Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No: 43400-ET

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

Public Disclosure Authorized IN THE AMOUNT OF SDR 27.4 MILLION (US$45 MILLION EQUIVALENT)

TO THE

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

FOR A

TANA & BELES INTEGRATED WATER RESOURCES DEVELOPMENT PROJECT

May 2,2008 Public Disclosure Authorized

Sustainable Development Department Water Resource Management Unit Africa Region

This document has a restricted distribution and may be used by recipients only in the

Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective April 18,2008)

Currency Unit = Ethiopian Birr (ETB) ETB9.58 = US$1 US$1.64 = SDR 1

FISCAL YEAR July7 - July6

ABBREVIATIONS AND ACRONYMS ADLI Agricultural Development Led Industrialization AFD French Development Agency AfDB African Development Bank APL Adaptable Program Lending ARARI Amhara Regional Agricultural Research Institute ARBA Abbay River Basin Authority ARB0 Abbay River Basin Organization ARBT Abbay River Basin Team BeSBO Beles Sub-Basin Organization BCM Billion Cubic Meter BOARD Bureau ofAgriculture and Rural Development BoFED Bureau ofFinance and Economic Development BoWRD Bureau ofWater Resources Development CAS Country Assistance Strategy CEM Country Economic Memorandum CFMG Community Flood Management Group CIDA Canadian International Development Agency CoSAERAR Commission for Sustainable Agriculture and Environmental Rehabilitation for Amhara Region CPA Cooperative Promotion Agency CQS Consultant Qualifications based Selection CWMS Country Water Resources Assistance Strategy DA Development Agent DPPA Disaster Prevention and Preparedness Agency DSS Decision Support System EIDP Ethiopia Irrigation and Drainage Project ENSAP Eastern Nile Subsidiary Action Program ENTRO Eastern Nile Technical Regional Organization EPA Environment Protection Authority EPLAUA Environment Protection Land Administration and Use Agency FA0 Food and Agriculture Organization FPEW Flood Preparedness and Early Warning Project FPEW-I Flood Preparedness and Early Warning Project - Phase I FPEW-I1 Flood Preparedness and Early Warning Project- Phase I1 FSCDPO Food Security Coordination and Disaster Prevention Office GEF Global Environmental Facility GIS Geographic Information Systems GoE Government ofEthiopia (Federal Democratic Republic ofEthiopia) GoF Government ofFinland GTZ German Technical Cooperation IA Implementing Agency ICB International Competitive Bidding

.. 11 FOR OFFICIAL USE ONLY IDC International Demonstration Center IFAD International Fund for Agricultural Development IFR Interim Financial Report ILRI International Livestock Research Institute IPA Investment Promoting Agency IWMI International Water Management Institute IWRM Integrated Water Resources Management JICA Japanese International Cooperation Agency KFMG Kebele Flood Management Group KWC Kebele Watershed Committee KIDMO Koga Irrigation Development and Management Organization LCS Least Cost Selection MCM Million Cubic Meter MDG Millennium Development Goals MoARD Ministry ofAgriculture and Rural Development MoFED Ministry ofFinance and Economic Development MoWR Ministry ofWater Resources MW Mega Watt NBI Nile Basin Initiative NCB National Competitive Bidding NMA National Meteorological Agency NPCU National Project Coordination Unit NPSC National Project Steering Committee PASDEP Plan for Accelerated and Sustained Development to End Poverty PHRD Japan Policy and Human Resources Development PIM Project Implementation Manual PPF Project Preparation Facility PSD Private Sector Development QBS Quality Based Selection QCBS Quality and Cost Based Selection RBA River Basin Authority RBO River Basin Organization RIPA Regional Investment Promotion Agency RNE Royal Netherlands Embassy RPCU Regional Project Coordination Unit RRA Rural Roads Authority SBO Sub-Basin Organization SIDA Swedish International Development Agency SIL Specific Investment Loan ' SMS Subject Matter Specialist TA Technical Assistance TaSBO Tana Sub-Basin Organization TBIWRDP Tana & Beles Integrated Water Resources Development Project TBP Technical Background Paper TOR Terms of Reference USAID United States Agency for International Development WB World Bank WFMG Woreda Flood Management Group WRIS Water Resources Information System

Vice President: Obiageli Katryn Ezekwesili Country Director: Kenichi Ohashi Sector Manager: Ashok Subramanian Task Team Leaders: E. V. JagannathadN. Harshadeep

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

ETHIOPIA Tana & Beles Integrated Water Resources Development Project

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues...... 1 2 . Rationale for Bank involvement ...... 6 3 . Higher Level Objectives to Which. the Project Contributes ...... 8 B. PROJECT DESCRIPTION ...... 8 1. Lending instrument ...... 8 2 . Project development objective and key indicators ...... 8 3 . Project components ...... 9 4 . Lessons learned and reflected in the project design ...... 12 5 . Alternatives considered and reasons for rejection ...... 13 C. IMPLEMENTATION ...... 14 1. Partnership arrangements ...... 14 2 . Institutional and implementation arrangements ...... 14 3 . Monitoring and Evaluation ofOutcomesResults ...... 16 4 . Sustamablhty...... 17 5 . Critical risks and possible controversial aspects ...... 18 6 . Loadcredit Conditions and Covenants ...... 19 D. APPRAISAL SUMMARY ...... 20 1. Economic and Financial Analyses ...... 20 2 . Technical ...... 23 3 . Fiduciary ...... 24 4 . Social...... 26 5 . Environment...... 27 6 . Safeguard policies ...... 28 7 . Policy Exceptions and Readiness...... 30

iv Annex 1: Country and Sector or Program Background ...... 33 1. Country and Sector Issues: ...... 33 2 . Characteristics of Key Spatial Regions ...... 36 Annex 2: Major Related Projects Financed by the Bank and / or Other Agencies ...... 46 Annex 3: Results Framework and Monitoring ...... 48 Annex 4: Detailed Project Description...... 54 Annex 5: Project Costs ...... 68 Annex 6: ImplementationArrangements ...... 69 Annex 7: Financial Management and Disbursement Arrangements ...... 79 Annex 8: Procurement Arrangements ...... 91 Annex 9: Economic and Financial Analysis ...... 99 Annex 10: Safeguard Policy Issues ...... 112 Annex 11: Project Preparation and Supervision ...... 117 Annex 12: Documents in the Project File ...... 119 Annex 13: Statement of Loans and Credits ...... 120 Annex 14: Country at a Glance ...... 121 Annex 15: Map ...... 123 IBRD Map No. 36050

V ETHIOPIA

TANA & BELES INTEGRATED WATER RESOURCES DEVELOPMENT PROJECT APPRAISAL DOCUMENT AFRICA AFTWR 1 Date: May2, 2008 Team Leader: E. V. Jagannathm. Harshadeep Sectors: General water, sanitation and flood protection sector (40%); General agriculture, fishing and forestry Country Director: Kenichi Ohashi sector (25%); Irrigation and drainage (20%); Power (10%); Sector ManagerDirector: Ashok Roads and highways (5%) Subramanian/IngerAndenen Themes: Water resource management (P);Infi-astructure services for private sector development (S) Project ID: PO96323 Environmental screening category: B (Partial Assessment)

L LendingY Instrument: Suecific Investment Loan

For Loans/Credits/Others: Total Bank financing (US$m.): 45.00 Proposed terms: Standard IDA Terms, with a maturity of40 years, including a grace period of

21.33 23.67 I 45.00 Bilateral Agencies (Govt. ofFinland) 0.00 8.00 8.00 BorrowerRecipient 5.38 0 5.38 Communitv 11.47 0 11.47 Total: 38.18 3 1.67 69.85 BorrowerLRecipient:Federal Democratic Republic ofEthiopia Responsible Agency: Federal Ministry ofWater Resources, Ethiopia I I Estimated disbursements (Bank FYlUS$m) N I 2009 I 2010 I 2011 I 2012 I 2013 I Annual 2.75 12.43 13.57 10.78 5.47 Cumulative 2.75 15.18 28.75 39.53 45.00

Expected effectiveness date: September 30,2008 Expected closing date: September 30, 2013 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Does the project require any exceptions from Bank policies? [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ ]No

vi Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? Ref: PAD C.5 [ X]Yes [ 3 No Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Project development objective: The Project Development Objective is to develop enabling institutions and investments for integrated planning, management, and development in the Tana and Beles Sub-basins to accelerate sustainable m-owth. Project description: A. Sub-basin Resources Planning and Management [$17.61m] : Develop the enabling institutional infrastructure and capacity necessary for stimulating and managing sustainable investments in the Tana and Beles sub-basins. Two sub-components will be supported: AI. Water Resource Information System Development ($11.66m) A2. Resource Planning and Management Capacity-building ($5.95m) B. Natural Resource Management Investments [$40.83m]: Undertake critical investments to improve the natural resources management in the Tana sub-basin, including: Bl. Watershed Development ($35.08m): Sustainable watershed development investments for 80,000 ha in hbb, Gumara, and Jamma sub-watersheds in Tana sub-basin. B2. Flood Management ($5.75m): Community-based flood management and adaptation around the flood-prone areas around Lake Tana. C. Growth-Oriented Investment Facilitation [$9.17m]: Institutional capacity and investment facilitation required for sustainable development of the Tana and Beles sub-basins to realize the growth vision for the region, including: CI.Development Agency Support ($1.43m) C2. Growth-oriented Investment Preparation ($7.74m) D. Project Management [$2.24m]: Overall project planning, coordination, monitoring and adaptive management. Which safeguard policies are triggered, if any? Environmental Assessment (OP/BP 4.0 1); Pest Management (OP 4.09); Involuntary Resettlement (OP/BP 4.12); Safety ofDams (OP/BP 4.37); Projects on International Waterways (OPBP 7.50) Significant, non-standard conditions, if any, for: Board presentation: None. Credit effectiveness: (a) The Recipient has established a National Project Coordination Unit (NPCU); a Regional Project Coordination Unit (RPCU) for the Amhara Region and a Project Steering Committee at both the national and regional levels, in a manner satisfactory to the Association. (b) The Recipient has adopted a Project Implementation Manual including a financial management manual in form and substance satisfactory to the Association. (c) The Association has received satisfactory evidence that the staff of the NPCU and the RPCU for the Amhara Region have been duly recruited and trained on financial management and procurement procedures in a manner satisfactory to the Association. Covenants applicable to project implementation: a) Within 180 days from Effective Date, an independent and qualified external auditor to carry out the annual financial audit ofthe Project, with qualifications, experience and terms ofreference acceptable to the Association, shall have been recruited, b) By December 3 1,2008, a RPCU for the Benishangul Gumuz Region shall have been established and its staff shall have been duly recruited and trained on financial management and procurement procedures in a manner satisfactory to the Association. c) (i)By March 3 1, 2009, TaSBO shall have been established; and (ii)by December 3 1, 2009 BeSBO shall have been established.

vii 2, S'iX %' C' C;o 1. Country and sector issues' 1. Ethiopia is one ofthe most populous countries in Sub-Saharan Africa with 76.5m people. It is also one ofthe poorest, with a per capita GDP (US$240) that is about a fifth of even the Sub-Saharan Africa (SSA) average. Although the country has abundant human and natural resources and good potential for development, poverty is widespread and often directly linked to environmental and natural resource degradation. Agriculture accounts for 40-45% of GDP, for most of the exports, and perhaps for about 85% of the employment, primarily in the form ofsubsistence small-holder (generally less than half a hectare) cultivation (accounting for 95% of the agricultural output). This agriculture is mostly under rain fed conditions (10 mha, often in degraded watersheds), with very little area currently irrigated (around 0.25 mha). Ethiopia has Africa's largest livestock population @Om, primarily cattle, sheep and goats). Climate risks are significant, with frequent droughts and floods taking a toll on the economy, resulting in tragic loss of life and livelihoods, and inducing risk-averse disincentives to much-needed investment.

2. The Ethiopian economy has done well in recent years, with GDP growing by 11.4% in 2006-07 (buoyed by good agricultural performance recovering from the 2002 drought), and with the poverty headcount reducing from 44% in 1999/2000 to 39% in the recent 2004/05 survey. There have been important recent gains, especially in human development indicators, transport, the investment climate, small town development, and the fight against food insecurity. Pro-poor spending as a share of the budget has risen from 41% in 1997/98 to 62% in 2005/06. The Country Economic Memorandum 2006 (CEM) on Growth and Governance finds that important progress has been achieved in the past decade, largely driven by improved institutions, including at the regional and local levels, which have been able to deliver a scaling-up ofservices and infrastructure.

3. However, significant challenges remain to meet the Millennium Development Goals (MDGs), especially the goal ofhalving poverty by 2015, particularly considering that the recent progress is from a very low base and that the Ethiopian economy remains highly vulnerable to climate shocks. While access to basic education and health care has improved significantly in recent years, access to other basic services remains poor. Only 22% of the population has access to safe water and only 13% have access to adequate sanitation services. Only about 22% ofthe population lives in electrified areas (Le., areas with some form of electricity supply for residences and businesses) and only 6% of the population have electricity connections. Per-capita electricity consumption of 36 kWh/year is one of the lowest in the world (the world average is 2,500 kWh/yr). About 10% of the population living in high-risk food-insecure areas, is dependent on food aid every year. Inflation was high (18% during 2006/07), with associated increases in food prices. Imports have been growing faster than exports, enlarging the trade deficit. However, public expenditure has been well managed in recent years and the fiscal deficit has reduced from 4.6% of GDP in 2005/06 to 3.6% of GDP in 2006/074ts lowest level since 2003/04.

1 The data in this section is largely sourced from the Ethiopia PASDEP (2005), Ethiopia CAS (2008), CWRAS (2006), and CEM (2006)

1 4. The Government of Ethiopia (GoE)’s Plan for Accelerated and Sustained Development to End Poverty (PASDEP) seeks to build on and broaden the previous development strategy, which had focused on expanding support to smallholder agriculture, to basic education, to access to water and sanitation, primary health services, access to roads and electricity and to safety nets for the poorest in all parts of the country. PASDEP complements this equity-oriented thrust by focusing public investment and policies to exploit comparative economic growth advantages located in different agro-ecological zones. PASDEP identifies the Tana and Beles zone as the first of five proposed growth zones in the country, and envisions complementary investments in infrastructure, and appropriate levels ofbasic inputs and agricultural technology to increase productivity and facilitate market systems, particularly for high-value crops destined for local and foreign markets. PASDEP sets a multi-sector, integrated vision as a conceptual foundation for this plan, leading to the formation ofgrowth zones to accelerate growth.

5. The growth zones are expected to be fueled by investments in the substantial land and water resources of the region. The Country Water Resources Assistance Strategy of Ethiopia (2006) also clearly demonstrates the need for investments in multipurpose water infrastructure, in combination with the market infrastructure investments needed to fully leverage their growth potential. The GoE has also recently promulgated a progressive proclamation (proclamation no. 534/2007) to set up basin management organizations to improve holistic water resources planning and management. The proclamation derives substantially from the Ethiopia Water Resources Management Policy (1999) and serves as a legal basis for the creation of individual or combined river basin organizations (RBOs) for all the river basins of Ethiopia - including High Basin Councils as decision making bodies with River Basin Authorities as their technical arm. A key task of the RBOs will be to formulate and monitor the implementation of sub-basin plans for integrated water resources management.

6. Although Ethiopia has substantial water resources, these have neither been developed nor managed well, leaving populations vulnerable to the destructive impacts of water and climate variability, while not providing benefits from effectively harnessing the water and land resources. There are 12 basins in Ethiopia with Abbay (Blue Nile basin) being the largest with a basin area of about 200,000 sq km. Tana (catchment area 15,054 sq km) and Beles (14,200 sq km) form important sub-basins of the Abbay basin. Given the significant economic, environmental and cultural endowments in these sub-basins in terms ofwater, land, human resources and current ongoing/planned developments, these sub-basins offer tremendous opportunities for accelerated economic growth underpinned by careful sustainable development of these endowments. With significant water, land, livestock, forest and fishery resources; a rich cultural heritage and natural assets; relatively developed urban centers and dense settlements; good roads and air connectivity; the Lake Tana sub-basin has potential for growth. This potential can serve as a stimulus for growth in multiple sectors with strong multiplier effects, particularly commercially-oriented smallholder agriculture, ago-industry, tourism, fisheries, livestock and energy resulting in improved livelihoods for the sub-basin’s 3 million residents and national economic growth. The Beles sub-basin also has productive land

2 that is under-utilized. Development of large-scale irrigated agriculture (through private sector development) and stronger linkages between the two sub-basins could spur agro- processing opportunities in the Tana area through a large and consistent supply of agricultural inputs.

7. Lake Tana, the source of the Blue Nile, is a very valuable water resource, but it is also ecologically fragile. It is showing growing signs of stress resulting from several social, environmental, economic and institutional factors that need to be addressed in order to ensure sustainable development of its sub-basin in a manner that optimizes its socio- economic benefits while protecting its valuable environmental and cultural resource base.

Social’: There is widespread poverty in the Tana and Beles sub-basins. The annual per- capita incomes are extremely low in both the Tana (-$125 with 43% of the 3m population in absolute poverty) and Beles (-$lo0 with 54% of the much smaller 0.05m population in absolute poverty) sub-basins. This indicates both the significant development needs as well as the lack of adequate institutional capacity in these sub- basins. Rural populations live very difficult lives with poor access to even basic services (water supply, sanitation, transport, electricity). There are significant concerns over providing for growing populations, migration and resettlement and the need for addressing significant land tenure, gender, and other issues. In Beles, there are a number of ethnic groups that live very traditional lifestyles. There are serious public health concerns in these areas from malaria and other water-related diseases.

Environmental: There is high climate variability that impacts local livelihoods, both through droughts in the sub-basins, and floods (especially around Lake Tana). During the 2003 drought, the already shallow lake level (average depth 9m) dropped by 2m and lake surface area was reduced by 35 sq. km, exacerbated by hydropower generation demands. During flooding in 2006, more than 15,000 ha was inundated, 10,000 people were displaced, 2500 domestic animals swept away, and many houses were demolished. Future climate change is expected to exacerbate this variability and adds to the uncertainties that currently impact livelihoods and investments in that area. Lake Tana also faces significant water and natural resources degradation problems, including catchments degradation resulting in high erosion (soil loss upwards of 100 tonshdyear) and sedimentation problems (including substantial deposition in downstream rivers and near inflowing river deltas), impacting on flood damages, lake turbidity, fisheries, and navigation. Although the trophic state of the shallow Lake Tana is still good, there are increasing signs of stress - local algal blooms and local fish kills induced by pollution, unsustainable fishing practices, and conversion of lake shoreline wetlands for settlement, urban development and rice farming. The combined impact ofincreased sediment loads and deposition, and conversion of wetland that provide a natural filteration capacity for sediment and contaminant loads is reducing the Lake’s natural buffering capacity to deal with such stresses. Eco-tourism assets such as the Tis-Issat falls are vulnerable to the operation of water infrastructure and climate variability. There is a need for significant investments for watershed development, sustainable agriculture, and wetlands protection,

The data in this section is sourced from presentations by the Amhara and Benishangul BoWRDs during the World Banks preparation teams visit to the regions in 2006.

3 as well as mechanisms to reduce the vulnerability, especially in the Lake shore to frequent and devastating floods. Overall, environmental stresses on the Lake can result from the following parts ofits system: . Lake’s sub-basin: from water use and water infrastructure operation (the Chara-Chara weir, Tana-Beles hydropower tunnel - due to be operational shortly, and proposed dams/irrigation in the sub-basin), point and non-point source pollution; . Littoral zone: from conversion, destruction, and encroachment of important natural buffers (e.g. shoreline wetlands) for commercial, residential and tourist construction; . Within the Lake: from unsustainable fisheries practices, pollution from within the Lake and from its islands (e.g. untreated wastes, or fuel/oil spills)

Economic: The area has not lived up to its potential in terms of economic growth based on its promising land, water, cultural, and human resources and also its location. The economy is very vulnerable to climate risks. Agricultural productivity from the largely rain-fed and few smallholder irrigation systems is low. All-weather transport access is poor in many parts ofthe sub-basins. There are an increasing number of largely ad-hoc investments. Several public investments in the Tana sub-basin are underway, including a significant diversion tunnel that is being constructed from the western shores of Lake Tana to the Beles sub-basin to provide hydropower (460MW installed capacity), diverting most of the current outflow. Other public investments have been made in irrigation infrastructure (small and large-scale), agricultural extension, upgrading oftrunk roads, protection of natural habitats and cultural assets, foodcash transfers to food insecure populations in the highlands and associated public works programs (mostly watershed development) through the productive safety net program. Further investments, particularly in large-scale storage-based irrigation, hydropower and roadair connectivity, are also planned. There are a number of other private investments, primarily in agriculture, agro-industry, hotels, tourism, and micro-enterprises that are underway around Lake Tana. About 700 ha on Lake Tana’s shores has been allocated for export- oriented floriculture to replicate this industry’s success around Addis Ababa. The investments planned around Lake Tana could contribute to stimulating growth in the region. Yet, they are implemented in a fragmented manner without a clear coordination mechanism for integrated development. There are also a number ofinvestments planned in the Beles sub-basin, primarily related to commercial irrigated agriculture.

Institutional: There are a number of institutional challenges for both management and development of the Tana and Beles sub-basins. There is an urgent need to improve the management ofLake Tana in particular, and ofthe Tana and Beles sub-basins in general to meet the emerging challenges described above. There is a need to build enabling institutional arrangements and capacity for improved “shared vision” water and natural resource planning and management to balance multi-sectoral interests with the sustainability ofthe resource base in a sub-basin context. The planning needs to optimize the major environmental, social, and economic objectives ofthe management of the sub- basins and their assets (including the ecologically fragile Lake Tana). Currently, there is also a lack ofan adequate knowledge base (including basic hydrologic information due to an ineffective hydrologic network and information system), analytical capacity, and stakeholder forums for effective management of the sub-basin and its resources. Economic growth for sustainable development of the sub-basins requires substantial

4 investments from the public and private sector facilitated by effective institutional arrangements for sustainable development of the sub-basins. This includes adequate capacity to promote, facilitate and regulate private sector investments in the sub-basins that are targeted at stimulating economic growth while ensuring resource sustainability. There is also a need to strengthen and improve coordination among various government agencies (e.g. across regional bureaus and at the federal level) and improve synergistic partnerships with other institutions (e.g. academia) in order to better develop a synergistic set ofpublic and private investments. There is a need for an enabling policy framework and strong institutional capacity (with an appropriate skill base, knowledge base, tools, and partnerships), to create enabling co-located infrastructure (e.g. water storage, irrigation development, feeder roads, international airports, energy generation, and tourism development) and enabling policies (e.g. those relating to land reform, private sector investment facilitation, technology modernization, etc.), in order to address problems of weak private sector capacity, lack of effective public private partnership models, and poor product and financial markets.

8. These issues‘are all interlinked in direct and more subtle cascading ways. For example, climate variability impacts upon both livelihoods and economic performance (by impacting hydropower generation). The 2003 drop in lake levels caused significant impacts on navigation (suspended for 3 months), tourism, fisheries, and on the lake’s littoral zone, adversely impacting livelihoods for the associated communities. The poor economic performance could reduce investments in social sectors and private sector interest in scaling-up much-needed investments. It is clear, therefore, that these environmental, social, economic, and institutional issues need to be addressed in an integrated and well-planned manner.

9. Well-planned interventions in the Tana and Beles sub-basins will bring substantial benefits. Inaction, on the other hand, will likely result in significant environmental, social, and economic costs. The Tana sub-basin requires urgent action in the short-term to help manage the current and emerging threats from resource degradation and competing claims for water among different uses. The Beles sub-basin also faces some short-term emerging issues - e.g. of the need to adapt to the expected increase in flows from the Tana-Beles Hydropower diversion, as well as to focus on longer-term development issues in a setting oflow-density population.

10. However, given the scale and complexity ofthe challenges it is clear that a single project will not be adequate to undertake all of the key activities required for sustainable development and management of the sub-basins to stimulate economic growth and alleviate poverty. Realizing the potential will require a phased approach- as a series of projects, with subsequent projects building on the previous ones, starting with this project that lays the foundation for effective sub-basin management and development. This would include addressing the challenge of improving institutional arrangements and capacity for integrated water resources planning and management in the Tana and Beles sub-basins, of facilitating public and private investment, and of initiating on-the-ground actions to improve the management of the resource base, focusing on watershed and flood management. An “Endowment and Growth” study is underway to highlight the

5 focus areas for institutional and policy strengthening and to outline the investments to stimulate economic growth in the Tana and Beles sub-basins.

11. This project seeks to pilot in the Tana-Beles area two new thrusts of the GoE: (i) development of an identified growth zone, and (ii)implementation of a recent proclamation (No. 534/2007) to set up basin management organizations to improve holistic water resources planning and management.

12. The vision of the Tana sub-basin as a growth zone based on the development of water resources from the Blue Nile is sustained on the achievements in recent years under the Nile Basin Initiative (NBI), actively supported by the Bank though its facilitation role as well as through the administration of the Nile Basin Trust Fund. The NBI was formally launched in February, 1999 by the Council of Ministers of Water Affairs of the Nile Basin States. The initiative includes all Nile countries and provides an agreed basin wide framework to fight poverty and promote socio-economic development in the region. The initiative is guided by a shared vision of achieving “sustainable socio-economic development through equitable utilization of and benefit from the common Nile Basin water resources”. The Nile countries seek to realize this shared vision inter alia through a Subsidiary Action Programs comprising sub basin projects. The Eastern Nile Subsidiary Action Program (ENSAP), which includes the countries of Egypt, Ethiopia and Sudan, seeks to initiate a regional, integrated, multi-purpose program through a first set of investments. The TBIWRDP would serve as a pilot for the proposed regional joint multi- purpose developments proposed under ENSAP, while deriving maximum benefits through greater synergy across investments. Already a number of ENSAP projects on irrigation, flood management, watershed development, etc. are at different stages of preparatiodimplementation. This project also seeks to implement the NBI-facilitated preparatory work on flood and watershed management in the Lake Tana sub-basin.

2. Rationale for Bank involvement

13. The Bank has been a significant development partner for Ethiopia. Its recent Country Assistance Strategy (CAS) focuses on sustaining the current take-off in service delivery and economic growth in the country.

14. As part of the Bank’s support to the agenda of sustaining the take-off in economic growth, the CAS intends to identify, and help to realize, the growth potential from specific regional endowments. The Tana and Beles corridor has been identified as one area where such potential exists. The TBIWRDP is the first ofa series ofprojects to help realize this vision of growth potential in the area. The project will contribute to sustaining the current economic take-off while at the same time putting in place the necessary institutional infrastructure, to ensure that this growth is socially and environmentally responsible. The project is in line with the Bank’s mission ofpromoting economic growth and poverty alleviation in Ethiopia. The CEM confirms the importance, for poverty reduction, of shifting attention towards harnessing the growth opportunities of high potential areas.

6 15. The Bank also seeks to support the GoE in the implementation of its efforts to stimulate growth in the region and better manage its valuable natural resources. This includes a recent progressive proclamation (534/2007) to establish river basin organizations in Ethiopia to promote and monitor integrated water resources management. In response to recent droughts, a number of interim institutional arrangements have also been made to better manage Lake Tana water levels. Given the critical need to address degraded watersheds and improve the productivity ofthe largely rain-fed agriculture in these areas, the GoE has also initiated a number of watershed development interventions and has sought support for scaling-up these interventions. In addition, the Amhara Investment Promotion Agency is facilitating a number of national and international proposals for investments (primarily in hotels, tourism, agriculture, agro-processing, and tanneries) around Lake Tana. There is a recognition that Lake Tana is a very valuable resource for the region and that its development should be done in a manner that optimizes its development potential without adversely impacting its resource sustainability. The Bank proposes to be a partner in the GoE’s efforts to ensure sustainable development that is conceived with appropriate regard to the social, environmental, and economic context.

16. The Bank, through its involvement in multiple development sectors in Ethiopia and its ability to draw upon global experience, is in a unique position to help stem, and eventually to reverse, degradation on the fragile Lake Tana and to help reduce the vulnerability of its populations to climate risks, including frequent droughts and floods. The Bank is also in a position to assist the GoE with the judicious blending of technical assistance, facilitation, and investments required for integrated water resources planning and management (institutional capacity-building and infrastructure investments including developing an adequate water resources information system and supporting sub- basidbasin planning and management), and for supporting development (including the facilitation ofwell-conceived public and private sector investments, and the scaling-up of much-needed investments for watershed development and community flood management). The Bank/GEF joint analysis of the management of lakes worldwide (“Lessons from Managing Lake Basins for Sustainable Use”- Report No. 32877- Dec 2005) also places the Bank in a position to be able to assist the Government of Ethiopia in ensuring that lessons learnt from this analysis are factored into project implementation.

17. The Project also supports the NBI and contributes to continued cooperation among Nile riparian countries. Given its strong involvement in the NBI, the Bank is uniquely placed to assist the GoE through this project, and its participation is expected to leverage additional financing from the Government, other international donors, as well as the private sector.

7 3. Higher Level Objectives to Which the Project Contributes

18. The proposed project (as the first in a series of sequenced projects) constitutes a new direction in the Bank's strategy for assistance to Ethiopia in support of PASDEP and the MDG (1) - to halve poverty by 2015. This project will support the first growth zone approach as reflected under the economic growth objective of the Ethiopia CAS. The project will improve planning, management, and development (public and private-sector led) of the Tana and Beles sub-basins. It will also ensure that the developments in the Tana and Beles sub-basins take place within a framework of economic, environmental and social sustainability. It is expected that this experience will build the GoE's capacity and experience to better manage other sub-basins and basins. The project will also help further NBI objectives, especially in the Eastern Nile.

1. Lending instrument

19. The realization ofthe Tana and Beles growth zone vision is a long-term process requiring the transformation of the local economy from a subsistence-oriented, predominantly agricultural one that makes limited use ofthe area's abundant water resources, to a more dynamic one based on the development of water resources that optimally contribute to growth in multiple sectors. A phased approach is proposed in which the current project would be the first ofseveral "shared vision" investments that will facilitate the creation of an enabling environment for subsequent investment and capacity-building activities. Hence, a Specific Investment Loan (SIL) of 5 years duration is proposed for the current project.

2. Project development objective and key indicators

20. The Project Development Objective is to develop enabling institutions and investments for integrated planning, management, and development in the Tana and Beles Sub- basins to accelerate sustainable growth. The mechanisms include institutional strengthening, instruments and information tools for water planninglregulation, and investments in the Tana sub-basin in watershed development and flood management.

21. The PDO will be achieved by (i)establishmentktrengthening of targeted institutions to bring about effective and coordinated planning, development, and management of natural resources of the sub-basins; (ii)immediate investments in sustainable watershed development and community-based flood preparedness in the Tana sub-basin; (iii) establishment/strengthening of relevant growth promoting institutions; and (iv) preparation of a set of investments (to be implemented in successive projects) for promoting growth in the sub-basins underpinned by land and water resources.

22. Targeted institutions include existing and evolving institutions including the Tana Sub- basin Organization (TaSBO), Beles Sub-basin Organization (BeSBO), existing regional

8 bureaus, related federal agencies, the Abbay River Basin Authority and other evolving stakeholder entities and partners critical for shared vision sustainable planning, management, and development of the sub-basins. The emphasis will be on working towards the use ofthe sub-basin’s water resources for sustainable and accelerated growth.

23. Key indicators for the success ofthe project include:

0 Tana and Beles Sub-basin Organizations established and are fully operational ; 0 Water Resources Information System have been developed for Tana and Beles sub- basins; 0 An initial integrated Tana Sub-basin Plan developed and presented to the Abb.ay Basin High Council; 0 Lake level has been maintained within the agreed limits 0 At least 80,000 ha of vulnerable Tana Sub-basin micro-watersheds have been ’rehabilitated; 0 Sediment loads from targeted watersheds have been reduced; 0 Flood management plans have been adopted by relevant institutions and targeted communities around Lake Tana. 0 Growth-oriented investments in the Tana and Beles Sub-basins have been finalized and ready to be implemented.

More comprehensive performance indicators and a monitoring and evaluation framework are provided in Annex 3.

3. Project components

24. The project seeks to balance critical institutional strengthening with essential investments to ensure the sustainability of the natural resource base. This is necessary to create an enabling environment for the growth-oriented investments underpinned by the region’s valuable land and water resources.

25. The proposed components for the $69.85m ($45m IDA, $8m expected from GoF, $5.38 GoE, and $11.47m Communities) Tana & Beles Integrated Water Resources Development Project are:

Component A. Sub-basin Resources Planning and Management [$17.61m with $15.69m IDA and $1.92m GoE]

Component B. Natural Resource Management Investments [$40.83m with $18.8m IDA, $8m GoF, $2.56m GoE, and $1 1.47m Communities]

Component C. Growth-Oriented Investment Facilitation [$9.17m with $8.44m IDA and $0.73m GoE]

Component D. Project Management [$2.24m with $2.07m IDA and $0.17m GoE]

9 These components are further described below: A. Sub-basin Resources Planning and Management [$ 17.61ml: This component aims to develop the enabling institutional infrastructure and capacity necessary for stimulating and managing sustainable investments in the Tana and Beles sub-basins. Two sub-components will be supported: 1. Water Resources Information System Development ($ 11.66m): This includes support for a modem network of hydro-meteorological, groundwater, and environmental monitoring; associated hardware, software, and information systems; special studies; as well as facilitation of the use of the system for pressing management and development problems in Lake Tana and the overall Tana and Beles sub-basins.

2. Resource Planning and Management Capacity-building ($5.95m): This supports the Tana Sub-Basin Organization (TaSBO), Beles Sub-Basin Organization (BeSBO), and its parent Abbay Basin Organization. In particular, support will be provided to the Sub-basin organizations to build an appropriate knowledge base, analytical capacity, and structured stakeholder consultation to develop “shared vision” sub-basin plans and management instruments to optimize social, environmental, and economic opportunities in the sub-basin.

B. Natural Resource Management Investments [$ 40.83ml: This component aims to undertake critical investments to improve the natural resources management in the Tana sub-basin. Given the urgency ofsuch investments in the Tana sub-basin and the early nature of engagement in the Beles sub-basin, this component is confined to investments solely in the Tana Sub-basin. Two sub-components will be supported: Watershed Development ($ 35.08m): This includes support for sustainable watershed development investments covering about 80,000 ha in the Ribb, Gumara, and Jamma sub-watersheds in the Lake Tana sub-basin underpinned by community based planning and participation. This Sub-component builds on the MomGuidelines for Community-Based Participatory Watershed Development and seeks harmonization with other related projects (such as the proposed World Bank financed Sustainable Land Management Project, proposed GEF/IFAD supported Community-based Integrated Natural Resource Management Project, and the GoF financed Rural Water Supply and Environmental Programme). Key activities to be supported include: Livelihood improvement: support for crop and livestock production within the three sub-catchments, improved rural access, upgrading of social infrastructure at kebele level, water supply source development and irrigation (including groundwater pumping) development within the micro-watersheds, and the adoption of appropriate technologies and innovations. Natural Resources Management: support for soil and water conservation works (check dams, cut-off drains, gully improvements, stone faced bunds, hedgerows, steep and bed land improvements etc); and the protection of existing badly degraded areas and their improvement through the development of forestry and agro-forestry programs.

10 0 Institutional Strengthening: to support woreda and kebele level institutional capacity building, improvements to office infrastructure and provision of funds for training kebele staff, Subject Matter Specialists (SMSs) and Development Agents (DAs). At the regional level it will support a BOARDcoordination unit, consultancy costs and monitoring and evaluation requirements.

2. Flood Management ($5.75m): This supports community-based flood management and adaptation in the flood-prone areas around Lake Tana. Key activities to be supported include: 0 Training of trainers, who will then train field workers (volunteers) to educate community groups and encourage self-organization, self-reliance and awareness ofopportunities to take advantage ofavailable services and funding; 0 Participatory flood management planning and local flood risk mapping; 0 Small-scale structural measures to manage flood impacts such as elevated access ways, drains, secure water supply, and stock watering points, food storage facilities and refuges; and 0 Overall flood preparedness at regional, local, and community levels. This will also have strong linkages with the Water Resources Information System being developed under Component A, which seeks to improve the gauging, data acquisition, and processing for real-time flood forecasting and communication, training at various government levels, and conducting special studies to enable the sub-basin to be better prepared for frequent floods.

C. Growth-Oriented Investment Facilitation [$9.17m]: This component aims to support the institutional capacity-building and investment facilitation required for the sustainable development of the Tana and Beles sub-basins in order to realize the growth vision for the region. Two sub-components will be supported:

1. Development Agency Support ($1.43m): This includes support to relevant existing government bureaus (e.g. Regional Investment Promotion Agencies, Bureau of Trade and Industry) and to potential public and private entities (as informed by the ongoing Growth and Endowment study) for the creation of an enabling environment for increased private sector participation and planning for creating a growth zone in the Tana-Beles area.

2. Growth-oriented Investment Preparation ($7.74 m): This includes support for the preparation of investments in the Tana and Beles sub-basins, including surveys, pre-feasibility and feasibility studies, environmental and social assessments, designs, implementation arrangements, and other associated analytical work and stakeholder consultation in order to ensure that these investments (expected to be better identified through an ongoing Growth and Endowment study) are prepared with both growth and sustainability considerations.

D. Project Management [$2.24 m]: This component aims to support overall project planning, coordination, management, quality oversight, technical supervision, effective procurement and financial management, as well as consolidated monitoring and reporting ofproject activities.

11 There has been rigorous analysis done to ensure the proposed studies and interventions under the project components do not duplicate the activities under existing and planned projects financed by the GoE and donors, including regional initiatives. (Refer to attachment 4.1 in Annex 4)

4. Lessons learned and reflected in the project design

26. The project has been conceived based on the lessons learnt from the completed and ongoing initiatives around the Tana and Beles sub-basins. Experiences in recent years on managing hydrologic variability and the impact on both lake levels and the Tis-Issat waterfalls due to operation of the Tis-Abbay Iand I1 hydropower plants have indicated the need to better plan and coordinate investments. The Tana-Beles Hydropower diversion tunnel under construction also underlines the need for well-planned and harmonized operations. In addition, there are a number of new projects under development in the Tana sub-basins, including on-going and proposed dams (e.g. Koga, Ribb and possibly others on the Gilgil Abbay, Gumara, and Megech) and irrigation schemes (the Megech pump scheme and Ribb surface irrigation schemes are on-going and others are being contemplated). Stakeholder meetings have expressed a strong desire for systematic regulation and coordinated development in the Lake Tana sub-basin to effectively manage opportunities and risks in the system. Hence the project provides for an integrated planning process through the sub-basin organization to harmonize all water uses from the basin.

27. There is a need to recognize the special status ofLake Tana, and a need to harmonize the social, environmental, and economic aspects of its development, building on experiences with other lakes such as Lake Chad and Lake Victoria. Between 1963 and the present, Lake Chad has shrunk from 25,000 sq km to 1,350 sq km due partly to increased use of water for irrigation and disappearance of vegetation in the northern part of the basin resulting in the formation of sand dunes, further reducing lake area. Lake Victoria also suffered from a reduction oflake level by over 1.5 m in 2007 due partly to withdrawal of excess water for hydropower generation. The Aral Sea has also shrunk as a result of upstream irrigation diversions and required significant infrastructure investments to save one part of it. There are also many examples ofproblems in several Ethiopian lakes and reservoirs that are heavily or fully silted - e.g. Lakes Alamaya is silted, Lake Abiata and Lake Ziway have been substantially impacted. This project builds on the lessons learned from a recently-completed global Lake Basin Management Initiative led by the Bank. Hence while providing for an integrated planning under a new institutional set-up, the project also plans for a substantial watershed development component to reduce siltation.

28. The need for appropriate basidsub-basin management institutions has been recognized by the GoE, as indicated in its recent proclamation (534/2007). The project supports the idea of phasing-in these institutions, starting with the Abbay River Basin Organization and the subordinate Tana Sub-basin Organization and Beles Sub-basin Organization.

12 29. Experience with accelerating growth-oriented activities has also indicated the imperative to recognize their multi-sectoral dimensions, as well as the need to harmonize these activities in the broader sustainable development context. The project also addresses the need to build a strong pipeline of well-prepared investments to help catalyze much- needed public and private investments in the region.

30. Implementation ofphysical investments in this project builds upon the lessons of similar projects (e.g. watershed and community flood management). This includes the need for (i)demand-driven interventions, which are well-planned and consistent with local capacity; (ii)strong stakeholder participation and capacity-building throughout the process; (iii)facilitation with procurement and financial management; (iv) an adequate environmental and social management framework; (v) good monitoring of the progress and impacts ofinvestments; and (vi) mechanisms to scale-up such investments.

3 1. Capacity-building activities that are central to this project also build upon the experience in Ethiopia and around the world. This includes a combination of formal and informal training, including training courses, workshops, learning-by-doing activities, appropriate training-of-trainers, access to expert advice, and the use ofmultiple media.

5. Alternatives considered and reasons for rejection

32. There were a number ofalternative formulations considered for the project. These included: 1. Investment verses Institutional Development: There is an urgent need for investments in a number of sectors to help the populations of the Tana and Beles sub-basins to move out of largely abject poverty and to help transform the region to a growth zone. However, any visit to the region and discussions with stakeholders indicates the strong need for capacity-building at all levels to modernize the planning, management, and implementation of investments. The project proposes a judicious balance of investments and closely-related institutional strengthening. 2. Sectoral verses Multi-Sectoral: A possibility was to initiate or continue separate sectoral project interventions (e.g. irrigation, energy, tourism, transport, agriculture, ago-processing, watershed development, environment, etc.). This was dropped in favor ofmultisectoral and integrated planning and development as the latter gives the advantage ofcoherent and integrated planning across sectors to enhance the impact of each sectoral activity and their synergy/complementarity (the resulting whole being bigger than the sum ofthe parts). 3. Adaptable Programme Lending (APL) verses Specific Investment Loan (SIL): An alternative of adopting an APL instead of a SIL was considered to indicate long-term commitment both on the part of the Government and the Bank in realizing the objectives ofthe project (that would depend on a number of factors- including the outputs ofthe on-going Endowment and Growth Study). However, a series of connected projects instead of an APL was finally selected to enable the subsequent phases ofthe project to be defined more concretely.

13 1. Partnership arrangements

33. The Government ofFinland (GoF) plans to earmark about Euro 5 million ($78.0 million) towards the development and management of watersheds around Lake Tana (Ribb, Gumara, and Jamma watersheds). This funding, if it materializes, would be supplemental to IDA financing for this sub-component, and would focus on providing grant financing for some capacity-building aspects. The exact funding mechanism to enable the GoF to co-finance this component ofthis project is being finalized. In case the funding from the GoF does not materialize, this gap would be covered through GoE resourecs.

2. Institutional and implementation arrangements 34. The project’s institutional and implementation arrangements are based on principles of effectiveness, accountability, flexibility, synergy, subsidiarity, and sustainability. Given the nature ofthis project, substantial effort has also been made to ensure the development ofadequate capacity for coordination, monitoring, and adaptive management at all levels ofimplementation. These arrangements are described below:

Component A Sub-basin Resources Planning and Management: A1 . Water Resources Information System Development: This includes hydrologic and environmental monitoring - including water quality, land use, fisheries, biodiversity, and wetlands monitoring,. It will be implemented through the MoWR with the participation of other relevant agencies, until the ARBO and sub-basin organizations are equipped to handle this mandate as envisaged in the Proclamation. At regional level this component will be coordinated by the Bureau responsible for Water Resources Development (e.g. BoWRD in Amhara region)

A2. Resources Planning and Management Capacity-building: This component is to be implemented through the Abbay River Basin Organization (ARBO), the Tana Sub-basin Organization (TaSBO), and the Beles Sub-Basin Organization (BeSBO). The institutional and capacity-building study, undertaken as a part of project preparation, considered options ranging from the TaSBO and BeSBO being branch offices ofthe ARB0 to them being more autonomous entities. The study suggested that, given the mandate of the current Proclamation on River Basin Councils and Authorities and the time required for amendments, the project could support the TaSBO and BeSBO as branch offices of the ARBO with appropriate standing committees for the sub-basins. The project would also support the policy, legal, and institutional changes required to improve the evolving structure, staffing, and mandates of these sub-basin organizations to provide greater functional autonomy, if considered essential. At regional level this component will be coordinated by the Bureau responsible for Water Resources Development (e.g. BoWRD in Amhara region)

Component B. Natural Resource Management Investments. The entire component will be managed by the Amhara Regional Bureau of Agriculture and Rural Development (BOARD) with an appropriately staffed Project Coordination Unit at the Natural Resources Development and Conservation Division to effectively implement the project (harmonizing with the Division’s other activities).

14 B 1. Watershed Development: This will be implemented at Woreda and Kebele levels using the existing mechanisms appropriately strengthened under the project. Community entry- point (small-scale investments in roads, water supply source development, etc.) will be channeled by the BoARD through the appropriate regional institutions as is currently the case.

B2. Flood Management: The community-based flood-related activities of the project will be handled by the Regional Food Security Coordination and Disaster Prevention Office (under the BoARD) through its Early Warning and Disaster Prevention Department and associated Zonal Office and Woreda desks. An ongoing ENTRO consultancy to improve the Project Implementation Manual ofthe Eastern Nile Flood Preparedness and Early Warning (Phase-11) Project may further inform the implementation arrangement for this sub-component. The institutional aspects of this sub-component will also have strong linkages with those of the Water Resources Information System being developed under sub-component A 1.

Component C. Growth-Oriented Investment Facilitation. This component (both subcomponents on Development Agency Support and Growth-Oriented Investment Preparation) would be coordinated by the Ministry of Water Resources at the national level, and at regional level by the Bureau of Finance and Economic Development. The BoFED was selected since the bureau would have the capacity and the mandate to oversee this component, as well as integrate it with regional-level development plans and activities.

Component D. Project Management. The implementation arrangements for the overall coordination of all project activities at federal and regional levels are indicated below: National-level: The MoWR will remain the overall executing agency ofthe TBIWRDP. The Abbay River Basin Team (ARBT) is currently responsible for both coordinating this project preparation, and for forming the Abbay River Basin Organization. A National Project Coordination Unit (NPCU) is to be set up in MoWR under the Basin Development Study and Water Utilization Control Department, independent ofthe Abbay River Basin Authority. The NPCU, which will coordinate the overall project implementation, will need to be staffed with a number of full-time staff at the initial stage (additional experts would be required during implementation), including a National Project Coordinator (Water Resources Specialist), procurement specialist, financial management specialist, information management/M&E specialist, training and communications specialist, and support staff. In view of coordination units being set up in MoWR for a number ofprojects, merging ofsuch coordination units into an overarching unit, similar to what is currently being done for water supply projects, will be pursued during the initial phase of implementation of this project. A National Steering Committee is also required for this project. The GoE could also consider merging this with the National Steering Committee recently setup for the Bank-financed Ethiopia Irrigation and Drainage Project.

Regional-level: Implementation at the regional level involves various bureaus (BoWRD, BOARD, BoFED, FSCDP, EPLAUA, AIPA) that need to be coordinated by a Regional Project Coordination Unit (RPCU) to ensure synergy and effective implementation. The focal coordinating institution for the project at regional level in Amhara will be the Bureau of Water Resources Development. The Bureau will be strengthened with (i)an engineer with procurement experience; (ii)a hydrologist; (iii)a water resources management specialist; (iv) a financial management specialist; and (v) a social mobilizatiodcommunication specialist; with adequate support staff.

15 35. The project implementation will ensure flexibility to allow for institutional changes that may take place during implementation, including the setting up of new agencies to stimulate growth, or changes in existing agencies as a result of the ongoing Business Process Re-engineering process in the Amhara Region. The Ministry, through a consulting firm, undertook an Institutional and Capacity-Building Study to provide institutional options and detailed arrangements to adequately undertake the key functions that are required for effective utilization and development of the sub-basin resources. The project has been designed taking into consideration the analysis and recommendations of this study.

36. The primary flow of finds for this project is from the World Bank to the GoE’s MoWR as the key implementing agency. The MoWR transfers funds to other federal agencies (e.g. MoWR units, NMA, and DPPA), basidsub-basin organizations, and to the regional bureaus (for subsequent transfer to woreda and kebele offices) as further discussed in Annex 7. Modalities ofGoF finding to GoE is under discussion between GoF and GoE.

37. To avoid delays in submitting audit reports and IFRs for the project, an additional Financial Management Specialist at NPCU, and an accountant at the Amhara RPCU will be recruited. This will be supplemented by the finalization of a Financial Management Manual and the provision oftraining in order to improve the internal control system and timeliness offinancial reporting.

38. A Project Implementation Manual (PIM) has been drafted along with an implementation road map to facilitate the critical first 18 months ofproject implementation. The PIM will be finalized before project effectiveness.

3. Monitoring and Evaluation of OutcomedResults 39. A Monitoring and Evaluation (M&E) sub-unit will be established within the National Project Coordination Unit (NPCU) and the Regional Project Coordination Unit (RPCU), and will be responsible for the regular routine M&E of the project activities. The M&E Officer ofthe NPCU will co-ordinate all monitoring and evaluation activities and ensure the production and publication of the necessary reports. Monitoring will also be undertaken at the ARE30, TaSBO, and BeSBO levels. These units will work in close coordination with the units that are implementing the flood and watershed sub- components, and will use a range of techniques which involve direct feedback from beneficiaries in the watershed and flood-affected communities.

40. M&E will involve the assessment ofperformance of all project activities against a set of performance (input, process, output, outcome) indicators identified in the logical framework, closely monitored to determine not only the physical and financial progress but also results on the ground. It is proposed that the primary project implementing agency unit in MoWR will be assisted by an M&E consultancy to help create a web- based project management and monitoring system and collate information to provide a synoptic project view. In addition, monitoring frameworks are being established for each of the project components and sub-components being carried out by the various implementing agencies.

16 41. The instruments for monitoring will include field surveys, stakeholder feedback, and project reporting, as well as more modem tools such as remote sensing. The monitoring of physical activities will also be visualized in a spatial context using appropriate GIS systems and will be supplemented by other tools such as remote sensing (e.g. to monitor watershed development interventions as is good practice in modem watershed projects).

42. The strong monitoring system is intended to support adaptive project management and to identify additional issues to be addressed in this or other projects. Regular monitoring reports will be prepared on at least a monthly basis and summarized quarterly, half- yearly, annually, and at the mid-term and final stages ofthe project. These are expected to be complemented by in-depth evaluation studies conducted at mid-tern and final stages of the project to more systematically document and carefully analyze project activities, as well as to collate lessons.

4. Sustainability

43. There are a number offacets ofsustainability that are to be considered in such a project. These include:

Institutional Sustainabilitv: This is ensured through focusing both on existing institutions wherever possible, as well as on helping to set up new institutions as identified by the GoE (e.g. basidsub-basin organizations). Priority is given to ensuring that the capacity of the relevant institutions (at federal, regional, woreda, kebele, and community levels) is built in a targeted “learning by doing” manner. This includes the development of a systematic knowledge base, analytical capacity, the ability to effectively consult stakeholders, and the capacity to effectively formulate plans, programs, and policies for the sustainable management and development of the Tana and Beles sub-basins. Close monitoring of the project will assist with adaptive project management for project institutions. The project strongly supports the GoE’s commitments to (a) the PASDEP initiative on growth zone where Tana-Beles has been identified as one ofsuch zones; and (b) the proclamation on river basin organizations.

0 Economic and Financial Sustainabilitv: The project also seeks to support activities only where there are obvious economic and social benefits that justify their costs. Wherever possible, as in the case of the larger investments on watershed and flood management, these have been quantified. In addition, the GoE has indicated in their enabling proclamation that the basin organizations will gradually move towards financial autonomy. Commitment has been sought from the GoE to ensure that any necessary recurrent costs induced by the project will gradually be fully absorbed into the budgetary provisions by the end ofthe project.

0 Environmental and Social Sustainabilitv: The entire project seeks to further the goal of environmental and social sustainability. This includes the development of sub-basin plans and management instruments, improving Lake Tana’s management, investing to better manage land degradation and water quality, improving the livelihoods of

17 vulnerable communities dependent on rain fed agriculture, livestock, or those living in flood-prone areas, as well as preparing investments in a holistic manner with appropriate attention to social and environmental issues. Improving the water resources knowledge base will help plan more sustainable investments and harmonize the operation of existing infrastructure. The Environmental and Social Management Framework and Resettlement Policy Framework developed will be used during project implementation to ensure environmental and social sustainability of the proposed investments.

5. Critical risks and possible controversial aspects 44. The key risks associated with the project and their possible mitigation measures are:

Risks Mitigation Measures Rating after Mitigation o Already demonstrated GoE commitment (e.g. proclamation, project preparation, stakeholder Sustained Government consultation) commitment (e.g. creation and o Abbay River Basin Organization, Tana Sub-basin sustainability of sub-basin Organization and Beles Sub-basin Organization have all institutions, coordinating and been conceived to promote “shared vision” planning and Moderate enforcing operating rules - e.g. management across various agencies with fragmented and T-B HP; Coordination across overlapping jurisdictions several agencies, Synergies o Project steering committee with other initiatives) o TA provision o Mapping of watershed interventions in targeted areas and harmonization ofapproaches o Proposed approach consistent with PASDEP o Phased approach used Acceptance of Growth Study o Continuous dialogue during project preparation and Moderate recommendations implementation o Linking sub-basin growth investment preparation with growth study recommendations o Woredas already undertaking substantial watershed development activities o Significant focus on capacity-buildinghtaffmg Managing substantial scale of o Synergy with other watershed activities in Ethiopia Moderate watershed investments o Involve communities o Operational manual o Close monitoring Insufficient inclusiveness o Stakeholder consultation strategy being developed during consultation; Ineffective o Capacity-building Moderate community involvement for o Operational manuaVclose monitoring watershed and flood activities o Units for overall project coordination and monitoring established Difficult project o BasdSub-basin organizations to improve inter-agency implementation (across several synergy Substantial implementing agencies) o Different levels ofmonitoring o Monitoring system o Consultant - M&E

18 Delays in submission ofaudit o Preparation ofclear FM manual and recruitment and l reports and Quarterly Interim training of additional Key FM staff will enhance the Moderate Financial Reports capacity ofimplementing entities o Since cooperation between the Eastern Nile countries has grown significantly over the past few years, the risk of breakdown in dialogue appears relatively small. NBI breakdown o Commitment to the NBI is evident at the highest political Moderate levels and there is tremendous pressure to successfully implement Nile investment projects as a tangible demonstration ofcooperation benefits.

6. Loadcredit Conditions and Covenants

45. The credit conditions for effectiveness are the following: The Recipient has established a National Project Coordination Unit (NPCU), a Regional Project Coordination Unit (RPCU) for the Amhara Region and a Project Steering Committee at both the national and regional levels, in a manner satisfactory to the Association.

The Recipient has adopted a Project Implementation Manual including a financial management manual in form and substance satisfactory to the Association.

The Association has received satisfactory evidence that the staff ofthe NPCU and the RPCU for the Amhara Region have been duly recruited and trained on financial management and procurement procedures in a manner satisfactory to the Association. Other Covenants in the legal agreements include:

d) Within 180 days from Effective Date, an independent and qualified external auditor to carry out the annual financial audit of the Project, with qualifications, experience and terms of reference acceptable to the Association, shall have been recruited,

e) By December 31, 2008, a RPCU for the Benishangul Gumuz Region shall have been established and its staff shall have been duly recruited and trained on financial management and procurement procedures in a manner satisfactory to the Association.

f) (i)By March 3 1, 2009, TaSBO shall have been established; and (ii)by December 3 1, 2009 BeSBO shall have been established.

19 1. Economic and Financial Analyses

46. Project Costs: The project is expected to cost $69.85m with costs distributed as follows:

A. Sub-basin Resources Planning and Management [$ 17.61ml 1. Water Resources Information System Development ($1 1.66m) 2. Resource Planning and Management Capacity-building ($5.95m)

B. Natural Resource Management Investments [$40.83 m] 1. Watershed Development ($35.08m). 2. Flood Management ($5.75m)

C. Growth-Oriented Investment Facilitation [$9.17 m] 1. Development Agency Support ($1.43 m) 2. Growth-oriented Investment Preparation ($7.74m)

D. Project Management [$2.24m]

47. Proiect Benefits: There are expected to be a number of tangible and more difficult to quantify intangible benefits from project activities. These include:

A. Sub-basin Resources Planning and Management: The creation of sub-basin organizations in the Tana and Beles Sub-basins will provide a systematic knowledge base, analytical capacity, and forums for structured stakeholder participation. The proposed hydro-climatological, groundwater, and environmental monitoring network is expected to provide a sound knowledge base to design water-related investments and regulate the lake. Overall, these activities are expected to enhance the development effectiveness of investments and optimize allocation ofwater resource base. Decision making on sub-basin planning and management are expected to be facilitated by an integrated consideration of environmental, social, and economic perspectives to improve effectiveness and sustainability. The information integration, participatory planning, and regulatory role of the Sub-basin organizations are expected to improve stakeholder awareness and participation, reduce transaction costs for institutional coordination, and promote “shared vision” planning and management of resources. The lessons generated from the sub-basin organizations will be particularly useful in setting up other basin and sub-basin organizations in Ethiopia.

B. Natural Resources Management Investments: Investments in watershed development are expected to provide tangible benefits in terms of providing climate resilience to highly vulnerable stakeholders who primarily depend on rain-fed agriculture and livestock. Local livelihoods in the targeted woredas are expected to improve through higher crop and livestock productivity and better marketing. The improved natural resource management is also expected to reduce erosion from the targeted micro watersheds, and consequently reduce sedimentation that threaten the life and productivity of downstream communities (e.g. by increasing flooding possibilities),

20 water storages (e.g. proposed dams such as Ribb, Lake Tana) and infrastructure (e.g. hydropower plants, irrigation canals and drains). This experience is also expected to provide lessons for future scaling-up of such watershed investments in this and other regions. Investments in flood management (and associated flood information management, communication, and preparedness) are expected to reduce the vulnerability of targeted chronically flood-affected communities without losing the production benefits of historical flooding. The economic shocks induced through repeated flooding can significantly undermine economic growth or poverty alleviation efforts. Watershed and flood management investments can provide many secondary benefits. For example, improved rural incomes can also help targeted communities improve their overall standard of living, nutrition, and access to education and healthcare. Another key benefit could be the empowerment of stakeholders to be a more integral part of decision-making processes that would promote ownership and entrepreneurship among the sub-basin population. These investments are also expected to contribute to strengthening NE31 partnerships, especially by providing shared benefits among the Eastern Nile riparians.

C. Growth-Oriented Investment Facilitation: Institutional capacity-building and enabling policies for stimulating growth-oriented sustainable investments in the Tana Sub-basin are expected to provide a long-term stream of benefits to the stakeholders in the sub- basin to promote shared growth. This will be realized through investments in skill- development and capacity enhancement in the vertical and horizontal coordination among federal and regional institutions. This improvement is expected to provide a platform for synergizing plans, programs, policies, and projects to spur growth in the region and promote much-needed private sector investments in the area. Investment preparation and facilitation supported under the project is expected to develop a pipeline of well-planned interventions that promote shared growth and stimulate complementary investments, while ensuring resource sustainability.

D. Proiect Management: The investment in project management should also help generate the necessary institutional capacity to effectively manage such large, multi-faceted projects in Ethiopia. The monitoring and evaluation framework proposed should also be particularly useful in generating lessons for future phases and other federal or regional projects.

48. Economic Analysis: The financial and economic analysis conducted demonstrates in several ways that there is a clear economic rationale for allocating investment capital for implementing sustainable and efficient water resource management strategies and promoting growth and development critical to protecting and improving the livelihood systems in the project area. A summary of the analysis and results are presented here. Annex 9 provides a more complete report on the financial and economic analysis.

Methodology: The methodological approach and tools adopted enable a cost benefit analysis to be completed for the majority of the capital expended on activities under the project. This applies to the two sub-components. The first one is related to watershed intervention which accounts for almost 60 % of the project’s expenditure. For the first

21 sub-component, characterized by soil and water conservation(SWC) and livelihood system strengthening activities, a change of productivity approach (emphasizing benefits compared to costs) based mainly on yield and cropping pattern changes resulting from the SWC interventions during the first five years ofthe project are evaluated over a thirty year time period. Very conservative yield changes of 1 'YOper year are assumed over the full period. For the second sub-component on flood mitigation characterized by community level response strengthening based on improved water and early warning information systems, the analysis is completed through a damages avoided approach (emphasizing benefits ofavoided losses and savings on rehabilitatiodrepairsheplacement in relation to costs of the flood mitigation measures to be introduced) in the two most flood prone areas of Lake Tana. The flood mitigation economic analysis was conducted for floods ofdifferent intensities with their respective probabilities and damages.

For the remaining project components a combination of market and opportunity cost analysis (value ofopportunities and resources lost from inaction) and an evaluation ofthe capacity to cover additional fiscal costs associated with improved water management institutions, are used to demonstrate the importance of implementing improved institutional coordination and management systems and promoting sustainable growth in the region.

Results: The results of the financial and economic cost-benefit analysis are very positive. For the soil and water conservation sub-component interventions, the financial internal rate of return is 23.6% with an associated benefit-cost ratio of 2.35. The economic internal rate of return is 24.2% with a benefit-cost ratio of 2.48. Sensitivity analysis was conducted on these results varying intervention costs, output prices, and yields at several percentage levels. On the base case an increase in costs as much 20% would still result in the financial returns to capital being 20%. A price decline of 10% and a cost increase of 20% reduced the financial and economic rate of return to 17.3% and 17.9% respectively. With an assumption ofno increase in expected yields, financial and economic rates of return reduced to 14.8% and 14.2% respectively. Given the livelihood activities associated with the watershed development interventions there is good reason to expect that the yield changes will exceed expectations. This is supported by the evidence that yield increases for crops in Ethiopia have been consistently increasing over the past two decades.

The results for the flood mitigation interventions are based on flood damage estimates during the period 2005 to 2007 with 2006 being used as representative of a greater than average loss year. Based on 45 years of rainfall data, probabilities for floods of different intensities were estimated at 9% for a worse than average year and 7% for a better than average year, the remainder being average years. Given the fact that the flood mitigation measures are non-structural and heavily community-management dependent the losses prevented will be partial. Three scenarios, representing assumptions of lo%, 15% and 20%, were used for damage prevention estimates due to the interventions under the project. For an average loss year benefit-cost ratios were 1.37, 1.78 and 2.09 respectively for the three damages prevented scenarios. In a greater than average loss year, benefit- cost ratios were 1.71, 2.22 and 2.62 respectively for the three damage recovery scenarios.

22 In a less than average loss year, benefit cost ratios were 1.09, 1.42 and 1.68 respectively for the three damage recovery scenarios. In all cases the financial rates ofreturn exceeded an assumed cost ofcapital of 12%.

The analysis of the institutional and growth components was based on comparisons reflecting losses associated with natural resource impacts and opportunities that may be lost to the regional economy without improved coordination and management of water resources at the national, regional, woreda and kebele levels. From the analysis, it is clear that the sectors directly affected by water drive the regional economy which is also identified as a growth corridor for the national economy. While all losses may not be avoided by water resource management or attributed to the 2003 drought in the Amhara region, real GDP data shows a decline of almost 4% due directly to a decline in agricultural GDP close to 20%. Crop production accounted for 65% of real agricultural GDP in 2001/2002 and only 55% in 2002/2003. Similarly, the data for the tourism, transport, fisheries and investment reflect the impacts of shocks on current performance and their further development can be inhibited by the absence of an effective integrated approach to sustainable development. To prevent these losses and lost opportunities, there will be fiscal implications associated with the increased coordination and management of Sub-basin organizations and water resource information systems as planned under Component A. In order to test the capacity to cover these costs, both capital and recurring, they were allocated proportionately with the watershed and flood management cost-benefit analysis framework and demonstrated an economic return greater than the cost ofcapital and a positive net benefit. What the recurrent costs might mean for public expenditure at the District level and especially for poor farmers paying a small land use tax was also investigated and found to be of no consequence. Thus, given the returns to investment resources under the project, there is certainly a strong basis to justify continued federal and regional capital expenditure for improved management of water resources to realize the gains ofsustainable growth strategies.

2. Technical

49. The underlying principle in this project is that the integrated planning and management of water and land resources, bringing about synergies with on-going/planned sectoral initiatives and providing critical missing development links, can provide greater returns for each unit of investment made. The challenges in achieving the project development objectives include: (i)the complexity of effectively managing water resources for multi- sectoral and often competing uses, coupled with inadequate knowledge of the lake’s hydrology and lack of institutional setting for the lake’s water resources; (ii)inadequate institutions to support agro-processing and limited private sector capacity and public private partnerships; (iii)inadequate enabling infrastructure; and finally (iv) a fragile ecology in the Tana area (a shallow lake and associated wetlands) with concerns of high erosion in the highlands, water qualityhiodiversity issues in the lakes environs, and recurrent droughts/floods.

50. To address the above challenges, two broad areas of interventions - institutions and investments - have been envisaged under the Project keeping in mind the

23 recommendations by Federal and Regional Government stakeholders that an integrated approach be adopted. Such an approach would need to include water/land resources management and productivity, environmental protection, improved market linkages, investment in infrastructure, etc. that helps complementarities across sectors and explicitly link project interventions to the growth scenario. . Institutional development: for effective planning and management of water resources through support for sub-basin basin planning and management agencies (including development of Water Resources Information Systems; development of modalities for multi-sectoral planning for the use ofwater resources; costing ofwater use; establishment of linkages with related development institutions; and structured stakeholder participation).

Strategic investments: Physical investments are envisaged under the project to address the critical natural resource management aspects especially those relating to watershed and flood management around Lake Tana. The engagement ,of the private sector is central to achieving the growth potential envisaged under the project. This implies a PSD effort that deviates from normal current practices to introduce bold new actions to encourage private investment. The creation of an enabling environment for private investment following the opportunities that will be created through the development of water and land resources is, however, imperative for the realization ofthe Project’s objective of accelerated growth. A recently initiated study on “Endowment and Growth” is expected to lay down a road map for growth enhancement in the Tana and Beles sub-basins, including recommendations for enabling policy, institutional, and investment needs. The current project is expected to build on these recommendations and carry out detailed studies on the economic, environment, social, institutional, and technical facets for initiating growth-oriented investments in the follow-on project.

3. Fiduciary

5 1. Procurement: Public procurement in Ethiopia follows the federal structure of the government. Procurement at Federal level is governed by the procurement code issued by the Federal Government in January 12, 2005 and the Procurement Directives released in July 2005. The procurement code and directives are adapted to the Regions based on the model prepared by the Federal Government.

52. Works estimated to cost less than US$l,OOO,OOO per contract may be procured using National Competitive Bidding (NCB). Direct Contracting may be used for works in exceptional cases, according to paragraphs 3.6 and 3.7 of the Guidelines. Shopping may be used for small value contracts in accordance with paragraph 3.5 ofthe Guidelines.

53. Goods and Equipment contracts estimated to cost less than US$200,000 per contract may be procured using NCB, using national Standard Bidding Document (SBD) agreed with or satisfactory to the Bank. Direct Contracting for goods may be used in exceptional cases, such as for the extension ofan existing contract, standardization, proprietary items, spare parts for existing equipment, and emergency situations, according to paragraphs 3.6

24 and 3.7 of the Guidelines. Shopping may be used for contracts with estimated values of less than US$50,000 in accordance with paragraph 3.5 ofthe Guidelines.

54. Most consultants’ contracts with firms will be awarded through the use ofthe Quality and Cost Based Selection (QCBS) and Quality Based Selection (QBS) described under section I1 (2.1-2.3 1) ofthe Consultant Guidelines, using the Bank’s Standard Request for Proposals. Consulting Services for audit and other contracts of a standard or routine nature may be procured under the Least Cost Selection (LCS) method described under paragraph3.6 of Consultant Guidelines. Consulting assignments costing less than US$ 100,000 may be procured using Selection based on Consultants Qualifications (CQS) described under paragraph 3.7 of Consultant Guidelines. Single source selection can be used to contract firms for assignments that meet the criteria setout under paragraphs 3.9 to 3.13 of the Consultant Guidelines. Contracts for individual consultants (IC) will be done by comparing the qualifications of at least three candidates, in accordance with Section V ofthe Consultant Guidelines.

55. Short lists 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 ofparagraph 2.7 ofthe Consultant Guidelines. 56. The procurement procedures applicable to the project shall be outlined in the Project Implementation Manual (PIM). The SBDs to be used for procurement of goods and works using NCB that are revised as per Bank comments would be provided to each implementing agencies with the PIM.

57. All ICB procurement of Goods and/or works; and all selections of consultants involving foreign firms or where the estimated cost ofthe assignment exceeds USD 200,000 would be carried out by the Mom.

58. Financial management: An evaluation of Public Financial Management (PFM) performance in Ethiopia has been conducted in early 2007 based on an international reference framework - the PEFA or Public Expenditure and Financial Accountability framework. The assessment was done at the federal and regional levels and two separate reports were issued. Seven regions were included in the assessment.

59. The draft assessment report issued in April 2007 observed significant improvement in the area of financial management in the regions, including budgetary transparency in recent years, robust budget preparation, regular internal audit scrutiny and follow up of internal audit recommendations, timeliness of in-year and annual financial reports, and mutual supportiveness of the federal and regional Auditor Generals. Nonetheless, the report noted that the quality and nature of internal audit is uneven among the regions. It also reported untimely clearance of suspense accounts and that some regions are still experiencing significant delays in producing timely in-year and end of year information. The report firther identified capacity limitations in reviewing annual budgets.

60. The government system of accounting will be used for budgeting, recording, reporting and auditing of the project financial transactions. The major risks for the implementation of the project are the high number of implementing agencies involved in the

25 implementation and the low capacity at all levels. In order to mitigate these risks, additional staff will be recruited to strengthen the existing capacity and extensive training will be provided to all regional staff.

61. The country’s discipline in executing budget and compliance with the existing government rules and regulations are the major strengths in implementing this project. Ministry of Water Resources, relevant regional bureaus (BoWRD, BOARD), EPLAUAs and IPAs will be involved in processing most ofthe project financial transactions. All the implementing agencies will strictly follow government rules and regulations in processing, recording and reporting the project financial transactions.

62. The NPCU at the MoWR will be responsible for the overall financial management ofthe project, and it will be the main counterpart and focal point for the project. Actions outlined in the Financial Management Action Plan will be undertaken in the project to strengthen the financial management system. A project Financial Management Manual for the project, and recruitment and training of an FMS at Mom-NPCU and an accountant at the Amhara RPCU is required before project effectiveness. IFR formats and Audit TORShave been finalized. An external auditor would need to be recruited within six months of credit effectiveness to ensure that the project accounts are audited and submitted to the Bank in a timely fashion.

63. The conclusion ofthe assessment is that the financial management arrangements have an overall risk rating of moderate that satisfies the Bank’s minimum requirements under OPBP 10.02 and therefore is adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by IDA. With the implementation of the action plan, the financial management arrangements will be strengthened.

4. Social

64. The communities around Lake Tana are largely Amharic-speaking highlanders who are small farmers but also have cattle. Aside from Bahar Dar and smaller towns, most ofthe target communities live in small villages, with relatively homogenous social units, with minimal economic differentiation between rural households. Although part of Amhara (including most of the flood affected areas) are considered to be food secure woredas, there is a high degree ofpoverty in the region. There are some ethnic minorities in the area such as the Bete Israel (Ethiopian Jews), Weito tribe and a smaller number of migrants and seasonal labour. None of the groups can be considered to fit into the WB category ofIndigenous Peoples.

65. The project has conducted an extensive social analysis in the flood affected area of the Fogera plains and area surrounding and including Bahar Dar. Preparation of the watershed sub-component also involved a social analysis amongst target beneficiary communities. The social analysis has been the main vehicle through which project priorities for community activities have been defined, target groups identified and appropriate institutional structures put in place.

26 66. Watershed activities will focus on: 0 prioritizing activities that encourage good environmental management but are also economically viable and contribute to socio-economic improvement of households 0 addressing issues of farmer-pastoral conflict arising from straying cattle through fostering participatory discussion of cattle routes and acceptable norms of grazing. 0 Environmentally sustainable exploitation of natural resources to give direct benefit to local communities and prevent their exploitation by outsiders. 0 Emphasizing an approach where environment management is seen as a valuable variable for socio-economic development and income generation.

67. Flood management activities will focus on: 0 building social capital through the organization of flood preparation and management activities within the community, by clarifying responsibilities and involving marginal groups 0 identifiing and responding to specific needs of groups who are deemed vulnerable to floods, e.g. female-headed households who lack adequate labour for house reinforcement, the weito tribe living in the vulnerable zone, or people who have limited mobility for emergency evacuation such as pregnant women and the elderly. 0 improving capacity for flood preparedness and management, so that communities are less reliant on ad-hoc outside help. Activities such as installing and reading of flood poles, adaptive technology for raised grain and human shelters, all weather access routes to main roads and markets, and a focused plan with roles identified for volunteers within each village will all help in improving each community’s own capacity and reduce the negative impacts offlooding.

Community based activities will involve participatory monitoring to ensure that lessons learnt are filtered into the design offuture phases ofthis project.

5. Environment

68. Lake Tana sub-basin’s water, land, livestock, forests, fishery, and natural and cultural assets offer considerable social and economic benefits to the livelihoods of its three million people scattered throughout numerous towns and settlements (Kebeles) in the area. At the same time, a number of issues are contributing to emerging conflicts over resource uses and threats to the Lake Tana ecosystem. These include:

0 Lake regulation; 0 Growing population and livestock pressures on land, and serious land degradation; 0 Increasing demand for energy; 0 Uncoordinated water resources development, an inadequate policy framework, and the lack ofa clear institutional responsibility for the management of Lake Tana; 0 Inadequate scientific and socio-economic information and knowledge on limnology, fisheries, wetlands, and other biological resources; and

27 Absence ofa regulatory framework for allocating water, controlling pollution, managing watersheds, regulating fisheries, and protecting forests and wetlands.

69. TBIWRDP promises to substantially enhance environmental conservation and social development in the Tana and Beles sub-basins, principally though improved water and flood management, and through investments in sustainable land management to improve local livelihoods and reduce runoff, erosion, and the consequent sediment loads in watercourses. This will support the delivery of development and growth benefits in the sub-basins and nationally, as well as contribute to downstream benefits in the Nile Basin context. Important vehicles for developing these benefits will be the TBIWRDP-financed Tana & Beles Sub-basin Integrated Water Resource Development Plan, as well as investments in watershed development around Lake Tana.

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessnient (OPBP 4.0 1) [XI 11 Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [XI [I Physical Cultural Resources (OP/BP 4.1 1) [I [XI Involuntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OPBP 4.37) [XI [I Projects in Disputed Areas (OP/BP 7.60). [I [XI Projects on International Waterways (OP/BP 7.50) [XI [I

70. TBIWRDP is an EA Category “B” project since significant adverse environmental and social impacts are not expected, given that the nature of the proposed activities focus on institutional development, watershed and flood management investments, and investment preparation.

71. Involuntary resettlement: While the project does not expect any major involuntary resettlement, a resettlement policy framework has been prepared to address the following possible situations: . Loss of access to grazing where only some households are affected or significantly more affected within a community in relation to the closure ofgrazing areas. In such situations where several households are affected and where the impact is often temporary, direct compensation is often not the best option. The framework has detailed participatory procedures and alternative development activities that can serve to compensate the affected households.

’ By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties’claims on the disputed areas

28 . Loss of access to recessional farming land in the unlikely event that flood control measures result in reduced inundation of the land, or that a small dyke prevents access to that area.

72. Indigenous peoples: This safeguard is not triggered as there are no indigenous peoples in this area. The social assessment for the flood project clarified that the Weito and Bete Israel groups in Bahar Dar do not qualify as indigenous under World Bank policy.

73. Cultural property: This area does not have significant archaeological artifacts. However, any contract for works will contain the chance find clauses. The area does have other cultural property, specifically the monasteries around and within Lake Tana and the castles in Gondor. Project activities are not expected to impact these in any way.

74. Pest Management: There is a possibility of the use of pesticides (direct and induced) during the agricultural development activities being considered as part of watershed development. The Environmental and Social Management Framework will ensure that Integrated Pest Management (IPM) is enhanced and that the requirements of OP4.09 are mainstreamed into project implementation.

75. Safety of Dams: The project will not support the development of any large dams. The Watershed development activities may support the creation of small-scale structures (such as check dams less than 10m in height). The project ensures that these structures are designed by qualified engineers.

76. International Waters: The Bank technical evaluation has determined that the project will have no adverse impacts on any of the Nile riparian countries. In accordance with OP7.50, the process of notifying the riparian states of the Nile Basin of the proposed project has been completed via the Nile Basin Initiative (NBI) Secretariat. Of the nine riparians notified, only Egypt and Sudan have responded by the deadline, and both have communicated their no-objection to the project in writing via the NBI Secretariat.

77. The safeguards policy concerns vary by project component:

Component A: Sub-basin Resources Planning and Management: In the formulation of sub-basin development and management plans, it will be important to balance economic, environmental and social factors to achieve sustainable development. This is because environmental, natural and human resources are key underpinnings of all socio-economic development. Institutional development activities will include relevant activities linked to capacity building for environmental and social issues, and will ensure that institutions responsible for managing development around Lake Tana have the necessary structures, skills and procedures in place to ensure that development is done in an environmentally and socially sustainable manner. Component B: Natural Resource Management Investments: This component aims at carrying out sustainable watershed development and management investments, as well as improved community-based flood management and preparedness around the shores of Lake Tana. Many of the proposed interventions are environmentally

29 beneficial or are likely to have insignificant adverse impacts. Nonetheless, some interventions, especially those linked to watershed development and site selection of structures need procedures to ensure that they are done with adequate technical (environmental) knowledge to ensure they achieve their intended objectives. Some activities may also involve limited concerns for involuntary resettlement resulting from land acquisition or restrictions on access to resources that are not wholly communal or which affect specific households more than others. There are no groups in the project area that fall into the WB definition of indigenous peoples. However, project design includes necessary criteria and procedures to ensure that specific needs of vulnerable groups are identified and addressed. Component C: Growth-Oriented Investment Facilitation: The preparation of public and private investments to promote sustainable growth in the Tana Sub-basin will need to include environmental and social assessments.

78. An Environmental and Social Management Framework (ESMF) and a Resettlement Policy Framework (RPF) were prepared for TBIWRDP (integrating environmental and social assessments and frameworks developed as part of the preparation of the physical interventions - watershed development and flood management). As needed, they prescribe the preparation ofEnvironmental Management Plans (EMPs) and Resettlement Action Plans (RAPS) for Component B sub-projects by the responsible regional bureau. The ESMF also mandates the inclusion of environmental and social issues in the development of the Tana & Beles Sub-basin Integrated Water Resource Development Plan during project implementation (Component A), as well as the preparation of EAs and RAPS during the preparation of capital investments for the second phase of the project (Component C).

79. The borrower has limited capacity to implement safeguard policies, though the regional environment bureau (EPLAUA) has staff trained and experienced in the relevant disciplines and procedures. As described in the ESMF and RPF, TBIWRDP will provide training and capacity-building to support implementation of the safeguards instruments, especially for Components B and C. On Component A, TBIWRDP will provide long- term technical assistance to support the plan development process, in particular its environmental and social aspects.

80. Preparation of the sub-basin plans in Component A will be a highly consultative process on all dimensions of the plan, including environmental and social issues. The development of sub-projects in Component B will also involve consultations with local people during sub-proj ect planning, design and implementation, including the safeguards aspects.

81. Prior to project appraisal, the ESMF and RPF documents have been publicly disclosed through the Bank’s InfoShop and, in Ethiopia.

7. Policy Exceptions and Readiness

82. Nopolicy exceptions proposed.

30 83. Readiness:

0 Institutional: The GoE has already issued a federal proclamation authorizing the setting up of basin organizations in the country. The Proclamation became effective as of July 23, 2007. The Regulation for Creation of Abbay Basin High Council and Authority has been approved by the Council of Ministers. The Regulation deals with the name of the institution, seat of the headquarters of the authority (planned to be located in Bahir Dar), and the accountability of the Basin High Council. An Abbay River Basin Team (ARBT) has been created in MoWR (supported by French assistance) as a transitional institutional arrangement for some activities of the future Basin Authority. It has opened a branch office in Bahir Dar, and is in charge of the Tana & Beles Integrated Water Resources Development Project. The Team consists of a team leader (a senior water resources engineer); an institution specialist, a sociologist; a watershed management expert; a hydrologyhydraulics modeler; and a financial management specialist.

0 With continued assistance of the French (AFD) and related consultancy support, some of the activities ofthe future Abbay Basin Authority have been initiated. This includes, apart from management of the TBIWRDP, work on a number of strategies including (i) coordination of planning; (ii)establishment of a framework for sound water resources administration (development and implementation of a water permit system; and determination ofwater charges and system for using collected money with the consensus of users); (iii)development of a comprehensive knowledge base (developing and using a Basin MIS-90% complete; designing, developing and using the Abbay Basin GIs; developing and using a river Basin Model-work is at an advanced stage; strengthening mini-library within the Team); (iv) creation of a communication and networking system (assisting ABT in the preparation and validation of a communications plan - website, newsletter, brochure etc; transfer of website to ARBT / Authority; developing system of continuous communication with stakeholders); and (v) establishment of river basin organizations and capacity building (building the ABT and its capacity - training on water resources modeling, MIS, GIS; designing details of the Council and Authority; template rules and regulations for High Council and details of Authority - Departments, staff, job descriptions, procedures etc.; implementation and business plan) . The French consultants support the team in development of these strategies. For the TBIWRDP the ARBT manages the preparatory studies (hydrological studies; endowment and potential for growth corridor; institutional and capacity building studies etc.).

0 -The Abbay Basin Organization, Abbay High Council, and Tana Sub-Basin Organization are expected to be notified soon. An Institutional and Capacity-building international Consultant had been recruited to streamline institutional arrangements for the TBIWRDP and have finalized the report.

0 Other Preparatory studies: A number ofpreparatory studies for this project are at various stages of completion. An international Consultant recruited by ENTRO has submitted a final report of the Watershed Management Report (design, environmental and social framework, economic analysis, institutional arrangements, and implementation plan). ENTRO, through an international consulting firm, had completed an Eastern Nile Flood

31 Preparedness and Early Warning Project design with specific sub-projects for Ethiopia, Sudan, Egypt, as well as for the EN Region. The Ethiopia Sub-project activities (that focuses on the Lake Tana area) has been incorporated into the TBIWRDP. ENTRO has hired short-term international and national consultants to strengthen the design of community-related aspects and institutional arrangements of these interventions. A Hydrology study (focusing on hydro-climatological and groundwater monitoring networks, as well as design-related sub-basin hydrological and hydrogeological studies) has highlighted the poor knowledge base and the consultants have submitted a draft final report. An Institutional and Capacity-Building Study Consultant has also submitted a draft final report. An Endowment and Growth Study through international consultants has already been initiated to identify constraints and opportunities to enhance economic growth during project implementation.

Procurement Plan: A Procurement Plan has been prepared by the Recipient for the first 18 months ofthe project period.

0 Financial Management Arrawements: The hnd flow arrangements, Interim Financial Reporting (IFR) formats, and draft Audit TORShave been finalized.

32 1. Country and Sector Issues:

National Macro-economy: Economic growth performance over the past four years has been strong and broad-based. After a significant drought-induced contraction, Ethiopia’s economy rebounded in 2003/04 and 2004105 with rapid growth driven by strong agricultural performance. Real Gross Domestic Product (GDP) growth was 11.6 percent in 2005/06 and 11.4 percent in 2006/07. Despite the generally positive performance of recent years, the Ethiopian economy remains vulnerable to a variety of shocks (e.g., oil prices, weather, etc.). The Household Income Consumption and Expenditure Survey (HICES) update that is currently under preparation is expected to show a significant decline in poverty. The overall progress in reducing poverty since 1992, however, remains less than that required to meet the Millennium Development Goal (MDG) of halving poverty by 2015, due to weak and highly variable agricultural productivity, accompanied by the rapid expansion in the country’s population.

The Plan for Accelerated and Sustained Development to End Poverty (PASDEP) advocates continuing to pursue the strategy ofAgncultural Development Led Industrialization (ADLI), but with important enhancements to capture the private initiative of farmers and support the shifts to diversification and commercialization of agriculture. PASDEP reflects a consensus that pro-poor growth is a fundamental priority. The program is centered around eight elements: (i) commercialization of agriculture and promoting rapid non-farm private sector growth; (ii) geographical differentiation; (iii)population; (iv) gender; (v) infrastructure; (vi) risk management and vulnerability; (vii) scaling up service delivery; and (viii) employment. A private sector push, especially on exports, is advocated to create jobs and reduce foreign exchange constraints. The Government ofEthiopia (GoE) will implement (PASDEP) till 20 10.

Multi-Sectoral Background:

Agriculture: Agriculture continues to be the backbone of output performance in Ethiopia, although non-agriculture output is becoming more dynamic. As stressed in both the Sustainable Development and Poverty Reduction Program (SDPRP) and the subsequent PASDEP the GoE pursues ADLI. Agriculture provides about 46 percent of national output and the livelihood for most of the population, employs perhaps around 85 percent of the working population, and provides about 90 percent of total exports. In terms of output level, agnculture is still the largest contributor to overall GDP, although progressively less than in the past, as the non-agnculture contribution over the last 10 years has been more robust. The weakening agriculture performance reflects systemic volatility in agriculture output associated with the weather. In the long-run, agriculture volatility will reduce both agncultural growth and its contribution to overall GDP. In fact, over the last 10 years, cereal output volatility reflects the overwhelming dependence on rain-fed agriculture, the frequent incidence of drought in parts ofthe country, exacerbated by sharp supply-induced fluctuations in grain prices.

Water Resources: Ethiopia’s water resources can be characterized by two principal features, a natural legacy and an historical legacy. The natural legacy is one of very high, and apparently intensifying, hydrological variability, coupled with marked rainfall seasonality. At first sight, Ethiopia’s water resources endowment appears generous, with a mean total surface water flow of about 122 billion cubic meters per year. The country has 12 major river basins and eight major lakes (primarily in the rift valley with significant fisheries and ecological benefits), and significant groundwater resources and annual rainfall. However, rainfall across much of the country is both

33 highly seasonal, with most of the rain falling in a single, short season, and exceptionally variable and unpredictable, both in time and space. With poorly protected watersheds and almost no investment in water storage, a consequence of this hydrological variability is endemic and droughts and floods are unpredictable. The historical legacy is one of several international rivers - of which the Nile is the most important. Ethiopia provides about 85 percent ofthe natural flow ofthe Nile River into Aswan in Egypt. In the Nile Rver Basin, tensions have long been high. Without the bold affirmation of cooperation by Ethiopia through the NBI, these tensions would likely grow and further constrain growth. The GoE envisages reforms in the water sector which would be instrumental to improving the living standard and general socio-economic well being of the Ethiopian people. The sector strategy holds that by promoting the principles of integrated water resources management, an enhancement to the contribution of water resources in achieving national development priorities is possible. There is broad recognition in the need for effective coordinated use of the existing water resources to achieve the irrigation and power requirements for accelerated development. Ethiopi

HL-Highland D-Dry R-River L- Lake NF-No flow Source: Respective Basin Master Plan Studies

is Droughts Vulnerability to Climate Risks high: Ethiopia: rainfall, COP and Ag GDP and floods are endemic, with significant events 25 every 3 to 5 years severely impacting the GDP. P Droughts destroy watersheds, farmlands, and 15 pastures, contributing to land degradation and 10 causing crops to fail and livestock to perish. During 5 0 the 1984-85 drought, for instance, GDP declined by 0 .5 9.7 percent, agriculture output declined 2 1 percent, 40 .IO and there was a 58.6 percent decline in Gross .JO .I5 Domestic Savings. Drought can also severely .a .25 ---&GOPW undermine hydropower generation, Ethiopia’s main .XI source of electricity. Forecasting of floods and yw droughts is not adequately advanced. There have been strong relationships determined between the rainfall in Ethiopia and ENS0 events (El Nino- Southern Oscillation). It is expected that climate change can further exacerbate the already high climate variability in Ethiopia in complex ways.

34 Land Degradation: Hydrology plays a pivotal role in erosion, land degradation, reduced soil fertility and productivity, as well as siltation. Ethiopia’s high intensity storms cause significant erosion. The erosive effects of rainfall are significantly augmented by Ethiopia’s mountainous terrain, severe deforestation and traditional agricultural practices of cultivating steep slopes without protective measures. The loss of forest cover, in turn, is generally associated with greater hydrological variability. Associated sedimentation compromises productivity and shortens the lifespan of water infrastructure for river regulation, municipal water supplies, agriculture and hydro- power generation. The reduced regulation capacity also increases flood risks for downstream communities, which poses a particular risk to the poor who tend to live in the most vulnerable locations. Given the position ofthe Tana sub-basin at the head ofthe Blue Nile, this impacts not only the sedimentation in Lake Tana and proposed Tana sub-basin reservoir sites, but also downstream in the Blue Nile System. It is estimated that about 3 15 million tons of sediment makes it way annually to sites like Mendaya in Ethiopia, which also adversely impacts hydropower, irrigation, and reservoir life downstream in Sudan.

Hydropower potential is very high. Ethiopia has considerable hydropower potential - about 30,000 megawatts. Presently, 95 percent of national energy consumption is derived from fuel wood, dung, crop residues, and human and animal power. The remaining 5 percent is from electricity, 90 percent of which is generated by hydropower. The current dependable power capacity in Ethiopia is about 730 megawatts Cjust 2 percent ofthe country’s economically feasible hydro-electric potential has been developed). Because only about 6 percent ofthe population has electricity connections, there is great reliance on biomass and fuel wood. This intensifies deforestation and soil degradation, and increases the burden on women and children who traditionally gather and transport fuel wood and other organic fuels and suffer most from indoor air pollution. While electricity will not be a feasible substitute for all biomass fuel uses in the short term, the availability of hydropower will begin to shift energy use away from catchment degrading biomass use and strengthen environmental sustainability. The government’s growth and poverty reduction strategy includes the aggressive expansion of access to affordable electricity, which will also reduce the demand for biomass and thereby protect watersheds.

Agricultural productivity is low and irrigation potential is under-developed. Less than 5 percent of the estimated potential 3.7 million hectares of inigable land in Ethiopia has been developed. Variations in rainfall and weather conditions are the cause of considerable volatility of agnculture growth. Because of agnculture’s dominant share in employment and in the economy, fluctuations in agriculture are also reflected in the GDP. These fluctuations undermined the country’s ability to sustain the per capita growth rate in the 1980s and 1990s. Reducing the level of food insecurity and improving the level of industrial activity in the country through irrigation are seen as intertwined objectives pursued by the GoE. Thus to minimize the climatic shock to agricultural productivity and realize food self-sufficiency and food security in the country the GoE’s Irrigation Development Program (IDP) calls for an additional 274,000 hectares to come under irrigation within its 15-year plan period of 2002-16, an increase of 135 percent over current levels. There is also increasing attention to move watershed development from a primary focus on social safety net programs and food aid to better assist sustainable productivity improvements in the crucial rain fed agriculture sector.

Private Sector Development: The role ofthe private sector and market-based approaches cuts across all sectors of the economy and hence are pivotal to a broad range of poverty-related and strategic objectives of the Government which are articulated throughout the PASDEP. The private sector

35 contributes to efficiency gains in many areas, enabling public resources to be used to deliver a greater range and volume of services, some ofwhich are provided in part by the private sector. In other cases, the private sector contributes capital, or takes ownership positions, reducing the pressure on the public budget to fund new investments. The most obvious areas of private sector growth include: (i) in the agricultural and rural sector, where millions of farmers both large and small are private sector actors, and there is scope both for substantial growth of private supply ofinputs and services, and for induced growth of spin-off and processing businesses, (ii)private sector participation in infrastructure, power generation and down stream telecommunication services, but also in the construction and supply opportunities as stipulated in the PASDEP, and (iii)in the social sectors , where there has already been a very substantial growth in private primary and secondary schools in urban areas, in technical and vocational training, and in higher education; as well as opportunities in private provision ofhealth care services.

The provision of multi faceted support to the private sector has created conducive environment for increased investment. As the sector is crucial for the development ofboth the industrial and the export sectors, the principles underlying the PASDEP strategy include continued commitment to regularly review and improve the environment for private investment and business activities and to strengthen the complementary role ofthe state with greater domestic and foreign private participation. The role of the Government in the framework offree market economy is to support and fill the gaps that could not be adequately covered by the private sector. To this end, the Government will intervene in selected strategic sectors to facilitate the development of the private sector by designing appropriate policies and strategies.

Nile Basin Initiative (NBI): The Nile Basin Initiative and the improved cooperation between Nile riparian countries is one of the enabling factors for investment on the Nile. Tangible and intangible benefits accrued will be a direct result of the improved understanding between Nile riparian and a result of their decision to pursue mutual development. Trans-boundary waters will be managed in compliance with the international covenants adopted by Ethiopia, allowing Ethiopia to ascertain its entitlement and use ofthese waters. Efforts will continue beyond this project, to promote fair regional co-operation on the efficient use oftrans-boundary waters with the riparian countries.

2. Characteristics of Key Spatial Regions

Amhara and Benishangul-Gumuz Regions: Established in 1994, by the new Constitution of Ethiopia, the Amhara National Regional State (ANRS) lies in the northwestern plateau and covers a total area of 161,828 square kilometers and it is divided into ten administrative zones and one special zone. The region covers about one-eighth ofthe total area ofthe country and is home to about 27% of the total human population, and 35% of the total livestock population. In the region, livestock and human populations are concentrated in the highland areas, which constitute about 66% of the total area. The Benishangul-Gumuz National Regional State (BGNRS) situated in west of Ethiopia was also established in 1994. Before this time, parts of BGNRS south of the Blue Nile belonged to Welega, and the area north ofthe Blue Nile to Gojam. Benishangul-Gumuz currently stretches along the Sudanese border, the neighboring region to the north and north-east is the Amhara Region, to the south and south-east the Oromia Region. The total area of BGNRS amounts 50.380 km’. The region is divided by the Blue Nile into two parts. The northern part: - Metekel Zone and Pawe Special Woreda and the southern part: - Assosa Zone, Kamashi Zone and Mao-Komo Special Woreda. There is no bridge over the Blue Nile within the region.

36 Area (Sa. Km)

Climate in Low Land Low rainfall low rainfall and high temperature moderate to high rainfall and moderate Climate Moderate Moderate rainfall temperature I I HighLand I high rainfall I high rainfall low temDerature I b. Demographic Characteristics of Amhara and Benishangul-Gumuz Region

I I Total Population (000) 2004 588 I 71,066 I Urban Pop (%) 11.1 8 15.8 Rural Pop (%) 88.9 92 84.2 Male (000) 2004 9.070 296 35.618 Female (000) 2004 9,073 292 35,448 Density (per sq km) 114 12.1 65 Total Fertility Rate per Woman 5.9 5.5 Life expectancy 58.6 41.2 Dependency rate (1 999) 106.8 107.3 102 Av. Household Size 4.5 4.5 4.8 I I Urban Household Size I 4 I 3.9 I 4.6 I

Source: i) CSA Statistical Abstract 2003 ii) Regional Bureaus, iii) Index Mundi

The Amhara and Benishangul-Gumuz regional economies are dominated by the agricultural sector. In the Amhara region agriculture employs 90 % of the working force and represents 67% of source of household incomes. Due to lack of irrigation systems, the economy of the region is very fragile and dependent on the climatic conditions for its agnculture sector. During the last decade, economic growth has been extremely volatile; high rates for most years have combined with two years, 1997/98 and 2002/03, of negative growth, coinciding with two droughts. Per capita income rose from 961 to 1,088 Birr, from 1995/96 to 1999/00, surpassing the national average (1,057 birr) in the latter year, according to figures from the Amhara Bureau ofFinance and Economic Development, -which is still very low for international standards. More updated figures were not available. With 90.8% of the population living in rural areas, poverty is clearly associated with rural environment. Social and development indicators for the region, such as in education, health, access to water, etc. show Amhara ranking below the national average in most of them, although there have been important improvements during the last decade. There is also a great disparity in the availability of social services and other infrastructure between the urban and rural areas, with the former ranking consistently above.

37 The livelihood of the majority of the population of Benishangul-Gumuz is based on subsistence agriculture. Farming is the major source of food and cash income. Sorghum and maize are the staple cereals. The contribution of livestock to household economy is small, due to difficulties in livestock rearing because of rampant livestock diseases. At present small-scale agriculture (family farming) is dominant and large scale agricultural investments have been started only recently. The household income level is low. Unfortunately, data for the whole region is not available at present. The general economic situation of the population is characterized by a high prevalence of extreme poverty. Though detailed economic data are scarce, the extreme poverty is indicated by the following characteristics: high morbidity and mortality, low life expectancy, limited access to health service, low education level, food deficiency and malnutrition.

Abbay Basin: The largest contributor to the Eastern Nile system is the Abbay Basin in Ethiopia. It has an area about 200,000 km2 that makes up about 65% ofthe entire Blue Nile basin. The average annual rainfall in the Abbay Basin in Ethiopia is about 1200 mm. It contributes about 50 BCM of flow annually to the Eastern Nile. Main Sub-basins of the Abbay basin (RB: Right Bank; LB: Left Bank)

Location of Abbay Basin in Ethiopia’s 12 Major River Basins

Smaller tributaries originating from the Gojam Highlands have been combined as North Gojam and South Gojam sub-basins. Resource endowments, development status, constraints and opportunities for future- development are different for the different sub-basins. In view of these separate sub-basin organizations would have to be formed for each of these major tributaries and their associated catchments and there could be about sixteen sub-basin organizations federating and reporting to the Abbay kver Basin Organization. In this project, two inter-related sub-basins are being focused upon the Tana and Beles sub- basins that are described next.

38 Tana Sub-basin:

Lake Tana, located at an elevation of 1875 mad, is the source ofthe Abbay kver (the Blue Nile). It is the largest freshwater lake in Ethiopia with an area of around 3,150 sq km. The Lake Tana Basin is cut off from the lower Blue Nile by the 40 m drop at Tis Issat Falls that drains the Blue Nile along its journey into Sudan, Egypt, and eventually, the Mediterranean Sea. The Lake Tana Basin covers an area of 15,123 sq km and is fed by 4 perennial rivers (Gilgil Abbay, Megech, Ribb, and Gumera) and about 60 seasonal streams. Lake Tana has a mean depth of about 9 m and maximum depth of about 14 m, and stores nearly 28 BCMof water. It is a well mixed lake with a detention time of 1.5 years. Its basin has 1600 sq km of fluvial wetlands that provide natural filter against sediments and pollutants and habitats for fish spawning, birds, wildlife and plants.

The average annual rainfall in the sub-basin is about 1350mm and is concentrated from June-October. The lake levels have been regulated by the Chara-Chara weir (since 1995) to cater for the increased demands for hydropower after the construction of Tis Abbay I1 in 2001). Although there is still uncertainty associated with the hydrology of the Lake Tana, the Hydrologic Study conducted for the preparation of this project (by SMEC International Pvt. Ltd.) indicates that the estimated annual inflow into the lake is about 4.9 BC, annual rainfall over the lake about 3.8 BCM, and the Lake outflow is about 3.7 BCM/yr.

Lake Tana is an important regulatory structure especially for dry season flow of the Blue Nile, it contributes about 25 % ofthe total dry season flow ofthe Abbay entering Sudan.

The CWRAS highlighted Ethiopia’s vulnerability to extreme climate variability and hypothesized that vulnerability to be linked to inadequate investments in water resources infrastructure and institutions. As a consequence, the nation is constantly struggling with enormous shocks to its economy from floods and droughts which not only stifle growth and progress but also perpetuate poverty. A key challenge is to reduce vulnerability from high climate variability (floods and drought) and a related challenge is to empower the communities and stakeholders to promote responsible and sustainable development of the nation’s natural resources.

Lake Tana sub-basin’s water, land, livestock, forests, fishery, cultural, and other environmental assets offer considerable social and economic benefits to the livelihoods of its 3 million people scattered in numerous towns and settlements (Kebeles).

Agriculture and Livestock: The major crops grown on about half a million hectares of cultivated land (on 450,000 ha rain fed, and 6,000 ha floodplain irrigation, and 500 ha small-scale irrigation, with 7,000 ha irrigated area being developed at Koga) are cereals (77%), pulses (17%), oilseeds (6%), and vegetables, root crops and fruits (<1%). The sub-basin has nearly 5.9 million cattle for local use and trade. 4-5 large multi-purpose dams (flood control, irrigation, etc.) are planned to be constructed on the Gilgil Abbay, Megech, Ribb, and Gumera rivers upstream ofLake Tana.

39 Hydropower: The Abbay basin has considerable hydropower potential, with a significant portion in the lower Blue Nile. In the Lake Tana sub-basin, 11 MW is presently being generated at the Tis- Abbay Ipower plant (built in 1964) and 73 MW at the Tis-Abbay I1 (built in 2001). The new Tana- Beles Hydropower project under construction (with peak load capacity of about 460 MW) will divert about 2.5 BCM of water from Lake Tana to the Beles river. It is expected to be fully operational in 2009. Several large hydropower projects ofregional significance are being planned in the lower Blue Nile.

Tourism: The Lake is home to several natural and cultural assets that are an important part of the Ethiopian identity and tourism. The Lake Tana sub basin contains the Gonder Castle, the island monasteries of Lake Tana as well as the Blue Nile Falls, as major tourist attractions and is also near the Aksum steles and rock-hewn churches at Lalibela. The Tis Issat Falls below Lake Tana, is both a national icon and an important part of the Amharic people's identity, as well as a popular tourist destination. The Falls and 20 monasteries (from the 13'-17~ Century A.D.) on the 37 islands in the Lake draw about 130,000 visitors to the sub-basin annually (including 30% international visitors). Federal and regional governments are realizing the importance oftourism as a method to attract potential investors to their regions. The region is internationally recognized for cultural as well as natural tourist attractions, but there is significant potential for improvement. A major constraint to the development to tourism in the country has been the lack ofbasic infrastructure to and/or near tourist sites. Insufficient investments in areas such as transportation infi-astructure, power and communication have constrained the ability of the government, investors and the local population to fully exploit the growth potentials. Diversion ofwater (a maximum of 180 m3/s) for the Tis Abbay hydropower plants has also considerably lowered the discharge and the width ofthe falls. The Tana-Beles Hydropower project under construction envisages a diversion of about 77 m3/s (maximum 160 m3/s) from the Lake to the Beles River and may pose a further challenge for the falls and diminish its attraction for tourists if not adequately regulated.

Fisheries: Lake Tana has 26 species of fish, including15 endemic labeobarbus fish species. The lake fish - tilapia, catfish and the unique cyprinid diversity - is a source of cheap and high quality protein for the local diet. Traditional lake and riverine fisheries (upstream rivers) has been practiced for over 200 years. Traditional lake fishery is dominated by Nile Tilapia and is practiced by 400 boats/fishermen year round near shore areas. Rtverine fishery dominated by labeobarbus in upstream rivers is practiced by 100- 300 boats/fishermen on a seasonal basis. Commercial gillnet fishery was introduced in the mid- 1980s, and fish production declined sharply between 1993 and 2001 (Figure below). The current production levels are not fully known. The catfish and labeobarbus catch decreased, while the tilapia catch increased. Aggressive and year round fishing by commercial fishermen without regards to the spawning locations and spawning season and lack of fisheries regulation are contributing to this problem. About 1,400 tons of fish are harvested annually from Lake Tana and rivers feeding into it, providing income to traditional and commercial fishermen (who started fishing since the mid-1980s), as well as local source of cheap and high quality protein to the local diet. Lake Tana fisheries are dominated by the Nile Tilapia, African Cat fish, and 15 species of the large Labeobarbus fish species that are endemic to the lake. It is estimated that Lake may have a potential fisheries in the tune of

40 about 16,000 to 22,000 tons a year. However, documented fish production has not exceeded 2,300 tons/yr and has declined from 2,300 tons/yr in 1993 to 1,800 tondyr in 2001 to around 1450 tons/yr in 2006, with the largest decline noted in the endemic Zabeobarbus fish species.

Natural Habitats and Navigation. The lake and its wetlands provide a habitat to many birds (including several endangered species3) and is part of an international flyway for bird migration, and the sub-basin has many areas ofhigh biodiversity and conservation value. Lake navigation is also an important mode for transporting individuals and goods and services to various towns and centers across and between the lake. The lake is also used as a sink for the disposal of mostly untreated or partially treated waste waters from domestic, industrial and agricultural uses, urban runoff, and poultry and livestock grazing areas from around the lake and within its sub-basin.

Emerping conflicts in resource use and threats to Lake Tana sub-basin resources: The use of a natural lake as a manmade reservoir, growing population and livestock pressures on land and serious land degradation; increasing demand for energy; uncoordinated water resources development, inadequate policy framework and lack of a clear institutional responsibility for the management of Lake Tana, inadequate scientific and socio economic information and knowledge on limnology, fisheries, wetlands and other biological resources, absence of regulatow framework for allocating water, controlling pollution, managing watersheds, regulating fisheries, and protecting forests and wetlands are contributing to emerging conflicts over resource uses and threats to the Lake Tana ecosystem. The major conflicts and threats are summarized below:

Water balance and use impacts on navigation, tourism and fisheries. The hydrology ofLake Tana is not fully defined. Outflows measured at Char Chara are known, inflows from rainfall and contributing rivers and evaporation rates are not accurately known. Accurate water balance is essential for all current and future water resources planning, design, operations and management decision making, including for the 4 upstream dams. Even less is known about groundwater. A hydrology study completed during project preparation has helped better understand the water balance and suggest targeted work to be undertaken as part ofthe project. The operations ofthe Chara chara weir for diverting water for hydropower generation have contributed to rapid fluctuations in lake water levels and considerable reduction in river flows over Tis Issat Falls. The 2003 drought coupled with Chara Chara operations for hydropower interruptednavigation for almost 3 months, reduced fish production due to transport problems, halted tourist flow to the Islands, and adversely impacted economic activity and livelihoods around the lake, with the marginalised and poor Weyto community especially impacted. The impact on the lake shoreline, littoral zone and fisheries has not been studied. Such unilateral operational decisions are inequitable to other users and communities whose livelihoods depend on the lake and is a bad precedent for integrated water resources management. The lack ofappropriate fisheries regulation exacerbates the problem.

Watershed degradation and sedimentation. Pressures on land from large population and livestock densities and poor land use and management (overgrazing, cultivation on steep slopes without controls, deforestation, etc.) are contributing severe and widespread degradation of land (Figure 3) and sediment deposition into the lake. Fifty seven percent of the sub-basin has steep slopes from 0-2% to 2-5%. Consequently, sediment loads are increasing at alarming rates (5-250 thdyr). Erosion is highest on the Eastern part ofthe sub-basin and lowest in the Western part. Erosion in the Gilgl Abbay has significantly increased silt deposition in the lake and this has extended to the Tana Kirkos Island, which is no longer an Island but a Peninsula. Although the lake has a huge storage capacity, the increased sediment deposition can impact the lake in several ways. It increases turbidity, reduces transparency and productivity of the lake, contributes to its aging, affects fish and other biota and alters the morphology ofthe lake. There are several natural lakes in Ethiopia (Lake Alamaya and Lake Abiata) that are completely or substantially silted up as a result ofover abstraction and sedimentation.

Eutrophication. Although there have been many studies related to fisheries research that have characterized the trophic state of the lake as meso-trophic, a detailed limnological assessment of the lake has not been carried out. This is an important assessment that needs to be carried out. Local algal blooms in and around Bahir Dar (southern gulf) have developed and are increasingly being dominated by the potentially toxic blue green algae. Lake water transparency has declined. Increased nutrient loads (possibly from sewage and about 30,000 pit latrines carried through runoff and storm water and fertilizers from farms) are contributing to reduced transparency, reduced oxygen levels in bottom waters and fish kills, and possible toxins for other uses.

Lake Water Quality. Overall lake water quality information is patchy, but there are clear indications ofincreasing pollution load. The lake is highly turbid, especially near the river mouth. Pollution load is increasing locally. Faecal coli forms and BOD high near urban centres and are elevated along shoreline. There is no systematic monitoring or-control of point and non point sources of pollution from farms, grazing areas, urban sewage, domestic and industrial wastes, fish landing areas, navigation sites, pit latrines, septic tanks, and stormwater.

42 Wetlands and Biodiversity. Conversion of wetlands for grazing, agriculture, commercial, administrative and settlement purposes without proper safeguards (sewage treatment and disposal, etc.) is destroying the natural filtering capacity (to reduce sediment and nutrient loads entering the lake. It is impacting biodiversity by destroying important spawning areas and habitats for birds and other fauna and contributing to loss ofecosystem services.

Flooding. Rural localities around Lake Tana are subject to significant flooding, especially in the Fogera and Dembia Woredas where inundated areas may extend to some 490 km2 and 287 km2, respectively. This flooding is very devastating to the livelihoods ofthose that try to subsist on these fertile lands. The impact ofthese floods are magnified by the absence of good flood warning systems, poor road access, lack of A small-scale community infrastructure, and absence of upstream storage. F3ood-Prone Areas arounc Lake Tana

,* .. 'e, % "4 L * t<"It* Beles Sub-basin:

The Beles sub-basin covers an area of 14,200 sq km. The Gilgel Beles is one of the major tributaries ofthe Beles system. The highest point in the Sub-basin is 2,725 mad, at the water divide between the Tana and Beles sub-basins. The average annual rainfall is about 1,490 dyear.

Although the runoff data observed in the Beles sub-basin shows many gaps ofmissing data, it seems that the estimation of flows at various points in the sub-basin is rather straightforward, based on calibrated parameters of the rainfall-runoff model. The total runoff generated in the Beles sub-basin is roughly estimated 5,690 Million Cubic Meter (MCM) per year. The total volume of water in the Beles sub-basin will be increased by another 2,430 MCMafter the Tana-Beles Hydropower diversion scheme is operational. Hydropower production is estimated to grow considerably with 460MW* planned in the Upper Beles and another 120MW* planned downstream.

In the Beles sub-basin lowlands that lie in the Benishangul-Gumuz region, there is considerable potential for agncultural expansion (about 200,000 ha) in this sparsely populated area where most of the land is not yet occupied. The total area of irrigable land within the Beles sub-basin is estimated at 115,000ha of which the upper Beles accounts for about 54,00Oha* of the irrigation development envisaged for the sub-basin. This area requires careful planning due to issues of low population

* Identification of I&D Projects in the Nile Basin ofEthiopia, Final Report, Tahal Consultants, May 2006

43 density, deep poverty, traditional tribes, and the presence ofhuman diseases (particularly malaria) and cattle diseases (particularly trypanosomiasis). Various types of crops grown: oil crops (sesame, Nueg, Niger seed, and groundnut); spices (ginger); grains (maize, sorghum, and millet), soybean, cotton, sugar cane etc are among the main crops of the sub-basin. Maize, sunflower seeds and cotton are the main products of the sub-basin.

Development of mediudlarge scale irrigated agnculture, in addition to the ongoing hydro power development, through private sector investment and stronger linkages between the two sub-basins would provide the impetus for take-off in agro-processing in the Tana area through a large and consistent supply of agricultural inputs. Medium and large-scale irrigation schemes are managed and maintained by government enterprises while small-scale irrigation schemes are the responsibility of the farmers themselves. These small scale irrigations are managed mainly through informal/traditional community groups. After the construction of irrigation schemes are completed, they are handed over to the beneficiaries but maintenance remains the responsibility of the regional governments. The Bureau ofWater, Mines and Energy (BoWME) in the Beneshangul Gumuz region and the Bureau of Water Resources Development (BoWRD) of Amhara are responsible for small- scale irrigation and rural water supply as well as small-scale hydropower development.

In the 1980's a large scale resettlement scheme was implemented at Pawi in the Beles Valley following a smaller scheme had been established in the Anger Valley (a tributary of the Didessa, another Abbay tributary) some years earlier. In addition, small-scale "integrated" resettlement had been implemented in a number of areas in both highland and lowland areas. The large scale schemes were criticized for problems in planning, site selection, and lack of social infrastructure, although in Pawi, considerable investment in infrastructure was implemented as part of a large Italian funded

44 Tana-Beles project. Following the fall ofthe Derg regime, many settlers returned to their home areas, although in Pawi and Anger, as well as most of the integrated schemes a substantial number remained.

The sub-basin has various growth opportunities, good road net work in the Beles sub-basin, comprised ofall weather road, and an airport which could be easily maintained at Pawi in conjunction with the Bahir Dar airport could serve as good transit to channel the market for agricultural and agro- industry products. Power is readily available at the Gilgel Beles sub station and digital telecommunication at Gilgel Beles will also facilitate the agro industry and market development within the area. The zonal city of Metekel, at Gilgel Beles is in this sub-basin which speed up the administrative process for any private sector investors interested investigating the sub-basin’s development opportunities. Moreover, the Pawi Hospital will also contribute towards minimizing the challenges due to malaria which keeps up to 40% of the workforce from production on a given season. The proximity of the Beles sub-basin to the big cities of the Amhara regional states like Bahar Dar, Gonder, Markos, and also near by neighboring countries like Sudan provide opportunities for market outlets of Agricultural products from irrigation which ensures attractiveness of the sub-basin development for private sector and also individual farmers.

45 Projectlstudy I Sector Issue Addressed 1 Impl. Status Genale-Dawa River Basin Integrated Water Resources Africa Resource Development Master Plan Development Development On-going study Bank (ADB) Austrian Impact of Irrigation on Poverty and Irrigation Government- On-going Environment IWMI Water Resources Africa Awash Flood Control & Watershed Development Development On-going Management Study Bank Water Resource Sustainable management of water Development French Embassy On-going resources in the Rift valley

Irrigation Farming Improvement Irrigation JICA On-going Project in Oromia Region. Baro-Akobo Multipurpose Water Water Resources ENTRO Planned

46 Resources Development Sub-project. I Development Water Resources Watershed Management Sub-project. ENTRO Planned Development Water Harvesting and Institutional Irrigation On-going Strengtheningin-Tigray (WHIST). Performance improvement of irrigation Irrigation On-going schemes in Africa (2002). Blue Nile Institutional Study. Water Resource iDAFD Ongoing Development I Crop Diversification & Marketing FAO, IDC Rural Development On-going Development Project Water Harvesting and Institutional Irrigation On-going Strengthening in Amhara (SWHISA) Water Resources EasternNile Planning Model ENTRO Planned Development Flood Preparedness and Early Flood Mitigation ENTRO On-going Warning-Phase I Agnbusiness and trade expansion Ag. Marketing ,USAID On-going On-going Agncultural input and export market Ag. Marketing RNE development.

Rural Finance Intermediation Project Microfinance IFAD/AfDB On-going

Community-basedIntegrated Natural WatershedManagement IFAD/GEF Proposed Resource Management Proiect Rural Water Supply and Water Supply and GoF On-going Environmental Programme Sanitation Agriculture Marketing Support Rural Development -Ag. IFAD On-going Promam. Marketing. 1

47 % reduction in sediment loads from targeted watersheds Assess the impact of the project and To deveIop enabling institutions and Period that the lake level is not within agreed limits indicates if changes in project design investments for integrated planning, (days per year) are necessary management, and development in the % increase in private sector investments in the Tana Prepare for future investments and Tana and Beles Sub-basins to and Beles sub-basins ($m/year) technical assistance (including accelerate sustainable growth % reduction in average loss of assets due to flooding scaling-up of watershed and flood around Lake Tana (ETB/year relative to flood return management investments) penod)

Sub-basin organizations operational Water resources monitonng network operational and & A. Sub-basin Resources Planning information collected and used routinely Management Initial integrated water resources plans developed (i) Water Resources Information System and operational for Tana and Beles Sub-basins setup and fully operational (ii) Fully-functioning Tana and Beles Flood Management Information System developed sub-basin organizations in place and used routinely No. of stakeholder meetings to develop and review sub-basin plans

Jemma sub-watersheds in the Farta, Dera, Esite, Measure financial and physical B. Natural Resource Management Merawi, and Sekala woredas Investments progress in natural resource No of households adopting improved soil and water (i) Improved management of watersheds management investments management practices in targeted sub-watersheds Determine scaling-up needs for Increase in community infrastructure (small scale (ii) Improved flood preparedness and watershed and flood management irrigation, access roads, foot bndges, rural water management in targeted areas Allow adaptive management supply source development and, flour mills) provided in targeted kebeles Average warning time for flood forecast information to reach targeted kebeles for improved preparedness C. Growth-Oriented Investment Determine nature of future Facilitation investments and design of subsequent (i)Enhanced capacity to plan, prepare, projects and facilitate a pipeline of critical Endowment and Growth Framework in place for the Determine balance of public and sustainable growth-oriented Tana-Beles area4 private sector led investments needed investments Incentives in place to enhance targeted private sector to enhance growth (ii) Enabling environment facilitated to participation Lessons for other identified growth attract priority private sector zones investments Adaptive management Adaptive management D. Project Management Procurement conducted as per procurement plan Efficacy of national and regional- Satisfactory management performance: Reports prepared Bi-annual (project physical and level project coordination and planning, procurement, and evidence- * financial progress); annual (audit,, training, strengthening requirements based decision making monitoring ), mid-tern and final (evaluation) Use of project financing as intended Assessment of project success

Details of Endowment and Growth Framework are described in the monitoring matrix

48 x 0 v) 3 m

0 0 -8

0 t ETHIOPIA: Tana & Beles Integrated Water Resources Development Project

Project Context:

The GoE has designated the Tana and Beles region as part of a growth corridor in their strategy for regional differentiation. This project has also been facilitated by increasing cooperation on the Nile Basin Initiative and its Eastern Nile Subsidiary Action Program. The GoE has also issued a proclamation on July 2007 creating a Rwer Basin Organization with Abbay Basin FU30 as the first pilot and allowing for sub-basin organizations to be set up. The Tana and Beles sub-basins are parts ofthe Abbay river basin and are proposed as key institutions to be supported under the TBIWRDP.

The project is planned to be the first in a series of projects in succession. This project (5 years) will concentrate on a balance of critical institutional development and resource management investments, as well as to prepare a pipeline of well-designed sub-basin development investments, for implementation during successive projects, and facilitate their financing fiom private and public sources. This will enable the development of a good analytical and institutional framework to spur shared growth with associated policy, institutional, economic, technical, social and environmental considerations. The investments identified through an analytical and consultative process will be considered in subsequent phases ofthis programmatic approach.

Project Development Objective:

The Project Development Objective is to develop enabling institutions and investments for integrated planning, management, and development in the Tana and Beles Sub-basins to accelerate sustainable growth. The mechanisms include institutional strengthening, instruments and information tools for water planninghegulation, and investments in the Tana sub-basin on watershed and flood management.

Key indicators for the success ofthe project include:

Tana and Beles Sub-basin Organizations established and are fully operational ; . Water Resources Information System have been developed for Tana and Beles sub-basins; . An initial integrated Tana Sub-basin Plan developed and presented to the Abbay Basin High Council; Lake level has been maintained within the agreed limits . At least 80,000 ha ofvulnerable Tana Sub-basin micro-watersheds have been rehabilitated; . Sediment loads fiom targeted watersheds have been reduced; . Flood management plans have been adopted by relevant institutions and targeted communities around Lake Tana. Growth-oriented investments in the Tana and Beles Sub-basins have been finalized and ready to be implemented.

More comprehensive performance indicators and a monitoring and evaluation framework are , provided in Annex 3.

54 Proposed Project Components

The proposed components for the $69.85m ($45m IDA, $8m GoF, $5.38 GoE, and $11.47m Communities) Tana & Beles Integrated Water Resources Development Project are:

Component A. Sub-basin Resources Planning and Management [$17.6 lmwith $15.69m IDA and $1.92m GoE] Component B. Natural Resource Management Investments [$40.83m with $18.8, IDA, $8m GoF, $2.56m GoE, and $11.47m Communities] Component C. Growth-Oriented Investment Facilitation [$9.17m with $8.44m IDA and $0.73m GoE] Component D. Project Management [$2.24m with $2.07m IDA and $0.17m GoE]

These components are further described in detail below:

Component A. Sub-basin Resources Planning and Management [$17.61m] : This component aims to develop the enabling institutional infrastructure and capacity necessary for stimulating and managing sustainable investments in the Tana and Beles sub-basins. Two sub-components will be supported:

Sub-Component A1 : Water Resources Information System Development ($1 1.66 m): This includes support for a modem network of hydro-meteorological, groundwater, and environmental monitoring stations, associated hardware, software, and information systems, special studies (including network detailed design, instrument specifications and acceptance tests, fisheries, water quality, groundwater assessment, etc.), as well as facilitation of the use of the system for pressing management and development problems in Lake Tana and the overall Tana and Beles sub-basins.

The existing river and rain gauge network in the region is very poor as shown in the figure below:

River Gauge Network Rain Gauge Netwodc

Major problems related to the network ofhydrometric stations are discussed in the report concerning the review and recommendations ofthe Hydrological Monitoring Network ofthe hydrological study of the Tana and Beles Sub-basins (SMEC, Nov. 2007), including: Locations ofmeasuring sites are not always optimal in a hydrometric point ofview due to lack ofaccessibility ofrivers; Siltation is very important for most rivers and the rating curves have to be regularly updated by current metering;

55 Increasing bank overflows, linked with the reduction of the carrying capacity of the river due to sedimentation implies difficulties in measuring high flows; Backwater effect of Lake Tana, for some ofthe stations; Unstable cross sections due to flash floods; Lack of discharge measurements at high river stages due to no current metering during peak floods; this concerns a large number ofstations; 0 Lack of appropriate level recording due to lack of Automatic Water Level Recorders: water level recordings are only done manually twice a day, which is insufficient for most stations to estimate daily discharges; Condition of station equipment: budget and spare equipments is not sufficient for proper maintenance; Condition of equipment for current metering and sediment sampling: there is no facilities available in Ethiopia to regularly re-calibrate the current meters and this lack of calibration probably affects the quality ofthe current metering measurements (although the extend of it is unknown); 0 Incorrect readings during the current metering (water levels taken from the recorder charts rather than from the staff gauges); Frequency of field work: due to budget constraints, checking of the stations and observers’ booklets collection is only done once every 4 months and discharge measurements is not done frequently enough. Dedication ofobservers is very poor, mainly due to very low salaries, silted and unreadable staff gauges, long series ofmissing measurements, etc.; Data entry, processing and quality control: all these activities are carried out by the Hydrology Department of the Mom. Few staff is affected to data quality control and errors are not detected. Archiving ofthe data is not done properly and there is a risk ofdata loss; A number ofstation records show many gaps in their records; 0 The data from many stations appear not to be homogenous, related to the problems mentioned above.

The project will support the resolution of many of these issues through appropriate investments (including hydro-meteorological gauges, communication and information management systems, GIs, remote-sensing, satellite hydrology processing, etc.) and critical technical assistance and training at the Mom,NMA, DPPA, sub-basin agencies, and regional bureaus.

Another significant area of focus for the Water Resources Information Systems developed will be to assist with flood management. This will support the continuation and expansion ofactivities initiated under the FPEW-I project, including high-resolution flood risk mapping of the flat flood-risk areas adjoining Lake Tank through: Acquisition and analysis of satellite imagery to develop more accurate topographic and land use data. Preliminary hydrological and hydraulic modeling studies to provide flood risk mapping for planning floods of known probabilities will be initiated. However, full development of hydraulic modeling should be undertaken in proposed feasibility studies for irrigation projects for these rivers.

Support will also be provided for a Flood Forecasting Center in Addis Ababa with links to the sub- basin organizations and federal and regional bureaus to assist with real-time flood forecasting and management. Investments, targeted technical assistance, and training will be provided for data acquisition, modeling, flood management decision support system development, communications and warning systems. Awareness training and capacity-building of targeted woredas and kebeles in flood-prone areas will also be conducted.

56 Sub-Component A2: Resource Planning and Management Capacity-building ($ 5.95m): This supports the Tana Sub-Basin Organization (TaSBO), Beles Sub-Basin Organization (BeSBO), and its parent Abbay Basin Organization. In particular, support will be provided to the Sub-basin organizations to build an appropriate knowledge base, analytical capacity, and structured stakeholder consultation to develop “shared vision” sub-basin plans and management instruments to optimize social, environmental, and economic opportunities in the sub-basin.

The recent progressive Proclamation (534/2007) setting up Basin Organizations prescribes that each Rwer Basin Authority shall have a river basin plan that provides a long term framework for proper water resources management in the basin in order to ensure equitable sharing and sustainable development and use of water resources while maintaining the quality of aquatic ecosystems. The basic objective of establishing River Basin Authorities and Councils set out in the Proclamation is to promote and monitor the “integrated water resources management process” in the river basin with the view to using the basin’s water resources for the socio-economic welfare ofthe people in an equitable and participatory manner without compromising the sustainability of the aquatic ecosystems. The Proclamation defines a river basin plan in terms of “strategic water resources planning” with long term vision and the aim of guaranteeing equity and sustainability in water resources use. This definition implies that a river basin plan is a part of a continuing strategic planning process intended to achieve a broad vision of sustainable and equitable development ofthe basin, and suggests that at appropriate intervals the Plan would be reconsidered in light of developments and other changes in the basin.

The project would support the implementation ofthis proclamation in the Abbay Basin Organization and the TaSBO and BeSBO. It will help the development of technical capacity within the SBO for multi-sectoral planning and systems for stakeholder analysis/ identification and structured stakeholder consultations including the establishment of advisory groups and partnerships. It will not be responsible for sub-basin development to avoid conflict of interest, but will be responsible to integrate development plans across sectors in order to effectively allocate water to proposed development interventions and determine sustainability considerations.

The SBOs main responsibility will be to assist the allocation ofwater efficiently across sectors and in developing and managing the water resources of the sub-basins in a holistic way in a river basin framework. The SBOs will develop an integrated sub-basin resource plan based on regional development plans prepared by the line bureaus and compiled by the BoFEDs. Based on the comprehensive information systems (relating to water, land, people, cultural assets, biodiversity, fisheries, economic opportunities, etc.), results of the model analysis, and structured stakeholder consultation, the SBOs will issue water use permits to both public and private developers.

More specifically, the primary functions ofTaSBO and BeSBO are to: 0 Serve as an institutional focal point for water resources allocation and management in their respective sub-basins to balance multiple needs and improve water productivity 0 Monitor the water resources ofthe sub-basins

0 Be a repository of the official knowledge base for water resources management data and information in the sub-basins and facilitate its access by various users both public and private. Undertake research and special studies as required for effective water resources planning and management. Provide outreach services to improve awareness about water resources issues and improve inter-agency collaboration 0 Provide the analvtical/modeling expertise and tools to effectively manage the water resources of the sub-basins

57 0 Help envision the future of the sub-basins with inputs from multiple stakeholders and systematic analysis. This would help determine the economic, social, environmental, and institutional criteria and indicators that would be used in defining the elements of this future vision. This would also help define the knowledge gaps that have to be addressed and interim plans to be developed in formulating an overall sub-basin plan. This is outlined tentatively below (see table) for the Tana Sub-basin based on stakeholder interaction during project preparation. 0 Develop a sub-basin plan to help move from the current situation to a vision ofthe future that optimizes the basin's water and land resources based on analytical and stakeholder inputs and considering economic, environmental, and social issues in a holistic manner. 0 Develop and administer appropriate reswlatorv instruments (e.g. water permits, water-related infiastructure operation rules and coordination mechanisms) to effectively manage water resources and Lake Tana levels.

!dressing Key Knowledge Gaps in Moving towards Developing a Sub-basin Development and Management Plan

Key Activities & Interim Plans

Hydrology - sw & gw, lake and sub-basin water balance, variability - droughts, floods - flooded areas under different return periods Erosion and Sediment - dynamics, control options 3 Watershed Management Plan Water Quality (sw & gw) - bioichem. ambient levels - e.g. BOD/COD/Metals/ PesticidesNutrients, DO), wasteloads - point and non-point, management options + Water Quality Management Plan Limnology & Ecology (phy/chem./bio anal - bathymetry, lake mixing patterns, wetlands Biodiversity Conservation Plan) Fisheries (stock assessment, no & type of species, distribution, spawning areas, sustainable yield + Fisheries Management Plan - zoning/protected areas, net sizing, temporal and spatial fisheries controls, institutional & fishermen capacity-building) Environmental Flows + Environmental Flow Assessment o Stakeholder Assessment - identification, typology, relationship of key stakeholder types and communities with Lake Tana and Tana sub-basin, mechanisms for participation - e.g. focus group discussions, workshops, surveys, consultation meetings, etc., poverty assessmentimapping o Access to services (water supply, energy, transport, food-food sercurity) o Environmental Health (e.g. malaria, bilharzias, etc.) - incidence, valuation, management options + Water-related Health Management Plan o Resettlement - for various options o Sharing growth - options Growth options Sectors - current status, future potential, opportunities & constraints, options + Economic and Financial Analysis Agriculture (rain fed, recession irrigated) - inputs, productivity, farming practices, potential, markets, options for improvement Livestock - numbers, types, grazing lands, fodder requirements, productivity, potential Tourism - tourism assets, numbers of tourists - intnl & domestic, value, access to assets, services Navigation - routes, demand - moving people/goods/services - affect of diff lake levels Fisheries - species, yields, demands, prices, markets Implications of Variability - flood, drought Agro processinghdustry - types, potential Energy - hp production, operating rules, demand, plans Transport - connectivity, access, all weather roads, plans, value of access of different kinds

Institutional Assessment, Skills assessment, business processes, institutional roles/responsibilities, information flow, agency support requirements 3 Institutional Arrangements & Capacity-building Plan Analysis of current policies, policy gaps - Policy Strengthening Plan Linkages across planning & management options o Operational Coordination Plan (for water infrastructure) o Monitoring Plan & Information Flow Arrangements o Financing Plan - potential revenue sources, public and private sector financing

B. Natural Resource Management Investments [$ 40.83 m]: This component aims to undertake critical investments to improve the natural resources management in the Tana sub-basin. Given the urgency of such investments in the Tana sub-basin and the early nature of engagement in the Beles

58 sub-basin, this component is confined to investments solely in the Tana Sub-basin. Two sub- components will be supported:

Sub-component B 1: Watershed Development ($ 35.08 m): This includes support for sustainable watershed development investments covering about 80,000 ha in the Ribb, Gumara, and Jemma sub- watersheds in the Lake Tana sub-basin (see map below). Activities will support livelihood improvement, natural resources management (soil and water conservation, afforestation, and agro- forestry), and institutional strengthening.

The activities carried out will draw from a menu of anticipated activities (see following table) developed based on experience with other prior and ongoing projects, pilot field surveys, and stakeholder discussions. Based on the customized plans developed for each micro watershed in consultation with the local communities, these activities (wherever applicable) will be tailored to the requirements of each micro watershed. Substantial watershed activities are already under way in the various woredas of the Tana sub-basin and some well-trained officials are available at even the Kebele level.

These watershed development investments may potentially include livelihood, natural resources management and institutional strengthening interventions. The physical activities to be supported could include:

Sector Potential Interventions

59 Sector Potential Interventions Water Supply Development Hand Dug Wells Spring Development Improved Well and Spring Heads Fit and Fix Hand Pumps (Operation and Maintenance) Water Supply Source Development Entry-Point Promotion ofWater Harvesting from Roofs Activities Communications and Rural Transport Infrastructure Footpaths Footbridges Road Cross Drainage Road Side Drainage

Physical Soil and Water Conservation Flood Control and Improved Drainage Water Harvesting Land Resources Soil Fertility Management Management Gully Control Land Certification

Tree Nurseries Tree Plantine- Area Closure of Forest Lands Forestry and Ago- Micro-Basins Forestry * Homestead Gardens Seed Collection

Animal Health Posts and Facilities Perennial Pasture and Forage Development Homestead Feeding and Fattening Grazing Land Area Closure Livestock Improvement of Local Breeds for Meat and Milk Production Promote Poultry Production Promote Milk Production Promote Bee Keeping and Honey Production

AssisuPromote Existing Agricultural Extension Programme Logistical Support for Wereda Staff Appropriate Fertilizer Use Irrigation Pumps Crops Organic Manuring Integrated Pest Management Demonstrations of Improved Cropping Practices and Systems Demonstrations of Improved Crop Varieties and New Crops

Fuel Efficient Stoves Rural Energy Tree Planting for Fuel Wood (see forestry above)

Flour Mills Guest House Management (iteranupermanent experts, health workers, teachers) Off-Farm Income Petty Trading and Village Shops Training/Facilitation Private Seedling and Tree Nurseries Fuel Efficient Stove Manufacture Carpentry and Furniture Manufacture and Repair The interventions are further described in detail below:

Livelihood The livelihood theme looks to improve the accessibility and planning capacity within the project area. Feeder roads, demonstrations and trainings in conjunction with improved water supply source development will serve as the entry points. These entry points will be crucial in ensuring involvement and empowerment for the local community. Improvements in the practices and systems for crop production through demonstrations on input use, sustainable land use and cropping methods will further increase the involvement of the local communities. Physical linkages with the various markets will promote the production ofhigh value crops increasing household level incomes.

60 Activities in livestock improvement will focus on improving livestock health and diets. Pasture areas will be managed in a manner which will not promote degradation of the environment. In addition to improved health and diet, activities in the production and processing of livestock and products gained from them will have a significant share in improving household incomes. These activities will be over arched by significant strengthening of the farmer training centers, the technologies used in them and their curriculums. The fourth approach to improve livelihoods within the project area is to promote the generation of off-farm income. This is to be achieved by providing micro credit for entrepreneurial activities by the families within the project area.

Natural Resource Management Systems Community Action Plans and Participatory Land Use Plans will insure the involvement and leadership ofthe community from the planning to the implementation of the natural resource management systems. Actions such land closure on the steep and bad-lands, cutoff drains, check dams in steep watercourses, closing off gullies, stone faced bunds, hedgerows envisaged in the watersheds require broad based consensus. At the household level water harvesting through various methods for house use, livestock and supplementary irrigation have been identified as means to provide incentives for activities that increase the moisture retention in the watershed. It is believed that such conservation measures will complement the forestry and agro-forestry related activities. Forestry activities will not solely center on agro-forestry. By utilizing the community involvement garnered, through the various activities outlined above, planning and required activities will be conducted to establish and enforce community based rules and regulations for the existing forests.

Institutional Strenathenina: The institutional strengthening section of this sub-component will be conducted at the woreda and kebele level. At the woreda level it will focus on establishment and preparation the woreda watershed teams to execute their duties in a timely manner through trainings in all necessary subjects including all aspects ofparticipatory integrated management. Training at the woreda level will be provided to subject matter specialists to allow woreda office involvement in the project implementation. At the kebele level, development agents will be the main focus for the capacity building activities. Trainings will be provided for these development agents and equipment will be provided to their offices and farmer training centers. Kebele watershed committees will be established and trained, moreover the management capacity ofthe existing cooperatives will be raised through trainings.

Sub-component B2: Flood Management ($5.75m): This supports community-based flood management and adaptation around the flood-prone areas around Lake Tana. Activities will support flood risk management and non-structural/small structural approaches to manage the impacts of floods: including floodplain management and flood mitigation planning; flood forecasting and early warning; and emergency response and preparedness at national, local and community levels.

The subcomponent on Flood management in the Lake Tana area will build on activities started under the Flood Prevention and Early Warning Project Phase Ifinanced under the NBTF, which started implementation by ENTRO in June 2007. The specific objective of the ongoing FPEW I is to establish a regional institutional basis and to strengthen the existing capacities ofthe EN countries in flood forecasting, mitigation and management, promoting regional cooperation as well as to enhance the readiness of the EN countries for implementation of the subsequent implementation of the subsequent phases ofFPEW projects. It is also to prepare the foundation for FPEW I1implementation in terms of institutional settings as well as data collection and information sharing at community and national levels while enhancing regional coordination and cooperation.

61 The TBIWRDP will implement the Ethiopian component of the proposed FPEW 11. The two main emphases of the Ethiopian activities under the proposed Phase I1 of the Project that is largely mainstreamed into the TBIWRDP are (a) data acquisition, and (b) capacity building and training as well as small scale works related to flood prevention and response. The capacity building and training aims to build capacity and skills in government institutions at regional levels (national level capacity-building is already included in Component A), and to equip communities at risk with sufficient knowledge and skills to prepare and undertake their own community-driven flood risk management action plans.

The proposed Flood Management sub-component will support community training for awareness and preparedness of flood management activities and implementation of small-scale works. To complement the training provided to the regional Food Security Coordination and Disaster Prevention Office as well as local agencies, it is proposed to provide training and practical education to the communities at risk in the Lake Tana districts. Small scale works will be implemented by the woredas and communities. The overall menu ofactivities would include: i. Training of trainers, who will then train field workers (volunteers and development agents) to educate community groups and encourage self-organization, self-reliance and awareness of opportunities to take advantage ofavailable services and funding; ii. Participatory flood management planning and local risk mapping; and iii. Small-scale structural measures such as elevated access ways, drains, secure water supply, and stock watering points, food storage facilities and refuges.

The component will also have strong linkages with the Water Resources Information System being developed under Component A, which seeks to improve the gauging, data acquisition, and processing for real-time flood forecasting and communication, training at government levels and conduct of special studies to enable the sub-basin to be better prepared for frequent floods.

C. Growth-Oriented Investment Facilitation [$9.17m]: This component aims to support the institutional capacity and investment facilitation required for sustainable development ofthe Tana and Beles sub-basins to realize the growth vision for the region. Two sub-components will be supported:

Sub-component C 1: Development Agency Support ($1.43m): This includes support to relevant existing government bureaus (e.g. BoWRD, BoARD, Amhara and Benishangul-Gumuz Investment Agencies) and potential entities (e.g. a sub-basin development organization) to better plan and facilitate public and private sector investments through provision of appropriate expertise, office modernization, targeted training, and investor facilitation.

The bureaus will be strengthened to plan and facilitate investments that are identified as priority for regional growth, as informed by the ongoing Growth and Endowment study. For example, line bureaudagencies within the two regions would develop appropriate investment plans. For example, these could include investments (as described above) for water storage and irrigation by BoWRD, agncultural extension, marketing, and watershed development by BoARD, land use demarcations by EPLAUA for rural lands, urban zoning by municipalities, identification and protection of cultural heritage sites by bureaus of culture and tourism, identification and protection ofnatural heritage sites by bureaus of parks protection and development, etc. The Amhara Investment Agency would be supported to facilitate private sector investments in the Tana and Beles sub-basins. About 400 priority investments have been identified and investors are being sought for these investments.

The water and land resource implications of such plans would then also be discussed with the sub- basin organizations for mainstreaming into the sub-basin plans being developed. This will ensure that

62 the plans are compatible and sustainable from a resource quantity and quality perspective, and environmental, social, and economic issues are well-integrated.

Participation by stakeholders at large, and private sector in particular, could be facilitated through access to better planned and facilitated investment information, access to factor inputs such as land, water and capital, and to support better market linkages both within and outside the country; to better plan and facilitate access to public services and incentive packages; to address policy and regulatory issues that need to be streamlined in relation, for example, to out-grower schemes, contract farming and other models of partnership and rural-urban linkages and to design and implement capacity building through availing demanded expertise, modem communication systems and targeted training.

Sub-component C2: Growth-oriented Investment Preuaration ($7.74m): This includes support for the preparation ofinvestments in the Tana and Beles sub-basins, including surveys, pre-feasibility and feasibility studies, environmental and social assessments, designs, implementation arrangements, and associated analytical work and stakeholder consultation to ensure that these investments (expected to be better identified through an ongoing Growth and Endowment study) are prepared with both growth and sustainability considerations. However, it is also planned to initiate a few activities in parallel relating to preparation ofkey types ofpublic and private investments already being considered in the Tana and Beles sub-basins, private sector dialogue etc. without awaiting the outcome of the growth study.

GoE hopes to translate the rich natural resource, social and environmental endowment of the Sub- basin into a growth corridor that lifts the population out of poverty and contributes to overall economic growth in the country. Extensive studies of opportunities are underway by the investment promotion agencies at federal and regional levels and a new endowment and growth study is being undertaken by MoWR to identify the potential drivers of growth in the region. The Government plans to promote both private investment and public-private partnerships to stimulate this growth. The Government also believes that the Sub-basin’s land and water resources may be developed to ignite this growth trend, and hence, it expects that agro-business and the tourist industry will be two of the primary sources of growth in output, exports and employment. The Government has a major road building program to improve access to markets, and is investing heavily in education and health services. In the area of land and water resources development, the Government’s strategy encompasses the following focal areas reflected in ongoing and near-term plans:

(i) Watershed management and develooment: A large program covering over 500,000 ha to control and reverse watershed degradation and reduce and control erosion and sedimentation is underway in the Sub-basin with support by several donors and the Government’s own resources. This could have a substantial positive impact on the Lake and the rivers in the Sub- basin by reducing the currently high levels of sediment transport, and provide a basis for substantial improvement in rural livelihoods. However there appears to be little focus on alternative sources of energy for fuel-wood substitution, improvements in the productivity of rain fed agriculture, and the production of fodder to ease the intense pressure for expanded grazing areas, so the sustainability ofthese programs might be questioned. (ii) Hvdropower: With the completion of the Tana-Beles hydropower project (460 MW & about 1540 GWh of energy) by 2009, nearly all the major hydropower resources of the Tana Sub- basin will have been developed. The Government is proposing to build six small storage projects in the Sub-basin (see the figure at the right) that could provide sources of small scale hydropower depending on how they are operated and there may also be numerous opportunities for micro-hydro developments. Both the small scale hydropower and the micro- hydro could be important in providing electricity service to the rural areas of the Sub-basin where current access to electricity is very poor.

63 Storage and irrigated agriculture: While [I I rainfall in the sub-basin during the wet season (June to October) is substantial it exceeds potential evapotranspiration on average only in July and August. The Government is anxious to expand supplemental and primary irrigation to increase food production and enable a shift to high value crops particularly those for which value chain investments in agro-business could be a growth stimulus. It is proposing five small storage reservoirs (identified in the figure above) to irrigate about 61,000ha and to develop about 19,000ha by means of lift irrigation drawing water directly from Lake Tana. The five small reservoirs would have a combined active storage capacity ofabout 1.35 Bm3(about 0.89 Bm3net ofevaporation fiom the reservoirs and consumptive use). This volume could irrigate substantially more area than is planned suggesting that flexible multi-purpose operation may be possible to provide additional benefits in the areas of hydropower generation, riverine fisheries, and dry season lake inflows. Fisheries: Lake Tana is potentially a very substantial fishery with an estimated total yield of 18-22,000 tons per year (although there is no verification or recent research to support this estimate). The fishery consists primarily ofthree species: Nile tilapia (Oreochromis niloticus), catfish (Clarias gariepinus), and the large endemic Labeobarbus. There is no consistent monitoring of the fish catch, but the limited available data suggest that both the catch and the level of effort have been declining for unknown reasons (marketing, quality, and handling issues such as cold storage may possibly be important constraints and disincentives). The catch appears to have declined from 2,300 tons in 1993 to only 1,450 tons in 2006. The fishery represents one of the most complicated natural resource management problems in the Sub-basin since it depends on the ecological health of the lake, the wetlands and the rivers (Labeobarbus is known to spawn upstream in the numerous small rivers entering the lake) all of which are under intense development pressure and competition with agriculture and urban growth and negatively impacted by the widespread and progressive watershed degradation. Navigation: Navigation on Lake Tana has long been an important means ofmoving goods and people between the two principal urban areas in the Sub-basin, Bahir Dar near the southern tip ofLake Tana where it outflows into the Abbay Nile River, and Gondar near the northern shore ofthe lake. Even after an all-weather road was built circling the eastern side of the lake from south to north and linking the sub-basin community with the main all-weather roads to the capital Addis Ababa, and to Sudan, Eritrea, Djibouti, navigation on the lake has remained important to the local economy. However, Lake Tana is very shallow, averaging only about 8m, and the deposition of the heavy inflow of sediments causes shoaling. When these are combined with low lake levels navigation is disrupted sometimes for long periods causing economic hardship. There are various options to improve navigation, including better boats, mooring sites, and dredging. Flooding: Extensive flood plains border the eastern, northeastern and northern sides of the lake where the tributary rivers enter the lake. The largest of these is the Fogera plain which runs for about 25 km along the eastern side of the lake and extends over an area of about 500,000 ha. Two of the principal tributaries of the lake, the kbb and Gumara Rivers, and numerous small rivers, cross this plain to the lake. The low lying areas of these flood plains are flooded annually by excess rainfall and over bank flooding from these rivers. These

64 wetlands are an important part ofthe lake ecosystem and bird habitat, and the land surrounding them is intensively cultivated and used for livestock grazing. But the potentially highly productive dry season crop in this area is limited by the slow drainage ofthe low land flooded areas and the presence ofpermanent wetlands, access to water for irrigation, uncertain market options, and the need to reserve extensive areas for livestock grazing. The small but important zone is a second example of the complex nature of natural resource management in the Sub- basin. (vii) Ecological Enhancement: The Park Protection and Management Agency (part ofthe Amhara Bureau of Culture and Tourism) is contemplating development of protected areas in the Tana sub-basin, possibly a part of the Lake itself and lakeshore as a freshwater protected area to improve habitats for fishes and birds and enhance fisheries and eco-tourism. The Amhara Region is also considering the development of a riverine “Millennium Park” from chara-chara weir to the Tis Issat falls to improve eco-tourism.

D. Project Management [%2.24m]: This component aims to support overall project planning, coordination, management, quality oversight and technical supervision, effective procurement and financial management, as well as consolidated monitoring and reporting of project activities. In particular, this will support the creation of a project coordination unit in the Mom. It will also support the Regional Project Coordinators at the Regional level. A consultant would help develop a modern web-based project management and monitoring system to assist the project entities to access information on the latest project status to help in adaptive project management. It will also support incremental expenses and training associated with facilitating and overseeing the implementation of this project.

65 Attachment 4.1 (Annex 4)

Scope of major studiesianaiytical work pianlied under thc project and review of possible duplication with other initiatives

Decision Support Svstem (DSS) Development for Tana and Beles Sub-basin: The Tana and Beles sub-basins would require a number of critical decisions to be made both to inform planning and real-time operations. There are a number of unique characteristics ofthe Tana and Beles sub-basins that require careful attention during the development of decision support tools to better inform these two types of decisions. This activity is expected to provide benefits both for planning new investments, especially the growth-oriented investments, as well as for guiding operations in real-time. On the real-time Operations, the DSS operation will ensure that the sub-basin harmonizes the water availability and demands in very short intervals (ten daily/monthly during non-rainy season to daily/6-hourly during raidflood seasons). This, inter alia, would involve interactive detailed comprehensive operational support knowledge base of the Tana and Beles sub-basins; real-time and short- term forecasting ofrunoff and other elements ofthe hydrologic cycle (based on satellite data, rainfall and flow gauges, radar, and other data); recommendations for real-time coordinated operations of water infrastructure; communication river flows and Lake Tana levels (e.g. for flood mgmt., agriculture management, etc.); and support to operational control centers.

The Decision Support system as planned under the Nile Basin Initiative with all the 10 countries participating is a planning tool to identify cooperative investment projects, riparian exchange of information, and also support Nile dialogue. The Eastern Nile Planning Model (development through ENTRO) will support the adoption of an improved decision support modeling framework to identify and evaluate water-related investments in a regional context. The Hydrology Study (undertaken during preparation) was not planned for operations related investigation and was primarily aimed to understand the Lake Hydrology and implication of developments around Lake Tana on the water balance of the sub-basin. Hence the DSS planned under the project is much broader in focus and more intense in terms ofelements that will be incorporated. However, it is planned to maintain links with the Nile DSS, and ENPM models to ensure synergy between various developments.

Groundwater assessment: The groundwater assessment under TBIWRDP is based on the terms of reference developed as a part of a Bank Netherland Partnership Program' which has recommended a detailed study amounting to $2.5 million (includes drilling of 7 deep wells). This assessment will be a three phase study- Phase Iwill be detailed reconnaissance; Phase I1 pre-feasibility; and Phase 111- feasibility. It is expected that at the end ofthis study, it will be possible to delineate Tana sub-basin in terms of spatial and temporal availability of groundwater. There is also no duplication envisaged in this study with the groundwater related activities under the Ethiopia Irrigation and Drainage Project (EIDP) which plans to promote low-cost individual irrigation technologies, and piloting of groundwater development. The EIDP would (i)in and outside project areas promote low-cost affordable irrigation technologies for shallow groundwater abstraction. EIDP would include training of local manufacturers, support for a supply network of low-cost pumps, identification and development of pico-hydropower plants in the irrigation schemes, and development of a promotional campaign; and (ii)implement outside the irrigation' command areas one deep artesian groundwater pilot scheme for community irrigation.

5 Study carried out by Ato Engida, Dr Yilma and Mr Albert Tuinoff engaged by the Bank during Dec 2006-May 2007.

66 Water Resources Information System: This study/analysis takes off from the recommendation of the Hydrology Study (carried out as part of project preparation) on intensification ofhydrological network as the current database is considered inadequate both in terms of coverage and quality. This study will involve siting the network on ground (through detailed ground level investigation of appropriateness of the sites); nature of measurements (flow, water level, water quality, groundwater levels, sediment etc); instrumentation recommendations with due specifications, acceptance test, collection format for the data, process of collation (integration of radar, satellite, gauging, and other data), analysis and processing of data; equipment needed thereof, roles and responsibilities of agencies in quality protocols and compliance, storage of data and dissemination including web-based development of catalogue of data and its access by users; and possibly pricing of data to commercial users. Such recommendation will be based on analysis of current systems/capacities.

Community Based Flood Management: Based on the consultant’s (study carried out through ENTRO) NGOs will support the regional Food Security Coordination and Disaster Prevention Office on developing community based flood preparedness plan, train the communities and also help them implementing community level activities. There is no duplication on the on-going activities of DDPA. In fact NGOs such as Red Cross have been doing this in Amhara region helping the DDPA. The proposed consultancy under this sub- component is to reimburse such NGOs in this task. In addition, the flood management provisions under the project are incremental to what has already been planned under the Eastern Nile Flood Preparedness and Early Warning Project- Phase-I supported through the Nile Basin Trust Fund Grant. The activities under the current project as an incremetality have been worked out jointly by ENTRO and the MoWR- National Flood Coordinator.

Growth Oriented Investment Preparation: This sub-component is aimed at identifying a portfolio of projects which would contribute to accelerate growth in the Tana Beles area. A study on identifying such opportunities for investments is currently on-going and expected to give its final recommendation by January 2009. Based on the recommendation, a number of opportunities for private sector led growth and corresponding facilitation from public sector would be identified. This could involve public sector facilitation ranging from development of storage structures/inigation network in Beles to develop irrigation; additional hydropower development, promoting agro-processing, tourism, critical road development, upgrading airports etc. On identified priority public sector investments, the project would support development of feasibility studies in all its engineering, technical, economic, environmental, and social dimensions. As per current estimates even for one public investment, i.e., feasibility studies for storage backed irrigation system in Beles for say 50,000 ha command would entail close to $6-7 million. TBIWRDP provides for such detailed feasibility studies to make such opportunities investment ready. Actual investments, however, are planned to be taken up by subsequent projects.

67 ~~~~~~ 5: ~~~~~~~~~ (:o\t\ ETHIOPIA: Tana & Beles Integrated Water Resources Development Project

Components (US$ Million) Foreign Local Total A. Sub Basin Resource Planning and Management A. 1 Water Resources Information System 7.73 2.37 10.10 A.2 Resource Planning and Management Capacity Building 3.84 1.31 5.15 11.57 3.68 15.25 B. Natural Resource Management Investment B. 1 Watershed Developmentt 4.60 25.78 30.38 B.2 Flood Management 2.95 2.03 4.98 7.55 27.81 35.36 C. Growth Oriented Investment Facilitation C. 1 Development Agency Support 0.73 0.51 1.24 C.2 Growth Oriented Investment Preparations 6.48 0.23 6.71 7.21 0.74 7.95 D. Project Management 1.09 0.85 1.94

Total BASELINE COSTS 27.42 33.08 60.50 Physical Contingencies 2.74 3.31 6.05 Price Contingencies 1.50 1.80 3.30 Total PROJECT COSTS 31.66 38.19 69.85 Total Financing Required 24.03 28.97 53.00 [Bank: $45 m GoFinland: $8 m]

68 A. Overall:

The primary implementation responsibility for this project lies with the Ministry of Water Resources in the GoE. A national project coordination unit in the MoWR will facilitate and oversee project implementation. However, given the nature of this project, there will be a number of other institutional entities involved with its implementation. For the Sub-basin Resources Planning and Management, the MoWR will be initially responsible for this component through its Basin Development Study and Water Utilization Control Department and the Abbay River Basin Team until the Abbay River Basin Authority and the Tana Sub-basin Organization and Beles Sub-basin Organization are established. It will undertake this responsibility in cooperation with the Amhara and Benishangul Regional Governments. As the basidsub-basin organizations and high council are formed, they will take on increasing responsibility to implement this component. Structured stakeholder forums with sub-basin stakeholders are proposed to provide input in the formulation and implementation of sub-basin plans and management instruments. The Water Resources Information $stem sub-component proposed will be undertaken by MoWR in coordination with the National Meteorological Agency and National and Amhara Region Food Security Coordination and Disaster Prevention (FSCDP) Office. The Natural Resource Management Investments are proposed to improve watershed and flood management in the Lake Tana sub-basin in the Amhara Region. The watershed development sub-component will be coordinated by the Natural Resources Development and Conservation Division of the Amhara Bureau of Agriculture and Rural Development (BOARD) with the assistance of the Amhara BoWRD and community-based organizations would facilitate implementation. The actual implementation would be decentralized at woreda and kebele levels using existing institutional arrangements for watershed development. The implementing responsibilities for the community-based flood management sub-component are located at three levels: The Ministry of Water Resources at the national level, the Food Security Coordination and Disaster Prevention Office at the regional level and the flood affected Woredas and communities at the local level. Communities and their flood committees will be assisted by the FSCDP and an NGO to prepare their own community action plans for flood preparedness and self-management, and systems for approving applications for funding, and financial support to implement community- driven plans. At regional level, the Growth-oriented investment preparation would be overall coordinated by the BoFEDs of the governments of the Amhara and Benishangul regions. Project Management would be the responsibility ofthe National Project Coordination Unit in MoWR headed by a National Project Coordinator to oversee the entire project with the support of Regional Project Coordination Unit headed by Regional Project Coordinators in the Amhara and Benishangul Regions.

The project follows the government’s integrated water resources management policy which puts river basin management as federal responsibility. It also builds on the overall decentralization policy and supports the effort to effectively plan, manage, and develop the basin resources in the initially identified Tana-Beles Growth Zone in the Abbay basin.

A hver Basin High Council and an Abbay hver Basin Authority (ARBA) are being established through proclamation. (An organizational chart and brief description ofthe proposed ARBA is shown as Attachment Annex 6.1 at the end ofthis Annex). Sub-basin organizations (SBOs) namely Tana and Beles (TaSBO & BeSBO) will be established as branch offices of ARBA at sub-basin level to take charge of overall sub-basin planning, management and monitoring. Proposed institutional fkamework at sub-basin level are also included in Attachment 6.1 to this Annex. Currently, the Ministry ofWater

69 Resource (MoWR), through a consulting firm, is undertaking institutional and capacity building studies to provide institutional options and detailed arrangement to adequately undertake the key functions that are required for effective utilization and development of the sub-basin resources. A growth study is also underway to determine the growth drivers and linkages in the Tana and Beles sub basins and recommend the appropriate institutionis required.

An Abbay River Basin Team (ARBT) has already been established within the MoWR and is currently serving as the nucleus of the future ARBA. The Team is also charged with the responsibility for guiding the planning and preparation of the TBIWRDP. The Project plans to provide support to development ofARBT into a full-fledged ARBA.

B. Implementation Arrangements

The project implementation will involve multiple existing and emerging institutions at all levels. The following institutions will be involved in implementation ofthe project:

Federal Level:

Ministry of Water Resources (MoWR): Will be responsible for overall coordination and monitoring ofthe project and for facilitation of the capacity building and policy formulation. It will implement the different activities of the project through coordinated arrangements with regional bureaus. The Ministry will establish a National Project Coordination Unit (NPCU) and assign a National Project Coordinator (NPC) who will be in charge of the project implementation and monitoring. The coordinator will be assisted by the different line departments ofthe MoWR and other relevant ministries/departments as and when required. Oversight ofthe Project will be provided by a National Project Steering Committee (NPSC) whose membership would reflect a range of stakeholders’ interests, including but not limited to, representatives of MoWR, MoARD, MoTI, MoTC ,EPA, MoFED, Private Sector at the federal level and heads of BoWRD, BOARD,BoTI, BoTC EPLAUA and other relevant stakeholders ofthe two regions. The NPSC will be chaired by the State Minister ofMoWR, with the National Project Coordinator (NPC) as secretary.

The Ministry, in cooperation with the Amhara and Benishangul Regional governments, will also be initially responsible for sub-basin resources planning and management through the AEU3T until the ARBA and TaSBO and BeSBO are established. Structured stakeholder consultation forums of sub- basin stakeholders are proposed to provide input in the formulation and implementation of sub-basin plans and management instruments. The Ministry will also follow-up the Natural Resources Management component of the project. The Watershed Management Coordination Unit established within the MoWR, assisted by a technical committee with members from different relevant federal institutions, including the MoWR, Ministry of Agriculture and Rural Development (MoARD) and Environmental Protection Authority (EPA) will be coordinating this sub-component at the federal level. For the flood component, the MoWR will be responsible for establishing and strengthening a forecasting system based on hydrological and meteorological data collection, as well as for training the National Meteorological Agency and DPPA at national level. The Eastern Nile Technical Regional Office (ENTRO) will be instrumental in ensuring the overall Eastern Nile dimension is appropriately reflected within all planning and implementation.

National Meteorology Agency (NMA): The NMA is currently responsible for the coordination of meteorological information at the national and sub-national level. Following the establishment ofthe Water Resources Information System (HIS) the agency will be responsible regarding dissemination, of analysis generated in the sub-basin through it’s counterparts within the SBO, to national and regional (EN) audiences.

70 Ministry of Agriculture and Rural development (MoARD): As an institution responsible for the development of apculture and land administration and utilization, it will have an overall responsibility to provide related policy direction and will be the lead institution to provide guidance on agriculture and rural development aspects of the project. In particular, it will guide the planning process in promoting the expansion of rapid and sustainable agncultural and rural development as well as encouraging and assisting the provision of agricultural extension services to farmers.

Environmental Protection Authority (EPA): It will be responsible for facilitating consideration of environmental issues in the project, especially in the planning and management of the sub-basin resources in line with the country’s environmental policies and strategy. It will also be responsible for oversight on the project ESMF and RPF as required during project implementation.

Disaster Prevention and Protection Agency (DPPA): It will be responsible for the overall planning of flood preparedness and early warning ofthe flood component in coordination with the MoWR

Regional Level:

Bureau of Water Resources Development (BoWRD): It will be responsible for over all project planning, management, coordination and facilitation of capacity building at regional level. A Regional Project Coordination Unit (RPCU) with in the bureau will be in charge of the project coordination and monitoring at the regional level. The Bureau will also be responsible for development of small scale irrigation systems in collaboration with the BOARD.

Bureaus of Agriculture and Rural Development (BOARD): The Natural Resources Development and Conservation Division ofthe Bureau will be responsible for the implementation ofthe Watershed development component of the project. The Bureau will be responsible for providing extension services to farmers, including training farmers, supplying inputs, making provision for credit and improved technologies. It will have an important role of ensuring the full participation of farmers in the planning, design and implementation ofthe project.

Bureaus of Finance and Economic Development (BoFED): It is primarily accountable for coordinating and compiling the region’s over all development planning and allocation ofthe resource for implementation. In this project it will specifically be responsible for coordination and implementation ofthe Component C at the regional level.

Regional Investment Promotion Agency (RIPA): Primarily the promotion agency is the main point of contact for private entrepreneurs and investors and intends to provide one window service for all investment requirements and queries. The agency facilitates information on business opportunities and required licensing. It also provides assistance for applications on tax exemptions and tax holidays. The project envisages the need to overhaul the agency, and expects the Growth and Endowment Study to provide concrete recommendations to that effect.

Regional Food Security Coordination and Disaster Prevention Office (RFSCDP) - It will be responsible to implement the flood management sub-component ofthe project. It will be responsible for establishing a communication mechanism, community based flood preparedness and response, training ofthe communities in cooperation with NGOs already working in the region.

Environmental Protection and Land Administration and Use Authorities (EPLAUA): It is primarily responsible for the assessment and authorization of any environmental impact study report for non trans-regional impacts projects and to ensure the implementation of federal environmental

71 standards. It is also responsible for undertaking land cadastre and planning and implementation of rural land use in the region.

The project would also liaise with other relevant agencies (including the Cooperative Promotion Agency, Bureau of Women’s Affairs, Amhara Region Agricultural Research Institute, and Rural Road Authority.

Regional Project Steering Committee:

There will be a Regional Project Steering Committee for each ofthe region chaired by the Regional President , and will include representatives from the Bureau of Water Resources Development (BoWRD), Bureau of Finance and Economic Development (BoFED), the Bureau of Agnculture and Rural Development (BOARD), the Environmental Protection and Land Administration and Use Authorities (EPLAUA), the Regional Agricultural Research Institute (ARARI), the Regional Food Security Coordination and Disaster Prevention Office (FSCDP)and the Woreda administrations.

The Steering Committee shall be responsible at the regional level for: (a) establishing policy guidelines and providing overall supervision for Project implementation; (b) approving the annual Federal and Regional work program and budget; (c) approving the annual Procurement Plan; (d) reviewing the annual implementation performance report prepared by the PCO; and (e) overseeing the implementation ofcorrective actions when necessary

Woreda Level:

The natural resource management component of the project will comprise of community based activities for watershed development and flood preparedness and early warning. The woredas that these activities will be conducted in are all in the Amhara region. The watershed development activities will be carried out in the Farta, Dera, Estie, Sekela and Merawi woredas while the flood related activities will be conducted in the Dembiya, Lib0 Kemkem, Fogera, and Dera Woredas and Bahir Dar city.

The Woreda Administration Office ofthe different woredas to be covered by the project will mainly be responsible for coordinating and directing the component B ofproject at the Woreda level. It will do so by closely cooperating with Woreda Offices ofAgnculture and Rural Development (WoARD), Water Resources Development (WoWRD), Office of Health (WoH), Office of Women’s Affair (WoWA); NGOs; the private sector and other relevant organizations/offices. The Woreda will be primarily responsible for the implementation of the watershed management and flood management components of the project. For a successful implementation of integrated watershed development activities, the Woreda Administration Office will establish a Woreda Watershed Management Team (WWT) on a full-time basis (in accordance with the MoARD Guidelines for Community-Based Participatory Watershed Development) composed of: (i)Forestry and Agroforestry Expert, (ii)Agronomist (Plant management, IPM), (iii)livestock expert, (iv) water, harvesting and irrigation expert, (v) Home Agent; (vi) Land Use and Administration Expert (vii) Food Security Expert (Economist/socio-economist/Agro-economist (viii) Cooperative/Marketing and Input Expert (ix) Rural Road Construction Expert The Project will recruit a Coordinator at Woreda level for facilitating and supporting the WWT; One Project Coordinator would oversee each WWT and be supported by one Assistant Coordinator based in each ofthe Woreda offices. For flood preparedness activities, a Woreda Flood Management Group (WFMG) would be established, including representatives of the FSCDP Offices, NGO representatives, and CBOs, and

72 will be responsible for coordinating flood management activities including approving applications for funding, implementing small scale works such as rural roads and levies at the local level.

The Woreda Finance Office will be responsible for the overall management of the Project funds that has been transferred by BOARDto the Project account at Woreda level, including budgeting and the preparation of cash flow estimates and financial reports. It will also retain oversight (with project support) offinancial transactions at Kebele level.

Kebele Level:

The Kebele Council will be responsible for the planning, design and implementation ofthe watershed management and flood control of the project in its respective Kebele. The Kebele Council will also use its authority to inform and mobilize the population as well as to resolve problems encountered at any stage of the implementation of Project interventions. The Kebele Council will form a Kebele Watershed Committee (KWC) as the main focal point for the implementation of the watershed development project, chaired by the Chairman of the Kebele Council and with wide representation from the local community and local government bodies. The KWC will ensure coordination and supervision between the different micro-watersheds located within the boundaries ofthe Kebele.

The KWC would also work in close coordination with the Kebele Flood Management Groups formed of designees of the Kebele Council to oversee activities at the individual community level. The KFMGs will prepare the community’s action plans for flood preparedness and self-management, a system for approving applications for funding, and financial support to implement community-driven plans.

Community level (sub-kebele):

Being the primary beneficiaries ofthe project, the community will be made to participate fully in all aspects of the program including project identification, preparation, implementation, operation and maintenance. It is at this level that successful implementation and sustainability of outcomes of the project depends upon. The community would be organized into Community Watershed Teams to undertake the watershed development sub-component of the project and Community Flood Management Groups (at Gott/Attibia levels) to undertake the community-based flood management sub-component ofthe project.

The institutional arrangements for the different components and sub-components are summarized in the following chart.

73 3 C e 6 Y

I:3c

-

ea 0 5 5 a D a a51 0

-

a i;

4a

-

- Institutional Capacity-BuildingNeeds

There are a number of critical institutional weaknesses that have to be immediately redressed in order to ensure that the project can be effectively implemented in the short-term and that in the longer-term, growth in the Tana and Beles sub-basins is economically, environmentally, and socially sustainable and contributes effectively to regional growth. The capacity constraints that need to be addressed under the different components and sub components ofthe project include:

Component A. Sub-basin Resources Planning and Management: The planning of the use of Lake Tana water resources and the flood management activities, including, flood forecasting, drought management, water infrastructure operational rule harmonization, etc. will require the availability ofa reliable hydrologic information . This information is currently lacking due to a number of reasons, including institutional considerations. When new projects relating to and the use of Lake Tana water resources are being developed , there is an incomplete knowledge on the current useshsers of the lake’s resources and there is a general lack of information on the dynamic and trends ofthe lake as whole. Some basic information like bathymetry or modeling ofthe lake sub-basin, including entering water regime and silt loads are not available in a scientific manner. Moreover, various projects are designed and developed independent from each others. Major players in the sub-basin like EEPCo (hydropower) and MoWR (large irrigation schemes) are acting separately without real cross consultation and coordination In general, there is no one organization as such that is in charge of coordination ofsub basin resource planning and management as a whole.

The Hydrology Department of the MoWR which is responsible for quantitative and qualitative knowledge ofwater resources is poorly organized. Some ofthe major problems ofthe Department as identified by the TBIWRDP preparation institutional study include: 0 Lack oflocal staff and little concern for data quality; central vs. field staff arrangements Poor staff training, Rapid technicians turnover due to poor salaries, Lack of staff to undertake additional tasks such as information dissemination, research and studies 0 Insufficient hydrometric stations and insufficient telemetric equipment, 0 Lack ofdata collection and processing concerning water quality and groundwater, 0 Insufficient maintenance, Poor office equipment in particular concerning computers and sharing ofinformation systems (telephones, internet, server, etc.) 0 Separation oftasks (data collection and data processing including quality data control)

In addition there is lack ofintegrated sub-basin planning and management: There are many issues to be resolved for effective water resources management in the respective sub-basins such as: 0 Lack ofan effective institutional focal point and enabling policy environment and instruments (e.g. pricing, allocation, regulation) for integrated water resources management 0 Problems offragmented, outdated, often inaccessible and inconsistent knowledge base, lack of effective modern analytical tools for managing the sub-basin’s water resources 0 Need for adequate skills, partnerships, and structured stakeholder processes to improve awareness and capacity to effectively address critical current and future water problems Developing a more systematic and professional approach to effectively plan, manage and use the sub-basin’s water resources across sectors and areas

Last but not least, there is lack ofthe management, operation and maintenance oflarge scale irrigated schemes and there is no as such institutional set up(s) for coordinating such activities.

75 Component B: Natural Resources Management: Although there is increasing experience in implementing watershed projects and considerable capacity-building especially at the crucial local (woreda and kebele) levels has taken place, there is substantial room for improvement. This is especially the case if modem watershed management techniques based on analytical and stakeholder inputs are to be designed in a customized fashion for each micro-catchment. The situation is more difficult for community-based flood management, where attitudes need to move from crisis- management and relief distribution to forecasting, communicating, and equipping communities to be better prepared for floods before they happen.

Component C: Growth-Oriented Investment Facilitation Regional bureaus have started assuming increasing responsibilities over recent years. A number or preparation (e.g. pre-feasibility, feasibility) studies are underway for major investments. However, there is extremely poor planning of investments (public and private) from a prioritization or resource sustainability viewpoint. In addition, there is little coordinated planning across sector agencies to ensure “shared vision” development.

Comuonent D: Proiect Management: The GoE has had considerable experience with various types of projects at all levels of government. However, there is a strong need to strengthen project management at all levels on technical, fiduciary (financial management, procurement), as well as environmental and social management relating to this project.

76 Attachment 6.1 (Annex 6)

The Abbav River basin Authoritv as the first River Basin Organization

The Ministry, as part of the Ethiopian Water Resources Management Policy and its Implementation Strategy for River Basin Integrated Development Master Plan is establishing independent River Basin Organizations (GoE proclamation on "River Basin Councils and Authorities Proclamation-534/2007" of July, 2007). The Abbay River Basin Authority (ARBA) is one of the twelve Basin Authorities that is identified and the regulation for the creation of the Abbay Basin High Council and Authority has been approved in March 2008. The ARBA shall serve as the secretariat of the ARBHC. The ARI3A will prepare the basin's plan and monitor its implementation. It is responsible for undertaking and facilitating the implementation of an integrated water resources management in the basin. An Abbay River Basin Team (ARBT) has already been established within the MoWR and is currently serving as the nucleus of the future ARBA. The Team will be charged with the responsibility for guiding the planning and programming of the sub-basin planning and management component. The Team, in consultation with other national ministries and organizations (MoWR, MoARD, EPA, DPPA IPA etc) and in collaboration with the Amhara and Benishangul regional governments and respective bureaus and agencies, will be responsible for the overall coordination and implementation ofthe TBIWRDP. It will also be responsible for the establishment of TaSBO and BeSBO of the project. As the ARBA and TaSBO and BeSBO and high council are formed (in accordance with the River Basin Councils and Authorities Proclamation- 534/2007 ofJuly, 2007), they will take on increasing responsibility to implement the project. The ARBA organizational structure and responsibilities, the Overall Basins and Sub-basin Institutional Arrangements and the Proposed sub-basin Institutional structure and Arrangement are shown in the Chart, below

Abbay River Basin Institutions: Organization and Responsibilities

Vice Prime-Minister MoWR. EPA, MoARD, ANRS ONRS. BGNRS Mol, MoFED,

accountablllty and reportlng to

Admlnlstratlve, Accounting and General Services I I Information Data Department Water Resources Admlnlstratlon Department "Abbay Basin Inforrnatlon Centre" Department

discharge permits

-Technical assistance (Planning and M&E and Project Cycle Management)

Regional RBO focal polnt "focal offices"

Networking organlsatlon Thematic / Geographic Sub-committees or working groups

P.. ,.., ._~..*I__.__l_,, ,

77 Overall Basin and Sub-basin Institutional Arrangements

I I I I I iI I I I I iI I I I I iI I I I I iI I I iI 1 I I I I I I I I Ii I I iI

I 1 I I I I I I I I I------

Proposed Sub-basin institutionai Structure 8 Arrangements Example of the Tana Sub-Basin Organizatlon (TaSBO)

Tana Standing Committee

~

I Tana Sub-basin Organization (TaSBO) I I I I I I I I I I Resource Planning, Management & Regulation Center I I Basin Plan I Regulabon, Permitting I I I I I I I I

78 Introduction

The financial management (FM) assessment is conducted in line with the Financial Management Practice Manual issued by the FM Board on 3 November 2005. The objective of the assessment is to determine whether the implementing entities have acceptable financial management arrangements, which will ensure: (i)the funds are used only for the intended purposes in an efficient and economical way; (ii)the preparation of accurate, reliable and timely periodic financial reports; and (iii)safeguard the entities’ assets. As part of the FM assessment, the team used its cumulative knowledge and experience about the country and existing projects implemented by Mom, and Amhara Region Agnculture and Rural Development and Water Resource Bureaus. FM assessment was conducted during the months ofFebruary and March 2008.

An effective financial management system is vital for the project because of the need to deliver services quickly to a wide variety ofstakeholders. The objectives of the project’s financial management system are to: (i)ensure that funds are used only for their intended purposes in an efficient and economical way while implementing agreed activities; (ii)enable the preparation of accurate and timely financial reports; (iii)ensure that funds are properly managed and flow smoothly, rapidly, adequately, regularly and predictably to implementing agencies at all levels (federal, regional and woreda); (iv) enable project management to monitor the efficient implementation of the project; and to (v) safeguard the project’s assets and resources.

Summary Project Description

The Project Development Objective is to develop enabling institutions and investments for integrated planning, management, and development in the Tana and Beles Sub-basins to accelerate sustainable growth. The proposed components for the $69.85m (base cost of $60.48m and contingencies: 9.37 m) TBIWRDP are:

Component A. Sub-basin Resources Planning and Management [$17.61m] Component B. Natural Resource Management Investments [$40.83m] Component C. Growth-Oriented Investment Facilitation [$9.17m] Component D. Project Management [$2.24m]

A detailed project description is given in Annex 4.

Country Issues

The recently completed Joint budget and Aid review (JBAR) and the Fiduciary Assessment (FA) show that Ethiopia has made significant progress in strengthening public financial management in recent years. The JBAR, which was conducted by the Bank in collaboration with other donors, reviewed the Public Financial Management (PFM) system using the Public Expenditure and Financial Accountability (PEFA) framework. Out of the sixteen indicators covered under this review, fourteen were on government’s systems for public expenditure planning, budgeting and reporting. The remaining two indicators are means to assess donor performance. Ethiopia scored high on seven of the fourteen indictors, i.e.

79 macroeconomic management, including aggregate fiscal discipline and minimizing fiscal risks. The JBAR observes satisfactory progress in budgeting and accounting reform but notes that the adequacy and quality ofbudget reporting leaves room for improvement and remain a key concern.

Ethiopia’s public financial management reforms have been carried out through the Expenditure Management and Control sub-program (EMCP) of the government’s civil service reform program (CSRP). EMCP has developed a revised strategic plan to implement the nine components of the sub- program. Mobilization behind the EMCP (in terms of financial and human resources) is a key component ofthe Public Sector Capacity Building Program (PSCAP) and has now been considered a priority in order to achieve further improvement in all aspects offinancial management.

Overview of the PEFA assessment report

An.evaluation of Public Financial Management (PFM) performance in Ethiopia has been conducted in early 2007 based on an international reference framework - the PEFA or Public Expenditure and Financial Accountability framework. The assessment was done at the federal and regional levels and two separate reports were issued. Seven regions were included in the assessment.

The draft assessment report issued in April 2007 observed significant improvement in the area of financial management at regions, including budgetary transparency in recent years, robust budget preparation, regular internal audit scrutiny and follow up ofinternal audit recommendations, timeliness of in-year and annual financial reports, and mutual supportiveness of the federal and regional Auditor Generals. Nonetheless, the report noted that the quality and nature of internal audit is uneven among the regions. It also reported untimely clearance of suspense accounts and that some regions are still experiencing significant delays in producing timely in-year and end ofyear information.

The report for the assessment conducted at the federal level shows that the classification of the budget meets international standards and the information included in the budget documentation is of good quality. The fiscal relations between the federal government and the regions are transparent. The report also noted that the budget process is well ordered with the existence of a budget calendar generally adhered to, and a budget circular issued to budgetary institutions. Payroll and procurement controls are identified as being satisfactory while control for non-salary expenditure shows some weaknesses. Internal audits are also improved over recent years although the department does not share its work with the Federal Auditor General. The report indicated that the quality of in-year budget reports and annual financial statements is satisfactory and delays in submitting financial statements to OFAG have been significantly reduced.

The Federal government report also shows that the OFAG adheres to INTOSAI auditing standards and focuses on significant issues. OFAG forwards audited accounts on time and these are reviewed by the parliamentary Public Accounts Committee (PAC).

The report also looked at the status of the government reform processes. It is highlighted that the first phase of the reform (transaction platform) has taken place through budgeting, planning, accounting, and information systems. The second phase of the reform, policy platform, is continuing at the sub-national level with reforms to the block grant mechanisms and a move towards more performance based budgeting. The government leadership and ownership regarding ongoing PFM reform efforts are both high. The report however observed challenges in carrying out these reforms.

80 Risk Assessment and Mitigation

Inherent risk

Country level

Sector Capacity Building Project

Entity level S S N

Some sectors have previous Project level S S experience in implementation of Bank

Control M Risk

Government planning and budgeting process will be applied and will Budgeting M N include project disbursement requirement.

Preparationof FM manual provision of training to Finance Accounting M staff and recruitment of additional (Effectiveness) will enhance the capacity of FM Specialists/Accountants implementing entities The internal audit departments at all levels will perform internal Internal audits on the project financial S M N Control transactions. Moreover, the project FM manual will set out important control procedures. The financial management manual Funds Flow M will clarify the fund flow M N arrangement for the project MoWR will close the project accounts within three months after the end of each fiscal year so that Audit reports of the Water Sanitation the audit will be completed by the and Supply Project and the PHRD Auditing S M N due date. Moreover, early grant were submitted with significant notificationand follow-up will be delays. exercised to ensure that audit is completed within the due date Overall Risk S M Rating

H-High, S-Substantial, M-Moderate, L-Low

81 The overall risk rating level ofthe project will be Moderate after the above mentioned risk mitigation measures are taken.

Strengths

The country’s discipline in executing budget and complying with the existing government regulations are the major strengths indicated in most of the PFM diagnostic works conducted so far. MoWR, Amhara BoWRD and BOARDhave previous experience in implementing donor-financed projects, including Bank-financed projects. The MoWR is currently implementing three Bank-financed projects: Water Supply and Sanitation Project (P076735), Urban Water Supply and Sanitation Project (P101473), and Irrigation and Drainage Project (P092353). The last two projects become effective in September 2007 and January 2008, respectively.

Weaknesses and Action Plan

Significant Action Responsible Person Completion Date Weaknesses Lack ofadequate staff Recruitment of MoWR Before effectiveness at MoWR and additional accountants regional bureaus at MoWR(NPCU) and BoWRD (RPCU) Lack ofsubmission of - Organize continuous - MoWR - Regular IFR training for finance staff ofall implementing entities - Closer follow-up on - WB, MoWR - Regular the submission ofIFR Lack ofclear Preparation FM MoWR Before effectiveness Financial manual provided Management training and workshop guideline and on the FM Procedures reporting formats manual and specific internal control, accounting and reporting procedure of the project. Delay in submitting - Early recruitment of MoWR - within 6 months audit reports auditors after effectiveness

Implementing Entities

At the Federal level Ministry of Water Resources (MoWR) will be responsible for overall coordination and monitoring of the project and for facilitation of the capacity building and policy formulation. The Ministry will establish a National Project Coordination Unit (NPCU) and assign a National Project Coordinator (NPC) who will be in charge ofthe project implementation and monitoring. Other ministries and agencies (such as MoARD, EPA, DPPA, and NMA) will also play a key role in the project as is essential given the multi-sectoral nature ofthe project.

82 At the regional level the Bureau of Water Resources Development (Bow)will be responsible for over all project planning, management, coordination and facilitation of capacity building at regional level. A Regional Project Coordination Unit (RPCU) within the bureau will be in charge of the project coordination and monitoring at the regional level. In addition, the following sectoral offices have role in the implementation ofthe project at the regional level: BoFED, BoWRD, BoARD, RIPA, FSCDPA, and EPLUA.

At the woreda level Woreda Finance Offices will be responsible for the overall management of the Project funds that has been transferred by BoARD to the Project account at Woreda level, including budgeting and the preparation of cash flow estimates and financial reports. It will also retain oversight (with project support) offinancial transactions at Kebele level.

The NPCU at the MoWR will be responsible for the overall financial management of the project, and it will be the main counterpart and focal’point for the project. The NPCU will include (i)Project Coordinator, (ii)Financial Management Specialist; and (iii)Procurement Specialist.

Budgeting

The Ethiopian budget system is complex, reflecting the fiscal decentralization structure. Budget is processed at federal, regional, zonal (in some regions), Woredas and municipality levels. The federal budgeting process usually begins by issuing the budget preparation note to the Budgetary Institutions. Based on the budget manual, the Budgetary Institutions prepare their budgets in line with the budget ceilings and submit these to MoFED within six weeks following the budget call. The budgets are reviewed at first by MoFED and then by the Council ofMinisters. The final recommended draft budget is sent to parliament around early June and expected to be cleared at the latest by the end ofthe fiscal year.

The NPCU will prepare an annual work plan and budget for this Project, taking into account the Project’s objectives and resources. The work plan and budgets will identify the activities to be undertaken at federal, regional and woreda levels and the role of respective parties in implementation thereof. Annual work plans and the budgets will be consolidated into a single document and will be submitted to MoWR for approval and will finally be included in the Ministry’s overall annual budget and proclaimed as such. The consolidation will be done after the NPCU ensures, through its technical departments, that the plan and budget meet the Project objectives. Each of the implementing agencies prepares regular reports comparing actual and budget and submit the same for management and donors for information and decision making.

Accounting

All implementing entities use MoFED’s system of accounting - modified cash basis of accounting on a double entry accounting system. Manuals, formats and guidelines ofMoFED are being used in recording and reporting of financial transactions.

MoWR is using Integrated Budget and Expenditure (IBEX) accounting software for government funds. The Project Accounts Division in the Ministry, a division responsible for looking after financial transactions of donor financed projects, maintains separate records for each donor. Accordingly, Peachtree accounting software is used for IDA financed projects and Instant GL accounting software for all other donors’ financed projects. The project accounts division uses its own financial reporting formats and chart of accounts so as to fulfill donors reporting and auditing requirements. Peachtree accounting software will be used for this project.

83 Other ministries and regional offices have their own project accounts divisions that are responsible for recording, reporting and accounting for donor funds. Pursuant to the government pooled accounting system, woreda offices will manage their funds through the woreda finance offices.

In order to get uniform reports from all the implementing agencies, it is necessary for MoWR to develop a standardized reporting format and chart of accounts to be used by all agencies. Thus, the existing accounting system, including chart of accounts, needs to be revised and reflected in the financial management manual (see below) to accommodate the recording and reporting ofthe project transactions.

MoWR will develop a financial management manual for the project in line with the government accounting system. The accounting systems and policies for this project will be documented in this manual. This manual will be used by (i)the project staff, including MoWR and all other implementing agencies, as a reference guide; (ii) IDA to assess the acceptability of the project accounting, reporting and control systems; and (iii)the auditors to assess project accounting systems and controls and to design specific project audit procedures.

Specific procedures will be documented in the manual for each significant accounting function. They will be written to depict document and transaction flows, and will cover, among others, the following aspects: flow of funds; record keeping and maintenance; chart of accounts; formats of records and book of accounts; accounting procedures for authorization, recording and custody controls; planning and budgeting; financial reporting (including formats, linkages with Chart of Accounts and procedures for reviewing these); internal controls; and auditing arrangements.

The staffing arrangement varies among the implementing agencies. For example, MoWR has 25 accountants, of which 10 have baccalaureate degree in accounting, 12 have diplomas in accounting and 3 have technical school certificates. Separate project accountants have been hired for most of donor financed projects, including 3 financial management specialists for WSSP and UWSSP, and 2 financial management specialists for Irrigation and Drainage Project. BoWRD and BoARD have each hired one financial management specialist for Irrigation and Drainage Project. Presently, an accountant is being hired to serve both the BoWRD and BoARD.

It is envisaged that for this project MoWR will hire a financial management specialist (with additional assistant accountant in the future as the volume of transaction may warrant) who will be placed in the NPCU. The NPCU will be responsible for all financial management, accounting and audit aspects ofthe Project. In particular, it will be responsible for the following: (i)designing and establishing a sound financial management system; (ii)approving disbursement of funds to services providers, contractors, consultants at federal level and transfer of funds to regions and IAs (iii)maintaining up-to-date accounting records and ledgers; (iv) recording fiduciary transactions for all activities pertaining to the Project for which the NPCU is responsible; (v) consolidating fiduciary reports; vi) submitting audit reports; and (vii) ensuring that a proper internal control system is in place to achieve accountability at all levels. At least three sets offinancial reports will be prepared and consolidated by the NPCU, namely the work program and annual budget of the Project, the quarterly IFRs, and the Project annual financial statements.

The existing financial management specialists for the Irrigation and Drainage project at BoWRD and BoARD will handle the financial management for this project in their respective offices till the new FMS staff are in place. The hiring of an FMS at MoWR-NPCU and an Accountant at Amahara BoWRD with the required educational background and experience, are required before project effectiveness. The capacity ofthe regional offices should be strengthened with continued support from MoWR. The woreda finance offices will use their regular finance staff to look after this project. The financial management specialist at the BoARD is expected to build the capacity of woreda finance offices through regular visits.

84 Each ofthe implementing agencies is responsible for maintaining the project’s records and documents for all financial transactions occurred in its office. These documents and records will be made available to the Bank’s regular supervision missions and to the external auditors.

Internal Control and Internal Auditing

Internal control comprises the whole system of control, financial or otherwise, established by management in order to (i)carry out the project activities in an orderly and efficient manner, (ii)ensure adherence to policies and procedures, (iii)ensure maintenance of complete and accurate accounting records, and (iv) safeguard the assets ofthe project

All implementing agencies are using those control procedures prescribed by the government. These procedures are adequate to ensure authorization, recording and custody controls. The project financial management manual will further clarify other important control procedures peculiar to the project, such as procedures for periodic accountability, fund flow arrangement, auditing, etc.

MoWR has an internal audit unit with 5 staff having vaned qualification and experience. The unit performs internal audit only on government funds. Other ministries and regional bureaus have their own internal audit units (for example, BoWRD and BoARD have internal audit departments with only one internal auditor in each oftheir departments). However, they are not providing the required audit services to donor-financed projects due to understaffing.

The government Civil Service Reform Program is building the capacity of internal audit in the country. So far, internal audit manuals have been issued and training has been provided to internal auditors. The improvement in internal audit has been recognized in recent diagnostic works, e.g., the FA and PEFA assessments.

The internal audit units at each ofthe implementing agencies will include the project in their annual audit work programs and perform the necessary internal audit on the project financial transaction.

Fund Flows and Disbursement Arrangements

The proposed IDA-supported project will provide funding to MoWR, which will the main implementing agency, together with other federal and regional implementing agencies (who will receive funding channeled through Mom).

Disbursement Mechanism The project may follow one or a combination of the following disbursement methods: Designated Account, Direct Payment, Reimbursement and Special Commitment. .

Designated Account and Disbursement Method: To facilitate project implementation and reduce the volume ofwithdrawal applications, MoWR will open a Designated Account denominated in US Dollars in the National Bank of Ethiopia on terms and conditions acceptable to IDA. A correspdnding Local Account in ETB will also be opened to receive transfer from the USD account. MoWR will manage the USD and ETB accounts. The local account in ETB would finance all eligible project expenditures at MoWR and would be used by MoWR to transfer funds to other implementing agencies. MoWR (NPCU) will transfers funds directly to BoARD, BoWRD and EPLAUA and RIPA. NPCU provides on the transferred amount to BoWRD. The

85 authorized ceiling of the designated account would be US$ 3 million. The amount has been calculated to cover approximately four months expected expenditures ofthe project. Each of the other implementing agencies, such as BOW,BoARD, EPLAUA, RIPA and woreda finance offices, will open a Birr account to receive funds from MoWR. Advances to these agencies from MoWR will be based on the approved work plan. The initial advance will cover four months expected expenditures and the subsequent transfer will be based on actual expenditures justified through statement of expenditures, and will only be made to those agencies that provide regular financial reports to MoWR. Before transferring any money to the lower levels, MoWR will ensure that separate bank accounts have been opened and there are adequate financial management systems including financial management staff capable ofproducing the required financial deliverables

The fund flow arrangement for the project is summarized in the following chart: 1 IDA Credit Account I

Designated Account in b Birr account at USD at MoWR ------_ MoWR

Birr account at BoARD Birr account at Birr account at each of BoWRD (RPCU) EPLAUA and RIPAs

Woreda Finance offices

Flow of funds ------., Reporting Disbursement of IDA funds to the Designated Account opened at NBE will initially follow Transaction- Based Disbursement through the use ofstatement ofexpenditures (SOE). In order for the project to move from transaction-based disbursements to report based disbursements, where six monthly forecasts of expenditure are paid quarterly hence ensuring the project has adequate funding at all times, TBIWRDP will have to meet the following requirements during implementation: (a) sustain satisfactory financial management ratings during project supervision; (b) submit Interim Financial Reports consistent with the agreed form and content within 45 days of the end of each reporting period, and (c) submit all expected Audit Reports by the due date

The allocation of IDA Credit Proceeds will be based on the project components. Such an option will facilitate the monitoring of the project performance indicators as well as financial aspects since expenditures are directly allocated to components. Request for replenishment of the Designated Account

86 for expenditures incurred under each component will be based on funds incurred at federal level or funds transferred to implementing agencies for which justification of utilization has been provided.

MoWR will be responsible for paying to contractors, service providers and suppliers for all works done in its Ministry. Likewise, the Amhara BoWRD, BOARD,EPLUA, RIPA and woreda finance offices will be responsible for effecting payments for all works done in their offices.

Reuortinn on use of Credit Proceeds and SOE limits

Disbursements for all expenditures should be made against full documentation except for contracts valued at less than (i)US$ 500,000 for works; (ii)US$ 200,000for goods; (iii)US$ 100,000 for consulting firms and (iv) US$ 50,000 for individual consultants as well as operating costs which will be claimed on the basis of Statement ofExpenditures (SOEs). All supporting documentation for SOEs will be retained at the Mom, each of the other implementing agencies where financial transactions occurred. They will be kept in a manner readily accessible for review by regular IDA missions and internal and external auditors. The statement ofexpenditures shall be submitted on a monthly basis.

The supporting documentation for reporting eligible expenditures paid from the Designated Account will be summary reports and records evidencing eligible expenditures for payments against contacts valued above the SOE thresholds defined above. The supporting documentation for direct payment requests should be records evidencing eligible expenditures (i-e., copies of receipts, suppliers’ invoices, etc). The project will submit a bank statement and a reconciliation of the Designated Account together with the Withdrawal Application on a monthly basis

Minimum value of Application

The minimum value ofapplication for Direct Payment and Special Commitment will be US$ 100,000.

Counterpart Funding

The project would be supported by a grant of Euro 5 million ($8 million) from the Government of Finland. The contribution of the Government of Ethiopia will be $ 5.38 m and community contribution estimated at $11.47 million.

87 Allocation of Credit Proceeds

Category Amount of the Percentage of Expenditures to be Credit Allocated Financed (expressed in SDR) (inclusive of Taxes)

(1) Works, goods and 24,800,000 100% services, consultant’s services (including audits), and training

(2) Operating Costs 2,000,000 100%

(3) Refund ofPPF advance 600,000 100%

TOTAL AMOUNT 27,400,000 100%

Financial Reporting

Financial reports will be designed to provide quality and timely information on project performance to project management, IDA and other relevant stakeholders. The existing accounting and reporting systems of MoWR and other implementing agencies are capable ofproducing the required information regarding project resources and expenditures. Duties of each implementing entity in the preparation of the regular financial reports are explained below.

Based on the regular reports received from BoWRD and other Bureaus, it is the responsibility of MoWR to prepare consolidated quarterly Interim un-audited Financial Reports (IFRs) and consolidate annual accounts and facilitate the external audit ofthe consolidated accounts. . BoWRD, BoARD, EPLAUA and RIPA will each be responsible to submit regular financial reports to MoWR on a quarterly basis. . Woreda finance offices will be responsible to prepare and submit to BoARD quarterly reports. BoARD will consolidate these reports and submit the consolidated reports to BOW.

Formats of the interim financial reports for this project will be developed by MoWR and will be agreed with IDA during project negotiation. In addition, the formats will be included in the financial management manual ofthe project.

On the basis offinancial reports received from the relevant implementing agencies, MoWR will submit a consolidated IFR to IDA within 45 days after the end of each quarter. As explained above submission of regular financial reports to the higher tiers will be conducted within the timefiame prescribed in the financial management manual. The consolidated IFR by MoWR shall include, at a minimum, the following: statement of sources and uses of funds; statement of expenditures classified by Project components and or disbursement category (with additional information on expenditure types and implementing agencies as appropriate) showing comparisons with budgets for the reporting quarter and cumulatively for the project life; cash forecast; and explanatory notes to the IFR. In compliance with International Accounting Standards and IDA requirements, MoWR will produce annual financial statements. These include: (i)a Balance Sheet that shows Assets, Liabilities and fund balance; (ii)a Statement of Sources and Uses of Funds showing all the sources of Project funds,

88 expenditures analyzed by Project component and or category; (iii)a Designated Account Activity Statement; (iv) a Summary of Withdrawals using SOE, listing individual withdrawal applications by reference number, date and amount; and (v) Notes related to significant accounting policies and accounting standards adopted by management and underlying the preparation of financial statements. These financial statements will be submitted for audit at the end ofeach year.

Auditing

The Office ofthe Federal Auditor General (OFAG) is responsible to carry out the audit ofall the financial transactions of the federal government and subsidies to the regions. Each of the regions has regional auditor general responsible to audit financial transactions in the region. OFAG usually delegate its responsibility mostly to the Audit Services Corporations, the government owned audit firm, and in some cases to private audit firms to carry out the audit of donor-financed projects. For this project, OFAG will assign external auditors acceptable to IDA. MoWR should prepare the audit TOR before Negotiations. In addition, the project auditors should be recruited within 6 months after the project effectiveness.

According to the audit policy of IDA, MoWR NPCU will prepare consolidated project accounts, which include all the sources from donors and the government and related project expenditures, and the auditors will express a single opinion on the consolidated Project accounts. The audit reports will be submitted to IDA six months after the end ofeach fiscal year (which ends on 7 July ofeach year) by January 7 ofeach year (starting 2010). MoWR and the Bank have agreed on the terms of reference for the audit and will sign the external audit contract six months after project effectiveness.

Supervision Plan

A financial management supervision mission will be conducted over the Project’s lifetime. Due to the fiduciary risks associated to this project, more supervision mission’s budget will be allocated in order to increase the frequency of controls. At least three supervision missions are planned during the first two years of the project implementation to ensure that adequate and effective financial management systems are set up and maintained for the Project throughout its lifetime. It also envisaged join-supervision missions with procurement staff to strengthen the Bank control and support. A review of the project expenditures will be camed out regularly (as part ofthe scope ofeach supervision mission) to ensure that expenditures incurred by the Project at all levels remain eligible for IDA funding. The Implementation Status Report (ISR) will include a financial management rating for the project.

89 Financial Management Action Plan - No Action to be taken Expected Responsible body completion date 1 Preparation ofa Financial Management Effectiveness MoWR Manual for the project and provided training and workshop on the FM Procedures manual and specific internal control, accounting and reporting procedure ofthe - project.. 2 Recruitment of a Financial Management Effectiveness MoWR and BoWRD Specialist at MoWR (NPCU) and hiring of and BOARD one additional Accountant at BoWRD (RPCU) - 3 MoWR completed (contract signed) project effectiveness -

Minimum Value of Applications

The minimum value for Direct Payment and Special Commitment will be USD 100,000.

Conditions 1. The adoption ofa Financial Management Manual and provision of training on the manual and financial management arrangement is an effectiveness condition ofthe project. The manual should incorporate adequate financial management system to record and report the financial transactions of the project. 2. By effectiveness, the project key FM staff at the MoWR NPCUand Amhara BoWRD (Amhara RPCU) should be on board. Financial Covenants

1. MoWR will submit the audited project accounts to IDA six months after the end ofeach Recipient fiscal year. The fiscal year ends on 7 July ofeach year. 2. MoWR, after receiving the financial reports fiom all implementing agencies, will submit interim un-audited financial reports to IDA forty-five days after the end ofeach quarter. Conclusion

The project’s financial management arrangement satisfies the Banks minimum requirements.

90 Procurement Environment

Public sectors procurement in Ethiopia follows the Federal structure of the government. Procurement at Federal level is governed by proclamation no. 430/2005, 'Determination procedures of public procurement and establishing its supervisory agency proclamation of the Federal Democratic Republic Government of Ethiopia' dated January 12, 2005 and the Federal Public Procurement Directive of July 2005. The proclamation has been reviewed by the World Bank and found to be satisfactory.

Following the proclamation and directive the Public Procurement Agency of the Federal Government prepared Standard Bidding Documents (SBD) for procurement of works, goods and selection of consultants and distributed to Federal and Regional Government bodies.

Procurements at regional and woreda level are governed by their respective regional code. Subsequent to the Federal Government enactment of the code, Addis Ababa City Administration and all the regions except Harari and Afar enacted their respective code, based on the model law prepared by the Federal Public Procurement Agency. Harari and Afar regional states are expected to prepare and ratify their respective code shortly. The codes proclaimed by the regions or city administration needs to be followed by directive, and establishment of the independent regulatory agency for effective implementation. It is noted that, though the codes ratified by the regional states and city administration were prepared on the basis ofthe model law provided by the Federal PPA, the code ratified by some ofthe regions has not had the provisions for establishment ofindependent regulatory agency.

The Country Procurement Assessment Report (CPAR) done in 2002 identified weaknesses in the country procurement system. The Government has taken the aforementioned actions based on the recommendation ofthe CPAR. The main outstanding issue in public procurement at all levels is the lack ofcapacity. The main areas ofconcern include: i)building procurement capacity including having trained and qualified procurement officers in place and an appropriate institutional and decision making structure; (ii)ensuring that awareness is created on the applicable procedures and rules at each woreda, including availability of standard procurement documents; and (iii)establishing andor strengthen federal and regional public procurement agencies; and iv) Monitoring and Evaluation of procurement activities including procurement reviewdaudit.

A. General

Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 Revised October 1, 2006; and "Guidelines: Selection and Employment ofConsultants by World Bank Borrowers" dated May 2004 Revised October 1, 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed between the Recipient 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.

Procurement of Works: Works procured under this project would include: Small scale irrigation schemes, including diversion weirs, farm structures, canals etc; construction of buildings; maintenance

91 and renovation of Buildings, and other water shed development works. The procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank. To the extent practical, contracts shall be grouped into bid packages estimated to cost the equivalent of US$l,OOO,OOO or more and would be procured through ICB procedures. The bidding documents shall include a detailed description of the works, including basic specifications, the required completion date, basic forms of agreement acceptable to IDA and relevant drawings where applicable. Specific procedural details can be found in the Project Implementation Manual. Works estimated to cost less than US$l,OOO,OOO per contract may be procured using National Competitive Bidding (NCB). Direct Contracting may be used for works in exceptional cases, according to paragraphs 3.6 and 3.7 ofthe Guidelines. Shopping may be used for with estimated values of less than US$50,000 in accordance with paragraph 3.5 of the Guidelines. All ICB procurement would be done at MoWR. The Regional Bureau of water resource and Bureau of Agriculture and Rural Development may do NCB procurements.

Watershed development works may involve large number of small scale labor intensive sub projects or “community participation” works that would be carried at kebele andor community level. These works will be carried out under the direct supervision of the woreda technical teams. Subprojects would be contracted using simplified bid documents acceptable to the Bank. Works executed using community participation would follow Section 3.17 ofBank procurement guidelines. Details ofprocedures to be used under community participation for award, management and supervision of contracts, in addition to sample bid documents for contracting subprojects and contracts will be included in the PIM.

Procurement of Goods: Goods procured under this project would include: Office furniture, office equipment, vehicles, Hydro-metrological equipment, camping equipment, and workshop tools. The procurement will be done using the Bank’s SBD for all ICB and National SBD agreed with or satisfactory to the Bank. To the extent practical, contracts shall be grouped into bid packages estimated to cost the equivalent of US$200,000 or more and would be procured through ICB procedures. Goods and Equipment contracts estimated to cost less than US$200,000 per contract may be procured using NCB and national SBD agreed with or satisfactory to the Bank. Direct Contracting for goods may be used in exceptional cases, such as for the extension of an existing contract, standardization, proprietary items, spare parts for existing equipment, and emergency situations, according to paragraphs 3.6 and 3.7 of the Guidelines. Shopping may be used for contracts with estimated values of less than US$50,000 in accordance with paragraph 3.5 of the Guidelines. Procurement from United Nations Agencies may be used for contracts with estimated values ofless than US$lOO,OOO in accordance with paragraph 3.9 ofthe Guidelines. All ICB procurements would be done at MoWR. Amhara BoWR or BOARDwould do procurements approved for NCB and shopping methods. Woredas would procure goods approved for shopping method.

Selection of Consultants: Consultant services under the project would include: feasibility studies, technical support services, investment preparation and promotion, surveys, social and environmental assessments, technical assistance, and financial and technical audits. Most contracts with firms will be awarded through the use ofthe QCBS described under section I1 (2.1-2.3 1) ofthe Consultant Guidelines, using the Bank’s Standard Request for Proposals. Consulting Services for audit and other contracts of a standard or routine nature may be procured under the LCS method described under paragraph 3.6 of Consultant Guidelines. Consulting assignments costing less than US$100, 000 may be procured using CQS described under paragraph 3.7 of Consultant Guidelines. Single source selection can be used to contract firms for assignments that meet the criteria set out under paragraphs 3.9 to 3.13 ofthe Consultant Guidelines. Contracts for ICs will be done by comparing the qualifications ofat least three candidates, in accordance with Section V ofthe Consultant Guidelines.

92 Short lists 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. All selections of consultants involving foreign firms or for assignments with estimated cost exceeding USD 200,000 would be carried out at MoWR.

Operating Costs: Expenditures made for operational costs such as fuel and stationery will follow Ethiopian Government practices in accordance with the Federal Public Procurement code and Directives released on July 2005 or, whenever those Directive do not apply, commercial practices commonly used for the same purposes.

Standard Bidding Documents and Manuals: The Bank’s standard bidding documents will be used for all tenders for procurement of goods and works under ICB. Domestic preference would be applicable under ICB in accordance with paragraphs 2.55 and 2.56 of the Bank’s guidelines. The Federal Government’s standard bidding documents for procurement of goods and works for NCB were reviewed by the Bank and found to be generally consistent with the Bank’s guidelines and procedures. However, some provisions in the Government’s standard bidding documents need to be adjusted to ensure that the documents are fully compatible with the Bank’s guidelines. The standard documents of the government can be used for procurement of goods and works provided that: (i)the governments’s standard bid documents for procurement of goods and works shall be used; (ii)if pre-qualification is used, the Bank’s standard prequalification document shall be used; (iii)margin of preference shall not be applicable; (iv) bidders shall be given a minimum of 30 days to submit bids from the date of availability of the bidding documents; (v) use of merit points for evaluation of bids shall not be allowed; (vi) the process does not preclude participation by foreign bidders; and (vii) results of evaluation and award of contract shall be made public.

The procurement procedures applicable to the project shall be outlined in the Project Implementation Manual (PIM). The SBDs to be used for procurement of goods and works using NCB that are revised as per Bank comments would be provided to each implementing agencies in the PIM.

B. Assessment of the agency’s capacity to implement procurement

The Ministry of Water resource through Basin Development Study and Water Utilization Control Department would have the overall responsibility of coordinating project implementation as well as procurement activities of the project. Amhara BoWR and BoARD would also carry out procurements at regional level.

Ministry of Water Resource Contract Administration Department will be responsible to carryout works procurement and selection of consultants, and Property and Equipment Administration Department for goods procurement. The responsibility to coordinate and facilitate efficient procurement implementation rests with Basin Development Study and Water Utilization Control Department. Hence the department would devise appropriate mechanism to monitor the projects’ procurement activities under Contract Administration and Property and Equipment Administration Departments. The procurement specialist assignedrecruited under the project coordinating office would liaise and work with these departments on a day to day basis. .

Amhara Bureau of Water Resource (BoWR) and Bureau of Agriculture & rural development (BoARD) will be responsible for procurement activities of their respective componenthb-component of the project. The BoWR should recruit a qualified procurement specialist, who has at least first degree in relevant discipline and training on WE3 procurement procedures. The BoARD would use the procurement staff recruited for the Irrigation and development project, financed by the Bank.

93 Regional project coordinating office responsible for coordination of regional implementing bureaus will not be involved in day to day procurement activities. Procurements required by the regional coordinating office, if any, would be carried out in coordination with and by either of the regional implementing agencies, except for miscellaneous operational expenditures.

An assessment of the capacity of the Implementing Agencies to implement procurement actions for the project has been carried out by Abiy Admassu on January 17, 2008 at MoWR & January 23, 2008.at BoWR & BOARD.The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the Ministry’s relevant central units for procurement management.

MoWR

The Contract Administration department has been handling a number of selections of consultants and limited works contract financed by African Development Bank and other donors, including the WB. The department has not had staff specifically assigned to canyout procurement. It is reported that normally projects through their coordinating office prepare bidding documents as per the donors requirement and the department handles the day to day procurement activities - like sales of bidding documents, receipt of bids, arranging bid opening ceremonies, etc. and the department head serves as chairman of tender committee and oversees the overall process. Technical evaluations are done by technical committees formed on an ad hoc basis for selection of consultants where project head’s playing the chairman’s role. MoWR at present is engaged with a number of donor financed projects related to water resources development.

Property and Equipment administration department has been handling several goods procurement through ICB, NCB & other procurement methods. The Department handled all MoWR goods procurement whether it is financed from the Government resource or donors. It is reported that, the practice followed by the beneficiary departments is simply to forward their requirement and wait until the process is completed, and the goods are delivered. Projects Offices have no room either to participate in the decision making process or the opportunity to air their concerns. It is apparent that such arrangements would deprive the Project Offices from obtaining critical information for timely intervention, if required.

BoWRD

Preparation of tender document is a collaborative effort of the Bureau’s different department. Upon the request of beneficiaries, Study & Design department will prepare terms of reference; specification; and designs. The Contract Administration Department will prepare tender documents for works procurement and selection of consultants, while the Procurement, Machinery & Material management services takes care of goods procurement. Once the documents are prepared the procurement service handles all day to day procurement activities - like sales of bidding documents, receipt of bids, arranging bid opening ceremonies, etc, and would serve as secretary of tender committee. There are no standard bidding documents applicable for the bureau, the documents currently used by the bureau has been derived from the SBDs’ ofthe Bank and other donors.

The Bureau’s tender committee is composed of representatives from the Bureau’s five departments, and has the mandate to review bids irrespective of the bid amount. The tender committee will propose award recommendation for the bureau’s head. When required, technical evaluation is done by technical committees formed on an ad hoc basis, and it includes at least a member Erom the beneficiary department. After contract award the procurement service would continue administering goods contracts while the Contract administration department takeover the contract administration works of consulting and works contracts.

94 The Bureau’s Procurement service responsible for the day to day procurement activities has a procurement head and two purchasers. The procurement head has attended WB procurement training conducted at the MoWR for the procurement of goods and selection ofconsultants. However, he does not have hands on experience on ICB procurements. It is learned that the Bureau has not done procurements or selection of consultants involving foreign bidders/consultants. The bureau had procured several goods procurement for towns’ water supply - such as Generators, pumps, pipes & fittings, chemicals, etc where it requires importation of goods. However, instead of using ICB & importing the goods, the bureau processed the bids under NCB where participation was limited to national suppliers. Moreover, the Bank’s experience in implementing procurement of goods in other Bank financed project - such as Water Supply and sanitation project is not satisfactory. It is recommended to recruit a qualified procurement specialist that will handle both this and I& D project which was effective in January 2008.

BOARD

The Bureau’s Purchasing, resource management and transport service has been responsible for the day to day activities of the bureau’s procurement, starting from preparation of bidding documents to contract administration of the procured goods and distribution to the beneficiaries. Most of the bureau’s procurement is related to agricultural inputs and office supplies, and procured through NCB method. The bureau prepares NCB bids using the national language - Amharic, and the document is found to be sub- standard and incomplete. It is learned that the bureau does not have experience in preparing bidding documents in other international language and has not been involved in any ICB bids.

The Bureau’s tender committee is composed of representatives fiom the Bureau’s five departments, where the purchasing head serves as a secretary. The committee has the mandate to review bids irrespective ofthe bid amount.

The Bureau’s Purchasing, resource management and transport service has a head and two purchasers - who have diploma in business administration. None of the staff have attended the WB or other donor financed procurement training.

The overall project risk for procurement is high. Most of the issues/ risks concerning the procurement component for implementation of the project have been identified and include: i)Weak capacity & non availability ofspecific procurement staff accountable for the day to day project procurement activities, ii) Loose organizational linkage b/n the project coordinating office and the departments responsible to carry out procurements MOWR, iii)though MoWR & BoWR office had experience with other donors financed procurements its experience in WB financed project is very limited, iv) use of un acceptable procedure - such as merit points are used for procurement of goods, v) Poor records management - documents are available but filed haphazardly, vi) the salary structure is not attractive to gethetain qualified staff, vii) delays in evaluation of technical proposals - since most members of technical evaluators are department heads and are busy on other assignment. The corrective measures which have been agreed to address the procurement risk are:

Item Expected Activity Responsible No. Completion Date 1 Assigdrecruit procurement staff that have/equipped with the MoWR, BOARD, before effectiveness necessary skill to handle works and selection ofconsultants. & BoWRD 2 Lay out a monitoring system that would enable PCO to MoWR before effectiveness monitor flow ofprocurement activities both at Property & should be outlined in equipment administration and Contract administration PIM department. Item Expected Activity No. 1 I Completion Date A procurement orientation workshop will be conducted for MoWR/BoARD/ Project launch staff at MoWR, BoARD, BoWR, and Woredas that are BoWR, should involved in the procurement decision-making process organize in including tender committee members, Division Heads, consultation with Department Heads. The Orientation would be conducted the CO during launch ofthe project. Provide checklist ofrelevant procurement documents for MoWR/BoARD/ by effectiveness proper records management, Devise a proper procurement BoWR management, Evaluation and decision making system. The applicable procedure should be defiied in the PIWprocurement Manual. Ensure that procedures and documents necessary for MoWR/BoARD/ before effectiveness implementing subproject and works to be done by BoWR, including “community participation is adequately described in the Bank Team.

C. Procurement Plan

The Recipient, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. The plan has been agreed between the Recipient and the WB on April 11 , 2008 and is available at MoWR (National Project Coordination Unit) and Amhara BoARD & BoWR. It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended yearly two supervision missions to visit the field to carry out post review ofprocurement actions.

E. Details of the Procurement Arrangements Involving International Competition

Goods, Works, and Non Consulting Services

(a) List of contract packages to be procured following ICB and direct contracting:

1 2 3 4 5 6 7 8 9

Review Expected Domestic Ref. Contract Estimated Procurement by Bank P-Q Preference Bid- Comments No. (Description) cost Method (Prior / Opening (yes/no) post) Date6 ITHardware and ,ooo,ooo . ICB No Yes Prior Aug 25/08 1 Software AudioNideol 2 Communication 272,500 ICB No Yes Prior Aug 25/08 Equipment

Where applicable the bid opening dates are for the fist package.

96 -1 2 3 6 9

Review Expected Domestic Ref. Contract Estimated Procurement by Bank Bid- Preference Comments No. (Description) cost Method (Prior / Opening (yeslno) Post) Date6 Lake Monitoring 3 200,000 ICB No Yes Prior Aug 30/08 Equipment 1 1 Basin Monitoring 4 200,000 Yes - Equipment Laboratory 200,000 Yes 5 Equipment Weather Radar 230,000 ICB No Yes Prior Aug30/08 6 Equipment I I Geophysical 7 100,000 Yes Jul 5/08 - Equipment -8 4WD Vehicles 1,320,000 Yes 9 Motorcycles 265.000 Yes Earth Moving 10 120,000 Yes Prior Feb 09 - Machinery Lake Monitoring 11 32,000 Jun 15/09 Boat Monitoring/ 12 Emergency Response 48,000 Shopping No Jun 15/09 Boats 7 Tana Sub-Basin Organization 200,000 NCB 1 No Post 1 Nov28/08 Building Laboratory/ workshop 14 300,000 ;m; Nov28/08 - buildinghpgrading 1 15 Office upgrading 450,000 Nov 28/08 Watershed Management related 16 500,000 NCB Prior Dec 25/08 Water Supply Source No Development I Project Management 17 50,000 - Building Upgrades Investment Agency 18 100,000 Building Upgrades Measurement-related 50,000 NCB No Post Dec 28/08 19 civil works I I

(b) ICB contracts estimated to cost above USD 200,000 per contract for goods, USD 500,000 per contract for works, and all direct contracting will be subject to prior review by the Bank.

Consulting Services

1 2 3 4 5 6 7

Ref. Description of Estimated Selection Review Expected Comments No. Assignment cost Method by Bank Proposals (Prior / Post) Submission Date 1 Integrated Water 1,000,000 QCBS Prior Dec 05/08 Resource Information System Development

97 3 4 5 6 7

Description of Estimated Selection Review Expected Comments Assignment cost Method by Bank Proposals (Prior / Post) Submission

Sector Investment

I I I I 2,000,000 I QCBS I Prior 1 Dec 05/08 I Plannedfor GoF financing 800,000 QCBS Prior Dec 05/08

(b) Consultancy services estimated to cost above USD 100,000 per contract and single source selection of consultants (firms) for assignments estimated to cost above USD 50,000 will be subject to prior review by the Bank. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than USD 200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines.

98 ETHIOPIA: Tana & Beles Integrated Water Resources Development Project

Background: This project is directed at improving the management of water resources that are vital to the development of Ethiopia generally and the Amhara region in specific. The financial and economic analysis in this report demonstrates that investment capital spent improving water management through building institutions, implementing effective, efficient and sustainable water resource strategies for promoting growth and development is critical to protecting and improving livelihood systems.

The results of the financial and economic analysis demonstrate in several ways that there is a clear economic rationale for investing in improved water resources management and related development in Ethiopia. The benefits to the nation generally, and in particular to the region in which this project is implemented, derive primarily from losses avoided due to the impacts of floods and droughts, and economic gains from maintenance ofwater quality and watershed environments. The project will provide the information and institutional base needed to prepare and support a long term investment program rooted in improved water resources management. Critically, the experience will inform the policy dialogue on future growth and development strategies throughout Ethiopia, especially those investments linked to and affecting sustainable use ofits water resources.

The components of the US$69.85 mn.(including contingencies) project are as follows: aJ Institutional Infrastructure Investments for Sub-basin Planning. Management and DeveloDment (US$17.6 lmn). There are two emphases in this component, (i)the establishment of a Water Resources Information System (US$11.66mn) and (ii)the building of Resource Planning and Management Capacity (US$5.95mn) related to efficient, effective and sustainable use of water resources in the Tana and Beles Sub-basins, specifically establishing Sub-Basin Organizations. b) Natural Resource Management Investments in the Tana Sub-Basin (uS$40.83 rnn). There are two key activities being supported (i)Watershed Development (US$35.08 mn), which will support entry-point activities and investments to support water and land resources management for improvement of livelihoods and (ii)Flood Management (US$5.75mn), which will support community based flood risk management, mainly non-structural approaches to managing the impacts of floods in two areas around Lake Tana (Dembiya, Lib0 Kemkem, Fogera, and Dera Woredas and the City of Bahir Dar). c) Growth-Oriented Investment Facilitation (US$9.17 mn) which will include (i)the preparation and facilitation of investments to promote sustainable growth in the Tana/Beles area (US$7.74 mn) and (ii)Development Agency support (US$1.43 mn) for existing government bureaus such as the Amhara Investment Agency and the Bureau of Trade and Industry. d) Proiect Management /US$2.24mn), which will support overall project planning, coordination and management.

This financial and economic analysis ofthe project is presented in three sections. Firstly, an assessment of the largest component of the project, the Natural Resource Management Investments in the Tana Sub- Basin related to Watershed Management. Secondly, the other aspect ofthe Natural Resource Management Investments related to Flood Management interventions. These analyses are largely quantitative in nature and present comparative financial and economic results that reflect the efficient use of capital. Thirdly, the Institutional Infrastructure Investments for Sub-basin Planning, Management and Development(US$l7. lmn), and the Growth-Oriented Investment Facilitation (US$9.2mn) components are analysed together, using data and information emphasising the costs related to the absence of sustainable management and worse inaction, as well as benefits ofpotential growth in the area.

99 Section 1 - Watershed Development (US$35.O8mn)*

Description of Intervention

This component undertakes critical investments to improve the natural resources management in the Tana sub-basin and includes support for sustainable watershed development investments covering about 80,000 ha in the %bb, Gumara, and Jamma sub-watersheds in the Lake Tana sub-basin. The main activities will support activities under three thematic areas - livelihood improvement, natural resources management (soil and water conservation, afforestation, and ago-forestry), and capacity development.

The livelihood improvement interventions (- $12.7mn) include a variety of entry point activities characterized by involvement and empowerment for the local community. Through strengthening of the farmer training centers, demonstration and training activities there will be improved systems for crop and livestock production, and sustainable land use. Physical linkages with the various markets will promote the production ofhigh value crops increasing household level incomes. Improved livelihoods will also be promoted through off-farm income activities, providing seed money for entrepreneurial activities by the families within the project area.

The Natural Resource Management interventions (-$14.9 mn) include Community Action Plans and Participatory Land Use Plans leading to implementation of outcomes affecting improved land management, water use and forestry activities. In terms land management activities would include land closure on the steep and bad-lands, cutoff drains, check dams in steep watercourses, closing off gullies, stone faced bunds, and hedgerows. Improved water harvesting systems will be introduced for household use, livestock and supplementary irrigation. The Community Land Use plans will also establish and enforce community based rules and regulations for the existing forests.

There will be specific Capacity Building interventions (-$7.7mn) under the Watershed Development component, establishing and training participatory integrated management teams to implement project activities at the woreda and kebele level. Farmer training centers, existing cooperatives and relevant offices will be equipped to facilitate successful delivery oftraining programs.

Methodology for Analysis

This watershed development component of the project represents the most readily measurable and direct benefits associated with the project. This sub-component of the investments in natural resource management comprises 50 percent of Project costs. When the flood management component, addressed in the next section of the report is included the investments in natural resource management comprise almost 60 percent ofProject costs. The major purpose ofthe financial and economic analysis conducted on these two natural resource management sub- components is directed at evaluating the efficiency in using capital resources from a private financial investment standpoint on the one hand and a broader economy wide consideration on the other. This is done through comparing project costs to project benefits and deriving indicators such as the present value of the investment, benefit-cost ratio, financial and economic rate of return. The financial and economic analysis done in this section builds on work completed by the Halcrow Group in a background study on Integrated Watershed Management (Ethiopia) as a part ofthe Eastern Nile Regional Project.

* The costs ofall the components used in the analysis are all marginally different from those finally agreed to after the negotiation. However the difference is so small that they do not alter the economic and financial analysis to any significant extent.

100 Watershed Development Costs

In the context of Watershed development the analysis compares the cost of the interventions for improving the watershed with net benefits derived from the interventions. As indicated above the costs include both strictly watershed development activities (improved land and water use, soil and water conservation activities (SWC)) as well as livelihood system improvements. Thus, references to gross assessments of watershed costs per hectare need careful attention to make sure similar factors are being compared. The costs (and benefits) are assumed to result from interventions that affect around 80,000 ha (80,000 farmers). The cost estimates for the soil conservation, water supply, irrigation and social services were prepared based on the detailed study undertaken by the Halcrow Group of sample micro watersheds selected within the Ribb, Gumera and Jema river sub-catchments. The cost estimates were averaged out on a cost per hectare or Kebele basis for each ofthe three river sub-catchment areas. Based on these, the cost estimates of the various components of the proposed project integrated watershed development programme were scaled up separately for each sub-catchment to derive costs covering the total affected project area of approximately 80,000 ha. Table 1 below shows total capital cost estimates for the watershed development components. Beyond year 5 ofthe project recurrent costs were approximately 20 percent ofannual capital costs during the project period.

Table 1: Watershed Development Costs US$m Livelihood Strengthening I 12.7 SWC Activities 14.9 Capacity Buildmg 7.7 Total Costs 35.5

Watershed Development Benefits

Based on improvements to one hectare representative mixed farming systems the main benefits from the watershed development interventions are derived as sustained increases in household incomes. The sources of the increased incomes are increased crop and livestock productivity, a small increase in cropping intensity due to the expansion of irrigated land, some minor but important shifts in cropping patterns in favour of specific fruits, vegetables and pulses, and added value of improved ago-forestry activities.

The current work has prepared and revised farm budgets to estimate net benefits that arise from interventions over the 5 years of the project period. The assumption is that during this period a typical farm with a cropped area of 1.0 ha. will, based on improved soil and water conservation measures and livelihood strengthening interventions , modify its crop and livestock production systems (for different estimated levels of inputs) and that productivity levels will rise at one percent per year throughout the project period. This is much more conservative than the Halcrow background study and is very attainable, especially given historical yield increases in Ethiopia. For the financial analysis current prices were used for the farm budgeting exercise. For the economic analysis current market prices were revised by applying relevant conversion factors. In the case oftraded commodities (selected output and inputs such as fertilizer) import/export parity prices were generated. For non-traded commodities generally, market prices were converted to border prices by applying a standard conversion factor of .9. The cost of unskilled labor was adjusted by a factor of .63 to reflect a shadow wage rate. The farm budgets, including crop and livestock, were generated in both financial and economic terms and aggregated into total net agncultural returns (financial prices) and benefits (economic prices). Together with the benefits from the forestry activities these reflected to project’s benefit cash flows. A discount rate of 10% (as used in other

101 World Bank funded projects in Ethiopia) was used for the Net Present Value calculations. Financial and economic rates of return were generated. These rates were then subjected to sensitivity analysis varying mainly cost, price and productivity factors.

The limitations to the financial and economic analysis of the watershed activities derive largely from the benefits that are not readily quantifiable such as the gains from decreased soil erosion. Despite the confidence associated with the assumptions made on apcultural productivity changes that will occur during the period of the project it is important to recognize that these are greatly dependent on the effectiveness of the interventions and the extent of adoption by the farming community of the improved agricultural practices. The input coefficients and price information used in building the farm budgets which drive the analysis were verified at several points and can be considered to be robust.

Results of Financial and Economic Analysis

The results of the financial and economic cost-benefit analysis for the soil and water conservation sub- component interventions are very positive. The financial internal rate of return is 23.6% with an associated benefit-cost ratio of 2.35 and a net present value ofBirr$434.2 mn . The economic internal rate ofreturn is 24.2% with a benefit-cost ratio of2.48 and a net present value ofBirr $374.7mn.

Net Farm Household returns on the basis of one representative hectare, at present, without and with the project, for each ofthe watershed areas are shown in Table 2.

Pres en t Future Wiout Project Future With Project Jema 4,391 4,033 7,394 Gumera 4,647 4,350 7,805 Ribb 4,557 4,259 7,696

In each area the traditional food security crops, teff, maize, wheat, barley, finger millet, account for approximately 70% of the land allocation per hectare, with the remainder being pulses, vegetables, oilseeds and root crops(Tab1e 3). The main change in the cropping system was a slightly larger area being allocated to vegetables, from .01 ofa hectare presently to .04 ofa hectare with the project.

Table 3: Land Allocation per Hectare I %of Cu'ltivatedArea I Annual Crops IPreSW 1Futu6 Without ProJdFutureWith Project 1 Teff I 25 511 25.51 I 24 231

...... Temperate Fnrit (Papaya) I 0.001 0.001 2.00 Cropping Intensity I 100.001 100.001 105.00

Table 4 presents the changes in the yields, annual cropped area and crop production from the present situation, the case without the project and with the project. It is important to underline the conservative assumptions related to yield and cropping system changes.

Table 4 : Yield and Annual Crop Production In the Project Area (Tonnes)

102 Food security crops continue to occupy 70 % of the hectare and the increase in land devoted to vegetables for instance is from 1% to 4 %. Yet, cropping pattern changes, placing a small amount of area under high valued crops are the main contributing factor to the increased overall incomes and gross margins realized under the with project situation. This is in fact happening already in the project area with onions. Table 5 shows the difference in financial and economic gross margins for the farm budgeting evaluation.

Sensitivity analysis was conducted on the cost-benefit results varying intervention costs, output prices, and yields at several percentage levels. On the base case an increase in costs as much as 50% would still result in the economic returns to capital being 16.9 %. Price declines of 10% resulted in a financial and economic rate of return of 20.4% and 20.9% respectively. A price decline of 10% and a cost increase of 20% resulted in a financial and economic rate of return of 17.3% and 17.8%. With an assumption that there will be no yield increases the financial and economic rates of return were reduced respectively to 14.8 % and 14.2%. Table 6 presents results ofthe base case and some ofsensitivity analysis completed.

Price Decline 10% 20.41 326,261 I 20.9) 2.1

Section 2 - Flood Management (US$5.9 mn)

Description of Intervention

The flood management sub-component interventions directly support community-based flood management and adaptation in the flood-prone areas around Lake Tana. Flooding occurs in this area every year from Lake Tana or from flows ofthe Ribb, Gumera and Megech fivers that are tributaries into the lake. Dembiya, Lib0 Kemkem, Fogera, and Dera Woredas and the City of Bahir Dar, all adjoining Lake Tana are the main flood risk areas. The most significant benefits gained from this component ofthe

103 Project occur in the face oflarge floods as experienced in 2006 to which the population tends to be highly vulnerable. The local population has some adaptive capacity for low level flooding and have resigned to living with the benefits and costs ofthe annual flooding.

The degradation of water catchments, siltation of water storage facilities, pollution of surface and groundwater, eutrophication of lakes and other water systems call for a variety intervention measures to better manage water resources. This sub-component has strong linkages with the Water Resources Information System being developed under the Institutional Infrastructure Component of the project and addresses some of these issues. The Information system will improve the availability of information critical to improved management of water resources, including the communication of real-time flood forecasting information. The activities associated with this sub component will mainly support flood risk management and non-structural/small structural approaches to managing the impacts of floods. These activities emphasise floodplain management and flood mitigation planning; flood forecasting and early warning; and emergency response and preparedness at national, local and community levels. The emphasis will be on community training for awareness and preparedness of flood management activities and implementation of small-scale works. Community groups will be trained and encouraged to organize themselves to implement practices that minimize flood damage, including taking advantage of available services and funding. There will also be support for establishment ofsmall-scale structural measures such as elevated access ways, drains, securing water supply, and stock watering points, food storage facilities and refuges.

Methodology for Analysis

In terms of weather variability it is more difficult to control floods than droughts and likewise comprehensively assessing the benefits of flood management interventions is a daunting task. At a fundamental level the benefits are equal to the value of prevented losses. However, the benefits are tied up in all of the interrelationships between different sectors ofthe economy using water and its reservoirs. The effects on agnculture, energy, tourism, industry, and fisheries are just the most obvious. Further, some ofthese costs are not easily quantifiable and/or have impacts spread over several years. Thus, at the outset it should be said that the full costs/impacts of flood are significantly greater than calculated here. Hence, the benefit cost ratios and returns to the capital invested are similarly conservative at best and at worst underestimated.

Flood Impact Benefits

Identification of the benefits of flood management in terms of value ofprevented losses has at least two challenges: (a) determination ofthe extent ofdamage and its costs, without Project interventions, at times of flooding of different intensities; and, (b) projection of flooding and its impacts over a long period of time with the project’s interventions. The analysis conducted estimates the probability of floods of different intensities based on actual rainfall data over the past 45 years, and on the basis of the results, uses three flood intensities with different probabilities to assess the value of damages over a thirty year period. These results indicate three different flood intensities and probabilities: floods with average loss years (84% probability), greater than average loss years (9% probability), and less than average loss years (7% probability). Annual losses from flood damage is calculated using estimates of Flood damages occurring in the Amhara region, only for the two most affected areas, Fogera and Dembiya, during the period 2005 to 2007, using 2006 as a greater than average loss year. The Flood Preparedness and Early Warning Project Preparation Technical Background Paper framework and estimates were also used as a reference point for the analysis. It is recognised that not all flood damages will be saved through the activities envisaged under the flood management sub-component ofthe TBIWRD Project and drawing on experience in the literature an average level of 15% savings was used for the base case. In other words, many of the negative effects on agriculture and fisheries will continue and temporary displacement of

104 affected populations will still occur. However, losses will decrease to the degree assumed as the investment interventions will contribute to reducing losses in areas such as exposure to health risks, livestock loss, damage to stored grain and damage to housing. Results were also produced for 10% and 20% savings on the damages during different flood intensities and equivalent probabilities.

Data from emergency responses to flooding are used as indirect estimates of costs of the flood. These costs include temporary survival and recovery assistance, providing accommodation, water supply, health services as well as inputs such as seeds and food to assist during the post flood reestablishment of livelihoods. These costs are underestimated as communities are not assisted to the extent that they recover their livelihood levels to pre-flooding levels. Table 7 presents conservative loss estimates for three different flood intensities.

Using the above damage estimates, probabilities and associated flood intensities, the economic analysis was completed by comparing annual benefits from avoided damages to the total component cost plus an estimate ofrecurrent costs for operating and maintaining Project interventions during and after the Project implementation period. Economic rates of Return and Net present Values were calculated (at a 10% discount rate). It is important to emphasise that while it is useful to evaluate that investment capital is efficiently spent, the estimating of benefits are undoubtedly always underestimated and thus results are very conservative. One dimension ofthis underestimation is that major benefits such as the saving oflife and reduction in personal trauma is not included as its value cannot be quantified. In the 2006 floods 5 lives were reported lost.

Flood Mitigation Costs

The emphasis of the flood mitigation interventions will be on community training for awareness and preparedness of flood management activities and implementation of small-scale works. Community groups will be trained and encouraged to organize themselves to implement practices that minimize flood damage, including taking advantage of available services and funding. There will also be support for establishment of small-scale structural measures such as elevated access ways, drains, secure water

105 supply, and stock watering points, food storage facilities and refuges. Table 8 below shows total capital costs estimates for the flood mitigation component ofthe project. Beyond year 5 ofthe project’s recurrent costs reflect support to specific activities repeated at different intervals.

US$m Funding for Community Initiatives 3,450,000.00 Capacity Bldn - Community 977,500.00 IAd m inis t rat ion I 230.000.00 Vehicles 586,500.00 Emergency response: tents, medi 632,500.00 ITotal I US$5.90 m 1

Results of Financial and Economic Analysis

The results for the flood mitigation interventions are based on flood damage estimates during the period 2005 to 2007 with 2006 being used as representative of a greater than average loss year. Based on 45 years ofrainfall data, probabilities for floods of different intensities were estimated at 9% for a worse than average year and 7% for a better than average year. Given the fact that the flood mitigation measures are non-structural and heavily community management dependent the losses prevented will be partial. Three scenarios, representing assumptions of lo%, 15% and 20%, were used for assumed damage loss saved due to the interventions under the project. These losses saved were phased in gradually with the full percentage of the scenario for losses saved being realized only over the last twenty years. For example, for the 15 % scenario, during the first five years only 5% oflosses are assumed saved, and for year five to ten, only 10 % is assumed saved. For the remaining twenty years, 15% of the losses are assumed saved. For an average loss year benefit cost ratios were 1.37, 1.78 and 2.09 respectively for the three damage recovery scenarios. Table 9 presents the results for the three flood intensity levels and the three damage recovery assumptions. In all cases the financial rates ofreturn exceed an assumed cost of capital of 10%.

Table 9: Flood Mitigation Cost Benefit Results

Scenarlo 1 - 10% Scenario2 - is% Scenario 3 - 20% Value Damage Recmry Loss Damage Recowry Loss Damage Recovery Loss

2006 IB-CRatio I 1.71 I 2.22 I 2 -62 I

106 Section 3: Institutional Infrastructure Investments for Sub-basin Planning, Management and Development (US$17.lmn), and the Growth-Oriented Investment Facilitation (US$9.2 mn)

Description of Interventions

The TBIWRDP has three integrated components that are critical to the immediate and longer run challenges facing Ethiopia generally and the Amhara region in specific. The component with the two most direct interventions, watershed development and flood management, with relatively more measurable costs and benefits were evaluated in the first two sections ofthis annex. In this third section the other two components of the project are evaluated together. This is done largely because the approach to the analysis of these components is relatively more qualitative than quantitative, although assessment of the importance of the components to the regional economy and its development are presented and damages to be avoided are demonstrated. What is most critical is to recognize that component (a) Institutional Infrastructure Investments for Sub-basin Planning, Management and Development (US$17. lmn) and component (b) Growth-Oriented Investment Facilitation (US$9.2mn), are essential to building the wider and longer run capacity to both using and protecting water resources while promoting development in the region to increase opportunities that contribute to establishing improved and less vulnerable livelihood systems.

In the Institutional Infrastructure Investments component there will be the establishment of a Water Resources Information System and the building of Resource Planning and Management Capacity related to efficient, effective and sustainable use of water resources in the Tana and Beles Sub-basins, specifically establishing Sub-Basin Organizations. The Water Resources Information System will support the resolution ofmany ofthe challenging issues related to floods and droughts in the project areas through appropriate investments establishing hydro-meteorological gauges, communication and information management systems, GIs, remote-sensing, satellite hydrology processing. Critical technical assistance and training at the Mom, NMA, DPPA, regional bureaus’, including establishment of sub-basin agencies, will put in place the capacity to manage and sustain the use of water resource based development activities.

The Growth-Oriented Investment Facilitation component contributes directly to the Government of Ethiopia’s plans to translate the rich natural resource, social and environmental endowment of the Sub- basins into a growth corridor that lifts the population out ofpoverty and contributes to overall economic growth in the country. The work completed under this project is intended to pave the way, providing important lessons related to both water management and investment promotion, for the development of future growth corridors.

Methodology for Analysis

Several approaches are used in this section to analyze the efficacy of the capital being expended for institutional strengthening to better use and manage natural resources in the project area. Firstly, a list of the damages and costs resulting from lack ofeffective and sustainable management are presented, in other words, consequences of inaction. Secondly, the importance of the institutional interventions to both watershed and flood subcomponents are evaluated through a cost-benefit analysis scenario with a proportion of the institutional costs borne by each subcomponent to see if in this manner the capital expenditure can be justified under the respective natural resource management interventions. Thirdly, the importance of water resources and the impacts of its variability are demonstrated by focusing on the recent experience of drought in 2003 and particularly the impact on sectors directly linked to water resources. Fourthly, possible longer term fiscal implications and how these relate to the current public financing framework are addressed.

107 Results

Both for the sustainable management of the current livelihoods and the growth anticipated in the project area improved information and institutional coordination in the management of water resources are needed. The Water Resource Information system is critical to adequate preparation and communication for floods and droughts. Once diagnosis of an impending negative situation is recognized, the government and communities can make preparations for the floods and droughts to minimize their impacts. Some of these impacts are presented in the Table 10 below.

Table IO: Negative Impacts of Droughts and Floods Floods I Droughts Crop and Livestock Damages, food Reduced output from every major sector, shortages and food insecurity especially rain-fed agriculture Damage to Water Supply Infrastructure Reduced hydropower generation Road infrastructure damaged and 0 Human and Livestock deaths transportation networks disrupted Pressure on fishery resources (alternative Waterborne health diseases exacerbated source of food and income) Darns and pans silted up and Increased deforestation and grazing (more damaged(increased food insecurity) charcoal production) Displaced persons 0 Wildlife migrate and reduced tourism Damage to tourism ecology

The efficiency of the information warning system, together with the ongoing activities directed at flood and drought impact minimization, would lead to much lower levels of damage and faster periods of recovery. It is important to underline the recognition that the information alone is not enough to bring about expected changes and consequent impact reduction. Thus, there is a need to emphasize training and capacity building in both livelihood systems and improved water practices at the stakeholder level (especially the community level) in the project. This project provides national and regional institutional level training for coordination and promotes significant community responsibility actions funding both capacity building and small scales structural interventions. On the more positive side one can point to improved coordination and management ofwater resource and promotion ofgrowth activities as breaking the cycle ofslow progress toward alleviating widespread poverty. Further, the interventions are critical to ensuring that there is not further degradation ofresources and loss of the already very fragile ecosystems and vulnerable livelihoods.

Cost benefit analysis was conducted phasing 50% of the Institutional Infrastructure costs against the watershed development and flood mitigation interventions in order to see if the capital expenditure can be justified. The results reveal that the expenditure can be easily accommodated by the watershed interventions as the benefit cost ratio remains greater than one and the economic rate of return reduces from 24% to 19 %. The flood mitigation analysis is more sensitive to bearing the additional costs. Table 11 shows that during an average year damage recovery losses saved would have to exceed 20% to be justified. However, it is important to bear in mind the difficulty in accurately measuring the benefits derived and thus one would conclude that given the results the investment funds would be wisely spent.

Table 11 : Flood Mitigation Analysis plus 50% ofInstitutional Intervention Costs

108 Loss NP” $11,161,997.60 $14264,536.44 $16,675,509.20 FlRR Ye ars 6% 11% 13% DB $ 10.3 7 2,645 .oa $ i3,4 7 5,i 83.9 2 $ i5,a a6,i 5 6 .6a DC $13,773,7 29.65 $13,7 73,729.65 $13,773,7 29.65 8:C Ratio 0.75 0.98 1 1.15

In order to demonstrate the impact, cost and potential benefit of improved water management interventions the situation in the region during and post the 2002/2003 drought was investigated. Figure 1 shows the downturn in the agriculture sector GDP and its relationship to regional GDP. Given the fact that agricultural activity(accounting for some 60% ofregional GDP) is the base ofthe regional economy and future growth, the impact of a decline in growth to -.5 in 2002/2003 from an average growth rate of 3.5 % over the decade of 1994 to 2004 is a substantial loss which has negative impacts beyond the period ofoccurrence.

Figure 1: Amhara Regional Real GDP by Economic Activities

16 .-:-. 14

* ai88 -+--Total RGDP * 6.3 * Agriculture

Year

Water resource management is critical to the growth of the trade, hotels and restaurant sector and this sector is seen as one of the major growth poles for promoting regional development and alleviating poverty. Again the impact of the 2002/2003 downturn associated with drought in the region is readily evidenced (Figure 2). As growth and development are promoted the management of water for its largest users (agriculture, human consumption, transport, industry) clearly needs to be improved.

Figure 2: GVA of Trade, Hotels and Restaurant Sector

1600

1400

L 1200 P

c 400

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0 AtCurrentFC 159 275 347 466 475 525 658 741 963 1460 1319 915

$+ AtConstantFC 163 275 340 454 445 475 570 687 894 1333 1219 702

109 Water transport is essential for commerce and tourism in the Bahir Dar area and Lake Tana and its level defines the performance ofthese sub sectors. Figure 3 reveals the disruption that was experienced in the 2002/2003 period and again the loss in value to regional GDP is clear.

Fig& 3: Real GVA Estimates of Water Transport (Mill Birr)

2

0.5

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-+-WatcrTranrport 16 17 16 1.4 1.4 14 13 14 13 11 11 15

The Government of Ethiopia has shown in recent times its appreciation of the extent to which water resources and its challenges can determine the social, economic, and political future of the country and therefore the risks and costs associated with poor water resource management. Their recent declarations, directly with regard to improved water management and in terms of growth corridors linked to efficient water use is clear evidence ofthis. This project provides important steps towards establishing the needed water management system at national, regional and community levels. The economic analysis shows that it would be capital well invested.

The rural population in the project area pays a land use tax that is the main local source of revenue. It represents less than 20 % of the total Woreda public expenditure, 80% being a transfer from the Federal Government through a block grant. For example, the total public budget of Dembiya and Fogera in 2006/2007 was 24.9 mn birr and 22.6 mn birr, with each Woreda contributing 3.0 mn birr and 3.68 mn birr, respectively. Using woreda level contributions and population estimates an effort was made to evaluate the fiscal implication of the recurrent costs that might be associated with the institutional infkastructure component of the project, assumed at 10% of capital costs per year. Given the rural population of the project area this new institutional recurrent cost could be covered by imposing a tax (fee) of Birr 6.31 per annum per farm-household. That is Birr 0.53 per month per farm-household. Even with the very low level ofearnings and the small existing land use tax contribution to Woreda expenditure an additional payment of this magnitude should not be a burden and is very small compared to the potential benefits of the project generally and specifically in terms of incomes given the returns to the watershed development interventions.

Conclusions

This project is a critical step in elevating water resources management as a national and regional priority, and in raising awareness about individual and collective responsibilities related to the management of the nation’s water resources. Thus, there are information, planning and implementation activities in the project based at the central, regional, woreda and kebele levels. The project includes considerable emphasis on community level activities that promote and implement practical solutions to water users to increase the efficiency oftheir management, adaptability and use ofwater.

110 Given the challenges of measurement and the lack of data, it is difficult to develop a comprehensive cost to the national and regional economy from rainfall variability and water resource degradation and likewise the benefits to be derived from improved institutions. However, there is no question from the evidence of impact of periodic episodes, through damage to property and livelihoods, and in the regional and national economic accounts that there are major economic losses, resulting in both setbacks of the current situation and undermining future development potential. Further, as demonstrated by the results here, even on the basis of partial analysis, the measurable benefits from project interventions far exceed the costs.

The financial and economic analysis for the watershed component demonstrates that with very minimal crop mix changes there could be major improvements in the income returns to the farmer. Thus, careful attention should be paid, as is done in the crop budgets in the ana1ysis;to maintaining 70% of the area under food security crops, while recognizing the immense income implications ofminimal shifts to higher valued crops.

Although the yield increases assumed were very conservative the analysis shows that the results of the cost benefit analysis are more sensitive to yield changes than to changes in the cost of inputs or product prices. Thus, successful implementation of the livelihood interventions, especially related to crop extension is critical to achieving the outcomes ofthe project.

The negative impacts on regional GDP ofwater resource variability are very clear from the data available. This suggests that the cost of no action can result not only in increasing impoverishment but perhaps worse loss of future opportunities. In the final analysis it must also be acknowledged that numerous gains from the project’s synergies and complementarities, from the information system, the institutional strengthening, and community capacity building, cannot be adequately quantified and as such the benefits ofthe project remain underestimated.

111 ~~~~~~~ II): ~~~~~~~~~~~~ ~~~~~i~~~~~~~~ ETHIOPIA: Tana & Beles Integrated Water Resources Development Project

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP 4.0 1) [XI [I Natural Habitats (OP 4.04) [I [XI Pest Management (OP 4.09) [XI 11 Physical Cultural Resources (OP 4.1 1) [I [XI Involuntary Resettlement (OP 4.12) [XI [I Indigenous Peoples (OP 4.10) [I [XI Forests (OP 4.36) [I [XI Safety ofDams (OP 4.37) [XI [I Projects in Disputed Areas (OP 7.60) [I [XI Projects on International Waterways (OP 7.50) [XI [I

The safeguards policy concerns vary by project component: Component A: Sub-basin resource planning and management: In the development of sub-basin development and management plans, it will be important to balance economic, environmental and social factors to achieve sustainable development. This is because environmental, natural and human resources are key underpinnings ofall socio-economic development. Component B: Natural Resource Management Investments: This component aims at carrying out sustainable watershed development and management investments, as well as improved community- based flood management and adaptation around the shores of Lake Tana. Many of the proposed interventions are environmentally beneficial or are likely to have insignificant adverse impacts. Nonetheless, some interventions may benefit from some common-sense environmental planning and design, especially in site selection. As well, limited concerns for involuntary land acquisition or restrictions on access to resources will need attending to. Component C: Growth-Oriented Investment Facilitation: The preparation of public and private investments to promote sustainable growth in the Tana Sub-basin will need to include environmental and social assessments.

Environmental Assessment (OP 4.0 1)

Component A: Sub-basin resource planning and management: In the development of sub-basin development and management plans, it will be important to balance economic, environmental and social factors to achieve sustainable development in the sub-basin. To achieve this balance, the planning process will need to include the strategic assessment of environmental and social issues, and the constraints and opportunities they present to sub-basin development, as an important theme. The final plan will thus include chapters describing how these issues have been taken into account in arriving at an optimized plan for the sub basin.

Key environmental, natural resources management and social safeguards issues that should be addressed include: 0 Water quality ofLake Tana, and vulnerability to pollution and nutrient loading from urban areas and agnculture; 0 Fish habitats and resources ofLake Tana and its tributaries, and Lake Tana fisheries; 0 Conservation of the biodiversity of Lake Tana and its shoreshributaries, notably wetlands around the lake, especially on the Fogera Plain, and aquatic habitats on rivers draining into the lake; and 0 Plan provisions that may restrict access to natural resources traditionally available to local people.

112 Institutional development activities will include relevant activities linked to capacity building for environment and social issues and ensure that institutions responsible for managing development around Lake Tana have the necessary structures, skills and procedures in place to ensure that development is done in an environmentally and socially sustainable manner.

Component B: Natural Resource Management Investments & Component C: Growth-Oriented Investment Facilitation:

An Environmental and Social Management Framework (ESMF) was prepared that combined the instruments developed separately by ENSAP for the regional watershed management and flood preparedness and mitigation projects, the Ethiopia parts of which have been brought into TBIWRDP as sub-components (Component B). The ESMF was tailored to the TBIWRDP activities (Annexes 1 and 2 below) and institutional arrangements, and includes an implementation budget. As needed, it prescribes the preparation ofEnvironmental Management Plans (EMPs) for sub-projects by the responsible regional bureau. It is expected that the EMPs will be fairly simple and readily prepared by Ethiopian consultants or NGOs assisting with sub-project planning, approval and implementation.

The principal environmental safeguard issues that require attention on sub-projects are: Environmental management planning for all works that install new structures and facilities, or rehabilitate existing structures; Natural habitats, particularly where sub-projects are in close proximity to protected areas; and 0 Pest management, with a specific focus on the location ofpesticide storages and their integrity during flood events.

The ESMF focuses on: 0 Guidelines to ensure that all works (e.g. check dams, terracing, gully re-forestation, house elevation etc.) are carried out to maximize environmental benefits and minimize adverse impacts; and 0 Outlining capacity and institutional building activities for identifying, managing and monitoring environment and social safeguard issues.

The ESMF also mandates including environmental and social issues in the development of the Tana & Beles Sub-basin Integrated Water Resource Development Plan during project implementation (Component A), as well as the preparation ofEAs/EMPs during the preparation ofcapital investments for the second phase ofthe project (Component C).

Pest Manavement (OP 4.09)

TBIWRDP triggers OP 4.09 as a consequence of the need to ensure that appropriate safeguards in pesticide procurement, usage, storages, and integrity during flood events, is adequately addressed in the flood preparedness and mitigation activities (Component B). This matter is addressed through the ESMF.

Involuntary Resettlement (OP 4.12)

A Resettlement Policy Framework (RPF) was prepared that combined the similar instruments developed separately by ENSAP for the regional watershed management and flood preparedness and mitigation projects, the Ethiopia parts of which have been brought into TBIWRDP as sub-components (Component B). The RPF were tailored to the activities and institutional arrangements ofthe TBIWRDP. The ESMF under OP4.01 mandates including social issues in the development of the Tana & Beles Sub-basin Integrated Water Resource Development Plan during project implementation (Component A), as well as

113 the preparation ofRAPS during the preparation of capital investments for the second phase ofthe project (Component C). The RPF includes an implementation budget. Interventions, especially those linked to watershed development and site selection of structures need procedures to ensure that they are done with adequate technical (environmental) knowledge to ensure they achieve their intended objectives. Some activities may also involve limited concerns for involuntary resettlement resulting from land acquisition or restrictions on access to resources that are not wholly communal or which affect specific households more than others. There are no groups in the project area that fall into the WB definition of indigenous peoples. However, project design includes necessary criteria and procedures to ensure that specific needs ofvulnerable groups are identified and addressed.

The principal Component B social safeguards issues are expected to be: Watershed development 0 Land acquisition for small-scale civil works (Attachment 1 below) Loss ofaccess to traditional grazing lands Flood Preparedness and Mitigation Land acquisition for small-scale civil works (Attachment 2) Loss of access to recessional farming land in the unlikely event that flood control measures result in reduced inundation ofthe land or a small dyke prevents access to that area.

Proiects on International Waterways (OP 7.50)

The Bank’s technical evaluation has determined that the project will have no adverse impact on any of the Nile riparian countries. In accordance with OP7.50, the process of notifying the riparian states of the Nile Basin of the proposed project has been completed. Of the nine riparians notified, only Egypt and Sudan responded by the deadline and both have communicated their no-objection to the project.

Recipient’s Capacity to Implement Safeguard Policies

The Recipient has limited capacity to implement safeguard policies, though the regional environment bureau (EPLAUA) has staff trained and experienced in the relevant disciplines and procedures. As described in the ESMF and RPF, TBIWRDP will provide training and capacity building to support implementation of the safeguards instruments, especially for Components B and C. On Component A, TBIWRDP will provide long-term technical assistance to support the plan development process, in particular its environmental and social aspects.

Safeguards Consultations

Preparation of the sub-basin plans in Component A will be a highly consultative process on all dimensions of the plan, including environmental and social issues. The development of sub-projects in Component B will also involve consultations with local people during sub-project planning, design and implementation, including the safeguards aspects.

Public Disclosure of Safeguards Documents

On -February 8 prior to project appraisal, the ESMF and RPF documents was publicly disclosed through the Bank’s InfoShop and, in Ethiopia, at the Ministry ofWater Resources and relevant regions. The final version dated March 12,2008, was also disclosed through the infoshop and in Ethiopia.

114 Implementation and Supervision ofAgreed Plans

The responsible regional bureaus and EPLAUA will supervise and monitor the application of the ESMF and RPF as each sub-project proceeds through planning, design and implementation. Funds for implementing the safeguards requirements are included in the TBIWRDP budget. The budget includes core TBIWRDP aspects (staff, person-weeks, travel, etc.) as well as costs for awareness raising and training (venues, external trainers, communications, etc.) at the local level. IDA will supervise the safeguards aspects during regular implementation support missions.

Reference to Agreed Plans in Project Legal Documents

Recipient commitments to implement the provisions of the ESMF and RPF are included as specific covenants in the project legal document.

Attachment 1: Potential Watershed development Interventions (Component B)

~'(~~~~i~i~llritcrveotions Water Supply Development Hand Dug Wells Spring Development Improved Well and Spring Heads Fit and Fix Hand Pumps (Operation and Maintenance) Water Supply Source Development Entry-Point Promotion of Water Harvesting from Roofs Activities Communications and Rural Transport Infrastructure Footpaths Footbridges Road Cross Drainage Road Side Drainage

Physical Soil and Water Conservation Flood Control and Improved Drainage Water Harvesting Land Resources Soil Fertility Management Management Gully Control Land Certification

Tree Nurseries Tree Planting Area Closure of Forest Lands Forestry and Ago- Micro-Basins Forestry Homestead Gardens Seed Collection

Animal Health Posts and Facilities Perennial Pasture and Forage Development Homestead Feeding and Fattening Grazing Land Area Closure Livestock Improvement of Local Breeds for Meat and Milk Production Promote Poultry Production Promote Milk Production Promote Bee Keeping and Honey Production

115 1 ype ~~~~~e~k~~~~~il!CY\ ~~~~~~~~~~ Assist/Promote Existing Agricultural Extension Programme Logistical Support for Woreda Staff Appropriate Fertilizer Use Irrigation Pumps Crops Organic Manuring Integrated Pest Management Demonstrations of Improved Cropping Practices and Systems Demonstrations of Improved Crop Varieties and New Crops

Fuel Efficient Stoves Rural Energy Tree Planting for Fuel Wood (see forestry above)

Flour Mills Guest House Management (iterant/pemanent experts, health workers, teachers) Off-Farm Income Petty Trading and Village Shops Training/Facilitation Private Seedling and Tree Nurseries Fuel Efficient Stove Manufacture Carpentry and Furniture Manufacture and Repair

Attachment 2: Potential Flood Preparedness and Mitigation Interventions (Component B)

0 Low-technology stream bank protection 0 Levees (terraces) less than 500 m in length and one meter in height 0 Elevated earth platforms for grain storage, livestock, placement ofhomes, and temporary refuge 0 Elevated access ways, not exceeding 500 m in length, for access during periods ofinundation 0 Drains and terraces 0 Engineered stock watering points in areas susceptible to bank erosion 0 Access to and secure water supply points for use during periods offlooding 0 Secure food storage facilities 0 Secure refuges for people affected by flooding 0 Flood-proofed sanitation systems

116 Planned Actual PCN review 26 June, 2006 Initial PID to PIC 14 August, 2006 Initial ISDS to PIC 26 August, 2006 Appraisal 11 February, 2008 11 February, 2008 Initial PID to PIC March 19,2008 Initial ISDS to PIC March 28,2008 Negotiations 11 April, 2008 14-21 April, 2008 BoardRVP approval 29 May, 2008 Planned date ofeffectiveness September 30,2008 Planned date of mid-term review March, 201 1 Planned closing date September 30,2013

Key institutions responsible for preparation ofthe project: 0 Federal Ministry ofWater Resources, Government ofEthiopia 0 Amhara Regional Bureau ofWater Resources Development Amhara Regional Bureau ofAgriculture and Rural Development 0 Benishangul Gumuz, Regional Bureau ofWater Resources Development

Bank staff and consultants who worked on the project included: Name Title Unit E.V. Jagannathan Sr. Water Resources Specialist (TTL) AFTWR Nagaraja Rao Harshadeep Senior Environmental Specialist (Co-TTL) SASDN Laketch Imru Rural Development Specialist AFTAR Roxanne Hakim Senior Anthropologist AFTCS John Boyle Senior Environmentalist AFTEN Yitbarek Tessema Senior Water Supply Specialist AFTU 1 Menbere Taye Tesfa Private Sector Specialist AFTFP Paul Moreno-Lopez Senior Economist AFTP2 Basma Ammari Quality Control Specialist AFTRL Jean Charles Amon Kra Senior Financial Management Specialist AFTFM Tafesse Freminatos Abrham Financial Management Specialist AFTFM Mulat Tegegn Financial Management Specialist (Consultant) AFTFM Abiy Temechew Senior Procurement Specialist AFTPC Rafik Hirji Lead Lake Management Specialist ETWWA Luz Meza-Barhina Senior Counsel LEGAF Jonathan Pavluk Senior Counsel LEGAF Ngozichukwu C. Njemanze Legal Associate LEGAF Jacqueline Julian Cost tab Specialist SASDO Sophie Herrmann Operation Analyst AFTWR Mikael Abebe Operation Analyst AFCE3 Duncan Burrell Consultant AFTWR Sara Woldegerimal Tesfahiwot Dillnessa ACS AFCE3 FAO: Dr Beyene Kebede Institutional/Implementation Specialist Mr. Deep Ford Economist World Bank Consultants: Walter Garvey Senior Water Adviser Srinivasan Rajagopal Water Resources Management Specialist

117 Bank funds expended to date on project preparation: 1. Bank resources: BB: US $628,000 FAO: US$: 44,000 2. Trust funds: PNPHRD: US$734,000 3. Total: US$ 1,406,000

Estimated Approval and Supervision costs: 1, Remaining costs to approval: BB: US$30,000 FAO: US$: 22,000 2. Estimated annual supervision cost: US$ 100,000

118 ,~~~~~~~17: ~~~~~~~~~~~~~~~ in t ETHIOPIA: Tana & Beles Integrated Water Resources Development Project

1. Government of Ethiopia, Plan for Accelerated Sustained Development to End Poverty (PASDEP), 2005

2. World Bank, Ethiopia Country Assistance Strategy (CAS), Draft 2008

3. World Bank, Ethiopia Country Economic Memorandum (CEM), 2007

4. World Bank, Ethiopia Country Water Resources Assistance Strategy (CWRAS), 2006

5. World Bank, Transport Sector and Economic Growth in Tana-Beles Basin, Ethiopia, Discussion Paper, Draft 2006

6. Reservoir Operation and Establishment ofOperation Rules for Lake Tana, MSc. Thesis, Melkamu Amare Aragie, Jan 2005, Addis Ababa University

7. Water Watch Remote Sensing Services: Remote Sensing Study ofTana-Beles Sub-basin : A Nile Basin Initiative Project; February, 2006

8. SMEC International Pvt. Ltd., TBIWRDP Hydrology Study, 2008

9. BRL Ingenierie, TBIWRDP Institutional and Capacity Building Study, 2008

10. Halcrow Group Ltd., Integrated Watershed Managemnet (Ethiopia) Watershed Project, Report to ENTRO, 2007

11. SMEC International Pvt. Ltd., Flood Preparedness and Early Warning Technical Background Paper and Project Implementation Plan Reports, 2007

12. Environmental and Social Management Framework and Resettlement Policy Framework for Tana & Beles Integrated Water Resource Development Project, Final Report, March 12,2008, Ministry of Water Resources, Government ofEthiopia.

13. Project Information Document, Appraisal Stage, March 2008

14. Integrated Safeguards Data Sheet, Appraisal Stage

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This map was produced by the Map Design Unit of The World Bank. MAIN ROADS Abbay The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank 0 25 50 Miles SUB-BASIN BOUNDARIES REGION BOUNDARIES Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 36°00’E INTERNATIONAL BOUNDARIES 35°00’N 37°00’E 38°00’E 35°30’N 36°30’N 37°30’N 38°30’N APRIL 2008