Document of The World Bank Report No. 13506-IN STAFF APPRAISAL REPORT INDIA TAMIL NADU WATER RESOURCES CONSOLIDATION PROJECT MAY 19, 1995 South Asia Department II Agriculture and Water Operations Division CURRENCY EOUIVALENTS Currency Unit - Rupees (Rs.) US$1 = Rs. 32 FISCAL YEAR Government of India, State - April 1 to March 31 WEIGHTS AND MEASURES (METRIC SYSTEM)1/ 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 hectare (ha) = 2.47 acres (ac) 1 million cubic meters (Mm3) = 810 acre-feet (ac-ft) 1 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) 1 cfs = 102.9 m3/hr 1 ton = 1,000 kilograms (kg) 1/ 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 AEU Agricultural Engineering Department AMG Asset Maintenance Grant ARAPB Annual Review, Action Plan and Budget BER Bid Evaluation Report CE Chief Engineer CAC Contract Award Committee CWC Central Water Commission EAP Environmental Action Plan EA Environmental Assessment EIC Engineer-in-Chief ERAP Economic Rehabilitation Action Plan ERGC Economic Rehabilitation and Grievance Committee ERR Economic Rate of Return FAOCP Food and Agriculture Organization's Cooperative Program PO Farmer Organization GO Government Order GOI Government of India GOTN Government of Tamil Nadu IAS Indian Administrative Service ICB International Competitive Bidding IDA International Development Association IHH Institute of Hydraulics and Hydrology IMTI Irrigation Management and Training Institute IRDP Integrated Rural Development Program IWS Institute of Water Studies KWSP Krishna Water Supply Project LAER Land Acquisition and Economic Rehabilitation LAERAP Land Acquisition and Economic Rehabilitation Action Plan LAERO Land Acquisition and Economic Rehabilitation Office LDP Letter of Development Policy M&E Monitoring and Evaluation MIS Management Information System MOU Memorandum of Understanding NCB National Competitive Bidding NHP National Hydrology Project NGO Non-Governmental Organization NWMP National Water Management Project O&M Operations and Maintenance OFD On-Farm Development PAP Project Affected Person POM Plan of Operations and Maintenance PWD Public Works Department PY Project Year RAC Research Advisory Committee RG Rehabilitation Grant RGF Research Grant Fund SOE Statement of Expenditure TNEB Tamil Nadu Electricity Board TWAD Tamil Nadu Water and Drainage Board WRCRC Water Resources Control and Review Council WRCP Water Resources Consolidation Project WRO Water Resources Organization WRRF Water Resources Research Fund WSCC Water Services Charges Committee WUA Water User Association INDIA TAMIL NADU WATER RESOURCES CONSOLIDATION PROJECT Staff Appraisal Report Table of Contents CREDIT AND PROJECT SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . i I. WATER RESOURCES SECTOR Introduction . . . . . . . . . . . . . . . . . . . . . . . . 1 Water Resources in India . . . . . . . . . . . . . . . . . . 1 Development Priorities . . . . . . . . . . . . . . . . . . . 2 Tamil Nadu State ...... ... .. .. ... .. .. . . 2 Experience with Past Bank Lending . . . . . . . . . . . . . . 5 II. THE PROJECT A. Rationale for IDA Involvement . . . . . . . . . . . . . . 6 WRCP Preparation and Policy Reforms . . . . . . . . . . 7 B. Project Obiectives and DescriDtion . . . . . . . . . . . 8 Project Objectives . . . . . . . . . . . . . . . . . . 8 Project Description . . . . . . . . . . . . . . . . . . 8 C. Detailed Features . . . . . . . . . . . . . . . . . . . . 9 System Improvement and Farmer Turnover . . . . . . . . 9 Scheme Completions . . . . . . . . . . . . . . . . . . 12 Water Planning, Environmental Management and Research . 14 Water Planning . . . . . . . . . . . . . . . . . 14 Environmental Management and Action Plan . . . . 14 Water Sector Research . . . . . . . . . . . . . . 15 Institutional Reforms . . . ............. . 16 Land Acquisition and Economic Rehabilitation . . . . . 17 D. Policy Reforms . . . . . . . . . . . . . . . . . . . . . 19 Policy Reform Program . . . . . . . . . . . . . . . . . 19 State Water Policy . . . . . . . . . . . . . . . . . . 20 Expenditure Prioritization . . . . . . . . . . . . . . 20 Maintenance Funding . . . . . . . . . . . . . . . . . . 21 Cost Recovery . . . . . . . . . . . . . . . . . . . . . 21 Groundwater Management . . . . . . . . . . . . . . . . 22 III. COST ESTIMATES, FINANCING AND DISBURSEMENTS Costs and Financing . . . . . . . . . . . . . . . . . . 23 Program and Project Investment Costs . . . . . . 23 Project Financing . . . . . . . . . . . . . . . . 24 Procurement . . . . . . . . . . . . . . . . . . . . . . 25 Procurement Management . . . . . . . . . . . . . . . . 27 Disbursement . . . . . . . . . . . . . . . . . . . . . 29 Retroactive Financing and Special Account . . . . . . . 29 Accounts and Audit . ................. . 29 IV. PROJECT IMPLEMENTATION AND MONITORING Organization and Management . . . . . . . . . . . . . . . . . 30 Training and Technical Assistance . . . . . . . . . . . . . . 30 Management of Farmer Organization . . . . . . . . . . . . . . 31 Management of Land Acquisition and Economic Rehabilitation . 32 Monitoring and Evaluation .... . . . .... . . . . . . . 32 Project Reviews and Reporting . . . . . . . . . . . . . . . . 33 Supervision . . . . . . . . . . . . . . . . . . . . . . . . 34 V. BENEFITS, JUSTIFICATION AND RISKS Project Benefits . . . . . . . . . . . . . . . . . . . . . . 34 Economic Analysis . . . . . . . . . . . . . . . . . . . . . . 36 Project Risks ...... .. .. .. ... .. .. .. .. . 36 Program Objective Categories ............................... 37 VI. AGREEMENTS AND RECOMMENDATION . . . . . . . . . . . . . . . . . . . 38 MAP: IBRD No. 26167 ANNEXES Annex 1 Policy Reform Program Annex 2 Water Resources Organization - Institutional Reforms Annex 3 Water Planning, Allocation and Management Annex 4 System Improvement and Farmer Turnover Annex 5 Scheme Completions Annex 6 Tamil Nadu State Water Policy Annex 7 Environmental Action Plan Annex 8 Water Resources Research Fund Annex 9 Land Acquisition and Economic Rehabilitation Plan Annex 10 Baseline Survey Terms of Reference Annex 11 Project Cost Tables Annex 12 Schedule of Disbursements Annex 13 Implementation and Supervision Plan Annex 14 Economic Analysis Annex 15 Criteria for Preparation and Selection of Investment Annex 16 Maintenance, Water Charges and Cost Recovery Annex 17 Water and Agriculture in Tamil Nadu's Economy Annex 18 Criteria for NGO Selection Annex 19 Documents Available in Project File This report is based on the findings of an IDA/FAOCP Appraisal Mission which visited India in March 1994. The mission comprised Messrs./Mmes.: K. Oblitas (Task Manager), A. Pai, G. Fauss, A. Subramanian, E. Schaengold, T. Estoque, F. Grohs, S. Thangaraj, and W. Plummer (Consultant); and S. Rajagopal, N. Sugimura, and T. Lamrock (FAOCP). Additional contributions were made by W. Price, R. Crooks, R. Zwieg, X. Fang, S. Subramanian, N. Raman, T. Sharma, and Consultants D. Groenfeldt, P. Rogers, B. Sunderesan, S. Lele, S. Elumalai, I. Moorehouse and C. Wood. The Department Director is Mr H. Vergin, and Division Chief, Mr S. Barghouti. Peer reviewers were Messrs W. Ochs and J. Simas (Bank) and Ms R. Meinzen-Dick (IFPRI). INDIA TAMIL NADU WATER RESOURCES CONSOLIDATION PROJECT I. CREDIT AND PROJECT SUMMARY Borrower: India, Acting by its President. Executing Agency: The State of Tamil Nadu. Amount: IDA Credit of SDR 181.9 million (US$ 282.9 million equivalent). Terms: IDA: Standard with 35 years maturity. On-Lending Terms: Government of India would make the proceeds of the Credit available to the State of Tamil Nadu (GOTN) 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 state-wide program to improve the productivity and sustainability of Tamil Nadu's irrigation sector, to introduce multi-sectoral water planning, to integrate farmers in irrigation management, and to strengthen the state's institutional and technical capability in water development, management and planning. Project components would be: (a) Systems Improvement and Farmer Turnover to improve productivity through rehabilitation and modernization of the existing irrigation systems integrated with participation of farmers and turnover of operations and maintenance (O&M) of improved distributaries, as well as funding of O&M, to water user associations (55% of investment base costs); (b) Scheme Completion Investments to complete viable investment on existing schemes for increased availability and reliability of water (29% of investment costs); (c) capacity building in Water Planning. Environmental Management and Research to introduce multi-sectoral water planning, incorporate environmental management in all aspects of water planning, investment and management, and to enhance research in the water sector (8% of investment costs); (d) Institutional Strengthening of Tamil Nadu's Water Resources Organization (WRO) to strengthen capabilities in all professional and management areas (7% of investment costs); and (e) associated Land Acauisition and Economic Rehabilitation for project affected persons (1% of investment costs). The above investments are supported by recent issuance by GOTN of a State Water Policy defining its new, broader objectives in the water sector, an institutional reorganization to establish WRO as a specialist state water agency, stepped up funding by GOTN of maintenance to full required levels and reordering of state expenditure priorities to emphasize maintenance and improved productivity of existing systems rather than new construction. Project benefits: The project would enhance agricultural production on about 0.7 million ha (50% of the state's surface irrigated area) directly benefitting some 4 million persons, of which 70% occupy small and marginal farms. Irrigation would be put on a sustainable footing through rehabilitation and modernization of the systems linked with farmer participation and upgraded maintenance and water management. A specialist state water agency would be created and strengthened including in water planning and environmental management, with broad and long-term benefits stemming from multi-sectoral water planning and management, essential for Tamil Nadu's present and long-term economic development and its sustainability. Farmer participation and turnover would forge a private sector role in management of infrastructure and contain organizational features to foster participation of women and minorities in irrigation's management and benefits. Project Risks: First, the fundamental change in water resources management will require continued political will and sustained effort to be successfully implemented. Key features required (state water policy, institutional reorganization, reordering of expenditure priorities, staff training and all key project related decisions and Government announcements) were established by GOTN during project preparation. The extensive reforms already implemented provide a strong basis for project start-up and some confidence regarding the critically important continuation of GOTN's commitment. Second, the systems improvement and farmer turnover program, while based on successful piloting, is innovatory on this scale. The project includes special monitoring and management features and intensive consultancy, training and NGO assistance, and provisions for adapting the farmer turnover component as experience is gained. Third, aeneral imDlementation capacitv constraints of WRO have been addressed in the project's institutional strengthening, including special arrangements for implementation monitoring and financial management: in other respects, WRO has proven capability and successful experience in undertaking the kind of physical activities to be implemented under the project. iii Estimated Costs and Financina: Local Foreign Total Local Foreign Total Rs M -------- ------- US$ M --------- Proiect Investment Costs System Improvement & Farmer Turnover 4,001 577 4,578 125.1 18.0 143.1 Scheme Completions 2,195 264 2,459 68.5 8.3 76.8 Water Planning, Environ- mental Management and Research 309 364 673 9.6 11.4 21.0 Institutional Strengthening 419 146 566 13.1 4.6 17.7 Land Acquisition & Econ. Rehabilitation 123 3 126 3.8 0.1 3.9 Total Baseline Costs 7.047 1.354 8.401 220.1 42.4 262.5 Physical Contingencies 670 99 769 20.9 3.1 24.0 Price Contingencies 1,956 308 2,263 25.9 3.2 29.1 Total Project Investment Costs 9.673 1.760 11.433 266.9 48.7 315.6 WRO Recurrent Costs 5,372 982 6,354 148.3 27.1 175.4 Total Program Costs1 15,045 2.742 17.787 415.2 75.8 491.0 Financina Plan: Local Foreicn Total ----------- US$ Million - Project Investment Costs GOTN 32.7 0.0 32.7 IDA 234.2 48.7 282.9 WRO Recurrent Costs (GOTN) 148.3 27.1 175.4 Total Program Costs 415.2 75.8 491.0 Expected Disbursements: IDA Fiscal Year (US$ million) 96 97 98 99 2000 2001 2002 Annual 27.6 31.2 44.6 50.9 51.0 46.7 30.9 Cumulative 27.6 58.8 103.4 154.3 205.3 252.0 282.9 Poverty Category: Not Applicable. Economic Rate of Return: 17% MAP: IBRD No.26167 - INDIA: Tamil Nadu Water Resources Consolidation Project. 1 Including taxes and duties equivalent to US$34.4 million. TAMIL NADU WATER RESOURCES CONSOLIDATION PROJECT I. WATER RESOURCES SECTOR Introduction 1.01 The Tamil Nadu Water Resources Consolidation Project (WRCP) would assist Tamil Nadu state to better plan, manage and develop its water resources and to improve the productivity of the irrigation sector. The project would fulfil a critical need. The state is water short, severely so in some areas, and has nearly fully developed its exploitation potential. Future economic development will depend on the best allocation of water between sectors and efficient use by the main sectoral users, especially agriculture. Two principal needs are catered for under the project. First, comprehensive water planning on a river basin basis and across sectors is required. Second, for the largest user of water - the agriculture sector - which consumes some 75% of water, irrigation's productivity must be enhanced to improve agricultural growth while still ensuring the growing water needs of municipalities, industry and other uses. 1.02 Under the project, a formerly construction oriented Public Works Department (PWD) would be refocussed and strengthened as a state water agency responsible for multi-use water planning and for providing irrigation, drainage, flood control and bulk water supply services. Expenditures would be refocussed to emphasize maintenance and modernization of existing facilities, and beneficiary participation linked with cost recovery would be integral to the service improvements. The new approach necessarily requires substantial institutional and policy reforms for the water sector which Tamil Nadu has already commenced. The project would assist Government of Tamil Nadu (GOTN) to implement these objectives including the funding of the associated physical and institutional investments. Water Resources in India 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. In many states, including Tamil Nadu, development of surface and groundwater is reaching its physical limits. Water needs to be planned and managed holistically: planning needs to be on a multi-sectoral basis, by river basin, recognizing the interlinkages between surface and groundwater, and including environmental as well as quantity considerations. 1.04 Competing Uses of Water. Irrigation is the largest user of water in India (about 93% of present gross water use). However, the National Water Policy (Ministry of Water Resources, 1987) gives the first priority to the provision of domestic water supplies for urban and rural populations and assuring water supplies for livestock. Competing demands arise from industry, thermal and hydro-power, fisheries and navigation. In addition, minimum flows on rivers for flushing pollutants, dilution of waste water, and other environmental concerns limit the operation of facilities. The Central Water Commission (CWC, 1988) estimated that community needs would double, and industrial and power requirements would increase almost seven-fold, by 2025. While the total water demand for community use (forecast to be 40 BCM/yr in 2 2025) is not high compared to the total water resources (930 BCM/yr in 2025), localized and regional demand can lead to severe shortages, particularly for urban areas. Thus, in 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. 1.05 Agriculture and Irrigation. Agriculture is a key sector in India's economy, contributing about 35% of GDP and 65% of employment. Annual agricultural growth has been modest at 2.6% p.a. over the last two decades. India has a land area of 3.3 million km2 of which about 40% is cultivatable, and 20% is irrigated. Irrigation has been the major source of agricultural growth, and the pursuit of India's goal of food self-sufficiency has been based on massive investment in irrigation. The potential of irrigation, however, has been constrained by inadequate attention to comprehensive planning, maintenance, water management and farmer participation. Performance of irrigation has been stagnant in the past two decades, and in some states has deteriorated. Significant issues must be addressed if irrigation is to maintain and surpass past contributions to agricultural growth (India Irrigation Sector Review, 1991, Report 9518-IN). Development Priorities 1.06 Development plans of the Government of India (GOI) and State governments give priority to alleviating poverty and creating employment, particularly in the rural areas. While per capita income has increased by 2% per annum 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 not been significant due to 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 poverty alleviation. 1.07 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 re- establish 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. Tamil Nadu State 1.08 General Features. Tamil Nadu, at the southern tip of India (IBRD Map No. 26167), has an area of 130,000 Sq. Kms and a population of 56 million of which two-thirds are rural. About 40% of the population are below the poverty line. Due to higher literacy and a successful family planning drive, population is growing more slowly than the India average (1.5% in Tamil Nadu compared with about 2.0% nationally), but population density is higher, 428 persons/sq. Km in Tamil Nadu compared with the national average of 264. Large 3 urban centers include Madras (3.8 million people), Madurai and Coimbatore (nearly 1 million each). The state's average per capita income of US$319 is at about the national average. Relative to the rest of India, Tamil Nadu is both land and, in particular, water short. It has 7% of the country's population but only 4% of the land area and 3% of the country's surface water resources. Water constraints in Tamil Nadu vary by basin and as influenced by the present level of irrigation development and by urban needs. Scarcity is acute in some areas, particularly for Madras city, for which water is being carried in by train and road. 1.09 Water Resources. The state's average rainfall is 925 mm/annum, but is highly variable, both year-wise and geographically. Tamil Nadu is affected by two monsoons, the northeast monsoon (October to December, average 440 mm/annum) and the southwest monsoon (June to September, 310 mm). The intensity of the southwest monsoon decreases from North to South. Rainfall is highest on the coast, decreasing westwards as the impact of the northeast monsoon diminishes. The state's estimate of water resources is 23.6 billion cubic meters of surface water and 22.3 billion cubic meters of groundwater. Utilization is estimated to be 93% for surface water and 60% for groundwater. Groundwater utilization varies by basin. In a number of localities, especially near urban centers including around Madras, Coimbatore and Madurai and parts of the Palar and Vaigai basins, withdrawals are causing groundwater levels to fall. Regulatory, pricing and other actions are needed to counteract this. 1.10 The state comprises 17 river basins (some of these are groups of several minor basins), all flowing eastwards from the Western Ghats and Deccan plateau. Amongst these the major rivers are the Cauvery, Palar, Vellar, Vaigai and Tambaraparani. Tamil Nadu either contains a basin in full or is a downstream riparian to another state, and does not share any international rivers. For one river, the Cauvery, shared with upstream Karnataka, water sharing has not been agreed. While basin planning in the Cauvery would be part of the project, the WRCP contains no plans for investment in this basin. 1.11 Agriculture and Irrigation. Agriculture contributes about 22% of state domestic product. Cultivated area is 5.9 million ha (7.6 m. ha including multiple cropping) or 45% of the state's area, the rest being primarily occupied by forest, hill and waste land and urban development. The main crops are paddy (2.4 m. ha), millet and sorghum (1.6 m. ha), oilseeds (1.1 m. ha), and pulses (0.6 m. ha). The remaining 1.9 m. ha are mainly in fruits and vegetables, spices, sugarcane and cotton. Annual production of foodgrains has increased from 5.4 million tons in the 1960s to 7.5 million tons in 1987/88. Despite this gain, production since 1970 expanded more slowly than population, and in drought years Tamil Nadu has had to import from other states. Farm sizes tend to be uniformly very small. The average holding size is 1 ha, with 71% of holdings less than 1 ha, and 88% less than 2 ha. 1.12 Irrigation covers 2.4 million ha (41% of the state's net cropped area). The state's irrigation system is the product of old investment, in the case of many tanks going back several centuries or more. By the 1960s new investment in canal and tank irrigation had peaked. Investment in wells continued through the 1970s, but by the 1980s irrigated area from all sources of irrigation had reached a plateau. Canal and tank irrigation supply 1.3 million net ha, and wells irrigate 1.1 million ha. New investment 4 opportunities are limited by water availability, but large opportunities are available for improving the performance of existing irrigation. Neglected and underfunded maintenance has resulted in deterioration of most systems, unreliable water to head-end farmers, and often no water for tailenders. There are also opportunities to complete investments on a number of commands in order to improve the water service and provide some extension in command area. 1.13 Environmental Needs. Actual or potential environmental concerns in Tamil Nadu are typical of those found in the water sector for any large state or country. No one problem is endemic state-wide and conditions vary by basin. Groundwater resources, though overall still under-exploited, are being depleted in a number of localities; around Madras city, Coimbatore, Madurai, and parts of some basins such as the Vaigai basin. In some coastal belts this has been accompanied by saline intrusion. The opposite groundwater situation of waterlogging is also found, in generally small localities and sometimes with localized salinization. This is often due to poor water management resulting in excess water at head-ends of commands. Effluents from industry (chemicals, tanneries) cause pollution on a number of rivers affecting riverine flora and fauna and the quality of drinking water. Tree cover of watersheds ranges from excellent to poor; in parts of basins such as Pennaiyar, Palar and Vaigai, deforestation has resulted in excessive soil erosion and siltation problems for canals and reservoirs. While serious water borne diseases such as Bilharzia are not present, malaria, dysentery and other risks can be transmitted through stagnant or organically polluted water. Tamil Nadu is also subject to cyclones and flood damage, especially in estuaries. 1.14 Environmental management capabilities are present in Tamil Nadu's specialized agencies - for instance, the Pollution Control Board, Public Works, Public Health, Forestry, Agricultural, Fisheries and Wildlife Departments, and Water and Drainage Board, together with good university and research center capability. But coordination between them is limited. No apparatus has existed for tackling such issues from a basin approach, and for planning water development comprehensively incorporating environmental management in investment decisions, including better representation from the general public and private sectors. Within Tamil Nadu's main water agency - the Water Resources Organization, recently created from the irrigation wing of the Public Works Department (para 1.16) - technical skills in environmental monitoring, assessment and management also need strengthening. 1.15 Water Resources Institutions. The Public Works Department (PWD) has been responsible for construction, maintenance and operation of the state's irrigation and drainage systems, bulk water supply for municipalities, and flood control. Several entities also come under the Secretary PWD and would be important to the WRCP. The Institute of Water Studies (IWS), located in Madras has handled water planning and research, but until recently has not had the mandate to coordinate with other sectors. The Institute of Hydraulics and Hydrology (IHH) at Poondi is PWD's hydraulic research agency. The Irrigation Management and Training Institute (IMTI) at Trichy provides training for PWD engineers and farmers. The two other major water agencies are the Tamil Nadu Water and Drainage Board (TWAD), which provides water supply, drainage and sewerage for towns and villages, and Metrowater, which provides similar services for Madras. A strong academic and research capability exists in 5 Tamil Nadu's universities. This includes, for the water and agriculture sectors, Anna University, Coimbatore Agriculture University, the Madras Institute of Technology and the Madras Institute of Development Studies. However, closer coordination between the above institutions is a recognised need. 1.16 PWD has had a long tradition as the state's construction agency, covering many activities from irrigation to buildings. This has given it civil works expertise, but within irrigation less funding and staff emphasis has been put to water management, maintenance and water planning. Over time, the organization became progressively less equipped to handle the increasingly demanding requirements of the state's water sector. Accordingly, to meet Tamil Nadu's new objectives for the water sector, and as part of its preparation for the WRCP, Government decided to create a specialist water resources agency. Following a detailed institutional study, PWD was bifurcated in April 1994 to create a specialized "Water Resources Organization" (WRO), separate from buildings and other traditional PWD functions. WRO and its sub-entities - IWS, IHH and IMTI - will be solely handling the water sector in two principal capacities: as state water planner and coordinator between sectors, and as implementor for irrigation, drainage, flood control and bulk water supply. This is being accompanied by a major internal reorganization (para 2.24 and Annex 2). The objectives are to create a decentralized and more functionally effective management, organized along basin lines, specialization in functional areas such as planning, design, construction, operations and maintenance, and establishment or strengthening of capabilities in management information systems, programming and budgeting, procurement, environmental management, regulatory, training, staff development and other areas. An institutional apparatus has also been established for state coordination of water planning and environmental management between sectors (para 2.21). Farmer participation in irrigation management is also a central objective, and a vigorous drive to implement this is already underway. Experience with Past Bank Lending 1.17 Experience in India. India's agricultural development efforts have attracted substantial support from the Bank Group. To date, 131 agricultural projects in India have received US$10.5 billion equivalent of IBRD/IDA financing (81% IDA and 19% Bank), the majority of which has been for irrigation. Projects have also included: agricultural support services (credit, research and extension); commercial agriculture (seeds, fisheries and agro-industry); forestry, watershed and resource conservation; livestock development; and drought assistance. The objectives of Bank involvement in Indian agriculture have been to expand and modernize the infrastructure supporting sectoral growth, strengthen the institutions serving agriculture, increase the production of high value commodities, and introduce sustainable land management systems affecting rainfed agriculture. Common problems in agricultural projects have been: (a) delays in project mobilization and procurement; (b) quality of civil works; (c) institutional weaknesses; and (d) insufficient local funding. 1.18 Experience in Tamil Nadu. In the irrigation sector the Periyar Vaigai Irrigation II Project (Cr. 1468-IN/SF16-IN) financed extension and improvement of the old Periyar Vaigai system in southern Tamil Nadu and closed on October 31, 1993. The Project Completion Report concluded that the project, while 6 slow in implementation, met its physical objectives and achieved an ERR of 25%. Sustainability was also considered satisfactory. Other positive features included successful piloting of cultivator group participation in water management, good construction quality, and accelerated implementation in the last two years of the project. In other sectors related to water, the Madras Water Supply and Sewerage Project (Cr. 1822/Ln.2846), and the Tamil Nadu Urban Project (Cr. 1923), both ongoing, have, inter alia, encouraged water planning initiatives. GOTN is currently preparing a Veeranam Water Supply Project (for supply of bulk water to Madras) and a follow-on Madras Water Supply and Sanitation Project for consideration by the Bank. The project with the greatest relevance to the WRCP is the National Water Management Project ("NWMP",Credit 1770-IN), which has enabled the gaining of field experience for the WRCP's principal component. Under NWMP, seven commands in Tamil Nadu covering 153,000 ha have been rehabilitated and modernized. After a hesitant start, Tamil Nadu has been implementing this project well and with enthusiasm over the past three years, as it experiences the yield and social benefits of improved water management. This momentum has facilitated preparation of the WRCP's main component which has similar engineering features to NWMP, and has also enabled commencement in the field of WRCP pre-investment and farmer organization activities, enhancing prospects for rapid project start-up. II. THE PROJECT A. Rationale for IDA Involvement 2.01 The project would help implement the Bank's and GOI's new strategy for the water and irrigation sector, as defined in the recent Bank policy paper and the India Irrigation Sector Review. The Bank's new strategy ("Water Resources Management", September 1993), proposes an agenda of policies and institutional reforms that will utilize market forces and strengthen the capacity of governments to carry out their essential roles in resource use and planning. The policy paper calls for the adoption of a comprehensive framework for analyzing policies and management options regarding water scarcity, efficiency of service, allocation of water and environmental damage. 2.02 Specific to India, the "India Irrigation Sector Review" (Report 9518-IN, December, 1991), prepared jointly with GOI and state governments, identified four priority areas of action consistent with the above: (i) multisectoral water resources policy and planning using river basins as planning units; (ii) institutional development to upgrade management capability of irrigation departments through improved functional responsibilities, institutional accountability and participation of farmers and the private sector; (iii) redefined public expenditure priorities, emphasizing improved performance of existing schemes, enhanced operations and maintenance, completion of viable incomplete projects and improved cost recovery linked to service improvements; and (iv) improved technical performance of water and irrigation service delivery including improved environmental management. The project also supports the Bank's Country Assistance Strategy (CAS) for India of May 1995. The CAS emphasizes investment lending operations providing comprehensive support to policy, institutional, and expenditure reform for key sectors in states receptive to reform. Reforms would be accompanied by investments in basic infrastructure supporting increased productivity and better management 7 of natural resources. Better institutional and financial performance in the public sector, complemented by devolution of responsibilities to stakeholders and the private sector, is also emphasized. 2.03 The project would be a significant step towards implementation of Bank and Government strategy in the water sector. In India, water development and irrigation is planned and implemented at the state level, requiring a state- by-state approach. WRCPs would be the main vehicle for Bank support to the states. This project is the second WRCP (following Haryana WRCP, Cr 2592, approved in FY94). Each provides the concerned state with the comprehensive means to implement the new strategy. The Bank also has a strong interest in supporting initiatives in hydrology and water management across states, as this would lead to more rational allocation and use of water in the national context. Such projects are also being developed by India. To implement the new water and irrigation strategy, for both the state specific WRCPs and multi-state projects supporting resolution of cross-state issues, a close and continuous partnership with the states and central government is required. The Bank is one of the few institutions that can provide the continuity and policy support required for achieving the long-term strategic goals developed in the sector strategy papers above. Choice of Tamil Nadu is because it is one of India's most water constrained states and because of the interest of the state Government in reforming its water and irrigation sector. WRCP PreDaration and Policy Reforms 2.04 The project was prepared in the 1993-94 period. Over the past two years Tamil Nadu has implemented a number of institutional and policy reforms in preparation for the WRCP: (i) a fundamental decision was to create a specialist Water Resources Organisation (WRO) from the former construction oriented irrigation wing of PWD (para 1.16). This will handle state-wide provision of irrigation and drainage, bulk water supply and flood control and also be responsible for coordinating state water planning across sectors. Within the new WRO, a staff reorganization is underway to create streamlined and decentralized management and functionally specialized management units; (ii) a Water Resources Control and Review Council (WRCRC) and supporting institutional linkages have also been created to handle multi-sectoral water planning and allocation; (iii) a State Water Policy has been formulated to backstop Tamil Nadu's new approach to water and irrigation management; (iv) priorities for public expenditures have been overhauled, with emphasis now on maintenance and improved water management rather than new construction; (v) state financial allocations for maintenance have been doubled to bring them up to Bank/WRO recommended amounts; (vi) a program to involve farmers in irrigation investment, operations and maintenance has been prepared and implementation commenced; (vii) WRO's institutional capability for environmental management has been strengthened and an Environmental Action Plan prepared; and (viii) a new structure and procedures for handling land acquisition have been established and a Land Acquisition and Economic Rehabilitation Action Plan prepared. 2.05 The project is ready for implementation. Start-up activities during 1994 and 1995 have been intensive, with 1994/95 expenditures proposed for retroactive financing (para 3.15). As concerns the project's two main components - the systems improvement and farmer turnover program, and the scheme completions program - detailed design is complete, staff divisions have 8 been allocated by work-site, and procurement packaging encompasses 70% of contract packages over the seven-year project period and the full needs for the first two years of the project. Implementation starts from the strong base of successful performance under the National Water Management Project for the systems improvement works, and already active work-sites as regards the scheme completions. Readiness as concerns other project components is also satisfactory. The new institutional structure is defined and agreed, the water planning program has been underway since mid-1993; and training, staffing and other preparatory actions for the Environmental Action Plan and the Land Acquisition and Economic Rehabilitation Action Plan are advanced. Most impressive has been the degree to which GOTN and its Water Resources Organisation have emphasized early completion of all institutional and policy decisions required for the project, including issuance of some two dozen "Government Orders". These have formalized matters ranging from issuance of the State Water Policy to adjusted policies for compensation in cases of land acquisition, to the Institutional Reorganisation. WRO has also been active in staff training in areas relevant to the WRCP. B. Project Objectives and Description 2.06 Project Obiectives. Tamil Nadu's future economic development and welfare require better planning and management of water across sectors, environmentally sustainable planning and management and, for irrigation, the largest user of water, improved efficiency of public expenditures and water use and enhanced agricultural productivity. The project's primary objectives would be to: (a) introduce water resources planning by river basins across all uses of water; (b) improve agricultural productivity through modernization and completion of irrigation systems, upgraded water management and farmer participation; (c) assure sustainability of water infrastructure and the environment; and (d) improve institutional and technical capability for managing the state's water resources. 2.07 Project Description. The project would be a sector investment loan financing an agreed state-wide program to improve the productivity and sustainability of Tamil Nadu's irrigation sector, to introduce multi-sectoral water planning, to integrate farmers in irrigation management, and to strengthen the state's institutional and technical capacity in water development, management and planning. The project would be implemented over seven years. Project components would be: (a) System Improvement and Farmer Turnover (US$143.1 million, 55% of project investment base costs). (b) Scheme Comrpletions (US$76.8 million, 29% of investment base costs). (c) Water Planning, Environmental Management and Research (US$21.0 million, 8% of investment base costs); (d) Institutional Strenathenina (US$17.7 million, 7% of investment base costs); and (e) Land Acquisition and Economic Rehabilitation (US$3.9 million, 1% of investment base costs). 9 C. Detailed Features I. System ImDrovement and Farmer Turnover (US$ 143.1 million, 55% of investment base cost, Annex 4) 2.08 The WRCP's largest expenditure item and field effort would be the rehabilitation and modernization of existing irrigation, drainage and bulk water supply facilities. This would be integrally associated with beneficiary participation in scheme investment and management decisions and turnover of water management and maintenance of distributaries to farmers. Most of Tamil Nadu's water delivery and drainage systems are performing below potential due to outdated design, inadequate maintenance and lack of farmer involvement in the design and management of the systems. As a result, water services are increasingly becoming unreliable and inequitable, affecting agricultural productivity. There is excess water in the upper reaches and tail-end farmers do not receive adequate and timely supply of water. 2.09 Integrated ADproach. The National Water Management Project (NWMP, para 1.18) has succesfully piloted the engineering required to correct this situation by rehabilitating and modernizing 153,000 ha in 7 commands in the state. The WRCP incorporates the lessons learned under NWMP, but also emphasizes the integration of infrastructural improvements with O&M funding and farmer participation, associated with strengthened institutional capability. In doing so, the project also reflects the general lesson in Indian irrigation, and indeed worldwide, that: (i) efforts at cost recovery without service improvement are mostly unsuccessful; and (ii) infrastructure improvements without attention to O&M and farmer participation are physically, financially and institutionally unsustainable. Sustained improvement in performance is emphasized under the project, recognizing that this requires mutually reinforcing actions. 2.10 Infrastructural Improvements. System improvements would cover about 660,000 ha, constituting 50% of the State's surface irrigated area, under a phased, two-stage investment program. The first stage is technically similar to NWMP, but will include innovations based on consultation with NWMP farmers and other field experiences. Stage I comprises focussed low investment improvement to enable more equitable and reliable water supply, based on a detailed command diagnostic (crops, yields, hydrology, current performance and problems) followed by preparation of a "plan of operations and maintenance' (POM) and identification and design of the infrastructure improvements to make this work. Under stage I, priority design changes and structural improvements would be carried out in association with farmers on about 508,000 ha to ensure reliable irrigation to the tail-end sections in 10 major and medium commands and about 40 minor schemes (98,000 ha). The central feature of the design change would be the structuring of the system, usually at the distributary, sometimes at the minor level. Below this level, control structures will be provided at all offtake canals to distribute water in the desired proportion without manual control. The costs of the rehabilitation and modernization works under stage I will average Rs 5300/ha (US$ 166) in 1994 prices, to ensure a focus on top priorities. 10 System Improvement and Farmer Turnover Constr./ Com- Procure- O&M mand Base Main Distribu- OFD ment Divisions Area Cost System taries Works Others Packages Deployed Scheme (ha) (Rs.m) (Rs. m) (Rs. m) (Rs. m) (Rs. m) (in Nos.) (in Nos.) Stage I Cheyyar Anicut 14,337 66.6 26.3 33.6 6.0 0.7 16 2 Chittar 9,644 43.4 10.0 31.0 1.5 0.8 8 1 Manjalar 2,169 13.5 8.4 2.3 1.6 1.2 7 1 Minor Schemes 97,885 468.0 146.0 250.0 72.0 0.0 30 6 Palar Anicut 32,796 163.8 65.4 67.4 24.0 7.0 20 3 Parambiculam 174,553 1035.0 718.5 179.5 130.0 7.0 41 9 Poiney Anicut 9,350 41.6 17.8 20.0 3.0 0.8 7 1 Thirukovilur & Ellis Anicut 14,342 53.0 37.5 13.5 2.0 0.0 8 1 Tholodur 14,915 105.0 31.5 28.0 0.0 45.6 6 2 Vaigai Old Ayacut 54,143 368.6 60.9 307.7 0.0 0.0 28 5 Other Schemes 83,974 337.0 208.0 117.0 0.0 12.0 23 5 Subtotal 508,108 2695.5 1330.3 1050.0 240.1 75.1 194 36 Stage II Cumbum 8,099 58.5 40.8 8.2 4.7 4.8 8 2 Kodayar 36,836 292.9 171.4 94.3 18.2 9.0 12 3 Marudhanadhi 2,665 18.7 4.6 9.3 1.5 3.3 5 1 Sathanur 18217.00 187.7 93.0 86.4 7.7 0.7 13 2 Sethiathopppa 19,466 136.4 68.0 22.6 6.2 39.6 11 2 Thambaraparani 45,282 279.4 116.9 143.1 11.8 7.5 17 4 Other Schemes 22,384 228.8 127.0 77.5 16.8 7.5 14 2 Subtotal 152,949 1202.4 621.7 441.4 66.9 72.4 80 16 Periyar Vaigai 200.0 75.3 95.0 0.0 29.7 25 4 V.H.F. (for all schemes) 36.0 36.0 1 IMTI, Training & Consultant 443.9 Grand Totals 661057 4577.8 2027.3 1586.4 307.1 213.1 300 56 2.11 Under stage II, a second round of investment to further improve performance and conveyance efficiency, especially at distributary levels, would be undertaken for commands successfully through stage I. Investment would be conditional on farmer commitment and would be associated at distributary level with formal handover of O&M to farmers. In the WRCP period, this is expected to be primarily on the ex-NWMP commands (153,000 ha). Stage II improvements are primarily the construction of regulatory structures and selective upgradation of canal lining, with an average cost of Rs 7900/ha. The total base costs of the stage I and II works is US$ 84.2 and 37.6 million, respectively. For all major and medium commands (85% of the program), detailed designs and procurement schedules have been prepared. 11 2.12 Farmer Organization. The participation of water users would be closely tied to the physical improvements (Annex 4). The centerpiece of the participation program is a progressively increased involvement of farmers, moving from consultation to active management of O&M below the structured level. A 3-tier structure of farmer organization (FO) would be developed as part of the public-private sector partnership between farmers and WRO. At the lowest level (about 40-50 ha) would be outlet level organizations ("sluice committees"), federating into a "Farmers Council" at the distributary level (about 500-700 ha) where most of the formal negotiations with the WRO would initially occur. Councils would further federate into an "Apex Committee" at the scheme level for consultations and agreements on overall water management and on inter-distributary issues. During stage I, farmer councils would formally establish as registered societies and enter into a Memorandum of Understanding (MOU) with WRO. The councils would also collect from their members Rs 250/ha, placing collections in a council bank account. Interest earned would substantially pay the council's annual cash costs (the rest being farmer supplied labor) of maintenance below the distributary head, which would be their responsibility. Formal turnover of O&M responsibilities to Farmer Councils would be accompanied by intensive training and also involve an interim period (typically 6-9 months) of "joint management". The MOU defines the mutual responsibilities and rights of the FOs and WRO in terms of water services and O&M duties. A model MOU and by-laws for the FOs was formally issued by GOTN prior to negotiations (Attachment C of Annex 4). 2.13 Distributary level improvements would be contingent upon the formation of FOs: their participation and agreement on the nature of the works; and their acceptance of O&M responsibilities, including financing, after the investments are completed. Canal lining, the most expensive item of stage II works, would be taken up selectively and only when it is part of a jointly set priority improvement and when farmers collect 20% of the cost of lining. Farmer contributions would be paid into council bank accounts to further capitalize their capacity to undertake O&M and improvement works in the future. The above arrangements (paras 2.12 to 2.13) were confirmed at negotiations. 2.14 On-Farm DeveloDment Works. Farmer participation would extend to"OFD" works as well, previously constructed by the Agricultural Engineering Department (AED). OFD (sluice command works such as water courses, field channels and field drains) provides the important link between the irrigation system and farmer's fields, but needs to involve farmers and a lower cost approach if investment is to be affordable and sustained. The WRCP will support the state's program, with changes from past practice, and special arrangements where AED is already present in a command. Under the WRCP, FOs would decide on the need for OFD, and assistance to OFD would be extended only in outlets where higher level Farmer's Councils are organized and the sluice has an active sluice committee. The WRO would undertake a topographic survey and propose designs for the distribution channels below the outlet. After mutual consultation and agreement with farmers, alignment structures would be constructed by WRO and farmers would construct the watercourses and field channels themselves. WRO costs would be about Rs 720/ha compared with Rs 3500/ha as per present practices with government taking full resposibility. About 425,000 ha are targeted under the WRCP, costing Rs 307 million in total. The Letter of Development Policy (Annex 1) affirms that the new model for OFD would be used henceforth throughout the state by both WRO and AED and that 12 AED's activities in WRCP commands would be limited to the five commands where it is already active (Lower Bhavani, Periyar Vaigai, PAP, Sathanur and Sethiathope). In these five commands, WRO and AED would both handle OFD works, but activities would be phased with WRO's work on main and distributary systems, and AED's program would be coordinated with the WRO executive engineer for the command concerned. Arrangements would be reviewed annually between WRO and AED for their implementation effectiveness. 2.15 Organization. Training and Eauipment. Under WRO's reorganisation, O&M will become a specialist activity under the new post of CE O&M, with deputies in the areas of operations, maintenance and farmer organization (Annex 2). Staff reorientation and skill building needs are substantial. Accordingly, WRO's Irrigation Management and Training Institute's (IMTI) program has been refocussed to place emphasis in particular on farmer organization, and also on technical aspects of systems improvement and O&M. Farmer organization teams on each command will also be reinforced by community organizers recruited from practical NGOS, backstopped by experienced consultants (para 4.04). Management features for the systems improvement and farmer turnover program incorporate intensive management and monitoring features, including a detailed review by consultants in PY2 to enable early adjustments as experience is gained (para 4.05). Adjustments are especially likely as regards the support measures and approach for farmer participation and turnover. The project would finance strengthening of IMTI (technical assistance, training and equipment amounting to US$ 1.4 million) and equipment, training and consultancies for farmer turnover (US$ 1.6 million). For operations and maintenance, a one-time investment, aggregating to US$ 10.9 million base costs, would be made in heavy equipment, surveying equipment and workshops (US$ 6.3 million), vehicles (US$ 2.6 million), wireless communication (US$ 1.4 million) and remote sensing consultancy (US$ 0.6 million), to bring WRO to full capability. GOTN would fully finance annual maintenance. Following its undertaking to this effect at the beginning of project preparation, GOTN has already brought funding levels up to estimated annual requirements (para 2.34). II. Scheme Completions (US$ 76.8 million, 29% of investment base cost, Annex 5). 2.16 The second largest investment expenditure under WRO's program would be scheme completion investments to improve the reliability and availability of agricultural and domestic water supply on nine existing schemes, plus a contingency for future investment needs (para 2.17). The nine scheme completions, all underway and in five cases with substantial investment incurred, typically involve small impoundments and improvement of the existing irrigation and drainage networks, including domestic water supply to local communities. The principal impact would be in stabilization of the command's water supply to existing irrigated areas, plus some expansion of irrigated area. Benefits are primarily from higher yields, and increased irrigation intensity, with unquantified likely benefits from diversification to higher value-more water sensitive crops, and potential longer-term water diversion for industrial use. The nine schemes were selected on the basis of an earlier candidate list of 20 schemes, and detailed analysis by FAOCP and WRO of a short-list of 13 schemes. The analysis included an operational hydrology assessment of water supply reliability, as well as engineering, agriculture and environmental impact features and economic viability (Annex 5). In the 13 process, outdated existing unit cost rates have been augmented, and implementation schedules extended, both on the basis of past experience. Final selection was made at appraisal and included the requirement of an economic rate of return of 12% or more (para 5.06), corresponding to the estimated opportunity cost of capital in India. The preparation exercise has served to inject additional analytical rigor into WRO's investment preparation, particularly in the areas of hydrological, environmental and economic analysis. As described below, WRO intends to apply the analytical procedures developed with FAOCP and the Bank in its future investment formulation work. Stabilize Gap New Base Cost Estimated Econ. Value Scheme (acres) (acres) (acres) Rs. Completion of incr. prod. million Year Rs. Million Poigayar 477 140 500 94.6 1996 13.1 Nambiyar 911 458 375 120.6 1996 16.6 Sothuparai 1825 67 1040 304.2 1998 36.1 Mordhana 6388 704 0 467.6 1999 75.6 Rajathopekanar 545 0 0 26.7 1995 3.8 Kodumudiyar 1954 1925 0 210.4 1997 78.9 Vadakku Pachchayar 7536 1147 0 306.1 2000 54.6 Adavinainarkoil 3859 1523 243 614.9 2000 79.3 Gridhammal II 2329 798 0 34.9 1995 22.1 Add'l. Schemes 278.9 2000 and Consultants Total 25824 6762 2158 2458.9 380.1 2.17 As water planning is further established under the WRCP, perceived medium and long-term needs will evolve, and the growing needs of urban centers are likely to increasingly dominate investment choice. The urgent bulk water supply needs of Madras would be catered for by the proposed Second Madras Water Supply Project (from Veeranam tank providing 3tmc) primarily under Metrowater/TWAD responsibility, and by Government's Krishna Water Supply project (KWSP), under WRO responsibility, which will supply 15 tmc of water under an agreement with Andhra Pradesh. Tamil Nadu's part of KWSP is virtually fully complete (completion expected in 1995) and is thus not included in WRO's program above. Other bulk water supply needs are likely, however, to arise. An amount of US$6.8 million, equivalent to 10% of the combined base costs of the nine scheme completions above, has thus been allocated for disbursement against as yet unidentified needs, urban or agricultural, as determined by water planning and governed by rigorous analytical and selection criteria. At negotiations, the preparation and selection criteria outlined at Annex 15 ("Criteria for Preparation and Selection of Investment") were agreed with GOTN. IDA's approval would be 14 required prior to selection of any such new proposal and would be based on the investment satisfying the criteria at Annex 15. These include preparation in the context of a river basin plan, satisfactory environmental assessment, socioeconomic survey and, as needed, land acquisition and economic rehabilitation plan, and a rate of return not less than 12%. III. Water Planning, Environmental Management and Research (US$21.1 million, 8% of investment base cost, Annexes 3, 7 and 8)) Water Planning (Annex 3) 2.18 GOTN established the institutional apparatus for water planning during WRCP preparation. At the apex is a "Water Resources Control and Review Council" (WRCRC) established in September 1993 as the state's most senior body for water allocation and planning decisions. Chaired by the Chief Minister and with the three key Ministers involved (PWD, Water Resources and Energy; Urban Development; and Rural Development) as Vice Chairmen, the Council contains representation of all departments concerned with usage and environmental management of water. At basin level, WRO's basin managers will head "basin water planning and allocation committees" comprising the local parties involved including private sector representatives. WRO's "Institute of Water Studies" (IWS) has been appointed as Secretariat to the WRCRC and as Tamil Nadu's nodal agency for preparation of basin and state water plans. In collaboration with the basin committees and coordination officers from each state government department, IWS has been charged with preparation and periodic adjustment of basin plans and a state water plan. An environmental sub-committee of WRCRC and an environmental unit in IWS has also been established to provide special focus on integrating environmental management in water planning (para 2.20). WRO's capabilities in hydrological data measurement and collation are also to be upgraded, with assistance from Tamil Nadu's component of the proposed National Hydrology Project (NHP). For this purpose, a State Water Resources Data Center has been established in WRO. 2.19 Basin and state water planning will be progressively upgraded during the WRCP. The first task, commenced in 1993, has been preparation of rapid basin assessments on 16 of Tamil Nadu's basins/sub-basins, with completion of the remaining basin expected by end 1995. A Tamil Nadu state "Framework Water Resources Plan" will then be prepared on the basis of the basin plans and state development objectives (by December 31, 1995). Detailed River Basin Plans will subsequently be prepared, followed by a State Water Plan by March 31, 1998. Thereafter, the basin plans and the State Water Plan will be periodically improved and updated. This effort will require substantial technical support and strengthening of IWS, a process already commenced with consultant assistance. WRCP funding covers international and local consultancy assistance for IWS, training for IWS staff, and computer and other equipment. The latter includes establishment of remote sensing interpretation and geographic information systems capability. The above arrangements and timetable are affirmed in the Letter of Development Policy (Annex 1). Environmental Management and Action Plan (Annex 7) 2.20 Based on the recommendations of a Category A Sectoral Environmental Assessment (EA), conducted by PWD/WRO and HR Wallingford consultants, environmental management has been integrated in all aspects of the WRCP, from 15 institutional and policy aspects to specific sub-components. The EA provided a detailed review of water related environmental issues in the state, assessed the investment components of the project and also reviewed state and in particular WRO capacity to handle environmental issues. The investment components themselves were not found to pose particular issues. The improved water management resulting from the project's rehabilitation, modernization and scheme completion investment was assessed to mitigate against problems such as waterlogging, salinization, depletion of groundwater levels and disease risks caused by sources of stagnant water. The EA did, however, recommend a comprehensive set of actions to improve WRO's environmental capability to monitor, plan, develop and manage the state's water resources. These measures, which incorporate institutional and procedural improvements, major strengthening of technical capabilities, and field actions and studies, have been incorporated in an Environmental Action Plan (EAP) to be funded under the project. 2.21 The EAP includes the following actions (Annex 7): (a) establishment of environmental units in IWS and the Project Formulation directorate, respectively handling environmental concerns in state water planning and allocation, and environmental assessment during preparation of specific sub- projects. These would be supported through small cells at the level of each basin manager; (b) establishment of a unit in WRO charged with groundwater regulation; (c) consolidation of WRO's water data collection activities including water quality under a state Water Resources Data Center (to be funded under the proposed NHP, para 2.18); (d) preparation of a Groundwater Act for regulation of groundwater usage; (e) establishment and usage of a construction code of practice incorporating environmental safeguards; (f) funding of a program for eco-restoration of catchments with depleted vegetative cover and resultant soil erosion and siltation; and (g) special studies, monitoring and demonstrations in groundwater utilisation, catchment interlinkages, soil conservation planning, pesticide impacts, sedimentation, reservoir environmental quality, wastewater reuse, pollution and health hazards. The EAP would be supported with funding of consultancies, training and equipment (US$3.6 million) and funds for the largest field component, catchment management (US$1.9 million). As environmental management expertise is limited in WRO and the water user community, training and technical assistance to upgrade skills are extensive. Training would cover not only the specialist needs of the staff in WRO's environmental units, but also awareness building for WRO engineers and the general public. Water Sector Research (Annex 8) 2.22 The new challenges to be embarked upon under the WRCP will require significant innovation, problem solving and technology transfer for WRO and related institutions. Creating this will be important, in part for the immediate WRCP needs, but also as an investment for the future. Mechanisms for harnessing Tamil Nadu based expertise in the university and non-Government sector are needed. For WRO, other government agencies and Tamil Nadu's universities and research institutes, linkages with technology, expertise and ideas abroad and elsewhere in India are also important. As discussed in GOTN's letter of Development Policy, a "Water Resources Research Fund" (WRRF) has been set up by WRO under the WRCP to support these objectives. Funds would be provided by WRO on a grant basis to research proposals approved on the basis of their relevance to Tamil Nadu water sector issues. IDA would 16 reimburse WRO against eligible WRO expenditures for such research contracts (US$ 3 million of IDA funding is estimated required during the WRCP period). Priority would be given to: cross-sectoral issues in water management and planning; engineering and hydrology; environmental issues; basin planning and modelling; water markets and prices; groundwater regulation and pricing; farmer and other user participation; roles of women, marginal farmers and other target groups; and water efficient irrigation and new technologies (Annex 8, para 9). All research proposals would require some participation from a Tamil Nadu located institution, but the WRRF would encourage and actively favor collaboration with other Indian or overseas institutions. 2.23 The WRRF would be administered and funded through WRO, but would be guided by a six member Research Advisory Committee (RAC). This would comprise five senior experts, not in active Government service, with experience in water resource engineering, agriculture, environmental science, economics and social sciences, and with at least one member with experience in the urban and industrial sector, and the EIC or his delegate as member-secretary. The RAC would be responsible for reviewing proposals, and would also be proactive in organizing workshops of relevance, identifying problems and research needs and advertising the existence of WRRF. It would also undertake annual review of WRO's own research related activities. To enable progressive establishment of a permanent fund, GOTN would contribute quarterly to an interest earning account in the name of WRRF an amount equal to one-third of IDA disbursements to WRO on fund related activities in the previous quarter. IDA would thus not directly finance the fund - disbursements would be made against eligible contracts under the WRRF program - but GOTN's contributions would progressively build up the fund. The program would be reviewed by IDA annually, on the basis of an annual report prepared by the RAC. The above arrangements were confirmed at negotiations. IV. Institutional Reforms (US$17.7 million, 7% of investment base cost, Annex 2) 2.24 Based on an Institutional Study undertaken by PWD with consultant assistance during WRCP preparation, and review by GOTN and the Bank, PWD is undergoing major reorganization to create a specialist state water agency. This and the associated institutional strengthening to be funded under the WRCP will be fundamental to the sustained drive to improve water sector performance under the WRCP and beyond, and important to the success of all project components. In March 1994, GOTN announced by Government Order the bifurcation of PWD to create a "Water Resources Organisation" (WRO), divested of all non-water sector related activities. It was also announced that the WRO would involve an internal reorganization to create functionally specialized sub-units and decentralization of line management along river basin lines. Reorganisation has already commenced for several of WROs management units, including creation in March 1995 of an Engineer-in-Chief (EIC) position to head the WRO (the former post of CE Irrigation and General needed to be upgraded so that the authority of the head of WRO was clearly established). 2.25 The detailed changes agreed with the new WRO have the following principal effects: (a) a single head of the WRO at EIC level; (b) reduction to a manageable number of sub-units reporting to the EIC; (c) decentralized management of field activities through four Chief Engineer (CE) level "basin 17 managers" with boundaries corresponding to boundaries of river basins or groups of basins; (d) reorganization at headquarters around the following functionally specialized units, each headed by a Chief Engineer: plan formulation; design, construction and research; operations and maintenance; and state water resources data center; plus water planning under IWS (para 2.18) and training support through IMTI (para 2.15); (e) creation of management support units for: programming and budgeting, and monitoring and evaluation, and strengthening of administration; and, (f) creation of a groundwater regulatory directorate (para 2.38) and a special office for land acquisition and economic rehabilitation (para 2.28). Descriptions of the new functions and organigrams are at Annex 2. Reorganization along the above lines is currently underway and is being assisted by a visiting consultant. The ensuing strengthening in all capability areas of the new WRO will require sustained effort by WRO over a number of years, and substantial training and consultancy support (para 4.02). The WRCP provides funding in support of these objectives for consultancy, training, study tours, equipment and vehicles. At negotiations, the organizational charts and details at Annex 2 were reviewed and confirmed. V. Land Acquisition and Economic Rehabilitation (US$3.9 million, 1% of investment base cost, Annex 9) 2.26 The project's Land Acquisition and Economic Rehabilitation Action Plan (LAERAP) described at Annex 9, provides a comprehensive program, to be funded under the project, to enable all project affected persons (PAPs) to maintain or improve their incomes and welfare on a sustainable basis. The Action Plan comprises: (i) establishment of an organisational structure to handle water sector LAER; (ii) adjustments in policies and procedures for LAER to enable compensation and economic rehabilitation to be fully responsive to the needs of PAPs; (iii) improved entitlements for PAPs; and (iv) site specific implementation programs on the basis of sub-project LAERAPs with implementation assisted by NGOs. The comprehensive measures on the institutional, policy and procedural front have been designed to establish permanent capability for future LAER in Tamil Nadu's water sector, thus enabling benefits beyond the specific needs of the WRCP investment program itself. 2.27 A baseline consultant's survey has found that the WRCP investment program would involve, statewide, acquisition of some 570 ha of farmed land involving about 1460 project affected persons (PAPs) (approximately 710 households). No village residential sites are being relocated, although (statewide) 12 dwellings would be affected. The needs of all PAPs would be catered for under the WRCP, based on completed detailed socio-economic surveys and Land Acquisition and Economic Rehabilitation Action Plans (LAERAPs) undertaken by consultants and WRO, with PAP participation, for each of the scheme completion sites where LAER is involved. The project's LAER component would remedy several past weaknesses in Tamil Nadu. The measures comprise: (a) strengthening of the institutional capacity to expedite LAER through establishment of a special cell for LAER within the WRO and district level negotiations and economic rehabilitation and grievance committees and field- based officers (para. 2.28); (b) provision of entitlements to economic rehabilitation and maintenance grants for specific categories of project affected persons (PAPs) (para. 2.29); (c) assistance to PAPs provided by NGOs for purchase of productive assets for self employment or for other income- 18 generating activities, to restore PAPs to their original economic status or better (para. 2.29); and (d) facilitating access, through NGO's assistance, to existing government poverty alleviation programs and income generating schemes (para. 2.29). 2.28 To implement the WRCP's LAER program and to establish permanent capability for future state needs in the water sector, a LAER Office has been established in WRO headed by a senior Indian Administrative Service (IAS) officer. The LAERO will be directly responsible for implementation and monitoring of the Land Acquisition and Economic Rehabilitation Action Plan and its scheme-level LAERAPs, and is also be the secretariat of a state level Coordinating Committee comprising the Secretaries WRO (Chairman), Land Administration, Finance, Rural Development, WRO EIC and the District Collectors where LAER is involved. At district levels, Negotiation Committees and Economic Rehabilitation and Grievance Committees would be established to ensure district level coordination. For each LAER site, an NGO will be contracted by LAERO to undertake primary responsibility for implementing the economic rehabilitation program and to represent the interests of PAPs (rights and entitlements), organize community participation and handle women's needs, and facilitate access to ongoing Government development schemes (criteria for NGO selection are at Annex 18). A full-time WRO official has also been delegated at each site to provide hands-on WRO assistance (Implementation Schedule and Organization Chart at Annex 9, Attachments 2 and 3). 2.29 Agreed criteria for eligibility and specific details for compensation and rehabilitation packages are described at Annex 9. They include definition of PAPs to include landless PAPs (encroachers, sharecroppers and tenant farmers), and the use of negotiated purchase. This provides PAPs (personally or through an NGO representing the PAP's interest) the option to request negotiated settlement with a Negotiation Committee, a procedure widely used in India and found to provide higher remuneration than the rates determined by assessed market value. Particular emphasis will be placed under the LAERAPs on economic rehabilitation. A first option available to marginal farmers with incomes below the poverty line would be provision of productively comparable land-for-land with assistance by the NGO. The land would be identified by the PAPs within a well-defined geographic area near the village or in the command area within a specific time frame. The terms of replacement would be on an equal basis of one acre of dryland lost to one acre of replacement dryland, or one-half acre of replacement irrigated land. Compensation paid for the land lost would be applied to the cost of the replacement land and the difference would be borne by GOTN. As a second option, a farmer may elect to receive, in addition to compensation for land acquisition, Rs.14,000/ha of dryland lost (or Rs.28,000/ha for irrigated land lost) as rehabilitation grant fund (RGF) up to a maximum of six acres of unirrigated or three acres of irrigated land lost. The amount would be deposited by the NGO in a joint bank account with withdrawal against signature of the PAP, the NGO and the LAERO. Withdrawals would be linked to purchase of productive assets such as farm animals, implements, items for self-employment, or other income-generating activities. Both the land-for-land option and the rehabilitation grant fund (RGF) option would be supplemented by the provision of an asset maintenance grant (AMG) of Rs. 500/month/family applied from date of takeover of land by WRO when the landowner loses his right to cultivate the land and ends with either possession of replacement land or one year after establishment of the joint bank account. The AMG would be to ensure that the PAPs have assured income 19 and are not obliged to sell existing family assets pending restoration of earning ability. Finally, additional to the above, through the district economic rehabilitation committees and facilitated by the NGOs, existing rural development programs (many programs exist, eg IRDP, the sericulture program, NABARD credit, horticulture, Training of Women in Agriculture, dairy cooperative development) would be specifically targeted to land acquisition sites. One additional innovatory program -- fisheries culture by PAPs on the small reservoirs created - would be specifically funded (equipment, training and consultancy totalling US$0.2 million) under the WRCP (Annex 9, Attachment 6). The other government programs are existing and simply need targeting by GOTN to the PAPs. The objective of the LAER program together with its supplementary rural development activities would be to create a record of tangible gain in welfare and earning capability for PAPs. 2.30 The LAER Action Plan would be supported by IDA funding of equipment, vehicles, training, consultancies and incremental staff and operating costs of the LAERO. IDA funding would also finance the NGO contracts with LAERO, including, within the contracts, the NGO's management of the rehabilitation grants for purchase of productive assets. GOTN would finance all land purchase and other compensation and the asset maintenance grant fund. LAER monitoring and special auditing provisions (para 4.08) would apply to ensure the RGF and AMG were used for creation of productive assets (RGF) and safeguarding of existing welfare and assets (AMG). The consultancy assistance would include an annual review by an independent consultant of the status of PAPs at all sites. Prior to negotiations GOTN: (i) completed through Government Orders the remaining announcements on the features of the LAER program: (a) expanded definition of PAPs to include encroachers, sharecroppers, and tenant farmers; (b) the option for PAPs to use negotiated purchase procedures; (c) land-for-land provisions for marginal farmers or the option for alternative assets funded through the RGF; (d) provision to all PAPs of the AMG; (e) the institutional structure for LAER; (f) use of NGOs to assist implementation for economic rehabilitation, management of the RGF and AMG and assistance to PAPs in negotiated purchase procedures; and (g) targeting of rural development programs including the fisheries program; (ii) announced through Government Order the head of the LAER cell with a suitably qualified IAS officer; and (iii) completed the site-specific socio-economic surveys and action plans. At negotiations an assurance was provided that land acquisition and economic rehabilitation would be implemented in accordance with a plan satisfactory to IDA. Implementation details for the LAER Action Plan (paras 2.26 through 2.30 and Annex 9) were agreed, including details and timing for implementation of the scheme-level LAERAPs. D. Policy Reforms Policv Reform Program 2.31 During project preparation, GOTN implemented a number of key actions to provide the necessary institutional and policy framework to achieve the project's objectives (paras 2.04 and 2.05). These included: (i) announcement and commenced implementation of the institutional reforms comprising a separate specialized Water Resources Organisation and creation of the state water planning apparatus; (ii) preparation of a state water policy; (iii) agreement on refocussed expenditure priorities; (iv) full funding of maintenance; (v) establishment of new approaches for environmental 20 management; (vi) agreement on revised policies and procedures for land acquisition and establishment of the institutional structure for its implementation; and (vii) forging of a new farmer integrated approach for irrigation investment, O&M and cost recovery. These measures will be followed up in the implementation of the WRCP, as described in the project components above and other features presented below. The package of policy and institutional strengthening measures to be implemented under the WRCP was affirmed at negotiations through submission by GOTN of a Policy Reform Program under a Letter of Development Policy (attached as Annex 1). State Water Policy 2.32 An early product from the WRCRC has been preparation of a State Water Policy for Tamil Nadu (Annex 6), consistent with GOI's National Water Policy (1987), and with the overall objectives of the Bank's policy paper, Water Resources Management (1993) and the India Irrigation Sector Review (Report 9518-IN, 1991). The document, prepared on the basis of a state workshop organised by IWS in 1993 and issued by GOTN in July 1994, places Tamil Nadu as the first of India's states to have issued a state water policy. In its policy statement Tamil Nadu highlights water scarcity and the need for its management as a unitary resource; by river basin, conjunctively for both surface and groundwater, integrating environmental management, planning holistically for all uses of water, and carefully prioritizing water allocation to maximise productivity, with first priority to household consumption needs. Actions highlighted include: establishment, with the new WRCRC and IWS as principal coordinators, of a state institutional apparatus for planning and allocating water between sectors; introduction of legislation for regulating groundwater; improving the efficiency and productivity of existing water infrastructure; monitoring and regulatory measures to enhance water quality and protect against overextraction of groundwater; preparation of flood control, drainage and drought management plans; cost recovery based on users paying for services and periodic adjustment of water rates; and strong emphasis on beneficiary participation including turning over of maintenance and management of distribution systems to users as the systems are upgraded. Expenditure Prioritization 2.33 In line with Tamil Nadu's State Water Policy and the recommendations in the India Irrigation Sector Review and the India, Public Expenditure Review, the project would forge a fundamental reprioritization of public expenditures. The new emphasis would be on intensified use and sustainability of existing infrastructure and improved institutional performance. In its Letter of Development Policy GOTN proposes to allocate public expenditures in the following priority order: (i) activities supporting the reorganization and technical strengthening of WRO; (ii) O&M of existing facilities (para 2.34); (iii) the system improvement and farmer turnover program; and (iv) viable scheme completions. This reordering would enable turning around the past situation where diversion of funds to new construction left insufficient funds for maintenance and the large benefits from modernization, and would also enable financial support to the project's institutional strengthening, water planning and environmental management objectives. Inclusive of several small and separately financed ongoing or expected activities of WRO (Tamil Nadu's components under the Bank financed Dam Safety project, Cr 2241/Ln 3325, and 21 the proposed National Hydrology project, and the EEC financed Tanks project), the agreed WRCP program would represent the entire state expenditure program of WRO and would serve as an instrument to sustain the turnaround in effort and expenditures of WRO, corresponding to the priority needs of the state. An Annual Review process (para 4.11) and strengthened programming and budgeting, monitoring, and investment selection criteria (Annex 15), confirmed during negotiations, would ensure consistency with these priorities while enabling program flexibility as sectoral needs evolve and water planning becomes further established. The WRCP would serve to institutionalize the new water sector expenditure priorities by creating the analytical and procedural mechanisms required and progressively strengthening the staff and institutional capability to implement them. Additionally, for the power sector, GOTN provided an assurance at negotiations that it would implement a program satisfactory to IDA for reducing subsidies provided to the Tamil Nadu Electricity Board (TNEB) and cause TNEB to implement a program satisfactory to the Association for improving its cost recovery and maintaining a sound financial status. Maintenance Funding 2.34 GOTN is committed to ensuring that the WRCP's investment in systems improvement is accompanied by completely revamped management of operations and maintenance and full funding of the state's future maintenance needs (Letter of Development Policy). Funding for maintenance has been progressively stepped up. From a state-wide average including staffing of Rs 120/ha in 1992/93, GOTN increased PWD's allowance to Rs 200/ha in 1993/94 and to Rs 265/ha in 1994/95. The 1994/95 allocation comprised an allocation to the new WRO of Rs 150/ha in a separate budget account exclusively for works expenditures, with the balance Rs 115/ha for staff costs. Similar procedures were followed for GOTN's 1995/96 budget. The works expenditure allocation in both 1994/95 and 1995/96 corresponds to WRO and Bank estimates of works expenditure needs in the respective years, thus starting the project with full Government expenditure on this key need (inadequate past funding for O&M had been primarily absorbed by salaries leaving little for actual field works). To ensure the continued priority funding of maintenance in the future, an assurance was provided at negotiations that: (a) GOTN would provide annually, and make available in a timely manner during each fiscal year, starting April 1, 1995, to WRO the funds required for satisfactory maintenance of all WRO's infrastructure, in order to sustain the infrastructure in full operating order; (b) funds would continue to be allocated to a separate maintenance works budget exempt from withdrawals for salaries and wages; and (c) WRO would prepare and submit its annual maintenance budget estimates to GOTN and IDA, based on detailed command-by-command estimates following an agreed reporting, programming and budgeting and monitoring and evaluation process. Cost Recovery (Annex 16) 2.35 Water charges to farmers (basic irrigation rate plus irrigation cesses) amount to about Rs 200-210/ha, amongst the highest water charges in India. This exceeds the Bank/WRO recommended expenditures on maintenance works (1994 prices) of about Rs 150/ha, and covers about 80% of all recurrent costs of WRO including establishment. GOTN is currently reviewing water rates through its "Water Rates Rationalization Committee", and this is expected to simplify agricultural rates (presently unwieldy involving over 100 assessment 22 categories depending on crop, soils and quality of service), to less than 20 rates under a new rating structure. GOTN intends to follow-up on these initiatives through creation of a permanent annual review apparatus for examining water charges, including charges for non-agricultural use. This is an important need as the absence of such an apparatus has meant that Indian states seldom examine water rates, resulting in stagnation of rates, for over a decade in some instances. Second, and most fundamentally, the objective over time in the agricultural sector will be to internalize revenues collection and O&M responsibilities at the level of water user associations, and to link service fees to the quality of service. Universally in India, farmers have resisted changes in water charges where the service is poor. An improved service through the systems improvement component allows for change in both farmer responsibilities and service fees accompanying the improved performance of the service. 2.36 GOTN intends to undertake the following actions under the project (Letter of Development Policy). First, GOTN will establish a permanent "Water Services Charges Committee" (WSCC) comprising user as well as government representation and reporting to the WRCRC. This would prepare an annual status report and recommendations covering all uses of water. In the first year, and as needed thereafter, consultant assistance would be funded under the WRCP to prepare a state-wide computerized model for assessing service costs and revenues of all water services by use (Annex 16). Dates advised by GOTN at negotiations for establishing the WSCC and for preparing the computerised model were July and December 1995 respectively. Second, financial arrangements accompanying turnover of distributaries to farmers after stage II improvement (para 2.12) were confirmed at negotiations. Farmers would contribute Rs 250/ha to their farmer councils prior to agreement with WRO for stage II investment. This would be placed in an interest earning capitalization account. Farmers would use interest earnings or annual fees collected by themselves to finance their cash costs for maintenance of distributaries. For lining under stage II investments, farmers would also contribute 20% of the costs of lining to their council bank account, further capitalizing their capacity to finance their O&M, and providing an internal incentive to economize for this expensive works item to reaches where lining is assessed to have significant benefits. Third, as described in GOTN's Letter of Development Policy, the report of the Water Rates Rationalization Committee and/or the 1995 report of the Water Services Charges Committee would include analysis and recommendations related to: simplifying existing rates, providing a mechanism for adjusting rates over time in line with service costs, recommendations for introducing volumetric charging to established farmer councils, recommendations for providing farmer councils the option to collect the service fees due to government including retention of part of fees as a collection incentive, and recommendations for introducing direct provision of collected fees to the O&M bank accounts of individual schemes. Groundwater Manaaement 2.37 The project would also introduce planning, measurement and regulatory mechanisms to monitor and manage the state's groundwater resources. The WRCP's basin planning component (para 2.18) integrates conjunctive assessment of surface and groundwater resources and would be supported by the strengthened hydrological data collection and monitoring funded under the proposed National Hydrology project. Under the WRCP GOTN also intends to 23 establish a groundwater regulatory mechanism and supporting legislation (Letter of Development policy). The proposed legislation, targeted in the Letter of Development Policy to be ready for GOTN review by December 1996, is expected to be a modification of the India Model Law and a draft report prepared by UNDP and GOTN, making enforcement more rigorous and increasing penalties for violations. A system of water use licence would be used, and new groundwater abstraction would require licensing. GOTN established by Government Order a nucleus Groundwater Regulatory Unit in WRO in September 1994. This is being followed up by preparation of a description of tasks to be performed and preparation of a proposed set of measures (guidelines, Government Orders in lieu of legislation, procedural improvements) that would establish better control and monitoring of groundwater development and usage pending legislation. The unit would also prepare and revise the proposed legislation and be responsible for technical guidance and steerage of the draft in the GOTN review process. III. COST ESTIMATES. FINANCING AND DISBURSEMENTS Costs and Financina 3.01 Proaram and Project Investment Costs. The total cost of WRO's program during the project implementation period is estimated at US$491.0 million, including physical and price contingencies, with a foreign exchange component of US$75.8 million (15%) and taxes and duties estimated at about US$34.4 million. Program costs comprise the project investment costs of the WRCP, which would be supported with IDA funding (para. 3.03), and WRO's recurrent expenditures funded by GOTN. Project investment costs amount to US$315.6 million, including physical and price contingencies and US$22.0 million in local taxes. Project investment costs cover: investment expenditures on civil works for systems improvement and scheme completions; and, the costs of equipment, facilities, and training/consultancies, for water planning, research, institutional development, the environmental action plan, and economic rehabilitation costs associated with land acquisition. WRO's recurrent expenditures comprise the costs of maintenance, staff salaries, and overheads, and amount, including contingencies, to US$175.4 million. Physical contingencies were applied to baseline costs at the rate of 15% for equipment, 10% for civil works and vehicles and zero for consultancies and training, and price contingencies at the rates estimated for international and domestic inflation prior to negotiations (Annex 11). 24 3.02 Summary project costs are provided below and detailed at Annex 11. Tamil Nadu Water Resources Consolidation Project Project Cost Summary Local Foreign Total Local Foreign Total Rs. million US$ million Project Investment Costs Systems Improvement & 4,001 577 4,578 125.1 18.0 143.1 Farmer Turnover Scheme Completion Works 2,195 264 2,459 68.5 8.3 76.8 Water Planning, Environmental Management & Research 309 364 673 9.6 11.4 21.0 Instit. Strengthening 419 146 566 13.1 4.6 17.7 Land Acquisition and Economic Rehabilitation 123 3 126 3.8 0.1 3.9 Total Baseline Costs 7,047 1,354 8,401 220.1 42.4 262.5 Physical Contingencies 670 99 769 20.9 3.1 24.0 Price Contingencies 1,956 308 2,263 25.9 3.2 29.1 Total Project Investment Costs 9.673 1,760 11.433 266.9 48.7 315.6 WRO Recurrent Costs (GOTN) 5,372 982 6,354 148.3 27.1 175.4 Total Program Costs 15.045 27.742 1 7.787 415.2 75.8 491.0 3.03 Project Financina. The proposed IDA Credit of US$282.9 million would contribute to financing of the project investment costs of the WRCP. The IDA contribution would be equivalent to 58% of the costs of WRO's program (62% exclusive of estimated taxes and duties) or the equivalent of 100% of the foreign exchange and 54% of local program costs net of taxes and duties. GOTN's contribution to project investment costs would be US$32.7 million equivalent, and to WRO recurrent costs (100% financing by GOTN) would be US$175.4 million making a total GOTN contribution to the costs of WRO's program of US$208.1 million, as tabulated below. 25 Financing Plan Local Foreign Total --- US$ Million ------------- Project Investment Costs GOTN 32.7 0.0 32.7 IDA 234.2 48.7 282.9 Total Project Investment Costs 266.9 48.7 315.6 WRO Recurrent Costs (GOTN) 148.3 27.1 175.4 Total Program Costs 415.2 75.8 491.0 3.04 The Credit would be made available to GOI on standard terms and conditions and on-lent to GOTN under standard terms for developmental assistance to the states. At negotiations an assurance was obtained that GOI and GOTN would implement a system satisfactory to IDA for channelling the funds required for the project to the project entities. An understanding was also reached that GOI would release about three months anticipated project expenditures in advance to GOTN (in accordance with the amounts established in the Annual Action Plans, para 4.11), and that upon receipt of funds from GOI, GOTN would transfer such funds, together with its quarterly counterpart contributions, immediately to the project accounts of WRO. The project completion date would be September 30, 2001 and the Closing Date of the Credit would be March 31, 2002. Procurement 3.05 Land (US$0.7 M). Land acquisition would comprise, statewide, about 570 ha of private lands. GOTN would finance all land acquisition costs. 3.06 Civil Works (US$268.8 M). Civil works are scattered throughout the state and are primarily for rehabilitating and modernizing existing irrigation and drainage networks or completion of ongoing schemes, plus a few small buildings (workshops, training and office space). Such works, carried out throughout the life of the project over more than 65 locations, would not attract foreign bidders due to their dispersed nature and the small size of the individual contracts (works at each site would average only US$4.0 million, and each site would involve individual works scattered throughout the distribution system). Therefore, these works would be procured through national competitive bidding (NCB) or Force Account as follows: (a) NCB (US$259.8 M). Works would be grouped into convenient packages (80% over US$100,000 and above) for bidding and contracts would be awarded on the basis of standard NCB documents and following procedures satisfactory to the Association. Foreign contractors would not be precluded from participation. (b) Force Account (US$9.0 M). Force Account would be used on small, scattered civil works valued at US$15,000 equivalent or less, up to an aggregate amount not exceeding US$9.0 M to carry out very small works in isolated and inaccessible locations that are not suitable for 26 contracting. Force Account may also include rates and labor contracts as appropriate. Materials required for these works valued at US$2.9 M would be procured under national shopping. The civil works will be executed by WRO (PWD's former irrigation wing) which has executed, and is executing Bank-financed contracts, and is fully conversant with Bank procurement procedures. 3.07 EauiDment, Materials and Vehicles (US$22.7 M) (a) EpuiDment and materials (US$17.1 M) would comprise a one-time investment in maintenance equipment, and purchases of computers, other office equipment, and various laboratory, teaching and field equipment. Procurement would primarily be through international competitive bidding (ICB), which would apply to purchases that can be bulked and is expected to amount to US$14.9 M. Up to US$1.1 M of materials and equipment, including maintenance equipment, available locally and easily serviced through local facilities, in contracts valued below US$200,000 equivalent each, would be procured through NCB. Isolated or smaller lot purchases, including in particular, immediate requirements of equipment and materials, would be procured following national shopping procedures in packages below US$25,000 equivalent each, up to an aggregate total of US$1.1 M. (b) Vehicles (US$5.6 M) would consist of cars, four-wheel drives, vans, trucks and motorcycles. ICB would be used for the bulk of purchases (US$4.0 M). Isolated or small lot purchases over the seven year life of the project including immediate requirements, each contract not exceeding US$100,000, would be procured using national shopping procedures acceptable to the Bank (US$1.6 M). The Bank's standard bidding documents would be used for all procurement under ICB/NCB. For comparing foreign and local bids in ICB, the qualifying domestic bidders would be allowed a margin of preference in accordance with the provisions of paras. 2.55 and 2.56 of the Bank's procurement guidelines. Under national shopping, rate contracts of the Director General, Supplies and Disposals would be acceptable. 3.08 Technical Assistance. Training and Studies (USS22.2 M) Technical assistance, training and studies includes local and foreign consultancies (US$6.4 M), contracts under the Water Resources Research Fund (US$3.4 M), contracts with NGOs for implementation assistance for the land acquisition and economic rehabilitation component (US$1.3 M) and the farmer turnover component (US$0.7 M), applied research and special studies by IWS, IHH, CE Plan Formulation and Basin Managers and under the Environmental Action Plan (US$6.0 M), and costs of staff training including visits in India and overseas (US $4.4 M). Technical Assistance would be contracted on terms and conditions in accordance with the "Guidelines for the Use of Consultants by World Bank Borrowers and the World Bank as Executing Agency", published by the Bank in August 1981. It would comprise consultancy through a "twinning arrangement" (para 4.03) which would provide both technical assistance and access to training arrangements (about US$5.8 M), and a smaller (about US$0.5 M) "supervision consultancy" (para 4.13) to assist GOTN's supervision committee, and small individual consultancies in particular specialties or as needed. Selection for the twinning arrangement would be based on an initial screening 27 and prequalification invitation exercise conducted by WRO, followed by invitation of detailed offers from a shorter list of 3 to 5 interested consulting groups. Other technical assistance, training, local consultancies, research grants and contracting to universities and NGOs would be arranged by WRO in accordance with Bank guidelines. 3.09 Incremental Staff and Operatina Costs for Land Acauisition and Economic Rehabilitation (USS1.2 M). The Credit would not finance operating costs, staff salaries (except LAER, see below) and maintenance which would be financed by GOTN. To assist with build-up of the organization required for management and implementation of the LAER program, incremental staff and operating costs for LAER would be financed by IDA on a declining basis (US$1.0 M; para 3.13). 3.10 Review of Contracts. All contracts for civil works, goods and equipment valued at US$200,000 and above, and all consultancy contracts valued at US$100,000 and above (US$50,000 equivalent for individual consultants) and all single source consultancy contracts over US$100,000 equivalent, as well as the first five contracts under each of the works, goods and consultancy categories irrespective of the values would be subjected to prior IDA review. All other contracts would be subject to random post review in the field by visiting missions. This will result in about 50% of the project procurement being subject to prior review. WRO is experienced with Bank procurement, both under the ongoing NWMP project and the recently closed Periyar Vaigai project, and a higher level of formal reviews by IDA would not have a significant impact on procurement quality. 3.11 Procurement Manaaement. The following procedures for the WRCP's procurement management were agreed at negotiations: (i) except where may be specifically agreed by IDA, prequalification procedures would not be used; (ii) as a minimum, all bid invitations would be advertised in newspapers with national circulation and shall contain in summary form the post-qualification requirements. Bid documents shall be provided promptly upon request, upon payment of the prescribed fee, and shall be sent by mail upon request; (iii) Bids shall be evaluated, contract award approvals sought and granted (including that of IDA, where required) and contracts signed, all within the bid validity period, and a justification for any exceptions shall be forwarded to IDA; (iv) At time of bid opening, WRO would appoint (or retain) a suitably qualified individual (the Evaluator) to prepare a signed and dated Bid Evaluation Report (BER), following a format and content acceptable to IDA. The BER will be prepared as expeditiously as practicable; (v) A Contract Award Committee (CAC) for the WRCP, with constitution acceptable to IDA, would be authorised to recommend the award of the contract (subject where required to approval by IDA prior to award, para 3.10). The Bid Evaluation Report shall be submitted to the CAC within seven working days of its completion. The CAC members would sign a dated minutes of their proceedings and decisions which would be kept on file, for possible review by 28 IDA and, where required, also furnished promptly to IDA for approval along with the BER. (The CAC was established by Government Order in October 1994 and comprises the Secretary PWD/WRO, Secretary Finance and EIC, WRO.); and (vi) WRO's quarterly reports (para 4.10) would contain summarized procurement data including for each contract the dates of bid invitation, receipt, evaluation, approval and signing, and the names of contractors bidding, offer prices and firm awarded the contract. 3.12 The proposed procurement arrangements are summarized below: Summary of Proposed Procurement Arrangements* (US$ million) Total Project National Force Consult. Investment ICB NCB Shopping Acc't Serv's NBF Costs 1. Land 0.7 0.7 2. Civil Works 259.8 9.0 268.8 233.8 8.1 241.9 3. Vehicles 4.0 1.6 5.6 3.2 1.3 4.5 4. Equipment and 14.9 1.1 1.1 17.1 and Materials 11.9 0.9 0.9 13.7 5. Consultancies, Studies, Training (i) Imp. Supp't. 8.7 0.4 9.1 8 .7 8.7 (ii) Policy Supp't 3.3 3.3 3.3 3.3 (iii) Capacity Bldg. 9.8 9.8 9.8 9.8 6. Incremental Opera- 1.2 1.2 ting Costs (LAER) 1.0 1.0 Total Project Investment Costs* 18.9 260.9 2.7 9.0 21.8 2.3 315.6 15.1 234.7 2.2 8.1 21.8 1.0 282.9 Note: Figures in bold print are the respective amounts to be financed by IDA. ICB: International Competitive Bidding; NCB: National Competitive Bidding; NBF: Non-Bank financed (except as in para. 3.13 d). * Excluding WRO recurrent costs which are funded by GOTN. 29 Disbursement 3.13 The proceeds of the Credit would be disbursed against: (a) 90% of expenditures on civil works; (b) 100% of foreign expenditures or 100% of local ex-factory costs or 80% of other local costs of equipment, vehicles and materials; (c) 100% of expenditures on consultants' (including NGOs') services, training and studies; and (d) for the land acquisition and economic rehabilitation component, 90% of incremental staff salaries and allowances and operating costs covering the period to March 31, 1997 (to end PY2), 80% through March 31, 1998 (PY3), 60% through March 31, 1999 (PY4), 40% through March 31, 2000 (PY5) and zero for PY6. 3.14 Disbursements against civil works, equipment, vehicles and materials contracts exceeding US$200,000 equivalent and consultancy and training contracts exceeding US$100,000 would be fully documented (for individual consultants the limit would be US$50,000 equivalent). For all other expenditures, disbursement could be against Statements of Expenditures (SOEs). Supporting documents for SOEs would not be submitted to IDA, but would be retained by GOTN and made available to IDA staff during supervision (Annex 12 for Schedule of Disbursements). Disbursements against the NGO contracts for LAER would exclude the maintenance grants (para 2.30) to be funded by Government (US$0.4 million). Retroactive Financing and SDecial Account 3.15 WRO has already commenced field activities related to the WRCP to expedite project start-up. To reimburse GOTN for such expenditures, retroactive financing would be applied to all eligible expenditures incurred from July 1, 1994 provided that procurement procedures acceptable to IDA were followed. Additionally, for completing the remaining (7%) balance works for the link canal under the former Periyar Vaigai Irrigation II project, the earlier date of November 1, 1993 would be applied (up to US$1.5 million). Since December 1993, and earlier for the link canal, WRO has used Bank procurement guidelines. The additional guidelines at para 3.11 would apply from Credit signature. The total amount of retroactive financing, including the link canal, would amount to up to US$11 million or about 4% of the Credit. To facilitate project implementation and to reduce the volume of withdrawal applications, a Special Account in US dollars would be established in the Reserve Bank of India with an authorised allocation of US$10 million. This deposit is based on estimates of the project's financing needs and projected IDA disbursements (Annexes 11 and 12). Accounts and Audit 3.16 Project accounts, maintained by WRO, would identify all project transactions on an ongoing basis, including contributions from GOTN, GOI and the Credit. At negotiations, assurances were obtained from GOI and GOTN that: (i) project accounts, including the Special Account, would be maintained and 30 audited annually in accordance with sound auditing standards consistently applied by independent and qualified auditors acceptable to IDA; and (ii) certified copies of the annual financial statements and SOEs together with the auditors report, which would comment separately on the SOEs, would be submitted to IDA not later than nine months after the close of each GOTN fiscal year (April 1 to March 31). IV. PROJECT IMPLEMENTATION AND MONITORING Oraanization and Manaaement 4.01 The project would be implemented by Tamil Nadu's Water Resources Organization (WRO). As the project and its contributing IDA and state funds are supporting the overall program of WRO, project years, project monitoring and physical and financial planning fit in with the GOTN fiscal year (April 1 to March 31). Project management would be the responsibility of the Engineer- in-Chief, WRO (para 2.24) under the guidance of the Secretary PWD/WRO. WRO's new organizational structure (para 2.25) is at Annex 2. Implementation arrangements are in the Implementation and Supervision Plan at Annex 13. This includes an Implementation Schedule, Implementation Responsibilities, IDA Supervision Schedule, and Development Indicators at Attachments 1, 2, 3 and 4 respectively. Training and Technical Assistance 4.02 The extensive reorganization and institutional strengthening to be undertaken under the project would require substantial training and technical assistance throughout the new WRO. Training and consultancy needs have been prepared for each management unit and are detailed in their respective cost tables. Each CE would be responsible for managing the specific training and consultancy relevant to his management unit, but would receive administrative support from a Training and Technical Assistance officer in the EIC's office. Overall coordination and identification of training opportunities would be provided by the CE, IMTI. The EIC would provide general guidance and balance needs between WRO units. Training would focus on strengthening skills in all engineering areas including operations and maintenance, water planning, environmental management, design and construction, and on supporting skill development associated with technologies or management techniques relatively new to WRO such as financial management, programming and budgeting, critical path scheduling, computerization, computer aided design, remote sensing and management information systems. For consultancies, in order that know-how is transferred to WRO staff, consultant assistance would be linked in all cases to staff training through association of staff with consultant assignments and interlinked formal training as practicable. National and international study tours and temporary assignments would also be used to provide first-hand exposure to new technologies and management techniques. 4.03 Consultancy arrangements would include small consultancies with individuals or firms, but would be backstopped throughout the project period with a "twinning arrangement" with an experienced consultancy group. All consultancy selection would follow Bank guidelines. The twinning arrangement is expected to be a consortium of several firms or specialist institutions, combining a mix of international and local firms. The central skill areas, 31 seldom found in one firm or agency, would likely comprise all aspects of irrigation engineering, water planning, and environmental management, and hands-on irrigation agency management, particularly in O&M, general management techniques and beneficiary participation. One of the firms or agencies would be the lead partner and have overall responsibility for mobilizing the consultancy and training support required. The contract would provide a basic expertise and training input annually, including some core senior staff providing continuity of visits, and access to other specializations and training on an "as needed" basis. Selection would be through an initial pre- qualification of interested firms, which would advise of any intended partners, followed by short listing by WRO of 3 to 5 firms or groups of firms for submission of detailed offers. A contract over the project period would be agreed at the outset, with flexibility for annual variations based on an annual review of consultancy and related training needs between WRO and the consortium in consultation with GOTN and IDA. The above procedures would provide the expertise required while limiting constraints frequently found in India of obtaining individual clearances, especially for consultants and training requiring foreign exchange. At negotiations, the above consultancy and training objectives were confirmed. Suitably qualified and experienced NGOs would be recruited for implementation of the LAERAPs (para 4.08), and as community organizers for farmer participation and turnover (para 4.04). At negotiations an assurance was obtained that any NGOs contracted under the project would be selected according to criteria (Annex 18) agreed with IDA. Manaaement of Farmer Organization (Annex 4) 4.04 Special organizational needs are posed by the farmer participation and turnover program, already being piloted but recognized by WRO as requiring a major staff focus supported by NGOs and consultants for its success on a wider scale. Organization and staff and farmer training for this is intensively underway with assistance of a core team of WRO staff and a consultant advisor. Farmer Organization (FO) would be implemented integrally with system improvements and would come under the CE O&M for technical support and monitoring, and under the respective basin managers and scheme level executive engineers for field implementation. At both CE, O&M and basin manager levels, a deputy CE will be charged with supervising the FO program. The work program of IMTI has been adjusted to focus principally on training for staff and farmers related to the farmer participation and system improvement program (Annex 4, Attachment D). All O&M staff would receive "appreciation" training, with more intensive training and consultancy support for specialized FO teams and for the office bearers in farmer councils. About 15 FO teams would be deployed throughout the project period, each comprising 3 WRO staff and two community organizers (a man and a woman) and handling about 5000 ha per cycle (about 1 1/2 years per cycle typically, followed by less intensive FO support to established water user associations). An Institutional Advisor would supervise 2 to 3 FO teams. A consultant Senior Institutional Advisor, would supervise the entire FO effort from the CE, O&M's office. The Community Organizers and Institutional Advisors would be recruited through local NGOs with practical field experience. The FO program includes national and international consultancy support and provisions for national and international training and study tours. 4.05 The farmer organization and turnover program would be intensively monitored and evaluated throughout the WRCP period, incorporating lessons 32 learned from experience. This would commence with a targeted survey in PYI to assess the state of affairs on specific criteria and to refine M&E criteria to ensure meaningful qualitative indicators of impact (Annex 4, Attachment E). A special review of the farmer oraanization and turnover prooram by independent consultants would be undertaken at the end of PY2, sufficiently early in project implementation to enable timely adjustment as needed. The WRCP's annual reviews (para 4.11) would also have a special section on this component. The above arrangements were confirmed at negotiations. Management of Land Acauisition and Economic Rehabilitation (Annex 9) 4.06 The Land Acquisition and Economic Rehabilitation (LAER) Cell reporting directly to the Secretary WRO would be responsible for planning, coordinating, monitoring and evaluating all land acquisition and economic rehabilitation of project affected persons (PAPs) under the project. It would also serve as the secretariat for a state level coordinating committee for LAER under the WRCP. It would be responsible for contracting with NGOs to carry out Economic Rehabilitation Action Plans (ERAPs) for each subproject, overseeing their work, and providing approval for the joint accounts to be established under the ERAPs. The LAER Cell would be provided with adequate funding to carry out its mandate. 4.07 At the district level the LAER Cell would be supported by a Negotiations Committee and an Economic Rehabilitation and Grievance Committee (ERGC). The Negotiations Committees have been provided the authority to conduct negotiations with the landowners to establish a full and fair valuation of land to be acquired for the project. The ERGCs would be responsible for grievance resolutions and for monitoring the implementation of the ERAPs. 4.08 The LAER Cell would contract one NGO per subproject to assist in the implementation of ERAPs. Funds for the Rehabilitation Grants would be deposited in joint NGO/PAP accounts established by the LAER Cell. The NGO would provide assistance to each PAP in preparing and implementing individual economic rehabilitation plans. The NGO would be responsible for certifying that the Grants had been used for the purchase of productive assets or income generating schemes, and would be subject to special monitoring procedures by LAERO and annual auditing consistent with accepted standards. Approval to withdraw funds from the joint account would be on the basis of three signatures: LAER Officer, the NGO and the PAP. These arrangements and other features at paras 2.26 to 2.30 and Annex 9 were confirmed at negotiations. Monitoring and Evaluation 4.09 WRO's Program and Budgeting unit (P&B), reporting to the EIC, would be responsible for developing and operating a system of physical and financial reporting to track project progress, maintaining a computerized Management Information System (MIS) and coordinating preparation of annual work programs and budgets. Each management unit would be responsible for providing P&B with required information and estimates. A project Implementation Schedule and Key Project Performance Indicators are provided at Annex 13, Attachments 1 and 4. A Monitoring and Evaluation (M&E) unit, reporting to the EIC, would use P&B and other data to report on the progress and benefits of the project. Indicators monitored would include: 33 implementation of the institutional strengthening, staff training and development, physical progress and quality/capacity improvement by all units, delivery of water and improved services, quality of annual maintenance, farmer participation and turnover, cost recovery, agricultural growth and crop diversification. The remote sensing capability to be built up under the WRCP in IWS would be one of the tools used to monitor water management and some crop data. In addition to regular data sources from line units, M&E would use consultant surveys as needed. This would include a Baseline Survey (TOR at Annex 10) covering agricultural data, household income and socio-economic data, existing irrigation performance and water use undertaken by consultants in 1995 as a basis for future monitoring and performance evaluation. At negotiations, the TOR for the baseline survey and implementation details, including agreement on its completion by December 31, 1995, was confirmed. Additional independent monitoring and evaluation, or assessments on specialist aspects of project performance and impact would be available from independent agencies funded under the project's research fund (para 2.22). Project Reviews and Reporting 4.10 WRO would be responsible for the internal reporting requirements of the State and GOI (Annex 13 paras 19 to 29). This would take the form of short quarterly progress reports and a comprehensive Annual Review. Action Plan and Budaet (ARAPB), both prepared by the P&B unit under the EIC's guidance. The auarterlv progress reports (Attachment 6 of Annex 13) would comprise submissions by each implementation unit in WRO which would quantify and compare progress with the SAR and the previous ARAPB, discuss shortfalls, and propose measures to resolve any problems. An overview with summarized data and a listing of decisions taken or recommended, based on each unit's submission, would be prepared by the EIC's office. This would include a commentary on the status of decisions/actions outstanding from the last quarterly report, and a review of outstanding decisions related to any recommendations by GOTN, GOI or IDA. The reports would be presented to the Secretary WRO and copied to relevant state officials, GOI and IDA. 4.11 The ARAPB would be the main vehicle for annually taking stock of project performance and future needs, for adjusting WRO's program as needed, for budgeting by GOTN of WRO's Plan and non-Plan expenditures, and for review and supervision by GOTN, GOI and IDA. For WRO it would provide annual opportunity to assess its overall program, to propose adjustments as needed and to make a consolidated plan and justification for its forthcoming financing needs. The ARAPB would review for each component and responsible unit the past year's achievements in terms of expenditure and physical targets by quarter, and include a justified work program and proposed expenditure budget for the forthcoming year. This would include: (i) description of each year's works, schedule of activities, staffing requirements and distribution of responsibilities; (ii) proposed expenditures compared with previous year's expenditures; (iii) details on major civil works contracts exceeding US$200,000 and for ICB for goods; and (iv) financing plan and source of funds; plus special sections covering, (v) review of implementation progress related to the institutional strengthening and policy reforms under the project; (vi) detailed review and proposal of maintenance needs and corresponding non-Plan expenditure requirements (para 2.34); (vii) the farmer participation and turnover program; and (viii) progress of state water planning under WRCRC and IWS. 34 4.12 At negotiations, the above project review and reporting arrangements were confirmed including specific assurances related to the following: (i) a draft ARAPB for the forthcoming GOTN fiscal year would be submitted to IDA for review and comment by December 31 each year, commencing December 1995. The GOTN approved ARAPB, taking account of IDA comments, would subsequently be forwarded to IDA by March 31, and WRO would subsequently implement the agreed action plan, including the timely provision of the approved budget funds, in a manner satisfactory to IDA; and (ii) not later than December 31,1997, GOTN would carry out jointly with GOI and IDA, a detailed mid-term review of project progress (and possible need for adjustments to components, implementation arrangements and policy reforms), and thereafter implement its recommendations. Supervision (Annex 13) 4.13 By integrating creation of management information and programming and budgeting in the WRCP, the capabilities of WRO to program and monitor its activities will be strengthened. The reporting arrangements above are also designed to facilitate monitoring by GOTN, GOI and IDA, and to provide a mechanism for integrating adjustments in quarterly and annual action programs. IDA support (Supervision Schedule at Annex 13, Attachment 3) would typically comprise a main supervision mission annually at time of ARAPB review, supplemented by a shorter mid-year visit, and correspondence and clearances as needed. In view of the institutional and technical challenges to be undertaken under the project, GOTN intends to undertake a close monitoring and supervision role itself, assisted by consultants. This would be through a state-level "Supervision Committee" formed in April 1995 chaired by the Secretary WRO and including the Finance Department, Land Development Commissioner, State Planning Commission, two experienced invited members (former WRO, other Government agency or business community/NGO) and the EIC. The committee would meet at least quarterly to review WRO's quarterly reports. The committee would employ a "Supervision Consultant" through a contract with a national consultancy firm. The supervision consultants would assist the committee, including two visits annually, overlapping with IDA supervision visits, and provide extra support as requested by the Committee. Costs of the consultancy would be reimbursable under the Credit. Consultant reports would be to the Supervision Committee, and also made available to 0OI and IDA. These arrangements were confirmed at negotiations and an assurance provided that the supervision committee would be maintained for the duration of the project. V. BENEFITS. JUSTIFICATION AND RISKS Project Benefits 5.01 The project would generate substantial and wide reaching benefits. These range from the project's broader impact resulting from multi- sectoral water planning, environmental management of water resources, institutional strengthening, beneficiary participation, and refocusing of public expenditures (para 5.04), to the specifically quantifiable impacts of the project's two main investment components: the improvement of the existing irrigation schemes, and the investments in scheme completions. 35 5.02 System ImDrovement and Farmer Turnover. About 660,000 ha of irrigated land (50% of the state's area under surface irrigation), comprising some 0.7 million farm families (about 3.9 million persons), would benefit from the WRCP's system improvement program. Improved reliability of water supplies, including improved timing of delivery relative to crop needs, would benefit most farmers, with larger benefits for tail-end farmers who to date often receive partial or no water. About 107,000 ha of land would change from partial to full irrigation, and an additional 34,000 ha, presently not receiving any water, would receive irrigation. Overall, the annual value of crop output would increase by Rs 1,040 million (US$33 million), including a 170,000 t/annum increase in food grain production. Benefits by family would vary depending on the existing status of irrigation in the command and their position in the command. A typical family with one hectare presently receiving unreliable irrigation would increase agricultural net income by Rs 2,100/ha. For farmers currently receiving no or very incomplete irrigation, incomes would increase by an average of Rs 9,800/ha. 5.03 Scheme ComDletions. The nine selected scheme completions would augment the state's irrigated area by 31,000 ha and produce an incremental agricultural output valued at Rs 380 million (US$12 million). Some 26,000 farm families would directly benefit from the investment, experiencing typical income improvements of Rs 12,600/ha. 5.04 Non-auantifiable Benefits. Substantial benefits would stem from the project's institution strengthening and water planning activities, and associated measures to create a sustainable and client oriented water service. First, under the WRCP, Tamil Nadu will create a modern water resources agency and supporting policy and institutional mechanisms to plan and manage water from a multi-sectoral and environmentally-responsive perspective. The scarcity of water resources in Tamil Nadu makes optimum water usage critical to economic development. This cross-sectoral need is important to the sustainability of development and the environment. Second, the project would forge revised roles for Government and the private sector. The past government-dominated approach would adjust to allow for active participation of beneficiaries including progressive turnover of facility operations and maintenance functions to farmers. The desired outcome is of a sustainable infrastructure managed and maintained by local communities, and a client responsive planning and investment machinery. Cost recovery would be linked with the new client approach, internalized and collected by farmers at lower levels in the systems, and with annual reviews related to service costs replacing the past politically-influenced process. Third, the WRCP preparation has enabled a complete rethink of irrigation sector expenditure priorities and their subsequent reflection in WRO's expenditure program. Full funding of maintenance is to be the first priority, rehabilitation and modernization of existing infrastructure the second priority, and viable completions of existing schemes the third. A viable state expenditure program, corresponding to the identified priorities, is reflected in the project's ERR below. The institutional and financial planning measures established under the WRCP would enable continuity of sound expenditure planning and sub-project selection beyond the project completion date. 36 Economic Analysis 5.05 Assumvtions. Economic rates of return have been estimated for each of the project's investment components: the system improvement and farmer turnover component (55% of project investment costs), and the scheme completions component (29% of costs). The following assumptions are made: all costs and benefits are in constant March 1994 prices expressed net of identifiable taxes; physical contingencies are as in the project cost estimates at para 3.01; reference prices for main crops and fertilizer are based on estimated world reference prices adjusted to Tamil Nadu farmgate values; costs and benefits are adjusted by the standard conversion factor used in India of 0.9; project benefit and cost streams are extended over 30 years; benefits are derived from incremental crop production; the opportunity cost of capital is 12%; and the project implementation period is 7 years. Assumptions, calculations used and detailed results are at Annex 14. 5.06 ERR and Sensitivity Analysis. The economic rate of return for the project is calculated as the combined ERR of the two investment components (80% of project costs) and is estimated to be 17%. The ERR for the modernization, rehabilitation and farmer turnover component is 19%, and that of the scheme completions component is 15%. The selection criterion for individual sub-projects was a rate of return of not less than 12% (Annexes 14 and 15). Benefits have not been quantified for the project's water planning and environmental action plan, nor for institutional improvement expenditures not directly related to the two production components. If the costs of these items (20% of project costs) are included, but without ascribing benefits, the rate of return would be 13%. 5.07 Overall, the project is robust to significant changes in costs and benefits: benefits would need to fall by 30% or costs increase by 43% for the ERR to fall to 12% (i.e. with a net present value of zero). Significant departures from estimated costs and benefits are unlikely as costs are based on actual field experience under PWD's construction program and the National Water Management Project, and estimated benefits are realistic, having been based on yield data measured by Tamil Nadu Agricultural University and FAOCP field visits. Sensitivity tests also assess the impact of shortfalls of various kinds (paras. 5.08 to 5.10). For instance: if benefits lagged by two years as a result perhaps of insufficient monitoring of implementation activities, the project's overall rate of return would be 13%; if resources for maintenance were seriously deficient after project completion, the overall ERR would be 13%; or, if independence of farmer organizations is substantially below expectations, the ERR would be 14%. Project Risks 5.08 The first risk relates to the project's objectives to implement a fundamental change in water resources management, covering issues from policy and institutional changes to adjustment in expenditure priorities and field activities. WRO will be continually challenged as it implements the project and progressively adjusts and upgrades its skills to become a specialized state water agency. Commitment of WRO, and strong political will within Tamil Nadu to support WRO and its objectives, will be essential for the success of the project. Recognizing this, preparation of the project has centered on creating before project start-up, the basic institutional and policy features 37 important to project success. GOTN has undertaken a large number of decisions and actions to this effect during 1993 and 1994/95, and formalized these in official Government Orders. A number of actions, such as the preparation of the state water policy, the institutional reorganization and the preparation of the farmer participation component, have entailed extensive discussion within Tamil Nadu involving many Government agencies, NGOs and farmers. As a result, the actions taken and consensus that has been built to achieve those actions will help launch the project with a sound base toward successful implementation. The progress to date provides confidence that the Government will continue (as it must do to ensure project success) to undertake the tough but necessary measures to deepen the reform process. While it is recognized that full achievement of the reforms is a desired outcome, the project would still be considered a success if significant achievement (though less than complete) is realized. This notwithstanding, risk of shortfall has been reduced through a variety of monitoring and incentive mechanisms specifically built into the project. Over time, such project measures will be reinforced and significantly overtaken in importance as the client orientation of the project takes hold and users become important as operators of irrigation and as parties in state and basin water planning. 5.09 The second risk relates to the systems improvement and farmer turnover component. Technical aspects have been implemented and proven on a large scale - 150,000 ha - under NWMP, and implementation of the WRCP's larger program is manageable due to the experience acquired under NWMP. The farmer organization aspect is, however, innovatory and unique in India on this scale. The intensive preparation effort and piloting of this component during the past two years will need a continued drive throughout the project period. As with the general institutional reform component above, continued levels of commitment during project implementation that yield significant but incomplete achievement of these institutional objectives would still represent successful attainment of project objectives. To lessen risks of shortfall and to sustain the efforts already being undertaken by the Government, intensive consultancy and training support have been built into this program, which will also mobilize community organizers from local NGOs to provide the intensive assistance required. The project also contains provisions for special monitoring and evaluation of the program during implementation, and a detailed review of the farmer organization component in PY2, so as to allow for early adjustments as needed based on the initial experience acquired. 5.10 A third risk, relating to general implementation capacity of WRO, would be reduced by the management improvements integral to project objectives under the institutional strengthening of WRO. Supplemented by special measures to improve procurement (para 3.11), timely implementation of the project's two main components is expected, since WRO (as the former irrigation wing of PWD) has proven capability in management of works where procurement and financial constraints have been resolved. 5.11 Proaram Obiective Cateaories. The project is supportive of the Bank's anti-poverty strategy. The project would improve the incomes and living standards of small and marginal farmers - estimated to form some 70% of beneficiaries - through improved and equitable distribution of water for irrigation and domestic use. Employment opportunities for landless families would also be substantially enhanced as labor needs are closely linked to crop intensification and yields. For the urban poor, the project's planning 38 component would be important for future bulk water supply needs. The project's emphasis on beneficiary participation would help ensure that beneficiary needs are integrated in all decisions, efficiency is improved and service quality sustained and affordable. Women, often under-represented in irrigation management and also the primary users of domestic water, would receive special client emphasis. To this effect, half of the village community organizers would be women, and farmer organization arrangements contain special provisions for women's participation. VI. AGREEMENTS AND RECOMMENDATION 6.01 At negotiations, GOTN submitted its detailed Policy Reform Program (which outlines actions undertaken and planned actions regarding the state's water policy, water planning, institutional reforms, expenditure prioritization, maintenance funding, farmer participation and turnover, cost recovery, land acquisition and economic rehabilitation, the environmental action plan, and groundwater management) under a letter of Development Policy (para 2.31) as presented at Annex 1. 6.02 At negotiations assurances were obtained: (a) from GOTN that any additional scheme completion investments under the WRCP would be prepared and evaluated according to criteria agreed with IDA and would require IDA's prior review and approval before selection (para 2.17 and Annex 15); (b) from GOTN that land acquisition and economic rehabilitation would be implemented in accordance with a plan agreed with IDA (para 2.30 and Annex 9); (c) from GOTN that it would: (i) provide annually, and make available to WRO in a timely manner during each fiscal year the funds required for satisfactory maintenance of all WRO's infrastructure, in order to sustain the infrastructure in full operating order; (ii) provide the maintenance funds to a separate maintenance works budget exempt from withdrawals for salaries and wages; and (iii) WRO would prepare and submit its annual budget estimate for maintenance to GOTN and IDA based on detailed command-by-command estimates following an agreed reporting, programming and budgeting, and monitoring and evaluation process (para 2.34); (d) from GOI and GOTN that they would implement a system satisfactory to IDA for channelling the funds required for the project to the project entities (para 3.04); (e) from GOI and GOTN that: (i) project accounts, including Special Account, would be maintained and audited annually in accordance with sound accounting and auditing standards consistently applied by independent and qualified auditors acceptable to IDA; and (ii) certified copies of the annual financial statements and SOEs together with the auditor's report would be submitted to IDA no later than nine months after the close of each fiscal year (para 3.16); 39 (f) from GOTN that it would implement a program satisfactory to IDA for reducing subsidies provided to TNEB, and that TNEB would implement a satisfactory program for improving its cost recovery and maintaining a sound financial status (para 2.33); (g) from GOTN that NGOs participating in the project would be selected in accordance with criteria agreed with IDA (para 4.03 and Annex 18); (h) from GOTN that a draft Annual Review, Action Plan and Budget (ARAPB) for the forthcoming fiscal year would be prepared and submitted by WRO to IDA for review and comment by December 31 each year, commencing December 1995; the GOTN approved ARAPB, taking account of IDA comments, would subsequently be forwarded to IDA by March 31, and WRO would subsequently implement the agreed action plan, including the timely provision of the approved budget funds, in a manner satisfactory to IDA (para 4.12 and Annex 13); (i) from GOTN that by December 31, 1997, GOTN would carry out, jointly with GOI and IDA, a detailed mid-term project review and thereafter implement its recommendations (para 4.12); and (j) from GOTN that the state-level committee established for supervising the project (para 4.13) would be maintained for the duration of the project. 6.03 At negotiations understandings were reached on the following: (a) from GOI and GOTN that GOI would release three months anticipated project expenditures in advance to GOTN, and that upon receipt of funds from GOI, GOTN would transfer such funds, together with its quarterly counterpart contributions, immediately to the project accounts of WRO (para 3.04), and from GOTN on the administrative and financial arrangements for the Water Resources Research Fund including GOTN's percentage contributions to the WRRF account (para 2.23); (b) with GOTN, details of the Land Acquisition and Economic Rehabilitation Plan (paras 2.26 to 2.30, 4.06 to 4.08 and Annex 9) were confirmed; and (c) with GOTN, arrangements, scheduling and procedures were confirmed for: (i) WRO's detailed organizational features (para 2.25 and Annex 2); (ii) farmer organization arrangements including the review in PY2 (paras 2.12, 2.13, 2.36, 4.05 and Annex 4); (iii) the arrangements for procurement management at para 3.11; (iv) the project's technical assistance and training (para 4.03 and Annex 13); (v) monitoring and evaluation including completion of a baseline survey by December 31, 1995 (para 4.09 and Annexes 10 and 13); (vi) provision and contents of quarterly and annual reporting (paras 4.10 to 4.12 and Annex 13); and (vii) supervision arrangements including the state Supervision Committee and the supervision consultancy (para 4.13 and Annex 13). 40 6.04 With the above assurances, the project would be suitable for an IDA Credit of SDR 181.9 million (US$ 282.9 million equivalent) on standard terms with 35 years maturity. May 19, 1995 Agriculture and Water Operations Division South Asia Department 2 IBRD 26167 77' 78' 79- 80- INDIA TAMIL NADU WATER RESOURCES CONSOLIDATION PROJECT[- - -13' - mig WRO BASIN REGIONS SM RIVER BASIN BOUNDARIES 'J 13
Группа Всемирного банка · Staff Appraisal Report
India - Tamil Nadu Water Resources Consolidation Project (Vol. 1 of 2) : Main report
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