Report and Recommendation of the President to the Board of Directors Sri Lanka Project Number: 37231 December 2006 Proposed Multitranche Financing Facility Islamic Republic of Pakistan: Punjab Irrigated Agriculture Investment Program CURRENCY EQUIVALENTS (as of 15 November 2006) Currency Unit – Pakistan rupee/s (PRs) PR1.00 = $0.0164 $1.00 = PRs60.8 ABBREVIATIONS ADB – Asian Development Bank ADF – Asian Development Fund AWB – area water board EAF – environmental assessment framework EIA – environmental impact assessment EMP – environmental monitoring plan FFA – financial framework agreement DOFWM – Directorate of On-Farm Water Management GDP – gross domestic product GIS – geographic information system IEE – initial environmental examination IMU – irrigation management unit IPPMU – investment program planning and management unit JBIC – Japan Bank for International Cooperation LAR – land acquisition and resettlement LBDC – Lower Bari Doab Canal LBDCIP – Lower Bari Doab Canal Improvement Project LCC – Lower Chenab Canal MFF – multitranche financing facility MIS – management information system NDP – National Drainage Program O&M – operation and maintenance OFWM – on-farm water management PFR – periodic financing request PIAIP – Punjab Irrigated Agriculture Investment Program PIAPPF – Punjab irrigated agriculture project preparation facility PIDA – Punjab Irrigation and Drainage Authority PIPD – Punjab Irrigation and Power Department PISRP – Punjab Irrigation Sector Reform Program PIU – project implementation unit PMO – project management office PMU – project management unit PSC – project steering committee R&U – rehabilitation and upgrading WEIGHTS AND MEASURES cumecs – cubic meters per second km – kilometer ha – hectare mm – millimeter GLOSSARY abiana – irrigation service fee biraderi – clan conjunctive use – use of surface water and groundwater to meet water needs in the same geographic area rabi – crop growing season from about October to March khal panchayat water user association based on a common irrigation field outlet from the canal kharif – crop growing season from about April to September NOTES (i) The fiscal year (FY) of the Government of Pakistan ends on 30 June. (ii) In this report, "$" refers to US dollars. Vice President L. Jin, Operations Group 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director K. Matsunami, Agriculture, Environment, and Natural Resources Division, CWRD Team leader T. Panella, Senior Water Resources Management Specialist, CWRD Team members A. Aleem, Programs Officer, CWRD L. Blanchetti-Revelli, Social Development Specialist (Resettlement), CWRD H. Gunatilake, Senior Economist, Economics and Research Department L. Nazarbekova, Counsel, Office of the General Counsel CONTENTS Page INVESTMENT PROGRAM SUMMARY i MAPS xi I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2 III. THE PROPOSED INVESTMENT PROGRAM 6 A. Impact and Outcome 6 B. Outputs 7 C. Special Features 15 D. Investment Plan 15 E. Financing Plan 16 F. Implementation Arrangements 17 IV. BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 23 A. Economic Benefits 23 B. Social and Other Benefits and Impacts 24 C. Risks 25 V. ASSURANCES 25 VI. RECOMMENDATION 29 APPENDIXES 1. Design and Monitoring Framework 30 2. Sector and Subsector Analysis 33 3. External Assistance to the Sector 39 4. Detailed Cost Estimates 41 5. Management Organization Charts 42 6. Implementation Schedule 43 7. Procurement Plan 44 8. Summary Economic and Financial Analysis 47 9. Summary Poverty Reduction and Social Strategy 54 10. Summary Environmental Impact Analysis 57 11. Summary Social Safeguards 63 SUPPLEMENTARY APPENDIXES (available on request) A. Detailed Terms of Reference B. Economic and Financial Analysis C. Environmental Impact Assessment D. Resettlement Framework and Plans INVESTMENT PROGRAM SUMMARY Borrower Islamic Republic of Pakistan Classification Targeting classification: General intervention Sector: Agriculture and natural resources Subsectors: Irrigation and drainage Themes: Sustainable economic growth, governance, environmental sustainability Subthemes: Developing rural areas, public governance, natural resources conservation Environment Category B. An environmental impact assessment was completed. Assessment Investment Program The Punjab Irrigated Agriculture Investment Program (PIAIP) will Description support physical and nonphysical investments in the water resource and irrigated agriculture sectors in Punjab, Pakistan. The PIAIP takes a holistic and integrated approach to improving sector performance supported through institutional reform with a focus on sustainability, decentralized management, transparency, and accountability. The PIAIP will finance (i) comprehensive rehabilitation and upgrading (R&U) of all water resource and irrigation infrastructure; (ii) improved groundwater, conjunctive-use, and surface water management strategies and practices; (iii) on- farm water management (OFWM), improved irrigation technologies, and agricultural support services; and (iv) sector reforms, improved management methods, institutional strengthening and restructuring for water resource management, and irrigated agriculture. The PIAIP is expected to support investments in the (i) Lower Bari Doab Canal and Balloki Barrage, (ii) Pakpattan Canal and Sulemanki Barrage, (iii) Thal Canal distribution system, (iv) Sidhnai Canal distribution system, and (v) Trimmu and Punjnad barrages. This will impact between 25% and 30% of the irrigated area in Punjab and given the magnitude and duration of the PIAIP, will have a transformative impact on the irrigated agriculture, mainstreaming best practices and institutional reform. To support implementation of the PIAIP, a Punjab irrigated agriculture project preparation facility (PIAPPF) will be developed as part of the first project to be funded. The PIAPPF will ensure that (i) forthcoming projects are expeditiously prepared to fully utilize PIAIP resources, (ii) future projects are well designed and meet Asian Development Bank (ADB) guidelines, and (iii) the PIAIP is well managed. It will support (i) reconnaissance; (ii) feasibility studies; (iii) detailed design for the remaining PIAIP projects identified using the selection criteria in the Financial Framework Agreement (FFA), schedule 4; and (iv) capacity development for project management and planning. ii The Lower Bari Doab Canal Improvement Project (LBDCIP), the first PIAIP project, will define the approach and modalities to be used for subsequent PIAIP-supported projects, and therefore define the primary activities to be supported through the PIAIP. Close monitoring and evaluation of the LBDCIP will facilitate the incorporation of lessons into subsequent projects. The Project involves the Lower Bari Doab Canal (LBDC) with a 200 kilometer (km)-long main canal and more than 1,500 km of associated minor and distributary canals that supply irrigation water to more than 700,000 hectares in central Punjab. The system was built between 1914 and 1917, and has become an important agricultural area serving the markets of Lahore and Multan. The LBDCIP has five components and includes the PIAPPF: (i) Component 1: R&U of the Balloki Barrage will (a) allow more irrigation water to flow to the LBDC main and Balloki– Sulemanki link canals, (b) enhance infrastructure safety, and (c) mitigate flood risks and impacts. (ii) Component 2: R&U of the LBDC distribution network (includes the main, branch, distributary and minor canals, and field outlets) will increase the capacity to deliver irrigation water efficiently, enhance safety, and fully involve farmer organizations in R&U of their particular distributary and minor canals as well as help execute civil works. (iii) Component 3: groundwater management will develop management actions to conserve groundwater, provide options for conjunctive use, and establish best practices for salinity and sodicity management to conserve land resources by (a) supporting farmers’ training through farmer organizations and the field programs of the OFWM component (4), (b) establishing a well-drillers training and certification program, and (c) supporting provincial initiatives on groundwater management. (iv) Component 4: on farm water management and agriculture will develop a field program in every farmer organization area to demonstrate (a) improved field channel layouts resulting in improved irrigation efficiencies; (b) alternative water application technologies and other management techniques optimizing the unit productivity of water; (c) laser controlled land leveling; and (d) conjunctive-use strategies, particularly in saline groundwater areas. (v) Component 5: institutional strengthening and operation modernization will (a) support formation of farmer organizations to be responsible for operation and maintenance (O&M) of the distributary and minor canals; (b) form irrigation management units to support farmer organizations in undertaking O&M and engineering, groundwater management, OFWM support, agricultural support services, and administration and financial management; (c) support analysis of LBDC’s operation iii procedures, assets, financial flows, staffing, and other management concerns as the basis for an operation modernization strategy for improved management; and (d) support decentralized management of LBDC and its transition to an area water board (AWB) governed by a board with farmer representation. Rationale