India - Orissa Water Resources Consolidation Project (Vol. 1 of 2) : Main report

Document of The World Bank Report No. 14888-IN STAFF APPRAISAL REPORT INDIA ORISSA WATER RESOURCES CONSOLIDATION PROJECT NOVEMBER 20, 1995 South Asia Department II Agriculture and Water Operations Division  CURRENCY EQUIVALENTS Currency Unit - Rupees (Rs.) US$1 = Rs. 32.3 (January. 1995) FISCAL YEAR Government of India, State - April I to March 31 WEIGHTS AND MEASURES (METRIC SYSTEM)'/ I meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) I hectare (ha) = 2.47 acres (ac) I million cubic meters (Mm3) = 810 acre-feet (ac-ft) I million acre-feet (MAF) = 1,235 Mm3 1 thousand million cubic feet (TMC) = 28.32 Mm3 I cubic foot per second (cfs or cusec) = 0.028 Mm3 per second (cumec) I cfs = 102.9 m3/hr I ton = 1,000 kilograms (kg) I/ The Metric System has been used in most cases. However, non-metric units are used in some instances, and were also used in this report in cases in which a conversion to the metric system may confuse the reader.  ABBREVIATIONS AND ACRONYMS AIP Agricultural Intensification Program ARAPB Annual Review. Action Plan and Budget BER Bid Evaluation Report CAC Contract Award Comtnittee CAS Country Assistance Strategy CE Chief Engineer CRRI Central Rice Research Institute CWC Central Water Commission DEA Department of Economic Affairs DOA Department of Agriculture DOWR Department of Water Resources EAP Environmental Action Plan EIC Engineer in Chief ERR Economic Rate of'Return FAOCP Food and Agriculture Organization's Cooperative Program FOT Farmer Organization and Tumover GO Govemment Order GOI Government of India GOO (Government of Orissa HCA House Construction Allowance HPC High Powered Committee ICB Intemational Competitive Bidding IDA Intemational Development Association IPDP Indigenous People's Development Plan IRDP Integrated Rural Development Program LDP Letter of Development Policy M&E Monitoring and Evaluation MA Maintenance Allowance MEPB&A Monitoring, Evaluation, Programming. Budgeting and Accounts MIS Management Information System MOEF Ministry of Environment and Forests MOU Memorandum of Understanding MOWR Ministry ot'Water Resources NCB National Competitive Bidding NGO Non-G;ovenmmental Organization NWMP National Water Management Project O&M Operations and Maintenance OCC Orissa Construction Corporation OFD On-Farm Development OUAT Orissa UJniversity of Agriculture and Technology OWPO Orissa Water Planning Organization OWRCP Orissa Water Resources Consolidation Project PAP Project-Affected Person PB&A Programming. Budgeting and Accounts PDP Project Displaced Person PMC Project Monitoring Committee POM Plan of Operations and Maintenance PY Project Year R&R Resettlement and Rehabilitation RA Rehabilitation Assistance RAC (R&R context) Rehahilitation Advisory Committee RAC (WRRF context) Research Advisory Committee RAP Resettlemenit and Rehabilitation Action Plan RRO Resenlemenit and Rehabilitation Officer SEA Sectoral Environmental Assessment SIFT Systems Improvement and Farmer Tumover SLAO Special Land Acquisition Officer SOE Statement of Expenditures WALMI Water and Land Management Institute WRB Water Resources Board WRCP Water Resources Consolidation Project WRCRC Water Rates Cost Recovery Committee WRRF Water Resources Research Fund WUA Water User Association   INDIA ORISSA WATER RESOURCES CONSOLIDATION PROJECT STAFF APPRAISAL REPORT Table of Contents CREDIT AND PROJECT SUMMARY .........................................................i I. WATER RESOURCES SECTOR Introduction ..........................................I Country and Sector Background .............. ............................I Agriculture and Irrigation ............... ..........................2 Development Priorities in India ..........................................2 Orissa State ..........................................2 General Characteristics ..........................................2 W ater Resources Sector .........................................3 W ater Resources Institutions ................... .......................3 Agriculture and Irrigation .............. ...........................4 Environmental Needs ..........................................5 Orissa's Irrigation Performance & Past Bank Experience ..........................6 Bank Lending Experience in Orissa .......................................... 6 Orissa's Past Performance ............... ..........................7 Orissa's Recent Reforms & Initiatives .......................8..................8 II. THE PROJECT A. Rationale for IDA Involvement 9............................................9 B. Project Objectives, Description and Readiness .................................. 10 Project Objectives ............................................ 10 Project Description ......... ................................... 10 Project Readiness ............................................ 11 C. Detailed Features ............................................. 1 Scheme Completions ............................................ 11 Systems Improvement and Farmer Turnover ..................... .......... 13 Farmer Organization and Turnover .................................. 14 Basin Planning and Environmental Action Plan ........................... 15 Basin Planning ............................................ 15 Environmental Management and Action Plan ................... 16 Water Sector Research & Agricultural Intensification ................. 18 W ater Resources Research Fund ..................................... 18 Agricultural Intensification Program ....................... ......... 19 Institutional Modifications and Capacity Building ....................... 20 Public Awareness and Information .................................. 21 Resettlement and Rehabilitation ............................................ 22 Indigenous Peoples Development Plan ........................................ 24  D. Policy Reforms ...................................... 25 Policy Reform Program ...................................... 25 State Water Policy ....................................... 25 Expenditure Prioritization ...................................... 25 Maintenance Funding ...................................... 26 Water Pricing and Cost Recovery ...................................... 27 II. COST ESTIMATES, FINANCING, AND DISBURSEMENTS Costs and Financing .............................. 28 Procurem ent .............................. 30 Procurement Management .............................. 33 Disbursement .............................. 35 Retroactive Financing and Special Account .............................. 35 Accounts and Audit .............................. 35 IV. PROJECT IMPLEMENTATION AND MONITORING Implementation, Organization and Management ..................................... 36 Monitoring, Evaluation, Programming & Budgeting ............................... 36 Project Reviews and Reporting ...................................... . 37 Training and Technical Assistance ...................................... 38 Management of Farmer Organization & Turnover .................................. 39 Management of Agricultural Intensification Program .............................. 40 Management of Resettlement and Rehabilitation ..................................... 41 Management of Indigenous Peoples Development Plan ........................... 41 Project Supervision ... . . ................................. 42 V. BENEFITS, JUSTIFICATION AND RISKS Project Benefits .43 Economic and Financial Analysis 44 Project Risks 47 Poverty Impact .50 VI. AGREEMENTS AND RECOMMENDATION .50 MAP: IBRD No. 27140 INDEX OF ANNEXES (refer next page) This report is based on the findings of an Appraisal Mission which visited India in February/March 1995, and a follow-up Mission in September 1995 to appraise the Indigenous Peoples Development Plan component. Contributors to appraisal and project preparation included Messrs./Mmes.: K. Oblitas, J. R. Malhotra, C. Wood, T. Herman, G. Spencer, T. Estoque, E. Schaengold, L. Lund, K. Jensen, A. Ghani, R. Robelus, R. Crooks, G. Fauss, H. Frederiksen, A. Pai, S. Thangaraj, F. Grohs, N. Raman, W. Plummer, D. Groenfeldt, R. K. Malhotra, R. Zweig, S. Lele, Ramarao, (Bank/consultants), and Messrs. R. Paterson, W. Sorrenson, J. Wright, and R. Hasan (FAOCP). Peer reviewers are Messrs. H. Plusquellec, W. Price, A. Subramanian and W. Ochs. The Department Director is Mr. H. Vergin and Division Chief Mr. S. Barghouti. Task Management for preparation and appraisal was under K. Oblitas, assisted by J. R. Malhotra (Delhi Office), C. Wood (analysis, report preparation & project processing), and T. Herman (preappraisal).  INDEX OF ANNEXES (Annexes are in Accompanying Volume) Annex 1 Letter of Development Policy ..................................1 Annex 2 Orissa State Water Policy ................................. 6 Annex 3 Institutional Reorganization and Strengthening ...................... 15 Annex 4 Pricing and Cost Recovery ................................. 38 Annex 5 Water Planning ................................. 49 Annex 6 Systems Improvement and Farmer Turnover ......................... 57 Annex 7 Scheme Completions ................................ 130 Annex 8 Water Resources Research Fund ................................ 151 Annex 9 Agricultural Intensification ................................ 155 Annex 10 Resettlement and Rehabilitation ................................ 162 Annex 11 Indigenous Peoples Development ................................ 202 Annex 12 Sectoral Environmental Assessment Summary ...................... 233 Annex 13 Training and Technical Assistance ................................ 254 Annex 14 Public Awareness and Information ................................ 286 Annex 15 Criteria for Preparation and Selection of Investments ........... 288 Annex 16 Criteria for NGO Selection . ......................................... 291 Annex 17 Baseline Survey Terms of Reference .................................... 292 Annex 18 Detailed Project Cost Tables .......................................... 295 Annex 19 Economic and Financial Analysis .......................................... 335 Annex 20 Schedule of Disbursement .......................................... 370 Annex 21 Expenditure Prioritization .......................................... 371 Annex 22 Implementation and Supervision Plan (with Attachments): ... 377 Attachment 1 Implementation Schedule ................................... 385 Attachment 2 Implementation Responsibilities ................................... 388 Attachment 3 Abstract of Procurement Schedule ................................ 393 Attachment 4 IDA Supervision Inputs ................................... 399 Attachment 5 Monitorable Indicators of Development Impact ............ 401 Annex 23 Documents in Project Files ...................,.,.,.,.,.407   INDIA ORISSA WATER RESOURCES CONSOLIDATION PROJECT Credit And Project Summary Borrower: India (GOI), Acting by its President Executing Agency: Department of Water Resources (DOWR), Government of Orissa Beneficiary: The State of Orissa (GOO) Amount: IDA Credit SDR 194.8 million (US$290.9 million equivalent). Terms: IDA to GOI: Standard with 35 years maturity. Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing, less any waiver. On-lending Terms: From GOI to GOO under standard arrangements for developmental assistance to the states of India. GOI would assume the foreign exchange risk. Project Description: The project would be a sector investment loan, financing an agreed statewide program to improve the productivity and sustainability of Orissa's water resources sector, introduce multi-sectoral water planning, integrate farmers in irrigation management, and strengthen the State's institutional and technical capability in water development, management and planning. Project components are: (a) Scheme Completions, to complete selected viable ongoing projects for increased availability and reliability of water (54% of investment costs); (b) Systems Improvement and Farmer Turnover, to improve productivity through rehabilitation/modernization of selected existing irrigation schemes, linked with increased farmer participation in design and implementation, including turnover of operations and maintenance (O&M) of improved distributaries, as well as funding of O&M, to farmer groups (24.8% of investment costs); (c) capacity building in Water Planning and Environmental Management (3% of investment costs) to introduce multi-sectoral water planning and allocation, and incorporate environmental management in all aspects of water planning, investment and management; (d) Water Resources Research and Agricultural Intensification (2% of investment costs) to foster research and technology transfer in the water sector and improved agricultural practices; (e) Institutional Strengthening of Orissa's DOWR in all technical and managerial areas, including enhancing DOWR's communication with its client base (8.8% of investment costs); (f) Resettlement and Rehabilitation (R&R) for project-affected persons (7% of investment costs); and (g) Indigenous Peoples Development Plan (0.4% of investment costs).  ii Project Benefits: The project's policy, capacity building and investment actions would increase the sustainability of Orissa's water resources and foster economic growth. The State's policy actions lay the basis for provision of reliable, equitable and assured supply of water. The irrigation investments would enhance agricultural production on about 0.5 million ha (50% of the State's post-project major and medium scheme command area), directly benefiting about 4 million persons. An additional 0.3 million ha of irrigated land would be protected from loss of irrigation and flooding. By ensuring an equitable supply of water to all farmers in irrigated areas, the project would benefit poorer sections of the rural community who previously received little irrigation water (tail-enders) or unreliable supplies. Physical and financial sustainability of irrigation would be enhanced through linkage of system improvements with farmer participation in design, implementation scheduling, O&M and water management at the distributary level. Creation and strengthening of a specialist state water agency, including capacity buildup in water planning, environmental management, R&R and indigenous peoples development, would have broad and long-term benefits stemming from more efficient services and improved planning and management. Poverty Category: Not Applicable. Project Risks: First, risk regarding Orissa's policy reform commitment has been addressed through extensive discussions (during project preparation) on wide-ranging sectoral issues involving Government agencies, NGOs and farmers, and early achievement of policy requirements for water planning, institutional strengthening, R&R and maintenance funding. For cost recovery, an important feature for project success are in-built reinforcing actions to ensure linkage with improved service quality, and the establishment of an institutional mechanism to provide status reports and propose further actions. Second, potential implementation capacity constraints for civil works have been resolved through attention to completion of quality feasibility studies and detailed design, procurement packaging, and staff placement and training. Major emphasis has thus been placed on establishing institutional features required for the OWRCP's success. The project is fully ready for implementation, with start-up activities already underway. Third, the project's innovatory farmer turnover program would require careful attention. The project has adopted a phased approach (starting on three schemes only), intensive early review with subsequent adjustment to the program as needed, consultancy and training support (for farmer organizations and DOWR staff), and a period of joint DOWRlfarmer management prior to final turnover. As farmers would be involved early on in defining the type of system whose operations they would oversee, their willingness as well as technical capability to manage the facilities would be enhanced. Finally, financial sustainability of the project is potentially at risk due to the weak state  iii fiscal situation. There are, however, various measures currently under implementation, i.e., the public sector attrition policy, reforms of the Orissa power sector, and mobilization of additional resources from GOI and external donors, which will help reduce the State's primary deficit. The OWRCP cost recovery and expenditure prioritization policies would also strengthen Orissa's fiscal position. As part of the project's comprehensive mid-term review, there would be a review of overall state finances, as well as of the financial situation of the water sector. If necessary, additional measures to achieve financial sustainability of project benefits would be agreed based on the results of that review.  iv Estimated Proiect Costs and Financing Local Foreign Total Local Foreign Total -------------Rs. M ------------ ------------US$ M---- Scheme Completions 4.159 759 4,918 128.8 23.5 152.3 Systems Improvement & Farmer Turnover 2.046 219 2,265 63.3 6.8 70.1 Water Planning and Environmental Action Plan 20( 69 277 6.4 2.1 8.5 Water Resources Research & Agricultural Intensification 149 43 192 4.6 1.3 5.9 Institutional Strengthening 499 305 804 15.4 9.5 24.9 Resettlement and Rehabilitation 613 17 630 19.0 0.5 19.5 Indigenous Peoples Development Plan 36 2 38 1.1 0.1 1.2 Total Baseline Costs 7,710 1.414 9,124 238.6 43.8 282.4 Physical Contingencies 948 161 1,109 29.4 5.0 34.4 Price Contingenicies 3,234 632 3,866 24.0 4.7 28.7 Total Project Investment Costs 11,892 22 142099 292.0 53.5 345.5 DOWR Recurrent Costs (GOO) 7,778 1,427 9,205 241.3 44.3 285.6 Total Program Costs' 19!670 3-634 23,304 533.3 97.8 631.1 Financing Plan: Local Foreign Total ---------------------US$ Million------------------ Project Investment Costs GOO 48.1 0.1 48.2 Farmers 6.4 0.0 6.4 IDA 237.5 53.4 290.9 Total Project Investment Costs 292.0 53.5 345.5 DOWR Recurrent Costs (GOO) 241.3 44.3 285.6 Total Program Costs 533.3 97.8 631.1 Expected Disbursements: (US$ million) IDA Fiscal Year 96 97 98 99 2000 2001 2002 Annual 14.0 32.2 43.6 51.7 54.9 51.9 42.6 Cumulative 14.0 46.2 89.8 141.5 196.4 248.3 290.9 Economic Rate of Return: 17% (calculated on all project investment costs) MAP: IBRD No. 27140 - INDIA: Orissa Water Resources Consolidation Project ' Including taxes and duties equivalent to US$45.7 million.  INDIA ORISSA WATER RESOURCES CONSOLIDATION PROJECT I. WATER RESOURCES SECTOR Introduction 1.01 The Orissa Water Resources Consolidation Project (OWRCP) would support Orissa's objectives to reformulate its policies, institutional capabilities, public expenditures, and the role of the non-government sector in its water sector. Project genesis follows a number of strategy papers developed by the Bank and India: GOI's National Water Policy (1987), the India Irrigation Sector Review (1991), the Bank's policy paper Water Resources Management (1993), and the 1995 Country Assistance Strategy (CAS) for India. The Bank/GOI water resources strategy emphasizes that the efficient management and optimal planning of water resources will be a critical need for future economic and social development in India. This requires far-reaching change in sectoral policies and upgrading of institutional capabilities. The chosen approach of tackling reforms at the level of whole states, recognizes that comprehensive reforms need to implement policy, institutional and expenditure programs as a whole rather than by individual investments, and that in India's federal structure the state is the key administrative unit for water planning and management. The Bank's focus is on states receptive to reform and on key sectors forming the basis for India's future growth and poverty alleviation. 1.02 Orissa approached the Bank in 1992, requesting assistance in devising and implementing a new water sector program responsive to the above strategy papers. The project would assist Orissa to implement its new water strategy reflected in its State Water Policy (1994). The project would contribute to the funding of the State's water sector development program as reformulated to implement the new strategy. This includes re-focused expenditures to improve irrigation's productivity and reduce the backlog of incomplete investments, together with measures to strengthen institutional capabilities. The state water agency would be strengthened in all functional areas, including in water planning, environmental management, resettlement and rehabilitation and cost recovery. Stakeholders would be integrated in the new approach. The project would finance the physical and institutional investments associated with the reformulated program and new policy objectives. Country and Sector Background 1.03 Water is an increasingly scarce resource in India. Its management in terms of physical, economic and environmental needs is critical to economic development. India's water resources are distributed unevenly, both spatially and seasonally. While in some states development of surface and groundwater is reaching its physical limits, in other states such as Orissa, substantial potential for water resources development remains, but investment must be planned, prioritized and well implemented to achieve its potential. In all states, planning and management of water resources need to be holistic in emphasis. This needs to be on a multi- sectoral basis by the natural hydrological unit, the river basin, to incorporate groundwater as well as surface water, and include environmental in addition to quantity considerations. Irrigation is  2 the largest user of water in India (accounting for 93% of gross water use); however, usage for household, industrial and other purposes is increasing rapidly. The Central Water Commission (CWC, 1988) estimated that by 2025, community needs would double, and industrial and power requirements would increase almost seven-fold. Thus in the future, competing uses are likely to limit the water available for agriculture and irrigation, particularly near major metropolises and in dry regions. These increasing demands could also force fundamental changes in irrigation systems, cropping patterns and water use efficiency. 1.04 Agriculture and Irrigation. Agriculture is a key sector in India's economy, contributing about 35% of GDP and 65% of employment. Despite major achievements since independence, agricultural growth has been modest at 2.6% p.a. over the last two decades. Irrigation has been the major engine of agricultural growth, and its past development has been instrumental in overcoming the endemic foodgrain shortages of the 1950s and 1960s. Nevertheless, the performance of irrigation has been well below potential, and significant issues must be addressed to maintain and surpass its past contribution. The subsector has critical weaknesses in most aspects of implementation and management: resource planning is weak, water distribution is unpredictable and often inequitable, maintenance is insufficient to sustain the existing infrastructure, institutions require strengthening, and in most states, cost recovery, design and construction quality require improvement. 1.05 Development Priorities in India. Development plans of the Government of India (GOI) and the state governments give priority to alleviating poverty and creating employment, particularly in the rural areas. While per capita income has increased by 2.8% per annum over the 1980s to an average of about US$310, the impact on improvement in the standard of living of the poor or in reducing under-employment has been constrained by rapid population growth. Of the total population of about 900 million, an estimated 300 million live below the poverty line. About 74% of the population live in rural areas, depending directly or indirectly on agriculture. One- third of the agricultural labor force are women, and agriculture is the main source of employment for women in rural areas. Thus, the performance of agriculture and its main source of productivity growth, irrigation, is intrinsically linked to India's poverty alleviation objectives. 1.06 GOI's long-term strategy is to stimulate agricultural growth and promote rural development through improved water and land management, enhanced efficiency of irrigation and drainage networks, strengthened research services, increased attention to environmental protection, and improved rural infrastructure. Investment programs to address these elements and to stimulate growth are of high priority in the Eighth Five Year Plan (1992-97). Equitable distribution of the benefits of growth and sustainability of the resource base are also emphasized. Orissa State 1.07 General Characteristics. Orissa State is located in the eastern region of India on the Bay of Bengal and shares borders with Bihar to the north, West Bengal to the north-east, Madhya Pradesh to the west, and Andhra Pradesh to the south. It has a population of 32 million (1991 Census), of which 87% live in rural areas and depend on agriculture for their livelihoods. About 38% of the State's population (one of the highest in India) belong to scheduled tribes and castes, groups which generally have been among the least benefited, to date, by the country's economic  3 progress. With an average per capita annual income of US$180 (in 1990/91)' which is less than half the all-India average, Orissa is one of the poorest states of India. In 1987/88, 45% of the population lived below the poverty line2. For all India in the same year, the poverty incidence was 30%. Health and education standards in the State are also below the all-India average. Covering an area of 156,000 km2 (15.6 M ha), Orissa has a relatively low population density for India of 203 persons/km2 (2 persons/ha).3 Agriculture contributes about 44% of the State's GDP and employs nearly 75% of the State 's population. Future progress in general economic development, and in raising the welfare of Orissa's disadvantaged groups in particular, will depend heavily on increasing productivity and incomes in the agricultural sector. 1.08 Water Resources Sector. Orissa's endowment of water resources is relatively favorable in the aggregate: an extensive network of rivers, streams and drainage ways annually discharges about 100 billion m3 of water into the Bay of Bengal, and the annual flow of groundwater into the sea is estimated at some 30 billion m3. None of Orissa's rivers are international, and Orissa is not affected by any unresolved interstate water sharing issues. The amount of rainfall ranges from about 1,200 mm in the southern coastal plain to about 1,700 mm in the northern plateau and averages about 1,500 mm statewide. The distribution of water in Orissa, however, is seasonally concentrated and inequitable within regions, making management of water in the State a high priority for ensuring availability and timeliness of water supplies. High regional averages mask substantial variations in quantity and time of rainfall, making supplemental irrigation even during the kharif necessary for stable crop yields. Between 85-90% of the annual rainfall normally occurs in the kharif (or monsoon season), the rabi (i.e., dry season) is left with too little water for productive agriculture. Conditions are often extreme even during the kharif (from May to October), sometimes with severe floods, droughts and cyclones in a single season. 1.09 The sector is still largely underdeveloped, yet the potential for utilization of Orissa's water resources is limited by a number of factors: (i) more than 80% of the surface flow occurs during the June-September period when the need for irrigation water is the lowest; (ii) topography is not conducive to the construction of major reservoirs; and (iii) about 80% of the groundwater resources are in the coastal plain which is already well served by surface irrigation systems. Orissa's challenge is thus to undertake prudent investments to realize its water resources potential based on a long-term vision of industrial, municipal and agricultural development. Sound design, construction and subsequent operations and maintenance of water infrastructure, as well as measures to involve beneficiaries and enhance cost recovery, are also required. In the short-term, investment needs to be sharply focused on rehabilitating and improving the performance of existing infrastructure and on the completion of selected viable schemes to reduce the backlog of unfinished investments. 1.10 Water Resources Institutions. The Orissa Irrigation Department (OID) has been the lead agency for Major and Medium Irrigation projects in the State since 1990 when the former ' Per capita Net State Domestic Product of Rs. 3596 (Economic Survey 1993-94, Economic Division, MOF, GOI), exchanged at an official 1990/91 inter-year rate of 20.1 Rs/US$ (Jan. 1995 Department Memo). 2 Report of the Expert Group on Estimation of Proportion and Number of Poor. Perspective Planning Division, Planning Commission, GOI. New Delhi, 1993. The poverty line for 1987-88 was Rs. 131.8 per capita per month for rural areas, and Rs. 152.1 per capita per month for urban areas at 1987-88 prices. 3 Compared with an all-India density of 273 persons/km2.  4 Irrigation & Power Department was split into separate Irrigation and Power Departments. The OID has been typical of India's traditional irrigation departments: long established institutions with considerable achievements in construction of civil works, but which have become progressively outdated as the challenge of modem water management has become increasingly complex. Ancillary needs such as the need to plan and allocate water multi-sectorally, the need to incorporate environmental management, to involve beneficiaries, to better prioritize expenditures and to enhance cost recovery, have also become more apparent over time. In 1994, GOO decided to broaden OID's mandate to incorporate these additional objectives, and named the new agency the Department of Water Resources (DOWR, para. 1.21). A Water Resources Board with multi- sectoral representation was established at the same time, to act as the State's highest authority for guiding water planning and allocation. 1.11 A desirable longer term objective will be to bring groundwater resources and minor irrigation under DOWR. Decision to keep these activities under the Department of Rural Development recognizes the already major changes underway in DOWR and the difficulty of absorbing extra staff at this juncture. However, in the critical areas of water resources planning and coordination of hydrological data, these activities would now be handled by the new DOWR to ensure the necessary conjunctive treatment of surface and groundwater resources. Other institutions in Orissa's water sector include the government-owned Orissa Construction Corporation (OCC), specialized in excavation of power house tunnels and manufacture of gates, and the Water and Land Management Institute (WALMI) which provides irrigation sector training to DOWR engineers and agricultural officers. Both OCC and WALMI are registered under DOWR. Other training or research agencies operating in the sector are the Orissa University of Agriculture and Technology (OUAT) and the Central Rice Research Institute (CRRI). 1.12 Agriculture and Irrigation. Agriculture is the mainstay of the economy, providing a source of livelihood for the majority of Orissa's population. Production is dominated by paddy, which accounts for 70% of agricultural production. Diversification into production of high value crops, which typically require less water than paddy, is limited due to insufficient farm level irrigation and drainage structures to allow for greater control over water delivery and management. Small and marginal farmers (owning less than 2 ha) are the dominant group, with operations over 75% of land holdings. Orissa's ample endowment of fertile alluvial soils and water resources would suggest conditions ripe for agricultural production. Erratic climatic conditions, however, particularly an unreliable rainfall (para. 1.08), hamper the performance of agricultural production. Cultivation of the main crop, paddy, achieves average yields in rainfed conditions of 1.4 t/ha of rice. Irrigated rice yields an average of 1.8 t/ha in the kharif and 2.0 t/ha in the rabi. Irrigated yields are low reflecting the absence of effective irrigation and drainage for most farmers, especially tail-enders operating in effect under rainfed conditions. Though paddy is well adapted to the high rainfall and floods of Orissa, vulnerability of the fertile coastal region to waterlogging and flooding places paddy crops at risk from moisture stress thus limiting yields even under such conditions. Yields of rabi paddy are limited in some areas by lack of irrigation, and in other areas (especially delta areas) by lack of adequate drainage and flood control. Investment in irrigation, flood control and drainage, is thus a critical need for harnessing the potential for increased agricultural growth in Orissa.  5 1.13 Current net irrigated area4 is 1.2 M ha, about 17% of the net sown area in the State of 7.0 M ha, and 8% of the total state area. Of this area, 0.8 M ha is covered by major and medium schemes and 0.4 M ha by minor flow irrigation schemes. Groundwater facilities are reported to service 0.8 M ha in total, through pumps (0.3 M ha), and by private dugwells and minor lift structures (0.5 M). Irrigation potential (net) is estimated by Government at 5.9 M ha.5 Construction of major projects (over 10,000 ha) began towards the end of the nineteenth century, when canals commanding about 150,000 ha were built in the Mahanadi and Rushikulya Deltas. During the first half of this century, the canal irrigated area remained virtually unchanged; however, since 1950 two major schemes (Salandi and Hirakud) have been completed and the Mahanadi Delta system extended. Around 1960 GOO's objective of expanding irrigation coverage initiated construction of a number of new medium irrigation projects (between 2,000- 10,000 ha). Minor surface irrigation schemes (less than 2,000 ha) constructed by farmers (small diversion weirs and tanks for storage of local runoff during the kharif, or bucket-lift and other traditional irrigation facilities) have been present for centuries. Such minor schemes, however, provide only supplementary irrigation during the kharif, with coverage varying substantially from year to year. 1.14 Environmental Needs. Actual or potential environmental concerns in Orissa are typical of those found in the water sector for any large state or country. No one problem is endemic statewide and conditions vary by river basin. Water logging is a major problem of the irrigated delta of the coastal zones: about 85,000 ha out of 300,000 ha (i.e., 28%) of the Mahanadi Delta are affected. Water quality is variable. While good in most basins, in certain areas (e.g. upper and mid-Brahmani, lb River, mid-reaches of the Mahanadi, and lower reaches of Rushikulya) point pollution is becoming critical particularly in view of the large potential expansion in the mineral and industrial sector. Effluents from the AnuguVTalcher (one of the worst 15 pollution problem areas in India) and Rourkela mining and industrial zones of the Brahmani Basin in particular, are already polluting local water resources and threatening the potential for development of fresh water and brackish water fisheries. Water-borne diseases such as malaria and elephantiasis exist, due to presence of large mosquito (and other parasite) breeding habitats. Such habitats can be exacerbated or created by poor water management or construction practices where they lead to sources of slow moving or stagnant water. 1.15 Institutional capacity for environmental assessment and protection in Orissa is limited. Only a few organizations such as the Department of Forest and Environment, the State Pollution Control Board, and Orissa Remote Sensing Application Center have acquired some expertise in environmental impact assessment in their specialty fields. Other Departments such as Industry and Fisheries have developed limited capabilities for project processing, so as to comply with the Environmental Protection Act (1986) and the Forest Conservation Act (1980). For the State's water agency (the State's Department of Water Resources (DOWR), refer below), there is a need to enhance environmental capabilities generally, in particular in water planning, in environmental assessment for project formulation and in environmental monitoring. There is also a need to provide a statewide multi-sectoral mechanism for incorporating environmental considerations in 4The term "net" used here follows the Indian nomenclature, where "net irrigated area" refers to land area, and avoids double and triple counting in multiple cropped areas. 5Of which 4.9 M ha is estimated to be from surface water, 0.9 M ha from groundwater, and 0.1 M ha from other sources.  6 state water planning and management. The OWRCP would assist Orissa in building up DOWR's capability in these areas. Orissa's Irrigation Performance & Past Bank Experience 1. 16 Bank Lending Experience in Orissa. Since the mid- 1970s, the Bank Group has financed three irrigation projects in Orissa6 and components within Orissa of three other multi- state irrigation projects.7 Experience has been variable providing valuable lessons for design of the OWRCP. Orissa Irrigation I Project (approved in FY77) was assessed by its Project Completion Report (PCR) to be successful, and the civil works activities were completed to fully satisfactory engineering and cost standards. The ERR was 19% at completion compared with 20% at appraisal. A feature contributing to the project success was attention to detailed design standards, and close monitoring and supervision during implementation. The Mahanadi Barrages Project (FY8 1) was also successful, and met its objective of ensuring continuity of irrigation in the Mahanadi Delta and of reducing water wastage, without failure of the existing weirs, with an ERR estimated at completion of 14%. Although implementation was delayed by two years due to the need to replace the initial unsatisfactory contractor, quality and engineering standards were satisfactory. 1.17 In three other projects, Orissa has been involved in small components only. Under the Subemarekha Irrigation Project (FY83), involving Bihar, West Bengal and Orissa, civil works were implemented by Bihar, and Orissa's component was limited to establishment of a Water and Land Management Institute (WALMI) for irrigation sector training, and planning for its part of the eventual Subernarekha irrigation development. While physical implementation in Bihar was problematic, construction of the WALMI in Orissa made reasonable progress. R&R was problematic in both Bihar and Orissa, but with assistance of consultants since project closure, has notably improved. A weakness, since overcome (paras. 1.21, 1.22, and 2.33), was the lack of institutional capability for implementing R&R and weakness in R&R policy and entitlements. Orissa's component of the ongoing multi-state Dam Safety Project (FY91) is proceeding reasonably satisfactorily. As in other states, the time taken in finalizing designs of remedial works was longer than anticipated, but implementation and disbursements are expected to pickup in the 1995/96 construction season. Orissa was one of the states which joined the recently closed National Water Management Project (FY87) in the project's final years (in FY92 in Orissa's case). Orissa's participation was thus primarily related to diagnostics, preparation of command improvement proposals, and training. These initiatives, which have provided valuable experience for the OWRCP's systems improvement program, would be completed as part of the OWRCP program. 1.18 In contrast to Orissa's largely successful experience in the five Bank projects mentioned above, the Orissa Irrigation II Project (FY83) experienced major implementation difficulties, and was assessed unsuccessful in its PCR. A fundamental problem was that the 6 Orissa Irrigation I (Cr. 740-IN, FY77, US$58.0 M); Mahanadi Barrages (Cr. 1078-lN, FY81, US$83.0 M); and Orissa Irrigation II (Cr. 1397-IN, FY83, US$105). Prior to the 1970s, the Bank financed only one project, Salandi Irrigation (Cr. 14- IN, FY61, US$8.0 M). 7 These projects are: Subemarekha Irrigation (Cr. 1289-lN, FY83, US$127.0 M); National Water Management (Cr. 1770-N, FY87, US$114 M); Dam Safety (Cr. 2241/Ln. 3325, FY91, US$153 M!.  7 project attempted to undertake major construction of 18 irrigation projects without institutional strengthening in the key technical areas required to enable success. Also, the project was initiated without adequate detailed design of the intended civil works. The intention to have supervision backup by an out-of-state agency (the Central Water Commission, CWC) did not provide adequate attention to these appraisal weaknesses. Other problems noted in the PCR were weak coordination between the different Government departments involved, poor maintenance at project sites even during construction, weak monitoring of physical implementation, focus on major constructions with resultant inadequate attention to irrigation operations and the secondary and tertiary distribution systems, and delays in land acquisition and forest clearances. The PCR's main conclusion was that major strengthening of institutional capability, which was not done, would have been essential for successful project outcome. 1.19 Orissa's Past Performance. Orissa has a long tradition of investment in irrigation, going back over a hundred years. Orissa's Irrigation Department (OID) has demonstrated achievement in a wide range of civil works construction. However, as in other states, the management and other soft areas of water have received less attention. Over time, as the complexity and challenge of modern water management have mounted, the Department became progressively more outdated in these areas. OID has recognized the need to evolve from a construction oriented agency to the broader role now required, and the need to acquire enhanced skills, both technical and managerial. Targeted areas for change identified by GOO and the Bank during OWRCP preparation include: