Nepal - Birganj Irrigation Project

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TNTlPRNTIONAL DEVELOPMENT ASSOCIATION Not For PubLic Use Reort No. PA-146a APPRAISAL OF BIRGANJ IRRIGATION PROJECT (NARAYANI ZONE) NEPAL March 1, 1973 Agriculture Division ASIA PROJECTS DEPARTMENT This report was prepared for official use only by the Bank Group. It mnay not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  anteCY MEQUIVALENTS- US$1.00 - Nepalese Rupees (NRs) 10.125 NRs 1.00 m US$0.0988 NRs 1 million - US$98,765 WEIGHTS AND MEASURES (METRIC SYSTEM) 1 hectare (ha) n 2.47 ucres (ac) 1 kilometer (km) - 0.62 miles (mi) 1 meter (m) - 3.28 feet (ft) 1 cubic meter (m3) - 1.31 cubic yards or 35.31 cu ft 1 million m3 (Mm3) = 810 acre feet (ac-ft) 1 m3/sec - 35.31 cubic feet per second (cfs) 1 liter/sec - 0.035 cfs ABBREVIATIONS ADBN - Agricultural Development Bank of Nepal AmC - Agricultural Marketing Corporation GOI - Government of India EHGN - His Majesty's Government of Nepal NZIDB- Narayani Zone Irrigation Development Board 0 & N- Operation and Maintenance UNDP - United Nations Development Program USAID- United States Agency for International Development FISCAL YEAR July 16 to July 15 1/ Excha*ge rate in force on February 19, 1973.  NEPAL APPRAISAL OF BIRGANJ IRRIGATION PROJECT (NARAYANI ZONE) TABLE OF CONTENTS Page No. SUMIARY AND CONCLUSIONS ......... ............. i-ii I. INTRODUCTION ......................................... 1 General. 1 Gandak Irrigation and Power Project Agreement ... 1 II. BACKGROUND. 2 General. 2 Agriculture. 2 Irrigation and Drainage. 3 Fourth Five-Year Plan for Agriculture. 3 III. TIE PROJECT AREA. 4 Location. 4 Climate. 4 Topography and Soils. 4 Crop Production and Yields ....................... 4 Existing Irrigation Facilities. 5 Farm Size and Land Tenure. 5 Agricultural Support Program. 6 Credit, Marketing and Storage. 6 Transportation. 7 IV. THE PROJECT... 7 A. General Description . . 7 B. Detailed Features ....................... 7 The Project Works. . 7 On-Farm Development. . 9 Status of Engineering. 9 Consulting Services. . 9 Water Supply and Demand . .10 Construction Schedule . .11 C. Cost Estimates . .11 D. Financing . .12 Financing Plan . .12 Procurement and Contracts . .12 Disbursement . .13 Accounts and Audit . .13 This report was prepared by Messrs. K. Pranich, D. D. Brown, M. Burer, H. R. McDonald, T. H. Yoon (IDA), and M. Cassam (FAO/IBRD Cooperative Program).  -2- Page No. V. ORGANIZATION AND MANAGEMENT ........................... 13 Project Organization ............................. 13 Monitoring of Benefits ........................... 15 Operation and Maintenance ........................ 15 Recovery of Costs ................................ 15 VI. PRODUCTION, MARKET PROSPECTS, PRICES AND FARM INCOME .. 16 Production ................... .................... 16 Market Prospects .............. .. ................. 16 Prices ..................... ...................... 17 Farm Income ................... .................... 17 VII. BENEFITS AND JUSTIFICATION ............................ 17 Economic Benefits ................................ 17 Ecology and Environment .......................... 19 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS .... ............ 19 ANNEXES 1. Agreement between His Majesty's Government of Nepal and the Government of India on the Gandak Irrigation and Power Project 2. Climatic Data 3. Agriculture 4. Agricultural Support Services 5. Description of Project Works 6. Irrigation Water Demand and Supply 7. Construction Schedule 8. Detailed Cost Estimates and Expenditure Schedule 9. Estimated Schedule of Disbursement 10. List of Equipment 11. Project Organization and Consultants 12. Irrigation, Electricity and Related Water Resources Act, 1967 13. Farm Incomes 14. Economic Rate of Return and Sensitivity Analysis  - 3 - CHART: Organization Chart World Bank - 6877 (R) MAPS IBRD 3895 Project Location IBRD 3896 General Plan   NEPAL APPRAISAL OF BIRGANJ IRRIGATION PROJECT (NARAYANI ZONE) 1/ SUMMARY AND CONCLUSIONS i. Agriculture accounts for about 70% of Nepal's GDP and 80% of export earnings, and provides employment for about 90% of the labor force. Total cultivated land has been estimated at 1.8 million ha, or about 13% of the country's total area. Most of the cultivated area is used to produce foodgrains with more than 50% being utilized for the production of paddy. Foodgrains are grown mainly during the monsoon season (June to September) and because the timing and amount of rainfall are erratic, crop damage from drought and floods is common. Second crops are grown on only about 33% of the cultivated land, but yields are very low. Irrigation is of increasing importance in Nepal's agriculture. By 1970, the Government had provided irrigation facilities for about 120,000 ha. However, these facilities are designed primarily to provide supplementary water to the wet season rice crop, and double cropping on irrigated land is therefore very limited. The Government has recognized for some time the need for irrigation schemes designed for double cropping, and several such projects are in the planning stage, including the Birganj Irrigation Project. This would be the first agriculture project to be financed by IDA in Nepal. ii. The project would complete the construction of a canal distribu- tary system to irrigate 28,700 ha with water supplied from a barrage on the Gandak River on the India-Nepal border and a main canal constructed by the Government of India (GOI), and a tubewell irrigation scheme to irrigate a net area of 2,700 ha in an adjoining area. It includes drainage, on-farm development, service roads, agricultural extension, research and cooperative services to provide inputs and credit to farmers, providing an integrated approach to the agricultural development of the project area. In addition it would also provide for the preparation of feasibility studies for a small pumping scheme and a surface irrigation project. The project would be executed by the Narayani Zone Irrigation Development Board (NZIDB) recently established as an autonomous government agency, having jurisdiction over an area encompassing five administrative districts. The staff of NZIDB would be trained by a consultant team in the planning, design, construction, opera- tion, maintenance and management of both the surface and groundwater irri- gation systems as well as in agricultural development. Since NZIDB is a new agency, drawing its key staff from several ministries, its success in implementing and managing the project would depend on strong support i:rom HMGN as well as on the assistance and training of NZIDB staff by the consultants. 1/ Throughout this report referred to by its short title of "Birganj Irrigation Project".  - ii - iii. The estimated cost of the project is NRs 102 million (US$10.1 mil- lion), comprising land acquisition NRs 11 million, civil works NRs 30 million, equipment and spares NRs 7 million, consultants NRs 20 million, administra- tion and contingencies NRs 24 million and on-farm development works by farm- ers NRs 10 million. The estimated foreign exchange cost is US$4 million and the remaining US$6.1 million equivalent would be local costs. All contracts for civil works and equipment would be awarded after international competi- tive bidding. The project would take 5 years to complete. iv. The major benefit from the project would be the substantial increase in foodgrain production in the project area, mainly rice and wheat, which would lead to an increased agricultural income and employment opportunities for some 20,000 farm families. The primary beneficiaries would include the majority of the project area population who are subsistence smallholders with current incomes significantly below the national average farm income. At full development of the project, the annual gross value of project agricultural output is expected to increase from the current NRs 47 million to NRs 122 million, more than doubling the projected output without the project (NRs 51 million). The economic rate of return of the project would be about 21% if sunk costs which consist of the GOI's expenditures toward this project are disregarded; or 14%, if the sunk costs without interest are included in the first year. The economic rate of return for the tubewell scheme alone, which has been included in order to expand an existing pilot tubewell project and to develop institutional capacity for construction and management of future tubewell irrigation projects, would be about 14%. Other intangible but important benefits include the demons- tration effects of the project, institution-building and training which would set an example for, and contribute to, agricultural development in Nepal. v. Though the economic rate of return of the project is somewhat sensitive to changes in investment costs and reduction in benefits, the economic viability of the project is secure, within reasonable ranges of variation in benefit and cost variables. A 20% increase in investment costs reduces the rate to 18% while a 20% reduction in benefits would lower it to 17%. Even with an extremely pessimistic combination of a 20% increase in investment costs and a 20% reduction in benefits, together with a 2-year delay in project completion, the rate of return would still be 14%. vi. The project is suitable for an IDA credit of US$6.0 million equivalent which is about 59% of the project costs. This amount would finance the foreign exchange costs of the project and 33% of total local costs equivalent to 50% of the local costs excluding land acquisition and on-farm development works to be carried out by farmers. The borrower would be the Kingdom of Nepal.  NEPAL APPRAISAL OF BIRGANJ IRRIGATION PROJECT (NARAYANI ZONE) I. INTRODUCTION 1.01 General. His Majesty's Government of Nepal (HMGN) has requested the International Development Association (IDA) to help finance irrigation development in the foothill plain (Terai) in Eastern Nepal. The project would complete the construction of the Birganj Irrigation Project, a surface system to irrigate 28,700 ha in Nepal with water supplied from a barrage on the Gandak River and main canals constructed by the Government of India (GOI). It would also include the rehabilitation and installation of tubewells to irrigate 2,700 ha from groundwater sources, engagement of consultants to assist in project implementation and to prepare feasibility studies for a small pumping scheme and a surface irrigation project. 1.02 The feasibility report of this project, which is to be Nepal's first IDA-assisted project in the agricultural sector, was prepared by con- sulting engineers (Nippon-Koei, Japan) under the UNDP/FAO NEP-7 study with assistance from the FAO/IBRD Cooperative Program. This appraisal report is based on the feasibility study and the findings of an appraisal mission consisting of Messrs. K. Pranich, D. D. Brown, M. Burer, H. R. McDonald (IDA), and M. Cassam (FAO/IBRD Cooperative Program) which visited Nepal during November and December 1971. This report was prepared by the mission assisted by Mr. T. H. Yoon. 1.03 Gandak Irrigation and Power Project Agreement. An agreement between HMGN and GOI, signed in 1959, provides for the execution of the Gandak Irrigation and Power Project (Annex 1). Under the agreement, GOI has undertaken to finance and construct a barrage on the Gandak River, which originates in Nepal, and irrigation systems on the left and right banks of the river, down to secondary canals of 0.57 m3/sec (20 cusec), commanding a total area of about 1.2 million ha in India and about 60,000 ha in Nepal. There will also be a small hydro-electric power station on the Nepal Western Canal which is one of the two main canals on the right bank. Construction of the distributary system below 0.57 m3/sec is the responsibility of HMGN with India contributing 1.5 million Indian Rs (US$200,000). On the left bank, the Don Branch Canal, which is one of the three main canals, would convey water to irrigate farm lands in India and Nepal. After running for 92 km in India till it reaches the India-Nepal border, the canal bifurcates into the Nepal Eastern Canal, which is the main canal of this proposed project, and the Ghora Sahan Branch Canal in India (Map IBRD 3895). The present project would complete the development of the command area of the Nepal Eastern Canal extending from the border to the Arwa River in Nepal. 1.04 GOI has completed most of its work on the first 26 km of the Nepal Eastern Canal and is expected to complete all works on the whole 62 km to the Arwa River by March 1, 1973. In order to provide efficient water control for year-round irrigation, additional control structures and modifications  - 2 - to some existing structures would have to be made on the main and secondary canals. Additional secondary canals, all tertiary canals and drainage networks would be provided under the proposed project. II. BACKGROUND 2.01 General. Nepal is a land-locked country of 141,000 km2 nestling on the Himalayan mountain range between India and China. The population, currently estimated at 11.2 million, is growing at an annual rate of 2.2%. About 10% of the people live in the Himalayan region, 60% in the hills and 30% in the foothill plain (Terai). In 1971 per capita GDP was estimated at US$70-80. Prior to 1951, Nepal was relatively isolated from the outside world. The Government's effort towards economic development was intensified in 1957 with the launching of the First Five-Year Plan. 2.02 Agriculture. The Nepalese economy is predominantly agricultural. This sector accounts for about 70% of the GDP and 80% of exports, and pro- vides employment for 90% of the labor force. Farming, in general, is of a subsistence nature with much of the land under foodgrain production. 2.03 About 1.8 million ha or 13% of the total area is under cultivation with about 2.4 million ha of crops grown each year. Practically all the cultivated land is under seasonal crop production; paddy covers more than half of the area. Other main crops are maize, wheat, millet, potatoes, oilseeds, pulses, jute, sugarcane and tobacco. Tea and seed potatoes in the east and horticulture in the west are of local importance. 2.04 Apart from jute, which accounts for about 70% of exports to countries other than India, almost all agricultural exports are sold to India, which is Nepal's major trading partner. Commercial relations between the two countries are governed by a trade and transit treaty. 2.05 During the 1960's an Intensive Agricultural Development Program was established in 16 of the 75 districts, where land and other resources were considered to be promising for crop production. Efforts were made to enlarge the irrigated areas, to introduce better crop varieties and a more intensive use of fertilizers and plant protection. A less intensive program was also initiated in other districts. Roads constructed in the eastern and central Terai with connections to Kathmandu, Pokhara, Bhairawa and the People's Republic of China have improved market opportunities for farmers. 2.06 The Agricultural Marketing Corporation (AMC) supplies inputs to farmers and regulates the marketing of farm produce. Other vital organiza- tions for increasing agricultural production include the Agricultural Devel- opment Bank of Nepal (ADBN), which is the only institutional source of agricultural credit in the country, and the Agriculture Department which takes care of extension, training, research, horticulture and fishery, livestock and veterinary services. In 1970/71, the ADBN had NRs 23 million  share capital and NRs 12 million from borrowings, deposits and reserves, in addition to a loan of US$2.4 million granted by the Asian Development Bank for the procurement of tractors and pump sets for sale to farmers on credit. The procedures for obtaining a loan from ADBN are cumbersome and time- consuming and there is a lack of contact between the borrower and the loan officer. The Agricultural Extension Service is weak primarily because of the inexperience of the staff. Agricultural research has only just begun and its impact is still meager. 2.07 In spite of all the efforts during the 1960's to increase food production, agricultural growth has been disappointing. During the Third Plan period (1965/66 to 1969/70), the sector's growth rate was estimated at only 1.8% per annum, compared with the estimated 3.8% of the non-agri- cultural sector. The major development constraints include insufficient irrigation and drainage facilities, low level of modern agricultural inputs application (particularly fertilizers), inadequate supporting agricultural services, and most importantly, the shortage of trained manpower. 2.08 Irrigation and Drainage. Though rainfall in Nepal is substantial, it is unreliable and unevenly distributed with heavy concentration during the monsoon season. Irrigation is essential for reliable crop production but the total irrigated area is currently only 120,000 ha or about 7% of the total cultivated land. Existing irrigation works can supply water only during the wet season and drainage is inadequate. 2.09 Irrigation and drainage works are the responsibility of the Department of Irrigation, Hydrology and Meteorology of the Ministry of Food, Agriculture and Irrigation. Planning, design, administration and budget control of irrigation and drainage works are centralized in Kathmandu. Generally minor construction works are carried out by force account while major works are executed by contractors. Operation and maintenance of irrigation projects are the responsibility of district irrigation engineers posted by the Department in the district or project areas. 2.10 Fourth Five-Year Plan for Agriculture. Nepal is now in its Fourth Five-Year Economic Development Plan (1970/71-1974/75). The total expenditure for the Plan period is US$257 million, of which 26% would be for agriculture. The annual growth target of the Plan is 4% in real GDP and 3% in agriculture. The Plan stresses continued expansion of food- grain and livestock production and places additional emphasis on crop diversification, increase in cash and industrial crop production as well as improvement of marketing and storage facilities. 2.11 To achieve the above targets, HMGN is strengthening its activities dealing with research, education, extension, the distribution of farm inputs and agricultural credit. Applied research on higher yielding crop varieties and the use of inputs has been increased. The Intensive Agricultural Devel- opment Program which formerly covered only 16 districts has been extended to include a total of 28 districts. Funding of the AMC and the ADBN has been increased and additional local service branches have been established and provided with trained staff. However, judging from past performance  - 4 - and in view of the shortages in trained and experienced personnel the annual growth target of the Plan may be too optimistic. 2.12 In the irrigation sub-sector, the Plan calls for continuation of work on eight major projects started during the 1960's, the initiation of four new major projects and the construction of minor works and tubewells, totalling an additional 184,000 lha. However, because of shortage of key staff for planning, design and construction, not more than 50-60,000 ha are expected to be completed by the end of the Plan period. III. THE PROJECT AREA 3.01 Location. The project is located in the Bara and Parsa districts of the Narayani Zone in the Central Terai at an altitude of about 80 m. Birganj is the largest town (population 60,000) situated in the project area. The project area to be irrigated with surface water adjoins the Indian border; the groundwater area is immediately to the north of it. The Kathmandu-Birganj highway bisects the project area and connects with the Nepal east-west highway, which is about 10 km to the north, and with Raxaul, an Indian town at the border, to the south. A narrow-gauge railway line connects Birganj to Raxaul and the Indian railway system (Map IBRD 3895). 3.02 Climate. The project area has two distinct seasons, the wet season from late May to early October and the dry season. Annual rainfall is about 1,350 mm, with over 90% falling in the wet season but with erratic distribution (Annex 2). About two years in ten it is less than 1,000 mm or more than 1,600 mm, with crop damage to rainfed crops in either case. Tem- peratures range from a low of 8