global Practice Director: Guang Zhe Chen Practice Manager: Rita E. Cestti Marie-Laure Lajaunie Project Team Leaders: Griselle Felicita Vega ICR Team Leader: Juan David Casanova Anoll PERU Sierra Irrigation Subsector Project CONTENTS Data Sheet A. Basic Information........................................................................................................ i  B. Key Dates .................................................................................................................... i  C. Ratings Summary ........................................................................................................ i  D. Sector and Theme Codes ........................................................................................... ii  E. Bank Staff .................................................................................................................. iii  F. Results Framework Analysis ..................................................................................... iii  G. Ratings of Project Performance in ISRs ................................................................... vi  H. Restructuring (if any) ............................................................................................... vii  I. Disbursement Profile ................................................................................................. vii  1. Project Context, Development Objectives and Design ................................................... 1  2. Key Factors Affecting Implementation and Outcomes .................................................. 4  3. Assessment of Outcomes .............................................................................................. 12  4. Assessment of Risk to Development Outcome ............................................................. 19  5. Assessment of Bank and Borrower Performance ......................................................... 19  6. Lessons Learned............................................................................................................ 23 7. Comments on Issues Raised by Borrower/Implementing Agency .............................. 23  Annex 1. Project Costs and Financing .............................................................................. 25  Annex 2. Outputs by Component...................................................................................... 26  Annex 3. Economic and Financial Analysis ..................................................................... 33  Annex 4. Bank Lending and Implementation Support/Supervision Processes................. 39  Annex 5. Stakeholder Workshop Report and Beneficiary Survey Results ....................... 41  Annex 6. Summary of Borrower's ICR ............................................................................ 43  Annex 7. List of Supporting Documents .......................................................................... 47  Annex 8. Schema of WUOs and Sub-WUOs in the Sierra of Peru .................................. 48  Annex 9. Map.................................................................................................................... 49  DATA SHEET A. Basic Information Country: Peru Project Name: PE Sierra Irrigation Subsector Project ID: P104760 L/C/TF Number(s): IBRD-78780 ICR Date: 06/15/2017 ICR Type: Core ICR Lending Instrument: Specific Investment Loan Borrower: Republic of Peru Original Total US$20.00 million Disbursed Amount: US$19.97 million Commitment: Revised Amount: US$20.00 million Environmental Category: B Implementing Agencies: Ministry of Agriculture through Programa Subsectorial de Irrigación (PSI) and National Water Authority (ANA) Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/03/2007 Effectiveness: 02/15/2011 02/15/2011 Appraisal: 06/02/2008 Restructuring(s): 12/17/2015 Approval: 07/27/2010 Mid-term Review: 10/21/2014 10/21/2014 Closing: 12/31/2015 12/31/2016 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Satisfactory Agency/Agencies: Overall Bank Satisfactory Overall Borrower Satisfactory Performance: Performance: i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project No Quality at Entry None at any time (Yes/No): (QEA): Problem Project at any No Quality of Supervision None time (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Major Sector/Sector Agriculture, Fishing and Forestry Other Agriculture, Fishing and Forestry 11 11 Irrigation and Drainage 60 60 Water, Sanitation and Waste Management Other Water Supply, Sanitation and Waste Management 12 12 Public Administration - Water, Sanitation and Waste 17 17 Management Major Theme/Theme/Sub Theme Environment and Natural Resource Management Climate change 39 39 Adaptation 39 39 Water Resource Management 8 8 Water Institutions, Policies and Reform 8 8 Finance Finance for Development 15 15 Agriculture Finance 15 15 Urban and Rural Development Rural Development 62 62 Rural Infrastructure and service delivery 62 62 Rural Markets 15 15 ii E. Bank Staff Positions At ICR At Approval Vice President: Jorge Familiar Calderon Pamela Cox Country Director: Alberto Rodriguez Carlos Felipe Jaramillo Practice Manager/Manager: Rita E. Cestti Karin Erika Kemper Project Team Leaders: Marie-Laure Lajaunie Marie-Laure Lajaunie Griselle Felicita Vega ICR Team Leader: Juan David Casanova Anoll ICR Primary Author: Isabel Filiberto Fons F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project Development Objective (PDO) is to contribute to increasing agricultural production and productivity in targeted areas of the Sierra. Revised Project Development Objectives (as approved by original approving authority) Not applicable. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Percentage of producers' groups supported by the Project that have satisfactorily Indicator 1: implemented their business plans. Value (quantitative or 0.00 80.00 80.00 81.00 qualitative) Date achieved 07/27/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 101 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Number of WUOs that satisfactorily implement the O&M plans of the irrigation Indicator 2: systems modernized or rehabilitated by the Project. Value (quantitative or 0.00 7.00 7.00 12.00 qualitative) Date achieved 07/27/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 171 percent achieved according to the Client Completion Report (April (including % 2017). Please note that O&M plans were implemented by 59 of the 75 Sub-WUOs that achievement) benefited from irrigation systems and formulated their O&M plans. iii (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Number of WUOs that have benefited from collective irrigation infrastructure Indicator 1: improved/rehabilitated by the Project Value (quantitative or 0.00 9.00 9.00 12.00 qualitative) Date achieved 07/27/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 133 percent achieved according to the Client Completion Report (April (including % 2017). A total of 75 Sub-WUOs within 12 WUOs have benefitted from collective achievement) infrastructure improved by the project under Component A. Number of Water Users that have benefited from the modernization or rehabilitation of Indicator 2: collective I&D infrastructure by the Project. Value (quantitative or 0.00 — — 18,758.00 qualitative) Date achieved 06/01/2010 12/31/2015 12/31/2016 04/30/2017 Comments (including % No target was set at Board approval. achievement) Area (ha) that benefited from the modernization/rehabilitation of collective Indicator 3: infrastructure by the Project. Value (quantitative or 0.00 — — 14,770.00 qualitative) Date achieved 06/01/2010 12/31/2015 12/31/2016 04/30/2017 Comments (including % No target was set at Board approval. achievement) Indicator 4: Number of WUOs (out of 12) that have achieved eligibility criteria for Component A. Value (quantitative or 0.00 10.00 10.00 12.00 qualitative) Date achieved 06/01/2010 12/31/2015 12/31/2016 04/30/2017 The target was 120 percent achieved according to the Client Completion Report (April Comments 2017). Eligibility criteria for Component A were: (a) water tariff collection efficiency (including % higher than 50 percent, (b) WUO legally established, and (c) WUO has an achievement) O&M technician. Number of WUOs (out of 12) in which O&M plans for irrigation infrastructure Indicator 5: modernized/rehabilitated by the Project have been formulated. Value (quantitative or 0.00 10.00 10.00 12.00 qualitative) Date achieved 06/01/2010 12/31/2015 12/31/2016 04/30/2017 iv Comments The target was 120 percent achieved according to the Client Completion Report (April (including % 2017). O&M plans have been formulated in 75 Sub-WUOs within 12 WUOs. achievement) Number of producers that benefited from improved on-farm irrigation management Indicator 6: carried out by the Project. Value (quantitative or 0.00 1,000.00 1,000.00 1,684.00 qualitative) Date achieved 06/01/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 168 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Area (ha) that benefited from improved on-farm irrigation management carried out by Indicator 7: the Project. Value (quantitative or 0.00 1,500.00 1,500.00 1,969.00 qualitative) Date achieved 06/01/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 131 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Percentage of producers groups that satisfactorily operate the improved on-farm Indicator 8: irrigation systems. Value (quantitative or 0.00 75.00 75.00 87.00 qualitative) Date achieved 06/30/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 116 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Indicator 9: Producer groups that have formulated a business plan according to Project guidelines. Value (quantitative or 0.00 100.00 100.00 136.00 qualitative) Date achieved 06/30/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 136 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Indicator 10: Percentage of sub-projects that comply with the Pest Management Plan. Value (quantitative or 0.00 75.00 75.00 66.00 qualitative) Date achieved 06/30/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 88 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Indicator 11: Number of water licenses issued. v Value (quantitative or 0.00 3,000.00 3,000.00 2,980.00 qualitative) Date achieved 06/30/2010 12/31/2015 12/31/2016 04/30/2017 Comments The target was 99 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Indicator 12: Number of water licenses registered. Value (quantitative or 0.00 2,700.00 2,700.00 2,980.00 qualitative) Date achieved 06/30/2010 12/31/2016 12/31/2015 04/30/2017 Comments The target was 110 percent achieved according to the Client Completion Report (April (including % 2017). achievement) Indicator 13: Number of water measuring devices installed. Value (quantitative or 0.00 250.00 250.00 235.00 qualitative) Date achieved 06/30/2010 12/31/2016 12/31/2015 04/30/2017 Comments The target was 94 percent achieved according to the Client Completion Report (April (including % 2017). achievement) G. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 02/23/2011 Satisfactory Satisfactory 0.00 2 12/03/2011 Moderately Satisfactory Moderately Satisfactory 1.00 3 06/22/2012 Satisfactory Satisfactory 2.10 4 01/01/2013 Satisfactory Satisfactory 3.97 5 09/17/2013 Satisfactory Satisfactory 6.77 6 03/25/2014 Satisfactory Satisfactory 8.65 7 11/25/2014 Satisfactory Moderately Satisfactory 10.84 8 04/30/2015 Satisfactory Moderately Satisfactory 14.71 9 11/23/2015 Moderately Satisfactory Moderately Satisfactory 17.76 10 06/16/2016 Moderately Satisfactory Moderately Satisfactory 19.28 11 12/30/2016 Satisfactory Satisfactory 20.00 vi H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions Extend the closing date to allow 12/17/2015 MS MS 17.76 satisfactory completion of project activities I. Disbursement Profile vii 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country Background 1. At the time of Project approval and as a result of strong economic policies, Peru had become one of the best-performing economies in Latin America. Between 2001 and 2008, Peru’s gross domestic product (GDP) increased on average by more than 5 percent per year. The national poverty rate dropped by 9 percentage points between 2004 and 2007. However, at 39 percent, poverty remained high for a country of Peru’s GDP level and had not declined significantly in the Sierra (Highlands) and Amazon regions, which had the highest poverty rates in the country. The 2002 Household Survey indicated that the incidence of poverty in the rural Sierra was about 75 percent (4.2 million people), with more than 40 percent of the population (2.3 million people) being extremely poor. In the Sierra, 80 percent of the households that obtained their incomes from the agriculture were poor. 2. Poverty reduction in the Sierra was one of the top priorities of the Government of Peru (GOP) at the time of Project approval. In 2006, the GOP launched the ‘Sierra Exportadora’, a program setting ambitious goals for agricultural production and exports, job creation, income generation, and poverty alleviation throughout the Sierra. Irrigation schemes, viewed as potential economic growth poles because of their importance for the production of higher-value crops for exports and urban markets, were key in this development policy. Sector Context 3. The Sierra accounted for 400,000 ha of irrigated land, about 30 percent of its cultivated area (1.2 million ha) and a third of the total irrigated area in the country. In the Sierra, at the time of Project approval, there were 34 Water Users’ Organizations 1 (WUOs), whose jurisdiction ranged from 1,700 ha to 47,000 ha of irrigated area, with an average size of about 10,000 ha. Irrigation systems, usually small, were supplied mostly from surface water sources and consisted of a network of open canals, generally unlined, with rudimentary water intakes and distribution systems. Irrigation systems generally did not include water regulation structures (that is, small reservoirs, dams) that are commonly owned and managed by the National Water Authority (Autoridad Nacional del Agua, ANA). Less than 5 percent of irrigated area was equipped with improved on-farm irrigation systems inducing low efficiencies at the farm level. 4. Management of irrigation infrastructure was weak. Following the economic crisis of the late 1980s, the Government transferred the full responsibility of operating and maintaining the irrigation schemes to the water users, progressively organized into new management entities and grouped into WUOs. The WUOs in the Sierra had received very limited capacity building and infrastructure investments, as the Government and donors had traditionally focused their support on the coastal area of Peru. In general, the WUOs in the Sierra were financially and technically 1 In this report, the term WUOs refers to the Irrigation Water Users' Boards (Juntas de Usuarios), whereas the term sub-WUO refers to smaller irrigation water organizations under the jurisdiction of the WUO. They take two forms: Irrigation Commissions and Irrigation Committees. See annex 8 for a schematic representation of the WUOs and sub- WUOs and their functions. 1 weak, with low water tariffs and collection rates—insufficient for adequate operation and maintenance (O&M) and a limited number of professional water managers, water guards, and other paid staff. As a result of limited capacity, there was very little, if any, planning or daily management of the water distribution and irrigation services. Poor maintenance contributed to the gradual degradation of the infrastructure and the poor performance of the water delivery service limiting water quantity, frequency, and reliability at the field level. Finally, it is believed that the absence of formalized agricultural water use rights in the Sierra, in a context of increasing water scarcity and conflicts over water use, discouraged private investments (by individual farmers or corporations) in irrigation infrastructure and other agricultural capital investments, contributing to the low productivity of the Sierra agriculture. 5. For all these reasons, the problems of low quantity, uniformity, frequency, and reliability of irrigation service delivery to the crops often persisted even in irrigated areas, although to a much lower extent than in rain-fed conditions. In many areas of the Sierra, irrigation infrastructure and management needed to be improved to increase the value of agricultural production and allow the production of higher-value crops for internal markets and exports. The Project aimed at improving the irrigation performance in selected irrigation schemes of the Sierra, while taking into account local practices about land and water and the aspirations of the people. Rationale for World Bank Assistance 6. Over the previous 10 years, the World Bank had successfully engaged in Peru’s irrigation sector. Through the World Bank-supported Irrigation Subsector Projects I and II in the coastal areas (Proyecto Subsectorial de Irrigación, PSI, Report Nos. 13542-PE and 32353-PE), the World Bank had developed and implemented a successful approach to improve irrigation performance in coastal areas, including a successful Irrigation Water Rights Formalization Program (Programa de Formalización de Derechos de Uso de Agua, PROFODUA). Furthermore, between 2011 and 2013, the World Bank carried out a study entitled “El Futuro del Riego en el Perú” (The Future of Irrigation in Peru), which performed a detailed analysis of the irrigation sector in Peru, identifying the main challenges and opportunities for improvement and a set of recommendations to support the GOP in updating its Irrigation National Policy. With its global irrigation experience and a high level of involvement in the sector dialogue in Peru, the World Bank could play a unique role, through the Project, in supporting irrigation improvement in the Sierra. 1.2 Original Project/Program Development Objectives and Key Indicators 7. The Project Development Objective (PDO) was to contribute to increasing agricultural production and productivity in targeted areas of the Sierra. 8. The achievement of the PDO was monitored through the following performance indicators: (a) percentage of producers’ groups supported by the Project that have satisfactorily implemented their business plans, and (b) number of WUOs that satisfactorily implement the O&M plans of the irrigation systems modernized or rehabilitated by the Project. The business plans included aspects of agricultural production and productivity imbedded in the PDO (Box 1 provides further details). 1.3 Revised PDO The PDO was not revised. 2 Box 1: Content of O&M Plans and Business Plans O&M Plans (Component A and Sub-component C1) Under PSI II, sub-WUOs (Comisiones and Comites) developed technical plans to operate the scheme, a registry of all the users in each scheme, a characterization of all infrastructure, and an irrigation service delivery plan. Under the PSI Sierra, all these activities were combined in the development of a consolidated O&M plan for the irrigation schemes at the sub-WUO level. The consultant team supporting this effort at each WUO was composed of a designer, an expert in works, and an administration expert. Business Plans (Component B and Sub-component C2) Under PSI II, agricultural producers with a potential and an interest in improved on-farm irrigation technologies had to form small farmers’ groups. The PSI Sierra followed an improved approach, including the elaboration of business plans with a production and marketing strategy for each Management Group for Improved Irrigation (Grupos de Gestion Empresarial de Riego Tecnificado, GGERT). The consultant team supporting this at each WUO was composed of an irrigation expert, an agronomist, and an agribusiness expert. 1.4 Main Beneficiaries 9. The Project’s target beneficiaries were farmers practicing irrigation, with good access to markets and capacity for the production of higher-value crops. Most of them would not be extremely poor and the Project targeted the most innovative farmers, particularly under Component B. The Project strategy was based on a partnership between stakeholders including WUOs, farmers’ groups, traders and agro-processing firms, partner organizations such as non- governmental organizations, the Ministry of Agriculture and Irrigation (Ministerio de Agricultura, MINAGRI), and local and regional governments. Sub-project participation was expected to be at three levels: (a) at the regional and local levels for sub-project financing; (b) at the WUOs and farmers’ group level, for sub-project financing design, construction, supervision, and O&M of the irrigation systems; and (c) at the farmers’ group level for the production, processing, and marketing of agricultural production. 1.4 Original Components 10. The Project included five components. 11. Component A: Modernization and Rehabilitation of Collective Irrigation (US$16.42 million). This component aimed at financing pre-investment studies and design, execution, and supervision of sub-projects to support eligible WUOs to improve their water supply service to farmers, through the modernization or rehabilitation of collective irrigation systems, including, among others: (a) water intakes improvement, (b) canal improvement, and (c) construction and/or rehabilitation of small water regulation reservoirs. 12. Component B: Irrigation Technology Improvement (US$11.64 million). This component aimed at financing pre-investment studies and design, execution, and supervision of sub-projects to support eligible farmers groups and to increase irrigation performance at the farm level through the installation of improved on-farm irrigation systems. This included the carrying out of works and provision of equipment at the farm intake (for example, installation of pipes, 3 pumping units, filters, meters, pressure regulators, and individual hydrants and rehabilitation or construction of small regulation reservoirs). It also included the installation and supply of equipment on the irrigation plots (for example, installation of sprinklers and drip systems, land leveling, and gated pipes). 13. Component C: Capacity Building and Support to Production and Marketing (US$10.38 million). This component included two sub-components.  Sub-component C1: Capacity Building of Water Users’ Organizations (US$4.92 million). This sub-component aimed at strengthening the capacity of WUOs through, among others: (a) the carrying out of a comprehensive capacity-building program for prioritized WUOs, including the carrying out of a participatory diagnosis of WUOs; and (b) the participatory identification of sub-projects for Component A within the territorial jurisdiction of the selected WUOs.  Sub-component C2: Capacity Building of Agricultural Producers and Business Groups (US$5.46 million). The sub-component aimed at strengthening the capacity of agricultural producers and business groups through: (a) the promotion of Component B by raising awareness of farmers on the benefits of sub-projects under said component of the project, (b) supporting the establishment of farmers’ groups, and (c) providing technical assistance to farmers’ groups and their agricultural productive chains to formulate and implement viable business plans. 14. Component D: Formalization of Water Rights and National Water Rights Administrative Registry (US$3.43 million). This component aimed at providing technical assistance and equipment to: (a) formalize and issue water licenses, (b) expand the Water Use Rights Registry (Registro Administrativo de Uso de Agua, RADA) to cover the selected WUOs, and (c) install water measuring devices. 15. Component E: Project Implementation Support (US$6.41 million). This component aimed at supporting the provision of technical assistance, training, and acquisition and utilization of equipment to PSI for: (a) the administration, monitoring, (including the baseline study), evaluation, and auditing of the project, and (b) the carrying out of awareness raising campaigns for all Sierra WUOs on the implication of the new water law and on improved water management practices. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project preparation, Design, and Quality at Entry 16. Soundness of background analysis. There was a clear rationale for the World Bank´s intervention under this Project and the background analysis was sound. The Project design was based on a comprehensive analysis of lessons learned during more than 10 years of the World Bank’s engagement in Peru’s irrigation sector. In those years, two operations, PSI I and PSI II, had been developed and implemented. 17. Additionally, PSI II had implemented three pilots in the Sierra that supported Project preparation with valuable information regarding specific challenges of the sector in that particular 4 region. Furthermore, two gender pilot cases were undertaken in Cajamarca and Arequipa as part of Project preparation aiming at better positioning women to participate in water management and to improve their involvement in the different stages of the agricultural supply chain. Lessons learned in the two gender pilot cases improved the PSI approach in building technical, management, and financial capacities of WUOs in the Sierra. 18. Assessment of the Project design. The PDO was clear and linked to sector needs focusing on higher-level objectives (increasing agricultural production and productivity in targeted areas of the Sierra). From the Ministry of Economy and Finance’s perspective, it was important that large projects focus on high-level objectives to increase production and productivity, not only on improving the irrigation schemes. At the same time, the PSI II recommendations mentioned that future projects should focus on institutional strengthening and irrigation management improvement aspects. Therefore, a compromise was obtained by keeping the high-level objectives of the PDO and then making the link with the business plans, and keeping the indicators on irrigation management (PDO Indicator 2: number of WUOs that satisfactorily implement the O&M plans of the irrigation systems modernized or rehabilitated by the project). The main thrust of the Project was capacity building of the WUOs as the incentive for infrastructure improvement was limited in scope. 19. The Project design followed the structure and approach that had resulted successful in previous PSI operations, combining collective and on-farm irrigation infrastructure improvements, capacity building of WUOs and farmers’ groups in irrigation and crop management, support to agriculture productivity/value chains, and formalization and registration of water rights. It is important to highlight that collective irrigation infrastructure improvements (under Component A) and on-farm irrigation infrastructure improvements were not conceived to be integrated into the same territory but into any territory of the 12 preselected WUOs based on a first-come, first-served demand-based approach. The Project also incorporated a demand-driven, participatory, and gender-sensitive approach in which WUOs/farmers’ groups would participate in irrigation sub- project selection, design, execution, and financing. The strong capacity-building approach of the Project was especially relevant, taking into account the weaknesses of WUOs and sub-WUOs in the Sierra. 20. The Project had a lengthy project preparation (almost 3 years), mainly due to the complexities of the national system for public investment rules and the need to develop a shared vision between national parties (MINAGRI and Ministry of Economy and Finance). It is important to highlight that this Project was the first intervention of the National Government in promoting irrigation services in the Sierra. Lessons learned in previous operations in the Costa region were taken into account, including some adaptations to the Sierra conditions: • A cost sharing revision. The required financial contribution of beneficiaries was lowered to reflect the different socioeconomic environment of the Sierra. For Component A, this was 15 percent (3 percent cash and 12 percent in-kind) and for Component B, it was 20 percent (10 percent cash and 10 percent in-kind). • Sub-project feasibility studies. The responsibility of the sub-project feasibility studies was shifted from sub-project beneficiaries to PSI, to improve quality control. 5 • The eligibility criteria for Component B. The Project reduced the minimum size of a farmers’ group to be eligible to two individuals, to avoid difficulties in finding farmers interested and capable of providing the required co-financing. These farmers’ groups had to have a collective production and marketing strategy, defined in a business plan elaborated with the help of agrobusiness consultants. This plan is a requirement of the national system for public investment in irrigation projects. • Competitive grant approach. The elimination of the competitive grant approach for the selection of on-farm irrigation sub-projects, which was slow and cumbersome. Instead, sub-projects that meet a clear and widely disseminated set of criteria were selected on a first-come, first-served basis. 21. Implementation arrangements. The Project relied on an experienced executive agency that had previously implemented PSI I and PSI II. PSI Department, under MINAGRI, would be responsible for overall Project implementation and coordination, as well as the direct implementation of Components A, B, C, and E and Subcomponent D3. Only the implementation of Subcomponents D1 and D2 (formalization and registration of water rights) was delegated to ANA, under the same ministry. The Project also foresaw an active participation of WUOs, farmers’ groups, local and regional governments, and local water administration (Administración Local del Agua, ALA) offices, decentralized structures of ANA, in accordance with the legal competencies, capacities, and interests of those groups and institutions. The Project was implemented through five PSI decentralized offices and 12 local units (in every WUO) to support trainings and technical assistance to sub-WUOs and the Management Groups for Improved Irrrigation (Grupos de Gestion Empresarial de Riego Tecnificado, GGERT). 22. Project Steering Committee was foreseen, to provide high-level guidance, oversight, and project control, which would help identify major problems during project implementation and facilitate early implementation of consented decisions and best actions to be taken. This was especially important taking into account the several organizations and groups participating in the Project. 23. The Project also envisaged partnerships with organizations such as the Agricultural Extension and Research Project (Proyecto de Investigación y Extensión Agrícola para la Innovación y Competitividad para el Agro Peruano), National Research for Agricultural Innovation (Instituto Nacional de Innovación Agraria), and Sierra Exportadora to support improvements of the supply chain of strategic crops and provide applied research results and extension services to farmers benefiting from on-farm irrigation improvements. Those partnerships were especially important to ensure that increases in productivity due to irrigation improvements would be accompanied by integration into agricultural supply chains and connection to national and international markets. 24. Adequacy of Government commitment. The Government’s commitment was high at the time of Project preparation. The Government was devoted to support irrigation technology improvement in the Sierra and the adoption of a demand-driven approach to infrastructure improvement (Components A and B), as well as to extend the formalization of water rights (Component D) in the Sierra region. 6 25. Risk assessment and mitigation. At the time of appraisal, the overall risk rating was Moderate. The most important risks were identified and mitigation measures were adequately foreseen, including risks that materialized during implementation, the risk of underestimating irrigation equipment costs, and the risk of delays due to regional governments’ difficulties in financing their share of the Project cost. 2.2 Implementation 26. The Project emphasized capacity development of local organizations (WUOs, sub- WUOs, and GGERT) as determinant factors for sustainability. This is one of the most important aspects of the PSI Sierra, and with that purpose, important resources were invested in implementing a structure of personnel in the field to provide trainings and technical support to WUOs, sub-WUOs, and farmers’ groups. 27. During Project implementation, efforts were made to implement lessons learned in the two gender pilot cases, to engage women irrigation users in Project activities as much as possible. An important aspect in this regard was that national sectoral legislation promoted greater participation of women in WUOs (Law of Water Users’ Organizations 30157), by establishing that the WUOs´ Boards should have at least three women members. The Project paid special attention to the needs of Sierra women farmers, ensuring that they benefited from capacity-building activities and encouraged their representation in organizations. At the leadership level, women were encouraged to actively participate in Monitoring Assemblies and Management Workshops. The monitoring and evaluation (M&E) system disaggregated by gender main Project indicators and called for a significant level of women participation in Project activities. 28. There were initial delays in the implementation of the infrastructure sub-projects under Components A and B. Initial progress in the execution of activities was slow, particularly for Component B. As an example, in 2014 (three years after Project initiation), only four irrigation sub-projects had been implemented under Component B. The delay was related, especially, to lengthy procedures for the approval and implementation of the sub-projects (Components A and B), as each sub-project was required to follow the National System of Public Investment (Sistema Nacional de Inversión Pública, SNIP) procedures, including the preparation of additional pre- feasibility studies. The WUOs took some time to meet the requirements established in Sub- component C1 to get access to the funding of Component A. Additionally, new legal requirements for the approval of the sub-projects arose during project implementation, such as the need to obtain a “Certificate of Area Free from Archeological Remains” (Certificado de Inexistencia de Restos Arqueológicos, CIRA) and a “Certificate of Environmental Management”. Sub-projects were initially conceived as “design and construction” sub-projects, which required separated contracts for the design, supervision, and implementation of the works, resulting in very long processes. 29. Project also encountered difficulties in mobilizing counterpart funds. Other challenges during implementation relate to farmers’ difficulties in mobilizing their financial contribution to sub-projects. In that regard, the Project was at a disadvantage with other public sector programs and projects, which offered incentives and financing without counterpart requirements from the beneficiaries. In 2013, changes in the regulation under Law 28585 greatly reduced the required counterpart of the beneficiaries of modernized irrigation sub-projects (from 20 percent to 0 percent for the common infrastructure and 20 percent only for the on-farm), increasing the National 7 Government counterpart in Component B. Additionally, regional governments failed to provide their counterparts to the Project, which finally were covered by the National Government. 30. The Project was successful in taking effective decisions to solve challenging situations to achieve results. The mid-term review was helpful in identifying recommendations and after 2013, several key decisions were made that helped progressively overcome challenging situations. Two examples are as follows: • The modality of Project implementation under Component B changed from a “design and construction” modality to a turnkey contract modality, in which the design and execution of sub-projects were grouped under the same contract. This change immensely accelerated the implementation speed/rate of those sub-projects. • Some coordination problems between ANA and PSI also had brought delays in the implementation of Component D. To solve this problem, it was agreed that PSI would transfer funds to ANA, which would directly administrate them to implement the activities under its responsibility. 31. From 2014 onward, the implementation of the Project activities occurred at a fast pace. However, to achieve the PDO and ensure sustainability of sub-projects implemented in 2015, an extension of one year was requested. The Project was completed in December 2016, having surpassed key indicators (such as benefitting 1,969 ha instead of 1,000 ha and reaching 1,684 farmers instead of 1,500 farmers). 32. It is important to highlight that a key factor for the Project success was the good relations between the World Bank’s task team and the team at PSI. This is mentioned as a key element of the success in the Client Evaluation Report (see the summary in Annex 3). In addition, the Project demonstrated a good example of cross Global Practice (GP) collaboration, as the Task Team Leader (TTL) was from the Water GP and the co-TTL from the Agriculture GP. 2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization 33. M&E design. The M&E framework was clear and relatively well designed but suffered from some of the shortcomings also identified in the previous PSI operations. PDO outcomes (for example, increases in production/productivity) were difficult to monitor from a methodological perspective. Therefore, a link was made so that the business plans would refer to the increase in production and productivity. Intermediate indicators were clear and measured outputs of key activities of the different components (number of WUOs benefitted, area with improved on-farm irrigation, and so on). They were specific and attributable and established realistic targets. M&E arrangements were included in the Project Operational Manual, including data flow between the different departments of PSI. Project design also envisaged a web-based, customized computer application for M&E facilitation. 34. M&E implementation. M&E implementation suffered initial delays. The Aide Memoire of the May 2012 supervision mission noted the preoccupation about the lack of the Project’s M&E system. A consultant was then hired to design the M&E system, and, in August 2013, the baseline was established. 8 35. Regarding the outcome indicators of the Project and following the recommendations of a supervision mission in 2014, a consultant was contracted to design an impact evaluation of Project outcomes. The methodology included the participation of the Project staff located at every WUO. The baseline of the impact evaluation was established in May 2015, and was followed by four field monitoring campaigns (October 2015, February 2016, June 2016 and October 2016). 36. Considering the relatively short duration (2.5 years), it cannot be considered a full impact evaluation but eight indicators were measured at output and outcome levels. Indicators measured included: irrigation frequency, increase in crop intensity, variations in the agricultural yield, production value, profitability, and so on in a sample of beneficiary areas (Components A and B) and in control areas (that is, which were not benefited by the Project). The evaluation provided useful data on increases in production, productivity, and profitability in the areas benefited by the project. 37. Additionally, the Project developed a set of monitoring files for each sub-project under Component B. In those monitoring files, data on yield, profitability, and water consumption were  recorded, before and after the Project. 38. M&E utilization. The M&E framework was used during Project implementation. It was updated periodically and shared with the World Bank team during supervision missions, twice a year, supporting a consistent reporting. The M&E database was shared during the Implementation Completion and Results Report (ICR) mission, and the over-performing of most of the results was observed in the reports as well as in the field visits. 2.4 Safeguard and Fiduciary Compliance 39. Environmental safeguards. The Project was designated as Environmental Category B due to the potential small works to be financed under Components A and B, which were not expected to have significant environmental impacts. An Environmental Assessment document was prepared to ensure that the due environmental assessment and mitigation procedures and methodologies would apply to all works considered under sub-projects. Sub-projects under Components A and B complied with preparing the corresponding environmental management instrument (Instrumento de Gestión Ambiental), which in turn were reviewed by the General Direction for Agricultural Environmental Aspects (Dirección General de Asuntos Ambientales Agrarios) of MINAGRI before issuing the environmental license. Environmental safeguard policies triggered were Environmental Assessment (OP/BP 4.01), Natural Habitats (OP/BP 4.04), Pest Management (OP/BP 4.09), Physical Cultural Resources (OP/BP 4.11), and Safety of Dams (OP/BP 4.37). 40. Environmental Assessment (OP/BP 4.01). Most activities under Components C and D were considered as technical assistance with no direct adverse impacts on the environment. Personal protection equipment was regularly used by workers during construction and rehabilitation of small irrigation infrastructure and installation of equipment. Training events on pest management were conducted emphasizing integrated pest management and organic agricultural practices. Although most reservoirs were protected with a fence or signal indicating that access was banned, some of them were not fenced so there was a latent risk of people accidentally falling in and drowning. In similar future sub-projects, budget needs to include an item to put a fence around reservoirs since safety issues are part of the World Bank environmental 9 safeguards policies. There was a delay in the contracting the environmental specialist in PSI, and this person did not accompany Project implementation until the end. 41. Natural Habitats (OP/BP 4.04). Most Project activities were undertaken in productive agricultural landscapes. No natural habitats were identified during Project implementation as adversely affected by Project activities. 42. Pest Management (OP/BP 4.09). Project activities under Components A and B served small farmers’ agricultural activities for organic markets with no or very little use of pesticides. PSI emphasized the importance of integrated pest management practices and a Pest Management Plan was prepared and included in the Operations Manual. 43. Physical Cultural Resources (OP/BP 4.11). All sub-projects under Component A obtained the Nonexistence of Archeological Remains Certificate (CIRA) issued by the Ministry of Culture. No adverse impact on physical cultural resources was reported during Project implementation. 44. Safety of Dams (OP/BP 4.37). Some of the sub-projects (under Components A and B) relied on the services provided by three dams: Cuchoquesera in Ayacucho, Condoroma in Arequipa, and Lagunillas in Juliaca. The Project ensured that each dam had a safety operation manual and that it was being followed by the dam operator. The necessary coordination arrangements were done with ANA and the operators. 45. Indigenous People (OP/BP 4.10). An Indigenous People Plan was prepared. The Project was successfully implemented following the strategic lines established: empowerment, transparency in implementation and evaluation, and optimal use of limited resources available. Beneficiaries of the Indigenous Rural Communities (Comunidades Campesinas Indigenas, IRC) participated in 33 sub-projects under Component A, accounting for a total of 5,472 beneficiaries cultivating 5,378 ha of land. The works were implemented in 25 RICs in the WUOs of the departments of Huancavelica, Ayacucho, Cusco, Juliaca, and Colca. The WUOs coordinated with the RICs and carried out the communal tasks to comply with the requirement of recruiting locally to ensure positive impacts on beneficiary communities. 46. A total of 704 IRC’s individuals benefited from the Project, accounting for 42 percent of overall number of beneficiaries in the 136 GGERT. Irrigation systems were installed in 921 ha of land in RIC, which represent 47 percent of the 1,969 ha covered by the Project. 47. The WUOs’ empowerment process was also deemed successful, having trained a total of 4,011 users (45 percent of the total PSI users) of the WUOs in Colca, Cusco, Juliaca, Huancavelica, and Ayacucho. The training program covered all three WUOs and sub-WUOs, including community members, who are now serving as community leaders, technicians, and leading users. 48. The Pproject has also promoted the participation of youth in the WUOs. Since 2012, the Project has trained 3,264 young people under the age of 29, who represent 34 percent of the total 9,467 beneficiaries. Of these, 1,493 young indigenous people (almost 50 percent of the young population) received training. 10 49. Procurement. Management of procurement processes by PSI was overall Satisfactory. Five ex-post procurement reviews were performed in March 2012, January 2013, June 2014, June 2015, and May 2016. The ex-post reports and the Supervision Mission Aide Memoires included recommendations that were shared with PSI to improve the management of procurement processes, including: (a) management of the Procurement Plan (PP), with systematized information for follow-up action2; (b) training of procurement staff; (c) improvement of filing and archiving of the procurement documentation; and (d) dedicated procurement professional for the Project. These recommendations were included in the action plans of the ex-post reports. 50. During Project implementation, there were some issues, due to the misinterpretation of the World Bank’s Procurement Guidelines by the PSI. The main reason for that was the lack of procurement staff, with qualifications and experience in procurement in World Bank operations and exclusively dedicated to the Project. Therefore, in the case of a new operation, this aspect should be taken into account. Another issue observed during Project implementation was the limited used of SEPA by PSI, which impacted in the management and monitoring of the procurement activities. 51. Financial management. Financial management performance was rated Moderately Satisfactory throughout Project implementation. Agreed financial management arrangements were in place for an adequate implementation of funds. The financial management risk of the Project was considered Substantial due to the complex design that required the transfer of funds to ANA to execute part of Component D, and the delay in the submission of justification of expenditures expected to be submitted to the World Bank before the end of the grace period. At some point, PSI had high staff turnover, which affected the timely submission of the interim financial reports, but this situation improved over time. Most of the time, the Project accomplished a good level of budget execution. The auditors issued unqualified opinion (clean) on the financial audit reports for most of the periods audited during Project implementation. Only for 2013, the auditors issued a “qualified opinion” on the financial statements of the Project. However, the PSI took necessary actions to overcome the problems and implemented recommendations made by the auditors. It is expected that the last financial audit (2016–2017) will be submitted by the PSI before October 31, 2017. 2.5 Post-Completion Operation/Next Phase 52. The Project was implemented by an executive agency (PSI), which was part of MINAGRI, with experience and legal competencies on the sector. The fact of not having a specific PIU (that could be dismantled after Poject closure) ensured the appropriation of the activities by this agency. 53. The Project had a strong component on capacity building of WUOs, sub-WUOs, and GGERT. The trainings and technical support of the Project (as mentioned in the satisfaction surveys) increased self-sufficiency of WUOs in technical, financial, and administrative capacities, toward sustainability of infrastructure improvements. However, given the limited financial 2 The Project’s PP was approved and administered through the Procurement Plan Execution System (Sistema de Ejecución del Plan de Adquisiciones, SEPA). 11 envelope the Project, it only worked with a small fraction of the potential WUOs in the Sierra. Consequently, many WUOs still need further strengthening and need further support to continue improving their performance. 54. In the last supervision mission, it was recommended for PSI to continue during 2017 the activities of Sub-component C1 and C2, which would entail a dedicated budget of approximately US$600,000 per year. Although PSI was not able to maintain that level of financial commitment after Project closure, it was able to maintain a minimum structure of technical personnel that will ensure a minimum technical support to WUOs, sub-WUOs, and GGERTs. 55. MINAGRI has declared its intention to develop a follow-up operation to scale up the results of the PSI Sierra. In this regard, a project proposal was developed and an official letter was sent by MINAGRI to the Ministry of Finance, requesting support from the World Bank to finance a follow-up project. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design, and Implementation 56. Relevance of objectives: High. The Project objective´s relevance to the situation of the country remains high. It still responds to a current national development priority at the time of the ICR, aligned with the current National Agricultural Policy, and the World Bank Group priorities and development objectives. It is consistent with the Peru’s Country Partnership Framework for the period FY17-FY21, more specifically with its Objective 3: Facilitate absorption of skills and technology especially by small and medium-sized business, Objective 4: Enhance the environment for sustainable private sector investment, and Objective 8: Strengthen the management of natural resources. 57. Relevance of design and implementation: Substantial. The design of the Project has proven to be substantially relevant from the following perspectives. First, it included four inter- related components (including collective and on-farm infrastructure improvement, capacity building of WUOs and farmers, support to farmers on cropping and marketing, and formalization of water rights) designed to address key issues of the sector. Second, the design incorporated lessons learned from the previous operations, including an effective participatory approach to irrigation services improvement. And third, implementation arrangements relied on an existing implementing agency of the Government, which allowed to capitalized on the experience of PSI I and PSI II. 3.2 Achievement of Project Development Objective 58. Overall efficacy rating: Substantial. The Project was successful in achieving its PDO. It effectively contributed to increasing agricultural production and productivity in selected areas of the Sierra. 59. The impact evaluation conducted by the Project provided useful data on increases in production, productivity, and profitability in the areas benefited by the project, as shown in the following paragraphs. 12 60. As a result of the Modernization and Rehabilitation of Collective Irrigation Systems (Component A and Subcomponent C1), 75 sub-WUOs (in 12 WUOs) improved their irrigation service delivery to 18,758 farmers who irrigated an area of 14,770 ha. As shown in Table 1, under Component A, in the monitored parcels, significant increases of agricultural yield in all monitored crops (rye grass, avocado, alfalfa, maize, potato, oats, and quinoa) were registered, with respect to the baseline. It also shows important increases of agricultural land intensification (percentage of land that cultivated more than one agriculture campaign per year), which increased in all WUOs (and in two of them, it reached an intensification of 79 percent). Table 1. Results in Intensification of Agricultural Land and Agricultural Yield per WUO Intensification of Land Agricultural Yield: Use (% of Area with More WUO Baseline/5th Monitoring Than One Agricultural Campaign (kg/ha) Campaign per Year) Chonta 13 Ray grass 61,900/75,000 Cajambamba 17 Avocado 10,000/12,000 Mashcon 17 Ray grass 18,500/24,000 Mantaro 18 Not available Tarma 18 Vetch 4,000/6,900 C. de Huaylas 24 Alfalfa 11,238/12,500 Colca 0 Not available Cusco 0 White maize 1,630/1,800 Huancavelica 79 Maize 2,200/3,600 Huancabamba ND Yellow potato 3,000/5,700 Juliaca 73 Oats forage 3,200/5,700 Ayacucho 79 Quinoa 1,800/2,500 Source: Results report of the 5th monitoring campaign. PSI 2017. 61. Under Component B, 1,684 farmers benefited from on-farm irrigation systems in 1,969 ha. As a result, an important percentage of farmers, in almost all WUOs, changed their crops to hig- value crops (see Table 2). On-farm irrigation improvements also brought increases in crop intensification in all monitored parcels. Finally, Table 3 shows important increases in productivity and profitability in the parcels monitored by WUOs. Table 2. Change in Cropping Pattern to Higher Market Value Crops WUO Change to Higher Market Value Crops (%) Chonta 87 Cajambamba 25 Mashcon 75 Mantaro 100 Tarma 100 Colca 100 Cusco 100 Huancavelica 76 Juliaca 71 Source: Results report of the 5th monitoring campaign. PSI 2017. 13 Table 3. Changes in Production and Profitability of the Monitored Parcels Production (tons/ha) Profitability (S/. per ha) WUO Crops Without With Increase Without With Increase Project Project (%) Project Project (%) Chonta Ray grass 57.05 116.7 105 2,875 5,834 103 Cajambamba Potatoes 12.0 22.0 83 9,000 16,500 83 Mashcon Ray grass 47.5 95.2 100 2,388 4,760 99 Mantaro Maize 5.2 14.4 177 3,120 8,400 169 Tarma Ray grass 52.5 96.6 84 8,400 15,300 82 Colca Oregano 1.5 2.0 33 7,500 10,000 33 Cusco Lettuce 7.5 15.5 107 7,500 23,344 211 Huancavelica Maize 6.0 7.4 23 6,500 7,450 15 Juliaca Quinoa 0.4 0.5 25 1,425 1,976 39 Source: Results report of the 5th monitoring campaign. PSI 2017. 62. The results of the monitoring files in 24 GGERT showed, in all cases, significant increases in yield, profitability, and irrigation efficiency (see Table 4). The growing area by WUOs also increased, and those increases ranged from 17 percent in Cajabamba to 44 percent in Cusco. Table 4. Increases in Crop Yield and Profitability by Crop Type in 24 GGERT Yield Profitability No of (Tons/ha) (S/. per ha) Crop GGERT Without With Increase Without With Increase Project Project (%) Project Project (%) Pasture 9 41.40 72.52 75 1,474 4,426 200 Maize 3 7.60 9.73 28 4,733 6,101 29 Quinoa 2 0.48 0.86 79 1,007 2,792 177 Alverja 2 3.91 5.50 41 3,710 6,748 82 Maize grain 2 5.50 9.00 64 4,212 7,758 84 Lettuce 1 8.00 12.45 56 8,500 13,890 63 Pallate 1 6.00 9.00 50 3,336 6,270 88 Peach 1 6.00 9.00 50 2,418 5,206 115 Pumpkin 1 28.00 48.00 71 4,110 10,077 145 Beans 1 2.07 3.68 78 856 1,708 100 Potato 1 16.00 22.00 38 3,197 8,318 160 Source: Monitoring files of business plans in GGERT without and with project. Other Project Outcomes 63. Sub-component C1 provided capacity building to WUOs in each of the 12 selected WUOs, supporting sub-WUOs to achieve eligibility for Component A investments and to formulate O&M plans to improve their water services delivery. Because of Sub-component C1 activities, 75 WUOs were trained, formulated their O&M plans, and implemented related management tools (User Registry, Irrigation Inventory, Irrigation Roles, Water Measurement and Maintenance Plan). A total of 59 WUOs (79 percent of those benefited WUOs) were satisfactorily implementing their O&M plans at the end of the Project. 64. A significant benefit resulting from Sub-component C1 activities was the increase in the water tariffs collection. The percentage of farmers who paid water tariff to their WUOs increased 14 from 50 percent to 80 percent between 2011 and 2016. The total amount collected went from S/. 1.52 million to S/. 2.22 million during the same period (Figure 1), improving the financial capacity of the WUOs and sub-WUOs. Figure 1. Evolution of Water Tariffs Collection Between 2011 and 2016 2,400,000 2,221,117 2,156,841 2,200,000 2,000,000 1,713,530 1,748,105 1,691,259 1,800,000 1,520,694 1,600,000 1,400,000 1,200,000 1,000,000 2011 2012 2013 2014 2015 2016 Source: PSI, Completion Report of the PSI Sierra. 65. Furthermore, in almost all of these WUOs, irrigation frequency, defined as the interval between irrigations, also improved as a consequence of the collective irrigation systems improvements. Figure 2 shows that in most sub-WUOs targeted by the Project, irrigation frequency. In some cases, the interval between irrigations was reduced by more than 30 days. Figure 2. Improvement of Irrigation Frequency at Each of the Targeted Sub-WUOs 100 Days 90 80 70 60 50 40 30 20 10 0 WUOSs Frecuencia (días) Base Frecuencia (días) Final Source: Results report of the 5th monitoring campaign. PSI 2017. 15 66. Sub-component C2 was complementary to Component B. It strengthened the capacity of agricultural producers and business groups by: (a) raising awareness to farmers on the benefits of Component B sub-projects, (b) supporting the establishment of farmers’ groups, and (c) providing technical assistance to farmers’ groups and their agricultural productive chains to formulate and implement viable business plans. Through this component, 1,506 farmers were trained; 110 business plans were satisfactorily implemented; and 80 percent of producers groups that had benefited from on-farm irrigation improvements satisfactorily implemented their business plans. 67. As a result of the activities under Component B and Sub-component C2, irrigation efficiency improved in all the areas that benefitted with improved irrigation systems, as shown in Table 5. Table 5. Changes in Irrigation Efficiency before and after the Project Irrigation Efficiency (%) Total Area with Improved WUO Without Project With Project Irrigation Systems (ha) Callejon de Huaylas 20 79 25.4 Cajabamba 21 67 50.1 Huancabamba 19 69 64.3 Rio Chonta 21 70 177.6 Mashcon 25 66 239.4 Tarma 20 72 119.9 Mantaro 15 72 184.8 Huancavelica 20 75 175.5 Ayacucho 23 79 297.0 Valle del Colca 25 72 194.3 Juliaca 38 71 83.0 Cusco 19 71 151.1 Average 22 72 1,762.3 Source: Database of Component B. PSI 2016. 68. The efficacy for achievement of the PDO is rated Substantial. Even though the Project was highly successful in increasing production and productivity in target areas, the efficacy is rated Substantial due to the lack of targets in the original definition. 3.3. Efficiency 69. Overall efficiency rating: High. The main Project benefits at the PDO level come from increased agricultural productivity in the Project area as a result of improved irrigation service delivery on a sustainable basis and the implementation of business plan activities. The Project was completed with just one-year extension. The original budget for Component E on Project Implementation Support was US$6.23 million out of the total US$48.33 million corresponding to 12.9 percent of total Project cost, while the actual cost was higher, US$10.05 million out of US$48.14 million (20.9% of final Project Cost). 70. The PAD included an economic and financial analysis (EFA) that estimated an ex-ante net present value (NPV) and economic internal rate of return (EIRR) for the proposed investment based on estimations of expected benefits for the major crops being grown in the Project area. The estimated EIRR was 21 percent and the NPV was US$16 million (at a discount rate of 12 percent). Following the same methodology but using market prices, the financial analysis for the whole 16 Project led to a financial internal rate of return (FIRR) of 12 percent and a financial NPV of US$0.5 million. The significant difference between the results of the economic and financial analyses was due to: (a) the absence of taxes on agricultural produce; (b) the significant taxes on capital costs, incremental O&M expenditures, and crop production costs subject to a 19 percent value added taxes; and (c) the low economic value of unskilled labor and energy, estimated at only 41 percent and 66 percent of their financial values, respectively. 71. For the present ICR, the results indicators were re-estimated based on the increasing crop yield information gathered by the PSI M&E Unit during implementation and from the national Project closing report. The scenarios representing the “with project” and “without project” situations were estimated for comparing updated projections of expected benefits with the project investment costs valued at the time of the analysis. 72. Annex 5 presents an ex-post EFA of PSI, valuing the main achievements and impacts to estimate the results indicators. At Project closing, the overall investment shows an EIRR of 29.4 percent and an NPV of US$30.2 million (using a 12 percent discount rate). The FIRR and financial NPV are 25.3 percent and US$25.9 million, respectively. This ICR assessment confirms the economic and financial justification of investments aiming to improve the irrigation systems and technologies in the Sierra regions of Peru. The improved water availability and introduction of new technologies result in significant returns and the investments are clearly justified. The incremental benefits both from the point of view of farmers’ incomes and of the country’s economy as a whole are positive and robust against major risks. Results of systematic monitoring confirm a solid and almost guaranteed positive impact even under the most adverse scenarios. 73. Finally, it should be noted that all of the works were done with local small contractors and the studies with local consultants. The average cost of the on-farm irrigation improvements was US$5,500 per ha. This cost is in the low range compared to other countries, and the significant improvement in production and productivity makes the Project highly efficient. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory 74. Overall the Project is rated Satisfactory, based on the above mentioned ratings of relevance, efficacy, and efficiency. 3.5 Overarching Themes, Other Outcomes and Impacts (if any) (a) Poverty Impacts, Gender Aspects, and Social Development 75. The Project had positive impacts on the domestic economy and agricultural performance of the beneficiaries in the Sierra, as demonstrated in the monitored data on production and profitability. The beneficiaries of the Project also reported an important increase in their quality of life, since the modernization of the irrigation allowed them to reduce the long periods they spent on the field to irrigate with rudimentary techniques (such as night irrigation) and use this time in other productive activities, increasing, in this way, their revenues. 76. The Project paid special attention to the needs of female farmers in the Sierra, making sure that they benefited from the capacity-building activities and encouraging their representation 17 within WUOs and sub-WUOs. The M&E system disaggregated by gender the main indicators. The Project was successful in achieving good participation rates of women in Project activities: 34 percent of total beneficiaries of Component A and 44 percent of total beneficiaries of Component B were women. 77. The Project had a significant level of women participation. Gender-disaggregated data were collected throughout the implementation of the Project. The data show that a total of 2,117 women received training through the Project, accounting for 22.3 percent of the total population of beneficiaries. Of these, 914 were from indigenous communities. Under Component A, women beneficiaries accounted for 38 percent of the population, as against 62 percent of men. In Component B, 36 percent of the areas receiving support from the Project were the property of women. Finally, under Component C, the women benefiting from training and technical assistance accounted for 34 percent of the total. (b) Institutional Change/Strengthening 78. An important outcome of the Project was the strengthening of the WUOs and sub-WUOs in the Sierra. The Project offered training and technical assistance to those organizations, supporting them in implementing their technical tools to improve their irrigation service delivery. An important output of this delivery was the significant increase in collection of water tariff by these entities. 79. The Project focused mainly on capacity building of WUOs and sub-WUOs in the selected Sierra areas, but there are still challenges that need to be addressed to ensure their sustainability. Although the 2013 study of the irrigation sector recommended improvements in the policy and legal framework as well as irrigation agency performance, the Project design did not incorporate these recommendations. In retrospective, these aspects should have been covered by the Project. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 80. At closing, during the client evaluation, the Project conducted workshops and surveys with the beneficiaries to understand their level of satisfaction. In every WUO, the Project carried out workshops with the beneficiaries of Component A and Sub-component C1 and the results of those workshops showed that 97 percent had a high level of satisfaction with the Project activities. Most WUOs had developed the O&M Manuals, registry of users, and other tools and had improved considerably the level of water tariff collection. The trainings and technical support of the Project (as it was mentioned in the satisfaction surveys) increased self-sufficiency of WUOs in technical, financial, and administrative capacities, ensuring sustainability of infrastructure improvements. However, 80 percent of the participants expressed that WUOs and sub-WUOs still faced challenges and weaknesses in implementing their O&M plans. 81. Regarding Component B and Sub-component C2, 24 workshops were organized with the beneficiaries. These workshops had the participation of 144 farmers (2 GGRET from every WUO). Topics in those workshops covered results achieved by the Project, challenges and solutions during 18 implementation, level of participation of the beneficiaries, and sustainability of actions. Additionally, in those workshops, 115 individual surveys with the beneficiaries of Component B and Sub-component C1 were conducted, to collect individual opinions of the Project from the farmers. About 71 percent of the beneficiaries showed a high level of satisfaction with the support received by the Project. The main benefits mentioned by the beneficiaries were better availability of water, easier systems to manage irrigation, and increases in crop yields and profitability. The main shortcomings mentioned by the beneficiaries were related to weaknesses in the implementation of the business plans and the need of further trainings and continued support from PSI to improve the implementation of those plans in the future. 4. Assessment of Risk to Development Outcome 82. Risk to development outcome: Moderate. The overall risk to development outcome is rated Moderate. 83. As a consequence of the Project, WUOs have strengthened their technical, financial, and administrative capacities, increasing their ability to maintain collective irrigation systems. Nevertheless, the scale of the Project was small and improvements in collective irrigation systems were only done in small parts of the schemes (deferred maintenance), which still require further improvement investments. The O&M fee collected by WUOs has significantly increased with the Project activities, but it does not allow yet the full cost recovery of those investments. A thorough analysis should be done for assessing a water tariff and financing mechanisms that could eventually lead to full cost recovery. The average ANA authorized tariff in the Sierra is S/. 0.0064 per cubic meter (m3). On average, water consumption is around 8,000 m3/ha and an average collection rate in the 12 WUOs was 83 percent in 2016. This gives an average irrigation revenue of S/. 41 per ha or the equivalent US$13 per ha, which is very low. 84. The Project achieved its targets related to on-farm irrigation systems, under Component B. The preliminary results of the sub-projects showing yields and revenue increases are promising with regard to incentives for good O&M of the irrigation systems. However, the technical assistance to GGERT on the implementation of business plans (production and commercialization) was limited, and there is a need to continue strengthening capacities for irrigated agriculture and agribusiness. After Project closure, PSI has maintained on the field a decentralized structure that provides, to some extent, technical support to WUOs and farmer organizations. 85. Regarding water resources sustainability, during the ICR field visit, several farmers’ groups expressed their worries about water security. In the Sierra, progressive increases in water demand for agriculture are coupled with scenarios of increased water scarcity, due to the impacts of climate change. From a risk management perspective, it is important to consider activities to conserve water sources in the upper parts of the micro watersheds. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 19 86. The World Bank performance in identification, preparation assistance, and appraisal of the Project was Satisfactory. Project design was based on a thorough diagnosis of the subsector and country context and was in line with GOP priorities and the World Bank’s Country Assistance Strategy. The strategic relevance of the Project was strong, with an innovative integrated approach as a result of the experiences in the coast with PSI I and PSI II, as well as several pilots in the Sierra under PSI II that informed the design of the Project. Project preparation was carried out with adequate resources and the World Bank provided a specialist with the necessary technical skills from the Food and Agriculture Organization (FAO) of the United Nations. Poverty, gender, and social aspects were well incorporated. The risk assessment was adequate. 87. The World Bank’s performance in ensuring quality at entry was Satisfactory. The quality control process suggested the team to ensure solid preparation, which took approximately 3.5 years. 88. The weak alignment of the key performance indicators at the PDO level with the objectives of improving production and productivity has been identified as a key shortcoming in the design phase. (b) Quality of Supervision Rating: Satisfactory 89. There was only one TTL throughout the Project and a local co-TTL came on board in 2013. The supervision was focused on the development impacts and supported the Government and the implementing agency in addressing the implementation issues on time. An example of this was that at a certain moment (2014), a large number of PSI field staff who had been trained and were training the WUOs were fired. An emergency mission was fielded and corrective immediate measures were taken in close collaboration with the Ministry of Finance that was part of the Steering Committee. The field staff were reinstated and a strong relationship was developed with the Ministry of Finance. As stated by the client in the ICR mission, the World Bank supervision was timely in its responses to client requests and in reacting to threats to the Project outcome achievement. 90. Supervision missions were organized every 6 months with additional technical missions when required. The team prepared good quality Aide Memoires with clear recommendations for the borrower. The World Bank team also mobilized additional Trust Fund to develop the study of the sector in the country that was helpful in examining the irrigation sector in the country, analyzing main challenges and possible solutions at the operational and policy levels. Finally, the task team was supportive in ensuring adequate transition arrangements, with clear recommendations on the minimum structure of PSI for the sustainability of actions after the Loan closing. 91. However, a shortcoming during Project implementation related to the missed opportunity of restructuring the Project to better align the PDO with PDO indicators and establishing targets for the intermediate indicators that lacked targets at Project appraisal. I Justification of Rating for Overall Bank Performance Rating: Satisfactory 20 92. The overall World Bank performance is rated Satisfactory. 21 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 93. The Government showed strong commitment with the Project during the design and implementation of the intervention. The Government responded quickly in providing additional funding needed for covering the lack of counterpart funds from beneficiaries and regional governments by adding US$1.88 million in the last year (the original government contribution at appraisal was US$24.00 million whereas final contribution was US$25.88 million). The changes in the regulation under Law 28585 in 2013 lowering the farmers’ counterpart in the on-farm support (Component B) helped speed up implementation. Beneficiary and stakeholder consultations were held during and at the end of the Project. The Steering Committee was mobilized and solved important issues such as the removal of staff at a certain point. Finally, PSI will continue with the regular operation of the sector activities, though it is suffering some budget limitations. However, there were also some shortcomings on the Government performance such as the lack of harmonization in the requirements of financial counterparts of the beneficiaries of irrigation improvement investments among the different national and regional initiatives/projects of the sector. (b) Implementing Agency Rating: Satisfactory 94. The performance of PSI as the Project’s main implementing and coordinating agency and of ANA in charge of Component D was satisfactory. Both PSI and ANA were committed and focused on results. They implemented adequate beneficiary consultations and involvement of stakeholders through a demand-driven and participatory approach. The structure of the Project included the strengthening of the decentralized offices of PSI, with a very important role in implementation and in identifying and implementing correcting measures to address problems in the field. The environmental and social safeguards triggered were properly managed. Finally, a number of videos and reports have been prepared for the systematization and dissemination of the information generated by the Project. Overall, PSI was effective in taking corrective actions to achieve Project results, despite the initial delays in some activities, such as the decision to implement the Component B sub-projects as “turnkey” to fast-track their implementation. 95. However, there was also room for improvement. Personnel working in Components A and B could have coordinated better to create more synergies between those components. Coordination with other related Government programs could have been better, as mentioned earlier. The financial management arrangements took a while to be properly in place. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 96. The borrower’s overall performance is considered Satisfactory. 22 6. Lessons Learned 97. The Project approach to combine capacity building for irrigation management with small improvements in infrastructure/equipment has proved to be successful. The Project focused on capacity building of WUOs, sub-WUOs, and farmers’ groups in irrigation and crop management, support to agriculture productivity/value chains, and formalization and registration of water rights. The component of capacity building of WUOs resulted effectively in increasing the performance of these institutions. 98. However, the Project results show that greater efforts (for example, by better coordinating with other national and regional government programs dedicated to agribusiness promotion) are needed to ensure proper and sustained technical assistance to farmers’ groups, beyond the Project scope to ensure long-term sustainability. For this interdepartmental coordination to be effective, it needs to be taken into account during project preparation, when the roles of every department and coordination mechanisms (including an effective Steering Committee) need to be clearly defined. 99. The Project was successful in implementing activities for encouraging women participation in the discussion and decision-making spaces of irrigation organizations and in disaggregating by gender the results indicators of the Project. However, the results show that there is still potential for improvement in promoting gender equity in the sector, for example, on better integrating gender aspects in project reporting. 100. The slow implementation during the first years had to do, among others, with the articulation of the different stages of feasibility studies under the SNIP framework and approval. A consultant was recruited for each sub-project for the pre-feasibility phase (perfil), a different one for the feasibility (expediente tecnico), and so on. Finally, the approach of a turnkey contract was developed and helped speed up the process. As a lesson learned, going forward it would be convenient to have a technical team to ensure from the early stages the quality of the pre- feasibility, feasibility, and design studies as well as to minimize public investment requirements (SNIP approval) for WUOs’ projects. In fact, there should already be some designs before World Bank Board approval to minimize project implementation delays during the first years. 101. The limited scale and insufficient integration of interventions, particularly between Component A and B, was a missed opportunity for maximizing the impact and sustainability of the Project. This resulted in small interventions, dispersed throughout the territory of the 12 selected WUOs and 112 sub-WUOs. In future operations, irrigation modernization on farm (Component B) and modernization and rehabilitation of collective irrigation (Component A) could be integrated in the same territory, attending an entire system from the intake structure, conveyance, and distribution systems (at the level of sub-WUOs) to the field application systems and associating the irrigation modernization with WUOs, instead of with farmers’ groups. This approach would have a greater impact and would allow working more effectively on irrigation services improvement. Finally, future interventions could eventually also include a watershed management perspective, prioritizing actions for the conservation of the water sources. 102. An adequate co-financing mechanism from the irrigation investment beneficiaries is essential for the appropriation of the irrigation investment. The PSI Sierra could have 23 benefited of a socio-economic study of the Project areas and its beneficiaries before Project approval to properly target the co-financing mechanisms. There is an urgent need of harmonizing the criteria for establishing more adequate beneficiary’s counterparts, taking into account the social reality of the Sierra and real capacities of the Government to finance private irrigation investments. Financing mechanisms such as guarantee funds should be studied to support farmers on their co- financing mechanism. 103. There is still a need for large improvements in the irrigation and water resources regulations in Peru. This Project addressed some aspects. However, considering that in Peru there is presently 1.7 million ha of irrigation equipped area, the need to improve the sector is huge. The problems of low O&M, deferred maintenance, loss of irrigated area (for example, salinization), and legislation (mix of responsibilities between ANA and WUOs) still prevail. Therefore, institutional strengthening should be emphasized in future projects. Keeping this in mind, during project preparation, greater efforts would need to be placed in assessing the irrigation institutional framework and its strengths and weaknesses. This would better inform project design, allow tackling the identified needs in the strategic/policy, legal, and technical dimensions of the irrigation sector, and specifically take into account the particularities and needs of the Sierra region. Furthermore, there is a need to review the O&M of the schemes and take some pilot examples of rehabilitation of an entire system. This would allow the design of a comprehensive approach for irrigation rehabilitation with full cost recovery. 7. Comments on Issues Raised by Borrower/Implementing Agency 102. Comments were received from the Ministry of Economy and Finance and the PSI. The comments were minor clarifications, which have been addressed in the ICR. 24 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ Million Equivalent) Appraisal Latest Percentage of Project Cost by Component Estimate Estimate Appraisal A. Modernization and Rehabilitation of Collective 15.92 16.21 101.82 Irrigation B. Irrigation Technology Improvement 11.29 11.01 97.52 C. Capacity Building and Support to Production and 10.07 7.85 77.95 Marketing D. Formalization of Water Rights and National Water 3.32 3.02 90.96 Rights Administrative Registry E. Project Implementation Support 6.23 10.05 161.32 Total Baseline Cost 46.83 48.14 102.80 Physical Contingencies 0.96 — — Price Contingencies 0.49 — — Total Project Costs 48.28 48.14 99.71 Front-end Fee 0.05 — — Total Financing Required 48.33 48.14 99.61 (b) Financing (in US$ Million Equivalent) Percentage of Source of Funds Appraisal Estimate Actual/Latest Estimate Appraisal Borrower 24.00 25.88 107.83 IBRD 20.00 19.97 99.85 Local Farmer Organizations 4.33 2.29 52.89 Total Financing 48.33 48.14 99.61 25 Annex 2. Outputs by Component Component A: Modernization and Rehabilitation of Collective Irrigation 1. This component financed pre-investment studies and the design, execution, and supervision of sub-projects to support eligible sub-WUOs to improve their irrigation service delivery to farmers, through the modernization or rehabilitation of collective irrigation systems. 2. To encourage improvements in collective irrigation management and increase the likelihood of sub-projects’ sustainability, only sub-WUOs, within the selected 12 WUOs, reaching a minimum performance level were eligible for Component A. Eligibility criteria included (a) the sub-WUO had to be legally established; (b) the sub-WUO had to have technical staff in charge of the operation of its collective irrigation network; and (c) collection efficiency of water tariff had to be at least 50 percent. Subcomponent C1 provided capacity building to sub-WUOs within the jurisdiction of the 12 WUOs to help them reach the eligibility level. 3. As a result of Component A, 92 sub-projects were implemented in 75 sub-WUOs. Those sub-projects carried out (a) Improvement of 42 water intakes; (b) Improvement of 164.9 km of canals; and (c) Rehabilitation of 14 small water regulation reservoirs. 4. As a result of the Modernization and Rehabilitation of the Collective Irrigation, 75 sub-WUOs (12 WUOs) improved their water supply service to 18,758 farmers in 14,770 ha. Table 2.1 shows the component results, by intermediary result indicator included in the Results Framework. Table 2.1. Component Outputs Intermediary Result Indicator Original Target End Target Number of WUOs that have benefited from collective 75 sub-WUOs within 12 WUOs irrigation infrastructure improved/rehabilitated by the 9 Project Number of water users that have benefited from the modernization or rehabilitation of collective I&D n.a. 18,758 infrastructure by the Project Area (ha) that benefited from the modernization/rehabilitation of collective infrastructure by n.a. 14,770 the Project Number of WUOs (out of 12) in which O&M plans for irrigation infrastructure modernized/rehabilitated by the 10 12 Project have been formulated 5. Table 2.2 shows the number and cost of the executed works in Component A by WUO. Mantaro was the WUO that executed the higher amount of projects and the largest amount of 26 executed funds (13 projects and S/. 7.4 million), followed by Ayacucho (with 12 projects and S/. 5.6 million executed). Table 2.2. Executed Works by Region and WUO, Component A Executed Budget Executed in Cost of Studies Region WUOs Works Works (S/.) (S/.) Piura Huancabamba 9 5,616,961 288,000 Cajabamba 6 3,046,009 192,000 Rio Mashcon 4 1,915,891 128,000 Cajamarca Rio Chonta y 7 3,260,001 202,000 Cajamarquino Ancash Callejón de Huaylas 4 2,947,534 161,000 Mantaro 13 7,406,981 426,000 Junín Tarma 5 2,571,049 170,000 Huancavelica Huancavelica 8 3,009,714 192,000 Ayacucho Ayacucho 12 5,637,212 360,000 Cusco Cusco 11 2,826,818 222,000 Arequipa Valle del Colca 7 4,598,205 224,000 Puno Juliaca 6 3,656,863 256,000 Total 92 46,493,238 2,821,000 6. In almost all WUOs where the project intervened, irrigation water flow increased and irrigation frequency considerably improved (in some cases it was reduced in more than 30 days). Table 2.3 shows the results of these activities with regard to (a) intensification of agricultural land use and (b) increase in crop yields. As a consequence of water flow increases and frequency of irrigation improvements, increases in intensification of land use and in agricultural yields were observed in almost all monitored areas. Table 2.3. Results in Intensification of Agricultural Land and Agricultural Yield per WUO Intensification of Land Use (% of Area with More Agricultural Yield: Baseline/5th WUO Monitoring Campaign (kg/ha) Than One Agricultural Campaign per Year) Chonta 13 Ray grass 61,900/75,000 Cajambamba 17 Avocado 10,000/12,000 Mashcon 17 Ray grass 18,500/24,000 Mantaro 18 Not available Tarma 18 Vetch 4,000/6,900 C. de Huaylas 24 Alfalfa 11,238/12,500 Colca 0 Not available Cusco 0 White maize 1,630/1,800 Huancavelica 79 Maize 2,200/3,600 Huancabamba ND Yellow potato 3,000/5,700 Juliaca 73 Oats forage 3,200/5,700 Ayacucho 79 Quinoa 1,800/2,500 Source: Results report of the 5th monitoring campaign. PSI 2017. Subcomponent C1: Capacity Building of Water Users’ Organizations 7. Subcomponent C1 provided capacity building to WUOs in each of the 12 selected WUOs, supporting sub-WUOs to achieve eligibility for Component A investments and to formulate O&M 27 plans to improve their water services delivery. As a result of Subcomponent C1 activities, 75 sub- WUOs were trained, formulated their O&M plans, and implemented related management tools (User Registry, Irrigation Inventory, Irrigation Roles, Water Measurement and Maintenance Plan). A total of 59 sub-WUOs (79 percent of those benefited sub-WUOs) were satisfactorily implementing their O&M plans at the end of the project (PDO Indicator 1). 8. A significant benefit resulting from Subcomponent C1 activities was the increase in the water tariff collection. The percentage of farmers who paid water tariff to their sub-WUOs increased from 50 percent to 80 percent between 2011 and 2016. The total amount collected went from S/. 1.52 million to S/. 2.22 million in that same period (figure 2.1), improving the financial capacity of the WUOs and sub-WUOs. Figure 2.1. Evolution of Water Tariffs Collection between 2011 and 2016 2,400,000.00 2,221,117 2,156,841 2,200,000.00 2,000,000.00 1,713,530 1,748,105 1,691,259 1,800,000.00 1,520,694 1,600,000.00 1,400,000.00 1,200,000.00 1,000,000.00 2011 2012 2013 2014 2015 2016 Source: PSI, PSI Sierra Completion Report. Component B: Irrigation Technology Improvement 9. This component financed pre-investment studies and the design, execution, and supervision of sub-projects to support eligible farmers’ groups and to increase irrigation performance at the farm level through the installation of improved on-farm irrigation systems, including (a) Carrying out of works and provision of equipment at the farm intake (for example, installation of pipes, pumping units, filters, meters, pressure regulators, and individual hydrants and rehabilitation or construction of small regulation reservoirs) and (b) Carrying out of works and provision of equipment on the irrigation plots (for example, installation of sprinklers and drip systems, land leveling, and gated pipes). 28 10. As a result of this component, 1,969 ha and 1,684 farmers (grouped into 136 GGERT) benefited from improved on-farm irrigation systems, far surpassing the original targets. About 94 percent of those systems corresponded with sprinkler irrigation systems (with an average cost of S/. 18,474 per ha) and 6 percent with drip irrigation systems. Sprinkler irrigation was the most used system, with a total area of 1,869.65 ha. Table 2.4. Number of Irrigation Projects and Average Cost by Technology Micro-irrigation Drip Drip + Micro-irrigation Sprinkler + Drip + Irrigation Sprinkler + Drip Sprinkler Average cost (S/. per ha) 18,474 17,961 20,160 21,420 17,782 Number of installed systems 107 4 4 2 2 Source: Programa Subsectorial de Irrigaciones. 2016. Oficina de Tecnificación de Riego. Base de Datos de Sistemas de Riego Implementados. 11. Figure 2.2. shows that the greatest number of irrigation systems were implemented in 2015. Implementation of on-farm irrigation systems started slowly after 2013 Figure 2.2. Number of On-farm Irrigation Systems Implemented by the Project per Year 80 Number o Projects implemented 70 60 50 40 30 20 10 0 2013 2014 2015 2016 Source: Base de Datos Componente Riego Tecnificado Parcelario. 2016. Programa Subsectorial de Irrigaciones. Oficina de Tecnificación de Riego. 12. Delays in the implementation of this component were mainly due to the following (a) the process of execution of activities begins with the identification of the interest groups (GGERT), and GGERT need to be formed and needed to fulfill a set of requirements, which at the beginning of activities seemed difficult to meet; (b) the elaboration of the sub-projects’ profile and their declaration of viability in the SNIP (the first approval in the SNIP was 20 months after the project's feasibility date); (c) the execution of the works improved rapidly when the turnkey contract modality was incorporated; and (d) the Certificate of Nonexistence of Archaeological Remnants (CIRA) and the Archaeological Monitoring Plan (Plan de Monitoreo Arqueológico, PMA) were not initially considered and they became mandatory for investment projects during project 29 implementation. The most important consequence of these delays is that technical assistance to farmers on irrigated agriculture (using the implemented irrigation systems) was very limited. 13. PSI measured the irrigation efficiency in 119 of the installed irrigation systems and the results showed that the average irrigation efficiency went from 22 percent before the project to 72 percent after the implementation of those irrigation systems. Table 2.5 shows changes in irrigation efficiency by WUO. Table 2.5. Changes in Irrigation Efficiency before and after the Project Irrigation Efficiency (%) Total Area with Improved WUO Irrigation Systems Without Project With Project Callejon de Huaylas 20 79 25.4 Cajabamba 21 67 50.1 Huancabamba 19 69 64.3 Rio Chonta 21 70 177.6 Mashcon 25 66 239.4 Tarma 20 72 119.9 Mantaro 15 72 184.8 Huancavelica 20 75 175.5 Ayacucho 23 79 297.0 Valle del Colca 25 72 194.3 Juliaca 38 71 83.0 Cusco 19 71 151.1 Average 22 72 1,762.3 Source: Database Component B. Oficina de Tecnificación del Riego. PSI 2016. 14. To measure the impact of the improvement in the irrigation systems, the project developed a set of monitoring files in which data on yield, profitability, and water consumption were recorded, before and after the project. The results of the monitoring efforts for 24 GGERT showed, in all cases, significant increases in yield, profitability, and irrigation efficiency (see Table 2.6). The growing area by WUOs also increased, and those increases ranged from 17 percent in Cajabamba to 44 percent in Cusco. Additionally, agricultural yield and profitability were measured in a sample of selected beneficiary areas in every WUO, between June 2015 and December 2016. The results of these measurements showed significant increases in crop yields and profitability, with respect to neighbor plots that did not implement improved irrigation systems (see Table 2.7). 30 Table 2.6. Yield and Profitability in 24 GGERT with Technified Irrigation Systems Profitability Yield Crop No. of GGERT (S/. per ha) (Kg/ha) Pasture 9 41,389 72,520 1,474 4,426 Maize 3 7,600 9,733 4,733 6,101 Quinoa 2 485 860 1,007 2,792 Alverja 2 3,913 5,475 3,710 6,748 Maize grain 2 5,500 9.000 4,212 7,758 Lettuce 1 8,000 12,450 8,500 13,890 Pallate 1 6,000 9,000 3,336 6,270 Peach 1 6,000 9,000 2,418 5,206 Pumpkin 1 28,000 48,000 4,110 10,077 Beans 1 2,067 3,680 856 1,708 Potato 1 16,000 22,000 3,197 8,318 Source: Monitoring files of business plans in GGERT without and with project. Table 2.7. Change in Yield and Profitability in Selected Plots by WUO Yield (tons/ha) Profitability S/. per ha WUO Crop Without Project With Project Without Project With Project Chonta Rye Grass 57.05 116.7 2,875 5,834 Cajabamba Potato 12.0 22.0 9,000 16,500 Mashcon Rye Grass 47.5 95.2 2,388 4,760 Mantaro Maize 5.2 14.4 3,120 8,400 Tarma Rye Grass 52.5 96.6 8,400 15,300 Colca Oregano 1.5 2.0 7,500 10,000 Cusco Organic Lettuce 7.5 15.5 7,500 23,344 Huancavelica Maize 6.0 7.4 6,500 7,450 Juliaca Quinoa 0.4 0.5 1,425 1,976 Source: Aguinaga P, Carlos. Monitoring of Outcome Indicators. PSI Sierra October 2016. 15. Subcomponent C2 was complementary to Component B. It strengthened the capacity of agricultural producers and business groups by (a) raising awareness to farmers on the benefits of Component B sub-projects, (b) supporting the establishment of farmers’ groups, and (c) providing technical assistance to farmers’ groups and their agricultural productive chains to formulate and implement viable business plans. Through this component, (a) 1,506 farmers were trained; (b) 9,542 O&M plans were formulated and implemented; (c) 110 business plans were satisfactorily implemented; (d) 80 percent of producers groups that had benefited from on-farm irrigation improvements satisfactorily implemented their business plans (PDO Indicator 2). 31 Component D: Formalization of Water Rights and National Water Rights Administrative Registry 16. This component provided technical assistance, equipment, and works to (a) formalize and issue water licenses, (b) expand RADA to cover the selected sub-WUOs, and (c) install water measuring devices. The component supported the Government’s Program, PROFODUA, in the selected 12 WUOs, updating the existing RADA accordingly, and installing measuring devices at the head of selected irrigation units. Table 2.8. Component D Outputs Intermediate Indicators Original Target Achievements Number of water licenses issued 3,000 2,980 Number of water licenses registered 2,700 2,980 Number of water measuring devices installed 250 235 Source: ANA 2017. 17. Subcomponent D1: Formalization of Irrigation Water Rights (Programa de Formalización de Derechos de Uso de Agua Agrícola, PROFODUA). This subcomponent supported the formalization of irrigation water rights, with the objective of securing farmers’ access to irrigation water and stimulating private investments. 18. To facilitate water distribution, volumetric measuring, and pricing, the subcomponent established ‘bloques de riego’ (irrigation units grouping a set of water users). According to the national Water Resources Law, water rights have to be assigned to irrigation units and not to individual water users, to facilitate water resources management by the local water authority. Sub- WUOs are responsible for delivering water to the head of the irrigation unit and farmers are responsible to distribute water internally. The ANA and its ALA offices were responsible for the implementation of this subcomponent in close coordination with sub-WUOs. As a result of this activity, 2,980 water licenses were issued. The subcomponent also issued 123,817 nominative certificates (individual water rights) to individual farmers (integrating the irrigation units) 19. Subcomponent D2: Extension of the National Water Rights Registry (Registro Administrativo de Uso de Agua, RADA). The objective of this subcomponent was to register, in the existing RADA, the water rights that were formalized under Subcomponent D1. This entailed the procurement of hardware, software, and consultant services, as well as capacity building of the staff responsible for its operation. The subcomponent was implemented by ANA and its ALA offices. As a result of the subcomponent, 100 percent of the water rights issued under Subcomponent D1 were adequately registered. 20. Subcomponent D3: Water Measuring Devices. This subcomponent financed feasibility studies, works, and supervision of works of some 235 water measuring devices installed at the head of the irrigation units defined in relation with the formalization of water user rights under Subcomponent D1. 32 Annex 3. Economic and Financial Analysis Introduction and Background 1. Under the Government Program, PSI provided a command area of around 15,000 ha of improved irrigation water supply services (that is, increasing water availability and reliability and/or improving the timing of water delivery) and improved irrigation technologies on around 2,000 ha (pressurized irrigation). This has been achieved mostly through rehabilitation and improvements of irrigation canals, rehabilitation and construction of small reservoirs, improvement or construction of water intakes, construction of water pipes, and provision of on- farm irrigation equipment (mostly sprinklers and drip irrigation kits). 2. Under this program, the PSI Sierra PAD planned cost was US$48.33 million, to be implemented between January 3, 2011, and December 31, 2015. Its PDO was to contribute to increasing agriculture production and productivity in targeted regions of the Sierra. The PSI PAD included estimations of an ex ante NPV and EIRR for the proposed investments based on estimation of expected benefits at the level of the major crops being grown in the project area. The PSI PAD estimated an EIRR of 21 percent and an NPV of US$16 million. 3. Following the same methodology as the economic analysis, but using market prices, the financial analysis for the whole project leads to an FIRR of 12 percent and the financial NPV of US$0.5 million. The significant difference between the results of the economic and financial analyses is due to the following factors: (a) the absence of taxes on agricultural produce; (b) the significant taxes on capital costs, incremental O&M expenditures, and crop production costs subject to a 19 percent value added taxes; and (c) the low economic value of unskilled labor and energy, estimated at only 41 percent and 66 percent of their financial values, respectively. 4. For this ICR, the results indicators were re-estimated based on the increasing crop yields information gathered by the PSI M&E Unit during implementation and from the national project closing report. The scenarios representing the ‘with’ and ‘without’ project situations were estimated for comparing updated projections of expected benefits with the project investment costs valued at the time of the analysis. The scenarios were built based on the M&E Unit data of the yield changes observed in sampled areas where yields were monitored before and during implementation. Since no control area was monitored by the M&E Unit, the ‘without project’ scenario was assumed to be similar to the ‘before’ situation remaining unchanged. 5. This annex presents an ex post EFA of PSI, valuing the main achievements and impact to estimate the results indicators. At project closing, the overall investment shows an EIRR of 29.4 percent and an NPV of US$30.2 million. The FIRR and financial NPV are, respectively, 25.3 percent and US$25.9 million, using a 12 percent discount rate for both scenarios. Assumptions for the Analysis 6. The methodology applied for structuring the evaluation scenarios was similar to the one used for the EFA prepared for the PSI PAD. ‘With project’ and ‘without project’ situations were modelled. Causal assumptions about costs and benefits and the required technical coefficients and parameters supporting the crop budget analysis were based on current (2017) field and cost estimations observed and provided by the PSI M&E Unit. Results being obtained from investments 33 were valued using (a) financial (or market) prices for assessing the farmer results’ perspective (farmers’ income improvements and poverty alleviation effects) and (b) economic (border or shadow) prices to assess the project impact from the country’s social and economic perspective following the national parameters. 7. All project costs under the PSI project activities from 2011 to 2016 were included even when not all their benefits were quantified. The total project costs match almost exactly the initial estimates of US$48.33 million with an estimate expenditure of US$48.14 million. It is worth noting that the GOP increased its contribution under Component B to finance additional sub- projects, in agreement with the World Bank, covering an additional area of approximately 200 ha. Table 3.1. Project Total Costs Components PROJECT TOTAL COSTS YEARS TOTAL 2010 2011 2012 2013 2014 2015 2016 Component A. 0 0 1,192,139 4,488,995 5,064,049 5,437,971 22,942 16,206,096 Modernization and Rehabilitation of Collective Irrigation Component B. 0 0 1,344 385,477 3,149,900 7,144,171 326,630 11,007,523 Irrigation Technology Improvement Component C. 0 0 1,488,684 2,183,927 1,554,478 1,550,538 1,073,937 7,851,564 Capacity Building and Support to Production and Marketing Sub-component C.1. 0 0 647,457 1,030,270 966,253 844,395 460,103 3,948,477 Capacity Building of Water Users’ Organizations Sub-component C.2. 0 0 841,227 1,153,657 588,225 706,143 613,834 3,903,087 Capacity Building of Agricultural Producers and Business Groups Component D. 0 0 113,600 510,021 180,547 615,273 1,605,086 3,024,527 Formalization of Water Rights and National Water Rights Administrative Registry Component E. Project 152,157 1,764,183 3,187,440 1,822,131 1,247,944 1,075,215 798,270 10,047,339 Implementation Support TOTAL US$ 152,157 1,764,183 5,983,207 9,390,551 11,196,918 15,823,167 3,826,865 48,137,048 Source: PSI, 2017. 8. Overall the unit costs for improving water availability and irrigation techniques are in line with expectation and national averages. Under Component A, where 15,000 ha has been covered 34 the average unit cost is US$1,080 per ha. Under Component B where 1,980 ha has been developed, the average unit cost is US$5,500 per ha. 9. The project benefits’ quantification was based on data derived from the PSI monitoring activities and the performance indicators of the improved irrigation systems (water availability, quantity, and efficiency of distribution in the field) and its impact on agricultural production. During project implementation, the M&E Unit of PSI selected 26 sub-projects for monitoring the project impact for Component B over a total of 136 and 12 sub-projects for monitoring the project impact for Component A over a total of 79. These focus sub-projects have been the basis for calculating the project benefits at ICR. 10. Yield increases and benefits have been different for Components A and B. Under Component A, improving the efficiency of irrigation infrastructure enhanced water availability, with no change in technology (flooding irrigation), generating three main benefits: (a) increase in irrigated area, (b) intensification of land use, and (c) increase in crop yields. These benefits were translated in the intervention area of around 15,000 ha. Under Component B, the impact of financed intervention that included enhanced water availability and change in technology (pressurized irrigation) has been much higher and generated two main benefits: (a) increase in crop yields and (b) increase in the yearly agriculture campaigns from one to two, with better agriculture planning and markets opportunities. No major change in cropping patterns has been recorded by the M&E Unit among participating farmers. Financial Analysis 11. Average crop yields before and after the project improvements show the estimated average increased productivity for the major crops, the resulting gross revenue, the input and labor costs involved in both scenarios, and the net revenues per hectare before and after labor costs. Based on the M&E Unit data, the main project impact was analyzed by estimating the incremental net benefits obtained by the benefitted farmers through their cropping activities, as water availability in their field was improved and crop yields increased. However, it must be noted that these results are preliminary as most of the sub-projects have just done one or two cropping seasons. Average prices for 2016 were used. 12. Physical and financial results were estimated in Excel to represent the ‘with’ and ‘without’ project scenarios. Table 3.2 presents the main typical crops, as well as the parameters and values used for the financial analysis for Component B. The five crop budgets developed are the most common implemented by farmers and represent almost 70 percent of the crops typology supported through the projects. 13. The productivity gains and values shown in Table 3.2 are observed averages for the project’s main irrigated regions of ‘la Sierra’. These crop budgets are the basis for estimating the financial and economic benefits from irrigation improvements. Yields increased by about 30–70 percent while net income per cultivated hectares has increased by 25–500 percent as a result of the combined effects of higher yields with similar costs of production. The improvement in water availability and improved irrigation techniques were at the basis of these gains. 35 Table 3.2. Yield and Income Increases per Crop after Project Improvements Crop Yields (kg/ha) Income after Labor Costs (US$/ha) Crop/Activity Without Project With Project Increase % Without Project With Project Increase % Forage 20,000 32,000 60 225 1050 360 Peas 2,205 3,150 42.8 85 430 500 Potatoes 10,800 18,000 66.5 465 1,150 247 Quinoa 1,500 2,000 33.3 1,570 1,985 26.4 Maize 9,000 14,000 55.5 265 605 200 Note: Yield increases are based on one season for comparative purposes, but it is foreseen that farmers with water availability will be able to have two full seasons. Yield is expected to increase more in Years 2–5 due to improved cropping techniques. 14. Yield increases were confirmed with the systematic data collected by the M&E Unit. Overall averages have been taken from a selection of sites for each crop. All crops produced and inputs used have been valued at 2015 and 2016 farm gate prices as reported by farmers during the field visits. There is no evidence of increases in farm gate prices in the project areas. However, as the production is increasing, farmers are exploring the opportunities to bulk the production and autonomously reach the selling markets without the service of middlemen with expected higher prices and quality premiums. 15. The overall agriculture production in the project area has considerably increased, even though comprehensive data are not yet available. Furthermore, farmers are beginning to expand the introduced technologies (sprinklers), with their own resources. Economic Analysis 16. Exchange rates of the Peruvian currency (nuevos soles) per U.S. dollar have been assumed as follows for the project implementation period: 2010–2012 at 2.5; 2013–2014 at 2.8, and 2015– 2016 at 3.3. Conversion factors for shadow pricing were applied following national standards, requirement, and calculation for (a) use of equipment 0.84, (b) unskilled farm labor 0.41, and (c) general expenses 0.73. Economic prices for other traded inputs and outputs were considered to be in line with their border prices and were not expected to show major variations in the future. Following the methodology used in the PAD, the analysis assumed a 20-year life span of the canals and 7 years for the drip irrigation equipment. After field visits, an additional 5 percent of the original investments of Component A has been added to the recurrent costs to cover O&M of the financed infrastructures’ costs to take into account special repairs. 17. The adoption rate of the intervention and new technologies has been assumed as follows: 80 percent for Component A and 75 percent for Component B. 18. PSI improved the irrigation performance in each of the regions where the project intervened and the results being obtained by beneficiaries through their production activities after the project improvements were matched for allowing the assessment of the project results. The existing cropping pattern for each region was used for the aggregation of benefits. The examination of 36 benefits has followed the physical implementation (see table 3.3). It is expected that in the future the agriculture performance will improve due to the farmers’ enhanced ability to handle the technologies introduced. Table 3.3. Calendar of Intervention for Components A and B Año N° Proyectos N° Proyectos Componente A Componente B 2010 0 0 2011 0 0 2012 0 0 2013 8 4 2014 15 34 2015 56 74 2016 0 21 2017 0 3 Total 79 136     19. Tables 3.4 and 3.5 present the PSI economic results. The EIRR and FIRR of the investments are estimated at 29.4 percent and 25.3 percent, respectively, while the NPVs, with a 12 percent discount rate, are at S/. 99.6 million (US$30.2 million) and S/. 85.6 million (US$25.9 million), respectively. These results do not take into account other expected benefits, including those derived from a strengthened implementation capacity of PSI or from the environmental benefits. Table 3.4: FIRR and Sensitivity Analysis Project Project Delay in Base case Benefits Costs benefits scenario -30% -20% -10% +10% +20% +10% +20% 1 year 2 year 25.3% 13.8% 17.9% 21.0% 27.8% 29.4% 23.2% 24.5% 18.3% 13.5% Total costs Total benefits Switching +99% -33% values 37 Table 3.5. EIRR and Sensitivity Analysis Project Project Delay in Base case Benefits Costs benefits scenario -30% -20% -10% +10% +20% +10% +20% 1 year 2 year 29.4% 12.2% 22.2% 25.4% 32.0% 34.0% 27.2% 25.2% 22.2% 17.1% Total costs Total benefits Switching +135% -43% values Sensitivity Analysis and Conclusions 20. A sensitivity analysis was carried out to determine the robustness of the NPV and EIRR to changes in key variables: prices, benefits, and delays in implementation. The analysis indicates that the project’s economic viability is fairly robust to the main risks identified in the project risks. The project still remains viable with increases in capital and recurrent costs or in delay of benefits due to implementation issues. The switching value analysis shows that the project is robust against changes in prices and benefits. 21. This ICR assessment confirms the economic and financial justification of investments aiming to improve the irrigation systems and technologies in the Sierra regions of Peru. The benefits from improved water availability and introduction of new technologies result in significant returns and are clearly justified; the incremental benefits both from the point of view of farmers’ incomes and of the country’s economy as a whole are positive and robust against major risks. Results of systematic monitoring confirm a solid and almost guaranteed positive impact even under the most adverse scenarios. 38 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Responsibility/ Names Title Unit Specialty Lending Alejandro Alcala Gerez Senior Counsel LEGES Legal Maria Elizabeth Dasso Consultant GSU04 Social Marie-Laure Lajaunie Lead Water Resource Management GWA07 Team Leader (ADM Responsible) Lourdes Consuelo Linares Sr Financial Management Specialist GGO22 Financial Loza Management Gunars H. Platais Senior Environmental Economist GEN04 Environment Amanda Marie de Oliveira Senior Program Assistant SBS Administrative Schneider Support Evelyn Villatoro Senior Procurement Specialist GGODR Procurement Grisele Felicita Vega Senior Agricultural Specialist GFA04 Team Member Selene del Rocio La Vera Procurement Specialist GGO04 Procurement Juan Pablo Rivero Financial Management Specialist Financial Management Raul Tormos Environmental Specialist GEN04 Environment Supervision/ICR Marie-Laure Lajaunie Lead Water Resource Management GWA07 Team Leader (ADM Specialist Responsible) Grisele Felicita Vega Senior Agricultural Specialist GFA04 Team Leader Selene del Rocio La Vera Procurement Specialist GGO04 Procurement Nelly Ikeda Financial Management Specialist GGO22 Financial Management Juan Pablo Rivero Financial Management Specialist Financial Management Alonso Zarzar Casis Sr. Social Specialist GSU04 Raul Tormos Environmental Specialist GEN04 Environment Gunars H. Platais Senior Environment Economist GEN04 Environment Clementine Marie Stip Consultant GWASP Support Katia Lucia Medeiros Consultant GEN04 Social Maria Elizabeth Dasso Consultant GSU04 Social Pamela Sofia Duran Vinueza Consultant GSUSD Administrative Support 39 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$, thousands (including travel No. of Staff Weeks and consultant costs) Lending FY07 7.95 47.65 FY08 53.02 250.60 FY09 20.02 89.46 FY10 22.00 94.23 FY11 0.63 2.71 Total 103.62 484.65 Supervision/ICR FY11 14.90 68.66 FY12 14.66 86.35 FY13 15.92 125.32 FY14 15.44 85.43 FY15 12.97 67.25 FY16 27.68 116.13 FY17 16.88 140.32 Total 118.45 689.46 40 Annex 5. Stakeholder Workshop Report and Beneficiary Survey Results Stakeholder Workshops 1. Several stakeholder workshops were conducted by the project at the completion stage to evaluate project results. Two types of workshops were organized: (a) workshops with WUO beneficiaries of Component A and Subcomponent C1 and (b) workshops with beneficiaries of Component B/GGERT. Workshop with Beneficiaries of Component A and Subcomponent C1 2. The purpose of the workshops with WUOs was to assess perceptions of these organizations on the project achievements. One workshop was organized in each of the 12 WUOs where the project intervened. The workshop was attended by the managers of the WUOs and involved sub- WUOs, as well as the O&M personnel of those organizations. The average number of participants by workshop was 11 people, with a total 132 participants. 3. Topics discussed regarding Component A included progress achieved, level of participation of beneficiaries, level of satisfaction, problems encountered during project implementation and solutions, and general evaluation of PSI Sierra support. Topics discussed regarding Subcomponent C1 included the level of implementation of management tools promoted by the project, the existence of managerial and administrative personnel, level of collection of water tariff, the application of technical documents for O&M, and the perception of the support received from the PSI Sierra. 4. All the workshops were carried out satisfactorily with a high level of cooperation and enthusiasm of WUO and sub-WUO members. The results of the workshops revealed a high level of satisfaction with the project results (97 percent of satisfaction). About 90 percent of WUOs and sub-WUOs had O&M plans, registry of irrigation users, and internal regulations in place. About 90 percent of them also had increased their tariff collection rate in more than 50 percent with respect to the situation before the project. Collected tariffs allowed them maintaining and operating the works and operating irrigation shifts through water distributors (personnel paid sub-WUOs). The trainings and technical support of the project (as it was mentioned in the satisfaction surveys) increased self-sufficiency of WUOs in technical, financial, and administrative capacities, ensuring sustainability of infrastructure improvements. However, 80 percent of the participants expressed that WUOs and sub-WUOs still faced challenges and weaknesses in implementing their O&M plans. Workshops with Beneficiaries of Component B and Subcomponent C2 5. The purpose of these workshops was to know the opinion of beneficiaries about the quality of the works and services provided by Component B and Subcomponent C2. With this purpose, two workshops were organized in each WUO, with members of the involved GGERT. Approximately 144 people participated in 24 workshops. 6. Topics in those workshops covered results achieved by the project, challenges and solutions during implementation, level of participation of the beneficiaries, and sustainability of actions. Additionally, in those workshops, 115 individual surveys with the beneficiaries of 41 Component B and Subcomponent C1 were conducted, to collect individual opinions of the project from the farmers. 7. About 71 percent of the beneficiaries showed a high level of satisfaction with the support received by the project. The main project benefits mentioned by the project were better availability of water, easier systems to manage irrigation, and increases in crop yields and profitability. Approximately three-quarters of the involved GGERT had in place O&M plans that were being implemented by the partners. 8. The main project shortcomings mentioned by the beneficiaries were related to weaknesses in the implementation of the business plans and the need of further trainings and continued support from PSI to improve the implementation of those plans in the future. 42 Annex 6. Summary of Borrower's ICR Limiting Factors in Project Management 1. Design factors. They included absence of actions to protect the watershed in the upper part of the basins, assumption on business expertise of the field team, and absence of no territorial development approach. Components A and B were developed in different territories and groups, which reduced the potential for synergies. However, the percentage of resources allocated by components and activities was consistent with the objective of sensitizing and developing the capacities of individuals and organizations. 2. Operational factors. The flexibility to accept a lower contribution from beneficiaries meant a larger contribution from the Government. In addition, implementation delays resulted in an increase in costs, especially in Component B. Implementation delays implied implementation of Component B in 2015 and 2016, which resulted in limited room to elaborate strong business plans and develop adequate technical assistance, which had direct effect on the sustainability. In addition, regional government contributions were insufficient. Finally, the communication strategy was weak to achieve good dissemination of the results of the Project. 3. Enabling environment factors. There was absence of a water management policy in irrigated agriculture, and proliferation of isolated initiatives was not monitored or capitalized to learn from experience. Risks about Sustainability 4. Initial awareness raising to establish commitments. The Project is a pioneering experience in the Sierra, and it was necessary to gain trust and commitment of producers and their organizations. This was especially important for learning about collective management of infrastructure, acceptance of tariff rules and other regulations, commitment to co-finance the works and the equipment, and groups of producers’ commitment to adopt business plans. To raise the awareness of the producers and the leaders in the organizations, several activities were carried out before the start of the works. These activities were aimed at (a) obtaining commitments of the organizations under Component A; (b) obtaining group commitments for the maintenance of the common water storage and distribution infrastructure under Component B; and (c) obtaining the contribution of counterpart resources to acquire the equipment and materials in said Component B. This aspect often omitted in other projects was of paramount importance. However, understanding the customs and attitudes among the population of the Sierra is a task that takes time. According to the cost structure of the PSI Sierra, the amount allocated to the dissemination and awareness raising actions amounts to S/. 7.3 million, under the ‘Project Management’ component, which represents 5 percent of the total cost of the Project. 5. Capacity building in local organizations is one of the most important aspects of the PSI Sierra, since the sustainability of collective management of infrastructure works depends on collective commitment. This commitment leads to the recognition that the user organization and the management group must have the capacity to assume their responsibility in the administration of a common good. Support for capacity development of WUOs was provided through sequential 43 training based on a ‘Training Plan’ socialized and approved by the target group in line with the social, cultural, and educational reality of each organization. 6. The business plans as a means of sustainability at the Management Group level. Within the framework of Component B, the organization of GGERT was anticipated and supported. The strategy of the PSI Sierra was that the GGERT should become business groups and the Project supported the elaboration of business plans. The business plans should identify critical aspects of production, post-production/post-harvest and processing, marketing, and business management. In practice, the business plan was used as a way to guide the use of irrigation water collected and stored in collective infrastructure, to improve productivity in crops. Although the business plan was considered an innovative feature during Project preparation, the mid-term evaluation concluded that the business plan was an artificial way of incorporating very small-scale farmers with low levels of education and capitalization into a more viable scheme in commercial agriculture. The limiting factor of the business plan was its implementation strategy. 7. The expected contribution from the regional governments. The agricultural gross domestic product is the way to report the contribution of agriculture to the regional economies but has omitted accounting production for self-consumption, informal marketing, exchange of products, the holding of animals as capital goods, the value-added of artisanal production, and many other aspects. These omissions have been for years the factors that have weighed most in political decisions that have postponed the development of the Sierra. In addition, the economic model in Peru privileged growth and did not invest in capacity building to take advantage of markets and thus contribute to development. Many of these aspects have not yet been recognized in the strategies for the development of regions. Therefore, the investment of the regional governments in those aspects that would allow a greater contribution of the agriculture continues to be delayed. The PSI Sierra included in the Project design activities that involved a commitment of economic resources to be provided by the regional governments, as well as activities to roll out the results to multiply the activities and obtain greater impact. According to the information gathered in the field, commitments from the regional government were met partially: in some cases, there were important delays in their contributions; and in others, the commitment did not materialize or was absent. This implied that the agreements signed could have been formulated in such a way that would oblige the fulfillment of the commitments. 8. Missing factors in the sustainability strategy. The PSI Sierra could have encouraged the development of service companies that would assist the producers in maintaining equipment and facilities and provide spare parts for equipment. The PSI Sierra could have managed financing lines with the Agrarian Bank through terms adapted to the conditions and needs of the producers, to grow other crops, to buy animals of greater productive capacity, as well as for storage and transformation capacities. The PSI Sierra could have managed, with MINAGRI, the policy to promote agriculture in the Sierra under with the terms of the contributions expected from the farmers. Lessons Learned 9. PSI Sierra had an integrated approach as compared to the traditional approach of technified irrigation at the parcel level. The PSI approach attempted to integrate the irrigation technology 44 with the business plan concept. Although, as noted earlier, the results are not entirely satisfactory in this respect, it is already an achievement to have introduced a new approach. 10. Considering the customs in the Sierra, the awareness of the producers was the first activity of the Project to make feasible the realization of works and the adoption of commitments. This aspect offers a very important lesson, and this refers to the motivation and patience needed to gain trust; this process lasted 18 months. 11. The traditional approach of investment projects in irrigated agriculture has been to focus attention on technological aspects, equipment, yields, and so on. In this case, more attention was given to the people, men and women, who participated in the different stages of the Project and, therefore, to the role of organizations. 12. The strengthening of local organizations was one of the most distinctive factors of this Project, and although organizational capacity indicators have not been generated, progress has been very valuable, such as the collection of tariffs and the management of collective water management. In addition, the Project has set a milestone, since strengthening capacities has not been considered in the standard evaluation of projects through SNIP. 13. The Project's attempt to commit and ensure that producers contribute resources was not entirely satisfactory, since there were other Government initiatives, where no counterpart was required. The issue deserves a political decision to break the tradition that the Central Government should give free physical goods that benefit very few (poor or not). 14. The development of synergies with the regional and local governments that was not fully achieved calls for a serious reflection on the need to formulate convincing local government strategy, since investment to improve water management in agriculture is one of the highest returns. This strategy must be based on the evidence of what can be achieved with water management and farmers’ capacity. 15. The Project met the established goals and they were verified during the evaluation; however, some of them such as the business plans and installation of technified irrigation equipment were fulfilled in the final months of Project implementation. The Project could have considered that there was a risk that the best use of such contributions would not be made and rather that resources would be devoted to consolidating what had been achieved and contributing to the sustainability of the GGERT. This may even have involved an extension of the Project with the same resources. 16. Given that experience at the local level with the implementation of business plans was limited, additional efforts should have been made to involve other entities of the agrarian sector to provide support in aspects of marketing, alliances with merchants and exporters, and other forms of already achieved technification. This would surely have also allowed the incorporation of more profitable items and ways of generating more value-added. 17. While it is meritorious that both organizations and members of the GGERT have shown high satisfaction with the Project, it should be noted that this satisfaction has been given in the context of a high contribution from the Central Government. This reflects that the Central Government fulfilled a function of generating public goods appreciated by the communities in the 45 case of works of collective good; however, satisfaction in this case takes on another tone when incentives are given for the installation of equipment to groups of people or families. This would be better seen if it was clear that it was done for demonstrative purposes and for that the dissemination actions would have to have been much more intense. 18. While there were clear benefits generated by the Project, there was also a lost opportunity to have contributed more substantively to the development of the territories where the four components were implemented. After the Project, besides assessing the outcomes in each territory, local governments, WUOs and Sub-WUOs should capitalize the experiences and achievements. Final Comments 19. The World Bank loan contributions have been properly used in synergy with contributions made from the regular budget of the Central Government. This synergy goes beyond the complementarity of the funds and implies having maintained norms and standards that make the experience something very valuable for Peru, and it is anticipated that it will be for the World Bank as well. The aspects included in the Project design, the organization for the execution and the processes followed generated valuable experiences of particular relevance for working in special regions such as the Sierra. 46 Annex 7. List of Supporting Documents  Client Completion Report, PSI, 2017  Project Aide Memoires and Implementation Supervision Reports  Sierra Irrigation Project, Staff Appraisal Report, June 25, 2010, Report No.: 51128-PE  Loan Agreement, 2010  El futuro del Riego en el Perú: Desafios y recomendaciones, the World Bank, 2013 47 Annex 8. Schema of WUOs and Sub-WUOs in the Sierra of Peru 1. The figure below is a schematic representation of the organization of WUOs and sub- WUOs in the Sierra of Peru. WUOs (Junta de Usuarios) contain several Sub-WUOs (commissions that in turn contain several committees). In the Sierra, the sub-WUOs do not always connect hydraulically with WUOs.   Sub‐WUOs: Committees  Jurisdiction Sub‐WUOs: Commission  Jurisdiction Figure 8.1. Schema of a Valley with WUOs (Juntas de Usuarios) and sub-WUOs (Comites y Comisiones) 2. Almost 20 years after the issuance of the law on the organization of water users (Decreto Supremo 037-89-AG), many uncertainties persist about the respective roles and responsibilities of the different WUOs and sub-WUOs (Junta, Comisiones and Comités) and the Government. The raison d’etre of the WUOs in the Sierra is much less obvious than of the ones along the coast. In the coastal areas of Peru, WUOs are responsible for the O&M of a large-scale irrigation scheme on which all water users organized in irrigation commissions and committees depend. In the Sierra, however, WUOs are often composed of sub-WUOs (commissions and committees) that are not linked together through a common irrigation scheme or infrastructure network. 48 Annex 9. Map 49