Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No: 60720-NP

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

Public Disclosure Authorized IN THE AMOUNT OF SDR 14.9 MILLION (US$23.6 MILLION EQUIVALENT)

AND A

PROPOSED GRANT

IN THE AMOUNT OF SDR 12.3 MILLION (US$19.4 MILLION EQUIVALENT)

TO

NEPAL

Public Disclosure Authorized FOR A

MODERNIZATION OF RANI JAMARA KULARIYA IRRIGATION SCHEME – PHASE I

June 3, 2011

Agriculture and Rural Development Sector Sustainable Development Department South Asia Region

Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective February 2011) Currency Unit = Nepalese Rupee (NPR) NPR 72.00 = US$1

FISCAL YEAR July 16 – July 15

ABBREVIATIONS AND ACRONYMS

ACP Agriculture Contact Point IPR Implementation Progress Report ADB Asian Development Bank ISN Interim Strategy Note ASC Agriculture Service Center MIS Management Information System AWPB Annual Work Program and Budget MLE Monitoring, Learning, and Evaluation CCA Cultivable Command Area MoAC Ministry of Agriculture and Cooperatives DADO District Agricultural Development MoF Ministry of Finance Office MoI Ministry of Irrigation DoA Department of Agriculture NPC National Planning Commission DoI Department of Irrigation O&M Operation and Maintenance DTCO District Treasury Controller Office PEFA Public Expenditure and Financial EMP Environmental Management Plan Accountability FFS Farmers Field School PFM Public Financial Management FMIS Farmer Managed Irrigation System PIM Project Implementation Manual GAAP Governance and Accountability PIO Project Implementation Office Action Plan PMT Project management Team GDP Gross Domestic Product PSC Project Steering Committee GoN Government of Nepal RJK Rani Jamara Kulariya IDA International Development Association RJKIS Rani, Jamara and Kulariya Irrigation IEE Initial Environmental Examination Scheme IPM Integrated Pest Management SA Social Assessment IWMI International Water Management SIMF Social Impact Management Framework Institute VDC Village Development Committee IWRMP Irrigation and Water Resources WUA Water Users Association Management Project

Regional Vice President: Isabel M. Guerrero Country Director: Susan G. Goldmark Sector Director: John Henry Stein Sector Manager: Simeon Kacou Ehui Task Team Leader: Joop Stoutjesdijk

ii

NEPAL Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

Table of Contents

I. Strategic Context ...... 1 A. Country Context ...... 1 B. Sectoral and Institutional Context ...... 1 C. Higher Level Objectives to which the Project Contributes ...... 3 II. Project Development Objectives ...... 5 III. Project Description ...... 6 A. Project Components ...... 6 B. Project Financing ...... 8 C. Lessons Learned and Reflected in the Project Design ...... 9 IV. Implementation ...... 10 A. Institutional and Implementation Arrangements ...... 10 B. Results Monitoring and Evaluation ...... 12 C. Sustainability ...... 13 V. Appraisal Summary ...... 13 A. Economic and Financial Analysis ...... 13 B. Technical ...... 14 C. Financial Management ...... 14 D. Procurement ...... 15 E. Social ...... 15 F. Environment ...... 16 G. Safeguard policies ...... 17 Annex 1: Results Framework and Monitoring...... 19 Annex 2: Detailed Project Description ...... 25 Annex 3: Overall Project Implementation Arrangement ...... 32 Annex 4: Operational Risk Assessment Framework (ORAF) ...... 46 Annex 5: Implementation Support Plan ...... 52 Annex 6: Team Composition ...... 55 Annex 7: Governance and Accountability Action Plan ...... 56 Annex 8: Economic and Financial Analysis ...... 64

iii

Annex 9: Safeguards ...... 72 Annex 10: Statement of Loans and Credits ...... 77 Annex 11: Country at a Glance ...... 78 Annex 12: Map IBRD No. 38521 ...... 80

iv

NEPAL

MODERNIZATION OF RANI JAMARA KULARIYA IRRIGATION SCHEME - PHASE 1

PROJECT APPRAISAL DOCUMENT

SOUTH ASIA

SASDA

Date: June 3, 2011 Team Leader: Joop Stoutjesdijk Country Director: Susan G. Goldmark Sectors: Irrigation and drainage (76%); Flood Sector Director: John Henry Stein protection (15%); General agriculture, fishing Sector Manager: Simeon Kacou Ehui and forestry sector (9%) Themes: Rural services and infrastructure (76%); Water resource management (16%); Decentralization (8%) Project ID: P118179 Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Joint IFC: Joint Level:

Project Financing Data [ ] Loan [X] Credit [X] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 43.00 Proposed terms: Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT 5.00 0.00 5.00 International Development Association 28.00 15.00 43.00 (IDA) Local Communities 1.00 0.00 1.00 Total: 34.00 15.00 49.00

Borrower: Ministry of Finance Singhdurbar Kathmandu Nepal Tel: 977-1-4-259820

v

Implementing Agency: Department of Irrigation Jawlakhel Kathmandu Nepal Tel: (977-1) 553-5382 Fax: (977-1) 553-7169

Estimated disbursements (Bank FY/US$m) FY 12 13 14 15 16 17 Annual 1.20 9.20 14.80 12.80 4.40 0.60 Cumulative 1.20 10.40 25.20 38.00 42.40 43.00 Project implementation period: Start - October 1, 2011 End - September 30, 2016 Expected effectiveness date: October 1, 2011 Expected closing date: September 30, 2016

Does the project depart from the CAS in content or other significant respects? [ ]Yes [X] No Does the project require any exceptions from Bank policies? [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [X] No Does the project include any critical risks rated “substantial” or “high”? [X]Yes [ ] No Does the project meet the Regional criteria for readiness for implementation? [X]Yes [ ] No

Project development objective: The project development objective of the Modernization of Rani Jamara and Kulariya Irrigation Scheme – Phase 1 is to improve irrigation water delivery to, and management in, the command area.

Project description:

Component 1 - Scheme Modernization will construct and modernize the main canal system, including hydraulic structures, feeder channels, and river bank protection works, and upgrading of village roads.

Component 2 - Strengthening Water Users Associations (WUA) will strengthen WUAs to assume full responsibility for the management, operation, and maintenance of the modernized infrastructure.

Component 3 - Agricultural Production Support will carry out a series of agriculture-based activities in the project area to start narrowing the existing productivity gaps and enhance land and water resource uses through demonstrations, farmer field schools, and other adaptive processes.

Component 4 - Project Management will ensure effective project management and coordination, and monitoring and evaluation and impact assessments.

vi

Which safeguard policies are triggered, if any? Environmental Assessment (OP/BP 4.01), Natural Habitats (OP/BP 4.04); Indigenous Peoples (OP/BP 4.10); Involuntary Resettlement (OP/BP 4.12); Forests (OP/BP 4.36); Projects on International Waterways (OP/BP 7.50).

Significant, non-standard conditions, if any, for:

Board presentation: None.

Loan/credit effectiveness: None.

Covenants applicable to project implementation:

The Recipient shall, by no later than November 15, 2011, establish, and thereafter maintain, the Project Steering Committee to be chaired by the Secretary of the Recipient‟s Ministry of Irrigation, and to consist of senior representatives from the Recipient‟s Ministry of Finance, Ministry of Agriculture and Cooperatives, Ministry of Forests and Soil Conservation, Ministry of Environment, National Planning Commission, Department of Irrigation (DoI) and Department of Agriculture to provide overall policy guidance.

The Recipient shall take all measures necessary to ensure that DoI shall adopt and maintain a Project Implementation Manual, in form and substance satisfactory to the Association, consisting of various schedules setting forth rules, methods, guidelines, standard documents and procedures for the carrying out of the Project.

The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Governance and Accountability Action Plan.

The Recipient shall carry out the Project in accordance with the Environmental Management Plan and the Social Impact Management Framework.

vii

I. Strategic Context

A. Country Context

1. Nepal has largely an agrarian-based economy with low labor productivity. Agriculture contributes 33 percent to the Gross Domestic Product (GDP) and it employs about 80 percent of the rural labor force. The share of services and industry in GDP is 50 and 16 percent, respectively, and their share of labor force is 8 and 3 percent, respectively. Civil conflict and political uncertainty have affected Nepal‟s economy for well over a decade. Real GDP grew between 2001 and 2006 on average about 2.7 percent per annum. Official estimates suggest that real GDP grew by 4.6 percent in FY10 (Central Bureau of Statistics (CBS) Nepal, 2010), with the per capita GDP at around US$560.

2. Despite the difficult political situation, the incidence of poverty fell nationally from 42 to 32 percent between 1995 and 2004 (CBS, 2005). More recent estimates show that since 2004 the national poverty rate has declined further by another 10 percentage points (World Bank, 2010). However, the percentage of the population living on less than US$1.25 a day remains high at 55 percent (Asian Development Bank (ADB), 2009). The incidence of poverty in rural areas declined from 43 percent to 35 percent. The structure of income appears to have changed during the past ten years, with the share of income from remittances, non-agricultural entrepreneurial activities, wages, and property rising. Although average income growth rates were high, inequality also increased (the Gini coefficient rose from 34.2 to 41.4 since 1995) and geographic disparities became more pronounced. Nepal faces the dual challenges of further accelerating domestic growth and sharing this growth more broadly across the population.

B. Sectoral and Institutional Context

3. Agriculture has made only modest contributions to improved living standards during the past decades, which is in large part due to the poor performance of the crop sector. Therefore, a pressing priority in this regard is to improve agricultural productivity and foster diversification towards high-value products to secure food security for a growing population and improve rural incomes.

4. Nepal‟s rural population comprises mainly smallholder farmers and about 80 percent of the rural population aged fifteen and above is engaged in agriculture. The level of income from agriculture is low by international standards. Yields of the major cereal crops produced in Nepal are still well below their potential in many areas and therefore need improvement. Farmers are generally unable to benefit from existing modern technologies and inputs.

5. A study, jointly undertaken by the Asian Development Bank (ADB) and the International Water Management Institute (IWMI), entitled “Pro-Poor Intervention Strategies in Irrigated Agriculture in Asia” (2005), has confirmed that poverty incidence is lower in irrigated than rainfed areas and that access to adequate and timely irrigation water reduces the

1 severity of poverty. Irrigated agriculture reduces poverty through: (i) increased food output (through improved productivity); (ii) higher demand for employment; and (iii) higher real income. A recent study (2010) by Michigan State University and the World Bank on “The Impact of Irrigation on Agricultural Productivity: Evidence from India” shows that irrigation has a strong and significant impact on land productivity, cropping intensities, and land prices. The study also finds that the impact of irrigation on productivity increases with the quality of irrigation. The study makes the case for continuing support for investments in improving both access and quality of irrigation in India. Considering the similarities, the two studies show that the development of irrigation in Nepal will continue to be critical to increasing agricultural productivity, incomes, and rural livelihoods.

6. The Government of Nepal (GoN) has recognized the lack of intensive cropping, inadequate supply and use of basic agricultural inputs such as fertilizer and improved seeds, and problems with deteriorated and inefficient irrigation systems. Nepal‟s agricultural sector has become increasingly vulnerable in recent years due to erratic monsoon rains. Farmers are experiencing unreliable rainfalls, with both droughts and high intensity rainfall often occurring in the same season. In this context, efficient and well managed irrigation systems are of critical importance for regulated supply of irrigation water for transformation and growth of the agricultural sector. Only by assuring effective water control and management systems will farmers focus more on other complementary investments, such as use of improved agricultural techniques and inputs, and improvements in cropping intensity, which will help in transforming farming to more profitable levels.

7. Irrigation is thus a critical input into agriculture both during the monsoon season to overcome periods of dry spells and during the dry season when rainfall is negligible. Irrigation systems in Nepal fall under four distinct different categories: (1) traditional farmer managed irrigation systems (FMIS) developed and managed by the communities; (2) a range of small to large-scale surface systems developed with full or partial support of the government; (3) government developed tube well irrigation schemes; and (4) individually owned and operated tube wells and pumps, mostly utilizing shallow aquifers, streams, ponds, and dug wells.

8. The strategy and vision for irrigation development and management in Nepal is reflected in the Water Resources Strategy (2002), National Water Plan (2005), and the Irrigation Development Vision and Action Plan (2006). The main vision described in the strategy and plans is to integrate agriculture and irrigation development in order to realize the full benefits from investment in irrigation and provide sustainable services to the agriculture sector through well-operating and well-managed irrigation facilities, based on local resource mobilization through a partnership of the users and the government. In particular, the emphasis is on: provision of year-round irrigation services to increase the productivity of irrigated agriculture and extending the cropping seasons; the importance of a service-oriented management approach as a means for providing more efficient, reliable, and flexible water services to farmers; and the progressive shifting of operation and maintenance (O&M) costs to water users to enhance efficiency, equity, and sustainability.

2

9. Nepal has a long tradition of farmer-managed irrigation systems in the hills, mountains, and the Terai. The FMISs cover about 70 percent of the 1.2 million ha of land with some form of irrigation infrastructure in the country. The hill FMISs are generally small in size compared to the medium to large irrigation systems in the Terai. A strong sense of ownership and hierarchical management system exists in the FMISs. Water users associations (WUA) in some form are in most cases directly associated with the management of irrigation systems. They are accountable for O&M of the schemes, most of which is done through labor contributions.

10. The improvement of irrigation services in the existing command areas of FMISs needs to be addressed through a combination of both “hardware” and “software” solutions. The former involves rehabilitating and modernizing existing irrigation and drainage infrastructure to improve reliability of supply and expand the system of secondary and tertiary canals. The latter requires the development of more efficient mechanisms for management of irrigation systems up to the field level through a clear delineation of responsibilities between the government and the WUAs that are in charge of delivering irrigation services to farmers. There is also the need to pool funding through government and users contributions for O&M and asset replacement over time.

C. Higher Level Objectives to which the Project Contributes

11. The project will contribute to the Borrower‟s over-arching objective of sustainable economic growth and reduction of poverty, in part to be achieved through improved reliability of water resources for irrigation and increased agricultural production. GoN has adopted an approach paper for the Three Year Interim Plan (TYIP; 2010-13), and work on the Plan itself is in progress. One of the major thrust areas of the approach paper is the transformation to more productive agriculture, in part to be achieved by providing more reliable irrigation water for farming.

12. The approach paper for TYIP (2010-13) emphasizes agriculture and foresees an increase in the growth of agricultural GDP from the current 3.3 percent to 3.9 percent in 2013. Activities to promote agriculture will be guided by the Government‟s long-term Agricultural Development Plan and the National Agricultural Development Policy. The approach paper sees agriculture as important for food security, employment generation, and poverty alleviation. The Agricultural Development Plan recognizes the importance of irrigation in terms of improving agricultural productivity and intends to increase irrigation coverage by 16 percent in the next three years.

13. The proposed project is well aligned with the World Bank‟s assistance to Nepal as described in various strategy documents. The Bank‟s Interim Strategy Note (ISN) of 2009 is organized around three pillars. The second pillar focuses on the productive sectors by laying the foundation for sustainable and inclusive economic growth, including Agriculture and Irrigation. The proposed project will ultimately contribute towards both the Borrower‟s and

3 the Bank‟s objectives of generating broad-based sustainable growth and poverty alleviation through increasing the productivity of irrigated agriculture.

14. The irrigation sector in Nepal has received significant investments, both from government and donor agencies. GoN consistently allocates around 3 percent of its annual budget to the irrigation sector. So far the World Bank has during the past four decades extended 13 credits totaling US$387 million and the ADB has extended nine credits totaling US$160 million to the irrigation sector. Several other international and bilateral agencies, such as the Saudi Fund, Organization of Petroleum Exporting Countries (OPEC) Fund, Kuwait Fund, and the European Union (EU) have also providing assistance to the sector. The Bank is currently assisting GoN with an IDA Grant of US$50 million and an Additional Financing Credit of US$14.3 million for the Irrigation and Water Resources Management Project (IWRMP), involving a combination of investments and institutional and policy reforms. The Bank also provides broader agricultural sector support through the Project on Agriculture Commercialization and Trade (PACT) and Rural Access and Infrastructure Development Project (RAIDP).

15. Given the Bank‟s long-standing role in the development of Nepal‟s irrigation and water resources sector, including in command area development and rehabilitation and modernization of higher-order irrigation systems, as well as developing WUAs and transferring improved agricultural technologies to farmers, there is strong GoN interest in the Bank‟s continued engagement with irrigation projects in Nepal. The Bank‟s funds and knowledge for the further development of one of the largest FMISs in the country, the Rani Jamara Kulariya Irrigation Scheme (RJKIS), will be a next step in Bank support towards Nepal‟s development of the irrigation and agriculture sectors and addressing food security aspects in one of the poorest parts of the country. Bank support for this project will also help in building synergies with other Bank operations mentioned above.

16. Bank support for the Modernization of the Rani Jamara Kulariya Irrigation Scheme is proposed in two phases. Phase 1 (which is being discussed in this PAD) will mainly focus on modernization of the higher-order irrigation infrastructure (especially intakes and feeder and branch canals), enhancing the capacity of the WUAs to operate and maintain the improved or new irrigation infrastructure, and the preparation and initiation of an agricultural development program. Phase 2 will mainly focus on the modernization of the lower-order irrigation infrastructure (sub-branch and tertiary canals and water courses), continuation of the WUA support program, and implementation of a comprehensive agricultural improvement program. With good performance of implementation of the first phase, phase 2 could start around January 2014, i.e. about two years after the start of phase 1, so that there will be maximum overlap of the two phases. The main trigger for starting with the preparation of phase 2 will be to have the construction works on the main branch canals and intake protection works ongoing. The estimated value of these contracts is about 50 percent of the funds available for civil works.

4

17. The option of using the funds of the proposed project to fully complete the irrigation system of at least one of the three WUAs from the intake to the field channels was discussed early during project preparation. Consultations with the WUAs and other stakeholders revealed that this approach would contribute to increased tension and possibly conflict among local beneficiaries. Consequently, a conflict sensitive approach was selected which consists of developing the irrigation systems equally and equitably under the two project phases.

18. In addition to the proposed support provided by IDA, GoN will provide funds for construction of a new abstraction works on the Karnali River, a main conveyance canal, and a sediment basin. The contract for the construction of the abstraction works was signed in early 2011 and the preparatory works have started. It is expected that the construction of the proposed new infrastructure will take some eight to ten years. This new infrastructure will eventually connect with the feeder canal that will be constructed with IDA funds. However, all infrastructure to be modernized under the IDA-funded project can operate fully independently from any of the proposed investments to be made by GoN.

II. Project Development Objectives

19. The development objective of the phase 1 project is to improve irrigation water delivery to, and management in, the command area. The command area is defined as the agricultural lands to be irrigated using infrastructure to be modernized under the project. The objective will be achieved through improving the performance of the irrigation systems and strengthening community-based irrigation management. These activities are essentially about building resilience through more efficient water delivery and management against water- induced hazards such as droughts, floods, and changes in water availability during the agricultural seasons. There will be some support to agricultural development that will result in a modest increase in yields in especially the upper part of the command area, but the main aim of the agricultural support during phase 1 is to prepare for a comprehensive agricultural support program to be implemented during phase 2. The reason for this is that during phase 1 there will be no investments in the lower-order irrigation infrastructure and command area development which make it premature to develop a full agricultural improvement program for which reliable water availability has to be ensured.

20. The key outcome indicators are:

 Irrigation service delivery by service providers (WUAs) assessed as satisfactory by water users (measured in percentage of water users);  Resources generated by water users for the operation and maintenance of the modernized irrigation systems (measured in percentage of required resources);  Increase in irrigated crop yields of main crops rice, wheat, and maize (in about 40 percent of the command area at the head of the canal systems; measured in tons/ha); and  Number of female and male water users (defined as member of the WUA) provided with improved water delivery services: (i) number of female water users; and

5

(ii) number of male water users (IDA core indicator). In addition, (iii) the percentage of female WUA executive committee members will be measured.

III. Project Description

A. Project Components

21. Project Area and Beneficiaries. One of the most prominent FMISs in the Terai is the Rani Jamara Kulariya Irrigation Scheme with a cultivable command area (CCA) of 14,300 ha (the project area) of which about 11,000 ha is currently being irrigated. The scheme was developed by the farmers between 1896 (Rani System) and 1915 (Kulariya System). The Jamara System was developed from 1903 onwards. The scheme constitutes three independent traditional irrigation systems constructed, operated, and managed by the farmers, with the majority comprising people from the indigenous Tharu community. The scheme is located in Kailali District of the Far Western Development Region, one of the least developed regions in the country. The scheme area comprises of eight Village Development Committees (VDC), which are the lowest political units working at grassroots level, and one Municipality, Tikapur which is the main township and market center in the project area1. The geographical coordinates of Tikapur are 28° 31' North and 81° 7' East.

22. Each of the systems has one intake point on the Karnali River (a tributary of the Ganga River) and an extensive canal (kulo in Nepali) infrastructure with 3 branch and 41 sub-branch canals that have a total length of about 230 km. The Karnali River is an aggressive and unpredictable gravel bed river that often changes its course, as a result of which the scheme regularly suffers from either shortage of water or severe flood damage.

23. The overall scheme lacks all necessary infrastructure such as permanent intake and control structures, diversion and drop structures, flood protection works, and cross drainage and escape structures. Typical problems in the scheme include difficulty of coping with changes in the river morphology and in diverting water to the irrigation systems during low river flows; uncontrolled flooding affecting the scheme during high river flow events and frequent wash-out of temporary diversion works made by WUAs at the intake area; erosion of canal banks from uncontrolled intake of water; sedimentation of canals; inability to manage the water equitably and efficiently; and poor road connections that often become inaccessible during the monsoon season. In order to improve this situation, the irrigation and drainage systems will require substantial rehabilitation and modernization and training of WUAs will be needed to improve their ability to manage the water and maintain the infrastructure.

24. Eighty percent of the land holdings are less than one ha, and the average land holding is about 0.6 ha. About 25,000 households, comprising some 160,000 people, will benefit directly from the project. The ethnic composition of the people in the project area includes the Tharu as the dominant group with 48 percent of the population. Other main groups are Chhetri (17

1 The VDCs are Baliya, Dansinhapur, Durgauli, Janakinagar, Munuwa, Narainapur, Pathariya, and Pratapapur.

6 percent), Dalits (15 percent), Brahman (10 percent), and Magar (3 percent). There are three WUAs, one for each of the main systems, and there is one central committee (WUA Federation) that links the three WUAs together for overall management of especially the river diversion channel.

25. Component 1: Scheme Modernization (US$38.6 million). The scheme modernization will consist of: (i) construction of a feeder canal to link the three main canal systems; (ii) rehabilitation and modernization of Rani (20 km), Jamara (16 km), and Kulariya (16 km) branch canals, mainly focusing on intake structures, control structures, diversion structures, and canal bank protection; (iii) command area protection works against flooding from adjacent rivers such as Karnali, Mohana, and Patharaiya; and (iv) improving and upgrading about 61 km of roads within the project area and construction of bridges and culverts. The component will also finance engineering consultants to assist the Department of Irrigation (DoI) and the WUAs with the remaining design tasks and especially third-party construction supervision and quality assurance, as well as with a number of specific tasks such as engineering studies for the preparation of the phase 2 project. About US$13 million (34 percent) of the funds under this component are allocated for flood protection works and road improvements.

26. Component 2: Strengthening Water Users Associations (US$2.2 million). The component will strengthen WUAs to assume full responsibility for the O&M of the infrastructure constructed under component 1. This will require different skills than the WUAs currently have. Most of the current experience of the WUAs is in mobilizing members to carry out certain channel excavation and desilting works, but with the new structures, the WUAs will have to carry out O&M in a more technical and professional manner. In particular, under this component the project will finance: (i) training and support to WUAs, to be carried out by DoI, assisted by specialized consultants and/or NGOs. WUAs will be trained in such aspects as the development and implementation of adequate O&M plans, setting of irrigation service fees, maintenance of records and accounts, participatory monitoring, conflict resolution, and optimizing the higher-order system water management for the benefit of all users. There will also be focus on ethnic and gender issues through awareness creation and training. For example, there will be specific focus on encouraging female landholders to take up WUA executive committee positions and train them in effective committee membership and avoidance of exclusion by women and ethnic minorities in the running of WUAs; (ii) construction of WUA offices in a central location of each of the WUA command areas; (iii) office equipment; (iv) motorcycles, O&M equipment, and funds for the annual excavation of the Jarahi Nala Channel for diversion of water from the Karnali River; (v) farmers study tours to successful WUAs, e.g. Kankai WUA that is being supported under IWRMP; and (vi) consulting services for special studies, e.g. to determine the actual cost of O&M after the scheme improvements.

27. Component 3: Agricultural Production Support (US$2.9 million). The component will carry out a series of agriculture production support activities in the project area through demonstrations, farmer field schools (FFS), and other adaptive processes. The component will also carry out several strategic studies on the options for agriculture diversification, value

7 addition, and institutional innovations that can be promoted during phase 2 of the project. It is stressed that the main gains in production increases, diversification of cropping patterns, and assistance to improve the marketing of crops will be made under phase 2 when the command area gets improved. The following set of specific activities will be undertaken under the project: (i) implementation of demonstration plots and adaptive research; (ii) organizing FFSs; (iii) development of packages for the promotion under phase 2 of crop diversification, integrated pest management (IPM), and integrated plant and soil nutrient management (IPSNM) practices; (iv) strengthening the Agriculture Service Center (ASC) and Agriculture Contact Points (ACP) within the project area; (v) initiation of support to the production of high quality certified seeds through identification and training of interested private contract farmers and community-based seed producing entities; and (vi) training of staff of the District Agricultural Development Office (DADO) to improve the technical knowledge and the ability to advise on innovative practices. Effort will be made to coordinate the project activities with ongoing projects such as IWRMP and PACT to support community seed production, seed storage initiatives, cash cropping, and value chain studies;

28. Component 4: Project Management (US$4.3 million). The component will support overall project management, monitoring and evaluation (M&E), and reporting. A project management team (PMT) with a project manager and necessary professional and support staff will be based in Tikapur to manage and coordinate the project activities under components 1 and 2 on behalf of DoI. Component 3 will be managed and coordinated by DADO in Dhangadhi on behalf of the Department of Agriculture (DoA). Dhangadhi is located about 90 km from Tikapur. The teams are to ensure smooth implementation of project activities, monitoring of project implementation progress and outputs/outcomes achieved, learning from project experiences, communication management, implementation of good safeguard practices, and procurement and financial management. Activities to be financed under the project include, but will not be limited to: (i) the operation of the PMT and a small liaison office in Kathmandu for coordination with DoA, Ministry of Finance (MoF), and other relevant agencies; (ii) design and establishment of a project specific Management Information System (MIS); (iii) project monitoring, learning, and evaluation (MLE), including the services of independent M&E organizations for specific surveys and other monitoring tasks; (iv) documentation of the phase 1 project experience and its dissemination through a website, brochures, articles in newspapers, etc.; and (v) overall preparation of phase 2, including incorporating the results of phase 2 preparation studies carried out under component 1 and work carried out under component 3 in the design of the phase 2 project.

B. Project Financing

29. The lending instrument is a Specific Investment Credit and Grant, with 55 percent as credit. Specific investment lending is appropriate for the proposed project given that the activities are well-defined and can be implemented over a finite time period. It is typically not a quick-disbursing lending instrument and allows engagement with the implementing agencies and WUAs over a longer period, which provides opportunities for comprehensive development

8 of sufficient institutional capacity to operate and maintain irrigation infrastructure in a sustainable manner.

30. The project is estimated to cost around US$48 million, excluding a US$1 million contribution by WUA members, mainly for in-kind labor for the annual excavation of the channel for the diversion of water from the Karnali River. The IDA funding will be US$43 million. The implementation period is estimated at five years.

Component Total US$ million (excluding US$1 million WUA contribution) Scheme modernization 38.6 Strengthening WUAs 2.2 Agriculture Production Support 2.9 Project Management 4.3 Total 48.0

C. Lessons Learned and Reflected in the Project Design

31. The following lessons learned from evaluation of Bank-supported and other donor- supported projects in Nepal and from stakeholder workshops and beneficiary impact analysis carried out during project preparation have been incorporated in the design of this project.

32. Transparency and accountability in performance management and service delivery in irrigation systems. To overcome chronic problems of poor maintenance and inadequate service delivery in irrigation schemes it is important to have a clear agreement between the WUA and DoI about respective roles and responsibilities, proper financing arrangements, and transparency and accountability in monitoring compliance (by both parties) of the agreement. As the Rani Jamara Kulariya Irrigation Scheme is inherently a farmer-managed and operated irrigation scheme, it is important for government to empower as much as possible the users and their WUAs and keep them in charge with minimum outside interference.

33. Meaningful community participation requires substantial capacity building. A separate project component has been designed to support the necessary capacity building of the WUAs to turn them into financially and technically sustainable organizations and to encourage inclusion of ethnic minority groups and women.

34. Coordination between partner organizations is important to maximize project benefits. In order to produce greater synergy and impact it is important to ensure coordinated program planning and implementation, particularly between the main implementing partners of DoI and DoA. In order to achieve this, a senior agriculture officer will be seconded to DoI‟s Project Implementation Office (PIO) in Tikapur and all the components will be managed from the field. Effort will be made to coordinate with similar projects such as IWRMP and PACT and other government and private institutions to benefit from their experiences, particularly in areas

9 of community seed multiplication, agricultural inputs supply, value chain studies and farmer trainings.

35. Integrating agriculture and irrigation increase benefits. While it is important to improve the irrigation systems, considering that irrigation is only one input into agriculture it is equally important for extension agents and other agricultural specialists to work closely with farmers to develop appropriate cropping patterns and identify high value crops that provide better returns. The project has a component that starts addressing such agricultural support.

IV. Implementation

A. Institutional and Implementation Arrangements

36. Development in Nepal faces a number of institutional and implementation challenges that can negatively affect project impact and sustainability. Some of the challenges foreseen by the proposed project include: (i) low institutional capacity and performance; (ii) shortage of adequately trained human resources at the grassroots level; (iii) weak coordination between implementing partners, especially between the Ministry of Irrigation (MoI) and the Ministry of Agriculture and Cooperatives (MoAC); (iv) frequent staff turnover; (v) exclusion of marginalized communities; and (vi) gender disparity. Taking into account the results of the various preparation studies, including peace and conflict analysis, a number of implementation tools and mechanisms have been developed to ensure adequate implementation arrangements. For example, a Social Impact Management Framework has been designed to ensure, among others, inclusion of marginalized groups and women. To promote inclusion in decision- making, WUAs will be encouraged through awareness creation and specific training to implement the provisions of the Irrigation Regulations. A Governance and Accountability Action Plan (GAAP) has been designed with as main objective to contribute towards strengthening governance and accountability systems in the project and beyond. It will achieve this objective by ensuring resources allocated by the project are spent for the intended purposes and directed to the beneficiaries of the project; strengthening coordination between different national and local agencies; and improving feedback mechanisms between beneficiaries, civil society, and project authorities. Institutional mechanisms will be in place to handle grievances so that any adverse impact of potential conflicts could be avoided (see Annex 7). The Project Implementation Manual (PIM) will provide detailed guidance to address issues related to procurement, financial management, resource governance, and implementation of planned activities. A draft PIM is available and its finalization is a disbursement condition for the civil works. The final PIM will be translated in Nepali and will be made available to project staff, WUAs, and other interested parties. It will also be available on the project‟s website.

37. The apex body for the project is the Project Steering Committee (PSC) which will be chaired by the Secretary of MoI. Members of the PSC will include senior representatives from MoF, MoAC, Ministry of Forests and Soil Conservation (MoFSC), Ministry of Environment (MoE), the National Planning Commission (NPC), DoI, and DoA. The PSC will provide overall policy guidance to the implementing agencies and their project management teams.

10

38. The Department of Irrigation will have the main responsibility of implementing the project. The Director General will be the focal person at the departmental level. The Department of Agriculture will be the implementing agency for Component 3.

39. The Project Implementation Office at Tikapur will be the main office for the day-to-day management and implementation of the project. A small liaison office will be established in DoI in Kathmandu to liaise with related agencies and stakeholders on behalf of PIO. The PIO will be headed by a Project Manager, based in Tikapur, who will be assisted by staff in Social, Environmental, and Institutional; Technical; Procurement; and Financial Management Units. The Social, Environmental, and Institutional Unit, headed by a sociologist who will be deputed by DoI, will have direct linkages with the WUAs to implement the institutional and capacity development program. A Local Environmental Monitoring Committee composed of local protected area agency, forest authority, NGOs, etc. will visit the project area periodically for inspecting environmental management and facilitating coordination. GoN will also engage an independent party for regular monitoring of the environmental compliance, management, and performance in the project. The frequency of these inputs may be revised during project implementation, depending on actual requirements.

40. The agriculture program will be implemented by the District Agriculture Development Office in Dhangadhi Town in Kailali District. While the head of DADO will be responsible for guiding the agricultural component of the project, extension activities at the community level will be supported through the Agricultural Service Center in Tikapur that is staffed with Junior Technicians (JT). They will be supported on a regular basis by a subject matter specialist (SMS) based in Dhangadhi. Directorates in DoA will also participate as required. For example, the Plant Protection Directorate has responsibility for IPM training and development and will be involved in work related to IPM. In order to maintain coordinated planning and implementation of project activities and to ensure convergence, PIO will make available office space for a DADO nodal officer, most likely the SMS referred to above, at its Tikapur office. The project will fund consultants, such as social mobilizers and agricultural specialists, as appropriate to assist the staff of the ASC and others with the implementation of the component. The consultants will report mainly to DADO but also to PIO. There are at the moment two Agriculture Contact Points within the project area that are supported by ASC, Tikapur. Each ACP is supposed to be staffed with one Junior Technician, a certificate holder in agriculture with a minimum of three years of work experience. These ACPs will bring extension services and farmers closer together, in addition to serving as information hub.

41. GoN will ensure that the professional PIO and DADO teams working on the modernization of the Rani Jamara Kulariya Irrigation Scheme will not be transferred to other positions until completion of the project. Transparent mechanisms will be introduced for the selection of staff for international study tours and exposure visits. GoN employees who have participated in an international training course or study visit will be expected to remain in their posts for the minimum period specified by Clause 40 (c) of the Civil Service Act, 2049 (1993).

11

42. At the local level, WUA membership of landholders in the irrigation scheme (that are also water users) is compulsory. WUAs will be encouraged to promote representation and inclusion of all communities participating in the project. Inclusion of women will be adopted as a project principle, with a minimum target of 33 percent women in decision-making processes. The project will undertake capacity building measures, including training, to make the participation of women and other marginalized groups more effective. Experience has shown that gender mainstreaming initiatives should cover both men and women, which the project will take into account in its capacity building initiatives. In order to avoid conflicts regarding ethnic representation and water allocation the project will develop implementation guidelines on the basis of the GAAP, social management framework, and safeguards where potential issues and concerns have been identified and mitigation measures outlined.

43. The project will interact with other development initiatives at the local level. For example, seed multiplication activities supported by the Social Safety Net Project (SSNP) and IWRMP will be explored for possible linkages. Value chain analysis provided by PACT may also have relevance to the farmers in the project area. In addition, local government bodies (District Development Committee (DDC) and VDC) will be briefed and consulted on project activities. Information and experience will be exchanged with civil society organizations operating at the local level to create synergy.

B. Results Monitoring and Evaluation

44. A project monitoring, learning, and evaluation framework will be designed to facilitate: (a) results-based management; (b) learning and process enhancement, through process monitoring by participatory methods, involving group self-ratings, reviews, score cards, satisfaction surveys, etc.; and (c) impact evaluation, involving use of appropriate baseline and controls.

45. The PIO will have a monitoring specialist who will have overall responsibility for planning and coordinating MLE activities. This will take place mainly with three sets of entities that will undertake the bulk of the data collection and analysis work: (i) the implementing departments; (ii) an external M&E agency to be engaged during project implementation for intermittent surveys and studies; and (iii) beneficiaries, primarily WUAs. The PIO, supported by short-term consultants, will have overall responsibility for developing systems and procedures for appropriate analysis and presentation of the collected monitoring and learning (M&L) data to ensure appropriate use of the indicators for project management, evaluation, and learning. The implementation of the GAAP will be monitored as well.

46. MLE activities will include: baseline studies; regular performance tracking of inputs and outputs by concerned implementing departments; intermittent performance monitoring by external M&E agency; systematic (“panel data” type) analysis of project impacts through repeated monitoring of the same sample set of water users (farmers) through project lifetime; and mid-term and final impact evaluations. Reports from these activities will be generated in agreed format according to a set schedule.

12

C. Sustainability

47. Sustainability is a core project principle and has been factored into project design through the following design features and/or expected measures.

48. Institutional Sustainability. WUAs will assume O&M responsibility during project implementation and post implementation. WUA committees shall be permanent elected entities under the charter of WUA constitution. Roles and responsibilities of DoI and WUA will be specified by an agreement between these parties.

49. Financial Sustainability. WUAs will collect irrigation service fees for O&M purposes. Project interventions that enhance irrigation-based livelihoods will eventually raise water productivity and hence strengthen the incentive to pay fees. Training will be provided to WUAs on financial management and indicators will monitor the level and collection rates of the fees and WUAs‟ maintenance of financial records.

50. Technical Sustainability. Training will be provided to WUAs to carry out routine O&M. Scheme operation and maintenance plans will list activities to be carried out as part of routine O&M. A memorandum of understanding (MoU) will be signed between WUA and DoI prior to undertaking scheme implementation activities which will commit government to providing certain technical support services.

V. Appraisal Summary

A. Economic and Financial Analysis

ENPV= NRs. 415 million; ERR=16.9 percent. FNPV=NRs. 118 million; FRR=13.4 percent.

51. The project is expected to improve water service delivery to about 14,300 ha of which around 11,000 ha are currently irrigated. The investments made during phase 1 of the project are expected to generate only modest agricultural benefits attributable to improved off-farm water availability, reduced risk of flooding, and some improved farm-level water management, especially at the head of the canal systems. However, the investments for the improved water control at off-farm level and reduced risk of flooding are essential for the phase 2 investments to eventually generate substantial improvements in agricultural production. The main project benefits from the phase 1 investments will derive from a set of rather conservative assumptions: (i) a 10 percent yield increase and 27 percent increase in cropping intensity on around 6,000 hectares of currently irrigated land at the head of the systems; (ii) a 30 percent increase in cropping intensity on 5,000 hectares on currently irrigated area located in the middle section of the system; and (iii) reduced 10 percent production losses of rainfed paddy caused by uncontrolled flooding and 50 percent increase in cropping intensity on currently un- irrigated area of about 3,300 ha located in the tail section of the irrigation systems.

13

52. The project investments generate incremental financial margins to about 25,000 farm households, mostly operating less than one hectare of land, ranging from NRs. 14,854/ha to NRs. 29,866/ha. The highest incremental margin at NRs. 29,866/ha is expected for farmers located in the head section of the irrigation systems that will benefit from both improved productivity and intensification of production. The middle section farmers, for whom the project benefits will be in the form of increased cropping intensity only, will gain incremental gross margins at NRs. 18,570/ha. The incremental gross margins to rainfed farmers at the tail section, who are expected to avoid productivity losses caused by floods and benefit from increased cropping intensity, is estimated at NRs. 14,854/ha. Financial and economic returns to the project are modest with FRR of 13.4 percent and FNPV of NRs. 118 million and ERR of 16.9 percent and ENPV of NRs. 415 million.

53. Sensitivity analyses tested robustness of the project for three risk variables: an increase in the project cost, a benefits decline, and a two-year delay in benefit accumulation. The project is moderately sensitive to changes in the benefit declines and in the project cost. The 20 percent decline in benefits drops baseline levels of ERR and FRR to 13.6 and 10.1 percent, respectively. The 20 percent project cost increase reduces baseline levels of the ERR and FRR to 12.8 and 9.4 percent, respectively. The project is more sensitive to the two-year delay in benefit accumulation with the ERR and FRR dropping to 11.3 and 8.6 percent, respectively.

54. In terms of sustainability of the investments in the irrigation infrastructure, the analysis estimated the impact of the incremental O&M contribution on the farm household budgets. The results suggest that the incremental O&M contribution will not be a financial burden for farmers as its share in the incremental gross margins is insignificant and varies in the range of 2.3 to 4.5 percent.

B. Technical

55. Modernization of the irrigation scheme will focus on structural and non-structural measures. There is a need to improve both the physical and management systems, as well as institutional arrangements for system operation. Appropriate technologies will be used for the design and construction of the needed physical interventions. It will be ensured that final designs are sound, based on modern design standards, yet compatible with local conditions, and that the proposed works will serve the intended purpose and will be sustainable with acceptable level of O&M requirements. The works will be implemented by reputable contractors under sufficient day-to-day and third-party construction supervision and quality control. Based on a review of other irrigation modernization projects it is clear that activities of similar nature have been carried out in Nepal, which gives support to the expectation that the project works can be implemented without major difficulties.

C. Financial Management

56. The Government‟s Financial Administration Regulations will be used as the basis for exercising appropriate controls over project transactions. The Regulations will be

14 supplemented by financial management guidelines that are described in the Project Implementation Manual. Performance audits will be carried out around mid-term of the project as part of additional assurance to identify areas for improvement. There will be strong efforts in capacity building of the project staff in the areas of project management, including in procurement and financial management. To address the gaps that have been identified during the financial management (FM) assessment and in order to reduce the risks, an action plan was prepared and agreed upon with DoI and PIO staff (see Annex 3). Overall, the FM arrangements for the project as conceived will be adequate for the purpose of project implementation.

57. From the financial management perspective, the overall risk currently is “Substantial” and the residual risk is “Modest”. The risks will be reassessed as the mitigation measures are being implemented. There are no outstanding audit reports under the sector.

D. Procurement

58. Procurement for the proposed project will be carried out in accordance with the World Bank‟s “Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” published by the Bank in January 2011, and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” published by the Bank in January 2011, and the provisions stipulated in the Financing Agreement. For each contract to be financed under the Credit/Grant, the procurement methods or consultant selection methods, the estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan which was developed by the Borrower. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

59. Most procurement activities will be carried out by the PIO in Tikapur. The procurement under the Agricultural Production Support Component will be carried out by DADO. An assessment of the capacity of the implementing agencies to implement procurement actions for the project was carried out in February 2011. The assessment reviewed the organizational structure for implementing the project and conducted interaction with the proposed project staff, as well as reviewed the procurement documents of other projects within the implementing agencies. Based on the assessed procurement capacity of the implementing agencies, PIO being the major one, and provision of mitigating measures as suggested, no major risks are identified for project procurement. Therefore, the overall project risk for procurement is “moderate”.

E. Social

60. DoI conducted a Social Assessment as part of project preparation. This involved developing a socio-economic profile of the project area, mapping out various stakeholders, assessing the social, economic, and political factors that can affect project design and

15 implementation, and screening of possible social impacts of the project. Based on that analysis, several recommendations have been made and incorporated in the project design to address the possible adverse impacts of the project. A peace/conflict analysis was also carried out and key findings related to WUA-specific conflicts and inclusiveness have been incorporated in the project design.

61. The SA concludes that: (i) the majority of the population in the project areas relies on agriculture and hence need to be regarded as direct project beneficiaries; (ii) there are many ethnic and minority communities in the project areas, including Tharus, Magars, and Dalits, who stand to benefit from the project, but pro-active measures are necessary to ensure that benefits accrue to all of them; (iii) various factors need to be taken into consideration to avoid conflict over resource use, which will require strong WUAs that fairly represent all water users; (iv) women‟s participation is crucial in the irrigation governance structure and there is a need to enhance this; (v) effective information dissemination and community participation is important for project success; and (vi) the potential adverse impact of the project on such aspects as land acquisition and resettlement is negligible and can be addressed through a framework approach.

62. On the basis of the SA findings and recommendations and considering the approach and progress of the engineering design which does not permit identification of all project impacts at this stage, a Social Impact Management Framework (SIMF) has been developed to guide planning and development of necessary mitigation measures to address possible adverse social impacts and maximize project benefits. The SIMF covers involuntary resettlement in compliance with World Bank OP 4.12 on Involuntary Resettlement, indigenous people issues in compliance with OP 4.10 on Indigenous Peoples, gender and social inclusion, as well as mechanisms for information, communication, consultation, and participation. The SIMF contains a Land Acquisition and Resettlement Framework, a Vulnerable Community Development Framework, a Gender Equality and Social Inclusion Strategy, and an Information, Communication, and Participation Strategy.

F. Environment

63. Environmental concerns of the project are mainly related to the activities under Component 1 (Scheme Modernization) and Component 3 (Agricultural Production Support). The Borrower has prepared an Initial Environmental Examination (IEE) as required by national environmental legislation and an Environmental Management Plan (EMP). The IEE is generic and also covers activities for the overall modernization of the irrigation scheme that are beyond the scope of proposed IDA support, while the EMP focuses on the activities proposed under the IDA-funded project.

64. Bardiya National Park is located on the left bank of the Karnali River, across from the project area. The protected and endangered species of Gangetic Dolphin, Marsh Mugger, and Gharial Crocodile are known to exist in the Karnali River system. The Karnali River corridor (stretches of forests) is also a wildlife movement route. Considering the nature of the project

16 activities, which are mainly improvement of the existing traditional irrigation systems, the IEE and EMP concluded that the identified environmental risks are moderate and can be mitigated through a number of mitigation measures. The overall environmental impact of the project is expected to be small and the project has been assigned Category B.

65. The likely adverse environmental impacts of the project described in the EMP include: (i) restriction to the wildlife movement during construction (mainly elephant, tiger, and rhino during the main transit season from July through November); (ii) increased poaching and logging risks in the forest areas close to the project area; (iii) adverse impacts on the protected and endangered aquatic life (e.g. dolphin) such as from water diversion and fishing; (iv) increased risks of flood damage resulting from extraction of sand and gravel from the river; and (v) depositions of silt/sediment in the canal system and on farm land. Other identified impacts include air and noise around active construction sites and labor camps, sanitation and fuel pollution, and impact on patches of forests through possible loss of trees, forest degradation, and encroachment.

66. The EMP has recommended mitigation measures for the identified impacts, which include measures such as no major construction activities during the main wildlife movement season from July to November; wildlife friendly canal side-slopes; provision of animal crossings over the feeder canal; banning the project from collecting sand, gravel, and boulders within 500 m of Karnali bridge and within 50 m of the right bank of the Karnali River and ensuring that the extractions will be less than one meter deep; awareness against poaching and logging as well as promoting coordination with other ongoing conservation activities/agencies; canal intake and outlet/tail designs that include features that avoid dolphin entry; providing sanitation and fuel facilities at workers camp; and prohibiting workers from fishing and hunting.

67. Many of the risks and negative impacts described above, e.g. poaching, logging, and gravel and sand extractions from the river bed, exist at present and are likely to continue irrespective of the proposed project. Some environmental conservation activities are currently ongoing, such as the Western Terai Landscape Complex Project and Terai Arc Landscape Project. The World Bank supported regional project, Strengthening Regional Cooperation for Wildlife Protection in Asia, was recently approved by IDA. This regional project aims to enhance the capacity of the relevant agencies to carry out conservation based on a landscape approach and also to address wildlife trafficking. In Nepal, the regional project‟s scope also includes the protected area network in the southern Terai, bordering India. The Bardiya National Park and the forests along the Karnali River are also part of this protected area network. The coordinated efforts of the environmental protection and conservation work of different agencies will have complementarities and positive synergy.

G. Safeguard policies

68. The Natural Habitats (OP/BP 4.04) is triggered because the Karnali River has protected and endangered aquatic species, including the Gangetic Dolphin, Marsh Mugger, and Gharial

17

Crocodile. Also, the Karnali River corridor (forests) is a wildlife movement route for especially elephant, tiger, and rhino. As some of the proposed works may be aligned along the fringes of forest areas, the OP/BP 4.36 on Forests applies. Any issue will be addressed as part of the Environmental Management Plan.

69. The scheme abstracts water from the Karnali River, a major left-bank tributary of the Ganges River. The Karnali River has its source in China and flows through Western Nepal into India (where it is called Ghaghara River before it joins the Ganges). The Karnali River is thus an international waterway for purposes of OP 7.50. Due to uncontrolled diversion of the Karnali River water into the main canals there is typically excessive water entry, while there is no control of the water. The scheme in its current state has very low water use efficiency and large water losses through seepage and water logging. The proposed project will result in a reduction of water abstraction from the Karnali River, estimated at over 40 percent of the current water abstraction. The exception to the notification requirement under OP 7.50 has been received from South Asia‟s Regional Vice President on February 24, 2011.

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [X] [ ] Pest Management (OP 4.09) [ ] [X] Indigenous Peoples (OP/BP 4.10) [X] [ ] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Forests (OP/BP 4.36) [X] [ ] Safety of Dams (OP/BP 4.37) [ ] [X] Projects on International Waterways (OP/BP 7.50) [X] [ ] Projects in Disputed Areas (OP/BP 7.60)* [ ] [X]

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

18

Annex 1: Results Framework and Monitoring

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

Results Framework

Project Development Objective: to improve irrigation water delivery to, and management in, the command area.

Responsibility Description PDO Level Results Unit of Cumulative Target Values Data Source/ Core Baseline Frequency for Data (indicator Indicators Measure Methodology YR 1 YR 2 YR3 YR 4 YR5 Collection definition, etc.) Irrigation service Annually. Satisfaction PIO and M&E Survey of a delivery by service surveys, with a Consultants sample of providers (WUAs) % 8 8 8 30 40 50 number of sub- farmers (water assessed as satisfactory questions to be users) along the by water users (measured asked that sub-branches of in percentage of water allow an the three canals. users). assessment of

the overall indicator. Detailed baseline survey of perception will be conducted. Resources generated by Annually. Records of WUAs, PIO The main water users for the WUAs and and M&E information, operation and % 50 50 50 50 70 90 interviews with Consultant related to cash, maintenance of the a sample of materials, and modernized irrigation water users. labor systems (measured in contributions, percentage of required will come from resources). WUA records. Current baseline % is based on existing information, to be refined after the proposed O&M study. 19

Responsibility Description PDO Level Results Unit of Data Source/ Core Baseline Cumulative Target Values Frequency for Data (indicator Indicators Measure Methodology Collection definition, etc.) YR 1 YR2 YR3 YR4 YR5 Increase in irrigated crop Ton/ha Annually. Farm records DADO through Crop cutting yields of main crops rice, and field the ACS and samples, annual wheat, and maize in about surveys. ACPs. assessments, 40 percent of the data provided by command area, at the farmers. head of the canal systems. Baseline will be refined in year Paddy (winter) 2.8 2.8 2.8 3.1 3.1 3.1 1. Paddy (monsoon) 2.6 2.6 2.6 2.9 2.9 2.9 Wheat 1.7 1.7 1.7 1.9 1.9 1.9 Maize 1.6 1.6 1.6 1.8 1.8 1.8 Number of female and Annually. Records of WUA, PIO and The main male water users WUAs and M&E information will (defined as member of surveys and Consultant. come from the WUA) provided interviews. WUA records with improved water and surveys of a delivery services: sample of farmers (water (i) number of female Number 0 0 0 2,000 4,000 6,000 users) along the water users; sub-branches of (ii) number of male Number 0 0 0 5,000 12,000 19,000 the three canals. water users; (iii) percentage of % 19 19 19 33 33 33 female WUA Executive Committee members.

20

INTERMEDIATE RESULTS Responsibility Description PDO Level Results Unit of Data Source/ Core Baseline Cumulative Target Values Frequency for Data (indicator Indicators Measure Methodology Collection definition, etc.) YR 1 YR2 YR3 YR4 YR5

Component 1: Scheme Modernization Completed Structures: Number Annually. Progress PIO The definition Reports by of completed Intake to branch canals 0 0 0 2 3 3 contractors, structure is Road Bridges and Drops 0 0 0 3 4 7 DoI staff, and construction of on feeder supervising the structure Control structures in 0 0 0 4 7 10 consultants. completed and branch canals structure fully Offtakes to sub-branch 0 0 0 19 25 41 operational. canals Road bridges on branch 0 0 0 6 15 26 canals and other water courses

Component 2: Strengthening Water Users Associations Number of Executive Number 0 7 10 13 13 13 Annually. PIO‟s Social PIO and Minutes of the Committee meetings and Unit survey Executive meetings will General Assembly reports. Committee of serve as written

meetings held per WUA WUA. record. (Annual, not cumulative).

No of WUA members Number of 0 250 1,000 1,500 2,000 2,500 Annually. Training PIO. Curriculum and trained (annual number). partici- records participants pants prepared by attendance agencies that records. provide training.

21

Responsibility Description PDO Level Results Unit of Data Source/ Core Baseline Cumulative Target Values Frequency for Data (indicator Indicators Measure Methodology Collection definition, etc.)

YR 1 YR2 YR3 YR4 YR4

Component 3: Agricultural Production Support Agriculture Service Number 3 3 3 3 3 3 Annually. Direct PIO, DADO, Active is Center and Agriculture observations, ASC, ACP. defined as Contact Points active and progress serving at least providing advisory reports, photos. 30 percent of the services. farmers in the command area on a regular

basis and full participation of staff in demonstrations and farmers field schools.

Number of farmer field Number Annually. Reports and PIO, DADO, schools and direct ASC. demonstrations observation implemented (annual number):

(i) Farmers field schools: 0 0 8 25 50 90 (ii) Demonstrations: 0 0 30 70 130 200

22

Arrangements for Results Monitoring

70. A project monitoring, learning, and evaluation framework has been designed to facilitate: (i) results-based management through timely monitoring, analysis, and feedback of relevant indicators; (ii) learning for process enhancement, through a mix of participatory assessments, self-ratings and reviews, and special thematic studies; and (iii) impact evaluation, through measurement of specific performance indicators, including use of appropriate baseline and control data.

Institutional Arrangements

71. The PIO will have a dedicated M&E expert in the Social, Environmental, and Institutional Unit with the overall responsibility for planning and coordinating MLE activities. The PIO will work closely with the three sets of entities that will undertake the bulk of the data collection and analysis work: (i) the implementing departmental agencies; (ii) an external M&E agency; and (iii) beneficiaries, primarily WUAs. The PIO will have overall responsibility for developing systems and procedures for appropriate analysis and presentation of the collected monitoring data to ensure their use for project monitoring, management, learning, and beneficiary capacity building. The data to be collected by DADO and other agricultural agencies will feed into this system so that an overall understanding of the project outputs and outcomes can be established.

Data Collection

72. Implementing agencies will be responsible for collecting and reporting information on physical and financial input and output indicators as part of their regular implementation work. This data will be fed into and assimilated by a computerized Management Information System which will be set up and managed by the PIO. The MIS will be designed in such a way that it can consolidate, analyze, and use the data for management feedback at different levels, from project level to district, and central levels.

73. The external M&E agency will collect primary data about project implementation and impact through four types of data collection exercises: (i) baseline survey; (ii) special monitoring of implementation progress studies on relevant themes and in a format agreed in advance with the PIO; (iii) an outcome-focused impact evaluation, with two rounds of data collection and analysis – a Mid-Term Evaluation and Final Evaluation; and (iv) systematic („panel data‟ type) evaluation of project impacts through repeated monitoring of the same sample set of water users from the beginning to the end of the project.

74. A complementary set of information on quality and effectiveness of implementation processes and on project impacts, from the beneficiaries‟ point of view, will be gathered through a structured process of participatory MLE. The information will be monitored and used by project management for improving: (i) effectiveness of project interventions and processes with regard to the communities; and (ii) management and capacity building of the communities themselves.

23

Data Reporting and Use

75. The focus of the project‟s MLE system is to enable appropriate oversight and management, self-learning by project staff and beneficiaries, and full evaluation of project experience. Management action at various levels will be guided by the following reports: (i) monthly MIS reports produced by PIO on the status of implementation activities; (ii) regular reports by external M&E agency on its concurrent monitoring activities; (iii) consolidated mid- term implementation report by PIO and DADO and mid-term impact assessment report by the external M&E agency, which will form the basis of the Mid-Term Review to be undertaken by the Bank and GoN around March 2014; and (iv) consolidated project implementation and assessment report by PIO and overall project evaluation report by the external M&E agency at project completion, to be used for the preparation of the project Implementation Completion Report (ICR).

76. The trimester progress report submitted by PIO and DADO to GoN and the Bank will include, inter alia: (i) up-to-date physical and financial expenditure data compared to annual and end-of-project targets; (ii) updated indicators of project performance compared to annual and end-of-project targets; (iii) successes and problems encountered during the reporting period with suggested remedial actions; and (iv) socio-economic and environmental impacts of the project. Not all information may have to be reported in each trimester report. For example, during a trimester with little construction activity there may be no need to report in detail on environmental impacts related to construction. The actual reporting details will be discussed on a regular basis between DoI/PIO and the Bank Task Team.

Learning and Knowledge Management

77. The project will have a dedicated website, within the website of DoI, where all relevant information and data will be posted for a wider audience. The website will be designed to serve as a one-stop information place with user friendly features on different aspects of the project. It will be updated regularly to make the information as current as possible. Updating and managing the information flow shall be the responsibility of the PIO. The website will also have a mechanism to handle feedback from the audience, although this will not be the only mechanism to get feedback. Simple methods, such as written feedback, will also be encouraged by PIO. Dissemination of knowledge will also be provided to the larger community through brochures, articles in newspapers, VDC information boards, etc.

24

Annex 2: Detailed Project Description

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

78. Project Area and the Beneficiaries. One of the most prominent FMISs in the Terai is the Rani Jamara Kulariya Irrigation Scheme, with a total command area of 14,300 ha, although at the moment the actual irrigated area is only about 11,000 ha. The scheme is located in the eastern part of Kailali District of the Far Western Development Region. Within the command area there are eight Village Development Committees and one municipality2. This municipality, Tikapur, is the main township and market center in the project area. The scheme was developed by the farmers between 1896 (Rani System) and 1915 (Kulariya System). The scheme comprises three independent irrigation systems constructed, operated, and managed by the farmers, mainly by the indigenous Tharu community which represents nearly 48 percent of the total local population. The average land holding is about 0.6 ha, with 80 percent of the farmers having less than one ha. About 25,000 households, comprising 157,000 people, are expected to benefit directly from the project.

79. Each of the systems has one intake point on the Karnali River (a tributary of the Ganga River) and extensive canal networks of branch canals and sub-branches with total length of about 230 km. The Karnali River is a braided multi-channel gravel based river with aggressive and unpredictable ability to change its course, implicating often either shortage of water during the dry period or severe periodic flood damage during the rainy seasons.

Summary of Canal Length and Command Area of Rani, Jamara, and Kulariya Canal Systems

Canal System Branch Canal Gross Command Developed CCA Irrigated CCA Length (km) Area (ha)* (ha) (ha) Rani 20 5,820 5,300 4,228 Jamara 16 5,380 4,900 4,133 Kulariya 16 4,500 4,100 2,603 Total 52 15,700 14,300 10,964 * The gross command area is based on the digital topographic mapping of the command area, computed by PIO.

80. There are three WUAs, one for each of the main systems, and one central committee (WUA federation) that coordinates the three systems, especially with regard to the abstraction of water from the Karnali River. The scheme lacks all necessary infrastructures such as permanent intake and control structures, drop structures, protection works, and cross drainage and escape structures. The scheme suffers from frequent wash-out of temporary diversion works made by WUAs at the intake sites and offtake sites from branch to sub-branch canals, and erosion of canal banks from uncontrolled intake and management of water. As a result, typical problems include: difficulty of abstracting water due to changes in the river morphology; uncontrolled flooding in

2 The VDCs are Baliya, Dansinhapur, Durgauli, Janakinagar, Munuwa, Narainapur, Pathariya, and Pratapapur.

25

scheme areas during high river flow events; sedimentation of canals; inability to manage the water equitably and efficiently; and poor road connections that often become inaccessible during the monsoon season. In order to improve this situation, the irrigation and drainage systems will require substantial rehabilitation and modernization, while WUAs are to be trained to improve their ability to manage the water and maintain the infrastructure.

81. The proposed IDA assistance will be used to rehabilitate and modernize the Rani Jamara Kulariya irrigation systems through water abstraction, conveyance, and distribution infrastructure; to provide support to the WUAs to enable them to manage, operate, and maintain the infrastructure in a technically and financially sustainable manner; and to develop an agricultural support services program. The project will have four components: (i) component 1 addresses the physical modernization of the three irrigation systems; (ii) component 2 will strengthen WUAs to become fully inclusive organizations that assume full O&M responsibility for the modernized systems and be able to divert sufficient water from the Karnali River to the branch canal intakes; (iii) component 3 will prepare for a comprehensive agricultural program to be implemented during phase 2 of the modernization of the scheme; and (iv) component 4 will focus on overall project management, including monitoring and evaluation and reporting.

Component 1: Scheme Modernization (US$ 38.6 million)

82. The engineering requirements of scheme modernization are rather straightforward. The project does not envisage constructing any structure in the Karnali River. The point where the Karnali River waters are diverted (and channelized through Jarahi Nala) is at a location which is close to the Karnali Bridge where the river banks are well defined. The water gets distributed through the feeder canal and intake structures at the head of each of the branch canals, all to be constructed under the project. The hydraulic design and the structural design of these intake structures and other structures to be constructed are something DoI engineers and Nepalese consultants are very familiar with. The scheme modernization in phase 1 of the project will consist of:

i. Construction of a feeder canal to link the three main branch canal systems, which will have direct link to the main Karnali course at Chisapani and will assure the water availability for the three systems. It is noted that the project will not construct any structure in the river, but will continue to rely on the annual excavation of a channel from the river to the head of the feeder canal. Therefore there is no risk that a structure cannot perform due to moving river beds; ii. Rehabilitation and modernization of Rani (20 km), Jamara (16 km), and Kulariya (16 km) branch canals by providing necessary control and regulating structures and canal bank protection works; iii. Command area protection works against flooding from Karnali, Mohana, Patharaiya Rivers and some local streams within the command area; iv. Improvement and upgrading of roads (61 km) and construction of bridges and culverts. Six trunk roads linking the settlement areas of the command areas will be upgraded, namely: (i) Rani Intake to Khariphant (8 km); (ii) Narayanpur to Durgauli (11.4 km); Shivamandir to Milanchowk (4 km); (iv) Munuwa to Amarawati (12.6 km); (v) Tikapur to Katase (10.5 km); and (vi) Khakaraulla to Tikapur (14.7 km). The subsequent

26

maintenance of the roads will be done by local government offices, namely the District Development Committee and the Village Development Committees, as per their mandate. Regular block grants will be received by these committees from central government; v. Engineering consultancy services to assist DoI with the design and third-party construction supervision and quality assurance of the works, as well as with specific tasks such as engineering studies that will feed into the preparation of the phase 2 project; and vi. Implementation of the Environment Management Plan and activities related to mitigation measures as specified and costed in the plan.

83. The expected results of the component will be:

i. Assured and regulated irrigation delivery and distribution up to the sub-branch canal level; ii. Improved water management from the construction of the regulating and control structures in the branch canals will provide opportunities to extend the irrigation area coverage to its full available potential and will provide some opportunities for crop intensification and productivity increases; and iii. Flood control and regulated flow in the canals will ensure protection from the inundation problems and wash-out of the planted crops.

Component 2: Strengthening Water Users Associations (US2.2 million)

84. Support will be provided to strengthen WUAs to assume full responsibility for the O&M of the modernized infrastructure. This will require additional skills than the WUAs currently have, as the O&M will have to be carried out in a more professional manner. Most of the current experience of the WUAs is in mobilizing members to carry out digging channels for diverting water from the Karnali River near Chisapani to the heads of the branch canals, desilting canals, and constructing make-shift intakes from forest products. After modernization of the infrastructure, different types of management and operation will be needed and WUAs will be adequately trained. In order to carry out their functions well, the WUAs need offices, office equipment, motorcycles, and key pieces of maintenance equipment, such as excavators. In particular, the component will consist of:

i. Training to the members of WUAs. An awareness and training program will be implemented for WUA executive committee members and selected WUA members in different subject matters. Activities include management training to WUA officials, training to WUA members to prepare more appropriate charters and by-laws, training of technicians and water users on how to operate structures, and training in such aspects as the development and implementation of adequate O&M plans, setting of irrigation service fees, maintenance of records and accounts, participatory monitoring, conflict resolution, and optimizing the higher-order system water management for the benefit of all users. There will also be focus on ethnic and gender issues through awareness creation and training. For example, there will be specific focus on encouraging female landholders to take up WUA executive committee positions and train them in effective committee membership and avoidance of exclusion by women and ethnic minorities in the running of WUAs. Most of the training will be carried out by DoI, assisted by

27

specialized consultants and/or NGOs. About 2,500 farmers and staff of WUAs are expected to participate in the various training activities; ii. WUA Office Buildings. Physical facility improvement including the construction of small multi-purpose WUA buildings for each of the three WUAs at centrally located places within the command area and one small building for the WUA Central Committee. These buildings will be used for multi-purpose activities, such as committee meetings and skills training; iii. Office equipment and field facilities. In order to make the WUA capable of operating properly, office equipment will be made available. This will also allow the WUAs to store information on membership records, landholding records, records of rules and regulations, financial transaction records, and minutes of meetings. In order to facilitate the movement of WUA officials and technicians, motor bikes will be provided to effectively and efficiently manage the irrigation infrastructure; iv. O&M Equipment for WUAs. Certain pieces of maintenance equipment, mainly excavators, will be provided to enable WUAs to divert sufficient water from the Karnali River and desilt the feeder and branch canals. At the initial stage, the equipment will be placed under the management of PIO, but ownership of the equipment will be gradually transferred to the WUAs during the course of the project when it has been ascertained that WUAs are technically and financially capable of operating and maintaining the equipment; v. Study tours. WUA committee members and selected water users will be given the opportunity to visit irrigation schemes in the Terai where WUAs are successfully operating and maintaining more complex irrigation infrastructure. Selected DoI staff will also be able to participate in such tours; and vi. Operation and maintenance of Jarahi Nala Channel: The farmers have been diverting river water for more than a century by digging the channel with their hands. The project will improve on this by providing some equipment and empowering the WUAs to make use of mechanical equipment in those areas along the channel where it involves moving boulders and gravels and where there is deep channeling. This would enable the correct sizing of the channel. The project has reserved some funds to pay for the operation of the equipment procured for the excavation of the Jarahi Nala Channel from the Karnali River to the head of the branch canals. The fund will be spent by PIO, based on a decision between PIO and WUA Central Committee and reflected in a MoU signed by the two parties, until such time the WUAs are fully ready to take over ownership of the equipment.

85. The expected results from this component will be strengthened WUAs capable of shouldering more responsibilities for the O&M of the modernized systems. This is expected to lead to improved water conveyance and distribution from the Karnali River to the head of the sub-branch canals. It is also expected that the WUAs become more democratic organizations with adequate inclusion of ethnic minorities and women. Through addressing WUA governance issues WUAs will be more credible.

28

Component 3: Agricultural Production Support (US$2.9 million)

86. Support will be provided to carry out a series of agriculture production support activities in the project area through demonstrations, farmer field schools, and other adaptive processes. The component will also carry out several strategic studies on the options for agriculture diversification, value addition, and institutional innovations that can be promoted during phase 2 of the project. It is stressed that the main gains in production increases, diversification of cropping patterns, and assistance to improve the marketing of crops will be made under phase 2 when the command area gets improved. The following set of specific activities will be undertaken under the project:

i. Assessments: The project will early on carry out a: (i) cropping system analysis; (ii) soil fertility analysis; and (iii) value chain analysis. The findings will form the basis for developing: (i) soil fertility management plan; and (ii) identification of crops with best potential for subsistence and cash income. Additional studies will also be carried out to assess the feasibility of establishing cold storage and seed storage facilities, and assess the necessary institutional support to strengthen the agriculture value chain, including value addition and post harvest opportunities, all slated to be implemented during phase 2. All the assessments will be participatory, engaging key partners and beneficiaries; ii. Strengthening agricultural support services. The Agriculture Service Center in Tikapur will be strengthened commensurate with the demand the project will generate. The ASC currently supports two Agriculture Contact Points which will also be strengthened (the number of ASPs may have to be increased under phase 2 in order to adequately serve the many farmers in the command area, but this is not envisaged under phase 1). The ACPs will have an extension agent and will be equipped with teaching aids, communication tools, and motorcycles. DADO and the ASC will also be provided with teaching aids and communication tools, and also with a vehicle each to facilitate service delivery, supervision, and monitoring; iii. Demonstrations, adaptive research and farmers field schools. Once agriculture development strategies have been developed, the extension team will work with farmers to establish demonstration plots to show improved and proven farming techniques. Farmer field schools will be established which will allow farmers to test and adopt new ideas, including ICM and IPM. The FFSs are essentially 5-8 training sessions organized around a demonstration plot. The training sessions cover all stages of crop production from land preparation, sowing, application of fertilizers, weed and pest control, water management, and harvesting of crop. A group of about 20 farmers attends these training sessions which are held at the site of the demonstration. It is thus learning by doing and seeing real and practical aspects of different stages in the production of a crop. On-farm adaptive trials will help identify climate friendly varieties that can cope with drought or major pest conditions in the project area. Packages for the promotion under phase 2 of integrated pest management and integrated plant and soil nutrient management practices will be developed; iv. Training and visits. Training courses will be organized covering a range of topics from soil fertility management to seed production and group dynamics. Participants of the training are staff members from the District Agriculture Development Office and master farmers. Details on topics, modality, curriculum and duration will be detailed in a

29

training plan to be developed following training needs assessments. As part of training farmers and partner staff will be taken on cross visits within the country and in the region. DADO staff and farmers will be able to improve their technical knowledge and learn about innovative practices; v. Towards quality inputs. Critical problems impeding agriculture development in the project area is the lack of quality seeds and the precarious supply of fertilizers. Quality seed can best be produced when there is a reliable irrigation water supply and good water management at field level, which will be achieved under phase 2. Therefore under phase 1, support will be provided through identification and training of interested private contract farmers and community-based seed producing entities. Effort will be made to coordinate the project activities with ongoing projects such as IWRMP and PACT to support community seed production, seed storage initiatives, cash cropping, and value chain studies; vi. Provision of specialist services to assist DADO. Services of specialist organizations or individual consultants will be provided to support DADO in areas of need such as development of agro-processing facilities and value chain studies; and vii. Establishment of collection centres. Early during the first phase, the project will support establishment of three collection centres, one each for Rani, Jamara, and Kulariya command areas.

87. The expected results of this component will mainly be the identification and development of packages of improved crop varieties that meet both subsistence and income needs of local farmers and availability of improved and quality advisory services at the grassroots level.

Component 4: Project Management (US$4.3 million)

88. Support will be provided for effective overall project management, monitoring, and evaluation, and reporting. A project management team with a project manager and necessary technical and support staff will be based in Tikapur to manage and coordinate the project activities under components 1 and 2 on behalf of DoI. Component 3 will be managed and coordinated by the District Agricultural Development Office. The teams are to ensure smooth implementation of project activities, monitoring of project implementation progress and outputs/outcomes achieved, learning from project experiences, communication management, implementation of good safeguard practices, and procurement and financial management. Activities to be financed include, but will not be limited to:

i. the operation of the PIO and a small liaison office in Kathmandu for coordination with DoI, DoA, MoF, and other relevant agencies; ii. design and establishment of a project-specific Management Information System; iii. project monitoring, learning, and evaluation, including the services of independent M&E organizations for specific surveys and other monitoring tasks; iv. support to DADO with the management of its project component; v. documentation of the phase 1 project experience and its dissemination through a website, brochures, articles in newspapers, etc.; and

30

vi. overall preparation of phase 2, including incorporating the results of phase 2 preparation studies carried out under component 1 and work carried out under component 3 in the design of the phase 2 project.

89. The expected results of this component will be efficient project management, including adequate technical, fiduciary, safeguard, and M&E support. There will be quality financial management, reporting, and procurement processing according to IDA guidelines. The necessary preparation studies for phase 2 of the project will be conducted and completed.

31

Annex 3: Overall Project Implementation Arrangement

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

90. Development in Nepal faces a number of institutional and implementation challenges that can negatively affect project impact and sustainability. Some of the challenges foreseen by the proposed project include: (i) low institutional capacity and performance; (ii) shortage of adequately trained human resources at the grassroots level; (iii) weak coordination between implementing partners, especially between the Ministry of Irrigation (MoI) and the Ministry of Agriculture and Cooperatives (MoAC); (iv) frequent staff turnover; (v) exclusion of marginalized communities; and (vi) gender disparity. Taking into account the results of the various preparation studies, including peace and conflict analysis, a number of implementation tools and mechanisms have been developed to ensure adequate implementation arrangements. For example, a Social Impact Management Framework has been designed to ensure, among others, inclusion of marginalized groups and women. To promote inclusion in decision-making, WUAs will be encouraged through awareness creation and specific training to implement the provisions of the Irrigation Regulations. A Governance and Accountability Action Plan (GAAP) has been designed with as main objective to contribute towards strengthening governance and accountability systems in the project and beyond. It will achieve this objective by ensuring resources allocated by the project are spent for the intended purposes and directed to the beneficiaries of the project; strengthening coordination between different national and local agencies; and improving feedback mechanisms between beneficiaries, civil society, and project authorities. Institutional mechanisms will be in place to handle grievances so that any adverse impact of potential conflicts could be avoided (see Annex 7). The Project Implementation Manual (PIM) will provide detailed guidance to address issues related to procurement, financial management, resource governance, and implementation of planned activities. A draft PIM is available and its finalization is a disbursement condition for the civil works. The final PIM will be translated in Nepali and will be made available to project staff, WUAs, and other interested parties. It will also be available on the project‟s website.

91. The Department of Irrigation is the main implementing agency for the project. DoI has gained considerable experience over the years implementing World Bank and ADB-financed irrigation projects, including having experience with projects of similar nature such as the Sunsari Morang Headworks Project and Mahakali Irrigation Project. In these projects, the project management and implementation was through a decentralized setting, with the DoI having an arrangement of liaison offices. These operations performed satisfactorily. Currently, DoI is implementing the Irrigation and Water Resources Management Project which is coordinated by the Office of the Project Director (OPD) located at DoI, with key activities being undertaken in a number of districts. As compared to IWRMP which requires major coordination efforts with division and subdivision offices and with other line agencies (Department of Agriculture, Department of Hydrology and Meteorology, and Water Energy Commission Secretariat), the proposed project requires coordination only with one DADO that implements the agricultural component.

32

Project Management and Supervision

92. A Project Steering Committee, chaired by the Secretary of the Ministry of Irrigation, will be formed. Membership will include senior management staff of the Ministry of Finance, Ministry of Agriculture and Cooperative, Ministry of Forests and Soil Conservation, Ministry of Environment, National Planning Commission, Department of Irrigation, and Department of Agriculture. The steering committee will provide overall policy, guidance, and will ensure necessary coordination between the related agencies to support the project activities.

93. The Department of Irrigation will have the main responsibility of implementing the project. The Director General will be the focal person at the departmental level. The Department of Agriculture will be the implementing agency for Component 3. The Deputy Director General (DDG) for Planning at the Department of Agriculture in Kathmandu will be the focal person.

94. Overall responsibility for day-to-day coordination and management of the project will rest with DoI, through the Project Implementation Office that has been set up at Tikapur town, located centrally in the command area. Component 1 (Scheme Modernization) and Component 2 (Strengthening Water Users Associations) will be implemented directly by DoI, while Component 3 (Agricultural Production Support) will be implemented by the Department of Agriculture through its district office and subsidiary units in the command area. Overall financial reporting, budget allocation, and fiduciary transactions will be the responsibility of DoI through the PIO, but this will be through information sharing with DoA/DADO that is responsible for the financial management of its own activities.

95. The PIO will be responsible for overall contractual management of the civil works, coordination with WUAs, agricultural agencies, forestry and environment departments, wildlife conservation, local agencies for the roads, and district administration. Its main management tasks will be:

 Overall implementation of the project, including management of the annual work plan and budget;  Maintaining financial accounts;  Day-to-day construction supervision and quality control activities;  Preparing periodic progress reports;  Monitoring WUA activities;  Monitoring and evaluating the progress and outcomes of the project; and  Supervising cross-cutting issues including gender, indigenous people, and other social and environmental issues.

96. The Project Manager will be supported by: (i) a team of engineers (two Senior Divisional Engineers, four Engineers, and eight assistant or sub-engineers with various skills, including CAD and procurement; (ii) one social scientist and two Association Organizers (AO); (iii) one environment specialist; (iv) one finance officer and one accountant; and (v) office administration assistants. The composition of the PIO team will be reviewed by joint GoN/IDA teams on a regular basis and will be adjusted based on the workload. The PIO will be supported by teams of

33

consultants, e.g. for third-party construction supervision, short-term tasks to strengthen the project team on for instance procurement, and special preparation studies for the phase 2 project.

97. The PIO will have a monitoring specialist who will have overall responsibility for planning and coordinating M&E activities. Coordination of M&E activities will take place mainly with the entities that will undertake the bulk of the data collection and analysis work. The PIO, supported by short-term consultants, will have overall responsibility for developing systems and procedures for appropriate analysis and presentation of the collected M&E data to ensure appropriate use of the indicators for project management, evaluation and learning.

98. The Social, Environmental, and Institutional Unit of the PIO, headed by a sociologist, will have direct linkages with the WUAs to implement the institutional and capacity development program. It will also monitor the implementation of the Environmental Management Plan and coordinate closely with other agencies, NGOs, etc. that are working on environmental aspects in and around the project area. There will be a Local Environmental Monitoring Committee (composed of staff from local protected area agency, forest authority, NGOs, and ongoing conservation projects) for periodic inspection of the implementation of environmental management/mitigation activities and also for promoting local level coordination. GoN will also engage an independent party for regular independent monitoring of project‟s environmental compliance, management, and performance.

99. A liaison office will be set up within DoI‟s main office in Kathmandu to facilitate approval processes, assist with the preparation of annual work plans, and communicate with other agencies, as needed, on behalf of the PIO. DoI will post at least one officer in this liaison office.

100. The District Agriculture Development Office in Dhangadhi will take the lead in implementing the agricultural activities under component 3 through its Agriculture Services Center and Agricultural Contact Points within the command area. While the head of DADO will be responsible for guiding the agricultural component of the project, extension activities at the community level will be supported through the Agricultural Service Center in Tikapur that is staffed with Junior Technicians. They will be supported on a regular basis by a subject matter specialist based in Dhangadhi. Directorates in DoA will also participate as required. For example, the Plant Protection Directorate has responsibility for IPM training and development and will be involved in work related to IPM. In order to maintain coordinated planning and implementation of project activities and to ensure convergence, PIO will make available office space for a DADO nodal officer, most likely the SMS referred to above, at its Tikapur office. The project will fund consultants, such as social mobilizers and agricultural specialists, as appropriate to assist the staff of the ASC and others with the implementation of the component. The consultants will report mainly to DADO but also to PIO. There are at the moment two Agriculture Contact Points within the project area that are supported by ASC, Tikapur. Each ACP is supposed to be staffed with one Junior Technician, a certificate holder in agriculture with a minimum of three years of work experience. These ACPs will bring extension services and farmers closer together, in addition to serving as information hub. The following summarizes the key functions of DADO, ASC, and ACPs.

34

101. GoN will ensure that as much as possible the core professional PIO team will not be transferred to other positions until completion of the project. Transparent mechanisms will be introduced for the selection of staff for international study tours and exposure visits. GoN employees who have participated in an international training course or study visit will be expected to remain in their posts for the minimum period specified by Clause 40 (c) of the Civil Service Act, 2049 (1993).

102. The main functions of DADO are as follows:

 Maintain coordination with PIO in order to ensure support to implement agricultural activities;  Dedicate senior officers, e.g. SMS (Agronomy) and SMS (Horticulture) to provide technical backstopping to the Agriculture Service Center and Agriculture Contact Points;  Contribute to annual workplans and progress reports; and  Carry out procurement and ensure that procurement procedure for agricultural inputs comply with WB policy and procedures.

103. The main functions of ASC and ACPs are:

 Ensure and maintain effective coordination with PIO and other agencies and firms engaged in agriculture development in the project area;  Ensure timely implementation of planned activities;  Organize field based extension activities such as group organization, agricultural training, setting up demonstration, establishment of farmer field schools, and cross learning visit for farmers;  Assist in identifying and securing resource persons for training;  Manage information desks; and  Preparation and submission of progress reports (brief monthly and comprehensive semi- annual) to DADO, with copies to PIO and DDG Planning, DoA.

104. At the local level, WUA membership of landholders in the irrigation scheme (that are also water users) is compulsory. WUAs will be encouraged to promote representation and inclusion of all communities participating in the project. Inclusion of women will be adopted as a project principle, with a minimum target of 33 percent women in decision-making processes. The project will undertake capacity building measures, including training, to make the participation of women and other marginalized groups more substantial. Experience has shown that gender mainstreaming initiatives should cover both men and women, which the project will take into account in its capacity building initiatives. In order to avoid conflicts regarding ethnic representation and water allocation the project will develop implementation guidelines on the basis of the GAAP, social management framework, and safeguards where potential issues and concerns have been identified and mitigation measures outlined.

105. The project will interact with other development initiatives at the local level. As part of this, local government bodies (District Development Committee and Village Development Committees) will be briefed and consulted on project activities. Information and experience will be exchanged with civil society organizations operating at the local level to create synergy.

35

106. Disclosure of Information. Disclosure requirements will be complied with to make information transparent and all information readily available for public disclosure. DoI will post on its website all available guidelines, procedures, and other key information related to the project. In particular, DoI will disclose the following through its website: AWPB, Budget Allocation by Activity and Budget Line; Project Implementation Manual; Annual Procurement Plan; Trimester Implementation Progress Reports (approved versions); and Annual Audited Financial Statements.

107. All relevant information material developed for communication and outreach purposes will be translated into Nepali. Surveys and focus group discussions with samples of beneficiaries will be conducted periodically to obtain feedback on the effectiveness of communication, quantity, quality and usefulness of training provided to the WUAs, and on whether the water users are receiving equitable benefits from the project.

Financial Management and Disbursement Arrangements

108. Country Financial Management Environment. The Nepal Country Financial Accountability Assessment (CFAA, 2002), updated in 2005, concluded that the failure to comply with the legal and regulatory fiduciary framework makes the fiduciary risk in Nepal “high”, a risk level that is similar to that in most developing countries. The situation has not significantly changed during the past five years. The Public Financial Management (PFM) Review (May 2007) reaffirmed that the PFM system in Nepal is well designed but unevenly implemented. The PFM benchmarks established in 2008 based on the Public Expenditure and Financial Accountability (PEFA) framework prepared by the government with technical assistance of the World Bank confirmed that the fiduciary risk remains “high”. A joint DfID/World Bank progress review carried out between September 2008 and February 2009 showed little progress in the implementation of the PEFA Action Plan. Some of the prevailing country level risks include deteriorated control environment, insufficient monitoring, increased threat of collusion and intimidation to bidders, and weakening of oversight agencies (absence of institutional leaders which include the Auditor General and the Chief Commissioner of the CIAA). However, improving overall financial accountability framework remains a high priority of the government. Some of the actions undertaken such as promulgation of the Public Procurement Act and Public Procurement Regulations in 2007, amendment of the Financial Administration Regulations in 2007, and the self-assessment of various PFM indicators as per PEFA Guidelines in 2007 are some of the examples of government‟s continued commitment. Preparation of the PFM Strategy Document paved the way for the implementation of action plans. A high level steering committee chaired by the Finance Secretary provides necessary forum for close monitoring on implementation with continuation of collaborative support from development partners.

109. Financial Management Arrangements and Risk Analysis. The Department of Irrigation is the main implementing agency for the project. DoI has gained considerable experience over the years implementing World Bank and ADB-financed irrigation projects. It typically implemented the financial management arrangements in a satisfactory manner. As compared to IWRMP which requires major coordination efforts with division and subdivision offices and with other line agencies, the proposed project has only one cost center and requires coordination with one

36

DADO only. The capacity of DoI/PIO and DADO has been assessed and is found satisfactory. Since the government financial procedures will be followed, DoI and DADO are capable of handling financial management.

110. The Government‟s Financial Administration Regulations (FAR) which provide the basis to exercise appropriate controls over project transactions will be used. It will be supplemented by the Project Implementation Manual which will include a detailed description of the funds flow, financial management guidelines, and reporting arrangements. There will be efforts in capacity building for project management and WUAs in technical areas, as well as financial management. Performance audits will be conducted to measure progress and timely identification of areas of improvement, including for financial management. To address the remaining gaps that have been identified during the assessment, a financial management action plan has been agreed and the risks will be reduced as the action plan gets implemented (see later in this Section). From the financial management perspective, the overall risk is currently “Substantial” and the residual risk is “Modest”. Despite some residual risks, especially related to continuity of staff and the remote location of the PIO office, the financial management arrangements for the project are expected to be adequate for the purpose of project implementation.

111. Planning and Budgeting. The central level budgeting procedures for preparation, approval, implementation, and monitoring are elaborated in the Financial Procedures Rules (FPR). The preparation of annual work program and budget (AWPB) will be coordinated by the PIO, seeking input from the DADO for Component 3. The draft AWPB will be discussed at the Project Steering Committee meeting. Following the endorsement of the PSC, the PIO will submit the proposed annual work program and budget to the National Planning Commission and the Ministry of Finance. Two dedicated budget codes – one for the irrigation components of the project (components 1, 2, and part of 4) and the other for the agricultural component (component 3 and part of 4) - will be assigned in the Government‟s Budget (Red Book) for recurrent and capital expenditures. The annual work program will be prepared based on the guidelines that will be spelled out in the PIM and the budget preparation guidelines provided by NPC. MoF releases authorization for expenditure to the Ministry of Irrigation, which in turn releases authorization to DoI. The Director General of DoI will delegate spending authority to the Project Manager.

112. For component 3, the District Agricultural Development Office will be responsible to prepare the annual work program and budget based on the Ministry‟s directives and guidelines. The DADO of Dhangadhi will provide its input to the PIO for activities to be implemented through the project. Budget allocation for DADO will be reflected in a separate budget code under the MoAC.

113. Funds Flow Arrangements. GoN releases the budget as per the approved work program to the PIO in three tranches as per its fund release procedures. The budget approved by GoN will be indicated in the government‟s budget (Red Book) under a separate budget head for MoI. Prior to the approval of the work program and budget, one-third allocation based on the previous year expenditures or projected expenditures for the first trimester, whichever is greater, will be made to the PIO through the concerned District Treasury Controller Office (DTCO). Since the

37

treasury single account (TSA) has been implemented in Kailali District from January 2011, all payment transactions upon the approval of the authorized offices in the district will be made through the DTCO. With the TSA system, the cost centers will not handle any cash transaction, but upon the approval by the cost centers, the payments will be made through the DTCO. Subsequent second and third trimester authorizations are based on performance reflected by the physical progress reports as required by Schedule 2 of the FPR.

114. For reimbursement of IDA‟s share of expenditures to GoN‟s consolidated fund and for direct payments to beneficiaries, a Special Designated Account will be established at the Nepal Rastra Bank in US Dollars. This will facilitate quick payments for activities under the project, including the reimbursement under terms and conditions acceptable to IDA. DoI will designate the Project Manager and Finance/Accounts Officer as the authorized signatories who will be authorized to issue checks. Supporting documentation submitted for withdrawal of funds from the Credit/Grant is comprised of summary reports (e.g. statements of expenditure, SoE) and records (e.g. invoices, receipts). Reporting formats for Trimester Implementation Progress Reports have been prepared and agreed.

115. Project Financial Accounting, Reporting and Internal Controls. Both implementing agencies of the components (PIO and DADO) will maintain books of accounts and prepare accounts on a cash basis. The PIO will coordinate activities under Components 1 (Scheme Modernization), 2 (Strengthening Water Users Associations) and 4 (Project Management which include Monitoring & Evaluation). The DADO, Dhangadhi will coordinate activities under Component 3 (Agricultural Production Support) and will have some share under Component 4. The PIO will provide overall coordination under all components. Implementation progress will be monitored through the Implementation Progress Report which will be coordinated and prepared by the PIO. Reporting arrangements from the DADO will be described in the PIM. The DADO will send its statement of expenditures to the PIO which will be consolidated in the report to be prepared by the PIO. The PIO will be adequately strengthened to maintain both technical and accounting information using spreadsheet or appropriate software.

116. Accounting information will be regularly updated in the PIO system to timely generate financial reports. As required by the government system, the PIO will maintain Main Credit/Grant Ledger, Subsidiary Credit/Grant Ledger, Withdrawal Monitoring Register, Special Designated Accounts Ledger, and other ledgers, as required. GoN‟s internal control system will be applied to monitor the progress of the project in accordance with sound accounting practices. Activity-based subsidiary records for monitoring the detail accounts/key indicators will also be maintained by the PIO. The accounting systems contain the following features: (i) application of consistent cash accounting principles for documenting, recording, and reporting its financial transactions; (ii) a well-defined chart of accounts that allows meaningful summarization of financial transactions for financial reporting purposes; (iii) maintenance of withdrawal monitoring register, the record of Statement of Expenditures and Designated Accounts register; (iv) the asset register; (v) monthly closing and reconciliation of accounts and statements; and (vi) the production of annual financial statements.

117. Financial Management Staffing. As per the implementation arrangements, the PIO will be the office to provide overall coordination of implementation and management of project

38

activities. In terms of financial staff, the PIO will have one dedicated Finance Officer and one Accountant. DoI has ensured that the PIO will be staffed with an experienced and qualified finance officer with experience in computer operations and having ability to provide leadership to project financial activities. The DADO will designate an Accounts Officer to maintain the records of the project activities as defined in the PIM.

118. Internal Audit. The District Treasury Controller Office, Dhangadhi, is responsible to carry out the internal audits of both PIO and DADO. Internal audits are carried out on a trimester basis. Each cost center is responsible to maintain its accounts by budget heads. The Bank will also arrange for special reviews of financial management arrangements as part of its implementation support.

119. Performance Audit. An arrangement will be made to carry out the performance audit of the project about two years after the project implementation starts. The performance audit will be carried out through the Office of the Auditor General (OAG) as mandated by the Interim Constitution, and required resources will be provided by the Government of Nepal for this purpose.

120. Interim Financial Reports. The Interim Financial Reports will be part of the Project Implementation Progress Report will report total investments inclusive of IDA contribution, government contribution, and beneficiaries‟ contribution, to be separated by specific activity so that total investments as envisaged can be tracked and monitored. The PIO will produce the progress reports, showing the sources and uses of funds, output monitoring report, procurement management report, and narrative progress. To match the public sector planning and reporting cycle, the IPR will be produced on a trimester basis and submitted within 45 days from the end of the preceding trimester.

121. External Audit. Annual consolidated project financial statements and Designated Accounts statement will be audited by the Office of the Auditor General, which is considered acceptable by IDA for this purpose, and submitted to IDA within six months after the end of the fiscal year, i.e. by January 15. The terms of reference for the external audit has been discussed and agreed with the Office of the Auditor General. The following audit report will be monitored in the Bank‟s Audit Report Compliance system (ARCS):

Implementing Audit Auditors Audit Due Date Agency DoI Project Consolidated OAG 6 months after the end of Financial Statements fiscal year (January 15th)

122. Financial Management Action Plan. Required actions that link with financial management and strengthening the financial management capacity under the project were agreed between the Recipient and IDA as summarized below:

39

Action Plan Action Responsibility Completion Date 1. Designate suitably qualified (with computer MoI/DoI August 31, 2011 experience) and competent team of Finance/Accounts Staff at the PIO: One Finance Officer and one Accountant. 2. Finalization of the Project Implementation Manual DoI/PIO Disbursement to describe overall operational and financial Condition for management arrangements, satisfactory to IDA. Category 1.

3. Provide extensive orientation and training to all PIO Starting one beneficiaries. month after the approval of the PIM and then on a regular basis, as needed. .

4. Develop a computerized system using appropriate PIO December 31, software to track project expenditures and produce 2011 timely financial statements.

123. Implementation Support Plan. Project implementation progress will be closely monitored by the DoI, DoA, and IDA. IDA will supervise project implementation for the purposes of supervision on fiduciary aspects of both procurement and financial management. DoI through PIO will report on project implementation progress through a trimester report, the IPR. The agreed action plan will be closely monitored to ensure appropriate actions are being implemented. Key FM fiduciary work includes: (i) periodic visits to cost centers for ex-post reviews; (ii) reviews of implementation progress reports and audit reports and preparing summaries of such reports; and (c) participating in implementation support missions and keeping the team informed of financial management issues or improvements. The initial focus will be on the progress of implementation of agreed actions, and facilitating the PIO in maintaining sound Financial Management arrangements throughout project implementation. From second year of implementation, IDA will field from time to time an independent consultant or consulting firm for ex-post review of financial management arrangements.

124. Allocation of Financing Proceeds. Disbursement under proposed financing will be made as indicated in the next table, which indicates the percentage of financing for different categories of expenditures of the project. It is expected that IDA funds will be disbursed over a period of five years.

40

Allocation of Financing Proceeds Category Amount of the Amount of the Percentage of Credit Allocated Grant Allocated Expenditures to (expressed in US$ (expressed in be Financed and SDR in US$ and SDR in (inclusive of brackets) brackets) Taxes)

(1) Civil US$23,600,000 US$8,600,000 87% works under (SDR14,900,000) (SDR5,400,000) Components 1, 2, 3, and 4 of the Project

(2) Goods, US$8,700,000 100% services, (SDR5,500,000) training, and incremental operating costs under Components 1, 2 and 4 of the Project

(3) Goods, US$2,100,000 100% services, (SDR1,400,000) training, and incremental operating costs under Component 3 of the Project

TOTAL US$23,600,000 US$19,400,000 AMOUNT (SDR14,900,000) (SDR12,300,000)

125. Disbursement Arrangements. Disbursements from IDA will be made based on full documentation for contracts above the Prior Review threshold or on the basis of SoEs. To facilitate disbursements, Designated Accounts will be established. Program costs are implemented through contractual services with firms or individuals and hence payments will be made directly from the Designated Accounts. For large value contracts, direct payment method for disbursements will be used. Small value contracts, goods of small values, training, workshops, incremental operating costs, and project management costs will first be pre-financed by the government, and once the accounts are consolidated and approved will be transferred from the Designated Accounts to the government‟s consolidated fund.

41

126. Use of Statement of Expenditures. The applications for reimbursement and reporting use of advance in the Designated Account should be supported by: (i) list of payments against contracts that are subject to the Bank‟s prior review, together with records evidencing eligible expenditures (e.g. copies of receipts, supplier invoices); and (ii) Statement of Expenditure for all other expenditures/contracts. During implementation review missions, Bank staff will closely review SoE claims to ensure that funds are utilized for the intended purposes. Any ineligible expenditure identified during such reviews will need to be refunded to IDA.

127. Designated Accounts. A Designated Accounts in US Dollars will be established at the Nepal Rastra Bank for utilization of IDA‟s share of project expenditures, on terms and conditions satisfactory to IDA. The authorized allocation for Designated Accounts will be US$5.0 million. The designated accounts will be operated under joint signatures of the Project Manager and the Finance Officer.

128. The PIO will ensure that the bank/cash books are reconciled with bank statements every month. They will separately submit applications documenting the expenditures from the previous advance and requesting for additional advance based on cash forecast to be deposited in the Designated Accounts on a trimester basis. The withdrawal application will be accompanied by reconciled statements from the bank in which the account is maintained, showing Designated Account transactions. Supporting documentation will be maintained by PIO for at least one fiscal year after the year in which the last disbursement from the project took place, and will be available for review by IDA staff and independent auditors.

Procurement

129. Procurement for the proposed project will be carried out in accordance with the World Bank‟s “Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” published by the Bank in January 2011, and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers” published by the Bank in January 2011, and the provisions stipulated in the Financing Agreement. For each contract to be financed under the Credit/Grant, the procurement methods or consultant selection methods, the estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

130. Procurement of Works. Works procured under this project will include construction of a feeder canal, rehabilitation of branch canals, construction of hydraulic structures, command area flood protection works, upgrading of link roads, and environmental protection works. Procurement of works also includes construction of a PIO office building and small WUA buildings within the project‟s command area. Procurement of contracts for feeder canal, branch canals, link roads, and canal bank and command area protection works are expected to be carried out through ICB procedures, while other contracts will follow NCB procedures using the Bank‟s Standard Bidding Documents (SBD) and as indicated in the procurement plan. Civil works contracts estimated to cost the equivalent of US$3,000,000 or above shall be procured through ICB following World Bank procedures.

42

131. Procurement of Goods. Goods procured under the project will include vehicles, office equipment, and heavy equipment for system operation and maintenance. The procurement will be carried out as indicated in the procurement plan. Goods contracts estimated to cost the equivalent of US$500,000 or above shall be procured through ICB following World Bank procedures.

132. Procurement of Non-consulting Services. The project entails field training to WUAs for capacity building, training to DoI and DADO staff, study tours, etc. under this category of procurement. These activities will be carried out as indicated in the procurement plan.

133. Selection of Consultants. The project will include procurement of small and medium value contracts with consulting firms, individual consultants, and possibly NGOs. Shortlists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The project also envisages limited services of international consultants for some jobs requiring high level of professional expertise and experience including services for quality control, design and supervision. International consultants may be either from a foreign firm or international experts working on behalf of a Nepali firm.

134. Assessment of the Agency’s capacity to implement procurement. Most procurement activities will be carried out by the PIO in Tikapur, Kailali District, under the management of a project manager, with the support of a team of engineers and a procurement officer. An assessment of the capacity of DoI/PIO to implement procurement actions for the project was carried out on February 14, 2011. The assessment reviewed the organizational structure for implementing the project and conducted interaction with the project manager and project staff. Procurement documents of other projects, including IWRMP, were also reviewed during the assessment.

135. Though the agency is headed by a senior official with adequate experience of IDA funded procurement procedures and requirements and is assisted by a team of engineers, considering the number of procurement jobs to be initiated in the first year and varieties of procurement activities involved, support of an individual procurement consultant is deemed necessary as an extended working hand for the PIO. Since the project procurement includes varieties of activities including ICB, NCB, and selection of consultants, procurement training for project staff, on a periodic basis, is recommended as per identified needs. Based on the assessed procurement capacity of the PIO and provision of nominal mitigating measures as suggested, no major risks are identified for project procurement. Therefore, the overall project risk for procurement is „moderate‟.

136. For all NCB contracts, the implementing agencies may follow the Public Procurement Act and Regulations of Nepal, which set out thresholds and clear procedures for making internal procurement decisions. In order to ensure economy, efficiency, transparency, fairness and broad consistency with the provisions of Section 1 of the Procurement Guidelines, the following exceptions to local procedures shall apply in the case of National Competitive Bidding:

43

(i) bid documents shall be made available, by electronic means, mail or in person, to all who are willing to pay the required fee;

(ii) foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders;

(iii) bids shall be opened in public in one place, immediately after the deadline for submission of bids;

(iv) qualification criteria (in case pre-qualifications were not carried out) shall be stated in the bidding documents, and if a registration process is required, a foreign firm declared as the lowest evaluated bidder shall be given a reasonable opportunity of registering, without let or hindrance;

(v) evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed with the Association and contracts shall be awarded to the lowest evaluated bidders;

(vi) rebidding shall not be carried out without the prior concurrence of the Association;

(vii) extension of bid validity shall not be allowed without the prior concurrence of the Association (A) for the first request for extension if it is longer than four (4) weeks and (B) for all subsequent requests for extension irrespective of the period; and

(viii) there shall not be any restrictions on the means of delivery of the bids.

137. Procurement Plan. The Borrower has developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the IDA task team. It will be available in the project‟s database and in the Bank‟s external website. The Procurement Plan, as prepared, includes for now only the proposed procurement for Component 1 and 2, to be managed by DoI. For Component 3, to be managed by DADO, the Procurement Plan will be developed based on demand and detailed breakdown of program activities and will be reflected in the regularly updated Procurement Plan of the project. The Procurement Plan will be updated in agreement with IDA annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

138. Procurement Supervision. In addition to the prior review to be carried out from the Bank office, the capacity assessment recommends carrying out regular supervision reviews and post review of procurement actions in the field.

139. Review by the IDA of Procurement Decisions. The Procurement Plan sets forth those contracts which shall be subject to the Association‟s Prior Review. The following table is presented to show the prior review requirement by the Association.

44

Procurement Threshold in US$ for contracts under prior review Method Works Goods Services Non- Consulting Services 1 ICB contracts All All NA NA 2 NCB contracts Above Above NA NA 500,000 300,000 3 Shopping NA Above NA NA 20,000 4 Community The first one NA NA NA participation contract procedure 5 Direct contracting Above 10,000 Above NA NA 10,000 6 Service contract with NA NA Above NA a consulting firm 200,000 7 Individual consultant NA NA Above 25,000 NA 8 Training to WUA for NA NA NA The first capacity building contract NA = Not Applicable. It is noted that not all procurement methods may eventually apply under the project.

45

Annex 4: Operational Risk Assessment Framework (ORAF)

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

Project Development Objective(s)

The project development objective is to improve irrigation water delivery to, and management in, the command area.

PDO Level Results 1. Irrigation service delivery by service providers (WUAs) assessed as satisfactory by water Indicators: users (measured in percentage of water users).

2. Resources generated by water users for the operation and maintenance of the modernized irrigation systems (measured in percentage of required resources).

3. Increase in irrigated crop yields of main crops rice, wheat, and maize (in about 40 percent of the command area at the head of the canal systems; measured in tons/hectare).

4. Number of female and male water users (defined as member of the WUA) provided with improved water delivery services: (i) number of female water users; (ii) number of male water users; and (iii) percentage of female WUA Executive Committee members.

46

Risk Category Risk Risk Description Proposed Mitigation Measures Rating Project Stakeholder Low a) The project may not meet all the a) There are established WUAs that have Risks expectations of the beneficiaries and been in existence for a long time. may not address all the infrastructural Regular consultations and information issues of the existing irrigation sharing will be carried out on the project systems. design, scope, and implementation aspects with these WUAs and their members.

b) Different segments of the WUAs may b) An assessment will be carried out to hold different views of the project with improve understanding of the WUAs‟ regards to benefit sharing. organizational and operational requirements as well as the need to support their strengthening to manage the improved irrigation system and benefit sharing. Necessary steps will be introduced in this regard under the project design as part of the implementation of especially component 2.

Implementing Agency M-I a) Project Management weakened by a) A clause has been included in the IDA Risks lack of timely mobilization of capable Financing Agreement that specifies core and skilled staff or their untimely management team composition, transfer. continuity in post requirements, and understandings regarding consultations with IDA prior to changes in core team.

b) Inadequate procurement capacity and b) Procurement officer is designated with the procurement process too lengthy. project management team and provided adequate training. Frequent oversight will be provided by the procurement unit

47

Risk Category Risk Risk Description Proposed Mitigation Measures Rating of the country office.

c) Inadequate staff capacity to manage c) External FM consultant will be hired, if the financial aspect and agricultural needed. Staffing levels for agricultural aspects of project implementation. component will be addressed to include privately hired staff, as needed.

d) Institutional monitoring mechanism of d) External M&E mechanism as well as DoI is not adequate and lack of complaint handling and grievance redress effective complaint-handling and system will be instituted. grievance redress mechanisms.

e) The project contains capital-intensive e) To the extent possible ICB will be the infrastructure components which mode of procurement. Disclosure and would involve inherent risks monitoring mechanisms, including associated with contracts and contract community and third-party construction management. supervision and quality control will be used to monitor contract management and to increase transparency.

Project Risks

 Design M-L a) Design of the infrastructure not a) It will be ensured that final designs are conducive to the capacity of WUAs to sound, based on modern design properly operate and maintain. standards yet compatible with local conditions and that the proposed works will serve the intended purpose and will be sustainable with acceptable level of O&M requirements.

b) Design of the project does not focus b) WUAs have already been involved in

48

Risk Category Risk Risk Description Proposed Mitigation Measures Rating on lower-order and field-level the discussions in the project design and infrastructure that may dissatisfy there was unanimity that all WUAs farmers. should benefit equally from the proposed project (Phase I). There will be continued stakeholder discussions to ensure that every interested water user/farmer is aware of the scope of the project and the future proposals for a phase 2 project that will lead to major benefits.

 Social and M-L a) Compliance with the safeguards a) DoI has good experience in preparing Environmental requirements remains inadequate and implementing Social and during implementation. Environmental Management Plans based on the developed framework. For the b) Elite capture of Users‟ group. current project, social assessment, peace/conflict analysis, and c) Environmental issues such as silting in environmental studies have been carried the canals may arise and water out and the frameworks and availability from the river may be management plans have been prepared. reduced. Dedicated officers in the project management team will work on social and environmental issues. Training will be provided to sensitize project management staff. Regular monitoring of the implementation of social and environmental management plan will take place.

b) Orientation and training of WUA office bearers and the general WUA

49

Risk Category Risk Risk Description Proposed Mitigation Measures Rating membership will be carried out to make them aware of their rights, responsibilities and accountabilities. Women and ethnic minorities will be trained to increase their effectiveness within WUAs.

c) Construction of regulating structures will vastly reduce the uncontrolled flood flows into the systems thereby reducing the siltation in the canals.  Delivery Quality M-I a) The civil works carried out a) Qualified contractors will be under the project will not be of selected through competitive good quality, leading to procurement methods. unsustainable works and dissatisfaction among Adequate day-to-day construction beneficiaries. supervision arrangements will be made. b) Lacking defined roles of the WUAs and Federation and the Third-party construction DoI, proper functioning of the supervision and quality assurance irrigation systems and long- consultants will be recruited term maintenance of the works under the project. carried out under the project will be in jeopardy. b) The roles and functions of the three individual WUAs and the central committee (Federation) and the DoI will be clearly spelled out for the regular operation, maintenance and management of the irrigation systems in a MoU to

50

Risk Category Risk Risk Description Proposed Mitigation Measures Rating be signed by the WUAs and the DoI. A detail WUA study will be carried out to identify the current WUA structure, reforms needed in the current set up, skills required to manage modernized systems, enhancement of roles and participation of female WUA members, sensitization of the members on gender issues, etc.

Overall Risk Rating at Overall Risk Rating During Comments Preparation Implementation

M-I M-I

51

Annex 5: Implementation Support Plan

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

140. The implementation support strategy for the project is based on the nature of activities supported by the project, the capacities of the implementation agencies, and the risks described in the ORAF and GAAP. The implementation support strategy links the key project risks identified in these and other documents with the mitigation measures that have been designed. Along with regular implementation support described below, there will be continuous interaction with the implementing agencies to provide support and guidance on issues and challenges that may arise during implementation.

141. Project Implementation Office and Project Steering Committee. The PIO which is responsible for the day-to-day implementation of the project will be staffed by dedicated and full-time DoI staff who are assigned in their positions based on their professional skills and experience as agreed with the Bank. Similarly, DoA will ensure that the needed district staff is available to implement the agricultural component. The Bank implementation support team will interact mainly with the PIO and DADO staff. The mandate of the PSC which will provide policy guidance to the project will be clearly defined and agreed to. This will minimize the likelihood of overlapping responsibilities occurring and hampering effective project implementation. The Bank team will meet the chairman of the PSC and other members on a regular basis to discuss the progress with and issues that affect project implementation.

142. Project Implementation Manual. A Project Implementation Manual will be used during project implementation. The PIM will include details of roles and responsibilities of all implementing agencies and the management structure, processes and procedures for the implementation of the project. The PIM, that includes all other relevant documents, such as GAAP, procurement plan, and cost tables, will be made available both in the English and Nepali languages.

143. Supervision strategy. The supervision strategy for the project includes joint reviews by the Bank and GoN on average every six months. These reviews will include field visits and intensive discussions on project performance, and will be used as a forum for providing constructive and corrective technical guidance. The findings of the joint reviews will also be used to identify gaps constraining implementation and support will be provided to the implementing agencies for the same.

144. Technical support to the PIO. Technical support will be provided by the Bank team to the implementing agencies (PIO, DADO and its field offices) as needed to enable them to implement all project activities, including support to WUAs, M&E, third-party construction supervision, and specialized studies.

145. Monitoring and Evaluation. Capacity building of the implementing agencies in monitoring and evaluation is a key aspect of supervision and implementation support to the key agencies. The DoI/PIO and DADO will be supported with developing monitoring and reporting formats for all components and activities to be undertaken by the project, and analysis of data

52

collected and presentation and use of findings. The PIO will be aided by independent monitoring and verification mechanism undertaken by external consultants.

146. Financial Management. Training of staff on financial management procedures will take place in the first six months of project implementation. Project level service standards will be developed for disbursement against financial and results reporting. A Bank financial management specialist will be part of the joint reviews to assess the quality of financial management being followed in the project and recommend needed remedial actions.

147. Procurement. Training of PIO and DADO staff on procurement procedures will take place in the first six months of project implementation. A procurement specialist will be part of the joint reviews to assess procurement procedures being followed in the project and recommend needed remedial actions.

148. Safeguards. The GoN has prepared an Environment Management Plan and Social Impact Management Framework to guide environmental and social safeguard issues triggered by the project. A Vulnerable Community Development Framework, Indigenous Peoples‟ Development Plan, and Gender Action Plan have been prepared to ensure that the project will focus on distributing the benefits to the indigenous people, vulnerable people, women, and other disadvantaged groups. The Bank‟s environmental and social safeguard specialists will participate regularly in the implementation review missions to provide technical support and to assess the adequacy of the implementation of the social and environmental management activities.

149. The Bank‟s implementation support requirements are summarized in the following table.

Time Focus Skills Needed Resource Estimate First twelve Technical support Expertise in irrigation, 18 staff weeks months of hydraulic engineering, project agriculture, and implementation. institutional development

FM training and Financial management 4 staff weeks support Procurement Procurement 4 staff weeks training and support M&E and M&E and impact 6 staff weeks for Governance support evaluation expertise; M&E and 4 staff Governance weeks for development governance

53

Time Focus Skills Needed Resource Estimate Environment and Environment; 3 staff weeks each Social Management Social Development Support Team Leadership Operational 8 staff weeks experience 12-48 Technical support Expertise in irrigation, 12 staff weeks/year months engineering, agronomy, and institutional development M&E and M&E and impact 4 staff weeks for Governance support evaluation expertise; M&E and 2 staff Governance weeks for development governance Environment and Environment; 3 staff weeks Social Management Social Development each/year Support FM review Financial management 3 staff weeks/year Procurement review Procurement 3 staff weeks/year Team Leadership Operational 6 staff weeks/year experience

54

Annex 6: Team Composition

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

150. World Bank staff and consultants who worked on the project are shown in the next table.

Name Title Unit

Joop Stoutjesdijk Lead Irrigation Engineer/Task Team Leader SASDA Hiramani Ghimire Senior Governance Specialist SASGP Shambhu Prasad Upreti Procurement Specialist SARPS Bigyan Pradhan Senior Financial Management Specialist SARFM Drona Raj Ghimire Environmental Specialist SASDI Purna Chhetri Senior Rural Development Specialist SASDA Chaohua Zhang Senior Social Sector Specialist SASDS Mei Wang Senior Counsel LEGES Akiko Ogawa Counsel LEGES Tumurdavaa Bayarsaihan Senior Rural Development Specialist SASDA Tara Shrestha Team Assistant SASDO Kunduz Masylkanova Economist FAO Shyam Ranjitkar Water Resources Development Specialist FAO (Consultant) Prachanda Pradhan WUA Development Specialist (Consultant) FAO Achyut Man Singh Engineer (Consultant) FAO Ohn Myint Engineer (Consultant) SASDA

55

Annex 7: Governance and Accountability Action Plan

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

Key governance issues in the project

Government agencies

151. The key agencies involved in implementation of this project are the Department of Irrigation under the Ministry of Irrigation, the Department of Agriculture under the Ministry of Agriculture and Cooperatives, and locally based Water Users Associations. DoI will be the project host. The Project Implementation Office in Tikapur in the center of the project area will be responsible for the overall coordination of project activities. Both DoI and DoA have had significant experience in the implementation of irrigation and agricultural development projects. However, inter-departmental coordination and collaboration has been a major challenge in most development projects in government and adequate arrangements have to be ensured under this project. At the local level, the project will require cooperation between the project office, local government bodies, and line agencies of government. This will also be a governance challenge.

Water Users Associations

152. Nepal has a long history of farmer-managed irrigation systems. Community management of irrigation systems has been recognized by the government‟s Irrigation Policy. Local communities owning the systems are fully responsible for managing resources. The more than 100 year old Rani Jamara Kulariya Irrigation Scheme has self-governance as its main principle. In all three systems community-based WUAs are functional. They develop management rules and regulations on their own and implement them based on community consensus. The three WUAs have also taken initiatives to form an umbrella committee („federation‟).

153. The project area comprises eight VDCs in Kailali District. Tharus, who account for 48 percent of the population in these VDCs, lead the WUAs. WUA chairpersons (Chaudhary) often „inherit‟ the leadership, with some of them being „third generation‟ leaders. Even though they generally enjoy significant trust and confidence in the community, the desire to have proper election of committee members is growing, and is something that will be encouraged under the project.

154. Traditional systems such as the Rani Jamara Kulariya Irrigation Scheme are facing certain challenges. First, communities have become more aware of their rights and entitlements. Not all members of the community can be taken for granted in terms of traditional loyalty to community leaders. For example, the system of Badghar (community volunteer for communications with the population) has become less effective than it was in the past. In recent years, the Badghar system is undergoing some changes. The once powerful Badghars no more enjoy the power and prestige of the past. Recent surveys show that Badghars feel that people have become "unruly" in recent years - they are not as loyal to the Badghars as in the past. With increasing challenges of the job, many Badghars suggest that they be appropriately compensated. Second, ethnic relations (mainly between Tharus and Pahadis) are affecting to a certain extent a

56

smooth functioning of the traditional system, although this is yet to be felt widely. Third, social and political inclusion and the opportunities to participate are also emerging as new issues. The role of women, for example, needs to be more openly recognized. Finally, the proposed modernization of the systems under the project will require enhanced capacity of WUAs both in terms of the handling of technology and use of innovative management practices.

155. The system of sharing of benefits and contributing labor needs to be understood better. Most farmers in the project area have small holding size of less than one ha. Some families have bigger holding but this needs to be seen in relation to the size of the household itself. An issue to be addressed is the proportionality of family contributions (cash or labor) to operation and maintenance of the systems.

156. The traditionally effective trust-based system is not fully prepared for disputes of various kinds. Settlement of disputes and handling of grievances will be part of management improvements in the project. Allocation of water between head and tail-enders is a constant source of tension, as in many irrigation schemes, but is generally resolved at the local level and by the Badghars themselves.

157. Although women‟s participation has increased in recent years, it is still only 19 percent in the three WUAs combined. There are virtually no women Badghars. The major barriers that women face in participating more equally include: rules governing membership and labor contribution; lack of education and awareness; difficulties negotiating with multiple responsibilities; and male-led information and communication channels.

158. The rules for the election of WUAs are similar in all three systems in that all three committees follow an indirect system of representation. Water users do not directly elect the executive committee. In Rani, Badghars elect the WUA committee members. Jamara and Kulariya follow a different procedure. They elect a „branch committee‟ first and entrust it to elect the WUA executive committee. All three systems include both Tharu and Pahadi members in the WUAs. On a recent perception survey, many irrigation users (64 percent) did not rate the performance of their WUAs highly. Only eight percent of the surveyed water users found WUAs “fully capable” of delivering on their mandate.

159. The WUA positions are highly contested because the persons occupying them will have considerable authority and influence over decisions related to governance of the irrigation systems. They will also act as the major interlocutors between the users, on the one hand, and the government, on the other. There is a growing assumption amongst committee members that the umbrella WUA will have influence over the awarding of contracts under the project and could be financially rewarded once donor and government funding comes through. These expectations will have to be managed to avoid any future conflicts

160. Some community members are also raising the issue of growing political party interests in the project, especially because the project involves large budget. The major political parties in general and those advocating for Tharu rights in particular are very interested in the project, and could play a role in politicizing the project and the WUAs for their political gains. At a focus group discussion during project preparation, for example, one participant observed that a certain

57

political party wanted to monopolize construction works and raise "taxes" through them. Based on experience elsewhere, this observation may not be very far from reality. The project will put in place effective governance and accountability systems to make sure these apprehensions do not materialize.

Objectives of the Governance and Accountability Action Plan

161. The Governance and Accountability Action Plan‟s main objective is to contribute towards strengthening governance and accountability systems in the project and beyond. It will achieve this objective by:

 ensuring resources allocated by the project are spent for the intended purposes and directed to the beneficiaries of the project;  strengthening coordination between different national and local agencies; and  improving feedback mechanisms between beneficiaries, civil society, and project authorities.

Scope

162. Several areas for governance improvement have been identified: implementation environment, organizational arrangements, procurement, monitoring, and accountability arrangements. The GAAP proposes actions for each of these issues, timeline for each action, and responsible agency for implementation. There are also some „early warning indicators‟ which, if monitored properly, enable timely actions for course correction.

Monitoring arrangements

163. The GAAP will be monitored regularly against agreed actions which will be reflected in the project‟s periodical progress reports and aide-memoires. This will be a joint responsibility of DoI, DoA, WUAs, and the World Bank. The GAAP matrix will be used widely for monitoring purposes. „Early warning‟ indicators of governance and accountability risks will be monitored regularly so that corrective measures can take place in time. If any „early warning‟ is triggered, DoI will initiate enhanced supervision through specific third-party audits, reviews by sector experts, training workshops, and joint interim missions with the Bank, as required. If the investigation confirms corrupt, fraudulent, or collusive practices at any stage of the project, appropriate sanctions will be applied by the relevant agency, depending on the nature of the case.

164. While DoI will have the overall responsibility for this GAAP, the PIO will be responsible for implementing program-specific actions included in the GAAP matrix and will also act as a nodal point to coordinate with other agencies for effective implementation of the GAAP. The key person in charge of this GAAP will be the Project Manager. The GAAP will also be monitored as part of the Bank‟s implementation support missions.

58

Governance and Accountability Action Plan

Area of Issues likely to affect Actions to address the issues Responsi- Timeline Early work project performance ble warning agency signs Inter-departmental coordination and institutional performance Effective Weak coordination Coordination and cooperation Coordination coordination between DoI and among GoN agencies at meetings do between DoA. national level will be not take place GoN strengthened through better in time or are agencies at communication and exchange not different of information: represented at levels  Project Steering MoI/ 2 times a appropriate Committee headed by PSC year level. MoI Secretary will meet at least every six months to make sure that relevant GoN agencies coordinate all departmental activities with each other;  DoI will organize DoI/DoA January workshops to establish 2012 and review coordination arrangements between DoI, DoA, and other related agencies;  The project will set up a DoI/PIO January liaison office in 2012 Kathmandu (based at DoI) for coordination and communications with the on-site PIO.

Poor coordination  Project Implementation PIO At least Poor between GoN Office will consult with two times a exchange of agencies and WUAs. DADO and the WUAs and year information their members on project between activities on a regular project basis; entities over a  The project PIO/ Ongoing long period. implementation manual DADO/ will be agreed with DoI, WUAs DADO, and WUAs.

Capacity Inadequate capacity at  GoN employees will be DoI/MoI January Project building DoI and DoA leading identified and deployed in PIO 2012 to be deadlines start to: project soon after completed slipping.  Delays in staff effectiveness; deployment  External expertise will be As  Frequent transfer procured and deployed in identified of project staff project activities, as by GoN and  Delays in budget needed; IDA during disbursement project  Poor use of staff reviews. skills acquired

59

Area of Issues likely to affect Actions to address the issues Responsi- Timeline Early work project performance ble warning agency signs through training  Provisions of Civil Continuous  Weak monitoring Service Act will be mechanisms adhered to on transfer and training of project staff;  Project includes adequate Continuous resources for monitoring.

Water Users Associations Weak institutional  A participatory WUAs/ June 2012 WUAs are WUA capacity assessment of institutional PIO not motivated capacity of WUAs will be to undertake undertaken to self- strengthen/reorganize assessment their management and not practices; interested in  Preparation of improved PIO/ September participating by-laws to provide WUAs 2012 in training appropriate charter and activities. mandate to WUA;  Training and workshops PIO/ August will be organized for WUAs 2012 members of WUAs; onwards

 A training manual will be PIO/ July 2012 developed for training WUAs activities to be implemented by WUAs.

Poor communication  WUAs of the three WUA Ongoing Conflict and coordination systems will maintain a central between the between WUAs of the federation of WUAs committee WUAs three systems (“central committee”) at and PIO the project level to facilitate communication and coordination. This committee will represent individual WUAs in their interaction with external agencies;  The main WUA will sign WUA, DoI March an MoU with DoI on each 2012 others‟ roles and responsibilities in project activities;  The PIO and the central PIO, Up to six committee of WUA will WUA times per meet regularly to review year progress and issues in project implementation;  The central committee of WUA Up to six WUA will meet with the CC/ times per three systems-level WUAs year

60

Area of Issues likely to affect Actions to address the issues Responsi- Timeline Early work project performance ble warning agency signs WUAs regularly to review progress and issues in project implementation.

Implementation environment Conflict Inequitable sharing of  Water allocation rules will WUA Continuous Complaints management water at intakes. be agreed and enforced in CC/PIO on water consultation with the sharing. central committee.

Unequal labor  Labor and financial WUAs/ January Continued contribution to contributions will be PIO 2013 absence (or maintain the systems based on landholding size; poor  Grievance handling PIO/ June 2012 compliance) system will be put in place WUA CC of labor and its use will be contribution monitored. rules. Project authorities not  An information officer DoI/ January used to pro-active will be designated PIO 2012 communication according to the (which limits the provisions of the RTI Act; transparency of the  Guidance and process) methodologies for PIO January information disclosure are 2012 captured in the operational manual. Inclusion and Poor inclusion of  WUAs will be encouraged PIO/ March Women‟s representation women and other to implement the WUAs 2012 representation marginalized provisions of irrigation in WUAs communities in regulation; remains less project decision-  Capacity support will be PIO March than 33 making systems provided to women and 2012 percent. other marginalized onwards communities through training programs to achieve meaningful participation. Procurement Procurement Weak bidding and  Tender notices will be DoI/ Based Delays in and contract contracting systems disseminated widely (e.g. PIO on procurement management publication in national procure- capacity newspapers); ment Reports about  Pre-bidding conferences PIO/DoI plan poor will be held to provide competition information about in sanctions to be undertaken procurement against contractors found to be involved in corrupt practices (collusion, bribery, fraud, etc.);  Transparency will be PIO/DoI ensured in evaluating

61

Area of Issues likely to affect Actions to address the issues Responsi- Timeline Early work project performance ble warning agency signs bids.

Weak monitoring  Procurement training will DoI/ January arrangements for be provided to the PIO PIO 2012 procurement staff engaged in the project;  Procurement plan will be PIO August prepared and monitored. 2011 onwards

Weak contract  Contract management DoI/ January Media reports management leading training will be provided PIO 2012 about misuse to misuse of resources to relevant PIO staff of project engaged in the project; resources.  Users of irrigation WUAs/ Continuous systems will be PIO during encouraged for quality implement- control of the construction tation works;  Quality inspection of PIO/ Continuous works will be carried out DoI during by the PIO and third-party implement- construction supervision tation consultants.

Monitoring and Evaluation Results Results are  Project outcomes will be PIO September Media reports frameworks inadequately publicized widely with every year, about poor disseminated lessons learned (annually). starting in performance 2012 of project activities.

Quality Weak quality  Project beneficiaries will be PIO/ Ongoing Poor public assurance assurance involved in monitoring WUAs perception of systems mechanisms project activities; the  Third-party supervision. effectiveness of third party monitoring. Transparency and accountability Public access Lack of transparency  Relevant project DoI/PIO/ Start by Public to and poor public information made available WUAs January complaints information access to information on project website; 2012 and about lack of  Other media, including update adequate newspapers and electronic regularly information media, will publicize on project information; activities  Brochures will be available for the public in different languages;  RTI-compliance will be PIO January assessed every year. 2013 onwards

62

Area of Issues likely to affect Actions to address the issues Responsi- Timeline Early work project performance ble warning agency signs Lack of user-friendly  Disclosure boards will be PIO/ January information materials put in place on all project WUAs 2012 at scheme level sites with information on the project. Project authorities  An Information Officer DoI/ January not used to pro- will be designated PIO 2012 active according to the communication provisions of the RTI Act  Guidance and PIO January methodologies for 2012 information disclosure are captured in the project operations manual.

63

Annex 8: Economic and Financial Analysis

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

Introduction

165. The Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1 aims to improve water service delivery to and water management in the Rani, Jamara and Kulariya irrigation systems. Phase 1 of the project will focus at off-farm level mainly through: (i) modernization of feeder and branch canals and flood protection works; and (ii) strengthening Water Users Associations. In addition, it will prepare for agricultural support services through demonstrations, farmer field schools, and other adaptive processes. Trunk roads will also be upgraded to improve accessibility. The second phase of the project will modernize irrigation systems at on-farm level and support farmers with strengthened agricultural service delivery. Accordingly, investments of the phase 1 project are expected to generate modest benefits. However, its outcomes – secured water supply at the off-farm level, improved water management of the off-farm systems, reduced risk of flooding, and farmers readiness to adopt improved agricultural technologies - are critical for the phase 2 investments to generate substantial improvements in agricultural productivity and rural income. The three systems have a cultivable command area of 14,300 hectares, of which around 11,000 hectares are currently irrigated, and about 3,300 hectares of lands suffer from annual uncontrolled flooding during monsoon and lack of irrigation water during dry season.

Methodology

166. The economic and financial analyses examine the viability of the project on the basis of detailed analysis of three farm models located in different sections of the irrigation systems and exposed to different types and degrees of benefits. Field level data such as crop production, cropping pattern, cropping intensity, and existing farm management practices was collected by DoI‟s preparation team. In addition, monitoring and evaluation data collected for the ongoing Irrigation Water Resources Management Project for the schemes located in the Terai area, statistical data of the Ministry of Agriculture and Cooperatives, and findings of the Social Assessment study conducted by DoI during the project preparation stage are used as well.

167. Incremental benefits are estimated by comparison of the without-project (WoP) and the with-project (WiP) gross margins per hectare of a representative selection of typical irrigated and rainfed crops for the project area. The overall project impact is calculated by aggregating benefits to all farm models. The project benefits are assessed for a period of 25 years, a period which corresponds to the expected technical life of the infrastructure to be constructed, at 2010 financial prices and using opportunity cost of capital at 12 percent.

168. Financial prices of locally traded outputs and inputs are converted into economic prices by deducting direct agricultural subsidies and taxes. Economic prices for imported agricultural inputs and outputs are calculated at their border parity prices. Financial cost of unskilled labor is converted into economic one using a shadow wage rate conversion factor of 0.60.

64

169. Sensitivity analysis is conducted to test robustness of economic and financial returns of the project investments for three risks variables: a 20 percent increase in the project cost, a 20 percent decline in projected benefits, and a two year benefit delay. The risk variable on benefits decline considers combination of: (i) a 20 percent decline in projected incremental yield increases and a 20 percent decline in projected incremental cropping intensity for farm model 1; (ii) a 20 percent decline in projected incremental cropping intensity for farm model 2; and (iii) a reduction of eight percent yield losses for rainfed paddy instead of projected 10 percent and 20 percent decline in incremental cropping intensity.

Key Assumptions

170. Project Area. The project will directly benefit around 14,300 hectares of which approximately 11,000 hectares of project lands are currently irrigated, although water availability is unreliable and water volume is insufficient in many areas. The remaining 3,300 hectares of lands within the CCA are rainfed and/or affected by floods that lead to yield reduction and/or total production losses depending on the location of the land within the tail end section.

171. Project Beneficiaries. The project is expected to directly benefit 25,000 households or about 157,000 people. Majority of project beneficiaries are marginal farmers, many of which had landholdings less than 0.25 ha. The average landholding size in the project area is 0.6 ha. Agriculture is a sole source of income for almost 50 percent of project beneficiaries, while remaining beneficiaries rely on agriculture, seasonal male outmigration, and other off-farm employment for their livelihood.

172. Project Benefits. The main quantifiable project benefits will derive from: (i) increased production; (ii) intensification of production; and (iii) reduced productivity losses caused by uncontrolled flooding. Exposure of project farmers to the above benefits depends on the location of their lands along the irrigation system that will be illustrated in three farm models. To simplify the analysis, the land holding size of one hectare is assumed for farm models. These models are described below and details on area size, cropping patterns, intensity and yields are presented in Tables 1, 2 and 3.

Table 1. Project Benefits Farm Models Area, ha Farm Model 1: Farmers located in the head section 5,964 Farm Model 2: Farmers located in the middle section 5,000 Farm Model 3: Farmers located in the tail-end section 3,336 Subtotal 5,964 5,000 3,336 Total 14,300

173. Farm Model 1. A combination of improved agricultural productivity and intensification of production. This model represents benefits to irrigated farmers located in the top head section of the irrigation systems and operating about 6,000 hectares. Currently, farmers suffer from inadequate availability of water during the dry season leading to low productivity and cropping intensity. In the without-project situation, the cropping pattern is dominated with monsoon paddy (98 percent). In winter season, irrigated farmers under model 1 grow wheat (25 percent), lentil (22 percent), oilseed (15 percent), maize (14 percent), and potato and vegetables on the remaining area. 65

174. Current yields for all crops are below potential levels. Yields for irrigated monsoon paddy and winter paddy, for instance, are currently estimated at 2.6 t/ha and 2.8 t/ha, respectively. Yields for irrigated wheat and maize are 1.7 t/ha and 1.6 t/ha, respectively. Most of the crops grown in the project area are either of traditional varieties or improved varieties, but with old generation seeds.

175. In the with-project situation, with some improvements in water availability and farm management practices, farmers are expected to achieve a modest 10 percent yield increases for all crops and increases in current level of cropping intensity from 180 to 207 percent. The analysis assumes that production intensification will allow expansion of areas under wheat (50 percent), spring paddy (32 percent), potato (9 percent), and vegetables (9 percent). The analysis assumes that no improved crop varieties will be adopted by the farmers during the phase 1.

Table 2. Cropping Pattern and Intensity Farm Model 1 Farm Model 2 Farm Model 3 Crop WOP WP WOP WP WOP WP Paddy (monsoon) 98% 80% 90% 93% 100% 98% Paddy (winter) 0% 32% 0% 28% 0% 0% Wheat 25% 50% 24% 40% 0% 40% Maize 14% 5% 15% 5% 0% 2% Oilseed 15% 8% 15% 5% 0% 1% Lentil 22% 14% 24% 15% 0% 3% Cauliflower 3% 9% 1% 7% 0% 3% Potato 3% 9% 1% 7% 0% 3% Cropping intensity 180% 207% 170% 200% 100% 150%

176. Farm Model 2. Cropping intensification will be a main benefit for farmers located in the middle section of the system operating about 5,000 hectares. Currently, water availability is insufficient and due to the lack of controlled and regulated flow of water, yields are low and repeated sowing of crops is often required. The WoP cropping pattern is dominated by monsoon paddy (90 percent), followed by wheat (24 percent), lentil (24 percent), maize (15 percent), oilseed (15 percent), and some potato (1 percent) and vegetables (1 percent). The WoP crop yields received by the middle section farmers are similar to those received by the farmers represented in the farm model 1 except for wheat (1.6 t/ha) and cauliflower (13 t/ha).

177. With the project, a modest improvement in water availability combined with improved farm management practices is expected to result in increased cropping intensity from its current level of 170 to 200 percent. The incremental production area is assumed to be used for production of spring paddy (28 percent), wheat (40 percent), lentil (15 percent), potato (7 percent), and vegetables (7 percent). No incremental increases in crop yields and adoption of improved crop varieties are expected.

66

Table 3. Crop Yields Farm Model 1 Farm Model 2 Crop WOP WP WOP WP Paddy (monsoon) 2.60 2.86 2.60 2.60 Paddy (spring) 2.80 3.08 2.80 2.80 Wheat 1.70 1.87 1.60 1.60 Maize 1.60 1.76 1.60 1.60 Oilseed 0.50 0.55 0.50 0.50 Lentil 0.30 0.33 0.30 0.30 Cauliflower 15.00 16.50 13.00 13.00 Potato 5.00 5.50 5.00 5.00

178. Farm Model 3. A combination of reduction of productivity losses caused by uncontrolled flooding and intensification of production are the key benefits expected for the tail-end farmers operating around 3,300 hectares. The farmers suffer from floods during monsoon season that result in, depending on the location of plots, either total production losses or productivity losses of rainfed paddy which is the only crop grown in this area. According to estimates of farmers and engineers, uncontrolled flooding leads on average to about 10-25 percent reduction in paddy yield. The WoP yield for paddy is 1.98 t/ha.

179. With the project, it is assumed that annual productivity losses of rainfed paddy at 10 percent will be avoided as the flooding becomes more controllable. Additionally, with improved water availability during dry season coupled with improved farm level water management practices, cropping intensity is expected to increase from existing level of 100 percent to 150 percent. The incremental production area is assumed to be allocated for production of wheat (40 percent), lentil (3 percent), cauliflower (3 percent), potato (3 percent), and maize (2 percent). The WiP yields are assumed to be similar to those received by the farmers in the middle section in the WoP situation. No incremental yield is expected for rainfed paddy. Due to the lack of reliable data on areas of rainfed paddy that are being washed away annually by floods, the analysis excluded this type of potential benefit.

180. Benefit accumulation phases. The farmers are assumed to start reaping benefits in the first season after completion of rehabilitation of the first sections of the irrigation systems and flood protection structures. The percentage of project area receiving benefits in each year is therefore based on the percentage of irrigation rehabilitation completed at the end of each year. Annual incremental benefits will start to accumulate in project year 3 after 30 percent rehabilitation works have been completed in project year 2. The project‟s full maturity will be reached in project year 6 (see Table 4).

Table 4. Civil Works Implementation Plan Project Years Units 1 2 3 4 5 Total A. Construction of Feeder Canal and Flood Protection of Intakes km - 4.9 6.5 4.9 - 16.2 B. Modernization of Branch Canals and Canal Bank Protection km - 15.6 20.8 15.6 - 52 C. Command Area Flood Protection Works ha - 4,290.0 5,720.0 3,575.0 715.0 14,300.0

67

181. Project costs. The financial base cost of the project in 2010 prices is estimated at NRs. 2.7 billion. Costs of project components are distributed in the following shares: Scheme Modernization - 80 percent; Strengthening Water Users Associations - 5 percent; Agriculture Production Support - 6 percent; and Project Management - 9 percent. The latter two components include costs of activities that will also focus on preparation of the second phase of the project and identification of farmers‟ needs for and delivery mechanisms of extension services that will be delivered during phase 2. The economic cost of the project is estimated by removing price contingencies and all taxes and duties from the financial cost.

Economic Analysis

182. Results. The economic rate of return to the project is modest at 16.9 percent, with a NPV of NRs. 415.4 million, and benefit to cost ratio of 1.16. As mentioned in the introduction section, such result is expected since the phase 1 investments will improve water availability mainly at the off-farm level. However, for the investments of phase 2 to generate maximum benefits, the improvement of the off-farm water availability is critical. This highlights not only the importance of implementation of both phases of the project but also timely implementation of phases for the investments to produce substantial improvements in agriculture productivity and production. It is noted, however, the project is viable as a stand-alone operation. In addition, it is expected that in the unlikely case that phase 2 does not materialize, the WUAs would improve some of the lower-order systems over time by their own means and that part of the work done under the Agricultural Production Support Component would in any case be utilized by DADO for intensification of agriculture.

Table 5. Economic Results Indicators Results ERR 16.9% NPV, million NRs. 415.4 B:C 1.16

183. Sensitivity Analysis. The project is moderately sensitive to the changes in benefit declines and in the project cost. The 20 percent decline in benefits drops the baseline ERR to 13.6 percent and a 20 percent project cost increases reduces it to 12.8 percent. The project is sensitive to the two-year delay in benefit accumulation with the ERR dropping to 11.3 percent. Details of the sensitivity analysis are presented in Table 6.

Table 6. Sensitivity Analysis Variables ERR FRR Baseline results 16.9% 13.4% Project cost increase by 20% 12.8% 9.4% Benefit decline by 20%: 13.6% 10.1% Two year delay in benefit 11.3% 8.6% accumulation

Financial Analysis

184. Farm level analysis. Financial impact of the project on farm households varies depending on the types of benefits they receive. Highest incremental gross margins at NRs.

68

29,866 per hectare are expected for the farmers located at the head section benefiting from increased productivity and improved cropping intensity. The middle section farmers, for whom the project benefits will be in the form of increased cropping intensity only, will gain incremental gross margins at NRs.18,570 per hectare. Incremental gross margins to rainfed farmers at the tail section, who are expected to avoid productivity losses caused by floods and benefit from increased cropping intensity, is estimated at NRs.14,854 per hectare.

Table 7. Financial Gross Margin Gross Margin, NRs./farm Farm Models WOP WP Incremental Farm Model 1 40,244 70,110 29,866 Farm Model 2 36,459 55,030 18,570 Farm Model 3 18,190 33,044 14,854

185. Project level analysis. Annual incremental gross margin generated by the project is estimated at NRs. 319 million, which corresponds to around NRs. 22,000 per hectare. Estimated financial rate of return for the whole project is 13.4 percent, with FNPV of NRs. 118.2 million. Benefit to cost ratio is estimated at 1.04.

Table 8. Financial Results

WoP WiP Incremental

Gross margin, million NRs. 484.5 803.5 319.0 Gross margin per hectare, NRs. 33,880 56,190 22,310 FRR 13.4% FNPV, million NRs. 118.2 B:C ratio 1.04

186. Sensitivity analysis. The project is moderately sensitive to changes in the benefits and the project cost. However, these changes will reduce already low baseline level of FRR at 13.4 percent to below 12 percent. The project‟s sensitivity to the two-year delay in benefit accumulation is high, dropping FRR to 8.6 percent. For details, please refer to Table 6.

187. Sustainability. The analysis examines the impact of incremental O&M on the farm household budgets. Farmers contribute to O&M of two different types of infrastructure (Table 9). An annual contribution to O&M of the diversion channel from the Karnali River to the irrigation systems is estimated at NRs. 458 per hectare. Around five percent of this amount is made in cash and used to cover costs associated with the O&M of machinery. The remaining 95 percent of contribution is made either in kind or cash. In addition to this, farmers contribute around 22,880 mandays or the equivalent of NRs. 320 per hectare to the O&M of individual intakes and sub-branch canals that serve the whole CCA. The total farm contribution to the O&M of the whole irrigation scheme is estimated at NRs. 672 per hectare. Daily farm labor is estimated at Rs.200.

69

Table 9. WUAs’ Contribution to Operation and Maintenance of irrigation scheme Details Unit Quantity Unit Total cost Rate (NRs) (NRs) A. O&M of River Water Diversion* a. Cash contributions to machinery O&M** lumpsum 1 239,000 239,000 b. Labor contribution manday 24,000 200 4,800,000 B. O&M of individual intakes and sub-branch canals and structures*** a. Labor contribution manday 22,880 200 4,576,000 Total WUAs contribution 9,615,000 Total O&M per ha 672

Notes: *River Water Diversion serves 11,000 hectares. **Machinery is provided by the Department of Irrigation for free. *** These canals and structures serve 14,300 hectares. Source: Department of Irrigation

188. To ensure an adequate O&M of the modernized infrastructure, farmers are expected to double their current contribution. The increase is assumed to occur gradually in three years starting from the project year 3. According to results demonstrated in Table 10, the incremental O&M contribution will not be a financial burden for farmers as its share in the incremental gross margins is insignificant and vary in the range of 2.3 to 4.5 percent.

Table 10. Impact of Incremental O&M on farm budget Incremental Incremental Farm Models O&M, O&M as % of incremental NRs./ha gross margin (%) Farm Model 1 672 2.3% Farm Model 2 672 3.6% Farm Model 3 672 4.5%

Benefits expected from the Phase 2

189. This section will briefly discuss benefits expected from phase 2. The phase 2 is expected to substantially increase agricultural production in the entire CCA. These benefits are expected to come from multiple sources as described below.

190. Significant improvements in crop yields. The current productivity levels for all crops in the project area are much below the potential levels. As water supply becomes secure at the on- farm level and farmers start applying better farm practices and technology, yields would increase substantially for all crops grown on the entire CCA. Monitoring and evaluation data from the completed irrigation schemes of the ongoing IWRMP shows that yields for local and improved varieties of paddy, for instance, have increased by 28 percent and 32 percent, respectively, after rehabilitation of irrigation schemes are completed and farmers are trained. While incremental yields for maize, wheat and cauliflower could reach 75 percent, 41 percent and 42 percent, respectively.

70

Table 11. Baseline Crop Yields and With Project Crop Yields achieved by IWRMP in Terai area WoP WiP Crops Incremental (t/ha) (t/ha) Rice (local) 2.6 3.6 38% Rice (improved) 3.4 4.5 32% Maize 1.6 2.8 75% Wheat 1.7 2.4 41% Oilseed 0.5 0.8 60% Cauliflower 12.0 17.0 42%

191. Production intensification. With timely and secure supply of water at the field level, combined with improved agricultural practices and technology, the cropping intensity is expected to increase further. The experience of IWRMP supports the projection that the phase 2 project activities could increase cropping intensity on the whole CCA up to at least 200 percent.

192. Diversification. Secured water supply and the project-led agriculture support services at farm level would also lead to a diversification of production towards more lucrative crops such as sugarcane, jute, and vegetables.

71

Annex 9: Safeguards

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

Social Assessment

193. The Department of Irrigation conducted a Social Assessment (SA) as part of its project preparation. This involved developing a socioeconomic profile of the project area, mapping out various stakeholders, assessing the social, economic and political factors that would affect project design and implementation, and screening of possible social impacts of the project. Based on that analysis, several recommendations have been made to address the possible adverse impacts of the project. These recommendations are also in line with relevant government and World Bank policies.

194. Background. Rani, Jamara and Kulariya Kulos (or canals) were constructed by farmers more than a hundred years go. These Kulos take water from Jarahi Naala, western sub-course of the Karnali River. Each Kulo has many branches and sub-branches. Since construction, the Kulo system has been traditionally operated, maintained and managed by traditional irrigation user committees and headed by Kulo Chaudhary of each Kulo.

195. Ethnic and Minority Communities. The project area is home to the following ethnic groups: Tharu, Bahun/Chettri, Hill Janajatis (including Magars), and Dalits. The Tharu population is divided into two groups: those who are indigenous to the Kailali/Bardiya belt and those who migrated from Dang. Mukta Kamaiyas, who are Tharus too, have also been resettled in the project areas, although nearly 2,000 of them are still awaiting resettlement packages from the government and have encroached along riverbanks and on government property. Migrant hill communities started settling in area in the 1960s and when Tikapur town was being constructed.

196. Land tenure, land holding, and farming practices. The majority of the population in the project areas relies on agriculture and seasonal male-outmigration. The sizes of landholdings are small, especially since the Maoist Movement. The major forms of land tenure are „Battaya‟ (50 – 50 division between tenant and owner) followed by „Thekka‟ (pre-negotiated contract between tenant and owner), and „Bandaki‟ (tenancy rights as collateral for financial obligations). Even the relatively small landholding Pahadi households give land under the Battaya system to Tharu tenants and prefer to migrate to India for employment opportunities. Such trends are also growing amongst Tharu households. Farming practices vary depending on availability of irrigation water.

197. Traditional irrigation management systems. The three Kulos have been historically managed by indigenous Tharu systems of governance. Each Kulo is/was headed by a Kulo Chaudhary and each settlement a Badghar/Sahek Chaudhary. Recent settlers have also adopted and been integrated into such a system. Water Users Associations have been established in all three systems. The major responsibility of the WUAs is to mobilize labor for the operation and maintenance of the main source as well as to mediate between irrigation users and external agencies, especially within government. There is considerable overlap between the WUAs and

72

the traditional Kulo management system. Furthermore, the system is highly decentralized with Badghars responsible for governing rules over allocation, appropriation, labor and cash contributions, and monitoring and enforcement mechanisms in their respective settlements/sub- branches. A central WUA Committee or an apex committee for the three Kulos was established in 2010.

198. The irrigation water is scarce during the winter while the danger of flooding increases during the monsoon. The majority of the users depend on irrigation from the three kulos. Use of groundwater is rare and available to only the richer farmers. Allocation of water between head- and tail-enders is a constant source of tension, but is generally resolved at the local level and by Badghars themselves. Key sources of outstanding disputes are between Tharus and Non-Tharus over labor contribution to source maintenance and accusations over lack of transparency between users and committee members.

199. Stakeholder Analysis. The project team has held two orientation sessions where Badghars and committee members were invited. Although many users have heard about the project, only those who were able to attend the orientation sessions have understood it at any depth. Even then, illiterate Badghars and committee members found the communication and dissemination mechanisms difficult to follow. Women, in particular, had heard the least about the project. Not all secondary stakeholders with a stake in the project, and who could play a role in averting potential conflicts over project design as well as employment opportunities during project construction have been informed formally about the project. The major political parties in general and those advocating Tharu rights in particular were very interested in the project, and could play a role in politicizing it for their own political interests. Stakeholder meetings and communication with the broader population will continue during project implementation and none of the major stages of project implementation will start without having conducted an adequate information sharing campaign and without taking into account the views of the beneficiary groups.

200. Gender and social inclusion assessment. The irrigation systems, although governed primarily by Tharus, also included other ethnic groups as the Bahun/Chettri, Dalits and hill Janajatis (the latter to a lesser extent). Instead, the major concerns were whether the Tharu- dominated system would be able to endure in spite of the increasing migration of other ethnic groups in the project areas, and meet the skills and capacities required to manage the modernized and rehabilitated irrigation systems.

201. In comparison, although women‟s participation has increased in recent years, it is still only 19 percent in the three committees combined. There were virtually no women Badghars. The major barriers that women face in participating more equally include: rules governing membership and labor contribution; lack of education and awareness; difficulties negotiating with multiple responsibilities; and male-led information and communication channels.

202. Main recommendations. The Assessment recommends that: (i) since there are ethnic and minority communities in the project areas who stand to benefit from the project specific interventions are necessary to ensure that maximum project benefits accrue to them; (ii) various factors specific to the area need to be taken into consideration to avoid conflict and maximize

73

project benefit to all, particularly the vulnerable communities; (iii) women‟s participation is critical in irrigation governance structures and irrigation benefit-sharing arrangements; (iv) effective information dissemination and community participation is key to project success; and (v) adverse project impacts due to land acquisition and resettlement is marginal and can be addressed through a framework approach. The project has considered all these recommendations and will work on these, especially through Component 2 – Strengthening of WUAs.

Environmental Safeguard

203. The proposed project is in the Western Terai (plain) area of Nepal. There are community and state forests in and around the project area. The nearest protected area is the Bardiya National Park, which is located across the source river Karnali, in the east of the project area. The Karnali River corridor including adjoining forest stretches is a wildlife movement area. The Karnali River system is known to have protected and endangered species of Gangetic dolphin, Marsh mugger, and Gharial crocodile.

204. Environmental Assessment. In July 2010, the Borrower prepared an Initial Environmental Examination (IEE)3 as required by national environmental legislation. The original scope of the Rani Jamara Kulariya Irrigation Modernization was wider than the present proposal to be financed by IDA. Hence, the IEE‟s scope was wider than current project proposed for IDA support (Modernization of Rani Jamara Kulariya Irrigation Scheme-Phase I). The IDA review concluded that additional consultations with the stakeholders and better clarity on institutional arrangements/responsibilities for environmental management, mitigation, and monitoring are needed. Accordingly, the Borrower prepared an Environmental Management Plan (EMP) focusing on the proposed IDA supported scope of works under the Phase 1 project.

205. Environmental Impacts and Mitigations. Environmental concerns of the project are mainly related to the activities under Component 1 (Scheme Modernization). The concern related to increased use of pesticides is relevant in the Phase 2, which will be prepared during Phase 1 implementation.

206. The main environmental impacts identified by the EMP of the proposed Modernization – Phase 1 include: (i) restriction to the wildlife movement (mainly elephant, tiger, and rhino during the main transit season from July through November); (ii) increased poaching and logging risks in the forest areas close to the project area; (iii) adverse impacts on the protected and endangered aquatic life (e.g. dolphin) such as from water diversion, fishing, and agriculture pesticides; (iv) increased risks of flood damage resulting from extraction of sand and gravel from the river; and (v) depositions of silt/sediment in the canal system and on farm land. Other identified impacts include air and noise around active construction sites and labor camps, sanitation and fuel pollution, and impact on patches of forests though possible loss of trees, forest degradation, and encroachment.

207. Considering the nature of the project activities, which are mainly rehabilitation and improvement of the existing traditional irrigation systems, the EMP concluded that the impacts

3 Initial Environmental Examination is the formal terminology used by the Nepal‟s environmental legislation for limited Environmental Assessment (EA). 74

identified are of moderate types, which are manageable and can be mitigated to an acceptable level through mitigation measures. The overall environmental impact of the project is expected to be moderate. Some of the risks and negative impacts described above, e.g. illegal poaching, logging, and gravel/sand extractions, exist already at present and are likely to continue irrespective of the proposed project.

208. The EMP has recommended mitigation measures for the identified impacts, which include measures such as no major construction activities during the main wildlife movement season from July to November; filling deep cut/excavation sites; wildlife friendly canal side- slopes; provision of animal crossings over the feeder and main branch canals; banning the project from collecting sand, gravel, and boulders within 500 m of Karnali bridge and within 50 m of the right bank of the Karnali River and ensuring that the extractions will be less than one meter deep; strengthening Karnali River bank against flood/erosion, compensatory plantation of lost tree (at the ration of 1 lost: 25 planted) on the right bank of the Karnali river (50 m to 100 m wide) – this is expected to enhance wildlife movement along the river corridor as well as contribute in river bank protection against flood/erosion, awareness against illegal poaching and logging as well as promoting coordination with other ongoing conservation activities/agencies; canal intake and outlet/tail designs that include features that avoid dolphin entry; conducting dolphin conservation awareness activities; use of air/dust pollution control measures at active construction sites, providing sanitation and fuel facilities at workers camp; and prohibiting workers from fishing and hunting.

209. Although the increased use of pesticide could be an indirect/ induced risk in the Phase 2 of the project and afterwards, the current EMP, as a precautionary step, includes an Initial Framework for Pesticide Management, which will have to be revisited in light of the activities proposed for Phase 2, associated risk will have to be re-assessed, and a detailed pesticide management plan, if necessary, needs to be prepared during the preparation of Phase 2.

210. Ongoing environmental protection activities. Some environmental conservation activities are currently ongoing in and around the project area, such as the Western Terai Landscape Complex Project and Terai Arc Landscape Project. The World Bank supported regional project, Strengthening Regional Cooperation for Wildlife Protection in Asia was recently approved by IDA. This regional project aims to enhance the capacity of the relevant agencies to carry out conservation based on landscape approach and also to address wildlife trafficking. In Nepal, the regional project‟s scope also includes the protected area network in the southern Terai, bordering India. The Bardiya National Park and the forests along the Karnali River are also part of this protected area network. The coordinated efforts of the environmental protection and conservation work of different agencies will have complementarities and positive synergy. The project intends to promote coordination among all actors and activities for better environmental safeguard in the project area.

211. Institutional Arrangement. For the implementation and monitoring of the environmental mitigation measures, the project will have a full-time environmental specialist (on deputation from DoI) responsible for regular support and supervision, and will report two-monthly. A Local Environmental Monitoring Committee composed of local protected area agency, forest authority, NGOs, etc. will visit the project area periodically for inspecting environmental management

75

activities and facilitating coordination. GoN will also engage an independent party for regular monitoring of the environmental compliance, management, and performance in the project. The frequency of these inputs will be determined during project implementation, depending on actual requirements. The PIO Environmental Specialist will include the feedback/suggestions of the Local Environmental Monitoring Committee in the progress reports.

212. The above monitoring reports will be made available to the Bank. The Bank‟s environmental safeguard specialists, as part of six-monthly implementation review, will review the progress, status as well as advise on the implementation of the environmental management plans.

213. Stakeholder Consultation. During the IEE and EMP preparation, project area communities and stakeholders including protected area authority, NTNC, DFO, WTLCP, TALP, FCFUG, DCP, WUA were consulted, a public notice was published in a Nepali national newspaper to inform residents of the project area as well as national stakeholders of intention to upgrade/rehabilitate the irrigation project and to solicit concerns and suggestions with regard to the proposed project. The public notice was also posted to each of the project area VDCs and public deeds of inquiry were carried out. DoI has disclosed the IEE, draft EMP and SA through its public website: www.doi.gov.np. DoI plans to inform and further consult local stakeholders (affected people, Community Forest Users Groups, etc.) during the implementation of the project.

76

Annex 10: Statement of Loans and Credits NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev‟d P120265 2011 NP: Emerging Towns Project 0.00 25.00 0.00 0.00 0.00 25.56 0.00 0.00 P112893 2011 NP: Kabeli Transmission Project 0.00 38.00 0.00 0.00 0.00 38.34 0.00 0.00 P104015 2011 NP: Enhanced Vocational Educ & Trng 0.00 50.00 0.00 0.00 0.00 51.24 0.00 0.00 P117417 2010 NP: Second HNP and HIV/AIDS Project 0.00 129.15 0.00 0.00 0.00 130.63 8.00 0.00 P113441 2010 NP: School Sector Reform Program 0.00 130.00 0.00 0.00 0.00 87.78 -11.75 0.00 P087140 2009 NP:Agriculture Commercialization & Trade 0.00 20.00 0.00 0.00 0.00 18.73 2.79 0.00 P113002 2009 NP: Social Safety Nets Project 0.00 64.47 0.00 0.00 0.00 17.35 -26.73 2.35 P110762 2008 NP: Peace Support Project 0.00 50.00 0.00 0.00 0.00 26.81 27.68 11.68 P095977 2008 NP: Road Sector Development Project 0.00 117.60 0.00 0.00 0.00 87.36 -10.22 6.88 P105860 2008 NP: PAF II 0.00 165.00 0.00 0.00 0.03 67.51 -2.40 0.00 P099296 2008 NP: Irrig & Water Res Mgmt Proj 0.00 64.30 0.00 0.00 0.00 49.29 19.38 15.30 P090967 2007 NP: Second Higher Education Project 0.00 60.00 0.00 0.00 0.00 42.45 7.65 1.35 P100342 2007 NP: Avian Flu 0.00 18.20 0.00 0.00 2.24 2.55 4.28 2.00 P083923 2005 NP: Rural Access Improve. & Decentraliza 0.00 77.00 0.00 0.00 0.00 46.95 2.54 4.86 P071285 2004 NP: Rural Water Supply & Sanitation Proj 0.00 52.30 0.00 0.00 0.00 8.49 -17.32 0.00 P071291 2003 NP: Fincl Sector Technical Assistance 0.00 16.00 0.00 0.00 7.50 0.73 5.31 0.00 P043311 2003 NP: POWER DEVELOPMENT PROJECT 0.00 164.80 0.00 0.00 0.76 124.22 19.49 56.39 Total: 0.00 1,241.82 0.00 0.00 10.53 825.99 28.70 100.81

NEPAL STATEMENT OF IFC‟s Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1996 Bhote Koshi 13.21 2.95 0.00 17.41 13.21 2.95 0.00 17.41 1998 Bhote Koshi 1.64 0.00 0.00 0.00 1.64 0.00 0.00 0.00 1994 Himal Power 18.17 0.00 2.54 0.00 18.17 0.00 2.25 0.00 2001 ILFC - Nepal 0.00 0.10 0.00 0.00 0.00 0.10 0.00 0.00 1998 Jomsom Resort 4.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 Total portfolio: 37.02 3.05 2.54 17.41 37.02 3.05 2.25 17.41

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

77

Annex 11: Country at a Glance NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

78

79

Annex 12: Map IBRD No. 38521

NEPAL: Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1

80

80°E 82°E 86°E 88°E 84°E NEPAL MODERNIZATION OF RANI JAMARA KULARIYA

To IRRIGATION SCHEME – PHASE 1 Barga RANI JAMARA KULARIYA IRRIGATION SCHEME Simikot CHINA 30°N SELECTED CITIES AND TOWNS 30°N I To li ¯L a Ranikhet k A ZONE CAPITALS a ¯ ah K M A NATIONAL CAPITAL ¯ H Chainpur H A RIVERS Baitadi KARNALI¯ ¯ M ¯ SETI i MAIN ROADS Silgadhi Dandeldhura¯ li Jumla RAILROADS na ar K m Mustan ZONE BOUNDARIES ¯ Dunai INTERNATIONAL BOUNDARIES a BHERI¯ Jomsom Dhangarhi Birendranagar ¯ l To

¯ Xegar i GANDAKI l Sallyan a RANI JAMARA KULARIYA K a IRRIGATION SCHEME DHAWALAGIRIBaglung Pokhara Tulsipur y Mt. Everest 28°N Nepalganj RAPTI¯ ¯ (8848 m) 28°N To a Kodan ¯ ¯ To Lucknow BAGMATI¯ ¯ Shahajahanpur Nuwakot s LUMBINI¯ KATHMANDU ani Lalitpur Butawal ry ¯ ¯ Na To n Bhairawa ru Faizabad Bhimphedi A MECHI¯ Taplejun Okhaldhunga Hetauda KOSI¯ To Ramechhap Saidpur NARAYANI¯ ¯ ¯ Sindhulimadi

To Dhankuta Faizabad Birganj JANAKPUR SAGARMATHA shi Sun Ko Ilam To Faizabad Gaur Dharan INDIA Janakpur Rajbiraj Kanpur NEPAL Biratnagar

To Baruni To Faizabad To Baruni 26°N

0 25 50 75 100 Kilometers IBRD 38521 To This map was produced by the Map Design Unit of The World Bank. APRIL 2011 0 25 50 75 Miles Baruni To The boundaries, colors, denominations and any other information Jangipur shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 82°E 84°E 86°E 88°E