Nepal - Third Narayani Irrigation Project

 Narayani II irrigation project Report No: ; Type: Report/Evaluation Memorandum ; Country: Nepal; Region: South Asia; Sector: Irrigation & Drainage; Major Sector: Agriculture; ProjectID: P010262 Nepal: Narayani III Irrigation Project (Credit 1715-NEP) The Nepal Narayani III Irrigation project, supported by Credit 1715-NEP for SDR 21.6 million (US$24.5 million), was approved in FY86. The project was cofinanced by a grant of SwF15.0 million from the Government of Switzerland through the Swiss Development Corporation (SDC). Following restructuring of the project in 1992, SDR 7.3 million of the credit and SwF5.0 million of the grant were canceled. The credit closed one year late on June 30, 1995, and undisbursed balances of SDR 1.8 million and SwF0.5 million were canceled. A draft ICR was prepared by the Food and Agriculture Organization/World Bank Cooperative Programme, with participation of SDC staff in the field. The final ICR was prepared by the South Asia Regional Office. Comments from the borrower and the cofinancier are attached to the ICR. The main objectives of the project were to increase dry season agricultural production; make protective irrigation available in the rainy season; reduce risks to cropping and physical infrastructure by improving flood protection and drainage, and turn over operation and maintenance (O&M) of the system at the tertiary level to farmer groups. Main components of the project were construction to complete, improve, repair and remodel the irrigation infrastructure; flood protection and river embankment works; road improvements; and support for project management and O&M. A major feature of the project was remodeling of the irrigation system constructed under the two previous projects. The new design aimed to simplify system management and reduce inequities in deliveries of water. The credit was the third round of funding to complete the infrastructure needed to make efficient use of water supplies from India which are allocated to Nepal under a bilateral riparian agreement. Supplies come from the Gandak Barrage in India via a long feeder canal which serves areas in both India and Nepal. The reliability of this supply of water is uncertain since the barrage suffers from siltation problems and the feeder canal passes through difficult terrain in India where there is a high risk of breaches. Supplies released to Nepal have been erratic, never reaching more than 70 percent of the agreed levels, and ceased entirely from 1986 to 1991 following breach of the feeder canal by a major flood. Under difficult circumstances this third phase of funding was unable to bring development of the scheme to a satisfactory conclusion. Implementation was bedeviled by lack of government commitment for the first four years while the supply canal was under repair in India; infrastructure damage caused by flooding; poor consultant performance on engineering design and cost estimates; inadequate counterpart funding by government of both construction and O&M; shortage of fuels and construction materials during a trade and transit dispute with India; and poor cooperation from farmers, who had not participated in project design. Because water supplies from India at the agreed level were not assured, the project was reduced in scope in 1993, mainly by canceling the final phase of construction (8,700 hectares), leaving a total area of 28,700 hectares. Also, responsibility for construction of the tertiary canal system was transferred to farmers. The revised project succeeded in completing 80 percent of planned construction of the main system, including much more earthworks than estimated at appraisal, but only a third of the tertiary irrigation network was completed. Flood protection and river embankment works were mostly completed as planned, but little road improvement was done. Water User Groups (WUG) were formed for about half the irrigated area, and a third of these maintain tertiary canals, but none collect water charges. At completion none of the tertiary systems had been formally turned over to WUGs. Cost recovery, a secondary objective, was achieved for only half the appraisal target for capital costs and about a fifth for O&M costs. The ICR projects production at full development (2000/2001) of the two predominant crops, paddy and wheat, at 103 percent and 43 percent of appraisal projections respectively. The ICR re-estimated the economic rate of return (ERR) at 16 percent for the reduced investment, including flood control and drainage works, which compares with 22 percent estimated at appraisal. However, the ICR recognizes the speculative nature of this re-estimated ERR given the inadequate and erratic water supplies from India, and the uncertainty of whether farmers can be motivated to complete the tertiary layout. The Operations Evaluation Department (OED) agrees with the ICR, which rated the outcome of the restructured but unfinished project as unsatisfactory, institutional development as moderate and sustainability as uncertain. OED rates Bank performance as unsatisfactory on balance, whereas the ICR rated Bank performance during supervision as satisfactory, but unsatisfactory from identification through appraisal. OED agrees with the ICR that the main lesson learned is the need for more conservative estimates of potential water supply levels in such uncertain situations. The ICR is satisfactory, although the ERR re-estimate overstates the scheme's economic prospects given the water supply constraint and incomplete infrastructure. An audit is planned to examine these issues further.