India - Second Orissa Irrigation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4448-IN STAFF APPRAISAL REPORT INDIA ORISSA IRRIGATION II PROJECT May 31, 1983 South Asia Projects Department Irrigation II 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 US$1.00 = Rupees (Rs) 9.50 1/ WEIGHTS AND MEASURES (METRIC SYSTEM) 2/ 1 meter (m) = 3.23 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 hectare (ha) = 2.47 acres (ac) 1 million cubic meters (Mm ) - 810 acre-feet (ac-ft) 1 million acre-feet (MAF) = 1,235 M cubic m (Mm3) I thousand million cubic feet (TMC) = 28.32 M m3 1 cubic foot per second (cfs or cusec) = 0.028 m3 per second (m3/sec or cumec) 1 cfs = 102.9 m3/hr 1 cumec = 35.3 cfs 1 ton = 1,000 kilograms (kg) FISCAL YEAR &OI and GOO April 1 - March 31 1/ The US Dollar/Rupee exchange rate is subject to change. Conversions in this report have been made at US$1.00 to Rs 9.50, which represents the projected exchange rate over the disbursement period. 2/ The Metric System has been used in most cases. However, India is still in the process of transition to the metric system; non-metric unIts are still widely used, and were also used in this report in cases in which a conversion to the metric system may confuse the reader.  FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS AC - Appraisal Committee ARDC - Agricultural Refinance and Development Corporation CAD - Command Area Development CADA - Command Area Development Authority CCA - Cultivable Command Area CWC - Central Water Commission DAFP - Directorate of Agriculture and Food Production ERR - Economic Rate of Return FSL - Full Supply Level GOO - Government of Orissa GOI - Government of India ICB - International Competitive Bidding I&PD - Irrigation and Power Department ID - Irrigation Department (within GOO's I&PD) IDA - International Development Association LCB - Local Competitive Bidding M&E - Monitoring and Evaluation MIP - Medium Irrigation Project NABARD - National Bank for Agriculture and Rural Development OFD - On-Farm Development O&M - Operation and Maintenance R&D - Research and Development RWS - Rotational Water Supply SCMC - State Coordinating and Monitoring Committee UNDP - United Nations Development Program WMC - Water Management Committee GLOSSARY kharif - Wet season; June - October rabi - Dry season; November - April chak - Watercourse CCA sub-chak - Watercourse CCA below the 5 ha turnout watercourse - Small channel below outlet serving a chak down to 5 ha blocks (sub-chaks), with capacity to take full outlet discharge from head to tail outlet - Structure connecting parent channel to watercourse, with discharge capacity proportional to chak size field channel - Small channel below the watercourse serving 5 ha block down to farmers fields, with capacity to take full outlet discharge turnout - Structure discharging from watercourse to 5 ha block, designed to take full watercourse discharge warabandi - A rotational water supply (RWS) system of allocating water among farmers by fixed turns and time periods; flow rate is constant, and time periods are propor- tional to land holding size on-farm - Small works needed for efficient water control at development the chak level (eg., watercourses and drains); most such works are actually off-farm 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.   INDIA ORISSA IRRIGATION II PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. INTRODUCTION AND BACKGROUND ............................ 1 Introduction ...................................... 1 Agriculture and Irrigation in Orissa .... .......... 1 The First Orissa Irrigation Project .... .......... 4 II. PROJECT AREA .......................................... 8 Physical Features ................................. 8 Climate and Soils .................................. 8 Farmers and Land Holdings .......................... 9 Crops and Yields ................................... 9 Agricultural Supporting Services .... .............. 10 III. THE PROJECT ........................................... 12 General ............................................ 12 Detailed Features .. 13 - Medium Irrigation Projects ..... ................ 13 - Land Consolidation and On-Farm Development ...... 14 - Research, Development and Training .............. 15 Design and Implementation 15 - Medium Irrigation Projects ...................... 15 - Consolidation and OFD ...... .................... 16 - Implementation Schedule ..... ................... 16 - Improved Operation and Water Management ........ 16 - Resettlement ......... . .......................... 18 This report is based on the findings of an Appraisal Mission which visited India in September, 1982 and comprised Messrs. R. Reidinger, Y.K. Choi, and G. Mukami (IBRD); Messrs. F.M. Patorni and D.D. Taneja (IBRD/NDO); Mr. D. Campbell (FAO/CP); and Mr. T. Wickham (Consultant). Mr. Martin Herman and Ms. N. Mattson (IBRD) completed the project analysis. Word processing was done by Mrs. Shirley Douglas and Mr. J. Maddix.  -ii- Page No. IV. PROJECT COSTS, FINANCING AND DISBURSEMENTS .......... 19 Project Cost Estimates .. 19 Financing ........s........................ 20 Procurement .................... 20 Disbursements ............. .. 21 Accounts and Audits ........ . ...23 V. ORGANIZATION AND MANAGEMENT ......... 24 General ........................................... 24 Project Coordination .............................. 24 Medium Irrigation Projects ............ ............ 24 Agricultural Intensification for Medium Projects .. 29 Command Area Development .......................... 29 Research, Development and Training ................ 31 Quality Control and Dam Safety .. .................. 32 Monitoring, Evaluation and Reporting .............. 33 VI. AGRICULTURAL PRODUCTION AND COST RECOVERY .............. 34 Agricultural Impact ............................... 34 Market Prospects ............... 35 Water Charges and Operation and Maintenance ....... 36 Estimated Cost and Rent Recovery . . 37 VII. ECONOMIC ANALYSIS AND JUSTIFICATION .... .............. 39 Project Impact . ...... .......... .. ................ 39 Economic Analysis ......................... 40 Sensitivity Analysis and Risks .......... .......... 41 Environmental Impact ............... .. ............. 42 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS .... .......... 43  -iii- TABLES 1. Status of MIPs under Orissa I Project (Tables la-b) 2. Climatic Data 3. CCA and Number of Farm Families for MIPs 4. Crop Water Requirements 5. Project Cost Estimates (Tables 5a-c) 6. Estimated Financing Plan 7. Estimated Implementation Schedule 8. Estimated Disbursement Schedule 9. Allocation of the Loan 10. Area, Yields and Production 11. Incremental Crop Production and Value 12. Summary of Financial and Economic Prices 13. Crop Inputs Data 14. Financial Crop Budgets 15. Estimated Financial Farm Budgets 16. Estimated Farm Budgets and Project Rent at Full Development (Tables 16a-b) 17. Estimated Project Rent and Cost Recovery (Tables 17a-b) 18. Incremental Costs and Benefits 19. Sensitivity Tests for MIPs ANNEXES 1. Proposed R&D Topics 2. Main Assumptions for Economic and Financial Analysis 3. List of Documents in the Project File CHARTS 1. Implementation Schedule (24663) 2. Government of Orissa and Project Agencies (24659) 3. Irrigation and Power Department - Irrigation Wing (24788) 4. Typical Irrigation Circle (24847) 5. Operation and Maintenance of Typical 10,000 ha MIP (24848) 6. Organization Chart - Extension Wing (24662) 7. Organization Chart - Agricultural Engineering (24661) 8. Improved Turnouts from Watercourses (24083) 9. Canal Regulation Pilot Project (24084)  -iv- MAPS Monsoon Rainfall (16794) Soil Types (16795) Medium Irrigation Projects (16796) Radio Transmission Requirements for Medium Irrigation Projects (16878R) SUPPLEMENTARY DATA VOLUME (SDV) ANNEXES 1. Guideline Engineering Criteria for MIPs 2. Outline of Design Specifications for MIPs 3. General Guidelines for Design of Watercourses 4. Guidelines for Preparation of MIP Operating Plans 5. Management Plan Guidelines for MIPs 6. Guideline Water Management Requirements for MIPs 7. Project Cycle Procedures for MIPs 8. Progress Monitoring for MIPs  INDIA ORISSA IRRIGATION II PROJECT I. INTRODUCTION AND BACKGROUND Introduction 1.01 The Government of India (GOI) has requested IDA assistance to finance a second time-slice of the ongoing first Orissa Irrigation Project (Cr. 740-IN, referred to here as Orissa I). The proposed Orissa Irrigation II Project (referred to here as Orissa II) would finance primarily a four-year time-slice of the State's construction program for Medium Irrigation Projects (MIPs), as well as land consolidation and on-farm development (OFD) in continuation of work begun under Orissa I. The project was prepared by the Government of Orissa (GOO) with the participation of Government of India's Central Water Commission. 1.02 Agriculture and Irrigation in India. India has a population of about 684 M which is growing at an annual rate of about 2.1%. Agriculture contributes about 40% of GNP and engages about 70% of the labor force. GOI has devoted considerable resources to agricultural development, especially irrigation which is a vital ingredient for continued economic growth and progress in India. 1/ 1.03 The State of Orissa. Orissa is one of the poorest States of India, with an average per capita annual income (US$90) less than half the all-India average. In real terms the State's per capita income has declined over the last five years. Some 40% of the State's population belong to scheduled tribes and castes, groups which are generally among the least benefited by the country's economic progress to date. The State is predominantly rural and agricultural. Agriculture contributes about 66% of the State's gross domestic product and employs nearly 80% of the State's population. Future progress in general economic development, and in raising the welfare of the disadvantaged groups in particular, will depend heavily on increased productivity and income in the agricultural sector. Agriculture and Irrigation in Orissa 1.04 General. Agriculture in the State faces difficult climatic conditions, particularly with regard to rainfall. In the wet monsoon season, conditions are often extreme, sometimes with severe floods, droughts and cyclones occuring in the same season, as in 1982. In addition, some 85-90% of the annual rainfall normally occurs in the monsoon season, leaving the dry season with too little water for productive agriculture despite the fact that total annual rainfall in the State is high (on average about 1,250 mm). Paddy, which is well adapted to high rainfall and flooded conditions, is the main crop. A major potential for agricultural growth, however, is production of diversified (non-paddy) crops in the dry season, under irrigation. Increased irrigation and water control, and 1/ For more detail see the Staff Appraisal Report of the Haryana Irrigation II Project, Report No. 4099-IN, January 5, 1983.  -2- especially provision of water storage and improved efficiency for rabi irriga- tion, is therefore a key ingredient for future agricultural development in the State. 1.05 Agriculture. Orissa covers an area of about 15.5 M ha, of which 6.8 M ha is arable. Of this about 6.1 M ha is cultivated and the balance remains fallow mainly due to lack of water. About 18% of the arable area totalling some 1.2 M ha of cultivable command area (CCA) is served by irrigation canals with an annual irrigation intensity (the total of two seasons) of about 140%; irrigation intensities at present efficiencies are limited by insufficient water supplies available in the dry season. Orissa farmers have been slow to adopt improved farming practices as indicated by the relatively low levels of fertilizer use in the State and the low percentage of area of rice sown in high-yielding varieties. Yields of most major crops, therefore, are low, and average rice yields are only about 75% of the all-India average. Oilseeds are the major non-food crop, accounting for about 7% of the sown area. The present cropping intensities in Orissa range between 120% and 130%. 1.06 Production of rice, the major foodgrain, has virtually stagnated since the mid-1960s. Rice production in 1980/81 totalled some 4.4 M tons; about the same level as in 1973/74. Frequent failure of monsoon rains is the major threat to agricultural production. For example, in 1974/75, 1976/77 and 1979/80, severe drought conditions reduced rice production compared to the previous year by 40-50%. As a result, the State is chronically deficient in foodgrain sup- plies, and in 1980/81 had to be supported with some 720,000 tons of rice and wheat from the GOI foodgrain procurement pool. 1.07 Irrigation Potential and Utilization. Orissa has abundant water resources that are largely undeveloped. An extensive network of rivers, streams and drainages annually discharge about 100,000 Mm3 of water into the Bay of Bengal. In addition, the annual flow of groundwater into the sea is estimated at some 30,000 Mm3. It is estimated that the irrigation potential and the present utilization of water resources are as follows: Irrigation (in M ha) Actual 81/82 Potential Percent Kharif Rabi Total Kharif Rabi Total Utilization Major 0.662 0.335 0.997 Medium 0.126 0.030 1.156 0.788 0.365 1.153 3.90 1.60 5.50 21 Minor 0.324 0.049 0.373 1.00 0.25 1.25 30 Lift and Well 0.040 0.025 0.065 1.80 1.20 3.00 2 Total 1.152 0.439 1.591 6.70 3.05 9.75 16  -3- 1.08 Major Irrigation Projects (over 12,000 ha). Construction of major projects began towards the end of the nineteenth century, when irrigation canals commanding about 150,000 ha were built in the Mahanadi and Rushikulya Deltas. During the first half of this century, the canal irrigated area remained vir- tually unchanged. However, since 1950, GOO has constructed two major schemes, the Salandi and Hirakud Projects, and substantially extended the Mahanadi Delta system. The area presently commanded by major projects totals about 0.66 M ha, and is expected to increase to about 1.0 M ha in the mid-1980s. 1.09 Medium Irrigation Projects (2,000-12,000 ha). In the past, irrigation development has been concentrated primarily in the more prosperous delta areas of large rivers. This has resulted in uneven distribution of irrigation benefits and regionally unbalanced growth. To correct this imbalance, GOO started around 1960 to construct a number of medium irrigation projects (MIP) throughout the State, particularly in areas where large scale irrigation and groundwater development are not feasible. However, the financial and manpower allocations to these projects were very low initially, which for many MIPs prolonged construction for 10-15 years. During the Fifth Five Year Plan, GOO began a concerted effort to speed up implementation (with IDA support) and has continued those efforts in the Sixth Plan. 1.10 Minor Surface Irrigation Projects (less than 2,000 ha). For centuries, Orissa farmers have constructed small diversion weirs and tanks for storage of local runoff during the monsoon and developed bucket-lift and other traditional irrigation facilities. Such efforts are based mainly on local initiative. However, they provide only supplementary irrigation during the kharif, and the area irrigated varies substantially from year to year. Considerable progress has been made in recent years, and the area presently commanded under minor irrigation projects has reached about 0.3 M ha. 1.11 Groundwater. Orissa's groundwater potential remained largely undeveloped until the mid-1960s. Since the Orissa Lift Irrigation Corporation was created in 1973, groundwater development has accelerated and currently, there are some 360,000 private dugwells, 3,200 private filter point tubewells and 2,600 public tubewells supplying irrigation. 1.12 Investment Budget for Surface Irrigation. Expenditures on medium and major irrigation projects have increased rapidly since the beginning of the Fifth Five Year Plan. Between 1977/78 and 1982/83, GOO expenditures on irriga- tion projects rose by nearly 300% in current terms. Past and projected expendi- tures are as follows: Budgeted Actual Outlay Projected 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 RsM 253.7 329.7 386.7 368.1 613.7 739.1 885.4 999.4 US$ M 26.7 34.7 40.7 59.8 64.6 77.8 93.2 105.3 The current Sixth Plan period will be completed in 1984/85. 1.13 Investment in irrigation has been given a high priority and currently accounts for about 28% of Plan allocation. During the Fifth Five Year Plan in  -4- 1974/75, the emphasis changed from major to medium projects and the proportion of irrigation sector expenditures on MIPs increased from 41% in the Fourth Plan to 59% in the Fifth Plan. However the planned proportion for MIPs in the Sixth Plan declined to about 44%. Orissa has several major dams and reservoirs which have recently been completed or will be completed in the near future (Rengali, Upper Kolab, Upper Indravati, Subernarekha). Most of these are multipurpose dams for power generation and irrigation, and power requirements are often the dominant consideration in determining the timing of their construction. With the cost of constructing these dams becoming "sunk", development of the water conveyance network in the areas commanded by them will in the future provide a higher return to investment than MIPs. Nevertheless, continuation of a sizable program of MIP construction is considered essential by GOO to ensure a more even spread of irrigation benefits and promote development in the interior regions. 1.14 Bank Group Support. The Bank has assisted with the implementation of several agricultural development projects in Orissa. The Salandi Irrigation Project (Credit 14-IN, 1961, US$8.0 M) was one of the first irrigation projects supported by the Bank Group in India. A review of Orissa's agricultural poten- tial and development constraints was conducted in 1975 jointly by IDA, GOI and GOO. The Orissa Agricultural Development Project (Credit 682-IN, 1977, US$20.0 M) which assists improvement of extension and research services and the Orissa Irrigation Project (Credit 740-IN, 1977, US$58.0 M) which supports development of medium irrigation projects, land consolidation and construction of watercour- ses are currently under implementation (a detailed performance review of the latter is presented below). The Mahanadi Barrages Project (Credit 1078-IN, 1981, US$83.0 M) supports construction of two new barrages on the Mahanadi River. The Subernarekha Irrigation Project (Credit 1289-IN, 1983, US$127.0) is a joint Bihar-Orissa-West Bengal project for developing surface water resources in the Subernarekha basin. The First Orissa Irrigation Project 1.15 General. The first Orissa Irrigation Project (Orissa I) was appraised in late 1976 and became effective in January 1978. IDA financing amounted to US$58 million out of a total estimated cost of US$116 million. The main project component comprised completion of ongoing MIPs and construction of new ones. Orissa I was the first "line-of-credit" project for construction of MIPs. 1/ Under that type of project, appraisal and monitoring of individual MIPs are done by the Central Water Commission (CWC) of GOI in accordance with criteria and procedures agreed upon with IDA. It was estimated that, over the five-year project period, about six ongoing MIPs and eight to ten new MIPs would be financed under the Credit. The project was to finance also Command Area Development (CAD), comprising consolidation of about 200,000 ha of irrigated lands and on-farm development (OFD) works on about 57,000 ha of irrigated lands in four major irrigation systems in Orissa. Performance under the project has been generally satisfactory and project funds are estimated to have been fully utilized by March 31, 1983. The major achievements under the project are: (i) shortening of MIP construction period; (ii) institutional development--the 1/ It has been followed-up by the following "line of credit" MIP projects which use procedures developed under Orissa I: Gujarat Medium Irrigation Project (Cr. 808-IN) and Madhya Pradesh Medium Irrigation Project (Cr. 1108-IN).  -5- build-up of CWC capability to undertake independent appraisal and monitoring of MIPs; and (iii) expansion of the land consolidation and OFD programs -- Orissa is one of the few states of India in which consolidation has been successful on a large scale. The main aspects of project implementation are summarized below. 1.16 Medium Irrigation Projects. Under Orissa I, 18 MIPs have been approved by IDA and, except for one which is complete, are at various stages of construc- tion. It is expected that, by the project Closing Date (October 31, 1983), 12 MIPs would be operational as follows: one MIP would be fully completed, four MIPs would in operation with partially completed 5 ha block watercourses, and seven MIPs would in operation without spillway gates or 5 ha block watercourses. The status of progress in completion of MIPs under Orissa I is presented in Tables la and lb along with current GOO estimates of completion dates. Con- struction of most project MIPs has been considerably faster that that of tradi- tionally constructed MIPs (7 years compared with 10-15 years), although somewhat slower than anticipated at appraisal (5 years). The major problems encountered with MIPs during implementation are summarized below. 1.17 Delays in land acquisition for canal construction have been a major cause of delay in completing MIP minor distribution systems. Procedures for land acquisition are specified in the Land Acquisition Act, 1894, updated in 1968. The main difficulties have been a result of the large number of administrative steps required, inadequate communication between the various administrative services involved in the process, and administrative delays in the Revenue Department which is responsible for most steps in the land acquisi- tion process. GOO has recently taken steps to speed up land acquisition. 1.18 Land reclamation (clearing and leveling) has been another problem area. It is needed on about 30% of the total commandable area of each MIP which needs to be cleared from natural vegetation and levelled before the land can be used for agriculture. host such land is government owned and is transferred to landless laborers, who are expected to carry out reclamation work at a cost of Rs 1,000 to Rs 2,000 per ha (US$100-200 per ha). However, landless laborers have generally been unable to finance reclamation works or support themselves while undertaking such works on their own; land clearing would be financed by the government under Orissa II. 1.19 Improved minor system design and planning was a special feature of the project, in particular the extension of the canal network to serve sub-chaks of about 5 ha each. This is expected to result in significant operational improve- ments compared with the traditional MIPs which provide only for water conveyance down to 40 ha chaks. Traditional MIPs suffer from inefficient water use, shortages of water in some areas, and waterlogging in other areas. Because of the novelty in Orissa of the concept of 5 ha sub-chaks, there were at first various shortcomings and delays in the planning and design of watercourses leading to sub-chaks. These problems have now been resolved. 1.20 Procurement under the project has been on the basis of local competi- tive bidding, because of the small size and scattered location of the works. However, difficulties (which have been resolved) have occured in following the Bank's guidelines, because several of the State's standard contract provisions and practices (settlement of disputes, arbitration, liquidated damages, foreclosure of works, default by contractors) and procurement practices (nego- tiation of contracts before award) were not in line with Bank guidelines.  -6- Procurement under Orissa II would follow model CWC documents and procedures which have been approved by the Bank/IDA. 1.21 The cost of MIPs was estimated at appraisal at about Rs 11,000 per ha (US$1,200/ha), including 20% physical contingencies, in 1977 constant prices. Cost estimates in CWC Project Summaries, expressed in 1977 prices and including 20% contingencies, indicated an average cost of Rs 12,600 per ha (US$1,400/ha), with the cost per ha for individual MIPs ranging between Rs 11,000/ha and Rs 16,000/ha for 75% of the MIPs.l/ Actual costs estimated for all approved MIPs were reviewed in late 1982, and current cost estimates are about 35% higher than those estimated at CWC appraisal. 1.22 Land Consolidation. In order to alleviate the constraints to inten- sified agriculture created by land fragmentation, the project provided for the consolidation of 200,000 ha in four of Orissa's major irrigation schemes (in commands other than the MIPs). By December 1982, consolidation was completed on 153,000 ha and was only slightly behind schedule largely because of the massive floods which occured in 1982. It is estimated that some 175,000 ha of land was consolidated by March 31, 1983, and that the project target of 200,000 ha will be achieved by the Closing Date in October 1983. 1.23 On-Farm Development Works. In addition to fragmentation of land, the absence of field channels is often a constraint to intensified agriculture. The project provided for construction of field channels and drains, with the neces- sary control structures, over 57,000 ha of the area consolidated under the consolidation program. It was expected that OFD works would be financed by the farmers, who would borrow from Land Development Banks and Commercial Banks (securing the loans by mortgaging their land), with the Agricultural Refinance Development Corporation (ARDC) refinancing the loans. 2/ However, as is the case with most other Indian irrigation projects, farmers in Orissa were not willing to take up loans for this purpose. GOO and GOI decided in 1981, and IDA concurred, to finance construction of OFD works through the State budget. The target of 57,000 ha was achieved by March 31, 1983. 1.24 Conclusions. While overall the project has been successful, there have been several shortcomings of which the most important are: (a) The technical criteria for MIPs agreed with IDA were to enable cultivation of non-paddy corps in the rabi, and to enable delivery of water on a rotational basis. However, many engineers still consider that irrigation is exclusively for paddy. Accordingly the irrigation network is generally adequate for paddy but not satisfactory for non-paddy crops; 1/ There were two cases significantly higher at about Rs 17,000/ha each and two significantly lower at Rs 6,200 and Rs 8,500/ha. 2/ ARDC ceased to exist as of July 12, 1982. The refinance functions and obligations of ARDC were assumed by the National Bank for Agriculture and Rural Development (NABARD), a GOI undertaking which was formally con- stituted on the above date.  -7- (b) There is no satisfactory operational plan for each MIP; and (c) With regard to land consolidation and OFD activities, it is essential to follow an efficient pattern and sequence of events, which was not achieved under Orissa I; specifically: (i) Selection of areas for consolidation and OFD organized to cover whole distributaries as a unit, rather than parts of many distributaries at the same time; (ii) Design of watercourses/drains starting in conjunction with consolidation utilizing to the extent possible the land saved through consolidation (about 2%); (iii) Construction of watercourses/drains beginning immediately after completion of consolidation to avoid farmers occupation of the land saved; and (iv) Enforcement of rotational water supply (RWS) immediately after completion of watercourses. 1.25 Since the appraisal of Orissa I (in October/November 1976) there has been a considerable increase in experience with implementation of MIPS and OFD and identification of the preconditions required for introduction of improved water management and RWS. In Orissa a pilot water management area has been established successfully in the Mahanadi Delta under the Mahanadi Barrages Project (Cr 1078-IN). A major objective of the pilot project is to improve agricultural performance through better water management, RWS and crop diver- sification in the rabi season, and a number of lessons can be drawn from experience to date with the pilot project. In particular, for MIPs operational control and communication will have to be maintained at a level considerably higher than that anticipated under the Orissa I Project if planned performance levels are to be achieved. In OFD areas, some improvements to parent channels will be essential before reliable RWS can be introduced successfully. These and other lessons have been used in designing the Orissa II Project. 1.26 Under Orissa I the emphasis was on improvement of design and implemen- tation, since construction of the irrigation network to adequate standards is a precondition to an efficient operation of an irrigation system. Organizational aspects of water distribution were considered to be of secondary importance since only a few MIPs were expected to be completed under the project. Under Orissa II, the emphasis would be shifted to operational management and organiza- tion of water distribution, both in MIPs and in consolidated OFD areas. GOO is strongly committed to introduction of improved water management and a reliable and equitable water supply following RWS principles but will require Bank sup- port to achieve this objective.  -8- II. PROJECT AREA 2.01 The project areas for MIPs are scattered throughout the State of Orissa, but located mainly in the north in the rugged northern plateau region and in the south and west in the mountainous eastern Ghats. The project areas for land consolidation and OFD lie in the Mahanadi Delta command southeast of Cuttack, the Salandi command north of Cuttack, and the Hirakud command inland along the Mahanadi River near the Madhya Pradesh border (Map 16796). Physical Features 2.02 Orissa stretches for about 300 km along the east coast of India facing the Bay of Bengal, lying between the States of West Bengal to the north and Andhra Pradesh to the south. Inland, the State borders on Bihar to to the northwest and Madhya Pradesh to the west. Topography is generally rugged, and most of the State comprises an extensive mountainous plateau which slopes gradually into the coastal plain along the Bay of Bengal. According to the physical features and agro-climatic conditions, Orissa may be divided into four zones (Map 16796-inset): (a) the northern plateau (23% of the State-s area) characterized by hill ranges rising to elevations of 700 m to 1,000 m and consisting mainly of the watersheds of the major rivers (Brahmani, Baitarani, Salandi and Budhabalang); (b) the central land (23%) which is generally flat with undulating and folded topography which rises to elevations of some 300 m; (c) the eastern Ghat region (36%) with broken mountain ranges interspersed with plains and valleys having elevations rang- ing between 300-700 m; and (d) the coastal plain (18%) running from north to south along the Bay of Bengal, characterized by a number of deltas formed by rivers. The Mahanadi River in the central region divides the State roughly in half, and is one of the major rivers of India. Most of the MIPs included in Orissa I are located in the northern plateau, the central region and the eastern Ghats. Climate and Soils 2.03 Orissa has a tropical monsoon climate with temperatures suitable for year-round cropping. Annual rainfall ranges from about 1,200 mm in the southern coastal plain to about 1,700 mm in the northern plateau (Map 16794). Most of the inland area where the proposed MIPs would be constructed, however, receive rainfall between 1,200 mm to 1,300 mm. Some 85% to 90% of rainfall occurs during the kharif season (June to October). Variations in amount and timeliness of rainfall are substantial, w[hich makes supplementary irrigation during the kharif season necessary for stable and high crop yields. Intensive cropping in the rabi season (November to April) is nor- mally not feasible because of low and uncertain rainfall (Table 2). However, with irrigation the relatively dry climate of the rabi season presents a major potential for productive diversified cropping.  -9- 2.04 Soils in the State are largely classified into seven types (Map 16794). Red soils (45%) and a mixture of red and yellow soils (35%) cover most of the cultivated area, and followed by alluvial soils (6%), black soils (6%), laterite (5%) and brown forest and mixed red and black soils (3%). Red soils are sandy clay in texture, moderately acidic and generally low in nitrogen and organic matter. They have low water holding capacity, and in their natural condition they are not very productive. With adequate applica- tion of fertilizers and manures, these soils are suitable for productive cultivation of both irrigated paddy and diversified crops. Red and yellow soils in the upland area are light in texture and relatively well drained. With proper management and practice, these soils are suited for productive cultivation of diversified crops. The soils of the low-lying areas are deep alluvial deposits of heavy texture with a pale yellow color and are generally associated with wetness. These soils are best suited for paddy cultivation. Farmers and Land Holdings 2.05 The farmers of the project area are predominantly paddy growers. Most farm families have several plots of land, at least one of which is suitable for paddy, irrigated or rainfed. Farmers in long-established irrigated areas such as the Mahanadi Delta are generally reasonably familiar with improved seeds, fertilizer and other elements of modern agricultural technology. However, farmers in interior areas where most MIPs under the project are located are generally not familiar with modern crop production technology, or irrigated crop production practices for paddy and especially for diversified crops. Such farmers traditionally cultivate paddy under rainfed conditions in the monsoon season, and subsistance rainfed crops such as pulses in the rabi season. Much of the interior area is inhabited by tribal farmers who are relatively backward. 2.06 Farm holdings average 1.6 ha for the State. In old irrigated areas, particularly the Mahanadi Delta, holdings tend to be smaller averaging about 1 ha, and are highly fragmented, sometimes into eight or ten separate plots. Under these conditions, land consolidation is essential for improving the efficiency of farm operations, and to enable efficient distribution of water especially for crops other than paddy. In the interior areas where most MIPs are located, farm sizes are somewhat larger averaging about 2 ha per farm, and fragmentation is relatively less, with the average farmer cultivating perhaps three to five separate plots. The separate plots are generally at different topographical locations which enables cultivation of a variety of crops under different conditions. On average, Orissa I MIPs each serve about 3000 farm families (Table 3). Crops and Yields 2.07 The net cultivable area in the State is about 6.8 M ha. Total cropped area is about 8.6 M ha (1980/81). Of this total, the major crops are paddy (74%), pulses (29%), oilseeds (7%), groundnut (3%), ragi/sorghum (5%), maize (3%), wheat and vegetables (each 1%) and others (3%). Total cropped area varies somewhat from year to year (roughly 8.2 to 8.8 M ha) depending on rainfall patterns. Wet (kharif) season cropping intensity is high. The  -10- principal constraint to expanding cropped area is lack of water during the dry (rabi) season. 2.08 Paddy is the most important crop. Orissa accounts for approximately 8% of the rice and about 4% of all foodgrain produced in India. However, rice yields in Orissa are low, typically about 1.4 t/ha for rainfed rice, 1.8 t/ha for irrigated kharif paddy and 2.0 t/ha for rabi paddy. At present, high yielding varieties (HYVs) account for most of the rice in the rabi season, but only about 4% in kharif. However, yields of rabi paddy are limited, in some areas by lack of irrigation, and in other areas (especially delta areas) by lack of adequate drainage and water control. 2.09 Essentially all the irrigated area in the State is at present used for flooded paddy in both the kharif and rabi seasons. Paddy generally needs two to four times the amount of water required for non-paddy crops, and substitution of irrigated non-paddy for irrigated paddy provides a sig- nificant opportunity for increased crop production in the rabi season when water is very scarce (Table 4). At present most non-paddy crops, even in irrigated commands, are grown with residual moisture following the kharif paddy crop. Irrigation systems at present are designed and operated for continuous-flow, field-to-field irrigation of paddy and cannot meet the needs of non-paddy crops. Agricultural Supporting Services 2.10 The IDA-assisted "Training and Visit (T & V) system of agricultural extension was introduced in Orissa in 1977 under the Orissa Agricultural Development Project (Cr. 682-IN). The T & V system provides for: reor- ganization of the extension staff to work exclusively on extension in a single line of command under the Director of Agriculture and Food Production (DAFP); facilities and equipment to support extension and training programs; and increased staff to provide adequate field coverage. The extension project is progressing well and now covers virtually all districts of the State. The primary field staff are Village Agricultural Workers (VAWs) which at present serve about 800 farm families through a program of each VAW visit- ing eight farmer groups (each comprising 50 to 120 individuals) every two weeks. The proposed project is expected to benefit from improved extension services provided through the T & V project. However, more intensified extension services are needed to enhance agricultural production, par- ticularly in areas commanded by MIPs where farmers have had little exposure to irrigation or modern agricultural technology and practices. 2.11 The Orissa University of Agriculture and Technology, headquartered in Bhubaneswar, is responsible for agricultural research in the State. The Orissa Agricultural Development Project (Cr. 682-IN) above supports both applied and adaptive research programs along with the T & V program. The Central Rice Research Institute, established at Cuttack in 1946, carries out specialized research on rice for improved yields under different agro-ecological conditions throughout India; it is sponsored and operated by GOI.  -11- 2.12 The main producers of seeds are 85 agricultural seed farms (operated by GOO), and the Orissa State Seed Corporation which produces seeds through a contract system with private growers. In recent years, the production of good quality seeds has been seriously constrained by lack of foundation seed. The ongoing IDA-assisted Second National Seed Project (Cr. 816-IN) is provid- ing facilities and support to strengthen the supply and distribution of high quality seeds in the State. 2.13 Fertilizers and plant protection chemicals are supplied through the cooperatives, agro-industry agents and individual private dealers. During the 1981/82 cropping season, about 88,000 tons of fertilizer nutrients were used. This corresponds to about 10.3 kg of fertilizer nutrients per ha of cropped area, which is about one-third of the all-India average. Amounts used of plant protection chemicals are negligible. Expansion of irrigation is expected to promote increased use of fertilizer. 2.14 Agricultural credit to farmers is provided by primary Agricultural Credit Cooperative Societies, Land Development Banks and Commercial Banks. The amount of credit available to individual farmers is determined by farm budget analysis. Credit is disbursed in cash and in kind depending on the type of expenditure proposed. Recoveries have been low for all categories of credit, on average some 52% of the amount due between 1977/78 and 1981/82. 2.15 Agricultural Markets. Some 76 agricultural markets operate in Orissa, of which 40 are regulated. Farmers use these markets extensively. The government sets minimum prices for certain produce through its foodgrain procurement programs. Private traders handle most of the trade and are allowed to compete with government agents in these markets. At present, farmers are charged 3% of the value of marketed produce for the services rendered at the market. Markets in Orissa are generally adequate to handle incremental production from the proposed project although in some areas development of new or additional facilities may be required.  -12- III. THE PROJECT General 3.01 Scope and Objectives. The project would consist mainly of two separate activities, located in two different types of areas: (a) construction and improved operation of medium irrigation projects (MIPs) at scattered locations in the interior of the State; and (b) land consolidation, on-farm development (OFD) and improved water management (in OFD areas) in the service areas of four existing major irrigation projects. Special emphasis would be given to management and to organization of water distribution for MIPs, and for OFD areas including those completed under Orissa I. The proposed works will increase agricultural production, employ- ment and net incomes in the project areas. 3.02 The major components would be: (a) Medium Irrigation Projects (Rs 1155.3 M) (i) Completion of 15 MIPs and substantial completion of 3 MIPs (serving a total of about 108,000 ha) begun under Orissa I to standards which will enable reliable and timely water supply as soon as irrigation begins at each MIP; and (ii) Commencement of work on about 6 new MIPs to the above standards .l/ (b) Consolidation and On-Farm-Development (Rs 170.2 M) (i) Consolidation of fragmented holdings over about 160,000 ha located in four established major irrigation projects (not MIPs), continuing work started under Orissa I; (ii) Construction of watercourses, field channels and drains, including small structures and outlets (OFD works) over about 48,000 ha of the land consolidated above; and (iii) Improvement of the canal network serving OFD areas of Orissa I and II, as needed to enable reliable water supply. (c) Research, Development and Training (Rs 10.8 M) 1/ For purposes of this project, new MIPs up to about 30,000 ha in size would be considered for financing.  -13- Detailed Features Medium Irrigation Projects 3.03 Ongoing MIPs. Under Orissa I a typical MIP comprised the following works designed and constructed by the Irrigation Department: (a) a storage dam, usually earthfill, with gated spillway and canal headworks; (b) a canal network delivering water to watercourse outlet commands (chaks) of about 20 to 40 ha; (c) watercourses conveying water to blocks (sub-chaks) of about 5 ha; and (d) a drainage network connected to major natural drains. 3.04 These works, which are at various stages of construction in each of the 18 ongoing MIPs started under Orissa I (including Dumerbahal which is essen- tially complete), would be completed under the project. In addition the follow- ing improvements would be introduced where feasible: (a) all-weather MIP access roads; (b) limited all-weather canal roads; (c) water measuring devices in the canal and distribution network; (d) increased canal regulation facilities; (e) improved watercourse outlets; and (f) selective lining and canal profiles. A modest building for meetings would be constructed at a central location at each MIP. Most of these improvements are relatively inexpensive especially when compared with total MIP costs. However, they are essential for achieving the management levels required for a reliable and efficient water supply. Detailed operations studies would be done for Orissa I MIP reservoirs using incremental parametric variation to determine the economic feasibility of increasing the existing reservoir sizes. Completion to full operational status at design capacity is expected by March 31, 1985 for 10 of the ongoing MIPs, and by March 31, 1987 for a total of 15 ongoing MIPs. 3.05 New MIPs. The project will support initial work on about 6 new MIPs. However, major construction works would begin only after the ongoing MIPs had been substantially completed (para 4.12). The new MIPs will comprise the works and improvements described above, and be appraised by the Central Water Commis- sion in accordance with technical and economic criteria approved by IDA (paras 5.05-5.09 and Supplementary Data Volume (SDV). Reservoir design would utilize incremental parametric variation to determine optimum size. Watercourse design and construction is in some respects more demanding than construction of larger channels because of the relatively detailed design data required and small tolerances involved. Prior to Orissa I, ID did not have responsibility for watercourses, and they have only limited experience with their design and construction; specialized training would be provided under the project as needed (para 3.11). Construction of watercourses would follow standardized design and construction procedures (SDV, Annex 3). Key MIP design criteria, initiated in Orissa I and to be continued in Orissa II, are: (a) watercourses constructed down to 5 ha sub-chaks; (b) minor canal and watercourse capacity sufficient to meet peak crop water requirements for rotational irrigation; and (c) canals designed to enable full supply to operating offtakes and watercourses with canal flows down to 50% of capacity. 3.06 Land Clearing. Land clearing and levelling would be carried out at government cost under the project for land presently under scrub vegetation (which averages about 30% of the CCA) at each MIP site. The cost of this opera- tion is low (Rs 1,000 to 2,000 per ha) and speedy implementation is essential for the economic viability of the project. The work will be carried out by machinery and/or manual labor.  -14- 3.07 Communications. For improved operational efficiency of MlPsS better communications are needed. However,the terrain and distance requirements for providing radio communications between MIPs and their headq uarters are dif- ficult (Map 16878R). In addition, the Irrigation Department has little experience with the operation and maintenance or costs and. benefits of such a system on a State-wide basis, either for long-range (MIP to headquarters) or short-range (within an MIP) communication purposes, although in the major Hirakud project catchment area it does have limited experience wilt1 special radio facilities which have been used to great advantage in flood forecast- ing. Assurances have been provided by GOO that its irrigation Department would undertake a study on better communications by March 31, 1985 and provide the findings to IDA for its review and comments; the stady w,ould examine various alternatives for better communications, including alternative radio communications systems, in light of technical and economiC co.nsidera- tions, and a least-cost but effective option would be considered y G3OO for implementation. In the interim, operating staff of Junior Eegineer rank would be encouraged to use existing loan assistance facilit4es froma GOO to acquire suitable means of transport, such as motorbikes. to enable more efficient communications within MIPs. Land Consolidation and On-Farm Development 3.08 Land Consolidation and Design of OFD. The project would finance land consolidation together with the design of OFD works (watercourses and drains) over some 160,000 ha in the command area of the foltowing major irrigation projects: (a) Mahanadi Delta Stages I and i,I (<) SslanAie and (c) Hirakud. Only areas where both consolidati-on and design of OFD lhad been completed will be eligible for finance under the project. Thie deasgn of land consolidation would be based on the engineering requirements for efficient water delivery and use, and would be organized (along with OFD wor.s) to follow a distributary-wise pattern of implementationc 3.09 On-Farm Development. The prolect would finance OFD works on some 48,000 of consolidated land in the major irrigation projects mentioned above (para 3.08). OFD works will include primarily watercourses and field chan- nels down to 5 ha sub-chaks, drainage channels, small control structure, turnouts and selective lining of watercourses and field channles to ensure efficient delivery of water to the interior areas of each chak served. Design and construction of OFD watercourses would follow the same standards and procedures as with MIP watercourses (SDV, Annex 3'> 3.10 The project would also finance construction, 'M!ere necessary, of rnew canal outlets for watercourses to ensure that watercourses recelve a specified design flow, borrow pit crossings to ensure that the full supply, of water provided at the outlet reaches the designated watercourses, anid essen- tial modernization works (to be undertaken by ID) in the parenrt channels to ensure adequate canal control. 1/ Especially in the Mahanadi Delta area, 1/ Particularly in the Mahanadi Delta area, large borrow pits generally n parallel to the canal on each side at the toe of the canal banks; at present, water from the outlets flows through the borrow pits unoon- trolled (unchannelled) to the watercourse offtaking from the other side of the pit. High water losses and unreliable chak water supplies result.  -15- demand for such works is growing, particularly in areas where land consolida- tion is complete, and farmers have shown a strong interest in crop diver- sification in favor of low water-using crops in the dry season, rather than having flooded paddy in both wet and dry seasons. Research, Development and Trainlng 3.11 The overall objective of this component would be to develop and test options for improving MIP and canal system performance capabilities, opera- tional effectiveness, and water delivery and use efficiency. The R&D com- ponent of the project would finance pilot activities, experiments and studies in support of this aim (Annex 1). It would also support new-recruit and in-service training for ID staff, and the establishment of a modest R&D and training facility Lor the Irrigation Department (ID), in coordination with the Water and Land Management Institute (para 5.27). In addition, special- ized training would be provided on watercourse design and construction, and on improved MIP operation and management. Incremental technical and key support staff for R&D and training as well as necessary office space and equipment, including up-graded computing facilities and essential vehicles, would be financed under the project. Modernization of the ID central design office, primarily through purchase of improved computing and other equipment and essential vehicles, would also be financed under the R&D component and would aim in part to help ensure speedy incorporation of R&D findings into planning and design work for NIPs. Similarly, strengthening of the ID quality control Unit (para 5.29), primarily through purchase of small equip- ment and essential vehicles would be financed under the R&D component. Although included in this project particularly with regard to MIPs, the R&D component is intended to help develop an effective and practical applied R&D program whichi would help serve the long-run needs of the State's irrigation sector in general. 3.12 Technical Services. A number of the R&D activities proposed under the project are of an experimenital nature for which specialist expertise available in India and elsewhere is extremely limited. Specialist technical services of individual short-term consultants estimated to total about 48 man-months during the project period would be provided through GOI following existing procedures under an ongoing UNDP water management grant (titled "Advisory Services for Modernization of Land and Water Schemes") which is administered by the Bank. Design and Implementation Medium Irrigation Projects 3.13 For all new MLIPs, and as much as possible for ongoing MIPs, construc- tion would be organized to ensure completion of canals and watercourses simultaneously with the dam and spillway for each MIP. To facilitate land acquisitlion as required for rapid completion of the distribution network, a complete and detailed survey of the CCA would be completed at an early stage for each new MI? and for ongoing MIPs for which the detailed CCA survey is not yet complete (para 5.14). Upon completion of each MIP's survey, GOO would provide a Certificate of Survey Completion certifying that the detailed CCA survey was complete and adequate for design and alignment of watercourses and minor canals as needed for both construction and land acquisition. Con- struction of the CCA distribution network for each MIP would be completed by  -16- chak or group of contiguous chaks (blocks). GOO would also provide Certifi- cates of Chak Completion for the relevant block or blocks of the CCA dis- tribution network for each MIP certifying completion to full operational status according to design standards, including land reclamation and con- struction of watercourses and field channels from the 5 ha turnout as neces- sary to serve individual farm holdings (para 4.12). The CCA (mainly canals, watercourses and drains) would be completed on a block-by-block basis, with regular irrigation supply initiated in each block only after it is completed. 3.14 It is essential that GOO concentrate its resources for implementation to ensure that the construction period of MIPs is reduced to an average of about five years. Accordingly, new MIPs would not be approved for financing under Orissa II until 10 of the ongoing Orissa I MIPs have been completed to full operational status at design capacity (para 4.12). 1/ Consolidation and OFD 3.15 The objective would be to begin OFD works as soon as possible after consolidation. Irrigation under improved distributary operational plans and RWS among farmers would begin immediately after completion of land consolida- tion and OFD, before farmers adopt undesirable water utilization patterns. The main problem is that at present GOO's consolidation capability (in area terms) is about three times greater than the present capability to implement OFD. One way to improve the balance between consolidation and OFD would be by slowing down the pace of consolidation, but this would reduce momentum and would be undesirable. The preferred alternative would be to increase GOO capability to implement OFD; this can be done gradually during implementation as increased experience with OFD is acquired. Implementation Schedule 3.16 The project would be implemented over a four-year period from April 1, 1983 to March 31, 1987 (Chart 24663). A detailed IDA mid-term review of the project would take place at the end of year two (March 31, 1985) to review performance in completing ongoing MIPs and timetables for completing new MIPs under the project. At that time, at least 10 of the MIPs presently under construction from Orissa I are expected to be completed (including Dumerbahal). Progress in completing these 10 ongoing MIPs in particular would be closely monitored by IDA and CWC review missions. No new MIPs would be considered by IDA for approval before March 31, 1985. Improved Operation and Water Management 3.17 A major objective of the project is to improve operation and manage- ment which would be an important consideration in designing the implementa- tion timetable for each MIP. To help promote improved performance and management of MIPs, assurances were provided by GOO that it would prepare and update periodically, using the latest time and cost estimates, time/activity schedules for each MIP showing inter alia key dates for the following activities: 1/ The 10 MIPs are Dumerbahal, Daha, Ramiala, Kaunria, Gohira, Remal, Pil- lasalki, Sarapgarh, Jharbandh and Talsara.  -17- (a) detailed survey and land acquisition for construction of canals and watercourses; (b) dam and head regulator(s); (c) spillway and gates; (d) main and branch canals; (e) distributaries and minors, completed by block of the MIP CCA; (f) watercourses down to 5 ha sub-chaks, completed by CCA block; (g) provision for some form of communication such as transport; (h) development of a detailed Management Plan; (i) early selection of the Assistant Engineer in charge of the MIP; (j) establishment of a Water Management Committee; (k) initiation of regular water deliveries in each CCA block; and (1) establishment of rotational water supply among farmers in MIP chaks, to be completed prior to regular water deliveries to each chak. 3.18 Detailed MIP time/activity schedules would take into account the need to maintain a balance in the progress of the various MIP works (i.e., between the dam and spillway and the canals and watercourses). Time/activity schedules would be completed by March 31, 1984 for ongoing MIPs, and prior to CWC appraisal in draft form for new MIPs. GOO has assured that construction of watercourses and other minor structures below the main canal in each MIP would be constructed and completed no later than six months after completion of the main canal and no later than 12 months after the completion of the dam/spillway complex in that MIP. 3.19 For land consolidation and OFD works, assurances were provided that time/activity schedules would be similarly prepared promptly and updated periodically by GOO showing inter alia dates for the following: (a) survey and design for land consolidation and OFD, based on distributary-wise implementation and the engineering require- ments of OFD works for efficient water delivery and use; (b) assessment of modernization needs for parent distributaries and channels to adequately serve OFD areas; (c) completion of land consolidation, OFD and parent channel modernization; (d) establishment of rotational water supply among farmers; and (e) provision of suitable operational schedules for distributaries and parent channels serving OFD areas.  -18- 3.20 Implementation would follow the criteria established under Orissa I as modified for Orissa II. Agreement has been reached that planning, design, construction, operation and maintenance of MIPs and OFD works under the project would be carried out in accordance with established technical and economic criteria. 3.21 The project would emphasize adoption of operational procedures designed to ensure efficient and reliable water supply in all MIPs and OFD areas financed under both Orissa I and II. Of particular importance are arrangements for water allocation among farmers. Experience has shown that if the appropriate water management and allocation system is not introduced from the initial stages, farmers, especially those located at the head of each channel, adopt undesirable water use patterns which are difficult to correct. Early establishment of efficient rotational water allocation requires that the distribution system be fully complete for operational units when irrigation deliveries commence. MIP operating procedures and organiza- tion patterns are described in para 5.10 and in SDV, Annex 4 and Annex 5. Agreements have been reached with GOO that it would: (a) for MIPs, begin regular irrigation deliveries to any chak only after appropriate rotational water allocation procedures have been established among the farmers of that chak, and in chaks where water deliveries have already begun, establish such pro- cedures by October 31, 1984;l/ and (b) for OFD chaks, establish appropriate rotational water allocation procedures within sixty days after completion of OFD works, and in OFD chaks completed under Orissa I establish such procedures by March 31, 1984. To assist in establishment of rotational water allocation among farmers, GOO has provided assurances that it would consider transferring responsibility for water allocation matters from the tehaildar (Revenue Department officer) to the appropriate ID officers. Resettlement 3.22 Orissa has suitable policies and programs for resettlement of persons displaced as a result of project MIPs. Resettlement policies and programs were implemented adequately during Orissa I, and would be continued under Orissa II. In general, the number of people displaced by MIP reservoirs is small because of the remote location of MIPs and because much of the flooded area is already government-owned. Displaced landowners are paid for their land which was acquired. Displaced families (land owners and landless) receive irrigated or unirrigated land and household plots according to statutory GOO guidelines. 1/ The term "regular" water refers to water supplied in a chak on which water charges are levied; Orissa's laws provide that such water be sup- plied to the chak one year after the first delivery of water to the chak.  -19- IV. PROJECT COSTS, FINANCING AND DISBURSEMENTS Project Cost Estimates 4.01 Estimated project costs, net of duties and taxes, would total Rs 1,328 M (US$140.6 M). This assumes one MIP essentially complete from Orissa I, completion of 14 MIPs ongoing from Orissa I, continuation of con- struction of three additional Orissa I MIPs which are now at an early stage of their construction, and initiation of construction on about six new MIPs under Orissa II. Detailed cost estimates are given in Tables 5a-g and sum- marized below: Project Cost Summary (Rs M) (US$ M) % of Total Local Foreign Total Local Foreign Total Base Costs Medium Irrigation Projects Ongoing MIPs 649.7 86.8 736.5 68.4 9.1 77.6 75 New MIPs 87.3 12.8 100.0 9.2 1.3 10.5 10 Sub-total MIPs 737.0 99.6 836.5 77.6 10.4 88.1 85 Command Area Development Land Consolidation 72.0 - 72.0 7.6 - 7.6 7 On-Farm Development 57.8 10.2 67.9 6.1 1.1 7.2 7 Sub-Total 1. 02 39 713T.7 1.1 14.8 14? Research, Development and Training 6.4 1.1 7.4 0.7 0.1 0.8 1 Total Base Costs 873.1 110.8 983.9 91.9 11.7 103.6 100 Physical Contingencies 143.5 21.1 164.5 15.1 2.2 17.3 17 Price Contingencies 166.0 21.2 187.2 17.4 2.2 19.7 19 Total Project Costs 1,182.6 153.0 1,335.6 124.5 16.1 140.6 136 ====T== =l== =-===== =-== ===== ===== === Note: Totals may not sum due to rounding.  -20- 4.02 Cost estimates are based on September, 1982 prices. Physical contin- gencies for MIPs were included at 20% for MIPs, reflecting the highly vari- able construction conditions (e.g. hilly and broken terrain) and costs which have been encountered in construction of MIPs. In addition, MIPs are generally located in remote areas, and it is difficult to obtain accurate preliminary survey data in such areas for cost estimates. Price contingen- cies account for about 14% of total project cost and are based on inflation rates of 8.0% for 1983/84, 7.5% for 1984/85, 7.0% for 1985/86 and 6.0% for 1986/87. Financing 4.03 The proposed IDA credit of US$105.0 M would finance about 75% of total project costs, including 100% of foreign exchange costs of US$16.1 M and about 71% of local costs. The IDA credit would be made to GOI on stand- ard interest terms over 20 years, including a five year grace period with a front end fee of 0.25%. To avoid interruption of work ongoing from Orissa I, the loan would include provision for US$6.0 M of retroactive financing of qualified project expenditures incurred on or after April 1, 1983. 4.04 The loan would be channelled through GOI to finance GOO development budget expenditures on the project (Table 6). IDA would reimburse against eligible State budget expenditures for all components. GOI and GOO would ensure a smooth and adequate flow of financing for project implementation. 4.05 An agreement has been reached with GOI that it would make the proceeds of the IDA credit available to GOO for the project in accordance with established procedures for GOI development assistance to the States. An agreement has also been reached with GOI and GOO that they would ensure adequate State budget resources and financing to implement the project over the four-year project implementation period. Procurement 4.06 Civil Works. Construction of MIPs in the project would cost about Rs 880.8 M (US$ 92.7 M), including physical and price contingencies but excluding land and engineering and administration costs, and would account for about 85% of the total project. The MIP construction program comprises mainly completion of ongoing works begun under Orissa I. Construction of MIP subprojects and works would be in comparatively small contacts, scattered, and located in remote areas. MIP contracts would average about Rs 5.0 M (US$0.5 M) and individually not exceed Rs 10.0 M(US$1.0 M). OFD works total about Rs 86.7 M (US$9.1 M), or about 7% of the total project. Individual OFD works are very small, averaging about Rs 28,000 (US$2,900), each at scattered locations in the commands of four major irrigation projects. Although pack- aging of works would be utilized whenever practicable, none of the construc- tion activities could be grouped into packages of a magnitude that would interest foreign bidders; therefore, no procurement of works under interna- tional competitive bidding (ICB) procedures is anticipated. However, works would be appropriately grouped to attract maximum competition, but because of  -21- the above mentioned constraints the bid packages would be of less than US$5.0 M each. These works would be procured under local competitive bidding (LCB) procedures satisfactory to IDA, in which foreign bidders would have the opportunity to participate. IDA reviewed and approved work-order type bid- ding procedures could be used on small contracts costing less than US$ 25,000 each, up to an aggregate of 10% of total civil works. Some works would be undertaken departmentally, up to an aggregate of 20% of total civil works. 4.07 Equipment and Vehicles. Equipment and vehicles totalling about Rs 16.8 M (US$1.8 M), including contingencies, would be grouped in appropriate bidding packages and procured by ICB in accordance with Bank/IDA Guidelines. Qualified domestic manufacturers would receive a preference in bid evaluation of 15% and bid documents would specify their eligibility and the manner of application of the preference. Because of existing servicing and spare parts facilities, considerable advantages would be derived from procuring locally manufactured light equipment and vehicles. Light equipment and vehicles estimated to total about Rs 7.6 M (US$0.8 M) are readily avail- able domestically. These goods would be procured under LCB procedures satis- factory to IDA, of contract size less than US$100,000 each. 4.08 Contract Review. All bidding packages for works estimated to cost Rs 5.0 M (US$0.5 M) or more, and all ICB packages for goods, would be subject to IDA's prior review of procurement procedures resulting in a coverage of about 70% of the total estimated value of works and 80% of goods procurement. The balance of contracts would be subject to random post review by IDA. 4.09 Standard Bid Documents and GOO Special Tender Committee. The Central Water Commission of GOI has recently developed model ICB and LCB bidding documents and procedures for both works and goods procurement. The model documents have been approved by IDA, and GOO would use them for procurement under the project. To speed procurement for MIPs under Orissa I, GOO has established for Bank/IDA projects a Special Tender Committee which meets once a month and which would be continued to assist procurement under Orissa II. Disbursements 4.10 Disbursement of the IDA credit would be made for: (a) 60% of civil works expenditures on MIP dams, spillways and head regulators; (b) 95% of civil works expenditures on MIP main and branch canals; (c) 95% of civil works expenditures on MIP distributaries, minors and watercourses;  -22- (d) 100% of the foreign expenditures on directly imported equipment and vehicles, and 100% of the ex-factory price of locally manufactured equipment and vehicles or 70% of cost for locally procured equip- ment and vehicles when the ex-factory price is unavailable; (e) 100% of expenditures on R&D and training, including R&D facilities, equipment, pilot projects, studies and experiments; (f) land consolidation at the rate of Rs 350 per hectare completed; (g) OFD works at the rate of Rs 460 per hectare completed; and (h) 95% of expenditures on civil works to improve the existing canal network serving OFD areas. 4.11 Disbursements against categories (a) through (e) would be fully documented, except for work undertaken departmentally and for individual payments of less than Rs 300,000 under civil works contracts and Rs 150,000 for equipment, instruments, vehicles, goods and materials which would be made against statements of expenditure itemized by project component (and individual sub-project for MIPs). Disbursements for CAD activities, categories (f) and (g), would be made against Certificates of Completion from the Inspector General of Land Registration for category (f), and from the Joint Director, Agriculture (CAD) for category (g). Statements of expendi- tures would be audited annually, and the audited statements would be sub- mitted to IDA once a year along with the audited accounts (para 4.14). 4.12 Construction of the CCA distribution network for each MIP would be completed by chak or groups of contiguous chaks (blocks). GOO would provide Certificates of Chak Completion for the relevant chak or group of chaks of the CCA distribution network for each MIP certifying completion to full operational status according to design standards, including land clearing and construction of watercourses and of field channels from the 5 ha turnout as necessary to serve individual farm holdings. Each Certificate of Chak Completion would indicate the percentage of total CCA completion as certified by the aggregate of all Certificates of Chak Completion for the MIP in ques- tion up to that date. All applications for IDA reimbursement under categories (a), (b) and (c) would be submitted by individual MIP and would be accompanied by copies of the latest Certificates of Chak Completion for any given MIP. Reimbursement under category (c) would be made only on the basis of completed chaks or groups of chaks. In addition, no disbursements on new MIPs would be made before March 31, 1985 and until MIPs financed under Orissa I are substantially completed (completion to full operational status at designed capacity of at least 10 MIPs). 4.13 Documentation of expenditures would be retained by GOO and made available for inspection by IDA review missions. The estimated implementa- tion schedule, estimated semiannual disbursement schedule, and proposed  -23- allocation of the loan proceeds are presented in Tables 7, 8 and 9, respec- tively. The estimated disbursement schedule is based on continued implemen- tation (without start-up period) at rates achieved in recent years under Orissa I. It is expected that disbursements would be completed by Decem- ber 31, 1987, about nine months after project completion. Agreement has been reached with GOI and GOO that the project would be implemented substantially in accordance with the estimated implementation schedule. Accounts and Audits 4.14 The project would be subject to normal Government control and audit- ing procedures which are satisfactory. A resident Audit Officer, repre- senting the State Accountant General, would audit the project accounts. Separate accounts would be maintained for project expenditures. Although continuous and annual audits are carried out in a timely manner, their finalization is a lengthy process in the Statutory Audit Report presented to the Legislature. It would be essential therefore to have interim certified statements of account including audited statements of expenditures. Such statements, certified by the Accountant General or his designee and supported by an itemized account and summary of expenditures, would be submitted to IDA as soon as possible after the end of each fiscal year. Agreements have been reached with GOO that they would: (a) maintain separate accounts for project expenditures; (b) ensure that such project accounts are audited annually and that copies of such accounts, certified as to their accuracy by an independent auditor acceptable to IDA, are submitted to IDA not later than nine months after the end of each fiscal year; (c) have final audits prepared for project accounts for each fiscal year by an auditor acceptable to IDA and forward such audit reports to IDA immediately after their finalization; and (d) make complete accounts and financial statements available for inspection during IDA review missions.  -24- V. ORGANIZATION AND MANAGEMENT General 5.01 Implementation arrangements for the project would generally follow the same pattern as in the ongoing Orissa I Project. Implementation would be the responsibility of the following specific GOO agencies (Chart 24659): Irrigation Department (ID) in the Irrigation and Power Department (I&PD) for MIP construc- tion and operation, training and R&D; Directorate of Land Consolidation in the Revenue Department for land consolidation; and the Directorate of Agriculture and Food Production (DAFP) in the Department of Agriculture and Cooperation for construction of OFD works. Intensified agricultural extension through the Extension Service under DAFP would not be financed under the project but would be provided as needed through the ongoing Orissa Agricultural Development Project (Cr. 682-IN) and its follow-up project. Project Coordination 5.02 To improve policy-level coordination and overall monitoring of the various agencies involved in the project, a high-level State Coordinating and Monitoring Committee (SCMC) chaired by the GOO Development Commissioner would be established by GOO. No such coordinating body was established under Orissa I. Better coordination is needed especially to deal with persistent coordination matters involving other agencies, such as land acquisition, and because of the strong emphasis under Orissa II on intensified agricultural extension and development in MIP and OFD areas. SCMC would meet at least quarterly and provide policy-level guidance and coordination, oversee monitoring of progress in physical and financial terms, and ensure adequate liason and prompt com- munication between the various agencies involved, GOO, GOI and IDA. SCMC would also help facilitate provision of staff, equipment and other requirements neces- sary for satisfactory performance of the project. ID would be the lead agency, and would be responsible for day-to-day coordination and monitoring work under the supervision of the ID Engineer-in-Chief who would function as the manager of the overall project. As an aid to management of the project, a strengthened management information and monitoring system would be developed. It would be designed to serve as a management tool for the Engineer-in-Chief, as well as a source of general progress monitoring data for SCMC. For MIPs, it would include monitoring of operations as well as construction progress. Agreements were reached with GOO that it would establish by August 31, 1983 and thereafter maintain a State Coordinating and Monitoring Committee chaired by the Develop- ment Commissioner. Agreements were also reached with GOO that it would estab- lish by March 31, 1984 and thereafter apply a management information and monitoring system for construction under the project and operation of MIPs. Medium Irrigation Projects 5.03 Irrigation Department. Primary responsibility for implementation of MIPs rests with ID. MIPs under the project would be planned, designed and constructed by ID, which also has responsibility for their operation and main- tenance (O&M) after completion. Responsibility for irrigation and drainage operation is with the Engineer-in-Chief, who reports to the Secretary for  -25- Irrigation and Power through the Deputy Secretary and Advisor (Chart 24788). The Engineer-in-Chief is assisted by ten Chief Engineers responsible for MIPs, Minor Irrigation, Flood Control and the Mahanadi Delta, Major Irrigation Projects (one Chief Engineer per project), and the headquarters Designs Office. Planning, Quality Control and Research (primarily for construction), and Dam Safety matters are also handled at headquarters under the direct responsibility of the Engineer-in-Chief assisted by Superintending Engineers. The performance of ID in construction of MIPs under Orissa I has been satisfactory. 5.04 To implement, operate and maintain MIPs, ID is organized on a geographi- cal basis with ten circles, each headed by a Superintending Engineer (Chart 24847, and Map 16878-inset). Each circle has four to five divisions, each headed by an Executive Engineer. A division consists of five to eight sub-divisions, each headed by an Assistant Engineer; below the sub-divisions are sections, each headed by a Junior Engineer. Generally, two to four sub-divisions have responsibility for investigations, minor works and O&M of existing projects within specific geographical areas. Special construction sub-divisions are set up for execution of larger works. For a typical 5,000 to 10,000 ha project, three or four sub-divisions are created; one or two for dam construction, one for construction of the distribution and drainage networks and one for operation and maintenance of the construction equipment. Respon- sibility for day-to-day operation of each MIP during construction rests with one of the sub-divisional Assistant Engineers (Chart 24848). After completion of the MIP one of the Assistant Engineers who worked on construction of the MIP is usually assigned to operate it for the next two or three years before his next rotation to a new assignment. Under the project MIP management would be strengthened by early designation of the particular Assistant Engineer who will be in charge of the MIP after its completion, and who will have responsibility to operate the MIP in accordance with the MIP Management Plan (para 5.12). 5.05 CWC and the Appraisal Committee. The Central Water Commission (CWC) is the highest technical authority for water resources development in India. It is responsible to the Ministry of Irrigation of GOI for providing technical advice on practically all fields concerning water resources, and for initiating, coor- dinating and monitoring irrigation development schemes throughout the country. CWC responsibilities include in particular technical review of all major and medium irrigation projects before they are submitted for approval to the Plan- ning Commission of GOI. CWC is a large and complex organization with a staff of more than 1,000 engineers, many of whom are on rotation from the States. The Commission itself consists of a Chairman and four members. 5.06 The Appraisal Committee (AC) of CWC was established in 1977 in connec- tion with Orissa I to undertake appraisal and progress monitoring (in addition to normal IDA supervision) of MIPs financed under the credit. It was given added responsibility for appraisal and monitoring of MIPs financed under the Gujarat Irrigation Project (Credit 808-IN) in 1978, and under the Madhya Pradesh Medium Irrigation Project (Credit 1108-IN) in 1981. As of September 30, 1982, AC had appraised 51 MIPs (18 under Orissa I, 23 under Credit 808-IN, and 11 under Credit 1108-IN). The operational arm of the Appraisal Committee is the Planning and Progress Wing (the P&P Wing) of CWC, headed by the Member, P&P. For the appraisal of any particular MIP, AC constitutes a team of high level officers representing the Planning Commission, the Ministry of Irrigation (GOI), CWC, and the Irrigation and Agriculture Departments of the State concerned.  -26- 5.07 The quality of CWC appraisal and supervision work has overall been adequate and has consistently improved during Orissa I. Present arrangements would be continued under the proposed project. However, the work required of AC is expanding, as is the importance of its role, and strengthening of AC staff support and capabilities for data handling and analysis is needed to help increase the efficiency and effectiveness of MIP appraisal and progress monitor- ing by AC for Orissa II and other medium projects. Procedures and analytical software designed to improve efficiency and more closely follow standard Bank/IDA practice for both appraisal and supervision work would be introduced with IDA assistance under Orissa II. Agreement has been reached with GOI and GOO that ongoing MIPs would be monitored and new MIPs would be appraised and monitored in accordance with agreed procedures (paras 5.08 and 5.09, and SDV Annexes 7 and 8). 5.08 Procedures for Medium Irrigation Projects. Interaction between AC and GOO would be continuous during the preparation, appraisal and construction of each MIP. The main activities in the project cycle, for both ne-w and ongoing MIPs as appropriate, would include identification, preparation, submission to CWC, appraisal, approval by IDA, and implementation; they would follow similar procedures as in Orissa I with several modifications. Project preparation reports for each new MIP would include a detailed draft of the MIP Management Plan (para 5.11) which would be evaluated in the course of CWC appraisal. Detailed designs for major structures (e.g., dams) would be completed prior to CWC appraisal. The CWC appraisal would include specific recommendations on actions needed by GOO for efficient implementation and operation, particularly concerning agricultural supporting services and marketing facilities in the MIP area; the economic analysis for the appraisal would not be based on norms (as under Orissa I) but would follow standard Bank/IDA practice. IDA prior approval would be required for all new MIPs to be financed under the project. Stronger and more systematic efforts would be made to involve farmers, at the design and construction stages and with operations. Implementation would be organized to ensure completion of canals and watercourses simultaneously with the dam and headworks. Procedures and activities under the project cycle are detailed in SDV, Annex 7. 5.09 MIP Progress Monitoring and Reporting. Under Orissa II, AC would con- tinue to closely monitor progress of project preparation, implementation and operation. Reports which would be prepared by AC for each MIP and submitted to IDA for review would include an "Annual Implementation Program", and "Progress Summaries" for Preparation, Implementation and Operation similar to Orissa I (SDV, Annex 8). In monitoring of implementation and operation of each MIP, AC would pay particular attention to development of a suitable Management Plan, early selection and assignment of the Assistant Engineer in charge of the MIP, establishment of the Water Management Committee, and establishment of rotational water allocation procedures among farmers; AC would also closely monitor application by ID of the MIP operations plan when the MIP begins operating. AC monitoring procedures would in addition check that relevant MIP Certificates of Chak Completion are prepared, and that construction of watercourses and other minor chak structures below the main canal in each MIP are completed no later than six months after completion of the main canal and no later than 12 months after completion of the dam, spillway and headworks. 5.10 MIP Operation and Management. Operational procedures for each MIP would be based on the following principles:  -27- (a) Farmers to be informed before the beginning of the rabi season of the amount and timing of water deliveries during the season; (b) Rotational (on-off) operation of the canal network during periods of scarcity and particularly in the rabi season; 1/ (c) Organized rotational water supply (RWS, or warabandi) to allocate water among farmers on each watercourse; (d) Closure of the system when specified amounts of rainfall occur after a certain date in the year (say September 1) or when the reservoir is not full (following the land preparation period for kharif season rice); (e) Monitoring and reporting of water flows at key points in the distribution network at least twice a day; and (f) Regular consultation with farmers for decision making in MIP management. 5.11 To ensure a high level of management in accordance with the principles mentioned above, the ID would develop for new MIPs and for each on-going MIP prior to completion a detailed "Management Plan". The Management Plan for each MIP would specify in detail inter alia: (a) organizational arrangements; (b) operational procedures including feedback from farmers; and (c) agricultural strategies to promote diversified crops and increased yields. Development of the Management Plan would involve the MIP farmers to be served and take into account their requests and suggestions, and it would include establishment of a Water Management Committee (WMC) at each MIP. A modest water management center building would be constructed at a central location and maintained by ID at each MIP for WMC and farmer meetings. The Plan would make a full use of reservoir operation studies carried out for each MIP and would be tested and refined on limited areas before completion of each MIP, as soon as water becomes available for irrigation. To facilitate the preparation of a detailed Management Plan for each MIP , a general model MIP Management Plan would be developed initially. Agreements have been reached that GOO would: (a) prepare and furnish to IDA by March 31, 1984 for its review and comment a model MIP Management Plan; and (b) for each project MIP apply a detailed Management Plan not later than six months before commencing of irrigation in the MIP or not later than September 30, 1984 for MIPs which have already started operation. 1/ The above principles of canal rotation and RWS are based on the operational concept of constant flow (rate) and variable time (duration); alternatively, operation could be based on variable flow and constant time or a combination of the two. While offering the possibility of increased efficiency, this would likely require considerably more sophistication in management and equipment, and strong discipline among both operating staff and farmers, which is likely to require considerable time to develop. It is expected that further improvements in management would be gradually introduced in the future as experience is gained.  -28- 5.12 Under the Management Plan, an Assistant Engineer in charge and the core operating staff for each MIP would be selected prior to its completion, and training would be provided on improved MIP operation and management procedures, staffing, timetables and work plans. The Management Plan would ensure that ID salaries and allowances are equivalent for MIP Assistant Engineers/operating staff and for construction staff, so that staff transferred to operations after MIP completion do not suffer a reduction in pay. The Assistant Engineer and his staff would be assisted by the Water Management Committee (WMC) which would be established for each MIP. The MIP Assistant Engineer would be the ex officio chairman of WMC, which would be comprised of farmers representing head, middle and tail areas of the CCA, relevant GOO officers (e.g., extension workers, local tehsildar, etc.), and the chairman of the local elected body (Panchayat Samiti). WMC would encompass and supersede with broader responsibilities the water allocation committees specified for each MIP under Orissa I. Guidelines for Management Plans and establishment of WMC are given in SDV, Annex 5. Agreement has beeen reached that GOO would: (a) maintain a suitably qualified Assistant Engineer at each project MIP with responsibilities and functions as needed for efficient management of the MIP; and (b) establish and thereafter maintain at each project MIP a WMC, with membership to include inter alia the MIP Assistant Engineer, representatives of Orissa's concerned departments, and farmers repre- sentatives including the Chairman of the local elected body (Panchayat Samiti). Assurances were provided by GOO that selection of farmers for WMC would take into account that such farmers are direct beneficiaries of the MIP, selected from representative areas of the CCA and appointed for fixed terms, and that periodic meetings would be held at the MIP to invite views from the farmers. 5.13 Organization of farmers at each MIP into a water user association could greatly assist in facilitating cooperation between farmers and representing the interests of water users. At present, however, GOO/ID have no experience in establishing or working with such organizations. Such farmer associations could provide the organizational linkage between WMC and the farmers served. The primary tasks of a water user association would particularly concern water allocation, maintenance and maintenance monitoring, and conflict resolution; it could also assist in mobilizing local resources and support to assist the project. Local watercourse committees of the association would help monitor and enforce allocation of water in accordance with rotational water supply (warabandi) principles to be established among farmers. The R&D Cell under the project could help in developing the most effective approach to establishing farmer water user associations through, for example, studies and preparation of model enabling legislation and Articles of Association especially designed to promote water user associations. GOO has assured that in order to gain experience with increased farmer participation at MIPs, it would design and undertake a pilot study on the feasibility of farmer participation in the water distribution system. 5.14 Land Acquisition. Delays in land acquisition for canal and watercourse construction have been a major cause of delay in completing MIP minor distribu- tion systems. GOO has recently taken a number of steps to expedite the process of land acquisition, including frequent progress reviews by higher level officers, appointment of special land acquisition officers, delgation of specific land acquisition powers, and instructions to give priority to land acquisition for NIPs and dispense with the maximum mandatory period for advance notice. To further facilitate land acquisition, agreement has been reached that GOO/ID would carry out a detailed survey adequate for land acquisition and  -29- aligning canals and watercourses not later than six months prior to carrying out of construction works in MIPs. Agricultural Intensification for Medium Projects 5.15 For MIPs under the project, strengthened agricultural extension, along with increased agricultural supporting services and market facilities, would be of primary importance. Increased agricultural extension is necessary to promote adoption of modern agricultural and water management practices and irrigation of diversified crops among traditional, rainfed farmers. Agricultural extension is the responsibility of DAFP (Chart 24662). Schedules and requirements for staffing and training and visits of DAFP Village Agricultural Workers (VAWs) under the ongoing T&V extension project would be coordinated with MIP opera- tional schedules and detailed in the Management Plan for each MIP (para 5.11). To provide adequate extension coverage for newly irrigated MIP areas would require an estimated doubling of the intensity of VAWs and corresponding super- visory staff, with one VAW serving about 300-400 farmers instead of some 600-800 as at present; this would require a small (about 1.5X) increase in VAW staff strength overall in the State. The increased extension staff intensities above are in line with guidelines specified for the T&V system in irrigated areas for special cases. Areas assigned to VAWs would be by watercourse or groups of watercourses, and matched as closely as possible to coincide with areas of responsibilities for relevant ID MIP operating staff and with the farmer organizational units (e.g., chak farmer groups for RWS). VAWs and Agricultural staff would assist in training MIP farmers and farmer leaders on organization procedures and techniques to promote establishment and efficient operation of RWS. Support for extension intensification as above for the project (with increased field staff strength) could be provided under the ongoing Orissa Agricultural Development Project (Cr. 682-IN) and its successor. Agreements have been reached that GOO would take all action necessary to strengthen its agricultural extension and supply support for carrying out the project, includ- ing adequate supply of production inputs, agricultural credit, and market facilities six months prior to completion of each MIP. Command Area Development 5.16 Command Area Development Organization. Command Area Development (CAD) comprises such activities as construction of field channels and drains, O&M and minor improvement works for irrigation systems, land consolidation, and develop- ment of agricultural supporting services. These activities are the respon- sibility of different agencies and departments. To help provide the coordina- tion and monitoring needed for their success, GOO constituted in May 1976 three Command Area Development Authorities (CADAs) covering the four largest irriga- tion project command areas in the State -- Hirakud, Salandi and Mahanadi Delta Stages 1 and 2; land consolidation and OFD under the project would be in these four major project areas. 5.17 The CADA organization extends from the GOO cabinet level down to village committees. Each CADA is chaired by Divisional Revenue Commissioners and administered by a Project Director. CADA acts primarily as a coordinator and has essentially no staff or resources of its own for implementation purposes. However, it does have the power to direct, subject to broad guidelines estab- lished by GOO, the manner in which programs relating to CAD activities are executed. The CAD Commissioner functions as the inter-departmental coordinator  -30- at the State level. Administrative responsibility for CAD programs falls under DAFP. 5.18 Directorate of Land Consolidation. The Directorate of Land Consolida- tion, which has responsibility for land consolidation, is under the Revenue Department and headed by a Director. The basic operating units are consolida- tion camps (normally covering 2,000-2,500 ha of consolidable area) cons'sting of an Assistant Consolidation Officer, one surveyor and two consolidators. Each camp is responsible for cadastral surveys, field inquiries for determination of land values, preparation of land records and maps, delineation of consolidated plots, and allotment of plots to landowners. About five to eight camps con- stitute a consolidation circle which is headed by a Consolidation Officer who supervises the work of the camps and has power to resolve disputes concerning allotment of land and determination of land values. About three circles con- stituite a range, headed by a Deputy Director, Consolidation, who has jurisdic- tion over appeals made by landowners. The Director of Consolidation has overall administrative control and supervision responsibility. The Consolidation Com- missioner, who is responsible for the formulation of the program, has final jurisdiction over the appeals made by farmers against decisions of lower con- solidation authorities. Budgetary provisions to finance land consolidation work come from the Revenue Department. 5.19 A special feature of the consolidation process is the involvement of the village community at all stages. A Village Consolidation Committee, includ- ing at least one landless agricultural laborer, one representative of each category of land owners and one person from Scheduled Castes and Tribes, is constituted for each village camp. The Committee advises consolidation officers on matters such as determination of land values and allotment of consolidated holdings in the CCA of the village. 5.20 The consolidation process is lengthy since ample provisions are made for objections and appeals by farmers concerned at each stage in the process. Completion of consolidation takes about 30 to 36 months. In order to prevent future fragmentation of consolidated plots, the Land Consolidation Act prohibits transfer of ownership for holdings less than one acre to anyone except to an adjoining farmer. 5.21 Agricultural Engineering Organization. The Agriculture Engineering Organization (AEO) of DAFP, is headed by the Joint Director of Agriculture, Engineering, and has responsibility for the implementation of OFD works (Chart 24661). To implement OFD works under Orissa I, AEO established four Divisions for topographical surveys, alignment of field channels and drains, preparation of cost estimates and supervision of on-farm works carried out by small contrac- tors. Each Division is headed by an Executive Engineer, assisted by four Assis- tant Agricultural Engineers and 16 Junior Agricultural Engineers. AEO has staff with training in both agriculture and engineering and experience in planning, design and supervision of OFD works. It has a substantial orngoing programL for OFD development, of which Orissa II would finance a part. 5.22 Operation and Maintenance of OFD Works. Operation and maintenance of OFD works and water allocation within each chak is the responsibility of the farmers. With paddy rice which has been the primary irrigated crop in the past, OFD works are minimal and water allocation is not an issue because water flow to each field is small and continuous. However, development of suitable water  -31- allocation procedures is essential for diversified crops. This has been done successfully in India through rotational water supply (RWS) among farmers or groups of farmers on each chak, most notably the warabandi system in northwest India. The Village Consolidation Committees established for land consolidation provide a ready stepping stone for the development of cooperation within farmer groups at the chak level, which is essential for water allocation under RWS. Farmer chak committees and RWS water management procedures would be established in OFD areas upon completion of OFD works. Research, Development and Training 5.23 Research and Development. To handle the additional workload under project R&D and training programs, a special R&D Cell would be established under the project (Chart 24788). The R&D Cell would assist the Engineer-in-Chief of the Irrigation Department, and would be headed by an officer of at least Super- intending Engineer rank assisted by sufficient senior staff to oversee work and activities in several broad areas, including irrigation engineering, design and technology, agro-economics, farmer organization, management information and monitoring, and training. Senior R&D staff would be multidisciplinary and would include irrigation engineers, agriculturalists, agricultural engineers, and agricultural economists. The R&D Cell would plan, design, arrange and monitor R&D pilot projects, experiments and studies under the project, and would plan and arrange training programs for ID and related staff. In general the R&D Cell would implement R&D studies and training activities through other organizations, institutions and consultants on a contract basis, although it would undertake such activities on its own or through ID staff if necessary. It would have specific responsibility to oversee and coordinate the technical content of pilot project work undertaken by MIP circle staff working on pilot projects, studies and experiments. It would also assist in the design of an improved management information and monitoring system for the project (para 5.02), and organize and undertake evaluation work for the project. 5.24 In addition to the R&D Cell, a technical-level R&D Technical Advisory Committee would be formed. The Chairman of the Technical Advisory Committee would be the Engineer-in-Chief, Irrigation. The Committee would comprise senior GOO officers from ID, DAFP, engineering and agricultural universities, and other organizations and agencies as needed and related to the R&D and training work program. The purpose of the Technical Advisory Committee would be at the tech- nical level to help advise, guide, monitor and support R&D and training efforts. The Technical Advisory Committee would report on a regular basis through the Engineer-in-Chief to the Secretary, Irrigation. Agreements have been reached with GOO that it would: (a) establish by March 31, 1984 an R&D Cell with responsibilities, functions and staffing as required; (b) form the R&D and Training Technical Advisory Committee with appropriate functions, respon- sibilities and membership by June 30, 1984; and (c) prepare and furnish to IDA by September 30, 1984 for its review and comment work plans and schedules for R&D and training activities under the project. 5.25 In order to help implement demonstration, pilot project, farmer organization, and R&D activities, each MIP Circle which has such activities under its responsibility would be strengthened by ID as necessary. The local Superintending Engineer would oversee implementation of R&D activities in his circle, and ensure they are implemented in accordance with agreed plans and specifications. Funding levels for each circle for R&D work would be determined  -32- by the R&D Cell on the basis of work plans and schedules; arrangements for funding R&D activities in each circle would follow patterns already established for financing MIPs. The local Superintending Engineer would ensure adequate coordination with relevant Divisions in the Circle. MIP Circle staff with guidance by the R&D Cell and supervision by the local Superintending Engineer would also undertake R&D-related field work for organizing, establishing and supporting farmer associations under the pilot components, and would provide follow-up guidance, support and monitoring as necessary for MIP farmer organiza- tions developed under the project. 5.26 Manpower Development. The project would finance the development of a specialized training program for manpower development in ID for new recruits and more senior irrigation staff. Irrigation engineers in Orissa (as in the other States of India) are basically educated as civil engineers and generally oriented toward construction. Their formal training provides little background on hydraulics, agriculture, or irrigation, or on management of irrigation sys- tems, and most learn their irrigation engineering on the job from their supe- riors who were also not trained in irrigation engineering. In addition, because their training is primarily in construction, even those engineers with a strong interest in operations and management often find little to guide them. 5.27 The overall aim of the training program under the project is to provide ID civil engineers with more background and information on hydraulic and irriga- tion engineering and in irrigated agriculture and irrigation management and operations. A major objective is to begin developing within ID a professional cadre of irrigation engineers and managers who would specialize in irrigation operation and management, starting especially among the new recruits who generally have little exposure to modern irrigation, hydraulics, agriculture or management science in their formal training. This would be done through a specially designed training program of about four months for new recruits and a series of short-course seminar and workshop programs for middle and senior level engineers. These training programs would be organized by ID, and would be coordinated and integrated with the development of the Orissa Water and Land Management Institute (WALMI) to be established by September 30, 1983 under the Subernarakha Irrigation Project (Cr. 1289-IN); WALMI would focus primarily on training junior, field-level staff. Training programs would cater to the needs of both ID and (as necessary) CAD engineering staff and would include special- ized training for ID staff on the improved design and management practices to be carried out with MIPs under Orissa II. Special training programs would also be developed and provided to MIP farmers on RWS, MIP operations, organizational procedures, etc. 5.28. The program would provide ID in-service training for up to about 125 engineers annually and ID orientation training for about 20 engineers annually. Cost estimates include funds for fellowships for train;ees and specialized study tours for ID professional staff. Quality Control and Dam Safety 5.29 Quality control, while generally adequate, has been weak in certain areas such as compaction of canal banks. In addition, it has not generally been related to the design standards for irrigation performance of the facilities provided in terms of operational requirements. ID has a quality control unit headed by a Superintending Engineer, reporting to the Engineer-in-Chief. Under  -33- the project, ID would also undertake "operational" quality control of MIPs in terms of irrigation performance criteria. For example, all watercourse outlets are to be installed and calibrated for design discharge at canal full supply level (FSL). Outlets and direct outlets would be checked to ensure that actual discharge matches design specifications. Watercourse alignment and capacity, canal regulation facilities, measuring devices, roads, etc. would be similarly checked to ensure they meet the operational design specifications and require- ments. Operational quality control checks would be undertaken for each com- pleted block of an MIP prior to commencement of regular water deliveries to that block. The scope of quality control of works undertaken by ID covers MIP dis- tribution systems down to the sub-chak turnout. Project funding for strengthened operational quality control, including vehicles, is included under the R&D component. Agreement has been reached with GOO that it would take all action necessary to ensure quality control in respect of design, construction and maintenance of MIPs. 5.30 To ensure the safety of MIP dams under the project, GOO has constituted an independent panel of technical experts to undertake periodic and comprehen- sive reviews of plans, designs and construction of new MIP dams and associated structures, as well as to review the design, operation, maintenance and safety procedures and make periodic safety inspections for MIP dams after construction. This is the same Dam Safety Panel as required under the Upper Indravati Power Project (Cr. 1356-IN/Ln. 2278-IN), and its scope would cover Orissa I and II MIP dams. For each new MIP, results of the Panel's reviews would be considered in the CWC project appraisal. The Panel would submit to IDA and CWC annual reports summarizing the results of their reviews and inspections. Agreements have been reached with GOO that it would: (a) maintain its existing Dam Safety Panel of experts to review the plans and design of project MIP dams and related struc- tures; (b) cause the Panel to conduct periodic reviews of such dams and related structures during design and construction; and (c) cause dams and related struc- tures constructed under the project to be periodically inspected in accordance with sound engineering practice to determine if any deficiencies exist in their condition or in the quality and adequacy of their maintenance or methods of operation which may endanger their safety. Monitoring, Evaluation and Reporting 5.31 The R&D Cell would help design the monitoring and evaluation (M&E) system for the project. Strengthened monitoring would be done through the existing ID monitoring system; evaluation would be the responsibility of the R&D Cell. The M&E program would be designed in conjunction with the improved management information and monitoring system for the project (para 5.02) and AC review procedures. Quarterly progress reports would be prepared and include in particular analysis of implementation progress relative to established tar- gets, actual costs relative to estimated costs, growth of agricultural benefits, and development of RWS and farmer participation at MIPs. In addition, the R&D Cell would undertake on its own or through contracts with other organizations studies as needed to adequately monitor progress and evaluate benefits.  -34- VI. AGRICULTURAL PRODUCTION AND COST RECOVERY Agricultural Impact 6.01 Irrigated Area and Yields. In the MIP project areas, present crop production levels are relatively low and reflect the limitations of rainfed agriculture. Without irrigation, low paddy yields are likely to continue indefinitely, and cultivation would be limited mainly to the kharif season with annual cropping intensity levels of about 85% (Table 10). Cultivation practices based primarily on subsistance agriculture would continue, with little hope for significant improvement in the future. 6.02 Completion of ongoing MIPs would add about 108,000 ha of new irrigated CCA, which would have an annual irrigated cropping intensity of about 137X. New projects expected to be started under the project would serve an additional 30,000 ha of new CCA. Yields and production in the areas served would increase significantly, due to the supply of irrigation water and the changes in farming techniques which would be made possible by assured supply of water. Reliable and predictable water supplies would induce investment in cash inputs and land improvement, enable productive cultivation of diversified crops in the dry season, and significantly reduce farmers' risks. 6.03 The main changes in cropped area and yields expected at full develop- ment of the ongoing MIPs are summarized as follows (Table 10): Without Project a/ With Project b/ Cropped Area ('000 ha) Kharif ('000 ha) 68.9 102.6 Rabi and Perennials ('000 ha) 24.7 69.1 Total 93.6 171.7 Yield (t/ha) Paddy (HYV) 1.6 3.2 Groundnut 1.5 2.1 a/ All rainfed; excludes scrub vegetation areas. b/ Area includes rainfed. 6.04 Benefits from CAD investments would be primarily from increased cultivation and irrigation of diversified crops in the dry season and from increased productivity due to consolidation. Irrigation intensity in CAD areas at full development would total an estimated 170% in the coastal areas  -35- and 159% in non-coastal areas compared to the present intensity of 153% and 140% respectively (Table 10). 6.05 Production and Value. Farmers in MIP areas have essentially no experience with irrigation and water management, and little exposure to modern agricultural practices. However, most have experience in cultivation of rainfed, flooded paddy in the kharif season, which would facilitate rapid development of irrigated paddy in MIPs. Experience with ongoing project MIPs indicates that farmers begin cultivating paddy as soon as water is made available. Adoption of irrigated diversified crops, however, would be slow especially since traditionally such crops have generally been cultivated only under rainfed conditions, and only on a subsistance basis if at all. Farmers in CAD areas have more experience with irrigation, although their experience is primarily with paddy rather than diversified crops. At full development, the project is expected to generate the following incremental production and value based on 1982 financial prices (Tables 11 and 12): 1/ MIPs CAD Crops 000 tons Rs M '000 tons Rs M Paddy 80.0 125.6 59.1 92.8 Wheat 33.7 59.0 7.2 12.6 Maize 1.9 2.2 0.2 0.2 Mustard 4.9 20.6 0.3 1.3 Groundnut 20.1 73.8 6.5 23.9 Pulses 7.0 20.2 3.1 8.9 Total 301.4 139.7 Market Prospects 6.06 Foodgrain production in Orissa changes from year to year depending on weather conditions, varying overall from a position of moderate surplus to deficit. Irrigation investments under the project will help to stabilize production and meet the demand during years of poor rainfall (usually every second or third year). In addition, India as a whole is expected to remain marginally self-sufficient in foodgrain production. Market prospects for rice, the major foodgrain produced under the project, are therefore good. Similarly, among diversified crops, oilseeds in particular have a ready market. Groundnut is the most important oilseed crop in Orissa, and its production has increased rapidly during the last decade or so. Marketing channels for groundnut and other oilseeds are well established, and about 75% of oilseed production is exported from the State. For pulses, another impor- tant diversified food crop, about 60% of farm production is marketed. In general the State's agriculture market system is adequate to handle increased market arrivals as a result of the project. However, in some MIP areas, established markets may not exist or may be poorly developed. GOO would take steps as needed to ensure that adequate market facilities are available to serve each MIP (para 5.15). 1/ Estimates are for total incremental crop production from MIPs, since it would be arbitrary to separate the incremental production from MIPs between Orissa I and Orissa II.  -36- Water Charges and Operation and Maintenance 6.07 Water charges in Orissa have-historically been very low, in large part due to the generally low paying capacity of Orissa farmers. Water charges are levied on a per hectare basis and comprise a compulsory basic rate plus an additional charge by crop. The compulsory basic water rate is in effect a kharif paddy rate and is levied for every hectare under command. It varies from Rs 10/ha to Rs 40/ha depending on the class of irrigation service (class depends mainly on whether or not a project has reservoir storage); for MIPs the compulsory rate is Rs 40/ha. The water charge by crop (primarily for rabi crops) is levied on a per hectare irrigated basis. A review by GOO of water charges (stipulated under Orissa I) was completed, and in September 1981 GOO decided to raise water charges; the compulsory charge was doubled, and crop-wise rates were increased by 50%. This repre- sents a considerable achievement for the State and fully meets the require- ments specified in Orissa I. The changes in crop water charge rates were published for official use in March 1982 and are shown below per crop for principle MIP crops: Crop Water Charge (Rs/ha) Crops Old New Sugarcane 68 101 Paddy - rabi 60 90 Vegetables 30 45 Wheat 23 34 Groundnut 19 28 Jute 11 17 Mustard 7 11 Pulses 7 11 6.08 For a typical cropping pattern under project MIPs (paddy in kharif and diversified crops and paddy in rabi), the water charge would total about Rs 68 per irrigated hectare. The present policy in India as recommended by GOI's Seventh Finance Commission (1978) is that water charges should aim to cover working expenses plus one percent annually of investment costs for the Government irrigation system.l/ Expenditures required for adequate operation and maintenance (O&M) of MIPs are estimated at about Rs 90-100/ha annually, well above water charge rates even at the recently revised levels. Water charge collection rates are currently about 64% and have trended upward in recent years. 6.09 Little or no direct connection exists between water charges (or increased water charges) and O&M expenditures incurred. Water charges are collected by the Revenue Department and go to the State Treasury as part of general tax revenues. The level of expenditures allocated for O&M of irriga- tion projects is a separate budgetary decision. In general, water charges are treated as a tax, rather than as a charge for providing a service. 1/ See "Economic Situation and Prospects in India", IBRD, May 1982, p. 126.  -37- 6.10 To meet the improved performance standards specified under the project, adequate O&M is essential. Under the project a water charge and O&M study would be undertaken. The study would review and analyze the level of actual expenditures on O&M for existing MIPs, expenditures required for adequate O&M of MIPs constructed under the project, the status and level of water charge collections under present practices, possibilities for identify- ing and handling O&M expenditures and water charge receipts for each MIP as a separate item in the State budget process, alternative water charge systems (including volumetric water charges), and possibilities for organizing farmers at project MIPs to purchase water and help improve water charge collections. The study would include recommendations based on its findings. 6.11 Agreements have been reached that GOO would: (a) undertake by March 31, 1984 a study on the appropriate water charge system with the objec- tive of covering full operation and maintenance costs and a reasonable por- tion of capital costs, and on measures to improve collection of water char- ges; (b) furnish to IDA by December 31, 1985 the water charge study, and thereafter implement the recommendations of the study, taking into account the IDA's comments and having regard inter alia to the incentives and repay- ment capacity of farmers; (c) in the interim, review water charges in the light of the Eighth Finance Commission recommendations; and (d) until recom- mendations of the water charges study are implemented make annual budget allocations adequate to meet O&M expenditure requirements for project MIPs. GOO also assured that its Standing Water Rates Review Board would provide its review of the Eighth Finance Commission water charge recommendations by March 31, 1985; it is estimated that the interim increase in water charges should be such as to achieve an average of about Rs 80-85 per irrigated hectare for a typical MIP, and this would be reviewed by the Board. GOO further assured that it would follow the recommendations of the Eighth Finance Commission, which has already been constituted by GOI and is expected to report (including recommendations on adequate budget allocations for O&M during the coming Seventh Plan period) by November, 1983. Estimated Cost and Rent Recovery 6.12 The average cost of MIPs would be about Rs 9,690/ha in net present value terms. The annual charge for full recovery of capital costs over 30 years at 12% would amount to about Rs 1,200/ha per year. The estimated annual O&M cost is about Rs 90-100/ha and the total annual cost would thus amount to some Rs 1300/ha, which is far more than the estimated annual water charge as above from a typical irrigated hectare. However, increased tax revenues from other sources as a result of MIP investments would be substan- tial. 6.13 The land revenue assessment, which depends on the soil type and the location of the plot, averages about Rs 20 per ha for irrigated land. Large farmers owning more than 10 ha of irrigated or 20 ha of unirrigated land are subject to a graded producer's levy. More important, however, is the sales tax on agricultural goods. Paddy purchased by millers and wholesalers is taxed at 7%. Rice that has not been taxed as paddy is taxed at 3%; other foodgrains, pulses and oilseeds are taxed at 3%. If it is assumed that all the incremental production due to the MIPs would be marketed, the increase in  -38- average tax receipts as a result of project MIPs would amount to about Rs 196 per ha annually. 1/ 6.14 Based on estimated incremental income and costs, estimated annual project rent at full development would be Rs 2410/ha for MIPs and Rs 1408/ha for CAD works (Tables 13 and 14). Considering water charges, land revenue, market fees (3%), and rice mill taxes (7%), recovery of estimated project cost and rent would be as follows (Tables 17a and 17b): 2/ Rent Cost Recovery % Recovery % MIPs 27 22 CAD 20 68 Total Project 25 36 6.15 Despite various efforts to increase Government revenues, Orissa has one of the lowest taxation rates in India, and the States's per capita tax revenue ranks 17 among the 21 States. Payment capacity for higher taxes is, however, severely limited. The average per capita income in Orissa ranks 16 among the States. Rural per capita income in Orissa has been virtually stagnant in recent years, and Orissa has a larger portion of its rural population below the poverty line than any other State in India. 6.16 Low and uncertain benefits from irrigation projects as presently designed and operated, combined with the small size of holdings and generally low level of agricultural productivity and income, have been major reasons for low water charges. With improved project design standards and better management, farm incomes are expected to increase significantly. However, these benefits (and thus the ability to support higher water charge payments) would not be fully realized until the early 1990s. Because of the sig- nificant differences anticipated in farm income and economic rent for farmers in irrigation projects under traditional standards compared to projects under the Orissa II standards, careful analysis is needed of the ability of farmers to pay water charges before an improved and feasible cost recovery plan can be finalized. 1/ Neglected here is the "tax" collected (primarily from larger farmers who have more marketable surplus) through the requirement that paddy traders or millers sell a portion of their paddy at the below-market procurement price. The procurement price averages about 85% of the market price, and on average about 1.5% of paddy production is procured. 2/ Water charges and other government receipts as a result of the project are expected to increase over time. Rent and cost recovery calculations assume that Orissa will gradually increase water rates and other charges to recover about 30% of annual project rent at full development early in the next decade. Experience in other Indian States indicates that rent recovery on the order of 30% is achievable.  -39- VII. ECONOMIC ANALYSIS AND JUSTIFICATION Project Impact 7.01 General. The project is expected to directly benefit some of the poorest areas of India through increased agricultural production and generally enhanced economic development prospects. Through expanded area under irrigation and increased productivity of existing irrigated land, the project would increase foodgrain production and provide additional year-round employment opportunities to landless laborers and small farmers. These benefits would improve the welfare of Orissa's rural people who are among the poorest in India. In addition, general economic prosperity depends heavily on agricultural performance, which is generally low and highly variable due to the vagaries of the monsoon. Increased irrigation would raise and stabi- lize agricultural production, and contribute to overall economic progress in the State. 7.02 The project would result in institutional strengthening and develop- ment in the irrigation sector. Organizational arrangements introduced under the project to improve local capabilities for project planning, design and implementation would produce technically better irrigation projects. Improved management and operational procedures for MIPs, closely integrated with the promotion of positive farmer participation and specifically designed and targeted support for agricultural intensification, would aim to enhance the technical and economic achievements and viability of irrigation project investments. Support of a systematic R&D and manpower development program aimed at strengthening both technical and institutional capabilities would provide the basis for continued upgrading of performance in the irrigation sector in the future. 7.03 Production and Employment Impact. Investments in MIPs and CAD would at full development directly increase the value of crop production in the State by about Rs 440 M 1/ (US$46 M) annually. MIPs and OFD under the project would directly benefit some 100,000 farm families; an additional 110,000 farm families would benefit from land consolidation. Project con- struction activities would generate about 19 M man-days of construction employment over the four-year project period. In addition, as a result of increased irrigated area, farm employment would expand by about 9 M man-days. The largest share of these benefits would arise from construction and opera- tion of MIPs. The project is also expected to produce substantial secondary benefits for general economic development in the interior areas of the State which are among the most backward in India. 1/ Including grain, oilseeds, pulses and lentils.  -40- 7.04 Poverty Impact. At present the average per capita income of farmers in the MIP areas is only about 20% of the average per capita income for India. The introduction of MIPs would significantly reduce the incidence of poverty. Under the project, net farm income in MIP areas would increase on average from about Rs 980 per ha at present to about Rs 4,000 per ha at full development. OFD works, while located in some of the State's most prosperous areas, would benefit most the tail-end farmers who have in the past suffered from insufficient and unreliable water supply because of their location. Net farm income in OFD areas is expected to rise from about Rs 1960/ha at present to Rs 5780/ha at full development. An estimated total of about 35,000 farm families (210,000 individuals) in the project areas would move out of the poverty classification as officially defined (annual per capita income less than Rs 840). Economic Analysis 7.05 Main Assumptions. The assumptions used in the economic analysis are detailed in Annex 2 and summarized below: (a) Prices and Conversion Factors. Agricultural output was valued on the basis of IBRD projected average 1990/95 world market prices expressed in 1982 currency values with adjustments for freight handling and processing. The financial prices of non-traded cost and benefit items including labor have been adjusted by by appropriate conversion factors to bring them to the same price basis as for traded items. (b) Without and With Project Situation. No substantial changes in production and income levels are expected in the MIP area without the project (i.e., under rainfed agriculture). The projections for the "without" and "with" project situation were based on field surveys, district yield statistics, data from research stations and extension staff estimates. The benefits and costs of MIPs under Orissa I and II were not separated. (c) Capital Costs. MIP capital costs include sunk costs for each MIP. They were adjusted by the CCF with the sunk cost brought to September 1982 price levels using the Indian Wholesale Price Index. For CAD, the cost of modernization of existing irrigation systems in both the coastal and non-coastal areas as well as land consolidation and canal improvement was included. (d) Build-up Rates. In the case of MIPs "full development" stage is assumed to be reached in year 5 for cultivated areas and year 8 for scrub areas. In the case of OFD areas, full development is expected at year 6.  -41- 7.06 Economic Rate of Return. The economic rate of return (ERR) for the project, including sunk costs for MIPs begun under Orissa I, is estimated at 19% for the project as a whole. It would be arbitrary to separate the benefits and the costs of Orissa I and II. Substantial investments have been made in MIPs under Orissa I, and a number of MIPs are nearing completion. The bulk of project investments under the proposed project would be to com- plete ongoing MIPs. Because of the large sunk costs already incurred, the expected return on investments under Orissa II alone would be very high, and investments to complete ongoing MIPs are therefore clearly justified. ERR calculations, including sunk costs for individual MIPs, are detailed in Table 19. The results of ERR calculations for the project (including MIP sunk costs) are summarized below: ERR MIPS ( Completed (1) 15 Partially Operational (11) 13 Starting Construction (6) 16 New (6) 16 Average (weighted) 14 OFD Coastal Areas 48 Non-coastal Areas 47 Average 48 Project 19 Sensitivity Analysis and Risks 7.07 Agricultural production in the project area is highly sensitive to variations in weather, and in particular to the quantity and timing of rain- fall. Increased irrigation under the project is expected to reduce the impact of weather variations as well as raise production levels. However, poor rainfall and weather even with the project could adversely affect the economic viabilty of the project by reducing benefits. Further, additional cost overruns and delays could occur. The overall sensitivity of project MIPs to cost and benefit uncertainties was analyzed using switching values discounted at 12% over 30 years. The relevance of the sensitivity analysis results for costs depends on the amount of construction work already com- pleted relative to amount remaining to be completed; the risk of additional large cost overruns and delays is significantly greater in MIPs recently appraised than in MIPs nearing completion. Sensitivity analyses in terms of switching values for MIPs representing three cases (completed, partially completed and starting construction) are presented below (detailed calcula- tions are shown in Table 19 and Annex 2):  -42- Appraisal Switching Change Variables Tested Value Value % Completed (Dumerbahal) Net Incremental Benefits (RsM) 40.4 23.5 -41 Partially Completed (Sarapgarh) Net Incremental Benefits (RsM) 25.8 22.1 -14 Construction Costs (RsM) 22.6 24.5 8 Construction Period (Years) 7 8 14 Starting Construction (Hariharjore) Net Incremental Benefits (RsM) 83.1 56.5 -32 Construction Costs (RsM) 63.5 76.8 21 Construction Period (Years) 8 9 13 7.08 Detailed sensitivity analyses for MIPs indicate that their economic viability is sensitive to a number of the problems which have affected Orissa I (Table 19). These problems include delayed or incomplete land clearing (reclamation), delayed or incomplete watercourses, predominantly paddy crop patterns in the rabi season, lower than expected yields, cost overruns, and restricted rabi season water supplies. Most of these problems are essen- tially institutional or organizational in nature, and can generally be dealt with at relatively low financial cost. However, cost overruns and short rabi season water supplies are more related to MIP design and engineering and would require more careful economic evaluation during the course of project implementation. Measures to deal with these problems have been included under the proposed project. The primary risk to the project is that these problems would not be adequately dealt with, and in particular that the necessary institutional and organizational changes would not be implemented; for example, improved MIP management. That risk would be minimized through strengthened monitoring and supervision of the project, better management information for implementation, and improved coordination among agencies involved. Environmental Impact 7.09 The project is not expected to have any negative environmental impacts. In addition, agreements would be reached that GOO would take all necessary measures to minimize the risks of malaria and other water related diseases within the project areas.  -43- VIII. AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 Agreement has been reached with GOI that it would make the proceeds of the IDA credit available to GOO for the project in accordance with estab- lished procedures for GOI development assistance to the States (para 4.05). 8.02 Agreements have been reached with GOI and GOO that they would: (a) Ensure adequate State budget resources and financing to implement the project over the four-year project implementation period (para 4.05); (b) Implement the project substantially in accordance with the estimated implementation schedule (para 4.13); and (c) Monitor ongoing MIPs and appraise and monitor new MIPs in accordance with agreed procedures (para 5.07). 8.03 Agreements have been reached with GOO that it would: (a) Carry out planning, design, construction, operation and maintenance of MIPs and OFD in accordance with established technical and economic criteria (para 3.20); (b) (i) For MIPs, begin regular irrigation deliveries to any chak only after appropriate rotational water allocation procedures have been established among the farmers of that chak, and in chaks where water deliveries have already begun, establish such procedures by October 31, 1984; and (ii) For OFD chaks, establish appropriate rotational water allocation procedures within sixty days after completion of OFD works, and in OFD chaks completed under Orissa I establish such procedures by October 31, 1984 (para 3.21); (c) (i) Maintain separate accounts for project expenditures; (ii) Ensure that such project accounts are audited annually and that copies of such accounts certified as to their accuracy by an independent auditor acceptable to IDA are submitted to IDA not later than nine months after the end of each fiscal year; (iii) Have final audits prepared for project accounts for each fiscal year by an auditor acceptable to IDA and forward such audit reports to IDA immediately after their finalization; and (iv) Make complete accounts and financial statements available for inspection during IDA review missions (para 4.14); (d) Establish by August 31, 1983 and thereafter maintain a State Coordinating and Monitoring Committee chaired by the GOO Development Commissioner (para 5.02);  -44- (e) Establish by March 31, 1984 and thereafter apply a management information and monitoring system for construction under the project and operation of MIPs (para 5.02); (f) (i) Prepare and furnish to IDA by March 31, 1984 for its review and comment a model MIP Management Plan; and (ii) For each project MIP prepare and apply a detailed Management Plan not later than six months before commencing irrigation in the MIP or not later than September 30, 1984 for MIPs which have already started operation (para 5.11); (g) (i) Maintain a suitably qualified Assistant Engineer at each project MIP with responsibilties and functions as needed for efficient management of the MIP; and (ii) Establish and thereafter maintain at each project NIP a WMC, with membership to include inter alia the MIP Assistant Engineer, representatives of Orissa's concerned departments, and farmers representatives including the Chairman of the local elected body (Panchayat Samiti) (para 5.12); (h) Carry out detailed surveys adequate for land acquisition and aligning canals and watercourses not later than six months prior to carrying out of construction works in MIPs (para 5.14); (i) Take all action necessary to strengthen its agricultural extension and supply support for carrying out the project, including adequate supply of production inputs, agricultural credit and market facilities six months prior to completion of each MIP (para 5.15); (j) (i) Establish an R&D Cell with responsibilities, functions and staffing as needed by March 31, 1984; (ii) Form the R&D and Training Technical Advisory Committee with appropriate functions, responsibilities and membership by June 30, 1984; and (iii) Prepare and furnish to IDA by September 30, 1984 for its review and comment work plans and schedules for R&D and training activities under the project (para 5.24); (k) Take all action necessary to ensure quality control in respect of design, construction, and maintenance of MIPs (para 5.29); (1) (i) Maintain its existing Dam Safety Panel of experts to review the plans and designs of project MIP dams and related structures; (ii) Cause the Panel to conduct periodic reviews of such dams and related structures during design and construction; and (iii) Cause dams and related structures constructed under the project to be periodically inspected in accordance with sound engineering practice to determine if any deficiencies exist in their condition or in the quality and adequacy of their maintenance or methods of operation which may endanger their their safety (para 5.30);  -45- (m) (i) Undertake by March 31, 1984 a study on the appropriate water charge system with the objective of covering full operation and maintenance costs and a reasonable portion of capital costs, and on measures to improve collection of water charges; (ii) Furnish to IDA by December 31, 1985 the water charge study, and thereafter implement the recommendations of the study, taking into account IDA's comments and having regard inter alia to the incentives and repayment capacity of farmers; (iii) In the interim, review water charges in light off the Eighth Finance Commission recommendations; and (iv) Until recommendations of the water charges study are implemented, make annual budget allocations adequate to meet O&M expenditure requirements for project MIPs (para 6.11); and (n) Take all necessary measures to minimize the risks of malaria and other water-related diseases in the project areas (para 7.09). 8.03 With the above assurances and conditions, the project is suitable for an IDA credit of US$105.0 M on standard terms. US$6.0 M would be available from the loan for retroactive financing of qualified expenditures incurred on or after April 1, 1983. The borrower would be GOI.  INDIA ORISSA IRRIGATION II PROJECT Status of MIPs under Orissa I Project Progress of Construction of MIPs Under Orissa I 1/ Cumulative Progress of Construction (Z of total) Cultivable Expected Date of Dam Spillway Main Canals Dist. and Minors W courses to 5 ha Comnmnd Area Overall Completion Target Actual Target Actual Target Actual Target Actual Target Actual Name of Project (ha) Status 1/ Original Revised I X Z X X S % Z Z X 1. Daha 4580 B 3/82 3/85 98 98 75 53 99 98 70 76 20 15 2. Ramiala 9600 B 3/82 3/85 100 100 100 100 100 100 75 70 35 15 3. Sunei 10000 C 3/82 3/86 90 87 26 22 35 40 8 4 - - 4. Kuanria 3600 B 6/82 3/85 100 100 60 75 75 67 50 50 15 9 5. Dumerbahal 2800 A 3/81 3/83 100 100 100 100 100 100 100 100 100 99 6. Gohira 8100 C 3/82 3/85 99 98 90 94 94 90 49 55 42 46 7. Remal 3900 C 3/82 3/85 90 90 10 26 95 94 90 90 15 5 8. Pillasalki 2388 B 6/82 3/84 100 100 90 85 85 88 65 60 64 44 9. Sarapgarh 2238 C 6/82 3/85 100 96 47 40 100 100 100 99 100 - 10. Jharbandh 2043 C 3/83 3/85 100 40 3/ - - 100 99 100 99 100 _ 11. Talsara 3036 C 6/82 3/85 100 99 90 45 100 97 100 80 100 _ 12. Hariharjore 9950 D 3/85 3/87 71 71 21 21 50 50 - - - - 13. Harbhangi 9650 D 3/85 3/88 16 10 10 2 70 55 40 5 - - 14. Kanjhari 9800 C 3/85 3/87 60 75 65 40 25 - - - - - 15. Bankbal 7200 D 6/86 6/86 25 35 5 - - - _ _ _ _ 16. Kansbahal 5050 D 3/86 6/86 - 2 - - - - - - - - 17. Upper Jonk 9920 D 3/87 3/88 - - - - - - - - 18. Badanala 9800 D 6/86 3/88 - - - - - - - - - - 1/ GOO estimates as of December 3, 1982, updated April, 1983. I/ Code as follows: A. Completed. B. Completed by October 1983 except 5 ha block watercourses. C. Operable by October 1983 without spillway gates and 5 ha block watercourses partially completed. D. Early stage of construction. 3/ Masonry dam.  -47- TABLE lb INDIA ORISSA IRRIGATION II PROJECT Status of MIPs under Orissa I Project Expenditures and Budgets for MIPs under Orissa I 1/ (Rs M) Total Estimated Cost Including Price Escalation Cumulative Expenditures Budget 2/ Original Revised up to 11/77 to Total Total Plan Name of Project CWC GOO 10/77 12/82 12/82 03/83 83/84 1. Daha 87.5 109.6 13.5 96.7 100.2 111.3 5.7 2. Ramiala 132.7 132.7 20.4 76.9 97.3 101.7 10.0 3. Sunei 121.3 192.1 1.6 90.1 91.7 100.0 25.0 4. Kuanria 74.5 100.9 0.3 84.6 84.9 87.8 9.0 5. Dumerbahal 37.1 37.1 5.3 26.0 31.2 31.3 0.2 6. Gohira 109.6 168.5 6.9 80.4 87.4 88.4 25.5 7. Remal 57.3 100.2 4.4 78.7 83.0 88.1 15.0 8. Pillasalki 40.1 67.9 4.9 60.4 65.4 68.8 3.2 9. Sarapgarh 38.1 46.5 0.1 34.0 34.1 38.5 5.0 10. Jharbandh 22.8 28.7 - 17.0 17.0 21.2 4.0 11. Talsara 51.8 54.0 0.2 46.9 47.1 50.8 5.1 12. Harihariore 177.6 177.6 - 59.7 59.7 66.8 15.0 13. Harbhangi 187.9 283.2 - 54.8 54.8 64.8 15.0 14. Kanjhari 155.2 155.2 - 76.3 76.3 85.2 15.0 15. Bankbal 151.3 151.3 - 27.1 27.1 31.1 5.0 16. Kansbahal 99.7 149.3 - 12.4 12.4 21.1 4.0 17. Upper Jonk 202.9 202.9 - 5.1 5.1 7.4 6.0 18. Badanala 208.4 258.9 - 6.5 6.5 12.2 6.7 Total 1955.8 2416.6 57.6 933.6 991.2 1076.5 174.4 1/ As of December 31, 1982. 2/ Actual budget expenditures in recent periods have averaged about Rs 250 million annually. Notes: The revised total cost estimates and budget provisions for 83/84 are being reviewed by GOO and subject to change. Figures shown here are from the progress report for the period ending November 1982.  INDIA ORISSA IRRIGATION II PROJECT Climatic Data 1/ Annual Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average Mean Temperature ( C) Keonjhar 19.0 21.9 26.2 29.8 31.0 29.1 26.3 25.2 26.7 24.8 21.9 19.0 Hirakud 20.7 24.3 28.2 32.4 34.3 32.5 28.4 26.6 28.6 27.8 24.6 21.2 Mean Relative Humidity (Z) Keonjhar 59 54 40 48 53 69 82 82 83 76 66 60 Hirakud 64 58 51 45 44 60 80 80 79 72 68 65 Wind Speed (km/hr) Keonjhar 3.9 4.9 5.7 7.0 7.8 8.7 8.0 7.0 5.4 3.7 2.9 2.9 Hirakud 3.1 3.2 3.5 3.9 5.2 6.2 5.7 5.8 4.4 2.9 2.8 2.5 Rainfall (mm) Keonfhar 8.8 10.4 24.3 31.0 99.1 176.1 265.8 301.5 242.8 111.2 19.8 6.7 1,297.5 Hirakud 5.2 13.2 18.9 11.3 28.5 165.6 380.9 366.5 148.9 45.6 5.1 3.1 1,193.0 Class A Pan Evaporation (mm/month) KeonJhar 111 137 221 258 289 208 143 129 115 117 109 100 1,937.0 Hirakud 75 101 156 206 255 177 93 84 100 109 87 70 1,513.0 Water Use By Reference Crop 2/ (ETo mm/month) Keonjhar 94 116 177 206 231 166 114 103 98 99 93 85 1,582.0 Hirakud 63 86 132 176 216 142 74 67 84 92 74 55 1,261.0 1/ Keonjhar: Keonjhar meteorological Station (rainfall 1969-1978 and all other data 1958-1972). Hirakud: Hirakud Hydrometeorological Station (1972-1981). 2/ Estimated by empirical formula using pan evaporation and climatic data.  -49- TABLE 3 INDIA ORISSA IRRIGATION II PROJECT CCA and Number of Farm Families for MIPS No. of Average Size of Project Name CCA (ha) Farm Family Land Holding (ha) 1. Daha 4,580 1,685 2.7 2. Sunei 7,200 2,059 3.5 3. Ramiala 8,500 2,721 3.1 4. Kuanria 3,600 1,281 2.8 5. Dumerbahal 2,800 734 3.8 6. Gohira 8,100 1,080 7.5 7. Remal 3,900 2,918 1.3 8. Pillasalki 2,388 1,464 1.6 9. Sarapgarh 2,238 1,291 1.7 10. Jharbandh 2,043 834 2.4 11. Talsara 3,036 1,615 1.9 12. Hariharjore 9,950 4,623 2.2 13. Harbhangi 9,650 4,902 2.0 14. Kanjhari 8,000 4,672 1.7 15. Kansabahal 5,050 3,354 1.5 16. Bankabal 7,200 5,750 1.3 17. Upper Jonk 9,920 5,725 1.7 18. Badanalla _9,800 4,667 2.1 Total 107,955 51,375 Average 5,998 2,854 2.1 Source: CWC sub-project appraisals.  ^50- TABLE 4 ORISSA IUIGT II .nOJcT Crop Water Requirements (in _ per ha) 1. Cetral Tble Land Zone 1/ Planting Cronpe Period Jan Feb mear A! 1L. Jun Jul Au Sep Oct Nov Dec Total A. Usinfall 5 13 19 11 29 166 381 367 148 46 5 3 1,193 S ETO 32 36 40 46 60 70 82 94 106 104 80 67 45 30 28 34 40 46 50 40 38 36 30 25 C. Pre-irrization akd Rlcrop 1 Lo. Peddy 1-31 JUL - - - - - - - - - - 25 135 170 33 31 38 46 53 52 39 - - - - 622 2 HIV Paddy 1-31 JUL - _ _ _ _ _ _ _ _ 25 135 170 33 31 38 46 49 50 - - - - - 577 3 Maie 16-30 JUI - - - - - - - - - - - 93 27 27 31 37 40 33 - - - - - - 288 ,4 roundnut 16-30 JUN - - - - - - - - _ _ - 97 24 25 28 34 40 43 - - - - - - 291 5 Vegtables 1-15 JUL -83 14 19 34 40 42 - - _ _ _ _ 232 6 YV Paddy 16 JAN-15 FI 165 186 44 55 75 77 86 93 - - - 25 806 7 Wheat 16-30 NOV 35 40 44 40 30 - - - - So 20 20 309 8 Cr_ 1-15 NO 35 29 - - - - - - 75 22 26 28 215 9 Mustard 16-31 OCT 18 - - - - - - - - - - - - - - - - - - 78 26 32 33 26 213 10 Croundnut 16-31 JAN - 82 22 38 60 70 76 59 - - - - - - - - - - - - - - - - 407 11 Vegetables 1-15 0OV 37 40 34 - - - - - - - - - - - - - - - - - 76 14 23 29 253 12 Bugarcane 16-28 FE8 16 16 - 100 36 49 66 89 108 104 88 74 50 33 31 37 44 51 55 44 42 31 21 16 1,201 2. Northern Plateu Zone 2/ A. Rainfall 9 10 24 31 99 176 266 302 243 111 20 7 1,298 I. Ift 42 49 58 61 80 95 100 108 111 120 90 76 60 52 55 50 50 48 50 49 47 46 43 42 C. Pre-irrigation ad ZTcrop ILoc. Paddy 1-31 JUL - - - _ _ _ _ _ _ _ 25 135 185 57 61 56 58 55 52 48 - _ - _ 732 2 Hrv Paddy 1-31 JUL - - - - - - - - - - 25 135 185 57 61 56 58 58 51 - - - - - 686 3 Pite 16-30 J