43253-026: Karnataka Integrated and Sustainable Water Resources

Periodic Financing Request Report

Project Number: 43253-026 MFF Number: 0085 September 2019

India: Karnataka Integrated and Sustainable Water Resources Management Investment Program (Tranche 2)

(Part 2)

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy.

Appendix 14

KARNATAKA INTEGRATED AND SUSTAINABLE WATER RESOURCES MANAGEMENT INVESTMENT PROGRAM - TRANCHE 2

PROCUREMENT CAPACITY ASSESSMENT

September 2019

ABBREVIATIONS

ACIWRM – Advanced Centre for Integrated Water Resources Management ADB – Asian Development Bank CAD – command area development CADA – Command Area Development Authority CAG – Comptroller and Auditor General of India CE – Chief Engineer CPP – community procurement packages EA – Executing Agency EE – executive engineer EMD – earnest money deposit GFR – General Financial Rules GOK – Government of Karnataka ha – hectares ICB – international competitive bidding INR – Indian Rupees IWRM – Integrated Water Resources Management KISWRMIP – Karnataka Integrated and Sustainable Water Resources Management Investment Program KNNL – Karnataka Neeravari Nigam Limited KTPPA – Karnataka Transparency in Public Procurements Act MFF – Multi-tranche Financing Facility NA Not applicable NCB – national competitive bidding NGO – non-governmental organization PCA – procurement capacity assessment PMU – Program Management Unit P-RAMP – Procurement Risk Assessment and Management Plan PIO – Project Implementation Office PSC – Project Support Consultants SE – Superintending Engineer SBD – standard bidding documents TLBC – Tungabhadra Left Bank Canal TEC – Tender Evaluation Committee TSC – Technical Sub-Committee US$ or $ – United States Dollar VNC – Vijayanagara Channels WALMI – Water and Land Management Institute WB – World Bank WRD – Water Resources Department WUCS – Water Users Co-operative Societies

TABLE OF CONTENTS

Page No.

EXECUTIVE SUMMARY iv

I. INTRODUCTION 1 A. Description of the Investment Project 1

II. PROJECT PROCUREMENT RISK ASSESSMENT 3 A. Overview and Assessment 3 1. Legislative and Regulatory Framework 3 2. Organization and Staff Capacity 4 3. Information Management 11 4. Procurement Practices 12 5. E-Procurement 21 6. Effectiveness 22 7. Accountability Measures 22 B. Strengths 23 C. Weaknesses 23 D. Procurement Risk Assessment and Management Plan (P-RAMP) 24

III. PROJECT SPECIFIC PROCUREMENT THRESHOLDS 26

IV. PROCUREMENT PLANS 27

V. CONCLUSIONS 28

ANNEXES

Annex 1: Completed PCA questionnaires of KNNL and ACIWRM. 37 Annex 2: Project Procurement Classification 56 Annex 3: Draft Procurement Plan of KISWRMIP Project 2 57

EXECUTIVE SUMMARY

A. Overall assessment of Project-2 procurement risk and classification

1. Karnataka Integrated and Sustainable Water Resources Management Investment Program (KISWRMIP) – Project 2 is proposed for financing by the Asian Development Bank (ADB). A procurement capacity assessment has been undertaken for Karnataka Neeravari Nigam Ltd. (KNNL, the executing agency) and the Advanced Center for Integrated Water Resources Management (ACIWRM). The assessment was carried out following ADB’s guide on assessing Procurement Risks and Determining Project Procurement Classification. It has determined that, for Project 2, the procurement risk is moderate, and the procurement classification is category B.

2. The completed procurement capacity assessment questionnaires for KNNL and ACIWRM are presented in Annex 1 and the completed project procurement classification is at Annex 2. Based on the procurement capacity assessment carried out and the current thresholds for India, it is recommended that prior review limits and procurement thresholds for KISWRMIP Project 2 be retained as for Project 1, and this is reflected in draft Procurement Plan in Annex 3.

B. Summary of identified weaknesses and risks

3. KNNL and ACIWRM have the benefit of having substantially completed Project 1 of the same investment program. However, there were substantial delays in procuring a works package and consultant selection during the startup of Project 1.

4. Faulty or delayed procurement due to lack of adequate and relevant procurement training and experience within PMU and ACIWRM is a risk. Procurement of some key packages was delayed in Project 1. There are no procurement specialists in PMU, PIO and ACIWRM. Mostly Engineering staff with little consultant support manage procurement functions which is less efficient than having full time procurement staff. All staff in PMU (except one part time consultant) and PIO comprise people seconded from government, most of them are not well versed with ADBs procurement processes. No clear separation of engineering, procurement and regulatory functions exist within PMU, PIO and ACIWRM.

5. Low thresholds of bid evaluation and contract award approval authority of Project Directors of KNNL and ACIWRM have led to many approval levels through which procurement approvals move up and down, resulting in delays in procurement decision making. There are 3 three levels of approval for large contracts in KNNL (TEC, TSC, and KNNL Board) due to which delays occur. Decisions on contract variations, processing invoices get delayed. Experienced PMU & PIO staff get transferred leading to loss of program institutional memory.

6. Below par performance of PSC related to procurement expert deployment and support to PMU, due to absence of systematic evaluation system for measuring the outputs of consultants by PMU is a risk. PSC has resorted to multiple replacements of experts.

7. No requirement exists in KTPPA for those involved in procurement to formally commit to standard statement of ethics leading to lack of accountability.

C. Summary of Mitigation and Management Measures to be Adopted

8. To mitigate delayed or faulty procurement due to inadequate training and experience of staff carrying out procurement tasks, PMU needs to ensure trained and experienced (in ADB or WB projects) staff are posted to PMU, PIO and ACIWRM and are retained till substantial completion of project. Regular and tailor made procurement and contract management training of PMU, PIO and ACIWRM staff to be involved in Project 2 is be carried out. Training budget for procurement and related aspects is to be provided Project 2. Training to be provided by ADB and institutions specialized in procurement training (such as Administrative Staff College of India, Hyderabad). Increased procurement oversight and support from ADB is proposed.

9. PMU reports to KNNL Board and obtaining KNNL’s Board approval on procurement matters has taken considerable time under Tranche 1. It is recommended that the State make similar arrangements to those for other ADB-financed projects in Karnataka, such as the Karnataka State Highways Improvement Project (financed by ADB and World Bank) by issuing a government order that delegates decision making to the State IWRM Steering Committee and have the PMU report directly to the State IWRM Steering Committee. The steering committee should be responsible for taking decisions on procurement matters. This arrangement is to be in place prior to Tranche 2 effectiveness.

10. At present, the Program Director is also the Managing Director of KNNL and he has much wider responsibilities beyond Project 2. It is recommended that the Project Director role be assigned to a senior KNNL staff member on a full-time basis, to ensure speedy decisions on procurement.

11. To ensure Consultants (PSC and individuals) are delivering value, it is required to administer to PMU and ACIWRM training programs to provide specific guidance on consultant performance evaluation and discuss case studies on consultant performance evaluation. Since multiple consultants could be working simultaneously in Project 2, a dedicated person in PMU to be devoted to evaluation and monitoring of consultants. PMU has to monitor consultant performance at regular interval and ensure PSC's procurement expert is available when required by the project

12. The absence of requirement for those involved in procurement to formally commit to standard statement of ethics is mitigated by following ADB procurement and consultant selection procedures.

I. INTRODUCTION

1. Project procurement capacity assessment (PCA) for the Karnataka Integrated and Sustainable Water Resources Management Investment Program (KISWRMIP) – Project 2 investment, Karnataka State, India, was prepared in accordance with Asian Development Bank's (ADB) “Guide on Assessing Procurement Risks and Determining Project Procurement Classification1”.The Asian Development Bank (ADB) financed Multi-tranche Financing Facility (MFF) for KISWRMIP for an amount of $150 million has a duration of 7 years (September 2014 to September 2021). KISWRMIP Project 1 is being implemented by Karnataka Neeravari Nigam Limited (KNNL), the executing agency (EA), and Advanced Centre for Integrated Water Resources Management (ACIWRM) the Implementing agency, from year 2014 and is scheduled for completion in March 2019. Both KNNL and ACIWRM were assessed for their procurement capacity.

2. KNNL and ACIWRM would be the executing agency and implementing agency for project 2 proposed to be implemented during 2018 to 2021. Registered under the under Indian Companies Act, KNNL established in 1999, is a wholly owned company of the Government of Karnataka (GOK) under its Water Resources Department (WRD). Established in 2012, ACIWRM is registered under Societies Registration Act, India and is anchored to the WRD of the State.

3. The PCA was undertaken during March 2018 to July 2018 during ADB’s project preparation of KISWRMIP Project 2. Meetings and discussions were carried out with KNNL, ACIWRM officials and Project Support Consultants (PSC) in Bangalore. Field visit to Shivamogga was made and discussions held with KNNL's Project Implementation Office (PIO) of Shivamogga and Munirabad, Command Area Development Authority (CADA) and PSC. Preparation activities included reviewing documents, review of reports and information from internet (KNNL, ACIWRM and CADA websites), ADB's Country Partnership Strategies (2013–2017 and 2018–2022) and KISWRMIP Project 1 portfolio experience. Information in Part A. i. has been extensively excerpted from (a) "India: Probity in Public Procurement, 2013" by United Nations Office on Drugs and Crime (b) "Working Paper No. 204. Public Procurement in India: Assessment of Institutional Mechanism, Challenges, and Reforms, July 2017" by National Institute of Public Finance and Policy, New Delhi and (c) "Karnataka Transparency in Public Procurements Act (KTPPA), 1999."

4. The program management unit (PMU) for the investment program is within KNNL headquarters (located in Bangalore). The Managing Director of KNNL is the Program Director. The PMU provides coordination, implementation, and monitoring assistance for the entire MFF. ACIWRM, an implementing agency, is based in Bangalore and is tasked to implement output 1 of the program, which focuses on institutional strengthening for Integrated Water Resources Management (IWRM). For irrigation system modernization, KNNL's divisional project implementation offices (PIO) have been established in Shivamogga (for Gondhi canals) and in Munirabad (for Vijayanagara canals) near each subproject location. The PIO comprises engineering,. accounts and administrative staff of KNNL and CADA staff. The PMU and PIOs are being provided with technical guidance and field implementation support by PSC.

A. Description of the Investment Project

5. The Asian Development Bank (ADB) approved an MFF of $150 million and its Project 1 loan for $31 million was declared effective from 13 July 2015. The Project 2 loan ($91 million ) of the MFF is currently being prepared by ADB.

1 ADB. August 2015. Guide on Assessing Procurement Risks and Determining Project Procurement Classification.

6. The Project 2 comprises three outputs. Output 1: Strengthening State and Basin Institutions for IWRM. (i) preparing the middle Krishna Basin Plan (for sub-basins K2 to K4); (ii) expanding the Karnataka Water Resources Information System; and (iii) continuing with strengthening WRD staff with IWRM training.

7. Output 2: Modernization of Irrigation System Infrastructure and Management. Project 2 will modernize the Vijayanagara Channels (VNC) subproject including repairing 16 anicuts and intake structures and about 442 kilometers of main, distributaries and minor canals. The project will establish and strengthen 30 Water User Cooperative Societies located within the project area that will then be responsible for improving their farmer irrigation canals. Project 2 will also provide farmers with extension services to improve on-farm water management and crop production, and develop an asset database and management plan.

8. Output 3: Operationalization of Program Management Systems. The main activities to be undertaken include (i) establishing a fully staffed project implementation office (PIO) with an appointed project implementation officer,(ii) procuring works and equipment financed under Project 2, (iii) coordinating with ACIWRM and managing the project support consultant, (iv) coordinating with CADA and other agencies responsible for command area development and on-farm improvement activities; (v) maintaining the program management information system database that was established under Project 1, (vi) meeting annual disbursement projections, (vii) conducting periodic safeguard and performance monitoring reviews; (viii) preparing the technical, economic and safeguard due diligence for proposed Project 3 and preparing the associated draft periodic financing request; and (ix) undertaking advanced procurement actions for proposed Project 3.

9. Project 1 is being implemented from 2014 to 2019 and implementation is slightly behind schedule. In consideration of the limited period left in the MFF (i.e. September 2021 completion target), quick procurement and contract implementation would be critical for completion of Project 2. 3

II. PROJECT PROCUREMENT RISK ASSESSMENT

A. Overview and Assessment

Legislative and Regulatory Framework2

10. India does not have a comprehensive procurement legislation, and the procurement regime in the country appears to be fragmented and inconsistent in terms of rules, regulations, and procedures. The public procurement framework in India has four broad features namely constitutional provisions, legislative provisions, administrative guidelines, and overseers. Within the constitutional provisions, Articles 298, 299, 300 and 300A authorize the governments to contract for goods and services. Similarly, Article 246 specifies the legislative powers in the federal structure of India into three lists namely Union List, State List, and Concurrent List. While Article 355 specifies the executive power, Article 282 directs the financial autonomy in public spending. Beyond that, it does not provide any guidance on public procurement principles, policies, and procedures. Apart from these, a few states such as Tamil Nadu, Karnataka, Andhra Pradesh, Rajasthan and Assam follow their own procurement acts to carry out public procurement at state level.

11. General Financial Rules (GFR) of the Ministry of Finance, government of India, prescribe the use of standard procurement methods (limited tender enquiry, advertised or open tender enquiry, single tender enquiry, two-stage bidding, or electronic reverse auctions) depending on type (works, goods, services) and volume of procurement (in monetary terms). The open tender enquiry is prescribed as the preferred method. In a few special cases such as urgency or single source of supply, single tender is called with proper justification and approval of the competent authority. Similarly, limited tender can be called instead of open tender on urgency given that there will be at least three bids. On the other hand, low value procurements are done without calling a tender by the authority or a purchase committee of the procuring entity.

12. While GFR 2017 has kept intact the monetary threshold limits for a few categories as given in GFR 2005, it enhances the threshold limits for others. For example, GFR 2017 has kept intact the threshold limit for the procurement of original works through limited tender. However, it has enhanced the upper threshold limit for open tender enquiry from INR one million(~US$15,000) to 3million (~US$45,000). Similarly, it has increased the upper threshold limit for procurement of goods by the purchasing committee from INR 0.1million (~US$1,500) to INR 0.25 million (~US$3,750). While GFR 2005 perceived procurement of all kinds of services to be similar, GFR 2017 has segregated procurement of services into two broad categories viz., ‘consulting services’ and ‘non-consulting services’. In addition to these changes, GFR 2017 also includes a few important provisions as below to streamline the public procurement activities in the country. i. GFR 2017 recommends two-stage bidding where a procuring entity holds discussions with the bidder community to finalize the technical specifications in the first stage. The financial bid is called from those whose ideas were accepted, and the bid is awarded to the bidder with the best quality-price ratio. (Rule 164). ii. It directs to assign higher weight to quality as compared to the price especially in procurement of services through the quality and cost-based selection (Rule 192).

2 This section mostly based on information from "Working Paper No. 204. Public Procurement in India: Assessment of Institutional Mechanism, Challenges, and Reforms", July 2017 by National Institute of Public Finance and Policy, New Delhi, India

iii. It gives emphasis on the use of information technology in public procurement to ensure greater transparency and competition by mandating the use of Central Public Procurement Portal for publication of all tender details (Rule 159), compulsory e- bidding for all procurements (Rule 160), and promotion of electronic reverse auction (Rule 167). iv. It introduces Code of Integrity to address probity in procurement activities (Rule 175). v. It urges the inclusion of environmental issues in the bid documents [Rules 173(xi), 217, and 218]. vi. It directs to share the reasons of rejecting a tender or non-issuing a bid document to a prospective bidder upon request [Rule 173(iv)]

13. Karnataka enacted the Karnataka Transparency in Public Procurements Act (KTPPA), 1999 which governs all public procurement in the state. The Act aims to ensure transparency in public procurement of goods and services by streamlining the procedure of inviting, processing and acceptance of tenders by procurement entities. The Act is clear and is closely aligned with ADB’s procurement guidelines. The provisions of this Act in so far as they are inconsistent with the procedure specified in respect of projects funded by international financial agencies or projects covered under international agreements, shall not apply to procurement of goods or services. Hence in case of inconsistencies, ADB procurement guidelines will prevail. The Act is to be read with the Karnataka Procurement Rules which amplify and detail the provisions in the Act.

14. The 2013–2017 Country Partnership and Strategy of India by ADB, para 28 notes the country’s strong procurement system. Para 29 of the same report states that risks relate primarily to project implementation, and in particular slow procurement and weak project management. This results mainly from capacity gaps at the executing agency level and within ADB. Subsequently, the 2018-2022 Country Partnership and Strategy of India by ADB supports use of country procurement system (para. 51) as applicable.

15. However not having a comprehensive procurement legislation and the fragmented and inconsistent approach to procurement remain as major weaknesses. Progress is being made, albeit slowly.

Organization and Staff Capacity

a. KNNL

16. KNNL is registered as a wholly owned Government of Karnataka Company as per the provisions of the Companies Act, India in December 1998.KNNL is managed by the Board of Directors. Chief Minister of Karnataka state is the Chairman of the Board . The Managing Director looks after the day-to-day affairs of the company. A team of professionally qualified and experienced personnel in various fields like engineering, design, finance, general administration and law assist the Managing Director.

17. The Company is responsible for planning, investigation, estimation, execution, operation and maintenance of all irrigation projects. The Company is authorized to sell water and recover revenues from individuals, groups of farmers, towns, city municipalities and industries.

18. The Organograms of PMU and PIO of KNNL for MFF are presented in Figure 1 and Figure 2 respectively. 5

Figure 1: KNNL PMU Organogram

19. Program PMU is in KNNL head office in Bangalore and is headed by the Managing Director of KNNL who is the Program Director. There are 2 Project Implementation Offices in Shivamogga (for Project 1) and Munirabad (for Project 2). PMU and PIO have engineers, accounts and administrative staff. In addition to KISWRMIP, they work on other KNNL projects. So PMU and PIO staff are not fully dedicated staff of PMU and PIO. PMU and PIO do not have a procurement specialist, all engineers and some accounts staff manage procurement. PIOs are short of engineering and accounts staff. Instead of sanctioned strength of 18, there are 12 staff in Munirabad PIO.

Figure 2: KNNL PIO Organogram

20. Dedicated PMU and Decision Making. The ADB Mission agreed during the Fact Finding Mission for Project 2 in June 2018 with KNNL and Secretary WRD that PMU and ACIWRM would report directly to IWRM Steering Committee. Under Project 1 this was never fully implemented and instead PMU has been reporting to KNNL Board. A government order is expected to be issued enabling PMU and ACIWRM to IWRM Steering Committee. The need for KNNL Board clearance has been a main cause of delays during Project 1 (during evaluations, approvals for contract variations, etc.) so it should help to expedite processes under Project 2.

21. Few PMU and PIO staff have attended ADB procurement procedures training. More focused and extensive procurement training is needed for PMU and PIO.

22. Tender Evaluation Committee (TEC) members are drawn from within PMU, are usually 4 or 5 in number. The members of TEC are appointed by WRD Secretary. The key point is there is no position of procurement specialist dedicated to KISWRMIP in PMU or PIO. Since PSC's 7

procurement expert inputs too are intermittent and are not available sometimes when required, PMU has been having difficulties with procurement issues. Overall, it is inferred that procurement and contract management section of KISWRMIP needs strengthening since Project 2 (and Project 3) are to be implemented in a tight timeframe.

b. ACIWRM

23. The ACIWRM is the first of its kind in India. The IWRM framework provides the opportunity to integrate the land and water related management aspects at the sub-basin and river basin levels. ACIWRM is a think tank of the WRD. It engages in policy analysis, research, planning, capacity building and development of knowledge base. ACIWRM works with the various departments, NGOs, civil society, private sector, farmers and water user associations and other organizations to produce integrated advice to the WRD for managing the state’s water resources.

24. ACIWRM comprises a Government Procedures and Administration Division under the management of the ACIWRM Registrar, and a Technical Division under the leadership of the Technical Director. There are six full time staff comprising training and capacity building; farmer and stakeholder involvement; river basin management; hydrology and irrigation; land and water management; and water resource information systems. Most of the experts are short term contract staff recruited for particular projects. ACIWRM is financed by GOK and supported by ADB financed KISWRMIP. ACIWRM organogram is in Figure 3.

25. Main activities of ACIWRM are:  Karnataka Water Resources Information System  IWRM training and Capacity Building  River Basin Plans in Selected River Basins  State IWRM policy and strategy  Water use efficiency and productivity  Participative land and water management plans  Communication, awareness raising and participation  Preparation of state specific action plan on climate change for water sector  National groundwater management improvement program  River basin modelling

Figure 3: ACIWRM organogram

26. The three engineers and principal coordinator for engineers carry out the procurement functions in addition to their regular engineering and management duties. Since ACIWRM is meant to be a think tank, it does not procure works. Some goods procurement (office equipment, website maintenance contract) has been done in Project 1. Primarily individual consultants have been recruited (12 recruited, 8 more being recruited) in Project 1 and more would be recruited in Project 2. ACIWRM intends to procure flow monitoring, water quality and weather monitoring goods packages and software in Project 2. Due to lack of procurement skills within ACIWRM, these could be better procured by either KNNL (which has better experience and skills) or by Department of Hydrology which has carried out this role for the World Bank’s National Hydrology Program on behalf of ACIWRM.

c. CADA

27. The main objective of CADA is to reduce the gap between potential area created and actual area utilized. CADAs are Involved in participatory irrigation management with WUCS.

28. The Government of India provides central assistance on matching basis for carrying out central sector command area development schemes. The schemes which are covered under central sector are administration, construction of field irrigation and distribution channels; regulation of field outlets, surveys, adoptive trails, land development training, subsidy to marginal and small farmers, management subsidy for WUCS, evaluation studies and land reclamation. The other schemes viz, access roads, construction of go downs, housing, special component plan and tribal sub-plans etc., are covered under state sector schemes which do not attract any central assistance.

29. CADA Directorate has been established in 2012 to coordinate among the various CADA’s and WUCS of the state to reduce the gap between planned and created irrigation potential. The following CADAs have been formed in Karnataka to carry out CAD Programs.

30. Two recently-tabled Comptroller and Auditor General of India (CAG) audit reports3 in Karnataka assembly (a performance review of numerous irrigation projects by three irrigation corporations including KNNL and an audit of Command Area Development Projects) point out that the deficiencies plaguing these projects ranged from faulty survey and design, erroneous estimates, irregularities in tendering, violations in land acquisition processes and tardy execution of works. Severe shortage of staff compounds the problem in CADAs. Out of 2831 WUCs formed, 981 (i.e. 34 percent) were non-functional.

31. It can be inferred that CADAs institutional capacity and implementation capability is limited. Substantial number of field positions are vacant, i.e., in Munirabad office of CADA, as of June 2018 out of 8 engineer positions, only 4 are filled.

3 CAG Audit Report, Karnakata, Report 8 of 2014, Chapter 2 and Report 9 of 2014, Chapter 2.

Table 1: CADA Offices in Karnataka State Sl. Name of the CADA Year Irrigation Projects Covered. No. started

1 Directorate of Command Area 2012 Head office of all CADAs in Karnataka Development Authorities, Bangalore 2 Administrator, CADA 1974 Munirabad Tungabhadra Project

3 Administrator, CADA , 1974 Malaprabha Project &Ghataprabha Project. Belgaum.

4 Administrator, CADA 1974 K.R.Sagar, NuguByramangala, Cauvery Basin Project, GundalKanva, MarconahalliKabini, Mysore Harangi, Hemavathy, Machanabele, Taraka and Votehole. 5 Administrator, CADA 1977 UpperKrishna Project. Bheemarayanagudi

6 Administrator, CADA 1979 Tunga, Gondi and Bhadra. Bhadra Reservoir Project, Shivamogga

32. WUCS component has been very successful in Project 1 and are set to be implemented at a much larger scale in Project 2. The aim of establishing and strengthening WUCS is to promote participatory irrigation management for increasing water use efficiency and promote sustainable agricultural practices. Post modernization, it is planned to hand over management of canal system to WUCS. Being village level community organizations, procurement for WUCS strengthening in Project 1 has been done using direct contracting procedures and same system is being proposed for Project 2.

33. The performance assessment of the 11 WUCS in the Gondi irrigation system is monitored through baseline surveys carried out by PSC. The first assessment carried out during September and October 2016 revealed that most of the WUCS were dormant. As of December 2017, five baseline assessments have been conducted and significant progress is seen in the performance of the WUCS. Most of the WUCS are now active and are implementing command area development works involving lining of the field irrigation channels and construction of cross drainage structures.

34. Key issues identified from interviews with Project 1 PIO Shivamogga are as follows: • Weak local consultants prepare own projects of WRD, KNNL and CADA • Exposure to good projects of government staff very limited • Addition of third party agency for quality control of Project 2 works essential since PSC does not have required expertise and capacity • Deputation of dedicated PMU and PIO is not possible for small investments. Since most of capital works occur during canal closure, having full time staff leads to their inefficient use. • Few medium sized bid packages instead of one large package better since large packages lead to very less competition. 11

• WUCS contracts to be treated as techno social contracts since social organization and participation of farmers is as important as physical works.. • PMU & PIO need longer duration, tailormade procurement training • Many PSC team members quit leading to so many replacements. Strengthen technical / engineering side of PSC.

35. Key issues identified from interviews with PSC are as follows; . • Strengthen PMU and PIO by adding consultants and contract employees. Strengthen accounting section of KNNL PMU by posting ADB or WB projects experienced people • Processing of payments consists of several review and approval layers: from and is SMEC - EE - AE - AEE - Accounts Section - EE - SE - CE - EE - Accounts Section - CAO Dharwad - KNNL finance - SMEC. Find ways to simplify and expedite. • Project design and bid document preparation of KNNL needs improvement. For example, gates and grooves for the gates not provided in VNC-1 bidding document, would lead to contract variations right after contract award. Canal outlets not provided for in bid document since they have not been identified, left to be done later. Better to ask farmers first where they want canal outlets and incorporate in cost estimate and bid document. • In CAD packages division of flow structures to be part of scope of work. Presently they are not. • Water and Land Management Institute (WALMI) to collaborate with ACIWRM and PSC for large scale farmer training and extension

Information Management

36. Procurement documentation, referencing and monitoring system for all types of contracts exist in KNNL and ACIWRM. Information is in paper files, procurement and project information is available on KNNL website www.http://knnlindia.com in the quarterly progress reports. PSC assists KNNL and ACIWRM with all project documentation, disclosures, preparation and submission of reports to KNNL management, WRD and ADB.

37. Adequate resources are allocated to record keeping infrastructure. Physical and electronic copies of all documents are stored for a minimum period of 5 to 30 years depending on importance and document retention period as defined in Karnataka Public Works Department's "D" code. Contract file with a copy of the contract and all subsequent contractual correspondence is with relevant Executive Engineer, but copies of invoices and payments are maintained separately by the accounts section.

38. As required by the ADB guidelines, all required notices for bids and consultancies are posted on ADB, KNNL or ACIWRM and GOK's e-procurement portal. Bids are advertised on procurement portal on ADB website, Karnataka Government e-procurement portal, Indian newspapers in English and Kannada languages, Indian Trade Journal, State Tender Bulletin, and District Tender Bulletin. Information on procurement opportunities, amendments to the bidding documents, call for expression of interest from consultants is posted on KNNL or ACIWRM websites. In addition, the notification on award of contracts is posted on KNNL or ACIWRM websites.

Procurement Practices

39. Filled in project procurement capacity assessment questionnaires of KNNL and ACIWRM are in Annex 1.

a. KNNL

40. Based on discussions with KNNL officers and conditions included in invitation to bids, details of procurement process of KNNL followed for government financed projects are given below.  KNNL has recent procurement experience for ADB and World Bank projects. KNNL has procured and implemented large contract packages through state financing.  The largest contract awarded till date by KNNL is INR 14285.14 million (~ US$216 million) using national competitive bidding (NCB)for turnkey contract Basaveshwar (Kempwad) Lift Irrigation Scheme. This bid was invited on 23 Dec 2016 and awarded on 17 March 2017 (less than 4 months). Longest times taken from bid invitation to contract award is about 22 months4. In case of modernization project, the largest contract package awarded is for about INR 1060 million (about US$21 million) for Bhadra project canal lining. All contracts of KNNL are procured using NCB. KNNL is following the KTPPA for all procurement. As per the Act e-procurement is mandatory for all procurements above INR. 0.2million (~ $3000) but KNNL is using e-procurement for packages of any value.  KNNL does not have a separate procurement unit. Bidding process is initiated in the field by the executive engineer (EE). The finance unit of KNNL with the support of the technical section (engineers) oversee the bidding process at KNNL central office.  Bidding process EE prepares the draft tender papers and submits to Technical Sub-Committee (TSC) for approval through concerned (field) superintending engineer (SE) and (field) chief engineer (CE). Once approved, bids are invited by the field EE. Bids are invited either on unit rate or turnkey basis. EE completes the technical evaluation and submits technical bid evaluation report to CE through SE for approval. CE approves technical bid evaluation report and authorizes opening of financial bids.  Financial bids are opened, evaluated and submitted to the CE for approval for bids up to $0.5 million. Bids between $0.5 million to $1.0 million are submitted to technical subcommittee through SE and CE for examination and recommendation for approval by the managing director KNNL. Bids above $1.0 million are sent for decision to the KNNL Board. KNNL is generally inviting percentage rate tenders and bidders quote above or below the estimated cost which is updated based on latest schedule of rates (SOR) for financial bid evaluation purpose.

4 The three works of upper Bhadra project entrusted on EPC turn key contract basis are: Package 1- Lifting 15 TMC water from Tunga river to Bhadra reservoir (awarded to M/s SEW-Jyoti (JV), India, for INR. 3240 million at 17% above the estimated cost- 2007-08 SOR), Package 2-Lifting 21.5 TMC water from Bhadra reservoir to Ajjampura tunnel (awarded to M/s RNSIL (JV), Bangalore for Rs. 10320 million at 17.74% above estimated cost) and Package 3-Ajjampura tunnel (awarded to M/s SNC Power,Bangalore for Rs. 2240 million at 19.76% above estimated cost). Bids for all the packages were invited on 22 Dec 2006 and works awarded in Oct 2008.

 As per KTPPA, bids above 10% of the estimated cost are generally considered as high which may go for rebidding. However in case of KNNL, TSC of KNNL fixes the range of percent variation which is acceptable for accepting the bids. Time taken from bid invitation to bid award is about 4-6 months in normal cases. Exceptionally, bids upto 20% above estimated cost have been awarded. Due to high competition resulting from adoption of e-procurement, it is rare that lowest bids exceed 10% above estimated cost. The bid prices depend on location and access to work site, among other factors.  Single stage single envelope procedure is followed for procurement of works below $100,000 and all goods packages. Single stage two envelope procedure is used for works between $100,000 to $2 million. Works costing above $2 million require prequalification of contractors. Technical bid is evaluated on the basis of prequalification criteria (turnover, similar experience, availability of man and machinery, cash flow, etc.).  KNNL specifies class of contractor who can submit the bid in the bid invitation. (Super Class, Class I, Class II and Class III registered with KNNL or other specified organisations) Super Class contractor is eligible for bidding for any contract size.  As per e-procurement procedure, earnest money deposit (EMD) or bid deposit up to INR 0.1 million is submitted online through credit or debit card, bank transfer etc. and the remaining EMD (in case EMD is more than INR 0.1 million) through demand draft or banker’s cheque or bank guarantee.  The bidder has to upload the scanned copy of the necessary certificates and documents included in support of eligibility criteria including proof for remaining EMD. The original certificates and documents are required to be produced before opening of tender containing technical bid for verification.  Dispute resolution is at two levels at present - Initial resolution at CE or Managing Director level failing which contractor can move the court for redress.

41. The standard bidding documents (SBD) of the GOK for goods, works and consultants were reviewed. Standard bid documents for works, goods and consultants have been standardized by GOK, Ministry of Finance, Procurement Cell and are used by GOK departments including KNNL and ACIWRM. Same SBD is used for national or international bidding. Process of procurement of consultants is similar to that of works or goods and requires consultants to provide bid document fee and bid guarantee. The SBD and the GOK circulars governing procurement are available in Department of Finance, GOK website www.finance.kar.nic.in/trans/tender.htm. The GOK SBDs are substantially aligned with ADB SBDs except for few key differences which are presented in Table 2.

Table 2: Summary of features and Variations - Karnataka Standard Bid Documents and ADB SBD Procurement Karnataka Standard Bid ADB Standard Bid Variations Type Document Document Goods KG-1, for estimated cost Compatible with Karnataka SBD clause references; less than $20,000 single stage two Section II Instruction to tenderers envelope goods SBD Clause 1.1 Tenderers not blacklisted by GOK Clause 4.1 tender language Kannada (local language) Clause 11.3 bid guarantee from nationalized or scheduled banks

Procurement Karnataka Standard Bid ADB Standard Bid Variations Type Document Document Clause 19.3 in case of words and figures discrepancy, lower value prevails Clause 23.1 can vary purchase quantities during contract signing up to 25% Dispute resolution is departmental. KG-2, for estimated cost Compatible with Variations as for KG-1 except that the more than $20,000 up to single stage two tender language is English. Dispute $100,000 envelope goods SBD resolution is departmental. KG-3, for computer systems Compatible with Differences same as for KG-1 except estimated cost less than single stage single that the tender language is English. $100,000 envelope goods SBD Additional clauses and price of annual maintenance contract and service centre requirements re included. KQ-1 for shopping of goods No equivalent For low value goods. Quotation validity all items together less than (previously known as of 30 days. $2,000 shopping) KQ-2 for shopping of goods No equivalent For low value goods. Quotation validity all items evaluated (previously known as of 30 days. separately, total cost less shopping) than $2,000 KSO for shopping, ready to No equivalent use items, cost less than $2,000 Works KW-1, for item rate works Item rate small works, Tenders from JV not accepted. less than $40,000 single stage single Bid validity 90 days. envelope Value of work declared in notice inviting tender. Bid security varies as follows; 2.5% for cost up to INR 20 lakhs 2% for cost INR 20 lakhs – INR 100 lakhs 1.5% for cost INR 100lakhs – INR 1,000 lakhs and 1% for cost more than INR 1,000 lakhs. Dispute resolution is with the procuring department. KW-2, for estimated cost Item rate small works, Same as KW-1 more than $20,000 up to single stage single $100,000 envelope KW-3for estimated cost Item rate small works, Bid security of 1.5% of estimated cost. more than $100,000 up to single stage two Dispute resolution is departmental. $200,000 envelope KW-4 estimated cost more Item rate large works, Bid security of 1.5% of estimated cost. than $200,000 up to single stage two Arbitration clause in GOK SBD $2,000,000 envelope provided. KW-5 estimated cost more Prequalification Bid security of 1% of estimated cost. than $2,000,000. followed by single Arbitration clause in GOK SBD Prequalification required, JV stage single envelope provided. not permitted KW-6 estimated cost more Prequalification Bid security of 1% of estimated cost. than $2,000,000. followed by single Arbitration clause in GOK SBD Prequalification required, JV stage single envelope provided. permitted Consultants 15

Procurement Karnataka Standard Bid ADB Standard Bid Variations Type Document Document KC-1 time based, less than QCBS FTP The consultant selection process $20,000, for firms or NGOs substantially similar to ADB QCBS or organizations QCBS, process. 75% : 25%

KC-2 time based, more than QCBS FTP $20,000, for firms or NGOs or organizations QCBS, 75% : 25% KC-3 lumpsum less than QCBS FTP $20,000, for firms or NGOs or organizations QCBS, 75% : 25% KC-4 lumpsum more than QCBS FTP $20,000, for firms or NGOs or organizations QCBS, 75% : 25% KC-5 time based, less than LCS The consultant selection process $20,000, for firms or NGOs substantially similar to ADB LCS or organizations LCS process. KC-6 time based, more than LCS $20,000, for firms or NGOs or organizations LCS KC-7 LCS lumpsum less LCS than $20,000 KC-8 LCS lumpsum more LCS than $20,000 KC-9 SSS time based, less SSS The consultant selection process than $10,000 substantially similar to ADB LCS process. KC-10SSS lumpsum, less SSS than $10,000 KC-11, Individual, less than QCBS BTP The consultant selection process $2,000, time based substantially similar to ADB QCBS BTP process KC-12, Individual, less than QCBS BTP $2,000, lumpsum

42. Table 3 shows procurement carried out by KNNL for GOK projects and Program PMU for Project 1 of KISWRMIP. KNNL has experience in procurement of works, goods and consultants.

43. Following inferences can be drawn from analysis of information in Table 3:  All GOK financed works contracts are procured through National Competitive Bidding.  Contract invitation to award durations ranged from 5 weeks to 13 months. Large number of contracts (17 out of 29) were awarded in last quarter of financial year 2017- 18.  PMU is experienced in recruiting international consultants using ADB's Quality and Cost Based Selection.  Most contracts are lift irrigation schemes, procured on turnkey basis including operation and maintenance for 3 to 5 years.  Contract award costs range between $ 1.6 to $ 216m million.

44. NCB Gondhi contract of Project 1 had only one qualified bidder (during second call for bids, first call had no response) who backed out from contract signing. Qualified bidder from the 2nd call refused to sign contract until KNNL settled his arbitration claims from earlier GOK financed

contracts. In the third bid call there were technical issues, bid was re-invited. Contract was awarded after 4th call.

Table 3: Procurement by KNNL for GOK Projects and Project 1 of KISWRMIP l. Tender Number Tender Title Bid invite Contract Contract No Date Value Award (INR Date million) 1 KNNL/2014- Tubchi-Babaleshwar Lift Irrigation 06-07-2014 12240 05-11-2014 15/HL/WORK_IND Scheme on Turn-key Basis ENT12847 2 KNNL/2014- CHACHADI Babaleshwar Lift Irrigation 27-09-2014 106.22 31-03-2015 15/LI/WORK_INDE Scheme on Lumpsum Turn-key Basis NT13953 3 KNNL/2014- SHIGGOAN Lift Irrigation Scheme 14-11-2014 434.30 10-04-2015 15/LI/WORK_INDE FROM DC-6 NT14481 4 KNNL/2014- Savanur Lift Irrigation Scheme Head 14-11-2014 1795.50 16-04-2015 15/LI/WORK_INDE work on Lump sum Turnkey Basis NT14480/CALL-2 5 KNNL/2015- Filling up Kaginale Tank and other 21 20-07-2015 506.49 24-06-2016 16/LI/WORK_INDE surrounding Tanks in Byadgi Taluk, NT16373 Haveri District by Lifting water from Varada River on Turnkey Basis. 6 KNNL/2014- Filling of 22 MI Tanks by pumping of 21-10-2015 807.77 04-07-2016 15/LI/WORK_INDE water from Hiranyakeshi river in Chikkodi NT13940 taluka & Hukkeri taluka of Belgaum district on Turnkey basis 7 KNNL/2015- Veerabhadreshwara Lift Irrigation 24-11-2015 4543.99 22-11-2016 16/HL/WORK_IND Scheme ENT16696 8 KNNL/2015- Gobbargumpi and Amargol Lift Irrigation 19-12-2015 296.69 16-01-2017 16/LI/WORK_INDE Scheme - I NT16839 9 KNNL/2015- Lift Irrigation Scheme - II On Turnkey 19-12-2015 482.28 16-01-2017 16/LI/WORK_INDE Basis. At The Following Locations. 1) NT16842 Gobbargumpi On Tupparihalla 2) Amargol On Bennihalla. 10 KNNL/2015- Venkateshwara Lift Irrigation Scheme on 19-12-2015 547 17-09-2016 16/LI/WORK_INDE TURN KEY basis NT17059 11 KNNL/2015- ALWANDI BETTGERE Lift Irrigation 07-01-2016 864 08-09-2016 16/LI/WORK_INDE Scheme,Koppal Taluk. NT17389 12 KNNL/2016- BASAVESHWAR (Kempwad) Lift 23-11-2016 14285.14 17-03-2017 17/LI/WORK_INDE Irrigation Scheme NT20839 13 KNNL/2016- BasapurLift Irrigation Scheme II Stage 17-12-2016 311.20 11-05-2017 17/LI/WORK_INDE NT21077 14 KNNL/2017- Extension of filling of Mi tanks 39nos. 22-04-2017 344.75 20-01-2018 18/LI/WORK_INDE under ShiggoanLift Irrigation Scheme. NT22289 15 KNNL/2017- Filling up of 48 MI/ZP tanks by lifting 22-04-2017 1000 03-01-2018 18/LI/WORK_INDE water from existing Delivery Chambers NT22282 DC-2 and DC-4. 16 KNNL/2017- SASVEHALLI Lift Irrigation Scheme 26-04-2017 4620.89 14-08-2017 18/LI/WORK_INDE inHonnalitaluk,Davangere district, NT22304 Karnataka 17

l. Tender Number Tender Title Bid invite Contract Contract No Date Value Award (INR Date million) 17 KNNL/2017- Filling 46 tanks and 19 Bhandaras 01-09-2017 2541.10 09-01-2018 18/LI/WORK_INDE coming under HaliyalTq, UK Dist by NT22682 lifting water from Kali River on Turn-Key Basis 18 KNNL/2017- Providing water source for irrigation and 16-10-2017 242.65 25-01-2018 18/LI/WORK_INDE recharging ground water for filling up of 9 NT22750 tanks Tadakod, Garag, Niralakatti, Hale Tegur, Bogur, and Bokyapur villages under scheme-1 & scheme-2 coming under Dharwad district. 19 KNNL/2017- Fillingup of MItanks by liftingwater from 15-09-2017 1274.88 20-01-2018 18/LI/WORK_INDE BedtiRiver NT22743 onTurnkeybasisnearBelavantara village of Kalaghatagi Taluk, Dharwad district. 20 KNNL/2017- Filling up RanebennurDoddakere and 22-09-2017 400 05-01-2018 18/LI/WORK_INDE other 3 surrounding tanks in Ranebennur NT22879 Taluk, Haveri District by lifting water from Tungabhadra River on lump sum turnkey basis. 21 KNNL/2017- Lift Irrigation Scheme for providing 15-11-2017 1115.16 07-03-2018 18/LI/WORK_INDE Drinking water&recharging ground water NT23156 to fill 39tanks of 19villages of Raibagtaluk, Belagavi district by lifting water from KrishnaRiver on TurnKey Basis. 22 KNNL/2017- Lift Irrigation system from Varada river 05-12-2017 365.61 08-03-2018 18/LI/WORK_INDE near Honkan village to fill the Tanks in NT23500 Hirekerur Taluk(13Nos) and Byadagi Taluk (2Nos) and other allied tanks. 23 KNNL/2017- Lift Irrigation Scheme for providing 13-12-2017 357.48 09-03-2018 18/LI/WORK_INDE drinking water & recharging ground water NT22585/CALL-2 to fill 19 tanks of 10 villages in Kudachi by pumping water from Krishna river in Raibagtalukq of Belgaum district 24 KNNL/2017- Lift Irrigation Scheme to fill 15 tanks 10-12-2017 3267.70 21-03-2018 18/LI/WORK_INDE &Chulkinal reservoirand lifting of water NT23635 from Manikeshwara&Halahalli barrage constructed on Manjra River near Km. 60 & Km. 90 of RBC of KP for stabilization of atchakat under Bidardistrict on Turn Key Basis. 25 KNNL/2017- Lift Irrigation system and Construction of 18-01-2018 445.56 17-03-2018 18/LI/WORK_INDE Gravity Distribution System including NT24492 structure for providing lifting of water from Varada River near Banavasi village to fill 32 tanks of BanavasiHobli of Sirsi taluk of Karwar District. 26 KNNL/2017- KULAHALLI-HUNNUR Lift Irrigation 18-01-2018 857.50 14-03-2018 18/LI/WORK_INDE Scheme and surrounding villages in NT24528 Jamakhandi taluk, Bagalkot district by lifting water from Krishna river on turn key basis. 27 KNNL/2017- Filling up of Asundi Tank and other 22-01-2018 766 08-03-2018 18/LI/WORK_INDE surrounding 17 MI/ZP tanks in NT24503 Ranebennur, Byadagi and Hirekerur Talukas of Haveri District by Lifting

l. Tender Number Tender Title Bid invite Contract Contract No Date Value Award (INR Date million) Water from Tungabhadra River on lump sum turnkey basis. 28 KNNL/2017- Godachinamalki Lift Irrigation Scheme 03-02-2018 748.81 20-03-2018 18/LI/WORK_INDE Stage-I & II of Gokak Taluk to irrigate an NT24696 area of 2569.42 ha. on turn-key basis. 29 KNNL/2017- Create 2723ha, of Command area under 09-02-2018 3138.34 16-03-2018 18/LI/WORK_INDE Varahi Lift Canal under Varahi Irrigation NT24726 Project on Turn-Key Basis. KISWRMIP Project 1 major contracts - (value in parentheses in US$ million) 30 FMT- ICB-2 Flow measurement and telemetry system Q1 / 2015 15.32 13-NOV-15 – supply (2.55) and installation

31 Gondi-NCB Main canal anddistributaries Q4 / 2015 100.15 18-FEB-16 -1 earthwork,lining, structures and flow (16.67) measurement devices

32 PSC-1 (QCBS) Program Q4 / 2013 15.80 30-JUN-15 Assignment: Support Consultants (including WUCS (2.63) International strengthening support)

45. From discussions with the officers of KNNL, it is understood that for contracts up to $ 50 million, contractors have sufficient capacity to carry out irrigation projects by using adequate level of technology such as lining by pavers, construction of structures, cross drainage works etc. As an example, procurement process followed for a large project is briefly explained here. In case of Bhadra project for which modernization works estimated to cost INR. 9510 million ($211.3 million) works were divided into twelve packages and bids invited. The bidders participated in 10 packages out of 12 packages and bids were finalized at 5% above the 2007-08 cost estimates. For the balance two packages, for which there was no response from the bidders, works were sub divided into seven packages and bids re-invited but the bidders responded for only five packages. It is understood that the reason for no response from bidders for some initial reaches was mainly due to excessive seepage problem in the reaches. As a part of the contract, contractor is required to maintain the canals for a period of 2 years after completion of works and for this purpose 7.5% of the contract amount is retained as performance security.

46. The size of bid package for main canal varied from INR. 532.8 million ($11.8 million) to INR. 1068.2 million ($23.7 million) whereas size of package for distributaries varied from INR 29.1 million ($0.65 million) to INR 68.2 million ($1.5 million). The size of the packages indicate that local contractors have capacity to do works of more than INR1000 million ($22.2 million). Only 2 or 3 contractors have capacity to do work above $100 million with mechanized equipment and latest technology.

47. In some contracts of Dam Rehabilitation and Improvement Project being financed by World Bank quantities doubled during implementation since field surveys and investigations were inadequate. Consultants selected to prepare projects of KNNL or CADA are mainly selected on lowest price basis, are given inadequate time to prepare feasibility and detailed project reports, leading to redesign and delays during implementation.

48. WUCS contracts procurement and implementation has been delayed due to multi stage invoice checking and processing. Invoices are prepared by WUCS, verified by CADA engineers 19

and then sent to PIO. Within PIO invoice travels from executive engineer to assistant executive engineer to assistant engineer to accounts section. Once cleared by accounts, it goes through KNNL executive engineer to superintending engineer to chief engineer, then back to executive engineer who forwards it to KNNL Accounts Section at Dharwad. KNNL's accounts sections is understaffed, are not very familiar with ADB project disbursement procedures. Then the invoice is sent to KNNL finance division at Bangalore. The delay could be reduced by delegating powers within KNNL for contract signing and invoice approval to superintending or executive engineers and posting to PMU and PIO and accounts sections, staff with prior experience of multilaterally financed projects.

b. ACIWRM

49. ACIWRM activities are undertaken with the support of individually recruited consultants. Under Project 1, seven international individuals are to be recruited under the “Support Consultants” budget allocation item and 15 national individuals are to be recruited under the “Surveys, Design and Studies” budget allocation item

50. Table 4 presents the procurement of goods and consultants carried out by ACIWRM for Project 1 using ADB procurement procedures. No works procurement was done, nor any contracts procured through GOK procedures.

Table 4: Procurement carried out for Project 1 of KISWRMIP by ACIWRM Bid or Number of Contract Sl. EOI Package Package Title bids signing no. invitation cost (INR) received date date A Works None B Goods Supplying Software, Installing in the 1 09-12-2016 3 01-03-2017 6601000 servers, desktop computers / laptop 2 Supply of office Furniture 28-10-2015 3 30-12-2015 1836400 3 Supply of office Furniture 10-07-2017 3 17-02-2018 198000 4 Supply of Modular Workstations 28-10-2015 3 30-12-2015 959703 5 Supply of Digital Prinitng Maps 27-04-2016 3 12-05-2016 66596 6 Supply of Digital Prinitng Maps 14-07-2017 3 13-09-2017 88264 Supply of Culturable Command 7 05-04-2017 3 22-06-2017 2760000 Area Maps Supply and Installation of Desktop, 8 30-10-2017 3 11-12-2017 3409600 Computers, Server Computers Supply and Installation of Desktop, 9 11-01-2016 3 15-03-2016 3847254 Computers, Server Computers Supply of Buy back of Switch 10 27-02-2018 3 21-03-2018 120596 mounting rack 11 Website & Web Designer 27-04-2016 3 30-05-2016 85000 Autodesk/Auto Designing Software 12 28-10-2016 1 01-02-2017 173016 AutoCAD Supplying ERDAS Software, 13 30-08-2016 3 22-11-2016 2928188 Installing in the Desktop Computer

Bid or Number of Contract Sl. EOI Package Package Title bids signing no. invitation cost (INR) received date date Creative agency for designing key 14 01-09-2017 3 28-10-2017 1256700 visual creation and brochure Supplying Tideda and Td gauge 15 21-09-2017 3 27-11-2017 865128 Software Arc GIS Software in the Desktop 16 30-06-2016 3 03-08-2016 2139029 Computers

C Consultants 1 Chief Technical Advisor 13-12-2013 21 02-06-2015 34329122 International River Basin Modeling 2 03-12-2015 16 27-06-2016 8638051 Expert 3 International Hydrology Expert 03-12-2015 20 27-06-2016 3590720 4 International Masscote Expert 19-07-2016 2 11-08-2016 2188848 International Irrigation 5 25-06-2017 18 24-10-2017 7562572 Modernization Expert Water Resources Policy and 6 03-12-2015 12 27-06-2016 1457000 Institutions 7 Water Quality Specialist 12-07-2017 6 25-10-2017 2316000 8 Videographer 18-05-2017 6 25-10-2017 1264720 Training and Capacity Building 9 07-05-2017 16 24-11-2017 643125 Specialist Agriculture Specialist-Water Use 10 17-08-2017 7 04-01-2018 1327500 Efficiency & Water Productivity National Economist / Livelihood 11 11-07-2017 11 20-01-2018 3293850 Expert Agriculture Specialist - Micro 12 17-08-2017 6 11-01-2018 1653750 Irrigation

51. All goods packages were procured quickly, took 1 to 3 months. Recruiting international specialists took a long time, especially Chief Technical Advisor position which took 18 months. ACIWRM took 3 to 7 months to recruit other international and national individual consultants. For many positions expression of interest deadlines were extended, some positions were re- advertised.

c. CADA

52. KNNL, CADA and WUCS (tripartite agreement) have signed the community procurement packages (CPPs) contracts in Project 1. This arrangement was made since CADA does not have adequate staff, resources and expertise to procure and manage CPPs. Same arrangement is expected to continue in Project 2.

53. Project 1 WUCS Packages. As per the procurement plan of Project 1, CPPs will be less than $30,000 each and may be directly awarded to the relevant WUCS as community works contracts. ADB has approved the award of 130 community participation packages in the Gondi subproject amounting to about INR 238,700,000 ($3.6 million). KNNL has identified a further 107 packages to continue improving farmer irrigation canals, improvement to tanks, construction of 21

WUCS offices and provision of furniture and equipment, and installation of water control gates. The additional packages will amount to about INR 187,100,000 ($2.8 million)..Signing of the contracts (between KNNL, CADA and WUCS) happened between 30 January 2017 and 28 August 2017. As per the contracts, works were to be completed within 3 months, however, construction could not be finished on time due largely to delayed release of mobilization payments. Construction period was also limited due to canal closures in June and December 2017.

54. Project 2 WUCS Packages. About 575 WUCS packages will be shared amongst the VNC WUCS. Each package will be less than $30,000. The total amount allocated for this activity is about $20 million equivalent. Like those implemented at Gondi in Project 1, the packages will improve the field irrigation canals, construct WUCS offices where necessary, and provide the WUCS offices with furniture and equipment. Packages may also be used to establish and strengthen the WUCS federation.

E-Procurement

55. E-Procurement has become the default mode of procurement in Karnataka. Karnataka Unified End-to-End e-Procurement System is implemented by Centre for e-Governance, GOK. About 200+ government departments, parastatals, universities, few government of India agencies and some private sector clients are using the e-Procurement services. e-Procurement started in 2007 with 9 clients and has quickly grown to be the dominant procurement mode of GOK. Two full-fledged training units at Bangalore and Dharwad train client and contractor staff.

56. The technology used is enterprise level software designed and developed on open source platform. System is flexible enough to address unique process and functional requirements. The platform is hosted in State Data Centre of GOK. There are 6 modules of e-Procurement which are chosen by the user agency as per its requirement: - e-indents and e-estimates - e-Tendering - e-Contract Management - e-Catalogue Management - e-Auction - e-Payment

57. Complete security of bids is ensured by asymmetric bid encryption / decryption using private key infrastructure. Transfer of data is through SSL tunnel. Documents are encrypted by bidder prior to uploading his bid. Bid can be decrypted only with the private key of the bid official after the scheduled time of bid opening. Confidentiality of identity of bidders is maintained and time stamping of all transactions and workflows is carried out. Digital signature certificates are used for bid submission and opening. Use of the system is free of charge for all government departments and parastatals. Options are available for electronic payment and refund of bid security.

58. The unified e-Procurement platform has been incorporated by an amendment (Section 18-A. E-Procurement) to the KTPP Act, 1999 to enable legal validity. The e-Procurement system has been instrumental in substantial increase in bidder participation, decrease in bid premium and steep reduction of time in bidding cycle.

59. The system has been set up and is run under public private partnership mode with GOK and a private sector firm as partners with transaction based revenue model for sharing revenues. Centre for e-Governance is the implementing agency for e-Procurement. Centre for e- Governance Chairman is the Principal Secretary of Department of Personnel and Administrative Reforms, GOK and day to day operations are overseen by a Chief Executive Officer and Project Director.

60. E-procurement portal of GOK used by KNNL https://eproc.karnataka.gov.in/eprocportal/pages/index.jsp?language=en. This E-procurement system has been evaluated by ADB during Project 1 preparation and found fit for use in ADB financed projects.

Effectiveness

61. Contractual performance is monitored and reported but there is scope for improvement, there are delays in reporting. PMU monitors systematically its contractual payment obligations. ADB's standard bidding documents are followed, arbitration is provided for as per India Arbitration Act. Procurement decisions are supported by written narratives such as minutes of evaluation, meeting, negotiation and contract variation. The procurement appeals process has been laid out in Chapter II, Clause 16, Appeals of KTPPA. Chapter IV details Offenses and penalties. detailed rules, orders, notifications and circulars have been issued by GOK regarding KTPPA to ensure proper compliance of the procurement law.

62. No mis-procurement has been declared by ADB in Project 1.One package (Gondi-NCB - 1) was rebid four times in Project 1 due to no bids received or bidders bid security lapsing before contract signing. None of the contracts have been cancelled. PSC performance related to participatory irrigation management and WUCS is deemed highly successful. PSC however has replaced many key staff multiple times, has been unable to deploy procurement expert when required, has no staff to effectively assure construction quality. So PMU desires to recruit a new third party quality assurance consulting firm for Project 2 which would enhance implementation effectiveness.

Accountability Measures

63. There are five major government bodies to check procurement probity issue in India namely Procurement Policy Division, Comptroller and Auditor General (CAG), Central Vigilance Commission (CVC), Competition Commission of India (CCI), and Central Bureau of Investigation (CBI). While the CAG and CVC address the probity issues, the CCI takes on the anti-competitive elements. The CVC has urged for adopting Integrity Pact towards enhancing transparency, equity, and competitiveness in the public procurement system. Accordingly, it approved the appointment of Independent External Monitors in 132 procuring entities in 2016 (CVC, 2017). However, CVC or the CAG do not have the power of prosecution to take disciplinary action against the procurement irregularities. Instead, they only advise or recommend disciplinary actions. Apart from probity issue, CVC and CAG also release guidelines on public procurement, which are mostly advisory in nature, but not binding on the procuring entities. At state level, Karnataka has vigilance officers in every major organization or department, Anticorruption Bureau and Karnataka Lokayukta are tasked with investigating corruption cases.

64. Procurement transactions are decided upon in case of KNNL by Estimates Review Committee and TSC and KNNL Board, the approval process therefore takes time. In case of ACIWRM, most decisions are taken inhouse with endorsement of Secretary, WRD. 23

Commencement of procurement is not dependent on any external approvals but in both KNNL and ACIWRM there is a clear separation of procurement functions. Procurement transactions and payments are authorized by managing director of KNNL while recording procurement transactions and events and custody of assets is the responsibility of designated officers in PMU and PIO. External independent audit (not specifically of procurement, but subsumed in financial audit) is periodically carried out. Statutory audits by CAG are done. Written auditable trail of the procurement decisions are available.

65. Perceived weakness in accountability measures is that there is no standard statement of ethics requirement for those involved in procurement. The rate of conviction in corruption cases is low. However those involved with procurement are required to declare any potential conflict of interest and remove themselves from the procurement process. Commencement of procurement and its approval are not dependent on external approvals.

B. Strengths

66. The strengths of KNNL and ACIWRM related to procurement are summarized as follows: i. All procurement actions, decisions and approvals are taken within KNNL and ACIWRM. ii. KNNL and ACIWRM being a company and a Society respectively are largely insulated from cumbersome and unclear procurement practices of the state. iii. The PMU and PIO comprise of some staff who have experience of procurement and contract management in ADB financed Project 1 of KISWRMIP. In addition KNNL is an implementing agency under the ongoing World Bank financed Dam Rehabilitation and Improvement Project. They would be able to leverage the experience for Project 2 and Project 3 of KISWRMIP and other future projects. iv. WUCS component which has numerous small community contracts has been well managed by KNNL by resorting to co-signing contract agreement with CADA, involving CADA in monitoring and processing payments to WUCS. v. E-procurement by using GOK portal, KNNL or ACIWRM websites and open and widespread advertising is used well for all bid invitation. vi. Karnataka has an excellent KTPPA which is followed by KNNL or ACIWRM, thereby strengthening the complaints redress and accountability measures. vii. KNNL has long and strong experience of procuring and implementing irrigation sector projects, many of them large ones. ACIWRM has a good mix of government staff on deputation and consultants which works well for the kind of work they do.

C. Weaknesses

67. The weaknesses of KNNL and ACIWRM related to procurement are summarized as follows: i. There are no procurement specialists in PMU, PIO and ACIWRM. Mostly Engineering staff with consultant support manage procurement functions which is less efficient than having full time procurement staff. PMU & PIO staff get transferred leading to loss of program institutional memory. PSC too has resorted to multiple replacements of experts. All staff in PMU (except one part time consultant) and PIO

comprise people seconded from government, most of them not well versed with ADBs procurement processes. ii. No clear separation of engineering, procurement and regulatory functions exist in PMU, PIO and ACIWRM. iii. Procurement and contract administration section of KNNL and ACIWRM needs strengthening and requires tailor made ADB procurement process training. Decisions on contract variations and processing invoices get delayed. iv. There is no retention of institutional procurement memory, information on procurement is scattered amongst various people and in paper files in PMU. Comprehensive procurement documentation and monitoring system for contracts does not exist in KNNL and ACIWRM. v. Project 1 had inadequate competition in bidding by KNNL for works. vi. There are 3 levels of approval for large contracts (TEC and TSC and KNNL Board), delays occur. vii. Accounts sections of PMU, PIO, ACIWRM and Dharwad Chief Accounts Office of KNNL need more number of persons trained in ADB procurement and disbursement process to address Complex, time consuming process of payment to WUCS.

D. Procurement Risk Assessment and Management Plan (P-RAMP)

68. The project procurement risks, their assessed impact, likelihood of occurrence and recommended mitigation measures are summarized in P-RAMP:

PROJECT PROCUREMENT RISK ASSESSMENTAND MANAGEMENT PLAN

PCA Question- naire Ref. Risk Impact Likelihood Strategy KNNL: C.2, Delayed procurement Low Likely Mitigate: C.15 by KNNL due to - State to make arrangements multiple approval layers that delegates decision making to and irregular convening the State IWRM Steering

of approval committee Committee instead of KNNL meetings. Board. - The Program Director to become the focal person for the investment program while the Project Director role be assigned

to a senior KNNL staff member on a full-time basis. All PMU staff be assigned to the PMU on a full- time basis.

Monitor: Above arrangements are to be in place prior to Project 2 effectiveness. 25

PCA Question- naire Ref. Risk Impact Likelihood Strategy KNNL: Delayed procurement and High Unlikely Mitigate: C.23 poor contract administration - ADB to provide regular ACIWRM: leading to delays in project procurement and contract A.3, A.9, completion. administration trainings to A.17 ACIWRM and KNNL. - ACIWRM to recruit procurement specialist with ADB procurement experience.

Monitor: - Monitoring of baseline projections for contract awards and disbursements. KNNL: Poor performance of High Unlikely Mitigate: C.49 consultants and low - Administer to PMU and standard of outputs. ACIWRM training programs to provide specific guidance on consultant performance evaluation and discuss case studies on consultant performance evaluation. - A dedicated person in PMU and ACIWRM to be devoted to evaluation and monitoring of consultants performance.

Monitor: - PMU and ACIWRM to monitor consultant performance at regular intervals. - PMU to ensure PSC experts are available when required by the project

III. PROJECT SPECIFIC PROCUREMENT THRESHOLDS

69. Procurement classification for the project investment is assessed as Moderate (Category B). The completed Project Procurement Classification checklist is provided in Annex 2.

70. The reason for Moderate (Category B) classification is that in Project 1, both KNNL and ACIWRM had long procurement lead times and experienced implementation delays. Substantial delay occurred in one works package procurement of Project 1 and in PSC recruitment. However, the experience of Project 1 would improve the situation for Project 2.

71. Based on the procurement capacity assessment carried out and the current thresholds for India, it is recommended that prior review limits and procurement thresholds for Project 2 of KISWRMIP be retained as follows. In Project 2, civil works procurement will be through open competitive bidding (OCB) per the ADB Procurement Regulations for ADB Borrowers (2017, as amended from time to time). Civil works contracts above $40 million will use international advertisement and those costing less than $40 million will use national advertisement. Single- stage two-envelope bidding with post-qualification will be adopted for all civil works contracts under the project. ADB review of bid documents and evaluation shall be prior for all OCB contracts. Domestic preference is not applicable.

72. For the procurement of goods and related services, international advertisement will be used for contracts of at least $1.0 million and national advertisement for contracts of less than $1.0 million. For contracts valued at less than $100,000 ADB’s procedures on request for quotations will be followed. ADB review of procurement of goods through request for quotations will be on post facto basis. Works by government owned entities (for activities which cannot be done by competitive bidding) shall be done by Force Account method. Community works contracting (each contract not exceeding $30,000) would be awarded to community groups (WUCS) and local NGOs using the same contractual arrangement (KNNL+CADA+WUCS) as has been followed in Project 1. Procurement for the Project 2 will conform to ADB’s Procurement Regulations for ADB Borrowers (2017, as amended from time to time).

IV. PROCUREMENT PLANS

73. An 18-month draft procurement plan showing threshold and review procedures, goods, works, and consulting service contract packages is shown in Annex 3.

74. All advance contracting and retroactive financing will be undertaken in conformity with ADB’s Procurement Regulations for ADB Borrowers (2017, as amended from time to time).

75. The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The borrower and KNNL have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the project.

76. Advance contracting is required. PMU, ACIWRM and PIO expenses (remuneration, office equipment, vehicles and personnel) would also be part of advance contracting and retroactive financing. Process for recruitment of a construction quality assurance firm by KNNL, individual consultants by ACIWRM are underway. PSC package will be advertised. VNC-1 works package has been awarded in March 2019. The intention is to award the other packages (except construction quality assurance firm which would take more time) after completing all procurement steps concurrent with loan effectiveness.

77. Retroactive financing. A maximum amount of eligible expenditures up to the equivalent of 20% of the total ADB loan, incurred before loan effectiveness, could be made, but not more than 12 months before the signing of the loan agreement.

V. CONCLUSIONS

78. Based on the procurement capacity assessment of KNNL, ACIWRM and CADA, the following measures for improvement of procurement capacity are recommended: i. PMU, PIO and ACIWRM need more tailor-made training on ADB's procurement process for which provision is to be made in Project 2 budget. ADB organized trainings in Project 1 have been general and infrequent. A tailor made training and capacity building program during project implementation would strengthen the program procurement system. More effort should be devoted to capacity building in contract management, disbursements and procurement. ii. The e-procurement system of GOK is robust and is to be followed in Project 2 for procurement of civil works and goods through OCB. iii. Karnataka has implemented ADB financed projects particularly in the urban and transport sectors. The understanding and appreciation of ADB’s procurement system is there in the higher levels of government and some specific departments / entities implementing such projects. It would be helpful if officers who have experience with externally aided projects are posted to PMU, PIO and ACIWRM which would improve procurement capacity. iv. The annual working period in canals is limited to total 3 months during canal closures. Contract specifications should consider this aspect. v. PMU and ACIWRM to simplify and expedite decision making layers and processes related to procurement, contract variations, project management and disbursement. PMU to report to IWRM Steering Committee instead of KNNL Board. KNNL to nominate a senior officer as full time Project Director for Project 2. vi. PMU to have at least 2 dedicated procurement persons (one exclusively for consultant selection, performance monitoring and evaluation, other for works and goods.). vii. Ensure PSC meets their contractual obligation to deploy procurement expert whenever required by the PMU. viii. PMU, ACIWRM and PIO need to have project dedicated full time staff. ix. Community works contracting to be awarded to community groups (WUCS) and local NGOs using the same contractual arrangement (KNNL+CADA+WUCS) as has been followed in Project 1.

PROJECT PROCUREMENT RISK ASSESSMENT QUESTIONNAIRE

KISWRMIP Project 2

Executing Agency; KNNL

Risk Ratings High (H) Substantial(S) Average (A) Low (L)

QUESTION RESPONSE1 RISK5 A. ORGANIZATIONAL AND STAFF CAPACITY PROCUREMENT DEPARTMENT/UNIT A.1 Does the agency or Government Yes. L have a Procurement Committee that is independent from the head of the agency? A.2 Does the agency have a No procurement department/unit. Executing A procurement department/unit, engineers act as procurement secretariat for including a permanent office that their own divisional offices. Managing performs the function of a Secretariat Director, KNNL acts as secretariat chair and of the Procurement Committee? KNNL Board makes procurement decisions. KNNL has procurement experience under tranche 1. A.3 If yes, what type of procurement Works and goods. L does it undertake? A.4 How many years’ experience does The Managing Director at KNNL head office, L the head of the procurement Bangalore is the key person responsible for department/unit have in a direct procurement decisions. KNNL has direct procurement role? procurement experience in various levels from 1999. A.5 How many staff in the procurement Per A.2 there is no dedicated procurement L department/unit are: department/unit. However, there are i. full time adequate staff, decentralised at division level, that undertake procurement responsibilities. ii. part time All are full-time staff. They carry out iii. seconded procurement functions in addition to their regular engineering and management duties. A.6 Do the procurement staff have a high Yes. L* level of English language proficiency (verbal and written)? A.7 Are the number and qualifications of Yes, KNNL undertook procurement worth L* the staff sufficient to undertake the $900 million in Indian financial year 2017-18. additional procurement that will be The investment program is comparatively required under the proposed project? small.

1 Responses should include a discussion of the e-procurement component if an e-procurement system is in use or if is being planned for implementation. 5 Questions indicated with * are associated with potentially ‘High’ or ‘Substantial’ risks due to the impact being ‘High’, therefore the strategy for managing those risks should be addressed in the Project Procurement Risk Analysis (Appendix 3).

QUESTION RESPONSE1 RISK5 A.8 Does the unit have adequate facilities, Yes, but needs to be augmented since A such as PCs, internet connection, equipment are getting old and outdated. photocopy facilities, printers etc. to undertake the planned procurement? A.9 Does the agency have, or have ready Yes, e-procurement training has been A* access to, a procurement training conducted for most KNNL technical staff at program? zonal levels. KNNL headquarter staff have attended ADB’s procurement training, of which only one officer continues to be involved with the investment program. Further training is recommended for PMU and PIU staff on ADB’s procurement system. A.10 At what level does the Report to Managing Director, KNNL. L department/unit report (to the head of agency, deputy etc.)? A.11 Do the procurement positions in the Yes, the engineers responsible for L agency have job descriptions, which procurement have appropriate job outline specific roles, minimum descriptions. technical requirements and career routes? A.12 Is there a procurement process PWD Codal Provisions, KTPP Act & e-portal, L manual for goods and works? Standard Bid Documents available at these Karnataka Government websites: https://eproc.karnataka.gov.in/eprocportal/pa ges/index.jsp?language=en

and

www.finance.kar.nic.in/trans/tender.html A.13 If there is a manual, is it up to date Yes. L and does it cover foreign-assisted projects? A.14 Is there a procurement process No manual, standard bid documents are L manual for consulting services? available for consultant procurement. For the investment program, KNNL follow ADB’s procurement and recruitment guidelines and standard bid documents and request for proposals. A.15 If there is a manual, is it up to date NA and does it cover foreign-assisted projects? PROJECT MANAGEMENT UNIT A.16 Is there a fully (or almost fully) Yes, fully staffed PMU exists. L* staffed PMU for this project currently in place? A.17 Are the number and qualifications of Yes, however ideally additional staff involved L* the staff sufficient to undertake the with procurement could be added to the PIU. 31

QUESTION RESPONSE1 RISK5 additional procurement that will be required under the proposed project? A.18 Does the unit have adequate Yes, but needs to be augmented since A facilities, such as PCs, internet equipment are getting old and outdated. connection, photocopy facilities, printers etc. to undertake the planned procurement? A.19 Are there standard documents in Yes, ADB's standard bid documents have L* use, such as Standard Procurement been used under tranche 1, same will be Documents/Forms, and have they used for tranche 2. been approved for use on ADB funded projects? A.20 Does the agency follow the national Yes. L* procurement law, procurement processes, guidelines? A.21 Do TORs for consulting services Yes. For government projects KNNL use L follow a standard format such as formats K-1 to K-12 and are based on background, tasks, inputs, objectives threshold cost estimate and whether inputs and outputs? are time based or lumpsum. QCBS is used for estimated consulting cost >$20,000 (Q75%: C25%), LCS between $10,000 to $20,000 and for <$10,000 SSS with competent authority approval and <$2,000 individual consultant selection method is used. For tranche 1, KNNL followed ADB’s requirements. A.22 Who drafts the procurement Executive Engineer and his office. A specifications? A.23 Who approves the procurement Chief Engineer if value of work is < INR 50 A specifications? million, Estimate Review Committee chaired by KNNL Managing Director for > INR 50 million A.24 Who in the PMU has experience in While all Engineers in PMU have some A* drafting bidding documents? knowledge of drafting bidding documents, most of the time Karnataka Government's SBD formats are used. A.25 Are records of the sale of bidding Since e-procurement must be used for > 0.5 L* documents immediately available? million INR, records of the sale of bidding documents are immediately available after submission deadline A.26 Who identifies the need for Concerned project's Executive Engineer. For L consulting services requirements? ADB projects its done with ADB project officer. A.27 Who drafts the TOR Concerned project's Executive Engineer. For L ADB projects its done with PSC and ADB project officer. A.28 Who prepares the request for Concerned project's Executive Engineer with L proposals (RFPs) support from PSC.

QUESTION RESPONSE1 RISK5 B. INFORMATION MANAGEMENT B.1 Is there a referencing system for Yes L procurement files? B.2 Are there adequate resources Yes. L* allocated to record keeping infrastructure, which includes the record keeping system, space, equipment and personnel to administer the procurement records management functions within the agency? B.3 Does the agency adhere to a Yes, physical and electronic copies of all L* document retention policy (i.e. for documents are stored for a minimum period what period are records kept)? of 5 to 30 years depending on importance and document retention period as defined in PWD "D" code. B.4 Are copies of bids or proposals Yes. L retained with the evaluation? B.5 Are copies of the original Yes. L advertisements retained with the pre- contract papers? B.6 Is there a single contract file with a Yes. Everything is filed with the relevant L copy of the contract and all Executive Engineer. subsequent contractual correspondence? B.7 Are copies of invoices included with No. A the contract papers? B.8 Is the agency’s record keeping Yes. A function supported by IT? C. PROCUREMENT PRACTICES Goods and Works C.1 Has the agency undertaken Yes. L* procurement of goods or works - Tranche 1 included procurement of goods related to foreign assistance recently and works and is now substantially complete. (last 12 months or last 36 months)? If - The Dam Rehabilitation Implementation yes, indicate the names of the Program (DRIP) financed by World Bank is development partner/s and project/s. under implementation. KNNL has procured goods and works under DRIP. C.2 If the answer is yes, what were the - ADB procurement procedures and KNNL S* major challenges faced by the procurement procedures are not agency? synchronized. At project start up this led to initial problems in understanding and procurement execution. - All high value procurement decisions (with threshold >$0.8 million) must be approved by KNNL’s technical evaluation committee and 33

QUESTION RESPONSE1 RISK5 KNNL Board, in addition to ADB clearance. The TEC and Board meet irregularly causing significant delays. C.3 Is there a systematic process to Yes, procurement requirements are L identify procurement requirements determined by investment programming done (for a period of one year or more)? at State level by Water Resources Department and internally within KNNL. C.4 Is there a minimum period for the 7 Days to 60 Days A* preparation of bids and if yes, how long? C.5 Are all queries from bidders replied to Yes. Pre-bid meeting compulsory L* in writing? C.6 Does the bidding document state the Yes. L* date and time of bid opening? C.7 Are bids opened in public? Bids are submitted on e-procurement portal L* and are opened electronically. Opening details and records are available to bidders online. C.8 Can late bids be accepted? No. L* C.9 Can bids (except late bids) be No. L* rejected at bid opening? C.10 Are minutes of the bid opening Not applicable as electronic bid opening being L* taken? practiced. C.11 Are bidders provided a copy of the Bid opening details and records are available L* minutes? to bidders online. C.12 Are the minutes provided free of Not applicable. L* charge? C.13 Who undertakes the evaluation of The executive engineer and his office A bids (individual(s), permanent undertakes an initial evaluation which is then committee, ad-hoc committee)? reviewed by the technical evaluation committee. C.14 What are the qualifications of the Well-qualified engineers and finance officers A* evaluators with respect to who are permanent employees of Karnataka procurement and the goods and/or state cadre. works under evaluation? C.15 Is the decision of the evaluators final Chief Engineer, Managing Director, technical S* or is the evaluation subject to evaluation committee, and KNNL Board additional approvals? subject to tender cost. C.16 Using the three ‘worst-case’ Typically, 4 to 6 months. In case of high A examples in the last year, how long variation from estimated cost, it has taken 22 from the issuance of the invitation for months in one case. bids can the contract be awarded? C.17 Are there processes in place for the Yes. L collection and clearance of cargo through ports of entry?

QUESTION RESPONSE1 RISK5 C.18 Are there established goods Yes. L receiving procedures? C.19 Are all goods that are received Yes. L recorded as assets or inventory in a register? C.20 Is the agency/procurement Yes. L department familiar with letters of credit? C.21 Does the procurement department Yes, this task is done by KNNL’s finance L register and track warranty and latent department. defects liability periods? Consulting Services C.22 Has the agency undertaken foreign- Yes, once. Under tranche 1 in November A* assisted procurement of consulting 2015 KNNL recruited an international firm to services recently (last 12 months, or undertake the role of Program Support last 36 months)? (If yes, please Consultant. indicate the names of the development partner/s and the Project/s.) C.23 If the above answer is yes, what - it took some time in the first year of the S* were the major challenges? project to understand fully ADBs consultant procurement process. - Accounting problems, especially with foreign currency transactions. - All high value procurement decisions (with threshold >$0.8 million) must be approved by the technical evaluation committee and Board of KNNL, in addition to ADB clearance. These approvals delayed the award of contract and mobilization of the firm. C.24 Are assignments and invitations for Yes, it is mandatory on e-procurement portal L* expressions of interest (EOIs) of Government of Karnataka. advertised? C.25 Is a consultants’ selection committee Yes, Chief Engineer or Technical Sub A formed with appropriate individuals, Committee and what is its composition (if any)? C.26 What criteria is used to evaluate As per those stipulated within the terms of A EOIs? reference. C.27 Historically, what is the most LCS. A* common method used (QCBS, QBS, etc.) to select consultants? C.28 Do firms have to pay for the RFP No. e-procurement is carried out for L* document? consulting services, RFP downloadable free of charge from e-procurement web portal of Government of Karnataka. 35

QUESTION RESPONSE1 RISK5 C.29 Does the proposal evaluation criteria Follows a pre-determined structure, is not A* follow a pre-determined structure detailed in the RFP. and is it detailed in the RFP? C.30 Are pre-proposal visits and meetings Yes, based on pre-determined threshold L arranged? value of cost of consulting services. C.31 Are minutes prepared and circulated Yes, uploaded on e-procurement portal of L* after pre-proposal meetings? Government of Karnataka. C.32 To whom are the minutes To all participants. L* distributed? C.33 Are all queries from consultants Yes. L* answered/addressed in writing? C.34 Are the technical and financial Yes. L* proposals required to be in separate envelopes and remain sealed until the technical evaluation is completed? C.35 Are proposal securities required? Yes. A* C.36 Are technical proposals opened in Yes, opened online. L* public? C.37 Are minutes of the technical opening Not applicable (being e-procurement). L* distributed? C.39 Who determines the final technical Superintending Engineer or Chief Engineer or A* ranking and how? tender evaluation committee chaired by Secretary, Water Resources Department, GOK. Recommendations of Chief Engineer who is primarily responsible for evaluation are either endorsed or modified at various levels listed above. Level at which decision is taken is based on pre-defined threshold value of consulting services. C.40 Are the technical scores sent to all No. A* firms? C.41 Are the financial proposal opened in In e-procurement portal where financial L* public? proposal opening is carried out online, details are available to consultants online. C.42 Are minutes of the financial opening Not applicable. L* distributed? C.43 How is the financial evaluation In QCBS with weight of Q75%:C25%. In LCS L* completed? method qualified firms with least cost C.44 Are face to face contract No. A* negotiations held? C.45 How long after financial evaluation is 1 to 2 months. L negotiation held with the selected firm?

QUESTION RESPONSE1 RISK5 C.46 What is the usual basis for Not applicable. L negotiation? C.47 Are minutes of negotiation taken and Not applicable. L* signed? C.48 How long after negotiation is the Not applicable. L contract signed, on average? C.49 Is there an evaluation system for Done in review meetings, there is no S measuring the outputs of systematic evaluation system as such. consultants? Payments C.50 Are advance payments made? Yes, for works and goods but no for A consultants unless following ADB’s requirements. C.51 What is the standard period for Not specified in normal government contracts A payment included in contracts? however standard ADB schedule is applied for ADB funded projects. C.52 On average, how long is it between One month. L receiving a firm’s invoice and making payment? C.53 When late payment is made, are the Provisions exist in contract documents of A beneficiaries paid interest? KNNL for payment of interest, usually not claimed by consultants. D. EFFECTIVENESS D.1 Is contractual performance Yes, but there is scope for improvement for L systematically monitored and government funded projects. Tranche 1 reported? contracts are systematically monitored and reported. D.2 Does the agency monitor and track Yes. L its contractual payment obligations? D.3 Is a complaints resolution mechanism Yes. A described in national procurement documents? D.4 Is there a formal non-judicial Yes, arbitration as per India Arbitration Act. A mechanism for dealing with complaints? D.5 Are procurement decisions and Yes. A* disputes supported by written narratives such as minutes of evaluation, minutes of negotiation, notices of default/withheld payment? E. ACCOUNTABILITY MEASURES E.1 Is there a standard statement of Not for government financed projects. For A* ethics and are those involved in ADB projects, the executing agency and staff procurement required to formally commit to requirements of financing commit to it? 37

QUESTION RESPONSE1 RISK5 agreements and ADB’s accountability requirements. E.2 Are those involved with procurement Yes, as per Karnataka Transparency in Public L* required to declare any potential Procurement Act (KTPPA) of 1999. conflict of interest and remove themselves from the procurement process? E.3 Is the commencement of No. A procurement dependent on external approvals (formal or de-facto) that are outside of the budgeting process? E.4 Who approves procurement Yes, either the Executive Engineer, A* transactions, and do they have Superintending Engineer, Chief Engineer, procurement experience and Managing Director, Tender Evaluation qualifications? Committee, or KNNL Board depending on pre-set threshold financial values. E.5 Which of the following actions require approvals outside the procurement unit or the evaluation committee, as the case may be, and who grants the approval? a) Bidding document, invitation to All approvals accorded within KNNL. L pre-qualify or RFP b) Advertisement of an invitation for All approvals accorded within KNNL. L bids, pre-qualification or call for EOIs c) Evaluation reports All approvals accorded within KNNL. A* d) Notice of award All approvals accorded within KNNL. L* e) Invitation to consultants to All approvals accorded within KNNL. L negotiate f) Contracts All approvals accorded within KNNL. A* E.6 Is the same official responsible for: Yes, Executive Engineer or Chief Engineer or A* (i) authorizing procurement Managing Director or Technical Sub transactions, procurement Committee. Payments are authorized by the invitations, documents, evaluations Chief Accounts Officer (CAO) and are and contracts; (ii) authorizing executed through electronic fund transfer. payments; (iii) recording procurement transactions and Each Division has two accounts maintained events; and (iv) the custody of by Executive Engineer and CAO for assets? establishment and works respectively. E.7 Is there a written auditable trail of Yes, the Internal Auditor of KNNL and L* procurement decisions attributable to Statutory audits by Comptroller and Auditor individuals and committees? General (CAG) of India are tasked with ensuring this.

PROJECT PROCUREMENT RISK ASSESSMENT QUESTIONNAIRE

KISWRMIP Project 2

Implementing Agency; ACIWRM

Risk Ratings High (H) Substantial(S) Average (A) Low (L)

QUESTION RESPONSE1 RISK6 A. ORGANIZATIONAL AND STAFF CAPACITY PROCUREMENT DEPARTMENT/UNIT A.1 Does the agency or Government have No. A a Procurement Committee that is independent from the head of the agency? A.2 Does the agency have a procurement Yes. Three Engineers (EE, AEE, AE) carry A department/unit, including a out procurement functions in addition to their permanent office that performs the regular engineering and management duties. function of a Secretariat of the Procurement Committee? A.3 If yes, what type of procurement does To date ACIWRM have procured only goods; S it undertake? they have not procured works. A.4 How many years’ experience does the The Director General cum Principal A head of the procurement Secretary, WRD, GOK is the key person department/unit have in a direct responsible for procurement decisions. procurement role? ACIWRM has direct procurement experience of consultants and goods using ADB procedures in Project 1. A.5 How many staff in the procurement Three Engineers (EE, AEE, AE) carry out A department/unit are: procurement functions in addition to their i. full time regular engineering and management duties. ii. part time iii. seconded A.6 Do the procurement staff have a high Yes. L* level of English language proficiency (verbal and written)? A.7 Are the number and qualifications of Yes, ACIWRM procurement is limited to L* the staff sufficient to undertake the shopping and individual consultant selection. additional procurement that will be required under the proposed project? A.8 Does the unit have adequate facilities, Yes. L such as PCs, internet connection,

1 Responses should include a discussion of the e-procurement component if an e-procurement system is in use or if is being planned for implementation. 6 Questions indicated with * are associated with potentially ‘High’ or ‘Substantial’ risks due to the impact being ‘High’, therefore the strategy for managing those risks should be addressed in the Project Procurement Risk Analysis. 39

QUESTION RESPONSE1 RISK6 photocopy facilities, printers etc. to undertake the planned procurement? A.9 Does the agency have, or have ready E-procurement training has been conducted S* access to, a procurement training for some of ACIWRM technical staff. More program? training needed for ACIWRM office staff about ADB procurement system. A.10 At what level does the Registrar and Director General L department/unit report (to the head of agency, deputy etc.)? A.11 Do the procurement positions in the Yes. L agency have job descriptions, which outline specific roles, minimum technical requirements and career routes? A.12 Is there a procurement process PWD Codal Provisions, KTPP Act & e-portal, L manual for goods and works? Standard Bid Documents available at these Karnataka Government websites: https://eproc.karnataka.gov.in/eprocportal/pa ges/index.jsp?language=en

and

www.finance.kar.nic.in/trans/tender.html A.13 If there is a manual, is it up to date Yes. L and does it cover foreign-assisted projects? A.14 Is there a procurement process No government manual but standard bid L manual for consulting services? documents for consultant procurement are available. For ADB projects, ACIWRM follow ADB’s requirements. A.15 If there is a manual, is it up to date Not applicable. L and does it cover foreign-assisted projects? PROJECT MANAGEMENT UNIT A.16 Is there a fully (or almost fully) Yes, almost fully staffed PMU exists. L* staffed PMU for this project currently in place? A.17 Are the number and qualifications of No. Under tranche 2 ACIWRM will start S* the staff sufficient to undertake the procuring works packages. Existing or new additional procurement that will be staff must be trained in ADB’s procurement required under the proposed project? procedures. A.18 Does the unit have adequate Yes. L facilities, such as PCs, internet connection, photocopy facilities, printers etc. to undertake the planned procurement?

QUESTION RESPONSE1 RISK6 A.19 Are there standard documents in Yes, under tranche-1, ADB's Standard L* use, such as Standard Procurement Procurement Documents and Forms have Documents/Forms, and have they been used, same would be used for Projects been approved for use on ADB 2 and 3. funded projects? A.20 Does the agency follow the national Yes. L* procurement law, procurement processes, guidelines? A.21 Do terms of reference (TOR) for Only ICS method has been used under L consulting services follow a standard tranche 1. Same process is expected to format such as background, tasks, continue for subsequent tranches. inputs, objectives and outputs? A.22 Who drafts the procurement Done in house with support of consultants. L specifications? A.23 Who approves the procurement Director General. L specifications? A.24 Who in the PMU has experience in All Engineers in ACIWRM have some A* drafting bidding documents? knowledge of drafting bidding documents. A.25 Are records of the sale of bidding Since only e-procurement is used for > 0.5 L* documents immediately available? million INR, records of the sale of bidding documents are immediately available after submission deadline. A.26 Who identifies the need for ACIWRM. L consulting services requirements? A.27 Who drafts the TOR ACIWRM. L A.28 Who prepares the request for ACIWRM. L proposals (RFPs) B. INFORMATION MANAGEMENT B.1 Is there a referencing system for Yes. L procurement files? B.2 Are there adequate resources Yes. A* allocated to record keeping infrastructure, which includes the record keeping system, space, equipment and personnel to administer the procurement records management functions within the agency? B.3 Does the agency adhere to a Yes, physical and electronic copies of all L* document retention policy (i.e. for documents are stored for a minimum period of what period are records kept)? 5 to 30 years depending on importance. This period is defined in PWD "D" code. B.4 Are copies of bids or proposals Yes. L retained with the evaluation? 41

QUESTION RESPONSE1 RISK6 B.5 Are copies of the original Yes. L advertisements retained with the pre- contract papers? B.6 Is there a single contract file with a Yes. L copy of the contract and all subsequent contractual correspondence? B.7 Are copies of invoices included with Yes. A the contract papers? B.8 Is the agency’s record keeping Yes. A function supported by IT? C. PROCUREMENT PRACTICES Goods and Works C.1 Has the agency undertaken Yes. ADB-financed KISWRMIP Project 1 A* procurement of goods or works which included procurement of goods has related to foreign assistance recently been implemented by ACIWRM from 2015 (last 12 months or last 36 months)? If and is substantially complete. Project 2 is yes, indicate the names of the under processing. However, ACIWRM has development partner/s and project/s. not undertaken procurement of works. C.2 If the answer is yes, what were the - ADB procurement procedures and WRD, A* major challenges faced by the GOK procurement procedures are not agency? synchronized due to which there was initial problems in understanding and implementation. - it took some time in the first year to understand fully ADBs procurement and safeguards requirements and processes. C.3 Is there a systematic process to ACIWRM determine their procurement L identify procurement requirements requirements. (for a period of one year or more)? C.4 Is there a minimum period for the Typically, 7 days to 60 days. A* preparation of bids and if yes, how long? C.5 Are all queries from bidders replied to Yes. L* in writing? C.6 Does the bidding document state the Yes. L* date and time of bid opening? C.7 Are bids opened in public? Bids are submitted on e-procurement portal L* and are opened electronically. Opening details and records are available to bidders online. C.8 Can late bids be accepted? No. L* C.9 Can bids (except late bids) be No. L* rejected at bid opening?

QUESTION RESPONSE1 RISK6 C.10 Are minutes of the bid opening Not applicable. Electronic bid opening done L* taken? C.11 Are bidders provided a copy of the Bid opening details and records are available L* minutes? to bidders online. C.12 Are the minutes provided free of Not applicable. L* charge? C.13 Who undertakes the evaluation of ACIWRM staff. A bids (individual(s), permanent committee, ad-hoc committee)? C.14 What are the qualifications of the Well-qualified engineers who are permanent A* evaluators with respect to employees of Karnataka state cadre. procurement and the goods and/or works under evaluation? C.15 Is the decision of the evaluators final No, additional approvals are sought from the A* or is the evaluation subject to Registrar and then DG subject to tender cost. additional approvals? C.16 Using the three ‘worst-case’ Typically, 2 to 3 months because only goods L examples in the last year, how long have been procured to date. from the issuance of the invitation for bids can the contract be awarded?

C.17 Are there processes in place for the Yes. L collection and clearance of cargo through ports of entry? C.18 Are there established goods Yes. L receiving procedures? C.19 Are all goods that are received Yes. L recorded as assets or inventory in a register? C.20 Is the agency/procurement No. A department familiar with letters of credit? C.21 Does the procurement department Yes. L register and track warranty and latent defects liability periods? Consulting Services C.22 Has the agency undertaken foreign- Yes. Tranche 1 has included recruitment of A* assisted procurement of consulting international and national individual services recently (last 12 months, or consultants from 2015 onwards. No firms last 36 months)? (If yes, please have been recruited. indicate the names of the development partner/s and the Project/s.) C.23 If the above answer is yes, what - it took some time in the first year of the A* were the major challenges? project to understand fully ADBs consultant procurement process. 43

QUESTION RESPONSE1 RISK6 - Accounting problems, especially with foreign currency transactions. C.24 Are assignments and invitations for Yes, mandatorily on e-procurement portal of L* expressions of interest (EOIs) Government of Karnataka. advertised? C.25 Is a consultants selection committee Yes, consultants selection committee (has L formed with appropriate individuals, AEE, EE and SE. and what is its composition (if any)? C.26 What criteria is used to evaluate As per terms of reference. L EOIs? C.27 Historically, what is the most ICS. L* common method used (QCBS, QBS, etc.) to select consultants? C.28 Do firms have to pay for the RFP No (e-procurement is carried out for L* document? consulting services, RFP downloadable free of charge from e-procurement web portal of Government of Karnataka) C.29 Does the proposal evaluation criteria As detailed in the RFP L* follow a pre-determined structure and is it detailed in the RFP? C.30 Are pre-proposal visits and meetings Not applicable since only shopping and L arranged? individual consultant selection done. C.31 Are minutes prepared and circulated Not applicable. L after pre-proposal meetings? C.32 To whom are the minutes Not applicable. L distributed? C.33 Are all queries from consultants Yes. L answered/addressed in writing? C.34 Are the technical and financial Not applicable. L proposals required to be in separate envelopes and remain sealed until the technical evaluation is completed? C.35 Are proposal securities required? Not applicable. L C.36 Are technical proposals opened in Not applicable. L public? C.37 Are minutes of the technical opening Not applicable. L* distributed? C.39 Who determines the final technical Recommendations of consultants’ selection A* ranking and how? committee which is primarily responsible for evaluation are either endorsed or modified at either Registrar or DG level. C.40 Are the technical scores sent to all Not applicable. L firms?

QUESTION RESPONSE1 RISK6 C.41 Are the financial proposal opened in Not applicable. L public? C.42 Are minutes of the financial opening Not applicable. L distributed? C.43 How is the financial evaluation Not applicable. L completed? C.44 Are face to face contract No. L* negotiations held? C.45 How long after financial evaluation is Not applicable. L negotiation held with the selected firm? C.46 What is the usual basis for Not applicable. L negotiation? C.47 Are minutes of negotiation taken and Not applicable. L signed? C.48 How long after negotiation is the Not applicable. L contract signed, on average? C.49 Is there an evaluation system for Ad hoc review meetings are done but there is A measuring the outputs of no formal evaluation system. consultants? Payments C.50 Are advance payments made? Yes when requested. L C.51 What is the standard period for Follows ADB Conditions of Contracts. L payment included in contracts? C.52 On average, how long is it between Within a month (ICS). L receiving a firm’s invoice and making payment? C.53 When late payment is made, are the No. A beneficiaries paid interest? D. EFFECTIVENESS D.1 Is contractual performance Yes, but there is scope for improvement. A systematically monitored and reported? D.2 Does the agency monitor and track Yes. L its contractual payment obligations? D.3 Is a complaints resolution mechanism Yes. A described in national procurement documents? D.4 Is there a formal non-judicial Yes, arbitration as per India Arbitration Act. A mechanism for dealing with complaints? D.5 Are procurement decisions and Yes. A* disputes supported by written 45

QUESTION RESPONSE1 RISK6 narratives such as minutes of evaluation, minutes of negotiation, notices of default/withheld payment?

E. ACCOUNTABILITY MEASURES E.1 Is there a standard statement of ethics No formal government requirements however A* and are those involved in staff commit to ADB’s requirements. procurement required to formally commit to it? E.2 Are those involved with procurement Yes, as per Karnataka Transparency in Public L* required to declare any potential Procurement Act (KTPPA) of 1999. conflict of interest and remove themselves from the procurement process? E.3 Is the commencement of No. A procurement dependent on external approvals (formal or de-facto) that are outside of the budgeting process? E.4 Who approves procurement Yes, either the Superintending Engineer, A* transactions, and do they have Registrar, Director General, Management procurement experience and Committee, Executive Committee, or State qualifications? IWRM Board depending on pre-set threshold financial values.

E.5 Which of the following actions require All approvals accorded within ACIWRM. approvals outside the procurement unit or the evaluation committee, as the case may be, and who grants the approval? a) Bidding document, invitation to L pre-qualify or RFP b) Advertisement of an invitation for L bids, pre-qualification or call for EOIs c) Evaluation reports A* d) Notice of award L* e) Invitation to consultants to negotiate f) Contracts A* E.6 Is the same official responsible for: (i) Yes, Superintending Engineer or Registrar or A* authorizing procurement Director General. transactions, procurement Payment authorized by Superintending invitations, documents, evaluations Engineer cum Registrar. Payments are and contracts; (ii) authorizing executed through cheque or electronic fund payments; (iii) recording transfer.

QUESTION RESPONSE1 RISK6 procurement transactions and events; and (iv) the custody of assets? E.7 Is there a written auditable trail of Yes, ACIWRM’s Internal Auditor. A* procurement decisions attributable to individuals and committees?

Annex 2

Procurement factors to consider when recommending “Category A” projects

Characteristic Assessor’s rating: ‘Yes’ or ‘No’with brief comments, if ‘Yes’ Is the Procurement Environment Risk for this project assessed No. as “High” based on the country and sector/agency risk assessments according to Figure 4 above? Are multiple (typically more than three) and/or diverse No. Executing (EAs) and/or Implementing Agencies (IAs) envisaged during project implementation? No. Do EAs/IAs lack prior experience in ADB project implementation? Are multiple contract packages and/or complex and high value No. contracts expected (compare to recent donor projects in DMC)? Does the project plan to use innovative contracts (PPP, No. Performance-based, Design & Build, O&M, etc)? Are contracts distributed in more than three geographical No. locations? Are there significant ongoing contractual and/or procurement No. There was no misprocurement in issues under ADB (or other donor) funded projects? Has tranche 1. misprocurement been declared in the DMC? Does the DMC have prolonged procurement lead times, Yes, delays occurred under tranche 1 experience implementation delays, or otherwise consistently for the procurement of one works fail to meet procurement timeframes? package and recruitment of one international consulting firm. Do EAs/IAs lack capacity to manage new and ongoing No, however further ADB training and procurement? Have EAs/IAs requested ADB for procurement support may be required. support under previous projects? OVERALL PROJECT CATEGORIZATION RECOMMENDED Category B

Note: If the answer to one or more questions in the above table is ‘Yes’, the project officer shall make an assessment (with comments, if necessary) and determine if additional procurement support to the EA/IA will be required or if despite the assessment the EA/IA has adequate resources and/or institutional capacity to address procurement issues. The project officer shall also assess if the ADB project team includes sufficient experience/skills to deliver such support or additional support will be required from OSFMD. If additional support is required from OSFMD procurement specialist, the project should be recommended as Category A. If not, it should be recommended as Category B. OSFMD must confirm the classification during interdepartmental circulation of the project concept paper.

Overall recommendation of the concerned project officer (Lance Gore) Propose overall project procurement category B.

Recommendation of OSFMD’s procurement specialist (Bisma Husen)

Annex 3

Procurement Plan for Project 2

Basic Data Project Name: Karnataka Integrated and Sustainable Water Resources Management Investment Program - Project 2 Project Number: 43253-026 Approval Number: Country: India Executing Agency: Karnataka Neeravari Nigam Limited Project Procurement Classification: Category B Implementing Agency: Advanced Centre for Integrated Water Resources Project Procurement Risk: Medium Management Project Financing Amount: US$ 130,000,000 Project Closing Date: 31 December 2023 ADB Financing: US$ 91,000,000 Cofinancing (ADB Administered): none Non-ADB Financing: US$ 39,000,000 Date of First Procurement Plan: 12 July 2018 Date of this Procurement Plan: 28 May 2019

Procurement Plan Duration (in months): 18 Advance Contracting: e-GP: Yes Yes

A. Methods, Review and Procurement Plan Except as the Asian Development Bank (ADB) may otherwise agree, the following methods shall apply to procurement of goods, works, and consulting services.

Procurement of Goods and Works Method Comments Open Competitive Bidding (OCB) for Goods Request For Quotation for Goods Open Competitive Bidding (OCB) for Works Request For Quotation for Works Community Participation in Procurement for Works

Consulting Services Method Comments Quality- and Cost-Based Selection for Consulting Firm Prior; 90:10 weighting for technical and financial scores respectively Competitive for Individual Consultant Direct Contracting for Individual Consultant

B. Lists of Active Procurement Packages (Contracts) The following table lists goods, works, and consulting services contracts for which the procurement activity is either ongoing or expected to commence within the procurement plan duration.

Goods and Works Procure Advertisement Package Estimated Bidding General Description ment Review Date Comments Number Value (in US$) Procedure Method (quarter/year) Equipment 1 Hydrometeorology 4,000,000.00 OCB Prior 1S1E Q3 / 2019 Advertising: equipment and International installation No. of Contracts: 1 49

Goods and Works Procure Advertisement Package Estimated Bidding General Description ment Review Date Comments Number Value (in US$) Procedure Method (quarter/year)

Prequalification of Bidders: N

Domestic Preference Applicable: N

Advance Contracting: Y

Bidding Document: Goods

e-GP: Y Equipment 2 Water quality 180,000.00 OCB Prior 1S1E Q4 / 2019 Advertising: monitoring equipment National and installation No. of Contracts: 1

Prequalification of Bidders: N

Domestic Preference Applicable: N

Advance Contracting: Y

Bidding Document: Goods

e-GP: Y Equipment 3 ACIWRM office 260,000.00 RFQ Post Q1 / 2020 No. of Contracts: 5 & 4 furniture, equipment, software, printing, and Advance vehicles Contracting: N

e-GP: N Equipment 5 KNNL office furniture, 1,120,000.00 RFQ Post Q1 / 2020 No. of Contracts: 12 equipment, software, and vehicles Advance Contracting: N

e-GP: N

Comments: Each contract not exceeding $100,000. Print 1 Printing 130,000.00 RFQ Post Q1 / 2020 No. of Contracts: 2

Advance Contracting: N

e-GP: N Studies 1 to Various technical 1,010,000.00 RFQ Post Q3 / 2019 No. of Contracts: 12

Goods and Works Procure Advertisement Package Estimated Bidding General Description ment Review Date Comments Number Value (in US$) Procedure Method (quarter/year) 12 studies Advance Contracting: Y

e-GP: N SW 1 & 2 Water Resource 190,000.00 RFQ Post Q1 / 2020 No. of Contracts: 2 Information System- software and data Advance Contracting: N

e-GP: N VNC 1 Modernization of 65,000,000.0 OCB Prior 1S2E Q1 / 2018 Advertising: Vijayanagar Channels: 0 International Anicuts, main canals and distributaries No. of Contracts: 1 works outside Hampi Heritage Area and Prequalification of Tungabhadra Otter Bidders: N Conservation Area Domestic Preference Applicable: N

Advance Contracting: Y

Bidding Document: Large Works

e-GP: Y VNC 2 Modernization of 15,000,000.0 OCB Prior 1S2E Q4 / 2019 Advertising: Vijayanagar Channels: 0 National Anicuts, main canals and distributaries No. of Contracts: 1 works inside Hampi Heritage Area and Prequalification of Tungabhadra Otter Bidders: N Conservation Area Domestic Preference Applicable: N

Advance Contracting: Y

Bidding Document: Small Works

e-GP: Y VNC- CPP - Command area 17,250,000.0 CPP Post Q4 / 2019 No. of Contracts: multiple lots development works 0 575 (minimum number of 10 packages per Advance WUCS) Contracting: Y

e-GP: N

Comments: At least 51

Goods and Works Procure Advertisement Package Estimated Bidding General Description ment Review Date Comments Number Value (in US$) Procedure Method (quarter/year) 10 contracts each for 30 water user groups, each contract costing no more than $30,000

Consulting Services Advertise Type Estimated ment Package Selection of General Description Value (in Review Date Comments Number Method Propos US$) (quarter/ al year) PSC – 2 Project Support 6,400,000 Competitive Prior FTP Q2 / 2019 Type: Firm Consultants Assignment: International

Advance Contracting: Y

e-GP: N ICS-01 ACIWRM Chief 200,000.00 SSS Post Q3 / 2019 Type: Individual Technical Advisor (CTA) Assignment: International

Expertise: integrated water resources management

Advance Contracting: N

e-GP: N ICS-02 ACIWRM Water 105,000.00 Competitive Post Q3 / 2019 Type: Individual Productivity Specialist Assignment: International

Expertise: water resources management

Advance Contracting: Y

e-GP: N ICS-04 ACIWRM Agricultural 57,143.00 Competitive Post Q3 / 2019 Type: Individual (WM) Specialist Assignment: International

Expertise: agriculture - water management

Advance Contracting: Y

e-GP: N ICS-05 Hydrology Specialist 77,150.00 SSS Post Q3 / 2019 Type: Individual

Assignment: International

Consulting Services Advertise Type Estimated ment Package Selection of General Description Value (in Review Date Comments Number Method Propos US$) (quarter/ al year)

Expertise: hydrology

Advance Contracting: N

e-GP: N ICS-06 ACIWRM Water Law 206,000.00 Competitive Post Q3 / 2019 Type: Individual Specialist Assignment: International

Expertise: water law

Advance Contracting: N

e-GP: N ICS-07 ACIWRM Irrigation 210,000.00 SSS Post Q3 / 2019 Type: Individual Modernization Specialist Assignment: International

Expertise: irrigation modernization

Advance Contracting: N

e-GP: N ICS-08 ACIWRM River Health 43,584.00 Competitive Post Q3 / 2019 Type: Individual & Environment Specialist Assignment: International

Expertise: river health, environmental management

Advance Contracting: Y

e-GP: N ICS-09 River Basin Modeller 370,000.00 SSS Post Q3 / 2019 Type: Individual

Assignment: National

Expertise: river basin modelling

Advance Contracting: N

e-GP: N ICS-10 ACIWRM Water 62,000.00 Competitive Post Q3 / 2019 Type: Individual Outlook Specialist Assignment: International

Expertise: water outlook

Consulting Services Advertise Type Estimated ment Package Selection of General Description Value (in Review Date Comments Number Method Propos US$) (quarter/ al year) Advance Contracting: N

e-GP: N ICS-11 ACIWRM Asset 70,000.00 Competitive Post Q3 / 2019 Type: Individual Management and Nigam Strengthening Assignment: International

Expertise: asset management and strengthening of "nigams"

Advance Contracting: N

e-GP: N ICS-National Various individual 946,000.00 Competitive Post Q3 / 2019 Type: Individual consultants Assignment: National

Expertise: various

Advance Contracting: N

e-GP: N

C. List of Indicative Packages (Contracts) Required Under the Project The following table lists goods, works, and consulting services contracts for which procurement activity is expected to commence beyond the procurement plan duration and over the life of the project (i.e., those expected beyond the current procurement plan duration).

Goods and Works Package General Estimated Procurement Bidding Review Comments Number Description Value (in US$) Method Procedure None

Consulting Services Package General Estimated Selection Type of Review Comments Number Description Value (in US$) Method Proposal None

Appendix 15

KARNATAKA INTEGRATED AND SUSTAINABLE WATER RESOURCES MANAGEMENT INVESTMENT PROGRAM - TRANCHE 2

FINANCIAL MANAGEMENT ASSESSMENT

September 2019

CONTENTS I. INTRODUCTION 1 II. EXECUTIVE SUMMARY 2 III. COUNTRY AND SECTOR FINANCIAL MANAGEMENT ISSUES 6 IV. DETAILED FINANCIAL MANAGEMENT ASSESSMENT 6 A. Overview of the executing agency/implementing agency 6 B. Strengths 7 C. Weaknesses 7 D. Personnel, Accounting Policies and Procedures, Internal and External Audit 7 1. Personnel 7 2. Accounting Policies and Procedures 8 3. Budgeting 9 4. Financial Performance Analysis of KNNL 9 5. Internal Audit 10 6. External Audit 10 E. Financial Reporting Systems (including use of Information System) 13 1. Financial Reporting Systems 13 2. Information Systems 14 F. Disbursement Arrangements and Funds Flow Mechanism 15 1. Disbursement Arrangements 15 2. Fund Flow Mechanism 15 3. Financing Plan 16 V. SUGGESTED COVENANTS 17

List of Tables:

Table 1: Financial Management and Internal Control Risk Assessment 3 Table 2: Financial Management Action Plan 5 Table 3: Auditing and Submission Arrangements 12 Table 4: Financial Reporting Arrangements 13 Table 5: Financing Plan 17

Appendices:

Appendix 1A - Organization Chart of KNNL Appendix 1B - Organization Chart of ACIWRM Appendix 2A - Funds Flow Diagram KNNL Appendix 2B - Funds Flow Diagram ACIWRM Appendix 3 - Financial Performance of KNNL Appendix 4A - Financial Management Assessment Questionnaire-KNNL Appendix 4B - Financial Management Assessment Questionnaire – ACIWRM Appendix 5 - Financial Analysis of KNNL and ACIWRM

List of Abbreviations

ADB Asian Development Bank ACIWRM Advanced Centre for Integrated Water Resources Management CAAA Controller of Aid, Accounts and Audit CADA Command Area Development Authority CAG Comptroller and Auditor General CAO Chief Administrative/Accounts Office - Central Office DEA Department of Economic Affairs EA Executing Agency FMA Financial Management Assessment GOK Government of Karnataka IA Implementing Agency KNNL Karnataka Neeravari Nigam Limited MOF Ministry of Finance PIO Project Implementation Office SOE Statement of Expenditure TLBC Tungabhadra Left Bank Canal TOR Terms of Reference VNC Vijayanagara Channels WA Withdrawal Application WRD Water Resources Department WUCS Water User Cooperative Society

I. INTRODUCTION

1. The State of Karnataka has a population of 61.1 million and covers an area of 191,976 square kilometres (5.83% of the area of India). It is home to one-third of India’s information technology and other service industries and has a gross state domestic product (GSDP) at current prices of $97.1 billion (FY2012). The main contribution (about 53% in FY2012) to GSDP is from the service sector. The contribution of agriculture to GSDP is relatively small, at 16% in FY2012, and in a declining trend (from about 30% in FY2001). However, agriculture remains the main source of employment for 55% of the population and about 75% of the rural population. The state population is urbanizing, the urban population has increased from 34% to 39% from 2001 to 2013. The changing industrial structure and urbanization have had significant impact on the water balance in the state.

2. The state is water-stressed, with increasing water demands from urban and industrial sectors. This is exacerbated by uneven spatial and temporal distribution of water resources and the predicted impacts of climate change. Although Karnataka has two major river basins (the Krishna and Cauvery), its water resources are limited (about 1,072 cubic meters /person/year in eastward flowing rivers). Droughts are frequent and 70% of the annual rainfall occurs from June to September. The state’s water demand (particularly for industry and household water) is projected to increase by 40% from 37,419 million m3 in 2000 to 52,366 million m3 in 2025. These demands will cause a decline in the agricultural proportion of total water from 84% in 2000 to 73% by 2025. Meeting the anticipated rise in demand is a major challenge which, if unmet, may constrain sustainable economic growth.1

3. Karnataka Neeravari Nigam Limited (KNNL) is a government company of Government of Karnataka (GOK), registered under the Indian Companies Act 1956 on 9 December 1998. It is the investment program’s executing agency (EA) and is one of two implementing agencies (IA). KNNL has its headquarter office and Chief Administrative/Accounts Office - Central Office at Dharwad. The Project Implementation Office (PIO) is at Munirabad with Zonal Office, Circle Office, Division Office and Sub-division Office. The other implementing agency is the Advanced Centre for Integrated Water Resources Management (ACIWRM). ACIWRM was established under the Water Resources Department (WRD) by the Government of Karnataka. It was registered under the Society Registration Act in 2012. The ongoing Tranche 1 of ADB assisted Karnataka Integrated and Sustainable Water Resources Management Investment Program (KISWRMIP) is implemented by the KNNL and ACIWRM. Similar arrangements have also been made for Tranche 2.

4. The investment program was originally approved with two tranches. Tranche 2 was to finance the modernization of the 11,150 ha Vijayanagara Channels (VNC) and 244,000 ha Tungabhadra Left Bank Canal (TLBC) as separate subprojects. The Midterm Review Mission in February 2018 has learned that, while preparation and readiness of VNC subproject is well advanced, further preparation of the TLBC subproject is required and may take at least a further 12 months. Therefore, the Midterm Mission agreed with KNNL that Tranche 2 will finance only the VNC subproject and a third tranche will be processed once its feasibility study has been prepared, Detailed Project Report (DPR) has been approved by the Central Water Commission (CWC) and works package has been floated. Tranche 2 will comprise the same three outputs as for Tranche 1 and will have similar activities. Tranche 2 is estimated to cost $130 million, including

1 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to India for the Karnataka Integrated and Sustainable Water Resources Management Investment Program. Manila. 2

taxes and duties, physical and price contingencies, interest and other charges during implementation. Tentatively, ADB will finance $91 million and GOK will contribute $39 million under 70:30 ratio. The proposed financing modality from ADB’s ordinary capital resources regular loan.2

5. This assessment has been carried out as a part of the due diligence for Tranche 2. The fiduciary assessment of KNNL and ACIWRM is carried out to determine the degree to which the financial management arrangements are adequate to manage fiduciary risks and provide reasonable assurance that ADB funds will be used for their intended purpose.

II. EXECUTIVE SUMMARY

6. The Financial Management Assessment (FMA) was undertaken in accordance with ADB’s Guidelines for the Financial Management and Analysis of Projects3 and Financial Due Diligence: a Methodology Note, and Technical Guidance Notes.4 The FMA considers the capacity of KNNL and ACIWRM who will implement Tranche 2, including fund flow arrangements, governance, staffing, budgeting, accounting and financial reporting systems, internal control procedures, financial information systems, and internal and external audit arrangements.

7. The implementing agencies (IAs) have satisfactory financial management capability to (i) record the required financial transactions, (ii) provide regular and reliable financial statements, (iii) provide reliable monitoring reports, and (iv) safeguard the financial assets. Due to these capabilities the IAs have the capacity to handle the proposed project. The minimum required policies and procedures are in place. The statutory audit function of IA and the Project is currently carried out by chartered accountants empaneled by the Comptroller and Auditor General of India (CAG). KNNL and ACIWRM meet ADB’s minimum financial management requirements for Executing and Implementing Agency with the recommended mitigation measures (i) closely monitor the Finance and Accounting staff of the Project Implementing Office (PIO), (ii) appoint the vacant position of Deputy Manager Finance in KNNL and posting of one more finance staff in ACIWRM and (iii) address the audit findings on the entity level audit report by KNNL.

8. KNNL and ACIWRM has improved in Financial Management Capacity comparing with the FMA done during Tranche 1 of the investment program. There is improvement in the financial management capacity of both organization with regular funds flow to the project as well as trained staff.

9. Risk Analysis: During implementation, KNNL and ACIWRM may face some risks that can generally be divided in two main categories: (i) country level; and (ii) organization/project level. Financial management risks shall need to be considered and updated throughout the life of the Project. Risk mitigation measures shall also be updated accordingly. The Risk Assessment and Mitigation Measures are listed in Table 1 below:

2 ADB (South Asia Department). 2018. Midterm Review Mission to India: Karnataka Integrated and Sustainable Water Resources Management Investment Program – Project 1. Aide Memoire. 2–19 February 2018. 3 ADB. 2015. Financial Management and Analysis of Projects. Manila. http://www.adb.org/Documents/Guidelines/Financial/default.asp 4 ADB. 2009. Financial Due Diligence: A Methodology Note. Manila. http://www.adb.org/documents/financial-due- diligence-methodology-note 3

Table 1: Financial Management and Internal Control Risk Assessment Risk Risk Risk Assessment Description Mitigation Measures or Action Plans Inherent Risk 1. Country-specific L Country specific No country specific risk to this project. risks risk 2. Entity-specific L Experience of the The implementing agencies are KNNL and Risks implementing ACIWRM, both of which were the IAs responsible agency for for implementing Tranche 1. Most Finance and implementing the Accounts Staff in KNNL HQ are permanent staff of project KNNL while staff in PIO office Munirabad, CAO central office at Darwad and District Office are on deputation from WRD and some are new. Since base document for the statement of expenditure (SOE) is prepared at the KNNL field level office, it is recommended to give training to all concerned staff once a year to have uniformity and quality in the preparation of SOE and withdrawal applications (WAs). In case of ACIWRM, it is functioning with limited staff in Finance and Accounts. 3. Project-specific L There are no Not applicable. Risks project specific risks in this project. Overall Inherent Risk L Control Risk 1. Implementing L KNNL and KNNL is a Government Company registered Entity ACIWRM will under the Indian Companies Act 1956 in 1998. manage and ACIWRM is a society registered under the Society implement the Registration Act in 2012. Both organizations are proposed project under the Water Resources Department (WRD) of GOK. Output 1 is being implemented by ACIWRM; Outputs 2 will be implemented by KNNL through its Project Implementation Office (PIO) situated at Munirabad through its Sub- division, and Output 3 is being implemented by KNNL through its Program Management Unit (PMU) located at its Central Office in Dharwad, Bangalore. KNNL is managed by the Managing Director (MD) with support staff and ACIWRM is managed by Registrar with support staff. Output 2 includes works that will be implemented by Water User Cooperative Societies (WUCS). The WUCS will be managed by the Command Area Development Authority (CADA). 2. Fund Flow L Timely release of ADB disbursement will follow reimbursement counterpart fund procedure. Timely availability of counterpart funds to the project will be ensured by the KNNL and ACIWRM implementing agencies through WRD as per the proposed fund flow arrangements. No systematic problems related to funds have been reported in the current projects handled by KNNL and ACIWRM.

Risk Risk Risk Assessment Description Mitigation Measures or Action Plans 3. Staffing M Dedicated Full-time finance and accounting staff are now at finance and KNNL HQ and are responsible for ADB related accounting staff work. Staffing issues, like frequent transfers in for KNNL and WRD, need to be addressed. Staff who are posted ACIWRM for ADB related work should be retained till project end, so that the training imparted will not go to waste. The vacant position of Deputy Manager Finance in KNNL needs to be filled immediately. In the case of ACIWRM, there may be a shortage of Finance and Accounts staff while implementing the proposed project. Currently, there is only one finance and accounts staff. It is recommended to have one more staff to take care of the increase in work load. 4. Accounting L The accounting KNNL follows accrual basis double entry Policies and policies and accounting system. Since it is a government- Procedures procedures and owned company registered under the Indian its updating Companies Act, it has to follow all procedures laid down in the Act. Day-to-day activities are governed by governmental rules and regulations including the Public Works Department Code, Public Works Account Code, Finance Rule and Treasury Code.

ACIWRM follows Governmental Accounting System in India on cash basis. The Public Works Department Code, Public Works Account Code, Finance Rule and Treasury Code are followed for the preparation of its Accounts by using “Tally ERP (Enterprise Resource Planning)” software. 5. Internal Audit M Arrangements for KNNL outsources the internal audit function to a Internal Audit Chartered Accountant who conducts the internal function audit on quarterly basis. An audit committee also review the recommendations in the audit report and ensure recommendations are implemented.

ACIWRM: There is no internal audit arrangement in ACIWRM. The statutory auditor does the audit quarterly. The payment vouchers are pre-audited by the Finance Staff before ACIWRM makes payments. The ACIWRM is planning to post a separate Internal Auditor to audit the project activities on a quarterly basis. The management committee reviews the audit recommendations for compliance. 5

Risk Risk Risk Assessment Description Mitigation Measures or Action Plans 6. External Audit M The audit of the The statutory audit function is carried out by a project financial Chartered Accountant selected from the panel statements. approved by the CAG. The statutory auditors prepare separate certification work for the ADB- funded project expenditures. The review of the entity audit reports of the last five years of KNNL are all qualified mainly for non-compliance with some of the Indian Accounting Standards. KNNL need separate attention to rectify the weaknesses pointed out by the auditors. 7. Reporting and M Financial and There is room for improvement in the existing Monitoring disbursement reporting systems. Quarterly and annual progress reports should reports should be made mandatory for the form part of proposed project including Physical and financial quarterly Reports (with variance analysis) and progress report. disbursement reports. 8. Information L Optimal use of KNNL is in the process of implementing the Tally Systems technology in the ERP accounting software. The finance and finance and accounts wings of KNNL and ACWIRM are accounts wing for presently using the Tally software for accounting the preparation and recording in addition to manual recording as of accounts and per Government Accounting procedures. Reports reporting other than those prepared from Tally are in spread requirements. sheets. Overall Control M Risk H = High, S = Substantial, M = Moderate, L = Low ADB = Asian Development Bank, ACIWRM = Advanced Centre for Integrated Water Resources Management, CADA = Command Area Development Authority, CAG = Comptroller and Auditor General, CAO = Chief Administrative/Accounts Office - Central Office, IA = Implementing Agency, KNNL = Karnataka Neeravari Nigam Limited, PIO = Project Implementing Office, WRD = Water Resources Department, WUCS = Water User Cooperative Society

10. Recommended Action Plan: Table 2 shows the recommended action plan.

Table 2: Financial Management Action Plan Key Risks and Agreed Actions Responsible Completion Date 1. Staffing: Depute one more staff in Finance and ACIWRM 31 Dec 2018 Accounts Section to take care of the additional work load in submitting the WA directly to CAAA/ADB. 2. Progress reporting: There is a room for improvement KNNL and ACIWRM Throughout entire duration in the progress report. Submission of quarterly of Tranche 2 progress report with physical and financial progress with variance analysis and disbursement reports to ADB will take place from the onset of Tranche 2. 3. Selection of Statutory Auditors for the year 2018-19. KNNL and ACIWRM 31 Jul 2018 4. KNNL’s entity-level statutory audit report reviewed for KNNL 31 Jul 2018 the last five years are qualified. KNNL is to address these deficiencies immediately. ADB = Asian Development Bank, ACIWRM = Advanced Centre for Integrated Water Resources Management, CAAA = Controller of Aid, Accounts and Audit, KNNL = Karnataka Neeravari Nigam Limited, WA = withdrawal application

III. COUNTRY AND SECTOR FINANCIAL MANAGEMENT ISSUES

11. At the national level, India has a long history of borrowing from ADB since 1986 and has since approved 209 sovereign loans totaling $35.9 billion as on 31 December 2017. The current portfolio includes 79 sovereign loans amounting to $13.1 billion. Cumulative disbursements to India for lending and grants financed by ordinary capital resources and special funds amount to $27.02 billion.5

12. ADB’s Country Partnership Strategy 2018-22 (CPS) notes that India manages its financial system well, maintains sufficiently large foreign exchange reserves along with a flexible exchange rate. The government steadily reduced its fiscal deficit from 4.9% of GDP in FY2012 to 3.5% in FY2016. The national public debt level remained steady at 68.5%. In the review of the Asia- Pacific region, Standard and Poor’s (S&P) has retained India’s sovereign rating at ‘BBB-‘ with stable outlook as originally mentioned in its report in September 2014. S&P had projected India’s credit outlook as stable for the next 24 months, saying “the new government has both willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential, consolidate its fiscal accounts, and permit the Reserve Bank of India to carry out effective monetary policy”. Fitch Rating’s has also rated India as ‘BBB’ - stable. Moody’s rating for India is ‘Baa2’ which is considered positive. The economy had shown a downturn in the past couple of years, accompanied by the depreciation of the Rupee, but the economy is now being stabilized.

13. The government has replaced its 5-year national development planning process with a 15-year vision, a 7-year strategy and a 3-year action agenda. ADB assistance is closely aligned with government priorities and its flagship programs. ADB will also support the government in achieving India’s pledge to pursue the United Nation’s (UN) Sustainable Development Goals (SDG) and attain the goals under the intended nationally determined contributions.

14. The CPS also noted that the capacity of the executing agencies to handle multidisciplinary tasks on interdepartmental coordination (such as for statutory requirements) and managing externally caused risks has been an issue, along with governance in terms of compliance and enforcement in project operations. While the agencies have made progressive improvements, scaling up operations while expanding into low-income states where agency capacity is generally lower will place additional stress on the overall portfolio performance. The risks can be mitigated by (i) making project sizes commensurate with the executing agency’s capacity; (ii) mainstreaming capacity development in the project design, and using TA loans and project design advances to front-load capacity and enhance project readiness conditions; (iii) forging long-term partnerships and seeking clear upfront commitments to deploy strong leadership and retain key staff; and (iv) providing systematic support through ADB’s Capacity Development Resource Centre and on-the-job training with direct oversight of results and outcomes.

IV. DETAILED FINANCIAL MANAGEMENT ASSESSMENT

A. Overview of the executing agency/implementing agency

15. The executing agency for the proposed project is Karnataka Neeravari Nigam Limited (KNNL). The Implementing Agency for Outputs 2 and 3 is KNNL and the Advanced Centre for Integrated Water Resources Management (ACIWRM) is the implementing agency for Output 1. KNNL is a government-owned company that is registered under the Indian Companies Act 1956 in 1998. ACIWRM is a society which is registered under the Society Registration Act in 2012. Both

5 ADB Member fact sheet: available: https://www.adb.org/sites/default/files/publication/27768/ind-2017.pdf 7

organizations are under the Water Resources Department (WRD) of Karnataka. For Tranche 2, Output 2 will be implemented by KNNL through its Project Implementation Office (PIO) situated at Munirabad through its Sub-division, Division and Central Office at Dharwad. Output 3 will be implemented by KNNL’s Program Management Unit located in the Central Office in Dharwad, Bangalore. KNNL is managed by a Managing Director (MD) with support staff, and ACIWRM is managed by a Registrar with support staff. KNNL and ACIWRM have improved their financial management capacity in recording financial transactions and preparing reliable financial statements from the previous FMA done under Tranche 1 and in terms of regular fund flow to the project and having trained staff.

16. The organizational structures of KNNL and ACIWRM are attached as Appendix 1A and 1B. A financial analysis of KNNL and ACIWRM is attached in Appendix 5, which includes projections of their project-related expenditures, cash flow, funding, and financial sustainability during the project period along with a fiscal review of WRD.

B. Strengths

17. The main strength is that KNNL is a government company registered under the Indian Companies Act and ACIWRM is a society registered under the Society Registration Act. Both IAs follow all Government rules and regulations for its operations.

18. Both IAs have experience in implementing an ADB-funded project in respect of the ongoing first tranche.

C. Weaknesses

19. Progress Report: The present progress report does not include financial and disbursement reports. The quarterly progress report needs to include financial reports with variance analysis, and disbursement reports.

20. The division office staff and central office staff are often transferred by the government quite often which then leads to weakness in capacity building in KNNL. New staff are being inducted in the division office and central office for Tranche 2. Hence, training should be imparted to the finance and accounts staff once a year to update their knowledge of ADB policies and procedures including preparation of withdrawal applications. Due to the high staff turnover in the division and central offices, there is a frequent need to train new staff in project implementation.

21. The auditor’s observations on KNNL’s entity audit reports reviewed for last five years are “qualified” due mainly to non-compliance with some of the Indian Accounting Standards AS, policies and internal control. KNNL has given separate replies to observations of Statutory Auditors in their Annual Report.

22. Submission of audited project financial statements (APFS) by KNNL and AICWRM was delayed 2.3 and 5.8 months respectively.

D. Personnel, Accounting Policies and Procedures, Internal and External Audit

1. Personnel

23. The officers and senior staff in Finance and Accounts section of KNNL are either on contract basis or on deputation from other departments. Dedicated finance and accounting staff

are now at KNNL HQ. The Central Office at Dharwad is a centralized payment authority for ADB related work. The staffing issues like frequent transfers sanctioned by WRD to the field office needs to be addressed. The staff who are posted for ADB related work should be retained till end of the project, so that the training imparted will not go to waste.

24. In case of ACIWRM, all vacant positions need to be filled before start of the project. There may be shortage of Finance and Accounts staff while implementing the proposed tranche. Therefore, adequate staff should be employed to manage the current finance and accounting function of ACIWRM. Also, it will be useful if the trained staff are retained till end of the project. The staff are qualified and have the capacity to handle project accounting.

25. Finance and accounts staff in KNNL HQ are experienced in ADB policy and procedures. They should provide training to new field staff and ACIWRM staff prior to the start of the tranche.

2. Accounting Policies and Procedures

26. Accountability means (i) every act or action is transparent - open to law, regulation and prudent judgment; (ii) all participants are responsible for their own actions; (iii) every act or action is subject to independent, professional, unbiased review (audit), and, (iv) financial results are made available to all concerned.

27. Accounting System: KNNL and ACIWRM are using accounting systems that allow for the proper recording of project financial transactions. KNNL uses the accrual basis accounting system while ACIWRM uses the cash basis accounting system. Both follow the Public Works Account Code, Finance Code and Treasury Code in the preparation of their accounts. All original vouchers are kept in the Central Office at Dharwad in case of KNNL and all ACIWRM payment vouchers are kept in ACIWRM office. Bank reconciliation is done on a monthly basis. The current system involves recording the allocation of expenditures in accordance with the respective project components and disbursement categories. At present there are controls in place concerning the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained. KNNL and ACIWRM now have adequate financial management and accounting systems in place in addition to the treasury system required for government system.

28. According to the present practice for incurring expenditures, there must be a budget allocation, administrative sanction and technical sanction. If there is budget allocation, the necessary administrative sanction and technical sanction will be issued as per delegation of authority.

29. The government procedures are followed to safeguard and protect assets from fraud, waste and abuse are not very effective. There is no physical inventory of fixed assets taken other than during annual audit.

30. The allocation for expenditures is adequate to report on project activities and disbursement categories. Additional sub account head can be added as and when required.

31. GOK policy has been followed for record retention. A systematic record keeping is being maintained for easy access for scrutiny by authorized users. Data retrieval is also user friendly, being maintained online.

3. Budgeting

32. The project and financial management are closely linked. The financial management cycle of budgeting, execution, accounting, and financial reporting mirrors and provides basic support to the project cycle of planning, implementation, recording results, and reporting. Financial management supports project management and helps assure that resources go towards the successful completion of the project and are not wasted.

33. Budgeting in KNNL and ACIWRM is based on the government system. Based on the Plan allocation, projects are selected, and funds are made available in the Budget for each year in the yearly State Budget under a single line item.

34. Budget estimates are prepared by KNNL and ACIWRM for likely expenditures on projects (including ADB and non-ADB projects) and are then submitted to WRD. WRD makes projections for the ensuing year and provides necessary funds in the WRD Budget of the GOK. The consolidated budget is prepared by the Finance Department of the State and the Budget is approved in the State Legislature. The prevailing system to compare the budget estimates with actual expenditures in KNNL and ACIWRM needs improvement. It is proposed to have the comparison of budget estimates with actual expenditures on physical as well as financial aspects and to provide explanations required for significant variations from the Budget on quarterly basis.

4. Financial Performance Analysis of KNNL

35. Review of KNNL’s financial performance shows that the organization is incurring losses year after year and is not even able to recover their interest and depreciation. The main reason is the non-recovery of the establishment expenses on the works executed by them from the grant given to them by the government for the capital and maintenance work.

36. As part of the analysis, KNNL’s financial performance for the last 5 years has been assessed. A financial analysis at a glance of KNNL for the past 5 years is given in Appendix-3. The ratios were calculated based on profitability measures, liquidity measures, and capital structure measures. Even though the profitability measures and liquidity measures are poor, the capital structure measures are good, and GOK infuses more equity as required, hence, KNNL’s financial performance will not affect the KNNL’s implementation of the investment program.

37. Profitability measures. There has been no profit generated by KNNL in the last 5 years, hence profitability measures [Return on Capital Employed (ROCE), Return on Assets (ROA), Return on Equity (ROE), Gross Profit Margin (GPM), Net Profit Margin (NPM)] are negative. Average loss of KNNL at entity level is about INR 4,482 million per year.

38. Liquidity Measures. Under this group, Current Ratio (CR) is the important one. This ratio is calculated based on the Current Assets to Current Liabilities. The average current ratio is 0.62 (62%). For the past five years, the current liabilities are more than the current assets. KNNL should address this issue.

39. Capital Structure Measures: (i) Debt Ratio (DR): This is calculated based on the ratio of Total Liability to Total Assets. This ratio shows the financing pattern of KNNL. The average debt ratio is 0.12 (12%) which shows the total liability is only 12% to the total assets and is a very comfortable position.

(ii) Debt Equity Ratio: This is calculated based on the ratio of long term debt to equity. The average debt equity ratio is 0.06 (6%) which is a very comfortable position. (iii) Financial Gearing (FG): This is calculated based on the ratio of total debt to (total debt and equity). The average FG is 6.65% shows a very comfortable position. Since KNNL is not depending much on the debt financing, the ratio is lower, thus there is no financing risk to the KNNL.

5. Internal Audit

40. In KNNL, the Internal Audit function is outsourced to a qualified Chartered Accountant firm as envisaged in the Indian Companies Act. The Internal Auditor does the internal audit on a quarterly basis and reports to KNNL’s Managing Director. KNNL have an audit committee that normally meets every quarter to review the findings of the Internal Auditor. The pre-audit work is carried out by staff before making a payment for the work bill. In ACIWRM, there is no internal audit system. All payment vouchers are pre-checked by the Accounts and Engineering staff prior to payments.

6. External Audit

41. The statutory audit function is carried out by the Chartered Accountant selected from the panel approved by the CAG. The statutory auditors prepare separate certification work for the ADB project related expenditures. The audit of KNNL for FYE 2016-17 has already been completed by the external auditor. The audits are conducted as per Indian Auditing Standards (AS). The Auditor issued a qualified report based on the Indian AS, Policies and Internal Control. KNNL has responded to observations of Statutory Auditor’s Report in their Annual Report. There are some observations that are being addressed and rectified by the management of KNNL. The Audit Report received from the Statutory Auditor is placed before the Board for review every year. An audit committee meets quarterly to review and take action to rectify the observations in the internal and statutory audit. The Audit Report is also to be placed before the Legislature as per government requirements. There was a delay of 2.3 months in submission of APFS 2016-17 to ADB by KNNL. The observations and recommendations pointed out by the ADB need to be addressed immediately. ADB recommended compliance with the following for future reports: (i) breakdown of ADB loan proceeds, government counterpart funding and other sources; (ii) consistent aggregation of expenditures in the Annexures; (iii) information on reimbursements from ADB should match information in ADB Loan and Grant Financial Information Services; (iv) consistent classification of payments from previous year’s APFS presentation; and (v) SOE details report should report only on reimbursements claimed using SOE procedure.

42. ACIWRM also selects its auditor from the panel of the Chartered Accountants approved by CAG. Their audit for the 2016-17 period has been completed and submitted to the Governing Body and ADB. There is no audit committee in place. The observations in the audit report are reviewed by the managing committee and placed before the Governing Body. There was a delay of 5.8 months in the submission of APFS 2016-17 to ADB by ACIWRM. The following are the observations and recommendations pointed out by the ADB which ACIWRM needs to address immediately: (i) inclusion of management letter in the audit report; (ii) adoption of revised format on audit opinion in accordance with ISA 700 and inclusion of the Other Matter paragraph, stating that the auditor’s report is intended solely for 11

the use of ADB and its intended users and should not be used, be distributed to or used by other parties in accordance with ISA 706; (iii) identifying in the statement of receipts and payments or preparing a schedule showing how the ADB Loan released was spent using the expenditure categories specified in the Loan Agreement; (iv) submission of withdrawal applications on a timelier basis, within 1 month of incurring expenditures; (v) ensuring that the withdrawal application numbers assigned by ADB match those provided in the LFIS; and (vi) ensuring that information on reimbursements from ADB match information in ADB’s LFIS.

43. As per the loan and project agreements, the audited project financial statements (APFS) are to be submitted in English to ADB within 6 months of the end of each fiscal year. The annual audit report should include a separate auditor’s opinion on the use of statement of expenditures, compliance with loan covenants and use of loan proceeds in accordance with the loan agreement for intended purposes. KNNL and ACIWRM must be reminded of ADB’s approach to delayed submissions, and the requirements for satisfactory and acceptable quality of the audited APFS.6 There was a delay of 2.3 months after the due date in case of KNNL and 5.8 months in case AICWRM for the submission of APFS to ADB for the fiscal year 2016-17.

44. In addition to the statutory audit, Auditor General also conducts special audit/Review Audit/proprietary audits on selective basis as considered appropriate.

45. Auditing and Submission. KNNL and ACIWRM will (i) maintain separate accounts for the Project; (ii) have such accounts audited annually, in accordance with appropriate auditing standards consistently applied by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB; (iii) furnish to ADB as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited project accounts and the report of the auditors relating thereto (including the auditors’ separate opinions on the use of the loan proceeds and compliance with the financial covenants of the loan agreement) as well as a management letter; and (iv) furnish to ADB such other information concerning such accounts and the audit thereof as ADB shall from time to time reasonably request.

46. In addition, KNNL and AC-IWRM shall also submit a copy of their own entity level audited financial statements within one month of their approval by their respective governing body. Compliance with financial reporting and auditing requirements will be monitored by review

6 ADB’s approach and procedures regarding delayed submission of audited project financial statements: (i) When audited project financial statements are not received by the due date, ADB will write to the executing agency advising that (a) the audit documents are overdue; and (b) if they are not received within the next 6 months, requests for new contract awards and disbursement such as new replenishment of advance accounts, processing of new reimbursement, and issuance of new commitment letters will not be processed. (ii) When audited project financial statements are not received within 6 months after the due date, ADB will withhold processing of requests for new contract awards and disbursement such as new replenishment of advance accounts, processing of new reimbursement, and issuance of new commitment letters. ADB will (a) inform the executing agency of ADB’s actions; and (b) advise that the loan may be suspended if the audit documents are not received within the next 6 months. (iii) When audited project financial statements are not received within 12 months after the due date, ADB may suspend the loan.

missions and during normal program supervision, and followed up regularly with all concerned, including the external auditor.

47. The audit of the ADB project account will be carried out by a Chartered Accountant from the approved panel of CAG. Table-3 records the agreed auditing and submission arrangements. The audit report and APFS should follow the reporting format agreed between MOF and ADB, and adopt the prescribed auditor’s TOR.

Table 3: Auditing and Submission Arrangements Aspects Arrangements 1. Legislative and regulatory KNNL is following double entry accrual accounting and government basis rules and regulations in its operations since it is a government-owned company. ACIWRM is a registered government society and follows government rules and regulations. At present there are controls in place concerning the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained. WRD of GOK is the controlling office for both KNNL and ACIWRM. 2. Auditing standardsa The audit shall be conducted by the KNNL and ACIWRM in accordance with its approved national auditing standards and government accounting standards. 3. Auditor selection and Internal Audit: KNNL has outsourced the Internal Audit function to appointment process, Chartered Accountant. The Internal Auditor conducts the Internal appointment term, and Audit on a quarterly basis. KNNL’s audit committee reviews the financing arrangements recommendations in the audit report and ensuring its implementation.

ACIWRM has no internal audit arrangement. The statutory auditor does the audit works on quarterly basis. The payment vouchers get pre-audited before making payment by the Finance Staff. The project is planning to post separate Internal Auditor to audit the project activities on quarterly basis. There is no audit committee and the management committee normally review the audit recommendations for its compliance.

External Audit/Statutory Audit: The statutory audit function is carried out by the Chartered Accountant selected from the panel approved by the CAG. These statutory auditors prepare separate certification work for the ADB related project expenditure. The entity audit reports of KNNL are all qualified and needs separate attention to rectify the weakness pointed out by the auditors. In addition, AG (Audit) will also conduct special audit/Review Audit/ proprietary audit on selective basis as considered appropriate. 4. Project Auditor terms of The project financial statements shall be audited by the statutory reference and engagement auditor in accordance with the Indian Accounting and Auditing letter Standard. 5. Timing and language of The KNNL and ACIWRM will submit the audited annual financial submission to ADB of audited statements to ADB, in the English language, within six months of the annual financial statements end of each financial year. 6. Review and response The KNNL Board and ACIWRM Executive Committee are ensuring mechanisms that the auditor’s recommendations will be implemented within a reasonable period from the date of issuance of the management letter.

a ADB recognizes the following international standards: (i) International Standards on Auditing which are issued by the International Auditing Assurance Standards Board which is an independent board established by the 13

International Federation of Accountants for the audit of the annual financial statements; and (ii) the International Standards of Supreme Audit Institutions issued by the International Organization of Supreme Audit Institutions for the audit of the annual project financial statements of government agencies. ADB may also accept national auditing standards that it considers to be equivalent to these international standards. ADB = Asian Development Bank, ACIWRM = Advanced Centre for Integrated Water Resources Management, CAG = Comptroller and Auditor General, GOK = Government of Karnataka, WRD = Water Resources Department

E. Financial Reporting Systems (including use of Information System)

1. Financial Reporting Systems

48. Financial Reporting should demonstrate the accountability of KNNL and ACIWRM and the resources entrusted to them and provide information useful for decision making by indicating whether resources were obtained and used in accordance with the legally adopted budget, and legal and contractual requirements, including financial limits established by appropriate legislative authorities. It must provide information about the sources, allocation and uses of financial resources and how the KNNL and ACIWRM financed its activities and met its cash requirements. It must also provide information that is useful in evaluating the WRD’s ability to finance its activities and meet its liabilities and commitments. Effective reporting is one that provides information about the financial condition of the IA and aggregate information useful in evaluating the IA’s performance in terms of service costs, efficiency and accomplishments. It is recommended to include supplementary financial and disbursement reports in the quarterly project progress reports. KNNL and ACIWRM should submit the report within 45 days after completion of each quarter, in both electronic and hard copy format. The indicative Financial and Disbursement reports may consist of the following: (i) Statement of Expenditure by category (ii) Statement of Disbursement (iii) Physical and Financial progress with variance analysis (iv) Expenditure details by output component

Table 4: Financial Reporting Arrangements Aspects Arrangements Reporting entities KNNL: Annual Audited Financial Statements, Directors Report & Annual Report on annual basis, Annual return under Companies Act, 2013. In addition, KNNL also reports to WRD for any information sought for. ACIWRM: Reports to Water Resources Department of GOK; and submits annual returns under Society Registration Act. Legislative and KNNL: As a government company, registered under the Indian Companies Act, KNNL regulatory basis for should prepare the financial statements as per Companies Act, 2013. KNNL now financial reporting prepares Balance Sheet and Profit and Loss account under the double entry system. These statements are to be approved by the Board of Directors of the KNNL and are to be audited by the auditor appointed from the approved panel of CAG.

ACIWRM: Functioning as a registered society under the WRD, ACIWRM reports to WRD and Registrar of Society; prepares statement of Receipt and Payment Account and category-wise Statement of Expenditures for ADB projects. These statements are to be audited by the auditor appointed from the approved panel of the CAG. Financial reporting KNNL: The Financial Statements are prepared and presented under accrual basis. standards ACIWRM: The Financial Statements are prepared in cash basis in accordance with the Government Accounting System. Financial year The standard annual reporting period is from 01 April to 31 March of the succeeding year. Currency The currency of presentation is Indian Rupee. Language The annual financial statements will be presented in the English language.

Aspects Arrangements Composition and The annual project financial statements will comprise: preparation For KNNL Entity Level:  Profit & Loss Account  Balance Sheet  Cash Flow Statement  Statement of change in Equity  Note forming part of financial statements

For KNNL Project Level  Statement of Receipts and Payments  Uses of Fund by Project Activity and Category  Statement of Disbursement  Notes to the Financial Statements

For ACIWRM Entity Level:  Statement of Affairs  Statement of Receipts and Payments  Statement of Project Expenditures  Schedules to financial statements

For ACIWRM Project Level:  Statement of Receipts and Payments  Uses of Fund by Project Activity and Category  Statement of Disbursement  Notes to the Financial Statements.

For Quarterly Progress Report:  Statement of Expenditure by category  Statement of Disbursement  Physical and Financial progress with variance analysis  Expenditure details by output component

Arrangements for The project must submit quarterly progress report for the physical and financial interim financial progress not later than 45 days from the end of each quarter. reporting Country specific KNNL: The KNNL is a Government Company under the WRD of GOK and follows circumstances (if the Companies Act provisions as well as Government rules and regulations applicable) ACIWRM: The ACIWRM is a registered society under the WRD of GOK and follows all Government Rules and Regulations applicable in Government of Karnataka. Arrangements with There are no co-financiers. co-financiers (if applicable) ADB = Asian Development Bank, ACIWRM = Advanced Centre for Integrated Water Resources Management, CAG = Comptroller and Auditor General, GOK = Government of Karnataka, WRD = Water Resources Department

2. Information Systems

49. Tally software is used for accounting and reporting system. KNNL has appointed an agency for adoption of ERP software for its MIS from 2018-2019 onwards. KNNL and ACIWRM presently use customized Tally ERP software for accounting and financial reporting.

F. Disbursement Arrangements and Funds Flow Mechanism

1. Disbursement Arrangements

50. The Loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2017, as amended from time to time).7 The project is funded by ADB on reimbursement basis and detailed arrangements agreed upon between the government and ADB. Online training for project staff on disbursement policies and procedures is available.8 Project staff are encouraged to avail of this training to help ensure efficient disbursement and fiduciary control.

51. Statement of expenditure procedure.9The SOE procedure will be used for reimbursement of eligible expenditures. Supporting documents and records for the expenditures claimed under the SOE should be maintained and made readily available for review by ADB's disbursement and review missions, upon ADB's request for submission of supporting documents on a sampling basis, and for independent audit. The borrower should ensure sufficient category and contract balances before requesting disbursements. Use of ADB’s Client Portal for Disbursements (CPD)10 system is encouraged for submission of withdrawal applications to ADB.

52. Pursuant to ADB's Safeguard Policy Statement (2009) (SPS),11 ADB funds may not be applied to the activities described in the ADB Prohibited Investment Activities List set forth at Appendix 5 of SPS. All financial institutions are to ensure that their investments follow applicable national laws and regulations and comply with the SPS regarding ADB Prohibited Investment Activities List for ADB-financed projects.

53. KNNL headquarters and ACIWRM will be responsible for (i) preparing disbursement projections, (ii) requesting budgetary allocations for counterpart funds, (iii) collecting supporting documents, and (iv) preparing and sending withdrawal applications to ADB for their respective eligible expenditures. Withdrawal applications and supporting documents will demonstrate, among other things that the goods, and/or services were produced in or from ADB members and are eligible for ADB financing.

54. All disbursements under government financing will be carried out in accordance with regulations of the GOK (counterpart fund) and ADB procedures will be followed for the ADB component.

2. Fund Flow Mechanism

55. The total cost of the project is partly funded by grant from GOK and loan from ADB. Both funds are operated through the Government Treasury System. Payments to the contractors and suppliers are done through SBI Cheque system. For eligible expenditures under the loan, Statement of Expenditure is to be prepared by the Project and submitted to ADB through the Controller of Aid, Audit and Accounts (CAAA) under the Ministry of Finance, Delhi for reimbursement. Based on the agreement that will be entered into by GOK, GOI and ADB, the

7 Available at http://www.adb.org/Documents/Handbooks/Loan_Disbursement/loan-disbursement-final.pdf 8 Disbursement eLearning: http://wqr4.adb.org/disbursement_elearning 9 SOE forms are available in Appendix 7B and 7D of ADB’s Loan Disbursement Handbook (2017, as amended from time to time). 10 The CPD facilitates online submission of WA to ADB, resulting in faster disbursement. The forms to be completed by the Borrower are available online athttps://www.adb.org/documents/client-portal-disbursements-guide. 11 Available at http://www.adb.org/Documents/Policies/Safeguards/Safeguard-Policy-Statement-June2009.pdf

fund will be released by ADB to GOI and from GOI to GOK. The timely submission of the SOE is very important to ensuring funds are released to the project through GOK.

56. The Government of India will make the ADB loan available to Government of Karnataka on back to back funding basis. The project will be budgeted through a single line item in the GOK budget. After the budget is approved, an allocation will be made by GOK, through the Water Resources Department, to KNNL on a monthly basis and to ACIWRM on a quarterly basis according to standard GOK practices.

57. Appendixes 2A and 2B show the flow of funds under the project from ADB to KNNL and ACIWRM using the reimbursement procedure.

58. Funds to the Projects. In KNNL, the work bills/invoices of the contractors, suppliers, and service providers are first scrutinized, verified and certified by the technical and accounts wing of the concerned Division office and subsequently submitted to Chief Engineer (CE), Munirabad (PIO) for approval. The CE, Munirabad (PIO) will recommend and submit bills/invoices to the Central Office of the Chief Accounts Officer (CAO)-Accounts in Dharwad for processing. The CAO-Accounts staff will pre-verify the vouchers with respect to the terms and conditions, rates and quantities in comparison with those provided for in the Contract Agreement or Purchase Order. The arithmetical calculations are also checked. The CAO checks the invoices to ensure that a certificate of the relevant inspecting authority is attached, and the invoices are properly stamped and signed. The CAO then releases the payments.

59. The KNNL transfers funds from the treasury account to its dedicated program bank account as and when required. The funds are then provided to the Central Office of the CAO at Dharwad based on the bi-monthly request from the CAO office. The funds are credited to the dedicated program bank account of the CAO. Based on the expenditures incurred on ADB projects, the Division submits the payment vouchers through proper channels to CAO, and CAO in turn makes the payment and sends the payment details to KNNL headquarter office. KNNL headquarter office will then prepare a claim under SOE for reimbursement and submit the claim to CAAA. The claim is subsequently submitted to ADB for reimbursement to the MOF. In case of ACIWRM, centralized payment system follows. The payment vouchers received with approval from the technical wing are processed in the ACIWRM finance section. ACIWRM directly submits WAs for the claims under SOE to CAAA.

60. Water User Cooperative Societies (WUCS) are contracted for community participation packages (CPP) to improve the field canals under the Command Area Development Authority (CADA) under Output 2 of the project. The work bills are certified by the CADA and submitted for payment to KNNL field office.

3. Financing Plan

61. Financing Plan: The total cost of project is estimated at $130 million, inclusive of taxes, duties, and interest and other charges on the loan during implementation. The government has requested a concessional loan equivalent to $91 million from ADB’s ordinary capital resources to help finance the project. The financing plan is in Table 5 given below.

Table 5: Financing Plan

Source Amount ($ million) Share of Total (%) Asian Development Bank Ordinary capital resources 91.00 70.00 Government 39.00 30.00 Total 130.00 100.00 Source: Asian Development Bank estimates.

62. Supervision Plan: For effective implementation of the project, it is recommended that ADB follows up and reviews with KNNL and ACIWRM the status of recommendations on Financial Management. ADB review missions will review the status on a half-yearly basis and suggest remedial measures, as necessary.

V. SUGGESTED COVENANTS

63. Schedule 5 of the legal agreement shall require the implementation of the Financial Management Action Plan as stipulated in the Project Administration Manual.

18 Appendix 1A

Appendix 1A

Organogram of KNNL HQ Finance and Technical Wing and CAO-Accounts Dharwad

Managing Director

GM (Finance) SE - Bangalore CAO - A/cs Dharwad

AGM (Finance) - Account Officers - 2 Executive Engineers Vacant Nos

Manager Finance Asst. Exe. Engineers FDAA - 30 Nos

Dy. Manager Finance - Asst. Engineers SDAA - 30 Nos Vacant

Asst. Manager Finance - 5 Nos (CAO office 3 + Junior Engineer HQ 2)

Account/Office Asst - 12 Nos Support staff (CAO office-5 + HQ-7)

CAO = Chief Accounts Officer, AGM = Assistant General Manager, GM = General Manager Finance, FDAA = First Division Accounts Assistant, SDAA = Second Division Account Assistant, SE = Superintending Engineer

Appendix 1B 19

Appendix 1B Organogram of ACIWRM

20 Appendix 2A

Appendix 2A Karnataka Integrated and Sustainable Water Resources Management Investment Program KARNATAKA NEERAVARI NIGAM LIMITED (KNNL)

Funds flow diagram for the proposed ADB assisted project on reimbursement basis:

ADB Government of Government of Karnataka India KNNL

HQ – KNNL Central Office Dharwad

Program Bank Program Bank Account KNNL Account operated by CAO

KNNL Treasury Zonal Office/ Account Circle Office/ Division Offices/ Sub-division Offices/ PIO Munirabad

Contractors/ Request for Fund for Fund Request Suppliers/ Budget Release in Release Budget Instalments Monthly Service Providers/ Water and other Ministry of Application Withdrawal Resources expenses ADB Department Withdrawal Finance Application

India CAAA Resident Mission Budget Allocation

GOI Department of Bank Finance Controller Account Government of Karnataka

Funds Flow

Documents Flow

ADB = Asian Development Bank, CAAA = Controller of Aid Accounts and Audit, CAO = Chief Accounts Officer, GOI = Government of India, KNNL = Karnataka Neeravari Nigam Limited

Appendix 2B 21

Appendix 2B Karnataka Integrated and Sustainable Water Resources Management Investment Program Advance Centre for Integrated Water Resources Management (ACIWRM)

Funds flow diagram for the proposed ADB assisted project on reimbursement basis:

ADB Government of Government of Karnataka India

ACIWRM

Program Bank Account of ACIWRM

request quarterly installment for Payment Release Budget release in in release Budget

Water Resources Request Department Release of payment Release Vouchers/

Suppliers/

Service Providers/

Consultants and other Ministry of expenses ADB Budget Allocation Budget Withdrawal Withdrawal Withdrawal Finance Application Application India CAAA Resident Mission

GOI Department of Bank Finance Controller Account Government of Karnataka

Funds Flow

Documents Flow

ADB = Asian Development Bank, ACIWRM = Advance Centre for Integrated Water Resources Management, CAAA = Controller of Aid Accounts and Audit, GOI = Government of India

22 Appendix 3 Appendix 3 Analysis of Financial Statements of KNNL Statement of Profit and Loss (Amount in Million INR) 2012-13 2013-14 2014-15 2015-16 2016-17 Average 1 Total Revenue 4,102 3,490 7,152 4,316 6,573 5,127 a Revenue from Operations 34 64 52 21 29 40 b Other Income 4,068 3,426 7,100 4,295 6,544 5,087 2 Total Expense 5,837 6,445 15,683 8,685 11,391 9,608 3=1-2 Profit Before Tax -1,735 -2,955 -8,531 -4,369 -4,818 -4,482 4 Tax Expense - 5=3-4 Profit for the Year -1,735 -2,955 -8,531 -4,369 -4,818 -4,482

Balance Sheet (Amount in Rs.) 2012-13 2013-14 2014-15 2015-16 2016-17 Average I. Equity and Liabilities 1 Shareholder's Funds 134,207 154,499 169,613 190,918 212,779 172,403 a Share Capital 86,227 137,666 180,884 199,101 236,285 168,033 b Pending Allotment of Shares 54,704 26,512 8,864 18,016 c Reserves and Surplus -6,724 -9,679 -20,135 -8,183 -23,506 -13,645 2 Non-current Liabilities 1,335 5,093 11,342 15,010 20,010 10,558 3 Current Liabilities 7,219 8,040 9,256 17,945 17,973 12,087 4=1+2+3 Total (Equity and Liabilities) 142,761 167,632 190,211 223,873 250,762 195,048

II. Assets 1 Non-current Assets 141,513 161,660 184,053 212,693 237,971 187,578 a Fixed Assets 134,119 152,606 175,923 205,108 232,443 180,040 b Other non-current assets 1 3 2 1 1 2 c Long term loans and advances 7,393 9,051 8,128 7,584 5,527 7,537 2 Current Assets 1,245 5,971 6,156 11,180 12,793 7,469 a Cash and Bank Balance 837 5,457 4,050 9,315 9,609 5,854 b Short term loans and advances 97 189 1,738 259 474 551 c Other current assets 311 325 368 1,606 2,710 1,064 3=1+2 Total (Assets) 142,758 167,631 190,209 223,873 250,764 195,047

Key Financial Ratio 2012-13 2013-14 2014-15 2015-16 2016-17 Average a Long-Term Debt to Equity Ratio 0.01 0.03 0.07 0.08 0.09 0.06 b Current Ratio (CA/CL) 0.17 0.74 0.67 0.62 0.71 0.62 c Debt Ratio (DR) 0.06 0.08 0.11 0.15 0.15 0.12 d Financial Gearing (FG) 5.10% 4.95% 5.17% 8.59% 7.79% 6.55% Source: KNNL Annual Reports / Audited statements

Appendix 4A 23

Appendix 4A Karnataka Neeravari Nigam Limited (KNNL) Financial Management Assessment Questionnaire (FMAQ) Topic Response 1. Executing / Implementing Agency 1.1 What is the entity’s legal status / registration? Karnataka Neeravari Nigam Limited (KNNL) is a government company registered under the Indian Companies Act 1956 on 09 December 1998. 1.2 How much equity (shareholding) is owned by the 98.95% shares are owned by GOK and 1.05% shares Government? are owned by Karnataka State Financial Corporation (KSFC) which is also fully owned by GOK. 1.3 Obtain the list of beneficial owners of major blocks Not applicable. of shares (non-governmental portion), if any. 1.4 Has the entity implemented an externally-financed Yes. The KNNL, executing and implementing agency, is project in the past? If yes, please provide details. implementing ADB funded project Tranche 1 of the Karnataka Integrated and Sustainable Water Resources Management Investment Programs (KISWRMIP). 1.5 Briefly describe the statutory reporting Reporting to Board of Directors. requirements for the entity. 1.6 Describe the regulatory or supervisory agency of Board of KNNL. the entity. 1.7 What is the governing body for the project? Is the Board of Directors is the governing body of the KNNL governing body for the project independent? and this body is independent. Present Board of Directors of KNNL comprises of 12 Board Members. 1.8 Obtain current organizational structure and Attached Organizational Structure. describe key management personnel. Is the organizational structure and governance appropriate for the needs of the project? 1.9 Does the entity have a Code of Ethics in place? Yes. 1.10 Describe (if any) any historical issues reports of No issues reported. ethics violations involving the entity and management. How were they addressed? 2. Funds Flow Arrangements 2.1 Describe the (proposed) project funds flow Attached funds flow diagram. arrangements in detail, including a funds flow diagram KNNL is preparing annual budget for the likely and explanation of the flow of funds from ADB, expenditure on projects (including ADB and Non ADB government and other financiers, to the government, projects) and submit to Water Resources Department EA, IA, suppliers, contractors, ultimate beneficiaries, (WRD) of GOK. The WRD makes projections in the etc. as applicable. ensuing year and providing necessary funds in the WRD Budget of the GOK. The Department of Finance releases funds from the Budget provisions to KNNL Treasury Account for implementation of projects in monthly installments. KNNL transfer funds from treasury account to its dedicated program bank account as and when required. The funds will be provided to the Central Office of the Chief Account Officer (CAO) at Dharwad based on the bi-monthly request from the CAO office. This will be credited to the dedicated program bank account of the CAO. Based on the expenditure incurred on ADB projects, Division will submit the payment vouchers through proper channel to CAO and CAO will make payment and send the payment details to KNNL headquarters office, who will prepare a claim for reimbursement which is presented to the Controller of Aid, Audit and Accounts (CAAA) under the Ministry of

24 Appendix 4A

Topic Response Finance, Delhi. The claims are subsequently submitted to ADB for reimbursement to the MOF.

2.2 Are the (proposed) arrangements to transfer the Yes. The (proposed) arrangements for transfer of proceeds of the loan (from the government / Finance proceeds to the project is satisfactory. Ministry) to the entity and to the end-recipients satisfactory? 2.3 Are the disbursement methods appropriate? Reimbursement method is to follow and it is appropriate to the project. 2.4 What have been the major problems in the past No problems in the past. involving the receipt, accounting and/or administration of funds by the entity? 2.5 In which bank will the Imprest Account (if The opening of the imprest account is not required in the applicable) be established? present arrangement. 2.6 Is the bank in which the imprest account is Not applicable. established capable of −  Executing foreign and local currency transactions?  Issuing and administering letters of credit (LC)?  Handling a large volume of transaction?  Issuing detailed monthly bank statements promptly? 2.7 Is the ceiling for disbursements from the imprest Not applicable. account and SOE appropriate/required? 2.8 Does the (proposed) project implementing unit The present staff in HQ Finance got training on ADB (PIU) have experience in the management of policy and procedures. However, Division office staff is disbursements from ADB? being newly formed and needs training in ADB policy and procedures. 2.9 Does the PIU have adequate administrative and Yes. Capacity development in ADB policy and accounting capacity to manage the imprest fund and procedure is suggested for Staffs in Finance and statement of expenditure (SOE) procedures in Accounts, CAO office and Division Office. accordance with ADB’s Loan Disbursement Handbook (LDH)? Identify any concern or uncertainty about the PIU’s administrative and accounting capability which would support the establishment of a ceiling on the use of the SOE procedure. 2.10 Is the entity exposed to foreign exchange risk? If No. yes, describe the entity’s policy and arrangements for managing foreign exchange risk. 2.11 How are the counterpart funds accessed? The counterpart funds are accessed through budget allocations for the project(s) in the WRD Budget, based on which funds are released on monthly basis to KNNL for execution of projects. 2.12 How are payments made from the counterpart Finance Department has agreed in principle to the loan. funds? The total loan component is with 70% sharing by ADB loan and 30% has to be provided by GOK out of Plan Budget. ADB share comes to US$77 million and GOK share comes to US$ 33 million. The total loan amount in each financial year will be within annual borrowing limit fixed for the State by the Ministry of Finance Government of India. The loan released by the Government of India for the externally Aided Project will be included under Block Loan for State Plan Projects. 2.13 If project funds will flow to communities or NGOs, Command Area Development Authority (CADA) will be does the PIU have the necessary reporting and doing the VNC WUCS Packages through registered monitoring arrangements and features built into its Water Users Cooperative Society (WUCS). These systems to track the use of project proceeds by such works are monitored by CADA and KNNL technical entities? staff. Release of funds are done directly to WUCS from KNNL CAO office. Appendix 4A 25

Topic Response 2.14 Are the beneficiaries required to contribute to There are no beneficiaries to contribute in the project. project costs? If beneficiaries have an option to contribute in kind (in the form of labor or material), are proper guidelines and arrangements formulated to record and value the labor or material contributions at appraisal and during implementation? 3. Staffing 3.1 What is the current and/or proposed organizational The organization structure is attached. structure of the accounting department? Attach an organization chart. 3.2 Will existing staff be assigned to the project, or will The officers and senior level staff are on deputation from new staff be recruited? various government organizations in Central Office (CAO office) Dharwad and Divisional Office. Finance and Accounts Staff are on permanent basis and their selection is based on their qualifications, experience and performance record. 3.3 Describe the existing or proposed project Project accounting staff in KNNL HQ are on permanent accounting staff, including job title, responsibilities, basis. educational background and professional experience. Attach job descriptions and CVs of key existing accounting staff. 3.4 Is the project finance and accounting function Adequate staff are employed to manage the current staffed adequately? finance and accounting function of the KNNL. 3.5 Are the project finance and accounting staff Yes. The finance and accounting staff are adequately adequately qualified and experienced? qualified and experienced. 3.6 Are the project finance and accounting staff trained Since the proposed project is with new staff at CAO in ADB procedures, including the disbursement office and Division office training is required in ADB guidelines (i.e., LDH)? procedures. 3.7 What is the duration of the contract with the project Finance and Accounts staff are permanent staff of finance and accounting staff? KNNL. 3.8 Identify any key positions of project finance and All staff in the staffing structure are in place. accounting staff not contracted or filled yet, and the estimated date of appointment. 3.9 For new staff, describe the proposed project Not applicable. finance and accounting staff, including job title, responsibilities, educational background and professional experience. Attach job descriptions. 3.10 Does the project have written position Yes. Project have written position description that descriptions that clearly define duties, responsibilities, clearly defined duties and responsibilities. lines of supervision, and limits of authority for all the officers, managers, and staff? 3.11 What is the turnover rate for finance and Departmental transfers are taking place in Central accounting personnel (including terminations, Office and Division Office. resignations, transfers, etc.)? 3.12 What is training policy for the finance and Training are given to finance and accounts staff accounting staff? 3.13 Describe the list of training programs attended by Training given on Accounting Standards, Government finance and accounting staff in the last 3 years. Accounting etc. 4. Accounting Policies and Procedures 4.1 Does the entity have an accounting system that KNNL is following appropriate accounting system and allows for the proper recording of project financial Generally Accepted Accounting Principles (GAAP) in transactions, including the allocation of expenditures India. Finance and Accounts Procedures of GOK, in accordance with the respective components, Provisions in the Karnataka Finance Code, Karnataka disbursement categories, and sources of funds (in Treasury Code and Manual, PWD Accounts Code, particular, the legal agreements with ADB)? Will the Stores Manual, Budget Manual etc. also followed in KNNL. The accounts of the KNNL are also subject to

26 Appendix 4A

Topic Response project use the entity accounting system? If not, what Internal Audit and independent Statutory Audit and accounting system will be used for the project? Government Auditors. The KNNL is recording the expenditure in Tally ERP software that captures proper recording of project financial transactions in real time. 4.2 Are controls in place concerning the preparation Yes. Controls are in place for correct preparation of and approval of transactions, ensuring that all transactions and their approval. Centralized payment transactions are correctly made and adequately system by CAO is followed in KNNL. explained? 4.3 Is the chart of accounts adequate to properly The allocation of expenditure is adequate to report on account for and report on project activities and project activities and disbursement categories. disbursement categories? Obtain a copy of the chart Additional account head will be added as and when of accounts. required. 4.4 Are cost allocations to the various funding sources Yes. made accurately and in accordance with established agreements? 4.5 Are the General Ledger and subsidiary ledgers Yes. Accounts are prepared in Tally ERP Software and reconciled monthly? Are actions taken to resolve system provides for automatic reconciliation. reconciliation differences? 4.6 Describe the EA’s policy for retention of accounting Yes. GOK policy follows for record retention. A records including supporting documents (e.g, ADB’s systematic record keeping is being maintained for easy policy requires that all documents should be retained access for subsequent scrutiny by authorized users. for at least 1 year after ADB receives the audited project financial statements for the final accounting period of implementation, or 2 years after the loan closing date, whichever is later). Are all accounting and supporting documents retained in a defined system that allows authorized users easy access? 4.7 Describe any previous audit findings that have not No major findings reported. been addressed. Segregation of Duties 4.8 Are the following functional responsibilities Yes. The functional responsibilities for authorization to performed by different units or persons: (i) execute a transaction, and recording of the transaction authorization to execute a transaction; (ii) recording of in the different ledgers are segregated. The custody of the transaction; (iii) custody of assets involved in the assets is the responsibility of the KNNL HQ and its transaction; (iv) reconciliation of bank accounts and subordinate office. subsidiary ledgers? 4.9 Are the functions of ordering, receiving, accounting Yes. The functions for ordering and receiving are for, and paying for goods and services appropriately performed by the KNNL centralized for the good and segregated? services. The payment and accounting of the same are arranged by the CAO office, Dharwad. The functions of payment and accounting are segregated. Proper Accounts are being maintained for all transactions during execution of the project. Budgeting System 4.10 Do budgets include physical and financial Yes. targets? 4.11 Are budgets prepared for all significant activities Yes. in sufficient detail to allow meaningful monitoring of subsequent performance? 4.12 Are actual expenditures compared to the budget The system of expenditure and budget allotment are with reasonable frequency? Are explanations required constantly being monitored by KNNL HQ. for significant variations against the budget? 4.13 Are approvals for variations from the budget Board has power to approve the variation in the budget. required (i) in advance, or (ii) after the fact? Depends on the urgency MD is empowered to give approval subject to approval of the Board. 4.14 Is there a ceiling, up to which variations from the No ceiling is fixed for the variation from the budget. budget may be incurred without obtaining prior approval? Appendix 4A 27

Topic Response 4.15 Who is responsible for preparation, approval and Finance Department is preparing budget for the GOK oversight/monitoring of budgets? and WRD is getting allocation for the project and KNNL is implementing the project through Division office. 4.16 Describe the budget process. Are procedures in KNNL of the GOK who is executing agency for the place to plan project activities, collect information from proposed ADB project is proposing the required amount the units in charge of the different components, and in the inclusion of the State Budget through WRD. prepare the budgets? Finance Department of the GOK prepares the State Budget and get it approved from the State Legislature. 4.17 Are the project plans and budgets of project Yes. The budget and project activities are realistic and activities realistic, based on valid assumptions, and based on valid assumptions. developed by knowledgeable individuals?  Is there evidence of significant mid-year revisions, inadequate fund releases against allocations, or inability of the EA to absorb/spend released funds?  Is there evidence that government counterpart funding is not made available adequately or on a timely basis in prior projects?

What is the extent of over- or under-budgeting of major heads over the last 3 years? Is there a consistent trend either way? Payments 4.18 Do invoice-processing procedures require: (i) Work Bills/Invoices of the Contractor/Suppliers/ Service Copies of purchase orders and receiving reports to be Providers are first scrutinized, verified and certified by obtained directly from issuing departments? (ii) the Technical and Accounts wing of the concerned Comparison of invoice quantities, prices and terms, Division office and will subsequently submitted to CE with those indicated on the purchase order and with Munirabad (PIO) for approval. The CE Munirabad (PIO) records of goods actually received? (iii) Comparison of will recommend and submit bills/invoice with approval to invoice quantities with those indicated on the receiving CAO-Accounts, Dharwad at central office for reports? (iv) Checking the accuracy of calculations? processing. They will pre audit the vouchers with (v) Checking authenticity of invoices and supporting respect to the terms and conditions, rates and quantities documents? in comparison with those provided for in the Contract Agreement or Purchase Order. The arithmetical calculations are also checked. The invoices are also checked to ensure certificate of the relevant inspecting authority is available and proper stamping and signatures. The payments are released by the CAO. 4.19 Are all invoices stamped PAID, dated, reviewed Yes. Once the invoice is approved for payment, the and approved, recorded/entered in to the system invoice is stamped to indicate that is has been paid. The correctly, and clearly marked for account code accounting head is marked on the respective vouchers. assignment? 4.20 Do controls exist for the preparation of the Yes. The payments to the staff and officers are made as payroll? Are changes per the KNNL and GOK rules and regulations. The (additions/deductions/modifications) to the payroll controls for preparation of payroll and changes thereto properly authorized? are considered adequate.

Policies and Procedures 4.21 What is the basis of accounting (e.g., cash, KNNL accounts are maintained on accrual basis. accrual) followed (i) by the entity? (ii) By the project? 4.22 What accounting standards are followed Indian Accounting standards prescribed by Central (International Financial Reporting Standards, Government and recommended by ICAI are followed. International Public Sector Accounting Standards – cash or accrual, or National Accounting Standards (specify) or other?

28 Appendix 4A

Topic Response 4.23 Does the project have adequate policies and The KNNL is having adequate policies and established procedures manual(s) to guide activities and ensure procedures to guide activities and ensure accountability. staff accountability? 4.24 Is the accounting policy and procedure manual The policies and procedures are reviewed from time to updated regularly and for the project activities? time and amendments issued whenever necessary. 4.25 Do procedures exist to ensure that only Yes. authorized persons can alter or establish a new accounting policy or procedure to be used by the entity? 4.26 Are there written policies and procedures Yes. covering all routine financial management and related administrative activities? 4.27 Do policies and procedures clearly define conflict Yes. It is being done only by authorized personnel. of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them? 4.28 Are manuals distributed to appropriate Yes. personnel? 4.29 Describe how compliance with policies and Half yearly review is done. procedures are verified and monitored. Cash and Bank 4.30 Indicate names and positions of authorized MD and GM (F) are the authorized signatories to the HQ signatories for bank accounts. Include those persons Bank account. Payments are released with signature of who have custody over bank passwords, USB keys, or any of the authorized signatories. CAO (Accounts) is equivalent for online transactions. authorized to operate the Central Office Bank Accounts. 4.31 Does the organization maintain an adequate and Yes. As the KNNL are maintaining Computerized up-to-date cashbook recording receipts and Accounts, therefore, all books including cash book are payments? always up to date. 4.32 Describe the collection process and cash No cash transactions are allowed in KNNL. handling procedures. Do controls exist for the DD/cheques received towards Cost of Tender Papers, collection, timely deposit and recording of receipts at Earnest money deposits are deposited timely with the each collection location? bank. 4.33 Are bank accounts reconciled on a monthly The statement of all banks and cash are reconciled basis? Or more often? monthly basis. Is cash on hand physically verified, and reconciled with the cash books? With what frequency is this done? 4.34 Are all reconciling items approved and recorded? Yes. 4.35 Are all unusual items on the bank reconciliation Yes. reviewed and approved by a responsible official? 4.36 Are there any persistent/non-moving reconciling No. items? 4.37 Are there appropriate controls in safekeeping of Yes. unused cheques, USB keys and passwords, official receipts and invoices? 4.38 Are any large cash balances maintained at the No. head office or field offices? If so, for what purpose? 4.39 For online transactions, how many persons Not applicable possess USB keys (or equivalent), and passwords? Describe the security rules on password and access controls. Safeguard over Assets 4.40 What policies and procedures are in place to Yes. It is being done only by authorized personnel. adequately safeguard or protect assets from fraud, waste and abuse? 4.41 Does the entity maintain a Fixed Assets Register? Yes. Is the register updated monthly? Does the register record ownership of assets, any assets under lien or encumbered, or have been pledged? Appendix 4A 29

Topic Response 4.42 Are subsidiary records of fixed assets, inventories Yes. Proper records are kept and reconciled annually at and stocks kept up to date and reconciled with control the time of audit. accounts? 4.43 Are there periodic physical inventories of fixed Yes. assets, inventories and stocks? Are fixed assets, inventories and stocks appropriately labelled? 4.44 Are the physical inventory of fixed assets and Annual inventories are taken for all fixed assets and stocks reconciled with the respective fixed assets and reconciled figures are shown in the Annual Accounts. stock registers, and discrepancies analyzed and No discrepancies noticed since inception. resolved? 4.45 Describe the policies and procedures in disposal No such cases reported till date. of assets. Is the disposal of each asset appropriately approved and recorded? Are steps immediately taken to locate lost, or repair broken assets? 4.46 Are assets sufficiently covered by insurance Yes. policies? 4.47 Describe the policies and procedures in As per the Companies Act. identifying and maintaining fully depreciated assets from active assets. Other Offices and Implementing Entities 4.48 Describe any other regional offices or executing No other regional offices or executing entities entities participating in implementation. participating in implementation. 4.49 Describe the staff, their roles and responsibilities NA. in performing accounting and financial management functions of such offices as they relate to the project. 4.50 Has the project established segregation of duties, NA controls and procedures for flow of funds and financial information, accountability, and reporting and audits in relation to the other offices or entities? 4.51 Does information among the different offices/ NA implementing agencies flow in an accurate and timely fashion? In particular, do the offices other than the head office uses the same accounting and reporting system? 4.52 Are periodic reconciliations performed among the NA different offices/implementing agencies? Describe the project reporting and auditing arrangements between these offices and the main executing/implementing agencies. 4.53 If any sub-accounts (under the Imprest Account) NA will be maintained, describe the results of the assessment of the financial management capacity of the administrator of such sub-accounts. Contract Management and Accounting 4.54 Does the agency maintain contract-wise Yes. Contract Management is done at KNNL Division accounting records to indicate gross value of contract, and CAO office manually and monitored by HQ. and any amendments, variations and escalations, payments made, and undisbursed balances? Are the records consistent with physical outputs/deliverables of the contract? 4.55 If contract records are maintained, does the Yes. agency reconcile them regularly with the contractor? Other 4.56 Describe project arrangements for reporting State vigilance commission guidelines are followed to fraud, corruption, waste and misuse of project catch any issues connecting to fraud, corruption, waste resources. Has the project advised employees,

30 Appendix 4A

Topic Response beneficiaries and other recipients to whom to report if and misuse of project resources. Since inception of the they suspect fraud, waste or misuse of project KNNL no such reported issues noticed. resources or property? 5. Internal Audit 5.1 Is there an internal audit (IA) department in the KNNL outsourced the Internal Audit function to a entity? qualified Chartered Accountant Firm as per Companies Act 2013. 5.2 What are the qualifications and experience of the Chartered Accountant. IA staff? 5.3 To whom does the head of the internal audit Managing Director. report? 5.4 Will the internal audit department include the All work carried out by the KNNL. project in its annual work program? 5.5 Are actions taken on the internal audit findings? Yes. The audit committee will review the findings and taking remedial actions. 5.6 What is the scope of the internal audit program? TOR has been designed for the work to be carried out How was it developed? by the Internal Auditor. 5.7 Is the IA department independent? Yes 5.8 Do they perform pre-audit of transactions? Currently departmental staff is doing pre-audit of transactions at division office. 5.9 Who approves the internal audit program? Not applicable. 5.10 What standards guide the internal audit program? As per the TOR given to Auditors. 5.11 How are audit deficiencies tracked? Audit committee is tracking the audit observations. 5.12 How long have the internal audit staff members N.A. been with the organization? 5.13 Does any of the internal audit staff have an IT Yes. background? 5.14 How frequently does the internal auditor meet Audit committee meets every quarter. with the audit committee without the presence of management? 5.15 Has the internal auditor identified / reported any No. issue regarding availability and completeness of records? 5.16 Does the internal auditor have sufficient They are professional audit firm capable of knowledge and understanding of ADB’s guidelines understanding the requirements. and procedures, including the disbursement guidelines and procedures (i.e., LDH)? 6. External Audit – entity level 6.1 Is the entity financial statement audited regularly The annual financial statements are audited by an by an independent auditor? Who is the auditor? independent Statutory Auditor appointed by CAG, Govt. of India. 6.2 Are there any delays in audit of the entity? When There has been delay of 2.3 months in the audit of the are the audit reports issued? Company for the year 2016-17. 6.3 Is the audit of the entity conducted in accordance Yes. The audits are conducted as per INDAS issued by with the International Standards on Auditing, or the Ministry of Corporate Affairs of Government of India. International Standards for Supreme Audit Institutions, or national auditing standards? 6.4 Were there any major accountability issues noted No accountability issues have been brought out in any in the audit report for the past three years? of the Audit Report since inception of KNNL. 6.5 Does the external auditor meet with the audit Yes. committee without the presence of management? 6.6 Has the entity engaged the external audit firm for External Auditors are appointed by the CAG from the any non-audit engagements (e.g., consulting)? If yes, panel submitted by the Institute of Chartered what is the total value of non-audit engagements, Accountants of India. relative to the value of audit services? 6.7 Has the external auditor expressed any issues on No. the availability of complete records and supporting documents? Appendix 4A 31

Topic Response 6.8 Does the external auditor have sufficient The external auditor will go through the ADB guidelines knowledge and understanding of ADB’s guidelines before conducting the audit for ADB related and procedures, including the disbursement transactions. guidelines and procedures (i.e., LDH)? 6.9 Are there any material issues noted during the No. review of the audited entity financial statements that were not reported in the external audit report? External Audit – project level 6.10 Will the entity auditor audit the project accounts Entity level auditor will do the project level auditing. or will another auditor be appointed to audit the project financial statements? 6.11 Are there any recommendations made by the Points raised by the auditors are being implemented. auditors in prior project audit reports or management letters that have not yet been implemented? 6.12 Is the project subject to any kind of audit from an Being a Government Company under the Companies independent governmental entity (e.g. the supreme Act, the Annual Financial Statements are subject to audit institution) in addition to the external audit? Audit by Comptroller and Auditor General of India. 6.13 Has the project prepared acceptable terms of Yes. reference for an annual project audit? Have these been agreed and discussed with the EA and the auditor? 6.14 Has the project auditor identified any issues with No. the availability and completeness of records and supporting documents? 6.15 Does the external auditor have sufficient Yes. knowledge and understanding of ADB’s guidelines and procedures, including the disbursement guidelines and procedures (i.e., LDH)? 6.16 Are there any recommendations made by the Recommendations in the earlier report of the external auditors in prior audit reports or management letters auditors are being implemented. that have not yet been implemented? [For second or subsequent projects] Not applicable. 6.17 Were past audit reports complete, and did they fully address the obligations under the loan agreements? Were there any material issues noted during the review of the audited project financial statements and related audit report that have remained unaddressed? 7. Reporting and Monitoring 7.1 Are financial statements and reports prepared for Yes the entity? 7.2 Are financial statements and reports prepared for Centralized accounting system is followed. KNNL is the implementing unit(s)? preparing PFS. 7.3 What is the frequency of preparation of financial On monthly basis and reports are prepared within first statements and reports? Are the reports prepared in a fortnight of the following month. timely fashion to be useful to management for decision making? 7.4 Does the entity reporting system need to be Report on the project components is the part of the adapted for project reporting? reporting system. The software can be customized further if required. 7.5 Has the project established financial management Yes. reporting responsibilities that specify the types of reports to be prepared, the report content, and purpose of the reports?

32 Appendix 4A

Topic Response 7.6 Are financial management reports used by These financial statements are used by the management? management for monitoring and reviewing the progress of the projects. 7.7 Do the financial reports compare actual The comparison of actual expenditure vis-à-vis expenditures with budgeted and programmed budgetary allocations is done monthly or as and when allocations? necessary. 7.8 How are financial reports prepared? Are financial The financial reports are prepared by Tally ERP reports prepared directly by the automated accounting software. This will be customized for capturing more system or are they prepared by spreadsheets or some information and reports on need base. other means? 7.9 Does the financial system have the capacity to link The comparison of financial information with physical the financial information with the project's physical progress is done monthly or as and when necessary. progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data? 7.10 Does the entity have experience in implementing KNNL is implementing ADB assisted Tranche 1 Project. projects of any other donors, co-financiers, or KNNL also implementing projects given by WRD of development partners? GOK. 8. Information Systems 8.1 Is the financial accounting and reporting system Yes. Tally software is used for accounting and reporting computerized? system. KNNL has appointed an agency for implementation of ERP software for its MIS from 2018- 19 onwards. 8.2 If computerized, is the software off-the-shelf, or Customized Tally. customized? 8.3 Is the computerized software standalone, or ERP software is under implementation stage. integrated and used by all departments in the headquarters and field units using modules? 8.4 How are the project financial data integrated with Customized Tally software used for accounting and the entity financial data? Is it done through a module reporting system. in the enterprise financial system with automatic data transfer, or does it entail manual entry? 8.5 Is the computerized software used for directly Yes. Computerized software used for directly generating periodic financial statements, or does it generating periodic financial statements. require manual intervention and use of Excel or similar spreadsheet software? 8.6 Can the system automatically produce the Yes. The software can produce all project financial necessary project financial reports? reports. 8.7 Is the staff adequately trained to maintain the Yes. Staffs are trained to use the computerized system. computerized system? 8.8 Do the management, organization and processes Yes. Software is having its own inbuilt safeguard to and systems safeguard the confidentiality, integrity protect data. and availability of the data? 8.9 Are there back-up procedures in place? Yes. 8.10 Describe the backup procedures – online Online as well as offsite back is done. External Hard storage, offsite storage, offshore storage, fire, Disk is used for off-site storage. earthquake and calamity protection for backups.

Appendix 4B 33

Appendix 4B Financial Management Assessment Questionnaire Advance Centre for Integrated Water Resources Management (ACIWRM) Topic Response 1. Executing / Implementing Agency 1.1 What is the entity’s legal status / registration? Advance Centre for Integrated Water Resources Management (ACIWRM) established under the WRD by the Government of Karnataka (GOK) is Implementing Agency. This is a registered society under Society Registration Act in 2012 vide registration number DRB/C/SOR/279/2011-12 dated 10 Feb 2012 1.2 How much equity (shareholding) is owned by the Wholly owned by the GOK Government? 1.3 Obtain the list of beneficial owners of major blocks N.A. of shares (non-governmental portion), if any. 1.4 Has the entity implemented an externally-financed Yes, Tranche 1 of the Loan 3172-IND. project in the past? If yes, please provide details. 1.5 Briefly describe the statutory reporting requirements Reports to Principal Secretary to Govt., WRD, GOK for the entity. 1.6 Describe the regulatory or supervisory agency of the Principle Secretary to Govt. WRD of GOK entity. 1.7 What is the governing body for the project? Is the Governing Body, Executive Committee and governing body for the project independent? Management Committee 1.8 Obtain current organizational structure and describe Organization structure enclosed key management personnel. Is the organizational structure and governance appropriate for the needs of the project? 1.9 Does the entity have a Code of Ethics in place? Yes 1.10 Describe (if any) any historical issues reports of No ethics violations involving the entity and management. How were they addressed? 2. Funds Flow Arrangements 2.1 Describe the (proposed) project funds flow Government of India would make the Bank loan arrangements in detail, including a funds flow diagram available to Government of Karnataka on back to back and explanation of the flow of funds from ADB, funding basis. The project will be budgeted through a government and other financiers, to the government, single line item in the GOK Budget. After the budget is EA, IA, suppliers, contractors, ultimate beneficiaries, approved, an allocation will be made by GOK to etc. as applicable. ACIWRM on a quarterly basis according to standard GOK practices. The eligible expenditure of the project will be submitted to CAAA, Ministry of Finance, Dept. of Economic Affairs through Statement of Expenditure. 2.2 Are the (proposed) arrangements to transfer the Arrangement of funds transfer from ADB to GOI and GOI proceeds of the loan (from the government / Finance to GOK is on reimbursement basis and is satisfactory Ministry) to the entity and to the end-recipients satisfactory? 2.3 Are the disbursement methods appropriate? Yes 2.4 What have been the major problems in the past There were no problems with regard to receipt of funds. involving the receipt, accounting and/or administration of funds by the entity? 2.5 In which bank will the Imprest Account (if applicable) There is no system of Imprest Account in the project. be established? All the payments are made through Account opened in SBI by the ACIWRM. 2.6 Is the bank in which the imprest account is N.A. established capable of −

34 Appendix 4B

 Executing foreign and local currency transactions?  Issuing and administering letters of credit (LC)?  Handling a large volume of transaction?  Issuing detailed monthly bank statements promptly?

2.7 Is the ceiling for disbursements from the imprest N.A. account and SOE appropriate/required? 2.8 Does the (proposed) project implementing unit ACIWRM has experience in the management of (ACIWRM) have experience in the management of disbursements from ADB. disbursements from ADB? 2.9 Does the ACIWRM have adequate administrative Yes. and accounting capacity to manage the imprest fund and statement of expenditure (SOE) procedures in accordance with ADB’s Loan Disbursement Handbook (LDH)? Identify any concern or uncertainty about the ACIWRM’s administrative and accounting capability which would support the establishment of a ceiling on the use of the SOE procedure. 2.10 Is the entity exposed to foreign exchange risk? If No. Since the inflow of funds to the GOK is through yes, describe the entity’s policy and arrangements for Government of India in local currency the entity is not managing foreign exchange risk. exposed to foreign exchange risk. 2.11 How are the counterpart funds accessed? The counterpart funds are funded by GOK through Budget allocation 2.12 How are payments made from the counterpart All the payments are made through SBI by the ACIWRM funds? 2.13 If project funds will flow to communities or NGOs, Project funds are not being given to communities or does the PIU have the necessary reporting and NGO. monitoring arrangements and features built into its systems to track the use of project proceeds by such entities? 2.14 Are the beneficiaries required to contribute to No. There is no contribution required by the project costs? If beneficiaries have an option to beneficiaries. There is no option of contribution in kind contribute in kind (in the form of labor or material), are by the beneficiaries. proper guidelines and arrangements formulated to record and value the labor or material contributions at appraisal and during implementation? 3. Staffing 3.1 What is the current and/or proposed organizational One Accounts Officer posted for the function of finance structure of the accounting department? Attach an and accounting supported by first division assistant. The organization chart. organization chart is attached. 3.2 Will existing staff be assigned to the project, or will Existing ACIWRM will be handling the proposed project new staff be recruited? 3.3 Describe the existing or proposed project accounting The work allocation as given by the Registrar is being staff, including job title, responsibilities, educational followed by the staff. background and professional experience. Attach job descriptions and CVs of key existing accounting staff. 3.4 Is the project finance and accounting function staffed Yes. The staffing will be increased on need basis adequately? 3.5 Are the project finance and accounting staff Yes. They are having accounting experience. adequately qualified and experienced? 3.6 Are the project finance and accounting staff trained Yes. in ADB procedures, including the disbursement guidelines (i.e., LDH)? 3.7 What is the duration of the contract with the project The Finance and Accounts Staff are on deputation finance and accounting staff? from WRD except one assistant on contract basis Appendix 4B 35

3.8 Identify any key positions of project finance and Key position of Finance and Accounts staff are in accounting staff not contracted or filled yet, and the place. estimated date of appointment. 3.9 For new staff, describe the proposed project finance Separately attached. and accounting staff, including job title, responsibilities, educational background and professional experience. Attach job descriptions. 3.10 Does the project have written position descriptions The Director General is having full administrative powers that clearly define duties, responsibilities, lines of as far as ACIWRM is concerned. supervision, and limits of authority for all of the officers, managers, and staff? 3.11 What is the turnover rate for finance and Normally key persons kept till end of the project. accounting personnel (including terminations, resignations, transfers, etc.)? 3.12 What is training policy for the finance and Project staffs are attending various training program. accounting staff? State training policy followed by the ACIWRM 3.13 Describe the list of training programs attended by ADB disbursement procedure and audit arrangements finance and accounting staff in the last 3 years. 4. Accounting Policies and Procedures 4.1 Does the entity have an accounting system that ACIWRM project finances were managed on the basis allows for the proper recording of project financial of existing Karnataka Financial Code, Karnataka transactions, including the allocation of expenditures in Treasury Code & Manual, PWD Accounts Code, Stores accordance with the respective components, Manual and Budget Manual. disbursement categories, and sources of funds (in particular, the legal agreements with ADB)? Will the project use the entity accounting system? If not, what accounting system will be used for the project? 4.2 Are controls in place concerning the preparation and The existing PWD code, Finance code and Treasury approval of transactions, ensuring that all transactions code, rules and regulations have adequate control in are correctly made and adequately explained? place concerning the preparation and approval of transactions. 4.3 Is the chart of accounts adequate to properly Recording of transactions are done based on the budget account for and report on project activities and head of the state. Project activities and disbursement disbursement categories? Obtain a copy of the chart of categories are taken care while making payment in the accounts. Tally Software. 4.4 Are cost allocations to the various funding sources Cost allocations are done on the basis various budget made accurately and in accordance with established head. agreements? 4.5 Are the General Ledger and subsidiary ledgers There is no General Leger and subsidiary ledger. reconciled monthly? Are actions taken to resolve reconciliation differences? 4.6 Describe the EA’s policy for retention of accounting Yes. All supporting documents are retained in the records including supporting documents (e.g, ADB’s ACIWRM office for future reference. policy requires that all documents should be retained for at least 1 year after ADB receives the audited project financial statements for the final accounting period of implementation, or 2 years after the loan closing date, whichever is later). Are all accounting and supporting documents retained in a defined system that allows authorized users easy access? 4.7 Describe any previous audit findings that have not Nil. been addressed. Segregation of Duties

36 Appendix 4B

4.8 Are the following functional responsibilities Yes. The existing Account/Finance Code have performed by different units or persons: (i) authorization adequate control to execute a transaction and to execute a transaction; (ii) recording of the transaction; recording of transaction. (iii) custody of assets involved in the transaction; (iv) reconciliation of bank accounts and subsidiary ledgers? 4.9 Are the functions of ordering, receiving, accounting Yes, with the limited staff in place. The major activity for, and paying for goods and services appropriately involved in the project is consultancy services and segregated? training. Procurement of consultants for the Training is dealt by the Technical Section. Payments are made after obtaining necessary approval from Director General. Budgeting System 4.10 Do budgets include physical and financial targets? Yes. Initial budget prepared by the ACIWRM and send to higher authority. Consolidated budget is being prepared by the Finance Department of the State 4.11 Are budgets prepared for all significant activities in Yes. sufficient detail to allow meaningful monitoring of subsequent performance? 4.12 Are actual expenditures compared to the budget Yes. Expenditure for the particular work budget with reasonable frequency? Are explanations required provision is looked into. for significant variations against the budget? 4.13 Are approvals for variations from the budget Yes. In case the expenditure incurred for particular required (i) in advance, or (ii) after the fact? work exceeded the budget proposal for the revised budget will be submitted to WRD and approval sought for. 4.14 Is there a ceiling, up to which variations from the Normally approval for variations from the budget budget may be incurred without obtaining prior required in advance. approval? 4.15 Who is responsible for preparation, approval and ACIWRM is responsible for preparation of Budget and it oversight/monitoring of budgets? will be sent to Finance Department for approval through WRD. Budgets are approved in the State Legislature. 4.16 Describe the budget process. Are procedures in Established procedure is in place to plan Project activity place to plan project activities, collect information from and for preparation of the Budget. the units in charge of the different components, and prepare the budgets? 4.17 Are the project plans and budgets of project Established procedure is in place to plan Project activity activities realistic, based on valid assumptions, and and for preparation of the Budget. developed by knowledgeable individuals?  Is there evidence of significant mid-year revisions, inadequate fund releases against allocations, or inability of the EA to absorb/spend released funds?  Is there evidence that government counterpart funding is not made available adequately or on a timely basis in prior projects?  What is the extent of over- or under-budgeting of major heads over the last 3 years? Is there a consistent trend either way?

Payments 4.18 Do invoice-processing procedures require: (i) Major component of the project is Consulting Services Copies of purchase orders and receiving reports to be and Training. The bills of the service provider are verified obtained directly from issuing departments? (ii) with reference to the budget as per the Contract Comparison of invoice quantities, prices and terms, with Agreement at various stages. those indicated on the purchase order and with records Appendix 4B 37

of goods actually received? (iii) Comparison of invoice quantities with those indicated on the receiving reports? (iv) Checking the accuracy of calculations? (v) Checking authenticity of invoices and supporting documents? 4.19 Are all invoices stamped PAID, dated, reviewed Established procedures are in place. and approved, recorded/entered into the system correctly, and clearly marked for account code assignment? 4.20 Do controls exist for the preparation of the payroll? Registrar of ACIWRM is Drawing and Disbursement Are changes (additions/deductions/modifications) to the Officer (DDO) and is the authority to draw salary of the payroll properly authorized? employees working in the ACIWRM and the payment is through the employees account maintained with Nationalized Bank or by cheque as the case may be. Policies and Procedures 4.21 What is the basis of accounting (e.g., cash, accrual) At present Government Accounting System is followed. followed (i) by the entity? (ii) By the project? It is a cash basis system of accounting 4.22 What accounting standards are followed Government accounting standards are followed. (International Financial Reporting Standards, International Public Sector Accounting Standards – cash or accrual, or National Accounting Standards (specify) or other? 4.23 Does the project have adequate policies and Department Manuals of the State Government are procedures manual(s) to guide activities and ensure followed. staff accountability? 4.24 Is the accounting policy and procedure manual These Departmental Manuals are updated by the updated regularly and for the project activities? Government from time to time. 4.25 Do procedures exist to ensure that only authorized Any changes to the existing PWD, Finance and Treasury persons can alter or establish a new accounting policy codes will have to be affected through an enactment in or procedure to be used by the entity? the state legislature. 4.26 Are there written policies and procedures covering Yes. PWD Account code, Finance code and Treasury all routine financial management and related code are existing covering financial management and administrative activities? related administrative activities. 4.27 Do policies and procedures clearly define conflict Policies and procedures are defined in the respective of interest and related party transactions (real and codes. apparent) and provide safeguards to protect the organization from them? 4.28 Are manuals distributed to appropriate personnel? The present PWD Account Code, Finance Code and Treasury Code are public documents and having access to all concerned. 4.29 Describe how compliance with policies and Shortcoming noticed in invoices and documents are procedures are verified and monitored. communicated to the concerned. Cash and Bank 4.30 Indicate names and positions of authorized Registrar and Accounts Officer is the signatory to the signatories for bank accounts. Include those persons project Bank Account, with joint signature. who have custody over bank passwords, USB keys, or equivalent for online transactions. 4.31 Does the organization maintain an adequate and Yes. Updated in Tally software. up-to-date cashbook recording receipts and payments? 4.32 Describe the collection process and cash handling No cash handling. procedures. Do controls exist for the collection, timely deposit and recording of receipts at each collection location? 4.33 Are bank accounts reconciled on a monthly basis? Monthly reconciliation is done. Or more often?

38 Appendix 4B

Is cash on hand physically verified, and reconciled with the cash books? With what frequency is this done? 4.34 Are all reconciling items approved and recorded? Yes. 4.35 Are all unusual items on the bank reconciliation Yes. reviewed and approved by a responsible official? 4.36 Are there any persistent/non-moving reconciling No. items? 4.37 Are there appropriate controls in safekeeping of Yes. unused cheques, USB keys and passwords, official receipts and invoices? 4.38 Are any large cash balances maintained at the No. head office or field offices? If so, for what purpose? 4.39 For online transactions, how many persons No. possess USB keys (or equivalent), and passwords? Describe the security rules on password and access controls. Safeguard over Assets 4.40 What policies and procedures are in place to Yes adequately safeguard or protect assets from fraud, waste and abuse? 4.41 Does the entity maintain a Fixed Assets Register? Yes Is the register updated monthly? Does the register record ownership of assets, any assets under lien or encumbered, or have been pledged? 4.42 Are subsidiary records of fixed assets, inventories Yes and stocks kept up to date and reconciled with control accounts? 4.43 Are there periodic physical inventories of fixed Yes assets, inventories and stocks? Are fixed assets, inventories and stocks appropriately labelled? 4.44 Are the physical inventory of fixed assets and Yes. Asset Registers are maintained and verified stocks reconciled with the respective fixed assets and frequently by the designated officer. stock registers, and discrepancies analysed and resolved? 4.45 Describe the policies and procedures in disposal of GOK policy follows assets. Is the disposal of each asset appropriately approved and recorded? Are steps immediately taken to locate lost, or repair broken assets? 4.46 Are assets sufficiently covered by insurance No. policies? 4.47 Describe the policies and procedures in identifying No. and maintaining fully depreciated assets from active assets. Other Offices and Implementing Entities 4.48 Describe any other regional offices or executing No. entities participating in implementation. 4.49 Describe the staff, their roles and responsibilities in N.A. performing accounting and financial management functions of such offices as they relate to the project. 4.50 Has the project established segregation of duties, N.A. controls and procedures for flow of funds and financial information, accountability, and reporting and audits in relation to the other offices or entities? 4.51 Does information among the different offices/ N.A. implementing agencies flow in an accurate and timely Appendix 4B 39

fashion? In particular, do the offices other than the head office uses the same accounting and reporting system? 4.52 Are periodic reconciliations performed among the N.A. different offices/implementing agencies? Describe the project reporting and auditing arrangements between these offices and the main executing/implementing agencies. 4.53 If any sub-accounts (under the Imprest Account) N.A. will be maintained, describe the results of the assessment of the financial management capacity of the administrator of such sub-accounts. Contract Management and Accounting 4.54 Does the agency maintain contract-wise No. accounting records to indicate gross value of contract, and any amendments, variations and escalations, payments made, and undisbursed balances? Are the records consistent with physical outputs/deliverables of the contract? 4.55 If contract records are maintained, does the agency No. reconcile them regularly with the contractor? Other 4.56 Describe project arrangements for reporting fraud, GOK rules follows. corruption, waste and misuse of project resources. Has the project advised employees, beneficiaries and other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property? 5. Internal Audit 5.1 Is there an internal audit (IA) department in the There is no Internal Audit system in the project. All entity? payment vouchers are pre-audited by the Accounts Officer before making payment 5.2 What are the qualifications and experience of the IA Not Applicable. staff? 5.3 To whom does the head of the internal audit report? Not Applicable. 5.4 Will the internal audit department include the project Not Applicable. in its annual work program? 5.5 Are actions taken on the internal audit findings? Not Applicable. 5.6 What is the scope of the internal audit program? N.A. How was it developed? 5.7 Is the IA department independent? N.A. 5.8 Do they perform pre-audit of transactions? There is a system of pre-audit before making any payment 5.9 Who approves the internal audit program? N.A. 5.10 What standards guide the internal audit program? N.A. 5.11 How are audit deficiencies tracked? Pre-audit deficiencies are informed to the concerned officer. 5.12 How long have the internal audit staff members N.A. been with the organization? 5.13 Does any of the internal audit staff have an IT N.A. background? 5.14 How frequently does the internal auditor meet with N.A. the audit committee without the presence of management? 5.15 Has the internal auditor identified / reported any N.A issue with reference to availability and completeness of records?

40 Appendix 4B

5.16 Does the internal auditor have sufficient knowledge N.A. and understanding of ADB’s guidelines and procedures, including the disbursement guidelines and procedures (i.e., LDH)? 6. External Audit – entity level 6.1 Is the entity financial statement audited regularly by Yes. Financial Statements are being audited by the an independent auditor? Who is the auditor? Chartered Accountant appointed from the panel of the CAG. 6.2 Are there any delays in audit of the entity? When are Annual Audit is conducted by the Chartered the audit reports issued? Accountants. The final audit report will be placed before the Governing Body. 6.3 Is the audit of the entity conducted in accordance The Audit is conducted in accordance with the Auditing with the International Standards on Auditing, or the standards issued by the Institute of Chartered International Standards for Supreme Audit Institutions, Accountants of India and Generally Accepted or national auditing standards? Accounting Principles by the Project Auditor.

6.4 Were there any major accountability issues noted in No. the audit report for the past three years? 6.5 Does the external auditor meet with the audit No audit committee in place. Management committee committee without the presence of management? reviews the audit report. 6.6 Has the entity engaged the external audit firm for any No. non-audit engagements (e.g., consulting)? If yes, what is the total value of non-audit engagements, relative to the value of audit services? 6.7 Has the external auditor expressed any issues on No. the availability of complete records and supporting documents? 6.8 Does the external auditor have sufficient knowledge Yes. and understanding of ADB’s guidelines and procedures, including the disbursement guidelines and procedures (i.e., LDH)? 6.9 Are there any material issues noted during the No. review of the audited entity financial statements that were not reported in the external audit report? External Audit – project level 6.10 Will the entity auditor audit the project accounts or Audit done by the CAs appointed from the panel will another auditor be appointed to audit the project approved by the CAG financial statements? 6.11 Are there any recommendations made by the No auditors in prior project audit reports or management letters that have not yet been implemented? 6.12 Is the project subject to any kind of audit from an No independent governmental entity (e.g. the supreme audit institution) in addition to the external audit? 6.13 Has the project prepared acceptable terms of Yes. As per the agreed TOR reference for an annual project audit? Have these been agreed and discussed with the EA and the auditor? 6.14 Has the project auditor identified any issues with No. the availability and completeness of records and supporting documents? 6.15 Does the external auditor have sufficient Yes. knowledge and understanding of ADB’s guidelines and procedures, including the disbursement guidelines and procedures (i.e., LDH)? Appendix 4B 41

6.16 Are there any recommendations made by the No. auditors in prior audit reports or management letters that have not yet been implemented? [For second or subsequent projects] N.A. 6.17 Were past audit reports complete, and did they fully address the obligations under the loan agreements? Were there any material issues noted during the review of the audited project financial statements and related audit report that have remained unaddressed? 7. Reporting and Monitoring 7.1 Are financial statements and reports prepared for the Yes. entity? 7.2 Are financial statements and reports prepared for the N.A. implementing unit(s)? 7.3 What is the frequency of preparation of financial Monthly, Quarterly and Annually statements and reports? Are the reports prepared in a timely fashion so as to be useful to management for decision making? 7.4 Does the entity reporting system need to be adapted Yes for project reporting? 7.5 Has the project established financial management Planning to include the financial reporting also with the reporting responsibilities that specify the types of reports quarterly report to Government and ADB to be prepared, the report content, and purpose of the reports? 7.6 Are financial management reports used by Yes. management? 7.7 Do the financial reports compare actual Yes. expenditures with budgeted and programmed allocations? 7.8 How are financial reports prepared? Are financial At present the reporting system does not have the reports prepared directly by the automated accounting capacity to link the financial information with the projects system or are they prepared by spreadsheets or some physical progress. These reports are prepared in spread other means? sheet. 7.9 Does the financial system have the capacity to link No. the financial information with the project's physical progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data? 7.10 Does the entity have experience in implementing No. projects of any other donors, co-financiers, or development partners? 8. Information Systems 8.1 Is the financial accounting and reporting system Accounting system is partly computerized in Tally ERP computerized? software. 8.2 If computerized, is the software off-the-shelf, or Customized to the project customized? 8.3 Is the computerized software standalone, or Standalone integrated and used by all departments in the headquarters and field units using modules? 8.4 How are the project financial data integrated with the No. entity financial data? Is it done through a module in the enterprise financial system with automatic data transfer, or does it entail manual entry?

42 Appendix 4B

8.5 Is the computerized software used for directly Yes. The software can generate financial statements. generating periodic financial statements, or does it require manual intervention and use of Excel or similar spreadsheet software? 8.6 Can the system automatically produce the The system can produce project financial reports. necessary project financial reports? 8.7 Is the staff adequately trained to maintain the Yes. computerized system? 8.8 Do the management, organization and processes Yes and systems safeguard the confidentiality, integrity and availability of the data? 8.9 Are there back-up procedures in place? Yes 8.10 Describe the backup procedures – online storage, Yes offsite storage, offshore storage, fire, earthquake and calamity protection for backups.

Appendix 5 43

Appendix 5: FINANCIAL ANALYSIS OF KNNL & ACIWRM

A. Introduction

1. The financial analysis of the proposed Karnataka Integrated and Sustainable Water Resources Management Investment Program – Tranche 2 (KISWRMIP) was carried out in accordance with the Financial Management and Analysis of Projects of the Asian Development Bank (ADB)12. The financial analysis examines the Karnataka Neeravari Nigam Limited (KNNL) and Advanced Centre for Integrated Water Resources Management (ACIWRM) who are the independent organizations for the implementation of the proposed project. Future projections of KNNL’s and ACIWRM’s financial sustainability until end of the project along with the fiscal review of Water Resources Department (WRD), who is subsidizing the implementing agencies also analysed.

B. Methodology and Major Assumptions

2. Project Components: The estimated cost of the project $130.0 million by an ADB (OCR) Loan of $91 million and counterpart contribution of $39 million by the Government of Karnataka (GOK) under 70:30 ratio. The project to be implemented from 2019 to 2023, will support the initial progress in introducing integrated water resources management (IWRM) by (i) continuing IWRM training program, preparing basin plans for Middle Krishna sub-basin, and continuing development of piloting concepts and building of water productivity, water use efficiency, crop and agricultural productivity, and (ii) modernization of irrigation system infrastructure and management for the Vijayanagara Channels (VNC) subproject, including strengthening of water user cooperative societies (WUCS) and irrigation extension in the subproject area.

C. Approach and Assumptions:

3. The Government of India will make the ADB loan available to GOK. The total cost of the project is funded by capital grant from GOK through the Water Resources Department (WRD) to KNNL and ACIWRM. The project will be budgeted through a single line item in the GOK budget. After the budget is approved, an allocation will be made by GOK for WRD. The ADB loan portion, along with counterpart funds, will be released by the GOK in the above capital grant monthly instalments to KNNL and quarterly instalments to ACIWRM as per the standard GOK practices. For eligible expenditures under the loan, statement of expenditure is to be prepared by KNNL and ACIWRM and submitted to ADB through the Controller of Aid, Audit and Accounts (CAAA) under the Ministry of Finance, Delhi for reimbursement. Based on the loan and project agreements that will be agreed by GOI, GOK and ADB, the funds will be released by ADB to GOI, and then from GOI to GOK. The ADB loan portion will be disbursed to GOK on reimbursement basis from ADB through GOI. GOK will provide budgetary support to complete these projects.

4. GOK also allocates funds for carrying out social welfare schemes for scheduled caste and tribes under the plan head Scheduled Caste Subplan & Tribal Subplan (SCP/TSP) and KNNL is permitted to utilise 50% of such funds allocated under the above plan head for the ongoing project works. The funds utilised for KNNL projects are treated as capital grant. The remaining 50% of funds under the SCP/TSP plan head must be released for the works approved by the GOK and undertaken by the KNNL. The funds utilised for these works are treated as revenue grants.

12 ADB 2005. Guidelines for the Financial Management and Analysis of Projects. Manila

44 Appendix 5

5. In addition to the above, GOK will permit KNNL to borrow funds to meet the additional fund requirements under the plan head Internal and Extra Budgetary Resources (IEBR). GOK will guarantee the borrowings by the KNNL and provide budgetary support to service the annual interest payments as well as for the repayment of principal amount. For this, GOK will make necessary allocation in their annual budget under the IEBR plan head. GOK will earmark funds for ADB assisted projects separately in their annual budget.

6. The components of Tranche 2 of ADB loan of $130.00 million are shown in Table 1 and in Attachments 1A to 1C. The estimated year-wise projected expenditure on ADB assisted project works with corresponding year-wise GOK funding is in Table 2.

Table 1: Financing Plan Particulars Amount ($ million) Total ADB project cost 130.00 Interest and Commitment Charges will be borne by GOK 6.60 Net project cost (KNNL+ ACIWRM) 123.40 IWRM Component 10.19 KNNL Component 113.21 Source: ADB estimates Table 2: Year-wise Projected Project Expenditure Fiscal Project Expenditure GOK Fundinga Year KNNL ACIWRM Total KNNL ACIWRM Total KNNL ACIWRM Total In US$ Million In INR Million (1$ = INR In INR Million 69.12) FY2020 11.34 0.74 12.07 784 51 834 4,742 297 5,039 FY2021 20.76 0.95 21.72 1,435 66 1,501 2,851 297 3,148 FY2022 21.76 0.92 22.68 1,504 64 1,568 384 149 532 FY2023 27.19 1.34 28.53 1,879 93 1,972 FY2024 37.73 0.65 38.38 2,608 45 2,653 Total 118.78 4.60 123.38 8,210 318 8,528 7,977 743 8,719 a GOK budget allocation projections for Project 2 were based on project completion in 2021 however the MFF and Project 2 have been extended and the GOK funding projections need updating to spread the same funds over longer timeframe Source: ADB estimates

7. The annual projected cash flow for KNNL during the project period and beyond is shown in Attachment 2. The opening cash balance of INR 7,159 million represents unspent amount of SCP/TSP grants released by GOK since FY14-15. These unspent amounts are expected to be spent on the SCP/TSP works in a phased manner within three financial years. The interest on the future borrowing (term loan) is assumed at 8.35% per annum. The tenure of the borrowing is 7 years and the amount will be repaid in seven equal annual instalments.

Appendix 5 45

D. Fiscal Analysis

8. KNNL is a government company of GOK, registered under the Indian Companies Act 1956 on 9 December 1998, and is placed under WRD. It is the executing agency and is one of the two implementing agencies for the project. KNNL’s projected cash flow (Attachment 2) shows that there may not any problem in meeting its commitments with the budgetary support from the GOK through WRD and the external borrowings (ADB loan). The year-wise projected capital grand and budget allocation with projected expenditure are given in Attachment 3. Commitments under the current borrowings are given in Attachment 4. Expected future borrowing and its repayment schedule are given in Attachment 5. Interest burden on the existing borrowing are given in Attachment 6. The external borrowing for the coming 6 years (including for the current year) expected INR 50,650 million, while the principal repayment is expected INR 42,721 million and interest repayment INR18,978 million will be alarming at the end of 6th year. The borrowing may not be available for execution of their projects and enough only to repay principal and interest unless restructured at later stage. In the current scenario there is no alarming position as the budget allocation and external borrowing will cater the execution of the projects including ADB-funded projects. Overall the project can be sustained with the budgetary support of the GOK. WRD and KNNL must ensure the required budgetary provision, as envisaged, in the annual budget of WRD under GOK.

9. ACIWRM was established under the Water Resources Department (WRD) by GOK and is the second implementing agency for the project It was registered under the Society Registration Act in 2012. The entire source of receipts for ACIWRM is the budgetary release from GOK for the entire work to be carried out. There is no problem so far for the release of budget by WRD for the approved work.

10. WRD is a line department of GOK. About 30% of WRD’s capital work is managed by KNNL. Analysis of the budget allocation and release for the past 4 years (Attachment 7) shows that, out of the total budget outlay to WRD, about 28% to 38% is for the support to KNNL projects. On this allocation it is also noted that the release done to KNNL is about 85% to 99%. The total GOK budget support required (excluding the internal accruals and including the external borrowing with GOK guarantee) is INR 59,005 million for 2019-20, INR 58,991 million for 2020- 21 and INR 58,183 million for 2021-22 respectively during the project period. If GOK continues to provide budget support to KNNL, the project should not face financial constraints that limits sustainable operation and maintenance over the course of its design life.

46 Attachment 1A

Attachment 1A: Project Cost Estimate and Financing Plan Project Investment Plan ($ million) Foreign Local Total Item Exchange Currency Cost A. Base Cost 1. State and basin institutions strengthened for IWRM 1.54 5.92 7.45 Irrigation system infrastructure and management 2. 0.09 75.64 75.74 modernized 3. Program management systems operational 0.84 4.74 5.57 5. Taxes and Duties - 11.67 11.67 Subtotal (A) 2.47 97.97 100.43 B. Contingencies 1. Physical contingencies 0.25 8.54 8.79 2. Price contingencies 0.13 14.03 14.16 Subtotal (B) 0.38 22.58 22.95 C. Financing Charges during Implementation 6.60 - 6.60 Total (A+B+C) 9.44 120.54 130.00 Source: ADB Cost Estimate

Financing Plan ($ million) Foreign Local Total Source % Exchange Currency Cost ADB (OCR) Loan 2.58 88.42 91.00 70.00 Government of Karnataka 6.86 32.13 39.00 30.00 Total 9.45 120.55 130.00 100.00

Attachment 1B 47

Attachment 1B: Project 2’s annual investment costs

Total 2019 2020 2021 2022 2023 Investment Costs 1. Civil Works a. VNC Package 1 49.93 7.89 10.34 10.02 14.54 7.04 b. VNC Package 2 11.64 - 3.05 2.96 2.86 2.77 c. WUCS Packages 16.14 - 3.39 4.92 4.76 3.07 2. Mechanical and Equipment 4.90 1.28 1.24 1.21 1.17 - 3. Consultants a. Program Support Consultants 7.32 1.13 1.52 1.47 2.13 1.07 b. ACIWRM Support Consultants, Foreign 1.31 0.21 0.27 0.26 0.38 0.19 c. ACIWRM Support Consultants, National 0.96 0.15 0.20 0.19 0.28 0.14 d. On-farm Extension 5.91 0.95 1.23 1.19 1.72 0.83 Subtotal (A) 98.11 11.70 21.24 22.22 26.13 14.26 Recurrent Costs 1. Office operations 0.31 0.05 0.06 0.06 0.09 0.04 2. Training and workshops 1.19 0.19 0.25 0.24 0.35 0.17 3. Studies 0.83 0.13 0.17 0.17 0.24 0.12 Subtotal (B) 2.33 0.37 0.48 0.47 0.68 0.33 Total Base Cost (A+B) 100.43 12.07 21.72 22.68 26.81 14.59 Contingencies 1. Physical 8.79 1.05 1.90 1.99 2.50 1.35 2. Price 14.16 0.44 1.76 2.97 5.26 3.74 Subtotal (C) 22.95 1.49 3.65 4.95 7.76 5.09 Financing Charges During Implementation 1. Interest During Implementation 6.29 0.08 0.59 1.18 1.90 2.55 2. Commitment Charges 0.31 0.06 0.11 0.08 0.04 0.01 Subtotal (D) 6.60 0.14 0.69 1.26 1.95 2.56 Total Project Cost (A+B+C+D) 130.00 13.71 26.07 28.90 36.52 22.24 Source: ADB estimate

48 Attachment 1C

Attachment 1C: Cost estimates by financier ADB(OCR) Government Cost $ million $ million % $ million % Investment Costs 1. Civil Works a. VNC Package 1 49.93 36.30 73 13.62 27 b. VNC Package 2 11.64 8.42 73 3.21 27 c. WUCS Packages 16.14 11.75 73 4.39 27 2. Mechanical and Equipment 4.90 3.32 68 1.58 32 3. Consultants a. Program Support Consultants 7.32 4.97 68 2.36 32 b. ACIWRM Support Consultants, Foreign 1.31 1.31 100 - - c. ACIWRM Support Consultants, National 0.96 0.65 68 0.31 32 d. On-farm Extension 5.91 4.01 68 1.90 32 Subtotal (A) 98.11 70.74 72 27.37 28 Recurrent Costs 1. Office operations 0.31 0.21 68 0.10 32 2. Training and workshops 1.19 0.81 68 0.38 32 3. Studies 0.83 0.56 68 0.27 32 Subtotal (B) 2.33 1.58 68 0.75 32 Total Base Cost (A+B) 100.43 72.32 72 28.12 28 Contingencies 1. Physical 8.79 7.16 81 1.63 19 2. Price 14.16 11.52 81 2.65 19 Subtotal (C) 22.95 18.68 81 4.27 19 Financing Charges During Implementation 1. Interest During Implementation 6.29 - 6.29 100 2. Commitment Charges 0.31 - 0.31 100 Subtotal (D) 6.60 - 6.60 100 Total Project Cost (A+B+C+D) 130.00 91.00 70 39.00 30 Source: ADB estimate

Attachment 2 49

Attachment 2: KNNL’s projected cash flow statement in INR millions Sl No Particulars FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 Total .

I Opening Balance 7,159 4,196 4,255 3,705 3,678 2,198 7,159

II INFLOWS

1 Capital Grants from GOK – ADB 820 4,743 2,851 384 - - 8,798

Capital Grants from GOK – Others 2 31,320 43,211 44,217 45,080 38,346 26,303 228,477 (including external borrowings)

3 Revenue Grants from GOK 4,737 4,551 5,423 6,219 6,890 8,759 36,579

4 SCP/TSP Grants for

2,740 3,250 3,250 3,250 3,250 1,750 17,490 - Capital Expenditure of KNNL

2,740 3,250 3,250 3,250 3,250 1,750 17,490 - Direct Beneficiaries (SCP/TSP)

5 Internal Accruals 100 100 50 20 20 20 310

100 100 150 200 250 300 1,100 6 Water Rate Collections

TOTAL INFLOWS 42,557 59,205 59,191 58,403 52,006 38,882 310,244

III OUTFLOWS

50 Attachment 2

820 - - - - - 820 1 Capital Expenditure - ADB (T1)

609 4,134 2,851 384 - - 7,978 2 Capital Expenditure - ADB(T2)

Capital Expenditure - KNNL's Ongoing 27,800 37,580 37,338 37,071 31,779 15,517 187,085 3 Works

3,005 2,696 3,040 3,316 3,497 3,424 18,978 4 Interest Payment

1,383 1,500 2,000 2,500 3,000 5,000 15,383 5 Repairs & Maintenance

2,200 2,420 2,662 2,928 3,221 3,543 16,974 6 Establishment & Other Expenses

349 355 383 401 393 335 2,216 7 Guarantee Commission

4,740 5,250 5,250 4,750 3,250 1,750 24,990 8 SCP/TSP Exps - Direct Beneficiaries

4,614 5,211 6,217 7,080 8,346 11,253 42,721 9 Principal Repayment

TOTAL OUTFLOWS 45,520 59,146 59,741 58,430 53,486 40,822 317,145

IV Closing Balance 4,196 4,255 3,705 3,678 2,198 258 258

Source: Based on details provided by KNNL Attachment 3 51

Attachment 3: Year-wise Capital Expenditure & Budgetary Allocation to KNNL (excluding internal revenue) in Million INR

Sl Particulars FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 Total No.

I PROJECT COST OF KNNL

1 Ongoing Works 30,000 40,000 40,000 40,000 35,000 19,060 204,060

2 ADB Works - Tranche 1 820 0 0 0 0 0 820

3 ADB Works - Tranche 2 609 4,134 2,851 384 0 0 7,978

SUB-TOTAL (ADB) 1,429 4,134 2,851 384 0 0 8,798

GRAND TOTAL 31,429 44,134 42,851 40,384 35,000 19,060 212,858

II GOK BUDGETARY ALLOCATION

A CAPITAL GRANTS 135,106 1 Capital Grants - Other Capital Works 19,056 28,000 28,000 28,000 22,000 10,050 50,650 2 External Borrowings 7,650 10,000 10,000 10,000 8,000 5,000 8,798 3 Capital Grants - ADB Works 820 4,743 2,851 384 0 0

SUB-TOTAL 27,526 42,743 40,851 38,385 30,000 15,050 194,554

B SCP/TSP GRANTS 5,481 6,500 6,500 6,500 6,500 3,500 34,981 1 SCP/TSP

C REVENUE GRANTS

52 Attachment 3

1,383 1,500 2,000 2,500 3,000 5,000 15,383 1 Repairs & Maintenance 3,005 1,749 1,401 1,102 854 641 8,754 2 Debt Servicing - Interest (Present Borrowings) 947 1,639 2,214 2,643 2,783 10,225 3 Debt Servicing - Interest (Future Borrowings) 349 355 383 403 393 335 2,218 4 Guarantee Commission 4,737 4,551 5,423 6,219 6,890 8,759 36,580 SUB-TOTAL

D GRANTS FOR DEBT SERVICING 4,614 4,118 3,696 3,130 2,968 4,732 23,257 1 Debt Servicing - Principal (Existing Borrowings) 0 1,093 2,522 3,950 5,379 6,522 19,465 2 Debt Servicing - Principal (Future Borrowings) 4,614 5,211 6,217 7,080 8,346 11,253 42,721 SUB-TOTAL GRAND TOTAL (A + B + C +D) 42,358 59,005 58,992 58,183 51,736 38,563 300,836

Grants available for Capital Works

1 Capital Works (Including IEBR) 27,526 42,743 40,851 38,384 30,000 15,050 194,554 2 50% of SCP/TSP Apportionment 2,740 3,250 3,250 3,250 3,250 1,750 17,490

TOTAL 30,266 45,993 44,101 41,634 33,250 16,800 212,044

Source: KNNL

Attachment 4 53

Attachment 4: KNNL’s current borrowing and repayment schedule in Million INR

Principal Repayment Schedule Current Balance Applicable Year of Borrowing/Bank as on Rate of 01.04.18 Interest FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 Total

FY 13-14 State Bank of Mysore ------1 (India) 8.20% 1153.60 461.50 462.50 230.60 - - - - 1154.60 2 Union Bank of India 8.50% 192.10 76.90 76.90 38.30 - - - - 192.10 3 Vijaya Bank 8.50% 797.90 300.00 300.00 197.90 - - - - 797.90 4 Vijaya Bank Pragathi Krishna 8.45% 399.50 150.00 150.00 99.50 - - - - 399.50 5 Gramin Bank 2543.10 988.40 990.40 566.30 - - - - 2544.10 Sub-total

FY 14-15 8.75% 5000.00 - - - - - 2500.00 2500.00 5000.00 Series - VIII Bonds 5000.00 - - - - - 2500.00 2500.00 5000.00 Sub-total

FY 15-16 ------1 Bank of Baroda 8.20% 1153.40 230.80 230.80 230.80 230.80 230.20 - - 1153.40 3 Union Bank of India 8.60% 986.60 197.80 197.80 197.80 197.80 195.40 - - 986.60 2 Axis Bank

- - 1.00 - - - - 4 Syndicate Bank 2.00 3.00 8.60% 257.70 55.30 55.30 55.30 55.30 36.50 - - 257.70 5 Axis Bank 8.65% 532.60 114.20 114.20 114.20 114.20 75.80 - - 532.60 6 Indian Bank Pragathi Krishna 8.45% 329.30 70.60 70.60 70.60 70.60 46.90 - - 329.30 7 Gramin Bank

54 Attachment 4

Pragathi Krishna 8.45% 349.80 75.00 75.00 75.00 75.00 49.80 - - 349.80 8 Gramin Bank 8.40% 347.50 75.00 75.00 75.00 75.00 47.50 - - 347.50 9 Axis Bank 1 8.50% 349.70 75.00 75.00 75.00 75.00 49.70 - - 349.70 0 Vijaya Bank 4306.60 893.70 894.70 895.70 896.70 731.80 - - 4306.60 Sub-total

FY 16-17 8.20% 4285.20 714.80 714.80 714.80 714.80 714.80 711.20 - 4285.20 1 Union Bank of India 8.20% 2571.00 428.60 428.60 428.60 428.60 428.60 428.00 - 2571.00 2 State Bank of India 6856.20 1143.40 1143.40 1143.40 1143.40 1143.40 1139.20 - 6856.20 Sub-total

FY 17-18 8.30% 4999.90 714.00 714.00 714.00 714.00 714.00 714.00 714.00 4998.00 1 State Bank of India 8.20% 50.00 7.10 7.10 7.10 7.10 7.10 7.10 7.10 49.70 2 ICICI Bank 8.30% 2600.00 371.40 371.40 371.40 371.40 371.40 371.40 371.40 2599.80 ICICI Bank 7649.90 1092.50 1092.50 1092.50 1092.50 1092.50 1092.50 1092.50 7647.50 Sub-total 26,355.80 4,118.00 4,121.00 3,697.90 3,132.60 2,967.70 4,731.70 3,592.50 26,354.40 Grand Total Source: KNNL Attachment 5 55

Attachment 5: KNNL’s future borrowings and its repayment schedule (in Million INR)

Principal Repayment Schedule

Rate of Year of Borrowing/Bank Loan Amount Interest FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026

FY18-19

1 State Bank of India 8.35% 5,000.00 714.30 714.30 714.30 714.30 714.30 714.30 714.20

2 Mar' 19 8.35% 2,650.00 378.60 378.60 378.60 378.60 378.60 378.60 378.40

Sub-total 7,650.00 1,092.90 1,092.90 1,092.90 1,092.90 1,092.90 1,092.90 1,092.60

FY19-20

1 Sep' 19 8.35% 5,000.00 714.30 714.30 714.30 714.30 714.30 714.30

2 Mar' 20 8.35% 5,000.00 714.30 714.30 714.30 714.30 714.30 714.30

Sub-total 10,000.00 1,428.60 1,428.60 1,428.60 1,428.60 1,428.60 1,428.60

FY 20-21

1 Sep'20 8.35% 5,000.00 714.30 714.30 714.30 714.30 714.30

3 Mar'21 8.35% 5,000.00 714.30 714.30 714.30 714.30 714.30

Sub-total 10,000.00 1,428.60 1,428.60 1,428.60 1,428.60 1,428.60

FY21-22

1 Sep'21 8.35% 5,000.00 714.30 714.30 714.30 714.30

2 Mar'22 8.35% 5,000.00 714.30 714.30 714.30 714.30

Sub-total 10,000.00 1,428.60 1,428.60 1,428.60 1,428.60

FY22-23

1 Sep'22 8.35% 5,000.00 714.30 714.30 714.30

56 Attachment 5

2 Mar'23 8.35% 3,000.00 428.60 428.60 428.60

Sub-total 8,000.00 1,142.90 1,142.90 1,142.90

FY23-24

1 Sep'23 8.35% 5,000.00 714.30 714.30

2 Mar'24 8.35%

Sub-total 5,000.00 714.30 714.30

Grand Total 50,650.00 1,092.90 2,521.50 3,950.10 5,378.70 6,521.60 7,235.90 7,235.60 Source: KNNL Attachment 6 57

Attachment 6: KNNL’s details of expected external borrowings and debt servicing in Million INR

Sl Particulars 18-19 19-20 20-21 21-22 22-23 23-24 Total No.

A External Borrowing

1 External Borrowing 7,650 10,000 10,000 10,000 8,000 5,000 50,650

B Debt Servicing

2 Grant from GOK for Debt Servicing - Principal - Existing Borrowing 4,614 4,118 3,696 3,130 2,968 4,732 23,258

3 Grant from GOK for Debt Servicing - Principal - Future Borrowings 0 1,093 2,522 3,950 5,379 6,522 19,465

4 Grant from GOK for Debt Servicing - Interest - Existing Borrowings 3,005 1,749 1,401 1,102 854 641 8,752

5 Grant from GOK for Debt Servicing - Interest - Future Borrowings - 947 1,639 2,214 2,643 2,783 10,226

7,619 7,907 9,258 10,396 11,844 14,678 61,702

C Repayment

6 Principal Repayment 4,614 5,211 6,217 7,080 8,346 11,253 42,721

3,005 2,696 3,040 3,316 3,497 3,424 18,978 7 Interest Payment

7,619 7,907 9,257 10,396 11,843 14,677 61,699

Source: KNNL

58 Attachment 7

Attachment 7: WRD’s Cashflow Water Resources Department (WRD) in million INR Actual Projected 2019- 2014-15 2015-16 2016-17 2017-18 2018-19 Average 20 2020-21 2021-22 2022-23 2023-24

161,5 1 Budget Outlay to WRD 100,009 108,894 126,209 158,533 159,937 130,716 36 163,152 164,783 166,431 168,095 2 % Increase year after year 8.16 13.72 20.39 0.88 1.00 1.00 1.00 1.00 1.00

Budget Allocation to KNNL 3 (excluding internal accruals and 59,00 including external borrowings) 33,263 42,259 48,304 36,014 42,358 40,439 5 58,991 58,183 51,736 38,562

4 Budget Release (including IBER) 35,987 40,735 35,922

5 Budget release percentage 85.16 84.33 99.74

6 % Allocation to KNNL on total outlay required 33.26 38.81 38.27 22.72 26.48 30.94 36.53 36.16 35.31 31.09 22.94

Budget Allocation for ADB 7 projects to KNNL 44 28 1172 820 4,743 2,850 384

Budget Allocation for ADB 8 projects to ACIWRM 23 5 258 100 297 297 148 Source: KNNL and WRD Budget,

Appendix 16

KARNATAKA INTEGRATED AND SUSTAINABLE WATER RESOURCES MANAGEMENT INVESTMENT PROGRAM - TRANCHE 2

POVERTY AND SOCIAL ASSESSMENT

September 2019

KARNATAKA NEERAVARI NIGAM LTD

Karnataka Integrated and Sustainable Water Resources Management Investment Program ADB LOAN No. 3172-IND

VIJAYANAGARA CHANNELS FEASIBILITY STUDY REPORT Volume 3a: Poverty and Social Assessment

Project Management Unit, KISWRMIP

Project Support Consultant SMEC International Pty. Ltd. Australia in association with SMEC (India) Pvt. Ltd.

June 2019

DOCUMENTS/REPORT CONTROL FORM

Report Name VNC Feasibility Study Report – Vol 3a: Poverty and Social Assessment

Karnataka Integrated and Sustainable Water Resources Management Project Name Investment Program- Consultancy Services for Project Support Consultant (PSC)

Project Number 5061164

Report for Karnataka Neeravari Nigam Ltd (KNNL)

REVISION HISTORY

Revision Approved for Date Prepared by Reviewed by # Issue by

9 August 1 Dr K. Balachandra Kurup SM / JMR SM/ MA 2017

2 7 May 2018 Dr K. Balachandra Kurup Dr Srinivas Mudrakartha SM/ MA

3 30 June 2018 Dr K. Balachandra Kurup Dr Srinivas Mudrakartha SM/ MA

ISSUE REGISTER

Distribution List Date Issued Number of Copies 30 June 2018 KNNL 10 30 June 2018 SMEC Staff 30 June 2018 Associate 1 30 June 2018 Office Library (Shimoga) 1 30 June 2018 SMEC Project File 1

SMEC COMPANY DETAILS

Dr Hasan A. Kazmi

387, Udyog Vihar, Phase-2, Gurgaon – 122002, Haryana

Tel +91 124 4552800

Fax +91 124 4380043

Email [email protected] , Website: www.smec.com

VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

CONTENTS

EXECUTIVE SUMMARY ...... 1 I. INTRODUCTION ...... 5 1.1 Objectives of PSA ...... 6 1.2 Methodology Adopted ...... 6 II. FIELD VISITS AND PUBLIC CONSULTATION ...... 8 2.1 Public/stakeholder consultation ...... 8 2.2 Problem Matrix ...... 9 2.3 Hampi World heritage and related issues ...... 10 2.4 Priority Ranking ...... 10 2.5 Economic Survey-Project Districts ...... 13 2.6 Poverty reduction programmes ...... 13 2.7 Role of SHGs in poverty reduction programmes ...... 14 III. WATER USERS COOPERATIVE SOCIETY ...... 16 3.1 Need for grassroot level institutions ...... 16 3.2 WUCS in VNC Project Areas ...... 16 3.3 Current status of WUCS and Strengthening ...... 18 3.4 Affordability and Willingness to Pay ...... 19 IV. SOCIAL SAFEGUARD ...... 20 4.1 Involuntary resettlement ...... 20 4.2 Indigenous population ...... 21 V. SOCIO- ECONOMIC PROFILE ...... 24 5.1 Demographic characterestics ...... 24 5.2 Sex ratio ...... 24 5.3 Literacy ...... 24 5.4 Major occupation ...... 24 5.5 Major crops ...... 25 5.6 Drinking water supply ...... 27 5.7 Sanitation ...... 28 VI. SOCIAL MANAGEMENT FRAMEWORK ...... 29 6.1 Strategy for Implementation of the Social Management Framework ...... 29 6.2 Role of Information, Education and Communication (IEC) ...... 30 6.3 Empowerment ...... 31 VII. GENDER ACTION PLAN (GAP) ...... 33 7.1 KNNL gender policy towards women ...... 33 7.2 Cultural stereotypes ...... 36 VIII. MONITORING AND REVIEW ...... 39 8.1 Monitoring indicators ...... 39 8.2 Qualitative indicators ...... 39 8.3 Quantitative indicators ...... 40 8.4 Social benefits ...... 41

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

TABLES

Table 1. Details of secondary information collected as part of the Social Management plan ...... 7 Table 2: Problems raised by WUCS/farmers during public consultation and FGDs...... 9 Table 3: Needs and priorities expressed by men and women ...... 10 Table 4 : Combined priority ranking ...... 12 Table 5: Distribution of SHGs and Representation of Indigenous Population ...... 14 Table 6. Distribution of WUCS under VNC ...... 17 Table 7. Sub-division-wise probable WUCS under VNC ...... 18 Table 8: Population distribution, literacy and SC/ST population in Project area ...... 26 Table 9: Distribution of workers classification in project taluks ...... 27 Table 10. Social Management Activity Schedule ...... 32 Table 11: Sex disaggregated data on technical and no technical staff in VNC project ...... 33 Table 12. Gender Action Plan ...... 38

FIGURES

Figure 1: Percentage distribution of Indigenous and Vulnerable Population ...... 22 Figure 2: SC & ST Male and Female Population ...... 22 Figure 3: Population and Literacy ...... 24 Figure 4: Distribution of Farmer categories taluk-wise ...... 27

ANNEXURES

Annexure 1: Details of channels and villages visited ...... 42 Annexure 2 : People contacted during the mission ...... 44

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

ABBREVIATIONS

ADB Asian Development Bank CADA Command Area Development Authority DPR Detailed Project Report EA Executing Agency FGD Focus Group Discussion GAP Gender Action Plan GoI Government of India GoK Government of Karnataka ICDS Integrated Child Development Scheme (Anganvadi) IEC Information, Education and Communication IPPF Indigenous Peoples Planning Framework IP Indigenous People IR Involuntary Resettlement IWRM Integrated Water Resource Management KISWRMIP Karnataka Integrated and Sustainable Water Resources Management Investment Program KMAY Karnataka Mahila Abhivrudhi Yojane KNNL Karnataka Neeravari Nigam Limited LARP Land Acquisition and Resettlement Plan MNREGA Mahatma Gandhi National Rural Employment NABARD National Bank for Agriculture and Rural Development NGO Non-Governmental organization O&M Operation and Maintenance PIO Project Implementation Office PPTA Project Preparation Technical Assistance PSA Poverty and Social Assessment PSC Project Support Consultant RoW Right of Way SC Scheduled Caste SDDR Social Safeguard Due Diligence Report SHG Self Help Group ST Scheduled Tribes TLBC Tungabhadra Left Bank Canal TSP Tribal Sub Plan VFC Village Farm Club VNC Vijayanagara Channels WRD Water Resources Department WUA Water Users Association WUCS Water Users Co-operative Society

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment EXECUTIVE SUMMARY

Introduction Poverty is a multi-dimensional phenomenon with a package of economic, social, geographical, human, gender, and other deprivations. The diverse features of poverty have led to formulation of different strategies of poverty reduction. Interventions to reduce poverty need to take place at different levels and dimensions. Poverty reduction and social development through faster and more inclusive growth is the goals of both the Twelfth Five Year Plan and Niti Ayog’s 15- year vision document1. The poverty reduction and social strategy of the programme is aligned with the ADB’s Poverty and Social Analysis strategy (2012)2 and ADB 2020 Strategy3. Objectives of PSA As part of project preparation, a Poverty and Social Assessment (PSA)document has been prepared. The purpose of assessing the impact of poverty and social dimensions during project preparation is to provide information on: (i) the diverse links of the project to the country poverty reduction strategy; (ii) poverty targeting classification and its jurisdiction; (iii) key poverty and social issues of the potential beneficiaries, including impact channels and expected systematic changes; (iv) opportunities and constraints for beneficiaries, particularly poor and marginalized groups to benefit from project activities, and (v) prepare design measures to achieve inclusive development outcomes during implementation and allied components. The PSA should also address issues on gender, participation, social safeguards and other social risks such as human trafficking, challenges on implementing core labour standard, as well as communicable diseases. Methodology Adopted The following methodology has been adopted in addressing the various elements of the Poverty and Social Assessment as well as other related aspects: • Detailed social assessment, settlement pattern, conditions of service road, crops cultivated etc. of each channel were carried out by transect walk and interacting with WUCS/farmers associations, KNNL and other officials; • Social mapping of areas to understand the current situation of water and livelihood of people, especially the indigenous and vulnerable populations; • Household survey to collect socio economic data from selected households especially from the underprivileged communities. The survey carried out among different strata of farmers based on their socio economic status; • Examined and analyzed the secondary data and information from Panchayat, Population Census, District Handbook, studies and surveys conducted by various stake holders in the project area, and • Public Consultation and Focus Group Discussions (FGD) among Water Users Cooperative Society (WUCS)/Farmers Associations, women groups, Agriculture Department, Panchayats, ICDS (Anganvadis), NGOs, elected representatives etc.

1 15-year vision document, National Institution for Transforming India (Niti Aayog), Government of India 2015. 2 Handbook on Poverty and Social Analysis, ADB, 2012. 3 Strategy 2020, The Long-term Strategic Framework of Asian Development Bank, ADB 2008.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment Public/Stakeholder Consultations Public Consultations were conducted in different localities by ethnicity, type of farmers and other locally specific characteristics. Poor, landless farmers and other vulnerable groups participated and expressed their opinions. In total, 258 men and 58 women participated in the consultations and the focus group discussions conducted in different localities. The communities were explained about the modernization works and the need for their active participation and community contribution for effective implementation of the project. The roles and responsibilities of WUCS and other stakeholders were also explained. Overall, those who participated in public consultation showed keen interest. They were confident about the merits of the project and its positive effect on enhancing the living standards of farmers. It is worthwhile to note that around 50 percent of the participants who attended the meeting and subsequent discussions were from the poor and the vulnerable groups. WUCS and Civil Society Organizations WUCS and farmers associations play a critical role in the implementation and management of irrigation facilities at grassroot levels. For sustainability of systems, it is considered important that WUCS and farmers associations should be involved in the identification (and design) of solutions and play a key role in the operation and maintenance of facilities developed. Along with WUCS, the Civil Society Organizations, and women groups (SHGs), allied departments will associate with implementation. KNNL is encouraging the use of such institutions in implementation of CAD packages and operation and management of such facilities. During the visits to the channels/villages, it was learnt that the farmers associations were formed several years ago in the Vijayanagara Channels area; only some are vibrant. Some of the farmers associations got converted as WUCS. During public consultations and FGDs, participants expressed their concern for sustainability of the channel system. All the consultation meetings revolved around affordability and willingness of WUCS/farmers to pay their share of contribution for on-farm development works (CAD works). As mentioned earlier, most of the WUCS in VNC subproject are in nascent stage; nevertheless, farmers showed their willingness to form/strengthen WUCS under the guidance of KNNL and CADA. People Below Poverty Line Economic survey of Karnataka 2015-164 reports that the percentage of people below poverty line is highest in Bellary and Raichur districts. Over the years, the state has made significant progress in poverty reduction. Although there has been a decline in the poverty ratio in the state, the regional disparity within the state still exists. The districts of Bellary (40.8%), Koppal (40.7%) and Raichur (37.7%) have the highest poverty levels, i.e., below poverty ratio is much higher than the poverty ratio at the state level. Historically, Self Help Groups (SHGs) and cooperative societies played an important role in improving livelihoods and living standards of the community, especially women groups in project villages. The SHG movement was not only about empowering women economically but also lead to social empowerment of women in rural areas. The SHGs have been

4 Economic survey of Karnataka 2015-16, Department of Planning, Programme Monitoring and Statistics, Govt. of Karnataka, March 2016

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment instrumental in changing gender relationships for better in the society. Several poverty reduction programmed have been launched by the state government for the rural poor, comprising small and marginal farmers, landless laborers and rural artisans. Major Crops Agriculture is the main activity of the target population in the project villages. People primarily depend upon rainfall, irrigation tanks, wells and streams for irrigation. In Hoped Taluk and nearby villages farmers are predominantly depending on channel water for agriculture Farmers in Gangavathi Taluks are dependent mainly on Tungabhadra canal irrigation, while in Koppal and other taluks, farming is rain-dependent. In Gangavathi taluk, paddy is the prominent crop occupying 43.1% of the total sown area due to availability of irrigation facilities. In Hospet taluk and adjoining areas sugarcane, banana, paddy, jowar, bajra etc. are grown. Social Safeguard As part of Social safeguard and Due Diligence study, PSC multidisciplinary team visited all the 16 channels and interacted with farmers, WUCS and community. Public consultations and focus group discussions with local people as well as project implementation authorities were conducted at different points of time as part of the assessment. During the visit, line diagrams were used for identifying and assessing the condition of the service road and inspection path of each channel. After analyzing the information collected on land area, it is clear that the subproject will not result in any permanent land acquisition. No family is required to be resettled. Very minor temporary impact will occur and proper steps have been taken to mitigate those impacts. Based on interactions with KNNL and CADA officials, field visits and public consultations, no major resettlement issues are foreseen under the project area. However, in a few villages, encroachments are affecting the smooth flow of water to the tail ends. This can be addressed by WUCS and other responsible authorities during the initial stages of implementation. The field assessment of a few channels and interactions with communities revealed that the right of way (RoW) for the canal system seems to be available. Since the sub-project will not require permanent acquisition of any land, residential houses or buildings and will not cause any adverse impact including physical displacement of any household. Therefore, it can be classified as Category “C” as per ADB safeguard policy5. Lining work of the channels, and work on other structures are planned based on the concept of implementing the physical works involving no land acquisition and resettlement (LAR) impact. The sub-project thereby was classified as Category “C” as per ADB safeguards policy. Preparation of a Land Acquisition and Resettlement Plan (LARP) therefore was not necessary to be in place. However, during implementation of the infrastructure works, the sub-project requires compliance with ADB’s safeguards requirements on involuntary resettlement (IR), adhering to Indian laws and policies to make sure that the project followed all safeguard requirements and no one is disadvantaged in the process of development. It is concluded from the due diligence study that the proposed infrastructure improvements will lead to irrigation water usage efficiency which has been recognized by the farmers as a key issue during FGD. Further, there will be no issues of land acquisition and resettlement related

5 ADB Policy Paper,Safeguard Policy Statement, June 2009

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment to these subprojects. All facilities will be built on vacant government land. Due to project interventions, there will be no loss of income for any person or of any assets, either privately owned or publicly owned. On the contrary, the project design ensures enhanced agrarian incomes. The due diligence study confirms that no adverse social impacts are associated in accordance with ADB Safeguard Policy Statement, 2009 on Involuntary Resettlement. Social Management Framework The project has an implementation plan which incorporates all physical and non-physical components, but needs to develop a feasible and pragmatic operational methodology and implementation strategy for community based activities. Community involvement is a function of the level of awareness in the community. An active public awareness program will be mounted at Panchayat and community level to ensure that stakeholders are well informed about the project’s objectives, roles and responsibilities and activities to ensure that the scope and procedures for the public works component are fully understood. In this connection Information, Education and Communication (IEC) has an important role in social management framework. The significance and approach of IEC for WUCS, communities and other project partners are that they be fully informed about the project and be prepared for their respective roles. To ensure this, the roles and responsibilities of project partners/facilitators need to be identified in respect of resources to be mobilized, action plans to be prepared, implementation strategy to be used, monitoring plan, and operation, maintenance and payments (community contribution) to follow. To support this information requirement, a clear and suitably detailed implementation methodology and strategy will be developed and incorporated in the planning and implementation stages. Specific IEC sessions are required for each stage to ensure continuity of information flow. Gender Strategy Government of Karnataka’s Vision 2020 aims at enhancing opportunities for and empower women across economic, social and political spheres. Correcting gender disparities in wages and employment remains a major challenge. The State has made explicit policy announcements for women empowerment, including commitments to: (i) achieve 50 percent participation of women in local decision-making; (ii) increased home ownership by low-income women, and (iii) increasing women’s access to public sector employment through 30 percent reservations for recruitment in all government jobs. Gender disparity prevails in the wage rate for men and women. The daily wages for women in the agricultural sector in VNC varies from INR150 to 200, and for men from INR 250 to 350 Opportunities for women in agriculture are witnessing a reducing trend due to mechanization in the sector. This was corroborated by womenfolk in Mohammed Nagar; as a result, women now travel longer distances to find job opportunities. As per the Karnataka Cooperative Societies Amendment Bill 2016, Water Users Cooperative Society (WUCS) consists of 12 members as Directors plus 1 nominee of KNNL. The composition is as follows:

• Women farmers-2 • Schedule Caste (SC) category-1 • Scheduled Tribe (ST) category-1

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment • Other Backward Caste (OBC)-2 • General category-6 (1 should be from the tail-ends) To strengthen and streamline women’s participation in WUCS, the following strategies are proposed:

• Introduce awards for WUCS having the mandatory 30 per cent; • Ensure women representation from tail, middle and head regions of the channels; • President of the WUCS should preferably be from the tail-end; • In the case of WUCS where there is exists a large population of farmers from SC/ST and other vulnerable groups, there should be proportionate representation in the Board of Directors. • Sub-committees should be formed for every 30-40 shareholders including women as mandated for identifying issues and bottlenecks, and for addressing them. Similarly, this group should also play their role in mobilising water tariff to increase collection and thereby WUCS institutional functioning. Social Benefits Project interventions are expected to lead to increased agricultural opportunities and crop diversification thereby enhancing agrarian returns and improvement in livelihood standards, for both men and women across the project areas. The programme is also expected to enhance participation of the landless, tail-end farmers and socially disadvantaged groups resulting in their mainstreaming. Women would also have their daily water needs for domestic use, livestock, sanitation and hygiene purposes met in view of their increased role in strategic decision making. On the whole, the project shall provide a platform for promoting inclusive and gender focused water resources development and irrigation management.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment I. INTRODUCTION 1. The core objective of the Karnataka Integrated and Sustainable Water Resources Management Investment Program (KISWRMIP) funded by Asian Development Bank, is to facilitate efficient participatory management of the increasingly scarce water resources in the selected water scarce river basins in the State of Karnataka in India. The Program aims to establish and strengthen State and basin level institutions adopting the principles of integrated water resources management (IWRM) in the Tungabhadra sub-basin (of the Krishna basin), inter alia. The poverty reduction and social strategy of the programme is aligned with the ADB’s Poverty and Social Analysis strategy (2012)6, ADB 2020 Strategy7 and GOI’s policy (12th Five-year plan8 and Niti Ayog’s 15-year vision document9) on promoting inclusive growth and poverty reduction through strengthening rural infrastructure and services, including integrated water resources management, improvement in irrigated agriculture and community participation. The current programme focuses on adopting pro-poor and gender inclusive mechanism within the overall programme design. 2. The programme intends to improve equitable distribution of irrigation water to the tail-end farmers, the landless, poor and vulnerable groups. Besides, the programme will have positive impact on women and socially excluded groups by: (i) strengthened grassroots level institutions; (ii) improved irrigation infrastructure and practices; (iii) improved and equitable access to water by small, marginal and landless farmers; (iv) enhanced farm income; (v) enhanced off farm livelihood opportunities; (vi) sustainable and innovative irrigation and agricultural practices, including drip and micro-irrigation and crop diversification; (vii) strengthened water resources and environmental management; (viii) social inclusion and in water governance and (ix) awareness generation, community mobilization and participatory irrigation management. 3. Many poverty reduction programmes have been launched by the national/state governments for the rural poor, including small and marginal farmers, landless labourers and rural artisans. Important ongoing programmes include Integrated Rural Development, Indira Awaas Yojana, Jawahar Rozgar Yojana, Prime Minister Rozgar Yojana, Antyodaya Anna Yojana, Swarna Jayanti Gram Swarozgar Yojana, and Stree Shakthi project.10 These programmes support and encourage below poverty line families (especially women) for taking up self-employment ventures in agriculture, horticulture and animal husbandry in the primary sector, weaving and handicrafts in the secondary sector, and service and business activities in the tertiary sector. Unfortunately, most marginalised households are not aware of the various government-initiated poverty alleviation programmes/schemes, their entitlements & benefits. This is an opportunity for the project to work with such institutions, especially the wide network of SHGs and cooperative societies for undertaking appropriate livelihood initiatives to minimize poverty levels.

6 Handbook on Poverty and Social Analysis, ADB, 2012 7 Strategy 2020, The Long-term Strategic Framework of Asian Development Bank, ADB 2008 8 An Approach Paper 12th Five year Plan, Planning Commission, Government of India, October 2011 9 15 year vision document, National Institution for Transforming India (Niti Aayog), Government of India 2015 10 Department of Women and Child Development,Government of Karnataka, 2014-15

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment 1.1 Objectives of PSA 4. As part of project preparation, a Poverty and Social Assessment (PSA) document has been prepared. The purpose of assessing the impact of poverty and social dimensions during project preparation is to provide information on the (i) diverse links of the project to the country poverty reduction strategy; (ii) poverty targeting classification and its jurisdiction; (iii) key poverty and social issues of the potential beneficiaries, including impact channels and expected systematic changes; (iv) opportunities and constraints for beneficiaries, particularly poor and marginalized groups to benefit from project activities; and (v) prepare design measures to achieve inclusive development outcomes during implementation. and allied components. The PSA should also address issues on gender, participation, social safeguards and other social risks such as human trafficking, challenges on implementing core labour standard, as well as communicable diseases. 1.2 Methodology Adopted 5. The following methodology has been adopted in addressing the various elements of the Poverty and Social Assessment as well as other related aspects:

• Detailed social assessment, settlement pattern, conditions of service road, crops cultivated etc. of each canal were carried out by transect walk and interacting with WUCS/farmers associations, KNNL and other officials; • Social mapping of areas to understand the current situation of water and livelihood of people, especially the indigenous and vulnerable populations; • Household survey to collect socio economic data from selected households especially from the underprivileged communities. The survey carried out among different strata of farmers based on their socio economic status; • Examined and analyzed the secondary data and information from Panchayat, Population Census, District Handbook, studies and surveys conducted by various stake holders in the project area (Table 1), and • Public Consultation and Focus Group Discussions (FGD) among WUCS/Farmers Associations, women groups, Agriculture Department, Panchayats, ICDS (Anganwadis), NGOs, elected representatives etc. 6. For assessment, public consultation and focus group discussions villages were selected among the localities as given below: Location specific

• Head region • Middle • Tail-end Ethnicity

• SC/ST Population • OBC • General Type of farmers

• Landless • Small landholders

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

• Medium landholders • Large landholders 7. The social screening was based on both primary and secondary data collected during field visits and discussions conducted with people residing in the subproject area. A multidisciplinary team visited project villages in and around the Vijayanagara Channels (VNC) for undertaking the tasks outlined above. PSC team visited 31 villages in the command coming under Bellary, Koppal and Raichur districts. The details of channels and villages visited are given in Annexure -1. 8. All the channels have their own diversion structures on the river. Many of them are interlinked. Some villages have more than one channel passing through them (e.g., Raya, Basavanna, Bella, Hosur, Ramasagara, and Kampli). As a result, water scarcity is pre- empted in any of the channel command areas even during peak summer period. However, majority of the channel bunds are in poor condition and are filled with water hyacinth, plastics and waste water (including sewerage) especially the areas near to the cities so much so that they provide unreliable supply to the tail-ends. Such areas include Gangavathi, Hulugi, Turtha, and Kampli channel areas. Table 1. Details of secondary information collected as part of the Social Management plan Item Key components Source

General information Population, households, age-sex Information gathered from from Panchayat / distribution, ethnicity, area under secondary data and using a WUCS cultivation, major crops, infrastructure Performa on socio economic facilities etc. profile Household & Social Family composition, socio economic Information gathered through information status, ethnicity, education, household checklist and focus occupation, land holding & crop group discussions pattern, drinking water, sanitation facilities, Ongoing poverty Types of both central and state Secondary data, discussion with alleviation government supported programmes, panchayat and other elected programmes including MGNREGA, other representatives, district programmes supported by NABARD handbook, progress reports of and other agencies. rural development and Panchayati raj departments Gender aspects Types of activities carried out by men Information collected during FGD and women, especially in agriculture and informal discussion with and irrigation, wage structure, women groups and men participation in meetings, decision making, land ownership etc..

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment II. FIELD VISITS AND PUBLIC CONSULTATION 2.1 Public/stakeholder consultation 9. PSC team carried out public consultations in different localities by ethnicity, type of farmers and other locally specific characteristics. Poor, landless and other vulnerable groups participated, and freely expressed their opinions. In total, 258 men and 58 women participated (Photo 2). The team explained about the proposed modernization works on channels and the criticality of their active participation and community contribution for success of the project. The meetings also discussed the roles and responsibilities of WUCS and other stakeholders. There were mixed reactions from the participants. Villages which participated in the PPTA study during 2013 expressed their dissatisfaction about the prolonged delay in the commencement of the project. Farmers from the tail- ends in particular were very anxious about the commencement of the project while some others were skeptical. These assessments enable the implementing authorities to put in place suitable institutional, organizational and project-specific mechanisms to ensure success of the project. Careful project design including the soft components such as IEC and capacity building would bring about greater social inclusion and participation from all segments of the community in all stages of the project. 10. It is interesting to note that around 50 percent of the participants who attended the meetings and subsequent discussions were from the poor and the vulnerable groups.

Photo 1: Public consultation at Basavapura chaired by GP President Mrs. Renukamma Kattigi

Photo 2: Focus Group Discussion with women and farmers

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment 2.2 Problem Matrix 11. Table 2 provides a matrix of problems given by participants during focus group discussions and public consultation. It is interesting to note that the problem perception varies as per the location of the village-in the head, middle or tail reaches. Table 2: Problems raised by WUCS/farmers during public consultation and FGDs Problem 1 2 3 4 5 6 7 8 9 10 Fund constraints for O& M x x x x x x x x x x Water availability, especially at x x x x x x x tail ends Lack of support from KNNL & x x x x x x x x x x CADA Poor attendance & cooperation in x x x x x x meetings Lack of coordination between departments (KNNL, CADA, x x x x x x x agriculture, Panchayat etc.) No consultation with WUCS/farmers on DPR and x x x x x x x x x x other works Closure of TLBC in December leads to water shortage for x x x x irrigation Unlined channel posing problems x x x of mud and weeds Regeneration of canal water due x x x x x x x x x to high pollution Hampi heritage and related x x issues

1. Anegundi, 2. Shivapura, 3. Hulugi, 4. Mohammed Nagar, 5. Gangavathi, 6. Siruguppa, 7. Nagenahalli, 8. Hosur, 9. Ramasagara, 10 Bichal. 12. The following key points follow from the matrix: i. During the consultation processes, WUCS and farmers hoped that they could have been more involved and consulted during the preparation of the DPR. This could avoid inaccuracies such as the missing out of 6 distributaries from the DPR in Shivapura and Gangavathi. ii. The participants also expressed the need for more interaction and support from KNNL and CADA for the WUCS and farmers associations. They also felt that there should be more effective post training monitoring by CADA. iii. Similarly, attendance in WUCS meetings called by CADA is generally poor, more so by women members. Water being of equal interest to all, factors such as political influence and caste dominance have not so far distorted the operation and maintenance of the channels. iv. Fund constraints for regular O&M has come out as a major problem. Reportedly, farmers themselves carried out maintenance related activities to a certain extent such as jungle clearance, removal of weeds and desilting.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment a. Participants also pointed out that coordination between concerned departments needs further strengthening for achieving the project objectives. b. Farmers also strongly felt that the closure of TLBC should be moved to May as was practiced previously from the current practice of 21 days in December which is causing reduction in crop yields and failure of crops due to water shortage during peak period of cultivation. v. Unlined canal posed problems of erratic and inadequate supply of water due to excessive siltation, weed and spread of crop diseases. Lack of drainage facility leads to the leakages and wastage of water. vi. Quality of water is seriously affected due to disposal of wastes and waste water from industries and sewerage and septic tanks (Photo 3). Molasses and chemicals from factories are disposed into the channels without any treatment. Children generally take bath in the channels, while women use channel water for cleaning plates and other domestic purposes. 2.3 Hampi World heritage and related issues 13. Restrictions on the usage of construction materials and digging the land has affected the poor and the lower middle-class families since they are not familiar with the restrictions accompanying a heritage tag. This has resulted in the construction of toilets in houses and in public places.

Photo 3: Contamination of water source due to wastewater and plastics 2.4 Priority Ranking 14. Table 3 shows the priority ranking by both men and women for nine of the sectors listed by them. Table 3: Needs and priorities expressed by men and women

Village Priority

Date

S. No. S.

Remarks

Improved

Sanitation Education

Agriculture

HealthCare

Employment

Roadbridge &

Drinking Water

AnimalHusbandry Waterfor Irrigation

Priority 1  16 1 - Emminur Men Priority 2 

May  - Priority 3

2 24 Belagodahala Men Priority 1 

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Village Priority

Date

S. No. S.

Remarks

Improved

Sanitation Education

Agriculture

HealthCare

Employment

Roadbridge &

Drinking Water

AnimalHusbandry Waterfor Irrigation Priority 2  Priority 3  Priority 1  3 Kampli Men Priority 2  Priority 3  Priority 1  Men Priority 2  Priority 3  4 Ramasagara Priority 1  Wome Priority 2  n Priority 3  Priority 1  5 Kamalapur Men Priority 2  Priority 3 

- Priority 1 

May 

6 16 Anegundi Men Priority 2 -

25 Priority 3  Shivapura Priority 1  Hulugi 7 Men Kampasagar Priority 2 

Bandiharlapur Priority 3  16 - Upper & lower Priority 1 

May  - Gangavathi Men Priority 2

26 Priority 3  8 Priority 1  Wome Priority 2  n Priority 3  Priority 1  9 Siruguppa Men Priority 2  Priority 3  Priority 1 

10 Deshnur Men Priority 2  16 - Priority 3 

May 

- Priority 1

11 27 Men Priority 2  Mohammadnag Priority 3  ar Priority 1  Wome 12 Priority 2  n

Priority 3 

- Priority 1 

13 16 Nagenahalli Men 28

May Priority 2 

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

Village Priority

Date

S. No. S.

Remarks

Improved

Sanitation Education

Agriculture

HealthCare

Employment

Roadbridge &

Drinking Water

AnimalHusbandry Waterfor Irrigation Priority 3  Priority 1  14 Narasapura Men Priority 2 Priority 3  Priority 1  15 Hosuru Men Priority 2  Priority 3  Total 4 3 10 13 11 10 2 3 1 15. The following are some of the key aspects emerging from priority ranking: 16. A total of 14 men participated in the FGD and 72 percent of them expressed water for irrigation as Priority 1 followed by drinking water and sanitation. Among women group 40 percent chose health as priority 1 followed by drinking water, sanitation and employment. 57 percent of men expressed roads and bridges as priority 2 followed by drinking water, sanitation and employment. Among the women group they have given equal importance to employment and sanitation followed by health care. 17. 35.7 percent of men graded sanitation and health care as priority 3 followed by improved agricultural technology, roads & bridges and education. Among the women group 40 percent graded sanitation and animal husbandry as priority 3 category followed by water for irrigation. Table 4 gives a combined priority ranking matrix. Table 4 : Combined priority ranking Priority 1 Priority 2 Priority 3 Priority need Total Men Women Men Women Men Women Water for Irrigation 10 2 1 13

Drinking Water 2 1 1 4

Employment 1 2 3

Roads & Bridges 1 8 1 10

Sanitation 1 1 2 5 2 11

Health Care 2 2 1 5 10

Animal Husbandry 2 2 Improved Agriculture 1 2 3 Technology Education 1 1

Total 14 5 14 5 14 5 53

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment 2.5 Economic Survey-Project Districts 18. The Economic Survey of Karnataka 2015-1611 reports that the percentage of people below poverty line is highest in Bellary and Raichur districts. Over the years, the state has made significant progress in poverty reduction. Although there has been a decline in the poverty ratio in the state, regional disparities within the state still exist. The district of Bellary (40.8%), Koppal (40.7%) and Raichur (37.7%) have high poverty levels. Put differently, the below poverty line ratio is higher than the state poverty ratio. 19. Contrary to this, the civil supplies department of Govt. of Karnataka12 has come up with different criteria for issuing ration cards to the below poverty line category. 2.6 Poverty reduction programmes 20. Several poverty reduction programmes have been launched by the state government for the poor, comprising small and marginal farmers, landless labour and rural artisans. These include Integrated Rural Development, Indira Awaas Yojana, Jawahar Rozgar Yojana, Prime Minister Rozgar Yojana, Antyodaya Anna Yojana, Swarnajayanti Gram Swarozgar Yojana, Stree Shakthi project etc. The core objective of these programmes are to support and encourage below poverty line families to take up self-employment enterprises in agriculture, horticulture and animal husbandry in the primary sector, weaving and handicrafts in the secondary sector, and service and business activities in the tertiary sector. Unfortunately, most marginalised households are not aware of the various government-initiated poverty alleviation programmes/schemes, their entitlements & benefits. However, the situation in the proposed project areas are encouraging due to the presence of wide network of SHGs and cooperative societies. Women Focused Schemes 21. Government of Karnataka has launched a number of programmes and schemes for women’s welfare and development over the years. Bhagya Lakshmi, Kishori Shakthi Yojane, Stree Shakthi, Balasanjivini, Sabala are some of the schemes that have contributed to the socio-economic development of women and children. The State has made explicit policy commitment on women’s empowerment, including specifics related to:

• 50 percent participation of women in local decision making; • Increased home ownership by low- income women, and • Increasing women’s access to public sector employment through 30 percent reservation in all government jobs. 22. Karnataka is the first state in the country to introduce “Karnataka Mahila Abhivrudhi Yojane’ (KMAY)’ scheme for empowerment of women. The scheme earmarks one-third of the resources for women in individual beneficiary-oriented and labour intensive schemes of various departments. During 2015-16, 239 schemes were involved in the Yojane across Central, State and Districts sectors. Allocation towards KMAY for the current financial year is INR 1,75543.50 million of which one-third allocation for women

11 Economic Survey of Karnataka 2015-16, Department of Planning, Programme Monitoring and Statistics, Govt. of Karnataka, March 2016 12 Food and Civil Supplies and Consumer affairs department, Govt. of Karnataka- Talukwise report on active ration cards, 2016;

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment works out to INR 60,899.50 million. An amount of INR 29,042.60 million was spent up to December 2015. 2.7 Role of SHGs in poverty reduction programmes 23. Historically Self Help Group (SHGs) and cooperative societies played an important role in improving the livelihood and living standards of the community, especially the women groups in project district/taluks. Women members from Indigenous population are actively associated in the SHGs. The social impact of the SHGs has been instrumental in bringing about a healthy balance in gender relationships. Under the SHG umbrella, a variety of programmes such as savings and credit, income generation through community banking, linking SHGs with banks for individual/community based schemes, and women empowerment and development are being carried out. 24. In Hospet and Siruguppa taluks, 1433 SHGs are functioning with 22,677 are women. Out of this, 5242 (23.1%) belong to SC and 4606 (20.3%) to ST categories. In Koppal and Gangavathi taluks alone, 1605 SHGs are functioning, of which 27,560 members are women. Out of this, 7103 (25.8%) are from SC and 4699 (17.1%) are from ST communities. Besides, 48 young women groups and 391 youth groups are functioning in the district. Among the cooperative societies, 91 are working on agricultural sector, 133 in milk producers cooperative societies, and 133 in other sectors13 (Table 6). In Manvi taluk alone, 1100 SHGs in place consisting of 14,325 women (2546 SC, 2225 ST and 9554 other category). The Stree Sakthi programme anchored by the Department of Women and Child Development play a vibrant role in gender empowerment through livelihood activities including savings and credit programmes. Table 5: Distribution of SHGs and Representation of Indigenous Population Total No. No. of No. of Young Other women Youth District Taluka of SC ST women (all women’s groups SHGs women women groups categories) Bellary Hospet 715 2790 2684 6345 11819 NA NA Koppal Koppal 725 2683 1609 NA 4321 29 179 Koppal Gangavathi 880 4420 3090 NA 7529 19 212 Bellary Siruguppa 780 2452 1922 7484 11858 NA NA Manvi (for Raichur Bichal 1100 2546 2225 9554 19325 NA NA channel) Total 4200 14,891 11,530 23,383 54,852 48 391 Source: Annual report, Department of Women and Child Development, Government of Karnataka, 2014-15 25. During a visit to Ramasagara, Anegundi, Siruguppa, Deshnur villages, the PSC team observed that farmers were involved in fishing as their supplementary livelihood. In Siruguppa alone, 2175 families (full time) and 6760 families (part time) are involved in fishing sector. In Manvi taluk, 72 families are involved in fishing sector full time and 121 families part time. Livestock is also an equally important livelihood next to agriculture in the project villages. Under the tribal sub-plan, financial support has been provided to inland fisheries (mainly to indigenous population) for procuring non-motorized boats,

13 Department of Women and Child Development,Government of Karnataka, 2014-15

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment provision of motor cycles for transportation and marketing of fish. Fish production centers, taluk level nurseries and construction of fish ponds in waterlogged, saline areas and alkaline soils are being planned in selected localities. The concept of integrated farming should be adopted in IWRM for providing increased opportunity for livelihood projects in the fishing and animal husbandry sectors as well.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment III. WATER USERS COOPERATIVE SOCIETY 3.1 Need for grassroot level institutions 26. In most of the water resources projects, the department usually determines the design, technology, service level and mode of scheme operation, typically based on government rules/norms and procedures. The community is usually not a partner in the planning process. For sustainability of the scheme interventions and outcomes, it is critical that WUCS and farmers associations need to be involved in the identification (and design) of solutions as they are also expected to play a key role in the operation and maintenance of assets created. 27. Building partnerships is the most challenging aspect of community development and empowerment programmes. For integrated sector programmes, some key partnership features include: • Partnership between community, WUCS/Local Government and implementing agency(s); • Fully active community participation both within communities and between each community and the project; • Well-defined roles and responsibilities, commitments and inputs for each partner organization; • Integration of key project components; • Flexible choice and development of service levels by all partners; • Felt needs of communities identified through PRA; • PRA findings of each community to be used appropriately in community planning and implementation; • Members and staff of all partner organizations to be trained in community organization, community management, team building, monitoring etc.; • WUCS/farmers associations to be given intensive training on team building, group dynamics, community organization and management, improved agricultural practices including improved/modern irrigation practices, conflict resolution among WUCS members, basic financial management and monitoring; • For all partners, necessary sense of responsibility towards the project should be created/developed, with particular focus on communities residing in the locality; • Sharing of knowledge and skills between partners including exposure visits between partners; • Joint partnership decisions, and • Community needs to be involved in progress and performance monitoring (functionality monitoring) of implementation and subsequent follow up activities. 3.2 WUCS in VNC Project Areas 28. Forming/strengthening of Water Users Cooperative Societies is one of the key components of the Tranche 2 VNC Modernization project. Some of the WUCS were formed more than 10 years ago; however, they are not very active since not much support has been provided by the department. Traditionally, farmers organizations were formed as a solution to conflict resolution in the context of water sharing or due to the strong and

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment generous leadership that existed in the villages. In the other cases, catalysts were involved in mobilizing the farmers into groups/associations/WUCS. Table 6. Distribution of WUCS under VNC No. of WUCS No. of WUCS District Taluk (Inception Remarks (as per CADA*) Report of SMEC) Koppal Koppal 08 02 WUCS are not provided the Koppal Gangavathi 75 05 much needed support or guidance for Bellary Siruguppa 42 03 enabling/empowering them Bellary Hospet 20 17 to undertake the tasks envisaged. This is a critical Bellary Kampli NA 03 institutional issue common Raichur Bichal 146 01 across WRM projects. (Manvi) Total 291 31 * Source: CADA, Munirabad. May include some WUCS from TBP area.

29. According to CADA Munirabad Annual Report 2014-1514, 616 WUCS are registered in Tungabhadra project area out of which 448 have entered into MOU with KNNL. There is no clear information/data about the number of WUCS in VNC area in the report. Hence, at an average of 350 hectares per WUCS, the number of WUCS in VNC works out to 32. Say 30 for the purpose of the VNC project. 30. Similarly, CADA Munirabad office is also not able to provide details on disaggregated sex and caste data of WUCS in VNC. PSC as part of social mapping will collect data from all the WUCS on disaggregated sex data of both members and board of directors, and based on this prepare a plan to achieve the desired targets. 31. As per the revised Guidelines of Govt. of India, one-time functional grant of INR 1080/ha is sanctioned for each WUCS that have entered into MOU with KNNL (INR540/ ha as GoI Share and INR 540/ha as State Govt. Share). 32. Currently, most of the WUCS are not active, and hence, there is a need to provide continuous handholding support not only to make them vibrant but also for building their capacities for efficient and sustainable irrigation system management. The last audit report (2015-16) of CADA advised that the interest amount from WUCS accounts should not be used for operational expenses, including payment of honorarium to Secretaries. The honorarium to secretary is to be paid from the WUCS share of water collection charges.

14 Annual Report, 2014-15, Command Area Development Authority, Munirabad, Karnataka. Data about WUCS in the report is comprehensive for Tungabhadra project. Individual data for VNC and Tungabhadra Left Bank Canal are not given. Hence, number of WUCS in VNC is unclear.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment Table 7. Sub-division-wise probable WUCS under VNC No. of S. Command Name of the Channel WUCS No. Area (ha) Proposed15 1 Basavanna 1240 3 2 Raya 2226 6 3 Bella 600 2 4 Kalaghatta 237 1 5 Turtha 931 3 6 Ramasagara 673 2 7 Kampli 620 2 8 Belagodahalla 210 1 Oddarahatti S Division (Left Bank) 9 Anegundi 789 216 10 Shivapura 403 1 11 Hulugi 265 1 12 Upper Gangavathi 775 2 13 Lower Gangavathi 667 1 Siruguppa S Division (Right Bank) 14 Siruguppa 764 2 15 Deshnur 478 1 Gillesugur Sub Division (Left Bank) 16 Bichal 276 1 Total 11154 31 3.3 Current status of WUCS and Strengthening 33. During the field visits to the channels/villages, PSC team observed that farmers associations in the Vijayanagara Channels were formed more than a decade ago, and only a few are functional. Some farmer associations have re-registered themselves as WUCS. During public consultations and FGD, participants expressed their concerns about the sustainability of the channel system. The channels are more than 400 years old and have been subjected to deferred maintenance leading to slippage of embankment, siltation and severe profile changes. Farmers expressed that there should be support from department for desilting the channels on regular basis. Since not much support was forthcoming from the authorities, some WUCS/farmers have been mobilizing resources from among themselves and carrying out certain minimal O&M tasks, including desilting to make sure that water does not get blocked completely at any point. In a few villages, panchayat has agreed to link MGNREGA funds for O&M especially to meet the labour component. 34. As per the Karnataka Cooperative Societies Amendment Bill 2016, Water Users Cooperative Society (WUCS) should consists of 12 members as Directors plus 1 nominee of KNNL. The composition is as follows:

i. Women farmers – 2;

15 Each WUCS generally has culturable command area in the ranging of 300–400 ha; hence a CAD package considers an average of 350 ha. 16 Balance command area is assigned to the existing WUCS.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment ii. Schedule Caste(SC) category – 1; iii. Scheduled Tribe (ST) category – 1; iv. Other Backward Caste (OBC) – 2; v. General category-6 (1 should be from the tail-end areas), and vi. Ex-officio member- Section officer, KNNL. 35. In order to strengthen and streamline the activities of WUCS, following strategies are proposed:

• Community mobilization techniques including focus group discussions shall be employed to increase shareholders in each of the WUCS, carry out project awareness programmes and inform of social benefits that accrue from the project. This is in addition to the WUCS strengthening activities included in the PSC 2 ToR; • Dovetail with various departments such as Women and Child, Social Justice, Agriculture and Animal Husbandry, Fisheries etc. to draw government schemes; • Introduce awards for best performing WUCS; this has to be announced while forming the WUCS; • Increase participation of women members from 2 to 3 with representation from tail, middle and head reaches of each canal; • Financial provision towards honorarium to the Secretary and for meeting the routine expenses including stationery; • The President of the WUCS should preferably be from the tail-end area; • Vice President should be a woman Director; • If the farmers from the SC/ST and other vulnerable groups are large, the Board of WUCS should incorporate more members from that category; • For strengthening the participation and involvement of women in WUCS activities, women sub-committees shall be established as a strategy to building confidence and leading to action; • Women sub-committees should be formed to cover 30-40 farmers each for identifying and addressing issues and challenges in their jurisdiction. Similarly, this group should play an important role in mobilizing more women farmers as members of WUCS as well as mobilization of water tariff. 36. During the FGD and other interactions, majority of the farmers shared that they are involving their women folk for land clearing, weeding, transplanting and harvesting activities. Women members in Mohammed Nagar (Shivapura channel) felt that their role has been minimized in the recent years due to the advent of mechanization in the farming sector and as such they need to travel longer distances to find jobs. 3.4 Affordability and Willingness to Pay 37. In all consultation meetings, discussions were held on affordability and willingness of WUCS/farmers to pay contribution towards the cost of on-farm development works (CAD works). As mentioned earlier, WUCS organizations in VNC project areas is still in infancy stage; nevertheless, farmers showed willingness to form WUCS under the guidance of KNNL and CADA. As they contribute to CAD works, farmers expect improved irrigation service with VNC modernization.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment IV. SOCIAL SAFEGUARD 4.1 Involuntary resettlement 38. Provision of public facilities or infrastructure often requires the exercise of legal powers by the state under the principle of eminent domain for acquisition of private property, leading to involuntary displacement of people, depriving them of their land, livelihood and shelter; restricting their access to traditional resource base, and uprooting them from their socio-cultural environment. 39. Based on interactions with KNNL and CADA officials, observational field visits and public consultations, no major resettlement issues are foreseen in the project area. However, in a few villages, encroachments are affecting equitable distribution of water, especially at the tail ends. This can be addressed by WUCS and other authorities during the initial stage of implementation. The field assessment of all 16 channels and interactions with communities revealed that the right-of-way (RoW) for the channel system seems to be available, with the exception of certain short distances.As part of Social Safeguard assessment, the PSC multidisciplinary team visited all the 16 channels and interacted with the community members and farmers. Public consultations and focus group discussions with local communities and project implementation authorities were held at different points of time as part of the assessment. During the visit, line diagrams were used to spot existing conditions of service road and inspection path of each channel. After reviewing the information on land area, it is clear that the VNC project shall not result in any temporary or permanent involuntary land acquisition. No family, titled or nontitled (squatter or encroacher) is required to be resettled or loss any physical or productive asset. Temporary impacts will occur to allow contractors access to the cannals and anicuts. Access roads and inspection paths will only be impacted on a voluntary basis and steps will be taken to mitigate impacts. The SPS 2009 Indigenous Peoples safeguard is not triggered despite that the project screening confirms the presence of different ethnic groups in the project footprint. The project implementation focuses exclusively pre- existing governance and water resource infrastructure. The project will not affect i) the territories or natural or cultural resources of Indigenous Peoples, or ii) the dignity, human rights, livelihood systems, or culture of Indigenous Peoples. Lining work of the canal and other structures is planned based on the concept of implementing the physical works involving no land acquisition and resettlement (LAR) impact. The sub-project thereby was classified as Category “C” project as per ADB safeguards policy. Preparation of a Land Acquisition and Resettlement Plan (LARP) therefore was not necessary to be in place. However, during implementation of the infrastructure works, the sub-project requires compliance with ADB’s safeguards requirements on involuntary resettlement (IR), adhering to Indian laws and policies to make sure that the project followed all safeguard requirements and no one is disadvantaged in the process of development in both IR and IP aspects. As per ADB SPS “the involuntary resettlement safeguards covers physical displacement (relocation, loss of residential land or loss of shelter) and economic displacement (loss of land, assets, access to assets, income sources, or means of livelihoods) as a result of: (i) involuntary acquisition of land, or (ii) involuntary restrictions on land use or access to legally designated parks and protected areas. It covers them whether such losses and involuntary restrictions are full or partial, permanent or temporary”. The Social Safeguard and Due Diligence report (SDDR) is formulated to

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment assess that the safeguard plans are adequately covered under the subprojects impacts and mitigation measures. The report presents the findings from the study conducted in the area where the afore mentioned infrastructure works are planned to take place. 40. It is concluded from the due diligence study that the proposed infrastructure improvements will lead to efficient irrigation water use as recognized by farmers during FGD. Further, there will be no issues of land acquisition and resettlement related to these subprojects. All facilities will be built on vacant government land. Due to project intervention, there will be no loss of income for any person or of any assets, either privately owned or publicly owned. On the contrary, the project design ensures enhanced agrarian incomes. The due diligence study17 by PSC confirms that no adverse social impacts are associated in accordance with ADB Safeguard Policy Statement, 2009 on Involuntary Resettlement. 4.2 Indigenous population 41. According to the ADB the Indigenous Peoples safeguard, the term Indigenous Peoples is used in a generic sense to refer to a distinct, vulnerable, social and cultural group possessing the following characteristics in varying degrees: (i) self-identification as members of a distinct indigenous cultural group and recognition of this identity by others; (ii) collective attachment to geographically distinct habitats or ancestral territories in the project area and to the natural resources in these habitats and territories; (iii) customary cultural, economic, social, or political institutions that are separate from those of the dominant society and culture; and (iv) a distinct language, often different from the official language of the country or region.

42. In the context of India, Scheduled Tribe’s (STs) should trigger the Indigenous Peoples safeguard, under Article 342 of the Constitution of India, the following characteristics are used to define: (i) tribes’ primitive traits, (ii) distinctive culture, (iii) shyness with public at large, (iv) geographical isolation, and (v) social and economic backwardness. 43. A desk-based review of the Constitution (Scheduled Tribes) Order (Amendment) Act 2003 highlights that In Karnataka, there are 50 scheduled tribe communities. The project area consists of concentration of indigenous population and the major tribes located in the project areas are: Nayaka, Naikda, Cholivala Nayaka, Kapadia Nayaka, Mota Nayaka, Nana Nayaka, Naik, Nayak18, Beda, Bedar, Valmiki, Chodhara, Kanda Kapus (in Bellary and Raichur districts), Gamit, Gamta, Gavit, Mavchi, Padvi, Valvi, Dubla, Talavia, Halpati (in Koppal district). 44. Bichal/Manvi consists of highest indigenous population of around 25.8% and Koppal is lowest (13.2%). Siruguppa consists around 20%, Hospet (20%) and Gangavathi 16.5%. Among the SC population (vulnerable) Hospet is highest (29.3%) and Koppal is lowest (19.3%), followed by Siruguppa (21.4%), Gangavathi (20.7%) and Manvi/Bichal (16%). (Fig: 1)

17 Social Safeguard Due Diligence Report, August 2017 and April 2018 carried out by PSC (SMEC). 18 Ordered that the following Notification No. BC 12016/34/76 SCT-V, Dated: 27th July 1977 of the Government of India (Ministry of Home Affairs) be published in the Karnataka Gazettee for general information. Department of Social Welfare, Government of Karnataka

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

Percentage Distribution of Indigenous and Vulnerable population in Project Villages 35.0 30.0 25.0 20.0 15.0

10.0 Population in % in Population 5.0 0.0 Hospet Koppal Gangavathi Siruguppa Manvi SC Population % 29.2 19.3 20.7 22.7 22.0 ST Population % 20.0 13.2 16.6 20.1 25.8

Figure 1: Percentage distribution of Indigenous and Vulnerable Population 45. A number of villages are situated in remote areas inhabited by indigenous populations who have distinct lifestyle, language, and culture. Besides, they adopt secluded living, far away from usual developmental streams, and do not enjoy the same social and economic benefits as the general population.

Taluk wise SC & ST Population 51.0 50.5 50.0 49.5 49.0 48.5 Hospet Koppal Gangavathi Siruguppa Manvi SC Population Male 49.9 50.2 49.5 49.5 49.6 SC Population Female 50.1 49.8 50.5 50.5 50.4 ST Population Male 49.6 50.5 49.8 49.7 49.3 ST Population Female 50.4 49.5 50.2 50.3 50.7

Figure 2: SC & ST Male and Female Population 46. While the presence of ST are noted within the project area, PSC consultation meetings highlight that marginalized groups in the social and economic hierarchy are the ones excluded from the water user resources due to their lack of ability to stand up and speak for themselves. It is worth mentioning here that many women elected representatives (as Presidents of Gram Panchayat) are silent spectators in meetings; their husbands tend to play a lead role in communicating and performing women elected representative’s duties. 47. During consultations, it was also found that there is no uniqueness with regard to the economic status, livelihood systems or cultural practices among the ST villages as compared to other communities. ST members identify with the other communities and uses the same education, health, religious and community facilities. Public consultations

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment also suggest that ST households no not speak a separate dialect or language at home but speak local language or the regional languages prevalent in the localities in which they live. They are also working as government employees and their spouses are involved in cultivation and agriculture along with other community members. The SPS 2009 Indigenous Peoples safeguard is not triggered despite that the project screening confirms the presence of different ethnic groups in the project footprint. The project implementation focuses exclusively on pre-existing governance and water resource infrastructure. The project will not affect i) the territories or natural or cultural resources of Indigenous Peoples, or ii) the dignity, human rights, livelihood systems, or culture of Indigenous Peoples.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment V. SOCIO- ECONOMIC PROFILE 5.1 Demographic Characteristics 48. The population of the project area is generally scattered over the rural belt, and a vast majority hail from the rural sector. The rural and traditional character of the population has been the hallmark of villages coming under the project. 5.2 Sex ratio 49. Hospet has a total population of 188965 out of which 50.1% is male and 49.9% females19. Koppal, Gangavathi, Siruguppa and Manvi20 too have an almost similar sex ratio. Among all the taluks, Manvi taluk has the highest sex ratio (1013) followed by Hospet (1006), Siruguppa (1005), Gangavathi (1003) and Koppal taluk (979)21. 5.3 Literacy 50. Literacy rate among male category in Hospet is 58.5% and female 41.5%. The corresponding figures for Koppal are 58.7 and 41.3, Gangavathi 57.1 (Male) and 42.9 (female) respectively. In Siruguppa, female literacy is lowest at 38.7 compared to all the other places.

Taluk Wise Population & Literacy 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Hospet Koppal Gangavathi Siruguppa Manvi Population Male 50.1 50.4 49.9 49.9 49.6 Population Female 49.9 49.6 50.1 50.1 50.4 Literacy Male 58.5 58.7 57.1 61.3 59.9 Literacy Female 41.5 41.3 42.9 38.7 40.1

Figure 3: Population and Literacy 5.4 Major occupation 51. In Koppal and Gangavathi, out of total workers, 24.1% are cultivators, 42.8% are agricultural labourers, 29.8% are other workers; 3.2% are involved in household level activities22. It is worth noting that women comprise 21% of cultivators and 60% agricultural labourers whereas men comprise 79% cultivators and 40% agricultural labourers. In Manvi, 26.9% are cultivators, 53.9% agricultural labourers, 17.5% other workers while 1.7% are involved in household level activities. Overall, there is a decline in the

19 Population Census, 2011, Government of India 20 District Hand book Bellary, 2014-15, Directorate of Economic and Statistics, Government of Karnataka 21 Human Development Report 2014, Raichur District Panchayat, Government of Karnataka 22 Population Census, 2011,Governent of India

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment percentage of workers engaged in agricultural activities; this needs to be closely examined to understand the magnitude of the problem23(Table 9). 5.5 Major crops 52. Agriculture is the main activity of the target population in the project villages. People generally depend upon rainfall, irrigation tanks, wells and streams for irrigation. In Hospet Taluk and nearby villages, farmers predominantly rely on canal water for agriculture. Farmers in Gangavathi Taluk are dependent mainly on Tungabhadra canal water supply, while in Koppal and other taluks they depend upon rainfall, tanks and wells. In Gangavathi taluk, paddy is the prominent crop occupying 43.1% of total sown area due to availability of irrigation facilities. In Hospet taluk and adjoining areas Sugarcane, Banana, Paddy, Jowar, Bajra etc. are grown. Sugarcane is grown in 80% of Shivapura, Nagenahalli villages. In some parts of Koppal and Raichur districts cotton is also grown. The important pulse crops grown are Bengal gram, Tur dal and Groundnut. Sunflower, etc. are the non- food crops grown. In Siruguppa and Deshnur in Bellary district, Paddy is the main crop cultivated and they grow only one crop per season. In Raichur and Manvi taluks, crops grown under rain fed cultivation are jowar, cotton, groundnut, chilly, wheat and pulses. Crops grown under irrigation are paddy, sugarcane, maize, wheat, chilly, cotton, pulses, onions, and banana.

23 Agricultural Census 2010-11 Report on Operational Holdings in Karnataka, Directorate of Economics & Statistics, Bangalore.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

Table 8: Population distribution, literacy and SC/ST population in Project area

Population Literacy SC Population ST Population District Taluk Wise Male Female Total Male Female Total Male Female Total Male Female Total Bellary Hospet 94673 94292 188965 55639 39527 95166 27600 27668 55268 18749 19042 37791 Koppal Koppal 582958 573258 1156216 382270 268731 651001 111858 111077 222935 76987 75576 152563 Koppal Gangavathi 172397 172866 345263 109179 81994 191173 35381 36058 71439 28543 28745 57288 Bellary Siruguppa 94949 95439 190388 49522 31216 80738 21391 21853 43244 18977 19223 38200 Raichur Manvi/Bichal 160902 163303 324205 87594 58539 146133 35343 35893 71236 41226 42449 83675 Total 1105879 1099158 2205037 684204 480007 1164211 231573 232549 464122 184482 185035 369517 Source : 2011 Population Census Report, Govt. of India

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5.6 Drinking water supply 53. Households having access to multiple sources of water use a safe source for drinking, and any source for washing purposes. Major problems reported during the PSC visit to VNC field villages include: (a) unreliable water supply, duration and quantity supplied; (b) problems of water pressure and quality; (c) defunct water supply network in some localities; (d) lack of access or less secure access to alternative sources during water shortage periods, and (e) problems of water contamination (mud mixed water). 54. Scarcity of water is not an issue in any of the villages visited but quality problems reported in a few villages. In Raichur and Manvi taluks are having severe drinking water problems. Water quality is poor mainly because of low rainfall. Extensive channel irrigation and use of chemicals and pesticides in agriculture have not only affected surface water but also groundwater. Groundwater in Raichur district contains excess fluoride; arsenic contamination is quite severe in Manvi taluk with more than half of the population exposed to it. Table 9: Distribution of workers classification in project taluks Agricultural Household Taluk Wise Cultivators Other workers Total workers labourers activities Total Details Male Female Male Female Male Female Male Female Male Female Hospet 14842 6129 16749 19364 749 398 16053 4881 48393 30772 79165 Koppal 113228 36282 76992 97727 6405 3408 75789 24712 272414 162129 434543

Gangavathi 31051 9261 28219 30731 1475 869 23473 7594 84218 48455 132673

Siruguppa 21203 11854 23324 29986 472 279 7462 2948 52461 45067 97528 Manvi 166086 59795 114057 141916 6019 3538 60550 23432 346712 228681 575393 Source: Census 2011, Govt. of India

70000 60000 50000 40000 30000 20000 10000 0 Hospet Koppal Gangavathi Siruguppa Manvi Marginal 19302 13649 28002 17297 25484 Farmers Small 8999 15899 18421 11236 23135 Farmers Medium 5690 15276 57417 13688 65081 farmers

Figure 4: Distribution of Farmer Categories taluk-wise Note: Marginal Farmer: < 1 hectare; Small Farmer: 1 to 2 hectares; Medium Farmer: 2 to 10 hectares.

Source: Agricultural Census 2010-11 Report on Operational Holdings in Karnataka, Directorate of Economics & Statistics, Bangalore.

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5.7 Sanitation 55. Access to safe water and sanitation, good health and literacy are some of the crucial factors other than income. Good health is determined by the degree of cleanliness and sanitation in an area which, in turn, depends upon the level of literacy and awareness among the population. Inadequate sanitation facilities lead to practice of open defecation in and around channel premises, blocking of roadside drains due to disposal of solid waste, mainly agro-wastes and plastics. The household sanitation coverage ranges from 20% to 60% in the villages visited, and Manvi reported the lowest coverage of around 20%24. In fact, sanitation and hygiene are the most neglected aspects across project villages (Photo 4).

24 Human Development Report 2014, Raichur District Panchayat, Government of Karnataka

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VI. SOCIAL MANAGEMENT FRAMEWORK 56. The project has an implementation plan which incorporates physical and non-physical components, but needs to develop a feasible and pragmatic operational methodology and implementation strategy for community-based activities. Community involvement always depends upon the level of awareness in the community. It is a challenging task to bring about positive change in people’s behavior and practice with regard to effective water use, value of water, environmental conditions and related issues. 57. An active public awareness program will be launched at Panchayat, channel and community level to ensure that stakeholders are well informed about the project’s objectives, roles and responsibilities of various stakeholders and activities, and to ensure that the scope and procedures for public works components are fully understood. A governance and anti-corruption program will also be established at the community level to minimize governance risks and protect beneficiaries. 58. For vulnerable households, the social impact is expected to be highly positive due to increased livelihood opportunities and increase in crop production. No negative impacts are foreseen. As explained above, villages in and around Vijayanagara channels have a wide network of agricultural, milk and other cooperative societies. Experience of these societies can be harnessed in moulding the existing WUCS and creating new ones where ever necessary. 59. As explained in the social safeguard due diligence report, the project does not require involuntary resettlement or involves indigenous people. The project will also result in valuable environmental and social benefits. Immediate benefits include: improved irrigation water distribution; reduced seepage losses from the main canals and distributaries, reduced over-supply of irrigation water, reduced waterlogging, salinization and water losses. Further, longer-term benefits include: a lower water table, lower risk of salinization, and less stagnant water in the villages and fewer consequent health problems. 60. To realize the above benefits, it is essential that the functioning and capability of existing community institutions such as WUCS, farmers associations, SHGs, etc. have to be examined and gaps identified for making these institutions vibrant and participate in the project interventions. 6.1 Strategy for Implementation of the Social Management Framework 61. Community participation and management plays a prominent role in effective implementation and is a determining factor for the success and operational sustainability of an IWRM project. In this connection, consultation with local farmers/community is a necessary prerequisite to ensure their cooperation and endorsement for IWRM projects. Here, WUCS, farmers associations and other grassroots level institutions have a pivotal role. In most water resources projects to date, the governments and donor agencies have usually determined the design, technology, service level and mode of scheme operation, as per government rules/norms and procedures. Since, it is designed without much participation of the community, it becomes difficult to have the views and opinions of the community, farmers or WUCS to have their concerns addressed adequately and effectively.

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62. For sustainability of systems, it is considered important that WUCS and farmers associations are involved in the identification (and design) of solutions and their role in the operation and maintenance of facilities developed. 63. In the inception phase, it is of paramount importance to analyze the extant conditions, review of reports and conduct consultations with various stakeholders to understand the poverty dimensions and their training needs. Hence, to address all the above concerns, the project will conduct consultation meetings with WUCS and other grass root level agencies to address poverty reduction and gender dimensions. There will be close involvement of various PSC specialists such as the PIM specialist, Agricultural specialist, Water Institutions Specialist and Communications specialist to plan and implement appropriate training activities based on the local requirement. 64. The project shall also carry out community mobilization to ensure their participation in physical implementation of construction activities appropriately. Sometimes, the community shall have a monitoring role while in other cases, it will have an implementation role. This shall be applicable across all project activities such as irrigation, agriculture, livestock, fisheries, drinking water, basic sanitation and infrastructure. There is a lot of opportunity for involvement with community contracting and monitoring of civil works. The use and maintenance of assets created shall be the responsibility of WUCS or farmers associations and they will be trained in that direction. The type of works which can be entrusted to the WUCS shall be identified in consultation with them. 65. The organization and implementation of this work is best supervised by WUCS with guidance from support staff employed by PSC/PIO. This will involve their planning, organization and arranging implementation works, promotional initiatives, concurrent monitoring and follow up on completion of work. 6.2 Role of Information, Education and Communication 66. The significance and approach of IEC should be such that the WUCS, communities and other project partners are fully informed about the project and be prepared for their respective roles. To ensure this, the role and responsibilities of project partners/facilitators shall be identified in respect of resources to be mobilized, action plans to be prepared, the implementation strategy to be used, monitoring required and operation, maintenance and payments (community contribution) to follow. Towards this, a clear and suitably detailed implementation methodology and strategy will be developed and incorporated in the planning and implementation stage. Specific IEC sessions are required in each stage to ensure continuity of information flow. It is also advisable that project strategies and requirements be adapted to the circumstances and needs of command area/village, rather than following a routine IEC approach for all villages. 67. There is a need to create awareness on the objectives, activities, roles and responsibilities of different stakeholders and the expected benefits. The IEC component shall be institutionalized during planning and establishment of the project. Each partner agency and organization need to understand the different project components, design, cost sharing principles, and monitoring requirements. As a follow-on activity, the IEC component needs to be introduced to the project communities and households and also to local schools and other village level institutions. The ultimate objective of IEC is to establish community demand for improvements, awareness among project partners of

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their roles and responsibilities and effective working relationships. This will lead to a good understanding of the requirements for effective programme implementation and conflict resolution at community level. 6.3 Empowerment

• Empowerment means vesting people with knowledge and skills to make needed changes; • Having the ability to act individually and collectively; • Empowerment should be the major objective of Information, Education and Communication initiatives; • Need assessment – expressing opinions, desired improvements and priorities; • Planning – formulating objectives and setting goals; • Mobilizing – raising awareness about needs including mobilizing resources; • Training – participation in formal and informal training activities to enhance communication, maintenance and financial management skills; • Implementing – engaging in management of activities, community contribution, construction, O & M etc.; • Concurrent monitoring and assessment–day to day monitoring and appraisal of work done, quality assurance, modifications required. 68. This should be done under two main categories: (a) training of trainers (government functionaries, staff of support organizations and social workers from the community), and (b) training those directly and indirectly benefiting from the programme including local community representatives. Training is an integral part of Information, Education and Communication (IEC) with both occurring concurrently. 69. In addition to appropriate formal training for project partners, it is important to assess the need for and provide refresher training to all partners. Similarly, post-training evaluation is necessary to determine the effectiveness of training and as necessary, adapt the training programme. Only with effective training can community participation, management, gender and other project objectives be fully realized within the planned time frames.

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Table 10. Social Management Activity Schedule

Activities Responsibility Time schedule H1Y1 H2Y1 H1Y2 H2Y2 H1Y3 H2Y3 H1Y4 H2Y4 Initiall community/farmers/ WUCS PIO/PSC Year 1 meeting PSC field level Social mapping Year 1 Support staff Appointment of support team PIO/PSC Year 1 Orientation & Training PSC/PIO Year 1 Assessment by support staff on PSC/PIO Year 1 WUCS Review and assess other social development programmes Support staff/WUCS Year 1 ongoing Work closely with panchayats and identify potential livelihood WUCS/Support staff Year 1 -3 programmes to collaborate Training Need assessment PIO/PSC Year 1 and 2 Prepare training modules and PSC/PIO/ Year 1 and 2 calendar Arrange Exposure visits to see PIO/PSC Year 1-2 similar activities Need assessment and develop Support staff/WUCS Year 1 community action plan Prepare O & M plans WUCS Year 1 and 2 Organise capacity building and WUCS/Support Throughout the project training on regular intervals staff/PSC duration Plan to undertake community PIO/PSC Year 2 to 4 contracting Functionality monitoring of WUCS Year 2 to 4 system operation Benefit monitoring - assessment PSC Year 3 onwards Compilation of reports, progress Field support Throughout the project reports, case studies etc. teams/PSC 70. Through programme planning and design, the following activities need to be shared with farmers to provide the basis for participatory implementation of the project components and the subsequent operational management of facilities (and services) by the village community:

▪ Introduction of the IWRM modernization programme and it’s integrated approach to the community; ▪ List the main physical and non-physical components of the programme; ▪ Roles and responsibilities of stakeholders; ▪ Undertake social mapping ; ▪ Collect social and physical information of general relevance to the programme; ▪ Identify WUCS/farmers associations and the nature of their activities; ▪ Formation and Strengthening of WUCS; • Specifically identify existing water distribution systems and availability for tail-end users; ▪ Agreement on the social aspects of the design for water distribution improvements; ▪ Establish responsibility for cost of operation and maintenance of all facilities; ▪ Confirm village community and WUCS acceptance of project components, and ▪ Prepare a detailed project/community implementation plan for each village;

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VII. GENDER ACTION PLAN 71. The Gender Action Plan (GAP) is still a relatively new approach in Karnataka especially in the water resources and infrastructure sector. Implications of this are two-fold: on one hand, working in a fairly unprecedented way undoubtedly presents a challenge and includes the need for more awareness and capacity building along the way. On the other, this presents a major opportunity for the IWRM project to set a good practice standard in the sector. 72. The Project is proposed to be classified as Category II: Effective Gender Mainstreaming, (EGM) following ADB’s gender categorization of projects25 (ADB’s Policy on Gender and Development 1998 and ADB’s Gender Mainstreaming Criteria Guidelines26; 2010). The gender strategy under this program is expected to mainstream gender in the context of participatory irrigation management. 7.1 KNNL gender policy towards women 73. Presently, KNNL does not have a stated gender policy. However, as part of the project, KNNL desires to gradually appoint more women officers to make women composition from the present 18.6% to 30% by 2020. KNNL also desires to introduce/strengthen other aspects of the gender policy which will be examined as part of the gender action plan. 74. The Table 11 illustrates the Sex disaggregated data on technical and no technical staff list in VNC project. Table 11: Sex disaggregated data on technical and no technical staff in VNC project Name of office Male Female Total Office of the Chief Engineer 27 06 33 Superintending Engineers office 15 03 18 Divisional office and below 41 10 51 Total 83 (81.4) 19 (18.6) 102 (100.0) Source: Office of the Chief Engineer, KNNL ICZ, Munirabad, May 2018 75. The present sex disaggregated data reveals that 18.6% of the staff are women and they represent the grade A, B, C and D. Out of this 1 female staff on A grade (Senior official level), 1 staff on B grade, 5 on C level and 12 are on D grade (peons and sweepers).

76. Government of Karnataka’s Vision 2020 aims at enhancing opportunities for women and empower them across economic, social and political spheres. Correcting gender disparities in wages and employment remains a major challenge the government wishes to address. The state has made explicit policy commitments to women and women’s empowerment, including commitments to: (i) 50 percent participation of women in local decision-making; (ii) increased home ownership by low-income women, and (iii) increasing women’s access to public sector employment through 30 percent reservations in all government jobs. 77. Besides, the Government of Karnataka/KNNL has introduced other schemes for providing facilities for women and few are listed below:

25 ADB’s Policy on Gender and Development 1998; 26 ADB’s Gender Mainstreaming Criteria Guidelines, 2010

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78. Maternity Benefits Act 1961: The provisions of the Maternity Benefits Act, 1961 were brought into effect to regulate employment of women employees in certain establishments for the period before and after child birth aiming at providing maternity and certain other benefits to such women employees. 79. Entitlement to maternity benefit: A woman employee who is either employed directly or through agency/ contractor and has actually worked in the establishment located in the State of Karnataka for a period of at least 80 days during the 12 months immediately preceding the date of her expected delivery is entitled to receive maternity benefit under the Act. 80. Creches for children of working mothers: The scheme provides day care services for children in the age group 0-3 years. Services include health care, supplementary nutrition, and free facilities for children to sleep, immunization, play and recreation. Assistance is provided through District panchayats to Mahila Mandals and voluntary organizations to start creches for children of working women who are engaged in agriculture and other occupations in rural areas. 81. The Sexual Harassment of Women at Workplace Prevention, Prohibition and Redressal Act 2013: This Act to provide protection against sexual harassment of women at workplace and for the prevention and redressal of complaints of sexual harassment and for matters connected therewith or incidental thereto. 82. Protection against sexual harassment and the right to work with dignity are universally recognized human rights by international conventions and instruments such as Convention on the Elimination of all forms of Discrimination against Women, which has been ratified on the 25 June, 1993 by the Government of India and the State governments. This act is expedient to make provisions for giving effect to the said Convention for protection of women against sexual harassment at workplace.

83. The scope for raising the level of women’s participation in decision–making and project management processes will also be strengthened. In addition, a GAP has been designed to ensure that women, vulnerable and landless households are mainstreamed within the overall program design and have equitable access to the project’s resources and benefits. The GAP also provides specific actions and responsibilities to ensure full participation of women in project activities.

84. The GAP plan envisages strengthening women’s participation in grassroots governance and leadership with a planned 30 percent women’s representation in the executive board by 2018. It will also focus on expanding women’s knowledge of improved crop diversification and management, on farm water management, and O&M and systems management. It also enables women to gain easier access to water for agricultural and ‐ non–agricultural, domestic use, and health and hygiene purposes. The mainstreaming activities in off–farm income generating activities will also be pursued as also promoting women’s participation in grassroots decision–making and governance, in particular, the WUCS. Capacity development programs focusing on project management and monitoring will be conducted for women staff of relevant government counterparts. 85. IWRM and agricultural practices are particularly concerned with gender issues because of the predominant role of women in agriculture. If there is no scope for women to voice

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their views and concerns and are integrated into programme and facility designs, it is unlikely that it will earn their commitment, while the probability of functional failure will be high. Experience shows that when women actively incorporate changes into the pattern of their daily lives, they pass these changes on to other family members, thus increasing the sustainability of the programme. To achieve this, active support (and involvement) of men needs to be sought and ensured. 86. Gender mainstreaming is a process for improving the relevance of development agendas to benefit both women and men equally. The division of labour and responsibilities (who does what work), social attitudes, and unequal access to resources all contribute to a situation where policies and programmes have a different impact on women and men, (for example, education initiatives and poverty reduction strategies). Furthermore, these differences and inequalities influence how women and men participate and respond to new initiatives. 87. Raichur district has very low share of workers engaged in non-agricultural work, especially of women workers. Only Raichur taluk reports a higher share of female workers working in non-agriculture. It is as low as 12 percent in Deva Durga and 13 percent in Manvi taluks. In Sindhanur and Lingsugur taluks, the percentage of female workers employed in non-agricultural work is substantially lower at 19 percent and 22 percent, respectively. Non-agricultural employment is available extensively in advanced taluks and that too predominantly for males. 88. In terms of capabilities, literacy attainments reflect an important aspect of gender development. Raichur district has lower literacy than the state level for the overall as well as female population. Female literacy is substantially lower, and lower than that of males. Even as late as in 2011, less than half of the female population was literate with a literacy rate of 48.7 percent, which is very low compared to the state average at 68 percent and district’s own male literacy at 70 percent. Thus, the gender gap in literacy was about 21 percent, with gender gap in rural areas being 24 percent, which is 50 percent higher than in urban areas at 16 percent. 89. Sex ratio, defined as the number of females per 1000 males in a society, is one of the basic measures of gender parity. Raichur district has better sex ratio compared to the state. It was exactly 1000 in 2011 and the district is among the very few which could achieve this distinction. 90. Women and men use and access water, land and ecosystem resources in different ways. When these differences are properly understood, actions can be targeted towards those who have real influence in the issues addressed. For example, men and women both contribute to the problem of water security or water crisis. Major land use changes, and large-scale logging activities and wood use are often linked with wealthy men or corporations; minor land changes and local logging are usually done by middle class or poor rural men and women; and wood collection, where trees are seldom chopped, is normally conducted by poor women worldwide. In order to prove effective, actions designed to curtail deforestation should take into account these differences.

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7.2 Cultural stereotypes 91. Many gender stereotypes exist around water and its uses. Some of the most common misconceptions are listed below:

Some Common Cultural Stereotypes Farmers are male. While the proportion and the role of women change from place to place, 70% of farmers worldwide constitute women. Nonetheless, women neither own 70% of the land, nor have access to 70% of agricultural water. Fishers are male. Women and men divide functions in fishing. In many cases, women collect shrimp and shellfish near the coast, while men catch fish using boats, nets and other devices. In Freshwater fisheries, predominantly men are involved in catching. And women involvement is substantial in drying, processing, making and repairing nets and fishing. Men do the work while women care for the family. This misconception neglects the role of men as fathers who may also contribute domestic labour and have a fundamental task as behaviour models. Children learn how to use water according to both the mothers’ and the father’s examples, and the father’s influence grows when boys and girls are older. Men do all the heavy work, and women help with he lighter tasks. In general, men are physically stronger than women. Nevertheless, women do the lion share of drudgery work, whilst men take over these tasks, only when mechanized.

92. During implementation of this project, three strategies are proposed to be developed: (a) Identify women leaders and train them to carry out specific tasks that may be socially accepted; (b) Gradually build-up a network of women leaders and train them to voice their concerns in day to day implementation; (c) Propose and design information dissemination methods that can be easily delivered to women. 93. The self-help groups existing in the project area provide an excellent platform to involve women both as recipients of services and service providers. In other experiences it has been found that women’s groups function much better if they can be offered a combined package of functional literacy, livelihood, agriculture and a nutrition programme package.

• Providing women with full information on the project organization, roles and responsibilities of various stakeholders, role of WUCS and other related institutions and its functions; • Encouraging and training women to become leaders or representatives of WUCS; • Discussing with women groups their interests and incorporating their needs in concrete action plans; • Raising the awareness of CADA and other government officials and extension engineers towards incorporating women's and small farmers' views into increasing the efficiency of the irrigation system; • Evaluating the impact of women's involvement on the efficiency of the system, and • Due to the critical need for involving women in the water sector, proclaim a separate Act. 94. Agriculture is the prime subsistence and economic activity in IWRM projects. It accounts for by far the largest proportion of water used. Especially in rural areas agriculture determines to a large extent in what way water is managed at community and household level and plays an important role in the division of water related tasks, means and responsibilities of men, women and children. In many rural societies men and women

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take on different tasks from a young age onwards. Analysis of the gender division of labour found that men dominate land preparation and irrigation activities, whilst women tend to be responsible for transplanting, weeding and harvesting. However, in several villages visited the role of women has been changing or limiting due to modern farming methods. 95. A notable feature here is the importance given to the role of agriculture and irrigation. Gender disparity is very much prevailing in the project villages. The daily wages for women varies from INR 150 to 200 and for men from INR 250 to 350 in the agricultural sector in VNC. The opportunities for women in agriculture is also reducing due to mechanization in the sector. The women community in Mohammed Nagar expressed that their livelihood opportunities reduced due to the mechanization in the farming sector and as a result they need to travel to longer distances for finding jobs. Even though women are members in WUCS their participation in the meetings are rather limited. Another issue is that women’s opinions are not to be recorded, because they are often not present in meetings or are not confident to speak up (particularly if their husbands are around). Majority of the farmers expressed that they are involving their women folk for land clearing, weeding, transplanting and harvesting. It is worthwhile to note here that in the milk cooperative societies women play dynamic role in the overall management of the society. This is mainly due to the training, orientation and exposure they have received from their projects. 96. Gender-disaggregated quantitative data are not easily available from local government sources but must often be collected separately for a program or project, which can be costly and time consuming. In the project villages there is low female participation in water users’ organizations despite high involvement of women in irrigated agriculture and decision making. In most cases, low female participation is also in conflict with official policy statements, which almost always claim that the involvement of all farmers or water users is the ultimate objective. Because of their high domestic and productive workloads, the opportunity cost of time to attend meetings and do other work for the organizations is different (and often higher) for women than for men. 97. Important in this respect is that it is not as easy for women to transfer some of their responsibilities to their husbands, as it is for men to leave some of their tasks to their wives. Timing and location of meetings may also impose a higher cost on women than on men. 98. The most commonly cited major obstacles to women participating and benefiting from development activities include (i) the lack of participation by women in planning meetings while project identification/planning; (ii) poorly conducted need analysis (iii) the lack of baseline data on key gender differences relevant to the specific project; (iv) the failure to address gender issues in project objectives. 99. Therefore, to address all these issues, the gender strategy shall include formation of women sub committees as a key approach. Drawing from Gondi experience, women sub- committees shall be formed of not only women title-holders but also those who have the farmland in their husbands’ names. Policy advocacy to permit spouse as a member in the women sub-committee is being pursued. Details of the composition of the sub- committees, scope of activities, representation of all social groups, including differently

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abled women, roles and responsibilities, and the mandate of such sub committees shall be detailed in the gender strategy to be evolved. PSC shall also leverage the high SHG presence in the project area to work with the sub-committees. Over a period of time when the membership becomes common, possibility of merging the SHG and women sub- committees will also be explored. Table 12. Gender Action Plan Responsibil Time Activity Indicators/Targets ity Schedule Output 1. State and Basin Institutions Strengthened for IWRM Develop the At least 600 WRD staff (of which 200 are women staff) are WRD/PMU/P Year 2 capacities of WRD certified in IWRM (2018 baseline: 150 staff are certified of IOs staff including which 40 are women) women in IWRM Output 2. Irrigation system infrastructure and management modernized Build awareness 30 sensitization workshops focusing on gender equality PMU/PIOs Year 2– of women’s equal and social inclusion (GAP) approaches and women’s role 3 rights and and participation in water resources management and participation in farm/off farm livelihood activities conducted for all WUCS water resources in the VNC subproject area (T: 30 workshops conducted management and with at least 60% men’s participation) livelihood At least 30% of WUCS management board members are PMU/PIOs Year 1– improvement women (T: M– 150; F–50) 2 Improve the 5 gender sensitization workshops provided to WRD and WRD/PMU/P Year 1– knowledge of KNNL staff on GAP concepts and in the design and IOs 2 relevant implementation of water resources management, irrigation government and agriculture programs for vulnerable populations, departments on including women and use of sex-disaggregated data for GAP approaches decision making (T: F–30; M–70) in agriculture, irrigation and water resources management Output 3: Program and management systems operational Monitor progress Project management information system with gender PMU/PIOs Year 1– of gender and indicators 4 socially inclusive Sex–disaggregated data collected, analyzed and reported PMU/PIOs Year 1-4 focused activities in quarterly progress reports and safeguard monitoring in water resources reports management

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment VIII. MONITORING AND REVIEW 100. Monitoring and review of the programme and its components has to be an integral part of planning and implementation. Learnings from this could be used for preparing future proposals. The main objective of monitoring and review are to explore: a) Whether the implementation of various components is progressing as planned; b) Whether they are producing the expected result; c) If not, what problems are being encountered in implementation; d) What steps can be taken to overcome them; e) Taking adequate measures to implement these steps. 101. Monitoring has to be done individually and collectively. Concurrent monitoring needs to be carried out by the respective WUCS with the support of Field support teams. Since the activity plan specifies responsibility for each individual, he/ she should periodically ask himself/herself how he/she will discharge responsibilities. Monitoring & reviewing should not be a fault finding exercise. Based on monitoring & review, activity plan can be modified to the extent needed. In addition to monitoring and review, the programme has to be evaluated on sample survey basis at least once a year. The evaluation will deal with not only the immediate objectives, but also with intermediate and ultimate objectives. It will also evaluate the inputs, and processing of inputs. 8.1 Monitoring indicators 102. While undertaking monitoring, both qualitative and quantitative indicators should be used together. In recent thinking, qualitative methods have assumed greater importance as they focus on empowerment and participation. 8.2 Qualitative indicators

• Level of participation of both male and female in local water resource management institutions in particular WUCS and Federation/Councils; • Level of understanding and implementation of water efficiency measures by both male and female; • Level of understanding and implementation of measures to safeguard the levels of local water quality; • Level of income generated from activities for both male and female controlled crops; • The percentage of marginalized groups and in particular women who actively engage in local water management institutions; • Numbers of planning meetings held with local stakeholders and topics discussed; • Attendance by local stakeholders at identification and planning meetings by sex, socioeconomic grouping, age and ethnicity; • Levels of contribution/participation by local stakeholders at identification and planning meetings. • Do women/men benefit from the programme in the same way? • To what extent did women actively participate in the meeting? • To what extent did women contribute to the meeting outcomes?

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• Do women and men perceive that women are becoming more empowered? Why? • Do women perceive that they now have greater self-respect? Why? How does this relate to men's perceptions? • Do women/men perceive that they now have greater economic autonomy? Why? • Have gender relations of women/men in the target group changed as a result of the programme? Have gender gaps been reduced? • Are changes taking place in the way in which decisions are made in the household, and what is the perceived impact of this? • Do women make decisions independently of men in their household? What sort of decisions are made independently? • How often O & M activities are being carried out? Who support the activities? 8.3 Quantitative indicators

• Age and sex wise distribution of farmers; • Age and sex wise distribution of WUCS members; • Number of planning meetings (or Gram Sabha) held with local stakeholders; • Number of WUCS meetings held; • No. of meetings attended by women members; • Number of WUCS members; • Number of women as shareholders; • Number of women in WUCS; • Women working in agriculture; • Women, leading farm for husband; • Number of coordination meetings held with Panchayats and other stakeholders in year 2015; • Number of people attended meetings by departments/stakeholders; • Number of women attended meetings; • Number of WUCS Federation/ Council and Committee members; • Number of women WUCS Council and Committee members; • Number of grievances from water users in 2015 (pre-project year); • Number of grievances from women water users in 2015 (pre-project year); • Number of women associated with local cooperatives; • Number of women members of Milk Cooperatives; • No. of livelihood units such as -Areca nut plate and allied products; • No. of male and female unemployed; • No. of people below poverty line; • No. of women below poverty line; • Number of female panchayat members; • Women holding senior legislative and managerial positions in the locality; • No. of women involved in agricultural activities; • No. of women involved in marketing agricultural products; • No. of men involved in agricultural activities; • No. of men involved in marketing agricultural products;

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• Daily Wages of women; • Daily wages of Men; • Daily Working hours by women other than household jobs; • Daily Working hours of men; • No. of hours spent by women in household job; • No. of hours spent by men in household job; • Amount used from MNREGA funds for O&M during 2015. 8.4 Social benefits 103. The project interventions will lead to increased agricultural opportunities and diversification of crops to improve income and livelihood standards, benefiting both men and women across the project areas. The programme is expected to mainstream gender within the irrigation management by strengthening landless, tail end farmers and the socially disadvantaged communities. This will fulfil strategic requirements of the socially excluded and women in the context of water management, besides meeting their daily water needs for domestic use, livestock and hygiene purpose. On the whole the project will provide a platform for promoting inclusive and gender focused water resources development and irrigation management.

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VNC Feasibility Study Report Volume 3a: Poverty and Social Assessment

Annexure 1 Details of canals and villages visited, and public consultations held S. Command Name of Canal Villages covered Remarks No. Area in Ha RIGHT BANK 01. Raya i. Hosur • This canal passes through -27.74 Km ii. Gudiobalapura 17 villages. Out of this the iii. Kalaghatta assessment and public consultations were held in iv. Hospet 7 villages.

v. Narsapura vi. Hosakote • Public consultation and

vii. Danapura FGD were held in 4 viii. Nagenahalli 2226 villages ix. Kaddirampura x. Malapanagudi • Visited in July and xi. Mudlapura November 2016 xii. Amaravathi xiii. Belagodu xiv. Kamalapura xv. Chithawadgi xvi. Singanathanahalli xvii. Kallirampura 2. Basavanna i. Hosakote • This canal also passes more or -16.5 Km ii. Hosur less the same villages iii. Amaravathi mentioned above

iv. Hospet v. Ananthsayanagudi 1240 • Visited in July and November 2016 vi. Mudlapura vii. Malapanagudi viii. Kamalapura ix. Nagenahalli x. Kariganur 03. Bella i. Narasapura 600 • This canal also passes more or -5.5 Km less the same villages ii. Hosur mentioned above • Visited in November 2016 04. Kalaghatta i. Kalaghatta 237 • Visited in November 2016 -7.02 Km ii. Dhanapura 05. Turtha i. Venkatapura • Visited in July and November -18.69 Km ii. Bukkasagar 2016 iii. Kaddirampur 931 iv. Hampi v. Krishnapura vi. Nimapura 06. Ramasagara i. Ramasagar • Public Consultation and FGD -15.5 Km ii. Kampli 673 conducted in two villages • Visited in July and November iii. Muddapur 2016 07. Kampli i. Ramasagar

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S. Command Name of Canal Villages covered Remarks No. Area in Ha -23.55Km ii. Kampli • Public Consultation and FGD iii. Aralihalli 620 conducted in one village iv. Belagoduhal • Visited in July and December v. Sanapuram 2016 08. Belagodahala i. Belagodhalla 210 • Visited in December 2016 -11.22 Km ii. Kampli 09. Siruguppa iii. Kenchanagudda 1344 • Public Consultation held at -10.85 Km iv. Siruguppa KNNL office for both canals 10. Deshnur 815 • Visited in July and December i. Deshnur 2016 -9.03 Km LEFT BANK 11. Hulugi i. Hulgi 419 • Visited in July and December -10.69 Km 2016, interacted with, KNNL, ii. Shivapura Panchayat and farmers 12. Shivapura iii. Atthivatti • Public Consultation and FGD -6.54 Km iv. Shivpura 717 held for two villages v. Mohammad Nagar • Interactions with KNNL, Panchayat and farmers vi. Narayanapura • Visited in July and Dec 2016 13. Anegundi i. Virpapurgaddi • Public Consultation and FGD -19.44 Km ii. Hanumanahalli 1359 held for two villages iii. Chikkrampura • Visited in July and December 2016 iv. Anegundi 14. Upper i. Vipra • Public Consultation and FGD Gangavathi ii. Hirejanthkal held for two villages -9.00 Km iii. Hosalli 1363 • Visited in July and December 2016 iv. Nagenahalli v. Chikkajanthkal vi. Achalapur 15. Lower i. Vipra • Visited in July and December Gangavathi ii. Naganahalli 2016 -9.54 Km iii. Chikkajanthkal 1141 iv. Ayodhya v. Danapur vi. Achalapur 16. Bichal i. Rajolli • Visited and interacted with -14.50 Km ii. Jukuru farmers in July and 276 December 2016. iii. Katakanuru Kotigudda village was iv. Kotigudda submerged due to flooding few years back v. Hanumapura and people were shifted to Hanumanpura vi. Bichal

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Annexure 2 People contacted during the mission connected to Social Assessment S. People contacted Name Designation Mobile No. No. 1 KNNL Mallikarjun Gunge CE Munirabad 9480842005 Bhoja Naik SE Munirabad 9611467907 Shakare Gowda CE in charge, Munirabad 9632393263 Nagabhushan EE Munirabad 9448442911 Ramesh Y EE Oddartti 9071170431 Jankar AEE Munirabad 9481565386 Yallappa AE Munirabad 9986287620 Purushotham AE Munirabad 9448035731 Vishwanath AE Gangavathi 8970588753 B H M Manjunath AEE Gangavathi 9880333410 Vijay Prasad K R JE Siruguppa 7760291456 D Nagendra Prasad FDA Siruguppa 9886698117 2 CADA Rajappa Administrator 9945521608 Assistant Registrar of Co- 9036366535 Tippeswamy operative Societies. 3 Punchayat / Lalitha Rani Ex-ZP Member & Chairman 9611123209 Municipality State Handi Craft Nigam Ex-Municipal Councillor 9901672112 S Muddukumar Siruguppa K Suresh Babu Vice President Shivapura 9008177799 Usman Sab GP Member Shivapura 9986938391 Renukamma Kattigi GP President Bandi Harlapura Dharmanna GP President Hausain Basha GP Member Halebandi Harlapur 7829786857 B Ramanna GP Member Halebandi Harlapur 9620471609 Emunurappa GP Member Halebandi Harlapur 9538361982 Y Ramesh TP Member Halebandi Harlapur TP ex-President Halebandi 9241565917 Devanna Mekali Harlapur Raghavendra GP Bill Collector Anegundi 9480349995 H Manjunath Gowda GP Member Anegundi 9482404591 Anjana Devi GP Member Anegundi 9481936713 B Chandra Shekar Ex-GP Member Nagenahalli 9482059125 D Channappa GP President, Nagenahalli 9449204098 Mathramma GP President, Mohammed agar ZP Member, Gangavathi 4 WUCS/Farmers Kashim Sab WUCS President Emminur 9902350425 Association Adivega Swamy WUCS Secretary Emminur 9916063376

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S. People contacted Name Designation Mobile No. No. Kumarappa WUCS Directory Emminur 9916063376 P Mallikarjun WUCS President Siruguppa 9448632939 G. Viswanatha Raju WUCS President Shivapura 9242804598 Janardhan WUCS President Hulugi K Ramarao WUCS Director Shivapura 9845155116 WUCS Secretary Bandi 9741035692 Kashyya Swamy Harlapur Alam Hussain WUCS Director Bandi Harlapur 9743792820 Eluru Ramakrishna WUCS President Anegundi 9448632767 K Mehaboob 9448977249 Hussain WUCS Director Anegundi K S Sudarshan 9481042434 Varma WUCS Director Anegundi J Pampapathi Society Member 9916724138 Jyothi Swasahaya Sangha 9739977336 T M Manjula Anganavadi Teacher 9986266450

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Climate Change Assessment

I. Basic Project Information Project Title: IND (43253-026): Karnataka Integrated and Sustainable Water Resources Management Investment Program (Project 2) Project Cost (in $ million): Source Amount ($ million) Asian Development Bank 91.0 Sovereign MFF Tranche (Regular Loan): 91.0 Ordinary capital resources Government 39.0 Total 130.0 Location: Karnataka, India (Vijayanagara Channel System and Middle Krishna Basin) Sector / Subsector(s): Agriculture, natural resources and rural development / Irrigation; Rural water policy, institutional and capacity development; Water-based natural resources management Theme: Inclusive economic growth, Environmentally sustainable growth Brief Description (particularly highlighting aspects of the project that could be affected by weather/climate conditions):

The investment program will improve water availability to meet competing water demands in selected river basins in the state of Karnataka by implementing integrated water resources management (IWRM). It will improve water use efficiency in irrigated agriculture to provide economic opportunities to improve rural incomes.

Project 2 is aligned with improving sustainable water security in selected river basins in Karnataka, and will have the following outcome: IWRM successfully implemented in the state’s selected river basins. Project 2 has three outputs: output 1: state and basin institutions strengthened for IWRM; output 2: irrigation system infrastructure and management modernized; and output 3: program management systems operational.

The water sector is a climate sensitive sector. Without adaptation, water resources could be severely affected by climate change, hence affecting water availability for different users particularly in agriculture, both rainfed and irrigated. The downstream impacts of water security will be increased agricultural productivity, food security, and well- being of the communities.

The projected impacts of climate change for the project area include increased temperatures and mean annual rainfall, and decreased and more variable monsoon rainfall. Overall, the investment program area is found to be vulnerable to increased incidence of seasonal droughts. Thus, an integrated approach to water resources management is a means to reconcile varied and changing water uses and demands, providing greater flexibility and adaptive capacity in managing water deliveries to the latter.

II. Summary of Climate Change Finance Project Financing Climate Finance (in $ million)* Source Amount (in $ million) Adaptation Mitigation ADB Resources OCR 91.0 13.8 - COL ADF Grant

Cofinancing**

* Please refer to the Umbrella Guidance Note on Counting Climate Finance (October 2016) and relevant sector guidance notes issued, in estimating climate mitigation and/or adaptation finance for the project. ** ADB-administered donor trust funds, financing from multilateral climate funds such as Global Environment Facility, Climate Investment Fund, Green Climate Fund, and bilateral financing, among others.

Appendix 19

KARNATAKA INTEGRATED AND SUSTAINABLE WATER RESOURCES MANAGEMENT INVESTMENT PROGRAM - MODERNIZATION OF VIJAYANAGARA CHANNEL SYSTEM

CLIMATE RISK AND VULNERABILITY ASSESSMENT

September 2019

TABLE OF CONTENTS

I INTRODUCTION 1 A Irrigated Agriculture in Karnataka 1 B Vijayanagara Channel System 2 C Climate Change and its Scenarios 10 II ASSESSMENT OF CLIMATE CHANGE IN TUNGABHADRA RIVER BASIN 13 D Change in Temperature 13 E Change in Rainfall Pattern 18 III ASSESSMENT OF CLIMATE CHANGE IMPACT ON STREAMFLOW IN 22 IV VULNERABILITY OF AGRICULTURE TO CLIMATE CHANGE IN TUNGABHADRA BASIN 28 V ADAPTATION MEASURES TO MITIGATE CLIMATE CHANGE IMPACT ON IRRIGATED AGRICULTURE IN TUNGABHADRA BASIN 31 VI REFERENCES 36

Annex – 1. Details of Climate Change Scenario Groups 35

ABBREVIATIONS

ACIWRM = Advanced Center for Integrated Water Resources Management CC = Climate Change CF = Change Factor

CO2 = Carbon Dioxide CSD = Center for Sustainable Development CSTEP = Center for Study of Science, Technology and Policy EMPRI = Environmental Management and Policy Research Institute ET = Evapotranspiration HEC-HMS = Hydrologic Engineering Center – Hydrologic Modeling System GCM = General Circulation Model (Global Climate Model) GHGs = Green House Gases GoK = Government of Karnataka ICAR = Indian Council of Agricultural Research IMD = Indian Meteorological Department IPCC = Intergovernmental Panel on Climate Change IWRM = Integrated Water Resources Management KISWRMIP = Karnataka Integrated and Sustainable Water Resources Management NAPCC = National Action Plan on Climate Change NICRA = National Initiative on Climate Resilient Agriculture RCM = Regional Climate Model RSP = Representative Concentration Pathway SDSM = Statistical DownScaling Model SRES = IPCC’s Special Report on Emissions Scenarios SWAT = Soil and Water Assessment Tool VNC = Vijayanagara Channel

I INTRODUCTION

A Irrigated Agriculture in Karnataka

1. Agriculture is a very important sector in Karnataka, contributing to 28.61% to the Gross State Domestic Product (GSDP), and cropped area occupies 64.6% of the total geographical area of the State which is 19.18 million hectares (191,790 km2). In addition, farmers and agricultural laborers account for 56.5% of the total workforce, which is significant, of Karnataka (Census 2001).

2. The State of Karnataka is divided into 10 agro climatic zones taking into consideration the rainfall pattern, soil types, texture, depth and physio chemical properties, elevation, topography, major crops and type of vegetation. Crops‐ are grown during three distinct growing seasons – Monsoon, Rabi and Summer. The major crops grown‐ in the state are paddy, maize, ragi, jowar, plantation crops such as bananas, coconut, fruit crops such as mango, sapota, and floriculture crops and spices.

3. Karnataka is the largest producer of coffee, raw silk, sandalwood, ragi, sunflower, tomato, coffee, arecanut, spices, aromatic and medicinal plants, and second largest producer of maize, safflower, grapes, pomegranate and onion. Horticultural crops, with annual production of above 13 million tons, contribute to over 40% of total income generated from agriculture. In floricultural production, Karnataka occupies second position in India.

4. The State of Karnataka has rich water resources including coastal line, lakes, tanks and many river basins. Table 1 illustrates the water balance of the State. The historical annual average rainfall is 1151 mm, and as shown in Table 1 below, the State receives a total of 236483 million m3 of water every year mainly from two sources, namely rainfall (contributing 92%), and water flowing from upper riparian State of Maharashtra (8%). Out of the total received, 109727 million m3 is lost through the process of evapotranspiration from forests, non forest and non agricultural land, rain-fed agriculture, and irrigated agriculture. Approximately same volume (109014 million m3) is released to adjoining states (Andhra Pradesh, Telangana,‐ Tamil Nadu) and‐ Arabian Sea. Thus, a balance of 17741 million m3 remains with the State to meet its various additional agricultural, industrial, domestic requirements.

5. Surface water resources are contributed by seven river basins – Krishna, Cauvery, Godavari, West flowing rivers, North Pennar, South Pennar and Palar. Table 2 presents the historical average contribution of each of these basins, along with the economically available water for utilization. The total annual availability of water from these river basins amounts to about 7663 TMC (218,000 million m3), out of which 40% is contributed by east flowing rivers, and the remaining 60% is contributed by the west flowing rivers. However, only 3475 TMC (98,477 million m3) of water is economically utilizable. Nearly 58% of the surface water available in west flowing rivers is not utilizable due to difficulties attributed to topographic and environmental conditions. Karnataka is able to utilize only about half of this water, the rest being released to downstream states of Andhra Pradesh, Telangana and Tamil Nadu.

6. Groundwater resources supplement the surface water resources in the State. As of 2004, the estimated net annual groundwater availability was 15,296 million m3, out of which 9,747 million m3 was used for irrigation and 965 million m3 was used for domestic and industrial purposes. During the recent past, the annual groundwater utilization has gone up significantly.

7. The total irrigated area represents about 28% of the total cropped area of 12.39 million hectares in the State of Karnataka, i.e. 3.5 million hectares. Agriculture is the biggest consumer 2

of water resources, accounting for more than 85% of the total water resources utilized in the State, and groundwater resources contribute roughly 45% of the total water resources used for irrigation in the State.

Table 1: Indicative water balance of Karnataka under average conditions (EMPRI & TERI, 2011) Specifications 106 m3/yr % A. Inputs Precipitation over Karnataka 218323 92 Expected flow from Upper riparian states (Maharashtra) 18159 08 Total 236483 100 B. Output Evapotranspiration from Forests 45754 41.69 Evapotranspiration from Non forest & Non Agricultural land 18955 17.27 Evapotranspiration from rain fed agriculture 27172 24.76 Evapotranspiration attributable‐ to irrigated ‐agriculture 19046 17.35 Total Evapotranspiration 109727 100 Water Released to Andhra Pradesh & Telangana 31407 28.81 Water Released to Tamil Nadu 7607 6.97 Water flow into Arabian Sea 70000 64.21 Total water release and flow into sea 109014 100 Total Output 218741 92.5 C. Excess of Inputs over Outputs 17741 7.5

Table 2: Estimated yield of water from river basins of Karnataka (EMPRI & TERI, 2011)

Catchment Area Economically River System km2 % Available Quantity Utilization (TMC) % (TMC) % 1. Godavari 4,405 2.30 49.97 1.44 22.37 1.32 2. Krishna 1,13,271 59.10 969.44 27.90 1156.00 68.40 3. Cauvery 34,273 17.80 425.00 12.23 408.62 24.17 4. West Flowing Rivers 26,214 13.70 1998.83 57.51 0 0 5. North Pennar 13,610 7.10 32.00 0.92 103.31 6.11 6. South Pennar 7 Palar Total 1,91,773 100 3475.2 100 1690.30 100

B Vijayanagara Channel System

8. Vijayanagara Channel System (VNC) is situated within the Tungabhadra river basin (Figure 1), starting immediately downstream of the Tungabhadra Dam. Modernization of Vijayanagara Channel System is one of the sub-projects funded under the Karnataka Integrated and Sustainable Water Resources Management Investment Program (KISWRMIP) to improve water availability to meet competing water demands in selected river basins by implementing integrated water resources management (IWRM) in the State. 3

9. Tungabhadra River is a major tributary to Krishna River. The name reflects the confluence of two Rivers -Tunga and Bhadra - which rise in the Western Ghats at an altitude of about 1198 m above mean sea level. Tungabhadra River flows for about 531 km in the north- easterly direction in Karnataka and Andhra Pradesh before joining Krishna River near Kurnool.

10. Vijayanagara Channels were built during Vijayanagara dynasty about 400 years ago as run-of-the river irrigation channels, and historically served the irrigation needs of the local population. Most of the channels have their own diversion structures on the river, and some of the channels are interlinked (Figure 2a, 2b and 2c).

11. Originally, Vijayanagara Channel System had 19 channels on the banks of Tungabhadra River and 17 anicuts (across Tungabhadra). Eighteen (18) of these channels are in Karnataka and one channel (along with its anicut) is in Andhra Pradesh. After the construction of Tungabhadra Dam, the anicuts that served Raya, Basavanna and Koregal Channels got submerged in the Tungabhadra Reservoir. Therefore, today, Raya and

Figure 1: Elevation Map of Tungabhadra River Basin Basavanna Channels receive water directly from Tungabhadra Dam through a sluice gate, whereas the command area of Koregal Channel is served by TLBC.

12. Of these eighteen channels that are in Karnataka, Bennur Channel is out of operation due to lack of maintenance; hence, the anicut that served Bennur Channel is also not considered here. Therefore, the modernization project of Vijayanagara Channel System consists of 16 channels and 12 anicuts. The details of the channels and anicuts are presented in Table 3.

Table 3: Details of Vijayanagara Channel System Name of Distance d/s S. Name of the Weir & Name of of TB Dam Remarks No. Channel Length Stream (km) (km) Bellary District (on right-side of river)

1. Raya Hosakote Submerged Channel in takes off Tungabhadra directly from Reservoir Tungabhadra dam on right side

2. Basavanna Vallabhapur Submerged --do- in Tungabhadra Reservoir

3. Bella Hosur - Tungabhadra 2.40 Channel 0.602 utilizes seepage from higher level channels

4. Kalaghatta Drainage Halla 8.00 channel

5. Turtha Turtha - Tungabhadra 16.00 3.048

6. Ramasagar Ramasagar Tungabhadra 28.80 -2.042

7. Kampli Kampli Tungabhadra 30.40 anicut - 0.94

8. Belagodahala Drainage Halla 35.20 Channel channel utilizes seepage from higher level channels

9. Siruguppa Siruguppa - Tungabhadra 80.00 Consists of 7 .95 segments. 5

Name of Distance d/s S. Name of the Weir & Name of of TB Dam Remarks No. Channel Length Stream (km) (km) 10. Deshnur Deshnur - Tungabhadra 80.00 .96

Koppal District (on left-side of river)

11. Hulugi Hulugi - Tungabhadra 2.40 0.518

12. Shivapura Shivapura - Tungabhadra 8.00 0.17

13. Anegundi Sanapur - Tungabhadra 16.00 0.518

14. Upper Upper Tungabhadra Gangavathi Gangavathi - 27.20 .78

15. Lower Lower Tungabhadra Gangavathi Gangavathi - 30.40 .45

Raichur district (on left-side of river)

16. Bichal Bichal - Tungabhadra 137.60 1.192

13. The anicuts constructed during the Vijayanagara Empire used huge boulders and set in a zigzag manner. Due to this, the anicuts have been subjected to leakages exacerbated by the displacement of boulders during high floods. Over the years, the system has deteriorated and is in dire need of improvements.

14. The proposed improvements to these 12 anicuts include: - Providing 200 mm thick skin wall encasement to the anicut and grouting; - Providing anchor rods at every 1 m interval on upstream and downstream of anicut for a width of 5 m all along the length; - Providing concrete toe walls on both ends; and - Provision of approach roads to the anicuts wherever required from the nearest road.

15. In the 1993 master plan, an allocation of 12.05 TMC was made for the Vijayanagara Channels without channel-wise breakup. The revised Master plan of 2003 has an allocation of only 5.80 TMC for all the 16 Vijayanagara Channels. However, due to the deteriorated condition of the anicuts and channels, and lack of flow measurement structures, the GoK has not been able to implement the revised Master Plan of 2003. Though the irrigated command area of the VNC system is 11,154 ha, the average cropped area (Kharif and Rabi seasons) for the last twenty years has been about 16,241 ha. Considering the longstanding demand of the farmers of the VNC system, and with a view to implement strictly the Master Plan of 2003, the 6

Government of Karnataka has proposed modernization (lining and a variety of control structures) of these channels to improve their efficiency.

16. In the command area of 11,154 ha under Vijayanagara Channel System, an area of 340 ha was affected by waterlogging, salinity and alkalinity (DPR, 2017). However, the Command Area Development Authority (CADA) of Tungabhadra project has taken up the reclamation of these waterlogged areas, and this area has been reclaimed. Surface field drains have been developed to alleviate the problems of waterlogging and salinity in the project area. Construction of field drains has been taken up in various programs.

17. The cropping pattern followed in the command area of VNC System is as follows: Kharif: Paddy 2304 ha, Jowar 6326 ha Rabi: Paddy 1655 ha, Groundnut 3755 ha Bi-seasonal: Sugarcane 1229 ha, Garden crops 974 ha Total cropped area: 16243 ha Actual command area: 11154 ha

The actual cropping pattern after the project is completed may be slightly different, depending upon the perception of the farmers on the adequacy and reliability of water supply. 7

Figure 2a: Vijayanagara Channel System (showing Raya, Basavanna, Bella, Turtha, Ramasagar, Kampli, Kalagatta, and Belagodahalla [on the right bank], and Hulugi, Ahegundi, Shivapua, Upper Gangavathi and Lower Gangavathi [on the left bank])

Figure 2b: Vijayanagara Channel System showing Deshnur and Siruguppa Channels 9

Figure 2c: Vijayanagara Channel System showing Bichal Channel 10

C Climate Change and its Scenarios

18. Climate change refers to sustained change (increase or decrease) in the values of climate parameters such as minimum and maximum air temperature, precipitation, solar radiation, humidity, and wind velocity which have direct bearing on humans, crops, animals and the environment. As far as irrigated agriculture is concerned, changes in temperature, solar radiation, humidity and precipitation have a direct effect on crop evapotranspiration, rate of photosynthesis, soil-moisture balance, and crop growth. The change in temperature (both min and max) and precipitation in the Tungabhadra basin are assessed in his report.

19. Based on physiographic features, Karnataka can be divided into four regions: 1) The Coastal region, 2) The Malnad (hilly) region, 3) The Northern plateau and 4) The Southern plateau. The state observes diverse climates from arid to semi arid in the plateau regions, sub humid to humid tropical in the Ghats and humid tropical monsoon climate in the west coastal plains due to geographic and physiographic characteristics. About‐ 77% of the total geographical‐ area of the State, covering interior part of the state is arid or semi arid with the State contributing 15% of the total semi arid or 3% of the total arid areas of the country. Karnataka experiences typical tropical climate comprising four distinct seasons in a year:‐ winter (January to February), summer (March to May),‐ monsoon (June to September), and post monsoon (October to December). ‐ 20. Though the historical average annual rainfall over Karnataka is 1151 mm, the rainfall varies considerably spatio-temporally. Krishnan (1984) has studied extensively the rainfall patterns of Karnataka. Out of the average annual normal rainfall of 1,151 mm, the state receives 80% of the annual rainfall in the southwest monsoon period, 12% in the post monsoon period, 7% in the summer and only 1% in winter season. The windward side of the Ghats (coastal region) records 3,350 mm of rainfall during the southwest monsoon while on the leeward‐ side of the Ghats, the rainfall drops to 600 700 mm. The humid Malnad region receives annual rainfall in the range of 1,000 3,800 mm. The north eastern monsoon causes 30% of annual rainfall in the eastern part of south interior Karnataka‐ mainly in October to December. With annual rainfalls of 500–600 mm, ‐ Bijapur, east Belgaum,‐ north east Dharwad, west Raichur, east Bellary, Chitradurga and a small portion of Tumkur district are the rainfall deficit areas in north interior Karnataka. The command area of the VNC System‐ lies in the districts of Koppal, Raichur and Bellary. The lowest rainfall (less than 500 mm) in the state is observed around Challekere in Chitradurga district. Rainfall is low in the semi arid regions and less than 140 mm in the central Dharwad district. Daily rainfall intensities range from 180 240 mm in north Bijapur, north Gulbarga and Bidar district. The rainy season is spread over‐ a period of four months (June September) in the coastal, Ghats, Malnad areas and in Bidar district, while‐ over the maidan areas it is spread over a period of five to seven months14. ‐

21. Based upon daily weather data from Indian Meteorological Department (IMD), there has been a decline in annual rainfall from 1204 mm during 1901-1950 period to 1140 mm during 1951- 2008. This decline in annual rainfall amount is attributed to Climate Change phenomena which is explained below. Though there is an overall decline in annual rainfall over Karnataka, some districts such as Koppal, Davanagere, Shimoga, Chitradurga, etc. have experienced an increase in annual rainfall amount.

22. Temperature is lowest in the month of January and increases thereafter gradually at first and rapidly after the middle of February or the beginning of March. The southern maidan region witnesses the highest temperature in April while in the northern maidan and the coastal areas, highest temperatures are observed in May. In January, the mean daily temperature is 31 32°C in

‐ 11

the coastal areas and slightly above 30°C in the northern maidan area except in Bidar district where it is 28 29°C. In May, the maximum temperature reaches 43°C in the Gulbarga Raichur region. It is seen that the mean annual range of temperature is lowest in the coastal region (6°C) and greatest in‐ the Bellary Raichur region. The districts of north interior Karnataka (Bidar,‐ Bijapur, Gulberga, Raichur and Yadgir) have experienced an increase in average minimum temperature of and an increase‐ in average maximum temperature of during the 100-year period of 1901-2002. Today, the increase in average temperature is higher than 0.6 , and is expected≥ 0.6 ℃ to increase further in the future under climate change conditions.≥ 0.6 ℃ ℃ 23. The Intergovernmental Panel on Climate Change (IPCC 2007) defines Climate Change (CC) as “a change in the state of the climate that can be identified (e.g., using statistical tests) by changes in the mean and/or the variability of its properties, and that persists for an extended period, typically decades or longer.” The definition refers to any change in climate over time, either due to natural variability or a result of human activity. This differs from the definition of the United Nations Framework Convention on Climate Change (UNFCCC), where CC refers to “a change of climate that is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and that is in addition to natural climate variability observed over comparable time periods” (IPCC 2007). For this study purpose the IPCC definition of CC is adopted, since generally research/ activities on CC that have been carried out do not differentiate very much between natural and human-induced variability. However, be it due to natural causes or human activity, a pronounced change in Karnataka’s river basins climate is observed as evidenced by several recent studies.

24. Most of the present climate variability and change is being attributed to the build-up of Green House Gases (GHG) in the atmosphere from anthropogenic activities. Scientific studies have shown that the global atmospheric concentrations of carbon dioxide, methane and nitrous oxide, which are the most important greenhouse gases, have increased markedly since 1750 mainly due to large-scale use of fossil fuels for industrial activities. Carbon dioxide is undoubtedly, the most important greenhouse gas in the atmosphere.

25. Industrial activities will expand in the future in order to raise and sustain standard of living of global population. Based upon the current trend, climate change is expected to worsen and have a devastating effect on living organisms and the environment in the future, i.e. within the next 50 to 100 years, unless corrective measures to slowdown or decrease climate change phenomena are implemented as soon as possible. Climate modeling scientists have developed mathematical models to predict the magnitude of climate change under different combinations of parameters – global population, gross domestic product, social and economic development, and technological development, particularly alternative energy technologies, etc. - that contribute to climate change. Based upon these parameters, six Scenario Groups were developed – A1FI, A1B, A1T, A2, B1 and B2. The details on the composition of these six Scenario Groups is presented in Annex-1 of this report.

26. Climate change projections into the future – 2030s, 2050s, and 2080s - for any geographic region are obtained from General Circulation Models or Global Climate Models (GCMs) and Regional Climate Models (RCMs), by using the parameter values of one of the selected scenario as input to the selected GCM or RCM. In addition to the above six Scenario Groups, four Representative Concentration Pathways (RCPs) are also used for climate change projections. The RCPs describe four possible climate futures, all of which are considered possible depending on how much greenhouse gases are emitted in the years to come. The four RCPs - RCP2.6, RCP4.5, RCP6, and RCP8.5, are named after a possible range of radiative forcing values of, respectively, +2.6, +4.5, +6.0, and +8.5 W/m2, in the year 2100 relative to pre-industrial values.

The CO2 equivalent concentrations for the four scenarios are: RCP 2.6 – 490 ppm, RCP 4.5 – 630 ppm, RCP 6.0 – 800 ppm and RCP 8.5–1313 ppm. 13

II ASSESSMENT OF CLIMATE CHANGE IN TUNGABHADRA RIVER BASIN

A Change in Temperature

27. Though there have been several studies on climate change in Karnataka, only few studies have been conducted on climate change in the Tungabhadra basin. Based upon 1951-2007 temperature data (IMD gridded data), the average daily maximum temperature of the basin is 30 , whereas the average daily minimum temperature is 20 . Analysis of the data shows an increasing trend in the temperature - both the minimum and maximum temperatures. As shown ℃in Figure 3, the change (increase) in average daily minimum℃ and average daily maximum temperatures over the period of 1951-2007 has been ≥ 0.6 (Mujumdar, et al, 2017).

℃

Figure 3a: Trend in average daily minimum temperature during the period 1951-2007

Figure 3b: Trend in average daily maximum temperature during the period 1951-2007

28. The predicted change (increase) in minimum temperature at all the 24 grid locations (locations A to X) under RCP 4.5 scenario over the period of 2021 – 2100 is about +2.2 (Figure 4). Similarly, under RCP 8.5 scenario, over the same period, the predicted change (increase) in ℃

temperature is about +4.5 , with an average increase in temperature of about +1.1 during each 20-year period (Figure 4). ℃ ℃ 15

Figure 4: Projected change in min temperature in Tungabhadra basin during the periods of 2021-2040, 2041-2060, 2061-2080 and 2081-2100 under RCP 4.5 and RCP 8.5 scenarios

29. The predicted change (increase) in maximum temperature at all the 24 grid locations (locations A to X in the map) under RCP 4.5 scenario over the period of 2021 – 2100 is about +2.0 (Figure 5). Similarly, under RCP 8.5 scenario, over the same period, the predicted change (increase) in temperature is about +4.5 , with an increase in temperature of about +1.0 during each ℃20-year period (Figure 5). ℃ ℃ 17

Figure 5: Projected change in max temperature in Tungabhadra basin during the periods of 2021-2040, 2041-2060, 2061-2080 and 2081-2100 under RCP 4.5 and RCP 8.5 scenarios

30. BCCI-Karnataka (2011), predicted change in temperature in all the districts of Karnataka under Scenario A1B for the time period of 2021-2050, and has provided values for the year 2035. According to this report, the predicted change in mean monthly temperature is +2.1 , +2.1 and +2.2 , respectively, in the districts of Bellary, Koppal and Raichur. ℃ ℃ 31. These℃ predicted increases in minimum and maximum temperatures in the basin would have a significant effect on evaporation, evapotranspiration (irrigation demands), and yields of different crops grown in the command area of VNC system. This aspect will be discussed in Chapter IV. The increased carbon-di-oxide in the atmosphere is expected to moderate the increase in crop evapotranspiration in the command area.

B Change in Rainfall Pattern

32. Rainfall amount and pattern is the most important parameter in terms of agricultural production, both for rainfed and irrigated agriculture. The results of Bangalore Climate Change Initiative – Karnataka (2011) studies on 1951-2007 rainfall data (IMD gridded data) reveal a slight negative trend (-1 mm per year) in rainfall in Karnataka with a cumulative decrease in annual rainfall of 6%, as shown in Figure 6. However, the trend in rainfall amounts in individual districts of the state are different- some districts show a positive trend and some districts show a negative trend (Table 5).

Figure 6: Average annual rainfall series in the Tungabhadra basin

33. Based upon the 1951-2007 rainfall data (IMD gridded data) in the Tungabhadra basin, the average annual rainfall over the entire Tungabhadra basin is found to be 722 mm. As shown in Figure 7, further analysis of the data shows a slight increasing trend in the annual rainfall during 1951 to 2007 (Mujumdar and Kumar, 2017). Some districts within the basin (Chikmagalur, Chitradurga, Davanagere, Koppal and Shimoga) show positive trend in annual rainfall, whereas the other districts (Bellary and Raichur) show negative trend in annual rainfall amount (Table 5).

34. Mujumdar and Kumar (2017) presented the downscaled changes in rainfall amounts at 24 grid locations, under four different climate change scenarios of RCP 2.6, RCP 4.5, RCP 6.0 and RCP 8.5, for four different time periods in the future – 2021 to 2040, 2041 to 2060, 2061 to 2080, 19

and 2081 to 2100. The changes in rainfall for scenarios of RCP 4.5 and RCP 8.5 are shown in Figure 8. Overall, under scenario of RCP 4.5, there is an increase in rainfall at almost all the 24 stations during this 80-year period of 2021-2100; however, the increase is different for each station, ranging from 50 mm to 100 mm. A similar increase in rainfall, ranging from 60 mm to 120 mm, was predicted under scenario of RCP 8.5 at almost all the 24 stations during the same 80- year period.

Table 5: Average annual rainfall amounts and trends during 1901-2008 in Karnataka

Pre-m (Jan-May) SWM(Jun-Sep) NEM(Oct-Dec) Annual District Trend mm (%) Trend mm (%) Trend mm (%) Trend mm Bengalore Rural ↑ 141 18 427 54 222 28 790 Bengalore Urban ↑ 168 19 ↑ 466 53 ↑ 241 28 ↑ 875 Chamarajanagar 239 29 316 39 ↑ 261 32 816 Chitradurga ↑ 179 9 ↑ 1505 79 ↑ 220 12 ↑ 1904 Davanagere ↑ 233 6 ↑ 3338 85 ↑ 340 9 ↑ 3911 Kolar ↑ 247 9 ↑ 2129 81 ↑ 266 10 ↑ 2642 Mandya 74 13 385 66 ↑ 124 21 ↑ 583 Mysore 191 26 ↑ 296 41 ↑ 235 33 ↑ 722 Tumkur 191 22 ↑ 425 50 236 28 852 Chikkaballapura 208 5 3669 88 305 7 4182 Ramanagara 148 5 2537 88 ↑ 200 7 2885 Bagalkote 88 15 360 62 136 23 586 Belgam 115 14 ↑ 560 68 148 18 823 Bellary 103 16 388 61 145 23 636 Bidar ↑ 75 8 ↑ 705 80 105 12 ↑ 885 Bijapur ↑ 73 12 427 68 131 21 631 Dharwad 130 20 361 55 166 25 657 Gadag 147 19 ↑ 480 61 159 20 786 Gulbarga ↑ 115 18 365 58 150 24 630 Haveri ↑ 181 18 584 59 222 22 987 Koppal ↑ 133 18 363 50 ↑ 227 31 ↑ 723 Raichur ↑ 220 29 335 44 211 28 766 Chikmagalur 113 15 ↑ 412 56 ↑ 217 29 ↑ 742 Hassan ↑ 71 8 ↑ 640 76 ↑ 128 15 ↑ 839 Kodagu ↑ 132 17 485 62 ↑ 160 21 777 Shimoga ↑ 65 10 ↑ 480 70 ↑ 136 20 ↑ 681 681 Dakshin kannada ↑ 118 21 283 50 ↑ 169 30 570 Udupi ↑ 148 8 1484 82 ↑ 187 10 1819 Uttarkannada ↑ 144 20 363 50 ↑ 212 29 ↑ 719 State 142 12 820 71 190 17 1152

35. BCCI-Karnataka (2011), predicted the percentage change in rainfall in all the districts of Karnataka under Scenario A1B for the time period of 2021-2050, and has provided values for the year 2035. According to this report, the predicted change in annual rainfall is 4.9%, 7.6% and - 2.6%, respectively, in the districts of Bellary, Koppal and Raichur.

36. Though there is an increase in the annual rainfall amount in the Tungabhadra basin, it does not translate directly into proportionate increase in streamflow in the basin, because there are other climatic parameters such as temperature, solar radiation, humidity in the atmosphere,

etc., in addition to rainfall, that influence streamflow in a river basin. This aspect will be elaborated in the next chapter.

Figure 7: Average annual rainfall series in the Tungabhadra basin

Figure 8: Projected change in annual rainfall in Tungabhadra basin during the periods of 2021-2040, 2041-2060, 2061-2080 and 2081-2100 under RCP 4.5 and RCP 8.5 scenarios

III ASSESSMENT OF CLIMATE CHANGE IMPACT ON STREAMFLOW IN

TUNGABHADRA BASIN AND IRRIGATION DEMAND IN VNC

37. As discussed in the previous Chapter, any climate change scenario will have direct influence on the following climate parameters: minimum and maximum air temperature, precipitation, humidity in the atmosphere, solar radiation, and wind velocity. These parameters in turn affect streamflow, evapotranspiration, and water balance in river basins. Depending upon the magnitude, a decrease in streamflow can have an adverse effect on the profitability/feasibility of investment projects.

38. Tungabhadra is the largest tributary of Krishna river. A recent study (Gosain, Rao and Arora, 2011) of climate change impact on water resources in several major river basins of India, under A1B IPCC SRES socio-economic scenario, predicts that variability in streamflows in various sub-basins of Krishna river can range from -35% to +50% for both MC (Mid-Century) and EC (End-Century) time periods (Figure 9). But, this study does not identify which sub-basins within the Krishna basin have positive or negative changes in streamflows. A subsequent study by Islam, et al (2015) predicted an increase in average annual streamflow in Tungabhadra basin (see Table 1 in this reference).

Figure 9: Percentage variability in streamsflows of sub-basins of several river basins in India, including Krishna river basin

39. The source of irrigation water for VNC system is the Tungabhadra reservoir/dam constructed some distance downstream of the point where Varada river joins Tungabhadra river. Vijayanagar channels receive water either directly through the dam or by diverting water released from the reservoir from anicuts constructed downstream of Tungabhadra dam. Streamflow into Tungabhadra reservoir depends upon the climate parameters such as minimum and maximum air temperature, solar radiation, precipitation, humidity, and wind velocity in the river basin upstream of Tungabhadra dam. As discussed in Chapter II, these parameters have been experiencing perceptible changes in their values over the last few decades and are expected to further change as a result of increases in the greenhouse gases (GHGs). Consequently, it is expected that there will be some change in the streamflows into Tungabhadra reservoir. The catchment area of Tungabhadra reservoir is shown in Figure 10.

40. Meenu, et al (2012) obtained data (from the Water Resources Development Organization of SGoK) on the average monthly streamflow rates into Tungabhadra reservoir for the period of 23

1973-2003. The observed streamflow rates from Harnahalli gauging station at the outlet point of Tungabhadra Catchment area upstream of Tungabhadra reservoir is shown in Figure 11. Visual observation of the data (since we do not have access to the original observed data) shows that there is a small decreasing trend in streamflow into Tungabhadra

Figure 10: Catchment area of Tungabhadra reservoir reservoir during the period of 1995-2003. Streamflow data for the period from 1973 – 2017 is still being collected from WRDO.

Figure 11: Observed average monthly streamflow at Harnahalli gauging station upstream of Tungabhadra reservoir for the period 1973-2003

41. In order to predict future streamflow values into Tungabhadra reservoir under climate change conditions, Meenu, et al (2012) used the HadCM3 (Hadley Center Coupled Model version 3) GCM to generate predicted future values of minimum and maximum temperature and rainfall values under A2 and B2 scenarios at a coarser scale. Then, using SDSM 4.2 (Statistical DownScaling Model 4.2), the predicted future values of minimum and maximum temperature and rainfall were generated for some selected locations within the catchment area of Tungabhadra Basin above Tungabhadra Dam. The HEC-HMS hydrological model, after calibrating it for the basin along with the predicted future values of minimum and maximum temperature and rainfall values, was used to predict streamflows into Tungabhadra reservoir under A2 and B2 scenarios for three different time periods – 2020s, 2050s and 2080s.

42. As shown in Table 6 below, the percentage change in annual streamflow into Tungabhadra reservoir is positive, ranging from 4% to 43.9% and 1.3% to 18.5%, respectively, under A2 and B2 scenarios; however, the percentage change in streamflow is roughly 3 times higher under A2 scenario than under B2 scenarios. This is probably attributed to larger change (increase) in temperature under B2 scenario than under A2 scenario. Under both the scenarios, the percentage change in streamflow has a definite increasing trend towards the end of the 21st century, i.e. towards year 2100.

Table 6: Percentage predicted change in monthly and annual streamflows into Tungabhadra reservoir during 2020s, 2050s and 2080s under A2 and B2 Scenarios A2 B2 Month 2020s 2050s 2080s 2020s 2050s 2080s Jan 32.3 34 31 31.8 33.4 34.4 Feb 55 55.2 55 56.3 56.1 55.2 Mar 56.6 56.2 55.3 56.3 55.8 54.8 Apr 19.9 20.4 87.9 26.2 12.2 8.3 May 36 164.4 776.2 15.7 78.4 272.6 Jun 45.3 208.7 358 32.5 104.4 339.9 Jul 12.2 28.7 30.4 11.9 21.2 27.4 Aug 18.3 20.1 22.3 16.7 19 18.8 Sep 29.5 59.6 94.5 15.2 22.2 45.3 Oct 1 10.3 1.8 14 13.1 20.6 Nov 4.6 15 2.7 0.7 3.6 11.6 Dec 27.7 33.7 10.2 22.3 21.3 21.4 Annual 4 17.1 43.9 1.3 5.4 18.5 43. There is a considerable variation in the monthly percentage changes in streamflows – the largest percentage increase in streamflow occurring in the months of February, May and June. The increase in monthly streamflow over the entire time periods and for both the scenarios (A2 and B2) varies from less than 10% to 776% of the historical streamflow into the reservoir.

44. A recent study conducted by Mujumdar and Kumar (2017) on the impact of climate change on streamflow in the Tungabhadra basin predicts streamflow under four Representative Concentration Pathway (RCP) scenarios – RCP2.6, RCP4.5, RCP6.0 and RCP8.5 – for four different time periods: 2021-2040, 2041 to 2060, 2061-2080 and 2081 to 2100. They predicted the values of streamflow for Honnali gauging station which is located on Tungabhadra river (upstream of Tungabhadra dam) just upstream of the point where Varada river joins Tungabhadra. A significant decrease in streamflow, compared to the historical average streamflow at the station, is predicted for this station under all the four climate change scenarios and for all the above time periods. The land use pattern used in the simulations is the same for the next 80 years. The predicted decreases in streamflow under all the four scenarios for all the four time periods fall within a narrow band of values. This raises some doubts on the assumptions made in the simulation models.

45. As mentioned above, the study conducted by Meenu, Rehana and Mujumdar (2011) predicted an increase in streamflow into Tungabhadra reservoir under both A2 and B2 climate change scenarios for different time periods in the 21st century, whereas the study by Mujumdar and Kumar (2017) predicts a significant decrease in streamflow Honnali gauging station (a station 25

several kilometers upstream of Tungabhadra dam) under all four RCP scenarios for all the time periods in 21st century. Considering the serious consequences of significant decreases in streamflow into Tungabhadra reservoir, there is an urgent need for a comprehensive study with more realistic assumptions to confirm the results of the above studies.

46. With increase in temperature, solar radiation and wind velocity, and decrease in relative humidity in the atmosphere, as a result of climate change, it is expected that crop water requirements, and hence crop irrigation water demands, will increase. A study conducted by the International Institute for Applied Systems Analysis (Fischer, et al, 2007) on the impact of climate change on crop irrigation water demands reveals that there would be an increase of less than 20%, on the average, in the irrigation water requirements of crops in South Asia (SAS) region (Figure 12). This predicted value is an aggregate value for the entire sub-continent of India; hence, the local values can be ± 10% to 20%, depending upon the climatic conditions in a given sub- basin of river basins.

Figure 12: Regional-scale increases in predicted increases in crop irrigation demands for several regions around the world, including South Asia (SAS) region (Fischer, 2007)

47. Rehana and Mujumdar (2012) using a Statistical Downscaling Model (SDSM) called Canonical Correlation Analysis (CCA) obtained the projected values for the climatic parameters - mean monthly minimum and maximum temperatures, solar radiation, relative humidity, rainfall, and wind velocity – under climate change scenario A1B for Bhadra command area (which is just upstream of the VNC Irrigation System and Tungabhadra reservoir command area), and predicted the increases in irrigation demands of paddy, sugarcane, permanent garden crops such as citrus, and semi-dry crops (maize) for the periods of 2020-2045, 2046 – 2069, and 2070 -2095.

48. As shown in Figure 13, the predicted crop irrigation demands for paddy, sugarcane, permanent garden crops, and semi-dry crops are, respectively, up to 200%, 200%, 250% and 600% of the base-period (probably sometime around year 2010) values. Although it is reasonable to expect some increase in crop irrigation demand under climate change conditions, but the relative magnitudes of these changes are exorbitantly high. These values are also very high

compared to the increases in irrigation demand values predicted by Mohan and Ramsundram (2014) for a sub-basin in Tamil Nadu, Behera et al (2016) for a sub-basin in Odisha, and Paredes- Tavares, et al (2018) for Rio Bravo basin in Mexico. Mohan and Ramsundram (2014) predicted an increase of 24.72% and 14.16%, respectively, for the years 2020 and 2050 under A2 scenario, and an increase of -0.90% and 20.5%, respectively, for the years 2020 and 2050 under B1 scenario. Similar increases were predicted by Behera, et al (2016). As shown in Figure 14, the predicted increases in irrigation water demands in Mexico, (Paredes-Tavares, et al, 2018) are less than 40% of the base-period.

49. Considering the above discussion, the very high percentage increases in irrigation demands predicted by Rehana and Mujumdar (2012) for the Bhadra command area may be a result of the combined error of the chosen models such as the GCM and the regional downscaling model used to predict the changes in the values of the climatic variables used to predict evapotranspiration of crops using the Penman-Monteith method. Considering the uncertainty involved in the above models, the research results should be confirmed and verified using a combination of few more GCM and downscaling models in the same basin.

Figure 13: Predicted irrigation water requirements of crops in Bhadra command area for three time periods - 2020-2044, 2045-2069, 2070-2095

Figure 14: Predicted irrigation water demands in Mexico (Paredes-Tavares, et al (2018) under climate change conditions

IV VULNERABILITY OF AGRICULTURE TO CLIMATE CHANGE IN TUNGABHADRA BASIN

50. The approach to assessing vulnerability is to determine the change in crop production to likely (or projected) climate change driven changes in temperature, rainfall, and irrigation water demand of crops grown in the command area of VNC system, and climate driven changes in streamflow into Tungabhadra Reservoir.

51. The main crops grown in the command area of VNC are: rice (both during Kharif and Rabi), sorghum (Kharif), groundnuts (Rabi), sugarcane and banana (year-round). The irrigated command area of VNC is located in the districts of Bellary, Koppal and Raichur.

52. BCCI-Karnataka (2011) used the GCM HadCM3, along with the IITM’s (Indian Institute of Tropical Meteorology, Pune) downscaling model and SRES scenario A1B for the near-term period of 2021-2050, to predict the values of the climatic variables – monthly min and max air temperature and total monthly precipitation. Then the InfoCrop model was used to predict crop yields under climate change conditions for the year 2035 – the mid-value of 2021-2050 time period considered here.

53. For the major crops grown in each of the districts in Karnataka, BCCI-Karnataka (2011) has identified vulnerable area in districts with a productivity loss of 5% to 45% for different major crops of Karnataka under climate change Scenario A1B. As shown in Table 7, the major crops grown in Karnataka are: rice (rainfed), rice (irrigated), maize, sorghum, ragi, red gram, cotton, potato, soybean and sugarcane. Out of these major crops, only three crops – rice, sugarcane and sorghum – are grown in the command area of VNC. The other two crops – groundnut and banana – grown in the command area of VNC are classified as non-major crops.

Table 7: Vulnerable districts with productivity loss of major crops

Crops Vulnerable districts with productivity loss from 5 % to 45 % Rice (Rainfed) DK, Hassan, Kodagu and majority of Northern districts Rice (Irrigated) Belgaum, Bellary, Raichur, Kodagu, Dharwad, Chamarajanagar, DK & Hassan Maize Bijapur, Chikmagalur, DK, SK, Udupi, Kodagu, Shimoga and partly Tumkur Sorghum Chikmagalur, DK, UK, Udupi, Davanagere, Hassan, Kolar, Shimoga, Tumkur Red gram Bagalakote, Bellary, DK, Udupi, UK, Kodagu, Raichur, Cotton Bellary, Chikmagalur, Chitradurga, DK, UK, Shimoga, Kolar, Kodagu, Dharwad and Gadag Potato Bangalore, Chikmagalur, Davanagere, Hassan Soybean Bangalore, Tumkur and Chitradurga Ragi (Finger millet) UK, DK, Udupi, Shimoga, Gulbarga and Bidar Sugarcane Hassan, Mandya, DK, UK and Udupi

54. As far as sugarcane crop yield is concerned, Table 7 does not list Bellary, Koppal or Raichur as a district that has a productivity loss of 5% to 45%. This means, even if there is some 29

productivity loss of sugarcane in these districts, it is less than 5%, which is not a significant percentage. Similarly, for sorghum Table 7 does not list Bellary, Koppal or Raichur as a district that has a productivity loss of 5% to 45%, implying that even if there is some productivity loss of sorghum in these districts, it is less than 5%, which is not a significant percentage. In fact, as shown in Table 8, the overall % change (for the entire state) in yield of sorghum is predicted to be about +2.6%. Although the total productivity is likely to be decreased by about 2.4 % in the State, due to the benefit of the raise in temperature and CO2 level, few districts have indicated gain in productivity (columns 3 and 4 of Table 8) up to 35% (in some crops). By changing over to such crops in those vulnerable districts, the loss in the productivity can be compensated and the advantages of the climate change effects can be absorbed positively (BCCI-Karnataka, 2011).

55. However, as shown in Table 7, Bellary and Raichur districts are among the districts that have a predicted productivity loss of between 5 % to 45% for irrigated rice. Since the district of Koppal is not listed in Table 7, the predicted productivity loss of irrigated rice in this district is assumed to be less than 5%, which is not very significant. According to the InfoCrop model, majority of the rice growing area is projected to lose yields up to 8.2%, whereas the decrease in yield of rainfed rice is predicted to be up to 14%. Since irrigated rice, in general, is supplied with better amount of fertilizers than rainfed rice, it has better opportunity to benefit from CO2 – fertilization interaction effects for production and accumulation of dry matter and hence grain yield.

Table 8: Percentage changes in net productivity (for the entire state) and expected increased yield levels (rainfed situation) for different crops in different districts under changed climate scenario

Crops Net % Increase in Productivity up Increase in productivity from Change in to 10 % and identified to 10 % to 25 % and identified to Yield increase the growing area increase the growing area for enhanced food production Rice -0.3 (Irri. rice) Bagalakote, Bangalore, Bangalore, DK, Udupi, UK, -0.9 (rainfed) Chitradurga, Davanagere, Raichur and Kodagu Haveri, Kolar and Tumkur Maize 1.2 Bidar, Chitradurga, Bangalore, Belgaum, Davanagere, Gadag, Mandya Chamarajanagar, Mysore Gulbarga, Haveri, Kolar Sorghum 2.6 Bagalkote, Belgaum, Haveri, Bangalore, Bellary, Bidar, Raichur Gadag, Chamarajanagar, Chitradurga, Gulbarga, Kodagu, Mandya Red gram 1.3 Chamarajanagara and Bangalore, Chikmagalore, Hassan Chitradurga (up to 35%), Davanagere, Dharwad, Gadag, Haveri, Kolar, Mandya, Mysore and Shimoga Cotton 1.3 Bidar, Davanagere and Bangalore, Belgaum, Bijapur, Haveri, Mandya, Raichur and Tumkur. Potato -14.0 Soybean -2.8

Ragi -5.8 Mysore, Hassan, Kolar, Chikmagalore Chitradurga, Davanagere, Haveri and Gadag Sugarcane 2.6 Mandya, Shimoga and Belgaum

56. Under A1B Scenario, in the near-term, i.e. in 2035, for the estimated 2.1 rise in mean temperature and 4.5% increase in mean annual precipitation in Karnataka, the net agricultural productivity in Karnataka is predicted to decrease by 2.5% (BCCI-Karnataka, 2011).℃ This value will be considerably higher towards the end of 21st Century. This predicted decrease in productivity of crops is mainly due to the reduced photosynthetic activity and crop growth under increased temperature and rainfall conditions. This decrease in productivity does not consider the impact of climate change on increased irrigation water demands of crops.

57. As studied by Rehana and Mujumdar (2012) for the command area, there would be an increase in the irrigation water demand of crops under climate change conditions. This increase in irrigation water demands of crops in the command area of VNC would have a negative effect on overall crop production in the command area, through reduced crop yield per ha and/or reduced cropping intensity, unless the increased irrigation water demand in the command area is compensated by an increase in streamflow into Tungabhadra reservoir.

58. Even if there is more than adequate increase in streamflow into Tungabhadra reservoir, the water supply agency may not release more than 5.8 TMC to VNC system, thus rendering the productivity in the command area of VNC System vulnerable to climate change. The degree of vulnerability depends upon the percentage change in the predicted irrigation water demands of the crops grown in the command area. This vulnerability may be mitigated by implementing some adaptive measures in the command area of VNC.

59. It is expedient to mention here that the average yield gap (between the potential and realized) in Karnataka is around 50% (Figure 11), in general, for several major crops such as rice, maize, sorghum, cotton, etc., as reported by ICRISAT in 2009 (BCCI-Karnataka, 2011). Figure 11 shows that there is a potential to double the production of these crops, through improved irrigation technologies and practices, and agronomic practices, which can more than compensate for the losses in production due to climate change. This calls for urgent action to strengthen agricultural extension to disseminate skills and knowledge on improved agricultural production practices, including irrigation technologies and practices, IPM (integrated pest management), etc. 31

Figure 11: Actual v/s potential crop yields in Karnataka as reported by ICRISAT (BCCi- Karnataka, 2011). The numbers in the boxes represent the number of farmers considered.

V ADAPTATION MEASURES TO MITIGATE CLIMATE CHANGE IMPACT ON IRRIGATED AGRICULTURE IN TUNGABHADRA BASIN

60. The Government of Karnataka, being a drought-prone state (more than 50% of the cultivated area is classified as drought prone), has initiated a state action plan at the request of the central government in 2009. As a result, three organizations (two non-government organizations and one government organization) in the State have worked, in parallel, in developing state action plan for climate change. These three organizations are: BCCI-Karnataka (a conglomeration of Indian Institute of Science (IISc), the Institute for Social and Economic Change (ISEC), the Center for Study of Science, Technology and Policy (CSTEP), and few more such bodies), the Environmental Management and Policy Research Institute (EMPRI) - an autonomous body under the Department of Forest, Ecology and Environment, Government of Karnataka, and the Center for Sustainable Development (CSD).

61. All the above three organizations have studied, in varying detail, the effect and impact of climate change on different sectors – agriculture, water resources, forestry, health, etc. – and provided recommendations on action plans and adaptations to mitigate the impact of climate change on these sectors.

62. A set of agronomic practices were recommended by the above organizations as adaptive measures to offset the impact of climate change. Some of these adaptation measures are discussed below: (a) adjustment of planting dates to minimize the effect of temperature induced effects on photosynthetic activity, dry matter production and crop growth;

(b) changing the crop calendar to take advantage of the wet period and to avoid extreme weather events during the crop growing season; (c) agroforestry to diversify farm income and increase green cover to act as a sink for atmospheric CO2; (d) practice integrated pest management (IPM), integrated weed management (IWM), integrated nutrient management (INM), and integrated disease management (IDM) in agriculture production; (e) practice conservation tillage and minimum tillage practices in order to conserve water and energy in agriculture; and (f) crop residue management – avoid burning of crop residues.

63. In addition, the following adaptive measures to improve efficiency of water use in irrigated agriculture are proposed: (a) adopt more efficient irrigation systems such as micro-irrigation (drip or sprinkler) where appropriate. The GoK is providing 90% subsidy for introduction of drip irrigation in horticultural crops. In addition, encouraging the use of solar pumps for irrigation. (b) provide subsidy for land leveling in case of surface (furrow, basin) irrigation systems to improve efficiency of water use at field level. (c) Introducing flow measurement structures in irrigation schemes to facilitate volumetric water payment to encourage efficient water management at WUCS level. (d) encouraging/reviving participatory irrigation water management at distributary and minor canal levels. (e) rehabilitation and modernization of irrigation infrastructure to minimize conveyance and operational losses in water distribution systems. (f) capacity building of irrigation department staff in IWRM principles and practices for improved efficiency in water supply to water users in irrigation command areas.

64. Agriculture Extension is proposed to be strengthened since it has a major role to play in helping farmers adapt to and mitigate climate change. To capture this potential role, adaptation and mitigation funds are proposed to be used to support extension efforts that deliver new technologies, information, and education about increasing carbon sequestration and reducing GHG emissions. Traditionally extension has worked to promote new technologies and management techniques, educate farmers, and act as a facilitator or broker for rural communities. Now, too, extension can help link practice in the field to new policies regarding climate change.

65. To complement the efforts of SGoK in strengthening agricultural extension to mitigate the impact of climate change on agricultural production and profitability to farmers, the Asian Development Bank (ADB) has proposed to intensity agricultural extension, particularly irrigation extension, activities in the command areas of Gondi irrigation system, VNC irrigation system and TLBC, under the KISWRMIP. The main focus of this effort would be to increase agricultural production and increase water use efficiency at the field level. This would involve demonstration of improved on-farm irrigation technologies as well as agricultural production technologies and practices. Some proposed interventions include land leveling and proper sizing (dimensioning) of surface irrigation (furrow, basin and border) systems, introduction of micro-irrigation along with fertigation, use of Information and Communication Technology (ICT) for irrigation scheduling and other irrigation advisory services, IPM, improved fertilizer management, etc. The details of this extension program are currently being elaborated for implementation during Tranche 2 of KISWRMIP.

66. Some crop specific adaptation measures (BCCI-Karnataka, 2011) are shown in Table 9. Some of the adaptive measures are already being implemented, whereas others are still at the stage of general recommendation without any concrete plans for implementation. Specific adaptation measures included in the project are shown in Table 10 and amount to about $18.45 million of which ADB’s share is about $13.69 million (74%).

Table 9: Crop specific adaptation measures to mitigate climate change effects

Crop Vulnerable Action Plan districts with Short-term Long-term productivity loss Rice Belgaum, Bellary, - Selection and evaluation of existing -Standardization of (Rainfed) Chamarajanagara, lines for long duration and fine grain. existing method of cultivation Chikmagalure, -Popularization of high yielding -Development and Gulbarga, Shimoga, variety/hybrids recommended for evaluation of different ecosystems through large- varieties tolerant to abiotic scale FLDs whole package. stress. - Demonstration of newly released -Evaluation of water saving varieties viz. KMP-150 and KMP-1 practices. OS, BR-2655 on 1000 ha. -Development of high- yielding varieties for fine grain, early medium and long duration varieties for the available length of growing season.

Sorghum Chikmagalure, DK, UK, -Organizing large-scale -Development of early (Jowar) Udupi, Davanagere, demonstrations on integrated crop maturity seed varieties Hassan, Kolar, management practices involving with Maldandi (M35-1) Shimoga, moisture conservation, Integrated yielding ability for shallow Tumkur, Nutrient Management (INM) and soils. improved varieties in the cultivators’ field. -Increased supply of quality seeds through seed corporations, private seed industries and also through farmers’ participation.

Sugar- Hassan, Mandya, DK, -Evaluation of existing genotypes for all reason planting cane UK -Promotion of seed production technical know-how and supply of and Udupi foundation seeds through sugar factories -Promotion of organic manure production structure, in-situ green manure growing. Trash recycling etc. -Encourage farmers to grow legumes as intercrop -Imparting training to extension personnel regarding balanced use of fertilizers -Demonstration on in-situ trash mulching and use of trash for vermin composting.

Table 10: Project 2 Adaptation Interventions No. Activity Cost ($ million) Total Adaptation ADB share 1 Anicut and canal improvements to increase conveyance during floods and 98.62 9.91 7.72 irrigations 2 Installation of hydromet equipment 4.11 4.11 3.03 3 Development of decision support system (Karnataka Water Resources Information 0.19 0.19 0.14 System) 4 On-farm extension support to assist farmers with improved water application 6.15 2.98 2.06 and crop productivity 5 Studies and workshops on climate 2.42 1.22 0.85 change and improving water productivity Total 111.80 18.41 13.80

VI REFERENCES

1. Anonymous. 2010. InfoCrop model for the prediction of the productivity of the crops under the climate change condition.

2. Bangalore Climate Change Initiative (BCCI) – Karnataka. 2011. Karnataka Climate Change Action Plan. Report submitted by BCCI-Karnataka to the Government of Karnataka, Bangalore, May.

3. Behera, S., Khare, D., Mishra, P.K. and Sahoo, S. 2016. Impact of climate change on crop water requirement for Sunei Medium Irrigation Project, Odisha, India. International Journal of Engineering Trends and Technology, 34(8):358-367.

4. Environmental Management and Policy Research Institute (EMPRI) and The Energy and Resources Institute (TERI). 2011. Karnataka State Action Plan on Climate Change. Draft Report Submitted to Government of Karnataka, Bengaluru, September.

5. Fischer, G., Tubiello, F.N., van Velthuizen, H. and Wiberg, D.A. 2007. Climate change impacts on irrigation water requirements: effects of mitigation, 1990-2080. Technological Forecasting and Social Change, 74:1083-1107.

6. Gosain, A.K., Rao, S. and Arora, A. 2011. Climate change impact assessment of water resources of India. Current Science, Vol. 101, No. 3, pp. 356-371, August.

7. IPCC. 2007. Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Eds. Solomon, S., Qin, D., Manning, M., Chen, Z., Marquis, M., Averyt, K.B., Tignor, M., and Miller, H.L., Cambridge University Press, Cambridge, United Kingdom, and New York, USA, 996 pp.

8. Islam, A., Sikka, A.K., Chaudhari, S.K. and Biswas, P.P. 2015. Climate change impact on water resources – an overview. Journal of Agricultural Physics, Vol. 15, No. 1, pp. 7-15.

9. Meenu, R., Rehana, S. and Mujumdar, P.P. 2012. Assessment of hydrologic impacts of climate change in Tunga-Bhadra river basin, India with HEC-HMS and SDSM. Hydrological Processes, DOI: 10.1002/hyp.9220.

10. Mohan, S. and Ramsundram, N. 2014. Climate change and its impact on irrigation water requirements on temporal scale. Irrigation and Drainage Systems Engineering, 118(3), doi:10.4172/2168-9768.1000118

11. Mujumdar, P.P. and Kumar, D.N. 2017. Assessment of Climate Change Impacts on Precipitation and Streamflow in Tungabhadra Basin. Draft Report Submitted to Advanced Center for Integrated Water Resources Management (ACIWRM), Government of Karnataka, Bengaluru, Karnataka, August.

12. Rehana, S. and Mujumdar, P.P. 2012. Regional impacts of climate change on irrigation water demand. Hydrological Processes, DOI:10.1002/hyp.9379

13. SMEC International Pty. Ltd. Australia. 2017. Karnataka Integrated and Sustainable Water Resources Management Investment Program: Vijayanagara Channels Feasibility Study Report – Volume 1. Main Report. Submitted to Karnataka Neeravari Nigam Ltd. (KNNL), Bengaluru, August.

ANNEX – 1. Values of Parameters that Contribute to Climate Change for the Six Scenario Groups

Table 1a: Overview of main primary driving forces in 1990, 2020, 2050, and 2100. Bold numbers show the value for the illustrative scenario and the numbers between brackets show the value for the range across all 40 SRES scenarios in the six scenario groups that constitute the four families. Units are given in the table. Technological change is not quantified in the table.

Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2

Population (billion) 5.3

2020 7.6 (7.4-7.6) 7.5 (7.2-7.6) 7.6 (7.4-7.6) 8.2 (7.5-8.2) 7.6 (7.4-7.6) 7.6 (7.6-7.8) 2050 8.7 8.7 (8.3-8.7) 8.7 11.3 (9.7-11.3) 8.7 (8.6-8.7) 9.3 (9.3-9.8) 2100 7.1 (7.0-7.1) 7.1 (7.0-7.7) 7.0 15.1 (12.0-15.1) 7.0 (6.9-7.1) 10.4 (10.3-10.4)

World GDP (1012 1990US$/yr) 21 2020 53 (53-57) 56 (48-61) 57 (52-57) 41 (38-45) 53 (46-57) 51 (41-51) 2050 164 (163-187) 181 (120-181) 187 (177-187) 82 (59-111) 136 (110-166) 110 (76-111) 2100 525 (522-550) 529 (340-536) 550 (519-550) 243 (197-249) 328 (328-350) 235 (199-255)

Per capita income ratio: 16.1 developed countries and economies in transition (Annex-I) to developing countries (Non-Annex-I) 2020 7.5 (6.2-7.5) 6.4 (5.2-9.2) 6.2 (5.7-6.4) 9.4 (9.0-12.3) 8.4 (5.3-10.7) 7.7 (7.5-12.1) 2050 2.8 2.8 (2.4-4.0) 2.8 (2.4-2.8) 6.6 (5.2-8.2) 3.6 (2.7-4.9) 4.0 (3.7-7.5)

2100 1.5 (1.5-1.6) 1.6 (1.5-1.7) 1.6 (1.6-1.7) 4.2 (2.7-6.3) 1.8 (1.4-1.9) 3.0 (2.0-3.6) a For some driving forces, no range is indicated because all scenario runs have adopted exactly the same assumptions. 39

Table 1b: Overview of main primary driving forces in 1990, 2020, 2050, and 2100. Bold numbers show the value for the illustrative scenario and the numbers between brackets show the value for the rangea across 26 harmonized SRES scenarios in the six scenario groups that constitute the four families. Units are given in the table. Technological change is not quantified in the table.

Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2

Population (billion) 5.3 2020 7.6 (7.4-7.6) 7.4 (7.4-7.6) 7.6 (7.4-7.6) 8.2 7.6 (7.4-7.6) 7.6 2050 8.7 8.7 8.7 11.3 8.7 (8.6-8.7) 9.3 2100 7.1 (7.0-7.1) 7.1 (7.0-7.1) 7.0 15.1 7.0 (6.9-7.1) 10.4

World GDP (1012 1990US$/yr) 21 2020 53 (53-57) 56 (52-61) 57 (56-57) 41 53 (51-57) 51 (48-51) 2050 164 (164-187) 181 (164-181) 187 (182-187) 82 136 (134-166) 110 (108-111) 2100 525 (525-550) 529 (529-536) 550 (529-550) 243 328 (328-350) 235 (232-237)

Per capita income ratio: 16.1 developed countries and economies in transition (Annex-I) to developing countries (Non- Annex-I) 2020 7.5 (6.2-7.5) 6.4 (5.2-7.5) 6.2 (6.2-6.4) 9.4 (9.4-9.5) 8.4 (5.3-8.4) 7.7 (7.5-8.0) 2050 2.8 2.8 (2.4-2.8) 2.8 6.6 3.6 (2.7-3.9) 4.0 (3.8-4.6) 2100 1.5 (1.5-1.6) 1.6 (1.5-1.7) 1.6 4.2 1.8 (1.6-1.9) 3.0 (3.0-3.5) a For some driving forces, no range is indicated because all scenario runs have adopted exactly the same assumptions.

40 able 2a: Overview of main secondary scenario driving forces in 1990, 2020, 2050, and 2100. Bold numbers show the value for the illustrative scenario and the numbers between brackets show the value for the range across all 40 SRES scenarios in the six scenario groups that constitute the four families. Units are given in the table.

Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2

Final energy intensity (106J/US$)a 16.7 2020 9.4 (8.5-9.4) 9.4 (8.1-12.0) 8.7 (7.6-8.7) 12.1 (9.3-12.4) 8.8 (6.7-11.6) 8.5 (8.5-11.8) 2050 6.3 (5.4-6.3) 5.5 (4.4-7.2) 4.8 (4.2-4.8) 9.5 (7.0-9.5) 4.5 (3.5-6.0) 6.0 (6.0-8.1) 2100 3.0 (2.6-3.2) 3.3 (1.6-3.3) 2.3 (1.8-2.3) 5.9 (4.4-7.3) 1.4 (1.4-2.7) 4.0 (3.7-4.6)

Primary energy (1018J/yr)a 351 2020 669 711 649 595 606 566 (653-752) (573-875) (515-649) (485-677) (438-774) (506-633) 2050 1431 1347 1213 971 813 869 (1377-1601) (968-1611) (913-1213) (679-1059) (642-1090) (679-966) 2100 2073 2226 2021 1717 514 1357 (1988-2737) (1002-2683) (1255-2021) (1304-2040) (514-1157) (846-1625)

Share of coal in primary energy (%)a 24 2020 29 (24-42) 23 (8-28) 23 (8-23) 22 (18-34) 22 (8-27) 17 (14-31) 2050 33 (13-56) 14 (3-42) 10 (2-13) 30 (24-47) 21 (2-37) 10 (10-49) 2100 29 (3-48) 4 (4-41) 1 (1-3) 53 (17-53) 8 (0-22) 22 (12-53)

Share of zero carbon in 18 primary energy (%)a 2020 15 (10-20) 16 (9-26) 21 (15-22) 8 (8-16) 21 (7-22) 18 (7-18) 2050 19 (16-31) 36 (21-40) 43 (39-43) 18 (14-29) 30 (18-40) 30 (15-30) 2100 31 (30-47) 65 (27-75) 85 (64-85) 28 (26-37 52 (33-70) 49 (22-49) a 1990 values include non-commercial energy consistent with IPCC WGII SAR (Energy Primer) but with SRES accounting conventions. Note that ASF, MiniCAM, and IMAGE scenarios do not consider non-commercial renewable energy. Hence, these scenarios report lower energy use.

Table 2b: Overview of main secondary scenario driving forces in 1990, 2020, 2050, and 2100. Bold numbers show the value for the illustrative scenario and the numbers between brackets show the value for the range across 26 harmonized SRES scenarios in the six scenario groups that constitute the four families. Units are given in the table.

Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2

Final energy intensity (106J/US$)a 16.7 2020 9.4 (8.5-9.4) 9.4 (8.7-12.0) 8.7 (7.6-8.7) 12.1 (11.3-12.1) 8.8 (6.7-11.6) 8.5 (8.5-9.1) 2050 6.3 (5.4-6.3) 5.5 (5.0-7.2) 4.8 (4.3-4.8) 9.5 (9.2-9.5) 4.5 (3.5-6.0) 6.0 (6.0-6.6) 2100 3.0 (3.0-3.2) 3.3 (2.7-3.3) 2.3 5.9 (5.5-5.9) 1.4 (1.4-2.1) 4.0 (3.9-4.1)

Primary energy (1018J/yr)a 351 2020 669 711 649 595 606 566 (657-752) (589-875) (611-649) (595-610) (451-774) (519-590) 2050 1431 1347 1213 971 813 869 (1377-1601) (1113-1611) (1086-1213) (971-1014) (642-1090) (815-941) 2100 2073 2226 2021 1717 514 1357 (2073-2737) (1002-2683) (1632-2021) (1717-1921) (514-1157) (1077-1357) Share of coal in primary energy (%)a 24 2020 29 (24-42) 23 (8-26) 23 (23-23) 22 (20-22) 22 (19-27) 17 (14-31) 2050 33 (13-52) 14 (3-42) 10 (10-13) 30 (27-30) 21 (4-37) 10 (10-35) 2100 29 (3-46) 4 (4-41) 1 (1-3) 53 (45-53) 8 (0-22) 22 (19-37)

Share of zero carbon in 18 primary energy (%)a 2020 15 (10-20) 16 (9-26) 21 (15-21) 8 (8-16) 21 (7-22) 18 (12-18) 2050 19 (16-31) 36 (23-40) 43 (41-43) 18 (18-29) 30 (18-40) 30 (21-30) 2100 31 (30-47) 65 (39-75) 85 (67-85) 28 (28-37) 52 (44-70) 49 (22-49)

a 1990 values include non-commercial energy consistent with IPCC WGII SAR (Energy Primer) but with SRES accounting conventions. Note that ASF, MiniCAM, and IMAGE scenarios do not consider non-commercial renewable energy. Hence, these scenarios report lower energy use.

a Table 3a: Overview of GHG, SO2, and ozone precursor emissions in 1990, 2020, 2050, and 2100, and cumulative carbon dioxide emissions to 2100. Bold numbers show the value for the illustrative scenario and the numbers between brackets show the value for the range across all 40 SRES scenarios in the six scenario groups that constitute the four families. Units are given in the table.

Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2

Carbon dioxide, fossil fuels (GtC/yr) 6.0 2020 11.2 (10.7-14.3) 12.1 (8.7-14.7) 10.0 (8.4-10.0) 11.0 (7.9-11.3) 10.0 (7.8-13.2) 9.0 (8.5-11.5) 2050 23.1 (20.6-26.8) 16.0 (12.7-25.7) 12.3 (10.8-12.3) 16.5 (10.5-18.2) 11.7 (8.5-17.5) 11.2 (11.2-16.4) 2100 30.3 (27.7-36.8) 13.1 (12.9-18.4) 4.3 (4.3-9.1) 28.9 (17.6-33.4) 5.2 (3.3-13.2) 13.8 (9.3-23.1)

Carbon dioxide, land use (GtC/yr) 1.1 2020 1.5 (0.3-1.8) 0.5 (0.3-1.6) 0.3 (0.3-1.7) 1.2 (0.1-3.0) 0.6 (0.0-1.3) 0.0 (0.0-1.9) 2050 0.8 (0.0-0.9) 0.4 (0.0-1.0) 0.0 (-0.2-0.5) 0.9 (0.6-0.9) -0.4 (-0.7-0.8) -0.2 (-0.2-1.2) 2100 -2.1 (-2.1-0.0) 0.4 (-2.4-2.2) 0.0 (0.0-0.1) 0.2 (-0.1-2.0) -1.0 (-2.8-0.1) -0.5 (-1.7-1.5) Cumulative carbon dioxide, fossil fuels (GtC) 1990-2100 2128 1437 1038 1773 989 1160 (2079-2478) (1220-1989) (989-1051) (1303-1860) (794-1306) (1033-1627) Cumulative carbon dioxide, land use (GtC) 1990-2100 61 (31-69) 62 (31-84) 31 (31-62) 89 (49-181) -6 (-22-84) 4 (4-153) Cumulative carbon dioxide, total (GtC) 1990-2100 2189 1499 1068 1862 983 1164 (2127-2538) (1301-2073) (1049-1113) (1352-1938) (772-1390) (1164-1686) Sulfur dioxide, (MtS/yr) 70.9 2020 87 (60-134) 100 (62-117) 60 (60-101) 100 (66-105) 75 (52-112) 61 (48-101) 2050 81 (64-139) 64 (47-120) 40 (40-64) 105 (78-141) 69 (29-69) 56 (42-107) 2100 40 (27-83) 28 (26-71) 20 (20-27) 60 (60-93) 25 (11-25) 48 (33-48) Methane, (MtCH4/yr) 310 2020 416 (415-479) 421 (400-444) 415 (415-466) 424 (354-493) 377 (377-430) 384 (384-469) 2050 630 (511-636) 452 (452-636) 500 (492-500) 598 (402-671) 359 (359-546) 505 (482-536) 2100 735 (289-735) 289 (289-640) 274 (274-291) 889 (549-1069) 236 (236-579) 597 (465-613)

Table 3a (continued)

Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2 Nitrous oxide, (MtN/yr) 6.7 2020 9.3 (6.1-9.3) 7.2 (6.1-9.6) 6.1 (6.1-7.8) 9.6 (6.3-12.2) 8.1 (5.8-9.5) 6.1 (6.1-11.5) 2050 14.5 (6.3-14.5) 7.4 (6.3-14.3) 6.1 (6.1-6.7) 12.0 (6.8-13.9) 8.3 (5.6-14.8) 6.3 (6.3-13.2) 2100 16.6 (5.9-16.6) 7.0 (5.8-17.2) 5.4 (4.8-5.4) 16.5 (8.1-19.3) 5.7 (5.3-20.2) 6.9 (6.9-18.1) CFC/HFC/HCFC, (MtC equiv./yr)b 1672 2020 337 337 337 292 291 299 2050 566 566 566 312 338 346 2100 614 614 614 753 299 649 PFC, (MtC equiv./yr) b 32.0 2020 42.7 42.7 42.7 50.9 31.7 54.8 2050 88.7 88.7 88.7 92.2 42.2 106.6 2100 115.3 115.3 115.3 178.4 44.9 121.3 b SF6, (MtC equiv./yr) 37.7 2020 47.8 47.8 47.8 63.5 37.4 54.7 2050 119.2 119.2 119.2 104.0 67.9 79.2 2100 94.6 94.6 94.6 164.6 42.6 69.0 CO, (MtCO/yr) 879 2020 1204 1032 1147 1075 751 1022 (1123-1552) (978-1248) (1147-1160) (748-1100) (751-1162) (632-1077) 2050 2159 1214 1770 1428 471 1319 (1619-2307) (949-1925) (1244-1770) (642-1585) (471-1470) (580-1319) 2100 2570 1663 2077 2326 363 2002 (2298-3766) (1080-2532) (1520-2077) (776-2646) (363-1871) (661-2002) NMVOC, (Mt/yr) 139 2020 192 (178-230) 222 (157-222) 190 (188-190) 179 (166-205) 140 (140-193) 180 (152-180) 2050 322 (256-322) 279 (158-301) 241 (206-241) 225 (161-242) 116 (116-237) 217 (147-217) 2100 420 (167-484) 194 (133-552) 128 (114-128) 342(169-342) 87 (58-349) 170 (130-304)

NOx, (MtN/yr) 30.9 2020 50 (46-51) 46 (46-66) 46 (46-49) 50 (42-50) 40 (38-59) 43 (38-52) 2050 95 (49-95) 48 (48-100) 61 (49-61) 71 (50-82) 39 (39-72) 55 (42-66) 2100 110 (40-151) 40 (40-77) 28 (28-40) 109 (71-110) 19 (16-35) 61 (34-77)

see Table 5-7, SRES) and subsequent summation. The results were then converted from CO2-equivalents (reflected by the GWPs) into carbon-equivalents. Note that the use of GWP is less appropriate for emission profiles that span a very long period. It is used here, in the interest of readability of the SPM in preference to a more detailed breakdown by the 27 substances listed in Table 5-7, SRES. The method here is also preferred over the even less desirable option to display weighted numbers for the aggregate categories in this a Table 3b: Overview of GHG, SO2, and ozone precursor emissions in 1990, 2020, 2050, and 2100, and cumulative carbon dioxide emissions to 2100. Bold numbers show the value for the illustrative scenario and the numbers between brackets show the value for the range across 26 harmonized SRES scenarios in the six scenario groups that constitute the four families. Units are given in the table.

Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2

Carbon dioxide, fossil fuels (GtC/yr) 6.0 2020 11.2 (10.7-14.3) 12.1 (8.7-14.7) 10.0 (9.8-10.0) 11.0 (10.3-11.0) 10.0 (8.2-13.2) 9.0 (8.8-10.2) 2050 23.1 (20.6-26.8) 16.0 (12.7-25.7) 12.3 (11.4-12.3) 16.5 (15.1-16.5) 11.7 (8.5-17.5) 11.2 (11.2-15.0) 2100 30.3 (30.3-36.8) 13.1 (13.1-17.9) 4.3 (4.3-8.6) 28.9 (28.2-28.9) 5.2 (3.3-7.9) 13.8 (13.8-18.6) Carbon dioxide, land use (GtC/yr) 1.1 2020 1.5 (0.3-1.8) 0.5 (0.3-1.6) 0.3 (0.3-1.7) 1.2 (1.1-1.2) 0.6 (0.0-1.3) 0.0 (0.0-1.1) 2050 0.8 (0.0-0.8) 0.4 (0.0-1.0) 0.0 (-0.2-0.0) 0.9 (0.8-0.9) -0.4 (-0.7-0.8) -0.2 (-0.2-1.2) 2100 -2.1 (-2.1-0.0) 0.4 (-2.0-2.2) 0.0 (0.0-0.1) 0.2 (0.0-0.2) -1.0 (-2.6-0.1 -0.5 (-0.5-1.2) Cumulative carbon dioxide, fossil fuels (GtC) 1990-2100 2128 1437 1038 1773 989 1160 (2096-2478) (1220-1989) (1038-1051) (1651-1773) (794-1306) (1160-1448) Cumulative carbon dioxide, land use (GtC) 1990-2100 61 (31-61) 62 (31-84) 31 (31-62) 89 (81-89) -6 (-22-84) 4 (4-125) Cumulative carbon dioxide, total (GtC) 1990-2100 2189 1499 1068 1862 983 1164 (2127-2538) (1301-2073) (1068-1113) (1732-1862) (772-1390) (1164-1573) Sulfur dioxide, (MtS/yr) 70.9 2020 87 (60-134) 100 (62-117) 60 (60-101) 100 (80-100) 75 (52-112) 61 (61-78) 2050 81 (64-139) 64 (47-64) 40 (40-64) 105 (104-105) 69 (29-69) 56 (44-56) 2100 40 (27-83) 28 (28-47) 20 (20-27) 60 (60-69) 25 (11-25) 48 (33-48) Methane, (MtCH4/yr) 310 2020 416 (416-479) 421 (406-444) 415 (415-466) 424 (418-424) 377 (377-430) 384 (384-391) 2050 630 (511-630) 452 (452-636) 500 (492-500) 598 (598-671) 359 (359-546) 505 (482-505) 2100 735 (289-735) 289 (289-535) 274 (274-291) 889 (889-1069) 236 (236-561) 597 (465-597) 45

a The uncertainties in the SRES emissions for non-CO2 greenhouse gases are generally greater than those for energy CO2. Therefore, the ranges of non-CO2 GHG emissions provided in the Report may not fully reflect the level of uncertainty compared to CO2, for example only a single model provided the sole value for halocarbon emissions.

Table 3b (continued) Family A1 A2 B1 B2

Scenario group 1990 A1FI A1B A1T A2 B1 B2

Nitrous oxide, (MtN/yr) 6.7 2020 9.3 (6.1-9.3) 7.2 (6.1-9.6) 6.1 (6.1-7.8) 9.6 (6.3-9.6) 8.1 (5.8-9.5) 6.1 (6.1-7.1) 2050 14.5 (6.3-14.5) 7.4 (6.3-13.8) 6.1 (6.1-6.7) 12.0 (6.8-12.0) 8.3 (5.6-14.8) 6.3 (6.3-7.5) 2100 16.6 (5.9-16.6) 7.0 (5.8-15.6) 5.4 (4.8-5.4) 16.5 (8.1-16.5) 5.7 (5.3-20.2) 6.9 (6.9-8.0) CFC/HFC/HCFC, (MtC equiv./y) b 1672 2020 337 337 337 292 291 299 2050 566 566 566 312 338 346 2100 614 614 614 753 299 649 PFC, (MtC equiv./yr) b 32.0 2020 42.7 42.7 42.7 50.9 31.7 54.8 2050 88.7 88.7 88.7 92.2 42.2 106.6 2100 115.3 115.3 115.3 178.4 44.9 121.3 b SF6, (MtC equiv./yr) 37.7 2020 47.8 47.8 47.8 63.5 37.4 54.7 2050 119.2 119.2 119.2 104.0 67.9 79.2 2100 94.6 94.6 94.6 164.6 42.6 69.0 CO, (MtCO/yr) 879 2020 1204 1032 1147 1075 751 1022 (1123-1552) (1032-1248) (1147-1160) (1075-1100) (751-1162) (941-1022) 2050 2159 1214 1770 1428 471 1319 (1619-2307) (1214-1925) (1244-1770) (1428-1585) (471-1470) (1180-1319) 2100 2570 1663 2077 2326 363 2002 (2298-3766) (1663-2532) (1520-2077) (2325-2646) (363-1871) (1487-2002) NMVOC, (Mt/yr) 139 2020 192 (178-230) 222 (194-222) 190 (188-190) 179 (179-204) 140 (140-193) 180 (179-180) 2050 322 (256-322) 279 (259-301) 241 (206-241) 225 (225-242) 116 (116-237) 217 (197-217) 2100 420 (167-484) 194 (137-552) 128 (114-128) 342 (311-342) 87 (58-349) 170 (130-170)

NOx, (MtN/yr) 30.9 2020 50 (46-51) 46 (46-66) 46 (46-49) 50 (47-50) 40 (38-59) 43 (38-43)

2050 95 (49-95) 48 (48-100) 61 (49-61) 71 (66-71) 39 (39-72) 55 (42-55) 2100 110 (40-151) 40 (40-77) 28 (28-40) 109 (109-110) 19 (16-35) 61 (34-61)

b In the SPM the emissions of CFC/HFC/HCFC, PFC, and SF6 are presented as carbon-equivalent emissions. This was done by multiplying the emissions by weight of each substance (see Table 5-8 of the full Special Report on Emissions Scenarios, SRES, IPCC, 2000) by its global warming potential (GWP; see Table 5-7, SRES) and subsequent summation. The results were then converted from CO2-equivalents (reflected by the GWPs) into carbon-equivalents. Note that the use of GWP is less appropriate for emission profiles that span a very long period. It is used here, in the interest of readability of the SPM in preference to a more detailed breakdown by the 27 substances listed in Table 5-7, SRES. The method here is also preferred over the even less desirable option to display weighted numbers for the aggregate categories in this table.