India - Second Orissa Irrigation Project

Document of The World Bank FOR OMCIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT INDIA ORISSA IRRIGATION II PROJECT (CREDIT 1397-IN) SEPTEMBER 23, 1991 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in tne performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorzation. GOVERNMENT OF INDIA FISCAL YEAR April 1 - March 31 CURRENCY EQUIVALENTS Name of Currency: Rupee (Rs) Rate of Exchange: Appraisal Year (1982) US$1.00 = Rs 9.50 Intervening Years (Average) US$1.00 = Rs 10.40 Completion Year (1988) US$1.00 = Rs 12.36 ABBREVIATIONS AC - Appraisal Committee of CWC CWC - Central Water Commission DSP - Dam Safety Panel GOI - Government of India GOO - Government of Orissa ID - Irrigation Department IDA - International Development Agency MIP - Medium Irrigation Project NDO - World Bank New Delhi Office OFD - On Farm Development PA - Project Agreement R and R - Resettlement and Rehabilitation WALMI - Water and Land Management Institute won oman~ usi onv THE WORLD BANK Washington, D.C. 20433 U.S.A. Office cO Dircto-Cenral Opeatwu Evaiatmn September 23, 1991 y,oRANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on India Oriesa Irrigation II Proiect (Credit 1397-IN) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on India Orissa Irrigation II Project (Credit 1397-IN)" prepared by the Operations Evaluation Department. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their offlcial duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT INDIA ORISSA IRRIGATION II PROJECT (CREDIT 1397-IN) TABLE OF CONTENTS Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . i Basic Data Sheet . . . . . . . . . . . . . . . . . . . . . iii Evaluation Summary . . . . ........ . . . . . . . vi PROJECT PERFORMANCE AUDIT I. BACKGROUND . . . . . . . . ... . . . . . . . 1 II. IMPLEMENTATION EXPERIENCE . . . . . . . . . . . 4 III. PROJECT OUTCOME . . . . . . . . . . . . . . . . 9 IV. FINDINGS AND ISSUES . . . . . . . . . . . . . . 10 A. Inadequate Preparation . . . . . . . . 10 B. Unrealistic Appraisal Expectations . . . 10 C. Failrre to Communicate at Supervision . . 11 Attachment - Borrower Comments . . . . . . . . . . . . . . 13 MAP - IBRD No. 16796R - Medium Irrigation Project 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. PROJECT PERFORMANCE AUDIT REPORT INDIA ORISSA IRRIGATION II PROJECT (CREDIT 1397-IN) PREFACE This is a "roject Performance Audit Report (PPAR) on the Orissa II Irrigation Project, involving an IDA Credit in the amount of US$105.0 million (M) to the Government of India, with the objective of supporting a four year time slice of medium scale irrigation developments in the State of Orissa. The credit was approved on July 7, 1983, and became effective on December 14, 1983. US$38.78 M of the credit was canceled on December 13, 1988. The Closing Date of December 31, 1987 was extended to March A1, 1988. Final disbursement was made on December 13, 1988. The PPAR is based on the Project Completion Report (PCR) of the project prepared by the Asi& Region and issued in 1990,1/ the Staff Appraisal and the President's Reports, the credit documents, the transcript of the Executive Directors' meeting at which the project was considered, on a study of project files, and on discussions with Bank staff. An OED mission visited India in November 1990, and discussed the effectiveness of the Bank's assistance with Central and State government agencies involved. Their kind cooperation and valuable assistance in the preparatio- -t this report is gratefully acknowledged. The PCR provides a very good account and assessment of the project experience, including an excellent critical analysis of the performance of the Bank and the project executing agencies. The PPAR elaborates on particular aspects such as the inadequacies of project preparation and supervision and the disproportionate size and scope of the project in relation to the capacity and capability of the principal implementing agencies. The draft PPAR was sent to the Borrower for comments. The comments received from the Borrower are reproduced as an Attachment to the PPAR. 1/ Project Completion Report, India - Orissa Irrigation II Project (Credit No. 1397-IN), Report No. 8628, May 8, 1990. PROJECT PERFORMANCE AUDIT RErORT INDIA ORISSA IRRIGATION II PROJECT (CREDIT 1397-IN) BASIC DATA SHEET KEY PROJECT DATA Actual as Actual or % of Appraisal Estimated PfpfMi Estimate Actual Estimp Total Project Costs (US$ million) 140.6 n.a. n.a. Loan Amount (US$ million) 105.0 66.22 63 Date Physical Components Completed 03/31/87 (incomplete) n.a. Proportion completed by that date (%) Economic Rate of Return 19 6 Institutional Performance Satisfactory Disappointing CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS FY83 FY84 FY85 FY86 FY87 FY88 Appraisal Estimate (US$ M) 6.5 26.9 54.7 83.9 105.0 - Actual (US$ M) 0.0 10.5 28.3 49.2 64.8 66.2 Actual as 2 of Appraisal Estimate 39 52 59 62 63 Date of Final Disbursement: 12/13/88 STAFF INPUTS (Staff Weeks) FY83 FY84 FY85 FY86 FY87 FY88 Total Preappraisal 7.9 - - - - - 7.9 Appraisal 87.0 - - - - - 87.0 Negotiation 14.9 1.2 - - - - 16.0 Supervision - 9.7 18.7 38.3 67.0 49.1 182.9 Other 1.3 - - - - - 1.3 Total 111.1 10.9 18.7 38.3 67.0 49.1 295.1 - iv - PROJECT DATES Original Plan Actual First Mention in Files - 07/82 Preparation Mission 09/82 - Appraisal Miosion - 09/82 Post-appraisal Mission - 11/82 Negotiations 05/83 05/16/83 Board Approval 06/21/83 07/07/83 Date of Loan Signing 01/30/84 09/16/83 Date of Effectiveness 05/01/84 12/14/83 Closing Date 12/31/87 03/31/88 MISSION DATA No. Speciali- Per- Types Date of zations formance of Mission (mo/yr) Persons Represented Rating Trend Problems Appraisal 09/82 7 E,A,31E,WM,E n.a. n.a. n.a. Post-Appraisal 11/82 4 E n.a. n.a. n.a. Supervision 1 12/83 3 E,21E 2 1 F Supervision 2 11/84 3 31E 2 2 F,M,0 Supervision 3 04/85 4 E,IE,A,MC 2 2 F,M,O Supervision 4 12/85 3 A,21E 2 - T,P,O Supervision 5 01/86 2 FA,P n.a. - P,O Supervision 6 04/86 3 21E, WME n.a. - W,M,T Supervision 7 05/86 4 AE, IIE 2 - T,MD,VM Supervision 8 06/86 1 IE n.a. - T Supervision 9 09/86 1 WME n.a. - T Supervision 10 10/86 5 31E,E,R+R 3 - T,M Supervision 11 04/87 4 AE,31E n.a. - T Supervision 12 05/87 9 AE,E,31E, 2P, 4 - T,M,F,O FA,R+R Supervision 13 09/87 3 31E 4 - T,M,F,O Supervision 14 10/87 4 3DS,H n.a. - T (Dam Safety) Supervision 15 03/88 i IE n.a. - T,M,F,O - v - OTHER PROJECI DATA Borrower: Government of India (GOI) Executing Agencies: State of Orissa - Irrigation Department - Agriculture and Cooperation Department - Revenue Departm--nt Preceding Project: Orissa Irrigation Project (Credit 740-IN) Follow-on Project: Dam Safety Assurance and Rehabilitation Project Loan/Credit Number: 3325/2241 Date of Approval: May 14, 1991 Loan/Credit Amount: 23 million/130 million La E - Economist; AE Agricultural Economist; A - Agriculturalist; IE - Irrigation Engineer; WME - Water Management Expert; MC = Management Consultant; FA - Financial Analyst; P = Procurement Adviser; DS - Dam Safety Specialist; R+R - Resettlement Specialist; H - Hydrologist. /b 2 - moderate problems; 3 - major problems being addressed adequately; 4 = major problems not being addressed adequately. I 1 - improving; 2 - stationary, 3 - deteriorating. Id F - Financial; M Managerial; T = Technical; D = Disbursement; WM = Water Management; P - Political; 0 - Other. - vi - PROJECT PERFORMANCE AUDIT REPORT INDIA ORISSA IRRIGATION II PROJECT (CREDIT 1397-IN) EVALUATION SUMMARY Introduction 1. The project aimed at assisting Implementation Experience the Government of Orissa (GOO) to extend the area and improve the 3. Local budget shortfalls, quality of its irrigation services to interagency coordinatioi-- weaknesses, farmers. It was designed as a four- and managerial difficulties in year time-slice sequel to an earlier dealing with a large number of widely five year time slice project of distributed project activities roughly similar scope and size, but adversely affected progress of the differed from the earlier project in medium scale irrigation component, as the emphasis given to the they had in the earlier project, and introduction of higher planning, the increased tempo of construction design and operational standards as a and improved quality of planning, contribution to institutional design and operation expected at strengthening of the public sector appraisal could not be realized in agencies responsible for practice. Bank supervision missions implementation. The credit was referred repeatedly to a vide variety intended to provide US$105.0 million of problems which -ontinually (m) towards an estimated US$140.6 m hindered progress and appeared to total project cost, but in the event worsen with the passage of time only US$66.2 m was disbursed because (paras. 2.1-2.19). construction progress fell far behind appraisal expectations. The credit Results was closed, after a three month extension, on March 31, 1988 (para. 4. Project achievements at 1.1). completion fell well below appraisal expectations and were unsatisfactory. Objectives Only 12 of the 18 MIPs expected to be completed during the four year time 2. To increase agricultural slice were delivering irrigation production, employment and incomes of waters by the time of project farmers through support for 24 medium completion, and the supply was scale irrigation projects (18 ongoing limited to less than 50% of the and six new), and through land designated irrigable area. consolidation (160,000 ha) and on- farm development and improved water 5. The re-estmated ERR for the management (48,000 ha) on four major MIP component is 6% compared to an irrigation projects (para. 1.2). appraisal estimate of 14% (para. 3.2). - vii - 6. The much smaller land 9. The appraisal clearly consolidation component, on the other overestimated the ability of the GOO hand, appears to have been highly Irrigation Department (ID) and successful (para. 3.3). Central Water Commission (CWC) to implement the project in a timely Sustainability fashion and to the higher performance standards described in the appraisal 7. Design shortcomings and report and covenanted in the operation and maintenance development credit and project deficiencies ar& a serious threat to agreements (paras. 4.3-4.4). the sustainabili.y of the medium scale irrigation und on-farm 10. Official communications from development components. Prompt the Bank to the borrower during the attention to these matters could first three years of project extend the life and improve the execution failed to convey the full return on these investments by a wide concern of the Bank at the lagging margin. progress, and unsatisfactory state of many aspects of project performance. Findings and Lessons A stronger expression of concern at an earlier stage could have had a 8. The project could have useful salutary effect on the final benefitted from more careful project outcome (paras. 4.5-4.8). preparation. Postponement of appraisal to permit a better understanding of the weaknesses of Orissa Irrigation I project and to develop firmer plans for overcoming these weaknesses in the audited project, could have facilitated the su. aequent appraisal and led to a more satisfactory project outcome (para. 4.1-4.2). PROJECT PERFORMANCE AUDIT REPORT INDIA ORISSA IRRIGATION II PROJECT (CREDIT 1397-1J) I. BACKGROUND Context 1.1 Orissa, one of the poorest States of India, is predominantly rural and agricultural, and pressure of population on land, and poverty, are considerable. Yields of most crops are low, while 75% of holdings are small (less than 2 ha) and highly fragmented. Under these circumstances irrigation and land ;onsolidation are seen as particularly appropriate means for increasing production and improving the economics of smallholder agriculture, and have received high priority in public sector development plans in recent decades. Bank/IDA assistance to Orissa has supported government through three large scale irrigation projectal/ and one medium scale project2/ prior to the approval of Orissa Irrigation II in 1983. Objectives 1.2 To increase agricultural production, employment and net incomes of farmers through support for construction and improved operation of 24 medium irrigation projects at scattered locations within the State, and through land consolidation and on-farm development and improved water management in the service areas of four existing major irrigation projects. Special emphasis was to be given to management and organization of water distribution. Design 1.3 The project was designed as a four year (April 1, 1983-March 31, 1987) time slice sequel to the earlier Orissa Irrigation I project of roughly similar size and scope. It aimed to complete 18 medium irrigation projects (MIPs), each encompassing cultivable command areas of between 2,000 and 12,000 ha, commenced under the preceding five year time slice (April 1, 1977-March 31, 1983) project, plus commence construction of an additional six new MIPs. The project was also designed to support land consolidation over 160,000 ha and on- farm development works over 48,000 ha, as increments to the 200,000 ha of land consolidation and 57,000 ha of on-farm development completed under the earlier project. I/ Salandi Irrigation Project (Credit 14-IN); Mahanadi Barrages Project (Credit 1078-IN); and Subernarekha Irrigation Project (' redit 1289-IN). / Project Performance Audit Report, India - Orissa Irrigation Project (Credit 740-IN), referred to in this report as Orissa Irrigation I, Report No. 5661, May 17, 1985. -2- 1.4 Construction, operation and maintenance of the MIPs was the responsibility of the Orissa State Irrigation Department (ID), while the land consolidation and the on-farm development components were the responsibilities of the State's Revenue and Agriculture Departments respectively. 1.5 Responsibility for individual MIP appraisals was delegated by the Bank to the Central Water Commission (CWC) while their construction was supervised by ID under the earlier Orissa Irrigation I Project, and this arrangement was continued under the project. Appraisal and monitoring by CWC was to be carried out according to criteria and prncedures agreed with the Bank. Finance Plan 1.6 The project cost at appraisal was estimated at US$140.6 M, of which IDA was to provide US$105.0 M, or about 75% of total cost. IDA funds were allocated for civil works, equipment and vehicles, research and development, technical assistance, monitoring and evaluation, land consolidation and on-farm development. Eighty-eight percent of total estimated cost was allocated to the MIP component, and 6% to each of the land consolidation and on-farm development components. Pre-implementation Processing 1.7 The decision to proceed with a second time-slice project was reached in 1982, when slow progress in implementing the Orissa Irrigation I Project made - apparent that there would be substantial shortfalls from target completion dates for the 18 MIPs assisted through that project. A Bank mission to assist the Government of Orissa (GOO) with project preparation, scheduled for September in that year, was redesignated an appraisal mission shortly before its departure from Washington, notwithstanding Government of India (GOI) reservations that appraisal at that time could be considered premature. 1.8 The appraisal mission found that the status of preparation was inadequate for complete appraisal and requested much additional data from GOO, which had proposed an ambitious project designed to complete the 17 unfinished MIPs out of the 18 supported under the Orissa Irrigation I Project (only one MIP was considered essentially completed by GOO, but was subsequently also found to require additional works by the appraisal mission); seven new MIPs; four larger irrigation projects in excess of 12,000 ha; and further support for land consolidation and on-farm development. A post-appraisal was scheduled for November. 1.9 The post-appraisal mission again reported that the status of preparation was inadequate and requested further data, particularly with regard to the details of remaining works required to complete all 18 Orissa Irrigation I MIPs, cost breakdowns, maps and organization charts. The mission concluded that the project should be reduced in scope, and restricted, on grounds of limited absorptive capacity, to completion of the 18 unfinished MIPs from Orissa Irrigation I, togetherwith ad-tional land consolidation and on-farm development components limited to 10% of the total project cost. The mission recognized that ID performance under the ongoing Orissa Irrigation I was weak, and that design standards and management improvements, including systems management within - 3 - irrigation command areas, should be considerably strengthened during implementation of the successor project, for which purpose a component for irrigation training, research and development was proposed. 1.10 A recurring theme of the Bank during the appraisal and post-appraisal phases, apparent from a reading of Bank project files, was for a much higher level of planning, design, construction and operating standards in the second project than had prevailed in Orissa Irrigation I. Bank staff involved were well aware of the challenging roles to be assumed by ID and CWC, which were expected to raise their standards at the same time as expenditure and implementation rates were to double those achieved in Orissa Irrigation I. But the files record indicates that the seriousness of this challenge was either not adequately conveyed to, or was given much less regard by, the concerned borrower agencies. This difference in approach towards what the Bank perceived as a matter of special emphasis persisted through the implementation phase of the project, and adversely affected the eventual outcome as evaluated at completion (see particularly paras. 2.12 and 4.5-4.8 below). 1.11 The January, 1983 issues paper following the post-appraisal and the March, 1983 decisions memorandum emphasized that the main priority of the project would be completion of as many as possible of the MIPs started under the earlier project, but, in spite of the post-appraisal mission's judgment favoring a smaller project, provision was also made for including up to six new MIPs, should the findings of a mid-term review support this additional component. Both documents reflect the appraisal mission's concern at the apparent low rates of return for the MIPs being financed under the first project, which were estimated as below 10% for some MIPs, attributed to a combination of higher than estimated costs at appraisal, delays in completion, and reduced commodity price projections. Measures to be introduced in the new project for improving the benefits from MIPs were to include closer monitoring of construction costs; tighter scheduling of land acquisition and of construction of minor canals and water courses, to synchronize with dam construction plans and thereby ensure prompt delivery of water through the irrigation command areas; improved operational planning to maximize MIP operational efficiencies; introduction of more diversified cropping with higher value crops than paddy in the rabi (dry) seasons; and strengthening of CWC appraisal, and, especially, progress monitoring performance. 1.12 Anxiety on the part of Bank management to deliver the project to the Board before the end of fiscal 1983 is betrayed by the fact that the yellow cover staff appraisal report (SAR) was issued in April, 1983 before the revised GOO cost estimates were received at Bank Headquarters (and, on receipt, were noted as being "--not at all clear that these are any mcre reliable than the previous estimates provided by GOO,"), and by a telex statement in the Bank files by the appraisal mission leader noting that the "project had little or no preparation prior to appraisal." During the final review stage of the SAR in May, 1983, staff in the office of the Senior Vice President-Operations expressed concern that the project had been submitted to the Loan Committee for approval to negotiate before a project completion report had been prepared for the earlier project. Negotiations took place in May and the project was presented to the Board on July 7, 1983. 1.13 At the Board presentation Bank staff stressed the value which the Bank attached to building up the institutional capabilities within the ID for improved operation and management of the MIPs to be completed under the project. During the subsequent discussion several executive directors emphasized the importance of introducing appropriate water pricing policies in Bank assisted irrigation projects, designed to encourage efficient use of a scarce resource and effect improved rates of cost recovery. One executive director referred to what was perceived an a tendency on the part of the Bank to finance more irrigation projects than borrowers were able to satisfactorily complete within project specified time frames, leading to delays in systems operation and reduced rates of return. 1.14 The credit agreement was signed on September 16, 1983, after IDA had been advised that a State Coordinating and Monitoring Committee had been set up for the project. II. IMPLEMENTATION EXPERIENCE Start-up 2.1 The project was declared effective on December 14, 1983, one day earlier than specified in the development credit agreement, and about six weeks after closing of the credit for Orissa Irrigation I. 2.2 The first supervision, undertaken by a 3-person NDO team in the month of effectiveness, reported satisfactory progress and only a moderate problem arising from a lower than agreed GOO budget allocation in FY 1983/84 and reduced allocation for 1984/85. Other constraints noted included delays in land acquisition, reclamation and resettlement, and shortages of engineering and agricultural extension staff in the 18 MIPs for which construction was carried over from the earlier project. Despite these problems and constraints, the supervision letter to the OO described progress on all components as satisfactory. 2.3 A second supervision, undertaken in November 1984 by a different three person NDO team, again concluded in its supervision letter to OO that progress was generally satisfactory, while recording moderate problems of a financial, managerial and "other" nature in the mission's final report. The mission's report reveals that budget allocations continued to run short of requirements, while acquisition of private lands and release of forest lands were serious bottlenecks to progress on many MIPs; agricultural extension still needed to be strengthened; research and development had not made any progress; and a Water and Land Management Institute (WALMI), supported through an earlier IDA credit, had still to be established. More seriously, in terms of realizing the benefits from investments in irrigation improvements in the 10 MIPs on which construction of dams and main canals was substantially complete, the report noted that construction of watercourses was lagging on all but three MIPs, and that land clearing and levelling of 25,000 ha of scrub covered lands within the aggregate 114,000 ha cultivable command area in the 18 MIPs was only half completed, and that much of this reclaimed portion was either only roughly -5- levelled or not levelled at all. Upkeep of hydrological and meteorological stations and collection and recording of data was noted as inadequate at most project sites, and a pre-existing GOO constituted Dam Safety Panel (DSP) was found to have reviewed only one of the 18 MIPs. 2.4 Receipt at Bank Headquarters of the NDO November supervision mission's report and supervision letter to GOO, both dated February 26, 1985 prompted a comment from Headquarters to the effect that an interval of three months between completion of supervision in the field and receipt by GOO of the supervision letter left little time for action before the arrival of the subsequent supervision mission. The same memorandum also drew attention to the fact that the supervision letter to GOO omitted any mention of the fact that the borrower was behind in complying with several covenants, including two particularly important covenants which concerned the introduction of appropriate rotational water allocation procedures prior to the delivery of irrigation water in any completed MIP, and within 60 days after completion of irrigation works in the on-farm development areas. The NDO was urged to better coordinate its supervision activities with those of the Appraisal Committee (AC) of CWC, which was charged under the Development Credit Agreement with monitoring the construction progress of all MIPs. Sequence and Design Changes 2.5 The slow progress set in the first year of implementation as compared with appraisal expectations persisted through the remaining years of the project. The third supervision, in April 1985, concluded that only one of ten MIPs which were scheduled for completion by March 31 was in fact completed up to full operational status at design capacity. Shortages of local funds and difficulties in acquiring land and in obtaining forest land clearance were again held responsible for the construction delays. Rotational water supply procedures in the on-farm development areas were described as "only nominal," and the water management plan prepared for the only completed MIP for the preceding dry season crop had not been implemented. Although a director had been appointed to WALMI, he had no staff; no land had been acquired for the institute; and training had not commenced. Despite this list of defects, the project was again status rated as suffering from only moderate problems, a rating which persisted through to the tenth supervision in October, 1986. 2.6 The supervision letter to GOO for the third supervision, written almost eight weeks after the return of the mission to Delhi, expressed the Bank's disappointment at the slow progress and stressed the need for more attention and effort in establishing rotational water supply and water management plans in all MIPs and on-farm development areas. Overall progress, however, was again described as generally satisfactory. 2.7 The fourth supervision, in December 1985, again noted problems of funds, land acquisition, forest land transfer, extension, land reclamation, and lagging construction of water courses, field channels and drains in comparison with dams and main canals. Rotational water supply arrangements had still not been introduced for any of the ten most advanced MIPs and the concept of water management to encourage light to medium duty dry season cropping was noted as not widely understood by project staff. The supervision letter to OO once again - 6 - drew attention to these deficiendies, and also expressed concern at (unspecified) shortcomings in the operation of the DSP. A review of the DSP was urged in the interests of safety and functional efficiency of the project dams. While the overall status of the project was again rated "2", signifying only moderate problems, the letter conveyed a greater sense of concern at project performance than had been the case in previous letters, but any consideration of urgency was mitigated by the fact that the letter was dated three months after the mission completed its field review of the project. 2.8 Between January and April 1986 two partial supervisions were carried out by NDO with the specific objectives of reviewing progress of the ID in implementing water management plans and providing technical assistance in their design. The April mission noted deficiencies in the designs of the minor distribution systems in all of the MIPs visited, which were attributed to the staff responsible being inadequately conversant with the requirements for survey, planning and layout of water courses. No field channels were being constructed by OO for the MIPS despite the fact that this item was included in the project to facilitate field-to-field irrigation of light to medium duty crops in the dry season. Similarly, drainage, in the form of field and collector drains, was not being provided at any MIPs in spite of evidence of potential water logging in low lying areas. Up to this point all missions had been carried out by NDO. 2.9 A seventh supervision took place in May, 1986 by which time responsibility for the project on the Bank's side had been transferred to Headquarters. This mission constituted a thorough review of the project, and reflected a concern of headquarters staff at the steadily deteriorating quality of project implementation, as revealed by NDO supervision reports. 2.10 The mission report repeated the catalogue of problems previously noted in the earlier NDO reports and estimated that the project would require at least a two year extension, assuming an assurance of adequate funds, additional support staff, and timely completion of land acquisition and transfer of forest land. It was further noted that the ten most advanced MIPs were still not fully completed and operational in terms of the appraisal objective of dry season irrigation, while lack of an efficient radio communication system was impeding proper project management. Reactivation of the DSP was recommended. Surprisingly, in view of the serious shortfalls from appraisal expectations, and the strong likelihood that project benefits for MIPs as estimated at appraisal were unlikely to be realized, the mission's aide memoire, left with OO at the conclusion of the mission, described progress of the project as satisfactory, and the project was again rated in the supervision report as having only moderate problems of a technical, managerial, disbursement and water management nature. The Bank's supervision letter, dated more than seven weeks after the mission departed Orissa, urged greater effort on the part of COO to complete the ten most advanced MIPs, which were estimated to require a two year project extension for full completion. Postponement of initiation work on the six new MIPs included in the project was recommended because of the large number of still incompleted MIPs requiring attention. 2.11 Two further partial supervisions which concentrated on engineering, water management and agronomic aspects were carried out by NDO staff in June and September, and a CWC mission also undertook a review of progress in June. - 7 - Detailed technical reports produced by these missions observed the implementation status at some length, pinpointed many of the minor construction or operational deficiencies and in many cases made recommendations for their solution. 2.12 A second full supervision by headquarters staff followed in October, 1986, only five months before the covenanted four year time slice completion date. The supervision report and the aide memoire delivered to G0 at the conclusion of the mission were much more forthright than those of any previous mission in addressing the implementation problems as the following extract from the report shows: "Apart from satisfactory progress in land consolidation in four existing major irrigation projects, the progress in construction and improved operation of MIPs (852 of project cost) has been unsatisfactory. None of the 10 MIPs scheduled for completion to full operational status by March 1985 has been completed, eight other MIPs in various stages of constructiorn are significantly behind schedule. Six new MIPs which were to start following completion of the 10 MIPs are unlikely to be approved given the delay in completion of those MIPs. At least two year extension of the credit would be required to accomplish key project objectives. Major problem is the GOO inability to attain full operational status in the 10 MIPs due to: (i) delays in forest clearance and land reclamation; (ii) incomplete and/or deficient construction; (iii) damage to completed facilities; (iv) significant deviations of completed works from design speciications; and (v) absence of viable O&M procedures and their enforcement. GOO is having great difficulties and has not yet succeeded with establishment of viable water users groups. Eight other MIPs in various stages of construction (in some of those irrigation has already begun) suffer from similar deficiencies. GO has been unable to institute an active Dam Review Panel (DRP) to review the safety of dams and spillways in all project MIPs. OFD works do not appear to result in greater efficiency of water use and reformulation of this project component may be required. Other reasons for the lack of progress include: (i) senior staff at headquarters are effectively isolated from field staff due to the lack of communication and transport facilities; (ii) lower level staff is not properly guided; (iii) MIPs budget allocations for maintenance during and after construction are inadequate; (iv) training of staff is given low priority by GOO; and (v) Central Water Commission (CWC) of GOI does not exercise its duties in comprehensive monitoring of MIPs as agreed under the PA. Implementation of R&R is satisfactory. Several covenants have not yet been complied with." For the first time the overall status of the project was downgraded to "3", signifying major problems, mostly of a technical and managerial nature. 2.13 The supervision letter to GOO, dispatched in November 1986 and within three weeks of departure of the mission from Orissa, expressed the Bank's "grave concern" at the poor progress of the project. The letter affirmed that a substantial improvement in project performance and compliance with all outstanding covenants would be required before the Bank could agree to extending the project beyond the agreed credit closing date of December 31, 1987. GOO was also recommended to take urgent steps to reconstitute and activate its DRP and - 8 - even to consider the option of creating two DRPs in view of the large number of dame constructed and under construction the safety of which would be better assured by an independent professional review. The dam safety issue was vigorously pursued by the Bank in letters and telex messages to GOO in subsequent months. Three GOO nominations for a DRP for five of the 18 project dams were considered unacceptable by the Bank, due to the nominees' prior involvement or to lack of design experience. At the same time the Bank drew GOO's attention to deficiencies in the implementation of the rehabilitation and resettlement (R&R) programs; strongly urged CWC to carry out an assessment of the requfrements for OO to finish the still incomplete 18 MIPs; and advised OO that it would not accept any further applications for disbursement based on statements of expenditure until the outstanding project audited accounts for 1985/86 had been received. 2.14 The strong position taken by the Bank in respect to the perceived deficiencies in project execution took OO and CWC by surprise, and led to complaints from COO that insistence on audited statements of account by the Bank amounted "almost to harassment", and that the Bank was being inconsistent in its attitude to dam safety, given its previous silence on this issue. Nevertheless a flurry of activities took place in the first half of 1987, with CWC and NDO consultant missions to assess additional requirements for completing the 18 MIPs; a CWC dam safety investigation which found no deficiencies in dam designs, while noting inadequacies in spillway capacities at some sites which necessitated restriction on reservoir levels; and two further Bank supervision missions in April and May. 2.15 Despite these activities, the report of the May 1987 supervision mission showed little improvement. On the contrary, the report drew attention to the overall poor construction quality of the civil works, proposed that construction engineering consultants should be engaged to supplement the ID project staff to effectively handle the outstanding tasks in the remaining six months to credit closing as specified in the credit agreement (December 31, 1987), and recommended that a highly qualiZied dam safety team of internationally recognized experts be commissioned, at Bank expense, to undertake a country-wide review of dam safety, covering several other states in addition to Orissa, given the systemic nature of the problem as perceived by the Bank. Contrary to the findings of the October 1986 supervision, the May 1987 supervision found the R&R aspects of the project at many MIPs were deficient, with many resettlement sites unoccupied for up to five or six years and 25,700 acres out of 59,800 acres of potential irrigable land still awaiting reclamation. The overall status of the project was assessed by the May 1987 mission for the first time as "4", defined as having major problems not being addressed adequately. 2.16 Notwithstanding assurances from GOO/CWC in mid-1987, rising concern over the issue of dam safety prompted the Bank to recommend suspension of work on all dams pending a report by a Bank-sponsored dam safety review mission comprising internationally recognized dam safety experts. The mission visited India in October 1987. Its report comprised an exhaustive critical review of the investigation, design and construction standards applicable to the project MIPs. Improvements in the areas of hydrological analysis, geological exploration and foundation treatment, geotechnical investigation, dam design, construction quality control and project organization were recommended. - 9 - 2.17 Borrower reaction to the dam safety review mission's report, as revealed in late 1987-early 1988 correspondence to the Bank from GOO, CWC and the GOI Ministry of Finance was to conclude that the magnitude of the problems had been overstated, while acknowledging that improvements could be made in some areas. 2.18 At the end of 1987 the Bank, in anticipation of a stronger expression of resolve from the borrower to improve the quality of project performance, agreed to extend the credit closing date by three months, to March 31, 1988, but declined to accede to a subsequent request that the credit closing date be extended by a further two years to March 31, 1990, on the grounds of unwillingness of the borrower to appoint qualified consultants to assist GOO in addressing dam safety, irrigation planning, design and implementation problems or to take sufficient other actions to rectify the serious problems affecting the project. 2.19 The credit therefore closed on March 31, 1988 with the project facing a wide range of outstanding problems. III. PROJECT OUTCOME 3.1 By the time the credit closed at the end of March, 1988 only 12 of the 18 MIPs were actually delivering irrigation waters within their cultivable command areas. The delivery at that time was confined to only 47,414 ha in the kharif season and as little as 8,290 ha in the Rabi season in comparison with a designated irrigable area of 110,070 ha (PCR Table 3). This result compares poorly with the appraisal expectation that all 18 MIPs commenced under Orissa Irrigation I project would be completed before the end of the four year time slice. 3.2 In the absence of a detailed analysis of the economic rate of return (ERR) for the MIPs component, or for individual MIPs, based on reliable data for costs and benefits before, after and without the project, the audit can only concur with the PCR finding that the ERR for the MIPs as re-estimated at completion is likely to average about 6% rather than the 14% estimated at appraisal.3/ This lower ERR is due to delay and reduction in the benefit stream, and to cost increases including materials and labor used during the extended period of construction. The audit also concurs with the PCR conclusion that the on-farm development component was also less than successful in a financial or economic sense despite the attainment of area development targets, because of difficulties in allocating water supplies on a rotational basis to suit new cropping patterns, as intended at appraisal. 3/ This 6% figure also calls into question the validity of the ERR of 14% re- estimated for Orissa Irrigation I MIPs at the time of completion, given that such a favorable outcome depended on timely completion of the 18 MIPs construction of which was carried forward into Orissa Irrigation II. - 10 - 3.3 The much smaller land consolidation component, on the other hand, appears to have been highly successful, judging from its popularity with land owners, who fully appreciate the very real benefits which accrue frold a reduction in plot numbers and regularization of boundaries. IV. FINDINGS AND ISSUES A. Inadequate Preparation 4.1 The inadequacy of preparation is clearly documented in the Bank's files, most evidently from the appraisal mission leader's candid admission, made four months after the return of the post-appraisal mission to World Bank Headquarters and only two months before credit negotiations, that the project had little or no preparation prior to appraisal (para. 1.12). The appraisal and post-appraisal missions operated under severe handicaps in that details of outstanding works and their costs required to complete all the 18 MIPs for which construction was to be carried over from Orissa Irrigation I project were inadequate even at post-appraisal (para. 1.9), and, on receipt of revised estimates only one month before negotiations, were noted, again by the mission leader, as being of questionable reliability (para. 1.12). 4.2 These circumstances could, in the view of the audit, have provided a strong argument for postponing the appraisal. The extra time could have been well spent in providing assistance from NDO to GOO and CWC for not only improving the quality of their work plans and cost tables, but also for better analyzing the experiences of Orissa Irrigation I, learning from its recognized weaknesses, and thereby ensuring that its failings would not be repeated in the follow-on project through more careful preparation. The fact that such a postponement was not introduced, despite the appraisal mission leader's judgment of the preparation inadequacy, betrays an undue concern on the part of Bank management to adhere to a predetermined lending program schedule. The subsequent experience of the project lends substance to the comment of the Executive Director who complained at the time of Board presentation about the Bank's tendency to finance more irrigation projects than borrowers were able to satisfactorily complete within specified time frames (para. 1.13). B. Unrealistic Appraisal Expectations 4.3 The project, as did its predecessor, Orissa Irrigation I, fell far short of its MIP time slice objectives. The first project was intended to promote a five year (1977-82) construction and development program on about 15 MIPs conta'iing an aggregate irrigated area of 66,000 ha, with a view to their completion by the mid-1980's. In the event 18 MIPs were assisted throubh the first project, but none was completed by the time of credit closing in October, 1983. All 18 MIPs were accordingly carried forward fot additional support in the audited project, and, as explained above (para. 3.1), the physical achievement at the time of credit closing in March, 1988 fell far below SAR expectations; in particular no work was initiated on the six new MIPs included in the project. In fact, the actual achievement even fell short of the much more modest 66,000 ha expectation set for the first project several years earlier. Clearly, the - 11 - appraisals of both proje.ts had seriously underestimated the constraints ranging from the availability of local budget resources through interdepartmental coordination difficulties at OO level, to overall commitment, institutional capa,ity and capabil.ty limitations on the part of ID and CWC, all of which inhibited the attaiant of agreed targets in a timely fashion. 4.4 Interestingly, most of the problems which adversely affected the project (see particularly paras. 2.12 and 2.15 above) also affected Orissa Irrigation I. Obviously, little in the way of lesson learning experience from the first project was applied to the second. The fact that the PCR for Orissa Irrigation I did not appear until June, 1984, more than a year after the Bank's Loan Committee gave its approval for negotiation of the second credit can partly explain the repetition of an overoptimistic target setting error, buL ritical review of past construction timetables and overall performance of the !D should have alerted the Bank against undue optimism in terms of physical targets and improved quality standards realizable under the upcoming four year time slice. C. Failure to Communicate at Supervision 4.5 During the first three implementation years Bank supervision missions, which were undertaken by NDO staff, including Headquarters personnel on assignment, and staffed largely by locally employed engineers and consultants, undertook thorough technical reviews and prepared often voluminous back-to-office and field reports which addressed most, if not all, of the problems encountered during project execution, and made suggestions or recommendations for their amelioration or solution. However, the record also shows that the concern which the Bank attached to those problems was only weakly expressed in official correspondence with the borrower because of reassuring statements to the effect that progress nevertheless remained satisfactory and because of the continual status rating of "2" reflecting only moderate problems. 4.6 The seriousness of the many deficiencies and failures in project execution, as perceived by the Bank, appear only to have been conveyed effectively to the borrower commencing with the tenth supervision (or second full supervision by headquarters staff) in late 1986. This was the first time the Bank took a firm stand in support of greater commitment by the borrower, in expectation of a substantial improvement in project performance, as a precondition for any extension beyond the covenanted closing date of December 31, 1987 (para. 2.13). 4.7 CWC and GOO/ID at first viewed the abrupt hardening in Bank attitude towards the project as an overreaction to current problems, but nevertheless set about correcting some of the more immediate concerns including the reactivation of dam safety reviews, accounts auditing, and the addressing of outstanding problems of involuntary resettlement. However, tb ze corrective actions were judged insufficient by the Bank, which closed the credit three months later than the originally covenanted date. 4.8 The audit notes a strong contrast between the forcefulness of written expression of correspondence emanating from Bank Headquarters in the closing years of the project, and the more restrained response of NDO-based staff engaged - 12 - in project supervision in the early years, when dealing with issues involving shortcomings in borrower performance. Bank reticence in expressing the full extent of concern at substandard project implementation performance in its official correspondence, however acceptable in terms of diplomacy over the short term, can be construed as a disservice to the borrower over the long term if it results in the perpetuation of problems and seriously curtails the delivery of benefits and prejudices the final economic outcome of project investments, as was clearly the case in this instance. If the Bank's concern had been conveyed more firmly to the borrower at an earlier stage of implementation, it could have led to more timely corrective action, and to a less unsatisfactory project outcome. - 13 - Attachment 1 Borrower Comments Page 1 No11(9)/9004TAOI 3 Govexbmt of Xhals miisatty of Water Resouxces New Dethl# the 2nd July, 1991 to ft.Michael Baxter ChOt AgriCulture 14nit the World Bank wo.Ss, Loat Notate MEN DantH Subjects- Oriao Irigation-11 Project(Credit No,1397-IN) Poject pe1ormance audit report* 494*** Sir. I am dixected to enclose coments of this MInistry on the chservations of the World Sank on Project performanco aUdit report of Orissa Irrigation-l1 Project for consideration. YouLs faithfully. (V&Rajagopal an) Deputy Secretaxy to the Govto of India al As above. STATEMENT SHOWING MAIN OBSERVATIONS CONTAINED IN DRAFT PROJECT PERFORMANCE AUDIT REPORT OF ORISSA IRRIGATION PROJECT (CREDIT 1397-IN) AND COMMENTS OF CENTRAL WATER COMMISSION S. No. Main observations Comments of CWC Auditor's comments 1. Para. 9 The agreements envisaged specific role of CWC Schedule 3 of the Development Credit Agreement The appraisal... with regard to the identification, project (Section A, para. 4) clearly defined the project preparation, appraisal and approval, monitoring implementation responsibilities of the CWC, agreements. of construction activities and monitoring of through its Appraisal Committee, to "...visit operation & maintenance activities during the site of each MIP under construction, and various phases of project implementation. State review relevant records, plans, specifications Govt. being an executing agency of the above and procurement schedules in order to (a) ensure project, the responsibilities of implementation that the MIP is constructed in accordance with of the project in a timely fashion and to the the established technical criteria, (b) monitor higher performance standarade lies with the OO. the progress of construction, (c) assist Orissa As such the mention of CWC in this para may be in solving any technical problems that might deleted. arise, and (d) review the Management Plan and progress in land acquisition." 2. Para. 10 It is not sufficient to conclude that "official On the contrary the PPAR Part II paras. 2.2-2.11 Official communi- communications from the Bank to the borrower in detail numerous unsatisfactory aspects of cations............the early years of project execution failed to project implementation which were identified by project outcome. convey the full concern of the Bank at the supervision missions in their reports to Bank lagging progress and unsatisfactory state of management. The point the audit is making is many aspects of project performance." It is that the Bank contributed to the deterioration observed from the PPAR that Bank's Supervision in implementation performance by not alerting Mission never reported adversely on the the Borrower of its concerns in a timely fashion performance of the credit before Sept. 1986. In through its letters to the Borrower prior to the early years of project execution despite November, 1986. some problems the Supervision Mission letters to the OO described progress on all components as satisfactory. In view of the above, the para. requires modification. 3. Para. 1.5 The agreements envisaged specific role of CWC in Para. 1.5 has been revised to differentiate Responsibility respect of monitoring of construction between the responsibility of CWC for monitoring for individual activities. Supervision of construction of tne and the ID for supervision of construction. ....agreed works were done by the State Govt. being an with the Bank. executing agency. The para. does not reflect the role of CWC as envisaged in the agreement and needs modification. 4. Para. 1.10 The responsibility for planning, design & The audit's review of the Bank's files A recurring theme construction of the project was assigned to the unequivocally showed that the Bank vas concerned ......evaluated State Cjvt. The State Govt. prepared the report to see highe standards applied in Orissa at completion. of each MIP under Orissa Irrigation I Project. Irrigation 11 and SAR para. 5.06-5.08 and Credit Each MIP was exam2ned in great details by Agreement Schedule 3 reflect this concern. Appraisal Committee. Before ..pproval of each MIP detailed project summaries covering all aspects like topography, water availability, designs, hydrology and project implementation schedule, etc. were prepared and put up to the Appraisal Committee. A copy of each of the project summaries was also sent to the World Bank with a view to incorporate their comments and these were got vetted by the Bank. Moreover, the Bank, in para. 7.02 of PCR of Orissa Medium Irrigation I Project has acknowledged that the performance of CWC in respect of appraisal function has been satisfactory now at this stage, holding borrower agencies (CWC) responsible for giving less regard to planning, design, construction, appears irrelevant. The para. needs to be amended. I amended. mmm  Par&. 1. 12 It is not clear how the Bank Appraisal Mission It should be noted that the project was Anxiety an the stated that the "project had little or no appraised without the benefit of a preparation .o. an July 79 preparation prior to appraisal." As far as report from the Borrower. 1983. preparation of the project is concerned, adequate data (as demanded) was supplied by the Irrigation Department of GOO to the Bank Appraisal Mission. No mention of any specific shortcoming has been made. The noting "project had little or no preparation prior to appraisal" of the appraisal mission leader may, therefore, be deleted. 6. Par&. 2.12 It is written "Central Water Commission (CWC) of In reviewing the Bank's files, the audit noted A second full ... GO does not exercise its duties nthat supervision reports to Bank Managment and managerial comprehensive monitorina of MIPs as agreed under other memoranda display a rising concern at the nature. P.A." The earlier supervision mission reports steady decline in implementation quality and supervision mission report of October, 1986 commencing in the first year after had not pointed out the above problems. effectiveness. There was a growing realization However, in this context, it has to be mentioned on the part of the Bank that the decision to that the monitoring of the MIPs by CWC was done appoint the CWC as proxy for the Bank in the as per the credit agreement. After field visits supervision process was inappropriate due to to the MIPs, the physicallfinancial status of perceived pro forma approach taken by CWC the project along with CWC recommendations to towards this task. Unfortunately, these resolve the bottlenecks, as per the prescribed concerns were not conveyed to the Borrower in pro forms suggested by the Bank in the agreement the follow-up supervision letters, and the audit were prepared and sent to concerned departments calls the Bank to task for this neglect. The for necessary follow up along with the copy criticism of the CWC in the October 3986 furnished to the Bank for their comments. In supervision report referred particularly to its addition, 'Annual Implementation Programme role in dam safety. indicating budgetary allocation for each MIP, progress summary preparation' giving progress of each HIP every six months and a 'Progress Summary Operation' were also prepared and sent n to the Bank. In view of the above, observations made as underlined, are not acceptable and require to be deleted. There is need co reflect that CWC Monitoring was as per procedure laid thatout by Bank. 7. Para. 2.18 We do not agree with Bank's views that "the Again, the audit's review of the Bank's files At the end of ... credit was closed on the grounds of showed conclusively that the Bank's decision was affecting the unwillingness of the borrower to appoint not arbitrary but was taken for the reasons project. qualified consultants to assist OO in stated. addressing dam safety, irrigation planning, design and implementation problems or to take sufficient other actions to rectify the serious problems affecting the project." In this case the World Bank had taken an arbitrary decision to close the credit in spite of the fact that an Advisory Group was set up by GOI with Indian Experts of International repute as its members to evaluate the recommendations of Dam Review Mission of the World Bank and other related issues of irrigation planning. The Bank did not wait for the report to be submitted by the Advisory Group and declared the credit as closed on March, 1988 without having been fully disbursed. It may be appreciated that before going in for such an extensive consultancy, policy decision was required to be taken by GOI at its highest level. In view of the above, the para. needs modification. 8. Para. 3.2 With the increase in the period of execution the Mention of these factors has been included in In the absence... ERR of the project is affected adversely due to the subject paragraph. as intended at various factors, such as material cost & labor appraisal. and d:lay in realizat4on of the project benefits. 9. Page (i) Preface It has been mentioned that a sum of US$32.78 Typographical error corrected. million credit was cancelled on December 13, 1988. The correct figure as reported by Bank is SDR 35.86 million equivalent comes to US$38.78 million. This may be corrected. IBRD 1 679. 믹