India - Second Punjab Irrigation and Drainage Project

Document of The World Bank FOR OFFICIAL USE ONLY G/ A/ 3A / /,> 6274 6 AI Report No. P-5143-IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$15 MILLION AND A PROPOSED CREDIT OF SDR 117.7 MILLION TO INDIA FOR A PUNJAB IRRIGATION AND DRAINAGE PROJECT NOVEMBER 22, 1989 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otnerwise be disclosed without World Bank authorization.  CVRU3NCY 3QUxVALUNTS US$ 1 a Rs 16.4 FISCAL YZAR GOI, State: April 1 - March 31 ZXIGBTS AND MEA3URES The metric system is used throughout the report ACRONYMS AND AD3RXVIATTONS BBMB - Bhakra Beas Management Board NABARD - National Bank for Agricultural Refinance and Development O&M - Operation and Maintenance PIMTI - Punjab Irrigation Management Training Institute SYL - Sutlej-Yamuna Link Canal  FOR OMCIAL USE ONLY ZNDIA PUNJAB IRRIGATION AND DRAINAGE PROJECT LOAN/CREDIT AND PROJECT SUMMARY Borrower: India, Acting by its President enefsiniagy: Government of Punjab Loan and Cradit Amounts: IBRD Loan US$ 15 million equivalent IDA Credit SDR 117.7 million (USS 150 million equivalent) terms: IBRD:20 years including 5 year grace period at the Bank's standard variable interest rate. IDA: Standard with 35 year maturity Onlending Terms: GOI to GOP as part of central assistance to states for development projects on terms and conditions applicable at the time. GOI will bear the foreign exchange risk. Financing Plan: GOI/State of Punjab US$ 81.5 million IBRD/IDA US$ 165.O million Total US$ 246.5 million Economic rate of return: 25% Staff Appraisal Report : Report No.8056-IN Maps: IBRD 21801 This document has a restricted distribution and may be used by recipients only in the pet rorRr :e of their official duties. Its contents may not otherwise be disclosed without World Bank auunazation.  MEMOR7NDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN/CREDIT TO INDIA FOR THE PUNJAB IRRIGATION AND DRAINAGE PROJECT 1. The following memorandum and recommendation on a proposed loan of US$ 15 million equivalent and development credit of SDR 117.7 million equivalent to India is submitted for approval. The proposed loan would be for 2' years, including a five year grace period, at the Bank's standard variable interest rate. The proposed credit would be on standard IDA terms with 35 years maturity. The loan and credit would help finance the continuation and expansion of the irrigation modernization program started by the recently completed First Punjab Irrigation Project (Cr 889-IN). 2. Background Agriculture contributes about 35% of GNP and 25% of exports, and is the largest single sector in the national economy. It engages 65% of the total labor force and provides the base for about 60% of India's exports. Agriculture production has grown steadily at an annual rate of about 2.5% since the early 1970s. This trend is mainly the result of substantial increases in the cropped area coming under irrigation, together with the increased use of high yielding varieties, fertilizer and improved farming practices which irrigation encourages. However, the continuing increase in the demand for food in the country requires that agricultural production continue to increase substantially in the medium term. 3. The Government of India (GOI) has allocated about 10% of public -ector investments to irrigation in successive Five Year Plan periods. Irrigat..on facilities are provided to almost 70 million ha, about 55% of which is surface water irrigated and the rest served by groundwater. Actual utilization in many completed irrigation projects remains significantly lower than planned due to over optimistic assumptions about system efficiency, farmer preference for water-intensive crops and lax system management. Experience varies widely over the countrv, however, with some states performing far better than others. Punjab, and the other states of northwest India are among the most productive and successful irrigating states. In such states, increased attention is being paid to maximizing the productivity of existing infrastructure, and ensuring that the productive potential of land and water resources is sustained through investments as and when required in modernization, drainage, and flood control. 4. Punjab is one of the mop productive agricultural states in India. It led the "Green Revolution" beginning in the late 1960's, and by 1985/86, Punjab produced over 10% of total foodgrain production of India from a cultivated area only about 3% of that of India. Some 60% of centrally- procured foodgrains is produced in Punjab for redistribution to deficit states. The increase in foodgrains production (averaging 15% per annum) during the Green Revolution was due to the combined effect of higher yields from the new crop varieties, a sound basic irrigation system, and rapid development of private groundwater resources. However, the tempo achieved during these peak years has slowed considerably in recent years because most of the potential gains from using high yielding varieties were captured very quickly, the scope for further development of groundwater is limited, and increasing waterlogging in saline groundwater areas is beginning to affect the area available for cultivation. Previous Bank involvement in the state of Punjab's irrigation sector included the Punjab Flood Protection and Drainage Project (Cr. 15-IN), the Punjab Irrigation Project (Cr. 889-IN), and the Kandi Watershed and Area Development Project (Ln. 1897-IN). 6. Rationale for Bank involvement: The Bank's assistance strategy to India is to support policies and investments that will promote economic growth  - 2 - and social development in a context of macro-economic stability. The emphasis is on efficient rosource allocation, increased efficiency in the public soctor, and the appropriate targeting and delivery of support systems to the poor. 7. The recently completed Punjab Zrrigation Project (Cr. 889-IN) supported a program of watercourse and canal lining, experimental subsurface drainage works, and trials of improved irrigation techniques which provide the basis for much of the proposed project. Canal and watercourse lining, the major investment, were implemented to high technical standards. Project benefits (mostly from water savings) marginally exceeded appraisal projections. The project was well received by the beneficiaries, and the Government of Punjab sought further assistance for a continuing program of modernization. 8. During formulation of the proposed project, particular attention was paid to longer-term issues facing irrigated agriculture in Punjab, as full development of the state's water resources approaches. Studies conducted under the previous project, and preparation activities for the proposed project, involved specialists with experience in surface and subsurface drainage problems elsewhere in the world, bringing new perspectives to the problem, and the introduction of revised approaches to dealing with drainage problems. 9. Project Objectives: Punjab's investment program in irrigation, which would be supported through the proposed project, has the following objectives: improving the productivity of the existing irrigation system; raising living standards in the most backward areas of the state through development of irrigation facilities; initiating drainage works and studies to address the short and long-term drainage problems which threaten the environmental and productive resources of Punjab and other basin states; and further upgrading the professionalism of the irrigation Department. 10. A number of discrete investment components have been identified by GOP for implementation during and following the next Five Year Plan (1990-94). To allow optimization of the program over time, and delays due to unforeseeable events, the project would provide scope for some flexibility in the ultimate composition of the investment program. Some 90% of project funds would be allocated to the core investments, while the remainder would be used to support components which are presently at pre-feasibility level of preparation, and appear to have high returns. 11. This flexibility would be exercised within a well organized institutional framework within GOP which would be further strengthened under the project. The major components of the project would yield benefits in direct proportion tc the work done, and thus can be advanced or delayed without prejudice to the returns to the investment. These characteristics would be exploited in the course of finalizing annual implementation plans. 12. Project Description: The following investments would be financed by the proposed project to support the objectives described above: 4=rnvad irrigation efficiency would be achieved through lining of branch canals, distributaries, minors, and watercourses; modernization of control structures; and construction of a communications systems linking state and district irrigation offices. Agricultural development in backward areas of the state would be supported by developing the Kandi Canal over some 20,000 ha; construction of about 240 public tubewells; and construction of low dams at 9 sites in the Kandi tract; drainape problemg, which pose a threat both to the environment and the productive capacity of the State would be addressed through drainage works in and around 200,000 ha of waterlogged areas. New link drains would be constructed, improving existing drains and associated structures; installation of subsurface drainage works in a pilot area covering  - 3 - about 5,000 ha. A major technical study of the options for controlling the drainage problems of northwest India is curren..ly under execution in parallel with these physical works. institutiona- develogment would be supported through provision of institutional facilities and development of specialist skills in water resource development through training and study tours, and establishment of a training institute. In addition to these major components, a number of studies related to water resource issues witnin the State would be supported. 13. The project, which would be carried out over a period of 7 years is estimated to cost US$ 246.5 million. A breakdown of costs and the financing plan are shown in Schedule A. To expedite project mobilization, Bank/IDA would provide up to US$10 million equivalent for eligible expenditures made after July 31,1989. Amounts and methods of procurement and of disbursement, and the disbursement schedu'e are shown in Schedule B. A timetable of key project processing events is in Schedule C. The Status of Bank Group operations in India are given in Schedule D. Map 21801 is attached. The Staff Appraisal Report, No. 8056-IN dated November 19,1989 is teing distributed separately. 14. The primary river basins involved in the project (the Ravi, Beas, and the Sutlej) are international waterways flowing through India to Pakistan where they join the Indus river. India and Pakistan are signatories to the Indus Waters Treaty (1960) which sets out their rights and obligations with respect to these and other tributaries of the Indus system. The Treaty gives India the unrestricted use of the Ravi, Beas, and Sutlej rivers for irrigation and other uses (Article II) and the right to utilize the natural channels of the rivers for disposal of drainage effluent (Article IV, Paragraph 8), provided "each Party will avoid, as fair as practicable, material damage to the other Party" (Article IV, paragraph 2). Project works have been designed in accordance with the Treaty and do not give rise to the need for notification of Pakistan under the terms of the Treaty. Further, in the opinion of the Bank's staff, the project would not adversely affect the quality or quantity of the drainage effluent flowing into Pakistan. 15. Agreed Actions: A condition of disbursement against additional irrigation investments would be provision to the Bank of detailed cost and benefit estimates justifying the economic and technical viability of the investment, and a corresponding financing plan. During negotiations, agreements were obtained from GOI that the results and conclusions of the ongoing regional drainage study would be discussed with the Bank by December 31, 1992, followed by a proposal for actions to be taken on the basis of the results and recommendations of the study. From GOP, assurances were obtained that (a) execution of civil works would follow the standards set out in the Punjab Public Works Department Specifications or such other specifications as are agreed with the Bank; (b) all canals and facilities above the irrigation outlets would be maintained so as to function in accordance with design specifications; (c) sufficient resources for maintenance would be provided, and specifically identified in the annual state budget. The Government of Punjab's proposals for resettling oustees from the submergence areas were discussed and agreed. The standards would ensure that oustees would at least regain their previous standard of livelihood, and resettlement would be implemented prior to construction of any dam involving resettlement. All oustees would be provided with replacement houseplots; small farmers would be provided with agricultural land under the project; larger farmers would be assisted with institutional finance to acquire replacement land or take up other occupations, at their choice. Beneficiaries of the project would be encouraged to release land in the irrigation command to resettle those displaced. These arrangements would be carefully monitored and adjusted as necessary after a minimum trial period of three years. Existing Dam Safety  - 4 - Roview Panels would continue to function, under terms of reference agreed wlth the Bank. 16. knettta: increaosd irrigation efficiency would bonefit somo 60,000 farm families in existing irrigated areaa, particularly tho.e at the tail ends of watercourses. Development of new water resources in the Kandi area would benefit a further 30,000 farm familiea ii the poorest and most backward part of the state. Approximately 110,000 ha of new irrigation would result from modernization of canals and watorcourses, extension of canal conoands and construction of new storages, walls, and surfaco irrigation systems. The economic rate of return of project investments varies by component. Canal lining in areas of saline or high water table has an economic rate of return of 33%. Watercourse lining returns vary from 20-40% depending on whether the local groundwater is fresh or saline. Returns to tubewell and surface irrigation development in the Kandi area are lower, varying from 12-20%, but these investments provide the only proven basis for economic development in a backward area of the state. Other project activities such as drainage, provision of improved regulation and communications, xpgraded and modernized facilities for the Irrigation Department, and consailtancy services to the Bhakra Beas Management Board, provide the basis fcr assuring sustained improvements in agricultural productivity in the area of India which contributes the major share of surplus foodgrain production. At full development the project would result in incremental production of about 136,000 tons of rice, 276,000 tons of wheat, and 5,000 tons of cotton. 17. Risks: The major risk would be the ability of the Government of Punjab to fund project investments in patallel with heavy competing demands for resources in other sectors. Ho,w,ever, project investments are consistent with allocations in the State's 1990-94 Five Year Plan, and furthermore, major project investments (in l'ning, tubewell development, and drainage) are such as to generate benefits in direct proportion to the extent of development. Technical risks, on the basis of prior experience in the State, and the very progressive farming sector, would be minimal. The agricultural impact of the project is based on levels of productivity which are already widely achieved in the state. Farmers are fully aware of the benefits of irrigation and the value of water, so that the scope for increased production generated by the project is unlikely to be wasted. 18. Recomendation: I am satisfied that the proposed loan and credit would comply with Articles of Agreement of the Bank and Association, respectively, and recommend that the Executive Directors approve the proposed loan and credit. Barber B. Conable President Attachments Washington, D.C. November 22, 1989  nhaedhla A INDIA PUNJAB IRRIGATION AND DRAINAGE PROJECT Estimated Coats and Finanging Plan Istimted PrQject Cost and Financing