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Major Change of Trimmu and Panjnad Barrages Improvement Project (PAK- 47235)

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Major Change of Trimmu and Panjnad Barrages Improvement Project (PAK- 47235) Major Change of Trimmu and Panjnad Barrages Improvement Project (PAK- 47235) ECONOMIC AND FINANCIAL ANALYSIS Islam Barrage Rehabilitation A. Introduction 1. The economic analysis of the Islam barrage rehabilitation project has been undertaken according to Asian Development Bank (ADB) guidelines1 and describes the economic rationale for public intervention. The proposed Project will manage irrigation water supplies through the Bahawal Canal (5,400 cusecs) and Qaim Canal (558 cusecs) on the left bank and Mailsi Canal (4,883 cusecs) on the right bank of the Islam Barrage on the Sutlej River. The CCA of the two canals on the left bank is 106044 acres and located within the administrative boundary of district Bahawalpur. Analysis of the available data2 reveals that there has been declining trend in the irrigated area as well as in the yield level of crops. The data has been summarized in the Table below3. Table 1: Reduction in cropped Area and Yield of Major Crops in District Bahawalpur Area in 000 Acres Yield Kg/Acres Major Crops 2013-14 2016-17 Percent 2013-14 2016-17 Percent Change Change Cotton 662 598 -9.7% 895 853 -4.7% Mash 0.041 0.011 -73.2% 244 182 -25.5% Vegetables (Chilies) 0.78 0.73 -6.4% 1809 682 -62.3% Wheat 714 709 -0.7% 1849 1385 -25.1% Gram 0.6 0.3 -51.6% 484 333 -31.1% Potato 0.5 0.79 56.1% 7775 8585 10.4% Sunflower 10.0 5.4 -46.0% 741 746 0.7% Change over in 4 Years 1388 1314 -18.8% -19.6% Average Reduction per Year -4.7% -4.9% Source: Directorate of Agriculture, Crop Reporting Service, Punjab. Rabi and Kharif Crop Reports for the year 2013-14 and 2016-17. 2. The above Table shows that the actual irrigation area under the major crops which has already been reduced from nominal 1.39 million acres to 1.31 million acres, which is about 18.8% reduction in 4-years, or reducing annually at about 4.7 percent. 3. The following table shows that the actual withdrawals by the Sutluj Valley canals, which has already reduced from 13.83 million-acre feet (MAF) to 13.15 MAF in year 2015- 16. Though, this information has not been used in estimation the economic evaluation, yet it is important to see that the withdrawals have been reduced at about 0.08% per year. It indicates that there is need to conserve scarce irrigation water for its efficient use by rehabilitating the infrastructure. 1 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila. 2 Directorate of Agriculture, Crop Reporting Service. Punjab–Crop acreage data for the years 2013-14 and 2016- 17. Lahore 3 Latest officially available to public. 2 Table 2: Withdrawals4 by Sutluj Valley Canals (MAF) Year Rabi Kharif Total Change over year 2006-07 4.15 9.68 13.83 2007-08 3.4 10.42 13.82 -0.07% 2008-09 3.29 9.78 13.07 -5.74% 2009-10 3.02 9.84 12.86 -1.63% 2010-11 5.04 9.33 14.37 10.51% 2011-12 4.41 8.55 12.96 -10.88% 2012-13 4.39 8.65 13.04 0.61% 2033-14 4.36 9.72 14.08 7.39% 2014-15 4.38 9.76 14.14 0.42% 2015-16 3.93 9.22 13.15 -7.53% Change over 10 Years -0.77% Average Reduction per Year -0.08% 4. The economic analysis for the proposed AF has been carried out by developing with and without project scenarios. It is conservatively assumed that under the without project scenario the irrigated area in the command of Barrage will be maintained at present level. While under the with-project scenario, with the proposed AF interventions, the existing irrigated area will be restored to the 2013-14 level. A benefit–cost analysis is undertaken to measure the key investment criteria of economic internal rate of return (EIRR) and economic net present value (ENPV). B. Macroeconomic Assessment 5. Pakistan’s agriculture sector experience modest growth during 1970–2016 when it grew by about 3.4% per annum5 The highest growth rates were achieved in 1985 (11%), 1992 (10%), and 1996 (12.0%). The agriculture sector experienced negative growth of –5% in 1984 and 1993, and –2% in 2001 because of severe droughts during these periods. Based on the Food and Agriculture Organization of the United Nations (FAO) data,6 the pattern of growth in the country’s overall real gross domestic product (GDP) has been closely linked to that of the agriculture sector, despite the declining share of the agriculture sector to the overall GDP. Even with the sector’s modest growth and declining share, it was able to contribute around 27.0% or roughly $18.3 billion per annum in real terms to the country’s average annual $73.0 billion-real GDP at 2005 constant prices and was able to employ more than 42.3% of the country’s labor force. As of 2010 Punjab accounted for roughly 55% of the country’s total agriculture production area, and Sindh 19%.7 C. Rationale 6. The barrage, the subsidiary weir and the gates operating mechanism are presently in a dilapidated condition. The Barrage has passed about 90 years of its life, which is more than double of its economic/designed life and the aging process has caused extensive deterioration of different components/structures and significant damage to the regulating gates and hoisting equipment. The Barrage survived for a longer time than to its designed 4 Government of Punjab. 2017. Table 8: Development Statistics of Punjab 2017, Bureau of Statistics. Lahore 5 Average Annual Growth Rate for The Agriculture Sector was 4% during 2000–2016. 6 Food and Agriculture Organization of The United Nations. 2015. FAO Statistical Pocketbook. Rome. 7 Government of Pakistan, Pakistan Bureau of Statistics. 2012. Pakistan Agricultural Census 2010. Lahore. 3 life only due to having proper care and maintenance extended by the Punjab Irrigation Department (PID). Any further damage to this barrage can render it non-operative causing colossal losses due to non-production of agricultural crops, loss of large infrastructure of roads and buildings, increasing the restoration cost, adversely affecting the national economy in addition to human, social and environmental disaster due to possibility of flood miss-management. 7. Therefore, to save the infrastructure, to meet future water requirements and maintain agricultural productivity, it is important to rehabilitate and improve the deteriorating infrastructure of Islam Barrage. Further, the economic benefits of improved water supplies are not likely to be obtained without proposed investment, as cost-effective mechanisms for recovery of water charges at commercially viable rates are unavailable, and private sectors’ investment is therefore precluded. 8. Further, to meet future water requirements sustainably, and to reduce flood risks, rehabilitation and upgradation of Islam Barrage is needed. Moreover, to avoid complete failure and for effective flood water management in the area is important to sustain the agricultural productivity but it is also unlikely to be provided by the private sector. Hence, government intervention is required to rehabilitate and upgrade the barrage. 9. The present condition of decreasing trend in cropped area and in yields in the project area is due to non-availability of adequate and quality irrigation water. Increase in cultivated area, crop intensities, and yields in the command area is not possible without developing the facilities and management of flood water through the proposed barrage. An intervention such as this project is necessary because farmers in their own private capacity do not have the incentive to invest in Barrage rehabilitation and flood water management because of the prohibitively high financial costs. Moreover, such an investment would not generate sufficient direct financial returns for private sector investors. Since irrigation water is a public good, investments in irrigation development can only succeed if undertaken by the government. 10. Readiness to rehabilitate and upgrade the Islam barrage is high, as the feasibility study and the detailed engineering design had already been completed by the government. There is a strong linkage between the improvement of the Islam barrage and that of the Trimmu and Panjnad barrages, as the nature of works involved in rehabilitating and upgrading old barrages are similar. The project implementation arrangements for the Islam barrage will be a replication of those for the current project. The project management office (PMO) for the current project will be responsible for the Islam barrage, enabling significant efficiency gains. D. Project Scenarios 11. Without-Project Scenario. The without-project scenario involves no intervention for the provision of barrage rehabilitation and flood water management in the project area. 12. With-Project Scenario. With the improved provision of irrigation water supply through the canals off shooting from the Barrage, there would be improvement in the cropping intensity and crop yields, particularly towards restoration of the area reduced due to deteriorating condition of the Barrage. In this scenario, the reduced cropping area of about 74,000 acres of the Bahawalpur district will be brought again under irrigation. A timely and adequate volume of water availability for kharif crops will be ensured. The present level of cropping intensity and the yields level will be restored to the level pertaining in year 2013-14. In effect, this will contribute to improve environmental conditions, particularly in the primary impact area, and would enhance living standards in the project area. 4 E. Project Benefits 13. Quantified benefits. Project intervention will generate both incremental and non- incremental benefits. The incremental benefits will be generated by barrage rehabilitation (restoration and sustainability of agricultural command area), whereas non-incremental benefits arise from water savings associated with the wastewater improvement and better flood water management practices.
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