India - Third Andhra Pradesh Irrigation Project

Document of The World Bank REPORT No. 16336-IN STAFF APPRAISAL REPORT INDIA THIRD ANDHRA PRADESH IRRIGATION PROJECT April 25, 1997 Agriculture and Water Operations Division South Asia Country Department II (Bhutan, India, Nepal)  CURRENCY EQUIVALENTS Currency Unit = Rupee (Rs.) US$1.00 = Rs.35.84 FISCAL YEAR GOI; GOAP - April I - March 31 WEIGHTS AND MEASURES (METRIC SYSTEM) I meter (m) = 3.28 feet (ft) i kilometer (km) = 0.62 miles (mi) I hectare (ha) = 2.47 acres (ac) I million cubic meters (Mm3) = 804 acre-feet (ac-ft) I cubic foot per second (cfs or cusec) = 0.0283 cubic meters per second (m As) I kilogram (kg) = 2.2 pounds (lb) I metric ton (mt) = 2,205 pounds (lb) 1 Thousand Million Cubic Feet (TMC) = 28.3 million cubic meters (Mm) Vice President Mieko Nishimizu Director Robert Drysdale Division Chief Shawki Barghouti Task Manager Theodore Herman The metric system has been used in most cases. However, India is still in the process of transition to the metric system; non-metric units are still widely used and have been used in this Report where a conversion to the metric system may confuse the reader.  PRINCIPAL ABBREVIATIONS AND ACRONYMS AP - Andhra Pradesh AP 11 - Second Andhra Pradesh Irrigation Project APAU - Andhra Pradesh Agricultural University APM - Adjustable Proportionate Module ARO - Assistant Rehabilitation Officer BPL - Below Poverty Line CAD - Command Area Development CADA - Command Area Development Authority CAS - Country Assistance Strategy CCA - Cultivable Command Area CNS - Cohesive Non-Swelling COT - Commissionrate of Tenders DC - Distributary Committee DOA - Department of Agriculture EMP - Environmental Management Plan ERAP - Economic Rehabilitation Action Plan GOAP - Government of Andhra Pradesh GOI - Government of India GSDP - Gross State Domestic Product GWD - Groundwater Department ICADD - Irrigation and Command Area Development ICB - International Competitive Bidding KKC - Kakatiya Canal M&E - Monitoring and Evaluation MEH - Minimum Economic Holding MSL - Mean Sea Level NCB - National Competitive Bidding NGO - Non-Governmental Organization O&M - Operation and Maintenance OC - Outlet Committee PAP - Project Affected Persons PDP - Project Displaced person PIM - Participatory Irrigation Management PPM - Project Preparation and Monitoring Unit QCU - Quality Control Unit RAP - Remedial Action Plan R&B - Roads and Bridges R&R - Resettlement and Rehabilitation RD - Revenue Department RO - Rehabilitation Officer RWS - Rotational Water Supply SIN - Structured Irrigation Network SOE - Statement of Expenses SRBC - Srisailam Right Branch Canal Project SRSP - Sriramasagar Project TMC - Thousand Million Cubic Feet VAP - Village Action Plan VRC - Village Rehabilitation Committee WALAMTARI - Water and Land Management Training and Research Institute WUA - Water Users Association  FREQUENTLY USED ABBREVIATIONS FOR OFFICERS AEE - Assistant Executive Engineer AE - Assistant Engineer CE - Chief Engineer CI - Canal Inspector DDA - Deputy Director of Agriculture DEE - Deputy Executive Engineer EE - Executive Engineer JDA - Joint Director of Agriculture LDC - Lower Division Clerk SE - Superintending Engineer VEO - Village Extension Officer GLOSSARY Hot Season - March to May Irrigation Dry (ID) - Irrigated land designated for crops other than rice and sugarcane Irrigated Wet (IW) - Irrigated land designated for rice and sugarcane Kharif - Wet Season (June to September) Chak - Area served by watercourse, between 15 ha to 40 ha Rabi - Dry season (October to February) District - The lowest administrative unit where the State Government is directly involved.  INDIA THIRD ANDEHRA PRADESH IRRIGATION PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. CREDIT/LOAN AND PROJECT SUMMARY .....................................................i I. PROJECT BACKGROUND A. The National Context ........................................I Agricultural Development and Poverty .......................................1I Irrigation Development and Management .......................................1I Development and Irrigation Lending Strategy ........................................I B. The Andhra Pradesh Context ......2.................................2 Economic Growth and State Finances .......................................2 Rural Demography and Poverty .......................................2 Agricultural Performance ......3.................................3 Public Irrigation Scheme Management .......................................3 Previous Bank Involvement and Lessons Learned ........................................5 C. The Second Andhra Pradesh Irrigation Project ............. ..........................6 The AP II Sub-Projects .......................................6 Causes of AP II Implementation Failure ........................................7 Resolution of AP II Project Design Issues .......................................8 Investigation of Scheme Design Alternatives ........................................8 II. THE PROJECT A. Project Rationale, Objectives and Components ...............................................9 Rationale for Bank Involvement ...............................................9 Project Objectives .............................................. 10 Project Components .............................................. 10 B. Detailed Features of Irrigation Investments .............................................. 11 SRBC Civil Works ...............................................11 SRSP Civil Works .............................................. 13 Rural Feeder Roads .............................................. 14 Dam Safety Works and Assurance .............................................. 14 Construction Quality Assurance Plan .............................................. 15 C. Detailed Features of Agricultural Support Service Programs ............................ ........ 16 Irrigation Agronomy Program .............................................. 16 Water User Association Promotion Program .......................... .................... 17 Farmer Training Program .............................................. 19 D. Detailed Features of Social and Environmental Programs ......................................... 19 Resettlement and Rehabilitation Program .............................................. 19 Environmental Management Plan .............................................. 23  ii Page No. III. COST ESTIMATES, FINANCING AND DISBURSEMENTS Cost Estimates ........................................ 25 Financing ........................................ 25 Procurement ........................................ 26 Retroactive Financing ........................................ 29 Disbursement ........................................ 30 Accounts and Audit ........................................ 31 IV. ORGANIZATION, MANAGEMENT AND IMPLEMENTATION A. Organizational Reforms ........................................ 32 Participatory Irrigation Management ......................................... 32 Reorganization of Command Area Development ........................................ 33 Cost Recovery Arrangements ........................................ 34 B. Project Management ........................................ 35 Management Organization ........................................ 35 Works Quality Assurance and Supervision ........................................ 36 Dam Safety Assurance ........................................ 36 Krishna River Basin Reservoir Management ........................................ 37 Resettlement and Rehabilitation ........................................ 37 Irrigation Agronomy and Farmer Training Program ........................................ 39 Environmental Management Plan Responsibilities ........................................ 40 C. Implementation Monitoring ........................................ 40 Implementation Schedule ........................................ 40 Project Performance Monitoring Framework ........................................ 41 Reporting and Project Review ........................................ 42 Supervision Plan ........................................ 43 V. BENEFITS, JUSTIFICATION AND RISKS A. Project Benefits ........................................ 43 Productivity, Employment and Income ........................................ 43 Irrigation Management Reform Benefits ........................................ 44 B. Economic Justification ........................................ 45 Economic Analysis Assumptions ........................................ 45 Economic and Risk Analysis Findings ........................................ 46 C. Financial and Fiscal Analysis ........................................ 49 Analysis Background and Scope ........................................ 49 Financial Analysis ........................................ 50 Fiscal Analysis ........................................ 52 D. Project Risks ........................................ 54 VI. AGREEMENTS AND RECOMMENDATIONS ........................................ 56  iii ANNEXES I. Water Supply Reliability Analysis 2. Environmental Impact Analysis and Management Plan 3. Water User Associations 4. Training Programs 5. Resettlement and Rehabilitation 6. Project Cost Tables 7. Finanlcinlg, Disbursement and Accounts 8. ICADD Staffing Schedules 9. Constructioni Quality Control Organization 10. Project Benefits and Economic Analysis II. Financial and Fiscal Analysis 12. Implementation Monitoring 13. Criteria for NGO Selection 14. Documents in Project File MAPS IBRD No. 1 8986R I - Medium and Major Irrigation Projects in Andhra Pradesh IBRD No. 1 8842R - Sriramasagar Project IBRD No. 1 8843R - Srisailam Right Branch Canal Project This report is based on preparation work done by the the officials of the Irrigation & Command Area Development Department of the Government of Andhra Pradesh and the findings of an appraisal mission that visited India in May/June 1996. The mission comprised Theodore Herman (Task Manager), N.K. Bandyopadhyay, M. Chand, M.M. Shah, S. Subramanian, S. Thangaraj and C. Zhang; H. Freestone and T. Lohavisavapanich of FAOCP; and consultants K. Craig, R.K. Malhotra and V.P.S. Verma. The Peer Reviewers were H. Plusquellec (Irrigation Design Issues), G. Spencer (Irrigation Management Issues), R. Reidinger/W. Nickel/R. Nelson (Economic Issues) and A. Subramanian (Institutional and Beneficiary Partiuipation Issues). Doreen Feerick and Marcia Whiskey provided secretarial support. Shawki Barghouti (Division Chief, SA2AW), R. Drysdale (Director, SA2DR) and H. Vergin (former Director, SA2DR) provided managerial oversight.   INDIA THIRD ANDHRA PRADESH IRRIGATION PROJECT Credit/Loan and Project Summary Borrower: India, Acting by its President Executing Agency: Department of Irrigation and Command Area Development (ICADD), Government of Andhra Pradesh (GOAP) Beneficiary: The State of Andhra Pradesh (AP) Amount: IDA Credit SDR108.10 million (US$150 million equivalent), IBRD Loan US$175 million. Poverty: Not a poverty targeted intervention but the project would raise the present income of beneficiaries to above the poverty threshold Terms: IDA to GOI - Standard with 35 years maturity. IBRD to GOI - LIBOR-based variable lending rate and repayable over 20 years, including a five year grace period. Commitment Fee: 0.5% on any undisbursed IDA credit balances, beginning 60 days after signing less any waiver. 0.75% on any undisbursed IBRD loan balances, beginning 60 days after signing less any waiver. On-Lending Terms: From GOI to GOAP under standard arrangements for developmental assistance to the states of India. GOI would assume the foreign exchange and interest rate risks. Project Description: The project would be an investment credit and loan with the primary objective of assisting GOAP to improve the productivity and income of farm families in two sub-project areas by completing irrigation works and a social improvement program begun under the Second Andhra Pradesh Irrigation (AP II) Project (Credit 1665-lN/Loan 2662-IN), pilot statewide reforms to improve public irrigation scheme performance,. The project's components are: (a) Irrigation Works (80.0% of total base costs) to complete the irrigation network and feeder roads of the 65,000 ha SRBC irrigation project, and rehabilitate 253,000 ha of the SRSP scheme's irrigation system; (b) Agricultural Support Services (2.5% of total base costs) to foster agricultural diversification and productivity through irrigation agronomy research and improved command area extension services, and to improve irrigation services by participatory irrigation management through the project-wide establishment of Water User Associations (WUAs); (c) Resettlement and Rehabilitation Program (5.0% of total base costs) to mitigate adverse social impacts of land acquisition for irrigation works resulting primarily from AP II works; (d) Environmental Management Plan  ii (7.5% of total base costs) to implement a GOI mandated regional program of environmental safeguards and conservation in sub-project districts; (e) Dram Safety Assurance Works (5.0% of total base costs) to ensure the safety and structural sustainability of the three dams serving the sub-project areas; and (f) Project Monitoring and Evaluation (0.5% of total base costs). Project Benefits: The project would reduce production variability in the sub-project areas and enable an increase in their production of high value cash crops estimated at about US$140 million per annum (in 1995 constant prices). Irrigated production would generate over 105,000 farm jobs and generate employment in the transport, marketing and processing of farm produce. The incremental farm income generated at full development is estimated to raise the income of small farmers owning less than 2 ha (who comprise about 70-80% of farming families) above the current Andhra Pradesh "Poverty Line" threshold. The environmental investments would also generate salable timber while the feeder road program would generate economic benefits due to improved village access and time savings. The piloting of irrigation management reforms and beneficiary participation modalities is expected to result in replicable innovations throughout the public irrigation sector and contribute to improving its efficiency and performance. The dam safety component involving two major multi-purpose dams would not only ensure sub-project irrigation sustainability but also irrigation and hydroelectric production in the Krishna and Godavari river basins within Andhra Pradesh. Project Risks: Government commitment to the project and its irrigation reform objectives is strong and already well-demonstrated. GOAP has ensured O&M cost recovery by an unprecedented increase in statewide irrigation water charges and is proceeding with a statewide program of participatory irrigation management by promoting the establishment of WUAs on all major irrigation schemes. There are, however, several ubiquitous risks which have been addressed through the project design. Firstly, implementation agency motivation risks arising out of a preference for construction work and lack of interest in operations and maintenance (O&M) have been addressed by organizational separation of construction contract management from O&M responsibilities, and spreading responsibility for the agricultural support, social and environmental components. Secondly, works implementation capacity and delay risks are mitigated by safeguards in project design which include a project Annual Review, Action Plan and Budget process, strict procurement processing requirements, improved contract management procedures and strengthened quality assurance arrangements and training. Thirdly, beneficiary response and water availability risks are difficult to eliminate by controlled mitigation measures. Public information and consultation has been extensive and it is assumed that social and political pressures may be brought to bear on recalcitrant irrigators by farmers who are to receive reliable water supplies for the first time. Financial sustainability risks are to be monitored by a standing GOAP Water Charges Review Committee.  iii Estimated Project Costs: Components Rs. Million US$ Million Local Foreign Total Local Foreign Total Irrigation Works 10,599.89 1,348.16 11,948.05 307.24 39.08 346.32 Dam Safety 623.89 75.80 699.69 18.08 2.20 20.28 R & R Program 738.93 13.38 752.31 21.42 0.39 21.81 Agricultural Support 345.36 24.23 369.59 10.01 0.70 10.71 Environmental Plan 1,017.74 102.73 1,120.47 29.50 2.98 32.48 Project Monitoring 85.08 0.00 85.08 2.47 0.00 2.47 Total Baseline Costs 13,410.89 1,564.30 14,975.19 388.72 45.34 434.06 Physical contingencies 709.97 92.26 802.23 20.58 2.67 23.25 Price Contingencies 2,794.23 326.19 3,120.42 18.02 2.09 20.11 Total Project Costsaw 16,915.09 1,982.74 18,897.83 427.32 50.11 477.43 a/ Including taxes and duties of US$52.98 million equivalent Financing Plan: (US$ Million) Finance Source Local Foreign Total Financing l GOAP 152.26 0.00 152.26 IDA/IBRD 274.89 50.11 325.00 Total 427.15 49.69 477.43 Estimated Disbursements (US$ Million) Bank Fiscal Year 1998 1999 2000 2001 2002 2003 Annual Amount 73.4 52.4 78.2 69.8 40.9 10.3 Cumulative Amount 73.4 125.8 204.0 273.8 314.7 325.0 Economic Rate of Return: 24% Maps: IBRD 18986R1,IBRD 18842R and IBRD 18843R   INDIA THIRD ANDHRA PRADESH IRRIGATION PROJECT I. PROJECT BACKGROUND A. The National Context Agricultural Development and Poverty 1.01 Agriculture and its allied activities is still a key sector in India's economy, contributing about 32% of the real Gross Domestic Product (GDP) and 69% of employment in 1991. Due to population growth, the average size of operational agricultural holdings has dropped from 2.7 hectares (ha) in 1960/61 to 1.7 ha in 1985/86. Thus increasing land productivity is the main challenge to overcoming population growth and maintaining rural income. Bank research indicates that rural economic growth in India has a salutary effect on poverty alleviation as the bulk of the consumption gains to poor people since about 1970 are attributed to the direct and indirect impacts of agricultural growth. Higher yields helped reduce absolute poverty through induced wage effects, employment and own-farm productivity. Irrigation Development and Management 1.02 The net irrigated area has grown to about 45.1 million (M) ha in 1989/90, and represents about 32.4% of the net sown area of India. Only about 36% of the net area (15.9 M ha) is irrigated by public canal systems, while private tubewells, tanks and shallow wells account for the remainder. At least three-fourths of India's agricultural growth since 1947 stems from the synergy of fertilizers, improved crop varieties and irrigation. While irrigated cereal yields are over twice those of rainfed cereals. their average yield is about one third below the all Asia cereal average. 1.03 Public canal system performance has been below its potential, and significant problems need to be addressed to maintain its past contribution: completion of state irrigation projects is increasingly delayed; the gap between the planned cropping intensity and area actually irrigated has widened; and the economic returns to project investment have been disappointing. The public irrigation sub-sector has weaknesses in most areas of implementation and management: resource planning is weak, water distribution is unreliable and often inequitable, maintenance is insufficient to sustain existing infrastructure, institutions require strengthening, and in most states, construction quality and cost recovery are inadequate. Until the early 1950s, revenues from water charges exceeded government expenditures for operations and management (O&M) plus interest imputed on investment. By 1989, current expenditures on O&M for public canal schemes exceeded revenues from water charges by an amount equivalent to 2.1% of the current agricultural contribution to GDP. Development and Irrigation Lending Strategy 1.04 Country Assistance Strategy (CAS). The Bank's country assistance strategy for India-- reviewed by the Board on June 20, 1995 and September 5, 1996 respectively--supports GOI efforts to provide an enabling environment for efficient private sector-led growth while strengthening the effectiveness of government interventions in areas where it complements the private sector--poverty alleviation, environment, human resource and infrastructure development. Reducing poverty,  2 developing the private sector, improving environmental protection and natural resource conservation, strengthening institutions, increasing the role of beneficiaries and Non-Governmental Organizations (NGOs) in project design and implementation are all important elements of the CAS. Since agricultural growth bolsters the rural poor (para. 1.02), national and state agricultural policy reform are important instruments of the CAS. State fiscal reform is a focus of the CAS: hence Bank- supported state investment projects should be consistent with state fiscal and financial capabilities. 1.05 India Irrigation Lending Strategy. In line with India's 1987 National Water Policy, the Bank's irrigation sector strategy (India Irrigation Sector Review, Report No. 9518-IN, June 27, 1991) identified sector reforms in four priority action areas. These areas are: (a) strengthening of river basin planning and environmental monitoring capabilities; (b) increase of O&M works expenditure and water charges, and re-prioritization of capital expenditure to favor scheme rehabilitation and completion of ongoing works over new projects; (c) improvement of canal management and water distribution performance; and (d) adoption of management and organizational reforms to strengthen state Irrigation Department management accountability for irrigation services, and fostering of beneficiary participation in scheme management. B. The Andhra Pradesh Context Economic Growth and State Finances 1.06 The economy of AP is still predominantly agrarian and agriculture employs about 67% of the work force. Given its poor economic growth performance, AP has failed to expand its revenue base needed to finance its subsidy and welfare programs and has been under fiscal stress since the mid 1980s. This was created by (a) declining own state revenue as a share of Gross State Domestic Product (GSDP); and (b) rapid change of state expenditure composition with substantial increase in the share of subsidies, welfare programs, and salaries, together with a corresponding fall in the share of non-wage O&M, and expenditure on physical and social infrastructure. As a result, the principal fiscal and debt indicators have deteriorated along with growth performance. The fiscal deficit has grown to 3.4% of GSDP by FY95/96 with total revenue and expenditure constituting 14% and 18% of GSDP respectively. In recent years, about 22% of the State's total expenditures were financed through borrowings and the capital expenditure share of total expenditure has been only about 15%. 1.07 An increasing reliance on central loans to finance State Plan expenditures has led to a high level of debt relative to the state revenues. Interest payment have reached 28% of AP's own revenue (2.3% of GSDP), while the total state debt amounts to 24% of GSDP. Consequently, the state government has been increasingly forced to divert funds away from productive uses and resort to borrowing to meet its commitment to expensive welfare schemes. The state's fiscal stress has been aggravated in the past two years by introduction of a subsidized rice distribution scheme for the poor, and loss of revenue due to prohibition of alcoholic drinks in the state. These programs together have put an additional burden of about 4.2% of GSDP on the state's budget, and has precipitated an acute fiscal crisis and liquidity difficulties. Rural Demography and Poverty 1.08 Andhra Pradesh (AP) is India's fifth largest State (275,100 km 2) and fourth most populous (66.51 million in 1991). Over 73% of the population resides in rural areas but rural to urban migration has led to a high urban growth rate. A continuous increase in the number of agricultural holdings is occurring with the average size of agricultural holdings dropping from 2.51 ha in 1970 to  3 about 1.55 ha in 1991. Marginal and small farms represent about 77% of all holdings, but only about 36% of the farm area. Whereas AP was the fourth highest state in percentage of population "below the poverty line" (BPL) around 1960, it declined to about the nation's fourth lowest around 1990. Poverty alleviation has improved more slowly in the 1980s despite the resources allocated by AP to subsidies and direct welfare programs. This is explained by two factors. First, a large proportion of AP anti-poverty programs are related to broad-based, badly targeted current consumption programs, and not to asset building and employment generation. Among Indian states, AP now has the highest proportion of its non-interest expenditure allocated to such programs. Secondly, higher subsidy and budgetary allocations for welfare programs has crowded out physical infrastructure expenditure. Agricultural Performance 1.09 Economic Productivity. The economic performance of AP's agriculture lags behind that of India and prices for all crops except tobacco lag behind national averages. Since agriculture is the main activity inter-linked with other sectors, growth in rural economic output in AP is largely dependent on removing policy constraints which either inhibit cultivation or depress farm-gate prices. Despite relatively high crop yields, real economic productivity was not achieved in the 1980s because of use of costly modern inputs. Due to the large size and importance of the agricultural sector, agriculture has always been the main focus of AP government policy and budget: irrigation infrastructure and agriculture have respectively received about 40% and 12-14% of total public investment. Prior to recent reforms, agriculture received large irrigation and power subsidies which amounted to 2.7% of the GSDP, or 7.1% of agricultural value added. 1.10 Agricultural Output. The cultivable area of 15.65 M ha comprises 57% of the State. The net sown area (i.e. net of the fallow area) in 1989/90 was 11.09 M ha and utilized with a cropping intensity is 120%. Food crops constitute about 64% of the cropped area and about 71% of these crops are grown in the monsoon season. AP produced 7.2% of India's total foodgrains in 1989/92, and is the fourth largest grain-producing state in India. With the exception of rice--whose area has grown over the last decade--the cultivated area of all other cereals is declining in response to rising prices of oilseeds, pulses, and cotton. 1.11 Expansion of irrigation has had a major impact on agricultural productivity and the share of irrigation in gross sown area was 40% in 1993/94. Irrigated rice constitutes about 52% of the total foodgrain area. Irrigation and agro-chemicals are a major factor in increasing agricultural output in AP. The average fertilizer consumption per gross cropped area was about 119 kg/ha in 1991 (the second highest in India after Punjab). AP's pesticide use is the highest of any state. Since 1989/90, however, agricultural production has been stagnant due to the continued decline in canal command area (para. 1.12). which, in turn, led to a fall in cropped area and fertilizer use. Public Irrigation Scheme Management 1.12 Scope of Public Irrigation. With a total net area of 4.029 M ha under irrigation in 1993, AP is the second largest irrigation state after Uttar Pradesh, and accounts for about 9% of the nation's irrigated area. Its canal command net area of about 1.73 M ha is the second largest in India. The composition of the net area under various irrigation sources in terms canals, tanks, wells and various other sources was about 43%, 18%, 35% and 4% in that order. Canal schemes are used predominantly for rice and cotton production, comprising about 52% and 39% respectively of the gross area crop irrigated. The areas irrigated by private wells are predominantly used for irrigation  4 of most other foodgrains and cash crops. The net area under public surface irrigation reached a peak of 2.9 M ha in 1990, but declined to 2.3 M ha by 1994 due to inadequate funding of O&M. 1.13 The Irrigation & Command Area Development Department. All public investment in major and medium irrigation schemes, i.e. schemes larger than 2,000 ha (Map IBRD 18986RI)-- along with water resources planning, regional flood control and drainage, and construction of multi- purpose reservoirs--are the responsibility of the Irrigation & Command Area Development Department (ICADD). Minor irrigation investments are undertaken by ICADD's Minor Irrigation Department and the Rural Development and Agriculture Department. Private sector participation is limited to private funding of wells and small pump schemes. On three major schemes covering a substantial portion of the canal command area, canal water management and on-farm development are undertaken by a Command Area Development Authority (CADA) under ICADD control. The construction of hydroelectric plants for multi-purpose reservoirs is undertaken by the AP State Electricity Board, which operates them in coordination with ICADD with respect to water release regimes. ICADD's budget resource allocation emphasizes starting new major and medium projects rather than rehabilitation of existing schemes. This leads to time and cost overruns due to the spread of limited capital resources and upkeep of under-employed personnel. Furthermore, zonal restrictions on transfer or retrenchment of lower level staff prevent staff reduction when an ICADD project is completed. 1.14 Irrigation Laws. AP has no comprehensive irrigation law. Up to 1984, there were two regional Acts: the Irrigation Cess Act, 1865 applicable to the Rayalaseema and Coastal Region; and the Telangana Irrigation Act 1948, applicable to the Telangana Region. The 1865 Act made it lawful to levy irrigation water charges on an scheme constructed by government, and to regulate cultivation in designated areas (localized land) by imposition of a penal cess for: (a) irrigation outside a defined six month irrigation season; or (b) by interfering with water supply to other irrigators. The 1948 Act extended these regulatory concepts to include seasonal prohibition crops such as rice on the basis of their water requirement. However, most of the provisions under the 1948 Act have been superseded by the Irrigation Utilization and Command Area Development (IU & CAD) Act 1984. The 1984 Act is applicable in any project placed under a CADA and enlarges ICADD's functions beyond water management to include voluntary beneficiary participation and on-farm development. This Act has not been effective in enforcing localization fostering voluntary beneficiary management, or improving water management. Irrigation water charges for public schemes are levied under the 1988 Water Tax Act and are a function of crop type, season and size of scheme. 1.15 Localization. Irrigated areas in AP are classified as "Irrigated Wet" (IW) and "Irrigated Dry" (ID) under a legal procedure known as "Localization". Under the 1984 Irrigation Utilization and Command Area development Act, localization determines the water delivery regime that may be supplied based on annual water availability, or a project planning policy of spreading the benefits of irrigation as widely as possible by banning water intensive crops. This allows ICADD to prescribe the season of irrigation for a canal, and the cropping pattern, period of sowing and crop duration based on irrigation requirement considerations (IW, ID, double or perennial crop). Accordingly, IW and ID localization designation of a canal command generally applies to either the monsoon and post-monsoon seasons. In IW designated areas, all crops may be grown but farmers grow mostly rice and sugarcane. In ID designated areas (usually lighter soils), rice and sugarcane are specifically banned under the provisions of the 1984 Act because farmers in the canal head reaches would prevent water from reaching the tail-end areas. Section 24(2) of the 1984 Act allows GOAP to alter the Localization designation of an area if it wishes to advance the technology of land and water management practices.  5 Previous Bank Involvement and Lessons Learned 1.16 Previous Involvement in Irrigation. As of 9/30/95, the Bank commitment of US$492.91 million for 16 ongoing projects in AP was the fourth largest state project portfolio. In water resources development, a Hyderabad Water Supply Project (Cr.2115-IN/Ln.3181 -IN), and hydrological data network improvement under the multi-state Hydrology Project (Cr. 2774-IN) accounted for US$91.35 M. Previous Bank support for four irrigation projects has played a major role in the irrigation development of AP These are: (a) Pochampad Irrigation (Cr. 268-lN); (b) Godavari Barrages (Cr. 532-IN); (c) AP Irrigation and Command Area Development Composite (AP I) (Ln. 1251-IN); and (e) Second Andhra Pradesh Irrigation (AP II) Project (Cr. 1665-IN/Ln. 2662- IN). The National Water Management (NWM) Project (Cr. 2179-lN/Ln. 3260-IN) included an AP component to demonstrate improved network designs in six medium schemes. 1.17 General Lessons Learned. The Pochampad, AP I and MWM projects provided valuable lessons such as: (a) a canal system must be properly designed and constructed to deliver water to the individual farm; (b) major and minor conveyance systems, and main drainage, must be built simultaneously; (c) to ensure project viability, water should not be released for irrigation until the minor system is ready to receive it; (d) the minor system, from government outlets to farm gates, must be operated by farmers organized in water user associations (WUAs); (e) the need for full canal lining and more attention to a project's agricultural aspects during supervision; (f) development of realistic operational plans for water management and O&M based on a prior diagnostic analysis; and (g) increased training of irrigation staff in O&M, and training of agricultural department staff and farmers. The AP component of the NWM Project was not successful because attention was not given to eliciting farmer agreement to de-localization of IW lands. 1.18 The Lessons of AP II. As the proposed project is a follow-on project to, inter alia, complete AP II (para. 1.22), the key lessons] of AP II are important. The primary lesson is that a project will not succeed unless it is well prepared and appraised. Project appraisal lessons include: (a) water supply availability and reliability must be unambiguously established and command areas sized accordingly, but consideration should be given to possible system expansion at a later date; (b) detailed designs for major works must be available at appraisal and should be based on cost-effective design alternatives, field surveys and sub-surface investigations; (c) appraisal cost estimates should be based on prevailing contracting industry prices; (d) introduction of new methods of design and canal management must be fully documented by appraisal to ensure their understanding and acceptance by the Borrower; and (e) appraisal missions must review the implementing agency's ability to control construction quality and ensure efficient operation and management. Project implementation lessons are: (i) procurement of works contracts must follow a logical implementation sequence to facilitate timely realization of planned benefits and permit program adjustments if problems arise; and (ii) project implementation success depends on the establishment of viable institutional arrangements for participatory beneficiary involvement, and particularly where water delivery arrangements are to be changed, appropriate administrative frameworks must be in place to implement the new system. Implementation Completion Report: Second Andhra Pradesh Irrigation Project (Loan 2662-IN/Credit 1665-IN); Report 15708, June 11, 1996.  6 C. The Second Andhra Pradesh Irrigation (AP II) Project The AP II Sub-Projects 1.19 AP II Objectives and Canal Management Policies. The proposed project is a follow-on operation to complete the Second Andhra Pradesh Irrigation Project (AP II) and support irrigation reforms in AP. Bank support for AP II (Credit 1665-IN/Loan 2662-N) consisted of a loan and credit of US$131 million and SDR127.5 million to increase agricultural production by: (a) rehabilitation of the existing 234,000 ha Sriramasagar Project (SRSP) command and its extension by another 34,000 ha to km 284 of Kakatiya Canal (KKC); and (b) development of a new 65,000 ha command served by the Srisailam Right Branch Canal (SRBC). New water management principles were to be introduced to implement GOAP's policy of equitable and cost-effective delivery of available water to a maximum number of beneficiaries. These included: (i) reduced water allocation by "Irrigated Dry" (ID) localization of land for all new command areas, and de-localization of "Irrigated Wet" (IW) land to ID in SRSP; (ii) Rotational Water Supply (RWS), i.e. intermittent deliveries on a 7-14 day "on-off' basis to outlets serving 40 ha blocks within which water would be distributed by farmer-managed Outlet Committees according to a roster of pre-arranged turns; (iii) setting the capacity of irrigation outlets to deliver a discharge proportional to the land area to be served according to the Structured Irrigation Network concept of canal design and operation; (iv) throttling of oversized outlets and significant elimination of uncontrollable direct farm outlets from large canals in SRSP; and (v) requiring rice farmers on de-localized IW land to accommodate reduced and intermittent water deliveries by supply augmentation from their private wells. 1.20 The SRBC Sub-Project. The SRBC command area is located in AP's Rayalaseema Region and is situated along the west bank of the Kundu River, a tributary of the Krishna River (Map IBRD 18843R). The command area is about 130 km long and 5-10 km wide, with a cultivable command area (CCA) of 77,000 ha. The area became potentially irrigable after completion of the Srisailam Reservoir [live storage of 250 thousand million cubic feet (TMC)] on the Krishna River in the late 1970s. This reservoir was originally designed for hydropower generation only but was later converted to a multi-purpose facility for water supply and irrigation. When SRBC was originally conceived, all its water requirements were to be abstracted from the Srisailam Reservoir within 3-4 months during the monsoon season and conveyed over 70 km to the Gorakullu and Owk seasonal storage reservoirs within the irrigation command. However, during the AP II appraisal these two reservoirs were dropped. A description of the socio-environmental features of SRBC is given in Annex 2 (paras 5-10). The SRBC planning history and Krishna River water allocation is described in Annex 1. 1.21 The SRSP Sub-Project. The SRSP command is located in the Telengana Region of AP in the Godavari river basin (Map IBRD 18842R). It is served by the Sriramasagar Reservoir on the Godavari River. The upper portion of the command served by the Kakatiya Canal (KKC) was originally developed up to KKC's km 113 under the Bank-supported Pochampad Project (para. 1.16). By the early 1980s, GOAP had extended the KKC up to km 234 to create an irrigation potential of 323,000 ha. These works included construction of the Lower Mannair Dam (LMD) across the Mannair River (a tributary of the Godavari River) at KKC's km 146 near Karimnagar. LMD augments SRSP water supply by capturing the runoff from the Mannair River's free catchment and serve as a balancing reservoir for SRSR. Under AP 11, the KKC was to be completed to km 284 and its command extended to an additional 34,000 ha. A description of the socio-environmental features of SRSP is given in Annex 2 (paras. 11 - 15) while its development history and Godavari River water allocation are described in Annex 1.  7 Causes of AP II Implementation Failure 1.22 Implementation Problems. AP II did not achieve its development objectives: by the time of project closure no additional area was ready for irrigation in SRBC and SRSP. Many of the reasons for AP II's poor implementation progress arose from delays in land acquisition, procurement difficulties and litigation, staff changes, counterpart funding shortages, and limited logistics resources. Other causes of delay were the technical differences that arose between the Bank and GOAP as a result of inadequate project quality-at-entry (paras. 1.21 and 1.22). Furthermore, Bank funding was reduced during the course of the project due to: (a) reallocation of SDR40.8 million to implement the AP Cyclone Emergency Reconstruction Project (Cr. 1770-IN); and (b) cancellation of the entire loan by 1993 on the grounds of slow disbursement and Rupee devaluation. Thus, despite improved implementation in 1993/94, it was not possible to extend the project period as all Bank project funds would have been disbursed by June 1994. These financing difficulties were partially overcome in November 1993 when the Bank announced that: (i) it would consider supporting completion of AP II works under a follow-on project, provided a satisfactory feasibility study was submitted by GOAP resolving all outstanding issues; but that (ii) all interim procurement would be at GOAP's own risk. At project closure, GOAP was left with contractual commitments of about US$118 million. 1.23 Resettlement & Rehabilitation (R&R). The AP II R&R component provided for retrospective actions to rehabilitate Project Affected Persons (PAPs) displaced by the construction of the Srisailam Reservoir in the 1960s, and the Lower Mannair Dam in the 1970s and 1980s. However, project effectiveness was delayed about 15 months till October 2, 1987 due to GOAP's inability to submit a Resettlement and Rehabilitation Action Plan (RAP) satisfactory to the Bank, and only after the Bank waived this effectiveness condition. Instead the Bank accepted a continuously evolving RAP without defined action targets or a R&R policy: thus at closure, it is not certain whether the R&R component fully achieved acceptable targets. No provision was made in the project RAP for PAPs affected by canal or road construction as this was assumed to have insignificant impact. 1.24 Inadequate Public Consultation in SRSP. To ensure that the AP 1I water management strategy (para. 1.16) would be undertaken in a systematic manner, GOAP was to introduce and apply RWS and an ID water allocation regime (para. 1.15) in SRSP. Since rehabilitation and de- localization would take time, a phased program was agreed whereby the whole IW area of 62,000 ha above LMD would be converted to ID by June 1993. However, when the first Government Order (G.O.) for de-localizing 5,299 ha from IW to ID in the Karimnagar district was issued in July 1987, the district's public representatives opined that the conversion would entail hardship and financial losses to the affected farmers, and petitioned GOAP to reconsider the matter. Given that maintenance of the status quo would defeat the whole purpose of the AP II project, a GOAP Expert Committee upheld the project's water management principles (para. 1.19) but recommended that de- localization would be slower with 80% of the de-localization to be undertaken during the last year of the project prior to its closure on June 30,1 994. Thus, due to difficulties with rice cultivators, no rehabilitation works were undertaken in SRSP and instead, only works to extend the command area below km 234 of KKC were undertaken. 1.25 Design And Appraisal Inadequacies of SRBC. The technical and cost overrun difficulties of SRBC implementation may be traced to Bank acceptance of a project prefeasibility study instead of a feasibility study. Cost estimates were not based on detailed designs but on prefeasibility study estimates, detailed operational hydrology assessments were not undertaken, and design altematives were not based on detailed field studies and sub-surface investigations. The lack of prior canal  8 alignment studies and detailed sub-surface investigation resulted in the SRBC main canal cost overruns due to: (a) the frequent need to excavate in unanticipated rock outcrops; and (b) construction of unforeseen high concrete walls to retain canal flow at locations where the main canal crossed flat valleys. Since main canal alignment was not reviewed after dropping of the seasonal storage reservoirs (para. 1.20), the Owk Tunnel and Owk Reservoir became inevitable. Furthermore, despite Bank review of SRBC water availability during appraisal, Bank concerns about water availability became a major issue and led GOAP to prepare simulation studies to reintroduce the Gorakulu and Owk reservoirs into AP II (Annex 1). Resolution of AP II Project Design Issues 1.26 Project Design Revisions. Preparation of the proposed project sought to apply the lessons of prior Bank involvement in AP irrigation projects and those of AP II in particular (paras. 1.24- 1.25). The AP II project design was reviewed and modified to mitigate project implementation risks and resolve planning issues. This included: (a) detailed feasibility studies, sub-project feeder road traffic surveys (Annex 10, para. 34) and participatory rural appraisals to determine farmer irrigated cropping pattern preferences (Annex 10, para. 15); (b) river basin and project simulation model studies on water supply availability and reliability (Annex 1); (c) formulation of a R&R policy and action plans for rehabilitation of families affected by canal and road construction (paras. 2.40-2.47 and Annex 5), and completion of the AP II R&R program for reservoir oustees (para. 2.48); (d) improvement of detailed engineering designs (para. 2.13) and bid documents; (e) construction quality assurance arrangements (paras. 2.26-2.28); (f) undertaking of a priori and fully documented public consultations in SRSP regarding farner acceptance of project de-localization and rotational water supply policies (Annex 14); (g) a framework for participatory irrigation management based on turnover of tertiary irrigation networks to registered WUAs (paras. 2.32-2.36, paras. 4.01-4.05 and Annex 3); (g) an improved framework for project operations and maintenance (O&M) organization, management and funding (para. 2.19, paras. 4.06-4.08); (h) an improved irrigation agronomy and extension program (paras. 2.29-2.31); (i) an expanded staff and farmer training program (paras. 2.37- 2.39); (j) environmental impact analysis and environmental management plan (paras. 2.49-2.52 and Annex 2); and (k) statewide increase of irrigation water charges (paras. 4.09-4.11 and Annex 11). The need for investments to ensure the safety and sustainability of project reservoirs that had became apparent during AP II led to inclusion of a dam safety component (paras. 2.21-2.25). Particular attention was given to project performance indicators (para. 4.35), implementation monitoring arrangements (paras. 4.3 8-4.41) and required project staffing schedules (Annex 8). Investigation of Scheme Design Alternatives 1.27 SRBC (Annex 1). The water availability issue was resolved by a GOAP simulation model of the existing and proposed schemes and facilities in the AP portion of the Krishna Basin. The model examined various planning options related to the size of SRBC command area and the need for off-channel storage reservoirs to ensure its water supply reliability. It was found that--under full anticipated development of the Krishna river basin--a 75% annual water supply reliability to SRBC would be ensured to a command of 65,000 ha with an Owk Reservoir of reduced capacity (para. 2.11). Water availability for SRBC should not be a sub-project viability issue. To ensure that adequate priority would be allocated to seasonal water supply to SRBC, appropriate operating rules were developed for Srisailam Reservoir and institutionalized by a Government Order (para. 4.18). 1.28 SRSP (Annex 1). Water availability and command area size alternatives were reviewed by means of a simulation model which focused on water supply reliability to the existing and proposed  9 extension of the command below LMD. The model results clearly indicated that supply reliability to any extension of the existing command area would be unacceptably low given upstream riparian water rights and the limited storage capacity of the Sriramasagar Reservoir. Thus the proposed project would only undertake rehabilitation of the existing SRSP command and not support completion of the 34,000 ha extension begun under AP II except for retrospective R&R of families affected by land acquisition for AP II SRSP network extension works. The model also exhibited sensitivity to overall irrigation efficiency which should attain about 40% if water supply to the below LMD command is to have a reliability of 75%. Consequently, in addition to public consultations regarding the RWS policy, a Government Order for de-localization of the command to an ID supply regime was issued prior to negotiation of the proposed project. The delocalization was required to ensure the irrigation efficiency improvements expected under the project from network rehabilitation, RWS and introduction of water distribution by WUAs to achieve water distribution equity and control wasteful irrigation (para. 2.18). II. THE PROJECT A. Project Rationale, Objectives and Components Rationale for Bank Involvement 2.01 Irrigation Sector Reform. In line with the India CAS (para. 1.04), the Bank has been engaged in a dialogue with GOAP about fiscal measures to alleviate its irrigation sector financial crisis. Subsequent statewide public consultations on irrigation water charges resulted in GOAP issuing an Ordinance for an unprecedented increase in irrigation water charges. A complementary increase in O&M budgets is also being considered. Dialogue with GOAP has also set in motion an ICADD organizational reform process including plans to place tertiary irrigation networks under beneficiary control through participatory irrigation management (PIM) institutions. Having adopted a PIM Policy, GOAP is engaged in the formation of autonomous WUAs throughout the public irrigation sector. GOAP is also addressing the management and operational performance problems in ICADD. Since the project is intended to serve as pilot for GOAP's strategies of decentralized management and beneficiary empowerment, promotion of this effort via the project would be consistent with the Bank's irrigation lending strategy for India (para. 1.05). Involvement in the project at this juncture would strongly support GOAP's irrigation sector reform program and enable the Bank to maintain an irrigation policy reform dialogue with India's second largest irrigation state. 2.02 Rural Infrastructure Development. The Bank's support for the project would contribute to GOAP's high priority goals of improving the performance of upland irrigation schemes and their expansion (paras. 1.09 and 1. 16). The economic potential created by AP 11 investments have yet to be tapped, and Bank financing as a "lender of last resort" would help make this possible. The Bank's involvement would significantly reduce the time it would take GOAP to complete the AP II works using its own meager resources. The project would also support the safety and sustainability of two multi-purpose reservoirs of vital regional importance and also facilitate the execution of an otherwise unaffordable environmental conservation initiative. Thus, Bank support to increase rural productivity in an environmentally sustainable manner would contribute to improved economy and efficiency in public expenditure. The project has a potential for rural transformation: thus Bank involvement would thus support GOAP's strong political-economic commitment to poverty alleviation (para. 1.06) and contribute to raising the family incomes of marginal and small farmers--who comprise the majority of project beneficiaries--above the official poverty threshold.  10 Project Objectives 2.03 The primary objective of the project would be to complete ongoing irrigation development and scheme rehabilitation works begun under Second Andhra Pradesh Irrigation Project and thus realize the potential for increasing agricultural productivity and rural incomes in two economically backward regions of Andhra Pradesh. The other objectives would be to: (a) pilot implementation of management reforms to improve public irrigation performance by facilitating beneficiary participation in the operation and maintenance of major irrigation schemes, and upgrade GOAP capacity to improve irrigation services and command area management; (b) retrospectively mitigate the adverse impacts of land acquisition under the Second Andhra Pradesh Irrigation Project, and proactively provide economic rehabilitation for those families still to be affected by completion of SRBC works; (c) ensure the safety and sustainability of three dams supplying water to the project areas; (d) implement a mandated regional program of environmental improvements, safeguards and natural resource conservation; and (e) improve GOAP monitoring and evaluation capability for large externally aided irrigation projects. Project Components 2.04 The proposed project would incur a base cost of US$434.06 million over a five and one half year period to implement the six components needed to achieve project objectives. A summary description of these components follows below while their detailed features are given in Section B to D thereafter. 2.05 Irrigation Development and Rehabilitation Works (Base Cost US$346.32 million). This component consists of two sub-projects as follows: * SRBC Sub-Project (Base Cost US$166.14 million). The SRBC component would support completion of the scheme including all civil works begun under AP II. Structures and activities include: (a) completion of sections of the main canal and the Gorakullu By-Pass Siphon; (b) construction of the Owk Tunnel and Owk seasonal storage reservoir; (c) lined irrigation network for 65,000 ha; (d) drainage system and on-farm development; and (e) completion of feeder roads begun under AP II and about 50 km of new feeder roads. * SRSP Sub-Project (Base Cost US$180.18 million). The SRSP component would support the rehabilitation of 165,000 ha of irrigation system above the Lower Mannair Dam (LMD) and 88,000 ha of existing network below LMD up to km 234 of Kakatiya Canal. Necessary works and activities include: (a) selective rehabilitation of canal lining and structures of Kakatiya Canal up to km 234; (b) rehabilitation and modemization of the existing irrigation network (inclusive of on- farm development and drains where necessary); and (c) completion of feeder roads begun under AP II and about 50 km of new feeder roads. The base costs of each sub-project include the following common implementation activities and investments: (i) procurement of equipment for communications, construction quality assurance laboratories and O&M organization; (ii) construction quality assurance training of construction supervision staff and irrigation training of O&M staff, (ii) establishment of a computerized Management and Information system; and (iv) surveys, studies and technical assistance. 2.06 Agricultural Support Service Programs (Base Cost US$10.71 million). The component would support programs for improving the technical performance and productivity of irrigated  11 agriculture. The Irrigation Agronomy Program for SRBC and SRSP includes: (a) applied research and demonstration of irrigation practices and agronomy to improve irrigation practices and crop yields; (b) upgrading of the agricultural extension services in SRSP; and (c) program of applied research, demonstrations and extension to promote high value horticultural crops. The WUA Promotion Program includes: (i) completion of a pilot program to develop WUA frameworks, training modules and joint system management modalities involving 32 WUAs in SRSP; (ii) implementation of an Action Plan to establish WUAs for the whole command areas of SRBC and SRSP; (iii) technical assistance by NGOs for the WUA program; and (iv) studies of indigenous irrigation institutions in SRBC and SRSP. The Farmer Training Program includes: (i) provision of training facilities and courses in irrigation agronomy to ICADD staff and farmers; and (ii) irrigation and management training courses for ICADD staff and WUA office holders. 2.07 Resettlement and Rehabilitation (R&R) Program (Base Cost US$21.81 million). This program provides for economic rehabilitation of the families of three groups of Project Affected Persons (PAPs) and their major (adult) children adversely affected by past and proposed land acquisition for SRBC and SRSP works. This includes: (i) retrospective assistance to about 6,000 PAPs (including their 2,787 major children) affected by land acquisition for canals and roads under the AP 11 project; (ii) rehabilitation of about 500 PAPs (including their 244 major children) to be affected by SRBC canal works under the project; (iii) assistance to 778 "below poverty line" reservoir oustee families who were not assisted under the AP R&R component; and (iv) PAP vocational training for income generating schemes. The program would also complete the AP 1I R&R component's program of provision of community facilities and house plots for reservoir oustees in 104 resettlement villages. 2.08 Environmental Management Plan (Base Cost US$32.48 million). This component supports a GOI mandated regional program of environmental safeguards and nature conservation in command area districts. It includes: (a) compensatory afforestation; (b) improvement and protection of six Forest Reserve areas and two wildlife sanctuaries; (c) establishment of an LMD bird sanctuary and fish farm; (d) catchment area treatment programs to mitigate reservoir sedimentation ; (e) an environmental health program; (f) construction of three environmental education centers and establishment of project environmental monitoring units; and (g) an SRSP agro-forestry program. 2.09 Dam Rehabilitation and Safety Assurance (Base Cost US$20.28 million). This component supports investments to: (i) maintain the structural and mechanical integrity of Sriramasagar, Lower Mannair and Srisailam dams; and (ii) works to prevent failure of the Srisailam dam spillway. 2.10 Project Monitoring and Evaluation (Base Cost US$2.47 million). This component provides for strengthening of ICADD's Project Preparation and Monitoring Unit. B. Detailed Features of Irrigation Investments SRBC Civil Works 2.11 Main Canal (Annex 2, Figure 1). The partially completed main canal, flows south along hillsides for 50 km before reaching the partially completed Gorakullu By-Pass (GBP) aqueduct/siphon and the irrigation command. Beyond GBP, the canal flows for about 63 km commanding about 41,000 ha divided into 11 irrigation blocks (of which two are under construction). Between km 113.6 to km 119.5, new conveyance system investments consist of: (a) the 2 km long Owk Tunnel and (b) the linkage of two existing irrigation tanks by low dams and a central spillway to create the 1.9 TMC capacity Owk seasonal storage reservoir. The existing tanks  12 command about 670 ha under rice cultivation and provision is made for a reliable supply to this area. A pumping station at Owk Reservoir is provided to fully evacuate reservoir dead storage every year. After Owk Reservoir, the existing main canal continues for about 26 km. Five irrigation blocks covering 24,000 ha would be constructed to complete a total command area of 65,000 ha. 2.12 The main canal works and GBP are divided into eleven ongoing construction contracts begun under AP II and continued through 1994-1996. With the exception of GBP, these works are in an advanced stage of completion and have been inspected in June 1996 by an independent construction quality audit team to certify their eligibility for retroactive financing. The planning, subsurface investigations and designs for the Owk Complex (tunnel and reservoir) have been continuously monitored and reviewed by an independent Dam Safety Review Panel (DSRP). The Owk Complex is divided into 3 contract packages based on detailed designs and bid documents reviewed by an experienced construction specialist. 2.13 Irrigation Network. Management and control of canal flow is based on Rotational Water Supply (RWS) (i.e. "on-off' alternate supply periods of at least 7-10 days each) and structure designs suited to the "structured irrigation network" (SIN) principle. The SIN principle provides no gated structures below the head of a minor canal serving 2,000-4,000 ha and which is to flow at full design discharge during each irrigation period. Distribution canals for the 16 irrigation blocks offtake from the main canal through head regulators located adjacent to, or upstream of a main canal cross- regulator. The head regulators are equipped with manually operated undershot gates, however consideration will be given to installation of overshot gates for more reliable control. Technical assistance would be utilized to analyze the viability of this possible innovation. In order to facilitate efficient conveyance (including partial reduction of seepage losses), maintenance and canal sustainability in Black Cotton Soils, the canal network utilizes a lined section down to a discharge of about 0.028 cumec (1 cusec). Since the distribution network is aligned predominantly on swelling Black Cotton soil, the lining is to be placed on a compacted layer of cohesive non-swelling (CNS) soil of appropriate thickness (based on standard field investigation of soil swelling properties). 2.14 The irrigation network has been divided into 16 contract packages. Construction of Blocks IV and VIII was begun in 1994 and is ongoing and were found eligible for retroactive finance by the construction quality audit. These blocks were originally to be lined to a I cumec capacity only: thus the works for lining to a 0.028 cumec capacity will be a separate contract to be bid during the project. Irrigation water is to be supplied to watercourses through adjustable proportional module (APM) and open flume module (OFM) outlets to ensure that each 30-40 ha watercourse command receives a flow in proportion to its size. No direct outlets will be allowed from the main canal. The APMs and OFMs are capable of being shut by sliding shutters if some watercourse commands do not wish to draw water after heavy rainfall: hence all minor canals are also to have a tail-escape structure into the main drainage network. 2.15 The project will assist farmers in laying out the micro-network within a watercourse command and with the lining the first 10 m of each watercourse. Separate contracts will be used for drainage and watercourse command on-farm development works. The latter are to be begun about nine months prior to the completion of civil works in each irrigation block and their designs would be vetted by farmers after preparation by consultants. Assurances were obtained at negotiations that all micro-network designs for each watercourse command ("chak") in SRBC would be completed by consultants at least 15 months prior to completion of each irrigation network works contract, and that these designs would be reviewed and accepted by the prospective beneficiary farmers prior to initiation of the micro- network works.  13 SRSP Civil Works 2.16 Scope. Rehabilitation and modernization works are to be undertaken in two command areas (Annex 2, Figure 2): "above LMD"(km 0-146 of KKC) and below "LMD" (km 146-234 of KKC). The works are grouped under a number of contract "packages": a package being either a specific length of Kakatiya Canal (KKC) and/or a portion of the command area--normally a distributary canal command or part of one, an area of watercourse command development and/or an area of drainage works. There are 16 rehabilitation packages above LMD covering an existing area of 165,000 ha and 7 rehabilitation and network completion packages below LMD covering 88,000 ha. One package above LMD and three packages below LMD are ongoing works begun under AP II which are deemed eligible for retroactive financing by the construction quality audit. 2.17 Kakatiya Canal Rehabilitation and Improvements. The conveyance capacity of KKC is about 40% below its nominal design discharge of 243 cumec because of damaged lining, channel side slope slips, neglected silt deposition etc. Many of the mechanical appurtenances in its regulating structures are also in poor condition or barely operable. Simulation studies (Annex 1) have indicated that, unless its capacity is restored after rehabilitation of the command above LMD, it will not be able to convey monsoon surplus water stored in the SSR to LMD for irrigation of the area below LMD. As per the designs prepared under AP II, the KKC discharge capacity is to be restored and increased from 243 cumecs to 274 cumecs from km 0 to km 146 by increasing the full supply depth of the canal by 0.46 m and raising the canal lining. KKC also requires repairs to its existing lining in many reaches and completion of some structures. 2.18 Distribution Network Rehabilitation. The design for the rehabilitation of the irrigation network is based on introduction of RWS and remodeling of structures according to SIN principles and is otherwise similar to that of SRBC (para. 2.13). Accordingly, all SRSP lands have been de- localized to ID irrigation (para. 1.15). The number of gates are therefore to be reduced, and suitable SIN structures are to be provided. About 30% of the lined network is aligned through Black Cotton soils where lining is to be placed on a CNS soil layer. Where possible, small distributaries are to be linked to enable efficient water control and canal regulation. Many outlets for these small areas are oversized and would be throttled to reduce their excessive and wasteful discharges, while all watercourse pipe outlets would be replaced by APM or OFM modules. All broken structures and mechanical appurtenances are to be repaired. Prior to Negotiations, GOAP issued a Government Order de-localizing all SRSP command lands up to km 234 of Kakatiya Canal to ensure the viability of RWS implementation. 2.19 Interim Repairs and Maintenance. Currently only about Rs.19/ha/year is allocated for maintenance for the SRSP scheme as a whole. Consequently, much deferred maintenance needs to be carried out (such as desilting and small structure repairs) just to keep the remaining network in minimal running order prior to completion of rehabilitation. The pilot WUA establishment program has shown that with minor repairs and farmer cooperation under a WUA framework, the irrigated area could be increased by as much as 20-28%. GOAP has therefore issued a Government Order in 1995 allocating a sum of Rs217.1 million for interim repairs to be spent over a period of 7 years beginning in FY95/96. As an incentive for farmers to form WUAs, all deferred maintenance works would be undertaken by WUAs under contract with ICADD. However, as irrigation network and main canal contracts in SRBC and SRSP are completed, normal O&M expenditure would be provided with project assistance on a declining scale (para. 3.18)  14 Rural Feeder Roads 2.20 The AP II program for construction and upgrading of SRBC and SRSP feeder roads to provide all-weather access to villages having a population of over 1,000 would be completed under the project. Thus no part of the irrigated portion of the sub-project areas would be further than 3-4 km from an all-weather road. To date, 107 km have already been completed under AP II: therefore about 50 km of new roads would be undertaken in each of sub-project command areas respectively. The feeder roads would conform to GOAP design standards satisfactory to the Bank. These include: (a) 3.5 m wide roads with surfacing of water-bound macadam and no black topping; and (b) construction of hard passages instead of concrete bridges over seasonal streams. The sub-grade design would be according to requirements dictated by forecast rural traffic (typically 15 cm deep) and the foundation according to California Bearing Ratio criteria. To ensure that planning, design and construction of the road sub-component can progress unhindered, an assurance was obtained at negotiations that, by October 1, 1997, and thereafter by April I of every year, GOAP would submit to the Bank/IDA for review: (i) plans for the extent of the sub-project road reserves to be acquired for development in the following or subsequent construction season; and (ii) detailed designs, cost estimates and bid documents satisfactory to the Bank/IDA for the roads to be newly constructed. Dam Safety Works and Assurance 2.21 The dam safety component for project reservoirs has been prepared by ICADD on the basis of DSRP site visits and recommendations from 1988 to 1996. These were compiled into two 1995 Notes on Dam Safety and Sustainability and a 1996 summary report entitled Dam Safety Assurance and Rehabilitation - Identification Report (Annex 14). The latter report summarizes the project program and outlines a general dam safety assurance program for all dams in the state. 2.22 Srisailam Dam Spillway Safety. The plunge pool downstream of Srisailam dam's ski-jump spillway is becoming scoured and the possible progressive movement of the scour upstream could endanger the foundation of the ski-jump bucket. The consequent exposure of the weak seams occurring in dam's foundation may adversely affect the gravity dam's safety against sliding. The two outer gates of the spillway cannot be opened because of dangerous erosion of the river valley hill slopes by flaring of the spillway water trajectory. Thus spillway modifications are also needed to ensure dam safety against large floods. 2.23 Based on model tests, the solution suggested by the DSRP envisages construction of: (a) a coffer dam for dewatering the plunge pool; (b) construction of a toe wall with its top about 2-3 m above the bed and its foundation firmly anchored into hard rock to a depth of about 2 m; and (b) the space between the toe wall and existing apron would be filled with concrete up to 3 m thick, and covered with a 3 m thick concrete blanket firmly anchored in rock with passive anchors. Model tests indicate that construction of a divide wall on the downstream spillway face and bucket adjacent to the non-overflow 'river sluice' block could curb the spillway water jet flaring problem. Implementation of these solutions will require: (i) assessment of the magnitude and extent of the existing scour by detailed inspection of the plunge pool by underwater photography; and (ii) a feasibility study including analysis of construction methods. Technical assistance from international experts would be sought evaluate the feasibility study.  15 2.24 Sriramasagar Dam and LMD River Sluices Repair. Silt has accumulated behind the six river sluice gates of Sriramasagar dam and thereby jamming them completely (one river sluice of LMD has been similarly jammed). These gates are now inoperable, cannot function as permanent low-level outlets and also compromise structural safety since emergency gates were never installed. The immediate silt will have to be removed by deployment of desilting machinery (e.g. mini- dredgers) and divers are needed to clear the gate grooves to make them operable. Some gates may have to be replaced, but due to the height of accumulated silt it may be necessary to block the sluice tunnels permanently: the need for this contingency would be determined by dam safety studies. 2.25 Dam Sustainability. A number of investigations and improvements have been identified by the DSRP to ensure the sustainability of the Srisailam, Sriramasagar and Lower Mannair dams. These activities, to be undertaken under DSRP supervision, would include: (a) detailed structural behavior, dam deformation and instrumentation studies for Srisailam Dam; (b) installation of additional structural and uplift pressure monitoring instrumentation and devices; (c) modernization of disposal of internal drainage water in the dams and provision of ventilation in their internal inspection galleries; (d) petrographic analysis of rock and concrete samples (including coring of samples) to check alkali-aggregate reactivity potential; (e) procurement of lightweight pneumatic diamond core drilling machines and compressors for reaming of choked drainage holes in foundation galleries; (f) field and laboratory equipment for concrete leaching investigations to mitigate the clogging of porous concrete drains which drain seepage water from the dam body; and (g) technical assistance to undertake a Probable Maximum Flood studies. Construction Quality Assurance Plan 2.26 Laboratory Equipment. ICADD has prepared an Action Plan for Quality Control Organization (Annex 14) to cope with the increased construction supervision load that would be generated by the large number of construction contracts that would be simultaneously active in SRBC and SRSP. In addition to defining the duties, functions and numbers of staff required by the Quality Control Units (para. 2.27), this Plan also provides for upgrading of inadequate central and field laboratory equipment and facilities based on the listing of cement, concrete, aggregate, steel and soil tests to be performed by these laboratories (Annex 9). The existing four laboratories in SRSP are to be expanded into three central laboratories and four field laboratories (for routine daily tests). Because of the more compact nature of the SRBC scheme, upgrading of the existing central laboratory is proposed with routine tests being carried out by three mobile field laboratories. Detailed lists of the laboratory equipment required are given in the Quality Control Action Plan. 2.27 Supervision Staff Training (Annexes 4 and 9). Because it involves new major works, SRBC requires highly trained supervisory staff if quality assurance is to be achieved by supervisory staff. The project has already benefited from participation of 20 SRBC engineers in a National Council for Cement and Building Materials (NCCB) course in concrete construction practice. Under a Training Program (Annex 14) prepared by ICADD it is proposed that the NCCB training program would continue under the project and include 60 and 150 SRBC and SRSP officers respectively. The program would include 'hands-on' and 'on-the-job' training to construction and quality control personnel. This would be followed by periodic quality audits and re-training. The training program envisages 16 three-day Quality Control and Assurance courses for 20 Supervisory Engineers (SEs) and Executive Engineers (EEs) per course at the AP Water and Land Management Training and Research Institute (WALAMTARI) campus over a five years.  16 2.28 Contract Management. In addition to the extant Quality Control Manual, Quality Audit Guidelines and an 'OK Card' system have been introduced during project preparation with salutary results. The OK Card system is a pro-forma check-list of all tasks, installation and construction activities associated with each structure and separate civil construction type for each contract. The cards are inspected by quality control staff and are duly signed and remarked upon by both supervision and contractor representatives when each work is ready for execution and upon its completion. These procedures would be continued under the project. In addition to the above, a training program envisages 16 three-day Contract Law and Administration courses for 20 SEs and EEs per course at the WALAMTARI campus over a five year period. An understanding was reached at negotiations that the OK Card system would be followed by GOAP and maintained. C. Detailed Features of Agricultural Support Service Programs Irrigation Agronomy Program 2.29 Applied Research and Demonstrations. Irrigation agronomy in SRSP would be improved by an active program of applied research on farmer's fields with the objective of evolving and demonstrating profitable diversified cropping sequences for horticultural and 'dry' crops (e.g. maize, cotton and sunflower) under an RWS regime. Extension 'messages' would be developed with respect to optimal crop wetting and time of application, improved field irrigation techniques, fertilizer and agro-chemical application, and use of improved cultivars and varieties. The program would be undertaken along two selected distributaries above and below LMD respectively over a period of five years. Each distributary would have three 40 ha sites at selected locations along its upper, middle and lower reaches: thus the test area would total 240 ha. There would also be sprinkler and drip pressurized irrigation demonstration plots of 2 ha each. These sites would preferably be where WUAs have been organized and would be selected jointly by ICADD, Department of Agriculture (DOA) and farmers' representatives. A third test area of 120 ha would be selected in either Block IV or Block VIII of SRBC depending on which is completed first. 2.30 Lists of required vehicles, laboratory and field equipment and necessary farm implements have been prepared. The sub-component would require temporary recruitment (for 5 years) of 3 research associates and 3 data recorders. Aside of extension to disseminate findings, a Farmer Exchange Program would form part of the demonstration strategy. Under this program, funding is provided over a five year period to arrange 2-day observation visits of 2,700 selected farmers from new and rehabilitated commands to research stations and other commands. 2.31 Upgrading of SRSP Extension Services. The existing agricultural extension service would be strengthened in the area of irrigation water management, systematic land development, and credit for land leveling through cooperatives and banks. The Contact Farmer approach of the Training & Visits (T&V) system was found to be ineffective and has been replaced by more effective mass contact through regular large group meetings and exhibitions. Participatory Rural Appraisal techniques for eliciting farmer feedback would be an element of the extension approach. The compulsory fortnightly Village Extension Officer (VEO) orientation and training meetings of the T&V system would be maintained to ensure uniform and timely extension message transfer. Andhra Pradesh Agricultural University (APAU) staff would participate in bimonthly workshops organized by the agricultural research stations in the command to deal with location-specific problems, and to maintain a linkage to the concurrent applied research program.  17 Water User Association Promotion Program 2.32 WUA Promotion Strategy. Based on GOAP's PIM Policy (paras. 4.01-4.02 and Annex 3), ICADD has prepared an Action Plan for the Promotion of Farmers' Organization in Irrigation Management of Sriramsagar and Srisailam Right Branch Canal Projects (Annex 14). The Action Plan target is phased establishment of 472 autonomous WUAs covering 256,000 ha in SRSP and 150 WUAs covering 69,000 ha in SRBC. Each WUA will be responsible for: (a) manage the minor canal command under its control to equitably deliver water supplied under a RWS regime to each irrigation block outlet; and (b) maintain its canal network. The Action Plan provides a generic model format of WUA Bye-Laws and a Memorandum of Understanding (MOU) for partial management transfer. Both documents have been reviewed and found satisfactory to the Bank. Copies of these model documents are exhibited in Annex 3. Each WUA will be governed by an elected executive committee of nine members and include a President, Treasurer and Secretary. 2.33 GOAP's decision to attempt joint management and partial transfer of irrigation networks to farmers is based on a phased process-oriented strategy of coordination of the many administrative, organizational, financial and institutional supporting actions to achieve turnover initially at the minor canal level. The process-oriented approach focuses initially on the effectiveness of the different decision-making processes in achieving satisfactory performance. Accordingly, the generic WUA framework currently being piloted in SRSP (para. 2.35) with 32 WUAs would be modified as necessary on the basis of experience and success. Management transfer would concentrate on establishing WUAs with jurisdiction over 400-750 ha by associating defunct voluntary Outlet Committees into a WUA on the basis of maximum social homogeneity within a single "Revenue Village" if possible. 2.34 A second phase of participative management would involve consolidation of WUAs into a larger organization at higher levels for managing a portion of the larger irrigation system. The WUAs would be expected to federate into apex committees on a distributary level (Distributary Committees) so as to provide a coordinating function for member WUAs and ICADD staff. At Command Area Development Authority (CADA) level in SRSP (and later in SRBC), a reconstituted CADA Board would be responsible for overall scheme management (paras. 4.04-4.06) along with an executive committee of composed of representatives of Distributary Committees. When the minor/distributary is handed over to a WUA, ICADD involvement would consist of technical advice. Other government support such as training, extension and management support would be provided as needed to further strengthen WUA participation in decision-making processes and foster a sense of partnership. It is envisaged that successful WUAs may amalgamate to enter into marketing, transport and agro-processing ventures. 2.35 Implementation Approach. Mass education and motivation campaigns would be organized in the project area. For SRSP, a consultative process in relation to system rehabilitation diagnostics would be carried out with respect to designs, outlet locations, the direct outlet problem etc. Training modules to facilitate implementation are being developed under the ongoing pilot program. The MOU defining WUA rights and responsibilities and the WUA bye-laws would be finalized in a democratic manner during WUA establishment, and support arrangements would be adapted to local conditions. The generic framework of latter aspects are being developed in an ongoing 2-year pilot program for 17,021 ha in SRSP with the assistance of two experienced NGOs. The NGOs are working in collaboration with WALAMTARI to develop location-specific training materials and modules.  18 2.36 The programs for WUA establishment in SRSP and SRBC (Annex 3) would vary in detail because of basic differences in scheme type (rehabilitation only in SRSP and introduction of irrigation in SRBC), local established practices and perceptions. The common framework includes: * Social Preparation and Socio-Anthropological Studies. Motivation camps and meetings in each village to promote WJUAs with audio-visual aids, training materials and direct discussion over a period of 6-9 months. In this period, irrigators would be identified, WUA boundaries would be finally determined and potential members who can serve as office bearers and training needs would be identified. GOAP is of the view that local indigenous farmer organizations (such as those for tank irrigation), and their linkages and community roles, need to be understood and integrated or associated with the WUA framework. Two such studies by consultants will be undertaken in SRSP and one in SRBC. * WUA Formation. In this process, WUA representatives would be selected through the existing village structures and other functional organizations. The working modalities, responsibilities, functions, duties would be formalized as bye-laws for the WUA. The WUA's relations with ICADD would be determined by a MOU. Training would begin in this period which is expected to take 3-4 months. * WUA Legal Registration. WUAs would be required to register as legal entities under AP's Societies or Cooperatives Acts, or under appropriate provisions of the 1984 IU & CAD Act (para. 1.14). Although the choice of registration modality will be left to WUA members, guidance will be provided based the experience gained under the ongoing SRSP pilot program. Prior to registration, 51% of farmers in terms of numbers or landholdings must be enrolled as members of the WUA. * Financial Arrangements. WUA financial sustainability is proposed to be achieved primarily through the efforts and initiative of its members, but the modalities to be finally used will depend on the findings of the ongoing pilot program and the evolution of GOAP's initiative to require WUA formation on all public irrigation schemes. WUA revenue options being considered include: (i) individual membership fee payment on a per ha basis for upkeep of the irrigation network and administrative costs ; (ii) a commission to collect water rates and benefit from a rebate of 40% thereof (para. 4.10), or government support by earmarked sharing of the per ha O&M budget for the scheme; and (iii) initial managerial support grant of Rs.275/ha over three years available from a GOI PIM program. GOAP policy at present is to minimize dependence on direct government subventions and rely on incentives for WUA formation to foster self- reliance based on beneficiary empowerment. * Consultative Process. In SRSP, the system rehabilitation and watercourse improvement designs prepared by ICADD would be reviewed with the affected WIUA members prior to their procurement. Seasonal canal closure periods to facilitate rapid completion of works would be explained. This would also involve the issue of controlling irrigators served by direct outlets from a large canal: it is proposed that these irrigators would be placed under WUA jurisdiction under the provisions of the MOU. In SRBC, the system and watercourse designs would be explained to prospective irrigators and their inputs sought through existing organizations. An 2 E.g. a one time initial membership payment of Rs.250/ha to be held in a fixed deposit interest bearing account yielding Rs.30/year/ha to be used for maintenance;  19 assurance was obtained at negotiations that, prior to the award of any SRSP contract for rehabilitation of the irrigation network, the beneficiary farmers would be consulted on the modifications to the tertiary network designs with respect to relocation of irrigation outlets to farm watercourses or farm block watercourses, and shall take into account the views of beneficiaries. * WUA Establishment. ICADD and NGO Social organizers would provide technical assistance to WlUAs for 2 years (including the preparatory period) after which they are expected to be self- sufficient enough to discharge their obligations as per the MOU. During this period, the SRSP WUAs would be expected to undertake emergency repairs and works with the funding provided for this purpose (para. 2.19). The WUA establishment program will be implemented by WALAMTARI, NGOs and trained SRSP CADA staff. An NGO Adviser will be retained according to terms of reference satisfactory to the Bank at the state level to provide support on WVUA establishment and operation. Farmer Training Program 2.37 Training Infrastructure. At present, WALAMTARI has a campus in Hyderabad, four farmer training centers (FTCs) in SRSP and one in the SRBC area. Since the available training facilities and infrastructure are inadequate, in addition improving the training facilities and infrastructure at existing FTCs, the project would support establishment of two new FTCs in SRBC and one additional FTC in SRSP. GOAP has prepared a Training Implementation Plan in which all equipment lists, course details and proposed expenditures are specified. 2.38 Extension Training. An extension staff training plan has been prepared for VEOs, Agricultural Development Assistants (ADAs) and Agricultural Officers (AOs) in SRSP and SRBC. The training would be conducted by staff of the WALAMTARI with inputs from APAU. Staff from Officer level and above would be sent to the WALMTARI campus for training in water use management, while tailor-made courses for VEOs and ADAs would be organized on site as off- campus courses at regional agricultural research stations. This program envisages 24 basic and refresher courses for 364 VEOs, ADAs and AOs over a five year period. 2.39 WUA Training. Training is a key element of the WUA Promotion Program. The five year program of training courses by WALAMTARI and NGOs would cover all WUA office bearers, selected contact farmers, agricultural officers and ICADD staff involved in the WUA promotion process. Sixteen 3 day workshops on PIM and WUAs would be offered at the WALAMTARI campus for a total of 480 senior engineers and agricultural officers. The sub-project FTCs would provide: (a) 600 WJUA courses for a total of 18,000 SRSP WUA members and 360 courses for 10,800 SRBC WUA members; and (b) 32 farmers' participation and public relations courses for 960 ICADD and agriculture staff at or below Deputy EE and AO rank posted to SRBC and SRSP. D. Detailed Features of Social and Environmental Programs Resettlement and Rehabilitation (R&R) Program 2.40 Land Acquisition. The total amount of land required for all project works, including roads, amounts to 7,981 ha, including 4,877 ha of land already taken over for the project since 1985 and 3,104 ha to be acquired for the proposed project. Of the total amount of land required, 6,479 ha is privately owned land, of which 4,030 ha have already been acquired and 2,449 ha are at different  20 stages of acquisition. Compensation for land was paid in line with the Land Acquisition Act (LAA) of 1894, amended in 1984. This compensation proved inadequate and many landowners sought and received redress of grievances in the courts. GOAP issued Negotiations Committee Rules in 1992, stipulating the constitution of Negotiation Committees and procedures for negotiated compensation with landowners affected by land alienation for public projects. Persons whose land acquired after 1992 received consent awards. Thus, for land still to be acquired, GOAP will seek utilize the Negotiation Committee procedure to pay land compensation at the prevailing land market value in addition to entitlements under para. 2.44. For trees, structures and other assets to be acquired, replacement value will be paid. If the negotiations fail to result in consent awards, the affected person could resort to the legal proceedings under the LAA. 2.41 Eligible Project Affected Persons (PAPs). New irrigation commands potentially improve the livelihood of all command area population: thus loss of a small area of dry land to canal construction would be offset by increased income from the remaining holding. Thus PAPs are defined by the project R&R Policy as including all persons who have lost--or stand to lose--a "minimum economic loss" of his/her land, including land utilized under customary usufruct rights, and is either left with less than a "minimum economic holding", or whose income has fallen below the state's poverty line due to land acquisition. The "minimum economic loss" of holding is considered to be loss of 25% of the holding size on the date of Notification under the LAA, while a "minimum economic holding" (MEH) is defined as I ha of irrigated land or 2 ha of dry land. The PAP definition also includes landless persons, dependent on manual labor and living below the state's poverty line, whose livelihoods have been adversely affected due to alienation from land or property upon which such livelihood previously depended. Persons suffering less than a minimum economic loss would receive normal compensation under the LAA (para. 2.40). 2.42 PAP Categories (Including Scheduled Tribes). The following population categories are eligible for R&R benefits under the project: (a) land holders and their families losing at least a minimum loss of their land holdings, or otherwise relegated to the official BPL livelihood category by past or future land acquisition; (b) landless persons (such as tenants, sharecroppers and encroachers) and their families losing at least a minimum loss of their cultivated land; and (c) the major children of PAPs of either sex who are more than 18 years of age, irrespective of his/her marital status, at the time of the socioeconomic survey. Two specific categories of PAPs entitled to additional benefits are: (a) those who lose any of their homestead land or are otherwise displaced from their village as a result of land acquisition; and (b) PAPs belonging to Scheduled Tribes who are entitled to replacement of land [para. 2.44(a)] in addition to all rehabilitation benefits. In the SRBC area, Scheduled Tribes constitute about 2.2% of the total population and 1.2% of the PAPs; in SRSP, Scheduled Tribes comprise about 15.5% of the project area population and about 10% of PAP households. In both cases, Scheduled Tribes are engaged in farming and are project beneficiaries, and accordingly no separate Tribal Development Plan has been prepared. 2.43 Number of PAPs. Independent consultants conducted detailed socioeconomic surveys in the project affected areas on the basis of the approved R&R Policy. The surveys were satisfactory to the Bank and completed: (a) verification of the extent of land and other assets acquired under AP II and to be acquired by the project; and (b) identification of individual PAPs in each category and their socio-economic profile. Thus the total number PAPs is about 6,500 scattered in 308 villages and includes 3,031 major children at the time of the socio-economic survey in 1994. The sub-categories include: 121 PAPs who have lost their houses/homesteads; about 675 PAPs rendered landless; about 311 PAPs that became functionally landless (i.e. losing so much land that they ceased farming); 7  21 tenant PAPs; and 61 PAPs belonging to Scheduled Tribes of which 49 will get replacement land. and all are farmers who would be irrigation beneficiaries. 2.44 R&R Entitlements and Benefits (Annex 5). The R&R Policy aims at improving, or at least restoring, the living standards of PAPs by providing--along with irrigation benefits--an assistance framework for replacement of lost assets and economic rehabilitation activities. Thus, in addition to mandatory compensation under the LAA, the following entitlements are provided under the R&R program to PAPs: (a) Land-for-Land Option. Replacement land of comparable quality will be provided to PAPs through allotment of government land or ceiling surplus land to the extent of their loss up to a limit of 2 ha of dry land or I ha of irrigated land, preferably in the same revenue village. Preference will be given to persons belonging to the weaker sections. In the case of PAPs belonging to Scheduled Tribes: those rendered landless will be given 2 ha of new land while those losing part of their holding would be given replacement land (b) Economic Support Package. In case of unavailability of nearby government land, a package of economic support programs will be implemented to purchase productive assets for income generation. The package will consist of the following ex-gratia grants: (i) Productive Asset Grants. The following grants are available for PAP categories: - Rs.8,000 to each PAP that has obtained judicial awards under LAA grievance procedures in the past, or whose land has been acquired under the consent award system after 1992; - Rs.8,000 for all major children of each PAP (irrespective of PAP category); - Rs.13,000 for each PAP that has not obtained judicial or consent award for their land; and - Rs. 16,000 for each PAP rendered landless or functionally landless by the project. (ii) Womens' Thrift Group Grants. Women groups of PAP spouses will be organized for income generation activities. Financial assistance will be provided to each group of 15 women at Rs.15,000 (i.e. Rs.1,000 per spouse). (iii) Vocational Training. Each PAP will be provided Rs.3,000 for vocational training linked with relevant economic activities for himself/herself or family members. (iv) Maintenance Allowance. Each PAP will be given a maintenance allowance at Rs.500 per month for nine months irrespective of whether his/her land was acquired in the past or would be acquired in future. He/she will also be given a smokeless stove (chulla) at project expense. (v) Cattle Maintenance Allowance. Each PAP will be given a cattle maintenance allowance at Rs.200 per month for 6 months irrespective of whether his land has been or will be acquired. Each PAP may pool his productive assets grant together with that of one or all of his major children to purchase land or income generating assets such as livestock, machinery or equipment. The grants will be held in joint bank accounts and released only for an approved income generating scheme. Maintenance and cattle allowances may also be deposited in the joint account for income generating schemes if a PAP so desires.  22 (c) Homestead Land and House Construction Allowance. Each PAP family losing its house or homestead will be provided 200 m2 of developed land for homestead land and Rs.14,000 for house construction with provision of free transport facility to the new site. (d) Access To Government Programs. The R&R Policy states that PAPs may also be provided access to ongoing GOAP welfare programs such as: (i) subsidized rice schemes; (ii) Scheduled Caste and Scheduled Tribe development programs; (iii) employment guarantee and assurance programs; (iv) provision of protected drinking water; (v) adult literacy programs; (vi) Integrated Rural Development Program (IRDP) and Development of Women and Child in Rural Areas (DWCRA). 2.45 Economic Rehabilitation Action Plans. Based on the above R&R Policy framework, GOAP prepared separate economic rehabilitation action plans (ERAPs) for each sub-project's PAPs affected by the construction of main canals, distributary canals and farm roads constructed prior to and under AP II, as well as the small number of families that will be adversely affected by construction of the SRBC command area. The ERAPs contain detailed planning of rehabilitation activities, including household-oriented economic activities, training programs, organizational arrangements, community mobilization through NGO facilitation and monitoring mechanisms. In preparing the ERAPs, the consultants have planned R&R activities by villages and consulted each PAP about his/her preferences for income-generating schemes. The ERAPs were found to be satisfactory to the Bank. 2.46 Village Rehabilitation Action Plans. To orient R&R implementation towards each village containing a significant number of PAPs, 95 Village Rehabilitation Action Plans (VAPs) are to be prepared during project implementation on the basis of a sample VAP included in the ERAPs. This will provide an opportunity for further consultation with the PAPs in refining the PAP-specific income generation activities and promote PAPs' participation in planning and implementing of their R&R programs. VAPs will further confirm the identified economic activities and detail all PAP- specific rehabilitation measures on the basis of the following factors: (a) village resources potentials and PAP skills; (b) linkages with government programs; (c) support needs for carrying out income generation activities, including new skills, financial services and market analysis; and (d) training needs for PAPs with different income generation schemes. 2.47 R&R Training. Each ERAP contains a training program to ensure successful R&R implementation in facilitating all income generating schemes and women group economic activities. R&R staff training and PAP vocational training would be provided as follows: * Training for Engineers. Training for 20 engineers will cover R&R policy and the R&R program to raise their awareness to R&R issues and help resolve difficulties and conflicts in R&R. * Orientation Training For Rehabilitation Officers & NGOs. The training of Rehabilitation Officers and NGOs is aimed at upgrading their skills, familiarizing them with R&R planning and R&R implementation planning. The training would be implementation and problem-oriented and will be conducted in working sessions in highly participatory manner. R&R officers at the state level and consultants previously involved in the R&R planning would deliver the training on the R&R Policy's entitlements and rehabilitation activities, while NGOs would provide the training in community mobilization. Training topics would include the following: (a) community mobilization techniques; (b) income generation schemes in various sectors; (c)  23 identification and verification of all developmental schemes; (d) organization of womens' thrift groups; (e) operation of joint accounts and disbursement; (f) identification of training programs for youths; (g) risk analysis of various economic schemes and possible measure to prevent and correct them; and (h) R&R monitoring arrangements Training For PAPs. The success of income generation programs is crucial to the R&R target of improving and restoring the living standards of the population adversely affected by the project. As most of the identified schemes are new to the PAPs, they require new knowledge, techniques and skills to carry out the schemes. The ERAPs provide for training of about 3,440 PAPs in nearby training centers. Detailed vocational training programs, trades and schedules would be provided in the Village Action Plans. PAP training would cover the following topics: (a) technical skills required for different trades; (b) maintenance of productive asset; and (c) womens' group economic activities. A total of 5,063 women would receive training to facilitate success of their womens' thrift group income-generating schemes. 2.48 AP II Reservoir R&R Remedial Action Plans. A Remedial Action Plans (RAP) was prepared for retrospective completion of residual works and rehabilitation begun under the AP II project for the displaced families in the resettlement villages of the Srisailam and Lower Mannair Reservoirs. The RAP is based on a detailed survey in the 104 resettlement villages to evaluate the status of the infrastructure (roads, electrification drinking water needs, primary education facilities, medical and veterinary service facilities and other community buildings) provided under AP II and determined residual requirements. The Remedial Action Plan includes three components as follows: e Infrastructure Provision. The survey identified remedial works according to planning norms and proposed the following groupings of investments: (a) balance works which are incomplete and required to be completed as per the R&R Action Plan of AP II; (b) improvements needed for improved utilization of the facilities already provided in the resettlement villages; and (c) additional facilities which are required as per the perceptions of the village population. * Free House Plots. Free house plots are to be provided to the homeless people in the 104 resettlement villages. The survey has identified 2,231 people without houses, 379 in the 81 Srisailam Reservoir resettlement villages and 1,852 in the 23 LMD oustee villages. GOAP will provide each homeless family with 200 m2 of developed homestead land free of cost. * Income Generation Schemes. Due to the absence of detailed surveys for the AP II R&R component, the survey could not identify the 778 PAPs in the 23 LMD villages who had not received their income generation scheme benefits under AP II. Therefore the RAP's income generation programs would target the poorest 778 families in the 23 resettlement villages of Lower Mannair Reservoir. An assurance was obtained from GOAP at negotiations that the R&R program would be implemented according to the provisions of paras. 2.40-2.48 above and the R&R Targets and Actions matrix in Annex 5. Environmental Management Plan (Annex 2) 2.49 Potential Environmental Impacts. The project has been designated as falling into Environmental Category 'B'. Five principal types of environmental impact are potentially of concern in the development of SRBC and rehabilitation of SRSP. These impacts are: (a) the  24 potential for soil waterlogging and secondary salinization due to rise of the groundwater table as a result of canal irrigation; (b) loss of reservoir storage through sedimentation caused by watershed degradation; (c) increase in malaria and waterborne diseases; (d) loss of forest land due to reservoir and canal construction; and (d) adverse impact on flora and fauna as a result of construction of irrigation canals. Separate EIA studies analyzing the above potential impacts for SRBC and SRSP were compiled by consultants and submitted to the Bank in May 1994 as part of the initial project feasibility study. These studies were based on existing and new surveys of soils, land use, flora and fauna, and on specialized groundwater monitoring investigations and analysis undertaken by GOAP's Groundwater Department (GWD). 2.50 Environmental Clearances. In order to receive national environmental clearance for the project, GOAP prepared a Environmental Impact Assessment and Environmental Management Plan (EMP) for both SRBC and SRSP according to national guidelines in March 1995. However, prior to according its clearance in March 1996, MOEF required that the EMP include several natural resource and nature conservation programs which would benefit the sub-project districts. The need for these interventions are not attributable, for the most part, to any adverse impact caused by irrigation works per se, but ensuring that development would not impinge on, or affect, natural resource and wildlife assets in the project area's districts, and raising its population's environmental awareness. 2.51 Impact Assessment. No irreversible, diverse or complex adverse impacts were found by the MOEF review committee in either of the sub-project command areas which would change the project's 'B' environmental category rating accorded by the Bank. Given GOAP's obligation to carry out the regional EMPs, they have been included as a monitorable investment under the project. Bank missions confirmed GWD's assessment that waterlogging and secondary salinization would not be caused by a rise of groundwater tables into the crop root zone except, possibly, in isolated pockets. The EMP has provision was made for promotion of groundwater development and conjunctive use to mitigate such impacts if they arise (Annex 2, paras. 16-25). 2.52 EMP Components. The EMP for the SRBC and SRSP sub-project areas includes: (a) compensatory afforestation of 1,910 ha of in degraded areas; (b) eco-restoration programs consisting of habitat protection and infrastructure improvements in the Pakhal and Rollapadu bird and wildlife sanctuaries, afforestation of 2,100 ha of degraded areas in Forest Reserves, establishment of three environmental education centers and an LMD Bird Sanctuary, and anti-poaching units; (c) catchment area treatment programs consisting of 55,102 ha of afforestation and soil conservation measures to reduce sedimentation of the Srisailam, Sriramasagar and LMD reservoirs; (d) improved prophylactic programs for prevention of waterbome diseases such as immunization of 13,600 children in SRBC, chlorination, anti-mosquito spraying and establishment of mobile health units and dispensaries; (e) agroforestry extension support consisting of distribution of 100,000 teak stumps and 20,000 fruit tree seedlings and establishment of two mobile extension units; (f) 275 km of canal plantation and construction site restoration measures; (g) establishment of a fish farm at LMD; (h) two environmental monitoring and evaluation units; (i) support for anti-poaching vigilance arrangements; (j) continuation of groundwater monitoring programs in SRBC and SRSP command areas; and (k) farmer conservation training. Further detailed descriptions of these components is given in Annex 2.  25 III. COST ESTIMATES, FINANCING AND DISBURSEMENTS Cost Estimates 3.01 Project Cost Summary. The total project costs over a five and one half year period are estimated at US$477.43 million including physical and price contingencies (US$43.36 million). This amount includes foreign exchange costs of about US$50.11 million (10.5% of the total cost) and about US$52.98 million for taxes and duties (11% of the total cost). Table 3.1 gives a summary of project costs by component. Detailed summary cost tables including a breakdown by expenditure categories are given in Annex 6. Detailed project cost tables are available in the Project File (Annex 14). Table 3.1 Project Cost Summarv by Component Components Rs. Million US$ Million Local Foreign Total Local Foreign Total Irrigation Works 10,599.89 1,348.16 11,948.05 307.24 39.08 346.32 Dam Safety 623.89 75.80 699.69 18.08 2.20 20.28 R & R Program 738.93 13.38 752.31 21.42 0.39 21.81 Agricultural Support 345.36 24.23 369.59 10.01 0.70 10.71 Environmental Plan 1,017.74 102.73 1,120.47 29.50 2.98 32.48 Project Monitoring 85.08 0.00 85.08 2.47 0.00 2.47 Total Baseline Costs 13,410.89 1,564.30 14,975.19 388.72 45.34 434.06 Physical contingencies 709.97 92.26 802.23 20.58 2.67 23.25 Price Contingencies 2,794.23 326.19 3,120.42 18.02 2.09 20.11 Total Project Costs 16,915.09 1,982.74 18,897.83 427.32 50.11 477.43 3.02 Cost Estimate Assumptions. The estimated base costs are given in 1996 prices. The cost of ongoing civil works eligible for retroactive financing are based on the actual tender costs, while the costs new civil works have been based on the GOAP "Schedule of Rates" adjusted upward by 30% to cater for market conditions. The unit costs of equipment and vehicles are based on prices quoted by suppliers. Physical contingencies of 10% are included for the ungrounded civil works. Price contingencies for foreign exchange costs are based on annual international inflation estimates of 2.5% in 1996, 1.7% in 1997, 2.2% in 1998, 2.6% in 1999, 2.8% in 2000 and 2.6% in 2001. Likewise for local costs, the annual local inflation rates used are: 6.0% in 1996; 7.0% in 1997; 6.7% in 1998; 6.5% in 1999 and 6.0% in 2000 and thereafter. No price contingency was allowed for retroactive funding (para. 3.16) of project expenditures in FY 95/96 and FY96/97. Financing 3.03 Financing Plan. Bank support would consist of an IDA Credit of SDR108.10 million (US$150 million equivalent) and an US Dollar Loan of US$175 million at the IBRD variable interest rate, and include up to SDR30.50 million (US$42.25 million equivalent) for retroactive financing (para. 2.17). Thus the Bank would finance about 68 percent of total project costs (77 percent net of duties and taxes), or the equivalent of 100 percent of the foreign exchange component and 73 percent of the local costs net of taxes and duties. The remaining 32 percent of expenditures (US$152.43 million) or 23 percent of expenditures net of taxes and duties (US$99.45 million) would be funded by GOAP. The financing plan is summarized in Table 3.2 below: Detailed tables with a breakdown of components by expenditure categories and by financiers are given in Annex 7.  26 Table 3.2 Financing Plan (US$ Million) Finance Source Local Foreign Total Financing BGOAP 152.43 00.00 152.43 IDA/IBRD 274.89 50.11 325.00 Total 427.32 50.11 477.43 3.04 Financing Conditions. The project would be completed in about five and half years by July 31, 2002 and would be closed on January 31, 2003. The loan/credit would be made available to GOI on standard IDA/IBRD terms and conditions, and on-lent to GOAP by GOI under GOI's standard terms and conditions for developmental assistance to the states with GOI assuming the foreign exchange and interest rate risks. Under current GOI policies, on-lending to GOAP takes the form of a 30% grant and 70% loan at the interest rate of 13% per annum. The first half of the loan is recovered by GOI over 10 years without a grace period, whilst the second half is recovered by GOI over a period of 20 years, including a grace period of 5 years. Procurement 3.05 Non-Bank Finance (US$53.03 million). This includes expenditures for land acquisition (US$13.90 million), engineering survey and administration (US$34.33 million) and operating costs for the agricultural support services and the EMP (US$4.80 million), which would be fully financed by GOAP. This expenditure category would be incurred for the existing staff of the ICADD, WALAMTARI, and other agencies involved in agricultural extension and the EMP. 3.06 Civil Works (US$371.62 million). Bidding for civil works contracts would not attract foreign bidders due to the relatively small size of the individual contracts for irrigation works, feeder roads, and buildings. Therefore all civil works would be procured through National Competitive Bidding (NCB) using standard bid documents, Direct Contracting, Quotations and Force Account as follows: * National Competitive Bidding (US$350.09 million). All irrigation civil works and feeder roads (74 packages of which 77% are over US$100,000 and above), O&M upgrading and about 110 buildings would be procured using standard NCB bid documents and procedures satisfactory to the Bank/IDA. Post-qualification criteria satisfactory to the Bank/IDA would be used for these contracts with the exception of the Owk Tunnel and Owk Reservoir in SRBC where prequalification would be required. Foreign contractors would be fully eligible to participate. * Direct Contracting/Ouotations/Force Account (US$21.53 million.). Scattered soil conservation works in inaccessible locations, O&M works support on a declining scale (para. 3.18) and command area development (watercourses, land leveling and field drainage), valued individually at US$20,000 equivalent or less up to an aggregate amount not exceeding US$21.53 million, are not suitable for NCB. These would be procured following procedures acceptable to the Bank/IDA either through: (a) Direct Contracting with non-governmental organizations and WUAs; and (b) quotations solicited from at least three qualified contractors (unit rate/piece rate system). Force Account would only be used in a manner satisfactory to IDA/Bank.  27 3.07 Afforestation (US$ 20.07 million). All the compensatory afforestation, the green belt and reservoir plantation, degraded forest rehabilitation and canal bank plantation would be carried out under a unit/piece rate system, or under force account as a last resort, by the Forestry Development Corporation, and Departments of Forestry and Agriculture. 3.08 Goods and Equipment (US$16.76 million). Standard bidding documents (Supply, Supply- cum-Erection) would be used for both ICB and NCB. All contracts for goods, equipment and materials costing US$250,000 or more (totaling about US$7.40 million) would be awarded following ICB procedures with a domestic preference for national suppliers. Contracts, not exceeding individually US$250,000 and in aggregate about US$3.31 million, would be procured following NCB procedures acceptable to the Bank/IDA. Isolated or small lot purchases including, in particular, immediate requirements of equipment individually costing the equivalent of US$25,000 or less up to an aggregate of US$1.02 million would be procured following National Shopping procedures. Items costing less than US$250,000 equivalent, which are not locally available would be procured through International Shopping. All goods and equipment for PAP income-generation schemes (US$4.03 million) are to be procured by local shopping with project assistance so as to be eligible for reimbursement. Disbursements against such purchases of goods and equipment would be made subsequent to eligible expenditures on the basis of supporting documents furnished to the Bank. 3.09 Vehicles (US$0.80 million). Vehicles would consist of 40 cars, jeeps and vans and 42 motorcycles. All contracts for vehicles under the project would be procured under national shopping procedures as procurement would involve different types of vehicles. Such national shopping would primarily involve the use of Director General, Supplies and Disposal (DGS&G) rate contracts. Contracts for hire of vehicles up to an aggregate of US$2.1 million equivalent would be procured through quotations from three domestic suppliers. 3.10 Training, Technical Assistance and Studies (US$11.25 million). These comprise of: (a) farmer and project staff training (US$4.15 million); and (b) consultantcy services (US$4.91million) and studies (US$2.19 million). Except the training carried out by WALAMTARI and other concerned implementing agencies, all training would be carried out largely by local professional institutions and NGOs and procured through direct contracting. All technical assistance and studies would be contracted on terms and conditions in accordance with the "Guidelines for the Selection and Employment of Consultants by World Bank Borrowers" dated January 1997. Consulting firms would be selected by "Quality- and Cost-based Selection" procedures. Short lists for small assignments costing less than US$100,000 may consist entirely of national consulting firms. NGOs to assist with R&R and WUA formation would: (a) have to meet the NGO selection criteria in Annex 13; and (b) NGO services costing less than US$ 100,000 may be procured on a single source selection basis when (i) an assignment is small, and (ii) the NGO has local experience and/or is exceptionally qualified. Individual national or foreign consultants may be contracted as per the Guidelines. An assurance was obtained from GOAP at negotiations that it would select NGOs in accordance with criteria agreed with the Bank/IDA (Annex 13). 3.11 R&R Program and Recurrent Costs (US$4.90 million). These expenditures comprise of: (a) incremental staff salaries, allowances and operating expenditures for PPMU (US$2.20 million); (b) vehicle hire charges (US$2.10 million); and (c) R&R administration (US$0.60 million). No disbursements would be made for incremental salaries and operating costs of the agricultural and environmental management plan components valued at US$4.80 million equivalent.  28 3.12 Review of Contract Award. Prior Bank/IDA review will be required for procurement actions of: (a) all contracts for civil works valued at US$300,000 and above; (b) goods and equipment and vehicles valued at US$200,000 and above; (c) all consultancy contracts valued at US$100,000 and above (US$50,000 for individual consultants); and (d) all single source consultancy contracts over US$100,000 equivalent. All other contracts would be subject to random post review in the field by visiting missions. This would result in over 75% of the project procurement being subject to prior review. Both GOAP and ICADD have had recent prior experience with Bank/IDA procurement procedures. 3.13 Procurement Summary. The procurement arrangements and amounts for each expenditure category are summarized in Table 3.3. Table 3.3 Procurement Arrangements (US$ Million! Expenditure ICB NCB National Unit Rate, Other NBF" Total Category Shopping, Piece Work MethodW Costs Direct or Force Contract Account 1. Land Acquisition - 13.90 13.90 (0.0) (0.0) 2. Engineering and - - - - 34.33 34.33 Administration (0.0) (0.0) 3. Civil Works: - Irrigation - 333.70 - - - - 333.70 (253.62) (253.62) - O&M Costs - 3.51 - 4.23 - - 7.74 (1.49) (1.94) (3.43) - On-Farm - - - 17.12 - - 17.12 Development (13.01) (13.01) - Feeder Roads - 9.67 - - - - 9.67 (7.35) (7.35) - Buildings - 3.21 0.18 - - - 3.39 (2.44) (0.14) (2.58) 4. Forest Plantation - - 20.07 - - 20.07 (19.06) (19.06) 5. Equipment and 7.40 3.31 1.02 - - 11.73 Furniture (5.55) (2.48) (0.77) (8.80) 6. Vehicles - 0.81 - - 0.81 (0.64) (0.64) 7. Training - - - - 4.15 - 4.15 (3.94) (3.94) 8. Consultant - - - - 4.91 - 4.91 Services (4.67) (4.67) 9. Studies - - - - 2.19 - 2.19 (2.08) (2.08) 10. R&R Assistance - - - - 4.03 - 4.03 (3.22) (3.22) 11. Recurrent Costs - - - 4.90 4.80 9.70 (2.76) (0.0) (2.76) Total Expenditure 7.40 354.21 21.27 21.35 20.18 53.03 477.43 ____________________ (5.55) (268.02) (19.97) (14.95) (16.67) (0.0) (325.16) Note: Figures in parenthesis are the respective amounts to be financed by the Bank/IDA. a/ Applies to NGO contracts and incremental staff and operating costs. b/ NBF-Non-Bank Financed.  29 3.14 Procurement Procedure. To ensure efficient procurement, the following understandings were recorded at negotiations: (a) As a minimum, all bid invitations would be advertised in newspaper with national circulation and shall contain the key post-qualification requirements in summary form. Bid documents shall be provided promptly upon request, upon payment of the prescribed fee, and shall be sent by mail upon request. (b) During pre-bid conferences, bidders would be advised about: (i) Conditions of Contract related to "Technical Expert" adjudicator for large civil works, default provisions, post- qualification requirements, etc.; (ii) streamlined processing to elicit competitive bidding; and (iii) the high likelihood of being declared unresponsive if all qualification data and securities are not provided in bid documentation. (c) Bids shall be evaluated within 30 days of bid opening and recommendations for contract award should be forwarded to the Bank/IDA for review where necessary (prior review) within 60 days thereof, and all contracts would be conveyed to the successful bidder within the bid validity period of 90 days. Any justifications for extension of bid validity shall be cleared with the Bank/IDA to preclude forfeit of financing for bids not awarded within a reasonable time. 3.15 Procurement Management. The procurement process would be coordinated by the Project Preparation and Monitoring Unit (para. 4.14). Bids would be evaluated by the concerned Chief Engineer of SRBC or SRSP and a Bid Evaluation Report would be forwarded to the State Commissionerate of Tenders (COT) chaired by the ICADD Chief Engineer for clearance. The PPMU would ensure that suitably qualified individual(s) are designated to prepare a signed and dated Bid Evaluation Report following a format and content acceptable to the Bank/IDA. COT procedures and efficacy would be monitored by the Project Empowered Committee (para. 4.12) and if found wanting, the Project Empowered Committee would undertake procurement management. ICADD's semi-annual reports (para. 4.38) would contain summarized procurement data 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. Retroactive Financing 3.16 Amount and Eligibility Period. Implementation of civil works contracts in the two sub- project areas procured under AP II according to Bank/IDA Guidelines has continued since the project's closure on June 30, 1994 (para. 1.19). These works have been monitored by the Bank during project preparation and have been subject to an independent construction quality audit in June 1996. The audit team certified that the works were of a high standard, and that the project quality assurance procedures and controls (para. 2. 28) were sustainably implemented. Thus, to reimburse GOAP for part of these expenditures, the Bank/IDA has approved retroactive financing of 13% of the loan/credit amount for up to SDR30.5 million (US$42.25 million equivalent) for eligible expenditures incurred by GOAP after February 28, 1995. 3.17 Escrow Account. It was agreed during appraisal that GOAP would deposit 50 percent of the payment on account of retroactive financing of civil works in an escrow account to be used exclusively for financing of GOAP's contribution to project financing. Not only would this dedicated account serve to reduce the fiscal burden on GOAP during its proposed fiscal adjustment program, but it would ensure that temporary delays in payments to suppliers and contractors would  30 not arise due to delays which could occur in GOI fund transfer to GOAP or to delay in GOAP transfer of funds to ICADD. At Negotiations, assurances were obtained that GOAP would: (i) establish a project escrow account for 50 percent of the payments received on account of retroactive financing of eligible expenditures incurred prior to the date of the Development Credit and Loan Agreements; and (ii) ensure that such such amounts are used as counterpart funds for financing project activities prior to the Closing Date of the project. Disbursement 3.18 The proposed IDA Credit of SDR 108.10 million (US$150.0 million equivalent) and IBRD Loan of US$175.0 million would finance about 77 percent of the total project costs net of taxes and duties. The proceeds of the Loan/Credit (Annex 7) would be disbursed against: (a) 76% of expenditures on civil works; (b) 100% of foreign expenditures or 100% of local ex-factory cost or 80% of other local costs of goods, equipment, furniture and vehicles; (c) 95% of expenditures on national consultancy services, studies, training, and 100% of foreign consultant services; (d) 95 % of expenditures on afforestation and canal plantation; and (e) on a declining basis for recurrent expenditures on canal O&M during construction, vehicle hire charges, PPMU and R&R administration and incremental staff--90% during FY96 and FY97; 80% during FY98 and FY99; 55% during FY2000 and FY2001; and 25% thereafter. 3.19 Disbursements against civil works and forestry plantation contracts exceeding US$300,000 equivalent, vehicle and equipment 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 the Bank/IDA, but would be retained by GOAP and made available to Bank staff during supervision. Disbursements would exclude expenditures on land acquisition, survey and investigation and engineering and administration for the irrigation sub-projects, R&R and operation costs of the environmental management plans, which would be funded by GOAP. The estimated Schedule of Disbursements is presented in Annex 7. 3.20 Special Account. To facilitate project implementation and to reduce the risk of shortage of GOAP's counterpart funding as well as to reduce the volume of withdrawal of application, a Special Account in US dollars would be established in the Reserve Bank of India with an authorized allocation of up to US$15 million equivalent, equal to the anticipated average four monthly disbursement. This deposit is based on estimates of the project's financing needs and projected Bank/IDA disbursements (Annex 7). The special account that would be maintained by the Department of Economic Affairs would show all withdrawal requests disbursed, amounts advanced and reimbursed by the Bank/IDA, and the balance at the end of each accounting period. Auditor's reports would reflect the certification of the balance held by the Reserve Bank of India.  31 3.21 Disbursement Procedure. In line with the agreements of the Fourth Country Portfolio Performance Review, GOI would ensure that, at the beginning of each fiscal year, an amount equal to 25% of project's expenditure budget--as determined by the project Annual Action Plan and Budget (para. 4.38)--would be made available to GOAP as Advance Central Assistance for transfer to the project implementing agency. An assurance was obtained at negotiations that GOI and GOAP would implement a system satisfactory to the Bank/IDA for channeling the funds required for the project to the project entities. An understanding was reached at Negotiations that GOI would release 25% of anticipated project expenditures in advance to GOAP in accordance with the amounts established in the project's Annual Action Plans and that, upon receipt of funds from GOI, GOAP would transfer such funds, together with its quarterly counterpart contributions, immediately to the project accounts of ICADD. In addition, an understanding was recorded at Negotiations that on April I of each year, commencing on April 1, 1998 and thereafter by April I of each year, GOAP would inform the Bank/IDA of the annual budgetary allocations made for meeting the financial needs of project implementation during the forthcoming fiscal year. Accounts and Audit 3.22 Project Budget Unit. A Program Budget and Accounts (PB&A) sub-unit in the PPMU would establish, maintain, and administer the financial management systems including program, budget and cost allocation/accounting systems. This unit will be supported with adequate and qualified staff on a full time basis. The system would be used to develop annual budgets by consolidating budget requests from all ICADD organizational units and to ensure that the final budget request is consistent with the policies and instructions from GOAP. Each management or operational unit would be responsible for providing PB&A with required information and estimates. PB&A would use this data to produce management reports that would track program progress. An assurance was obtained at negotiations that a fully staffed Program Budget and Accounts sub-unit headed by a qualified accountant would be established in the Project Preparation and Monitoring Unit by October 1, 1997. 3.23 Project Accounts. A separate project account maintained by the PPMU in ICADD which, with supporting documentation, would identify all project transactions on an ongoing basis including contributions from GOAP, GOI and the loan/credit and provide a comprehensive record of project financing and expenditures. The majority of project expenditure will be incurred at the main component SRBC and SRSP sub-project sites. Payments will be made by Pay and Account Officers who will compile and submit monthly accounts to Directors of Accounts stationed at SRBC and SRSP. The monthly accounts will be consolidated by the PPMU in accordance with the accounting standards of the Comptroller and Auditor General of India, which are acceptable to the Bank. The consolidated audited project accounts, including the special account and SOEs, and the auditor's reports, which would include a separate statement on the SOEs and their certified copies, would be submitted to the Bank/IDA annually no later than six months after the close of the fiscal year. The audit report on SOEs would specifically comment on their usage and the controls established to ensure their accuracy. Previous Bank-supported irrigation projects implemented by the ICADD maintained satisfactory accounting systems and records and also complied with their audit covenants. 3.24 The project accounts would show: (a) details of expenditures by investment items together with their funding sources; and (b) expenditures at (a) classified by project components. The general format of such accounts are exhibited in Annex 7. Project accounts would summarize expenditures showing: (i) actual versus planned expenditures for each quarter and accumulated to date; and (ii)  32 financing source for the quarter, and accumulated. The summaries, which would provide information for the SOEs would form part of the project account, including those expenditures for which reimbursement is claimed with full documentation. The project accounts would be supported by a listing with the withdrawal applications submitted for the period. Assurances were obtained from GOI and GOAP at negotiations that: (i) project accounts, including the Special Account and Escrow Account, would be maintained and audited annually in accordance with sound auditing standards consistently applied by independent and qualified auditors acceptable to the Bank/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 the Bank/IDA not later than six months after the close of each GOAP fiscal year (April I to March 31). IV. ORGANIZATION, MANAGEMENT AND IMPLEMENTATION A. Organizational Reforms Participatory Irrigation Management 4.01 State PIM Policy. A GOAP Government Order (G.O.) issued on July 19, 1995 adopted a policy to promote participatory irrigation management (PIM) whereby the management of irrigation networks below the minor canal level would be handed over to WUAs. A subsequent G.O. for a statewide framework for WUA formation and implementation based on the SRSP pilot experience was issued in February 1997. Expansion of the pilot program to cover the whole of the SRSP and SRBC areas under the project is intended to serve as a prototype for the other public irrigation schemes in the state. The objectives of the PIM Policy are to improve agricultural productivity by: (a) improving water deliveries through more effective O&M and thus improve distribution equity and reliability; (b) ensuring physical sustainability through a division of labor whereby ICADD would focus its resources on maintenance of the headworks, main canals and reliable agreed water supplies to WUAs; and (c) promoting partnership, communication and cooperation between ICADD and farmers. 4.02 The salient features of GOAP's PIM policy are: (a) farmers in the command area of major, medium and minor irrigation projects will be encouraged to form WUAs to operate and manage irrigation systems in their respective areas; (b) a WUA would manage a hydraulically contiguous unit composed of a minor canal (or part of a distributary) serving 400-750 ha within the area of one "Revenue Village" under a Memorandum of Understanding between its members and ICADD; (c) the WUAs would be legally registered and democratically autonomous bodies subject to professional audit and function according to principles determined by bye-laws to be framed under the IU & CAD Act; (d) the WUA will have the powers to regulate distribution of water within its jurisdiction on a volumetric or any other basis and levy and collect penalties fixed by it for violation of water its internal distribution arrangements; (e) WUAs may sell water saved through improved irrigation available to their members; (f) the IU & CAD Act would be amended to recognize WUAs, provide incentives for their promotion including powers to initiate action against irrigators interfering with water distribution; and (g) ICADD will promote maximization of WUA responsibilities by (i) providing a reliable water supply at the minor canal head, (ii) undertaking rehabilitation of irrigation networks wherever WUAs are formed, and (iii) facilitate fixation and collection of water user charges by WUAs.  33 Reorganization of Command Area Development 4.03 State Command Area Development Council. GOAP issued a G.O. on June 13, 1996 implementing GOI recommendations for state CAD Councils and CADAs. The reconstituted State CAD Council will be responsible for taking policy decisions on developmental activities in all the public gravity irrigation commands in the state. The new State CAD Council will contain non- governmental members representative of the state's command areas. Such members include Members of Parliament (MPs) , Members of the Legislative Assembly (MLAs), farmer's representatives from WUAs and NGOs. The Council will meet at least twice a year and its decisions are to be implemented without further examination by a concerned department. 4.04 Command Area Development Boards. The reconstituted CADA Boards in AP will approve programs, review CAD activities, and take implementation decisions subject to the guidelines issued by the State CAD Council. New functions of the CAD Boards include: (a) acting as a catalyst for formation of Farmer's Associations, WUAs and Distributary Committees; (b) technical assistance to farmer organizations and WUAs, monitoring of their activities and advice in selection and introduction of suitable cropping patterns; (c) assistance in developing groundwater to supplement surface irrigation; and (d) assistance in development of post-harvest services and organization of fairs, workshops, etc. to motivate farmers. Up to 60% of a reconstituted CAD Board will be non-official members such as MPs and MLAs, heads of local government institutions, NGO representatives, and Distributary Committee representatives from all reaches of a canal network. Each CAD Board will be chaired by the Minister-in-Charge CAD Program and official members will include concerned government Departments officials, District Revenue Collectors and the CADA's Administrator-cum-Chief Engineer. GOAP and GOI program funds for WUA and CAD activities will be released directly to CAD Boards so that they may function independently. 4.05 GOAP will constitute an Executive Committee for each CAD Board headed by the CADA Administrator-cum-Chief Engineer. The CADA Executive Committee will be responsible for the detailed working of each command's programs, take important administrative decisions and decide matters according to the general directions of the CADA Board. The Executive Committee's membership will have a 5 year tenure and include: (a) district officials from various involved GOAP departments; and (b) the presidents of WUAs and/or Farmer's Associations at canal minor and distributary level at the rate of two from the head, middle and tail reaches of the system. All Department Heads of the various GOAP departments working in the command will be responsible to the CADA Administrator in all matters related to the CAD activities and transfers of officers of the Departments concerned are only to be made with the prior concurrence of the Administrator. 4.06 SRSP CADA Restructuring. The SRSP CADA would be restructured and serve as a pilot for evaluation of GOAP's CADA reorganization program. The following modifications would be implemented to improve the performance of the SRSP CADA: * The ICADD Chief Engineer (SRSP) would only be responsible only for construction activities while all O&M activity would be the responsibility of the SRSP CADA Administrator. The functions of O&M and CAD are to be integrated at the Division level to facilitate an assured water delivery to WUAs. * The CADA would be organized into two command area O&M Divisions (one for the above LMD command and one for the area below LMD) and a separate Division for the Sriramasagar  34 Dam and headworks (Annex 8). The Administrator would be assisted by a Deputy Chief Engineer and three Superintending Engineers each responsible for a Division. Groundwater and Agricultural extension staff working in the command would report to him on their CAD-related activities. Assistant Agriculture Officers would have an agricultural engineering background for the tasks of implementing the canal Rotational Water Supply regime and technical assistance to WUAs. * Gate operators ("Laskars") at the lowest level in the CADA organization are proposed to be brought under the administrative control of WUAs in order to assist them in day-to-day water management. * WUAs will be encouraged to take over the management of water distribution and canal maintenance below minors and for this purpose, the entire SRSP command will be reorganized into WUAs. Thus, with ultimate turnover of the tertiary network to WUAs, CADA water management responsibilities would cease at the offtakes to WUA jurisdictions. * SRSP CADA Administrators would be appointed with a minimum tenure of two years. The first such appointment was made prior to project negotiations. 4.07 The organograms of the restructured CADA are given in Annex 8. When SRBC nears completion, a SRBC CADA will be organized along similar lines to that of SRSP and incorporating the experience gained in SRSP. Assurances were obtained from GOAP at Negotiations that by October 1, 1997: (i) arrangements for a reconstituted SRSP CADA Board would be in place; and (ii) proposed SRSP CADA restructuring appointments, including that of Assistant Agricultural Officers with agricultural engineering training, will have been completed.. 4.08 SRSP CADA O&M Framework. The SRSP CADA restructuring is predicated on a transfer of works from the construction wing of ICADD to the SRSP CADA organization as laid down in a July 28, 1995 Government Order [G.O.Ms. 1 171&CAD(PW-SRSP.II(2))]. A detailed procedure for the transfer has been developed and is given in the SRSP Plan of Operations & Maintenance (POM) document which includes O&M functions and several other technical and administrative responsibilities. The POM also sets forth a framework for: (a) the O&M and management duties of all O&M staff; and (b) the maintenance planning and budget estimation procedures. The reorganization and transfer process is expected to take about two years (inclusive of staff training and system operation hand-over). During the project, joint O&M management of the tertiary networks are expected to result in gradual hand-over of minor canal maintenance to established WUAs. The experience gained with the restructured CADA O&M framework would be applied for SRBC also. Cost Recovery Arrangements 4.09 Irrigation Water Charge Increase (Annex 11, para. 11). During project preparation, the Bank had expressed increasing concern about public irrigation investment sustainability caused by the low allocation of funding for O&M works and the low level of irrigation water charges (para.5.19). As part of a fiscal reform program, GOAP has gazetted an Ordinance on January 3, 1997 raising irrigation water charges to: (a) Rs.200 per acre for monsoon wet crops, and Rs.150 per acre for dry season wet crops; and (b) a uniform rate of Rs. 100 per acre for dry crops irrespective the season of their cultivation. This ordinance has subsequently been confirmed by the AP State Assembly.  35 4.10 Revenue Sharing. In view of the large rate increase and as an incentive to WUAs, GOAP has proposed that, in the case of major and medium schemes, only 50% of the collected irrigation revenue from the enhanced water charge would be retained by the government: 40% would be given to WUAs for O&M works and 10% to Gram Panchayats (local government councils). In the case of minor irrigation schemes, 100% of the collected revenue would be given to WUAs. 4.11 Water Charges Review Committee. To ensure the efficacy of GOAP's increased irrigation water charges, revenue sharing and RWS policies in for upland schemes, water charge assessment procedures and revenue collection performance need to be regularly monitored and reviewed. GOAP is in the process of establishing a standing state-level Water Charges Review Committee (WCRC) with terms of reference satisfactory to the Bank/IDA. The WCRC would also review data on actual O&M budget allocation needs for those portions of schemes under ICADD control, water charge levels and their affordability, and the impact of WUA promotion on revenue-sharing formulae. The WCRC would consist, inter alia, of the Secretaries of Agriculture, Finance, Irrigation and Revenue of GOAP and meet annually for consideration of adjustments to O&M budget allocations, water charge assessment and collection policies and procedures. In preparation for such meetings, GOAP would engage consultants to collect and compile data on water charge assessment, revenue-sharing and collection performance, and trends in O&M costs. Assurances were obtained at negotiations that GOAP would: (i) constitute a Water Charges Review Committee (WCRC) with composition and terms of reference satisfactory to the Bank/IDA by October 1, 1997; and (ii) engage consultants to prepare a report on water charge assessment, collection and revenue sharing for consideration by the WCRC and for submission to the Bank/IDA for information not later than December 31, 1998. B. Project Management Management Organization 4.12 Project Empowered Committee. For overall project oversight, control and coordination, GOAP issued a G.O. on June 26, 1996 establishing an Empowered Committee chaired by the GOAP Chief Secretary with Principal Secretary (Finance), Secretary (Law), Principal Secretary (ICADD), and ICADD Secretary (Projects) as members. The Empowered Committee's functions are: (a) ensuring timely release of funds to ICADD for the project; (b) dealing with senior personnel management appointment matters; (c) monitoring of overall project progress; (d) ensuring coordination and implementation performance of all government agencies and entities involved in the project, and in particular, those involved in the EMP component; and (e) resolving procurement issues and meeting of project procurement arrangements. The Empowered Committee would meet twice a year following the issue of semi-annual project status reports (para.4.41) and may also be convened by the Secretary (Projects) to deal with project management contingencies. 4.13 Overall Management. The project will be implemented by ICADD under the Principal Secretary (ICADD). Direct project management responsibility will be vested in the Secretary (Projects) who will supervise: (a) the Chief Engineers of SRBC and SRSP responsible for ICADD line staff units engaged in design and construction supervision under the irrigation and dam safety components; (b) the Special Officer with Chief Engineer rank in charge of the Project Preparation and Management Unit (PPMU) responsible for procurement coordination, budgeting, reimbursement and accounting, reporting, monitoring and evaluation, supervision of R&R implementation and general coordination and supervision of training programs, research and agricultural extension; (c)  36 the work of the Forest Development Corporation undertaking the afforestation under the EMP component and coordination of other participating agencies involved in the EMP; and (d) the SRSP O&M works and WUA establishment undertaken by the SRSP CADA Administrator-cum-Chief Engineer working under the direction of the ICADD's CAD Commissioner. Feeder road works will be executed by the Roads & Buildings Department (RBD). 4.14 Project Preparation and Management Unit. The existing PPMU line responsibilities will be reorganized by: (a) designating one EE as a deputy chief engineer responsible for a cell monitoring all procurement, civil works and administration; and (b) designating an EE as deputy chief engineer responsible for a cell monitoring all R&R, environmental and groundwater utilization activities. An Accounts Officer will be responsible for an accounting and reimbursement cell and Project Accounts (para. 3.23), while a Deputy Director of agriculture will monitor the Agricultural Support Services component's research, extension and training activities. An WUA Advisor for the PIM program (para. 2.36) will be assigned to the PPMU. An organogram of the PPMU is given in Annex 8. Works Quality Assurance and Supervision 4.15 Staffing. The management of the irrigation construction wings of SRBC and SRSP will each be headed by a Chief Engineer (Annex 8). For SRSP, 137 additional supervision engineers will have to be appointed. Quality assurance in each of these projects is currently undertaken by a sub- project Quality Control Division (QCD) headed by an independent Supervisory Engineer under each Chief Engineer. Given the large increase in construction activity, the number of quality control divisions will be increased in both sub-projects. In SRSP alone, the number of QCD engineers would be increased from 43 to 120 (Annex 8). The Action Plan for Quality Control Organization prepared by ICADD defines the duties and responsibilities of all staff levels of the QCDs on-site and in the field laboratories. It also defines the nature of coordination between the QCD and site construction supervision staff and their duties with respect to reporting to the QCD. The Action Plan empowers an EE of a QCD to order stoppage of work if serious construction flaws are identified although arranging for their remediation remains the responsibility of the construction wing EE. An assurance was obtained from GOAP at negotiations that, by October 1, 1997, additional staff would be posted to SRBC and SRSP Construction Circles and Quality Control Divisions as per the staffing schedule submitted by GOAP to the Bank/IDA on December 20, 1996. 4.16 Supervision Procedures. In addition to the extant AP II Quality Control Manual, Quality Audit Guidelines and an 'OK Card' system for irrigation works have been successfully introduced during project preparation as found during the construction quality audit of on-going works (para. 2.28). These procedures will be maintained during the project and serve to reduce spurious financial claims while recording proper supervision procedure. For road quality assurance, RBD will second experienced staff to the ICADD QCU divisions in the areas that road works are being constructed. Dam Safety Assurance 4.17 ICADD's Dam Safety Cell (DSC) operates under the control of the Chief Engineer (Central Designs Organization). Its functions consist of post-construction monitoring, data compilation and collection, review of dam safety inspection reports of ICADD dams. GOAP has decided to strengthen the DSC to cater for all aspects of dam safety in the state and ICADD has prepared a Dam Safety Assurance and Rehabilitation Identification Report outlining the proposed program to monitor the safety of the state's 180 large dams and tanks. Reorganization of dam safety activity will be  37 based on appointment of a State Level Dam Safety Committee chaired by the ICADD Engineer-in- Chief. The Committee would meet at least twice a year to: (a) review the activities and reports of the DSC; (b) establish priorities for works needing remedial safety works; (c) assign responsibilities for execution of non-departmental works and determine the need for independent experts. The DSC's expanded duties will include preparation of a Dam Safety Manual for each major dam beginning with Sriramasagar, Srisailam and Lower Mannair dams. An independent project Dam Safety Review Panel (DSRP)--originally constituted under AP II--will continue to review and guide implementation of the project's dam safety component including construction of major structures in SRBC. The staff assigned to dam safety works in SRBC will be increased to supervise Srisailam spillway repairs. Krishna River Basin Reservoir Management 4.18 GOAP issued a Government Order on June 15, 1996 which institutionalizes operating rules based on fixed delivery priorities according to available storage. A subsequent G.O. was issued on August 1, 1996 to reconstitute the Inter-Agency Committee for Integrated Operation of the Srisailan and Nagarjunasagar Reservoirs established in 1989 into a standing "Committee for Integrated Operation of Krishna and Pennar Basin Schemes" (CIOKRIP) which is to meet seasonally to consider water releases for multi-purpose uses for all schemes dependent on the Krishna River. Under these G.O.s: (a) GOAP scheme water allocation priorities are preserved and non-firm hydroelectric power generation at Srisailam is kept subservient to SRBC irrigation requirements; (b), specific uniform multi- purpose operating tables are to be derived for Srisailam Reservoir's power and irrigation operation staff; (c) CIOKRIP would plan meeting seasonal water requirements in the AP portion of the river basin, review the efficacy of monthly allocations and multi-reservoir storage regulation; and (d) monitor day to day release requirements during drought periods. Resettlement and Rehabilitation 4.19 The Economic Rehabilitation Action Plans (ERAPs) for SRBC and SRSP (para. 2.45) envisage a four tier R&R implementation and monitoring organization. This consists of the a State R&R Committee, the R&R Cell of the PPMU, District R&R Committees, sub-project Rehabilitation Units under a Special Collector and Village R&R Committees assisted by NGOs. An organogram showing the overall management and implementation organization with the members of each management unit is given in Annex 8. 4.20 State R&R Committee and PPMU R&R Cell. A multi-agency State R&R Committee has been established under the chairmanship of the Principal Secretary (ICADD) to guide the R&R activities under the project. Meetings of this committee would be convened by the Secretary (Projects). The State R&R Committee will review overall R&R progress, make R&R policy decisions, and coordinate among concerned departments. The PPMU will have a R&R Cell headed by an EE of Deputy Chief Engineer rank to monitor day-to-day R&R performance and report to the State R&R Committee. The PPMU R&R Cell would be responsible for R&R implementation in ICADD and its functions include planning, supervision, monitoring and coordination of all R&R activities. It would also be responsible for contracting NGOs according to the criteria in Annex 13 to implement the assist in facilitating community income-generating activities. 4.21 District Level Organization. The District R&R Committee--chaired by the District Collector and consisting of NGO representatives and officials from government agencies--is the R&R coordinating and implementing agency at the district level. Full-time Special Collectors have been appointed to SRSP and SRBC to implement land acquisition and rehabilitation program of the  38 sub-project ERAPs. The Special Collectors would convene meetings of their respective District Committee. The Special Collectors' office would be composed of a Land Acquisition Unit and a Rehabilitation Unit, headed respectively by a Revenue Department Land Acquisition Officer and a Rehabilitation Officer from the cadre of Joint Registrar of Cooperative Societies who would coordinate implementation with the various line departments. 4.22 Each Rehabilitation Unit would be staffed with the following additional officers: (a) Assistant Rehabilitation Officer (Women & Child Welfare) responsible for liaison with the District Rural Development Agency and Child Welfare Department to promote formation of women's thrift groups, income generating schemes for women, and child and maternity care; (b) Project Economist responsible for formulating Village Rehabilitation Plans (para. 2.46) and monitoring their implementation, and for progress reporting to project authorities; (c) Computer Programmer responsible for creating a data base for land acquisition and R&R works, maintenance of accounts and computerization of all routine data and functions; and (d) Executive Engineer (Infrastructure) in charge R&R civil works. An assurance was obtained at negotiations from GOAP that all government staff positions required for the R&R implementation organization would be filled by October 1, 1997. 4.23 Village Rehabilitation Committees. R&R Officers and NGOs will assist PAPs living in the affected villages to form Village Rehabilitation Committees (VRC). The VRC will include women and members from each recognized community group and caste. Working closely with NGOs and R&R officers, the VRCs would participate in formulating Village Rehabilitation Action Plans (VAP), PAP consultation, implementation of the VAPs and monitoring of R&R progress. 4.24 Non-Governmental Organizations. NGOs experienced in rural development and community mobilization would be engaged for R&R implementation. NGOs would be engaged by the PPMU and work under the supervision of the Special Collectors and Rehabilitation Officers to implement the ERAPs in cooperation with R&R officers in the district Rehabilitation Unit and other line departments. NGOs would: (a) participate in all R&R committee meetings at different levels; (b) organize VRCs and consultation of PAPs; (c) prepare VAPs with VRCs and R&R officers; (d) assist Special Collectors in land acquisition, assessment of land value and payment of compensation; (e) coordinate PAP-specific income generating schemes with VRCs and organize women's thrift groups; (f) facilitate vocational training programs; and (g) monitoring income generating activities. Terms of Reference are given in Annex 5 for NGOs involved in the R&R program. 4.25 Settlement of PAP Grievances. The VRCs and NGOs will be mainly responsible for collecting complaints and grievances from PAPs regarding land valuation, entitlements, entitlement delivery and R&R activities etc. These grievances will be brought to R&R officers for attention. The District R&R Committee (para. 4.23) is the second level of grievance redress mechanism. If any grievances cannot be redressed, they would be brought to the PPMU R&R Cell and the State R&R Committee (Annex 5). Grievances, raised and disposed, will be recorded as part of the R&R internal monitoring system (para. 2.28). 4.26 R&R Monitoring Arrangements. Both internal and external monitoring would be conducted concurrently to determine the implementation progress of the R&R component throughout the project period. The monitoring entities would report to the State R&R Committee and the PPMU's R&R Cell, who would review and evaluate the R&R progress and determine any necessary measures to correct any identified problems. The PPMU will be responsible for the monitoring of R&R implementation through the District Committees, NGOs and VRCs. The NGOs and the  39 Rehabilitation Unit under the Special Collector will monitor R&R progress and present quarterly R&R progress reports to the District R&R Committees, who will, in turn, furnish the progress reports to the PPMU. The PPMU R&R Cell would set up a computerized monitoring system and develop monitoring forms. 4.27 Independent monitoring of R&R progress would be carried out by a qualified NGO engaged for monitoring and evaluation of all R&R activities according to an agreed terms of reference (Annex 5). The NGO multi-disciplinary team will be community-based and will have field offices. The monitoring NGO would submit quarterly monitoring reports to the Special Collectors. At the end of each year, the monitoring NGO would submit annual monitoring and evaluation reports with suggestions for modifications and improvements for the coming year. The independent monitoring report would be submitted to the Bank. An assurance was obtained from GOAP at negotiations that it would recruit a suitably qualified NGO R&R monitoring consultant satisfactory to the Bank/IDA by March 1, 1998 and that its annual monitoring reports would be submitted to the Bank/IDA. Irrigation Agronomy and Farmer Training Program 4.28 Agricultural Research. The research sub-component would be carried out under the supervision of an agronomist from the AP Agricultural University (APAU) and officers from various participating government departments redeployed for its execution. The work would be monitored by WALAMTARI and the scientists of the three Regional Agricultural Research Stations (RARS) in the SRSP project area and the RARS Nandyal in SRBC. An inter-disciplinary Coordination Committee would be established for both SRSP and SRBC to ensure inter-departmental coordination and its membership would include a progressive farmer from each research site. A State Level Steering Committee will review and monitor the on-farm operational research programs through regular contact with each Coordination Committee. The Steering Committee would contain senior officials from ICADD, APAU, WALAMTARI, the Agriculture and Horticulture Departments and farmers' representatives. 4.29 Agricultural Extension. While there are an adequate number of Village Extension Officers (VEOs) in SRBC and in SRSP above LMD for the proposed extension program, the number of VEOs in the Warangal district below LMD needs to be increased. Based on past experience, it is proposed that the shortage of 35 VEOs could be filled by temporary recruitment (for 5 years) of 35 agricultural graduates as agricultural development apprentices (ADAs) under the supervision of 5 Agricultural Officers (AOs). The AOs would be incremental staff that need to be appointed. An assurance was obtained at Negotiations that sufficient numbers of agricultural graduate VEOs and Agricultural Officers would be posted by October 1, 1997 4.30 The various extension programs set up in a phased manner would be monitored in SRSP and SRBC by Extension Program Steering Committees who would guide the personnel involved in extension and training. The performance of ADAs, AOs and VEOs would be evaluated by these committees. The membership of each Extension Program Steering Committee would be chaired by the Associate Director of Research of an RARS and include: (a) Joint Director of Agriculture (b) SRSP CADA Administrator/Superintendent Engineer SRBC; and (c) WUA representatives. 4.31 WALAMTARI Training Programs. The existing WALAMTARI training organization established for AP II would be expanded under the leadership of the WALAMTARI Director- General (Annex 8). A Director (Training & WUAs) would be responsible for the conduct of project training courses at WALAMTARI headquarters for the officers of ICADD and the Agriculture  40 Department. He would be assisted by one EE and one Deputy Director of Agriculture (DDA) for carrying out the training programs, and by a Institutional Specialist (rural sociologist of Associate Professor rank) for promotion of WUAs (Annex 8). The Director (Field Training) would be responsible for the conduct of training at the eight field training centers. He would be assisted one DDA at headquarters and by an EE placed in each of the two project commands (at LMD in SRSP and Nandyal in SRBC) to guide training and coordinate the activities at various field training centers. The DDA would guide and assist agricultural training and oversee the maintenance of demonstration farms at field training centers. Both Directors should be of SE/JDA rank. An assurance was obtained from GOAP that the Director of WALAMTARI field training programs would be posted by October 1, 1997. Environmental Management Plan Responsibilities 4.32 GOAP desires that a professional agency assume the responsibility of implementing the EMP in a systematic manner. Thus GOAP has entrusted the Andhra Pradesh State Forest Development Corporation (SFDC), a GOAP parastatal agency, with implementation of the afforestation components. Monitoring of the EMP activities of the SFDC and all other participating departments and agencies would be carried out by the Environmental cell of the PPMU (para. 4.14). SFDC would directly implement compensatory afforestation, canal bank plantation, catchment area treatment plans and soil conservation measures. The SFDC has the requisite infrastructure for implementation of the activities entrusted to it, including soil conservation works. The agency obtains its technical forestry staff on secondment from the State Forest Department who have the requisite experience. The other agencies involved in the EMP are Agriculture, Environment & Forests, Groundwater, Fisheries and State Health Directorate. Sub-components relating to wildlife preservation would be entrusted to the Wildlife Wing of the Forest Department. Site restoration and muck stabilization would be the responsibility of ICADD through its supervision of construction contracts. Although the head of each participating department is responsible for execution of his agency's involvement in the EMP, each agency would designate a nodal officer for coordinating its activities. Overall implementation will be monitored by the State Level and Project Environmental Management Committees established by G.O. in February 1993. C. Implementation Monitoring Implementation Schedule 4.33 Project monitoring and physical and financial planning are related to the GOAP fiscal year (April I to March 31 of the following year). A Master Implementation Schedule for each project sub-component within the SRBC and SRSP sub-project areas has been prepared by ICADD. The Master Schedule notes all key procurement events and records the periods of canal closure in SRSP during which work can take place. A summary implementation schedule is exhibited in Annex 12; a detailed implementation schedule for the R&R component is given in Annex 5. 4.34 The master schedules are based on the following principles: (a) all land acquisition for SRBC works is to be completed prior to the estimated date of award of any new civil works contract; (b) on-farm irrigation and drainage works in SRBC are scheduled to commence at least 9 months before completion of the tertiary network of their respective irrigation blocks so that they could be ready on time for initiation of irrigation (para. 2.15); (c) whereas six of the sixteen irrigation block packages of SRBC would only be awarded in PY3, all network rehabilitation contracts for SRSP would be awarded in PYI and PY2; and (d) scheduling of SRSP main canal and main distributary  41 works is based on closure of Kakatiya Canal from March 15 to June 15 of each year while rehabilitation of small distributaries and minors is to be undertaken sequentially from December 15 to June 15 by missing a Rabi irrigation season as necessary. The need for seasonal canal closure in SRSP has been conveyed to irrigators during public consultations and included in bid documents. Project Performance Monitoring Framework 4.35 Project Performance Indicators The PPMU would be responsible for assembling and reporting all project performance indicators from field units and participating agencies according to an agreed framework. The physical and financial progress data for each construction contract and irrigation performance would be obtained from the Management Information System database to be established in the office of the SRBC and SRSP Chief Engineers respectively. A framework of key Performance Monitoring Indicators relating to achievement of project objectives, outputs and component input implementation progress has been prepared and is shown in Annex 12. The PPMU's would arrange for a Baseline Sun=e (Terms of Reference in Annex 12) to record present socio-economic and production conditions in the sub-project areas for the purposes of comparison with a similar survey to be conducted prior to project closure. The survey--to be completed by the end of the first project year--would cover agricultural data (average cropping patterns, yields, input use etc.), household income and socio-economic data, current sources of irrigation and areas irrigated. At negotiations, the Baseline Survey terms of reference and Performance Monitoring Indicators were confirmed by GOAP and an understanding was recorded that GOAP would establish a data collection system to facilitate regular reporting of the project output and implementation progress indicators in project status reports. An assurance was obtained at negotiations that the Baseline Survey would be completed not later than December 31, 1998. 4.36 Water Charge Collection Monitoring. The assessment and collection of water charges is the responsibility of the Revenue Department (RD). Water charge assessment requires accurate verification of areas actually irrigated. Detailed records of water charge assessments are maintained by the Village Revenue Office describing the performance of the irrigation system below the irrigation outlet. A provisional assessment is made for every field receiving irrigation (source-wise) during October/November of each year and is finalized in May/June of the following year. Revenue Village assessments are then aggregated by revenue jurisdictions for the entire state. Assessment of water charges and the exchange of information between the RD and ICADD needs to be improved. The reason why every potentially irrigable field is not irrigated or receives inadequate service is recorded and used to deal with applications for remission of the water charge. However, water charge remission information is not communicated to ICADD nor is it consulted information exchange between ICADD and RD is infrequent and limited. ICADD does not provide RD with irrigation maps nor does RD inform ICADD about irrigated areas entered in village records: thus information that could serve to improve system performance is not used. Exacerbated by lack of field staff in RD, this lack of communication enables farmers to conceal irrigated areas, evade payments and misuse water. 4.37 During its implementation, the proposed project would serve as a model for establishment of a service quality and increased water charge linkage in SRSP and SRBC. To achieve this, it would be necessary to maintain separate accounts for each sub-project reflecting both water charge amounts collected by RD and O&M expenditures by the ICADD and the WUAs. Unfortunately, water charge collection accounts are not kept in a manner that allows full reconciliation over the entire command: the units are village areas which almost always include non-irrigated areas and other irrigation sources such as wells and village tanks. Assurances were obtained at negotiations that, for the SRSP  42 sub-project, GOAP would: (i) arrange for separate village irrigation revenue records to be kept by the Revenue Department for canal irrigated areas based on distribution network maps supplied by ICADD; (ii) require ICADD to keep records of the volume and duration of water supply made available to each tertiary area and WUA; (iii) require that ICADD canal flow records and Revenue Village canal scheme irrigation records be systematically analyzed and reconciled each year for monitoring of WUA efficacy in field water distribution, bulk water supply service, and water charge assessment and collection efficiency; and (iv) cause ICADD to submit the above analysis results to the Water Charges Review Committee and the Bank/IDA for information not later than December 31 of each year starting 1998. Reporting and Project Review 4.38 Reporting. An action-oriented review, planning and budgeting reporting process would be a key feature of project management and implementation monitoring. This would take the form of: (a) a semi-annual Project Status Report (which would include, inter alia, data on construction progress, quality assurance and contract management prepared by the Chief Engineers of SRBC and SRSP respectively; and (b) a comprehensive Annual Review, Action Plan and Budget (ARAPB) Report (para. 4.39). All reports would be compiled and prepared by the PPMU. The semi-annual Project Status Reports would be produced in standard format and would track the implementation progress of each project component, including physical and financial progress, procurement, disbursement and key output and implementation performance indicators. The semi-annual status reports and ARAPB report would be submitted to the Principal Secretary (ICADD) and Secretary (Projects), and copied to the Empowered Committee, relevant GOAP officials, GOI and the Bank/IDA. The project reporting arrangements were confirmed at negotiations. Assurances were obtained from GOAP at negotiations that: (i) it would prepare and submit a draft Annual Review, Action Plan and Budget Report for the forthcoming GOAP fiscal year to the Bank/IDA for review and comment by January 15 of each year, commencing January 15, 1998; and (ii) not later than April 15 of each year, the agreed Action Plan would be implemented taking account of Bank/IDA comments in accordance with the agreed budget. 4.39 Annual Project Implementation Review. Preparation of the ARAPB Report would be the main vehicle for annual GOAP review of project performance and future needs, for adjusting ICADD's program as needed, for budgeting by GOAP of ICADD's expenditures, for assessing progress and determining follow-on actions regarding WUA formation policies, and for major review and supervision by GOI and the Bank/IDA. For ICADD, it would provide annual opportunity to assess the overall project program, to propose adjustments as needed and to present its consolidated plan and justification for financing needs for the forthcoming year. The ARAPB Report would review the past year's achievements for each component and responsible unit and/or agency in terms of development indicators, physical targets and expenditure, and would propose a revised work program and expenditure budget for the forthcoming fiscal year. 4.40 The ARAPB Report's content would include: (a) description of each year's works, schedule of activities, staffing requirements and distribution of responsibilities; (b) proposed expenditures for the next fiscal year compared with the past year's actual expenditures and the budgeted and expected expenditures of the current year; (c) details on major civil works contracts exceeding US$300,000, and equipment and vehicle contracts exceeding US $200,000; (d) review of implementation progress related to the improved canal and water management program in SRSP (and for SRBC when irrigation begins); (e) detailed review of project maintenance needs; (f) progress with the project farmer participation and turnover program; and (g) progress with the various staff and farmer  43 training programs. The ARAPB Report would quantify and compare progress with an updated Master Implementation Schedule and the previous ARAPB, and would highlight key issues and constraints. An overview with summarized data and a listing of decisions taken or recommended, based on each unit's submission, would be prepared by the PPMU. This would include commentary on the status of decisions and actions outstanding from the previous semi-annual status report, and review of decisions/actions still required related to recommendations of the Project Empowered Committee, GOI or Bank/IDA supervision missions. 4.41 Mid-Term Review. Prior to project mid-term, a Mid-Term Review Report would be prepared by the PPMU according to a terms of reference to be agreed with a prior Bank/IDA supervision mission. The mid-termn review report would include an assessment of: (a) procurement, implementation and disbursement progress of each project component; (b) progress in participatory irrigation management, water delivery improvement and collection of irrigation water charges in the SRSP command; (c) reorganization and improvement of SRSP CADA performance; (d) the likelihood of completion by project closure of all components in general and irrigation works in particular; and (e) any project design changes or component restructuring needed to achieve project objectives prior to closure. Assurances were obtained at negotiations that GOAP would: (i) submit a detailed Mid-Term Review Report of the project to the Bank/IDA by October 31, 1999; and (ii) not later than April 30, 2000, review with the Bank/IDA any possible need for adjustments to the design of project components and its implementation arrangements and thereafter implement the mid-term review's recommendations. Supervision Plan 4.42 Bank/IDA supervision would be initiated by a Propect Launch/First Supervision Mission mounted as soon as possible after the project is declared effective. The mission would assist ICADD in ensuring that: (a) procurement, accounting and disbursement arrangements meet Bank guidelines and project covenants; (b) implementation and procurement schedules and benchmarks are updated; (c) adequate arrangements are made to collect and process data for performance monitoring indicators; (d) project reporting formats are satisfactory; (e) finalize terms of reference for technical assistance and studies. The first mission will also review arrangements for: project staffing and SRSP CADA reorganization, inter-agency coordination, contract management and quality assurance, initiation of staff and farrner training programs, WUA formation and improved canal management in SRSP. Subsequent Bank/IDA supervision missions would comprise a main annual supervision mission at the time of ARAPB review (para. 4.39), supplemented by shorter field visit. A Superviaion Plan is given in Annex 12. A separate mission would be mounted for Bank/IDA participation in the mid-term review to be conducted by GOAP. V. BENEFITS, JUSTIFICATION AND RISKS A. Project Benefits Productivity, Employment and Income (Annex 10) 5.01 Farm Production and Economic Benefits. Assistance to GOAP for rehabilitation and completion of the SRSP 253,000 ha command area and completion of the 65,000 ha SRBC project begun under the AP II project would add 153,000 ha to the surface irrigation commands in AP. The agricultural objective of these works is to promote the production of high value cash crops in upland  44 irrigation schemes by improved water delivery, applied farming systems research, irrigation agronomy extension and farmer training. These inputs would result in significant incremental agricultural production consisting of cereals and pulses, oilseeds, cotton and other cash crops. Project agricultural output would generate an annual Value Added to the local economy estimated at Rs.5.03 billion (about US$140 million) in 1995 prices. These project outputs would be sustained by investment to ensure the safety and economic life of the Srisailam and Sriramasagar dams which, in turn, would ensure sustained irrigated and hydroelectric power production within the Krishna and Godavari river basins outside the project areas. Completion of the command area feeder road program would promote farm produce marketing and provide quantifiable economic benefits in travel time and vehicle operating cost savings valued at about Rs.60 million per annum. 5.02 Afforestation Products and Environmental Conservation. The Environmental Management Plan component would also generate several benefits, including: (a) soil conservation and reduced reservoir sedimentation due to catchment area treatnent and reservoir green belt plantation; (b) generation of forest products by compensatory afforestation, canal bank and the green belt plantations; and (c) water-borne disease control under the environmental health program. Natural resources and wildlife conservation in protected areas would be improved, while conservation benefits are not readily quantifiable, canal bank and reservoir green belt plantation would produce saleable fuelwood, pulpwood, faggotwood in the future (para. 5.07). 5.03 Employment. The number of directly benefiting farm families is estimated at about 447,700 (about 2.24 million people). At full development, the increased demand for farm labor would amount to about 31.6 million man-days per annum (equivalent to about 105,450 full-time jobs). About one half of the manpower demand would be supplied by hired labor, the majority of which consists of landless workers. The increased agricultural production would generate off-farm employment (over 26,000 transport, marketing and processing jobs) in project area Districts. Construction of civil works would generate a temporary increase in employment opportunities. 5.04 Farm Income Enhancement. The project would result in a significant increase in farm income for primarily marginal and small farmers owning less than 2 ha (the average farm holding is 1.8 ha and 1.1 ha in SRBC and SRSP, respectively), and comprise 70% to 80% of the total holdings in the two sub-projects. The annual net income increments for average farms are estimated at 360% in SRBC, 104% in SRSP's rehabilitated command above LMD, and 197% in partially completed SRSP command below LMD (Annex 10). The net income of the average farms in both sub-projects is currently at or below the AP absolute rural poverty threshold of Rs. 11,000/family. Since the estimated net income increment for average SRSP farms ranges from Rs. 12,000 to Rs. 18,000, the project would raise most land-owning farm families above the poverty threshold. The project R&R component would benefit families impoverished by land acquisition under previous projects within the command area. Irrigation Management Reform Benefits 5.05 Having served as a catalyst for GOAP irrigation sector management and fiscal reform, the project would be a pilot to test management reform modalities for statewide adoption. The benefits include determination of an effective process for: (a) empowerment of irrigators to take over the operation and maintenance of minor canal networks by voluntary establishment of autonomous WUAs; (b) involvement of irrigators in joint management of major canal schemes through representation on Command Area Development Boards or Scheme Committees; and (c) transfer of a part of the financial and management burden of canal network O&M funding and enforcement of  45 water delivery discipline to irrigation scheme beneficiaries with the objective of improving ICADD irrigation services. An important benefit of the project would be the piloting of: (i) modalities to realize GOAP's water rationing strategy for increasing the potential of upland canal commands having scarce water resources; and (ii) ensuring reliable and adequate water supply to WUAs by ICADD scheme organizations having main system O&M and water management as their primary function. Thus, success of the twin pronged approach of PIM and improved irrigation service under the project would lay the foundation for improvement of irrigation efficiency in upland areas and improve the ability of irrigation schemes to compete with the growing water demand of other sectors. Improvement of ICADD implementation capacity in the area of construction quality assurance, R&R implementation and monitoring of large externally aided projects would also be a beneficial outcome of the project. B. Economic Justification Economic Analysis Assumptions (Annex 10) 5.06 Assessment Scope. The economic analysis focuses on quantifying the net benefits of irrigation on agricultural production and feeder road investments and on road users. The costs of the agricultural support services program were included as necessary to achieve crop yields and the diversified cropping pattern. The benefits were reduced by: (a) reduction in cultivated area due to land required for civil works; and (b) the opportunity cost of hydroelectric power generation foregone due to diversion of irrigation water to SRBC from the Srisailam multi-purpose reservoir. The economic rates of return (ERRs) and Net Present Values (NPVs) have been calculated separately for: (i) the three irrigation commands of the sub-project areas (SRBC, above LMD and below LMD in SRSP); (ii) SRSP as a whole; and (iii) the overall project. 5.07 The R&R costs related to the SRSP sub-project were excluded from the economic analysis since they are not related to the benefits of irrigation scheme rehabilitation. The proposed SRSP expenditures would address the impoverishment of people affected by irrigation works under the AP II project outside the rehabilitated command area (para. 1.28) and are therefore not relevant to irrigation investment decisions. Investment to ensure the safety of the Srisailam Dam spillway was also excluded from the analysis because its benefits are largely attributable to the protection of the dam's hydroelectric plants and major downstream facilities in the river basin. The costs and benefits of the Environment Management Plan were excluded because most of the benefits are related to regional environmental conservation and are difficult to quantify in economic terms. 5.08 Benefit Assumptions. The quantified benefits are mainly incremental agricultural production due to assumed cropping pattern and productivity changes in each command, supplemented by the estimated economic benefits attributed to feeder road investments (e.g. economic savings in vehicle operating costs and travel time). In SRSP, the agricultural benefits are expected to come mainly from significant shifts from low value to higher value crops as a result of rehabilitation of the existing irrigation network and expansion of reliable canal irrigation to the whole command. For SRBC, project benefits are derived from the change from rainfed to irrigated production in the form of higher crop yields, an increase in cropping intensity and shift to higher value crops. The build-up rate of benefited areas was derived from the projected command area contract completion schedule. The maturation rate of irrigation benefits has been assumed over three years at a constant rate in already irrigated areas and over five years in areas where large scale surface irrigation would be newly introduced. Benefits were reduced by the agricultural production foregone due to project land acquisition and by the hydroelectric power generation foregone at Srisailam Dam due to SRBC.  46 5.09 The "Without Project" (WOP) and With Project (WP) cropping patterns were based on available data and Participatory Rural Appraisals to elicit farmer preferences under a reliable irrigation water delivery hypothesis. The resulting cropping patterns assume a cropping intensity of 160% and 150% for SRBC and SRSP respectively. Achievement of these cropping intensities is very likely because: (a) major canal schemes in AP have an average cropping intensity of 125-130%; and (b) SRSP's above LMD command has a current cropping intensity of 147%. Crop yields were estimated on the basis of available data and the considered opinion of GOAP and FAO agronomists with reference to existing yields and the impact of irrigation. For example, yield increments in SRBC are high because less than 10% of the area is irrigated at present, while crop yield increments for SRSP's above LMD command are lower as yields already reflect partial irrigation coverage . 5.10 Given the uncertainties of private sector investment in wells after scheme rehabilitation, the analysis postulates that the private development of groundwater would continue at the same level in both the WP and WOP scenarios: accordingly their costs and benefits are excluded. It is therefore assumed that in SRSP the additional wells installed by rice cultivators to cope with the rotational water supply regime in the WP case would equal the number that would be installed as a response to inadequate canal irrigation coverage under the WOP scenario. For SRBC, it is unlikely that groundwater development will expand significantly beyond its present level as the geology of 70% of the command does not lend itself to viable well development. 5.11 Analysis Parameters, Prices and Costs. All costs and benefits have been expressed in 1995 constant prices and are net of identifiable taxes. The analysis uses a project life of 30 years and an opportunity cost of capital of 12%. The prices of all tradable commodities and imports are based on world reference prices adjusted to site or farm-gate values. All local costs, including unskilled labor wages and non-traded goods, were converted to economic costs and values by using a Standard Conversion Factor (SCF) of 0.90. Based on an analysis of taxes, duties, foreign exchange components, local materials and labor charges of seven ongoing construction contracts, a conversion factor of 0.79 was used for valuation of irrigation works. Annual irrigation O&M costs were assumed to be Rs.494/ha and adjusted to economic values by using an SCF of 0.9 as inputs consist mostly of salaries, local materials and unskilled labor. Hydroelectric power generation foregone by the project was valued at Rs. 1.6/kwh (based on AP State Electricity Board estimates of the long-run marginal cost of electricity). Based on local traffic surveys and rural road vehicle operating cost savings studies, the annual economic benefits of feeder roads in SRSP and SRBC were estimated at Rs.227,465 and Rs.207,130 respectively. Economic and Risk Analysis Findings (Annex 10) 5.12 Economic Evaluation Results. Based on the above assumptions, the economic evaluation results for a base case scenario are summarized in Table 5.1 below.  47 Table 5.1: Base Case Economic Analysis Summary Economic Evaluation Criterion Above Below Combined SRBC Whole LMD LMD SRSP Project Base Case ERR (