ASIAN DEVELOPMENT BANK

PPA: NEP 18205

PROJECT PERFORMANCE AUDIT REPORT

ON THE

EAST RAPTI IRRIGATION PROJECT (Loan No. 867-NEP[SF])

IN

NEPAL

May 2002

CURRENCY EQUIVALENTS Currency Unit Nepalese rupee/s (NRe/NRs) At Appraisal (May 1987) NRe1.00 = $1.00 = $0.0474 NRs21.10 At Project Completion (March 1999) $0.015 NRs66.67 At Operations Evaluation (January 2002) $0.013 NRs76.91

ABBREVIATIONS ADB DADO DDC DIO DOA DOI EIRR FMIS ha ISF km O&M OEM PCR PMO PPAR RCNP SDR TA WUA Asian Development Bank district agriculture development office district development office district irrigation office Department of Agriculture Department of Irrigation economic internal rate of return farmer-managed irrigation system hectare irrigation service fee kilometer operation and maintenance Operations Evaluation Mission project completion report project management office project performance audit report Royal Chitwan National Park special drawing rights technical assistance water users association

NOTES (i) (ii) The fiscal year (FY) of the Government ends on 15 July. In this report, $ refers to US dollars.

Operations Evaluation Department, PE-591

CONTENTS Page
BASIC DATA EXECUTIVE SUMMARY MAP I. BACKGROUND A. Rationale B. Formulation C. Purpose and Outputs D. Cost, Financing, and Executing Arrangements E. Completion and Self-Evaluation F. Operations Evaluation PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design B. Achievement of Outputs C. Cost and Scheduling D. Procurement and Construction E. Organization and Management ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance B. Performance of the Operating Entity C. Economic Reevaluation D. Sustainability ACHIEVEMENT OF OTHER DEVELOPMENT IMPACT A. Socioeconomic Impact B. Environmental Impact C. Impact on Institutions and Policy OVERALL ASSESSMENT A. Relevance B. Efficacy C. Efficiency D. Sustainability E. Institutional Development and Other Impacts F. Overall Project Rating G. Assessment of ADB and Borrower Performance ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Key Issues for the Future B. Lessons Identified C. Follow-up Actions ii iii v iii 1 1 2 2 2 3 3 3 3 4 4 4 5 5 7 7 8 8 8 9 9 9 9 10 10 10 10 11 11 11 11 12 13

II.

III.

IV.

V.

VI.

APPENDIXES 1. Comparison of Original and Reformulated Project 2. Status of Compliance with Loan Covenants 3. Economic Reevaluation of the Project 4. Socioeconomic Impacts

15 18 21 35

BASIC DATA East Rapti Irrigation Project (Loan 867-NEP[SF])

PROJECT PREPARATION/INSTITUTION BUILDING TA No. 700 926 TA Project Name East Rapti Irrigation Implementation of Cost Recovery in Government Irrigation Schemes Environmental Monitoring and Management of the East Rapti Irrigation Project Type PPTA ADTA Person-Months 22 9 Amount ($) 350,000 135,000 Approval Date 23 Aug 1985 26 Nov 1987

1969

ADTA

63

222,000

26 Oct 1993

KEY PROJECT DATA ($ million) Total Project Cost Foreign Currency Cost Local Currency Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancellation KEY DATES Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness Project Completion Loan Closing Months (effectiveness to completion) ECONOMIC AND FINANCIAL INTERNAL RATES OF RETURN (%) Economic Internal Rate of Return Financial Internal Rate of Return BORROWER EXECUTING AGENCY MISSION DATA Appraisal Project Administration 2 Review Midterm Review Special Project Administration Reformulation Project Completion 3 Operations Evaluation

As per ADB Loan Documents 38.00 17.90 20.10 30.40

Reformulation
10.40

3.80 6.60 8.30 1 23.19

Actual 12.90 6.40 6.50 9.95 0.46

Expected

Reformulation

8 Oct 1992 1 Aug 1988 31 May 1994 31 May 1995 70 Appraisal 15.9 not calculated

31 May 1998 31 May 1998

Actual 20 Nov4 Dec 1986 27 Feb3 Mar 1987 26 Nov 1987 3 May 1988 30 Sep 1988 31 Dec 1998 9 Feb 1999 123 PCR 18.3 8.9 PPAR 16.0 not calculated

Reformulation 13.7 not calculated

Kingdom of Nepal Department of Irrigation No. of Missions 1 9 1 3 2 1 1 Person-Days

75 167 24 69 109 90 36

ADTA = advisory technical assistance, PPTA = project preparatory technical assistance, TA = technical assistance. 1 Equivalent to SDR15,745,000 at the time of reformulation. 2 In conjunction with the review of other ongoing loans and TAs in Nepal. 3 The Operations Evaluation Mission comprised T. Kondo, Senior Evaluation Specialist (Mission Leader); D. Parker (International Consultant); and S. Subedee (Domestic Consultant).

EXECUTIVE SUMMARY The Project, as originally designed and approved in 1987, would have constructed a diversion weir across the Rapti River and a gravity water distribution network that would have irrigated a net area of 9,500 hectares (ha). In 1991, it became apparent that the Project had to be reformulated to make it more cost-effective and to prevent possible adverse environmental effects on the nearby Royal Chitwan National Park (RCNP). The reformulation, approved in 1992, (i) substituted the weir and the canal system with a program of rehabilitation and support for existing farmer-managed irrigation schemes (FMISs); (ii) reduced the target area to 5,200 ha; and (iii) decreased the estimated cost from $38.0 million (loan of $30.4 million equivalent) to $10.4 million (loan of $8.3 million equivalent). In 1997, recognizing the importance of FMISs, the Government revised its irrigation policy, with the view to developing and strengthening FMISs by building the capacity of water users associations (WUAs) to manage water resources. The purposes of the reformulated Project were to (i) intensify and diversify crop production, (ii) increase farmers income and standard of living, (iii) strengthen farmer involvement in constructing and operating irrigation facilities, and (iv) enhance the value of RCNP. The major components of the Project were (i) rehabilitation and improvement of existing FMISs, (ii) strengthening of WUAs, (iii) protection of riverbanks through construction of dikes and planting of trees along the right bank of the Rapti River, (iv) intensification of extension services, (v) construction of farm and service roads, and (vi) provision of consulting services for construction supervision and training of project staff and farmers. The reformulated Project, with its emphasis on farmer participation and management, helped shift policy to helping FMISs. The Department of Irrigation (DOI) demonstrated that it could work with farmers. The revised irrigation policy reflects the experience DOI gained in the Project and in implementing the Irrigation Sector Project1 and Second Irrigation Sector Project.2 Later projects have better defined procedures for selecting FMISs and for involving farmers in all aspects of the development process. Both the original design and the reformulated version sought to support the countrys goal of increasing food production. After looking at various alternative methods to achieve this goal, a much more cost-effective and environmentally friendly method was chosen involving the rehabilitation of existing FMISs. This made the project design more relevant. The Project has helped increase and somewhat diversify crop production, increase farm income, and make WUAs capable of basic operation and maintenance (O&M) of FMISs. The establishment of buffer forest areas along the Rapti River has reduced villagers need to collect wood and other resources in RCNP. Based on a survey of 14 FMISs in January 2002, the Project has a number of positive socioeconomic impacts. As the average subproject landholding does not exceed 0.75 ha, small and marginal farmers have benefited most from the irrigation improvements. The average annual income of small landholding households doubled and the poverty level in the project area was brought down from 90% to 66%. Owing to increased cropping intensity in the project area, landless workers have more jobs. The unit cost for rehabilitated and improved FMISs of $775/ha compares favorably with the earlier Hill Irrigation Projects $3,547/ha. The recalculated economic internal rate of return is
1

ADB. 1988. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and A Technical Assistance Grant to the Kingdom of Nepal. Manila. ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal. Manila.

iv

16.0%. The FMISs are all operating and have functional WUAs that have demonstrated a basic ability to carry out O&M. WUAs have adequate incentive (in sustaining high levels of cropping intensity and crop production) to continue to satisfactorily perform O&M. An element of doubt regarding sustainability is related to future major repairs, if any. WUAs do not have the cash to handle such emergencies, and the district irrigation offices budget is not sufficient to allow it to help out to any great extent. However, the probability of a given scheme needing major repairs is much lower in the project area than among hill FMISs. Overall, the Project as reformulated is rated successful. The Government recognizes that the development of FMISs is essential for sound and sustainable water resources management, and continues to implement policies and plans to this end. However, the quality of FMIS design and construction and its supervision remains a concern. Although the Project did not face severe problems in construction, supervision was not adequate. As farmers neither had construction skills nor were trained to supervise construction, civil works in several cases went unsupervised. Nevertheless, where farmers were always present at the site during construction, the quality was satisfactory. Three main lessons have been borne out by the Project. First, alternative solutions of reaching the desired purpose and goal should be examined during project preparation. Second, during the design stage, all subprojects should be identified and ranked based on their feasibility and farmers demand and willingness to participate. Third, farmers have the potential to assume greater responsibility for O&M of constructed facilities. This responsibility should be clearly defined from the very beginning and farmers made accountable for all facilities developed. Before the handover of O&M responsibility for the rehabilitated facilities, a project operational plan should be developed for at least the initial years. The joint efforts made under the Project with the Department of Agriculture (DOA) to establish effective extension services yielded positive results, including increased agricultural production. The central and district coordination mechanisms between DOI and DOA should be strengthened through preparing minutes of understanding, and monitored by the Asian Development Bank. Resources may need to be set aside and allocated for repairs of structures and facilities that the farmers cannot afford. The Government has agreed to establish a funding mechanism by the end of 2003 to ensure the sustainability of project benefits.

I.

BACKGROUND

1. In early 1985, the Government asked the Asian Development Bank (ADB) to support intensified crop production in the Terai region by financing the East Rapti Irrigation Project (the Project). The Project as originally designed would have constructed a diversion weir across the East Rapti and a gravity water distribution network that would have irrigated a net area of 9,500 ha. An ADB loan of $30.4 million for the Project was approved in 1987,1 and implementation began the following year. In 1991, however, it became apparent that the Project had to be reformulated. It was found that the target area of coverage included more existing farmermanaged irrigation systems (FMISs)2 than originally supposed. Environmental studies also indicated that a major diversion of the East Raptis flow during the dry season would severely damage the nearby Royal Chitwan National Park (RCNP). The reformulated Project was approved in 1992. It substituted the weir and canal system with a program to rehabilitate and support existing FMISs. The target area decreased to 5,200 ha in 85 FMISs, and the estimated cost dropped from $38.0 million to $10.4 million, allowing the ADB loan amount to be reduced to $8.3 million. While referring to the original design and rationale, this project performance audit report (PPAR) focuses on the reformulated Project. A. Rationale

2. To reduce widespread poverty, Nepal must improve its agricultural productivity. At the time of project formulation, the agriculture sector employed around 90% of the economically active population and accounted for more than 50% of the countrys gross domestic product, but was stagnant for a number of years. Much of agriculture depended upon erratic rainfall. Many early irrigation projects funded by aid agencies attempted to remedy this situation, primarily by constructing medium- to large-scale structures. The original project design fell into this category. By the late 1980s, however, support for rehabilitating and building FMISs was growing, giving farmers greater control over their own systems. The reformulated Project adopted the new approach. In 1997, recognizing the importance of FMISs, the Government revised its irrigation policy, with a view to developing and strengthening FMISs by building the capacity of water users associations (WUAs) to manage water resources. ADB has helped the Government implement this policy by funding the Irrigation Sector Project,3 Irrigation Management Transfer Project,4 Community Groundwater Irrigation Sector Project,5 and Second Irrigation Sector Project.6 B. Formulation

3. Prepared in 1985 under an ADB technical assistance (TA),7 the Project, which included the construction of a diversion weir on the Rapti River, was appraised in November 1986. Despite some ADB Board members concern about the high per hectare (ha) development cost
1

ADB.1987. Report and Recommendation of the President to the Board of Directors on the Proposed Loan and a Technical Assistance Grant to the Kingdom of Nepal for the East Rapti Irrigation Project. Manila. FMISs use water from small rivers and streams, consist of simple diversions with headwork and canals, are mostly used for irrigation of main crops, and are maintained by farmers. ADB.1988. Report and Recommendation of the President to the Board of Directors on the Proposed Loan and a Technical Assistance Grant to the Kingdom of Nepal for the Irrigation Sector Project. Manila. ADB.1994. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to the Kingdom of Nepal for the Irrigation Management Transfer Project. Manila. ADB.1998. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to the Kingdom of Nepal for the Community Groundwater Irrigation Project. Manila. ADB.1996. Report and Recommendation of the President to the Board of Directors on the Proposed Loan to the Kingdom of Nepal for the Second Irrigation Sector Project. Manila. ADB. 1985. Technical Assistance to the Kingdom of Nepal for East Rapti Irrigation Project. Manila.

of the Project,8 it was approved in November 1987. However, it encountered a number of problems, including perceived high investment costs. ADBs review after implementation began revealed that the Project might not be economically sound as its cost would likely significantly exceed the appraisal estimate. The project design had also not fully accounted for existing FMISs. ADB and the Government reassessed the Project to come up with a less costly alternative, which would be consistent with the FMIS development strategy. These problems and serious concerns over the Projects likely negative environmental impact on RCNP,9 which was not identified at appraisal, led to a fundamental reformulation in November 1991, facilitating the Governments effort to support sound management of water resources development through FMISs. A comparison of the original Project and the reformulated one approved in October 199210 is in Appendix 1. C. Purpose and Outputs

4. The basic purposes of the reformulated Project were to (i) intensify and diversify crop production, (ii) increase farmers income and standard of living, (iii) strengthen farmer involvement in constructing and operating irrigation facilities, and (iv) enhance the value of RCNP. 5. The major components of the Project (see Map) were (i) rehabilitation and improvement of existing FMISs, (ii) strengthening of WUAs, (iii) protection of riverbanks through construction of dikes and planting of trees along the right bank of the Rapti River, (iv) intensification of extension services, (v) construction of farm and service roads, and (vi) provision of consulting services for construction supervision and training of project staff and farmers. D. Cost, Financing, and Executing Arrangements

6. Originally the total project cost was estimated at $38.0 million ($17.9 million and $20.1 million for foreign and local currency, respectively). The reformulation trimmed down the total cost to $10.4 million ($3.8 million and $6.6 million equivalent for foreign and local currency, respectively). With the downsizing of the project scope, $23.2 million11 of the original loan was canceled. 7. The financing of the reformulated Project was to be shared among ADB ($8.3 million or 80%), the Government ($1.1 million or 10%), and beneficiary farmers ($1.0 million or 10%). The Department of Irrigation (DOI) under the Ministry of Water Resources was designated as the Executing Agency, with full responsibility for project implementation. E. Completion and Self-Evaluation

8. The Project was completed in December 1998, about 4.5 years later than envisaged at appraisal, but only 6 months behind schedule for the reformulated Project. The project completion report (PCR), circulated to the ADB Board in December 1999, rated the Project as generally successful12 and concluded that the reformulation met the primary objective of
8

In response, project staff informed the Board members that the cost of the Project was in line with projects of this type, i.e., new gravity irrigation projects. 9 An independent environmental impact assessment carried out in April 1991 indicated that the construction of the diversion weir across the Rapti River was likely to have significant adverse impacts on the adjacent RCNP and the downstream river ecology. 10 The Governments request for a major change in project scope and implementation arrangements was approved by the Board of Directors on a no-objection basis. 11 Equivalent to SDR15,745,000 at the time of reformulation. 12 Based on the three-category rating system: generally successful, partly successful, and unsuccessful.

increasing agricultural production and income of people in the project area. The PCR reported that WUAs of the FMISs covered had helped rehabilitate them and that WUAs institutional capacity to manage their FMISs was enhanced through practical training and observation visits. Project facilities were also reported to have helped increase cropping intensity from about 160% to about 230%. Farms modestly diversified from cereals to cash crops. F. Operations Evaluation

9. The PPAR focuses on pertinent aspects of the Project and presents the findings of the Operations Evaluation Mission (OEM), which visited Kathmandu and the project area in JanuaryFebruary 2002. The PPAR assesses the effectiveness of the Project in achieving its objectives, generating and maintaining benefits, and sustaining the operations of irrigation systems and support services. The PPAR is based on (i) a review of project files and related documents; (ii) discussions with staff of DOI and concerned central and district agencies; and (iii) results of surveys conducted in conjunction with the OEM, followed by interviews with beneficiaries and WUA members, and inspection of project sites. The PPAR has also considered the data and analysis presented in the PCR. An aide memoire, which summarized the OEMs initial findings, was discussed with DOI to obtain general agreement on the content of the PPAR. II. A. PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design

10. First prepared in 1985 and reformulated in 1992, the Project conformed with the Governments plan to increase agricultural production through development of irrigation, which was crucial to increasing agricultural production, the backbone of the economy. The Government put highest priority on irrigation in the 20-year Agriculture Perspective Plan, launched in 1995. ADBs Country Operational Strategy for Nepal (1993) clearly identified poverty reduction as the major goal. To attain this goal, development in the agriculture sector had to be supported by enhancing agricultural productivity and production in the Terai and accessible areas of the hills. A key strategy adopted was support for irrigation infrastructure, particularly small-scale FMISs, including improvement and strengthening of 72 FMISs in Chitwan District under the reformulated Project. 11. The Project was reformulated to (i) prevent the adverse environmental effects that would have been caused by a weir constructed across the Rapti River to divert water into a new gravity irrigation system; (ii) bring down the project cost; and (iii) take into account the coverage of land by existing FMISs, which was much larger than first thought. The reformulated project design stressed the rehabilitation and improvement of existing FMISs but did not specify farmer participation-oriented step-by-step procedures of subproject selection as were adopted in other subsequent sector projects. B. Achievement of Outputs

12. The Projects physical targets were largely met. Seventy-two FMISs that satisfied specified criteria were rehabilitated and improved.13 The command area of these FMISs totaled 8,516 ha as against the reformulated target of 5,200 ha. River protection work was carried out and 10 kilometers (km) of protection dike along the right bank of the Rapti constructed. The
13

The reformulated plan was to rehabilitate 85 FMISs with a total of 5,200 ha. During implementation, 116 FMIS applications were received, out of which 72 (covering 8,516 ha) were selected.

detailed design and the supervision of the construction had minor deficiencies, which did not affect project output. Trees planted on 300 ha along the dike helped protect the embankments. 13. WUAs of the rehabilitated FMISs were strengthened through training of members in operation and maintenance (O&M) and agriculture. However, training programs were carried out late in the project implementation period and proved insufficient, which led to less crop diversification than estimated at appraisal. The training could have covered proper management of rehabilitated facilities, including conflict management among WUAs and among FMISs. 14. Four major bridges over the Dhungre Khola River, and 135 culverts and canal crossings were built to help bring agricultural produce and inputs to and from the market. 15. Although some beneficiary farmers did concede that they had limited access to agricultural extension services, many more said they were dissatisfied with the lack of technical backstopping and support from agriculture service centers. The project activities satisfactorily increased output by rehabilitating irrigation facilities despite the still-marginal diversification in many parts of the project area. C. Cost and Scheduling

16. The cost of the reformulated Project was substantially less than the appraisal estimate due to the reduced scope and lower cost of construction. Nonetheless, the actual project cost was 24% higher than estimated at reformulation due to the higher-than-expected costs for consulting services and training as well as administrative costs. 17. As the reformulation moved the expected completion date from May 1994 to May 1998, the original loan closing date of 31 May 1995 was extended accordingly. The Project, completed in December 1998, was largely kept to this schedule. D. Procurement and Construction

18. Procurement of goods and services and construction of facilities were undertaken by DOI in conformity with ADBs Guidelines for Procurement and the Government and ADBs standard procedures. As major structures and facilities to be developed were spread throughout the entire project area, local competitive bidding among prequalified local contractors was considered preferable. Similarly, domestic consultants and firms were recruited to the satisfaction of ADB to monitor the impact of the Project on the environment as well as on institutional development and strengthening of FMISs. During project implementation, the selected firm provided 64 person-months of consulting services. No issues arose relative to land acquisition or resettlement. E. Organization and Management

19. DOI supervised and coordinated the project activities. A project coordination committee was formed composed of the Agricultural Development Bank of Nepal, Agricultural Inputs Corporation, Department of Agriculture (DOA), Institute of Agriculture and Animal Science, Nepal Agricultural Research Council, RCNP, and WUAs. A project management office (PMO) was established in Khairei, Chitwan. The organization and management of the Project was generally satisfactory. The only area inadequately addressed was the PMOs coordination activities.

20. The Governments overall compliance with loan covenants was generally satisfactory (Appendix 2). The covenant on training was only partially complied with since the trainees were not retained to serve the Project for a reasonable period after training. The covenant on the formation of a mobile irrigation team was not complied with. III. A. ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance 1. The Rehabilitation and Improvement of Farmer-Managed Irrigation Systems

21. Seventy-two FMISs met the selection criteria for rehabilitation and improvement. The Project constructed 63 intakes and headwork structures, 68 aqueducts, 28 siphons, 50.5 km of dual- and 17 km of single-side canal lining, 247 division boxes, 106 fall structures, 79 check structures, 67 side intakes, 43 km of gabion works, 156 slab culverts, and 485 pipe culverts. These facilities were sufficient to increase the monsoon-irrigated area from the originally envisaged 5,200 ha to 8,516 ha and also to irrigate 5,225 ha during winter and 4,583 ha during spring.14 The cropping intensity has increased from about 160% to 230%. The rehabilitation did not dramatically contribute to crop diversification due to lack of extension services. 2. Strengthening Water User Associations

22. The members of the 72 WUAs were involved in planning, designing, constructing, and supervising the rehabilitation and improvement works in their FMISs. Some members of each WUA participated in 4-day training programs covering management of irrigation water, application of fertilizer and pesticides, and O&M of irrigation structures. Thirty executive WUA members observed other successful FMISs in Nepal. A coordination committee of 93 WUAs (including the 72 reconstructed schemes plus 21 additional schemes) was formed to improve support services to its members. This committee is still functioning. 23. Sampled FMISs have functioning WUAs, which organize regular O&M of canals and structures as well as distribution of water. The WUAs, recognizing their new responsibilities, properly handle and manage rehabilitated schemes. Like other FMISs in Nepal, WUAs under the Project complain that they are unable to adequately deal with major damage caused by monsoon torrents. Formal handover of the management of rehabilitated schemes was not completely successful because beneficiaries were ineffectively trained. In some schemes, members do not recall such a handover of responsibility and would like DOI to build structures not originally included in their schemes design (particularly improved off-takes and more lining of canals). 3. River Protection Works

24. The Project constructed 10 km of flood protection dike along the right bank of the Rapti River to protect nearby area.15 The dike is in good shape and residents note that it has provided good protection from floods. The dike is now under the management of the district development committee (DDC). The district irrigation office (DIO), in coordination with DDC, helps make repairs.

14

These figures are as reported in the PCR in 1999. An examination of 14 FMISs sampled in January 2002 suggests that the irrigated area has remained the same or has grown only marginally since the PCR. 15 This dike is part of an 18 km effort, with the additional 8 km provided under the Irrigation Sector Project (footnote 3).

25. The Project also planted trees on 300 ha along the 18 km flood protection dike. This forested area serves as a second line of defense for embankment protection and as a buffer strip to alleviate the pressure of encroachment by villagers on the nearby RCNP. Community forest user groups now manage the various sections of this forest buffer area. 4. Intensification of Agricultural Extension Services

26. During project implementation, the 72 FMISs received intensified extension services from the district agricultural extension office (DADO). Improved cropping practices were included in the training for some WUA members within each FMIS. Since project completion, however, the DADOs resources have been inadequate to target these FMISs. Nevertheless, one agriculture service center and three agriculture service subcenters operate in the project area. 5. Construction of Farm and Service Roads

27. The Project constructed 25 km of new farm and service roads and improved 35 km of existing roads. Along these roads, 135 small bridges and culverts were constructed. These roads, bridges, and culverts, which were handed over to the village development committees to manage, are in good condition. Four bridges over the Dhungre were constructed to better connect the southern part of the project area to the East-West Highway. These bridges are now managed by the DDC. The various project bridges and culverts appear to be adequately functioning and have improved local transport. 6. Technical Assistance

28. A TA was attached to the original loan to advise the Government on a system that would recover a significant proportion of costs in irrigation schemes.16 The TA was expected to draw on examples of other countries successful cost recovery schemes, which would be adapted to meet local conditions. The tripartite meeting to discuss the consultants draft final report concluded that it was not satisfactory due to the following reasons: (i) (ii) The consultants did not fully comply with the terms of reference of the study. The consultants assessment of the present status of the irrigation service fee (ISF) collection and procedures and the farmers capacity to pay ISF was neither analytical nor appropriate. The consultants recommendations for improving ISF collection and O&M of public schemes were not well justified.

(iii)

29. The consultants attributed the unsatisfactory results of the study to the short period allowed to conduct it and the inability of government agencies to provide required data. However, the Government traced the poor results to consultants inadequate discussions with the Nepalese counterparts in preparing the recommendations, and lack of teamwork among the consultants. 30. The consultants proposed strategy, which called for an increase in ISF, was not accepted by the Government because the measure would be unpopular among politicians and farmers. Instead, the tripartite meeting participants agreed that the Government should shift
16

ADB. 1987. Technical Assistance to the Kingdom of Nepal for the Implementation of Cost Recovery in Government Irrigation Schemes. Manila.

maximum responsibility for O&M to organized WUAs and reduce the dependence of the schemes O&M on government budgetary support. The strategy adopted involved the establishment of a policy framework that would give WUAs incentives to organize themselves and assume greater responsibility. At the time of the OEM, the various WUAs appeared to be adequately handling O&M and water distribution (para. 36). Overall, the TA is rated partly successful. 31. Another TA was provided after the reformulation17 to monitor (i) the water flow and quality of the Rapti River and its tributaries, (ii) the groundwater table in the project area, and (iii) afforestation on the right bank of the Rapti River so that any adverse environmental effects could be quickly mitigated. Formation of forest user groups, preparation of an operational plan and training manual, endorsement by RCNP, and handover to forest user groups of forest patches planted on 300 ha under the Project were completed under the TA in November 1998. The TA is rated successful. B. Performance of the Operating Entity

32. The PMO was closed at the end of implementation. Management of the reconstructed FMISs is in the hands of the WUAs, which appear to adequately handle water distribution and regular O&M functions. Each WUA collects an annual O&M fee from farmers within the command area and expects labor contributions for regular and/or emergency maintenance functions. Larger FMISs have employed watchmen and peons to help with the work. The fees and labor provided by farmers are, in general, adequate for regular O&M functions, but more expensive flood damage is sometimes beyond the financial capacity of the WUAs. While it is encouraging to note that the Government at the central level provides contingency funds for flood damage, the level of funding is still inadequate. C. Economic Reevaluation

33. At reformulation, the main quantified economic benefits included in the analysis were those from incremental crop output due to irrigation. Potential benefits from flood control, environmental protection, improved road access, and forestry products were not quantified. The economic internal rate of return (EIRR) was 13.7%. At the time of the PCR, the EIRR was calculated at 18.3%, given that the achieved irrigated area exceeded the targeted area by 63%.18 The EIRR has been recalculated by the OEM at 16.0% and the economic net present value at $2.4 million (Appendix 3). 34. The decrease in the EIRR from the PCR figure is due to a decline during the last 3 years in the actual and predicted international prices of major food grains in real terms. The improvement in relation to the estimate at the time of reformulation can again be ascribed to the increase in coverage from 5,200 ha to 8,516 ha. 35. The appraisal EIRR of 15.9% for the original Projects weir and canal design is not comparable with the EIRRs discussed above. If the appraisal analysis had included the higher figure for the without-project FMIS coverage as well as the environmental costs in the withproject scenario, the EIRR would have been considerably lower.

17

ADB. 1993. Technical Assistance to the Kingdom of Nepal for the Environmental Monitoring and Management of the East Rapti Irrigation Project. Manila. 18 This EIRR of 18.3% was calculated assuming that the $2.1 million spent on TA consulting services before reformulation was a sunk cost having nothing to do with the FMIS rehabilitation program that the Project became. If this additional cost had been included, the EIRR at the time of the PCR would have been 16.3%.

D.

Sustainability

36. The rehabilitated FMISs are, in general, in good physical shape. Some WUAs, however, have had difficulty maintaining their off-take structures as monsoons have rearranged the riverbeds. While all systems are reported to be functioning, certain FMISs will conceivably sometimes need outside help with their off-takes.19 The various WUAs appear to be adequately handling regular O&M and water distribution, and collect fees and labor contributions from members to do so. 37. The economic analysis at the time of project reformulation and of the PCR assumed an economic life of the FMISs of 25 years after construction. However, how long the physical systems can remain functional (even with regular maintenance) without major rehabilitation is uncertain. Sensitivity analyses performed for the economic reevaluation of the Project indicate that a 15-year economic project life would still attain an EIRR of 14.9%. The minimum economic life that would produce an EIRR of 12% is 9 years. Assuming that WUAs perform normal levels of O&M, the Project should be able to sustain a viable EIRR. IV. A. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACT

Socioeconomic Impact

38. Based on a survey of 14 FMISs in January 2002, the Project has had a number of positive socioeconomic impacts: (i) As the average subproject landholding does not exceed 0.75 ha, small and marginal farmers have benefited most from the irrigation improvements. The average annual income of small landholding households doubled and the poverty level in the project area was brought down from 90% to 66%. As all the FMISs were rehabilitation schemes, no farm family had to be displaced or resettled due to the Project. Owing to increased cropping intensity in the project area, landless workers have more jobs. According to farmers in most of the FMISs, their food quality has significantly improved and they are quite satisfied with project performance. Farmers have started to pursue common goals, by establishing the East Chitwan Irrigation Users Coordination Association, for example, which has become the representative of all the FMISs in eastern Chitwan. Explicit provisions regarding women and WUAs were included in the memorandum of agreement signed jointly by DIO and each WUA under the Project. As a result, all the FMISs have at least two female members, as do the WUA executive committees, the decision-making bodies. Women have also been active in irrigation system repair and maintenance, more so during and after project implementation, as confirmed by the OEM. More recent irrigation projects also encourage women participation.

(ii) (iii) (iv)

(v)

19

The FMISs rehabilitated under the Project, being all located in the relatively flat Terai, have a much smaller chance of excessive damage from natural phenomena than do hill irrigation systems elsewhere in Nepal.

(vi)

The construction of canal-crossing culverts and four bridges on the Dhungre River has facilitated the transportation of goods and services to and from the interior areas of eastern Chitwan. Public buses now ply the southern part of the command area. The new bridges and roads also help children get to school during the rainy season. The river embankment with its dike is reported to stop floodwater from entering FMIS command areas and destroying homesteads and crops. The strip of forest planted along the embankment has helped make the dike more stable. As the trees mature, local inhabitants will benefit from easily available forest products.

(vii)

39. B.

A more detailed discussion on socioeconomic impacts in Appendix 4. Environmental Impact

40. The original Project would have diverted most of the Rapti River water during the dryer winter months, which would have had a severe negative effect on RCNP downstream. The reformulated Project, by concentrating on rehabilitating FMISs, avoided this threat to RCNP. While a few of the FMISs do take water from the Rapti River, the volume diverted is relatively small and does not adversely affect downstream areas. Most of the Projects FMISs draw their water from other rivers. As noted in the PCR, the Project does not appear to have an adverse effect on availability of water or water quality within the area. 41. Constructing the flood protection dike and developing 300 ha of community forest have helped stabilize the Rapti River embankment, protecting the project area from floods, and maintaining the natural environment. The increased availability of fuelwood and fodder on community land is helping protect RCNP from encroachment by villagers. C. Impact on Institutions and Policy

42. The reformulated Project, with its emphasis on farmer participation and management, helped shift policy to helping FMISs. DOI demonstrated that it could work with farmers. The revised irrigation policy reflects the experience DOI gained in this and other similar projects (footnotes 3 and 6).20 Later projects have better defined procedures for selecting FMIS schemes and for involving farmers in all aspects of the development process. Further progress along these lines is needed. Cost recovery through collection of ISF from project beneficiaries has yet to be effectively institutionalized. V. A. Relevance OVERALL ASSESSMENT

43. The original and reformulated versions of the Project sought to help Nepal reach its goal of increasing food production. In that sense, both versions were relevant, but in different degrees. The original version emphasized a major weir and canal system without considering the extent of existing FMISs in the area or the effects of the weir on the environment. Alternative methods of reaching the food production goal seem not to have been considered. The original design of the Project was, therefore, less relevant. In contrast, the reformulated Project was designed after looking into alternative methods of increasing food production. The chosen
20

The Government updated an irrigation policy in 1992 and revised it in 1997, which sets out objectives and guidelines for irrigation interventions, including FMIS development and management transfer of DOI schemes to WUAs, adopting a participatory approach.

10

method of rehabilitating existing FMISs was much more cost-effective and environmentally friendly. The reformulated Project is assessed by the OEM to be highly relevant to accomplishing the stated goal. 44. While it is primarily the reformulated version of the Project that is under evaluation, how reformulation became necessary is also of relevance. The process included the acceptance by the Government and ADB of an approach recommended by the project preparatory TA consultants that was not very conducive to the achievement of the overall goal. A great effort was exerted to substitute the original approach with a more relevant one. A rating of partly relevant is thus appropriate for the Project. B. Efficacy

45. The purposes of the reformulated Project were met and some physical targets such as the area of coverage exceeded. The Project helped increase and somewhat diversify crop production, increase farm income, and make WUAs capable of basic O&M of FMISs. The establishment of buffer forest areas along the Rapti River (together with the increase in crop income) has reduced the need for villagers to collect wood and other resources in RCNP. Given its completion and satisfactory operation, the Project is assessed as efficacious. C. Efficiency

46. The reformulated project cost was $775/ha, compared with $623/ha in another ADBfinanced project (footnote 3), which included schemes both in the Terai and in the hills, consisted of rehabilitated and new schemes, and was implemented at roughly the same time. The earlier Hill Irrigation Project was implemented at a much higher cost of $3,547/ha. Consequently, the Project can be seen as relatively cost-efficient in its improvement of the FMIS command area. The recalculated EIRR is 16.0%. During implementation, annual budget releases were generally inadequate and late, affecting the progress of implementation. Staff turnover was high, further delaying implementation; the new staff were unfamiliar with ADB procedures. Despite these problems, however, implementation was successfully completed. The Project is rated efficient. D. Sustainability

47. The FMISs are all operating and have functional WUAs that have demonstrated a basic ability to carry out O&M. WUAs have adequate incentive (in sustaining high levels of cropping intensity and crop production) to continue to satisfactorily perform O&M. An element of doubt regarding sustainability is related to the question of future major repairs, if any. WUAs do not have the cash to handle such emergencies, and the DIOs budget is not sufficient to allow it to help out to any great extent. However, the probability of a given scheme needing major repairs is much lower in the project area as compared to hill FMISs. The Project is assessed as being likely sustainable. E. Institutional Development and Other Impacts

48. The reformulated Project, along with the parallel one (footnote 3), helped increase farmer participation in and management of Nepals irrigation projects. The Project provided some training to WUAs and involved their members in FMIS rehabilitation. The WUAs have so far demonstrated their ability to operate and manage their schemes. Some DOI personnel involved in project implementation received appropriate training. Due to the high turnover of project staff, much of this training had little impact on implementation but has benefited other

11

irrigation projects. Lessons learned regarding FMISs and their WUAs were incorporated into later projects as well. More specific lessons will be applied in the upcoming activities under the project preparatory TA21 for the proposed community-managed irrigation sector project. The Project, through its approach and the experience of its implementation, has a large potential to positively influence how FMISs are developed in the future. The rehabilitation of FMISs has helped increase beneficiaries annual household income. For example, the annual income of beneficiaries with an average landholding size of 0.75 ha has doubled to about NRs9,600. Beneficiaries have a more stable supply of food. The Project is assessed as having had a significant impact both on institutional development and poverty reduction. F. 49. G. Overall Project Rating Based on the above considerations, the Project is rated successful.22 Assessment of ADB and Borrower Performance

50. The Borrower, in general, satisfactorily undertook its project-related activities. DOI, however, was slow in implementing its WUA-strengthening activities, and much of the beneficiary training was only done at the very end of project implementation. 51. ADBs performance was mixed. The original designs flaws should have been noticed much earlier, and alternatives to the weir and canal proposal examined. ADB did show flexibility when it finally concluded that a fundamental reformulation was necessary. Further flexibility was demonstrated in facilitating implementation and in accommodating the construction of four bridges across the Dhungre, which were not part of the reformulated design. ADB fielded 12 missions during implementationa level of attention that was useful, given the need to reformulate the Project. As noted in the PCR, the various missions were possibly a little slow in emphasizing capacity building within WUAs and the turnover of the roads, bridges, and embankment to local organizations for their future O&M. VI. A. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

Key Issues for the Future

52. The Government recognizes that the development of FMISs is essential for sound and sustainable water resources management, and continues to implement policies and plans to this end. The key sector issues include institutional capability, O&M sustainability, and coordinated agricultural support. With regard to FMISs, there is room to improve (i) quality of design, (ii) sustainability, and (iii) coordination of related activities. 53. Design and Supervision. Quality of FMIS design and construction and its supervision remains a concern. Although the Project did not face severe problems in construction, supervision was not adequate. As farmers neither had construction skills nor were trained to supervise construction, civil works went unsupervised. 54. Every irrigation development plan should have well-defined subproject selection criteria. It was often the case that a number of FMISs using the same water source in close proximity were selected and rehabilitated. Consequently, one system operated at the cost of others,
21

ADB. 2001. Technical Assistance to the Kingdom of Nepal for the Community-Managed Irrigation (Central and Eastern Basins) Sector Project. Manila. 22 This is based on the four-category rating system: highly successful, successful, partly successful, and unsuccessful.

12

resulting in conflicts among the FMISs. They should be designed to optimally develop the countrys water resources, adopting an integrated river basin approach. Subproject selection was largely limited to simple surveys without conducting a detailed feasibility study, precluding the assessment of the actual impact of a specific FMIS. 55. Sustainability. The sustainability of FMISs is another area of concern. The PCR pointed out that sustainability was related, in part, to resources available to WUAs. The project FMISs do generate some O&M funds from beneficiary farmers based on their land area, for intake repairs and canal de-silting. 56. The handover to WUAs should not be rushed without assigning the responsibility of monitoring FMIS operation. DIO was designated to do this task but is largely unaware of the FMISs conditions (the PMO was separate from DIO and was in a different town) and does not have adequate monitoring facilities. Since the Project was developed without its involvement, DIO may need some time to learn about FMISs and how to maintain them. 57. Coordination of Related Activities. The basic premise of irrigation rehabilitation and improvement should be intensification and diversification of crops, which, however, requires cooperation with other relevant agencies. The Project had no mechanism to continue providing agricultural extension and technical backstopping to the farmers after FMISs were turned over. 58. As in many other irrigation projects, training was not given sufficient priority. Some training activities were undertaken toward the end of implementation but not systematically or continuously. Farmers recurrent need for training, particularly in O&M and agricultural technology, requires attention. DOI should coordinate with DOA to train FMIS beneficiaries. B. 59. Lessons Identified The following lessons learned are relevant to future irrigation rehabilitation projects: (i) (ii) Farmer participation should be strengthened at all stages of the project cycle. An integrated river basin approach should be adopted for subproject selection and design. Social and environmental dimensions should be addressed. Irrigation facilities should be provided only after project beneficiaries are willing to manage their operation and a strong WUA is formed. Construction quality control should be strengthened through effective monitoring by beneficiaries. Agricultural support services should be provided. O&M monitoring and support should be extended well into the post turnover stage. Management information systems should be improved.

(iii) (iv)

(v)

(vi) (vii)

(viii)

60. Project Selection. The approval process for the original Project included a project preparatory TA, the usual processing missions, and various reviews. In hindsight, alternative

13

solutions seem not to have been seriously examined and the environmental and farming contexts (the presence of RCNP downstream and the existence of a large number of FMISs in the Projects command area) not adequately assessed. ADB procedures since 1987 have strengthened the environmental and social scrutiny that all proposed interventions must undergo. Alternative solutions of reaching project goals must be routinely examined throughout the selection and approval process. Even late in that process a bad idea should be rejected rather than pursued despite reluctance to do so due to costs involved and possible negative reactions to the proponent of the change. 61. Project Design, Formulation, and Implementation. While developing and constructing a cascade of irrigation systems from the same source river, all FMISs need to be identified and ranked based on their feasibility and farmers' demand and willingness to participate. Their linkages and conflicts need to be properly investigated, using an integrated river basin approach. A procedure to resolve differences among the prospective subprojects needs to be adopted before construction starts. The results should be thoroughly assessed during the design stage by the Government. Preconstruction hands-on training for WUAs is essential to ensure the quality of civil works. Simple construction works may be awarded to WUAs capable of undertaking them. 62. Selection of FMISs under the Project Development. Specific stages of project development have to be clearly delineated. Well-defined criteria for subproject selection (as used in the subsequent projects for Nepal) should be followed to ensure appropriate choices of subprojects. Feasibility studies with detailed surveys of the prospective subproject areas should be the norm. The studies require time, resources, and active participation of the stakeholders. 63. Sustainable System Operation. Farmers have the potential to assume greater responsibility for O&M of constructed structures and facilities. They should be fully assisted to realize this potential, entrusted with responsibilities ranging from identifying subprojects to decision making, and made accountable for all the facilities developed. Some project FMISs lacked resources as no funds were allocated for major repairs after the FMISs completion and handover. Before handover, a project operational plan should be developed for at least the initial years and particularly for relatively large FMISs. 64. Institutional Aspects. Joint extension activities of DIO and DADO yielded positive results. Crop diversification could have been further facilitated with better coordination between the two departments at the central and district levels. While the departments joint efforts are examined, alternative measures may be assessed to further intensify training for farmers. C. Follow-up Actions

65. The OEM identified the following specific, monitorable follow-up actions to ensure the sustainability of irrigation management. 66. Agricultural Extension Activities. Some training programs conducted under the Project worked quite well and were appreciated by farmers, but they were discontinued after project completion. DOI needs to evolve an institutional mechanism for functional and effective coordination between DIO and DADO at the field level. Minutes of understanding between DOI/DIO and DOA/DADO should be prepared and signed by end 2002 to ensure close coordination on agricultural extension activities. 67. O&M Training. Farmers recurrent need for training on system/canal O&M should be looked after by the relevant DIO. Adequate funds are required and need to be allocated for this.

14

The Training Division of DOI should conduct these training programs at the request of DIO. The training programs should be finalized by end 2002. 68. Establishment of Emergency Funds. To supplement farmers efforts, some resources should be set aside for rectification/repair of structures/facilities that are beyond farmers capabilities, at least for initial years. This issue should be addressed under the proposed Community Managed Irrigation Sector Project, with the view to establishing such emergency funds by end 2003. 69. The OEM recommends that the Nepal Resident Mission together with the Agriculture, Environment and Natural Resources Division of the South Asia Regional Department take the overall responsibility for ensuring that the follow-up actions are implemented adequately and in a timely manner.

COMPARISON OF ORIGINAL AND REFORMULATED PROJECT Item

Board Approval

Original Project
26 November 1987

Reformulated Project
8 October 1992

Remarks
Five years after loan approval (about 4 years of initial implementation), the Project was reformulated after considering its doubtful economic viability and adverse environmental impact. The objectives basically remained the same except that the reformulated Project emphasized environmental issues and cost effectiveness.

Objectives

(i) (ii) (iii)

(iv)

Intensify crop production on the limited land resources of the project area. Increase farm incomes and the standard of living of farmers in the project area. Produce marketable surpluses of basic foodstuff for supply to deficit areas in the Kathmandu Valley and nearby hill districts. Maximize farmer involvement in establishing and operating the project irrigation facilities. Construction of a diversion weir and ancillary facilities across the Rapti River to divert water into a new gravity irrigation system commanding a net area of 9,500 hectares (ha); provision of equipment for subsequent operation and maintenance (O&M) of the project facilities; support for the formation of farmers organizations, which will help establish and operate the project irrigation facilities in tertiary irrigation units;

(i) (ii)

(iii)

(iv)

Intensify and diversify crop production in the project area. Increase farm incomes and the standard of living of farmers in the project area. Strengthen farmer involvement in constructing and operating the project irrigation facilities. Avoid environmental damage to the Royal Chitwan National Park.

Scope

(i)

(i)

(ii)

(ii)

(iii)

(iii)

Rehabilitation and improvement of existing farmer-managed irrigation schemes (FMISs) through the construction of permanent structures, remodeling or lining of main canals, and improvement of the distribution systems; strengthening of water users associations (WUAs) through social preparation and training; protection of the right bank of the Rapti River from flood damage through the construction of dikes and planting of trees;

The reformulated Project focused on the rehabilitation and improvement of 72 existing FMISs within the project area by extending the utility and efficiency of the water being withdrawn by the schemes. At the time of reformulation, the area to be benefited was expected to be reduced from the original command area of 9,500 ha to about 5,200 ha.

Item
(iv)

Original Project
Support for a Block Production Program, which is an intensified extension effort to maximize production in the newly irrigated areas; provision of consulting services for detailed design and supervision of construction of the project facilities; and provision of facilities (such as offices and quarters for the project staff and consultants, vehicles, and equipment) to implement the Project. (iv)

Reformulated Project
intensification of agricultural extension services through field demonstrations, dissemination of improved seeds, and provision of transport facilities and extension equipment; construction and improvement of about 60 kilometers of farm and service roads and four bridges; provision of consulting services and training for staff of the Department of Irrigation (DOI) and WUAs to be deployed in the FMISs; and provision of staff, housing, offices, equipment, and vehicles to enable DOI to implement the Project. 6,486 49 524 85 28 224 79 7,475 718 1,911 10,104 325 25 10,454

Remarks

(v)

(v)

(vi)

(vi)

(vii)

Estimated Project Cost ($000)

Irrigation and Drainage Facilities Equipment for O&M Water Users Group Demonstration Scheme Block Production Program Surveys, Consulting Services, and Training a Project Implementation Facilities Total Base Cost Physical Contingency Price Contingency Total Financial Cost Loan Service Charge Recovery of Project Preparatory Technical Assistance (PPTA) Cost Total Project Cost

19,141 218 100 91 3,098 1,563 24,211 2,421 10,213 36,845 955

Irrigation and Drainage Facilities Civil Works for Head Office Equipment and Vehicles Intensification of Extension Services Strengthening of WUA Administrative Cost Consulting Services and Training Total Base Cost Physical Contingency Price Contingency Total Financial Cost Loan Service Charge Recovery of PPTA Cost Total Project Cost

As a result of reformulation, the total project cost was substantially reduced. The cost of irrigation and drainage facilities decreased by almost $13 million, about 76 percent of the total base cost reduction.

200 38,000 $2,015 $775

Cost per ha
a

Includes offices and quarters for the project staff and consultants, vehicles and equipment, incremental staff salaries and allowances, and operating expenses for administration of the Project during implementation.

Item
Estimated Loan Amount

Original Project
$30.4 million

Reformulated Project
$8.3 million

Remarks
At the time of reformulation, b $23.2 million of the original loan was canceled. In spite of the reduced cost, a proportionate reduction in the number of beneficiaries was not observed, indicating that the reformulation was carried out in a cost-effective manner. The Project was actually completed on 31 December 1998. The reformulation was carried out effectively without serious delay. The actual loan closing date was 9 February 1999.

Estimated Number of c Beneficiaries Estimated Benefited Area

6,900 farm families 12,700 farm families

5,200 ha 9,500 ha

Expected Project Completion Date

31 May 1998 31 May 1994

Expected Loan Closing Date

b c

31 May 1998 31 May 1995

Equivalent to SDR15,745,000 at reformulation. The assumed average number of hectares per household in the project area is 0.75 ha, which was used in the PCR and confirmed by the OEM.

18

Appendix 2

STATUS OF COMPLIANCE WITH LOAN COVENANTSa

Status at Project Completion Being complied with. Status at Operations Evaluation Complied with. The project facilities can be maintained with regular operation and maintenance (O&M) expenditures. The Government has initiated the allocation of contingency funds in the event of the need for major repairs.

Reference No. Amended Loan Agreement (LA), section 4.05(a)

Covenants The Borrower will make arrangements satisfactory to the Asian Development Bank (ADB) for insurance of the Project facilities to such an extent and against such risks and in such amounts as will be consistent with sound practice. The Borrower will ensure that the project facilities are operated, maintained, and repaired in accordance with sound administrative, financial, engineering, environmental, agricultural, irrigation, public utility, and maintenance and operational and practices.
Department of Irrigation (DOI) will engage the

LA, section 4.09

Partially complied with as no adequate fund allocation was made for the Project.

Being complied with. There is a need to follow-up to ensure the sustainability of the project activities.

LA, Schedule 6, para. 6

assistance of trained engineers from the Regional Irrigation Directorate in the Central Region to form by 31 March 1993 a mobile irrigation team under the supervision of the project management office (PMO).

Not complied with. The mobile irrigation team was not engaged because of a shortage of human resources in DOI. The project staff satisfactorily carried out the appraisal and preparation of detailed
farmer-managed irrigation system (FMIS)

Not complied with. It should be followed up in conjunction with the assessment of the function of the district irrigation office (DIO).

design. LA, Schedule 6, para. 10 The Borrower will ensure that upon completion of the construction of each subproject, it is handed over to the water users association (WUA) concerned. Partly complied with. The time gap between completion of FMISs and handing over to WUAs was up to 6 months. The Operations Evaluation Mission (OEM) confirmed the compliance during the field assessment although no formal or specific mechanism was devised to hand over the subprojects to their WUA.

There were 32 covenants agreed at appraisal: 24 covenants were complied with at project completion and OEM confirmed the continued compliance. This appendix refers only to covenants that were not complied with at project completion in 1999 to indicate the progress since then.

Appendix 2

19

Reference No. LA, Schedule 6, para. 11

Covenants The Borrower will ensure that when DOI hands over the subproject to the WUA concerned, the latter assumes full responsibility for O&M of the subproject. The Borrower will ensure that, during the 2-year commissioning period, the DOI staff of the DIO will correct structural deficiencies in the civil works; train the WUAs concerned in O&M; and coordinate agricultural extension services and the provision of inputs and credits with the Department of Agriculture, Agricultural Inputs Corporation, and Agricultural Development Bank of Nepal. The Borrower will submit to ADB for its approval a training program and schedule including the following: (i) number of DOI staff to be trained, (ii) criteria for selection of candidates, (iii) the institutions proposed for training, (iv) courses to be followed, (v) estimated cost of the training, (vi) duration of the training, and (vii) terms and conditions to be imposed on the trainees. The Borrower will arrange for the trainees to serve the Project for a reasonable period after their return from the training.

Status at Project Completion Being complied with.

Status at Operations Evaluation Complied with. However, few WUA members and farmers know that their subproject has already been handed over under the contract agreement.

LA, Schedule 6, para. 12

Being complied with.

Complied with. About NRs2 million has been allocated since 2001, although during the first 2 years of completion, no budget was allocated for the Project. No extension or credit activities are coordinated after the project completion, which could be followed up.

LA, Schedule 6, para. 17

Partly complied with. DOI did not retain trainees to serve the Project for a reasonable period.

Partly complied with. Training impact can be observed in other irrigation projects where trainees under the Project have been serving after transfer.

20

Appendix 2

Reference No. LA, Schedule 6, para. 20

Covenants DOI will establish by 30 June 1993 a project benefit monitoring and evaluation (BME) unit in the PMO. The BME unit will be responsible for monitoring and evaluating the progress of the Project and for the environmental monitoring program in the project area.

Status at Project Completion Partly complied with. The BME unit became functional only when an institutional development specialist was hired from June 1997 to May 1998.

Status at Operations Evaluation Complied with. However, it is better to keep periodical followup for benefit and environmental monitoring.

Appendix 3

21

ECONOMIC REEVALUATION OF THE PROJECT A. Introduction

1. The Projects economic viability was reassessed with a methodology similar to that used to reformulate the Project and replicated to the extent possible in the project completion report (PCR). 2. The Project was designed to have a direct impact on the rural economy by increasing agricultural production and farm income by building a major river weir and canal system. The project area is home to about 11,400 farm families (or around 85,700 people), who have shared increased income, with an average annual increment of NRs7,565 in net revenue per family. Additional farm output is accompanied by increased farm employment in the region. The Project has provided flood protection to about 45,000 people living near the Rapti River and increased supplies of fuel-wood and fodder through afforestation along the river. Afforestation has reduced peoples dependency on securing forest products from the nearby Royal Chitwan National Park (RCNP), providing an element of environmental protection. 3. Project implementation was to have begun in 1988. The Project was reformulated into a farmer-managed irrigation system (FMIS) rehabilitation project in 1992 due to (i) high per hectare (ha) costs of irrigation, (ii) the much larger number of existing FMISs in the affected area than earlier estimated, and (iii) probable negative environmental effects on RCNP. B. Approach and Methodology 1. With and Without Project

4. A comparison of with- and without-project scenarios is used to reevaluate the quantifiable direct farm production benefits. The without-project scenario involves the crop pattern, cropping intensity, crop revenue, and costs of production under the assumption that the Project had not been implemented. The with-project scenario includes the crop pattern, cropping intensity, crop revenue, and costs of production. Prices are the same under both scenarios. 5. Besides quantifiable direct farm production benefits, a variety of benefits not quantified or included in the analyses at reformulation are in the PCR or in this report. The benefits are associated with the strengthening of water user associations (WUAs), flood protection, afforestation, and the various farm-to-market roads and bridges constructed under the Project. Information about quantifiable and nonquantifiable benefits is based, in part, on data obtained during the Operation Evaluation Mission (OEM). Further information was derived from the PCR, Department of Irrigation, and other sources. 2. Prices

6. Prices used in the analysis were derived as in the PCR and checked against other sources. Fourteen FMISs in the project area were surveyed to collect information about agricultural production. Basic pricing assumptions used in the economic analysis include the following:

22

Appendix 3

(i) (ii) (iii) (iv)

(v) (vi) (vii) 3.

A world price numeraire is used. Values are expressed in constant 1998 currency units as that was the year of project completion. Values expressed in dollars have been converted at the Governments average exchange rate for 1998 of NRs60.06 to $1. In the case of major tradable commodities (rice, wheat maize, urea, diammonium phosphate, and phosphate fertilizer), border pricing is used to derive economic values (Tables A3.1a and A3.1b). For most other goods and services, a standard conversion factor of 0.9 is used to calculate economic prices (Table A3.2). A shadow wage rate factor of 0.88 is used for labor underemployment in Nepal. Transfer payments such as taxes are excluded from economic valuations. Economic Life of the Project

7. The assumed economic life of the Project is 25 years (as in the PCR and reformulation analyses). Some of the FMIS were rehabilitated in 1993 and, therefore, are expected to last until 2018. The last FMIS were rehabilitated in 1998 and are expected to last until 2023. As many are skeptical (or realistic) about the economic life of structures such as those built by the Project, sensitivity analyses of the risk of a shorter economic life expectancy have been conducted. C. Project Costs

8. Costs in the analysis include (i) civil works for FMISs, the river embankment, and some farm-to-market roads and bridges; (ii) project vehicles and equipment and their operating costs; (iii) training; (iv) consulting services; and (v) administrative expenses. From the inception of the Project in 1988 to its reformulation in 1992, $ 2.1 million was spent for technical assistance (TA) consulting services. The TA was for the original project design and had nothing to do with the activities of the reformulated Project. As a result, the TA was a sunk cost and should not be included in the economic internal rate of return (EIRR) and economic net present value (ENPV) calculations for the reformulated Project. 9. Regular operation and maintenance (O&M) of FMISs has been estimated at $5/ha. In the 10th and 20th years of a FMIS life an additional $50/ha is assumed to cover more substantial replacement costs. Against the risk that these amounts are inadequate for proper maintenance, sensitivity analyses have been conducted on the cost of O&M. D. Project Benefits

10. Incremental net economic value comprises the main economic benefit included in the analysis. Cropping patterns, cropping intensity, yield, and farm inputs differ in the with- and without-project scenarios. The incremental benefit is primarily associated with improved irrigation through the rehabilitation of the FMISs and the strengthening of their WUAs, but the Projects contributions to improved flood control and better farm-to-market roads would also play a part in shaping farmers choices of technology, and cropping patterns. 11. Farm models of inputs were developed for major crops under different irrigation regimes in the with- and without-project scenarios. Their net economic value was then calculated (Tables A3.3a and A3.3b). Input and output data were based on field visits, a small project performance audit report (PPAR) field survey of 14 FMIS, PCR data, a monitoring and evaluation survey

Appendix 3

23

conducted in 1998 in the project area, and data from the Economic Analysis and Statistics Division of the Department of Agriculture. A middle range of values from these sources was used in the analysis. A comparison of the with- and without-project scenarios shows modest increases in input usage and crop yield. Given that the relative prices of major commodities are expected to change over time, three versions of the farm models in economic terms have been produced, using values from 2000, 2005, and 2010. 12. At reformulation it was expected that 5,200 ha would be irrigated by the Project. As implemented, 8,516 ha have been irrigated, although 3,933 ha of that partially rather than fully (Table A3.4).1 In the northern part of the project area some of the source rivers simply do not have sufficient water to provide full command area coverage during the winter and spring crop seasons. Winter crops in some of the southern part of the project area are damaged by rhinoceroses, leading farmers to plant less. In other parts of the project area, however, crop diversification increases during winter. With-project vegetable production, for example, has increased to some extent.2 With-project cropping intensity is 229%, and without-project, 164%. E. Impact on Farm Output and Household Income

13. A model of a typical 1 ha farm was developed to demonstrate with- and without-project production. The farm has a cropping pattern and intensity representing the average of the 8,516 ha of the project area (Table A3.5). Incremental net financial farm revenue is NRs10,152 per year.3 The full project area, then, has incremental farm income of NRs86.5 million per year. For the families of the area this represents an increase of about NRs7,600 or about 15% of household income. 14. Poverty information is not available for the project area in particular. Estimates indicate that roughly 75% of the households are small or marginal farmers owning an average of 0.5 ha of land. The average poor household thus has an increment of NRs5,075 with the Project. The PPAR field survey showed that more small farms demonstrate a higher-than-average cropping intensity than large farms. The incremental financial revenue of the poor households is thus somewhat higher than this estimate. 15. Incremental output includes approximately 17,950 tons (t) of rice paddy, 475 t of wheat, 1,550 t of maize, 115 t of mustard, 760 t of lentils, and 3,200 t of potatoes each year, or an increase of roughly 2.1 t of food per household per year. 16. Using crop budget figures in the with- and without-project scenarios, it is possible to calculate estimated increases in farm labor necessary to produce the incremental output. Roughly 800,000 person-days of incremental labor are needed in the with-project scenario. A portion of that labor is provided by farm households themselves while the rest is drawn from the general labor market, including local landless laborers.4

3 4

The PCR figures on cropping pattern and intensity are used here. The PPAR field survey of 14 FMISs showed a 1.5% increase in irrigated area and cropping intensity since the PCR. This difference is too small to suggest a significant increase (or any increase at all) since project completion for the full complement of 72 FMISs. To simplify the quantitative analysis, potatoes have been included to represent all vegetables, although a variety of other vegetables are also grown. Excluding family labor as all labor inputs have been counted as a cost of production. These person-days represent wages of NRs60 million. For that part of incremental labor drawn from project farm households, these wages comprise part of household income (in addition to net crop revenue) although the additional time commitment to on-farm work may partly have an opportunity cost of work and income off the farm.

24 F.

Appendix 3

Recalculation of Economic Internal Rates of Return

17. Investment costs and estimates of O&M costs were converted to economic values and included with the economic valuation of incremental crop net revenue into an economic cash flow (Table A3.6). For the reformulated Project (not including the pre-1992 TA sunk costs associated with the original project design), the EIRR is 16.0%, and the ENPV, $2.4 million, compared to 18.3% found at the time of the PCR and 13.7% estimated at the time of reformulation.5 18. The decrease from the PCR result is due to a large decline in the international prices of major food grains. From the time of the PCR to the present, for example, rice price estimates dropped 27% for 2000, 20% for 2005, and 14% for 2010. Corroborating the effect of such a price drop, the PCRs sensitivity test for a 20% decline in benefits produced an EIRR 4 percentage points lower than its base case. 19. The improvement related to the predicted rate at the time of Project reformulation, however, can be ascribed to the fact that in 1992 the Project was expected to serve only 5,200 ha. The Project as completed, though, managed to cover 8,516 ha. 20. The report and recommendation of the President in 1987 predicted an EIRR of 15.9% for the weir and canal design. As the original project design was very different from the reformulated project, this result is not comparable with the EIRRs discussed above. If the report and recommendation of the President analysis had included the higher (and closer) figure for without-project FMIS coverage as well as the predicted negative environmental costs in the with-project scenario, the EIRR reported would have been considerably less. G. Sensitivity Analysis

21. Three areas of risk plausibly affect the above results. Sensitivity analyses were carried out for (i) unfavorable changes in the level of benefits (possibly due to a drop in output prices), (ii) O&M cost increases, and (iii) a shortening of the life of project facilities. 22. The first risk is that of the level of incremental benefit. Sensitivity analyses indicate that a drop of 20% in general incremental benefits will result in a project EIRR of 12.9% (compared to the base case of 16.0%) (Table A3.7). The switching value (beyond which the Project has an EIRR below 12%) is at a 25% decrease in benefits. The economic viability of the Project, then, is somewhat at risk from a major drop in incremental benefits. Specifically, if international rice prices were to drop 20.0%, the EIRR would decline to 13.9% (with a switching value at a 36.0% price drop). Such a price drop, unlike general incremental benefits, would affect the without- and with-project scenarios. Finally, a decrease of 20% in the incremental cropping intensity would decrease benefits and result in an EIRR of 14.3% (with a switching value of a 45% drop in cropping intensity). 23. A second area of risk has to do with the adequacy of O&M. Sensitivity was tested against increased O&M expenditures. The results indicate that the EIRR would drop only to 15.6% if O&M expenditures were to double. It would take an O&M expenditure of 9.3 times the estimated figure (i.e., up to $46.50 per ha per year plus $465 per ha in more major expenses in
5

If the pre-1992 sunk costs of the irrelevant (to reformulated Project design) technical assistance is included in the calculation, the EIRR drops to 11.3% --- compared to 16.3% in the PCR and 9.6% estimated at the time of reformulation.

Appendix 3

25

the 10th and 20th years of project life) to cause the EIRR to drop below 12%. The Projects viability, therefore, is not very much at risk from increased O&M costs. 24. Project economic life is the third major risk area. Given the typical quality of construction on FMIS civil works, a 25-year project life may be questionable. Sustainability tests indicate that a 15-year life would produce an EIRR of 14.9%; a 10-year life, 12.6%; and a 5-year life, 6.1%. A 9-year minimum economic life would produce an EIRR of 12%. Assuming that WUAs perform normal levels of O&M, the Project should be able to attain a viable rate of return.

26

Appendix 3

Table A3.1a: Derivation of Economic Prices for Major Tradeable Grains

Year Actual Crop/Item A. Rice World Market Price FOB a b Constant 1990 Dollars Constant 1998 Dollars b Less Quality Adjustmentc Quality Adjusted FOB International Freight Calcutta CIF Price Transport and Handling to Nepal Border (Birganj) Birgunj CIF Price d CIF price in NRs Freight to and from mill Processing Rate Processing Cost Freight to Farmgate Farmgate Price
a

Unit

1995

1998

1999

2000

2001

Projected 2002 2005

2010

$/t $/t 30% $/t $/t $/t $/t $/t NRs/t NRs/t NRs/t NRs/t NRs/t NRs/t

269.2 280.5 84.2 196.4 40.0 236.4 60.0 296.4 17,799.1 (250.0) 0.7 (250.0) 350.0 11,506.9

291.9 304.2 91.2 212.9 40.0 252.9 60.0 312.9 18,793.5 (250.0) 0.7 (250.0) 350.0 12,153.3

240.5 250.6 75.2 175.4 40.0 215.4 60.0 275.4 16,541.8 (250.0) 0.7 (250.0) 350.0 10,689.6

207.8 216.5 65.0 151.6 40.0 191.6 60.0 251.6 15,109.3 (250.0) 0.7 (250.0) 350.0 9,758.5

182.9 190.6 57.2 133.4 40.0 173.4 60.0 233.4 14,018.4 (250.0) 0.7 (250.0) 350.0 9,049.5

191.4 199.4 59.8 139.6 40.0 179.6 60.0 239.6 14,390.8 (250.0) 0.7 (250.0) 350.0 9,291.5

221.0 230.3 69.1 161.2 40.0 201.2 60.0 261.2 15,687.5 (250.0) 0.7 (250.0) 350.0 10,134.4

226.4 235.9 70.8 165.1 40.0 205.1 60.0 265.1 15,924.1 (250.0) 0.7 (250.0) 350.0 10,288.2

FOB = free on board; CIF = cost, insurance and freight Thai white, milled, 5% broken, FOB, Bangkok b Constant 1990 prices are derived from World Bank Commodity Price Projections (for 2000 to 2010: Oct.12, 2001; for 1999: Jan. 30, 2001; for 1997-98: Apr. 25, 1999; for 1994-96: Aug. 1998). The ratio between constant 1990 prices and constant 1998 prices is derived from the Apr. 25, 1999 publication. This use of multiple issues of the WB commodity prices was in order to get the "most" finalized versions of actual prices (especially for years not ending a decade --only two of which appear in any given publication) and the latest versions of projected prices. c Assumptions regarding quality adjustment are similar to those in RRP d The average 1998 Rs/$ rate was 60.06 NRs per U.S. dollar.

B. Wheat World Market Price FOB a Constant 1990 Dollars b Constant 1998 Dollars b Less Quality Adjustmentc Quality Adjusted FOB International Freight Calcutta CIF Price Transport and Handling to Nepal Border (Birganj) Birganj CIF Price CIF Price in NRsd Freight to Farmgate Farmgate Price
a b c d

$/t $/t 20% $/t $/t $/t $/t $/t NRs NRs NRs

148.5 154.7 30.9 123.8 70.0 193.8 60.0 253.8 15,242.6 350.0 15,592.6

121.1 126.2 25.2 100.9 70.0 170.9 60.0 230.9 13,870.8 350.0 14,220.8

108.5 113.1 22.6 90.4 70.0 160.4 60.0 220.4 13,240.0 350.0 13,590.0

117.1 122.0 24.4 97.6 70.0 167.6 60.0 227.6 13,670.5 350.0 14,020.5

134.5 140.1 28.0 112.1 70.0 182.1 60.0 242.1 14,541.7 350.0 14,891.7

134.5 140.1 28.0 112.1 70.0 182.1 60.0 242.1 14,541.7 350.0 14,891.7

141.0 146.9 29.4 117.5 70.0 187.5 60.0 247.5 14,867.1 350.0 15,217.1

135.0 140.7 28.1 112.5 70.0 182.5 60.0 242.5 14,566.7 350.0 14,916.7

Canadian, No.1 western Red Spring, St. Lawrence, export Derived from World Bank Commodity Price Projections (see f.n. b/ for rice) Assumptions regarding quality adjustment are similar to those in RRP The average 1998 Rs/$ rate was 60.06 NRs per U.S. dollar.

C. Maize World Market Price FOB a Constant 1990 Dollars b b Constant 1998 Dollars Less Quality Adjustmentc Quality Adjusted FOB International Freight Calcutta CIF Price Transport and Handling to Nepal Border (Birganj) Birganj CIF Price d CIF Price in NRs Freight to Farmgate Farmgate Price
a b c d

$/t $/t 10% $/t $/t $/t $/t $/t NRs NRs NRs

103.6 108.0 10.8 97.2 66.0 163.2 60.0 223.2 13,402.8 350.0 13,752.8

97.9 102.0 10.2 91.8 66.0 157.8 60.0 217.8 13,081.7 350.0 13,431.7

87.3 91.0 9.1 81.9 66.0 147.9 60.0 207.9 12,484.7 350.0 12,834.7

90.9 94.7 9.5 85.2 66.0 151.2 60.0 211.2 12,687.4 350.0 13,037.4

96.8 100.9 10.1 90.8 66.0 156.8 60.0 216.8 13,019.7 350.0 13,369.7

99.3 103.5 10.3 93.1 66.0 159.1 60.0 219.1 13,160.6 350.0 13,510.6

114.7 119.5 12.0 107.6 66.0 173.6 60.0 233.6 14,028.0 350.0 14,378.0

108.9 113.5 11.3 102.1 66.0 168.1 60.0 228.1 13,701.3 350.0 14,051.3

U.S., No. 2 Yellow, FOB, Gulf ports. Derived from World Bank Commodity Price Projections (see f.n. b/ for rice) Assumptions regarding quality adjustment are similar to those in RRP The average 1998 Rs/$ rate was 60.06 NRs per U.S. dollar.

Appendix 3

27

Table A3.1b: Derivation of Economic Prices of Fertilizers

Year Crop/Item A. Urea World Market Price FOB a Constant 1990 Dollarsb b Constant 1998 Dollars International Freight Calcutta CIF Price Transport and Handling to Nepal Border (Birganj) Birgunj CIF Price c CIF Price in NRs Transport and Handling to Wholesaler Wholesalers' Margin Transport and Handling to Farmgate Retailors' Margin Farmgate Price
a

Unit

1995

Actual 1998 1999

2000

2001

Projected 2002 2005

2010

$/t $/t $/t $/t $/t $/t NRs NRs 20% NRs 10% NRs

177.4 184.9 60.0 244.9 60.0 304.9 18,309.3 300.0 3,721.9 350.0 2,268.1 24,949.3

98.9 103.1 60.0 163.1

75.3 78.5 60.0 138.5

115.1 119.9 60.0 179.9 60.0 239.9 14,410.4 300.0 2,942.1 350.0 1,800.3 19,802.8

113.3 118.1 60.0 178.1 60.0 238.1 14,297.8 300.0 2,919.6 350.0 1,786.7 19,654.1

113.8 118.6 60.0 178.6 60.0 238.6 14,329.1 300.0 2,925.8 350.0 1,790.5 19,695.4

131.6 137.1 60.0 197.1 60.0 257.1 15,443.1 300.0 3,148.6 350.0 1,924.2 21,165.8

126.3 131.6 60.0 191.6 60.0 251.6 15,111.4 300.0 3,082.3 350.0 1,884.4 20,728.0

60.0 60.0 223.1 198.5 13,396.6 11,919.7 300.0 2,739.3 300.0 2,443.9

350.0 350.0 1,678.6 1,501.4 18,464.5 16,515.0

FOB = free on board; CIF = cost, insurance and freight Bagged, spot, FOB, West Europe b Derived from World Bank Commodity Price Projections c The average 1998 Rs/$ rate was 60.06 NRs per U.S. dollar.

a b

B. Diammonium Phosphate World Market Price FOB a Constant 1990 Dollarsb b Constant 1998 Dollars International Freight Calcutta CIF Price Transport and Handling to Nepal Border (Birganj) Birgunj CIF Price c CIF Price in NRs Transport and Handling to Wholesaler Wholesalers' Margin Transport and Handling to Farmgate Retailors' Margin Farmgate Price

$/t $/t $/t $/t $/t $/t NRs NRs 20% NRs 10% NRs

181.7 189.3 66.0 255.3 60.0 315.3 18,938.8 300.0 3,847.8 350.0 2,343.7 25,780.2

195.2 203.4 66.0 269.4

172.1 179.3 66.0 245.3

158.3 164.9 66.0 230.9 60.0 290.9 17,474.4 300.0 3,554.9 350.0 2,167.9 23,847.2

158.1 164.7 66.0 230.7 60.0 290.7 17,461.9 300.0 3,552.4 350.0 2,166.4 23,830.7

160.4 167.1 66.0 233.1 60.0 293.1 17,605.8 300.0 3,581.2 350.0 2,183.7 24,020.7

169.2 176.3 66.0 242.3 60.0 302.3 18,156.5 300.0 3,691.3 350.0 2,249.8 24,747.6

165.5 172.5 66.0 238.5 60.0 298.5 17,925.0 300.0 3,645.0 350.0 2,222.0 24,442.0

60.0 60.0 329.4 305.3 19,783.7 18,338.0 300.0 4,016.7 300.0 3,727.6

350.0 350.0 2,445.0 2,271.6 26,895.4 24,987.2

Bulk, spote, FOB, US Gulf. Derived from World Bank Commodity Price Projections (see f.n. b/ for rice) c The average 1998 Rs/$ rate was 60.06 NRs per U.S. dollar.

a b

C. Muriate of Potash World Market Price FOB a b Constant 1990 Dollars b Constant 1998 Dollars International Freight Calcutta CIF Price Transport and Handling to Nepal Border (Birganj) Birgunj CIF Price c CIF Price in NRs Transport and Handling to Wholesaler Wholesalers' Margin Transport and Handling to Farmgate Retailors' Margin Farmgate Price

$/t $/t $/t $/t $/t $/t NRs NRs 20% NRs 10% NRs

98.8 102.9 66.0 168.9 60.0 228.9 13,750.7 300.0 2,810.1 350.0 1,721.1 18,931.9

112.2 116.9 66.0 182.9

117.8 122.7 66.0 188.7

125.8 131.1 66.0 197.1 60.0 257.1 15,440.4 300.0 3,148.1 350.0 1,923.9 21,162.4

128.0 133.4 66.0 199.4 60.0 259.4 15,578.1 300.0 3,175.6 350.0 1,940.4 21,344.1

124.2 129.4 66.0 195.4 60.0 255.4 15,340.3 300.0 3,128.1 350.0 1,911.8 21,030.2

117.5 122.4 66.0 188.4 60.0 248.4 14,921.0 300.0 3,044.2 350.0 1,861.5 20,476.7

110.6 115.2 66.0 181.2 60.0 241.2 14,489.2 300.0 2,957.8 350.0 1,809.7 19,906.7

60.0 60.0 242.9 248.7 14,589.3 14,939.8 300.0 2,977.9 300.0 3,048.0

350.0 350.0 1,821.7 1,863.8 20,038.9 20,501.5

Standard grade, spot, FOB, Vancouver Derived from World Bank Commodity Price Projections (see f.n. b/ for rice) c The average 1998 Rs/$ rate was 60.06 NRs per U.S. dollar.

28

Appendix 3

Table A3.2: Summary of Financial and Economic Prices

(Constant 1998 NRs)
Financial Price 1998a Economic Price (constant 1998) b Actual Projected 1998 1999 2000 2001 2002 2005

Item A. Outputs Rice Rice byproducts Maize Wheat Wheat byproducts Lentil Mustard Potato Vegetables B. Inputs Seed Rice Maize Wheat Lentil Mustard Potato Vegetables Fertilizers Urea DAP Potash FYM C. Labor Farm labor Draft animal c

Unit

1995

2010

NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg

7.5 1.0 7.3 7.5 0.4 20.0 21.0 5.5 5.0

11.5 0.9 13.8 15.6 0.4 18.0 18.9 5.0 4.5

12.2 0.9 13.4 14.2 0.4 18.0 18.9 5.0 4.5

10.7 0.9 12.8 13.6 0.4 18.0 18.9 5.0 4.5

9.8 0.9 13.0 14.0 0.4 18.0 18.9 5.0 4.5

9.0 0.9 13.4 14.9 0.4 18.0 18.9 5.0 4.5

9.3 0.9 13.5 14.9 0.4 18.0 18.9 5.0 4.5

10.1 0.9 14.4 15.2 0.4 18.0 18.9 5.0 4.5

10.3 0.9 14.1 14.9 0.4 18.0 18.9 5.0 4.5

NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/kg NRs/t

14.8 15.5 17.5 30.0 31.0 12.0 100.0 8.0 19.0 10.0 300.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 24.9 25.8 18.9 270.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 18.5 26.9 20.0 270.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 16.5 25.0 20.5 270.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 19.8 23.8 21.2 270.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 19.7 23.8 21.3 270.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 19.7 24.0 21.0 270.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 21.2 24.7 20.5 270.0

13.3 14.0 15.8 27.0 27.9 10.8 90.0 20.7 24.4 19.9 270.0

NRs/person-day NRs/pair-day

75.0 160.0

60.0 144.0

60.0 144.0

60.0 144.0

60.0 144.0

60.0 144.0

60.0 144.0

60.0 144.0

60.0 144.0

D. Machine Tractor NRs/hour 330.0 297.0 297.0 297.0 297.0 297.0 297.0 297.0 297.0 Pumpset NRs/hour 70.0 63.0 63.0 63.0 63.0 63.0 63.0 63.0 63.0 DAP = diammonium phosphate; FYM = farmyard manure. a Financial prices, adjusted to 1998 levels, were derived from field visits, the PCR and "Cost of Productin of Cereal Crops", Economic Analysis and Statistics Division, Department of Agriculture, HMG Nepal (1998/99 edition). b Economic prices for major traded commodities were derived from the World Bank Commodity Price Projections. Economic prices for nontraded goods, labor and other costs were based on local financial prices and adjusted by the standard conversion factor of 0.9. c Including operator.

Table A3.3a: Net Crop Revenue Without Project

Financial Net Crop Revenue per ha (constant 1998 NRs)
Irrigated Gross Prod. Revenue Cost 22,500.0 20,225.0 2,400.0 15,000.0 14,845.0 720.0 11,680.0 12,967.5 10,500.0 8,612.0 8,000.0 7,437.0 55,000.0 39,015.0 Net Revenue 2,275.0 2,400.0 155.0 720.0 (1,287.5) 1,888.0 563.0 15,985.0 Partially Irrigated Gross Prod. Revenue Cost 20,250.0 19,860.0 2,200.0 14,250.0 13,775.0 600.0 10,220.0 12,025.0 8,400.0 7,551.0 8,000.0 6,592.0 44,000.0 35,503.0 Net Revenue 390.0 2,200.0 475.0 600.0 (1,805.0) 849.0 1,408.0 8,497.0 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 7.5 18,000.0 15,768.0 1.0 1,900.0 7.5 9,000.0 8,870.0 0.4 400.0 7.3 8,030.0 7,850.0 21.0 6,300.0 5,860.0 20.0 6,000.0 5,180.0 5.5 30,250.0 28,630.0 Net Revenue 2,232.0 1,900.0 130.0 400.0 180.0 440.0 820.0 1,620.0

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.0 2.4 2.0 1.8 1.6 0.5 0.4 10.0

Price 7.5 1.0 7.5 0.4 7.3 21.0 20.0 5.5

Yield 2.7 2.2 1.9 1.5 1.4 0.4 0.4 8.0

Price 7.5 1.0 7.5 0.4 7.3 21.0 20.0 5.5

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

Economic Net Crop Revenue per ha (2000 prices in constant 1998 NRs)
Irrigated Gross Prod. Revenue Cost 27,874.6 18,621.2 2,160.0 29,783.4 13,775.5 648.0 21,616.9 12,267.9 9,450.0 8,038.4 7,200.0 6,439.1 49,500.0 34,975.9 Net Revenue 9,253.3 2,160.0 16,007.8 648.0 9,349.0 1,411.6 760.9 14,524.1 Partially Irrigated Gross Prod. Revenue Cost 25,087.1 18,065.5 1,980.0 28,294.2 12,633.2 540.0 18,914.8 11,301.1 7,560.0 6,945.9 7,200.0 5,716.1 39,600.0 31,856.3 Net Revenue 7,021.6 1,980.0 15,661.0 540.0 7,613.6 614.1 1,483.9 7,743.7 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 9.3 22,299.7 13,448.7 0.9 1,710.0 14.9 17,870.0 7,801.5 0.4 360.0 13.5 14,861.6 6,502.5 18.9 5,670.0 5,182.5 18.0 5,400.0 4,362.0 5.0 27,225.0 25,492.7 Net Revenue 8,850.9 1,710.0 10,068.5 360.0 8,359.1 487.5 1,038.0 1,732.3

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.0 2.4 2.0 1.8 1.6 0.5 0.4 10.0

Price 9.3 0.9 14.9 0.4 13.5 18.9 18.0 5.0

Yield 2.7 2.2 1.9 1.5 1.4 0.4 0.4 8.0

Price 9.3 0.9 14.9 0.4 13.5 18.9 18.0 5.0

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

Economic Net Crop Revenue per ha (2005 prices in constant 1998 NRs)
Irrigated Gross Prod. Revenue Cost 30,403.2 18,788.9 2,160.0 30,434.2 13,877.3 648.0 23,004.7 12,407.2 9,450.0 8,107.6 7,200.0 6,448.6 49,500.0 35,156.3 Net Revenue 11,614.3 2,160.0 16,556.9 648.0 10,597.5 1,342.4 751.4 14,343.7 Partially Irrigated Gross Prod. Revenue Cost 27,362.8 18,206.0 1,980.0 28,912.5 12,715.8 540.0 20,129.1 11,417.8 7,560.0 6,994.3 7,200.0 5,725.6 39,600.0 32,020.4 Net Revenue 9,156.8 1,980.0 16,196.7 540.0 8,711.3 565.7 1,474.4 7,579.6 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 10.1 24,322.5 13,491.8 0.9 1,710.0 15.2 18,260.5 7,824.1 0.4 360.0 14.4 15,815.7 6,502.5 18.9 5,670.0 5,205.1 18.0 5,400.0 4,362.0 5.0 27,225.0 25,610.7 Net Revenue 10,830.7 1,710.0 10,436.4 360.0 9,313.2 464.9 1,038.0 1,614.3

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.0 2.4 2.0 1.8 1.6 0.5 0.4 10.0

Price 10.1 0.9 15.2 0.4 14.4 18.9 18.0 5.0

Yield 2.7 2.2 1.9 1.5 1.4 0.4 0.4 8.0

Price 10.1 0.9 15.2 0.4 14.4 18.9 18.0 5.0

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

Appendix 3

Economic Net Crop Revenue per ha (2010 prices in constant 1998 NRs)
Irrigated Gross Prod. Revenue Cost 30,864.5 18,726.3 2,160.0 29,833.4 13,828.1 648.0 22,482.0 12,357.8 9,450.0 8,083.2 7,200.0 6,445.5 49,500.0 35,094.2 Net Revenue 12,138.1 2,160.0 16,005.4 648.0 10,124.3 1,366.8 754.5 14,405.8 Partially Irrigated Gross Prod. Revenue Cost 27,778.0 18,152.4 1,980.0 28,341.8 12,676.8 540.0 19,671.8 11,375.8 7,560.0 6,976.9 7,200.0 5,722.5 39,600.0 31,963.6 Net Revenue 9,625.6 1,980.0 15,664.9 540.0 8,296.0 583.1 1,477.5 7,636.4 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 10.3 24,691.6 13,477.8 0.9 1,710.0 14.9 17,900.1 7,816.7 0.4 360.0 14.1 15,456.4 6,502.5 18.9 5,670.0 5,197.7 18.0 5,400.0 4,362.0 5.0 27,225.0 25,572.7 Net Revenue 11,213.7 1,710.0 10,083.4 360.0 8,953.9 472.3 1,038.0 1,652.3

29

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.0 2.4 2.0 1.8 1.6 0.5 0.4 10.0

Price 10.3 0.9 14.9 0.4 14.1 18.9 18.0 5.0

Yield 2.7 2.2 1.9 1.5 1.4 0.4 0.4 8.0

Price 10.3 0.9 14.9 0.4 14.1 18.9 18.0 5.0

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

Table A3.3b: Net Crop Revenue With Project

Financial Net Crop Revenue per ha (constant 1998 NRs)
Irrigated Gross Revenue 26,250.0 2,600.0 16,500.0 800.0 14,600.0 10,500.0 10,000.0 68,750.0 Prod. Cost 20,389.2 15,030.0 13,102.5 8,731.0 7,437.0 39,310.0 Net Revenue 5,860.8 2,600.0 1,470.0 800.0 1,497.5 1,769.0 2,563.0 29,440.0 Partially Irrigated Gross Prod. Revenue Cost 24,750.0 19,995.0 2,600.0 15,000.0 13,910.0 720.0 13,140.0 12,160.0 8,400.0 7,632.0 8,000.0 6,592.0 60,500.0 35,775.0 Net Revenue 4,755.0 2,600.0 1,090.0 720.0 980.0 768.0 1,408.0 24,725.0 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 7.5 18,000.0 15,768.0 1.0 1,900.0 7.5 9,000.0 8,870.0 0.4 400.0 7.3 8,030.0 7,850.0 21.0 6,300.0 5,860.0 20.0 6,000.0 5,180.0 5.5 30,250.0 28,630.0 Net Revenue 2,232.0 1,900.0 130.0 400.0 180.0 440.0 820.0 1,620.0

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.5 2.6 2.2 2.0 2.0 0.5 0.5 12.5

Price 7.5 1.0 7.5 0.4 7.3 21.0 20.0 5.5

Yield 3.3 2.6 2.0 1.8 1.8 0.4 0.4 11.0

Price 7.5 1.0 7.5 0.4 7.3 21.0 20.0 5.5

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

30 Appendix 3

Economic Net Crop Revenue per ha (2000 prices in constant 1998 NRs)
Irrigated Gross Revenue 32,520.3 2,340.0 32,761.7 720.0 27,021.1 9,450.0 9,000.0 61,875.0 Prod. Cost 18,864.9 14,099.6 12,486.1 8,217.0 6,439.1 35,590.2 Net Revenue 13,655.4 2,340.0 18,662.1 720.0 14,535.0 1,233.0 2,560.9 26,284.8 Partially Irrigated Gross Prod. Revenue Cost 30,662.0 18,283.8 2,340.0 29,783.4 12,851.5 648.0 24,319.0 11,519.4 7,560.0 7,076.9 7,200.0 5,716.1 54,450.0 32,344.1 Net Revenue 12,378.3 2,340.0 16,931.9 648.0 12,799.6 483.1 1,483.9 22,105.9 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 9.3 22,299.7 13,448.7 0.9 1,710.0 14.9 17,870.0 7,801.5 0.4 360.0 13.5 14,861.6 6,502.5 18.9 5,670.0 5,182.5 18.0 5,400.0 4,362.0 5.0 27,225.0 25,492.7 Net Revenue 8,850.9 1,710.0 10,068.5 360.0 8,359.1 487.5 1,038.0 1,732.3

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.5 2.6 2.2 2.0 2.0 0.5 0.5 12.5

Price 9.3 0.9 14.9 0.4 13.5 18.9 18.0 5.0

Yield 3.3 2.6 2.0 1.8 1.8 0.4 0.4 11.0

Price 9.3 0.9 14.9 0.4 13.5 18.9 18.0 5.0

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

Economic Net Crop Revenue per ha (2005 prices in constant 1998 NRs)
Irrigated Gross Revenue 35,470.3 2,340.0 33,477.6 720.0 28,755.9 9,450.0 9,000.0 61,875.0 Prod. Cost 19,043.4 14,209.2 12,636.8 8,294.8 6,448.6 35,809.2 Net Revenue 16,426.9 2,340.0 19,268.4 720.0 16,119.1 1,155.2 2,551.4 26,065.8 Partially Irrigated Gross Prod. Revenue Cost 33,443.5 18,435.6 2,340.0 30,434.2 12,945.3 648.0 25,880.3 11,647.4 7,560.0 7,132.1 7,200.0 5,725.6 54,450.0 32,535.9 Net Revenue 15,007.9 2,340.0 17,488.9 648.0 14,232.9 427.9 1,474.4 21,914.1 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 10.1 24,322.5 13,491.8 0.9 1,710.0 15.2 18,260.5 7,824.1 0.4 360.0 14.4 15,815.7 6,502.5 18.9 5,670.0 5,205.1 18.0 5,400.0 4,362.0 5.0 27,225.0 25,610.7 Net Revenue 10,830.7 1,710.0 10,436.4 360.0 9,313.2 464.9 1,038.0 1,614.3

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.5 2.6 2.2 2.0 2.0 0.5 0.5 12.5

Price 10.1 0.9 15.2 0.4 14.4 18.9 18.0 5.0

Yield 3.3 2.6 2.0 1.8 1.8 0.4 0.4 11.0

Price 10.1 0.9 15.2 0.4 14.4 18.9 18.0 5.0

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

Economic Net Crop Revenue per ha (2010 prices in constant 1998 NRs)
Irrigated Gross Revenue 36,008.5 2,340.0 32,816.8 720.0 28,102.5 9,450.0 9,000.0 61,875.0 Prod. Cost 18,977.3 14,153.4 12,583.6 8,267.6 6,445.5 35,734.6 Net Revenue 17,031.2 2,340.0 18,663.3 720.0 15,518.9 1,182.4 2,554.5 26,140.4 Partially Irrigated Gross Prod. Revenue Cost 33,950.9 18,378.3 2,340.0 29,833.4 12,902.7 648.0 25,292.3 11,601.7 7,560.0 7,112.4 7,200.0 5,722.5 54,450.0 32,470.0 Net Revenue 15,572.6 2,340.0 16,930.7 648.0 13,690.6 447.6 1,477.5 21,980.0 Rainfed (not irrigated) Gross Prod. Price Revenue Cost 10.3 24,691.6 13,477.8 0.9 1,710.0 14.9 17,900.1 7,816.7 0.4 360.0 14.1 15,456.4 6,502.5 18.9 5,670.0 5,197.7 18.0 5,400.0 4,362.0 5.0 27,225.0 25,572.7 Net Revenue 11,213.7 1,710.0 10,083.4 360.0 8,953.9 472.3 1,038.0 1,652.3

Crop Rice Rice byproducts Wheat Wheat byproducts Maize Mustard Lentil Vegetable (potato)

Yield 3.5 2.6 2.2 2.0 2.0 0.5 0.5 12.5

Price 10.3 0.9 14.9 0.4 14.1 18.9 18.0 5.0

Yield 3.3 2.6 2.0 1.8 1.8 0.4 0.4 11.0

Price 10.3 0.9 14.9 0.4 14.1 18.9 18.0 5.0

Yield 2.4 1.9 1.2 1.0 1.1 0.3 0.3 5.5

Appendix 3

31

Table A3.4: Cropping Patterns With and With-Out the Project (hectare [ha])
Total Project Area With Increment Project 4,583.0 3,070.6 4,399.7 504.1 1,510.6 424.4 1,341.0 260.4 11,510.8 3,933.0 591.5 3,775.0 425.8 2,045.2 339.1 749.2 67.0 7,992.8 8,516.0 3,662.1 8,174.7 929.9 3,555.8 763.5 2,090.2 327.4 19,503.6 229% 1,653.0 1,480.6 1,841.7 307.1 543.6 211.4 1,128.0 228.4 5,740.8 429.0 (14.5) 1,709.0 48.8 225.2 175.1 585.2 18.0 2,746.8 (2,082.0) (1,229.0) (312.0) (967.0) (197.0) (197.0) (16.0) (2,918.0) 1,466.1 2,321.7 43.9 (198.2) 189.5 1,516.2 230.4 5,569.6 65% Amount per 1 ha Farm Without With Increment Project Project 0.34 0.19 0.30 0.02 0.11 0.03 0.03 0.00 0.68 0.41 0.07 0.24 0.04 0.21 0.02 0.02 0.01 0.62 0.24 0.00 0.14 0.04 0.11 0.02 0.02 0.00 0.34 1.00 0.26 0.69 0.10 0.44 0.07 0.07 0.01 1.64 164% 0.54 0.36 0.52 0.06 0.18 0.05 0.16 0.03 1.35 0.46 0.07 0.44 0.05 0.24 0.04 0.09 0.01 0.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.43 0.96 0.11 0.42 0.09 0.25 0.04 2.29 229% 0.19 0.17 0.22 0.04 0.06 0.02 0.13 0.03 0.67 0.05 0.00 0.20 0.01 0.03 0.02 0.07 0.00 0.32 -0.24 0.00 -0.14 -0.04 -0.11 -0.02 -0.02 0.00 -0.34 0.00 0.17 0.27 0.01 -0.02 0.02 0.18 0.03 0.65 65%

Item A. Irrigated Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total B. Partially Irrigated Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total C. Rainfed Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total D. Total Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total Cropping Intensity (%)

Without Project

2,930.0 1,590.0 2,558.0 197.0 967.0 213.0 213.0 32.0 5,770.0 3,504.0 606.0 2,066.0 377.0 1,820.0 164.0 164.0 49.0 5,246.0 2,082.0 1,229.0 312.0 967.0 197.0 197.0 16.0 2,918.0 8,516.0 2,196.0 5,853.0 886.0 3,754.0 574.0 574.0 97.0 13,934.0 164%

32

Appendix 3

Table A3.5: Financial Revenue on a Typical One Hectare (ha) Farm (Constant 1998 NRs)
Amount per 1 ha Farm With Project Net Rev. Net ha per ha Revenue 0.54 0.36 0.52 0.06 0.18 0.05 0.16 0.03 1.35 0.46 0.07 0.44 0.05 0.24 0.04 0.09 0.01 0.94 1.00 0.43 0.96 0.11 0.42 0.09 0.25 0.04 2.29 229%

Item A. Irrigated Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total B. Partially Irrigated Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total C. Rainfed Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total D. Total Area Rice (Spring) Rice (Monsoon) Wheat Maize Mustard Lentil Vegetable (potato) Total Cropping Intensity (%)

ha 0.34 0.19 0.30 0.02 0.11 0.03 0.03 0.00 0.68 0.41 0.07 0.24 0.04 0.21 0.02 0.02 0.01 0.62 0.24 0.14 0.04 0.11 0.02 0.02 0.00 0.34 1.00 0.26 0.69 0.10 0.44 0.07 0.07 0.01 1.64

Without Project Net Rev. Net per ha Revenue

Increment Net ha Revenue 0.19 0.17 0.22 0.04 0.06 0.02 0.13 0.03 0.67 0.05 (0.00) 0.20 0.01 0.03 0.02 0.07 0.00 0.32 (0.24) (0.14) (0.04) (0.11) (0.02) (0.02) (0.00) (0.34) 0.17 0.27 0.01 (0.02) 0.02 0.18 0.03 0.65 65%

4,675.0 4,675.0 875.0 (1,287.5) 1,888.0 563.0 15,985.0

872.9 1,404.3 20.2 (146.2) 47.2 14.1 60.1 2,272.5

8,460.8 8,460.8 2,270.0 1,497.5 1,769.0 2,563.0 29,440.0

3,050.7 4,371.2 134.4 265.6 88.2 403.6 900.2 9,213.8

2,177.8 2,966.9 114.1 411.8 40.9 389.5 840.1 6,941.3

2,590.0 2,590.0 1,075.0 (1,805.0) 849.0 1,408.0 8,497.0

184.3 628.3 47.6 (385.8) 16.3 27.1 48.9 566.8

7,355.0 7,355.0 1,810.0 980.0 768.0 1,408.0 24,725.0

510.9 3,260.3 90.5 235.4 30.6 123.9 194.5 4,446.0

326.6 2,632.0 42.9 621.1 14.2 96.8 145.6 3,879.2

4,132.0 4,132.0 530.0 180.0 440.0 820.0 1,620.0

596.3 19.4 20.4 10.2 19.0 3.0 668.4

4,132.0 4,132.0 530.0 180.0 440.0 820.0 1,620.0

(596.3) (19.4) (20.4) (10.2) (19.0) (3.0) (668.4)

1,057.2 2,628.9 87.2 (511.5) 73.8 60.2 112.0 3,507.7

3,561.6 7,631.5 224.9 501.0 118.7 527.5 1,094.7 13,659.9

2,504.4 5,002.6 137.6 1,012.5 45.0 467.3 982.7 10,152.2

164%

Appendix 3

33

Table A3.6: Economic Cash Flow (1998 Constant Dollars) ($'000)

Incremental Economic Benefitsb Net Economic Benefits (w/out sunk costs)

Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Investment Cost 795,867.9 781,683.8 1,733,024.0 55,504.4 338,337.0 1,165,270.0 828,734.7 2,787,875.6 1,625,188.2 2,858,072.2 936,521.0

O&M of Civil Worksa

Total Costs 779,950.5 766,050.1 1,698,363.5 54,394.3 307,886.6 1,060,395.7 758,525.8 2,544,457.1 1,496,884.1 2,624,913.5 887,038.1 38,322.0 38,322.0 38,322.0 38,322.0 82,094.7 70,328.4 144,545.1 102,963.9 150,497.5 80,462.7 45,986.4 45,986.4 45,986.4 45,986.4 89,759.1 77,992.8 152,209.5 110,628.3 158,161.9 88,127.1 57,628.1 53,269.8 38,608.3 30,061.3 15,030.7

4,377.3 7,490.4 17,962.9 24,067.8 34,804.0 38,322.0 38,322.0 38,322.0 38,322.0 82,094.7 70,328.4 144,545.1 102,963.9 150,497.5 80,462.7 45,986.4 45,986.4 45,986.4 45,986.4 89,759.1 77,992.8 152,209.5 110,628.3 158,161.9 88,127.1 57,628.1 53,269.8 38,608.3 30,061.3 15,030.7

126,215.1 279,086.3 689,041.7 1,060,937.2 1,609,504.9 1,953,743.3 2,159,247.2 2,209,966.3 2,209,966.3 2,209,966.3 2,209,966.3 1,921,404.6 1,921,404.6 1,921,404.6 1,921,404.6 1,921,404.6 2,509,870.1 2,509,870.1 2,509,870.1 2,509,870.1 2,509,870.1 2,509,870.1 2,509,870.1 2,509,870.1 2,509,870.1 2,223,183.8 2,019,293.9 1,333,405.1 933,567.1 230,408.2

(1,424,408.54) (1,060,395.71) (632,310.71) (2,265,370.88) (807,842.45) (1,563,976.31) 722,466.79 1,915,421.30 2,120,925.15 2,171,644.34 2,171,644.34 2,127,871.59 2,139,637.91 1,776,859.47 1,818,440.70 1,770,907.08 1,840,941.89 1,875,418.21 2,463,883.73 2,463,883.73 2,463,883.73 2,420,110.98 2,431,877.29 2,357,660.59 2,399,241.82 2,351,708.20 2,421,743.01 2,165,555.75 1,966,024.12 1,294,796.82 903,505.79 215,377.49 16.0% 2,386,889.56

EIRRc ENPV at 12% O&M = operations and maintenance.

a

Civil Works O&M calculated at $5 per ha annually (rising to $6 after 10 years and $7 after 20 years) plus 50 per ha for more substantial replacement costs in the 10th and 20th years for structures. Economic benefits for years 1994-2004 are at year 2000 prices; 2005-2009 at year 2005 prices; and 2010 and beyond at 2010 prices --- all in 1998 constant dollars. Benefits are phased in over three years. Not including sunk costs of 1988-91 TA consultancy --- i.e. prior to the 1992 reformulation. Those consultancy costs had nothing to do with the project as reformulated. The remaining pre-1992 costs, however, included various Government expenditures, construction of project offices, etc. Those nonconsultancy costs remain in the cash flow. The 1992 reformulation is used as the beginning date --summing 1988 through 1992 costs into 1992.

34

Appendix 3

Table A3.7: Economic Sensitivity Analysis

Switching value (Risk level at which EIRR is just 12%)

EIRR

PPAR Base Case Risk Factors: Incremental Benefits generally decrease 20% International rice price drops 20% Cropping Intensity increment 20% less O&M costs double Life of project shortened from base case of 25 years 15 years 10 years Previous EIRR Calculations 1988 RRP of Originally Designed Project (Weir) 1992 Reformulated Project (FMISs) 1999 PCR Estimate

16.0%

12.9% 13.9% 14.3% 15.6%

Benefits decrease Int'l rice price drops Cl drops Factor increase

25% 36% 45% 9.3

14.9% 12.6%

Minimum years of life

15.9% 13.7% 18.3%

EIRR = Economic internal rate of return, PPAR = project performance audit report, O&M = operations and maintenance, RRP = report and recommendation of the President, FMIS = farmer managed irrigation system, PCR = project completion report.

Appendix 4

35

SOCIOECONOMIC IMPACTS A. Introduction

1. An impact study was conducted in conjunction with the Operations Evaluation Mission (OEM) through a field survey and interviews with beneficiaries in January 2002. Fourteen farmer-managed irrigation schemes (FMISs) were visited and interviewed B. Impact on the Socioeconomic Fabric

2. The project area population is largely a complex, multiethnic mix of inhabitants. While the area south of the East-West Highway (see Map) was originally inhabited by the indigenous Tharu, the northern part was populated by settlers from the hills. A blend of Tharu, Brahmins, Chetris, Rai, Gurung, and other minority ethnic communities now reside in the project area. As most of the rehabilitated FMISs under the Project date back to 1962/63 (some as old as 93 years), they helped unite the diverse ethnic communities to pursue a common goal. The survey indicates that entire farm families attend to system maintenance and canal de-silting. The Project has further consolidated this bond, thus directly improving social welfare in the project area. C. 3. Impact on Poverty Reduction To attain its objectives, the Tenth Plan has devised the following strategy; (i) (ii) (iii) In the Terai, surface and groundwater irrigation are to be made complementary and/or supplementary to each other. The agriculture and irrigation development program are to be coordinated in their implementation. Users and the community are to be encouraged and mobilized to manage irrigation.

4. The Country Operational Strategy of the Asian Development Bank (ADB) and the Government's strategy aim to reduce poverty by increasing agricultural productivity. Both strategies recognize that Terai has the most potential to increase productivity and, hence, reduce poverty. 5. The Project needs to be evaluated, in part, from the perspective of poverty reduction, although it was less of a focus for ADB during project conception and reformulation than now. The Project has been able to tackle poverty through the target beneficiary groups as confirmed during the field assessment. In the 14 FMISs1 visited, the average size of landholding stood at 0.30.5 hectares (ha). Only 5 of the 14 had an average landholding of more than 0.5 ha (but below 1.0 ha). Such a landholding pattern verifies that most households in the subprojects are small and marginal farming families. Any increase in productivity in the subprojects may be regarded as an important step to poverty reduction. The secretary of the East Chitawan Irrigation Users Coordination Association acknowledged that the Project helped bring down the poverty level to 66% from 90%. A sample survey also reflected that the area recorded an

The subprojects were Kathar Kulo, Jivanpur Kulo, Padariya Kulo, Pratappur Mau Kulo, Dhamaura Kulo, Badgaon Pipara Kulo, Sathi Bighe, Kankali Kulo, Chipleti Kulo, Bachhauli Kulo, Surtani Kulo, Pithuwa Kulo, Dharampur Kulo and Baireni Kulo.

36

Appendix 4

increase in major crop yields after project implementation. The reported increase stands as follows:2 Table A4.1: Yields of Major Crops (metric ton/hectare) Major Crops Early Paddy Monsoon Paddy Wheat Maize Mustard Before Project 3.50 3.18 2.36 1.88 0.91 After Project 3.75 3.95 2.87 2.09 1.43

Source: Field survey, January 2002.

6. The above findings demonstrate that irrigated agriculture has helped augment crop productivity and thereby increased the income of farm families. Average incremental income for small landholding households is estimated at about NRs7,600, an increase of 53%. All 31 farmers surveyed acknowledged that their food quality had improved. Farmers under the selected irrigation schemes had apparently gained in all spheres of their livelihood. 7. The survey recorded about 375 landless households in the 14 subprojects. Owing to increased cropping intensity, landless laborers in the subproject areas have more work. As all the subprojects were rehabilitation schemes, no farm family was displaced or resettled due to the Project. D. Impact on Womens Participation

8. ADB-funded irrigation projects have drawn women into irrigation system development and maintenance works through explicit provisions in the memorandum of agreement signedby the district irrigation officer and water users associations (WUAs). All subprojects have thus had at least two female members. The subprojects have selected women to sit on the WUA executive committee, the decision-making body. 9. Farmers surveyed also said that womens workload has been reduced due to the repair and rehabilitation of the canal systems, especially in the northern irrigation schemes, where most women repair, maintain, and operate the canals. As the burden for repairs has been decreased, the women can now use their time for other activities. 10. Still, a major problem remains: how actively women take part in decision making in meetings on the canals. For example, only one female member (of Pithuwa subproject WUA) attended the consultation meeting during OEM's field visit. Farmers admitted, however, that awareness of the need to involve women in development was on the rise. At all 14 subprojects surveyed, it was reported that, while womens participation in construction and operation and maintenance of the irrigation systems was promising, their participation in the executive committee was limited.

The economic analysis in Appendix 3 uses a lower range of yields from the rough average of a variety of sources (including this survey).

Appendix 4

37

11. Women have yet to play a proactive role in decision making in their WUAs. The sociocultural tradition of engaging female family members in hard physical work also limits their involvement, as was noted in Pratappur subproject. Conversely, women in hill areas are more used to arduous labor than women of the Terai. WUA committee members must move around for activities relating to their irrigation system, but sociocultural constraints restrict the movement of women outside their own villages. E. Enhanced Market Accessibility

12. The Project enhanced market accessibility through construction of canal crossings, culverts, and four bridges on the Dhungre River. Of 31 farmers interviewed, 19 use Parsa Bazaar as their main marketing center for agricultural produce as well as inputs. Bhandara is used by four farmers, Khurkhure by three , Pithuwa and Gadauli by two each, and Tandi by one. The Project has connected these market centers with the FMIS areas, facilitating transportation of goods and services to and from the hinterland of eastern Chitawan. Even public buses were observed plying the southern part of the command area. The Project has also made it easier for children to get to school on time during the rainy season. 13. The river embankment, fortified with a dike, stops flooding in FMIS command areas, and damage of crops. The embankment stabilization strip of forest has immensely strengthened the dike. F. Collective Action for Common Goals 14. Farmers collectively pursue their common goals through the East Chitwan Irrigation Users Coordination Association, for example, which speaks for all the FMISs of eastern Chitwan and is instrumental in the upkeep of its FMISs. G. Equity in Water Distribution

15. The Project has equitably distributed water. The Project has especially helped tail-end farmers, who now reportedly receive more water due to improved structures. Of the 14 FMISs surveyed, 12 said that the relationship between head and tail-end farmers was much better.