Nepal - Sunsari Morang Headworks Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 17949 IMPLEMENTATION COMPLETION REPORT NEPAL SUNSARI MORANG HEADWORKS PROJECT (CREDIT NUMBER 2430-NEP) June 3, 1998 Rural Development Sector Unit South Asia Region 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 EOUIVALENTS US$ 1.0: NRs 40.00 1991 (at appraisal) NRs 43.00 1992 NRs 49.00 1993 NRs 49.70 1994 NRs 54.00 1995 NRs 56.90 1996 NRs 60.70 1997 (at ICR preparation) WEIGHTS AND MEASURES I meter (m) = 3.28 feet I kilometer (km) = 0.62 miles I hectare (ha) = 2.47 acres =1.50 bighas I million cubic meter (Mm3) = 810 acre-feet or 35.3 Mft3 I cubic meter per second (m3/s) = 35.31 cubic foot per second (cfs) I cubic foot per second (cfs) = 0.028 cubic meters per second (m3/sec) 1 metric ton = 2,205 pounds FISCAL YEAR OF BORROWER July 16 - July 15 ABBREVIATIONS AND ACRONYMS CMC Chatra Main Canal DOI Department of Irrigation ERR Economic Rate of Return HMGN His Majesty's Government of Nepal ICB International Competitive Bidding ICR Implementation Completion Report IDA International Development Association M & E Monitoring & Evaluation NEA Nepal Electricity Authority NISP Nepal Irrigation Sector Project O&M Operation and Maintenance PCR Project Completion Report PPAR Project Performance Audit Report POE Panel of Expert POP Project Operation Plan RWS Rotational Water Supply SAR Staff Appraisal Report SMHP Sunsari Morang Headworks Project SMIDB Sunsari Morang Irrigation Development Board SMIP Sunsari Morang Irrigation Project SMIS Sunsari Morang Irrigation System WUA Water Users'Association WUGs Water Users'Groups GLOSSARY cumilecs cubic meters per second k-harif Wet Season (June to October) masl meter above sea level rahi Dry Season (November to February) : Vi,ce Prcsident -Mieko Nishimizu X Country Director - ans Rtenbuhier Sector Managers -Michacl Baxter and Ridwan Ali IL Task Tcami Leader -Ohn Myint  NEPAL FOR OFFICIAL USE ONLY SUNSARI MORANG HEADWORKS PROJECT (Credit 2430-IN) Table of Contents PREFACE .........................................................i EVALUATION SUMMARY ........................................................ ii PART I: PROJECT IMPLEMENTATION ASSESSMENT ......................................................... 1 A. Project Objectives ..................................................1l B. Achievement of Objectives .................................................. 2 C. Implementation Record and Major Factors Affecting the Project .................................... 8 D. Project Sustainability ...................................................9 E. Bank Performance .................................................. 10 F. Borrower Performance ...................................................11 G. Assessment of Outcome ...................................................11 H. Future Operation .................................................. 12 I. Key Lessons Learned ................................................. 13 PART II: STATISTICAL TABLES Table 1. Summary of Assessments .................................................. 14 Table 2. Related Bank Loans/Credits .................................................. 16 Table 3. Project Timetable .................................................. 17 Table 4. Loan/Credit Disbursements: Cumulative Estimated and Actual . .......................... 17 Table 5. Key Indicators for Project Implementation ................................................. 18 Table 6. Key Indicators for Project Operation .................................................. 19 Table 7. Studies Included in the Project .................................................. 20 Table 8A. Project Costs .................................................. 21 Table 8B. Project Financing ................................................. 22 Table 9. Economic Costs and Benefits ................................................. 23 Table 10. Status of Legal Covenants ................................................... 24 Table 11. Compliance with Operational Manual Statements .............................................. 27 Table 12. Bank Resources: Staff Inputs ................................................... 28 Table 13. Bank Resources: Missions .................................................. 29 APPENDICES 1 Mission's Aide-Memoire .................................................. 30 2 Economic Re-evaluation ................. 41 3 Borrower's Evaluation ................. 67 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.  IMPLEMENTATION COMPLETION REPORT NEPAL SUNSARI MORANG HEADWORKS PROJECT (Credit 2430-NEP) PREFACE This is the Implementation Completion Report (ICR) for the Sunsari Morang Headworks Project in Nepal, for which Credit 2430-NEP in the amount of SDR19.0 million (US$28.0 million equivalent) was approved on November 5, 1992 and made effective on January 22, 1993. The Credit closed as scheduled on December 31, 1997. The ICR was prepared by Ohn Myint, Task Leader, and reviewed by Michael Baxter, Manager, Rural Development Sector Unit of the South Asia Region. Preparation of this ICR was initiated during the Bank's final supervision/completion mission in November 1997. It is based on material in the project file as well as field investigation and discussions with project staff. The Borrower contributed to the ICR through arranging field visits during the completion mission, preparation of a Project Completion Report (PCR), available from the South Asia Information Center, and a Borrower's Evaluation Report, attached as Appendix 3 to this report.  ii IMPLEMENTATION COMPLETION REPORT NEPAL SUNSARI MORANG HEADWORKS PROJECT (Credit Number 2430-NEP) Evaluation Summary Introduction 1. The Sunsari Morang Headworks Project (SMHP) financed the supplementary infrastructure necessary to provide adequate year-round silt-free irrigation water to the Sunsari Morang Irrigation System which the two earlier investment projects - Sunsari Morang Irrigation Project (SMIP) Phase I and Phase II failed to provide. The ICR should therefore be read in conjunction with the SAR and ICR of SMIP-II (Cr. 1814-NEP). Project Objectives 2. The infrastructure funded under the project aimed to achieve the overall project objectives of: (a) providing the system with silt-free irrigation water during the monsoon season, through construction of a desilting basin equipped with dredging facilities for continuous dredging; and (b) elimination of a dry season sand bar blockage at the existing intake, through construction of a new intake upstream. 3. The project, implemented over a five-year period, included the following components: (a) construction of a new intake near the Chatra Gorge on the Kosi River upstream from the existing intake; (b) construction of a culvert to carry water from the new intake to the pre-settling basin; (c) construction of a new pre-settling basin upstream from the existing intake; (d) modification of the existing intake and channel; (e) improvement of the desilting basin completed under SMIP II; (f) provision of dredging facilities for desilting; (g) construction of a small hydro-power plant in the main canal to run the dredging facilities; (h) management, operation and maintenance, and staff training in dredger operation; and (i) technical assistance for construction, supervision and training. Implementation Experience and Results 4. Due to two unexpected floods which occurred during construction, the project works were satisfactorily completed on May 31, 1996, about six month behind schedule, but still about one and a half years prior to the Credit closing date of December 31, 1997. Had advanced procurement of three ICB contracts not taken place prior to the Board presentation of the Credit, these delays in the completion of works could have affected the training for dredger O&M and commissioning, and the turning over of the headworks to the Borrower.  5. During the implementation period, there were a number of changes to key project staff, i.e., project manager and senior divisional engineers. There have been five project managers at different periods of project implementation. Though in accord with HMGN's transfer regulations for government staff, these frequent turnovers greatly affected project implementation during its early stages and equally at the final wind-up, which resulted in project management's inability to reach decisions promptly on some ICB contractual issues affecting project closure, e.g. procurement, disbursement and contractual settlement, training and systems operation. 6. The following cases are examples of implementation problems: (a) long delay in turnover of hydropower station to the Nepal Electricity Authority (NEA) despite Cabinet's approval; (b) inadequate attention of project management to the low level of water charges collection; (c) unsettled disputes with SMHP/02 dredger supplier/contractor on contractual liabilities for default till near to closure, so affecting the training program and spares procurement; and (d) absence of key NEA staff in the training and commissioning of the hydropower station works. 7. The infrastructure funded under the project achieved the two major project objectives of: (a) providing silt-free irrigation water during the monsoon season, through construction of the desilting basin and provision of dredging facilities for continuous operation; and (b) elimination of the sand blockage at the intake during the dry season, through construction of the new intake upstream from the old intake. The small hydropower station constructed on the main canal to provide power to the dredging facilities was an added achievement. 8. Commencement of full operation was realized in June 1995 with assured year-round supply of water at designed capacity, which would allow significant increases in cropping area and changed cropping patterns during the dry season, and assured supplemental irrigation during the monsoon season. 9. Completion of the new headworks with remodeling (modernization) of the existing irrigation systems in the Stage I command area, the rehabilitation of existing irrigation facilities, and the development of the distribution systems in the Stage II command area (funded under SMIP I and II Credits), have now enabled cropping intensities to increase substantially from 135 percent during the 1990/91 "pre-project" scenario to 171-179 percent in Stages I and II, and 150 percent in Stage III during 1995/96. These changes are expected to increase to percent in 2000/01 in all areas. 10. Despite some problems with turns and time-sharing, the rotational water supply system (RWS) worked satisfactorily and was accepted by farmers who initiated construction of field channels. Presently, field channels cover more than 50 percent of the command area.  iv 11. Water charges collection in the system needs further improvement. Effective FY1998, HMGN increased water charges from NRs.200 to NRs.400/ha to cover the full O&M charges in the developed areas. However, at the time of the ICR, only 28 percent of dues were being recovered from beneficiary farmers, in contravention of the provision in the Development Credit Agreement. The low rate of recovery is partly due to the inability of the authorities to take action on defaulters, and partly due to farmers' low confidence in the system, which needs to be built-up over time. 12. Through the project, the system is now equipped with computerized facilities for project monitoring which would provide valuable information for the determination of the system's efficiency. The M&E division of SMIP had also taken on a new importance in that it is now headed by a senior officer. A full telephone link between the Project Manager's office, senior engineers' at headquarters and operators at important control structures is needed. 13. Since commissioning of the dredgers in June 1995, training in dredger O&M by expatriate consultants was imparted continuously to project staff until Credit closing in December 1997. Hand-on training was imparted to two dredger teams. However, due to a lack of motivation for permanent staff, establishment of a full O&M team headed by qualified mechanical/electrical permanent staff has not been achieved. Specific training to project staff by the supplier of the hydropower station was also carried out in which all of the project's O&M staff benefited from hands-on site training, at one time or another, particularly on operations procedures for the headworks. Farmers' training in RWS initiated at the commencement of SMIP II continued through June 1997 under the guidance of the Water Management consultants, and covers about 60 percent of the training of WUGs. 14. Actual Project Costs. Estimated total project cost at the time of Credit closing on December 31, 1997, was about US$ 30.6 million or about 86 percent of the SAR estimate in US Dollars, out of which about US$ 4.74 million was funded under SMIP II Credit. In Rupee terms, this is about NRs. 1,595.0 million (in real terms) or about 101 percent of SAR estimate. 15. Of the total IDA Credit of SDR 19.0 million (US$ 28.0 million equivalent), SDR 1.7 million (US$ 2.5 million equivalent) was canceled just prior to credit closure. As of May 31, 1998, a total of SDR16.0 million (US$ 23.19 million equivalent) had been disbursed, leaving an undisbursed balance of SDR1.3 million (US$ 1.74 million equivalent) which will be canceled in due course. 16. Economic Rate of Return (ERR). An economic re-evaluation had been carried out for the various scenarios which included the additional benefit from hydropower generation, and savings in pre-project desilting costs. Based on the pre-project and "with project" cropping patterns, cropping intensities and yields, and actual project expenditures, ERRs are estimated at 20 percent for the free standing SMHP and including SMIP Stages I and II, and 20-49 percent for a time-slice of the larger Sunsari Morang  v Irrigation Project including Stages I and I[, SMHP and further development in Stage Il. These compare favorably with the project appraisal estimates. The economic analysis of the SMHP should be viewed in conjunction with the results of the economic analysis shown in the SMIP I ICR (ref. SMIP ICR No. 15336, dated February 7,1996). Project Sustainability and Key Factors for achieving Objectives 17. The project achieved the main physical objectives of providing silt-free irrigation water during the rainy season, and elimination of the sand blockage at the intake during the dry season. However, the sustainability of the project is contingent on the Government's commitment to ensure sustained support of O&M of the infrastructure developed under the project, coupled with incentives for O&M staff assigned to the remote area where the project is located. It is also important to take firm action on cost recovery. The headwork is the artery of the whole irrigation system. The requirement for O&M is not much. Under resource scarce conditions, it is important to give priority to allocating adequate O&M funding required for the headworks. So long as enough funds are provided for the adequate level of O&M of the infrastructure installed under the project, the headworks sustainability is likely. 18. Risks. Common to any large-scale public irrigation system, SMHP faced technical and institutional risks. As regards technical risks, water extraction structures installed under the project are located in one of the world's largest rivers, and this still has an active channel process with enormous destructive power and located in a geologically fragile zone of the Himalayas. The risks of failure increase if infrastructure regulations are not adhered to. These risks are minimized by following the advice of the international Panel of Experts (POE), providing the requisite training for project staff is undertaken, improved operational practices are continuously applied, and staff continuity is assured. On the institutional aspect, a notable achievement is the provision of on-the-job training to all operational staff and project beneficiaries for two years after completion of construction. But a risk faced by the project is the unwillingness of the trained O&M staff to stay in the remote area where the headworks are located. Provision of incentive and motivation to trained staff working in a remote area is necessary. Mitigation activities, such as staff training and improved O&M will be continued in the recently approved Nepal Irrigation Sector Project (NISP) (Credit 3009-NEP). If these institutional aspects are not thoroughly addressed, the project's long-term sustainability can be seriously jeopardized. Summary of Findings, Future Operations, and Key Lessons Learned 19. The project generally achieved its main physical objectives and its overall outcome is therefore rated as satisfactory. The satisfactory outcome of the project is based on its physical performance alone and the assumption that benefits will build up following completion of the project, and that farmers' collaboration in O&M will be sustained. Events which could result in the decline in project sustainability includes potential systems failure resulting from improper and inadequate maintenance due to lack of Borrower's commitment and potential political intervention on the issue of collection  vi of water charges. HMGN's past track record on O&M support is dismal. For this reason, project sustainability is rated uncertain. Bank performance overall is rated satisfactory. Borrower performance is also rated satisfactory, except for project preparation where it is rated deficient due to delays in reaching decision on project design. 20. Provision of training and guidance to farmers and WUAs has to be continued until the water management system is well-rooted in the project area. Funds have been earmarked under the NISP for this purpose. At present, almost half of the system area remains to be developed. With the proper use of the new headworks, the Borrower should be able continue to sustain the momentum achieved in the SMIP I and II in order to obtain the same benefits for the remaining areas. Water charges collection should however be differentiated in the fully developed (Stage I and II), partially developed (Stage I) and the remaining undeveloped areas. Under NISP, an agreement has been sought from the Borrower to carry out a detailed study on water charges collection issues and remedial measures. 21. Future Operation. The Project Operation Plan (POP) and Project Completion Report (PCR) of SMHP and SMIP II describe the required O&M organization and the resources requirement for the system's O&M. For the headworks alone, the resources requirement is in the order of NRs. 2.0 million. The computerized water management model installed under the project, if properly used, can enhance the system's efficiency. In order to evaluate the future performance of the project, constant and close monitoring and evaluation practices need to be instituted in the system. The monitoring system must be efficient and transparent to the users and to the staff. Evaluation should be based on (a) actual irrigated area in each season using irrigation boundary maps; (b) assessment of water charges based on area irrigated; (c) amount of water charges collected and used for O&M; and (d) agricultural production. This monitoring needs a well-organized institution with highly-motivated staff. Constraints on sustainability of monitoring are: (a) budget commitment; (b) appreciation of monitoring by project management and staff; and (c) improved management of the whole organization. 22. Recorded water levels in the river at the new intake during the low flow season, are falling in the last two years. Possible causes are the degradation of the river channel and/or an occurrence of low hydrological cycle. Data at the new intake and upper gauging sites should be analyzed to identify the causes and to forecast the future trends. 23. The facilities for sediment monitoring in the project are inadequate and need to be urgently upgraded under the NISP. Training of existing staff and recruitment of additional manpower is required. The follow-up O&M arrangement for the dredger is not satisfactory, particularly in spare parts purchase.  vii 24. Key lessons learned from the project are: * for important infrastructure projects like SMHP, the arrangements for procurement and a management plan of ICB contract should be agreed and finalized before credit effectiveness; * organizational arrangements for the operation and maintenance of the infrastructure installed under the project must be finalized and in place prior to commencement of commissioning and takeover; * limiting turnover of key project personnel is critical when dealing with ICB contracts to avoid disputes, penalties and delinquencies in contractual obligations; * the success of operation and sustainability of infrastructure projects depends on physical soundness of structures, as well as a project's social and organizational responsiveness to the concerns of all stakeholders; * O&M arrangements should be in place and tested for at least one year before the closure of a Credit; I e commitment of the Government to impose and implement service charges to cover full O&M costs of public utilities after improvement is important; and e transparency to beneficiaries of O&M expenditures is important to win their confidence in the maintenance system.  1 IMPLEMENTATION COMPLETION REPORT NEPAL SUNSARI MORANG HEADWORKS PROJECT (Credit 2430-NEP) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES Introduction 1. The Sunsari Morang Irrigation System is the largest public irrigation system in the Eastern Region of Nepal. It diverts water from the Kosi River, and commands a gross irrigable area of about 68,000 ha. The Sunsari Morang Irrigation Project (SMIP-formerly known as the Chatra Canal Project) was initiated in 1964 by the Government of India, (GOI) in accordance with the 1954 Kosi Agreement between GOI and His Majesty's Government of Nepal (HMGN).' Under this agreement, GOI undertook to finance and construct the Chatra Canal Project (CCP) in Nepal to irrigate a net area of about 58,000 ha, using water diverted from the left bank of the Kosi River at about 20 km upstream of the Kosi Barrage at the Indian border. After trial operations, the SMIP was handed over by GOI to HMGN in 1975. However, the project, as handed over to HMGN lacked minor irrigation distribution networks which were supposed to be constructed by HMGN. 2. Since inception, SMIP was plagued by siltation problem which became progressively worse over the years as the Kosi River course migrated westward, and which small-scale remedial works failed to contain. The siltation problem was of two types: during the rainy season when river water is abundant, it is silt-laden; but during the dry season when water is silt-free and flowing low, the intake point is marooned with sandbars impeding sufficient intake discharge from the main stream of the Kosi River for dry season irrigation. The problem is exacerbated by the lack of minor irrigation distribution networks. As a result, SMIP, as originally built, failed to achieve its objective. Statement of Project Objectives 3. IDA's involvement in the SMIP started in 1978 with the approval of the first stage SMIP I (Credit 812-NEP) for US$30 million for the rehabilitation of sediment-laden This bilateral agreement dated April 25, 1954, as amended on December 19, 1966, states that "HMGN shall have every right to withdraw for irrigation and for other purposes in Nepal water from the Kosi river and from the Sun-Kosi River or within the Kosi Basin from any other tributaries of the Kosi River as may be required from time to time. The Union shall have the right to regulate all the balance in the Kosi River at the barrage site thus available from time to time and to generate power in the Eastern Canal.  2 conveyance canal system, and completion of minor irrigation network on the first 9,750 ha. Later in 1987, IDA approved a second stage SMIP II (Credit 1814-NEP) for US$40 million for the similar command area development of a further 16,700 ha. Both projects, which were physically completed satisfactorily in 1987 and 1995, respectively, provided infrastructure to eliminate the siltation problem. However, the measures provided to eliminate the siltation problem proved insufficient and ineffective rendering a significant part of the completed works inoperable after one operation due to siltation2. The search for the correct technical solution to the problem was actively supported by the Bank, but proved extremely lengthy and difficult due to HMGN's concern for the project's complexity and the resultant costs. Finally, in 1991 an international Panel of Experts (POE) was convened to advise HMGN on how to deal with the siltation problem during the rainy season and the intake blockage problem during the dry season. 4. As a result, a new IDA Credit of US$28.0 million for the Sunsari Morang Headworks Project (SMHP-Credit 2430-NEP) was approved on November 5, 1992, at the time that SMIP II was still under implementation. The project's objective was to provide silt-free irrigation water to the SMIP through implementation of the POE's recommendations which included moving the intake site 1,300 meters upstream into the Chatra Gorge, and providing a very large desilting basin equipped with two dredgers. The new site of the intake was intended to allow easy extraction of designed discharge water year-round, and the new desilting basin equipped with dredgers would permit desilting of the extracted sediment-laden water during the monsoon. Evaluation of Project Objectives 5. Realism and Innovation. The design solution to protect the Sunsari Morang Irrigation System against siltation was conceptually clear to both appraisal teams of the SMIP I and SMP II projects since inception, and it was also not an unusually demanding objective for the Borrower.3 However, decision-making for adoption of effective sediment control works took considerably longer than necessary in both projects, due to the Borrower's concern over costs and complexity. Both Credits were approved without ascertaining a complete solution. Without the continuous dredging facility, the hydraulic flushing through the use of vortex tubes installed in SMIP I, as well as a small desilting basin constructed under SMEP-II, could not remove the heavy sediment volume carried by the parent Kosi river. For these reasons, the achievement of the objective of SMIP I and SMIP II of ensuring sustainable and equitable distribution of irrigation was doubtful, until the commencement in 1993 of the Sunsari Morang Headworks Project (SMHP). The The SAR mentioned that the system was faced with serious siltation problem as soon as it opened after Stage I completion in July 1986. The minor canals and water courses suffered and many of them lost half of their conveyance capacity in one season and farmers could not keep pace with the rapid rate of siltation. After introduction of the larger desilting basin, siltation was controlled. However, due to non-continuous removal of silt deposit, the capacity of the basin diminished and the system suffered from about 40% sediment ingress. Desilting with dredgers have been widely practiced in the neighboring State of West Bengal in India and limitedly used in Nepal in some hydro-electric stations. But for the DOL the technology may be novel and there was a thinldng that technical uptake may be slower.  3 Project Performance Audit Report (PPAR) for SMIP I, dated May 1990, highlighted the fact that the objective of the Stage I project was not achieved satisfactorily until 1990, without a properly designed follow-up project to resolve the sediment issue. 6. Complexity. Under SMIP II, no effective solution was adopted initially due to HMGN's concern over the complexity and cost of the solution provided by the technical appraisal teams. The SMIP II project provided funds for dredgers and a larger desilting basin, but it was not sufficient to cover the entire works recommended by the POE. The larger desilting basin constructed in 1992 under SMIP II had proven a partial success by trapping 50-60% of sediment.4 However, to be sustainable, it needed to be equipped with dredgers for continuous desilting during ingress of sediment. The continuous dredging would provide enough room in the desilting basin for higher silt-trapping efficiency. HMGN's concern over the cost of the dredgers further delayed the search for a technical solution to the sedimentation problem. 7. In searching for solutions to the sedimentation problem, Nepal faced technical and institutional risks common to large-scale public irrigation projects in the country. The technical risks were mitigated by following the advice of the POE on the technical design. The institutional risks were mitigated by funding under the project of on-the-job training of O&M project staff and farmers in the operation and regulation of the system's facilities. These risks will further be mitigated provided HMGN is committed to prioritize O&M funding within its limited resources, and to provide continuous support of the training program beyond the project years. Project Components 8. Implemented over a five-year period, the project included the following main components: (a) construction of a new intake near the Chatra Gorge upstream from the existing intake; (b) construction of a culvert to carry water from the new intake to the pre- settling basin; (c) construction of a new pre-settling basin upstream from the existing intake; (d) modification of the existing intake and channel; (e) improvement of the desilting basin completed under SMIP II; (f) provision of dredging facilities for desilting; (g) construction of a small power plant to run 'the dredging facilities; (h) management, operation and maintenance, and staff training in dredger operation; and (i) consultant services for construction, supervision and training. B. ACHIEVEMENT OF PROJECT OBJECTIVES Overall Achievement 9. The infrastructure funded under the project achieved the overall project objectives of: (a) providing silt-free irrigation water during the monsoon season, through 4 The siltation measurements taken at different sections of the system showed that by having a larger desilting basin alone can effectively reduce the sediment ingress volume by about 60% of its total (about 400,000 m3), though the trapping efficiency declines as soon as the basin is filled up with sediment  4 construction of the larger desilting basin, and provision of dredging facilities for continuous dredging operation; and (b) elimination of the sandbar blockage at the old intake during the dry season, through provision of the new intake upstream. The small hydropower station constructed on the main canal to provide power to the dredging facilities was also an added achievement. 10. Since commencement of full operation in June 1995, the system achieved assured year-round supply of water at designed capacity. The new intake now has a capacity to supply up to 60.0 cumecs year-round, which would allow significant increases in the cropping area and cropping patterns during the dry season, and assure supplemental irrigation during the monsoon season. This compares with the original maximum design discharge of 45.3 cumecs at the Chatra Main Canal (CMC). Physical Objectives 11. The following physical objectives of the project have been achieved: (a) construction of a new intake near the Chatra Gorge some 1,300 meters upstream from the existing intake; (b) construction of a reinforced concrete culvert to convey water from the new intake to a pre-settling basin; (c) construction of a new stone masonry pre-settling basin and a flushing sluice upstream from the existing intake; (d) enhancement of the existing intake and construction of a channel to the enlarged desilting basin; (e) enhancement of the desilting basin completed under SMIP II; (f) installation of a small hydro-power plant; (g) 19 manmonths of training by an expatriate staff to local staff on dredger operation; and (h) technical support and training in design, construction, supervision and water management. 12. In addition to the physical improvements on the intake due to the remodeling (modernization) of the existing irrigation systems in Stage I command area, the rehabilitation of existing irrigation facilities, and the development of the distribution systems in Stage II command area, cropping intensities have increased substantially from 135 percent during the 1990/91 "pre-project" scenario to 171-179 percent in Stages I and II, and 150 percent in Stage III area during 1996/97. These changes are expected to increase to 198 percent in 2000/01 in all areas. 13. Water Management. Irrigation water now supplied to the farmers is relatively sediment-free (free of sediment size larger than 0.06 micron) and distributed equitably in the developed areas of SMIP I and II. Despite some problems with turns and time- sharing, in general, rotational water supply (RWS) introduced in the SMIP II worked fairly well, and farmers were generally satisfied. There is greater recognition among the farmers of the importance of RWS, and their cooperation in making the system work is more systematic and forthcoming, including increased activity among the farmers in the construction of field channels. Project management reported that the field channels cover more than 50 percent of the command area. in the developed areas in Stage II.  5 14. Cost Recovery. The total O&M requirement at full development of the whole SMIP, including headworks, and O&M of the tertiary network to be managed by beneficiary farmers, would be about NRs.750 per ha.(1997 constant price). The costs constitute NRs. 140/ha for the O&M of the Headworks and Main Canal system, including administration overhead, and about NRs. 480 to 400 per ha for the distribution system, down from secondary canals. Net of beneficiary farmers contribution after taking over the minor distribution system by them, the required amount for O&M would be about NRs.300400 per ha. Since inception of the system up to early 1994, collection of water charges in the project area was non-existent due to poor performance of the system and lack of WUG organization. Since completion of SMIP-II in 1994, and partial delivery of silt-free water, the project has been going through a period of adjustment in the enforcement of water charges collection. Up until FY96-97, HMGN's water charges rate was NRs. 200 per ha, which was never revised in the last decade. Effective FY1998, HMGN increased water charges from NRs.200 to NRs.400/ha. However, at the time of the ICR mission, only 28 percent of dues are being recovered from beneficiary farmers. The Development Credit Agreement of SMHP specifies that "the Borrower shall charge and collect in Stage I and Stage II areas, determined in accordance with criteria satisfactory to the Association to have received adequate supplies of silt-free irrigation water, a rate sufficient to cover the cost of O&M of the distribution canals above the minor block, together with the pro-rata share of the cost of O&M of the main and distribution canals." Despite increased silt-free water supply over the last two years, cost recovery has been dismal, an indication that farmers' confidence in the system has not yet been fully achieved and needs to be built-up. For optimal O&M of the system, an annual O&M budget of NRs. 40 million will be required. Past records show that the actual annual budget allotment for O&M never exceeded NRs. 15 million. If SMIP is to be sustainable, HMGN should provide the full budget requirement for optimal O&M, and the effective O&M must be done in the field. Recognizing its budget limitation, HMGN should prioritize by providing at least full budget allocation in the order of about NRs.6-9 million per annum for O&M of the headworks and the main delivery system 15. Monitoring and Evaluation (M&E). Through the project, SMIP is now equipped with computerized facilities for project monitoring and evaluation. In particular, the following aspects of the project are being covered by the new computerized monitoring and evaluation system: (a) water management scheduling and allocation model; (b) computerized data bases for monitoring of agricultural impact, covering socio- economic and routine crop production surveys; and (c) computerized accounting system. A senior officer now heads the M&E division of SMIP to undertake the additional task of monitoring the works and output of the newly-equipped M&E division. 16. The project is also now equipped with a device to measure flows in the CMC, secondary canals, and tertiary/watercourse system, to record the volume of water delivered at each stage of the canal system to the field. If properly recorded and analyzed, the results of monitoring of the flow through these stages would provide valuable information for determination of the system's efficacy and efficiency.  6 17. Training of Operations Staff and Farmers. During installation, and in particular, since commissioning of the dredgers in June 1995, training in dredger O&M by expatriate consultants was imparted continuously to project staff until the Credit closing in December 1997. Two dredger teams comprising of eight local staff were trained. In addition, specific training to project staff by the supplier of the hydropower station was also carried out. All of the project's O&M staff benefited from hands-on site training during the floods of 1996, particularly on operations procedures for the new intake structure and headworks. Farmers' training on rotational water supply (RWS) method, initiated at the commencement of SMIP II, continued through June 1997 under the guidance of the Water Management consultants of the project, and covered about 60 percent of the training of WUGs planned under SMIP II. 18. Technical Issues at Implementation and Operation. The proper transfer of technical know-how on O&M of dredgers and the micro-hydropower station, was carried out during the project implementation and commissioning periods, by allowing expatriate training consultants and local crews to work together for nearly two successive years. However, due to the remoteness of the headwork site, difficulties were encountered in the sanctioning of new specialized staff posts, and staff who were trained were mostly project appointed non-regular staff. Additionally, the handing over of the hydropower station to the Nepal Electricity Authority (NEA) by the Department of Irrigation has suffered long delays, and, at the time of the ICR mission, was still outstanding. The availability of skilled manpower at NEA will help resolve the issue of the hydropower station O&M. However, in the case of dredger O&M, the lack of a permanent work team to handle periodical maintenance of the dredgers is posing a problem for the system's sustainability, in view of the remoteness of the headworks site. The project management is introducing a bonus system for the dredging crews and contracting out the O&M of dredgers to a private mechanical workshop. 19. The dredging operation of the last two years in the desilting basin continues to be restricted to a bed elevation of about 104.00 masl, instead of the design basin bed elevation of about 101.70 masl. This has reduced the amount of sediment that can be removed from the diverted flow to below the design values. As the discharge in the canal will increase in the future, the efficacy of the basin will be further reduced. This is a serious limitation on the sediment control facilities of the project. It is necessary to desilt the basin to the designed bed level. 20. The present performance of dredging operation is not satisfactory. The conditions for the desilting and dredging operation during 1996 and 1997 flow seasons have been nearly ideal. Yet, the actual amount of dredging has been less than the design. At present, the dredging equipment is in poor condition, and important spare parts have been almost used up. The technical services of an expatriate dredge master was not renewed. As mentioned earlier, project management will contract dredger O&M to private contractors.  7 21. The security of dredging operation depends on the existence of an active eastern channel at the discharge end of the dredge pipes. This channel should be annually surveyed for its size, location and capacity, so that corrective measures, if required, can be promptly implemented. The sloping spur in the eastern arm of Kosi River, opposite reduced distance 13 of CMC, protects the Right Bank of CMC against erosion. This spur has been under attack by the river flow for the last few years, and it needs strengthening. This should be urgently carried out. 22. There is a critical need for telephone linkage between the Project Manager, his senior engineers, and the operators at important control structures. Prompt communication between these points is required, at least during the monsoon months, to allow effective collaboration and prompt transmission of instructions for a safe and effective regulation of the river flow. 23. Contractual Issues. Despite thorough and effective procurement arrangement for the three ICB contracts under the project, there had been some delays during implementation in taking prompt action on the liability defaults and payments. This was partly due to the frequent transfers of the project managers and senior project staff, and partly due to the inexperience of staff in matters related to international contract management. Several of these issues are still outstanding as of the time of the ICR miission. Economic Rate of Return (ERR) 24. An economic re-evaluation had been carried out for: (a) the free-standing SMHP project, which includes SMIP Stages I and II; and (b) a time-slice of the larger Sunsari Morang Irrigation Project (the whole Sunsari Morang Irrigation System) which includes Stages I and IL SMHP, and further development in Stage Im with and without sunk costs for Stages I and II. The additional benefit from hydropower, and savings in pre-project desilting costs (O&M of main canal and network desilting), have been included in the analysis. Based on the pre-project and the estimated "with project" cropping patterns, cropping intensities and crop yields, and actual project expenditures, ERRs are estimated at 20 percent for the free standing SMHP and including SMIP Stages I and II [(a) above], and 20-49 percent for a time-slice of the larger Sunsari Morang Irrigation Project including Stages I and II, SMHP and further development in Stage III [(b) above]. These compare favorably with the appraisal estimates of 15 percent for scenario (a) and 14-49 percent for scenarios (b). 25. The economic re-evaluation (ref. Appendix 2) indicates that, in every case, the appraisal estimate and the ICR estimates are comparable as shown in Scenarios (a) and (b). Major factors contributing to higher ERRs in the case of the ICR estimates are higher crop intensities and crop yields. However, there is a slight decline in ERR when Stage ImI is introduced. This does not mean that Stage In should not be implemented, as the Net Present Value (NPV) of the project with Stage mI is still positive. The economic analysis of SMHP should be viewed in conjunction with the results of the economic analysis  8 shown in the SMIP II ICR (ref. SMIP I[ ICR No. 15336, dated February 7,1996), and the Project Appraisal Document of Nepal Irrigation Sector Project (ref. Report No. 17104- NEP dated October 20, 1997). C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT Factors Not Generally Subject to Government Control 26. The ICB civil works contract (SMHP/01), which consisted of construction of all civil works of the new intake, culvert,, new pre-settling basin, existing intake and improvement of the desilting basin, was signed on March 18, 1993. Construction, which commenced on April 5, 1993, was scheduled to be completed after 32 months, i.e. by December 4, 1995. However, due to the unexpected floods on May 17, 1995 and November 10, 1995, works were delayed by six months and completed only on May 31, 1996. 27. At appraisal, the local cost component was estimated at about 10 percent of project cost (US$ 2.68 million) using the then prevailing parity rate of NRs.42.8 to a US dollar. At the time of project completion, the actual parity rate was NRs. 57.0 to the US dollar. Partly due to this depreciation of the Nepali Rupees against the US Dollar, and partly due to project savings, resulting from the lower bid prices than estimated on three ICB tenders, SDR 1.7 million (US$ 2.5 million equivalent) remained undisbursed and was canceled. Factors Subject to Government Control 28 During the five-year project implementation period, there had been a number of changes to key project management staff, i.e. project manager and senior divisional engineers. During this period there have been five project managers. Though in accord with HMGN's transfer regulations for government staff, these frequent turnover greatly affected project implementation during its early stages, and equally at the project wind- up. These frequent changes also resulted in project management's inability to reach decisions promptly on crucial issues affecting project implementation and systems operation. The following cases are examples of implementation problems: (a) the hydropower station which, to date, has not been fully handed-over to the Nepal Electricity Authority (NEA) despite Cabinet's approval of the transfer; (b) the inadequate attention of HMGN to the low level of water charges collection; and (c) to the project's failure to appoint a qualified mechanical/electrical engineering staff to head the dredger team. Factors Subject to Implementing Agency's Control 29. After two biddings, the ICB tender (SMHP/02) for manufacturing, supply, installation, and supervision/training of operation and maintenance of the dredging equipment was finally awarded on October 19, 1993, after about a year's delay, and  9 estimated to be completed by July 1994. At the outset a contractual dispute between the Owner and the Supplier arose due to delay and default in delivery of goods caused by labor conflict in the supplier's country, and mishandling and mishipment of goods. Despite the fact that several issues concerning damages and contractual default liabilities related to this tender have not been fully resolved, the final taking-over certificate was signed on July 25, 1997. At the time of the ICR mission, a number of issues remain unresolved which had affected the dredger operation training program and procurement of spares attached to the contract. 30. The ICB contract SMHP/03 for the supply and installation of hydropower plant was awarded on February 25, 1993 to be completed by December 1995. Despite poor coordination between different sub-contractors, the hydropower plant was commissioned on July 11, 1996 and the defects liability certificate issued. Again a decision on contractual liabilities for default is still pending. The training for operation of the hydropower plant was continued till October 1997 but no NEA staff were in place to takeover the plant. Despite the delays in these two ICB contracts, the project was put into partial operation in June 1996, using initially power supply from the national grid at Dharan Sub-station. The dredgers have been operational since kharif irrigation in June 1995. As stated in the preceding paragraph, these delays could have been avoided had there been less frequent turnover over in key management staff, particularly the project manager. Project Costs and Financing 31. Estimated total project cost at the time of appraisal is about US$ 35.7 million (NRs. 1,586 million using a parity of US$1=NRs.42.8) out of which an estimated cost of US$ 6.0 million was provided under SMIP II Credit (Cr. 1814-NEP). Estimated total project cost at the time of Credit closing on December 31, 1997 is about US$30.6 million, or about 86 percent of the SAR estimate, in US Dollars, out of which, about US$4.74 million was funded under SMIP II Credit. In Rupee terms, this is about NRs.1,595.0 million (in real terms) or about 101 percent of SAR estimate. 32. Of the total IDA Credit of SDR19.0 million (US$28.0 million equivalent), SDRI.7 million (US$2.5 million equivalent) was canceled just prior to credit closure. As of May 31, 1998, a total of SDR16.0 million (US$23.19 million equivalent) was disbursed, leaving an undisbursed balance of SDRI.3 million (US$1.74 million equivalent) which will be canceled in due course. D. PROJECT SUSTAINABILITY 33. The infrastructure funded under the project achieved the main objectives of providing silt-free irrigation water to SMIP during the rainy season through provision of dredging facilities, and the elimination of the sand blockage at the intake during the dry season, through the construction of the new intake. This was supported by the requisite  10 on-the-job training provided to Borrower's staff on dredger operation and maintenance, continuously for two years, until the Credit closing date. The renewed partnership forged between the farmers and the Irrigation Department (ID) and the Sunsari Morang Irrigation Development Board (SMIDB) staff in implementing the principles of RWS, bodes well for the sustainability of the project. So long as the Government continues to provide funds for the adequate level of operation and maintenance of infrastructure installed under this project, its sustainability is likely. 34. Risks. SMHP faced technical and institutional risks common to large-scale public irrigation investments in Nepal. As regards technical risks, water extraction structures installed under the project is located in one of the world's largest rivers which has enormous destructive power and in a geologically fragile zone of the Himalayas. The risks of failure increases if project infrastructure regulations are not adhered to. Under this project, these risks were minimized by following the advice of the POE, providing the requisite training for project staff, continuous application of improved operational practices, and staff continuity. On the institutional aspect, the risks were minimized through on-the-job training to all operational staff and project beneficiaries for two years after completion of construction. Mitigation activities, such as staff training, improved O&M, are still ongoing and need to be continued. However, unless HMGN is willing to provide incentive and motivation to trained staff working in the remote area such as the site of Headworks, and to give priority for allocating adequate O&M funding required for the headworks within its limited budget and manpower resources, the project's long-term sustainability will be seriously jeopardized. E. BANK PERFORMANCE 35. The whole project concept was based on the technical advice of the Panel of Experts (POE), commissioned by HMGN to study the sedimentation problem in the SMIP. There were long delays by the Borrower in reaching a decision to adopt the design principles, based on the POE's advice. Once the project got off to a start, the IDA supervision team, through close monitoring at Headquarters, and frequent field visits, helped steer the project to a successful completion. However, despite the IDA supervision team's advice to the Borrower to reach an amicable solution with the contractors/suppliers on the ICB contractual dispute, a number of issues still remain unresolved at the time of the ICR mission. 36. The Bank's supervision missions were too lenient in the enforcement of legal covenants. In particular, it allowed the Borrower to stretch out the timetable for increasing water charges and no legal remedial measures were taken against defaulters. Eventually, during the latter part of the project's final year, the rate of water charges was increased, a delay of about twelve months. Frequent transfers of the key project staff hampered the effectiveness of project management. However, there was no provision in the legal documents that could have provided the Bank some leverage to invoke remedial measures.  11 F. BORROWER PERFORMANCE 37. At the time of project preparation, Borrower's understanding of the project concept, and the problems inherent in SMIP was sometimes confused, mainly due to conflicting technical advice provided by different parties. Borrower's performance during preparation, when crucial decisions regarding sedimentation control had to be made, was tardy and uncertain. This shortcoming was later resolved by the additional studies funded under the project, and through consultation with the POE, which caused at least two years' delay in adoption of a viable technical solution. 38. Most of the problems the project faced was primarily due to frequent turnover of key project staff. Procurement issues that remained unsettled at the time of project completion could be attributed partly to project management staff turnover. Delays in audit reporting is mainly due to constant shifting of project accounts personnel. However, despite these problems, and with the concerted efforts of the Borrower, the consultants and ICB contractors, and close guidance by Bank staff, the project was completed within the stipulated time, and the infrastructure funded under the project was commissioned more than one year prior to Credit closure. 39. The Borrower's consultants had closely estimated the cost of the project. However, a number of specific items related to the hydropower station were not relevant to the conditions prevailing at the project site, and needed to be revised at a later date. 40. A detailed project completion report and project operation plan were prepared by the Borrower and made available to the Bank in advance of the ICR mission, for its review and comments. The ICR mission requested additional financial details which the report lacked. G. ASSESSMENT OF OUTCOME 41 Overall, the project mostly achieved its objectives by the end of the five-year project implementation period, and its outcome is assessed as satisfactory, based on the physical performance of the project. The net present values of the irrigation component of different scenarios of the project at discounted cash flows were all positive. The infrastructure installed under the project now provides comparatively silt-free water to SMIP all year round. The bottleneck at the old intake during the dry season had been significantly eliminated. Training provided to local staff in dredger operation and maintenance ensures the sustainability of the infrastructure, provided there is sustained support of O&M by the Borrower, coupled with motivation of O&M staff to be posted in the remote area where the project is located. 40. Farmers now recognize the merits of RWS, and are exerting every effort to make it work. This is a result of the untiring efforts of SMIP staff and consultants in providing  12 training and guidance to farmers and WUAs. This should be continued until the system is well-rooted in the project area. Under the present condition, almost half of the area remains to be developed. The Borrower should continue to sustain the momentum achieved in the development of the command areas in Stages I and II to obtain the same benefits for the remaining area of SMIP Im, otherwise the sustainability of the achievements under this project will gradually diminish. 41. The satisfactory outcome of the project is based on the assumption that benefits will build up following completion of the project, and that farmers' collaboration in O&M will be sustained. Events which could result in the decline in project sustainability includes potential systems failure resulting from improper and inadequate maintenance, due to lack of Borrower's commitment, and potential political intervention on the issue of collection of water charges. Water charges collection should however be differentiated in the fully developed (Stage I and II), partially developed (Stage Im) and the remaining undeveloped areas. H. FUTURE OPERATION 42. The Borrower's POP and PCR of SMHP and those of SMIP II describe the required O&M organization. They also spell out the resources requirement for the system's O&M. The computerized water management model installed under the project, if properly used, can enhance the system's efficiency. Currently the system is supplying assured water for irrigation year-round which is comparatively silt-free. In order to evaluate the future performance of the project, constant and close monitoring and evaluation practices need to be instituted in the system. The monitoring system must be efficient and transparent to the users and to the staff. Evaluation should be based on (a) actual irrigated area in each season using irrigation boundary maps; (b) assessment of water charges based on area irrigated; (c) amount of water charges collected and used for O&M; and (d) agricultural production. This monitoring needs a well-organized institution with highly-motivated staff. Constraints on sustainability of monitoring are: (a) budget commitment; (b) appreciation of monitoring by project management and staff; and (c) improved management of the whole organization. 43. Recorded water levels in the river at the new intake, during the low flow season, are falling. Possible causes are the degradation of the river channel and/or an occurrence of low hydrological cycle. Data at the new intake and upper gauging sites should be analyzed to identify the causes and to forecast the future trends. 44. The facilities for sediment monitoring of the project are inadequate and they need to be urgently upgraded. Training of existing staff and recruitment of additional manpower is required. The follow-up O&M arrangement for the dredger is not satisfactory, especially in spares acquisition.  13 I. KEY LESSONS LEARNED 45. Key lessons learned from the project are: * for important infrastructure projects like SMHP, the arrangements for procurement, and a management plan of ICB contracts, should be agreed and finalized before credit effectiveness; * organizational arrangements for the operation and maintenance of the infrastructure installed under the project must be finalized and in place prior to commencement of commissioning and take over; * limiting turnover of key project personnel is critical when dealing with ICB contracts to avoid disputes, penalties and delinquencies in contractual obligations; * the success of operation and sustainability of infrastructure projects depends on physical soundness of structures, as well as a project's social and organizational responsiveness to the concerns of all stakeholders; * O&M arrangements should be in place and tested for at least one year before the closure of the Credit; * commitment of the Government to impose and implement service charges to cover full O&M costs of public utilities after improvement is important; and * transparency to beneficiaries of O&M expenditures is important to win their confidence in the maintenance of the system.  14 PART IL STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievement of objectives Substantial Partial Negligible Not Applicable Macro policies 9 9 r ) Sector policies m 7 F F Financial objectives F] F E Institutional development z E E E Physical objectives E[3 Poverty reduction 7 Gender issues F71 Other social objectives Environmental objectives E Public sector management F 2 Private sector development L] Other (Technical Issues) E m [ii B. Project sustainabilitv Likely Unlikely Uncertain Highlv C. Bank performance satisfactory Satisfactory Deficient Identification 2 E r Preparation assistance m Appraisal ED Supervision E77 [  15 D. Borrower performance satisfactory Satisfactorv Deficient Preparation L hnplementation 7 E E Covenant compliance 2 E 1 Operation (if applicable) E Ja Highly High1y E. Assessment of outcome satisfactor Satisfactory Unsatisfactorv unsatisfactor  16 Table 2: Related Bank Loans/Credits Loan/credit title Purpose Year of approval Status Preceding operations 1. Birganj Irrigation Project Complete & upgrade irrigation & 1973 Completed in 1981. (Narayani Zone) Cr. 373-NEP drainage for 16.300 ha of the PPAR No. 4267 Narayani Irrigation System and to 1982 provide groundwater irrigation to 2,700 ha north of the system 2. First Rural Development To improve small-scale irrigation 1976 Completcd in Project Cr. 617-NEP schemes in the hills and develop a December 1983 high lift scheme on about 1900 ha in Nuwakot 3. Bhairawa-Lumbini To provide 64 deep tubewell 1976 Completed in Groundwater I Project Cr. 654- systems serving 7,600 ha March 1983. NEP PPAR 1984 4. Narayani Zone Irrigation Complete & upgrade irrigation & 1978 Completed in Development Stage II Project drainage for 12,800 ha of the March 1987 Cr. 856-NEP Narayani Irrigation System and to provide groundwater irrigation to 800 ha north of the system 5. Sunsari Morang Irrigation I To complete and upgrade the first 1978 Completed in June Project Cr. 812-NEP 12,000 ha of the Sunsari Morang 1987 Irrigation System 6. Second Rural Development To improve small-scale irrigation 1979 Completed in 1987 Project Cr. 939-NEP schemes in the Mahakali Zone 7. Mahakali Irrigation Project To rehabilitate and upgrade 1981 Completed in Stage I Cr. 1055-NEP existing irrigation system for 3.400 December 1988 ha and extend irrigation to 3,200 8. Bhairawa-Lumbini To complete unfinished Stage 1 1983 Compicted in Groundwater Irrigation Stage If wells and construct new wells for October 1990 Cr. 1316-NEP 7,000 ha 9. Narayani Irrigation III To complete and upgrade another 1986 Completed in june Project Cr. 1715-NEP 8,700 ha of the Narayani Irrigation 1995 System 10. Third Rural Development Construction of 28 small irrigation 1986 Complcted in Project Cr. 1727-NEP schemes and rehabilitation of 18 August 1994 schemes in Rasuwa and Nuwakot 11. Sunsari Morang Irrigation 11 To improve the design and 1987 Completed in May Project Cr. 1814-NEP operation of the Sunsari Morang 1994 Irrigation System (Phase II), including provision of desilting facilities & imrpoved O&M. 12. Agricultural Research and To strengthen the management and 1997 Ongoing Extension project Cr. 2977-NEP capacity of agricultural research and extension services bv developing client-oriented, location specific adaptive agricultural technology; and improving technology delivery system. 13. Irrigation Sector Project To finance farmer-managed 1997 Ongoing irrigation schemes in the hills and the terai and management transfer of public irrigation schemes in Sunsari Morang Irrigation System Phase III Following Operations: I. Terai Groundwater Project To develop groundwater irrigation 1999 in the Bara and Parsa Districts of the Terai  17 Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification (Executive Project Summary) Preparation l Appraisal September 16-29, 1991 Negotiations September 8-11, 1992 Letter of Development Policy (if applicable) Board Presentation November 5, 1992 Signing December 16, 1992 Effectiveness January 22, 1993 First Tranche Release (if applicable) NA Midterm review (if applicable) NA Second (and Third) Tranche Release (if NA applicable) Project Completion June 30, 1997 June 30, 1997 Credit Closing December 31, 1997 December 31, 1997 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ thousands) FY93 FY94 FY95 FY96 FY97 FY98 Appraisal Estimate 7.00 15.00 25.00 27.00 28.00 29.00 1/ Actual 1.51 5.85 11.20 17.75 21.59 23.19 2/ Actual as % of Estimate 22 39 45 66 77 80 Date of Final Disbursement tbd 1/ On December 12, 1997, SDR1.7 million (US$2.3 million equivalent) was cancelled. 2/ Actual disbursed through May 31, 1998. Closing of books is in process.  18 Table 5: Key Indicators of Project Implementation Key Implementation Appraisal Actual Percentage Indicators in SAR/ Estimate Completed Completion President's Reporl Units (Quantity) (Quantity) (%) Work Items Lot I-Civil Works E/W Excavation m3 461006 700000 152' 1/ Fill/Backfill cu.m 91585 127000 139 Reinforcement mt 3434.5 3800 111 Form Work sq.m 71920 91000 127 Stone masonry/Pitching cu.m 93035 81500 88 Gabion works cu.m 3682 16000 435 2/ Structural Steel mt 298 440 148 3/ Diaphragm wall sq.m 4211 913 22 4/ Roadwork (gravel) sq.m 9290 50000 538 5/ (excluding Jhumka road) GT Pipe rm 4700 3400 72 Lot 11-Supply and Installation of Dredging Equipment nos. 2 2 100 Lot MII- A. Supply and Installation of Hydropower Plant Turbine nos. 2 2 100 Speed Increaser nos. 2 2 100 Fly wheel nos. 2 2 100 Wicket gates nos. 2 2 100 Trash Rack nos. 4 4 100 Stop logs nos 8 8 100 B. Electrical Equipment Generator nos. 2 2 100 HV Distribution Switch Board nos. 1 1 100 Transformer nos. 2 2 100 Black Start Generator nos. 1 1 100 Circuit Breaker nos. 1 1 100 Gantry Type Lifting Portal nos. 1 1 100 Regulator Gates nos. 2 2 100 Workshop lot 1 1 100 Variances due to: 1/ Shifting of position of new intake by six meters towards riverside resulting in additional works i.e. excavation of eastern channel, widening of CMC, etc. 2/ Additonal works, e.i. strengthening in some areas, river training works, slope protection along culvert. 3/ Extra works, i.e. stop lock arrangements, modification of gates. 4/ Change in design to reflect actual condition. 5/ Actuals include Chatra/Jhumka service road.  19 Table 6: Indicators for Project Operation Percentage Actual or Completion Key Operating Indicators in SAR Unit SAR Estimate ICR Estimate (%) 1. Sediment trapped in desilting basin 000 m3 380 332 87 2. Mucking of sediment by dredgers 000 m3/pa 480 241 50 3. Water intake in monsoon at new headwork m3/sec 60 36.22 (ave. 1997) 60 4. Water intake in dry season m3/sec 21.05 (ave. 1996) 5. Average sediment concentration at RD32 ppm 651 6. Hydropower generated: - total kwhr 12,500,000 304,500 2 - used by dredgers kwhr 2,500,000 304,500 12  20 Table 7: Studies Included in Project Purpose as Defined Study at Appraisal/Redefined Status Impact of Study 1. Hydraulic Model To design headworks Complete New headworks Testing 1/ (new intake) constructed on basis of this study. 2. Benefit Evaluation To assess performance Complete Lessons learned to of SMIP Il 1/ of project be applied to SMNPl m I 3. Study on Irrigated To determine difference Complete Measures to and Rainfed Wheat in in yield and recommend improve water SMIP 2/ intervention management included in SMIP III 4. Study on Irrigated To understand socio- Complete Recommendations Production in Stages I economic features of for the short- and and 11 3/ faming community and long-term applied to major problems related pilot area of SMIP to crop production mII 5. Study on To determine Complete The study provided suspended materials effectiveness of SMHP positive indication in Koshi Waters and system performance and of effectiveness of their ingress in Chatra its design assumptions SMHP as designed Main Canal 4/ 1/ Funded under SMHP Credit. 2/ Undertaken by project staff at no cost to project. 3/ Jointly undertaken by SMIP Staff and Regional Agricultural Development Office. 4/ Funded by consultant firm NEDECO.  21 Table 8A: Project Costs (US$ million) Appraisal Estimate Actual/Latest Estimate US$ million US$ million Local Foreign Total Breakdown: Local Foreign Total Breakdown: Item Costs Costs Costs SMIP II SMHP Costs Costs Costs SMIP II SMHP Intake 0.13 1.23 1.36 0.00 1.36 0.54 1.23 1.77 0.00 1.77 Culvert 1/ 0.64 5.76 6.4 1.43 4.97 1.28 2.87 4.15 4.15 Pre-Settling Basin 0.39 3.53 3.92 0.00 3.92 1.41 3.19 4.60 0.00 4.60 Main Settling Basin 1/ 0.09 0.85 0.94 0.77 0.17 0.15 0.33 0.48 0.48 Dredging Equipment 0.17 3.27 3.44 3.00 0.44 0.45 2.21 2.66 2.35 0.31 TA/Engineering/Training 0.15 2.01 2.16 0.50 1.66 0.33 2.45 2.78 0.95 1.83 Power Supply 0.34 5.78 6.12 0.30 5.82 0.72 4.48 5.20 0.00 5.20 Operation & Maintenance 0.02 0.21 0.23 0.00 0.23 0.02 0.26 0.28 0.00 0.28 Gen/Misc/Mobilization 0.45 4.08 4.53 0.00 4.53 2.13 4.89 7.02 0.00 7.02 Unallocated 0.22 1.96 2.18 0.00 2.18 0.00 0.00 0.00 0.00 0.00 Total Base Costs 2.6 28.68 31.28 6.00 25.28 7.02 21.91 28.93 3.30 0 25.63 Physical Contingencies 2/ 0.25 2.5 2.75 0.00 2.75 0.00 0.00 0.00 0.00 0.00 Price Contingencies 2/ 0.19 1.46 1.65 0.00 1.65 0.00 0.00 0.00 0.00 0.00 Total Project Costs 3.04 32.64 35.68 6.00 29.68 7.02 21.91 28.93 3.30 25.63 Land Acquisition Cost 0.30 0.00 0.30 0.00 0.30 Administrative Cost 0.15 0.00 0.15 0.00 0.15 Overhead Cost 0.21 0.00 0.21 0.00 0.21 Grand Total Cost 7.67 21.91 29.58 3.30 26.29 1/ Breakdown between SMIP nI and SMHP yet to be verified. 2/ Physical and price contingencies included in the actual base costs above.  22 Table 8b: Project Financing (US$ million) Appraisal Estimate Actual/Latest Estimate Local Foreign Total Local Foreign Total Source Costs Costs Costs Costs Costs Costs IDA 1.00 27.00 28.00 4.79 21.91 26.70 Domestic Contribution 1.68 0.00 1.68 2.89 0.00 2.89 Total 2.68 27.00 29.68 7.67 21.91 29.58  23 Table 9: Economic Costs and Benefits Appraisal Estimate ICR Estimate Economic Rates of Return (ERRs) (%): Scenario I: Stages I+II+SMHP 15.00 20.30 Scenario II: Stages I+II+SMHP+III 14.00 19.90 Scenario III: Stages I (sunk)+II+SMHP 22.00 42? Scenario IV: Stages I+II(sunk)+SMHP 49.00 49.5? Scenario V: Stages I+HI (sunk)+II+SMHP 20.00 40.2? Scenario VI: Stages I+11I (sunk)+SMHP+III 32.00 47.10 Net Present Values (NPVs) (NRs. million) Scenario I: Stages I+Il+SMHP 1636.50 Scenario II: Stages I+II+SMHP+lI 1647.10 Scenario III: Stages I (sunk)+II+SMHP 1937.20 Scenario IV: Stages I+II(sunk)+SMHP 1953.60 Scenario V: Stages I+III (sunk)+II+SMHP 1948.60 Scenario VI: Stages I+II (sunk)+SMHP+III 1965.00 Underlying Assumptions Project Life 30 years 40 years Standard Conversion Factor 0.90 0.90 Unskilled Labor Value-Shadow Wage Rate 0.75 0.90 Financial Wage Rate (NRs.) 35.00 55.00  Table 10. Status of Legil Covenants Project ID: NP-PE-10406 - SUNSARI NIORANG IIEADWORKS original Revised Covenant rtifll *ultill Clsse(sl Status Date Dat. Description ot Covenant Coments Agreement: IDA Credit Number: IDA -2I ^Q Text Reference: Sec. 3.01 (a) 05,03 C 01/01/1993 Carry out the project with due diligence and Construction completed. In compliance. etticiency in contormity with appropriate engineering, agricultural and administrative practices and provide promptly funds, tacilities. and other re- sources required. Text Reference: Section 4.01(b) 01 C Furnish annual audit reports not later than 12 In compliance. months after the end of each tiscal year. Text Reference: Section 4.2 10 C 03/31/1993 Commence to implement a plan satisfactory to the Agreed plan has been carried out on all developed Association to Improve water management its tbie areas of the system. Project. Text Reference: Section 4.3 OS C 03/31/1993 Cause SMIDS to maintain, with qualifications and Both consultants were employed under themain experience satisfactory to the Association, a project consultant contract till June 1997. The senior water management expert and a senior recent mission has reqtuested to extend their agriculturist, services till to the end of juns 1997 Text Reference: Section 4. 11 CD 12/31/1l91 (a) establish with membership, responsibilities L Ia) WUCC has been established at the project power satisfactory to the Association, a Water central management level; (bi One tepresentetive Useis Group consultative committee (iUCCI to tihe has been selected trom SuIsaIi District as the Project Management lb) Isiclude at least 2 developed areas of Stages I and II tall under the representatives of Water Users' Groups elected in Sunsari District only accordance with the procedures satisfactory to the Association. as member of SMIDb. C Complied witb CD Compliance after Delay NC Not Complied with SOON ComplJance Sxpected In R !asonably Short T.xe CP Complied with Partially MmD Not ret Due  Table 10. Status of Legal Covenants Form 590 Date: 07/21/1997 Project ID: NP-PE-10406 - SUNSARI MORANG HEADWORKS Original ReDvied Covn nt Fulfill Cl.a(Bl) Statu. Date Data Description of Covenant comm_onts Text Reference: Section 4.5 13,05 CD 12/31/1993 (a) Furnish to the Association for approval a plan (a) turnover of all tertiary networks to WUGs of for the transfer of responsibility for operation & Stage I and Stage II areas completed after maintenance of distribution canals within a WUG's necessary rehabilitation works; (b) silt free area lb) there atter implement such plan in WUGOs water has been supplied since monsoon of 1996 to area as soon as it has been determined in all areas. accordance w/criteria satisfactory to the Association that such areas receive adequate supplies of silt-free water. Text Reference: Section 4.5 02 CP 03/31/1997 Shall charge & collect, in Stage I & II areas Water charges have been collected in the developed determined in accordance with criteria areas of Stage II and a;so started collection in satisfactory to the Association to have received the Stage I area, but yet to introduce in the adequate supplies of silt-free irrigation water, a Stage III areas. Submission of a program for the rate sufficient to cover the costs ot operation collection in the remaining areas together with maintenance of the distribution canals above the the system of penalty to those defaulters has beeni sinor block, together with a pro-rats share of the for IDA review. Program S.ubmitted along with costs of OM of the main & distribution oaiials issuance of a Government Order to Increase water charges rate by 100* starting from FY 1997/98 L which commenced on July 16. 1997. Statu's: c - Complied with CD - Compliance after Delay NC - Not Complied with SOON - Compliance Expected in Reasonably Short Time CP - Complied with Partially fYD - Not Yet nue  ,Lable iU. Status of Legal Covenants Covenant Class 1 Accounts/audit 2 Financial performance/generate revenue from beneficiaries 3 Flow and utilization of Project funds 4 Counterpart funding S Management aspects of the Project or of its executing agency 6 Environmental covenants 7 Involuntary resettlement 8 Indigenous people 9 Monitoring, review and reporting 10 Implementation 11 Sectoral or cross-sectoral budgetary or other resource allocation 12 Sectoral or cross-sectoral regulatory/institutional action 13 Other  27 Table 11: Compliance with Operational Manual Statements Statement Number and Title | Describe and comment on lack of compliance 1. Water charges Pricing policy did not achieve full cost recovery; issue is being tackled under the NISP (Credit 3009-NEP)  28 Table 12: Bank Resources: Staff Inputs Stage of Planned Revised Actual Project Cycle I Weeks US$(000) Weeks US$(000) Weeks US$(000) Preparation to Appraisal 7.6 20.5 7.6 20.5 7.6 20.5 Appraisal-Negotiations 24.7 65.2 24.7 65.2 24.7 65.2 Negotiations through Board 14.4 41.2 14.4 41.2 14.4 41.2 Approval l Supervision 73.9 221.6 60.8 201.4 65.0 188.6 Completion 5.0 17.1 8.2 22.6 7.4 20.9 TOTAL 125.6 365.5 115.7 350.9 119.1 336.4 04/09/98  29 Table 13: Bank Resources: Missions Performance Rating Number Specialized Implemen- Develop- Stage of Month/ of Days in Staff Skills tation ment Types of Project Cycle Year Persons Field Represented Status Objectives Problems Through Appraisal Appraisal 9-10/91 6 13 Eng(3),Env,Ag, Eco Post Appraisal 3-4192 1 7 Eng Supervision 1 11/92 1 4 Eng 2 2 T Supervision 2 3/93 3 3 Eng,Prog,Agr 2 2 T Supervision 3 9-10/93 6 5 Eng(3),Ag(2), 2 1 Soc Supervision 4 2/94 3 6 Eng,Ag(2) 2 1 Supervision 5 5/94 7 7 Eng(2) Technical Review Supervision 6 6/94 2 3 Eng(2) S HS Supervision 7 11-12/94 3 5 Eng(3) S HS T Supervision 8 7195 2 7 Eng(2) S HS T Supervision 9 11/95 2 3 Eng(2) D HS T Supervision 10 3/96 3 2 Eng(2),Fin S S Supervision 11 6/96 1 6 Eng Tecnical Review Supervision 12 12/96 4 7 Eng(2), Eco,Ag S HS Supervision 13 SOE 12/96 4 2 Fin,Eng Review Supervision 14 6/97 4 4 Eng(3),Ag S S SupervYCompletion 11/97 4 8 Eng,Ag,Eco,Fm S S Completion 1/98 1 7 Eng  30 Appendix 1 Nepal Sunsari-Morang Headworks Project (Cr. 2340-NEP) Supervision/Implementation Completion Reporting Mission November 1997 Aide-Memoire Introduction 1. An IDA mission comprising Messrs./Mme. 0. Myint, T. Estoque, R.C. Mishra (Bank) and T. Lohavisavapanich (FAO/CP) visited the project from November 11-16, 1997 to supervise and prepare an implementation completion report (ICR) on the above project. This Aide Memoire is based on the findings of the mission. During its visit the mission held discussions with staff from the Department of Irrigation (DOI), the Sunsari-Morang Irrigation Project (SMIP), project consultants, farmers and other agencies and individuals concerned with the project, and reviewed project documentation, and other relevant studies and reports. The Project Completion Report dated September 1997 prepared by the Consultants (NEDECO) and SMIP, the Project Operation Plan dated October 1997, and the Semi-Annual Progress Report (July-December, 1997) prepared by SMIP were major sources of information for the ICR. The mission's preliminary findings were discussed with the Joint Secretary, Ministry of Water Resources (MOWR). 2. The Aide Memoire was discussed at a wrap-up meeting at DOI on November 18, 1997, attended by representatives from the National Planning Commission, the Ministry of Finance (MOF), MOWR, Department of Agriculture, DOI and the concerned Project Manager and staff. Amendments agreed at the meeting have been duly incorporated. The findings of the mission is subject to the approval of the Bank management. The mission wishes to thank the Director-General, DOI, the Project Manager (PM) and staff of SMIP, and staff of the other concerned agencies, for their cooperation, and assistance. The Projct 3. The Sunsari Morang Irrigation System is the largest public irrigation system in the Eastern Region of Nepal. The sub-project diverts water from the Kosi River and commands a net irrigable area of about 68,000 ha. The Sunsari Morang Irrigation System was started in 1964 by the Government of India (GOI) in accord with the Kosi Sub-project Agreement of 1954 between the GOI and the HMGNI. After trial operations starting in 1970, the sub-project works were handed over to the HMGN in 1975. The original distribution system terminated at turnouts serving areas of over 200 ha (minor canals) and typically over 100 farmers. The lack of minor distribution networks below these turnouts of 200 ha meant that the system was inefficient and could not irrigate the whole command area. Water distribution was unreliable and inequitable. This bilateral agreement dated April 25, 1954, as amended on December 19, 1966, states that "HMGN shall have every right to withdraw for irripabon and for other purposes in Nepal water from the Kosi River and from the Sun-Kosi River or within the Kosi Basin from any other tributaries of the Kosi River as may be required from time to tme. The Union shall have the right to regulate aD the balance in the Kosi River at the barrage site thus available from time to time and to generate power in the Eastern Canal".  31 From inception, the project faced a massive siltation problem because the Kosi River carries a heavy load of sediment during the flood season. Hence, significant amounts of sediment settled in the newly opened canal systems and reduced their water carrying capacities to almost half in an irrigation season. The rate of siltation outpaced cleaning of watercourses by farmers. As a result of these deficiencies, the sub-project did not fulfill its objectives and in 1975, HMGN requested IDA assistance to overcome these shortcomings. 4. IDA involvement in the sub-project was divided into stages: Completed satisfactorily in 1987, Stage I, known as SMIP-I, was approved in 1978 and provided US$30 million to rehabilitate and complete minor irrigation networks (known as command area development - CAD) on 9,750 ha. Later in 1987, IDA approved a second stage (SMIP II) in the amount of US$40 million for CAD on a further 16,700 ha, which was completed satisfactorily in 1995. Both of these credits provided infrastructure to eliminate the siltation problem. However, measures funded under the project were not sufficient and effective. In early 1991, while SMIP-II was under implementation, HMGN obtained the advice of an international Panel of Experts (POE) to deal with the siltation problem. The POE recommended that the sub-project be modified by: (a) moving the intake structure 1,300 m upstream of the existing intake site; (b) constructing a larger capacity desilting basin; (c) utilizing dredgers to remove silt from the desilting basin and; (d) constructing a micro-hydro unit in the headreach of the main canal to provide power for the dredger operations. 5. An IDA credit of US$28.0 million for the Sunsari Morang Headworks Sub-project (SMHP- Cr.2430) to provide funds for additional works as described in para 4 above to deal with the siltation problem was approved in August 1992 and the Credit Agreement was signed on December 16, 1992. The project consists of the following parts: (i) Construction of a new intake in the Chatra Gorge upstream from the existing intake; (ii) Construction of a culvert to carry water from the new intake to a pre-settling basin; (iii) Construction of a new presettling basin upstream from the existing intake; (iv) Modification of the existing intake to make it more efficient together with a channel to an enlarged desilting basin; (v) Improvement and enlargement of the desilting basin completed under the Sunsari Morang Irrigation II Project (Cr. 1814-NEP); (vi) Provision of dredging facilities for removal of silt from the enlarged desilting basin; (vii) Construction of a small power plant for the dredging facilities; (viii) Management, operation and maintenance, and training for running the dredging facilities; and (ix) Consultants Services for construction supervision and training.  32 6. The total project cost of US$ 29.68 million was to be financed with the help of an IDA credit of SDR 19.0 million (US$ 28.0 million equivalent). In compliance with the condition for Board presentation, all ICB tenders were called in mid 1992 and the bid results were ready in September 1992. The Credit became effective on January 2, 1993. Mission's Findings 7. Project Implementation. The implementation of the project was started in 1993 after selections and awards of the following three ICB contractors for construction of the civil works [items (i) to (v)], installation of dredging equipment (item vi), and installation of Hydropower Station facilities (item vii). (i) The ICB civil works contract SMHP/01 was signed on March 18, 1993 and works were officially started in April 5, 1993 for a total amount equivalent to NRs. 713,476,459 to be completed in 32 months i.e. by December 4, 1995. The works were satisfactorily completed in May 31, 1996, six months behind the original stipulated time. The delay was mainly due to unexpected early flood on May 17, 1995 and a freak flood in November 10, 1995 which were considered to be unusual. The extension was officially approved by the Borrower with the recommendation of the project consultants. (ii) All bids for the ICB contract, SMHP/02 covering the manufacturing, supply, installation, and supervision of operation and maintenance of the dredging equipment were rejected in the first instance due to differences of opinion between the Project Management and the Consultant on the evaluation results necessitating a call for rebidding. The contract which would otherwise have been awarded in end 1992 was awarded on October 19, 1993, for an amount of FF 17,108,236, to be completed by July 1994. However a contractual dispute between the HMGN and the supplier arose due to delay in delivery of goods. The delay was due to labor conflict in the supplier's country, mishipment of goods, and handling damages of the floating pipes for the dredger. Despite reservations mostly relating to damages and defaults during the handing over and subsequent operation, the final taking over certificate was signed on July 25, 1997. However, a decision has to be made on the contractual liabilities for defaults and damages during the contract. (iii) The ICB contract, SMHP/03 for the Supply and Installation of Hydro Power Plant was awarded on February 25, 1993 for an amount equivalent to NRs. 191,277,031 to be completed by December 1995. Despite poor coordination between different sub-contractors the hydropower plant was commissioned on July 11, 1996 and the defects liability certificate issued. However, a decision has to be made on the contractual liabilities for defaults. The training for operation of the hydropower plant was continued till October 1997. 8. Inspite of all these delays in each separate ICB contracts, the project was put into partial operation in June 1996, using initially power supply from the national grid at Dharan Sub-station. The dredgers have been operational since kharif irrigation in June 1995. 9. Completion. The following items of ICB contract works envisaged in the staff Appraisal Report (SAR) of SMHP have been completed satisfactorily before the Credit closing date of December 31, 1997. The quality of works and the ICB contractors' performance are also satisfactory in general.  33 a) A new intake in the Chatra Gorge some 1,300 m upstream from the existing intake structure. The new intake, completed in June 1996, has twelve openings with steel stop logs which are to be adjustable for the intake sill level to minimize the entry of coarse sediment; 12 rows of reinforced concrete vanes installed by piling in the bed of the Kosi river infront of the new intake. b) A reinforced concrete culvert to carry water from the new intake to a pre- settling basin. The culvert consists of three barrels each of 3.5 m by 4.5 m and a total length of 1,000 m. c) A new stone masonry presettling basin 300 m long, and a bottom width of 20 m upstream from the existing intake. The presettling basin is installed with a flushing sluice having four bays, each with 4 m by 4 m. d) Modification of the existing intake to make it more efficient and construction of a channel to an enlarged desilting basin. e) Improvement and enlargement of the desilting basin completed under the Sunsari Morang Irrigation II Project (Cr. 1814-NEP). A larger desilting basin of 60 meter wide and 990 meter long was completed since May 1992. Along the river side of the basin, five jetties have been constructed as well as 110 concrete mooring poles around the basin to facilitate the dredging operation. A dry dock was built at the downstream. (Two cutter-section dredgers of 14.0 m3/hr capiy driven by electricity have been procured under the SMIP II Credit. The dredgers have been in operation since the 1995 monsoon irrigation season). f) Installation of a small hydro power plant with two turbines each of rated power 1.627 kW and a designed speed of 165 r.p.m at a designed discharged of 33.63 m3/sec and a designed head of 5.38 m for the dredging facilities. The generator is a synchronous 3-phase machine with a rated output of 1.752 KVA, 11 KV and 50 Hz with speed of 750 r.p.m. g) Hands-on training of local and private workshop personnel by an expatriate staff for a total of 19 manmonths on management and operation and maintenance of the dredging facilities for a duration of two years after the installation of the dredgers. h) Technical Support and Training (design. construction, supervision and water managem=n). The project utilized 92.8 mm of expatriate consultants and 223.23 mm of local consultants hired under an international consulting firm throughout the implementation period. (An additional service of 44.1 mm of expatriate consultants and 35.4 mm of local consultants were used for the design of new headworks using SMIP-II Credit). 10. Project Cost. The estimated total cost of the project at appraisal is about US$35.7 million (NRs. 1,586 million using a parity of 1 US$=NRs.44.42). The actual expenditure for  34 SMHP at the time of credit closing on December 31, 1997 is estimated to be about US$30.60 million or about 86% of the SAR estimate in US dollar, but in Nepalese Rupees it is about Nrs.1,595.0 million (real terms) or about 101% of the SAR estimate) despite the devaluation in the rate of exchange between the Nepalese Rupee and US dollar in the course of project implementation (US$l= NRs.42.8 in 1987/88 to NRs.57.0 in 1997/98). As of end of October 1997, SDR15.4 million (US$23.6 million equivalent) have been disbursed. It is expected that by the closing date of December 31, 1997, a total of about US$25.5 million of the credit would be disbursed. About SDR1.8 million (US$2.5million equivalent) will remain undisbursed and will be cancelled. Project Benefits 11. Project Impact. The larger desilting basin constructed in mid 1992 under the SMIP-II has proved successful. About 65-70 percent of the incoming sediment to the system has been trapped in the desilting basin in early part of monsoon kharif irrigation. On average, over 250,000 m3 of deposited sediment was cleared by the two dredgers installed in the basins since June 1995. This was the positive indication of the effectiveness of desilting basin provided. Reduction of sediment ingress to the main canal system enables year-round irrigation with the designed discharge resulting in the increased cropping intensity. 12. The potential benefits are incremental agricultural production, employment, farm incomes and hydropower. Incremental agricultural benefits would accrue mainly from the assured and improved irrigation water supply and the reduced sediment in Stages I and II and some of the Stage III areas upon the completion of the headworks, intake and the silt settling basins and desilting. Additional benefits would accrue from the remodelling of the existing irrigation systems in Stage I area, and the rehabilitation of existing irrigation facilities and development of the distribution systems in Stage III area. The cropping intensities increased substantially from 131% in the pre-project in 90/91 to 171%-174% in Stages I and II and 145% in Stage III in 96/97. 13. The economic re-evaluation had been carried out for: (i) SMHP self-contained project, which now includes stages I and II and SMHP; and (ii) a time slice of a larger Sunsari Morang Irrigation Project (whole SMIP), which includes Stages I and II and SMHP, plus a further development in Stage III. Additional benefits of hydropower and savings in pre-project desilting costs have been included in the analysis. Based on the Pre-project and the estimated With Project cropping patterns, intensities and yields and actual project expenditures, ERRs for the self-contained SMHP and whole SMIP are preliminarily estimated at 18% and 19% compared with the appraisal estimates of 15% and 14% respectively. Borrower Performance 14. The Borrower made considerable efforts to implement the project with diligence and efficiency but, during preparation, the project suffered some setbacks due to delays in mobilization of ICB contractors. Additionally, in the course of implementation, Lot 1 Civil Works contract was delayed by at least six months due to unusual early and late floods during the construction season. In the case of Lot 2 contractual default due to mishipment and mishandling of the goods, deliver of the dredger was delayed by about nine months. The default in the design of the water control gate systems, a number of mishaps occurred  35 necessitating rectification of the problem. Audit reports were often late but not to the stage of credit suspension. The Borrower's consultant had closely estimated the cost of the three ICB contract as well as satisfactorily pursued the supervision and quality control during supervision. Inspite of frequent turn-over of the project manager, with the concerted effort of the Borrower, the consultants, and the ICB contractors, the project was completed within the stipulated time and full operation of the project started one year ahead of the credit closure.. A detailed Project Completion Report and Project Operation Plans (POPs) were prepared and made available to the mission in advance, for the review and remarks. The POPs were revised taking account of comments made by IDA. Bank Performance 15. The whole project concept was based on the technical advice and suggestions of IDA at the time of project preparation. There was a long delay by the Borrower in reaching a decision for adopting the principles of design under the project. However, IDA encouraged the Borrower to study the problem timely, change the design and implement the project accordingly. At the time of implementation, IDA provided frequent and effective supervision. Project Sustainability 16. Water Availability. The project resolved the heavy sediment concentration problem in the monsoon and difficult intake problem in the dry season by providing a new intake and sediment exclusion facility. The sediment exclusion by electro-mechanical problem is also self-contained in the project, by providing a small hydropower station in the main canal. The headworks project had considered the necessary on-the-job training to the Borrower's staff for two years on items considered novel to the staff, i.e. dredger operation and maintenance. The importance of proper operation and maintenance was recognized. Providing the mechanical and electrical equipment to ensure the year-round water supplies in a sustained manner, it would require a proper level of operation and maintenance by the Borrower. Nevertheless a risk still exists if sufficient attention is not paid to the operation of the systems. Additionally, enough funds for proper maintenance should be given to the infrastructure installed in the system. 17. At full operation of SMHP starting in May 1996, the system achieved an assured year- round supply of water at designed capacity. The maximum design discharge of the Chatra Main Canal (CMC) is 45.3 cumecs. But the new intake now has a capacity to supply up to 60.0 cumecs at all times of the year which will allow a significant increase in the cropping pattern during the dry season, as well as assure the monsoon supplemental irrigation. It is, however, not necessary that the peak flow be supplied at all times and it is reasonable for the CMC to be closed from time to time (November and April) for maintenance and repair. The mission is pleased to note that a computerized water management model was recently established under the guidance of SMHP consultants, and project staff were trained to operate the model effectively. However, the ICR mission observed that the use of the model is still sub-optimal or not fully effective. The mission recommends that the operation of the model be revived and the required data collection be started at least continuously for a number of years to cover the one hydrologic cycle.  36 18. Budget for O&M. According to the SAR, the annual requirement of SMHP maintenance budget is in the order of NRs.1.7 million per year in 1995/96 prices. If the mechanical spares and maintenance of dredgers and microhydro stations are included, then the annual maintenance costs could be in the order of NRs.5.0 million per year. The Project Operation Plan (POP) prepared by SMIDP assumes an annual maintenance budget of NRs. 45.23 million in 1995/96 (NRs 769/ha for 58800 ha of Stages I, II and III) diminishing steadily to NRs. 30.02 million in 1999/2000 (NRs. 510/ha) including the maintenance budget required for SMHP. However, the actual budget alloted from 1995/96 to date inclusive of SMHP maintenance was always short of the budget requirement agreed in the POP. It is essential to have sufficient budget for SMHP which is only 11% of the total budget reqirement. Therefore, there is very high risk that unless the proposed budget for O&M and repairs is alloted and the system is adequately maintained, the whole SMIP irrigation system will be in jeopardy. The mission recommends that O&M resources be made available and priority be given to the developed areas in Stages I and II, and SMHP, where investment on infrastructure development has been already made. 19. Water Management. Rotational Water Supply (RWS) was applied in the SMIP. Though there were some conflicts on turns and time-share, RWS worked in general and farmers were generally satisfied with the water supplied equitably which they never enjoyed in the past. The system is now supplied with sediment-free water so that in terms of proper water management the system now is equipped with full facility. The farmers have started recognizing the importance of RWS and are cooperating in water management gradually. The supply of irrigation water by constructing field channels, especially in dry season rabi irrigation, has been increasing. At present more than 50 percent of field channels exist in the system. The mission therefore recommends that since the new headworks is now operating satisfactorily, the Project Management should link the crop diversification in the suitable irrigated area of the project with the recently approved Agricultural Research and Extension Project (AREP) to demonstrate crop diversification to farmers, including pre-monsoon croppings. 20. The project is now receiving considerably sediment-free water so that the canal system is more or less sustainable. Therefore systematic monitoring of the conveyance and distribution efficiencies by actual measurements can now be undertaken regularly in order to avoid undesirable water dispute at the field level. The mission found that most of the watermarks and measurement guide in water level recording gauges are fading away due to natural deterioration. It is very important for maintenance staff and water users to see the system properly operating as designed and that the full supply level of water is being delivered throughout the canal systems. The mission recommends that all water marks in the headworks and canal system be restored and maintained for proper water management. 21. Monitoring and Evaluation. For the purpose of monitoring and evaluation (M&E), the project is now equipped with computerized facilities in the following three areas: (i) water management scheduling and allocation model; (ii) computerized data bases for agricultural monitoring, covering both socio-economic and routine crop production surveys; and (iii) computerized accounting system. A senior officer has been appointed to head the M&E division to undertake the additional task of monitoring the work and output of the new computerized facilities mentioned above.  37 22. More extensive water management monitoring of flows in CMC, secondary canals and Tertiary/WC system has been recommended both to record the amount of water delivered to water users and to assess whether improved operations could be evolved. Records should be kept of the supply to main secondary and other important canals, with a record of whether FSL has been maintained and, where practicable, the flow entering the canal, measurement of the flow leaving from different stages of the project area downward would provide valuable information for the future development of the project. The results of all monitoring should be properly recorded at the Project manager's office for reference and action if required. ILis recommended that the Project Manager should coordinate amongst SMIDB, DOI, Department of Agriculture and other agencies M&E activities in areas where action is needed and act as a catalyst to ensure that necessary action is taken. Issues at O&M Stage 23. Next Steps. Completion of SMHP assures a fully effective functioning of SMIP. For this to be successful, it is important that proper attention is paid to: (a) proper O&M of the infrastructure constructed and installed under the project; (b) the establishment within the project organization of O&M of that part of the system that had not been handed over to water users' associations; (c) the provision of adequate annual budget for full O&M of that part of the system for which the project is responsible; and (d) collection of water charges regularly on improved services that are made available to the users. Although the transfer order from the Cabinet was issued about a year ago, the mission observed that the hydro- power station has, to date, not been handed over to the Nepal Electricity Authority (NEA). HMGN must ensure that the above actions are carried out. 24. Water Charges. The level of charges for surface water in public irrigation system until the end of 1996/97 had been set at NRs. 200/ha/year. Effective 1997/98 the rate of water charges has been increased to NRs.400/halyear. The level of water charges collection in the previous two years after the system has been satisfactorily operational is inadequate. On average, only 25-28% of the amount due was collected by the WUAs. However, only about 50% of the WUAs remitted their collection to the HMGN's treasury in contravention of the Irrigation Policy. Although this has now been going on for the past two years, no action has been taken to remedy the situation. The mission is of the view that efficient collection of water charges is essential and that: (i) for each season a record is kept of the areas irrigated; (ii) an assessment of water charges due from each WUA is made; (iii) the water charges due is collected promptly and remitted without delay to the Treasury; and (iv) sanctions for non- payment of water charges by farmers, and non-remittance by WUAs to the Treasury, are instigated and enforced. It is recommended that Project Management should seriously review the matter and advise the Bank of remedies that could be applied to SMIP III. Lessons Learned 25. The following lessons have been learned from the project. for important infrastructure projects like SMHP, the arrangements for contractual management should be agreed and finalized before credit effectiveness.  38 * organizational arrangement of the infrastructure installed under the project must be finalized and in place prior to commencement of construction. * prompt decision-making is critical when dealing with ICB contractors to avoid penalties due to delinquencies in payments of obligations. * the success of operation and sustainability of infrastructure projects depends on physical soundness of structures as well as its social and organizational responsiveness to the concerns of all stakeholders. Summary of Recommendations 26. The following recommendations of the ICR/Supervision mission have been agreed with HMGN, DOI, and the project management: (a) the operation of the Water Allocation and Scheduling Model be revived and the required data collection be started at least continuously for a number of years to cover the one hydrologic cycle (para 17). (b) make available adequate O&M resources and priority be given to the developed areas in Stages I and II, and SMHP, where investment on infrastructure development has been already made (para 18). (c) since the new headworks is now operating satisfactorily, the project management should link the crop diversification in the suitable irrigated area of the project with the recently approved Agricultural Research and Extension Project (AREP) to demonstrate to farmers crop diversification including pre-monsoon croppings (para 19). (d) all water marks in the headworks and canal system be restored and maintained for proper water management (para 20). (e) the Project Manager should coordinate amongst SM1DB, DOI, Department of Agriculture and other agencies M&E activities in areas where action is needed and act as a catalyst to ensure necessary action is taken (para 22). (f) Project Management should seriously review matters related to water charges collection and remittances and advise the Bank of remedies that could be applied to SMIP III (para 24).  39 Summary of previous mission's recommendations and actions taken by the Project Management Suggestion and Recommendations Actions Taken Expedite the payments of the retention monies and It is still underway. cleared payments to all the three ICB contractors Strengthen O&M arrangement for dredger along with Training is being carried out till to the more skilled personnel and continue training on O&M Credit closure. for next 2 years. Expedite procurement of the spares before the Credit Spares procurement is being arranged but closing allowing enough time for tender process and the not yet finalized. project consultant to inspect the spares within his contractual period Introduce incentive system due to tedious and intensive It is not yet materialized. The proposal nature of dredging job and remoteness of the site. made by the project is still under review by MOF. MOWR intervene in this issue which both DOI and No action by the MOWR has been taken so NEA management failed to resolve on their own, and far. It is again repeated in the follow-up that an agreed solution be reached. management letter. Local consultant services be extended till the end of the Local consultant services were extended till Kharif season and arrange to take over the activities by the end of the Kharif season and the M&E Division in consultat-ion with the concerned agricultural extension activities has been Sunsari DADO. arranged to transfer to the forth-coming Bank funded Agricultural Extension and Research Project. The project management revise the reallocation in the The proposal has been received. Further light payments and savings and send the revised details on cancellation are requested from proposal to IDA through MOF. MOF. Current practice and coordination being carried out by It is being planned and also coordinated DOV/DOA be continued even after the closure. with the currently effected Bank funded Credit of Agriculture Research and Extension Project. Government consider poor recovery of water charges No serious action has been taken so far. issue seriously and take appropriate measures in The Bank has mentioned its concern in the consultation and agreements with the established Water follow-up management letter. User Organization. Draft PCR be submitted for IDA review The draft PCR and POP were submitted in  40 September, 1997. Comments were given to the DOI and asked to finalize by 4/1998. Omyint:kg 1ANMYIMOMNOV97\SMIP-AM.d0c  41 Appendix 2 ECONOMIC RE-EVALUATION Project Benefits 1. The larger desilting basin constructed in mid 1992 under SMIP II has proved successful. About 65-70 percent of the incoming sediment to the system has been trapped in the desilting basin in early part of monsoon kharif irrigation. On average, over 250,000 m3 of deposited sediment was cleared by the two dredgers installed in the basin since June 1995. This was the positive indication of the effectiveness of desilting basin provided. Reduction of sediment ingress to the main canal system enables year-round irrigation with the designed discharge resulting in the increased cropping intensity. In addition, it would induce farmers to use more farm inputs resulting in the increased crop yields. 2. The benefits accrued from the Sunsari Morang Headworks Project (SMHP) are incremental agricultural production and value added to economy and employment as summarised below: Stage I Stage II Total I & II Stage Im Total (SMIP) Irrigated area (ha) 9,750 16,700 26,450 31,500 57,950 Annual Inc. Foodgrain 11,220 10,450 21,670 76,255 97,925 Production (tons) 1/ Annual Inc. Oilseed Production (tons) 1/ 1,610 2,760 4,370 6,145 10,515 Other Crops (tons) 2/ 17,310 33,020 50,330 79,190 129,520 Annual Inc. Value Added to Economy (NRs 184 351 535 1,145 1,680 M) Directly Benefiting Farm Families (no) 3/ 6,964 11,929 18,893 22,500 41,393 Annual Inc. Farm Employment (jobs) 1,360 1,960 3,320 1,115 4,435 1/ Based on incremental crop production and value between completion of rehabilitation and completion of the headworks. 2/ Other crops included pulses, vegetables, jute, sugarcane. 3/Based on the average farmn size of 1.4 ha/family. 3. The project also generated employment during the construction period, estimating at about 6,000 jobs per day. In addition, the hydropower plant would generate about 12,500,000 kwh annually at full development.  / 42 Economic Re-evaluation 4. The economic viability of the SMHP has been re-evaluated at ICR. The analysis has treated SMIHP as a self-contained project and a time-slice of a larger Sunsari Morang Irrigation Project (SMIP). The first approach includes investment costs and benefits of SMIP I and II and SMHP but excludes SMIP HI. Without further development, SMIP Im would hardly benefit from the new SMHP. The second approach includes SMIP I & II and SMHP, plus further development projects in SMIP IH. In addition, the two approaches also treat SMIP I & II as sunk costs. 5. The economic rates of return (ERRs) are re-estimated between 19.9% for SMIP (scenario 2, Table 17) and 20.3% for SMVLHP (scenario 1, Table 16) compared with 14% and 15% respectively estimated at SAR. Treating SMIP I and II as sunk costs, ERRs are re-estimated at 40.2%-47.1% for SMIP (scenario 5 and 6, Tables 20 and 21) and 42.0%-49.5% for SMIHP (scenario 3 and 4, Tables 18 and 19) compared with 20%-32% and 22%-49% respectively estimated at SAR. The results of ERRs are summarised below: ERR (%) Scenario SAR Estimates ICR Estimates 1. SMHP ( II & SMHP) 15.0 20.3 2. SMIP (I, 11, SMNHP, plus III) 14.0 19.9 3. SMHP (II & SMHP, I sunk 22.0 42.0 cost) 4. SMHP (SMHP, I & II sunk 49.0 49.5 cost) 5. SMIP (]E, SMIHP & m, I 20.0 40.2 sunk cost) 6. SMIP (SMHP & m, I & H 32.0 47.1 sunk cost) 6. Major factors contributing to higher ERRs are higher cropping intensities and crop yields. For stage I and II areas, cropping intensities (171%-173% under partial irrigation and 198% under complete rehabilitation) are 37% and 19% higher than those estimated at SAR respectively (135% and 179%). Although yields of minor crops are 6%-20% lower than the SAR estimates, yields of main crops, e.g. paddy, wheat, oilseeds, sugarcane, are 10%-40% higher than the SAR estimates. For SMIP III areas, incremental cropping intensity under rehabilitation/headworks is 38% and incremental yields of main crops are 15%-70% higher than those in without project. The substantial increases in yields reflect the difference between irrigated crops and rainfed crops.  43 7. The underlining assumptions for economic re-evaluation followed those assumptions used at SAR as discussed below: (a) The analysis period is 40 years; (b) All costs and benefits are expressed in 1997 constant prices. Past expenditures (Tables I and 2) have been re-stated in 1997 prices by using GDP deflator and MUV indice. Local costs and unskilled labour were further adjusted by a Standard Conversion Factor (SCF) of 0.90; (c) O&M expenditures and budget requirements in financial and economic terms prepared by SMIP Office are shown in Table 3; (d) Replacement costs have been assumed at 10 years for O&M and office equipment and vehicles and dredgers, and 20 years for equipment for hydropower plant and headworks and CMC gates; (e) Agricultural benefits have been quantified from each stages of development, including (i) rehabilitation of stage I (9,750 ha) and II (16,700 ha) areas, (ii) remodelling of stage I area (9,750 ha), (iii) completion of the setling basins and desilting in stage 1 (2,430 ha) and II (4,175 ha) areas, and (iv) completion of the new headworks in stage I (9,750 ha) and 11 (16,700 ha) areas. Phasing of benefited areas is presented in Table 4. For SMIP m, agricultural benefits have been quantified from the completion of the new headworks, plus further irrigation system development which are assumed to be undertaken during FY98-FY02'for phase I (15,100 ha) and during FY03-FY07 for phase 1I (16,400 ha); (f) For stage I and 11, cropping patterns and yields have been based on three situations: (i) without project (WOP) is based on 90/91 production data estimated at appraisal, reflecting the pre-project situation in stage I and 11 areas that have not been rehabilitated; (ii) partial irrigation (PI) is based on 94/95 production data collected by the agricultural staff in SMIP within stage I and II areas, reflecting the situation in stage I and Il that have been rehabilitated but are still not receiving full irrigation water supply due to silt problem; and (iii) complete rehabilitation assumed by the mission based on the past production trend, reflecting the situation once the rehabilitation and headworks are completed in stage I and II areas, and once the headworks and further development in stage m areas are completed. For SMIP HI, the present situation is based on 95/96 production data collected by SMIP staff within stage m areas, reflecting the situation that has no rehabilitation. The future without project situation has been assumed by the ICR mission based on the past production trends. Cropping patterns, yields and production for stage L 11 and III are presented in Tables 5-7, and per ha crop budgets are presented in Tables 8-13;  44 (g) Built-up of agricultural benefits ( cropping patterns and intensities and yields) have been assumed for five years at the rates of 30%, 50%, 70%, 90% and 100%; (h) Financial prices of outputs and inputs have been based on the 1997 average market prices prevailing in the project areas (Table 14). Economic farm gate prices of traded commodities (paddy, maize, wheat, jute, sugar) and fertilisers have been based on the import parity prices. The average 2000-2005 world market prices forecasted by the World Bank, expressed in 1997 constant value and adjusted for transport and handling charges to farm gate prices (Table 15) were used throughout the economic analysis. Non-traded goods, including unskilled labour were based on the average financial farm gate prices, adjusted by SCF of 0.90; (i) All labour and draft power (family and hired) were taken into account in the analysis; and (j) At full development, about 12,.500,000 kwh of hydropower would be generated headworks and SMIP, estimating at 2,400,000 kwh, about 10,100,000 kwh would be net surplus and utilised for other purposes., valued at NRs 30..3 million at the estimated long run marginal cost of hydropower of NRs 3.0/kwh. Farm Incomes 9. The financial impact of the project on farm incomes is substantial. Annual net farm incomes are estimated to increase by 65%-79% for partial irrigation farms and 166% for complete rehabilitation farms in stage I and TT areas, and by 175% for complete rehabilitation farms in stage mII areas. The estimated annual net farm incomes for the average farm size of 1.4 ha increase from NRs 18,000 in WOP to NRs 29,750-NRs 32,250 in partial irrigation and NRs 47,930 in complete irrigation in stage I and II areas, and from NRs 17,400 in WOP to NRs 47,930 in WP in stage m areas. 10. The impact of the recently increased water charge from NRs 200/ha/season to NRs 400/ha/season would be small. Annual water charges of NRs 1,109/ha/year (water charge of NRs 400/ha/season, farm size of 1.4 ha and cropping intensity of 198%) would comprise only 2.3% of annual net farm incomes of the complete rehabilitation farms.  NEPAL Sunsari Morang Headworks Project Table (Cr. 2430-N Implementation Completion Report Expenditures of SMHP (Nrs Million) FY92 FY93 FY94 FY95 FY96 FY97 FY98 a/ Total Actual Expenditures in Current Prices Civil Works: Local Costs (LC) 0.0 0.0 179.8 243.6 205.0 234.2 108.7 971.3 Foreign Exchange Costs (FEC) 0.0 Subtotal 0.0 0.0 179.8 243.6 205.0 234.2 108.7 971.3 Dredging Equipment (FEC) 0.0 0.0 139.8 52.6 21.7 142.1 2.3 358.5 Other Equipment (LC) 0.0 Vehicles (FEC) 0.0 Subtotal 0.0 0.0 139.8 52.6 21.7 142.1 2.3 358.5 TA/Training/Admin: LC 0.0 0.0 24.5 71.9 103.9 35.8 1.9 238.0 FEC 0.0 Subtotal 0.0 0.0 24.5 71.9 103.9 35.8 1.9 238.0 O&M Costs (LC) 0.0 0.0 0.0 0.0 3.2 5.7 5.7 14.6 Others LC 0.0 Total 0.0 0.0 344.1 368.1 333.8 417.8 118.6 1582.4 a/ December 1997. Source: SMIP Office, Biratnagar. LC 0.0 0.0 204.3 315.5 312.1 275.7 116.3 1223.9 FEC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Equipment 0.0 LC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 FEC 0.0 0.0 139.8 52.6 21.7 142.1 2.3 358.5 Total 1582.4  NEPAL Sunsari Morang Headworks Project Table I (Cr. 2430-NEP) Implementation Completion Report Expenditures of Stage 1, II &; m (NRs Million) Stage 1 (9750 ha) FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 Total Actual Expenditures in Current Prices Local Costs 3.5 17.3 33.4 25.0 14.3 18.7 36.8 66.0 33.3 248.3 ForeignExchangeCosts 4.3 21.1 40.8 20.1 17.5 22.7 44.9 80.7 40.6 292.7 Total 7.8 38.4 74.2 45.1 31.8 41.4 81.7 146.7 73.9 541.0 Stage II (16700 ha) FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Total Actual Expenditures in Current Prices: Local Costs 16.6 30.5 33.5 51.4 86.6 110.2 104.6 24.5 457.9 ForeignExchangeCosts 5.3 50.8 82.7 157.9 301.7 370.7 395.3 41.9 1406.3 Total 21.9 81.3 116.2 209.3 388.3 480.9 499.9 66.4 1864.2 cr Source: Expenditures for Stage I and H are based on Sunsari Morang Irrigation II Project, ICR, February 1996. Stage I, Phase I (15100 ha) FY98 FY99 FY00 FYOI FY02 Total Estimated Financial Costs in 1997 Prices Il: Local Costs 155.6 360.7 569.1 431.7 70.8 1587.9 ForeignExchange Costs 54.7 126.7 200.0 151.7 24.9 558.0 Total 210.3 487.4 769.1 583.4 95.7 2145.9 Stage m, Phase II (16400 ha) FY03 FY04 FY05 FY06 FY07 Total Esfimated Financial Costs in 1997 Prices 1/: Local Costs 169.0 391.8 618.1 468.9 76.9 1724.7 Foreign Exchange Costs 59.4 137.6 217.2 164.8 27.0 606.0 Total 228.4 529.4 835.3 633.7 103.9 2330.7 Source: NISP PAD, November 1997, adjusted to 1997 constant prices.  NEPAL Table 2 Sunsari Morang Headworks Project Implementation Completion Report Expenditures of SMHP (NRs M) FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 a/ Total Civil Works: Local Costs (LC) 0.00 0.00 0.00 21.70 76.12 70.51 18.24 3.72 190.29 Foreign Exchange Costs (FEC) 0.00 0.00 0.00 50.66 177.61 164.53 42.56 8.68 444.04 Subtotal 72.36 253.73 235.04 60.80 12.40 634.33 Dredging Equipment (FEC) 0.00 0.00 0.00 0.00 0.00 121.00 5.70 34.17 160.87 Power Supply Equipment (FEC) 0.00 0.00 0.00 0.00 163.50 36.00 19.73 4.00 223.23 Equipment & vehicles a/ 0.00 0.00 0.00 105.93 0.00 0.00 0.00 0.00 105.93 Subtotal 0.00 0.00 0.00 105.93 163.5 157 25.43 38.17 490.03 TA/Eng/Training b/: LC 2.04 10.31 3.81 10.77 6.09 4.93 5.07 2.03 45.05 FEC 8.16 41.25 15.25 43.09 24.38 19.71 20.26 8.11 180.21 Subtotal 10.20 51.56 19.06 53.86 30.47 24.64 25.33 10.14 225.26 O&M of Dredgers: LC 0.00 0.00 0.00 0.00 0.00 0.00 1.28 0.40 1.68 FEC 0.00 0.00 0.00 0.00 0.00 0.00 11.55 3.60 15.15 Subtotal 0.00 0.00 0.00 0.00 0.00 0.00 12.83 4.00 16.83 Miscelleneous (LC) 0.00 0.00 0.00 77.37 32.89 105.52 9.46 3.36 228.60 Total 10.20 51.56 19.06 309.52 480.59 522.20 133.85 68.07 1595.05 a/ Expenditures in FY94 were provided under SMIP II (Cr. 1814-NEP). b/ Expenditures during FY91-FY93 were provided under SMIP II (Cr. 1814-NEP).  NEPAL Table 3 Sunsari Morang Headworks Project lmplementation Completion Report O&M Expenditures & Budget Requirement (NRs Million, 1997 constant prices) Actuall/ FY89 FY90 FY91 FY92 FY93 FY94 FY95 Stage I Financial costs 5.2 1.2 1.5 3.8 2.4 7.5 5.5 Economic costa 2/ 4.8 1.1 1.4 3.5 2.2 6.9 5.0 Stage II Financial costs 8.8 2.1 2.5 6.6 4.1 12.7 9.4 Economic costs 2/ 8.1 1.9 2.3 6.0 3.8 11.6 8.6 1/ Table IOB, SMIP 11 ICR, February 1996, adjusted to 1997 prices. 2/ Assuming 16% FEC and 84% LC x SCF of 0.90. Budget Requirement NRs/ha FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Headworks 29.4 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 CMC Desilting 85.0 5.8 5.8 5.8 CMC Maintenance 52.0 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 Water Mgt Activities 95.0 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 00 Whole admin costs 140.0 8.1 8.1 8.1 8.1 8.1 8.1 8.1 8.1 Subtotal 24.9 19.1 19.1 24.9 19.1 19.1 24.9 19.1 Stage I O&M by project 2/ 164.0 4.0 3.6 3.0 2.4 1.9 1.6 1.6 1.6 O&MbyWUOs3/ 318.0 0.7 1.2 1.8 2.3 3.4 3.1 3.1 3.1 Subtotal 482.0 4.7 4.8 4.8 4.7 5.3 4.7 4.7 4.7 Stage 1I O&M by project 2/ 60.0 2.9 3.3 1.8 1.0 1.0 1.0 1.0 1.0 O&MbyWUOs3/ 383.0 3.3 4.1 6.4 6.4 6.4 6.4 6.4 6.4 Subtotal 443.0 6.2 7.4 8.2 7.4 7.4 7.4 7.4 7.4 Stage m 400.0 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 Total O&M costs-Finan 756.0 48.4 43.9 44.7 49.6 44.4 43.8 49.6 43.8 Total O&Mcosts-Econ 692.5 44.3 40.2 40.9 45.4 40.7 40.1 45.4 40.1 1/ Table IOA, SMIP IL ICR, Febnsary 1996, adjusted to 1997 prices. 2/ O&M from SC down to SSC and WC levels. 3/ O&M from on-farm systems upto SSC level. 4/ Asuming 16% FEC and 84% LC x SCF of 0.90.  NEPAL Table 4 Sunsari Morang Headworks Project Implementation Completion Report Phasing of benefitted Area (ha) Stage I Stage II Stage III, Phase I Stage III Rehab. Remodel Desilting Headworks Rehab. Desilting Headworks Rehab. Rehab. Basins Basins FY8 2440 FY8 2440 FY8 2440 FY8 2430 FY88 FY89 FY90 890 FY91 2710 FY92 2420 FY93 2430 2375 4175 FY94 1100 5040 '. FY95 0 3265 FY96 2050 FY97 4300 8775 15000 FY98 2300 975 1700 FY99 1510 FYOO 3020 FY01 3020 FY02 3020 FY03 4530 FY04 FY05 1645 FY06 3290 FY07 3290 FY08 3290 FY09 4935 Total 9750 9750 2430 9750 16700 4175 16700 15100 16450  Table 5 NEPAL Sunsari Morang Headworks Project Implementation Completion Report Cropped Area, Yields & Production Stage I (9750 ha) Without Project Partial Irrigation Complete Rehabilitation 90/91 94/95 00/01 Area (ha) ield (t/ha) Total Area (ha) ield (tlha) Total Area (ha) ield (t/ha) Total production production Production (tons) (tons) (tons) Khaif Early Paddy 293 1.70 498 7508 3.30 24776 5850 4.20 24570 Late Paddy 7807 2.5 19518 1463 2.4 3511 2438 3 7313 Maize 1269 1.8 2284 49 2 98 0 0 0 Jute 0 0.00 0 0 0.80 0 488 1.30 634 Pulses 0 0.00 0 78 0.60 47 0 0.00 0 Oilseeds 0 0.00 0 0 0.00 0 195 1.50 293 Vegetables 0 0.00 0 68 12.00 816 0 0.00 0 subtotal 9369 22300 9166 29248 8970 32809 Rabi U' wheat 1659 1.50 2489 4500 2.40 10800 4875 3.00 14625 Oilseeds 781 0.5 391 975 0.6 585 1268 1.5 1901 Pulses 293 0.5 147 1200 0.6 720 1463 1.3 1901 potato 49 8.0 392 293 12 3516 488 15 7313 vegetable 49 8.0 392 293 15 4395 195 15 2925 sugarcane 98 25.0 2450 79 35 2765 293 50 14625 subtotal 2929 6260 7340 22781 8580 43290 hot season jute 488 1.3 634 166 1.3 216 487.5 1.3 634 paddy 0 0 0 0 0 0 975 4 3900 pule 0 0 0 0 0 0 0 0 0 oilseeds 0 0 0 0 0 0 195 1.5 293 vegetables 0 0 0 0 0 0 97.5 15 1463 subtotal 488 634 166 216 1755 6289 Total Cropped Area 12786 29194 16672 52245 19305 82388 Net Cultivable Area 9750 9750 9750 Cropping Intensity (%/o 131% 171% 198%  NEPAL Table 6 Sunsaui Morang Headworks Project Implementation Compldeion Report Cropped Area, Yields & Production Stage 11 (16,700 ha) Without Project Partial Irrigation Complete Rehabilitation 90/9 94/95 00/01 Area (ha) ield (t/ha) Total Area (ha) ield (t/ha) Total Area (ha) ield (t/ha) Total production production roduction (tons) (tons) (tons) Kharif Early Paddy 501 1.70 852 12525 3.60 45090 10020 4.20 42084 Late Paddy 13360 2.5 33400 3340 2.6 8684 4175 3 12525 Maize 2171 1.8 3908 0 0 0 0 0 0 Jute 0 0.00 0 0 0.00 0 835 1.30 1086 Pulses 0 0.00 0 133 0.60 80 0 0.00 0 Oilseeds 0 0.00 0 0 0.00 0 334 1.50 501 Vegetables 0 0.00 0 84 12.00 1008 0 0.00 0 subtotal 16032 38160 16082 54862 15364 56196 Rabi LA wheat 2839 1.50 4259 7350 2.10 15435 8350 3.00 25050 Oilseeds 1336 0.5 668 2000 0.5 1000 2171 1.5 3257 Pulses 501 0.5 251 2175 0.6 1305 2505 1.3 3257 potato 84 8.0 672 350 12 4200 835 15 12525 vegetable 84 8.0 672 250 12 3000 334 15 5010 sugarcane 167 25.0 4175 420 35 14700 501 50 25050 subtotal 5011 10696 12545 39640 14696 74148 hot season jute 835 1.3 1086 300 1.3 390 835 1.3 1085.5 paddy 0 0 0 0 0 0 1670 4 6680 pulses 0 0 0 0 0 0 0 0 0 oiiseeds 0 0 0 0 0 0 334 1.5 501 vegdables 0 0 0 0 0 0 167 15 2505 maize subtotal 835 1086 300 390 3006 10771.5 Total CroppedArea 21878 49941 28927 94892 33066 141115 Net Cultivable Area 16700 16700 16700 Cropping fItensity (% 131% 173% 198%  Table 7 NEPAL Sunari Mong Headworks Project Inipleentation Completion Repot Cropped Area, Yields and Production-SMIP m Phase I (15,100 ha) PBesCnt Without Project With Project 95/96 Arma (ha) ield (tlha) Total Area (ha) ield (t/ha) Total Area (ha) ield (t/ha) Total production production Production (tons) (tons) (tons) Khasif Irrigated paddy-HYV 2265 3.00 6795 2870 3.30 9471 9060 4.20 38052 Irigated paddy-lood 2718 2.4 6523 1208 2.4 2899 3775 3 11325 rainfed paddy 7550 1.S 13590 7550 1.8 13590 0 0 0 jut-i8igated 453 0.80 362 755 0.80 604 755 1.30 982 jute-rainfed 1963 0.60 1178 1661 0.60 997 0 0.00 0 PuIses 0 0.00 0 0 0.00 0 0 0.00 0 ouseeds 0 0.00 0 0 0.00 0 302 1.50 453 vegtbbles 0 0.00 0 0 0.00 0 0 0 0 subtotal 14949 2144S 14044 27561 13892 50S12 Rai wheat 4530 1.50 6795 5285 1.80 9513 7550 3.00 22650 oilseeds 906 0.6 544 1510 0.6 906 1963 1.5 2945 pulses 1510 0.5 755 2265 0.5 1133 2265 1.3 2945 potato-n1gated 151 8 '1208 151 8 1208 755 15 11325 potato-rainfed 453 5 2265 755 5 3775 0 0 0 vtgetable 0 0 0 0 0 0 302 15 4530 sugarce 151 35 5285 151 40 6040 453 50 22650 subtotal 7701 16852 10117 22575 13288 67044 hot season jute-irrigated 0 0 0 0 755 1.3 981.5 paddy 0 0 0 0 1510 4 6040 pulss 0 0 0 0 0 0 0 oilseeds 0 0 0 0 302 1.5 453 vegctables 0 0 0 0 151 15 2265 subtotal 0 0 0 0 2718 9740 Total Cropped Area 22650 45300 24161 50135 29898 127595 Net Cultivable Area 15100 15100 15100 Cropping Intensity (%) 150% 160% 19S%  NEPAL Suonari Morang Headworb Project Table 8 Implementaton Completion Report Per Ha Financial Cxop Budget Without Project Stage I & 11 Khaif Rabi Paddy Paddy Maze Jute Jut oileeds Wheat Oiseeds Puls Potato Vepetables Sugercane othr output eacly late HYV LV ipgated Main Produce: Yield(tha) 1.7 2.5 1.8 1.3 0 0 1.5 0.5 0.5 8 8 25 0 Pricett 7000 7000 6700 7500 0 8000 18500 15000 6000 10000 1000 0 Value 11900 17500 12060 9750 0 0 120D0 9250 7500 48000 80000 25000 0 By-Products: Yied(tha) 2.5 3.8 2.3 2.1 0 0 1.6 0.37 0.7 0 0 0 0 Price/t 660 660 300 300 300 5130 6000 0 0 0 0 Value 1650 2508 690 630 0 0 480 1898 4200 0 0 0 0 TotlalGrowVahie 13550 20009 12750 10380 0 0 12480 11148 11700 48000 80000 25000 0 Se-dKk/) 60 60 15 8 0 100 8 50 800 1 2000 0 Pric/kg 10 10 8 50 0 12.5 23 20 10.5 1250 1 0 Value 600 600 120 400 0 0 1250 184 1000 8400 1250 2000 0 Uceaft/ba) 0 43.5 0 43.5 0 0 26.5 0 0 35 32.6 43.5 0 Pricelkg 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 Value 0 348 0 348 0 0 212 0 0 280 261 348 0 DAP(kgha) 0 0 0 0 0 0 43.5 0 0 22 43.5 43.5 0 Price/kg 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 Vaue 0 0 0 0 0 0 748.2 0 0 378 748 748.2 0 MOPk*ha) 0 0 0 0 0 0 0 0 0 16.6 16.6 16.6 0 Price/g 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 Value 0 0 0 0 0 0 0 0 0 152.72 152.72 152.72 0 Msnuce(t/ha) 4.0 0.0 4.0 4.0 0.0 0.0 0.0 0.0 0.0 6.0 4.0 4.0 0.0 Price/t 200 200 200 200 200 200 200 200 200 200 200 200 200 Vlue 800 0 80 800 0 0 0 0 0 1200 g00 800 0 Chetaical: Value 80 50 30 0 0 0 0 0 0 50 0 30 0 TotidLabour(md/ira) 90 125 70 150 0 68 38 35 130 110 150 0 Hied Labour (md) 27.0 37.5 21.0 * 45.0 0.0 0.0 20.4 11.4 10.5 39.0 33.0 45.0 0.0 Price/md 55 55 55 55 55 55 55 55 55 55 55 55 55 LabourCosts 1485 2063 1155 2475 0 0 1122 627 578 2145 1815 2475 0 TotId Anidml Dayr(ad) 35 38 25 25 0 25 24 20 33 30 40 0 hired Amimal (ad) 7.0 7.6 5.0 5.0 0.0 0.0 5.0 4.8 4.0 6.6 6.0 8.0 0.0 Price/ad 110 110 110 110 110 110 110 110 110 110 110 110 110 Animal Costs 770 836 550 550 0 0 550 528 440 726 660 880 0 Total Costs 3735 3897 2655 4573 0 0 3882 1339 2018 13332 5687 7434 0 NetProdutionValue 9815 16112 10095 5807 0 0 8598 9809 9683 34668 74313 17566 0  NEPAL Sunsari Morang Headworks Project Table 9 Implementation Completion Report Per Ha Financial Crop Budget Partial Irrigation -stage I Kharif Rabi Paddy Paddy Maize Jute Pulses Vegetables Wheat Oilseeds Pulses Potato Vegetables Sugarcane others Output: early late inigated Main Produce: Yield(t/ha) 3.3 2.4 2 1.3 0.6 12 2.4 0.6 0.6 12 15 35 0 Price/t 7000 7000 6700 7500 15000 7000 8000 18500 15000 6000 10000 1000 0 Value 23100 16800 13400 9750 9000 84000 19200 11100 9000 72000 150000 35000 0 By-Products: Yield(tAa) 3.6 3.6 2.5 2.1 0.08 0 1.4 0.45 0.1 0 0 0 0 Price/t 660 660 300 300 300 300 5130 6000 0 0 0 0 Value 2376 2376 750 630 24 0 420 2309 600 0 0 0 0 TotalGrossValue 25476 19176 14150 10380 9024 84000 19620 13409 9600 72000 150000 35000 0 Inputs: SeedsQt/ba) 50 50 30 10 40 2 120 15 40 1500 0.5 6000 0 Price/kg 10 10 8 50 20 150 12.5 23 20 10.5 1250 1 0 Value 500 500 240 500 800 300 1500 345 800 15750 625 6000 0 Ure(gihe) 80 60 60 60 30 60 120 30 30 120 120 90 0 Pricekg 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 Value 640 480 480 480 240 480 960 240 240 960 960 720 0 Un DAPk4Ia) 60 60 60 30 30 90 60 30 30 120 120 90 0 Price/kg 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 17.2 Value 1032 1032 1032 516 516 1548 1032 516 516 2064 2064 1548 0 MOPQy/ha) 0 0 0 0 0 30 30 0 0 30 30 30 0 Price/kg 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 Value 0 0 0 0 0 276 276 0 0 276 276 276 0 Manure(t/ah) 0.0 0.0 2.0 0.0 0.0 2.0 0.0 0.0 0.0 0.0 2.0 3.0 0.0 Price/t 200 200 200 200 200 200 200 200 200 200 200 200 200 Value 0 0 400 0 0 400 0 0 0 0 400 600 0 Chemicals: Value 200 200 200 0 0 300 100 100 0 400 400 500 0 Total Laboa(mdlha) 145 140 100 100 50 180 100 50 45 180 200 200 0 HiredLabouar(md) 43.5 42.0 30.0 30.0 15.0 54.0 30.0 15.0 13.5 54.0 60.0 60.0 . 0.