Sri Lanka - Tank Irrigation Modernization Project

Report No. 951a-CE Sri Lanka: Appraisal of the Tank Irrigation Modernization Project November 15, 1976 Irrigation and Area Development Division RETURN TO South Asia Projects Department WITHIN F IL E___P EPPS E. FOR OFFICIAL USE ONLY OE___ Document of the World Bank 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 Until recently, the Sri Lanka Rupee was pegged to the Pound Sterling at a parity rate of L 1.00 = Rs 15.60. On May 24, 1976, the Sri Lanka Rupee was officially linked to a basket of currencies with the initial parity rate based on the prevailing Rupee/Pound rate. The current Rupee/US Dollar rate is about US$1.00 = Rs 8.70. The rate below, in effect during the preparation of the report, has been used throughout the report, except where stated to the contrary. 1/ US$1 = Rs 7.5 RS 1 = US$o.133 Rs 1 million = US$133,333 WEIGHTS AND MEASURES 1 long ton = 2,240 lb = 1.016 metric tons 1 hundredweight (cwt) = 50.8 kg = 112 lb I bushel (bu) of paddy = 45 lb 1 pint = 0.57 liters 1 acre (ac) = 0.405 hectare (ha) 1 mile (mi) = 1.609 kilometers (km) 1 square mile (sq mi) = 640 ac (259 ha) 1 foot (ft) = 30.5 centimeters (cm) 1/ Through the sale and purchase of Foreign Exchange Entitlement Certificates (FEECs), Sri Lanka effec- tively practices a dual exchange rate. Most non- foodgrain imports have to pay a surcharge of 65% through the purchase of FEECs. Most non-traditional exports receive a 65% premium over the official rate through the sale of FEECs.  FOR OFFICIAL USE ONLY PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ADB - Asian Development Bank APC - Agricultural Productivity Committee ARTI - Agrarian Research and Training Institute BG - Batalagoda (a new improved HYV) CAD - Command Area Development CC - Cultivation Committee CFC - Ceylon Fertilizer Corporation CP - Cooperative Program DA - Department of Agriculture DME - Department of Machinery and Equipment DRI - Director Rural Institutions FAO _ Food and Agriculture Organization FEEC - Foreign Exchange Entitlement Certificate GDP - Gross Domestic Product GNP - Gross National Product GOSL - Government of Sri Lanka ICB - International Competitive Bidding ID - Irrigation Department IRRI - International Rice Research Institute KVS - Village Level Government Extension Worker (Krushikarma Viyaptha Sevaka) LHG - Low Humic Gley Soils M - Million MAL - Ministry of Agriculture and Lands MDB - Mahaweli Development Board MIPH - Ministry of Irrigation, Power and Highways MPC - Multi-Purpose Cooperatives MPCS - Multi-Purpose Cooperative Societies 0 & M - Operation and Maintenance PMB - Paddy Marketing Board RBE - Reddish Brown Earth RVDB - River Valley Development: Board SDCC - State Development and Construction Corporation SLTC - Sri Lanka Trading (Tractor) Corporation TCC - Tank Coordination Committee TCEO - Territorial Civil Engineering Organization USBR - United States Bureau of Reclamation Thb documont has a rtricted distributien and may be wod by recipint only in the performance of theif olfcial duties. Its contents may not otherwise be dbcbzd without World Bnk authoriztin.  FREQUENTLY USED ABBREVIATIONS FOR OFFICERS ADAEO - Assistant District Agricultural Extension Of ficer AI - Agricultural Instructor AO - Agricultural Officer APAEO - Assistant Project Agricultural Extension Officer DAEO - District Agricultural Extension Officer DDA - Deputy Director of Agriculture GA - Government Agent KVS - Village Level Government Extension Worker (Krushikarma Viyaptha Sevaka) PAEO - Project Agricultural Extension Officer SAI - Senior Agricultural Instructor SMS - Subject Matter Specialist GLOSSARY chena - slash and burn or "shifting" agriculture dhal - pulse crop (pigeon peas) District - The principal administrative sub-division. There are 22 Districts in Sri Lanka. ganga - major river jaggery - unrefined sugar maha - northeast monsoon season (October to January) mammotie - hoe manioc - cassava - the plant from which tapioca is made oya - minor river paddy - the unhusked grain, obtained after the threshing of the rice crop or the actual rice (oryza sativa) crop itself. rice - the husked rice, ready for cooking (also referred to as "milled rice"). rotational irrigation- intermittent irrigation wewa - tank yala - southwest monsoon season (April to July) FISCAL YEAR January 1 - December 31  SRI LANKA APPRAISAL OF THE TANK IRRIGATION MODERNIZATION PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ....................... i-iii I. INTRODUCTION .......................................... I II. BACKGROUND ........................... .,....... 2 General ................ ... ............... 2 The Economy ............................. 2 The Agricultural Sector .............. .... 3 Irrigation .............................................. 4 III. THE PROJECT AREAS .......... ....... 4 General ............. 0............................ 4 Climate ... ........................................... 5 Topography and Soils .................... 5 Farm Size and Land Tenure ................ 6 Agricultural Production .................. 6 Agricultural Supporting Services ......... 7 Present Problems . ................. 9 IV. THE PROJECT ..................................... ...... .... 9 General ... ............... .............. 9 Project Works . ........... ................ 9 Water Supply, Demand and Quality ........ . 12 Implementation Schedule .. ................ 13 Cost Estimates ..... ...................... 13 Financing . .............................. 15 Procurement ... .. ....... a ...... ... ........... . 15 Disbursements ............................ 16 Accounts and Audit .............. ........ 16 Environmental Effects .............. .... . 16 This report is based on the findings of an Appraisal Mission including: Messrs. R. Morton; M. Fireman; P. Garg; J. Karl Lee, and A. Seager (IBRD), and R. Shukle, Z. Matmor, and D. Benor (Consultants) who visited the project area in April and May, 1975. During part of the time, the following repre- sentatives of prospective co-financing countries accompanied the Mission: Messrs. R. Bailey (Canada); W. Franklin (UK); R. Glazner (Netherlands), and J. Coles, R. Perry and J. Watson (USA). A follow-up Appraisal Mission com- prised of Messrs. P. Garg and C.J.R. Bridge (IBRD), E. Yendall (Canada), and W. Franklin (UK), visited Sri Lanka in January/February 1976.  -2- Page No. V. ORGANIZATION AND MANAGEM:ENT ..... .............. 17 Project Implementation .. . ................ 17 Project Coordinatiort ..... ................ 18 Technical Assistance. ..... ................ 19 Operation and Maintenance .... ............ 19 VI. PRODUCTION, MARKETING, PRICES AND FARM INCOMES. 20 Production ................................ 20 Market Prospects ......... ................ 21 Prices .... 22 Farm Incomes ............................. 22 Cost Recovery ............................ 23 VII. BENEFITS AND JUSTIFICATION ..... ............... 25 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS ....7.... 7 ANNEXES 1. Climatic Data 2. Topography and Soils 3. Cultivation Practices, Cropping Patterns and Yields 4. Agricultural Supporting Services 5. Water Supply, Demand and Quality 6. Implementation Schedule 7. Cost Estimates 8. Equipment List 9. Schedule of Expenditures, Proposed Aid Package Allocation and Schedule of Disbursements 10. Operation and Maintenance 11. Prices for Economic and Financial Analyses 12. Crop Inputs and Farm Budgets 13. Economic Analysis MAPS 11749 - Tank Locations 11750 - Mahawilachchiya Tank  SRI LANKA APPRAISAL OF THE TANK IRRIGATION MOD)ERNIZATION PROJECT SUMMARY AND CONCLUSIONS i. ' Agriculture dominates the economy of Sri Lanka. It accounts for about one-third of the GNP, more than one-'half of all employment, about four- fifths of export earnings and much of the Government revenues. However, Sri Lanka imports about 40% of its foodgrain requirements. Historically, the country has depended upon the export earnings from tree crops -- tea, rubber and coconuts -- to provide for the import of foodgrains and other goods. The worsening terms of trade have prompted a reexamination of the past strategy. Increased food self-sufficiency is now a major objective of the Government's current agricultural policies. Better utilization of exist- ing irrigation facilities and the development of new irrigation potential are two important elements in achieving increased food self-sufficiency. ii. The dry zone of Sri Lanka has some 180 major tank irrigation schemes, serving a total cultivated area of about 400,000 ac. Deterioration of irrigation systems, poor water management and inadequate agricultural supporting services, are the prime constraints limiting agricultural pro- duction in the schemes. The proposed project would be a prototype for bringing these schemes up to their full potential. A successful implemen- tation of this project would open the way for eventual modernization of all the tank schemes. Potentially, that could add one-quarter of a million tons to the foodgrain production of the countryr (about one-third of current imports). iii. The project would cover five tank schemes, serving a total culti- vated area of 31,500 ac. The project would include:(a) construction works for improving irrigation and drainage facilities; (b) improvement of farm roads; (c) provision of farm equipment for land preparation and plant pro- tection; (d) strengthening of agricultural supporting services, particularly extension; and (e) technical assistance for improving the operation and maintenance of the irrigation systems. iv. Total project costs are estimated at US$30.0 million equivalent, including about US$7.0 million in import taxes and duties. The foreign exchange component is estimated at US$9.3 million or about 40% of the total net of taxes and duties. The major elements in the cost estimates are: civil works (US$8.7 M); construction equipment and vehicles (US$5.6 M); agricultural equipment and vehicles (US$5.6 M); technical assistance (US$0.3 M); and engineering and administration (US$1.3 M) -- making the base project cost US$21.5 M. Physical contingencies (UJS$1.7 M) and price contingencies (US$6.8 M) would bring the total project cost to US$30.0 M.  - ii - v. With assistance from the Bank Group, GOSL has secured a grant of US$6.0 M equivalent from The UK for financing part of the project costs. Together with the UK grant, the proposed IDA credit of US$5.0 M would finance all foreign exchange costs and some local costs, or about 48o of the total project cost net of taxes and duties. vi. Project implementation would take five years. The Irrigation De- partment (ID), under the Ministry ol' Irrigation, Power and Highways (MIPH) would be responsible for implemental:ion, and operation and maintenance of the civil works proposed under the project. Construction equipment for the ID would be procured by the Sri Lanka Tractor Corporation which would also procure and distribute the farm equipment to project area farmers. The Department of Agriculture in the Ministry of Agriculture and Lands would be responsible for the re-organization and strengthening of the extension serv- ice. Responsibility for improving marketing, processing and storage facili- ties would be with the Paddy Marketilng Board. Credit facilities for financ- ing farm equipment would be providedi by the Bank of Ceylon and the Peoples' Bank. To facilitate inter-agency coordination, Project Coordination Com- mittees have been established at the Central, District and Tank levels. The committees are respectively chaired by the Secretary, MIPH, Chief Project Engineer, and Project Engineers and include respresentatives from the con- cerned agencies. vii. Machinery and equipment to be supplied under the UK grant would be procured in accordance with UK procurement guidelines. Other equipment, vehi- cles and office supplies would be procured through international competitive bidding in accordance with IDA guidelines. Civil works, proposed under the project, would be simple, labor-intensive, individually small, scattered over large areas and restricted to seasonal construction. Thus, they would be unsuitable for international competitive bidding, and, instead would be carried out by the ID on force account or through small unit-cost contracts. viii. At full development by 1985, annual foodgrain production in the five tank areas as a result of the project is expected to reach 46,000 tons compared to the current 18,700 tons and a projected 23,700 tons without the project conditions. The project-related increase of 22,300 tons would re- present an annual net foreign exchange savings of about US$4.0 million. ix. The project would directly benefit some 10,000 small farm families, operating mostly about 3 ac each. Present income levels in the Project area are substantially below the national average. At full development, the pro- ject would raise them to the nationaL level. The civil works proposed under the project would provide a total of 3 M man-days of employment during imple- mentation. The more intensive cultivation envisaged under the project would generate an annual employment of 0.6 M man-days in on-farm works. Also, there would be a substantial increase in secondary employment in activities such as marketing, processing, and supply of farm inputs. The increased employment would help to relieve the large unemployment and underemployment prevailing in project areas.  - iii - x. At projected 1985 world market prices, the project's economic rate of return would be 23%. Sensitivity t;ests indicate that, even under a variety of adverse assumptions, the project. remains economically viable. Economic analysis also indicates that each of the five tank schemes is viable on its own. xi Subject to the appropriate agreemnents obtained from the Govern- ment, the proposed project is suitable for an IDA credit of US$5.0 M. The Borrower would be the Republic of Sri Lanka.   SRI LANKA APPRAISAL OF THE TANK IRRIGATION MODERNIZATION PROJECT I. INTRODUCTION 1.01 The Government of Sri Lanka (GOSL) has requested IDA assistance in financing a Tank Irrigation Modernization Project. Since the beginning of its operations in Sri Lanka in 1954, the Bank Group has made eight loans and extended nine credits totalling US$152.5 M. This would be the Bank Group's fourth project in support of the country's water resources develop- ment. Credits 121-CE (US$2.0 M) and 168-CE (US$2.5 M) involved lift irriga- tion and drainage and reclamation projects, respectively. A combination of Credit 174-CE (US$14.5 M) and a Loan 653-CE (US$14.5 M) financed the con- struction of the first stage of the Mahaweli Ganga Project. Stage II of the Mahaweli Ganga Project, appraised concurrently with this project, is being processed. Recently, the Association approved a US$25.0 credit for financing an Agricultural Development Project (Cr 595-CE). The project is to support high priority on-going programs for agricultural rehabilitation and development through the provision of critically-needed vehicles, machinery and equipment, spares, supplies and technical assistance. The Agricultural Development Project would complement the proposed project in many respects. 1.02 There are some 180 major tank irrigation schemes 1/ in Sri Lanka, serving a total cultivated area of about 400,000 ac. The tanks were origin- ally constructed to provide supplemental irrigation during the maha season. The emphasis placed on food self-sufficiency in recent years has prompted a re-examination of the irrigation potential of these tanks. Several studies have indicated that substantial increases in cropping intensities, yields and production are possible with rehabilitation and modernization of the water distribution system, improved water management and cultivation practices, and a strengthening of the agricultural supporting services. The proposed project, covering five tank schemes, would be a prototype for testing the validity of this approach at the field level. 1.03 The project was identified and prepared by several Missions from the FAO/IBRD Cooperative Program (CP). Their findings and recommendations are presented in Report No. 17/75 CEY. 7 dlated April 25, 1975. The project was appraised in April/May, 1975 by a Bankc Group Mission comprising Messrs. R. Morton, M. Fireman, P. Garg, J.K. Lee, and A. Seager (IBRD) and R. Shukle, Z. Matmor, and D. Benor (Consultants). The Mission was accompanied by rep- rentatives of four prospective co-financing countries 2/: Messrs. R. Bailey 1/ Those with a storage capacity of 2,000 ac-ft or more. 2/ Originally, it was proposed that the processing and co-financing of this project and the Mahaweli Ganga II Project would be dealt with as a package. Following discussions between GOSL, IDA and the co-financing countries, it was agreed that, since the Tank Irrigation Project would be ready for Board presentation ahead of the Mahaweli Ganga II Project and since it would simplify procurement and disbursements, only UK would participate in co-financing this project. Contributions from the other co-financiers would be used for the proposed Mahaweli Ganga II project.  - 2 - (Canada); R. Glazner (The Netherlands); W. Franklin (UK), and J. Coles, R. Perry and J. Watson (USA). A follow-up Appraisal Mission, comprised of Messrs. P. Garg and C. J. R. Bridge (IBRD), E. Yendall (Canada), and W. Franklin (UK), visited Sri Lanka in January/February 1976. This report, based on the findings and recommendations of the two Missions, was prepared by Messrs. J.K. Lee and P. Garg. II. BACKGROUND General 2.01 The Republic of Sri Lanka is a tropical island in the Indian Ocean with an estimated current population of about 13.5 million, 80% of which is rural. Of the total lancd area of 16.2 million ac (about 25,300 sq mi), about 5 million ac are used for agriculture, 9.3 million ac are under forests, and the remaining 1.9 million ac are water bodies, urban areas or under other uses. About half of the forest land is potentially suitable for agricultural development. 2.02 The island's climate is characterized by nearly constant temper- atures but with large variations in rainfall. Based on precipitation, the island can be divided into two distinct zones: the wet zone (average an- nual rainfall over 75 inches), situated in the southwest quadrant and covering about 30% of the land area, and the dry zone (average annual rainfall 35 to 75 inches) covering the remainder of the island. The wet zone supports more than three-quarters of the total population and ac- counts for about 70% of the cultivated land. The Economy 2.03 Per capita income levels (US$145 in 1975) are low. Since 1970, growth in national income has averaged 2.5% a year, only slightly higher than the population growth rate of 2%. A large part of the labor force, perhaps about one quarter, is unemployed or underemployed, and indications are that the employment situation has been worsening for some years. During the last few years, Sri Lanka has been severely affected by rapid deteriora- tion in its terms of trade -- prices of its major imports, foodgrains, fer- tilizers and petroleum products have shot up, while price increases for its main exports tea, coconuts and rubber have been relatively moderate. 2.04 Past Government programs have emphasized social welfare and equit- able income distribution. On the positive side, this has meant an increas- ingly egalitarian income distribution, a rather well-developed system of health care and other public services and a high literacy rate. These develop- ments, however, have not been accompanied by a satisfactory growth in output, mainly because of inadequate investrment in productive sectors. Much of the capital stock of the economy is obsolete and requires replacement and moderni- zation. The country faces a severe foreign exchange gap, and the budgetary  resources of the Government are barely adeq[uate to cover its current ex- penditure, leaving most capital formation to the vagaries of external assist- ance. The Government is aware of the problems confronting the economy and has been gradually shifting the emphasis towards production oriented investments, particularly those for increasing food production. The Agricultural Sector 2.05 Agriculture contributes about one-third of the gross national product (GNP), more than one-half of all employment, over four-fifths of export earnings and much of the Government revenues. Dominance of the sector gives it a pivotal role in influencing the economic activity and the course of development in the country. 2.06 Sri Lanka's climate is suitable for year-round crop production. The major constraint is water; in the wet zone there is sometimes too much while in the dry zone there is often too little. The variations in preci- pitation and elevation make it possible to grow a wide range of crops in- cluding tea, rubber, coconuts, paddy, manioc, chillies, maize, potatoes and millets. About half of the total cultivated area of 5.0 million ac is under tree crops -- primarily tea, rubber and coconuts. The other half is under field crops, the major ones being paddy (1.3 M ac), manioc (0.2 M ac) and chillies, maize and pulses (about 0.1 M ac each). Where sufficient water is available, it is the common practice to produce two or more crops a year. The cropping intensity on paddy lands ranges from about 185% in the wet zone to about 110% in the dry zone, the average for the whole country being about 150%. 2.07 In the decade ending in 1973 (the last "normal" year), agricul- tural output increased by about 25%, i.e. at an annual rate of only 2.3%; on a per capita basis the rate of increase was insignificant. While food- grain production increased by about 36% over this period (3.1% annually), output in the tree crop sector increased by only 13%. Paddy production, under favorable weather conditions, reached 77 M bu in 1970 and that level is still to be surpassed. In 1974, the dry zone experienced a severe drought; both the maha and yala crops harvested in 1975 were much below normal. Total paddy production in 1975 was about 55 M bu -- only about two-thirds of the 1970 production. 2.08 The slow growth of agricultural production despite considerable potential may be attributed to a number of factors. The sluggish performance of the tree crop sector is largely a result of inadequate investment due to poor financial returns and an uncertain lnvestment climate. Production of field crops has suffered from poor water management, lack of adequate farm power for timely tillage, inadequate attention to extension, marketing and credit facilities and the system of controls and subsidies which works to reduce incentives to the farmer. 1/ 1/ An analysis of the various constraints to agricultural development in Sri Lanka is given in the Bank Group Report No. 579a-CE, Republic of Sri Lanka, Agricultural Policy and Program Review, dated February 19, 1975  -4- 2.09 The Government is concerned about the stagnation in agricultural production. Among the measures recently taken to increase field crops out- put are: increases in guaranteed support prices and elimination of com- pulsory paddy procurement to provide production incentive; reduction in free and subsidized rations; import restriction on subsidiary crops such as chillies, onions, potatoes and pulses to promote domestic production; establishment of Agricultural Productivity Committees (APCs) to improve the supply of farm inputs and supporting services; and most importantly an increased emphasis on efficient water utilization and management. Irrigation 2.10 Agriculture in the dry zone depends entirely upon irrigation during the yala season and because of erratic monsoons, supplementary irrigation is necessary even during the maha season. 2.11 Irrigation in Sri Lanka dates back to about 600 B.C. when an extensive network of irrigation tanks (reservoirs) was developed in the nothern part. Over the last century, many of these facilities have been reconditioned and incorporated into new irrigation systems. Currently, they irrigate about 900,000 ac and efforts are continuing to expand this acreage. 2.12 In addition to reconditioning the ancient tank network, the Government has undertaken a number of multi-purpose water development projects; among them are Gal Oya, IJda Walowe and Mahaweli Ganga projects. The last one is being constructed with the Bank Group assistance. With the completion of the ongoing workS by 1985, the total irrigated acreage would increase by about 200,000 ac. 2.13 Farmers in Sri Lanka follow the traditional methods of irrigat- ing paddy; they let water run continuously, ponding it on the fields. In addition to meeting the consumptive use requirements of the crop, this method has the advantage of assisting in weed control. However, it is highly wasteful in the use of water, particularly on soils with high per- meability. Also, in the tank schemes, paddy is normally sown only after the tanks are deemed to be sufficiently full to assure an adequate water supply to mature a maha crop. If the tanks do not fill until late in the monsoon, sowing is correspondingly delayed. The net effect is that in some years much of the monsoon rain is not utilized for crop production. With proper operation and management of the irrigation systems and improved methods of irrigation, it would be possible to substantially increase the irrigated area with the existing water supply. III. THE PROJECT AREAS General 3.01 The five areas proposed for modernization under the project are located in the north central dry zone of Sri Lanka. Three of the tanks  (Padaviya, Mahakanadarawa, Mahawilachchiya) are located in Anuradhapura District; Pavatkulam is in Vavuniya, and the fifth, Vavunikulam, is in Mannar District. Part of the command areas of the Padaviya and the Vavunikulam tanks are also located in Trincomalee and Jaffna Districts, respectively. All five tanks are fed by the runoff from local catch- ments ranging from 88 sq mi to 208 sq mi. The net irrigable area served by the individual tanks varies from 2,600 ac to 12,500 ac; the total for the five is 31,500 ac. The water supply/dernand conditions in the five tanks cover a wide spectrum, varying from highly favorable in the Padaviya tank to rather poor in the Pavatku:Lam tank. Taken as a group, they are representative of nearly all the major tank schemes in Sri Lanka. 3.02 Before construction of the five tanks, about 20 years ago, the present service areas of the tanks were forest lands and only a limited amount of chena cultivation was practiced. After reconstruction, some 10,500 families were settled, each with a 3 ac allotment of irrigation land. 1/ The current population in the five tank areas is estimated at about 75,000, almost all of it engaged in agriculture. Climate 3.03 The climate in the project areas is tropical with mean monthly temperatures ranging from 76