China - Second Tarim Basin Project

Document of The World Bank Report No: 17129 - CHA PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN OF $90 MILLION AND A PROPOSED CREDIT EQUIVALENT TO SDR 44.6 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE TARIM BASIN II PROJECT April 23, 1998 Rural Development & Natural Resources Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective January 1998) Currency Unit = Yuan Y 1.00 = US$ 0.12 US$ 1.00 = Y 8.3 FISCAL YEAR January I to December 31 WEIGHTS AND MEASURES I meter (m) = 3.28 feet (ft) 1 kilometer 0.62 miles I square kilometer 100 ha I hectare (ha) = 15 mu 2.47 acres I ton (t) = 1,000 kg - 2,205 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CAS - Country Assistance Strategy GOC - Government of China EIA - Environmental Impact Assessment FAO - Food and Agriculture Organization GIS - Geographical Information System IBRD - International Bank for Reconstruction and Development IDA - Intemational Development Association IPM - Integrated Pest Management MIS - Management Information System MOF - Ministry of Finance MWR - Ministry of Water Resources NBET Non-Beneficial Evapotranspiration NGO - Non-governmental Organization PMO - Project Management Office PRC - People's Republic of China RAP Resettlement Action Plan SIDD - Self-financing Irrigation and Drainage District TBWRC - Tarim Basin Water Resources Commission TMB - Tarim Management Bureau WSC - Water Supply Corporation WUA - Water User Association XUAR - Xinjiang Uygur Autonomous Region Vice President: Jean-Michel Severino, EAP Country Manager/Director: Yukon Huang Sector Manager/Director: Geoffrey B. Fox Task Team Leader/Task Manager: Douglas OlsoIn  CHINA Tarim Basin II Project CONTENTS A. Project Development Objective 1. Project development objective and key performance indicators B. Strategic Context 1. Sector-related CAS goal supported by the Project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the Project and strategic choices C. Project Description Summary 1. Project components 2. Key policy and institutional reforms supported by the Project 3. Benefits and target population 4. Institutional and implementation arrangements D. Project Rationale 1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank and/or other development agencies 3. Lessons learned and reflected in the Project design 4. Indications of Borrower commitment and ownership 5. Value added of Bank support in this Project E. Summary Project Analyses 1. Economic and Financial 2. Technical 3. Institutional 4. Social 5. Environmental assessment 6. Participatory approach F. Suistainability and Risks 1. Sustainability 2. Critical risks 3. Possible controversial aspects  G. Main Loan Conditions 1. Effectiveness conditions 2. Other H. Readiness for Implementation L Compliance with Bank Policies Annexes Annex 1. Project Design Summary Annex 2. Detailed Project Description Annex 3. Estimated Project Costs Annex 4. Financial and Economic Analysis Summary Annex 5. Financial Summary Annex 6. Procurement and Disbursement Arrangements Table 6.1. Project Costs by Procurement Arrangements Table 6.2. Consultant Selection Arrangements Table 6.3 Thresholds for Procurement Methods and Prior Review Table 6.4 Allocation of Loan Proceeds Table 6.5 Estimated Disbursement Schedule Annex 7. Project Processing Budget and Schedule Annex 8. Documents in Project File Annex 9. Statement of Loans and Credits Annex 10. Country at a Glance Annex 11. Summary of Local Beneficiaries Participatory Development Plan Annex 12. Summary of Voluntary Settlement Action Plan for Keping County, Aksu prefecture Maps Tarim Basin II Project - IBRD 29489 Hotan Sub-Project - IBRD 29490 Kashgar Sub-Project - IBRD 29491 Kizilsu Sub-Project - IBRD 29492 Aksu Sub-Project - IBRD 29493 Bayingol Sub-Project - IBRD 29494  CHINA Tarim Basin II Project Project Appraisal Document East Asia and Pacific Region China Date: April 23, 1998 Task Team Leader/Task Manager: Douglas Olson Country Manager/Director: Yukon Huang Sector Manager/Director: Geoffrey B. Fox Project ID: CN-PE-46563 Sector: Agriculture Program Objective Category: EN Lending Instrument: Specific Investment Loan Program of Targeted Intervention: [XI Yes [ I No Project Financing Data [X] Loan [X] Credit [] Guarantee [] Other [Specify] For Loans/Credits/Others: Amount (US$m/SDRm): IBRD Loan $90 million/IDA Credit SDR44.6 million equivalent Proposed terms: [ ] Multicurrency [X] Single currency, specify US$ Grace period (years): 5 Loan/10 Credit [ ] Standard Variable [] Fixed [X] LIBOR-based Years to maturity: 20 Loan/35 Credit Commitment fee: 0.75% Loan/0.50% Credit Service charge: 0.75% Credit Financing plan (US$m): Source Local Foreign Total Government 100.6 100.6 (37%) IBRD 33.8 56.2 90.0 (33%) IDA 22.5 37.5 60.0 (22%) Beneficiaries 22.0 22.0 (8%) Total 178.9 93.7 272.6 (100%) Borrower: People's Republic of China Responsible agency(ies): Xinjiang Uygur Autonomous Region Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004 Annual 20.1 37.2 41.5 28.7 16.3 6.2 Cumulative 20.1 57.3 98.8 127.5 143.8 150.0 Project implementation period: 1999-2003 Expected effectiveness date: 10/98 Expected closing date: 12/31/2004 OSD PAD Form: July 30, 1997  Page 2 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The proposed Project development objectives for the Tarim Basin II Project (Tarim II) in the Xinjiang Uygur Autonomous Region (XUAR) which will expand on the successful Tarim Irrigation Project (Tarim I) are to: (a) increase incomes of poor farmers through irrigated agriculture development (performance indicator - per capita incomes of Project beneficiaries); (b) establish mechanisms for sustainable use, development and management of water resources and land in the Tarim Basin (performance indicators - consumptive use allocations established and enforced); and (c) partially restore and preserve the "green corridor" in the lower reaches of the Tarim River (performance indicator - amount of water delivered below Daxihaizi Reservoir). B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the Project (see Annex 1): CAS document number: 1632 1-CHA Date of latest CAS discussion: March 18, 1997 Progress Report is scheduled for discussion in May 1998 Tarim II would support the Bank Group Strategies to: (a) promote continued development of sustainable techniques to upgrade marginal land; (b) incorporate major water storage, transfer, irrigation, drainage and flood control into projects; and (c) target absolute poor through a series of investment projects. 2. Main sector issues and Government strategy: Increasing grain production is a major goal of the ninth 5-year plan. The development and improvement of irrigated agriculture has been identified by the government as an important way of increasing food production. Feeding China's vast and growing population is a continuing major challenge for the Government of China (GOC). Present annual consumption of grains is about 480 million tons and is expected to grow to about 700 million tons by the year 2020. This is not only due to the increasing population but also to the increased consumption of grain for animal feed resulting from increasing meat consumption as incomes rise. The Ninth 5-year plan which covers the period from 1996-2001 has the objective of increasing grain production from about 450 million tons to 500 million tons and last year production reached some 480 million tons, necessary to meet domestic demand. Large increases in cotton, oils and other products are also mandated. Irrigation and drainage infrastructure upgrading and increasing yields on irrigated lands are priority objectives of the GOC and the Ministry of Water Resources (MWR). With 22% of the world's population, China has only 7% of the arable land. In addition, encroachment of urban and industrial areas continually reduces the land available for agricultural production. These circumstances require increasingly intensive use of irrigated agriculture. Much of the irrigation infrastructure in China was built in the 1960s, in many cases with substandard designs and quality. Most of these systems are in need of rehabilitation and upgrading. In some areas, flood control, drainage and salinity mitigation are also essential for raising agricultural productivity. Drainage works are essential to allow cultivation of low- lying areas subject to waterlogging and salinization. Since the 1960s, government programs in drainage works have helped control waterlogging on 19 million hectares and have reclaimed 4.8 million hectares of saline land. Improved water resources management at the river basin level has been identified by the Ministry of Water Resources (MWR) as an important goal for sustainable development and use of water resources in China. There are seven existing river basin commissions established in the Yangtze, Yellow, Huaihe, Pearl, Haihe, Songliao and Taihu Basins. These commissions are responsible for comprehensive river basin planning and for the implementation of rational and controlled water resources development and  Page 3 management in these river basins. All of these river basins cover several provinces. Up to now, the river basin commissions have been less effective than anticipated, mainly due to lack of clear jurisdictional definition of responsibilities between the commissions and the provinces. MWR is presently working with others to draft legislation directed towards improving this situation. Irrigation Institutional Reform has been identified by the Ministry of Water Resources as an important goal for sustainable irrigation in China. A major problem faced by almost all irrigation and drainage systems in China is inadequate O&M which is due primarily to insufficient government budget and low water charges. It is also due to lack of direct farmer participation and feeling of ownership in Project design, implementation and management. This has resulted in a vicious cycle of implementation, deterioraLtion and rehabilitation of irrigation and drainage systems. Key issues for the irrigation subsector are how to pay for irrigation investments and make them sustainable, how to increase local participation and "ownership" in irrigation, and how to implement irrigation investments to consistently higher technical and institutional standards as needed for agricultural intensification. In addition to substantial improvement in irrigation facilities and increases in agriculture prodchction, there is a strong need for institutional reform which would address these issues, and the need for reform is strongly supported by the Ministry of Water Resources. The reform includes the need to implement a number of key policies in the irrigation subsector such as: (a) the user pays principle; (b) decentralization of services delivery; (c) market oriented development; (d) treating water as an economic resource; and (e) participation of water users. Institutions responsible for operation and maintenance of irrigation and drainage systems need to be: (a) organized along hydraulic boundaries, (b) organized to have legal personality to be able to enter into contractual relationships with other entities; and (c) designed to be self-financing. Poverty Reduction is a major objective of the Chinese Government. Rural economic reforms, including the adoption of the production responsibility system, the dismantling of the commune system, agricultural product price increases and market liberalization resulted in tremendous reductions in absolute poverty, from roughly 250 million poor in 1978 to about 58 million in 1997. The Chinese Government has the goal of eliminating absolute poverty altogether by 2000. Continued reduction in absolute poverty becomes more and more difficult especially where pockets of persistent poverty exist in minority and resources poor areas. Interior Provinces of China are lagging in development when compared to the coastal provinces. The government has emphasized the need to direct more investments including external financing to the internal provinces as a means of accelerating their development. 3. Sector issues to be addressed by the Project and strategic choices: Agricultural production. The Project is designed to increase agricultural production in economically depressed areas in the Tarim Basin of XUAR, with the objective of raising the per capita incomes of poor people and increasing their access to food. This will be accomplished through improvements to existing irrigation and drainage systems; reclamation of non-irrigated lands; low-yield land improvements; improvements in agriculture support services; and technical assistance, training and research programs. In each of these areas, the experience from recently completed Tarim I which covered the Weigan and Yerqiang subbasins has been instrumental in designing these components in Tarim II which covers the Kaidu-Konque, Aksu, Kashgar and Hotan subbasins. Improved water resources management at the river basin level. The Project is designed to provide for the establishment (legally constituted in December 1997) and strengthening of the Tarim Basin Water Resources Commission (TBWRC) which will be responsible for comprehensive water resources management including all aspects of planning, policy setting and regulation and control of water and related natural resources of the Tarim Basin. TBWRC development will build upon institutions and information that were developed under Tarim I.  Page 4 In particular TBWRC development will: * Develop and implement hydrologic (surface water and groundwater) data monitoring networks, processing and archiving systems, and analytical processes for data evaluation, as well as a group of hydrologic models that provide both a predictive and a management capability. * Undertake base-line studies to determine the 'health' of the natural resources in the Basin, the pattern of water usage and its efficiencies. * Develop and administer a water licensing and allocation system, with suitable enforcement and penalty procedures, as well as the collection of water charges. * Undertake master water planning studies for the whole Basin, ensuring that these studies involve integration across all aspects of natural resources. * Develop and implement community awareness and participation programs across the Basin to lift the understanding of the natural resources issues of the Basin. * Promote, and assist with, the development of 'land and water management plans' by various farmer and community groups that provide for both productivity improvements and resource rehabilitation. * Oversee funding programs to assist with implementation of water and environmental management and development projects. SIDD Development. The Project is designed to incorporate institutional measures to ensure the sustainability and self-financing of irrigated agriculture, improve irrigation system performance, and enable effective decentralization of irrigation services, cost recovery and farmer participation in line with Chinese and Bank water resources policy. An important component in the new institutional structure for improved water resources management is the implementation of self-financing irrigation and drainage districts (SIDDs). Each SIDD would comprise: (1) a Water Supply Corporation (WSC) that would be formed to operate and maintain the main and branch canals and drains; and (2) Water User Associations (WUAs) that would be formed and managed by farmers to operate and maintain the lower-level irrigation and drainage systems and would purchase water from the WSC. Initially one WSC and one or more WUA will be established as a pilot in each of the prefectures. During Project implementation, the pilots will be evaluated, and if successful additional WSCs and WUAs will be established in accordance with SIDD development plans (Annex 4 of Project Implementation Plan (PIP) in Project Files) that have been prepared for each subproject area.  Page 5 C: Project Description Summary 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown): Component Category Cost Incl. % of Bank- % of Contingencies Total financing Bank- (US$M) (US$M) financing Water conservancy measures Physical 120.3 44.1 70.5 58.6 including irrigation and drainage system rehabilitation and improvements, and hydropower stations and transmission lines Land recllamation for irrigation Physical 60.7 22.3 27.8 45.8 purposes of presently non-productive lands with a total area of 75,350 ha, including Keping voluntary settlement. Land improvement of presently low- Physical 29.1 10.7 11.7 40.0 yield irrigated lands with a total area of 105,350 ha. Agricultural support services for on- Institution 16.8 6.1 12.6 75.3 farm development, both in terms of building, production support (seed availability, Management, machinery services, input supplies, Physical technology transfer to fanners, etc.) Environmental Protection and Physical 10.8 4.0 7.6 70.4 Monitoring quality and quantity of ground and surface water Institutional Development measures Institution 15.2 5.6 7.7 50.6 to strengthen prefecture and county building, PMOs, SI]DDs and line agencies Management TBWRC support including Institution 12.8 4.7 6.8 53.5 institutional development support and building, measures on mainstream of the Tarim Management, River to improve water management Physical and delivery of water to the lower reaches of the river Regional Management support for the Institution 6.9 2.5 5.3 75.9 Regional PMO and training facilities building, Management, Physical Total 272.6 100.0 150.0 55.0  Page 6 2. Key policy and institutional reforms supported by the Project. The Project would support major institutional changes in the planning and use of water resources within the Tarim Basin. These consist of introduction of rational use of water resources on a basin-wide basis and promotion of irrigation and drainage system management with a large degree of autonomy in financing and farmer management. The first of these includes the establishment and strengthening of the TBWRC which will involve the consolidation and strengthening of the existing Tarim River Administrative Committee and the Tarim River Management Bureau which were established under Tarim I. TBWRC will be a competent institution with overall authority for planning and management of water resources within the Basin. The second includes re-shaping the present local water resources bureau structures in each of the subproject areas to become self-financing water supply agencies, incorporating farmer/water user participation and representation and establishing WUAs. The WUAs would both manage irrigation within their irrigation block and also through their representation in the water supply agencies would have the means of influencing the method of operation of the main irrigation and drainage systems. The institutional developments proposed would, therefore, be the strengthening of the TBWRC covering the whole river basin, WSCs covering the irrigation areas served by main irrigation and drainage systems, and WUAs covering areas supplied by lateral and on-farm irrigation and drainage systems. Formation of the WSCs and WUAs would be initially done on a pilot basis, and if successful, would be gradually implemented throughout the Tarim II Project area. 3. Benefits and target population: The Project would generate the following benefits: (a) an increase in per capita incomes for about 200,000 poor households of Project water users who would directly benefit from increased agricultural production on Project lands; (b) an increase in the supply of agricultural products which would be available for direct consumption and sale, including annual increases of 157,000 tons of wheat, 117,000 tons of maize, 18,000 tons of rice, 43,000 tons of cotton lint, and 93,000 tons of sugarbeet; (c) an increase of the animal herd by about 10,000 heads of sheep annually as a result of improved feed production; (d) environmental benefits derived from improved water resources and land management including reductions of high water tables and salinization problems, and restoration/preservation of part of the "green corridor", an area of natural riverine forests along both sides of the river and approximately 200 km long at the lower reaches of the Tarim River; (e) institutional reforms including self-financing basin- wide water resources management and irrigation and drainage system operation; and (f) development and dissemination of improved irrigation, drainage, agricultural and environmental management technologies to improve water use efficiencies and reduce environmentally damaging water wasting. Minority nationalities are the overwhelming majority of the Project target population (Uygur 84.66%, Hui 1.3%, Mongols 1.09%, Kirghiz 2.37%, Kazak 0.03%, and others 0.7%). Han Chinese in the Project area constitute about 12.4% of the total. Poor farmers/herdsmen will be the direct Project beneficiaries. Among the 576,900 households that will be directly and indirectly affected by the Project, 114,335 are below the poverty line and have an annual net income of less than 530 Yuan (about US$64) per capita. The poorest households whose annual net income is below 300 Yuan (about US$36) per capita number 20,776. Overall, the Project target beneficiary group has a significantly larger proportion of poor than the country's population as a whole. 4. Institutional and implementation arrangements: The Project would have a 5-year implementation period. At the Regional level, a "Leading Group" has been established under the leadership of the First Vice Chairman and the Vice Chairman responsible for agriculture and water resources. The Leading Group includes the directors of the Planning Commission, and the Finance, Water Resources, Agriculture,  Page 7 Envirornmental Protection and Land Management bureaus. The Leading Group is responsible for overall Project coordination and for ensuring that Project design and implementation have high priority and adequate support from the different government entities. Leading groups have also been established in each of the 5 prefectures and 22 counties under the leadership of the heads of the respective governments and including the heads of the involved government agencies. Implementation of the Project will be under the Regional Project Management Office (PMO) located in Urumqi which has a full-time director, three part-time Deputy Directors, and the following five divisions. * Comprehensive Division (located in the XUAR Finance Bureau), responsible mainly for coordination with MOF, the World Bank and other external entities, coordination of technical assistance programs, and oversight of procurement actions. * Finance Division (located in the XUAR Finance Bureau), responsible for overall Project financial management including Bank loan/credit management. * Planning Division (located in the XUAR Planning Commission), responsible for reviewing of the Project plan, Project monitoring and evaluation, oversight of procurement actions, and coordination (mobilization) and allocation of domestic funding. * Water Resource Division (located in the XUAR Water Resources Bureau), responsible for Project design, implementation, procurement, and SIDD development and extension. e Agriculture Division (located in the XUAR Agriculture Bureau), responsible for design and implementation of agriculture support services. Annex 17 of the PIP presents the organization and responsibilities of the PMO. PMOs with similar organizational structures have been set up in each of the five prefectures and 22 counties involved in the Project. These PMOs are responsible for all aspects of Project design, implementation and operation of the water conservancy, land reclamation, low-yield land improvement, agriculture support services, environmental protection and monitoring and institutional development and support components. The Management Bureau of the TBWRC (TMB) will be responsible for design, implementation and operation of the Tarim River engineering and TBWRC subcomponents. A separate PMO structure has not been established in TMB, because its principal responsibility during the next 5 years will be implementation of the Project. Annex 1 of the PIP presents the plans for development of the TBWRC. Design, implementation and operation of the Regional management component will be the direct responsibility of the Regional PMO. Following the successful experience of Tarim I, a technical advisory group has been established that will review Project design and implementation throughout the five-year Project implementation period. Annually the group will review all aspects of Project design and implementation, as well as monitoring and evaluation procedures and reports. The group will write an annual report in which recommendations for improvements in all of these aspects are made. The annual report will be prepared prior to a World Bank supervision mission and the report will be provided to the mission along with the progress report, monitoring and evaluation report and annual work plan prepared by the PMO. A detailled program of Project supervision will be carried out by the PMO at all levels. This will include quality control and inspection of all civil works and goods procurement to ensure their  Page 8 high quality and compliance with the technical specifications. These activities will be the responsibility of the Water Resources Divisions (acting as engineer) of the PMOs. Annex 10 of the PIP presents the Project supervision plan. Financial management, account control and auditing will be carried ouat in accordance with the Financial Management System Manual which is presented in Annex 8 of the PIP. These activities will be the responsibility of the Finance Division and are in accordance with Bank requirements. In order to coordinate and encourage local development in line with the Project process, the PMO prepared a Local Beneficiaries Participatory Development Plan and takes responsibility for putting it into practice (PIP Annex 5). The work is led by a key PMO staff member in cooperation with other staff and external experts, and a team contracted from the Economic Institute, Academy of Social Science of Xinjiang. The Regional and local PMOs will put the plan into effect and supervise it along with progress of Project implementation. The PIP has been prepared by the Borrower. Among other things, the PIP includes: (a) detailed description of the Project including technical background and rationale; (b) GANNT chart indicating the schedule for implementation of each of the subcomponents of the Project (PIP Annex 18); (c) five-year TBWRC strategic plan and one-year action plan (PIP Annex 1); (d) SIDD development plan for the overall Project and for each subproject area (PIP Annex 4); (e) procurement regulations, arrangements and schedules (PIP Annex 9); (f) financial management system manual including account control procedures and auditing provisions (PIP Annex 8); (g) supervision plan (PIP Annex 10); (h) counterpart funding plan and repayment plan (PIP Annex 14); (i) local beneficiaries participatory development plan (PIP Annex 5); (j) Keping voluntary settlement action plan (PIP Annex 6); (k) resettlement framework guidelines (PIP Annex 7); (1) description of planned MIS system; (m) monitoring and evaluation plan (PIP Annex 15); (n) financial and economic analyses (PIP Annex 13); (o) environmental review (PIP Annex 12); (p) background discussion of engineering (PIP Annex 2) and agriculture aspects (PIP Annex 3); (q) detailed Project cost information (PIP Annex 11); (r) PMO organization and responsibilities (PIP Annex 17); and (s) copies of legal documents: Project Agreement, Development Credit Agreement and Loan Agreement (PIP Annex 19). The Regional, prefectural and county PMOs will monitor the Project's progress and evaluate the overall impact of the Project and economic and financial benefits for each component. The county PMOs will keep a current account of the physical and financial progress of each of the Project components. Indicators to be taken into account are defined in Annex 1. Financial reports will quantify Project expenditures and claims for disbursement. Information on physical and financial progress will be submitted annually to the prefectural PMOs which will prepare a progress report to be forwarded to the Regional PMO. As part of Project evaluation, annual longitudinal surveys will be undertaken in the Project areas to determine, inter alia, current levels of inputs and production, crop yields, salinity levels, and farm incomes. These surveys will provide data from which to measure the changes resulting from the Project. The ongoing evaluation of the Project will be included in the annual progress reports to be prepared by the Regional PMO for submission to the Bank. The annual progress reports will include a report by the technical advisory group, and will also include: (a) a description of problems and proposed solutions; and (b) a detailed work plan for the next year. The final, broad assessment of the Project's impact will provide the substance for the Implementation Completion Report, to be submitted to the Bank not later than six months following the completion of Loan/Credit disbursements. In addition to monitoring and evaluation of the physical and financial progress of the various components that would be carried out by the various PMOs and included in the MIS system, monitoring and evaluation of key performance indicators would also be conducted (see Annex 15 of the PIP for the  Page 9 Monitoring and Evaluation Plan). Monitoring and evaluation of Project implementation will be carried out from the bottom up, starting with the county PMOs through the prefecture PMOs and ending with the Regional PMO. Baseline surveys of all key indicators will be carried out during 1998. D: Project Rationale Alternatives were analyzed with the objective of reducing non-beneficial evapotranspiration at least as much as crop consumptive use would be increased in order to not reduce the downstream flows to the Tarim River. At the same time, the most cost effective alternatives were selected that achieved this primary objective. Many alternatives related to which canals would be lined, what lining techniques would be used, the use of well fields instead of surface reservoirs, the design of wellfields, and drain location and design were considered, and alternatives that best met the water savings and cost effectiveness objectives were selected. 1. Project alternatives considered and reasons for rejection: A project designed solely to improve irrigation and drainage systems, land reclamation and low-yield land improvements in the 5 subproject areas was considered because it would be simpler to implement than the proposed Project which also includes important water management and institutional development objectives. This alternative was rejected because it would perpetuate and exacerbate the existing situation of poor water management that contributes to increased areas of high water tables and salinization, and the further drying up of the Tarim River in its lower reaches. Continuation of existing water management practices would also significantly limit the availability of water for additional agricultural development in the future due to continuing large amounts of wasted water. In addition, the alternative would not build on the progress for improved water management made during Tarim I. A project that would solely address water management issues, deferring any further irrigation development until water management policies and mechanisms are fully implemented and operational was also considered. This alternative was rejected because it would be impossible to get the prefectures in the subproject areas to agree to the necessary institutional changes without the benefit of the irrigation development. Also the Project benefits would be less and difficult to measure, and the poverty alleviation aspects would be much less. A project that would be involved in 3 or 4 subbasins rather than 5 was considered because it would somewhat reduce the Project scope and complexity. This alternative was rejected because coverage of the Tarim Basin would be inadequate making basin-wide water management improvements much more difficult to achieve. The Project as now proposed, when combined with the Tarim I, would cover all of the main subbasins in the Basin and therefore increase the prospects for comprehensive, integrated basin- wide water resources management and obtaining the commitments of all concerned prefectures.  Page 10 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): Sector issue Project Latest Supervision (Form 590) Ratings (Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed Promote agricultural development on 23 state farms in northern Xinjiang Xinjiang Agricultural S S through investment in irrigation, Development Project pastureland development and ($57 million, closed agroprocessing 12/31/94) Rehabilitation and improvement of Yangtze Basin Water S S irrigation and drainage systems, self- Resources Management financing irrigation and drainage Project districts and river basin management ($210 million, started in 1995) Rehabilitation and improvement of Irrigated Agriculture S HS irrigation and drainage systems Intensification Project ($335 million, started in 1992) Rehabilitation and improvement of Tarim Basin Project S S irrigation and drainage systems and (Tarim I) institutional development ($125 million, started in 1 1992) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the Project design. The Bank has assisted in financing 13 water resources and irrigation projects in China over the last 15 years. These projects serve more than 4 million hectares. Generally, these projects have been implemented efficiently, time and cost overruns have not been excessive despite periods of sharp price escalation, and rates of return have equaled or exceeded appraisal estimates. A notable feature of these projects has been the increasing level of local community involvement in planning, design and implementation. The best performing projects have been where water resources bureaus at all administrative levels have had a leading role in project design, planning and implementation. The Operations Evaluation Department (OED) identifies O&M, water charges, financial autonomy and irrigators' ownership as key issues in irrigation system design and sustainability. The Agriculture Department of the Central Vice Presidency, in their recent irrigation subsector portfolio quality assurance review, has identified inter alia strong government commitment and ownership and beneficiary participation as main reasons for good performance of irrigation projects. Other key lessons from previous water resources projects are that: (a) detailed organizational and staff arrangements should be formulated and agreed before implementation; (b) counterpart funding should be agreed before implementation; (c) project design should support "user pays" principle, and user (farmer) participation should be explicitly built into project planning, implementation and operation; (d) drainage and flood protection investments should include cost recovery from beneficiaries; (e) irrigation and water  Page 1 1 conservancy projects should include provision for unified irrigation system management based on the hydraulic (not administrative) units; (f) projects should include institutional development support for the strengthening of provincial and local water resources bureaus; and (g) project management and quality control should be improved. The 1993 World Bank Policy Paper on Water Resources Management and Chinese Government policy are compatible and emphasize the following principles. * Water resources should be managed and developed in a comprehensive integrated manner and consider cross-sectoral issues with the goal of ensuring the sustainability of the water environment for multiple uses as an integral part of the country's economic development process. * Water resources planning and management should be carried out considering the interrelationships between water, land and human resources with the objective of enhancing economic growth and development in an environmentally sustainable manner. * Water is an economic resource and therefore should be managed in an economically efficient manner. * The river basin should be the basic unit for planning and managing water resources. * Water users should participate directly in water resources management and development. * Water use should be efficient and environmentally sustainable. The institutional development components of Tarim II have been designed based on these principles. With regard to raising of counterpart funding, experience from recent projects in China shows that there are often difficulties in raising the needed counterpart funds on time, especially at the county and township level. Care has been taken during preparation to ensure that the Project financing plan is accurate and realistic and that arrangements for counterpart funding are adequate. The XUAR Planning Commission and Finance Bureau have had key responsibility in this regard. Tarim I has been a highly successful project which has resulted in major benefits to farmers and significant improvements in water and environment management. Tarim II has incorporated some improvements due to lessons learned in Tarim I, including: (a) improvements in canal lining technologies and techniques; (b) modifications to the livestock component including more emphasis on organic fertilizers; (c) more involvement of the Water Resources Bureau in Project decision making and implementation; (d) clearer definition of responsibilities and funding, and strengthening of the existing Tarim Basin institutions; (e) inclusion of more training in the areas of irrigation and water conservancy; (f) more emphasis on commitments for counterpart funding and repayment during preparation. 4. Indications of Borrower commitment and ownership: For Tarim II the Regional, prefecture and county PMOs have already been established and is functioning. Intensive efforts are underway in the Regional Government and in all of the involved prefectures to prepare the Project in an adequate and timely manner. Regulations for the TBWRC were passed by the XUAR People's Congress in December 1997. The Xinjiang Region has demonstrated the capability and commitment to successfully implement Tarim I, a project of somewhat smaller size and scope than the proposed Project, though similar in design.  Page 12 5. Value added of Bank support in this Project: Although there is a strong understanding at the Regional level of the need to significantly improve water management in the Tarim Basin, it will be very difficult for the Regional Government to overcome the inertia of existing poor water management practices in the subbasins. The financial and technical support that the Bank would provide will be necessary to achieve the required working relationship between the prefectures and the Regional Government for improved water management. These arrangements would include the acceptance of the overlying principles that: (a) the water belongs to the state; (b) water utilization should be restricted to beneficial use; and (c) the costs for water management would be recovered through water charges. Although there is considerable enthusiasm in the Region for SIDD development, the Bank's technical and financial involvement will be necessary for the successful establishment of the SIDD institutions and mechanisms. The development of SIDDs for sustainable operation and maintenance of irrigation and drainage systems is a fundamental and much needed reform. The Bank also has substantial experience in irrigation projects in other countries, as well as some experience in China, which indicates that strong farmer participation is critical to the success of SIDDs. Project preparation and implementation management are areas that present significant room for improvement in water resources development projects in China. This is especially true in the interior provinces such as XUAR. The Banks experience in project preparation and implementation management in China and elsewhere provides large benefits in improved projects. The Bank is well positioned to assist the Regional and local governments to effectively address these issues while building on the considerable achievements of Tarim I. E: Summary Project Analysis (Detailed assessments are in the Project file, see Annex 8) 1. Economic and Financial (supported by Annex 4): Project as a whole Economic Cost-Benefit Analysis: NPV=US$ 49.5 million; ERR = 14.3% Financial Cost-Benefit Analysis: NPV-US$ 119.2 million; FRR= 16.9% The Project takes a holistic approach, investing in 1.) innovative institutional arrangements for water management at the river basin level as well as at the water user and water supply level of the tributaries, 2.) structural improvement of hydraulic infrastructure and river engineering, 3.) improvement of land currently under cultivation and 4.) reclamation of wasteland to expand irrigation activities. While the investments can be reasonably well divided into these components, the benefits cannot. For the technical features of the land improvement and wasteland reclamation components to lead to sustainable results the investment in improved institutional arrangements for water management at all levels is essential, i.e. benefits in terms of increased agricultural output accrue not only through the direct investments in this component but also through the investments in the other components. Given the linkage between the different components, analyses have been carried out at two levels, 1) the overall Project level and 2) for each of the 5 prefectures. For the economic analysis, at the prefecture level costs including investment and O&M costs as well as provision for physical contingencies were compared to economic benefits. The benefits were derived from crop models valued at economic prices  Page 13 and assumed cropping patterns. An overall IRR for the Project was estimated based on costs and benefits from each of the subproject areas with overall Project management costs added on. The same analysis was undertaken using financial prices. The main differences result from: (i) labor costs are included in the economic analysis, not in the financial one; (ii) all taxes are excluded from the economic analysis; (iii) economic values of the main output (grain, cotton) are usually lower than the financial ones. These benefits are considered as the quantifiable benefits derived through the new enabling environment related for example to improved institutional arrangements for water and irrigation management, river engineering measures and the environmental component. Water Savings and Environmental Benefits. In the subproject areas (excluding the Tarim mainstream) there is presently an estimated 3,400 million m3 of non-beneficial evapotranspiration. Project activities including canal lining, drainage improvements and wellfield construction, as well as water management improvements are estimated to result in a reduction of 1,000 million m3 in non-beneficial evapotranspiration. This water would be used as follows: (a) approximately one half of the reduction in non-beneficial evapotranspiration in the subproject areas will be utilized in increased consumptive use of crops in the land reclamation areas and to a lesser extent in the low-yield land improvement areas; these benefits are already quantified in the above-mentioned agricultural benefits of the Project, and; (b) the remaining half of the saved water will be delivered to the Tarim river mainstream mostly from the Aksu drainage which will increase deliveries by about 400 million m3. Of this water a minimum of about 150 million m3 is estimated to be released downstream into the "green corridor" and the remaining water will be consumptively used by grazing land, forest areas, irrigation and through non-beneficial evapotranspiration. The environmental benefits resulting from the water delivered to the "green corridor" would be the conservation of a sufficient vegetation barrier against progression of the desert. Conservatively, these benefits have not been quantified in this analysis. Fiscal Impact. Government revenue will increase from four different sources: (i) increased water charges mainly from newly reclaimed land; (ii) agricultural tax on incremental agricultural production; (iii) incremental community development fund, and; (iv) land lease taxes collected on all improved land and reclaimned areas. On the other hand, the Government would directly or indirectly subsidize Project farmers by protecting local products against imports. These subsidies are reflected by the difference between economic prices and financial prices, such as for cotton. They have been calculated on the incremental agricultural production due to the Project. Present values for the entire Project life for both fiscal revenues and expenses have been estimated. The impact would be positive: NPV of 320 million Yuan. 2. Technical: The key technical issues for the Project are: (a) comprehensive river basin planning and water resources management for the Tarim Basin and for the tributary subbasins; (b) water balance analyses to evaluate overall river basin management options, and subbasin investment and operation proposals to ensure adequate water availability for downstream purposes; (c) salt balance analyses to evaluate investment and operation proposals for salt reduction and disposal areas; (d) groundwater modeling studies to tie in with water and salt balance studies to ensure that groundwater and surface water interchanges are adequately considered; (e) planning of irrigation and drainage system improvements and extensions to be carried out to ensure that downstream flows from the subbasins are not reduced, that highly saline water does not contaminate usable waters, and that the most cost effective measures are proposed; (f) water supply and demand studies to ensure adequate water supplies to irrigated lands included within the Project; (g) river morphology studies to ensure the suitability and stability of river training, flood control and canal off-take works to be located in the river flood plain; (h) dam safety review of existing and proposed dams impacting on the Project area; (i) improved irrigation and drainage system design; and (j) improved O&M  Page 14 programs. All issues have been addressed during preparation and will continue to be addressed during implementation through technical assistance, research and training programs. 3. Institutional: PMOs have been established at the Regional, prefectural and county levels. An MIS will be developed for Project management and used at all levels for implementation, monitoring and evaluation. TBWRC, WSCs and WUAs will be established and strengthened. With these measures the prospects for good Project implementation and sustainability are substantially improved. 4. Social: A Social Assessment study was undertaken during Project preparation. The results show that the intended Project beneficiaries are highly motivated to participate in the Project and that the target population of the Project consists of 90% poor minority nationality farmers. A specific action plan, included as part of the Local Beneficiaries Participatory Development Plan (summarized in Annex 11 and presented in PIP Annex 5), has been designed to ensure their participation. A special assessment was made for the voluntary settlement program to be implemented in Keping County, Aksu Prefecture. A detailed action plan is summarized in Annex 12 and presented in PIP Annex 6. The Project was prepared and will be implemented so as to avoid involuntary resettlement, but if during preparation of annual civil works plans, it is determined that such resettlement is unavoidable, the prefecture concerned will prepare and carry out a Resettlement Action Plan (RAP) on the basis of the Resettlement Framework Guidelines (PIP Annex 7). Social benefits of the Project are primarily related to the conservation and expansion of the production base in the Tarim Basin. Irrigated agriculture is the basis of livelihood in the area, especially for the poor farners. Maintaining and improving the natural resource, institutional and technological basis is essential not only for development and poverty alleviation in general, but also for overall quality of life. In addition to reducing poverty and improving food security through increased agricultural production of poor households, the Project would result in: (i) improved reliability and quality of drinking water bringing health benefits to the entire villages; (ii) a reduction in labor needed for heavy agricultural works (especially for women) due to increased agricultural mechanization, and; (iii) improved standard of living in the townships and villages where electricity would be provided as a result of the new power station to be built in Kizilsu. 5. Environmental assessment: Environmental Category [I A [X] B []C A purpose of the Project is ecological restoration and preservation in the Tarim Basin. The Project would not significantly change the existing water utilization patterns in the Basin. The subproject areas are existing oases where irrigated agriculture has been underway for some time. Civil works would in most cases be rehabilitation of existing facilities. New structures would be in areas already significantly altered by human activities. Project environmental effects would generally be positive (i.e. reducing high water table and salinization areas, and partially restoring and preserving the "green corridor"), and are Project objectives. Full environmental impact assessments have been prepared for all subprojects in accordance with Government of China EIA requirements. Summaries have been provided to the Bank and are partially incorporated in Annex 12 of the PIP. Separate hydrological modeling studies for all subproject areas have also been prepared. 6. Participatory approach a. Primary beneficiaries and other affected groups: The primary beneficiaries of the Project are poor minority nationality farmers. A participatory approach has been achieved in two different ways. First, based on the Social Assessment study carried out during  Page 15 Project preparation, an action plan was developed with detailed steps on how to involve farmers in Project design, implementation and follow-up operation and maintenance activities. These steps include timely dissemination of information during the various stages of Project design and implementation so that beneficiaries have been and will continue to be able to influence Project components. Feedback mechanisms have been designed to make sure that their opinion will be taken into account by the different levels of Project management and that the Project can be adjusted during implementation. The second part of the participatory approach relates to the SIDD component which in itself has the aim to render irrigation management more participatory. Through the creation of WUAs, the water users/farmers themselves will be able to take decisions on operation and maintenance, investment needs and water charges. In addition, the creation of WSCs will render the process of water delivery and payment more transparent and will facilitate water users' understanding of costs and management structures b. Other key stakeholders: Other key stakeholders are the government entities at provincial, county and prefecture levels. Each level has its own PMOs and thus has the facility to fully participate in the Project. F: Sustainability and Risks 1. Sustainability: The Project has been designed to include Project management and institutional arrangements that together will ensure sustainability. Project management arrangements are designed to ensure coordinated, timely and high quality design and implementation of all components. Institutional arrangements are designed to ensure the comprehensive and integrated management of water resources in the Basin. The establishment and strengthening of TBWRC, WSCs and WUAs has the purpose of ensuring sustainable planning and management of water resources within the Basin. The sustainability of the water conservation measures was addressed during preparation through adequate consideration of quality design and implementation mechanisms and will be addressed during implementation by developing adequate operation and maintenance procedures for Project facilities after construction including the introduction of adequate water charges to ensure financial sustainability. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Rating Risk Minimization Measure - Government does not maintain focus on N High-level dialog between Bank improved water resources and land and Chinese government will be management maintained to strengthen current policies and strategies - Water tariffs will not be raised sufficiently to M Water tariffs will be monitored and ensure financial sustainability evaluated during Project implementation. Project Agreement includes a covenant to require that water charges be raised to levels adequate to cover costs of O&M, repair, replacement and a portion of the loan repayment.  Page 16 - Project interventions will not primarily benefit N Land allocation procedures and poor households results will be continuously monitored by the PMO. Project Agreement includes a covenant to require that priority will be given to providing reclaimed lands to poor farmers. - Product prices, especially for cotton, decline M Prices and farmers' incomes will be and are not sufficient to generate net benefits monitored during Project for households, which in turn reduces the implementation. PMO will evaluate poverty alleviation benefits. cropping patterns and recommend changes to more profitable crops to XUAR and farmers - Project beneficiaries (farmers, prefectures) do M Sufficient preparation of Project not perceive sufficient incentives to change beneficiaries at all levels through institutional arrangements and/or to introduce workshops, study tours, and training technical improvements. The significance of before and during Project preserving the "green corridor" and other implementation. environmental measures is not fully recognized. The importance of adequate operation and maintenance and SIDD development is not perceived. - Technical and institutional measures, M Institutional and technical measures including TBWRC and SIDD development will will be reviewed and modified as not result in sustainable water use and necessary during Project development. implementation. Project Agreement includes a covenant to require that TBWRC be maintained with TORs acceptable to the Bank. - Increases in agricultural consumptive use will M Monitoring systems will be not be more than offset by decreases in non- included in the Project and beneficial evapotranspiration. River training necessary authority will be vested and water savings measures are not sufficient to with TBWRC for enforcement of generate expected water savings and provide water use allocations. Water sufficient water to the "green corridor". allocation quotas will be established by TBWRC as provided for in legislation. Dikes will be implemented after evaluating the effectiveness of other control structures along the Tarim mainstream.  Page 17 - Key inputs are not available M Project performance will be monitored on a continuing basis by the PMO through the establishment of a comprehensive MIS. Annual progress reports will be prepared by the PMO which provide detailed information on the progress of implementation of all Project components. The progress reports will include the monitoring and evaluation of physical and financial indicators, and the identification of problems and solutions. - Counterpart funding is not available on time M The timely availability of counterpart funds will be monitored on a continuing basis during Project implementation by the PMOs. Financial management measures established by the PMO (PIP Annex 8) include the internal requirement that Bank funds would only be utilized when counterpart funds are also available as indicated in the the Financial Management System Manual (PIP Annex 8). PMO and TBWRC personnel is not adequate in M Project performance is monitored number and capacity on a continuing basis. A covenant has been included in the Project Agreement requiring adequate numbers of qualified experienced staff in the PMOs and TBWRC. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible Controversial Aspects: An international NGO, the Laogai Research Foundation, alleged in 1995 and 1996 that World Bank projects were benefiting forced labor camps in Xinjiang. The Bank conducted an investigation of the specific allegations, which indicated that they were untrue and that Project funds were being used for the purposes intended. The investigation found that Xinjiang Production and Construction Corps (XPCC), which has a broad range of commercial and civilian responsibilities, is responsible for administering some prisons and adjacent farms. To avoid even the appearance of a link to forced labor, the Bank has stated that it would use XPCC as an implementing agency in future projects only if its commercial and civilian activities are clearly separated from it prison management and other functions. In connection with U.S. Congressional committee hearings on the allegations in July 1996, the U.S. Treasury Department publicly accepted the findings of the Bank investigation. It is possible that some of these NGO or political groups may raise objections about the Bank continuing to support agricultural development in Xinjiang.  Page 18 The preparation team has done its best to ensure that the Project design does not benefit any forced labor camps near Project areas. The Project does not use XPCC as an implementing agency. The Regional Government has confirmed that there are neither state farms nor prisons that will have any benefit from Tarim II and that XPCC will not be involved in any way in Project implementation. State farms in this Region, as an economic entity independent of local administration, are subordinated directly to the Ministry of Agriculture of the central government. Prisons are controlled by the penal system of Ministry of Justice (some are directly controlled by the Ministry, some through the Regional Justice Bureau). The director of Xinjiang Justice Bureau wrote an official letter to the Bank assuring of no benefit from Tarim II to prisons and state farms, no prison in the Project areas, and not any labor from prisons and state farms to be used for work to be done in the Project. G: Main Loan Conditions 1. Effectiveness Conditions: Legal agreements including responsibilities for system O&M, and water charge and collection should be signed between the pilot WSCs and the pilot WUAs. Legal agreements including responsibilities for system O&M, personnel, asset transfer, and water charge and collection should be signed between prefectures and pilot WSCs. 2. Other [classify according to covenant types used in the Legal Agreements.]: The Management Information System software should be fully developed, and installed and operational and in each of the 5 prefecture PMOs by October 15, 1998. The complete MIS should be operational by October 15, 1999. By December 1 1998, after consultation with each of the prefectures, XUAR, through TBWRC, shall establish annual gross water use quotas for each prefecture. XUAR shall maintain policies and procedures to monitor compliance with the gross annual water use quotas and furnish annual reports to the Bank by February 28 of each year on the results of such monitoring and take measures to improve rational and efficient water utilization taking into account the Bank's views on the matter. Reclamation lands will be allocated in priority to poor farmers (about 70% planned to be set aside for the poor). The remaining lands will be retained by the villages and/or contracted. Land-lease for reclamation lands will be for a minimum of 30 years. Water resource fees and agriculture taxes will be exempted for 5 years. Collective fees will be exempted for 3 years. For poor farmers land lease contract charges will be exempted for 3 years. By 1999, water charges will be increased to cover the full cost of operation and maintenance, major repair and replacement (over up to 30 years), and a reasonable portion of debt repayment. Thereafter compliance with this requirement will be monitored by the PMO and adjustments in water charge rates will be made as necessary to ensure continued full cost coverage. A panel of independent experts will review design and implementation of Xinir Dam. Existing dams that supply water to Project areas will be inspected during Project implementation. Required remedial actions as determined by these inspections will be carried out by XUAR using non-Project funds. Large dams (e.g. Wuluwati Dam in Hotan which is under construction) will continue to be monitored by the existing  Page 19 independent panel of experts. Copies of inspection reports and independent panel reports will be provided to the Bank. In order to ensure adequate participation by women in the Project, thirty percent of persons receiving training and undertaking study tours will be women in the aggregate. The SIDD development plans for each prefecture will be carried out. By April 1, 2000, an evaluation will be undertaken of SIDD pilots and plans made for SIDD expansion. WSCs and WUAs will be authorized to collect water charges and will have customary labor taxes transferred to them. TBWRC will be maintained with terms of reference and composition acceptable to the Bank. The Project prefectures will furnish O&M plans for all Project irrigation systems to the Bank by December 31, 1999 and thereafter implement them taking into account the Bank's views. The PMO's and TBWRC will maintain adequate qualified staffing at all levels. A mid-term review will be undertaken by December 31, 2001. Project implementation will be carried out in accordance with the Local Beneficiaries Participatory Development Plan (PIP Annex 5). The settlement in Keping County will be carried out in accordance with the Keping Voluntary Settlement Action Plan (PIP Annex 6). XUAR will ensure that all Project works are planned and implemented so as to avoid resettlement, but if during preparation of annual civil works plans, XUAR determines such resettlement is unavoidable, XUAR will ensure that the prefecture concerned prepares a RAP on the basis of the Resettlement Framework Guidelines (PIP Annex 7) and carries out such RAP as shall have been approved by XUAR, and if 200 persons or more are involved, by the Bank. Feasibility studies for fertilizer mixing plants will be prepared prior to their implementation. Such plants will not be constructed unless the Bank is satisfied with their feasibility, based on the studies. An independent technical advisory group will review the Project annually. A masterplan for Bosten Lake and the Kaidu catchment will be prepared by December 31, 1999; A masterplan for the Tarim Basin and tributaries will be prepared by December 31, 2001. In order to control cotton pests, cotton plantings will be monitored with annual reports being sent to the Bank by February 28 of the following year; if the cotton plantings would exceed 40% of the total farmland in any county, XUAR will take all reasonable measures with the view to limiting the cotton plantings so as to control cotton pests. IPM training will be implemented for farmers and technicians in Project areas in accordance with a program and schedule acceptable to the Bank.  Page 20 The PMO will furnish to the Bank by February 28 each year; (a) annual reports which include progress reports, technical advisory group reports, monitoring and evaluation reports for the previous year; and (b) by October 1 each year action plans for the upcoming year. H. Readiness for Implementation [X] The engineering design documents for the first year's activities are complete and ready for the start of Project implementation. Detailed preliminary designs have been prepared for all Project features. Detailed designs for the retroactive financing period will be completed by June 1998. Detailed designs for the first year of implementation will be completed by August 1998. [X] The procurement documents for the first year's activities are complete and ready for the start of Project implementation. Standard bidding documents agreed to by the Chinese government and the Bank will be used. Bidding documents for each civil work will be completed at the same time as the completion of the detailed designs. [X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. I. Compliance with Bank Policies [X] This Project complies with all applicable Bank policies. OP 7.50, Projects on International Waters. Tarim II involves improvements to existing irrigation and drainage systems, land reclamation and low-yield land improvements along the Aksu River which originates in the Kyrgyz Republic and the Kashgar River which originates in the Kyrgyz Republic and in Tajikistan. At the Project Concept Review Meeting (held on February 20, 1997) it was decided to request an exception to the requirement that the two upstream riparian states be notified of the Project and that the exception be sought on the basis of paragraph 7.(a), "Exceptions to Notification Requirement" of OP 7.50, "Projects on International Waters". Para. 7.(a) of OP 7.50 provides that the notification to the other riparian states of a proposed Project is not required if the Project involves minor additions or alterations to an existing scheme that require rehabilitation, construction or other changes that in the judgment of the Bank: (i) will not adversely change the quality or quantity of water flows to the other riparians; and (ii) will not be adversely affected by the other riparians' possible water use. The East Asia and Pacific Regional Vice President approved the exception on August 18, 1997. The subprojects to be built as a part of the Tarim Basin II Project in the Aksu and Kashgar drainages are rehabilitation and modification of existing schemes, and not new projects. The amount of water diverted from these rivers would not be increased. The civil works would include rehabilitation of main and secondary systems (lining of canals, etc.), and construction of tertiary irrigation and drainage systems to develop some additional dry land and to improve low-yield lands. A specific preparation requirement of the Project is that additional consumptive use of water on agricultural lands be offset by improvements in efficiencies (reduction in losses) of existing irrigation and drainage systems such that the net impact on the rivers is zero. As this Project is located in China, the downstream riparian state, it will have no impact whatsoever on the quality or quantity of the water flows to the two upstream riparians. Although it is theoretically  Page 21 possible that the Project could be affected by any use which the upstream riparians might make of t1he water flows, the likelihood of such an effect is nil at the present time and for the foreseeable future. OD 4.20.1 A Local Beneficiaries Participatory Development Plan was prepared by the PMO and is included in Annex 5 of the PIP. A summary of the plan is provided in Annex 11. Almost ninety percent of the Project beneficiaries belong to minority nationalities which thus are the primary target group of the Project. For this reason, the plan is primarily but not exclusively geared towards the minority nationalities in the Project area. The purpose of the plan is to help ensure a culturally compatible development in the Project areas where primarily minority nationalities live, based on the informed participation of the beneficiaries themselves. It intends to establish a participatory mechanism in Project management, with clear regulations and rules for beneficiaries participation in all of the Project's processes. It also aims at building farmers' commitment and capacity to participate in Project decision-making. The plan specifies what institutional arrangements will be addressed and incorporated in the Project for its intended beneficiaries, how they will be carried out and monitored, and how farmers will be able to manage the process of change as the Project is implemented. In order to coordinate and encourage local development in line with the Project process, the PIVK prepared the Local Beneficiaries Participatory Development Plan and takes responsibility for putting it into practice. It is based on the outcomes of a Social Assessment Study carried out by the Economic Institute, Academy of Science of Xinjiang. In the Project process, the PMOs at the various levels will fulfill their duties in the following aspects: (1) disseminate among the rural households about the Project aims, scopes, contents/ components, schedules/timing, and implementation arrangements, so that local beneficiaries caik make their own choices regarding Project activities and make decisions on arrangement of Project components; (2) pay special attention to social issues identified in relation to Project design and implementation, resettlement (voluntary and involuntary, if applicable), adjustment of water charges, land allocation, etc., so as to adapt the Project components to local circumstances and needs and avoid or minimize any possible negative impact; (3) coordinate and arrange farmers' labor input, collected funds, and other kinds of private investment in the Project; (4) supervise allocation of reclaimed and improved land to farmers; (5) supervise training programs for beneficiaries; (6) gain feedback information from beneficiaries and incorporate it into Project evaluation and management; (7) monitor Project benefits. ' For this project, the term "ethnic minorities" as used in OD 4.20 has the same meaning as the term "Minority Nationalities" referred to in the Chinese Constitution.  Page 22 OD 430, Involuntary Resettlement. At the time of appraisal no involuntary resettlement needs could be identified. The Project contains components of water conservancy, land reclamation, low-yield land improvement, construction of wellfields and power plants, transmission lines and buildings, which could but are unlikely to, adversely affect individuals or communal land or housing. Most of the construction will take place in uninhabited wasteland (notably Xinir Reservoir, the wellfields, power plants and most of the canals) around the villages and townships. The designs for the main canals have been completed and it was shown that they will not necessitate any resettlement. Designs of lower-level canals and drains, however, can be finalized only during the Project and although no resettlement due to these structures is anticipated at this stage, in case such would occur Resettlement Framework Guidelines have been developed by the XUAR Government and approved by the Bank. The Guidelines are in full compliance with OD 4.30 and with Chinese laws and regulations. If during implementation it is found that land acquisition or adverse effects occur to people due to civil works (including canals, drains, wells, power plants, transmission lines, buildings, etc.) in the Project areas, the government of XUAR will develop a resettlement action plan on the basis of these Guidelines to ensure equitable and effective treatment of resettlement issues under the Project. Annex 7 to the PIP provides the Settlement Framework Guidelines. Voluntary Settlement. A voluntary settlement component is included in the Project in Keping County in Aksu Prefecture. The voluntary settlement will affect 2,000 households or an estimated 10,000 people. Annex 6 to the PIP provides the "Keping Voluntary Settlement Action Plan", and Annex 12 provides a summary of the plan. T-he objective of the voluntary settlement is to improve poor farmers' living standards. Keping County is designated as a national poverty county. The area from which farmers will move out has very limited land and water resources which result in poor agricultural yields and very low farmer incomes. Relocation of part of the farm population from the arid basin to a newly established irrigation district is the only way to mitigate population tension and poverty pressure. There are two groups of beneficiaries: (a) those poor farmers who will relocate and be provided with a new and better livelihood in the Project area; and (b) those poor farmers who stay behind in a situation of less population pressure and resource scarcity. Settlers will be selected on the basis of demonstrated need and only those that desire to relocate and apply will be considered. OP 4.37, Safety of Dams. An independent review panel will review the design and implementation of Xinir Reservoir. A suitable construction supervision plan for Xinir Reservoir has been adopted. Existing dams that serve water to Project facilities will be inspected by an independent review panel and remedial actions will be carried out to ensure their sustained and safe operation. OP/BP 10.02 Financial Management. During appraisal the financial management systems to be used during Project implementation were reviewed and found to be acceptable. Acceptable financial management, account control, financial management reports and auditing procedures have been adopted for use during the implementation of the Project. Annex 8 to the PIP presents a Financial Management System Manual (FMSM) with all the necessary details for these aspects. The PMOs at each level (Region, prefecture, county) have qualified and experienced staff to produce reliable accounts on Project activities in a timely manner. The FMSM indicates: (a) clear lines of authority, well-defined responsibilities and appropriate segregation of duties for the PMO Chief, the Finance Division Chief, the Project Accountant, the Disbursement Officer and the Cashier; (b) clear written standards and procedures for financial management, account control and auditing; (c) clear policies and procedures for management of the special account; (d) procedures for easily available access to supporting documentation on Statements of Expenditures (SOEs); (e) clear plans and procedures on the sources and management of counterpart funds at each level; (f) clear control and management of assets, including fixed assets, cash, bank accounts, inventories, accounts receivable, intangible assets and deferred assets at  Page 23 each level; (g) clear control and management of expenditures and disbursements. As presented in the FMSM financial statements will be prepared and provided to the Bank, including: (a) sources and uses of funds; (b) costs by activities showing actual, budgeted and variances; (c) statement of unit variances comparing actual and planned quantities and costs; (d) Project expenditure forecasts for six months of activities; (e) special account reconciliation statement; (f) statement of expenditures by disbursement category; (g) balance sheet; (h) current account breakdown; (i) procurement report; (j) Project progress report including both physical and financial, monitoring and evaluation, and key performance indicators. Task Team Leader/Task Manager: Douglas Olson 2 7 - Sector Manager/Director: Geoffrey B. Fox / Country Manager/Director: Yukon Huang  Annex I Project Design Summary China: Tarim Basin II Project NarCati Ve Summary Key Performance Monitoring and Evaluation Critical Assumptions Indicators I CAS Ch$eetives: (Goal to Bank Mission) 1. Sustainable 1. Improved institutional 1. Adequate laws in - Stable political develop,ment an d arrangements for water existence; Annual review transition and -mianagement of water and resources management of statistics from Ministry maintenance of overall other natural resources. implemented; increased of Agriculture, Ministry of reform program in water availability; more Water Resources, and post-Deng era efficient water use and provincial government management data - Govemment maintains focus on 2. Pove alieviation 2. Reduction in poverty 2. Comparison of census improved water level of participating indicators resources and land (see footnotel) households; management - No large extemal shocks that would affect terms of trade, current account balance or foreign exchange rates lFroject Development (Objective to Goal) I. Estabolish mechanisms 1. Water use allocations Project Impact Evaluation 1. Financial and social for sus"'a-nable use, for the subbasins are through: sustainability of water development and established and met in management managemeI^t of water and order to maintain flows to - Water and salt subprojects land reso-urces in the the Tarim river monitoring data from |Tarirn Rasin Project monitoring system in annual progress reports 2. Increase in incomes of 2 a. Changes in household - Activity reports by new 2 a. Adequate ru-ral poor minority incomes of a longitudinal water management development and farm'ers through irrigated stratified random sample institutions; implementation agriculture development of households who will capacity by new water and access to more land. participate in the Project - prefecture/provincial management as compared to a similar statistics organizations sample of households not participating in the Project The sector-specific instruments mentioned in the CAS to achieve these objectives are: a) Promotion of better utilization of marginal agricultural land through sustainable techniques, b) Incorporation of major water schemes into future projects that include institutional reform and user participation as integral components, c) Targeting of the absolute poor through a series of investment projects.  2 b. Net economic benefits - Baseline surveys will be 2 b. Appropriate of increased agricultural carried out during the first targeting of Project production year of the Project, prior to interventions to rural new land being brought poor/minority 2 c. Number of households into production and then households having received reclaimed followed up every two land. years thereafter. The surveys will be longitudinal, i.e. the same households will be surveyed over the years. 3. Preservation and partial 3. Amount of water - Bi-annual Bank missions 3 a. River training and restoration of the "green delivered below Daxihaizi water savings measures corridor" in the lower Reservoir. are sufficient to reaches of the Tarim generate expected River water savings 3 b. Increases in agricultural CU will not be more than offset by decreases in non- beneficial CU Outputs: (Outputs to Objective) 1. Agricultural production 1. Total and per mu - county and township - Product prices, on lands reclaimed for agricultural production in statistics especially for cotton, irrigation reclaimed areas are sufficient to - Results of household generate net benefits 2. Yields improved on 2. Total and per mu income surveys for households low-yield lands agricultural production in improved areas 3. Restructured water 3. Following is in place: - Activity reports by new - Farmers have management set-up for TBWRC, WSCs and water management sufficient incentives for the Tarim Basin, WUAs completely institutions land improvements, including a) strengthening institutionalized, water loan repayment and to of Tarim Basin Water charges cover all costs - Meetings with take over O&M of Resources Commission, including depreciation; representatives of Project facilities b) strengthening of monitoring and financial TBWRC, WSC & WUA hydrological monitoring systems are in place. during Bank missions - Sub-basin prefectures system, and c) upstream and decentralization of downstream cooperate decision making to in TBWRC appropriate levels, d) adequate financing system  Project Inputs: (budget for each (Components to Components/Sub- component) Outputs) components: (see Annex 2 for Project description) 1. Water Conservancy la. Irrigation and drainage Project MIS; annual Key inputs are measures including systems installed in progress reports available. irrigation and drainage Bayingol area. (US$17.5 system rehabilitation and million) Disbursement Records PMO personnel is improvements adequate in number and lb. Irrigation and drainage Audit Reports capacity systems installed in Aksu area. (US$45.9 million) Bank missions The Project is owned by the different layers I c. Irrigation and drainage Physical inspection of stakeholders systems installed in (communities/farmers/p Kashgar area. (US$26.2 Group of local experts; refectures/provincial million) annual reviews together government) with international experts 1 d. Irrigation and Counterpart funding is drainage systems installed Beijing-based Bank staff; available on time in Kizilsu area. (US$17.4 annual specific million) supervision of disbursement and 1 e. Irrigation and procurement drainage systems installed in Hotan area. (US$13.3 million) 2. Land reclamation for 2 a. Land reclamation irrigation purposes of completed in Bayingol presently non-productive area and land transferred lands with a total area of to farmers. (US$8.0 75,350 hectares million) 2 b. Land reclamation completed in Aksu area and land transferred to farmers. (US$21.5 million) 2 c. Land reclamation completed in Kashgar area and land transferred to farmers. (US$18.6 million) 2 d. Land reclamation completed in Kizilsu area and land transferred to farmers. (US$5.7 million)  2 e. Land reclamation completed in Hotan area and land transferred to farmers. (US$6.9 million) 3. Land improvement of 3 a. Low-yield lands presently low-yield improved in Bayingol irrigated lands with a total area. (US$5.0 million) area of 105,350 hectares. 3 b. Low-yield lands improved in Aksu area. (US$8.5 million) 3 c. Low-yield lands improved in Kashgar area. (US$7.0 million) 3 d. Low-yield lands improved in Kizilsu area. (US$3.0 million) 3 e. Low-yield lands improved in Hotan area. (US$5.6 million) 4. Agricultural support 4.1 a Completion of Progress reports from services investments in fixed prefectural PMOs Agricultural Hardware infrastructure 4.1 Seed production, 4.1 b Financial status of Financial statements of processing and enterprises enterprises distribution 4.1 c Availability of Longitudinal household improved seed in Project surveys areas 4.2 Agricultural extension 4.2 a Completion of PMO progress reports infrastructure investments in fixed infrastructure 4.2 b Improved delivery of Longitudinal household services surveys 4.3 Agricultural 4.3.a Procurement of PMO progress reports mechanization equipment 4.3 b Improved Longitudinal surveys availability of mechanical equipment  4.4 Fertilizer mixing 4.4 a Completion of PMO reports stations feasibility studies 4.4 b Completion of PMO reports investments in fixed infrastructure 4.4 c Financial status of Financial statements of enterprises enterprises 4.4 d Increased availability Household surveys of compound fertilizer in Project areas 4.5 Livestock 4.5 a Procurement of stock PMO reports development in accordance with plans 4.5 b Increased availability PMO reports of livestock in Project Household surveys areas Agricultural Software 4.6 International Study 4.6 Completion of tours in PMO reports Tours accordance with plans 4.7 Domestic Study Tours 4.7 Completion of tours in PMO reports accordance with plans 4.8 Domestic Training 4.8 a Completion of PMO reports (IPM) training programs in accordance with plans 4.8 b Increased awareness Household surveys of IPM approach 4.8 c Changes in agro- township and county data chemical consumption household surveys patterns 4.8 d Compliance of township and county data extension stores with national agro-chemical guidelines 4.9 Domestic Training 4.9 a Completion of PMO reports (other) training programs in accordance with plans  4.9 b Dissemination of Household surveys training messages amongst farmers 4.10 Research 4.10 Completion of PMO reports research topics (Total allocation: US$16.8 million) 5. Environmental 5. a Tarim Basin Master PMO reports Protection and Plan finalized by end of Monitoring year 1. mainly geared toward monitoring of quality and 5. b Tarim Basin Master Physical inspection quantity of ground and Plan implemented: surface water. Environmental monitoring stations and facilities have been set up at appropriate sites. Data are available in a timely manner. (Total allocation: US$10.8 million) 6. Institutional Development and Support 6.1 Establishment of Self- 6.1 a. By April 2000, at PMO reports financing Irrigation and least one SIDD pilot is Drainage Districts established and Financial statements of (SIDD) including WlAs. functioning in each WSCs and WUAs prefecture. Household surveys 6.1 b. Study tours undertaken by appropriate staff of implementing Workshop report agencies and WUAs according to Project plans. 6.1 c A workshop held in April 2000 to evaluate the pilot and decide on expansion. Total allocation: US$ 0.72 million  6.2 Applied 6.2 a Research and PMO reports Research&Development development services and Studies for adaptive completed and functioning and applied research in Bayingol, Aksu, designed to improve the Kashgar, Kizilsu, and irrigation, drainage, Hotan prefectures. agricultural and environmental conditions 6.2 b Research results PMO reports and efficiency. published (when applicable) and disseminated. Total allocation: US$ 2.79 million 6.3 Training and 6.3 a Specified number of PMO reports Technical Assistance to study tours undertaken to strengthen the technical the appropriate and institutional features destinations. of the Project and to ensure its sustainability 6.3 b Specified number of PMO reports farmers, WUA, WSC, TBWRC and PMO staff at all levels trained 6.3 c Adequate number of PMO reports women trained Household and focus group surveys Total allocation: US$ 3.43million 6.4 Management 6.4 a All hardware and PMO reports Information System to software installed. support the development, testing and installation of 6.4 b MIS is functioning Physical inspection a complete MIS for the and reports, planning, prefectures including report generation as well both hardware and as use of databases takes software. place on a continuing basis. Total allocation: US$ 8.28 million  7. Tarim Basin Water 7 a TBWRC is created and PMO reports Resources Commission carries out its duties with Support to create and respect to planning, policy TBWRC reports strengthen TBWRC; setting and overall includes Tarim River management of water and Works related natural resources for river training and of the Tarim Basin flood control measures on (US$ 5.4 million) mainstream of the Tarim River to improve water 7 b All Tarim River works management and delivery components are completed of water to the lower and functioning according reaches. to the design and specifications of the component (US$7.4 million) Total allocation: US$12.8 million 8. Regional 8. a All hardware and PMO reports Management software installed. component to support the Physical inspection development, testing and 8. b MIS is functioning installation of a complete and reports, planning, MIS for the Project report generation as well including both hardware as use of databases takes and software; to establish place on a continuing Regional training centers; basis. and to provide institutional development 8. c Regional training support to the prefectures, centers in Urumqi are incl. training, TA and established and study tours. functioning. 8. d The existing training center in Kashgar is rehabilitated and functioning. 8. e The respective study tours, training and research are carried out. (Total allocation: US$6.9 million)  Annex 2 Tarim Basin II Project Detailed Project Description The Project will operate in five prefectures, 22 counties of southern Xinjiang Uygur Autonomous Region (XUAR) in the Tarim River Basin in the subbasins of the Hotan, Kashgar and Aksu rivers (tributaries to the Tarim River) and the Kaidu/Konque river subbasin (a separate river system from the Tarim), and the area of the Tarim River mainstream, which is located in two of the same prefectures. 1. Water Conservancy - US$120.3 million Works include construction of 3 headworks diversion structures, construction or improvement of about 740 km of trunk and main canals, excavation of around 850 km of main drains, construction of 1 reservoir with capacities of 98 Mm3, establishment or expansion of 14 wellfields with a total of about 700 wells with associated canal systems, and provision of a 2.5 m3/s pumping station. Electrical power would be increased through provision of two hydropower stations of 6 and 4 MW capacity respectively, and provision of 112 km of transmission lines and transformers. The features of the water conservation work to be carried out in Tarim II, are presented in the following table. A detailed tabulation of all water conservancy, land reclamation, low-yield land improvement, and river engineering works to be implemented under Tarim II is presented in Annex 2 of the PIP. Bayingol Aksu Kashgar Kizilsu Hotan Total Headworks (No.) 2 1 3 Trunk/main canals (no./length)* 2/50 10/246 12/253 7/104 6/86 37/739 Main drains (km) 8 239 473 88 40 847 Reservoirs (No.) and live 1/98 - - - - 1/98 storage (Mm3) Wellfields (No.) and well 1/79 3/179 3/150 2/90 5/198 14/696 numbers (No.) Pumping stations (No.) and - 1/2.5 - - - 1/2.5 capacity (m3/s) Hydropower stations (kW) 4,000 6,000 10,000 Transmission line (km) 38 213 25 276 *Trunk and main canals include an unspecified number of hydraulic structures. About 700 km of canals will be lined, of which 433 km with the use of 0.5 mm thick welded sheets of geomembrane protected by concrete or local materials. The proposed types of canals for the Project include cast in-situ concrete; geomembrane with precast concrete; cobble with mortar; geomembrane with cast-in-situ concrete; geomembrane with dry cobble; geomembrane with cobble and mortar; geomembrane with earth; and geomembrane with grass turf. The proposed general work for each prefecture is as follows: Bayingol Prefecture - US$17.5 million The Bayingol Prefecture water conservation components would include enlargement and top lining of the side slopes of the Korla-Tarim (Korta) Canal - Work will consist of raising the existing lining for 17.8 km to increase the design flow of the Korla-Tarim Main Canal from 30 to 35 m3/s. Also the West Main Canal with a length of 32.1 km will be rehabilitated. The existing lining installed between 1993 and 1995, consisting of precast concrete panels, has experienced problems from high ground water, frost heave, and problems with algae growing in the bottom of the canal. The precast concrete lining segments will be removed and a geomembrane  placed over a sand and gravel layer about 40 cm thick, and the precast concrete panels will be replaced as a protective cover for the geomembrane. To provide additional irrigation storage and hydropower from the irrigation water releases, the Xinir dam and regulating reservoir will be constructed with a live storage capacity of 98 Mm3. The dam will have a maximum height of 18 m and a length of 12.2 km. Aksu Prefecture - US$45.9 million The Aksu Prefecture will improve or reconstruct the whole or sections of 10 main canals, 246 km in length with capacities ranging from 6 to 65 m3/s together with the associated structures. Two hundred thirty nine kilometers of main drains will be excavated with capacities ranging from 0.4 to 4 m3/s. A pump station will be constructed at Laoqilang with a capacity of 2.5 m3/s and a 6 km of canal to serve 2650 ha of irrigation land. Wellfields will be established at three locations with a total of 179 wells, associated canals, structures and powerlines. Kashgar Prefecture - US$26.2 million The work in the Kashgar Prefecture includes work to improve or rehabilitate two headworks structures, the Tashimilike (80 m3/s) and the Mihuali (75 m3/s); reconstruct two trunk canals with capacities of 60 and 75 m3/s, with a total length of 32.5 kin; and ten main canals, 217 km in length, with capacities from 15 to 60 m3/s to be lined. Drainage improvement would include excavation or improvement of about 473 km of drains with capacities of 1.5 to 8 m3/s. Three wellfields would be established with a total of 150 wells, associated irrigation canals, structures and power lines. Kizilsu Prefecture - US$17.4 million The Kizilsu Prefecture work includes construction of the Qiakmake headworks to increase its capacity from 30 to 40 m3/s. The Mihuali headworks discussed in Kashgar Prefecture is a shared structure between the two prefectures and will provide benefits for Kizilsu as well. The work includes lining of a portion of a main trunk canal, the Kushan Main General Canal, which is a shared use with Kashgar Prefecture and six additional main canals. Hotan Prefecture - US$13.3 million Work to be accomplished in the Hotan Prefecture includes lining six main canals with capacities ranging from 5 to 60 m3/s and a flood channel with a capacity of 80 m3/s with a total length of 87 km, and including the construction of 34 hydraulic structures. Drainage includes excavation and rehabilitation of two main drains increasing their capacities from 0.5 to 1 m3/s and 0.46 to 2 m3/s respectively over a total length of 40 km. Wellfields would be established at 5 locations with a total of 198 wells and the associated irrigation canals, structures and power lines. 2. Land Reclamation - US$60.7 million Reclamation of presently non-irrigated land would cover 75,334 ha. Land reclamation would involve bringing into irrigated cultivation areas of wasteland within or adjoining existing oases. The following table summarizes the land reclamation investments for all prefectures. Land Reclamation Bayingol Aksu Kashgar Kizilsu Hotan Total Land reclamation area (ha) 10,000 22,667 26,667 8,000 8,000 75,334 Lateral canal (km) 103.48 373.3 419.8 143 190.5 1,230.08 Lined (km) 103.48 47.4 419.8 143 190.5 904.18 Field canal (km) 522.8 686.8 839.6 396 440 2,885.2 Lined (km) 839.6 48 887.6 Structures (no.) 853 3,280 3,275 1,390 5,960 14,758 Roads (km) 1,002 363.3 384 365.3 2,114.6  Bayingol Prefecture - US$8.0 million Land reclamation will cover an area of 10,000 ha and will include about: (a) 625 km of canals of which 103 km will be lateral canals and 522 km will be field canals; (b) 303 km of drains of which 44 will be lateral drains and 259 will be field drains; (c) 745 bridges and 334 gates; and (d) 1,768 ha of land leveling. Aksu Prefecture - US$21.5 million Land reclamation will cover an area of 22,700 ha and will include about: (a) 1060 km of canals of which 373 km will be lateral canals, and 687 km will be field canals; (b) 841 km of drains of which 265 will be lateral drains and 576 will be field drains; (c) 1120 bridges, 765 culverts and 1305 gates; (d) 42,000,000 m3 of land leveling; and (e) 1002 km of farm roads. Kashgar Prefecture - US$18.6 million Land reclamation will cover an area of 26,670 ha and will include about: (a) 1526 km of canals of which 266 km will be branch canals, 420 km will be lateral canals, and 840 km will be field canals; (b) 947 km of drains of which 92 will be branch drains, 244 will be lateral drains and 611 will be field drains; (c) 409 bridges, 1504 culverts and 1206 gates; (d) 20,000,000 m3 of land leveling; and (e) 363 km of farm roads. Kizilsu Prefecture - US$5.7 million Land reclamation will cover an area of 8,000 ha and will include about: (a) 661 km of canals of which of which 122 km will be branch canals and 143 km will be lateral canals, and 396 km will be field canals; (b) 375 km of drains of which 58 will be branch drains, 151 will be lateral drains and 168 will be field drains; (c) 732 culverts and 658 gates; (d) 8,000 ha of land leveling; and (e) 595 km of farm roads. Hotan Prefecture - US$6.9 million Land reclamation will cover an area of 8,000 ha and will include about: (a) 723 km of canals of which 93 km will be branch canals, 190 km will be lateral canals, and 440 km will be field canals; (b) 108 km of lateral drains; (c) 233 bridges, 213 culverts and 5514 gates; (d) 7,000,000 m3 of land leveling; and (e) 365 km of farm roads. 3. Low-Yield Land Improvement - US$29.1 million Low-yield land improvement would cover an area of 105,334 ha. Improvement would focus on areas where yields are presently low due to high watertables, salinity and inadequate land leveling. The following table provides a summary of the investments. Low-yield Land Improvement Bayingol Aksu Kashgar Kizilsu Hotan Total Improvement area (ha) 16,667 32,000 26,667 10,000 20,000 105,334 Lateral canal (km) 136.23 259 54.13 144 475 1,068.36 Lined (km) 136.33 54.13 144 160 494.46 Field canal (km) 375.24 413 138.9 365 867 2,159.14 Lined (km) 138.9 315 453.9 Structures (no.) 1,388 1,456 735 1052 300 4,959 Roads (km) 268 268  Bayingol Prefecture - US$5.0 million Low-yield land improvement will cover an area of 16,670 ha and will include about: (a) 511 km of canals of which 136 km will be lateral canals and 375 km will be field canals; (b) 842 km of drains of which 145 will be lateral drains and 697 will be field drains; (c) 333 bridges, 811 culverts and 1055 gates; and (d) 1,333 ha of land leveling. Aksu Prefecture - US$8.5 million Low-yield land improvement will cover an area of 32,000 ha and will include about: (a) 672 km of canals of which 259 km will be lateral canals, and 413 km will be field canals; (b) 834 km of drains of which 310 will be lateral drains and 524 will be field drains; (c) 283 bridges, 605 culverts and 568 gates; and (d) 21,000,000 m3 of land leveling. Kashgar Prefecture - US$7.0 million Low-yield land improvement will cover an area of 26,670 ha and will include about: (a) 192 km of canals of which 54 km will be branch canals 138 km will be lateral canals, and 93 km will be field canals; (b) 929 km of drains of which 507 will be branch drains, 177 will be lateral drains and 245 will be field drains; (c) 6 bridges, 527 culverts and 629 gates; and (d) 11,700,000 m3 of land leveling. Kizilsu Prefecture - US$3.0 million Low-yield land improvement will cover an area of 10,000 ha and will include about: (a) 509 km of canals of which 144 km will be lateral canals, and 365 km will be field canals; (b) 598 km of drains of which 36 will be branch drains, 162 will be lateral drains and 401 will be field drains; (c) 427 culverts and 626 gates; and (d) 10,000 ha of land leveling. Hotan Prefecture - US$5.6 million Low-yield land improvement will cover an area of 20,000 ha and will include about: (a) 1342 km of canals of which 475 km will be lateral canals and 867 km will be field canals; (b) 240 km of lateral drains; (c) 300 culverts; and (d) 20,000 ha of land leveling. 4. Agriculture Support Services - US$16.8 million Cropping Patterns. Crop production on wasteland reclaimed under the Project and incremental production on low-yield areas improved under the Project will be virtually the sole source of financial and economic benefits to justify the investments. Cropping patterns will be similar to those presently employed in the areas, with some adjustment to allow for continuing salinity problems in the early years of the Project. The main crops in all areas will be grains (mainly wheat) and cotton which, in general, will account for around 80% of sown area. Other crops include vegetables, fruits and other cash crops such as alfalfa, the patterns of which vary according to region and proximity to markets. To build up soil organic matter, planting of green manure crops is being encouraged by extension agents. Based on current practices, it is expected that around 20% of total sown area will be used for green manure production in any given year. The most popular method of green manure production is through the planting of clover as a second crop to wheat. As mentioned, alfalfa is also planted but it is not as attractive to farmers as an annual manure crop. The projected cropping patterns in the Project counties presently and after completion of the Project are shown in the table:  Percentage of Cultivated Land Planted per Crop Grain Cotton Other (wheat + corn) Bayingol Prefecture Current 52% 20% 20% Future 51% 32% 17% Aksu Prefecture Current 53% 36% 11% Future 51% 38% 11% Kisilzu Prefecture Current 44% 21% 8% Future 58% 28% 14% Kashgar Prefecture Current 50% 30% 20% Future 40% 40% 20% Hotan Prefecture Current Future 40% 40% 20% To exercise primary control over pest build-up, all counties will monitor cotton plantings so that if they are likely to exceed 40% of planted area within their respective counties, they will take measures to limit plantings to appropriate levels. Most of the grain crop will be wheat which, on average, will account for around 40% of cultivated area. The other main grain crop is maize, either double cropped with wheat or planted after it. Rice would be grown, particularly as a reclamation crop, in all the prefectures, except Hotan, and sugar beet in Bayingol and Aksu during the reclamation of saline soil areas. Forage/green manure would take up about 20 - 25% of crop area but most green manure is clover planted as s second crop to wheat rather than alfalfa (which generally only accounts for around 5% or less of total cropped area). Regarding the distribution of reclaimed waste land; current practice is for 70% of new land to be made available for allocation to individual farm families and the remaining 30% being allocated to township enterprises and collectives and this will be followed for new land created as a result of the Project. New land will be provided preferentially to the poorest families within the vicinity and, to the extent possible, the areas of land allocated will be consistent with the labor and other resources available to the recipients. In support of the agricultural development of reclaimed land and improvement of low-yield land, the Project would finance investments to fill critical gaps in local agricultural support services. The types of investments vary from prefecture to prefecture depending on local conditions but, in general, they include some or all of the following: (a) improvements in seed production, processing and distribution. The scope of investments varies between the prefectures but they are mainly directed at improving breeding and multiplication of hybrid seed for cotton and grains, improved processing and quality assurance and improved storage and distribution. The seed production, processing and distribution investments would strengthen the capacity of existing facilities to meet farmers' requirements for improved seeds. The bulk of seed production will be by local farmers contracted to the seed corporations, the latter being mainly responsible for seed processing, testing, quality control and distribution; (b) improvements in prefectural and county level agricultural extension infrastructure. Investments will include rehabilitation of existing or construction of new county and township level extension stations, provision of office equipment, development of improved soil testing services and provision of vehicles. All prefectures have included funds which will be used for procurement of training equipment and materials required for an augmented Integrated Pest Management training program which will be implemented under the Project;  (c) procurement of farm machinery. Some prefectures have insufficient machinery available to handle incremental demands due to the newly reclaimed land. Following existing practices, they propose to procure additional machinery through Township Agricultural Machinery Stations (TAMS) for distribution to suitably technically and financially qualified farmers on a rental (with an option to buy) basis for use on their own farms and under contract on other farms. Rental periods may be up to four years. (d) livestock investments. Livestock developments are included in three prefectures (Bayingol, Aksu and Hotan) where it is considered that there are insufficient numbers to maintain the guideline stocking rate of one sheep per mu which is considered necessary to supply adequate quantities of animal manure to meet soil requirements. (e) fertilizer mixing stations. Three prefectures have proposed development of 30,000 tons/annum fertilizer mixing stations to improve the availability of compound fertilizers in the Project areas. These investments have been agreed to in principal but final approval to disburse funds will be dependent on the successful outcome of feasibility studies, including market assessments, which will be carried out by consultants during the initial stages of the Project. (f) agricultural software (applied research, training, study tours and technical assistance). Each prefecture has fonnulated a software program, the overall cost of which is proportional to the cost of total investments in their prefecture and which was distributed so as to provide an acceptable balance between research, training and study tours with the emphasis on the first two. Local technical assistance will be utilized for design of applied research programs and development and delivery of short term training programs. The cost for this has been incorporated into the costs for each component. The proposals for training and study tours are outlined below. The applied research proposals are outlined in Section 1.5. The total Project cost for agriculture support services for each of the prefectures is: Bayingol Prefecture - US$1.0 million Aksu Prefecture - US$6.4 million Kashgar Prefecture - US$4.5 million Kizilsu Prefecture - US$2.5 million Hotan Prefecture - US$2.4 million The proposals for each prefecture under each of the above categories are summarized in the following sections. Seed Production, Processing and Distribution Prefecture Components Bayingol 1. Development of 235 ha. of seed production base for breeding of foundation seed to produce 1,000 tpa of wheat, cotton and corn seed to be used in multiplication farms; 2. Development of seed testing center and laboratory including procurement of lab equipment for testing seed from multiplication farms Aksu 1. Development of a new production base for introduction and development of improved varieties including: offices and staff quarters; warehouse; drying floor; vehicle and small farm machinery; and associated infrastructure. 2. Establishment of a prefecture level breeding, experimental and multiplication station with 3 related county level breeding stations (out of five Project counties) to produce grain and cotton seeds. Production rate will be 2,250 t of rice seed, 4,000 t cotton seed, 5900 t wheat seed. 3. Expansion of existing acid delinting plants in 3 Counties plus one additional new processing plant (saw grinding).in a fourth county. Investments include: offices and staff quarters; drying floors; and processing equipment 4. Expansion of a prefectural level seed coating factory including: offices and warehouses; drying floor; and coating equipment. 5. Development of a new, county level cotton gin including: offices; warehouse; drying floor; and seed processing equipment. 6. Upgrade seed supply stations in 11 townships including provision of: offices  Seed Production, Processing and Distribution Prefecture Components and warehouses; drying floors; minor infrastructure; and laboratory and farm equipment. Kisilzu 1. establishment of 290 ha. seed production base 2. development of two new county level seed processing factories including: processing workshop and seed storage (1,200 sq.m.); dryers and coating equipment (2 sets); and, drying floors (4,000 sq.m.). 3. Establishment of two new county level seed distribution centers including: laboratory (400 sq.m.); testing equipment; seed distribution center (400 sq.m.); and, seed storage and workshop (1,200 sq.m.). Kashgar 1. County level seed testing centers consisting of (in each county): seed testing laboratory construction (350 sq.m.); and, simple testing equipment (one set). 2. New prefectural seed testing center consisting of: building (2,000 sq.m.); analytical instruments (11 sets); vehicles (2). 3. Seed processing and distribution centers in five Counties including: buildings (1,000 sq.m. ea.); testing equipment (5 sets). Hotan 1. prefecture level breeding farm including: warehouse (590 sq.m.); drying floors (400 sq.m.); machinery and vehicles; and small scale infrastructure 2. upgrade 3 county supply stations including: buildings (1,060 sq.m.); equipment, machinery and vehicles (2) 3. upgrade 6 township supply stations including: buildings (700 sq.m.); drying floors (800 sq.m.); laboratory equipment; tractors (2 x 40 kW); and small infrastructure. Agricultural Extension Services Prefecture Component Bayingol 1. New training rooms and soil testing laboratories (100 sq.m.) in six county level extension centers 2. improve existing station in Heshuo County including provision of analytical and office equipment; 3. establishment of comprehensive prefectural experimental center to carry out soil and plant tissue analysis (230 sq.m.) 4. provision of vehicles for six county extensions stations.. Aksu 1. improve prefectural extension station including offices and warehouse (800 sq.m.) 2. Improve one county extension station; 3. establish 2 new township extension stations including sales department and warehouse (2,210 sq.m.) and field trial areas (23 ha.) 4. Improve 17 existing township extension stations including sales department and warehouses (7,394 sq.m.); field trial areas (200 ha.); provision of soil testing equipment; and farm machinery. Kisilzu 1. development of 2 new county technical stations including: offices (2 @ 1,000 sq.m.); laboratories; training rooms; office and analytical equipment. Kashgar 1. new extension stations in 5 counties including: buildings (5,000 sq.m.) and office/ analytical equipment (5 sets); 2. new extension technical stations in 16 townships including: buildings (6,400 sq.m.) and office/analytical equipment 3. new prefectural training center including buildings (2,000 sq.m.) and training and office equipment.  Hotan 1. upgrade 3 county agricultural technical stations with office equipment and motorcycles (8 sets) 2. development of new prefectural testing center including: building (700 sq.m.); instruments 3. rehabilitation of 6 township agricultural technical stations including: buildings (960 sq.m.); instruments; and, tractors (5 x 25 kW). Farm Machinery Prefecture Component Kisilzu Tractors and attachments (15 sets) Kashgar 1. Tractors and attachments (90 sets) 2. Rehabilitation of Yuepuhu agricultural service machinery center including construction of 3,000 sq.m. workshop and provision of service machinery (lathes, etc.) Note: All prefectures have allocated an allowance of 0.5 million Yuan as their contribution to procurement of one unit of small scale laser leveling equipment for demonstration and training purposes Livestock Prefecture Component Bayingol 1. procurement of 6000 breeding stock Aksu 1. procurement of breeding stock - 180 to begin with for distribution to breeding farmers. There is an additional provision for purchase of an additional 3,600 head at a later date subject to the outcome of the initial pilot program. Kisilzu 1. improved fodder production facilities 2. rehabilitation of breeding station Hotan 1. development of breeding station and stables (1,280 sq.m.), procurement of Al equipment and procurement of breeding stock (6,000 head); 2. development of alfalfa production base (2,000 ha.) Fertilizers Prefecture Activities Aksu Provision of contingency funds for development of 30,000 ton per annum fertilizer Kashgar mixing stations in each prefecture subject to the outcomes of further technical, Hotan financial and marketing studies. 5. Environmental Protection and Monitoring - US$10.8 million All prefectures have included environmental monitoring, in particular, quality and quantity of ground and surface water, and draft monitoring proposals have been prepared. These proposals and plans will be reviewed as part of the development of the Masterplan for the Tarim Basin and, subject to any changes arising out of the review, implementation will commence during the second Project year. Far more detailed environmental monitoring has been proposed in the vicinity of Bosten Lake, in Bayingol Prefecture and this will be financed under the Project. The total Project cost for environmental protection and monitoring for each of the prefectures is: Bayingol Prefecture - US$1.2 million Aksu Prefecture - US$2.2 million Kashgar Prefecture - US$4.6 million Kizilsu Prefecture - US$1.7 million Hotan Prefecture - US$1.1 million  Water and salt monitoring programs are proposed to be included in the Project to improve data and thereby improve the models. The design of the monitoring Plans for the Tarim II sub-basins has been based on the following factors: * the experiences obtained from the Tarim I monitoring Program; * the existing climatological, hydrometric and hydrogeological monitoring systems; * the feed-back from the modeling activities undertaken during the water and salt balance studies; * the location of the works proposed to be undertaken during Tarim II; * the areas where the assessment of the impacts of the proposed works are difficult to estimate due to information deficiencies; * the areas where particularly sensitive or topographically problematic features exist; * the ability of the local authorities to manage the network both from a logistical and administrative perspective and from a budgetary viewpoint; * the need to ensure that data in excess of real needs is not gathered. A major element will be water table measurement and water quality monitoring, particularly with regard to salt movement. A common approach has been adopted for proposing monitoring plans for the Project. For the monitoring of surface water inflow and drainage outflow from the subproject areas, besides the existing hydrological stations and the water measuring points in the irrigated areas ,necessary new stations have been planned. For the measurement of groundwater level and water quality permanent observation wells and temporary well will be installed. For the saving of funds the groundwater observation wells will be mainly concentrated in key Project areas for detailed study. For the monitoring of soil water and salinity in each subproject area soil water and salt monitoring points in typical farmland (high yield land, low-yield land and reclaimed wasteland) will be installed. 6. Institutional Development and Support - US$15.2 million Institutional Development and Support includes the sub-components SIDD Development, Applied Research&Development and Studies, Training and Technical Assistance, and Project Management. The following Table provides a summary of these investments by prefecture. Sub-component Bayingol Aksu Kashgar Kizilsu Hotan Total SIDD Development 0.15 0.14 0.16 0.19 0.08 0.72 Applied R&D and Studies 0.35 1.17 0.53 0.31 0.43 2.79 Training and Technical 0.71 1.02 0.77 0.39 0.54 3.43 Assistance Project Management 0.97 1.27 3.40 1.24 1.40 8.28 Total 2.18 3.60 4.86 2.13 2.45 15.22 6.1 SIDD Development - US$ 0.72 million The Project will finance the setting up of WSCs and WUAs, including office facilities and equipment, information dissemination activities, technical assistance, study tours and on-going training at water user, WSC and Project management levels1. These institutional investments in SIDD will be linked to investments in physical irrigation infrastructure in the respective Project components relating to land reclamation, improvement, and water conservancy. All pilot WSCs and WUAs have already been defined and are shown in the following table: ' The costs in this section do not include technical assistance, study tours, training and research. These are included in sections 6.2 and 6.3.  WSC WUA General Branch Company Company Project Name No. Name No. Name No. Area ____ Bayingol Kai-Kong River Basin 1 Ku-Ta Main Canal 1 * DaXi 2 Water Supply Branch WSC * Zhondaogan General Corporation I Aksu Aksu River Basin 1 Aksu City Branch 1 * Aksu City Tuanjie 2 Water Supply WSC * Aksu City Seed General Corporation Farm Kizilsu Qakmak-Buguz River 2 * Tokay Reservoir 2 Basin Water Supply Irrigation Area General Corporation _ Gaizi-Kushan River * Jaimaterek Branch Basin Water Supply Canal Mukelmel General Corporation . Kashgar Musuman Main Canal 1 * Hojila Branch Canal 1 Water Supply General Corporation I Hotan Lop Main Canal 1 * Adil Canal 1 Water Supply I General Corporation _ _ TOTAL 6 2 8 After two years of Project implementation an evaluation workshop will be held. If the SIDD component is deemed successful, it will be expanded to cover the entire Tarim II Project area. 6.2 Applied Research&Development and Studies - US$ 2.79 million Agriculture Research. All prefectures are proposing to carry out a variety of adaptive research activities to improve yields and make best use of the improved varieties which will be made available through the Project. It is proposed that all research proposals will be subject to review by a Regional committee convened by the Regional Agricultural Bureau whose objective will be to provide quality assurance on research designs and minimize overlapping of research efforts. Prefecture Research Topic Objective Bayingol IPM research Adaptation of IPM techniques to local circumstances High yield farming systems Development of the "1 ton per mu" production system" High yield wheat production on Development of improved wheat saline land agronomy methods for saline land High quality, high yield cotton Adaptation of cotton techniques to production local situation. High yield, high sugar content Development of improved beet production agronomic techniques for sugar beet production High yield, high quality Agronomic techniques for fruit trees. horticulture production Aksu IPM research Development of IPM techniques for local circumstances Cotton high yield methods Fertilizer trials Other To be identified during the course of the Project  Kisilzu Comprehensive pest control Development of IPM techniques for local circumstances High yield grain production Fertilizer and varietal trials Other To be identified during the course of the Project Kashgar Cotton disease and pest control Investigation of pest types and optimization of control techniques High yield wheat production Fertilizer and varietal trials Soil improvement by fertilizer Use of soil testing to govern fertilizer application applications Improved cultivation techniques Field trials of alternative land preparation techniques. Hotan Use of plastic film Optimization of techniques for water saving using plastic film Comprehensive pest control Development of IPM techniques for local circumstances High yield, high quality, high Selection and varietal trials resistance winter wheat Low-yield land improvement Alternative crops for low-yield land Irrigation and Drainage All prefectures are proposing to carry out a variety of adaptive research in the areas of water conservancy. Prefecture Research Topic Objective Bayingol Water and salt model Improvements to accuracy and optimization usability of models Water savings through pipe Development of efficient and cost systems, etc. effective water delivery systems Conjunctive use of surface and Optimization of surface and groundwater groundwater usage Aksu Automatic forecasting and Improve water deliveries and system measurement systems operations Water savings and irrigation Development of efficient and cost system improvements effective water delivery systems Conjunctive use of surface and Optimization of surface and groundwater groundwater usage Kisilzu Water and salt model Improvements to accuracy and optimization usability of models Water savings and irrigation Development of efficient and cost system improvements effective water delivery systems Conjunctive use of surface and Optimization of surface and groundwater groundwater usage Kashgar Water and salt model Improvements to accuracy and optimization usability of models Water savings and irrigation Development of efficient and cost system improvements effective water delivery systems Hotan Water savings and irrigation Development of efficient and cost system improvements effective water delivery systems  SIDD Each prefecture has allocated funds for empirical institutional research in the SIDD pilot areas in order to accompany implementation and improve future design. 6.3 Training and TechnicalAssistance - US$ 3.43 million An essential component of the present Project relates to skills development, training and technical assistance in order to strengthen the technical and institutional features of the Project and to ensure the sustainability of the development effort. The training component was started during Project preparation and will be continued during implementation. A Training, Study Tour, Research and Technical Assistance Plan is included in Annex 16 of the PIP. SIDD Study tours. A number of international and domestic study tours are planned. The principles for the study tours are the following. Both decision makers, technical personnel, WSC staff and WUA representatives are in need of training concerning SIDD. For this reason a selection was made that will cover these sub-groups. The study tours will take place during the first two years of Project implementation, i.e. during the SIDD pilot and include international trips to the USA, Turkey, Spain, and Mexico as well as domestic tours to visit SIDD projects in Hubei and Hunan. The overall objectives are to assess approaches used in integrated river basin planning and management and self managed water user/irrigation organization or corporations and to assist the TBWRC in evaluating the results and forming approaches for adoption by the TBWRC. This will enable experiences and techniques to be compared and used as a critical analysis and input into the workshops below. Technical Assistance. In order to ensure a successful implementation of the component, the pilot will be evaluated after a two-year period before consideration on how to proceed further. Since implementation of the SIDD component already is on-going, the workshop should be held in April, 2000. The workshop would include all prefectures, the Regional PMO and international experts for assistance. It is be planned for a time period of two weeks and would be based on prior self- evaluation by the entities involved in the pilot. In addition, national and international technical assistance regarding the setting up and running of WUAs and WSCs will be provided on an on-going bases as need arises. Agriculture Technical Assistance, Training and Studies. Foreign technical assistance will be provided to assist in implementation of the Integrated Pest Management program. An IPM expert will be procured to assist in development of capacity within the Regional Plant Protection Department and participating prefectures to train trainers in Integrated Pest Management with particular emphasis on cotton but also on other crops grown in the Tarim Basin. The expert will assist in organization and management of the training program for the Project and review current crop protection investment and training allowances in each prefecture participating in the Project for adequacy to meet comprehensive IPM training needs under the Project. Each prefecture has committed a substantial proportion of available training funds to meet the local currency costs of the IPM program. The allocations for IPM and other training and for studies are as follows: Prefecture Activity Bayingol: Training topics and budgets: 1. IPM - (Y574,000) 2. Practical cultivation techniques (Y300,000) 3. Plant protection (Y37,500) 4. Greenhouse production of vegetables (7,500) 5. Horticultural methods (Y300,000) 6. Soil testing and fertilizer application (Y300,000) 7. Household economic accounting (Y45,000) Note: these allowances exclude training overheads which are separately accounted for) Domestic Study Tours and budgets:  Unallocated (Y140,000) Foreign Study Tours 1. Agricultural development in arid areas (Y 150,000) 2. Agricultural development in cold areas (Y150,000) Aksu Training topics and budgets: 1. IPM training (Y 1,230,000) 2. Cotton quality control (Y90,000) 3. New cropping techniques (Y434,000) 4. Cash crop planting techniques (Y434,000) 5. Agricultural economics (Y240,000) 6. Soil testing (Y120,000) 7. Laser leveling (Y40,000) Domestic Study Tours and budgets: Unallocated (Y400,000) Foreign Study Tours 1. High yield agricultural techniques (Y200,000) 2. Seed processing (Y200,000) Kisilzu Domestic Training and budgets: 1. IPM (Y635,000) 2. New farming techniques for township managers (Y1 80,000) 3. Technical training for farmers (Y200,000) 4. Mechanical equipment training for farmers (YI00,000) 5. General farmer training (Y200,000) Domestic Study Tours: Unallocated (Y220,000) Foreign Study Tours 1. Agricultural management (Y55,000) 2. Integrated pest management (Y55,000) Kashgar Domestic training and budgets: 1. IPM (Yl,373,500) 2. High yield cotton and grain production (Y200,000) 3. High yield vegetable production (Y200,000) 4. General farmer training (Y280,000) Domestic Study Tours 1. Seed production and processing management (Y1 20,000) 2. High yield cotton and grain production (Y120,000) 3. Horticulture production (Y90,000) Foreign Study Tours 1. Low-yield land improvement (Y 110,000) 2. Cotton cultivation techniques (Y55,000) 3. Seed production and processing (Y55,000)  Hotan Short term training and budgets: 1. IPM (Y738,000) 2. Low-yield land improvement (Y400,000) 3. High yield cotton production (Y550,000) Domestic Study Tours Unallocated (Y200,000) Foreign Study Tours 1. Soil improvement (Y80,000) 2. Soil testing for improved fertilizer use (Y80,000) 3. High yield agricultural cultivation (Y90,000) 4. IPM (Y80,000) Irrigation and Drainage For the irrigation and drainage component, two international study tours are planned. One trip to study canal lining techniques will be undertaken to Pakistan and one study tour will me made to Canada to study advanced techniques of dealing with canal seepage and frost heave. Technical assistance will be provided for water and salt model studies and monitoring, and for water saving techniques in irrigation and drainage. Subject Content/Objectives water and salt model studies and monitoring TA will be provided throughout Project implementation to continuously improve water and salt model studies and monitoring networks. The objective of this activity will be to develop fully functioning models that can be used for evaluating alternative water development and system operation programs and procedures water saving techniques in irrigation and TA will be provided to evaluate different water drainage savings techniques and technologies for irrigation and drainage systems with the objective of devising and implementing cost effective water savings programs and procedures. Training would be provided to technical water resources personnel in the areas of: (a) design of irrigation and drainage systems; (b) construction of irrigation and drainage system; (c) inspection and quality control during construction of irrigation and drainage systems; (d) operation and maintenance of irrigation and drainage systems; (e) groundwater system design and operation; (f) hydrology; and (g) hydrogeology. Environment Technical assistance will be provided for preparation of a masterplan for Bosten Lake and also for the inclusion of environmental factors in development of the overall Tarim River Basin Plan. The latter is covered in the relevant section. The TA for the Bosten Lake Masterplan is intended to provide assistance to Bayingol Environmental Protection Bureau in researching and developing a masterplan for the lake and its catchment building on the mathematical modeling work that was completed as part of preparation for the Tarim II Project. The plan would be based on assessment of ecological requirements of the lake and its assimilative capacity, detailed review of all current development plans for the area, and could include a wide variety of development guidelines (land use zoning, discharge standards for industrial and municipal  developments, development guidelines for tourism and other potential future activities in the catchment) to provide a basis for future development planning in the area. To the extent possible, the plan will provide development options which would allow the prefectural and local governments some latitude in trading costs and benefits in determining development plans. 6.4 Project Management - US$ 8.28 million A number of activities are planned to enhance and strengthen Project management. First, an international study tour will be undertaken to an appropriate World Bank client country as a project management case study. In addition, a domestic study tour is planned to Sichuan (for MIS/project management), two study tours to Beijing (project monitoring and evaluation as well as project financing, procurement and disbursement) and to Liao Ning for project management. To provide deeper knowledge of project management issues, also international training at the Learning and Leadership Center of the World Bank is planned. Domestic training relates to project management, MIS, English language skills, etc. 7. Tarim Basin Water Resources Commission Support - US$12.8 million 7.1 The Tarim Basin Water Resources Commission - US$5.4 million The TBWRC will be created and strengthened to be responsible for all aspects of planning, policy setting and overall management of water and related natural resources of the Tarim Basin. In particular it will: * Develop and implement (or have implemented) hydrologic (surface water and groundwater) data monitoring networks, processing and archiving systems, and analytical processes for data evaluation, as well as a group of hydrologic models that provide both a predictive and a management capability. * Undertake base-line studies to determine the 'health' of the natural resources in the Basin, the pattern of water usage and its efficiencies. * Develop and administer a water licensing and allocation system, with suitable enforcement and penalty procedures, as well as the collection of water charges. * Undertake master water planning studies for the whole Basin, ensuring that these studies involve integration across all aspects of natural resources. * Develop and implement community awareness and participation programs across the Basin to lift the understanding of the natural resources issues of the Basin. * Promote, and assist with, the development of 'land and water management plans' by various farmer and community groups that provide for both productivity improvements and resource rehabilitation. * Oversight funding programs to assist with implementation of water and environmental management and development projects. Legislative Aspects In January 1998, the Xinjiang Uygur Autonomous Regional People's Congress passed regulations for the Management of Water Resources of the Tarim Basin which establishes the TBWRC. A copy of the regulations is included in Annex I of the PIP. The regulations are applicable to the development, utilization, protection and management of water resources in the Tarim Basin. The hydrologic boundaries of the Basin are defined as the drainage areas of the Tarim River mainstream and of the Hotan, Yerqiang, Kashgar, Aksu, Weigan and Kaidu-Konque subbasins. The regulations clearly define the authority and responsibilities of the TBWRC which will have the following structure:  A Board of Commissioners responsible for: (a) setting policy and making timely and effective decisions on major issues related to the development, utilization, protection and management of water resources in the Basin; (b) reviewing and approving work reports, master plans, programs, projects and budget reports submitted by the Management Bureau; (c) reviewing and approving plans for water conservancy projects in the Basin; (d) reviewing and approving applications for the use of financial resources included in the Tarim Basin Water Resources Protection Fund to be set up by XUAR Government. A Management Bureau which is the administrative and technical body of the TBWRC and is responsible for: (a) providing technical reports and information to the Board of Commissioners to assist it in decision making; (b) monitoring water quantity and quality; (c) establishing and maintaining data bases; (d) evaluating water use, allocation and development plans; (e) administering a water licensing system for water use along the mainstream; and (f) implementing and managing hydraulic works and environmental protection projects on the mainstream of the Tarim River. The Project will support the establishment and strengthening of the TBWRC through: (a) the purchase, installation and operation of water quantity and quality monitoring equipment and computer hardware and software; (b) operating costs for three biological monitoring stations in key ecologically critical areas; (c) construction of a research, monitoring and dispatch center; (d) establishing and equipping field offices in each of the prefectures; equipment; (e) technical assistance, training study tours and research in water resources and environmental management, water resources and environmental monitoring; water resources modeling; water savings techniques, river basin planning, water licensing, GIS, MIS, remote sensing, and river morphology. Annex 1 of the PIP provides a background discussion of water resources management in the Tarim Basin, a discussion of the organizational structure of the TBWRC, an Action Plan for the first year of TBWRC implementation, and a five-year development plan for TBWRC. TBWRC Technical Assistance Technical assistance will be required in relation to the implementation of three priority activities which are considered essential to the effective development and operation of the TBWRC: * basin water planning and sharing; * environmental management; * developmernt of database and mathematical models to provide a basin for integrated water resources planning in the Basin * TBWRC institutional development and strengthening During the first three years of the new TBWRC an annual workshop will be held to develop greater skills on water management, basin agency operation, enforcement, community awareness programs and to help review progress, priority setting, performance assessment etc. This in effect, provides a high level 'reference group' to review progress towards a highly competent TBWRC, and establishes a strong personal and on-going contact with basin management experts. The first annual water management workshop will be held in Xinjiang about 3 to 6 months after completion of the second study tour. It would develop lessons learnt from the study tours, review and assess for use in the TBWRC modern methods and technologies relating to integrated river basin planning. The subsequent two annual workshops will be organized to assist the TBWRC in strategic planning, human resource planning, performance assessment, environmental reporting and in its general approach to integrated river basin planning and management.  7.2. Tarim River Works - US$7.4 million The river engineering component would continue the work program started under Tarim 1. Works in the upper and middle reaches would consist of providing 26 new regulators at the head of outlet channels on the Tarim River to control unregulated spillage during the flood season. Estimations based on average channel dimensions indicate that losses might be around 920 Mm3, or almost a quarter of the annual water resources of the river. In the middle reach, the Project would finance construction of a new intake for the Kaerquga reservoir. The reservoir serves an irrigated area of about 1,000 ha and has recently been improved by increasing the bund height but cannot be filled from the present intake channel. The new intake would be located 25 km further upstream with the regulator located 2 km from the river. Towards the end of the middle reach, the Tarim splits into two channels. In order to regulate the flows in both of these, a pair of regulators would be constructed at Aqi with design flow capacities of 60 m3/s and 100 m3/s respectively. The Project would include the construction of a total of 150 km of flood control dikes in sections of the middle reach of the Tarim with the aim of further containing spillage during the summer flood season. In view of the present limited hydraulic data, the construction of the dikes will be postponed to the latter part of the Project implementation period when better data on which to plan the dike construction will be available. The major investment of the component is the construction of the Luohuluke Reservoir in the lower parts of the middle reach of the Tarim River. At present, the Wusiman River, which is an offtake from the Tarim, discharges into a seasonally flooded area, which in heavy floods extends to 200 km2. This flooded area is known as the Luohuluke lake. The reservoir would cover an area of 26 km2, have a bund of 20 km long with a maximum height of 6.5 m and would have a live storage of 88 Mm3. The reservoir would be used to augment supplies to an existing irrigated area of 8,000 ha. 8. Regional Management - US$6.9 million Management Information System - US$ 0.78 The Regional management component will support the development, testing and installation of a complete MIS for the Project including both hardware and software. The Regional PMO and the prefectural plans are for the software portion of the MIS to be completely developed, installed on a limited number of personal computers and tested by October, 1998. MIS hardware will be purchased and installed, and software will be developed, installed and tested on the complete system during the first year of Project implementation. At the Regional and prefecture levels and at the TBWRC Management Bureau, Local Area Networks and servers would be installed. Each of the 22 counties would have a personal computer that would be tied into the Wide Area Network which would include the LANs. The MIS will be used for all aspects of Project implementation and operation management. Specifically the MIS will cover the following areas: Civil Works- including overall planning for civil works implementation and progress, design preparation and approval, bidding and contracting processes, supervision (inspection and quality control), physical implementation and financial progress, reporting. Material and Equipment Procurement- including overall goods procurement planning and progress, design and technical specification preparation and approval, bidding and contracting processes, goods allocation and use, physical implementation and financial progress, reporting. Technical Assistance, Training, Study Tours and Research- including overall planning and progress, preparation and approval of TORs, individual program processes, implementation and financial progress, reporting.  Water and Salt Monitoring and Modeling- including development and implementation of monitoring and modeling plans, operation of monitoring networks, development of data bases, development of models, all related to groundwater, surface water (irrigation, rivers, lakes and reservoirs) and salt balances, reporting TBWRC- inclulding five-year strategic plans and annual action plans, water allocation and licensing programs and processes, river basin planning and plan implementation, approval and funding of hydraulic works programs and processes, Tarimi River mainstream programs and management, budgeting and funding, reporting. SIDD- including SIDD development planning and progress, pilot program implementation and evaluation, extension programs and progress, water resources management, investments, reporting. Monitoring and Evaluation- including overall planning and progress, definition of indicators, baseline surveys, investment progress, physical progress, benefit monitoring and evaluation, reporting. Financial MUanagement- including Project financing plan including World Bank and counterpart funding, expenditures, cost control, disbursement of World Bank and counterpart funds, accounting, reporting. Auditing- including overall plans for auditing, actual auditing programs and processes, reporting (on source and use of funds, funds availability, disbursements). Document Control- including official and non-official documents, correspondence, Project preparation reports and documents, computer software, others. Urumqi and Kashgar Training Centers - US$ 2.85 million Because of the major institutional development aspects of Tarim II, the Project would support the implementation of a training center in Urumqi for high- and medium-level line agency and PMO personnel in the areas of Project management, financial management, water resources management, agriculture, irrigation and drainage and English language. The Project would also support the rehabilitation of an existing training center in Kashgar which would be used for training lower-level line agency and PMO personnel, WSC and WJUA personnel and farmers in the areas of agriculture, irrigation and drainage and SIDD development. Other - US$ 3.31 million The Regional management component also includes SIDD Development, Applied R&D and Studies, Training and Technical Assistance. These items will be carried out by the Region in support of the activities described for the prefectures in t]he previous sections.  Annex 3 CHINA TARIM BASIN II PROJECT Estimated Project Costs The total Project costs are estimated at $272.6 million with a foreign cost of $93.8 million or 34 percent of the total. Cost estimates are based on quantities derived from the preliminary designs and from unit prices currently prevailing for Tarim I and other similar construction works in the Project areas and from price lists of local and overseas manufacturers of equipment, machinery and vehicles. The base cost estimates of $242.6 million are expressed in December 1997 prices and the exchange rate used to convert base cost estimates is Yuan 8.3 to $ 1. Price contingencies of $16.6 million for costs incurred in foreign exchange are based on annual international price escalation rates of 2.5 percent for 1998, 3.1 percent for 1999, 2.9 percent for 2000, 2.8 percent for 2001, 2.7 percent for 2002, and 2.6 percent for 2003. Price contingencies for costs incurred in Yuan are based on annual domestic price escalation rates of 4.8 percent for 1998, 5.0 percent for 1999 and 5.5 percent for 2000-2003. No price contingencies have been applied to design, Project overhead and operating costs. Physical contingencies, equivalent to $13.4 million, are based on an average rate of 6.5 percent for works, 5 percent for equipment and inputs. Project costs are summarized in Table 3.1 (Totals may not add due to rounding). Table 3.1 PROJECT COST SUMMARY Project Component Local Foreign Total -----------------------US $ million-------------------- A. Water Conservancy 65.0 41.4 106.4 B. Land Reclamation 37.9 15.6 53.5 C. Land Improvement 18.9 6.4 25.4 D. Agriculture Support Service 8.4 6.6 15.0 E. Environmental Protection & Monitoring 8.0 1.7 9.7 F. Institutional Development & Support 10.6 4.1 14.7 G. Tarim River Subproject 7.3 4.2 11.5 H. Regional Management 2.9 3.6 6.5 Total Baseline Cost 158.9 83.7 242.6 Physical Contingencies 8.9 4.5 13.4 Price Contingencies 11.1 5.5 16.6 Total Project Cost 178.9 93.7 272.6  Annex 4 Tarim Basin II Financial and Economic Analysis Summary (million US$, base year 1998) Present Value of Flows Fiscal Impact Economic Financial Analysis Analysis Revenues Subsidies Benefits 616.5 1008.5 98.4 23.5 Costs 567.0 889.4 Net Benefits: 49.5 119.2 IRR: 14.3% 16.9% 1 Introduction The Project has three objectives, namely improve water management, increase access to land and improve management techniques, and increase agricultural output for poverty alleviation. These objectives are intrinsically linked. Achievement of the water resources management objective is the enabling condition for the other two objectives. As discussed in other sections, the Tarim Basin is subject to deteriorating conditions at all levels due to historically poor water management. The lower reaches of the Tarim River have been drying up over the past decades, leaving herdsmen and farmers without sustenance for their livelihoods and severely damaging the "green corridor". The Tarim's tributaries have increasingly been used for irrigation expansion but have now reached a level of exploitation where further increases in agricultural production are hampered due to lack of sufficient water resource