India - Narmada River Development - Gujarat : Sardar Sarovar Dam and Power Project

Document of The World Bank FOR OFFICIAL USZ ONLY C 0k /sZ-? JW Rewet Nk. P-3937 REPORT AND RECOMMENDArION OF THE .'REFLDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION ALND DEVELOPMENT AND INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO USW2OO.O MILLION AND A PROPOSED IDA CREDIT OF SDR 99.7 MILLION TO INDIA FOR THE NARMADA RIVER DEVELOPMENT (GUJARAT) SARDAR SAROVAR DAM AND POWER PROJECT February 6, 1985 This document has a restricted distnribtn md may be wed by recipients ody in the peormace of :heir ofciad duie. s content may a othrwise be disdosed widnto Wedd Bank auhocbution.  C0RRNCP EOuiLVALENTS (As of February 4, 1985) US$1.00 - Rs12.75 Rs 1.00 - US0.078 Rs 1 million - USS78,000 The US Dollar/Rupee exchange rate is subject to change. Conversions in the Staff Appraisal Report were, except as otherwise noted, made at the rate of US$1 to Rs 12. FISCAL YEAR April 1 - March 31 ABBREVTATIONS ChC - Construction Advisory Committee CElA - Central Electricity Authority CPU - Central Procurement Unit DRP - Dam Review Panel DSP - Dam Safety Panel ERR - Economic Rate of Return GOG - Government of Gujarat GOI - Government of India GOMP - Government of Madhya Pradesh GOR - Government of Rajasthan Ha - hectare ID - Irrigation Department (GOG) Kwh - kilowatt hour Km - Kilometers MIsc - Management Information Systems Cell RCA - Narmada Control Authority NDD - Narmada Development Department NRPC - Narmada High Powered Committee NPG - Narmada Plannming Group NRC - Narmada Review Committee NWDP - Narmada Water Disputes Tribunal SEB - State Electricity Board  INEDIi F OFFmIL Use ONLY XARNADA, RIVER VEYELOPMET (GUJARAT) SARDAR SAROVAR DAM AND POWER PROJECT CREDIT. LOAN AN PROJECr SUM= Borrower: India, acting by its President (GOI). Beneficiaries: Governmets of Gtjarat (GOG),* Nadbya Pradesh (GOMP) and Nabarashtra (CO) Ia hmounts: Bank Loan: US$200.0 million. IDA Credit: SDR99.7 million (US$100 million equivalent). Terms: Bank Loan: Repayment over 20 years, including five years' grace, at the applicable rate of interest. IDA Credit: Standard. On-lendinat Terms: From GOI to GOG, GOMP and GON as part of central assistance to States for development projects on terms and conditions applicable at the time. GOI wvould bear the exchange and interest rate risks. Proiect Deacriution: The proposed dam and power project is part of an inter-state program for the development of multi- purpose hydropower and irrigation dams on the Narmada River and their associated irrigation canal networks. The program has been designed to (a) further the progress of India-s long-tern power plan through the addition of generation capacity within the Western Region; (b) bring potentially valuable agricultural land in Gujarat and Rajasthan, now prone to drought and water scarcity, under irrigation, and tc) supply domestic, municipal and industrial water for Gujarat. The proposed project consists of dams aud power complexes, including a storage reservoir extending about 210 kIs upstream from the dam in Gujarat into Maharashtra and Nadhya Pradesh. A separate, parallel operation supported by the Bank Group would provide for the first phase construction of an extensive canal network extending for about 440 kn through Gujarat to Rajasthan. The project vould install 1,450 HW of hydroelectric generating capacity and associated transmission facilities, irrigate aoout 1.9 million ha in Gujarat and create the potential for the irrigation of 70,000 ha in Rajasthan, and supply about 1,300 million cubic meters per annum of jJ The project would also benefit the Government of Rajasthan. Thi document has a rescted distibution and may be used by recipients only in the verformance of their odcial dutiest Is contents may not otherwise be disclascd without World Bank authorization.  wunicipal aDd industrial water. As part of the river basin development, the project ould coztribute to the eventual improvement in the lives of over 11 million people in four States. As one of the largest developments ever conceived of and designed as an integrated set of investments, it will pose major challenges to GOI snd the participating States in ensuring its ezecution and operation to Very bigh technical standards. There are risks that financial constraints and difficult and lengthy land acquisi- tion and resettlement proceedings could delay ezecu- tioz and the build-up of project benefits. These risks have been mitigated through special ueasures by GOI in ensuring the availability of sufficient finan- cial resources, including co-financing frau external sources, for the project, the formlation of a cou- prehensive resettlement plan, and the use of foreign civil contractors on key civil works. Overall, the risks are acceptable. Estimated Cost Y: (MSS millions) Local Foreimn Total Components: Nain Dam 315.8 139.9 455.8 Land acquisition and resettlement 140.1 - 140.1 Rockfill Dms, Link Channels, Saddle Dam, and Bypass Tunnels 24.1 6.5 30.5 Weir, Powerhouses ;f and Transmission System 342.2 236.5 578.4 Nydrometeorological Network 11.8 2.8 14.6 Training and Technical Assistance 0.5 _ 2.0 2.5 Total Base Costs 834.4 387.6 1,221.9 Physical Contingencies 78.9 33.2 112.1 Price Contingencies 407.1 192.3 599.4 Total Project Costs 1,320.4 613.1 1,933.5 jj Includes an estimate of US$260 million in taxes and duties. .f Riverbed house with downstream weir and canal head powerhouse, and electric transmission system. .f Figures may not add due to rounding.  Fimanci-z Plan: # (USS millions) Local Forein.n Total 0O0 250.0 178.1 428.1 GOG 359.0 - 359.0 GCH 402.0 - 402.0 GM0P 280.4 - 280.4 00 29.0 - 29.0 Suppliers' Credits / - 135.0 135.0 Bank Group - 300.0 300.0 Total 1,320.4 613.1 1,933.5 Estimated Disbursements W (US$ ujllions) FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 Annual 6.3 28.2 50.1 57.0 50.6 50.9 20.6 18.5 12.1 6.1 Cumulative 6.3 34.5 &4.6 141.6 191.8 242.7 263.3 281.8 293.9 300.0 Rate of Return: About 13Z Apraisal Report: No. 5107-ID, dated February 12, 1985. Al Includes contributions from outside sources. 51 For power generation equipment. iI By Bank Group fiscal year.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERUATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO IMDIA FOR THE NARMADA RIVER BASIN (GUJARAT) SARDAR SAROVAR DAN AND POWER PROJECT 1. I submit the following report and recomuendation on a proposed loan and development credit to India for US$200.0 million and SDR99.7 million (US$100.0 million equivalent) respectively to help finance the construction of a dam and power complex on the Narmada River in Gujarat. Amortization of the Bank loan would be over 20 years including five years of grace. The IDA Credit would be made on standard terms. The Government of India (GOI) would channel the proceeds of the loan and credit ro GOG, in accordance with GOI's standard terms and arrangements for financing development projects. Additional finnmcing for the project, in amounts up to USS135.0 million, is expected to be provided from suppliers' credits to finance power equipment. The exchabge and interest rate risks will be borne by GOI. PART I - THE ECONOHY 1/ 2. An economic report, "Situation and Prospects of the Indian Economy - A Medium Term Perspective" (4962-IN, dated April 16, 1984), was distributed to the Executive Directors on April 23, 1984. Country data sheets are attached as Annex I. Backsround 3. India is a large and diverse country with a population of about 750 mil- lion (in mid-1984) and an annual per capita income of US$260. The economy is dominated by agriculture which employs more than two-thirds of the labor force. However, the land base is not sufficient to provide an adequate livelihood to everyone engaged in agricultural activities, especially those who own little or no land. Growth of value-added in agriculture -- 2.2Z since 1950/51 - has been slower than growth of industrial value-added (5.3% per annum). As a result, there has been a gradual decline in the share of agriculture in GDP (at factor cost) from 52% in 1950/51 to about 33% in 1981/82, while the share of industry rose from 20% to around 26%. But industrialization has not been rapid enough to absorb the growing labor force, or to bring about a rapid economic transformation, with significantly higher productivity and income levels. As a result economic growth has been slow over the past three decades, averaging about 3.6% per annum since 1950/51. 4. Nevertheless, there has been steady progress, with per capita income rising by about 1.4% per year in the period 1950 to 1980. Despite the large population base and its relatively rapid growth, India has been able to eliminate persistent dependence on foodgrain imports through significant improvements in agricultural production. Savings and investment bave increased 11 Parts I and II of the report are similar to Parts I and II of the President's Report for the Bombay Urban Development Project (No.P-3920-IN), dated January 7, 1984.  -2- markedly since 1950/51: the gross national savings rate more than doubled from 10.8Z of GDP (at factor cost) to 22.71 in 1983/84, vhile the gross domestic investment rate rose from 12.51 of GDP to 24.8X in 1983/84. Foreign savings (balance of payments deficit on current account) have never financed a major portion of domestic investment: a peak of about 201 was reached during the early 1960s. Currently, foreign savings account for about 82 of investment. External assistance has been 'ow both as a percentage of GDP and in per capita terms, never rising above 3X of GDP and averaging below 1X for the past five years. Net use of foreign savings has never risen above 31 of GDP, and presently stands at 2.1Z. 5. Before the 1970s, India placed relatively less emphasis on export promotion and more on import substitution. The volume growth of exports between 1950/51 and 1969/70 averaged only 2.2Z per annum, vhile the volume growth of imports over the same period was 4.31. In the early to mid-1970s, however, India's terms of trade, which had remained roughly constant during the 1960s, deteriorated sharply. In response, the Government introduced various policy measures designed to stimulate exports. As a result, the volume of India's exports grew on average about 7.3Z per annum for the 1970. as a whole, a performance which demonstrates that sustained rapid growth is possible. While expanding world markets, particularly in the nearby Middle East, contributed to this growth, liberalized access to imported inputs and more effective export incentives played a major role. 6. Moving into the second half of the 1970s, the Indian economy was buoyed by higher levels of investment and an expanding level of foodgrain output. As a result, growth in real GDP and in agricultural and industrial value-added substantially exceeded the historical 30-year trends (paragraph 3) averagirg 5.3%, 3.3% and 8.12, respectively, during the 1975/76 to 1978/79 period. In 1979/80, however, this momentum was broken when the worst drought in recent years, combined with a doubling of international oil prices and domestic supply shortages, Led to a sharp fall in foodgrain production, a decline in GDP, and the opening up of a relatively large trade deficit. Severe inflationary pres- sures also emerged after several years of virtual price stability. These setbacks coincided with the preparation of the Sixth Five-Year Plan which laid down a program of adjustment that aimed at improving the trade deficit, remov- ing infrastructural bottlenecks and ensuring price stability with an overall growth of the economy of 5.2Z per annum. Recent Trends 7. Despite the effects of two severe droughts in 1979/80 and 1982/83, India's economy in the early 1980s continued to grow at the faster pace of the second half of the 1970s. Between the two droughts (from 1979/80 to 1982/83), GDP growth averaged almost 5Z per annum, while between the two recovery years (from 1980/81 to 1983/84), it was 4.5X per annum -- substantially higher than India's long-term growth rate of 3.61. Continued rapid economic growth has resulted from a development strategy which includes higher investment levels and liberalized policies on imports, industrial licensing, prices, and commer- cial borrowing. These policies, by easing constraints on the supply of infrastructure and basic commodities, were a determining factor in the improved performance of the economy and the industrial sector. This overall improvement in performance, combined with a more restrictive monetary policy in 1981/82 and 1982/83, resulted in a sharp decline in the rate of inflation. The growth rate of wholesale prices declined from over 18% in 1980/81 to only 2.6Z in 1982/83,  -3.- but rose to over 9Z in 1983/84, mainly due to the effect of the 1982/83 drought on food prices. Further improvements in the policy environment vill be required to maintain these higher levels of economic growth and investment without putting undue pressure on the balance of payments or reviving isfla- tionary expectations. 8. Economic growth in the early 1980s has not been steady, mainly because of the effect of uneven rainfall on agricultural production. during the period. In 1980/81 and 1981/82, the economy substantially recovered from the 1979 drought, with real GDP growing by 7.6Z and 5.3S, respectively. While industrial output expanded by 4Z in 1980/81 and 8.6Z in 1981/82, recovery was particularly robust in agriculture where normal weather helped output to rise by more than 15Z and 5.5Z, respectively. The supply of power, coal, and rail transport, already improved in 1980/81, was further expanded in 1981/82, recording growth rates of about 1OZ, 9.6Z and 12.5Z, respectively. This over- all improvement in the Indian economy was halted in 1982/83 by a severe drought in mid-1982 which reduced agricultural production by 4%, brought down the GDP growth rate to 1.8X, and put further strains on the already difficult balance of payments and domestic resource situation. The timely implementation of various economic policies relating to foodgrain imports, procurement and distribution, and the allocation of power to irrigation pumps mitigated the otherwise very distressing effects of the poor monsoon. The economy recovered in 1983/84, led by a robust agricultural sector - GDP grew by about 6.5Z to 7S with agricultural production growth in the 9Z-10Z rarge and industrial growth of 4.5%. The major factors contributing to the good economic performance during 1983/84 were the excellent monsoon, combined with adequate agricultural policies and programs, and satisfactory performance of the coal and transport sectors. The power sector, however, emerged again as a constraint on higher growth, especially in industry. 9. Agricultural production rebounded strongly in 1963/84 in response to the monsoon, improved use of inputs and continued expansion of irrigation. Overall foodgrain production rose by 10;-12Z over the previous year, reaching a new record of 142-144 million tons, a substantial increase over the previous peak of 133 million tons in 1981/82. Corrected for weather variations, foodgrain production continues to grow at a trend of 2.6Z per annum-sufficient to maintain a broad balance between supply and steadily increasing domestic demand. Nonetheless, the balance remains delicate, and the need for foodgrain imports to maintain consumer supplies or adequate buffer stocks could arise from time to time. Thus, adequate management of foodgrain stocks and programs to expand irrigation, strengthen extension and encourage the efficient use of other agricultural inputs continue to receive high priority. 10. Basic infrastructure services had a mixed performance in 1983/84, partially because of sluggish demand from industry during the first half of the year but also due to a failure to maintain the productivity gains of 1980-82. Electricity generation grew only by about 3.7Z due to low reservoir water levels during the first half of the year, delays in the commissioning of new capacity, and a deterioration of capacity utilization in thermal plants. As a result, power generation was about 11.51 below requirements and con- stituted a major bottleneck in the economy. Key industries which were adver- sely affected by power constraints included steel, fertilizers, cement, and coal. To improve performance in the power sector, the Government recently increased incentives for higher labor and management productivity in thermal plants. Railway freight traffic, measured in ton-kms, grew by only 0.5% in  -4- 1983/84, reflecting sluggish demand. Coal production increased by about 6.5Z in 1983/84 reaching 139 million tons. When combined with stocks already avail- able this level of production was sufficient to meet the relatively flow demand growth. Infrastructural constraints would have emerged much more sharply had the pace of industrial growth and demand been more rapid. It is therefore critically important that India maintain the pace of investment in these key sectors, mobilize sufficient resources to do so, and implement programs to enhance productivity. 11. The Indian economy has reverted from a situation of resource surplus in the late 1970s to an aggregate resource deficit. The gap between gross invest- ment and national savings increased from negligible levels during the late 1970s to an average equivalent to 2.1Z of GDP in 1980-84. India's gross national savings rate, which averaged 22.6Z of GDP in the last four years, is high by any standard, particularly considering India's low income and the large proportion of its population below the poverty line. The scope for a substcn- tial increase in the savings rate is therefore quite limited. If India is to maintain investment at about 25Z of GDP, a major effort will be required to raise additional domestic resources particularly in the public sector. Future increases in savings will depend heavily upon the enhanced profitability of public sector enterprises which would require better utilization of capacity, more efficient operations and adequate pricing policies. This would also allow a marginal decline in the use of foreign savings from the recent 2.1Z-2.3Z of GDP to 1.5X-1.8X, to ensure a sustainable external debt service burden. 12. India's external resource position has changed notably since the late 1970s. The current account balance, which recorded su.pluses from 1976/77 to 1978/79, reverted to deficits averaging US$3.5 billion and 2.11 of GDP during 1980/81 to 1983/84. Several developments contributed to these relatively larger current account deficits. First, the terms of trade deteriorated s-harply in 1979/80 due to the second round of oil price increases and continued to move against India during the first three years of the 1980s. Second, a more liberal import policy towards industrial inputs was pursued. Third, net iuvisibles declined as travel receipts fell off, workers' remittances stagnated (reflecting slower development activity in the Middle East), and payment of interest on higher levels of foreign debt increased. Faced with severe infrastructural constraints and a deterioration in its balance of payments, India initiated an adjustment program in 1980/81 designed to raise the growth rate from its historical level of 3.6% to 5.2% while adjusting the country's external balance to the adverse price developments in the world markets. The main elements of this strategy, which is being successfully implemented, are export promotion, import substitution wbere economically justifiable, implemen- tation of a coherent energy policy designed to meet the energy needs of the economy while curbing the growth of oil imports, and continued movement toward a more liberal import policy aimed at providing producers with access to inputs for higher capacity utilization, greater efficiency, improved technology and capacity expansion. 13. A positive development in India's balance of payments is the reduction in the trade deficit from US$7.7 billion in 1980/81 to US$5.9 billion in 1983/84 despite unfavorable world market conditions and import liberalization. Export volume growth and import substitution of oil and petroleum products, metals and fertilizers more than offset the substantial increase in "other" imports. These "other" imports consist mainly of industrial imports and capi- tal goods which historically have been in chronic short supply and which are of  -5- critical importance to capacity utilization, product quality, and plant modern- ization and expansion. A major factor in the decline of the trade deficit was the lower net import bill for petroleum, which dropped frim US$6.7 billion in 1980/81 to US$3.4 billion in 1983/84 in response to a successful oil develop- ment program that reduced import needs and allowed crude oil exports, which totalled about US$1.5 billion in 1983/84. These structural changes in the balance of payments are to a significant degree the result of India's develop- ment and adjustment efforts over the past three years. It is expected that the balance of payments will continue to be under strain for the next several years, since the adjusrment strategy will continue to require high levels of imports. 14. Even assuming a favorable export performance, India will need external capital flows to augment its own resources for the foreseeable future, given the low per capita income level in the country, the already high savings rate, and the structural adjustment process. Faced with a growing need for external capital inflows and stagnation in the availability of concessional assistance, India decided at the start of the Sixtb Plan to increase borrowings from the International Monetary Fund (IMF) and commercial banks to substantial levels. In the period covering the fiscal years 1981/82 to 1983/84, India drew SDR 3.9 billion from the Extended Fund Facility of the 11F. In addition, India bor- rowed significant amounts on commercial terms from the Euro-dollar market and increased the use of suppliers' and export credits. In the period 1980-84, India contracted commercial loaas totalling over US$6,000 million and suppliers' credits of over US$1,000 million. The bulk of this borrowing has been used for specific development projects in the public and private sector (mostly for petroleum exploration and development, steel, power, aluminum and shipping). India's favorable debt service position and the nature of its borrowings, for project-related purposes instead of direct balance of payments support, enabled it to tap commercial capital markets at favorable spreads. This larger commercial borrowing and transfer of funds under the arrangement with the IKF has stemmed the use of foreign exchange reserves which had fallen to less than four months of import coverage in 1981/82. Development Prospect s 15. The experience of recent years illustrates that India has the capacity to grow and develop at a more rapid pace. Although the industrial sector is small compared to the size of the economy, it nevertheless is large in absolute terms and has a highly diversified structure, capable of manufacturing a wide variety of consumer and capital goods. Basic infrastructure -- irrigation, railways, telecommunications, power, roads and ports -- is extensive compared to many countries, although there is considerable need for additional capacity as vell as improvement in the utilization of existing capacity. India also has a wide range of institutions capable of fostering development and is well- endowed with human resources. Finally, India has an extensive natural resource base in terms of land, water, and minerals (primarily coal and ferrous ores, but also gas and oil). With good economic policies and reasonable access to foreign savings, India has the capability for managing these considerable resources to accelerate its long-term growth. 16. The Government is currently preparing the Seventh Plan which will lay down the development strategy for 1985/86-1989/90. This strategy is expected to continue the emphasis of the Sixth Plan on agriculture, energy development, export promotion, domestic import substitution where economically justifiable  -6- and the removal of infrastructural bottlenecks. Overall Sixth Plan performance has been encouraging, with aggregate real investment projected to be about 30Z higher than in the period 1975-80--a creditable performance indeed. The Sixth Plan expenditure targets, however, will not be fulfilled as resource mobi- lization by the public sector vill fall short of the financing requirements of planned public investment. Actual aggregate real investment is projected to be about 7% below the original target for the period 1980-85, private investment being 5S to 1OZ higher and public investment about 20Z lower in real terms than actually projected. In terms of meeting Plan expenditure targets, the perfor- mance of the Central Government is considerably better than that of the State Governments. The Central Government's Plan outlays are likely to reach about 8Z to 90S of the original Plan allocation in real terms, while the States' will probably achieve only about 50X of their targets, due principally to shortfalls in resource generation. Bottlenecks in key sectors such as power, transport and irrigation are likely to persist as a consequence of real invest- ment shortfalls relative to original Plan allocations. 17. Although Sixtb Plan expenditure targets will not be met, India's capi- tal formation rates have increased from 22.6Z in 1975-80 to 24.7Z of GDP in 1980-84. Recent higher capital formation rates are encouraging for future income growth, but returns to investment have so far been relatively low. Much of this phenomenon relates to India's stage of development, in which a large and growing proportion of investment has been needed to build up basic infrastructure services which have inherently high capital-output ratios. However, there is scope to reduce capital-output ratios through improvements in efficiency. As discussed in greater detail in our recent economic reports, performance in the basic service sectors can be improved through better plan- ning and management, thus leading to higher productivity and capacity utiliza- tion throughout the economy. At the same tine, programs to expand domestic capacity are vital. In the case of tradeable commodities like coal, steel and cement, this is justified on the grounds of comparative advantage. For sectors such as irrigation, power and transportation, expansion of planned capacity in accordance witb the requirements of the rest of the economy will be vital for sustained growtb. 18. Under the Sixth Plan, India has an ambitious oil development program backed by substantial financial commitment. Performance under the program has been excellent witb real investment and oil production levels running well ahead of Plan Targets. In 1981, and again in early 1983, resources for exploration and development were raised by successive price increases for domestic crude and products. While the gap between domestic consumption of petroleum and production remains large, India's dependence on oil imports dropped from 63% of consumption in 1979/80 to about 41% in 1983/84 and is expected to decrease to about 332 of consumption by 1984/85. The rapidly expanding level of exploration activity, combined with the possibilities for accelerated offtake from known fields, offers much encouragement for India's longer-term energy prospects. At the same time, the increases in domestic petroleum prices have helped encourage conservation and slow demand growth. 19. India's development prospects over the next few years will hinge on the extent to which the economy can be brought into both internal and external balance, while at the same time achieving more rapid growth than in the past. This will require the continuation of the current development strategy which assigns high priority to export promotion, public finance discipline, improve- ment of economic efficiency, and investment in infrastructure, supported by  adequate flows of ezternal borrowing and aid. In the short term, a relatively large level of external borrowing, including an increased emphasis on commer- cial borrowing, will be uecessary to cope with the balance of payments conse- quences of such a growth strategy. However, an important element in providing India vith the capacity to adjust flexibly will be adequate flows of conces- sional assistance since India is still a very poor country with a large rural sector and enormous investment requirements for human development and basic infrastructure. Although India is cuvrently in a position to increase borrow- ing on coumercial terms from the very low levels of the past, there are, of course, limits beyond which India will choose to sacrifice growth objectives rather than accept debt on unfavorable or umanageable teras. Nevertheless, with a more open trade policy and expanded efforts to remove constraints on the growth of productive capacity, supported by adequate mobilization of both foreign and domestic savings, India is demonstrating that it can sustain a rate of growth closer to 5.0Z per annum than to the long-run trend of 3.6Z per annum. If the rate of population growth can be brought to below 2.0X per annum, a 5.OZ growth rate would mean a doubling of the trend rate of growth of per capita income of 1.4% per annum. Success in these efforts would make a significant difference to the prospects of easing poverty in India. 20. A large and growing population and severe poverty underline the need to accelerate India's development efforts. The 1981 Census indicated there was no decline in the rate of population growth, which remained about 2.2Z per annum in the 1970s despite a measurable decline in fertility rates. The population growth rate failed to decline in the past decade due to a reduction in the infant morta'lity rate and an increase in life expectancy, reflecting larger availability of tood and health services. While this is a welcome development, it implies a greater strain on the economy and re-emphasizes the need for continuing efforts to strengthen the health and family planning programs in a broad range of activities and services. These efforts are given high priority in the Sixth Plan, which aims at a rise in the proportion of protected couples in the reproductive age group from its estimated 1979/80 level of about 23Z to over 35% by 1984/85. The Government is reviewing its population policy for the Seventh Plan, with indications of a determination to retain the emphasis on the implementation of family planning, health, education and literacy programs aimed at reducing fertility rates. 21. Reduction of poverty remains the central goal of Indian economic and social policy. More than one-third of the world's poor live in India, and more than 80% of the Indian poor belong to the rural households of landless laborers and small farmers. About 511 of the rural population and 40Z of the urban population subsist below the poverty line. Significant reductions in poverty will depend primarily on an acceleration of economic growth, particularly in agriculture, combined with effective implementation of poverty alleviation programs. India's poverty alleviation strategy appropriately recognizes that production-oriented programs, which aim at accelerating the overall pace of economic growth, and poverty alleviation programs, targetted at those least able to participate in the general growth of the economy, can be mutually reinforcing rather than substituting for each other. Major poverty programs operating on a nationwide basis at present include: the Minimum Needs Program (MNP), the Integrated Rural Development Program (IRDP), and the National Rural Employment Program (NREP). The IRDP and NREP are targeted programs aimed at increasing the incomes of the poor rapidly, either through the transfer of productive assets or direct employment. The MNP, aims at broadening the provi- sion of social infrastructure and basic services which enhance the human capi-  tal of the poor and improve living standards. These programs represent a vitally important comitment of the Government to address the needs of the poorest. The scale of the poverty problem in India, combined vith the inherent difficulties in implementing poverty programs in any country, imply the need for continued efforts to enhance the effectiveness of these programs. PART TI - MM GROUP OPERATIONS IN INDIA 22. Since 1949, the Bank Group has made 82 loans and 165 development credits to India totalling US$6,526 million and US$12,268 million (both net of cancellation), respectively. Of these amounts. US$1,524 million has been repaid, and US$6,207 million was still undisbursed as of September, 30, 1984. Bank Group disbursements to India in the current fiscal year through September 30, 1984 totalled US$171 million, representing a decrease of about 40 percent over the same period last year. Annex II contains a smmary state- ment of disbursements as of September 30, 1984. 23. Since 1959, IFC has made 29 commitments in India totalling US$223 million, of which USS34 million has been repaid, US$56 million sold and Us$34 million cancelled. Of the balance of US$98 million, US$91 million repre- sents loans and US$7 million equity. A stmary statement of IFC disbursements as of September 30, 1984, is also included in Annex II (page 4). 24. The tbrust of Bank Group assistance to India has been consistent with the country-s development objectives in its support of agriculture, energy and infrastructure. Of particular importance have been investments in irrigation, extension and on-farm development designed to increase agricultural productivity, and efforts to improve the availability of basic agricultural inputs to farmers through credit, fertilizer, marketing, storage, and seed projects. Najor elements of the lending program have also been directed at helping to meet the energy needs of the economy while curbing the growth of oil imports, and to ease the infrastructure bottlenecks vhich have hampered economic growtb in India, particularly through pover generation and distribution, and railways and telecommunications projects. The Bank Group has also provided financing for a broad range of medium- and small-scale industrial enterprises, primarily in the private sector, through its support of eevelop- ment finance institutions. Recognizing the importance of improving the ability to satisfy the essential needs of urban and rural populations, the Bank Group has supported nutrition and family planning programs, a rural roads project, as well as water supply and sewerage and other urban infrastructure projects. 25. This pattern of assistance remains highly relevant and consonant with Government priorities as reflected in the Sixth Plan. Continuation of the Bank-s Group current priorities can be strongly justified on the basis of the approach that is being taken by GOI in the preparation of the Seventh Plan. First, continued support of GOI-s agricultural program is warranted. While Intdia has made significant progress in agriculture, productivity growth will have to be sustained to improve the balance between food demand and supply and to contribute to poverty alleviation and employment. Thus, we will continue our support to irrigation, fertilizer production and distribution, and agricul- tural extension and credit. Second, the review of performance under the Sixth Plan confirms the high priority that should continue to be given to the expan- sion and more efficient use of basic infrastructure capacity and to the development of Indias- indigenous hydrocarbon resources. Accordingly, the Bank will continue to support the development of the energy, transport and telecomr  -9- municatious sectors to alleviate critical shortages which constrain output in both agricultural and industrial sectors. Third, support of urban development and other GOI basic social services programs for the poor must also continue in light of the growth in population which, despite successes in lowering birth and death rates, still increases by about 16 million each year. Finally, tne major departure from our previous strategy will be a substantial increase in the Bank's assistance to India's industrial development substantially aimed at supporting GOI's efforts in promoting greater efficiency and faster development of the industrial sector. 26. The need for a substantial net transfer of external resou-rces in support of the development of India's economy has been a recurrent theme of Bank economic reports and of the discussions within the India Consortium. Thanks in part to the response of the aid comunity, India successfully adjusted to the changed world price situation of the mid-1970s. However, India continues to require a substantial level of foreign assistance both to offset rhe overall deterioration in the world trade enviromment, and to sustain the relatively higher investment and growth rates achieved during the first four years of the Sixth Plan. As in t1e past, Bank Group assistance for projects in India should aim to include the financing of local expenditures. India imports relatively few capital goods because of the capacity and competitiveness of the domestic capital goods industry. Consequently, the foreign exchange component tends to be small in most projects. This is particularly the case in such high-priority sectors as agriculture and irrigation. 27. India's poverty and needs are such that whenever possible, external capital requirements should be provided on concessional terms. Accordingly, the bulk of the Bank Group assistance to India in the past was provided from IDA. However, IDA lending to India is declining from a peak of US$1.6 billion in FY82, mostly due to funding constraints related to IDA. The amount of IDA funds available to India is likely to remain small in relation to India's needs for external support. Thus, this requirement for additional assi,'ance will have to be met, in part, through larger Bank lending. Given its aevelopment prospects and policies, India is judged creditworthy for Bank lending to sup- plement IDA assistance. A continuation of efforts already underway to achieve growth in productive capacity, trade expansion, higher levels of savings, foodgrains self-sufficiency and a reduction in the rate of population growth should result in continued ecoiomic growth and improvement in the balance of payments. Despite recent setbacks, India's external payments position is still manageable. The ratio of India's debt service to the level of its total cur- rent account was about 12.9% in 1983/84. Over the next several years this ratio is projected to rise to around 20Z and remain around that level through 1995/96. As of September 30, 1984, outstanding loans to India held by the Bank totalled US$5,176 million, of which US$2,713 million remain to be disbursed. leaving a net amount outstanding of US$2,463 million. 28. Of the external assistance received by India, the proportion con- tributed by the Bank Group has grown significantly. In 1969/70, the Bank Group accounted for 34Z of total commitments, 13% of gross disbursements, and 12% of net disbursements as compared with 62%, 33% and 37Z, respectively, in 1983/84. On March 31, 1984, India's outstanding and disbursed external public debt was estimated to be about US$26.9 billion, of which the Bank Group-s share was U3S9.6 billion or 36Z (IDA's US$7.8 billion and lBDU-s US$1.8 billion). In 1983/84, about 19.0Z of India's total debt service payments were to the Bank Group.  -10- PART III - POWER AND IRRICATION IN INDIA The Power Sector in India and in tae Western Region 29. The Sixth Five Year Plan (1980-85) continued to accentuate the priority given by India to the development of irrigation and power resources which, between them, will account for about one-third of public expenditures during the Plan period. Shortages of energy are a critical constraint on India's economic development. The country remains dependent, to a large extent, on imported oil to meet rapidly groaing demand, and India's energy policy is to limit the use of petroleum to those sectors where it cannot be substituted by other resources. In recognizing the need to develop indigenous energy resour- ces to relieve the strain on its balance of payments on account of petroleum imports, coal based generation has been receiving high priority in Central and State Government planning. It is also recognized, however, that substantial resources rill need to be allocated to accelerating the exploitation of hydro resources, where untapped potential exists in major basins such as the Narmada River Basin. 30. Since 1970, power supplies have fallen short of demand due principally to delays in commissioning new power plants, operating and maintenance problems, budget constraints, unstable coal supplies and transport difficulties. Under the Sixth Plan generation capacity increased from 31,000 MW to its current level of about 39,000 KW, of which about 63Z is con- ventional thermal, 352 is hydro and 2% nuclear. Installed capacity is projected to grow at about 9.5% per annum by 1994/95, with the thermallhydro balance intended to be about 56:41, with nuclear capacity remaining low at about 3%. Over the past 10 years, the thrust of the Bank Group's assistance has been to expand Centrally-owned generation capacity. Recently there has been a moderate shift towards projects owned by State authorities in attempts to improve operational efficiency and project implementation capacity. Since 1954, the Bank Group has made 16 loans and credirs to India for power projects totalling about US$3.8 billion. Essentially the objectives of the Bank's assistance to the power sector are to improve the investment mix by accelerat- ing remaining economic hydropower resources and extending transmission and distribution systems; to improve capacity utilization; to formulate technical, commercial and financial operating policies for regional and nitional power systems; and to .mprove the organization, management, financc. and training of State and Central level power institutions. Details of the Bank Group's experience in the power sector are at Annex IV. 31. The Western Region, in which the proposed project is located, comprises the States of Gujarat, Maharashtra and Madhya Pradesh. Total installed capacity in the region is about 10,045 MW, of which 78% is thermal. Load growth in the Western Region over ine ten years 1971-81 averaged 7.4%, slightly higher than the national average of 6.4%. India's long-term power plan forecasts load growth rates for the region cf between 9.7% and 11.3Z per annum  -11- through 1984185 and 7.4Z to 8.3Z for the period 1984/85-1994195. Soae 19,000 MS of generating capacity will therefore need to be installed within the next decade to meet projected demand vithin the region, including suppressed demand. Power Sector !t'titutions 32. The institutional structure of the Indian power sector is complez. Under the Indian Constitution, the responsibility for supplying power is shared between the central government and the State governments, and full agreement between the Center and the States is required for the implementation of most actions. Various agencies have been established with a view to promoting integrated power development in the country. The principal agencies in the sector are: the State Electricity Boards (SEBs), the Regional Electricity Boards, the Central Electricity Authority (CEA), the two central power corporations-the National Thermal Power Corporation and the National Hydro-Electric Power Corporation-and the Rural Electrification Corporation. 33. The three SEBs in the western region were constituted under the Electricity (Supply) Act, 1948, and are responsible for generation, transmission, and distribution of electricity throughout their respective States. The SEBs' accounting systems are not fully in line with accepted commercial accounting practices. Moreover, they have not implemented recent State government directives to adopt the revised forms of annual accounting prescribed by CEA in consultation with the comptroller and auditor general of India. However, the SEBs, under the third Rural Electrification Project, agreed that they would introduce, from April 1, 1985, a system of commercial accounts to be prescribed by GOI (similar undertakings have been submitted by fourteen SEBs). GOI has initiated the preparation of a suitable unified SEB accounting system, to be introduced in April 1985, including the hiring of local consultants by each SEB to verify and adjust the existing accounts, and to provide the necessary guidance and training during the initial sLage of the system implementation. Agriculture and Irrigation in India and in Gujarat 34. Agriculture is the dominant sector of the Indian economy, contributing some 40Z to GDP. GOI development plans have sought to raise foodgrain produc- tion through the expansion and improved reliability of irrigation water supplies, fertilizers, plant protection, and seeds of improved variety. Projections of demand for foodgrains by the end of the Seventh Plan Period (1989/90) call for foodgrain production in excess of 150 million tons compared to producLion in 1983/84 of 145 million tons, which represents an annual growth rate of about 3% compared to the post-"Green Revolution" (1966-67) growth rates of about 2.5% per annum. Shortages of cultivable land will dictate the need for increasing production through more intensive cropping. This in turn requires, inter-alia, the extension of irrigation systems into large drought- prone areas where it is feasible to do so, through investments such as those contemplated for the Narmada River Basin. Bank Group lending for Indian agriculture has been, and continues to be, consonant with GOI objectives of raising agricultural growth and productivity, focussing on areas where techni-  -12- cal constraints, including the provision of reliable water supplies, are most severe. Bank Group investments in irrigation essentially aim at expanding and improving the efficiency of irrigation infrastructure, and providing optimal and coordinated resource use through improved water management. 35. Gujarat's population is 36 million and growing at an annual rate of about 2.5%. Agriculture accounts for more than 30% of the GDP and employs more than 60Z of its working population. Much of Gujarat is characterized by low and highly variable rainfall, with consequent susceptibility to drought and famine. COG therefore allocates high priority to irrigation development. While only 54% of Gujarat's ultimate irrigation potential has been developed to date, most surface water avaiLable for irrigation outside the Narmada Basin will have been developed within a decade. Three-quarters of the undeveloped water potential is located in areas whose requirements can be met by transfers from the Narmada Basin. Therefore, the only feasible means of sustaining an adequate level of agricultural growth in Gujarat is through the development of water suppLies from the Narmada River. The project will also create the poten- tial for irrigation of about 70,000 ha of drought-prone land in Rajasthan, a State which contains large areas of desert with low foodgrain yields. The Bank Group has provided significant support to Gujarat for the development of its irrigation systems beginning in 1961 and, since 1979, of its agricultural extension and research systems (details are in Annex V). The Narmada Basin 36. The Narmada is the largest westward-flowing river in India. It rises in eastern Madhya Pradesh and discharges into the Gulf of Cambay, draining about 98,800 km2 in Madhya Pradesh, Gujarat and Maharashtra. Its average annual flow is greater than the total of the Ravi, Beas and Sutlej flows that feed the Indus Basin. Previous plans for the development of Narmada's resour- ces could not be implemented due to interstate disputes over the allocation of water. In December 1979 the GOI-appointed Narmada Water Disputes Tribunal (NWDT) made an award covering most aspects of the basin developments, including the scope of the main investments, water allocations, cost and benefit sharing, resettlement and rehabilitation of the oustees, and institutional mechanisms for implementation and operation of project facilities. The NWDT's award has created the potential for a very significant development of water and power resources in India. The Basin plan calls for the ultimate construction of 30 major (21 irrigation, 5 hydropower and 4 multipurpose) projects, some 400 medium schemes and several thousand minor schemes which would bring under irrigation 4-5 million ha of potentially valuable agricultural land which are currently drought-prone. It would provide at least 2,700 MW of hydro power capacity and enhance domestic and industrial water supplies. The basin-wide program of development would take 40-50 years to complete. The first critical investments in the Narmada Basin will be the Sardar Sarovar Dam and Hydropower Project - the subject of this report - and the associated Water Delivery and Drainage Project in Gujarat described in the accompanying President's Report, No. P-3938-IN, dated February 6, 1985, Bank Group involvement in the Narmada Basin to date has consisted of providing funds under the project preparation facilities attached to the Gujarat II Irrigation Project (Credit 1101-IN, dated May 12, 1980) and the Second UP Tubewells Project (Credit 1132-IN, dated March  -13- 31, 1983) for preparation of the high priority investments in the basin. In addition, Bank staff and consultants have contributed substantially to optimiz- ing the basin plan and the design of the initial project investments. PART IV - THE PROJECT 37. The Dam and Pover Project was appraised by missions which visited India in March, June and September, 1983. A post-appraisal mission on the resettle- ment component visited India in August 1984. Negotiations were held in Washington, D.C. in November, 1984, and in January 1985 ith the Indian delega- tion coordinated by Mr. A. Thapan, of the Government of India's Department of Economic Affairs, Ministry of Finance. The complexity of the project and the n2ed for interstate coordination explain the time taken for appraisal and negotiations. The Staff Appraisal Report, 5107-IN, dated February 12, 1985 is being circulated to the Executive Directors separately. A President's Report pertaining to the Water Delivery and Drainage Project is being dis- tributed simultaneously. A Supplementary Data sheet for the dam and hydropower project is attached at Annex III. kroject Objectives 38. The project, together with the Water Delivery and Drainage Project, being considered simultaneously, would provide storage and regulation of Narmada River flows needed to establish a reliable and efficient supply of hydroelectric power, particularly long-term peaking capacity, to the Western Region grid. The projects would also provide storage and regulation of the Narmada River flows needed to establish efficient, reliable and equitable irrigation water supplies coupled with effective drainage, to very large, dry and drought-prone areas in Gujarat and Rajasthan. These investments would create a state-wide water conveyance network and thus be a major engine of growth for Cu,arat's whole economy and be the principal basis for its agricul- tural development in the 21st century. Water would also be supplied to urban and rural population centers and to industries in Cujarat. Development of a large untapped water resource, such as the Narmada River, would complement on-going efforts to improve utilization of existing irrigation facilities through upgrading of water delivery systems and improved management practices. Rationale for Bank Group Involvement in the Narmada River Development 39. The Sardar Sarovar Dam and associated canal networks would be the largest Indian irrigation system planned and designed as one unit. It has been designed and planned, and would be constructed to standards not hitherto used in India, and thus permit higher levels of reliability and timeliness of water delivery than previously achieved. It thus represents a break with traditional modes of Indian irrigation development. The Bank's influence to date has been instrumental in five ways: (a) the establishment of a high-level plannin& agency (the Narmada Planning Group); (b) the conduct of key studies in systems planning, design, implementation and operation, and in resettlement; (c) the use of foreign expertise to supplement local resources for formulating systems designs, studies and planning methodologies; (d) the resolution of unique technical and institutional issues, thereby enabling the development of large  -14- and hitherto untapped water resources; and (e) the formulation of a comprehen- sive and equitable resettlement and rehabilitation program for oustees. Further Bank Group involvement is justified to ensure the continued adoption of new technologies in systems communication, operation and control, including ensuring the introduction of dependable rotational water supplies to individual farmers spread over large areas, and contributing to increased reliability and efficiency of water use over very large areas. It would also be instrumental in facilitating interstate coordination, which is essential if the basin resources are to be developed in optimal fashion, given the interdependence of the invastments. Bank Group participation is justified to ensure that new technologies are adopted in the construction, operation and maintenance of other critical basin investments. It could also result in the attraction of suppliers' credits and other forms of coumercial financing to the project. Finally, Bank Group involvement in the basin would set new standards and thus catalyze the modernization of large parts of the Indian irrigation sector. Project Description 40. The Sardar Sarovar Dam and Power Project, whose location is shown in the attached Map No. IBRD 17694, consists of the following components: (a) Sardar Sarovar Dam: A concrete gravity dam structure 128.5 meters high, creating a reservoir with live storage of 5800 million cubic meters and extending some 210 kms upstream. About 370 square kilometers would be sub- merged at full reservoir level. (b) Power Generating Facilities: An underground powerhouse in the right abutment of the dam accommodating six 200 NW reversible turbine-generator units which would necessitate construction of a downstream weir for pump-back operations; another powerhouse located near the rim of the reservoir upstream of the head of the main irrigation canal containing five conventional turbine- generator units of 51Elw each. (c) Rockfill Dams, Link Channels, Saddle Dam and Bypass Tunnel: A saddle dam, including intake facilities to the canalhead powerhouse, a bypass tunnel for use when the powerhouse is not in operation and re-regulation ponds with inter-linking channels located between the powerhouse and the main canal head regulator. (d) Power Transmi-ssion Lines: Facilities would consist of 400 KV double- circuit transmission lines to evacuate the power generated under the project. (e) Flood Warning Network: Consisting of meteorological stations, rainfall recording stations, streamflow gauging stations, reservoir water level monitor- ing stations, all connected by a communications and data transmission network to data storage, retrieval and evaluation systems located at project operation centers. (f) Resettlement and Rehabilitation: The establishment and funding of institutions to design, implement, monitor and evaluate comprehensive programs  -15- for the resettlement and rehabilitation of peoples and communities displaced by the dam and reservoir complex. (g) Technical Assistance and Training: Funds would be provided for train- ing in environmental sciences, resettlement and rehabilitation; and in all aspects of project operation and maintenance of large dams, reservoirs and power equipment including power marketing and dispatching. Technical assis- tance for the dam and powerhouse complex would cover overall project design and construction quality control, and dam and power operations. Funds would also be provided for technical assistance in establishing and implementing the hydrometeorological network, in the overall monitoring and evaluation of the resettlemernt and rehabilitation plan, and training related thereto, and for establishing and maintaining the Dam Safety Panel. 41. The project would be implemented in conjunction with: water conveyance and distribution facilities, drainage facilities, roads, and other infrastruc- ture, which are described in a accompanying document entitled "President's Report and Recommendation on the Narmada River Development (Gujarat), Water Delivery and Drainage Project", dated February 6, 1985. The two projects have synchronized implementation schedules. It is essential to commence work on the canal network so as to ensure that water available upon completion of the Sardar Sarovar Dam could be used for irrigation and municipal and industrial purposes at the earliest possible date. Project Organization and Management 42. The Narmada DeveLopment Department (NDD) of the Government of Gujarat (GOG) has primary responsibility for planning, design, implementation, and operation and maintenance (O&M) of the project. Several agencies within Gujarat have been established to plan and execute the project. These are described below in paragraphs 43-49. Because of the interestate nature of the project, a number of coordinating institutions were set up to guide project implementation. Gujarat State Agencies 43. The Narmada Development Department. The NDD, to be headed by an Additional Chief Secretary, was recently created under the Minister of Irrigation to implement all Narmada-related investments, and will be respon- sible for the implementation of both the Dam and Power Project and the Water Delivery and Drainage Project. Current staff strength of Gujarat's total irrigation organization, including its Irrigation Department, 1/ is 7,516 engineers, of whom 1,370 (including 94 at senior level) are presently assigned to the NDD. Staff requirements will peak in 1988/89 at about 6,630 (technical and engineering staff), including 230 at senior level. GOG would maintain the 1/ The Irrigation Department, headed by a Secretary, will continue to be responsible for all other State irrigation and command area development activities outside the NDD.  -16- NDD at all times with such powers, functions, responsibilities, organization, staffing and funds as are required to implement and manage the project (Section 2.07, Gujarat Project Agreement). 44. Centralized Procurement Unit (CPU). In order to efficiently perform the complex procurement tasks necessary for the Narmada development, procure- ment responsibilities would be centralized in one organizational unit respon- sible for the procurement of all goods, works, and services for the entire scheme, reporting directly to the Additional Chief Secretary. The CPU would engage all the financial, commercial, legal and engineering talents needed to manage procurement activities, and would service all engineering aspects of the project in selecting the source, arriving at a price, and preparing the contracts for all works, goods, and services. The CPU would also monitor the progress of the contracts. COG has established the Central Procurement Unit for the project within the NDD and would maintain it during project implementa- tion with such powers, functions, responsibilities, staffing, organization and funds as shall be required (Section 2.09(a), Gujarat Project Agreement). 45. Narmada High Power Committee (NHPC). This committee is responsible for coordination and ensuring timely interaction between various COG depart- ments and provides guidance on policy issues related to the project. The NHPC is chaired by the Chief Minister of Gujarat and includes the Ministers of Finance, Irrigation, Power, and Agriculture among its members. 46. Narmada Planning Group (NPG). The NPG, within the NDD, reports directly to the NHPC and is responsible for carrying out major planning studies of the overall project in Gujarat and of the Narmada River Basin. It is chaired by the Irrigation Minister. Gujarat would maintain the NHPC and NPG with such powers, funi'tions, responsibilities, staffing and organization and funds as shall be required to enable them to carry out their respective responsibilities (Section 2.08, Gujarat Project Agreement). 47. Other Gujarat Agencies. Because of the magnitude of the project and its statewide importance, a number of other GOG departmental agencies have been and would continue to be involved in planning and implementing the project. These include the Departments of Finance, Agriculture, Forestry, Public Works, Transportation, Communications, and the Water Supply and Sewerage Board. 48. Dam Safety Panel (DSP). A Panel was formed in 1981 with both local and expatriate consultants. That panel has systematically reviewed the technical data, analyses, designs, ard implementation plans, to ensure the adequacy of the overall design, safety, and economic efficiency of the main dam and appurtenances, including the reservoir, spillways, powerhouses, foundations and river diversion facilities. Completed reviews covered selection of the dam site; foundation explorations; layout of the dam complex; flood hydrology study results including effects of the probable maximum flood on the main dam, the spillway, and appurtenant facilities; seismicity coefficients appropriate for the site; dynamic analyses of the structure; stability analyses; design  -17- criteria to be adopted; and design of the underground powerhouse. Upon comple- tion of the project design phase, the panel was disbanded. 49. In view of the continuing need for review of critical aspects of dam construction and operation, GOG would, by April 1, 1985, establish and there- after maintain an internationally constituted Dam Safety Panel (DSP) throughout the implementation of the main dam and appurtenances under arrangements and with membership satisfactory to the Bank Group, inter-alia, to review the adequacy of plans and designs of critical project works and conduct semi-annual reviews throughout project implementation and operation (Section 2.18, Gujarat Project Agreement). In addition, the NDD would, by April 1, 1985 prepare, in consultation with the Bank Group, and maint';n a list of consultants on which to draw for advice on technical issues as Lne need arises (Section 2.03(b), Gujarat Project Agreement). 50. Other interstate agencies have been established as follows: (a) Narmada Control Authority (NCA). The NCA is a coordinating and decision-making entity consisting of seven high-ranking engineers from each participating State and from GOI as members, and a supporting staff. It is expected to play a key part in coordinating the future operation of the project and other major irrigation and power projects in the basin. The NCA would participate with the GOG, GOMP and GOM in project implementation. It would play a key role in the operation of the hydrometeorological network and in the daily operation of the Sardar Sarovar Dam and Reservoir, and through the GOI, in the monitoring and evaluation of the resettlement and rehabilitation program. Upon project commissioning, the NCA would issue periodic directives concerning the interstate allocation of water and power, functioning along the lines of the Bakhra Management Board, which has been successful in guiding the irrigation and power operations of the Indus Basin in Punjab, Haryana, Himachal Pradesh, and Rajasthan. It would also review designs and coordinate the con- struction program for the main canal. (b) The Sardar Sarovar Construction Advisory Committee (CAC). This advisory committee was formed to review and make recommendations concerning the planning, design, and construction of the dam and power complex. It is chaired by the Secretary of Irrigation, GOI, and has representation from Central Government authorities handling irrigation and power, and from the States. It would be actively involved in reviewing designs, cost estimates, contract proposals and implementation progress. (c) Narmada Review Committee (NRC). This committee is :haired by the Union Minister of Irrigation, and includes the concerned chief ministers of each State as members. It has the right to review and suspend any decisions made by the NCA. GOI and the concerned States would at all times maintain the above interstate agencies with such powers, functions, responsibilities, staffing, funds and membership as shall be required for the accomplishment of their purposes (Sections 3.03, Development Credit Agreement, 2.06, Gujarat, Madhya Pradesh and Maharashtra Project Agreements).  -18- Training and Technical Assistance 51. It would be necessary for relevant agencies in State and Central Governments to establish training programs for staff engaged in project activities. The most important areas are resettlement and rehabilitation, environmental studies and preventive measures, and project operation and maintenance. The above training initiatives would be supported by an alloca- tion of US$0.7 million (including contingencies) of Bank Group funds over the 10-year implementation period. The project training allocation would finance expatriate fees, the costs of travel and expenses of project technical and administrative staff abroad, as well as instruction in India, and acquisition of up-to-date training equipment such as audiovisual or other special equipment required to accomplish specific training tasks. The training will be designed to instruct staff in all aspects of construction operation and maintenance of large multipurpose dam and power projects, including resettlement and rehabilitation of the oustees and programs to protect the environment. Plans, schedules, syllabi and budgets, would be submitted to the Bank Group for approval by December 31, 1985 for training programs related to the environment and the resettlement and rehabilitation of proiect oi'scees; and by June 30, 1989 for training programs for the operation and maintenance of project facilities (Sections 2.11, Gujarat Project Agreement, and 2.08, Madhya Pradesh and Maharashtra Project Agreements). Due to the unusual magnitude, complexity and high level of technical expertise needed for the project, it would be necessary for the NDD to utilize foreign and local technical experts and con- sultants covering a broad r.tnge of project activities, particularly for project design, procurement, construction, including quality control and OEM. About 312 man-monthi of foreign and local assistance would be required, costing about US$12.7 million, including contingencies. The terms of reference for the consultants would be satisfactory to the Bank Group and would be the respon- sibility of the NDD, in consultation with the DSP. Consultants with qualifica- tions and experience acceptable to the Bank Group would be selected by proce- dures and work under terms of reference acceptable to the Bank Group (Sections 2.03(a) and (c), Gujarat Project Agreement and Section 3.04, Development Credit Agreement). Evaluation and Monitoring 52. In order to provide adequate monitoring control and evaluatio- capabilities to manage the project, a Management Information Systems Cell (MISC) within the NDD with adequate computer facilities will need to be established. The MISC would produce data to control, plan, monitor, and forecast financial, material, and staff requirements for design and construction, so as to ensure effective overall management of project implementation. Tne MISC would be responsible for preparation of progress reports, and subsequently also manage and monitor water allocation scheduling, agricultural progress, water rates and crop trends as the project becomes operational. The MISC would be fully staffed and operational by December 31, 1985 (Section 2.11(b), Gujarat Project Agreement).  -19- Reporting 53. COG, GOMP and COM would submit to the Bank Group semi-annual and annual reports covering progress in meeting their respective obligations and respon- sibilities under the project, within three months after the end of each report- ing period. The reports would compare planned and actual implementation in physical and financial terms, describe deviations from plans and explain the reasons therefor, and provide revised implementation schedules. COG would submit to the Bank Group a project completion report not later than six months after the Closing Date of the Loan/Credit (Sections 2.13 and 2.12(d), Gujarat Project Agreement). Furthermore, COG would, commencing September 30, 1985, furnish to the concerned authorities and to the Bank Group semi-annual reports on the implementation of the resettlement and rehabilitation plan, these reports to include submissions by the institutions which will be monitoring and evaluating progress under the plan (Schedule 2, Gujarat Project Agreement). Operations and Maintenance Planning 54. The responsibility for O&M plan has been assigned to the NPG. Those responsible will, therefore, form the nucleus of the O&M organization for the project, and will formulate proposals for a permanent O&M organization. Initially, the NPG will perform such tasks as analyzing and preparing plans and requirements of the proposed O&M training facility. Thereafter, it will be responsible for reviewing the detailed organization, facilities, equipment, and staffing needs for the initial and full development stages of the project and :o recommend permanent organizational arrangements. It will prepare detailed plans to guide the operation and maintenance of the power facilities to be constructed under the project. The Planning Unit will also prepare specifications, responsibilities and arrangements for power sharing among the benefitting States. Project Operation and Maintenance (O&M) 55. The NDD would be responsible for overall O&M of the project facilities until completion of an approved O&M plan and the establishment of a permanent O&M organization. A specialized O&M unit would have to be created within the NDD to operate the dam and power complex in a manner that will ensure adequate interface of power operations with water supply delivery operations. The operation of the facilities would need to be in accordance with the mandate of the Tribunal concerning the sharing of water between irrigation, power and municipal and industrial uses, and the sharing of benefits among the par- ticipating States. In order to determine appropriate arrangements for such O&M, detailed studies will be needed to delineate organizational responsibilities, facilities and staffing and to prepare manuals to guide the operation and maintenance of each facility and its structures. Thus, the NPG would develop a detailed plan for operation and maintenance for submission to the Bank Group for approval by December 31, 1987 (Section 2.02(b), Cujarat Project Agreement). By December 31, 1988, GOG would establish and thereafter maintain a full-time O&M organization with powers, functions, responsibilities, staffing and funds needed to operate and maintain completed project works (Section 2.07(d), Gujarat Project Agreement).  -20- Hydrometeorological Network 56. A hydrometeorological network would be established for the Narmada Basin to provide flood warnings and to improve day-to-day operation of its many reservoirs. Coordination among the participating States would be needed during both the implementation and the operational phases, and would be provided by the NCA. The system would be operational by June 30, 1988 (Section 2.02(g), Gujarat Project Agreement). Resettlement and Rehabilitation 57. The Sardar Sarovar Reservoir would inundate about 41,000 ha of land and require the evacuation of over 67,000 people in Gujarat, Madhya Pradesh and Maharashtra. The Tribunal issued detailed instructions regarding resettle- ment and rehabilitation. While more than two-thirds of the oustees are located in Madhya Pradesh, the Tribunal directed that the burden for implementing the resettlement and rehabilitation effort fall on all three States. l/ Gujarat is required to offer land, civic facilities and financial assistance to those families being resettled within the State. (Only if oustees now living in Madhya Pradesh and Maharashtra do not wish to migrate to Cujarat are Madhya Pradesh and Maharashtra required to provide resettlement and rehabilitation facilities, and compensation--reimbursable by Gujarat--to them.) Each displaced family owning land and relinquishing more than 25% of its holdings, would be allotted irrigable land of the same size as the holding that would be lost, with a minimum of 2 ha per family. Irrigation facilities are to be provided by the State in whose territory oustees are resettled. Oustees are to be compen- sated for the land they lose. However, only part (50%) of the cost of new land given to them needs to be paid initially. The remainder can be debited and repaid over 20 years (interest-free). While the Tribunal's mandate covered many of the interstate aspects of the resettlement effort, it was not explicit on the compensation to be given to ouste7s in Gujarat itself, nor on how land- less people were to be compensated for displacement and consequential loss of livelihood. It was required therefore that the Tribunal compensation package be expanded. Of particular concern was the need to ensure that the landless, most of whom are tribal peoples, normally reluctant to adopt fixed abodes and agricultural activities as a livelihood, had their standards of living protected. In addition, planning and financing of the resettlement effort had to be integrated into the project and its timing made consonant with rising water levels resulting from dam construction. Also, arrangements for monitor- ing and evaluation of the plan had to be established. During project appraisal, an overall program for resettlement and rehabilitation for oustees was drawn up, and time-bound schedules for resettlement of all affected vil- lages and the costs thereof assessed. In addition, a detailed rehabilitation plan for phase I of the program, covering oustees affected by reservoir submer- gence up to 350 ft (to be accomplished by 1987/88) were discussed and agreed 1/ About 45,000 oustees are located in Madhya Pradesh, 11,70lt in Maharashtra and 10,500 in Gujarat.  -2 1- wlth the concerned Itates. These plans have, as thelr minimum objectLvem, the restitution of the provLous standards of living of all ousteos. They also aim at their economic and sociLal integration into the host communLtLes. In order to ensure that adequate land is available to oustees, forest lands, currently under the control of COI, may need to be made available. If so, GOI will provide Oujarat, Madhya Pradesh and Maharashtra necessary forest land currently reserved under the Forestry (Conservation) Act of 1980 to enable those States to implement the resettlement and rehabilitation program (Section 3.02, Development Credit Agreement). Landless oustees would thus have access to agro-forest land to pursue their livelihood. Alternatively, they would be provided with acceptable, permanent employment which will provide annual income above GOI's established poverty datum line (US$120 per annum). Guidelines on the assignment of responsibilities, on the conduct of necessary studies, on the institutional and financial requirements for the resettlement and rehabilita- tion effort in each State, and on the implementation of detailed rehabilitation action programs have been agreed. Necessary staff from State Covernments, including Departments of AgricuLture, Fisheries, Forestry and Tribal Development will be made available. Each State will, by March 31, 1985, retain an independent research institution to monitor and evaluate the resettlement and rehabilitation program and recommend adjustments, if required, over the 10-year implementation period, under terms of reference satisfactory to the Bank Group. The GOI assisted by the MCA will be responsible for overall monitoring and evaluation of the entire resettlement and rehabilitation effort and for reporting thereon to the Bank Group under arrangements acceptable to the Bank Group (Section 3.05, Development Credit Agreement). Participating States will resettle and rehabilitate all those displaced by the project in accordance with plans, including principles, objectives and institutional arrangements, satisfactory to the Bank Group (Schedule 3, Development Credit Agreement; Sections 2.10, Gujarat Project Agreement, 2.07 of Madhya Pradesh and Maharashtra Project Agreements). Environmental Effects 58. Characteristically the creation of large man-made lakes results in in significant environmental changes in the area. In this case, submergence would cause loss of forest and agricultural lands, cultural infrastructure and a limited loss of wildlife habitat. Effects on existing fisheries remain to be assessed. However, creation of a more positive ecocycle on the periphery of the reservoir may be expected in terms of improved soil moisture for nearby forests and other biomass and improved wildlife habitat. Opportunities would be created for improved local river transportation and freshwater fisheries. Below the dam, frequent low-intensity flood damage would be controlled, but the potential for degradation of the Narmada streambed would be increased and the upward migration of existing fish species would be halted. The objectives and outlines of a comprehensive environmental protection program covering fish and fisheries, forests and wildlife and public health have been agreed with the concerned States. All proposed studies and programs can be implemented through institutions which already exist. Detailed work pLans and schedules for meet- ing the requirements of a comprehensive environmental protection program will be submitted to the Bank Group by December 31, 1985 and implemented thereafter (Sections 2.l1(a)(i) and (b), Gujarat Project Agreement, and 2.08(a)ti) and  -22- (b) of Madhya Pradesh and Maharashtra Projecr Agreements). Cujarat, Kadhys Pradesh and Maharashtra would also take all necessary measures t- minimize the risk of malaria, filaria, schistosomiasis, and other water-related di -oases that may result from the implementation of the project (Section 2.1:, Gujarat Project Agreement and Sections 2.14 of Kadhya Pradesh and Maharashtra Project Agreements). Project Costs and Financing 59. The total costs of the project are estimated at US$1,934 million equivalent, including an estimated US$260 million in taxes and duties. Foreign exchange costs are estimated at US$613 million. Physical contingencies were estimated separately for each component and average 9% of base cost estimates. Price contingencies account for abost 31% of total project costs (including contingencies) and are based on local rates of 8.5% for the period 1984185 through 1990/91 and 6Z per annum thereafter. Foreign inflation rates used are 9.75% in 1984185, 8.75Z in 1985186, 7% in 1986187 and 6% thereafter. 60. The costs of the project would be borne by the four participating States in proportions mandated by the Tribunal as follows: 1/ Gujarat - US$359 million or about 26%; Madhya Pradesh - US$280 million or about 15x; Maharashtra - US$402 million or 29Z and Rajasthan - US$29 million or 1.5%. For the two last-mentioned States, financial obligations under the project are small in relation to the States' development programs, so that they should face little difficulty in mobilizing the resources necessary to meet them. With respect to Gujarat and Madhya Pradesh, however, investments in the Narmada Basin will be major undertakings which will absorb considerable financial resources. Given the long gestation period of the Narmada investments, cost recovery from them is excluded as a source of revenue for these States. Prospective budgetary resource availabilities and investment programs for Gujarat (irrigation) and for Madhya Pradesh (irrigation and power), for the Seventh Plan period (1985186 - 1989190) have been analyzed to ensure that Narmada investments can be accommodated without undue displacement of invest- meats in other sectors or critical operation and maintenance expenditures in each State. Cujarat is expected to allocate approximately one-third of its overall plan resources to the irrigation sector. Total contributions from Zujarat to the Dam and Power Project, to the Water Delivery and Drainage Project and to the upcoming Narmada Sagar project in MP are expected to absorb about 65% of Gujarat's irrigation investment budget over the Seventh Plan period. Madhya Pradesh will finance these investments from its irrigation and power budgets which, together, are expected to receive some 70J of MP's overall plan resources. Of this proportion, commitments to ongoing projects and to planned Narmada investments will absorb about 80% of resources to be allocated to the irrigation and power sectors. 61. Since each State has stated under the Seventh Plan its intention of according the highest priority to Narmada investments, Narmada investments are 1/ ExcLudes contributions from GOI and outside sources.  -23- expected to be supportable under each State's plan. Furthermore, since Narmada investws2nts are interstate projects of considerable national importance, GOI has indicated that special provision could be made, if needed, for additional E-ands to ensure that sufficient resources are available to ensure timely com- pletion of the investments. In any event, GOI would provide sufficient funds to ensure timely implementation of the project (Section 3.01, Development Credit Agreement). 62. The Bank croup contributiou of a loan of US$200.0 million and a credit of SDR 99.7 milli,i (US$100.0 milLion equivalent) will f tance about 18S of total project costs, net of taxes and duties. About 49Z of the project's foreign exchange costs would be finAnced by the Bank Group's contrib!'tion. In addition, commercial cofinancing would be encouraged by requesting, as part of ICB bidding procedures, suppliers' credits to cover a 1:rtion of the foreign exchange cost of the power gener&;.ng equipment. The Bank loan w.-uld be made to GOI for 20 years including five years of grace, at tbe prevailing variable interest rate. The IDA credit would be on standard terms. Bank Group funds would be channelled to GOG in accordance with G00's standard terms and arrange- ments for financing development projects. Procurement and Disbursement 63. Annex VI to this report details the manner in which items will be procured under the project. Civil works contracts costing about US$498.5 million (or 99Z of the total) would be let under International Competitive Bidding pr=cedures. These contracts would cover construction of the main dam, fabrication and installation of all gates, construction of the irrigation bypass tunnel and civil works fur the underground powerhouse. Some additional small works contracts totalling US$4.5 million have been scheduled which, because of their size, would not be of interest to foreign bidders and would be let following Local Competitive Bidding in accordance with procedures whicAL are acceptable to the Bank Group. Additionally, the purchase, constrJction and installation of the hydrometeorological network throughout the Natrrada Basin would be undertaken at many scattered sites. Individual works contracts for these would not exceed US$100,000 per contract with a total not to exceed US$1.5 million. Qualified Indian contractors would receive a preference of 7.5% in the evaluation of ICS bids. A contracL for the supply of special steel for penstocks (estimated to cost US$3.9 million) 1/ would be let through ICB. Instruments for the hydrometeorological network (estimated to cost US$15 million) 1: zould also be procured through ICB. A preference of 15% or the prevailing cu:toms duty, whichever is lower, .ll be received by qualified local suppliers of goods. Local shopping requiring at least three quotations will be used to procure specialized equipment for the training program, estimated to cost less than US$30,000. Works contracts in excess of US$1 million and goods contracts in excess of US$103,000 would be subject to pre-action by the Bank Group. All other contracts would be subject to post- review. Proc.rement action on the two major contracts, namely, dam and under- 1/ excluding price contingencies.  -24- ground powerhouse, which represent 94% of the project's works -ontracts, has begun. Prequalification of contractors to construct the main dam is complete, while prequalification for the underground powerhouse is underway. Power generating equipment not to be financed by the Bank will be procured from recognized international suppliers. 64. In order to match disbursements with the project's financial requirements, disbursements would be accelerated during the first five years siith the goal of disbursing up to bOZ of the funds by the end of FY1990. No disbursement profiles are applicable fox projects of this duration, especially since special provision has been made to accelerate disbursements over the early years of the main civil works contracts. Disbursements of Bank Group funds will be restricted to expenses related to the main dam, the civil works contract for tunnelling and concreting in the riverbed powerhouse, the irriga- tion by-pass tunnel and related gates, penstocks and other metal work, the hydrometeorological network, and training and technical assistance. Disbursements would be made for (a) 100% of foreign expenditures for directly imported goods; (b) 100% of ex-factory expenditures or 70Z of expenditures for equipment procured locally; (c) 70Z of expenditures on the hydrometeorological network; (d) 45% of expenditures for civil works from FY85-90 and 15% in sub- sequent fiscal years; and (e) 100% of training and technical assistance expenditures. Disbursements for alL payments for training and for payments of less than Rs 300,000 for works, or Rs 150,000 for goods, would be made against certificates of expenditures. Documentation for these expenditures would be retained by GOG and made _vailable for inspection by the Bank. Full documenta- tion would be required for all other disbursements. It is expected that dis- bursements would be completed by June 1995. Accounts and Audits 65. CDC, COMP and COM would maintain separate accounts for project expenditures, 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 .he Bank, are submitted to the Bank not later than nine months after the end of its fiscal year. They would also have final audits prepared for project accounts for each fiscal year by an auditor acceptable to the Bank and f