China - Third Irrigated Agriculture Intensification Project

Documentof The World Bank FOROFFICIAL USEONLY ReportNo: 31817-CN PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUS$200MILLION TO THE PEOPLE'SREPUBLIC OF CHINA FORAN IRRIGATED AGRICULTURE INTENSIFICATIONI11PROJECT September 14,2005 RuralDevelopmentandNaturalResourcesSectorUnit East Asia andPacific Region This document has arestricted distribution and may be usedbyrecipientsonly inthe performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCYEQUIVALENTS (ExchangeRateEffectiveJuly26,2005) CurrencyUnit = Renminbi(RMB)or Yuan (Y) Y1.0 = US$0.12 US$l.O = Y8.11 FISCALYEAR January 1 - December31 ABBREVIATIONSAND ACRONYMS AB Agricultural Bureau CAD Comprehensive Agriculture Development CAS Country Assistance Strategy CATEC County Agro-technical ExtensionCenter COCAD County Office o f Comprehensive Agriculture Development CPMO Central Project ManagementOffice ERR Economic Rate o fReturn EMP Environmental Management Plan ET Evapo-transpiration FA Farmers' Association FB Finance Bureau FMS Financial Management System FRB Forestry Bureau GOC Government o f China IPM IntegratedPest Management MES Monitoring and Evaluation System MIS Management Information System MOA MinistryofAgriculture MOCAD Municipamrefecture Office o f Comprehensive Agriculture Development MOF Ministryo fFinance MTR Mid-term Review MWR MinistryofWater Resources SEPA State (National) Environmental ProtectionAgency O&M Operation and Maintenance occ Opportunity Cost o f Capital OFD/OFW On-farm Development/On-farm Works PIP Project Implementation Plan PMO Project Management Office PLG Project Leading Group POCAD Provincial Office o f Comprehensive Agricultural Development PPMO Provincial Project Management Office PPC Provincial Planning Commission PPRWRP Pro-Poor Rural Water Reform Project (DFID-financed) SOCAD State Office o f Comprehensive Agricultural Development WP Water Productivity WRB Water Resources Bureau WUA Water Users Association Vice President: Jemal-ud-dinKassum, EAPVP CountryDirector: DavidDollar,EACCF Sector Director: MarkWilson,EASRD Task TeamLeader: QunLi,EASRD  FOROFFICIAL USE ONLY CHINA IrrigatedAgricultureIntensification111PROJECT CONTENTS Page A STRATEGIC CONTEXT AND RATIONALE.................................................................. . 1 1. Country and Sector Issues.............................................................................................. 1 2. Rationale for Bank involvement .................................................................................... 3 3. Higher level objectives to which the project contributes............................................... 4 B. PROJECTDESCRIPTION.................................................................................................. 4 1. Lending instrument ........................................................................................................ 4 2. Project development objective andkey indicators......................................................... 4 3. Project components ........................................................................................................ 5 4. Lessons learnedand reflectedinthe project design....................................................... 6 5. Alternatives considered and reasons for rejection......................................................... 7 C. IMPLEMENTATION.......................................................................................................... 8 1. Partnership arrangements............................................................................................... 8 2. Institutional and implementation arrangements............................................................. 8 3. Monitoring and evaluation o f outcomes/results............................................................. 9 4. Sustainability................................................................................................................ 10 . . . 5. Critical risks andpossible controversial aspects.......................................................... 10 6. Loan conditions and covenants .................................................................................... 11 D APPRAISAL SUMMARY................................................................................................ . 12 1.Economic andfinancial analyses..................................................................................... 12 2.Technical.......................................................................................................................... 13 3. Fiduciary ......................................................................................................................... 14 4. Social............................................................................................................................... 14 5 Environment.................................................................................................................... . 15 6. Safeguard policies........................................................................................................... 15 7 Policy Exceptions andReadiness.................................................................................... . 16 This document has a restricted distribution and may be usedby recipients only in the performance of their official duties Its contents may not be otherwisedisclosed . \without World Bank authorization .  ANNEXES Annex 1: Country and Sector or Program Background........................................................... 17 Annex 2: Major Related ProjectsFinancedbythe Bank and/or other Agencies..................... 23 Annex 3: Results Framework andMonitoring......................................................................... 25 Annex 4: DetailedProject Description andImplementation Arrangements ........................... 30 Annex 5: Project Costs............................................................................................................. 42 Annex 6: Legal Covenants....................................................................................................... 45 Annex 7: Financial Management andDisbursement Arrangements ....................................... 50 Annex 8: Procurement Arrangements...................................................................................... 54 Annex 9: Economic andFinancial Analysis ............................................................................ 58 Annex 10: SafeguardPolicy Issues.......................................................................................... 62 Annex 11:Development o f Farmer Water User Associations................................................. 74 Annex 12: Project Preparation and Supervision...................................................................... 82 Annex 13: Documents inthe Project File................................................................................ 84 Annex 14: Statement of Loans and Credits ............................................................................. 85 Annex 15: Country at a Glance................................................................................................ 90 MAPS IBRD34174; 34175; 34176; 34177; 34178; 34179  CHINA IRRIGATED AGRICULTURE INTENSIFICATION I11PROJECT PROJECTAPPRAISALDOCUMENT EAST ASIA AND PACIFIC REGION EASRD Date: September 14,2005 Team Leader: Qun Li Country Director: DavidR. Dollar Sectors: Irrigationanddrainage (75%); Sector Director: MarkD.Wilson Agricultural extensionandresearch(18%); ProjectID: PO84742 Forestry(7%), LendingInstrument: Specific InvestmentLoan Themes: Other rural development (P), Environment andNatural Resources Management(P) Environmentalscreeningcategory: B [XI Loan [ ] Credit [ ] Grant [ 3 Guarantee [ ] Other: For Loans/Credits/Others: LoanCurrency:UnitedStates Dollars Total Bank financing (US$m.): 200.00 Proposedterms: LIBOR-basedsingle currencyvariable spreadloan (VSL) Grace period (years): 5 Years to maturity: 20 Commitment fee: 0.75% Front-endFee: 0.25% IBRD Borrower: PEOPLE'S REPUBLIC OF CHINA ResponsibleAgency: State Office for ComprehensiveAgricultural Development Ministry ofFinance, Beijing, China Address: No. 3, Nan San Xiang, SanLiHe, Xicheng District, Beijing, 100820 Tel: 86-10-68553318 Fax: 86-10-68553312 Email: Luoluvon~O.126.com Project implementationperiod: 2005-2011 Expectedeffectivenessdate: December31,2005 Expectedclosingdate: June 30, 2011 -  Does the project depart from the CAS incontent or other significant respects? [ ]Yes [XINo Does the project require any exceptions from Bank policies? [ ]Yes [XINO Have these been approvedby Bankmanagement? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated"substantial" or "high"? [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ] No Project development objective: The overall devylopment objectives o fthe project are to increase water and agricultural productivity inlbw andmedium yield farm landareas; to raise farmers' incomes and strengthen their competitive capacity under post-WTO conditions; andto demonstrate andpromote sustainable participatory rural water resources management and ago-ecological environmental management inthe Huang-Huai-Hai River Basin (3-H Basin) area. Although its objectives are similar to those o f IAIL2, its predecessor, the IrrigatedAgriculture IntensificationI11Project (IAIL3) would focus more on raising the productivity of landand water rather than on increasingproductionper se, andon enhancing farmers' incomes and the farmers' share o f higher market values rather than raising income solely through higher production. IAIL3 would also add important innovations to modernize agriculture andenhance farmer competitive capacity. The competitive challenges resulting from China's entry into the 1WTO are driving these changes. Project description: IAIL3 would finance sustainable development o fmodern irrigated agriculture in 107 counties in 32 prefecturedcities infive provinces inthe 3HBasin -- Anhui, Hebei, Henan, Jiangsu and Shandong. The project would include four components: (a) Water-saving Irrigation and Drainage (US$3 16.14 million); (b) Agricultural Modemization and Organization Development (US$65.47 million); (c) Agro-ecological Environmental Protection and Management (US$24.46 million); and (d) Institutional Strengthening andProject Management Support (US$57.11 million). Which safeguard policies are triggered, ifany? Environmental Assessment (OP/BP/GP 4.01) [XI Pest Management (OP 4.09) [xi Involuntary Resettlement (OP/BP 4.12) [XI Safety o fDams (OPBP 4.37) [XI Environmental Assessment. IAIL3 has been classified as an environmental category B project. According to the simplified repeater project procedures, a full Environmental Impact Assessment (EIA)for IAIL3 isnot required. The project focuses onthe rehabilitationo fexisting sites, with limitedconstructiono f small-scale facilities and no major civil works, therefore, significant environmental impacts are not expected. Nevertheless, lessons from IAIL2have been incorporated, new counties to be included have been evaluated, andthe environmental management plans for the provinces andthe project as a whole have been prepared (see Annex 10).  Significant, non-standard conditions, if any, for: Boardpresentation: None. Loadcredit effectiveness: None. Covenants applicable to project implementation: Comprehensive legal covenants for IAIL3implementationinclude project management, staffing and reporting arrangements, annual investment plans/monitoring reports, groundwater protection, and safeguard compliance commitments (See detailed list o fproposedcovenants in Annex 6).   A. STRATEGICCONTEXTAND RATIONALE 1. Country and Sector Issues Between 1993 and2003, China's annual GDP growth averaged 8.6 percent. China's accession to the World Trade Organization (WTO) in 2001 has further strengthened the country's economic position and helped the government to promote rapid progress in its transition from a centrally planned to a market based economy and to implement essential structural reforms. With this rapidgrowth, over 250 million people have been liftedout o fpoverty since the late 1970s. China's geography, population size and limited resource base bring considerable challenges. More than 200 millionpeople still dive on expenditures o f less than U$1per day, and more than 30 million people still live below the government's rural income poverty level o f Y625 (US$77) per annum. The growing income gap between urban and rural areas is one o f the most serious issues facing the country. Although living standards are on the rise, rural areas are still poor in absolute and relative terms. Such poverty i s exacerbated by water scarcity - rural areas without adequate irrigation supplies are often those most affected by poverty. Rural income growth has lagged far behind urban income growth, and in2003 the average income o f rural residents stood at only 31percent of that of urban residents. This rural-urban income gap is increasing, albeit at a slightly slower rate in recent years because o f the substantial rise in intemational grain prices, and a similar gap exists between coastal and inland areas. Raising rural incomes through sustainable rural development is one o f the most pressing economic and social challenges facing China. Along with these critical and related socioeconomic issues is the strategic issue o f food security and safety. National grain production peaked at 512 million tons in 1998 and reached only 430 million tons in2003 and an estimated 465 million tons in2004. Although weather has played a part in stagnated grain production inrecent years, other findamental constraints exist, especially with regard to land and water. Farm land i s being lost annually to urban sprawl and desertification, and increasing water resource scarcity is a severe constraint for agriculture, especially inthe relatively dry north. Water scarcity threatens both rural income growth and food security. Overall, China i s relatively water-short, ranking in the bottom 25 percent o f countries in terms o f average annual water runoff per capita. The Huang-Huai-Hai river plain area (3H Basin), or North China Plain, has less than one-third of China's already low average water availability, and worsening water pollution exacerbates the severe water shortage problems. The 3-H Basin is China's prime agricultural area and produces 50 percent o f national grain output, accounts for about 35 percent of national industrial output, and has a population o f 425 million people. Water demand in the region is high and growing, available water resources are already allocated and overexploited, and groundwater levels are falling over wide areas, sometimes by as much as one meter per year. WTO membershipand increasing integration into the global economy provide an opportunity for increased farm incomes for rural households. To take advantage of that opportunity, the agricultural sector must undergo substantial structural change andmodernization to become more market-oriented and competitive. Farmers will have to improve agricultural practices in producing safe, high quality, high value products to receive a larger share o f the market value. 1  Water resources must be used more efficiently, and agricultural pollution will have to be curtailed. Meanwhile, grain production needs to keep pace with demand. These issues are high on the government's priority list with raised productivity levels, domestic self-sufficiency, reform o f food safety control, and intemational competitiveness as central themes in China's Tenth Five Year Plan for National Economic and Social Development (2001-2005) and in the formulation o fthe upcoming EleventhPlan(2006-2010). The agricultural sector, particularly in the 3H Basin, is critical for achieving these strategic national objectives. However, it faces a number of serious constraints, inparticular: Low Efficiency and Quality of Agricultural Production. To ensure food security and raise farmer incomes, agricultural productivity and product quality must be improved. At the same time, the production efficiency and capability o f farmers must be enhanced to meet market- demand requirements and intemational competition. This will require investments to modernize agricultural production through improved agricultural support services, crop diversification and adoption o f better quality and higher value varieties, and better techniques for environmental management, such as forestation, integrated pest management (IPM), and production o f `non- polluting/green food' with reduced chemical andpesticide use. Low MarketValue of Farmers' Production. Inaddition to the impacts o f poor quality, prices received by farmers are also adversely affected by the lack o f market access, marketing knowledge and the extremely small scale o f production by farmers in China. Measures are needed to improve product quality, strengthen green food production and certification, enhance market information and access, establish Farmers' Association (FAs), and develop farmer-owned cooperatives able to integrate production, processing and marketing. The aim would be to provide high value products to the market for consumers, and a greater share o f product market value to farmers, through enhanced farmer participation in the agricultural production and marketing"value chain." Low Efficiency of IrrigationFacilities. Reliable and flexible irrigation services are required to improve agricultural production. However, a major constraint for irrigated agriculture in China, including the 3H Basin, is the low efficiency o f many o f the existing imgation and drainage systems and especially the on-farm works (OFW) at the lateral level and below. Many systems are over 30 years old, inpoor repair, and cannot meet modem performance requirements. Many were not designed to high standards and lack effective on-farm distribution systems. In their present condition, these facilities are thus inefficient, water-wasting and incapable o f supporting high productivity, market-oriented agriculture; they need rehabilitation and improvement, especially for distribution systems at lower levels o f systems. Weak Irrigation Management. Further major problems faced by irrigation and drainage systems in China include inadequate operation and maintenance (O&M) resulting from the insufficient government budget, low water charges and collection rates, poor service delivery, unwillingness o f users to pay, and lack o f direct farmer participation and ownership. The result i s a vicious cycle o fpoor O&M, system deterioration and eventual need for rehabilitation. 2  2. Rationale for Bank involvement The Irrigated Agriculture Intensification I11 Project (IAIL3) follows on from the Irrigated Agriculture Intensification I1Project (IAIL2), in support o f the government's Comprehensive Agriculture Development (CAD) program being carried out by the State Office for Comprehensive Agriculture Development (SOCAD). The Bank's experience with IAIL2, andthe efficient working relationships already established with the implementing agencies, will greatly enhance IAIL3 implementation, and especially guide the critical innovations under the project. Although it has a long experience inirrigation and drainage systems development for agriculture, China has had, untilrecently, little experience with an integrated program approach to irrigation investment, using international fbnding andmanaged by a central government agency. The Bank contributed substantially to the design and implementation IAIL2, including successful innovations such as WAS. IAIL3 innovations are more complex and include `real' water saving', production and marketing o f "non-polluting/green food," promotion and support o f FAs for specialized crop production and marketing, and piloting o f farmer-owned cooperatives to improve farmers' incomes and competitive capacity. Many o f these are relatively new topics for China and the project implementing agency. The Bank, with its global perspective and experience, can provide knowledge and institutional experience gained from other countries. For water resource components, the Bank, having bothworldwide and China-specific experience can mobilize a wide range of expertise and support to assist reforms and help guide the project. For example, irrigation management reforms utilizing a participatory approach were first introduced with Self-managing Irrigation and Drainage Districts (SIDDs) and W A Sunder the Bank-financed Yangtze Basin Water Resources Project in 1995 and have since spread to five other Bank-supported projects, including IAIL2. Similarly, experience with the "real" water saving methodology developed under the Water Conservation Project (1999) can be applied to this project. The Bank is also executing the Pro-Poor Rural Water Reform Project (PPRWRP) for WUA development, funded by the Department for InternationalDevelopment (DFID), which i s providing valuable lessons. China's need to participate in internationally competitive agriculture within the framework o f WTO provides another strong rationale for Bank involvement. Lessons have been leamed in European Union (EU) and other WTO accession countries, and this intemational experience would help guide the implementation o f the proposed project, especially with regard to crop diversification, market-orientation and strengthening o f the agricultural value chain, to help raise farm income. Water that is extractedfor irrigation use is either consumptivelyused (evapotranspirated) or retumedto the local groundwater or surfacewater system. Improvementsinirrigation systemefficiency oftenhave the effect of increasingthe portion of the water that is consumptivelyusedandreducingthe amount that is recycled. This has the overall effect of increasingthe depletionof water resources. "Real" water savings comes from reducingthe amount ofwater that is consumptivelyused (evapotranspirated). Thereare manymeasuresthat can be implementedthat will result in less consumptive use, including: use of micro-irrigationtechnologies, improvedirrigation schedulingandsoil moisturemanagement, use ofplastic andorganic mulch, use ofplastictunnelsandgreen houses, conversionto crops that consume less water, anddevelopmentof cropvarietiesthat consume less water.  3. Higherlevel objectivesto which the projectcontributes The proposed IAIL3 Project would support the Bank Group's thematic strategies o f natural resource management and poverty reduction, as expressed in its Country Assistance Strategy (CAS) goals of: (a) facilitating an environmentally sustainable development process; and (b) addressing the needs o f the poorer/disadvantaged people and lagging regions (CAS document number 25141-CHA, January 22,2003). The project i s consistent with the Bank's assistance to China inthe rural sector which i s focused on reducing inequality between urban and rural areas and on facilitating the shift from subsistence to commercial agriculture and from quantity to quality o f production. It is also consistent with the Bank's recent China Water Resources Assistance Strategy which confirmed that better water resources management, through both broad-based and targeted interventions, was central to sustainable growth and poverty reduction. IAIL3 would also support a range o f related national and domestic policies aimed at sustainable rural development, in particular, increasing farmers' incomes, reducing poverty, promoting more efficient, sustainable agricultural production and competitiveness, and meeting WTO and international market requirements. B. PROJECTDESCRIPTION 1. Lendinginstrument The Government of China has selected an IBRD Specific Investment Loan (SIL) on standard IBRD terms for a LIBOR-based US Dollar denominated single currency variable spread loan (VSL), payable in 20 years, including 5 years o f grace, and annuity principal repayment, which is consistent with the borrower's choice for similar Bank financed projects. 2. Projectdevelopmentobjectiveand key indicators Project development objectives. The overall development objectives of the project are: to increase water and agricultural productivity in low-and medium-yield farm land areas; to raise farmers' incomes and strengthen their competitive capacity under post-WTO conditions; and to demonstrate and promote sustainable participatory rural water resources management and agro- ecological environmental management inthe 3-H Basin. Although its objectives are similar to those o f IAIL2, IAIL3 would focus more on raising productivity o f land and water rather than on increasing production per se, and more on enhancing farmers' incomes and their share o f higher market values rather than on raising income solely through higher production. IAIL3 would add important innovations to modernize agriculture and enhance farmer competitive capacity. The competitive challenges resulting from China's entry into the WTO are drivingthese changes. Key indicators. The main project outcomes would be: (a) increased water and agricultural productivity and resource use efficiency; (b) increased per capita income for farm households; (c) increased high qualityhalue and non-polluting/green crop production; (d) adoption o f techniques leading to `real' water savings and mitigation of adverse environmental impacts 4  including Evapo-transpiration (ET) Management and Laser Controlled Land Grading; and (e) establishment o f institutional mechanisms for enhanced farmer involvement andparticipation. Key project output indicators include: (a) improved area (ha) o f low- and medium-yield farm land; (b) improved water saving irrigation area (ha); (c) delivery efficiency o f on-farm irrigation systems improved in low- and medium-yield areas, measured by dividing the amount o f water that is consumptively used by the crops by the total amount o f water that is diverted fiom the water sources2; (d) number o f W A S ,FAs and farmer cooperatives established and operating; and (e) number o f farmers trained, including breakdown by gender and ethnicity. (Outcomeand output indicators are detailed inAnnex 3). 3. Projectcomponents The project would include the following four maincomponents: (a) Water-saving Irrigation and Drainage (US$316.14 million, about US$142 million financed by the Bank). The main activities financed would be: (a) improvement and construction o f local irrigation and drainage systems at the tertiary and on-farm level for about 500,000 ha o f low-and medium-yield land; (b) implementation o f engineering water-saving measures, including canal lining, pipelines, sprinkler irrigation, micro (drip) irrigation and flexible pipe; (c) implementation o f agronomic water-saving measures, including land leveling, laser-controlled land leveling, deep plowing, balanced fertilizer use, use o f crop residues, training, and demonstration and extension; (d) implementation o f water-saving management measures, including development o f W A Sin the five Project Provinces and in other selected provinces, and installation o f water measuring facilities and equipment at all sites; and (e) preparation and implementation o f groundwater management plans in water-short project counties inHebei Province, includingpilot crop evapo-transpiration (ET) monitoring and laser- controlled landgrading. (b) Agricultural Modernizationand Organization Development (US$65.47 million, about US$21 million financed by the Bank). The primary activities financed would include: (a) strengthening and modernization o f agricultural services and support systems, including production, processing and distribution of high quality seed, IPM support, strengthening o f county andtownship ago-technology extension centers, and provision o f agricultural machinery for extension services; (b) high quality and specialized crops demonstration, extension and production, including greenhouse construction, non-polluting/green/organic crop production facilities, technologies and support services, IPM, training and monitoring; (c) development and support o f FAs including specialized farmer associations and establishment/demonstration o f pilot farmers' professional cooperative organizations; and (d) applied technology and Irrigation system efficiency is normally measuredby dividing the amount of water that is consumptivelyused by the crops by the total amount ofwater that is diverted from the water sources. At the level of awater user association,the irrigation efficiency can be measuredby dividing the amountof water that is consumptivelyused by the cropsby the total amount of water that is deliveredto the water userassociation. It is importantto point out however that the "losses" in the delivery systems can be divided betweenthe portion that is consumptivelyused (evapotranspiratedalong canaland ditch banksor evaporatedfrom water bodies) and the portionthat infiltrates along leaky systems. Normally the infiltration portionretums to the local groundwater or surfacewater systemandis thereforenot "lost" to the local hydrologic system. Therefore, irrigation systemefficiency improvements canresultin"real" water savings only to the extentthat the improvementsresult in reductionsinconsumptiveuse. 5  institutional training for farmers, agricultural technicians and farmers' professional organizations. (c) Agro-ecologicalEnvironmentalProtection and Management (US$24.46 million, about US$11 million financed by the Bank). The main activities financed would include: (a) establishment o f shelterbelt forest networks around farmlands, including on-farm wind protection forests (for soil conservation andprotection) and forest nurseries; (b) IPMfor forestry development; (c) environmental monitoring and management, including implementation o f the project environmental management plan, monitoring o f the water environment (including surface and groundwater and establishment o f groundwater monitoring wells), soil fertility and environmental quality, and development o f pilot bio-gas facilities; (d) training on environment and soil and water conservation; (e) demonstration and extension services on environment and ecology; and (f) preparation and execution o f groundwater management plans in project water- short counties. Design of forest shelterbelt coverage for farmland areas, mainly windbreaks around fields and along canals, would balance water use o f trees against benefits inreduced crop ET and timber and fuel wood production, and would incorporate multiple and low water using species. (d) InstitutionalStrengtheningand ProjectManagementSupport(US$57.11 million, about US$26 million financed by the Bank). This would finance institutional strengthening and support under the project and capacity building in the State Office o f Comprehensive Agricultural Development (SOCAD), the Provincial Offices o f Comprehensive Agricultural Development (POCADs) and County Offices o f Comprehensive Agriculture Development (COCADs), including: (a) domestic and international training; (b) domestic and intemational study tours; (c) use o f specialized domestic and intemational technical assistance, including mobile expert teams; (d) scientific research and demonstrations; (e) provision o f project office facilities, includingvehicles and office equipment; (0 development o f and maintenance support for an upgraded computerized project Management Information System (MIS); (8) project survey, design and supervision work for project implementation, including disbursement, procurement, monitoring and evaluation (M&E), and the establishment and operation o f the project M&E System (MES). The project MES for WUAs would be the same as and integrated with the WUA-MES under PPRWRP, andwould also linkwith the MIS. 4. Lessonslearnedand reflectedin the projectdesign The 3H Basin is China's most important food production region but it is increasingly short o f water. Water use inirrigated agriculture is inefficient; much water is wasted and it i s essential to raise water use efficiency and productivity inboth technical and economic terms. Much o f the existing irrigation infrastructure was built to low standards; it has deteriorated over time because o f inadequate O&M and poor management and is now in urgent need o f modernizationhehabilitation. In addition, many of systems were never fully completed and lack adequate on-farm works for the efficient delivery o f water to farms. Relatively small investments to improve these facilities can produce significant gains inirrigation efficiency andwater saving, as Bank-financed projects in China have demonstrated over the past 20 years. Inaddition, a real water-saving concept with relevant measures has been introduced into IAIL3 project design (see 6  footnote on page 3) based on the previous lessons learned from the Bank's Water Conservation, IAIL2, andChina's domestic water savingprojects. The China Water Resources Assistance Strategy (2002) identified institutional and management issues, including increased farmer participation through WAS, as fundamental, and a recent quality assurance review o f the Bank's irrigation sub-sector portfolio identified (inter alia) strong government commitment andbeneficiary participation as important requirements for good performance o f irrigation projects. In many regions, including the 3 H Basin, there i s a gap in irrigation management arrangements between the lowest government level at the township, and the village. Before the 1 9 8 0 ~this gap was filled by the communes, but after they were ~ disbanded, alternative arrangements for water deliveries were neglected. W A Ssuccessfully fill this gap inwater management, andthe project would support further WUA development as akey institutional reform activity. An expanded M&E system for W A S similar to that under PPRWRPwould also beusedto track boththe quality andimpact o fWUAs. Other key lessons relating to W A Sfrom previous Bank-financed water resources projects in China are incorporated, including that: (a) active support andparticipation by leaders at all levels and effective inter-agency coordination and management are essential; (b) irrigation system management should be based on hydraulic units and not on political or administrative boundaries; (c) the expansion o f the largely successful SIDD concept and WUAs depends on local government and farmer support; (d) project design should support the "user pays" principle; (e) wedfarmer participation should be explicitly built into project planning, costs, implementation and operation; and (f) project design should include strengthening the capacity o f provincial and local Water Resources Bureaus. 5. Alternativesconsideredandreasons for rejection (a) Expanding the project to areas outside the original five IAIL2 provinces - Henan, Hebei, Shandong, Jiangsu and Anhui - was considered but rejected. These five provinces in the 3 H Basin have a key role infeeding China and demonstrating improved agriculture, and IAIL2 only covered a small part o f the total low-yield area in those provinces. Under IAIL3, program improvements made and experience gained in implementation o f IAIL 2 would be replicated, extended and strengthened within the five provinces to help improve the overall CAD Program. Rather than introducing the Bank-supported project into new provinces, it was felt that expanding coverage andconsolidating gains inthe five original provinces would most efficiently enhance impact, demonstrate improvements and build on capacities developed in POCADs and lower levels. (b) Keeping the IAIL2 focus on increasing volume o f production to increase farmers' incomes was also considered but rejected. IAIL3 would focus more on raising farmers' incomes through increasing water and agricultural productivity in low- and medium-yield farm land and water scarcity area, and enhancing farmers' capacity for the sustainable participatory water and land resources management. IAIL3 Project would promote and demonstrate the comprehensive "real water saving" measures (the integrated engineering, agronomic, and management measures), high qualityhalue non-pollutedgreedorganic food production with cropping diversification 7  responding to market conditions, FAs and commodity-oriented pilot farmer cooperatives to strengthen the farmers' role inthe agricultural production and marketingchain. C. IMPLEMENTATION 1. Partnershiparrangements(if applicable) Not applicable 2. Institutionalandimplementationarrangements Project management and institutional responsibilities. The project would have a 5-year implementation period. As a repeater project, M I L 3 will have the same project management and institutional arrangement as the IAIL2 project. Project management would be based on the proven and well-functioning management system developed under IAIL2. At the central level, the existing Central Project Management Office (CPMO) established under IAIL2 would be maintainedand funded within SOCAD. The CPMO would continue to be responsible for overall project coordination, financial management and funding, monitoring and reporting on sub- project implementation, monitoring and ensuring adherence to agreed standards, guidelines and procedures, and providing oversight and technical and policy guidance to lower levels during project implementation. Provincial Project Management Offices (PPMOs) andPMOs (at city and county level) have been established within the existing POCADs and COCADs, with terms o f reference, staffing and other resources acceptable to the Bank. PPMOs would include senior-level, expert staff from the Water Resources Bureau (WRB), Agricultural Bureau (AB), and Forestry Bureau (FRB). PPMOs and city/prefecture PMOs would be responsible for overseeing project design, execution and supervision, as well as for coordination and financing. County PMOs would be responsible for project implementation and arrangingfunding contributions and local labor. Mobile expert teams would be established under the PPMOs to directly assist and advise farmers and lower level PMOs with technical and institutional issues (a breakdown o f detailed responsibilities at each institutional level is shown inAnnex 4). Project Leading Groups (PLGs) comprising representatives from the WRB, AB, FRB, Finance Bureau, Planning Commission, Environment Protection Bureau, Civil Affairs Bureau and other concerned agencies, and chaired by a local administration leader, have been set up at all levels. PLGswould provide coordination andpolicy guidance at their respective levels. Financingarrangementsand financial management. The project financing plan is based on total project costs including contingencies and the front-end fee. The total estimated project financing required is US$463.68 million, o f which the IBRD fimding would cover $200 million (43.1 percent), constituting the Central Government contribution to project financing. About $136.79 million (about 29.5 percent) would be financed by provincial and local governments, and about $126.89 million (about 27.4 percent) would be contributed by farmers in cash and/or labor. Repayment of the Bank loan would be the responsibility o f the Central Government (Ministry o f Finance). In accordance with SOCAD's recent internal policy, Bank loan funds 8  would be provided to the provinces without interest or repayment requirements. Commitments bythe provinces to provide adequate andtimely counterpart funding have beenmade, and MOF and SOCAD have mechanisms to ensure their financial cooperation. Counterpart fundingunder IAIL2 was not a problem and is not expected to be an issue under IAIL3 either. To help ensure adequate financing and timely flow o f funds during implementation, POCADs would submit to SOCAD by November 1 o f each year, and SOCAD would submit to the Bank by November 30 o f each year, their annual work programs, investment plans, and financing plans (in detail for each province) for implementation during the following year, including evidence from the provinces of adequate and timely counterpart finding. The provinces would follow the work programs and investment and financing plans to carry out implementation. To maintain strong financial management o f the project and the CAD program, IAIL3 would continue to use the Financial Management System (FMS) established under IAIL2, modified as necessary, as well as an upgraded computerized MIS designed to support efficient financial management, assist with project monitoring, and control the supply and flow o f counterpart funds and Bank funds and reimbursements. Guidelines for the FMS have been reconfirmed, and are incorporated into project procedures. (See details in Annex 10 o f the Borrower's Project Implementation Plan (PIP)). As under IAIL2, project records and accounts for each fiscal year wouldbe audited annually by the State Audit Bureau. Retroactive Financing. Retroactive financing o f construction works effective from April 5, 2005 has been agreed with Borrower. The retroactive financing would include earthworks for canals, drains, farm roads, on-farm structures, land improvement, tree planting, environment monitoring and management, development o f WAS, farmers' association, green food production, training, study tour, and agricultural extension. The total estimated amount o f the retroactive financing eligible for reimbursement from loan categories (1) (2) (3. a) and (4) is estimated at $22 million (about 11percent o f the total loan) for the five provinces. 3. Monitoringand evaluation of outcomes/results Monitoring o f project progress, outputs and outcomes would be measured through SOCADPOCAD and related responsible line agencies' intemal M&E systems specifically designed for this project. Results would be documented inregular progress reports, which would include the agreed key outcome and output indicators (see Annex 3). These reports would be a key focus o f project supervision bythe Bank (progress reports are discussed inAnnex 4). Supervision and progress reporting to the Bank would be twice a year, on the March 31 and September 30 annually. SOCAD and POCADswould make plans for their intemal semi-annual sub-project supervision reviews each year, carry out the reviews by experts, and submit their supervision reports to the Bank within three months after the supervision. Mid-term Review would be conducted jointly by the Bank and SOCADPOCADs; the Mid-term Review Report wouldbeprovided to the Bank before June 30,2008. (See Annex 4 for details). 9  4. Sustainability Overall project sustainability hinges primarily on borrower commitment, effectiveness o f project management, and well-functioning, viable farmer organizations. The proposed IAIL3 project enjoys strong borrower commitment, as demonstrated by the government's request for a third project insupport of a key government program, and as seen inthe intensive efforts carried out at all levels to prepare the project inan adequate and timely manner. Commitment by SOCAD and the POCADs has also been demonstrated by the substantial amount o f implementation work already carried out under MIL3 retroactive financing plan. Under IAIL2, SOCAD and the POCADs demonstrated their strong management capability to produce and implement well- designed project components, ensure high quality o f construction, and achieve successful institutional development focused inparticular on W A S . For irrigation and drainage facilities, sustainability depends on cost recovery and stakeholder participation to support adequate O&M and both major and minor repairs as needed. Under IAIL3, W A Swould be the primary vehicle for improving local farmer participation, O&M, and cost recovery for irrigation O&M, and sustainability will therefore depend in part on how effective the project is in introducing and expanding WUAs. Under IAIL2, WUA development has been efficient, highquality and well supported. For agriculture components, sustainability will depend on the provision o f adequate operating budgets for strengthened extension activities in the project areas, and on the establishment o f new institutional mechanisms, such as farmer professional co-operatives and FAs, that will bring strengthened organizational capacity, support improved agricultural efficiency and facilitate greater returns to farmers. The positive experience with W A Sunder IAIL2 should enhance the likelihood o f success with FAs under IAIL3. To promote success in all institutional , development aspects, extra attention should be paid to quality and content o f information and training, which should cover methods o f bottom-up participation, organizational development and management, and technical and financial aspects. Training should be provided to all project farmers including women. Training for women should include confidence-building, WUA and FA operation and management, and how to participate effectively in WUA and FA affairs and management. 5. Critical risks and possible controversialaspects Risk Risk Rating Risk Minimizing Measure Product prices are not maintained in M Project supports diversification of real terms. agricultural production and orientation to highquality products. Disbursement system disconnects M FMS andMIS will control and monitor Bankloanfunds from actual counterpart funding and expenditures as spendin on several com onents. Farmers do not have sufficient financial capacity or incentives to agriculture services, WUAs and FAsto pay for O&M o fproject irrigation maximize returns to farmers from project facilities. investments. 10  WUAs will not be established and N WUA development plans prepared and operated to take over O&M and 'owned" by government; specialized management o f local irrigation and TA, training, study tours, andstaff drainage systems. training on institutional aspects and participationmethods will be provided. O&M o firrigation innon-WUA M O&M plans and water measurement areas i s not sustainable. havebeenrequired for each non-WUA site. Vested interests will control pilot M Pilot activities will be closely monitored farmers' professional cooperative and supported; independent assessment organizations and/or management o f financial, institutional and decisions once operating, andthe management status required for each interests o f farmers and FAs will farmers' professional cooperative not be adequately protected. organization; business plans andby-laws must motect farmer interests. Weak understanding o fnew FA, M Special training on FAs, green food, and green food and/or farmer farmers' cooperative concepts; links to cooperative sub-components experts and specialized institutions for concepts. training and support already established (e.g., the Supply and Marketing Comoration. academic institutions. etc.). Unsustainable groundwater Positive water balance andvolumetric development and pumpingin water charges required for all project areas, especially inHebei. groundwater sites; groundwater management plans required for all water- short project counties inHebei; comprehensive water savingmeasures promoted by expert mobile teams. Overall Risk Rating ) M RiskRating-- H(HighRisk), S (Substantial Risk), R [Modest Risk),N(Negligible or Low Risk) 6. Loadcredit conditions and covenants (i)EffectivenessConditions:Borrower's confirmationthattheprojectAgreementhasbeenduly authorized or ratified by each Project Province, and is legally binding upon such Project Province inaccordance with its terms. (ii)Covenants: Comprehensive legal covenants for IAIL3 implementation include project management, staffing and reporting arrangements, annual investment pladmonitoring reports, groundwater protection, and safeguard compliance commitments (see detailed list o f legal covenants inAnnex 6). (iii)DisbursementConditions:None 11  D. APPRAISAL SUMMARY 1.Economicand financialanalyses (See Annex 9, and projectfile for detailedassessments). Economicevaluationsummary. The estimated Economic Rate o fReturn (ERR) for the overall project i s 23.7 percent with a Net Present Value (NPV) o f about Y2,305 million. Base case ERRs for the five project provinces were: 22.7 percent for Hebei, 27 percent or Jian'gsu, 23.9 percent for Anhui, 23 percent for Shandong, and 21.1percent for Henan. Detailed economic analysis was performed for individual irrigation sub-projects and agricultural modernization and support sub-projects and aggregated for each project province and the project as a whole. The economic analysis included: (a) the direct, quantifiable benefits derived from: increased water and agricultural productivity for low-and medium-yield farmland, through the integrated water-saving facilities/technologies; (b) the upgrading o f agricultural practices to promote highquality and unpolluted agricultural production (including greedorganic crops); (c) the establishment/strengthening o f participatory institutions (FAs and W A S )to provide farmers with better access to modern agricultural technologies, market information and production conditions; and (d) the protection o f the ecology and environment. Benefits resulting from "real" water savings were also estimated, but were considered as secondary benefits and not included in the NPV and ERR calculations. The analysis compared "with project" and "without project" scenarios over 20 years. Sensitivity and risk analysis. The sensitivity o f the overall project to risks o f natural disaster, reduced market prices and increased investment costs was tested using switching values. Switching values for the overall project were 21.4 percent for benefits and 27.2 percent for costs. Estimated ERRs exceeded the opportunity cost of capital (OCC) o f 12 percent for all provinces except Shandong with an 8.3 percent ERR. None of the above risk conditions occurred inIAIL2. Measures have beentaken inproject design to reduce andminimize impacts from these risks. FinanciaVfarmerincomeanalysis. FinancialRateo fReturn (FRR) = 17.9 percent; NPV=Y2.1 billion (see Annex 9 for details). Although not applicable to the public irrigation facilities financed under the project, financial analysis was prepared to evaluate the incentives for farmers to participate inthe project. Analyses o f water service costs compared to the increase in farmer income have been carried out for each individual provincial sub-project and for typical beneficiary farm households. The project will substantially increase beneficiary farmers' incomes, especially in the 27 designated poverty or relatively poor/less-developed counties under the project, and will benefit some 1.4 million farm families. At full development, net farm incomes per beneficiary family would increase by about 44.4-63.4 percent in Hebei, 18.2- 46.6 percent in Henan, 38.8-42.3 percent in Jiangsu, 41.1-68.2 percent in Anhui, and 11.8-35.3 percent in Shandong. Average annual net incomes for typical farm households who participate in project activities would increase about 47 percent from 2004 to 2010 for low-income households, about 30 percent for medium-income households, about 29.8 percent for greedorganic crop production household, about 38.5 percent for households who participate in the FAs, and about 41.7 percent for 12  households who participate inpilot Farmer Cooperatives. These substantial incremental benefits should provide sufficient incentives for farmers to participate inproject investments, assume full responsibility for O&M o f on-farm irrigation facilities, pay increased water charges, and carry out andparticipate insustainable watedland use andmanagement. Fiscal impact. The long-run fiscal impact o f the project is expected to be positive due to incremental production, income and taxes. The immediate fiscal impact o f counterpart fimding for implementation will be negative, totaling about US$27.36 million equivalent per year at the provincial and local government levels. This is relatively small compared to total provincial and local budgets, and most local government contributions can be recovered from the beneficiaries' incremental income duringproject operation. Also, water charges under the project would cover full O&M costs for on-farm irrigation facilities, which would reduce the fiscal burden on local governments. Agricultural inputs would be provided on a commercial market basis, and government revenue will increase from taxes on incremental agricultural and forestry production. 2. Technical The following key technical issues for the project were identified duringpreparation: Real water savings. Comprehensive Water Saving Component will invest in engineering, agriculture and management measures designed to bring about "real" water savings and improvement in water productivity. For water short areas in Hebei, ET management would be introduced on a pilot basis for surface and groundwater irrigation areas. For water productivity monitoring, the M&E activity under Component 4 would include monitoring o f water volumes and both surface and ground water used and crop production. The M&E and research activities would also include the pilot use o f remote sensing/satellite technology to monitor ET, the impact of project investment on ET reductions, pilot laser-controlled land grading, and land use and croppingpattern changes inselected demonstration areas, especially inHebei. Groundwater management. InHebei, groundwater is a major component o f the water balance. Each water-short county (with negative water balance) would prepare and execute a comprehensive groundwater management plan, aimed at reducing over-extraction and pollution o f groundwater through control and regulation o f use o f groundwater resources by agriculture, industry, and city/domestic water supply for the sustainable management and efficient conjunctive use o f both surface and groundwater. The plans would include structural and non- structural measures and would be prepared and executed by the County Water Affairs Offices or Water Resource Bureaus with other expert technical assistance as needed. The above and other technical issues have been defined and dealt with during preparation and appraisal, through special studies and technical assistance where appropriate, inclusion in program approach procedures, and/or specific covenants. PPMO mobile expert teams would assist and advise farmers with real water saving, groundwater management and other technical and institutional issues. Additional .specialized research and studies are planned or under preparation for the above and other topics, and the results and recommendations from the research would be assessed and incorporated during project implementation as appropriate. As in IAIL2, a technical expert group (TEG) of eminent scientists and experts with qualifications 13  and terms o f reference satisfactory to the Bank would be maintained in each province to help guide technical aspects of the project, introduce appropriate technical innovations, and handle technical issues arising during implementation. 3. Fiduciary IAIL3 has followed repeater procedures and will use the same basic financial management system as IAIL2 for which financial management was satisfactory. As such, a full Financial Management Assessment on the project's financial management system was not required. A review o f financial management under IAIL2 was undertaken covering related financial documents, audit reports, discussions with SOCAD, and a review o f financial management plans for IAIL3. Based on the review, the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the financial status o fthe project inthe agreed reporting format as required by the Bank. Similarly, a full procurement assessmentwas not required. However, procurement under IAIL2 andprocurement arrangements for IAIL3 were reviewed, discussed indetail with SOCAD and found to be satisfactory. Procurement capacity o f SOCAD and the COCADs has been adequate during IAIL2 and is expected to be adequate for IAIL3. 4. Social The major social concerns o f the project are the promotion o f social development through project design and implementation, and the minimization o f social risks through avoidance or mitigation o f potential negative impacts. Positive outcomes on both aspects were achieved under IAIL2, based on which the potential social impacts and aspects o f IAIL3 have been assessed. Social development would be promoted through empowerment o f local farmers to participate infarmer- managed W A Sand FAs. Financial and social capital benefits o f such participation in W A S under IAIL2 were substantial; under IAIL3, WUA coverage would be expanded and FAs developed. In addition, women farmers would be targeted for training and participation in the operation andmanagement o f WUAs and FAs, as women frequently manage householdlandand water resources when males out-migrate. Project design gives special attention to vulnerable groups, through the promotion o f inclusive institutions which will increase the poor and female farmers' share o f project benefits. About 25 percent o f the 107 IAIL3 project counties are poverty counties or relatively poor areas, compared to IAIL2 which covered no poverty counties or areas. Based on experience with IAIL2, no involuntary resettlement or land acquisition i s expected. However, in accordance with Bank policy, a "Policy Framework for Resettlement and Land Acquisition" has been prepared to guide resolution o f such issues if they arise during implementation. Duringproject preparation, extensive consultation with farmers was done and a questionnaire survey o f 5,070 farm households showed that farmers look forward to project activities with enthusiasm and want to participate with their voluntary labor inputs. All IAIL3 provinces have assessed the project's social aspects in their Social Impact Reports, from which SOCAD has summarized a general report (see Annex 13 o fthe PIP). 14  The Bank policy for indigenous peoples is not triggered by IAIL3, as there are no ethnic minority groups in the project area in the five 3 H basin provinces, as confirmed in the social impact review carried out by SOCAD. Should there be any additional sites identified for expansion o f W A S , as encouraged under the `program approach', Bank policies would be followed, including an assessment o f any ethnic minority groups potentially affected by the project, and, ifidentified, development of plans to ensure equitable access to project benefits. A policy framework for ethnic minority development guided by OP4.20 was drawn-up at the appraisal stage. 5. Environment Bank management decided to treat IAIL3 as a repeater project and a full EIA was therefore not required. However: (a) the environmental impacts of IAIL2 were assessed; (b) environmental conditions in the new IAIL3 areas were evaluated to ensure comparability with environmental conditions in IAIL2 areas; and (c) an environmental management plan (EMP) was prepared for eachproject province (see Annex 14for details): 6. Safeguardpolicies SafeguardPoliciesTriggeredby the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [XI [I Cultural Property (OPN 11.03, being revised as OP 4.11) [I [XI Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [XI [I Projects inDisputed Areas (OP/BP/GP 7.60) [I [XI Projects on International Waterways (OP/BP/GP 7.50) E l [XI EnvironmentalAssessment. IAIL3 is classified as an environmental category Bproject, and as the Bank decided that simplified `repeater project' procedures would be followed, a hllEIA was no required. The project focuses on the rehabilitation o f existing sites, with limited construction and no major civil works, and significant environmental impacts are not expected, similar to IAIL2. Nevertheless, lessons from M I L 2 have been reviewed and incorporated, new sites to be included have been evaluated, and environmental management plans for the new project have beenprepared, as described above (see also Annex 14). InvoluntaryResettlement.N o land acquisitionor involuntary relocation is envisaged under the project. However, the project could affect people through loss of crops at construction sites, and land leveling and amelioration might require some farmland readjustment. Mitigation measures would be taken to minimize any such potential impacts, and based on I A I L 2 experience these impacts can be largely avoided (e.g., through following existing irrigation and road alignments, and undertaking work in fallow seasons). In accordance with the Bank's safeguard policy (OP4.12), a Policy Framework for Resettlement and Land Acquisition has been prepared by 15  SOCAD. In the event o f its use, consultations with farmers would be carried out and social impacts would be monitored andreported. Pest Management. N I L 3 would not finance procurement or use o f any pesticides. During preparation, each project province and county prepared a detailed pest management plan. The project itself will promote IPMand the production o f non-polluting "green food" on 15,805 ha. Farmer response to IPM inIAIL2 was highly positive, and is expected to be similar or better for IAIL3. IPM experts from Provincial agricultural universities and academies of agricultural sciences would also provide support to the project. SOCAD will provide to the Bank by March 31 o f each year annual monitoring reports on the implementation o f IPMplans for the previous year. Dam Safety. No dam construction would be financed under the project, but 17 existing dams serve sub-project areas. The safety aspects o f these reservoirs have been reviewed inaccordance with Bank Policy (OP 4.37). Based on the information and documentary evidence provided by the respective dam owners and discussions held with each province, 13 o f the 17 dams are classified as operationally safe. The remaining four dams - Shilianghe and Xiaotashen (Jiangsu), Gutou (Shandong), and Fengshuiling (Anhui) - either have safety, remedial and strengthening works still inprogress but nearing completion, or have recently completed (but not yet inspected and accepted) such safety works. A commitment will be obtained from Jiangsu and Anhui POCADs that the concemed Provincial or City WRBs will carry out the final inspection and acceptance o f the remedial and strengthening works completed; the PPMOs would provide copies o f the reports on the above dams to SOCAD for submission to the Bank by December 31,2006 (see Annex 6). 7. PolicyExceptions and Readiness The project is fully prepared and appraised, is consistent with Bank policies and does not require any exceptions. Project staff have been mobilized at all levels and trained including training in Bankprocurement anddisbursement procedures. The project has beenprocessed under repeater procedures. Full environmental, social, financial management, and procurement assessments were therefore not prepared, although altemative due-diligence evaluations were carried out as described above. 16  Annex 1: Country andSector or ProgramBackground CHINA: IrrigatedAgricultureIntensificationI11Project CountryBackground 1. Inthe last 20years, Chinahasmadegreat gains economically and socially. Since the late 1970s, over 250 million people have been lifted out o f poverty. Between 1993 and 2003, annual GDPgrowth averaged 8.6 per cent. 2. Notwithstanding these achievements, however, China's geographic and population size bring considerable challenges. More than 30 million people still live below the Chinese government's rural income poverty level o f 625 RMB per annum, with more than 200 million living on expenditures of less than U$l.OO per day. While living standards for rural areas are on the rise, rural areas are still poor in absolute terms; indicators show that inequality and income gaps are increasing between urban and rural populations, and between coastal and inland areas, as China continues its transition from a centrally planned to a socialist market-oriented economy. Sector andprogrambackground 3. Raising productivity levels, domestic self-sufficiency and international competitiveness feature as central themes in China's Tenth Five Year Plan for National Economic and Social Development (2001-2005). The most recent official statement affirming commitment to these principles was Document No. 1 o f January 2005, in which key priorities are strengthening overall production capacity inChina, raising agricultural efficiency and farmers' incomes. With recent WTO membership (2001) and increasing integration into the global economy, the agricultural sector, as the main source o f livelihood for many rural households, will have to undergo substantial structural changes. Agricultural growth has slowed in recent years, as represented in lagging farm income levels. While feeding China's vast population remains a key priority (total grain production fell from its recent peak o f 512 million tons in 1998 to 430 million tons in2003), efforts to open up its market and increase the value and competitiveness o f agricultural production will be critical for raising rural incomes and facilitating all round development. Government's prioritization o f not just food quantity, but production diversity, quality and safety, are a response to consistently rising domestic, as well as international, standards and demand. 4. Another critical issue facing the country is the growing income gap between urban and rural areas. Although living standards for rural areas are on the rise, rural areas are still poor in absolute andrelative terms. Rural income growth has lagged urban income growth, and in2003 the average income of rural residents stood at only 31%that o f urban residents. This rural-urban income gap is still increasing, albeit at a slightly slower rate inrecent years due to the substantial rise in international grain prices. A similarly growing income gap exists between coastal and inland areas. Such income disparities can threaten hture development and stability, as well cause human suffering and leave substantial human resources untapped. Raising rural incomes through sustainable rural development is one o f the most pressing and serious economic and social challenges now facing China. 17  5. New integrated approaches are therefore needed to address these combined goals o f domestic food security and safety, increased ruraYagricultura1 income growth, sustainable growth in the agriculture sector and international competitiveness. The government's Comprehensive Agricultural Development program (CAD), located in the Ministry o f Finance and implemented through the State Office for Comprehensive Development (SOCAD), is supported by 18 multi-sectoral and line ministries and seeks to address these challenges through an integrated approach to sustainable rural development. Initiated more than 17 years ago, CAD i s still the primary vehicle for meeting national strategic targets for food and agricultural production. SOCAD as the main implementing agency has major funding responsibility in promoting the accomplishment o fthese goals. 6. The proposed IAIL3 Project will specifically address technical, financial and institutional elements, with the rationale that all such elements are necessary strands o f a multi-dimensional strategy for better and faster rural development. Through the additional resources and technical support available in a Bank-financed intervention, IAIL3 will help strengthen the management and implementation o f subprojects under part o f the national C A D program, thereby providing a model for improved implementation andmanagement o f C A D innon-MIL3 areas. Key constraintsandissuesto beaddressed 7. Constraints and issues to be addressed under IAIL3's integrated approach include: (a) Poor quality irrigation and drainagefacilities, Given that the productivity o f irrigated land averages twice that o f rain fed land and brings more reliability, China utilizes irrigated agriculture widely to achieve high, sustainable yields. Although large areas o f the 3 H Basin provinces have irrigation and drainage systems, land development and agricultural services, and the preceding IAIL2 project has brought significant improvements to these, much more o f this area still needs rehabilitation and modernization, with large tracts o f land remaining to be adequately developed and weak irrigation management arrangements. Many irrigation and drainage systems are several decades old and have suffered acutely from inadequate operation and maintenance (O&M). Inaddition, many systems were built to relatively low design and construction standards, and for most, the secondary and tertiary distribution systems were never fully completed. Relatively modest investments inthe improvement and completion o f these systems and in better management can yield high retums, in terms of both higher production and higher water use efficiency to achieve "real" water saving and "more crop per drop" as IAIL2 has demonstrated. Water demand and supply imbalance. The water resource situation is short in the northern part o f the 3 H basin, which is an important part o f varies among the five project provinces. Hebei in particular has very little unallocated surface water, and as a result has experienced widespread over pumping o f groundwater. Shallow aquifer levels in Hebei have fallen widely, in some areas by as much as a meter per year. Henan and Shandong have moderate water balance surpluses on average, with relative shortages during droughts in some years, while Jiangsu Anhui provinces have surplus water resources overall. M I L 3 will attack the water shortage problems in Hebei, Shandong and Henanthrough a focus on and measures for "real" water saving based on reductions 18  in non-beneficial evapo-transpiration, and will support in Hebei in particular development o f groundwater management plans. (c) Need for modern agricultural production techniques and support, including environmentally sustainable methods. China's membership o f WTO, and its transition to a market-oriented economy with socialist characteristics, has brought a need to respond to more rigorous international standards and competition, in addition to increasing domestic demand. More affluent urban consumers in China are demanding better choice, quality and competitive pricing o f available products. Agricultural modernization, which includes increasing productivity, quality and efficiency while reducing the environmental footprint, is therefore critical andwould be achieved through a combination o f improved extension services, improved ecological management techniques, crop diversification, andimproved inputs. An under-developed agricultural value chain and farmers ' lack of market bargaining power. Historically, little emphasis has been placed on marketing o f agricultural products, and there is only limited awareness o f consumer demands and related market pricing among producers for use in determining their crop selection and mix. In addition, farmers are mainly very small producers and generally have limited access to market information and almost no market bargaining power in tems o f prices and their share o f market value. Farmers in industrialized countries have generally dealt with this situation by combining into cooperatives which range from simple supply o f inputs to marketing to the complete production-processing-marketing chain; some o f the most famous food brands in the U.S. for example are actually farmer cooperatives. Despite such poor information andprice exchange between the Chinese farmer and consumer, no systematic attempts have yet been made to identify and forge beneficial vertical linkages along the production and marketing chain, inorder to increase the pass-through o f better prices and market values to farmers, and to improve quality for consumers. IAIL3 proposes to pilot selected high value, high demand products and production methods (e.g., green food), and their marketing, through specialized farmer's associations (Farmer Associations, or FAs) and, additionally, partnerships between these associations and commodity-based farmer dragon head enterprises which would be wholly or partly owned by farmers' professional cooperative organizations or FAs. The key to success o f these pilots in agricultural modernization will be the participation and empowerment of farmers themselves and the monitoring and dissemination o f lessons learned so they can be replicated over wide areas. (e) Institutional development. This is one o f the key cross-cutting elements to enhance stakeholder participation and promote sustainability through self-managed farmer organization entities in support o f project components. For the irrigation sub-sector, in addition to construction and rehabilitation, sustainability is a key issue: how to pay for irrigation and drainage improvement investments and O&M; how to achieve more efficient, unified management o f irrigation systems; how to increase local participation and "ownership" in irrigation; and how to design, implement, operate and maintain irrigation investments to achieve consistently higher technical and institutional standards. Institutional reforms are required to address these challenges. Building on 19  the achievements under IAIL2, the project would expand promotion o f S I D D / W A concepts as an institutional measure to strengthen the sustainability and self-financing of irrigation systems and their O&M, making irrigation management more efficient and responsive to users, and promoting increased participation o f farmers in management decisions. Similar issues relate to agricultural production and marketing, and it is felt that farmer associations (FAs) and farmers' professional cooperative organizations (FPCOs) working together may bringsimilar farmer benefits from organizing farmers as did W A S . Synergies betweenFAs and FPCOs (andalso WAS)will be explored ina number o f pilot sites, in order to understand and document the operability, benefits and social impact o f such arrangements. Document No. 1 has endorsed the approach o f community-level institutional development, harnessing the power and incentives of organized farmer participation in order to enhance their decision-making power and control and manage resources to enlarge benefits. Water supply and demandbalanceanalysis 8. The water resource situation varies among the five project provinces. Jiangsu and Anhui provinces have overall surplus water resources, both surface and groundwater, due to more abundant annual rainfall. Both provinces have large reservoirs, major rivers flowing through the provinces, and large lakes. Henan and Shandong Provinces have moderate surplus o f surface and groundwater resources with seasonal shortages during dry spells, and also have Yellow River diversionwater (Henan 3.5 billion cu.m., and Shandong 7.0 billion cu.m.). Hebei Province has less surface water and its shallow aquifer groundwater has been over exploited in the past, resulting in falling groundwater level. Especially in Hebei, strong measures for "real" water saving are needed. The annual long-term average rainfall are shown inthe table below: Province IIAnnual Rainfall (mm) Jiangsu 850 - 1,100 mm Anhui 1,000 - 1,350 mm Henan 944mm Shandong 650 mm Hebei 556 mm 9. Each project province has carried out a water demand and supply analysis for each proposed project county. Each analytical study is divided into surface water and ground water. Water demands cover irrigation for crops, industrial use, domestic water supply and others (livestock, etc.). Groundwater analysis is based on the ET (evapo-transpiration) method. Rainfall, surface flows, and groundwater are estimated for representative hydrological years o f 2002 (current situation), 2010 (project completion year) and 2015 (project full development year). 10. Results o f the analyses are aggregated to the provincial level and summarized by province in the following table (more detailed analyses o f the water demand and supply for surface water and groundwater and down to city and county levels is available in the project file): 20  water for irrigation inthe 1793.6 I I I I I I I I f Note: X(S) indicates county usingsurface water; X(G) indicates county usinggroundwater \l: coniunctiveuseoftubewelkanalsumliedwater include 11. The above analysis summary shows that Jiangsu and Anhui sub-project areas have surplus surface water and groundwater resources to meet the project needs. Henan and Shandong have lesser surface water resources then Jiangsu and Anhui and adequate groundwater resources to meet the project needs. Hebei has no significant surface water resources for irrigation and all the 22 project counties rely on groundwater for irrigation. Analyses o f groundwater resources for Hebei show that 19out the 22 plannedproject counties inHebei had a groundwater deficit for the current situation in 2002. The aggregate deficit for the 19 counties amounts to about 68 million. cu. m. or about 8.8% o f the total aggregated supply available. However, this deficit would be progressively reduced through the project comprehensive water saving irrigation measures. By 2010 and project completion, a surplus o f 24 million cu. m. is projected. The comprehensive water saving measures implemented for these 19 water-deficit counties would save a total of about 92 million. cu. m. o f groundwater. Therefore, comprehensive water saving irrigation would play a critical role inthe success and sustainability ofthe project inHebei. 12. As the current groundwater deficit for the 19 counties inHebei would only be addressed incrementally over the 5-year project implementation period, the following interim measures would be required: (i) no expansion or increase ofnew tubewell irrigated areas inthe 19 Hebei counties; (ii) reduce irrigation water amount and the number o f times o f irrigation in order to reduce overall crop ET through "deficit irrigation"; 21  (iii)promote use o f shallow aquifer water (mineralization o f 3-5 gm/liter) for crop irrigation directly or conjunctively with canal-supplied surface water so as to reduce over- extraction o fthe deep aquifer water; (iv) installation o f at least two groundwater monitoring points in each sub-project area to monitor changes ingroundwater levels; and (v) control and regulation of extraction and use of groundwater on a long-term, sustainable basis ineach project water short county through a comprehensive long-term groundwater management plan to be prepared and executed by the County Water Affairs Offices or Water Resource Bureaus for all the project counties. 22  Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies CHINA: IrrigatedAgricultureIntensificationI11Project I Latest Supervision (Form 590) Sector Project Ratings (Bank-financed projects 3nlY) hplementation Development I ~ Progress(IP) Objective (DO) Bank-financed Rehabilitationand improvement o f North China Plain Closed N/A irrigation and drainage systems and Agriculture Project 3 1/12/87 agriculture services improvement ($54 million) N/A Rehabilitationandimprovement of Shandong Agriculture Closed NIA irrigation anddrainage systems and Development Project 1131/94 agriculture services improvement (SDR 82.5 million) N/A Rehabilitationand improvement of Pishinghang-Chaohu Closed N/A irrigation and drainage systems and Development Project 6130192 agriculture services improvement ($92.7 million) N/A Rehabilitationand improvement of Northern Irrigation Closed HS irrigation and drainage systems Project 12131197 ($72.7 million) S Expansionof irrigation and water Shaanxi Agriculture Closed HS systems, agriculture support and agro- Development Project 6131197 industries ($106 million) HU Rehabilitationand improvement o f Irrigated Agriculture H S HS irrigation and drainage systems and Intensification Project agriculture services improvement ($335 million) Rehabilitationand improvement o f TarimBasinProject Closed S irrigation anddrainage systems and ($125 million) improvements inenvironmental river S management Rehabilitation and improvement o f Henan Agriculture Closed S irrigation and drainage systems and Development Project agriculture services improvement ($1 10million) S Rehabilitation and improvement o f Hebei Agriculture Closed S irrigation and drainage systems, and Development Project expansion o f agriculture services and ($149.9 million) S amo-industries Rehabilitation and improvement o f Yangtze Basin Water Closed S irrigation and drainage systems, self- Resources Project managingirrigation and drainage ($210 million) S districts and river basinmanagement Rehabilitation andimprovement o f IrrigatedAgricultural Closed HS irrigation and drainage systems, self- Intensification Loan I1 managing irrigation and drainage Project ($300 million) H S 23  districts and river basin management Rehabilitation and improvement of Tarim Basin I1Project Closed HS irrigation and drainage systems, self- (Loan$90 million, managingirrigation anddrainage ICredit SDR44.6 districts and river basin management million) Rehabilitation andimprovement of Water Conservation H S H S irrigation anddrainage systems, self- Project managing irrigation and drainage ($74 million) districts andriver basinmanagement Rehabilitation and improvement o f Guanzhong Irrigation S S irrigation and drainage systems, self- Improvement Project managing irrigation and drainage (Loan $80.0 million, districts and river basin management Credit $20 million) Rehabilitation and improvement o f Hai Basin Integrated - S irrigation and drainage systems, self- Water and managing irrigation and drainage Environment districts and river basinmanagement Management Project (GEFUSD$17 24  Annex 3: ResultsFrameworkandMonitoring CHINA: IrrigatedAgricultureIntensificationI11Project ResultsFramework PDO OutcomeIndicators Use of OutcomeInformation The overall development (a) Increase inaverage per capita a) Measure project impact Jbjectives of the project are to income for typical farm households; :ompared to planslappraisal; increase water and apcultural (b) Increase incrop production, b) Improvepolicy, design and xoductivity inlow- and especially o f high value and non- mplementation o f SOCAD's medium- farm land areas, to raise polluted (green) crops; iational CAD program; farmers' incomes and (c) Change inwater productivity, in :c) Provide input b y example into kg/cu. mand Y/cu. M, and in iational rural strategy; :ompetitive capability of ?reduction under productionper unit of ET; :d)Demonstrate impact o fintegrated post-WTO (d)Number andareacoverage o f :AD approach for implementation :onditions, and to promote WUAs comparedto targets, andto Ifrealwater savings andsustainable sustainable and participatory water saving area; urigated agriculture under water water resource management and (e) Number and area coverage o f scarcity; ago-ecological environmental FAscompared to targets, and to high [e) Help guide project assessment management inthe 3-HBasin. qualityhon-polluted (green) crop andadjustment at the Mid-Term area; Review (MTR). ( f ) The number o f counties implementing groundwater management plans. IntermediateResults ResultsIndicatorsfor Each Use of ResultsMonitoring Oneper Component Component Component 1: Water Saving Component 1: (a) Access progress; Irrigation and Drainage (a) Area inhectareso f improved (b) Adjust implementationand Improve the land and water use low- and middle-yieldfarm land; investment to achieve overall efficiency and "real" water saving (b) Area inhectaresunder improved objectives; inproject areathrough comprehensive water saving (c) Measure impact andbenefits; implementationo f the irrigation(engineering, agriculture (d) Measure effectiveness of comprehensive water saving and management measures); comprehensive water saving technologies (engineering, (c) Delivery efficiency o f on-farm measures; agriculture andmanagement irrigationsystems; (e) Measure impact o f farmer measures), and through formation (d) Change inirrigationquota (water participation(WUAs) inwater and fostering o f W A S . use) incu. mper ha; management; (e) Change inkg/ET; ( f ) Help guide project assessment (f)The area oflaser controlled land and adjustment at MTR. grading; (g) Number o f quality WUAs established and operated; (h)Number ofsites withtertiary level water measurement facilities and volumetric water charges. 25  Component 2: Agricultural Component 2: Component2: Modernizationand Organization (a) Number o f improvedTownship (a) Access progress; Development Agricultural Technology Extension (b)Adjust implementation and Increasedprofitability for farmers Centers; investment to meet overall through the adoption o fhighvalue, (b) Change inareaunder IPM; objectives; high quality, low impact agricultural (c) Quality seeds coverage; (c) Demonstrate impact o f production techniques, better safety (d) Change in total output value o f comprehensive agricultural o f crops (increased food safety) agriculturalproduction; modernization adapted to the including non-polluted, green and (e) Change inharvest rate using Comprehensive Agricultural organic crops, enhanced farmer agricultural mechanization; Development Program; participation through FAs, and (f)Ratio of extensiontechnicians to (d) Demonstrate impact andvalue to improved market access. farmers; farmers o f non-polluting crop (g) Area o f demonstration and production; extension; (e) Promotiono f sustainable and (h) Farmer training inmadmonth; profitable farmer cropping systems (i) Area o f high quality/ "non- and technology; polluting/ crop production; (9Demonstration ofthe role and (j)Areaofgreedorganiccrop impact o fFAs and FPCOs in production; improving farmer income and (k)Number andlocationof market access; improved and new FAs: (g) Provisionof agricultural (1) Numbero f demonstration pilots statistics on famer/mral incomes, for Farmers' Professional green food production, FAs, etc., Cooperative Organizations. and agricultural change; (h)Helpguide project assessment and adjustment at MTR. Component3: Agro-ecological Component3: Component 3: EnvironmentalProtectionand (a) % o f area with forest belt and (a) Access progress; Management wind break cover; (b) Adjust implementation and Forestry development for agro- (b) %ofareaunder IPM; investment to meet overall ecologicalprotection inconjunction (c) % o f area in"non- objectives; with integrated agricultural activities pollutedgreen" crops; (c) Demonstratevalue of agro- of CAD, and implementation o f the (d) Number ofcounties with ecologicalprotectionand forest project's EMP. groundwater management plans shelterbeltsandwindbreaks; adopted and inoperation; (d) Estimatenet benefitsofagro- (e) Environmental and EMP annual ecologicalprotectionand forest shelterbelts andwindbreaks; reports, including actions taken to (e) Ensurecompliance with address environmental and related environmentalcovenantsand Bank recommendations. environmentalsafeguards; (0Help guide adjustment at MTR. 26  Component4: Institutional Component4: Component4: Strengtheningand Project (a) Training o fproject staff (a) Access progress; Management Support (including study tours); (b) Adjust implementation and Increased capacity o f SOCAD, (b) Provision o fadequate investment to meet overall POCADs, COCADs and lower management and staff numbers and objectives; levels to implement the project and skills; (c) Helpensure that project improved CAD more efficiently. (c) Establishment and operation o f implementation arrangements are Mobile Expert Teams and Expert operating at a satisfactory level and Panels; indicate ifstrengthening is needed; (d>Timely submission of annual (d)Help ensure compliance with plans, and implementation and legal covenants and Bank monitoringo f all components and requirements and policies; activities inline with annual plans; (e) Help guide project assessment (e) Progress, financial, technical, and adjustment at MTR. research and monitoringreports o f highquality and submitted on time; (0Compliancewithlegalcovenants andrequirements (including counterpart funding, procurement, and auditing): (g) Establis-Lent, operation anduse o fproject MIS at all levels. 27  1 i 1 1 e ; n > E e e az - d Y s 5 BB  DzB z sd' of P I I  Annex 4: DetailedProjectDescriptionandImplementationArrangements CHINA: IrrigatedAgricultureIntensificationI11Project A. DetailedProjectDescription Introductionand Summary The overall development objectives o f the project are to increase water and agricultural productivity and production in low- and medium-yield farm land areas; raise farmers' income and strengthen the competitive capacity o f farmers under post-WTO conditions; and promote sustainable participatory rural water resources management and ago-ecological environmental management inthe 3-H Basin. UIL3's objectives are similar to IAIL2's interms o f increasing production, raising farmer incomes and improving rural water resource management, and IAIL3 would continue and build on the highly successful integrated approach and activities o f IAIL2. To deal with the post-WTO environment, however, IAIL3 would add important innovations to modernize agriculture, enhance farmer competitive capacity, increase water use efficiency, expand non-polluting/green/organic food production, extend participatory farmer W A S , promote farmer participation and FAs, and strengthen the government's CAD program through integrated technical and institutional investments. Although the third in a series o f Bank- financed irrigated agriculture intensification operations, JAIL3 would focus comparatively more on raising productivity o f land and water rather than on increasing production alone, and on enhancing market value and the farmer's share o f market value rather than raising income throughhigher production. The competitive challenges o fWTO are drivingthese changes. The project development objectives would be achieved through implementation in the five project provinces (Hebei, Henan, Shandong, Jiangsu and Anhui) of: (a) water saving Irrigation and Drainage; (b) agriculture modernization and organization development; (c) agro-ecological environmental protection and management; and (d) institutional strengtheng and project management support. These integrated components/activities would lead to increased farmers' incomes, enhanced production and agricultural competitiveness, and establishment o f institutions to increase farmer involvement and bargaining power and provide incentives for sustainable water use and land management. The project would also establish forest shelterbelts and forest networks to support optimum cropping conditions under the above investments, and promote environmentalprotection for major lakes and groundwater inthe project area. The main activities of the project are detailed as below. 1. Water-SavingIrrigationandDrainage(US$316.14 million) This component aims at real water savings and optimum utilization o f water resources (Water Productivity - WP) through an integrated set o f engineering, agricultural and irrigation management measures. This component would implement innovative actions to raise the economic value o f water use in irrigated agriculture, improve agriculture production and efficiency, and achieve "real" water saving based on reduction o f crop ET. Overall, it would support water saving irrigation and drainage measures through modernization and upgrading o f local irrigation and drainage systems in existing irrigation districts at the tertiary and on-farm level so as to improve efficiency, equity and reliability o f field water distribution facilities andto improve about 505,468 ha o f low- and medium-yield farmland inthe five provinces. Within this 30  area, new or improved water saving irrigation facilities supplying about 380,456 ha would be constructed to demonstrate real water savings and increased agriculture production per unit of water through integrated irrigation engineering, agronomic and management practices. This component would be implemented with the assistance o f the local Water Resource Bureaus. Support for institutional development would center on strengthening and developing a program approach in the promotion and establishment of Water User Associations (WAS). W A S would be established by farmers for construction, management and O&M o f small canals and on-farm systems. The seven comprehensive water saving irrigation and drainage sub-components are: (a) construction and improvement o f local irrigationand drainage systems in low and medium-yield land areas; (b) engineering water saving measures; (c) agronomic water saving measures; (d) water saving management measures ( W A S )to improve irrigation efficiency; (e) preparation and implementation of groundwater management plans inall water-short counties (withnegative water balance) inproject areas; (f) pilot crop evapo-transpiration (ET) monitoring; and (g) pilot laser controlled landgrading. (a) Improvement and Construction of Local Irrigation and Drainage Systems. This would cover some 505,468 ha and include: Excavation and desilting o f about 27,000 km of branch, lateral and sub-lateral canals and drains involvinga total o f about 76.6 million cu. mo f earthworks; Construction o f about 75,900 canal ancillary structures (gates, flumes, drops, outlets and siphons) mainly at the lateral andsub-lateral levels; Construction of about 40,600 bridges and 6,500 culverts to improve rural and on-farm access; Construction and rehabilitation of about 1,800 pumpingstations; Construction, replacement and rehabilitation o f about 20,600 tubewells (about 7,500 new, Installation o f about 4,100 km of power lines (10 kv -- 700 km; 380 kv -- 3400 km), and 6,300 for replacement, 6,800 for rehabilitation); about 1,900 transformers; Construction o f about 2,500 small low land storage reservoirs and ponds (> 0.1 million cu. m. capacity; and Construction o f about 151,200 km of rural and on-farm roads (including gravel roads about 5,400 km, and earth roads about 9,700 km). (b) Engineering Water Saving Measures. Within the area above, this sub-component would cover 380,456 ha andconsist of: (i) Lining of branch canals about 580 km. and laterals 4,400 km serving a total o f about 139,000 ha o f irrigated area; (ii) Laying o f about 16,300 o f sub-surface pipelines using mainly PVC pipes (15,100 km) and concrete pipes (150 km) covering about 189,000 ha o f mainly tubewell irrigated areas; (iii) Construction of sprinkler irrigation systems serving about 1,800 ha, mainly in sandy soil androlling foothill areas; 31  (iv) Construction o fmicro-irrigation systems to serve about 375 ha; (v) Provision o f about 3,400 kmof movable and soft plastic pipes for irrigating. (c) AgronomicWater SavingMeasures. This component consists of: (i) Landleveling148,000ha; (ii) Farm landloosening and deep plowing 176,600 ha; (iii) Balanced fertilizer application 108,400 ha; (iv) Crop residues returnedto soil for 124,200 ha; (v) Training o f farmers on the measures for about 13,400 person-months; and (vi) Establish about 29,900 ha for demonstration and extension on agronomic water saving measures; and (vii) Pilot laser grading land leveling at W A Sinselectedwater saving demonstration areas. (d) IrrigationManagementWater SavingMeasures. This sub-component consistso f (i) Establishment of about 984 Water Users' Associations (WAS), including about 494 WUAs inthe five Project Provinces and about 490 W A Sin five Participating Provinces to be selected for pilot WUA development under the program approach; (ii) Construction o f about 13,700 sq. m. o fbuildings (office, training classrooms); (iii) Training and local study tours (about 10,600 person months) for WUA members and 14,200 person-monthsfor staff on irrigationtechnologies; (iv) Purchase and installation of about 4,200 sets of volumetric water measuring devices for WUA areas and 9,850 sets for non-WUA areas. (e) GroundwaterManagementPlans. This sub-componentwould include: (i) Preparation and execution o f groundwater management plans in all project water-short counties (with negative water balance); (ii) Implementation o fthe above groundwater managementplans; and (iii) Preparation and implementation o f pilot crop evapo-transpiration (ET) monitoring based on remote sensing technology (adapted from the GEF Hai Basin Project) in conjunction with implementation o f selected groundwater managementplansabove. 2. AgriculturalModernizationandOrganizationDevelopment(US$65.47 million). To strengthenthe competitive capacity of farmers under post-WTO conditions, increase farmers' income and sustain agricultural production in the subproject areas, the project would finance strengthening and modernization o f selected extension and support services, high quality seed and balanced fertilizer, integrated pest management (IPM), non-polluting/green/organic food production and food safety, cropping pattern adjustment, and increased farmer participation and access to inputs, technical and market information through specialized Farmers Associations (FAs), and vertically-integrated pilot Farmers' Professional Cooperative Organizations (FPCOs) as demonstration bases. This component would be implemented with the assistance of the local Agricultural Bureaus, Extension Centers and Supply and Marketing Corporation branches. The following are the main sub-componentsfor agricultural modernization and support: 32  (a) Strengthening and modernizationof agricultural services and support system. This would include: strengthening o f existing about 20 county extension centers and about 55 township integrated service extension stations with better facilities and equipment; provision o f better quality agricultural production inputs and materials, such as balanced fertilizers, low toxicity pesticides andwater saving plastic membrane for farmers; demonstrationandextensionareas covering about 30,000 ha; production of quality seeds through improved processing and establishment o f seed processing centers andquality seed farms; promotion o fbalanced fertilizer use; extension o f integrated pest management (IPM) over about 100,300 ha; establishment o f additional pest forecasting stations to intensify pest forecasting networks; strengthening o f existing township agricultural machinery service systems with provision o f about 16,050 sets o f agricultural machinery and equipment; promotion, through farmer training and extension services, o f improved agricultural science and technology on farming methods (including IPM)on about 100,300 ha; (b) Highquality crops demonstration,extensionandproduction. This would include: (i) Construction o f greenhouses inselected areas; (ii) development o f about 15, 900 ha o f non-polluting/green/organic crop production area for demonstration; (iii) expansion andintensification o f IPMinabove areas; (iv) training and monitoring o f highquality crop production; and (v) highquality crops demonstrationandextension. (c) Development and Demonstration of farmer associations/organizations. This would include: (i) establishment/strengthening o f about 160 specialized, farmer professional associations (FAs) to increase farmers' involvement in the application o f the advancedspecialized agricultural technologies, improve farmers' access to input, market information and provide incentives for the sustainable improvement o fthe agricultural productivities; and (ii) establishment/demonstration of about 12 pilot farmer-owned Farmers' Professional Cooperative Organizations to enhance farmer participation in the complete vertically integrated production, processing andmarketing chain. (d) applied technology and institutionaltraining for farmers, agriculturaltechnicians and farmers' professionalorganizations. 3. Agro-ecologicalEnvironmentalProtectionandManagement(US$24.46 million) To enhance the crop production conditions and enhance environmental protection, afforestation activities would increase forest cover from 13.5% to 17.6% in the subproject areas, 33  environmental monitoring would be carried out, and environmental protection plans for each province would be carried out as part of the project Environmental Management Plan. This component would be implementedwith the assistance o f the local Forestry and Environmental Bureaus, and consists o fthe following activities: (a) Shelterbeltforest networks. Thiswould include: (i) planting of on-farm windbreaks and protective tree shelterbelts covering a net area of about 20,400 ha; (ii) establishment about 580 hao f forest nurseries to produce tree saplings; and (iii) 9,747 ha o f demonstration and extension area. (b) Integratedpestmanagement(IPM) for forests. (i) purchase o f about 1,3 10 sets ofpest control equipment and instruments; and (ii) construction of about 2300 sq. mo fnew pest forecasting stations. (c) Environmentalmonitoringand management. (i) Monitoring of water environment (including surface and groundwater quality and quantity and establishment o f groundwater monitoring wells near project sites in Hebei, Shandong and Henan); (ii) Monitoringofsoilfertility; (iii) Monitoring o f IPMand environmental quality; (iv) Development and monitoringo fpilot bio-gas facilities to conserve forests; and (v) implementation o fthe project Environmental Management Plan(EMP) in eachprovince. (d) Trainingon environment,soil andwater conservationand relatedtopics. (i) Stafftechnical training o f about 10,015 person-months; and (ii) Training o f 1,300 person-months and establishment o f 160 ha o f demonstration and extension areas on other agricultural techniques for soil andwater conservation. (e) Demonstrationand ExtensionServices. 4. InstitutionalStrengtheningandProjectManagementSupport (US$57.11 million) To help improve management and implementation efficiency, and strengthen project management and the national CAD program, the project would finance staff training, study tours, office equipment, vehicles, monitoring, research, mobile expert teams, the project management information system (MIS), and the project monitoring and evaluation system (MES), detailed as follows: (a) Staff training of 17,930 person-months (local 17,910 person-months, overseas 20 person- months) andtargetedinternational anddomestic study tours (5,320 person-months); 34  (b) 2,208 sets o f office management equipment, 207 small maneuverable utilitytype vehicles for fieldmonitoring, and 186vehicles for engineering supervision; (c) 2,83 1person-months for technical assistance (mainly for local consultant services); (d) development, establishment and operation and maintenance o f an integrated MIS and MES for the project; (e) establishment and operation o f mobile expert teams (METs) and Technical Expert Groups in each province; applied research and studies in the fields of water saving irrigation, land leveling, agriculture, forestry, environment, farmer participation, and project management including remote sensing to monitor crop ET water consumption andlanduse changes; and ( f ) project survey, design and management including engineering supervision, field surveys and preparation o f preliminary designs and construction drawings, and project supervision and management of core project implementation and management activities related to financial management, M&E, project completion inspection and acceptance. 5. Project Management, Supervision and Monitoringand Evaluation Monitoring o f project progress, outputs and outcomes would be measured through SOCAD/POCAD and related responsible line agencies' intemal M&E systems specifically designed for this project. The evaluation results from the technical mobile teams at each level and the PMOS supervision would be documented in regular progress reports, which would include the agreed key outcome and output indicators, many of which are reflected in Annex 3. These reports would be the focus o f project supervision by the Bank. SOCAD would provide semi-annual progress reports to the Bank, based on timely POCAD progress reports. SOCAD would also provide annual reports on the results o f project supervision and M&E, including monitoring reports on the following key topics: implementation and impact on social and environmental safeguards measures (EMP); groundwater management in Hebei, Henan and Shandong (including ET information for surface and groundwater consumption in Hebei); development o f comprehensive water saving and WUAs (including pilot laser grading land leveling); development of non-polluting/green/organiccrop production; and development o f FA and Farmers' Professional Cooperative Organization. For WUA monitoring, TAIL3 would utilize the same comprehensive MES developed for the DFID PPRWRP, including both qualitative and quantitative indicators. Under the institutional development component, an upgraded, computerized project MIS system would be developed to address the practical MIS difficulties encountered under IAIL2 through an integrated, more responsive system for monitoring and managing procurement, expenditures, progress, and disbursements. A related computerized MES system for monitoring project outputs and outcome indicators would also be introduced inYear 1. Supervision and reporting to the Bank would be twice a year, March 31 and September 30. SOCAD and POCADs would make plans for their semi-annual subproject intemal supervision reviews each year by qualified experts, carry out the reviews, andprovide the supervision reports to the Bank within one month after the supervision. Supervision teams and reports should: review physical and financial progress, key monitoring indicators, financial management and procurement; compare achievements to planned targets; identify problems and make recommendations; include beneficiary consultatiodfeedback for WAS,FAs and pilot farmers' 35  professional cooperative organizations; and be coordinated with Bank semi-annual supervision missions. Approximately halfway through the project, a Mid-term Review would be conductedjointly by the Bank and SOCADPOCADs; the final Mid-term Review Report would be provided to the Bank before June 30, 2008. The Mid-term Report would summarize project progress, M&E results and actions taken as needed, any implementation problems and actions taken inresponse, revised costs, modifications needed (ifany), andmeasures recommended to complete the project on time. Field studies, including beneficiary consultations, would be undertaken in selected provincial sites in advance of the Mid-Term Review to investigate issues identified by routine monitoring and supervision, and to provide primary evidence o f project impact and stakeholders' experiences. The borrower`s Implementation Completion Report would be hrnished to the Bank within three months o fproject completion. 6. ProjectScope The project covers Hebei, Henan, Shandong, Jiangsu and Anhui Provinces in the Huang-Huai- Hai Plainwith subprojects spread out over 107counties in25 prefectureskities. Seventy three of these counties are former IAIL2 counties with experience in Bank procedures and 34 counties are new. Among the counties, eight are State-designated poverty counties and 19 are Province- designated poor or economically less developed counties. The project counties are listed in Table below: Table 1: ProjectCounties Province Prefecture County City No. Name Hebei Cangzhou 5 Wuqiao, Dongguang*, Botou, Cangxian, Renqiu Hengshui 4 Taocheng, Jizhou, Zaoqiang, Jingxian Langfang 1/ 4 Guangyang,Anci, Yongqing, Wenan Shijiazhuang 1/ 4 Wuji, Xinji, Zengding, Jinzhou Tangshan 5 Yutian, Zunhua, Luannan, Laoting, Qianan Sub-total 22 Jiangsu Xuzhou 7 Fenxian**, Peixian, Tongshan, Suining**, Pizhou, Xinyi**, Jiawang Huaian 6 Huaiying**, Lianshui**, Chuzhou, Hongze, Xuyi, Jinhu Yancheng 4 Sheyang, Funing**,Binhai**, Xiangshui** Liangyungang 4 Ganyu**, Donghai* *,Guanyun**, Guannan** Suqian 4 Suyu* *, Suyang* *, Sihong**, Siyang** State Farm 1/ 2 Sanhe, Linhai Sub-total 27 ~~ Anhui Hefei 3 Feidong, Changfeng*, Hefei UrbanAreas Bengbu 1/ 3 Huaiyuan, Wuhe, Guzheng Huainan 1/ 2 Fengtai**, Panji** 36  Chuzhou 11 8 Dingyuan, Quanjiao, Fengyang, Mingguang, Nanjiao, Tianchang, Langya, Laian Sub-total 16 Shandong Jinan 4 Licheng, Changqing, Shanghe, Zhangqiu Zaozhuang 2 Xuecheng, Tengzhou Weifang 11 2 Zhucheng, Gaomi Jining 4 Lianshan**, Qufu,Yianzhou, Zhoucheng Taian III 3 Daiyue, Ningyang, Feicheng I Dezhou Lingyi11 2 Yishui, Junan** 1I 3 I I Dingtao**, Qihe, Pingwan**, Yucheng I Heze 1 2 Yuncheng** 1 Sub-total 22 Henan Kaifeng 3 Kaifeng, Qixian, Lankao* Luoyang 3 Yanshi, Yichuan**, Songxian* Pingdingshan 11 1 Ruzhou Xinyang 11 3 Pingqiao, Luoshan **, Xixian ** Nanyang 4 Wancheng, Sheqi*, Xinyei, Fangcheng** Zhumadian 2 Runan, Pingyu* Shangqiu 4 Minquan*, Suixian*, Ningling*, Liangyuan I I Total Sub-total 20 I I 107 I I Note 11New Prefecture/City/State Farm; Italics -New Counties *** indicates indicates State-designated poverty county. Province-designated poor or economically less developed county. B. ImplementationArrangements ImplementationPeriod The project will have a 5 year implementationperiod. ProjectManagementArrangements 1. Project LeadingGroup (PLG). As the repeater project, IAIL3 will have the same project management and institutional arrangement as the previous IAIL2 project. PLGs had been established at the central, provincial, city/county and township levels under IAIL2 by the corresponding govemments. The Central PLGis headed by a vice minister o f MOF andconsists o fthe vice ministers o fother concerned ministries such as MWR, Ministry o f Agriculture and State Forest Administration, Director o f the Department o f World Bank Projects o f MOF, a representative o f the Ministry o f Civil Affairs, the Executive Vice Director o f SOCAD, and the Director of the CPMO subordinated to the PLG. The major responsibilities o f the Central PLG are to: 37  (1) Approve majorpolicies andguidelines relatingto project implementation; (2) Decide on the local annual financial investment scales for use o fthe World Bank loan; (3) Strengthen contact between the project and specialized line agencies such as MWR,Ministry o f Agriculture and State Forest Bureau; and (4) Arrange strong support from relevant departments for the project. Each o f the provincial governmental PLGs i s headed by a Vice Governor in charge o f agricultural issues in the specific province. Its members include the responsible directors o f the provincial financial, CAD, water, agricultural, and forest bureaus and the Provincial Planning Commission. The major responsibilities ofthe provincial PLGs are to: (1) Define the policies and guidelines for project implementation within the province in line withthe policies andguidelines formulated bythe central governmental PLG; and (2) Take full responsibility to ensure timely disbursement and allocation o f counterpart funds o f theprovince, andto coordinate, check and guide project implementationwithin the province. PLGs at city/county, township levels have been set up by following the approach used to establish their provincial PLGs andwould have similar formation andresponsibilities. 2. ProjectImplementationManagement Implementation o f the project would be the responsibility o f SOCAD as the executing agency who would provide both leadership and coordination o f all levels o f project implementation . A CPMO had been fully established under IAIL2 within SOCAD, and will be continuing to be responsible for IAIL3, accountable to the PLG. The existing CPMO is headed by a vice director of SOCAD. Under the leadership o f the central PLG, CPMO will continue to conduct day-to- day work in relation to the project, define and monitor progress o f implementation, allocate funds, coordinate with the provincial governmental agencies and the project construction units, understand and track the project progress and implementation quality, and report to PLG on project planning, progress, major issues which arise, and suggestions on relevant decision- making needed. CPMO's major responsibilities are to: Supervise and check project designs by the provinces, and conduct assessment o f the project counties on behalfo f the World Bank; Approve and issue annual investment plan and adjust the plan, supervise implementation o fthe plan; Understand and track project progress o f the provinces and disbursement progress o f the Bank loans and counterpart funds, supervise and check bidding and procurement by the provinces for civil works and goods; Examine domestic and overseas training and study tour plans, and coordinate and organize overseas study tours and training; Check and urge timely and sufficient allocation o f local counterpart funds; 38  (6) Review and process provincial requests for reimbursement using Bank loans, and review and ensure proper use o f Bank Loans (including the special account); (7) Contact the Bankon behalfthe provinces; (8) Take responsibility for M&E and project acceptance; (9) Take responsibility for designing, installing, testing and operating and maintaining MIS andfinancial management system; (10) Guide the work by the localPMOs. CPMO would be organized into four divisions responsible for planning and statistics, financial management and accounting, goods procurement, and engineering and technical matters: PlanningandStatistics Division: (1) Conduct project preparationwork, organize project assessment andverification; (2) Prepare project planand execute annual planfor the overall project; (3) Coordinate relevant technical agencies; (4) Contact and communicate on a daily base with outsiders, including making reception arrangements for Bank missions; (5) Report to PLG on major issues; (6) Organize overseas and domestic training and study tours; (7) Collect, compile and keep archive o fproject-related documents, reports and materials. Financial Management Division: Participate in project appraisal work, prepare, summarize and review project cost estimates; Review and approve annual investment control index plan; Participateinactivities relating to biddingandprocurement contract ; Manage the special account andRMBaccounts; Process in a timely manner the requests for reimbursement using the Bank loan and make timely disbursement; Take responsibilities to collect hnds and repay the Bank Loans; Implement financial management tasks as defined in the Loadcredit Agreement and Project Agreement; Manage and review expenses for the overseas training and study tours, and management on domestic project management fees; Prepare accounting and financial statements; Formulate financial management rules and regulations and oversee financial management by the localPMOs; Establishfinancial management system; Take responsibilities for other tasks relating to project financial management. Goods Procurement Division: (1) Prepare goods procurement plan; 39  (2) Organize bidding and procurement o f civil work, goods and equipment in line with the Bank's requirements; (3) Supervise and check bidding andprocurement o f civil work, goods and equipment by the provincial PMOs; (4) Monitor progress o f equipmentprocurement; (5) Provide monitoring data for the engineering andtechnique division. Engineeringand Technique Division: (1) Participate inpreparation o fproject proposal, F/S andPIP; (2) Organize preparation o f the technical standards fro civil works and equipment; (3) Define engineering management system and the detailed rules for implementing the management system; (4) Coordinate water, agricultural and forest agencies inthe project implementation process; (5) Prepare detailed annual engineering constructionplan andprogress tables; (6) Provide technical support to pilot SIDDs; (7) Organize scientific researches inthe project areas anddomestic technical training; (8) Conduct supervision, check, monitoring and assessment o f project implementation, prepare reports on the supervisions andM&Ereports; (9) Participate inproject completion acceptance andtransfer. 3. Provincial and LocalPMOs PPMOs at provincial level and PMOs at county level had been set up in each o f the 5 project provinces under IAIL2. MWR, Ministryo f Agriculture and Ministry o f Forest would provide effective technical support to the project implementation, so as to ensure smooth project implementation and completion indue time. Under the provincial and local PLGs, corresponding provincial and local PMOs had been established under IAIL2 and will continue to be maintained inthe five project provinces to deal with daily issues, make project plans, conduct project management and implementation and coordinate the construction units, in accordance with requirements for project and loan management. County level PLG's would include representation from the Civil Affairs Bureau, which would assist registrationo f W A Sand FAs. Provincial PMOs (PPMOs) shall be responsible for overall project implementation within the province, including reviewing project progress, ensuring timely mobilization, allocation and disbursement o f adequate counterpart funds for the project, timely disbursement the Bank loan finds, and periodic reporting to provincial PLGs on major issues which arise. PPMOs would establish and maintain Mobile Expert Teams to assist and guide implementation inthe field. The Provincial and lower level PMOs have the followingresponsibilities: (1) Preparing F/S and PIP for the province; (2) Preparing requests for reimbursement using Bank Loan (including contracts and relevant documents); 40  Supervision o f field level project activities, including establishment and operation o f Mobile Expert Teams to assist implementation, W A SandFAs inthe field; Arrangements, coordination and monitoring to ensure timely allocation of local counterpart funds; Guidingandreviewing technical standards, engineering design andPIPSprepared by lower level PMOS; Preparing provincial procurement plans for equipments, and plans for scientific researches, training and study to,urs, submitting the plans to CPMO and organizing project implementation within the province under the guidance by CPMO; Preparingdetailed annual engineering constructionplanand annual financial statements; Preparing and submitting to the CPMO detailed progress tables, financial statements and auditingstatements; Implementing WAS, and summarizing, assessing and extending the experience accumulated; Operating the M I S and financial management system; Supervising and checking project implementation, conducting timely monitoring and assessment o f the project benefits, conducting M&E, and submitting to CPMO in a timely manner the reports on the supervisions and M&E reports. 4. Roles of Other Line Agencies Financial, water, agricultural, forestry agencies at bothcentral and local levels are the major participants and supporters to the project, and also members o f the PLGs at all levels. Their responsibilitiesinthe project implementationare: Finance bureaus at all levels (county, municipal and provincial level) are to raise the counterpart funds, make disbursement and reimbursement using the Bank loans, manage the loan and domestic funds, and repay the loans ifrequired. They shall also participate in bidding and procurement activities and conduct relevant financial management tasks relatingto the project; Local technical line agencies (local Water Resource Bureaus, Agricultural Bureaus and Forestry Bureaus) participate in preliminary work, including site selection, planning, and preparation and review o f pre-F/S, F/S andpreliminary designs; Associated implementing agencies (local Water Resource Bureaus, Agricultural Bureaus and Forestry Bureaus for their respective components) will assist implementation and organize supervision under the leadership o f the county C A D PMO, and coordinate to solve problems relating to water, agriculture and forestry; Expert Groups and Mobile Expert Teams will provide internal technical support to the project so as to ensure smoothproject implementation; Local technical line agencies will participate in formulating engineering management system, the detailed implementationrules, andproject acceptance; Local technical agencies and governments will organize speedy transfer and maintenance of the completedworks so as to ensure efficient operation. 41  Annex 5: ProjectCosts CHINA: IrrigatedAgricultureIntensificationI11Project The total cost of the project is estimated at US$463.18 million equivalent, including physical and price contingencies o f about US$28.7 million. The direct and indirect foreign exchange component is estimated at about US$199.5 million equivalent, or about 43 percent of total costs. The base cost totals US$434.5 million, o f which US$295.87 million (about 68 percent) i s for water-saving irrigation and drainage; US$61.6 million (about 14 percent) is for agriculture modernization and organization development; US$22.9 million (about 5 percent) is for the agro- ecological environmental protection and management; US$54.1 million (about 12.5 percent) is for the institutional strengthening andproject management support. The project Baseline cost is expressed in September 2004 prices and includes local taxes and duties computed at about US$10.35 million equivalent. The unit costs and estimated annual quantities are based on typical designs with a uniform physical and technical standard for each province. Cost estimates for civil works are derived from costs o f activities recently completed under the NIL2 Project and similar recent works ineach province. Cost estimates for electrical and mechanical equipment, materials and vehicles are based on recent quotations from manufacturers and suppliers or prices o f similar goods that were recently purchased. Consultant staff costs are based on the experience inthe country with recent consulting contracts for similar tasks. Physical contingencies are about 5 percent for all civil works items based on the detailed engineering designs o fthe sub-projects. The Bank's standard local and foreign inflation rates were used over the project's five-year implementation period. For costs expressed in U S dollars, the expected annual price increases are estimated at 1.5, 0.7, 0.7, 1.1, and 1.0 percent for the period 2006-2010. For costs expressed inYuan, the annual rates are 3.0, 3.5,3.6,3.6, and3.6percent for the period2006-2010. 42  Table 1: Project Costs by Component Project Cost by Component and/or Activity Local Foreign Total US$ million US$ million US$ million Water-saving Irrigation and Drainage 161.25 134.62 295.87 Agricultural Modernization & Organization Dev. 43.3 1 18.30 61.61 Agro-ecological Environment Protection and 13.15 9.79 22.94 Management Institutional Strengthening and Project Management 21.91 25.19 54.10 support Total Baseline Cost 246.62 187.90 434.52 Physical Contingencies 12.33 8.03 20.41 Price Contingencies 4.73 3.52 8.25 Total Project Costs' 263.68 199.50 463.18 Interest during construction 0.00 0.00 0.00 Front-end Fee 0.00 0.50 0.50 Total FinancingRequired 263.68 200.00 463.68 'The total project cost includes identifiable taxes andduties ofabout US$10.35 million, and the total project cost, net oftaxes, is US$452.83 million. Therefore, the share of project cost net of taxes i s 97.8%. Table 2: Total Project Costs by Category (US$ '000) ExpenditureAccounts by Years (totals Including Contingencies) 2006 2007 2008 2009 2010 Total InvestmentCosts A. Works 30,922 53,594 51,693 49,218 21,471 206,897 B.Goods 14,095 20,453 18,752 18,874 6,997 79,172 C. Training & Study Tours 3,863 5,250 5,248 4,902 3,179 22,441 D.WUA/FA 2,780 2,915 2,833 2,011 944 11,484 E. Others 22,467 35,258 35,573 35,077 14,811 143,186 Total PROJECTCOSTS 74,127 117,470 114,099 110,082 47,402 463,180 43  Table 3: Project Component Costs by Province and Year (US$ `000) China MIL3 Project Project Components by Year -- Totals Including Contingencies 2006 2007 2008 2009 2010 Total A. Water-saving Irrigation & Drainage 1. Anhui 7,066 11,949 10,880 10,161 4,500 44,556 2. Hebei 8,177 14,369 14,928 14,058 6,253 57,785 3. Henan 8,840 15,120 15,028 15,343 6,578 60,909 4. Jiangsu 11,352 19,057 19,554 19,727 8,019 77,709 5. Shandong 10.058 18.029 19.162 19.633 8.301 75.184 Subtotal 45,493 78,524 79,554 78,922 33,651 316,143 B. Agriculture Mod rniz tion & OrganizationDev. 1.Anhui 1,730 2,801 2,618 2,368 733 10,249 2. Hebei 1,664 3,687 3,217 3,768 1,300 13,637 3. Henan 1,853 3,790 3,645 2,939 1,091 13,318 4. Jiangsu 2,102 4,862 3,867 3,004 1,030 14,865 5. Shandong 1,564 4,320 3,710 2,812 992 13,398 Subtotal 8,913 19,460 17,057 14,891 5,145 65,466 C. Agro-ecological Environment Protection and Management 1.Anhui 631 796 884 632 419 3,362 2. Hebei 1,024 1,194 1,452 1,304 556 5,529 3. Henan 799 1,193 1,238 1,171 571 4,972 4. Jiangsu 687 1,125 1,124 1,056 463 4,455 5. Shandong 1,295 1,637 1,426 1,292 495 6,146 Subtotal 4,436 5,945 6,125 5,455 2,504 24,464 D.Institutional Strengthening and Project Management Support 1. Anhui 1,240 2,9 19 1,522 1,423 763 7,876 2. Hebei 2,771 2,342 1,993 1,965 1,258 10,330 3. Henan 2,630 1,661 1,571 1,474 794 8,130 4. Jiangsu 2,65 1 2,137 2,183 2,180 1,007 10,158 5. Shandong 3,881 2,380 2,339 2,329 1,469 12,398 6. SOCAD 2,111 2,103 1.756 1.443 809 8,223 Subtotal 15,285 13,542 11,364 10,814 6,102 57,106 TOTAL PROJECT COSTS 74,127 117,470 114,099 110,082 47,402 463,180 44  Annex 6: LegalCovenants CHINA: IrrigatedAgricultureIntensification111Project The proposed covenants for the loan legal documents are: (a) maintenance o f the central PLGto provide policy guidance, inter-agency coordination and support, and mobilization o f financial support for project implementation; (b) maintenance o f SOCAD's M I L 3 CPMO acceptable to the Bank,which would monitor and report on sub-project implementation and adherence to program approach standards, guidelines and procedures, and provide overall technical and policy support; (c) preparation and submission to the Bank by June 30, 2006 o f a staffing plan for CPMO, including requirements for technical staff to be seconded from relevant line agencies and a training planfor capacity building; and (d) carrying out o fthose plans (by SOCAD). establishment o f at least one pilot WUA in project townships under the project, for SIDD/WUA demonstration, learning and implementation. WUA establishment would include model operation and maintenance andwater use contracts between each WUA and the corresponding water supply agencies andor organizations, which would be executed at the time o f WUA establishment (by provinces). Each project province would, by June 30, 2006, submit to the Bank a plan, including a timetable, for expansion o f WUAs in the project provinces, inadequate numbers, satisfactory to the Bank. implementation o f WUA development plans acceptable to the Bank, in accordance with the five WUA principles, by project provinces, including application o f the five principles; plans and timetables for expansion o f WUAs during project implementation based on experience and lessons learned with W A S ; WUA implementation arrangements and timetables; arrangements for increasing water charges collected by WUAs to cover at least WUA O&M costs including the cost o f bulk water purchased by the WUA; arrangements for water charges to be paid directly to water suppliers; maintenance o f separate accounts for water charge collections by WAS, and the use o f these h d s exclusively for irrigation-related purposes; model charters and by-laws for W A S , including ability to mobilize labor and resources for adequate O&M o f WUA-managed assets; model water supply contracts between water suppliers (and WRBs or local governments) and W A S ; execution o f water supply contracts which would also define the rights and obligations of the water supplier and W A S ; and adoption o f the necessary provincial procedures for speedy and low-cost WUA registration, with tax exempt status as provided for indelivery of agricultural services (by POCADs andprovinces). provision for govemment(s) at the time o f WUA establishment to give WUAs legal authority to collect water charges (by provinces). provision for establishment o f WUAs inthe Participating Provinces outside the five Project Provinces, including: (a) preparation o f WUA Development/Implementation Plans by Participating Provinces following the Program Approach detailed in the SOCAD PIP and WUA Development Plan; (b) preparation o f social assessments (including ethnic minority 45  peoples) on a provincial basis; and (c) submission o f the above provincial plans and assessments to the Bank for review and approval before implementation. (6) provision that the Project Provinces and Participating Provinces would not approve a WUA Sub-project for financing out of the proceeds o f the Sub-grants, unless SOCAD or the POCAD has received evidence from the responsible PMO certifying that the requirements set forth in the WUA Development Plan have been met, including in particular: (a) the WUA is organizedandmanagedbyfarmers, elects its own leaders who are members o fthe WUA, manages its own finances and operations, is an independent legal entity registered under the relevant laws o f the Borrower, and is legally empowered to collect water charges; (b) the WUA is established based on hydraulic boundaries; (c) the WUA has in place a system to measure the amount o f water delivered to the WUA; (d) the WUA has in place a system for the collection o fwater charges from consumers and for payment directly to the suppliers based on measured water delivered; and (e) the WUA has in place adequate, reliable and timely water supplies. The WRE? certification would be entered into the MIS as evidence that the WUA meets the above requirements prior to approval by the province for financing the WUA. (7) provision that the Project Provinces would not approve a FA Sub-project for financing out o f the proceeds o f the Sub-grants, unless the SOCAD or POCAD has received evidence from the responsible PMO certifying that: (a) the FA is organized and represented by farmers, elects its own leaders, manages its own budget and affairs, and i s an independent legal entity registered inaccordance with the relevant laws o f the Borrower; (b) the FA has adopted its charters or bylaws in accordance with the relevant laws o f the Borrower; and (c) the FA has adopted a development plan, satisfactory to the Borrower. The certification by the Civil Affairs Bureau would be entered into the MIS as evidence that the FA meets the above requirements prior to approval bythe province for financing the FA. (8) (a) submission to the Bank by June 30,2006 o f model O&M plans for non-WUA sites for different types o f irrigation; and (b) preparation, maintenance and implementation O&M plans for each site based on model plans, with such plans to be available for inspection by Bank staff and to include installation and operation o f water measurement facilities and water charges based on volume o f water used which would be paid directly to the water supplier. (9) (a) preparation and submission to the Bank by December 31, 2006 o f inspection and acceptance reports for the four dams (Fenshuiling (Anhui), Shilianghe and Xiaotashan (Jiangsu), and Gutou (Shandong)) which were subject to recent safety rehabilitation; (b) preparation o f annual monitoring reports on the 17 dams identified in the IAIL3 project area, including pre-flood, post-flood and special event status. Guidelines to be followed for dam safety under the project are detailed in Annex 12 o f the PIP (by SOCAD and provinces). (10) (a) maintenance o f PMOs at provincial and country levels with terms o f reference, staffing and other resources acceptable to the Bank, and with senior-level representatives from the WRBs, ABSand FRBs inthe PPMOs; and (b) full staffing o f PPMOs and county PMOs by 46  September 30, 2005, including WRB and AB representatives appointed as members with management responsibility (by provinces). (11) submission to the Bank before November 30 o f each year of: (a) detailed implementation plan for the following year satisfactory to the Bank, including work programs, investment and financial budget plans, documented evidence o f adequate, committed counterpart funding for each sub-project and component; and (b) a consolidated supervision plans for project supervision in the following year. POCADs would submit their provincial work plans, investment and financial plans, and supervision plans to SOCAD by November 1. Implementation plans would show activities, physical targets, estimated costs and timetables. Supervision plans would be prepared according to terms o f reference acceptable to the Bank. SOCAD/POCADs would carry out the annual work plans, Project Implementation Plan (PIP) and Supervision Plans, acceptable to the Bank, for the following year, and would furnish to the Bank for its prior approval any proposed amendment(s) to the provisions o f the work plans and PIP and carry out any amendments as agreedwith the Bank. (12) establishment, use and maintenance by June 30, 2006 of: (a) an enhanced computerized MIS system for the project covering the CPMO, PPMOs, and local PMOS; and (b) a complementary computerized project M&E system (MES) for W A S . Development and operation o f the integrated computerized MIS/WUA-MES would follow the guidelines for M&EinAnnex 9 o fthe PIP (by SOCAD). (13) maintenance o f separate records and accounts for the project, auditing o f project records and accounts including the Special Account and statements o f expenditure for each fiscal year, and submission o f the audit report for each fiscal year to the Bank by July 1 o f the following year. The State Audit Bureau has been selected as the auditor for the project (by SOCAD andPOCADs). (14) commitment by Hebei, Shandong and Henan provinces that, for all groundwater sub- projects: (a) the project would not finance new tubewells in water short (negative water balance) areas; (b) all tubewell sub-project sites under the project would have a non- negative estimated water balance which would be verified as a condition for financing under the project when the sub-project site is inspected and accepted; and (c) the local county Water Resource Bureau would certify that the tubewell subproject meets the above requirements. (15) commitment by Hebei to ensure that: (a) no new tubewells or increase in tubewell irrigation area would be financed under the project inthe project areas; and (b) sub-project investments in existing tubewells would not result in net increases in evapo-transpiration (ET). (16) (a) submission to the Bank by December 31, 2006 by Hebei Provincial Government, and implementation thereafter, of comprehensive groundwater management plans for eight project counties in Hebei (Taocheng, Jizhou, Zaoqiang, and Jingxian in Heshui City, and Botou, Wuqiao, Dongguang, and Cangxian in Cangzhou City) aimed at reducing over- 47  extraction and pollution o f groundwater through control and regulation o f use o f groundwater resources by agriculture, industry and city/domestic water supply; and (b) as part o f the Mid-term Review, submission to the Bank and implementation by June 30, 2008 o f groundwater management plans for the remaining project water-short counties in Hebei and approval and implementation thereafter of comprehensive management plans for those counties by Hebei Province and SOCAD. commitment by Hebei, Henan and Shandong provinces to: (a) monitor groundwater abstractions, groundwater levels, and groundwater quality andpollution consistent with the EMP; (b) have installed and inuse groundwater monitoring points inaccordance with the EMP. Groundwater monitoring and management would follow the Guidelines inAnnex 9 o fthe PIP (by Hebei, Henan and Shandong provinces and SOCAD). Hebei will design and carry out two laser land leveling pilot projects under W A S in selected water saving demonstration areas. At the Mid-Term Review, the SOCAD and Hebei POCAD will evaluate the pilot laser land leveling experience, benefits and costs, and laser grading projects will be expanded to other Project sites in Hebei and other provinces ifthe Borrower and the Bank agree. resettlement o f people or payment o f compensation, if required for a sub-project under the project, would be carried out according to a resettlement plan and policy framework approved by the Bank on the basis o f policies, principles, procedures and institutional arrangements acceptable to the Bank so as to improve the living standards o f the people resettled. Any resettlement actionplanrequired for a sub-project would be submitted to the Bankfor prior approval, andwould bepreparedbythe concerned province(s) followingthe agreed resettlement Policy Framework inAnnex 13 o f the PIP (by SOCAD andPOCADs). (a) commitment by each project province to ensure compliance by each subproject with the project EMP, inline with environmental protection guidelines and standards satisfactory to the Bank and the laws and regulations o f China relating to health, safety and environmental protection; and (b) design o f Shandong sub-projects to ensure they do not increase water diversions from the Yellow River. The EMPprogram i s detailed inAnnex 14 o fthe PIP. maintenance o f a provincial level mobile expert team and a technical expert group o f eminent scientists and experts with composition and terms o f reference acceptable to the Bank,bothfor assisting implementationo fthe project. the Borrower will submit to the Bank the following reports: (a) semi-annual progress reports by March 31 and September 30 each year summarizing, inter alia, physical and financial progress during the previous half-year and from project start-up, and project impacts based on agreed monitoring indicators; (b) annual social and environmental safeguards monitoring and evaluation reports by March 31 o f each year, summarizing implementation o f the Policy Framework for Resettlement and Land Acquisition and the EMP (including soil fertility, IPM, dam safety, etc.), and the related monitoring results in the project area for the previous year; (c) consolidated monitoring and evaluation report(s) by March 31 o f each year on groundwater management (including groundwater 48  management plan progress and impacts in Hebei), comprehensive water saving measures ineach project province, ET and laser grading pilot monitoring inHebei, development of WAS,development o f FAsBPCOs, and greedorganic food production ineach province, summarizing activities, findings, annual evaluation results, technical and scientific reports and recommendations by the mobile expert teams and technical expert groups with suggested actions needed, for the previous year, by SOCADPOCADs; (d) a Mid-term Review Report, to be prepared and finished to the Bank by June 30, 2008, summarizing, inter alia, problems and issues encountered during implementation, revised costs estimates, proposed revised components and covenants, results o f project monitoring and evaluation activities, measures recommended to ensure the project completion before . December 31,2010 andto further its objectives, and implementation o f measures agreed at the Mid-term Review; and (e) the Borrower's Implementation Completion Report (ICR) within six months after project completion. 49  Annex 7: FinancialManagementandDisbursementArrangements CHINA: IrrigatedAgricultureIntensificationI11Project 1. Summary and Conclusions IAIL3 i s a repeater project and will utilize the same financial management arrangements as the IAIL2 project for which financial management was satisfactory. As such, another full Financial Management Assessment on the project financial management system for IAIL3 was not conducted. However, a review o f financial management and the financial management system under the IAIL2 project including audit reports, related financial documents, and review o f the financial management system and plans for IAIL3, as well as discussions with the SOCAD CPMO and the POCAD PPMOs, were undertaken. Based on those reviews and discussions, the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status o f the project in the reporting format agreed with the project andas requiredbythe Bank. The project will utilize and apply modified disbursement arrangements which are intended to simplify and streamline disbursements. These changes will not significantly impact the project's financia1management arrangements. 2. Audit Arrangements The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with Lntemational Standards on Auditing and the Government Auditing Standards o f the People's Republic o f China. The Foreign Funds Application Audit Department (FFAAD) o fthe ChinaNational Audit Office (CNAO) has beenidentified as the auditor for the project and is acceptable. Annual audit reports will be issued in the name o f FFAAD and CNAO. The annual audit report o f project consolidated financial statements will be submitted to the Bank within six months o f the end o f each calendar year. The responsible entity and timing is noted below: Component Submitted by Due date Consolidated project State Office for June 30 financial statements Comprehensive Agricultural Development (SOCAD) 3. Action plan The following proposed time-bound actions have no major impact on project preparation or Boardpresentation, but should be adequately addressedbythe project: 50  Action Responsibleperson CompletionDate Financialmanagement SOCAD Before Loan signing manual finalized and issued to related financial 4. Supervision Plan A detailed supervision planfor this project will be included as part o f the China Audit Strategy document which is currently in process. This document will take into consideration the size o f project andthe financial risks identified. Financial supervision will be coordinated with standard Bank supervision. 5. Financial Covenants There are no additional financial covenants to the standard financial covenants (e.g., maintaining separate project accounts in accordance with sound accounting practices, audit requirements, SOE use), as described in the legal documents. Disbursement o f Subgrants for each WUNFA would be based on certification that the WUNFA meets the agreed requirements and principles as specified inSOCAD'S W U M A Development Plans. 6. Retroactive Financing Retroactive Financing Plans have been reviewed and agreed. Retroactive financing o f construction works effective from April 5, 2005 has been agreed with Borrower. The retroactive financing would include earthworks for canals, drains, farm roads, on-farm structures, land improvement, tree planting, environment monitoring and management, development of WAS, farmers' association, and green food production, training, study tour, agricultural extension. The total estimated amount o f the retroactive financing eligible for reimbursement from loan categories (1) (2) (3. a) and (4) is estimated at $22 million (about 11percent o f the total loan) for the five provinces. 7. Disbursement Arrangements The Loan will be disbursed using traditional disbursement techniques and will not use PMR- based disbursements, inaccordance with the agreement between the Bank and MOF. Bank loan proceeds would be disbursed against eligible expenditures as follows (a) civil works percent o f expenditures for Anhui, 53 percent for Henan, 49 percent for Jiangsu, 14 percent Shandong, and 32 percent for Hebei province; (b) goods - 100 percent o f foreign and local expenditures; (c) WUARA Sub-grants - 100 percent o f Sub-grant amounts for farmer W A S and FAs, which for each WUA/FA would be disbursed on the basis o f certification that the WUNFA meets the agreed requirements andprinciples. Sub-grant amounts for WUAs and FAs would total US$9.25 million, and be based on the actual cost per WUNFA for the five Project Provinces and for the five Participating Provinces where WUA sites would be identified and developed during project implementation following a program approach as described in 51  SOCAD's SIDD/WUA Development Plan; and (iv) training and study tours - 100 percent of expenditures. Disbursement methods such as the reimbursementof documented expenditures, direct payments and special commitments may be usedunder the project. The SOE limits are as follows: (a) all contracts for goods estimated to cost the equivalent of US$200,000 or less; (b) all contracts for civil works estimated to cost the equivalent of US$l,OOO,OOO or less. All WUNFA Sub-grants would be disbursed based on establishment of W A S and FAs according to the agreed development plans and principles, certification of which would be recorded in the SOE statements and inthe MIS. Funds flow for the Bank loan will follow Bank and MOF requirements. One Special Account - - - - (SA) will be establishedand managedby the SOCAD. The funds flow is as follows: The World SA Provincial Municipal County Finance Bank managedby Finance Finance BureausKOCADs - SOCAD Bureaus Bureaus 8. Special Account The authorized allocation of the SA would be US$20 million. Bank loan funds would be disbursedto the SA, and then from SOCAD to provincial project implementing entities and/or suppliersandcontractors. SOCAD will be directly responsible for the management, monitoring, maintenance and reconciliation o f the SA activities of the project. Supporting documents required for Bank disbursementswill be prepared and submittedby county PMOs through county finance bureaus, municipalPMOs and finance bureaus, provincial PMOs and finance bureaus, andto SOCAD for final verification and consolidation before sending to the Bank for further disbursement processing. The flow ofthe withdrawal application is as follows: I I I I t 1 World Approve by SOCAD I I J 52  9. Disbursement Categories The following disbursement categories and percentageshave been agreed with SOCAD and the POCADs: Categories Amount (US$ million) Percentage (1) Works: Anhui 21.976 68 Henan 23.114 53 Jiangsu 28.636 49 Shandong 6.762 14 Hebei 8.154 32 (2) Goods 79.172 100 (3) WUA/FA Subgrants 9.245 100 (4) Training and StudyTours 22.441 100 (5) Front-end Fee 0.500 0.00 Total 200.000 53  Annex 8: ProcurementArrangements CHINA: IrrigatedAgricultureIntensificationI11Project 1. General Introduction Procurement for the project would be carried out in accordance with the World Bank "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are given in the Procurement Plan. The first Procurement Plan will cover initially a 24 month period and will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurementof Works A total o f US$206.9 million o f works would be required. The works procured under this project would include low-cost farm irrigation and drainage construction and improvements such as the liningo fcanals, structures, pumpingstations, buildings andtube wells. The procurement will be done using the Bank's Standard Bidding Documents (SBDs) for all ICB and Model Bidding Documents (MBDs)for N C B agreed with the Bank. (a) International Competitive Bidding (ICB). Although not anticipated, any contract for works estimated to cost US$10 million equivalent or more would be procured under I C B procedures specified inthe Procurement Guidelines. (b) National Competitive Bidding (NCB). Contracts for works estimated to cost less than US$10 million equivalent may be awarded under N C B procedures acceptable to the Bank. Works contracts with estimated values of less than US$2 million may be advertised only in provincial press. To the extent practicable, contracts for works would be grouped inbidpackages estimated to cost US$lOO,OOO equivalent or more each. (c) Small Civil Works Procurement (Shopping). Contracts for works estimated to cost less thanUS$lOO,OOO equivalentper contract wouldbe awarded through shoppingprocedures as specified in para. 3.5 o f the Procurement Guidelines. These works would be suitable for lump-sum and fixed-price contracts awarded on the basis o f quotations obtained from at least three qualified domestic contractors in response to a written invitation. To promote transparency and competition, COCADs would carry out shopping procurement in accordance with the agreed Procedures for Procurement o f Small Civil Works developed for this Project. 54  Procurementof Goods A total o fUS$79.17 million worth o fgoods would beprocured for the project, including pumps, electric motors, transformers, PVC pipes, office equipment, vehicles and other equipment. The procurement would be carried out using Bank's SBD for all ICB and MBDs for N C B agreed with the Bank. (a) ICB. All contracts for goods and vehicles, excluding PVC pipes, costing US$500,000 equivalent or more, would be awarded through ICB procedures. (b) NCB. NCB procedures would be used for procurement o f goods other than PVC pipes costing less than US$500,000 equivalent per contract, and PVC pipes irrespective o f the estimated value per contract. N C B contracts maybe advertised only inprovincial press. (c) Shopping. Other goods, such as office equipment and water measurement instruments, procured in smaller quantities and available o f the shelf would be procured using shopping procedures with contracts under US$100,000 equivalent per contract. EstablishmentofWUAs and FAs A total o fUS$11.48 million would be provided as Sub-grants to establish WUAs and FAs inthe five project provinces and to establish W A Sinthe five Participating Provinces outside the five original project provinces. Each WUA/FA established which meets agreed project requirements and principles set forth inits WUA/FA Development Plan and is so certified by the responsible PMO would be eligible for a Sub-grant. Sub-grants o f Y50,OOO (US$6,165) would be made for each eligible WUA and FA established inthe five project provinces (total US$4.28 million) and for each WUA in the Participating Provinces (total US$7.2 million) established outside the five provinces. The Sub-grants would be used to cover costs for association establishment, including association registration, office equipment and facilities, office building, water measurement facilities and equipment, and training activities required for establishment and operational start- up of each association. Considering that the amounts involved are very small and at scattered locations, no centralized procurement is required. For each association, procurement would be conducted by the concerned local project agency responsible using local shopping practices in accordance with the agreed WUA Development Plans and FA Development Plans. TrainingandStudyTours A total of US$22.44 million for training and study tours would be required. Detailed programs will be developed by the SOCAD during project implementation and included inproject annual work plans to be submitted each year by November 30 for the Bank's review and concurrence. Loan finds for training and study tours would be disbursed based on the actual expenditures. 55  Non-BankFinanced(NBF) A total o fabout US$143.19 million o fother costs would be required for the project. These costs are largely related to labor intensive works, such as soil improvement, earth-works for canals and roads, consultants services, research, project design, monitoring and management. These costs would be financed by SOCAD, Provinces and local governments through their project counterpart funds. 2. Assessment of the Agency's Capacityto ImplementProcurement Procurement activities will be carried out by project provinces through its already established C A D Offices at various levels. SOCAD will play a coordinating role in the project implementation and will be responsible for ICB procurement for vehicles. The agency at each level is staffed by about 10 project management and technical officers and the procurement unit i s staffed by about 3-5 procurement officers; all have been trained on Bank procurement procedures or have worked onprocurement during IAIL2. Since IAIL3 i s a repeater project, no separate procurement assessment was done. The organizational structure, the roles and functions, and the monitoring and evaluation mechanism are already inplace. Implementing units are equipped with experienced procurement staff. The overall project procurement risk is average. An actionplanto strengthen management was agreed at appraisal and includes the following: (a) procurement plans should be updated on an annual basis and submitted to the Bank for review through SOCAD each year by November 30 for the following year, along with the annual investment plan; (b) procurement training for COCADs would be organized prior to implementation start up; and (c) the project MIS would also be used for procurement monitoring. 3. ProcurementPlan At appraisal, the Borrower developed a Procurement Plan for project implementation which indicates the procurement methods to be used. The Plan would be available at SOCAD and will also be available in the project's database and in the Bank's external website. The initial 24 month Procurement Plan was agreed between the Borrower and the Project Team on June 27, 2005. The Procurement Plan will be updated annually in agreement with the Bank or whenever required to reflect the actual project implementation needs and improvements in institutional capacity. 4. Frequencyof ProcurementSupervision In addition to standard prior review supervision to be carried out from the Bank offices, the Project Team has recommended that a supervision mission visit the field every six months to carry out procurement post reviews during the first two years o f project implementation; if procurement i s satisfactory during that period, procurement post reviews may be carried out once a year for the remaining three years. The sampling ratio for the ex-post procurement reviews would be one out o f five contracts. 56  Table A: Total Project Costs by Expenditure Category (US$ millionequivalent) 2. Goods 79.17 3 W U M A Sub-grant 11.48 4 Training and StudyTours 22.44 5. Other (NBF) 1/ 143.19 ~ Total 463.18 Note 1:Labor intensiveworks, consultantsservices, research, projectdesign, monitoring andmanagement would be financedby counterpart funds. Table B: Thresholds for ProcurementMethods and Prior Review Expenditure ContractValue Threshold (US$ thousands) ProcurementMethod 1. Works >1,000 1/ ICB/NCB 2. Goods >200 1/ ICB/NCB Note 1: Inaddition, the first NCB civil works contract and the first two NCB goods contracts with less than US$200,000 for eachprovince for the first year are also subjectto the Bank's prior review. 57  Annex 9: EconomicandFinancialAnalysis CHINA: IrrigatedAgricultureIntensificationI11Project 1. Economic Analysis: NPV = US$284.2 million (Y2305 million); ERR = 23.7%. (Detailed assessmentsare inthe project file; see Annex 12). Detailed quantitative cost-benefit analysis has been performed for the individual water-saving sub-projects and standardized agricultural development and support sub-projects for each project province, and the project as a whole. The economic analysis included the quantifiable benefits derived from the substantial increase in agricultural andwater productivity o f low- and medium- yield farmland, through the implementationo fthe integrated water-saving facilities/technologies; upgrading o f agricultural practices to promote high quality and unpolluted agricultural production (including greedorganic crops); establishment/improvement o f more participatory institutions (FAs and W A S ) to provide access to modern agricultural technologies, market information and standardized production on a larger scale; and protection o f the ecology and environment. The economic analysis also attempted to estimate benefits resulting from "real" water savings, but these were considered as secondary benefits and not included in the NPV and ERR calculations. The analysis compares "with project'' and "without project" scenarios. The results are summarized below. Project Costs. Total project costs are estimated at Y3936.5 million (US$463.18 million equivalent), including physical and price contingencies o f about Y412.6 million (US$28.7 million). Cost estimates are based on 2004 prices and include physical contingencies o f an average rate o f 5 percent for all goods and works. Standard Bank local and foreign inflation rates have been used over the project's five-year implementation period. All project costs, including project investment and physical contingencies, production and O&M costs have been considered inestimating the economic costs o f the project, but price contingencies, taxes, duties, and other charges were omitted. The standard conversion factor o f 1 was applied to all non- traded items, and a discount rate o f 12% was used to approximate the opportunity cost o f capital (OCC) inChina. Economic Rate of Return. Given the linkage between the different components, the preliminary ERR calculations were carried out at three levels: (a) the specific individualirrigated area includinghigh quality crops area, greedorganic crop area, and normal crop with improved farmland in each subproject area; (b) aggregated for all crop areas in sub-project areas for each o f the five provinces; and (c) the project as a whole for the five provinces' areas in total. The analysis compared the quantifiable benefits derived through the increased water and agricultural productivity and the eco-environmental system (forestry belt) with the estimated economic costs. The direct benefits increased from highvalue crops, crop yield, production, andimproved quality o f crops, and from lower operation costs due to reduced usage o f chemical fertilizers and pesticides and reduced water consumption, have been applied in the project economic analysis. Itdidnot includethe indirect benefits from institutional development or improved environmental management. Comparing costs and benefits over a period o f 20 years, the estimated ERRs are all favorable. The ERRs for each sub-project ranged from about 21.1 percent for Henan to 27 percent for Jiangsu, depending on the assumed crop yields, cropping pattern (intensity), the 58  quality o f the crop, and the investment, production, and the O&M costs for each sub-project area. The ERRfor the overall project is 23.7 percent with anNPV o f about US$284.2 million. The economic analysis o fthe five sub-projects resulted inthe following base case ERRs: Hebei Sub-project 22.7 percent Jiangsu Sub-project 27.0 percent Anhui Sub-project 23.9 percent Shandong Sub-project 23.0 percent Henan Sub-project 21.1percent Sensitivity and Risk Analysis. The economic sensitivity and risk analysis o f all sub-projects was carried out for the following scenarios: (a) natural disasters o f drought, floods and insect pests; (b) reduced market-determined prices o f major crops (wheat, paddy, vegetables and h i t s ) by 10-15 percent; (c) increased total investment costs by 15 percent for each sub-project area; and (d) reduced market prices and increased investment costs occurring simultaneously. The scenario o f delay o f project completion due to the lack o f inadequate institutional capacity and financial support was not considered based on the actual successful experience for IAIL2. These risks were evaluated with sensitivity analyses on a variety o f data and assumptions required for the estimation o f ERRs. The results show that the estimated ERRs o f sub-projects are higher than the OCC o f 12 percent, except for scenario (d), which ranged from 8.3 percent for Shandong to 13.9 percent for Anhui, with an ERR for the overall project o f 11.3 percent. Measures have been taken inproject preparation and design and included inthe project to reduce these risks and minimize their effects. 2. Financial Evaluation: NPV=US$258.9 million; FRR= 17.9 percent Financial analysis was prepared to indicate the financial incentives o f farmers to participate in the project, the cost o f water service and the increased farmers' incomes. During project preparation the overall incentive framework for beneficiaries covering land tenure, WUNFA, water price, and agricultural marketing issues was reviewed. Although financial analysis strictly speaking is not applicable to public irrigation schemes to be financed under the project, it was carried out to indicate the financial viability o f the proposed' investments, as if the irrigation districts were expected to be self-financing. The project would substantially improve the financial viability o f farming through increased annual returns to farm labor and capital investments. Financial analysis has been carried out for each individual provincial sub-project area, and typical beneficiary farm household based on project cost estimates. FRRs for all financial resources are estimated to range from 16.7 percent (Hebei) to 18.6 percent (Jiangsu), and the overall project FRRis 17.9 percent as shown below: Hebei Sub-project 16.7 percent JiangsuSub-project 18.6 percent Anhui Sub-project 18.1 percent 59  Shandong Sub-project 18.0 percent Henan Sub-project -------- 17.6 percent Total Project Area 17.9 percent Farmer Income Analysis. The project would substantially increase beneficiary farmers' incomes inthe 107 counties under the project, especially enabling them to raise their incomes far above the poverty line in about 27 counties (including eight State-designated poverty counties and 19 Province-designated less-developed counties). A total o f 1,400,000 farm families will directly benefit from the project. The farm model analysis shows that the beneficiary farmers' incomes will be increased significantly with the comprehensive practice and improvement in integrated water-saving irrigation and drainage facilities/technologies, increased high quality crop production (including the non-polluted, green and organic crops), and enhanced farmer's access to resources, market and agricultural competitiveness. It has been estimated that farm net incomes per family at full development would increase by 44.4 - 63.4 percent for farms inHebei, - 11.8 - 35.3 percent in Shandong. At full development, the average annual net incomes of the 18.2 46.6 percent in Henan, 38.8 - 42.3 percent in Jiangsu, 41.1 - 68.2 percent in Anhui, and typical farm households that adopt the new irrigated agricultural technologies under the project would be increased from Y16,019 to Y23,553 for low-income households, Y23,536 to Y30,598 for medium-income households, Y26,863 to Y34,870 for greedorganic crop production households, Y21,621 to Y29,938 for households that participate in the FAs, and Y29,396 to Y41,649 for households who participate in the project pilot o f Farmers' Professional Cooperatives. It shows that project investments would generate substantial increase in the net farm incomes for all groups o f farmers that participate inthe project's activities. The estimated incremental annual farm incomes resulting from the project are financially attractive and provide adequate incentives for farmers to participate in the development investment, take over the full responsibility for O&M o f on-farm irrigation facilities, pay for the increased water charges as designed under the project, and provide the incentives for sustainable water/land use and management. 3. Fiscal Impact The primary fiscal impact will be short term, mainly with regard to the provision o f adequate and timely counterpart funding for implementation, and primarily at the provincial level (52 percent o f the local counterpart funds). As per the project financing plan, the IBRD loan would cover about 43.1 percent o f the total project cost (as the State govemment's grant to the province), the beneficiaries 27.4 percent, and the local government 29.5 percent, which is about US$136.79 million equivalent, inclusive o f about US$10.35 million equivalent o f duties and taxes, over five years. Local governments' net contribution would therefore be about US$25.29 million equivalent per year. Much o f the local contribution for construction will come directly from participating farmers' labor contribution, so that the direct fiscal impact on local governments should be relatively small. Moreover, in the longer term it is expected that most o f the local government contribution requirements for water resource investments are expected to be recovered from the incremental production income earned by beneficiaries during project operation. Inaddition, since water charges would be expected to increase to cover the full O&M costs o f the on-farm irrigation facilities (for WAS),the fiscal impact on local governments 60  should be much less than that o f traditional irrigation development projects. Under the agriculture component, the agricultural inputs for seeds and machinery would be operated on a commercial basis, and the sales prices for agricultural inputs and services would be fixed on the basis o f market conditions and would have to cover costs (including distribution costs) for the facilities to remain financially viable. The government revenue would increase from the tax on incremental agricultural and forestry products, and increased water charges or reduced subsidies for irrigation O& Mcosts. The impact would bepositive. 61  Annex 10: SafeguardPolicyIssues CHINA: IrrigatedAgricultureIntensificationI11Project 1, Environmental safeguard issues Introduction EnvironmentalAssessment - CategoryB As IAIL3 is a "repeater" project o f IAIL2, to simplify the project preparation and appraisal process, the Bank agreed onthe following streamlined procedures for project preparation: (1) IAIL3 is rated as category "By'and a hllEINIAIL3 review is not required; (2) Assessment of actual impacts o f IAIL2 is needed; (3) Environmental conditions innew IAIL3 areas need to be evaluated and compared with environmental conditions in old IAIL2 areas; and (4) An environmental management plan (EMP) needs to be prepared for each project province. (a) Assessment of IAIL2 Impacts. A detailed assessment was conducted by CRAES who prepared the EIA for IAIL2, and indicates that: (a) IAIL2 encountered no significant environmental issues and will be unlikely to have any in the future; (b) effective measures have been taken to mitigate any adverse environmental impacts to an acceptable level or to offset them. Potential adverse impacts were mainly related to the key environmental issues indicated in the IAIL2 PAD: (i) possible increased lake eutrophication, (ii) additional water diversion from the Yellow River by Shandong Province, (iii)increased overdraft o f groundwater in Shandong, Henan and especially Hebei provinces, and (iv) possible secondary soil Stalinization in limited areas. The assessment concluded that the IAIL2 implementationdidnot cause adverse impacts as above, and that the ago-environment inthe project area was significantly improved because of the environmental protection measures taken, including comprehensive water saving, IPM, balanced fertilizer utilization, and farmland tree planting. (b) Comparison of Environmental Conditions of IAIL3 with IAIL2. Detailed comparison o f environmental conditions in LAIL2 and IAIL3 new areas was carried out for each o f the project provinces, with the following conclusions: (a) the environmental conditions in new project counties are similar to those in the nearby IAIL2 counties; (b) IAIL3 components, mainly on farmland works, are very similar to those o f IAIL2, but with the addition o f four new subcomponents - water saving, non-polluting/green produce, FAs, and farmers' cooperatives, which are small with positive environmental impacts; and (c) IAIL3 would be implemented inexisting irrigation areas andon land already being used for agriculture. (c) Environmental Management Plan. An EMP was prepared for each project province which addresses province-specific environmental issues; environmental protection measures; monitoring programs; technical assistance and training; management arrangements; cost estimates; and funding sources. A special environmental management unit or staff would be designated ineach PPMO to be responsible for implementation o f the EMP for the province. A total cost o f Y 13.5 million was estimated for environmental management o f IAIL3. An annual environmental management report would be provided by each POCAD to SOCAD, which would prepare a summary environmental report for the Bank by March 31each year. 62  The Chinese Research Academy o f Environmental Science (CRAES), engaged by the SOCAD, prepared an Environmental Report and an Environmental Management Plan (EMP) for each project province in accordance with requirements b), c), and d) above. Based on the environmental reports and EMPs for the 5 project provinces, a "Summary Environmental Report" was prepared by the CRAES inJanuary 2005. Following sections summarize the main findings and conclusions of the "Summary Environmental Report" and the 5 provincial environmentalreports. 2. BriefAssessment andEvaluationof IAIL2 Impacts 2.1 EnvironmentalIssues The IAIL2 Environmental Impact was rated as "B" by the Bank management. Inthe PAD for IAIL2, the following statements were made: "There are no major environmental issues. Minor issues include possible: (a) small contributions to lake eutrophication due to increasedfertilizer use and runofl (b) possible increased diversion of Yellow River water in Shandong; (c) overdraft of groundwater in limited areas of Hebei, Henan and Shandong provinces; and (d) inadequatedrainage to control water table levels and secondary soil salinity". In addition to the 4 issues mentioned above, the EINIAIL2 assessed another 4 minor environmental issues namely: construction impacts, control o f use o f fertilizer and pesticides, dam safety, andpossible snail transfer from Changjiang (Yangtze) to Jiangsu project area. 2.2 Assessment of IAIL2 Impacts 2.2.1 SignificantIssues The implementation o f the project has confirmed the conclusion inPADIIAIL2 that "there are no major environmental issues" in this project and it is unlikely that the project would have any major environmental issues duringits operation andproduction stage. 2.2.2 MinorIssues Adequate attention and effective measures have been taken to mitigate or offset adverse project environmental impacts to a minimumandor an acceptable level. i)Lake eutrophication: Four lakesintheproject areasareidentified to haveeutrophication problems. Industrial and urban waste water are the major,sources for the eutrophication (80- 90%) in the four lakes. The project area from which agricultural drainage and run-off could reach the lakes only occupy 1-4% o f the total lake basin areas. The project implemented effective measures to reduce loss o f nitrogen and phosphor (key parameters for lake eutrophication) from project area such as land leveling, fertilizer conservation, decease inuse o f nitrogen and increase inuse o f potassium, water-saving irrigation and water conservation. It is estimated that the loss o f nitrogen and phosphor from project area to the Chaohu Lake could be reduced by 36% and 38% respectively due to implementation of above mentioned measures. The project actually reduced the total amount o f nitrogen and phosphor from project area and actually mitigated to a certain extent the eutrophication in the 63  Chaohu Lake. The degree o f eutrophication inChaohu Lake had been reduced from "heavy" in 1998 to "moderate" in2002. Similar conditions exist inthe other three lakes inthe project areas. ii)ShandongWaterDiversionfrom YellowRiver: Effectivemeasures,includingcomprehensive water saving measures, have been taken to control water diversion from the Yellow River to project area and to Shandong Province. The yearly average total water amount diverted from the Yellow River to Shandong Province was 7.15 billion cu.m. inthe period o f 1998-2002, close to the allocated quota o f 7.0 billioncu.m. bythe Yellow River Basin Commission. iii)Groundwater: TheprojectfollowedtheBank'scovenantrequirements:i)nonewwellswere to be developed in overdraft areas; ii)well depth to be limited to less than 50m; iii)permits would be required for each new well; and iv) groundwater level to be closely monitored. In addition, the project implemented comprehensive water saving measures, which have mitigated the overdraft o f groundwater in project area. However, due to continuous drought years in Hebei, Shandong, and Henan provinces, the average groundwater level dropped 1-2 m in the three provinces inthe period o f 1998-2002. This i s within the normal range o f groundwater table changes in drought years and which could be recovered in wet years. In 2003, Shandong and Henan provinces came into a wet year while Hebei Province was in a normal year. Inthis year, groundwater table was raised by 1.24m, 3.36 myand 1.27m in Hebei, Shandong, and Henan provinces respectively, as compared with the ground water situation in2002, as shown in Table 2-1 below: 2-1: Statisticsof Precipitationand Groundwater Depthin 1998-2003 Note: Precip=precipitation; L.A.=Long-termAverage iv) Soil salinity: Inthe project, the area with soil salinity potential is limited to the small area o f low lands along rivers, around lakes, and near seashores, which form a small %age o f the total project area. The project developed well irrigation systems and complete drainage systems in such areas to lower the high groundwater level and to reduce soil salinity. During project implementation period, almost no soil salinity occurred inproject area. 2.2.3 Other Issues i)ConstructionImpacts. The project closely followed pertinent Chinese environmental laws and regulations during project construction. The project components of IAIL2 mainly included the improvement o f ditchkana1 and on-farm works, which were small in quantities and widely scattered in areas, generally far from villages and other environmental sensitive sites. In addition, the on-farm works were relatively simple and were generally constructed in quite a short period (few months) mainly by local labor resources. The project did not have any 64  significant negative environmental impacts to the ambient environment and did not cause any public health issues or any public complaints duringproject construction. ii)Controlof Useof FertilizersandPesticides. Duringimplementationoftheproject, IPMwas widely applied in the project areas. Employment o f pest-resistant varieties was combined with application o f both bio-pesticides and pesticides with high efficiency, low toxicity and low residue. The eco-environment o f the farmland in the project areas was sufficiently improved. Changes on use o fpesticides are summarized inTable 2-2. Reduction o f Reduction Increase o f eduction o f Reduction o f Province pesticides o fhigh use o fbio- pesticides pesticides per unit area toxic pesticides residues in residues in Without Project With Project N P205 KzO N p205 K2O Hebei 1 0.3 0.25 1 0.4 0.3 Jiangsu 1 0.36 0.2 1 0.26 0.3 Anhui 1 0.38 0.35 1 0.51 0.46 Shandong 1 0.34 0.68 1 0.49 0.66 Henan 1 0.32 0.12 1 0.36 0.18 Inaddition, advanced fertilizing techniques were wildly employed inproject areas, such as deep application, mixed application, etc. Fertilizingefficiency was thus increased and loss o f chemical fertilizer was considerably reduced. iii)Dam Safety. Fourdamsrelatedtotheprojectwereidentifiedtoneedstrengthening and consolidation during IAIL2 appraisal, namely Fuoziling Dam and Longhekou Dam in Anhui Province, Mahe Dam inShandong Province andXiaotashan DaminJiangsu Province. Strengthening and consolidation works o f the 4 dams were started in2001-2002 respectively. By the end o f 2004, all the strengthening and consolidation works for the 4 dams were completed, except the Fuoziling dam, for which the major works had been completed and some minor remainingworks was scheduled to be completed by December 2005. During the implementation o f the project, no dam safety problems and dam safety-related environmentalproblems occurred. 65  iv) Possible Snail/Schistosomiasis Transfer from Changjiang to Jiangsu Project Area. Sanitary survey inthe last few years indicated that neither snails nor schistosomiasis cases were found in project area inJiangsu Province. Surveys by Jiangsu Province prove that such snails can not be found in areas north of latitude 33'15'. The project areas inJiangsu Province, where water was diverted from the Yangtze River, are more than 300 km away from the river and are within the range o f latitude of 33'30' - 35'00'. Snails cannot survive in these areas and therefore no schistosomiasis cases could occur inthe areas. 2.3 EnvironmentalMonitoringResults The project implemented a comprehensive environmental monitoring program covering three main categories: i)pollution control monitoring, including soil, water quality, and agricultural products; ii)groundwater water level; and iii)soil fertility. Annual monitoring reports for all categories in each province were prepared and furnished to SOCAD who summarized the monitoring reports of eachprovince and furnished it to the Bank each year. The continuous environmental monitoring results have shown that i)the project has not had any significant negative environmental impacts to ambient environment; and ii) due to implementation of comprehensive water-saving measures, IPM, balanced fertilizer use, increased forest coverage rate (from 11.6% to 17.2%), the project has begun to improve the agro-ecology in the project area including increased soil fertility, improved grain quality, and improved local micro climate. Table 2-4 shows a summary o f brief conclusions from environmentalmonitoring results: Table 2-4: IAIL2 Su imaryofBasic Conclusionsfrom EnvironmentMonitoringResults - EvaluationConclusion Ingeneral, surface irrigation water is ofgoodquality, whichmeets irrigationwater standards Meets irrigation water standards withcomprehensive pollutionindex quality decreasedyear by year and withno significant negative impact on water receiving bodies. 3) Ground water quality Good and stable. Highmineral was monitored occasionally on few monitoring sites Both single and comprehensive Pollution index decreased yearly and soil I aualitv immoved 5)Produce Good quality; Meets relevant quality standards 1) Groundwater table Groundwater table inthree provinces i s generally decreasedby 1- 2 mbut still remainswithin the normal fluctuationrange. Exploitedvolume is lower thanavailable water resources of long- Exploitation term averagein ShandongandHenan Provinces while that in Hebei Province is slightly higher. Soil fertility i s increasingwith more rational composition of nitrogen,phosphateandpotassium 66  2.4 Summaryand Conclusionsof IAIL2 Assessment Table 2-5 summarizes the major conclusions of environmental assessment and evaluation of the IAIL2 impacts, which indicates that no significant adverse environmental impacts were caused in IAILimplementation and operation, and that because of implementation of comprehensive environmental protection measures including comprehensive water saving, the ago-environment inproject areahasbeenimproved. Table 2-5: IAIL2 Summary of IAIL2EnvironmentalImpacts Assessment - t management during 3. Comparisonof EnvironmentalConditionsof IAIL3 with IAIL2 3.1 Comparisonof ProjectCounties The IAIL3 project is to be implemented in the same 5 provinces of IAIL2. Most of the IAIL3 project areas are within the counties in which IAIL2 was implemented. Among all the 107 counties (city) of IAIL3, 71 are IAIL2 counties and 36 are new counties. 67  3.2 Comparisonof EnvironmentalConditions Detailed comparison on environmental conditions o f IAIL3 with IAIL2 i s available in 5 individual provincial environmental reports, which are annexes o f the "Environmental Report/IAIL3" prepared by the CRAES for SOCAD in Jan. 2005. Following are major conclusions o f the comparisons inthe 5 provincial reports: As for IAIL2, IAIL3 is to be implemented inexisting irrigation areas and on land already beingused for agriculture; The environmental conditions in the 71 counties involving both IAIL2 and IAIL3 remain the same; The environmental conditions o f the new counties in Hebei, Henan, and Shandong provinces are similar with the environmental conditions in the nearby IAIL2 counties in each respectiveprovince; IAIL3Menan is exclusive o f the counties o f Xinxiang, Puyang, and Jiaozuo cities which were involved inIAIL2/Henan, andwhich are short o f groundwater resources. As a result, IAIL3Menan does not include any groundwater overdraft areas; The counties involved in IAIL3/Jiangsu are same to the counties involved in IAIL2/Jiangsu with environmental conditions o f IAIL3/Jiangsu basically the same as those o f IAIL2/Jiangsu; The area o f IAIL3/Anhui is between the areas o f IAIL2 and IAIL1, with environmental conditions o f IAIL3/Anhui similar to that o fbothIAIL2 and IAIL1. 3.3 Comparisonof ProjectComponents The project components o f IAIL3 are basically the same as the project components o f IAIL2: irrigation canal lining, inland water works, updating o f irrigation and drainage pumpingstations, reconstructiono f irrigation wells, land leveling, updating o f farmland roads, construction o f run- off drainage channels, and land forest planting. No new environmental issues other than those involved inIAIL2 are expected. Three new sub-components are added in IAIL3: green produce, farmers' associations, and farmers dragon head enterprises. In selection o f the new components, those involving animal husbandry, high water consumption, heavy pollution, and consumption o f natural vegetation resources were all excluded. The new components selected involve only planting, processing, marketingsale o f local produce such as vegetables, grain, and fruits, involving no adverse environmental impacts. The standards o f `green' food production will involve less use o f chemicals andpesticides. 3.4 WUA Developmentin FiveParticipatingProvinces Because o f successfill experience with establishment and operation o f Water Users' Association (WUA) in IAIL2, IAIL3 includes a program to expand the WUA practice in 10 provinces in China, including the five project provinces and possibly five new "participating" provinces. About 90-100 W A Sare planned to be established ineach new participating project province in existing CAD sites where improved irrigation facilities have already been constructed. 68  The objective o f the program i s improve irrigation operation and management, benefits to farmers and sustainability o f irrigation facilities by helping farmers establish their own associations in order to make better use and management o f their irrigation water resources. About Y 50,000 is planned to be provided on average to each WUA for its establishment, water measurement facilities, training, registration, office constructiodrepair and equipping, etc. The WUA disseminationprogram involves no physical components except a very simple office and a few simple office facilities for each WUA. Therefore, no adverse environmental impacts are expected. 4. EnvironmentalManagementPlans An environmental management plan (EMP) was prepared for each project province by the CRAES who, engaged by SOCAD, prepared an EIA report for IAIL3 in accordance with Chinese domestic environmental requirements. The experiences and lessons learnt fiom IAIL2 implementation have been taken into consideration in preparation o f the EMPs. The following components are included ineach EMP: 1) environmental issues involved inIAIL3; 2) environmental protection objectives and corresponding protection measures for each environmental issue; 3) environmental monitoringprogram; 4) technical assistance andtraining program; 5) management structures and management reporting; 6) cost estimates and funding; 7) summarytable o fenvironmental management plan. A special section or personnel will be established or assigned in each provincial PMO to be responsible for implementation of the EMP for the province. A total o f 13.5 million yuan was estimated for environmental management o f M I L 3 and funding sources have been identified and will be made available. An annual environmental management report, which summarizes EMP implementation progress and evaluation o f actual environmental impacts, is to be prepared by each project province and the reports with a brief review summary will be provided by the SOCAD to the Bank by March 31 o f the following year. Table 4-1 shows a typical summary o f the EMP for IAIL3Mebei. 69  e e e e e e e e e e e e e  Y W sB s u 8 F b CI a .C a Y I- I- c 4 6Le 5n P e .C .C +e $ i I E c n e E .L. icc 3 C n 2 0 . 0 0 . 0 0 5EE rI d za k v)  5. Damsafety MIL3 does not include any dam construction works, or any other investment related to dams. However, in line with China's national dam safety program, and owing to the location o f 17 existing reservoirs within the project area, to following areas havebeenmonitored: Four o f the five project provinces (Anhui, Henan, Shandong and Jiangsu) have listed 17 reservoirs serving their sub-project areas. All the reservoirs are reported to be operationally "safe" with respect to dam safety. Dam safety in China is governed by the State Council Regulation No. 77 for "Reservoirs and Major Dams Safety Management" and the Ministry Water Resource's "Methods of Determining Reservoirs and Major Dams Safety" issued in 1995. These dams are monitored annually by the respective Reservoir Engineering Management Units under the Provincial Water Resources Bureaus for pre- and post-flood events, and special event (unprecedented rainstorm, landslide, earthquake, etc.) for safety based on the various technical parameters prescribed. Safety remedial and strengthening works had been carried out on some of the dams over the years o f operation since completion. During project preparation and appraisal, the safety aspects o f these reservoirs had been reviewed in accordance with the Bank Safeguard Policy (OP 4.37). Based on the information and documentary evidence provided and discussions held with each province, the task team was satisfied with operational conditions o f these dams as reported, except for four dams - Shilianghe, Xiaotashen (Jiangsu), Gutou (Shandong) and Fengshuiling (Anhui) - whose safety remedial and strengthening works are either still inprogress or have been recently completed but not yet inspected and accepted. Specific supplementary information and actions relating to those reservoirs, including provision o f final inspection and acceptance reports to the Bank, have been requested and included in the legal covenants, so as to confirm that the reservoirs are safe as reported. On an annual basis, provinces will also furnish monitoringhtatus reports on pre-flood and post-flood, and special events (unprecedented rainstorm, landslide and earthquake) for all the seventeen reservoirs serving the sub-project areas. 6. Social Safeguard Issues 6.1 Involuntary Resettlement The proposed MIL-3 Project will invest no major irrigation system but only on-farm work and canal liningor undergroundpipeline buildinginthe lower level irrigation system. Meanwhile, as leamed from the preceding MIL-2, this work will be scheduled only in the cropping idle seasons, such as time between fall harvest and winter cultivation, so as to avoid deconstruction ` o f crops as much as possible. Inthe agricultural and forest components under the project, roads, nurseries of young plants, new buildings for seed storage or shops for fertilizer production will be reconstructed on their old bases or in their original demarcated compounds without acquiring new land. Moreover, it is expected as happened in MIL-2 that, because the landscapes will be leveled and renovated with the dredging and realignment of canals, pipelines and roads, more farmland will be even developed and saved out under the project. Therefore, neither land acquisition nor involuntary relocation is expected to occur under the project. 72  However, a Policy Framework for Resettlement and Land Acquisition has been prepared in accordance with the Bank's safeguard policy OP4.12 Involuntary Resettlement, inthe event that the project might affect people through loss o f crops on construction sites, and landscapes leveling and amelioration might require farmland readjustment and reallocation. Involuntary taking o f land or assets might be also required for some project activities unforeseeable at the time o f project preparation and appraisal. If such cases arise, the borrower has agreed that mitigation measures will be taken to minimize such crop or asset losses, and compensation will be provided or village land will be reallocated ifnecessary, on the basis o f policies, principles, procedures and institutional arrangements described in the Policy Framework so as to improve the living standards of the affected people. As part o fproject agreements, the borrower will attest that no activities requiring involuntary taking o f land will be undertaken in this project without prior acceptance by the Bank of appropriate planning remedies. A Resettlement Action Plan (RAP) for such activities would be required to be prepared by the responsible POCAD(s), and reviewed and approved by the Bank, following the Policy Framework which is attached in Annex 15 o fthe PIP. 6.2 Indigenouspeoples The IP policy is not triggered by IAIL3, as there are no ethnic minority groups covered by the project area inthe five 3 H basin provinces, as confirmed in the social impact review carried out by SOCAD. Should there be any additional sites identified for expansion of Water User Associations under the `program approach', Bank policies would be followed, including an assessment o f any ethnic minority groups potentially affected by the project, and, if identified, development o f plans to ensure equitable access to project benefits. A policy framework for ethnic minority development guided by OP4.20 had been drawn up at appraisal. 73  Annex 11:Developmentof FarmerWater User Associations CHINA: IrrigatedAgricultureIntensificationI11Project Summary 1. The Irrigated Agriculture Intensification Loan 111 Project (IAIL3) would support the establishment o f about 494 farmer-managed Water User Associations (WUAs) inthe five Project Provinces - Henan, Hebei, Shandong, Jiangsu and Anhui. Under the predecessor project, IAIL2, which was approximately 50% large than IAIL3, 516 WUAs were established in the same Project Provinces and were generally highly successfbl, producing substantial benefits for farmers such as higher production, reduced labor, water saving and reduced conflict over water. However, under IAIL2, WUA development was designed as a pilot operation and covered only about 9% o f the project area at completion. Under IAIL3, WUAs would cover at least 19% o f the project area at completion inthe five project provinces andwouldbe an important element in the water saving strategy under the project. IAIL3 would be implementedby the State Office for Comprehensive Development (SOCAD) which has allocated approximately US$ 4.0 million from the loan for WUA development inthe five Project Provinces. 2. In addition to the five original Project Provinces, IAIL3 would support WUA development in a number o f additional "Participating Provinces." W A Sin the Participating Provinces would be established inexisting areas where o n - f m irrigation facilities have already been improved under SOCAD'S ongoing national Comprehensive Agricultural Development (CAD) Program and would not involve investment under the project in physical works for irrigation. Participating Provinces and sites would be selected following the "program approach" criteria and methodology, which were developed andpiloted inIAIL2 and have been included in IAIL3. The detailed requirements for selection and approval o f project WUA sites are specified in the project Loan Agreement (see Schedule 4 and Annex to Schedule 4). Participating Provinces sites would be identified during the first year o f implementation. SOCAD has allocated about US$5.0 million from the loan for WUA development in the Participating Provinces. Background 3. WUA Development in IAIL2. IAIL2 supported WUA development and in addition included provision for at least one full "Self-managing Irrigation and Drainage District" (SIDD) in each province. SIDD is a more comprehensive irrigation management concept, including a Water Supply Corporation (WSC) for improving management o f the main irrigation systems, combined with farmer-managed W A Swhich manage the local water facilities and buy water from the WSCs. Under IAIL2, 11 full SIDDs were established with 11 WSCs serving 32 W A Sinthe five Project Provinces of Hebei, Henan, Shandong, Jiangsu and Anhui. However, SOCAD has no mandate or authority to improve main irrigation systems, and in addition for manytypes of irrigation, such as wells or small pumped irrigation schemes, the full SIDDmodel does not fit. An additional 484 independent WUAs were therefore also established under IAIL2 inthe five Project Provinces, makingatotal of516WAS.Seethe tablebelow for the details on WSCs and WUAs established and area coverage achieved under IAIL2. 74  Total Completed W U A area and % intotal Province Project areas (1000 hec.) wsc WUA project areas - 1000hec. I YO Henan 333.33 1 64 23.2 7 Hebei ' 266.67 5 71 29.7 11.1 Shandong 333.33 3 225 43.7 13.1 Jiangsu 333.33 1 106 27.3 8.2 Anhui 266.67 1 50 17.3 6.5 Total 1533.3 11 516 141.1 9.2 4. Although WSCs (the full SIDDs) under IAIL2 were generally successful and provided substantial irrigation management benefits, they are not required under IAIL3. SOCAD and the C A D program have neither the mandate/authority nor the staff and financial resources to deal with upstream (e.g., maincanal system) improvement. 5. WUA Developmentin Other Projects. WUA development started inHubei andHunan in 1993 under the Bank-financed Yangtze Basin Water Resources Project, and since then has spread to many other provinces in Bank-and domestic financed projects. WUA development i s currently supported in three ongoing and three completed Bank-financed projects covering 10 provinces and three large municipalities. W A Sare also supported indomestic projects, and the Ministry o f Water Resources (MWR) recently issued an order which requires W A Sin all projects financed under their national irrigation improvement project. In addition, MWR and SOCAD are currently implementing together (with Bank administration) the DFID-funded Pro- Poor Rural Water Reform Project (PPRWRP) which aims to establish a permanent national support system for WUA development and which is closely related to IAIL3. To date a total o f about 1,500 WUAs have been established under Bank-funded projects, with about 4,000-6,000 WUAs reportedunder domestic-fundedprojects. 6. Policy Support for WUA Development. Since 1993, the central and provincial governments and leaders have provided increasing support for WUA development. Some examples o f key WUA policy support actions to date are: (a) "Policies on the Water Resources Sector" issued by the State Council in 1997; (b) "The Law o f the People's Republic o f China on Water" issued in 2002; (c) "Rules on Application o f Reform o f the Management System for Water Resources Facilities" (No. 45) issued by the State Council in2002 shortly after passage of the new Water Law above; (d) "Rules on Application o f Reform o f Management Systems for Small Sized Rural Water Resource Facilities" (No. 603) issued by the Ministry o f Water Resources (MWR) in 2003; (e) Notification on Doing a Good Job with Concerted Efforts for Trial o f SIDD" issued jointly by SOCAD and MWR; (0 "Instructions on Strengthening o f Development, Registration and Management of Rural Specialized Economic Associations" which includes WAS,issued by the Ministry o f Civil Affairs in2003; and (8) various speeches by MWR leaders, including in particular a speech by the Minister of Water Resources to the Provincial Water Resource Bureau (WRB) directors in September 2001. At present, MWR is preparing a national policy guideline on WUAs which will provide clear policy support for WUA development throughout the country and is expected to be issuedbefore the end o f2005. 75  7. Benefits of WUAs. Experience with W A Sunder MIL2 and other projects indicates clearly a number o f different benefits due to participatory irrigation management as practiced by the farmer-managed W A S ,compared to irrigation service as traditionally managed by local government offices and staff. Benefits o f WUAs are not uniformly the same for all cases and depend on local conditions, but they generally include the following to some degree for most W A S : (a) Crop production. In general, yields increase slightly due to better local water management, especially during drought years. Area irrigated in the WUA area may also increase due to saved water. (b) Water saved. WUAs purchase water based on volume o f water used, compared to the traditional method o f water charges based on the area irrigated which promotes water waste. WUA farmers therefore have a strong incentive to use less water. As a result, the farmers' water use commonly declines by some 10-20% shortly after WUA establishment simply because o f the volumetric water charge and the incentive to save water introducedby the WUA. (c) Reducedwater cost for farmers. Although the price per cubic meter o f water may rise slightly due to the W A ' s operating costs, the amount o f water used by farmers goes down due to the volumetric water charge, so that that in general the overall cost o f water (per mu) for the farmers i s reduced. (d) Reducedwater conflicts. Before the W A is established, many water conflicts occur, especially duringthe peak water demand. This situation often results inserious physical disputes, requires constant attention and intervention by local leaders to settle arguments and keep order, and interferes with efficient water management. After the WUA, such water conflicts essentially disappear. (e) Reduced burden on local government and farmers. Local officials and staff no longer have to spend a lot o f time settling water disputes or maintaining local irrigation works. WUAs take care o f both. Meanwhile, farmers no longer have to fight for their water as the WUA delivers the water as ordered by the farmers, and for most WUAs the cost o f water for the farmers is reduced. In addition, because the WUA is the farmers' own organization and the W A Scollects water charges, and irrigation service is better, water charge collection rates usually rise substantially, frequently from 50% or less to 95% or more, which provides additional, badly needed finds for critical operation and maintenance (O&M) o f upstream irrigation facilities. It is often reported that WUA farmers are happy to pay all their water charges, but before the WUA the same farmers resisted paying any water charges. (f) Reduced labor. Before the WUA, farm families had to spend a great deal o f time to take their water and to guard it. After the WUA, that time is greatly reduced, frequently by about 50% - 75%, because the WUA delivers and guards the water. This allows more time for off-farm employment and helps raise farm household income, often substantially. (g) Benefits to women and vulnerable groups (and the poor). Frequently the men out- migrate to work on construction or in factories in the cities, etc., leaving the women to handle all the agriculture including irrigation as well as all other family matters. With only one person, it is difficult to take and guard irrigation water. But after the WUA, the WUA delivers the water, allowing the women to get their share of the water. Similar 76  benefits accrue to vulnerable groups who are generally the poor inthe local community, such as the elderly without their children, and sick and disabled people. In such cases, these people have their share of the landbut no physical ability to take their share o f the water for the land. Democratic water management by the WUA ensures they get their water, which insome cases lifts them out o fpoverty. WUA DevelopmentPlansunderIAIL3 8. WUA development would be implemented in accordance with detailed WUA Development Plans which are included in the overall PIP prepared by SOCAD and in the detailed PIPSprepared by the provinces. Under IAIL3, a total o f about 494 WUAs covering a total irrigated area of 95,435 ha, including some 867 villages and benefiting about 287,608 farm families, would be developed in the same five Project Provinces as in IAIL2 - Henan, Hebei, Shandong, Jiangsu and Anhui. WUA coverage would be expected to reach about 19% o f the total project area. Project Provinces would establish WUAs in project townships which would serve as a demonstration to promote further development o f WUAs inthe townships. All WUAs established under the project would have to meet the agreed requirements (see para. 11 and 12, below). The following table summarizes the development plans for WUAs in the five Project Provinces: Irrigationareato Participating Farmer Province WUA be served villages beneficiaries Investment (Number) (Hectares) (Number) (Number) (1,000 Yuan) Total 494 95435 867 287608 25690 Henan 83 23333 172 56732 4025 Hebei 83 24466 145 61659 4150 Shandong 118 17083 186 49811 7015 Jiangsu 110 18480 158 50382 5500 Anhui 100 12073 206 69024 5000 J 9. In addition to the above, about US$5.0 million of the loan will be used for extending W A Soutside the above Project Provinces following the project program approach system which was developed for IAIL2. After the five Project Provinces start to implement the project, SOCAD will select the additional "Participating Provinces" only for WUA development and identify sites where WUAs will be established using loan funds. The sites must already have good quality irrigation facilities and require no additional works investment under the project, having been previously improved under SOCAD'Snational CAD program. In addition, site selection will be based on the enthusiasm and support o f the local farmers and government officials, so that WUA development will be bottom-up "demand-driven" rather than top-down "supply-driven," W A Sestablished in the Participating Provinces would have to meet the agreed requirements, principles and criteria (see para. 11and 12, below). Following selection o f the sites, preparation work at the identified sites will be started from the bottom-up. The WUA Development Plan in the Participating Provinces, outside the Project Provinces, will be incorporated into the whole project implementation plan after the Participating Provinces are identified. Because this will follow the program approach during implementation and be demand-driven, the provinces and sites are not yet known. Environmental and social screening would be required for all such sites to ensure that Bank policy requirements are met. 77  10. Annual implementationplansfor W A Swouldbe as follows: Year NumberofWUAs EstimatedCost (Y Mil) 1 65 3.5 2 136 7.2 I 3 I 135 I 6.8 I 4 100 5.3 5 58 2.9 PrinciplesandCriteriafor WUA Developmentunder IAIL3 11. Based o n experience with W U A s in MIL2 and other Bank-funded projects, five principles for high quality, sustainable WUAs have been developed. These principles will be followed in IAIL3 and are built into the Loan Agreement and the Project Agreement. The five principles are: (1) The WUA is the farmers' own organization. This means that: (a) the WUA is registered with the Civil Affairs Bureau and is a legal person; (b) WUA members are the farmer water users in the WUA command area; (c) WUA members elect their own leaders who are members o f the WUA; (d) WUA water and financial management and regulations are transparent and open to all members; and (e) the WUA is financially independent and has its own bank account. The purpose of the WUA is to operate and maintain the local irrigation distribution system on behalfof the farmers, and as such, the WUA has ownership of and/or responsibility for operation and maintenance o f its irrigation water distribution facilities; (2) WUA jurisdiction is based upon hydraulic boundaries of the water distribution systemfrom a common source. The WUA command area is not based on or limited by administrative or village boundaries, although in some cases village boundaries may correspond to the WUA hydraulic boundaries. There is often more than one village located in a WUA. Water user groups may be formed around channels within the WUA distributionsystem to facilitate water distribution within the WUA. In a gravity surface water system, the water source may be an outlet from a supply delivery canal or lateral which supplies the WUA on-farm water distribution channels which establish the WUA hydraulic unit area. The boundary or jurisdiction o f W A Susing groundwater may be based upon the common electrical power source serving a number of wells that form W A So fcommon users; (3) Water supplied to the WUA is volumetrically measured, and water charges are based on the volume of measured water. The WUA has water measurement facilities to measure the amount of water received, and the WUA pays the water charges based on the volume o f water received (volumetric water charges). Water deliveries to the WUA are based on a water supply contract between the WUA and the water supplier, and the 78  WUA and the supplier use the measurement devicedfacilities to calculate the volume of water actually received and to be paid for bythe WUA; (4) The WUA collects water charges from its members and payswater charges directly to the water supplier. As a legal entity, the WUA is authorized by the govemment to collect water charges from its members, to pay the water charges directly to the water supplier, and to enter into a water supply contract. Water charges are based on the volume o f water actually received and distributedto the WUA members, at a price agreed to inthe water supply contract or as set by the government. This enhances the concept o f participation and self-management o f the WUA and leads to greater financial independence. The WUA pays directly to the water supplier, and does not pay water charges to the village or to the local government; and (5) The WUA has an adequate and reliable water supply and distribution system. Water supplied to the WUA is adequate and reliable, and the WUA has (or will have) adequate water distribution facilities to deliver water to its farmer members in a timely manner. To ensure an adequate and reliable water supply, the WUA enters into a water supply contract with the water supplier which specifies the rights and responsibilities of the supplier andthe WUA. Operationof Sub-grants for WUA Development 12. The project would finance the establishment o f WUAs through Sub-grants from the Bank loan (see Loan Agreement, Schedule 1and Schedule 2). Sub-grants would cover the actual cost of establishment o f each WUA, including local staff and fanner training, repair or construction of a small building for the WUA office, office fumiture and equipment for WUA office, water measurement equipment/facilities, etc. In the five Project Provinces, investment in irrigation facilities would not be covered under the sub-grants but would be carried out under the water saving irrigation component o f the project in coordination with WUA establishment; in Participating Provinces, such investment would have been completed or would be carried out under the national C A D program operated by SOCAD and the provincial and lower level offices CAD offices. Disbursements of WUA Sub-grants to cover WUA establishment costs inboth the original five Project Provinces and the additional Participating Provinces selected under the program approach would be based on certification that the above WUA principles have been met. The Sub-grant for each WUA would be approved by the Provincial Project Management Office (PPMO) only after certification by the local responsible Project Management Office (PMO) that the five principles have been met (see Project Agreement, Schedule 2 for project provinces, especially para. 13, and Loan Agreement, Schedule 4 and Annex to Schedule 4 for Participating Provinces, especially para. 9), and the data and sign-off confirmation have been entered into the project management information system (MIS; see also para. 17below). OrganizationandManagementfor WUA Development 13. Overall, WUA development under the project would be carried out through the national C A D system and the Project Management Offices (PMOs) set up within CAD. WUA implementation would be supervised, guided and monitored at the central level by the SOCAD Central PMO (CPMO). Provincial PMOs (PPMOs) would oversee and support WUA 79  implementation at lower levels, and County PMOSwould be responsible to implement W A Sin the field. Specific staffhub-units at all levels would be designated as responsible for WUA development. Special staff training andstudy tours andcapacity buildingfor WUA development would be financed under the project. DFID-financedPro-PoorRuralWater ReformProject 14. Due to the need andbenefits o f WUAs for improving on-farm irrigation management, the achievements of W A S inIAIL2 and other World-Bank financed projects, and inparticular the demonstrated pro-poor benefits for women and other vulnerable groups from W A S ,the UK Department for International Development (DFID) agreed to support a "Pro-poor Rural Water Reform Project" (PPRWRP) for WUA development, together with the World Bank, to help the Chinese government establish a permanent, sustainable mechanism for long-term WUA development. The project is currently under implementation by MWR and SOCAD and is administered by the Bank. 15. PPRWRP was conceived and designed to be closely connected with and supportive of WUA components inBank projects, especially IAIL3, and as a result both PPRWRPand IAIL3 share many o f the same procedures and criteria to develop W A S , such as the five WUA principles above. Since PPRWRP is strongly focused on WUA development in all dimensions, providing concentrated inputs o f both funds and expertise to strengthen WUA development and raise WUA quality, and also since its implementation started ahead o f IAIL3, PPRWRP has already provided direct lessons and experienced to improve the design o f WUA development under IAIL3. PPRWRP methodologies, practices and training developed for more "bottom-up" participatory WUA development will be used in IAIL3; PPRWRP training support can directly assist IAIL3; and WUA development using "demonstration" WUAs and "WUA clusters'' as practiced in PPRWRP will also be applied in IAIL3. PPRWRP has in particular added an increased pro-poor focus on women and disadvantaged groups to WUA development under IAIL3, and it will continue to enhance the quality and extent o fWUA development duringIAIL3 implementation. One o f the key early findings o f PPRWRP was that active participation o f women is essential to the long-run sustainability o f WUAs, especially since many men are migrating out o f the rural areas for employment. IAIL3 will promote increased training for women on W A S , their participation in WUA operations and management, and their membership on WUA Executive Committees, and follow-up actively on this and other such lessons from PPRWRP. 16. Both MWR and SOCAD are currently in the early stages of implementing PPRWRP, with close technical support from the Bank inadministration o f the grant andthrough the Bank's WUA Sector Work Program on W A Swhich is also financed under the DFD grant. PPRWRP aims to help establish permanent mechanisms and support systems for pro-poor WUA development through four Outputs: (1) Policy andguidelines; (2) Capacity buildingandtraining; (3) Development o fdemonstration and extension W A S ;and (4) WUA monitoring and evaluation(M&E), including bothMIS and M&E development. 80  Role of Project Management Information System (MIS) 17. The project M I S has a critical role to play in the project to ensure that WUAs meet the required conditions for disbursement o f the WUA Sub-grants. To submit the withdrawal application for Sub-grant disbursement, the responsible local PMOs have to ensure that the five WUA principles have been met; inparticular, the local PMOs have to certify and sign-off that the requirements for approval o f Sub-grants as specified in the Project Agreement Schedule 2 paragraph 13 have been met, and enter the necessary evidence data and the sign-off into the MIS as a pre-condition for submission o f the loan withdrawal application. To ensure that the above requirements have been met, the POCADs and SOCAD would review all withdrawal applications before submission to the Bank and would also spot-check W A S . The procedures for disbursement involving the M I S would be the same for IAIL3 and PPRWRP (see para, 12, above), and IAIL3 and PPRWRP would use the same M I S software designed to accommodate the above WUA certification and sign-off process. WUA Monitoringand Evaluation (M&E) 18. PPRWRP has also developed a specialized system for M&E o f WAS. The WUA M&E system (or WUA-MES) is designed to enable specific monitoring o f WUA benefits and operation over time and incomparisonto control groups, and is also designed to be "participatory" (involving the WUAs themselves indata collection). Key monitoring and performance indicators and methodologieshave been agreed, and the same WUA-MES will be used for bothPPRWRPandIAIL3. This would provide a muchlarger and broader data set and experience for analyzing the performance, benefits, impact and sustainability o f WUAs over time and enable continuous quality control and enhancement for W A SandWUA training and development methods duringthe project period. 81  Annex 12: Project Preparation and Supervision CHINA: IrrigatedAgriculture Intensification111Project Planned Actual PCNreview March 11,2004 March 16,2004 InitialPID to PIC March 17,2004 Initial ISDS to PIC March 17,2004 Appraisal March20, 2005 January 16, 2005 Negotiations August 8,2005 September 1,2005 Board/RVP approval September20,2005 Planneddate o f effectiveness December30, 2005 Planneddate o fmid-termreview June30, 2008 Plannedclosing date December31,20 10 Key institutions responsible for preparation o f the project: State Office for Comprehensive Agricultural Development Bankstaff andconsultantswho worked onthe project included: Name Title Unit QunLi Task Team Leader EASRD GeoffSpencer Co-Task Team Leader/ Senior EASRD Irrigationspecialist RichardB.Reidinger Senior Agricultural Economist Consultant NatashaHayward Young Professional/Social EASRD Development Specialist Mei Wang Senior Project Lawyer LEGEA Robert O'Leary Senior Finance Officer LOAG3 Yiling Liu Acting Finance Officer LOAGl Jinan Shi Procurement Specialist EACCF Yi Dong Financial Management EACCF Specialist Zhongchen Lin Social SafeguardsSpecialist EACCF Wen PohTing Senior Agricultural Consultant Agronomist LangSengTay Senior Water Resources Consultant specialist Qingtao Xie Environmental Specialist Consultant Houbin Liu Senior Irrigation Consultant Engineer/WUA Specialist ShaojunLi WUA SpecialistKoordinator EASRD Wenyan Dong Program Assistant EASRD Matrice Mangum Program Assistant EASRD SukanyaVenkatraman Program Assistant EASRD 82  Bank funds expendedto date onproject preparation: 1. Bank resources 0 Prior FiscalYears: USD 705,279.49 0 Current Fiscal Years: USD21,932.16 2. Trust fbnds: 0 3. Total: USD 727,2 11.65 EstimatedApproval and Supervision costs: 1. Remainingcosts to approval: US$8,067.84 2. Estimatedannual supervision cost: USD 100,000 83  Annex 13: Documentsinthe Project File CHINA: Irrigated AgricultureIntensificationI11Project A. Project Implementation Plan IrrigatedAgricultureIntensificationProject 111:Project ImplementationPlan (PIP), 2005 Annex 1. Technical Assistance, StudyTours andTraining Plan Annex 2. Practical ResearchPrograms Annex 3. WUA Development Plan Annex 4. ComprehensiveWater Saving Plan Annex 5. Farmer Associations and Professional Cooperative Demonstration Plan Annex 6. GreenFoodDevelopment Plan Annex7. IPMPlan Annex 8. Project Operation and Maintenance Plan Annex 9. Project Monitoringand Evaluation Plan Annex 10. Financial Management Guidelines Annex 11.Analysis of Water Supply andDemandBalance Annex 12. Dam Safety Report Annex 13. Policy Framework for Social Assessment Annex 14. Environmental ManagementPlan Annex 15. Program Approach Annex 16. Policy Framework for Ethnic Minority Development Annex 17. Project ProcurementPlan B, ProvincialProject Implementation Plans (5) C. Bank Staff Assessments Identification, Preparation, Preappraisal/Appraisal - Mission Aide Memoires D. Other Irrigated Agriculture Intensification I11Project: FeasibilityStudyReport for Overall Project ProvincialFeasibilityStudies and Annexes Provincial SIDD Development Plans Provincial FAsDevelopment Plans ProvincialNon-pollutedGreenFoodProduction Plans Provincial Farm's Professional Cooperative Development Plans Provincial Comprehensive Water Saving Development Plans Provincial Special Reports on Dam Safety and Water Balance Provincial IPMPlans Financial Management Guideline for IAIL3 Provincial PolicyFramework for Resettlementunder IAIL3 Provincial Guidelines for DamSafety under IAIL3 BriefAssessment andEvaluation ofIAIL2 Environmental Impacts * Including electronic files. 84  Annex 14: Statement of Loans and Credits CHINA: IrrigatedAgriculture IntensificationI11Project Annex 13A: Statuso fBank Group Operations inChina Il3RDLoans andIDA Credits inthe OperationsPortfolio Annex 13B: Statementof IFC's Committed and DisbursedPortfolio Differencebetween expectedand actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO66955 2004 CN-ZHEJIANGURBAN ENVMT 133.00 0.00 0.00 0.00 0.00 133.00 0.00 0.00 PO65463 2004 CN - JiangxiIntegratedAgric. Modem. 100.00 0.00 0.00 0.00 0.00 99.00 2.74 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 65.61 6.48 0.00 Development PO73002 2004 CN-Basic Educationin Westem Areas 100.00 0.00 0.00 0.00 0.00 99.34 -0.66 0.00 PO77615 2004 CN-GEF-Gansu& Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 10.50 1.10 0.00 Develop PO77137 2004 CN-4th InlandWaterways 91.00 0.00 0.00 0.00 0.00 91.OO 0.oo 0.00 PO69852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 0.00 200.00 79.95 0.00 PO67337 2003 CN-2nd GEF EnergyConservation 0.00 0.00 0.00 26.00 0.00 14.60 18.32 0.00 PO40599 2003 CN-TIANJIN URBDEV I1 150.00 0.00 0.00 0.00 0.00 148.50 5.43 0.00 PO58847 . 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 106.13 18.22 0.00 PO68058 2003 CN-Yixing PumpedStorageProject 145.00 0.00 0.00 0.00 0.00 133.05 -3.77 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 247.50 18.58 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 0.00 153.84 -10.49 0.00 PO70191 2003 CN-SHANGHAI URBENVMTAPLl 200.00 0.00 0.00 0.00 0.00 190.00 3.33 0.00 PO71147 2002 CN-TuberculosisControl Project 104.00 0.00 0.00 0.00 0.00 86.37 -17.63 0.00 PO60029 2002 CN-Sustain. Forestry Dev(Natura1 0.00 0.00 0.00 16.00 0.00 14.11 4.20 0.00 Forest) PO64729 2002 CN-SUSTAINABLEFORESTRY DEV 93.90 0.00 0.00 0.00 0.00 76.07 8.58 0.00 PROJECT PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 0.00 33.61 5.69 0.00 PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 0.00 85.84 7.50 0.00 PO68049 2002 CN-Hubei Hydropower Dev in Poor 105.00 0.00 0.00 0.00 0.00 84.02 16.19 0.00 Areas PO56199 2001 CN-3rd Inland Waterways 100.00 0.00 0.00 0.00 0.00 77.97 9.47 0.00 PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 64.74 28.94 0.00 PO58845 2001 Jiangxi I1Hwy 200.00 0.00 0.00 0.00 0.00 122.28 9.28 0.00 PO45915 2001 CN-Urumqi Urban Transport 100.00 0.00 0.00 0.00 0.00 52.54 51.24 0.00 PO47345 2001 CN-HUAI RIVER POLLUTION 105.50 0.00 0.00 0.00 0.00 87.18 -18.32 0.00 CONTROL PO56596 2001 CN-ShijiazhuangUrban Transport 100.00 0.00 0.00 0.00 0.00 85.41 57.17 0.00 PO56516 2001 CN - WATER CONSERVATION 74.00 0.00 0.00 0.00 0.00 35.94 9.11 0.00 PO64924 2000 CH-GEF-BEIJING ENVMT I1 0.00 0.00 0.00 25.00 0.00 23.32 20.09 4.85 PO45264 2000 CN-SMALLHLDR CATTLE DEV 93.50 0.00 0.00 0.00 0.00 11.00 5.98 0.00 85  PO64730 2000 CN - Yangtze DikeStrengthening 210.00 0.00 0.00 0.00 0.00 108.19 104.19 0.00 Project PO45910 2000 CN-HEBEIURBAN ENVIRONMENT 150.00 0.00 0.00 0.00 0.00 118.37 52.87 0.00 PO49436 2000 CN-CHONGQING URBANENVMT 200.00 0.00 0.00 0.00 3.70 152.28 73.98 0.00 PO58843 2000 Guangxi Highway 200.00 0.00 0.00 0.00 0.00 98.24 5 1.24 0.00 PO42109 2000 CN-BEUINGENVIRONMENT I1 349.00 0.00 0.00 25.00 0.00 286.54 194.64 0.00 PO58844 2000 3rd HenanProv Hwy 150.00 0.00 0.00 0.00 0.00 55.58 31.25 0.00 PO56424 2000 CN-TONGBAIPUMPEDSTORA 320.00 0.00 0.00 0.00 100.00 148.57 109.20 0.00 PO50036 1999 Anhui Provincial Hwy 200.00 0.00 0.00 0.00 9.60 32.99 39.99 0.00 PO57352 1999 CN-RURAL WATER IV 16.00 30.00 0.00 0.00 0.00 21.42 17.43 12.03 PO56216 1999 CN LOESSPLATEAU I1 - 100.00 50.00 0.00 0.00 0.00 19.69 21.83 0.00 PO51888 1999 CN - GUANZHONG IRRIGATION 80.00 20.00 0.00 0.00 0.00 28.54 24.30 0.00 PO51856 1999 ACCOUNTING REFORM& 27.40 5.60 0.00 0.00 0.00 17.56 17.49 0.00 DEVELOPMENT PO58308 1999 CN-PENSIONREFORMPJT 0.00 5.00 0.00 0.00 0.00 1.77 1.75 0.00 PO51705 1999 FujianI1Highway 200.00 0.00 0.00 0.00 0.00 58.87 58.21 0.00 PO49665 1999 CN-AWING VALLEY AG.DEV 90.00 30.00 0.00 0.00 0.00 17.31 11.48 0.00 PO36953 1999 CN-HEALTH IX 10.00 50.00 0.00 0.00 0.00 33.90 23.68 0.00 PO60270 1999 CN-ENTERPRISEREFORM LN 0.00 5.00 0.00 0.00 0.00 2.25 3.75 3.53 PO38121 1999 CN-GEF-RENEWABLE ENERGY 0.00 0.00 0.00 35.00 0.00 23.09 29.22 10.37 DEVELOPMENT PO41268 1999 CN-Nat Hwyil/Hubei-Hunan 350.00 0.00 0.00 0.00 0.00 59.72 46.72 0.00 PO03653 1999 CN-ContainerTransport 71.00 0.00 0.00 0.00 18.61 3.01 21.61 0.57 PO41890 1999 CN-LiaoningUrbanTransport 150.00 0.00 0.00 0.00 0.00 33.14 33.14 0.00 PO46829 1999 RENEWABLE ENERGY 100.00 0.00 0.00 0.00 0.00 12.87 99.87 9.00 DEVEMPMENT PO46564 1999 CN - Gansu& InnerMongolia Poverty 60.00 100.00 0.00 0.00 13.30 33.46 27.96 -10.83 Red. PO46051 1999 CN-HIGHER EDUC. REFORM 20.00 50.00 0.00 0.00 0.00 5.69 7.31 0.00 PO43933 1999 CN-SICHUAN URBAN ENVMT 150.00 2.00 0.00 0.00 0.00 88.89 83.82 28.12 PO42299 1999 TEC COOP CREDIT IV 10.00 35.00 0.00 0.00 0.00 34.23 -12.39 0.00 PO37859 1998 CN-GEF EnergyConservation 0.00 0.00 0.00 22.00 0.00 0.71 22.06 0.00 PO40185 1998 CN-SHANDONG ENVIRONMENT 95.00 0.00 0.00 0.00 1.40 20.07 21.47 8.16 PO36414 1998 CN-GUANGXI URBAN ENVMT 72.00 20.00 0.00 0.00 0.00 68.54 65.50 29.20 PO03606 1998 ENERGY CONSERVATION 63.00 0.00 0.00 22.00 0.00 31.67 17.43 0.00 PO35698 1998 HLJNANPOWER DEVELOP. 300.00 0.00 0.00 0.00 145.00 21.94 166.19 -15.97 PO03614 1998 CN-GuangzhouCity Transport 200.00 0.00 0.00 0.00 20.00 100.31 120.31 100.31 PO03619 1998 CN-2nd InlandWaterways 123.00 0.00 0.00 0.00 37.00 16.35 52.94 1.67 PO03566 1998 CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 0.00 0.00 35.60 24.40 0.00 PO03539 1998 CN - SUSTAINABLECOASTAL 100.00 0.00 0.00 0.00 2.06 45.61 46.85 -0.03 RESOURCESDEV. PO51736 1998 E.CHINNJIANGSUPWR 250.00 0.00 0.00 0.00 86.00 44.65 130.65 15.06 PO49700 1998 CN- IAIL-2 300.00 0.00 0.00 0.00 0.00 3.97 3.97 2.47 PO46952 1998 CN - FOREST.DEV. POORAR 100.00 100.00 0.00 0.00 0.00 29.62 -70.11 15.20 PO46563 1998 CN - TARIM BASIN I1 90.00 60.00 0.00 0.00 2.67 7.14 10.14 0.00 PO45788 1998 Tri-ProvincialHwy 230.00 0.00 0.00 0.00 0.00 16.51 15.75 0.00 PO36949 1998 CN-NatHwy3-Hubei 250.00 0.00 0.00 0.00 0.00 21.15 21.15 0.00 PO03637 1997 CN-NAT'LRURAL WATER 3 0.00 70.00 0.00 0.00 0.00 0.56 3.77 3.35 PO03590 1997 CN - QINBA MOUNTAFNS 30.00 150.00 0.00 0.00 0.00 7.91 11.44 1.15 POVERTYREDUCTION PO03650 I997 TUOKETUOPOWEWINNER 400.00 0.00 0.00 0.00 102.50 29.58 132.08 27.15  PO44485 1997 SHANGHAI WAIGAOQIAO 400.00 0.00 0.00 0.00 0.00 73.12 48.61 47.66 PO36405 1997 CN - WANJIAZHAIWATER TRA 400.00 0.00 0.00 0.00 75.00 22.58 97.58 20.06 PO38988 1997 CN - HEILONGJIANGADP 120.00 0.00 0.00 0.00 0.00 5.77 5.77 4.99 PO35693 1997 FUEL EFFICIENTMD. 0.00 0.00 0.00 32.80 0.00 5.78 32.81 0.00 PO03654 1997 CN-Nat Hwy2/Hunan-Guangdong 400.00 0.00 0.00 0.00 0.00 44.90 44.90 28.99 PO03602 1996 CN-HUBEIURBAN ENVIRONMENT 125.00 25.00 0.00 0.00 47.32 20.72 70.08 6.42 PO03599 1996 CN-YUNNAN ENVMT 125.00 25.00 0.00 0.00 19.48 35.68 56.92 15.33 PO03648 1996 CN-SHANGHAISEWERAGEI1 250.00 0.00 0.00 0.00 0.00 30.21 30.21 10.75 PO03594 1996 CN GANSU HEXICORRIDOR - 60.00 90.00 0.00 0.00 0.00 73.92 61.33 0.00 PO03589 1996 CN-DISEASEPREVENTION(HLTH7) 0.00 100.00 0.00 0.00 0.00 1.85 10.93 0.00 PO34618 1996 CN-LABOR MARKET DEV. 10.00 20.00 0.00 0.00 0.00 5.56 7.67 0.00 PO40513 1996 2nd HenanProv Hwy 210.00 0.00 0.00 0.00 19.00 12.88 31.88 22.88 PO03571 1995 CN-7th Railways 400.00 0.00 0.00 0.00 119.00 10.28 129.28 20.28 PO03639 1995 CN-SOUTHWESTPOVERTY 47.50 200.00 0.00 0.00 0.01 1.21 25.36 25.36 REDUCTIONPROJECT PO03647 1995 ChinaEconomic Law Reform-LEGEA 0.00 10.00 0.00 0.00 0.00 0.50 0.83 0.00 PO03603 1995 CN-ENT HOUSING& SSR 275.00 75.00 0.00 0.00 57.46 37.16 92.53 5.52 PO03596 1995 CN-Yangtze Basin Water Resources 100.00 110.00 0.00 0.00 1.92 0.21 4.60 4.60 Project PO03540 1994 CN-LOESS PLATEAU 0.00 150.00 0.00 0.00 0.00 0.93 0.27 0.00 PO03632 1993 CN-ENVIRONMENTTECHASS 0.00 50.00 0.00 0.00 0.00 0.86 1.44 1.12 Total: 12,010.07 1,722.60 0.00 214.30 881.03 5,014.65 3,060.25 459.32 87  CHINA: STATEMENT OF IFC's Heldand DisbursedPortfolio (InMillions o fUSDollars) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 1999/00/02 BankofShanghai 0.00 24.67 0.00 0.00 0.00 24.61 0.00 0.00 2002 CDHChinaFund 0.00 15.17 0.00 0.00 0.00 2.09 0.00 0.00 2003 CSMC 0.00 12.00 0.00 0.00 0.00 9.60 0.00 0.00 2004 CUNA Mutual 0.00 12.00 0.00 0.00 0.00 1.47 0.00 0.00 1998 Chengdu Huarong 6.28 3.20 0.00 7.04 6.28 3.20 0.00 7.04 1998 Chengxin-IBCA 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.00 1992 China Bicycles 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 2004 China I1 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 ChinaRe Life 0.00 15.41 0.00 0.00 0.00 15.29 0.00 0.00 1994 China WaldenMgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 I995 DupontSuzhou 7.79 0.00 0.00 0.00 7.79 0.00 0.00 0.00 1994 Dynamic Fund 0.00 8.05 0.00 0.00 0.00 6.40 0.00 0.00 2003 Great Infotech 0.00 3.50 0.00 0.00 0.00 2.80 0.00 0.00 1999 Hansom 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 2002 HuarongAMC 9.00 3.oo 0.00 0.00 9.00 0.49 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 0.19 0.00 0.00 2002 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 LeshanScana 5.21 1.35 0.00 0.00 3.61 1.35 0.00 0.00 2001 MaanshanCarbon 9.00 2.00 0.00 0.00 9.00 2.00 0.00 0.00 2001 MinshengBank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996 NanjingKumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2001 NewChina Life 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 NewbridgeInv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 1997 Orient Finance 6.67 0.00 0.00 8.33 6.67 0.00 0.00 8.33 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 1997100 PTP Holdings 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 2001 Peak Pacific 0.00 0.00 25.00 0.00 0.00 0.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SBTS 0.00 0.08 0.00 0.00 0.00 0.00 0.00 0.00 2000 SSIF 0.00 4.50 0.00 0.00 0.00 I.02 0.00 0.00 1998 ShanghaiKrupp 27.50 0.00 0.00 61.43 27.50 0.00 0.00 61.43 Shanghai Midway 0.00 16.02 0.00 0.00 0.00 16.02 0.00 0.00 1999 Shanxi 15.36 0.00 0.00 0.00 12.81 0.00 0.00 0.00 1993 ShenzhenPCCP 3.76 0.00 0.00 0.00 3.76 0.00 0.00 0.00 2002 Sino Gold 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 2001 Sino-Forest 23.33 0.00 0.00 0.00 18.33 0.00 0.00 0.00 I995 Suzhou PVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 2000 Wanjie Hospital 13.64 0.00 0.00 0.00 13.64 0.00 0.00 0.00  1996 Weihai Weidongri 0.73 0.00 0.00 0.00 0.73 0.00 0.00 0.00 2004 Wumart 0.00 6.48 0.00 0.00 0.00 6.48 0.00 0.00 2003 XACB 0.00 19.93 0.00 0.00 0.00 0.00 0.00 0.00 1993 Yantai Cement 4.73 0.00 0.00 0.00 4.73 0.00 0.00 0.00 2003 Zhengye-ADC 15.00 0.00 0.00 7.00 6.14 0.00 0.00 2.86 2002 Zhong Chen 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 Totalportfolio: 212.50 311.86 36.60 83.80 134.49 188.96 0.00 79.66 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. 2002 ASIMCO 0.00 0.00 0.01 0.00 2004 CCB-MS NPL 0.00 0.00 0.00 0.00 2003 Cellon 0.00 0.01 0.00 0.00 2004 ColonyChina 0.00 0.05 0.00 0.00 2002 Darong 0.01 0.00 0.00 0.01 2002 HuarongAMC 0.02 0.00 0.00 0.00 2002 IEC 0.00 0.00 0.01 0.00 2002 KHIT 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.02 0.00 0.00 2004 Nanjing K u d o Ex 0.03 0.01 0.00 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 2004 SIBFl 0.00 0.00 0.00 0.00 2002 SML 0.00 0.00 0.00 0.00 2002 Sino Mining 0.01 0.00 0.00 0.01 2002 Zhong Chen 0.00 0.00 0.00 0.03 Totalpendingcommitment: 0.07 0.10 0.02 0.05 89  Annex 15: Country at a Glance CHINA: IrrigatedAgricultureIntensificationI11 East Lower- POVERTY and SOCIAL Asia 8 middle- China Pacific Income Development diamond' 2002 Population, mid-year(millions) 12810 1838 2,411 Lifeexpectancy GNIpercapita (A flas method, US$) 950 950 1390 GNI(Aflas method, US$billions) 128.1 1740 3,352 Average annual growth, 1996-02 Population(%) 0.8 10 10 Laborforce 1%) 0.9 12 12 GNI Gross M o s t recent estimate (latest year available, 1996-02) per primary capita nmllment Poverty(% ofpopulafionbelownafionalpo veriyline) 5 Urbanpopulation (%of fofalpopulafion) 38 38 49 Lifeexpectancyat birth(years) 71 69 69 1 Infant mortality(per ZOOOlivebirihs) 30 33 30 Child malnutrition (%ofchildren under5) 0 8 n Access to improved watersource Access to an improvedwater source (%ofpopulafion) 75 76 81 llliteracy(%ofpopulationage 6+) n 13 13 Gross primaryenrollment (%of school-agepopulafion) 0 6 0 6 in -China Male 0 5 0 5 111 Lower-middle-incomegroup Female 0 8 0 6 10 ~ KEY ECONOMIC RATIOS and LONG*TERM TRENDS 1982 1992 2001 2002 Economic ratios' GDP (US$ billions) 2215 454.6 167.1 1232.7 Gross domestic investmentlGDP 33.2 36.2 38.5 410 Exports of goods and serviceslGDP 8.9 8.5 25.5 29.5 Trade Gross domestic savings/GDP 34.8 37.7 40.9 44.0 Gross national savingslGDP 35.1 38.0 40.0 43.8 Current account balanceiGDP 2.4 19 15 2.9 Domestic Interestpayments/GDP 0.2 0.6 0.5 savings Investment Total debt/GDP 3.8 15.9 n0.5 .6 t2.6 Total debt service/exports 8.0 8.6 7.7 6.1 1 Presentvalue of debUGDP n.1 Presentvalue of debtlexports 518 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (averageannualgrowfh) GDP 9.7 9.0 7.5 8.0 75 -China GDP percapita 8.1 8.0 6.7 7.2 6.6 Lower-middle-incomegroup ~ STRUCTURE o f the ECONOMY 1982 1992 2001 2002 of Investment and GDP (X) (% of GDP) Agriculture 33.3 218 8.8 n.5 Industry 45.0 43.9 50.1 517 Manufacturing 37.3 33.1 34.2 44.5 Services 217 34.3 34.1 33.7 ' 5 Privateconsumption 50.7 49.2 45.7 42.5 Generalgovernmentconsumption n.5 Q.l 13.4 13.5 Importsof goods andservices 7.3 8.0 23.1 26.5 I 1982-92 1992.02 2001 2002 Growth o f exports and imports (Oh) ---__ (averageannualgrowfh) Agriculture 4.6 3.7 2.8 2.9 40 ; Industry 116 113 8.4 9.9 30 + Manufacturing 112 0.4 9.0 8.1 Services 117 8.4 8.4 7.3 Private consumption 114 8.1 2.8 19 Generalgovernmentconsumption 9.9 8.4 0.5 7.O .m 1 07 98 99 00 01 02 I Gross domestic investment 9.5 9.7 D.9 Importsof goods andservices 9 7 9.8 0.8 275 -Ekports -1nports 90  PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices (%change) Consumer prices 6.O 6.4 0.7 -0.8 ImplicitGDP deflator -0.2 7.9 12 -2.6 Government finance - (%ofGDP,includes currenfganfs) Current revenue 22.9 14.7 l7.1 0.9 Current budget balance 2.0 11 0.o I Overall surplus/deficit -0.3 -10 -4.7 -3.0 ----GDPdefiator -CPI TRADE 1982 1992 2001 2002 (US$ mi//ions) ,Export and Import levels (US$ mill.) Total exports (fob) 22,321 84,940 266.155 325,565 Food 2,908 6,309 P.780 14,623 400,000 T I Fuel 5814 4,693 8,420 8.372 Manufactures a271 67,936 239,802 297.085 ,300,000 Total imports @if) 8,285 80,585 243,60 295,203 Food 4201 3,146 4,980 5,237 Fueland energy 183 3,570 0,495 8.285 Capital goods 3,204 313P 07,040 07.030 Exportprice index(S95=.iOO) I 41 85 83 78 ge 97 98 99 00 Importprice index(S95=.iOOJ 71 95 91 86 Terms of trade (895=*0) 58 89 91 90 IExports IImports BALANCE Of PAYMENTS 1982 1992 2001 2002 (US$ mi//ions) Current account balance t o GDP (%) Exports of goods and services 24,906 94,88 299,409 365,395 5 T Imports of goods andservices 20,555 86652 27l,325 328,00 Resource balance 4,350 7,446 28,084 37,383 Net income 376 249 -8,04 -14,945 Net current transfers 486 1155 8,492 P,984 Currentaccount balance 5 2 P 8,850 l7,40l 35,422 Financingitems (net) -995 4,952 30,046 40,085 Changesinnet reserves - 4 2 0 2,02 -47,447 -75,507 gs 97 98 99 00 01 02 Memo: Reserves includinggold (US$ mi/lionsf 24,842 220,051 297,721 Conversionrate (DEC,/ocaVUS$) 2A 5.9 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2002 debt (US$ mill.) Total debt outstanding and disbursed 8,358 72.428 00.10 155,678 IBRD 0 3,752 11550 P,051 IDA 1 4287 8,654 8,729 A' P,051 Total debt service 2,P5 8,618 24297 23,688 IBRD 0 460 $550 1631 IDA 0 30 151 0 5 Compositionof net resourceflows Officialgrants 47 327 240 Officialcrediton 657 2343 2,E6 -839 Privatecreditors -a2 8,949 -4.00 -0,593 Foreigndirect investment 430 11156 44,241 49,308 Portfolio equity 0 1243 3,015 2286 World Bank program F:62,103 Commitments 330 1865 782 563 A IBRD - E- Bilateal Disbursements 1 1331 1791 1733 B IDA D Other mitilateral - . ~ F Private Principalrepayments 0 a 7 904 1157 C-IMF G- Short-term 91   MAP SECTION   RUSSIAN FEDERATION CHINA IRRIGATED AGRICULTURE INTENSIFICATION PROJECT (III) HEILONGJIANG MONGOLIA JILIN PROJECT III AREAS EXPRESSWAYS SELECTED CITIES Sea of PROJECT II AREAS EXPRESSWAYS UNDER CONSTRUCTION PROVINCE CAPITALS XINJIANG LIAONING Japan JAPAN MONGOL D.P.R. OF HIGHWAYS NATIONAL CAPITAL NEI BEIJING KOREA BEIJING HEBEI HIGHWAYS UNDER CONSTRUCTION PROVINCE BOUNDARIES TIANJIN REP. OF KOREA SHANXI SHANDONG Yellow RAILROADS Sea QINGHAI NINGXIA GANSU SHAANXI HENAN JIANGSU East China ANHUI SHANGHAI Sea XIZANG HUBEI SICHUAN 114