Sri Lanka - National Irrigation Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY C / .g S-, f- - C : 1 ; I . f f . ':: ! . 1 ,, 1 Report No. 9425-CE .,, 1. . I): , -: STAFF APPRAISAL REPORT SRI LANKA NATIONAL IRR'GATION REHABILITATION PROJECT MAY 9, 1991 Agriculture operations Division Country DepF tment I Asia Region This document has a restricted distribution and may be used by recipients only in t ae perfonnance of their offici'al duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (December 1990) Currency Unit Sri Lanka Rupee (SL Rs) SL Rs 1 = US$ 0.0248 US$1.00 = SL Rs 40.3 WEIGHTS AND MEASURES 1 hectare (ha) = 2.47 acres (ac) 1 kilometer (km) = 0.62 mile (mi) 1 metric ton (mt) = 2,205 pounds (lbs) ABBREVIATIONS ADB - Asian Development Bank APT - Agricultural Planning Team ASC - Agrarian Services Center CIDA - Canadian International Development Agency CMC - Central Management Cell DAS - Department of Agrarian Services EEC - European Economic Community ERR - Economic Rate of Return FO - Farmer Organization GOSL - Government of Sri Lanka ICB - International Competitive Bidding ID - Irrigation Department IDA - International Development Association IIMI - International Irrigation Management Institute IMD - Irrigation Management Division IMPSA - Irrigation Management Policy Support Activity INMAS - Integrated Management of Major Irrigation Schemes IO - Institutional Organizer IRDP - Integrated Rural Development Project ITI - Irrigation Training Institute LCB - Local Competitive Bidding MASL - Mahaweli Authority of Sri Lanka MIRP - Major Irrigation Rehabilitation Project MLIMD - Ministry of Lands, Irrigation, and Mahaweli Development NIRP - National Irrigation Rehabilitation Project O&M - Operation and Maintenance PCC - Project Coordination Committee RST - Regional Support Team SCF - Standard Conversion Factor SDC - Swiss Development Cooperation SOE - Statement of Expenditure TIMP - Tank Irrigation Modernization Project USAID - United States Agency for International Development VIRP - Village Irrigation Rehabilitation Project GLOSSARY anicut - diversion structure Maha - northeast monsoon season (October to February) paddy - unhusked rice tank - impounding reservoir Yala - southwest monsoon season (April to September) FISCAL YEAR January 1 - December 31  FOR OMCIAL USE ONLY SRI LANKA NATIONAL IRRIGATION REHABILITATION PROJECT Credit and Project Summary Borrower: Democratic Socialist Republic of Sri Lanka Amount: SDR 21.9 million (US$29.6 million equivalent) Terms: Standard IDA terms with a maturity of 40 years Cofinancier: The European Economic Community (EEC) will provide a grant of ECU 3.34 million (US$4.0 million equivalent) Project Objectives: The main objectives of the project are to protect and increase agricultural production and incomes and to raise the standard of living of the beneficiaries through rehabilitation and improved operation and maintenance (O&M) of existing irrigation schemes. Subsidiary objectives are to: (a) upgrade the skills of staff of implementing agencies and the farmers; and (b) establish viable farmer organizations (FO) for managing the rehabilitation schemes. Description: The proposed seven-year project (1991-97) would be nationwide in scope and include: (a) rehabilitation and improvement of about 1,000 minor and 60 medium/ major irrigation schemes covering about 37,500 ha; (b) establishment of FOs and introduction of improved O&M practices in all rehabilitation schemes; (c) training of staff of implementing agencies and farmers; (d) execution of environmental. protection works and studies; (e) establishment of three new support units in the Irrigation Department (ID) and execution of hydrological and socio-economic studies; (f) provision of consultants' services for project planning, implementation, and impact assessment; and (g) procurement of vehicles and equipment. 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.  - it - Benefits and Riskst As a result of the project, the average incomes of some 100,000 farm families would increase by about 152 to 552 over present levels due to higher crop production after rehabilitation and improvement of the schemes and introduction of better O&M practices. At the same time, their current incomes would be better protected against losses arising from deterioration of scheme facilities. The project would also generate an additional annual labor demand for farm activities of about 2,000 person-years, largely hired labor. Temporary off-farm employment created during project implementation is estimated at about 7,000 person- years which would primarily benefit the landless. Less than adequate staffing of the new provincial administrations and a slower than expected pace of establishing FOs may delay the implementation of the project. Therefore, a Central Management Cell would be established at ID, and consultants employed, to assist the provincial administrations with project planning and implementation. When necessary, key implementation tasks would be transferred from the provinces to the central ID. Institutional organizers would be employed temporarily in all rehabilitation schemes to assist the process of formation of FOs and minimize the risk of implementation delays. Estimated Project Cost: Local Foreign Total - - - - - US$ million - - - - Rehabilitation and Improvement Works: Surveys and Investigations 0.4 - 0.4 Civil Works 15.8 3.0 18.8 Engineering and Administration 2.2 - 2.2 Subtotal 18.4 3.0 21.4 Farmer Organizations 1.9 - 1.9 Training 0.8 1.2 2.0 Environmental Protection 0.7 - 0.7 Institutional Support and Studies 2.1 0.9 3.0 Technical Assistance 3.1 0.6 3.7 Vehicles and Equipment 1.6 1.7 3.3 Base Cost 28.6 7.4 36.0 Physical Contingencies 0.9 0.2 1.1 Price Contingencies 11.7 1.0 12.7 Total Cost a/ 41.2 8.6 49.8 a/ Including taxes and duties of US$2.3 million  Financing Plan: Local Foreign Aotal - - - - - US$ million - - - - Government 16.2 - 16.2 EEC 4.0 4.0 IDA 25.0 4.6 29.6 Total 41.2 8.6 49.8 Estimated Disbursement of IDA Credits FY 1992 1993 1994 1995 1996 1997 1998 --------------------------US$ million---------------------------- Annual 2.0 1.9 5.5 5.6 5.6 5.0 4.0 Cumulative 2.0 3.9 9.4 15.0 20.6 25.6 29.6 Economic Rate of Return: 312 Map: IBRD 22876  - iv - SRI LANKA NATIONAL IRRIGATION REHABILITATION PROJECT Table of Contents CREDIT AND PROJECT SUMMARY I. SECTOR AND PROJECT BACKGROUND . . . . . . . . . . . . . . . . . . 1 A. The Agriculture Sector . . . . . . . . . . . . . . . . . . . 1 B. The Irrigation Subsector . . . . . . . . . . . . . . . . . . 2 C. Project Background . . . . . . . . . . . . . . . . . . . . . 7 II. PROJECT OBJECTIVES AND DESCRIPTION . . . . . . . . . . . . . . . 9 A. Rationale for IDA Involvement . . . . . . . . . . . . . . . 9 B. Project Objectives . . . . . . . . . . . . . . . . . . . . . 9 C. Project Components . . . . . . . . . . . . . . . . . . . . . 9 D. Detailed Features ......... ..0. ...... 10 III. PROJECT COST AND FINANCING . . . . . . . . . . . . . . . . . . . 16 A. Project Cost . . . . . . . . . . . . . . . . . . 16 B. Project Financing . . . . . . . . . . . . . ...... . 17 C. Procurement . . . . . . . . . . . . . . . . 18 D. Disbursements . . . . . . . . . . . . .... . . 19 E. Accounts and Audit . . . . . . . . . . . . . . . .... 20 IV. PROJECT IMPLEMENTATION ......................... . 21 A. Implementation Schedule .................. 21 B. Organization and Management . . . ..... . . . . . . . 21 C. Reporting Requirements . . .... . . . . . . . . . . . . 25 D. Project Supervision Plan . . . . . . . . . . . . . . . . . . 26 This report is based on the findings of an IDA appraisal mission which visited Sri Lanka in November/December 1990. The mission comprised Messrs. H. van Voorthuizen, C. Maguire, T. Abeysekera (IDA), G. Schokman, Y.K. Murthy, and P. Senerath (Consultants). Mr. J. Pruntel (IDA) also contributed to the report. The peer reviewers were Messrs. J. Srivastava (overall project content and technical aspects), J. Berkoff (overall project content and institutional aspects), and J. Bredie (training component). The report was endorsed by Messrs. S. Asanuma (Director, Country Department 1, Asia Region), and C. Helman (Chief, Agriculture Operations Division).  -v- V. PROJECT JUSTIFICATION AND RISKS . . . . . . . . . . . . . . . . 27 A. Agricultural Production . . . . . . . . . . . . . . . . . . 27 B. Marketing and Prices . . . . . . . . . . . . . . . . . . 29 C. Farm Incomes . . . . . . . . . .. . . . . . 29 D. Economic Analysis . . . . . . . . . . . . . . . . . . . . 30 E. Sensitivity Analysis, Special Emphasis, and Risks . . . . . 31 VI. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . 32 ANNEXES 1. Rehabilitation and Improvement Works . . . . . . . . . . . . . . .33 A. Criteria for Selection of Schemes . . . . . . . . . .33 B. Guidelines for Breparation of Minor Scnemes . . . . . . . . .34 Table 1: Appraisel and Prepared Schemes . . . . . . . . . . . .39 Table 2: Identified Medium/Major Tank Schemes . . . . . . . . .40 Table 3: Identified Medium/Major Diversion Schemes . . . . . .42 Table 4: Identified Minor Schemes . . . . . . .43 2. Formation of Farmer Organizations and Improved Operation and Maintenance . . . . . . . .. . . . .. . . .45 3. Training and Staff Development . . . . . . . . . . . . . . . . . 52 Attachment 1: Draft Terms of Reference for Consultants . . . . 57 Table 1: Training Program . . . . . . . . . . . . . . . . . 60 4. Environmental Protection . . . . . . . . . . . . . . . . . . . . 61 5. Institutional Support and Studies . . . . . . . . . . . . . . . . 64 A. Irrigation Research Management Unit . . . . . . . . . . . . 64 B. Dam Safety Unit . . . . . . . . . . . . . . . . . . . . . . 66 C. Quality Control Unit . . . . . . . . . . . . . . . . . . . 68 D. Hydrological and Water Management Study . . . . . . . . . . 69 E. Socio-economic Study . . . . . . . . . . . . . . . . 71 6. Technical Assistance for Project Implementation and Evaluation . 73 I. Project Planning and Implementation . . . . . . . . . . . . 73 II. Benchmark and Evaluation Studies . . . . . . . . . . . . . . 80 7. Project Implementation Schedule . . . . . . . . . . . . . . . . . 84 8. Cost Estimates Tables 1-6: Rehabilitation/Improvement Works Appraised Schemes . . . . . . . . . . . . . . 86 Tables 7-8: Rehabilitation/Improvement Works, Prepared Schemes . . .. .. . . . .. . . .92 Tables 9-10: Rehabilitation/Improvement Works, Unprepared Schemes . . . . . . . . .&. . . . 94 Table 11: Improved Operation and Maintenance, Studies, and VIRP Carry-over Works . . . . . 96 Table 12: Dam Safety, Quality Control, and Research Management Units . . . . . . . . . . 97 Table 13: Training - Human Resources Development . . . . . 98  - vi - Table 14t Training - Specialist Staff, Buildings, Equipment Furniture and Vehicles . . . . . . 99 Table 15: Implementation Support for Rehabilitation/ Improvement Works - Consultancy Services, Vehicles and Equipment . . . . . . . . . . 100 Table 16: Impact Assessment Studies . . . . . . . . . . . 101 9. Financing and Disbursements . . . . . . . . . . . . . .... 102 Table ls Financing Plan by Summary Accounts . . . . . . . . 102 Table 2: Proposed Credit Allocation . . . . . . . . . . . . 103 Table 3: Estimated Schedule of Disbursements . . . . . . . . 104 10. Procurement Schedules . . ...... . .... . . . 105 Schedule 1: Civil Works . . . . . . . . . . . . . . . . . . 105 Schedule 2: Vehicles and Equipment . . . . . . . . . . . . . 108 11. Crop Production and Incomes of Appraised Schemes . . . . . . . 109 Tables 1-6: Crop Area, Yield and Production . . . . . . . . 109 Tables 7-12: Fara Budget . . . . .. .115 12. Economic Analysis of Appraised Schemes . . . . . . . . . . . . 121 Table 1: Derivation of Economic Prices . . . . . . . . . . . 121 Table 2: Summary of Economic and Financial Prices . . . . . 122 Table 3: Summary of Project Economic Rate of Return and Net Present Value of Six Appraised Schemes . . 123 13. Project Performance Indicators . . . . . . . . . . . . . . . . 124 14. Related Documents in Project File . .. . . . . . . . . . . . 125 CHART 48721: Project Management and Implementation - Organization Structure . . . . . . . . . . 127 MAP IBRD 22876: Location of Schemes  SRI LANKA NATIONAL XPRIGATION REMAILITATION PROJECT I. SECTOR AND PREJECT BACKGROUND A. The Agriculture Sector 1.01 Sri Lanka is commonly divided into three agro-ecological zones based on climate, soils and vegetation -- the dry, intermediate and wet zones. Annual ,ainfall, at 75X probability levels, varies from about 600-900 mm in the dry zone, to about 1,200-1,500 mm in the intermediate zone, and over 2,000 mm in the wet zone. The most drought-prone districts experience drought once every three or four years during the Ylla (southwest monsoon) crop season and once every five to seven years during the Maha (northeast monsoon) season. The frequency of the dry spells causes wide year-to-year variations in crop areas and yields. Food crops dominate farming in the dry and intermediate zones -- paddy is grown in the bottom lands, and other food crops are cultivated under rainfed conditions on the better-drained lands and upper slopes. Tree crops are grown at higher elevations and paddy is cultivated in the valley bottoms and plains of the wet zone. Sri Lanka has a total land area of about 6.5 million ha, of which about 1.6 ha million is cultivated permanently; shifting cultivation is practiced on about 1.1 million ha. Tree crops account for about 900,000 ha of the cultivated land, highland annual crops for about 100,000 ha, and paddy for about 600,000 ha. About 80X of all paddy land is under the command of irrigation systems. 1.02 At present, the agriculture sector contributes about one quarter of GDP and is the main source of employment for more than 2.2 million persons (about 45X of the active labor force). With three-quarters of the population living in rural areas, agriculture is the single most important source of livelihood for these people. About 331 of the country's exports were derived from agriculture in 1989. These exports came primarily from tree crops: tea, rubber, and coconut. Overall agricultural performance during the last decade has been mixed. The sector achieved a 41 annual growth rate between 1978 and 1986, but experienced almost no growth from 1987 to 1989. Tree crop production has stagnated or declined during much of the decade, underlining the need for major restructuring of the sector. Paddy production increased to near self-sufficiency levels in the early 1980s, but despite continuing expansion of irrigated areas (para 1.03), production has stagnated during the last five years, mainly due to a string of below-average rainfall years and civil disturbances in many parts of the country. The Government of Sri Lanka (GOSL) is currently reconsidering its long-standing policy goal of attaining self-sufficiency in paddy production, often at the expense of othe- crops. GOSL now also emphasizes the preservation and improvement of existimng irrigation schemes on which most of the production of paddy depends.  -2- B. The Irrigation Subsector Past Develonments 1.03 Irrigation has bebn practiced in Sri Lanka since ancient times and is almost exclusively used for the cultivation of paddy. Schemes in the dry zone have storage reservoirs which assure supplemental irrigation during dry spells in the Maha season and, to some extent, also make it possible to cultivate crops during the Yala season. Diversion (anicut) schemes on perennial streams in the intermediate and wet zones assure 3upelemental irrigation during both crop seasons. Irrigation has been a major focus of development since tne country gained its independence in 1948. Reducing unemployment through settlement of the dry zone, achieving self-sufficiency in food production, and development of hydropower, have been major policy goals of successive governments, particularly after 1977. Since 1970, the total area under irrigation has expanded by at least 200,000 ha, and in 1990 it reached about 550,000 ha. The multi-purpose Mahaweli Development Program was the government's single largest investment scheme during the late 1970s and 1980s, accounting in its peak year (1984) for 39% of total public capital investments and 92% of all investments in the irrigation sector. 1.04 To date, some 255,000 ha of irrigated land is served by about 75 major schemes (over 600 ha), including 45,000 ha under the Mahaweli Program. An additional 45,000 ha is irrigated by medium schemes (80 - 600 ha). Most of the medium and major schemes are located in the dry zone and were built or restored by GOSL over the last 40 years. GOSL also retained the responsibility for operation and maintenance (O&M) of these schemes. Some 235,000 ha is served by about 22,000 minor schemes (less than 80 ha). About 65% of the land under minor schemes is located in the dry zone and is irrigated from tanks; the remaining 35% is supplied by anicuts. Typically, the minor schemes are operated and maintained by the farmers themselves. However, over the years government agencies have provided assistance for the construction or rehabilitation of structures such as tank bunds, spillways, outlet sluices, diversion weirs, and some distributory canals and turnouts. Institutions 1.05 Over the last two decades there has been a proliferation of government departments and agencies serving the irrigation sector. The recent transfer of authority from the central government to the provincial councils has added to the complexity of the situation. Due to inefficiencies in the use of staff and other resources, the current level of services to the irrigation sector is less than optimal. 1.06 The Irrigation Department (ID) is the oldest among the irrigation sector institutions. Until the advent of the provincial administrations, ID was fully responsible for managing construction and O&M activities in medium/major schemes, with the exceptions noted in paras 1.07 and 1.08 below. In addition, ID executes externally financed rehabilitation works in minor schemes, e.g. under the IDA-financed Village Irrigation Rehabilitation Project (VIRP, Cr. 1160-CE, now closed) and several ongoing or completed Integrated Rural Development Projects (IRDP). ID operates in the field through range  offices and irrigation divisions. Until recently ID had a staff of about 6,800 persons, including about 400 engineers. _ '7 The Mahaweli Authority of Sri Lanka (MASL) since the early 1970. has been responsible for the planning, implementation and O&M of the Mahaweli Development Program. MASL operates through several work organizations, of which the Mahaweli Engineering and Construction Agency and the Mahaweli Economic Agency are the two largest. Over the years GOSL has received considerable financial support for the Mahaweli Development Program from all major donors, including IDA. In addition to the Mahaweli schemes, MASL manages one other major irrigation project. 1.08 The Irrigation Management Division (IMD) of the Ministry of Lands, Irrigation, and Mahaweli Development (MLIMD) since 1984 has been responsible for managing about 35 major irrigation schemes, each exceeding 800 ha. IMD launched a Program for Integrated Management of Major Irrigation Schemes (INMAS), designed as an interdisciplinary approach to increase agricultural productivity. The program is administered through national, district, and project level committees and farmer organizations (FO). IMD operates in the schemes through project managers who coordinate the functions of all line agencies. Budgets for O&M are allocated and controlled by IMD headquarters in Colombo. The ID handles all technical matters related to rehabilitation and O&M of major IMD-managed schemes. IMD is the implementing agency for the Major Irrigation Rehabilitation Project (MIRP, Cr. 1537-CE) financed by IDA, the Canadian International Development Agency (CIDA) and the Swiss Development Cooperation (SDC), and the Irrigation Systems Management Project financed by the United States Agency for International Development (USAID). 1.09 The Department of Agrarian Services (DAS) is since 1957 responsible for a wide range of activities in the agricultural sector, including technical and institutional advisory services for minor irrigation schemes. DAS operates through a network of agrarian services centers (ASC). Agricultural planning teams (APT) are functioning at the ASCs to support minor irrigation schemes. The APTs consist of a divisional officer. a technical officer and an agricultural instructor, supported by district-level specialists in these fields. The APTs advise farmers on scheme improvements, better water management and cropping practices, and formation of FOs. DAS allocates and controls a GOSL-financed budget for repair works in minor schemes (Rs 43.0 million in 1991). DAS also implemented a scheme modernization program under the IDA-financed VIRP (Cr. 1.160-CE). 1.10 In accordance with the 13th Amendment of the Constitution, the provincial councils recently took over the responsibility from the central GOSL agencies for providing services (construction, OEM of major schemes, technical advice) in all irrigation schemes located on provincial rivers. Following a decision by the Minister of MLIMD, the provincial councils also assumed responsibility for ail schemes under 400 ha which are located on interprovincial rivers. Since 1990 the provincial councils have responsibility for all minor schemes and about 40S of the area under medium/major schemes in seven provinces. Transfer arrangements in the Northern and Eastern Provinces have not been completed due to the civil conflict in the area. During 1990 the seven provinces organized themselves to  - 4 - execute their new responsibilities. Four provinces established a major engineering and construction agency with separate wings for irrigation, ronds, and buildings. The remaining thras provinces established independent departments for these three types of work. Some 1,725 staff, including about 90 engineets, were transferred from the central ID to the new provincial irrigation units. A decision by GOSL to also transfer DAS field staff to the provincial administrations was reversed in early 1991. GOSL funds for O&M of provincial medium/major schemes are now being transferred directly from the center to the provinces. Similarly, in 1990 funds for repair of minor schemes were also transferred from the center to the provinces. However, in 1991 the GOSL budget for minor schemes has again been brought under the control of DAS. Overall, relations between the central government and the provincial councils have not stabilized as yet and, no doubt, further administrative changes will be introduced over the next few years. At preaent, the technical and institutional capability of the new provincial administrations remains an area of concern. 1.11 Options for streamlining central and provincial government cervices (including for the irrigation sector) are being explored under several studies. Supported by IDA, GOSL has commissioned studies of all central government departments and provincial administrations. Draft reports by consultants were circulated in late 1990 and were reviewed by the concerned departments ar,d provinces at the time of appraisal. The ID will probably be restructured in order to achieve a better organizational balance between its two main tasks -- construction of new systems and management of existing schemes. Proposals for reorganizing DAS are based on the vision that it will act as GOSL's principal agency for providing institutional support to farmer organizations. The provincial administrations, including their engineering services, will probably be organized along more rational and uniform lines across provinces. Ways need to be found to attract sufficient numbers of qualified, experienced and motivated staff to the provincial administrations. In the meantime, the provinces will h-ve to rely on central government departments (supported by consultants, where necessary) to undertake tasks for which their implementing capacity is still inadequate. Future managemeP. of the irrigation sector is the focus of separate studies currently being conducted under the Irrigation Management Policy Support Activity project (IMPSA), financed by USAID. The studies cover a broad range of topics, including the future role and organization of public institutions for the irrigation sector at both the central and provincial levels. A draft working paper, circulated in December 1990, correctly recommends that the evolution of a single agency for irrigation management should be the long-term goal for the country. The studies are scheduled to be completed by the end of 1991 (see also para 4.08).  - 5 Performance of Existine Schemes 1.12 The performance of existing schemes has been less than expected, mainly due to inadequate allocation, or sub-optimal use, of resources by government agencies and the beneficiaries of the schemes. Maintenance is not done regularly, causing deterioration of facilities, and scarce water is often wasted, resulting in loss of production. As a rule, standards of O&M in minor schemes depend on the farmers' efforts. Farmers usually clean the canals at regular intervals and agree among themselves on the cultivation schedules. However, they rarely maintain or repair headworks, and water distribution practices often result in wastage at the heads of the canals and shortages at the tail ends. Over the years DAS has assisted the farmers with these tasks using its small budget and by providing advisory services but this assistance has been limited primarily to schemes where rehabilitation or repair works were undertaken under externally financed projects such as VIRP and the IRDPs. As a result, irrigation facilities in most of the 22,000 minor schemes have been allowed to deteriorate to the point where full-fledged rehabilitation works now are necessary. Recent estimates compiled by DAS field staff indicate that some 10,000 minor schemes covering about 110,000 ha require rehabilitation works, at an estimated cost of about Rs 2.2 billion (US$55.0 million). 1.13 The ID, and now also the provincial irrigation units, are responsible for O&M of medium and major schemes. However, funds allocated in the Revenue Budget for this purpose (Rs 84 million in 1990) meet less than half of estimated requirements, and most of the funds are spent on staff and other overhead costs. Since 1984 farmers in major schemes are legally obligated to pay water charges covering the O&M costs of their schemes. During 1985 recoveries reached about 5OX of the amounts due, but during 1989 payments ceased almost completely. The disturbed conditions in much of the country, initial weaknesses in the legal provisions (since corrected), and alleged inability of the farmers to pay (due to low incomes and low yields or drought-related crop failures) are the most frequently cited reasons for the poor collection performance. Although several rehabilitation projects have been taken up during the last decade, recent es-.imates by ID indicate that still some 190 medium/major schemes covering about 50,000 ha require rehabilitation works, at an estimated cost of about Rs 1.1 billion (US$27.5 million). New Ap^roaches 1.14 Several attempts have been made in recent years to address the unsatisfactory O&M situation. IMD, through its INMAS program, has made major efforts to involve farmers in the management ani O&M of their schemes. Institutional oLganizers (IO) have been employed to encourage the formation of farmer organizations (FO) and project committees for scheme management. In several schemes the maintenance of field and distributory canals has been transferred to the project committees. The activit4is of IND have been most successful when combined with rehabilitation and system improvement works in externally financed projects such as MIRP. Experience also indicates that close involvement of the beneficiaries in the planning and implementation of rehabilitation and improvement works is an important requirement for success.  - 6 - DAS has made significant efforts to improve operatLonal practLces in minor schemes through its agricultural planning team (APT) approach. DAS also has, on a pilot basis, successfully employed IOs in several schemes in Anuradhapura District. Much emphasls has been given under VIRP to tralning of APTs for their tasks. As ln the case of the INMAS program, the APT approach has been most successful when combined wlth rehabilltation or modernization works. A few non-goverrmental organizations also have made serious efforts to improve maintenance and management practices in existing irrigation schemes. The Sri Lanka Field Office of the International Irrigation Management Institute (IIMI) is conducting field research in a number of schemes in order to identify and disseminate successful experiences in this important area. 1.15 The encouraging results of programs to involve farmers in the management of their schemes and the failure to make headway in the collection of water charges for major irrigation projects prompted GOSL ln 1988 to adopt a new management policy for the irrigation sector. The new policy is designed to increase the participation and responsibilities of the farmers and reduce the role of the public sector. Where possible, schemes are to be fully managed by the farmers themselves. This already is the common practice in most minor and some medium schemes. Major schemes in the future are to be managed jointly by the farmers and government agencies. This concept already is being applied in several major schemes where O&M of the distributory canals has been taken over by FOs and project committees. In the long term, the role of the public sector would be limited to providing technical and institutional advice to FOs, and O&M of major facilities such as headworks and main canals. Eventually, the FOs would assume the full O&M cost of the schemes, beginning with the parts of the systems managed by them, and the farmer-members of the FOs would contribute their fair share in the form of labor and/or cash payments. Modalities for implementing these concepts are being studied in several projects, including the ongoing IMPSA project referred to in para 1.11. By the end of 1991 the IMPSA project is expected to result in detailed policy statements and draft legislation to implement GOSL's new policy direction. 1.16 Meanwhile, recent positive experience has demonstrated the need to establish more formal FOs. Past efforts have been directed at informal groups of farmers or influential farmer leaders. However, as farmers take on more responsiiility for managing their irrigation schemes, the need for formal organizations with well-defined rights and obligations will grow as well. These changes apply not only to the distribution of water and maintenance of schemes, but also to other vital functions such as the supply of inputs, provision of credit, and marketing of produce. Anticipating these needs, GOSL has taken steps to amend existing legislation. The Agrarian Services Act of 1979 was amended in February 1991, to empower DAS to legally register and recognize the FOs in irrigation schemes and elsewhere. The Irrigation Ordinance of 1968 also is being amended to: (a) empower the FOs to collect irrigation charges after they have taken over O&M responsibilities for the field and distributory canals; and (b) specify the legal powers of the management committees for major irrigation projects.  -7- Summary of Government Strategy 1.17 Agricultural performance, particularly the production of paddy and other food crops, depends heavily on irrigation. Much of this is in older schemes of which many are not functioning properly due to deterioration of facilities leading to loss of production. Priority has been given during the last four decades to a rapid expansion of the country's irrigation systems, but emphasis is now shifting towards rehabilitation, improved maintenance, and more efficient use of capacity in existing schemes. GOSL, assisted by the donor community, already has begun to correct the balance between the construction of new projects and rehabilitation and O&M of existing schemes. The Mahaweli Development Program is winding down and several rehabilitation projects have been taken up over the last ten years, including the IDA- financed VIRP ard MIRP. However, there stW'l exists a large need for rehabilitation works (paras 1.12 and L.13 . udgetary constraints and continuing uncertainty over the prospects 2eace and development in the northeast reinforce the need to preserve make optimal use of existing irrigation infrastructure in the short a.3- ! - i m term. Encouraging the farmers to assume full responsibility for UP' '. their schemes is a key element of this strategy. IDA endorses this strategy. C. Project Background ExDerience under Earlier Rehabilitation Proiects 1.18 The National Irrigation Rehabilitation Project (NIRP) was first proposed in 1987 as a way to continue rehabilitation and modernization of minor schemes started under VIRP. Implementation of VIRP had been adversely affected from 1985 by security problems in seven north-eastern districts and in 1986 all works in the seven districts were suspended. Implementation continued after 1986 in eleven districts but disturbances in many other parts of the country caused further work interruptions in 1988 and 1989. The IDA Credit was extended four times (from end 1986 to end 1990). By the end of 1990 the ID had rehabilitated about 1,075 schemes covering about 30,500 ha (95% of the appraisal estimate), and DAS had modernized about 600 schemes covering about 13,500 ha (120% of appraisal estimate). Some 90 schemes covering about 2,600 ha were at various stages of completion at the end of 1990. All remaining works are scheduled to be fully completed in the course of 1991, using retroactive financing under NIRP. 1.19 A study team of the faculty of Agriculture from Peradeniya University has conducted a series of benchmark and evaluation studies in a sample of 144 VIRP schemes in six districts. Results from the baseline study and one follow-up survey are available for the entire sample but a second follow-up survey was conducted in only part of the sample schemes due to the 1988-89 disturbances. An in-depth study of 14 schemes (all included in the original sample) was conducted by the Peradeniya University team from 1988 through 1990. A third survey covering about 150 schemes (of which 30 are to be covered in-depth) is scheduled to start shortly with assistance and supervision from IIMI. Data available at this time on the impact of VIRP are fragmentary and have to be treated with caution. Nevertheless, several important conclusions are emerging. First, most schemes appear to have been  successful, but the few that failed completely did so either because farmer interest had not been properly ascertained in advance or because the executed works did not respond to farmer requirements. Second, farmers often complained about the poor quality of rehabilitation works. Third, cropping intensity during the Yala season increased substantially in some of the schemes after rehabilitation and modernization but changed little in most. Fourth, in most of the sample schemes farmers took full control over the distribution of water after rehabilitation. 1.20 During preparation and appraisal of VIRP, and also of the earlier Tank Irrigation Modernization Project (TIMP, Cr. 666-CE, see Project Completion Report - No. 5986 of December 23, 1985) and the subsequent MIRP, it had been assumed that crop production would increase substantially as a result of the rehabilitation and improvement works. Available evidence suggests that these expectations have not materialized as only modest increases in cropping intensities and/or yields have been recorded in most of the schemes covered by the three projects. It appears that stabilization of existing production has been the main source of benefits. Increases in production over pre-project levels due to: (a) repair of deteriorated facilities which already had caused loss of production; and (b) improvement and/or modernization of facilities, together with the introduction of improved water management practices, contributed to a lesser extent to the projects' benefits. 1.21 The Project Completion Report for TIMP stressed the need for: (a) carrying out surveys and detailed designs well in advance to avoid implementation delays; (b) allowing sufficient time for construction in view of the limited time canals can be closed; (c) preventing indiscriminate land and water use in the catchment area as it reduces inflow to the tanks and increases erosion; and (d) building confidence among the farmers that water will arrive on time and will be distributed equitably. Relevant findings and lessons of the earlier projects have been taken into account in the design of the NIRP. Proiect Preparation 1.22 Early on in preparing the NIRP it was agreed to expand its scope to include rehabilitation works in medium and major schemes. The coverage of other rehabilitation projects (either ongoing or proposed) was considered insufficient to meet the requirements, particularly for medium-sized schemes. In order to avoid concentrating available funds in only a few major schemes, and to facilitate preparation and approval of rehabilitation proposals during project implementation, it was further agreed to limit the coverage of NIRP to schemes costing US$1.0 million or less. The project has been prepared during 1989-90 by a Project Preparation Cell comprised of ID and DAS staff, assisted by consultants. Full feasibility studies have been prepared for a first group of 17 representative schemes (11 minor and 6 medium/major), of which 6 schemes (4 minor and 2 medium/major) were selected for in-depth appraisal.  - 9 - II. PROJECT OBJECTIVES AND DESCRIPTION A. Rationale for IDA Involvement 2.01 GOSL's current strategy for the irrigation subsector emphasizes completing ongoing projects, and preserving and improving the performance of existing schemes in order to stabilize and increase the production of paddy and other food crops (para 1.17). IDA supports this strategy and has already financed rehabilitation and improvement of minor schemes under VIRP (Cr. 1160- CE), closed in December 1990, and that of major schemes under the ongoing MIRP (Cr. 1537-CE). Although several other donors also have financed such works, minor schemes covering at least 45Z of the command area under such schemes and medium/major schemes for about 15Z of their command area still require rehabilitation. The proposed project is a national program which would support GOSL's strategy, build on experience gained under VIRP and similar recent projects, and assist provincial administrations in executing their new responsibilities. IDA support is justified as it would: (a) improve the capacity and efficiency of public irrigation services at the center and in the provinces; and (b) promote increased participation in system management by farmer organizations (FO). B. Prolect Obiectives 2.02 The project's main objectives are to stabilize and increase agricultural production and incomes and to raise the standards of livin.; through rehabilitation and improved O&M of existing irrigation schemes. Subsidiary objectives include: (a) upgrading the skills of farmers and staff of the implementing agencies; and (b) creating viable FOs for managing the rehabilitation schemes. C. Project Components 2.03 The project includes the following components: (a) rehabilitation and improvement of about 1,000 minor and 60 medium/major irrigation schemes covering about 37,500 ha; (b) establishment of FOs and introduction of improved O&M practices in all rehabilitation schemes; (c) training of farmers and staff of the implementing agencies; (d) environmental protection studies and works; (e) establishment of three new support units in ID and execution of socio-economic and hydrological studies; (f) consultant services for project planning, implementation, and impact assessment; and  - 10 - (g) procurement of vehicles and equipment. D. Detailed Features Rehabilitation and Improvement Works (Base Cost US$21.4 million) 2.04 The project would rehabilitate about 1,000 minor schemes covering some 25,000 ha and about 60 medium/major schemes covering about 12,500 ha throughout the country. The project would also complete ongoing rehabilitation works in about 90 minor schemes started under VIRP (para 1.18). The project would cover about 252 of the estimated rehabilitation requirements. However, in view of the unsatisfactory maintenance of existing schemes, requirements for such works are likely to increase in the near future. Other donors, including the European Economic Community (EEC) and the Asian Development Bank (ADB), have also agreed, or are planning, to finance rehabilitation works in some provinces. 2.05 In order to qualify for financing under the project, schemes would have to meet selection criteria that emphasize technical and economic viability, and ensure the involvement of beneficiaries (Annex 1). FOs would be established for all schemes at the rehabilitation planning stage. They would be required to contribute at least 102 of the construction cost and maintain the schemes at their cost in accordance with an agreed plan. A draft model contract between GOSL and the FOs. reflecting the obligations of both parties, was reviewed during negotiations. Types and quantities of works would be determined in close consultation between the implementing agencies and the FOs and would be kept at the minimum necessary to ensure the effective operation of the schemes. For minor schemes the cost of rehabilitation and improvement would not exceed the equivalent of US$ 750 per ha and for medium/major schemes the economic rate of return would be at least 152. During negotiations agreements were obtained from GOSL that: (a) schemes would be selected in accordance with the criteria specified in Annex 1; and (b) a plan for periodic safety inspections of dams constructed or rehabilitated under the project would be sent to IDA for review by December 31, 1992. 2.06 Rehabilitation schemes would be selected on a year-to-year basis as implementation proceeds. Existing operational schemes throughout the country would qualify for consideration under the project. Tentative lists of identified schemes are given in Annex 1. Actual selection of schemes would depend on factors such as: (a) overall requirements for rehabilitation by province and district; (b) financing available from other donors; and (c) implementation capacity. The estimates include an indicative provision for the Northern and Eastern Provinces, representing about 1O0 of total investment cost, in order to facilitate the early start-up of rehabilitation works in the two provinces once security is restored. Completion of on-site appraisal of selected schemes to the satisfaction of IDA and review of implementation arrangements by IDA would be a condition of disbursement against expenditures in the Northern and Eastern Provinces.  - 11 - Formation of Farmer Organizations and Improved Operation and Maintenance (Base Cost US$1.9 million) 2.07 The project would enable farmers to maximize their returns from the rehabilitated schemes and assume responsibility for O&M of scheme facilities. The project would therefore support: (a) formation of FOs and employment of institutional organizers (IO); (b) preparation and introduction of improved scheme maintenance and water distribution plans; (c) demonstration of improved cropping practices; and (d) logistical support to staff of the implementing agencies. The process of organizing farmers into FOs would start at the turn-out level. Most minor schemes would be served by a single FO but for medium/major schemes two- or three-tier organizations would be formed. Office bearers would be elected, or selected by consensus, and working committees formed to undertake specific tasks. Legal recognition would be obtained from the Commissioner of Agrarian Services in accordance with the Agrarian Services Act, as amended in 1991. The FOs would reach binding agreements with the implementing agencies, specifying mutual responsibilities for rehabilitation works and O&M activities. The project would provide the FOs with office space and basic furniture. 2.08 Experience gained over recent years has demonstrated the need for special assistance to involve farmers in the management of their schemes. The prcject would therefore support temporary employment of IOs for all rehabilitation schemes. The IOs would: (a) assess the communities' needs and resources; (b) plan and implement strategies for organizing the farmers; and (c) facilitate and enhance the FOs' capabilities to plan and manage all scheme-related activities. Throughout the process the IOs would closely coordinate their activities with staff of the technical agencies. One 10 would serve two adjacent minor schemes for about two years. For medium/major schemes one IO would be employed for about 300 families during the first two years, and one for about 1,000 families during the third and the fourth year. Twenty four IOs have already been posted in the first group of 17 schemes for which feasibility studies were completed during the preparation of the project. 2.09 Preparation of a plan of operation would be an integral part of the feasibility planning for all schemes. The plans would comprise detailed schedules for maintenance and operation of the schemes. The maintenance schedule would specify the preventive maintenance works to be executed continuously, and the periodic maintenance works to be undertaken between cropping seasons. The operational schedule would include an issue tree describing the distributory system, and the rotational systems to be adopted for each of the crop seasons in order to optimize the use of water, especially during periods of drought. The plans of operation would also specify the composition and responsibilities of project level farmer orgc'dizations and management committees for all O&M activities from the headworks down to the field level. Farmers would be consulted during preconstruction meetings and their views would be fully reflected in the plans. The IOs and the agricultural planning teams (APT) would participate in the preparation of the plaas of operation and advise the FOs during implementation.  - 12 - 2.10 The project would provide support in selected rehabilitation schemes (about 10X of all schemes) for a special program of agricultural extension activities which meets specific requirements expressed by the farmers. The special program would supplement the Department of Agriculture's country-wide extension services, which would be strengthened under the proposed Integrated Agricultural Support Services Project. The special program would emphasize activities for demonstrating the cultivation of high-value field crops and improving home gardening. Agricultural instructors would prepare and execute the special programs in close cooperation with the FOs. Project support would be used for procurement of inputs and payment of travel allowances to the agricultural instructors. 2.11 The project would provide logistical support to district and divisional level staff of the provincial support agencies, including the members of the APTr and work supervisors of ID. Further details on the formation of FOs and improved O&M are given in Annex 2. Training (Base Cost US$1.9 million) 2.12 The project would: (a) upgrade the skills of existing staff of the implementing agencies; (b) train new IOs; (c) train leaders and members of the FOs; (d) provide technical assistance to enhance project management's capacity to manage the training program; and (e) increase the capacity of existing training centers. The training program would provide staff with limited overseas training opportunities, including three masters level degrees and 6- 12 week short courses for about 100 staff at training institutions in Southeast Asian countries. The in-country staff training program would include short courses at selected in-service training institutes, on-the-job training, and study visits. Selection and training of about 500 IOs would be a key element of the training program. The project would also provide preconstruction, construction, O&M, and refresher training for over 5,000 elected officials of the FOs and arrange for multiple one-day training sessions for about 37,500 farmers. Designated trainers would participate in short training-of-trainers courses. Special emphasis would be given to raising the level of environmental awareness of both project staff and farmers. All trainers would be adequately prepared to cover environmental issues. Assistance would also be provided for expansion and upgrading of four in-service training institutes and for procurement of teaching equipment and supplies. Further details on the training component are given in Annex 3. Environmental Protection (Base Cost US$0.7 million) 2.13 The project would minimize environmentally harmful activities and, where feasible, alleviate existing problems. For all selected rehabilitation schemes the environmental impact of the proposed works would be reviewed and remedies against any adverse consequences prepared, as specified in the terms of reference for the feasibility studies. In addition to environmental awareness training of project staff and farmers (para 2.12), the project would support the following activities: (a) minimizing damage to the ecosystem during construction; (b) alleviating existing environmental problems; and (c) studying environmental problems at the watershed level.  _ 13 - 2.14 Excavations aiLd destruction of vegetation are potentially harmful activities during construction. Contract specifications would reflect existing GOSL regulations in this regard and include clauses obliging contractors to: (a) consult with beneficiaries on the selection of borrow pits; (b) strip and replace the topsoil and level off the borrow pits under a gradient which permits unimpeded drainage; and (c) strip, and after resectioning, replace the topsoil on the tank embankments before turfing. In addition, the project would provide for planting of trees in borrow areas and canal reservatiorxs. Strict superv-4'nn by proiect staff and consultants would ensure that the specifications mentioned above are adhered to. The beneficiaries would be encouraged to monitor implementation of the civil works. 2.15 Erosion and drainage problems at the reservoir and headworks of tank schemes would be corrected during rehabilitation. Periodic maintenance by the Fos after rehabilitation would minimize the risk of recurrence. Siltation of reservoirs and canals due to erosion in the catchment areas is a potential threat to irrigation and irrigation management. However, reliable information on this issue is not available in Sri Lanka. The project would therefore provide for a monitoring program for silt build-up in a selected sample of 50 minor and 5 medium/major tank schemes. The program would be managed by the Research Management Unit to be established at ID (para 2.17). Fragmentation of holdings and reduction of plot sizes due to population pressure is a serious issue which interferes with the adoption of sound water management practices. The project would provide for a study in three minor schemes in Anuradhapura District to examine the technical possibility of, and farmers' interest in, land consolidation, or other ways to overcome this problem. If successful, the study would be followed by a pilot land consolidation or land pooling project. This study would also be managed by ID's new Research Management Unit. 2.16 Minor tank schemes in the dry zone are typically part of a larger system, called a cascade, and are hydrologically intbrdependent. Feasibility studies would take into account all schemes which are part of a cascade to ensure that the planning and design of rehabilitation works recog:,,_s their interdependence. Specific measures would be proposed and implemented to optimize the performance of individual schemes. Further details on environmental protection are given in Annex 4. Institutional Support for Irrigation Department and Studies (Base Cost US$3.0 million) 2.17 Irrigation Research Management Unit. Over the years it has become apparent that actual benefits achieved in irrigation projects are not commensurate with the investments made, mainly due to: (a) poor O&M of the schemes; (b) use of questionable hydrological planning parameters for determining available water resources; and (c) mono cropping of paddy in both cultivation seasons. In order to coordinate research on these issues, the project would support the establishment of an Irrigation Research Management Unit in ID. Technical assistance for the Unit would be provided by the Sri Lanka Field Operations Unit of IMII. The Research Management Unit would identify research needs, carry out or contract for research, evaluate the  - 14 - findings, and disseminate the results. Support under the project would cover a four-year period (1992-95) and would include internationally and locally recruited expertise, equipment, vehicles, and research activities. 2.18 Dam Safety Unit. Following the recent failure of the dam at the Kantalai scheme, GOSL has commissioned a comprehensive study by consultants to review the effectiveness of the existing dam safety program and to prepare recommendations for a workable and effective system. The project would support the establishmert of a Dam Safety Unit within ID by providing equipment, vehicles, tra,ning, advice by experts, and fund to cover the operating cost of the Unit. 2.19 Quality Control Unit. Ineffective supervision and inadequate testing of construction materials frequently result in substandard quality of works in irrigation projects in Sri Lanka and elsewhere. The project would enhance the capacity of ID's existing Quality Control Unit and would support the establishment of nine regional field laboratories. The facilities would serve the ID ranges and the provincial irrigation units. The project would provide for equipment, vehirles, the renovation of existing buildings or construction of new ones, and the cost of operating the Unit. 2.20 Hydrological and Water Management Study. Plans to optimize the use of available water resources through better water management must be based on reliable estimates of such resources. VIRP supported a physical resource evaluation of a sample of tank schemes in the dry zone which was conducted by the Land and Water Use Divisior. of the Department of Agriculture. The final report will be submitted shortly and the findings would be used to improve water management planning under NIRP. The project would support, over five years (1991-95), a similar study in a sample of three diversion schemes in the intermediate and wet zones. The three schemes would also be included in the sample for the socio-economic study (para 2.21). 2.21 Socio-economic Study. The project would support a socio-economic study of a sample of ten rehabilitation schemes located in the Central and North-West provinces. The objective of the study would be in-depth monitoring and analysis of changes due to the project. In addition to collecting general information on scheme beneficiaries, physical facilities, and supporting services, the team would study changes in farm production and incomes, irrigation practices, and the effectiveness of institutional arrangements for rehabilitation and O&M in the sample schemes. Research assistants would be posted in the schemes to collect data for the duration of the study (1992-97). Further details on institutional support for ID and related studies are given in Annex 5. Technical Assistance for Proiect Planning, Implementation and Impact Assessment (Base Cost US$3.7 million) 2.22 In addition to capacity building technical assistance for training and irrigation research management (paras 2.12 and 2.17, respectively), the project would provide consulting services to support: (a) effective planning and implementation of rehabilitation and improvement works, and introduction of improved O&M practices in all rehabilitated schemes; and (b) execution of  - 15 - impact assessment studies in a representative sample of schemes. The expertise required would be provided under two separate contracts. The scope of consulting services for project planning and implementation would includes (a) screening of all schemes proposed for rehabilitation; (b) preparation of feasibility studies for medium/major schemes, and review of the feasibility studies for minor schemes prepared by the implementing agencies; (c) construction monitoring and quality control for all schemes; (d) technical support for improved O&M, and institutional support to the FOs; and (e) management support for the Central Management Cell (CMC) to be established at ID (para 4.04). Consulting requirements have been estimated at 50 staff months of internationally recruited specialists, 1,020 staff months of locally recruited professional staff, and 1,080 staff months of locally recruited mid- level staff. During negotiations agreement was obtained from GOSL that consultants for project planning and implementation would be appointed by December 31, 1991 under terms of reference satisfactory to IDA. 2.23 One benchmark and two evaluation studies would be conducted in a sample of 30 minor and 15 medium/major schemes in order to assess the project's impact and to draw lessons for similar future operations. The benchmark studies would be conducted before rehabilitation. The two evaluation studies would be conducted about one year and three or four years, respectively, after completion of the works. The studies would cover the engineering, agricultural, environmental, socio-economic, and institutional aspects of the sample schemes, and would be conducted by a local research institute or a firm of consultants. Staff requirements are estimated at 190 staff months for senior professional staff and 168 staff months for junior professional staff. Further details on technical assistance for project planning and implementation, and impact assessment studies are given in Annex 6. Procurement of Vehicles and Equipment (Base Cost US$3.3 million) 2.24 The project would provide 75 vehicles, 87 motorcycles, 300 bicycles, and various other types of equipment, as specified in Annex 10, Schedule 2. Contractors would provide their own construction equipment.  - 16 - III. PROJECT COST AND FINANCING A. Project Cost 3.01 The total project cost is estimated at Rs 2,009 million (US$49.8 million equivalent), with a foreign exchange component of US$8.6 million or 172 of total cost (Table 3.1 and Annex 8). The cost estimates have been based on early 1991 prices. Estimates of quantities for the rehabilitation and improvement works are based on the feasibility studies for the first group of 17 schemes. The project cost includes Rs 92 million (US$2.3 million equivalent) in taxes and duties. Physical contingencies for civil works have been estimated at 5Z. Price contingencies and foreign exchange rates have been estimated on the basis of expected rates of local and foreign inflation as follows: local price contingencies: 11.52 for 1991, 7.7Z for 1992, 6.0 for 1993-94, 5.0 for 1995, and 3.4Z for 1996-97; and foreign price contingencies: 3.4% for all years. Table 3.1: Proiect Cost Estimates Foreign Local Foreign Total Local Foreign Total Exchange -----Rs million- ----US$ million ------ Z Rehabilitation and Improvement Works: Surveys and Investigations 14.5 - 14.5 0.4 - 0.4 - Civil Works 639.1 120.4 759.5 15.8 3.0 18.8 17 Engineering and Administration 83.3 - 89.3 2.2 - 2.2 - Subtotal 742.9 120.4 863.3 18.4 3.0 21.4 15 Farmer Organizations 78.0 0.5 78.5 1.9 - 1.9 - Training 30.8 46.8 77.6 0.8 1.2 2.0 60 Environmental Protection 28.0 - 28.0 0.7 - 0.7 - Institutional Support and Studies 84.9 36.8 121.7 2.1 0.9 3.0 36 Technical Assistance 125.7 25.0 150.7 3.1 0.6 3.7 17 Vehicles and Equipment 65.9 69.5 135.4 1.6 1.7 3.3 50 Base Cost 1,156.2 299.0 1,455.2 28.6 7.4 36.0 21 Physical Contingencies 35.9 5.8 41.7 0.9 0.2 1.1 15 Price Contingencies 472.1 40.5 512.6 11.7 1.0 12.7 8 Total Cost 1,664.2 345.3 2,009.5 41.2 8.6 49.8 17  - 17 - B. Project Financts 3.02 The project would be financed by IDA, EEC and GOSL. The IDA Credit of SDR 21.9 million (Us$29.6 million equivalent) would be on standard IDA terms with a maturity of 40 years and would cover about 62Z of the total project cost, excluding taxes and duties. IDA would finance the cost of rehabilitation and improvement works, formation of farmer organizations, introduction of improved O&M practices, agricultural demonstrations, procurement of a portion of vehicles and equipment, and VIRP carry-over works and studies. In order to facilitate the early start-up of the project and to complete the VIRP carry-over works and studies, expenditures of up to US$1.2 million incurred after December 31, 1990, would be considered for retroactive financing. An EEC grant of ECU 3.34 million (US$4.0 million equivalent) would cover about 8Z of project cost, excluding taxes and duties. EEC would finance the foreign cost of training, institutional support for ID, and technical assistance for project planning and implementation. Signing of the cofinancing agreement between GOSL and EEC would be a condition of effectiveness for the IDA Credit. GOSL would finance the rema'ning project cost, i.e. US$16.2 million. This includes US$9.1 million equivalent of EEC Food-aid counterpart funds to finance the local cost of training, environmental protection works, institutional support for ID, studies, and technical assistance. It also includes US$2.7 million equivalent to be contributed in labor, or other acceptable form, by the beneficiaries of the rehabilitation and improvement works. All such works to be financed under the project would be conditional upon a firm commitment by the farmer organizations to contribute at least 102 of the cost of the works (paras 2.05 and 2.07 and Annex 1, para 1). The balance of GOSL's contribution, including US$2.3 million in taxes and duties, would be made available through annual budget appropriations in conformance with the project implementation schedule. Table 3.2 summarizes the project financing plan. Further details are given in Annex 9. Table 3.2: Financing Plan (US$ million) IDA EEC GOSL Total Surveys and Investigations 0.5 - - 0.5 Civil Works 23.5 - 3.9 27.4 Engineering and Administration 1.7 - 1.7 3.4 Farmer Organizations 2.7 - - 2.7 Training - 1.3 1.0 2.3 Environmental Protection - - 1.0 1.0 Institutional Support and Studies 0.1 1.0 2.7 3.8 Technical Assistance - 0.7 4.4 5.1 Vehicles and Equipment 1.1 1.0 1.5 3.6 Total Financing Required 29.6 4.0 16.2 49.8  - 18 - C. Rhocurmemnt 3.03 Civil Works (US$26.7 million, excluding taxes and duties) are relatively small, labor-intensive, and geographically dispersed in areas with difficult access. These works are not expected to attract international bidding and would therefore be carried out, either under contract through local competitive bidding (LCB) procedures acceptable to IDA, or on force account by the FOs at the engineer's estimated cost. Current GOSL regulations permit registered FOs to carry out small civil works contracts outside normal tender procedures, provided that: (a) the value of each contract does not exceed Rs 250,000 (US$6,250); (b) the total value of all contracts held by the FO at any one time does not exceed Rs 750,000 (US$18,750); (c) the Ministry concerned is satisfied that the FO has the capacity to carry out the works; and (d) the works are located within the scheme managed by the FO. It is estimated that about 20% of the civil works, particularly those involving excavation works, would be offered to the FOs. The aggregate value of civil works to be carried out on force account would not exceed US$5.5 million. Vehicles and Equipment (US$1.1 million) would be procured through international competitive bidding (ICB) or prudent shopping. Contracts costing US$20,000 or more each would be procured through ICB procedures in accordance with IDA guidelines. Local suppliers competing under ICB would be granted a price preference of 15% of the CIF price of the goods or the customs duties, whichever is less. Small off-the-shelf items costing less than US$20,000 each, would be procured on the basis of quotations from at least three independent suppliers in accordance with GOSL procedures which are acceptable to IDA. Such purchases would not exceed the equivalent of US$500,000 in the aggregate. Surveys and Investigations (US$0.5 million) would be carried out by ID on force account or under contract through LCB. Consultants' Services for studies (US$0.1 million) would be contracted in accordance with IDA guidelines for the use of consultants. 3.04 Bid documents for all civil works contracts over US$150,000 and all contracts for vehicles and equipment over US$100,000 would be submitted to IDA for prior review, and IDA's concurrence would be sought before the contracts are awarded. This procedure would apply to about 5% of the estimated total cost of civil works and about 70% of the estimated cost of vehicles and equipment to be procured through ICB. For other contracts GOSL would use standard bidding documents approved by IDA. Goods and services to be rinanced by EEC (para 3.02) would be procured in accordance with EEC's own procedures. The methods of procurement for all project components are given in Table 3.3.  - 19 o Table 3.3: Methods of Procurement /a (USS million) Project Element ICB LCB Other N.A b/ Total Surveys and Investigations - 0.2 0.3 - 0.5 (0.2) (0.3) (0.5) Civil Works - 21.9 5.5 - 27.4 (18.8) (4.7) (23.5) Engineering an.d Administration - - - 3.4 3.4 (1.7) (1.7) Farmer Organizations - - - 2.7 2.7 (2.7) (2.7) Training c/ - - - 2.3 2.3 Environmental Protection c/ - - - 1.0 1.0 Institutional Support and Studies d/ - - 0.1 3.7 3.8 (0.1) (0.1) Technical Assistance c/ - - - 5.1 5.1 Vehicles and Equipment e/ 2.6 - 1.0 - 3.6 (0.8) (0.3) (1.1) Total 2.6 22.1 6.9 18.2 49.8 (0.8) (19.0) (5.4) (4.4) (29.6) a/ Figures in parenthesis are the amounts to be financed by IDA and include contingencies b/ Not applicable. c/ To be financed fully by EEC and EEC Food-aid counterpar.- funds. d/ To be financed partially by EEC and EEC Food-aid counter:|rt funds. e/ To be financed partially by EEC. D. Disbursements 3.05 Disbursements of the IDA Credit would extend over Feven years (1991- 98) and would cover: (a) 95Z of expenditures on civil works, including construction materials, but excluding contributions by FOs (para 2.05); (b) 10OZ of expenditures on surveys and investigations, support of farmer organizations, and consultants' services;  - 20 - (c) 50Z of expenditures on engineering and administration; and (d) 1002 of foreign expenditures if imported, or 100l of local expenditures if manufactured locally, or 702 of local expenditures if procured locally, on vehicles and equipment. 3.06 Full documnentation would be sent to IDA in support of withdrawal applications, except for item (c) above, for works e,lecuted under force account, and for small local contracts individually costing less than the equivalent of US$100,000. For these items applications would be supported by statements of expenditure (SOE) certified by the Project Director and Accountant of the Central Management Cell. The relevant documentation would be retained by ID at a central location and should be made available to IDA representatives on request. This documentation also would be subject to audit. All documents sent to IDA in support of withdrawal applications for civil works, including SOEs, would have been checked and certified by the project consultants. 3.07 GOSL would open and thereafter maintain a Special Account in US dollars with the Central Bank in Colombo. The authorized allocation for the Special Account would be US$1.5 million equivalent. This allocation represents an estimated four months of IDA-financed expenditures. The Special Account would be replenished through periodic reimbursement, either monthly or whenever the balance of the authorized allocation falls below 40Z, whichever occurs first, and would be used exclusively for IDA's share of financing. The proposed closing date of the IDA Credit is June 30, 1998. E. Accounts and Audits 3.08 The Central Management Cell at ID would establish and maintain a separate project account. Funds would be provided in the budget of ID, the lead agency for the project. Adequate records would be maintained by all implementing agencies to identify physical progress and financial transactions relating to the project. Individually identifiable accounts would also be kept for all expenditures for which withdrawals are made on the basis of SOEs, and for the flow of funds from the Special Account. A senior accountant (consultant) would be employed in the Central Management Cell to guide and supervise staff responsible for keeping the project accounts. The project accounts, including SOEs and the Special Account, would be audited annually by independent auditors acceptable to IDA. Audited accounts, together with auditors' comments, would be sent to IDA within nine months of the close of each financial year. At present the accounts of ID and the other participating agencies are audited by the Auditor-General's Department. This arrangement is satisfactory to IDA. An action plan is in place for submission of audit reports under ongoing projects in the irrigation sector.  - 21 - IV. PROJECT IMPLEMENTATION A. Implementation Schedule 4.01 Feasibility studies for 17 schemes and detailed proposals for the project's traininig program and improved O&M activities were prepared in 1989- 90. During 1991 ongoing preconstruction activities for the 17 schemes would be completed, including: (a) topographical surveys; (b) preparation of detailed engineering documents; (c) selection and training of IOs; (d) formation of FOs; (e) formalizing agreements with the FOs on their contribution to the rehabilitation works; (f) preparation of preliminary proposals for the second group of rehabilitation schemes; and (g) preparation of designs and contract documents for improvement and expansion of in-service training centers. VIRP carry-over works would also be completed in 1991. Construction works for the first group of rehabilitation schemes would start in 1992 while, at the same time, feasibility studies and other pre- construction activities for the second group of schemes would commence. The total project period would be seven years, starting in January 1991 and ending in December 1997. The implementation schedule is given in Annex 7. B. Organization and Management Introduction 4.02 The project would be implemented by ID, DAS, the provincial councils, and the FOs. A Central Management Cell (CMC), headed by a Project Director under the Director of Irrigation, has been established in ID. The CMC would direct all project activities under the guidance and supervision of a Project Coordination Committee (PCC). Project Coordination Committee 4.03 The PCC would have overall responsibility for the implementation of the project. The Secretary of MLIMD would chair the PCC and the Project Director would function as its Secretary. Permanent members would include the Director of ID, the Commissioner of DAS, the Director of IMD, and the chief secretaries of the provincial councils. Representatives of other concerned departments may be invited to participate in the deliberations of the PCC. These departments include the Land Commissioner's Department, the Department of National Planning, the Department of Agriculture, and the Survey Department. Specific responsibilities of the PCC would include: (a) policy guidance and decision making; (b) approval of annual work programs and budgets; (c) periodic review of work progress; and (d) resolution of problems which may arise during implementation. The PCC would meet at least once every six months. Central Management Cell 4.04 The CMC would direct and coordinate all project components and activities. Its major responsibilities would include:  - 22 - (a) preparation of annual work plans and budgets; (b) screening and approval of all rehabilitation proposals to ensure that selection criteria are being adhered to; (c) promoting the establishment of viable FOs for all rehabilitation schemes; (d) preparation of feasibility studies and designs for medium/major schemes; (e) technical review and approval of feasibility studies and designs prepared by the provincial irrigation units; (f) monitoring of construction progress and quality for all schemes; (g) preparation and monitoring of project-related training programs; Ch) guiding and monitoring of improved O&M activities; (i) coordination and monitoring of studies by other agencies; Cj) procurement of vehicles and equipment; Ck) financial control, including maintaining separate project accounts, preparation of disbursement applications, management of the Special Account, preparation of project accounts for audit, etc.; and (1) preparation of project progress reports. 4.05 The CMC would operate as a task force for planning and implementation of the project. It would be composed of experienced GOSL staff and consultants. The CMC was established, and the Project Director appointed, prior to negotiations for the IDA Credit. CHC staff would be drawn from ID, DAS and IMD. The CMC would have work units for institutional development, operation and maintenance, training (all to be staffed by GOSL employees and consultants), designs, progress monitoring, procurement, accounts, and administration (to be staffed by GOSL employees only). The consultants would be fully responsible for feasibility planning of all medium/major schemes. 4.06 Regional Support Teams (RST) of the CMC, to be staffed by consultants, would be established in the provinces. The RSTs would discharge the CMC's responsibilities at the local level, including: (a) acreening of preliminary rehabilitation proposals; Cb) technical review of plans and designs for minor schemes; (c) monitoring of progress and quality control of all civil works, including certification of disbursement applications; and (d) providing institutional support to the FOs. Each RST would include a construction engineer, an institutional development officer, and a technical officer. Full details on the consultants' responsibilities are given in Annex 6.  - 23 - Irrigation Department 4.07 The ID through its range offices would procure and implement the project works in all the medium/major schemes remaining under the management of ID. Specifically, the range offices would be responsible for: (a) conducting surveys and investigations; (b) managing construction works; and (c) introducing improved O&M practices in the schemes under their control. The range offices would select, and ID would employ, IOs for the schemes concerned (in consultation with the RSTs, which would clear the appointments). ID range offices are headed by deputy-directors who would delegate responsibility for implementing the project works to divisional irrigation engineers. The technical assistants of the irrigation divisions would function as scheme managers and would coordinate all project activities with the FOs, the scheme project committees, and the agricultural support services in the scheme area. The IOs would work under their direct supervision. The RSTs would monitor the progress and quality of construction work and provide technical and institutional guidance to the scheme. 4.08 Where necessary, II) and its range offices would assist the provincial administrations with the implementation of project works in schemes under provincial management. The need for such assistance would be determined on a year-to-year basis and may vary from one province to another (para 4.12). Several reviews of GOSL's organizational arrangements for serving the irrigation sector are being carried out (para 1.11). These reviews cover both the central and provincial administrations and, by the end of 1991, are expected to result by the end of 1991 in detailed proposals for streamlining GOSL's services to the irrigation sector. During negotiations agreements were obtained from GOSL that proposals for the future organizational arrangements of public services to the irrigati3n sector would be sent to IDA for review and comment by June 30, 1992, and that GOSL would submit, by December 31, 1992, a timetable for implementing agreed recommendations. Department of Agrarian Services 4.09 The Commissioner of Agrarian Services would register FOs for all schemes to be covered by the project in accordance with the provisions of the Agrarian Services Act. The district assistant commissioners would select, and DAS would employ, IOs for all rehabilitation schemes under provincial management, after obtaining clearance from the RSTs. The district assistant commissioners and provincial deputy commissioners would screen all identification reports for repair and rehabilitation of minor schemes ane' decide which schemes would be repaired with local funding and which would be considered for financing under the project. Provincial Councils 4.10 The provincial councils would be responsible for implementing the project in all minor and medium/major schemes under provincial management. Provincial project coordination committees would be established in all provinces to coordinate project activities. The committees would approve the annual work programs, review project progress, and resolve any problems which may arise. The chief secretaries of the provincial councils would chair the  - 24 - committees, and the secretaries of the provincial ministries and heads of departments involved in implementing the project would be the members. 4.11 The provincial irrigation units (in some provinces a separate unit within a major engineering and construction agency, in others an independent department) would undertake a substantial number of tasks undar the project, including: (a) preparation of feasibility studies (including O&M plans) for all minor schemes; (b) surveys and investigations for all schemes under provincial management; (c) preparation of designs for minor schemes; (d) procurement and management of construction works for all schemes under provincial control; (e) introduction of improved G&M practices in medium/major schemes under provincial management; and (f) provision of technical support services for all schemes, where needed. 4.12 The provincial irrigation units were established only recently and most are short of experienced staff. Therefore, the CMC each year would review the implementation capacity and workloads of the provincial irrigation units in order to determine their capacity for undertaking the tasks assigned to them under the project. After consultations with the chief secretaries, the ID would assume responsibility for executing all tasks found to be beyond the capacity of the provincial irrigation units. The first such review was conducted during the appraisal of the project in December 1990. At that time it was decided to assign the responsibility for preparing detailed designs for the first group of minor schemes in 1991 to the Designs Branch of ID instead of the provincial irrigation units. Similar reviews would be conducted during the months April - June of each project year. During negotiations agreement was obtained from GOSL that draft annual project work programs, budgets and staff requirements for the central and provincial implementing agencies, together with the actual staff positions of the agencies and the recommended division of responsibilities, would be sent to IDA for review and comment before June 30 of the year preceding the project year concerned. Submission of the draft work program, budget, staff requirements and actual positions for 1992, together with the recommended division of responsibilities between the center and the provinces, would be a condition of effectiveness of the IDA Credit. 4.13 The agricultural planning teams (APT), one of which exists in each administrative division, would undertake several key tasks at the field level. These tasks include: (a) preparing identification reports for the rehabilitation and improvement of minor schemes; (b) together with the IOs, promoting the formation of FOs in all schemes to be covered by the project;  - 25 - (c) assisting the provincial irrigation units during the preparation of improved O&M plans; and (d) advising the farmers in all schemes on the introduction of the improved O&M plans and better cropping practices. The APTs would be guided by district and provincial level specialists and the RSTs. Farmer Organizations 4.14 The FOs, as the clients of the rehabilitation and improvement works, would partic.pate as full partners in the entire cycle from preconstruction activities through O&M. During the preconstruction stage the FOs would discuss and approve the preliminary and final plans for the rehabilitation and improvement works. These plans would include an contribution of at least 1OZ of the cost of the works by the farmers themselves. During preconstruction the FOs would also adopt a plan for improved O&M. During the construction stage the FOs would execute their contribution to the rehabilitation works and any additional works they may have contracted for. Duting the O&M phase the FOs would operate and maintain the schemes in accordance with an agreed plan. Management of the Training Program 4.15 The CMC would have overall responsibility for planning and implementing the training and staff development program. Because of the scope and volume of training envisaged, the CMC would be assisted in this task by an internationally recruited training management specialist and a locally recruited farmer training specialist. At least one counterpart would be assigned to each consultant to sustain management of the training program after completion of the project. The consultants and their counterparts would initially prepare, and thereafter annually revise, detailed plans and budgets for implementation of the training program during the entire project period, based on updated training needs. They would also supervise program implementation in the field and evaluate the impact of all training activities. The curricula for all relevant existing training programs would be reviewed and adapted, as necessary, to meet the needs of the project. The most qualified persons from training institutes and agency staff would be selected to serve as trainers. The communications skills of those selected would be raised through training-of-trainers' programs. Existing in-service training institutes would be used as venues for in-service training of existing agency staff and for induction courses for IOs. The training of FO representatives and farmers would be conducted as close as possible to the project sites. C. Reporting Requirements 4.16 The following reports would be sent regularly to IDA: (a) quarterly project progress reports, including summary statements on the contributions made by the FOs towards the implementation of rehabilitation and improvement works, within one month of the close of each quarter;  - 26 - (b) audited financial statements of the project, together with the auditor's report and opinion on the financial statement, and the auditor's separate opinion on SOEs, within nine months of the end of each fiscal year (para 3.08); and (c) the Borrower's contribution (Section II) to the Project Completion Report, within three months of the Borrower's receipt of Sections I and III from IDA. D. Project Supervision Plan 4.17 The mix of specialties and frequency and duration of missions likIly to be needed to ensure adequate project supervision is as followss Mission Time Specialty/Duration (Weeks) Total No. Mo./Yr Eng. AE Inst. Trg. Env. Staff Weeks 1 6/91 2 1 2 3 2 11/91 2 2 1 1 4 6 3 5/92 2 1 1 3 4 4 11/92 2 1 1 1 4 5 5 5193 2 1 2 3 6 11/93 2 1 1 1 4 5 7 5/94 1 1 2 2 8 * 11/94 2 2 2 2 1 5 9 9 5/95 1 1 2 2 10 11/95 2 1 1 1 4 5 11 5/96 1 1 2 2 12 11/96 2 1 1 1 1 5 6 13 5/97 1 1 2 2 14** 11/97 2 2 2 1 1 5 8 Total 24 17 9 8 4 62 Notes Eng. - Engineer Trg. - Training Specialist AE - Agricultural Economist Env. - Environmental Specialist Inst. - Institutional Specialist * - Mid-term review mission ** - Final review mission and initiation of PCR process Because of the still evolving relationship between the central and provincial government agencies (para 4.12), supervision missions which would review the draft annual project work programs would include an institutional and a training specialist to ensure that appropriate arrangements are being made.  27 - V. PROJECT JUSTIFICATION AND RISKS A. Agricultural Production General 5.01 The primary benefits of the project would arise from sustaining the current levels of agricultural production through rehabilitation of existing irrigation facilities. Improvement works and introduction of better O&M practices would result in additional benefits. Also, improvements in the conveyance system and control of water deliveries would facilitate the introduction of other field crops to the cropping system, until now dominated by paddy. The project would improve the living standards of farm families operating in the schemes, most of whom rely completely on irrigated agriculture. Estimates of total project benefits have been based on a detailed appraisal of a sample of six schemes, representing agro-climatic and farm production conditions prevailing in the dry and wet zones. Two of the sample schemes apply to medium/major systems and four apply to minor schemes. 5.02 Compared with present levels, production from all schemes to be rehabilitated under the project would increase by about 20,000 mt of paddy and about 5,700 mt of other field crops, valued at about US$4.0 million per year at full development. The project would also stabilize the production of about 100,000 mt of paddy from these schemes, valued at about US$15.0 million, which would otherwise be lost through further deterioration of the schemes. The income from increased crop production and stabilization of existing production would directly benefit about 100,000 farm families in the project area. The increased production would generate an additional annual labor demand for farm activities of about 2,000 person-years, largely hired labor. The reduction in employment resulting from reduced production without the project would be about 8,000 person-years. Temporary off-farm employment created during project implementation is estimated at about 7,000 person-years; this employment would primarily benefit the landless. Crop Yields and Production 5.03 Increases in crop areas would range between 0X and 20X, and increases in paddy yields between 5% and 10%. Most of the expected gains would come from farmers cultivating the tail-end lands of the schemes, as these farmers generally experience difficulties in receiving water. The project would permit modest levels of crop diversification during the dry season in schemes in the dry zone. Table 5.1 summarizes the projected changes in the cropping intensities and the production of rice and other field crops in the six appraised schemes. Details are given in Annex 11, Tables 1-6.  - 28 - Table 5.1: Cropping Intensities and CroD Production of Appraised Schemes _a/ IL IL ILL IV V V Area (ha) Net Irrigable Area 819 195 17 32 39 22 Cultivated Area P h/ 1,638 205 34 32 39 24 Cultivated Area W/O S/ 1,310 150 24 25 25 17 Cultivated Area W !/ 1,638 223 34 38 47 28 Cropping Intensity (X) P 200 105 200 100 100 109 W/0 160 77 141 78 64 77 W 200 114 200 118 121 117 Reduction W 0 Project 40 28 59 22 36 32 Increase W Project - 9 - 18 21 8 Total Increment 40 37 59 40 57 40 Crop Production (mt) Maha Season Rice P 3,194 761 39 128 156 79 W/O 1,769 315 24 78 113 46 W 3,440 800 43 141 180 88 Yala Season Rice P 3,112 37 36 - - 6 W/0 1,703 - 22 - - - W 3D276 78 33 - 10 Other Field Crops g/ P - - - - - - W/0 - - - - w 24 9 2 6 8 3 Total P 6,306 798 75 128 156 85 W/0 3,472 315 46 78 113 46 W 6,740 887 78 147 188 101 Reduction W/O Project 2,834 483 29 50 43 39 Increase W Project 434 89 3 19 32 16 Total Increment 3,268 572 32 69 75 55 I Kaltota; II Mahagal Wewa; III Dorakada Liyadde; IV Kobeigane, V Mahakiri Ibbewa; VI Nittewa. Present, _/ Without Project, A/ With Project. Includes crops such as chillies, onions, pulses and vegetables.