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Document of The World Bank Public Disclosure Authorized Report No. 12811-AM STAFF APPRAISAL REPORT REPUBLIC OF ARNENIA Public Disclosure Authorized IRRIGATION REHABILITATION PROJECT NOVEMBER 2, 1994 Public Disclosure Authorized Public Disclosure Authorized Natural Resources Management Division Country Department IV Europe and Central Asia Region CURRENCY EOUIVALENT Currency Unit: Ruble Exchange Rate Rubles per $ March 1993 684 June 1993 1,100 October 1993 2,600 Currency Unit: Drum Exchange Rate Drums per $ November 22, 1993 14.0 (introduction) April 29, 1994 400.0 September 28, 1994 385.0 WEIGHTS AND MEASURES ha hectare knm2 square kilometer kw kilowatt kwh kilowatt hour m meter m3 cubic meter m3/sec cubic meters per second t/ha tons per hectare FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS asl above sea level Al artificial insemination DWSI Department of Water Supply and Irrigation ERR economic rate of return FAO/CP Food and Agriculture Organization Cooperative Programme FSU Former Soviet Union GDP gross domestic product HSI Hydrological Studies Institute ICB International Competitive Bidding IDA International Development Association IFAD International Fund for Agricultural Development LCB Local Competitive Bidding M&ES Monitoring and Evaluation Section MOA Ministry of Agriculture NMP net material product OME Operation and Maintenance Enterprise of the DWSI O&M operation and maintenance PCR Project Completion Report PPF Project Preparation Facility PIU Project Implementation Unit SOE Statement of Expenditure TOR Terms of Reference USDA United States Department of Agriculture WPI Water Planning Institute WUA water users' association REPUBLICOF ARMENIA IRRIGATIONREHABILITATION PROJECT Table of Contents Page No. LOAN AND PROJECT SUMMARY .......................... i I. BACKGROUND.......................... 1 A. Introduction.......................... 1 B. The Economy ........................... 1 II. THE AGRICULTURESECTOR .5 A. Background .5 B. AgriculturalProduction. 6 C. Consumptionand Self-Sufficiencyin Agricultural Products .7 III. WATER RESOURCESAND THE IRRIGATIONSUBSECTOR .9 A. Water Resources.9 B. Irrigation.11 C. Objectivesand Strategy of Bank Assistance.14 D. Lessons from Previous Bank Involvement.14 IV. THE PROJECT .17 A. Project Objectives.17 B. Rationale for IDA Involvement.17 C. The Proposed Project .17 D. The Rationale for Project Design .18 E. Detailed Project Description.20 F. Project Costs .24 This report is based on the findings of an AppraisalMission in October 1993. Membersof the Appraisalteam includedEzriel Brook (Task Manager), Stan Peabody(Sociologist), Camilla Brown (OperationsAnalyst), and Oscar Honisch (Principal Agriculturalist)from the Bank; and consultants Eli Gazit (Water Resource and Irrigation Engineer)and Richard Van Klaveren (Water Management Engineer). Editorial support was provided by Alan Zuschlag and RebeccaKary. The project was identifiedby the FAO/CP in September 1992 and March 1993, and preparation was carried out by IRS/TKBconsulting firm, headed by Gabriel Tibor. Data and support for the project identification, preparation, and appraisal was provided by the Armenian Water Planning Institute. Peer reviewers includedUlrich Kuffner, Joma Mohamadi, Willem Van Tuijl, and D. Jeremy W. Berkoff. The Division Chief is GeoffreyFox (EC4NR), and the DepartmentDirector is Basil Kavalsky(EC4DR). G. Financing ...................... 25 H. Procurement ...................... 26 I. Disbursement ....................... 31 V. PROJECTIMPLEMENTATION .............. 33 A. Organizationand Management .......................... 33 B. Project Phasing .......................... 36 C. Project Monitoring, Evaluation, and Reporting ........................... 38 D. Accountsand Audit ............................................ 39 E. Bank Supervision ............................................. 39 VI. PROJECT BENEFITS, RISKS,AND ENVIRONMENTALIMPACTS .... ......... 41 A. Project Benefits .............................................. 41 B. Economic Evaluation ........................................... 43 C. Risks ...................................................... 46 D. EnvironmentalImpact .......................................... 47 VII. AGREEMENTSREACHED IN NEGOTIATIONS .......................... 49 ANNEXES 1 StatisticalAnnex ...... ...................................... 51 2 The AgricultureSector Review ................................... 75 3 The Water Supplyand Irrigation Department .......................... 87 4 The Irrigation RehabilitationEngineering Program ...................... 89 5 Water Management .......................................... 99 6 LCB Procedures, Contracts, and ProcurementPackages .................. 115 7 Terms of Referencefor the Project ImplementationUnit and Consultants ... .... 121 8 Agricultural Development ..................................... 133 9 Project ImplementationPlan .................................... 151 10 Proposed Project SupervisionPlan ................................ 159 11 Selected DocumentsAvailable in Project File ......................... 161 TABLESIN TEXT 1.1 Armenia: Main Economic and Social Idicators .......................... 3 2.1 Developmentof AgriculturalProduction, % Shares ....................... 7 2.2 Self-Sufficiencyand Per Capita Food Consumption(1985-1992) ............... 7 4.1 Project Cost Summary ......................................... 25 4.2 Financing Plan ............................................. 26 4.3 Summary of Proposed ProcurementArrangements ....................... 30 4.4 DisbursementCategories ....................................... 31 6.1 Summaryof SensitivityAnalysis Cases .............................. 43 FIGURES Figure 2.1: Cultivated Land ..................................... 6 Chart 1: Project Inplementation Unit ............................ 34 Chart 2: Armenia Irrigation RehabilitationProject-Implementation Schedule ... 37 Organogram 1: DWSI Structure .................................. 88 Box 8.1: Yield ReductionFactors ............................. 138 MAPS Project Location IBRD 25388 Irrigation Systems IBRD 25389 Irrigation Systems IBRD 25390 Storage and Pumping Schemes IBRD 25391 i ARMENIA IRRIGATIONREHABILITATION PROJECT Loan and Proiect Summarv Borrower: Republicof Armenia ExecutingAgencv: Ministry of Agriculture(MOA) Beneficiaries: Private farmers and consumersthrough lowered food prices Amount: US $43.0 mnillion Ternis: Standard IDA terms, with 35 years' maturity and 10 years' grace period Project Obiectives: Assist Armenia in maintainingthe level of irrigated agriculturalproduction and improve the country's water resource management. Description: The project is comprisedof four main investmentcomponents: (a) Rehabilitation of 12 irrigation schemes and the Ararat Valley groundwater network. These cover an area of about 164,700ha (about 60% of the Armenian irrigated land). There are four types of rehabilitationworks under the project: (i) Rehabilitation of the conveyance systems, including canals, aqueducts, siphons, and hydraulic structures in eight major irrigation schemes. The area covered under this category is about 151,400 ha (92% of the project area). (ii) Replacementof pumps and pressure pipelines. This category includesfour pumping schemes. (iii) Rehabilitationor replacementof about 650 tubewell pumps. (iv) Rehabilitationof four dam storage schemes (reservoirs). (b) Establishmentof pilot projects for improvedwater distribution and establishment of water users' associations. (c) Financing incrementalO&M costs of the irrigation infrastructureuntil effective water users' associationsare in place, and in the meantime to prevent further deteriorationof the irrigation infrastructure. (d) Technicalassistance, includingestablishment of a project implementationunit; assistance to update the Water Master Plan; training; preparation of the next irrigation project; and assistance to improve irrigated crop production. ii Benefits: The proposed irrigation rehabilitationinvestment project would avert a collapse of the irrigation infrastructure in Armenia. A secure water supply would promote agriculturalproduction, increasethe food supply, and create employmentin the rural areas. Without the project, Armenia would need to substantially increase its food imports, or decreaseits food consumption.Under the project, constructionwork will generateemployment opportunities for unemployedskilled and unskilled labor. The project would also establish the foundation for improved and rationalized water managementby institutingwater users' associationsand water charges. Risks: The principal project risk is political. If there is a resumptionof hostilities between Armenia and any of its neighbors, a reimposition of a blockade would have an adverse impact on the project implementationbecause of expected difficulties in importingfuel, spare parts, constructionmachinery, steel pipes and reinforcedsteel, without which large diameter pipes cannot be laid and precast concrete sections cannot be manufactured.In addition, resourcesneeded for operationand maintenance of the irrigation infrastructurewould be drained and the physical structures would be put in jeopardy as well. The Bank approval of the proposed project is therefore based on the assumptionthat the current frameworkfor negotiatingthe international conflict in which Armenia is involved will lead to a peaceful resolution of the conflict, and that the threat of increasedhostilities is no longer imminent. A second risk is that Government would not be strong enough to