Nepal - Mahakali Irrigation Project

Document of The World Bank 844X 1.1 FOR OFFICIAL USE ONLY Report No. 293 1-NEP NEPAL STAFF APPRAISAL REPORT MAHAKALI IRRIGATION PROJECT (STAGE I) June 2, 1980 South Asia Projects Department Agriculture C Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Nepalese Rupee (NR) US$1.00 = NRs 12.00 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.62 miles 1 hectare (ha) 3 = 2.47 acres 1 million cubic meter (Mm )3 = 810 acre-feet 1 cubic meter per second (m /s) = 35.31 cubic feet per second 1 liter (1) = 0.26 US gallon 1 metric ton (ton) = 2,205 pounds FISCAL YEAR July 16 - July 15  FOR OFFICIAL USE ONLY PRINCIPAL ABBREVIATIONS AND ACRONYMS USED AA - Agricultural Assistant AD - Agricultural Division ADBN - Agricultural Development Bank of Nepal AIC - Agricultural Inputs Corporation CFRID - Committee for Forest, Resettlement and Irrigation Development in Kanchanpur District DA - Department of Agriculture DADO - District Agricultural Development Officer DIHM - Department of Irrigation, Hydrology and Meteorology ERR - Economic Rate of Return FPDB - Forest Products Development Board GM - General Manager HMGN - His Majesty's Government of Nepal HYV - High Yielding Variety ID - Irrigation Division I&D - Irrigation and Drainage ICB - International Competitive Bidding JT - Junior Technician JTA - Junior Technician Assistant LCB - Local Competitive Bidding MFA - Ministry of Food and Agriculture MIDB - Mahakali Irrigation Development Board MIP - Mahakali Irrigation Project MWPI - Ministry of Water, Power and Irrigation NEC - Nepal Eastern Canal NFC - Nepal Food Corporation NPV - Net Present Value O&M - Operation and Maintenance PLAA - Panchayat Level Agricultural Assistant RD - Road Division REC - Rice Export Company SCF - Standard Conversion Factor SMS - Subject Matter Specialist TCN - Timber Corporation of Nepal T&V - Training and Visit WUJG - Water Users' Group GLOSSARY Panchayat - Smallest Subdivision of Government This document has rstricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   NEPAL MAHAKALI IRRIGATION PROJECT (STAGE I) STAFF APPRAISAL REPORT Table of Contents Paae No. I. BACKGROUND ............................................ 1 The Development Scene ................................ I 1 The Agricultural Sector ............................... 2 The Irrigation Subsector ...... .............. 5 Project Formulation ................................ 7 1I. THE PROJECT AREA ...................................... 8 Location and Communications ..... ............. 8 Existing Irrigation, Drainage and Road Systems ........ 9 Natural Resources ......................... 10 Socio-Economic Aspects ............ , 12 Cultivation Practices ............... .. ................ 14 Agricultural Supporting Services ......... ... .... ...... 14 III. THE PROJECT ...................... ..................... 16 Project Concept .................... ................... 16 Project Features .................... .................. 16 Detailed Features ................... .................. 17 Water Supply and Demand ...................... I ....... Z2 Engineering Designs and Construction Methode ,....... , Implementation Schedule .............. .. ............... 23 Environmental Effects ............... .. ................ 23 IV. COST ESTIMATES AND FINANCIAL ARRANGEMENTS .... ......... 24 Cost Estimates ..................... ................... 24 Financing Plan ..................... ................... 25 Procurement ..................... .............. 26 This report is based on the findings of a Bank mission which visited Nepal in January 1980, comprised of Messrs. W. A. van Tuijl, Y. K. Choi, C. Diewald (Bank) and Messrs P. Borrowman and J. Phillips (consultants).  Page No. V. ORGANIZATION AND MANAGEMENT ........................... 27 Project Board .27 Project Management .28 Staffing .29 Operation and Maintenance .30 Fellowships .30 Monitoring and Evaluation .31 VI. AGRICULTURAL PRODUCTION, MARKET PROSPECTS AND PRICES .. 31 Cropping Pattern and Yields .31 Agricultural Production .33 Input Requirements .33 Market Prospects .33 VII. FINANCIAL ANALYSIS .34 Farm Budgets .34 Land, Income Distribution and Poverty .35 Cost Recovery .36 VIII. BENEFITS, RISK AND JUSTIFICATION .38 General .38 Production Benefits .39 Employment Benefits .39 Intangible Benefits .40 Economic Evaluation .40 Sensitivity and Risk .41 IX. AGREEMENTS REACHED AND RECOMMENDATIONS .42  - iii - SUPPORTING TABLES AND CHARTS ANNEX 1 T-1 Climatic Data T-2 Land Use Capability T-3 Present and Future Land Use T-4 Provisional List of Irrigation, Drainage and Road Works T-5 Provisional List of Equipment Vehicles and Materials T-6 List of Required Buildings T-7 Water Supply and Demand T-8 Estimated Project Cost T-9 Cost Estimate for Consultancy Services and Fellowships T-10 Estimated Incremental Cost of Agricultural Extension for the Bhairawa-Lumbini Groundwater Project T-11 Estimated Annual Cost of Operation and Maintenance T-12 Estimated Annual Incremental Operating Cost of Agricultural Extension and Training T-13 Estimated Schedule of Annual Expenditures T-14 Credit Allocation and Estimated Schedule of Disbursements T-15 Present and Proposed Cropping Patterns T-16 Area, Yield and Production T-17 Total Incremental Crop Production T-18 Crop Input Requirements, Financial and Economic Crop Budgets T-19 Labor Requirements T-20 Annual Farm Budgets for Typical Farm Sizes and Project Rent T-21 Estimated Economic Cost and Benefit Streams T-22 Sensitivity Tests C-i Implementation Schedule C-2 Projected Cropping Patterns C-3 Organization Chart C-4 Organization Chart - Operation and Maintenance Details ANNEX 2 Forestry Aspects ANNEX 3 Engineering Design Criteria ANNEX 4 Assumptions for Financial and Economic Analysis ANNEX 5 Project Monitoring and Evaluation ANNEX 6 Related Documents and Data Available in the Project File MAPS IBRD 14898 Project Location IBRD 14899 General Plan   NEPAL MAHAKALI IRRIGATION PROJECT (STAGE I) STAFF APPRAISAL REPORT I. BACKGROUND The Development Scene 1.01 The Kingdom of Nepal, with a per capita income of about US$110 in 1977, is anong the poorest countries in the world. It started its social and economic development in the early fifties. Remarkable progress has been made since then, but the country is now reaching a critical stage. Constraints are its landlocked position, thin resource base, inaccessibility of many of its regions, rapidly growing population (2.6% annual growth) and severe shortage of skilled manpower and administrators. These are compounded by growing consumer demand and population pressures on marginal land. Moreover, lack of communication between zones is impeding economic integration of the country and efficient use of comparative regional advantages. The critical stage that the country has reached is highlighted by the fact that Nepal's most important export, rice, has declined from a high level of about 500,000 tons in the six- ties to about 100-200,000 tons in the early seventies, 30,000 tons in 1977/78, and in 1979/80, a year with low rainfall, Nepal might already be a net importer. 1.02 The country's land area of 142,000 km2 is divided into three ecolo- gical zones which run parallel from east to west. The Mountains in the north comprise about 16% of the total land area, the Hills about 61%. These two zones are the habitat of the majority (61%) of a population of 13.5 M. Only 30% of the arable land is found in these zones, whereas the Terai in the south, an extension of the Gangetic Plain, contains about 70% of the cultivable land. Population density in hills and mountains has reached the extraordinary level of almost 1,500/km2 of arable land; in the Terai, density is only about 380/km2. As a consequence, pressure on land has caused cultivation of unsuitable land in the Hills and an exodus of hill population (about 40,000 annually) into the plains where many settle illegally in the forest reserves. 1.03 The average size of a fragmented hill farm, supporting a family of 5-6 persons, has decreased to about 0.4 ha; in the Terai a family still farms about 1.7 ha on average. Declining food production, mainly in the Hills but also in the more fertile Terai, and the increasing population is reducing the surplus from the Terai for urban consumption and export. Nutritional levels have been low and are expected to decline further in both zones as a conse- quence of those trends. Estimates for 1977 show available food supply in Nepal covering only about 360 days per year of normal subsistence, more in the Terai (562 days), but much less in the Hills and Mountains (234 days). Therefore, any further export of foodgrains can be only at the expense of subsistence in the Hills.  - 2- 1.04 Nepal's economic performance during the Fifth Five Year Plan (1975/76- 1979/80) has been disappointing (less than 2.4% GDP growth annually) in spite of increasing real public investment. The shortfalls in growth are mainly due to poor results in agricultural production (para 1.05). The trade gap has widened steadily, but has so far been covered by increased tourism earnings and foreign aid disbursements, thus permitting accumulation of international reserves. Investment still amounts to only 10% of GDP. The Sixth Five Year Plan (1980/81-1984/85), currently under preparation, calls for a 4% target growth in GDP and increased investment outlays. Its basic principles focus more sharply on the issues facing Nepal, while allowing for the limited finan- cial and human resources available. The objectives are to increase production in agriculture and cottage and small scale industry, to increase opportunities for productive employment, to meet certain critical basic needs and to slow the population growth rate. A more detailed assessment of the country's economic performance is to be found in the latest economic report. 1/ The Agricultural Sector 1.05 Agricultural Performance. With farm production and related activ- ities comprising more than 60% of GDP, agriculture is the key sector of economic development. It engages almost 90% of the labor force and provides more than 80% of all exports, mainly rice, jute, pulses and oilseeds. Only about one sixth of the total land area is available for cultivation, of which at most 15% is irrigated. About 90% of the cropped area is grown to food- grains, predominantly rice (half of cropped area), followed by maize, wheat, some other cereals and pulses. Performance of foodgrain production largely determines agricultural growth. Less than 10% of the cropped area is under cash crops, mainly oilseeds, jute, sugarcane, potato and tobacco. During the period 1970/71 to 1977/78, the trend in production of major foodgrains and potatoes has been rather disappointing, except for wheat. Production grew at about 1.1% annually due to expansions in acreage, while yields, except for wheat, fell at a rate of about 0.8% per year. Some bad monsoons, declining demand in India and higher cost of fertilizers might account partly for this, but other endogenous factors have also played a role, such as shortfalls and delays in public investment, inappropriate pricing policies, insufficient support services, lack of trained manpower, etc. Cash crops, however, fared much better due to favorable prices and the fact that these crops are mainly grown in the Terai. Production growth in cash crops, too, was derived from expanded cultivation and not from increasing yields. 1.06 Agricultural Strategy. An earlier strategy of regional speciali- zation according to comparative advantages (foodgrains in Terai vs. horticul- ture, tea and livestock in Hills) has been modified in the 6th Plan, in view of the need for a proper foodbase in the Hills. The role of the Terai will be to generate domestic and exportable surpluses as a resource for further development. Since area expansion in the Terai is limited, emphasis will be given to increasing yields, mainly by an expansion and upgrading of existing irrigation infrastructure. First results from IDA's Narayani Zone Irrigation 1/ "Nepal, Development Performance and Prospects", 1979, Report No. 2692-NEP.  - 3 - Project (Stage I) indicate that substantial yield improvements can be expected from improved irrigation water supply combined with increased agricultural inputs. The strategy stresses diversification into cash crops, whose perfor- mance has been promising and whose marketing prospects, both locally and abroad, are good. These crops will have to play a role in the diversification of exports and as a basis for local agro-industries. 1.07 Agricultural Institutions. Agricultural development and policy are the concern of three ministries: the Ministry of Food and Agriculture (MFA), the Ministry of Water, Power and Irrigation (MWPI) and the Ministry of Land Reform. MFA includes the Department of Agriculture (DA) which is in charge of promoting production through extension, training and research. MFA has also overall responsibility for a number of public institutions such as the Agri- cultural Development Bank of Nepal (ADBN), the Agricultural Inputs Corporation (AIC) and the Nepal Food Corporation (NFC). The Department of Irrigation, Hydrology and Meterology (DIHM) is within the jurisdiction of MWPI. Both MFA and MWPI suffer from a chronic lack of trained staff and a sparse distribution of services throughout the country. Annual increases in trained staff are small, readily absorbed and insufficient to meet the rapidly growing demand by projects. 1.08 Agricultural Extension. A national agricultural extension service is provided under DA's Division of Agricultural Training and Extension, through offices at regional and district level. Extension workers are ranked in descending order as Junior Technicians (JTs), Junior Technician Assistants (JTAs) and Panchayat 1/ Level Agricultural Assistants (PLAAs), the latter being selected farmers trained for one month as extension agents and working under direction of JTs and JTAs. They are supposed to be guided and trained regularly by JTs, JTAs and by Subject Matter Specialists (SMSs). Preservice training of JTs (and partly of JTAs) is given by the Institute of Agriculture and Animal Science of Tribbuvan University at Rampur (two years), while JTAs (one year) and lower level workers (one month) are mostly trained at research stations. In-service training of JTs and JTAs is carried out by DA's Division of Exten- sion and Training. The curriculum tends to depend more on the specialties of trainers available than on the needs of trainees. Staff is well motivated but their effectiveness is hampered by a number of problems: (i) lack of trainers (SMSs) and training facilities in the field; (ii) limited feedback between research and field problems; (iii) uneven regional distribution of trained staff, favoring certain Terai areas and the Kathmandu valley; (iv) a rigid pay scale and promotion system, high vacancy and turnover rates; (v) low density of extension workers in most areas; and (vi) extension workers have on average not much advice to offer. IDA's financing of intensified and reorganized extension services in six Terai districts 2/ promises to yield 1/ Local self-government is organized in Village Panchayats, comprising each a small number of villages and headed by a local council. Several Village Panchayats form a District Panchayat. 2/ Under Narayani Zone Irrigation Development Stage II Project, Cr. 856-NEP, in the Sunsari, Morang, Bara, Parsa, Rautahat and Rupandehi Districts.  - 4 - favorable results, as already noticeable in the Parsa district where the Training and Visit system (T&V) is being implemented. Preparation of a project, which IDA is expected to be asked to finance, to widen the coverage of the T&V system over nine more districts in the Terai has already been undertaken. 1.09 Agricultural Research and Training. Agricultural research is carried out at seven research stations, six agricultural, eight livestock and six fishfarms under the direction of DA. Some agricultural research stations are also national crop development centers (for paddy, maize, jute and wheat). Currently, there are about 260 graduates working in research, most of them located in Kathmandu Valley. More remote stations suffer from acute shortages of staff, lack of facilities and equipment. Research is focused on foodgrain improvement programs, with assistance from USAID, UNDP and CIMMYT. 1/ The major weakness is the lack of applied research (crop trials and irrigation/cultiva- tion practices), which would most help farmers. Graduate agriculturists are generally trained outside the country. 1.10 Agricultural Credit. ADBN is the main source of institutional credit in agriculture; two commercial banks as yet play only a minor role in this sector. ADBN extends short, medium and long-term loans to individual farmers, groups of farmers, cooperative societies and village committees (see para 1.11). Overall lending has increased considerably over recent years, and covers now about 25% of total agricultural credit needs. ADBN's financial position is sound, and loan recovery has been satisfactory under the circum- stances; overdues ran at about 24% of loans outstanding over the past years. Repayment performance of cooperative societies, however, has been poor; their creditworthiness seems to be declining. Loans are extended for a wide variety of purposes, including irrigation, mechanization, warehousing and marketing. Interest rates vary with loan purpose between 6 and 16%. 2/ ADBN is making efforts to reach more small farmers directly, although the rules for collat- eral are not in favor of farmers with very small holdings. Application procedures for institutional credit are lengthy and cumbersome, so that many farmers avoid this source in favor of easier credit from private lenders at higher cost. 1.11 Agricultural Input Supply. Agricultural input supply (fertilizers, seeds, chemicals and some implements) is exclusively entrusted to the AIC. AIC procures, both abroad and locally, stores and distributes all inputs through a network of regional and district branches. AIC fixes retail prices for inputs and provides them according to district plans in coordination with District Agricultural Development Officers (DADOs), ADBN and Cooperatives. The activities of AIC have been rapidly extending; its services in the Terai are fairly satisfactory in the light of supply problems and of bottlenecks related to credit and cooperatives. 1/ International Maize and Wheat Improvement Center (Mexico). 2/ The interest rate for crop loans is 14%.  - 5 - 1.12 Cooperative Movement. Since 1976, the Cooperative Movement has been reorganized under the name Sajha. In order to vitalize the movement, reach more farmers and mobilize local savings, the program converted existing "guided" societies (under ADBN management) and village committees into village cooperative societies, under the direction of village panchayats. They are to provide credit, inputs, marketing services and some basic consumer goods. They function as collective borrowers towards ADBN and as agents of national trad- ing organizations. So far, 723 Sajha cooperatives have been established in 30 districts, covering all Terai districts and three Hill districts. Membership is compulsory for all families previously participating in the compulsory sav- ings scheme. These savings, deposited with ADBN, constitute the share capital of village societies and are the main collateral for collective loans. Sajha societies still suffer from lack of trained management, high default rates and local political interference. Cooperatives act as retailers for agricultural inputs, but only few societies are engaged in marketing of crops, where they face serious competition from private traders. Scarcity of suitable warehouses and transportation facilities reduce Sajhas' capacity to distribute inputs and to market farmers' produce. Sajha functions mainly at the Village Panchayat level, although there are District Cooperative Unions as an interim solution until District Sajhas are formed. District Unions work as intermediaries between AIC and the village cooperative and have so far showed a rather poor performance. The Irrigation Sub-Sector 1.13 Water Resources Utilization: Nepal has abundant water resources, including major rivers with annual average discharges totaling about 150 bil- lion m3 and capable of irrigating 6 to 8 M ha. However, there are only about 1.3 M ha of land suitable for surface irrigation in the country. Exploitable groundwater resources, largely concentrated in the Terai, can provide tubewell irrigation for about 0.4 to 0.6 M ha. Total irrigation potential is therefore less than 2 M ha. Utilization of water resources for irrigation is limited by several factors: (i) there are few reliable sources of perennial surface water for year-round irrigation except for the eight major rivers 1/; (ii) these large rivers are costly to develop particularly for relatively small command areas typical in the Terai; (iii) heavy sedimentation in riverbeds creates considerable problems in construction, operation and maintenance of irrigation systems; and (iv) power supplies to energize tubewells are severely restricted in extent and amount. At present, only about 300,000 ha (about 23% of the potential surface irrigable area) are provided with some form of irrigation, of which about 150,000 ha are under public schemes. 1.14 Irrigation Development: Before the launching of Nepal's first Development Plan in 1957, few substantial irrigation works had been undertaken by HMGN. The main reasons were limited financial resources and shortage of trained manpower. Nevertheless, with schemes such as the 11,000 ha Chandra Project (1922), farmers' stream diversions, bucket-lift, and other traditional methods, irrigation had been provided to an area of some 154,000 ha, mainly in 1/ The Mahakali (Sarda), Karnali, Babai, Rapti, Narayani (Gandak), Baghmati, Kosi and Kankai Rivers.  - 6 - the Hills. During the First and Second Development Plans (1957-62 and 1962- 65 respectively), HMGN's irrigation programs were concentrated on building medium sized systems (15-60,000 ha) in the Eastern, Central and Mid-Western Terai. In the Third Plan (1965-70), however, a program was launched for construction of minor irrigation projects, mostly in the Terai, to encourage greater farmer participation and to expand irrigated areas rapidly. Due to poor investigations and construction, many of these projects fell short of expectations, which resulted in discouraging response from farmers. HMGN switched back in the Fourth Plan (1970-75) to a policy of constructing medium- sized irrigation projects, mainly in the Terai. In keeping with the priority given to quick yielding investments, the emphasis shifted in the Fifth Plan (1975-80) towards the completion of on-going schemes and new investment in projects with short gestation periods and high returns, including groundwater development for irrigation by tubewells. For this period the target was to bring 146,000 additional ha under irrigation, however it has been estimated that by the end of the Fifth Plan only about 100,000 ha will have been added. The main reasons for the shortfall are (i) the shortage of technical personnel for design, construction, supervision and project management; (ii) chronic shortages in cement and steel; (iii) shortages in local civil works contrac- tors; (iv) slow procurement due to the country being landlocked and to admin- istrative bottlenecks; and (v) scarcity of investment funds. Preliminary targets set for the Sixth Plan (1980-85) call for the irrigation of 12% of agricultural land in the Hills and 40% in the Terai by 1990 (presently 12% in the Terai and much less in the Hills). 1.15 Bank Group's Participation in Irrigation Development. The Bank Group is presently involved in four on-going projects. The Bank has also acted as executing agency for UNDP in the preparation of feasibility studies, prepared by Tahal Consulting Engineers (Israel), for the Mahakali Irrigation Project (Stage I) (1978), the Babai Irrigation Project (1978) and the Mahakali Irrigation Project (Stages II and III) (1979). The Birganj Irrigation Project (Narayani Zone) (Cr. 373-NEP, US$6.0 M, 1973), under construction since 1974, was originally designed to improve and upgrade 28,700 ha of its command area. In November 1977, IDA agreed to reduce the scope of the project and limit the works to 16,000 ha of the command area so as to accommodate a 50% cost overrun during 1974-77. After a slow start due to procurement and staffing difficulties, project implementation has steadily improved. All civil works and equipment contracts have been awarded, and construction is about 95% complete. The executing agency, the Narayani Zone Irrigation Development Board, is operating effectively. Crop yields achieved under irrigated conditions are promising. The project is expected to be completed by mid-1980. The Narayani Zone Irrigation Development (Stage II) Project (Cr. 856-NEP, US$14.0 M, 1978) is also proceeding satisfactorily. Construction works are on-going in three of the six irrigation Blocks and contracts for two addi- tional Blocks were awarded in February 1980. 1.16 The Bhairawa-Lumbini Groundwater Project (Cr. 654-NEP, US$9.0 M, 1976), the first full scale tubewell project in Nepal, provides for construc- tion of 63 deep wells, detailed development of the 7,500 ha command area and agricultural supporting services. Actual work on the project started in July 1977. Of the 63 planned tubewells, 27 have been constructed. The schedule is to complete all drilling by July 1980, to have 33 wells fully  -7 - equipped by June 1980 and all 63 wells by June 1981. Unfortunately, progress in irrigation works is far behind schedule due mainly to poor performance and shortage of local contractors. The project is scheduled for completion by June 1982. The Sunsari-Morang Irrigation & Drainage Development Project (Cr. 812-NEP, US$30 M, 1978) is designed to upgrade and improve the Chatra canal system, covering about 66,000 ha, as well as to develop the irrigation and drainage networks to farm level in about 6,400 ha within tne Chatra canal system command. Progress on this project has so far been satisfactory, although construction activities have only been started on a small scale. The First Rural Development Project (Cr. 617-NEP, US$8.0 M, 1976) is providing for improvement of small scale hill irrigation schemes and development of a high lift scheme on the Batar plateau in Nuwakot District; progress is satisfactory. The Second Rural Development Project (Cr. 939-NEP, US$11.0 M, 1979) is provid- ing assistance for improvement of small scale Hill irrigation schemes in the Mahakali Zone. Implementation of this project is just starting. 1.17 Technical Manpower. One of the main constraints in the implement- ation of irrigation projects in Nepal is the shortage of technical personnel in DIHM for design and construction supervision. Available staff is very thinly spread over the various Regions, Divisions and projects, and is hardly sufficient to meet present needs. The shortage in engineers will be a major constraint in implementing the irrigation projects anticipated for inclusion in the Six Year Plan. For the Sunsari-Morang Irrigation and Drainage Develop- ment Project, DIHM was not able to provide the necessary design staff. The solution found was to have local consulting firms work together with a small project staff and project consultants. However, only a limited number of local consulting firms is available. Moreover, any completed project would require about as much staff for operation and maintenance as is now available for construction. The number of irrigation engineers in the country has thus to be increased drastically if irrigation development is to be accelerated. Project Formulation 1.18 The Far West Region is relatively undeveloped compared to other Regions in Nepal. Of the Kanchanpur District 58% is still under forest. The district has a good potential for agricultural development, especially irri- gated agriculture, since it is bordered by the Mahakali River 1/ which is one of Nepal's major rivers. Although a barrage across this river was constructed in 1928 by India, Nepal has so far only utilized a small portion of the river flow that it is entitled to use. As population pressure from the Hills is becoming acute in the Far West Region, HMGN now gives high priority to irriga- tion development. In December 1979, HMGN approved a comprehensive masterplan for development of the Kanchanpur District. The proposed project is a key element in this plan. The development plan delineates areas to be maintained as commercial forest, wild life reserves, areas to be reforested and areas to be developed for rainfed and irrigated agriculture, including resettlement and 1/ Called Sarda River in India.  -8- settlement of landless farm families. The plan anticipates that the Mahakali Irrigation Project (MIP, 3,400 ha net) ultimately be extended to 23,000 ha. Development would be in stages. Under MIP Stage I, the proposed project, the existing irrigation scheme would be extended to 6,600 ha net. The MIP Stage II (6,600 ha net) and MIP Stage III (9,800 ha net) areas are located east of the Chaudar River; feasibility studies for these schemes have already been prepared (para 1.15). 1.19 Implementation of MIP (Stage I) would involve the clearing of 1,700 ha of commercial forest and 500 ha of forest partly occupied by encroachers. Forest clearing is an on-going activity being undertaken by the Forest Products Development Board (FPDB). Forest clearing would not be included in the pro- posed project, since it would be highly profitable and can finance itself in the short run. Procedures for the clearing are satisfactory, and the activity is justified on its own economic grounds. Because of heavy influx of Hill population into the Terai there is an abundance of families eager to settle on the new lands. However, the district's masterplan provides for resettle- ment of farm families now living along the Mahakali and Chaudar Rivers, where their lands are subject to occasional flooding. 1/ Responsibility for this activity has been given to the Resettlement Department of the Ministry of Forests. HMGN has not requested IDA assistance for resettlement operations in the Mahakali area; settlement policies and procedures have been reviewed by the mission and found satisfactory. Settlement is therefore not a component of the proposed project. The definition of the project is to provide the necessary irrigation, drainage and road infrastructure with the objective to increase agricultural production. The project would be designed to the standards of a modern irrigation scheme in which a high level of operational efficiency can be achieved. Because of serious shortages in technical staff in Nepal, the project would also include the provision of fellowships for 82 Nepali students to study civil engineering, mechanical engineering or agri- culture in other Asian countries. II. THE PROJECT AREA Location and Communications 2.01 The project, covering a gross area of about 8,500 ha is located in the Far West Region of Nepal, in the Kanchanpur District of the Mahakali Zone (Map IBRD 14898). The project area is bordered in the west by the Mahakali River and in the east by the Chaudar River (Map IBRD 14899). In the north, it is bordered by the existing main canal which receives water from the Sarda barrage; in the south by the Royal Shuklaphanta Wild Life Reserve Forest that extends up to the Nepal-Indian border. The district's headquarters, Mahendra- nagar, is located adjacent to the project area. Access to the project area 1/ These areas are outside the confines of the proposed project.  - 9 - and Mahendranagar from other parts of Nepal is difficult, the main communi- cation routes being via Indian road and rail systems. A grass airstrip at Mahendranagar is served by a weekly Royal Nepalese Airlines flight from Nepalganj when weather permits. A completed stretch of the East-West Highway passes through the project area and will link it eventually with Nepalganj and Kathmandu. Existing Irrigation, Drainage and Road Systems 2.02 Irrigation and Drainage. The existing irrigation system commanding 3,400 ha (net) diverts water from the Mahakali River and the Sarda Barrage which is located on Indian territory just over 1 km from the Nepalese border. The barrage was completed by India in 1928 following an agreement with Nepal in 1920 on the use of the Mahakali River waters (para 3 319). A main canal on the right bank, with a capacity of 14,000 cusecs (396 m Is), conveys water to the Indian Sarda Irrigation Project. The Sarda headworks are connected to the main canal of the MIP--situated on the left bank--by a 1.1 km long convey- ance canal, alSo built by India. The design capacity of this canal is 1,000 cusecs (28.3 m Is). The discharge into the conveyance canal is regulated at the Sarda headworks by Indian irrigation personnel. 2.03 The existing irrigation system is commanded by a 13 k4 long main cana3. The main canal capacity decreases gradually from 28.3 m Is to adout 26 m Is at 6.8 km. For its remaining length the capacity is about 12 m Is. These capacities are more than sufficient for the proposed project as the canal was originally designed to irrigate a much larger area than the MIP Stage I. The cross section of the main canal has undergone deterioration partly because of steep and unstable side-slopes but mainly because of siltation from sedi- ments entering the canal. No sediment control devices have been provided so far. The main canal has only two cross regulators which are insufficient for adequate water level control. A tail regulator at the end of the canal is also lacking. 2.04 From the main canal irrigation water is released into eleven distri- butaries and several minors with a total length of some 60 km. From these canals water is released into tertiary units. Within the tertiary units tertiary canals have been constructed (80 km) to facilitate irrigation within the units. The existing system has several defects. The capacities of the distributaries are generally less than 1.0 1/s/ha which are insufficient to meet the water requirements during the land preparation period. Siltation problems are quite severe. The number of tertiary outlets and length of tertiary canals constructed are insufficient for proper water distribution. About 50% of the present project area is not yet served by tertiary outlets or is served by outlets commanding areas between 40 ha and 200 ha. The tertiary outlets consist of concrete pipes without upstream control. No control structures have been constructed along the tertiary canals. Field channels serving individual farms are also lacking. Overall, water managment in the project area is, therefore, poor. So far, this has not been a great bottleneck as an abundant supply of water is available. However, this would become a problem as the irrigated area is extended under Stages II and III.  - 10 - 2.05 The existing natural drainage system is fairly dense and is gener- ally adequate to serve as major drainage system. Existing drainage channels run in north-south direction. For drainage across the main canal, four inverted syphons have been constructed under the major drainage channels, several smaller streams, culverts, and superpassages. A few additional super- passages are still needed. Drainage within the tertiary units, however, is inadequate for modern cropping systems due to the absence of tertiary drains. 2.06 Roads. On completion of two river crossings, the East-West Highway would provide all weather access along the northern edge of the project area. The rest of the area is served only by a haphazard network of cart tracks interconnecting villages and earth service tracks along the main canal and upper reaches of most distributaries. The existing service track on the northern embankment of the main canal is interrupted by four river crossings. There is no service track on the southern embankment where it is most needed to control the head regulators of the distributaries. Being unpaved, the entire system becomes impassable during the monsoon season. Many of the cart tracks have been eroded to below surrounding ground level so that they become water courses in wet weather. The service tracks on the distributary banks are also inadequate, which discourages farmers to produce marketable surpluses and makes effective operation and maintenance of the canal system impossible. Natural Resources 2.07 Climate. The climate is sub-tropical, mean monthly temperatures range from 14.7 C in January to 30.60C in May. The monsoonal rainfall pattern varies distinctly between the wet season (June-October) and the dry season (November-May). Maximum rainfall occurs in July (554 mm) and November is the driest month (5 mm). Of the average annual precipitation of 1,750 mm, more than 90% falls in the wet season. Rainfall during the dry season occurs in occasional showers. The relative humidity ranges from 53-78% during the dry season and 71-84% during the wet period. Assured water control is essen- tial for year-round crop production, to meet shortages in the dry season and to drain excess runoff in the wet season (Annex 1, T-1). 2.08 Topography and Soils. The area is flat and forms a gently inclined plain from north to south, with an average land slope of about 3%. The soils in the project area are alluvial and fall into two main types: (i) yellowish and grey brown soils, developed under forest cover, coarse to moderately coarse textured and well drained; and (ii) deep alluvial soils consisting mainly of medium to moderately fine textured clay to silty loams, less permea- ble and poorly drained. Both soil types are moderately acid to moderately alkaline, generally low to medium in organic matter content and fertility. Over 95% of the area has been classified by US Bureau of Reclamation standards as Class II and III for irrigation. Type (i) soils are suited for irrigated farming of mainly upland crops such as wheat, cotton, maize and pulses because of their coarser structure and higher permeability, while type (ii) soils, with proper drainage, are suitable for both irrigated paddy and upland crops. Land use capability in terms of soil type, drainage conditions and crops recommended is detailed in Annex 1, T-2. For present and future land use, see Annex 1, T-3.  - 11 - 2.09 Forest. There are some 2,000 ha of natural forest within the project area boundaries, plus some 500 ha of partially felled forest which has been occupied by encroachers. About 2,200 ha of this forest would be cleared and become part of MIP. Clearing of the forest is already underway and being undertaken by the Forest Products Development Board (FPDB). Over 90% of the existing standing volume of forest is said to be Sal 3(Shorea robusta). The sawlog volume per hectare is estimated at about 70 m . The forest is over- mature and from the view point of industrial production, a wasting asset. The growth of immature timber is equalled or even exceeded by the mortality of the old. 1/ For further details, see Annex 2. 2.10 In the Nepal Settlement Project (Cr. 505-NEP), serious problems had initially been experienced with the slow rate of forest clearing due to delays in procurement of equipment for log extraction, delays in construction of sawmills, and the still continuing problem of transporting logs to sawmill yards because of poor road conditions. After increased rates of felling had been achieved, the problem of deteriorating log stocks emerged due to a ban on the export of logs and insufficient capacity of Timber Corporation of Nepal's (TCN) sawmill operations. These problems are not anticipated in the MIP as (i) all clearing operations are carried out by manual labor and an adequate labor force is available; (ii) 20 privately owned sawmills are already operat- ing in the project area and an additional 20 are under construction; this would provide sufficient sawmill capacity; (iii) due to good road connections and proximity to the Indian market, which currently absorbs some 95% of FPDB's output, there would be no difficulty in disposing of the sawn timber. 2.11 Surface Water. The source of water supply for the 3roject area is the Mahakali R4ver which has monthly flows ranging from 130 m Is in May up to 11,000 m Is in the wet season. Sediment concentrations are high during the monsoon period when mean monthly concentrations of over 1,000 ppm are usual and sometimes exceed 4,000 ppm. Daily values may be as high as 16,000 ppm. The Chaudar River bordering the project area on the east carries considerable flash floods in the monsoon but its base flow in the dry season is only about 1.0 m /s. The four major drainage channels, crossing the main canal, carry flash floods in the monsoon but are dry during the winter season. 2.12 Groundwater. The groundwater potential of the Kanchanpur District has been studied since 1973 by DIHM and the United States Geological Survey in a study sponsored by USAID. A considerable portion of the project area overlies groundwater aquifers. A phreatic alluvial zone, located two to three meters below ground level and about 10 to 20 meters thick, forms the upper aquifer; its water table is 1.5 to 4 meters below ground level. Numerous dugwells and hand-pumped wells take water from this aquifer. A semi-confined and confined sub-aquifer of new alluvial sediments underlies the phreatic 1/ An economic evaluation of the net present value of clearfelling and thaS of an alternative use (annual exploitation of net growth of about 1.4 m /ha under active management and after rejuvenation) showed a clear prefer- ability of clearfelling for discount rates higher than 3%.  - 12 - alluvial zone, descending to a depth of about 150 meters. In the eastern portion of the project area this aquifer is artesian. The available supply of surface water is sufficient to meet the requirements of the project. However, when areas east of the Chaudar River are to be developed under Stages II and III, the need for a supplementary supply of groundwater may arise. The water from all sub-aquifers in the project area is generally chemically suitable for domestic water supply, livestock and irrigation. Socio-Economic Aspects 2.13 Population. Present population in the project area is estimated at about 9,000 living in 18 villages and organized in two panchayats. Mahendra- nagar, with a population of about 10,000 is the major urban center of the Region. Households comprise extended families, varying considerably with size of landholding and averaging about 7-8 members. Kanchanpur District, as all the Far Western Terai, has experienced a considerably higher population growth (more than 10% per year) than the average of the country in the sixties. This was, and still is, due to migration from the Hills, which has also brought about a mixing of the native Tharu caste (about 60% of local population) with Pahari settlers from the Hills. The Tharu hold strong traditional beliefs and are only moderately open to change. The immigrated Paharis live in similar socio-economic conditions as Tharu, but are more open to change. Literacy among these settlers is much higher than among the Tharu. 2.14 Land Distribution. Data on distribution of operational holdings, i.e., including those not owned by farmers is available at the district level only (Census 1971), but is believed to be similar for the project area. Percentage of Percentage of Total Average Farm Farm Size all Farms Farm Land Size (ha) Less than 1 ha 25.4 5.8 0.76 1-2 ha 27.4 13.2 1.63 2-5 ha 26.6 26.6 3.39 5-10 ha 15.7 32.7 7.09 10 ha and more 4.9 21.8 15.35 100.0 100.0 3.40 According to these data, 21% of the largest farms occupied about 55% of all farm land, whereas 53% of the smallest had only 19% of the total available. However, this might overstate inequity since in this area large farms are often associated with large extended families as is the custom of the Tharu caste. This might also be the reason for the high average farm size figure (3.4 ha) in comparison with the average size for the Terai of 1.7 ha. However, con- tinuing immigration and settlement after 1971 have further reduced the average farm size to about 2.8-3.0 ha, as suggested by more recent data. 2.15 Land Tenure and Land Reform. According to statistics from the Department of Land Reform, 85% of registered land is being farmed by its owners (89% of all farmers). The remaining land is leased to tenants under  - 13 - various arrangements, mostly sharecropping. These statistics do not include encroachers, for which ownership in a practical sense might be assumed. Land reform, in terms of redistribution, has reportedly nearly been completed in the district. The size of a landholding that can be owned by an adult man was limited to 18.4 ha and excess land was distributed to tenants and landless families in lots no larger than 2.7 ha. Also, tenants' rights were protected by law and made permanent and inheritable, and the landlord's share from sharecropping was restricted to 50% of the product. 2.16 Farm Incomes. No data are available on income levels, income dis- tribution and poverty incidence for the project area or for Kanchanpur Dis- trict. Farm budgets as prepared for financial analysis in this report (para 7.01) suggest that per capita income (including income from sources other than crop production) might vary between about NRs 450-1,200, averaging about NRs 780 per year. (Surveys from neighboring Khailali District give a similar range of NRs 700-1,200 per year.) Average per capita income corresponds closely to the estimated absolute poverty level of NRs 780 per year (para 7.03). 2.17 Settlement. The masterplan for the Kanchanpur District (para 1.18) includes detailed provisions for resettlement of existing farm population, settlement of landless families and legalization of encroachers occupying about 1,000 ha of land within the project area. The farm families to be relocated to the project area are now living on about 1,700 ha along the Mahakali and Chaudar rivers where their lands are subject to occasional flooding. It may be stressed that this resettlement is not project related but would be undertaken to unite two sections of the Royal Suklaphanta Wildlife Reserve and for reforestation along the river banks. Farmers to be resettled were interviewed by the mission and indicated their willingness to move. Details of HMGN's settlement policy were reviewed by the mission and found satisfactory; details are available on file (Annex 6). Also, settlement operations under the IDA financed Nepal Settlement Project (Cr. 505 NEP) have been going smoothly. 2.18 Farmers to be moved to the project area would receive a houselot in a village and a parcel of irrigable land equal in size to their present holding. Moreover they would receive compensation for their existing houses, fences, transportation, etc. They would also be provided with pumps for drinking water and wood to build new homes. The balance of the cleared land (700 ha) would be available for settling landless farmers of which large numbers are eager to settle on these new lands. The landless farmers would also receive a houselot in a village and a farm plot, in total about 1 ha of land. New arrivals would be provided with temporary shelter, drinking water and food rations. They are entitled to land ownership after having cultivated the land for five years. In the meantime, they are not allowed to mortgage or divide their land. Both relocated farmers and new settlers would be employed in forest clearing operations. The new villages to be established in the project area, both for the relocated farmers and the landless farmers, will be provided with amenities such as schools, panchayat office buildings, godowns and health posts. Coordination of matters concerning settlement, clearing and irrigation development rests with the Committee for Forest, Resettlement and Irrigation Development in Kanchanpur District (CFRID) (para 5.06). Responsi- bility for settlement is mainly the task of the Resettlement Department of  - 14 - HMGN's Ministry of Forest. Peoples representatives (Panchayat and Ward Chairmen) are closely involved in the implementation of the settlement plans and serve in Sub-Committees of the CFRID. Cultivation Practices 2.19 Present Cropping Pattern. The crops grown in the project area are mainly paddy and maize during the wet season, and wheat, oilseeds, pulses and vegetables during the dry season. Most common cropping sequences are: (i) paddy-wheat; (ii) paddy-pulses; and (iii) maize-oilseeds. The present cropping intensity of about 132% is a weighted average of rainfed areas (121% over an area of about 800 ha net) and irrigated areas (134% over an area of about 3,400 ha net). This intensity is made up of 68% paddy, 19% maize, 16% wheat, 15% oilseeds and 12% pulses over the total cropped area of some 7,600 ha. Some vegetables (1%) are also grown, mostly for home consumption. Details of the existing cropping pattern are shown in Annex 1, T-15. 2.20 Crop Yields. Most of the paddy grown in the area are local lowland varieties producing low yields, about 1.0 ton/ha for rainfed paddy and 1.3 tons/ha for irrigated paddy. Some High Yielding Varieties (HYVs) such as IR 8, IR 28, Parwanipur I and Masuli are grown on a limited area but yields at 2.1 tons/ha are below their potential because of poor cultural practices. Traditional upland paddy varieties are broadcast at the beginning of the monsoon on slightly elevated areas. Yield of this paddy is low at 0.8 ton/ha. Maize is sown mostly during the wet season using improved varieties (Rampur yellow and Hetauda composite), but yields are low at 1.2 tons/ha due to inadequate use of fertilizers and plant protection chemicals. RR 21 and NL 30 are the two major wheat varieties grown in the project area, producing a yield of 1.1 tons/ha. This low yield is attributed to unreliable rainfall and untimely planting. It can be improved if wheat is planted around mid-November. oilseed crops grown are mustard and rapeseed. Because of poor crop management, yield is about 0.5 ton/ha. Pulses and vegetables are grown for home consump- tion and their low yields (about 0.6 and 7.0 tons/ha, respectively) offer scope for improvement. In general, there is a need for improved irrigation and water management, better cultural practices, and improved use of agri- cultural inputs such as fertilizer and agro-chemicals. 2.21 Inputs Used. At present, no fertilizers and plant protection chem- icals are used for crops grown under rainfed conditions. The use of fertil- izers and agro-chemicals is mostly limited to HYV paddy, wheat and vegetables grown by some progressive farmers. Average amounts used, however, are very low. Only about 10% of the farmers in the project area are using certified seeds (paddy, wheat and maize); most farmers meet their seed requirements from their previous harvests or fellow-farmers. There are about 2,800 pairs of draft animals; they provide adequate farm power for land preparation and other cropping operations. Agricultural Supporting Services 2.22 Research, Extension and Training. The agricultural station for the Region is located near Nepalganj. It has 80 ha for field research and is staffed with 9 research officers. The station conducts field trials mainly on paddy, wheat and maize which are directed by coordinators of the Rice Research  - 15 - Development Center at the Parwanipur Research Farm near Birganj and the Wheat Research Development Center at the Bhairawa Research Farm. These trials also demonstrate performance of different varieties to extension workers and farmers. Some varietal trials on oilseeds, maize and cotton are also being carried out. In addition, about half of the land area in the station is used for seed multiplication of various cereals and cash crops throughout the year. The station also conducts, on a small scale, some trials on planting methods, pest control, fertilizer application, and irrigation timing. The station would be upgraded under the Agricultural Extension and Research project now under preparation (para 1.08). 2.23 Agricultural extension service in the project area is the responsi- bility of the District Agricultural Development Officer (DADO), who reports to the Regional Director of Agriculture, Far Western Region. At present, DADO is supported by five Junior Technicians (JTs) and 10 Junior Technician Assistants (JTAs), of which one JT and two JTAs serve the project area. There are 12 Agri- cultural Assistants (AAs) throughout the district, who are assisting JTAs in establishing crop demonstration plots at their respective farms. The T&V extension system has not yet been introduced to the area. One JTA currently serves about 2,000 ha or about 700 farm families. This is not adequate particularly as extension workers are not provided with transport and housing. 2.24 Credit and Input Supply. ADBN has established a branch office in Mahendranagar, serving the entire project area. Credit is distributed mainly through two Sajha cooperatives, who in turn administer individual credits to farmers. Most of the credit is for short term production purposes. The recovery rate from Sajha in recent years has not been very satisfactory, but it is proposed to merge the two cooperatives and to streamline their internal credit management and cut down on overhead. For individual credit, land is virtually always the collateral, favoring the larger farmers, whereas loans from Sajha need only the standing crop as security. ADBN intends to promote "joint liability groups" of farmers as borrowers, e.g., Water Users Groups (WUG), in order to facilitate credit in a more expedient way, either through cooperatives or ADBN directly. Besides, there are two commercial banks in the area, but their involvement in agricultural lending has been limited. Lending from private sources is still widespread but no reliable data on this are available. 2.25 The main source of supply for certified seeds in the project area is the AIC through its regional office in Nepalganj for paddy and maize, and its branch office in Mahendranagar for wheat. As areas cultivated with these crops are not significant at present, the required amount of seeds is ade- quately met. To handle any significant increased intensity of cultivation, however, seed production would need to be supplemented to meet the demand at full development (para 6.05). 2.26 AIC also supplies fertilizers and plant protection chemicals through its branch office in the project area. The Sajha cooperatives are responsible for its distribution to the farm level. Although supply of fertilizers is generally adequate and available, average usage is low. In 1978/1979, AIC supplied about 34 nutrient tons of urea and complex fertilizer (20-20-0) or an average of about 6 kg/ha. The use of plant protection chemicals is nominal. To encourage farmers to practice proper pest control, AIC rents simple sprayers  - 16 - to the farmers at a nominal fee. The low usage of fertilizer and agro- chemicals results from farmers' aversion of risks because of unreliable water supply, traditional cultural practices, lack of extension service and difficult access to production credit. 2.27 Marketing and Processing. No formal markets at central locations and at fixed days exist in the Mahakali Zone but individual marketing channels are well developed. There is a rice milling capacity of about 4.5 tons/day in Mahendranagar, mostly serving NFC and the export market. There are also a number of small rice hullers serving the local population. Rice mills buy directly from farmers and dealers, or operate for NFC and the Seti Mahakali Rice Export Company (REC). Rice used to be exported exclusively by the REC company, but recently HMGN lifted this restriction. REC, which is partly government owned, exports now mainly to countries other than India, whereas private dealers and farmers are engaged in "petty trade" across the open border with India. NFC has presently a storage capacity of 500 tons, another 500 tons are under construction, and the proposed IDA-assisted Nepal Foodgrain Storage Project, recently appraised and negotiated, would add another 2,000 tons. Besides rice, NFC purchases mainly maize and wheat through cooperatives or directly from the farmers and dealers. Other crops serve mainly the local market. Processing of oilseeds is done by primitive village presses or by farmers themselves; a small part of the production is sold to India. III. THE PROJECT Project Concept 3.01 The proposed project would improve the existing irrigation system (3,400 ha net) and extend it to 6,600 ha (net) with the objective to (a) im- prove within the existing system the reliability of water deliveries to the farmers and in the quantities required; (b) extend irrigation facilities to an additional 3,200 ha; (c) improve communications and operating efficiency by providing all weather access throughout the existing and extended irrigated areas; and; (d) accelerate agricultural development and thus increase agricul- tural production, farm incomes and rural development. To achieve the above objectives, the project is designed to (a) increase the capacity of the exist- ing distribution system and extend it to new areas; (b) improve the handling of sediment in the main canal; (c) improve water control through additional control structures and extension of the distribution system down to 7-8 ha groups of farms; (d) improve drainage conditions; (e) provide a complete public road network and all weather service roads on all canals; (f) intensify agri- cultural extension, research and training; and (g) develop technical staff by providing fellowships for Nepali students to study engineering and agriculture abroad. Project Features 3.02 The main components of the project would be: (a) improvements to the existing irrigation and drainage system in about 3,400 ha (net) (para 3.05);  - 17 - (b) extension of irrigation and drainage systems by 3,200 ha to 6,600 ha (net) (paras 3.06 and 3.07); (c) construction of an interconnected network of all weather public roads and canal service roads (para 3.08); (d) construction of buildings for engineering and agricultural activities and staff quarters (para 3.15); (e) strengthening agricultural extension and training activities, including construction and operation of a pilot demonstration farm cum training center (paras 3.11 and 3.12); (f) procurement of materials, equipment and vehicles for con- struction, survey and laboratory activities and project operation and maintenance (para 3.14); (g) provision of technical services, including foreign and local consultants for project implementation and aerial photography and mapping (paras 3.16 and 3.17); (h) fellowships for Nepali students to study civil and mechanical engineering and agriculture (para 3.09); and (i) undertaking agricultural development activities in the Bhairawa-Lumbini Groundwater Project (Cr. 654-NEP) over a three-year period (para 3.13). 3.03 The project will have an estimated cost of US$19.5 M including US$0.15 M in taxes and duties, and will be executed over a five-year period by the Mahakali Irrigation Development Board (MIDB). Detailed Features 1/ 3.04 Improvements to Main Canal. The original design capacity has been reduced considerably due to siltation but is still more than adequate for Stage I. It was decided not to undertake any major reshaping of the main canal under MIP (Stage I) as there are still a number of uncertainties regarding the implementation of Stages II and III, particularly regarding available water supply (see para 3.19) and size of command area for Stage III. There- fore, no decision can yet be made regarding the ultimate required capacity of the main canal. A number of improvements, however, would be made under Stage I. Sediments entering the main canal would be reduced by the construction of two or three sediment ejectors (vortex tubes) at sites where major drainage channels cross the canal. These structures would be combined with low level escapes to facilitate emptying the canal for maintenance purposes. To improve water control three additional control structures and one tail regulator would be constructed. To avoid damage to side slopes of the canal by cattle, watering points would be provided along the canal at regular intervals. A 3.0 m wide surface road would be constructed on the right canal embankment. 1/ For a listing of irrigation, drainage and road works, see Annex 1, T-4.  - 18 - 3.05 Improvements and Extension of Existing Irrigation System. The design capacities of the irrigation distributaries would be increased to enable extension of their command areas. Furthermore, the design duty for these canals would be increased to meet the peak water demands (see Annex 3 for design criteria). These increases in canal design capacity would require modification of existing structures. Where required, additional control struc- tures would be built for improved water control. Additional tertiary turnouts would be constructed to reduce the size of the tertiary units to a maximum of 40 ha. Existing turnouts would be replaced by gated structures suitable for discharge measurement. The distribution system beyond the tertiary outlets would be extended down to outlets serving farm groups of 7-8 ha throughout the project area. This would involve the extension and construction of additional tertiary canals. All existing and new tertiary canals would be provided with outlet structures for each farm group and necessary division boxes, check structures, drops, and culverts for drainage channels and cart track crossings. A bicycle path (1.0 m wide) would be provided on one of the embankments of the tertiary canals. Within the farm groups field channels and field drains would be built by the cooperative action of local labor under the supervision of project staff. All canals would be unlined. 3.06 Extension of Irrigation Distribution System. The existing system would be extended by 3,200 ha to 6,600 ha. This would be achieved by extending the existing distributaries, requiring some 30 km of new distributaries and 115 km of tertiary canals, complete with related structures such as drops, cross regulators, turnouts and culverts. As for the existing system the irrigation distribution system would be extended down to outlets serving farm groups of 7-8 ha. Field channels and field drains would be constructed as in the existing areas. 3.07 Drainage Improvements. The capacity of the existing natural drain- age channels is generally sufficient but would be increased where necessary to provide the required capacity. To improve drainage within the tertiary units about 200 km of tertiary drains would be constructed under the project to provide for drainage of farm group areas. Design capacities of 3.0 1/s/ha and 4.5 1/s/ha, respectively, have been adopted for rice growing areas and upland areas. 3.08 Roads. The roads component would encourage the production of market- able surpluses by providing all weather access to irrigated areas. It would make possible effective operation and maintenance of the canal system by pro- viding quick access to all canals and control structures. The component would comprise: (a) the construction of some 40 km of all-weather public access roads, of which about 26 km would be built on canal embankments; most of the balance of 14 km would follow the alignments of existing tracks; (b) the construction of some 65 km of all-weather canal service roads to be built along the south bank of the main canal and the east banks of all other canals; and (c) the provision of adequate road crossing structures over canals and streams. 3.09 Fellowships for Engineering and Agricultural Studies. 1/ Because of a sharp increase in the number of agricultural development projects in Nepal 1/ For cost details, see Annex 1, T-9.  - 19 - in recent years, the availability of suitably trained engineering and agricul- tural staff would provide a major constraint in the implementation of addi- tional irrigation projects. To develop additional manpower IDA is assisting Nepal with the Technical Education Project (Cr. 772-NEP, 5.7 M, 1978) which would build up the capacity of the Institute of Engineering and establish teaching programs in civil engineering. The first output of graduates is expected for 1981 (20 diploma holders, 120 certificate holders), but these levels would not meet requirements of fully graduated engineers (BSc). Another component of the Technical Education Project is the preparation of a project for the establishment of a polytechnical school in Pokhara. IDA is also assisting with a manpower study for MFA. As an interim measure, until Nepal can produce its own engineers and agriculturalists, the project would include the provision of fellowships for 82 Nepali students to study civil engineering, mechanical engineering and agriculture in other Asian countries. When successful such a training component may also be included in future irrigation projects. An assurance has been obtained from HMGN that it would carry out the training activities in accordance with a plan satisfactory to IDA. 3.10 The trainees would require the following basic education, (i) an engineering certificate, or (ii) an intermediate science certificate of Tribhuwan University. Sixty students would be trained as civil engineers and ten as mechanical engineers. Of the 60 engineering students, seven would be Overseers already working in DIHM. Twelve persons would receive an education leading to a BSc in agriculture. HMGN would make every effort to send the students for training within the next two years. Prior to going for training the trainees would enter into a contract with the concerned Department commit- ting themselves to work on development projects for a period of five years following the completion of their studies. Prior to their return HMGN would sanction the necessary number of positions for the returning graduates and make adequate budgetary allocations available for this purpose. 3.11 Agricultural Extension and Training for MIP. Extension services in the project area would be modeled after the T&V system which has already been introduced in six Districts in the Terai under the Narayani Zone Irrigation Development (Stage II) Project (Cr. 856-NEP). Under the project, eight PLAAs would be recruited so that one JT would supervise two JTAs and one JTA four PLAAs. This intensity (one PLAA for about 300 farm families or about 800 ha) would allow visits by PLAAs to farmers' groups on the same day every week and supervision of all activities. To support the extension activities, the project would provide motorcycles, bicycles, a pilot farm-cum-training center and staff quarters on the premises of the pilot farm. 3.12 Since most of the farmers have inadequate knowledge of water man- agement and of cultivation of relatively new crops like cotton, soybean, and groundnut, a 20 ha pilot farm with training center would be established under the project. The area under the pilot farm would comprise farm units owned by individual farmers. The pilot farm would demonstrate to extension staff and farmers: (a) on-farm water management; (b) recommended cropping patterns; and (iii) improved farming techniques. An important function of the farm would be to provide in-service training for extension workers and farmers. The pilot farm would be guided by the DA through DADO and supported by at least two full-time SMSs in field crops and cotton agronomy. To ensure success of  - 20 - the farm's operation, these specialists would be assisted by consultants (para 3.17). The project would provide offices, transportation facilities and staff quarters for the SMSs, as well as some low-cost farm equipment such as power tillers, threshers and sprayers. Training facilities including quarters for trainees and audio-visual aids would also be provided. The pilot scheme would be made operational as early as possible. 3.13 Agricultural Extension for Bhairawa-Lumbini Groundwater Project. The IDA-assisted Bhairawa Lumbini Groundwater Project (Cr. 654-NEP, 1976) provided for reorganisation and strengthening of the then existing agricultural extension service in the project area along the lines of the T&V system. Most of the lower level staff has now been recruited, but there is a serious lack of Subject Matter Specialists (SMSs). Also, financing of agricultural supporting services is running out in 1981/82, and provisions of additional extension and training services under the Narayani Zone Irrigation Development Project Stage II (Cr. 856-NEP) for Rupandehi District, where the groundwater project is located, are taken up by the needs of the remainder of the district. As about half of the tubewells will be operational by June 1980, and since the water pumped will be rather costly, continuation and further strengthening of on-going agricultural extension becomes highly important. Emphasis would be laid on advising WUGs on water management, new crop varieties and improved agricultural practices. As DA lacks qualified staff to supplement these activities and is experiencing financial constraints, the project would provide about 36 man-months for a local consultant and additional operational funds to undertake urgent required extension activities. Estimated cost per man-month is NRs 5,000 including salary, local travel and allowances. The consultant would assist project staff in preparation and implementation of rotational irrigation schedules and assist in establishing field demonstration plots for recommended cropping patterns, with special regard to wheat culti- vation under different soil and drainage conditions. In addition, the con- sultant would assist project staff in carrying out routine in-service training for extension workers and farmers. 1/ 3.14 Materials, Equipment and Vehicles. As local contractors lack con- struction equipment the project would provide for essential items such as compaction equipment, water trucks, concrete mixers, pumps etc. Project management would lease this equipment, together with operators, to the contrac- tors. The project would also provide equipment and vehicles for survey, office and laboratory needs, construction supervision, operation and maintenance, for agricultural extension, research and monitoring, for technical services, and workshop equipment for maintenance and repairs. Because of chronic shortage in Nepal of cement and reinforcement steel the project would procure these materials and make them available to the contractors. The equipment and vehicles would be imported together with spare parts; a list of the estimated requirements is presented in Annex 1, T-5. In view of the need for qualified personnel to operate and maintain the equipment provided under the project MIDB would provide equipment operators, mechanical overseers, and mechanics with appropriate incentives and would recruit the required personnel from abroad if necessary. 1/ For cost details, see Annex 1, T-10.  - 21 - 3.15 Buildings and Facilities. Additional offices, a material testing laboratory, a workshop, cement store, a 1,000 tons capacity warehouse for agricultural inputs, appropriate quarters for the expatriate consultants and quarters for additional local staff would be built at or near the existing project headquarters in Mahendranagar (see Annex 1, T-6). Three field offices would be constructed for the Overseers in charge of operation and maintenance of the irrigation distribution system. On the pilot farm, offices and quarters would be constructed for its operational staff, a classroom for JTs, JTAs and farmers, quarters for trainees, and storage facilities for agricultural inputs and implements. A telephone line would be constructed along the main canal, also connecting the main office in Mahendranagar with the field offices. A radio communication system would be installed, as soon as possible, for liaison with the regional office in Nepalganj and DIHM headquarters in Kathmandu. 3.16 Aerial Photography and Mapping. Aerial photography would be under- taken to prepare, inter alia, semi-controlled photo mosaics at scale 1:10,000 and photogrammetric maps to a scale of 1:5,000, featuring 0.30 meter contours. The latter would be used for the detailed planning and design of irrigation systems, including farm ditches within the 7-8 ha farm group areas. The aerial photography may be phased over three subsequent dry seasons to map the areas cleared from forest during the previous season. 3.17 Consultants. 1/ An assurance has been obtained from HMGN that it would recruit an expatriate consultant firm to assist in project implementation and whose qualifications, experience and terms of conditions of employment would be satisfactory to IDA. The project consultants would provide in-service training, advice and guidance to project engineering staff in project planning and scheduling, design of irrigation, drainage and road systems, preparation of bid documents and bid evaluation, modern construction techniques, con- struction quality control, monitoring of progress and costs and operation and maintenance. About 110 man-months of engineering services would be provided at an estimated cost of US$8,500 per man-month (including salary, costs, fees, international travel and subsistence). The selection of the engineering consultants would be a condition of credit effectiveness. As DIHM lacks sufficient staff to work as counterpart staff with the project consultants, HMGN would also enter into contract with local consulting firms to conduct part of the survey and design work, which would be supervised by the project consultants. This arrangement is working satisfactorily for the Sunsari-Morang project. Also, one mechanical overseer would be financed under the project (if necessary, recruited from abroad) to head the equipment and workshop unit. Furthermore, an assurance has been obtained from HMGN that two agricultural consultants (at estimated cost of about US$8,500 per man-month) would be engaged to assist with the operation of the pilot farm, in particular to develop suitable cropping patterns, assist in water management and provide in-service training for extension workers and farmers. A field crop agronomist would work on the farm for 12 months and a cotton agronomist for six months. Their qualifications, experience and terms and conditions of employment would be satisfactory to IDA. 1/ For cost details, see Annex 1, T-9.  - 22 - Water Supply and Demand 3.18 Water for the existing irrigation system is supplied from the Sarda Barrage on the Indian side of the border under a bilateral agreement which dates back to 1920. This agreement stipulates the following water righSs for Nepal: (a) from May 15 to October 15 a supply of 460 cusecs (13.0 m Is) and, prsvided a surplus is available, a supply of up to 1,000 cusecs (28.3 m3/s); and (b) from October 15 to May 15, a supply of 150 cusecs (4.25 m Is). The agreement further stipulates that from October 15 to May 15 the supply canal to Nepal would be alternately closed and opered for ten days at a time and that the canal could run at 300 cusecs (8.5 m Is) capacity whenever the canal is open. 1/ These stipulated quantities are only minor portions of the flows in the Mahakali River, and India would have no difficulty in providing these flows. The estimated project water requirements are presented in detail in Annex 1, T-7 and are summarized below: Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. -___________---------------m /s------------------------------- Guaranteed 4.25 4.25 4.25 4.25 4.25 /a 13.0 13.0 13.0 13.0 13.00 4.25 4.25 supply 13.00 /b 4.25 Requirement at Main Canal Intake 1.6 2.2 0.2 - 0.3 /a 6.9 - - - 0.3 0.8 2.6 1.7 1.5 1.8 lb 5.4 2.2 3.8 2.3 /a in first half of the month. 7b in second half of the month. 3.19 The above shows that Nepal's allocation exceeds considerably proj- ect water demands. HMGN considers to utilize the available excess flow for a Stage II project of 6,600 ha. A Stage III commanding 9,800 ha is also under consideration. implementation of Stage III could only be possible if the supply of 28.3 m Is in the monsoon season could be ensured and also the supply during the dry season increased. This would require negotiations between Nepal and India to revise the existing water rights agreement. Engineering Design and Construction Methods 3.20 As the irrigation works to be implemented under the project are relatively small hydraulic structures and canals, design of these works will not present any particular problems. The standard designs and construction methods now being developed and tested for the Sunsari-Morang Project would generally be suitable for use in the Project. The canals would be designed for a non-scour, non-siltation situation on average. 1/ DIHM officials indicated that, in practice, supply has always been continuous.  - 23 - 3.21 The outline road layout (Map 14899) has been designed to provide all weather access by the public road network to within a distance of about 3 km from all parts of the areas to be irrigated. Wherever possible, road align- ments would be located on canal banks in order to maximize land available for cultivation and minimize cost of earthworks. To meet the operational needs of a modernized canal system, all-weather canal service roads would be provided on distributaries which do not have a public road on their banks. As it is not practical to prevent farm traffic from using the service roads, these would be specifically designed to serve also as feeder roads to the public road networks. The earthworks for all roads following canal alignments would be constructed concurrently with the canal earthworks. 3.22 Structures would generally be built of mass concrete. Mass concrete is favored over bricks as the available bricks are of low quality. Reinforced concrete would only be used in structural components with tensile stress. The components of smaller structures would as much as possible be prefabricated. Labor-intensive methods would be adopted for construction. However, compaction of canal embankments, earthworks for roads and road pavements would be executed by machinery under rigorous quality control. A material testing laboratory would be set up to ensure quality of construction. Special care would be taken to ensure that pavement construction follows closely behind completion of earthworks in order to avoid damage to the road formation, which inevitably results from time lag occurring between these two operations. Implementation Schedule 3.23 The project would be implemented in five years from 1980 to 1985 (Annex 1, C-1). Initially, high priority would be given to the design and construction of additional offices, quarters, workshops, and stores for con- struction materials. This activity would already be started by DIHM before the consultants are in the field. Survey and design work and procurement of equipment and materials would start as soon as project consultants have been recruited and have arrived in the field, i.e., at the beginning of the 1980/81 dry season. Work during the first year would concentrate on surveys and designs for the improvement of the existing system. First priority would be given to improve the existing system in order to generate project benefits as soon as possible. Forest clearing for the new areas to be brought under irri- gation is scheduled to be completed by mid-1982. After forest clearing of the first 1,100 ha during the 1980/81 construction season, survey and design work would start for this area. Construction of the irrigation systems in the extension area is scheduled to start in 1983 and would be completed by mid- 1985. Detailed planning for implementation of the roads component would be closely tied to that for the canal system. Environmental Effects 3.24 In view of Nepal's grave fuel shortage and soil erosion problems, the environmental effects of the project have been carefully considered, espe- cially the clearing of about 2,200 ha of forest (para 2.09). MIP is only one element in a comprehensive masterplan for development of the Kanchanpur District. This plan delineates areas to be maintained as commercial forest,  - 24 - areas assigned to rainfed and irrigated agriculture (flat surfaces through- out), areas to be reforested and areas to be maintained as wildlife reserve. The overall environmental effects of the masterplan--including the project-- would be minimal as (a) the Ministry of Forest reinvests most of the substantial profits from forest clearing in reforestation projects in Nepal; (b) the masterplan for the district envisages reforestation of zones along the foot of the hills and along the rivers to check erosion; (c) the master- plan also provides that in areas to be deforested and settled 10% of the forest would be kept intact; (d) clearing operations are entirely carried out by manual labor thereby minimizing erosion and damage to the soil structure; and (e) as a source of long-term wood supply the forest is of rather poor quality (para 2.09). HMGN has also decided to relocate the farm population now living on 1,300 ha of cultivated land along the Chaudar river to the project area in order to unite two sections of the Royal Suklaphanta Wildlife Reserve Forest which would then cover a total area of some 300 sq. km. IV. COST ESTIMATES AND FINANCIAL INFORMATION Cost Estimates 4.01 The total project cost estimated at US$19.5 M equivalent including about US$0.15 M in taxes and duties is summarized below and detailed in Annex 1, T-8. The foreign exchange component would be about US$9.5 M equiv- alent or 48% of project cost. Annual operation and maintenance costs on completion of the project have been estimated and are presented in Annex 1, T-ll and T-12. The estimated c.i.f. costs of equipment and vehicles needed for project construction, operation and maintenance are listed in Annex 1, T-5. An estimated schedule of annual expenditures is given in Annex 1, T-13. 4.02 The estimated costs for civil works are based on recent contract awards in the Terai; unit prices for equipment and materials are based on 1979 quotations from suppliers, with an allowance for transportation to Mahendranagar. Allowances have been included for the supply of spare parts, estimated at an average 30% of equipment value. Physical contingencies allowed for in project costs were 20% for civil works and establishment and 10% for equipment, materials, technical services and fellowships. Price contingencies are estimated at about 22% of project cost, based on the fol- lowing inflation rates: 1/ 1980 1981/82 1982/83 1983/84 1984/85