ASIAN DEVELOPMENT BANK PCR: PAK 17055

PROJECT COMPLETION REPORT

ON THE

LEFT BANK OUTFALL DRAIN PROJECT (STAGE I) (Loan 700-PAK[SF])

IN

PAKISTAN

December 2000 CURRENCY EQUIVALENTS

Currency Unit – Pakistan Rupee/s (PRe/PRs)

At Appraisal At Project Completion (February 1984) (June 2000)

PRe1.00 = $0.0699 $0.0192 $1.00 = PRs14.30 PRs52.0

ABBREVIATIONS

ADB – Asian Development Bank AWB – area water board CIF – Cost, Insurance and Freight DIP – Department of Irrigation and Power DOWM – Directorate of On-Farm Water Management DPOD – Dhoro Puran Outfall Drain EIA – environmental impact assessment EIRR – economic internal rate of return EMC – Environmental Management Committee FO – farmer organization FOB – free on board FOP – Future Operation Plan ICB – international competitive bidding IMO – Integrated Management Organization IWMI – International Water Management Institute KPOD – Kadhan Pateji Outfall Drain LBOD – Left Bank Outfall Drain NDP – National Drainage Program OFWM – on-farm water management O&M – operation and maintenance WAPDA – Water and Power Development Authority WUA – water users association WUF water users federation

NOTES

(i) The fiscal year (FY) of the Government ends on 30 June. (ii) In this report, “$” refers to US dollars. CONTENTS

Page

BASIC DATA ii

MAP vii

I. PROJECT DESCRIPTION 1

II. EVALUATION OF IMPLEMENTATION 2

A. Project Components 2 B. Project Implementation 3 C. Project Costs and Financing 4 D. Project Schedule 5 E. Engagement of Consultants and Procurement of Goods 6 and Services F. Performance of Consultants, Contractors, and Suppliers 6 G. Conditions and Covenants 7 H. Contract Awards and Disbursements 8 I. Environmental and Social Measures and Impacts 8 J. Performance of the Borrower and the Executing Agencies 9 K. Performance of Asian Development Bank 10

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS 11

A. Initial Performance 11 B. Financial Performance 12 C. Economic Performance 12 D. Attainment and Sustainability of Benefits 13

IV. CONCLUSIONS AND RECOMMENDATIONS 14

A. Conclusions 14 B. Lessons Learned 15 C. Recommendations 15

APPENDIXES BASIC DATA

A. Loan Identification

1. Country Pakistan 2. Loan Number 700-PAK(SF) 3. Project Title Left Bank Outfall Drain Project (Stage I) 4. Borrower Islamic Republic of Pakistan 5. Executing Agency Water and Power Development Authority (WAPDA) 6. Amount of Loan SDR121,976,000 7. PCR Number PCR:PAK 17055

B. Loan Data

1. Appraisal - Date Started 30 January 1984 - Date Completed 23 February 1984

2. Loan Negotiations - Date Started 18 September 1984 - Date Completed 25 September 1984

3. Date of Board Approval 25 October 1984

4. Date of Loan Agreement 14 December 1984

5. Date of Loan Effectiveness - In Loan Agreement 14 March 1985 - Actual 11 November 1985

6. Closing Date - In Loan Agreement 31 December 1993 - Actual 08 January 1998

7. Terms of Loan - Service Charge 1 percent - Maturity 40 years - Grace Period 10 years

8. Disbursements

a. Dates

Initial Disbursement Final Disbursement Time Interval 24 July 1986 12 September 1997 11 years and 1.5 months

Effective Date Original Closing Date Time Interval 11 November 1985 31 December 1993 8 years and 1.5 months iii

b. Amount (SDR)

Latest Net Category Original Revised Amount Undisbursed Allocation Allocation Disbursed Balance

01A Civil Works & Materials – 28,695,000 83,600,000 85,634,174 (2,034,174) Surface Drainage 01B Civil Works & Materials – 33,893,000 23,299,000 22,463,516 835,484 DrainageTubewells 01C Civil Works & Materials – 10,697,000 0 0 0 Scavenger Wells 01D Civil Works & Materials – 9,998,000 0 0 0 Interceptor Drains 02 Consulting Services 5,399,000 14,645,000 11,606,949 3,038,051 03 Training 600,000 67,000 0 67,000 05 Unallocated 32,694,000 365,000 0 365,000 Total 121,976,000 121,976,000 119,704,639 2,271,361

c. Amount (US$)

Latest Net Category Original Revised Amount Undisbursed Allocation Allocation Disbursed Balance

01A Civil Works & Materials – 23,700,000 118,301,795 121,050,304 (2,748,509) Surface Drainage 01B Civil Works & Materials – 29,500,000 33,239,608 32,115,582 1,124,026 DrainageTubewells 01C Civil Works & Materials – 10,600,000 0 0 0 Scavenger Wells 01D Civil Works & Materials – 8,400,000 0 0 0 Interceptor Drains 02 Consulting Services 5,300,000 20,348,530 16,261,258 4,087,272 03 Training 500,000 90,139 0 90,139 05 Unallocated 44,000,000 502,870 0 502,870 Total 122,000,000 172,482,942 169,427,144 3,055,798

9. Local Costs (ADB-Financed)

Appraisal Estimate Actual Amount ($) 35,000,000 40,922,560 Percentage of Local Costs 11 9 Percentage of Total Cost 5 5

C. Project Data

1. Project Cost ($ million)

Appraisal Estimate Actual Foreign Exchange Cost 336.3 286.0 Local Cost 318.5 558.1 Total Cost 654.8 844.1 iv

2. Financing Plan ($ million)

Appraisal Estimate Actual at end-1997a Financier Foreign Local Total Foreign Local Total Borrower 48.5 189.4 237.9 6.4 408.5 414.9 ADB 87.0 35.0 122.0 128.5 40.9 169.4 World Bank 99.9 50.1 150.0 60.8 79.3 140.1 ODA/DFID 32.1 3.6 35.7 27.8 4.8 32.6 CIDA 27.1 10.1 37.2 11.9 0.0 11.9 Saudi Fund 38.5 13.5 52.0 32.3 10.8 43.1 SDC 2.7 7.3 10.0 0.0 10.0 10.0 OPEC 7.8 2.2 10.0 8.8 0.0 8.8 IsDB — — — 7.7 1.0 8.7 M&E Trust Fund — — — 1.8 2.8 4.6 Total 336.3 318.5 654.8b 286.0 558.1 844.1b ADB = Asian Development Bank; CIDA = Canadian International Development Agency; DFID = Department for International Development; IsDB = Islamic Development Bank; M&E = Monitoring and Evaluation Trust Fund (DFID, CIDA, SDC), ODA = Overseas Development Administration; OPEC = Organization of Petroleum Exporting Countries; SDC = Swiss Development Cooperation. a For the estimated project cost at completion in 2002, $963.0 million, see Appendix 2. b Including interest during construction.

3. Cost Breakdown by Project Components ($ million)

Appraisal Estimate Actual at end-1997 Foreign Local Total Foreign Local Total Spinal & Outfall Drain 27.4 12.3 39.7 31.2 26.8 58.0 Drainage Network 76.5 32.0 108.5 144.8 105.8 250.6 Irrigation Works 33.6 44.4 78.0 53.0 132.7 185.7 11 kV Distribution 31.4 13.9 45.3 14.9 13.1 28.0 Maintenance Equipment, 14.9 1.1 16.0 18.4 0.8 19.2 Workshops & Depots Consultants & Training 8.4 0.9 9.3 21.4 10.2 31.6 Monitoring and Evaluation 1.5 1.5 3.0 1.6 2.9 4.5 Land Acquisition and — 11.5 11.5 — 60.9 60.9 Resettlement Administration 3.7 28.0 31.7 0.7 57.0 57.7 O&M of Drains — — — 0.0 2.8 2.8 Taxes & Duties — 61.4 61.4 — a — Base Cost 197.4 207.0 404.4 286.0 413.0 Physical Contingencies 27.9 29.1 57.0 — — — Price Escalation 92.7 82.4 175.1 — — — Interest During 18.3 — 18.3 — 145.1 145.1 Construction Total Project Cost 336.3 318.5 654.8 286.0 558.1 844.1 O&M = operation and maintenance. a Included in the costs of the relevant components. v

4. Project Schedule

Appraisal Estimate Actual a. Date of Contract with Consultants June 1985 May 1986 b. Civil Works Date of Award July 1985 November 1987 Completion of Work June 1992 June 2002 c. Materials, Equipment and Vehicles First Procurement June 1985 June 1986 d. Commissioning of: LBOD’s Tidal Link June 1991 June 1995 Nawabshah drainage system June 1989 December 1997 Sanghar drainage system December 1990 December 1998 Mirpurkhas drainage system December 1992 December 1998 Remodeled Nara and Jamrao canal systems December 1992 June 1995 Chotiari Reservoir and the Ranto Canal December 1992 June 2002a

LBOD = Left Bank Outfall Drain a Expected date.

D. Data on Bank Missions

No. of No. of Person- Mission Type Date Persons days Specialization of Members

Project Preparation 25 Jan - 3 27 Project Engineer Review 2 Feb 1983 Project Economist Agronomist

Follow-up Project 14-24 May 1983 2 22 Project Engineer Preparation Agronomist

Appraisal 30 Jan – 10 204 Senior Project Engineer 23 Feb 1984 Agronomist Senior Project Economist Project Economist Senior Country Economist Sr. Environmental Spec. Senior Counsel Rural Sociologist (Consultant) Hydraulics Engr. (Consultant) Mission Secretary

Inception 26 Jan – 118 a Senior Project Engineer 12 Feb 1985 Review (No. 1) 27-28 Apr 1985 2 4 Senior Project Engineer Project Engineer

Review (No. 2) 5 – 17 Apr 1986 3 30 Senior Project Engineer (2) vi

No. of No. of Person- Mission Type Date Persons days Specialization of Members Senior Assistant Special Project Admi- 15-26 Sep 1986 2 24 Senior Project Engineer nistration (SPA No. 1) Senior Counsel Review (No. 3) 7-14 Nov 1986 1 8 Senior Project Engineer Review (No. 4) 3-11 Apr 1987 1 9 Senior Project Engineer Review (No. 5) 7-19 Nov 1987 2 26 Senior Project Engineer Loan Adm. Assistant Review (No. 6) 12-22 Apr 1988 1 11 Senior Project Engineer Review (No. 7) 31 Jan – 14 Feb 115 a Project Engineer 1989 SPA Mission (No. 2) 24 Apr – 4 May 27 a Senior Agronomist 1989 Country Officer Review (No. 8) 4 – 13 Nov 1989 1 10 Project Engineer Review (No. 9) 5 – 17 May 1990 2 26 Project Engineer Loan Adm. Assistant Review (No. 10) 6 – 22 Nov 1990 1 17 Project Engineer Review (No. 11) 20 Nov – 4 Dec 1 15 Project Engineer 1991 Review (No. 12) 26 Apr – 10 May 1 15 Project Engineer 1992 Review (No. 13) 1 – 12 Dec 1992 2 24 Project Engineer Consultant (Irrigation Engineer) Review (No. 14) 8 – 24 Jun 1993 2 34 Project Manager Consultant (Irrigation Engineer) Review (No. 15) 28 Jan – 14 Feb 337 a Project Engineer 1994 Control Officer Loan Adm. Assistant Review (No. 16) 26 Apr – 7 May 3 36 Project Engineer 1995 Consultant (Irrigation Engineer) Loan Adm. Assistant Review (No. 17) 23 Jan – 5 Feb 2 20 Project Engineer 1996 Loan Adm. Assistant SPA Mission (No. 3) 15-16 Jul 1998 1 2 Finance/Administrative Officer Project Completion 18 Nov-3 Dec 3 37 Sr. Project Engineer Review (PCR) 1998 Project Economist Consultant (Civil Engineer) Follow-up PCR 30 Jul - 4 Aug 1 6a Project Economist 1999 Follow-up PCR 24 Feb 2000 1 1a Project Economist a Combined with other missions.

I. PROJECT DESCRIPTION

1. To increase agriculture production and improve the socioeconomic conditions for the rural population in Pakistan, the Project was to improve irrigation and drainage conditions for an area of about 516,500 hectares (ha) in the southeastern part of Sindh. The project area is part of the 2.5 million ha catchment of the Left Bank Outfall Drain (LBOD), which comprises the irrigated area in the saline groundwater zone on the left bank of the Indus River between the Sukkur and Kotri barrages. This area had been subjected to decades of extensive irrigation, which resulted in rising watertables with consequent waterlogging and soil salinization, thereby threatening the sustainability of the agricultural resource base and adversely affecting the livelihood of rural communities. The project area includes the three priority areas: Nawabshah, Sanghar, and Mirpurkas. These areas drain into the Arabian Sea through the first stage of LBOD, construction of which started in 1974. At the time of appraisal, about 25 percent of the land within the project area had been abandoned because of waterlogging and salinity.

2. The Project was the largest undertaking in Pakistan’s water resources sector in the 1980s and 1990s.1 Its main objectives were to (i) improve drainage for about 516,500 ha; (ii) increase irrigation supplies to about 290,000 ha; and (iii) transport excess water and salt out of the project area, thus reversing the deterioration of the land resource base due to waterlogging and salinity. These objectives were to be achieved through (i) construction of an outfall for LBOD to dispose saline effluent into the Arabian Sea; (ii) construction of surface drains for the whole area; (iii) installation of a subsurface drainage network on 392,000 ha out of the total area; (iv) installation of interceptor drains along selected reaches of irrigation canals; (v) installation of a distribution network to electrify the drainage tubewells and pumps; (vi) on-farm water management including improvement of watercourses and precision land leveling; (vii) remodeling of Nara and Jamrao irrigation systems and the construction of the Chotiari Reservoir and the associated Ranto Canal to provide supplementary irrigation; (viii) provision of operation and maintenance (O&M) equipment; and (ix) consulting services and training. The project cost was estimated at $636.5 million and the Asian Development Bank (ADB), together with seven other external financiers,2 were to provide financial assistance. ADB was to finance part of the surface and subsurface drainage works and installation of interceptor drains and the associated electrification works. The Project was to be implemented in eight years starting in 1985 with the Water and Power Development Authority (WAPDA) as the principal executing agency being responsible for the drainage works and overall project coordination; the Department of Irrigation and Power (DIP) and the Directorate of On-farm Water Management (DOWM) of Sindh were responsible for the Project’s irrigation and on-farm water management works, respectively.

3. The Project’s objectives were highly relevant to the Government’s overall development strategy, especially in the water sector, and were in line with ADB’s lending strategy for Pakistan as well as its strategic objectives both at the time of appraisal and preparation of this report. The Project intended to support three major goals of the Government as outlined in the Sixth Five- Year Plan (FY1983/84–FY1987/88), to (i) increase agricultural production by improving the efficiency of irrigation infrastructure; (ii) phase out subsidies for inputs and involve the private sector in the distribution of inputs and development of fresh groundwater resources; and (iii) reduce the controls on export of cotton and rice and rationalize the output prices. ADB’s lending strategy supported Government’s efforts to expand its irrigation and drainage infrastructure as

1 A Project Preparation Report was prepared with assistance from United Nations Development Programme and the World Bank. 2 The World Bank, Department for International Development, UK, Canadian International Development Agency, Saudi Fund, the Swiss Development Cooperation, the Organization of Petroleum Exporting Countries, and the Islamic Development Bank. 2 well as to improve efficiencies in this subsector to boost production to achieve Sixth Five-Year Plan’s goal of five percent rate of growth in the agricultural sector.

II. EVALUATION OF IMPLEMENTATION

A. Project Components

4. The scope of the Project was reduced during project implementation (Appendix 1). Increased cost and financing constraints led to a reduction in scope of the subsurface drainage works and interceptor drains together with a corresponding reduction in the electrification works.3 Part of the remodeling for the Nara Canal was deleted when the World Bank credit closed in 1997. The works deleted from the Project were included in the National Drainage Program (NDP) launched in 1998 and cofinanced by ADB,4 the World Bank, and the Japan Bank for International Cooperation. However, these changes in scope did not affect the efficacy of the Project in any significant way.

5. As of June 2000, the Project had achieved more than 95 percent of its objectives under the reduced scope, with full completion expected in 2002. The main spinal drain and the 1,466 kilometer (km) long surface drainage network serving the originally planned 516,500 ha are complete, 333,000 ha out of the planned 392,000 ha have been provided with subsurface drainage facilities, and 154 km out of the planned 550 km of interceptor drains have been installed. O&M equipment and workshops have also been provided. A total of 1,481 watercourses have been remodeled and precision land leveling for 33,600 ha has been undertaken, exceeding the appraisal targets of 920 watercourses and 26,000 ha, respectively. Remodeling of 608 km of canals is substantially complete while the construction of the Ranto Canal is also complete. The 55 km embankment for the Chotiari Reservoir with its associated resettlement program is the only major project component for which work is still in progress.

6. The Project provided consulting services to assist the executing agencies in implementing their respective components. This included 878 person-months of consulting services cofinanced by ADB to assist WAPDA and DIP.5 During implementation, this provision was increased to 3,433 person-months. The main reasons for this increase were (i) the 4.5-year extension of the implementation period; (ii) an enhancement of the role of consultants in contract supervision; (iii) the need to undertake additional engineering investigations and studies; and (iv) consultants’ assistance in resettlement, communication, and stakeholder mobilization. The Project’s training program was successfully implemented. It provided for external and local training for staff of the executing agencies, and for training of farmers through field demonstrations. A comprehensive program to monitor the physical performance of the Project was undertaken together with a program for benefit monitoring, which included various thematic studies. These two programs have provided valuable baseline data. The monitoring programs are continuing under NDP, albeit at a reduced scale.

3 Canadian International Development Agency withdrew during project implementation. 4 Loan No. 1413-PAK, National Drainage Sector Project, for $140 million, approved on 12 December 1995. 5 Other consulting services were financed through the World Bank, Department for International Development and Swiss Development Corporation. 3

B. Project Implementation

7. The overall implementation arrangements remained as appraised, but a number of adjustments were made during project implementation. WAPDA acted as the principal executing agency and was responsible for the spinal drain works, all drainage works, and the associated electrification as well as for the construction of the Chotiari Reservoir. In addition, WAPDA also undertook the Project’s physical monitoring program. DIP was responsible for canal remodeling while DOWM was the executing agency for the on-farm water management activities. During implementation, the Planning and Development Department (PDD) of Sindh assumed responsibility for the benefit monitoring program, which it outsourced to a local institute that had a collaborative arrangement with an institute abroad. Also, the Chotiari Resettlement Agency was established by the Government of Sindh for the resettlement program for the Chotiari Reservoir. A local nongovernment organization (NGO) was employed to assist in the implementation of the resettlement program.

8. The Project Steering Committee, headed by the additional chief secretary (development) of Sindh provided overall guidance and coordination. At the project level, overall coordination was provided by the Integrated Management Organization (IMO) established under the Project and headed by a chief engineer of WAPDA. The IMO comprised WAPDA staff and a limited number of DIP staff on a secondment basis. The IMO proved reasonably successful in coordinating the planning and execution of the drainage and irrigation works. The continuity of senior staff within IMO and assistance provided by the consultants contributed to this success. DOWM and PDD did not have a representation in the IMO. As a result, the on-farm water management and benefit monitoring activities were not fully integrated with the other project components. IMO employed panels of experts to provide independent advice on major design and implementation issues. An environmental management committee (EMC) was constituted in 1995 comprising representatives of the executing agencies, local, and international nongovernment organizations as well as local educational establishments. The EMC was supported by an environmental cell established by WAPDA in the IMO office. The EMC and the cell played a useful role in implementing and monitoring the Project’s environmental management program.

9. During project implementation, the arrangements for postconstruction O&M were adjusted. Facilities completed by WAPDA were initially handed over to DIP in 1993, but because DIP was not fully geared up to undertake the O&M, they were handed back to WAPDA in 1994 and handled by its new and separate O&M division. Handing over of facilities to DIP resumed in 1999 and will be completed by the end of 2001.

10. Two new approaches for the O&M of irrigation and drainage facilities were initiated under the Project. First, WAPDA’s O&M Division undertook part of the O&M work through “quasi-performance” contracts, which allow greater private sector participation in O&M than the normal in-house O&M arrangement. Based on the experience with these contracts, improved O&M performance contract arrangements were developed that have been adopted for O&M performance contracts awarded under NDP. Second, to initiate and facilitate a decentralized and participatory approach to irrigation management, the Project supported (i) a study for the establishment of an area water board and its constituent farmers’ organizations for the Nara Canal system, and (ii) the formation of farmer organizations (FOs) for three distributary canals. The formation of FOs was done in collaboration with the International Water Management Institute (IWMI). The Nara Area Water Board (AWB) was inaugurated in December 1999 but the transfer of the O&M of the three distributary canals for which FOs were formed under the Project is still awaiting Government of Sindh’s final approval. 4

C. Project Costs and Financing

11. The total cost at project completion is estimated at $963.0 million, $308.2 million higher than the appraisal estimate of $654.8 million (Appendix 2). The 47 percent cost overrun is mainly the result of major cost overruns for surface drainage and canal remodeling, the Chotiari Reservoir, and land acquisition and resettlement. The twice as long implementation period also resulted in large increase in interest during construction. These cost overruns exceeded the cost underruns for certain other components. With respect to the surface drainage works, a number of the early contracts failed and were subsequently re-awarded at significantly higher rates because of the deteriorated law and order situation. Furthermore, the number of bridges and watercourse crossing structures increased because of demands from the local communities and, in the case of bridges, because of the expansion of the road network following appraisal. The increase in the cost of canal remodeling was mainly due to delayed implementation resulting in higher rates for the same reason as for the drainage works, i.e., the deteriorated law and order situation. The cost of the Chotiari Reservoir significantly exceeds the appraisal estimate because of adjustments in design to minimize the negative social and environmental impacts of the reservoir coupled with unfavorable foundation conditions not foreseen at appraisal. The cost of land acquisition increased fourfold because more land had to be acquired and higher compensation payments made than originally envisaged.

12. With respect to cost underruns, the cost of the “scavenger” wells (one of the three types of subsurface drainage facilities installed under the Project)6 remained substantially below the appraisal estimate. Less than half of the number of wells anticipated at appraisal were installed because the scope of fresh groundwater recovery from canal seepage turned out to be limited. The cost of the other subsurface drainage facilities, i.e., “vertical” drainage tubewells and “horizontal” subsurface pipe systems, and the cost of the interceptor drains also remained below the appraisal estimate because part of these facilities were deleted from the Project due to financing constraints (para. 4). The cost of the electrification facilities was lower than appraised because its scope was reduced after the deletion of parts of the subsurface drainage facilities and the interceptor drains. Furthermore, electrification equipment was purchased at rates substantially lower than anticipated. The cost of the on-farm water management works remained significantly below the appraisal estimate because of lower unit costs.

13. ADB’s loan of $122.0 million was to finance 19 percent of the total project cost, as shown in the following table. The other seven external cofinanciers and the Government were to finance $294.9 million and $237.9 million, equivalent to 45 percent and 36 percent of the total cost, respectively. The share of the individual financiers were affected by the reduction in scope of certain components and changes in the exchange rate of the Pakistan rupee and other major currencies.7 At the same time, the value of the special drawing rights appreciated, thereby increasing the availability of ADB financing in US dollar terms.8 Because of these factors, ADB financing increased to $169.4 million but its financing share decreased marginally from 19 percent to 18 percent. The financing provided by the other cofinanciers is estimated at about $293.4 million, equivalent to 30 percent of the project cost. The Government’s financing is expected to be double that of estimated at appraisal to reach $500.2 million, equivalent to 52

6 Scavenger wells have two pumps: one pump for the fresh groundwater lens overlying the saline groundwater and the second one at a lower level for the saline groundwater. The fresh groundwater pump discharges into a watercourse, thereby supplementing canal supplies. 7 The $-PRs exchange rate dropped from $1.0=PRs14.3 at the time of appraisal to $1.0=PRs40.0 by the end of December 1997. 8 The SDR-$ exchange rate increased from SDR1.0=$1.034 at the time of appraisal to SDR1.0=$1.349 by the end of December 1997. 5 percent of the project cost. This significant increase is mainly the result of increases in the cost of land acquisition, resettlement, project administration, and interest during construction.

Overall Project Cost and Financing Plan

Source At Appraisal At Completion by end-2002 $ million % $ million % Asian Development Bank 122.0 19 169.4 18 Other External Financiers 294.9 45 293.4 30 Government 237.9a 36 500.2b 52 Total 654.8 100 963.0 100 a Including interest during construction estimated at $18.3 million. b Indicative estimate including interest during construction estimated at $152.4 million.

D. Project Schedule

14. An eight-year implementation period starting in mid-1985 was envisaged at appraisal (Appendix 3). Actual implementation started in mid-1986 following the fielding of the consultants. Completion of the Project with the reduced scope is scheduled for the end of 2002, resulting in an implementation period of 16 years. However, several project components were completed earlier. The work on the main drains and Tidal Link was completed in 1995, and the surface and subsurface drainage facilities together with the on-farm water management works were completed between 1995 and 1997. Canal remodeling and the construction of the Chotiari Reservoir continued after 1997. All works financed by ADB were completed in late 1997, requiring an extension of the loan closing date by four years.

15. Because of the Project’s magnitude, its technical complexity, and the involvement of a large number of financiers, several factors contributed to the overall implementation delay. The principal factors were (i) a one-year delay in the engagement of the consultants; (ii) shortcomings in designs coupled with insufficient consultations during the design phase with the primary beneficiaries and adversely affected persons; (iii) delays in decision making primarily by WAPDA on procurement and contract management matters and by Government of Sindh on resettlement planning; (iv) unsatisfactory procurement arrangements and sequencing of contracts; (v) unsatisfactory supervision arrangements during the early implementation phase; (vi) poor performance of certain contractors; (vii) insufficient consultation with local communities and delays in compensation payments resulting in occasional stoppage of works; (viii) the need to redesign part of the canal remodeling works and the Chotiari Reservoir;9 (ix) conditionalities imposed by cofinanciers during project implementation;10 and (x) budget and delays in the release of counterpart funds shortfalls during certain years. Factors beyond the control of the Borrower, provincial government, and the executing agencies that contributed to the delays were (i) the serious law and order problems for about three years in the early implementation phase; and (ii) the widespread flooding caused by heavy rainfall in 1988, 1992, and 1994.

9 The design for the remodeling of the Nara Canal was changed as a result of the outcome of the environmental impact assessment carried out during project implementation and the financing shortfall. The design of the Chotiari embankment was changed to minimize the resettlement impact, the unfavorable foundation conditions, and the inclusion of an emergency spillway. 10 These additional conditionalities included (i) the undertaking of environmental impact assessments for the remodeling of the Nara Canal and the Chotiari Reservoir; (ii) the preparation of a full resettlement plan associated with the Chotiari Reservoir; (iii) a reassessment of the viability of the Project; and (iv) resolution of O&M issues. These conditionalities affected the implementation of the Project’s irrigation component. 6

E. Engagement of Consultants and Procurement of Goods and Services

16. ADB and the World Bank were to jointly finance the consulting services for design and construction of the Project’s drainage and irrigation components. Selection and engagement of these consultants were done in accordance with ADB’s Guidelines on the Use of Consultants. The engagement of the consultants was delayed by nearly a year, initially by the need to improve the terms of reference and subsequently by the evaluation process. The consultancy services contract was awarded to an international firm acting in association with two domestic firms (the LBOD consultants).

17. According to the overall financing plan of the Project, ADB was to finance contracts for surface and subsurface drainage facilities and interceptor drains, and the contracts were to include civil works as well as the supply and installation of equipment. Procurement of these contracts was undertaken in accordance with ADB’s Guidelines for Procurement and the Loan Agreement. ADB-financed contracts were awarded on the basis of international competitive bidding (ICB) procedures and local competitive bidding (LCB) procedures acceptable to ADB. Prequalification of contractors was undertaken for all contracts except for electrical supply contracts for which postqualification was undertaken. There was limited interest on the part of international contractors to participate in the ICB because of the relatively small size of the contracts, i.e., generally less than $25 million, and the difficult law and order situation during the early implementation phase. As a result, of the 13 ADB-financed ICB contracts, only three were awarded to international contractors. The large number of relatively small contracts contributed to implementation delays and also resulted in an additional burden and costs in terms of contract supervision and administration.11 This could have been avoided if the works had been packaged in larger contracts.

F. Performance of Consultants, Contractors, and Suppliers

18. The performance of the consultants was mixed but overall it was satisfactory in the execution of a complex and challenging assignment, partly due to the continuity of consultant staff at the senior level. The consultants provided valuable assistance to WAPDA and DIP in terms of overall project management and administration. They also assisted WAPDA in the successful introduction of computer-aided design, a novelty in the early days of the Project. Nevertheless, detailed engineering planning and design of some works was not fully satisfactory and did not adequately take into account the complexity of the local conditions. With respect to construction supervision, decision making at the technical level improved when the LBOD consultants assumed the role of the engineer for contract administration. They also assisted in improving quality control, but maintaining quality standards for small structures in remote areas proved difficult especially during the period of serious law and order problems.

19. The performance of contractors under the ADB-financed components has been variable. In earlier contracts, a shortage of plants in the country was a constraint, particularly for smaller contractors. A number of the early surface drainage contracts failed and were subsequently re- awarded at significantly higher rates. The failure of these contracts was due to inadequate contractor performance for which law and order problems were a contributing factor. More rigorous prequalification criteria and more thorough verification of information submitted by prequalification applicants would have precluded the participation of some of the unsuccessful contractors. While there have been successes and failures on the part of both international and

11 In total, more than 90 contracts were awarded under the Project. 7 domestic contractors, the international contractors were prepared to invest more resources to ensure the successful execution of their contracts than the domestic contractors.

G. Conditions and Covenants

20. Significant policy reforms in the agriculture sector were covenanted in the Loan Agreement (Appendix 4). The Borrower was to eliminate the subsidy on fertilizers and rationalize agriculture prices.12 It also was to reduce its control on the export of rice and cotton. The Borrower substantially complied with these covenants.

21. An important sector covenant was the requirement to achieve full recovery of the O&M cost of Sindh’s irrigation system by gradually increasing irrigation service fees. Although Government of Sindh has increased the irrigation services fees by more than 100 percent since 1984, the actual level of cost recovery declined due to inflation. To address the continuing problems faced in the irrigation sector, the provincial government adopted a new strategy in 1997. This strategy, the implementation of which is supported through NDP, aims to redefine the government’s role with the ultimate aim of (i) establishing autonomous management organizations for irrigation supply and drainage, (ii) transferring secondary-level irrigation and drainage O&M to FOs, and (iii) phasing out subsidies for O&M within 7 to 10 years. The Sindh Irrigation and Drainage Authority Act adopted in 1997 provides the legal framework for implementation of the new strategy. The Project helped prepare the ground for the implementation of the new strategy by forming the first three FOs in Sindh and supporting preparatory work for the establishment of the Nara AWB.

22. Government of Sindh was to introduce a drainage cess to finance the O&M costs of the Project’s extensive surface and subsurface drainage facilities,13 but has not yet done so.14 Recognizing that special measures are required to finance the high O&M costs of the Project’s drainage facilities, a comprehensive future operation plan (FOP) has been prepared and was approved by Government of Sindh in September 2000. This plan includes a statement for sustainable O&M of the Project’s drainage facilities in part through the partial transfer of responsibility for subsurface drainage to beneficiaries, the introduction of drainage service fees, and the operationalization of the new sector strategy in the project area through the transfer of O&M at the distributary canal level to FOs.

23. Most other conditions and covenants in the Loan Agreement have been met. The Borrower and the Government of Sindh provided the necessary counterpart funds during most of the implementation period, a remarkable achievement considering the 45 percent increase in counterpart fund requirements and the fact that the Project required more than half of the development budget for the country’s water sector during its peak construction years. Acquisition of land for the construction of drainage facilities was carried out in accordance with the Land Acquisition Act, and most of the land was handed over to contractors in time. The original mechanism for recovery of the beneficiaries’ share in the cost of materials for watercourse improvement through annual installments over five years was not fully satisfactory. This mechanism was replaced during project implementation by a one-time “upfront”

12 Implementation of these reforms was supported by ADB through Loan No. 1062, Agriculture Sector Program, for $200 million, approved on 11 December 1990. 13 These fees to be introduced upon completion of a drainage unit were to recover initially 25 percent of the O&M cost and were to be increased gradually to achieve full cost recovery in 2005. 14 To recover the full costs of O&M of the drainage facilities, annual drainage cess would amount to about PRs1,000/ha, much higher than the current irrigation service fee, which ranges from PRs100/ha for fodder to PRs450/ha for sugarcane. 8 contribution, a satisfactory mechanism adopted by the Government of Sindh for all its on-farm water management programs.

H. Contract Awards and Disbursements

24. Contract awards and disbursements remained low until 1991 because of the delays in the commencement of the civil works (Appendix 5). Disbursements reached a peak in 1993 when $37.6 million was disbursed. The direct payment procedure was used for most of the disbursements of eligible expenditures under ICB contracts. An imprest account was established with WAPDA in January 1991 to facilitate disbursements under the smaller LCB contracts and a total of $54.8 million was disbursed through this account. When the Loan account was closed in January 1998, $3.1 million was cancelled.

I. Environmental and Social Measures and Impacts

1. Environmental Measures and Impacts

25. Under the Project, provisions were made to protect the natural environment both through the design and during construction (Appendix 6). Specific environmental impact assessments were made for LBOD’s Tidal Link, the Chotiari Reservoir, and for the Nara and Ranto canals. Following the environmental impact assessment for the Tidal Link, its design was amended to protect the ecology of shallow water bodies north of the Tidal Link. Measures have also been taken to protect endangered species in the location of Chotiari Reservoir. Furthermore, adjustments to spoil disposal for the Nara Canal works were made while additional crossing structures were built in the Ranto Canal to facilitate the passage of grazing animals. The Environmental Management and Monitoring Plan prepared in 1995 provided the framework for required analysis and lead to establishment of the EMC, which commissioned specific environmental surveys to gather data on flora and fauna in both the Chotiari and Tidal Link areas. The EMC ceased to function in late 1997 but it was reconstituted in 1999 and its operations continue to be funded through NDP.

26. The Project has started to have widespread environmental benefits through the reduction in waterlogging and salinity in the project area and through the disposal of its saline effluent into the sea. In addition, the Project has reduced stagnant and polluted surface water bodies, thereby lessening the potential for diseases from direct contact with such water and water-borne vectors such as mosquitoes. The additional abstraction of water from the Indus River at the Sukkur Barrage for the annual filling of the Chotiari Reservoir will not have a significant adverse impact on the areas downstream of this barrage. Filling of the reservoir will take place during the flood season and the abstraction will be between 2 and 5 percent of the flow downstream of Kotri Barrage in the flood season.

2. Social Measures and Impacts

27. The Project provided for stakeholder consultation and involvement in the on-farm water management component. This was only partially effective in view of the target-driven approach adopted by DOWM. Most water users’ associations (WUAs) formed to mobilize the farmers for watercourse improvement have ceased functioning and the O&M of the watercourses continues to be undertaken through the traditional informal arrangements.

28. During the second half of project implementation, two initiatives were taken to actively involve the farmers in the O&M of irrigation and drainage facilities. To communicate the benefits 9 of the Project’s drainage facilities and secure their cooperation in guarding and maintaining subsurface drainage facilities, WAPDA with the assistance of an NGO, established a unit that provided drainage advisory services between 1994 and 1997. The unit was successful in establishing better rapport between WAPDA and the farming communities. Cooperation of the farmers in safeguarding pumps and electrical connections and in maintaining disposal channels could, however, not be obtained because they considered this work to be the Government’s obligation. The second initiative was the formation of FOs for three distributary canals. FOs were established through a participatory process while IWMI provided assistance to build up their capacity to undertake the O&M of canals (Appendix 7). Following their formation, the FOs undertook certain maintenance and improvement works. Since their distributary canals have not yet been transferred, the capacity of these FOs to undertake the complex task of O&M remains to be established.

29. The Project already has a significant positive impact on the population in the project area. On the whole, small and marginal farmers, tenants, and landless laborers constitute over 75 percent of the households in the project area. Due to improved drainage and the accompanying increase in farm productivity, household incomes and employment opportunities have increased significantly. Average yields of main crops – wheat and cotton – are already up by 40 percent and 35 percent, respectively. Similarly, farm incomes have increased over 70 percent. As more area is being reclaimed each year, the on-farm as well as off-farm employment opportunities have significantly improved. Women directly benefit from the Project’s drainage component through increase in household income and farm employment opportunities. They also benefit from improved health conditions and a reduction in the maintenance of mud houses, a task traditionally done by women, because of the lowering of the groundwater table.15

30. The Project involved significant land acquisition and resettlement. A total of 25,650 ha of land had to be acquired for the right-of-way of new drainage facilities, remodeling of canals, and the establishment of the Chotiari Reservoir. The land acquired was generally of low productivity since it was mostly located in the waterlogged area and often abandoned. Land value assessment, acquisition, and compensation were undertaken in accordance with the Land Acquisition Act. However, compensation payments were often delayed because of the usually precarious counterpart fund situation under which WAPDA gave priority to its contractual obligations with respect to the ongoing civil works. The construction of the Chotiari Reservoir involved significant resettlement. Although the design of the embankment was adjusted to minimize resettlement, 594 households were affected. The resettlement plan has encountered several problems and has been negatively affected by early irregularities with the compensation process, insufficient allocation of funds, and delays in the development of the resettlement site.16 The resettlement process is expected to be completed in 2001.

J. Performance of the Borrower and the Executing Agencies

31. The Borrower’s main role was to allocate adequate budget for the project components executed by WAPDA. For most years, the Government fulfilled this role satisfactorily despite the significant increase in its financing share of the Project. The same applies for Government of Sindh in terms of its role of budget appropriation and release of funds for the Project components executed by DIP and DOWM. The Borrower and the Government of Sindh also displayed adequate flexibility in adjusting the project design and implementation arrangements

15 International Waterlogging and Salinity Research Institute. Women and Drainage in Pakistan, December 1999. 16 Currently, the Government of Sindh is planning to offer PRs150,000 per household as cash compensation rather than resettling them as earlier planned. 10 during implementation. Performance of the Government of Sindh in other areas was mixed. The Government of Sindh discharged its role in terms of overall project coordination satisfactorily through the Project Steering Committee. However, it lacked resolve to address in a timely manner important matters such as its contribution to the funding of O&M of completed facilities during project implementation, the introduction of drainage service fees, implementation of the resettlement program associated with the Chotiari Reservoir, and the transfer of the O&M of three distributary canals to the FOs established under the Project.

32. WAPDA’s overall performance was mixed but generally satisfactory, considering the complexity of the Project and the serious problems with law and order between 1988 and 1991. WAPDA proved receptive to changes during project implementation as manifested by the establishment of its LBOD O&M Division, its support for the pilot for O&M performance contracts, and the active participation in and support for the Project’s EMC. WAPDA’s record in terms of procurement and contract administration was, however, not satisfactory primarily because of centralized decision making. This resulted in unreasonable delays in prequalification, procurement of civil works and supply contracts, approval of contract variations and time extensions, settlement of claims, delayed payments to contractors and suppliers, and the nondisbursement of $3.1 million of eligible expenditures.17 Decision making at the technical level improved with the assignment of the LBOD consultants as the engineer. WAPDA’s O&M Division was successful in carrying out its functions despite severe financial constraints. WAPDA’s supervision of consultants was also generally satisfactory.

33. DIP’s performance improved to a satisfactory level during project implementation. Its performance was adversely affected by the frequent changes of key staff. DIP also faced problems in providing design staff. DIP’s procurement and contract administration was generally satisfactory but its capability to supervise contracts was initially limited. This situation was rectified in 1994 when the LBOD consultants were assigned as the engineer. DIP also faced problems in assuming the responsibility for the O&M of major drainage facilities handed over in 1993 because it was not sufficiently prepared for this task. As a result, the O&M of these facilities was handed back to WAPDA in 1994.

34. Although DOWM exceeded its physical targets, its performance was not fully satisfactory but it improved during project implementation. Delays in posting of several key staff and the late engagement of consultants resulted in inadequate supervision of the watercourse improvement works during the initial years. DOWM’s continuing focus on achieving physical targets was at the expense of quality of beneficiary participation and mobilization.

K. Performance of Asian Development Bank

35. During appraisal, ADB together with the other external financiers did not sufficiently recognize the complexity of the Project, its fiscal implications on the development budget, or its extraordinary demands on the capacity of the executing agencies. At that stage, the financiers also placed insufficient emphasis on the sustainability of the Project’s drainage facilities: in fact, the estimated incremental O&M cost, as a result of the Project, required a doubling of DIP’s annual O&M budget, and there were already indications of difficulties in ensuring adequate O&M for drainage tubewells installed in other parts of the country. During the initial stage of project implementation, the focus of ADB and the other financiers was primarily on engineering aspects and procurement of the major civil works and supply contracts. As a result, land

17 WAPDA was not able to approve the pending contract variations, claims, and time extensions prior to the closing of the loan account. 11 acquisition, stakeholder participation, and post-project O&M did not receive sufficient attention during these years. However, these matters became the focus of discussions between the external financiers, the Borrower, and the Government of Sindh from 1992 onward. Although the external financiers under the leadership of the World Bank could reach a common understanding most of the time, the occasions of disagreement caused problems for the Government of Sindh and WAPDA.

36. ADB played an active role within the group of external financiers. ADB joined most of the World Bank-led joint review missions, thereby helping to resolve overall project implementation issues. The continuity of ADB staff ensured effective supervision and a consistent approach on the part of ADB, both of which were appreciated by the Government, the Government of Sindh and WAPDA.18 To follow-up on post-project O&M and other issues, ADB fielded two missions after its project completion mission in December 1998.

III. EVALUATION OF INITIAL PERFORMANCE AND BENEFITS

A. Initial Performance

37. Physical performance monitoring data indicate that the Project’s drainage system is working satisfactorily. Saline effluent is being evacuated from the project area into the sea. Groundwater tables are falling in all three subproject areas, and previously abandoned lands are gradually being reclaimed (Appendix 8). In 1999, about 65 percent of the project area had groundwater tables equal to or deeper than 150 centimeters, whereas in 1994 this was only 27 percent.19 The rains of 1992 and 1994 demonstrated the effectiveness of the drainage system in disposal of storm runoff. A component that is not performing according to design expectations is LBOD’s outfall into the Arabian Sea, i.e., the Tidal Link. Erosion of parts of slopes and embankments of the Tidal Link started in 1996, leading to a partial collapse of the Cholri weir in 1998. Further extensive damage was done to the Tidal Link as a result of the 1999 cyclone. The damage has not affected the disposal of saline effluent but the influence of the tide has moved more than 20 km upstream along the Tidal Link. This has an adverse impact on the ecology of the shallow water bodies north of the Tidal Link and on the nearby communities and agricultural lands. Further monitoring and studies are being done under NDP to decide on the appropriate course of action.

38. Although the Chotiari Reservoir is not yet complete, irrigation supplies have increased in the Sanghar and Mirpurkas areas following completion of the remodeling of the Jamrao Canal System in 1995. These increases are, however, achieved by compromising the freeboard of the canals. The full increase envisaged at appraisal will materialize in late 2002 with the expected commissioning of the Chotiari Reservoir. Through the continuing remodeling of the Rohri Canal financed by the Government of Sindh through its own resources, irrigation supplies to the Nawabshah area are gradually being increased.

39. The extensive field visits undertaken by the project completion mission in 1998 and an impact assessment undertaken in 200020 confirmed that the Project has reversed the waterlogging trend. Wherever drainage facilities were in operation, farmers expressed their satisfaction about the improved drainage conditions. They were convinced that the Project had

18 Because ADB only financed contracts executed by WAPDA, it did not interact directly with DIP or the Department of Agriculture. 19 A depth of 150 centimeters is generally considered a “safe” depth to prevent the capillary rise of groundwater with the associated effect on salinization of the root zone, which reduces or prevents crop growth. 20 M. Mirani, Rapid Assessment of LBOD Stage-1 Project, July 2000. 12 provided a solution to their decades-old problems. The farmers also believed that the open drains have provided considerable relief from storm water and floods. Some dozen new ginneries set up in the project area indicate that private investors were confident that production of cotton, a crop highly sensitive to waterlogging, would increase.

B. Financial Performance

40. The estimated current population of the area is about 1.92 million – an increase of over 60 percent since appraisal. About 70 percent of the population is still rural compared with 90 percent at appraisal. About 75 percent of the estimated 320,000 households earn a large part of their income from agriculture and over 60 percent are small or marginal farmers, sharecroppers, and landless laborers. The other important source of income is livestock rearing. In Pakistan, poverty worsened in the 1990s. In terms of basic needs and income distribution, the percentage of population below poverty line increased from 29 percent in 1986 to 36 percent in 1994. Rural Sindh has the highest concentration of poor in Pakistan. Recent surveys conducted in some parts of the project area have reported an incidence of poverty as high as 46 percent.21

41. The Project has already yielded significant benefits to owner-farmers and sharecroppers in terms of higher farm income. The increasingly intensive farming is also benefiting the wage- earning farm workers through expanded employment opportunities. The incremental benefits would have significant impact on poverty reduction in the project area. To meet food needs, a family of six requires an income of PRs3,600 per month (or PRs43,200 per annum). Over 55 percent of the estimated 113,000 farms have landholdings equal to or less than 3 ha. Financial analysis of a typical 3-ha farm shows that average incomes, after taxes, have already increased by over 70 percent. At full development, in 2004, these incomes are expected to have increased by more than 140 percent compared with those in the without-project scenario: from PRs18,000 to over PRs43,000 per annum (Appendix 9). These estimates do not include the expected incremental income from livestock. An important impact of the Project is on the increasingly large proportion of the area being reclaimed and put back into farming. The value of the land has also increased many fold, from PRs15,000 – PRs50,000 per ha before the Project to currently PRs300,000 – PRs400,000 per ha. There is now a net in-migration into the project area as the on- and off-farm employment opportunities are expanding at a considerable pace.

C. Economic Performance

42. The re-estimated economic internal rate of return (EIRR) is 12.8 percent compared to 13.6 percent estimated at appraisal (Appendix 9). The analysis in this report is based on more conservative benefits assumptions than those used at appraisal.22 If the same level of wheat and cotton yields were used in this analysis as those assumed at appraisal, the re-estimated EIRR would be 15.3 percent, holding all other variables constant. The EIRRs are not comparable due to significant changes in the input and output price ratios; however, despite a cost overrun of 47 percent (about $308.2 million) and assuming lower crop yields, the re- estimated EIRR is not significantly different from that estimated at appraisal. The reason is that, for this analysis, based on the field observations (i) the full development is assumed four years earlier, by 2004; (ii) O&M costs are assumed substantially lower according to ongoing performance contracts; (iii) the estimated abandoned area is assumed to be 20,000 ha less; and (iv) the cropping intensity is assumed 120 percent compared to that of 114 percent at appraisal.

21 The National Rural Support Program conducted surveys in 1,333 villages of the Mirpurkhas subproject area. It defined poor households as those having a landholding of two ha or less. 22 Crop yield levels and their growth projections assumed at appraisal seem high given the current circumstances in the project area. 13

Regular O&M of the infrastructure is an important factor in keeping the Project economically viable. The sensitivity analysis shows that the provision of inadequate O&M after 2010 would render the Project unviable as the EIRR drops below 10 percent.

43. Secondary impacts of the Project are just as considerable. The cost of O&M for the infrastructure such as roads, rails, and private and commercial building has considerably declined. Spin-off economic benefits – such as establishment of new oil extraction units, flour, and cotton ginning factories, both the large and cottage industries such as sugar mills, brick kilns, woodworks, farm machinery, and other related trade – have also been considerable and quite visible.

D. Attainment and Sustainability of Benefits

44. To attain and sustain full benefits, completion of the Project’s irrigation component and adequate O&M of irrigation and drainage facilities during the life of the Project are required. Increased irrigation supplies are not only important for meeting peak crop water requirements but also for accelerating the reclamation of abandoned land. Completion of the Project’s irrigation component is expected in 2002; it will then allow full realization of the irrigation benefits in the Mirpurkhas and Sanghar areas. For the Nawabshah area, irrigation supplies have already increased, albeit by about 55 percent from what was assumed at appraisal as a result of the remodeling of the Rohri Canal and its Nasrat branch by the Government of Sindh through its own resources. The exceptional nationwide drought during 1999-2000 and the resulting shortage in irrigation supplies highlighted the project area’s high degree of dependence on irrigation supplies for crop production.

45. The Project’s objectives were highly relevant to the Government’s overall development strategy, especially in the water sector, and to those of ADB’s lending strategy for Pakistan as well as its strategic objectives both at the time of appraisal and preparation of this report (para 3). The efficacy of the Project was also attained satisfactorily to the extent that the physical and institutional goals adopted at appraisal were substantially accomplished. The initial performance indicates that the drainage works are performing well, have started to reverse the land deterioration, and will eventually fulfill the overall objectives. The efficiency of the Project is rated as less than satisfactory because of a cost overrun of 47 percent and a time overrun of almost 100 percent.23 In many instances both types of overrun were caused by the poor law and order situation in the area. However, the Project is having a significant positive impact on beneficiaries’ incomes and on poverty reduction (paras. 40-41). The re-estimated EIRR is 12.8 percent (para 42). The secondary impact of the Project is also considerable (para 43).

46. To ensure sustainability of the project benefits, adequate O&M of the Project’s irrigation and drainage facilities is essential. The Government of Sindh continues to allocate insufficient funds for O&M,24 with the result that proper maintenance of certain irrigation facilities was visibly lacking during the project completion mission. Recently, the Government of Sindh formally approved and adopted the FOP. However, it has not yet decided to levy the drainage cess on beneficiaries. The estimated O&M expenditure for the project infrastructure is equivalent to almost a quarter of DIP’s current annual budget. This is a considerable fiscal liability that requires additional revenue-raising measures such as levying a drainage cess. At present, O&M

23 The time overrun for ADB’s loan was about 38 percent. However, by the time the Project itself is completed by 2002, it will have taken twice as long to finish. As of now, 95 percent of the Project is complete; the remaining works pertain to irrigation infrastructure and are being financed under NDP. 24 During FY 1998, O&M expenditures were about one third of the requirement. 14 of the Project is financed under the NDP through eight performance contracts.25 However, these contracts are due to expire by 2003. Given the current hesitation to levy drainage cess, it is not clear how the Government of Sindh will provide for sustainable O&M for the Project beyond 2003. If the Government of Sindh will not implement the policy and institutional measures that are required to provide for O&M on sustainable basis, project benefits could dissipate within 10 years, rendering it economically unviable. As a result, sustainability of the Project has been rated as less than satisfactory.

47. The Project has demonstrated the viability of new approaches to O&M by adopting the concept of performance contracts and by preparing the Nara Canal AWB and forming the related FOs on a pilot basis. To that extent the institutional developments under the Project have been effective and satisfactory. Overall, the Project has been rated as successful (Appendix 10). However, the long-term sustainability and overall success of the Project will remain questionable until the Government of Sindh directly involves the beneficiaries in the management of the infrastructure and levies the drainage cess.

IV. CONCLUSIONS AND RECOMMENDATIONS

A. Conclusions

48. The substantial completion of the Project is a major achievement considering its magnitude and the difficult conditions under which its components were executed. The Project has been implemented as appraised albeit with a 20 percent reduction of its scope, a 47 percent higher cost, and an extended implementation period. The main difficulties encountered during project implementation were (i) the immense scale and technical complexity of the Project; (ii) the one-year delay in the engagement of consultants; (iii) serious law and order problems in the early implementation phase; (iv) shortcomings in engineering designs; (v) insufficient consultations during the design phase with the primary stakeholders and adversely affected persons; (vi) delays in decision making on procurement and contract management matters and on resettlement planning; (vii) unsatisfactory procurement arrangements and sequencing of contracts; (viii) poor performance of contractors; (ix) widespread flooding caused by heavy rainfall in 1988, 1992, and 1994; and (x) funding constraints during certain years.

49. The Project has substantially realized two of its primary development objectives, i.e. improved drainage and disposal of excess water and salt out of the project area covering 516,500 ha, thus reversing the deterioration of the land resource base due to waterlogging and salinity. The third objective of increased irrigation supplies for about 290,000 ha is expected to be fully realized in 2002 following completion of the Chotiari Reservoir. The main beneficiaries are the 1.92 million people living in the project area, over 40 percent of whom are poor. The Project has demonstrated the viability of new approaches to O&M in the irrigation and drainage sector. These approaches enhance the role of primary stakeholders in O&M through formation of FOs at the distributary canal level, and that of the private sector through performance-based O&M contracts for drainage facilities. The Project through its preparatory work for the Nara Canal AWB and its FOs contributed to the adoption of the Government of Sindh’s new strategy for the irrigation and drainage sector in 1997 and facilitated its implementation.

50. Due to significant achievements and its relevance and efficacy in the context of the development strategy of the Borrower, the Government of Sindh, and ADB, the Project is rated

25 The estimated total cost is PRs316.65 million. Of these, six contracts (for PRs251.10 million) are financed by ADB and the other two, for PRs65.55 million, by the World Bank. 15 as successful. However, the sustainability of the O&M of the Project’s drainage facilities remains uncertain. If the Government of Sindh does not adopt the required policy reforms and involve the beneficiaries in its management and levy drainage cess, the Project may be rendered unsuccessful in less than 10 years.

B. Lessons Learned

51. The key lessons learned from the Project relate to the preparation and implementation of large-scale water sector projects and their sustainability. Where projects will result in significant additional O&M liabilities, a comprehensive affordability analysis should be undertaken at an early stage of project preparation in consultation with all stakeholders, i.e. the Government, the agency responsible for O&M, and the end-users. To ensure that the primary end-users are ready to assume O&M responsibilities and share in the O&M costs, their involvement in both the design and construction phase is essential. The Project has also demonstrated that farmers in Pakistan are prepared to organize themselves to undertake O&M tasks at the distributary canal level, whereas traditionally farmer involvement for these tasks in the Indus basin irrigation system is limited to the watercourse level. A large number of financiers complicated the Project implementation. Moreover, the large number of relatively small contracts contributed to implementation delays and also resulted in additional burden and costs.

C. Recommendations

52. The project completion mission, the Government of Sindh, and the executing agencies agreed on a number of follow-up actions to ensure attainment of full benefits and their long-term sustainability. These agreements were summarized in an action plan prepared during the mission which was subsequently reviewed and revised through two follow-up missions in 1999 and 2000 (Appendix 11). To ensure the sustainability of the Project’s irrigation and drainage facilities, a number of actions have already been accomplished but the Government of Sindh still need to (i) implement the FOP to transfer the O&M responsibilities to FOs and drainage beneficiary groups, (ii) introduce a drainage cess, and (iii) increase the irrigation service fee. If selected for postevaluation, the Project’s performance audit report should preferably be prepared in 2003 or later so that benefits can be more firmly assessed. Other general recommendations are as follows:

(i) To reinforce implementation of agreed policies under project loans, compliance with major policy-related loan covenants needs to be linked with important project milestones.

(ii) For projects requiring cofinancing, the number of financiers should be limited to minimize coordination problems. If multiple financiers are to be involved, coordination problems can be minimized by encouraging them to finance complete components.

(iii) To avoid implementation delays and escalation of costs, the number of interdependent contracts needs to be limited. Civil works involving supply and installation of equipment need to be packaged, where possible, in one contract.

(iv) To ensure a smooth handing over of completed works under projects where the construction is undertaken by an agency other than the “owner” agency, the handing- over process needs to be carefully planned together with the transfer of technical and operational knowhow. 16

APPENDIXES

Number Title Page Cited on page, para.

1 Appraised and Actual Project Scope 17 2, 4

2 Appraised and Actual Project Cost 20 4, 11

3 Appraised and Actual Implementation Schedule 21 5, 14

4 Status of Compliance with Major Loan 22 7, 20 Covenants

5 Annual Contract Awards and Disbursements 28 8, 24

6 Environmental Measures 29 8, 25

7 Farmer Organizations 32 9, 28

8 Physical Impacts of Drainage Works 34 11, 37

9 Financial and Economic Analysis 36 12, 41

10 Project Rating 51 14, 47

11 Revised Action Plan 52 15, 52 17 Appendix 1, page 1

APPRAISED AND ACTUAL PROJECT SCOPE

Component Appraisal Target Achievement A. Completion of Left Bank Outfall Drain

• Remodel Kadhan Pateji KPOD – length: 56 kilometers KPOD – length: 56 km; capacity: Outfall Drain (KPOD)/ (km); capacity: 62 – 90 cubic 74 – 92 cubic meters Dhoro Puran Outfall Drain meters (m3/s) DPOD – length: 38 km; capacity: (DPOD) DPOD – length 38 km; 57 cubic meters capacity: 57 cubic meters

• Tidal Link length: 38 km length: 41 km; capacity: 92– 174 cubic meters

B. Surface Drainage 516,500 hectares (ha); 1,280 516,500 ha; 1,466 km of surface km of surface drains drains

• Nawabshah area 157 km main, 439 km branch & subdrains, 975 major structures & 643 drain inlets

• Sanghar area 48 km main, 375 km branch & subdrains, 750 major structures & 661 drain inlets

• Mirpurkhas area 117 km main, 330 km branch & subdrains, 530 major structures & 699 drain inlets

C. Subsurface Drainage 392,000 ha of cultivable 333,000 ha of CCA (45,000 ha command area (CCA) deferred to National Drainage Program [NDP])

1. Vertical Drainage Wells

• Nawabshah area 385 wells 302 wells • Sanghar area 300 wells 627 wells • Mirpurkhas area 715 wells 326 wells (444 wells deferred to NDP)

2. Vertical Scavenger Wells

• Nawabshah area 92 wells 189 wells • Sanghar area 758 wells 172 wells

3. Horizontal Drainage Pipe Systems • Mirpurkhas area 875 km of laterals and 1,070 km of laterals and collectors, 52 sumps each with collectors, 37 sumps 2 or 3 pumps 18 Appendix 1, page 2

Component Appraisal Target Achievement

4. Interceptor Drains • Nawabshah area total 580 km, approx 160 154 km, 54 sumps • Sanghar area sumps each with 2 pumps of Sanghar/Mirpurkhas interceptors • Mirpurkhas area 28 or 56 l/s capacity deferred to NDP

D. Electrification

1. Grid Station Extensions 4 transformer bays 4 transformer bays

2. Distribution Lines • Nawabshah area 1,100 km 1,000 km • Sanghar area 1,950 km 1,500 km • Mirpurkhas area 1,350 km 900 km (remainder deferred to NDP)

E. Operations & Maintenance Workshops & Equipment

1. Maintenance Depot Nawabshah, Sanghar and Mirpurkhas Approach to provision of O&M facilities revised; fully equipped 2. Workshop Khoski primary workshops at Mirpurkhas & Badin

3. Secondary Depot Depot at Ali Bandar and KPOD

4. Maintenance Equipment Extensive plant and spares Supply of 9 units 90 ton draglines, 7 bulldozers, 3 graders plus support transport, fuel and water tankers, plant for minor works, workshop equipment and spares

F. Housing & Colonies Offices and housing at Completed as appraised Nawabshah, Sanghar, Mirpurkhas, Daur, Badin, Kadhan, and Jati G. Irrigation Works

1. Jamrao Canal New 88 km long 88 m3/s Twin Completed as appraised; Twin Canal with silt extractor at Canal to be commissioned under Jamrao Head NDP

2. Jamrao System 345 km branch, distributary Completed as appraised Remodeling and minor canals in Sanghar and Mirpurkhas sub-areas 3. Nara Canal Remodeling Increase capacity of 175 km Partly completed; 2 fall long Nara Canal from 364 m3/s structures and headworks to 560 m3/s protection completed. Remaining works being completed under NDP 19 Appendix 1, page 3

Component Appraisal Target Achievement 4. Ranto Canal New 19 km long 184 m3/s 28 km long 184 m3/s canal feeder canal to Chotiari Reservoir

5. Chotiari Reservoir 56 km embankment to enclose Remains under construction, reservoir with 0.9 billion m3 about 30 % complete storage

H. On-Farm Water Improvement of 920 1,481 watercourses improved; Management watercourses; precision land 33,600 ha precision land leveling leveling of 26,000 ha carried out

• Nawabshah area 270 watercourses 551 watercourses • Sanghar area 310 watercourses 450 watercourses • Mirpurkhas area 340 watercourses 480 watercourses

I. Consulting Services 878 person-months with up to 3,433 person-months including (to assist Water and Power about 25 percent expected to 1,303 person-months Development Authority be provided by domestic international and 2,130 person- [WAPDA] and Department of consultants months domestic services Irrigation and Power [DIP] in the implementation of their respective components)

J. Training 30 professionals to receive in- 20 professionals received (for WAPDA and DIP service training in project external training. Formal in- professionals) implementation and O&M service training provided in surveying, computers, construction supervision and O&M

K. Monitoring & Evaluation Physical monitoring program Monitoring of groundwater levels and quality, and soil salinity levels

Agriculture and socioeconomic Agriculture and socioeconomic surveys and studies surveys and studies undertaken

L. Drainage Formed in 1995 tasked with Advisory Service developing a communication strategy and encouraging beneficiary participation in development process and O&M

M. Pilot for O&M Pilot project undertaken on three Benificiaries distribution canals aimed at farmer organizations taking over O&M tasks 20 Appendix 2

APPRAISED AND ACTUAL PROJECT COST ($ million)

Item Appraisal Estimate Actual at end 1997 At Project Completion (2002) Foreign Local Total Foreign Local Total Foreign Local Total Cost Cost Cost Cost Cost Cost Cost Cost Cost

1. LBOD and its Outfall Core Programme 3.6 3.4 7.0 8.4 8.6 17.0 8.4 8.6 17.0 Kadhan Pateji and 9.7 5.3 15.0 5.0 3.9 8.9 5.0 3.9 8.9 Dhoro Puran Outfall Drains Tidal Link 14.1 3.6 17.7 17.8 14.3 32.1 17.8 14.3 32.1

2. Drainage Components Surface Drainage 11.2 12.5 23.7 85.6 77.9 163.5 86.0 78.1 164.1 Drainage Tubewells 23.4 6.1 29.5 23.9 11.0 34.9 23.9 11.0 34.9 Scavenger Wells 14.8 3.2 18.0 9.4 5.5 14.9 9.4 5.5 14.9 Interceptor Drains 12.6 5.9 18.5 11.9 0.1 12.0 11.9 0.1 12.0 Tile Drains 14.5 4.3 18.8 14.0 11.3 25.3 14.0 11.3 25.3

3. Irrigation/OFWM Works Nara & Jamrao 22.3 20.7 43.0 37.2 103.3 140.5 47.8 132.8 180.6 Canal Chotiari Reservoir 8.2 9.4 17.6 14.5 16.9 31.4 40.2 46.8 87.0 OFWM 3.1 14.3 17.4 1.3 12.5 13.8 1.3 12.5 13.8

4. Electrification 31.4 13.9 45.3 14.9 13.1 28.0 15.3 15.9 31.2

5. Maintenance Work- 14.9 1.1 16.0 18.4 0.8 19.2 18.4 0.8 19.2 shops & Equipment

6. Land Acquisition — 11.5 11.5 — 60.9 60.9 — 60.9 60.9

7. Administration, Over- 3.7 28.0 31.7 0.7 57.0 57.7 7.7 62.1 69.8 heads, Engineering, Camps, Buildings

8. Consulting Services 8.4 0.9 9.3 21.4 10.2 31.6 21.4 10.2 31.6 & Training

9. Monitoring & 1.5 1.5 3.0 1.6 2.9 4.5 1.6 2.9 4.5 Evaluation

10. O&M of Drains ——— 0.0 2.8 2.8 0.0 2.8 2.8

11. Taxes & Duties — 61.4 61.4 — a —— a —

Base Cost 197.4 207.0 404.4 286.0 413.0 699.0 330.1 480.5 810.6

Physical 27.9 29.1 57.0 —————— Contingencies

Price Escalation 92.7 82.4 175.1 —— — — ——

Interest During Construction 18.3 — 18.3 — 145.1 145.1b — 152.4b 152.4 Total Cost 336.3 318.5 654.8 286.0 558.1 844.1 330.1 632.9 963.0

— = zero magnitude, LBOD = Left Bank Outfall Drain, O&M = operation & maintenance, OFWM = on-farm water management. a Included in the costs of the various components. b Includes both foreign and local costs. APPRAISED AND ACTUAL IMPLEMENTATION SCHEDULE

1985 19861987 1988 19891990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 A. Drainage Works 1. LBOD a. Spinal Drain/ KPOD/ DPOD

b. Tidal Link

2. Nawabshah Subproject Area a. Surface Drains <===== ADB financed

b. Drainage Tubewells <===== ADB financed

c. Scavenger Wells

d. Interceptor Drains <===== ADB financed

e. Electricity Distribution Network

3. Sanghar Subproject Area a. Surface Drains <===== ADB financed

b. Drainage Tubewells <===== ADB financed

c. Scavenger Wells Pilot

d. Interceptor Drains 21 <------deleted ------>

e. Electricity Distribution Network

4. Mirpurkhas Subproject Area a. Surface Drains <===== ADB financed

b. Drainage Tubewells <===== ADB financed

c. Subsurface Pipe System

d. Interceptor Drains <------deleted ------>

e. Electricity Distribution Network

5. Maintenance Facilities

B. On-Farm Water Management

C. Irrigation Works

1. Nara Canal Remodeling Appendix 3

2. Jamrao Canal Remodeling

3. Chotiari Reservoir and Ranto Canal

ADB = Asian Development Bank, DPOD = Dhoro Puran Outfall Drain, KPOD = Kadhan Pateji Outfall Drain, LBOD = Left Bank Outfall Drain

Legend: Planned at Appraisal Actual 22 Appendix 4, page 1

STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS

Description Reference Status of Compliance A. Institutional Arrangements

1. Borrower shall establish a Project LA Schedule 6, Complied with. Steering Committee (PSC) who para. 2 shall be responsible for overall coordination and shall oversee and monitor the overall progress of project implementation. The PSC shall meet quarterly or as often as may be required by project developments.

2. An Integrated Management LA. Schedule 6, Complied with. Organization (IMO) shall be para. 3 established to undertake detailed management and coordination of project implementation.

3. A Project Office shall be LA Schedule 6, Complied with. established for each of the para. 4 following:

(i) central design and monitoring; (ii) spinal drain and outfall; (iii) electrification; and (iv) Nawabshah, Sanghar, and Tharparkar districts.

4. The Sindh agencies responsible for LA Schedule 6, Complied with in the case of on-farm water management and para. 5 canal remodeling; not canal remodeling activities shall complied with for on-farm liaise and coordinate with IMO water management throughout the implementation period.

B. Operation and Maintenance (O&M)

5. The project drainage facilities shall LA Schedule 6, Post-completion O&M be operated and maintained by para. 6 (a) (i) arrangements were modified Water and Power Development during implementation. As a Authority (WAPDA), after result, WAPDA remained completion, for an initial period of responsible for all completed 23 Appendix 4, page 2

Description Reference Status of Compliance one year. Thereafter, full facilities until 1999 when responsibility shall be transferred to transfer to DIP was initiated Department of Irrigation and Power according to a two-year of Sindh (DIP). transfer program. 6. Not later than 1 January 1988, LA Schedule 6, Complied with delay. Future WAPDA shall prepare and furnish para. 6 (a) (iv) Operations Plan (FOP) to Asian Development Bank for submitted in 1999. review and comment, a draft O&M manual for the project facilities. A final manual shall be prepared not later than 1 January 1991.

7. WAPDA shall operate and maintain LA Schedule 6, Not yet applicable. Chotiari the Chotiari reservoir for one year para. 6 (b) reservoir not yet completed. after completion and, thereafter, shall transfer the responsibility for its O&M to DIP.

8. WAPDA's Power Wing shall LA Schedule 6, Complied with. operate and maintain the para. 6 (c) electrification works constructed under the Project. 9. The farmer-beneficiaries shall be LA Schedule 6, Complied with. jointly responsible for the O&M of para. 6 (d) watercourses improved or reconstructed, and field drains constructed, under the Project. These beneficiaries shall be organized into water users associations.

10. Borrower shall promptly provide LA Schedule 6, para. Partially complied with. Post- adequate funds, staff, and 6 (e) completion O&M funding not equipment to ensure full sufficient for adequate O&M. effectiveness of the O&M arrangements for project facilities.

C. Agricultural Policies and Activities

11. Borrower shall cause Sindh to: LA Schedule 6, para. Partially complied with. 7 Government of Sindh (a) periodically increase irrigation increased the water rates by water rates, or to make other more than 100 percent suitable financial between 1984 and 1999. arrangements, to recover an Because of inflation, full cost increasing percentage of the recovery has not yet been 24 Appendix 4, page 3

Description Reference Status of Compliance O&M costs of the provincial achieved despite this rate irrigation system for full increase. Within the recovery by 1 July 1988; and framework of the National Drainage Program (NDP) (b) increase the irrigation water supported by ADB through rates by 25 percent over Loan No. 1413: National existing rates not later than Drainage Sector Project, FY1986. ADB and Sindh agreed in 1995 on a new policy and strategy for sustainable O&M. Implementation of this new policy and strategy is being delayed.

12. Borrower shall cause Sindh to LA Schedule 6, para. Not yet complied with. See provide adequate funds for the 8 (a) under para. 13. Drainage O&M of drainage facilities under cess not yet introduced. the Project and for this purpose, shall periodically increase the drainage service rates to be collected from the project beneficiaries to cover full O&M costs.

13. Upon completion and full operation LA Schedule 6, para. Not yet complied with. Sindh of drainage facilities, beneficiaries 8 (b) has not yet introduced shall have one year of grace before drainage cess. However, being required to contribute toward recognizing that special O&M costs. Thereafter and measures are required to commensurate with the accrual of finance the high O&M cost of project benefits, the Borrower shall the drainage facilities, a cause Sindh to ensure that comprehensive FOP has drainage rates are recovered from been approved by Sindh. beneficiaries and that: The FOP aims at sustainable O&M through, among other (a) the initial drainage service things, the partial transfer of rates recovered present at O&M responsibility to least 25 percent of the full beneficiaries, and the phased O&M cost; and introduction of drainage cess.

(b) drainage cess increased periodically so that at least 50 percent of the costs are recovered by 1 July 1995 and full recovery by 1 July 2005. 14. Borrower shall gradually reduce the LA Schedule 6, Subsidy eliminated on urea subsidy per unit cost of fertilizer in para. 9 and substantially reduced for order to eliminate it by 30 June diammonium phosphate. 25 Appendix 4, page 4

Description Reference Status of Compliance 1985. 15. Borrower shall ensure that prices of LA Schedule 6, Complied with. crops (i.e. wheat, sugar, and para. 10 cotton) are set at levels that provide adequate incentives to the farmers.

16. Borrower shall ensure that the LA Schedule 6, Partially complied with. Agriculture Development Bank of para. 11 Borrower’s directives to Pakistan (ADBP), commercial ADBP, other banks and banks and cooperatives make cooperatives to make available to farmers an adequate available agricultural credit amount of production and remained in effect. However, development credit to the farmers. official banking sector remains unable to deliver sufficient credit to the farmers.

17. Extension services in the project LA Schedule 6, Partially complied with. area shall be strengthened to para. 12 Drainage advisory services ensure that the benefits of were provided under the improved drainage are translated Project for about two years. into increased agricultural productivity.

18. (a)By 1 July 1986, the Borrower shall LA Schedule 6, Amendment to the Ordinance cause Sindh to review and para. 14 (a) is no longer required. Within consider suitable arrangements or the framework of NDP, ADB to amend the Sindh Irrigation and Sindh agreed in 1995 on Water Users Association a new policy and strategy for Ordinance (1982) with a view of sustainable O&M. extending the powers and responsibilities of water users associations into the drainage field including the responsibility to construct and maintain farm drains.

(b)Borrower shall ensure that LA Schedule 6, Complied with. During Project farmers benefiting from para. 14 (b) implementation, original watercourse improvement are arrangement for partial required to contribute all recovery of the capital cost unskilled labor and to repay a replaced by a more effective portion (25 percent) of the capital upfront contribution in cash cost of materials over a period of and/or kind. five years. 26 Appendix 4, page 5

Description Reference Status of Compliance

D. Other Matters

19. Borrower shall cause Sindh to LA Schedule 6, Complied with. Some ensure that the Rohri Canal para. 15 remodeling work of the Rohri remodeling progresses at such a Canal is still ongoing. rate that the benefits of the same are available within the Rohri Canal Command Area not later than January 1990 or such other date as the ADB may otherwise agree.

20. The Makhi-Faresh Project shall be LA Schedule 6, Sindh remains committed to implemented to allow full use of the para. 17 implement the Makhi-Faresh additional storage benefits to be Project. Its implementation provided with the construction of not required for achieving full the Chotiari Reservoir. benefits in the project area.

21. (a) WAPDA shall undertake LA Schedule 6, Complied with. suitable monitoring and para. 19 (a) evaluation activities.

(b) Sindh shall undertake socio- LA Schedule 6, Complied with economic surveys and other para. 19 (b) case studies in specific areas to assess and quantify project impact.

(c) Implementation progress moni- LA Schedule 6 Complied with. toring shall be the responsibility para. 19 (c) of IMO. The monitoring of physical parameters shall be integrated with the ongoing program of WAPDA's Monitoring and Evaluation Organization (South).

22. Selected professional staff of LA Schedule 6, Complied with. WAPDA and DIP of Sindh shall be para. 20 provided with appropriate training.

23. WAPDA shall furnish to ADB P.A. Section 2.09 Complied with. quarterly progress reports and (b) semiannual reports summarizing budget allocations and expenditures. 27 Appendix 4, page 6

Description Reference Status of Compliance

24. Promptly after physical completion P. A. Section 2.09 Complied with. of the Project, but not later than six (c) months thereafter or such later date as ADB may agree for this purpose, WAPDA shall furnish to ADB a report on the execution and initial operation of the Project, their cost and the benefits derived and to be derived from them, the performance by the Borrower and WAPDA of its obligations under the Loan Agreement, and the accomplishment of the purposes of the loan.

25. WAPDA and Sindh shall furnish to L.A. Section 4.04 Complied with. ADB certified copies of audited P.A. Section 2.09. financial statements and reports of the auditors relating thereto, not later than nine months after close of the fiscal year. 28 Appendix 5

ANNUAL CONTRACT AWARDS AND DISBURSEMENTS ($ million)

Year Contract Awards Disbursements Year-wise Cumulative Year-wise Cumulative

1986 16.045 16.045 0.411 0.411

1987 14.000 30.045 0.926 1.337

1988 0.324 30.369 3.611 4.948

1989 13.096 43.465 5.729 10.677

1990 1.915 45.380 6.624 17.301

1991 37.868 83.248 11.621 28.922

1992 62.887 146.135 29.646 58.568

1993 10.336 156.471 37.577 96.145

1994 6.214 162.685 31.458 127.603

1995 2.046 164.731 23.060 150.663

1996 4.696 169.427 10.954 161.617

1997 0.000 169.427 7.810 169.427

Source: Asian Development Bank’s Loan Financial Information System. 29 Appendix 6, page 1

ENVIRONMENTAL MEASURES

A. Introduction

1. The provision of perennial irrigation to the lower Indus Basin following construction of the Sukkur Barrage in 1932 led to a steady increase in groundwater levels in the area. In time, the rising watertable caused waterlogging and high salinity, which reduced agricultural output and ultimately resulted in the abandonment of large tracts of land. The Project aimed to reverse this situation through the installation of subsurface drainage to lower the watertable and of a surface drainage network for the disposal of drainage effluent into the Arabian Sea. The need to conserve major open water bodies supporting a varied aquatic life and wintering areas for migratory birds was recognised at appraisal. Issues considered at appraisal included the impact on surrounding land of surface drains carrying saline effluent, arrangements at Left Bank Outfall Drain’s (LBOD) outfall and the impact on fish of the expansion of Chotiari Reservoir. Although few specific environmental issues were identified for further study, the consultants to be engaged under the Project were required to prepare an environmental impact assessment (EIA) of the planned outfall arrangements for the LBOD.

B. Environmental Impact Assessment

2. The EIA of LBOD’s outfall was carried out in 1989. It found no adverse long-term impact from the arrangement for disposal of the saline effluent to the sea and the passage of storm water to shallow water bodies (locally called dhands) in the outfall area. The EIA noted few existing mangrove plants at the outfall and recommended trial plantations, which, if successful, would provide vegetative protection to canal embankments. In 1990, a trial plantation of mangroves was installed at the mouth of the Tidal Link with the assistance of Sindh Forestry Department and World Conservation Union (IUCN). While this trial was not very successful, self-seeding of mangroves has taken place at the mouth of the Tidal Link since it became operational in 1995.

3. The EIA recommended the separation of the Tidal Link from the dhands to the north to avoid potential pollution of these areas by the drainage effluent and to prevent them from becoming tidal once connected to the sea through the Tidal Link. Frequent change in levels in the dhands was considered detrimental to an existing ecology supporting vast numbers of different species of wintering birds. As a result of these recommendations, the design of the Tidal Link was amended to provide partial separation of the channel and the northern dhands. An embankment was included on the northern side of the Tidal Link, and the Cholri weir was provided to allow drainage flows from the north to escape at low tides and to permit temporary storage of drain water at high tides. Such storage would have served to attenuate peak water levels in the upstream Tidal Link and thus improve conditions for the Kotri surface drains. In June 1998, a section of the Cholri weir collapsed as a result of erosion in the Tidal Link. In consequence, deep channels developed into the dhands from the Tidal Link. Later, in 1999, a cyclone hit the project area, seriously damaging the Tidal Link’s embankments. The damage has not affected the disposal of saline effluent from the project area into the sea, but the influence of the tide has moved more than 20 kilometers (km) upstream along the Tidal Link. The impact of these events on the dhand ecology and the food chain for wintering birds is expected to be detrimental. It also adversely affects communities living along the periphery of the dhands. The performance of the Tidal Link continues to be monitored under National Drainage Program to assist in deciding on the appropriate course of action. 30 Appendix 6, page 2

4. The Project’s midterm review in 1993 identified the need for an EIA of Chotiari Reservoir and the Nara Canal and for specific studies of resettlement issues associated with Chotiari. These studies were conducted in 1994 and resulted in revisions to the alignment of the reservoir embankment specifically to exclude from inundation an area of relatively productive and populated land and to protect other areas of particular ecological value. Recommendations were made for the gradual filling of the reservoir on completion and for actions to minimize adverse impacts arising from construction activities. These included the provision of a road bypass for the nearby town of Sanghar to reduce problems arising from the large number of trucks hauling construction materials. The bypass road was constructed except for a short section for which the land could not be acquired because of a land compensation issue. The bypass road has therefore not been used, and hauling of materials is mainly being done at night. Further surveys to obtain more information on species such as crocodiles, hog deer, and birds, considered to be endangered from the development, have since been carried out to a limited extent. The EIA for the Nara Canal identified the main impact as arising from disposal of large volumes of dredged material from the canal and recommended actions to mitigate such impact. An additional EIA was conducted for the Ranto Canal, the new 26 km long canal that feeds the Chotiari Reservoir from the Nara Canal. As a result of this EIA, additional structures were included in the contract to facilitate the passage of grazing animals, and a large number of trees were planted adjacent to the canal.

C. Environmental Management

5. During project implementation, a number of actions were taken to strengthen environmental management. Additional consulting services were provided to address environmental and resettlement issues identified through the EIAs conducted during project implementation, to strengthen the capacity of the concerned institutions, and to develop greater awareness of environmental issues. Water and Power Development Authority created an environmental cell in the Integrated Management Organization office with a part-time director and two junior professional staff. An Environmental Management Committee was established in August 1995 to be led by Water and Power Development Authority’s general manager (Water South). The committee included representatives of the Department of Irrigation and Power, Sindh Environmental Protection Agency, Sindh Wildlife Department, Mehran University and the University of Sindh, Jamshoro, IUCN, World Wildlife Fund, Dharti Dhost Sangat, and other local nongovernment organizations.

6. An Environmental Management and Monitoring Plan for the construction and post- construction phases of the Project was prepared in October 1995. The Plan was updated in late 1997 and expanded to take into account recommendations of the Environmental Management Committee. It also includes analysis of preliminary information obtained from the field surveys of fauna, flora, and water quality within the Chotiari catchment and the Tidal Link area. These surveys were carried out by the Zoological Survey Department of Pakistan and the Freshwater Biology and Fisheries Department of the University of Sindh, Jamshoro in 1997. Although useful information was gathered, it is to be considered preliminary as the surveys were intended to run for a number of years. Indeed, in the case of avifauna, the survey period did not extend over the full winter migratory period. Implementation of the Environmental Management and Monitoring Plan has been supported through National Drainage Program since 1999.

7. In order to promote understanding of the Project and its associated environmental issues, a seminar was held at Mehran University in October 1997. Additional studies into specific environmental issues were also undertaken. These studies confirmed that the sodic soils within the project area were limited to marginal lands and would not further spread under 31 Appendix 6, page 3 project conditions. The studies also made recommendations for the establishment of wildlife sanctuaries in the Chotiari and Tidal Link areas and for an environmental education center at Sanghar.

D. Indus Water Abstraction

8. The water required to fill the Chotiari Reservoir is 0.9 billion cubic meters, which is to be abstracted annually from the River Indus at Sukkur Barrage when the river is in flood, i.e., between mid June and late September. This abstraction will reduce the volume of water passing through Kotri Barrage to the sea. Studies indicate that seasonal minimum flows are more important than annual totals for the ecology downstream of Kotri Barrage. Since the abstractions for Chotiari will take place in the flood season, they will therefore have a minor adverse impact. The peak abstraction for Chotiari will be equivalent to less than 5 percent of the average flow downstream of Kotri Barrage in the flood period. During dry years, abstraction for Chotiari could be restricted to preserve flows downstream of Kotri Barrage. 32 Appendix 7, page 1

FARMER ORGANIZATIONS

1. In 1997, each of the four provinces in Pakistan passed the Provincial Irrigation and Drainage Authority (PIDA) Act and thereby began changing the institutional relationships between the provincial irrigation departments and farmers that had been governed by the Irrigation and Drainage Act of 1873. It is expected that, within 7-10 years, formal farmer organizations (FOs) will become actively involved in the day-to-day tasks of distributary canal operation and maintenance (O&M), as well as in mobilizing the financial resources required to sustain the O&M of the Indus Basin's canal irrigation systems. In addition, farmers will be represented in the new agencies such as PIDAs and area water boards formed for each canal system.

2. In anticipation of these more participatory institutional arrangements in the irrigation sector, several pilot projects to organize farmers at the minor or distributary canal level had already been initiated. In mid-1995, the local office of the International Water Management Institute (IWMI) commissioned by Directorate of On-Farm Water Management of Sindh, initiated an "action research program" to establish water user federations (WUFs) on three distributary canals in the Left Bank Outfall Drain project area. The objectives of IWMI’s program were "to test the viability of farmers' managing parts of the irrigation and drainage system" in order to achieve a more equitable and efficient distribution of irrigation water, and "to make recommendations for policies on future extension of this work." It was intended that, once established, each WUF would take over all or part of the O&M responsibilities for its respective distributary or minor canal.

3. The process of developing FOs was carefully planned and included an extensive training program for members of social organization field teams assigned to each pilot distributary command. Each field team comprised five staff – two field engineers, two social organizers, and one team leader – who were based in an IWMI field station. This was the first of four phases conceptualized by IWMI for the process of organizing farmers in a distributary command area, i.e. the support mobilization phase. The other three phases are that of initial organization, organization consolidation, and organizational action.

4. The support mobilization and initial organization phases were completed in each distributary canal command by the end of 1996, or about 18 months after IWMI initiated the Sindh pilot project. Initial organization involved the formation of watercourse-based water user associations (WUAs) for which leadership was selected either by election or consensus; the latter process appears to have been followed in the great majority of cases. A total of 80 WUAs – one per watercourse command – were formed in three distributary command areas. Each WUA nominated two representatives for the WUF assembly, and in a general meeting of the assembly, the executive board – officers and general members – of each distributary WUF were selected.

5. The process of organization consolidation continued throughout 1997 and 1998. It included registering both the WUAs and the WUFs as formal farmer water management organizations under the relevant provisions of the 1981 Water Users Association Ordinance of Sindh. With the signing of joint management agreements between each distributary WUF and the Sindh Irrigation Department in October 1997, it was expected that the organizational action phase had begun. However, less than two weeks later, the Government of Sindh suspended these agreements. 33 Appendix 7, page 2

6. Despite this obvious setback, WUAs and WUFs remained active. Officers continued to function in their specific capacities, regular WUF meetings were held, records of decisions reached were kept, and bank accounts were opened in the name of the WUFs in which modest sums mobilized through the organizations have been kept. A large number of agricultural extension-related "collaborative activities" were arranged with local agencies (e.g. Veterinary Department, Forest Department, Agricultural Extension Directorate, Agricultural University at Tando Jam) in which large number of interested farmers participated.

7. Following the suspension of joint management agreements, increased attention was placed upon involving the WUAs and WUFs of Heran, Dhoro Naro, and Bareji distributaries in activities intended to strengthen or further consolidate their respective organizations. These activities have varied from farmer-organized desilting of each canal during the annual closure period to command area development works identified by the WUAs/WUFs, with technical support being provided by IWMI. The development works already implemented include such activities as construction of a WUF office (Dhoro Naro), construction and/or repair of sections of the canal inspection path (Heran, Dhoro Naro), and the installation of numerous culverts (Bareji, Dhoro Naro) to facilitate watercourse command access and minimize disruptions or obstruction of watercourse discharge. These physical works were jointly financed and implemented by the WUAs/WUFs (labor, some material) – who also recommended the specific work and its location – and IWMI (capital).

8. IWMI’s involvement ceased in early 1998, three months after the expiration of the original agreement, and the program was put on hold. A second phase of the pilot program commenced in April 1999 under which IWMI continued to organize farmers and assist in the transfer process for these three WUFs. An additional 10 WUFs were established in other parts of Nara Canal command. All 13 WUFs have now been registered as farmer organizations under the PIDA Act and they have formed their own council. Parallel with the IWMI program, formal bylaws for FOs were drawn up and the terms of management transfer agreements were defined.

9. In order to proceed with the actual transfer of O&M to these FOs, the Government of Sindh constituted a committee, which includes representatives of all concerned Government departments and farmer representatives. The committee prepared its proposal and recommendations, but as of June 2000 the Government had not yet acted upon them, thereby stalling the transfer process.

10. The formation of FOs up to June 2000 has shown that, with adequate opportunity to freely interact among themselves, water users are capable of selecting their leaders in a democratic manner. The deployment of small field teams assisted by community-based volunteers, adopting a step-wise social organization process, deviating from the usual funding for physical improvements as an incentive, and not focusing on the need to reduce Government budgets were the main innovative ideas that were tested and found valid. Efforts to build trust, providing equal opportunity for all members of the community to participate, and staying away from party politics were among the other field strategies successfully adopted under the program. The selection of a majority of medium-size and small landowners (and even tenants) as WUA leaders, and reasonably equitable considerations in decision making suggest a good potential for avoiding the dominance of large landowners in the affairs of FOs. 34 Appendix 8, page 1 35 Appendix 8, page 2 36 Appendix 9, page 1

FINANCIAL AND ECONOMIC ANALYSIS

A. Introduction

1. General

1. This economic re-evaluation has been carried out to ascertain the financial and economic viability of the Project by employing updated cost estimates and project impact and benefit data.

2. Data

2. Data on agricultural inputs, outputs, and cropping practices were attained from the appraisal report, the revised project documents prepared by the Borrower, and the rapid rural assessment carried out in June 2000.

B. Methodology

3. The methodology used in this analysis follows the Asian Development Bank’s (ADB) Guidelines for Economic Analysis. The assumptions are summarized in paras. 4-6.

1. Exchange Rate

4. The rupee has devalued substantially since June 1998. The Government has now adopted a policy of dual exchange rate. For this analysis, the prevailing official exchange rate, i.e., PRs52 per dollar, is used for all conversions.

2. Price Assumptions

5. A world price numeraire is used in the analysis. For internationally traded commodities, i.e., wheat, paddy, cotton, sugarcane, urea, and diammonium phosphate, economic prices were estimated based on the World Bank’s commodity price projections of April 2000. The 1990 constant prices were converted to 2000 level by using the manufacturers’ unit value (MUV) index. Variable commodity prices were used for the period 2000 to 2010. The financial prices of the non-traded commodities, net of transfer payments, were adjusted by employing a standard conversion factor of 0.9. To adjust the average daily wage in the project area for seasonal unemployment and underemployment, the shadow wage rate factor was assessed at 0.75. The cost of seed was assumed 20 percent higher than the respective crop price.

3. Other Relevant Assumptions

6. Project life is assumed to be 40 years beyond its completion date in 2002. Previous costs incurred on construction of the main and distributary canals were assumed as sunk costs.

C. Subsidies and Tariffs

7. Canal irrigation and drainage in Pakistan are subsidized to varying degrees in all four provinces. In Sindh, the overall gap between operation and maintenance (O&M) expenditures and recoveries has been in the range of 30 percent to 40 percent over the past five years.1

1 Data collected during recent review missions and the Project completion mission. 37 Appendix 9, page 2

Until the mid-1980s, no such gap existed. In the past, irrigation service fees were meant to recover the capital costs as well as those for O&M. However, increases in these fees have not kept pace with costs; consequently recoveries currently fall short of O&M expenditures. Under the ongoing ADB-cofinanced National Drainage Program, the issue of O&M subsidies is being addressed.2 The Government of Sindh has historically levied drainage cess in other drainage projects that has varied from PRs120-PRs150/hectare (ha) per annum. At full development, a drainage cess of about PRs1,000/ha per annum will be required to recover the full O&M cost of the Project’s drainage infrastructure.

8. Large-scale price subsidies on inputs (urea and diammonium phosphate) and outputs (wheat) were withdrawn in the 1980s. The Government does not apply any specific tariffs on agricultural inputs and outputs. Over the last five years, the domestic wheat price has gradually been brought near to the import price parity — the gap between the two has varied but has been less than 10 percent. In the last five years, wheat imports have averaged 1.5 to 2.0 million tons per year — 10 to 12 percent of the domestic consumption. However, due to good harvest, Pakistan had exportable wheat surplus in 1999. There is no considerable difference in border and domestic financial prices for sugarcane. For cotton, since 1994, the price differential has been minimal and the trade has been liberalized. The international cotton prices now effectively determine the level of farmgate prices.

9. Urea comprises approximately two thirds of the fertilizers used in Pakistan and the country is almost self-sufficient in its production. In recent years, the shortfall in local demand and supply has ranged from 5 to 15 percent. The border price of urea has historically fluctuated and in the future, it is forecast to be lower. In the year when the imported urea is costlier, it is marketed along with the local brands by the domestic producers through a mechanism of price pooling. The price of the local urea is marginally raised to cover the difference between the price of imported and local brands, implying that the Government does not have to bear the cost as subsidy.

10. The issue of agricultural subsidies in Pakistan is complicated, and the extent of subsidies cannot be determined by merely comparing border prices with domestic financial prices of individual commodities. There is now considerable empirical evidence to show that, on the whole, there is a net transfer of resources out of agriculture and into rest of the economy, implying the agriculture sector has been subsidizing other sectors. The Government is addressing the issue of agricultural subsidies in association with a proposed project to be financed by the World Bank.3 In this economic analysis, therefore, no discount was made for wheat and occasional urea subsidies.

D. Agricultural Benefits

11. Left Bank Outfall Drain covers a large and diverse canal command area spread over 516,500 ha. Not all of this area, even after full development of the Project, would directly benefit from the drainage. The associated salinity problems along with shortage of irrigation water would still leave about 15 percent of this area uncultivated. In this analysis, it is assumed that, at full development, a total of 439,190 ha would benefit directly from the Project’s irrigation and drainage infrastructure. The overall cropping intensity in the “future without” project scenario was estimated, at appraisal, to be 80 percent. At full development, by a conservative estimate, it would increase to 120 percent in part due to increased irrigation supplies from the construction

2 Loan No. 1413-PAK (SF): National Drainage Sector Project, for $140 million, approved on 12 December 1995. 3 Agriculture Sector Investment Project, scheduled for approval in FY00/01. 38 Appendix 9, page 3 of Chotiari Reservoir and remodeling of Nara Canal. Data on crop yields, cropping patterns, and intensities for “future without” and “with” project scenarios are presented in Table A9.1. These data are based on the prevailing conditions in the project area. Estimates are thus assumed to be realistic and rather conservative. In this analysis, only the direct and readily quantifiable benefits have been accounted for. Several other obvious benefits that are expected to be considerable (e.g., conversion of fodder into milk, meat, and hides) and indirect, family, and down- and upstream employment opportunities have not been accounted for. Even though the full completion is expected by 2002, about 95 percent of the work is already accomplished. Benefits in certain areas of Nawabshah, the largest of the three subproject areas, started materializing as early as 1995. In the late 1990s, visible signs of the project benefits could be widely observed. In this analysis benefits are assumed to accumulate at 10 percent per annum starting from 1995. Full benefits are assumed from 2004.

E. Financial Analysis

12. The Project has already yielded significant benefits to owner-farmers and sharecroppers in terms of increased farm income. A great majority of the estimated 113,000 farms have landholdings equal to or less than 3 ha. Financial analysis of a typical 3-ha farm shows that average incomes, after taxes, have already increased by over 70 percent. At full development, in 2004, these incomes will have increased in excess of 140 percent compared with those in the without-project scenario — from PRs18,000 to PRs43,000 per annum (Table A9.2). These estimates do not include the expected incremental income from livestock.

F. Economic Analysis

1. Project Economic Benefits

13. The main benefits of the Project will accrue from crop production. Corresponding detailed crop budgets, based on one ha representative farms for future-without and with-project scenarios, were prepared. Economic valuation of the additional production was estimated based on the expected crop production. The economic and financial prices of inputs and outputs used in the analysis are presented in Table A9.3. The derived economic prices of tradable commodities are presented in Tables A9.4 to A9.10. The resulting incremental net value of production is based on the estimates of drained area and the expected uptake by the farmers.

2. Project Investment and Recurrent Costs

14. All relevant project investment and post-implementation O&M costs are shown in Table A9.10. Cost estimates have been expressed in 2000 prices by using appropriate MUV Index and the prevailing exchange rates.4 The transfer payments such as taxes and duties, interest during construction, and price contingencies were deducted from the cost stream, but the cost of land acquisition was included. Post-implementation drainage, on-farm water management, farmers’ contribution in O&M, and overall O&M costs are included in the total cost stream of the Project.

4 During the implementation, contracts for procurement of goods and services and for civil works were/are pegged to a variety of exchange rates over time. The phased-out investment cost stream used in this analysis is the best estimate of all these factors thus not directly convertible to a single or current exchange rate. 39 Appendix 9, page 4

3. Economic Internal Rate of Return

15. The re-estimated economic internal rate of return, for the base case, is 12.8 percent. The estimated net present value is PRs898.0 million, indicating current value of the net incremental cash flow if the opportunity cost of capital is assumed to be 12 percent (Table A9.11).

4. Sensitivity Analysis

16. Sensitivity analysis was carried out to ascertain the economic viability of the Project if the base case assumptions did not hold. The usual sensitivity analysis scenarios do not apply to this Project. For example, the benefits are based on conservative cropping intensity and yield assumptions. Recent field surveys have shown that these levels are already being achieved. With better farm management, i.e., more intensive input use, better quality seed, and increased water supplies, Project benefits would far exceed those assumed in this analysis. Since the desired levels of agricultural credit and extension training have not yet been attained, their impact on benefits is not assumed in the base case scenario. However, the most crucial assumption in the base case pertains to the long-term O&M of the project infrastructure. Given the large size of the project area and variety of infrastructure, fiscal requirements for O&M will be a significant undertaking for the Government of Sindh — PRs439 million is almost a quarter of the total annual O&M budget of the Department of Irrigation. Without levying drainage cess, the provincial government will not be able to provide for sustainable maintenance of the Project in the medium to long term.5 To test the sensitivity, when the yields of major crops (wheat and cotton) or the total canal command area were allowed to decrease by 20 percent, economic internal rate of return dropped to less than 10 percent — making the Project economically unviable.

5 At present, O&M of the Project is financed under ADB-cofinanced National Drainage Program through eight performance contracts. However, these contracts are due to expire by 2003. Given the current hesitation to levy drainage cess, it is not clear how the Government of Sindh will provide for sustainable O&M for the Project beyond 2003. Table A9.1: Future Area, Production, and Yield of Major Crops

Future Without Project Future With Project Additional Area Yield Prod Area Yield Prod Production Crop (ha) (t/ha) (t) (ha) (t/ha) (t) (t)

Cultivated Area 396,356 439,190 Cropped Area 317,085 527,028 Wheat 126,834 1.50 190,251 166,892 2.75 458,954 268,703 Rabi Fodder 19,818 65.00 1,288,157 30,743 75.00 2,305,748 1,017,591 Legumes/Pulses 0 0.00 0 0 0.00 0 0 Paddy 7,927 2.50 19,818 17,568 3.00 52,703 32,885 Cotton 110,980 0.60 66,588 263,514 1.60 421,622 355,035 40 Kharif Fodder 19,818 20.00 396,356 26,351 35.00 922,299 525,943 Vegetables 0 0.00 0 0 0.00 0 0 Sugarcane 31,708 40.00 1,268,340 21,960 60.00 1,315,570 49,231 Cropping Intensity 80.0 120.0

By-Producta

Wheat Straw 126,834 3.00 380,502 166,892 5.50 917,907 537,405 Paddy Straw 7,927 3.75 29,727 17,568 4.50 79,054 49,328 Cotton Stalk 110,980 1.20 133,176 263,514 3.20 843,245 710,069 Sugarcane Tops 31,708 8.00 253,668 21,960 12.00 263,514 9,846 ha = hectare, t = ton aBy-products of wheat, paddy, cotton, and sugarcane are assumed to be 200%, 150%, 200%, and 20% of respective crop yields. Source: Appraisal Report, project completion missions, and rapid rural assessment conducted in June 2000. Appendix 9,pa g e 5 41 Appendix 9, page 6

Table A9.2: Summary of a 3-Hectare Farm Budget

Without With Increase Increase Item Project Project (PRs) (Percent)

Cropping Intensity (%) 80 120.0 40 Value of Farm Output 40,362 102,791 62,429 155 Production Cost 19,932 47,855 27,922 140 Irrigation Costa 2,472 3,708 1,236 50 Agricultural Income Taxb 0 6,250 6,250 Finance Tax (malia)c 0 1,250 1,250 Total Net Farm Income 17,958 43,729 25,771 144 Net Farm Income/ha 3,592 8,746 5,154 144 ha = hectare. a Based on average irrigation service fee (ablana) of PRs 250/acre/year (PRs618/ha/year) – adjusted to cropping intensity. B Based on PRs1235/ha for irrigated areas. Waterlogged areas are exempt. C Based on a flat rate of PRs250/ha for irrigated areas. Waterlogged areas are exempt. Source: Project completion missions and rapid rural assessment conducted in June 2000. Table A9.3: Prices Used in the Financial and Economic Analyses (2000 Farmgate Prices in 2000 Constant Terms)

Item Unit Financial Economic Price Price 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

A Output a Wheat PRs/kg 7.5 8.1 8.4 8.8 8.9 9.1 9.2 9.1 9.0 9.0 8.9 8.8 Rabbi Fodder (berseem) “ 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Legumes/Pulses “ 17.0 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 20.5 Paddy “ 5.0 5.0 5.1 5.2 5.4 5.6 5.8 5.7 5.7 5.6 5.6 5.6 Cotton “ 16.3 16.7 17.2 17.7 18.3 18.9 19.4 19.5 19.5 19.5 19.5 19.5 Kharif Fodder (maize) “ 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Vegetables (onion) “ 5.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Sugarcane “ 0.9 0.4 0.4 0.4 0.5 0.6 0.6 0.6 0.6 0.6 0.7 0.7

B Output (by-product) b Wheat Straw PRs/kg 1.0 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Paddy Straw “ 1.0 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Cotton Stalk “ 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Sugarcane Tops “ 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 42

C Seed c Wheat PRs/kg 9.0 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 9.7 Rabbi Fodder “ 48.0 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2 43.2 Legumes/Pulses “ 24.6 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 22.1 Paddy “ 18.0 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 Cotton “ 20.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 Kharif Fodder “ 5.0 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 Vegetables (onion) “ 110.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0

D Fertilizer & Chemicals Urea PRs/kg 7.0 6.5 7.4 7.7 7.8 7.8 7.8 7.9 7.9 7.9 8.0 8.0 DAP “ 12.0 10.4 10.7 10.7 10.8 10.8 10.8 10.7 10.6 10.5 10.3 10.2 Chemicals “ 1,500.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350.0 1,350. 1,350.0

E Labor & Power Manual Labor d PRs/day 60.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 45.0 Tractor PRs/hour 180.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 162.0 Appendix 9,page7

DAP = diammonium phosphate; kg = kilogram. a For internationally traded commodities, wheat, rice, cotton, sugarcane, urea, and DAP, economic prices were calculated. Financial prices of all other commodities were converted to border price equivalent by using a SCF of 0.90. b All by-products are non-tradables, economic prices derived using SCF. Sugarcane tops were valued as green fodder. c For seed prices, a 20% premium was added to the price of crop. d The opportunity cost of labor was derived by adjusting the prevailing wage rate with a conversion factor of 0.75 to adjust for seasonal unemployment and underemployment. Table A9.4: Import Parity for Wheat

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Wheat price, constant 1990 a 113.0 119.50 125.40 128.23 131.07 133.90 132.28 130.66 129.04 127.42 125.80 Wheat price, MUV-adjusted 2000 119.95 126.85 133.11 136.12 139.13 142.13 140.42 138.70 136.98 135.26 133.54 Plus freight 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 CIF Karachi 149.95 156.85 163.11 166.12 169.13 172.13 170.42 168.70 166.98 165.26 163.54

CIF Karachi b 7797.37 8156.16 8481.83 8638.22 8794.62 8951.01 8861.59 8772.17 8682.75 8593.33 8503.91 Plus port charges 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 Plus transport c 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Price in project area 8387.37 8746.16 9071.83 9228.22 9384.62 9541.01 9451.59 9362.17 9272.75 9183.33 9093.91 Less local agent’s commission d 167.75 174.92 181.44 184.56 187.69 190.82 189.03 187.24 185.45 183.67 181.88 Less transport – farm to market 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 Import parity price at farmgate 8094.63 8446.24 8765.39 8918.66 9071.93 9225.19 9137.56 9049.93 8962.29 8874.66 8787.03 Local farmgate price e 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 7500.00 Appendix9,pa 7500.00 7500.00 43 Ratio of border to local price 1.08 1.13 1.17 1.19 1.21 1.23 1.22 1.21 1.19 1.18 1.17

CIF = cost, insurance and freight; MUV = manufacturers’ unit value. aCanadian No. 1 W Red spring, Free on Board St. Lawrence Ports bExchange rate assumed as 1$ = PRs52.00 cEstimated at PRs0.70/mt/km from Karachi to Hyderabad (200 km) d@ 2% ePRs per maund (or per 40 kg) = 300 Source: World Bank Commodity Price Projections (April 2000). g e 8 Table A9.5: Export Parity Price for Paddy (IRR 6)

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Rice Price, Constant 1990 a 235.50 239.00 241.90 249.13 256.37 263.60 261.96 260.32 258.68 257.04 255.40 Rice Price, MUV-adjusted 2000 249.98 253.70 256.78 264.46 272.13 279.81 278.07 276.33 274.59 272.85 271.11 Rice Price, adjusted for quality b 199.99 202.96 205.42 211.56 217.71 223.85 222.46 221.06 219.67 218.28 216.89 FOB Karachi 199.99 202.96 205.42 211.56 217.71 223.85 222.46 221.06 219.67 218.28 216.89

FOB Karachi 10,399.30 10,553.86 10,681.92 11,001.33 11,320.74 11,640.15 11,567.73 11,495.31 11,422.89 11,350.48 11,278.06 Less port charges 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Less storage and handling 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 400.00 Less transport to project area c 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Value of rice, ex mill 9,359.30 9,513.86 9,641.92 9,961.33 10,280.74 10,600.15 10,527.73 10,455.31 10,382.89 10,310.48 10,238.06 Less milling cost 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 Less value of bran 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Less cost of bags for export 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 450.00 Value of paddy d 5,187.14 5,289.15 5,373.67 5,584.48 5,795.29 6,006.10 5,958.30 5,910.51 5,862.71 5,814.91 5,767.12 Less local agent’s commission (1.5%) 77.81 79.34 80.60 83.77 86.93 90.09 89.37 88.66 87.94 87.22 86.51 Less transport – farm to market 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00 Export parity price at farmgate 4,984.33 5,084.81 5,168.06 5,375.71 5,583.36 5,791.01 5,743.93 5,696.85 5,649.77 5,602.69 5,555.61 e Local farmgate price 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 44 Ratio of border to local price 1.00 1.02 1.03 1.08 1.12 1.16 1.15 1.14 1.13 1.12 1.11

FOB = free on board, MUV = manufacturers’ unit value. a Thai 596 (5% broken), FOB Bangkok b Quality adjustment factor assumed to be 0.82 c Estimated at PRs0.70/mt/km from Karachi to Hyderabad (200 km) d Estimated at 66% of rice e PRs per maund (or per 40 kg) = 200 Source: World Bank Commodity Price Projections (April 2000). Appendix 9,pa g e 9 Table A9.6: Import Parity Price for Cottonseed Oil and Cake

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Soybean oil price, constant 1990 a 381.50 376.80 385.20 385.10 385.00 384.90 385.64 386.38 387.12 387.86 388.60 Soybean oil price, MUV-adjusted 2000 404.96 399.97 408.89 408.78 408.68 408.57 409.36 410.14 410.93 411.71 412.50 Plus freight 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Plus insurance 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 CIF Karachi 444.96 439.97 448.89 448.78 448.68 448.57 449.36 450.14 450.93 451.71 452.50

CIF Karachi 23,138.04 22,878.61 23,342.27 23,336.75 23,331.23 23,325.71 23,366.56 23,407.40 23,448.25 23,489.10 23,529.94 Plus port charges 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 550.00 Plus transport to Multan 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Value ex-mill 24,188.04 23,928.61 24,392.27 24,386.75 24,381.23 24,375.71 24,416.56 24,457.40 24,498.25 24,539.10 24,579.94 Value of cotton oil b 2,418.80 2,392.66 2,439.23 2,438.67 2,438.12 2,437.57 2,441.66 2,445.74 2,449.82 2,453.91 2,457.99

Soybean meal Price, Constant 1990 a 156.60 161.90 166.70 169.88 173.05 176.23 179.40 176.70 174.00 171.30 168.60 Soybean meal Price, MUV-adjusted 165.04 170.63 175.69 179.03 182.38 185.72 189.07 186.22 183.38 180.53 177.69 2000 Plus freight 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00

Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 45 CIF Karachi 195.04 200.63 205.69 209.03 212.38 215.72 219.07 216.22 213.38 210.53 207.69 CIF Karachi (cotton cake price) c 107.27 110.34 113.13 114.97 116.81 118.65 120.49 118.92 117.36 115.79 114.23

CIF Karachi 5,578.17 5,737.92 5,882.59 5,978.29 6,073.99 6,169.69 6,265.39 6,184.01 6,102.63 6,021.25 5,939.86 Value of cotton cake d 5,020.35 5,164.12 5,294.34 5,380.46 5,466.59 5,552.72 5,638.85 5,565.61 5,492.37 5,419.12 5,345.88 Less crushing cost 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 510.00 Less storage, etc. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Less transport to Multan 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00 700.00 Value of cotton cake 3,710.35 3,854.12 3,984.34 4,070.46 4,156.59 4,242.72 4,328.85 4,255.61 4,182.37 4,109.12 4,035.88

CIF = cost, insurance and freight; MUV = manufacturers’ unit value. a Soybean oil (Dutch crude) Free on Board ex-mill USA. Soybean oil is used as proxy for cottonseed oil. b Oil component of cottonseed is assumed 10% c Soybean cake used as proxy for cotton cake, adjustment factor assumed at 55% d Cake component of cottonseed is assumed 90% Source: World Bank Commodity Price Projections (April 2000). Appendix 9,pa g e 10 Table A9.7: Export Parity Price for Cotton

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Cotton price, constant 1990 a 116.30 119.60 122.50 125.93 129.37 132.80 133.00 133.20 133.40 133.60 133.80 Cotton price, MUV-adjusted 2000 1234.52 1269.55 1300.34 1336.78 1373.23 1409.67 1411.80 1413.92 1416.04 1418.16 1420.29 Quality adjustment b 1074.04 1104.51 1131.29 1163.00 1194.71 1226.41 1228.26 1230.11 1231.96 1233.80 1235.65 Less freight 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Less insurance 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 FOB Karachi 939.04 969.51 996.29 1028.00 1059.71 1091.41 1093.26 1095.11 1096.96 1098.80 1100.65

FOB Karachi 48829.89 50414.62 51807.27 53456.03 55104.80 56753.56 56849.61 56945.65 57041.69 57137.74 57233.78 Less port charges 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Less transport to Multan l 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 1000.00 Less ginning cost 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 1400.00 Value of lint ex gin 45929.89 47514.62 48907.27 50556.03 52204.80 53853.56 53949.61 54045.65 54141.69 54237.74 54333.78 Plus value of cottonseed oil 2418.80 2392.86 2439.23 2438.67 2438.12 2437.57 2441.66 2445.74 2449.82 2453.91 2457.99 Plus value of cottoncake 3710.35 3854.12 3984.34 4070.46 4156.59 4242.72 4328.85 4255.61 4182.37 4109.12 4035.88 Value of seedcotton at gin c 17179.48 17741.33 18259.17 18831.51 19403.84 19976.17 20037.64 20046.51 20055.38 20064.25 20073.13

Less transport to gin from market 150.00 151.00 152.00 153.00 154.00 155.00 156.00 157.00 158.00 159.00 160.00 46 Less local agent’s commission (1.5%) 257.69 266.12 273.89 282.47 291.06 299.64 300.56 300.70 300.83 300.96 301.10 Less transport farm to market 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Export parity value at farmgate 16671.79 17224.21 17733.29 18296.03 18858.78 19421.53 19481.07 19488.81 19496.55 19504.29 19512.03 Local farmgate price d 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 16250.00 Ratio of border to local farmgate 1.03 1.06 1.09 1.13 1.16 1.20 1.20 1.20 1.20 1.20 1.20

FOB = free on board, MUV = manufacturers’ unit value. a Cotton – middling 1-3/32 inch, cost, insurance and freight European Ports. b Cotton quality adjustment is assumed at 87% c Lint component of seed-cotton is assumed at 33% d PRs per maund (or 40 kg) = 650 Source: World Bank Commodity Price Projections (April 2000). Appendix 9,page11 Table A9.8: Import Parity Price for Sugarcane

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sugar price, constant 1990 a 12.70 13.10 13.00 14.23 15.47 16.70 16.92 17.14 17.36 17.58 17.80 Sugar price, MUV-adjusted 2000 134.81 139.06 138.00 151.09 164.18 177.27 179.61 181.94 184.28 186.61 188.95 Plus freight 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 CIF Karachi 169.81 174.06 173.00 186.09 199.18 212.27 214.61 216.94 219.28 221.61 223.95

CIF Karachi 8,830.15 9,050.94 8,995.74 9,676.52 10,357.29 11,038.07 11,159.50 11,280.94 11,402.37 11,523.81 11,645.24 Plus port charges 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 Plus storage & handling 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 350.00 Plus transport to Faisalabad 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 900.00 Value at sugar mill 10,330.15 10,550.94 10,495.74 11,176.52 11,857.29 12,538.07 12,659.50 12,780.94 12,902.37 13,023.81 13,145.24 Less processing cost 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 4,600.00 Value of raw sugar 5,730.15 5,950.94 5,895.74 6,576.52 7,257.29 7,938.07 8,059.50 8,180.94 8,302.37 8,423.81 8,545.24 Value of sugarcane b 487.06 505.83 501.14 559.00 616.87 674.74 685.06 695.38 705.70 716.02 726.35 Less transport, farm to market 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 Import parity at farmgate 427.06 445.83 441.14 499.00 556.87 614.74 625.06 635.38 645.70 656.02 666.35 Local farmgate price c 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00 875.00 47 Ratio of border to local price 0.49 0.51 0.50 0.57 0.64 0.70 0.71 0.73 0.74 0.75 0.76

CIF = cost, insurance and freight; MUV = manufacturers’ unit value. a ISA daily, Free on Board Greater Caribbean Ports. b Extraction rate assumed to be 8.5% c PRs per maund (or 40 kg) = 35 Source: World Bank Commodity Price Projections (April 2000). Appendix 9,page12 Table A9.9: Import Parity Price for Urea

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Urea price, constant 1990 a 84.80 91.90 98.50 99.13 99.77 100.40 101.04 101.68 102.32 102.96 103.60 Urea price, MUV-adjusted 2000 90.02 97.55 104.56 105.23 105.90 106.57 107.25 107.93 108.61 109.29 109.97 Plus freight 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 CIF Karachi 110.02 117.55 124.56 125.23 125.90 126.57 127.25 127.93 128.61 129.29 129.97

CIF Karachi 5,720.29 6,112.70 6,477.00 6,511.96 6,546.92 6,581.88 6,617.21 6,652.53 6,687.86 6,723.19 6,758.51 Plus port charges 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 Plus bagging etc. 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 Plus transport 140.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 Value project in area 6,410.79 7,262.70 7,627.00 7,661.96 7,696.92 7,731.88 7,767.21 7,802.53 7,837.66 7,873.19 7,908.51 Plus transport, market to farm 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 Import parity price at farmgate 6,520.79 7,372.70 7,737.00 7,771.96 7,806.92 7,841.88 7,877.21 7,912.53 7,947.86 7,983.19 8,018.51 Local farmgate price b 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 7,000.00 Ratio of border to local price 0.93 1.05 1.11 1.11 1.12 1.12 1.13 1.13 1.14 1.14 1.15 8Appendix9,page13 48

CIF = cost, insurance and freight; MUV = manufacturers’ unit value. a Urea (bulk), Free on Board NW Europe Ports. b PRs per 50 kg bag = 350 Source: World Bank Commodity Price Projections (April 2000). Table A9.10: Import Parity Price for DAP

Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

DAP price, constant 1990 a 155.40 160.90 161.30 161.93 162.57 163.20 160.92 158.64 156.36 154.08 151.80 DAP price, MUV-adjusted 2000 164.96 170.80 171.22 171.89 172.56 173.24 170.82 168.40 165.98 163.56 161.14 Plus freight 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 Plus insurance 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 CIF Karachi 184.96 190.80 191.22 191.89 192.56 193.24 190.82 188.40 185.98 183.56 181.14

CIF Karachi 9,617.77 9,921.36 9,943.44 9,978.40 10,013.35 10,048.31 9,922.46 9,796.61 9,670.76 9,544.91 9,419.06 Plus port charges 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 Plus bagging, etc 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 Plus transport 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 140.00 Value in project area 10,307.77 10,611.36 10,633.44 10,668.40 10,703.35 10,738.31 10,612.46 10,486.61 10,360.76 10,234.91 10,109.06 Plus transport, market to farm 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 Import parity price at farmgate 10,417.77 10,721.36 10,743.44 10,778.40 10,813.35 10,848.31 10,722.46 10,596.61 10,470.76 10,344.91 10,219.06 Local farmgate price e 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00

Ratio of border to local price 0.87 0.89 0.90 0.90 0.90 0.90 0.89 0.88 Appendix9,page14 0.87 0.86 0.85 49

CIF = cost, insurance and freight; DAP = diammonium phosphate; MUV = manufacturers’ unit value. a DAP (bulk), US Gulf Ports b PRs per 50 kg bag = 600 Source: World Bank Commodity Price Projections (April 2000). 50 Appendix 9, page 15

Table A9.11: Cost and Benefit Streams (PRs million)a

Phased out Total Net Year Investment O&M Total Incremental Benefit Beginning Costs Costsb Costs Benefits Stream

1986 116.1 0.0 116.1 0.0 -116.1 1987 460.6 0.0 460.6 0.0 -460.6 1988 811.8 0.0 811.8 0.0 -811.8 1989 901.4 0.0 901.4 0.0 -901.4 1990 974.8 0.0 974.8 0.0 -974.8 1991 1,256.4 0.0 1,256.4 0.0 -1,256.4 1992 2,242.4 0.0 2,242.4 0.0 -2,242.4 1993 2,971.1 0.0 2,971.1 0.0 -2,971.1 1994 2,889.6 0.0 2,889.6 0.0 -2,889.6 1995 3,205.6 0.0 3,205.6 552.5 -2,653.1 1996 3,115.1 0.0 3,115.1 1,140.0 -1,975.1 1997 3,130.2 0.0 3,130.2 1,772.1 -1,358.1 1998 2,137.7 0.0 2,137.7 2,452.0 314.3 1999 1,750.3 0.0 1,750.3 3,176.5 1,426.2 2000 1,360.8 0.0 1,360.8 3,945.6 2,584.8 2001 784.2 0.0 784.2 4,605.3 3,821.1 2002 852.0 0.0 852.0 5,251.8 4,399.8 2003 439.0 439.0 5,895.5 5,456.5 2004 439.0 439.0 6,536.4 6,097.4 2005 439.0 439.0 6,536.4 6,097.4 2006 439.0 439.0 6,536.4 6,097.4 2007 439.0 439.0 6,536.4 6,097.4 2008 439.0 439.0 6,536.4 6,097.4 2009 439.0 439.0 6,536.4 6,097.4 2010 439.0 439.0 6,536.4 6,097.4 2011 439.0 439.0 6,536.4 6,097.4 2012 439.0 439.0 6,536.4 6,097.4 2013 439.0 439.0 6,536.4 6,097.4 2014 439.0 439.0 6,536.4 6,097.4 2015 439.0 439.0 6,536.4 6,097.4 2016 439.0 439.0 6,536.4 6,097.4 2017 439.0 439.0 6,536.4 6,097.4 2018 439.0 439.0 6,536.4 6,097.4 2019 439.0 439.0 6,536.4 6,097.4 2020 439.0 439.0 6,536.4 6,097.4 2021 439.0 439.0 6,536.4 6,097.4 2022 439.0 439.0 6,536.4 6,097.4 2023 439.0 439.0 6,536.4 6,097.4 2024 439.0 439.0 6,536.4 6,097.4 2025 439.0 439.0 6,536.4 6,097.4 Economic Internal Rate of Return 12.9% Net Present Value (PRs million) 1,033.1

O&M = operation and maintenance. a For the estimation of net present value, opportunity cost of capital is assumed to be 12 percent. b O&M cost during implementation is included in the investment cost. PROJECT RATING

Criterion Assessment Rating Weight Weighted Justification (0-3) (%) Rating

Relevance HS 3 20 0.60 The Project was highly relevant in the context of the development strategy of the Borrower, Govt of Sindh, and Asian Development Bank at the time of appraisal. The Project has remained relevant under the latest development strategy as illustrated by the inclusion of the Project’s remaining works under the National Drainage Program (NDP). Efficacy S 2 25 0.50 The Project is substantially complete but its scope was reduced by about 20%. The initial performance of the drainage works is satisfactory. It has started to reverse the deterioration of land and related resource base. Efficiency LTS 1 20 0.20 The Project was implemented with a significant cost overrun of about 27% and a time overrun of almost 100%.a The financial returns to beneficiaries and impact on poverty are considerable. The economic internal rate of return has been reestimated at 13.1% . Sustainability LTS 1 20 0.20 In the short run, financing for operation and maintenance (O&M) of the drainage works is provided through NDP. But it is uncertain whether Govt of Sindh will adopt the policy and institutional measures that are 51 required to make the O&M sustainable beyond the close of NDP in 2003. Institutional S 2 15 0.30 The Project has demonstrated the viability of new approaches to O&M. Development The Project also helped in preparing the new strategy adopted by Govt of Sindh in 1997 for the irrigation and drainage sector, and has facilitated the implementation of this strategy through its preparatory work for the Nara Area Water Board and the formation of pilot farmer organizations. Overall Rating S 1.80 The Government’s commitment toward meeting the long-term O&M obligations remains unclear. If appropriate O&M is not provided by 2010, the EIRR will drop below 10 percent making the Project economically unviable.

Rating: 3=highly satisfactory, 2=satisfactory, 1=less than satisfactory, 0=unsatisfactory Appendix 10 Overall Rating: HS=highly successful (>2.5), S=successful (1.6≤S≤2.5), LTS=less than successful, (0.6≤LTS≤1.6), U=unsuccessful (<0.6) a The time overrun for Asian Development Bank’s loan was about 38 percent. However, by the time the Project itself is completed by 2002, it will have taken twice as long to finish. As of now, more than 95 percent of the Project is complete; the remaining works pertain to irrigation infrastructure and are being financed under NDP. REVISED ACTION PLAN (updated on 30 June 2000)

Action Responsible Status as of Remarks Agency(ies) 30 June 2000 A Policy Matters A.1 Prepare draft supplementary policy DIP & WAPDA Accomplished The draft supplementary policy statement statement regarding the O&M of the has been incorporated in the FOP. The FOP LBOD system covering institutional was finalized in February 2000. arrangement; partial transfer of responsibility for subsurface drainage to beneficiaries; and generation of revenues. A.2 Conduct consultations about O&M Govt of Sindh, Accomplished supplementary policy statement with all DIP & WAPDA stakeholders. A.3 Issue final supplementary policy Govt of Sindh, Accomplished Govt of Sindh approved the FOP in

statement regarding O&M. DIP & WAPDA September 2000. Appendix11,page1 52 A.4 Adopt time-bound plan for institutional Govt of Sindh, Accomplished A time-bound O&M Action Plan has been measures, transfer of O&M DIP & WAPDA incorporated in the FOP. responsibilities and the raising of revenues A.5 Accelerate the establishment of the Govt of Sindh & Accomplished Nara Area Water Board inaugurated in Area Water Board for Nara Canal. DIP/SIDA December 1999. A.6 Submit proposal to the competent Govt of Sindh, Partly This proposal is part of the FOP but authorities within Govt of Sindh to DIP, Revenue & accomplished drainage cess has not been levied. introduce drainage cess in the LBOD Finance Depts. area (as part of the FOP). B Project Matters B.1 Transfer O&M of the distributary canal Govt of Sindh Not yet Govt of Sindh constituted a committee which system to 13 pilot farmer organizations accomplished prepared a document on O&M transfer but established with IWMI assistance. endorsement of this document still awaited. Farmer organizations are ready to take over the O&M. B.2 Finalize a detailed plan for the handing WAPDA & DIP Accomplished All assets handed over except the LBOD and over of LBOD assets from WAPDA to its outfall drains which is now scheduled for DIP/Sindh Irrigation and Drainage handing over in December 2002. Authority. Action Responsible Status as of Remarks Agency(ies) 30 June 2000 B.3 Award performance contracts for O&M WAPDA, Govt of Accomplished Eight performance contracts, for PRs316.65 of Project facilities under NDP. Sindh & DIP million, have been awarded. B.4 Resolve problems of power cuts and DIP,& WAPDA Not yet Power cuts and voltage regulation and theft voltage regulation and theft of accomplished of transformer and lines remain a continuing transformers and lines. problem. B.5 Adjust operation of drainage tubewells DIP Not yet Tubewells’ running-hours will be optimized and sumps according to drainage cess accomplished during the implementation of O&M collected and groundwater table performance contracts. Drainage cess not movements. yet levied. B.6 Continue monitoring the Tidal Link and WAPDA Accomplished adopt measures to ensure its functions. Arrange for further study of the system and undertake measures to stabilize Cholri Weir. 3Appendix11,page2 53 B.7 Constitute a committee comprising Govt of Sindh, Accomplished representatives from Govt of Sindh and DIP, WAPDA WAPDA to determine the optimal approach to ensure a sustained operation of LBOD’s Tidal Link in view of the 1999 cyclone damage and the in- channel erosion problems that emerged since its commissioning. B.8 Conclude agreement for continuation of WAPDA Accomplished physical and benefit monitoring under NDP. B.9 Reactivate the EMC for LBOD; continue WAPDA & Govt Partly EMC reconstituted and reactivated. Activities the implementation of the EMMP and of Sindh accomplished and surveys under the EMMP firmed up but restart environmental surveys under their financing through NDP still awaits NDP. approval . B.10 Expedite payment of outstanding WAPDA & Govt Substantially Current remaining balance is PRs93 million. compensation payments for land of Sindh accomplished already acquired.

DIP = Department of Irrigation and Power, EMC = environmental management committee, EMMP = environmental management and monitoring plan, FOP = Future Operations Plan, LBOD = Left Bank Outfall Drain, O&M = operation and maintenance, SIDA = Sindh Irrigation and Drainage Authority, WAPDA = Water and Power Development Authority.