Nepal - Third Bhairawa Lumbini Groundwater Irrigation Project

Document of The World Bank FOR OFFICIAL USE ONLY C8Z~~~ 4 Z- - A/ L"/ _ -:J6 Reporn No. 8411-NEP STAFF APPRAISAL REPORT NEPAL BRAIRAWA LUMBINI GROUNDWATER IRRIGATION III PROJECT MAY 7, 1990 Agriculture Operations Division Country Department 1 Asia Region lbhs document has a restkitd ditibuton an may be used by r.dIpnb ody in he perdonmae of thei ofllciu duies Its contens way not otwr-ue be diosed wihot Word Eank autrzatin.  CURRENCY EQUIVALENTS Currency Unit Nepali Rupee (NRs) US$1 = NRs 28.6 al NR I - US$O.035 al WEIGHTS AND MEASURES (METRIC SYSTEM) 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 hectare (ha) = 2.47 acres (ac) 1 million cubic meters (Mcu m) - 810 acre-feet or 35.3 M cubic feet 1 cubic meter per second (cu m/sec) = 35.31 cubic feet per second (cfs) 1 cubic foot per second (cfs) = 0.028 cubic meters per second (cu m/sec) 1 kilogram (kg) = 2.2 pounds (lb) 1 metric ton (t) = 2,205 pounds (lb) ACRONYMS AND ABBREVIATIONS ADBN - Agricultural Development Bank of Nepal ACC - Approval and Coordination Comittee BLP - Bhairawa Lumbini Project DAO - District Agriculture Office DIO - District Irrigation Office DG - Director General (DOI and DOA) DOI - Department of Irrigation DOA - Department of Agriculture DTW - Deep Tubewell ERR - Economic Rate of Return FIA - Farmer Irrigation Association (for private schemes) HMGN - His Majesty's Government of Nepal HYV - High-Yielding Variety ICB - International Competitive Bidding IDA - International Development Association IDS - Institutional Development Support ILC - Irrigation 'Line of Credit' (Pilot Project) ISSP - Irrigation Sector Support Project LCB - Local Competitive Bidding LIB - Limited International Bidding M&E - Monitoring and Evaluation MIS - Management Information System NEA - Nepal Electricity Authority O&M - Operation and Maintenance PDRD - Planning, Design and Research Division (DOI) RID - Regional Irrigation Directorate T&V - Training and Visit system of agricultural extension WUA - Water User Association (for HMGN schemes) HMGN FISCAL YEAR July 16 - July a/ The (official) exchange rate at the time of appraisal (December 1989).  FOR OFFICIAL USE ONLY NEPAL BHAIRAWA LUMBINI GROUNDWATER IRRIGATION III PROJECT STAFF APPRAISAL REPORT Credit and Proiect Summary Borrower: Kingdom of Nepal Amount: SDR 36.6 million (Uo$47.2 million equivalent). Terms: Standard IDA terms, with 40 years maturity. Description: The objectives of the project are to: (a) raise agricultural production and farm incomes through expansion of irrigated area; (b) promote privatization and farmer participation in irrigation development to reduce Government costs and improve operation, maintenance and sustainability of irrigation schemes; and (c) strengthen irrigation subsector institutions. The project would comprise: (a) the Bhairawa Lumbini Groundwater Irrigation Project Stage III for construction of an additional 73 deep tubewells serving some 8,600 ha in the Bhairawa Lumbini area, completion of 16 tubewells under the Stage II project, and modification of 64 Stage I tubewells to accommodate farmer management; (b) expansion of the irrigation *line of credit" (ILC) pilot project to cover an additional 6,600 ha in the Western, Mid Western and Far Western Regions; and (c) institutional development support for DOI to strengthen internal management and administrative functions and capacity to implement and manage the irrigation sector program, and to prepare for future irrigation sector projects. The project would not include institutional credit. Benefits: At full development, agricultural production is expected to increase by some 54,000 tons annually, mainly cereals and oilseeds. Some 42,000 people would directly benefit. Risks: Overall project risks are moderate. Implementation risks for the major component, Bhairawa Lumbini Stage III, are low as it will benefit from experience gained during Stages I and II. The requirement to establish a Water User Association at each DTW before construction begins could slow implementation. Prolongation of the trade and transit impasse with India could also cause delays. Risks for ILC are somewhat higher, as ILC schemes are scattered over a large area and are often inaccessible. However, DOI has extensive experience constructing schemes similar to the type of subprojects proposed. 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.  Estimated Costs (Ua '000) X Total X Foreign 8ae. Local Forelgn total Exchange Costs A. Shairawa Lusbint Stag. St! 1. Construction of Stg tIII Syst. 6,150.8 12,307.1 20,51?.9 00 4C 2. Completion of Stag. U Systtos 1,242.8 1,457.4 2,699.7 64 0 8. Modificatlon of Stage I Systew 1,685.7 684.6 2,528.8 88 0 4. Operation end Maintenance Support 492.2 921.0 1,418.8 es 8 5. Agricultural Support Sorvice 404.0 860.6 814.8 48 2 6. Farmer Organization Support 251.9 406.1 680.1 62 1 7. Groundwater Investigations 1,406.8 1,689.8 8.095.6 65 7 Sub-Total Shairewa Lusbini Stago rIU 13,06.4 16,028.8 81,725.2 57 71 S. Irrisation 'Line of Credit' 7,189.7 8,454.6 10,694.2 88 24 C. Institutional Dovolonmnt Support 1,414.2 1,011.4 2,425.6 42 5 Total Bass Costs 22,250.2 22,494.7 44,744.9 s0 100 Phyeical Contlngeniess 928.6 804.6 1,726.2 47 4 Price Contingencies 4.771.4 1.4505S 6 222.0 28 14 Total Project Costs 24,749.8 52,6 i'7ur ii I Notes Totals may not sum due to rounding. Financing Plan: Local Foreign Total Financiers (US$ million) IDA 22.4 24.8 47.2 (90Z) HMGN 5.0 - 5.0 (9Z) Farmers 0.5 - 0.5 (1Z) Total 27.9 24.8 52.7 --m= =m==8 =8 Estimated Disbursements: 1991 1992 1993 1994 1995 1996 1997 1998 1999 (US$ million) Actual 6.9 10.8 8.3 6.9 5.0 3.7 2.4 2.2 1.0 Cumulative 6.9 17.7 26.0 32.9 37.9 41.6 44.0 46.2 47.2 Rate of Return: 241 gaps: 1. Bhairawa Lumbini Groundwater Irrigation III Project Locations (Map 22124) 2. Bhairawa Lumbini Groundwater Project Stage III (Map 22125)  NEPAL BHAIRAWA LUMBINI GROUNDWATER IRRIGTION III PROJECT STAPF APPRAISAL REPORT Table of Contents Pate Co. I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . 1 Agriculture in Nepal . .................. . 1 Background on the Irrigation Subsector . . . . . . . . . . . 1 Irrigation Development Prospects and Constraints . . . . . . 2 Past Bank Support for Irrigation Development . . . . . . . . 4 Performance of Bhairava Lumbini Stages I and II . . . . . . . 5 Rationale for IDA Involvement . . . . . . . . . . . . . . . . 6 Lessons Learned from Previous Projects . . . . . . . . . . . 6 II. THE PROJECT AREA . . . . . . . . .. . . . . . . . . *. * . 7 Bhairava Lumbini Groundwater Irrigation Component ... . . . 7 Climate and Soils .... . . . . . . ......*... 7 Groundwater Resources .... . . . . ........ 7 Agricultural Support Services . . . . . . . . . . . . 7 Population, Farm Size and Land Tenure . . . . . . . . . . 8 Irrigation 'Line of Credit, Pilot Project Compcnent . . . . . a III. THE PROJECT. . . . . . . . . . . *. 9 Project Scope and Objectives . . . . . . . . . . . . . . . 9 Bhairawa Lumbini Groundwater Irrigation Component . . . . . 9 Stage III Irrigation and Drainage Facilities . . . . . . . 10 Completion of Stage II Facilities . . . . . . . . . . . . 11 Modification of Stage I Tubewells . . . . . . . . . . . . 12 Maintenance Vehicles and Equipment . . . . . . . . . . . . 12 Agricultural Support Services . . . . . . . . . . . . * 12 Farmer Organization Support . . . . . . . . . . . . . . . 12 Training and Studies .......... ....... 13 Consultant Services . . . . . . . . . . . . . . . . . . . 14 Design, Construction and Covmissioning . . . . . . . . . . 15 Farmer Cost Sharing .. . ..*.......... . 1S Implementation Schedule .......... .... .. . 16 This report is based on the findings of a November 1989 appraisal mission comprising Messrs. R. Reidinger and Y. K. Choi (IDA), and Messrs. D. Campbell and F. Peacock (Consultants). The mission was assisted in the field by Messrs. L. Rijk, J. Samama, J. Stout, and A. Manzardo (Consultants). Mr. W. Barber (Consultant) and Ms. M. Gutierrez (IDA) assisted the appraisal. Ms. C. Anbiah (IDA) assisted with project processing and preparation of the appraisal report.  t - ii - Irrigation 'Line of Credit' Pilot Project Component . . . . . 16 Irrigation Subprobects . . . . . . . . . . . . . . . . . . 16 Strengthening Regional, District and Field Offices . . . . 18 Farmer Organization Support . . . . . . . . . . . . . I8 Agricultural Extension Support . . . . . . . . . . . . . . 18 Preparation, Studies, Research and Training . . . . . 19 Technical Support . . . . . . . . . . . . . . . . . . . . 19 Subproject Credit Support . . . . . . . . . . . . . . . . 20 ILC Implementation Schedule . . . . . . . . . . . . . . . 20 Institutional Development Support . . . . . . . . . . . . . . 20 Planning, Design and Research Division Support . . . . . . 20 Administration Support . . . . . . . . . . . . . . . . . . 21 Participatory Management Pilot Projects . . . . . . . . . 22 IV. PROJECT COSTS, FINANCING AND DISBURSEMENTS . . . . . . . . . 23 Project Cost Estimates . . . . . . . . . . . . . . . . . . . 23 Financing .... . . . . . . . . . . . . . . . . . . . . . . 24 Procurement .... . . . . . . . . . ........ . . . . 24 Disbursements . . . . . . . . . . . . . . . . . . . . . . . . 26 Accounts and Audits .... . . . . . . . . . . . . . . . . . 27 V. ORGANIZATION AND MANAGEMENT . . . . . . . . . . . . . . . . . 29 Bhairava Lumbini Groundwater Irrigation Component . . . . . . 29 General . . . . . . . . . . . . . . . . . . . . . . . . . 29 Institutional Responsibilities . . . . . . . . . . . . . . 29 Bhairava Lumbini Project Authority . . . . . . . . . . . . 30 Farmer Organization and Participation . . . . . . . . . . 30 DTW Operation and Maintenance . . . . . . . . . . . . . . 32 Project Coordination . . . . . . . . . . . . . . . . . . . 33 Monitoring and Evaluation and Reporting . . . . . . . . . 34 Irrigation 'Line of Credit' Pilot Project Component . . . . . 34 Ministry of Water Resources . . . . . . . . . . . . . . . 34 Department of Irrigation . . . . . . . . . . . . . . . . . 35 Department of Agriculture ..... .......... . 35 Agricultural Development Bank of Nepal . . . . . . . . . . 36 Farmer Irrigation Associations . . . . . . . . . . . . . . 36 Technical Support for Groundwater Subprojects . . . . . . 37 Institutional Development Support . . . . . . . . . . . . . . 37 VI. AGRICULTURAL PRODUCTION, BENEF_2TS AND COST RECOVERY . . . . . 38 Bhairawa Lumbini Groundwater Irrigation Component . . . . . . 38 Cropping Patterns ....... ........... . 38 Crop Yields ................... .. 38 Production . . . . . . . . . . . . . . . . . . . . . . . . 38 Market Prospects and Prices . . . . . . . . . . . . . . . 39 Farm Incomes and Impact on Poverty . . . . . . . . . . . . 39 Labor ...... . ................ 40 Cost Recovery . . . . . . . . . . . . . . . . . . . . . . 40 Irrigation 'Line of Credit' Pilot Project Component .... . 42  - iii - VII. ECONOMIC ANALYSIS AND JUSTIFICATION . . . . . . . . . . . . . 43 Bhairawa Lumbini Groundwater Irrigation Component . . . . . . 43 Project Benefits . . . . . . . . . . . . . . . . . . . . . 43 Economic Analysis . . . . . . . . . . . . . . . . . . . . 43 Environmental Impact . . . . . . . . . . . . . . . . . . . 44 Irrigation wLine of Credit' Pilot Project Component . . . . . 45 Project Benefits . . . . . . . . . . . . . . . . . . . . . 45 Economic Analysis . . . . . . . . . . . . . . . . . . . . 45 Environmental Effects . . . . . . . . . . . . . . . . . . 45 Project Risks . . . . . . . .. .. .. . 46 Bhairawa Lumbini Groundwater Irrigation Component . . . . 46 Irrigation 'Line of Credit' Pilot Project Component . . . 46 VIII. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . 47 TABLES 1. Climatic Data 2. Office, Design, Survey, Transport and Construction Equipment 3. Summary Accounts by Project Component 4. Project Components by Year 5. Summary Accounts by Year 6. Financing Plan by Summary Accounts 7. Procurement Methods 8. Estimated Disbursement Schedule 9. Credit Allocation 10. Bhairawa Lumbini Cropping Patterns 11. Bhairawa Lumbini Production Inputs and Output Data 12. Financial and Economic Prices 13. Derivation of Economic Prices for Traded Commodities 14. Cost Analysis for Model ILC Subprojects 15. Economic Analysis--ERR Calculations ANNEXES 1. Performance of Bhairava Lumbini Stage I %nd II Projects 2. Summary Description of Bhairawa Lumbini III Irrigation Facilities 3. Irrigation "Line of Credit" Implementation Guidelines 4. Terai Groundwater Investigations 5. Organization of the Bhairawa Lumbini Project Authority 6. Farmer Organization Development at Bhairawa Lumbini 7. Economic Analysis, Financial Analysis and Cost Recovery 8. Selected Documents in the Project File CHARTS 1. Organization of Department of Irrigation 2. Implementation Schedule 3. Organization of Planning, Design and Research Division 4. Organization of Bhairawa Lumbini Project Authority 5. DTW Water User Association Organizational Structure 6. Composite Cropping Pattern for Bhairawa Lumbini  - iT - 1. Shairava Lumblni Groundwater Irrigation III Project Locations (Map 22124) 2. Ihairawa Lumbini Groundvater Project Stage III (Map 22125)  NEPAL BHAIRAWA LUMBINI GROUNDWATER IRRIGATION III PROJECT STAFP APPRAISAL REPORT I. BACKGROUND 1.1 Nepal is a landlocked country with a total area of 147,000 sq km situated between China and India. Its population in 1990 was about 19 million, of whom 94 percent live in rural areas. Population growth is high, averaging 2.6 percent annually between 1970 and 1986. The country has three broad ecological zones -- Mountains, Hills and Terai. Although the Terai plain comprises only 23 percent of the total area, it constitutes over SO percent of the area currently under cultivation. Over 80 percent of Nepal's irrigable land is in the Terai. Agriculture in Nepal 1.2 Agriculture, largely rainfed, dominates the country's economy. In 1986/87, it accounted for 60 percent of Gross Domestic Product and provided employment to over 90 percent of the labor force. Only about one sixth of the total land area is under cultivation, of which about 35 percent is irrigated. About 90 percent of the cropped area is in foodgrains, predominantly rice (half of cropped area) followed by maize, wheat, other cereals, and pulses. Although crop production has grown at about 1.6 percent annually over the last decade, rapid population growth (2.7 percent annually) has led to stagnation in per capita food production, and food self sufficiency now depends on better than average rainfall. National Planning Commission targets for agricultural production call for an annual growth rate of about 5 percent. This goal would appear to be difficult to achieve. 1.3 Agriculture in Nepal is mainly small-scale subsistence farming. Most cultivation is by labor and bullock power. In general, the agricultural sector has been slow to adopt improved practices. Crop yields are generally low, but could be increased considerably with effective irrigation, use of improved seeds, proper fertilizer and pesticide application, and improved farming methods. In recent years, fertilizer consumption has averaged about 15.0 kglha and only about 35-40 percent of the foodgrains area was under high-yielding varieties (HYVs). The National Plauning Commission has estimated that if Nepal's agricultural growth rate is to continue at acceptable levels, irrigation needs to expand by about 45,000 ha annually. Background on the Irrigation Subsector 1.4 Nepal has abundant surface and groundwater irrigation resources. Discharge of the major rivers totals about 150 billion cu mlyr, enough for about 8-iO million ha of irrigation. However, considering both land and water resources, irrigation potential totals only some 1.6 million ha. Of this potential, only about 930,000 ha (58 percent) is currently utilized, of which 670,000 ha is in farmer managed schemes with the remainder in government schemes. The estimated upper limit on irrigation from groundwater sources alone is 350,000 ha; a further 150,000 ha within existing government schemes could benefit from conjunctive use of surface water and groundwater. I  - 2 - 1.5 Development of surface water irrigation in Nepal was initiated centuries ago by farmers who built temporary weirs to direct river flows into ungated intakes. Most farmer schemes were in the Hills until the 1920s, when development started to expand into the Terai. Many such schemes are in operation today, accounting for about 70 percent of the total irrigated area in Nepal, and some have been improved through government assistance. Although they are generally managed effectively by farmer groups, these schemes often face technical constraints which are beyond the farmers' traditional technology but yield high returns with the application of improved technology. 1.6 The Department of Irrigation (DOI) under the Ministry of Water Resources of His Majesty's Government of Nepal (HMGN), established in 1951 and headquartered i. Kathmandu, is responsible for irrigation development throughout Nepal. DOI is headed by a Director General and is currently structured with central divisions for Small Projects and Water Utilization, Medium and Large Projects, Groundwater Utilization, River Training and Environment, and Planning, Design and Research, each headed by a Deputy Director General (Chart 1). DOI Regional Directorates are located in each of the five development regions of the country. In late 1987, the irrigation development units of the Ministry of Panchayats and Local Development and the Farm Irrigation and Water Utilization Division of the Ministry of Agriculture were both merged into DOI, and their responsibilities for assistance to farmer manages schemes were taken over by DOI. To handle this new responsibility, DOI is now establishing District Irrigation Offices under the Regional Directorates and building capacity to more effectively work with farmers and promote farmer initiative and participation. Irrigation Development Prospects and Constraints 1.7 Subsector Strategy. Overall HMGN and IDA irrigation strategy emphasizes: expansion of irrigation through investment in quick, high yielding projects and expansion or rehabilitation of existing irrigation systems; improvement in the efficiency of existing irrigation facilities, .articularly through more effective operation and maintenance (O&M) and increased farmer participation; provision of adequate agricultural support services to gain the maximum benefit from irrigation investments; and institutional development to strengthen the capacities of key implementing agencies, especially skills in system management and in organizing water user groups to take responsibility for O&M. Recent HKGN policy initiatives have focused specifically on establishing an 'irrigation sector program' based on demand-driven local initiative and active farmer participation from the initial stages to provide a framework for long-term sector lending for irrigation. The Bank's recent Agricultural Sector Review reviewed this strategy in the context of HMGN's overall agricultural program; and the recently completed Irrigation Master Plan, funded by UNDP and executed by the Eank, provides a p.ioritized lo.g- term investment program for its implementation. 1.8 The proposed project would support the above policy through expansion of deep tubewell irrigation under the ongoing Bhairawa Lumbini Groundwater Irrigation Project, and through expansion of the irrigation 'line of credit' Pilot Project ongoing under the Mahakali Irrigation II Project (Cr. 1924-NEP) which finances HMGN assistance to farmer managed irrigation schemes. Specific sector program objectives of the pilot project would be to:  -3- (a) establish a sector program approach to irrigation development, in place of the 'project-by-project' approach of the past, and enable donors to provide large-scale, long-term support to small schemes which are individually too small to justify their involvement; (b) make the program as demand driven 4s possible, based on local felt needs and dt..ands, in contrast to traditional "supply driven" projects; (c) develop, test and establish effective subproject selection criteria and implementation procedures which would provide the basis for operating the subsector program; and (d) reduce the burden of irrigation cobts on HMGN's budget, particularly for operation and maintenance (O&M), through increased farmer participation to cover full O&M and a share of capital costs. 1.9 To meet these objectives, HMGN considers farmer participation in irrigation planning, construction and management as especially important in view of the limited budget resources available for government O&M of completed projects. This has led HKGN to give priority to the development and improvement of farmer-managed irrigation, and to adopt the sector program approach to promote private sector irrigation. For this program to succeed, DOI will need to gradually develop the appropriate project cycle procedures and institutional capability to implement the program on a nationwide basis. The proposed project aims to build the necessary capacities in DOI through a 'learning process" approach, drawing lessons from the ongoing Mahakali II 'line of credit' Pilot Project in order to refine and improve management systems and field operating procedures. "Line of credit' refers not to the provision of credit for borrowers in either Mahakali II or the proposed project, but rather to the selection, implementation and financing of eligible subprojects according to criteria and procedures agreed between HMGN and IDA until IDA funds available under the 'line of credit' component are exhausted. 1.10 Constraints. The constraints to developing the country's remaining irrigation potential, which is mainly in the Terai, include: (a) Cost of Headworks. The main sources of reliable perennial water supply are provided by eight major or medium-sized rivers, but they require large investments in headworks relative to the small areas that can be commanded; (b) Siltation. Most Nepali rivers carry heavy sediment loads which cause operational problems and high O&M costs for irrigation systems; c;) Finarncial Constraints. A l arge proport40n of tlhe Terai surface irrigation potential must be developed by the public sector because of the size and technology involved, system management requirements, and high capital investment costs. The rate of development is therefore limited by government budget constraints which are severe; and (d) Riparian Considerations. Riparian concerns limit development of new surface irrigation projects in some cases. This is one of the most serious constraints facing HMGN's long-run irrigation strategy.  - 4 - 1.11 In recent years, groundwater development, mainly through shallow tubewells owned by individual farmers, has become an important source of irrigation. It is currently the least-cost option for expanding irrigated area, yields quick returns, and moreover is not a burden on HMGN's budget. However, prospects for future growth in individual farmer demand for tubewell development are limited due in part to small and fragmented land holdings. Expanding private groundwater development through group owned and managed facilities, however, has good possibilities. The main component of the proposed project, Bhairawa Lumbini Stage III, will expand the area irrigated under the successful Bhairawa Lumbini Stage I (Cr. 654-NEP which closed in 1984) and Stage II (Cr. 1316-NEP which will close on October 31, 1990), and will develop farmer group management of deep tubewells following sector program principles. Past Bank Support for Irrigation Development 1.12 IDA became involved in irrigation development in Nepal in 1973. To date, IDA has supported nine major irrigation projects, of which five have been completed. Together, they provide improved surface water irrigation facilities in about 36,000 ha and groundwater irrigation for about 6,000 ha. In addition to irrigation projects, IDA has financed three rural development projects with irrigation components. IDA also serves as Executing Agency for two related UNDP-financed projects: (a) the Irrigation Sector Support Project (NEP/89/006) in conjunction with a similar ADB-executed UNDP project; and (b) the Irrigation Planning and Design Strengthening Project (NEP/85/013) which has supported the Irrigation Master Plan, Design Criteria and Human Resources Assessment studies for DOI. 1.13 Four IDA-assisted irrigation projects are ongoing: Bhairawa Lumbini Groundwater Irrigation II Project (Cr. 1316-NEP, US$16.0 million, 1983) which finances the completion of Stage I works, O&M of the completed wells, and introduction of improved designs for construction of new tubewell systems, and which is due to close on October 31, 1990; Narayani Irrigation III Project (Cr. 1715-NEP, US$24.5 million and Swiss Government Grant US$7.5 million, 1986) which is designed to complete the development of the irrigation and drainage system of the 37,000 ha Nepal Eastern Canal Command; Sunsari Morang Irrigation II Project (Cr. 1814-NEP, US$40 million, 1987) which will extend irrigation to an additional 16,700 ha and provide initial desilting facilities for Stages I and II; and Mahakali Irrigation II Project (Cr. 1924-NEP, US$41.3 million, 1988) which will add 6,800 ha to the Mahakali command, support HMGN's irrigation sector program to assist farmer managed irrigation, and assist DOI institutional development. None have faced any serious special problems related to procurement, disbursements, etc., although Bhairawa Lumbini has encountered difficulties in operation of the project's special account; under the proposed project, HMGN would develop plans to rectify these difficulties. Institutional performance by the implementing avency ^ b?s tbfact 1.14 Bhairawa Lumbini is one of the Bank's most successful agricultural projects in Nepal and has established an effective model and capacity for groundwater development using improved deep tubewell technology. Narayani III and Sunsari Morang II are in the early stages of civil works construction. Both face special problems, Narayani in obtaining a reliable water supply from the main supply canal located in India which was severely damaged by floods in 1986, and Sunsari Morang in finding a solution to a severe siltation problem at the project headworks. For Narayani, repair of the main delivery canal by India is now nearing completion, and normal water deliveries are expected to  resume in JunelJuly 1990. For Sunsari Morang, a special Panel of Experts was convened in January 1990 to consider alternative solutions, and has recommended to proceed with dosilting facilities based on dredging and relocation of the system intake about 1.3 km upstream; discussions are now underway on the details of how to implement, schedule and finance these changes. Mahakali I was highly successful, and Mahakali II is now under start-up. The initial 'irrigation line of credit" Pilot Project component of Mahakali II was the first project component specifically designed to support development of HMGN's new sector program approach in irrigation; it has made good progress and produced a number of lessons which have been incorporated in the expanded pilot operation under the proposed project. 1.15 Several other IDA-financed projects include small-scale irrigation components. The Third Rural Development Proiect (Cr. 1727-NEP, US$19.1 million, 1986) includes construction of 28 small-scale irrigation schemes and rehabilitation of 18 existing schemes in the Hill districts of Rasuwa and Nuwakot in the Bagmati Zone, construction of four medium scale irrigation schemes, and rehabilitation of two existing medium schemes. The Hill Food Production Proiect (Cr. 1101-NEP, US$12.8 million, 1981) finances improvement of small farmer managed schemes totalling about 3,000 ha. Performance of Bhairawa Lumbini Stages I and I1 1.16 Stage I of the Bhairawa Lumbini Groundwater Irrigation Project was completed in 1984 and has proven highly successful. Implementation of Stage I proceeded approximately on schedule. However, cost overruns depleted the IDA credit prematurely, necessitating final completion of Stage I DTWs under the Stage II project. Stage II also included additional DTWs and arrangements for reliable, dedicated power supply from the national power grid. The latter contributed substantially to the excellent agricultural performance achieved so far by the Stage I project. In only four years after completion, Stage I DTWs are approaching full development, and yields, cropping intensity and extent of crop diversification into high value crops have all exceeded appraisal estimates (Annex 1). Along with irrigation from DTWs, provision of electric power and roads under the project area have promoted general economic activity, benefits and progress in the area that go far beyond the measured increases in agricultural production from irrigation alone. Efficient and controllable irrigation service with effective agricultural support built directly into the project generates the necessary base of income growth. Transport services, which developed spontaneously as a result of project roads, provide access to markets and services. Electric power brought in for DTWs also promotes village electrification and local private enterprise to meet the growing demand for goods and services. Stage II of the project, now nearing completion, has continued this model with substantial technical improvements in the DTWs and irrigation distribution systems. 1.17 Bhairawa Lumbini Stage III is the main component of the proposed project and will expand on the same basic technical and organizational model for DTW irrigation, agricultural support, roads and power supply, adding further DTW improvements based on experience with Stages I and II (and similar DTWs in India). It will also support conversion of project DTWs to farmer management, aiming to reduce the financial burden of operation for HHGN and promote general sustainability and replicability of the model.  -6- Rationale for IDA Involvement 1.18 IDA has played a primary leadership role in helping to design and establish HMGN's new irrigation sector program policy and strategy, which have been incorporated into the proposed project. IDA has also been instrumental in increasing HMGN emphasis on groundwater development and on changing from supply-side to demand-oriented irrigation development based on the close involvement * farmers. Although these general principles are HMGN policy, many agency staff still misunderstand them, and continued IDA support will be required to ensure that these changes become irreversible. Promotion of farmer participation is largely new to Nepal's irrigation establishment, and it is essential to develop the necessary skills and capabilities to implement the concept. Through the ongoing Bhairawa Lumbini Project, IDA has been instrumental in helping to develop and apply an innovative and so far highly successful technical model for groundwater development based on deep tubewells. However, this model has in the past been based on extensive public sector involvement, and IDA assistance is required to help modify this to a more sustainable farmer-managed form. This is essential to reduce HMGN budgetary requirements for O&M. Support under the proposed project to expand the ongoing Mahakali II irrigation "line of credit' Pilot Project also would help to develop HMGN's new sector strategy into an operating sector investment program based on mobilizing local resources for irrigation development and management. Finally, the Institutional Development Support component would help strengthen DOI to implement a large-scale sector program, and especially institutionalize farmer organization and participation as an integral part of DOI operations. Lessons Learned from Previous Prolects 1.19 The major lesson learned from previous projects is the need to promote and include farmer participation as an integral part of the project. Another important lesson is that efficient management and O&M of deep tubewells is essential for their success, and that due to HMGN resource constraints, recurrent budget allocations for O&M are likely to be inadequate. The need for proper O&M of deep tubewells and active farmer participation was emphasized in the Project Performance Audit Report (Report No. 5261) for the first Bhairawa Lumbini Groundwater Irrigation Project, Stage I. In the proposed project, farmer organization and participation and "privatization" of O&M responsibility are central features and key objectives for both the Bhairawa Lumbini Stage III component and the irrigation "line of credit' Pilot Project. Nepal has a well-established tradition of farmer managed irrigation, and Nepali farmers have proven their ability to manage even large irrigation systems covering thousands of hectares without government involvement.  II. THE PROJECT AREA Bhairawa Lumbini Groundwater Irrigation Component 2.1 The Bhairawa Lumbini groundwater development scheme is located on the Terai in Rupandehi District in the Western Region of Nepal (Map 22124). The project area consists of lands which have been provided with irrigation under the Stage I and II projects (12,000 ha net) and lands which would be served by the proposed Stage III project facilities (8,600 ha net) (Map 22125). The above project areas form one contiguous block. Road communication is provided by asphalt-surfaced roads connecting Bhairawa to Butwal on the East-West Highway, and by a gravel-surfaced access road network (150 km) developed under the Stage I and II projects which will be extended by 92 km under Stage III. Regular scheduled airline flights connect Bhairawa to Kathmandu. Climate and Soils 2.2 The project area has a subtropical monsoon climate with a warm wet season from mid-June to September, a cool dry season from October to February, and a hot dry season from March to mid-June. The mean annual rainfall is about 1,700 mm of which some 85 percent falls in the wet season. The climate is suited to year-round cropping if irrigation is provided during the dry months. 2.3 The project area lies on a gently undulating plain which slopes from north to south. The soils are alluvial, consisting mainly of silty loams and clay loams which are non-saline, low in organic matter, and have varying nitrogen, phosphate and potash contents. The area is well drained except for some low-lying pockets with high water tables which are subject to flooding. Most of the land is classified as irrigable. Groundwater Resources 2.4 The area is underlain by more than 450 m of alluvial deposits. Clean sands and gravel form 30-60! of the section to a depth of 200 m, and these materials form high yielding aquifers. Properly designed tubewells to depths of 200 m or less yield about 300 cu mlha with modest drawdowns. In much of the area, the water levels in production wells are permanently or seasonally above ground levels and thus the wells yield artesian flows, though pumping is generally necessary to sustain the design discharge. The groundwater quality is suitable for irrigation. A recent reassessment of the groundwater resources indicates that the lateral flow through the exploited part of the aquifer system is sufficient to support the proposed abstraction of about 120 million cu miannum without causing unacceptable head decline in the system. Agricultural Support Services 2.5 Agricultural extension in the project area would be provided under the project and in the surrounding areas is provided through the District Agricultural Office. Agricultural research is conducted at the Bhairawa Agricultural Farm which serves as the regional research station for the Western Region. The Agricultural Inputs Corporation is the main source of  quality seeds and also supplies fertilizers. The Nepal Food Corporation and private traders have adequate warehouse capacity for cereals, and there is 2,500 tons of cold storage capacity in Bhairawa and Butwal. Sufficient cereal m.lling and oil seeds pressing capacity is located in the project area or its vicinity. Farm surpluses of grain are sold mainly in the local markets to traders or middlemen, who sell on to the wholesale commodity markets or directly to large millers. Vegetable and fish surpluses are disposed of in village or town markets. Markets are generally free of government intervention, and prices are determined by market forces. Population, Farm Size and Land Tenure 2.6 The population of the Bhairawa Lumbini Stage III area totals an estimated 42,000. Average family size is 7-8 persons, 3-4 of whom are employed. Women participate in agricultural activities such as paddy transplanting, harvesting and vegetable gardening. Most farms are owner-operated, and only about 5-10 percent of the land is farmed by tenants. Rents are controlled by legislation, paid in kind, and total some 20-30 percent of gross production value. In addition, the tenant pays all agricultural input costs except water charges. Average farm size in Rupandehi district where the project is located is about 1.64 ha. Holdings larger than 5.0 ha account for only 4 percent of the farms but some 19 percent of the land area, while small holdings less than 1.0 ha account for about 52 percent of the farms but less than 17 percent of the land. Irrigation 'Line of Credit' Pilot Project Component 2.7 Subprojects under the expanded Pilot Project would be located in selected districts of the Western, Mid Western and Far Western Development Regions (see Map 22125). Districts covered would include those already under the ongoing Pilot Project under Mahakali II, and exclude those in the Western Region under the ongoing Dhaulagiri Irrigation Project funded by ILO and in the Far Western Region under the Second Hill Irrigation Project funded by ADB. The administrative centers of the selected districts are accessible by road, but most irrigation schemes in Hill districts can only be reached by foot. The potential subproject areas identified are shown below by region. Region ----- Identified Potential (ha)----------- Surface/Terai Surface/Hills Groundwater/Terai West 8,300 7,800 30,000 Mid West 15,000 6,000 38,000 Far West 3,800 4,300 14,000  III. THE PROJECT Proiect Scone and Obiectives 3.1 The proposed project comprises three separate components: (a) the third stage of the Bhairawa Lumbini Groundwater Irrigation Project; (b) expansion of the irrigation "line of credit (ILC) Pilot Project; and lc) institutional development support for DOI. The main objectives of the proposed project are to: (a) raise agricultural production and farm incomes and increase food security through expansion of an ongoing deep tubewell (DTW) irrigation program and through construction and rehabilitation of private farmer-managed irrigation schemes; (b) promote privatization and increased farmer participation to turn irrigation development into a demand-driven process, reduce government costs, improve O&M, and ensure sustainability of irrigation schemes; and (c) strengthen Nepal's irrigation subsector institutions, particularly DOI, as needed to implement HHGN's new sector program approach to irrigation investment. The Bhairawa Lumbini Project (BLP) Stage III component in particular represents a shift from the traditional large scale irrigation project managed completely by DOI, to the sector program approach based on demand-driven development and increased farmer participation and management. Bhairawa Lumbini Groundwater Irrigation Component 3.2 BLP Stage III is the major component of the project (76 percent of base costs) and would include: (a) construction of 73 new DTW irrigation systems and drainage facilities serving some 8,600 ha (net) in the Stage III area; (b) completion of 16 DTW systems serving nearly 2,000 ha (net) in the Stage II area; (c) modification of Stage I DTWs; (d) maintenance vehicles and equipment; (e) agricultural support services; (f) farmer organization support; (g) establishment costs; and (h) technical assistance, training and studies. Stage III DTW facilities would include tubewells, underground pipeline distribution systems, field channels, local drainage systems, main drain improvements, electric service, and access roads following the model developed and used successfully in Stage II. The Stage III project would be located in three areas, one immediately south of the Stage I area, another west of the Stage II area, and the third east of the Stage I area. The existing Bhairawa Lumbini Project Authority would implement the Stage III project component. 3.3 The BLP Stage III component is designed as a transition project between the traditional project approach and HMGN's new irrigation sector program. Traditionally, irrigation projects have been planned, constructed, operated and maintained by DOI with little or no direct farmer input or role. This puts the entire burden of the project, especially for operation and management, on the government's limited resources. The proposed Stage III project would follow sector program principles. Farmer groups would: (a) request their DTW facilities; (b) be involved from the earliest stages; and (c) commit to: (i) form a Water User Association (WUA) for their DTW; (ii) contribute to construction costs; and (iii) take over responsibility for DTW O&M upon completion. During implementation of Stages I and II, DTW management has gradually moved toward increased farmer participation, albeit on an informal basis. Under the proposed Stage III project, direct farmer  _ 10 - participation following the above principles would be built into the project as an explicit objective and applied directly to Stage III DTWs and as much as possible to Stage I and II DTWs. This is essential for the future replicability and sustainability of the technical DTW model developed successfully under Bhairawa Lumbini Stages I and II. Stage III Irrigation and Drainage Facilities 3.4 Technical descriptions and design criteria for Stage III irrigation and drainage facilities (US$20.5 million) are summarized below and detailed in Annex 2. A WUA would be registered at each DTW before construction; WUAs are associated with government irrigation schemes. (a) Deep Tubewells. Each DTW unit would comprise the wells, pump unit, pump house, and elevated control chamber. Most of the wells would yield 300 cu m/hr, but medium and shallow depth tubewells of smaller capacity would also be constructed. Many of the wells would yield artesian flows, but provision of design discharge would require pumping. DTW depths would range from about 120-200 m depending on locality. Wells would be equipped with vertical line shaft or submersible turbine pumps with electric motors of about 40-45 kW capacity and pump motor protection equipment. A drinking water outlet with valve would be provided at the tubewell. (b) Pipeline Distribution Systems. Each DTW would be equipped with an underground pipeline distribution system, with four pipeline loops for 300 cu mlhr wells serving 120 ha and three loops for 225 cu m/ hr wells serving 90 ha. Pipeline loops would be of 160 mm diameter PVC pipe with a pressure rating of 2.5 kg/sq cm. Each loop would serve about 30 ha, with outlets provided for approximately each 2.0 ha. Approximately 68 m of buried PVC pipe would be required per hectare. If requested by farmers, a drinking water outlet with cutoff valve could be provided from the pipeline. (c) Field Channels. Below the pipeline outlet, farmers would construct their own field channels with an average density of about 100 m/ha for water delivery to individual plots. Project engineers would assist farmers with the design and layout of field channels. (d) Drainage Facilities. The project would provide for both local and main drainage systems. Local drainage networks would be constructed as necessary for each DTW. Farmers would construct their own field drains and connectors to the local networks. Local DTW drains would connect to the main drainage system, which would include both new construction (about 50 km) and improvement of existing drains (about 38 km). The drainage system would be designed to evacuate 4 1/s/ha at the tubewell command area level. (e) Electrical Service. The project would provide some 118 km of 33 kV power distribution lines to DTW wellheads along with 33/0.4 kV transformers and low tension connections for each well. This eliminates the need for intermediate 33/11 kV substations, reduces energy losses and permits better network selectivity. The project would also upgrade about 12 km of existing 33 kV line from Butwal to Bhairawa to the project connection point. The above arrangements for electricity supply have been agreed with the Nepal Electricity  Authority (NEA) and implemented under Stage II; they would be continued under Stage III. An understanding was reached at negotiations that HMGN would ensure that BLP power is supplied on a priority basis, dedicated feeder lines serve the project, and load management measures match project needs. (f) Access Roads. Access and service roads constructed under the project would total some 92 km. Access roads (about 68 km) would have a crown width of 5.0 m and 25 cm thick surfacing of compacted coarse granular material. They would be designed to provide all-weather rural transport as well as access to DTWs. Service roads (about 24 km) would have a crown width of 3.5 m and 15 cm thick compacted gravel surfacing. Both types would be constructed on embankments raised at least 0.5 m above the local land surface. (g) Ecuipment. The project would provide vehicles needed for construction, ancillary well construction equipment (well loggers, welding machines and an air compressor) and spare parts for maintenance of construction, drilling and transport equipment during the life of the project. Completion of Stage II Facilities 3.5 The proposed project would finance completion works for the Stage II project (US$2.7 million). Due mainly to exchange rate savings, an additional 22 DTWs were added to Stage II, which now includes a total of 38 DTWs and will close on October 31, 1990. Completion costs for the additional DTWs remaining after project closure would include drilling of eight tubewells; construction of pump houses, elevated control chambers, and buried PVC pipeline distribution systems for 16 DTWs; installation of pump units for 16 DTWs; and completion of power supply facilities. Statutory WUAs would be formed at Stage II DTWs before commissioning of each DTW. Modification of Stage I Tubewells 3.6 Several modifications of Stage I DTWs are necessary for farmers to take over DTW management and pay full O&M costs, which are key objectives of the project. Unlike later stages, the 64 DTWs in Stage I have open channel distribution systems, and only about 35 percent of the total channel length of each DTW is lined. This limited amount of lining leads to high water losses and operational difficulties which hinder equitable and reliable distribution of water. To enable farmers to take over direct responsibility for DTW operation and pay the full costs of O&M, the project would include provision for selective lining of an additional watercourse length totaling about 140 km (US$2.5 million). Further, most Stage I pumps are oversized, resulting in excessive power costs. In conjunction with lining, pump output would be reduced. NEA has agreed to base the fixed portion of the power charge on measured peak power use under the reduced water delivery, rather than on the transformer (pump nameplate) rating, thus reducing power costs. Participation would be based on farmer demand, the formation of a registered WUA by the DTW farmer group, and commitment by the WUA to provide an agreed cash and/or labor contribution to channel lining construction and take over responsibility to pay full O&M costs. Because participation is voluntary, the actual amount of additional lining for individual DTWs could vary from nothing to complete  - 12 . lining. It is expected that the project would raise overall lined channel length to about 70 percent of the total length. Maintenance Vehicles and Equipment 3.7 Although farmers are expected to eventually take over responsibility for O&M of DTWs, initially they will be responsible for routine maintenance, and the Project Authority would retain overall responsibility for preventive maintenance and major repairs during the project period. The project would fund maintenance vehicles and equipment for 0&M of DTW irrigation facilities and project roads (US$1.4 million). Although roads constructed under Stages I and II are economically viable on their own, their maintenance would remain under the Project Authority. The project includes procurement of maintenance equipment and spare parts, inspection vehicles and spare parts, and imported spare parts for pump units. Agricultural Support Services 3.8 Extension services under Stages I and II, provided by the Agricultural Division of the Project Authority, have worked well and follow the pattern of DOA's Training and Visit System. The proposed project would continue to fund these same arrangements and their expansion to cover the Stage III area (US$0.8 million). To maintain extension support in the Stage III area at about the same level as in Stages I and II, the project would provide for two Subject Matter Specialists, two Junior Technicians, nine Junior Technical Assistants and 90 Panchayat Level Agricultural Assistants to be added to the Agricultural Division. Also financed would be two additional agricultural subcenters to be established in the proposed Stage III areas, housing for new staff, vehicles and equipment for the Agricultural Division, and five storage units each about 100 tons capacity in selected local centers to be operated and managed by sajhas for supply of agricultural inputs. Extension activities would continue to focus on improvement of agronomic practices for HYVs of major crops, introduction of cash crops (particularly vegetables), on-farm water management, and improved land preparation techniques for irrigation, using field demonstrations established on farmers' lands. An understanding was reached at negotiations with NHGN that agricultural extension support for BLP would continue under BLP responsibility throughout the project period, unless DOA's extension service develops sufficient capacity to fully meet the needs of the project. Efforts to strengthen general agricultural extension are under way, and possible provision of extension for the project through DOA would be assessed during preparation of the national agricultural extension project proposed for IDA support. Farmer Organization Support 3.9 In contrast to earlier stages, the proposed project would include specific provisions for a comprehensive farmer organization program and establishment of formal Water User Associations (WUAs) under the new  - 13 - Irrigation Regulation 2045.1' The proposed IDA credit would finance these costs (US$0.7 million). Before construction of each DTW, the concerned farmers would have to make a formal request for the DTW and agree to establish a WUA, contribute to construction costs (through donated labor and/or cash contributions), and eventually take over O&M and management in accordance with sector program principles. Active farmer involvement would start at an early stage beginning with DTW planning and distribution system layout, and continue through to management of the DTW, including water allocation under rotational water supply, payment of O&M costs, and gradual assumption of full DTW O&M responsibility. Stage III farmer organization work would build on experience with the informal water user groups established at DTWs under Stages I and II. Between approximately 12 and 20 Association Organizers (AOs), two AO Supervisors and one AO Coordinator at the project level would be provided under the project. They would be key agents for establishing WUAs, developing WUA decision making and resource mobilization capabilities, and motivating efficient group action to accomplish specific construction, water allocation and O&M tasks. Training and Studies 3.10 Training. The BLP component of the project would finance training for BLP staff and farmers. This is needed both for implementation of the project, especially for farmer organization, and to prepare for future groundwater development. The BLP Consultant would assist in designing, organizing and implementing most of the groundwater related training and studies under the project. Training would include: (a) planning and design of tubewell systems, preparation of bid documents and bid evaluation for procurement of works and goods, supervision of contracted works, O&M of commissioned tubewell facilities, agronomic and agricultural extension practices, and farmer organization for engineering staff; (b) training on farmer organization for Association Organizers, their supervisors and other related project technical staff; (c) training in irrigation techniques, farmer organization, on-farm water management, and other related activities for agricultural technicians; and (d) training on organization and procedures for WUAs, DTW operation and maintenance, rotational water supply (required for the new systems), farm water management, and agronomic practices for selected and lead farmers. Project staff training would include in-country training and foreign study and fellowships. Farmer training would include special short courses at agricultural subcenters, organizational meetings with farmer DTW groups, farm walks to demonstrate practices on existing DTW systems to new DTW farmers, and field demonstrations on farmers' lands. Most of the above training, except as related to farmer organization, is already ongoing under Stage II. 3.11 Studies and Investigations. A number of special studies and investigations are needed for BLP itself, and for planning and supporting 1/ Two types of farmer water user organizations are discussed in this report. Irrigation Regulation 2045 provides for the establishment of statutory Water User Associations (WUAs) of bene